Brexit risks, car manufacturer, impairment in the year following impairment tests that take account of potential impacts of certain events including Brexit

Jaguar Land Rover Automotive plc – Annual report – 31 March 2019

Industry: automotive

OUR PRINCIPAL RISKS (extract 1)
Changes to our principal risks during Fiscal 2018/19 (extract)
Our principal risks change as our business evolves in a dynamic external environment. In Fiscal 2018/19, we have focused more emphasis on the potential impacts within the global economic and geopolitical environment – in particular, relating to Brexit and the downturn in the China market.

OUR PRINCIPAL RISKS (extract 2)

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18 Intangible assets
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IMPAIRMENT TESTING
The directors are of the view that the operations of the Group represent a single cash-generating unit (“CGU”). Management performed an impairment assessment as at 31 March 2019. The recoverable value was determined based on value in use (“VIU”), which was marginally higher than the fair value less cost of disposal (“FVLCD”) of the relevant assets of the CGU. The recoverable amount was lower than the carrying value of the CGU, and this resulted in an exceptional impairment charge of £3,105 million being recognised within “Other expenses” as at 31 March 2019.

The directors’ approach and key (unobservable) assumptions used to determine the Group’s CGU VIU were as follows:

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The Group has considered it appropriate to undertake the impairment assessment with reference to the latest business plan, which includes a five-year cash flow forecast as approved by the JLR plc Board. The growth rates used in the VIU calculation reflect those inherent within the Group’s business plan as approved by the JLR plc Board, which is primarily a function of the Group’s cycle plan assumptions, past performance and management’s expectation of future market developments through to 2023/24. The future cash flows consider potential risks given the current economic environment and key assumptions such as sales volume forecasts and margins. The Group has assessed the potential impacts of changes, if any, in tax and treaty arrangements globally, including Brexit and the US tariffs. The potential impact of reasonably possible outcomes of these events has been included in the VIU calculations.

The cash flows for the year 2023/24 are extrapolated into perpetuity assuming a long-term growth rate as stated above, which is set with reference to weighted-average GDP growth of the countries in which the Group operates.

The impairment loss of £3,105 million has been allocated initially against goodwill of £1 million and the relevant assets, and thereafter the residual amount has been allocated on a pro-rated basis. This has resulted in £1,396 million allocated against tangible assets and £1,709 million allocated against intangible assets.

SENSITIVITY TO KEY ASSUMPTIONS
The changes in the following table to assumptions used in the impairment review would, in isolation, lead to an increase to the aggregate impairment loss recognised as at 31 March 2019 (although it should be noted that these sensitivities do not take account of potential mitigating actions):

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17 Property, plant and equipment 

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