Impairments/reversal of impairments

The group reviews the carrying amounts of cash-generating units (CGUs) to which goodwill has been allocated for impairment at each reporting date. A review may be triggered during the financial year if indicators of impairment (suggesting that the carrying amount may be greater than the recoverable amount) are observed in the ordinary course of business.

Once an impairment has been recognised, no reversal of a previous impairment is processed in subsequent periods, even if the prospects of the impaired CGU improve.

Value-in-use calculations

The recoverable amount is determined based on the CGU’s value-in-use by using the discounted cash flow method over three years. Key assumptions relating to this valuation include the discount rate and cash flows used to determine the value-in-use.

Cash flows

Future cash flows are estimated based on local currency financial budgets approved by management, covering a three-year period and are extrapolated over the useful life of the assets, to reflect the long-term plans for the group, using an estimated growth rate for the asset. The estimated future cash flows and discount rates used are post-tax, based on an assessment of the current risks applicable to the asset and country in which it operates.

Discount rate

The weighted average cost of capital (WACC) is derived from a pricing model based on credit risk and the cost of the debt. The variables used in the model are established on the basis of management judgement and current market conditions. Management judgement is also applied in estimating the future cash flows of the CGU.

Impairments — 2016

During 2016, Hyprop acquired Ikeja City Mall (Lagos, Nigeria) and recognised USD1,3 million of goodwill. Management paid the additional amount due to an expectation of an increase in value of the shopping centre. Subsequent to the acquisition, the shopping centre was revalued at 30 June 2016 and increased in value by USD2,7 million (75% – USD2,0 million) confirming management’s initial assessment.

Based on the valuation of the shopping centre at 30 June 2016, management did not recognise an impairment of goodwill in 2016.

Impairments — 2017

Ikeja City Mall (Lagos, Nigeria) was valued at 31 December 2016 and based on this valuation, management recognised an impairment of goodwill in 2017. The impairment was largely due to a reduction in the independent valuation of the shopping centre.