Annual Report 2023

8. Tangible assets

Accounting policies

Tangible assets are recognised at historical cost net of accumulated depreciation and impairment losses.

Historical cost includes the purchase price and any other expenditure that is directly attributable to the acquisition of the assets.

Gains and losses on disposals are determined by comparing proceeds with the carrying amount and are included in the operating profit.

Repairs and maintenance costs that do not extend the useful life of these assets are charged directly to the income statement during the financial period in which they are incurred. The cost of major store remodelling is included in the carrying amount of the asset when it is probable that additional economic benefits will flow to the Group. Whenever it is capitalised, the useful life of the asset is reviewed according with the characteristics of the remodelling. If the store is leased, the useful life does not exceed the period of the lease.

Depreciation

Depreciation is calculated by the straight-line method on acquisition cost, on a duodecimal basis, according to the useful life estimated for each class of asset. The most important annual depreciation rates, in percentage, are as follows:

 

 

%

Land

 

Not depreciated

Buildings and other constructions

 

2-4

Plants and machinery

 

10-20

Transport equipment

 

12.5-25

Office equipment

 

10-25

Whenever considered necessary, the estimated useful life of assets is reviewed and adjusted at the balance sheet date, taking into account the period in which the assets are expected to be used, but also taking into account potential limitations arising from climate change or associated legislation. Residual values are not taken into consideration, as it is the Group’s intention to use the assets until the end of their economic life.

8.1. Changes occurred during the year

2023

 

Land, buildings and other constructions1

 

Equipment and others

 

Work in progress

 

Total

Cost

 

 

 

 

 

 

 

 

Opening balance

 

4,986

 

2,843

 

337

 

8,166

Foreign exchange differences

 

295

 

166

 

39

 

500

Increases

 

436

 

424

 

251

 

1,111

Disposals and write offs

 

(46)

 

(153)

 

(0)

 

(200)

Transfers and reclassifications

 

97

 

69

 

(155)

 

10

Closing balance

 

5,767

 

3,348

 

472

 

9,587

Depreciation and impairment losses

 

 

 

 

 

 

 

 

Opening balance

 

1,928

 

1,898

 

-

 

3,826

Foreign exchange differences

 

95

 

90

 

-

 

185

Increases

 

219

 

279

 

-

 

498

Disposals and write offs

 

(33)

 

(147)

 

-

 

(180)

Transfers and reclassifications

 

(0)

 

5

 

 

5

Closing balance

 

2,209

 

2,125

 

 

4,334

Net value

 

 

 

 

 

 

 

 

As at 1 January 2023

 

3,058

 

944

 

337

 

4,340

As at 31 December 2023

 

3,558

 

1,224

 

472

 

5,253

1

Opening balance is net of impairment losses in land

2022

 

Land, buildings and other constructions1

 

Equipment and others

 

Work in progress

 

Total

Cost

 

 

 

 

 

 

 

 

Opening balance

 

4,699

 

2,649

 

228

 

7,575

Foreign exchange differences

 

(81)

 

(42)

 

(17)

 

(140)

Increases

 

359

 

320

 

208

 

887

Disposals and write offs

 

(27)

 

(126)

 

(4)

 

(157)

Transfers and reclassifications

 

35

 

42

 

(75)

 

1

Transfers from/to investment property

 

2

 

 

(3)

 

(1)

Closing balance

 

4,986

 

2,843

 

337

 

8,166

Depreciation and impairment losses

 

 

 

 

 

 

 

 

Opening balance

 

1,787

 

1,796

 

-

 

3,583

Foreign exchange differences

 

(23)

 

(23)

 

-

 

(46)

Increases

 

189

 

246

 

-

 

434

Disposals and write offs

 

(24)

 

(122)

 

-

 

(146)

Transfers and reclassifications

 

0

 

1

 

 

1

Closing balance

 

1,928

 

1,898

 

 

3,826

Net value

 

 

 

 

 

 

 

 

As at 1 January 2022

 

2,912

 

853

 

228

 

3,993

As at 31 December 2022

 

3,058

 

944

 

337

 

4,340

1

Opening balance is net of impairment losses in land

The increase in tangible assets correspond to the Group’s investments in new stores and distribution centres, and remodelling of the existing stores. The investment programme is detailed in “Focus on profitable growth”.

There are no financial charges capitalised in tangible fixed assets.

8.2. Guarantees

No tangible assets have been pledged as security for the fulfilment of bank or other obligations.

8.3. Tangible assets in progress

Amounts in work in progress are mostly related to the implementation and refurbishment of stores and distribution centres.

8.4. Impairment tests

As mentioned in note 2.5.1. to the Consolidated Financial Statements the Group analyses at the date of each balance sheet whether there are indicators of possible impairment losses on tangible assets.

If there are indicators of possible impairment losses on an asset or cash-generating unit, the Group calculates its value-in-use using the Discounted Cash Flow (DCF) method.

Value in use is supported by past performance and market development expectations, with five-year projections of future cash flows for each of the assets or cash-generating units, based on medium/long-term plans approved by the Board of Directors.

These estimates are made considering the following assumptions:

Business area

 

Discount rates

 

Growth rates in perpetuity

Retail in Portugal

 

7.0% (2022: 7.0%)

 

2.0% (2022: 1%)

Cash & Carry in Portugal

 

7.0% (2022: 7.0%)

 

2.0% (2022: 1%)

Retail in Poland

 

8.0% (2022: 8.0%)

 

2.0% (2022: 1.5%)

Health and Beauty Retail in Poland

 

9.0% (2022: 9.0%)

 

2.0% (2022: 1.5%)

Specialized Retail in Portugal

 

7.0% to 7.5% (2022: 7.0% to 7.5%)

 

2.0% (2022: 1.7%)

Retail in Colombia

 

11.0% (2022: 11.0%)

 

3.0% (2022: 1.5%)

The discount rates adopted corresponds to the required rate of return (hurdle rate), based on the weighted average cost of capital (WACC) estimated, to each of the business areas on the different geographies.

Growth rates in perpetuity considered was 2% for mature markets as Portugal and Poland, and 3% for the Colombian market, where there is considered to be greater growth potential.

Cash flows also include the expected annual growth in sales, margins and operating costs of each of the business areas, as well as possible impacts arising from risks associated with climate change, which at the present date are not considered materially relevant in the period under analysis.

The impairment tests carried out did not result in significant impairment losses, confirmed by the clear signs of recovery registered in all the Group’s businesses.

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