Indefinite life intangibles

During the current period, the prior year acquisition UDS was subject to a PPA review. The PPA review resulted in the recognition of an indefinite life intangible asset, beyond visual line of sight license in the amount of R457 million and the de-recognition of goodwill, provisionally recognised in the prior year, in the amount of R330 million. Goodwill amounting to R149 million was recognised based on the PPA performed. The prior year comparative consolidated statement of financial position has been restated accordingly. The following key assumptions were applied as part of the PPA process:

• the multi period excess earnings method ("MEEM") has been used to perform the valuation of the intangible assets. MEEM measures the excess after tax cash flows attributable to the intangible asset being valued after providing for the appropriate returns on other identifiable assets;
• revenues attributable to the business were identified and valued with growth rates applied between the range 22% – 28%, based on historical information;
• an average discount rate of 24.2% was assumed in future cash flows;
• net working capital was determined based on historical actual figures and ranged between 8% – 12% of revenue going forward; and
• future capex is assumed to increase by 5.4% of revenue going forward.

During the current financial year, Future Cleaning was purchased with an effective date of 1 July 2019. Management performed a PPA on the date that effective control transferred to the Group. The following key assumptions were applied as part of the PPA process:

• an EBITDA multiple approach was used to determine the enterprise value;
• a discounted cash flow was used to value the intangible asset relating to customer contracts; and
• a revenue growth rate of 2% was applied, with a discount rate of 11% in the discounted cash flow.

At acquisition date and as part of the PPA process, the assets and liabilities were assessed to there fair values which approximated the carrying values. Consideration of R550 million was paid to acquire the business at 1 July 2019. As part of the PPA, intangible assets in the form of customer contracts to the total value of R236 million were identified and valued with a useful life of 20 years. Goodwill amounting to R296 million was recognised based on the PPA performed at acquisition date (refer note 13 Acquisition of businesses, subsidiaries and associates).

The Group recorded indefinite life brand name and license agreement intangible assets in the amount of R3 353 million and R606 million respectively on recognition of Adcock Ingram as a subsidiary (refer note 28 Subsidiaries). Indefinite life intangibles arising on previous acquisitions amount to R2 138 million, R762 million relating to Bidvest Commercial Products, R247 million relating to Branded Products and R1 129 million to Bidvest Services. The Plush acquisition (refer note 13 Acquisition of businesses, subsidiaries and associates) resulted in the recognition of a R235 million indefinite life intangible asset, the Plush brand. Both the existing indefinite life intangible assets and acquired indefinite life assets were subject to review for impairment at 30 June 2020 using the value-in-use method, which resulted in the Group booking a current year impairment charge of R278 million for indefinite life intangibles acquired in prior periods.

On acquisition and on recognition as a subsidiary definite life intangible assets

On recognition of Adcock Ingram as a subsidiary the Group raised an definite life intangible asset, license agreements, of R188 million, with an expected life of 20 years (refer note 28 Subsidiaries). On acquisition of Future Cleaning and New Frontiers the Group recognised definite life intangible assets, customer relationships, in the amount of R236 million and R25 million respectively (refer note 13 Acquisition of businesses, subsidiaries and associates).

Impairment of intangible assets

The recoverable amounts of the CGUs were determined using the value-in-use method in order to identify impairment of related intangibles. In applying the value-in-use method the following assumptions were used:

• discounted cash flow performed at a CGU level;
• pre-tax discount rates determined per CGU within the range of 7% – 15%;
• growth rate per CGU within the range of 2% – 7%;
• net working capital increase based on expected growth rates in revenue; and
• capex based on maintaining the capital base.

Impairments of intangible assets were identified in the Bidvest Commercial Products (R183 million), Bidvest Branded Products CGUs (R 95 million) and other (R44 million).

The amortisation and impairment charges are included in operating expenses in the consolidated income statement (refer note 2 Profit before finance charges and associate income).