55 Finsbury Food Group Annual Report & Accounts 2017


Notes to the Consolidated Financial Statements


10. Intangibles Intangible assets comprise customer relationships, brands and goodwill.


Goodwill £000


Cost at 27 June 2015


Adjustment in respect of prior year acquisition Additions


Cost at 2 July 2016


Transfer from tangible assets Additions


Cost at 1 July 2017


Amortisation at 27 June 2015 Charge for the year 2 July 2016


Amortisation/impairment at 2 July 2016 Charge for the year 1 July 2017


Amortisation/impairment at 1 July 2017 Net book value at 27 June 2015


Net book value at 2 July 2016 Net book value at 1 July 2017


71,704 1,754 -


73,458 - -


73,458 -


(4,290) (4,290) -


(4,290) 71,704


69,168 69,168


Business systems £000


- -


600 600 548


2,695 3,843


- - - - -


- 600 3,843


Brands and licences £000


3,683 - -


3,683 - -


3,683 (929)


(144)


(1,073) (143)


(1,216) 2,754


2,610 2,467


relationships £000


5,909 - -


5,909 - -


5,909 (296)


(395) (691) (394)


(1,085) 5,613


5,218 4,824


Customer


Total £000


81,296 1,754 600


83,650 548


2,695


86,893 (1,225)


(4,829) (6,054) (537)


(6,591) 80,071


77,596 80,302


The brand and customer relationships recognised were purchased as part of the acquisition of Fletchers Group of Bakeries in October 2014. They are considered to have finite useful lives and are amortised on a straight-line basis over their estimated useful lives of twenty years for brands and fifteen years for customer relationships. The intangibles were valued using an income approach, using Multi-Period excess earnings Method for customer relationships and Relief from Royalty Method for brand valuation. The amortisation of intangibles has been charged to administrative expenses in the Income Statement. There is no amortisation on business systems during the year as the systems are yet to be brought into use.


Goodwill has arisen on acquisitions and reflects the future economic benefits arising from assets that are not capable of being identified individually and recognised as separate assets. The goodwill reflects the anticipated profitability and synergistic benefits arising from the enlarged Group structure. The goodwill is the balance of the total consideration less fair value of assets acquired and identified. The carrying value of the goodwill is reviewed annually for impairment. The carrying value of all goodwill has been assessed during the year. A non-cash impairment of goodwill arising from an acquisition in 2007 was made during the previous year.


The Group tests goodwill for impairment on an annual basis, or more frequently if there are indications that the goodwill may be impaired. The recoverable amounts of the cash generating units are determined from value in use calculations. The key assumptions for the value in use calculations are the discount rate used for future cash flows and the anticipated future changes in revenue, direct costs and indirect costs. The assumptions used reflect the past experience of management and future expectations.


The Group prepares cash flow forecasts covering a five year period based on the detailed financial forecasts approved by management for the next three years with estimated growth and inflation of 3% (2016: 3%) and 3% (2016: 3%) respectively thereafter. The cashflows beyond this forecast are extrapolated to perpetuity using a nil growth rate on a prudent basis, to reflect the uncertainties of forecasting further than five years. Changes in revenue and direct costs are based on past experience and expectations of future changes in the market.


The revenue growth rate combines volume, mix and price of products. An inflation factor has been applied to costs of sales, variable costs and indirect costs and takes into consideration the general rate of inflation, movements in commodities, improvement in efficiencies from capital investment and operations and purchasing initiatives.


A pre-tax discount rate of 10% (2016: 10%) has been used in these calculations. The Group has considered the economic environment and higher level of return expected by equity holders due to the perceived risk in equity markets when selecting the discount rate. The discount rate used for each cash generating unit has been kept constant as the market risk is deemed not to be materially different between the different segments of the bakery sector, nor over time.


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