Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary, associate or jointly controlled entity at the date of acquisition. Goodwill is attributable to synergies that the Group expects to derive from the transaction. If the cost of acquisition is less than the net assets of the subsidiary acquired, the difference is recognised directly in the income statement. Goodwill on the acquisition of subsidiaries is included in “goodwill” in the statement of financial position. Goodwill on acquisitions of associates and joint ventures is included in “investments in and loans to associates and joint ventures”.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment is recognised.
Separately recognised goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. |
Critical accounting estimates and assumptions
Assessment of goodwill for impairment
The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates. |
| |
2016
R’000 |
|
2015
R’000 |
|
| Year ended 31 May |
|
|
|
|
| Opening carrying amount |
606 609 |
|
423 384 |
|
| Acquisition of subsidiary |
— |
|
185 967 |
|
| Disposal of subsidiary |
(3 169) |
|
(2 742) |
|
| Closing carrying amount |
603 440 |
|
606 609 |
|
| At 31 May |
|
|
|
|
| Cost |
615 568 |
|
618 737 |
|
| Accumulated impairments |
(12 128) |
|
(12 128) |
|
| Carrying amount |
603 440 |
|
606 609 |
|
The carrying amount of goodwill and intangible assets was reduced to their recoverable amounts through recognition of an impairment loss when required 2016: nil (2015: nil).
The cash-generating units to which goodwill is allocated are presented below:
| |
2016
R’000 |
|
2015
R’000 |
|
| Blue Label Distribution Proprietary Limited |
36 364 |
|
36 364 |
|
| Cellfind Proprietary Limited |
21 406 |
|
21 406 |
|
| Viamedia Proprietary Limited |
185 967 |
|
185 967 |
|
| Blue Label Connect Proprietary Limited* |
205 749 |
|
205 749 |
|
| The Prepaid Company Proprietary Limited |
62 113 |
|
62 113 |
|
| Panacea Mobile Proprietary Limited |
6 883 |
|
6 883 |
|
| TicketPros Proprietary Limited |
5 104 |
|
5 104 |
|
| Datacel Group** |
79 854 |
|
83 023 |
|
| |
603 440 |
|
606 609 |
|
| * |
Formerly known as Retail Mobile Credit Specialists Proprietary Limited. |
| ** |
Velociti Proprietary Limited, a wholly owned subsidiary of Datacel, was disposed of during the year. Refer to note 2.2. |
Goodwill is allocated to cash-generating units for the purpose of impairment testing.
The recoverable amount has been determined based on value-in-use calculations. These calculations use cash flow projections based on financial budgets approved by the Board of Directors for the forthcoming year and forecasts for up to five years which are based on assumptions of the business, industry and economic growth. Cash flows beyond this period are extrapolated using terminal growth rates, which do not exceed the expected long-term economic growth rate.
The key assumptions used for the value-in-use calculations are as follows:
| |
2016 |
|
2015 |
|
| |
Terminal
growth rate
% |
|
Discount
rate
% |
|
Terminal
growth rate
% |
|
Discount
rate
% |
|
| Blue Label Distribution Proprietary Limited |
4.2 |
|
17.54 |
|
4.2 |
|
17.33 |
|
| Cellfind Proprietary Limited |
4.0 |
|
19.24 |
|
4.0 |
|
18.88 |
|
| Viamedia Proprietary Limited |
4.0 |
|
17.74 |
|
4.0 |
|
17.38 |
|
| Blue Label Connect Proprietary Limited* |
4.2 |
|
17.54 |
|
4.2 |
|
17.33 |
|
| The Prepaid Company Proprietary Limited |
4.5 |
|
16.54 |
|
4.5 |
|
16.33 |
|
| Panacea Mobile Proprietary Limited |
4.0 |
|
19.24 |
|
4.0 |
|
18.88 |
|
| TicketPros Proprietary Limited |
4.2 |
|
17.54 |
|
4.2 |
|
17.33 |
|
| Datacel Group |
2.5 |
|
22.23 |
|
2.5 |
|
21.87 |
|
| * Formerly known as Retail Mobile Credit Specialists Proprietary Limited. |
The discount rates used are post-tax and reflect specific risks relating to the relevant companies. The growth rate is used to extrapolate cash flows beyond the budget period. The growth rates were consistent with publicly available information relating to long-term average growth rates for each of the markets in which the cash-generating units operate.
For The Prepaid Company Proprietary Limited, Blue Label Connect Proprietary Limited, Blue Label Distribution Proprietary Limited, TicketPros Proprietary Limited, Cellfind Proprietary Limited and Panacea Mobile Proprietary Limited if one or more of the inputs were changed to a reasonable possible alternative assumption, there would be no impairments that would have to be recognised.
For the remaining balances of goodwill, the discount rate used when calculating the value-in-use calculations would need to be increased by the following amounts before any impairments would need to be recognised:
| |
Increase in
discount
rate
% |
|
| Viamedia Proprietary Limited |
3.4 |
|
| Datacel Group |
2.9 |
|
The goodwill balances did not result in impairment charges for the year when compared to recoverable amounts
(2015: nil). |