2018 
R’000 		    2017 
R’000 		   
8.  ACQUISITIONS, DISPOSALS AND GOODWILL             
8.1  Acquisitions             
   Property, plant and equipment  (301 443)    (264 945)   
   Intangible assets  (26 283)    (16 924)   
   Deferred taxation  3 914     (56 666)   
   Interest in associates  (7 302)    (89)   
   Investments and advances  (4 548)    (6 920)   
   Inventories  (328 740)    (126 784)   
   Trade and other receivables  (317 441)    (353 649)   
   Cash and cash equivalents  25 071     26 353    
   Borrowings  271 219     505 495    
   Trade and other payables and provisions  383 102     611 517    
   Taxation  (1 263)    11 509    
   Net tangible fair value of (assets) liabilities  (303 714)    328 897    
   Goodwill  (1 142 558)    (1 417 544)   
   Gain from bargain purchase  4 222     –    
   Non-controlling interest  12 283     (53 626)   
   Total value of acquisitions  (1 429 767)    (1 142 273)   
   Less cash and cash equivalents assumed  (25 071)    (26 353)   
   Net movements in vendors for acquisition and puttable non-controlling interest liabilities  524 768     (100 451)   
   Costs incurred in respect of acquisitions  (35 541)    (46 084)   
   Net amounts paid  (965 611)    (1 315 161)   
 

The group made a number of small acquisitions during the year namely, Festival City Food & Wine (Australia), Goldline Distributors Pty Limited (Australia), Pier 7 Holding GmbH (Germany), Frustock Foodservice, S.A. (Portugal), Cárnicas Saenz, S.L. (Spain), Jilin Food Service Limited (Mainland China), Linson Global Seafood Trading Limited (Hong Kong), D&D S.p.A. (Italy), Van de Mheen Foodservices B.V. (Netherlands), Prepared Produce (New Zealand), Aeroshield (Malaysia), Famous Fresh (Pty) Limited (South Africa) and Efe Daĝitim ve Pazarlama A.S,. (Turkey).

These acquisitions form part of the group’s strategic expansion plans in the international foodservice industry. Goodwill arose on the acquisitions as the anticipated value of future cash flows that were taken into account in determining the purchase consideration exceeded the net assets or net liabilities acquired at fair value. The acquisitions have enabled the group to expand its range of complementary products and services and, as a consequence, has broadened the group’s base in the marketplace.

There were no significant contingent liabilities identified in the businesses acquired.

The impact of these acquisitions on the group’s results can be summarised as follows:

   D&D 
R’000 		 Pier7 
R’000 		 Other 
smaller 
acquisitions 
R’000 		 Total 
R’000 		   
Property, plant equipment  15 713  160 836  124 894  301 443    
Intangible assets  –  2 975  23 308  26 283    
Deferred taxation  –  5 878  (9 792) (3 914)   
Interest in associates  –  –  7 302  7 302    
Investments and loans  –  –  4 548  4 548    
Inventories  83 657  57 632  187 451  328 740    
Trade and other receivables  31 031  98 975  187 435  317 441    
Cash and cash equivalents  851  (31 912) 5 990  (25 071)   
Borrowings  –  (153 605) (117 614) (271 219)   
Trade and other payables  –  (130 199) (252 903) (383 102)   
Taxation  –  4 291  (3 028) 1 263    
Total net identifiable assets  131 252  14 871  157 591  303 714    
Date acquired  December 4 2017  July 3 2017  various       
Contribution to results for the year                
Revenue  670 542  954 762  1 698 240  3 323 544    
Trading profit (loss) 10 599  (21 644) 33 561  22 516    
Contributions to results for the year if the acquisitions had been effective on July 1 2017                
Revenue  1 071 016  954 762  2 527 923  4 553 701    
Trading profit (loss) 15 300  (21 644) 63 282  56 938    
      2018 
R’000 		    2017 
R’000 		   
8.2  Disposals of subsidiaries and associates             
   Proceeds on disposal of interest in subsidiaries and associates:             
   Property, plant and equipment  –     78 879    
   Goodwill  –     23 184    
   Deferred taxation  –     (69)   
   Investments and advances  16 946     21 692    
   Inventories  –     103 925    
   Trade and other receivables  9 050     129 468    
   Cash and cash equivalents  –     112 504    
   Trade and other payables and provisions  –     (164 205)   
   Taxation  –     (2 554)   
   Fair value of net assets  25 996     302 824    
   (Loss) profit on disposal of interest in subsidiaries  (9 050)    375 790    
   Cash and cash equivalents disposed of  –     (112 504)   
   Less: 50% of Chipkins Puratos sold  –     (136 299)   
   Net proceeds  16 946     429 811    
8.3  Goodwill             
   Goodwill arising on acquisition of a business is carried at cost, as established at the date of the acquisition of the business, less accumulated impairment losses. Goodwill is tested annually for impairment. For the purposes of impairment testing, goodwill is allocated to each of the group?s cash-generating units that are expected to benefit from the synergies of the business combination. Goodwill is monitored at an operating segment level.             
   Carrying value at beginning of year  12 791 153     13 184 782    
   Acquisition of businesses  1 142 558     1 417 544    
   Disposal of businesses  –     (23 184)   
   Impairment of goodwill  (200 216)    (176 174)   
   Exchange rate adjustments  805 789     (1 611 815)   
   Carrying value at end of year  14 539 284     12 791 153    
   The carrying value of goodwill was allocated to cash-generating units as follows:             
      Australasia  2 900 850     2 588 508    
      United Kingdom  2 681 221     2 655 455    
      Europe  7 694 720     6 318 324    
      Emerging Markets  1 262 493     1 228 866    
      14 539 284     12 791 153    
 

Goodwill acquired through business combinations, is allocated for impairment testing purposes to cash-generating units (CGU) which reflect how it is monitored for internal management purposes, namely the various segments of the group. The carrying amount of goodwill was subject to an annual impairment test using either the fair value less costs to sell method or the discounted cash flow method. The recoverable amount was determined by using the higher of the fair value less costs to sell and the discounted cash flow for each CGU.

The following goodwill impairments were recorded during the year:
– £8,2 million (R142,1 million) was recorded against goodwill relating to PCL Transport 24/7 Limited (2017: £9 million (R155,1 million); and
– BRL15 million (R58,1 million) was recorded against goodwill relating to Distribuidora E Importadora Irmaos Avelino Ltda (2017: nil).

Fair value less costs to sell method

The calculations used projected annualised earnings based on actual trading results. A price earnings multiple was applied to obtain the recoverable amount for each business unit. The earnings yields are considered to be consistent with similar companies within the industry and geographic segments. An average price earnings multiple of 12,1 (2017: 11,4) was used in the valuation of Europe, 11,5 (2017: 11,5) for United Kingdom, 13,0 (2017: 13,0) for Australasia, and 11,3 (2017: 11,7) for Emerging Markets.

Discounted cash flow method

The table below illustrates the weighted average cost of capital (WACC), cash flow growth, and terminal growth rates that were used in the discounted cash flow valuations for each of the CGUs.

  Pre-tax WACC rates   Cash flow growth rate   Terminal growth rate  
  2018   2017   2018   2017   2018   2017  
Australasia 6,2 – 7,0%   5,5 – 7,0%   3,0 – 7,0%   3,0 – 5,0%   1,5%   1,5%  
United Kingdom 6,0 – 12,0%   5,5 – 14,1%   3,0 – 5,0%   2,0 – 5,0%   1,0 – 1,5%   1,0 – 2,5%  
Europe 5,0 – 9,0%   5,2 – 10,5%   2,0 – 12,0%   3,0 – 12,0%   1,0 – 2,0%   1,0 – 2,0%  
Emerging Markets 7,5 – 19,9%   8,0 – 17,5%   2,0 – 15,0%   8,0 – 12,0%   2,0 – 2,5%   2,0%  

The discounted cash flow valuations were calculated using a period of five years (2017: five years).

With exception of the impairments noted for PCL Transport 24/7 Limited and Distribuidora E Importadora Irmaos Avelino Ltda, the other CGU valuations resulted in significant surpluses over carrying values of the CGUs and thus the directors believe that a possible change in the WACC, cash flow growth, terminal growth rates and PE multiples, would not result in an impairment of the carrying value of goodwill.

The valuation method is consistent with that used in the prior years and is considered a level 3 type valuation in accordance with IFRS 13 Fair Value measurement.