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:
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:
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.
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.