11   INTANGIBLE ASSETS
      Goodwill
R'000		 Trademarks
and
market-
related
intangibles
R'000		 Customer-
related
intangibles
and licence
agreements
R'000		 Total
R'000 		 
      2018                
      Carrying value at beginning of year                
      Cost  18 175  310 100  112 784  441 059    
      Accumulated amortisation  –  (82 435) (8 627) (91 062)   
      Net balance at beginning of year  18 175  227 665  104 157  349 997    
      Current year movements – cost                
      Additions  –  4 450  –  4 450    
      Additions through business combination (note 1.1) 163 758  121 385  –  285 143    
      Exchange rate adjustments  –  2  –  2    
      Cost movement for the year  163 758  125 837  –  289 595    
      Current year movements – accumulated amortisation                
      Charge for the year  –  (9 567) (1 080) (10 647)   
      Impairment(1)  –  (2 700) –  (2 700)   
      Exchange rate adjustments  –  (3) –  (3)   
      Accumulated amortisation movement for the year  –  (12 270) (1 080) (13 350)   
      Carrying value at end of year                
      Cost  181 933  435 937  112 784  730 654    
      Accumulated amortisation  –  (94 705) (9 707) (104 412)   
      Net balance at end of year  181 933  341 232  103 077  626 242    
    (1) Refer to Annexure G on impairments.          
      Goodwill
R'000		 Trademarks
and
market-
related
intangibles
R'000		 Customer-
related
intangibles
and licence
agreements
R'000		 Total
R'000 		 
      2017                
      Carrying value at beginning of year                
      Cost  12 580  234 971  109 904  357 455    
      Accumulated amortisation  –  (73 478) (7 907) (81 385)   
      Net balance at beginning of year  12 580  161 493  101 997  276 070    
      Current year movements – cost                
      Additions*  –  75 135  –  75 135    
      Additions through business combination (note 1.2) 5 595  –  2 880  8 475    
      Exchange rate adjustments  –  (6) –  (6)   
      Cost movement for the year  5 595  75 129  2 880  83 604    
      Current year movements – accumulated amortisation                
      Charge for the year  –  (8 962) (720) (9 682)   
      Exchange rate adjustments  –  5  –  5    
      Accumulated amortisation movement for the year  –  (8 957) (720) (9 677)   
      Carrying value at end of year                
      Cost  18 175  310 100  112 784  441 059    
      Accumulated amortisation  –  (82 435) (8 627) (91 062)   
      Net balance at end of year  18 175  227 665  104 157  349 997    
    * A payment of R4.3 million has been deferred and is included in Other Payables. During the 2018 financial year the deferred amount was paid. (note 23)
Amortisation is included in fixed and administrative expenses and impairments in non-trading expenses in the statement of comprehensive income.		          
    Goodwill acquired through business combinations and other intangible assets have been allocated to the following individual reportable segments for impairment testing. These segments represent the lowest level within the entity at which intangible assets are monitored for internal management purposes.
      OTC
R'000		 Consumer
R'000		 Prescription
R'000		 Hospital
R'000		 Other-
Shared
Services
R'000		 Southern
Africa
R'000		 India
and Rest
of Africa
R'000		 Total
R'000 		 
    2018                  
    Carrying amount of goodwill – – 163 758 12 580 5 595 181 933 – 181 933  
    Carrying amount of other intangibles 128 662 96 326 211 598 4 228 1 080 441 894 2 415 444 309  
     Indefinite useful lives 123 434 27 700 210 592 – – 361 726 2 347 364 073  
     Finite useful lives 5 228 68 626 1 006 4 228 1 080 80 168 68 80 236  
    Total 128 662 96 326 375 356 16 808 6 675 623 827 2 415 626 242  
    2017                  
    Carrying amount of goodwill – – – 12 580 5 595 18 175 – 18 175  
    Carrying amount of other intangibles 129 290 107 344 90 592 – 2 160 329 386 2 436 331 822  
     Indefinite useful lives 123 434 30 400 90 592 – – 244 426 2 347 246 773  
     Finite useful lives 5 856 76 944 – – 2 160 84 960 89 85 049  
    Total 129 290 107 344 90 592 12 580 7 755 347 561 2 436 349 997  
   

IMPAIRMENT TESTING OF INTANGIBLE ASSETS

The average remaining useful life for intangible assets with finite useful lives ranges between 1 to 8 years.

The recoverable amount of the goodwill and indefinite life intangible assets has been determined based on a value-in-use calculation using cash flow projections from financial budgets approved by senior management covering a 10-year period when management believes that products have a value-in-use of 10 years or more and that these projections, based on past experience, are reliable.

The discount rate applied to cash flow projections, before adjusting for risk, is 12.25% (2017: 12.36%) for the intangible assets. The cash flows beyond the 10-year period are discounted using a 0.5% long term growth rate (2017: 0.5%).

Key assumptions used in value-in-use calculations:

The calculation of value-in-use for all segments is sensitive to the following assumptions:

  • gross margin;
  • discount rates;
  • raw materials price inflation;
  • market share during the budget period; and
  • growth rate used to extrapolate cash flows beyond the budget period.

Gross margin

Gross margins are based on average values of between 27% to 50% in the three years preceding the start of the budget period. These are changed over the budget period for anticipated efficiency improvements, estimated changes to cost of production and raw materials, and selling prices.

Discount rates

Discount rates reflect management’s estimate of the risks. This is the benchmark used by management to assess operating performance and to evaluate future investment proposals. In determining appropriate discount rates, regard has been given to the yield on a 10-year government bond at the beginning of the budgeted period.

Raw materials price inflation

Estimates are obtained from published indices for the countries from which materials are sourced, as well as data relating to specific commodities. Forecast figures are used if data is publicly available, otherwise past actual raw materials price movements of 5% have been used as an indicator of the future price movements.

Market share assumptions

These assumptions are important because, as well as using industry data for growth rates, management assesses how the Group’s position, relative to its competitors, might change over the budget period. Market share is considered separately for each asset to determine the impact on the future cash flows.

Growth rate estimates

The growth rate used beyond the next 10-year period is management’s best estimate taking market conditions into account.

Sensitivity to change in assumptions

The implications of the key assumptions for the recoverable amount are discussed below:

Gross margin

A decreased demand and cost input inflation in excess of selling price increases can lead to a decline in the gross margin which could result in an impairment of intangibles.

Discount rates

A material increase in excess of 4% in the discount rate would result in impairment.

Raw materials price inflation

Management has considered the possibility of greater than forecast increases in raw material price inflation. If prices of raw materials increase greater than the forecast price inflation and the Group is unable to pass on, or absorb these increases through efficiency improvements, then the Group will have an impairment.

Market share assumptions

Although management expects the Group’s market share to be stable over the forecast period, a material decline in the market share would result in an impairment.

Growth rate estimates

Management acknowledges that new entrants into the market could have a significant impact on growth rate assumptions. This is not expected to have a material adverse impact on forecasts, but could yield a reasonably possible alternative to the estimated long-term growth rate which could result in impairment.