Britvic plc – Annual report – 30 September 2023
Industry: food and drink
4. Critical accounting judgements and key sources of estimation uncertainty (extract)
Critical accounting judgements (extract)
Franchise rights
Franchise rights represent franchise agreements acquired as part of the Britvic Ireland business combination which provides long-term rights to distribute certain soft drinks. These agreements were allocated a 35-year useful economic life at the time of acquisition based on a third-party assessment. As at 30 September 2023, these intangible assets have a remaining useful life of 19 years.
As at 30 September 2023, the franchise agreement itself had a remaining contract life of two years, which is less than the useful economic life. Management is required to assess whether the renewal of the franchise agreements is highly probable, or whether the contracts should be amortised over the remaining contractual life. The useful economic life has been determined on the basis of management’s judgement that the renewal of the franchise agreements, without significant cost, is highly probable. Evidence to support this conclusion is:
- Significant emphasis on maintaining a strong relationship with Pepsi, strengthened through the addition of PepsiCo products to Britvic’s portfolio in recent years
- Lack of alternative suppliers; and
- High barriers to entry to the Irish soft drinks bottling market
This is further supportable by Britvic having signed in 2020, a new and exclusive 20-year franchise bottling agreement with Pepsi for the production, distribution, marketing and sales of its soft drink brands in GB, which provides access to a portfolio of global brands, including Pepsi MAX, 7UP and now Rockstar. The GB agreement runs to December 2040.
Accounts examples 