IAS 38 paras 94-96, intangibles assigned useful life longer than contractual period as expected to be renewable without significant cost

Britvic plc – Annual report – 30 September 2020

Industry: food and drink

4. Key judgements and estimates (extract)

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 2020 these intangible assets have a remaining useful life of 22 years. As at 30 September 2020 the franchise agreement itself had a remaining contract life of 5 years which is less than the useful economic life. The useful economic life has been determined on the basis 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 of entry to the Irish soft drinks bottling market.

This is further supportable by the post balance sheet event (note 35) whereby in October 2020 Britvic signed 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.

35. Post balance sheet events

In October 2020 Britvic signed 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.