IFRS 3 para 52 (b), B55(a), contingent payments treated as remuneration, reconciliation of outstanding balances

RPC Group Plc – Annual report – 31 March 2017

Industry: manufacturing



IFRS 3 ‘Business Combinations’ requires that the consideration for an acquisition is recorded at fair value. Where contingent consideration is part of the acquisition cost then management have estimated the fair value of the amount payable. Contingent consideration is revalued each reporting period according to the latest forecasts of the acquired business based on the terms of the earn-out arrangement. Where deferred consideration is part of an acquisition cost then it is recorded and held on the balance sheet at amortised cost. Where payment is dependent on the recipient remaining in employment, the payment will be accounted for as post-acquisition remuneration as required under IFRS 3 and be classified as exceptional remuneration expense over the earn-out period. This is also held at fair value and revalued each reporting period.

Assets and liabilities must also be recognised at fair value on acquisition. The identification and measurement of contingent liabilities, out-of-market contracts and intangible assets are key areas of judgement. For intangible assets appropriate valuation methods are used, including royalty rates and the excess earnings model to recognise the fair value of the assets acquired. More details are set out in note 25.

  1. NON-UNDERLYING ITEMS (extracts)




Acquisition costs include the transactional acquisition costs, primarily of BPI, Letica, ESE and Plastiape. Integration costs relate to the integration of the Promens, GCS and BPI businesses into the RPC organisation, including related restructuring and closure costs. Following closure and restructuring announcements, the buildings at Pulheim, Germany; Kerkrade, Netherlands and Envases, Spain, have been impaired, together with plant and equipment at other sites resulting in a charge of £12.0m for impairment loss on property, plant and equipment. Remuneration charge on deferred consideration includes the provision for remuneration earned by the shareholders of Ace, Letica and Strata, who must remain as employees of the Group for the duration of the earn-out period to qualify for the remuneration. This year a further write back to deferred consideration of £23.0m has been made to reflect the current view of the final payment that will be made in respect of the Ace acquisition. Other exceptional items for the year include £1.4m in respect of start-up costs for a project in Brazil.



Deferred and contingent consideration relates to the acquisition of Ace. During the year a final payment was made in respect of Helioplast.

The acquisition remuneration is for vendors of Ace, Letica, Strata Products, Innocan and Synergy who remain in employment and is therefore classified as post-acquisition remuneration under IFRS 3. All payments are linked to the performance of the respective businesses measured against an EBITDA growth target over various periods. These are held at fair value estimated using Level 3 inputs described in note 21.

During the year a write back of £23.0m has been made to the Ace deferred consideration to reflect the current view of the final payment that is due to be made in May 2018.