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NOTES TO THE FINANCIAL STATEMENTS (CONT.)

Indefinite life intangible asset - Brand valuation
On 27 November 2013, Specialty Fashion Group Limited acquired the business and net assets of Rivers (Australia)
Pty Ltd (“Rivers”). Rivers is an iconic Australian brand and was acquired at a discount to the fair value of its net assets
due to a low purchase price. An independent valuation of the collective trademarks, trade names and brand names
acquired as part of the transaction resulted in a brand valuation of $8.5 million being recognised as part of the net
assets acquired. The calculation of the brand’s value is based on fair value less costs of disposal. This amount has been
assessed as an indefinite life intangible asset as there is no foreseeable limit to the cash flows generated by the brand.
The fair value was determined independently using the Relief from Royalty (“RFR”) valuation method at acquisition
date. The calculations reflect a five year revenue forecast and requires the use of assumptions, including estimated
royalty rates; tax rate; estimated discount rates; and expected useful life.
The five year revenue forecast is based on a budget that has been approved by the Board and projected for a further
four years based on an estimated growth rate of 3.0% (2014: 3.0%). As part of the impairment test for brand valuation,
management assesses the reasonableness of growth rate assumptions by reviewing revenue projections against
actual revenue.
The royalty rates used in the valuation model are based on rates observed in the market. Royalty rates applied in the
valuation model for the current year: 1.0% to 1.2% (2014: 1.0% to 1.2%).
The tax rate applied in the valuation model is based on the corporate tax rate in Australia: 30.0% (2014 30.0%).
The discount rate applied to present value projected cash flows (or notional cash flows) was derived by making appropriate
adjustments to the weighted average cost of capital (“WACC”) and expanded capital asset pricing model (“CAPM”). The
WACC calculates the rate of return that provides both debt holders and equity holders with a rate of return adequate
to compensate them for providing debt and equity capital into an investment with a risk profile comparable to that of
Rivers. The discount rate range applied in the current year: 19.6% to 21.6% (2014: 19.6% to 21.6%).
There has been no impairment loss recognised in relation to the brand (2014: nil).

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