CHAPTER 10:Assets

• 10.2EQUITY

• 10.2.1Accounting policies relating to intangible assets

Goodwill

Goodwill that arises on the acquisition of subsidiaries is presented with intangible assets.

Goodwill is carried at cost less accumulated impairment losses and is not subject to amortisation, but rather tested annually for impairment or more frequently if events or changes in circumstances indicate a potential impairment.

For purposes of impairment testing, goodwill acquired in a business combination is allocated to each CGU, or group of CGUs, that is expected to benefit from the synergies of the business combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which goodwill is monitored for internal management purposes. Goodwill is monitored at the operating segment level.

The carrying value of the CGU containing the goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs of disposal. Any impairment is recognised immediately as an expense and is not subsequently reversed.

Patents, licenses and customer contracts

Patents, licenses and customer contracts are Intangible assets with a finite useful life and are carried at cost less accumulated amortisation and accumulated impairment losses.

Amortisation is charged to profit or loss on a straight line basis over the estimated useful lives of the finite useful life assets from the date available for use. The amortisation method, useful lives and residual values are reviewed at each reporting date and adjusted where appropriate. The estimated useful lives of intangible assets with a finite useful life are:

Impairment testing is undertaken when circumstances indicate that the carrying amount may not be recoverable.

• 10.2.2Significant judgements and assumptions made by management in applying the related accounting policies

Impairment testing of goodwill

In allocating goodwill, the Cennergi group of companies has been identified as a single CGU to which the goodwill of R521 million has been allocated.

The Cennergi CGU was assessed for impairment as at 31 December 2022 and 31 December 2021 as a result of the requirement to test goodwill annually for impairment. In 2022, the poor wind conditions experienced were considered as a potential indicator of impairment. Management have concluded that the poor wind conditions in 2022 represents an anomaly that is not representative of the long term expected wind conditions. The compounding effect of the tariff increases of 2022, which was driven by the CPI hike, curbed the impacts of the poor wind conditions. There were no other indicators of impairment for the Cennergi CGU during the reporting period. No impairment charge was required as the recoverable amount, determined using fair value less costs of disposal, exceeded the carrying amount on 31 December 2022.

The recoverable amount was derived using a DCF model, which is a Level 3 valuation technique in terms of the fair value hierarchy. The valuation has been performed in South African rand using the following information:

• Approved financial budgets covering a five year period
• Project financing models post the five year budget period up to the end of the contractual life of the power purchase agreements
• Extrapolated results for a further post contractual 10 year period, representing the expected additional economic life for which the wind farms are expected to operate.

The key assumptions made by management (expressed in nominal terms) and management's approach to determining these key assumptions is summarised as follows:

Management considered and assessed reasonably possible changes to the key assumptions and have not identified any instances that could cause the carrying amount of the Cennergi CGU to exceed its recoverable amount.

• 10.2.3Intangible assets composition and analysis