16. Intangible assets

Goodwill

Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred, the amount of non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired. If the total of consideration transferred, non-controlling interest recognised and previously held interest measured at fair value is less than the fair value of the net assets of the subsidiary acquired, in the case of a bargain purchase - the difference is recognised directly in the income statement.

Gains and losses on the disposal of an entity or business include the carrying amount of goodwill relating to the entity or business sold. Goodwill is not amortised.

Client lists

Client lists, including client relationships, acquired by TMF Group have finite useful lives. Client lists are acquired as part of business combinations, recognised at their fair value at the date of the acquisition and subsequently amortised on a straight-line basis on the timing of projected cash flows of the contracts over their estimated life time (15 years). The useful lives and the amortisation methods are reviewed periodically and adjusted if appropriate.

Brands

The intangible asset relates to the ‘TMF brand’ which is acquired as part of business combinations of TMF Group Holding B.V. This brand is recognised at the fair value at the date of the acquisition and not amortised. TMF Group believes that there is currently no foreseeable limit to the period over which this brand is expected to generate net cash inflows, and therefore assessed to have an indefinite useful life.

Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by TMF Group are recognised as intangible assets when the following criteria are met:

• it is technically feasible to complete the software product so that it will be available for use;

• management intends to complete the software product and use or sell it;

• there is an ability to use or sell the software product;

• how the software product will generate probable future economic benefits can be demonstrated;

• adequate technical, financial and other resources to complete the development and to use or sell the software product are available; and

• the expenditure attributable to the software product during its development can be reliably measured.

Directly attributable costs that are capitalised as part of the software product include the software development employee costs and an appropriate portion of relevant overhead costs. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.

Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. The costs are amortised over their estimated useful lives of 3 - 7 years on a straight- line basis. The residual values, the useful lives and the amortisation methods are reviewed periodically and adjusted if appropriate.

Impairment of intangible assets

For intangible assets, TMF Group evaluates if there is an impairment indicator at the end of the reporting period. If there is an impairment indicator, an impairment assessment is performed.

Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying amount of 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.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. Goodwill is tested for impairment at the CGU level, as monitored for internal management purposes, and does not take place at a lower level.

As at 31 December 2023, intangible assets acquired through acquisitions relate to business combinations as outlined in Note 15.

The goodwill allocation per Cash Generating Unit is presented below for 2023:

Goodwill impairment analysis

TMF Group tests annually whether goodwill has suffered any impairment. The recoverable amount of the cash generating units (CGUs) is determined based on value-in-use calculations which require the use of assumptions. The calculations use cash flow projections based on financial budgets and five-year forecasts approved by management. The annual EBITDA (operating result before interest, taxes, depreciation and amortisation) growth for the first 5 years majorly impacts the cash flow projections and is based on past performance, management’s expectations and independent market research. Cash flows beyond the five-year period are extrapolated using an estimated perpetual growth rate. Calculating the cash flows requires the use of judgements and estimates that have been included in our strategic plans and long-range forecasts. In addition, judgement is required to estimate the appropriate interest rate to be used to discount the future cash flows.

Impairment tests for goodwill

Goodwill is monitored by management per Cash Generating Units for goodwill impairment testing purposes.

The recoverable amount of a Cash Generating Unit is determined based on value in use calculations. This value in use is based on 5 years cash flows projections and perpetual growth rates.

The key assumptions used are summarised in the table and notes to this table below for 2023:

1. Post-tax local currency discount rates have been determined by country and applied to the respective cash flow projections.

2. Year-on-year budgeted annual EBITDA growth for the first 5 years has been based on the forecast prepared by local and group management.

3. Long-term growth rates (perpetual growth) have been estimated based on a base rate of 2.3%, increased or decreased if applicable by the inflation differential between the country and the Eurozone inflation (which is also included in the discount rate calculations by country).

Goodwill was tested for impairment as at 31 December 2023 and no goodwill impairment was identified.

Sensitivity analysis

Other than as disclosed below, management believes that no reasonably possible change in any of the above key assumptions would cause the recoverable amount of any cash-generating unit to materially exceed their carrying values. The changes in the following table to assumptions used in the impairment review would, in isolation, lead to an impairment loss being recognised for the year ended 31 December 2023.

The following change or end values required for carrying value to equal recoverable amount for 2023: