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Intangible Assets | 12 Months Ended
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Jan. 31, 2019
Disclosure of detailed information about intangible assets [abstract] |
Intangible Assets |
15 | Intangible Assets
|  | 31 January 2019 NZ$000’s |  |  | 31 January 2018 NZ$000’s |  |  | 31 January 2017 NZ$000’s |
Goodwill |  |  |  |  |  |  |  |  |
Cost |  |  | 5,607 |  |  |  | - |  |  |  | - |
Accumulated impairment |  |  | (3,287 | ) |  |  | - |  |  |  | - |
|  |  | 2,320 |  |  |  | - |  |  |  | - |
Patents and licences |  |  |  |  |  |  |  |  |  |  |  |
Cost |  |  | 25,993 |  |  |  | 919 |  |  |  | 1,169 |
Accumulated amortisation and impairment |  |  | (918 | ) |  |  | (718 | ) |  |  | (573 | )
|  |  | 25,075 |  |  |  | 201 |  |  |  | 596 |
Brands |  |  |  |  |  |  |  |  |  |  |  |
Cost |  |  | 14,769 |  |  |  | 12,463 |  |  |  | 12,036 |
Accumulated amortisation and impairment |  |  | (4,563 | ) |  |  | - |  |  |  | - |
|  |  | 10,205 |  |  |  | 12,463 |  |  |  | 12,036 |
Software |  |  |  |  |  |  |  |  |  |  |  |
Cost |  |  | 15,718 |  |  |  | 15,788 |  |  |  | 17,308 |
Accumulated amortisation and impairment |  |  | (15,455 | ) |  |  | (15,440 | ) |  |  | (15,260 | )
|  |  | 263 |  |  |  | 348 |  |  |  | 2,048 |
Total Intangible assets |  |  | 37,864 |  |  |  | 13,012 |  |  |  | 14,680 |
| (a) | Software impairment
For the year ended 31 January 2018, management decided to fully impair the costs on the ERP upgrade and are currently reviewing alternatives.
| (b) | Movements in carrying amounts of intangible assets
|  | Software NZ$000’s |  |  | Patents and licences NZ$000’s |  |  | Brands NZ$000’s |  |  | Goodwill NZ$000’s |  |  | Total NZ$000’s |
Year ended 31 January 2019 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at the beginning of the year |  |  | 348 |  |  |  | 201 |  |  |  | 12,463 |  |  |  | - |  |  |  | 13,012 |
Additions |  |  | 33 |  |  |  | 25,076 |  |  |  | 2,726 |  |  |  | 5,798 |  |  |  | 33,633 |
Amortisation |  |  | (29 | ) |  |  | (202 | ) |  |  | - |  |  |  | - |  |  |  | (231 | )
Impairment |  |  | (83 | ) |  |  | - |  |  |  | (4,563 | ) |  |  | (3,287 | ) |  |  | (7,933 | )
Foreign exchange movements |  |  | (6 | ) |  |  | - |  |  |  | (420 | ) |  |  | (192 | ) |  |  | (618 | )
Closing value at 31 January 2019 |  |  | 263 |  |  |  | 25,075 |  |  |  | 10,205 |  |  |  | 2,320 |  |  |  | 38,864 |
|  | Software NZ$000’s |  |  | Patents and licences NZ$000’s |  |  | Brands NZ$000’s |  |  | Goodwill NZ$000’s |  |  | Total NZ$000’s |
Year ended 31 January 2018 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at the beginning of the year |  |  | 2,048 |  |  |  | 596 |  |  |  | 12,036 |  |  |  | - |  |  |  | 14,680 |
Additions |  |  | 106 |  |  |  | 12 |  |  |  | - |  |  |  | - |  |  |  | 118 |
Amortisation |  |  | (163 | ) |  |  | (143 | ) |  |  | - |  |  |  | - |  |  |  | (306 | )
Impairment |  |  | (1,650 | ) |  |  | (264 | ) |  |  | - |  |  |  | - |  |  |  | (1,914 | )
Foreign exchange movements |  |  | 7 |  |  |  | - |  |  |  | 427 |  |  |  | - |  |  |  | 434 |
Closing value at 31 January 2018 |  |  | 348 |  |  |  | 201 |  |  |  | 12,463 |  |  |  | - |  |  |  | 13,012 |
|  | Software NZ 000’s $ |  |  | Patents and licences NZ 000’s $ |  |  | Brands NZ 000’s $ |  |  | Goodwill NZ 000’s $ |  |  | Total NZ 000’s $ |
7 months ended 31 January 2017 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at the beginning of the year |  |  | 2,196 |  |  |  | 274 |  |  |  | 12,105 |  |  |  | - |  |  |  | 14,575 |
Additions |  |  | - |  |  |  | 351 |  |  |  | - |  |  |  | - |  |  |  | 351 |
Amortisation |  |  | (148 | ) |  |  | (30 | ) |  |  | - |  |  |  | - |  |  |  | (178 | )
Foreign exchange movements |  |  | - |  |  |  | 1 |  |  |  | (69 | ) |  |  | - |  |  |  | (68 | )
Closing value at 31 January 2017 |  |  | 2,048 |  |  |  | 596 |  |  |  | 12,036 |  |  |  | - |  |  |  | 14,680 |
| (c) | Impairment testing for goodwill
For the purpose of impairment testing, goodwill is allocated to cash-generating units as below:
Description of the cash-generating unit (CGU) |  | For the Year Ended 31 January 2019 NZ $000’s |  |  | For the Year Ended 31 January 2018 NZ $000’s |  |  | For the 7 Months Ended 31 January 2017 NZ $000’s |
United States |  |  | 2,320 |  |  |  | - |  |  |  | - |
|  |  | 2,320 |  |  |  | - |  |  |  | - |
Impairment assumptions Goodwill relates to the acquisition of Naked Inc, a business operating in the United States and was allocated to the Group’s operation in United States which is the cash generating unit (CGU) for the purpose of impairment testing. The recoverable amount of the CGU was determined based on value-in-use calculations which require the use of assumptions. The calculations use cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using the estimated growth rates stated below. These growth rates do not exceed the long-term average growth rates for the industry. The result of the impairment assessment is that the carrying value exceeded the fair value less costs to sell by an amount of $3.2m. As such, the goodwill has been partially impaired for the year ended 31 January 2019. Significant assumptions used for the purposes of the value-in-use calculation include: United States Post-tax discount rate - 10.50% EBITDA growth rate - 10% Terminal growth - 2% Impact of possible changes in key assumptions The directors have made judgements and estimates to assess goodwill for impairment. Should these judgements and estimates not occur the resulting carrying amount may decrease. The sensitivities that have been separately modelled are as follows: (a) a 3.25% increase in the post-tax discount rate (b) EBITDA growth rate reduced to 5% The carrying amount of the goodwill is sensitive to assumptions used in the impairment test calculations including the post-tax discount rate and sales growth rate. A 3.25% increase in the post-tax discount rate would result in an additional impairment of $2,320 thousand against the carrying amount of the goodwill. A reduction of the EBITDA growth rate to 5% would not result in a further impairment as goodwill would be fully impaired from the increase of the post-tax discount rate.
| (d) | Impairment testing for indefinite-lived brand intangibles
Brand intangible assets represent brands owned by the Group, that arose on historical acquisitions including Pleasure State, Davenport and Lovable. The intangible assets increased in the current period as result of the business combinations with Naked Brand Group Inc. See note 8 for further information. The brand intangible assets of $10,205,000 (2018: $12,463,000, 2017: $12,036,000) are tested for impairment annually. Impairment assumptions Management has determined the recoverable amount of the indefinite-lived brand assets by assessing the fair value less cost of disposal (FVLCOD) of the underlying assets. The relief from royalty method adopted to complete the valuation determines, in lieu of ownership, the cost that would be required to obtain comparable rights to use the asset via a third-party licence arrangement. These calculations use cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using the estimated growth rates shown below. These growth rates do not exceed the long-term average growth rates for the industry. The result of the impairment assessment is that the carrying value has exceeded the fair value less costs to sell by $3.9m. As such, the indefinite-lived brand assets has been partially impaired for the year ended 31 January 2019. Management’s approach and the key assumptions used to determine the FVLCOD were as follows: Sales growth: 2.5% (31 January 2018: 5%) Royalty rate: 5.0% (31 January 2018: 6.6%) Cash flow - revenue forecast period: 5 years (31 January 2018: 5 years) Post-tax discount rate (%) for US brands: 10.5% (31 January 2018: 0%) Post-tax discount rate (%) for NZ brands: 11.75% (31 January 2018: 11.4%) Long term sales growth rate (%): 2% (31 January 2018: 2%) Impact of possible changes in key assumptions The directors have made judgements and estimates to assess indefinite-lived assets for impairment. Should these judgements and estimates not occur the resulting carrying amount may decrease. The sensitivities that have been separately modelled are as follows: (a) a 2.1% increase in the post-tax discount rate (b) sales growth rate reduced to 0% The carrying amounts of the indefinite-lived brand intangible assets are sensitive to assumptions used in the impairment test calculations including the post-tax discount rate and sales growth rate. A 2.1% increase in the post-tax discount rate would result in an additional impairment of $951 thousand (31 January 2018: an increase of 1.5% would result an impairment of $929 thousand) against the carrying amount of the indefinite-lived brand intangibles. A reduction of the sales growth rate to 0% would result in an additional impairment of $1,554 thousand (31 January 2018: a reduction to 2% would result an impairment of $611 thousand) against the carrying amount of the indefinite-lived brand intangible assets. In order to mitigate exchange rate movements and to manage the inventory costing process, the Group has entered into forward currency contracts to purchase US dollars.

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