27. Accounting estimates and judgements for the Group and Company

In the application of the Group’s accounting policies, which are described in note 2, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other facts that are considered relevant. Actual amounts may differ from these estimates.

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Key sources of estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the statement of financial position date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are disclosed below.

i) Estimated impairment of goodwill and intangibles

The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in note 2.11.

The determination of impairment in the carrying value of goodwill and intangible assets requires judgements to be made by the Directors. These assets are assessed on an ongoing basis to determine whether circumstances exist that could lead to the conclusion that the carrying value of such assets is not supportable.

ii) Pension assumptions

The present value of the defined benefit pension obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. Any changes in these assumptions will impact the carrying amount of pension obligations. The Company engages an independent actuary to perform the valuation and assist in determining appropriate assumptions at the end of each year. The valuation is prepared by an independent qualified actuary, but significant judgements are required in relation to the assumptions for pension increases, inflation, the discount rate applied, investment returns and member longevity, all of which underpin the valuations. Note 24 contains information about the assumptions relating to retirement benefit obligations.

iii) General provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to a provision is presented in the statement of profit or loss, net of any reimbursement.

If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

iv) Leases estimating the incremental borrowing rate

The Group cannot readily determine the interest rate implicit in the lease, therefore it uses its incremental borrowing rate (IBR) to measure lease liabilities. The IBR is the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reflects what the Group "would have to pay", which requires estimation when no observable rates are available (such as for subsidiaries that do not enter into financing transactions) or when they need to be adjusted to reflect the terms and conditions of the lease (for example, when leases are not in the subsidiary’s functional currency). The Group estimates the IBR using observable inputs (such as market interest rates) when available and is required to make certain entity‑specific estimates (such as the subsidiary’s stand-alone credit rating).

v) Share-based payments

Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which depends on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model, including the expected life of the share option or appreciation right, volatility and dividend yield, and making assumptions about them. The Group uses the Black‑Scholes-Merton model to estimate the fair value of instruments. The Black‑Scholes-Merton formula has been adjusted to take account of certain characteristics of share options, such as the probability of vesting and meeting the performance conditions of LTIPs. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in note 25.

vi) Shincell licence

The Shincell licence has been capitalised as a right-of-use asset and a judgement been made as to its useful life, which was assessed to be ten years based on the expected period during which the technology will provide incremental value. An impairment assessment is made every year to assess the recoverability of the value of the asset based on future five-year plans and, as such, involves uncertainty in the calculations. A judgement was made that the Shincell licence should be capitalised as a right-of-use asset and future payments treated as a lease liability under IFRS 16.

vii) OKC group acquisition

Assumptions were made in the valuation of the assets acquired with the purchase of the OKC Group. Land and buildings were adjusted to a market value of €4,600k based on a third party valuation. An estimate was made to calculate the value of inventory acquired as it would be valued at a distributor's margin and a provision made based on stock that had not moved for over a year.

As part of the acquisition the Group recognised identifiable intangible assets as follows:

These assets were measured at fair value at the acquisition date in accordance with IFRS 3 "Business Combinations". The valuation of each asset category was performed using commonly applied income‑based valuation techniques, reflecting the expected future economic benefits attributable to each asset.

Product trade names

The product trade names were valued using the relief‑from‑royalty method. This approach estimates the value of the trade names by reference to the hypothetical royalties that the Group would otherwise be required to pay if the trade names were licensed from a third party. Key assumptions included:

• the forecast level of revenue expected to be generated under the trade names
• an appropriate notional royalty rate benchmarked to comparable market transactions
• the discount rate applied to future cash flows of 13.7%
• a useful life of ten years based on product cycles and management plans for the trade names going forward.

Corporate name

The corporate name was valued using the relief‑from‑royalty method. This approach estimates the value of the name by reference to the hypothetical royalties that the Group would otherwise be required to pay if the name was licensed from a third party. Key assumptions included:

• the forecast level of revenue expected to be generated under the name
• an appropriate notional royalty rate benchmarked to comparable market transactions
• the discount rate applied to future cash flows of 13.2%
• a useful life of two years based on management plans for the corporate name going forward.

Recycling know‑how

The know‑how intangible asset was valued using the with‑or‑without method, an income‑based approach that measures the economic benefit derived from the proprietary technical knowledge, processes and workflows acquired. This methodology estimates the incremental cash flows that the business is expected to generate with access to the acquired know‑how compared with the cash flows that would reasonably be expected without it.

The valuation reflects:

• the projected cost savings, productivity enhancements and operational efficiencies attributable to the know‑how
• the estimated period over which these benefits are expected to be realised
• assumptions regarding the level of disruption, additional costs or reduced output that would arise in a hypothetical “without” scenario
• contributory asset charges for supporting assets involved in generating the benefits
• a discount rate of 14.2% consistent with the risk characteristics of know‑how‑related cash flows
• a useful life of five years reflecting the period over which this know-how will provide benefits going forward.

The resulting fair value represents the present value of the economic benefits expected to arise exclusively due to possession of the acquired know‑how.

Order backlog

Order backlog was valued using a multi‑period excess earnings method based on the expected revenues and margins from the confirmed order book at the acquisition date. Assumptions applied included:

• the contracted revenue pipeline and expected conversion profile
• forecast gross margins
• fulfilment costs over the backlog period
• a discount rate of 12.7% that reflects the short‑term nature and lower risk of contracted cash flows
• a useful life of one year reflecting the expectation that all associated orders will have been fulfilled within a year.

Customer relationships

Customer relationships were valued using the multi‑period excess earnings method, representing the cash flows generated from established customer relationships after deducting contributory asset charges. Key valuation assumptions included:

• projected customer revenues based on historical retention and purchasing behaviour
• customer attrition rates derived from historical churn analysis
• forecast gross margins
• contributory asset charges, including returns on working capital and other supporting assets
• a discount rate of 14.2% reflecting the risk profile of customer‑related earnings
• a useful economic life of ten years based on the period up to which incremental earnings add less than 4% of cumulative earnings up to that point.

Discount rate and other assumptions

The discount rates used across the valuations were derived from the Group’s weighted average cost of capital, adjusted for the specific risks associated with each intangible asset category. Forecasts used in the valuations were based on management’s approved business plans and industry‑specific assumptions consistent with those applied in other long‑term planning processes.

viii) Contingent consideration

€1.5m of the total €36m payable to acquire the OKC Group was in the form of contingent consideration. The contingent consideration is to be paid in 2027 subject to OKC achieving 2026 EBITDA greater than €5.5m pro-rated from €5.0m, with no payment if the EBITDA is below €5.0m. This must be paid within 30 days of the 2026 OKC audit completion. As at the acquisition date, the fair value of the contingent consideration was estimated to be £1,324k (€1,500k). There is uncertainty over what the EBITDA for OKC will be in 2026, so an estimate was made. Management believe there is a high probability of the target being met based on past performance and the projected five-year plan and so have recognised 100% of the contingent consideration as a liability.