Business combinations during the year
Businesses acquired |
Nature of business |
Operating segment |
Date acquired |
Interest acquired (%) |
Purchase consideration transfered Rm |
||
Palletways Group Limited~ |
Express delivery solutions for small consignments of palletised freight across Europe |
Logistics International | July 2016 | 95,2 | 1 683 | ||
Itumele Bus Lines Proprietary Limited |
Consumer bus operations in the Free State province of South Africa |
Logistics South Africa | November 2016 | 55 | 147 | ||
Individually immaterial acquisition |
56 | ||||||
Fair value of previously held interest |
(90) | ||||||
1 796 |
~ | The total purchase consideration of R3,0 billion disclosed in the June 2016 report included preference shares and subordinated loans acquired amounting to R1,317 million, thereby arriving at the purchase consideration of R1,683 million above. |
FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ASSUMED AT DATE OF ACQUISITION:
Palletways Rm |
Itumele Bus Lines Rm |
Individually immaterial acquisitions Rm |
Total Rm |
|||||
Assets | ||||||||
Intangible assets (excluding goodwill) | 1 360 | 112 | 17 | 1 489 | ||||
Property, plant and equipment | 32 | 17 | 30 | 79 | ||||
Transport fleet | 269 | 269 | ||||||
Investments, associates and joint ventures and other financial assets | 12 | 56 | 68 | |||||
Deferred tax assets | 3 | 3 | ||||||
Inventories | 3 | 14 | 31 | 48 | ||||
Trade and other receivables | 617 | 54 | 73 | 744 | ||||
Cash resources | 141 | 82 | 3 | 226 | ||||
2 153 | 560 | 213 | 2 926 | |||||
Liabilities | ||||||||
Retirement benefit obligations | 9 | 9 | ||||||
Deferred tax liabilities | 264 | 70 | 5 | 339 | ||||
Interest-bearing borrowings | 1 350 | 141 | 126 | 1 617 | ||||
Other financial liabilities | 2 | 94 | 96 | |||||
Trade and other payables and provisions | 773 | 84 | 73 | 930 | ||||
Current tax liabilities | 17 | 1 | 18 | |||||
2 413 | 298 | 298 | 3 009 | |||||
Acquirees' carrying amount at acquisition | (260) | 262 | (85) | (83) | ||||
Non-controlling interests | (8) | (118) | (7) | (133) | ||||
Net assets acquired | (268) | 144 | (92) | (216) | ||||
Purchase consideration transferred | 1 683 | 147 | (34) | 1 796 | ||||
Cash paid | 1 683 | 142 | 25 | 1 850 | ||||
Fair value of previously held interest | (90) | (90) | ||||||
Contingent consideration | 5 | 31 | 36 | |||||
Excess of purchase price over net assets acquired | 1 951 | 3 | 58 | 2 012 |
Reasons for the acquisitions
The Group acquired a 95.2% shareholding in Palletways. This acquisition is in line with Imperial's strategic intent to expand its presence beyond South Africa through the acquisition of asset light logistics businesses that benefit from Imperial's existing footprint and capabilities. Palletways provides an express delivery solution for small consignments of palletised freight through more than 400 depots and 14 hubs, which collects and distribute 38 000 daily or 8 million pallets annually across 20 European countries where it currently handles one in every 4 pallets handled by palletised freight networks.
The acquisition of a 55% shareholding in Itumele Bus Lines, is in line with the Group's strategy to diversify into other related industries and allows entry into the commuter bus service market. Itumele's primary business is providing public transport services on behalf of the provincial government to commuters in and around Bloemfontein. Founded in 1975, the operation comprises a fleet of 253 commuter busses and 32 luxury coaches. Itumele transports approximately 50 000 passengers daily and its busses travel approximately 17 million kilometres a year.
The other businesses were acquired to complement and expand our transport and business solutions through the acquisition of a depot in Europe and an import and export solutions business in South Africa.
Details of contingent consideration
The contingent consideration requires the Group to pay the vendors an additional total amount of R36 million over three years if the entities’ net profit after tax exceeds certain profit targets.
Acquisition costs
Acquisition costs for business acquisitions concluded during the year amounted to R27 million and have been recognised as an expense in profit or loss in the 'Other non-operating items' line.
Impact of the acquisition on the results of the group
From the dates of acquisition the businesses acquired during the year contributed revenue of R6 233 million, operating profit of R396 million and after tax profit of R170 million. The after tax profit of R170 million includes the after tax impact of the funding cost of R70 million calculated on the cash consideration paid on acquisitions and the amortisation of intangible assets arising out of the business combinations of R177 million.
Had all the acquisitions been consolidated from 1 July 2016, they would have contributed revenue of R6 446 million, operating profit of R404 million and after tax profit of R162 million. The Group's continuing revenue for the year would have been R117 052 million, operating profit would have been R6 057 million and after tax profit R2 278 million.
Separate identifiable intangible assets
As at the acquisition date the fair value of the separate identifiable intangible assets was R1 489 million. This fair value, which is classified as level 3 in the fair value hierarchy, was determined using the Multi-period Excess Earnings Method (MEEM) valuation technique for contract based intangible assets and the Relief-form-royalty method for the trademark.
The significant unobservable valuation inputs were as follows:
Palletways % |
Itumele Bus Lines % |
|||
Trademark | ||||
– Discount rates | 9,1 | |||
– Royalty rate | 1,0 | |||
Contract based intangible assets | ||||
– Weighted average discount rates | 6.7 – 7.3 | 17,5 | ||
– Terminal growth rates | 1.0 | 5,4 |
The assumptions used in arriving at projected cash flows were based on past experience and adjusted for any expected changes.
Other details
Trade and other receivables had gross contractual amounts of R790 million of which R46 million was doubtful. Non-controlling interests have been
calculated based on their proportionate share in the acquiree's net assets. None of the goodwill is deductible for tax purposes.