Business combinations during the year

of business
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
Fair value of previously
held interest
            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.


Bus Lines
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                   
Inventories     14     31     48    
Trade and other receivables  617     54     73     744    
Cash resources  141     82        226    
   2 153     560     213     2 926    
Retirement benefit obligations                   
Deferred tax liabilities  264     70        339    
Interest-bearing borrowings  1 350     141     126     1 617    
Other financial liabilities           94     96    
Trade and other payables and provisions  773     84     73     930    
Current tax liabilities  17              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           31     36    
Excess of purchase price over net assets acquired  1 951        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:

Bus Lines
– 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.