Business combinations during the year
Businesses acquired | Nature of business | Operating segment | Date acquired | % | Rm | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Surgipharm Limited | Markets and distributes pharmaceutical, medical, surgical and allied supplies in Kenya | Logistics African Regions | Jul 2017 | 70 | 485 | ||||||
Pentagon Motor Holdings Limited | Headquarted in Derbyshire, England, operates 20 prime retail dealerships for numerous leading car and van manufacturers | Vehicle Retail and Rental | Aug 2017 | 100 | 479 | ||||||
SWT Group Proprietary Limited | Based in Australia operates 16 car dealerships | Vehicle Retail and Rental | Sep 2017 | 75 | 261 | ||||||
Arco Motor Industry Co Limited | Based in Taiwan, retails motor vehicle engine parts around the world | Aftermarket Parts | Mar 2018 | 60 | 185 | ||||||
Individually immaterial acquisitions | 119 | ||||||||||
1 529 |
Fair value of assets acquired and liabilities assumed at date of acquisition
R million | Surgipharm | Individually immaterial acquisitions |
Total Logistics |
Pentagon | SWT | Arco | Individually immaterial acquisitions |
Total Motus* |
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Assets | ||||||||||||||||
Intangible assets (excluding goodwill) | 191 | 191 | 2 | 43 | 7 | 52 | ||||||||||
Property, plant and equipment | 33 | 5 | 38 | 338 | 26 | 4 | 7 | 375 | ||||||||
Inventories | 234 | 25 | 259 | 1 758 | 255 | 51 | 41 | 2 105 | ||||||||
Trade and other receivables | 280 | 34 | 314 | 427 | 55 | 25 | 12 | 519 | ||||||||
Income tax assets | 5 | 5 | 12 | 11 | 23 | |||||||||||
Cash resources | 12 | 5 | 17 | 75 | 23 | 120 | 218 | |||||||||
755 | 69 | 824 | 2 612 | 370 | 243 | 67 | 3 292 | |||||||||
Liabilities | ||||||||||||||||
Interest-bearing borrowings | 82 | 82 | 69 | 240 | 1 | 310 | ||||||||||
Other financial liabilities | 198 | 198 | ||||||||||||||
Income tax liabilities | 35 | 3 | 38 | 4 | 8 | 15 | 27 | |||||||||
Trade, other payables and provisions | 234 | 24 | 258 | 2 230 | 58 | 26 | 10 | 2 324 | ||||||||
549 | 27 | 576 | 2 303 | 306 | 41 | 11 | 2 661 | |||||||||
Acquirees' carrying amount at acquisition | 206 | 42 | 248 | 309 | 64 | 202 | 56 | 631 | ||||||||
Non-controlling interests | (62) | (13) | (75) | (19) | (16) | (81) | (116) | |||||||||
Net assets acquired | 144 | 29 | 173 | 290 | 48 | 121 | 56 | 515 | ||||||||
Purchase consideration transferred | 485 | 52 | 537 | 479 | 261 | 185 | 67 | 992 | ||||||||
Cash paid | 393 | 42 | 435 | 479 | 261 | 185 | 67 | 992 | ||||||||
Contingent consideration | 92 | 10 | 102 | |||||||||||||
Excess of purchase price over net assets acquired | 341 | 23 | 364 | 189 | 213 | 64 | 11 | 477 |
*The assets and liabilities of entities acquired by Motus have been reclassified to held for distribution to owners of Imperial at 30 June 2018.
Reasons for the acquisitions
Reasons for the acquisition are outlined on page 7 of this report.
Details of contingent consideration
The contingent consideration requires the group to pay the vendors an additional total amount of R102 million over a period of six to 24 months if the entity’s net profit after tax exceeds certain profit targets. The contingent consideration liability pertaining to Surgipharm was paid during the year.
Acquisition costs
Acquisition costs for business acquisitions concluded during the year for continuing operations amounted to R2 million (Motus: R6 million) and have been recognised as an expense in profit or loss in the ‘Other non-operating items’ line.
Impact of the acquisitions on the results of the group
R million | Logistics acquisitions | Motus acquisitions | ||
---|---|---|---|---|
The contributions of the new acquisitions during the year were as follows: | ||||
Revenue | 1 048 | 8 194 | ||
Operating profit | 105 | 119 | ||
Profit after tax | 48 | 38 | ||
The following was taken into account in arriving at the profit after tax: | ||||
After tax funding cost for the new acquisitions | 12 | 18 | ||
Amortisation of intangible assets arising on acquisition | 33 | 3 | ||
Had the businesses been acquired at the beginning of the year their contributions would have been as follows: | ||||
Revenue | 1 154 | 10 070 | ||
Operating profit | 117 | 132 | ||
Profit after tax | 56 | 44 |
R million | Continuing operations |
Discontinued operations |
||
---|---|---|---|---|
The results of the combined continuing operations and the combined discontinued operations would have been as follows: | ||||
Revenue | 51 409 | 79 256 | ||
Operating profit | 2 825 | 3 606 | ||
Profit after tax | 1 104 | 2 318 |
Separate identifiable intangible assets
As at the acquisition date, the fair value of the separately identifiable intangible assets for Surgipharm was R191 million and Arco was R42 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-from-royalty method for the brand name.
The significant unobservable valuation inputs were as follows:
Surgipharm % |
Arco % |
|||
Brand name/trademark | ||||
– Discount rates | 17,4 | 16,9 | ||
– Royalty rate | 0,8 | 1,8 | ||
Contract-based intangible assets | ||||
– Weighted average discount rates | 15,0 – 15,8 | 14,5 – 14,9 | ||
– Terminal growth rates | 5,6 | 2,0 |
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 acquired by Logistics had gross contractual amounts of R382 million of which R68 million were doubtful. The Motus acquisition had gross contractual receivables of R526 million with R7 million as 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.