Imperial

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.