Preliminary summarised results
for the year ended 30 June 2020

Business combinations during the year

Businesses acquired Nature of business Operating
Acquisitions during the year          
Axis Group International DMCC Facilitates and sources products on behalf of customers as well as arranging a route-to-market for companies wanting to trade with China and Asia Logistics
African Regions
December 2019 60 170
Geka Pharma Proprietary Limited Pharmaceutical supplies to the healthcare industry in Namibia Logistics
African Regions
January 2020 65 78
ACP Holdings Limited (aka Far East Mercantile Ghana) Importer and distributor of FMCG across Ghana Logistics
African Regions
January 2020 51 301
MDS Logistics Limited (49% held associate at 31 December 2019) Provider of integrated supply chain solutions to manufacturers, importers, service providers and wholesale distributors across Nigeria Logistics
African Regions
January 2020 57 366
Individually immaterial acquisitions         18
Total purchase consideration transferred       933

Fair value of assets acquired and liabilities assumed at date of acquisition

R million Axis
MDS Far East
Intangible assets 38 31 153 147 9     378  
Property, plant and equipment   3 478 14       495  
Right-of-use assets   10 70 16 1     97  
Transport fleet     66   53     119  
Investments, loans and associates         29     29  
Non-current financial assets       79 18     97  
Deferred tax assets   3   5       8  
Inventories   84 45 188       317  
Trade, other receivables and contract assets   103 51 144 8     306  
Tax in advance     14         14  
Cash resources 4 3 15 16 1     39  
  42 237 892 609 119     1 899  
Deferred tax liabilities   8 189 36 15     248  
Interest-bearing borrowings         40     40  
Lease obligations   10 44 15 1     70  
Other financial liabilities       265       265  
Trade and other payables and provisions   134 98 174 45     451  
Current tax liabilities   5   3       8  
    157 331 493 101     1 082  
Acquirees' carrying amount at acquisition 42 80 561 116 18     817  
Less: Non-controlling interests' proportionate share (16) (28) (241) (76)       (361)  
Net assets acquired 26 52 320 40 18     456  
Purchase consideration transferred 170 78 366 301 18     933  
– Cash 66 47 41 163 5     322  
– Contingent consideration 104 31   138 13     286  
– Fair value of previously held interest     325         325  
Excess purchase consideration over net assets acquired 144 26 46 261       477  

The initial accounting for certain of the business combinations are incomplete and based on provisional figures.

Reasons for the acquisitions

The group acquired a 60% shareholding in Axis Group International DMCC in Dubai for R170 million. Axis Group is strategically aligned to facilitate trade between Imperial’s present customer base and companies based in the Chinese and Asian regions. Axis Group can facilitate the sourcing and purchasing of products in China and Asia as well as providing a route-to-market for all companies wanting to trade in these particular areas. It has more than 22 years’ experience in this market and is the go-to company for any company wanting to expand or open up trade in the Chinese and Asian regions.

The group acquired a 65% shareholding in Geka Pharma Proprietary Limited for R78 million. Geka is engaged in the supply of pharmaceuticals to the healthcare industry in Namibia and is a fully registered and licensed pharmaceutical wholesaler. Geka delivers product throughout Namibia to pharmacies, private clinics and hospitals, pharmaceutical wholesalers, doctors and other healthcare service providers and the Ministry of Health and Social Services. This acquisition is in line with Imperialʼs strategy to expand into healthcare in Namibia.

The group acquired an additional 8% interest in MDS Logistics Limited thereby increasing its shareholding to 57% for R41 million (excluding the R325 million for the fair value of its previously held interest). MDS Logistics Limited is engaged in the business of supply chain and logistics management services. The principal activities of MDS are warehousing, distribution and haulage services. This acquisition allows Imperial to expand its footprint and service offering in Nigeria.

The group acquired a 51% shareholding in ACP Holdings (Far East Mercantile) for R301 million. Far East Mercantile is based in Ghana and provides a route-to-market solution for FMCG in Ghana. These services extend beyond transportation and warehousing and include sales and merchandising. This acquisition expands Imperials footprint and service offerings in the West African consumer markets.

The other businesses were acquired to complement and expand our staffing businesses in South Africa and the bus services in the Lowveld region through the acquisition of businesses in South Africa.

Details of contingent consideration for acquisitions concluded during the year

The contingent consideration requires the group to pay the vendors an additional total amount of R286 million over three years if the entities’ net profit after tax exceeds certain profit targets and certain net debt targets. At year-end the contingent consideration liability was reassessed taking into account the impact of Covid-19 on the fair value measurement of the contingent consideration based on what is expected to be paid, and no remeasurement was required.

Acquisition costs for acquisitions concluded during the year

Acquisition costs for business acquisitions concluded during the year amounted to R12 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 for acquisitions concluded during the year

From the dates of acquisition the businesses acquired during the year contributed revenue of R1 502 million and operating profit of R107 million. Intangible assets arising out of the business combinations was amortised by R62 million and the group incurred funding cost of R17 million calculated on the cash consideration paid on acquisitions. The Covid-19 pandemic has had an impact on the revenues and profits of the acquired businesses which has resulted in goodwill impairment of R181 million, impairment of intangible assets arising out of business combinations of R19 million and impairment of properties of R48 million. Despite the pandemic the businesses still delivered good revenues and operating profits.

Had all the acquisitions been consolidated from 1 July 2019, they would have contributed additional revenue of R2 969 million and operating profit of R201 million. The amortisation of intangibles would have been R102 million and the funding cost R34 million.

Separate identifiable intangible assets for acquisitions concluded during the year

As at the acquisition date the fair value of the separate identifiable intangible assets was R378 million. This fair value, which is classified as level 3 in the fair value hierarchy, was determined using the multi-year excess earnings method (MEEM) valuation technique for contract-based intangible assets, and the relief from royalty method for brand-based intangible assets.

The significant unobservable valuation inputs were as follows:

Far East
Brand name        
– Discount rate 19,5   19,7  
– Royalty rate 0,3   0,8  
Contract-based intangible assets        
– Weighted average discount rates 18,0 – 19,0 15,1 – 15,9 19,2 – 20,2 17,6 – 18,4
– Terminal growth rate 2,3 4,9 11,0 8,3

The assumptions used in arriving at projected cash flows were based on past experience and adjusted for any expected changes.

Other details for acquisitions concluded during the year

Trade and other receivables had gross contractual amounts of R376 million of which R38 million was considered doubtful. Non-controlling interests have been calculated based on their proportionate share in the acquiree’s net assets. None of the resulting goodwill is deductible for tax purposes.