Businesses acquired | Nature of business | Operating segment |
Date acquired |
Interest acquired (%) |
Purchase consideration Rm |
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 Group |
Geka Pharma |
MDS | Far East Mercantile |
Individually immaterial acquisitions |
Total | |||
Assets | |||||||||
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 | ||||
Liabilities | |||||||||
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 |
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:
Axis Group % |
Geka Pharma % |
MDS Logistics % |
Far East Mercantile % |
|
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.