Business combinations - audited

Subsidiaries and
businesses acquired
Nature of business Operational segment   Date acquired Interest
Renault South Africa (Pty) Ltd* Vehicle importer and Distributor Vehicle Import, Distribution and Dealerships   December 2013 60 65  
Eco Health Limited** Distributor of pharmaceutical products in Nigeria Logistics Africa   March 2014 53 813  
Aggregate of immaterial acquisitions           33  
* Previously accounted for as a 49% associate.
** The group increased its interest in Eco Health to 68% in May 2014.

Fair value of assets acquired and liabilities
assumed at date of acquisition:
South Africa
(Pty) Ltd
Eco Health
Intangible assets 223 714 12 949  
Property, plant and equipment 2 37 23 62  
Deferred tax asset 138     138  
Inventories 570 362 25 957  
Trade and other receivables 231 197 3 431  
Cash resources 273 84 1 358  
  1 437 1 394 64 2 895  
Deferred tax liabilities   131 3 134  
Interest-bearing borrowings 452 100 28 580  
Other financial liabilities   69   69  
Trade and other payables and provisions 1 040 439 7 1 486  
Current tax liabilities   15   15  
  1 492 754 38 2 284  
Acquirees' carrying amount at acquisition (55) 640 26 611  
Non-controlling interests 22 (301)   (279)  
Net assets acquired (33) 339 26 332  
Purchase consideration transferred 65 813 33 911  
Cash paid 65 514 33 612  
Liabilities incurred   299   299  
Excess of purchase price over net assets acquired 98 474 7 579  
Paid after the reporting period.

Reasons for the acquisitions

The Group acquired an additional 11% shareholding in Renault South Africa (Pty) Ltd for R65 million, thereby increasing its shareholding from 49% to 60%. The acquisition grants Imperial control over the activities of Renault in South Africa and further diversifies the Group’s distribution portfolio. The remeasurement of the previously held equity interest in Renault SA had no impact on profit or loss and other comprehensive income for the year.

The Eco Health Limited acquisition is in line with the Group’s strategy to grow businesses into the rest of Africa, which is focused on the distribution of consumer goods and pharmaceutical products. The acquisition further compliments the Imperial Health Sciences business and the 49% equity interest in MDS Logistics both of which have expertise in warehousing and logistics solutions in the pharmaceutical industry. Eco Health adds sales and marketing capabilities to Imperial’s services offering and will enable Imperial to offer an end-to-end capability to our customers in Nigeria’s fast-growing pharmaceutical sector.

The other businesses were acquired to complement and expand our distribution of motor vehicles parts in South Africa and the United Kingdom.

Acquisition cost

Acquisition cost for business acquisitions concluded during the year amounted to R17 million and have been recognised as an expense in profit or loss within the business acquisition costs line item.

Impact of the acquisition on the results of the group

From the dates of acquisition the businesses acquired during the year contributed revenue of R2 894 million, operating profit of R73 million and a net loss of R19 million. The net after tax loss of R19 million includes the after tax impact of the funding cost of R9 million calculated on the cash consideration paid on acquisition, the fair value loss on the remeasurement of the put option liability of R16 million and the amortisation of intangible assets arising out of the business combinations of R27 million.

Had all the acquisitions been consolidated from 1 July 2013, they would have contributed additional revenue of R5 673 million, operating profit of R204 million and a net loss of R17 million. The Group’s total revenue would have increased to R106 346 million, operating profit increased to R6 316 million and net profit increased to R3 629 million. The net after tax loss of R17 million includes the after tax impact of the funding cost of R20 million calculated on the cash considerations paid on acquisitions, the amortisation of intangible assets arising out of the business combinations of R77 million and the loss on the remeasurement of the put option liability of R40 million.

Separate identifiable intangible assets

As at the acquisition date the fair value of the separate identifiable intangible assets was R949 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.

The significant unobservable valuation inputs were as follows:

  Eco Health
Renault SA
(Pty) Ltd
– Discount rates 17,5% 15,1%  
– Terminal growth 7,3% 5,8%  

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 R497 million of which R66 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.

Acquisition after the reporting period

The Group acquired 62,5% interest in Pharmed Pharmaceuticals (Pty) Ltd, a pharmaceutical wholesaler, for R148 million in July 2014. No disclosures for the acquisition date net asset fair values are provided as the initial accounting for the business combination was incomplete at the time that the financial statements were authorised for issue.