Business combinations DURING THE PERIOD

Subsidiaries and businesses acquired	Nature of business	Operational segment	Date acquired	Interest acquired (%)	Purchase consideration transferred Rm
Pharmed Pharmaceutical (Pty) Limited	Wholesale supply and distribution of healthcare related products	Logistics Africa	July 2014	62,5	148
Imres BV	Wholesaler of pharmaceutical and medical supplies to mainly African and emerging markets	Logistics Africa	September 2014	75*	691
S&B Commercials plc	Mercedes Benz commercial franchise business		September 2014	100	167
Individually immaterial acquisitions					28
					1 034

*	The Group subsequently decreased its interest in Imres BV to 70%.

Fair value of assets acquired and liabilities assumed at date of acquisition:	Pharmed Rm	Imres Rm	S&B Commercials Rm	Individually immaterial acquisitions Rm	Total Rm
Assets
Intangible assets	1	308	36		345
Property, plant and equipment	53	8	53	4	118
Transport fleet	5				5
Deferred tax asset	1				1
Inventories	194	125	437	6	762
Trade and other receivables	322	208	129	18	677
Cash resources		12	63	4	79
	576	661	718	32	1 987
Liabilities
Deferred tax liabilities		67	10		77
Interest-bearing borrowings	18	82	329	4	433
Other financial liabilities				1	1
Trade and other payables and provisions	317	85	270	19	691
Current tax liabilities	9	9			18
	344	243	609	24	1 220
Acquirees’ carrying amount at acquisition	232	418	109	8	767
Non-controlling interests	(98)	(105)		(3)	(206)
Net assets acquired	134	313	109	5	561
Purchase consideration	148	691	167	28	1 034
Cash paid	148	691	167	11	1 017
Contingent consideration				17	17
Excess of purchase price over net assets acquired	14	378	58	23	473

The initial accounting for business combinations were incomplete and based on provisional figures.

Reasons for the acquisitions

The Group acquired a 62,5% shareholding in Pharmed Pharmaceuticals (Pty) Limited. This acquisition is in line with Group’s strategy to integrate pharmaceutical wholesaling and distribution into its service offering. Pharmed specialises in the wholesale supply and distribution of healthcare related products, including ethical, generic, patent and homeopathic medicines; surgical, dental and veterinary products; and medical equipment.

The acquisition of 75% shareholding in Imres (5% of which was subsequently sold), is in line with the Group’s strategy to expand its participation in the distribution of fast moving consumer goods and pharmaceutical products in Africa. It also complements Imperial’s acquisitions of Imperial Health Sciences, Eco Health, Pharmed and the 49% equity interest in MDS Logistics. Imres adds sourcing and procurement capabilities to Imperial’s service offering and it can leverage off Imperial’s existing network and capabilities on the African continent.

The Group acquired a 100% shareholding in S&B Commercials, which is a Mercedes Benz commercial vehicle dealership with four main sites that covers North London, Essex and Hertfordshire and operates 5 dedicated customer workshops. The acquisition provided further diversification of our UK commercial vehicle franchise portfolio into the Mercedes brand which continues to grow its share in the UK market in both heavy and light commercial vehicles.

The other businesses were acquired to complement and expand our distribution of motor vehicles parts, pharmaceuticals and business solutions in South Africa and Africa.

Details of contingent consideration

The contingent consideration requires the Group to pay the vendors an additional total amount of R17 million over three years if the entities’ net profit after tax exceeds certain profit targets.

Acquisition cost

Acquisition costs for business acquisitions concluded during the period amounted to R11 million and have been recognised as an expense in profit or loss in the “Other non-operating items” line.

Impact of the acquisition on the results of the group

From the dates of acquisition the businesses acquired during the period contributed revenue of R1 407 million, operating profit of R86 million and after tax profit of R38 million. The after tax profit of R38 million includes the after tax impact of the funding cost of R11 million calculated on the cash consideration paid on acquisitions, the fair value loss on the remeasurement of the put option liability of R4 million and the amortisation of intangible assets arising out of the business combinations of R14 million.

Had all the acquisitions been consolidated from 1 July 2014, they would have contributed revenue of R1 766 million, operating profit of R119 million and after tax profit of R57 million. The Group’s total revenue for the period would have increased to R56 593 million, operating profit would have increased to R2 905 million and after tax profit would have increased to R1 613 million. The after tax profit of R57 million includes the after tax impact of the funding cost of R14 million calculated on the cash consideration paid on acquisitions, the fair value loss on the remeasurement of the put option liability of R7 million and the amortisation of intangible assets arising out of the business combinations of R21 million.

Separate identifiable intangible assets

As at the acquisition date the fair value of the separate identifiable intangible assets was R344 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:

	Imres BV %	Commercials %
– Discount rates	11,0	8,0
– Terminal growth rates	1,0	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 had gross contractual amounts of R727 million of which R50 million was 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.