Adcock Ingram Integrated Report 2018

ANNUAL FINANCIAL STATEMENTS 74 ADCOCK INGRAM  Integrated Report 2018 Notes to the Group annual financial statements 1 ACQUISITION OF BUSINESSES 1.1 GENOP HOLDINGS PROPRIETORY LIMITED (GENOP) On 1 January 2018, Adcock Ingram Healthcare Proprietary Limited acquired 100% of Genop, a highly specialised instrument, surgical and pharmaceutical products company focused on the ophthalmic, optometry, skincare, aesthetic and plastic surgery segments in Southern Africa. Genop owns and markets the well-known Epi-max branded range of consumer products. The fair value of the identifiable assets as at the date of acquisition was: 2018 R’000 Assets Inventories 87 003 Trade and other receivables 89 383 Property, plant and equipment 18 291 Marketing-related intangible assets 121 385 Cash and cash equivalents 9 082 Taxation receivable 1 579 326 723 Liabilities Trade and other payables 99 602 Short-term borrowings 24 297 Deferred tax 27 622 Provisions 2 255 153 776 Total identifiable net assets at fair value 172 947 Goodwill arising on acquisition 163 758 Purchase consideration 336 705 Net cash acquired with the business (9 082) Net cash consideration 327 623 The fair value of the trade receivables equals the net amount of trade receivables and amounts to R74.3 million. Market-related intangible assets relate to Epi-Max brand. Epi-Max was fair valued, at acquisition, from R11.7 million to R120 million which gave rise to a deferred tax liability of R30.3 million. The royalty relief methodology was used to determine the valuation, by applying a 9% royalty rate and market related discount rate. Goodwill represents the difference between the purchase consideration and the fair value of the net assets acquired as there are no further separately identifiable intangible assets. The significant factors that contributed to the recognition of goodwill include, but are not limited to the acquisition of a specialised and quality pharmaceutical business with a management team with proven experience, knowledge, skills and track record in their field. From the date of acquisition, Genop contributed R223.8 million towards revenue and reported a profit before income tax of R6.2 million. If the Genop acquisition had taken place at the beginning of the reporting period, the revenue would have been R452.3 million and profit before income tax would have been R24.5 million. Analysis of cash flows on acquisition Transaction costs of the acquisition (included in cash flows from operating activities) (5 662) Net cash acquired with the business (included in cash flows from investing activities) 9 082 Transaction costs of R5.7 million have been expensed and are included in non-trading expenses.