Acquisitions and disposals of investments

Changes in ownership interest in subsidiaries as a result of non-controlling interest transactions
The Group had increases and decreases in its shareholdings in a number of its subsidiary companies due to transactions with minority shareholders. The individual transactions are immaterial.

Business combinations
The Group acquired the business of the Bohes Trust on 1 October 2016 for a total consideration of R9 million (including a contingent consideration of R1.8 million). The trust had no significant contingent liabilities at the acquisition date.

Alliance Medical Group Limited (Alliance Medical) acquired 100% of Albaro, incorporated in Italy, on 30 December 2016 for a total consideration of R102 million (EUR7 million). The company had no significant contingent liabilities at the acquisition date.

1. Acquisition of Alliance Medical
On 21 November 2016, the Group acquired 93.78% of the issued share capital of Alliance Medical, incorporated in the United Kingdom. This is accounted for as a 100% subsidiary in terms of International Financial Reporting Standards (IFRS). The exchange rate as at 21 November 2016 and 31 March 2017 was GBP1:R17.88 and GBP1:R16.84 respectively. The acquisition has been provisionally accounted for in terms of IFRS 3 “Business combinations”.

The following presents the impact on the consolidated information of the Group for the period 21 November 2016 to 31 March 2017, converted at an average rate of GBP1:R16.72:

  R’m  
Revenue  1 481    
EBITDA  410    
Depreciation and amortisation  (269)   
EBIT  141    
Transaction costs  (138)   
Finance costs  (54)   
Fair value adjustment of contingent consideration  (18)   
Taxation  15    
Net loss  (54)   
Impact on consolidated information if the business combination took place on 1 October 2016, converted at an average rate of GBP1:R16.72:       
Revenue  2 073    
Net profit  41    
Details of the net assets acquired and goodwill are as follows:       
Total purchase consideration  (10 832)   
Cash portion  9 884    
Contingent consideration1 358    
B share liability assumed2 590    
Provisional fair value of net assets acquired  1 198    
Fair value of net assets acquired  1 198    
Provisional goodwill arising on acquisition3 (9 634)   
1 The sellers of Alliance Medical are also entitled to an earn-out consideration of GBP4 for each GBP1 of the adjusted EBITDA result of Alliance Medical, calculated with reference to the 12 months ending 31 March 2017, in excess of GBP66 million, subject to a maximum of GBP40 million. At acquisition, the fair value of the contingent consideration was estimated at GBP20 million (R358 million).
  As at 31 March 2017, the provisional contingent consideration was calculated as GBP21 million (R354 million). This is due to the positive performance of Alliance Medical and the signing of six community diagnostic centre (CDC) contracts. The adjustment to the fair value of the contingent consideration of GBP1 million (R18 million) was recognised through profit and loss.
  The maximum contingent consideration of GBP40 million was paid into escrow and is treated as restricted cash.
2 The Bidco B shares were issued to key management in exchange for a portion of their B shares held in Alliance Medical. The B share liability at the acquisition date amounted to GBP36.2 million (R647 million), of which GBP33 million (R590 million) is considered part of the business combination and GBP3.2 million (R57 million) is recognised as a post-acquisition expense in profit or loss.
3 The goodwill is attributable to the Group’s future earnings potential related to diagnostic businesses, and related future growth globally.

The provisional fair values of the assets and liabilities arising from the acquisition are as follows:

  R’m  
Inventories    
Trade and other receivables  911    
Trade and other payables  (1 866)   
Cash and cash equivalents  667    
Current tax liability  (187)   
Interest-bearing borrowings  (3 620)   
Property, plant and equipment  2 209    
Brand  129    
Customer relationship  3 246    
Software  79    
Deferred tax  (374)   
Non-controlling interest  (3)   
   1 198    
Cash outflow to acquire Alliance Medical, net of cash acquired        
   Cash consideration  9 884    
   Less: cash at acquisition  (667)   
   Restricted cash paid into escrow account  715    
   9 932    

The fair values identified on acquisition will remain provisional and are subject to further review.

The increase in intangible assets at 31 March 2017 mainly relates to the goodwill recognised of R9.6 billion and fair value uplift of intangible assets of R3.5 billion related to the Alliance Medical acquisition.

2. Interest-bearing borrowings

  R’m  
Total borrowings at 30 September 2016  6 781     
Bridge facility for Alliance Medical acquisition  10 579    
Bridge facility for repayment of Alliance Medical existing debt  4 022    
Net borrowings arising on acquisition of Alliance Medical  906    
Additional loans raised  1 592    
Repayment of existing loans  (1 617)   
Exchange difference  (287)   
Total borrowings at 31 March 2017  21 976    

The net proceeds of R8.8 billion received from the rights offer during April 2017 have been used to repay a portion of the bridge facility drawn down for the Alliance Medical acquisition.

Basis of presentation and accounting policies
The condensed consolidated interim financial statements contained in the interim report are prepared in accordance with the requirements of the JSE Limited Listings Requirements for preliminary reports, and the requirements of the Companies Act of South Africa applicable to summary financial statements, and are consistent with those applied in the previous consolidated annual financial statements. The Listings Requirements require preliminary reports to be prepared in accordance with the framework concepts and the measurement and recognition requirements of IFRS and the South African Institute of Chartered Accountants (SAICA) Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council and to also, as a minimum, contain the information required by IAS 34 "Interim Financial Reporting".

These interim financial results have been prepared under the supervision of PP van der Westhuizen (CA(SA)), the Group Chief Financial Officer.

Unaudited results
The results for the period ended 31 March 2017 have not been reviewed or audited by the Group’s auditors. The directors take full responsibility for the preparation of the interim report.