Notes
1. ACQUISITIONS AND DISPOSALS
Transactions with non-controlling interests
Increases and decreases in ownership interest in subsidiaries
The Group had marginal increases and decreases in its percentage shareholdings in some of its southern Africa subsidiary companies due to transactions with minority shareholders. The individual transactions are immaterial.
Business combinations
1. North West Dialysis Centre
The Group acquired 100% of North West Dialysis Centre, incorporated in South Africa, on 1 November 2020 for a total consideration of R14 million. Goodwill of R11 million was recognised. No significant contingent liabilities existed at the acquisition date.
2. ZAG Zyklotron AG (ZAG)
The Group, through AMG, acquired 100% of ZAG, incorporated in Germany, on 1 January 2021 for a total consideration of EUR 5 million (R90 million). Goodwill of R56 million was recognised. No significant contingent liabilities existed at the acquisition date.
The aggregated fair values of the assets and liabilities arising from the acquisitions of North West Dialysis Centre and ZAG are as follows:
| 2021 R’m |
|
| Total purchase consideration | 104 |
|---|---|
| Cash portion | 104 |
| Fair value of net assets acquired | 37 |
| Property, plant and equipment | 31 |
| Cash and cash equivalents | 6 |
| Trade and other receivables | 8 |
| Inventories | 13 |
| Interest-bearing borrowings | (5) |
| Trade and other payables | (15) |
| Income tax payable | (1) |
| Goodwill1 | 67 |
| 1 | The acquisitions have been provisionally accounted for in terms of IFRS 3 “Business combinations”. Goodwill recognised on the business combinations is in respect of expected synergies from combining the acquired operations within the existing southern Africa and international operations. |
Primary reasons for business combinations
This is in line with Life Healthcare’s strategy to establish a sizeable international business, and complements the Group’s existing renal dialysis and diagnostic services businesses.
| 2021 R’m |
|
| Aggregated cash outflow to acquire businesses, cash acquired Initial cash considerations Less: cash at acquisitions |
104 (6) |
|---|---|
| 98 | |
| Aggregated impact on consolidated information from date of acquisitions | |
| Revenue | 24 |
| Net profit | – |
| Aggregated impact on consolidated information if the business combinations took place on 1 October 2020 | |
| Revenue | 41 |
| Net profit | 1 |
Discontinued operation and sale of Scanmed
Description
On 16 November 2020 the Group received an offer to dispose of its Polish operation, Scanmed. The related agreements were signed on 24 November 2020 and the transaction was subject to regulatory approvals. The sale proceeds per the agreements were lower than the carrying value of Scanmed at 30 September 2020. With the receipt of the offer, the Group considered it prudent and appropriate to impair the carrying value at 30 September 2020 to reflect the fair value less costs to sell. The impairment recognised in FY2020 amounted to R793 million.
The sale of Scanmed was concluded on 26 March 2021 and was reported as a discontinued operation. Financial information relating to the discontinued operation for the period to the date of disposal is set out on the following page.
Financial performance and cash flow information
The results of the discontinued operation, which have been included in the profit for the period, were as follows:
| 2021 R’m |
2020 R’m |
||
| Revenue | 847 | 740 | |
|---|---|---|---|
| Normalised EBITDA | 85 | 101 | |
| Depreciation, amortisation, interest and other expense | (34) | (80) | |
| Fair value adjustments to contingent consideration | (9) | (34) | |
| Profit/(loss) before tax | 42 | (13) | |
| Tax expense | (9) | (8) | |
| Profit/(loss) after tax from discontinued operation | 33 | (21) | |
| Profit on disposal of Scanmed after income tax (refer note 1) | 54 | – | |
| Profit/(loss) from discontinued operation | 87 | (21) | |
| Basic earnings per share from discontinued operation | 6.0 | (1.4) | |
| Diluted earnings per share from discontinued operation | 6.0 | (1.4) | |
| Other comprehensive income | |||
| Foreign currency differences on translation before disposal | (129) | 206 | |
| Exchange gain reclassified to profit or loss on disposal | (188) | – | |
| Tax on exchange gain reclassified to profit or loss on disposal | 41 | – | |
| Reversal of previously recognised deferred tax | 133 | – | |
| (143) | 206 | ||
| The impact on the statement of cash flows | |||
| Net cash generated from operating activities | 77 | 19 | |
| Net cash utilised in investing activities | (20) | (38) | |
| Net cash utilised in financing activities | (21) | (11) | |
| Net increase/(decrease) in cash and cash equivalents | 36 | (30) | |
Details of the sale
| 2021 R’m |
|
| Total consideration received | 733 |
|---|---|
| Cash | 733 |
| Carrying value of net assets sold | (725) |
| Property, plant and equipment | (1 021) |
| Intangible assets | (377) |
| Cash and cash equivalents | (160) |
| Trade and other receivables | (199) |
| Inventories | (37) |
| Deferred tax liabilities | 3 |
| Interest-bearing borrowings | 797 |
| Trade and other payables | 260 |
| Contingent consideration liabilities | 9 |
| Profit on disposal before tax, transaction costs and reclassification of foreign | |
| currency translation reserve | 8 |
| Withholding tax | (20) |
| Transaction costs | (32) |
| Exchange gain reclassified to profit or loss on disposal | 188 |
| Tax on exchange gain reclassified to profit or loss on disposal | (41) |
| Tax recognised as a result of assessed losses | (49) |
| Profit on disposal after income tax | 54 |
| Net cash inflow on disposal | |
| Cash consideration received | 733 |
| Less: cash and cash equivalents disposed of | (160) |
| 573 |
2. INTEREST-BEARING BORROWINGS
| R’m | ||
| Total borrowings at 30 September 2020 | 14 214 | |
| Proceeds from interest-bearing borrowings | 1 440 | |
| Repayment of interest-bearing borrowings | (2 370) | |
| Additional lease liabilities recognised | 255 | |
| Arising on acquisition of subsidiaries | 5 | |
| Disposal of discontinued operation | (797) | |
| Exchange differences | (998) | |
| Total borrowings at 31 March 2021 | 11 749 |
|---|
3. FINANCIAL INSTRUMENTS
Fair value
Other non-current assets, as presented in the statement of financial position, include derivative financial instrument assets of R15 million (September 2020: Rnil) at fair value (through profit or loss).
Other non-current liabilities and other current liabilities, as presented in the statement of financial position, include contingent consideration liabilities of R583 million (September 2020: R642 million) and derivative financial instrument liabilities of R14 million (September 2020: R53 million) at fair value (through profit or loss).
The largest contingent consideration payable (R582 million) relates to a potential amount payable to the previous owners of Life Molecular Imaging (LMI), acquired during June 2018. The decrease in the contingent consideration relating to LMI from 30 September 2020 (R629 million) relates to the movement in foreign currency rates
(-R78 million), set off by the unwinding of the contingent consideration (+R31 million). The contingent consideration will become payable when the acquired business is generating a positive cash contribution, measured on a cumulative basis from the date of acquisition. The contingent consideration is a 50% share of pre-tax cash generated for a period of 10 years post-acquisition or a maximum amount payable of USD200 million. The amount included is the calculated payment, based on long-term forecasts adjusted for probabilities associated with the success of the product developed, discounted to present value using a discount rate of 13.25%.
The fair value of interest rate swaps is calculated as the mark-to-market valuation, which represents the mid-market value of the instrument as determined by the financial institution at 31 March 2021.
The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active and for unlisted securities, the Group establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis and option pricing models, making maximum use of market inputs and relying as little as possible on entity-specific inputs.
The Group’s financial instruments held at fair value are measured subsequent to their initial recognition and are grouped into levels 1 to 3 based on the significance of the inputs used in the valuation. All of the resulting fair value estimates for the derivative financial instruments used for hedging are included in level 2. The contingent considerations are included in level 3.
There were no transfers between levels 1, 2 and 3 during the period.
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 (JSE) Listings Requirements for preliminary reports, and the requirements of the South Africa Companies Act, 71 of 2008 (as amended) applicable to summary financial statements. The accounting policies are consistent with those applied in the previous consolidated annual financial statements. The interim financial statements are prepared in accordance with and contain the information required by IAS 34 Interim Financial Reporting, as well as the South African Institute of Chartered Accountants Financial Reporting Guides as issued by the Accounting Practices Committee, and Financial Pronouncements as issued by the Financial Reporting Standards Council.
The condensed consolidated interim financial statements are prepared on a going concern basis. The Board is satisfied that the liquidity and solvency of the Company is sufficient to support the current operations for the next 12 months.
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 six months ended 31 March 2021 have not been reviewed or audited by the Group’s auditors.
The directors take full responsibility for the preparation of the interim report.
Non-IFRS measures and pro forma information
To provide a more meaningful assessment of the Group’s performance for the period, non-IFRS measures (normalised EBITDA, EBITA, normalised earnings and net debt) and pro forma information have been included. Pro forma information includes H2-2020 results. The non-IFRS measures and pro forma information are the responsibility of the Group’s directors. Pro forma financial information is presented for illustrative purposes only. Due to its nature, the non-IFRS measures and pro forma information may not fairly present the Group’s financial position, results of operations, changes in equity or cash flows for the six months ended 31 March 2021.
The non-IFRS measures are not an IFRS requirement.