15 Acquisitions and disposals
15.1 Acquisitions
15.1.1 Taropa Technologies Proprietary Limited (Taropa)
On 1 March 2017 BCX acquired the entire issued ordinary share capital of Taropa.
The total purchase consideration was R13 million. The consideration is made up of R8 million cash and R5 million deferred consideration.
To the extent that Taropa’s profit after tax exceeds the warranted profit, the seller will earn additional consideration amounting up to
R5 million, payable in the 2019 and 2020 financial years.
Taropa provides innovative business solutions based on information and communication technology and runs ICT systems and manages
products, services and solutions for a wide range of customers.
The merger will enable BCX to expand its existing offerings while, at the same time, providing scale in IT services, which will help reinforce
Telkom’s core connectivity business and enhance BCX’s strategy.
The acquisition has been accounted for using the acquisition method. The date of acquisition is 1 March 2017 and the financial statements
include the Taropa results for the one month ended 31 March 2017.
The fair value of the identifiable assets and liabilities at acquisition date were determined as follows:
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| |
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2017
Rm |
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|
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|
|
| Assets |
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|
|
| Property, plant and equipment |
|
1 |
|
| Trade and other receivables |
|
15 |
|
| Inventories |
|
18 |
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| Cash and cash equivalents |
|
2 |
|
| Total assets |
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36 |
|
| Liabilities |
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|
|
| Trade and other payables |
|
29 |
|
| Income tax payable |
|
1 |
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| Total liabilities |
|
30 |
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| Total identifiable net assets at fair value |
|
6 |
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| Non-controlling interest at proportional share of net assets |
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– |
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| Goodwill arising on acquisition (provisional) |
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7 |
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| Purchase consideration transferred |
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13 |
|
| Analysis of cash flows at acquisition: |
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| Net cash outflow on acquisition of the subsidiary (included in cash flows from investing activities) |
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|
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| Cash paid |
|
8 |
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| Cash acquired |
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(2) |
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| Net cash outflow on acquisition |
|
6 |
|
At the date of the acquisition, the fair value of the trade receivables approximated its carrying value. The gross amount of trade receivables
is R13.9 million.
From the date of acquisition, Taropa has contributed R9.3 million of revenue and R0.33 million to the net profit before tax from the
continuing operations of the BCX group. If the acquisition had taken place at the beginning of the year, BCX revenue from continuing
operations would have been R14 079 million and the BCX group profit from continuing operations for the period would have been
R1 068 million.
The goodwill recognised is primarily attributed to the expected synergies and other benefits from combining the assets and activities of
Taropa with those of the BCX group. The goodwill is not deductible for income tax purposes.
Transaction costs of less than R1 million, which includes issue costs, have been expensed since the inception of the acquisition.
These expenses were recognised in service fees.
The fair value of intangible assets and goodwill has been measured on a provisional basis pending the completion of an independent
valuation.
If new information is obtained within one year of the acquisition date on facts and circumstances that existed at the acquisition date, the
above amounts will be revised.
15.1.2 African Arete Proprietary Limited (African Arete)
On 1 November 2016 BCX acquired the entire issued ordinary share capital of African Arete.
The total purchase consideration was R19 million, which was settled in cash.
African Arete provides innovative business solutions based on information and communication technology and runs ICT systems and
manages products, services and solutions for a wide range of customers.
The merger will enable BCX to expand its existing offerings while, at the same time, providing scale in IT services, which will help reinforce
Telkom’s core connectivity business and enhance BCX’s strategy.
The acquisition has been accounted for using the acquisition method. The date of acquisition is 1 November 2016 and the financial
statements include the African Arete results for the five months ended 31 March 2017.
The fair value of the identifiable assets and liabilities at acquisition date was determined as follows:
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2017
Rm |
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| Assets |
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| Trade and other receivables |
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7 |
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| Total assets |
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7 |
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| Liabilities |
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| Trade and other payables |
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3 |
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| Income tax payable |
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1 |
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| Total liabilities |
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4 |
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| Total identifiable net assets at fair value |
|
3 |
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| Non-controlling interest at proportional share of net assets |
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– |
|
| Goodwill arising on acquisition (provisional) |
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16 |
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| Purchase consideration transferred |
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19 |
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| Analysis of cash flows at acquisition: |
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| Net cash outflow on acquisition of the subsidiary (included in cash flows from investing activities) |
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|
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| Cash paid |
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19 |
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| Net cash outflow on acquisition |
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19 |
|
At the date of the acquisition, the fair value of the trade receivables approximated its carrying value. The gross amount of trade receivables
is R6.5 million.
From the date of acquisition, African Arete has contributed R21.2 million of revenue and R1.2 million to the net profit before tax from the
continuing operations of the BCX group. If the acquisition had taken place at the beginning of the year, BCX revenue from continuing
operations would have been R13 905 million and the BCX group profit from continuing operations for the period would have been
R1 066 million.
The goodwill recognised is primarily attributed to the expected synergies and other benefits from combining the assets and activities of
African Arete with those of the BCX group. The goodwill is not deductible for income tax purposes.
Transaction costs of less than R1 million, which include isssue costs, have been expensed since the inception of the acquisition.
These expenses were recognised in service fees. The fair value of intangible assets and goodwill has been measured on a provisional
basis pending the completion of an independent valuation.
If new information is obtained within one year of the acquisition date on facts and circumstances that existed at the acquisition date, the
above amounts will be revised.
15.1.3 Relational Database Consulting Proprietary Limited (RDC)
On 1 April 2016, Business Connexion Group Limited acquired the entire share capital of RDC.
The total purchase consideration amounted to R30 million, funded by a cash payment of R16 million and a deferred purchase consideration
of R14 million payable on achieving financial targets.
RDC is a market leader in Database and Operating System administration with a strong focus on Oracle.
The merger will enable the group to expand its existing offerings while, at the same time, providing scale in IT services, which will help
reinforce the group’s core connectivity business and enhance convergence strategy. Their expanded range of services includes Oracle
E-Business Suite, Oracle Fusion Middleware, Oracle Solaris Support and Oracle Sales.
The acquisition has been accounted for using the acquisition method. The date of acquisition is 1 April 2016 and the financial statements include the RDC results for the twelve months ended 31 March 2017.
The fair value of the identifiable assets and liabilities at acquisition date were determined as follows:
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2017
Rm |
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|
|
| Assets |
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| Trade and other receivables |
|
5 |
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| Cash and cash equivalents |
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17 |
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| Total assets |
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22 |
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| Liabilities |
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| Non-current debt |
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(3) |
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| Trade and other payables |
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(13) |
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| Total liabilities |
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(16) |
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| Total identifiable net assets at fair value |
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6 |
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| Goodwill arising at acquisition |
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24 |
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| Purchase consideration transferred |
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30 |
|
| Analysis of cash flows at acquisition: |
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| Net cash acquired with the subsidiary (included in cash flows from investing activities) |
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| Cash paid |
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16 |
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| Cash acquired at acquisition |
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17 |
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| Net cash inflow on acquisition |
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1 |
|
To the extent that RDC’s profit after tax exceeds the warranted profit, the seller will earn additional consideration amounting to R14 million,
payable in the 2019 and 2020 financial years.
At the date of the acquisition, the fair value of the trade receivables approximated its carrying value. The gross amount of trade receivables
is R5.2 million.
From the date of acquisition, RDC has contributed R89.4 million of revenue and R13.5 million to the net profit before tax from the
continuing operations of the BCX group.
The goodwill recognised is primarily attributed to the expected synergies and other benefits from combining the assets and activities of
RDC with those of the BCX group. The goodwill is not deductible for income tax purposes. Transaction costs of less than R1 million, which
includes issue costs, have been expensed since the inception of the acquisition.
March 2016
15.1.4 Business Connexion group (BCX)
On 25 August 2015, Telkom acquired the entire issued ordinary share capital and the entire issued “A“ordinary shares of BCX. The total
purchase consideration of R2.7 billion was funded through Telkom’s own cash resources.
BCX provides innovative business solutions based on information and communication technology and runs ICT systems and manages
products, services and solutions for a wide range of customers.
15.1.5 Anco IT Proprietary Limited (Anco)
On 1 November 2015 BCX acquired the entire issued ordinary share capital of Anco. The total purchase consideration of R41 million was in
the form of cash, earn-out payments, a loan to BCX and deferred consideration.
Anco provides innovative business solutions based on information and communication technology and runs ICT systems and manages
products, services and solutions for a wide range of customers.
15.1.6 UCS Solutions Proprietary Limited (UCS) minority interest
On 31 December 2015 the Telkom group, through BCX, acquired the remaining 15% of the UCS (and its holding in Integr8 IT Proprietary
Limited), based on the vested put option agreement with shareholders. UCS and Integr8 are now wholly owned subsidiaries of the BCX
group. This transaction was accounted for as an equity transaction.
2017
15.2.1 Enterprise business
On 1 November 2016 Enterprise, previously a division of Telkom, was sold to BCX to realise synergies. The integration will enable the
Telkom group to offer Enterprise solutions beyond connectivity and to strengthen Telkom’s leadership in the Enterprise market.
The transaction was financed through redeemable preference shares from BCX to Telkom and accounted for as a common control
transaction. BCX recognised the acquired Enterprise assets at their carrying amount on the date of sale and the difference between the
proceeds and the carrying amount of the Enterprise business was recognised as a common control equity reserve. In Telkom company the
difference between the carrying amount of the Enterprise business and proceeds was recognised in profit or loss.
2016
15.2.2 Telkom DCO
On 1 November 2015 Cybernest (DCO), previously the IT business division of Telkom, was sold to BCX to realise synergies. The transaction
was financed through a loan from Telkom to BCX and accounted for as a common control transaction. BCX recognised the acquired DCO
assets at their carrying amount on the date of sale and the difference between the proceeds and the carrying amount of the DCO business
was recognised as a common control equity reserve. In Telkom company the difference between the carrying amount of the DCO business
and proceeds was recognised in profit or loss.
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| 15.3 Disposals |
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2017
Rm |
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| 15.3.1 Nanoteq Proprietary Limited |
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The group concluded a transaction to sell its Nanoteq business shareholding, effective 30 September 2016, for a total
consideration of
R57 million. |
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| The net cash flows attributable to the operating, investing and financing activities of discontinued operations: |
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| Net assets disposed |
|
1 |
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| Non-controlling interest |
|
(1) |
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| Consideration |
|
57 |
|
| Profit on disposal |
|
57 |
|
15.3.2 Other properties
Telkom board approved the disposal of an additional 26 properties to the market. These properties were identified as no longer needed for
the Telkom operations. The sale is planned to take place during the 2018 financial period.
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2017
Rm |
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| At 31 March 2017, the group recognised these properties as held for sale in its statement of financial position. The fair values of these properties at 31 March 2017 exceed their carrying values. |
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| Carrying value |
|
12 |
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| 15.4 Goodwill reconciliation - 2017 |
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|
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| Opening balance |
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1 214 |
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| Acquisition of Anco* |
|
(8) |
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| Acquisition of RDC |
|
24 |
|
| Acquisition of Taropa |
|
7 |
|
| Acquisition of African Arete |
|
16 |
|
| |
|
1 253 |
|
|
|
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| |
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2016
Rm |
|
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| Goodwill reconciliation - 2016 |
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| Opening balance |
|
63 |
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| Acquisition of BCX |
|
1 119 |
|
| Acquisition of African Arete |
|
32 |
|
| |
|
1 214 |
|
* At 31 March 2016, goodwill of R32 million was raised in respect of the acquisition of Anco. This amount has been reduced by R8 million in the current year as
a result of the finalisation of the goodwill calculation.
In the current financial year the entire goodwill allocation relating to the BCX group was allocated to the BCX cash-generating unit (CGU).
A value in use calculation was performed in the current financial year. There is no impairment on the BCX CGU.