Georgia Healthcare Group PLC Annual Report 2018 Financial Statements Notes to Consolidated Financial Statements continued (Thousands of Georgian Lari unless otherwise stated) 5. Business combinations continued Acquisitions in year ended 31 December 2017 LLC Medical Center Almedi On 8 November 2017 JSC Medical Corporation EVEX (“Acquirer”), a wholly owned subsidiary of the Group acquired 100% of LLC Medical Center Almedi (“MCA”) shares from individual investors. LLC Medical Center Almedi is a healthcare company operating in Georgia. The fair values of identifiable assets and liabilities of MCA as at the date of acquisition were: Fair value recognised on acquisition Assets Property and equipment 86 Intangible assets 3 Total assets 89 Liabilities Borrowings 103 Accounts payable 12 Current income tax liabilities 18 Other liabilities 7 Total liabilities 140 Total identifiable net assets (51) Non-controlling interests – Goodwill arising on acquisition 951 Consideration 1 900 1 Consideration comprised GEL 900, which consists of cash payments of GEL 700 and a holdback amount with a fair value of GEL 200. Net cash outflow for the acquisition was as follows: Cash paid 700 Cash acquired with the subsidiary – Net cash outflow 700 The Group decided to increase its presence and investment in the regional healthcare market by acquiring MCA. Management considers that the deal will have a positive impact on the value of the Group. Since acquisition, MCA has recorded GEL 230 and GEL 50 of revenue and profit, respectively. For the year ended 31 December 2017 revenue and profit of the acquired entity were GEL 609 and GEL 72, respectively. If the combination had taken place at the beginning of the year, the Group would have recorded GEL 746,089 and GEL 45,954 of revenue and profit, respectively. The primary factor that contributed to the cost of business combination that resulted in the recognition of goodwill on acquisition is the positive synergy that is expected to be brought into the Group’s operations. Besides, the management believes there are potential upsides in material expenses and salary costs due to centralisation of procurement of inventories and administrative function, including HR and accounting. For tax legislation purposes goodwill is recognised on a stand-alone statement of financial position of a company only subsequent to the legal merger of the relevant cash-generating unit. Until then goodwill as an asset does not exist separately for tax purposes, rather its full amount is part of the historical cost of the investment on the Company’s Statement of Financial Position. Subsequent to the merger, for tax legislation purposes, the full amount of the goodwill is recognised as an intangible asset per tax code and is subsequently amortised applying the algorithm provided by tax code. Such amortisation is fully deductible for tax purposes. 144