01 02 03 Financial Statements 04 5. Business combinations continued Acquisitions in year ended 31 December 2017 continued JSC Polyclinic Vere On 25 December 2017 JSC Medical Corporation EVEX (“Acquirer”), a wholly owned subsidiary of the Group acquired 97.8% of JSC Polyclinic Vere (“Vere”) shares from individual investors. JSC Polyclinic Vere is a healthcare company operating in Georgia. The fair values of identifiable assets and liabilities of Vere as at the date of acquisition were: Fair value recognised on acquisition Assets Property and equipment 259 Total assets 259 Liabilities Accounts payable 93 Accruals for employee compensation 99 Other liabilities 97 Total liabilities 289 Total identifiable net assets (30) Non-controlling interests 49 Goodwill arising on acquisition 2,211 Consideration1 2,230 1 Consideration comprised GEL 2,230, which consists of cash payments of GEL 649 and a holdback amount with a fair value of GEL 1,581. Net cash outflow for the acquisition was as follows: Cash paid 649 Cash acquired with the subsidiary – Net cash outflow 649 The Group decided to increase its presence and investment in the regional healthcare market by acquiring Vere. Management considers that the deal will have a positive impact on the value of the Group. For the year ended 31 December 2017 revenue and loss of the acquired entity were GEL 1,903 and GEL 40, respectively. If the combination had taken place at the beginning of the year, the Group would have recorded GEL 747,613 and GEL 45,891 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. In addition, 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. 145