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 continued LLC New Clinic On 20 July 2017 JSC Medical Corporation EVEX (“Acquirer”), a wholly owned subsidiary of the Group, acquired 100% of the shares of LLC New Clinic (“NC”), a healthcare company operating in Georgia from individual investors. The fair values of identifiable assets and liabilities of NC as at the date of acquisition were: Fair value recognised on acquisition Assets Property and equipment 1,953 Total assets 1,953 Liabilities Accounts payable 3 Accruals for employee compensation 75 Other liabilities 6 Total liabilities 84 Total identifiable net assets 1,869 Non-controlling interests – Goodwill arising on acquisition 4,781 Consideration 1 6,650 1 Consideration comprised GEL 6,650, which consists of cash payment of GEL 6,535 and a holdback amount with a fair value of GEL 115. Net cash outflow for the acquisition was as follows: Cash paid 6,535 Cash acquired with the subsidiary – Net cash outflow 6,535 The Group decided to increase its presence and investment in the Tbilisi healthcare market by acquiring NC. Management considers that the deal will have a positive impact on the value of the Group. Since acquisition, NC has recorded GEL 2,302 and GEL 996 of revenue and profit, respectively. For the year ended 31 December 2017 revenue and profit of the acquired entity were GEL 4,832 and GEL 1,648, respectively. If the combination had taken place at the beginning of the year, the Group would have recorded GEL 748,241 and GEL 46,584 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. 146