01 02 03 Financial Statements 04 5. Business combinations continued Acquisitions in year ended 31 December 2017 continued LLC Aliance Med On 20 July 2017 JSC Medical Corporation EVEX (“Acquirer”), a wholly owned subsidiary of the Group, acquired 100% of the shares of LLC Aliance Med (“AM”), 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 Cash and cash equivalents 4 Property and equipment 737 Receivable from healthcare services, net 460 Total assets 1,201 Liabilities Accounts payable 192 Accruals for employee compensation 325 Other liabilities 58 Total liabilities 575 Total identifiable net assets 626 Non-controlling interests – Goodwill arising on acquisition 2,548 Consideration2 3,174 1 The fair value of the receivables from healthcare services amounted to GEL 460. The gross amount of receivables is GEL 550. GEL 90 of the receivables has been impaired. 2 Consideration comprised GEL 3,174 cash payment, which has been fully paid as at reporting date. Net cash outflow for the acquisition was as follows: Cash paid 3,174 Cash acquired with the subsidiary (4) Net cash outflow 3,170 The Group decided to increase its presence and investment in the Tbilisi healthcare market by acquiring AM. Management considers that the deal will have a positive impact on the value of the Group. Since acquisition, AM has recorded GEL 857 and GEL 264 of revenue and profit, respectively. For the year ended 31 December 2017 revenue and profit of the acquired entity were GEL 1,537 and GEL 504, respectively. If the combination had taken place at the beginning of the year, the Group would have recorded GEL 746,390 and GEL 46,172 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. 147