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 JSC ABC Pharmacy On 6 January 2017, JSC GEPHA (“Acquirer”), a wholly owned subsidiary of the Group acquired 67% of JSC ABC Pharmacy (“ABC”), a pharmaceutical company operating in Georgia from individual investors. The fair values of identifiable assets and liabilities of ABC as at the date of acquisition were: Fair value recognised on acquisition Assets Cash and cash equivalents 4,184 Receivables from sales of pharmaceuticals1 8,050 Inventory1 44,572 Property and equipment, net 10,987 Intangible assets, net 322 Current income tax assets 270 Prepayments 1,413 Other assets 1,045 Total assets 70,843 Liabilities Accounts payable 27,525 Accruals for employee compensation 1,861 Other liabilities 1,122 Total liabilities 30,508 Total identifiable net assets 40,335 Non-controlling interest 13,312 Goodwill arising on acquisition 46,796 Consideration2 73,819 1 The fair value of the receivables from healthcare services amounted to GEL 8,050. The gross amount of receivables is GEL 9,452. GEL 1,402 of the receivables has been impaired. The fair value of the inventory amounted to GEL 44,572. The gross amount of inventory was GEL 48,176. GEL 3,604 of the inventory has been impaired. 2 Consideration comprised GEL 73,819, of which GEL 10,347 is 33% share of JSC GPC, GEL 32,501 has been already paid and remaining amount is due in tranches within five years. 3 Intangible assets identified at business combination equalled GEL 322. The Group searched for other intangible assets including existence of patents and licences, however, typical cost of obtaining such assets in Georgia is very low. Separate intangible assets were not recognised due to immateriality. The Group also considered separate recognition of customer lists, however, IFRS prohibits recognition of intangible assets on which sharing or selling personal information (name, address, personal ID, etc.) about a group of specified customers to third party without customer consent is prohibited. Sharing of such information would be violation of Georgia’s Personal Data Protection Law. Net cash outflow for the acquisition was as follows: Cash paid 32,501 Cash acquired with the subsidiary (4,184) Net cash outflow 28,317 As part of the ABC acquisition contract the Group has a call option (derivative financial asset) to buy the remaining non-controlling interest, which is a 33% stake in the combined pharma business during the period from 1 January 2023 to 31 December 2023. At the same time the non-controlling shareholders own put option to sell the remaining non-controlling interest during the same period. Refer to Notes 16, 25 and 40. The Group decided to increase its presence and investment in the pharmaceuticals segment through the acquisition of ABC. Management considers that the deal will have a positive impact on the value of the Group. Since acquisition, ABC has recorded GEL 139,812 and GEL 15,354 of revenue and profit, respectively. The Group has elected to measure the non-controlling interests in ABC Pharmacy at the non-controlling interests’ proportionate share of ABC Pharmacy’s identifiable net assets. 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. 148