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NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS
continued
For the year ended 31 May 2016
121
BLUE LABEL INTEGRATED ANNUAL REPORT 2016
3.
Financial instruments and financial risks
continued
3.2 Financial liabilities continued
3.2.1 Trade and other payables continued
Contingent consideration
Changes in level 3 instruments are as follows:
2016
R’000
2015
R’000
Opening balance
123 902
22 607
Acquisition of Viamedia Proprietary Limited
—
84 783
Acquisition of SupaPesa Africa Limited
—
29 851
Acquisition of Supa Pesa South Africa Proprietary Limited
—
100
Settlements
(1 931)
(19 515)
Gains or losses recognised in profit or loss
(38 408)
6 076
Closing balance
83 563
123 902
Total gains or losses for the period included in profit or loss for liabilities held at the
end of the reporting period, under:
Other income
(48 120)
(923)
Interest paid
9 712
6 999
Change in unrealised gains or losses for the period included in profit or loss for
liabilities held at the end of the reporting period
9 127
2 052
The closing balance includes R15.8 million relating to SupaPesa Africa Limited, R65.8 million relating to Viamedia
Proprietary Limited and R2 million to other contingent consideration.
Acquisition of SupaPesa Africa Limited
In the prior year, the fair value of the contingent consideration arrangement of R29.9 million was originally estimated
by applying the income approach. The fair value estimates are based on a discount rate of 9.25%. For all profit targets
management has assumed a probability of 100% initially. In determining these probabilities management has assessed
the cash flow projections based on financial budgets for the forthcoming three years which are based on assumptions
of the business, industry and economic growth.
In the current year management reassessed the cash flows taking into account the profit targets and the probability
of meeting these as well as the forecasted financial budget. The probabilities have been adjusted downwards from
100% to between 32% and 55%. This has resulted in a release of R17.2 million into the income statement, included
in other income.
Acquisition of Viamedia Proprietary Limited (Viamedia)
The contingent consideration arrangement requires Blue Label Telecoms Limited to pay in cash the former owner
of Viamedia, an additional amount of R215.6 million if certain profit warranties are achieved. The first three amounts
of R24.1 million are based on the profits of Viamedia for the year ended 31 May 2015 and 31 May 2016, and ending
31 May 2017. The fourth and fifth amounts of R30.9 million and R112.5 million are based on the profits of Viamedia
for the three years ending 31 May 2017.
In the prior year, the fair value of the contingent consideration arrangement of R84.8 million was estimated by
applying the income approach. The fair value estimates are based on a discount rate of 9%. For the first, second, third
and fourth profit targets management has assumed a probability of 100%. For the fifth profit target management has
assumed a probability of 0%. In determining these probabilities management has assessed the cash flow projections
based on financial budgets for the forthcoming three years which are based on assumptions of the business, industry
and economic growth.
In the current year management reassessed the cash flows taking into account the profit targets and the probability of
meeting these as well as the forecasted financial budget. For the first, second and third profit targets, the probabilities
have been adjusted downwards from 100% to between 84% and 100%. For the fourth profit target management
has assumed a probability of 0%. This has resulted in a release of R30.8 million into the income statement, included
in other income.