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BUSINESS MODEL
AND STRATEGIC
OBJECTIVES
LEADERSHIP
GOVERNANCE
OPERATING
PERFORMANCE
SHAREHOLDERS’
INFORMATION AND
ADMINISTRATION
FINANCIAL
PERFORMANCE
BLUE LABEL INTEGRATED ANNUAL REPORT 2014
185
NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS
CONTINUED
For the year ended 31 May 2014
26.
BUSINESS COMBINATIONS (continued)
26.1 Acquisition of subsidiary (continued)
Retail Mobile Credit Specialists Proprietary Limited (RMCS) was purchased with the objective of affording the
Group access to new channels for the distribution of both RMCS and Group products and services.
In most business acquisitions, there is a part of the cost that is not capable of being attributed in accounting
terms to identifiable assets and liabilities acquired and is therefore recognised as goodwill. In the case of the
acquisition of RMCS, this goodwill is underpinned by a number of elements, which individually cannot be
quantified. Most significant among these is the opportunity that the distribution network affords the Group.
The contingent consideration arrangement requires The Prepaid Company Proprietary Limited to pay in cash
the former owners of RMCS, two additional amounts of R15.4 million and R16 million if certain profit
warranties are achieved. The first amount of R15.4 million was based on the profits of RMCS for the six-
month period ended 28 February 2014. These profit targets were achieved and the R15.4 million was paid
on 2 June 2014, post year-end. The second amount of R16 million is based on the profits of RMCS for the
year ending 31 August 2014.
The potential undiscounted amount of all future payments that the Group could be required to make under
this arrangement is between R15.4 million and R31.4 million.
The fair value of the contingent consideration arrangement of R15.1 million was estimated by applying the
income approach. The fair value estimates are based on a discount rate of 9%. For the first and second profit
targets management has assumed a probability of 100% and 0% respectively. Refer to note 14.