NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1 BASIS OF PREPARATION

1.1 Introduction

The summarised audited preliminary consolidated annual financial statements for the year ended 30 June 2015 have been prepared in compliance with the Listings Requirements of the JSE Limited, International Financial Reporting Standards (IFRS), the requirements of the International Accounting Standards (IAS) 34: Interim financial reporting, SAICA Financial Reporting Guidelines as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council and the Companies Act, No. 71 of 2008.

These summarised preliminary results for the year ended 30 June 2015 for which the directors take full responsibility, have been extracted from the audited consolidated financial statements. Both these summarised preliminary results and the consolidated financial statements for the year ended 30 June 2015 were audited by the independent external auditors, Ernst & Young Inc. and copies of their unqualified audit opinions are available for inspection at the Company's registered office. The results for the twelve months ended 30 June 2014 have been reviewed by Ernst & Young Inc. and a copy of their unqualified review opinion is available for inspection at the Company's registered office.

Mr Andy Hall, Deputy Chief Executive and Financial Director, is responsible for this set of financial results and has supervised the preparation thereof in conjunction with the Financial Executive, Ms Dorette Neethling.

1.2 Changes in accounting policies

The accounting policies adopted are consistent with those of the previous financial period except for the adoption of the following amended IFRS standards and IFRIC interpretations during the year which did not have any effect on the financial performance or position of the Group:

* IAS 32: Financial Instruments: Presentation: Offsetting of financial assets and financial liabilities;
* IAS 19: Defined benefit plans: Employee contributions; and
* IAS 39: Novation of derivatives and continuation of hedge accounting.

2 REVENUE

  Audited

year
ended
30 June
2015
R'000
  Reviewed
twelve-month
period
ended
30 June
2014
R'000
  Audited
nine-month
period
ended
30 June
2014
R'000
 
Turnover 5 528 369   5 193 070   3 615 287  
Finance income 19 887   30 344   18 987  
Dividend income 10 670   11 325   6 506  
  5 558 926   5 234 739   3 640 780  

3 NON-TRADING EXPENSES/(INCOME)

  Audited
year
ended
30 June
2015
R'000
  Reviewed
twelve-month
period ended
30 June
2014
R'000
  Audited
nine-month
period ended
30 June
2014
R'000
 
Impairments 79 783   843 364   843 364  
   – Intangible assets 74 432   601 789   601 789  
   – Inventories (8 375)   130 966   130 966  
   – Property, plant and equipment 7 390   69 243   69 243  
   – Long-term receivable and non-financial asset 6 336   41 366   41 366  
Transaction costs 13 678   118 157   91 000  
Retrenchment costs and separation package 770   16 505   16 505  
Share-based payment expenses 15 081   19 640   10 016  
Scrapping of property, plant and equipment 2 241   5 561   5 561  
Lease cancellation expenses 3 032   1 199   1 199  
Profit on disposal of business (8 260)      
  106 325   1 004 426   967 645  

4 SEGMENT REPORTING

CHANGE IN THE STRUCTURE AND COMPOSITION OF THE REPORTABLE SEGMENTS

In May 2014, Adcock Ingram announced substantive changes to the Group’s internal processes and structures. The reorganisation of the business was necessary to create autonomous operating divisions with separate focused strategies to best manage the challenges and opportunities in each of the businesses, while at the same time, facilitating full accountability in each case and allow for better measurement of returns. The new structure came into operation on 1 July 2014 creating a more defined and decentralised structure with focused and specialised commercial divisions in Southern Africa. The structure is ultimately designed to be customer-centric and assist in the recovery of the business.

The Group’s reportable segments in Southern Africa are now as follows:

Over the Counter (OTC) – focuses primarily on brands sold predominantly in the pharmacy market, where the pharmacist plays a role in the product choice;
Consumer – competes in the Fast Moving Consumer Goods (FMCG) space;
Prescription – markets products prescribed by medical practitioners; and
Hospital – supplier of hospital and critical care products, including intravenous solutions, blood collection products and renal dialysis systems.

  Audited

year
ended
30 June
2015
R'000
  Reviewed
twelve-month
period
ended
30 June
2014
R'000
  Audited
nine-month
period
ended
30 June
2014
R'000
 
Turnover            
Southern Africa 5 022 770   4 719 144   3 268 441  
   OTC 1 454 224   1 247 689   835 605  
   Consumer 628 991   583 502   327 464  
   Prescription 1 812 735   1 860 382   1 348 422  
   Hospital 1 126 820   1 027 571   756 950  
Rest of Africa 259 196   250 124   183 130  
India 269 237   241 878   177 708  
  5 551 203   5 211 146   3 629 279  
Less: Intercompany sales (22 834)   (18 076)   (13 992)  
  5 528 369   5 193 070   3 615 287  
Trading and operating profit/(loss)            
Southern Africa 520 894   289 889   62 820  
   OTC 260 717   164 255   77 095  
   Consumer 79 301   63 467   (25 280)  
   Prescription 148 099   94 974   45 170  
   Hospital 32 777   (32 808)   (34 165)  
             
Rest of Africa (13 161)   (29 019)   (23 171)  
India (56 750)   (54 659)   (46 739)  
Trading profit/(loss) 450 983   206 211   (7 090)  
Less: Non-trading expenses (106 325)   (1 004 425)   (967 645)  
Operating profit/(loss) 344 658   ( 798 214)   (974 735)  

As at June 2014 the assets and liabilities of the OTC, Consumer and Prescription products were integrated and managed as the Pharmaceutical division in Southern Africa. The Group regarded this as a single primary business segment for statement of financial position purposes. The prior year figures have not been restated as the information is not available.

  Audited

year
ended
30 June
2015
R'000
  Reviewed
twelve-month
period
ended
30 June
2014
R'000
  Audited
nine-month
period
ended
30 June
2014
R'000
 
Total assets            
Southern Africa 6 222 533       7 856 661  
   Pharmaceuticals         6 161 715  
   OTC 2 365 968          
   Consumer 416 427          
   Prescription 1 879 594          
   Hospital 1 560 544       1 694 946  
Other – shared services 1 194 383          
Rest of Africa 193 171       195 883  
India 852 153       948 507  
  8 462 240       9 001 051  
Intercompany eliminations (3 004 288)       (3 595 209)  
  5 457 952       5 405 842  

5 INVENTORY

  Audited

year
ended
30 June
2015
R'000
  Reviewed
twelve-month
period
ended
30 June
2014
R'000
  Audited
nine-month
period
ended
30 June
2014
R'000
 
Inventories written down/(reversed) and recognised as an expense/(income) in profit or loss:            
Cost of sales 97 800   109 328   93 170  
Non-trading expenses (8 375)   130 966   130 966  
  89 425   240 294   224 136  

6 CAPITAL COMMITMENTS

  Audited

year
ended
30 June
2015
R'000
  Reviewed
twelve-month
period
ended
30 June
2014
R'000
  Audited
nine-month
period
ended
30 June
2014
R'000
 
– contracted 7 000       57 278  
– approved, but not contracted 33 026       23 880  
  40 026       81 158  

7 HEADLINE EARNINGS/(LOSS)

  Audited

year
ended
30 June
2015
R'000
  Reviewed
twelve-month
period
ended
30 June
2014
R'000
  Audited
nine-month
period
ended
30 June
2014
R'000
 
Headline earnings/(loss) is determined as follows:            
Earnings/(Loss) attributable to owners of Adcock Ingram 197 932   (832 533)   (965 343)  
Adjusted for:            
Impairment of property, plant and equipment 7 390   69 243   69 243  
Share of non-controlling interest in the impairment of property, plant and equiptment (1 819)      
Impairment of intangible assets 74 432   601 789   601 789  
Tax effect on impairment of intangible assets   (15 823)   (15 823)  
Loss on disposal/scrapping of property, plant and equipment 491   7 589   7 008  
Tax effect on (profit)/loss on disposal of property, plant and equipment (227)   (280)   405  
Profit on disposal of business (8 260)      
Adjustments relating to equity-accounted joint ventures 412      
Headline earnings/(loss) 270 351   (170 015)   (302 721)  

8 SHARE CAPITAL

  Audited

year
ended
30 June
2015
Number of
shares
  Reviewed
twelve-month
period
ended
30 June
2014
Number of
shares
  Audited
nine-month
period
ended
30 June
2014
Number of
shares
 
Number of shares in issue 201 685       201 589  
Number of A and B shares held by the BEE participants (25 944)       (25 944)  
Number of ordinary shares held by the BEE participants (2 571)       (2 571)  
Number of ordinary shares held by Group company (4 285)       (4 285)  
Net shares in issue 168 885       168 789  
Headline earnings and basic earnings per share are based on:            
Weighted average number of shares 168 834   168 628   168 679  
Diluted weighted average number of shares 168 841   168 737   168 788  

9 SUBSEQUENT EVENTS

On 10 July 2015, shareholders approved the following resolution at a general meeting:

the release of the dividend acquired ordinary shares held by Blue Falcon Trading 69 (Pty) Limited and the Mpho ea Bophelo Trust;
the repurchase at a nominal value, and the cancellation, of each of the A ordinary and B ordinary shares in their entirety; and
the cancellation of the existing BEE scheme.

At a scheme meeting on 10 July 2015, shareholders approved the following resolution:

the implementation of a new BEE scheme.

Following the release of the restrictions contained in the existing BEE transaction over the divided acquired ordinary shares, The Bidvest Group Limited agreed to acquire in aggregate 2 571 000 Adcock Ingram dividend acquired ordinary shares at R52.00 per share, from Blue Falcon Trading 69 (Pty) Limited and Mpho ea Bophelo Trust