Notes to the consolidated financial statements

1 BASIS OF PREPARATION

1.1 INTRODUCTION

The abridged unaudited interim results for the six months ended 31 December 2016 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. The Board of
directors take full responsibility for the set of financial results which have been prepared by Ms Dorette Neethling, Chief Financial Officer.

1.2 CHANGES IN ACCOUNTING POLICIES

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

*IFRS 11: Joint Arrangements – Accounting for acquisition of interests in Joint Operations
*IAS 1: Presentation of Financial Statements – Disclosure initiative amendments

2 REVENUE

  Unaudited
six months
ended
31 December
2016
R’000
  Unaudited
six months
ended
31 December
2015
R’000
  Audited
year
ended
30 June
2016
R’000
 
Turnover 2 978 517   2 677 571   5 545 610  
Finance income 4 071   1 483   5 107  
Dividend income – Black Managers Share Trust 2 881   4 494
  9 179  
  2 985 469   2 683 548   5 559 896  

3 NON-TRADING EXPENSES

  Unaudited
six months
ended
31 December
2016
R’000
  Unaudited
six months
ended
31 December
2015
R’000
  Audited
year
ended
30 June
2016
R’000
 
Impairments   1 356   8 638  
Transaction costs 5 469   3 731   3 892  
Share-based payment expenses 13 767   35 898
  39 919  
  19 236   40 985   52 449  

4 DISCONTINUED OPERATION

During the year ended 30 June 2016, the Board had resolved to dispose of:
– Adcock Ingram Private Limited (India); and
– Ayrton Drug Manufacturing Limited (Ayrton) in Ghana.

This resulted in the above businesses being classified and accounted for as a disposal group held-for-sale during the previous financial year. India was disposed of on 14 October 2016 and 53.47% of Ayrton on 7 December 2016, with the Group retaining a 25.1% minority share in Ayrton. The loss of control on disposal resulted in the foreign currency translation reserve relating to both entities being recycled to profit and loss.

      Unaudited 
six months 
ended 
31 December 
2016 
R’000 
  Unaudited 
six months 
ended 
31 December 
2015 
R’000 
  Audited 
year 
ended 
30 June 
2016 
R’000 
 
4.1   STATEMENT OF COMPREHENSIVE INCOME            
    REVENUE 120 174    192 941    412 289   
    Turnover 118 901    189 459    403 892   
    Cost of sales (47 191)   (80 728)   (175 204)  
    Gross profit 71 710    108 731    228 688   
    Selling, distribution and marketing expenses (39 077)   (67 959)   (143 210)  
    Fixed and administrative expenses (17 384)   (23 257)   (53 883)  
    Trading profit 15 249    17 515    31 595   
    Non-trading expenses (refer (a)) (6 833)   (6 450)   (230 307)  
    Operating profit/(loss) 8 416    11 065    (198 712)  
    Finance income 1 273    3 482    8 397   
    Finance costs (2 014)   (4 765)   (8 574)  
    Profit/(Loss) before taxation 7 675    9 782    (198 889)  
    Taxation (1 301)   –    (1 353)  
    Profit/(Loss) for the period/year from discontinued operations 6 374    9 782    (200 242)  
    Profit on disposal of the discontinued operation 34 758    –    –   
    Profit/(Loss) for the period/year from discontinued operations 41 132    9 782    (200 242)  
    Profit/(Loss) attributable to:            
    India 46 638    2 075    (139 583)  
    Ayrton (5 506)   7 707    (60 659)  
      41 132    9 782    (200 242)  
    Profit/(Loss) attributable to:            
    Owners of the parent 39 903    7 884    (203 403)  
    Non-controlling interests 1 229    1 898    3 161   
    41 132    9 782    (200 242)  
a.   Non-trading expenses            
    Impairment of assets transferred to held-for-sale –    –    207 971   
     India –    –    135 012   
     Ayrton –    –    72 959   
    Transaction costs 6 833    6 450    22 656   
    Profit on sale of intangible asset –    –    (320)  
      6 833    6 450    230 307   
4.2   STATEMENT OF FINANCIAL POSITION            
    Details of assets and liabilities transferred to held-for-sale:            
    ASSETS            
    Property, plant and equipment     14 798    19 234   
    Intangible assets     556 060    381 109   
    Inventories     39 840    32 757   
    Trade and other receivables     67 865    56 660   
    Taxation receivable     –    2 114   
    Cash and cash equivalents     149 997    118 764   
    Total assets     828 560    610 638   
    LIABILITIES            
    Long-term borrowings     5 868    5 464   
    Short-term borrowings     –    5 971   
    Bank overdraft     –    13 102   
    Trade and other payables     118 126    71 733   
    Provisions     3 316    3 835   
    Total liabilities     127 310    100 105   
    Net assets/(liabilities) classified as held-for-sale            
    India     701 250    527 174   
    Ayrton     –    (16 641)  
    Net assets     701 250    510 533   
    Foreign currency translation reserve related to assets classified as held-for-Sale:     (252 688)   (148 663)  
     India     (252 688)   (203 987)  
     Ayrton     –    55 324   
    Share issue expenses related to assets classified as held-for-sale (india)     –    3 665   
    Net assets     448 562    365 535   
4.3   CASH INFLOW ON DISPOSAL            
    Consideration received 338 601           
     India 327 565           
     Ayrton 11 036           
    Net cash disposed of with the discontinued operations (47 505)          
     India (48 807)          
     Ayrton 1 302           
    Net cash inflow 291 096           
4.4   CASH FLOW STATEMENT            
    Included in the Group's consolidated statement of cash flows are cash flows from the            
    Indian and Ayrton discontinued operations. These cash flows are included in operating,            
    Investing and financing activities as follows:            
    Cash inflow/(outflow) from operating activities 19 487    5 800    (6 061)  
    Cash inflow/(outflow) from investing activities 744    (1 199)   (1 962)  
    Cash outflow from financing activities (78 388)   (4 825)   (8 419)  
    Net cash outflow (58 157)   (224)   (16 442)  

 

5 SEGMENT REPORTING

    Unaudited 
six months 
ended 
31 December 
2016 
R’000 
  Change   Unaudited 
six months 
ended 
31 December 
2015
R’000 
  Audited 
year 
ended 
30 June 
2016 
R’000 
 
  Turnover                
  Continuing operations:                
  Southern Africa 2 890 382    11%   2 608 213    5 388 857   
  OTC 884 568    16%   761 465    1 668 438   
  Consumer 334 849    2%   328 122    662 981   
  Prescription 1 008 586    13%   892 380    1 830 669   
  Hospital 662 379    6%   626 246    1 226 769   
  Rest of Africa and india * 107 544        84 272    193 693   
  Less: Inter-company sales (19 409)       (14 914)   (36 940)  
    2 978 517        2 677 571    5 545 610   
  Discontinued operations:                
  India 67 206        114 614    258 936   
  Rest of Africa (Ghana) 51 695        74 845    144 956   
    118 901        189 459    403 892   
  Trading and operating profit                
  Continuing operations:                
  Southern Africa 341 527    22%   279 318    607 043   
  OTC 145 626    13%   128 642    310 022   
  Consumer 52 385    25%   42 050    90 476   
  Prescription 116 490    34%   87 054    171 453   
  Hospital 27 026    25%   21 572    35 092   
  Rest of Africa and india * 372        (61)   (1 349)  
  Trading profit 341 899        279 257    605 694   
  Less: Non-trading expenses (19 236)       (40 985)   (52 449)  
  Operating profit 322 663        238 272    553 245   
  Discontinued operations:                
  India 6 300        4 190    7 269   
  Rest of Africa (Ghana) 8 949        13 325    24 326   
  Trading profit 15 249        17 515    31 595   
  Less: Non-trading expenses (6 833)       (6 450)   (230 307)  
  Operating profit/(loss) 8 416        11 065    (198 712)  
  Total assets                
  Continuing operations:                
  Southern Africa 4 189 783        4 199 702    4 198 690   
  OTC 1 546 192        1 442 263    1 556 402   
  Consumer 319 566        350 916    325 800   
  Prescription 1 279 402        1 318 918    1 216 989   
  Hospital 1 044 623        1 087 605    1 099 499   
  Rest of Africa 143 491        260 529    143 854   
  India 236 789        228 624    230 955   
  Other – shared services 801 364        434 958    412 470   
    5 371 427        5 123 813    4 985 969   
  Discontinued operations:                
  India –        828 560    584 844   
  Rest of Africa (Ghana) –        –    25 794   
    5 371 427       5 952 373    5 596 607   

* Research and development services in India.

6 INVENTORY

  Unaudited
six months
ended
31 December
2016
R’000
  Unaudited
six months
ended
31 December
2015
R’000
  Audited
year
ended
30 June
2016
R’000
 
The amount of inventories written down recognised as an expense in profit or loss:            
Continuing operations:            
Cost of sales 18 896   17 992   63 986  
Discontinued operations:            
Cost of sales 304     4 616  
  19 200   17 992   68 602  

7 CAPITAL COMMITMENTS

  Unaudited
six months
ended
31 December
2016
R’000
  Unaudited
six months
ended
31 December
2015
R’000
  Audited
year
ended
30 June
2016
R’000
 
– Contracted 52 216   12 460   11 362  
– Approved, but not contracted 148 847   13 083   38 577  
  201 063   25 543   49 939  

8 HEADLINE EARNINGS

  Unaudited 
six months 
ended 
31 December 
2016 
R’000 
  Unaudited 
six months 
ended 
31 December 
2015 
R’000 
  Audited 
year 
ended 
30 June 
2016 
R’000 
 
Headline earnings is determined as follows:            
Continuing operations            
Earnings attributable to owners of Adcock ingram from total operations 280 943    166 662    168 801   
Adjusted for:            
(Profit)/loss attributable from discontinued operations (refer note 4.1) (39 903)   (7 884)   203 403   
Earnings attributable to owners of Adcock ingram from continuing operations 241 040    158 778    372 204   
Adjusted for:            
Impairment of intangible assets –    –    3 149   
(Profit)/Loss on disposal/scrapping of property, plant and equipment (1)   255    888   
Tax effect on loss on disposal of property, plant and equipment –    (7)   (23)  
Adjustments relating to equity accounted joint ventures –    –    211   
Headline earnings from continuing operations 241 039    159 026    376 429   
Discontinued operations            
Profit/(Loss) attributable to owners of Adcock ingram from discontinued operations 39 903    7 884    (203 403)  
Adjusted for:            
Impairment of held-for sale assets –    –    207 971   
Profit on sale of discontinued operations (34 758)   –    –   
Profit on sale of intangible asset –    –    (320)  
Loss on disposal/scrapping of property, plant and equipment 975    –    70   
Headline earnings from discontinued operations 6 120    7 884    4 318   

9 SHARE CAPITAL

  ’000    ’000    ’000   
Number of shares in issue 175 748    175 748    175 748   
Number of treasury shares held (4 285)   (9 454)   (4 285)  
Net shares in issue 171 463    166 294    171 463   
Headline earnings and basic earnings per share are based on:            
Weighted average number of shares 166 294    167 219    166 485   
Diluted weighted average number of shares 166 294    167 492    166 485   

* SENS release date 22 February 2017