Adcock Ingram Group Interim Results for the six-month period ended 31 December 2016 and Cash Dividend Declaration

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

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