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AIP - Adcock Ingram Holdings Limited - Unaudited financial results for the

Release Date: 24/05/2011 07:05
Code(s): AIP
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AIP - Adcock Ingram Holdings Limited - Unaudited financial results for the six-month period ended 31 March 2011 ADCOCK INGRAM HOLDINGS LIMITED (Registration number 2007/016236/06) (Incorporated in the Republic of South Africa) Share code: AIP ISIN: ZAE000123436 ("Adcock" or "the Company" or "the Group") Unaudited financial results for the six-month period ended 31 March 2011 Foreword The multinational partner of choice strategy has delivered attractive value as Adcock Ingram diversifies its revenue streams and decreases its dependence on mature products. CEO, Jonathan Louw Adcock Ingram provides an extensive portfolio of branded and generic medicines, has a strong presence in over-the-counter (OTC) brands and is South Africa`s largest supplier of hospital and critical-care products. Salient features Turnover from continuing operations increased 14% to R2,2 billion EBITDA from continuing operations increased 3% to R580 million HEPS from continuing operations decreased 1% Distribution per share increased 4% to 81 cents 2,5% of issued ordinary shares bought back Consolidated statements of comprehensive income Unaudited Unaudited Audited
six months six months year ended ended ended 31 Mar 31 Mar 30 Sep 2011 Change 2010 2010
Continuing Note R`000 % R`000 R`000 operations REVENUE 2 2 221 575 13 1 961 474 4 200 022 TURNOVER 2 2 152 267 14 1 884 378 4 130 087 Cost of sales (1 093 230) (889 462) (1 928 956) Gross profit 1 059 037 6 994 916 2 201 131 Selling and (250 046) (214 976) (442 805) distribution expenses Marketing expenses (91 377) (80 562) (162 442) Research and (33 213) (31 528) (65 287) development expenses Fixed and (158 153) (146 082) (362 290) administrative expenses Operating profit 526 248 1 521 768 1 168 307 Finance income 2 61 857 70 665 59 288 Finance costs (41 483) (64 232) (37 931) Dividend income 2 7 451 6 431 10 647 Profit before 554 073 4 534 632 1 200 311 taxation and abnormal items Abnormal items 3 - - (269 000) Profit from 554 073 4 534 632 931 311 continuing operations before taxation Taxation (165 645) (143 854) (308 542) Profit for the 388 428 (1) 390 778 622 769 period from continuing operations (Loss)/profit after 7 (28 152) 7 937 20 459 taxation for the period from a discontinued operation Profit for the 360 276 (10) 398 715 643 228 period Other comprehensive (19 209) 3 716 (528) income Exchange differences (19 046) 1 560 (4 156) on translation of foreign operations Movement in cash (163) 2 156 3 628 flow hedge accounting reserve, net of tax Total comprehensive 341 067 402 431 642 700 income for the period, net of tax Net profit attributable to: Owners of the parent 353 361 393 744 631 459 Non-controlling 6 915 4 971 11 769 interests 360 276 398 715 643 228 Total comprehensive income attributable to: Owners of the parent 334 152 397 460 630 931 Non-controlling 6 915 4 971 11 769 interests 341 067 402 431 642 700
Continuing operations: Basic earnings per 8 221,3 (1) 223,3 354,9 ordinary share (cents) Diluted basic 8 220,8 (1) 222,7 354,1 earnings per ordinary share (cents) Headline earnings 8 221,3 (1) 223,1 354,8 per ordinary share (cents) Diluted headline 8 220,7 (1) 222,5 354,0 earnings per ordinary share (cents) Total operations: Basic earnings per 8 204,9 (10) 226,6 363,5 ordinary share (cents) Diluted basic 8 204,3 (10) 226,0 362,7 earnings per ordinary share (cents) Headline earnings 8 221,5 (2) 226,5 363,4 per ordinary share (cents) Diluted headline 8 221,0 (2) 225,9 362,6 earnings per ordinary share (cents) Consolidated statement of changes in equity Attributable to holders of the parent Total attri- butable
Non- to distribu- ordinary Share Share Retained table share- capital premium income reserves holders
R`000 R`000 R`000 R`000 R`000 Balance at 30 17 363 1 203 854 1 001 942 77 494 2 300 653 September 2009 Share issue 22 2 383 2 405 Share-based payment 133 133 expense Total comprehensive 393 744 3 716 397 460 income Profit for the 393 744 393 744 period Other comprehensive 3 716 3 716 income Dividends (138 922) (138 922) Balance at 31 March 17 385 1 206 237 1 256 764 81 343 2 561 729 2010 (unaudited) Share issue 11 1 981 1 992 Movement in (31) (17 928) (17 959) treasury shares Share-based payment 271 962 271 962 expense Acquisition of A ordinary shares by Blue Falcon Trading 69 (Pty) Limited - non-controlling interest Acquisition through business combination: Ayrton Drug Manufacturing Limited Subsequent (922) (922) acquisition of non- controlling interests in Ayrton Drug Manufacturing Limited Total comprehensive 237 715 (4 244) 233 471 income Profit for the 237 715 237 715 period Other comprehensive (4 244) (4 244) income Dividends (135 618) (135 618) Balance at 30 17 365 1 190 290 1 357 939 349 061 2 914 655 September 2010 (audited) Share issue 4 465 469 Movement in (471) (272 158) (272 629) treasury shares Share-based payment 3 185 3 185 expense Acquisition of non- 1 387 1 387 controlling interests Disposal of (831) (831) business (Note 7) Total comprehensive 353 361 (19 209) 334 152 income Profit for the 353 361 353 361 period Other (19 209) (19 209) comprehensive income Dividends (177 157) (177 157) Balance at 31 March 16 898 918 597 1 535 530 332 206 2 803 231 2011 (unaudited)
Non-
controll- ing interest Total R`000 R`000
Balance at 30 24 943 2 325 596 September 2009 Share issue 2 405 Share-based payment 133 expense Total comprehensive 4 971 402 431 income Profit for the 4 971 398 715 period Other comprehensive 3 716 income Dividends (838) (139 760) Balance at 31 March 29 076 2 590 805 2010 (unaudited) Share issue 1 992 Movement in (17 959) treasury shares Share-based payment 271 962 expense Acquisition of A 93 750 93 750 ordinary shares by Blue Falcon Trading 69 (Pty) Limited - non-controlling interest Acquisition through 33 636 33 636 business combination: Ayrton Drug Manufacturing Limited Subsequent (69) (991) acquisition of non- controlling interests in Ayrton Drug Manufacturing Limited Total comprehensive 6 798 240 269 income Profit for the 6 798 244 513 period Other comprehensive (4 244) income Dividends (4 506) (140 124) Balance at 30 158 685 3 073 340 September 2010 (audited) Share issue 469 Movement in (272 629) treasury shares Share-based payment 3 185 expense Acquisition of non- (1 414) (27) controlling interests Disposal of (12 644) (13 475) business (Note 7) Total comprehensive 6 915 341 067 income Profit for the 6 915 360 276 period Other (19 209) comprehensive income Dividends (21 045) (198 202) Balance at 31 March 130 497 2 933 728 2011 (unaudited) Consolidated statements of financial position Unaudited Unaudited Audited
31 Mar 31 Mar 30 Sep 2011 2010 2010 Note R`000 R`000 R`000 ASSETS Property, plant and equipment 983 322 679 128 857 471 Deferred tax 18 060 19 241 23 967 Investments 139 012 138 037 139 012 Investment in associate 12 200 12 200 12 200 Intangible assets 388 775 334 869 424 149 Non-current assets 1 541 369 1 183 475 1 456 799 Inventories 731 746 553 392 719 236 Trade and other receivables 1 173 341 1 047 007 1 150 393 Cash and cash equivalents 1 110 401 918 007 1 430 917 Current assets 3 015 488 2 518 406 3 300 546 Total assets 4 556 857 3 701 881 4 757 345 EQUITY AND LIABILITIES Capital and reserves Issued share capital 9 16 898 17 385 17 365 Share premium 918 597 1 206 237 1 190 290 Non-distributable reserves 332 206 81 343 349 061 Retained income 1 535 530 1 256 764 1 357 939 Total shareholders` funds 2 803 231 2 561 729 2 914 655 Non-controlling interests 130 497 29 076 158 685 Total equity 2 933 728 2 590 805 3 073 340 Long-term liabilities 340 934 206 431 453 830 Post-retirement medical 17 192 15 487 15 808 liability Deferred tax 23 415 7 023 23 961 Non-current liabilities 381 541 228 941 493 599 Trade and other payables 793 264 607 496 957 922 Short-term borrowings 400 454 215 899 126 787 Provisions 31 579 38 107 84 464 Taxation payable 16 291 20 633 21 233 Current liabilities 1 241 588 882 135 1 190 406 Total equity and liabilities 4 556 857 3 701 881 4 757 345 Consolidated abridged statements of cash flows Unaudited Unaudited Audited six months six months year ended ended ended 31 Mar 31 Mar 30 Sep
2011 2010 2010 Note R`000 R`000 R`000 Cash flows from operating activities Operating profit before 538 504 547 919 1 319 448 working capital changes Working capital changes (274 374) 666 115 364 Cash generated from operations 264 130 548 585 1 434 812 Finance income 61 857 70 665 59 288 Finance costs (41 483) (64 232) (37 931) Dividend income 7 451 6 431 10 647 Dividends paid (198 202) (139 760) (279 884) Taxation paid (171 306) (154 646) (324 832) Net cash (outflow)/inflow from (77 553) 267 043 862 100 operating activities Cash flows from investing activities Increase in Investments - - (975) Cost of business acquired - (35 000) (139 502) Proceeds on disposal of 7 84 989 - - business Purchase of property, plant (217 343) (118 877) (333 062) and equipment Proceeds on disposal of 892 708 2 819 property, plant and equipment Net cash outflow from (131 462) (153 169) (470 720) investing activities Cash flows from financing activities Acquisition of non-controlling (27) - (991) interest Proceeds from issue of share 469 2 405 4 397 capital Purchase of treasury shares (272 629) - (17 959) Subscription for "A" shares - - 93 750 Increase in borrowings 161 357 109 138 269 033 Net cash (outflow)/inflow from (110 830) 111 543 348 230 financing activities Net (decrease)/increase in (319 845) 225 417 739 610 cash and cash equivalents Net foreign exchange (671) (127) (1 410) difference on cash and cash equivalents Cash and cash equivalents at 1 430 917 692 717 692 717 beginning of period Cash and cash equivalents at 1 110 401 918 007 1 430 917 end of period Notes to the consolidated financial statements 1. BASIS OF PREPARATION 1.1 Introduction The abridged interim results have been prepared in accordance with International Financial Reporting Standards (IFRS), IAS 34 Interim financial reporting, the South African Companies Act, the Listings Requirements of the JSE Limited as well as the AC500 standards as issued by the Accounting Practices Board or its successor. The financial results for the six-month period ended 31 March 2011 have not been reviewed or audited. 1.2 Changes in accounting policies The accounting policies and the methods of computation are consistent with those of the previous annual financial statements except for the adoption of the following new and amended IFRS interpretations during the year: - IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments - IAS 32 Classification of Rights Issues - Amendment to IAS 32 - Amendment to IFRS 2 Share-based Payments - Group Cash-settled Share-based Payment Arrangements The adoption of standards and interpretations above did not have any effect on the financial performance or position of the Group. Unaudited Unaudited Audited
six months six months year ended ended ended 31 Mar 31 Mar 30 Sep 2011 2010 2010
R`000 R`000 R`000 2. REVENUE Continuing operations Revenue comprises - Turnover 2 152 267 1 884 378 4 130 087 - Finance income 61 857 70 665 59 288 - Dividend income 7 451 6 431 10 647 2 221 575 1 961 474 4 200 022
3. ABNORMAL ITEMS Share based payment expenses - - (269 000)
4. SEGMENTAL REPORTING Turnover Continuing operations Over the Counter 803 436 634 817 1 427 291 Prescription 826 498 748 696 1 666 373 Pharmaceuticals 1 629 934 1 383 513 3 093 664 Hospital Products 522 333 500 865 1 036 423 2 152 267 1 884 378 4 130 087
Discontinued operations Hospital Products (Note 7) 90 103 144 020 310 567 2 242 370 2 028 398 4 440 654 Operating income Continuing operations Over the Counter 289 440 207 900 407 082 Prescription 167 688 203 810 540 440 Pharmaceuticals 457 128 411 710 947 522 Hospital Products 69 120 110 058 220 785 526 248 521 768 1 168 307 Discontinued operations Hospital Products (Note 7) 4 528 12 695 31 995 530 776 534 463 1 200 302 5. INVENTORY The amount of inventories written 11 890 20 279 28 110 down recognised as an expense in cost of inventories 6. CAPITAL COMMITMENTS Capital commitments - contracted 406 191 552 414 503 362 - approved 110 555 291 054 154 992 516 746 843 468 658 354
7. DISPOSAL OF BUSINESS The Scientific Group (Pty) Limited On 31 January 2011, the Group disposed of its 74% holding in The Scientific Group (Pty) Limited (TSG). Unaudited Unaudited Audited six months six months year ended ended ended 31 Mar 31 Mar 30 Sep
2011 2010 2010 R`000 R`000 R`000 The results of TSG are presented below and the 31 March 2011 figures include trading for the four-month period ended 31 January 2011: Turnover 90 103 144 020 310 567 Cost of sales (52 265) (88 507) (176 871) Gross profit 37 838 55 513 133 696 Selling and distribution expenses (20 397) (26 705) (57 126) Marketing expenses (794) (514) (1 266) Fixed and administrative expenses (12 119) (15 599) (43 309) Operating profit 4 528 12 695 31 995 Finance costs (1 046) (1 142) (2 542) Profit before taxation 3 482 11 553 29 453 Taxation (2 780) (3 616) (8 994) Profit for the period from 702 7 937 20 459 discontinued operation Loss on disposal of the (27 737) - - discontinued operation Attributable taxation (1 117) - - (Loss)/profit after tax for the (28 152) 7 937 20 459 period from a discontinued operation Cash inflow on disposal: Consideration received 77 827 Net overdraft disposed of with the 7 162 discontinued operation Net cash inflow 84 989 8. HEADLINE EARNINGS Earnings attributable to owners of 353 361 393 744 631 459 Adcock Ingram Adjusted for: Profit on disposal of property, (64) (238) (221) plant and equipment Loss on disposal of business net of 28 854 - - tax Headline earnings 382 151 393 506 631 238 9. SHARE CAPITAL Number of shares `000 `000 `000 Number of ordinary shares in issue 199 941 173 849 199 904 Number of A and B shares held by (25 944) - (25 944) the BEE participants Number of ordinary shares held by (728) - (309) the BEE participants Number of ordinary shares held by (4 285) - - subsidiary Net shares in issue 168 984 173 849 173 651 Weighted average number of ordinary 172 496 173 766 173 712 shares on which headline earnings and basic earnings per share are based Diluted weighted average number of 172 929 174 231 174 101 shares 10. SUBSEQUENT EVENTS 10.1 NutriLida (Pty) Limited (NutriLida) Adcock Ingram announced on 29 March 2011, the acquisition of the business of NutriLida, a vitamin, mineral and supplements company based in Johannesburg, pending Competition Commission approval. The acquisition will strengthen Adcock Ingram`s foothold in the growing supplements market and further enable the Group to gain market share in the FMCG category. The submission to the Competition Commission was made on 4 May 2011. 10.2 Ayrton Drug Manufacturing Limited Since 31 March 2011, Adcock Ingram International (Pty) Limited acquired an additional 4% of the issued shares of Ayrton Drug Manufacturing Limited (Ghana), increasing its ownership to more than 71%. 10.3 Bioswiss (Pty) Limited (Bioswiss) On 16 May 2011, Adcock Ingram acquired a 51% share in the business of Bioswiss, a specialised diabetes pharmaceutical company. SALIENT FEATURES - Turnover from continuing operations increased 14% to R2,2 billion - EBITDA from continuing operations increased 3% to R580 million - HEPS from continuing operations decreased 1% - Distribution per share increased 4% to 81 cents - 2,5% of issued ordinary shares bought back FINANCIAL REVIEW Headline earnings The Group achieved headline earnings for the six months ended 31 March 2011 of R382,2 million. This represents a 3,0% decrease from the comparable figure for 2010 of R393,5 million. After including the effects of a share buy-back of 2,5% of issued shares by a subsidiary in the Group, this translates into a decrease of 1% from continuing operations at both the headline earnings per share (HEPS) and earnings per share (EPS) level. This result was achieved during a period in which Adcock Ingram was allocated a disappointing 4% of the Anti-retroviral (ARV) tender, saw the temporary suspension of sales of dextropropoxyphene-containing (DPP) products and experienced significant upgrade-related production disruptions in its Critical Care facility. Continuing operations Turnover The impact of the acquisition of Ayrton Drug Manufacturing Limited (Ayrton) in Ghana, and the conclusion of various co-promotion and distribution agreements with multinational (MNC) partners, supported turnover growth of 14% to R2 152 million (2010: R1 884 million). Despite the significant reduction in DPP and ARV revenue, the growth excluding acquisitions and MNC revenue was 1%. Price reductions averaged 2% for the half year. In the Prescription segment, the Single Exit Price (SEP) increase of 7,4% granted by Government in June 2010 was implemented only on products where market conditions allowed. Prices in the ARV portfolio reduced by 19%, resulting in an overall price decrease for the segment of 4%. Against this pricing pressure, Prescription revenue growth of 10% was achieved. Over-the-counter (OTC) turnover growth of almost 27% reflects a 7% price inflation, while the Hospital Products division revenue growth of 4% includes an 11% decrease in pricing due to increased volumes being sold into the public sector. Profits Gross profit from continuing operations for the six months increased by 6,4% to R1 059 million (2010: R995 million) with margins declining from 52,8% to 49,2% (September 2010: 53,3%). Gross margins as a percentage of sales benefited from the strong Rand, which affected imported raw materials and finished products. The average exchange rates for procurement were R7,06 (2010: R7,50) and R9,64 (2010: R11,07) for US Dollar and Euro imports respectively with total contracts settled during the period amounting to R330,8 million (2010: R313,5 million). This benefit was offset by increased adverse manufacturing variances of R25 million in plants undergoing upgrades, very low margins in the public sector in Critical Care as finished goods needed to be imported to meet demand, and the inclusion of MNC revenue at significantly lower than average gross margins. Operating profit improved by 1% to R526 million (2010: R522 million) with the percentage on sales reducing from 27.7% to 24.4% (September 2010: 28.3%). Operating expenses increased by 12.6% to R533 million (2010: R473 million), with new businesses not in the base contributing 2.2% to the increase. The primary drivers of the increase in expenses were selling, distribution and marketing, including additional expenditure of R26,8 million to support the MNC partnerships. After net finance income and dividends received, profit before tax grew 4% to R554 million (2010: R535 million). The effective tax rate for the period was 29.9% (2010: 26.9%), resulting in profit after tax from continuing operations declining 1% to R388 million (2010: R391 million). Discontinued operations The Group disposed of its 74% holding in The Scientific Group (Pty) Limited on 31 January 2011, realising a net cash inflow of R85 million. Cash flows and financial position Cash generated from operations was R264 million (2010: R549 million) after working capital increased by R274 million. Trade accounts and other receivables increased by R95 million with trade accounts receivable days at the end of the period being 63 days, a deterioration from the 58 days reported in September 2010. This negative performance was influenced by overdue amounts of R42 million due from the Government. In accordance with agreed contract terms with MNC partners, R55 million was settled shortly after 31 March 2011. Less than R1 million was written off during the period in relation to doubtful debts. Inventory increased by R75 million, mainly as a result of increased stockholding of co-promotion items. In addition, the inventory holdings of certain key items were increased to take advantage of the stronger Rand. Trade and other accounts payable reduced by R104 million, the significant movement being in relation to non-trade payables. After net finance income, dividends and taxation, cash outflow from operations was R78 million. The upgrade at the Aeroton facility and the construction of the high-volume liquids facility at Clayville progressed well with total capital expenditure amounting to R217 million (2010: R119 million). During the period, the Group bought back 2,5% (4 285 163 shares) of its ordinary shares over a two week period in February at an average cost, including taxes and transaction fees, of R58,07 per share, R248 million in aggregate. A further amount of R25 million of treasury shares purchases were made by the special purpose vehicles party to the Broad Based Black Economic Empowerment (BBBEE) transaction concluded in April 2010. Subsequent to September 2010, an additional R270 million was drawn down from the Capex loan facility. The total facility (R290 million) for the upgrade at the Aeroton plant will be repaid in one bullet payment in November 2011. The facility for the high-volume liquids plant (R510 million) will be repaid in quarterly instalments from December 2011 with the final instalment due in the last quarter of the 2013 calendar year. Cash equivalents decreased by R320 million, giving the business a gross cash position of R1,1 billion (September 2010: R1,4 billion). Distribution incorporating a reduction of share premium in lieu of interim dividend The Board has declared a distribution of 81 cents per share for the period ended 31 March 2011 out of share premium, an increase of 4% over the comparable dividend distribution in 2010. The Company`s objective of an annual dividend or distribution, covered three times by headline earnings, remains in place. BUSINESS OVERVIEW Pharmaceutical Division The division has produced a strong performance despite the setback of the temporary suspension of sales of DPP-containing products and the disappointing ARV tender award during the period. The recent agreements with MNC partners (MSD, Lilly, Roche, Novartis) have contributed towards the 18% turnover increase to R1 630 million (2010: R1 384 million). This increase is despite a reduction in DPP and ARV sales of R145 million. Profit before interest and tax has shown a pleasing increase of 11% to R457 million (2010: R412 million) during the period under review. A strong performance by the branded OTC portfolio, as well as the strong Rand, compensated partially for the lower margins earned on the MNC partnerships, and the loss of ARV and DPP revenue. The OTC segment has grown turnover by 27% from R635 million in the comparable period to R803 million in the current period, while operating profit increased by 39% to R289 million (2010: R208 million). The operating margin was positively impacted by sales and marketing synergies achieved from the improved integration of acquisitions. Economy OTC brands continue to perform well, although there has been some shift back to premium brands in Pharmacy over the period. The Personal Care and Wellbeing businesses acquired during 2010 have been integrated and are starting to contribute to the OTC performance. The Wellbeing portfolio has achieved significant market share gains, which will be further enhanced by the acquisition of NutriLida (subject to Competition Commission approval) announced during March 2011. Within Pharmacy, Adcock Ingram`s OTC range has significantly outgrown the market in both value and volume terms. In the Prescription segment, the objective to become the multinational partner of choice has borne fruit during the period and supported turnover growth of 10% to R826 million (2010: R749 million). Further opportunities with current and other partners continue to be explored. The segment has also been boosted by the return to growth of the generics portfolio in both value and volume terms. Regrettably, the segment has been negatively impacted by the regulator`s actions on DPP-containing products and the ARV tender award. Our Ghanaian subsidiary, Ayrton, continues to deliver good performance and offers further growth in the region. A basket of Adcock Ingram OTC brands has recently been launched in Ghana. Due to an increase in demand, the Bangalore facility will manufacture several Ayrton brands whilst the manufacturing capacity in Ghana is being increased. The Kenyan operation continues to deliver encouraging results. The conclusion of MNC partnerships is supporting increased sales and the introduction of Dawanol into neighbouring territories has proved successful and further growth is anticipated. Upgrades to the supply chain remain on schedule. The new MCC- and Pharmacy Council-accredited warehouse and distribution facility in Durban is fully operational. The upgrade of our various distribution facilities has allowed the business to attract third party distribution opportunities through the collaboration agreements. The construction of the high-volume liquids plant in Clayville is progressing to plan and is anticipated to be commissioned during the second half of 2012. With the loss of ARV volumes, the division has embarked on corrective measures by repatriating production previously outsourced due to capacity constraints. This, together with the potential for toll manufacturing, will allow the facilities to adequately recover factory overheads within due course. Hospital Products Division Turnover increased only 4,3% over the comparable period to R522 million (2010: R501 million). Whilst the public sector tender wins in 2010 were significant, the required volumes exceeded published estimates on certain products, resulting in an overall market share gain on a unit level but not on a monetary basis. This, combined with the upgrade activities and intermittent factory shut-downs, negatively impacted our supply of products as market share gains in the public sector were realised at the expense of losses in the private sector. Products were imported to meet customers` needs and eroded gross margins from 38,6% in 2010 to 31,3% in the current period. At the end of the period under review, the R290 million plant upgrade is progressing according to planned timeframes, but with significant disruption to production. Final completion and validation of the facility is planned for December 2011. This facility, built to world class standards, will see the division achieving compliance with the international Pharmaceutical Inspection Convention and Pharmaceutical Co-operation Scheme - jointly referred to as PIC/S - standards, adopted by the South African Medicines Control Council (MCC). On completion of the upgrade, improved output and enhanced efficiencies are expected. The renal division continues to grow market share with growth reflected in all portfolios including haemodialysis, peritoneal dialysis (PD) and new dialysis treatments in acute care. In the generic market the division continued to invest in the injectable analgesics, antibiotics and speciality drugs. Both Medicine Delivery and Transfusion Therapy were impacted by stock issues due to the reduced factory output. Blood donor numbers increased by 5% and, with the trend expected to continue, the Transfusion Therapy division is likely to grow. Following the decision by Baxter not to exercise their call option, Adcock Ingram remains committed to growing its relationship with Baxter. REGULATORY ENVIRONMENT The Department of Health has announced that no SEP increase will be implemented during 2011. International benchmarking and the capping of logistics fees are likely to have an impact on Adcock Ingram. However, the quantum for each will not be known with any certainty until the final regulations are published. Adcock Ingram has cooperated with the Pharmaceutical Task Group in its submissions made or to be made to the Department of Health on these issues. TRANSFORMATION Following the conclusion of Adcock Ingram`s BBBEE transaction in April 2010, an independent verification was conducted, measuring the Group`s Broad Based Black Economic Empowerment status against the Codes of Good Practice. This has resulted in Adcock Ingram being rated a Level 4 BBBEE contributor, from Level 6 only a year ago. To date more than 1 400 black employees have benefited from Mpho ea Bophelo, Adcock Ingram`s Employee Share Option Scheme. Having demonstrated excellent performance in other elements of the scorecard, a concerted effort is being placed on Enterprise Development in this financial year. CHANGES TO DIRECTORS` RESPONSIBILITIES AND APPOINTMENT OF COMPANY SECRETARY Mr LE Schonknecht resigned as Chairman of the Human Resources, Remuneration and Nominations Committee. However, he will continue to serve the Board as an independent non-executive director and member of the Risk and Sustainability Committee. Mr CD Raphiri, an independent non-executive director, will assume the role of Chairman of the Human Resources, Remuneration and Nominations Committee and Mr AM Thompson, an independent non-executive director, has been appointed to the Human Resources, Remuneration and Nominations Committee. Mr Thompson remains a member of the Audit Committee and Transformation Committee. These changes became effective on 28 January 2011. The Company appointed Mr Ntando Simelane as Company Secretary with effect from 1 April 2011. PROSPECTS The integration of the Hospital and Pharmaceutical businesses has been slower than expected, but we foresee the integration gaining momentum in the second half of the year. The multinational partner of choice strategy has delivered attractive value as Adcock Ingram diversifies its revenue streams and decreases its dependence on mature products. We expect to extend the MNC partnerships as Adcock Ingram`s expansion into sub-Saharan Africa continues. We await the approval of the Competition Commission for the acquisition of NutriLida, with the decision expected within the next six weeks. The Group maintains its focus on the acquisition of businesses and brands in high growth emerging markets as well as the acquisition of intellectual property that is globally relevant. We are still awaiting MCC approval for key ARV registrations in South Africa, as well as several first-to-market generics. The MCC has not adequately addressed its capacity constraints which result in registration delays. For and on behalf of the Board KDK Mokhele JJ Louw AG Hall Chairman Chief Executive Officer Chief Financial Officer CAPITAL REDUCTION OUT OF SHARE PREMIUM IN LIEU OF INTERIM DIVIDEND The Board has declared a capital reduction distribution (in lieu of an interim dividend) out of share premium of 81 cents per ordinary share, payable to shareholders, in respect of the six months ended 31 March 2011. The salient dates for the capital reduction are detailed below: Last date to trade cum distribution Friday, 17 June 2011 Shares trade ex distribution Monday, 20 June 2011 Record date Friday, 24 June 2011 Payment date Monday, 27 June 2011 Share certificates may not be dematerialised or rematerialised between Monday, 20 June 2011 and Friday, 24 June 2011, both dates inclusive. By order of the Board NE Simelane Company Secretary Johannesburg 23 May 2011 Directors: KDK Mokhele (Chairman)* JJ Louw (Chief Executive Officer) EK Diack* AG Hall (Chief Financial Officer) T Lesoli* CD Raphiri* LE Schonknecht* RI Stewart* AM Thompson* *Non-executive Company secretary: NE Simelane Registered office: 1 New Road, Midrand, 1682 Postal address: Private Bag X69, Bryanston, 2021 Transfer secretaries: Computershare Investor Services (Pty) Limited 70 Marshall Street, Johannesburg, 2001 Postal address: PO Box 61051, Marshalltown, 2107 Auditors: Ernst & Young Inc. Wanderers Office Park, 52 Corlett Drive, Illovo, 2196 Sponsor: Deutsche Securities (SA) (Pty) Limited 3 Exchange Square, 87 Maude Street, Sandton, 2146 Bankers: Nedbank Limited 135 Rivonia Road, Sandown, Sandton, 2146 Rand Merchant Bank 1 Merchant Place, cnr Fredman Drive and Rivonia Road, Sandton, 2196 Attorneys: Read Hope Phillips 30 Melrose Boulevard, Melrose Arch, 2196 www.adcock.com Midrand 24 May 2011 Sponsor to Adcock Ingram: Deutsche Securities (SA) (Proprietary) Limited for more information please visit www.adcock.com Date: 24/05/2011 07:05:21 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.

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