Wrap Text
Unaudited financial results for the six-month period ended 31 December 2014
ADCOCK INGRAM HOLDINGS LIMITED
Incorporated in the Republic of South Africa
Registration number 2007/016236/06
Income tax number 9528/919/15/3
Share code: AIP ISIN: ZAE000123436
("Adcock Ingram" or "the Company" or "the Group")
UNAUDITED FINANCIAL RESULTS
for the six-month period ended 31 December 2014
Adding value to life
INTRODUCTION
The Board of Directors presents the Group's unaudited results for the six-month period ended 31 December 2014.
For a more meaningful appreciation of these interim results, shareholders should take the following into account:
- The results presented herein reflect the first six-month trading and reporting period since the business reorganisation and restructure
was implemented on 1 July 2014.
- In May 2014 the Company's financial year-end was changed from 30 September to 30 June.
- Subsequently, the Group reported unaudited results for the six-month period ended 31 March 2014 and audited results for the nine-
month period to 30 June 2014.
- The comparative figures for the subject reporting period are accordingly an aggregate of two conterminous quarterly periods
(1 July 2013 to 30 September 2013 and 1 October 2013 to 31 December 2013), each previously included in different reporting periods.
- Given the material divergent trading results in each of the aforesaid quarters, the customary use of comparative numbers for purposes
of trends and analysis of income and expenditure are likely to be of marginal value.
Consolidated statements of comprehensive income
Unaudited Change Unaudited Audited
6 months 6 months 9 months
ended ended ended
31 December 31 December 30 June
2014 2013 2014
Note R'000 R'000 R'000
REVENUE 2 2 717 083 1% 2 687 084 3 640 780
TURNOVER 2 2 699 331 1% 2 669 260 3 615 287
Cost of sales (1 706 304) (1 700 979) (2 475 723)
Gross profit 993 027 3% 968 281 1 139 564
Selling, distribution and marketing expenses (518 979) 2% (510 628) (727 671)
Drug management and regulatory expenses ( 60 759) 7% (56 762) (81 096)
Fixed and administrative expenses (196 042) 3% (190 185) (337 887)
Trading profit/(loss) 217 247 3% 210 706 (7 090)
Non-trading expenses 3 (16 977) (66 157) (967 645)
Operating profit/(loss) 200 270 39% 144 549 (974 735)
Finance income 2 13 795 13 005 18 987
Finance costs (57 392) (58 141) (98 620)
Dividend income 2 3 957 4 819 6 506
Equity-accounted earnings 32 511 30 111 31 895
Profit/(Loss) for the period before taxation 193 141 44% 134 343 (1 015 967)
Taxation (48 189) (29 677) 53 811
Profit/(Loss) for the period 144 952 38% 104 666 (962 156)
Other comprehensive income which will
subsequently be recycled to profit or loss 40 562 (65 936) 51 792
Exchange differences on translation of
foreign operations 40 516 (54 585) 52 967
Net profit on available-for-sale asset,
net of tax – 327 350
Movement in cash flow hedge
accounting reserve, net of tax 46 (11 678) (1 525)
Other comprehensive income which will not
be recycled to profit or loss
Actuarial loss on post-retirement medical
liability – – (6 880)
Total comprehensive income for the
period, net of tax 185 514 38 730 (917 244)
Profit/(Loss) attributable to:
Owners of the parent 141 892 102 387 (965 343)
Non-controlling interests 3 060 2 279 3 187
144 952 104 666 (962 156)
Total comprehensive income attributable to:
Owners of the parent 181 142 39 449 (914 826)
Non-controlling interests 4 372 (719) (2 418)
185 514 38 730 (917 244)
Basic earnings/(loss) per ordinary
share (cents) 84.1 38% 60.8 (572.3)
Diluted basic earnings/(loss) per
ordinary share (cents) 84.0 38% 60.7 (571.9)
Headline earnings/(loss) per ordinary
share (cents) 83.8 38% 60.7 (179.5)
Diluted earnings/(loss) earnings per
ordinary share (cents) 83.8 38% 60.7 (179.3)
Consolidated statement of changes in equity
Attributable to holders of the parent
Total
Issued Non- attributable Non-
share Share Retained distributable to ordinary controlling
capital premium income reserves shareholders interests Total
R'000 R'000 R'000 R'000 R'000 R'000 R'000
As at 1 July 2013 16 861 524 788 2 762 300 467 433 3 771 382 129 801 3 901 183
Share issue 43 5 333 5 376 5 376
Movement in treasury shares (32) (21 131) (21 163) (21 163)
Movement in share-based
payment reserve 4 860 4 860 4 860
Acquisition of non-controlling
interests in Ayrton Drug
Manufacturing Limited (43) (43) (37) (80)
Total comprehensive income 102 387 (62 938) 39 449 (719) 38 730
Profit for the period 102 387 102 387 2 279 104 666
Other comprehensive income (62 938) (62 938) (2 998) (65 936)
Dividends (145 010) (145 010) (555) (145 565)
Share issue expenses incurred
by subsidiary (3 669) (3 669) (3 669)
Balance at 31 December 2013
(unaudited) 16 872 508 990 2 719 634 405 686 3 651 182 128 490 3 779 672
Share issue 6 1 930 1 936 1 936
Movement in share-based
payment reserve 3 965 3 965 3 965
Acquisition of non-controlling
interests in Ayrton Drug
Manufacturing Limited (26) (26) (137) (163)
Total comprehensive income (934 920) 16 764 (918 156) (3 029) (921 185)
Loss for the period (934 920) (934 920) 1 485 (933 435)
Other comprehensive income 16 764 16 764 (4 514) 12 250
Dividends (6 746) (6 746)
Balance at 30 June 2014
(audited) 16 878 510 920 1 784 688 426 415 2 738 901 118 578 2 857 479
Share issue 6 1 187 1 193 1 193
Movement in share-based
payment reserve 11 497 11 497 11 497
Acquisition of non-controlling
interests in Ayrton Drug
Manufacturing Limited (31) (31) (100) (131)
Total comprehensive income 141 892 39 250 181 142 4 372 185 514
Profit for the period 141 892 141 892 3 060 144 952
Other comprehensive income 39 250 39 250 1 312 40 562
Balance at 31 December 2014
(unaudited) 16 884 512 107 1 926 549 477 162 2 932 702 122 850 3 055 552
Consolidated statements of financial position
Unaudited Unaudited Audited
31 December 31 December 30 June
2014 2013 2014
R'000 R'000 R'000
ASSETS
Property, plant and equipment 1 540 308 1 652 252 1 554 420
Intangible assets 827 632 1 446 118 836 178
Deferred tax 4 891 8 513 7 959
Other financial assets 138 349 139 646 138 955
Other non-financial asset – 38 038 –
Investment in joint ventures 239 835 188 230 202 237
Non-current assets 2 751 015 3 472 797 2 739 749
Inventories 1 032 932 1 587 294 1 106 261
Trade and other receivables 1 383 248 1 438 104 1 235 674
Cash and cash equivalents 459 429 145 196 247 852
Taxation receivable 79 678 93 807 76 306
Current assets 2 955 287 3 264 401 2 666 093
Total assets 5 706 302 6 737 198 5 405 842
EQUITY AND LIABILITIES
Capital and reserves
Issued share capital 16 884 16 872 16 878
Share premium 512 107 508 990 510 920
Non-distributable reserves 477 162 405 686 426 415
Retained income 1 926 549 2 719 634 1 784 688
Total shareholders' funds 2 932 702 3 651 182 2 738 901
Non-controlling interests 122 850 128 490 118 578
Total equity 3 055 552 3 779 672 2 857 479
Long-term borrowings 1 015 332 1 005 003 1 004 861
Post-retirement medical liability 22 194 15 573 22 034
Deferred tax 51 788 120 745 21 047
Non-current liabilities 1 089 314 1 141 321 1 047 942
Trade and other payables 1 266 310 952 963 1 115 563
Bank overdraft 228 719 775 939 319 613
Short-term borrowings 10 693 4 722 5 132
Cash-settled options 16 362 41 815 14 782
Provisions 39 352 40 766 45 331
Current liabilities 1 561 436 1 816 205 1 500 421
Total equity and liabilities 5 706 302 6 737 198 5 405 842
Consolidated statements of cash flows
Unaudited Unaudited Audited
6 months ended 6 months ended 9 months ended
31 December 31 December 30 June
2014 2013 2014
R'000 R'000 R'000
Cash flows from operating activities
Operating profit/(loss) 200 270 144 549 (974 735)
Non-cash items 153 980 204 840 1 034 309
– depreciation and amortisation 102 227 104 817 157 118
– inventories written off 31 906 44 385 93 170
– other, including impairments and share-based
payment expenses 19 847 55 638 784 021
Operating profit before working capital changes 354 250 349 389 59 574
Working capital changes 39 493 (642 587) 358 527
Cash generated/(absorbed) from operations 393 743 (293 198) 418 101
Finance income, excluding receivable 16 120 7 873 17 287
Finance costs, excluding accrual (60 592) (65 360) (101 480)
Dividend income 3 957 13 488 20 504
Dividends paid – (145 565) (6 746)
Taxation paid (18 053) (92 982) (36 869)
Net cash inflow/(outflow) from operating activities 335 175 (575 744) 310 797
Cash flows from investing activities
Decrease in other financial assets 606 118 –
Purchase of property, plant and equipment – Expansion (20 216) (23 449) (12 278)
– Replacement (32 988) (84 632) (83 187)
Proceeds on disposal of property, plant and
equipment 573 353 54
Increase in loans receivable – (1 183) –
Net cash outflow from investing activities (52 025) (108 793) (95 411)
Cash flows from financing activities
Acquisition of non-controlling interests in Ayrton
Drug Manufacturing Limited (131) (80) (241)
Proceeds from issue of share capital 1 193 5 376 6 902
Purchase of treasury shares – (21 163) –
Share issue expenses incurred by subsidiary – (3 669) –
Increase in borrowings 15 278 1 001 890 1 004 635
Repayment of borrowings – (202 980) (100 000)
Net cash inflow from financing activities 16 340 779 374 911 296
Net increase in cash and cash equivalents 299 490 94 837 1 126 682
Net foreign exchange difference on cash
and cash equivalents 2 981 (4 363) 11 958
Cash and cash equivalents at beginning of period (71 761) (721 217) (1 210 401)
Cash and cash equivalents at end of period 230 710 (630 743) (71 761)
Notes to the consolidated financial statements
1 BASIS OF PREPARATION
1.1 Introduction
The abridged interim results have not been reviewed or audited by the Group's auditors and 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 Guides 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. 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 Finance Executive, Ms Dorette Neethling.
1.2 Changes in accounting policies
The accounting policies adopted are in line with IFRS and are consistent with those of the previous financial year 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.
* IAS 39: Novation of derivatives and continuation of hedge accounting.
Unaudited Unaudited Audited
6 months 6 months 9 months
ended ended ended
31 December 31 December 30 June
2014 2013 2014
R'000 R'000 R'000
2 REVENUE
Turnover 2 699 331 2 669 260 3 615 287
Finance income 13 795 13 005 18 987
Dividend income 3 957 4 819 6 506
2 717 083 2 687 084 3 640 780
3 NON-TRADING EXPENSES
Impairments – – (843 364)
– Intangible assets – – (601 789)
– Inventories – – (130 966)
– Property, plant and equipment – – (69 243)
– Long-term receivable and non-financial asset – – (41 366)
Transaction costs – (46 629) (91 000)
Retrenchment costs and separation package – – (16 505)
Share-based payment expenses (16 977) (19 528) (10 016)
Scrapping of property, plant and equipment – – (5 561)
Lease cancellation expense – – (1 199)
(16 977) (66 157) (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 which were
expected to be fully implemented with effect from 1 July 2014. 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 Company'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 – market products prescribed by medical practitioners, and
- Hospital – supplier of hospital and critical care products, including intravenous solutions, blood collection products and renal
dialysis systems.
The prior periods have been restated to reflect this change, in accordance with IFRS 8 Operating Segments.
Unaudited Unaudited Unaudited
6 months 6 months 9 months
ended ended ended
31 December 31 December 30 June
2014 2013 2014
R'000 R'000 R'000
Turnover
Southern Africa 2 441 439 2 431 307 3 268 441
OTC 698 568 604 750 835 605
Consumer 304 152 345 805 327 464
Prescription 880 914 952 172 1 348 422
Hospital 557 805 528 580 756 950
Rest of Africa 129 150 126 108 183 130
India 136 098 118 730 177 708
2 706 687 2 676 145 3 629 279
Less: Intercompany sales (7 356) (6 885) (13 992)
2 699 331 2 669 260 3 615 287
Trading and operating profit/(loss)
Southern Africa 238 518 237 082 62 820
OTC 141 174 97 315 77 095
Consumer 38 298 73 599 (25 280)
Prescription 57 909 51 298 45 170
Hospital 1 137 14 870 (34 165)
Rest of Africa 4 574 (5 553) (23 171)
India (25 845) (20 823) (46 739)
Trading profit/(loss) 217 247 210 706 (7 090)
Less: Non-trading expenses (1) (16 977) (66 157) (967 645)
Operating profit/(loss) 200 270 144 549 (974 735)
(1) Non-trading expenses are managed on a central basis and are
not allocated to operating segments.
Total assets
Southern Africa 4 536 701 5 334 443 4 261 452
Pharmaceuticals 3 868 720 4 567 206 3 645 069
Hospital 667 981 767 237 616 383
Rest of Africa 215 678 288 100 195 883
India 953 923 1 114 655 948 507
Total assets 5 706 302 6 737 198 5 405 842
Unaudited Unaudited Audited
6 months 6 months 9 months
ended ended ended
31 December 31 December 30 June
2014 2013 2014
R'000 R'000 R'000
5 INVENTORY
The amount of inventories written down recognised as an
expense in profit or loss:
Cost of sales 31 906 44 385 93 170
Non-trading expenses – – 130 966
31 906 44 385 224 136
6 CAPITAL COMMITMENTS
– contracted 21 140 11 766 57 278
– approved, but not contracted 10 841 100 616 23 880
31 981 112 382 81 158
7 HEADLINE EARNINGS/(LOSS)
Headline earnings/(loss) is determined as follows:
Earnings/(Loss) attributable to owners of Adcock Ingram 141 892 102 387 (965 343)
Adjusted for:
Impairment of property, plant and equipment – – 69 243
Impairment of intangible assets – – 601 789
Tax effect on impairment of intangible assets and property,
plant and equipment – – (15 823)
(Profit)/Loss on disposal/scrapping of property, plant and
equipment, net of tax (475) (65) 7 413
Headline earnings/(loss) 141 417 102 322 (302 721)
Number of shares Number of shares Number of shares
'000 '000 '000
8 SHARE CAPITAL
Number of shares in issue 201 652 201 521 201 589
Number of A and B shares held by BEE participants (25 944) (25 944) (25 944)
Number of ordinary shares held by BEE participants (2 571) (2 571) (2 571)
Number of ordinary shares held by Group company (4 285) (4 285) (4 285)
Net shares in issue 168 852 168 721 168 789
Headline earnings and basic earnings per share are based on:
Weighted average number of shares 168 795 168 483 168 679
Diluted weighted average number of shares 168 844 168 663 168 788
FINANCIAL PERFORMANCE
Having regard to the substantive changes and reorganisation of the business into separate and distinct business units, there is already
evidence of added efficiencies and productivity; this coupled with encouraging increases in certain product turnover and improved
margins. Most business units achieved their internal targets during the period under review, and additional marketing investment is
being made to support those products where the pace of recovery has been slow. Notwithstanding the aforesaid, turnover reached a
satisfactory level of R2,7 billion, even with lower volumes in the ARV and tender businesses, also through the discontinuation of certain
uneconomic product lines.
Gross profit margins were well maintained, generating a gross profit for the period of R993,0 million, which, after well controlled operating
costs, yielded a trading profit of R217,2 million. Profits after taxation amounted to R144,9 million of which R141,9 million is attributable
to shareholders. This translates into headline earnings of 83.8 cents per share for the period, a distinctly more reassuring start to the year
when compared to the Group's immediately preceding reported performance.
For an appreciation of certain comparable statistics, set out below is an extract of the Trading Statement released on the Stock Exchange
News Service on 18 February 2015, which reflects the basic and headline earnings/(loss) per share, after substituting the actual earnings
in each case for the expected range of earnings reflected in the Trading Statement.
Interim Interim* Interim
1 July 2014 – 1 October 2013 – 1 July 2013 –
31 December 2014 31 March 2014 31 December 2013
Unaudited Unaudited (A) Unaudited (B) Change vs A Change vs B
Cents Cents Cents % %
Basic earnings/(loss) per
share 84,1 (24,8) 60,8 439 38
Headline earnings/(loss)
per share 83,8 (23,0) 60,7 464 38
*Interim period prior to the financial year end change
Perhaps the most significant feature of these interim results is the successful turnaround in the Group's cash flows and cash
management. Reference to the informative Consolidated Statements of Cash Flows in this results presentation, affirms another positive
dimension of management's focused attention to the Group's business, more particularly exhibiting the renewed efforts of general and
divisional management, in restoring the Group's profitability.
Note 4 to these interim financial results sets out the segmental analysis of the Group's Southern African and international operations. This
analysis is self-explanatory; it reveals the general performance of each segment of the business insofar as turnover and contribution is
concerned, clearly revealing that much work needs to be done to improve the Group's Indian operations.
REGULATORY ENVIRONMENT
Government announced a 7,5% Single Exit Price adjustment on 4 February 2015 for the year ahead, in an attempt to mitigate the adverse
effects of overhead inflation and currency depreciation, a common concern of all South African Pharmaceutical Enterprises.
CHANGE IN DIRECTORS' FUNCTIONS
With effect from 27 August 2014 the Chairman of the Board of directors of Adcock Ingram ("Board"), Mr Brian Joffe, will chair the HR,
Remunerations and Nominations Committee, when constituted as the Nominations Committee. In instances where the Chairman of
the Board is conflicted, the Lead Independent Director of the Board, Mr Clifford Raphiri, will chair the Nominations Committee. When
constituted as the Nominations Committee, the Committee will have the following membership: Messrs Brian Joffe; Motty Sacks and
Clifford Raphiri.
An Acquisitions Committee was established by the Board on 21 November 2014 and Messrs Brian Joffe, Clifford Raphiri, Roshan Morar,
Lindsay Ralphs and Motty Sacks were appointed as members of this Committee. Messrs Kevin Wakeford and Andrew Hall will serve on
this Committee as invitees.
DIVIDEND
The Board has resolved that notwithstanding the relevant improvement in the Group results, no interim dividend in respect of the period
ended 31 December 2014 will be declared.
PROSPECTS
The reorganisation and general restructure of the business, including the implementation of a series of corrective measures and actions,
has resulted in a more energised workplace instilling greater pride and confidence in staff and management within all of the Group's
operating divisions. Notwithstanding the volatile economics and uncertainties in both South African and world markets, the Board is
satisfied with the direction and progress made during this reporting period.
By order of the Board
B Joffe KB Wakeford AG Hall
Chairman Chief Executive Officer Deputy Chief Executive and Financial Director
23 February 2015
Corporate information
Directors:
Mr B Joffe (Non-Executive Chairman)
Mr K Wakeford (Chief Executive Officer)
Mr A Hall (Deputy Chief Executive and Financial Director)
Prof M Haus (Independent Non-Executive Director)
Dr T Lesoli (Independent Non-Executive Director)
Mr M Makwana (Independent Non-Executive Director)
Dr A Mokgokong (Non-Executive Director)
Mr R Morar (Non-Executive Director)
Mr L Ralphs (Non-Executive Director)
Mr C Raphiri (Lead Independent Non-Executive Director)
Mr M Sacks (Independent Non-Executive Director)
Dr R Stewart (Independent Non-Executive Director)
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
PO Box 61051, Marshalltown, 2107
Auditors:
Ernst & Young Inc.
102 Rivonia Road, Sandton, 2146
Sponsor:
Deutsche Securities (SA) Proprietary Limited
3 Exchange Square, 87 Maude Street, Sandton, 2146
Bankers:
Nedbank Limited, 135 Rivonia Road, Sandown, Sandton, 2146
Rand Merchant Bank, 1 Merchant Place, corner Fredman Drive and Rivonia Road, Sandton, 2196
Forward-looking statements:
Adcock Ingram may, in this document, make certain statements that are not historical facts and relate to analyses and other information which
are based on forecasts of future results and estimates of amounts not yet determinable. These statements may also relate to our future prospects,
developments and business strategies. Examples of such forward-looking statements include, but are not limited to, statements regarding exchange
rate fluctuations, volume growth, increases in market share, total shareholder return and cost reductions. Words such as "believe", "anticipate",
"expect", "intend", "seek", "will", "plan", "could", "may", "endeavour" and "project" and similar expressions are intended to identify such forward-looking
statements, but are not the exclusive means of identifying such statements. By their very nature, forward-looking statements involve inherent risks
and uncertainties, both general and specific, and there are risks that the predictions, forecasts, projections and other forward-looking statements will
not be achieved. If one or more of these risks materialise, or should underlying assumptions prove incorrect, our actual results may differ materially
from those anticipated. Forward-looking statements apply only as of the date on which they are made, and we do not undertake any obligation to
update or revise any of them, whether as a result of new information, future events or otherwise.
www.adcock.com
Date: 23/02/2015 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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