Wrap Text
Unaudited interim financial results for the six months ended 31 December 2016
ASPEN PHARMACARE HOLDINGS LIMITED AND ITS SUBSIDIARIES ("ASPEN" OR "THE GROUP")
(REGISTRATION NUMBER 1985/002935/06)
SHARE CODE: APN / ISIN: ZAE000066692
Unaudited interim financial results for the six months ended 31 December 2016
COMMENTARY
GROUP PERFORMANCE
Revenue for the Group grew 13% to R19,8 billion and normalised headline earnings per share increased by 6% to 692 cents
in the six months ended 31 December 2016.
The results were favourably influenced by the following:
- The acquisition of AstraZeneca's global (excluding the USA) anaesthetics portfolio ("the AZ anaesthetics") which was
effective from 1 September 2016 and generated R2,8 billion of revenue during the period;
- Revenue of R0,4 billion from the sale of Hydroxyprogesterone Caproate ("HPC") in the USA following the conclusion of
a supply and distribution agreement with a major pharmaceutical company; and
- Cash generated from operating activities improved considerably, more than doubling to R3,2 billion as measures to
improve working capital management took effect.
Offsetting this were the following factors:
- The anticipated decline in the South African business, which is nonetheless well on its path to recovery;
- Margin pressure suffered by the nutritional business in Latin America due to reduced production activity as surplus
inventories arising from Aspen's withdrawal from Venezuela were redeployed;
- Legislated price decreases, GBP weakness following the Brexit vote, supply constraints and adjustments to the
distribution model weighing on performance in the Europe CIS territory;and
- Foreign exchange losses, primarily arising from the Rand strengthening against forward exchange contracts.
INTERNATIONAL BUSINESS
The International business remained the largest segment of the Group, contributing 50% to revenue from customers. Sales
to customers in this business increased 11% to R10.0 billion.
The Europe CIS territory was the biggest contributor to the International business, increasing sales from customers by
2% to R6,7 billion. Sales of finished dose form pharmaceutical products to healthcare providers ("commercial pharma") in
this territory were up 9% to R4,5 billion. This performance benefited from the inclusion of the AZ anaesthetics with the
offsetting factors mentioned earlier tempering growth achieved.
In Latin America, revenue from customers increased 11% to R2,0 billion and commercial pharma sales were 26% higher at
R1,3 billion. Excluding the AZ anaesthetics, the underlying pharmaceutical portfolio increased sales 4% to R1,0 billion.
Revenue from nutritionals grew in local currencies, but the weakness of the Mexican Peso in particular caused reported
revenue to decline 9% to R0,7 billion. Margins were unfavourably affected by lower volumes of production in the Vallejo
manufacturing site in Mexico for the reasons reported earlier.
In the USA, the arrangements with the initially appointed distributor for HPC were terminated and a supply and distribution
agreement was signed with a major pharmaceutical company which acquired R0,4 billion of product. Future sales of HPC in the
USA will be dependent on the success of this distributor in placing the product in the trade. It is unlikely that there will
be further material sales of HPC by Aspen during the course of the 2017 calendar year.
Capital projects to enhance production efficiency and ensure highest technical support levels continue at the Notre
Dame de Bondeville site in France. At the Oss active pharmaceutical ingredient site in the Netherlands, new capacity
is being added and investment in the sustainability of the site is ongoing.
SUB-SAHARAN AFRICA ("SSA") BUSINESS
In light of the cancellation of the collaboration with GSK in SSA outside of South Africa, the business segment
previously referred to as SSA has been combined with South Africa, under the heading of the SSA business.
Sales to customers in SSA declined 1% to R4.6 billion.
Nutritionals revenue grew 9% to R0,5 billion and manufacturing revenue improved 34% to R0,7 billion. However, as previously
communicated, commercial pharma remained under pressure as the resolution of supply chain issues continued, causing sales
to decline 8% to R3,4 billion. Despite a month-long strike at the Port Elizabeth and East London manufacturing sites in
August, significant progress has been achieved in overcoming the supply constraints affecting the commercial pharma division
which delivered improved results in the latter months of the period.
The building of a second sterile facility in Port Elizabeth is under way, creating new opportunities to bring
additional production to this site.
ASIA PACIFIC BUSINESS
Sales to customers in the Asia Pacific business increased 36% to R5.2 billion. This region benefits most from the AZ anaesthetics
which added R1,6 billion to the sales achieved.
In Australasia sales from the base pharmaceutical portfolio grew 3% to R2,3 billion. Sales of nutritionals were 23%
lower at R0,4 billion and margin percentages came under pressure.The Australian nutritional industry continues to adapt to lower
demand following the withdrawal of informal traders barred from importing product into China. In Asia, the business has expanded
substantially with the addition of the AZ anaesthetics. Trade has commenced in China where R0,6 billion of anaesthetic sales was
achieved in the period. The underlying commercial pharma portfolio in Asia advanced revenue 17% to R0,9 billion.
FUNDING
During the period R7,4 billion was paid relating to acquisitions and other capital expenditure, in addition to which
R1,1 billion was paid to shareholders by way of a dividend. As a result of strong operational cash flows (R3,2 billion)
and favourable exchange rate benefits (R3,0 billion) the increase in net borrowings was limited to R2,9 billion.
Borrowings, net of cash, amounted to R35,6 billion at the period end. The increase in working capital was limited to
R0,7 billion which was primarily related to the acquisition of the AZ anaesthetics.
PROSPECTS
The transformation of Aspen into a global, multinational organisation focused on therapeutic specialties over the past
few years has been a challenging undertaking, necessitating substantial investment. During this process, it has been
necessary to build infrastructure, establish new supply sources and transition management of product portfolios across
the world. There have been resultant inefficiencies in overhead structures and working capital management which continue
to receive high levels of focus. Unfavourable currency movements and legislated price cuts have also placed pressure on
performance. Consequently, this will dilute the synergies realised from various projects.
Results in the second half of the 2017 financial year will be influenced by the strengthening of the Rand which, if
sustained, will dilute foreign earnings which comprise the greatest portion of Aspen's income. The outlook to 30 June 2017
will also be influenced by the following:
- The extensive work which has been undertaken in order to overcome the supply chain problems experienced in the South African
business which is expected to result in a substantial improvement in performance is anticipated in the second half of this
financial year;
- The amended distribution model is expected to result in a stronger second half in the Europe/CIS territory;
- The benefit from the inclusion of the AZ anaesthetics for six months, having contributed for four months to 31 December 2016;
- Aspen's leading position in anaesthetics (outside of the USA) will also be enhanced with the inclusion of the acquisition of
the GSK anaesthetics portfolio which became effective on 1 March 2017;
- The completion of the acquisition of Fraxiparine and Arixtra in China will further bolster Aspen's entry to the world's
second largest pharmaceutical market;
- The cancellation of the collaboration with GSK in SSA outside of South Africa; and
- The production volumes in the Vallejo nutritionals facility are scheduled to return to more normal levels which should
result in an improved performance from this business segment in the forthcoming months.
Overall a stronger underlying performance in the second half of the 2017 financial year is anticipated.
By order of the Board
K D Dlamini S B Saad
(Chairman) (Group Chief Executive)
Woodmead
9 March 2017
GROUP STATEMENT OF FINANCIAL POSITION
Unaudited Unaudited Audited
31 December 31 December 30 June
2016 2015 2016
R'billion R'billion R'billion
ASSETS
Non-current assets
Intangible assets 53,6 51,4 49,1
Property, plant and equipment 9,7 9,3 9,7
Goodwill 5,7 6,2 6,0
Deferred tax assets 1,0 1,3 1,1
Contingent environmental indemnification assets 0,7 0,8 0,8
Other non-current assets 1,1 0,5 0,4
Total non-current assets 71,8 69,5 67,1
Current assets
Inventories 13,2 13,2 14,4
Receivables and other current assets 13,5 12,0 11,8
Cash and cash equivalents 9,5 10,4 10,9
Total operating current assets 36,2 35,6 37,1
Assets classified as held-for-sale 0,1 0,2 0,1
Total current assets 36,3 35,8 37,2
Total assets 108,1 105,3 104,3
SHAREHOLDERS' EQUITY
Reserves 37,7 41,2 40,6
Share capital (including treasury shares) 1,9 2,0 1,9
Total shareholders' equity 39,6 43,2 42,5
LIABILITIES
Non-current liabilities
Borrowings 35,7 13,7 32,7
Other non-current liabilities 3,3 2,4 2,5
Unfavourable and onerous contracts 1,8 2,5 2,2
Deferred tax liabilities 1,9 1,9 1,8
Contingent environmental liabilities 0,7 0,8 0,8
Retirement and other employee benefits 0,6 0,6 0,7
Total non-current liabilities 44,0 21,9 40,7
Current liabilities
Borrowings* 9,4 30,2 10,9
Trade and other payables 10,0 7,8 8,3
Other current liabilities 4,8 1,8 1,5
Unfavourable and onerous contracts 0,3 0,4 0,4
Total current liabilities 24,5 40,2 21,1
Total liabilities 68,5 62,1 61,8
Total equity and liabilities 108,1 105,3 104,3
Number of shares in issue (net of treasury shares) ('000) 456,0 456,1 456,1
Net asset value per share (cents) 8 675,4 9 466,8 9 320,5
* Includes bank overdrafts.
GROUP STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited
six months six months Audited
ended ended year ended
31 December 31 December 30 June
2016 2015 2016
Notes Change R'billion R'billion R'billion
Revenue 13% 19,8 17,5 35,6
Cost of sales (10,3) (8,7) (17,7)
Gross profit 8% 9,5 8,8 17,9
Selling and distribution expenses (3,2) (2,8) (6,0)
Administrative expenses (1,3) (1,2) (2,6)
Other operating income 0,2 1,8 1,9
Other operating expenses (0,6) (0,5) (2,2)
Operating profit B# (25%) 4,6 6,1 9,0
Investment income C# 0,1 0,2 0,3
Financing costs D# (1,3) (1,8) (3,2)
Profit before tax (23%) 3,4 4,5 6,1
Tax (0,6) (1,1) (1,8)
Profit for the period/year (15%) 2,8 3,4 4,3
OTHER COMPREHENSIVE INCOME, NET OF TAX*
Currency translation (losses)/gains E# (4,8) 6,7 5,2
Cash flow hedges recognised 0,2 - -
Remeasurement of retirement and other employee benefits - - (0,1)
Total comprehensive (loss)/income (1,8) 10,1 9,4
Weighted average number of shares in issue ('000) 456,3 456,3 456,4
Diluted weighted average number of shares in issue ('000) 456,3 456,4 456,5
EARNINGS PER SHARE
Basic earnings per share (cents) (15%) 618,6 727,1 945,4
Diluted earnings per share (cents) (15%) 618,6 726,9 945,2
DISTRIBUTION TO SHAREHOLDERS
Dividend/capital distribution per share (cents) 248,0 216,0 216,0
The dividend to shareholders of 248,0 cents relates to the dividend declared on 14 September 2016 and paid on
10 October 2016 (2015 distribution: the capital distribution of 216,0 cents relates to the distribution declared
on 9 September 2015 and paid on 12 October 2015).
* The annual remeasurement of retirement and other employee benefits will not be reclassified to profit and loss.
All other items in other comprehensive income may be reclassified to profit and loss.
# See notes on Supplementary information.
GROUP STATEMENT OF HEADLINE EARNINGS
Unaudited Unaudited
six months six months Audited
ended ended year ended
31 December 31 December 30 June
2016 2015 2016
Change R'billion R'billion R'billion
HEADLINE EARNINGS
Reconciliation of headline earnings
Profit attributable to equity holders of the parent (15%) 2,8 3,4 4,3
Adjusted for:
- Net impairment of intangible assets (net of tax) - - 0,9
- Loss on the sale of intangible assets (net of tax) 0,1 - -
- Profit on the sale of assets classified as
held-for-sale (net of tax) - (1,5) (1,2)
53% 2,9 1,9 4,0
HEADLINE EARNINGS PER SHARE
Headline earnings per share (cents) 53% 640,9 418,8 889,0
Diluted headline earnings per share (cents) 53% 640,9 418,7 888,8
NORMALISED HEADLINE EARNINGS
Reconciliation of normalised headline earnings
Headline earnings 53% 2,9 1,9 4,0
Adjusted for:
- Restructuring costs (net of tax) - 0,1 0,3
- Transaction costs (net of tax) 0,2 0,1 0,6
- Net monetary adjustments and currency devaluations
relating to hyperinflationary economies (net of tax) - 0,9 0,9
6% 3,1 3,0 5,8
NORMALISED HEADLINE EARNINGS PER SHARE
Normalised headline earnings per share (cents) 6% 692,0 655,5 1 263,7
Normalised diluted headline earnings per share (cents) 6% 692,0 655,3 1 263,4
GROUP STATEMENT OF CHANGES IN EQUITY
Share capital
(including
treasury
shares) Reserves Total
R'billion R'billion R'billion
BALANCE AT 1 JULY 2015 3,0 31,1 34,1
Total comprehensive income - 10,1 10,1
Profit for the year - 3,4 3,4
Other comprehensive income - 6,7 6,7
Capital distribution (1,0) - (1,0)
BALANCE AT 31 DECEMBER 2015 2,0 41,2 43,2
BALANCE AT 1 JULY 2016 1,9 40,6 42,5
Total comprehensive loss - (1,8) (1,8)
Profit for the year - 2,8 2,8
Other comprehensive loss - (4,6) (4,6)
Dividends paid - (1,1) (1,1)
BALANCE AT 31 DECEMBER 2016 1,9 37,7 39,6
GROUP STATEMENT OF CASH FLOWS
Unaudited Unaudited
six months six months Audited
ended ended year ended
31 December 31 December 30 June
2016 2015 2016
Notes R'billion R'billion R'billion
CASH FLOWS FROM OPERATING ACTIVITIES
Cash operating profit 5,5 5,0 9,8
Changes in working capital (0,7) (1,8) (3,4)
Cash generated from operations 4,8 3,2 6,4
Net financing costs paid (0,9) (0,9) (1,7)
Tax paid (0,7) (0,8) (1,5)
Cash generated from operating activities 3,2 1,5 3,2
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditure - property, plant and equipment A# (0,7) (0,9) (1,7)
Capital expenditure - intangible assets A# (0,6) (0,6) (1,1)
Proceeds received on the sale of intangible assets - - 0,2
Acquisition of subsidiaries and businesses J# (6,0) (0,5) (0,7)
Hedging gains 0,2 - -
Increase in other non-current assets (0,6) - -
Payment of deferred consideration relating to prior
year business acquisitions (0,2) (0,3) (0,7)
Proceeds on the sale of assets classified as held-for-sale H# 0,1 4,8 5,1
Cash (used in)/generated from investing activities (7,8) 2,5 1,1
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from/(repayments of) borrowings 6,0 (2,0) (2,0)
Capital distribution and dividends paid (1,1) (1,0) (1,0)
Treasury shares purchased - - (0,1)
Cash generated from/(used in) financing activities 4,9 (3,0) (3,1)
Movement in cash and cash equivalents before effects
of exchange rate changes 0,3 1,0 1,2
Effects of exchange rate changes (0,7) 0,2 (0,2)
Movement in cash and cash equivalents (0,4) 1,2 1,0
Cash and cash equivalents at the beginning of the period/year 7,9 6,9 6,9
Cash and cash equivalents at the end of the period/year 7,5 8,1 7,9
Operating cash flow per share (cents) 708,7 335,1 706,7
RECONCILIATION OF CASH AND CASH EQUIVALENTS
Cash and cash equivalents per the statement of financial position 9,5 10,4 10,9
Less: bank overdrafts (2,0) (2,3) (3,0)
7,5 8,1 7,9
For the purposes of the statement of cash flows, cash and cash equivalents comprise cash-on-hand, deposits
held on call with banks less bank overdrafts.
# See notes on Supplementary information.
GROUP SEGMENTAL ANALYSIS
Unaudited Unaudited restated Audited restated
six months ended six months ended year ended
31 December 2016 31 December 2015 30 June 2016
R'billion % of total R'billion % of total Change R'billion % of total
REVENUE
International@ 11,5 58 9,0 51 28% 18,9 53
Sub-Saharan Africa^* 4,5 23 4,7 27 (4%) 9,1 26
Asia Pacific 3,8 19 3,8 22 (1%) 7,6 21
Total revenue 19,8 100 17,5 100 13% 35,6 100
OPERATING PROFIT BEFORE AMORTISATION AND DEPRECIATION
Adjusted for specific non-trading items ("EBITDA")
International 3,6 67 3,1 59 22% 6,2 61
Operating profit# 3,1 2,7 19% 4,3
Amortisation of intangible assets 0,2 0,2 0,4
Depreciation 0,2 0,2 0,3
Transaction costs 0,1 0,1 0,3
Restructuring costs - 0,1 0,3
Profit on the sale of assets - (0,2) (0,2)
Impairment of assets - - 0,8
Sub-Saharan Africa 1,1 19 1,1 24 (15%) 2,1 22
Operating profit# 0,8 2,5 (70%) 3,2
Depreciation 0,1 0,1 0,2
Loss/(profit) on the sale of assets 0,1 (1,5) (1,4)
Net impairment of assets 0,1 - 0,1
Asia Pacific 0,8 14 0,9 17 (13%) 1,8 17
Operating profit# 0,7 0,9 (26%) 1,5
Amortisation of intangible assets 0,1 0,1 0,2
Depreciation - - 0,1
Profit on the sale of assets - (0,1) -
Total EBITDA 5,5 100 5,1 100 7% 10,1 100
ENTITY-WIDE DISCLOSURE - REVENUE+
Commercial revenue by customer geography
Commercial - Pharmaceutical 15,1 76 12,6 72 19% 25,6 72
Europe 4,1 21 3,7 21 10% 7,7 22
CIS 0,4 2 0,4 2 2% 0,7 2
Australasia 2,5 13 2,4 14 5% 4,7 13
China 0,7 3 - 0 2 086% - -
Japan 0,8 4 0,3 2 185% 0,7 3
Other Asia 0,6 3 0,4 2 50% 0,9 2
Sub-Saharan Africa 3,4 17 3,7 21 (8%) 7,1 20
Latin America 1,3 6 1,0 6 26% 2,0 6
Middle East and North Africa 0,5 3 0,4 2 27% 0,9 2
USA and Canada 0,8 4 0,3 2 194% 0,9 2
Commercial - Nutritionals 1,6 8 1,8 10 (9%) 3,5 10
Latin America 0,7 4 0,8 4 (9%) 1,5 4
Australasia 0,4 2 0,6 3 (23%) 1,0 3
Sub-Saharan Africa 0,5 2 0,4 3 9% 1,0 3
Total commercial revenue 16,7 84 14,4 82 16% 29,1 82
Manufacturing revenue by geography of manufacturer
Manufacturing revenue - finished dose forms 1,0 5 1,0 6 (2%) 2,1 6
Sub-Saharan Africa 0,5 2 0,4 2 32% 0,9 3
Europe 0,3 2 0,4 3 (40%) 0,7 2
Australasia 0,2 1 0,2 1 24% 0,5 1
Manufacturing revenue - active pharmaceutical ingredients 2,1 11 2,1 12 2% 4,4 12
Europe 1,9 10 1,9 11 (1%) 4,0 11
Sub-Saharan Africa 0,2 1 0,2 1 38% 0,4 1
Total manufacturing revenue 3,1 16 3,1 18 1% 6,5 18
Total revenue 19,8 100 17,5 100 13% 35,6 100
Summary of regions
International 10,0 50 8,9 51 11% 18,4 52
Sub-Saharan Africa 4,6 23 4,7 27 (1%) 9,4 26
Asia Pacific 5,2 27 3,9 22 36% 7,8 22
Total revenue 19,8 100 17,5 100 13% 35,6 100
@ Excludes intersegment revenue of R1,4 billion (2015: R1,2 billion).
^ Excludes intersegment revenue of R0,2 billion (2015: R0,1 billion).
* The GSK Aspen Healthcare for Africa Collaboration which was a material component of the sub-Saharan Africa region has been terminated
effective from 31 December 2016 and as a consequence the sub-Saharan Africa region is no longer a material region. On this basis the
South African and sub-Saharan African regions have been consolidated into a broader all encompassing sub-Saharan Africa region. To
ensure future comparability of the broader sub-Saharan Africa region, the GSK Aspen Healthcare for Africa Collaboration is no longer
reflected at a gross revenue level and is reported at a net revenue level with the comparative periods being accordingly restated.
Refer to the basis of accounting for detailed information.
# The aggregate segmental operating profit is R4,6 billion (2015: R6,1 billion).
+ The entity-wide revenue disclosure format has been restated to reflect Aspen's current operating model. Refer to the basis of
accounting for detailed information.
GROUP SUPPLEMENTARY INFORMATION
Unaudited Unaudited
six months six months Audited
ended ended year ended
31 December 31 December 30 June
2016 2015 2016
Note R'billion R'billion R'billion
A. CAPITAL EXPENDITURE
Incurred 1,3 1,5 2,8
- Property, plant and equipment 0,7 0,9 1,7
- Intangible assets 0,6 0,6 1,1
Contracted 0,8 0,9 1,2
- Property, plant and equipment 0,8 0,6 0,8
- Intangible assets - 0,3 0,4
Authorised but not contracted for 2,1 2,0 2,6
- Property, plant and equipment 1,7 1,8 2,1
- Intangible assets 0,4 0,2 0,5
B. OPERATING PROFIT HAS BEEN ARRIVED AT AFTER CHARGING/(CREDITING)
Depreciation of property, plant and equipment 0,3 0,3 0,6
Amortisation of intangible assets 0,3 0,3 0,6
Net impairment of tangible and intangible assets 0,1 - 0,9
Loss on the sale of intangible assets 0,1 - -
Share-based payment expenses - employees - - 0,1
Transaction costs 0,1 0,1 0,3
Restructuring costs - 0,1 0,3
Profit on sale of assets classified as held-for-sale - (1,7) (1,6)
C. INVESTMENT INCOME
Interest received 0,1 0,2 0,3
D. FINANCING COSTS
Interest paid (0,9) (1,0) (1,8)
Debt raising fees on acquisitions (0,1) (0,1) (0,3)
Fair value (losses)/gains on financial instruments (0,1) 0,2 -
Notional interest on financial instruments (0,2) (0,1) (0,2)
Net monetary adjustments and currency devaluations relating to
hyperinflationary economies F# - (0,8) (0,9)
(1,3) (1,8) (3,2)
E. CURRENCY TRANSLATION LOSSES/GAINS
Currency translation losses/gains on the translation of the offshore businesses are as a result of the difference
between the weighted average exchange rate used for trading results and the opening and closing exchange rates
applied in the statement of financial position. For the period the stronger closing Rand translation rate decreased
the Group net asset value.
F. HYPERINFLATIONARY ECONOMY
The Venezuelan economy is regarded as a hyperinflationary economy in terms of International Financial Reporting
Standards. Effective March 2016 two regulated exchange rates were applicable to Aspen's business:
- The DIPRO rate (previously the official CENCOEX rate) for the importation of high priority goods including
nutritionals and pharmaceutical medicines. This rate increased to VEF10,0 per USD from VEF6,30 per USD in
March 2016.
- The DICOM rate (previously the SIMADI rate) which is a floating rate published daily by the Venezuelan central
bank. The DICOM rate opened in March 2016 at an initial rate of VEF206,8 per USD and the closing rate at
30 June 2016 was VEF628,34 per USD. The previous SIMADI rate was VEF200 per USD as at 31 December 2015.
Due to political and economic uncertainty in Venezuela, the Group concluded in December 2015 that it would be
more appropriate to apply the DICOM rate (previously the SIMADI rate) to report the Venezuelan business‘ financial
position, results of operations and cash flows. This resulted in a devaluation loss on foreign denominated
liabilities of R870 million in June 2016 (December 2015: R841 million).
The business has been downscaled pending a future change in the economic conditions. No significant trading activity
has been undertaken since December 2015.
Unaudited Unaudited
six months six months Audited
ended ended year ended
31 December 31 December 30 June
2016 2015 2016
R'billion R'billion R'billion
G. GUARANTEES TO FINANCIAL INSTITUTIONS
Material guarantees given by Group companies for indebtedness
of subsidiaries to financial institutions 43,8 13,6 40,6
H. PROCEEDS ON THE DISPOSAL OF ASSETS CLASSIFIED AS HELD-FOR-SALE
Divestment of a portfolio of products in South African to Litha - 1,7 1,7
Divestment of generics business and certain branded products to
Strides entities 0,1 3,0 3,4
Divestment of land and buildings in Australia - 0,1 0,1
0,1 4,8 5,2
I. DISPUTED INCOME TAX MATTER
The Aspen Group has been subject to an international tax audit by the South African Revenue Service and
Aspen Pharmacare Holdings Limited received a revised assessment in relation to its 2011 fiscal year as a
consequence of this audit. Aspen has filed an appeal against the assessment. Aspen believes that it has
appropriately dealt with its related party transactions and that this position is supported by Aspen's
legal and tax advisers.
J. ACQUISITION OF SUBSIDIARIES AND BUSINESSES
December 2016
Set out below is the provisional accounting for the following business combinations:
AstraZeneca anaesthetics portfolio
With effect from 1 September 2016, AGI acquired the exclusive rights to commercialise the anaesthetics
portfolio of AstraZeneca globally (excluding the USA). As consideration for the commercialisation rights,
AGI paid USD410 million with a further payment of USD110 million due on 1 July 2017. Additionally, AGI
will make sales-related payments of up to USD250 million based on sales in the 24 months following completion.
Post-acquisition revenue included in the statement of comprehensive income was R2,8 billion. The estimation
of post-acquisition operating profits is impracticable and not reasonably determinable due to the immediate
integration of the business into the existing operations of the Group.
Fraxiparine and Arixtra in China, Pakistan and India
As part of its acquisition of the thrombosis products Fraxiparine and Arixtra from GSK in 2014, AGI also
acquired an option to acquire the same products in certain countries to which GSK retained the rights,
most notably China. AGI has exercised its option and, with effect from 1 January 2017, acquired Fraxiparine
and Arixtra in these countries for a consideration of GBP45 million.
Fraxiparine
and Arixtra
AstraZeneca in China,
anaesthetics Pakistan
portfolio and India Total
R'billion R'billion R'billion
Fair value of assets and liabilities acquired
Intangible assets 11,1 0,7 11,8
Deferred tax liabilities (0,4) - (0,4)
Fair value of net assets acquired 10,7 0,7 11,4
Goodwill acquired 0,4 - 0,4
Deferred consideration (5,1) (0,7) (5,8)
Cash outflow on acquisition 6,0 - 6,0
June 2016
Set out below is the final accounting for the following business combinations. There were no changes to the
provisional accounting:
Norgine SA
On 21 May 2015, Pharmacare Ltd acquired 100% of the issued share capital of Norgine Pty Ltd in South Africa
("Norgine SA") for a consideration of EUR29 million. Norgine SA commercialises a portfolio of branded gastro-
intestinal products in South Africa and surrounding territories. The approval of this transaction by the South
African Competition Authorities was obtained on 25 August 2015. This transaction completed on 30 September 2015.
Post-acquisition revenue included in the statement of comprehensive income was R100.4 million. The estimation
of post-acquisition operating profits is impracticable and not reasonably determinable due to the immediate
integration of the business into the existing operations of the Group.
HPC business
AGI entered into an agreement with McGuff Pharmaceuticals Inc. ("McGuff") for the exclusive supply of the
finished dose form of Hydroxyprogesterone Caproate ("HPC") in the United States. With effect from 1 December 2015,
AGI acquired the related intellectual property and the approved Abbreviated New Drug Application for an upfront
consideration of USD15 million. Milestone payments, of between USD21 million and USD28 million, are payable over
a five-year supply term and are partly contingent on future sales performance.
In December 2016 AGI and a major United States-based pharmaceutical company entered into a supply and
distribution agreement for HPC in that country, which resulted in initial revenue of R0,4 billion being
recognised in the results for the six months ended 31 December 2016.
Norgine SA HPC business Total
R'billion R'billion R'billion
Fair value of assets and liabilities acquired
Intangible assets 0,5 0,6 1,1
Trade and other receivables 0,1 - 0,1
Trade and other payables (0,1) - (0,1)
Purchase consideration paid 0,5 0,6 1,1
Deferred consideration - (0,4) (0,4)
Cash outflow on acquisition 0,5 0,2 0,7
SUBSEQUENT EVENTS
Acquisition of a portfolio of anaesthetic products
With effect from 1 March 2017 AGI acquired a portfolio of anaesthetics globally (excluding the USA) from GSK. As
consideration for the commercialisation rights, AGI paid GBP180 million and further milestone payments of up to
GBP100 million, based on the results of the acquired portfolio in the 36 months following completion.
BASIS OF ACCOUNTING
The unaudited interim financial results for the six months ended 31 December 2016 have been prepared in accordance
with International Financial Reporting Standards, IFRIC interpretations, the Listings Requirements of the JSE Limited,
South African Companies Act, 2008 and the presentation and disclosure requirements of IAS 34: Interim Reporting.
The accounting policies applied in the preparation of the unaudited interim financial results are in terms of
International Financial Reporting Standards and are consistent with those applied in the Annual Financial Statements
for the year ended 30 June 2016.
The Group segmental analysis has been revised to reflect the Group's current operating model and all comparative
numbers have been restated accordingly. The updated segmental analysis is aligned to the way the business is managed
and reported on by the Chief Operating Decision Maker ("CODM"). The regional split on the entity-wide revenue disclosure
has been expanded following the recent business transactions.
The Group segmental analysis has changed as follows:
1. Certain previously reported regions on the entity-wide revenue disclosure (Europe/CIS and Asia Pacific) have been
further expanded to show the following regions separately:
a. Europe;
b. CIS;
c. Australasia;
d. China;
e. Japan; and
f. Other Asia.
2. The GSK Aspen Healthcare for Africa Collaboration which was a material component of the sub-Saharan Africa region
has been terminated effective from 31 December 2016 and as a consequence the sub-Saharan Africa region is no longer
a material region. On this basis the South African and sub-Saharan African regions have been consolidated into a
broader all encompassing sub-Saharan Africa region. To ensure future comparability of the broader sub-Saharan Africa
region, the GSK Aspen Healthcare for Africa Collaboration is no longer reflected at a gross revenue level and is
reported at a net revenue level with the comparative periods being accordingly restated.
The unaudited interim financial results have been rounded and disclosed in R'billions to assist financial analysis.
All percentage change variances have been calculated using unrounded numbers to record accurate variance trends.
These unaudited interim financial results were prepared under the supervision of the Deputy Group Chief executive,
MG Attridge CA(SA) and approved by the Board of Directors.
DIRECTORS
K D Dlamini (Chairman)*, R C Andersen*, M G Attridge, J F Buchanan*, M M Manyama*, C N Mortimer*, B Ngonyama*,
D S Redfern*, S B Saad, S V Zilwa*
*Non-executive director
COMPANY SECRETARY
R Verster
REGISTERED OFFICE
Building Number 8, Healthcare Park, Woodlands Drive, Woodmead
PO Box 1587, Gallo Manor, 2052
Telephone +27 11 239 6100
Telefax +27 11 239 6144
SPONSOR
Investec Bank Limited
TRANSFER SECRETARY
Terbium Financial Services (Pty) Ltd
Beacon House
31 Beacon Road, Florida North, 1709
PO Box 61272, Marshalltown, 2107
Disclaimer
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forecasts of future results and estimates of amounts not yet determinable. These are forward looking statements
as defined in the U.S. Private Securities Litigation Reform Act of 1995. Words such as "prospects", "believe",
"anticipate", "expect", "intend", "seek", "will", "plan", "indicate", "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 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, actual results may be very different from those anticipated. The factors that could
cause our actual results to differ materially from the plans, objectives, expectations, estimates and intentions
expressed in such forward looking statements are discussed in each year's annual report. Forward looking statements
apply only as of the date on which they are made, and we do not undertake other than in terms of the Listings
Requirements of the JSE Limited, any obligation to update or revise any of them, whether as a result of new
information, future events or otherwise. All profit forecasts published in this report are unaudited.
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