annual financial statements 2017

ANNUAL FINANCIAL
STATEMENTS 2017
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Contents
IFC
Certificate of the Company Secretary
1
Audit & Risk Committee report
7
Statement of responsibility by the Board of Directors
8
Directors’ Report
12
Independent auditors’ report to the shareholders of Aspen Pharmacare Holdings Limited
18
Group statement of financial position
19
Group statement of comprehensive income
20
Group statement of changes in equity
21
Group statement of cash flows
22
Notes to the Group statement of cash flows
25
Group segmental analysis
30
Notes to the Group Annual Financial Statements
85
Residual accounting policies
95
Company Annual Financial Statements
118
Illustrative constant exchange rate report – Annexure 1
124
Shareholders’ statistics (unaudited)
126
Administration
127
Abbreviations
All company names have been abbreviated throughout the Annual Financial Statements and appear on pages 127 and 128.
Certificate of the Company Secretary
In my capacity as the Company Secretary & Group Governance Officer, I hereby confirm, in terms of the Companies Act, that for the year
ended 30 June 2017, the Company has lodged with the Companies and Intellectual Property Commission all such returns as are required of
a public company in terms of this Act, and that all such returns are, to the best of my knowledge and belief true, correct and up to date.
Riaan Verster
Company Secretary & Group Governance Officer
Johannesburg
30 October 2017
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Audit & Risk Committee report
Activities, mandate, composition and attendance of the Audit & Risk Committee (“A&R Co”)
The table below reflects a summary of the activities undertaken by the A&R Co during the year in terms of its terms of reference and in
support of the Board, with the resulting material outcomes from these activities:
Activities
Outcome
Engagement with the Group’s
external auditors
➜➜nominated and recommended to shareholders the appointment of the external auditor of
Compliance with Companies
Act requirements
➜➜prepared this report in compliance with section 94(7)(f) of the Companies Act, which report
the Company and the Group who is a registered auditor and who, in the opinion of the A&R
Co, is independent of the Company and the Group;
➜➜determined the fees to be paid to the auditor and the auditor’s terms of engagement;
➜➜ensured that the appointment of the auditor complies with the Companies Act, and any
other legislation relating to the appointment of the auditor;
➜➜determined the nature and extent of any non-audit services that the auditor may provide to
the Group; and
➜➜pre-approved any proposed agreement with the auditor for the provision of non-audit
services to the Group which are of a material nature as provided for in the Group’s non-audit
services policy.
has been included in the Annual Financial Statements;
➜➜stands ready to receive and deal with any concerns or complaints relating to the accounting
practices and internal audit of the Company and the Group, the content or auditing of the
Annual Financial Statements, including the Summarised Group Annual Financial Statements
contained in the Integrated Report, the internal financial controls of the Company and the
Group or any related matter; and
➜➜made submissions to the Board matters concerning the Company and the Group’s
accounting policies, financial controls, records and reporting.
Internal financial controls,
internal audit and combined
assurance
➜➜assessed internal financial controls and concluded that no material breakdowns in the
Oversight of risk management
➜➜monitored the implementation of the Group risk policy and Group risk plan as approved by
functioning of the internal financial controls were noted during the year under review and
that the results of the audit tests conducted indicate that the internal financial controls
provided a sound basis for the preparation of financial statements;
➜➜considered and confirmed its satisfaction with the effectiveness of the internal audit
function, as well as the expertise and experience of the Chief Audit Executive;
➜➜received an external and independent assessment of the internal audit function in line with
Aspen’s requirement for an external review every five years, noting the positive results of
this assessment and the function’s general conformance with the Institute of Internal
Auditors Standards; and
➜➜ensured that a comprehensive combined assurance model was applied to provide a
coordinated approach to all assurance activities and confirmed that there were no significant
areas of overlap or assurance gaps and the levels of assurance were considered appropriate.
the Board;
➜➜reviewed and considered the activities and reports of the Group executive risk forum and Tax
Committee;
➜➜reviewed and considered business unit risk reports presented to the Committee;
➜➜reviewed and considered the report by internal audit on the integrity and robustness of the
Group’s risk management processes;
➜➜reviewed and considered the status of financial, IT and internal controls, for the year under
review, as reported by the Group’s internal and external auditors; and
➜➜reviewed and approved the adequacy of the Group’s insurance cover.
Integrated reporting and
assurance in respect of
financial expertise of the
Financial Director and
finance function
➜➜confirmed the expertise and experience of the:
–– Deputy Group Chief Executive who performs the duties of the Company’s Financial
Director; and
–– Group’s finance function and the senior members of management responsible for the
Group’s finance function, including the Group Finance Officer;
➜➜considered financial-related tip-off reports and management actions to address these; and
➜➜reviewed the Group’s Integrated Report and the sustainability information as disclosed
therein to evaluate the integrity of reported information and for consistency with the Annual
Financial Statements.
1
2
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Audit & Risk Committee report continued
Audit & Risk Committee Terms of
Reference
The A&R Co has adopted formal Terms of
Reference as incorporated in the Board
Charter which have been approved by the
Board of Directors. The Terms of Reference
are reviewed as necessary. The
Committee has conducted its affairs in
compliance with these Terms of Reference
and has discharged its responsibilities
contained therein.
Committee members and
attendance at meetings
The A&R Co is constituted as a statutory
committee in terms of the provisions of
section 94 of the Companies Act and has
an independent role with accountability to
both the Board and shareholders. The A&R
Co consists of five independent, nonexecutive directors elected by
shareholders at the annual general
meeting, on the recommendation of the
Board. The Board elects the Chairman of
the A&R Co.
The Deputy Group Chief Executive, Group
Finance Officer, Chief Audit Executive,
Company Secretary & Group Governance
Officer, Group Risk & Sustainability Manager
and representatives of the internal and
external auditors attend meetings by
invitation. All directors have a standing
invitation to attend the Committee’s
meetings. From time to time other
executives and directors of the Group
attend meetings of the A&R Co as
requested. The Committee has unrestricted
access to the external and internal auditors.
the Committee’s activities at each Board
meeting.
The Chairman of the Committee
represents the A&R Co at the annual
general meeting each year.
The Company Secretary & Group
Governance Officer is also the secretary
of the Committee.
The Remuneration & Nomination
Committee (“R&N Co”), through its
nomination process, ensures that members
are sufficiently qualified and experienced in
matters such as financial and sustainability
reporting, internal financial controls,
external and internal audit processes,
corporate law, risk management, financial
sustainability issues, IT governance as it
relates to integrated reporting and
governance processes.
In accordance with the Terms of
Reference, the Committee meets at least
four times annually, but more often if
necessary. During the year under review,
the Committee met eight times. The
minutes of these meetings are made
available to all directors by means of a
database of documents they can access
online. The Chairman of the Committee
provides the Board with a verbal report of
The following table of attendance at A&R Co meetings reflects the Committee’s meetings held during the year and the attendance of these
meetings by its members during the year:
A&R Co
Roy Andersen
John Buchanan
(Chairman)
Maureen Manyama
Babalwa Ngonyama
Sindi Zilwa
7 September 13 September
2016
2016
19 October
2016
24 October
2016
2 December
2016
28 February
2017
7 March
2017
19 June
2017
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The overall average attendance for the A&R Co meetings held during the year was 97,5%.
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Roles and responsibilities
The A&R Co has an independent role with
accountability to both the Board and our
shareholders. The Committee does not
assume the functions of management,
which remain the responsibility of the
executive directors, officers and other
senior members of management.
The Committee is, inter alia, responsible
for assisting the Board in discharging its
duties in respect of the safeguarding of
assets, accounting systems and practices,
internal control processes and the
preparation of the Group and Company
Annual Financial Statements in line with
the relevant financial reporting standards
as applicable from time to time.
External auditor
The Committee has satisfied itself that the
external auditor, PricewaterhouseCoopers
Inc., was independent of the Group, as
required by the Companies Act, which
includes consideration of compliance with
criteria relating to independence or
conflicts of interest as prescribed by the
Independent Regulatory Board for
Auditors. Requisite assurance was sought
and provided by the auditor that internal
governance processes within the audit
firm support and demonstrate its claim
to independence.
The A&R Co has also satisfied itself with
the quality of the external audit work
being performed by
PricewaterhouseCoopers Inc. and that the
firm and relevant designated auditor are
accredited with the JSE list of auditors and
the Independent Regulatory Body of
Auditors and hold the requisite
certifications and registrations. In line with
changes to the JSE Listings Requirements
the Committee will, in recommending the
appointment of a proposed external
auditor, call for and request:
➜➜the decision letter and findings report of
the inspection report issued in respect
of the firm by the Independent
Regulatory Board for Auditors (“IRBA”)
of South Africa on both the proposed
external audit firm and the designated
individual director;
➜➜a summary of the proposed external
audit firm monitoring procedures; and
➜➜the outcome and summary of any legal
or disciplinary proceedings which may
have been instituted by the IRBA
against the proposed external audit firm
and designated individual auditor.
PricewaterhouseCoopers Inc. has been
the Group’s external auditor since the
Company’s listing on the JSE in 1998.
Tanya Rae was appointed as the
Company’s designated auditor for the
June 2013 financial year and is set to step
down after completion of the audit of the
financial year ended 30 June 2017 in terms
of the five-year designated auditor
rotation provisions contained in the
Companies Act. The A&R Co has agreed to
recommend to shareholders the
appointment of Craig West of
PricewaterhouseCoopers Inc. as the
designated auditor, responsible for
performing the functions of auditor, for the
2018 financial year to replace Tanya Rae.
SizweNtsalubaGobodo Inc. has again been
appointed to share in the auditing of the
Company’s South African subsidiaries in
the forthcoming year.
The Committee, in consultation with
executive management, agreed to the
engagement letter, terms, audit plan and
budgeted audit fees for the financial year
ended 30 June 2017.
There is a formal procedure that governs
the process whereby the external auditor
is considered for non-audit services. The
Committee approved the terms of the
service agreement for the provision of
non-audit services by the external auditor,
and approved the nature and extent of
non-audit services that the external
auditor provided in terms of the agreed
pre-approval policy. During the year an
amount of R2 167 189 was paid to
PricewaterhouseCoopers Inc. in respect of
non-audit services, which is approximately
9% of the external audit fee paid for
the year.
3
The external auditors are invited to and
attend all A&R Co meetings and are
required to meet independently with the
A&R Co at least annually. Findings by the
external auditors arising from their annual
statutory audit are tabled and presented
at an A&R Co meeting following the audit.
The Committee endorses action plans for
management to mitigate noted concerns.
The external auditor has expressed an
unqualified opinion on the Annual
Financial Statements for the year ended
30 June 2017.
Internal financial controls
The key internal financial controls in
operation for all significant operating
businesses within the Group are
documented in formalised financial
internal control frameworks and these
frameworks are maintained and updated
by financial management during the
course of the year or as part of the
year-end process.
Based on the results of the formal
documented review of the design,
implementation and effectiveness of the
Group’s systems of internal financial
controls conducted by Group internal
audit, supported by approved outsourced
internal audit service providers during the
2017 financial year and, in addition,
considering information and explanations
given by management and discussions
with the external auditor on the results of
their audits, no material breakdowns in
the functioning of the internal financial
controls were noted during the year under
review.
The results of the audit tests conducted
indicate that the internal financial controls
provide a sound basis for the preparation
of financial statements.
Expertise and experience of the
Financial Director and the
finance function
The A&R Co has considered and is
satisfied with the expertise and
experience of the Deputy Group Chief
Executive who performs the duties of the
Company’s Financial Director.
4
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Audit & Risk Committee report continued
Furthermore, the Committee has
considered, and has satisfied itself of the
appropriateness of the expertise and
adequacy of resources of the Group’s
finance function and experience of the
senior members of management
responsible for the Group’s finance
function, including the Group Finance
Officer.
Annual Financial Statements
The A&R Co assists the Board with all
financial reporting and reviews the Annual
Financial Statements as well as trading
statements, preliminary results
announcements and interim financial
information.
The A&R Co has reviewed the Annual
Financial Statements of the Company and
the Group and is satisfied that they
comply with International Financial
Reporting Standards.
The following significant matters were considered by the A&R Co in relation to these annual financial statements:
Matter
Outcomes
Carrying value of goodwill and intangible
assets and the indefinite useful life
assumption
➜➜Management’s assertions in respect of the indefinite useful life assumption and
Group tax positions
➜➜The Group operates in a complex multinational tax environment and there are open tax
impairment assessments of certain key brands and intangible assets, individual brand
plans, market performance and peer comparatives were considered
➜➜The A&R Co was satisfied that there were no material inconsistencies or concerns in this
respect
and transfer pricing matters with tax authorities. Judgement is required in assessing the
level of provisions required in respect of uncertain tax positions
➜➜The A&R Co considered the level of tax provisioning to be acceptable in the context of
the Group financial statements taken as a whole
Accounting for new business combinations ➜➜A number of significant transactions were concluded by the Group during the year and
judgement is required in determining the appropriate accounting treatment, valuation of
and acquisition related-contingent liabilities
intangible assets and disclosures in respect of business combinations
➜➜The accounting treatment, valuation of intangible assets and disclosure of the business
combinations in the Annual Financial Statements were deemed to be appropriate
Going concern
The A&R Co reviewed a documented
assessment by management of the going
concern premise of the Group before
concluding to the Board that the Group is
a going concern and will remain so for the
foreseeable future.
Duties assigned by the Board
The duties and responsibilities of the
members of the Committee are set out in
the A&R Co Terms of Reference included
in the Board Charter, which is approved by
the Board.
The A&R Co fulfils an oversight role
regarding the Group’s Integrated Report
and the reporting process, including the
system of internal financial controls. It is
responsible for ensuring that the internal
audit function is independent and has the
necessary resources, standing and
authority within the Group to enable it to
discharge its duties. Furthermore, the A&R
Co oversees cooperation between the
internal and external auditors.
Committee comprises the Deputy Group
CEO, Group Finance Officer, the Head of
Treasury and Group Tax Executive, who
meet on a regular basis to discuss the
status of the Group’s tax affairs. Significant
matters are immediately brought to the
attention of the A&R Co.
During the year, the Committee met with
the external auditors and with the Chief
Audit Executive without management
being present. No matters that required
attention arose from these meetings.
The Committee ensures that a combined
assurance model is applied to provide a
coordinated approach to all assurance
activities. No significant areas of overlap
or assurance gaps have been identified
and the levels of assurance are
considered appropriate.
The Committee also receives regular
feedback from our Group Tax Committee
which is charged with ensuring all Group
companies implement the Group’s tax
philosophy and policies. The Group Tax
The A&R Co is satisfied that it has
complied with its legal, regulatory and
other responsibilities.
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Internal audit
The A&R Co is responsible for overseeing
Internal Audit and has considered and
approved the internal audit charter and
internal audit’s annual risk-based audit
plan.
Internal audit reports centrally with
responsibility for reviewing and providing
assurance on the adequacy of the internal
control environment across all of the
Group’s significant operations. Various
financial internal control audits were
outsourced to an auditing firm, ensuring
that specialist resources are utilised for
financial internal control assessments. The
internal audit plan follows a three-year
cycle and is revised regularly in
accordance with the risk profiles as
discussed and tabled at the A&R Co
meetings with any changes to the internal
audit plan being approved by the
Committee.
Each internal audit conducted is followed
up by a detailed report to operational and
senior management, including
recommendations on aspects requiring
improvement. The Chief Audit Executive is
responsible for reporting the findings of
the internal audit work against the agreed
internal audit plan to the A&R Co at each
Committee meeting. Copies of the
detailed reports are also provided to the
A&R Co together with an overall summary
of the audit result for each audit.
The Chief Audit Executive has direct
access to the A&R Co, primarily through
its chairman, and attends A&R Co
meetings by invitation.
The A&R Co is responsible for the
appointment and removal of the Chief
Audit Executive. The Committee is also
responsible for the assessment of the
performance of the Chief Audit Executive
and the internal audit function. The
Committee has considered and is satisfied
with the effectiveness of the internal audit
function. The A&R Co has also considered
and is satisfied with the expertise and
experience of the Chief Audit Executive.
An external and independent assessment
of the internal audit function was
performed during the year under review in
line with our requirement for an external
review every five years. The assessment
indicated positive results and the
function’s general conformance with the
Institute of Internal Auditors Standards.
Combined Assurance
We apply a combined assurance approach
to validate the effectiveness of controls
related to key risk responses and
mitigation activities and thereby
corroborate management’s selfassessment of the effectiveness of
existing risk responses. This provides the
Board with a corroborated evaluation of
the risk responses and mitigation controls
through a combination of the following
five lines of assurance:
➜➜The organisation’s line functions that
own and manage risks – first line of
assurance;
➜➜Specialist functions that facilitate and
oversee risk management and
compliance – second line of assurance;
➜➜Internal assurance providers – third line
of assurance;
➜➜Independent external assurance
providers – fourth line of assurance;
and
➜➜Governing body and committees – fifth
line of assurance.
The required level of combined assurance
is determined by the effectiveness of the
risk response activities and the impact of
such risk to the Group.
5
Whistle-blowing
Our whistle-blowing arrangements are
approved and monitored by the A&R Co
and the Social & Ethics Committee (“S&E
Co”). The Group Ethics Committee (a
management committee consisting of
four senior functional executives) receives
and deals with any concerns or
complaints, whether from within or
outside Aspen, through an independent
specialised tip-offs call centre and tables
this information and the results of
follow-ups at each S&E Co meeting.
Financial-related tip-offs are then also
tabled at the A&R Co meetings.
Both committees are satisfied that
instances of whistle-blowing were
appropriately dealt with.
Integrated and sustainability
reporting
The A&R Co considered the Group’s
Integrated Report and the sustainability
information as disclosed therein to
evaluate the integrity of reported
information and for consistency with
the Annual Financial Statements. The
A&R Co has reviewed the sustainability
information.
During the 2017 financial year, the A&R Co
considered the results of the sustainability
audits conducted by Environmental
Resources Management and limited
assurance engagements performed on
selected key performance indicators by
Environmental Resources Management,
PricewaterhouseCoopers Inc., as the
Group’s external auditors, and Internal
Audit.
The Committee is satisfied that the
sustainability information, as presented in
the 2017 Integrated Report online, is
reliable, consistent and fairly presented.
6
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Audit & Risk Committee report continued
Risk management
Oversight of the Group’s risk management
function has been assigned to the A&R Co.
The Board considers risk management to
be a key process in the responsible
pursuit of strategic objectives and in the
effective management of related material
issues across the Group. Our management
culture is underpinned by effective risk
identification and mitigation activities
which are applied, on a day-to-day basis,
through a system of internal controls,
monitoring mechanisms and relevant
stakeholder engagement activities. In
accordance with the Group’s risk
philosophy, business activities and
business plans are aligned to the Group’s
governance, economic, environmental and
social aspirations.
The Board of Directors is responsible for
the governance of risk across the Group,
for setting the risk appetite and for
monitoring the effectiveness of our risk
management processes. This
responsibility is delegated to the A&R Co.
The Group’s integrated risk management
model considers strategic, operational,
financial and compliance risks.
Reputational risks and uncertain risks,
which are inherent to our business and
to the pharmaceutical industry in general,
are also identified, monitored, recorded
and appropriately managed. Risk
indicators and risk appetite are reviewed
and approved by the Board on an annual
basis or more frequently where required.
The boards of directors of our subsidiary
companies are responsible for oversight
of the risk management processes
implemented at the relevant business
units and for monitoring the effectiveness
of the implemented risk management
systems to ensure business continuity.
Evaluations of material risks and of the
effectiveness of the risk management
process were conducted during the year
by the Group Executive Risk Forum and
the findings of these evaluations were
reported to the A&R Co. Following a
comprehensive review of risks and
mitigating controls at the A&R Co meeting,
the Committee formulated an overall
conclusion and submitted a formal risk
review report to the Board. The
Committee’s report included an opinion
on the overall status of material residual,
reputational and uncertain risks with
reference to the adequacy of related
mitigating controls and to the approved
risk appetite. The report also presented an
opinion on the effectiveness of the risk
management process implemented in the
Group, supported by the internal audit
report.
At year end, the Board was satisfied with
the status and effectiveness of risk
governance in the Group and adequacy of
mitigation plans for material risks. Internal
Audit found the implemented risk
management process to be effective and
has made recommendations for
improvement which will be implemented
as part of the continuous improvement
process.
In arriving at its opinion, the A&R Co
undertook the following activities:
➜➜monitored the implementation of the
Group risk policy and Group risk plan as
approved by the Board;
➜➜reviewed and considered the activities
and reports of the Group executive risk
forum;
➜➜reviewed and considered business unit
risk reports presented to the
Committee;
➜➜reviewed and considered the report by
Internal Audit on the integrity and
robustness of the Group’s risk
management processes;
➜➜reviewed and considered the status of
financial, IT and internal controls, for the
year under review, as reported by the
Group’s internal and external auditors;
and
➜➜reviewed and approved the adequacy
of the Group’s insurance cover, after
having considered the claims for the
prior year, a summary of the proposed
insurance arrangements for the ensuing
year and the insurable, but uninsured
risks.
John Buchanan
A&R Co Chairman
Recommendation of the
Integrated Report and related
sustainability information for
approval by the Board
At its meeting held on 25 October 2017,
the A&R Co reviewed and recommended
the Integrated Report and related
sustainability information, as well as the
Annual Financial Statements for approval
by the Board of Directors.
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
7
Statement of responsibility by the Board of Directors
The directors are responsible for the preparation, integrity and fair presentation of the Annual Financial Statements for the year ended
30 June 2017 (“Annual Financial Statements”) of Aspen Pharmacare Holdings Limited and its subsidiaries.
The directors consider that in preparing the Annual Financial Statements they have used the most appropriate accounting policies,
consistently applied and supported by reasonable and prudent judgements and estimates, and that all International Financial Reporting
Standards (“IFRS”) that they consider to be applicable have been followed. The directors are satisfied that the information contained in the
Annual Financial Statements fairly presents the results of operations for the year and the financial position of the Group at year end. The
directors further acknowledge that they are responsible for the content of the Integrated Report and its supplementary documents, as well
as its consistency with the Annual Financial Statements.
The directors have responsibility for ensuring that accounting records are kept. The accounting records should disclose with reasonable
accuracy the financial position of the Group to enable the directors to ensure that the Annual Financial Statements comply with the
relevant legislation.
The preparation of the Annual Financial Statements in conformity with IFRS requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the Annual Financial Statements and the reported expenses during the
reporting period. Actual results could differ from those estimates.
Aspen Pharmacare Holdings Limited and its subsidiaries operated in a well-established control environment, which is well documented
and regularly reviewed. This incorporates risk management and internal control procedures, which are designed to provide reasonable, but
not absolute, assurance that assets are safeguarded and the risks facing the business are being controlled.
The going concern basis has been adopted in preparing the Annual Financial Statements. The directors have no reason to believe that the
Group or any company within the Group will not be going concerns in the foreseeable future, based on forecasts, available cash resources
and facilities. These Annual Financial Statements support the viability of the Company and the Group.
The Code of Conduct has been adhered to in all material respects.
The Group’s external auditors, PricewaterhouseCoopers Incorporated, audited the Annual Financial Statements, and their report is
presented on page 12.
The Annual Financial Statements were prepared under the supervision of Deputy Group Chief Executive, Gus Attridge CA(SA) and approved
by the Board of Directors on 25 October 2017 and are signed on its behalf.
A signed copy of these Annual Financial Statements is available for inspection at the Company’s registered office.
Kuseni Dlamini
Chairman
Gus Attridge
Deputy Group Chief Executive
Johannesburg
30 October 2017
8
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Directors’ Report
The directors have pleasure in presenting their report of the Group and the Company for the year ended 30 June 2017.
Nature of business
Aspen is a global supplier and manufacturer of specialty, branded and generic pharmaceuticals, with an extensive basket of products that
provide treatment for a broad spectrum of acute and chronic conditions experienced through all stages of life. The Group continues to
increase the number of lives benefiting from its products, reaching more than 150 countries.
Financial results and review of operations
The financial results of the Group are set out on pages 18 to 94 and of the Company on pages 95 to 117 of the Annual Financial Statements.
The segmental analysis is included on pages 25 to 29.
The consolidated earnings attributable to equity holders of the Company amounted to R5,1 billion for the year, compared with R4,3 billion
for the previous year, an increase of 18%. Headline earnings per share (“HEPS”) increased by 46% from 889,0 cents to 1 299,5 cents.
The financial results are more fully described in the Annual Financial Statements.
Share capital
There was no change to the authorised ordinary share capital of Aspen during the year. The following changes to the issued share capital
were effected during the year:
Number of
shares
(Million)
Share
capital
(Billion)
456,4
–
–
2,1
–
–
456,4
2,1
Ordinary shares
Opening balance
Capital distribution
Shares issued – share schemes
Further details of the authorised and issued share capital of the Company are given in note 11 of the Group Annual Financial Statements
and note 12 of the Company Annual Financial Statements.
The unissued ordinary shares are under the control of the directors of the Company until the next annual general meeting.
Directorate and Secretary
No changes took place in the directorate during the year. Maureen Manyama was appointed as a member of the S&E Co with effect from
11 August 2016.
The names of the directors in office at the date of this report are set out on pages 96 to 99 of the Integrated Report. The Company
Secretary & Group Governance Officer is Riaan Verster. His business and postal addresses appear on page 126 of this report.
In terms of the Company’s Memorandum of Incorporation, Roy Andersen, John Buchanan, Kuseni Dlamini, Chris Mortimer and Maureen
Manyama retire by rotation, and being eligible offer themselves for re-election.
The Group Chief Executive and the Deputy Group Chief Executive are employed on indefinite term service contracts subject to a six-month
notice period by either party.
Details of directors’ interests in the Company’s issued shares are shown on page 114 of the Integrated Report and directors’ remuneration
details are set out in note 22 of the Group Annual Financial Statements.
No changes have taken place in the interests of the directors in the shares of the Company since 30 June 2017 and the date of this report.
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
9
Group share trading policy
It is Group policy that all directors and their associates should not deal in shares or otherwise transact in the securities of the Company for
the periods from half year end and year end to 24 hours after publication of the half year end and year end results or when the Company is
trading under a cautionary announcement.
Transactions
The following notable transactions were effected during the 2017 financial year:
Acquisition of rights to commercialise AstraZeneca’s Global Anaesthetics Portfolio
In August 2016, Aspen Global Incorporated Inc (“AGI”) signed an agreement with AstraZeneca AB and AstraZeneca UK (“AstraZeneca”)
whereby AGI agreed to acquire the exclusive rights to commercialise AstraZeneca’s Global (excluding the USA) Anaesthetics Portfolio
(“the AZ Transaction”). AstraZeneca’s Anaesthetics Portfolio comprises seven established medicines, namely Diprivan (general anaesthesia),
EMLA (topical anaesthetic) and five local anaesthetics (Xylocaine/Xylocard/Xyloproct, Marcaine, Naropin, Carbocaine and Citanest)
(“the AZ Portfolio”). The products in the AZ Portfolio are sold in more than 100 countries worldwide including China, Japan, Australia and
Brazil. These products generated revenue of USD592 million in the year ended 31 December 2015. In terms of the concluded agreement,
the consideration payable by AGI for the commercialisation rights was USD520 million and double-digit percentage royalties on sales of
the AZ Portfolio.
Additionally, AGI will make sales-related payments of up to USD250 million based on sales in the 24 months after 1 September 2016.
AGI and AstraZeneca also signed a supply agreement whereby AstraZeneca will supply the AZ Portfolio to AGI. This supply agreement
has an initial period of 10 years. This transaction became effective on 1 September 2016.
Transactions with GlaxoSmithKline
On 12 September 2016 Aspen announced that various Group subsidiaries had concluded three separate transactions with GlaxoSmithKline
(“GSK”) companies as follows:
Acquisitions of a portfolio of anaesthetic products
AGI signed an agreement with GSK whereby AGI will acquire a portfolio of anaesthetic products globally (with the exception of certain
territories, primarily North America) (“the Anaesthetics Transaction”). GSK’s Anaesthetics Portfolio comprises five established medicines,
namely Ultiva (general anaesthesia) and four muscle relaxants (Nimbex, Mivacron, Tracrium and Anectine) (“the GSK Portfolio”). The
products in the GSK Portfolio are sold in more than 100 countries worldwide including Japan, Brazil, Korea, Germany and Italy. In terms of
the concluded agreement, as consideration for the GSK Portfolio, AGI will pay an initial amount of GBP180 million and milestone payments
of up to GBP100 million based on the results of the portfolio in the 36 months after 1 March 2017. AGI and GSK have also signed a supply
agreement whereby GSK will supply the products to AGI for four years. The GSK Portfolio is expected to generate revenue of approximately
GBP70 million in the year ended 31 December 2016. This transaction closed on 28 February 2017.
Exercise of option to acquire Fraxiparine and Arixtra in countries retained by GSK
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 to acquire
Fraxiparine and Arixtra in these countries for a consideration of GBP45 million. This transaction closed on 31 December 2016.
Cancellation of the collaboration with GSK in sub-Saharan Africa
Pharmacare and GSK agreed to cancel the rights of Pharmacare to collaborate in the sub-Saharan Africa (“SSA”) business of GSK (“the SSA
Collaboration”). These rights were acquired as part of a basket of transactions with GSK in 2009. GSK paid Pharmacare GBP45 million as
consideration for the cancellation. The SSA Collaboration generated approximately R2,6 billion of gross revenue in the 2016 financial year.
This transaction closed on 31 December 2016.
Amendment to Memorandum of Incorporation
At a general meeting of the Company held on 15 August 2016 shareholders approved a resolution to amend clauses 17 (Fraction of Shares)
and 24 (Proxy Representation) of the Company’s Memorandum of Incorporation – further details regarding these changes can be obtained
from the Company Secretary & Group Governance Officer at rverster@aspenpharma.com.
10
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Directors’ Report continued
Dividend to shareholders
Taking into account the earnings and cash flow performance for the year ended 30 June 2017, existing debt service commitments, future
proposed investments and funding options, notice was given that the Board declared a dividend of 287 cents per ordinary share to
shareholders recorded in the share register of the Company at the close of business on 6 October 2017 (2016: capital distribution of
248 cents per share).
A dividend withholding tax of 20% is applicable to shareholders who are not exempt. The Company income tax number is 9325178714.
The issued share capital of the Company is 456 435 185 ordinary shares. The dividend was paid from income reserves. Shareholders were
advised to seek their own tax advice on the consequences associated with the dividend.
The directors are of the opinion that the Company will satisfy the solvency and liquidity requirements of sections 4 and 46 of the
Companies Act, 2008.
Future distributions will be decided on a year-to-year basis.
In compliance with IAS 10 – Events After Balance Sheet Date, the dividend will only be accounted for in the financial statements for the
year ending 30 June 2018.
The salient dates in respect of the dividend were as follows:
Last day to trade cum dividend
Shares commence trading ex dividend
Record date
Payment date
Tuesday, 3 October 2017
Wednesday, 4 October 2017
Friday, 6 October 2017
Monday, 9 October 2017
Going concern
These Annual Financial Statements have been prepared on the going concern basis. Based on the Group’s reserves, positive cash flows
and cash balances, the availability of unutilised funding facilities and the budgets for the period to June 2018, the Board believes that the
Group and the Company have adequate resources to continue in operation for the next 12 months.
Special resolutions
At the annual general meeting of Aspen shareholders convened on 7 December 2016, the following special resolutions were passed by the
Company:
➜➜approval of remuneration for non-executive directors for the year ended 30 June 2017 and for the period 1 July 2017 to the date of the
2017 annual general meeting;
➜➜a general authority was granted for the Company and any of its subsidiaries to provide direct or indirect financial assistance to a related
or inter-related company. This authority is valid until the Company’s next annual general meeting, or until revoked at a special general
meeting of shareholders; and
➜➜a general authority was granted for the Company to acquire shares in the Company from time to time, up to 20% of the Company’s
issued share capital.
More information on these resolutions can be obtained from the Company Secretary & Group Governance Officer at
rverster@aspenpharma.com.
The following special resolutions were passed by the South African subsidiaries of the Company during the year:
➜➜a general authority was granted to Fine Chemicals Corporation (Pty) Limited (“FCC”) to provide direct or indirect financial assistance to a
related or inter-related company to Pharmacare. This authority is valid until Pharmacare’s next annual general meeting, or until revoked
at a special general meeting of shareholders;
➜➜a general authority was granted to FCC to provide direct or indirect financial assistance to a related or inter-related company to FCC.
This authority is valid until FCC’s next annual general meeting, or until revoked at a special general meeting of shareholders;
➜➜a general authority was granted to Aspen Finance to provide direct or indirect financial assistance to a related or inter-related company.
This authority is valid until Aspen Finance’s next annual general meeting, or until revoked at a special general meeting of shareholders;
and
➜➜the remuneration payable to the non-executive directors of Aspen Finance was approved.
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
11
Auditors
The Audit and Risk Committee and Board have recommended that PricewaterhouseCoopers Inc. be reappointed as auditors of the Group
and the Company in terms of the resolution to be proposed at the annual general meeting in accordance with the Companies Act.
The directors further confirm that the A&R Co has addressed the specific responsibility required by it in terms of the Companies Act and
that membership of the A&R Co will be proposed to shareholders by ordinary activities of the A&R Co are contained within the A&R Co
Report available online at http://www.aspenpharma.com/results-and-reports/.
Investments in subsidiaries and structured entities
The financial information in respect of the Group and the Company’s interests in its material operating subsidiaries and structured entities
is set out in note 25 of the Company Annual Financial Statements.
Contracts
None of the directors and officers of the Company had an interest in any contract of significance during the financial year, save as
disclosed in note 29 of the Group Annual Financial Statements and note 22 of the Company Annual Financial Statements.
Borrowings
Borrowings at year end (net of cash and cash equivalents) amounted to R37,1 billion (2016: R32,7 billion) are made up as follows:
2017
R’billion
Non-current borrowings
Current borrowings
Cash and cash equivalents
2016
R’billion
28,9
18,9
(10,7)
32,7
10,9
(10,9)
37,1
32,7
The level of borrowings is authorised in terms of the Company’s and its subsidiaries’ Memoranda of Incorporation and have been
authorised in terms of the required Board approvals.
A detailed list of borrowings is set out in note 13 of the Group Annual Financial Statements and note 13 of the Company Annual Financial
Statements.
Subsequent events
In September 2017, AGI concluded an agreement with AstraZeneca AB and AstraZeneca UK (“AstraZeneca”) in terms of which AGI is to
acquire the residual rights to the AZ anaesthetics (“the Transaction”) for which it acquired the commercialisation rights via an agreement
entered into in June 2016, as announced to shareholders on 9 June 2016. The terms of the concluded agreement provide that AGI will pay
USD555 million as consideration for the remaining rights to the intellectual property and manufacturing know-how related to the
AZ Anaesthetics. Additionally, AGI will make performance-related payments of up to USD211 million based on sales and gross profit in the
period to 30 November 2019. The Transaction was subject to customary closing conditions and the completion of subsidiary agreements to
the satisfaction of all parties. It is anticipated that the Transaction will complete during the final quarter of 2017.
12
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Independent auditor’s report to the shareholders of Aspen
Pharmacare Holdings Limited
Report on the audit of the consolidated and separate financial statements
Our opinion
In our opinion, the consolidated and separate financial statements present fairly, in all material respects the consolidated and separate
financial position of Aspen Pharmacare Holdings Limited (“the Company”) and its subsidiaries (together “the Group”) as at 30 June 2017,
and its consolidated and separate financial performance and its consolidated and separate cash flows for the year then ended in
accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa.
What we have audited
Aspen Pharmacare Holdings Limited’s consolidated and separate financial statements, set out on pages 18 to 117, comprise:
➜➜the Group and Company statements of financial position as at 30 June 2017;
➜➜the Group and Company statements of comprehensive income for the year then ended;
➜➜the Group and Company statements of changes in equity for the year then ended;
➜➜the Group and Company statements of cash flows for the year then ended; and
➜➜the notes to the Group and Company financial statements, which include a summary of significant accounting policies.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (“ISA”). Our responsibilities under those standards
are further described in the Auditor’s responsibilities for the audit of the consolidated and separate financial statements section of
our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Group in accordance with the Independent Regulatory Board for Auditors Code of Professional Conduct
for Registered Auditors (“IRBA Code”) and other independence requirements applicable to performing audits of financial statements in
South Africa. We have fulfilled our other ethical responsibilities in accordance with the IRBA Code and in accordance with other ethical
requirements applicable to performing audits in South Africa. The IRBA Code is consistent with the International Ethics Standards Board
for Accountants Code of Ethics for Professional Accountants (Parts A and B).
Our audit approach
Overview
Overall Group materiality
➜➜Overall Group materiality: R310 million, which represents 5% of consolidated profit before tax.
Group audit scope
Our audit included a full scope audit of Aspen’s significant South African operations together with full scope audits of
Aspen’s significant international operations. Review and analytical procedures were performed over the remaining
components.
Key audit matters
➜➜Carrying value of goodwill and indefinite lived intangible assets and the indefinite useful life assumption
➜➜Uncertain tax positions
➜➜Accounting for new business combinations and acquisition related contingent consideration liabilities
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the consolidated and
separate financial statements. In particular, we considered where the directors made subjective judgements; for example, in respect of
significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all
of our audits, we also addressed the risk of management override of internal controls, including among other matters, consideration of
whether there was evidence of bias that represented a risk of material misstatement due to fraud.
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
13
Materiality
The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the
financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if,
individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the
consolidated financial statements.
Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall Group materiality
for the consolidated financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped
us to determine the scope of our group audit and the nature, timing and extent of our audit procedures and to evaluate the effect of
misstatements, both individually and in aggregate on the consolidated financial statements as a whole.
Overall Group materiality:
R310 million
How we determined it:
5% of consolidated profit before tax
Rationale for the materiality
benchmark applied:
We chose consolidated profit before tax as the benchmark because, in our view, it is the
benchmark against which the performance of the Group is most commonly measured by
users, and is a generally accepted benchmark. We chose 5% which is consistent with
quantitative materiality thresholds used for profit-oriented companies in this sector.
How we tailored our Group audit scope
We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the consolidated financial
statements as a whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which
the Group operates.
Our scoping assessment included consideration of financially significant operations, based on the indicators such as the contribution to
consolidated assets, consolidated revenue and consolidated profit before tax. Based on this assessment, we identified 14 financially
significant components. The financially significant components of the Group were subject to full scope audits of their financial reporting
information submitted to the Company, which in aggregate account for a majority of the consolidated revenue, consolidated profit before
tax and consolidated total assets of the Group.
In establishing the overall approach to the Group audit, we determined the type of work that needed to be performed by us, as the Group
engagement team, or component auditors from other PwC network firms or other audit firms operating under our instruction. Where the
work was performed by component auditors, we determined the level of involvement we needed to have in the audit work at those
components to be able to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our opinion on the
consolidated financial statements as a whole.
The Group engagement team met with the component auditors of the most significant audit components and engaged with the remaining
component auditors by discussing pertinent matters and reviewing reporting documents submitted to us as the Group engagement team.
In order to obtain sufficient audit evidence in respect of non-significant components, the Group engagement team performed analytical
review procedures on their financial information. These components have been assessed to be financially inconsequential to the Group.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated and
separate financial statements of the current period. These matters were addressed in the context of our audit of the consolidated and
separate financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
14
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Independent auditor’s report to the shareholders of Aspen
Pharmacare Holdings Limited continued
Key audit matter
Carrying value of goodwill and indefinite lived intangible assets and
the indefinite useful life assumption
This key audit matter relates to the audit of the consolidated financial
statements.
Refer to note 1: Intangible assets and note 3: Goodwill.
Management has determined that R52,4 billion of the carrying value of
intangible assets as at 30 June 2017 relates to intangible assets with indefinite
useful lives, which require annual impairment assessments.
We determined this area to be a matter of most significance to the audit
due to the size of the goodwill (R5,9 billion) and intangible assets balance
(R60,0 billion) as at 30 June 2017, and the risk of impairment of the goodwill
and intangible assets included in the cash generating units (“CGUs”) of
the Group.
Management’s assessment of the value-in-use of the Group’s CGUs is
determined using estimated future cash flows. The impairment reviews
performed by the Group contain a number of significant judgements and
estimates including revenue growth, profit margins, cash conversion, terminal
values and discount rates. Changes in these assumptions could lead to an
impairment to the carrying value of goodwill and intangible assets.
A significant portion of the goodwill balance is made up of goodwill that relates
to the Sigma business – Australasia (R4,1 billion). Although management
determined that there is sufficient headroom between the value-in-use of the
CGUs and their carrying value, it remains an area of significant judgement.
During the current year, impairment charges of R0,3 billion were recognised in
relation to the GSK classic brands distributed in Australia and R0,1 billion was
recognised in relation to the South African commercial business.
The indefinite life assumption of intangible assets is subjective and is based
on a number of judgements made by management. Changes in circumstances
may necessitate management to reassess the indefinite life assumption.
Management base their assumptions in this regard on industry practice,
detailed assessments of individual intangible assets and past history. The
factors taken into account by management when making this classification
is set out in note 1: Intangible assets – Significant judgements and estimates.
How our audit addressed the key audit matter
We obtained the Group’s impairment analyses and
tested the reasonableness of key assumptions,
including revenue growth, profit margins, cash
conversion, terminal values and discount rates.
Our audit procedures included comparing key
assumptions to industry and economic forecasts. We
found management’s key assumptions to be in line with
industry and economic forecasts. We utilised our
valuation expertise to assess the reasonability of the
discount rates used by testing the assumptions against
market data and widely applied foreign risk premias.
In addition, we independently performed sensitivity
calculations on the impairment assessments, to
determine the degree by which the key assumptions
needed to change in order to trigger an additional
impairment charge.
We considered whether management had identified
the relevant CGUs with reference to individual
intangible assets, and found that this is the lowest level
at which management monitors goodwill and intangible
assets with indefinite useful lives for internal purposes.
We compared the future cash flow forecasts to the
Board approved budgets and found them to be
consistent.
We compared the current year actual results with the
forecasts utilised in the prior year impairment
calculations and did not identify significant variances.
We focused our audit effort on the indefinite lived
intangible assets relating to the ELIZ Products CGU,
GSK Thrombosis Business CGU, GSK OTC brands CGU,
Specialist Global Brands CGU and the MSD Business
CGU, as these amount to more than 58% or R30,5 billion
of the total indefinite lived intangible assets and pose
the highest risk of material impairment charges and the
indefinite live assumption being incorrectly applied in
the Group.
We challenged management’s assertion on the
indefinite useful life assumption of the intangible assets
by considering the individual brand plans, comparing
key assumptions to market performance and
comparing key assumptions to the industry and its
peers. We found the indefinite useful life assumption as
used by management to be in line with industry
practices, as well as with the individual brand plans.
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Key audit matter
Uncertain tax positions
This key audit matter relates to the audit of the consolidated and separate
financial statements.
Refer to note 25: – Tax.
The Group operates in a complex multinational tax environment and there were
open tax and transfer pricing matters with South African and other international
tax authorities during the year. Management judgement is required in assessing
the carrying amount of provisions required in respect of uncertain tax positions,
and we therefore determined this to be a matter of most significance to the
audit.
A transfer pricing assessment was raised against Aspen Pharmacare Holdings
Limited in respect of the 2011 fiscal year in November 2015. The South African
Revenue Service had included all the profits generated by Aspen Global
Incorporated during that fiscal year in Aspen Holdings’ taxable income, which
resulted in additional taxes, interest and penalties being levied. Aspen
Pharmacare Holdings Limited filed an objection to the assessment with the
South African Revenue Service. Subsequent to the assessment being received
and the objection filed, management had continuously engaged with the South
African Revenue Service in order to negotiate a resolution to this matter. On
16 October 2017, management received notification that the South African
Revenue Service had withdrawn this assessment.
15
How our audit addressed the key audit matter
Using our specialist international tax and transfer
pricing knowledge, we evaluated and challenged
management’s judgements in respect of estimates of
tax exposures and contingencies in order to assess the
adequacy of the Group’s tax provisions. This included
obtaining and evaluating third party tax opinions that
the Group used to assess the appropriateness of any
assumptions made and the legal basis of the claims.
In understanding and evaluating management’s
judgements, we considered the status of recent and
current tax authority audits and enquiries, the outcome
of previous claims, judgemental positions taken in tax
returns and current year estimates and developments
in the tax environment. In addition, we inspected the
South African Revenue Service’s notification of
withdrawal of the transfer pricing assessment and
assessed the accounting treatment and disclosure
relating to this matter in the consolidated and separate
financial statements in context thereof.
16
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Independent auditor’s report to the shareholders of Aspen
Pharmacare Holdings Limited continued
Key audit matter
How our audit addressed the key audit matter
Accounting for new business combinations and acquisition related
contingent consideration liabilities
This key audit matter relates to the audit of the consolidated and separate
financial statements.
Refer to note E to the Group Statement of Cash Flows: Acquisition of
subsidiaries and businesses and note 14.1: Other non-current financial
liabilities.
We evaluated the underlying acquisition agreements for
these transactions and engaged with our accounting
specialists, and found that these transactions resulted
in inputs, processes and outputs that qualify them to be
accounted for as the acquisition of businesses as
defined in IFRS 3.
We focused our testing of the identifiable assets and
the contingent consideration liabilities on the key
assumptions made by management. Our audit
procedures included the following:
➜➜we engaged with our valuation experts to assist with:
–– critically evaluating whether the model used by
management to calculate the fair value of the
assets acquired, contingent consideration and
goodwill raised complies with the requirements of
In the AstraZeneca transaction, the Group acquired the commercialisation
IFRS 3; and
–– evaluating the reasonability of the discount rates
rights without also obtaining the full rights to the intellectual property.
used by testing the assumptions against market
data and widely applied foreign risk premias.
Management judgement was required in determining whether the transactions
➜➜we obtained management’s calculations and
were acquisitions of businesses or assets – this determination could have a
subjected the key assumptions to our own
significant effect on the accounting treatment of the transactions. Management
independently calculated sensitivity analyses;
determined all three transactions to be acquisitions of businesses as defined in
➜➜we compared the projected cash flows, including the
International Financial Reporting Standard 3 Business Combinations (“IFRS 3”).
assumptions relating to revenue growth rates and
operating margins, to historical performance; and
In an acquisition of a business, IFRS 3 requires the recognition of identifiable
➜➜we compared the projections for the Group’s
assets, liabilities and contingent liabilities in a business combination at fair
acquired products to third party expectations of
value at the date of acquisition, with the excess of the acquisition cost over the
growth and considered the potential upside and
identified fair values recognised as goodwill. In an acquisition of assets, assets
downside impact of products launched and expected
are recognised at the fair value of the consideration paid.
to be launched by the Group’s competitors.
The identification and measurement of identifiable assets in these transactions
required a significant amount of management estimation, particularly in relation We found the assumptions to be comparable to
historical performance and the Group’s expected future
to the identification and measurement of intangible assets.
outlook.
The acquisition of the anaesthetics portfolio from GlaxoSmithKline and
AstraZeneca resulted in the recognition and measurement of material
acquisition-related contingent consideration liabilities (GlaxoSmithKline
GBP99,5 million and AstraZeneca $250 million), which necessitate management
judgement and estimates at each year end date in order to assess the fair value
of the remaining consideration payable. Such management judgement and
estimates include projections of future sales of products, the potential impact
of competitor products and the delivery of anticipated synergies.
In the current financial year, the Group completed the following significant
transactions:
➜➜Acquisition of GlaxoSmithKline’s thrombosis portfolio (Arixtra and Fraxiparine)
in certain territories;
➜➜Acquisition of GlaxoSmithKline’s anaesthetics portfolio in certain territories;
and
➜➜Acquisition of the commercialisation rights of AstraZeneca’s anaesthetics
portfolio in certain territories.
We determined the accounting for these new business combinations and the
related contingent consideration liabilities to be a matter of most significance to
the audit due to the size of the recognised assets and liabilities and due to the
significant management judgement that was required in the classification of the
transactions as acquisitions of businesses or assets, the identification and
measurement of the identifiable intangible assets and the measurement of the
contingent consideration liabilities. Note E to the Group Statement of Cash
Flows: Acquisition of subsidiaries and businesses and note 14.1: Other
non-current financial liabilities set out the key management assumptions with
regard to the transactions.
Other information
The directors are responsible for the other information. The other information comprises the information contained in the Integrated Report
2017 and the Annual Financial Statements 2017, which includes the Directors’ Report, the Audit and Risk Committee’s Report and the
Company Secretary’s Certificate as required by the Companies Act of South Africa, Illustrative constant exchange report – Annexure 1,
Shareholder Statistics, Administration, Abbreviations, the Unabridged Corporate Governance Report for the 2017 financial year and the
Social and Ethics Committee Report for the 2017 financial year. Other information does not include the consolidated and separate financial
statements and our auditor’s report thereon.
Our opinion on the consolidated and separate financial statements does not cover the other information and we do not express an audit
opinion or any form of assurance conclusion thereon.
In connection with our audit of the consolidated and separate financial statements, our responsibility is to read the other information
identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated and separate
financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
17
If, based on the work we have performed on the other information, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the directors for the consolidated and separate financial statements
The directors are responsible for the preparation and fair presentation of the consolidated and separate financial statements in accordance
with International Financial Reporting Standards and the requirements of the Companies Act of South Africa, and for such internal control
as the directors determine is necessary to enable the preparation of consolidated and separate financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the consolidated and separate financial statements, the directors are responsible for assessing the Group’s and the
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the Group or Company or to cease operations, or has no realistic
alternative but to do so.
Auditor’s responsibilities for the audit of the consolidated and separate financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated and separate financial statements as a whole are free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISA will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated and separate
financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the
audit. We also:
➜➜identify and assess the risks of material misstatement of the consolidated and separate financial statements, whether due to fraud or
error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to
provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;
➜➜obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s and Company’s internal control;
➜➜evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made
by the directors;
➜➜conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s and
Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in
our auditor’s report to the related disclosures in the consolidated and separate financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report.
However, future events or conditions may cause the Group and/or the Company to cease to continue as a going concern;
➜➜evaluate the overall presentation, structure and content of the consolidated and separate financial statements, including the disclosures,
and whether the consolidated and separate financial statements represent the underlying transactions and events in a manner that
achieves fair presentation; and
➜➜obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to
express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the
group audit. We remain solely responsible for our audit opinion. `
We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit
findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to
communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and, where
applicable, related safeguards.
From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the
consolidated and separate financial statements of the current period and are therefore the key audit matters. We describe these matters in
our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
Report on other legal and regulatory requirements
In terms of the IRBA Rule published in Government Gazette Number 39475 dated 4 December 2015, we report that
PricewaterhouseCoopers Inc. has been the auditor of Aspen Pharmacare Holdings Limited for 20 years.
PricewaterhouseCoopers Inc.
Director: T. Rae
Registered Auditor
2 Eglin Road, Sunninghill
30 October 2017
18
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Group statement of financial position
at 30 June 2017
Notes
2017
R’billion
2016
R’billion
1
2
3
4
5
6
60,0
9,7
5,9
1,0
0,7
0,9
49,1
9,7
6,0
1,1
0,8
0,4
78,2
67,1
7
8
9
13,6
13,6
10,7
14,4
11,8
10,9
10
37,9
0,2
37,1
0,1
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Goodwill
Deferred tax assets
Contingent environmental indemnification assets
Other non-current assets
Total non-current assets
Current assets
Inventories
Receivables and other current assets
Cash and cash equivalents
Total operating current assets
Assets classified as held-for-sale
Total current assets
Total assets
38,1
37,2
116,3
104,3
32,3
8,8
1,9
0,1
28,4
12,1
1,9
0,1
43,1
42,5
28,9
4,5
1,6
2,1
0,7
0,6
32,7
2,5
2,2
1,8
0,8
0,7
38,4
40,7
18,9
10,3
5,3
0,3
10,9
8,3
1,5
0,4
Shareholders’ equity
Retained income
Non-distributable reserves
Share capital (net of treasury shares)
Share-based compensation reserve
11
12
Total shareholders’ equity
Liabilities
Non-current liabilities
Borrowings
Other non-current liabilities
Unfavourable and onerous contracts
Deferred tax liabilities
Contingent environmental liabilities
Retirement and other employee benefit obligations
13
14
15
4
5
16
Total non-current liabilities
Current liabilities
Borrowings
Trade and other payables
Other current liabilities
Unfavourable and onerous contracts
13
17
18
15
Total current liabilities
34,8
21,1
Total liabilities
73,2
61,8
116,3
104,3
Total equity and liabilities
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
19
Group statement of comprehensive income
for the year ended 30 June 2017
Notes
Revenue
Cost of sales
19
Gross profit
Selling and distribution expenses
Administrative expenses
Other operating income
Other operating expenses
2017
R’billion
2016
R’billion
41,2
(21,3)
35,6
(17,7)
19,9
(6,7)
(2,8)
0,3
(2,4)
17,9
(6,0)
(2,6)
1,9
(2,2)
Operating profit
Investment income
Financing costs
20
23
24
8,3
0,3
(2,4)
9,0
0,3
(3,2)
Profit before tax
Tax
25
6,2
(1,1)
6,1
(1,8)
5,1
4,3
0,2
(3,5)
–
–
5,2
(0,1)
1,8
9,4
Profit for the year
Other comprehensive income, net of tax*
Net gains from cash flow hedging in respect of business acquisitions
Currency translation (losses)/gains
Remeasurement of retirement and other employee benefit obligations
Total comprehensive income#
Earnings per share
Basic earnings per share (cents)
26
1 123,4
945,4
Diluted earnings per share (cents)
26
1 123,4
945,2
*R
emeasurement of retirement and other employee benefit obligations will not be reclassified to profit and loss. All other items in other comprehensive
income may be reclassified to profit and loss.
#
Total comprehensive income is disclosed net of profit attributable to non-controlling interests which are not material.
20
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Group statement of changes in equity
for the year ended 30 June 2017
Non-distributable reserves
Share
capital
(net of
treasury
shares)
shares
R’billion
Hedging
reserve
R’billion
3,0
–
–
–
(1,0)
(0,1)
–
0,3
–
–
–
–
–
–
6,3
5,5
–
5,5
–
–
–
Total comprehensive income
Profit for the year
Other comprehensive income
Dividends paid
1,9
–
–
–
–
0,3
0,2
–
0,2
–
Balance at 30 June 2017
1,9
0,5
Balance at 30 June 2015
Total comprehensive income
Profit for the year
Other comprehensive income
Capital distribution paid
Treasury shares purchased
Share-based payment expenses
Balance at 30 June 2016
Foreign
Sharecurrency
based
translation compensation
reserve
reserve
R’billion
R’billion
Retained
income
R’billion
Total*
R’billion
–
–
–
–
–
–
0,1
24,5
3,9
4,3
(0,4)
–
–
–
34,1
9,4
4,3
5,1
(1,0)
(0,1)
0,1
11,8
(3,5)
–
(3,5)
–
0,1
–
–
–
–
28,4
5,1
5,1
–
(1,2)
42,5
1,8
5,1
(3,3)
(1,2)
8,3
0,1
32,3
43,1
* Total shareholders’ equity is disclosed net of profit attributable to non-controlling interests which are not material.
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
21
Group statement of cash flows
for the year ended 30 June 2017
Notes
2017
R’billion
2016
R’billion
Cash flows from operating activities
Cash generated from operations
Financing costs paid
Investment income received
Tax paid
A
B
C
D
Cash generated from operating activities
9,9
(2,2)
0,3
(1,5)
6,4
(2,0)
0,3
(1,5)
6,5
3,2
(1,5)
(1,1)
0,8
(9,5)
(0,2)
(0,3)
0,1
(1,7)
(1,1)
0,2
(0,7)
(0,7)
–
5,1
(11,7)
1,1
25,2
(19,0)
(1,2)
–
46,7
(48,7)
(1,0)
(0,1)
Cash flows from investing activities
Capital expenditure – property, plant and equipment
Capital expenditure – intangible assets
Proceeds on the sale of intangible assets
Acquisition of subsidiaries and businesses
Payment of deferred consideration relating to prior year business acquisitions
Increase in other non-current assets
Proceeds on the sale of assets classified as held-for-sale
E
Cash (used in)/generated from investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Capital distribution and dividends paid
Treasury shares purchased
5,0
(3,1)
Movement in cash and cash equivalents before currency translation
movements
Currency translation movements
Cash generated from/(used in) financing activities
(0,2)
(0,5)
1,2
(0,2)
Movement in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
(0,7)
7,9
1,0
6,9
7,2
7,9
Cash and cash equivalents at the end of the year
F
For the purposes of the statement of cash flows, cash and cash equivalents comprise bank balances, short-term bank deposits less bank
overdrafts.
22
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Notes to the Group statements of cash flows
for the year ended 30 June 2017
2017
R’billion
A.
B.
Cash generated from operations
Operating profit
Amortisation of intangible assets
Depreciation of property, plant and equipment
Net impairment charges
Loss on the sale of intangible assets
Profit on sale of assets classified as held-for-sale
Share-based payment expense – employees
Deferred revenue
Withholding taxes
Loss on the sale of subsidiary
Unfavourable and onerous contracts
Other non-cash items
8,3
0,6
0,7
1,5
0,1
–
–
(0,1)
–
0,1
(0,3)
(0,1)
9,0
0,6
0,6
1,6
–
(1,6)
0,1
–
(0,1)
–
(0,4)
–
Cash operating profit
Working capital movements
Increase in inventories
Increase in trade and other receivables
Increase in trade and other payables
10,8
(0,9)
(1,1)
(2,7)
2,9
9,8
(3,4)
(3,6)
–
0,2
9,9
6,4
(1,8)
(0,2)
(0,2)
(1,8)
–
(0,2)
(2,2)
(2,0)
0,3
0,3
0,3
0,3
(0,7)
(1,2)
–
0,6
(0,2)
(0,6)
(1,8)
0,2
0,9
(0,2)
(1,5)
(1,5)
Financing costs paid
Interest expense
Net foreign exchange losses
Borrowing costs capitalised to property, plant and equipment
C.
Investment income received
Interest received
D.
2016
R’billion
Tax paid
Amounts payable at the beginning of the year
Tax charged to the statement of comprehensive income
Currency translation movements
Amounts owing at the end of the year
Amounts receivable at the end of the year
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
E.
23
Acquisition of subsidiaries and businesses
June 2017
Set out below is the provisional accounting for the following business combinations (final accounting for AstraZeneca Anaesthetics
Portfolio):
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 after 1 September 2016.
Post-acquisition revenue included in the statement of comprehensive income was R6,5 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
purchase 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.
Post-acquisition revenue included in the statement of comprehensive income was R0,3 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.
The accounting for this business combination is provisional as the final model for the valuation is still being finalised. This is
expected to be concluded by the time the 2018 interim results are released.
GSK Anaesthetics Portfolio
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 with further potential milestone payments of up to GBP100 million, based on
the results of the acquired portfolio in the 36 months after 1 March 2017.
Post-acquisition revenue included in the statement of comprehensive income was R0,6 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.
The accounting for this business combination is provisional as the final model for the valuation is still being finalised. This is
expected to be concluded by the time the 2018 interim results are released.
AstraZeneca
Anaesthetics
Portfolio
R’billion
Fair value of assets and liabilities acquired
Intangible assets
Deferred tax liabilities
Fair value of net assets acquired
Goodwill acquired
Net gains from cash flow hedging in respect of business
acquisition
Deferred and contingent consideration
Cash outflow on acquisition
Fraxiparine
and Arixtra in
China,
Pakistan
and India
R’billion
GSK
Anaesthetics
Portfolio
R’billion
Total
R’billion
11,1
(0,3)
0,7
–
4,4
(0,1)
16,2
(0,4)
10,8
0,3
0,7
–
4,3
0,1
15,8
0,4
(0,2)
(1,5)
(0,2)
(6,5)
2,7
9,5
–
(5,0)
6,1
–
–
0,7
24
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Notes to the Group statements of cash flows continued
for the year ended 30 June 2017
2016
Set out below is the provisional accounting for the following June 2016 business combinations:
Norgine SA
On 21 May 2015, Pharmacare Limited reached an agreement to acquire 100% of the issued share capital of Norgine (Pty) Limited 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 was completed on 30 September 2015.
Post-acquisition revenue included in the statement of comprehensive income was R0,1 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.
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. 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 the five-year supply term and are partially contingent on future sales performance.
Norgine SA
R’billion
HPC
business
R’billion
Total
R’billion
0,5
0,1
0,6
–
1,1
0,1
(0,1)
0,5
–
–
0,6
(0,4)
(0,1)
1,1
(0,4)
0,5
0,2
0,7
2017
R’billion
2016
R’billion
Bank balances
Short-term bank deposits
10,0
0,6
7,9
3,0
Cash-in-transit
Cash and cash equivalents per the statement of financial position
Less: bank overdrafts^
0,1
10,7
(3,5)
–
10,9
(3,0)
7,2
7,9
Fair value of assets and liabilities acquired
Intangible assets
Trade and other receivables
Trade and other payables
Purchase consideration paid
Deferred consideration
Cash outflow on acquisition
F.
Cash and cash equivalents
Cash and cash equivalents per the statement of cash flows
^
Banks overdrafts are included within current borrowings in the statement of financial position.
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
25
Group segmental analysis
for the year ended 30 June 2017
June 2017
Therapeutic
Focused Brands
R’billion
Revenue
Cost of sales
Gross profit
Selling and distribution expenses
Other
Pharmaceuticals
R’billion
Total
Pharmaceuticals
R’billion
Nutritionals
R’billion
Total
R’billion
17,4
(8,4)
20,6
(11,1)
38,0
(19,5)
3,2
(1,8)
41,2
(21,3)
9,0
9,5
18,5
(5,9)
1,4
(0,8)
19,9
(6,7)
12,6
0,6
13,2
(2,8)
0,3
0,7
Contribution profit
Administrative expenses
Net other operating income
Depreciation
Normalised EBITDA*
Adjusted for:
Depreciation
Amortisation
Loss on sale of assets
Net impairment of assets
Restructuring costs
Transaction costs
Product litigation costs
11,4
(0,7)
(0,6)
(0,2)
(0,7)
(0,4)
(0,3)
(0,2)
Operating profit
Gross profit (%)
Selling and distribution expenses (%)
Contribution profit (%)
Administrative expenses (%)
Normalised EBITDA (%)
8,3
51,6
46,3
Therapeutic
Focused Brands
R’billion
Other
Pharmaceuticals
R’billion
11,6
(4,6)
7,0
48,7
15,5
33,2
43,2
26,1
17,1
48,3
16,3
32,0
6,7
27,7
Total
Pharmaceuticals
R’billion
Nutritionals
R’billion
Total
R’billion
20,5
(11,3)
32,1
(15,9)
3,5
(1,8)
35,6
(17,7)
9,2
16,2
(5,1)
11,1
1,7
(0,9)
0,8
17,9
(6,0)
11,9
(2,6)
0,2
0,6
Restated June 2016
Revenue
Cost of sales
Gross profit
Selling and distribution expenses
Contribution profit
Administrative expenses
Net other operating income
Depreciation
Normalised EBITDA*
Adjusted for:
Depreciation
Amortisation
Profit on sale of assets
Net impairment of assets
Restructuring costs
Transaction costs
10,1
(0,6)
(0,6)
1,6
(0,9)
(0,3)
(0,3)
Operating profit
Gross profit (%)
Selling and distribution expenses (%)
Contribution profit (%)
Administrative expenses (%)
9,0
60,7
44,6
50,4
15,9
34,6
49,3
24,8
24,6
Normalised EBITDA (%)
*N
ormalised EBITDA represents operating profit before depreciation and amortisation adjusted for specific non-trading items as defined in the Group’s
accounting policy.
50,3
16,7
33,6
7,4
28,4
26
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Group segmental analysis continued
for the year ended 30 June 2017
% change
Therapeutic
Focused Brands
%
Other
Pharmaceuticals
%
Total
Pharmaceuticals
%
Nutritionals
%
Total
%
Revenue
Cost of sales
50
85
1
(2)
19
23
(8)
3
16
21
Gross profit
Selling and distribution expenses
28
4
14
16
(20)
(4)
11
13
14
(36)
10
6
>100
8
Contribution profit
Administrative expenses
Net other operating income
Depreciation
Normalised EBITDA*
13
*N
ormalised EBITDA represents operating profit before depreciation and amortisation adjusted for specific non-trading items as defined in the Group’s
accounting policy.
Segmental reporting
Following recent acquisitions the Group has revised the reportable segments to reflect its current operating model and achieve alignment
with the change in the way in which the business is managed and reported on by the chief operating decision-maker (“CODM”). The
regional business reportable segments of International, South Africa, Asia Pacific and sub-Saharan Africa have been replaced by the
Pharmaceutical and Nutritional business segments.
The Pharmaceutical business segment has been further split into the Therapeutic Focused Brands and Other Pharmaceuticals reportable
segments.
Therapeutic Focused Brands consist of focused brands in the portfolios comprising Aspen’s three major pharmaceutical therapeutic areas,
being Anaesthetics, Thrombosis and High Potency & Cytotoxic. Other Pharmaceuticals comprises revenue from the balance of the
Commercial Pharmaceutical Brands as well as manufacturing revenue relating to both APIs and finished dose form products.
The entity-wide revenue disclosure has therefore been revised to reflect the three therapeutic areas which constitute the Therapeutic
Focused Brands with the balance of the Commercial Pharmaceutical Brands being recorded as Other Commercial Pharmaceutical Brands.
The regions have been further refined to split Europe CIS into Developed Europe and Developing Europe & CIS segments. The Asia Pacific
region has been split into the following segments:
➜➜Australasia;
➜➜China;
➜➜Japan; and
➜➜Other Asia.
The hyperinflationary economy is no longer separately reported due to immateriality.
The GSK Aspen Healthcare for Africa Collaboration which was a material component of the sub-Saharan Africa region was terminated with
effect 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 single sub-Saharan Africa region.
The financial information of the Group’s reportable segments is reported to the CODM for purposes of allocating resources to the segment
and assessing its performance.
Each of the reportable segments is managed by a segment manager.
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
27
Group revenue segmental analysis
for the year ended 30 June 2017
Commercial Pharmaceuticals by customer geography
Sub-Saharan Africa
Developed Europe
Australasia
Latin America
Developing Europe & CIS
Japan
China
Other Asia
MENA
USA & Canada
June 2017
R’billion
Restated
June 2016
R’billion
%
change
31,4
7,4
6,8
4,8
2,7
2,6
1,9
1,8
1,2
1,1
1,1
25,4
7,1
6,1
4,7
2,0
2,3
0,7
–
0,9
0,9
0,7
24
4
11
3
35
10
>100
>100
41
27
58
2,2
0,5
0,7
1,0
4,4
4,0
0,4
2,3
0,5
0,9
0,9
4,4
4,0
0,4
(6)
(2)
(31)
19
1
0
9
Manufacturing revenue by geography of manufacture
Manufacturing revenue – finished dose form
Australasia
Developed Europe
Sub-Saharan Africa
Manufacturing revenue – active pharmaceutical ingredients
Developed Europe
Sub-Saharan Africa
Total manufacturing revenue
6,6
6,7
(1)
38,0
32,1
19
3,2
0,8
1,0
1,4
3,5
1,0
1,0
1,5
(8)
(23)
3
(5)
41,2
35,6
16
Sub-Saharan Africa
Developed Europe
Australasia
Latin America
Developing Europe & CIS
Japan
China
Other Asia
MENA
USA & Canada
9,8
11,5
6,1
4,1
2,6
1,9
1,8
1,2
1,1
1,1
9,4
11,0
6,2
3,4
2,4
0,7
–
0,9
0,9
0,7
6
4
(2)
18
10
>100
>100
41
27
58
Total revenue
41,2
35,6
16
Total Pharmaceuticals
Nutritionals by customer geography
Australasia
Sub-Saharan Africa
Latin America
Total revenue
Summary of regions
28
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Group revenue segmental analysis continued
for the year ended 30 June 2017
Commercial Pharmaceuticals therapeutic area analysis
June 2017
Anaesthetic
Brands
R’billion
Thrombosis
Brands
R’billion
High
Potency &
Cytotoxic
Brands
R’billion
Therapeutic
Focused
Brands
R’billion
Other
Commercial
Pharmaceutical
Brands
R’billion
Total
R’billion
By customer geography
Commercial Pharmaceuticals
Sub-Saharan Africa
Developed Europe
Australasia
Latin America
Developing Europe & CIS
Japan
China
Other Asia
MENA
USA & Canada
0,1
1,7
0,6
0,6
0,3
1,3
1,5
0,4
0,2
0,3
–
3,2
–
0,1
1,7
–
0,3
0,2
0,2
–
0,1
1,5
0,5
0,8
0,5
0,4
–
0,3
0,3
0,3
0,2
6,4
1,1
1,5
2,5
1,7
1,8
0,9
0,7
0,6
7,2
0,4
3,7
1,2
0,1
0,2
–
0,3
0,4
0,5
7,4
6,8
4,8
2,7
2,6
1,9
1,8
1,2
1,1
1,1
Total Commercial Pharmaceuticals
7,0
5,7
4,7
17,4
14,0
31,4
Restated June 2016
Anaesthetic
Brands
R’billion
Thrombosis
Brands
R’billion
High
Potency &
Cytotoxic
Brands
R’billion
Therapeutic
Focused
Brands
R’billion
Other
Commercial
Pharmaceutical
Brands
R’billion
Total
R’billion
By customer geography
Commercial Pharmaceuticals
Sub-Saharan Africa
Developed Europe
Australasia
Latin America
Developing Europe & CIS
Japan
Other Asia
MENA
USA & Canada
0,1
–
–
–
–
–
–
–
–
–
4,0
–
0,1
1,9
0,1
0,2
0,1
0,1
0,1
1,8
0,5
0,7
0,4
0,5
0,3
0,3
0,4
0,2
5,8
0,5
0,8
2,3
0,6
0,5
0,4
0,5
6,9
0,4
4,2
1,1
–
0,1
0,4
0,5
0,2
7,1
6,2
4,7
1,9
2,3
0,7
0,9
0,9
0,7
Total Commercial Pharmaceuticals
0,1
6,5
5,0
11,6
13,8
25,4
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
29
Variance
Anaesthetic
Brands
%
Thrombosis
Brands
%
High
Potency &
Cytotoxic
Brands
%
Therapeutic
Focused
Brands
%
Other
Commercial
Pharmaceutical
Brands
%
Total
%
By customer geography
Commercial Pharmaceuticals
Sub-Saharan Africa
Developed Europe
Australasia
Latin America
Developing Europe & CIS
Japan
China
Other Asia
MENA
USA & Canada
35
>100
>100
>100
>100
>100
>100
>100
>100
>100
38
(21)
5
36
(8)
(34)
>100
(3)
17
(84)
29
(19)
(2)
16
17
(17)
30
(8)
(3)
(25)
33
9
>100
94
11
>100
>100
87
57
14
3
20
(12)
4
3
66
–
(13)
(2)
>100
4
10
3
40
10
>100
>100
41
27
58
Total Commercial Pharmaceuticals
>100
(12)
(7)
50
2
24
30
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Notes to the Group Annual Financial Statements
for the year ended 30 June 2017
1.
Intangible assets
Accounting policy
Recognition and measurement
Intangible assets are stated at historical cost less accumulated amortisation and accumulated impairment losses. Intangible
assets are not revalued.
Cost
Expenditure on acquired patents, trademarks, dossiers, licences and know-how is capitalised. Expenditure incurred to extend
the term of the patents or trademarks is capitalised. All other expenditure is charged to the statement of comprehensive
income when incurred.
Development costs directly attributable to the production of new or substantially improved products or processes controlled by
the Group are capitalised (until the date of commercial production) if the costs can be measured reliably, the products and
processes are technically feasible, future economic benefits are probable, and the Group intends to and has sufficient resources
to complete development and to use or sell the asset. All the remaining development costs are charged to the statement of
comprehensive income. Research expenditure is charged to the statement of comprehensive income when incurred.
The amounts that are recognised as intangible assets consist of all direct costs relating to the intellectual property and also
include the cost of intellectual property development employees and an appropriate portion of relevant overheads. Other
development costs that do not meet these criteria are recognised as an expense as incurred. Development costs previously
recognised as an expense are not recognised as an asset in a subsequent period.
Rights acquired to co-market or manufacture certain third-party products are capitalised to intangible assets.
Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific
software.
Costs associated with developing or maintaining computer software programs are recognised as an expense as incurred. Costs
that are directly associated with the production of identifiable and unique software products controlled by the Group, and that
will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets if they meet
the following criteria:
➜➜the costs can be measured reliably;
➜➜the software is technically feasible;
➜➜future economic benefits are probable;
➜➜the Group intends to and has sufficient resources to complete development; and
➜➜the Group intends to use or sell the asset.
An indefinite useful life intangible asset is an intangible asset where there is no foreseeable limit to the period over which the
asset is expected to generate future economic benefits for the Group.
Accumulated amortisation
Intangible assets are recognised at cost and amortised on a straight-line basis over their estimated remaining useful lives.
Estimated useful lives are reviewed annually.
Amortisation is included in other operating expenses in the statement of comprehensive income.
Development costs are amortised from the commencement of the commercial sale of the product to which they relate, being
the date at which all regulatory requirements necessary to commercialise the product are met.
Product participation and other contractual rights are amortised on a straight-line basis over the terms of the relevant
agreements.
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
1.
31
Intangible assets continued
Accounting policy continued
Impairment
An impairment assessment is performed on indefinite useful life intangible assets annually, or more frequently if there are
indicators that the balance might be impaired. Finite useful life intangible assets are reviewed annually, but only assessed for
impairment when there are indicators that the balance might be impaired. Impairment testing is performed by comparing the
recoverable amount to the carrying value of the intangible asset.
The recoverable amounts of the intangible assets are determined as the higher of value-in-use and fair value less costs to sell.
Value-in-use
Key assumptions relating to this valuation include the discount rate and cash flows used to determine the value-in-use. Future
cash flows are estimated based on the most recent budgets and forecasts approved by management covering a period of up
to 10 years and are extrapolated over the useful life of the asset to reflect the long-term plans for the Group using the
estimated growth rate for the specific business or product. The estimated future cash flows and discount rates used are
pre-tax based on assessment of the current risks applicable to the specific asset and/or entity and country in which it
operates or the product is sold.
Management determines the expected performance of the assets based on the following:
➜➜an assessment of existing products against past performance and market conditions;
➜➜an assessment of existing products against existing market conditions; and
➜➜the pipeline of products under development, applying past experiences of launch successes and existing market conditions.
The growth rate used to extrapolate cash flow projections beyond the period covered by the budgets and forecasts take into
account the long-term average rates of the industry in which the cash generating unit is operating. Estimations are based on
a number of key assumptions such as volume, price and product mix which will create a basis for future growth and gross
margin. These assumptions are set in relation to historic figures and external reports on market growth. If necessary, these
cash flows are then adjusted to take into account any changes in assumptions or operating conditions that have been identified
subsequent to the preparation of the budgets and forecasts.
The weighted average cost of capital is derived from a pricing model based on credit risk and the cost of the debt. The variables
used in the model are established on the basis of management judgement and current market conditions. Management
judgement is also applied in estimating the future cash flows of the cash generating units. These values are sensitive to the
cash flows projected for the periods for which detailed forecasts are not available and to the assumptions regarding the
long-term sustainability of the cash flows thereafter.
Intangible assets that have been impaired in past financial years are reviewed for possible reversal of impairment at each
reporting date.
32
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Notes to the Group Annual Financial Statements continued
for the year ended 30 June 2017
1.
Intangible assets continued
Significant judgements and estimates
Indefinite useful life intangible assets
Significant judgement is needed by management when determining the classification of intangible assets as finite or indefinite
useful life assets. The following factors are taken into account when this classification is made:
➜➜historical product sales, volume and profitability trends as well as the expected uses for the asset further evident from
budgets, future growth and plans to invest in each of the assets over the long term are taken into account when this is being
assessed;
➜➜estimates of useful lives of similar assets – historical trends, market sentiment and/or the impact of any competitive activity;
➜➜the strategy (2018 budget, specific marketing plans, specific enhancement plans and the identification of new markets) for
obtaining maximum economic benefit from the asset;
➜➜rates of technical, technological or commercial obsolescence in the industry are slow and evident in the fact that most of the
reinvestment in technology is mainly expansion rather than replacement due to obsolescence;
➜➜the stability of the industry and economy in which the asset will be deployed;
➜➜the willingness and ability of the entity to commit resources to maintain the performance of the asset;
➜➜the period of the entity’s control over the asset and any legal or other restriction on its ability to use the asset;
➜➜redundancy of a similar medication due to changes in market preferences; and
➜➜development of new drugs treating the same disease.
Indefinite useful life intangible assets constitutes 87% of total intangible assets (2016: 82% of total intangible assets).
Amortisation rates and residual values
The Group amortises its assets over their estimated useful lives. The estimation of the useful lives of assets is based on historic
performance as well as expectations about future use and therefore requires a significant degree of judgement to be applied by
management. The actual lives of these assets can vary depending on a variety of factors, including technological innovation,
product life cycles and maintenance programmes.
Significant judgement is applied by management when determining the residual values for intangible assets which only arise in
the event of contractual obligations in terms of which a termination consideration is payable to the Group, management will
apply a residual value to the intangible asset.
The estimated remaining useful life information for 2017 was as follows:
Intellectual property
Product participation and other contractual rights
Computer software
Up to 12 years
Up to 42 years
Up to 9 years
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
1.
33
Intangible assets continued
Reconciliation of balance
Intellectual
property
R’billion
Development
costs
R’billion
Product
participation
and other
contractual
rights
R’billion
Computer
software
R’billion
Total
R’billion
2017
Carrying value
Cost
Accumulated amortisation
Accumulated impairment losses
Movement in intangible assets
Carrying value at the beginning of
the year
Acquisition of subsidiaries and
businesses
Additions
Disposals
Amortisation
Impairment losses
Currency translation movements
60,6
(2,8)
(1,3)
1,5
(0,2)
(0,1)
1,7
(0,3)
–
1,4
(0,5)
–
65,2
(3,8)
(1,4)
56,5
1,2
1,4
0,9
60,0
44,9
1,1
2,3
0,8
49,1
16,2
0,4
–
(0,4)
(0,3)
(4,3)
–
0,3
(0,1)
–
(0,1)
–
–
–
(0,8)
(0,1)
–
–
–
0,4
–
(0,1)
–
(0,2)
16,2
1,1
(0,9)
(0,6)
(0,4)
(4,5)
56,5
1,2
1,4
0,9
60,0
48,9
(2,7)
(1,3)
1,3
(0,2)
–
2,6
(0,3)
–
1,2
(0,4)
–
54,0
(3,6)
(1,3)
44,9
1,1
2,3
0,8
49,1
36,6
1,0
2,4
0,5
40,5
1,1
0,2
(0,1)
(0,4)
0,5
(0,8)
7,8
–
0,4
(0,1)
(0,1)
(0,1)
(0,1)
0,1
–
0,2
–
–
(0,4)
–
0,1
–
0,3
–
(0,1)
–
–
0,1
1,1
1,1
(0,2)
(0,6)
–
(0,9)
8,1
44,9
1,1
2,3
0,8
49,1
2016
Carrying value
Cost
Accumulated amortisation
Accumulated impairment losses
Movement in intangible assets
Carrying value at the beginning of
the year
Acquisition of subsidiaries and
businesses
Additions
Disposals
Amortisation
Reclassification between categories
Impairment losses
Currency translation movements
All intangible assets were acquired from third parties, except for development costs that are both internally generated and
outsourced to third-party development companies.
34
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Notes to the Group Annual Financial Statements continued
for the year ended 30 June 2017
1.
Intangible assets continued
Indefinite useful life intangible assets
2017
R’billion
2016
R’billion
4,8
4,0
3,3
2,1
1,9
8,0
10,4
10,1
4,8
2,9
5,3
4,5
3,6
2,5
2,1
8,8
10,6
–
–
2,9
52,4
40,3
Split of balance
(1) ELIZ Products
(2) Specialist Global Brands
(3) GSK OTC Brands
(4) GSK Classic Brands
(5) Mono-Embolex Business
(6) MSD Business
(7) GSK Thrombosis Business
(8) AstraZeneca Anaesthetic Portfolio
(9) GSK Anaesthetic Portfolio
(10) Other Brands
The key brands for the above mentioned indefinite life intangible assets are as follows:
(1) Eltroxin, Lanoxin, Imuran and Zyloric.
(2) Alkeran, Leukeran, Purinethol, Kemadrin, Lanvis, Myleran, Septrin and Trandate.
(3) Phillips Milk of Magnesia, Dequadin, Solpadeine, Cartia, Zantac and Borstol.
(4) Imigran, Lamictal, Mesasil and Zofran.
(5) Mono-Embolex.
(6) Deca Durabolin, Desogrestrel, Dexmathasone, Meticorten, Metrigen, Orgaran, Ovestin, Testosterone and Thyrax.
(7) Arixtra and Fraxiparine.
(8) Diprivan, EMLA, Marcaine, Naropin, Carbocaine, Citanest and Xylocaine.
(9) Ultiva, Nimbex, Mivacron, Tracrium and Anectine.
Impairment of intangible assets
Key assumptions on impairment tests for significant indefinite useful life intangible assets were as follows
Carrying
value of
intangible
assets
(R’billion)
Period
covered by
forecasts
and budgets
ELIZ Products
4,8
10 years
Specialist Global
Brands
GSK OTC Brands
4,0
10 years
3,3
5 – 10 years
2,1
5 – 10 years
1,9
10 years
8,0
5 years
10,4
5 years
10,1
8 years
4,8
9 years
GSK Classic
Brands
Mono-Embolex
Business
MSD Business
GSK Thrombosis
Business
AstraZeneca
Anaesthetic
Portfolio
GSK Anaesthetic
Portfolio
Growth in revenue
(% per annum)
Gross profit
(% per annum)
Ranging between
(3) and 3
Ranging between
1 and 7
Ranging between
0 and 14
(2) and 6
Average of 73
Ranging between
1 and 3
Ranging between
(13) and 62
Ranging between
(0) and 2
Ranging between
(6) and 14
Ranging between
1 and 3
Average of 84
Average of 71
Average of 68
Pre-tax
discount rate
applied to cash
Growth
flows (% per
(% per annum)*
annum)
0 Ranging between
9 and 11
0 Ranging between
8 and 10
Ranging between Ranging between
1 and 5
9 and 24
0
10
Average of 41
0
Average of 75
1 Ranging between
8 and 15
0
11
Average of 46
7
Average of 37
(1)
16
Average of 62
Ranging between
(5) and 0
13
* Growth rate used to extrapolate cash flows beyond period covered by abovementioned budgets and forecasts.
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
1.
35
Intangible assets continued
Impairment of intangible assets continued
Here management has used a forecast period greater than five years to better reflect the impact of a gradual slowing in growth
over the medium term. Based on the calculations the appropriate impairments were recognised for these indefinite useful life
intangible assets. There are no reasonable possible changes in any key assumption which would cause the carrying value of the
remaining indefinite useful life intangible assets to exceed its value-in-use.
Key assumptions on impairment tests for significant indefinite useful life intangible assets were as follows in 2016:
Carrying
Pre-tax
value of
Period
discount rate
intangible
covered by
applied to cash
assets
forecasts
Growth in revenue
Gross profit
Growth
flows (% per
(R’billion) and budgets
(% per annum)
(% per annum)
(% per annum)*
annum)
ELIZ Products
5,3
10 years
Specialist Global
Brands
GSK OTC Brands
4,5
10 years
3,6
10 years
2,5
10 years
2,1
10 years
8,8
10 years
10,6
10 years
GSK Classic
Brands
Mono-Embolex
Business
MSD Business
GSK Thrombosis
Business
Ranging between
(3) and 3
Ranging between
1 and 7
Ranging between
2 and 10
Ranging between
0 and 8
Ranging between
1 and 3
Ranging between
(13) and 14
Ranging between
(1) and 10
Average of 73
0
Average of 84
0
Average of 72
1
Average of 68 Ranging between
(5) and 1
Average of 41
0
Ranging between
9 and 11
Ranging between
8 and 10
Ranging between
9 and 24
9
7
Average of 67
1
12
Average of 47
1
12
* Growth rate used to extrapolate cash flows beyond period covered by abovementioned budgets and forecasts.
––
Impairment of intangible assets (included in other operating expenses)
Impairment of intangible assets can be split as follows:
(1) Brands in AGI
(2) Brands in Brazil
(3) Development costs in South Africa
2017
R’billion
2016
R’billion
0,3
–
0,1
0,5
0,4
–
0,4
0,9
(1) This related mainly to certain GSK Classic Brands owned by AGI and distributed in Australia in terms of which the outlook on
revenue evolution and profitability has declined (2016: certain brands in the Specialist Global Brands, OTC Brands and GSK
Classic Brands categories). The carrying value of intangible assets was determined based on value-in-use calculations. The key
assumptions detailed above were used.
(2) The impairment in the prior year related primarily to certain OTC products for which the outlook on profitability and revenue
evolution had declined.
(3) The impairment relates to product development projects which were no longer technically or commercially feasible and were
fully written off.
36
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Notes to the Group Annual Financial Statements continued
for the year ended 30 June 2017
1.
Intangible assets continued
Commitments
Capital commitments, include all projects for which specific Board approval has been
obtained up to the reporting date. Capital expenditure will be financed from funds generated
out of normal business operations and existing borrowing facilities. Projects still under
investigation for which specific Board approval have not yet been obtained are excluded from
the following:
Authorised and contracted for
Authorised but not yet contracted for
2017
R’billion
2016
R’billion
0,1
0,4
0,4
0,5
0,5
0,9
Other disclosures
No intangible assets have been pledged as security for borrowings
2.
Property, plant and equipment
Accounting policy
Recognition and measurement
Property, plant and equipment is stated at historical cost less accumulated depreciation and accumulated impairment losses.
Cost
Historical cost includes expenditure that is directly attributable to the acquisition of the items.
The cost of self-constructed assets includes expenditure on materials, direct labour and an allocated proportion of project
overheads. Costs capitalised for work-in-progress in respect of activities to develop, expand or enhance items of property, plant
and equipment are classified as part of assets under capital work-in-progress. Subsequent costs are included in the asset’s
carrying value, or recognised as a separate asset, only when it is probable that the future economic benefits associated with
the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are
charged to the statement of comprehensive income in the period in which they are incurred.
Gains or losses on disposals of property, plant and equipment are determined by comparing proceeds with the carrying value
and are included in operating profit in the statement of comprehensive income.
Costs directly attributable to major development projects of property, plant and equipment are capitalised to the asset.
Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified
as finance leases. Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased assets
or the present value of the minimum lease payments.
Depreciation
Property, plant and equipment is depreciated to its estimated residual value on a straight-line basis over its expected useful life.
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each year-end date. The property, plant
and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset or the lease term.
Land and buildings comprise mainly factories and office buildings. Owned land is not depreciated. Leasehold improvements are
depreciated over the lesser of the period of the lease and the useful life of the asset.
Impairment
The Group reviews the carrying value of its property, plant and equipment annually and if events occur which call into question
the carrying value of the assets to determine whether there is any indication of impairment. If any such indication exists, the
recoverable amount of the asset is estimated, being the higher of the asset’s fair value less cost to sell and value-in-use. In
assessing value-in-use the estimated future cash flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks specific to the asset. For the purposes of
assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows (cash
generating units). Where the carrying value exceeds the estimated recoverable amount, such assets are written down to their
recoverable amount.
Operating leases
Leases where a significant portion of risks and rewards of ownership is retained by the lessor are classified as operating leases.
Operating lease costs (net of any incentives from the lessor) are charged against operating profit on a straight-line basis over
the period of the lease.
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
2.
37
Property, plant and equipment continued
Significant judgements and estimates
Depreciation and residual values
The Group depreciates its assets over their estimated useful lives. The estimation of the useful lives of assets is based on
historic performance as well as expectations about future use and therefore requires a significant degree of judgement to be
applied by management. The actual lives of these assets can vary depending on a variety of factors, including technological
innovation, product life cycles and maintenance programmes. These depreciation rates represent management’s current best
estimate of the useful lives of these assets.
Significant judgement is applied by management when determining the residual values for property, plant and equipment. In
the event of contractual obligations in terms of which a termination consideration is payable to the Group, management will
apply a residual value to the asset. When determining the residual value the following factors are taken into account:
➜➜external residual value information (if available); and
➜➜internal technical assessments for complex plant and machinery.
The Group has reviewed the residual values and useful lives of the assets. No material adjustment resulted from such review in
the current year.
Depreciation rates
The estimated remaining useful life information for 2017 was as follows:
Buildings (including leasehold improvements)
Plant and equipment
Computer equipment
Office equipment and furniture
Up to 50 years
Up to 25 years
Up to 10 years
Up to 10 years
Reconciliation of balance
Land and
buildings
R’billion
Plant and
equipment
R’billion
Other
tangible
assets@
R’billion
Capital
work-inprogress
R’billion
Total
R’billion
3,3
–
(0,3)
13,7
(3,7)
(0,3)
3,0
9,7
2017
Carrying value
Cost
Accumulated depreciation
Accumulated impairment losses
Movement in property, plant
and equipment
Carrying value at the beginning of
the year
Additions
Borrowing costs capitalised
Depreciation
Reclassification between categories
Reclassification to assets classified
as held-for-sale
Impairment losses
Currency translation movements
4,5
(0,9)
–
5,1
(2,3)
–
0,9
(0,5)
–
3,5
2,8
3,2
0,1
–
(0,2)
0,6
2,8
0,3
–
(0,4)
0,3
0,4
0,1
–
(0,1)
–
3,3
1,0
0,2
–
(0,9)
9,7
1,5
0,2*
(0,7)
–
–
–
(0,2)
–
–
(0,2)
–
–
–
(0,2)
(0,3)
(0,1)
(0,2)
(0,3)
(0,5)
3,5
2,8
3,0
9,7#
0,4
0,4
Other tangible assets comprise computer equipment, office equipment and furniture.
* Borrowing costs capitalised represent financing costs arising on the construction of qualifying assets. The average effective interest rate for the
year was 8,5% (2016: 7,7%).
#
Included in the total are leased assets amounting to R52,7 million (2016: R52,2 million).
@
38
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Notes to the Group Annual Financial Statements continued
for the year ended 30 June 2017
2.
Property, plant and equipment continued
Reconciliation of balance continued
Capital
work-inprogress
R’billion
Total
R’billion
0,9
(0,5)
–
3,3
–
–
13,1
(3,3)
(0,1)
2,8
0,4
3,3
9,7
3,0
0,1
–
(0,2)
–
0,3
2,0
0,6
–
(0,3)
0,3
0,2
0,4
0,1
–
(0,1)
–
–
2,5
0,9
0,2
–
(0,3)
–
7,9
1,7
0,2*
(0,6)
–
0,5
3,2
2,8
0,4
3,3
9,7#
Land and
buildings
R’billion
Plant and
equipment
R’billion
4,1
(0,8)
(0,1)
4,8
(2,0)
–
3,2
Other
tangible
assets@
R’billion
2016
Cost
Accumulated depreciation
Accumulated impairment losses
Movement in property, plant
and equipment
Carrying value at the beginning of
the year
Additions
Borrowing costs capitalised
Depreciation
Reclassification between categories
Currency translation movements
Other tangible assets comprise computer equipment, office equipment and furniture.
* Borrowing costs capitalised represent financing costs arising on the construction of qualifying assets. The average effective interest rate for the
year was 8,5% (2016: 7,7%).
#
Included in the total are leased assets amounting R52,7 million (2016: R52,2 million).
@
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
2.
39
Property, plant and equipment continued
Commitments
Capital commitments
Capital commitments, excluding potential capitalised borrowing costs, include all projects for
which specific Board approval has been obtained up to the reporting date. Capital expenditure
will be financed from funds generated out of normal business operations and existing
borrowing facilities. Projects still under investigation for which specific Board approvals have
not yet been obtained are excluded from the following:
Authorised and contracted for
Authorised but not yet contracted for
Operating lease commitments
The Group rents buildings under non-current, non-cancellable operating leases and also rents
offices, warehouses, parking and other equipment under operating leases that are cancellable
at various short-term notice periods by either party.
The future minimum operating lease payments are as follows:
Less than 1 year
Between 1 and 5 years
Later than 5 years
2017
R’billion
2016
R’billion
0,7
5,6
0,8
2,1
6,3
2,9
0,1
0,2
0,1
0,1
0,2
–
0,4
0,3
0,7
2,8
0,8
2,4
3,5
3,2
0,5
0,1
0,1
0,5
–
0,1
0,7
0,6
Operating leases comprise a number of individually insignificant leases. These leasing
arrangements do not impose any significant restrictions on the Group.
Other disclosure
Summary of land and buildings
Land
Buildings
The depreciation charge was classified as follows in the statement of
comprehensive income
Cost of sales
Selling and distribution expenses
Administrative expenses
No property, plant and equipment was pledged or committed as security for any borrowings.
40
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Notes to the Group Annual Financial Statements continued
for the year ended 30 June 2017
3.
Goodwill
Accounting policy
Recognition and measurement
Goodwill on the acquisition of subsidiaries or businesses is capitalised and shown separately on the face of the statement of
financial position and carried at cost less accumulated impairment losses.
Cost
Goodwill is initially measured as the excess of the aggregate of the consideration transferred, the acquisition date fair value of
previously held equity interests and the fair value of non-controlling interests over the net identifiable assets acquired and
liabilities assumed. If the cost of the acquisition is less than the fair value of the net assets of the subsidiary acquired, the
difference is recognised directly in the statement of comprehensive income.
The profit or loss realised on disposal or termination of an entity is calculated after taking into account the carrying value of any
related goodwill.
Impairment
For the purposes of impairment testing, goodwill is allocated to the smallest cash generating unit. Each of those cash
generating units represents the smallest identifiable group of assets that generates cash inflows that are largely independent of
the cash inflows from other assets or groups of assets. The allocation is made to those cash generating units or groups of cash
generating units that are expected to benefit from the business combination in which the goodwill arose. Impairment
assessments are performed annually, or more frequently if there are indicators that the balance might be impaired. Impairment
testing is performed by comparing the value-in-use of the cash generating unit to the carrying value. Impairment testing is only
performed on cash generating units that are considered to be significant in comparison to the total carrying value of goodwill.
Value-in-use
Key assumptions include the discount rate and cash flows used to determine the value-in-use. Future cash flows are estimated
based on the most recent budgets and forecasts approved by management covering periods between five and eight years and
are extrapolated over the useful life of the asset to reflect the long-term plans for the Group using the estimated growth rate for
the specific business or product. The estimated future cash flows and discount rates used are pre-tax based on an assessment
of the current risks applicable to the specific entity and country in which it operates.
Management determines the expected performance of the assets based on the following:
➜➜an assessment of existing products against past performance and market conditions;
➜➜an assessment of existing products against existing market conditions; and
➜➜the pipeline of products under development, applying past experiences of launch success and existing market conditions.
The growth rate used to extrapolate cash flow projections beyond the period covered by the budgets and forecasts takes into
account the long-term average rates of the industry in which the cash generating unit is operating. Estimations are based on a
number of key assumptions such as volume, price and product mix which will create a basis for future growth and gross
margin. These assumptions are set in relation to historic figures and external reports on market growth. If necessary, these cash
flows are then adjusted to take into account any changes in assumptions or operating conditions that have been identified
subsequent to the preparation of the budgets.
The weighted average cost of capital rate is derived from a pricing model based on credit risk and the cost of the debt. The
variables used in the model are established on the basis of management judgement and current market conditions.
Management judgement is also applied in estimating the future cash flows of the cash generating units. These values are
sensitive to the cash flows projected for the periods for which detailed forecasts are not available and to the assumptions
regarding the long-term sustainability of the cash flows thereafter.
Impairment losses recognised for goodwill are not reversed in subsequent financial years.
Reconciliation of balance
2017
R’billion
Carrying value at the beginning of the year
Acquisition of subsidiaries and businesses
Disposal of subsidiary
Currency translation movements
Split of balance
Sigma business – Australasia
AstraZeneca Anaesthetics Portfolio
MSD business
Other
2016
R’billion
6,0
0,4
(0,1)
(0,4)
5,0
–
–
1,0
5,9
6,0
4,1
0,3
0,4
1,1
4,5
–
0,3
1,3
5,9
6,0
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
3.
41
Goodwill continued
Impairment of goodwill
Key assumptions on the impairment tests for goodwill were as follows in 2017:
Period
covered
by
Carrying
value of forecasts
and
goodwill
(R’billion) budgets
Growth
in turnover
(% per annum)
Gross
profit
(% per
annum)
Capital
expenditure
(per annum)
Growth
(% per annum)*
Pre-tax
discount
rate
applied
to cash
flows
(% per
annum)
Sigma Business
4,1
5 years
Ranging between
(3) and 2
57
Ranging between
AUD3 million and
AUD12 million
3
10
AstraZeneca
Anaesthetic
Portfolio
MSD Business
0,3
8 years
Ranging between
(6) and 14
Average of 37
Nil
Ranging between
(5) and 0
16
0,4
5 years
Ranging between
(13) and 62
Average of 75
Nil
Ranging between
0 and 1
Ranging
between
8 and 15
Key assumptions on the impairment tests for goodwill were as follows in 2016:
Carrying
value of
goodwill
(R’billion)
Period
covered
by
forecasts
and
budgets
Sigma business
4,5
5 years
Ranging between
(2) and 5
54
MSD business
0,3
10 years
Ranging between
(13) and 14
Average of 67
Growth
in turnover
(% per annum)
Gross
profit
(% per
annum)
Capital
expenditure
(per annum)
Ranging between
AUD3 million and
AUD12 million
Nil
Growth
(% per annum)*
Pre-tax
discount
rate
applied
to cash
flows
(% per
annum)
3
10
1
12
* Growth rate used to extrapolate cash flows beyond period covered by abovementioned budgets and forecasts.
Management has used a forecast period greater than five years to better reflect the impact of a gradual slowing in growth over the
medium term.
Based on the calculations no impairments were recognised. There are no reasonable possible changes in any key assumption
which would cause the carrying value of goodwill to exceed its value-in-use.
4.
Deferred tax
Accounting policy
Recognition and measurement
Deferred tax is provided in full, using the liability method, at currently enacted or substantively enacted tax rates in operation at
year end, that are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Full
provision is made for all temporary differences between the tax base of an asset or liability and its statement of financial
position carrying value. No deferred tax asset or liability is recognised in those circumstances, other than a business
combination, where the initial recognition of an asset or liability has no impact on accounting profit or taxable income.
Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the
temporary differences can be utilised.
Deferred tax is charged or credited to other comprehensive income or directly to equity if the tax relates to items that are
credited or charged, in the same or a different period, to other comprehensive income or directly to equity respectively.
Deferred tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of the
reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse
in the foreseeable future.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current
tax liabilities and when the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either the same
taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
Deferred tax is calculated in full on temporary differences under the liability method using a principal tax rate of 28%
(2016: 28%).
42
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Notes to the Group Annual Financial Statements continued
for the year ended 30 June 2017
4.
Deferred tax continued
Reconciliation of balance
2017
R’billion
2016
R’billion
Deferred tax liabilities – opening balance
Deferred tax assets – opening balance
1,8
(1,1)
1,7
(1,1)
Net deferred tax liabilities – opening balance
Statement of comprehensive income debit – included in tax
0,7
(0,1)
0,6
–
0,4
0,1
–
0,1
1,1
0,7
2,1
(1,0)
1,8
(1,1)
1,1
0,7
0,2
0,5
1,3
(0,1)
–
–
(0,4)
(0,1)
(0,2)
(0,3)
0,2
0,4
0,7
0,8
(0,2)
(0,1)
0,2
(0,5)
(0,1)
(0,4)
(0,4)
0,3
1,1
0,7
–
–
(0,2)
(0,1)
0,2
–
–
–
0,1
0,1
(0,1)
0,2
–
0,1
(0,1)
(0,3)
(0,1)
–
Acquisition of subsidiaries and businesses
Currency translation movements
Split of balance
Deferred tax liabilities
Deferred tax assets
Deferred tax balance comprises
Property, plant and equipment
Intangible assets
Investments in joint venture and subsidiaries
Inventories
Trade and other receivables
Net deferred tax assets not able to be recognised
Unfavourable and onerous contracts
Retirement and other employee benefit obligations
Trade and other payables
Tax losses
Other
The statement of comprehensive income debit comprises
Property, plant and equipment
Intangible assets
Trade and other receivables
Net deferred tax assets not able to be recognised
Unfavourable and onerous contracts
Retirement and other employee benefit obligations
Tax losses
Other
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
5.
43
Contingent environmental liabilities and indemnification assets
Accounting policy
Recognition and measurement
The contingent environmental indemnification assets and contingent environmental liabilities relate to environmental
remediation required at the Moleneind site at Oss, in the Netherlands. The remediation is being managed, undertaken and
funded by MSD. However, as owner of the site, Aspen Oss has inherited a legal obligation for the remediation for which it has
been indemnified by MSD. Consequently, Aspen has recognised contingent liabilities and corresponding contingent
indemnification assets based on an independent estimate of the remediation cost. In view of MSD’s involvement in the
remediation process, the balances have been referred to as contingent as the settlement of the liabilities and the realisation
of the indemnification assets are not expected to have any cash flow implications for the Group.
Liabilities for environmental restoration are recognised when the Group has a legal or a constructive obligation, as a result of a
past event, and it is probable that there may be an outflow of resources embodying economic benefits to settle the obligation
and the obligation can be measured reliably. The environmental liabilities are measured at the present value of the expenditures
expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value
of money and the risks specific to the obligation.
Reconciliation of balance
2017
R’billion
Carrying value at the beginning of the year
Currency translation movements
6.
2016
R’billion
0,8
(0,1)
0,7
0,1
0,7
0,8
Other non-current assets
Accounting policy
Recognition and measurement
Other non-current receivables
Other non-current receivables are initially recognised at fair value and subsequently measured at amortised cost, less
impairments, using the effective interest rate method. No fair value adjustment is made for the effect of time value of money
where receivables have a short-term profile.
A provision for impairment of other non-current receivables is established when there is objective evidence that the Group will
not be able to collect all amounts due as a result of one or more events that occurred after the initial recognition (a “loss
event”) and that loss event has an impact on the estimated future cash flows of the assets that can be reliably estimated.
Investment in joint venture
Investments in joint arrangements are classified as either joint operations or joint ventures. The classification depends on the
contractual rights and obligations of each investor, rather than the legal structure of the joint arrangement. The Group has
interests in joint ventures which are accounted for using the equity method, after initially being recognised at cost in the
statement of financial position.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any other
categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months
from the statement of financial position date. Available-for-sale financial assets are carried at fair value and changes in the fair
value are recognised in other comprehensive income. When securities classified as available-for-sale are sold or impaired, the
accumulated fair value adjustments recognised in equity are included in the statement of comprehensive income.
Purchases and sales of investments are recognised on the trade date, which is the date that the Group commits to purchase or
sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair
value through profit and loss. Financial assets carried at fair value through profit and loss are initially recognised at fair value
and transaction costs are expensed in the statement of comprehensive income. Investments are derecognised when the rights
to receive cash flows from the investments have expired or the Group has transferred substantially all risks and rewards of
ownership.
44
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Notes to the Group Annual Financial Statements continued
for the year ended 30 June 2017
6.
Other non-current assets continued
Accounting policy continued
At each statement of financial position date the Group assesses whether there is objective evidence that a financial asset or a
group of financial assets is impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged
decline in the fair value of the security below its cost is considered an indicator that the securities are impaired. The impairment
loss, being the difference between the acquisition cost and the current fair value, less any impairment loss previously
recognised in profit or loss, is removed from equity and recognised in the statement of comprehensive income. Impairment
losses on available-for-sale financial assets recognised in the statement of comprehensive income are not reversed in
subsequent financial years.
Financial assets
Enterprise development loans and export advance to API supplier are classified as “Loans and receivables” in terms of IAS 39 –
Financial Instruments: Recognition and Measurement. Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. These are included in non-current assets as they all have
maturities more than 12 months from year end. The Group determines the classification of its financial assets at initial
recognition when the Group becomes party to the contractual provisions of the instrument.
Split of balance
Other non-current receivables
Investments in joint ventures
Available-for-sale financial assets
6.1
Other non-current receivables
Summary of balance
Employee benefits – reimbursive rights
Exports advance to API supplier
Enterprise development loans
Split of balance
Financial instruments
Non-financial instruments
Notes
2016
2017
R’billion
R’billion
2016
R’billion
6.1
6.2
6.3
0,6
0,2
0,1
0,2
0,1
0,1
0,9
0,4
0,2
0,3
0,1
0,2
–
–
0,6
0,2
0,4
0,2
–
0,2
0,6
0,2
Employee benefits – reimbursive rights
As part of the GSK Thrombosis business acquisition in 2014, Aspen acquired certain non-current employee-related
liabilities (which have been included in retirement and other employee benefit obligations on the statement of financial
position). As part of the agreement, GSK is responsible for pre-acquisition liabilities. The value of the non-current employeerelated liabilities acquired are based on independent valuations and as such an equal and opposite asset was recognised.
GSK will reimburse Aspen as and when the liabilities are paid out to employees who qualify for the benefits. Management
considers the credit risk associated with these non-current receivables to be low.
Exports advance to API supplier
The export advance was made to a supplier of active pharmaceutical ingredients and is to be settled through the provision
of a certain level of inventory annually over the course of a 10-year supply agreement. Management considers the credit
risk associated with these non-current receivables to be low.
Enterprise development loans
Various agreements have been entered into with several BBBEE beneficiaries whereby loan funding has been advanced by
Aspen. These loans have various terms ranging from three to five years and all the loans are scheduled for repayment at
the end of their respective terms. The loans bear interest at the South African prime rate plus margins ranging from minus
2% to plus 1% (2016: South African prime rate plus margins ranging from minus 2% to plus 1%).
All the loans are secured by either immovable property, specified movable assets or cession of specified book debts.
Management considers the credit risk associated with these non-current receivables to be low.
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
6.
45
Other non-current assets continued
6.2
Investments in joint ventures
Reconciliation of balance
2017
R’billion
2016
R’billion
Carrying value at the beginning of the year
0,1
0,1
Acquisition of joint venture
0,1
–
0,2
0,1
0,1
0,1
0,1
–
0,2
0,1
Summary of balance
NZ New milk
Aspen Nutritionals Hong Kong Limited
NZ New Milk
On 31 October 2014, the Company acquired a 50% shareholding in NZ New Milk, a producer of infant nutritionals
incorporated in Auckland, New Zealand. The company is a private company and no quoted market price is available for
its shares. In terms of a supply agreement concluded between AGI and NZ New Milk, long-term supply of infant nutritionals
for distribution by Aspen in Australia is secured.
Equity-accounted earnings have been recognised in the statement of comprehensive income.
Aspen Nutritionals Hong Kong Limited
On 8 March 2017, the Company acquired a 50% shareholding in Aspen Nutritionals Hong Kong Limited, a company
incorporated in Hong Kong. It is one of the Company’s exclusive distributors of the “Alula” infant milk products. The
distributor has expertise and experience in the marketing and promotion of infant milk products and will establish
business through its China-based subsidiary to commercialise the products in the territory. The company is a private
company and no quoted market price is available for its shares.
No equity-accounted earnings have been recognised in the statement of comprehensive income in the current year.
6.3
Available-for-sale financial assets
Summary of balance
Unlisted equity securities
2017
R’billion
2016
R’billion
0,1
0,1
Unlisted equity securities
AGI entered into a licence agreement with TesoRx, a specialty pharmaceutical company, in terms whereof TesoRx licensed
the rights to TSX-002, an innovative unmodified oral-testosterone replacement therapy in selected international territories
for a staggered consideration based on the achievement of future milestones. Aspen USA (now Aspen Pharmacare
Investments Inc.) acquired a minor shareholding in TesoRx. This asset is carried at fair value. This available-for-sale financial
asset is classified as a “level 3” asset in the fair value measurement hierarchy.
46
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Notes to the Group Annual Financial Statements continued
for the year ended 30 June 2017
7.
Inventories
Accounting policy
Recognition and measurement
The Group recognises inventories initially at cost when it has control of the inventories, expects it to provide future economic
benefits and the cost can be measured reliably. Cost is determined on the first-in-first-out basis. Cost includes expenditure
incurred in acquiring, manufacturing and transporting the inventory to its present location. Inventories are subsequently
measured at the lower of cost and net realisable value. The carrying values of finished goods and work-in-progress include raw
materials, direct labour, other direct costs and related production overheads (based on normal operating capacity), but exclude
borrowing costs. Net realisable value is the estimate of the selling price in the ordinary course of business, less the costs of
completion and applicable variable selling expenses.
A provision for obsolete inventories is established when there is evidence that no future economic benefits will be obtained for
such inventories. The carrying amount of the inventories is reduced and the amount of the loss is recognised in the statement
of comprehensive income within cost of sales.
Significant judgements and estimates
Determination of net realisable value of inventories
Management is required to exercise considerable judgement in the determination of net realisable value, specifically relating to
the forecasting of demand.
All inventories are at cost, except for raw materials of R0,5 billion (2016: R0,6 billion) which were carried at net realisable value.
Management is also required to exercise significant judgement in estimating the provision for obsolete stock. Such judgement
would take into account the following:
➜➜change in technology;
➜➜regulatory requirements; and
➜➜stock nearing expiry dates.
Summary of balance
Raw materials
Work-in-progress
Finished goods
Consumables
Impairment of inventories
The impairment charge (included in cost of sales) is made up as follows:
Write down of inventories recognised as an expense*
Movement in the provision for impairment
2017
R’billion
2016
R’billion
3,8
4,7
4,8
0,3
3,3
5,3
5,5
0,3
13,6
14,4
0,7
0,1
0,6
0,1
0,8
0,7
* The write-down relates to expired pharmaceutical finished product inventories and manufacturing inventories write-offs. Due to the finite shelf life
of pharmaceutical products they are more susceptible to impairment. The manufacturing entities inherently incur inventories write-offs as a result
of production-related inefficiencies.
Reconciliation of provision for impairment
Balance at the beginning of the year
Raised during the year
Utilised during the year
0,8
0,8
(0,7)
0,7
0,7
(0,6)
0,9
0,8
Other disclosures
Inventories to the value of R1,8 billion (2016: R1,9 billion) have been pledged as security for the 10-year interest-free loan from
MSD. Refer to note 14.1.
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
8.
47
Receivables and other current assets
Accounting policy
Recognition and measurement
Receivables and other current assets are initially recognised at fair value and subsequently measured at amortised cost, less
impairments, using the effective interest rate method. No fair value adjustment is made for the effect of time value of money
where receivables have a short-term profile.
A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able
to collect all amounts due as a result of one or more events that occurred after the initial recognition (a “loss event”) and that
loss event has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be
reliably estimated. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial
reorganisation and default or late payments are considered indicators that the trade receivable is impaired.
The amount of the provision is measured as the difference between the asset’s carrying amount and the present value of
estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s
original effective interest rate. This provision is recognised through the use of an allowance account for losses. The carrying
amount of the asset is reduced and the amount of the loss is recognised in the statement of comprehensive income within
administrative expenses. When a trade receivable is uncollectible, it is written off against the allowance account for losses.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an
event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal of the
previously recognised impairment loss is credited against administrative expenses in the statement of comprehensive income.
Financial assets
Financial instruments related to trade and other receivables are classified as “Loans and receivables” in terms of IAS 39 –
Financial Instruments: Recognition and Measurement. Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. These are included in current assets as they all have maturities
less than 12 months from year end. The Group determines the classification of its financial asset at initial recognition when the
Group becomes party to the contractual provisions of the instrument.
2017
R’billion
2016
R’billion
13,4
0,2
11,6
0,2
13,6
11,8
Trade and other receivables
Summary of balance
Trade receivables
Allowance account for losses
10,9
(0,2)
9,0
(0,2)
Net trade receivables
Indirect taxes
Prepayments
Other
10,7
0,9
0,4
1,4
8,8
0,8
0,5
1,5
13,4
11,6
11,1
2,3
9,2
2,4
13,4
11,6
0,2
0,2
Notes
Split of balance
Trade and other receivables
Current tax assets
8.1
Split of balance
Financial assets
Non-financial assets
8.1
Impairment of trade and other receivables
Reconciliation of allowance account for losses
Balance at the beginning and end of the year
48
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Notes to the Group Annual Financial Statements continued
for the year ended 30 June 2017
8.
Receivables and other current assets continued
Other disclosures
Age analysis of trade and other receivables (financial instruments only)
2017
2016
Gross
R’billion
Allowance
account for
losses
R’billion
Gross
R’billion
Allowance
account for
losses
R’billion
9,9
0,8
0,2
0,1
0,3
–
–
–
–
(0,2)
6,9
1,6
0,2
0,3
0,4
–
–
–
–
(0,2)
11,3
(0,2)
9,4
(0,2)
Fully performing
Past due by 1 to 60 days
Past due by 61 to 90 days
Past due by 91 to 120 days
Past due by more than 120 days
Credit risk
The Group has policies in place to ensure that sales of products are made to customers with a solid credit history. Ongoing credit
evaluations on the financial condition of customers are performed and where appropriate credit guarantee insurance cover is
purchased. Balances to the value of R2,0 billion (2016: R1,6 billion) were covered by credit guarantee insurance. Trade receivables
consist primarily of a large, widespread customer base. The granting of credit is controlled by application and account limits. Trade
and other receivables are carefully monitored for impairment. One debtors balance (2016: one debtors balance) constitutes a
significant concentration of credit risk to an amount of R1,5 billion (2016: R1,6 billion). This balance constitutes 13,5% (2016: 17,3%)
of the total gross trade receivables, relates to a customer with a longstanding relationship with the Group and there have been no
defaults on payments. There are no other single customers representing more than 10% of total gross trade receivables for the
years ended 30 June 2017 and 2016.
The Group has made allowance for specific trade debtors which have clearly indicated financial difficulty and the likelihood of
repayment has become impaired. Amounts past their due dates which are not provided for are considered to be recoverable. More
than 95% of the trade receivables balance relates to customers that have a longstanding history with the Group and there has
been no default on payments.
Impairment losses are recorded in the allowance account for losses until the Group is satisfied that no recovery of the amount
owing is possible, at which point the amount is considered irrecoverable and is written off against the financial asset.
Currency analysis of trade and other receivables (financial instruments only)
Australian Dollar
Brazilian Real
Canadian Dollar
Euro
Mexican Peso
Pound Sterling
South African Rand
Russian Ruble
US Dollar
Other currencies
General
The Group holds no collateral over any trade and other receivables.
Trade and other receivables are predominantly non-interest bearing.
2017
R’billion
2016
R’billion
0,7
0,3
–
1,8
0,3
0,6
2,5
0,3
3,4
1,2
0,8
0,2
0,2
2,4
0,3
0,3
2,3
0,3
1,4
1,0
11,1
9,2
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
9.
49
Cash and cash equivalents
Accounting policy
Recognition and measurement
Cash and cash equivalents are initially measured at fair value and subsequently carried at amortised cost. For the purposes of
the statement of financial position, cash and cash equivalents comprise bank balances and short-term bank deposits. For the
purposes of the statement of cash flows, cash and cash equivalents comprise bank balances, short-term bank deposits less
bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the statement of financial position. Bank
overdrafts are repayable on demand.
Financial assets
Cash and cash equivalents are classified as “Loans and receivables” in terms of IAS 39 – Financial Instruments: Recognition and
Measurement. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not
quoted in an active market. These are included in current assets as they all have maturities less than 12 months from year end.
The Group determines the classification of its financial assets at initial recognition when the Group becomes party to the
contractual provisions of the instrument.
Summary of balance
Bank balances
Short-term bank deposits
2017
R’billion
2016
R’billion
10,2
0,5
7,9
3,0
10,7
10,9
1,2
3,2
4,0
1,2
1,1
1,3
2,2
3,1
3,5
0,8
10,7
10,9
Other disclosures
Credit risk
Treasury counterparties consist of a diversified group of prime financial institutions. Cash
balances are placed with different financial institutions to minimise risk. The Group does not
expect any treasury counterparties to fail to meet their obligations, given their high credit
ratings. As at 30 June 2017, more than 94% of the Group’s cash and cash equivalents were
held with institutions with an international credit rating of BB+ or better.
Currency analysis of cash and cash equivalents
Australian Dollar
Euro
South African Rand
US Dollar
Other currencies
General
The maturity profile of all cash and cash equivalents balances is less than three months.
The average effective interest rate on interest-bearing cash and cash equivalents is 3,2% (2016: 2,9%).
50
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Notes to the Group Annual Financial Statements continued
for the year ended 30 June 2017
10.
Assets classified as held-for-sale
Accounting policy
Recognition and measurement
Assets (or disposal groups) are classified as held-for-sale if the carrying amount will be recovered principally through sale rather
than through continuing use. This condition is regarded as met only when the sale is highly probable, the assets (or disposal
groups) are available for immediate sale in its present condition and management is committed to the sale which should be
expected to qualify for recognition as a completed sale within one year from the date of the classification.
Immediately prior to being classified as held-for-sale the carrying amount of assets and liabilities are measured in accordance
with the applicable standard. After classification as held-for-sale it is measured at the lower of the carrying value and fair value
less costs to sell. An impairment loss is recognised in the statement of comprehensive income for any initial and subsequent
write down of the asset and disposal group to fair value less costs to sell. A gain for any subsequent increase in fair value less
costs to sell is recognised in the statement of comprehensive income to the extent that it is not in excess of the cumulative
impairment loss previously recognised.
2017
R’billion
Reconciliation of balance
Balance at the beginning of the year
Disposals
Reclassification from assets
Property, plant and equipment
Inventories
Trade and other receivables
Currency translation movements
Split of balance
Property, plant and equipment – Steriles manufacture facility South Africa*
Divestment of a portfolio of products in South Africa to Litha
2016
R’billion
0,1
(0,1)
0,2
0,2
–
–
–
2,9
(3,6)
0,4
–
0,3
0,1
0,4
0,2
0,1
0,2
–
–
0,1
0,2
0,1
* In the current year certain property, plant and equipment was impaired in the Steriles manufacturing facility in South Africa due to the strategic
repurposing of that facility for alternative product manufacture which requires different manufacturing equipment. The impaired property, plant and
equipment has been valued at an estimated net realisable value and reclassified to assets held-for-sale.
No gains or losses on remeasurement were recognised in the statement of comprehensive income in the current financial year.
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
11.
51
Share capital (net of treasury shares)
Accounting policy
Share capital
Issued share capital is stated in the statement of changes in equity at the amount of the proceeds received less directly
attributable issue costs.
Treasury shares
Shares in the Company held by Group subsidiaries and unvested restricted shares held for employee participants in the Group’s
share plan are classified as treasury shares. The cost price of these shares, together with related transaction costs, is deducted
from equity. The issued and weighted average number of shares is reduced by the treasury shares for the purposes of the basic,
headline earnings and normalised headline earnings per share calculations. Dividends received on treasury shares are
eliminated on consolidation except to the extent that they are paid to participants in the share plan.
When treasury shares held for participants in the share plan vest in such participants, the shares will no longer be classified as
treasury shares, their cost will no longer be deducted from equity and their number will be taken into account for the purposes
of basic, headline earnings and normalised headline earnings per share calculations.
Split of balance
Notes
2016
R’billion
2,1
(0,2)
2,1
(0,2)
1,9
1,9
–
–
2,1
2,1
Million
Million
Million
Shares in issue at the beginning of the year
Shares issued – share schemes
456,4
–
456,3
0,1
Shares in issue at the end of the year
456,4
456,4
Share capital
Treasury shares
11.1
2017
R’billion
Share capital
Authorised
717 600 000 (2016: 717 600 000) ordinary shares of no par value
Issued
456 435 185 (2016: 456 351 337) ordinary shares of no par value
11.1
11.2
Reconciliation of shares
The unissued shares have been placed under the control of the directors until the forthcoming annual general meeting.
All shares are fully paid up, and no amounts are outstanding in terms of shares issued during the year.
11.2
Treasury shares
2017
R’billion
Treasury shares held
410 239 (2016: 499 746) ordinary shares of no par value
(0,2)
2016
R’billion
(0,2)
Reconciliation of shares
Million
Number of shares at the beginning of the year
Shares purchased
Deferred incentive bonus shares exercised
Number of shares at the end of the year
Million
0,5
–
(0,1)
0,3
0,3
(0,1)
0,4
0,5
52
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Notes to the Group Annual Financial Statements
for the year ended 30 June 2017
12.
Share-based compensation reserve
Accounting policy
The Group has equity-settled and cash-settled share-based compensation plans.
Share options, share appreciation rights, deferred incentive bonuses and phantom shares are granted to management and key
employees. The schemes in operation are classified as equity-settled share-based compensation plans, except for the South
African Management Deferred Incentive Bonus Scheme which is a compound financial instrument with both an equity and
cash-settled portion as well as the Aspen International Phantom Share Scheme, which is a cash-settled scheme, under which
the entity receives services from employees in exchange for cash based on changes in the Aspen share price.
When instruments are exercised, the proceeds received net of any directly attributable transaction costs are credited to share
capital.
The Aspen share incentive trusts regulate the operation of the share incentive schemes and are consolidated into the Annual
Financial Statements.
Equity-settled schemes
The equity-settled schemes (Aspen Share Incentive Scheme, Aspen Share Appreciation Plan and South African Management
Deferred Incentive Bonus Scheme) allow certain employees the option or rights to acquire ordinary shares in Aspen
Pharmacare Holdings Limited. Such equity-settled share-based payments are measured at fair value at the date of the grant.
The fair value determined at grant date of the equity-settled share-based payment is charged as employee costs, with a
corresponding increase in equity, on a straight-line basis over the period that the employee becomes unconditionally entitled
to the options, rights or shares, based on management’s estimate of the shares that will vest and adjusted for the effect of
non-market vesting conditions. These share options, rights and equity portion of the deferred incentive bonus are not
subsequently revalued.
Fair value is determined using the binomial pricing model where applicable. The expected life used in the models has been
adjusted, based on management’s best estimate, for the effect of non-transferability, exercise restrictions and behavioural
considerations such as volatility, dividend yield and the vesting period. The fair value takes into account the terms and
conditions on which the incentives are granted and the extent to which the employees have rendered services to the reporting
date.
Cash-settled schemes
For cash-settled share awards, the services received from employees are measured at fair value and recognised in the
statement of comprehensive income as an expense over the vesting period with recognition of a corresponding liability in
trade and other payables. The fair value of the liability is remeasured at each reporting date and at the date of settlement, with
changes in fair value recognised in the statement of comprehensive income.
Compound financial instrument share scheme
The Group has entered into a share-based payment agreement whereby the employee has the right to choose either
settlement in cash or settlement in equity. The entity has thus granted a compound financial instrument, which includes a debt
component and an equity component.
On measurement date management has measured the fair value of the debt component first. Thereafter, the fair value of the
equity instrument was measured, taking into consideration the fact that the employee forfeits the right to receive cash in order
to obtain the shares.
The services received from the employees in respect of each component (debt and equity) shall be accounted for separately at
each reporting date. The debt component will be accounted for as a cash-settled share-based payment arrangement. The debt
component shall therefore be measured at fair value at each reporting date, with changes in fair value recognised in the
statement of comprehensive income over the period that the employee provides services to the Group.
Summary of schemes
The Group currently operates the following share-based payment schemes:
Legacy share schemes
The following share scheme was still operational during the year, in terms of awards previously made.
Aspen Share Appreciation Plan
The plan was adopted by shareholders in October 2005, and the last awards were made in 2013. In terms of the plan, share
appreciation rights were awarded to key management to receive shares in the Company equivalent to an amount calculated by
reference to the increase in value of the rights between the date of the grant and the date of exercise of the rights. Rights vested
on the third anniversary of the award date and expired on the fifth anniversary of that date. Upon exercise, the appropriate number
of shares would be listed and awarded to the participant. A single employee held share appreciation rights and has recently
exercised these rights. This scheme has therefore terminated.
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
12.
53
Share-based compensation reserve continued
Summary of schemes continued
The Aspen South African Management Deferred Incentive Bonus Scheme
Medium-term
component of the
scheme
Nature and purpose of
the scheme
Determination of
value of awards
The scheme is designed to
acknowledge performance
and reward individuals for
achievement of both the
relevant Aspen business
which employs the individual
and the individual’s
performance for the trading
period immediately preceding
the date that the award is
made. While it has the same
performance measures as the
annual cash incentive, it
introduces a retention
element through the
three-year deferral to ensure
that critical executive and
professional skills are retained
and that there is congruence
between the interests of
executive and managerial
employees and shareholders.
The award value varies
according to the level of
seniority of the executive or
manager and is determined
according to the achievement
of the same performance
targets which apply to the
annual cash incentive.
The maximum award does not
exceed 33% of the total
remuneration cost in any
instance, except for executive
directors’ awards which are
capped at a maximum of
41,25% of their total
remuneration cost.
To encourage the holding of
shares within the company, an
enhancement of 10% is given
to employees who elect to
receive the award in shares.
Alignment between
shareholder and employee
interests has been successful
as most eligible employees
have historically elected to
receive the value of the award
in Aspen shares (2017: 96%,
2016: 97% and 2015: 99%).
Long-term
component of the
scheme
The Aspen South African
Management Deferred
Incentive Bonus Scheme is
aimed at the retention of a
limited number of key senior
executives.
Vesting
Awards are deferred for three
years, and eligible employees
are given the choice at the
date of the award to receive
the deferred bonus in cash or
Aspen shares.
To the extent that an
employee elects to receive
shares pursuant to the award,
share awards are acquired
and held by the Aspen Share
Incentive Trust (in respect of
awards made up until 2015)
and an unrelated intermediary
(in respect of awards made
from 2016 onwards ) to enable
Aspen to settle its future
obligation to participating
employees upon vesting. No
shares are issued in terms of
this scheme and it has no
dilutive effect.
Should the employee retire
within the three-year period,
the vesting of the awards will
be accelerated to the date of
retirement.
Employees who resign or who
are dismissed for any reason
other than retirement,
retrenchment or medical
incapacity forfeit unvested
awards.
The value of the awards
granted to employees in terms
of this component of the
scheme is on an ad hoc basis
and at the discretion of the
R&N Co.
These awards vest after a
period of 10 years and may
only be settled in shares.
Awards made in terms of this
component of the scheme will
not be accelerated in the
event that a recipient retires
within the 10-year period and
before the age of 65, unless
the express approval of the
R&N Co has been obtained for
such acceleration.
54
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Notes to the Group Annual Financial Statements continued
for the year ended 30 June 2017
12.
Share-based compensation reserve continued
Summary of schemes continued
The Aspen International Phantom Share Scheme
Medium-term
component of the
scheme
Nature and purpose of
the scheme
Determination of
value of awards
Vesting
In order to incentivise the
management of Aspen’s
non-South African businesses
in the medium term, a
phantom share scheme exists
for selected employees.
Awards are linked to
performance of the employee,
the business and growth in
the Aspen share price.
The phantom shares entitle
eligible employees to receive
a cash amount which is linked
to the Aspen share price.
The value of awards that can
be awarded annually in terms
of this component of the
scheme is capped, with this
cap varying according to the
level of seniority of the
executive or manager and
territory of employment.
Awards vest after a period of
three years and are paid out in
cash to the employee by the
Aspen business employing
him or her.
The scheme has been
designed to incentivise
managers for the medium
term, align their goals with
those of the Aspen Group
and to match their reward to
movements in the Aspen
share price.
Due to regulatory restrictions
in respect of transfer and
ownership of Aspen shares
to offshore employees, the
scheme is operated on a
phantom basis, which is
designed to give an employee
the same economic benefit as
ownership of shares.
Long-term
component of the
scheme
The Aspen International
Phantom Share Scheme is
aimed at ensuring the
retention of a limited number
of key offshore senior
executives.
Should the employee retire
within the three-year period,
the medium-term incentive
will be accelerated to the date
of retirement.
Employees who resign or who
are dismissed for any reason
other than retirement,
retrenchment or medical
incapacity forfeit unvested
awards.
The value of the awards
granted to employees in terms
of this component of the
scheme is on an ad hoc basis
and are determined at the
discretion of the R&N Co.
These awards vest after a
period of 10 years and are
settled in cash. Awards made
in terms of this component of
the scheme will not be
accelerated in the event that a
recipient retires within the
10-year period and before the
age of 65, unless the express
approval of the R&N Co has
been obtained for such
acceleration.
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
12.
55
Share-based compensation reserve continued
Reconciliation of schemes
Aspen South African Management Deferred Incentive Bonus Scheme
Award
price
(R)
264,13
338,44
300,62
326,70
305,86
Shares
outstanding
on 30 June
2016
Expiry date
‘000#
Oct 2016
Oct 2017
Oct 2018
May 2026
Oct 2019
Awarded
during
the year
‘000
Released
during the
year
‘000
88
72
114
214
–
–
–
–
–
105
88
2
2
–
1
488
105^
93
Shares
outstanding
on 30 June
2017
‘000#
Fair value
at award
date
R
Share price
at award
date
R
–
5
8
–
–
–
65
104
214
104
224,50
290,90
365,00
365,00
373,26
262,50
336,50
286,51
317,50
310,00
13
487
Lapsed/
cancelled
during the
year
‘000*
The fair value was determined by reference to the share price on the award date.
The total number of shares were not vested at 30 June 2017 and 30 June 2016.
* Lapsed or cancelled shares, held by the Aspen Share Incentive Scheme Trust, are re-allocated to future grants.
^D
uring the year the Group bought 105 927 shares (2016: 331 348 shares) that will be held in the respective Aspen Group employee company until
vesting date. These shares are accounted for as treasury shares in the Group Annual Financial Statements.
#
Aspen International Phantom Share Scheme
#
Award
price
(R)
Expiry date
236,67
326,84
299,44
326,70
316,00
Oct 2016
Oct 2017
Oct 2018
May 2026
Oct 2019
Phantom
shares
outstanding on
30 June 2016
‘000#
Phantom
shares
outstanding
on 30 June
2017
‘000#
Awarded
during
the year
‘000
Exercised
during
the year
‘000
Lapsed/
cancelled
during the
year
‘000
45
65
96
48
–
–
–
–
–
95
45
5
4
–
–
–
–
–
–
–
–
60
92
48
95
254
95
54
–
295
The total number of shares were not vested at 30 June 2017 or 30 June 2016.
The fair value was determined by reference to the share price on the grant date. The closing share price on measurement date was
R287,10 (2016: R362,28).
The liability included in trade and other payables on the statement of financial position relating to the Aspen International Phantom
Share Scheme is R65,7 million (2016: R79,6 million).
56
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Notes to the Group Annual Financial Statements continued
for the year ended 30 June 2017
13.
Borrowings
Accounting policy
Recognition and measurement
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at
amortised cost using the effective interest rate method, any difference between the proceeds (net of transaction costs) and the
redemption value is recognised in the statement of comprehensive income over the period of the borrowings.
Fees paid on the establishment of selected loan facilities are recognised as transaction costs of the loan to the extent that it is
probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the
extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a
prepayment against the loan for liquidity services and amortised over the period of the facility to which it relates.
The Group presents separately current and non-current borrowings on the face of the statement of financial position. A liability
is classified as current unless the Group has an unconditional right to defer settlement of the liability for at least 12 months
after year end.
General and specific borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying
asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale.
Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended use or sale. All
other borrowing costs are expensed in the statement of comprehensive income in the period in which they are incurred.
Financial liabilities at amortised cost
Borrowings are classified as “Liabilities at amortised cost” in terms of IAS 39 – Financial Instruments: Recognition and
Measurement. Financial liabilities are recognised on the transaction date when the Group becomes a party to the contract and
thus has a contractual obligation and are derecognised when these contractual obligations are discharged, cancelled or
expired.
Currency analysis and maturity profile of total borrowings
2017
Between
1 – 5 years
R’billion
3,5
Within
1 year
R’billion
Bank overdrafts
Rand
Unsecured loans
(1) Euro syndicated term loan
Euro – other
Euro – capital raising fees
US Dollar – other
(2) Australian Dollar syndicated
revolving loan
(3) Rand syndicated term loan
(4) Rand – other
Total borrowings
2016
Total
R’billion
Within
1 year
R’billion
Between
1 – 5 years
R’billion
Total
R’billion
–
3,5
3,0
–
3,0
3,5
–
3,5
3,0
–
3,0
11,6
0,3
(0,1)
–
19,4
–
(0,1)
–
31,0
0,3
(0,2)
–
–
0,2
–
2,6
23,5
–
(0,3)
–
23,5
0,2
(0,3)
2,6
–
–
3,6
4,0
5,6
–
4,0
5,6
3,6
–
–
5,1
4,5
5,0
–
4,5
5,0
5,1
15,4
28,9
44,3
7,9
32,7
40,6
18,9
28,9
47,8
10,9
32,7
43,6
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
13.
57
Borrowings continued
Currency analysis and maturity profile of total borrowings continued
(1)
Euro syndicated term loan
The loan
comprises
Amount
EUR’billion
Date obtained
Term
Interest terms
Facility A1 loan
0,8
June 2016
Two years repayable
June 2018
Three-month EURIBOR +
margin of 2,0% repayable quarterly
Facility A2 loan
0,3
June 2016
Two years repayable
August 2018
Three-month EURIBOR +
margin of 2,0% repayable quarterly
Facility B1 loan
0,3
June 2016
Three years repayable
June 2019
Three-month EURIBOR +
margin of 2,2% repayable quarterly
Facility B2 loan
0,1
June 2016
Three years repayable
August 2019
Three-month EURIBOR +
margin of 2,2% repayable quarterly
Facility C1 loan
0,4
June 2016
Four years repayable
June 2020
Three-month EURIBOR +
margin of 2,4% repayable quarterly
Facility C2 loan
0,2
June 2016
Four years repayable
June 2020
Three-month EURIBOR +
margin of 2,4% repayable quarterly
The repayment profile is set out below:
(2)
Facility
A1 loan
EUR’billion
Facility
A2 loan
EUR’billion
Facility
B1 loan
EUR’billion
Facility
B2 loan
EUR’billion
Facility
C1 loan
EUR’billion
Facility
C2 loan
EUR’billion
Total
EUR’billion
Year ending
30 June 2018
0,8
–
–
–
–
–
0,8
Year ending
30 June 2019
–
0,3
0,3
–
–
–
0,6
Year ending
30 June 2020
–
–
–
0,1
0,4
0,2
0,7
0,8
0,3
0,3
0,1
0,4
0,2
2,1
Australian Dollar syndicated revolving loan
The loan
comprises
Amount
AUD’billion
Date obtained
Term
Interest terms
0,4
June 2016
Four years repayable
June 2020
Three-month BBSY +
margin of 2,0% repayable quarterly
Amount
R’billion
Date obtained
Term
Interest terms
Facility D loan
Pharmacare
3,0
June 2016
Three years repayable
June 2019
Three-month JIBAR +
margin of 1,9% repayable quarterly
Revolving facility E
loan – Pharmacare
0,6
June 2016
Four years repayable
June 2020
Three-month JIBAR +
margin of 1,9%
Facility F loan –
Pharmacare
1,7
June 2016
Five years repayable
June 2021
Three-month JIBAR +
margin of 2,2% repayable quarterly
Facility F loan –
Aspen Holdings
0,3
June 2016
Five years repayable
June 2021
Three-month JIBAR +
margin of 2,2% repayable quarterly
Facility G loan
(3)
Rand syndicated term loan
The loan
comprises
58
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Notes to the Group Annual Financial Statements continued
for the year ended 30 June 2017
13.
Borrowings continued
Currency analysis and maturity profile of total borrowings continued
(3)
Rand syndicated term loan continued
The repayment profile is set out below:
(4)
Facility D loan
– Pharmacare
R’billion
Facility E loan
– Pharmacare
R’billion
Facility F loan
Facility F loan
– Pharmacare – Aspen Holdings
R’billion
R’billion
Year ending
30 June 2019
3,0
–
–
–
3,0
Year ending
30 June 2020
–
0,6
–
–
0,6
Year ending
30 June 2021
–
–
1,7
0,3
2,0
3,0
0,6
1,7
0,3
5,6
Total
R’billion
Rand – other
The loan
comprises
Amount
R’billion
Date obtained
Term
Interest terms
Various term loans
1,4
Various
Ranging between
three and six months
SAFEX +
margin of 1,4%
Various term loans
1,2
Various
Ranging between
three and six months
Three-month JIBAR + margins
ranging between 1,4%
and 1,5% repayable quarterly
Various overnight
loans
0,4
Various
On demand
Overnight call rates ranging
between 8,0% and 8,3%
Various overnight
loans
0,6
Various
On demand
South African prime overdraft
rate less rates ranging between
1,0% and 2,7%
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
13.
59
Borrowings continued
(4)
Rand – other continued
Interest rate profile of total borrowings
2017
Interest
rate
%
Total
R’billion
Bank overdrafts –
floating rate
(linked to South
African prime
overdraft rate)
Unsecured loans
– floating rate
Linked to threemonth LIBOR
Linked to threemonth BBSY
Linked to SAFEX
Linked to threemonth JIBAR
Linked to South
African prime
overdraft rate
Linked to overnight
call rate
Linked to threemonth EURIBOR
Capital raising fees#
Total borrowings
#
3,5
2016
Average
effective
interest
rate
%
Total
R’billion
7,5
3,0
Rates ranging
between prime and
prime less 3,0
44,3
Interest
rate
%
Average
effective
interest
rate
%
Rates ranging
between prime and
prime less 3,0
6,9
+ margins ranging
between +1,0 and 1,7
+ margin of 2,0
2,1
+ margins ranging
between 1,1 and 1,4
+ margins ranging
between 1,0 and 2,2
Less margins ranging
between 1,0 and 2,7
7,6
Overnight call rates
ranging between
7,7 and 9,0
+ margins ranging
between 1,0 and 2,4
–
7,4
40,8
–
–
–
2,6
4,0
+ margin of 2,0
3,8
4,5
1,4
+ margin of 1,4
8,2
1,4
8,5
6,7
7,9
0,5
8,0
1,5
2,1
23,7
–
(0,3)
6,8
+ margins ranging
between 1,9 and 2,2
0,6
Less margins
ranging between
1,0 and 2,7
0,4 Overnight call rates
ranging between
8,0 and 8,3
31,3
+ margins ranging
between 1,0 and 2,4
(0,2)
–
47,8
4,8
8,4
7,0
2,1
–
43,6
Capital raising fees relate to the unsecured loans above but have been shown separately as they are non-interest bearing.
Definitions
➜➜JIBAR – Johannesburg Inter-bank Acceptance Rate
➜➜SAFEX – South African Futures Exchange
➜➜EURIBOR – Euro Inter-bank Offer Rate
➜➜LIBOR – London Inter-bank Offer Rate
➜➜BBSY – Bank Bill Swap Yield
Other disclosures
Default and breaches
There were no defaults or breaches of the contractual terms of the borrowings during the year.
The Group had the following undrawn borrowing facilities at year end:
➜➜South African facilities of R4,1 billion;
➜➜a Euro denominated facility of EUR0,4 billion; and
➜➜an Australian Dollar denominated facility of AUD45,0 million.
These facilities may only be drawn to the extent that any banking covenants are not likely to be breached for the ensuing
12-month period.
All facilities negotiated are reviewed annually.
60
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Notes to the Group Annual Financial Statements continued
for the year ended 30 June 2017
14.
Other non-current liabilities
Accounting policy
Recognition and measurement
Other non-current financial liabilities
Other non-current financial liabilities are recognised initially at fair value and expected future payments are discounted to
present value using an appropriate market-related discount rate. The liabilities are subsequently measured at amortised cost
using the effective interest rate method. The amount expected to be settled within 12 months from year-end date is shown as
current and the amounts expected to be settled 12 months after year-end date is shown as non-current on the statement of
financial position.
The difference between the total capital repayments and the present value of the liabilities will be released to financing costs in
the statement of comprehensive income over the terms on the liabilities.
Deferred revenue
The Group recognises, as deferred revenue, contributions by third parties to the cost of specific capital expenditure projects as
well as the rights for the commercialisation of selected Aspen products to GSK. Deferred revenue is recognised at the fair value
of the consideration received in advance. Upon completion of a relevant capital expenditure project the related deferred
revenue is released to the statement of comprehensive income over the remaining term of the supply contract with the
contributing third party. The commercialisation rights will be released to the statement of comprehensive income over the term
of the contract. The amount expected to be realised within 12 months from year-end date is shown as current and the amounts
expected to be realised 12 months after year-end date is shown as non-current on the statement of financial position.
Environmental liabilities
Environmental liabilities are recognised when the Group has a legal or a constructive obligation, as a result of a past event, and
it is probable that there may be an outflow of resources embodying economic benefits to settle the obligation and the
obligation can be measured reliably.
Financial liabilities
Other non-current financial liabilities are classified as “Liabilities at amortised cost” in terms of IAS 39 – Financial Instruments:
Recognition and Measurement. Financial liabilities are recognised on the transaction date when the group becomes a party to
the contract and thus has a contractual obligation and are derecognised when these contractual obligations are discharged,
cancelled or expired.
Summary of balance
Other non-current financial liabilities
Deferred revenue
Environmental liabilities
Notes
2017
R’billion
2016
R’billion
14.1
14.2
14.3
4,4
–
0,1
2,3
0,1
0,1
4,5
2,5
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
14.
61
Other non-current liabilities continued
14.1
Other non-current financial liabilities
Reconciliation of balance
Balance at the beginning of the year
HPC business
AstraZeneca Anaesthetics Portfolio
GSK Anaesthetics Portfolio
Repayments
Notional interest
Currency translation movements
Split of balance
Non-current
Current
Split of balance
10-year interest-free loan
Deferred consideration payable to AstraZeneca
Deferred consideration payable to GSK
Deferred consideration payable to MSD
Deferred consideration payable to McGuff
2017
R’billion
2016
R’billion
2,5
–
5,0
1,5
(0,2)
0,3
(0,3)
2,1
0,2
–
–
(0,2)
0,2
0,2
8,8
2,5
4,4
4,4
2,3
0,2
8,8
2,5
1,8
4,7
1,7
0,4
0,2
1,8
–
–
0,6
0,2
8,8
2,7
10-year interest-free loan
As part of a historical business combination, Aspen acquired inventories to the value of R3,3 billion, a portion of which was
funded by way of a 10-year interest-free loan from MSD. The discount rate used in valuing this loan was 8%. This loan was
obtained in October 2013 and is repayable at the end of the 10-year period.
Deferred consideration payable to AstraZeneca
As part of the anaesthetics business combination in the current year, Aspen Global concluded a transaction with
AstraZeneca in terms of which they 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.
In order for these amounts to not be payable, sales would need to be 15% lower than expected at the time of the
acquisition.
After year end USD150 million became payable as sales targets for the first 12 months were reached.
The discount rate used in present valuing the deferred consideration was 3,5%.
The repayment profile is set out below:
Year ending 30 June 2018
Year ending 30 June 2019
2017
USD’million
2016
USD’million
260,0
100,0
–
–
360,0
–
Deferred consideration payable to GSK
As part of the anaesthetics business combination in the current year, Aspen Global concluded a transaction with GSK in
terms of which they paid GBP180 million with further potential milestone payments of up to GBP100 million based on the
gross profitability of the acquired portfolio in the 36 months following completion. Based on the expected performance of
the acquired portfolio over the 36 month period, the deferred consideration recognised is 100% of the total possible
consideration. Should the gross profit of the acquired portfolio be 10% below that expected, the deferred consideration
payable would reduce to GBP77,2.
The discount rate used in present valuing the deferred consideration was 3,5%.
62
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Notes to the Group Annual Financial Statements continued
for the year ended 30 June 2017
14.
Other non-current liabilities continued
14.1
Other non-current financial liabilities continued
The repayment profile is set out below:
Year ending 30 June 2018
Year ending 30 June 2019
Year ending 30 June 2020
2017
GBP’million
2016
GBP’million
42,3
42,3
15,0
–
–
–
99,5
–
Deferred consideration payable to MSD
The total purchase consideration for the MSD business was USD600 million. In total, USD533 million of the consideration
was paid on 2 January 2014. In the current year R0,2 billion (2016: R0,2 billion) has been repaid.
The repayment profile is set out below:
Year ended 30 June 2017
Year ending 30 June 2018
Year ending 30 June 2019
2017
USD’million
2016
USD’million
–
13,5
13,5
13,5
13,5
13,5
27,0
40,5
4,0
5,0
3,0
3,0
1,0
4,0
5,0
3,0
3,0
1,0
16,0
16,0
Deferred consideration payable to McGuff
As part of the HPC business combination in the prior year, Aspen Global concluded a
transaction with McGuff in terms of which it agreed to pay milestone payments for the
HPC business. The amount is partially dependent on future sales performance.
The discount rate used in valuing the deferred consideration was 3%.
The repayment profile is set out below:
Year ending 30 June 2018
Year ending 30 June 2019
Year ending 30 June 2020
Year ending 30 June 2022
Year ending 30 June 2023
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
14.
63
Other non-current liabilities continued
14.2
Deferred revenue
Reconciliation of balance
Balance at the beginning of the year
Recognised in the statement of comprehensive income
Currency translation movements
Split of balance
Non-current
Current
Split of balance
Capital expenditure projects
Rights for the commercialisation of selected Aspen products payable to GSK
14.3
Environmental liabilities
Reconciliation of balance
Balance at the beginning and end of the year
2017
R’billion
2016
R’billion
0,5
(0,1)
(0,1)
0,4
–
0,1
0,3
0,5
–
0,3
0,1
0,4
0,3
0,5
0,3
–
0,4
0,1
0,3
0,5
0,1
0,1
The environmental liabilities relate to the estimated cost of remediating soil contamination at the Boxtel site in the
Netherlands. The remediation at Boxtel will be managed and funded by the Group and the amount of EUR5,5 million is
based on an estimate by an independent expert.
64
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Notes to the Group Annual Financial Statements continued
for the year ended 30 June 2017
15.
Unfavourable and onerous contracts
Accounting policy
Recognition and measurement
An unfavourable and onerous contract is recognised when the expected benefits to be derived by the Group from a contract
are lower than the unavoidable costs of meeting its obligations under the contract. The Group has entered into binding legal
agreements for the supply of products to vendors at below market value and/or cost to manufacture. The estimated costs
required to settle the obligation are discounted to present value using appropriate market-related discount rates.
An unfavourable contract is principally based on the difference between the market price and the contract selling price.
Certain supply contracts for the third-party manufacture of products in Aspen Oss and in Aspen NDB have been classified as
either unfavourable or onerous. These liabilities will be released to revenue over the term of the contracts in terms of IAS 18 –
Revenue.
Reconciliation of balance
2017
R’billion
Balance at the beginning of the year
Release to the statement of comprehensive income
Currency translation movements
Split of balance
Non-current
Current
2016
R’billion
2,6
(0,3)
(0,4)
2,4
(0,4)
0,6
1,9
2,6
1,6
0,3
2,2
0,4
1,9
2,6
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
16.
65
Retirement and other employee benefit obligations
Accounting policy
Pension benefits
The Group operates or contributes to defined contribution plans and defined benefit plans for its employees in certain countries
in which it operates.
Defined contribution plans – pension
A defined contribution plan is a provident fund under which the Group pays fixed contributions into a separate entity (a fund)
and will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all
employees relating to employee service in the current and prior financial years. For defined contribution plans, the Group pays
contributions to publicly or privately held pension insurance plans on a mandatory, contractual or voluntary basis. Once the
contributions have been paid, the Group has no further payment obligations. The payments made to provident funds are
expensed as incurred and are included in staff costs. Refer to notes 22 and 18 of the Group Annual Financial Statements.
Defined benefit plans – pension
A defined benefit plan is a pension plan that is not a defined contribution plan. It defines the amount of pension benefits that
an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and
compensation.
The Group’s net obligation in respect of defined benefit pension plans is actuarially calculated separately for each plan by
deducting the fair value of plan assets from the present value of the gross obligation for retirement benefit obligations. The
gross obligation is determined by estimating the future benefit attributable to employees in return for services rendered to date.
This future benefit is discounted to determine its present value, using discount rates based on government bonds, that have
maturity dates approximating the terms of the Group’s obligations and which are denominated in the currency in which the
benefits are expected to be paid. Independent actuaries perform the calculation annually using the projected unit credit
method.
Past service costs are recognised immediately in the statement of comprehensive income.
Actuarial gains and losses arising from experience adjustments and changes to actuarial assumptions are recognised in other
comprehensive income as remeasurements in the period in which they arise.
Other non-current employee benefits
Some Group companies provide other non-current benefits to their employees. The entitlement to these benefits is usually
conditional on the employee remaining in service up to a given age or the completion of a minimum service period. The
expected costs of these benefits are accrued over the period of employment using the same accounting methodology as used
for defined benefit pension plans. Actuarial gains and losses arising from experience adjustments and changes in actuarial
assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. These
obligations are valued annually by independent qualified actuaries.
Defined benefit plans – post-retirement medical aid obligations
In terms of Group policy, post-retirement medical aid benefits are not provided for any employees, with the exception of certain
South African employees who joined the Group before 28 February 2000. The Group has honoured its contractual commitment
in respect of post-retirement medical aid obligations to these employees and pensioners employed before the change in policy.
The present value of the expected future post-retirement medical aid obligation is quantified to the extent that service has been
rendered, and is reflected on the statement of financial position as a liability. Valuations of these obligations are carried out by
independent actuaries on an annual basis using the projected unit credit method. Post-retirement medical aid obligations are
accounted for using the same accounting methodologies as described for the defined benefit plans – pension.
66
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Notes to the Group Annual Financial Statements continued
for the year ended 30 June 2017
16.
Retirement and other employee benefit obligations continued
The Group operates or contributes to defined contribution plans, defined benefit plans and other long-term plans in certain
countries in which it operates.
Defined contribution plans
Contributions by the Group and in some cases the employees are made to funds set up in South Africa, Australia, Malaysia, Taiwan,
Ireland, the Netherlands, Brazil, Tanzania, Kenya and Uganda while no contributions are made to plans established in other
geographic areas.
Total contributions paid to the various funds by the Group amounted to R0,4 billion for the current financial year (2016: R0,3 billion).
The Group has no further payment obligations once the contributions have been paid. The payments made are expensed as
incurred in the statement of comprehensive income and are included in staff costs.
Defined benefit plans
Contributions by the Group and in some cases by the employees are made for funds set up in South Africa, Germany, the
Philippines, Mexico, France, Tanzania and Kenya while no contributions are made for plans established in other geographic areas.
Provisions for pension and medical aid obligations are established for benefits payable in the form of retirement, disability,
surviving dependent pensions and medical benefits. The benefits offered vary according to the legal, fiscal and economic
conditions of each country.
Long-term employee benefits
Contributions by the Group are made to funds set up in Germany and France while no contributions are made to plans established
in other geographic areas.
Principal actuarial assumptions
Last
actuarial
valuation
done
Full/
interim
valuation
Valuation
method
adopted
Discount rate
Medical
inflation rate
2,0% (2016: 1,4%)
Salary
increase
rate
France
June 2017
Full
Projected unit credit
N/A
2,0% (2016: 2,0%)
Germany
Kenya
Mexico
The Philippines
South Africa
Tanzania
June 2017
June 2017
June 2017
June 2017
June 2017
June 2017
Full
Full
Full
Full
Full
Full
Projected unit credit
1,8% (2016: 1,8%)
N/A
Projected unit credit 12,5% (2016: 14,3%)
N/A
Projected unit credit
7,4% (2016: 6,6%)
N/A
Projected unit credit
5,3% (2016: 4,8%)
N/A
Projected unit credit
9,8% (2016: 9,9%) 8,5% (2016: 8,8%)
Projected unit credit 18,9% (2016: 18,9%)
N/A
2,5% (2016: 3,0%)
12,0% (2016: 12,0%)
5,0% (2016: 5,0%)
6,0% (2016: 7,0%)
N/A
9,0% (2016: 9,0%)
These plans have been assessed by independent qualified actuaries and have been found to be in a sound financial position.
Weighted average assumptions used in performing actuarial valuations determined in consultation with independent actuaries.
Assumptions regarding future mortality experience are set out based on advice, published statistics and experience in each
territory.
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
16.
67
Retirement and other employee benefit obligations continued
2017
R’billion
Amounts recognised in the statement of financial position
Present value of retirement and other employee benefit obligations
Deferred tax
2016
R’billion
0,6*
(0,1)
0,7*
(0,1)
0,5
0,6
* Included in this amount is an obligation of R0,2 billion (2016: R0,2 billion) for which the Group has a reimbursive right. Refer to note 6.1 for more
detail.
Retirement and other employee benefit obligations comprise
Unfunded present value of retirement and other employee benefit obligations
Fair value of plan assets
The movement in the liability recognised in the statement of financial position is
as follows:
At the beginning of the year
Current service costs (included in staff costs – cost of sales)
Remeasurements recognised in other comprehensive income – actuarial losses from changes
in financial assumptions
Currency translation movements
0,7
(0,1)
0,8
(0,1)
0,6
0,7
0,8
–
0,4
0,1
–
(0,1)
0,1
0,2
0,7
0,8
Fair value of plan assets
The fair value of plan assets of R0,1 billion (2016: R0,1 billion) are invested in European government bonds.
The pension fund assets are measured at fair value at valuation date. The fair value of cash and other assets has been determined
by performing market valuations and other valuation techniques at the end of each reporting period.
Sensitivity analysis
The effect of a 1% change in the assumed discount rate, medical inflation rate and salary increase rate would not have a significant
effect on the amounts reported for retirement and other employee benefit obligations.
Five-year summary
At 30 June
Present value of retirement and other
employee benefit obligations
Fair value of plan assets
Deficit
2017
R’billion
2016
R’billion
2015
R’billion
2014
R’billion
2013
R’billion
0,7
(0,1)
0,8
(0,1)
0,5
(0,1)
0,6
(0,1)
0,2
(0,1)
0,6
0,7
0,4
0,5
0,1
Key risks associated with retirement and other employee benefit obligations
(1) Inflation risk: the risk that future inflation is higher than expected.
(2) Medical inflation risk: the risk that future contributions to the medical aid scheme increase faster than assumed.
(3) Longevity: the risk that continuation members live longer than expected and hence the subsidy is payable for longer than
expected.
(4) Investment risk: the risk that the return earned by the assets is lower than expected and hence the assets are insufficient.
(5) Salary risk: the risk that future salaries are higher than expected.
68
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Notes to the Group Annual Financial Statements continued
for the year ended 30 June 2017
17.
Trade and other payables
Accounting policy
Recognition and measurement
Trade and other payables are recognised when the Group has a legal or a constructive obligation, as a result of a past event,
and it is probable that there may be an outflow of resources embodying economic benefits to settle the obligation and the
obligation can be measured reliably.
Financial liabilities
Financial instruments related to trade and other payables are classified as “Liabilities at amortised cost” in terms of IAS 39 –
Financial Instruments: Recognition and Measurement. Financial liabilities are recognised on the transaction date when the
Group becomes a party to the contract and thus has a contractual obligation and are derecognised when these contractual
obligations are discharged, cancelled or expired.
Summary of balance
Trade payables
Accrued expenses
Indirect taxes
Leave pay
Bonuses
HPC business
Other
Split of balance
Financial liabilities
Non-financial liabilities
2017
R’billion
2016
R’billion
5,2
1,7
0,6
0,4
0,2
–
2,2
3,5
1,7
0,3
0,4
0,2
0,2
2,0
10,3
8,3
7,8
2,5
6,2
2,1
10,3
8,3
2017
R’billion
2016
R’billion
0,7
3,0
0,2
0,3
1,3
1,7
0,6
0,6
2,1
0,1
0,2
1,4
1,4
0,4
7,8
6,2
Other disclosures
Currency analysis of trade and other payables (financial instruments only)
Australian Dollar
Euro
Mexican Peso
Pound Sterling
South African Rand
US Dollar
Other currencies
All trade and other payables are predominantly non-interest bearing.
No individual vendor represents more than 10% of the Group’s trade payables.
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
18.
69
Other current liabilities
Accounting policy
Financial liabilities at amortised cost
This category of financial liabilities comprises other financial liabilities and deferred payables. These financial liabilities are
initially recognised at fair value plus transaction costs, and are subsequently measured at amortised cost using the effective
interest rate method.
Split of balance
Current tax liabilities
Deferred revenue
Other current financial liabilities
Deferred payables
18.1
Deferred payables
Reconciliation of balance
Balance at the beginning of the year
Repayments
Currency translation movements
Notes
2017
R’billion
2016
R’billion
14.2
14.1
18.1
0,6
0,3
4,4
–
0,9
0,4
0,2
–
5,3
1,5
–
–
–
0,4
(0,5)
0,1
–
–
As part the GSK Thrombosis business combination, AGI concluded a transaction with MSD by which they agreed to pay
a deferred consideration for Arixtra. The total amount was repaid in the prior year.
70
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Notes to the Group Annual Financial Statements continued
for the year ended 30 June 2017
19.
Revenue
Accounting policy
Recognition and measurement
Revenue comprises the fair value of the consideration received or receivable for the sale of goods in the ordinary course of the
Group’s activities. Revenue, net of trade discounts, distribution fees paid to independent wholesalers and excluding value added
tax, comprises the total invoice value of goods, co-marketing fees and royalties. In the determination of revenue, all intra-group
transactions are excluded.
Sales are recorded when significant risks and rewards of ownership of the goods are transferred to the buyer based on the date
goods are delivered to customers, the amount of revenue can be measured reliably and it is probable that future economic
benefits will flow to the entity. Revenue arising from co-marketing and royalty agreements is recognised on the accrual basis in
accordance with the substance of the relevant agreements.
Summary of balance
Sale of goods
Co-marketing fees
Unfavourable and onerous contracts release (refer to note 15)
20.
2017
R’billion
2016
R’billion
40,8
0,1
0,3
35,0
0,2
0,4
41,2
35,6
–
1,6
0,1
1,5
0,4
0,8
0,3
0,1
0,1
0,5
0,1
0,4
0,3
0,2
0,1
1,6
0,9
0,7
–
–
–
0,5
0,1
0,3
0,3
–
Operating profit
Operating profit has been arrived at after crediting
Profit on the sale of assets classified as held-for-sale
After charging
Auditors’ remuneration
Net impairment charges
Impairment of intangible assets (included in other operating expenses)
Impairment charge – inventories (included in cost of sales)
Impairment of property, plant and equipment (included in other operating expenses)
Loss on the sale of subsidiary
Loss on the sale of intangible assets
Repairs and maintenance expenditure on property, plant and equipment
Operating lease rentals – land and buildings
Restructuring costs
Transaction costs
Product litigation costs
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
21.
71
Expenses by nature
Cost of sales
R’billion
2017
Cost of material and production-related
variances
Personnel costs and other staff-related
costs
Depreciation and amortisation
Advertising and marketing expenses
Transport and warehousing costs
Impairment charges
Legal and consulting fees
Property costs
Repairs and maintenance expenditure
on property, plant and equipment
Transaction costs
Restructuring costs
Product litigation costs
Other
2016
Cost of material and production-related
variances
Personnel costs and other staff-related
costs
Depreciation and amortisation
Advertising and marketing expenses
Transport and warehousing costs
Impairment charges
Legal and consulting fees
Property costs
Repairs and maintenance expenditure
on property, plant and equipment
Transaction costs
Restructuring costs
Other
Selling and
distribution Administrative
expenses
expenses
R’billion
R’billion
Other
operating
expenses
R’billion
Total
R’billion
14,7
–
–
–
14,7
3,7
0,5
–
0,1
0,8
0,4
0,5
2,3
0,1
1,2
1,0
–
0,2
–
1,5
0,1
–
–
–
0,3
–
–
0,6
–
–
0,7
–
–
7,5
1,3
1,2
1,1
1,5
0,9
0,5
0,5
–
–
–
0,1
–
–
–
–
1,9
–
–
–
–
0,9
–
0,3
0,4
0,3
0,4
0,5
0,3
0,4
0,2
3,1
21,3
6,7
2,8
2,4
33,2
10,4
–
–
–
10,4
4,0
0,5
–
0,1
0,7
0,4
0,5
2,3
0,1
1,2
1,0
–
0,2
–
1,3
0,1
–
–
–
0,3
–
–
0,6
–
–
0,9
–
–
7,6
1,3
1,2
1,1
1,6
0,9
0,5
0,5
–
–
0,6
–
–
–
1,2
–
–
–
0,9
–
0,3
0,3
0,1
0,5
0,3
0,3
2,8
17,7
6,0
2,6
2,2
28,5
72
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Notes to the Group Annual Financial Statements continued
for the year ended 30 June 2017
22.
Directors and employees
Accounting policy
Directors and prescribed officers’ emoluments
The directors and prescribed officers’ emoluments represent the emoluments paid to, or receivable by, directors and prescribed
officers in their capacity as director, prescribed officer or any other capacity. All amounts in respect of the financial year
reported on are presented, including bonuses not accrued for in the Group Annual Financial Statements. This disclosure is
provided in terms of the JSE Listings Requirements. A legal opinion obtained by the Company has confirmed that there are no
individuals who can be considered as prescribed officers of the Company.
2017
R’million
2016
R’million
Directors’ emoluments
Non-executive directors – fees
Roy Andersen
John Buchanan
Judy Dlamini
Kuseni Dlamini
Maureen Manyama
Chris Mortimer
Babalwa Ngonyama
David Redfern
Sindi Zilwa
0,6
0,8
–
1,0
0,6
0,4
0,5
0,3
0,7
0,6
0,8
0,4
0,7
0,5
0,3
0,1
0,3
0,5
Total (A)
4,9
4,2
Executive directors
Gus Attridge
Remuneration
Retirement and medical aid benefits
Performance bonus
Share-based payment expense
Stephen Saad
Remuneration
Retirement and medical aid benefits
Performance bonus
Share-based payment expense
13,5
5,6
0,9
4,7
2,3
16,5
6,8
1,1
5,7
2,9
14,1
5,2
0,9
5,8
2,2
17,5
6,4
1,1
7,4
2,6
Total (B)
30,0
31,6
Total emoluments paid by the Company (A+B)
34,9
35,8
2017
R’billion
2016
R’billion
Staff costs
Wages and salaries
Defined contribution plan expenses
Defined benefit plan expenses
Share-based payment expense
Other Company contributions
Amount included in cost of sales
Wages and salaries
Benefits
Amount included in selling and distribution expenses
Wages and salaries
Benefits
Amount included in administrative expenses
Wages and salaries
Benefits
Total number of employees at year end
Full-time employees
Part-time employees
6,1
0,4
–
–
0,5
7,0
3,7
3,1
0,6
2,0
1,8
0,2
1,3
1,2
0,1
10 204
9 454
750
6,3
0,3
0,1
0,1
0,5
7,3
4,0
3,5
0,5
2,1
1,8
0,3
1,2
1,0
0,2
10 513
9 184
1 329
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
23.
73
Investment income
Accounting policy
Recognition and measurement
Investment income comprises interest received on bank balances and short-term deposits and is recognised as it accrues in
the statement of comprehensive income, using the effective interest method.
Interest on bank balances and short-term deposits
24.
2017
R’billion
2016
R’billion
0,3
0,3
Financing costs
Accounting policy
Recognition and measurement
Financing costs comprise interest paid on borrowings, unwinding of notional interest on discounted liabilities, changes in the
fair value of financial assets and liabilities at fair value through profit or loss, foreign exchange gains or losses and any gains or
losses on hedging instruments that are recognised in statement of comprehensive income. All borrowing costs are recognised
in the statement of comprehensive income using the effective interest method, unless the borrowing costs are directly
attributable to the acquisition, construction or production of qualifying assets, in which case the directly attributable borrowing
costs are capitalised.
2017
R’billion
Interest paid – bank overdraft and borrowings
Non-current borrowings
Bank overdrafts and current borrowings
Other
Capital raising fees released – transactions
Notional interest on financial instruments
Net foreign exchange losses
Foreign exchange gains on acquisitions
Net monetary adjustments and currency devaluations relating to hyperinflationary economies
2016
R’billion
1,9
0,2
1,6
0,1
0,1
0,3
0,2
(0,1)
–
1,8
0,8
1,0
–
0,3
0,2
–
–
0,9
2,4
3,2
Financing costs above exclude financing costs of R0,2 billion which have been capitalised during 2017 to capital work-in-progress
(2016: R0,2 billion). Refer to note 2 for detail.
74
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Notes to the Group Annual Financial Statements continued
for the year ended 30 June 2017
25.
Tax
Accounting policy
The current and deferred tax charge is computed on the basis of reported income before tax for the year under the laws and
regulations of the countries in which the respective Group companies are registered, using substantively enacted tax rates in
the countries where the Group companies operate and generate taxable income. Tax comprises current tax, deferred tax,
capital gains tax and dividend and withholding taxes.
Current tax
The current tax charge is the expected tax payable on taxable income for the year, and any adjustments to tax payable in
respect of prior years. Management periodically evaluates positions taken in tax returns with respect to situations in which
applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts
expected to be paid to the tax authorities.
Current tax is charged or credited to other comprehensive income or directly to equity if the tax relates to items that are
credited or charged, in the same or a different period, to other comprehensive income or directly to equity respectively.
Dividend and withholding taxes
Dividend withholding tax is payable by Aspen Pharmacare Holdings Limited’s shareholders on any dividend that is paid by the
Company, at the applicable rate. The amount is not attributable to the Company and is therefore not reflected in taxes paid by
the Company. If a withholding tax is payable by any Company in the Group, the withholding tax is recognised as part of the tax
charge in the statement of comprehensive income.
Significant judgements and estimates
Recognition of deferred tax assets in respect of assessed losses
Deferred tax assets have been recognised for the carry forward amount of unused tax losses relating to the Group’s operations
where, among other things, tax losses can be carried forward indefinitely and there is evidence that it is probable that sufficient
taxable profits will be available in the future to utilise all tax losses carried forward. In determining whether a business will have
future taxable profits to utilise against assessed losses, management will take into account budgets as well as updated
forecasts for future periods. Deferred tax assets are not recognised for carry forward of unused tax losses when it cannot be
demonstrated that it is probable that taxable profits will be available against which the deductible temporary difference can
be utilised.
Summary of balance
2017
R’billion
2016
R’billion
South African tax
Foreign tax
Deferred tax
0,1
1,1
(0,1)
0,9
0,9
–
Total tax charge
1,1
1,8
The Group submits its tax returns and advance payments as they fall due and, other than a few returns that only become due for
submission in December 2017, all of the 2016 tax returns have been submitted by the relevant Group company.
Disputed income tax matter
The Aspen Group was subject to an international tax and transfer pricing audit by the South African Revenue Service (“SARS”) and
Aspen Pharmacare Holdings Limited received a revised assessment in relation to its 2011 fiscal year as a consequence of this
audit. Aspen, with the assistance of its legal and tax advisers, entered into discussions with SARS, which has resulted in the
assessment being reversed by SARS on 16 October 2017.
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
25.
75
Tax continued
Reconciliation of effective tax rate
South African current tax rate
Increase in rate due to:
Disallowed expenditure
Tax losses not recognised
Withholding and other taxes
Other
Decrease in rate due to:
Prior year adjustments
Different rates of tax
Exempt income
Effective tax rate
2017
%
2016
%
28,0
28,0
5,6
1,4
0,5
–
9,7
2,6
1,5
0,4
0,1
(16,0)
(1,6)
(0,5)
(10,2)
(2,2)
18,0
29,3
The Group has tax losses which mainly arose in Argentina, Brazil, Canada, Costa Rica and Mexico of R1,1 billion (2016: R0,6 billion)
that are available indefinitely for offsetting against future taxable profits of the companies in which the losses arose. Deferred tax
assets have not been recognised in respect of these losses as the relevant businesses have been in a break-even or loss-making
position and it is not anticipated that this situation will reverse in the foreseeable future.
26.
Earnings per share
Accounting policy
Basic earnings per share
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the parent by the weighted average
number of ordinary shares in issue during the year, excluding ordinary shares purchased by a subsidiary of Aspen and held as
treasury shares.
Weighted average number of shares in issue is calculated as the number of shares in issue at the beginning of the year,
increased by shares issued during the year, weighted on a time basis for the period during which they have participated in the
profit of the Group. Shares which are held by a subsidiary company as treasury shares have been adjusted on a time basis in
determining the weighted average number of shares in issue.
Diluted earnings per share
The diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to
assume conversion of all dilutive potential ordinary shares. The Company had two categories of dilutive potential ordinary
shares, namely share options and share appreciation rights. A calculation is performed to determine the number of shares that
could have been acquired at fair value based on the monetary value of the subscription rights attached to the outstanding
share options and appreciation rights. Fair value is calculated as the average share price for the year for share options. The
closing price is used for share appreciation rights, as these are classified as contingently issuable shares in terms of IAS 33 –
Earnings Per Share. The number of shares calculated as above is compared with the number of shares that would have been
issued assuming the exercise of the share options.
The difference is added to the denominator as an issue of ordinary shares for no consideration. No dilutive adjustments have
been made to earnings.
Headline earnings per share
The calculation of headline earnings per share is based on the profit attributable to equity holders of the parent, after excluding
all items of a non-trading nature, divided by the weighted average number of ordinary shares in issue during the year. The
presentation of headline earnings is not an IFRS requirement, but is required by JSE Listings Requirements and Circular 2
of 2013.
Normalised headline earnings per share
Normalised headline earnings are headline earnings adjusted for specific non-trading items, being transaction costs and other
acquisition and disposal-related gains or losses, restructuring costs, settlement of product related litigation costs, net monetary
adjustments and currency devaluations relating to hyperinflationary economies and significant once-off tax provision charges
or credits arising from the resolution of prior year tax matters.
76
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Notes to the Group Annual Financial Statements continued
for the year ended 30 June 2017
26.
Earnings per share continued
Reconciliation of earnings
2017
R’billion
2016
R’billion
Profit attributable to equity holders of the parent
Impairment of property, plant and equipment
Gross amount
Tax effect
Impairment of intangible assets
Loss on the sale of intangible assets
5,1
0,2
0,3
(0,1)
0,4
0,1
4,3
–
–
–
0,9
–
Profit on sale of assets classified as held-for-sale
Loss on the sale of subsidiary
–
0,1
(1,2)
–
5,9
0,4
0,3
(0,1)
0,2
–
4,0
0,3
0,6
–
–
0,9
6,7
5,8
2017
million
2016
million
Shares
Weighted average number of shares in issue
Adjustment for share options and share appreciation rights
456,4
–
456,4
0,1
Weighted average number of shares for diluted earnings per share
456,4
456,5
2017
cents
2016
cents
1 123,4
1 299,5
1 463,2
1 123,4
1 299,5
1 463,2
945,4
889,0
1 263,7
945,2
888,8
1 263,4
Headline earnings
Restructuring costs
Transaction costs
Foreign exchange gain on acquisitions
Product litigation costs
Net monetary adjustments and currency devaluations relating to hyperinflationary economies
Normalised headline earnings*
*All adjustments to profit attributable to equity holders of the parent have been disclosed net of tax.
Performance per share
Basic earnings per share
Headline earnings per share
Normalised headline earnings per share
Diluted earnings per share
Diluted headline earnings per share
Diluted normalised headline earnings per share
27.
Cash dividend and capital distribution
Accounting policy
Ordinary dividends are only accounted for in the Annual Financial Statements in the year in which the dividends are approved
by the Board of Directors.
A dividend of 287 cents per share was declared after year end (2016: dividend of 248 cents per share).
The dividend of 287 cents per share will be accounted for in the statement of changes in equity for the year ending 30 June 2018,
in accordance with IAS 10 – Events after Balance Sheet Date. The dividend of 248,0 cents per share was declared after the year
ended 30 June 2016. This dividend has been accounted for in the statement of changes in equity for the year ended 30 June 2017,
in accordance with IAS 10 – Events after Balance Sheet Date.
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
28.
77
Financial risk management
28.1
Introduction
The Group does not trade in financial instruments, but in the ordinary course of business operations, the Group is exposed
to a variety of financial risks arising from the use of financial instruments. These risks include:
➜➜market risk (comprising interest rate risk and foreign currency risk);
➜➜liquidity risk;
➜➜credit risk; and
➜➜capital risk.
The Audit & Risk Committee is responsible for the establishment and oversight of the Group’s risk management
framework. This framework is formally documented, and stipulates the responsibilities and processes for monitoring and
managing the risks to which the Group is exposed.
The Group Treasury Committee monitors treasury relevant risks (i.e. liquidity, foreign exchange, interest rate, covenants,
counterparty, etc.) affecting the Group, on a periodic basis, and provides guidance to local management in managing these
risks. Local management is empowered, within the relevant approvals frameworks, to make decisions regarding how to
manage these risks, as well as taking ownership for the implementation of any related action. The Group Treasury
Committee reports to the Audit & Risk Committee.
Risk management and measurement relating to each of these risks is discussed under the headings below. The Group’s
objective in using derivative financial instruments for hedging purposes is to reduce the uncertainty over future cash flows
arising from foreign currency and interest rate exposures.
28.2
Financial instruments by category
The carrying value of financial instruments by category is as follows
Loans
and
receivables
R’billion
At fair value
through other
comprehensive
income
R’billion
At amortised
cost
R’billion
Total
R’billion
June 2017
Financial assets
Other non-current receivables
Available-for-sale financial assets
Trade and other receivables
Cash and cash equivalents
0,4
–
11,1
10,7
–
0,1
–
–
–
–
–
–
0,4
0,1
11,1
10,7
Total financial assets
22,2
0,1
–
22,3
Financial liabilities
Unsecured loans
Bank overdrafts
Other financial liabilities
Trade and other payables
–
–
–
–
–
–
–
–
44,3
3,5
8,8
7,8
44,3
3,5
8,8
7,8
Total financial liabilities
–
–
64,4
64,4
June 2016
Financial assets
Available-for-sale financial assets
Trade and other receivables
Cash and cash equivalents
–
9,2
10,9
0,1
–
–
–
–
–
0,1
9,2
10,9
Total financial assets
20,1
0,1
–
20,2
Financial liabilities
Unsecured loans
Bank overdrafts
Deferred payables
Other financial liabilities
Trade and other payables
–
–
–
–
–
–
–
–
–
–
40,6
3,0
2,5
2,5
6,2
40,6
3,0
2,5
2,5
6,2
Total financial liabilities
–
–
52,3
52,3
78
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Notes to the Group Annual Financial Statements continued
for the year ended 30 June 2017
28.
Financial risk management continued
28.3
Market risk management
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in
market prices. The market risks that the Group is primarily exposed to include foreign currency risk and interest rate risk.
Market risk is managed by identifying and quantifying risks on the basis of current and future expectations and ensuring
that all trading occurs within defined parameters. This involves the review and implementation of methodologies to reduce
risk exposure. The reporting on the state of the risk and risk practices to executive management is part of this process. The
processes set up to measure, monitor and mitigate these market risks are described below. There has been no change to
the Group’s exposure to market risk or the manner in which it manages and measures the risk since the previous period.
28.4
Foreign currency risk
The Group’s transactions are predominantly entered into in the respective functional currency of the individual operations.
However, the Group’s operations utilise various foreign currencies (currencies other than the operations functional
currencies) in respect of sales, purchases and borrowings and consequently the Group is exposed to exchange rate
fluctuations that have an impact on cash flows. These operations are exposed to foreign currency risk in connection with
contracted payments in currencies not in their individual functional currency. The translation of foreign operations to the
presentation currency of the Group (translation risk), as well as economic risk, is not taken into account when considering
foreign currency risk. The Aspen Board defines the Group’s appetite for economic risk.
Foreign currency risks are managed through the Group’s financing policies and selective use of forward exchange
contracts.
Forward exchange contracts are utilised to reduce foreign currency exposure arising from imports and exports. All forward
exchange contracts are supported by underlying commitments or transactions which have already occurred.
At 30 June 2017 and 2016 the Group had forward exchange contracts denominated in various currencies in respect of firm
commitments and no hedge accounting was applied.
The tables below reflects the fair values of outstanding forward exchange contracts at year end:
Foreign
amount
billion
June 2017
Imports*
Euro
US Dollar
Forward
cover value
R’billion
Marked to
market value
R’billion
0,4
0,1
0,4
0,1
0,5
0,5
–#
–#
Exports*
Australian Dollar
–#
(0,3)
(0,3)
Pound Sterling
–#
(0,2)
(0,2)
Canadian Dollar
(0,1)
(0,6)
(0,6)
US Dollar
(0,1)
(1,7)
(1,7)
Russian Ruble
(0,8)
(0,2)
(0,2)
Mexican Peso
(0,3)
(0,2)
(0,2)
(3,2)
(3,2)
0,4
0,6
1,8
0,4
0,6
1,8
2,8
2,8
(0,2)
(0,1)
(0,2)
(0,1)
(0,3)
(0,3)
June 2016
Imports*
Australian Dollar
Euro
US Dollar
Exports*
Pound Sterling
Russian Ruble
–#
–#
0,1
–#
(0,6)
* Includes forward exchange contracts that represent imports and exports being managed on a net basis.
#
Foreign amounts are less than 0,1 billion.
Definitions
Marked to market value – foreign notional amount translated at the market forward rate at 30 June.
Forward cover value – foreign notional amount translated at the contracted rate.
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
28.
79
Financial risk management continued
28.4
Foreign currency risk continued
The maturity profiles of the forward exchange contracts at year end (including those contracts for which the underlying
transactions were recorded but payment not reflected by year end) are summarised as follows
Marked to
market value
2017
2016
R’billion
R’billion
Within 3 months
Between 3 and 6 months
Between 6 and 12 months
2016
R’billion
(2,9)
–
0,2
1,7
0,7
0,1
2,7
2,5
Sensitivity analysis
The Group has used a sensitivity analysis technique that measures the estimated change to the statement of
comprehensive income of an instantaneous 10% strengthening or weakening in the Rand against all other currencies, from
the rate applicable at 30 June, for each class of financial instrument with all other variables remaining constant. This
analysis is for illustrative purposes only, as in practice, market rates rarely change in isolation.
The Group is mainly exposed to fluctuations in foreign exchange rates in respect of the Rand, US Dollar, Euro, Brazilian Real,
Mexican Peso, Chinese Yuan Renminbi, Polish Zloty, Japanese Yen, Russian Ruble, Pound Sterling and Australian Dollar. The
analysis considers the impact of changes in foreign exchange rates on the statement of comprehensive income, excluding
currency translation movements resulting from the translation of Group entities that have a functional currency different
from the presentation currency, into the Group’s presentation currency (and recognised in the foreign currency translation
reserve), which amounted to a direct debit to other comprehensive income of R3,5 billion at 30 June 2017 (2016: credit of
R5,2 billion).
The analysis has been performed on the basis of the change occurring at the start of the reporting period and assumes
that all other variables, in particular interest rates, remain constant and was performed on the same basis for 2016.
A change in the foreign exchange rates to which the Group is exposed at the reporting date would have increased/
(decreased) profit before tax by the amounts shown below.
Change in
exchange
rate
%
Denominated:Functional currency
Rand:US Dollar
Rand:Euro
US Dollar:Euro
Other exposures
10
10
10
10
Weakening in
functional currency
2017
R’billion
2016
R’billion
(0,2)
–
0,2
0,1
0,2
0,1
0,1
(0,2)
0,1
0,2
A 10% strengthening in the Rand against the above currencies at 30 June would have an equal and opposite effect on
profit before tax, on the basis that all other variables remain constant.
The following significant exchange rates against the Rand applied at year-end:
Spot rate
Euro
Australian Dollar
US Dollar
Japanese Yen
Chinese Yuan Renminbi
Mexican Peso
Brazilian Real
Pound Sterling
Russian Ruble
Polish Zloty
Average rate
2017
2016
2017
2016
14,945
10,053
13,096
0,117
1,931
0,732
3,974
17,018
0,221
3,533
16,364
10,998
14,774
0,144
2,222
0,796
4,603
19,580
0,230
3,722
14,840
10,261
13,612
0,125
1,999
0,700
4,198
17,271
0,224
3,440
16,115
10,607
14,575
0,126
2,258
0,837
3,950
21,381
0,216
3,747
80
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Notes to the Group Annual Financial Statements continued
for the year ended 30 June 2017
28.
Financial risk management continued
28.5
Interest rate risk
Exposure to interest rate risk on financial assets and liabilities is monitored on a continuous and proactive basis. The debt
of the Group is structured on a combination of floating and fixed interest rates. The benefits of fixing or capping interest
rates on the Group’s various financing activities are considered on a case-by-case and project-by-project basis, taking the
specific and overall risk profile into consideration.
At the reporting date, the interest rate profile of the Group’s interest-bearing financial instruments was as follows:
Carrying value
2016
2017
R’billion
R’billion
2016
R’billion
Variable rate instruments
Other non-current receivables
Cash and cash equivalents
Borrowings
(0,1)
(6,5)
45,6
(0,1)
(5,8)
23,8
Variable rate exposure
39,0
17,9
Fixed rate instruments
Cash and cash equivalents
Borrowings
–
2,4
(0,4)
15,2
Fixed rate exposure
2,4
14,8
Interest rate swaps
The following pay fixed rate, receive floating rate interest rate derivative contracts (“IRS”) were in place as at 30 June 2017:
Outstanding
contract
amount
R’billion
Fixed
interest rate
%
Expiry
date
0,8
6,3 (three-month JIBAR)
29 September 2017
Rand syndicated term loan – Facility C loan
– Pharmacare
Rand syndicated term loan – Facility B loan
– Aspen Holdings
Rand syndicated term loan – Facility D loan
– Pharmacare
0,3
6,3 (three-month JIBAR)
29 September 2017
1,0
7,7 (three-month JIBAR)
31 December 2018
Rand syndicated term loan – Facility F loan
– Aspen Holdings
0,3
7,8 (three-month JIBAR)
28 June 2017
With respect to the IRS related to the Facility B and C syndicated term loan, the interest rate swaps were designated in a
cash flow hedge relationship up to 30 June 2017, on which date the hedged items were refinanced. The nature of the risks
that were hedged (interest rate risk) was the variability of the quarterly interest payments on the hedged items, attributable
to movements in the three-month JIBAR rate. Gains and losses recognised in the hedging reserve in equity at 30 June 2017
were released to the statement of comprehensive income as interest (finance costs) as the hedged items were no longer
in existence. All remeasurements for the remaining term of the swaps will be recognised directly in the statement of
comprehensive income.
With respect to the IRS related to the Facility D and F syndicated term loan, the interest rate swaps were designated in a
cash flow hedge relationship. The nature of the risks that were hedged (interest rate risk) was the variability of the quarterly
interest payments on the hedged items, attributable to movements in the three-month JIBAR rate. Gains and losses
recognised in the hedging reserve in equity at 30 June 2017 will be continuously released to the statement of
comprehensive income as interest (finance costs) on the loans are recognised in the statement of comprehensive income.
The maturity profile of the gross contract amounts at 30 June 2017 are between one and five years.
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
28.
81
Financial risk management continued
28.5
Interest rate risk continued
Sensitivity analysis
An increase of 100 basis points in each of the individual interest rate categories at 30 June would have decreased profit
before tax by the following:
Three-month EURIBOR
Three-month LIBOR
Three-month JIBAR, BBSY, SAFEX and South African prime overdraft rate
2016
2017
R’billion
R’billion
2016
R’billion
0,3
–
0,1
–
0,2
0,1
0,4
0,3
A decrease of 100 basis points will have an equal and opposite effect on profit before tax.
Changes in market interest rates also affected equity (hedging reserve) through the impact of such changes on the fair
values of the interest rate swaps designated in effective hedge relationships and the extent of the hedge effectiveness. The
analysis assumes that all other variables, in particular foreign currency rates, remained constant.
An increase of 1% in the JIBAR yield curve at 30 June 2017 would result in a decrease of R29,0 million (2016: R10,8 million)
in the fair value of the derivative liabilities in the statement of comprehensive income. A decrease of 1% in the yield curve
will have an equal and opposite effect on the derivative liabilities in the statement of comprehensive income.
28.6
Liquidity risk
Liquidity risk is the risk that an entity in the Group will not be able to meet its obligations as they become due. The Group
manages liquidity risk by effectively managing its working capital, capital expenditure and cash flows. The Group finances
its operations through a mixture of retained earnings, short-term and long-term bank funding. Adequate banking facilities
and reserve borrowing capacities are maintained. The Group has sufficient undrawn borrowing facilities, which could be
utilised to settle obligations. Refer to note 13 for detail.
The Group manages liquidity risk through forecasting and monitoring cash flow requirements on a daily basis.
The following are the undiscounted contractual maturities of financial assets and liabilities:
On demand
R’billion
2017
Financial assets
Available for sale financial
assets
Other non-current financial
receivables
Trade and other receivables
(financial instruments only)
Forward exchange contracts
(gross settled)*
Gross cash inflows
Gross cash outflows
Cash and cash equivalents
Total financial assets
Financial liabilities
Unsecured loans
Bank overdrafts
Trade and other pay (financial
instruments only)
Other non-current and current
liabilities
Forward exchange contracts
(gross settled) *
Gross cash inflows
Gross cash outflows
Interest rate swaps (net settled)
Total financial liabilities
Net exposure
Undiscounted cash flows
< 1 year
1 – 5 years
> 5 years
R’billion
R’billion
R’billion
Total
R’billion
–
–
–
0,1
0,1
–
–
0,3
0,1
0,4
–
11,1
–
–
11,1
–
–
–
10,2
–
0,5
(0,5)
0,5
–
–
–
–
–
–
–
–
–
0,5
(0,5)
10,7
10,2
11,6
0,3
0,2
(1,2)
(3,5)
(14,8)
–
(30,9)
–
–
22,3
–
–
(46,9)
(3,5)
–
(7,8)
–
(7,8)
–
(4,6)
–
–
–
–
–
(3,2)
3,2
–
(4,7)
(27,2)
(34,9)
(0,3)
(67,1)
5,5
(15,6)
(34,6)
(0,1)
(44,8)
(4,0)
–
–
–
–
(0,3)
–
–
–
–
(8,9)
–
(3,2)
3,2
–
* For the purpose of the above table foreign currency cash inflows/(outflows) were translated into Rand using the relevant forward rates.
82
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Notes to the Group Annual Financial Statements continued
for the year ended 30 June 2017
28.
Financial risk management continued
28.6
Liquidity risk continued
Undiscounted
cash flows
On demand
R’billion
< 1 year
R’billion
1 – 5 years
R’billion
> 5 years
R’billion
Total
R’billion
–
–
–
0,1
0,1
June 2016
Financial assets
Available-for-sale financial
assets
Trade and other receivables
(financial instruments only)
Forward exchange contracts
(gross settled)*
Gross cash inflows
Gross cash outflows
Cash and cash equivalents
–
9,2
–
–
9,2
–
–
–
7,9
–
2,8
(2,8)
3,0
–
–
–
–
–
–
–
–
–
2,8
(2,8)
10,9
Total financial assets
7,9
12,2
–
0,1
20,2
(2,2)
(3,0)
(7,0)
–
(35,7)
–
–
–
(44,9)
(3,0)
–
(0,2)
(0,4)
–
(0,6)
–
(6,2)
–
–
(6,2)
–
–
–
–
(0,3)
0,3
–
–
–
–
–
–
–
(0,3)
0,3
Total financial liabilities
(5,2)
(13,4)
(36,1)
–
(54,7)
Net exposure
2,7
(1,2)
(36,1)
0,1
(34,5)
Financial liabilities
Unsecured loans
Bank overdrafts
Other non-current and current
liabilities
Trade and other payables
(financial instruments only)
Forward exchange contracts
(gross settled)*
Gross cash inflows
Gross cash outflows
* For the purpose of the above table foreign currency cash inflows/(outflows) were translated into Rand using the relevant forward rates.
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
28.
83
Financial risk management continued
28.7
Credit risk
Credit risk, or the risk of financial loss due to counterparties to financial instruments not meeting their contractual
obligations, is managed by the application of credit approvals, limits and monitoring procedures. Counterparty credit limits
are in place and are reviewed and approved by the respective subsidiary boards.
Credit risk primarily arises from trade and other receivables, other non-current receivables, derivative financial instruments
and cash and cash equivalents. The Group’s maximum exposure to credit risk is represented by the carrying amount of
these financial assets, with the exception of trade receivables covered by credit guarantee insurance. Refer to the
respective notes for more detail on how the Group manages credit risks for these financial assets.
28.8
Capital risk
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order
to provide sustainable returns for shareholders, benefits for other stakeholders and to maintain an optimal capital
structure to reduce the cost of capital.
The capital structure of the Group consists of borrowings, other financial liabilities, deferred payables and equity
attributable to holders of the parent, comprising share capital, treasury shares, non-distributable reserves and retained
income.
The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence, and to
sustain future development of the business. The Board reviews this capital structure on a semi-annual basis. As part of the
review, the Board considers the cost of capital and the risks associated with each class of capital. Based on
recommendations by the Board, the Group may seek to adjust the composition of its capital structure depending on
circumstances existing at the time of each review.
There were no changes to the Group’s approach to capital management during the year. The gearing ratio has increased
since the prior year from 43% to 47%.
In terms of the Group’s funding arrangements with its lenders, the Group was subject to the following financial covenants
in the year:
➜➜the capacity to increase debt (net of cash and cash equivalents) is restricted to 3,5 times Group earnings before interest,
tax, depreciation, non-recurring items and amortisation. This restriction may be increased to 4,0 times under certain
circumstances at the option of the Group; and
➜➜the Group’s net finance charges must be covered by the Group’s earnings before interest, tax, depreciation, nonrecurring items and amortisation by at least 3,5 times.
As at 30 June 2017, all the above covenants were complied with.
84
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Notes to the Group Annual Financial Statements continued
for the year ended 30 June 2017
29.
Related-party transactions
Transactions with shareholders
The Group did not enter into any transactions with direct beneficial shareholders during the current year, except as described in
the Directors’ Report and note 22.
Intra-group transactions and balances
During the year, various companies in the Group entered into service, lending, financial guarantee, and transactions relating to
buying and selling of goods with one another, on an arm’s length basis. These intra-group transactions have been eliminated on
consolidation. Refer to note 25 of the Company Annual Financial Statements for a list of material operating subsidiaries and
structured entities. None of the balances are secured.
Transactions and balances with directors
All directors have given general declarations of interest in terms of section 75 of the Companies Act. These declarations indicate
that various members of the Board hold various other directorships in South African entities with whom transactions are
conducted by the Group in terms of a customer/supplier relationship. These transactions have been concluded on terms and
conditions that are no more favourable than those entered into with third parties in arm’s length transactions, and are all
unsecured.
Chris Mortimer, a non-executive director of Aspen, is a full-time practising attorney and managing partner at Chris Mortimer &
Associates which provides legal services to the Group. During the year, total legal fees expensed in the statement of
comprehensive income was R6,9 million (2016: R4,2 million). There was R1,3 million outstanding at year end (2016: R1,3 million).
Directors and prescribed officers’ remuneration are disclosed in note 22.
Transactions with key management personnel
Key management personnel consist of directors of key Group companies.
The key management personnel compensation consists of:
2017
R’billion
2016
R’billion
Short-term employee benefits
Post-employment benefits
Share-based payment expense
132,0
8,0
23,3
113,3
7,4
16,4
Total key management remuneration paid
163,3
137,1
25
32
Number of employees included above
Other than disclosed above, and in the Directors’ Report, no significant related-party transactions were entered into during the year
under review.
30.
Contingent liabilities
Guarantees to financial institutions
The Group has several guarantees for indebtedness of subsidiaries to financial institutions which amount to R55,1 billion (2016:
R40,6 billion). The guarantees are entered into on an arm’s length basis. The guarantees relate mainly to the syndicated term loans
as well as cross-guarantees provided between Group companies for each other’s indebtedness.
Potential disputed matter – European commission
The European Commission (“the Commission”) has instituted an investigation of Aspen Pharmacare Holdings Limited and certain
of its indirect wholly-owned subsidiaries under Article 102 of the Treaty on the Functioning of the European Union (“Article 102”)
in respect of the molecules (i) Chlorambucil; (ii) Melphalan; (iii) Mercaptopurine; (iv) Thioguanine; and (v) Busulfan, for (a) alleged
setting of unfair and excessive pricing in the form of significant price increases; (b) alleged unfair/abusive negotiating practices;
(c) alleged stock allocation strategies designed to reduce supply; and (d) alleged practices hindering parallel trade in the European
Economic Area (excluding Italy).
The Commission has confirmed that at this stage it has “no firm conclusions” on whether Aspen Pharmacare Holdings Limited
and/or its indirect wholly owned subsidiaries have undertaken any infringement of Article 102 as it requires to complete its
investigation. The Commission’s decision whether to formally open a case is likely only to be made during the first quarter of 2019
after conclusion of its investigation.
The outcome of the Commission matter is unknown and uncertain at this stage and therefore no liability has been raised in the
statement of financial position.
Other contingent liabilities
The Group has a number of individually insignificant contingent liabilities amounting to R0,1 billion (2016: R0,1 billion).
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
85
Residual accounting policies
for the year ended 30 June 2017
General information
Aspen Pharmacare Holdings Limited is the holding company of the Group and is domiciled and incorporated in the Republic of
South Africa.
The principal accounting policies applied in the preparation of these Annual Financial Statements are set in each of the respective notes.
Any accounting policies that are general in nature, and/or are applicable to more than one specific note, have been disclosed below.
Except as otherwise disclosed, these policies are consistent in all material respects with those applied in previous years.
Basis of preparation of financial results
The Annual Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by
the International Accounting Standards Board (“IASB”) and comply with the SAICA Financial Reporting Guides as issued by the Accounting
Practices Committee, financial pronouncements as issued by the Financial Reporting Standards Council (“FRSC”), the JSE Listings
Requirements and the requirements of the South African Companies Act, No 71 of 2008. The Annual Financial Statements have been
prepared on the historical cost basis, except for certain financial instruments that have been measured at fair value. The results, cash flows
and financial position of a subsidiary that operates in a hyperinflationary economy have been expressed in terms of the measuring unit
current at the reporting date. The methods used to measure fair value and the adjustments made to account for these subsidiaries are
discussed further in the accounting policies and in the respective notes.
The Annual Financial Statements are prepared on the going concern basis. These accounting policies are applied throughout the Group.
The preparation of Annual Financial Statements in conformity with IFRS requires the use of estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Annual Financial Statements
and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s
best knowledge of current events and actions, actual results may ultimately differ from those estimates. The preparation of Annual
Financial Statements in conformity with IFRS also requires management to exercise its judgement in the process of applying the Group’s
accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are
significant to the Annual Financial Statements are disclosed in each of the respective notes.
Group accounting
The Annual Financial Statements reflect the financial results of the Group. All financial results are consolidated with similar items on a
line-by-line basis. A listing of the Group’s material operating subsidiaries and structured entities are set out in note 25 of the Company
Annual Financial Statements.
Subsidiaries
The financial results of subsidiaries (including structured entities, at this stage limited to the share trusts) are fully consolidated from the
date on which control is transferred to the Group and are no longer consolidated from the date that control ceases.
Investments in subsidiaries are accounted for at cost less any accumulated impairment losses in the Company Annual Financial
Statements. None of the investments in subsidiaries are listed.
When the end date of the reporting period of the parent is different to that of the subsidiary, the subsidiary prepares, for consolidation
purposes, additional Annual Financial Statements as of the same date as the Annual Financial Statements of the parent.
Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
Inter-company transactions and balances
Inter-company transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated on
consolidation. To the extent that a loss on a transaction provides evidence of a reduction in the net realisable value of current assets or an
impairment loss of a non-current assets, that loss is charged to the statement of comprehensive income.
86
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Residual accounting policies continued
for the year ended 30 June 2017
Changes in ownership in subsidiaries
Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, as
transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant
share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling
interests are also recorded in equity.
Disposal of subsidiaries
When the Group ceases to have control any retained interest in the entity is remeasured to its fair value at the date when control is lost,
with the change in carrying value recognised in the statement of comprehensive income. The fair value is the initial carrying value for the
purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts
previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of
the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit
or loss.
Business combinations and goodwill
The acquisition method of accounting is used when a business is acquired. A business may comprise an entity, group of entities or an
unincorporated operation including its operating assets and associated liabilities.
The cost of an acquisition is measured as the fair value of the assets given up, equity instruments issued, or liabilities incurred or assumed
at the date of exchange. Costs attributable to the acquisition are charged to the statement of comprehensive income. Identifiable assets
acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the
acquisition date, irrespective of the extent of any non-controlling interests. Goodwill is initially measured as the excess of the aggregate of
the consideration transferred, the acquisition date fair value of previously held equity interests and the fair value of non-controlling interest
over the net identifiable assets acquired and liabilities assumed. If the cost of the acquisition is less than the fair value of the net assets of
the subsidiary acquired, the difference is recognised directly in the statement of comprehensive income. Non-controlling interests at
acquisition date is determined as the non-controlling shareholders’ proportionate share of the fair value of the net assets of the subsidiary
acquired.
Deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred tax is not accounted for if it arises
from the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction
affects neither accounting nor taxable profit or loss.
The profit or loss realised on disposal or termination of an entity is calculated after taking into account the carrying value of any related
goodwill.
At the date of the acquisition, acquired deferred tax assets may not be fully recognised under IFRS. Adjustments to the initial recognition
of acquired deferred tax assets under IFRS, subsequent to the acquisition date, are recognised in the statement of comprehensive income
unless the adjustment qualifies as a measurement period adjustment in which case it is recognised as an adjustment to goodwill.
Contingent consideration in a business combination is included in the cost of a business combination at fair value on the date of
acquisition. The classification of the arrangement into debt or equity will dictate the subsequent accounting. If the arrangement is classified
as debt the amount will have to be remeasured at each reporting period to fair value with changes being recognised in the statement of
comprehensive income. If the arrangement is classified as equity, then remeasurement is not allowed. Existing contingent consideration
arrangements are, however, grandfathered under the standard that was in existence at the time of acquisition, being IFRS 3 – Business
Combinations.
When the accounting for a business combination can only be determined provisionally at the date of reporting, provisional values are used.
These provisional values are adjusted once the initial accounting has been completed, which must be within 12 months from the date of
acquisition, by retrospectively adjusting the fair values of the net assets acquired and goodwill.
Foreign currency translation
Functional and presentation currency
Items included in the Annual Financial Statements of each entity in the Group are measured using the functional currency of the primary
economic environment in which that entity operates. The Annual Financial Statements are presented in Rand, which is the functional and
presentation currency of Aspen Pharmacare Holdings Limited.
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
87
Foreign currency transactions (except for hyperinflationary economies)
Income and expenditure transactions are translated into the functional currency of the entity at the rate of exchange ruling at the
transaction date. To the extent that transactions occur regularly throughout the year, they are translated at the average rate of exchange for
the year since this is deemed to provide a reasonable approximation of the actual exchange rates prevailing at the dates on which those
transactions occurred.
Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency of the entity at the rates of
exchange ruling at year end. Foreign exchange gains or losses resulting from the translation and settlement of monetary assets and
liabilities are recognised in the statement of comprehensive income, except when deferred in other comprehensive income as qualifying
cash flow hedges.
Currency translation differences on non-monetary financial assets and liabilities such as derivative financial instruments are recognised in
the statement of comprehensive income as part of the fair value gain or loss.
Foreign operations (except for hyperinflationary economies)
The results and financial position of all entities that have a functional currency different from the presentation currency of their parent
entity are translated into the presentation currency. The basis for the translation is as follows:
➜➜income and expenditure of foreign operations are translated into the Group’s presentation currency at the average exchange rate for the
year, unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in
which case income and expenditure transactions are translated at the rates on the dates of the transactions;
➜➜assets and liabilities, including fair value adjustments and goodwill arising on acquisition, are translated at the closing rate at year end;
and
➜➜exchange differences arising on translation are recognised as currency translation movements in other comprehensive income and
deferred in equity in the foreign currency translation reserve.
On consolidation, currency translation movements arising from translation of results and financial position of entities that have a functional
currency different from that of the presentation currency of the parent is recognised in other comprehensive income.
On consolidation, differences arising from the translation of the net investment in foreign operations, as well as borrowings and other
currency instruments designated as hedges of such investments (if effective), are recognised in other comprehensive income and deferred
in equity.
On disposal of part or all of the foreign operation, the proportionate share of the related cumulative gains and losses previously recognised
in other comprehensive income and accumulated in the foreign currency translation reserve in equity is reclassified from equity to the
statement of comprehensive income (as a reclassification adjustment) when the gain or loss on disposal is recognised.
Hyperinflationary economies
The results and financial position of a subsidiary of the Group which is accounted for as an entity operating in a hyperinflationary economy
and has a functional currency different from the presentation currency of the Group are translated into the presentation currency at rates
ruling at the reporting date. As the presentation currency of the Group is that of a non-hyperinflationary economy, comparative amounts
have not been adjusted for changes in the price level or exchange rates in the current year.
The financial statements of an entity whose functional currency is the currency of a hyperinflationary economy is adjusted in terms of the
measuring unit current at the end of the reporting period.
Items in the statement of financial position not already expressed in terms of the measuring unit current at the reporting period, such as
non-monetary items carried at cost or cost less depreciation, are restated by applying a general price index. The restated cost, or cost less
depreciation, of each item is determined by applying to its historical cost and accumulated depreciation the change in a general price
index from the date of acquisition to the end of the reporting period. The restated amount of a non-monetary item is reduced when it
exceeds its recoverable amount.
Corresponding figures for the previous reporting period are restated by applying a general price index and the current closing rate so that
financial statements are presented in terms of the measuring unit current at the end of the reporting period. This hyperinflation foreign
currency translation adjustment is recognised directly in other comprehensive income as a currency translation movement.
All items recognised in the statement of comprehensive income are restated by applying the change in the general price from the dates
when the items of income and expenses were initially recognised. Gains or losses on the net monetary position are recognised in the
statement of comprehensive income as a monetary adjustment.
88
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Residual accounting policies continued
for the year ended 30 June 2017
Financial instruments
Accounting for derivative financial instruments and hedging activities
The Group’s criteria for a derivative instrument to be designated as a hedging instrument require that:
➜➜the hedge transaction is expected to be highly effective in achieving offsetting changes in fair value or cash flows attributable to the
hedged risk;
➜➜the effectiveness of the hedge can be reliably measured throughout the duration of the hedge;
➜➜there is adequate documentation of the hedging relationship at the inception of the hedge; and
➜➜for cash flow hedges, the forecast transaction that is the subject of the hedge must be highly probable.
The Group designates certain derivatives as one of the following on the date the derivative contract is entered into:
➜➜a hedge of the exposure to changes in fair value of a recognised asset or liability or a firm commitment (fair value hedge);
➜➜a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with a recognised asset or liability or
a highly probable forecast transaction (cash flow hedge); or
➜➜net investment hedge.
At the inception of the transaction the Group documents the relationship between hedging instruments and hedged items, as well as its
risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at the
hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting
changes in fair values or cash flows of hedged items.
Movements in the hedging reserve are accounted for in other comprehensive income. The full fair value of a hedging derivative is classified
as a non-current asset or liability when the remaining hedged item is more than 12 months and as a current asset or liability when the
remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as a current asset or liability.
Certain derivative transactions, while providing effective economic hedges under the Group’s risk management policies, do not qualify for
hedge accounting. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised
immediately in the statement of comprehensive income within financing costs.
Fair value hedges
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the statement of
comprehensive income as financing costs, along with any changes in fair value of the hedged asset or liability that is attributable to the
hedged risk. If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying value of a hedged item for
which the effective interest rate method is used is amortised in the statement of comprehensive income over the period to maturity.
Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in other
comprehensive income. The ineffective portion is recognised immediately in the statement of comprehensive income within financing
costs. Where the forecast transaction or firm commitment results in the recognition of a non-financial asset or a non-financial liability, the
gains or losses previously recognised in other comprehensive income and deferred in equity are reclassified from equity and included in
the initial cost or other carrying amount of the asset or liability. Otherwise, amounts recognised in other comprehensive income and
deferred in equity are reclassified to the statement of comprehensive income as gains or losses in the same financial years during which
the hedged firm commitment or forecast transaction affects the statement of comprehensive income.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or
loss recognised in other comprehensive income and deferred in equity at that time remains in equity and is recognised when the forecast
transaction is recognised in the statement of comprehensive income. When the forecast transaction is no longer expected to occur, the
cumulative gain or loss recognised in other comprehensive income and deferred in equity is reclassified from equity to the statement of
comprehensive income as a reclassification adjustment.
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
89
Net investment hedge
Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges.
Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in other comprehensive income. The
gain or loss relating to the ineffective portion is recognised in the statement of comprehensive income. Gains and losses recognised in
other comprehensive income and accumulated in equity are reclassified to the statement of comprehensive income when the foreign
operation is partly disposed of or sold.
Fair value estimation
The fair value of publicly traded derivatives is based on quoted market prices at year end. The fair value of interest rate swaps is calculated
as the present value of estimated future cash flows. The fair value of forward exchange contracts is determined using forward exchange
market rates at year end.
Financial instruments that are measured at fair value in the statement of financial position are classified into the following levels of the fair
value measurement hierarchy:
➜➜quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);
➜➜inputs other than quoted prices included within level 1 that are observable for the assets or liabilities, either directly, as prices, or
indirectly, derived from prices (level 2); and
➜➜inputs for the assets or liabilities that are not based on observable market data, unobservable inputs (level 3).
Quoted market prices or dealer quotes for the specific or similar instruments are used for non-current debt. The fair values of non-current
financial assets for disclosure purposes are estimated by discounting the future contractual cash flows at the interest rates available to the
Group at year end. Other techniques, such as option pricing models and estimated discounted value of future cash flows, are used to
determine fair value of the remaining financial instruments.
In assessing the fair value of non-traded derivatives and other financial instruments, the Group makes assumptions that are based on
market conditions existing at each year end.
The carrying values of the following financial assets and financial liabilities approximate their fair values:
➜➜trade and other financial receivables;
➜➜cash and cash equivalents;
➜➜other non-current receivables;
➜➜amounts due to Group companies;
➜➜amounts due by Group companies;
➜➜trade and other financial payables;
➜➜other non-current financial liabilities;
➜➜other current financial liabilities;
➜➜current borrowings; and
➜➜non-current borrowings.
Information on the fair value of financial instruments is included in the respective notes.
90
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Residual accounting policies continued
for the year ended 30 June 2017
Comparative figures
Comparative figures are reclassified or restated as necessary to afford a proper and more meaningful comparison of results as set out in
the affected notes to the Annual Financial Statements.
Reclassifications and presentation
The Annual Financial Statements have been rounded and disclosed in R’billion to assist financial analysis. Certain amounts have been
combined and/or reclassified in the Annual Financial Statements due to either their similarity in nature or not being individually material
to disclose separately.
All percentage change variances have been calculated using unrounded numbers to record accurate variance trends.
Accounting policies specific to the Company
All the accounting policies disclosed in the Group Annual Financial Statements are applicable to the Company Annual Financial Statements.
The following additional accounting policies are applicable to the Company Annual Financial Statements:
Revenue
The revenue accounting policy for the Company is consistent with that of the Group with the exception of dividends received from
subsidiaries which is included in revenue.
Amounts due by Group companies
Amounts due by Group companies are classified as “Loans and receivables” in terms of IAS 39 – Financial Instruments: Recognition and
Measurement. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an
active market. These are included in current assets as they all have maturities less than 12 months from year end. The Group determines
the classification of its financial asset at initial recognition when the Group becomes party to the contractual provisions of the instrument.
Amounts due to Group companies
Amounts due to Group companies are classified as “Liabilities at amortised cost” in terms of IAS 39 – Financial Instruments: Recognition
and Measurement. Financial liabilities are recognised on the transaction date when the group becomes a party to the contract and thus
has a contractual obligation and are derecognised when these contractual obligations are discharged, cancelled or expired.
Constant exchange rate report
The presentation currency of the Group is Rand.
In addition to that the Group has presented selected line items from the consolidated statement of comprehensive income and certain
trading profit metrics on a constant exchange rate basis in a supplementary unaudited annexure. Refer to page 118.
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
New standards, amendments and interpretations
The following standards, amendments and interpretations were effective for the first time in the year ended 30 June 2017:
Standards,
amendments and
interpretations
Description
Effective date
Effect on the Group
Amendments to
IFRS 10 – Consolidated
Financial Statements
and IAS 28 –
Investments in
Associates and Joint
Ventures on applying
the consolidation
exemption
The amendments clarify the application of the
consolidation exemption for investment entities and
their subsidiaries.
Financial years
beginning on or after
1 January 2016.
The Group applied this
amendment from the
financial year ended
30 June 2017. No
material impact on
the Group.
Amendment to
IFRS 11 – Joint
Arrangements on
acquisition of an
interest in a joint
operation
This amendment adds new guidance on how to
account for the acquisition of an interest in a joint
operation that constitutes a business. The
amendments specify the appropriate accounting
treatment for such acquisitions.
Financial years
beginning on or after
1 January 2016.
The Group applied this
amendment from the
financial year ended
30 June 2017. No
material impact on
the Group.
Amendments to
IAS 1 – Presentation of
Financial Statements
disclosure initiative
In December 2014 the IASB issued amendments to
clarify guidance in IAS 1 on materiality and
aggregation, the presentation of subtotals, the
structure of financial statements and the disclosure
of accounting policies.
Financial years
beginning on or after
1 January 2016.
The Group applied this
amendment from the
financial year ended
30 June 2017. No
material impact
to the Group.
Amendment to
IAS 16 – Property, Plant
and Equipment and
IAS 38 – Intangible
Assets, on depreciation
and amortisation.
In this amendment the IASB has clarified that the use
of revenue based methods to calculate the
depreciation of an asset is not appropriate because
revenue generated by an activity that includes the use
of an asset generally reflects factors other than the
consumption of the economic benefits embodied in
the asset. The IASB has also clarified that revenue is
generally presumed to be an inappropriate basis for
measuring the consumption of the economic benefits
embodied in an intangible asset.
Financial years
beginning on or after
1 January 2016.
Not applicable to the
Group’s Annual Financial
Statements.
IFRS 14 – Regulatory
Deferral Accounts
The IASB has issued IFRS 14, an interim standard on
the accounting for certain balances that arise from
rate-regulated activities.
Financial years
beginning on or after
1 January 2016.
Not applicable to the
Group’s Annual Financial
Statements.
Rate regulation is a framework where the price that an
entity charges to its customers for goods and services
is subject to oversight and/or approval by an
authorised body.
Amendments to
IAS 16 – Property, Plant
and Equipment and
IAS 41 – Agriculture on
bearer plants
In this amendment to IAS 16 the IASB has scoped in
bearer plants, but not the produce on bearer plants
and explained that a bearer plant not yet in the
location and condition necessary to bear produce is
treated as a self-constructed asset. In this amendment
to IAS 41, the IASB has adjusted the definition of a
bearer plant include examples of non-bearer plants
and remove current examples of bearer plants from
IAS 41.
Financial years
beginning on or after
1 January 2016.
Not applicable to the
Group’s Annual Financial
Statements.
Amendments to
IAS 27 – Separate
Financial Statements on
equity accounting
In this amendment the IASB has restored the option to
use the equity method to account for investments in
subsidiaries, joint ventures and associates in an
entity’s separate financial statements.
Financial years
beginning on or after
1 January 2016.
The Group applied this
amendment from the
financial year ended
30 June 2017. No
material impact to
the Group.
91
92
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Residual accounting policies continued
for the year ended 30 June 2017
New standards, amendments and interpretations continued
The following accounting standards, amendments and interpretations are not mandatory for the year ended 30 June 2017 and have been
published prior to the date of signature of this report:
Standards,
amendments and
interpretations
Description
Effective date
Effect on the Group
IFRS 9 – Financial
Instruments (2009 and
2010)
➜➜Financial liabilities;
➜➜Derecognition of
financial instruments;
➜➜Financial assets; and
➜➜General hedge
accounting.
This standard replaces the guidance in IAS 39. It includes
requirements on the classification and measurement of
financial assets and liabilities, it also includes an expected
credit losses model that replaces the current incurred loss
impairment model.
Financial years
beginning on or
after 1 January
2018.
The Group will apply this
amendment from the
financial year ending
30 June 2019. No
material impact
expected to the Group.
Amendments to
IFRS 10 – Consolidated
Financial Statements
and IAS 28 –
Investments in
associates and Joint
Ventures on sale or
contribution of assets
The postponement applies to changes introduced by the
IASB in 2014 through narrow-scope amendments to
IFRS 10 – Consolidated Financial Statements and IAS 28 –
Investments in Associates and Joint Ventures. Those
changes affect how an entity should determine any gain or
loss it recognises when assets are sold or contributed
between the entity and an associate or joint venture in
which it invests. The changes do not affect other aspects
of how entities account for their investments in associates
and joint ventures.
Financial years
beginning on or
after 1 January
2017 (postponed).
The Group will apply this
amendment when it
becomes effective. No
material impact
expected to the Group.
The reason for making the decision to postpone the
effective date is that the IASB is planning a broader review
that may result in the simplification of accounting for such
transactions and of other aspects of accounting for
associates and joint ventures.
IFRS 15 – Revenue from
Contracts with
Customers
The FASB and IASB issued their long awaited converged
standard on revenue recognition on 29 May 2014. It is a
single, comprehensive revenue recognition model for all
contracts with customers to achieve greater consistency
in the recognition and presentation of revenue. Revenue is
recognised based on the satisfaction of performance
obligations, which occurs when control of good or service
transfers to a customer.
Financial years
beginning on or
after 1 January
2018.
The Group will apply this
standard from the
financial year ending
30 June 2019. No
material impact
expected to the Group.
Amendment to
IFRS 9 – Financial
Instruments, on general
hedge accounting
The IASB has amended IFRS 9 to align hedge accounting
more closely with an entity’s risk management. The revised
standard also establishes a more principles-based
approach to hedge accounting and addresses
inconsistencies and weaknesses in the current model
in IAS 39.
Financial years
beginning on or
after 1 January
2018.
The Group will apply this
amendment from the
financial year ending
30 June 2019. No
material impact
expected to the Group.
Early adoption of the above requirements has specific
transitional rules that need to be followed. Entities can
elect to apply IFRS 9 for any of the following:
➜➜The own credit risk requirements for financial liabilities;
➜➜Classification and measurement (“C&M”) requirements
for financial assets;
➜➜C&M requirements for financial assets and financial
liabilities; and
➜➜The full current version of IFRS 9 (that is, C&M
requirements for financial assets and financial liabilities
and hedge accounting).
The transitional provisions described above are likely to
change once the IASB completes all phases of IFRS 9.
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
New standards, amendments and interpretations continued
Standards,
amendments and
interpretations
Amendment to
IAS 12 – Income Taxes
Recognition of deferred
tax assets for unrealised
losses.
Description
Effective date
Effect on the Group
The amendments were issued to clarify the requirements
for recognising deferred tax assets on unrealised losses.
The amendments clarify the accounting for deferred tax
where an asset is measured at fair value and that fair
value is below the asset’s tax base. They also clarify certain
other aspects of accounting for deferred tax assets.
Financial years
beginning on or
after 1 January
2017.
The Group will apply this
amendment from the
financial year ending
30 June 2018. No
material impact
expected to the Group.
Financial years
beginning on or
after 1 January
2017.
The Group will apply this
amendment from the
financial year ending
30 June 2018. No
material impact
expected to the Group.
Financial years
beginning on or
after 1 January
2019.
The Group will apply this
amendment from the
financial year ending
30 June 2020. No
material impact
expected to the Group.
The amendments clarify the existing guidance under
IAS 12. They do not change the underlying principles for
the recognition of deferred tax assets.
Amendment to
IAS 7 – Cash Flow
Statements
In January 2017, the IASB issued an amendment to
IAS 7 introducing an additional disclosure that will enable
users of financial statements to evaluate changes in
liabilities arising from financing activities.
The amendment responds to requests from investors for
information that helps them better understand changes in
an entity’s debt. The amendment will affect every entity
preparing IFRS financial statements. However, the
information required should be readily available. Preparers
should consider how best to present the additional
information to explain the changes in liabilities arising from
financing activities.
IFRS 16 – Leases
This standard replaces the current guidance in IAS 17 and
is a far reaching change in accounting by lessees in
particular.
Under IAS 17, lessees were required to make a distinction
between a finance lease (on statement of financial
position) and an operating lease (off statement of financial
position). IFRS 16 now requires lessees to recognise a
lease liability reflecting future lease payments and a
“right-of-use asset” for virtually all lease contracts. The
IASB has included an optional exemption for certain
short-term leases and leases of low-value assets, however,
this exemption can only be applied by lessees.
For lessors, the accounting stays almost the same.
However, as the IASB has updated the guidance on the
definition of a lease (as well as the guidance on the
combination and separation of contracts), lessors will also
be affected by the new standard.
At the very least, the new accounting model for lessees is
expected to impact negotiations between lessors and
lessees. Under IFRS 16, a contract is, or contains, a lease if
the contract conveys the right to control the use of an
identified asset for a period of time in exchange for
consideration.
IFRS 16 supersedes IAS 17 – Leases, IFRIC 4 – Determining
Whether an Arrangement Contains a Lease, SIC 15 –
Operating Leases – Incentives and SIC 27 – Evaluating the
Substance of Transactions Involving the Legal Form of a
Lease.
93
94
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Residual accounting policies continued
for the year ended 30 June 2017
New standards, amendments and interpretations continued
Standards,
amendments and
interpretations
Description
Effective date
Effect on the Group
This amendment clarifies the measurement basis for
cash-settled, share-based payments and the accounting
for modifications that change an award from cash-settled
to equity-settled. It also introduces an exception to the
principles in IFRS 2 that will require an award to be treated
as if it was wholly equity-settled, where an employer is
obliged to withhold an amount for the employee’s tax
obligation associated with a share-based payment and pay
that amount to the tax authority.
Financial years
beginning on or
after 1 January
2018.
The Group will apply this
amendment from the
financial year ending
30 June 2019. No
material impact
expected to the Group.
Amendment to
IFRS 15 – Revenue from
Contracts with
Customers
The IASB has amended IFRS 15 to clarify the guidance, but
there were no major changes to the standard itself. The
amendments comprise clarifications of the guidance on
identifying performance obligations, accounting for
licences of intellectual property and the principal versus
agent assessment (gross versus net revenue presentation).
New and amended illustrative examples have been added
for each of these areas of guidance. The IASB has also
included additional practical expedients related to
transition to the new revenue standard.
Financial years
beginning on or
after 1 January
2018.
The Group will apply this
amendment from the
financial year ending
30 June 2019. No
material impact
expected to the Group.
IAS 40 – Investment
Property
These amendments clarify that to transfer to, or from,
investment properties there must be a change in use. To
conclude if a property has changed use there should be an
assessment of whether the property meets the definition.
This change must be supported by evidence.
Financial years
beginning on or
after 1 January
2018.
The Group will apply this
amendment from the
financial year ending
30 June 2019. Not
applicable to the Group.
These amendments introduce two approaches: an overlay
approach and a deferral approach. The amended standard
will:
➜➜Give all companies that issue insurance contracts the
option to recognise in other comprehensive income,
rather than profit or loss, the volatility that could arise
when IFRS 9 is applied before the new insurance
contracts standard is issued; and
➜➜Give companies whose activities are predominantly
connected with insurance an optional exemption from
applying IFRS 9 until 2021. The entities that defer the
application of IFRS 9 will continue to apply the existing
financial instruments standard – IAS 39.
Financial years
beginning on or
after 1 January
2018.
The Group will apply this
amendment from the
financial year ending
30 June 2019. Not
applicable to the Group.
This IFRIC addresses foreign currency transactions or parts
of transactions where there is consideration that is
denominated or priced in a foreign currency. The
interpretation provides guidance for when a single
payment/receipt is made as well as for situations where
multiple payment/receipts are made. The guidance aims
to reduce diversity in practice.
Financial years
beginning on or
after 1 January
2018.
The Group will apply this
amendment from the
financial year ending
30 June 2019. Not
applicable to the Group.
Amendments to
IFRS 2 – Share-based
Payments
Clarifying how to
account for certain
types of share-based
payment transactions.
Transfers of investment
property
IFRS 4 – Insurance
Contracts
Regarding the
implementation of
IFRS 9 – Financial
Instruments
IFRIC 22 – Foreign
Currency Transactions
and Advance
Consideration
Improvements to IFRS
This is a collection of amendments to IFRS. These amendments are the result of conclusions the International Standards Board reached on
proposals made in its annual improvements project. The annual improvements project provides a vehicle for making non-urgent but
necessary amendments to IFRS. Some amendments involve consequential amendments to other IFRS.
The following improvements were issued in September 2014 and were effective for the financial year ended 30 June 2017:
➜➜IFRS 5 – Non-current Assets Held-for-Sale and Discontinued Operations;
➜➜IFRS 7 – Financial Instruments: Disclosures;
➜➜IAS 19 – Employee Benefits; and
➜➜IAS 34 – Interim Financial Reporting.
The following improvements were issued in December 2016 and are effective for financial years beginning on or after 1 January 2017:
➜➜IFRS 1 – First Time Adoption of IFRS;
➜➜IFRS 12 – Disclosure of Interests in Other Entities; and
➜➜IAS 28 – Investments in Associates and Joint Ventures.
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Company Annual Financial Statements
at 30 June 2017
Contents
96
Company statement of financial position
97
Company statement of comprehensive income
98
Company statement of changes in equity
99
Company statement of cash flows
100
Notes to the Company statement of cash flows
101
Notes to the Company Annual Financial Statements
95
96
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Company statement of financial position
at 30 June 2017
Notes
2017
R’million
2016
R’million
1
2
3
4
6
7
17 582,1
591,6
167,6
61,5
5,8
22,1
17 569,2
437,8
177,8
61,5
–
–
18 430,7
18 246,3
431,5
957,0
24,4
0,6
383,3
320,3
43,7
3,5
1 413,5
750,8
19 844,2
18 997,1
14 361,9
3 224,7
141,9
80,0
13 834,7
3 205,1
146,5
69,1
17 808,5
17 255,4
249,2
–
249,1
0,3
249,2
249,4
1 201,9
414,8
149,4
20,4
1 046,7
357,0
82,4
6,2
1 786,5
1 492,3
Assets
Non-current assets
Investments in subsidiaries
Intangible assets
Property, plant and equipment
Investment in joint venture
Deferred tax assets
Available-for-sale financial assets (non-current)
Total non-current assets
Current assets
Amounts due by Group companies
Cash and cash equivalents
Receivables and prepayments
Derivative financial instruments
1
8
9
10
Total current assets
Total assets
Shareholders’ equity
Retained income
Share capital
Non-distributable reserves
Share-based compensation reserve
12
Total shareholders’ equity
Liabilities
Non-current liabilities
Borrowings
Deferred tax liabilities
13
6
Total non-current liabilities
Current liabilities
Borrowings
Amounts due to Group companies
Other payables
Current tax liabilities
Total current liabilities
Total liabilities
Total equity and liabilities
14
1
14
2 035,7
1 741,7
19 844,2
18 997,1
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
97
Company statement of comprehensive income
for the year ended 30 June 2017
Notes
2017
R’million
2016
R’million
Revenue
Administrative expenses
Other operating income
Other operating expenses
15
2 391,9
(502,8)
1,0
(104,9)
2 470,8
(451,7)
11,5
(31,4)
Operating profit
Investment income
Financing costs
16
19
20
1 785,2
25,3
(72,4)
1 999,2
54,7
(105,1)
Profit before tax
Tax
21
1 738,1
(79,0)
1 948,8
(75,3)
1 659,1
1 873,5
Profit for the year
Other comprehensive income, net of tax*
Cash flow hedges realised
Total comprehensive income
* All items in other comprehensive income may be reclassified to profit and loss.
10
(3,1)
1 656,0
(4,2)
1 869,3
98
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Company statement of changes in equity
for the year ended 30 June 2017
Non-distributable reserve
Share
capital
R’million
Hedging
reserve
R’million
Revaluation
reserve
R’million
Share-based
compensation
reserve
R’million
Retained
income
R’million
Total
R’million
Balance at 30 June 2015
Total comprehensive income
Profit for the year
Other comprehensive
income
Issue of ordinary share capital
– share schemes
Capital distribution
Share-based payment
expenses
Deferred incentive bonus
shares exercised
4 190,5
–
–
150,7
(4,2)
–
–
–
–
48,2
–
–
11 961,2
1 873,5
1 873,5
16 350,6
1 869,3
1 873,5
–
(4,2)
–
–
–
(4,2)
0,9
(986,3)
–
–
–
–
–
–
–
–
0,9
(986,3)
–
–
–
31,1
–
31,1
–
(10,2)
–
(10,2)
Balance at 30 June 2016
Total comprehensive income
Profit for the year
Other comprehensive
income
Issue of ordinary share capital
– share schemes
Capital distribution
Share-based payment
expenses
Revaluation on available-forsale financial assets
Deferred incentive bonus
shares exercised
3 205,1
–
–
146,5
(3,1)
–
–
–
–
69,1
–
–
13 834,7
1 659,1
1 659,1
17 255,4
1 656,0
1 659,1
–
(3,1)
–
–
–
–
–
Balance at 30 June 2017
3 224,7
143,4
–
–
19,6
–
–
–
–
–
–
–
–
–
–
25,2
–
25,2
–
–
–
–
(1,5)
(1,5)
–
(1,5)
(14,3)
80,0
–
(1 131,9)
(3,1)
–
14 361,9
19,6
(1 131,9)
(14,3)
17 808,5
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
99
Company statement of cash flows
for the year ended 30 June 2017
Notes
2017
R’million
2016
R’million
Cash flows from operating activities
Cash generated from operations
Financing costs paid
Interest received
Tax paid
A
B
C
Cash generated from operating activities
1 945,6
(72,5)
25,3
(67,1)
1 883,2
(107,4)
54,7
(135,1)
1 831,3
1 695,4
Cash flows from investing activities
Capital expenditure – property, plant and equipment
Proceeds from the sale of property, plant and equipment
Capital expenditure – intangible assets
Proceeds on the sale of assets classified as held-for-sale
Acquisition of subsidiaries and businesses
Acquisition of available-for-sale financial assets
Net cash outflows – amounts due by Group companies
(5,3)
–
(215,9)
–
(2,3)
(23,6)
(48,2)
(53,0)
1,0
(7,8)
33,9
(371,4)
–
(86,0)
Cash used in investing activities
(295,3)
(483,3)
Proceeds from borrowings
Repayment of borrowings
Proceeds from issue of ordinary share capital
Capital distribution paid
Net cash inflows/(outflows) – amounts due from Group companies
–
(15,0)
19,6
(1 131,9)
57,8
250,0
(250,9)
0,9
(986,3)
(437,6)
Cash used in financing activities
(1 069,5)
(1 423,9)
466,5
(686,4)
(211,8)
(474,6)
(219,9)
(686,4)
Cash flows from financing activities
Cash and cash equivalents
Movement in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
D
For the purposes of the statement of cash flows, cash and cash equivalents comprise bank balances less bank overdrafts.
100
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Notes to the Company statements of cash flows
for the year ended 30 June 2017
2017
R’million
A.
B.
Cash generated from operations
Operating profit
Amortisation of intangible assets
Depreciation of property, plant and equipment
Impairment of intangible assets
Profit on the sale of assets classified as held-for-sale
Loss on sale of property, plant and equipment
Deferred incentive bonus shares exercised
Share-based payment expense – employees
Withholding taxes
1 785,2
18,3
15,5
43,8
–
–
(14,3)
14,8
(3,8)
1 999,2
18,2
11,7
5,9
(11,4)
0,6
(10,2)
23,1
(6,1)
Cash operating profit
Working capital movements
Decrease/(increase) in receivables and prepayments
Increase/(decrease) in other payables
1 859,5
86,1
19,3
66,8
2 031,0
(147,8)
(9,3)
(138,5)
1 945,6
1 883,2
Financing costs paid
Interest paid expense
Net foreign exchange gains/(losses)
C.
(106,8)
34,3
(108,1)
0,7
(72,5)
(107,4)
(6,2)
(121,0)
(81,3)
20,4
(20,3)
6,2
(67,1)
(135,1)
957,0
(1 176,9)
320,3
(1 006,7)
(219,9)
(686,4)
Tax paid
Amounts payable at the beginning of the year
Tax charged to the statement of comprehensive income (excluding deferred and withholding
taxes)
Amounts owing at the end of the year
D.
2016
R’million
Cash and cash equivalents
Bank balances
Less: bank overdrafts*
Cash and cash equivalents per the statement of cash flows
* Bank overdrafts are included within current borrowing on the statement of financial position.
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
101
Notes to the Company Annual Financial Statements
for the year ended 30 June 2017
1.
Investments in subsidiaries
2017
R’million
2016
R’million
17 582,1
17 569,2
Reflected as current assets
Amounts due by Group companies#
431,5
383,3
Reflected as current liabilities
Amounts due to Group companies#
(414,8)
(357,0)
Summary of balance
Reflected as non-current assets
Investments at cost less accumulated impairment losses
17 598,8
#
17 595,5
T he intra-group facilities all bear interest at varying rates depending on whether or not the amounts are treated as a shareholder loan, is financing
that has been provided or arises from the ad hoc recovery of expenditure/provision of services. Interest is not levied on current payables and
receivables unless the credit days are exceeded, in which case interest is levied on the amounts that remain overdue.
For further details of interests in material operating subsidiaries please refer to note 25.
2.
Intangible assets
Reconciliation of balance
Intellectual
property
R’million
Product
participation
and other
contractual
rights
R’million
Computer
software
R’million
Total
R’million
2017
Carrying value
Cost
Accumulated amortisation
Accumulated impairment losses
Movement in intangible assets
Carrying value at the beginning of the year
Additions
Amortisation
Impairment losses
1 148,2
(738,7)
(16,6)
42,8
(42,8)
–
228,8
(30,1)
–
1 419,8
(811,6)
(16,6)
392,9
–
198,7
591,6
399,5
45,1
(7,9)
(43,8)
–
–
–
–
38,3
170,8
(10,4)
–
437,8
215,9
(18,3)
(43,8)
392,9
–
198,7
591,6
1 146,6
(730,7)
(16,4)
57,8
(57,8)
–
58,0
(19,7)
–
1 262,4
(808,2)
(16,4)
399,5
–
38,3
437,9
430,7
1,4
(8,9)
(1,2)
(22,5)
–
–
–
–
–
45,9
6,4
(9,3)
(4,7)
–
476,6
7,8
(18,2)
(5,9)
(22,5)
399,5
–
38,3
437,8
2016
Carrying value
Cost
Accumulated amortisation
Accumulated impairment losses
Movement in intangible assets
Carrying value at the beginning of the year
Additions
Amortisation
Impairment losses
Reclassification to assets classified as held-for-sale
All intangible assets were acquired from third parties.
102
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Notes to the Company Annual Financial Statements continued
for the year ended 30 June 2017
2.
Intangible assets continued
Indefinite useful life intangible assets
Split of balance
GSK OTC Brands
Other
2017
R’million
2016
R’million
269,2
110,5
269,2
109,5
379,7
378,7
Impairment of intangible assets
Key assumptions on impairment tests for the GSK OTC Brands were as follows:
➜➜period covered by the forecasts and budgets of 10 years (2016: 10 years);
➜➜growth in revenue per annum of between 0% and 14% (2016: 2% and 10%);
➜➜gross profit percentage per annum of 71% (2016: 72%);
➜➜growth rate to extrapolate cash flows beyond period covered by mentioned forecasts and budgets of 1% and 5% (2016: 1%); and
➜➜annual pre-tax discount rate applied to cash flows of between 9% and 24% (2016: 9% and 24%).
Management has used a forecast period greater than five years to better reflect the impact of a gradual slowing in growth over the
medium term.
Based on the above calculations no impairments were recognised for the indefinite useful life intangible assets. There are no
reasonable possible change in any key assumptions which would cause the carrying value of indefinite useful life intangible assets
to exceed its value-in-use.
Commitments
Capital commitments include all projects for which specific Board approval has been obtained up to the reporting date. Capital
expenditure will be financed from funds generated out of normal business operations and existing borrowing facilities. Projects still
under investigation for which specific Board approvals have not yet been obtained are excluded from the following
Authorised and contracted for
Authorised but not yet contracted for
Other disclosure
No intangible assets were pledged or committed as security for borrowings.
2017
R’million
2016
R’million
–
46,5
33,4
10,6
46,5
44,0
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
3.
103
Property, plant and equipment
Reconciliation of balance
Buildings
R’million
Plant and
equipment
R’million
Other
tangible
assets@
R’million
Total
R’million
2017
Carrying value
Cost
Accumulated depreciation
152,2
(6,3)
0,3
(0,3)
145,9
Movement in property, plant and equipment
Carrying value at the beginning of the year
Additions
Depreciation
148,0
1,3
(3,4)
–
0,1
–
(0,1)
44,3
(22,6)
196,8
(29,2)
21,7
167,6
29,7
4,0
(12,0)
177,8
5,3
(15,5)#
145,9
–
21,7
167,6*
151,0
(3,0)
0,3
(0,2)
39,0
(9,3)
190,3
(12,5)
148,0
0,1
29,7
177,8
126,9
24,1
–
(3,0)
0,1
–
–
–
11,1
28,9
(1,6)
(8,7)
138,1
53,0
(1,6)
(11,7)#
148,0
0,1
29,7
177,8*
2016
Carrying value
Cost
Accumulated depreciation
Movement in property, plant and equipment
Carrying value at the beginning of the year
Additions
Disposals
Depreciation
Other tangible assets comprise computer equipment, office equipment and furniture.
* Included in the total are leased assets amounting R10,2 million (2016: R14,7 million).
#
Depreciation charge is included in administrative expenses on the statement of comprehensive income.
@
104
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Notes to the Company Annual Financial Statements continued
for the year ended 30 June 2017
3.
Property, plant and equipment continued
Commitments
Capital commitments
Capital commitments include all projects for which specific Board approval has been obtained up to the reporting date. Capital
expenditure will be financed from funds generated out of normal business operations and existing borrowing facilities. Projects still
under investigation for which specific Board approvals have not yet been obtained are excluded from the following
2017
R’million
2016
R’million
–
19,9
10,9
7,4
19,9
18,3
Operating lease commitments
The Company rents buildings under non-current, non-cancellable operating leases and also
rents office equipment and furniture under operating leases that are cancellable at various
short-term notice periods by either party.
Minimum future lease payments – operating leases
Land and buildings
Office equipment and furniture
0,8
1,2
2,3
0,1
Operating lease commitments
2,0
2,4
The future minimum operating lease payments are as follows
Less than one year
Between one and five years
1,7
0,2
0,8
1,6
2,0
2,4
61,5
61,5
Authorised and contracted for
Authorised but not yet contracted for
These leasing arrangements do not impose any significant restrictions on the Company.
Other disclosure
No property, plant and equipment was pledged or committed as security for any borrowings.
4.
Investment in joint venture
Reconciliation of balance
Carrying value at the beginning and end of the year
This investment represents 50% shareholding New Zealand New Milk, a producer of infant nutritionals incorporated in Auckland,
New Zealand. New Zealand New Milk is a private company and no quoted market price is available for its shares.
5.
Other non-current receivables
Reconciliation of balance
Carrying value at the beginning and end of the year
Current portion moved to other receivables
–
–
25,0
(25,0)
–
–
In the previous year, agreements were entered into with two BBBEE beneficiaries whereby enterprise development loans have
been advanced by the Company. The outstanding loans bore interest at the South African prime rate plus margin of 1%.
These loans are due to be repaid at the end of the previous year, were repaid in the current year.
These loans were secured by a second bond over specified movable assets to a value of R10,0 million as well as a cession of
specified book debts. Management considers the credit risk associated with these receivables to be low. These balances were
denominated in Rand.
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
6.
105
Deferred tax
Reconciliation of balance
2017
R’million
0,3
2,3
(8,4)
(48,6)
30,1
18,8
(5,8)
0,3
–
(5,8)
0,3
–
(5,8)
0,3
6,1
2,4
2,0
(16,3)
6,8
6,4
1,8
(14,7)
(5,8)
0,3
(0,7)
(3,6)
0,2
–
(2,0)
–
6,7
9,3
1,7
–
31,2
–
(6,1)
48,9
Acquisition of shares in Aspen Pharmacare Holdings Limited*
Revaluation to fair value – charged to equity
23,6
(1,5)
–
At the end of the year
22,1
–
Deferred tax liabilities/(assets) – opening balance
Statement of comprehensive income charge/(credit) – included in tax
Statement of comprehensive income charge/(credit) – prior year adjustment
Split of balance
Deferred tax liabilities
Deferred tax assets
Deferred tax balance comprises
Property, plant and equipment
Intangible assets
Receivables and prepayments
Other payables
The statement of comprehensive income charge/(credit) comprises
Property, plant and equipment
Intangible assets
Receivables and prepayments
Tax claims in respect of share schemes
Other payables
Other
7.
2016
R’million
Available-for-sale financial assets
The Aspen Pharmacare Holdings Limited shares are fair valued by reference to the stock exchange quoted bid prices. These shares
are classified as “level 1” assets in the fair value measurement hierarchy.
* Shares are purchased and held by the Company until vesting of deferred incentive bonus takes place.
8.
Cash and cash equivalents
Summary of balance
Bank balances
957,0
320,3
Other disclosure
The average effective interest rate on cash and cash equivalents is 7,5% (2016: 6,9%).
The total amount of cash and cash equivalents is exposed to credit risk, and are held with highly reputable banks. The Company
does not expect any treasury counterparties to fail to meet their obligations, given their high credit ratings.
All cash and cash equivalents are denominated in Rand.
The maturity profile of bank balances is less than one month.
106
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Notes to the Company Annual Financial Statements continued
for the year ended 30 June 2017
9.
Receivables and prepayments
Summary of balance
2017
R’million
2016
R’million
–
16,6
7,8
25,0
15,9
2,8
24,4
43,7
7,8
16,6
27,8
15,9
24,4
43,7
3,5
0,2
(3,1)
4,2
3,5
(4,2)
0,6
3,5
–
–
22,5
(22,5)
–
–
Enterprise development loans
Prepayments
Other
Split of balance
Financial assets
Non-financial assets
Other disclosure
The Company holds no collateral over any receivables and prepayments.
Receivables and prepayments are non-interest bearing, except for enterprise development loans
which bore interest at the South African prime overdraft rate plus a margin of 1% in the prior year.
All receivables and prepayments classified as financial instruments are fully performing and
are denominated in Rand.
The credit quality of receivables and prepayments is considered to be satisfactory.
10.
Derivative financial instruments
Reconciliation of balance
Balance at the beginning of the year
Fair value gains on interest rates swaps (included in finance costs)
Fair value losses on interest rate swaps (included in other comprehensive income)
Derivatives consist of interest rate swaps.
The fair value of interest rate swaps is calculated as the present value of estimated future cash
flows discounted using the appropriate yield curve.
The interest rate swaps were classified as “level 2” assets in the fair value measurement hierarchy.
11.
Assets classified as held-for-sale
Reconciliation of balance
Reclassification from intangible assets
Disposals
In the previous, Pharmacare and Brimpharm (Pty) Limited concluded a set of agreements with Litha in terms of which these
companies divested the portfolio products for a consideration of a R1,7 billion. The portfolio of products comprise injectables and
established brands. The approval of this transaction by the South African competition authorities on 4 August 2015. This transaction
completed on 1 October 2015.
12.
Share capital
Summary of balance
2017
R’million
2016
R’million
Authorised
717 600 000 (2016: 717 600 000) ordinary shares with no par value
Issued
–
–
456 435 185 (2016: 456 351 337) ordinary shares with no par value
3 224,7
3 205,1
2017
million
2016
million
Shares in issue at the beginning of the year
Shares issued – share schemes
456,4
–
456,3
0,1
Shares in issue at the end of the year
456,4
456,4
The unissued shares have been placed under the control of the directors until the forthcoming annual general meeting.
All shares are fully paid up, and no amounts are outstanding in terms of shares issued during the year.
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
13.
107
Borrowings
Currency analysis and maturity profile of total borrowings
Within
1 year
R’million
Bank overdrafts
Rand
Unsecured loans
Rand syndicated term loan – Facility F
Rand other
Capital raising fees
Total borrowings
2017
Between
1–5
years
R’million
1 176,9
–
–
25,0
–
250,0
–
(0,8)
1 201,9
249,2
2016
Total
R’million
1 176,9
Within
1 year
R’million
Between
1–5
years
R’million
Total
R’million
1 006,7
–
1 006,7
–
40,0
–
250,0
–
(0,9)
250,0
40,0
(0,9)
1 046,7
249,1
1 295,8
250,0
25,0
(0,8)
1 451,1
Interest rate profile of total borrowings
2017
Total
R’million
Bank overdrafts – linked to South African
prime overdraft rate
Unsecured loans – linked to three-month
JIBAR
Unsecured loans – linked to overnight call
rate
Capital raising fee#
Total borrowings
#
Interest
rate
%
2016
Average
effective
interest
rate
%
Total
R’million
6,9
1 006,7
9,3
250,0
8.0
40,0
(0,9)
less margin
of 3,0%
+ margin
250,0
of 2,2%
Overnight
25,0
call
(0,8)
1 176,9
1 451,1
Interest
rate
%
less margin
of 3,0%
+ margin
of 2,2%
Overnight
call
Average
effective
interest
rate
%
6,9
9,5
7,8
1 295,8
Capital raising fees relate to the unsecured loans above but have been shown separately as they are non-interest bearing.
Other disclosures
There were no undrawn borrowing facilities available at year-end.
There were no defaults or breaches of the contractual terms of the borrowings during the year.
2017
R’million
14.
2016
R’million
Other payables
Summary of balance
Accrued expenses
Leave pay
Bonuses
Other
Split of balance
Financial liabilities
Non-financial liabilities
Other disclosures
Currency analysis of trade and other payables (financial instruments only)
Euro
South African Rand
All other payables (financial instruments only) are predominantly non-interest bearing.
23,2
9,5
45,7
71,0
10,6
7,9
39,7
24,2
149,4
82,4
106,7
42,7
30,4
52,0
149,4
82,4
–
106,7
0,7
29,7
106,7
30,4
108
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Notes to the Company Annual Financial Statements
for the year ended 30 June 2017
15.
278,0
331,4
1 861,4
2 391,9
2 470,8
–
(11,4)
7,8
7,8
4,9
2,9
–
43,8
1,5
0,7
0,1
–
7,1
6,9
4,9
2,0
0,2
5,9
1,4
0,7
0,1
0,6
15,5
18,3
43,8
293,4
3,9
1,5
21,7
22,7
92,9
94,0
11,7
18,2
5,9
274,4
3,7
1,4
24,1
16,6
74,5
52,6
607,7
483,1
502,8
104,9
451,7
31,4
607,7
483,1
203,5
22,0
14,8
0,2
14,6
4,2
201,4
19,7
23,1
1,1
22,0
4,4
244,5
248,6
Expenses by nature
Depreciation of property, plant and equipment
Amortisation of intangible assets
Impairment of intangible assets
Personnel costs and other staff-related costs
Property costs
Transaction costs
Legal and consulting fees
Insurance local policy
Information technology costs
Other
Classified as
Administrative expenses
Other operating expenses
18.
220,4
432,7
1 738,8
Operating profit
Operating profit has been arrived at after crediting
Profit on the sale of assets classified as held-for-sale
After charging
Auditors’ remuneration
Audit fees
Current year
Prior year under provision
Other services
Impairment of intangible assets (included in other operating expenses)
Transaction costs
Operating lease rentals – land and buildings
Operating lease rentals – office equipment and furniture
Loss on the sale of property, plant and equipment
17.
2016
R’million
Revenue
Summary of balance
Royalties
Administrative fees received from subsidiaries
Dividends received from subsidiaries
16.
2017
R’million
Directors and employees
Staff costs
Wages and salaries
Defined contribution plans
Share-based payment expense – deferred incentive bonus
Cash portion
Equity portion
Other employee contributions
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
19.
2017
R’million
2016
R’million
20,1
2,6
2,6
48,6
2,7
3,4
25,3
54,7
106,8
0,2
(34,3)
(0,2)
108,1
1,2
(0,7)
(3,5)
72,4
105,1
Summary of balance
South African tax
Foreign tax
81,3
3,8
20,2
6,1
Deferred tax
(6,1)
48,9
Total tax charge
79,0
75,3
Investment income
Summary of balance
Interest received on bank balances
Interest received from Group companies
Interest received – Other
20.
Financing costs
Summary of balance
Interest paid on borrowings
Capital raising fees released
Net foreign exchange gains
Fair value gain on derivative financial instruments
21.
109
Tax
The Company submits its tax returns and advance payments as they fall due and the 2016 tax returns have been submitted by the
Company.
Disputed income tax matter
The Aspen Group was subject to an international tax and transfer pricing audit by the South African Revenue Service (“SARS”) and
Aspen Pharmacare Holdings Limited received a revised assessment in relation to its 2011 fiscal year as a consequence of this
audit. Aspen, with the assistance of its legal and tax advisers, entered into discussions with SARS, which has resulted in the
assessment being reversed by SARS on 16 October 2017.
Reconciliation of effective tax rate
South African current tax rate
Increase in rate due to
Disallowed expenditure
Withholding and other taxes
Prior year adjustments
Other
Decrease in rate due to
Exempt income
Effective tax rate
2017
%
2016
%
28,0
28,0
2,4
0,2
1,2
0,7
1,6
0,3
1,0
–
(28,0)
(27,0)
4,5
3,9
110
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Notes to the Company Annual Financial Statements continued
for the year ended 30 June 2017
22.
Related-party transactions
Transactions with shareholders
The Company did not enter into any transactions with direct beneficial shareholders during the current year, except as described
in the Directors’ Report and note 22 of the Group’s Annual Financial Statements.
Intra-group transactions and balances
During the year, the Company entered into arm’s length transactions with other companies in the Group.
Refer to note 25 for a list of the material operating subsidiaries and structured entities.
None of the balances are secured.
The following intra-group transactions took place between Aspen Holdings and Group
companies during the current year
Royalties received
Pharmacare Limited
Other subsidiaries
Administration fees received
Aspen Global Incorporated
Aspen Europe GmbH
Aspen Healthcare FZ LLC
Aspen Notre Dame de Bondeville SAS
Aspen Oss B.V.
Aspen Pharma Ireland Limited
Pharmacare Limited
Other subsidiaries
Interest received on shareholders’ loans – Beta Healthcare International Limited
Dividends received (and paid to the Company)
Aspen Global Incorporated
Brimpharm SA (Pty) Limited
Aspen Pharmacare Nigeria Limited
Pharmacare Limited
Other subsidiaries
The following intra-group balances were outstanding between Aspen Holdings and Group
companies at year end
Amounts reflected as current assets
Aspen Global Incorporated
The Aspen Share Incentive Scheme Trust
Shelys Pharmaceuticals International Limited
Other subsidiaries
Amounts reflected as current liabilities
Pharmacare Limited
Aspen Port Elizabeth (Pty) Limited
Aspen International Distribution (Pty) Limited
Other subsidiaries
2017
R’million
2016
R’million
220,4
217,6
2,8
432,7
93,0
12,0
21,3
20,4
34,2
14,5
90,8
146,5
2,6
1 738,8
1 735,8
–
3,0
–
–
278,0
277,5
0,5
331,4
81,2
10,2
15,9
18,5
26,5
7,5
71,9
99,7
2,7
1 861,4
818,1
131,0
4,9
900,0
7,4
431,5
30,0
87,3
112,0
202,2
414,8
318,6
27,1
29,1
40,0
383,3
48,5
101,5
112,0
121,3
357,0
280,6
27,1
29,1
20,2
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
22.
111
Related-party transactions continued
Transactions and balances with directors
All directors have given general declarations of interest in terms of section 75 of the Companies Act of 2008.
These declarations indicate that various members of the Board hold various other directorships in South African entities with
whom transactions are conducted by the Company in terms of a customer/supplier relationship.
These transactions have been concluded on terms and conditions that are no more favourable than those entered into with third
parties in arm’s length transactions, and are all unsecured.
Chris Mortimer, a non-executive director of Aspen, is a full-time practising attorney and managing partner at Chris Mortimer &
Associates which provides legal services to the Company. During the year total legal fees expensed in the statement of
comprehensive income for services provided by Chris Mortimer & Associates was Rnil (2016: R0,4 million), and no balance was
outstanding at year end (2016: Rnil).
Transactions with key management personnel
Key management personnel consist of directors (including executive directors).
Key management personnel compensation consists of
2017
R’million
2016
R’million
Short-term employee benefits
Post-employment benefits
Share-based payment expense
49,3
4,5
15,5
45,8
4,0
14,6
Total key management remuneration paid
69,3
64,4
14
14
Number of employees included above
Other than disclosed above, and in the Directors’ Report, no significant related-party transactions were entered into during the year
under review.
112
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Notes to the Company Annual Financial Statements continued
for the year ended 30 June 2017
23.
Financial risk management
23.1
Introduction
The Company does not trade in financial instruments, but in the ordinary course of business operations, the Company is
exposed to a variety of financial risks arising from the use of financial instruments. These risks include:
➜➜market risk (comprising interest rate risk and foreign currency risk);
➜➜liquidity risk;
➜➜credit risk; and
➜➜capital risk.
The Audit & Risk Committee is responsible for the establishment and oversight of a risk management framework which is
applicable to the Company. This framework is formally documented, and stipulates the responsibilities and processes for
monitoring and managing the risks to which the Company is exposed.
The Company measures and monitors treasury relevant risks (i.e. liquidity, foreign exchange, interest rate, covenants,
counterparty, etc.) affecting it, and reports on these risks to the Group Treasury Committee on a periodic basis. The Group
Treasury Committee provides the Company guidance with respect to managing these risks. However, the Company’s
management is empowered, within the relevant approvals frameworks, to make decisions regarding how to manage these
risks, as well as taking ownership for the implementation of any related action. The Group Treasury Committee reports to
the Audit & Risk Committee.
Risk management and measurement relating to each of these risks is discussed under the headings below.
23.2
Financial instruments by category
The carrying value of financial instruments by category is as follows
Loans and
receivables
R’million
At fair value
through
profit or loss
R’million
At
amortised
cost
R’million
Total
R’million
7,8
957,0
431,5
–
–
–
–
0,6
–
–
–
–
7,8
957,0
431,5
0,6
1 396,3
0,6
–
1 396,9
Financial liabilities
Unsecured loans
Bank overdrafts
Other payables
Amounts due to Group companies
–
–
–
–
–
–
–
–
274,2
1 176,9
106,7
414,8
274,2
1,176,9
106,7
414,8
Total financial liabilities
–
–
1 972,6
1 972,6
June 2016
Financial assets
Receivables and prepayments
Cash and cash equivalents
Amounts due by Group companies
Interest rate swaps (net settled)
27,8
320,3
383,3
–
–
–
–
3,5
–
–
–
–
27,8
320,3
383,3
3,5
Total financial assets
731,4
3,5
–
734,9
Financial liabilities
Unsecured loans
Bank overdrafts
Other payables
Amounts due to Group companies
–
–
–
–
–
–
–
–
289,1
1 006,7
30,4
357,0
289,1
1 006,7
30,4
357,0
Total financial liabilities
–
–
1 368,2
1 368,2
June 2017
Financial assets
Receivables and prepayments
Cash and cash equivalents
Amounts due by Group companies
Interest rate swaps (net settled)
Total financial assets
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
23.
113
Financial risk management continued
23.3
Market risk management
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in
market prices. The market risks that the Company is primarily exposed to include foreign currency risk and interest rate
risk. Market risk is managed by identifying and quantifying risks on the basis of current and future expectations and
ensuring that all trading occurs within defined parameters. This involves the review and implementation of methodologies
to reduce risk exposure. The reporting on the state of the risk and risk practices to executive management is part of this
process. The processes set up to measure, monitor and mitigate these market risks are described below. There has been
no change to the Company’s exposure to market risk or the manner in which it manages and measures the risk since the
previous period.
23.4
Foreign currency risk
The Company’s transactions are predominantly entered into in Rand. However, the Company’s operations utilise various
foreign currencies (currencies other than the operations functional currencies) in respect of expenses incurred.
Consequently the Company is exposed to exchange rate fluctuations that have an impact on cash flows. These operations
are exposed to foreign currency risk in connection with contracted payments in currencies other than Rand.
Foreign currency risks are managed through the Company’s financing policies and selective use of forward exchange
contracts.
At 30 June 2017 and 30 June 2016, the Company had no outstanding forward exchange contracts.
Sensitivity analysis
The Company had used a sensitivity analysis technique that measured the estimated change to the statement of
comprehensive income of an instantaneous 10% strengthening or weakening in the Rand against all other currencies, from
the rate applicable at 30 June, for each class of financial instrument with all other variables remaining constant. This
analysis is for illustrative purposes only, as in practice, market rates rarely change in isolation.
The Company is mainly exposed to fluctuations in foreign exchange rates in respect of the Euro. The analysis considered
the impact of changes in foreign exchange rates on the statement of comprehensive income.
The analysis had been performed on the basis of the change occurring at the start of the reporting period and assumed
that all other variables, in particular interest rates, remain constant and was performed on the same basis for 2016.
A 10% weakening in the Rand against the foreign exchange rates to which the Company is exposed at the reporting date,
would have increased profit before tax by R7,6 million (2016: R0,1 million).
A 10% strengthening in the Rand against the foreign exchange rates would have the equal and opposite effect on profit
before tax, on the basis that all other variables remain constant.
23.5
Interest rate risk
The Company’s interest rate risk arises from interest on bank overdrafts, borrowings, cash and cash equivalents and other
non-current receivables. Exposure to interest rate risk is monitored on a continuous and proactive basis.
Carrying value
2017
R’million
Variable rate instruments
Trade and other receivables
Cash and cash equivalents
Borrowings
Variable rate exposure
2016
R’million
(4,0)
(957,0)
1 201,9
(25,0)
(320,3)
1 296,7
240,9
951,4
114
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Notes to the Company Annual Financial Statements continued
for the year ended 30 June 2017
23.
Financial risk management continued
23.5
Interest rate risk continued
Interest rate swaps
The following pay fixed rate, receive floating rate interest rate derivative contract was in place:
Outstanding
contract
amount
R’million
Fixed
interest
rate
%
250,0
7,1%
(three-month
JIBAR)
Rand syndicated term loan Facility F
Expiry
date
30 June 2021
The interest rate swap is designated in a cash flow hedging relationship. The nature of the risks that are hedged (interest
rate risk) is the variability of the quarterly interest payments on the hedged items, attributable to movements in the
three-month JIBAR rate. All remeasurements for the remaining term of the swap will be recognised directly in the
statement of comprehensive income.
The maturity profile of the gross contract amount at 30 June 2017 is four years.
Sensitivity analysis
The Company is exposed mainly to fluctuations in the following market interest rates: South African prime overdraft rate
and three-month JIBAR. Changes in market interest rates affect the interest income and expense of floating rate financial
instruments.
An increase of 1% in interest rates at 30 June would have decreased profit before tax by R8,1 million and R3,8 million in
2017 and 2016 respectively. A decrease of 1% will have an equal and opposite effect on profit before tax.
An increase of 1% in the yield curve at 30 June 2017 would result in a decrease of Rnil (2016: R2,7 million) in the fair value
of the derivative liabilities in the statement of comprehensive income. A decrease of 1% in the yield curve will have an
equal and opposite effect on the derivative liabilities in the statement of comprehensive income.
23.6
Liquidity risk
Liquidity risk is the risk that an entity will not be able to meet its obligations as they become due. The Company manages
liquidity risk by effectively managing its working capital, capital expenditure and cash flows. The Company finances its
operations through a mixture of retained income, bank funding and financing from Group companies. Adequate banking
facilities and reserve borrowing capacities are maintained. The Company manages liquidity risk through forecasting and
monitoring cash flow requirements on a daily basis.
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
23.
115
Financial risk management continued
23.6
Liquidity risk continued
The following are the undiscounted contractual maturities of financial assets and liabilities
Undiscounted cash flows
June 2017
Financial assets
Receivables and prepayments (financial
instruments only)
Cash and cash equivalents
Amounts due by Group companies
Interest rate swaps (net settled)
Total financial assets
On demand
R’million
< One year
R’million
One to five
years
R’million
Total
R’million
–
957,0
431,5
–
7,8
–
–
0,6
–
–
–
–
7,8
957,0
431,5
0,6
1 388,5
8,4
–
1 396,9
Financial liabilities
Unsecured loans
Bank overdrafts
Other payables (financial instruments only)
Amounts due to Group companies
–
(1 176,9)
–
(414,8)
Total financial liabilities
(1 591,7)
(203,2)
Net exposure
(49,0)
–
(106,9)
–
(343,0)
–
–
–
(390,2)
(1 176,9)
(106,9)
(414,8)
(155,7)
(343,0)
(2 090,4)
(147,3)
(343,0)
(693,5)
June 2016
Financial assets
Receivables and prepayments (financial
instruments only)
Cash and cash equivalents
Amounts due by Group companies
Interest rate swaps (net settled)
–
320,3
383,3
–
27,8
–
–
3,5
–
27,8
320,3
383,3
3,5
Total financial assets
703,6
31,3
–
734,9
–
(1 006,7)
–
(357,0)
61,7
–
(30,4)
–
(345,0)
–
–
–
(406,7)
(1 006,7)
(30,4)
(357,0)
(357,0)
(290,1)
(345,0)
(1 800,8)
26,3
(60,8)
(345,0)
(1 065,9)
Financial liabilities
Unsecured loans
Bank overdrafts
Other payables (financial instruments only)
Amounts due to Group companies
Total financial liabilities
Net exposure
–
–
116
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Notes to the Company Annual Financial Statements continued
for the year ended 30 June 2017
23.
Financial risk management continued
23.7
Credit risk
Credit risk, or the risk of financial loss due to counterparties to financial instruments not meeting their contractual
obligations, is managed by monitoring procedures.
Credit risk primarily arises from receivables and prepayments, other non-current receivables, derivative financial
instruments and cash and cash equivalents. The Company’s maximum exposure to credit risk is represented by the
carrying values of these financial assets. Refer to the respective notes for more detail on how the Company manages
credit risks for these financial assets.
23.8
Capital risk
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern
in order to provide sustainable returns for shareholders, benefits for other stakeholders and to maintain an optimal capital
structure to reduce the cost of capital.
The capital structure of the Company consists of borrowings and equity attributable to holders of the parent comprising
share capital, non-distributable reserves and retained income.
The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence, and to
sustain future development of the business. The Board reviews the capital structure on a quarterly basis. As part of the
review, the Board considers the cost of capital and the risks associated with each class of capital. Based on
recommendations of the Board, the Company will balance overall capital structure through payments of dividends
(including capital distributions), new shares issued as well as the issue of new borrowings or the redemption of existing
borrowings.
There were no changes to the Company’s approach to capital management during the year.
24.
Contingent liabilities
Guarantees to financial institutions
The Company has several guarantees for indebtedness of subsidiaries to financial institutions which amount to R55,6 billion
(2016: R40,6 billion). The guarantees relate mainly to the syndicated term loans as well as cross guarantees provided between
Group companies for each other’s indebtedness. The guarantees are entered into on an arm’s length basis. The primary reason
for the increase in the value of the guarantees provided is the change in the guarantor structure in respect of the syndicated
term loan, whereby all obligators have a joint and several liability for all outstanding commitments from the obligators to lenders
under the syndicated term loan agreement. The obligators referred to above comprise:
➜➜Aspen Pharmacare Holdings Limited;
➜➜Pharmacare Limited;
➜➜Aspen Finance (Pty) Limited;
➜➜Aspen Global Incorporated; and
➜➜Aspen Asia Pacific (Pty) Limited
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
25.
117
Material operating subsidiaries and structured entities
Country of
incorporation
Subsidiaries
Direct
Germany
Mauritius
France
The Netherlands
Kenya
South Africa
Company
Currency
Aspen Bad Oldesloe GmbH
Aspen Global Incorporated
Aspen Notre Dame de Bondeville SAS
Aspen Oss B.V.
Beta Healthcare International Limited
Fine Chemicals Corporation
(Pty) Limited
Pharmacare Limited
Aspen Finance (Pty) Limited
Various
South Africa
South Africa
Various
Indirect
United Arab Emirates Aspen Healthcare FZ LLC
Russia
Aspen Health LLC
Australia
Aspen Nutritionals Australia
Pty Limited
Brazil
Aspen Pharma – Indústria
Farmacêutica Limitada
Ireland
Aspen Pharma Ireland Limited
Australia
Aspen Pharma (Pty) Limited
Australia
Aspen Pharmacare Australia
Pty Limited
Tanzania
Shelys Pharmaceuticals Limited
Mexico
Wyeth, S de R. L. de C.V.
Various
Various
Trusts (structured
entities)^
South Africa
Aspen Share Appreciation Plan
South Africa
Aspen Share Incentive Scheme
Total investments
in subsidiaries
Issued
capital
Effective Group
holding
Investment
‘000
2017
%
2016
%
2017
R’million
2016
R’million
EUR
EUR
EUR
EUR
KES
ZAR
50
908 529
266 311
53 000
30 000
–#
100
100
100
100
100
100
100
100
100
100
100
100
685,1
8 654,3
3 780,1
1 389,4
7,1
329,7
685,1
8 654,3
3 780,1
1 389,4
4,8
329,7
ZAR
EUR
∆
1 395
22 000
∆
100
100
∆
100
100
∆
2 068,4
370,0
298,0
2 057,8
370,0
298,0
USD
RUB
AUD
82
615 400
–#
100
100
100
100
100
100
–
–
–
–
–
–
BRL
385 066
100
100
–
–
EUR
AUD
AUD
42 001
11 862
167 373
100
100
100
100
100
100
–
–
–
–
–
–
TZS 6 723 843
MXN 1 944 870
∆
∆
100
100
∆
100
100
∆
–
–
–
–
–
–
100
100
100
100
–
–
–
–
ZAR
ZAR
N/A
N/A
17 582,1 17 569,2
# Less than 1 000.
^These trusts are structured entities which are consolidated into the Group Annual Financial Statements and are not subject to any other risk exposure.
∆ These direct and indirect holdings are made up of various subsidiaries incorporated in multiple territories.
Detailed information is only given in respect of the Company’s material operating subsidiaries. The Company maintains a register of
all subsidiaries and structured entities available for inspection at the registered office of Aspen Holdings.
Definitions
AUD: Australian Dollar
BRL: Brazilian Real
EUR: Euro
KES: Kenyan Shilling
RUB: Russian Ruble
MXN: Mexican Peso
TZS: Tanzanian Shilling
USD: US Dollar
ZAR: South African Rand
118
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Illustrative constant exchange rate report – Annexure 1
Illustrative constant exchange rate report on selected financial data
The Group has presented selected line items from the consolidated statement of comprehensive income and certain trading profit
metrics on a constant exchange rate basis in the tables below.
The pro forma constant exchange rate information is presented to demonstrate the impact of fluctuations in currency exchange rates
on the Group’s reported results. The constant exchange rate report is the responsibility of the Group’s Board of Directors and is
presented for illustrative purposes only. Due to the nature of this information, it may not fairly present the Group’s financial position,
changes in equity and results of operations or cash flows. The pro forma information has been compiled in terms of the JSE Listings
Requirements and the Revised Guide on Pro Forma information by SAICA and the accounting policies of the Group as at 30 June 2017.
The illustrative constant exchange rate report on selected financial data has been derived from the audited financial information and
has been reported on by Aspen’s auditors in an assurance report, which is available for inspection at the Company’s registered office.
The Group’s financial performance is impacted by numerous currencies which underlie the reported trading results, where even
within geographic segments, the Group trades in multiple currencies (“source currencies”). The constant exchange rate restatement
has been calculated by adjusting the prior year’s reported results at the current year’s reported average exchange rates. Restating the
prior year’s numbers provides illustrative comparability with the current year’s reported performance by adjusting the estimated effect
of source currency movements.
The listing of average exchange rates against the Rand for the currencies contributing materially to the impact of exchange rate
movements are set out below:
EUR – Euro
USD – US Dollar
AUD – Australia Dollar
JPY – Japanese Yen
CNY – Chinese Yuan Renminbi
MXN – Mexican Peso
BRL – Brazilian Real
GBP – British Pound
RUB – Russian Ruble
PLN – Polish Zloty
2017
average
rates
2016
average
rates
14,840
13,612
10,261
0,125
1,999
0,700
4,198
17,271
0,224
16,115
14,575
10,607
0,126
2,258
0,837
3,950
21,381
0,216
3,440
3,747
Revenue, other income, cost of sales and expenses
For purposes of the constant exchange rate report the prior year’s source currency revenue, cost of sales and expenses have been
restated from the prior year’s relevant average exchange rate to the current year’s relevant reported average exchange rate.
Net interest paid
Net interest paid is directly linked to the source currency of the borrowing on which it is levied and is restated from the prior year’s
relevant reported average exchange rate to the current year’s relevant reported average exchange rate.
Tax
The tax charge for purposes of the constant currency report has been recomputed by applying the actual effective tax rate to the
restated profit before tax for the relevant legal entity.
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Change at
reported
exchange
rates
Illustrative
constant
exchange rates
(June 2016 at
2017 average
rates)
R’billion
Change at
constant
exchange
rates
35,6
17,9
10,1
9,0
5,8
16%
11%
13%
(7%)
16%
33,8
17,2
9,7
8,6
5,5
22%
16%
18%
(4%)
21%
1 123,4
1 299,5
945,4
889,0
19%
46%
904,1
847,6
24%
53%
1 463,2
1 263,7
16%
1 210,9
21%
Reported
June 2017
(At 2017
average
rates)
%
Reported
June 2016
(At 2016
average
rates)
%
26
20
14
11
5
4
3
3
2
2
1
9
100
30
21
17
10
2
–
4
2
2
2
1
9
100
28
22
18
(11)
8
7
2
4
2
3
2
15
100
26
27
22
(3)
3
–
4
3
–
3
3
12
100
Reported
June 2017
(At 2017
average
rates)
R’billion
Revenue
Gross profit
Normalised EBITDA
Operating profit
Normalised headline earnings
Earnings per share (cents)
Headline earnings per share (cents)
Normalised headline earnings per share
(cents)
119
Reported
June 2016
(At 2016
average
rates)
R’billion
41,2
19,9
11,4
8,3
6,7
Currency mix
Revenue
EUR – Euro
ZAR – South African Rand
AUD – Australia Dollar
USD – US Dollar
JPY – Japanese Yen
CNY – Chinese Yuan Renminbi
MXN – Mexican Peso
BRL – Brazilian Real
GBP – British Pound
RUB – Russian Ruble
PLN – Polish Zloty
Other currencies
Total
Gross profit
EUR – Euro
ZAR – South African Rand
AUD – Australia Dollar
USD – US Dollar
JPY – Japanese Yen
CNY – Chinese Yuan Renminbi
MXN – Mexican Peso
BRL – Brazilian Real
GBP – British Pound
RUB – Russian Ruble
PLN – Polish Zloty
Other currencies
Total
120
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Illustrative constant exchange rate report – Annexure 1 continued
Reported
June 2017
(At 2017
average
rates)
%
Normalised EBITDA
EUR – Euro
ZAR – South African Rand
AUD – Australia Dollar
USD – US Dollar
JPY – Japanese Yen
CNY – Chinese Yuan Renminbi
MXN – Mexican Peso
BRL – Brazilian Real
GBP – British Pound
RUB – Russian Ruble
PLN – Polish Zloty
Other currencies
Total
36
23
20
(26)
11
9
–
4
–
4
3
16
100
Reported
June 2016
(At 2016
average
rates)
%
26
30
26
(12)
3
–
2
2
1
4
4
14
100
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Commercial pharmaceuticals by customer
geography
Sub-Saharan Africa
Developed Europe
Australasia
Latin America
Developing Europe & CIS
Japan
China
Other Asia
MENA
USA & Canada
121
Reported
June 2017
(At 2017
average
rates)
R’billion
Reported
June 2016
(At 2016
average
rates)
R’billion
Illustrative
constant
exchange rate
June 2016
(June 2016
at 2017
average rates)
R’billion
31,4
7,4
6,8
4,8
2,7
2,6
1,9
1,8
1,2
1,1
1,1
25,4
7,1
6,1
4,7
2,0
2,3
0,7
–
0,9
0,9
0,7
24,2
7,0
5,7
4,5
1,9
2,3
0,6
–
0,9
0,7
0,6
30%
6%
21%
7%
46%
16%
>100%
>100%
50%
36%
69%
Change at
constant
exchange
rates
Manufacturing revenue by geography of
manufacture
Manufacturing revenue – finished dose form
Sub-Saharan Africa
Developed Europe
Australasia
Manufacturing revenue – active pharmaceutical
ingredients
Developed Europe
Sub-Saharan Africa
2,2
1,0
0,7
0,5
2,3
0,5
0,9
0,9
2,2
0,8
0,9
0,5
–
27%
(25%)
–
4,4
4,0
0,4
4,4
4,0
0,4
4,1
3,7
0,4
9%
9%
12%
Total manufacturing revenue
6,6
6,7
6,3
6%
38,0
32,1
30,5
25%
3,2
1,4
1,0
0,8
3,5
1,5
1,0
1,0
3,3
1,4
0,9
1,0
(3%)
5%
4%
(21%)
41,2
35,6
33,8
22%
Sub-Saharan Africa
Developed Europe
Australasia
Latin America
Developing Europe & CIS
Japan
China
Other Asia
MENA
USA & Canada
9,8
11,5
6,1
4,1
2,6
1,9
1,8
1,2
1,1
1,1
9,4
11,0
6,2
3,4
2,4
0,7
–
0,9
0,9
0,7
9,1
10,3
6,0
3,3
2,3
0,6
–
0,9
0,7
0,6
8%
13%
1%
29%
16%
>100%
>100%
50%
36%
69%
Total revenue
41,2
35,6
33,8
22%
Total pharmaceuticals
Nutritionals by customer geography
Latin America
Sub-Saharan Africa
Australasia
Total revenue
Summary of regions
122
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Illustrative constant exchange rate report – Annexure 1 continued
Commercial pharmaceuticals therapeutic area analysis
Reported June 2017 (At 2017 average rates)
Therapeutic
Focused
Brands
R’billion
Other
Commercial
Pharmaceutical
Brands
R’billion
Total
R’billion
Anaesthetic
Brands
R’billion
Thrombosis
Brands
R’billion
High Potency
& Cytotoxic
Brands
R’billion
Commercial
Pharmaceuticals
Sub-Saharan Africa
Developed Europe
Australasia
Latin America
Developing Europe & CIS
Japan
China
Other Asia
MENA
USA & Canada
0,1
1,7
0,6
0,6
0,3
1,3
1,5
0,4
0,2
0,3
–
3,2
–
0,1
1,7
–
0,3
0,2
0,2
–
0,1
1,5
0,5
0,8
0,5
0,4
–
0,3
0,3
0,3
0,2
6,4
1,1
1,5
2,5
1,7
1,8
0,9
0,7
0,6
7,2
0,4
3,7
1,2
0,1
0,2
–
0,3
0,4
0,5
7,4
6,8
4,8
2,7
2,6
1,9
1,8
1,2
1,1
1,1
Total Commercial
Pharmaceuticals
7,0
5,7
4,7
17,4
14,0
31,4
By customer
geography
Reported June 2016 (At 2016 average rates)
Therapeutic
Focused
Brands
R’billion
Other
Commercial
Pharmaceutical
Brands
R’billion
Total
R’billion
Anaesthetic
Brands
R’billion
Thrombosis
Brands
R’billion
High Potency
& Cytotoxic
Brands
R’billion
Commercial
Pharmaceuticals
Sub-Saharan Africa
Developed Europe
Australasia
Latin America
Developing Europe & CIS
Japan
Other Asia
MENA
USA & Canada
0,1
–
–
–
–
–
–
–
–
–
4,0
–
0,1
1,9
0,1
0,2
0,1
0,1
0,1
1,8
0,5
0,7
0,4
0,5
0,3
0,3
0,4
0,2
5,8
0,5
0,8
2,3
0,6
0,5
0,4
0,5
6,9
0,4
4,2
1,1
–
0,1
0,4
0,5
0,2
7,1
6,2
4,7
1,9
2,3
0,7
0,9
0,9
0,7
Total Commercial
Pharmaceuticals
0,1
6,5
5,0
11,6
13,8
25,4
By customer
geography
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
123
Commercial pharmaceuticals therapeutic area analysis continued
Illustrative constant exchange rate June 2016 (June 2016 at 2017 average rates)
Therapeutic
Focused
Brands
R’billion
Other
Commercial
Pharmaceutical
Brands
R’billion
Total
R’billion
Anaesthetic
Brands
R’billion
Thrombosis
Brands
R’billion
High Potency
& Cytotoxic
Brands
R’billion
Commercial
Pharmaceuticals
Sub-Saharan Africa
Developed Europe
Australasia
Latin America
Developing Europe & CIS
Japan
Other Asia
MENA
USA & Canada
0,1
–
–
–
–
–
–
–
–
–
3,7
–
0,1
1,8
–
0,2
0,1
0,1
0,1
1,6
0,5
0,7
0,4
0,5
0,3
0,2
0,4
0,2
5,3
0,5
0,8
2,2
0,5
0,5
0,3
0,5
6,8
0,4
4,0
1,1
0,1
0,1
0,4
0,4
0,1
7,0
5,7
4,5
1,9
2,3
0,6
0,9
0,7
0,6
Total Commercial
Pharmaceuticals
0,1
6,0
4,7
10,8
13,4
24,2
By customer
geography
% change constant exchange rates
Therapeutic
Focused
Brands
Other
Commercial
Pharmaceutical
Brands
Total
Anaesthetic
Brands
Thrombosis
Brands
High Potency
& Cytotoxic
Brands
Commercial
Pharmaceuticals
Sub-Saharan Africa
Developed Europe
Australasia
Latin America
Developing Europe & CIS
Japan
China
Other Asia
MENA
USA & Canada
35%
>100%
>100%
>100%
>100%
>100%
>100%
>100%
>100%
>100%
35%
(14%)
9%
44%
(2%)
(33%)
>100%
4%
25%
(83%)
29%
(9%)
2%
25%
20%
(16%)
39%
(3%)
4%
(20%)
33%
20%
>100%
>100%
17%
>100%
>100%
98%
69%
22%
5%
36%
(9%)
6%
13%
67%
>100%
(7%)
5%
>100%
6%
21%
7%
46%
16%
>100%
>100%
50%
36%
69%
Total Commercial
Pharmaceuticals
>100%
(5%)
0%
61%
4%
30%
By customer
geography
124
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Shareholder statistics (unaudited)
Analysis of shareholders at 30 June 2017
Number of
shareholders
% of
shareholders
Number of
shares
% of total
shareholding
52 828
2 934
460
314
504
57 040
92,62
5,14
0,81
0,55
0,88
100,00
19 688 412
15 380 950
8 103 268
11 157 585
402 104 970
456 435 185
4,31
3,37
1,78
2,44
88,10
100,00
Ordinary shares
Size of holding
1 – 2 500
2 501 – 12 500
12 501 – 25 000
25 001 – 50 000
50 001 and over
Major shareholders
Institutional shareholders
According to the register of shareholders at 30 June 2017, the following are the top 10 registered institutional shareholders:
Institutional shareholder
Public Investment Corporation
Foord Asset Management
Coronation Asset Management
Genesis Investment Management
Harding Loevner Management
BlackRock Inc.
GIC Asset Management (Pte) Limited
The Vangard Group Inc.
Investec Securities (Pty) Limited
Old Mutual Plc.
Number of
shares
% of total
shareholding
43 851 608
20 294 923
17 348 582
16 541 699
15 550 932
14 177 070
13 602 696
12 890 154
11 132 096
10 376 886
9,61
4,45
3,80
3,62
3,41
3,11
2,98
2,82
2,44
2,27
175 766 646
38,51
Top 10 beneficial shareholders
According to the register of shareholders at 30 June 2017, the following are the top 10 registered beneficial shareholders.
The shareholdings of all directors are disclosed on page 114 of the Remuneration Report.
Shareholder
Saad, SB
Government Employees Pension Fund
Attridge, MG
Government of Singapore Investment Corporation
Ceppwawu Investments (Pty) Limited
Old Mutual Life Assurance Co Limited
Vanguard Emerging Markets Stock Index Fd
Foord Balanced Fund
Saudi Arabian Monetary Agency
Investment Solutions Limited
Number of
shares
% of total
shareholding
55 358 711
54 132 089
18 883 422
14 042 593
10 053 368
6 982 054
6 722 385
6 051 884
5 793 823
5 628 067
12,13
11,86
4,14
3,08
2,20
1,53
1,47
1,33
1,27
1,23
183 648 396
40,24
Shareholders’ spread
As required by paragraph 8.63 and terms of paragraph of 4.25 of the JSE Listings Requirements, the spread of the ordinary
shareholding at close of business 30 June 2017 was as follows:
Number of
shareholders
Number of
shares
% of total
shareholding
13
11
1
1
128 960 779
74 418 451
54 132 089
410 239
28,25
16,30
11,86
0,09
Public shareholders
57 027
327 474 406
71,75
Total shareholding
57 040
456 435 185
100,00
Non-public shareholders
Directors of the Company and directors of material subsidiaries
Government Employees Pension Fund
Employee share trusts – treasury shares
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Beneficial shareholders – country
1%
3%
3%
● South Africa
● USA
● Singapore
● UK
● Ireland
● Various other
Institutional shareholders – country
11%
5%
4%
11%
2017
16%
2%
125
66%
● South Africa
● USA
● Singapore
● UK
● Ireland
● Various other
2017
53%
25%
The geographical split of Beneficial and Institutional Shareholders above is based on shareholders who own more that 25 000 Aspen shares.
Top 10 institutional shareholders
% shareholding
Top 10 beneficial shareholders
% shareholding
Investment Solutions
Saudi Arabian
Monetary Agency
Foord
Vanguard
Old Mutual Life
Assurance Company
Limited
Ceppwawu
Investments (Pty)
Limited
Government of
Singapore Investment
Corporation
Attridge, MG
Government
Employees Pension
Fund
Saad, SB
■ 2016
■ 2017
0,87
Old Mutual
Investment Group
1,23
1,18
Investec Securities
1,27
2,00
1,02
2,27
1,25
2,44
2,33
Vanguard
1,33
2,82
Government of
Singapore Investment
Corporation
2,13
1,47
0,99
2,99
2,98
2,29
BlackRock
1,53
2,20
3,11
1,80
Harding Loevner
Management
2,20
2,37
3,41
Genesis Investment
Management
3,08
4,14
Coronation Asset
Management
4,14
11,16
Foord Asset
Management
11,86
12,13
12,13
Public Investment
Corporation
■ 2016
2,96
3,62
1,14
3,80
4,25
4,45
9,98
9,61
■ 2017
Percentages for Top 10 Beneficial Shareholders and Top 10 Institutional Shareholders reflected above are as a percentage of the total issued
share capital of the Company.
126
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Administration
Company Secretary & Group Governance Officer
Auditors
Riaan Verster
BProc, LLB, LLM (Labour Law)
PricewaterhouseCoopers Inc.
Sponsors
Registered office and postal address
Building Number 8, Healthcare Park, Woodlands Drive, Woodmead
PO Box 1587, Gallo Manor, 2052
Telephone +27 11 239 6100
Telefax
+27 11 239 6144
Registration number
1985/002935/06
Share code
APN ISIN: ZAE 000066692
Website address
www.aspenpharma.com
Investec Bank Limited
Transfer secretaries
Terbium Financial Services (Pty) Limited
31 Beacon Road, Florida North, 1709, Johannesburg
PO Box 61272, Marshalltown, 2107
Telephone 0860 104191
Emailaspen@terbium.global
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
127
Abbreviations
AGI
Aspen Global Incorporated, a subsidiary incorporated in Mauritius
Notre Dame de
Bondeville
Aspen Notre Dame de Bondeville S.A.S., a wholly owned subsidiary incorporated in France
Annual Financial
Statements
The Group and Company Annual Financial Statements for the year ended 30 June 2017
API
Active pharmaceutical ingredient
A&R Co
Audit & Risk Committee
ARV
Anti-retroviral
Aspen and/or
Group
Aspen Pharmacare Holdings Limited and/or its subsidiaries as set out in note 25 to the Company financial
statements, as the context demands
Aspen Holdings
or the Company
Aspen Pharmacare Holdings Limited
Aspen API
Aspen API Incorporated, a wholly owned subsidiary of AGI incorporated in the United States
Aspen Australia
Aspen Australia comprises Aspen Asia Pacific (Pty) Limited (a wholly owned subsidiary of AGI) and its
subsidiaries, including Aspen Pharmacare Australia (Pty) Limited, Aspen Pharma (Pty) Limited, Orphan Holdings
(Pty) Limited, Orphan Australia (Pty) Limited, Aspen Lennon (Pty) Limited and Aspen Products (Pty) Limited
Aspen BO
Aspen Bad Oldesloe GmbH, a wholly owned subsidiary incorporated in Germany
Aspen Brazil
Aspen Pharma – Indústria Farmacêutica Limitada, a wholly owned subsidiary of PharmaLatina Holdings
incorporated in Brazil
Aspen Europe
Aspen Europe GmbH, a wholly owned subsidiary of AGI incorporated in Germany
Aspen Japan
Aspen Japan KK, a wholly owned subsidiary of AGI incorporated in Japan
Aspen Mexico
Aspen Mexico comprises Aspen Labs S.A. de C.V, Aspen Pharma Mexicana S. de R.L. C.V, Solara S.A. de C.V., Aspen
Servicios S. de R.L. de C.V., PN North America S. de R.L. de C.V., Wyeth Ilaclari S. de R.L. de C.V., Wyeth S. de R.L. de
C.V., Marcas WN S.A. de C.V.
Aspen Nigeria
Aspen Pharmacare Nigeria Limited, a subsidiary incorporated in Nigeria
Aspen Oss
Aspen Oss B.V., a subsidiary incorporated in the Netherlands
Aspen Venezuela
Aspen Venezuela C.A. and Aspen Venezuela S.A.
AstraZeneca
AstraZeneca AB and AstraZeneca UK
BBBEE
Broad-Based Black Economic Empowerment
BBBEE Codes
The Department of Trade and Industry’s BBBEE Codes of Good Practice
CAGR
Compound annual growth rate
CDP
Carbon disclosure project
CER
Constant exchange rate
CGMP
Current good manufacturing practice
CHP
Combined heat and power
CIS
The Commonwealth of Independent States, comprising Russia and the former Soviet Republics
Classic brands
A portfolio of 25 established prescription-branded products acquired from GSK
DIFR
Disabling incident frequency ratio
EBITA
Operating profit before amortisation adjusted for specific non-trading items as set out in the segmental analysis
contained in the Annual Financial Statements
ERM
Environmental Resources Management (Pty) Limited
FCC
Fine Chemicals Corporation (Pty) Limited
FDF
Finished dose form
Global brands
Branded products owned by Aspen Global and distributed into multiple territories
GMP
Good Manufacturing Practice
GRI
Global Reporting Initiative
GSK
GlaxoSmithKline Plc
HEPS
Headline earnings per share
HCP
Healthcare professional
HPC
Hydroxyprogesterone Caproate
IFRS
International Financial Reporting Standards
IMS
IMS Health (Pty) Limited, a leading provider of healthcare and pharmaceutical market intelligence
Internal Audit
The Aspen Group Internal Audit function
128
Aspen Pharmacare Holdings Limited
Annual Financial Statements 2017
Abbreviations continued
IP
Intellectual property
ISO 14001
International standard for environmental management systems
JSE
JSE Limited, licensed as an exchange under the Security Services Act, No 36 of 2004
Kama
Kama Industries Limited, a subsidiary incorporated in Ghana
King III
King Report on Corporate Governance for South Africa 2009
King IV
King Report on Corporate Governance for South Africa 2016
KPAs
Key performance areas
KPIs
Key performance indicators
Litha
Litha Pharma (Pty) Limited
LWDFR
Lost work day frequency ratio
Mandela Day
The Nelson Mandela International Day
MENA
Middle East and North Africa
MSD
Merck Sharpe & Dohme
NHEPS
Normalised headline earnings per share
NZNM
New Zealand New Milk Limited
OECD
Organisation for Economic Cooperation and Development
OHSAS 18001
International standard for occupational health and safety management
OTC
Over the counter
Pharmacare
Pharmacare Limited
PHEF
The South African Public Healthcare Enhancement Fund
PPE
Property, plant and equipment
PwC
PricewaterhouseCoopers Incorporated
R&N Co
Remuneration & Nomination Committee
S&E Co
Social & Ethics Committee
SED
Socio-economic development
SEP
Single exit pricing
SHE
Safety, health and environment
Shelys
Shelys Pharmaceuticals Limited, incorporated in Tanzania
Shelys Africa
Comprises Shelys Africa Limited, Shelys Pharmaceuticals Limited, Shelys Pharmaceuticals International Limited,
Beta Healthcare Kenya Limited and Beta Healthcare (Uganda) Limited
SKU
Stock keeping unit
SRI
The JSE’s Socially Responsible Index
SSA
Sub-Saharan Africa
Supplementary
Documents
The Unabridged Corporate Governance Report including the reports of the A&R and S&E Committees, the
Sustainability Data Supplement and the Annual Financial Statements
TesoRx
TesoRx Pharma LLC
The SSA
Collaboration
The GSK Aspen Healthcare for Africa Collaboration
The Companies
Act
The South African Companies Act, No 71 of 2008
UN Global
Compact
United Nations Global Compact
WHO
World Health Organisation
USA
United States of America
AUD
Australian Dollar
EUR
Euro
GBP
British Pound
R/ZAR
South African Rand
USD
United States Dollar
Disclaimer
We may make statements that are not historical facts and relate to analyses and other information based on 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.
Aspen Holdings Head Office
Durban, South Africa
Aspen Place
9 Rydall Vale Park
Douglas Saunders Drive
La Lucia Ridge
Tel: +27 31 580-8600
www.aspenpharma.com