Annual Financial Statements

celebrating 20 years Directors’ Report

The directors have pleasure in presenting their report for the Group and the Company for the year ended 30 June 2018.

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 benefit the lives of patients using its products, reaching more than 150 countries.

Financial results and review of operations

The financial results of the Group are set out here and of the Company in of the Annual Financial Statements. The segmental analysis is included here.

The consolidated earnings attributable to equity holders of the Company amounted to R6 010 million for the year, compared with R5 128 million for the previous year, an increase of 17%. Headline earnings per share (“HEPS”) increased by 13% from 1 299,5 cents to 1 468,8 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. No changes to the issued share capital were effected during the year:

Number
of shares
(million)
Share
capital
(million)
Ordinary shares
Opening balance 456,4 2 089
Shares issued – share schemes 0,1
456,5 2 089

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 10 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

The names of the directors in office at the date of this report are set out in the Integrated Report. The Company Secretary & Group Governance Officer is Riaan Verster. His business and postal addresses appear in this report.

Maureen Manyama resigned as a director of the Company, effective 7 December 2017. On 31 July 2018, John Buchanan retired from the Board and Linda de Beer was appointed to the Board.

In terms of the Company’s Memorandum of Incorporation, Roy Andersen, Linda de Beer, Chris Mortimer, David Redfern and Sindi Zilwa 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 in of the Integrated Report and directors’ remuneration details are set out in note 24 of the Group Annual Financial Statements.

The following changes have taken place in the interests of the directors in the shares of the Company between 30 June 2018 and the date of this report:

  • 10 000 shares were acquired by Chris Mortimer on 14 September 2018;
  • 9 576 shares were transferred to Stephen Saad in October 2018 in terms of the vesting arrangements of the South African Management Deferred Incentive Bonus Scheme; and
  • 7 798 shares were transferred to Gus Attridge in October 2018 in terms of the vesting arrangements of the South African Management Deferred Incentive Bonus Scheme.

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 2018 financial year:

Acquisition of residual rights relating to AZ Anaesthetics Portfolio

On 1 September 2016, AGI acquired the exclusive rights to commercialise the Anaesthetics Portfolio of AstraZeneca globally (excluding the USA) (“the AZ Anaesthetics”). With effect from 1 November 2017, AGI acquired the remaining rights to the intellectual property and manufacturing know-how related to the AZ Anaesthetics (“the residual rights”). The fair value of the residual rights is R8 060 million and R5 202 million of the consideration has been paid in the current financial year. The balance of R2 858 million comprises the present value of future deferred fixed and performance-related milestone payments.

Acquisition of subsidiaries and businesses

With effect from 12 June 2018, Aspen Pharmacare acquired control of 100% of the share capital of Alphamed for a consideration of R164 million. The estimated post-acquisition operating profit from Alphamed is not material to the Group. Due to Alphamed being a standalone company, incorporating manufacturing and development operations, Aspen is accounting for its acquisition as a business combination. Due to the timing of the transaction Aspen has not yet completed the detailed exercise to identify and value the separately identifiable intangible assets acquired and thereafter the goodwill, if any, arising as a result of the transaction. This will be completed as part of the finalisation of the accounting for the acquisition.

Legal ownership of the shares finally transferred to Aspen Pharmacare on 18 September 2018, after the transaction was ratified by the outgoing shareholders following approval of the transaction by the Reserve Bank of India.

Memorandum of Incorporation

No changes were made to the Company’s Memorandum of Incorporation during the year ended 30 June 2018 and up until the date of this report.

Dividend to shareholders

Taking into account the earnings and cash flow performance for the year ended 30 June 2018, existing debt service commitments, future proposed investments and funding options, notice was given that the Board declared a gross dividend of 315 cents per ordinary share to shareholders recorded in the share register of the Company at the close of business on 5 October 2018 (2017: gross dividend of 287 cents per share).

A dividend withholding tax of 20% is applicable to shareholders who are not exempt or who do not qualify for a reduced withholding tax rate under a double taxation agreement. The Company income tax number is 9325178714. The issued share capital of the Company is 456 451 541 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 2019.

The salient dates in respect of the dividend were as follows:

Last day to trade cum dividend Tuesday, 2 October 2018
Shares commence trading ex dividend Wednesday, 3 October 2018
Record date Friday, 5 October 2018
Payment date Monday, 8 October 2018

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 2019, 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 2017, the following special resolutions were passed by the Company:

  • approval of remuneration for non-executive directors for the year ended 30 June 2018 and for the period 1 July 2018 to the date of the 2018 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 Pharmacare Limited (“Pharmacare”) 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 Fine Chemicals Corporation (Pty) Limited (“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 (Pty) Limited 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 (Pty) Limited was approved.

Auditors

The Audit & Risk Committee and Board have recommended that PricewaterhouseCoopers Inc. be reappointed as the designated auditor 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 23 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 31 of the Group Annual Financial Statements and note 20 of the Company Annual Financial Statements.

Borrowings

Borrowings at year-end (net of cash and cash equivalents) amounted to R46 780 million (2017: R37 131 million) are made up as follows:

2018
R’million
2017
R’million
Non-current borrowings 46 725 28 978
Current borrowings 11 225 18 860
Cash and cash equivalents (11 170) (10 707)
46 780 37 131

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 14 of the Group Annual Financial Statements and note 11 of the Company Annual Financial Statements.

Subsequent events

Post year-end, Aspen concluded an agreement (subject to conditions precedent) to divest of its global Nutritionals business, predominantly carried on in Latin America, sub-Saharan Africa and Asia Pacific under the S-26, Alula and Infacare brands, to the Lactalis Group, a leading multinational dairy corporation based in Laval, France, for a fully funded cash consideration of EUR739,8 million as were fully detailed in note 10.