Annual Financial Statements

celebrating 20 years Notes to the Group statements of cash flows

for the year ended 30 June 2018

    2018
R’million
2017
R’million
A. Cash generated from operations    
  Operating profit 9 237 8 321
  Amortisation of intangible assets 632 567
  Depreciation of property, plant and equipment 740 700
  Impairment charges 1 657 1 479
  Reversal of impairment charges (130) (3)
  Loss on the sale of property, plant and equipment 30
  Loss on the sale of intangible assets 4 96
  Share-based payment expense – employees 43 56
  Deferred revenue (127) (129)
  Loss on the sale of subsidiary 70
  Unfavourable and onerous contracts (357) (346)
  Other non-cash items 208 (24)
  Cash operating profit 11 907 10 817
  Working capital movements (1 579) (915)
  Increase in inventories (1 057) (1 085)
  Increase in trade and other receivables (248) (2 733)
  (Decrease)/increase in trade and other payables (274) 2 903
    10 328 9 902
B. Financing costs paid    
  Interest expense (1 884) (1 818)
  Net foreign exchange losses (16) (200)
  Borrowing costs capitalised to property, plant and equipment (177) (182)
    (2 077) (2 200)
C. Investment income received    
  Interest received per statement of comprehensive income 343 287
  Non-cash investment income received (82)
    261 287
D. Tax paid    
  Amounts payable at the beginning of the year (334) (766)
  Tax charged to the statement of comprehensive income (1 334) (1 095)
  Currency translation movements (30) 25
  Amounts owing at the end of the year 526 564
  Amounts receivable at the end of the year (323) (230)
    (1 495) (1 502)
E. Acquisition of residual rights relating to AZ anaesthetics portfolio    
  In the prior year 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 capitalised to intangible assets in the year was R8 060 million and R5 202 million of the consideration has been paid in the current year. The balance of R2 858 million, included in other non-current and current liabilities, comprises the present value of future deferred fixed and performance-related milestone payments. Management has determined that this transaction should be treated as a business combination and not an asset acquisition. Management evaluated whether the transaction resulted in the acquisition of inputs and processes that had the ability to create outputs in addition to those acquired in the previous year (treated as a business combination). Management came to the conclusion that no additional outputs, nor employees, were acquired and therefore treated this transaction as an asset acquisition rather than a business combination.    
F. Cash and cash equivalents    
  Bank balances 9 688 10 005
  Short-term bank deposits 1 450 543
  Cash-in-transit and cash-on-hand 32 159
  Cash and cash equivalents per the statement of financial position 11 170 10 707
  Less: Bank overdrafts^ (3 056) (3 519)
  Cash and cash equivalents per the statement of cash flows 8 114 7 188
  ^ Banks overdrafts are included within current borrowings in the statement of financial position.
G. Acquisition of subsidiaries and businesses
 

June 2018

Set out below is the provisional accounting for the following business combination:

Alphamed business acquisition

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 profits 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.

 R’million
Fair value of assets and liabilities acquired  
Property, plant and equipment 85
Non-current financial receivables 1
Inventories 19
Receivables and prepayments 33
Cash and cash equivalents at acquisition 2
Non-current borrowings (3)
Deferred tax liabilities (3)
Trade and other payables (41)
Current borrowings (7)
Fair value of net assets acquired 86
Goodwill 78
Cash and cash equivalents at acquisition (2)
Consideration outstanding at year-end (10)
Cash outflow on acquisition 152

June 2017

Set out below is the final accounting for the following business combinations:

AstraZeneca Anaesthetics Portfolio

With effect from 1 September 2016, AGI acquired the exclusive rights to commercialise the anaesthetics portfolio of AstraZeneca globally (excluding the USA). As consideration for the commercialisation rights, AGI has paid USD520 million of which USD110 million was paid in the current year. In addition, at acquisition, AGI capitalised performance-related milestone payments of USD250 million of which USD150 million was paid in the current year.

Post-acquisition revenue included in the statement of comprehensive income was R7 123 million (2017: R6 457 million). The estimation of post-acquisition operating profits is impracticable and not reasonably determinable due to the immediate integration of the business into the existing operations of the Group.

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 R616 million (2017: R253 million). The estimation of post-acquisition operating profits is impracticable and not reasonably determinable due to the immediate integration of the business into the existing operations of the Group.

GSK Anaesthetics Portfolio

With effect from 1 March 2017 AGI acquired a portfolio of anaesthetics globally (excluding the USA) from GSK. As consideration, AGI has paid GBP180 million and in addition, capitalised milestone payments of GBP100 million at acquisition of which GBP42 million was paid in the current year.

Post-acquisition revenue included in the statement of comprehensive income was R1 209 million (2017: R608 million). The estimation of post-acquisition operating profits is impracticable and not reasonably determinable due to the immediate integration of the business into the existing operations of the Group.

  AstraZeneca
Anaesthetics
Portfolio
R’million
Fraxiparine
and Arixtra
in China,
Pakistan and
India
R’million
GSK
Anaesthetics
Portfolio
R’million
Total
R’million
Fair value of assets and liabilities acquired        
Intangible assets 11 062 731 4 387 16 180
Deferred tax liabilities (331) (22) (132) (485)
Fair value of net assets acquired 10 731 709 4 255 15 695
Goodwill 331 22 132 485
Net gains from cash flow hedging in respect of business acquisition     (40)   (167)   (207)
Deferred and contingent consideration (5 045) (1 500) (6 545)
Cash outflow on acquisition 6 017 691 2 720 9 428
 

Management has determined that these transactions should be accounted for as business combinations and not as asset acquisitions.

There are three components that should be considered when assessing if a transaction is a business combination, these are inputs, processes and outputs.

Aspen considered all these transactions to be business combinations due to the following:

  • Aspen acquired intangible assets or commercialisation rights with each of these acquisitions that were regarded as inputs;
  • Aspen acquired specialised sales forces with each of the acquisitions, regarded as processes; and
  • The output of an economic inflow of profits from the commercialisation of the intangible assets acquired which includes the right of Aspen to procure the manufacturing output from the counterparties
 

Segmental reporting

The reportable segments reflect the current operating model of the Group and achieve alignment with the way in which the business is managed and reported on by the Chief Operating Decision Maker (“CODM”). The business segments reported are 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 & Cytotoxics. Other Pharmaceuticals comprises revenue from Regional Brands (being 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 reflects the regional split of revenue within the reportable segments. The regions are as follows:

  • Sub-Saharan Africa;
  • Developed Europe;
  • Australasia;
  • Latin America;
  • Developing Europe & CIS;
  • China;
  • Japan;
  • Other Asia;
  • MENA; and
  • USA and Canada.

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.