Financial information

celebrating 20 years Summarised Group supplementary information

for the year ended 30 June 2018

A. Capital expenditure 2018
R'million
2017
R'million
  Capital expenditure
  Incurred 8 228 2 631
  – Property, plant and equipment 2 145 1 484
  – Intangible assets 6 083 1 147
  Contracted 1 812 818
  – Property, plant and equipment 1 786 735
  – Intangible assets 26 83
  Authorised but not contracted for 4 184 5 967
  – Property, plant and equipment 3 829 5 573
  – Intangible assets 355 394
B. Operating profit has been arrived at after charging 2018
R'million
2017
R'million
  Depreciation of property, plant and equipment 740 700
  Amortisation of intangible assets 632 567
  Net impairment of tangible and intangible assets 742 723
  Impairment of tangible assets 68 275
  Impairment of intangible assets 623 448
  Impairment of assets classified as held-for-sale 51
  Loss on the sale of tangible and intangible assets 4 126
  Transaction costs 160 208
  Restructuring costs 199 494
  Product litigation costs 317 208
  Loss on sale of subsidiary 70
C. Investment income 2018
R'million
2017
R'million
  Interest received 343 287
D. Financing costs 2018
R'million
2017
R'million
  Financing costs
  Interest paid (1 884) (1 818)
  Debt raising fees on acquisitions (209) (112)
  Net gains/(losses) on financial instruments 88 (237)
  Foreign exchange losses (16) (200)
  Fair value gains/(losses) on financial instruments 104 (37)
  Notional interest on financial instruments (408) (339)
  Foreign exchange gain on acquisitions 178 137
    (2 235) (2 369)
E. Currency translation gains/(losses) 2018
R'million
2017
R'million
  Currency translation gains/(losses) on the translation of the offshore businesses are as a result of the difference between the weighted average exchange rate used for trading results and the opening and closing exchange rates applied in the statement of financial position. For the year the weaker closing Rand translation rate has increased the Group net asset value. 2 372 (3 521)
F. Guarantees to financial institutions 2018
R'million
2017
R'million
  Material guarantees given by Group companies for indebtedness of subsidiaries to financial institutions 70 545 55 119
G. Acquisition of subsidiaries and business
  June 2018
  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)
Trades and other payables (41)
Current borrowings (7)
Fair value of net assets 86
Goodwill 78
Cash and cash equivalents at acquisition (2)
Consideration outstanding at year-end (10)
Cash outflow on acquisition 152
  June 2017
  The business combinations set out below were finalised by December 2017. The cash flow movements for the business combinations were as follows:
 
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 acquired 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
H. Potential disputed manner – European commission
 

In May 2017, 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.

I. Potential disputed manner – UK competition markets authority
 

In October 2017 the UK Competition and Markets ("CMA") opened an investigation of Aspen in respect of alleged anti-competitive conduct and pricing pracrelation to the supply of fludrocortisone acetate 0,1mg tablets and dexamethasone 2mg tablets in the UK. The CMA has subsequently advised that it will not be proceeding with its investigation in relation to the dexamethasone 2mg tablets.

A high level of co-operation and diligence is being afforded to the investigation team by Aspen and its advisers.

The CMA’s decision whether to formally open a case is only likely to be made by November 2018 after conclusion of its investigation.

The outcome of the CMA matter is unknown at this stage and therefore no liability has been raised in the statement of financial position.

J. Acquisition of residual rights relating to AZ anaesthetics portfolio
 

In the prior year Aspen Global Incorporated ("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 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 as 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.