GROUP SUPPLEMENTARY INFORMATION

A. CAPITAL EXPENDITURE

  Reviewed
year ended
30 June
2018
R’million
  Audited
year ended
30 June
2017
R’million
 
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/(CREDITING)

  Reviewed
year ended
30 June
2018
R’million
  Audited
year ended
30 June
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   722  
  Net impairment of tangible assets 68   278  
  Net impairment of intangible assets 623   444  
  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

  Reviewed
year ended
30 June
2018
R’million
  Audited
year ended
30 June
2017
R’million
 
Interest received 343   287  

D. FINANCING COSTS

   Reviewed 
year ended 
30 June 
2018 
R’million 
   Audited 
year ended 
30 June 
2017 
R’million 
  
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)

  Reviewed
year ended
30 June
2018
R’million
  Audited
year ended
30 June
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

  Reviewed
year ended
30 June
2018
R’million
  Audited
year ended
30 June
2017
R’million
 
Material guarantees given by Group companies for indebtedness of subsidiaries to financial institutions 73 561   55 119  

G. POTENTIAL DISPUTED MATTER – EUROPEAN COMPETITION COMMISSION

In May 2017 the European Commission (the “Commission”) 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’s investigation is continuing and Aspen and its advisers are fully co-operating with the Commission in 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 at this stage and therefore no liability has been raised in the statement of financial position.

 


H. POTENTIAL DISPUTED MATTER – UK COMPETITION AND MARKETS AUTHORITY

In October 2017 the UK Competition and Markets Authority (“CMA”) opened an investigation of Aspen in respect of alleged anticompetitive conduct and pricing practices in relation 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 dexametazone 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.

 


I. ACQUISITION OF RESIDUAL RIGHTS RELATING TO AZ ANAESTHETICS PORTFOLIO

On 1 September 2016, 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 transaction has been classified as an intangible asset acquisition and not a business combination. The fair value of the Residual Rights is R8 060 million and R5 206 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.

J. ACQUISITION OF SUBSIDIARIES AND BUSINESSES

With effect from 12 June 2018, Aspen Pharmacare acquired 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.

   Total 
R'million 
  
Fair value of assets and liabilities acquired       
Property, plant and equipment  85    
Non-current financial receivables    
Inventories  18    
Receivables and prepayments  33    
Cash and cash equivalents at acquisition    
Non-current borrowings  (3)   
Deferred tax liabilities  (3)   
Trade and other payables  (41)   
Current borrowings  (7)   
Fair value of net assets acquired  85    
Goodwill  78    
Cash and cash equivalents at acquisition  (2)   
Consideration outstanding at year end  (9)   
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    

K. 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 2018. 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.

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:

  2018
average
rates
  2017
average
rates
 
EUR – Euro 15,326   14,840  
AUD – Australian Dollar 9,965   10,261  
USD – US Dollar 12,856   13,612  
CNY – Chinese Yuan Renminbi 1,975   1,999  
JPY – Japanese Yen 0,116   0,125  
MXN – Mexican Peso 0,686   0,700  
BRL – Brazilian Real 3,867   4,198  
GBP – British Pound 17,291   17,271  
CAD – Canadian Dollar 10,126   10,262  
RUB – Russian Ruble 0,218   0,224  
PLN – Polish Zloty 3,620   3,440  

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.

Interest paid net of investment income

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.

Key constant exchange rate indicators Reported
June 2018
(June 2018
at 2018
average
rates)
R’million
  Reported
June 2017
(June 2017
at 2017
average
rates)
R’million
Change at
reported
exchange
rates
%
Illustrative
constant
exchange
rates
(June 2017
at 2018
average rates)
R’million
Change in
constant
exchange
rates
%
 
Revenue 42 596   41 213 3 40 690 5  
Gross profit 21 605   19 896 9 19 777 9  
Normalised EBITDA 12 031   11 416 5 11 427 5  
Operating profit 9 237   8 321 11 8 342 11  
Normalised headline earnings 7 325   6 678 10 6 675 10  
 Earnings per share (cents) 1 316,6   1 123,4 17 1 116,2 18  
 Headline per share (cents) 1 468,8   1 299,5 13 1 288,1 14  
 Normalised headline earnings per share (cents) 1 604,9   1 463,2 10 1 462,5 10  
  Reported
June 2018
(At 2018
average
rates)
%
  Reported
June 2017
(At 2017
average
rates)
%
 
Revenue currency mix        
EUR – Euro 27   26  
ZAR – South African Rand 20   20  
AUD – Australian Dollar 13   14  
USD – US Dollar 7   11  
CNY – Chinese Yuan Renminbi 6   4  
JPY – Japanese Yen 5   5  
MXN – Mexican Peso 3   3  
BRL – Brazilian Real 3   3  
GBP – British Pound 2   2  
CAD – Canadian Dollar 1   1  
RUB - Russian Ruble 1   2  
PLN – Polish Zloty 1   1  
Other currencies 11   8  
Total 100   100