BASIS OF ACCOUNTING
The reviewed provisional Group financial results have been prepared in accordance with the requirements of the JSE Limited Listings Requirements for provisional reports and the requirements of the Companies Act of South Africa. The Listings Requirements require provisional reports to be prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards ("IFRS") and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council and to also, as a minimum, contain the information required by IAS 34: Interim Financial Reporting.
The accounting policies applied in the preparation of these provisional Group financial results are in terms of International Financial Reporting Standards and are consistent with those used in the annual financial statements for the year ended 30 June 2018 except for changes to the segmental analysis, new standard implementations as well as discontinued operations which are explained in detail below.
These provisional Group financial results have been prepared under the supervision of the Deputy Group Chief Executive, MG Attridge CA(SA) and approved by the Board of Directors.
Restatement of the Group Segmental analysis
Following the integration of the recent Anaesthetics business acquisitions into the Group and the finalisation of the disposal of the Nutritionals Business segment, the Group has revised its reportable segments to reflect the newly updated operating model which aligns to the way in which the business is managed and reported on by the Chief Operating Decision Maker ("CODM"). The business segments which make up the Pharmaceutical segment have been revised as follows:
- The High Potency & Cytotoxic therapeutic segment has been reclassified to Regional Brands as these products are now managed on a regional basis;
- The Therapeutic Focused Brand segment has been replaced by the Sterile Focus Brand segment and includes the Anaesthetics and Thrombosis portfolios;
- The total Pharmaceutical segment has been split at a revenue and gross margin level between the Commercial Pharmaceuticals and Manufacturing segments to give separate visibility to the gross margins earned by each of these segments;
- The Commercial Pharmaceuticals segment comprises the Sterile Focus Brand and Regional Brand segments;
- The Manufacturing segment relates to the manufacture and sale of active pharmaceutical ingredient and finished dose form products to third party customers; and
- The costs relating to manufacturing activities which support the manufacture and sale of Commercial Pharmaceutical Brands are included in the gross margins of the Commercial Pharmaceutical segment and the costs supporting the manufacture and sale of active pharmaceutical ingredients and finished dose form products to third party customers are included in the Manufacturing segment gross margin.
Restatement of discontinued operations
Asia Pacific non-core pharmaceutical portfolio:
Consistent with the Group strategy of divesting or discontinuing non-core pharmaceutical products, during the year the Group identified a portfolio of non-core pharmaceutical products in the Asia Pacific region for divestment and discontinuation. In Aspen's interim results for the 6 months ended 31 December 2018 these prospective discontinuations and divestments were classified as discontinued operations with all related assets and liabilities transferred to assets-held-for-sale in terms of IFRS 5. As at 30 June 2019 these divestments and discontinuations were complete and the results of the divestments are included as part of discontinued operations.
In September 2018 the Group concluded an agreement (subject to conditions precedent) to divest of its Nutritionals Business predominantly carried on in Latin America, Sub-Saharan Africa and Asia Pacific under the S-26, Alula and Infacare brands ("Nutritionals Business") to the Lactalis Group, a leading multinational dairy corporation based in Laval, France. In Aspen's interim results for the six months ended 31 December 2018 the Nutritionals Business was classified as a discontinued operations with all related assets and liabilities transferred to assets-held-for-sale in terms of IFRS 5. The transaction was concluded effective 31 May 2019 and the results of the disposals are included as part of discontinued operations.
Restatement due to changes in accounting standards
The implementation of IFRS 15: Revenue from Contracts with Customers and IFRS 9: Financial Instruments became effective for Aspen in the 2019 financial year. Aspen has assessed and applied the new standards and the June 2019 results have been reported in line with the new requirements. The June 2018 comparative period has been restated in the reviewed results on a full retrospective basis.
IFRS 15: Revenue from Contracts with Customers
In applying the new standard the Group recognises revenue upon the transfer of control over the products to the customer and the amount of revenue can be measured reliably and it is probable that future economic benefits will flow to the entity.
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 and co-marketing fees.
Following a detailed review of the impact of implementing the revised standard, the Group identified certain distribution arrangements in terms of which control of inventory did not transfer to the customer within the relevant financial period and this required a restatement in terms of IFRS 15. The details of the restatement are set out in note K.
IFRS 9: Financial Instruments
Applying the incurred loss model, the Group assessed whether there was any objective evidence of impairment at the end of each reporting period. The assessment resulted in an increase in the allowance account for losses, the resultant restatement has been applied on a full retrospective basis, and the details are set out in note K.
IFRS 5: Non-current Assets Held-for-sale and Discontinued Operations
During the year Aspen acquired the remaining 50% of two joint ventures which led to these joint ventures being 100% owned subsidiaries of the Group. The details of this transaction is set out in note L on the supplementary information.
These subsidiaries were held exclusively with a view to resale and meets the definition of a discontinued operation in accordance with IFRS 5.
Aspen applied the 'short-cut method' given in the IFRS 5 Implementation Guidance to account for these subsidiaries.
A subsidiary acquired exclusively with a view to resale is valued at fair value less costs to sell, at each reporting date, as a single unit of account. There is no requirement to fair value the entity's individual assets and liabilities. The entity's identifiable liabilities are measured at fair value, and this amount is added to the fair value less costs to sell amount, to ascertain the value of the assets to be disclosed.