EBOS Group Limited
Annual Report 2008

Plain-text annual report

Team attitudes and skills assist a healthy outcome 1 Annual Report 2008Healthy outcomes Ebos operate along the complete health care continuum. We follow the patient to assist with healthy outcomes. our business focuses on preventative healthcare/scientific, the many healthcare treatment phases, prescription medicines to domiciliary care and selfcare. Whilst continuing to achieve operational excellence we recognise that the sum of the parts of our business will be greater than the whole. once we couple this with our team attitudes and skills we will perform at the highest possible level. In support of our business streams our core centres of excellence are: our overall business aims must be to: sales/marketing warehousing/distribution information and technology finance/treasury satisfy customer needs lead industry change provide unique ‘offerings’ for suppliers maximise channel access for our key products to their respective markets. We will always embrace change as a mechanism to become a strong, performance-based organisation. 2 Contents Highlights Financial Performance and Trends Chairman’s Report Managing Director’s Review Heathcare Continuum Sales and Marketing Logistics Wholesale EBOS Group Head Office Board of Directors Corporate Governance Statement Directors’ Report EBOS Group Limited Financial Report Directors’ Responsibility Statement Audit Report Income Statement Balance Sheet Statement of Changes in Equity Cash Flow Statement Notes to the Financial Statements Additional Stock Exchange Information EBOS Group Limited Directory 2 3 4 6 8 10 17 18 20 21 22 23 26 26 27 28 29 30 31 32 71 72 1 Highlights of the year ended 30 June 2008 Revenue exceeds one billion dollars for first time, at a record $1,092m (+255%). substantial increase in EbITDA (+79% to $33.6m) and Net Profit after Tax (+61% to $16.7m). Improved earnings by all major business units, with a particularly strong performance in Australia. strong operational cash flows. successful capital and debt programmes to fund acquisitions. Four acquisitions successfully concluded, including the large acquisition of PRNZ Ltd in August 2007. Implementation of sAP computer system for PRNZ. Year end distribution valued at 13.5 cents per share. Joining the Top 50 of listed companies on NZX. 2 Financial Performance and Trends 1,092.0 33.6 16.7 307.3 300.5 21.7 19.2 18.8 14.0 11.5 10.3 9.0 8.4 281.0 227.7 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 Revenue ($ millions) EBITDA ($ millions) NPAT ($ millions) NZ IFRS 2008 2007 2006 2005 NZ GAAP 2004 Net cash inflow from operating activities ($’000) 28,546 7,254 8,349 6,532 8,658 Shareholders’ interest ($’000) 147,304 92,195 55,763 49,512 46,901 Distributions cents per share Earnings per share Interest cover Net interest bearing debt to net interest bearing debt plus equity 23.0c 37.6c 22.5c 31.7c 22.5c 41.8c 21.5c 32.5c 20.0c 30.5c 3.7 7.8 6.9 7.7 10.1 32.0% 8.1% 42.3% 40.2% 28.2% 3 Chairman’s report The Ebos Group Limited board of Directors is very pleased to report that the company delivered on its growth promise in the year ended 30 June 2008 with another strong result. Ebos has achieved record levels of revenue and profitability, assisted by both high quality performances across all of our traditional operations in the Healthcare and scientific business sectors, and several successful acquisitions. The acquisition of the pharmaceutical distribution and logistics group PRNZ Limited was the biggest step taken by Ebos in its history, with a significant cost of $86.6m funded by a debt and equity programme in which all shareholders were able to participate. Investments on acquisitions during the year totalled $105.77m. Ebos has met the targets set out in the Explanatory Memorandum related to the purchase of PRNZ, including a 255% increase in revenue to $1.09bn and a 61.5% increase in net profit after tax at $16.66m, compared to $10.32m in 2007. The consolidation of Ebos and PRNZ has created a substantial business with total assets of $486.19m ($137.31m), and almost 1000 employees. The challenges that exist in our primary markets of New Zealand and Australia include the degree of complexity of doing business in our core markets, rising costs of sales, slower economic growth, and margin pressure. We can however confirm that the enlarged Ebos group is in robust good health and that we are in a strong financial position to meet present economic conditions. Results In the year ended 30 June, earnings before interest and tax were $30.877m, which compares with $17.13m in 2007. After finance costs of $8.33m ($2.19m) and income tax of $5.88m ($4.62m), profit for the period was $16.66m ($10.32m). The trading results included contributions by PRNZ (acquired August 2007), Vital Medical supplies Pty Ltd (July 2007), Tasmanian Medical supplies Pty Ltd (october 2007) and Crown scientific Pty Ltd (November 2007). Collectively, all acquisitions are performing to expectations. More significantly, earnings per share increased from 31.7 cents to 37.6 cents on the enlarged capital base. balance sheet Ebos has improved on its sound financial position with net assets increased to $147.30m ($92.19m). Current assets stand at $299.72m ($90.02m) and non-current assets of $186.47m ($47.28m), with current liabilities at $323.64m ($34.97m) and non-current liabilities at $15.25m ($10.14m). Including the debt funding of about $43m related to the acquisition of PRNZ, total borrowings increased to $85.61m compared with $9.91m, which was artificially low following a rights issue. With global equity markets and the international banking sector enduring a turbulent period and banking liquidity a major topic of concern, the directors are pleased to report that the group reached agreement with ANZ banking Group on new three-year banking arrangements. The company also raised new equity capital by way of placement of shares with financial institutions and the issue of shares under the share Purchase Plan with total equity now standing at $147.30m compared with $92.19m in 2007. Net cash flow generation from operating activities has improved significantly at $28.54m ($7.25m). 4 Distribution and bonus shares The directors have approved a bonus share distribution of 13.5 cents per share, to be issued on 10 october 2008. With the interim dividend of 9.5 cents per share, the total distribution for the year is 23 cents per share. shareholders have the option to have the bonus shares bought back by the company for cash. Post balance date on 1 July 2008 Ebos completed the acquisition of Medbio scientific, to add to our successful portfolio of scientific companies. board I wish to express my sincere thanks for the efforts and support of the board during a very dynamic period in the group’s history. We welcomed Peter Merton to the board where we are seeing the benefits of his long experience in the pharmaceuticals industry. Management and Employees Ebos is now a very large family with employees in three countries. The 2008 result reflects their collective commitment to seeing that the business never falters whatever the challenge. We especially welcome the staff of the PRNZ companies, Vital Medical, TasMed, Crown and Medbio to the Ebos culture of excellence and thank them for their constructive and positive contribution. My thanks especially to the top management team who have successfully integrated a significant acquisition load throughout the year. outlook In very exacting markets, the group has again shown its resilience to economic volatility. With the value of hindsight, our capital raising late last year was well timed. It has provided, with debt funding, strong trading profits, and excellent cash flow, an excellent base from which Ebos can continue to pursue new growth opportunities. In the interim, we expect to see the benefits of our broadened operational base across three key revenue streams: sales & Marketing, Wholesale and Logistics. The expansion into pharmaceutical distribution in New Zealand provides an excellent balance to our accelerating growth in the exciting Australian healthcare and scientific market. The board thanks shareholders, suppliers and customers for their ongoing confidence in Ebos Group. Rick Christie Chairman of Directors 5 Managing Director’s review The 2008 results of Ebos Group Ltd underscore our ability to achieve earnings reliability that transcends business cycles in the major countries where we operate our businesses in Healthcare, scientific and specialised Logistics. The platform for this year’s strong performance has two key planks: • An intense focus on operational improvement and quality of customer service in our traditional core businesses. • substantial investment in diversification, notably in the acquisition of the privately owned PRNZ Ltd, operating as ProPharma and Healthcare Logistics. For several years Ebos grew by making small incremental steps through acquisitions in the private healthcare marketing and distribution sector. This steady expansion in both New Zealand and Australia, has positioned Ebos with a more competitive business model better able to absorb market changes. PRNZ acquisition The acquisition of PRNZ Ltd is the biggest growth step in the history of Ebos and one that has added complementary scale in assets, revenue and group profitability. Ebos has adopted a light- handed approach to the integration of PRNZ, which operates on a relatively autonomous trading basis. This stance has enabled PRNZ to undertake, without distraction, a significant improvement in Information Technology with a complete sAP upgrade. We expect this to benefit the wider group in future. PRNZ’s operating businesses of ProPharma and Healthcare Logistics have performed right up to expectations and Ebos has achieved in excess of our targeted rate of return on an EbITDA basis from the investment. our other recent acquisitions of Vital Medical, TasMed and Crown scientific have all added to our market strength and geographic expansion during the period. of equal importance they have each brought new talent and fresh ideas to Ebos. The resulting diversity, by geographic location and business activity, provides strength in highly competitive markets populated by multinational companies. Revenue streams The business model driving sustainable growth in revenue and earnings operates in three key revenue streams: • Sales and Marketing of healthcare and scientific products – Ebos New Zealand, Ebos Australia, Global science & Technology Ltd, Quantum scientific Pty Ltd, and Crown scientific Pty Ltd. • Wholesale distribution of health sector consumables, pharmaceuticals and ‘Over-the-Counter’ products – Health support Ltd and ProPharma. • Speciality Healthcare Logistics – Healthcare Logistics and Health support Ltd. supporting these business streams are our ‘Centres of Excellence’: Warehousing; Information Technology, Finance and Treasury. The opening of a new group head office at Christchurch has increased efficiencies without any significant increase in staffing costs. Challenging economic times are a sure test of the robustness of product quality, internal processes and business relationships. The current cycle has coincided with the biggest overhaul of internal systems and processes in twenty years and a major focus on cash management. 6 The future shareholders will be naturally concerned with the impact of the current economic cycle, commented upon by the chairman. our resilience is intact. It is based on having the right people in the right positions and better supported by robust processes. Ebos is well diversified across the healthcare continuum with an exposure to demand across the sectors explained in pages 8 to 19 of this report. Reinvention We have transformed Ebos from a small ‘agency’ business to one with strong and influential positions in our chosen markets. This value position offers a unique platform in New Zealand and Australia in relation to our competitors. We remain “bullish” about the future prospects and our resilience in the prevailing economic climate. Mark Waller Managing Director A year-long project to upgrade our business analysis capabilities has sharpened awareness of how service levels relate to sales revenue, costs and gross profit trends. A ‘digital dashboard’ of Key Performance Indicators is available in real-time to several levels of management. The group-wide focus on improved supply chain performance continued with the successful implementation of new workflow processes at the Ebos Albany distribution centre, based on our experience at the well performing Point Chevalier distribution centre operated by Health support. The supply chain model will be rolled out to Ebos Australia in due course. A new NEC telephone system increased the capability of our centralised service call centre at Albany and the call yield. A similar system will be introduced into Australia. our divisional results included increased revenue and operating earnings in most sales channels with the highlights being: • Another outstanding year for Ebos Australia, with a back- to-back record result, which was strengthened by excellent results from recently acquired Vital Medical and TasMed. • An excellent year for Health support, reflecting strong organic growth in an extremely tight environment for District Health boards. • Top performances by our Primary Care and Aged Care/ Rehabilitation business units within Ebos New Zealand. • A strong performance by the scientific division, notably through another growth year by Quantum scientific and significant growth in profitability for Global science. • The commitment of our senior management team during 2008. It is both fitting and a pleasure that we highlight them throughout this report. 7 Healthcare Continuum Preventative HealtHcare/ ScientiFic research, industry, laboratory, environmental, Food Quality • Quantum scientific AUsTRALIA • Global science NEW ZEALAND • Crown scientific AUsTRALIA • Ebos International PACIFIC IsLANDs/PNG HealtHcare treatment PHaSeS Primary care/private specialists • Ebos Primary Care AUsTRALIA & NEW ZEALAND • Vital Medical AUsTRALIA • Ebos Dental • Ebos International PACIFIC IsLANDs/PNG acute care/hospitals • Ebos Hospital AUsTRALIA & NEW ZEALAND • Health support Limited (HsL) NEW ZEALAND • Ebos International PACIFIC IsLANDs/PNG Customers Universities, primary producers, laboratories, manufacturers General practitioners, medical clinics, day surgery, hospitals 8 PreScriPtion medicineS • ProPharma – Pharmaceuticals to retail pharmacy • Healthcare Logistics – Pharmaceutical manufacturers • Health support – Hospital pharmaceuticals domiciliary care aged care/rehabilitation Ebos • Aged Care AUsTRALIA & NEW ZEALAND • ProPharma – ACC SelF care Ebos • Consumer AUsTRALIA & NEW ZEALAND • ProPharma – over the Counter NEW ZEALAND Pharmaceutical manufacturers, hospitals, pharmacy ACC, rest homes, care providers, DHB’s, pharmacy and other retailers, grocery 9 sales and Marketing eboS new Zealand overall performance relating to sales and Marketing activities improved strongly in 2007-08, notwithstanding competitive market conditions in the national sectors where we operate. Ebos New Zealand led by General Manager Kelvin Hyland continued to hold strong market positions in the healthcare sector with operational improvements lifting our competitiveness. above, left to right: John mcbride – national Sales manager, Hospital; Kelvin Hyland – General manager, Sales and marketing, Healthcare; and John matthews – national Sales manager, aged care rehabilitation. 10 above, left to right: veronica aris – manager, Primary care; brett miller – manager, consumer; Paul Steele – manager, dental; and vicki Wilson – Service delivery manager. Ebos New Zealand focused on business fundamentals and improved systems and processes across its multiple sales and marketing channels Primary Care, Hospitals, Consumer, Aged Care/Rehabilitation, and Dental. An internal programme directed at improving cash flow, controlling inventory levels, and lifting customer service levels has led to better financial performance across the businesses. This process began with the centralisation of marketing functions at Ebos New Zealand’s Albany offices and has continued with: • Improved managerial access to performance analysis, to help lift gross profit margin. • Review of product procurement practices. • An overhaul of distribution centre practices to increase speed and accuracy of processing customer orders. • Appointment of a service Delivery Manager. With managers now able to better monitor the ‘vital signs’ for each business unit, including detailed measurement of sales, inventory levels, debtors and creditors, and cash flow, has come increased accountability and understanding of the key drivers with the ability to continuously improve profitability. The new position of service Delivery Manager, held by Vicki Wilson, is a response to customers’ understandably low tolerance of errors in supply or service. Ebos has established robust systems supporting best practice delivery of service to customers. Having one person leading service delivery across all sales channels has reduced error rates to low levels, with errors, identified and quickly rectified. A recent customer survey indicated that customers appreciate the Ebos call centre’s objective to resolve problems at the first point of contact and on a personalised basis. business Units our sales and marketing success is driven by separate business units led by channel managers supported by direct sales teams and product specialists operating in five sectors. The Primary Care business unit, managed by Veronica Aris, had an excellent year with increased profitability. This reflects the success of initiatives related to sales team development, including a solid induction programme for new sales staff. The emphasis on cash management also saw the development of a sales programme to reduce slow moving or eliminate obsolete stock. The business sees growth in areas that parallel primary care, including the private sector. A solid result was achieved by the Hospital business unit in a demanding year with margins reflecting the continuing pressure on health sector budgets. The business unit is meeting the expectation for cost effectiveness; however the move towards collective purchasing by District Health boards has reduced margins especially for fast moving commoditised products. We hold a strong position in the supply of essential products related to emergency departments, operating theatres, ICU and infection control through our representation of leading brands. Recently heightened awareness of infection risk in the hospital system has increased interest in our infection control products 11 sales and Marketing Aged Care and Rehabilitation An emphasis on providing services that add value for customers assisted the Aged Care & Rehabilitation business unit, managed by John Matthews, to produce another excellent performance in a very competitive sector 2008 saw the business unit produce its best year since it was formed as a start up four years ago. The aged care industry is under pressure from rising costs during 2007-08 and major providers were at the forefront of ongoing changes in ownership and the pursuit of operational efficiencies. our ability to provide accurate business reporting on customer expenditure including analysis of costs per resident per day has been well received by our customers. Aged care is still a young industry and we see strong growth potential for this product sector. Demand for age care and rehabilitation services are underpinned by the age profile of the New Zealand population. and systems. Certain sectors within the general hospital market in New Zealand are still reliant on reusable devices in contrast to other oECD countries. our objectives for 2009 are to enhance our marketing capabilities, improve our stock-turn and profit margins, and create organic growth for our key brands, led by our new Hospital unit manager John Mcbride who has a wealth of industry experience. The Consumer business unit faced a tightening retail sector with sector sales volumes and discretionary spending under pressure from consumer reaction to severe cost shocks arising from still high interest rates, soaring food price inflation and record petrol prices. Pharmacy continues to be the core sales channel for the business unit. Close partnerships with the major buying groups Life Pharmacy, Pharmacy brands and Radius Pharmacy saw solid sales achieved, particularly liniments and medicated skin care. The appointment during the period of brett Miller as manager for the business unit allows us to leverage off his considerable experience in the fast moving consumer goods market and is expected to improve our business opportunities in the current year in the important sales channels of pharmacy and grocery. The Dental business unit, managed by Paul steele, faced difficult market conditions as private sector dental practices delayed equipment purchasing in response to patients tightening their discretionary spending. We placed emphasis on achieving margin in the premium segment of the equipment market, and control of inventory. our strong market position as a specialist supplier of high quality technology, notably the KaVo, Gendex and scican brands, has resulted in the unit’s successful participation in tenders for the New Zealand District Health boards’ contracts against strong international competition. The Ministry of Health will fund a significant oral healthcare programme targeted at provincial regions with purchasing by DHbs expected to be spread over the next few years. 12 eboS australia The exceptional performance of EBoS Group Pty Ltd reflects the success of the changes to how we do business in Australia, the strong contributions by recently acquired healthcare companies and the leadership of our General Manager for Australia Tony Norris. The restructuring two years ago to a co-ordinated sales and marketing approach by each of our four business divisions, well supported by a centralised Customer services team, has produced a well-oiled national organisation. sales were strongly ahead by in excess of 17% in the core business, before adding acquisitions. above, left to right: Gareth Hamill – national Sales manager, Primary; dean Harding – national Sales manager, Hospital and aged care; tony norris – General manager, Healthcare australia; and Pieter vriens – Group manager, Primary care. Ebos Australia’s Primary Care business unit reflected the efforts of national sales manager Primary Care Gareth Hamill and his team in continuing to provide almost half of Australian revenue. steady organic growth in sales by this unit were also bolstered by the TasMed acquisition. ‘Tuffey’ cleansing wipe in winning several state tenders was a stand-out success. The Eschmann range of theatre equipment made a strong contribution, with our marketing team producing excellent results despite a steep learning curve in our first active year in this new area. Together with Vital Medical supplies, an incomparable market position is held in Primary Care. Vital enjoyed an outstanding year with its significant sales growth and strong EbIT contribution to Ebos Australia - a credit to the leadership of Pieter VrIens and his staff. The values and customer loyalties that underpin Vital Medical supplies have been protected by maintaining parallel brands in the marketplace. This separation has been very successful with both Vital and Ebos Primary Care growing in sales, margin and pre-tax profit. An exceptional lift in sales for Ebos Australia’s Hospital Division was a notable achievement for our national sales manager Hospital/Aged Care, Dean Harding, and his team. It also reflected the ongoing success of brand agencies exclusively held by Ebos Australia and the integration of TasMed. The Vernacare agency for infection control equipment and disposable consumables is performing very well as demand grows for consistency in cleaning practices. The impact of the Vernacare The Aged Care Division provided another highly successful result with considerable new business secured from retirement sector groups for consumables. It was a record year for sales of Vernacare waste disposal equipment. A steady result was reported by the Consumer Healthcare business unit, led by manager Craig Lewis. This is despite an intensely competitive market, where our major focus is on the Allersearch brand (Ebos owned) of asthma products marketed through retail pharmacy. Key supply chain management has been placed under a national manager, Greg Cowlishaw. Recent acquisitions in Australia have resulted in the group operating from several distribution facilities and consolidation will be pursued where possible. 13 sales and Marketing international (Pacific Islands and Papua New Guinea) Flat spending on healthcare by Pacific Island nations during the year, as some economies contracted, provided a cyclical challenge for the International division managed by bernie Davies. Fiji remains a significant market but one reflecting a reduced health budget. Increased opportunities were found in Papua New Guinea as it benefits from the rising world prices of oil, gold and minerals. This country has been a stable yet sometimes under performing market for the business over the last four to five years, however the achievement of a fiscal surplus has begun to stimulate the health sector. Mining for minerals, oil and gas is also driving growth for our scientific product sales in the industrial laboratories market. International is utilising the scale of the Ebos Group to provide a full range of products to our Pacific Island markets. our tailored after sales customer service programme continues to be an integral part of the business’ ongoing relationship with our customers. The programme includes product expertise, post- purchase training, after-sales in-country technical support and equipment maintenance programmes from our New Zealand base and from the Ebos branch located in Port Moresby, PNG. Aid agencies are pooling their funding for Pacific Island projects, such as the provision of clean drinking water to Pacific Island communities. Ebos is participating by providing technical equipment and expertise in the analysis and purification of the water supply. The outlook for the 2009 fiscal year is for improved trading. above: barry Higham – information and technology manager; and bernie davies, international manager. 14 Scientific Ebos Group Ltd is well represented in the Scientific industry and life sciences markets for scientific equipment and consumables. Well led by Derek brown, Managing Director – scientific, the group businesses in this division comprise: • Global Science & Technology Ltd, based in Auckland, is a leading supplier of scientific equipment, chemicals and consumables to a broad range of customers in New Zealand. • Quantum Scientific Pty Ltd, based in Brisbane, is a supplier of high technology scientific equipment, consumables, reagents and associated support services to the life sciences sector with interstate offices throughout Australia. • Crown Scientific Pty Ltd is an Australia wide distributor, of a broad range of scientific consumables and equipment, based in Sydney with branches in all states. above, from left, Quantum Scientific: drew dixon – General manager; Gavin Williamson – Sales and marketing manager; and derek brown – managing director, Scientific. Australia The continued buoyancy of the Australian scientific industry has driven excellent results for Ebos Group’s wholly owned Australian subsidiaries Quantum scientific and Crown scientific (acquired in late 2007). The result was enhanced by positive market conditions in two important areas: • sustained government funding in Australia of research establishments at universities, medical research institutes and primary industries, along with significantly increased funding of medical research activity by private philanthropists. • The resource boom which is generating increased demand from industrial laboratories for a range of scientific equipment and consumables. Led by general manager Drew Dixon, Quantum Scientific Pty Ltd has had a very strong year, with a focus on consolidation of equipment lines and growth in the reagent lines. The longer term of institutional science programmes provides a buffer to the weaker national economic cycle. Recurrent funding is “a shock absorber” that has also insulated the life sciences industry from recessionary impacts. Quantum benefited from significant growth in the life sciences market for reagents. our strong market position in life sciences has produced solid sales levels in several states; however, Quantum scientific has thrived as a supplier in the Queensland market where the state government aspires to establish “the smart state” in biotechnology. 15 sales and Marketing significant new sales were made to the Glycomics Institute at Griffith University on the Gold Coast and the Centre for Clinical Research at Royal brisbane Hospital. Quantum also placed the first ‘CRI’ fluorescent small animal imaging system at the Peter MacCallum Cancer Institute in Melbourne. In 2007 Ebos Group acquired Crown Scientific Pty Ltd, the second largest general scientific supplier in Australia. The business has undergone subsequent consolidation and rationalisation, with installation of new information technology and software systems together with a new management structure led by John shannahan. Crown has a very strong reputation and excellent coverage across key industrial markets including mining, petrochemicals, food and pharmaceuticals. based at Minto in southwest sydney, Crown is the group’s flagship in the general scientific supply markets. Crown has bases in all major states to support future growth. It is benefiting from the very strong expansion of the resources sector, particularly in Western Australia. Under the leadership of its general manager John Knowles, Global Science & Technology Ltd, has sustained a strong position as a supplier to the research, industrial and clinical markets across New Zealand and in support of the group’s International business unit. Market conditions remained challenging with the New Zealand economy flattening, with fewer new institutional opportunities and corporate clients tightening inventories. Nevertheless, Global science has substantially improved profitability with budgets exceeded for the year. This is a significant achievement in flat economic conditions for the team led by Global’s sales and marketing manager Heather Milliken. Internally, effective management processes and a strong team spirit are a factor in this success. The exchange rate was a favourable influence on purchasing costs and we have reduced stock levels with the rationalisation of non-performing product lines. An inventory sale has eliminated slower moving stock. This has reduced inventory carrying costs and released capital. Global science has entered the current year with a cleaner stock position. The focus is on achieving a product offer that achieves customer satisfaction and sustainable profitability through increased stock- turn. This will include new products that complement the existing range and add revenue. • since balance date, Med-bio Ltd, a Christchurch-based supplier of clinical diagnostic equipment and consumables to public and private pathology laboratories, has being acquired and is now a division of Global science. above left: John Shannahan – General manager, crown Scientific; above right, Global Science & technology: John Knowles – General manager, and Heather milliken – Sales and marketing manager. 16 Logistics Healthcare Logistics, led by Michael broome as general manager, has shown solid performance in providing cost-effective logistics support to multinational healthcare manufacturers, mostly on a fee-for-service basis, as suppliers continue to pursue reduced operational costs. The Healthcare Logistics business model provides a range of services from full agency representation to managed warehousing. The year saw some positive churn in the distribution area with the pre-wholesale business winning a new agreement with Wyeth, one of the world’s largest pharmaceutical and healthcare products companies. New premises, adjacent to our existing Mangere site, were added to cope with growth. Health Support Ltd’s business model for hospital supply provides ‘just-in-time’ logistics services for both the public and private sector. The trial of Health support services by private healthcare provider southern Cross Healthcare in three Auckland region hospitals has gone very well and will lead to a progressive roll-out of this logistic partnership. This is a pleasing development with considerable growth potential across the southern Cross national network of 14 hospitals. Whereas Healthcare Logistics has specific expertise in the pharmaceutical market, Health support provides these services as a ‘virtual company’ for leading medical device and consumable manufacturers. above, left to right: Peter merton – chief executive officer, PrnZ; michael broome – General manager, Healthcare logistics; and david lewis – General manager, ProPharma. 17 Wholesale Activities in wholesale distribution by Health support Ltd and PRNZ Ltd made a strong contribution to overall group revenue and profitability in the June 2008 year. The impact of the August 2007 acquisition of the privately owned PRNZ Ltd was a major feature of the consolidated result. since its acquisition PRNZ has operated as a self-managed complementary business led by its chief executive Peter Merton. PRNZ has maintained brand identity for its operating subsidiaries and independent pursuit of market share. PRNZ has completed a major capital expenditure programme on a new sAP information technology platform. The upgrade provides new capabilities including better tracking of key business indicators and enhanced online trading capability. This is expected to result in cost efficiencies going forward. PRNZ’s operating subsidiary ProPharma has performed fully to expectations under the leadership of general manager David Lewis, despite the flat trading environment in New Zealand during the period since acquisition. This trend of softer market conditions was marked by weakened consumer spend impacted by sharply higher household costs. However, underlying resilience is provided by long term supply agreements with major pharmacy groups (Unichem, DispensaryFirst and Radius), supply arrangements with the Vantage buying group for independent pharmacies and renewed supply contracts with non pharmacy customers. Pharmacy Wholesalers Russells, the stand-alone member of the ProPharma organisation, continued to benefit from its loyal group of customers in the upper North Island. ProPharma’s supply contracts with otago and Waikato District Health boards provided continuity in the provision of supply to DHb customers. The supply contract with the otago DHb was renegotiated for a further period and during the year ProPharma secured an initial supply agreement with the southland DHb. There was growth for ProPharma’s hospital business unit in the contracted supply of ‘oTC’ products direct to patients for the Accident Compensation board. ProPharma sees continued growth prospects in healthcare distribution and following the commissioning of the new sAP system is becoming more externally focused on growth initiatives for the current year. 18 above, from left, Health Support ltd: Greg managh – General manager, and barry Gray – commercial manager. Health Support Ltd produced another strong performance operating as a brand neutral wholesaler of medical consumables, surgical products and pharmaceuticals from its Auckland distribution centre. This wholly owned subsidiary is led by general manager Greg Managh, a very experienced Ebos group executive. steady organic growth in DHb procurement demand throughout the year was proof of the effectiveness of our business model that rewards customers for increased volume. The primary business of servicing supply contracts held with public and private hospitals has cushioned Health support from the prevailing economic conditions. During the current calendar year the company will complete the fourth year of supply contracts with the three Auckland District Health boards (Auckland, Counties-Manakau and Waitemata) and we are focused on achieving a successful first extension of three years in the course of 2009. With an emphasis on high quality services as our ‘point of difference’, Health support has set high targets for accuracy in deliveries and timely execution of orders. A concentrated effort to improve customer satisfaction in these areas as the volume of turnover rises has led to a significantly reduced error rate in deliveries and increased timeliness. The expansion of the Point Chevalier distribution complex that began in the previous year was completed with resulting better use of space. Health support maintained its position as a leading e-commerce business, with an upgrade of its server room in January 2008, featuring an advanced fire protection system, and group disaster recovery site. Health support’s leadership of group supply chain activities saw changes introduced in group distribution that contributed to improved service performances. A policy of committed use of radio-frequency technology for stock picking has brought greater efficiencies at the Ebos Albany complex and more robust replenishment and packing processes. both Health support and Ebos New Zealand are achieving more efficient procurement and, with the resolution of scalability issues, the entire supply chain is now more robust and better able to support sales efforts. The company actively manages environmentally sound operating practices with bins employed in the despatch of customers’ orders to public and private hospitals returned for re-use. 19 Ebos Group Head office our move to a new head office was timely during the year under review and we are seeing the benefits of the new building as the nerve centre for our group activities which stretch across Australia, Papua New Guinea, the south Pacific and New Zealand. The new corporate headquarters provides a Centre of Excellence for our Information Technology and the Finance & Treasury functions of the group. The offices also provide the New Zealand base for our Hospital, Aged Care & Rehabilitation management, International business unit, and regional sales of base for Ebos Healthcare and Global science. our purpose-built headquarters at 108 Wrights Road, Addington, Christchurch is a technologically smart building with several environmental advantages. Ebos senior manager Angus Cooper included this relocation as one of his many projects undertaken as General Manager business Development. The group was pleased to invite the Hon bill English M.P., a former Finance Minister and Health Minister, to open the new head office (pictured below with Mark Waller and Rick Christie). 20 board of Directors ricK cHriStie MsC (HoNs), FNZID, FNZIM (66) (chairman) Joined the Ebos Group Ltd board in June 2000, and appointed chairman in April 2003. Member of the Audit and Risk Committee, the Remuneration Committee and the Nomination Committee. Mr Rick Christie is a professional director with a breadth of governance and management experience in the oil and petrol- chemical industries. Former chief executive of the diversified investment company Rangatira Ltd, a former managing director of Cable Price Downer and former chief executive of Trade New Zealand. He is the chairman of Argenta Ltd, Provenco Group Ltd, Vcomms Ltd and Health support Ltd and a director of the Growth & Innovation Advisory board, Tourism Holdings Ltd, Wakefield Health Ltd and the NZ Pork Industry board. Previously chairman of AgResearch Ltd, deputy chairman of the Foundation for Research, science & Technology and chairman of the Victoria University Foundation board of Trustees. He is also a Fellow of the Royal society of Arts, Manufacturers and Commerce in London. He is a former director of Television New Zealand and the New Zealand symphony orchestra and a past president of Chamber Music New Zealand. marK Waller bCoM, ACA, FNZIM (54) (chief executive and managing director) Mark Waller has been chief executive officer and managing director of Ebos Group Ltd since 1987. He is a member of the Remuneration Committee. He is a director of Global science & Technology Ltd, Health support Ltd, Health support Properties Ltd, Ebos Group Pty Ltd, Ebos Health & science Pty Ltd, Healthcare Distributors Pty Ltd, PRNZ Ltd and its associated companies, Quantum scientific Pty Ltd, Vital Medical supplies (Australia) Pty Ltd and scott Technology Ltd. Peter KraUS MA(HoNs), DIP ENG (57) (deputy chairman) Peter Kraus is an Auckland businessman who has been a director of Ebos Group Ltd since 1990. He is a member of the Nomination Committee. He is a director of Whyte Adder No.3 Ltd, strand Holdings Ltd, strand Management Ltd, Herpa Properties Ltd, Health support Ltd, Ecostore Company Ltd, oceania Attractions Ltd, IsL International Ltd, Hapimana Properties Ltd, Huckleberry Farms Ltd and Trustee of the Perpanida Trust and The Annalise Trust. eliZabetH coUttS bMs, CA (49) Appointed to the Ebos Group Ltd board July 2003. she is a member of the Audit and Risk Committee and the Nomination Committee. Elizabeth Coutts is a professional director. she is former Chairman of Meritec Group, Chairman of Industrial Research, director of Air New Zealand Ltd, the Health Funding Authority and Trust bank New Zealand, former deputy chairman of Public Trust, board member of sport and Recreation NZ, member of the Pharmaceutical Management Agency (Pharmac), commissioner for both the Commerce and Earthquake Commissions and chief executive of the Caxton Group of Companies and Carter building supply group. Her current directorships include chairman of Life Pharmacy Ltd, chairman of the Audit, Finance and Risk Committee of the Ministry of Health, director of skellerup Industries Ltd and external monetary policy adviser to the Governor of the Reserve bank of New Zealand and member of New Zealand Rugby League Review Committee. SaraH ottrey bCoM (43) Appointed to the Ebos Group Ltd board 18 september 2006. sarah is a marketing specialist advising various high profile clients. she is a past board member of the Public Trust. sarah has held senior marketing management positions with Unilever and Db breweries. barry Wallace MCoM (HoNs), CA (55) Appointed to the Ebos Group Ltd board october 2001. He is chairman of the Audit and Risk Committee and member of the Remuneration Committee. barry Wallace is a chartered accountant with a background in financial management with companies such as Rank Xerox New Zealand Ltd and David Reid Electronics. He is a former chief executive of Health support Ltd. He is the financial manager for a private group of companies. He is a director of Whyte Adder No.3 Ltd, strand Holdings Ltd, strand Management Ltd, Herpa Properties Ltd, Health support Ltd, Health support Properties Ltd, Global science & Technology Ltd, PRNZ Ltd and its associated companies, Ecostore Company Ltd, Eco Tech solutions Ltd, oceania Attractions Ltd, IsL International Ltd, Hapimana Properties Ltd, Huckleberry Farms Ltd and Allum Management services Ltd and a Trustee of The Perpanida Trust and The Annalise Trust. Peter merton bPharm (46) Appointed to the Ebos Group Ltd board 12 september 2007. Peter has worked in the retail, manufacturing, distribution and wholesale areas of the pharmacy industry in New Zealand, Asia and Africa since the early eighties. In 1987 he joined Zuellig Pharma in New Zealand where he worked for the Zuellig group and then API until 2005. His current role as chief executive officer (PRNZ Ltd) commenced in 1997. He is a director of Pharmacy brands Ltd, Cape Healthcare Ltd, Pharmacy Events Ltd, PRNZ Ltd and its associated companies, Pharmacy Retailing (NZ) Ltd and Trustee of Pentz Trust. The above named Directors held office during the year and since the end of the financial year except for Peter Merton who was appointed on 12 september 2007. 21 Corporate Governance statement The board and management of Ebos Group Ltd are committed to ensuring that the Company adheres to best practice and governance principles and maintains high ethical standards. The board has agreed to regularly review and assess the Company’s governance structures to ensure they are consistent, both in form and in substance, with best practice. These are set out in the Company’s Corporate Governance Code, the full content of which can be found on the Company’s website (www.ebos.co.nz). The board considers that the Company’s Corporate Governance policies, practices and procedures substantially comply with the New Zealand Exchange Corporate Governance best Practice Code. Code of Ethics The Ebos Code of Ethics is the framework of standards by which the directors and employees of Ebos and its related companies are expected to conduct their professional lives, and covers conflicts of interest, receipt of gifts, confidentiality, expected behaviour, delegated authority and compliance with laws and policies. Remuneration Committee The Remuneration Committee provides the board with assistance in establishing relevant remuneration policies and practices for directors, executives and employees. Members of the Remuneration Committee are Rick Christie (Chairman), barry Wallace and Mark Waller. Role of the board and Management The board is responsible for the direction and supervision of the business and affairs of the Company and the monitoring of the performance of the Company on behalf of shareholders. The board also places emphasis on regulatory compliance. Responsibility for the day to day management of the Company has been delegated to the Chief Executive officer/Managing Director and his management team. board composition The board is elected by the shareholders of Ebos Group Ltd. At each annual meeting at least one third of the directors retire by rotation. The board currently comprises the following non- executive directors: Chairman, Rick Christie; Peter Kraus; Elizabeth Coutts; sarah ottrey and barry Wallace. It has the following executive directors Mark Waller, Chief Executive officer/Managing Director and Peter Merton, Chief Executive of PRNZ Ltd. Rick Christie, Elizabeth Coutts and sarah ottrey have been determined as Independent Directors, (as defined under the NZsX Listing Rules and the Ebos Group Ltd Corporate Governance Code). board Committees specific responsibilities are delegated to the Audit and Risk Committee, the Remuneration Committee and the Nomination Committee. Each of these committees has a charter setting out the committee’s objectives, procedures, composition and responsibilities. Copies of these charters are available on the Company’s website. Audit and Risk Committee The Audit and Risk Committee provides the board with assistance in fulfilling their responsibility to shareholders, the investment community and others for overseeing the Company’s financial statements, financial reporting processes, internal accounting systems, financial controls, and annual external financial audit and Ebos’s relationship with its external auditor. In addition, the Audit and Risk Committee is responsible for the establishment of policies and procedures relating to risk oversight, identification, management and control. Members of the Audit and Risk Committee are barry Wallace (Chairman), Rick Christie and Elizabeth Coutts. Nomination Committee The procedure for the appointment and removal of directors is ultimately governed by the Company’s Constitution. A director is appointed by ordinary resolution of the shareholders although the board may fill a casual vacancy. The board has delegated to the Nomination Committee the responsibility for recommending candidates to be nominated as a director on the board and candidates for the committees. When recommending candidates to act as director, the Nomination Committee takes into account such factors as it deems appropriate, including the experience and qualifications of the candidate. The current members of the Nomination Committee are Rick Christie (Chairman), Elizabeth Coutts and Peter Kraus. The majority of the members of the Nomination Committee are independent. board processes Messrs b. Wallace and M. Waller are also directors and attend board meetings of Global science & Technology Ltd, a wholly owned subsidiary of Ebos Group Ltd. The table on page 24 shows attendances at the board and committee meetings during the year ended 30 June 2008. share trading by Directors and officers The Company has formal procedures that directors and officers must follow when trading Ebos shares. They must notify and obtain the consent of the board prior to any trading. All trading must be conducted within two prescribed trading windows. These periods commence from the date on which the annual result and half- yearly results are announced and conclude on the following 30 November and 30 April respectively. shareholder participation The board aims to ensure that shareholders are informed of all major developments affecting the Group’s state of affairs. Information is communicated to shareholders in the Annual Report and the Interim Report. The board has adopted a policy of Continuous Disclosures that complies with the NZsX Listing Rules. The board encourages full participation of shareholders at the Annual Meeting to ensure a high level of accountability and identification with the Group’s strategies and goals. Investors can obtain information on the company from its website (www.ebos.co.nz). The site contains recent NZX announcements and reports. 22 Directors’ Report Your Directors are pleased to submit to shareholders their report and financial statements for the year ended 30 June 2008. Principal activities Ebos Group Limited (the Company) is listed on the NZsX board of the New Zealand Exchange (NZX) under the securities code Ebo. Ebos Group is the largest New Zealand owned independent national distributor and marketer of medical, dental, and scientific supplies in New Zealand. significant business operations are also conducted in Australia, Papua New Guinea and the Pacific. The company markets world class healthcare and scientific brands sourced from leading international manufacturers. Ebos operates in two key business segments being Healthcare and scientific: • Healthcare incorporates the sales and marketing of healthcare products to a wide range of sectors and the provision of wholesale distribution services of health sector consumables, pharmaceuticals and ‘over-the-counter’ products, and • scientific incorporates the sale and marketing of laboratory consumables, life sciences equipment and the provision of technical support to industry and research laboratories. Issued capital As at 30 June 2008 the Company had on issue 47,021,841 ordinary fully paid shares, with 10,177,878 shares issued during the year. Group results Annual group operating revenue was NZ$1,092m in the year ended 30 June 2008 (2007 $307m). operating profit before finance costs and tax of NZ$30.88m (2007 $17.13m) was earned for the year ended 30 June 2008. The net profit for the period after interest and tax was NZ$16.66m (2007 $10.32m). Earnings per share were 37.6 cents (2007 31.7 cents). The trading results included contributions from PRNZ Ltd, acquired August 2007 and other acquisitions completed during the year. Distribution The Directors approved a final distribution of 13.5 cents per share making a total of 23 cents per share for the year (2007 22.5 cents per share). bonus shares under the Distribution Plan will be issued on 10 october 2008. Directors Rick Christie and Elizabeth Coutts retire by rotation in accordance with the Company’s constitution and being eligible offer themselves for re-election. Directors’ interests share dealings by Directors The Directors tabled on page 21 have disclosed to the board under section 148(2) of the Companies Act 1993 particulars of acquisitions and dispositions of relevant interests in ordinary shares during the year – refer table on page 24. Disclosure of interests by Directors In accordance with section 140(2) of the Companies Act 1993, the directors named below have made general disclosure of interest, by a general notice disclosed to the board and entered in the Company’s interest register, as follows: R.G.M. Christie: Chairman of Argenta Ltd, Provenco Group Ltd, Vcomms Ltd, Health support Ltd, and Director of Growth & Innovation Advisory board, Tourism Holdings Ltd, Wakefield Health Ltd and NZ Pork Industry board. P.F. Kraus: Director of Whyte Adder No.3 Ltd, strand Holdings Ltd, strand Management Ltd, Herpa Properties Ltd, Health support Ltd, Ecostore Company Ltd, oceania Attractions Ltd, IsL International Ltd, Hapimana Properties Ltd and Huckleberry Farms Ltd and Trustee of the Perpanida Trust and the Annalise Trust. E.M. Coutts: Chairman of Life Pharmacy Ltd, Chairman Audit, Finance and Risk Committee of the Ministry of Health, Director of skellerup Industries Ltd, External monetary policy adviser to the Governor of the Reserve bank of New Zealand and Member of NZ Rugby League Review Committee. P.M. Merton: Director of Pharmacy brands Ltd, Cape Healthcare Ltd, Pharmacy Events Ltd, PRNZ Ltd and its associated companies, Pharmacy Retailing (NZ) Ltd and Trustee of Pentz Trust. s.C. ottrey – strategic Marketing Consultant to Db Dominion breweries Ltd. b.J. Wallace: Director of Allum Management services Ltd, Global science and Technology Ltd, Health support Ltd, Health support Properties Ltd, PRNZ Ltd and its associated companies, Whyte Adder No.3 Ltd, strand Holdings Ltd, strand Management Ltd, Herpa Properties Ltd, Ecostore Company Ltd, Eco Tech solutions Ltd, oceania Attractions Ltd, IsL International Ltd, Hapimana Properties Ltd and Huckleberry Farms Ltd and Trustee of the Perpanida Trust and The Annalise Trust. M.b. Waller: Director of Global science and Technology Ltd, Health support Ltd, Health support Properties Ltd, Ebos Health & science Pty Ltd, Ebos Group Pty Ltd, Healthcare Distributors Pty Ltd, PRNZ Ltd and its associated companies, Quantum scientific Pty Ltd, scott Technology Ltd, and Vital Medical supplies (Australia) Pt Ltd. 23 Directors’ Report Directors’ Report & Disclosures Use of Company information During the year the board received no notices from directors of the company requesting to use company information received in their capacity as directors, which would not otherwise have been available to them. share dealings by Directors Director E M Coutts P F Kraus – Held by associated persons – Held by associated persons P M Merton M b Waller M b Waller – Held by associated persons b J Wallace – Held by associated persons – Director of Whyte Adder No.3 Ltd / Director of Herpa Properties Ltd Directors’ shareholdings Number of fully paid shares held as at ordinary shares Purchased (sold) Consideration Paid (Received) Date of Transaction 1,075 153,627 671,082 614,133 79,604 30,922 (10,000) 1,075 8,180 10,000 3,225 371 153,627 671,082 66,944 614,133 12,660 $5,000 $714,370 $3,120,532 $3,009,250 $366,849 $142,502 Nil $5,000 $37,697 Nil $15,000 $1,707 $714,370 $3,120,532 $308,507 $3,009,250 $58,342 october 2007 september 2007 october 2007 March 2008 May 2008 May 2008 August 2007 october 2007 May 2008 August 2007 october 2007 May 2008 september 2007 october 2007 May 2008 March 2008 May 2008 – Held by associated persons – Non beneficially held – staff share purchase scheme – Held by associated persons – Held by associated persons (Resigned 9 November 2006) – Held by associated persons – Director of Whyte Adder No.3 Ltd / Director of Herpa Properties Ltd – Held by associated persons – Non beneficially held – staff share purchase scheme 30 June 2008 30 June 2007 3,000 14,408 150,230 3,941,132 1,530,922 – 123,571 3,941,132 404,957 18,262 150,230 3,000 13,333 116,650 2,422,686 120,000 2,422,686 405,702 4,666 116,650 board* Eligible to Audit & Risk Committee Remuneration Committee Nomination Committee Eligible to Eligible to Eligible to Attend Attended Attend Attended Attend Attended Attend Attended 12 12 12 10 12 15 15 12 8 11 8 10 15 15 3 - 3 - - 3 - 3 - 3 - - 3 - 1 - - - - 1 1 1 - - - - 1 1 1 1 1 - - - - 1 1 1 - - - - * Includes attendance by directors at subsidiary company board meetings. Indemnity and insurance In accordance with section 162 of the Companies Act 1993 and the constitution of the Company, the Company has given indemnities to, and has effected insurance for, the directors and executives of the Company and its related companies which, except for some specific matters which are expressly excluded, indemnify and insure directors and executives against monetary losses as a result of actions undertaken by them in the course of their duties. specifically excluded are certain matters, such as the incurring of penalties and fines which may be imposed for breaches of law. 24 E M Coutts R G M Christie P F Kraus P M Merton H J Vollemaere b J Wallace M b Waller Attendance R Christie P Kraus E Coutts P Merton s ottrey b Wallace M Waller Directors’ Remuneration and other benefits Directors’ remuneration and other benefits required to be disclosed pursuant to section 211(1) of the Companies Act 1993 for the year ended 30 June 2008 were as follows: Ebos Group Limited R.G.M. Christie P.F. Kraus E.M. Coutts P. Merton s.C. ottrey H.J. Vollemaere b.J. Wallace M.b. Waller (Chief Executive officer and Managing Director) *Includes performance bonus and other emoluments Global science & Technology Limited b.J. Wallace Health support Limited R.G.M. Christie P.F. Kraus b.J. Wallace salary & other benefits salary * other benefits 2008 $104,800 $74,100 $52,400 $287,325 $49,400 – $55,000 $218,200 $829,000 2007 $85,000 $60,000 $45,000 – $31,505 $14,465 $45,000 $218,200 $581,724 $10,000 $10,000 $8,750 $5,000 $5,000 $17,500 $10,000 $10,000 Employee Remuneration Grouped below, in accordance with section 211 of the Companies Act 1993, are the number of employees or former employees of the company and its subsidiaries, including those based in Australia, who received remuneration and other benefits in their capacity as employees totalling NZ$100,000 or more during the year. Employee Remuneration Remuneration (NZ$) 100,000 – 110,000 110,000 – 120,000 120,000 – 130,000 130,000 – 140,000 140,000 – 150,000 160,000 – 170,000 180,000 – 190,000 200,000 – 210,000 220,000 – 240,000 240,000 – 250,000 270,000 – 280,000 300,000 – 310,000 400,000 – 410,000 Number of Employees 2008 2007 13 10 6 8 4 4 4 – 4 1 1 – 1 2 3 3 6 1 – 1 2 – – – 1 – Auditors The Company’s Auditors, Deloitte, will continue in office in accordance with the Companies Act 1993. The Directors are satisfied that the provision of non-audit services, during the year by the auditor is compatible with the general standard of independence for auditors imposed by the Companies Act 1993. Details of amounts paid or payable to the auditor for non-audit services provided during the year by the auditors are outlined in note 5 to the financial statements. R.G.M. Christie Chairman 22 August 2008 M.B. Waller Managing Director 25 Ebos Group Limited Financial Report For the financial year ended 30 June, 2008 Ebos Group Limited directors’ responsibility Statement The Directors of EBOS Group Limited are pleased to present to shareholders the financial statements for EBOS Group and its controlled entities (together the “group”) for the year to 30 June 2008. The Directors are responsible for presenting financial statements in accordance with New Zealand law and generally accepted accounting practice, which give a true and fair view of the financial position of company and the group as at 30 June 2008 and the results of their operations and cash flows for the year ended on that date. The Directors consider the financial statements of the company and the group have been prepared using accounting policies which have been consistently applied and supported by reasonable judgement and estimates and that all relevant financial reporting and accounting standards have been followed. The Directors believe that proper accounting records have been kept which enable with reasonable accuracy, the determination of the financial position of the company and group and facilitate compliance of the financial statements with the Financial Reporting Act 1993. The Directors consider that they have taken adequate steps to safeguard the assets of the company and the group, and to prevent and detect fraud and other irregularities. Internal control procedures are also considered to be sufficient to provide a reasonable assurance as to the integrity and reliability of the financial statements. The Financial Statements are signed on behalf of the Board by: Mark Waller Chief Executive Officer and Managing Director Rick Christie Chairman 22 August 2008 26 AUDIT REPORT TO THE SHAREHOLDERS OF EBOS GROUP LIMITED We have audited the financial statements on pages 28 to 70. The financial statements provide information about the past financial performance and financial position of EBOS Group Limited and group as at 30 June 2008. This information is stated in accordance with the accounting policies set out on pages 32 to 40. Board of Directors’ Responsibilities The Board of Directors is responsible for the preparation, in accordance with New Zealand law and generally accepted accounting practice, of financial statements which give a true and fair view of the financial position of EBOS Group Limited and group as at 30 June 2008 and of the results of operations and cash flows for the year ended on that date. Auditors’ Responsibilities It is our responsibility to express to you an independent opinion on the financial statements presented by the Board of Directors. Basis of Opinion An audit includes examining, on a test basis, evidence relevant to the amounts and disclosures in the financial statements. It also includes assessing: • the significant estimates and judgements made by the Board of Directors in the preparation of the financial statements, and • whether the accounting policies are appropriate to the company and group circumstances, consistently applied and adequately disclosed. We conducted our audit in accordance with New Zealand Auditing Standards. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to obtain reasonable assurance that the financial statements are free from material misstatements, whether caused by fraud or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Other than in our capacity as auditor, the provision of taxation advice and the provision of due diligence advisory services, we have no relationship with or interests in EBOS Group Limited or any of its subsidiaries. Unqualified Opinion We have obtained all the information and explanations we have required. In our opinion: • proper accounting records have been kept by EBOS Group Limited as far as appears from our examination of those • records; and the financial statements on pages 28 to 70: – comply with generally accepted accounting practice in New Zealand; – comply with International Financial Reporting Standards; and – give a true and fair view of the financial position of EBOS Group Limited and group as at 30 June 2008 and the results of their operations and cash flows for the year ended on that date. Our audit was completed on 22 August 2008 and our unqualified opinion is expressed as at that date. Chartered Accountants ChRISTChuRCh, NEW ZEALAND. 2727 Ebos Group Limited income Statement For the Financial Year ended 30 June, 2008 Revenue Profit before depreciation, amortisation, finance costs and income tax expense Depreciation Amortisation of finite life intangibles Profit before finance costs and tax Finance costs Profit before income tax expense Income tax (expense)/credit Profit for the period Earnings per share: Basic (cents per share) Diluted (cents per share) Notes Group 2008 $’000 Group 2007 $’000 Parent 2008 $’000 Parent 2007 $’000 2 (a) 1,092,020 307,276 69,851 67,010 2 (b) 2 (b) 2 (b) 2 (b) 3 33,634 (2,620) (137) 30,877 (8,334) 22,543 (5,880) 18,842 (1,711) - 17,131 (2,189) 14,942 (4,623) 16,663 10,319 8,171 (316) - 7,855 (4,591) 3,264 31 3,295 8,561 (408) - 8,153 (1,181) 6,972 (1,161) 5,811 25 25 37.6 37.6 31.7 31.7 28 Notes to the financial statements are included on pages 32 to 70. Ebos Group Limited balance Sheet As at 30 June, 2008 Current assets Cash and cash equivalents Trade and other receivables Prepayments Inventories Current tax refundable Other financial assets - derivatives Advances to subsidiaries Finance leases Total current assets Non-current assets Property, plant and equipment Capital work in progress Finance leases Prepayments Deferred tax assets Goodwill Indefinite life intangibles Finite life intangibles Shares in subsidiaries Total non-current assets Total assets Current liabilities Bank overdraft Trade and other payables Finance leases Bank loans Current tax payable Employee benefits Other financial liabilities - derivatives Advances from subsidiaries Total current liabilities Non-current liabilities Bank loans Trade and other payables Deferred tax liabilities Finance leases Total non-current liabilities Total liabilities Net assets Equity Share capital Foreign currency translation reserve Retained earnings Cash flow hedge reserve Total equity Notes to the financial statements are included on pages 32 to 70. Notes Group 2008 $’000 Group 2007 $’000 Parent 2008 $’000 6 7 8 3 9 10 11 7 3 12 13 14 15 16 17 16, 18 16 3 19 16 16 17 3 16, 18 16,136 150,426 2,789 126,704 3,428 130 - 108 1,772 41,230 1,090 45,211 624 12 - 86 121 8,572 47 14,131 1,316 - 12,298 108 299,721 90,025 36,593 22,103 916 115 1,176 3,992 133,062 23,756 1,353 - 10,525 240 172 1,432 1,209 27,387 6,316 - - 4,352 - 115 - 527 1,728 4,960 - 128,630 186,473 47,281 140,312 486,194 137,306 176,905 277 233,039 225 82,971 1,886 4,851 387 - 635 29,679 74 1,101 1,082 2,305 95 - 16 6,907 27 48,100 - 1,383 384 5,512 323,636 34,971 62,329 1,250 5,318 7,796 890 7,985 - 2,035 120 15,254 10,140 - - 1,488 47 1,535 338,890 45,111 63,864 Parent 2007 $’000 200 9,786 101 15,008 441 - 10,118 86 35,740 757 240 172 - 386 1,728 4,960 - 39,801 48,044 83,784 349 5,261 27 - - 980 95 1,546 8,258 - - 1,495 74 1,569 9,827 147,304 92,195 113,041 73,957 20 21 21 21 105,752 2,044 39,645 (137) 63,150 (485) 29,530 - 105,752 - 7,554 (265) 147,304 92,195 113,041 63,150 - 10,807 - 73,957 29 Ebos Group Limited Statement of changes in equity For the Financial Year ended 30 June, 2008 Notes Group 2008 $’000 Group 2007 $’000 Parent 2008 $’000 Parent 2007 $’000 Equity at start of period as previously reported 92,195 55,763 73,957 40,413 Effect of change in accounting policy for deferred tax on intangible assets 1.6 - (1,955) - (1,488) Equity at start of period – as restated 92,195 53,808 73,957 38,925 Profit for period attributable to: Members of the parent entity Movement in foreign currency translation reserve Cash flow hedges (loss) taken to equity Related income tax Total recognised income and expenses Dividends paid to company shareholders Shares issued 16,663 10,319 3,295 5,811 2,529 (250) 113 (1,153) - - - (378) 113 - - - 19,055 9,166 3,030 5,811 (6,548) 42,602 (7,092) 36,313 (6,548) 42,602 (7,092) 36,313 21 21 22 20 Equity at end of period 147,304 92,195 113,041 73,957 30 Notes to the financial statements are included on pages 32 to 70. Ebos Group Limited cash Flow Statement For the Financial Year ended 30 June, 2008 Cash flows from operating activities Receipts from customers Interest received Dividends received from subsidiaries Subvention income from subsidiaries Payments to suppliers and employees Taxes paid Interest paid Notes Group 2008 $’000 Group 2007 $’000 1,086,298 234 - - (1,041,501) (8,151) (8,334) 302,802 102 - - (289,258) (4,203) (2,189) Parent 2008 $’000 65,532 1,069 - 4,501 (58,783) (879) (4,591) Parent 2007 $’000 63,762 665 2,724 - (60,713) (1,187) (1,181) Net cash inflow from operating activities 24c 28,546 7,254 6,849 4,070 Cash flows from investing activities Sale of property, plant & equipment Receipt of deferred sale proceeds Advances from subsidiaries Purchase of property, plant & equipment Payments for capital work in progress Advances to subsidiaries Businesses acquired Investment in subsidiary company 295 - - (6,315) (150) - (86,968) - 1,388 691 - (2,183) (240) - (4,500) - 4 - 8,185 (3,710) - (6,398) (72,315) (2,264) 1,360 - 6,521 (450) (240) (16,817) (4,500) - 24a Net cash (outflow) from investing activities (93,138) (4,844) (76,498) (14,126) Cash flows from financing activities Proceeds from issue of shares Proceeds from borrowings Repayment of borrowings Dividends paid to equity holders of parent Net cash inflow from financing activities Net increase/(decrease) in cash held Effect of exchange rate fluctuations on cash held Net cash and cash equivalents at beginning of the year Net cash and cash equivalents at the end of the year Cash and cash equivalents Bank overdrafts 22 28,351 59,793 (2,500) (6,548) 79,096 14,504 218 36,313 6,500 (35,319) (7,092) 28,351 48,100 - (6,548) 36,313 6,500 (25,704) (7,092) 402 69,903 10,017 2,812 (105) 254 - 1,137 (1,570) (149) 15,859 16,136 (277) 15,859 1,137 1,772 (635) 1,137 105 121 (16) 105 (39) - (110) (149) 200 (349) (149) Notes to the financial statements are included on pages 32 to 70. 31 Ebos Group Limited notes to the Financial Statements For the Financial Year ended 30 June, 2008 1. SUMMARY OF ACCOUNTING POLICIES 1.1 Statement of Compliance EBOS Group Ltd (“the Company”) is a profit-oriented company incorporated in New Zealand, registered under the Companies Act 1993 and listed on the New Zealand Exchange. The company operates in two business segments, being healthcare and Scientific – healthcare incorporates the sale of healthcare products in a range of sectors, own brands, retail healthcare and wholesale activities, and Scientific incorporates the sale of laboratory consumables, life sciences equipment and technical support to industry and research laboratories. The Company is a reporting entity and issuer for the purposes of the Financial Reporting Act 1993 and its financial statements comply with that Act. The financial statements have been prepared in accordance with Generally Accepted Accounting Practice in New Zealand (‘NZ GAAP’). They comply with New Zealand Equivalents to International Financial Reporting Standards (“NZ IFRS”) and other applicable reporting standards as appropriate for profit oriented entities. The Financial Statements comply with International Financial Reporting Standards (“IFRS”). 1.2 Basis of Preparation The financial statements have been prepared on the basis of historical cost, except for the revaluation of certain financial instruments. Cost is based on the fair value of the consideration given in exchange for assets. Accounting policies are selected and applied in a manner which ensures that the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is reported. The accounting policies set out below have been applied in preparing the financial statements for the year ended 30 June, 2008 and the comparative information presented in these financial statements for the year ended 30 June, 2007. The information is presented in thousands of New Zealand dollars. 1.3 Critical Judgements in applying accounting policies In the process of applying the accounting policies, management has made the following judgements that have had the most significant effect on the amounts recognised in the financial statements (apart from those involving estimations, which are dealt with below). In the application of NZ IFRS management is required to make judgements, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Judgements made by management in the application of NZ IFRS that have significant effects on the financial statements and estimates with a significant risk of material adjustments in the next year are disclosed, where applicable, in the relevant notes to the financial statements. Critical judgements made by management principally relate to the identification of intangible assets arising on acquisition of a business or subsidiaries and the recognition of revenue on significant contracts subject to renewal. 32 1. SUMMARY OF ACCOUNTING POLICIES contd. 1.4 Key Sources of Estimation Uncertainty Key sources of estimation uncertainty relate to assessment of impairment of goodwill and indefinite life intangibles. The group determines whether goodwill and indefinite life intangibles are impaired at least on an annual basis. This requires an estimation of the recoverable amount of the cash generating units to which the goodwill and indefinite life intangibles are allocated. The assumptions used in this estimation of recoverable amount and the carrying amount of goodwill and indefinite life intangibles are discussed in notes 12 and 13. It is assumed that significant contracts will be rolled over for each period of renewal. Determining the recoverable amounts of goodwill and intangible assets requires the estimation of the effects of uncertain future events at balance date. These estimates involve assumptions about risk assessment to cash flows or discount rates used, future changes in salaries and future changes in price affecting other costs. 1.5 Specific accounting policies The following specific accounting policies have been adopted in the preparation and presentation of the financial statements. a) Basis of consolidation – purchase method The consolidated financial statements are prepared by combining the financial statements of all the entities that comprise the group, being the company (the parent entity) and its subsidiaries as defined in NZ IAS-27 ‘Consolidated and Separate Financial Statements’. A list of subsidiaries appears in note 15 to the financial statements. Consistent accounting policies are employed in the preparation and presentation of the consolidated financial statements. On acquisition, the assets and liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. Any deficiency of the cost of acquisition below the fair values of the identifiable net assets acquired (i.e. discount on acquisition) is credited to the income statement in the period of acquisition. The interest of minority shareholders is stated at the minority’s proportion of the fair values of the assets and liabilities recognised. Subsequently, any losses applicable to the minority interest in excess of the minority interest are allocated against the interests of the parent. The results of subsidiaries acquired or disposed of during the year are included in the consolidated Income Statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. All significant inter-company transactions and balances are eliminated on consolidation. In the Company’s financial statements, investments in subsidiaries are recognised at their cost, less any adjustment for impairment. b) Goodwill Goodwill represents the excess of the purchase consideration over the fair value of the identifiable tangible and identifiable intangible assets, liabilities and contingent liabilities of the subsidiary recognised at the time of acquisition of a business or subsidiary. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill is allocated to each of the groups cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period. On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. c) Indefinite life intangible assets Indefinite life intangible assets represent purchased brand names and are initially recognised at cost. Such intangible assets are regarded as having indefinite useful lives and they are tested annually for impairment on the same basis as for goodwill. d) Finite life intangible assets Finite life intangible assets are recorded at cost less accumulated amortisation. Amortisation is charged on a straight line basis over their estimated useful life. The estimated useful life and amortisation period is reviewed at the end of each annual reporting period. 33 Ebos Group Limited notes to the Financial Statements (continued) For the Financial Year ended 30 June, 2008 1. SUMMARY OF ACCOUNTING POLICIES contd. e) Intangible assets acquired in a business combination All potential intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset and their fair value can be measured reliably. f) Property, plant, and equipment The group has five classes of property, plant and equipment: • Freehold land; • Buildings; • Leasehold improvements; • Plant and Vehicles, and • Office equipment, furniture and fittings. Property, Plant and Equipment is initially recorded at cost. Cost includes the original purchase consideration and those costs directly attributable to bring the item of Property, Plant and Equipment to the location and condition for its intended use. After recognition as an asset Property, Plant and Equipment is carried at cost less accumulated depreciation and impairment losses. When an item of Property, Plant and Equipment is disposed of, any gain or loss is recognised in the Income Statement and is calculated as the difference between the sale price and the carrying value of the item. Depreciation is provided for on a straight line basis on all Property, Plant and Equipment other than freehold land, at depreciation rates calculated to allocate the assets’ cost less estimated residual value, over their estimated useful lives. Leased assets are depreciated over the shorter of the unexpired period of the lease and the estimated useful life of the assets. Major depreciation periods are: • Buildings • Leasehold improvements • Plant • Office equipment, furniture and fittings • Motor vehicles 20 to 100 years 2 to 15 years 2 to 20 years 2 to 10 years 4 to 5 years g) Impairment of Assets At each balance sheet date, the group reviews the carrying amounts of its non current assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately. Where an impairment loss subsequently reverses, other than for Goodwill and indefinite life intangible assets, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately. Impairment losses can not be reversed for Goodwill and indefinite life intangible assets. h) Taxation The income tax expense charged to the income statement includes both the current year’s provision and the income tax effect of: • Taxable temporary differences, except those arising from initial recognition of goodwill; and • Deductible temporary differences to the extent that it is probable that they will be utilised. 34 1. SUMMARY OF ACCOUNTING POLICIES contd. Temporary differences arising from transactions, other than business combinations, affecting neither accounting profit nor taxable profit are ignored. The group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is not recognised on temporary differences associated with investments in subsidiaries, because: • The parent company is able to control the timing of the reversal of the differences; and • They are not expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. i) Inventories Inventories are recognised at the lower of cost, determined on a weighted average basis, and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Net realisable value represents the estimated selling price in the ordinary course of business, less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. j) Leases The group leases certain plant and equipment and land and buildings. Finance leases, which effectively transfer to the group substantially all of the risks and benefits incident to ownership of the leased item, are capitalised at the present value of the minimum lease payments. The leased assets and corresponding liabilities are recognised and the leased assets are depreciated over the period the group is expected to benefit from their use. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to the Income Statement. Operating lease payments, where the lessors effectively retain substantially all the risks and benefits of ownership of the lease items, are included in the determination of the net surplus in equal instalments over the period of the lease. Lease incentives received are recognised as an integral part of the total lease payments made and also spread on a basis representative of the pattern of benefits expected to be derived from the leased asset. k) Foreign Currency Translation Functional and Presentation Currency The financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in New Zealand dollars, which is the Company’s functional and presentation currency. Transactions and Balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the Income Statement for the period. Foreign Operations On consolidation, the assets and liabilities of the group’s overseas operations are translated at exchange rates prevailing at the reporting date. Income and expense items are translated at the average rates for the period. Exchange differences arising, if any, are recognised in the foreign currency translation reserve, and recognised in profit or loss on disposal of the foreign operation. Goodwill and fair value adjustments arising on the acquisition of a foreign entity on or after the date of transition to NZ IFRS are treated as assets and liabilities of the foreign entity and translated at exchange rates prevailing at the reporting date. 35 Ebos Group Limited notes to the Financial Statements (continued) For the Financial Year ended 30 June, 2008 1. SUMMARY OF ACCOUNTING POLICIES contd. l) Goods & Services Tax Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except for receivables and payables which are recognised inclusive of GST. Cash flows are included in the cash flow statement on a net basis. The GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified as operating cash flows. m) Financial Instruments Financial assets and financial liabilities are recognised on the group’s balance sheet when the group becomes a party to the contractual provisions of the instrument. Financial assets are classified into the following specific categories: “financial assets at fair value through profit or loss” (FVTPL), “held to maturity” investments, “available for sale” (AFS) financial assets and “loans and receivables”. The category depends on the nature and purpose of the financial assets and is determined at initial recognition. The categories used are set out below: Cash & Cash Equivalents Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Loans and Receivables Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in the Income Statement when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition. Equity Instruments Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. Financial Liabilities Financial liabilities are classified as either financial liabilities at “fair value through profit or loss” (FVTPL) or “other financial liabilities” measured at amortised cost. The classifications used are set out below: Other Financial Liabilities Trade payables are initially measured at fair value, and subsequently measured at amortised cost, using the effective interest rate method. All loans and borrowings are initially recognised at cost, being the fair value of the consideration received plus issue costs associated with the borrowing. After initial recognition, these loans and borrowings are subsequently measured at amortised cost using the effective interest rate method which allocates the cost through the expected life of the loan or borrowing. Amortised cost is calculated taking into account any issue costs, and any discount or premium on drawdown. Bank loans are classified as current liabilities (either advances or current portion of term debt) unless the group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Derivative Financial Instruments The group enters into foreign currency forward exchange contracts to hedge trading transactions, including anticipated transactions, denominated in foreign currencies and from time to time uses interest rate swaps to manage cash flow interest rate risk. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. The group designates certain derivatives as cashflow hedges of highly probable forecast transactions. 36 1. SUMMARY OF ACCOUNTING POLICIES contd. Cashflow hedges At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the group documents whether the hedging instrument that is used in a hedging relationship is highly effective in offsetting changes in cashflows of the hedged items. The effective portion of changes in the fair value of derivatives that are designated and qualify as cashflow hedges are deferred in equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss. Amounts deferred in equity are recycled in profit or loss in the periods when the hedged item is recognised in profit or loss. however, when the forecast transaction that is hedged results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset and liability. hedge accounting is discontinued when the group revokes the hedging relationship, the hedging instrument expires, is terminated, exercised or no longer qualifies for hedge accounting. Any cumulative gain or loss deferred in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was deferred in equity is recognised immediately in profit or loss. n) Revenue Recognition Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of returns, discounts, allowances and GST. The following specific recognition criteria must be met before revenue is recognised: Sale of Goods Sales of goods are recognised when significant risks and rewards of owning the goods are transferred to the buyer, when the revenue can be measured reliably and when management effectively ceases involvement or control. Rendering of Services Revenue from services rendered is recognised when it is probable that the economic benefits associated with the transaction will flow to the entity. The stage of completion at balance date is assessed based on the value of services performed to date as a percentage of the total services to be performed. Interest Income Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount. Dividend Income Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established. o) Cash Flow Statement The cash flow statement is prepared exclusive of GST, which is consistent with the method used in the income statement. Definition of terms used in the cash flow statement: Operating activities include all transactions and other events that are not investing or financing activities. Investing activities are those activities relating to the acquisition and disposal of current and non-current investments and any other non- current assets. Financing activities are those activities relating to changes in the equity and debt capital structure of the company and group and those activities relating to the cost of servicing the company’s and the group’s equity capital. 37 Ebos Group Limited notes to the Financial Statements (continued) For the Financial Year ended 30 June, 2008 1. SUMMARY OF ACCOUNTING POLICIES contd. p) Employee entitlements A liability for annual leave and long service leave is accrued and recognised in the statement of financial position. The liability is equal to the present value of the estimated future cash outflows as a result of employee services provided at balance date. Provisions made in respect of employee benefits expected to be settled within 12 months, are measured at their nominal values using the remuneration rate expected to apply at the time of settlement. Provisions made in respect of employee benefits which are not expected to be settled within 12 months are measured at the present value of the estimated future cash outflows to be made by the Group in respect of services provided up to reporting date. q) Segment Reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services in a particular economic environment, where the risks and returns are different from those of segments operating in other economic environments. The group’s primary reporting format is business segments and its secondary format is geographical. r) Non-current assets held for sale and discontinued operations Non-current assets (and disposal groups – being a group of assets to be disposed of by sale or otherwise) classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. The sale of the asset (or disposal group) is expected to be completed within one year from the date of classification. A discontinued operation is a component of the group’s business that represents a separate major line of business or geographical area of operations. Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. s) New standards and Interpretations Standards and interpretations that have been issued or amended but are not yet effective that have not been adopted by the Group and Company for the annual reporting period ended 30 June 2008 and which are relevant are as follows: Application date for Company 30 June 2010 Reference Title Summary Application date of standard Impact on Company financial report NZ IFRS 8 Operating segments. 1 January 2009 Specifies how an entity should report information about its operating segments in annual financial reports. NZ IFRS 8 is a disclosure standard so will have no impact on the amounts included in the Company’s financial statements. however, the amendments will result in changes to the Operating Segments disclosures included in the Company’s financial report. 38 1. SUMMARY OF ACCOUNTING POLICIES contd. Reference Title Summary Application date of standard Impact on Company financial report NZ IAS-1 Presentation of Financial Statements’ – Revised Standard 1 January 2009 The revised NZ IAS 1 requires the presentation of all recognised income and expenses in one statement (a statement of comprehensive income) or in two statements (an income statement and a statement of comprehensive income), separately from owner changes in equity. The revised NZ IAS 1 is a disclosure standard so will have no impact on the amounts included in the Company’s financial statements. however, the amendments will result in changes to presentation of the Income Statement and Statement of changes in Equity included in the Company’s financial report. Application date for Company 30 June 2010 Initial application of the following Standards and Interpretations is not expected to have any material impact to the financial report of the company and group: Standard/Interpretation Amendments to NZ IFRS-4 ‘Insurance Contracts – The Scope of Insurance Activities and Differential Reporting Concessions’ NZ IFRIC-12 ‘Service Concession Arrangements’ NZ IFRIC-13 ‘Customer Loyalty Programmes’ NZ IFRIC-14 ‘NZ IAS-19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction’ IFRIC-15 ‘Agreements for the Construction of Real Estate’ IFRIC-16 ‘hedges of a Net Investment in a Foreign Operation’ NZ IAS-23 ‘Borrowing Costs’ – revised 2007 Amendments to NZ IFRS-2 ‘Share-Based Payment’ – Vesting Conditions and Cancellations NZ IFRS-3 ‘Business Combinations’ – revised 2008 NZ IAS-27 ‘Consolidated and Separate Financial Statements’ – revised 2008 Revised Amendments to NZ IAS 32 ‘Financial Instruments: Presentation’ and NZ IAS 1 ‘Presentation of Financial Statements’ – Puttable Financial Instruments and Obligations Arising on Liquidation Improvements to New Zealand Equivalents to International Financial Reporting Standards 2008 Amendments to NZ IFRS 1 ‘First-time Adoption of New Zealand Equivalents to International Financial Reporting Standards’ and NZ IAS 27 ‘Consolidated and Separate Financial Statements’ – Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate Omnibus Amendments Effective for annual reporting periods beginning on or after Expected to be initially applied in the financial year ending 1 January 2009 30 June 2010 1 January 2008 1 July 2008 1 January 2008 1 January 2009 1 October 2008 1 January 2009 1 January 2009 1 July 2009 1 July 2009 30 June 2009 30 June 2009 30 June 2009 30 June 2010 30 June 2010 30 June 2010 30 June 2010 30 June 2010 30 June 2010 1 January 2009 30 June 2010 Various* 30 June 2010 1 July 2009 1 January 2008 30 June 2010 30 June 2009 * The effective date and transitional provisions vary by Standard. Most of the improvements are effective for annual periods beginning on or after 1 January 2009, with earlier adoption permitted, and they are to be applied retrospectively. 39 Ebos Group Limited notes to the Financial Statements (continued) For the Financial Year ended 30 June, 2008 1. SUMMARY OF ACCOUNTING POLICIES contd. 1.6 Change in Accounting Policy During the period the group changed its accounting policy to recognise deferred tax on indefinite life intangible assets. The change in policy follows reassessment of the group’s interpretation of NZ IAS-12 Income Taxes that indefinite life intangible assets values are recovered through use in the form of economic benefits that will flow to the group, creating a deferred tax temporary difference. Previously the group had assessed that indefinite life intangible asset values are recovered ultimately through sale. The change in accounting policy does not affect the recognition of reported profit or earnings per share. Pursuant to NZ IAS-8 Accounting Policies, Changes in Accounting Estimates and Errors, the change has been recognised by retrospective application to the opening equity in the comparative period as follows: Equity at start of period as previously reported Recognition of deferred tax liability on indefinite life intangible assets Group 2008 $’000 Group 2007 $’000 Parent 2008 $’000 Parent 2007 $’000 94,150 55,763 75,445 40,413 (1,955) (1,955) (1,488) (1,488) Restated equity at start of period 92,195 53,808 73,957 38,925 40 2. PROFIT FROM OPERATIONS Revenue (a) Revenue consisted of the following items: Revenue from the sale of goods - external Revenue from the sale of goods - inter group Revenue from the rendering of services Management fees - external Management fees - inter group Interest revenue - inter group Interest revenue - other Royalty income - inter group Dividends - inter group Subvention income - inter group Other revenue Profit before income tax expense (b) Profit/(loss) before income tax has been arrived at after crediting/(charging) the following gains and losses from operations: (Loss)/gain on disposal of property, plant and equipment Change in fair value of derivative financial instruments Profit/(loss) before income tax has been arrived at after charging the following expenses by nature: Cost of sales - external Purchases inter group Write-down of inventory Finance costs: Bank interest Other interest expense Total finance costs Net bad and doubtful debts arising from: Impairment loss on trade & other receivables Depreciation of property, plant and equipment Amortisation of finite life intangibles Operating lease rental expenses: Minimum lease payments Donations Employee benefit expense Other expenses Group 2008 $’000 Group 2007 $’000 Parent 2008 $’000 Parent 2007 $’000 Notes 1,083,068 - 6,101 2,232 - - 234 - - - 385 305,002 - 1,996 - - - 102 - - - 176 55,432 7,923 - - 631 920 148 296 - 4,501 - 59,830 3,335 - - 456 634 31 - 2,724 - - 1,092,020 307,276 69,851 67,010 (63) 75 541 (1,123) (8) 88 598 (773) (962,491) - (878) (235,428) - (851) (7,667) (667) (2,189) - (41,068) (1,891) (444) (4,584) (7) (40,540) (1,680) (258) (1,018) (163) (8,334) (2,189) (4,591) (1,181) 10 14 (40) (2,620) (137) (6,176) (50) (52,548) (36,215) (23) (1,711) - (3,045) (12) (25,802) (22,691) (2) (316) - (890) (5) (8,964) (8,496) (13) (408) - (992) (11) (7,592) (7,188) Total expenses (1,069,489) (291,752) (66,667) (59,863) 41 Ebos Group Limited Ebos Group Limited notes to the Financial Statements (continued) notes to the Financial Statements (continued) For the Financial Year ended 30 June, 2008 3. INCOME TAXES Group 2008 $’000 Group 2007 $’000 Parent 2008 $’000 Parent 2007 $’000 Income tax recognised in income statement (a) Tax expense/(credit) comprises: Current tax expense/(credit): Current year Adjustments for prior years Other adjustments Deferred tax (credit)/expense: Origination and reversal of temporary differences Adjustments for prior years Adjustments related to changes in tax rates or impostion of new taxes 5,891 21 30 5,942 (25) 2 (39) (62) 4,681 (40) 9 4,650 (80) 53 - (27) Total income tax expense /(credit) 5,880 4,623 - (26) 30 4 (96) 20 41 (35) (31) 1,259 (124) - 1,135 8 18 - 26 1,161 The prima facie income tax expense on pre-tax accounting profit from operations reconciles to the income tax expense in the financial statements as follows: Profit before income tax expense Income tax expense calculated at 33% Non-deductible expenses/(non-assessable income) Effect of differences arising from investment interests in other jurisdictions Effect of different tax rates of subsidiaries operating in other jurisdictions Domestic dividends received (Over)/under provision of income tax in previous year Adjustments related to changes in tax rates Other adjustments 22,543 14,942 3,264 6,972 7,439 (81) (1,203) (349) - 7 (40) 107 4,930 (224) 1,077 18 - (1,203) (177) - 99 - (5) - - 6 41 30 2,301 (128) - - (899) (106) - (7) Total income tax expense/(credit) 5,880 4,623 (31) 1,161 The tax rates used in the above reconciliation are principally the corporate tax rates of 33% and 30% payable respectively by New Zealand and Australian corporate entities on taxable profits under tax law in each jurisdiction. The effect of the change in the New Zealand tax rates from 33% to 30% with effect from 1 July 2008 is $39,000 (Parent $41,000). 42 3. INCOME TAXES contd. Current tax assets and liabilities (b) Current tax assets: Current tax refundable Current tax liabilities: Current tax payable (c) Deferred tax balance Deferred tax assets comprise: Temporary differences Deferred tax liabilities comprise: Temporary differences Taxable and deductible temporary differences arise from the following: Group 2008 $’000 Group 2007 $’000 Parent 2008 $’000 Parent 2007 $’000 3,428 624 1,316 441 1,886 1,082 - - 3,992 1,209 527 386 (7,796) (2,035) (1,488) (1,495) (3,804) (826) (961) (1,109) 2008 Gross deferred tax liabilities: Property, plant & equipment Provisions Other financial liabilities – derivatives Intangible assets (i) Gross deferred tax assets: Property, plant & equipment Provisions Doubtful debts & impairment losses Other financial liabilities – derivatives Other (i) Refer note 1.6. Opening balance $’000 Charged to income $’000 Group charged to equity Acquisitions $’000 $’000 (72) - (8) (1,955) (2,035) 75 663 270 - 201 1,209 8 (18) 8 - (2) (30) 128 (79) - 45 64 - - - - - - - - 113 - 113 Closing balance $’000 (244) (18) - (7,534) (180) - - (5,579) (5,759) (7,796) - 2,162 444 - - 2,606 45 2,953 635 113 246 3,992 4343 Group Opening Charged to Charged to equity income balance $’000 $’000 $’000 (29) - (1,955) (1,984) 68 666 179 40 163 1,116 (43) (8) - (51) 7 (3) 91 (40) 38 93 - - - - - - - - - - Parent Opening Charged to Charged to equity income balance $’000 $’000 $’000 (1,488) (7) (1,495) 45 210 131 - 386 - 7 7 (24) 8 44 - 28 - - - - - - 113 113 Closing balance $’000 (72) (8) (1,955) (2,035) 75 663 270 - 201 1,209 Closing balance $’000 (1,488) - (1,488) 21 218 175 113 527 Ebos Group Limited notes to the Financial Statements (continued) For the Financial Year ended 30 June, 2008 3. INCOME TAXES contd. 2007 Gross deferred tax liabilities: Property, plant & equipment Other financial liabilities - derivatives Intangible assets (i) Gross deferred tax assets: Property, plant & equipment Provisions Doubtful debts & impairment losses Other financial liabilities - derivatives Other 2008 Gross deferred tax liabilities: Intangible assets (i) Other financial liabilities - derivatives Gross deferred tax assets: Property, plant & equipment Provisions Doubtful debts & impairment losses Other financial liabilities - derivatives 44 3. INCOME TAXES contd. 2007 Gross deferred tax liabilities: Property, plant & equipment Intangible assets (i) Other financial liabilities - derivatives Gross deferred tax assets: Property, plant & equipment Provisions Doubtful debts & impairment losses Other financial liabilities - derivatives (i) Refer note 1.6. Parent Opening Charged to Charged to equity income balance $’000 $’000 $’000 (15) (1,488) - (1,503) 37 258 101 23 419 15 - (7) 8 8 (48) 30 (23) (33) - - - - - - - - - Closing balance $’000 - (1,488) (7) (1,495) 45 210 131 - 386 No liability has been recognised in respect of the amount of temporary differences including foreign currency translation reserves associated with undistributed earnings of off-shore subsidiaries because the group is in a position to control the timing of the reversal of the temporary differences and it is probable that such differences will not reverse in the foreseeable future. Imputation credit account balances (d) Balance at beginning of the period Attached to dividends received Taxation paid Attached to dividends paid Other credits Other debits Group 2008 $’000 4,183 - 3,987 (3,144) 72 (290) Group 2007 $’000 5,335 - 2,236 (3,407) 50 (31) Parent 2008 $’000 Parent 2007 $’000 (252) - 930 (3,144) - (162) 1,848 246 1,086 (3,407) - (25) Balance at end of the period 4,808 4,183 (2,628) (252) Imputation credits available directly and indirectly to shareholders of the parent company, through Parent company Subsidiaries (2,628) 7,436 4,808 (252) 4,435 4,183 45 Ebos Group Limited notes to the Financial Statements (continued) For the Financial Year ended 30 June, 2008 4. KEY MANAGEMENT PERSONNEL COMPENSATION Compensation Short-term employee benefits Post-employment benefits 5. REMUNERATION OF AUDITORS Auditor of the parent entity (Deloitte) Audit of the financial statements Audit related services from adoption of NZ IFRS Taxation services Due diligence Other Auditors of entities in the group Audit of the financial statements 6. TRADE & OTHER RECEIvABLES Trade receivables (i) Allowance for impairment (ii) Other receivables Group 2008 $’000 3,732 178 3,910 Group 2007 $’000 2,925 188 3,113 Parent 2008 $’000 2,424 178 2,602 Parent 2007 $’000 1,776 188 1,964 287 15 12 141 455 91 91 164 96 4 - 264 54 54 100 - - 141 241 - - 74 96 - - 170 - - 149,546 (718) 1,598 39,700 (235) 1,765 150,426 41,230 8,647 (138) 63 8,572 9,860 (138) 64 9,786 (i) Trade receivables are non-interest bearing and generally on monthly terms. No interest is charged on the trade receivables for the first 60 days from the date of the invoice. Thereafter, interest may be charged at 3% per annum on the outstanding balance. The Group does not hold any collateral over trade receivables balances. (ii) Allowance for Impairment Balance at the beginning of the year Arising from businesses acquired Impairment loss recognised on trade receivables Amounts written off as uncollectible Impairment losses reversed (235) (520) (40) 8 69 (718) (301) - (23) - 89 (235) (138) - (2) - 2 (138) (125) - (13) - - (138) In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to reporting date. The concentration of credit risk is limited due to the customer base being large and unrelated. Accordingly, the directors believe that there is no further credit provision required in excess of the allowance for doubtful debts. 46 6. TRADE & OTHER RECEIvABLES contd. (iii) Aging of impaired trade receivables 90 days+ (iv) Aging of past due but not impaired Group 2008 $’000 Group 2007 $’000 Parent 2008 $’000 Parent 2007 $’000 (718) (718) (235) (235) (138) (138) (138) (138) Included in the trade receivables balance are debtors with a carrying amount of group $34,429,000 (2007: $10,016,000) and parent $2,952,000 (2007: $3,491,000 ) which are past due at the reporting date for which the Group and/or parent has not provided any impairment as the amounts are still considered recoverable. 30 - 60 days 60 - 90 days 90 days+ 7. PREPAYMENTS Current portion Term portion 8. INvENTORIES Raw Materials At cost Finished Goods At cost At net realisable value 27,743 3,067 3,619 7,381 714 1,921 34,429 10,016 2,789 1,176 3,965 1,090 1,432 2,522 1,815 292 845 2,952 47 - 47 2,207 187 1,097 3,491 101 - 101 - 161 - 37 126,204 500 44,558 492 13,631 500 126,704 45,211 14,131 14,501 470 15,008 9. OTHER FINANCIAL ASSETS - DERIvATIvES At fair value: Interest rate swaps (i) 130 130 12 12 - - (i) Designated and effective as cashflow hedging instrument carried at fair value. - - 47 Ebos Group Limited notes to the Financial Statements (continued) For the Financial Year ended 30 June, 2008 10. PROPERTY, PLANT AND EQUIPMENT Freehold land at cost $’000 1,417 - (217) - 1,200 698 - 1,353 - Buildings at cost $’000 6,076 771 (669) - 6,178 2,757 - 1,091 - Group Leasehold improv. at cost $’000 Plant and Office equip. furniture & fittings at cost $’000 vehicles at cost $’000 939 83 (3) (52) 3,913 762 (100) (121) 9,211 549 (337) (162) Total $’000 21,556 2,165 (1,326) (335) 967 4,454 9,261 22,060 48 (158) 1,701 82 1,007 (587) 2,947 195 1,698 (1,196) 1,047 229 6,208 (1,941) 8,139 506 Gross carrying amount Balance at 1 July, 2006 Additions Disposals Net foreign currency exchange differences Balance at 30 June, 2007 Additions Disposals Acquisitions through business combinations Net foreign currency exchange differences Balance at 30 June, 2008 3,251 10,026 2,640 8,016 11,039 34,972 Accumulated depreciation Balance at 1 July, 2006 Disposals Depreciation expense Net foreign currency exchange differences Balance at 30 June, 2007 Disposals Depreciation expense Net foreign currency exchange differences Balance at 30 June, 2008 Net book value As at 30 June, 2007 As at 30 June, 2008 - - - - - - - - - (1,082) 146 (179) - (308) - (106) 22 (2,220) 33 (524) 62 (6,892) 298 (902) 117 (10,502) 477 (1,711) 201 (1,115) (392) (2,649) (7,379) (11,535) - (218) - 103 (366) (41) 279 (887) (111) 1,233 (1,149) (177) 1,615 (2,620) (329) (1,333) (696) (3,368) (7,472) (12,869) 1,200 3,251 5,063 8,693 575 1,944 1,805 4,648 1,882 3,567 10,525 22,103 48 10. PROPERTY, PLANT AND EQUIPMENT contd. Parent Freehold land at cost $’000 Buildings at cost $’000 Leasehold improv. at cost $’000 Plant and Office equip. furniture & fittings at cost $’000 vehicles at cost $’000 Total $’000 217 - (217) 669 - (669) 202 4 - 760 322 (21) 2,517 97 (199) 4,365 423 (1,106) - 698 - - 206 1,061 2,415 3,682 2,711 - 3 - 88 (34) 424 (1,138) 3,924 (1,172) Gross carrying amount Balance at 1 July, 2006 Additions Disposals Balance at 30 June, 2007 Additions Disposals Balance at 30 June, 2008 698 2,711 209 1,115 1,701 6,434 Accumulated depreciation Balance at 1 July, 2006 Disposals Depreciation expense Balance at 30 June, 2007 Disposals Depreciation expense Balance at 30 June, 2008 Net book value As at 30 June, 2007 As at 30 June, 2008 (143) 146 (3) - - (15) (74) - (20) (94) - (21) (521) - (163) (2,123) 198 (222) (2,861) 344 (408) (684) (2,147) (2,925) 24 (137) 1,135 (143) 1,159 (316) (15) (115) (797) (1,155) (2,082) - - - - - - - - 698 2,696 - 112 94 377 318 268 546 757 4,352 Group plant includes finance leases capitalised with a cost of $1,612,000 (2007 $332,000) and book value of $1,157,000 (2007 $235,000). Parent plant includes finance leases capitalised with a cost of $134,000 (2007 $134,000) and book value of $59,000 (2007 $92,000). Land and buildings in Wellington with a carrying value of $2,427,000 were last valued on 11 September 2007 and determined by DTZ New Zealand Limited, in accordance with NZIAS16, to have a fair value of $2,550,000. Land and buildings in Auckland with a carrying value of $6,100,000 were last valued on 30 June 2007 and determined by Telfer Young (Auckland) Limited, in accordance with NZ IAS16, to have a fair value of $10,900,000. Land and buildings in Christchurch with a carrying value of $3,394,000 were acquired during the year and are stated at cost less depreciation. Aggregate depreciation recognised as an expense during the year: Buildings Leasehold improvements Plant and vehicles Office equipment, furniture & fittings Group 2008 $’000 Group 2007 $’000 Parent 2008 $’000 Parent 2007 $’000 218 366 887 1,149 2,620 179 106 524 902 1,711 15 21 137 143 316 3 20 163 222 408 49 Ebos Group Limited notes to the Financial Statements (continued) For the Financial Year ended 30 June, 2008 11. CAPITAL WORK IN PROGRESS Capital work in progress 916 240 - 240 The capital work in progress relates to software development. The total cost to complete the project is $968,000. Last year the capital work in progress related to construction of an office building. The total cost to complete the project was $3.6 million including building fit-out. Group 2008 $’000 Group 2007 $’000 Parent 2008 $’000 Parent 2007 $’000 12. GOODWILL Gross carrying amount Balance at beginning of financial year Additional amounts recognised from business combinations occurring during the period Effects of foreign currency exchange differences Net book value Group 2008 $’000 Group 2007 $’000 Parent 2008 $’000 Parent 2007 $’000 27,387 27,869 1,728 1,728 105,015 660 - (482) - - - - 133,062 27,387 1,728 1,728 Allocation of goodwill to cash-generating units Goodwill has been allocated for impairment testing purposes to the following cash-generating units representing the lowest level at which management monitor goodwill: • Australian hospital and Primary healthcare sector (EBOS Group Pty Limited) – healthcare Australia. • New Zealand Dental, Consumer, hospital, Primary healthcare, Aged Care and International Product Supplies (EBOS Group Limited) – healthcare NZ. • New Zealand hospital Procurement and logistic services (health Support Limited) – Logistics NZ. • Australasia Scientific Supplies (Global Science & Technology Limited) – Scientific. • New Zealand Pharmacy Wholesaler and Logistic Services (PRNZ Limited) – Pharmacy/Logistics NZ The carrying amount of goodwill allocated to the healthcare Australia cash-generating unit, Scientific cash-generating unit and the Pharmacy/Logistics NZ cash generating unit is significant in comparison with the total carrying amount of goodwill. The carrying amount of goodwill allocated to the healthcare NZ and Logistics NZ cash-generating units is not. however, the recoverable amounts of the operations in New Zealand and Australia are based on some of the same key assumptions. The carrying amount of goodwill allocated to cash-generating units is as follows: Group 2008 $’000 17,010 1,728 1,468 19,281 93,575 Group 2007 $’000 7,502 1,728 1,468 16,689 - 133,062 27,387 healthcare Australia healthcare NZ (Parent) Logistics NZ Scientific Pharmacy/Logistics NZ 50 12. GOODWILL contd. During the year ended 30 June 2008, management have determined that there is no impairment of any of the cash generating units containing goodwill (2007: Nil). The recoverable amounts (i.e. higher of value in use and fair value less costs to sell) of those units are determined on the basis of value in use calculations. Management has determined that the recoverable amount calculations are most sensitive to changes in the following assumptions: healthcare Australia, healthcare NZ and Scientific – Gross margin being maintained during a period of cost increases driven by movements in foreign currency and cost inflation pressures, and maintaining market share during the budget period. Logistics NZ and Pharmacy/Logistics NZ – controlling cost inflation pressures and maintenance of/replacement of major contracts during the budget period. Gross margins during the period for healthcare Australia, healthcare NZ, Logistics NZ, Scientific and Pharmacy/Logistics NZ are estimated by management based on average gross margins achieved before the start of the budget period. Market shares during the budget period are assessed by management based on average market shares achieved in the period immediately before the start of the budget period, adjusted each year for any anticipated growth. The value in use calculation uses cash flow projections based on financial budgets approved by management covering a five year period. Annual growth rates of 2% (2007: 2%), which is below current historical growth rates; an allowance of 4% (2007: 4%) for inflation to expenses, and pre tax discount rates of 15.1% (2007: 14.7% to 15.4%) have been applied to these projections. Cash flows beyond the five year period have been extrapolated using a steady 2% (2007: 2%) growth rate. Management also believes that any reasonably possible change in the key assumptions would not cause the carrying amount of any of the cash generating units to exceed their recoverable amount. 51 Ebos Group Limited notes to the Financial Statements (continued) For the Financial Year ended 30 June, 2008 13. INDEFINITE LIFE INTANGIBLES Group Natures Kiss Allersearch Liceblaster Trademarks $’000 $’000 $’000 $’000 Gross carrying amount Balance at 1 July, 2006 Net foreign currency exchange differences Balance at 30 June, 2007 Acquisitions through business combinations Net foreign currency exchange differences 2,390 - 2,390 - - 2,570 - 2,570 - - 1,503 (147) 1,356 - 200 - - - 17,240 - Total $’000 6,463 (147) 6,316 17,240 200 Balance at 30 June, 2008 2,390 2,570 1,556 17,240 23,756 2,390 2,390 2,570 2,570 1,356 1,556 - 6,316 17,240 23,756 Natures Kiss $’000 Parent Allersearch $’000 2,390 2,390 2,390 2,390 2,390 2,570 2,570 2,570 2,570 2,570 Total $’000 4,960 4,960 4,960 4,960 4,960 Net book value As at 30 June, 2007 As at 30 June, 2008 Gross carrying amount Balance at 1 July, 2006 Balance at 30 June, 2007 Balance at 30 June, 2008 Net book value As at 30 June, 2007 As at 30 June, 2008 52 13. INDEFINITE LIFE INTANGIBLE ASSETS contd. The carrying amount of brands (indefinite life intangibles) has been allocated to the cash generating units as follows: healthcare Australia healthcare NZ (Parent) Pharmacy/Logistics NZ Group 2007 $’000 3,926 2,390 - 6,316 2008 $’000 4,126 2,390 17,240 23,756 Management have assessed these as having an indefinite useful life. In coming to this conclusion management considered expected expansion of the usage of the brands across other products and markets, the typical product life cycle of these assets, the stability of the industry in which the brands are operating, the level of maintenance expenditure required and the period of legal control over the brands. During the year ended 30 June 2008, management have determined that there is no impairment of any of the brands. The calculation of the recoverable amounts for Natures Kiss and Pharmacy/Logistics NZ Trademarks have been determined based on a value in use calculation that uses cash flow projections based on financial budgets approved by management covering a five-year period. The calculation of recoverable amounts for the Allersearch and Liceblaster brands have been determined based on fair value less costs to sell based on an offer received for these brands. Management has determined that the recoverable amount calculations are most sensitive to change in the following assumptions. Annual growth rates of 2% (2007: 2%), and an allowance of 4% (2007: 4%) for inflation to expenses, and pre-tax discount rates of 15.1% (2007:14.7% to 15.4%) have been applied to these projections. Cash flows beyond the five-year period have been extrapolated using a steady 2% (2007:2%) growth rate. Management also believes that any reasonably possible change in the key assumptions would not cause the carrying amount of the brands to exceed their recoverable amount. 14. FINITE LIFE INTANGIBLES Gross carrying amount Balance at 30 June 2007 Acquisitions through business combinations Balance at 30 June, 2008 Accumulated amortisation & impairment Balance at 30 June 2007 Disposals Amortisation expense Balance at 30 June 2008 Net book value As at 30 June 2007 As at 30 June 2008 Allocated to cash generating units as follows: Pharmacy/Logistics NZ Group Supply contracts $’000 - 1,490 1,490 - - (137) (137) Total $’000 - 1,490 1,490 - - (137) (137) - - 1,353 1,353 Group 2008 $’000 1,353 2007 $’000 - 53 Ebos Group Limited notes to the Financial Statements (continued) For the Financial Year ended 30 June, 2008 15. SUBSIDIARIES Parent and Head Entity Ebos Group Limited Subsidiaries (all balance dates 30 June) Ebos Group Pty Limited Vital Medical Supplies (Australia) Pty Limited Ebos health & Science Pty Limited health Support Limited - health Support Properties Limited Global Science & Technology Limited - Quantum Scientific Pty Limited PRNZ Limited EBOS Limited Partnership - EBOS Investments Pty Limited 16. BORROWINGS Current Bank overdrafts (i) Bank loans (i) Finance lease liabilities (ii) Advances from Subsidiaries (at call) (iii) Non-current Bank loans (i) Finance lease liabilities (ii) Total borrowings Secured by a floating charge over the group’s assets. Secured by the assets leased. (i) (ii) (iii) unsecured. TRADE & OTHER PAYABLES 17. Current Trade payables Other payables Country of Incorporation Australia Australia Australia New Zealand New Zealand New Zealand Australia New Zealand Australia Australia Ownership Interests and voting Rights 2007 2008 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% - 100% 100% 100% 100% 100% - - - Group 2008 $’000 Group 2007 $’000 Parent 2008 $’000 Parent 2007 $’000 277 82,971 225 - 83,473 1,250 890 85,613 635 1,101 74 - 1,810 7,985 120 9,915 16 48,100 27 5,512 53,655 - 47 349 - 27 1,546 1,922 - 74 53,702 1,996 220,473 12,566 24,957 4,722 233,039 29,679 5,242 1,665 6,907 3,853 1,408 5,261 Non-current Other payables 5,318 - - - Total trade & other payables 238,357 29,679 6,907 5,261 54 18. LEASES Finance leases Minimum future lease payments Finance leases relate to office equipment, plant and motor vehicles. The group has options to purchase the equipment for a nominal amount at the conclusion of the lease agreements. Finance lease liabilities Minimum Future Lease Payments Group 2008 $’000 Group 2007 $’000 Parent 2008 $’000 Parent 2007 $’000 Present Value of Minimum Future Lease Payments Parent 2008 $’000 Group 2007 $’000 Group 2008 $’000 Not later than 1 year Later than 1 year and not later than 5 years Minimum lease payments* Less future finance charges Present value of minimum lease payments Included in the financial statements as: Finance leases - current portion Finance leases - non current portion 494 773 1,267 (152) 93 151 244 (50) 34 60 34 94 225 890 94 (20) 128 (27) 1,115 - 74 120 194 - 1,115 194 74 101 1,115 194 225 890 1,115 74 120 194 27 47 74 - 74 27 47 74 Parent 2007 $’000 27 74 101 - 101 27 74 101 *Minimum future lease payments includes the aggregate of all lease payments and any guaranteed residual. Operating leases Leasing arrangements Operating leases relate to certain property and equipment. All operating lease contracts contain market review clauses in the event that the company/group exercises its option to renew. The company/group does not have an option to purchase the leased asset at the expiry of the lease period. Operating leases Non-cancellable operating lease payments Not longer than 1 year Longer than 1 year and not longer than 5 years Longer than 5 years Group 2008 $’000 Group 2007 $’000 Parent 2008 $’000 Parent 2007 $’000 6,366 15,809 8,160 30,335 2,775 5,963 484 9,222 717 590 529 842 196 61 1,836 1,099 55 Ebos Group Limited notes to the Financial Statements (continued) For the Financial Year ended 30 June, 2008 19. OTHER FINANCIAL LIABILITIES - DERIvATIvES At fair value: Foreign currency forward contracts (i) Interest rate swaps (ii) (i) Financial liability carried at fair value through profit or loss (“FVTPL”) (ii) Designated and effective as cashflow hedging instrument carried at fair value 20. SHARE CAPITAL Fully paid ordinary shares Balance at beginning of financial year Issue of shares to executives and staff under employee share ownership scheme Rights issue 20 December 2007 Shares issued to vendors of PRNZ Ltd – August 2007 Institutional placement of shares to partially fund PRNZ Ltd acquisition – September 2007 Shares issued under Share Purchase Plan to partially Fund PRNZ Ltd acquisition – October 2007 Bonus shares issued under Profit Distribution Plan - May 2008 Share issue costs Group 2008 $’000 Group 2007 $’000 Parent 2008 $’000 Parent 2007 $’000 7 380 387 95 - 95 7 377 384 95 - 95 2008 No. ’000 2008 $’000 2007 No. ’000 2007 $’000 36,844 63,150 27,634 26,837 54 - 134 - - 9,210 36,898 63,284 36,844 - 36,840 63,677 3,000 14,250 2,527 11,749 3,763 9,290 17,500 43,499 834 - - (1,031) - - - - - - - - - - - (527) 47,022 105,752 36,844 63,150 Fully paid ordinary shares carry one vote per share and carry the right to dividends. Changes to the Companies Act in 1993 abolished the authorised capital and par value concept in relation to share capital from 1 July, 1994. Therefore, the company does not have a limited amount of authorised capital and issued shares do not have a par value. Given the immateriality of the amounts involved the issue of shares to executives and staff under the employee ownership scheme have not been accounted for pursuant to NZ IFRS-2: Share Based Payment. Since the inception of the employee ownership scheme in December 1994 293,350 shares have been issued raising $408,130. 56 21. RESERvES Foreign currency translation reserve Balance at beginning of financial year Translation of foreign operations Balance at end of financial year Group 2008 $’000 (485) 2,529 2,044 Group 2007 $’000 668 (1,153) (485) Exchange differences, principally relating to the translation from Australian dollars, being the functional currency of the group’s foreign controlled entities in Australia, into New Zealand dollars, are brought to account by entries made directly to the foreign currency translation reserve. Retained Earnings Balance at beginning of financial year Net profit attributable to members of the parent entity Dividends provided for or paid (note 22) Group 2008 $’000 29,530 16,663 (6,548) Group 2007 $’000 26,303 10,319 (7,092) Parent 2008 $’000 10,807 3,295 (6,548) Parent 2007 $’000 12,088 5,811 (7,092) Balance at end of financial year 39,645 29,530 7,554 10,807 Cash Flow Hedge Reserve Balance at beginning of financial year (Loss) recognised on cash flow hedges Transferred to profit or loss Related income tax Balance at end of financial year - (250) - 113 (137) - - - - - - (378) - 113 (265) - - - - - The hedging reserve represents gains and losses recognised on the effective portion of cash flow hedges. The cumulative deferred gain or loss on the hedge is recognised in profit or loss when the hedged transaction impacts profit or loss. 22. DIvIDENDS Recognised amounts Fully paid ordinary shares - Final – prior year - Interim – current year Unrecognised amounts Final dividend 2008 Cents per share 2008 Total $’000 2007 Cents per share 13.0 9.5 22.5 5,998 550 6,548 13.0 9.5 22.5 2007 Total $’000 3,592 3,500 7,092 13.5 6,348 13.0 5,998 57 Ebos Group Limited notes to the Financial Statements (continued) For the Financial Year ended 30 June, 2008 23. ACQUISITION OF BUSINESSES Name of Business Acquired 2008: 100% of business assets of Vital Medical Supplies Pty Limited (Vital) 100% PRNZ Limited 100% of business assets of Tasmanian Medical Supplies Pty Limited (TasMed) 100% of business assets of Crown Scientific Pty Limited (Crown) Principal activity Date of acquisition Medical Supplies Medical Supplies 1 July 2007 29 August, 2007 Medical Supplies 1 October, 2007 Scientific Supplies 1 November, 2007 Cost of acquisition $’000 6,739 86,565 3,931 8,538 105,773 Description of Acquisition Activity 2008 Vital and Tasmed Book Fair value value adjustments Net Assets Acquired $’000 $’000 Fair value on acquisition $’000 Crown Book Fair value value adjustments $’000 $’000 Fair value on acquisition $’000 Total fair value on acquisition $’000 Current assets: Trade and other receivables Provision for doubtful debts Prepayments Inventories Non-current assets: Property, plant and equipment Current liabilities: Trade and other payables Finance leases Employee benefits Non-current liabilities: Finance leases Net assets acquired Goodwill on acquisition Consideration 4,495 - 82 2,545 499 (5,669) - (131) - 1,821 - - - - - - - - - - 4,495 - 82 2,545 3,743 (19) 29 6,577 499 1,092 (4,258) (617) (447) (154) 5,946 (5,669) - (131) - 1,821 8,848 10,669 - - - - - - - - - - 3,743 (19) 29 6,577 8,238 (19) 111 9,122 1,092 1,591 (4,258) (617) (447) (9,927) (617) (578) (154) (154) 5,946 2,593 8,539 7,767 11,441 19,208 58 23. ACQUISITION OF BUSINESSES cont. Net Assets Acquired Current assets: Cash and cash equivalents Trade and other receivables Provision for doubtful debts Prepayments Inventories Non-current assets: Property, plant and equipment Capital work in progress Deferred tax assets Goodwill Indefinite life intangibles Finite life intangibles Current liabilities: Trade and other payables Finance leases Bank loans Current tax payable Employee benefits Non-current liabilities Bank loans Deferred tax liabilities Finance leases Trade and other payables Net assets acquired Goodwill on acquisition Consideration Less shares issued Less cash & cash equivalents acquired Net cash outflow on acquisition PRNZ Book Value adjustments $’000 $’000 Fair value Fair value on acquisition $’000 SUMMARY Fair value on acquisition $’000 - - - - - 1,094 - - (18,730) 17,240 1,490 4,555 93,815 (501) 245 58,651 6,548 769 2,431 1,451 17,240 1,490 - - - - - (162,852) (146) (2,500) (115) (1,167) 4,555 93,815 (501) 245 58,651 5,454 769 2,431 20,181 - - (162,852) (146) (2,500) (115) (1,167) (14,000) - (318) (5,536) - (5,619) - - (1,034) (4,525) (14,000) (5,619) (318) (5,536) (5,559) 92,124 86,565 (14,250) (4,555) 67,760 4,555 102,053 (520) 356 67,773 8,139 769 2,431 1,451 17,240 1,490 (172,779) (763) (2,500) (115) (1,745) (14,000) (5,619) (472) (5,536) 2,208 103,565 105,773 (14,250) (4,555) 86,968 The contribution to net surplus for the year attributable to the purchase of the net assets of Vital and TasMed was $1,640,000, to the purchase of Crown was $ Nil and to the purchase of PRNZ Limited was $5,500,000. had these business combinations all been effected 1 July, 2007 the revenue of the consolidated entity would have been approximately $1,250,000,000, and the net profit after tax approximately $17,700,000. Further details of the businesses acquired are disclosed in note 24. 59 Ebos Group Limited notes to the Financial Statements (continued) For the Financial Year ended 30 June, 2008 24. NOTES TO THE CASH FLOW STATEMENT (a) Businesses acquired Note 23 sets out details of the businesses acquired. Details of the acquisitions are as follows. Consideration Cash and cash equivalents Shares issued at market price of $4.75 per share Represented by: Net assets acquired (Note 23) Investment in subsidiaries Goodwill on acquisition Consideration Net cash outflow on acquisition Cash and cash equivalents consideration Less cash and cash equivalents acquired (b) Financing facilities Financing facilities Bank overdraft facility, reviewed annually and payable at call: Amount used Amount unused Secured bank loan facilities with various maturity dates through to December 2009: Amount used Amount unused Group 2008 $’000 Group 2007 $’000 Parent 2008 $’000 Parent 2007 $’000 91,523 14,250 105,773 2,208 - 103,565 105,773 - - - - - - - 91,523 (4,555) 86,968 4,500 - 4,500 72,315 14,250 86,565 - 86,565 - 86,565 72,315 - 72,315 277 3,308 3,585 635 2,361 2,996 16 1,234 1,250 84,221 32,900 9,086 20,000 48,100 16,900 117,121 29,086 65,000 - - - - - - - 4,500 - 4,500 349 901 1,250 - 20,000 20,000 Post balance date the group has extended the term of its financing facilities and credit lines with its bankers to three years. 60 24. NOTES TO THE CASH FLOW STATEMENT contd. (c) Reconciliation of profit for the period with cash flows from operating activities Profit for the period Add/(less) non-cash items: Depreciation Loss/(gain) on sale of property, plant and equipment Amortisation of finite life intangible assets (Gain)/loss on derivatives/financial instruments Deferred tax Provision for doubtful debts Movement in working capital: Trade and other receivables Finance lease receivables Prepayments Inventories Current tax refundable/payable Trade and other payables Employee benefits Foreign currency loss/(gain) on translation of working capital balances Group 2008 $’000 Group 2007 $’000 Parent 2008 $’000 Parent 2007 $’000 16,663 10,319 3,295 5,811 2,620 63 137 (75) (97) (37) 2,611 (109,159) 35 (1,443) (81,493) (2,000) 208,678 2,546 1,711 (541) - 1,123 (43) (66) 2,184 (2,962) 28 (434) (1,741) 454 827 (46) 316 8 - (88) (36) - 200 1,214 35 54 877 (875) 1,646 403 408 (598) - 773 25 12 620 113 29 13 (1,370) (51) (992) (103) 2,619 (1,375) - - 19,783 (5,249) 3,354 (2,361) Movements in items treated as investing activities (10,511) - - - Net cash inflow from operating activities 28,546 7,254 6,849 4,070 25. EARNINGS PER SHARE CALCULATION Basic earnings per share (refer Income Statement and note 20) The earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share are as follows: Earnings Weighted average number of ordinary shares for the purposes of basic earnings per share Group 2008 $’000 Group 2007 $’000 16,663 10,319 44,348 32,504 Diluted earnings per share (refer Income Statement and note 20) The earnings and weighted average number of ordinary shares used in the calculation of diluted earnings per share are as follows: Earnings Weighted average number of ordinary shares for the purpose of diluted earnings per share Group 2008 $’000 Group 2007 $’000 16,663 10,319 44,348 32,504 61 Ebos Group Limited notes to the Financial Statements (continued) For the Financial Year ended 30 June, 2008 26. COMMITMENTS FOR EXPENDITURE (a) Capital expenditure commitments Property, Plant and Equipment Intangible assets Group 2008 $’000 Group 2007 $’000 Parent 2008 $’000 Parent 2007 $’000 736 1,740 3,343 6,031 736 1,740 3,119 - A significant portion of the expenditure relates to the purchase of MedBio Ltd – refer note 30. Lease commitments (b) Finance lease liabilities and non-cancellable operating lease commitments are disclosed in note 18 to the financial statements. 27. CONTINGENT LIABILITIES & CONTINGENT ASSETS Contingent liabilities Guarantees given to third parties Guarantees arising from the deed of cross guarantee with other entities in the wholly-owned group Group 2008 $’000 Group 2007 $’000 Parent 2008 $’000 Parent 2007 $’000 7,162 - 75 - 150 75 28,549 15,088 The company has entered into a deed of guarantee for certain wholly-owned subsidiaries. The amount disclosed as a contingent liability represents total liabilities of the group of companies party to that, less the liabilities recognised by the group. The extent of which an outflow of funds will be required is dependent on the future operations of the entities that are party to the deed of guarantee being more or less favourable than currently expected. The deed of guarantee may continue to operate indefinitely. A subsidiary company (PRNZ Limited) is guarantor for certain loans made to pharmacies by the ANZ National Bank Limited amounting to $6,012,000. The directors are of the opinion that provisions are not required in respect of these matters, as it is not probable that a future sacrifice of economic benefits will be required or the amount is not capable of reliable measurement. A performance bond of up to $1,000,000 is also held by the bank on behalf of a supplier. SEGMENT INFORMATION 28. Information on business segments (primary reporting format) Revenue healthcare Scientific Inter-segment (i) Group 2008 $’000 Group 2007 $’000 1,075,945 61,719 (45,644) 273,936 39,009 (5,669) 1,092,020 307,276 (i) Inter-segment sales are recorded at amounts equal to competitive market prices charged to external customers for similar goods. Profit before finance costs and tax healthcare Scientific Profit for the period healthcare Scientific Segment assets healthcare Scientific 62 26,482 4,395 30,877 13,488 3,175 13,462 3,669 17,131 8,549 1,770 16,663 10,319 442,525 43,669 105,727 31,579 486,194 137,306 28. SEGMENT INFORMATION contd. Information on business segments (contd.) Segment liabilities healthcare Scientific Group 2008 $’000 328,732 10,158 338,890 Group 2007 $’000 40,386 4,725 45,111 Healthcare Healthcare 2007 $’000 2008 $’000 Scientific 2008 $’000 Scientific 2007 $’000 Acquisition of non-current segment assets Depreciation and amortisation of segment assets 26,217 2,355 1,805 1,325 172 402 361 386 Products and services within each business segment For management purposes, the group is organised into two major operating divisions - healthcare and Scientific. These divisions are the basis on which the group reports its primary segment information. The principal products and services of each of these divisions are as follows: • healthcare: Incorporates the sale of healthcare products in a range of sectors, own brands, retail healthcare and wholesale activities. • Scientific: Incorporates the sale of laboratory consumables, life sciences equipment and technical support to industry and research laboratories. Information on geographical segments (secondary reporting format) Revenue New Zealand Australia Eliminations Profit before finance costs and tax New Zealand Australia Profit for the period New Zealand Australia Segment assets New Zealand Australia Group 2008 $’000 Group 2007 $’000 986,001 151,663 (45,644) 232,922 80,023 (5,669) 1,092,020 307,276 18,702 12,175 8,997 8,134 30,877 17,131 9,073 7,590 5,550 4,769 16,663 10,319 411,491 74,703 98,582 38,724 486,194 137,306 New Zealand New Zealand 2007 $’000 2008 $’000 Australia 2008 $’000 Australia 2007 $’000 Acquisition of non-current segment assets 25,780 1,785 609 381 The group’s two divisions operate in two principal geographical areas – New Zealand and Australia. 63 Ebos Group Limited notes to the Financial Statements (continued) For the Financial Year ended 30 June, 2008 29. RELATED PARTY DISCLOSURES (a) Parent Entities The parent entity in the group is EBOS Group Limited. (b) Equity interests in Related Parties Equity interests in subsidiaries Details of the percentage of ordinary shares held in subsidiaries are disclosed in note 15 to the financial statements. (c) Transactions with Related Parties Transactions involving the parent entity Amounts receivable from and payable to related parties at balance date are disclosed on the parent company balance sheet, and Note 16 of these financial statements. During the financial year, EBOS Group Limited received dividends of Nil (2007: $2,724,000) from its subsidiaries. During the financial year, EBOS Group Limited received subvention income of $4,501,002 (2007: Nil) from its subsidiaries. During the financial year, EBOS Group Limited provided accounting and administration services to its subsidiaries for a consideration of $631,000 (2007: $456,000) and charged royalties for the use of brand names and patents totalling $296,000 (2007: $269,000). During the financial year, EBOS Group Limited rented warehouse space and contracted labour from its subsidiaries for a total cost of $322,000 (2007 $349,000). Terms/price under which related party transactions were entered into All loans advanced to and payable by subsidiaries are unsecured, subordinate to other liabilities and are at call. Interest rates determined by the directors were 9.3% - 9.7% (2007: 8.3% - 9.1%). During the financial year, EBOS Group Limited received interest of $920,000 (2007: $634,000) from loans to subsidiaries, and paid interest of Nil (2007: $163,000) to subsidiaries. No amounts were provided for doubtful debts relating to debts due from related parties at reporting date (2007: Nil). Guarantees provided or received As detailed in note 27, EBOS Group Limited has entered into a deed of cross guarantee with certain wholly-owned subsidiaries. (d) Key Management Personnel Remuneration Details of key management personnel remuneration are disclosed in note 4 to the financial statements. Other Transactions Involving Related Parties (e) During the financial year Global Science & Technology Ltd and Quantum Scientific Pty Ltd leased premises from interests associated with key management personnel, P Balchin, F Spurway and D Brown. Rents of $394,000 (2007: $614,000) were paid. During the financial year Global Science & Technology Ltd and Quantum Scientific Pty Ltd paid amounts totalling $425,000 (2007: $332,000) to interests associated with the same key management personnel for the provision of management services. Peter Merton a Director of the parent company and a key manager of the group, received remuneration of $367,000 for services provided as Chief Executive of PRNZ Ltd. Mr Peter Merton does not receive directors fees in his capacity as a director of the parent company. 64 30. SUBSEQUENT EVENTS On 1 July 2008 the group acquired the business assets of MedBio Limited a supplier of scientific goods to the New Zealand market for approximately NZ$2 million. 31. FINANCIAL INSTRUMENTS (a) Financial risk management objectives The group’s corporate treasury function provides services to the two segments, co-ordinates access to domestic and international financial markets, and manages the financial risks relating to the operation of the group. The group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. The use of financial derivatives is governed by the group’s policies approved by the Board of Directors, which provide written principles on the use of financial derivatives. Compliance with policies and exposure limits is reviewed on a regular basis. (b) Market Risk The group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. The group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign currency risk, including: • • forward foreign exchange contracts to hedge the exchange rate risk arising on imports of product; interest rate swaps to mitigate the risk of rising interest rates. (c) Foreign currency risk management The group undertakes certain transactions denominated in foreign currencies, hence exposures to exchange rate fluctuations arise. Exchange rate exposures are managed within approved policy parameters utilising forward foreign exchange contracts. Forward foreign exchange contracts It is the policy of the group to enter into forward foreign exchange contracts to cover specific foreign currency payments and receipts within 60 to 100% of the exposure generated. The group also enters into forward foreign exchange contracts to manage the risk associated with anticipated sales and purchase transactions out to 12 months within 20% to 75% of the exposure generated. 65 Ebos Group Limited notes to the Financial Statements (continued) For the Financial Year ended 30 June, 2008 31. FINANCIAL INSTRUMENTS contd. Outstanding Contracts Buy Australian Dollars Less than 3 months 3 to 6 months Buy Euro Less than 3 months Buy Pounds Less than 3 months Buy US Dollars Less than 3 months 3 to 6 months Buy Swiss Francs Less than 3 months Buy Japanese Yen Less than 3 months 3 to 6 months Average exchange rate 2007 2008 Foreign currency 2008 FC’000 2007 FC’000 Contract value 2008 $’000 2007 $’000 Fair value 2008 $’000 2007 $’000 0.803 0.869 0.883 0.905 4,100 200 880 100 5,107 230 996 110 49 21 (24) - 0.495 0.540 1,710 200 3,457 370 (24) (19) 0.396 0.400 400 50 1,010 125 (25) (7) 0.771 0.770 0.742 0.736 2,100 250 500 100 2,722 325 674 136 (8) 9 (22) (4) - 0.792 - 80 - 101 - (15) 80.464 - 86.864 - 25,000 - 3,000 - 311 - 35 - (29) - (7) (4) - (95) The above financial instruments relate to the group and parent entity. The fair value of forward foreign exchange contracts outstanding are recognised as other financial assets/liabilities. hedge accounting has not been adopted for the forward foreign exchange contracts. (d) Interest rate risk management The group is exposed to interest rate risk as it borrows funds at both fixed and floating interest rates. The risk is managed by maintaining an appropriate mix between fixed and floating rate borrowings, and by the use of interest rate swap contracts and forward interest rate contracts. Interest rate swap contracts under interest rate swap contracts, the group agrees to exchange the difference between fixed and floating rate interest amounts calculated on agreed notional principal amounts. Such contracts enable the group to mitigate the risk of changing interest rates on debt held. The fair value of interest rate swaps are based on market values of equivalent instruments at the reporting date. Outstanding Contracts Outstanding variable rate for fixed contracts Less than 1 year 3 to 5 years Outstanding Contracts Outstanding variable rate for fixed contracts 3 to 5 years Group Average contracted fixed interest rate Notional principal amount Fair value 2008 % 2007 % 2008 $’000 2007 $’000 2008 $’000 2007 $’000 - 7.70 5.79 - - 66,299 2,203 - 66,299 2,203 Parent - (250) (250) 12 - 12 Average contracted fixed interest rate Notional principal amount Fair value 2008 % 7.80 2007 % 2008 $’000 2007 $’000 - 45,000 45,000 - - 2008 $’000 (377) (377) 2007 $’000 - - The fair value of interest rate swaps outstanding are recognised as other financial assets/liabilities. hedge accounting has been adopted. 66 33. FINANCIAL INSTRUMENTS contd. (e) Liquidity The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve banking facilities by continuously monitoring forecast and actual cashflows and matching maturity profiles of financial assets and liabilities. The following tables detail the Group’s remaining contractual maturity for its financial assets and financial liabilities. The tables have been drawn up based on the undiscounted cash flows of the financial assets and liabilities. The table includes both interest and principal cash flows. Group - 2008 Financial assets: Cash and cash equivalents Trade and other receivables Other financial assets Finance leases Financial liabilities: Bank overdraft Trade and other payables Finance leases Bank loans Other financial liabilities Group - 2007 Financial assets: Cash and cash equivalents Trade and other receivables Other financial assets Finance leases Financial liabilities: Bank overdraft Trade and other payables Finance leases Bank loans Other financial liabilities Weighted average effective On interest Demand rate % $’000 Less than 1 year $’000 Maturity Dates Total 1-2 Years 2-3 Years 3-4 Years 4-5 Years 5+ Years $’000 $’000 $’000 $’000 $’000 $’000 7.3 16,136 150,426 9.0 166,562 13.3 277 232,889 9.1 9.5 130 118 248 67 67 560 494 90,853 387 560 494 1,369 67 67 560 279 16,136 150,426 130 252 - - - 166,944 560 560 277 7,275 242,964 1,267 92,222 387 233,166 92,294 2,423 839 560 560 7,275 337,117 Weighted average effective On interest Demand rate % $’000 Less than 1 year $’000 Maturity Dates Total 1-2 Years 2-3 Years 3-4 Years 4-5 Years 5+ Years $’000 $’000 $’000 $’000 $’000 $’000 7.4 1,772 41,230 9.0 12 96 43,002 108 67 67 67 67 68 68 1,772 41,230 12 298 - - 43,312 12.3 635 29,679 10.0 7.3 93 1,181 95 93 1,181 58 7,387 635 29,679 244 9,749 95 30,314 1,369 1,274 7,445 - - - 40,402 67 Ebos Group Limited notes to the Financial Statements (continued) For the Financial Year ended 30 June, 2008 31. FINANCIAL INSTRUMENTS contd. Weighted average effective On interest Demand rate % $’000 121 8,572 Less than 1 year $’000 13,466 118 8,693 13,584 16 6,907 34 52,727 384 6,036 Maturity Dates Total 1-2 Years 2-3 Years 3-4 Years 4-5 Years 5+ Years $’000 $’000 $’000 $’000 $’000 $’000 67 67 67 67 34 26 121 8,572 13,466 252 - - - 22,411 16 6,907 94 52,727 384 6,036 6,923 59,181 34 26 - - - 66,164 Weighted average effective On interest Demand rate % $’000 200 9,786 Less than 1 year $’000 10,988 96 9,986 11,084 349 5,261 34 95 1,679 Maturity Dates Total 1-2 Years 2-3 Years 3-4 Years 4-5 Years 5+ Years $’000 $’000 $’000 $’000 $’000 $’000 67 67 67 67 68 68 34 34 26 200 9,786 10,988 298 - - 21,272 349 5,261 128 95 1,679 7.3 9.5 9.0 13.3 9.1 9.6 9.5 7.4 8.6 9.0 12.3 9.1 8.6 Parent - 2008 Financial assets: Cash and cash equivalents Trade and other receivables Advances to subsidiaries Finance leases Financial liabilities: Bank overdraft Trade and other payables Finance leases Bank loans Other financial liabilities Advances from subsidiaries Parent - 2007 Financial assets: Cash and cash equivalents Trade and other receivables Advances to subsidiaries Finance leases Financial liabilities: Bank overdraft Trade and other payables Finance leases Other financial liabilities Advances to subsidiaries 5,610 1,808 34 34 26 - - 7,512 The group maintains the following lines of credit: $2.0 million (2007: $1.75 million) overdraft facility that is secured. Interest is payable at the base rate plus specified margin. A loan facility of $121 million (2007: $97 million) of which $117 million ($Nil) is for 3 years. The group renews its facilities on an annual basis to ensure an appropriate portion matures on a rolling basis. 68 31. FINANCIAL INSTRUMENTS contd. (f) Sensitivity Analysis (i) Interest Rate Sensitivity Analysis The sensitivity analysis below has been determined based on the exposure to interest rates for financial instruments at the balance date. The analysis is prepared assuming the amount of the financial instrument outstanding at the balance sheet date was outstanding for the whole year. The impact to Profit for the Period and Total Equity as a result of a 100 basis point movement in interest rates is as follows: + 100 basis point shift up in yield curve Impact on Profit for the Period Impact on Total Equity - 100 basis point shift down in yield curve Impact on Profit for the Period Impact on Total Equity (ii) Foreign Currency Sensitivity Analysis Group 2008 $’000 Group 2007 $’000 Parent 2008 $’000 Parent 2007 $’000 - 952 - (985) - 11 - (11) - 650 - (673) - - - - The following table details the Group’s sensitivity to a 10% increase or decrease in foreign currencies against the Group’s functional currency (New Zealand dollars). The sensitivity analysis includes any outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change in foreign currency rates. A positive number below indicates an increase in profit and equity where the functional currency strengthens 10% against the relevant currency. For a 10% weakening against the relevant currency there would be an equal and opposite impact on the profit and equity. + 10% shift in NZD rate Impact on Profit for the Period Impact on Total Equity - 10% shift in NZD rate Impact on Profit for the Period Impact on Total Equity Group 2008 $’000 Group 2007 $’000 Parent 2008 $’000 Parent 2007 $’000 (1,215) 1,215 1,486 (1,486) (222) 222 271 (271) (1,215) 1,215 1,486 (1,486) (222) 222 271 (271) In management’s opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk as the year end exposure does not reflect the exposure during the year. 69 Ebos Group Limited notes to the Financial Statements (continued) For the Financial Year ended 30 June, 2008 31. FINANCIAL INSTRUMENTS contd. (g) Credit Risk Management Credit risk refers to the risk that a counter party will default on its contractual obligations resulting in financial loss to the group. The group has adopted a policy of only dealing with credit worthy counter parties and obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults. Trade receivables consist of a large number of customers, spread across diverse industries and geographical areas. Ongoing credit evaluation is performed on the financial condition of the trade receivables. The carrying amount of financial assets recorded in the financial statements, net of any allowances for losses, represents the group’s maximum exposure to credit risk without taking account of the value of any collateral obtained. The group does not have any significant credit risk exposure to any single counter party or any group of counter parties having similar characteristics. The credit risk on liquid funds and derivative financial instruments is limited because the counter parties are banks with high credit ratings assigned by international credit rating agencies. (h) Fair value of financial instruments The Directors consider that the carrying amount of financial assets and financial liabilities recorded in the financial statements approximates their fair values. The fair values and net fair values of financial assets and financial liabilities are determined as follows: • the fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices; and • the fair value of other financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis. • the fair value of derivative instruments are calculated using quoted prices. Where such prices are not available use is made of discounted cash flow analysis using the applicable yield curve for the duration of the instruments. Transaction costs are included in the determination of net fair value. (i) Liquidity risk management The group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. (j) Capital Risk Management The Group manages its capital to ensure that each entity within the Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity. The Group’s overall strategy remains unchanged from 2007. 70 Ebos Group Limited additional Stock exchange information As at 31 July, 2008 Twenty Largest Shareholders Python Portfolios Ltd Whyte Adder No.3 Ltd Accident Compensation Corporation Elite Investment holdings Ltd P.M. Merton & CWM Trustee Company Ltd Forsyth Barr Custodians Ltd Custodial Services Ltd herpa Properties Ltd Forsyth Barr Custodians Ltd Forsyth Barr Custodians Ltd Tea Custodians Ltd New Zealand Superannuation Fund Nominees Ltd Superlife Trustee Ltd M.B. & A.L. Waller P. Gardiner-Garden Citibank Nominees (New Zealand) Ltd hubbard Churcher Trust Management Ltd hSBC Nominees (New Zealand) Ltd New Zealand Equity Nominee Pool NZ Guardian Trust Investment Nominees Fully paid Percentage of paid capital shares 4,684,877 3,314,339 3,282,781 1,530,922 1,530,922 1,334,678 793,868 626,793 603,387 509,269 491,717 433,448 426,181 404,957 385,189 377,258 375,573 375,319 374,997 366,971 9.96% 7.05% 6.98% 3.26% 3.26% 2.83% 1.69% 1.33% 1.28% 1.08% 1.05% 0.92% 0.91% 0.86% 0.82% 0.80% 0.80% 0.80% 0.79% 0.79% 22,223,446 47.26% Substantial Security Holders As at 31 July 2008 the following persons are deemed to be substantial security holders in accordance with Section 26 of the Securities Amendment Act 1988. Python Portfolios Ltd Whyte Adder No.3 Ltd and herpa Properties Ltd Accident Compensation Corporation Fully paid Percentage of paid capital shares 4,684,877 3,941,132 3,282,781 9.96% 8.38% 6.98% 11,908,790 25.32% Distribution of Shareholders and Shareholdings Holders Fully paid Percentage of paid capital shares Size of Holding 1 to 999 1,000 to 4,999 5,000 to 9,999 10,000 to 49,999 50,000 to 99,999 100,000 to 499,999 500,000 to 999,999 1,000,000 and over Total Registered Address of Shareholders New Zealand Overseas Total 710 1,821 747 548 32 27 4 6 237,926 4,758,946 5,094,925 9,791,123 2,171,449 6,755,636 2,533,317 15,678,519 0.50% 10.12% 10.84% 20.82% 4.62% 14.37% 5.39% 33.34% 3,895 47,021,841 100.00% 3,717 178 44,456,152 2,565,689 94.54% 5.46% 3,895 47,021,841 100.00% 71 Chief Executive and Managing Director Deputy Chairman directors R.G.M. Christie Chairman M.b. Waller P.F. Kraus E.M. Coutts s.C. ottrey b.J. Wallace P. Merton Chief Executive Managing Director - scientific General Manager – business Development Chief Financial officer General Manager – sales & Marketing Healthcare General Manager – Health support Ltd Executive Director – PRNZ Ltd General Manger – Ebos Group Pty Ltd executives M.b. Waller D. brown A.J. Cooper D.C. Doherty K.R. Hyland G. Managh P. Merton A. Norris auditor Deloitte Christchurch bankers ANZ National bank Limited Christchurch Solicitor Chapman Tripp Christchurch Share register Computershare Investor services Ltd Private bag 92119 Auckland NEW ZEALAND Telephone: (09) 488-8777 Ebos Group Limited directory corporate office 108 Wrights Road P o box 411 CHRIsTCHURCH Telephone (03) 338-0999 Fax (03) 339-5111 E-mail: ebos@ebos.co.nz Internet: www.ebos.co.nz other locations Auckland office 243-249 bush Road P o box 302-161 Albany, Auckland NEW ZEALAND Wellington office 498 Hutt Road Lower Hutt NEW ZEALAND Subsidiaries PRNZ Limited 54 Carbine Road Mt Wellington Auckland NEW ZEALAND Health support Limited 56 Carrington Road, Pt Chevalier Auckland NEW ZEALAND Ebos Group Pty Limited & Ebos Health & science Pty Limited Unit 2, 109 Vanessa street Kingsgrove, NsW 2208 AUsTRALIA Ebos Health & science (PNG) Limited Gb House, Kunai street Hohola, Waigani NCD PAPUA NEW GUINEA Global science & Technology Limited 241 bush Road, Albany Auckland NEW ZEALAND Quantum scientific Pty Limited 31 Archimedes Place Murarrie, Queensland AUsTRALIA Vital Medical supplies (Australia) Pty Ltd Unit 29-31, 276-278 Newline Road Dural, NsW 2158 AUsTRALIA Shareholder enquiries shareholders with enquiries about share transactions, change of address or dividend payments should contact the share Registrar – Computershare Investor services Ltd. 72 

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