EBOS Group Limited Annual Report 2011

Plain-text annual report

One of the leading independent distributors of healthcare products in New Zealand, Australia and the Paciﬁ c Islands. ebos@ebos.co.nz Annual Report 2011 ProPharma PO Box 62–027 Mt Wellington Auckland New Zealand Phone: +64 9 570 1080 Fax: +64 9 915 9581 Email: info@propharma.co.nz Pharmacy Wholesaler Russells PO Box 71 149 Rosebank 1348 Avondale 1026 Auckland New Zealand Phone: +64 9 968 6750 Fax: +64 9 968 6754 Healthcare Logistics 58 Richard Pearse Drive Mangere Auckland New Zealand Phone: +64 9 918 5100 Fax: +64 9 918 5101 TRADING ENTITIES EBOS Healthcare - New Zealand 243-249 Bush Road Albany PO Box 302-161 North Harbour Postal Center Auckland New Zealand Phone: +64 9 415 3267 Fax: +64 9 415 4004 Email: ebos@ebos.co.nz EBOS Healthcare - Australia Unit 2, 109 Vanessa Street PO Box 100 Kingsgrove, NSW 2208 Australia Phone: +61 2 9502 8410 Fax: +61 2 9502 8411 Email: ebos@ebosgroup.com.au Vital Medical PO Box 100 Kingsgrove 1480 Australia Phone: +61 1300 557 651 Fax: +61 1300 557 631 Health Support 56 Carrington Road PO Box 44027 Pt Chevalier Auckland New Zealand Phone: +64 9 815 2600 Fax: +64 9 815 1911 sales@healthsupport.co.nz EBOS Group Annual Report 2011 02 - 28 Report from the Directors 03 06 08 11 15 18 20 22 24 Introduction Our Networks: Our Strength Our Supply Chain Explained Chairman’s Report Managing Director’s Review Operational Round-Up Board of Directors Corporate Governance Statement Directors’ Report and Disclosures 29 - 72 Financial Statements 30 31 32 32 33 34 35 36 73 74 Directors’ Responsibility Statement Auditor’s Report Income Statement Statement of Comprehensive Income Balance Sheet Statement of Changes in Equity Cash Flow Statement Notes to the Financial Statements Additional Stock Exchange Information Directory 2 Mr Julian Hayes Colorectal and General Surgeon Introduction 3 Powerful trends are at work – all around the world – forcing changes in how healthcare will be conceived and delivered in the decades ahead. According to global commentators, the future will bring massive change. On one hand, technology and innovation will deliver breathtaking new opportunities. The decoding of an individual’s genome, for instance, will lead to a greater understanding of disease and the development of new therapies. Healthcare will also reach more people than ever before. Innovation and demand will soar in emerging economies, such as China and India, creating signiﬁ cant new markets for healthcare companies. There are also challenges ahead. The ageing of populations worldwide will see burgeoning numbers suff ering from chronic, expensive- to-treat diseases and disabilities. This will place a strain on healthcare systems - and healthcare costs will continue to spiral upwards. This will have a widespread impact on healthcare spending, design of national systems, and delivery. 4 Introduction Continued “In healthcare, unlike other areas of commerce, you’re actually dealing with lives every single day. The products and services EBOS provide directly impact on peoples’ lives. In the wider sense, we have a role to play in improving the health of New Zealanders, and those in other key markets. We can help the Government achieve greater effi ciencies – which in turn, will allow for greater access to healthcare. And access is what ultimately helps people.” - Mark Waller, Chief Executive Offi cer, EBOS Group In New Zealand, we face similar challenges and opportunities. A landmark ministerial review, the Horn Report, tells us we cannot sustain the current levels of spending growth in public healthcare. We need to act now to ensure our public health system operates more effi ciently. The Horn Report recommends a set of initiatives to gain effi ciencies – such as fewer, regionalised District Health Boards; a system of national product procurement; and new patient-centric models of care. “Bureaucracy, waste, and ineffi ciencies must be reduced and resources moved to the front-line as spending growth slows. We must focus on quality, which will deliver better patient outcomes, and on ensuring better access to health services through smarter planning and resource utilisation, at regional and national levels.” - Horn Report, 31 July 2009 5 MercyAscot Mercy Hospital Operating Theatres 6 Our Networks: Our Strength Whatever changes the future may bring, EBOS will position itself to meet them. As the largest supplier to the New Zealand healthcare industry, we have a unique perspective on the entire healthcare market. 7 7 EBOS Healthcare Albany 8 Our Supply Chain Explained Market needs Over the life cycle of products or technologies, alternatives soon emerge, increasing choices and competition. This requires alternative models to serve the needs of the market. Business function Business entity Sales & Marketing Wholesale/ Specialised Logistics Third-party Logistics/ Pre-wholsesale EBOS Healthcare Health Support & ProPharma Healthcare Logistics End user A broad range of healthcare providers and distributors; from public and private hospitals, general practitioners, pharmacy, aged care and community to allied professionals, consumers and manufacturers. The EBOS answer was to implement a business model that can meet all the market needs - be that the customer, manufacturer or provider. This has driven EBOS to create the unique platform that we have today. A specialist sales and marketing capability to manage the brands and categories of a wide range of products and technologies utilised in the health sector, accessed through dedicated channels to market. The wholesale and specialised logistics businesses of Pro Pharma and Health Support. Third-Party Logistics, pre wholesale business of Healthcare Logistics provides a ‘virtual company’ off er for overseas manufacturers. This unique market coverage gives EBOS Group a remarkably strong position in the New Zealand healthcare market. It also sets an exciting platform for our future growth in key markets. 9 10 Rick Christie Chairman Chairman’s Report 11 On behalf of the EBOS Board of Directors, I’m pleased to report another very strong performance by EBOS Group Ltd for the year ending June 30 2011. This continues the impressive record of the past 10 years. The Group has continually achieved year-on-year growth, as well as paying shareholder dividends each year. In the past two to three years, we have been consolidating our existing businesses, and achieving further effi ciencies. Much of the proﬁ t improvement has been driven by increasing stock turn, integrating our systems, and reducing debt. At the same time, we’ve also been busy prospecting. EBOS has made a total of 17 acquisitions over the past 10 years. Although we have not made an acquisition since our largest purchase of Pharmacy Retailing (NZ) (PRNZ) in 2008, this has continued to be a key strategic focus. 12 Chairman’s Report Continued Importantly, EBOS Board and management recognise that sound strategy is absolutely critical to a good acquisition. It is an often-quoted statistic that 80% of mergers and acquisitions fail. For EBOS, the reverse is true. We employ a very robust process of ‘prospect and ﬁ lter’ when looking to acquire a business. We also recognise that making the deal work is much more important than simply getting the deal done. In our mergers and acquisitions strategy, we look for businesses that have a strong ﬁ t with our core competencies, and geographies that off er the most potential. There are a number of leading opportunities in our portfolio right now. RESULTS In the year ended 30 June 2011, revenue from continuing operations was $1,344m ($1,317m in 2010). Earnings before interest tax, depreciation and amortisation (EBITDA) from continuing operations was $41.125m (2010 $40.350m) up 2%. Proﬁ t for the year after tax from continuing operations was $23.4m (2010 $19.69m) an increase of 18.8%. The net proﬁ t for the year including discontinued operations after interest and tax was $31.58m (2010 $23.44m) up 34.7%. As reported in the 2010 Annual Report the scientiﬁ c business operations were divested in August/September 2010. Earnings per share including the earnings from discontinued operations increased to 61.2 cents from 47 cents. BALANCE SHEET EBOS is in a strong ﬁ nancial position. Cash ﬂ ow for the year has been sound, with net cash inﬂ ow from operations of $21.7m, while the proceeds from the scientiﬁ c divestment were a net $45.2m. The net cash inﬂ ow from operating and investing activities for the year was $63.1m (2010 $39.2m). Net assets increased to $198.80m ($182.79m last year) reﬂ ecting an increase in total assets to $538.32m. Current assets stand at $378.00m ($336.39m) and non current assets at $160.32m ($181.95m) with current liabilities at $268.36m ($261.70m). DIVIDEND The Directors are pleased to be able to approve a ﬁ nal dividend of 18 cents per share to be paid on 7 October 2011, making a total of 51.5 cents per share (31 cents per share) for the year, which included a special dividend of 20 cents per share following the sale of the Scientiﬁ c business segment. The record date for the purpose of determining entitlements for the ﬁ nal dividend is close of business 16 September 2011. The dividend reinvestment plan will not be operative for the ﬁ nal dividend. BOARD Once again, I am grateful for the support and commitment shown by the Board this year. There have been no changes to our membership. We have a very stable, well-balanced team that offers both sound ﬁ nancial skills, a depth of industry knowledge, cornerstone shareholder representation and constructive input. We have plenty of robust discussion around the table – because everyone has a view – but at the end of the day that delivers greater value. Another notable feature of our Board is the time we spend focussed on strategy. Unlike many companies that might have one strategic meeting a year, we talk strategy at every board meeting. Typically, we’ll be looking at up to 10 potential deals that are aligned with our strategic direction, needless to say, not many make the grade. MANAGEMENT AND EMPLOYEES Mark Waller was awarded Deloitte/Management Magazine’s 2010 Executive of the Year, which was a totally deserved accolade. He is an outstanding chief executive and leads a strong team, which underpins our strategic thinking, and the way we run our businesses. 13 OUTLOOK It goes without saying that we’re currently operating in an economic environment of considerable uncertainty. That is a concern for every New Zealand company. However EBOS is better positioned than most to adapt – or in fact thrive – in a volatile market. In just over 10 years, EBOS Group has graduated from being an agency-dominated business into what is now a very sophisticated and integrated sales, marketing and distribution business operating in New Zealand, Australia and the Paciﬁ c. This model has consistently delivered proﬁ table returns for us. Not only have we paid dividends every year; we’ve also been more proﬁ table each year than the year before. The EBOS growth story is a remarkable one. Our shareholders have an expectation that we will continue to grow by acquisition. The company is in the enviable position of having no net debt, and the opportunity to leverage what we have built thus far is very real. The sale of our scientiﬁ c business reﬂ ected our philosophy of aiming to be one of the two major players in our core businesses. Given the consolidation of the scientiﬁ c supply business globally – we elected to exit, and shareholders have already beneﬁ ted from the capital gain on sale. As a Christchurch based company, we have lived through the disastrous series of earthquakes to strike the city over the past 12 months. It was not, and still is not, an easy time for our staff and families, and I salute their commitment to maintain services to our clients and indeed other suppliers clients through the aftermath of the quakes. Rick Christie Chairman of Directors 1,345 1,317 1,344 40.4 41.1 38.7 33.6 31.6 1,092 1B mark 18.8 23.4 19.7 16.7 307 10.3 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 **Revenue ($ millions) EBITDA ($ millions) **EBITDA ($ millions) EBITDA ($ millions) NPAT($ millions) 2011 2010 2009 2008 2007 Net cash inﬂow from operating activities ($’000) 21,703 41,813 33,310 28,546 7,254 Shareholders’ interest ($’000) Distributions cents per share Earnings per share Net interest bearing debt to net interest bearing debt plus equity 198,796 182,790 162,039 147,304 92,195 51.5c 61.2c 31.0c 47.0c 25.0c 41.1c 23.0c 37.6c 22.5c 31.7c Nil In Funds 1.5% 19.6% 32.0% 8.1% **Note 1: 2010 and 2011 numbers represent continuing operations. Prior years numbers include discontinued operations. 14 Mark Waller Chief Executive Offi cer & Managing Director Managing Director’s Review 15 Every successful organisation has a strong central philosophy and sense of direction. For EBOS, we’ve essentially employed two key strategies that have seen us perform well over the years. Firstly, our business model allows us to follow the patient through their life cycle. We provide literally a lifetime of products and services - from the needs of a new baby, through to aged care. Secondly, we’ve been ﬂ exible and nimble enough to change our off ering as the market landscape has changed. In fact looking back, you could say we’ve reinvented the company about every ﬁ ve years. When we cast our minds back to the 1980s, the big focus was on new technologies. The multinationals were in acquisition mode, all clamouring to own the next great new technology. Then, over the space of a decade, almost the opposite trend came into play. A huge proportion of medical products started to be treated as commodities. Without the margins off ered by unique products, the multinationals started to reduce their presence in the New Zealand market. At EBOS, we recognised this was an important turning point. We asked ourselves the critical question, ‘how can we be more valuable to the market we want to serve?’ 16 Managing Director’s Review Continued The answer was to implement a business model that could meet all the market’s needs. For unique products, we’d have a business dedicated to providing sales and marketing support. Then as products become commoditised - and move through their life-cycle into wholesale and pre-wholesale categories - EBOS would be there too. We saw that the key was to offer market access right across the continuum. In a nutshell, that was the strategy that drove us to create the unique platform we have today. EBOS Healthcare is our sales and marketing arm that services all different segments of the market. Our wholesale businesses are Health Support and ProPharma; and our pre-wholesale and third-party logistics business, Healthcare Logistics, provides manufacturers with a ‘virtual company’ option. With this model, we aim to ensure all customers have the right product, at the right time, at a very competitive price, and with superb levels of service. Having put this framework in place - and running it successfully for many years - we believe that EBOS is well-poised to assist the New Zealand government with their plans to improve healthcare delivery. We’re currently responsible for a signiﬁ cant percentage of the volumes provided into the local healthcare industry, which gives us a very unique view on the whole market in New Zealand. Our logistics and wholesale businesses are already making signiﬁ cant contributions to public health sector efﬁ ciencies. Given our technology and proven experience, EBOS can be a key supply chain partner under a more centralised environment. We are capable of assisting the Government with many of the initiatives they’re looking at – whether it’s national product procurement, a national network of distribution centres, or even consolidating their IT platforms. EBOS has ready-established networks, technologies and infrastructure in these key areas. This gives us considerable scope to contribute to the Government’s vision for more cost effective healthcare delivered earlier with greater access. So while our New Zealand-based business is certainly looking positive, it’s actually only part of the story. What I ﬁ nd most exciting, personally, is our plans for international growth. The past year has seen us undertake an unprecedented amount of activity, all aimed at making our business as efﬁ cient as possible. We have amalgamated parts of our business, lowered the cost base, and achieved efﬁ ciencies in back ofﬁ ce and IT. We have reduced our net debt from $110m three years ago, to nil. EBOS is ready to embark on an important new phase. From now, our focus will be 100 percent on growing the business, through acquisition and other strategic alliances. Geographically, we’ll be looking at opportunities in New Zealand, Australia, and beyond. We’re quite open-minded as to what form this might take – whether it’s owning brands, or being an agency for brands; whether it’s in wholesale, or manufacturing. The growth opportunities are as diverse as they are exciting. There’s also another ﬁ eld of opportunity which overlays our plans for geographical expansion. Having developed a suite of core competencies in pharmaceutical, medical devices and supply chain management; we’re also looking at complementary industries where our skills could be proﬁ tably applied. To sum up, our story so far has seen EBOS well- positioned in the New Zealand market, and with a strong and developing market in Australia and the Paciﬁ c. We’re a credible and valuable part of the whole supply chain into health. The time has come for us to leverage off that expertise - to take it further aﬁ eld internationally, and into different markets. EBOS management and staff look forward to embarking on this journey with you. M k W ll Mark Waller Chief Executive Ofﬁ cer 17 Sales and marketing and customer services staff 210 $1.34B Group Revenue Staff across New Zealand, Australia and Paciﬁc Islands 770 18 0perational Round-Up The following major projects have been completed in the past 12 months. These have been key drivers to achieve effi ciency gains to make us more competitive for the beneﬁ t of our customers. RATIONALIZING THE BUSINESS MODEL 1 The deployment of Multipick 3.2 warehouse management systems into Health Support 2 Health Support went live onto the latest version of SAP software – which is also used by ProPharma and Healthcare Logistics - Pharmacy Retailing (NZ) Limited (PRNZ) 3 The Health Support retail Pharmacy business was transferred to ProPharma 4 All of the Health Support third-party logistics businesses were consolidated into Healthcare Logistics 5 There has been a complete integration of the back offi ce accounting functions of Health Support into PRNZ 6 The Scientiﬁ c business was sold to VWR International – the second biggest deal in the history of EBOS. It sold for approximately $45 million. The deal also included a transition service agreement through until December 2011 7 The consolidation of all the back offi ce IT, administration and supply chain services of Vital Medical into EBOS Healthcare Australia 19 19 20 Board of Directors RICK CHRISTIE MSC (HONS), FNZID, FNZIM (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. 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 diversiﬁ ed 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 National e-Science Infrastructure – NeSI, Director of South Port New Zealand Ltd, NZ Pork Industry Board, Solnet Solutions Ltd, Tourism Holdings Ltd, and Wakeﬁ eld Health Ltd. 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 (Chief Executive and Managing Director) Mark Waller has been chief executive ofﬁ cer and managing director of EBOS Group Ltd since 1987. He is a member of the Remuneration Committee. He is a director of all the EBOS Group Ltd subsidiaries, as well as being a director of Scott Technology Ltd, and HTS-110 Ltd. PETER KRAUS MA (HONS), DIP ENG Peter Kraus is an Auckland businessman who has been a director of EBOS Group Ltd since 1990. 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, 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. ELIZABETH COUTTS BMS, CA Appointed to the EBOS Group Ltd Board July 2003, Elizabeth is a member of the Audit and Risk Committee and Nomination Committee and is a professional director. She is also a former, chair of Meritec Group, Industrial Research, and Life Pharmacy Ltd, 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 former external monetary policy adviser to the Governor of the Reserve Bank of New Zealand and chief executive of the Caxton Group of Companies and Carter building supply group. Her current directorships include chair of Urwin & Co Ltd, and Director of NZ Directories Holdings Ltd (and subsidiaries), Ports of Auckland Ltd, Ravensdown Fertiliser Co-operative Ltd, Sanford Ltd and Skellerup Holdings Ltd and Member, Marsh New Zealand Advisory Board. She is chair designate of Inland Revenue. 21 PETER MERTON BPharm 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. From 1997 through 2008 he was chief executive ofﬁ cer of PRNZ Ltd. He is Chairman of Pharmacy Brands Ltd and a director of, Cape Healthcare Ltd, and Trustee of Pentz Trust. SARAH OTTREY BCOM Appointed to the EBOS Group Ltd Board 18 September 2006. Sarah is a Director of Blue Sky Meats (NZ) Ltd, Smiths City Group Ltd and Sarah Ottrey Marketing Ltd. She is a past board member of the Public Trust. Sarah has held senior marketing management positions with Unilever and DB Breweries. MARK STEWART BCOM Appointed to the EBOS Group Ltd Board 8 September 2008. Mark commenced working for the PDL Group of Companies in 1983. From 1987 to 2001 he held senior executive roles and had directorship responsibilities for a number of companies in the PDL Group and was managing director of MasterTrade Group Ltd from July 1991 until October 1994. He gained experience in manufacturing, sales and marketing in the Asian and Australasian markets. Since October 2001 he has been Managing Director of Masthead Ltd, the private investment vehicle of the Stewart Family. He is a director of Masthead Holdings Ltd, Masthead Ltd, Masthead Services Ltd, Masthead Investments Ltd, Masthead Portfolios Ltd, Masthead Management Ltd, Windwhistle Holdings Ltd, Forwood Forestry Ltd, Southern Excursions Ltd, Stravon Safaries Ltd, Twinmark Investments Ltd (in liq.), Python Portfolios Ltd, Woodbent Hill Ltd, Laindon Ltd, Andos Holdings Ltd, Anaconda Ltd, Proteus Group Holdings Ltd, Medusa Ltd, Lesley Hills Holdings Ltd, Newco No1 Ltd and Ziwipeak Ltd. He is also an alternate director of Wakeﬁ eld Health Ltd. BARRY WALLACE MCOM (HONS), CA Appointed to the EBOS Group Ltd Board October 2001. Barry is chairman of the Audit and Risk Committee and member of the Remuneration Committee. He is a chartered accountant with a background in ﬁ nancial management with companies such as Rank Xerox New Zealand Ltd and David Reid Electronics. Barry is a former chief executive of Health Support Ltd and is the ﬁ nancial manager for a private group of companies. He is a director of Allum Management Services 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, Huckleberry Farms Ltd and a Trustee of The Perpanida Trust and The Annalise Trust. The above named directors held ofﬁ ce throughout the year. 22 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 BOARD COMPOSITION 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 conﬂ icts of interest, receipt of gifts, conﬁ dentiality, expected behaviour, delegated authority and compliance with laws and policies. 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 Ofﬁ cer/Managing Director and his management team. 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; Peter Merton; Sarah Ottrey; Mark Stewart and Barry Wallace. It has one executive director Mark Waller, Chief Executive Ofﬁ cer and Managing Director. Rick Christie, Elizabeth Coutts and Sarah Ottrey have been determined as Independent Directors, (as deﬁ ned under the NZSX Listing Rules and the EBOS Group Ltd Corporate Governance Code). BOARD COMMITTEES Speciﬁ c 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. 23 AUDIT AND RISK COMMITTEE BOARD PROCESSES The table within the Directors Report shows attendances at the board and committee meetings during the year ended 30 June 2011. SHARE TRADING BY DIRECTORS AND OFFICERS The Company has formal procedures that directors and ofﬁ cers 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 identiﬁ cation 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 NZSX announcements and reports. The Audit and Risk Committee provides the Board with assistance in fulﬁ lling their responsibility to shareholders, the investment community and others for overseeing the Company’s ﬁ nancial statements, ﬁ nancial reporting processes, internal accounting systems, ﬁ nancial controls, and annual external ﬁ nancial 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, identiﬁ cation, management and control. Members of the Audit and Risk Committee are Barry Wallace (Chairman), Rick Christie and Elizabeth Coutts 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 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 ﬁ ll 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 qualiﬁ cations 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. 24 Directors’ Report and Disclosures Your Directors are pleased to submit to shareholders their report and ﬁ nancial statements for the year ended 30 June 2011. PRINCIPAL ACTIVITIES GROUP RESULTS EBOS Group Limited (the Company) is listed on the NZSX board of the New Zealand Exchange (NZX) under the securities code EBO. The Company operated in two business segments up until 1 September 2010, being Healthcare and Scientiﬁ c. Healthcare incorporates the sale of healthcare products in a range of sectors, own brands, retail healthcare and wholesale activities, and logistics and Scientiﬁ c incorporating the sale of laboratory consumables, life sciences equipment and technical support to industry and research laboratories. The Scientiﬁ c segment was sold on 1 September 2010. Since that date the Company has operated in one business segment, being Healthcare. ISSUED CAPITAL As at 30 June 2011 the Company had on issue 52,107,487 ordinary fully paid shares, with 1,311,736 shares issued during the year. Group operating revenue from continuing operations was $1,344m in the year ended 30 June 2011 (2010 $1,317m). Operating proﬁ t before ﬁ nance costs and tax of $37.7m (2010 $36.7m) was earned for the year ended 30 June 2011. The net proﬁ t for the year including discontinued operations after interest and tax was $31.6m (2010 $23.4m). Earnings per share were 61.2 cents (2010 47.0 cents). Cash ﬂ ow of $63.1m (2010 $39.2m) was generated from operations and investing activities. DIVIDENDS The Directors approved a ﬁ nal dividend of 18 cents per share making a total of 51.5 cents per share for the year (2010 31 cents per share), which included a special dividend of 20 cents following the sale of the Scientiﬁ c segment. DIRECTORS Mark Stewart, Peter Kraus and Sarah Ottrey retire by rotation in accordance with the Company’s constitution and being eligible offer themselves for re-election. Issued capital 52,107,487 Shares issued 1,311,736 Dividend 51.5c 25 DIRECTORS’ INTERESTS Share dealings by Directors The Directors have disclosed to the Board under section 148(2) of the Companies Act 1993 particulars of acquisitions of dispositions of relevant interests in ordinary shares during the year – refer table on following pages. 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 National e-Science Infrastructure – NeSI, Director of South Port New Zealand Ltd, NZ Pork Industry Board, Solnet Solutions Ltd, Tourism Holdings Ltd, and Wakeﬁ eld Health Ltd. E.M. Coutts: Chair of Urwin & Co Ltd, and Director of NZ Directories Holdings Ltd (and subsidiaries), Ports of Auckland Ltd, Ravensdown Fertiliser Co-operative Ltd, Sanford Ltd and Skellerup Holdings Ltd and Member, Marsh New Zealand Advisory Board and chair designate of Inland Revenue. P.F. Kraus: Director of Whyte Adder No.3 Ltd, Strand Holdings Ltd, Strand Management Ltd, Herpa Properties 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. P.M. Merton: Chairman of Pharmacy Brands Ltd, and Director of Cape Healthcare Ltd, and Trustee of Pentz Trust. S.C. Ottrey: Director of Blue Sky Meats (NZ) Ltd, Smiths City Group Ltd and Sarah Ottrey Marketing Ltd. M.J. Stewart: Director of Masthead Holdings Ltd, Masthead Ltd, Masthead Services Ltd, Masthead Investments Ltd, Masthead Portfolios Ltd, Masthead Management Ltd, Windwhistle Holdings Ltd, Forwood Forestry Ltd, Southern Excursions Ltd, Stravon Safaries Ltd, Twinmark Investments Ltd (in Liq.), Python Portfolios Ltd, Woodbent Hill Ltd, Laindon Ltd, Andos Holdings Ltd, Anaconda Ltd, Proteus Group Holdings Ltd, Medusa Ltd, Lesley Hills Holdings Ltd, and Newco No1 Ltd and Ziwipeak Ltd. Alternate Director of Wakeﬁ eld Health Limited. B.J. Wallace: Director of Allum Management Services 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 EBOS Group Ltd subsidiaries and associated companies and a director of Scott Technology Ltd, and HTS-110 Ltd. 26 Directors’ Report and Disclosures 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 R G M Christie – All non beneﬁ cially held Issue of restricted staff shares Maturing staff shares E M Coutts – Held by associated persons P F Kraus Ordinary Shares Purchased (Sold) Consideration Paid (Received) Date of Transaction 1,399 49,850 (63,970) 500 28 $9,324 $174,475 Nil October 2010 To June 2011 To June 2011 $3,332 October 2010 $187 October 2010 P F Kraus – Held by associated persons 114,246 $761,383 October 2010 S C Ottrey – Held by associated persons P M Merton – Held by associated persons M J Stewart – Non beneﬁ cially held Director of Python Portfolios Ltd M B Waller – Held by associated persons Non beneﬁ cially held Issue of restricted staff shares Maturing staff shares B.J. Wallace Non beneﬁ cially held – Director of Whyte Adder No.3 Ltd and of Herpa Properties Ltd 127 88 $846 $639 October 2010 April 2011 31,249 (700,000) $208,256 ($4,902,915) October 2010 April 2011 135,805 $905,061 October 2010 11,379 (6,400) 1,399 49,850 (63,970) $75,934 ($40,960) $9,324 $174,475 Nil October 2010 November 2010 October 2010 To June 2011 To June 2011 114,246 $761,383 October 2010 DIRECTORS’ SHAREHOLDINGS Number of fully paid shares held as at 30 June 2011 30 June 2010 E M Coutts R G M Christie P F Kraus - Non beneﬁ cially held – - Staff share purchase scheme - Held by associated persons 19,510 19,010 176,899 189,620 1,076 4,464,974 1,048 4,350,728 P M Merton - Held by associated persons 521,277 1,190,028 S C Ottrey - Held by associated persons 4,935 4,808 27 DIRECTORS’ SHAREHOLDINGS CONTINUED Number of fully paid shares held as at 30 June 2011 30 June 2010 M J Stewart - Non beneﬁ cially held – Director of Python Portfolios Ltd 5,307,571 5,171,766 B J Wallace - Non beneﬁ cially held – Director of Whyte Adder No.3 Ltd/Herpa Properties Ltd 4,464,974 4,350,728 M B Waller - Held by associated persons - Non beneﬁ cially held – Staff share purchase scheme 439,005 176,899 434,026 189,620 ATTENDANCE R Christie P Kraus E Coutts P Merton S Ottrey M Stewart B Wallace M Waller Board Attended Eligible to Attend Audit & Risk Eligible to Attend Committee Attended Remuneration Eligible to Attend Committee Attended 9 9 9 7 9 9 9 9 9 6 9 5 9 8 9 9 4 - 4 - - - 4 4 4 - 4 - - - 4 4 1 - - - - - 1 1 1 - - - - - 1 1 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 speciﬁ c 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. Speciﬁ cally excluded are certain matters, such as the incurring of penalties and ﬁ nes which may be imposed for breaches of law. DIRECTORS’ REMUNERATION AND OTHER BENEFITS Directors’ remuneration and other beneﬁ ts required to be disclosed pursuant to section 211(1) of the Companies Act 1993 for the year ended 30 June 2011 were as follows: R.G.M. Christie E.M. Coutts P.F. Kraus P. Merton M.J. Stewart S.C. Ottrey B.J. Wallace M.B. Waller (Chief Executive Ofﬁ cer and Managing Director) *Includes performance bonus and other emoluments 30 June 2011 30 June 2010 $127,500 $65,000 $60,000 $60,000 $60,000 $60,000 $67,500 $470,420 * Other beneﬁ ts $1,430,798 Salary $106,000 $53,000 $75,000 $50,000 $50,000 $50,000 $56,000 $470,420 $1,299,000 28 Directors’ Report and Disclosures 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 beneﬁ ts 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 – 150,000 150,000 – 160,000 160,000 – 170,000 170,000 – 180,000 180,000 – 190,000 190,000 – 200,000 200,000 – 210,000 210,000 – 220,000 230,000 – 240,000 240,000 – 250,000 250,000 – 260,000 270,000 – 280,000 290,000 – 300,000 330,000 – 340,000 340,000 – 350,000 350,000 – 360,000 360,000 – 370,000 380,000 – 390,000 390,000 – 400,000 520,000 – 530,000 530,000 – 540,000 550,000 – 560,000 630,000 – 640,000 AUDITORS 30 June 2011 Number of employees 30 June 2010 16 9 11 6 2 5 6 1 3 1 1 2 1 - 1 1 - 1 1 2 1 - 1 - 1 - 1 27 19 10 11 - 8 7 3 - 2 - - 1 1 1 - 1 1 1 - - 1 - 1 - 1 - The Company’s Auditors, Deloitte, will continue in ofﬁ ce in accordance with the Companies Act 1993. The Directors are satisﬁ ed 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 ﬁ nancial statements. Rick Christie Chairman 26 August 2011 Mark Waller Chief Executive Offi cer and Managing Director Financial Statements Year Ended 30 June, 2011 29 30 31 32 32 33 34 35 36 Directors’ Responsibility Statement Auditor’s Report Income Statement Statement of Comprehensive Income Balance Sheet Statement of Changes in Equity Cash Flow Statement Notes to the Financial Statements 30 Directors’ Responsibility Statement The Directors of EBOS Group Limited are pleased to present to shareholders the ﬁ nancial statements for EBOS Group and its controlled entities (together the “Group”) for the year to 30 June 2011. The Directors are responsible for presenting ﬁ nancial statements in accordance with New Zealand law and generally accepted accounting practice, which give a true and fair view of the ﬁ nancial position of the Company and the Group as at 30 June 2011 and the results of their operations and cash ﬂ ows for the year ended on that date. The Directors consider the ﬁ nancial statements of the Company and the Group have been prepared using accounting policies which have been consistently applied and supported by reasonable judgements and estimates and that all relevant ﬁ nancial 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 ﬁ nancial position of the Company and Group and facilitate compliance of the ﬁ nancial 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 suffi cient to provide a reasonable assurance as to the integrity and reliability of the ﬁ nancial statements. The Financial Statements are signed on behalf of the Board on 26 August 2011 by: Rick Christie Chairman Mark Waller Chief Executive Offi cer and Managing Director Independent Auditor’s Report to the Shareholders of EBOS Group Limited 31 Report on the Financial Statements We have audited the ﬁ nancial statements of EBOS Group Limited and group on pages 32 to 72, which comprise the consolidated and separate balance sheets of EBOS Group Limited, as at 30 June 2011, the consolidated and separate income statements, statements of comprehensive income, statements of changes in equity and cash ﬂ ow statements for the year then ended, and a summary of signiﬁ cant accounting policies and other explanatory information. Board of Directors’ Responsibility for the Financial Statements The Board of Directors is responsible for the preparation of ﬁ nancial statements in accordance with generally accepted accounting practice in New Zealand and that give a true and fair view of the matters to which they relate, and for such internal control as the Board of Directors determine is necessary to enable the preparation of ﬁ nancial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibilities Our responsibility is to express an opinion on these ﬁ nancial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing and International Standards on Auditing (New Zealand). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the ﬁ nancial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the ﬁ nancial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the ﬁ nancial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of ﬁ nancial statements that give a true and fair view of the matters to which they relate in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates, as well as the overall presentation of the ﬁ nancial statements. We believe that the audit evidence we have obtained is sufﬁ cient and appropriate to provide a basis for our audit opinion. Other than in our capacity as auditor and the provision of information technology services, due diligence, internal control assurance services, assurance assistance and the assistance with the review of the group ﬁ nance function we have no relationship with or interests in EBOS Group Limited or any of its subsidiaries. Opinion In our opinion, the ﬁ nancial statements on pages 32 to 72: • comply with generally accepted accounting practice in New Zealand; • comply with International Financial Reporting Standards; and • give a true and fair view of the ﬁ nancial position of EBOS Group Limited and group as at 30 June 2011, and their ﬁ nancial performance and cash ﬂ ows for the year then ended. Report on Other Legal and Regulatory Requirements We also report in accordance with section 16 of the Financial Reporting Act 1993. In relation to our audit of the ﬁ nancial statements for the year ended 30 June 2011: • we have obtained all the information and explanations we have required; and • in our opinion proper accounting records have been kept by EBOS Group Limited as far as appears from our examination of those records. Chartered Accounta a Chartered Accountants 26 August 2011 Christchurch, New Zealand This audit report relates to the ﬁ nancial statements of EBOS Group Limited and group for the year ended 30 June 2011 included on EBOS Group Limited’s website. The board of directors is responsible for the maintenance and integrity of EBOS Group Limited’s website. We have not been engaged to report on the integrity of EBOS Group Limited’s website. We accept no responsibility for any changes that may have occurred to the ﬁ nancial statements since they were initially presented on the website. The audit report refers only to the ﬁ nancial statements named above. It does not provide an opinion on any other information which may have been hyperlinked to/from these ﬁ nancial statements. If readers of this report are concerned with the inherent risks arising from electronic data communication they should refer to the published hard copy of the audited ﬁ nancial statements and related audit report dated 26 August 2011 to conﬁ rm the information included in the audited ﬁ nancial statements presented on this website. Legislation in New Zealand governing the preparation and dissemination of ﬁ nancial statements may diff er from legislation in other jurisdictions. 32 INCOME STATEMENT For the Financial Year Ended 30 June, 2011 Continuing operations Revenue Proﬁ t before depreciation, amortisation, ﬁ nance costs and income tax expense Depreciation Amortisation of ﬁ nite life intangibles Proﬁ t before ﬁ nance costs and tax Finance costs Proﬁ t before income tax Income tax Notes Group 2011 $’000 2010 $’000 Parent 2011 $’000 2010 $’000 2 (a) 1,343,756 1,317,481 99,271 81,848 2 (b) 2 (b) 2 (b) 2 (b) 3 41,125 (3,231) (173) 40,350 (3,151) (504) 13,682 (425) - 16,188 (445) - 37,721 (5,148) 36,695 (5,682) 13,257 (3,010) 15,743 (3,429) 32,573 (9,173) 31,013 (11,324) 10,247 (1,118) 12,314 (1,679) Proﬁ t for the year from continuing operations 23,400 19,689 9,129 10,635 Discontinued operations Proﬁ t for the year from discontinued operations 31 8,179 3,748 - - Proﬁ t for the year 31,579 23,437 9,129 10,635 Earnings per share: From continuing and discontinued operations Basic (cents per share) Diluted (cents per share) From continuing operations Basic (cents per share) Diluted (cents per share) STATEMENT OF COMPREHENSIVE INCOME 25 25 25 25 61.2 61.2 45.4 45.4 47.0 47.0 39.5 39.5 For the Financial Year Ended 30 June, 2011 Notes Group 2011 $’000 2010 $’000 Parent 2011 $’000 2010 $’000 Proﬁ t for the year 31,579 23,437 9,129 10,635 Other comprehensive income Cash ﬂ ow hedges gains Related income tax to cashﬂ ow hedges Gains/(losses) on translation of foreign operations 21 21 21 855 (262) 1,357 1,285 (386) (470) 615 (195) - 866 (260) - Total comprehensive income net of tax 33,529 23,866 9,549 11,241 Notes to the ﬁ nancial statements are included on pages 36 — 72. BALANCE SHEET 33 As at 30 June, 2011 Current assets Cash and cash equivalents Trade and other receivables Prepayments Inventories Current tax refundable Other ﬁ nancial assets - derivatives Advances to subsidiaries Finance leases Notes Group 2011 $’000 2010 $’000 Parent 2011 $’000 2010 $’000 6 7 8 3 9 99,678 152,797 2,673 56,484 148,178 2,581 121,807 128,484 458 105 - 102 1,045 - - - 73,130 10,183 944 8,347 - - 1,538 - 18,175 8,718 1,116 7,955 53 105 4,648 102 Total current assets 378,000 336,392 94,142 40,872 Non-current assets Property, plant and equipment Capital work in progress Prepayments Deferred tax assets Goodwill Indeﬁ nite life intangibles Finite life intangibles Shares in subsidiaries Total non-current assets Total assets Current liabilities Trade and other payables Finance leases Current tax payable Employee beneﬁ ts Other ﬁ nancial liabilities - derivatives Advances from subsidiaries Total current liabilities Non-current liabilities Bank loans Trade and other payables Deferred tax liabilities Finance leases Employee beneﬁ ts 10 11 7 3 12 13 14 15 16,974 - 847 4,538 114,132 23,796 32 - 17,570 245 1,179 5,297 133,741 23,714 205 - 4,037 - - 693 1,728 4,960 - 4,267 - - 1,190 1,728 4,960 - 110,686 128,630 160,319 181,951 122,104 140,775 538,319 518,343 216,246 181,647 17 16, 18 3 19 16 259,130 248,855 176 5,577 5,578 1,512 - 5 3,422 4,983 815 - 8,826 - 643 2,218 598 54,464 7,779 20 - 2,339 1,083 12,842 268,355 261,698 66,749 24,063 16 17 3 16, 18 57,177 4,591 8,706 6 688 59,017 4,770 9,148 18 902 28,000 - 2,038 - - 28,000 - 2,151 - - Total non-current liabilities 71,168 73,855 30,038 30,151 Total liabilities Net assets Equity Share capital Foreign currency translation reserve Retained earnings Cash ﬂ ow hedge reserve 339,523 335,553 96,787 54,214 198,796 182,790 119,459 127,433 20 21 21 21 107,970 106,000 1,116 76,738 (1,064) 2,473 88,824 (471) 107,970 106,000 - 22,191 (758) - 11,827 (338) Total equity 198,796 182,790 119,459 127,433 Notes to the ﬁ nancial statements are included on pages 36 — 72. 34 STATEMENT OF CHANGES IN EQUITY For the Financial Year Ended 30 June, 2011 Equity at start of year Proﬁ t for the year Notes Group 2011 $’000 2010 $’000 Parent 2011 $’000 2010 $’000 182,790 162,039 127,433 119,307 31,579 23,437 9,129 10,635 Other comprehensive income: Movements in cashﬂ ow hedge reserve Movement in foreign currency translation reserve 593 1,357 899 (470) 420 - 606 - Dividends paid to company shareholders Shares issued 22 20 (19,493) 1,970 (3,254) 139 (19,493) 1,970 (3,254) 139 Equity at end of year 198,796 182,790 119,459 127,433 Notes to the ﬁ nancial statements are included on pages 36 — 72. CASH FLOW STATEMENT 35 For the Financial Year Ended 30 June, 2011 Cash ﬂ ows from operating activities Receipts from customers Interest received Dividends received from subsidiaries Payments to suppliers and employees Taxes paid Interest paid Notes Group 2011 $’000 2010 $’000 Parent 2011 $’000 2010 $’000 1,342,560 2,367 - (1,306,387) (11,689) (5,148) 1,373,841 942 - (1,319,253) (8,015) (5,702) 72,669 1,934 23,305 (66,706) (234) (3,010) 70,065 538 12,935 (64,242) (62) (3,429) Net cash inﬂ ow from operating activities 24(c) 21,703 41,813 27,958 15,805 Cash ﬂ ows from investing activities Sale of property, plant & equipment Advances from subsidiaries Purchase of property, plant & equipment Payments for capital work in progress Advances to subsidiaries Proceeds from disposal of businesses 37 - (3,887) - - 45,203 257 - (2,656) (245) - - - 41,622 (212) - 3,110 - - 7,770 (357) - 7,230 - 24(a) Net cash inﬂ ow/(outﬂ ow) from investing activities 41,353 (2,644) 44,520 14,643 Cash ﬂ ows from ﬁ nancing activities Proceeds from issue of shares Repayment of borrowings Dividends paid to equity holders of parent 1,970 (3,000) (19,493) 139 (13,000) (3,254) 1,970 - (19,493) 139 (11,000) (3,254) 22 Net cash (outﬂ ow) from ﬁ nancing activities (20,523) (16,115) (17,523) (14,115) Net increase in cash held Effect of exchange rate ﬂ uctuations on cash held Net cash and cash equivalents at beginning of the year 42,533 661 23,054 (176) 54,955 - 16,333 - 56,484 33,606 18,175 1,842 Net cash and cash equivalents at the end of the year 99,678 56,484 73,130 18,175 Cash and cash equivalents 99,678 56,484 73,130 18,175 Notes to the ﬁ nancial statements are included on pages 36 — 72. 36 NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 30 June, 2011 1. SUMMARY OF ACCOUNTING POLICIES 1.1 Statement of Compliance EBOS Group Ltd (“the Company”) is a proﬁ t-oriented company incorporated in New Zealand, registered under the Companies Act 1993 and listed on the New Zealand Exchange. The Company operated in two business segments up until 1 September 2010, being Healthcare and Scientiﬁ c – Healthcare incorporates the sale of healthcare products in a range of sectors, own brands, retail healthcare and wholesale activities, and logistics and Scientiﬁ c incorporated the sale of laboratory consumables, life sciences equipment and technical support to industry and research laboratories. The Scientiﬁ c segment was sold on 1 September 2010. Since that date the Company operates in one business segment, being Healthcare. The Company is a reporting entity and issuer for the purposes of the Financial Reporting Act 1993 and its ﬁ nancial statements comply with that Act. The ﬁ nancial 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 proﬁ t oriented entities. The Financial Statements comply with International Financial Reporting Standards (“IFRS”). 1.2 Basis of Preparation The ﬁ nancial statements have been prepared on the basis of historical cost, except for the revaluation of certain ﬁ nancial 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 ﬁ nancial information satisﬁ es 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 ﬁ nancial statements for the year ended 30 June, 2011 and the comparative information presented in these ﬁ nancial statements for the year ended 30 June, 2010. The information is presented in thousands of New Zealand dollars. 1.3 Critical Judgements in Applying Accounting Policies 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 signiﬁ cant effects on the ﬁ nancial statements and estimates with a signiﬁ cant risk of material adjustments in the next year are disclosed, where applicable, in the relevant notes to the ﬁ nancial statements. Critical judgements made by management principally relate to the identiﬁ cation of intangible assets such as brands separately from goodwill, arising on acquisition of a business or subsidiaries and the recognition of revenue on signiﬁ cant contracts subject to renewal where the receipt of cashﬂ ows does not match the services provided. 1.4 Key Sources of Estimation Uncertainty Key sources of estimation uncertainty relate to assessment of impairment of goodwill and indeﬁ nite life intangibles. The Group determines whether goodwill and indeﬁ nite 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 indeﬁ nite life intangibles are allocated. The assumptions used in this estimation of recoverable amount and the carrying amount of goodwill and indeﬁ nite life intangibles are discussed in notes 12 and 13. It is assumed that signiﬁ cant 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 ﬂ ows or discount rates used, future changes in salaries and future changes in price affecting other costs. 1.5 Speciﬁ c Accounting Policies The following speciﬁ c accounting policies have been adopted in the preparation and presentation of the ﬁ nancial statements. a) Basis of consolidation The consolidated ﬁ nancial statements are prepared by combining the ﬁ nancial statements of all the entities that comprise the Group, being the Company (the Parent entity) and its subsidiaries as deﬁ ned in NZ IAS-27 ‘Consolidated and Separate Financial Statements’. A list of subsidiaries appears in note 15 to the ﬁ nancial statements. Consistent accounting policies are employed in the preparation and presentation of the consolidated ﬁ nancial statements. Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. 37 The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in proﬁ t or loss as incurred. Where applicable, the cost of acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured at its acquisition date fair value. Subsequent changes in such fair values are adjusted against the cost of acquisition where they qualify as measurement period adjustments. All other subsequent changes in the fair value of contingent consideration classiﬁ ed as an asset or liability are accounted for in accordance with relevant NZ IFRSs. Changes in the fair value of contingent consideration classiﬁ ed as equity are not recognised. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts, to reﬂ ect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date. The measurement period is the period from the date of acquisition to the date the Group receives complete information about facts and circumstances that existed as of the acquisition date – and is subject to a maximum period of one year. 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 signiﬁ cant inter-company transactions and balances are eliminated on consolidation. In the Company’s ﬁ nancial statements, investments in subsidiaries are recognised at their cost, less any adjustment for impairment. b) Goodwill Goodwill arising on the acquisition of the subsidiary is recognised as an asset at the date that control is acquired (the acquisition date). Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the acquirer’s previously-held equity interest (if any) in the acquiree over the fair value of the identiﬁ able net assets recognised. If, after reassessment, the Group’s interest in the fair value of the acquiree’s identiﬁ able net assets exceeds the sum of the consideration transferred, the amount of any non- controlling interests in the acquiree and the fair value of the acquirer’s previously-held equity interests (if any) in the acquiree, the excess is recognised immediately in proﬁ t or loss as a bargain purchase gain. Goodwill is not amortised, but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash- generating units expected to beneﬁ t 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. The recoverable amount is the higher of fair value less cost to sell and value in use. If the recoverable amount of the cash generating unit is less than the carrying amount of the unit, the impairment loss is allocated ﬁ rst 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. Any impairment loss is recognised immediately in proﬁ t or loss and is not subsequently reversed. c) Indeﬁ nite life intangible assets Indeﬁ nite life intangible assets represent purchased brand names and are initially recognised at cost. Such intangible assets are regarded as having indeﬁ nite 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 of ﬁ nite life intangible assets is 1 to 8 years. The estimated useful life and amortisation period is reviewed at the end of each annual reporting period. e) Intangible assets acquired in a business combination All potential intangible assets acquired in a business combination are identiﬁ ed and recognised separately from goodwill where they satisfy the deﬁ nition of an intangible asset and their fair value can be measured reliably. f) Property, plant, and equipment The group has ﬁ ve classes of property, plant and equipment: • Freehold land • Buildings • Leasehold improvements • Plant • Ofﬁ ce equipment, furniture and ﬁ ttings. 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. 38 NOTES TO THE FINANCIAL STATEMENTS CONTINUED For the Financial Year Ended 30 June, 2011 f) Property, plant and equipment continued 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. The following useful lives are used in the calculation of depreciation: Buildings Leasehold improvements Plant 20 to 100 years 2 to 15 years 2 to 20 years Ofﬁ ce equipment, furniture and ﬁ ttings 2 to 10 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 ﬂ ows 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 ﬂ ows are discounted to their present value using a pre-tax discount rate that reﬂ ects current market assessments of the time value of money and the risks speciﬁ c to the asset for which the estimates of future cash ﬂ ows 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 indeﬁ nite 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 indeﬁ nite life intangible assets. h) Taxation The tax currently payable is based on taxable proﬁ t for the year. Taxable proﬁ t differs from proﬁ t as reported in the income statement because it excludes items of income and expense that are taxable or deductible in other years and further excludes items that are never taxable or deductible. 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 recognised on differences between the carrying amounts of assets and liabilities in the ﬁ nancial statements and the corresponding tax bases used in the computation of taxable proﬁ t, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable proﬁ ts will be available against which those deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable proﬁ t nor the accounting proﬁ t. Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates, and interest in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufﬁ cient taxable proﬁ ts against which to utilise the beneﬁ ts of the temporary differences and they are 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 sufﬁ cient taxable proﬁ ts will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax (and tax laws) that have been enacted or substantively enacted by the balance sheet date. The measurement of deferred tax liabilities and assets reﬂ ects the tax consequences that would follow from the manner which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. 39 Current and deferred tax are recognised as an expense or income in proﬁ t or loss, except when they relate to items recognised in other comprehensive income or directly in equity, in which case the tax is also recognised in other comprehensive income or directly in equity, or where they arise from the initial accounting for a business combination. In the case of a business combination, the tax effect is taken into account in calculating goodwill or in determining the excess of the acquirer’s interest in the net fair value of the acquiree’s identiﬁ able assets, liabilities and contingent liabilities over the cost of the business combination. 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. 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 proﬁ t or loss on disposal of the foreign operation. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at exchange rates prevailing at the reporting date. j) Leases l) Goods & Services Tax 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 beneﬁ ts 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 beneﬁ t from their use. Lease payments are apportioned between ﬁ nance 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 beneﬁ ts 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 beneﬁ ts expected to be derived from the leased asset. k) Foreign Currency Translation Functional and Presentation Currency The ﬁ nancial 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 ﬁ nancial 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 Revenues, expenses, liabilities 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 ﬂ ows are included in the cash ﬂ ow statement on a net basis. The GST component of cash ﬂ ows arising from investing and ﬁ nancing activities which is recoverable from, or payable to, the taxation authority is classiﬁ ed as operating cash ﬂ ows. m) Financial Instruments Financial assets and ﬁ nancial liabilities are recognised on the Group’s balance sheet when the Group becomes a party to the contractual provisions of the instrument. Financial Assets Financial assets are classiﬁ ed into the following speciﬁ c categories: “ﬁ nancial assets at fair value through proﬁ t or loss” (FVTPL), “held to maturity” investments, “available for sale” (AFS) ﬁ nancial assets and “loans and receivables”. The category depends on the nature and purpose of the ﬁ nancial 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 insigniﬁ cant risk of changes in value. Financial Assets at Fair Value through Proﬁ t and Loss (FVTPL): Financial assets are classiﬁ ed as FVTPL where the ﬁ nancial asset is either held for trading or it is designated at FVTPL, such as derivative ﬁ nancial asset instruments where hedge accounting is not applied. 40 NOTES TO THE FINANCIAL STATEMENTS CONTINUED For the Financial Year Ended 30 June, 2011 m) Financial Instruments continued Financial assets at FVTPL are stated at fair value, with any resultant gain or loss recognised in proﬁ t or loss. The net gain or loss recognised in proﬁ t or loss incorporates any dividend or interest earned on the ﬁ nancial asset. Loans and Receivables: Trade and other receivables, including advances to subsidiaries, that have ﬁ xed or determinable payments that are not quoted in an active market are classiﬁ ed 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 ﬂ ows 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 classiﬁ ed as either ﬁ nancial liabilities at “fair value through proﬁ t or loss” (FVTPL) or “other ﬁ nancial liabilities” measured at amortised cost. The classiﬁ cations used are set out below: Bank loans are classiﬁ ed 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 ﬂ ow 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 proﬁ t or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in proﬁ t or loss depends on the nature of the hedge relationship. The Group designates certain derivatives as cashﬂ ow hedges of highly probable forecast transactions. Cashﬂ ow 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 cashﬂ ows of the hedged items. Financial Liabilities at Fair Value through Proﬁ t and Loss: Financial liabilities are classiﬁ ed as FVTPL where the ﬁ nancial liability is either held for trading or it is designated at FVTPL, such as derivative ﬁ nancial liability instruments where hedge accounting is not applied. The effective portion of changes in the fair value of derivatives that are designated and qualify as cashﬂ ow hedges are deferred in equity. The gain or loss relating to the ineffective portion is recognised immediately in proﬁ t or loss. Financial liabilities at FVTPL are stated at fair value, with any resultant gain or loss recognised in proﬁ t or loss. The net gain or loss recognised in proﬁ t or loss incorporates any dividend or interest paid on the ﬁ nancial liability. Other Financial Liabilities: Trade and other payables, including advances from subsidiaries and bank loans, 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. Amounts deferred in equity are recycled in proﬁ t or loss in the periods when the hedged item is recognised in proﬁ t or loss. However, when the forecast transaction that is hedged results in the recognition of a non-ﬁ nancial asset or a non-ﬁ nancial 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 qualiﬁ es 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 proﬁ t 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 proﬁ t or loss. n) Revenue Recognition Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable 41 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. p) Employee Entitlements A liability for annual leave and long service leave is accrued and recognised in the statement of ﬁ nancial position. The liability is equal to the present value of the estimated future cash outﬂ ows as a result of employee services provided at balance date. Provisions made in respect of employee beneﬁ ts 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 beneﬁ ts which are not expected to be settled within 12 months are measured at the present value of the estimated future cash outﬂ ows to be made by the Group in respect of services provided up to reporting date. q) Segment Reporting The Group’s operating segments are identiﬁ ed on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker (Chief Executive Ofﬁ cer) in order to allocate resources to the segment and to assess its performance. r) Research and Development Expenditure on research activities, such as software development, is recognised as an expense in the period it is incurred. s) Adoption of New Revised Standards and Interpretations No standards have been adopted during the year which have had a material impact on these ﬁ nancial statements. We are not aware of any standards in issue but not yet effective which would materially impact the amounts recognised or disclosed in the ﬁ nancial statements. for goods and services provided in the normal course of business, net of returns, discounts, allowances and GST. The following speciﬁ c recognition criteria must be met before revenue is recognised: Sale of Goods Sales of goods are recognised when signiﬁ cant 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 beneﬁ ts associated with the transaction will ﬂ ow 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 ﬁ nancial asset to that asset’s net carrying amount. Effective Interest Method The effective interest rate method is a method of calculating the amortised cost of a ﬁ nancial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the ﬁ nancial asset, or, where appropriate, a shorter period to the carrying amount of the ﬁ nancial asset. Royalties Royalty revenue is recognised on an accrual basis in accordance with the substance of the relevant agreement. Royalties determined on a time basis are recognised on a straight line basis over the period of the agreement. Royalty arrangements that are based on production, sales and other measures are recognised by reference to the underlying agreement. Dividend Income Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established. o) Cash Flow Statement The cash ﬂ ow statement is prepared exclusive of GST, which is consistent with the method used in the income statement. Deﬁ nition of terms used in the cash ﬂ ow statement: Operating activities include all transactions and other events that are not investing or ﬁ nancing activities. 42 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 2. PROFIT FROM CONTINUING OPERATIONS (a) Revenue 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 Rental revenue - inter group Interest revenue - inter group Interest revenue - other Royalty income - inter group Dividends - inter group (b) Proﬁ t before income tax Proﬁ t 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 Disposal of Scientiﬁ c businesses Change in fair value of derivative ﬁ nancial instruments Proﬁ t 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 ﬁ nance costs Net bad and doubtful debts arising from: Impairment loss on trade & other receivables Depreciation of property, plant and equipment Amortisation of ﬁ nite life intangibles Operating lease rental expenses: Minimum lease payments Donations Employee beneﬁ t expense Other expenses Total expenses Proﬁ t before income tax Notes Group 2011 $’000 2010 $’000 Parent 2011 $’000 2010 $’000 1,337,454 1,312,247 - - 2,804 3,523 1,495 415 - - - - - - 935 2,364 - - - - 58,639 10,964 - - 456 12 233 1,702 3,960 23,305 57,154 10,283 - - 483 85 203 335 370 12,935 1,343,756 1,317,481 99,271 81,848 (34) - (236) 3 - 848 - (17,941) (236) (4) - 848 (1,205,620) (1,185,179) - - (1,129) (1,137) (45,525) (1,426) (248) (44,940) (1,991) (391) (4,511) (637) (5,057) (625) (2,399) (611) (2,978) (451) (5,148) (5,682) (3,010) (3,429) 10 14 (330) (3,231) (173) (443) (3,151) (504) (1) (425) - (30) (445) - (5,741) (69) (50,587) (38,877) (5,554) (40) (48,189) (37,448) (862) (47) (10,805) (8,498) (875) (16) (10,552) (7,709) (1,310,913) (1,287,319) (70,847) (70,378) 32,573 31,013 10,247 12,314 3. INCOME TAXES (a) Income tax recognised in income statement Tax expense/(credit) comprises: Current tax expense: Current year Adjustments for prior years Other adjustments Deferred tax expense/(credit): Origination and reversal of temporary differences Adjustments for prior years Adjustments related to changes in tax rates or imposition of new taxes Other 43 Group 2011 $’000 2010 $’000 Parent 2011 $’000 2010 $’000 9,348 (559) 41 11,573 (1,583) 32 8,830 10,022 (650) 563 186 (44) 915 1,844 (368) - 929 - - 929 (158) 406 (59) - - - 33 33 219 1,475 (48) - 55 2,391 189 1,646 Total income tax expense/(credit) 8,885 12,413 1,118 1,679 Attributable to: Continuing operations Discontinued operations The prima facie income tax expense on pre-tax accounting proﬁ t from operations reconciles to the income tax expense in the ﬁ nancial statements as follows: Proﬁ t from continuing operations Proﬁ t from discontinued operations 9,173 (288) 11,324 1,089 1,118 - 1,679 - 8,885 12,413 1,118 1,679 32,573 7,891 31,013 4,837 10,247 - 12,314 - Proﬁ t from operations 40,464 35,850 10,247 12,314 Income tax expense calculated at 30% Non-deductible expenses/(non-assessable income) Effect of differences arising from investment interests in other jurisdictions Effect of reduction of tax base of buildings (Over)/under provision of income tax in previous year Adjustments related to changes in tax rates Other adjustments 12,139 (2,361) 10,755 67 3,074 (1,549) 3,694 (3,841) (756) - 4 186 (327) (346) 1,974 261 (368) 70 (754) - 406 (59) - (346) 712 1,475 (48) 33 Total income tax expense/(credit) 8,885 12,413 1,118 1,679 The tax rates used are principally the corporate tax rates of 30% (2010: 30%) payable by New Zealand and Australian corporate entities on taxable proﬁ ts under tax law in each jurisdiction. The tax legislation announcement made by the New Zealand Government in May 2010 has impacted on the deferred tax expense/(credit) as follows: 1. The tax rate for depreciation on buildings, which have a life of 50 years or greater was reduced to zero for years from and including 2012. The effect of this is an additional deferred tax expense in the prior year of $1,974,000 (Group), $712,000 (Parent). 2. The Company income tax rate is to reduce to 28% (currently 30%) for the year from and including the 2012 year. The impact of this change in tax rates has resulted in a deferred tax debit/(credit) in the current year of $186,000 (Group) (2010: ($368,000)). ($59,000) (Parent) (2010: ($48,000)). 44 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 3. INCOME TAXES CONTINUED (b) Current tax assets and liabilities 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: 2011 Gross deferred tax liabilities: Property, plant & equipment Intangible assets Gross deferred tax assets: Property, plant & equipment Provisions Doubtful debts & impairment losses Other ﬁ nancial liabilities – derivatives Other 2010 Gross deferred tax liabilities: Property, plant & equipment Provisions Intangible assets Gross deferred tax assets: Property, plant & equipment Provisions Doubtful debts & impairment losses Other ﬁ nancial liabilities – derivatives Other Group 2011 $’000 2010 $’000 Parent 2011 $’000 2010 $’000 1,045 458 - 53 3,422 5,577 643 - 4,538 5,297 693 1,190 (8,706) (9,148) (2,038) (2,151) (4,168) (3,851) (1,345) (961) Group Opening balance $’000 Group Charged to income $’000 Group Charged to equity $’000 Group Closing balance $’000 (1,893) (7,255) (9,148) 333 3,680 573 454 257 284 158 442 (333) (461) 171 (1) 127 - - - (1,609) (7,097) (8,706) - - - (262) - - 3,219 744 191 384 5,297 (497) (262) 4,538 (55) (262) (63) (18) (7,531) (1,830) 18 276 (7,612) (1,536) - - - - (1,893) - (7,255) (9,148) 256 3,454 517 846 1,467 77 226 56 (4) (1,210) - - - (388) - 333 3,680 573 454 257 6,540 (855) (388) 5,297 (2,391) (388) 3. INCOME TAXES CONTINUED 2011 Gross deferred tax liabilities: Property, plant & equipment Intangible assets Gross deferred tax assets: Provisions Doubtful debts & impairment losses Other ﬁ nancial liabilities – derivatives Tax losses carried forward 2010 Gross deferred tax liabilities: Property, plant & equipment Intangible assets Gross deferred tax assets: Property, plant & equipment Provisions Doubtful debts & impairment losses Other ﬁ nancial liabilities – derivatives Tax losses carried forward 45 Parent Opening balance $’000 Parent Charged to income $’000 Parent Charged to equity $’000 Parent Closing balance $’000 (663) (1,488) (2,151) 13 100 113 - - - (650) (1,388) (2,038) 567 41 325 257 (43) (2) - (257) - - (195) - 1,190 (302) (195) 524 39 130 - 693 (189) (195) - (1,488) (663) - (1,488) (663) - - - (663) (1,488) (2,151) 11 337 41 585 1,459 (11) 230 - - (1,202) - - - (260) - - 567 41 325 257 2,433 (983) (260) 1,190 (1,646) (260) 46 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 3. INCOME TAXES CONTINUED 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. (d) Imputation credit account balances Balance at beginning of the year Attached to dividends received Taxation paid Attached to dividends paid Other credits Other debits Group 2011 $’000 2010 $’000 Parent 2011 $’000 2010 $’000 6,845 - 6,991 (8,137) 242 (179) 4,624 - 4,301 (1,365) 8 (723) 250 3,000 234 (8,137) - (234) (1,604) 3,857 62 (1,365) - (700) Balance at end of the year 5,762 6,845 (4,887) 250 Imputation credits available directly and indirectly to shareholders of the Parent company, through Parent company Subsidiaries (4,887) 10,649 250 6,595 5,762 6,845 4. KEY MANAGEMENT PERSONNEL COMPENSATION Short-term employee beneﬁ ts Post-employment beneﬁ ts 5. REMUNERATION OF AUDITORS Auditor of the parent entity (Deloitte) Audit of the ﬁ nancial statements Audit related services for review of ﬁ nancial statements not included above Review of group ﬁ nance function Assurance assistance Due diligence Information technology services Internal control assurance services 6. TRADE & OTHER RECEIVABLES Trade receivables (i) Other receivables Allowance for impairment (ii) 47 Group 2011 $’000 6,838 297 2010 $’000 6,539 266 Parent 2011 $’000 5,076 297 2010 $’000 4,451 266 7,135 6,805 5,373 4,717 379 404 76 - - - 36 64 139 - - 18 42 83 37 40 18 42 - 37 40 61 - - - 36 64 - 738 504 213 161 153,365 1,057 (1,625) 148,819 707 (1,348) 9,863 458 (138) 8,717 139 (138) 152,797 148,178 10,183 8,718 (i) Trade receivables are non-interest bearing and generally on monthly terms. No interest is charged on the trade receivables for the ﬁ rst 60 days from the date of the invoice. Thereafter, interest may be charged at 3% per annum on the outstanding balance. The Group’s ProPharma Pharmacy business unit generally holds collateral over its trade receivables balances. (ii) Allowance for Impairment Balance at the beginning of the year Impairment loss recognised on trade receivables Amounts written off as uncollectible Impairment losses reversed (1,348) (594) 235 82 (1,134) (593) 231 148 (138) (1) 1 - (138) (30) 30 - (1,625) (1,348) (138) (138) In determining the recoverability of trade and other receivables, 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. 48 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 6. TRADE & OTHER RECEIVABLES CONTINUED (iii) Aging of impaired trade and other receivables 90 days+ Group 2011 $’000 2010 $’000 Parent 2011 $’000 2010 $’000 (1,625) (1,348) (138) (138) (1,625) (1,348) (138) (138) (iv) Aging of past due but not impaired trade and other receivables Included in the trade and other receivables balance are debtors with a carrying amount of Group $13,008,000 (2010: $14,792,000) and Parent $2,177,000 (2010: $2,522,000) 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 Finished Goods At cost 9. OTHER FINANCIAL ASSETS - DERIVATIVES At fair value: Foreign currency forward contracts (i) (i) Financial asset carried at fair value through proﬁ t or loss (“FVTPL”). 9,672 1,716 1,620 10,454 2,458 1,880 1,144 264 769 1,443 149 930 13,008 14,792 2,177 2,522 2,673 847 2,581 1,179 944 - 1,116 - 3,520 3,760 944 1,116 121,807 128,484 8,347 7,955 121,807 128,484 8,347 7,955 - - 105 105 - - 105 105 49 10. PROPERTY, PLANT AND EQUIPMENT Group Freehold land at cost $’000 Buildings at cost $’000 Leasehold improve- ments at cost $’000 Gross carrying amount Balance at 1 July, 2009 Additions Disposals Net foreign currency exchange differences 1,895 - - - 8,953 80 - - 2,059 16 (26) (7) Ofﬁ ce equipment furniture & ﬁ ttings at cost $’000 Total $’000 12,397 1,136 (1,172) (35) 33,743 2,120 (2,734) (81) Plant and vehicles at cost $’000 8,439 888 (1,536) (39) Balance at 30 June, 2010 1,895 9,033 2,042 7,752 12,326 33,048 Additions Disposals Net foreign currency exchange differences - - - 10 - - 276 (296) 36 1,039 (1,428) 103 2,407 (2,385) 90 3,732 (4,109) 229 Balance at 30 June, 2011 1,895 9,043 2,058 7,466 12,438 32,900 Accumulated depreciation Balance at 1 July, 2009 Disposals Depreciation expense Net foreign currency exchange differences Balance at 30 June, 2010 Disposals Depreciation expense Net foreign currency exchange differences - - - - - - - - (1,490) - (284) - (558) 20 (415) 5 (3,970) 1,248 (1,231) 21 (8,281) 1,191 (1,758) 24 (14,299) 2,459 (3,688) 50 (1,774) (948) (3,932) (8,824) (15,478) - (277) - 162 (369) (27) 831 (1,056) (62) 2,000 (1,598) (52) 2,993 (3,300) (141) Balance at 30 June, 2011 - (2,051) (1,182) (4,219) (8,474) (15,926) Net book value As at 30 June, 2010 As at 30 June, 2011 1,895 1,895 7,259 6,992 1,094 876 3,820 3,247 3,502 17,570 3,964 16,974 50 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 10. PROPERTY, PLANT AND EQUIPMENT CONTINUED Parent Freehold land at cost $’000 Buildings at cost $’000 Leashold improve- ment at cost $’000 694 - - 694 - - 2,835 78 - 2,913 7 - 202 2 (7) 197 1 - Ofﬁ ce equipment furniture & ﬁ ttings at cost $’000 1,307 89 (39) Plant at cost $’000 836 162 (307) 691 134 (2) 1,357 55 - Total $’000 5,874 331 (353) 5,852 197 (2) Gross carrying amount Balance at 1 July, 2009 Additions Disposals Balance at 30 June, 2010 Additions Disposals Balance at 30 June, 2011 694 2,920 198 823 1,412 6,047 Accumulated depreciation Balance at 1 July, 2009 Disposals Depreciation expense Balance at 30 June, 2010 Disposals Depreciation expense Balance at 30 June, 2011 Net book value As at 30 June, 2010 As at 30 June, 2011 - - - - - - - (110) - (97) (207) - (91) (118) 7 (19) (130) - (18) (606) 302 (123) (427) - (132) (654) 39 (206) (1,488) 348 (445) (821) - (184) (1,585) - (425) (298) (148) (559) (1,005) (2,010) 694 694 2,706 2,622 67 50 264 264 536 407 4,267 4,037 Group plant includes ﬁ nance leases capitalised with a cost of $162,000 (2010: $1,394,000) and book value of $19,000 (2010: $217,000). Parent plant includes ﬁ nance leases capitalised with a cost of $134,000 (2010: $134,000) and book value of $Nil (2010: $Nil). Land and buildings in Auckland with a carrying value of $5,570,000 (2010: $5,751,000) were last valued on 30 June 2011 and determined by Telfer Young (Auckland) Limited, in accordance with NZ IAS16, to have a fair value of $9,600,000. Land and buildings in Christchurch with a carrying value of $3,316,000 (2010: $3,400,000) were acquired during the last four years and are stated at cost less accumulated depreciation and impairment. Aggregate depreciation recognised as an expense during the year: Buildings Leasehold improvements Plant and vehicles Ofﬁ ce equipment, furniture & ﬁ ttings Group 2011 $’000 2010 $’000 Parent 2011 $’000 2010 $’000 277 369 1,056 1,598 284 415 1,231 1,758 3,300 3,688 91 18 132 184 425 97 19 123 206 445 51 Group 2011 $’000 2010 $’000 Parent 2011 $’000 2010 $’000 - 245 - - 11. CAPITAL WORK IN PROGRESS Capital work in progress The capital work in progress relates to software development. The total cost to complete the project is $Nil (2010: $975,000). 12. GOODWILL Gross carrying amount Balance at beginning of ﬁ nancial year De-recognised on disposal of businesses Effects of foreign currency exchange differences Group 2011 $’000 2010 $’000 133,741 (20,410) 801 133,915 - (174) Parent 2011 $’000 1,728 - - 2010 $’000 1,728 - - Net book value 114,132 133,741 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 Consumer, Hospital, Primary Healthcare, Aged Care and International Product Supplies (EBOS Group Limited) – Healthcare NZ. • New Zealand Hospital Procurement and logistic services (Health Support) – Logistics NZ – amalgamated with PRNZ Limited 1 November 2010. • Australasia Scientiﬁ c Supplies (Global Science & Technology Limited) – Scientiﬁ c – disposed 1 September 2010. • New Zealand Pharmacy Wholesaler and Logistic Services (PRNZ Limited) – Pharmacy/Logistics NZ The carrying amount of goodwill allocated to cash-generating units is as follows: Healthcare Australia Healthcare NZ (Parent) Healthcare - Logistics NZ Wholesale Scientiﬁ c Healthcare – Pharmacy/Logistics NZ Group 2011 $’000 17,361 1,728 - - 95,043 2010 $’000 16,629 1,728 1,468 20,341 93,575 Parent 2011 $’000 - 1,728 - - - 2010 $’000 - 1,728 - - - 114,132 133,741 1,728 1,728 During the year ended 30 June 2011, management have determined that there is no impairment of any of the cash generating units containing goodwill (2010: 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: 52 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 12. GOODWILL CONTINUED Healthcare Australia and Healthcare NZ – Maintaining market share and gross margin being maintained during a period of high volatility in foreign currency during the assessment period. Logistics NZ and Pharmacy/Logistics NZ – Maintaining market share and controlling operational costs during the assessment period. Gross margins during the period for Healthcare Australia, Healthcare NZ, Logistics NZ and Pharmacy/Logistics NZ are estimated by management based on average gross margins achieved before the start of the assessment period. Market shares during the assessment period are assessed by management based on average market shares achieved in the period immediately before the start of the assessment period, adjusted each year for any anticipated growth. The value in use calculation uses cash ﬂ ow projections based on ﬁ nancial forecasts approved by management covering a ﬁ ve year period and management’s past experience. Annual growth rates of 0% to 5.1% (2010: 2% to 5%), which is below current historical growth rates; an allowance of 2% to 3% (2010: 2%) for inﬂ ation to expenses, and pre-tax discount rates of 12.5% to 14% (2010: 14.2% to 14.3%) have been applied to these projections. Cash ﬂ ows beyond the ﬁ ve year period have been extrapolated using a steady 2% (2010: 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. 13. INDEFINITE LIFE INTANGIBLES Group Group Natures Kiss Allersearch $’000 $’000 Group Group Liceblaster Trademarks $’000 $’000 Group Total $’000 Gross carrying amount Balance at 1 July, 2009 Net foreign currency exchange differences Balance at 30 June, 2010 Net foreign currency exchange differences 2,390 - 2,390 - 2,570 - 2,570 - 1,530 (16) 1,514 82 17,240 - 23,730 (16) 17,240 - 23,714 82 Balance at 30 June, 2011 2,390 2,570 1,596 17,240 23,796 Net book value As at 30 June, 2010 As at 30 June, 2011 2,390 2,570 1,514 17,240 23,714 2,390 2,570 1,596 17,240 23,796 Parent Parent Natures Kiss Allersearch $’000 $’000 Gross carrying amount Balance at 1 July, 2009 Balance at 30 June, 2010 2,390 2,570 2,390 2,570 Balance at 30 June, 2011 2,390 2,570 Net book value As at 30 June, 2010 As at 30 June, 2011 2,390 2,570 2,390 2,570 Parent Total $’000 4,960 4,960 4,960 4,960 4,960 13. INDEFINITE LIFE INTANGIBLES CONTINUED The carrying amount of brands (indeﬁ nite life intangibles) has been allocated to the cash generating units as follows: 53 Healthcare Australia Healthcare NZ (Parent) Pharmacy/Logistics NZ Group 2011 $’000 4,166 2,390 17,240 2010 $’000 4,084 2,390 17,240 23,796 23,714 Management have assessed these as having an indeﬁ nite 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 2011, management have determined that there is no impairment of any of the brands. The value in use calculation uses cash ﬂ ow projections based on ﬁ nancial forecasts approved by management covering a ﬁ ve year period and management’s past experience. The calculation of the recoverable amounts for Natures Kiss; Allersearch and Liceblaster brands and Pharmacy/ Logistics NZ Trademarks have been determined based on a value in use calculation that uses cash ﬂ ow projections based on ﬁ nancial forecast approved by management covering a ﬁ ve-year period. Management has determined that the recoverable amount calculations are most sensitive to change in the following assumptions. Annual growth rates of 0% to 5.8% (2010: 4% to 5%), and an allowance of 2% to 3% (2010: 2%) for inﬂ ation to expenses, and pre-tax discount rates of 12.4% to 14.1% (2010: 14.3% to 14.6%) have been applied to these projections. Cash ﬂ ows beyond the ﬁ ve-year period have been extrapolated using a steady 2% (2010: 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 of Supply Contracts Balance at beginning of ﬁ nancial year Accumulated amortisation & impairment Balance at beginning of ﬁ nancial year Amortisation expense Balance at end of ﬁ nancial year Net book value at end of ﬁ nancial year Allocated to cash generating units as follows: Group 2011 $’000 2010 $’000 1,490 1,490 (1,285) (173) (781) (504) (1,458) (1,285) 32 205 Pharmacy/Logistics NZ 32 205 54 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 15. SUBSIDIARIES Parent and Head Entity EBOS Group Limited Subsidiaries (all balance dates 30 June) EBOS Healthcare (Australia) Pty Limited (formerly EBOS Group Pty Limited) EBOS Group Pty Limited (formerly Vital Medical Supplies (Australia) Pty Limited) EBOS Health & Science Pty Limited EBOS Shelf Company New Zealand Limited (formerly Global Science & Technology Limited) EBOS Shelf Company Australia Pty Limited (formerly Quantum Scientiﬁ c Pty Limited) PRNZ Limited EBOS Limited Partnership Healthcare Distributors Pty Limited Country of Incorporation Australia Australia Australia New Zealand Australia New Zealand Australia Australia Ownership Interests and Voting Rights 2011 and 2010 100% 100% 100% 100% 100% 100% 100% 100% 16. BORROWINGS Current Finance lease liabilities (ii) Advances from Subsidiaries (at call) (iii) Non-current Bank loans (i) Finance lease liabilities (ii) Total borrowings Group 2011 $’000 2010 $’000 Parent 2011 $’000 2010 $’000 5 - 5 176 - - 54,464 20 12,842 176 54,464 12,862 57,177 6 59,017 18 28,000 - 28,000 - 57,183 59,035 28,000 28,000 57,188 59,211 82,464 40,862 (i) Bank term loans and revolving cash advance facilities operate under a negative pledge deed provided to ANZ National Bank Limited by the parent company and its subsidiaries. There have been no breaches of the banking covenants provided under the negative pledge deed. (ii) Secured by the assets leased. (iii) Unsecured. The fair value of non current borrowings is approximately equal to their carrying amount. 17. TRADE & OTHER PAYABLES Current Trade payables Other payables 244,621 235,159 13,696 14,509 5,609 3,217 4,672 3,107 Non-current Other payables 259,130 248,855 8,826 7,779 4,591 4,770 - - Total trade & other payables 263,721 253,625 8,826 7,779 55 18. LEASES Finance leases Minimum future lease payments Finance leases relate to ofﬁ ce 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 Present Value of Minimum Future Lease Payments Group 2011 $’000 2010 $’000 Parent 2011 $’000 2010 $’000 Group 2011 $’000 2010 $’000 Parent 2011 $’000 2010 $’000 Not later than 1 year Later than 1 year and not later than 5 years 7 6 184 21 Minimum lease payments* Less future ﬁ nance charges 13 (2) 205 (11) Present value of minimum lease payments 11 194 - - - - - 25 - 25 (5) 20 Included in the ﬁ nancial statements as: Finance leases - current portion Finance leases - non current portion 5 6 11 - 11 176 18 194 - 194 5 6 176 18 11 194 - - - - - - - - 20 - 20 - 20 20 - 20 * 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, with lease terms of between one to ten years with options to extend for a further one to ten years. 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 19. OTHER FINANCIAL LIABILITIES - DERIVATIVES At fair value: Foreign currency forward contracts (i) Interest rate swaps (ii) Group 2011 $’000 2010 $’000 Parent 2011 $’000 2010 $’000 5,266 13,661 5,451 6,788 13,371 2,744 691 3,143 3,665 844 376 - 24,378 22,903 7,499 1,220 Group 2011 $’000 2010 $’000 Parent 2011 $’000 2010 $’000 130 685 - 1,512 130 468 - 1,083 815 1,512 598 1,083 (i) Financial liability carried at fair value through proﬁ t or loss (“FVTPL”). (ii) Designated and effective as cashﬂ ow hedging instrument carried at fair value. 56 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 20. SHARE CAPITAL Fully paid ordinary shares Balance at beginning of ﬁ nancial period Issue of shares to executives and staff under employee share ownership scheme Bonus shares issued under Proﬁ t Distribution Plan - October 2009 - April 2010 - October 2010 Dividend reinvested - April 2011 2011 No.’000 2011 $’000 2010 No.’000 2010 $’000 50,796 106,000 48,981 105,861 50 174 46 139 - - 1,015 - - - 901 868 - 246 1,796 - - - - - 52,107 107,970 50,796 106,000 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 389,500 (2010: 339,650) shares have been issued raising $721,505 (2010: $547,030). 21. RESERVES Foreign currency translation reserve Balance at beginning of the year Translation of foreign operations Balance at end of the year Group 2011 $’000 2010 $’000 1,116 1,357 1,586 (470) 2,473 1,116 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. 57 21. RESERVES CONTINUED Retained Earnings Balance at beginning of the year Proﬁ t for the year Dividends provided for or paid (note 22) Group 2011 $’000 2010 $’000 Parent 2011 $’000 2010 $’000 76,738 31,579 (19,493) 56,555 23,437 (3,254) 22,191 9,129 (19,493) 14,810 10,635 (3,254) Balance at end of the year 88,824 76,738 11,827 22,191 Cash Flow Hedge Reserve Balance at beginning of the year Gain recognised on cash ﬂ ow hedges Related income tax (1,064) 855 (262) (1,963) 1,285 (386) (758) 615 (195) (1,364) 866 (260) Balance at end of the year (471) (1,064) (338) (758) The hedging reserve represents gains and losses recognised on the effective portion of cash ﬂ ow hedges. The cumulative deferred gain or loss on the hedge is recognised in proﬁ t or loss when the hedged transaction impacts proﬁ t or loss. 22. DIVIDENDS Recognised amounts Fully paid ordinary shares - Final - prior year - Special - current year - Interim - current year Unrecognised amounts Final dividend 2011 Cents per share 2011 Total $’000 2010 Cents per share 2010 Total $’000 17.5 20.0 13.5 2,136 10,362 6,995 14.5 - 13.5 1,853 - 1,401 51.0 19,493 28.0 3,254 18.0 9,379 17.5 2,136 A dividend of 18.0 cents per share was declared on 26 August 2011 with the dividend being paid on 7 October 2011. The cash impact of the dividend will be $9,379,000 (2010: $2,136,000) 58 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 23. DISPOSAL OF BUSINESSES On 1 September 2010, the Group disposed of its scientiﬁ c operations. Details of the disposal are as follows: Book value of net assets sold Current assets Trade and other receivables Prepayments Inventories Non-current assets Property, plant and equipment Goodwill Current liabilities Trade and other payables Employee beneﬁ ts Net assets disposed of Gain on disposal Consideration Consideration paid in cash and cash equivalents Net cash inﬂ ow on disposal Consideration paid in cash and cash equivalents Less cash and cash equivalent balances Group 2011 $’000 2010 $’000 Parent 2011 $’000 2010 $’000 6,493 114 10,017 1,255 20,410 (1,186) (753) 36,350 8,853 45,203 45,203 45,203 - 45,203 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 24. NOTES TO THE CASH FLOW STATEMENT (a) Businesses disposed Note 23 sets out details of the businesses disposed. Details of the disposals are as follows. Consideration Cash and cash equivalents Represented by: Book value of net assets sold (Note 23) Gain on disposal Consideration Net cash inﬂ ow on disposal Cash and cash equivalents consideration (b) Financing facilities Financing facilities Bank overdraft facility, reviewed annually and payable at call: Amount used Amount unused Bank loan facilities with various maturity dates through to August 2014 Amount used Amount unused 59 Group 2011 $’000 2010 $’000 Parent 2011 $’000 2010 $’000 45,203 45,203 36,350 8,853 45,203 45,203 45,203 - - - - - - - - - - - - - - - - - - - - - - 2,857 - 3,561 - 1,250 - 1,250 2,857 3,561 1,250 1,250 57,177 42,000 59,017 40,000 28,000 22,000 28,000 20,000 99,177 99,017 50,000 48,000 60 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 24. NOTES TO THE CASH FLOW STATEMENT CONTINUED Group 2011 $’000 2010 $’000 Parent 2011 $’000 2010 $’000 (c) Reconciliation of proﬁ t for the year with cash ﬂ ows from operating activities Proﬁ t for the year 31,579 23,437 9,129 10,635 Add/(less) non-cash items: Depreciation Loss on sale of property, plant and equipment (Gain) on disposal of businesses Write-off of investment in businesses disposed Amortisation of ﬁ nite life intangible assets Loss/(gain) on derivatives/ﬁ nancial 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 beneﬁ ts Foreign currency loss/(gain) on translation of working capital balances 3,300 34 (8,853) - 173 236 55 277 3,688 16 - - 504 (848) 2,391 214 425 - - 17,941 - 236 188 - 445 4 - - - (848) 1,646 - (4,778) 5,965 18,790 1,247 (4,896) 102 240 6,677 (2,742) 10,096 (809) 2,328 63 (701) (1,104) 2,003 9,232 909 (1,465) 102 172 (392) 696 1,047 (121) 1,712 63 (98) 1,145 (30) 403 728 919 (319) - - 9,587 12,411 39 3,923 Working capital items disposed of (Note 23) (14,685) - - - Net cash inﬂ ow from operating activities 21,703 41,813 27,958 15,805 25. EARNINGS PER SHARE CALCULATION Basic earnings per share (refer Income Statement and note 20) Basic earnings per share From continuing operations From discontinued operations Total basic earnings cents per share Earnings used in the calculation of total basic earnings per share Proﬁ t for the year from discontinued activities used in the calculation of basic earnings per share from discontinued operations Earnings used in the calculation of basic earnings per share from continuing operations Weighted average number of ordinary shares for the purposes of basic earnings per share Diluted earnings per share (refer Income Statement and Note 20) From continuing operations From discontinued operations Total diluted earnings cents per share Earnings used in the calculation of total diluted earnings per share Proﬁ t for the year from discontinued activities used in the calculation of diluted earnings per share from discontinued operations Earnings used in the calculation of diluted earnings per share from continuing operations Weighted average number of ordinary shares for the purposes of diluted earnings per share 26. COMMITMENTS FOR EXPENDITURE 61 Group 2011 cents 45.4 15.8 61.2 2010 cents 39.5 7.5 47.0 $’000 31,579 $’000 23,437 (8,179) (3,748) 23,400 19,689 51,585 49,841 cents 45.4 15.8 61.2 cents 39.5 7.5 47.0 $’000 31,579 $’000 23,437 (8,179) (3,748) 23,400 19,689 51,585 49,841 Group 2011 $’000 2010 $’000 Parent 2011 $’000 2010 $’000 (a) Capital expenditure commitments Property, Plant and Equipment - 975 - - (b) Lease commitments Finance lease liabilities and non-cancellable operating lease commitments are disclosed in note 18 to the ﬁ nancial statements. 62 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 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 2011 $’000 2010 $’000 Parent 2011 $’000 2010 $’000 6,872 6,338 599 154 - - 29,177 31,017 In June 2011 the Company renegotiated its bank facilities. Bank term loans and revolving cash advance facilities operate under a negative pledge deed provided to ANZ National Bank Limited by the Company and its subsidiaries. Previously 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. This amount disclosed also represents the maximum credit risk exposure to the Group and Parent. A subsidiary company (PRNZ Limited) is guarantor for certain loans made to pharmacies by the ANZ National Bank Limited amounting to $5,273,000 (2010: $5,184,000). The directors are of the opinion that provisions are not required in respect of these matters, as it is not probable that a future sacriﬁ ce of economic beneﬁ ts will be required or the amount is not capable of reliable measurement. A performance bond of up to $1,000,000 (2010: $1,000,000) is also held by the bank on behalf of a supplier. 28. SEGMENT INFORMATION a) Products and services from which reportable segments derive their revenues The Group’s reportable segments under NZ IFRS 8 are as follows: Healthcare: Incorporates the sale of healthcare products in a range of sectors, own brands, retail healthcare and wholesale activities. Scientiﬁ c: Incorporates the sale of laboratory consumables, life sciences equipment and technical support to industry and research laboratories. The Scientiﬁ c operations were discontinued on 1 September 2010. Information regarding the Group’s reportable segments is presented below. (b) Segment revenues and results Continuing operations Revenue from external customers Healthcare Segment result Healthcare Group 2011 $’000 2010 $’000 1,343,756 1,317,481 41,125 40,350 28. SEGMENT INFORMATION CONTINUED 63 Depreciation Amortisation of ﬁ nite life intangibles Finance costs Income tax expense Proﬁ t for the year Discontinued operations Revenue from external customers Scientiﬁ c Segment result Scientiﬁ c Depreciation Finance costs Income tax expense (Loss)/proﬁ t for the year Gain on sale of operations Group 2011 $’000 2010 $’000 (3,231) (173) (5,148) (9,173) (3,151) (504) (5,682) (11,324) 23,400 19,689 8,386 55,886 (893) 5,394 (69) - 288 (537) (20) (1,089) (674) 3,748 8,853 - 8,179 3,748 The accounting policies of the reportable segments are consistent with the Group’s accounting policies. Segment result represents proﬁ t before depreciation, amortisation, ﬁ nance costs and tax. This is the measure reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance. (c) Segment assets Healthcare Scientiﬁ c Group 2011 $’000 2010 $’000 538,319 478,953 39,390 - 538,319 518,343 For the purposes of monitoring segment performance and allocating resources between segments, the chief operating decision maker monitors the tangible, intangible and ﬁ nancial assets attributable to each segment. Prior to the disposal of the scientiﬁ c division assets were allocated to reportable segments. Assets used jointly by reportable segments are allocated on the basis of revenues earned by individual reportable segments. (d) Revenues from major products and services The Group’s major products and services are the same as the reportable segments i.e. healthcare and scientiﬁ c. Revenues are reported above under (b) Segment revenues and results. 64 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 28. SEGMENT INFORMATION CONTINUED (e) Geographical information The Group operates in two principal geographical areas; New Zealand (country of domicile) and Australia. The Group’s revenue from external customers by geographical location (of the reportable segment) and information about its segment assets (non-current assets) excluding ﬁ nancial instruments and deferred tax assets are detailed below: Continuing and discontinued operations Revenue from external customers New Zealand Australia Non-current assets New Zealand Australia Group 2011 $’000 2010 $’000 1,215,417 1,200,974 172,393 136,725 1,352,142 1,373,367 135,625 20,156 148,702 27,952 155,781 176,654 (f) Information about major customers No revenues from transactions with a single customer amount to 10% or more of the Group’s revenues (June 2010: Nil). 65 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 ﬁ nancial statements. (c) Transactions with Related Parties Transactions involving the parent entity Amounts receivable from and payable to related parties at balance date are: PRNZ Limited EBOS Group Pty Limited EBOS Shelf Company New Zealand Limited Healthcare Distributors Limited EBOS Health and Science Pty Limited 2011 $’000 2010 $’000 (12,315) (12,846) (29,303) 348 1,190 3,039 (7,870) (4,972) 348 1,261 During the ﬁ nancial year, EBOS Group Limited received dividends of $23,305,000 (2010: $12,935,000) from its subsidiaries. During the ﬁ nancial year, EBOS Group Limited provided accounting and administration services to its subsidiaries for a consideration of $456,000 (2010: $483,000) and charged royalties for the use of intellectual property, brand names and patents totalling $3,960,000 (2010: $370,000). During the ﬁ nancial year, EBOS Group Limited rented warehouse space and contracted labour from its subsidiaries for a total cost of $94,000 (2010: $154,000). 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 0% - 6.45% (2010: 5.0% - 6.2%). During the ﬁ nancial year, EBOS Group Limited received interest of $233,000 (2010: $203,000) from loans to subsidiaries, and paid interest of $606,000 (2010: $444,000) to subsidiaries. No amounts were provided for doubtful debts relating to debts due from related parties at reporting date (2010: 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 ﬁ nancial statements. 66 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30. FINANCIAL INSTRUMENTS (a) Financial risk management objectives (c) Foreign currency risk management The Group’s corporate treasury function provides services to the Groups entities, co-ordinates access to domestic and international ﬁ nancial markets, and manages the ﬁ nancial risks relating to the operation of the Group. The Group does not enter into or trade ﬁ nancial instruments, including derivative ﬁ nancial instruments, for speculative purposes. The use of ﬁ nancial derivatives is governed by the Group’s policies approved by the Board of Directors, which provide written principles on the use of ﬁ nancial 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 ﬁ nancial risks of changes in foreign currency exchange rates and interest rates. The Group enters into a variety of derivative ﬁ nancial 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. The Group undertakes certain transactions denominated in foreign currencies, hence exposures to exchange rate ﬂ uctuations 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 speciﬁ c 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. The fair value of forward exchange contracts is derived using inputs supplied by third parties that are observable either directly (i.e. prices) or indirectly (i.e. derived from prices). Therefore the Group has categorised these derivatives as Level 2 under the fair value hierarchy contained within the amendment to NZ IFRS 7. Outstanding Contracts Buy Australian Dollars Less than 3 months Buy Euro Less than 3 months Buy Pounds Less than 3 months Buy US Dollars Less than 3 months Buy Japanese Yen Less than 3 months Average exchange rate Foreign currency Contract value Fair vlaue 2011 2010 2011 FC’000 2010 FC’000 2011 $’000 2010 $’000 2011 $’000 2010 $’000 0.765 - 800 - 1,045 - (14) - 0.544 0.551 200 725 367 1,315 (8) (15) 0.490 0.476 535 510 1,091 1,070 (46) 0.794 0.699 1,400 1,400 1,763 2,002 (62) 46 49 65.481 - 20,000 - 305 - 25 4,266 4,692 (130) 105 The above ﬁ nancial instruments relate to the Group and Parent entity. The fair value of forward foreign exchange contracts outstanding are recognised as other ﬁ nancial 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 ﬁ xed and ﬂ oating interest rates. The risk is managed by maintaining an appropriate mix between ﬁ xed and ﬂ oating 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 ﬁ xed and ﬂ oating 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. 67 30. FINANCIAL INSTRUMENTS CONTINUED Outstanding Contracts Outstanding variable rate for ﬁ xed contracts Less than 1 year 1 to 3 years Outstanding Contracts Outstanding variable rate for ﬁ xed contracts Less than 1 year 1 to 3 years The fair value of interest rate swaps outstanding are recognised as other ﬁ nancial assets/liabilities. Hedge accounting has been adopted. The fair value of interest rate swaps is derived using inputs supplied by third parties that are observable either directly (i.e. prices) or indirectly (i.e. derived from prices). Therefore the Group has categorised these derivatives as Level 2 under the fair value hierarchy contained within the amendment to NZ IFRS 7. Group Average contracted ﬁ xed interest rate Notional principal amount Fair Value 2011 % 2010 % 2011 $’000 2010 $’000 2011 $’000 2010 $’000 7.47 5.13 7.97 22,257 29,222 2,500 25,885 7.11 (616) (69) (634) (878) 24,757 55,107 (685) (1,512) Parent Average contracted ﬁ xed interest rate Notional principal amount Fair value 2011 % 2010 % 2011 $’000 2010 $’000 2011 $’000 2010 $’000 7.39 - 8.22 15,000 20,000 - 15,000 7.39 (468) - (452) (631) 15,000 35,000 (468) (1,083) (e) Liquidity The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve banking facilities by continuously monitoring forecast and actual cashﬂ ows and matching maturity proﬁ les of ﬁ nancial assets and liabilities. The following tables detail the Group’s remaining contractual maturity for its ﬁ nancial assets and ﬁ nancial liabilities. The tables have been drawn up based on the undiscounted cash ﬂ ows of the ﬁ nancial assets and liabilities. The tables include both interest and principal cash ﬂ ows. 68 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30. FINANCIAL INSTRUMENTS CONTINUED Weighted average effective interest rate % On Demand $’000 Less 1 year $’000 1-2 years $’000 2-3 years $’000 3-4 years $’000 4-5 years $’000 5+ years $’000 Total $’000 Maturity Dates Group - 2011 Financial assets: Cash and cash equivalents Trade and other receivables 2.5 99,678 - 152,797 252,475 - - - - - - - - - - - - - - - - 99,678 - 152,797 - 252,475 Financial liabilities: Trade and other payables Finance leases Bank loans Other ﬁ nancial liabilities - 258,951 - - - 14.6 4.2 - 535 7 2,401 815 536 6 2,401 - 536 - 536 - 2,401 57,177 - - 536 5,357 266,987 - 13 - 64,380 815 - - - - Group - 2010 Financial assets: Cash and cash equivalents Trade and other receivables Other ﬁ nancial assets Finance leases Financial liabilities: Trade and other payables Finance leases Bank loans Other ﬁ nancial liabilities 258,951 3,758 2,943 2,937 57,713 536 5,357 332,195 2.1 56,484 - 148,178 - - - 9.0 - - 105 112 204,662 217 - - - - - - - - - - - - - - - - - - - - - 56,484 - 148,178 105 - 112 - - 204,879 - 248,693 - - - 9.1 4.2 - 531 184 536 21 2,479 59,430 - 1,512 536 - - - 536 - - - 536 5,892 257,260 - 205 - 61,909 1,512 - - - - 248,693 4,706 59,987 536 536 536 5,892 320,886 30. FINANCIAL INSTRUMENTS CONTINUED Weighted average effective interest rate % On Demand $’000 Less 1 year $’000 1-2 years $’000 2-3 years $’000 3-4 years $’000 4-5 years $’000 5+ years $’000 Total $’000 Maturity Dates 69 Parent - 2011 Financial assets: Cash and cash equivalents Trade and other receivables Advances to subsidiaries 2.5 73,130 - 10,183 - 5.0 - - 1,615 83,313 1,615 - - - - - - - - - - - - Financial liabilities: Trade and other payables Bank loans Other ﬁ nancial liabilities Advances from subsidiaries - 3.3 - 3.3 - 8,826 921 - - 598 - 56,241 - 921 - - - - 921 28,154 - - - - Parent - 2010 Financial assets: Cash and cash equivalents Trade and other receivables Other ﬁ nancial assets Advances to subsidiaries Finance leases Financial liabilities: Trade and other payables Finance leases Bank loans Other ﬁ nancial liabilities Advances from subsidiaries 8,826 57,760 921 921 28,154 2.1 18,175 8,718 - - - - - 5.9 9.0 - - 105 4,924 112 26,893 5,141 - - - - - - - 9.1 3.6 - 5.5 - 25 - 7,779 - - 1,008 28,168 - - - 1,083 - - 13,548 7,779 15,664 28,168 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 73,130 - 10,183 1,615 - - 84,928 - 8,826 - 30,917 - 598 - 56,241 - 96,582 - 18,175 8,718 - 105 - 4,924 - 112 - - 32,034 7,779 - - 25 - 29,176 - 1,083 - 13,548 - 51,611 In June 2011 the Group secured banking facilities for the three years to August 2014. The Group maintains the following lines of credit: $2.9 million (2010: $3.5 million) overdraft facility. Interest is payable at the base rate plus speciﬁ ed margin. A loan facility of $99 million (2010: $99 million) of which $99 million (2010: $99 million) is over 3 years. (f) Sensitivity Analysis (i) Interest Rate Sensitivity Analysis The sensitivity analysis which follows has been determined based on the exposure to interest rates for ﬁ nancial instruments at the balance date. The analysis is prepared assuming the amount of the ﬁ nancial instrument outstanding at the balance sheet date was outstanding for the whole year. The impact on Proﬁ t for the Period and Total Equity as a result of a 100 basis point movement in interest rates is as follows: 70 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30. FINANCIAL INSTRUMENTS CONTINUED + 100 basis point shift up in yield curve Impact on Proﬁ t Impact on Total Equity - 100 basis point shift down in yield curve Impact on Proﬁ t Impact on Total Equity Group 2011 $’000 2010 $’000 Parent 2011 $’000 - 150 - 421 - 89 2010 $’000 - 262 - (151) - (429) - (90) - (267) (ii) Foreign Currency Sensitivity Analysis 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 contracts and adjusts their translation at the year end for a 10% change in foreign currency rates. A positive number below indicates an increase in proﬁ t and equity where the functional currency weakens 10% against the relevant currency. For a 10% strengthening against the relevant currency there would be an equal and opposite impact on the proﬁ t and equity. + 10% shift in NZD rate Impact on Proﬁ t for the Year Impact on Total Equity - 10% shift in NZD rate Impact on Proﬁ t for the Year Impact on Total Equity Group 2011 $’000 2010 $’000 Parent 2011 $’000 2010 $’000 (373) (373) (436) (436) (373) (373) (436) (436) 456 456 533 533 456 456 533 533 In management’s opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk as the year end exposure does not reﬂ ect the exposure during the year. (g) Credit Risk Management Credit risk refers to the risk that a counter party will default on its contractual obligations resulting in ﬁ nancial loss to the group. The group has adopted a policy of only dealing with credit worthy counter parties and obtaining sufﬁ cient collateral where appropriate, as a means of mitigating the risk of ﬁ nancial 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 ﬁ nancial condition of the trade receivables. The carrying amount of ﬁ nancial assets recorded in the ﬁ nancial 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 maximum credit risk associated with guarantees provided by the Group and Parent are disclosed in note 27. The Group does not have any signiﬁ cant 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 ﬁ nancial instruments is limited because the counter parties are banks with high credit ratings assigned by international credit rating agencies. 71 30. FINANCIAL INSTRUMENTS CONTINUED (h) Fair value of ﬁ nancial instruments The Directors consider that the carrying amount of ﬁ nancial assets and ﬁ nancial liabilities recorded in the ﬁ nancial statements approximates their fair values. The fair values and net fair values of ﬁ nancial assets and ﬁ nancial liabilities are determined as follows: • the fair value of ﬁ nancial assets and ﬁ nancial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices; • the fair value of other ﬁ nancial assets and ﬁ nancial liabilities are determined in accordance with generally accepted pricing models based on discounted cash ﬂ ow analysis; and • the fair value of derivative instruments are calculated using quoted prices. Where such prices are not available use is made of discounted cash ﬂ ow 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 ﬂ ows and matching the maturity proﬁ les of ﬁ nancial 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 2010. 31. DISCONTINUED OPERATIONS On 1 September 2010 the Group’s Scientiﬁ c businesses were disposed of. The disposal of the Scientiﬁ c businesses is consistent with the Group’s long-term policy to focus its activities in the healthcare market. Details of the assets and liabilities disposed of are disclosed in note 23. The results of the discontinued operations included in the income statement and statement of comprehensive income are set out below. Comparative proﬁ t and cash ﬂ ows from discontinued operations have been re-presented. Revenue Revenue from the sale of goods Revenue from the rendering of services Interest revenue Other revenue (Loss)/proﬁ t before income tax expense Proﬁ t before income tax expense has been arrived at after (charging) the following gains and losses from operations: Gain on sale of property, plant and equipment Group 2011 $’000 (2 months) 2010 $’000 7,814 569 3 - 53,170 2,678 7 31 8,386 55,886 - (19) 72 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 31. DISCONTINUED OPERATIONS CONTINUED (Loss)/proﬁ t before income tax has been arrived at after (charging) the following expenses by nature: Cost of sales Write-down of inventory Finance costs: Bank interest Other interest expense Total ﬁ nance costs Net bad and doubtful debts arising from: Impairment loss on trade & other receivables Depreciation of property, plant and equipment Operating lease rental expenses: Minimum lease payments Donations Employee beneﬁ t expense Other expenses Total expenses (Loss)/proﬁ t before income tax expense Income tax credit/(expense) 3 Gain on disposal of operations Proﬁ t for the year from discontinued operations Cash ﬂ ows from discontinued activities Net cash ﬂ ows from operating activities Net cash ﬂ ows from investing activities Net cash ﬂ ows from ﬁ nancing activities Net cash ﬂ ows 32. EVENTS AFTER BALANCE DATE Subsequent to year end the Board have approved a ﬁ nal dividend to shareholders. For further details please refer to Note 22. 2011 $’000 (2 months) Group 2010 $’000 Notes (5,190) (251) (32,734) (382) - - - - (69) (267) - (2,476) (1,095) (9,348) (962) 288 (674) 8,853 8,179 3,017 43,864 - 46,881 (2) (18) (20) (2) (537) (1,611) (6) (10,342) (5,396) (51,030) 4,837 (1,089) 3,748 - 3,748 6,611 (44) - 6,567 ADDITIONAL STOCK EXCHANGE INFORMATION As at 29 July 2011 Twenty Largest Shareholders Python Portfolios Ltd Accident Compensation Corporation Whyte Adder No.3 Ltd Forsyth Barr Custodians Limited <1-33> Custodial Services Limited Herpa Properties Limited Forsyth Barr Custodians Limited <1-17.5> Superlife Trustee Nominees Limited Forsyth Barr Custodians Limited <1-30> Citibank Nominees (New Zealand) Limited New Zealand Superannuation Fund Nominees Limited P M Merton & CWM Trustee Company Ltd New Zealand Permanent Trustees Limited Elite Investment Holdings Limited Custodial Services Limited M.B Waller & A.L Waller Custodial Services Limited P Gardiner-Garden Hubbard Churcher Trust Management Limited New Zealand Depository Nominee Limited Substantial Security Holders 73 Fully paid shares Percentage of paid capital 5,307,571 4,294,221 3,754,868 1,372,904 1,137,858 710,106 639,671 630,168 573,301 567,829 561,495 521,277 505,741 500,000 484,466 424,703 414,490 385,589 350,000 327,392 10.19% 8.24% 7.21% 2.64% 2.18% 1.36% 1.23% 1.21% 1.10% 1.09% 1.08% 1.00% 0.97% 0.96% 0.93% 0.81% 0.79% 0.74% 0.67% 0.63% 23,463,650 45.03% As at 29 July 2011 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 Distribution of Shareholders and Shareholdings 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 Holders 1,071 2,333 777 577 34 31 9 5 5,307,571 4,464,974 4,294,221 14,066,766 412,796 5,817,891 5,326,574 10,651,932 2,184,405 6,636,879 5,209,588 15,867,422 10.19% 8.57% 8.24% 27.00% 0.78% 11.17% 10.22% 20.44% 4.19% 12.74% 10.00% 30.46% Total 4,837 52,107,487 100.00% Registered Address of Shareholders New Zealand Overseas Total 4,614 223 4,837 50,261,239 1,846,248 96.47% 3.53% 52,107,487 100.00% 74 Directory CORPORATE HEAD OFFICE 108 Wrights Road PO Box 411 Christchurch New Zealand Phone: +64 3 338 0999 Fax: +64 3 339 5111 www.ebos.co.nz Chairman Chief Executive and Managing Director DIRECTORS Rick Christie Mark Waller Elizabeth Coutts Peter Kraus Peter Merton Sarah Ottrey Mark Stewart Barry Wallace EXECUTIVES Chief Executive Mark Waller Michael Broome General Manager – Healthcare Logistics Angus Cooper General Manager – Special Projects Dennis Doherty Chief Financial Offi cer Kelvin Hyland General Manager – Healthcare NZ David Lewis Greg Managh General Manager – Health Support Tony Norris General Manager – EBOS Group Pty Ltd General Manager – ProPharma Auditor Deloitte Christchurch Bankers ANZ National Bank Limited Auckland Solicitor Chapman Tripp Christchurch Share Registrar Computershare Investor Services Ltd Private Bag 92119 Auckland 1142 159 Hurstmere Road Takapuna, North Shore City 0622 New Zealand Managing Your Shareholding Online: To change your address, update your payment instructions and to view your investment portfolio including transactions, please visit: www.computershare.co.nz/investorcentre ProPharma PO Box 62–027 Mt Wellington Auckland New Zealand Phone: +64 9 570 1080 Fax: +64 9 915 9581 Email: info@propharma.co.nz Pharmacy Wholesaler Russells PO Box 71 149 Rosebank 1348 Avondale 1026 Auckland New Zealand Phone: +64 9 968 6750 Fax: +64 9 968 6754 Healthcare Logistics 58 Richard Pearse Drive Mangere Auckland New Zealand Phone: +64 9 918 5100 Fax: +64 9 918 5101 TRADING ENTITIES EBOS Healthcare - New Zealand 243-249 Bush Road Albany PO Box 302-161 North Harbour Postal Center Auckland New Zealand Phone: +64 9 415 3267 Fax: +64 9 415 4004 Email: ebos@ebos.co.nz EBOS Healthcare - Australia Unit 2, 109 Vanessa Street PO Box 100 Kingsgrove, NSW 2208 Australia Phone: +61 2 9502 8410 Fax: +61 2 9502 8411 Email: ebos@ebosgroup.com.au Vital Medical PO Box 100 Kingsgrove 1480 Australia Phone: +61 1300 557 651 Fax: +61 1300 557 631 Health Support 56 Carrington Road PO Box 44027 Pt Chevalier Auckland New Zealand Phone: +64 9 815 2600 Fax: +64 9 815 1911 sales@healthsupport.co.nz One of the leading independent distributors of healthcare products in New Zealand, Australia and the Paciﬁ c Islands. ebos@ebos.co.nz Annual Report 2011

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