MEETING THE dEMaNd. EBOS GROUP LIMITED annUaL REPORT 2013 EvEryday HEalTHcarE for HuMaNs aNd pETs Is a sIzEablE and rapIdly rapIdly EvolvING INdusTry. rEspoNdING to the INdusTry’s NEEds takes place on dEMaNd, oFTEN wITH vEry dIFFErENT needs, IN vEry dIFFErENT channels, workING To vEry dIFFErENT definitions oF IT INvolvEs multiple parTIEs across HuGE dIsTaNcEs. succEss. wE ForM the vITal link bETwEEN HEalTH producT MaNuFacTurErs and the FroNTlINE. our spEcIFIc capabIlITIEs IN pHarMacEuTIcal wHolEsalING, MEdIcal coNsuMablEs dIsTrIbuTIoN, THIrd parTy loGIsTIcs, salEs and MarkETING oF aNIMal carE, MEdIcal aNd ovEr THE couNTEr producTs arE uNrIvallEd. our rEvENuEs across ausTralasIa are on wE kNow How To MakE THE MosT oF EvEry health dollar wE arE rEspoNsIblE For. Track To ExcEEd 6bIllIoN. ExpaNdING ovEr THE lasT 12 years, Ebos Has successfully acquIrEd 19 busINEssEs To bEcoME THE clEar market leader IN NEw zEalaNd. THIs yEar, wITH THE acquIsITIoN oF lEadING ausTralIaN pHarMacEuTIcal wHolEsalEr aNd dIsTrIbuTor Symbion, wE HavE bEcoME THE larGEsT diversified ausTralasIaN MarkETEr, wHolEsalEr aNd dIsTrIbuTor oF HEalTHcarE, MEdIcal and pHarMacEuTIcal producTs, and a lEadING ausTralasIaN aNIMal carE producTs dIsTrIbuTor: #1 #1 #2 #1 #1 or IN coMbINEd pHarMacy and HospITal pHarMacEuTIcal wHolEsalE aNd dIsTrIbuTIoN in ausTralIa aNd NEw zEalaNd pHarMacy wHolEsalEr in NEw zEalaNd pHarMacy wHolEsalEr in ausTralIa IN HospITal pHarMacEuTIcal dIsTrIbuTIoN in NEw zEalaNd IN HospITal pHarMacEuTIcal dIsTrIbuTIoN in ausTralIa IN prE-wHolEsalE/3pl (third party logistics) IN NEw zEalaNd coMprEHENsIvE rETaIl and wHolEsalE dIsTrIbuTIoN NETwork IN THE aNIMal carE MarkET, wITH our owN pET carE braNds aNd 22 spEcIalTy rETaIl ouTlETs THrouGH our aNIMaTEs joINT vENTurE in NEw zEalaNd. HErE’s How wE GoT HErE: 2000 Ebos acquires Medic Corporation, a wEllINGToN basEd salEs & MarkETING orGaNIsaTIoN spEcIalIsING IN rEprEsENTING MEdIcal, coNsuMEr, dENTal & scIENTIFIc braNds. THIs acquIsITIoN TraNsForMs Ebos INTo THE larGEsT INdEpENdENT HEalTHcarE supply coMpaNy IN NEw zEalaNd. 2004 Acquisition of Vernon Carus, a spEcIalIsEd INFEcTIoN prEvENTIoN provIdEr IN publIc/prIvaTE HospITals aNd aGEd carE FacIlITIEs THrouGHouT ausTralIa. 1922 coMpaNy was FouNdEd as Early Brothers Trading Co. Ltd. 1986 coMpaNy NaME bEcoMEs EBOS Group Ltd. 1960 coMpaNy Is listed oN THE NEw zEalaNd sTock ExcHaNGE. 1996 Ebos acquIrEs THE larGEsT prIvaTE MEdIcal wHolEsalEr IN Nsw – Richard Thompson & Co. THIs acquIsITIoN Marks THE ENTry oF Ebos as a MaINsTrEaM MEdIcal supplIEr IN THE ausTralIaN MarkET. 2002 Ebos acquires the Nature’s Kiss business INcludING THE ‘HEro’ rETaIl braNd aNTIFlaMME. Ebos coMplETEs THE acquisition of Health Support Ltd (Now callEd oNElINk) FroM THE GovErNMENT. THIs busINEss provIdEs spEcIalIsEd loGIsTIcs oF MEdIcal coNsuMablEs aNd pHarMacEuTIcals For a NuMbEr oF NEw zEalaNd’s dHbs. 2006 Ebos acquires the leading NSW based Australian medical wholesaler Vital Medical Supplies, as wEll as THE lEadING TasMaNIaN MEdIcal wHolEsalEr TasMEd pTy lTd. THEsE acquIsITIoNs TraNsForM Ebos INTo THE lEadING ausTralIaN MEdIcal wHolEsalEr IN THE prIMary carE MarkET (GENEral pracTITIoNErs). Ebos aTTaINs aN Nzx Top50 lIsTING. 2008 Ebos Group revenues exceed $1b for the first time. 2011 Ebos acquires Masterpet Corporation, a succEssFul aNIMal HEalTHcarE busINEss IN NEw zEalaNd aNd ausTralIa aNd vIa owNErsHIp, 50% oF THE aNIMaTEs rETaIl pET sTorE Group. ExpaNdING INTo aNIMal carE provIdEs Ebos EarNINGs dIvErsITy, HIGHEr MarGINs aNd a lEss rEGulaTEd ENvIroNMENT. 2005 Ebos acquires the scientific business Global Science IN NEw zEalaNd aNd Quantum Scientific IN ausTralIa IN ordEr To ExpaNd our ExIsTING MEdIc scIENTIFIc busINEss. 2010 Ebos dIvEsTs ITs porTFolIo oF scIENTIFIc busINEssEs IN NEw zEalaNd & ausTralIa To THE NuMbEr Two Global scIENTIFIc supply coMpaNy basEd IN THE usa. 2007 Ebos acquires the New Zealand pharmaceutical wholesaler Propharma and pre-wholesale third party logistics provider Healthcare Logistics from the Zuellig Group. Ebos Is Now THE larGEsT pHarMacEuTIcal wHolEsalEr IN NEw zEalaNd aNd NuMbEr oNE or Two prE – wHolEsalE (THIrd parTy loGIsTIcs) provIdEr IN NEw zEalaNd. Ebos acquires Crown Scientific To FurTHEr ExpaNd our ausTralIaN prEsENcE IN THIs MarkET. Ebos bEcoMEs THE clEar NuMbEr Two supplIEr IN THE coMbINEd ausTralIaN aNd NEw zEalaNd scIENTIFIc supply MarkET. 2013 Ebos acquires Symbion, THE lEadING pHarMacEuTIcal wHolEsalEr IN THE coMbINEd pHarMacy aNd HospITal MarkETs IN ausTralIa aNd vIa owNErsHIp, lyppard, THE NuMbEr Two vETErINary wHolEsalEr IN ausTralIa. THE syMbIoN acquIsITIoN TraNsForMs Ebos INTo THE larGEsT aNd MosT dIvErsIFIEd ausTralasIaN MarkETEr, wHolEsalEr aNd dIsTrIbuTor oF HEalTHcarE, MEdIcal aNd pHarMacEuTIcal producTs, by rEvENuE, aNd a lEadING ausTralasIaN aNIMal carE producTs MarkETEr & dIsTrIbuTor. wHaT wE oFFEr Now our INcrEasEd scale ENHaNcEs our abIlITy To provIdE THE crITIcal INFrasTrucTurE rEquIrEd by HEalTHcarE aNd aNIMal carE cusToMErs aNd supplIErs IN THE expanding ausTralIaN aNd NEw zEalaNd MarkETs: HeaLtHcaRe aniMaL caRe Manufacturer services Logistics and distribution Pharm. & hospital wholesaling Sales and marketing Retail brands and services Veterinary/ pet products Product management solutions to pharmaceutical companies. Clinical trial logistics and depot services. Third party distribution and logistics solutions. Distribution systems, customer services, accounting, IT systems and electronic ordering of products on behalf of pharmaceutical and healthcare suppliers and manufacturers. Specialist wholesaler and distributor of ethical, OTC, medical and consumer products to pharmacies and public and private hospitals. Sales and marketing of a wide range of healthcare products across consumer, primary care, hospital, aged care and international markets. Retail pharmacy brand ownership, sales of branded product and operation of pharmacy support and management systems. Sales and marketing, veterinary wholesaler, distributor and retailer of animal healthcare products, pet accessories and premium foods across Australasia. BUY BETTER. SELL MORE. managing Director’s review exciting times aheaD. BolDness, tempereD with patience and resilience highlight what eBos stanDs for. I commented at last year’s Annual General Meeting that our goal was to become a “$1 billion market capitalisation business in five years”. We were confident that this was a realistic aspiration. One year on, our market capitalisation sits at circa $1.4 billion and we are now truly a leading Trans Tasman business in our core operations. This does not imply we can now relax because we have reached our target early; it demonstrates the potential for this business if it remains dynamic and open to the right opportunities – big or small. Our track record of delivering outstanding returns is founded on growth underpinned by a fundamental determination to be either number one or two in the market segments that we operate in. All growth must offer benefits to our customers, suppliers and shareholders to be sustainable. Expansion into Australia has been a key focus for some time as the target for our next phase of substantial growth. The Symbion acquisition transformed us overnight into the largest and most diversified Australasian marketer, wholesaler and distributor of healthcare, medical and pharmaceutical products by revenue and a leading Australasian animal care products marketer and distributor. The Symbion acquisition is a ‘game changer’ and an excellent fit for us in terms of scale, opportunities and match with our existing businesses. With Symbion we are the number one pharmacy wholesaler in Australasia, the number one in hospital pharmaceutical distribution in Australasia and a leading third party logistic pre-wholesaling business in New Zealand. The Symbion acquisition provides us with the perfect platform from which to drive further revenue gains. Operationally we have a greater range of capabilities to take advantage of new and existing opportunities in the growing healthcare and animal care markets in both countries. 12 — 13 Ebos Group Limited — Annual Report 2013 mark Waller chief executive anD managing Director eBos staff customers EBOS have a combined staff roll of over two thousand employees across Australasia. As the demand grows in these sectors, we have grown to include a combined customer base of 30,387. 2,242 84.5% healthcare 15.5% animal care 19,605 australia 10,782 new Zealand 64.5% australia 35.5% new Zealand 85.9% healthcare 14.1% animal care Another important prospect that I wish to highlight as potentially very significant occurred in June 2013. We were advised by the Crown owned company Health Benefits Ltd (HBL) that we were chosen as the “preferred respondent” to streamline the distribution of medical supplies across the national public hospital network (DHBs) and similarly distribute pharmaceuticals to certain public hospitals. This highlights our specialised logistics ability which is a core competency of our businesses and demonstrates that we can win against global players in this area. This is an exciting opportunity and a big tick of approval from the Government. A successful conclusion to the HBL contract would allow us to draw on Symbion’s ‘best in class’ technology platform and replicate that here in NZ. Our goal this year is to leverage the scale and expertise we have across both the New Zealand and Australian markets. We see considerable scope to use our expertise to expand both Symbion’s third party logistics business in Australia and to extend into medical consumable operations to complement its existing pharmaceutical business. We also want to expand into veterinary wholesaling in New Zealand and to utilise our combined Australasian resources to significantly enhance the market positions of both Masterpet and Lyppard. Our acquisition of Masterpet in 2011 for $105 million was our largest acquisition before Symbion. It has performed very well for us and now sits perfectly alongside Lyppard. Expanding the animal care part of our business will provide earnings diversity into a higher growth, higher margin industry that is less regulated than our government funded healthcare businesses. When it comes to buying businesses we have a strong track record of success. We have made 19 acquisitions in the past 12 years, growing revenue from $80.8 million to more than $6 billion. 14 — 15 Ebos Group Limited — Annual Report 2013 efficiently processing orDers proDuct sku’s Electronic ordering throughout our network annually is now three quarters of all orders processed adding significant value and efficiency, minimising waste in distribution costs for all our customers and suppliers. We have a significant range of products serving both the healthcare and animal care sectors. 150 125 100 75 50 25 00 77% electronic 23% manual 124,000 20,000 e r a c h t l a e h e r a c l a m n a i 144,000 sku’s 69.7% new Zealand 30.3% australia 5.4 million orders processed Scale is important to us but that doesn’t mean the next purchase must be bigger than the last. We only buy good companies at attractive acquisition multiples that add to our core competencies in healthcare and animal care. We also have a core philosophy when buying a company of doing no harm to the business. So we buy companies that we like both in terms of what they do and the people that run them. EBOS itself has a tiny corporate team and relies on achieving operational excellence within our decentralised businesses. As a company we have built significant expertise in areas such as finance, marketing, sales and logistics – whatever the target business may do, we can assemble a highly effective team to analyse the opportunity and leverage gains post settlement. Cross pollination of ideas and sharing expertise is a “way of life” for our group businesses. Strategically we look for global trends and analyse their local impact and position our business to capitalise on this before they happen. As markets shift, so do we. We will not be standing still, be that seeking organic growth within our existing businesses, driving efficiencies and looking at further acquisition opportunities as long as they meet our exacting criteria. In doing this we will strive to ensure that our shareholders continue to get the returns that you have become accustomed to receiving. Healthcare and Animal care are key sectors of the economy and as such provide a wealth of future opportunity. mark waller Chief Executive and Managing Director chairman’s report strong results. the 2013 financial year was momentous for eBos. We successfully completed the largest transaction in the history of the company and did so in a manner generating significant shareholder value. I said at the time of the purchase that we only buy good companies. This is not just a good company, it is a great company, with great management. Certainly given the positive market reaction to this acquisition, we are not alone in thinking this. Growth – be it through acquisition or internal expansion and efficiencies – is not an end goal in itself. The key is to always target being the leader or number two in all the key market segments in which we operate. That is the underlying philosophy that drives EBOS and will continue to do so in the future. The result is consistent exemplary returns for our shareholders; over the past 10 years we have provided investors with compounding returns of 19% per annum. The Symbion transaction is important to us for a number of reasons. Our increased size means that we now have the scale to invest in the infrastructure that will create further efficiencies for our manufacturing and pharmaceutical partners, while maintaining or creating market leading positions for our business units. The transaction also expands our shareholder base, resulting in greater share liquidity, an improved NZX 50 position and increased broker coverage. We have also stated that it is our intention to seek a dual listing of EBOS on the ASX by the end of this calendar year, 2013. capital raising The compelling metrics of the Symbion transaction were endorsed by new and existing shareholders who supported the placement of new shares and participated in the entitlement offer. New and existing shareholders contributed $239 million towards the $1.1 billion purchase price. The balance comprised new and replacement financing facilities totalling $370 million and the issue of $498 million in new shares to Sybos Holdings Pte Limited (Zuellig Group) which now holds 40 per cent of the total shares on issue. It is certainly a pleasure to have Zuellig as a new cornerstone investor in EBOS, given its relevant international expertise in healthcare and pharmaceuticals. 16 — 17 Ebos Group Limited — Annual Report 2013 rick Christie chairman It’s also a big vote of confidence in EBOS in terms of the direction in which we are heading. Moreover, our ability to satisfy much of the purchase price for Symbion through the issue of new shares means that we have retained considerable financial flexibility on our balance sheet. Balance sheet At balance date the Company remained conservatively geared with net debt of $173.5 million representing 36.3% of net debt plus equity. Mainly as a result of the Symbion transaction, total assets increased by $1.874 billion to $2.532 billion at year end. Board I am pleased to welcome Stuart McGregor and Peter Williams to the Board. Stuart and Peter were nominated by Zuellig Group and elected as non-executive Directors at the Special General Meeting in June 2013. Both will add to the expertise of the Board as it works with management to refine the strategic positioning of the Company. The Board now comprises eight Directors which is appropriate for a company with a market capitalisation of greater than $1 billion. management Much of the credit for the growth of EBOS goes to Chief Executive and Managing Director Mark Waller who ably leads a small core group of senior executives. Mark and his team are to be congratulated on bringing the Symbion transaction to a successful conclusion after an extensive period of intense work. The real work now begins – to identify and action the most promising opportunities the new and expanded combined group has to offer. The Board has confidence the senior management group, including the Symbion team led by Patrick Davies, is already working to deliver on that potential. 18 — 19 performance Much was achieved in the 2013 financial year which included the first full year of trading for Masterpet, acquired during the previous year. Masterpet had an excellent year, fully meeting its performance targets. Healthcare performed strongly in New Zealand, and in Australia increased market penetration through competitive positioning. The 2013 result for EBOS, excluding the Symbion trading for one month and one off transaction costs, represented an underlying lift in EBITDA of 14%. dividends An interim dividend of 17.5 cents a share fully imputed was declared in April 2013 and a two for 53 bonus issue of ordinary shares was made in June 2013 to distribute available imputation credits. A final dividend for the 2013 year of 15 cents per share on the much enlarged capital base, partially imputed will be payable on 22 October 2013. The Board has determined that future dividends will amount to 60-70 per cent of normalised net profit after tax (NPAT) after taking into account working capital requirements and funding for growth initiatives. outlook Understanding our markets and reading trends is crucial for EBOS and will position the group to capture the opportunities arising from the nascent global economic recovery, which will continue to influence consumer, business and government spending. EBOS is ideally positioned to meet the requirements of governments and healthcare organisations for further supply chain efficiencies and to service the requirements of pet owners for higher quality animal care. rick christie Chairman Ebos Group Limited — Annual Report 2013 financial Highlights 2007 2008 2009 2010 2011 2012 2013 2007 2008 2009 2010 2011 2012 2013 2007 2008 2009 2010 2011 2012 2013 seven Year revenue trend 307 1092 1345 1317 1344 1429 1823 0 500 1000 $millions 1500 2000 seven Year eBitda trend 18.8 33.6 38.7 40.4 41.1 46.9 58.2 0 10 20 30 $millions 40 50 60 seven Year continuing operations npat trend 10.3 16.7 19.7 19.7 23.4 27.9 28.2 0 5 10 15 $millions 20 25 30 highlights summary Net cash inflow from operating activities ($millions) Shareholders’ interest ($millions) Earnings per share from continuing operations Net interest bearing debt to net interest bearing debt plus equity 2013 26.4 304.9 52.9c 2012 28.1 208.6 53.6c 2011 21.7 198.8 45.4c 2010 41.8 182.8 39.5c 2009 33.3 162.0 41.1c 2008 28.5 147.3 37.6c 2007 7.3 92.2 31.7c 36.3% 29.9% Nil in Funds 1.5% 19.6% 32.0% 8.1% BoarD of Directors profiles 01 02 03 rick christie msc (hons), FnZiod Independent Chairman of Directors (photo page 17) Joined the EBOS Group Limited Board in June 2000 and was appointed Chairman in April 2003. He is a member of the Audit and Risk Committee, and Chairman of the Remuneration Committee and the Nomination Committee. Rick Christie is a professional Director with a breadth of governance and international management experience in a number of industries. A former Chief Executive of the diversified investment company Rangatira Limited, 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 and ServiceIQ, and a Director of South Port New Zealand Limited, Solnet Solutions Limited and Acurity Health Limited. Previously Chairman of AgResearch Limited, Deputy Chairman of the Foundation for Research, Science & Technology and Chairman of the Victoria University Foundation Board of Trustees. He is also a Companion of The Royal Society of New Zealand, 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 & Managing Director (photo page 13) Mark Waller has been Chief Executive and Managing Director of EBOS Group Limited since 1987. He is a member of the Remuneration Committee. He is a Director of all the EBOS Group Limited subsidiaries, as well as being a Director of Scott Technology Limited and HTS- 110 Limited (alternate Director). He was the recipient of the Executive of the Year award at the 2010 Deloitte/Management magazine Top 200 Awards. 01. stuart mcgregor Bcom, llB, mBa Stuart McGregor was educated at Melbourne University and the London School of Business Administration, gaining degrees in Commerce and Law. He also completed a Masters of Business Administration. Over the last 30 years, Stuart has been Company Secretary of Carlton United Breweries, Managing Director of Cascade Brewery Company Limited in Tasmania and Managing Director of San Miguel Brewery Hong Kong Limited. In the public sector, he served as Chief of Staff to a Minister for Industry and Commerce in the Federal Government and as Chief Executive of the Tasmanian Government’s Economic Development Agency. He was formerly a Director of Primelife Limited from 2001 to 2004. Currently Stuart is Chairman of Donaco International Limited, an ASX listed company. He is also Chairman of Powerlift Australia Pty Limited and C B Norwood Pty Limited. 02. sarah ottrey Bcom Independent Director Appointed to the EBOS Group Limited Board September 2006. Sarah Ottrey is a Director of Blue Sky Meats (NZ) Limited, Smiths City Group Limited, Comvita Limited, Whitestone Cheese Limited and Sarah Ottrey Marketing Limited, and is a member of the Inland Revenue Risk and Assurance Committee. She is a past board member of the Public Trust. Sarah has held senior marketing management positions with Unilever and Heineken. 20 — 21 Ebos Group Limited — Annual Report 2013 04 05 06 06. peter williams Peter Williams has been an executive of The Zuellig Group since 2000. Peter is a Director of Interpharma Investments Limited, Asia’s leading distributor of healthcare products, and of Pharma Industries Limited. He is also a Director of Cambert, a company marketing health and personal care products in South East Asia. 03. Barry wallace mcom (hons), ca 04. peter kraus ma (hons), dip eng. Barry Wallace was appointed to the EBOS Group Limited Board October 2001. He is Chairman of the Audit and Risk Committee and member of the Remuneration Committee. Barry is a chartered accountant with a background in financial management. He is a former Chief Executive of Health Support Limited and is the Finance Director of a private group of companies and trusts. He is a Director of Whyte Adder No 3 Limited, Strand Holdings Limited, Strand Management Limited, Herpa Properties Limited, Ecostore Company Limited, Eco Tech Solutions Limited, Huckleberry Farms Limited, Peton Limited and Peton Villas Limited and a Trustee of The Perpanida Trust and The Annalise Trust. Peter Kraus has been a Director of EBOS Group Limited since 1990. He is a member of the Nomination Committee. He is a Director of Whyte Adder No 3 Limited, Strand Holdings Limited, Strand Management Limited, Herpa Properties Limited, Ecostore Company Limited, Huckleberry Farms Limited, Peton Limited and Peton Villas Limited and a Trustee of The Perpanida Trust and The Annalise Trust. 05. elizaBeth coutts Bms, ca Independent Director Elizabeth Coutts was appointed to the EBOS Group Limited Board July 2003. She is a member of the Audit and Risk Committee and the Nomination Committee. Elizabeth is a former Chairman of Meritec Group, Industrial Research, and Life Pharmacy Limited, former Director of Air New Zealand Limited and the Health Funding Authority, former Deputy Chairman of Public Trust, former board member of Sport and Recreation NZ, former member of the Pharmaceutical Management Agency (Pharmac), former Commissioner for both the Commerce and Earthquake Commissions, former external monetary policy adviser to the Governor of the Reserve Bank of New Zealand and former Chief Executive of the Caxton Group of Companies. Her current directorships include Chair of Urwin & Co Limited, and Director of NZ Directories Holdings Limited (and subsidiaries), Ports of Auckland Limited, Ravensdown Fertiliser Co-operative Limited, Sanford Limited, Skellerup Holdings Limited and Tennis Auckland Region Incorporated, and member, Marsh New Zealand Advisory Board. She is Chair of the Inland Revenue Risk and Assurance Committee and of the Auckland Branch of the Institute of Directors Inc. corporate governance statement The Board and management of EBOS Group Ltd are committed to ensuring that the Company adheres to best practice and governance principles and maintains high ethical standards. The Board has agreed to regularly review and assess the Company’s governance structures to ensure they are consistent, both in form and in substance, with best practice. These are set out in the Company’s Corporate Governance Code, the full content of which can be found on the Company’s website (www.ebos.co.nz). The Board considers that the Company’s Corporate Governance policies, practices and procedures substantially comply with the New Zealand Exchange Corporate Governance Best Practice Code. coDe of ethics The EBOS Code of Ethics is the framework of standards by which the Directors and employees of EBOS and its related companies are expected to conduct their professional lives, and covers conflicts of interest, receipt of gifts, confidentiality, expected behaviour, delegated authority and compliance with laws and policies. 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/Managing Director and his management team. BoarD composition The Board is elected by the shareholders of EBOS Group Ltd. At each annual meeting at least one third of the Directors retire by rotation. The Board currently comprises the following non- executive Directors: Chairman, Rick Christie; Elizabeth Coutts; Peter Kraus; Stuart McGregor; Sarah Ottrey; Barry Wallace and Peter Williams. It has one executive Director Mark Waller, Chief Executive and Managing Director. Rick Christie, Elizabeth Coutts and Sarah Ottrey have been determined as Independent Directors, (as defined under the NZSX Listing Rules and the EBOS Group Ltd Corporate Governance Code). 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 fill a casual vacancy. The Board has delegated to the Nomination Committee the responsibility for recommending candidates to be nominated as a Director on the Board and candidates for the committees. When recommending candidates to act as Director, the Nomination Committee takes into account such factors as it deems appropriate, including the experience and qualifications of the candidate. The current members of the Nomination Committee are Rick Christie (Chairman), Elizabeth Coutts and Peter Kraus. The majority of the members of the Nomination Committee are independent. BoarD processes The table within the Directors’ Report shows attendances at the board and committee meetings during the year ended 30 June 2013. BoarD committees share traDing By Directors anD officers Specific responsibilities are delegated to the Audit and Risk Committee, the Remuneration Committee and the Nomination Committee. Each of these committees has a charter setting out the committee’s objectives, procedures, composition and responsibilities. Copies of these charters are available on the Company’s website. audit and risk committee The Audit and Risk Committee provides the Board with assistance in fulfilling its responsibilities to shareholders, the investment community and others for overseeing the Company’s financial statements, financial reporting processes, internal accounting systems, financial controls, and annual external financial audit and EBOS’s relationship with its external auditor. In addition, the Audit and Risk Committee is responsible for the establishment of policies and procedures relating to risk oversight, identification, management and 22 — 23 The Company has formal procedures that Directors and officers must follow when trading EBOS shares. They must notify and obtain the consent of the Board prior to any trading. shareholDer participation The Board aims to ensure that shareholders are informed of all major developments affecting the Group’s state of affairs. Information is communicated to shareholders in the Annual Report and the Interim Report. The Board has adopted a policy of Continuous Disclosures that complies with the NZSX Listing Rules. The Board encourages full participation of shareholders at the Annual Meeting to ensure a high level of accountability and identification with the Group’s strategies and goals. Investors can obtain information on the company from its website (www.ebos.co.nz). The site contains recent NZSX announcements and reports. Ebos Group Limited — Annual Report 2013 Directors’ Disclosures 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 interest. 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 and ServiceIQ. Director of South Port New Zealand Limited, Masterpet Corporation Limited, PRNZ Limited and its associated companies, NZ Pork Industry Board, Solnet Solutions Limited, and Acurity Health Group Limited. E.M. Coutts: Chair of Urwin & Co Limited, and Director of NZ Directories Holdings Limited (and subsidiaries), Ports of Auckland Limited, Ravensdown Fertiliser Co-operative Limited, Sanford Limited, Skellerup Holdings Limited and Tennis Auckland Region Incorporated, and Member, Marsh New Zealand Advisory Board. She is Chair of Inland Revenue, Audit and Assurance Committee and Chair Auckland Branch, Institute of Directors Inc. P.F. Kraus: Director of Whyte Adder No.3 Limited, Strand Holdings Limited, Strand Management Limited, Herpa Properties Limited, Ecostore Company Limited, Huckleberry Farms Limited, Peton Limited, Peton Lodge Limited and Peton Villas Limited and Trustee of the Perpanida Trust, and the Annalise Trust. S.J. McGregor: Chairman of Donaco International Limited, Powerlift Australia Pty Limited, and C.B. Norwood Pty Limited. S.C. Ottrey: Director of Blue Sky Meats (NZ) Limited, Comvita Limited, Smiths City Group Limited, Whitestone Cheese Limited, and Sarah Ottrey Marketing Limited and Member of the Audit and Assurance Committee Inland Revenue. B.J. Wallace: Director of Allum Management Services Limited, Masterpet Corporation Limited, PRNZ Limited and its associated companies, Whyte Adder No.3 Limited, Strand Holdings Limited, Strand Management Limited, Herpa Properties Limited, Ecostore Company Limited, Eco Tech Solutions Limited, Huckleberry Farms Limited, Peton Limited, Peton Lodge Limited and Peton Villas Limited, and Trustee of the Perpanida Trust and The Annalise Trust. M.B. Waller: Director of EBOS Group Limited and its associated companies, Scott Technology Limited, and HTS-110 Limited (Alternate Director). P.J. Williams: Executive of The Zuellig Group and associated companies, a Director of Interpharma Investments Limited, Pharma Industries Limited and Cambert. directors’ disclosures (continued) There were 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 beneficially held E M Coutts – Held by associated persons S C Ottrey – Held by association persons M B Waller – Held by associated persons M B Waller – Non beneficially held P F Kraus P F Kraus – Held by associated persons B J Wallace – Non beneficially held ordinary shares purchased/(sold) consideration paid/(received) date of transaction 2,356 465 613 120 198 16,027 2,356 41 – $3,724 – $961 – – – Nil 1,418,489 1,418,489 $10,625,000 $10,625,000 June 2013 October 2012 June 2013 October 2012 June 2013 June 2013 June 2013 June 2013 June 2013 June 2013 Directors’ shareholDings number of fully paid shares held as at E M Coutts – Held by associated persons 30 June 2013 30 June 2012 20,588 19,510 R G M Christie – Non beneficially held – Staff share purchase scheme 145,642 143,286 P F Kraus – Held by associated persons – Held by associated persons 1,117 5,883,463 1,076 4,464,974 S C Ottrey – Held by associated persons 5,353 5,035 B J Wallace – Non beneficially held – Director of Whyte Adder No.3 Ltd/ 5,883,463 4,464,974 Herpa Properties Ltd M B Waller – Held by associated persons – Non beneficially held – Staff share purchase scheme 445,067 145,642 429,040 143,286 24 — 25 Ebos Group Limited — Annual Report 2013 attenDance Board audit & risk remuneration due diligence steering eligible to attend attended eligible to attend attended eligible to attend attended eligible to attend attended eligible to attend attended R Christie P Kraus E Coutts S Ottrey B Wallace M Waller 15 15 15 15 15 15 15 14 15 15 15 15 5 – 5 – 5 5 5 – 5 – 5 4 3 – – – 3 3 3 – – – 3 3 3 4 10 4 17 17 3 4 10 4 17 17 3 4 10 4 17 17 3 4 10 4 17 17 inDemnity anD insurance In accordance with section 162 of the Companies Act 1993 and the constitution of the Company, the Company has given indemnities to, and has effected insurance for, the Directors and executives of the Company and its related companies which, except for some specific matters which are expressly excluded, indemnify and insure Directors and executives against monetary losses as a result of actions undertaken by them in the course of their duties. Specifically excluded are certain matters, such as the incurring of penalties and fines which may be imposed for breaches of law. Directors’ remuneration anD other Benefits Directors’ remuneration and other benefits required to be disclosed pursuant to section 211(1) of the Companies Act 1993 for the year ended 30 June 2013 were as follows: R G M Christie E M Coutts P F Kraus P Merton (resigned 14/9/11) M J Stewart (resigned 29/3/12) S C Ottrey B J Wallace M B Waller (Chief Executive and Managing Director) 30 June 2013 30 June 2012 $154,000 $106,500 $70,500 – – $70,500 $123,500 $127,500 $65,000 $60,000 $12,500 $45,000 $60,000 $67,500 Salary $494,884 * Other benefits $1,684,556 $480,470 $2,905,361 * Includes a one off long term incentive, performance bonus and other emoluments genDer composition As at 30 June 2013, two of the Directors of the Company are female (2012: 2 female) and one management position is held by a female (2012: 1 female). directors’ disclosures (continued) employee remuneration Grouped below, in accordance with Section 211 of the Companies Act 1993, are the number of employees or former employees of the Company and its subsidiaries, including those based in Australia, who received remuneration and other benefits in their capacity as employees totalling NZ$100,000 or more during the year. employee remuneration (nZ$) 30 June 2013 Number of Employees 30 June 2012 Number of Employees 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 – 220,000 220,000 – 230,000 230,000 – 240,000 240,000 – 250,000 250,000 – 260,000 260,000 – 270,000 270,000 – 280,000 310,000 – 320,000 340,000 – 350,000 380,000 – 390,000 410,000 – 420,000 460,000 – 470,000 550,000 – 560,000 590,000 – 600,000 680,000 – 690,000 790,000 – 800,000 840,000 – 850,000 auDitor 27 22 15 3 9 7 7 3 1 5 3 2 1 1 1 1 1 3 – 1 1 1 – 1 1 – 1 1 23 17 14 5 4 4 4 1 2 3 3 2 1 – – – 1 3 1 – 1 – 1 1 – 1 – – The Company’s Auditor, Deloitte, will continue in office in accordance with the Companies Act 1993. The Directors are satisfied that the provision of non-audit services, during the year by the auditor is compatible with the general standard of independence for auditors imposed by the Companies Act 1993. Details of amounts paid or payable to the auditor for non-audit services provided during the year by the auditor are outlined in note 5 to the financial statements. r.g.m. christie Chairman of Directors 20 August 2013 26 — 27 m.B. waller Chief Executive and Managing Director Ebos Group Limited — Annual Report 2013 financial statements Year ended 30 June, 2013 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 traDing entities Directory 28 29 30 30 31 32 33 34 71 72 73 Directors’ responsibility statement The Directors of EBOS Group Limited are pleased to present to shareholders the financial statements for EBOS Group and its controlled entities (together the “Group”) for the year to 30 June 2013. The Directors are responsible for presenting financial statements in accordance with New Zealand law and generally accepted accounting practice, which give a true and fair view of the financial position of the Company and the Group as at 30 June 2013 and the results of their operations and cash flows for the year ended on that date. The Directors consider the financial statements of the Company and the Group have been prepared using accounting policies which have been consistently applied and supported by reasonable judgements and estimates and that all relevant financial reporting and accounting standards have been followed. The Directors believe that proper accounting records have been kept which enable with reasonable accuracy, the determination of the financial position of the Company and Group and facilitate compliance of the financial statements with the Financial Reporting Act 1993. The Directors consider that they have taken adequate steps to safeguard the assets of the Company and the Group, and to prevent and detect fraud and other irregularities. Internal control procedures are also considered to be sufficient to provide a reasonable assurance as to the integrity and reliability of the financial statements. The Financial Statements are signed on behalf of the Board by: r.g.m. christie Chairman of Directors 20 August 2013 m.b. waller Chief Executive and Managing Director 3 1 0 2 t r o p e R l a u n n A — d e t i m i l p u o r g s o b e 28 — 29 inDepenDent auDitor’s report TO THE SHAREHOLDERS OF EBOS GROUP LIMITED Report on the Financial Statements We have audited the financial statements of EBOS Group Limited and group on pages 30 to 70, which comprise the consolidated and separate balance sheets of EBOS Group Limited as at 30 June 2013, the consolidated and separate income statements, statements of comprehensive income, statements of changes in equity and cash flow statements for the year then ended, and a summary of significant accounting policies and other explanatory information. Board of Directors’ Responsibility for the Financial Statements The Board of Directors are responsible for the preparation of financial 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 financial 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 financial 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 financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of financial 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 financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Other than in our capacity as auditor, investigating accountant in respect of the 5 June 2013 offer document, the provision of due diligence work, internal control assurance services and other advisory services we have no relationship with or interests in EBOS Group Limited or any of its subsidiaries. Opinion In our opinion, the financial statements on pages 30 to 70: • comply with generally accepted accounting practice in New Zealand; • comply with International Financial Reporting Standards; and • give a true and fair view of the financial position of EBOS Group Limited and group as at 30 June 2013, and their financial performance and cash flows 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 financial statements for the year ended 30 June 2013: • 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 Accountants 20 August 2013 Christchurch, New Zealand income statement For the Financial Year Ended 30 June, 2013 NOTES Group 2013 $’000 2012 $’000 Parent 2013 $’000 2012 $’000 Revenue 2 (a) 1,823,169 1,428,679 111,433 95,188 Profit before depreciation, amortisation, finance costs and income tax expense Depreciation Amortisation of finite life intangibles Profit before finance costs and tax Finance costs Profit before income tax Income tax Profit for the year Earnings per share: Basic (cents per share) Diluted (cents per share) 58,243 (4,922) (1,514) 51,807 (9,593) 42,214 (14,007) 46,856 (3,674) (94) 43,088 (6,987) 36,101 (8,152) 40,558 (552) – 40,006 (5,028) 34,978 (118) 29,439 (433) – 29,006 (4,322) 24,684 (36) 28,207 27,949 34,860 24,648 52.9 52.9 53.6 53.6 2 (b) 2 (b) 2 (b) 2 (b) 3 26 26 3 1 0 2 t r o p e R l a u n n A — d e t i m i l p u o r g s o b e statement of comprehensive income For the Financial Year Ended 30 June, 2013 NOTES Profit for the year Other comprehensive income Items that may be reclassified subsequently to profit or loss: Cash flow hedges gains Related income tax to cashflow hedges (Losses) on translation of foreign operations Total comprehensive income net of tax Notes to the financial statements are included on pages 34 to 70. 22 22 22 Group 2013 $’000 28,207 2,773 (359) (6,365) 24,256 2012 $’000 27,949 176 (123) (1,783) 26,219 Parent 2013 $’000 34,860 1,532 (250) – 36,142 2012 $’000 24,648 343 (95) – 24,896 30 — 31 balance sheet As at 30 June, 2013 Current assets Cash and cash equivalents Trade and other receivables Prepayments Inventories Current tax refundable Other financial assets – derivatives Advances to subsidiaries Total current assets Non-current assets Property, plant and equipment Capital work in progress Prepayments Deferred tax assets Goodwill Indefinite life intangibles Finite life intangibles Shares in subsidiaries Investment in associate Total non-current assets Total assets Current liabilities Bank overdraft Trade and other payables Finance leases Bank loans Current tax payable Employee benefits Other financial liabilities – derivatives Advances from subsidiaries Deferred purchase consideration Total current liabilities Non-current liabilities Bank loans Trade and other payables Deferred tax liabilities Finance leases Employee benefits Total non-current liabilities Total liabilities Net assets Equity Share capital Foreign currency translation reserve Retained earnings Cash flow hedge reserve Total equity Notes to the financial statements are included on pages 34 to 70. Group 2013 $’000 2012 $’000 Parent 2013 $’000 NOTES 6 7 8 3 9 10 11 7 3 12 13 14 15 16 18 17, 19 17 3 20 17 32 17 18 3 17, 19 198,014 736,429 7,837 558,350 1,628 3,546 – 1,505,804 95,131 787 16 34,361 722,158 59,324 95,145 – 19,013 1,025,935 2,531,739 – 892,645 1,189 215,675 6,378 25,725 2,872 – 865,000 2,009,484 151,357 8,489 48,365 3,296 5,871 217,378 2,226,862 304,877 52,646 175,712 4,540 162,997 735 109 – 396,739 23,489 9 195 7,426 180,553 30,881 279 – 18,428 261,260 657,999 307 275,548 534 10,156 6,988 8,412 530 – – 302,475 129,684 3,943 10,880 1,064 1,352 146,923 449,398 208,601 89,305 10,399 838 9,146 722 1,816 34,468 146,694 4,668 – – 310 1,728 4,960 – 1,080,686 – 1,092,352 1,239,046 – 9,172 – 4,000 – 5,820 – 29,319 865,000 913,311 87,412 – 2,220 – – 89,632 1,002,943 236,103 21 22 22 22 201,288 (5,675) 107,268 1,996 304,877 107,970 690 100,359 (418) 208,601 201,288 – 33,623 1,192 236,103 2012 $’000 7,413 8,943 1,577 9,114 333 – 26,766 54,146 4,999 – – 645 1,728 4,960 – 215,686 – 228,018 282,164 – 8,131 – 4,000 – 3,018 222 29,576 – 44,947 107,250 – 2,026 – – 109,276 154,223 127,941 107,970 – 20,061 (90) 127,941 statement of changes in equity For the Financial Year ended 30 June, 2013 NOTES Group 2013 $’000 2012 $’000 Parent 2013 $’000 2012 $’000 208,601 198,796 127,941 119,459 28,207 27,949 34,860 24,648 22 22 23 21 2,414 (6,365) (21,298) 93,318 304,877 53 (1,783) (16,414) – 208,601 1,282 – (21,298) 93,318 236,103 248 – (16,414) – 127,941 Equity at start of year Profit for the year Other comprehensive income: Movements in cashflow hedge reserve Movement in foreign currency translation reserve Dividends paid to company shareholders Shares issued Equity at end of year Notes to the financial statements are included on pages 34 to 70. 3 1 0 2 t r o p e R l a u n n A — d e t i m i l p u o r g s o b e 32 — 33 cash flow statement For the Financial Year ended 30 June, 2013 NOTES Group 2013 $’000 2012 $’000 Parent 2013 $’000 Cash flows from operating activities Receipts from customers Interest received Dividends received from subsidiaries Payments to suppliers and employees Taxes paid Interest paid Net cash inflow from operating activities Cash flows from investing activities Sale of property, plant & equipment Purchase of property, plant & equipment Payments for capital work in progress Payments for intangible assets Advances to subsidiaries Advanced to jointly controlled entity Acquisition of associates Acquisition of subsidiaries Costs associated with acquisition of subsidiaries Net cash inflow/(outflow) from investing activities Cash flows from financing activities Proceeds from issue of shares Proceeds from borrowings Repayment of borrowings Dividends paid to equity holders of parent Net cash inflow from financing activities Net increase/(decrease) in cash held Effect of exchange rate fluctuations on cash held Net cash and cash equivalents at beginning of the year Net cash and cash equivalents at the end of the year Cash and cash equivalents Bank overdrafts Notes to the financial statements are included on pages 34 to 70. 25(c) 16 25(a) 23 1,917,358 1,198 – (1,869,090) (13,458) (9,593) 26,415 1,433,077 1,746 – (1,391,675) (8,049) (6,987) 28,112 403 (2,943) (778) (142) – – – 49,263 (5,993) 39,810 93,318 30,009 (21,474) (21,298) 80,555 146,780 (1,105) 52,339 198,014 198,014 – 198,014 103 (3,821) (9) (30) – (1,057) (18,200) (89,915) – (112,929) – 172,250 (118,501) (16,414) 37,335 (47,482) 143 99,678 52,339 52,646 (307) 52,339 68,966 1,388 39,623 (61,062) – (5,028) 43,887 11 (236) – – (7,959) – – – (5,993) (14,177) 93,318 – (19,838) (21,298) 52,182 81,892 – 7,413 89,305 89,305 – 89,305 2012 $’000 72,651 1,100 22,677 (67,030) (1,071) (4,322) 24,005 15 (1,457) – – (50,116) – – (105,000) – (156,558) – 172,250 (89,000) (16,414) 66,836 (65,717) – 73,130 7,413 7,413 – 7,413 notes to the financial statements For the Financial Year ended 30 June, 2013 3 1 0 2 t r o p e R l a u n n A — d e t i m i l p u o r g s o b e 1. summary of accounting policies 1.1 STATEMENT OF COMPLIANCE EBOS Group Limited (“the Company”) is a profit-oriented company incorporated in New Zealand, registered under the Companies Act 1993 and listed on the New Zealand Exchange. The Company operates in two business segments, being Healthcare and Animal care. Healthcare incorporates the sale of healthcare products in a range of sectors, own brands, retail healthcare, wholesale activities, and logistics. Animal care incorporates the sale of animal care products in a range of sectors, own brands, retail and wholesale activities. The Company also has a third reportable segment being Corporate which includes net funding costs and parent company central administration expenses that have not been allocated to the Healthcare or Animal care segments. The Company is a reporting entity and issuer for the purposes of the Financial Reporting Act 1993 and its financial statements comply with that Act. The financial statements have been prepared in accordance with Generally Accepted Accounting Practice in New Zealand (‘NZ GAAP’). They comply with New Zealand Equivalents to International Financial Reporting Standards (“NZ IFRS”) and other applicable reporting standards as appropriate for profit oriented entities. The financial statements comply with International Financial Reporting Standards (“IFRS”). 1.2 BASIS OF PREPARATION The financial statements have been prepared on the basis of historical cost, except for the revaluation of certain financial instruments. Cost is based on the fair value of the consideration given in exchange for assets. Accounting policies are selected and applied in a manner which ensures that the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is reported. The accounting policies set out below have been applied in preparing the financial statements for the year ended 30 June, 2013 and the comparative information presented in these financial statements for the year ended 30 June, 2012. 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 on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Judgements made by management in the application of NZ IFRS that have significant effects on the financial statements and estimates with a significant risk of material adjustments in the next year are disclosed, where applicable, in the relevant notes to the financial statements. Critical judgements made by management principally relate to the identification of intangible assets such as brands and customer relationships separately from goodwill, arising on acquisition of a business or subsidiaries and the recognition of revenue on significant contracts subject to renewal where the receipt of cashflows 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 indefinite life intangibles. The Group determines whether goodwill and indefinite life intangibles are impaired at least on an annual basis. This requires an estimation of the recoverable amount of the cash generating units to which the goodwill and indefinite life intangibles are allocated. The assumptions used in this estimation of recoverable amount and the carrying amount of goodwill and indefinite life intangibles are discussed in notes 12 and 13. It is assumed that significant contracts will be rolled over for each period of renewal. The most recent impairment calculation has been used in the current year where management considers that the following criteria have been met: there has been little change in the assets and liabilities of a cash generating unit in which the most recent recoverable amount calculation resulted in an amount that exceeded the carrying amount of the unit by a substantial margin and where there have been no events or changes in circumstances that would cause only a remote chance that the current carrying amount of the unit is impaired. Determining the recoverable amounts of goodwill and intangible assets requires the estimation of the effects of uncertain future events at balance date. These estimates involve assumptions about risk assessment to cash flows or discount rates used, future changes in salaries and future changes in price affecting other costs. 1.5 SPECIFIC ACCOUNTING POLICIES The following specific accounting policies have been adopted in the preparation and presentation of the financial statements. a) Basis of Consolidation The consolidated financial statements are prepared by combining the financial statements of all the entities that comprise the Group, being the Company (the Parent entity) and its subsidiaries as defined in NZ IAS-27 ‘Consolidated and Separate Financial Statements’. A list of subsidiaries appears in note 15 to the financial statements. Consistent accounting policies are employed in the preparation and presentation of the consolidated financial statements. Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. 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 34 — 35 for control of the acquiree. Acquisition-related costs are recognised in profit 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 classified as an asset or liability are accounted for in accordance with relevant NZ IFRSs. Changes in the fair value of contingent consideration classified as equity are not recognised. The results of subsidiaries acquired or disposed of during the year are included in the consolidated Income Statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. All significant inter-company transactions and balances are eliminated on consolidation. In the Company’s financial statements, investments in subsidiaries are recognised at their cost, less any adjustment for impairment. An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. Investments in associates are incorporated in the Group financial statements using the equity method of accounting. Under the equity method, investments in associates are carried in the Balance Sheet at cost as adjusted for post-acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of individual investments. Losses of an associate in excess of the Group’s interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate) are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. Where necessary, adjustments are made to bring the associates accounting policies into line with those of the Group. Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate recognised at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of that investment. The Group’s goodwill accounting policy is set out below. Any excess of the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss. Where a group entity transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group’s interest in the relevant associate. 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 identifiable net assets recognised. If, after reassessment, the Group’s interest in the fair value of the acquiree’s identifiable 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 profit 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 benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. 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 first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. Any impairment loss is recognised immediately in profit or loss and is not subsequently reversed. c) Indefinite Life Intangible Assets Indefinite life intangible assets represent purchased brand names and trademarks and are initially recognised at cost. Such intangible assets are regarded as having indefinite useful lives and they are tested annually for impairment on the same basis as for goodwill. d) Finite Life Intangible Assets Finite life intangible assets are recorded at cost less accumulated amortisation. Amortisation is charged on a straight line basis over their estimated useful life. The estimated useful life of finite life intangible assets is 1 to 10 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 identified and recognised separately from goodwill where they satisfy the definition of an intangible asset and their fair value can be measured reliably. f) Property, Plant and Equipment The Group has five classes of property, plant and equipment: • Freehold land; • Buildings; • Leasehold improvements; • Plant and vehicles, and • Office equipment, furniture and fittings. Property, Plant and Equipment is initially recorded at cost. Cost includes the original purchase consideration and those costs directly attributable to bring the item of Property, Plant and Equipment to the location and condition for its intended use. 3 1 0 2 t r o p e R l a u n n A — d e t i m i l p u o r g s o b e 1. summary of accounting policies 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 and vehicles 20 to 100 years 2 to 15 years 2 to 20 years • Office equipment, furniture and fittings 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 flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately. Where an impairment loss subsequently reverses, other than for Goodwill and indefinite life intangible assets, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately. Impairment losses can not be reversed for Goodwill and indefinite life intangible assets. h) Taxation The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit 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 36 — 37 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 financial statements and the corresponding tax bases used in the computation of taxable profit, 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 profits 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 profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates, 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 sufficient taxable profits against which to utilise the benefits 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 sufficient taxable profits 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 reflects 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. Current and deferred tax are recognised as an expense or income in profit 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 identifiable 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 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFor the Financial Year ended 30 June, 2013 overheads that have been incurred in bringing the inventories to their present location and condition. Net realisable value represents the estimated selling price in the ordinary course of business, less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. j) Leases The Group leases certain plant and equipment and land and buildings. Finance leases, which effectively transfer to the Group substantially all of the risks and benefits incident to ownership of the leased item, are capitalised at the present value of the minimum lease payments. The leased assets and corresponding liabilities are recognised and the leased assets are depreciated over the period the Group is expected to benefit from their use. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to the Income Statement. Operating lease payments, where the lessors effectively retain substantially all the risks and benefits of ownership of the lease items, are included in the determination of the net surplus in equal instalments over the period of the lease. Lease incentives received are recognised as an integral part of the total lease payments made and also spread on a basis representative of the pattern of benefits expected to be derived from the leased asset. k) Foreign Currency Translation Functional and Presentation Currency The financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in New Zealand dollars, which is the Company’s functional currency and the Group’s presentation currency. Transactions and Balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the Income Statement for the period. Foreign Operations On consolidation, the assets and liabilities of the Group’s overseas operations are translated at exchange rates prevailing at the reporting date. Income and expense items are translated at the average rates for the period. Exchange differences arising, if any, are recognised in the foreign currency translation reserve, and recognised in profit or loss on disposal of the foreign operation. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at exchange rates prevailing at the reporting date. l) Goods & Services Tax 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 flows are included in the Cash Flow Statement on a net basis. The GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified as operating cash flows. m) Financial Instruments Financial assets and financial liabilities are recognised on the Group’s Balance Sheet when the Group becomes a party to the contractual provisions of the instrument. Financial Assets Financial assets are classified into the following specific categories: “financial assets at fair value through profit or loss” (FVTPL), “held to maturity” investments, “available for sale” (AFS) financial assets and “loans and receivables”. The category depends on the nature and purpose of the financial assets and is determined at initial recognition. The categories used are set out below: Cash & Cash Equivalents Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Financial Assets at Fair Value through Profit and Loss (FVTPL) Financial assets are classified as FVTPL where the financial asset is either held for trading or it is designated at FVTPL, such as derivative financial asset instruments where hedge accounting is not applied. Financial assets at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset. Loans and Receivables Trade and other receivables, including advances to subsidiaries, that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in the Income Statement when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition. 3 1 0 2 t r o p e R l a u n n A — d e t i m i l p u o r g s o b e 1. summary of accounting policies CONTINUED m) Financial Instruments continued Equity Instruments Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. Financial Liabilities Financial liabilities are classified as either financial liabilities at “fair value through profit or loss” (FVTPL) or “other financial liabilities” measured at amortised cost. The classifications used are set out below: Financial Liabilities at Fair Value through Profit and Loss Financial liabilities are classified as FVTPL where the financial liability is either held for trading or it is designated at FVTPL, such as derivative financial liability instruments where hedge accounting is not applied. Financial liabilities at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend or interest paid on the financial 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. Bank loans are classified as current liabilities (either advances or current portion of term debt) unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Derivative Financial Instruments The Group enters into foreign currency forward exchange contracts to hedge trading transactions, including anticipated transactions, denominated in foreign currencies and from time to time uses interest rate swaps to manage cash flow interest rate risk. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. The Group designates certain derivatives as cashflow hedges of highly probable forecast transactions. Cashflow Hedges At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an on-going basis, the Group documents whether the hedging instrument that is used in a hedging relationship is highly effective in offsetting changes in cashflows of the hedged items. The effective portion of changes in the fair value of derivatives that are designated and qualify as cashflow hedges are recognised in other comprehensive income and accumulated as a separate component of equity in the hedge reserve. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss. Amounts deferred in equity are recycled in profit or loss in the periods when the hedged item is recognised in profit or loss. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset and liability. Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires, is terminated, exercised or no longer qualifies for hedge accounting. Any cumulative gain or loss deferred in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was deferred in equity is recognised immediately in profit or loss. n) Revenue Recognition Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of returns, discounts, allowances and GST. The following specific recognition criteria must be met before revenue is recognised: Sale of Goods Sales of goods are recognised when significant risks and rewards of owning the goods are transferred to the buyer, when the revenue can be measured reliably and when management effectively ceases involvement or control. Rendering of Services Revenue from services rendered is recognised when it is probable that the economic benefits associated with the transaction will flow to the entity. The stage of completion at balance date is assessed based on the value of services performed to date as a percentage of the total services to be performed. Interest Income Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount. Effective Interest Method The effective interest rate method is a method of calculating the amortised cost of a financial 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 38 — 39 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFor the Financial Year ended 30 June, 2013 s) Adoption of New Revised Standards and interpretations The adoption of FRS 44 New Zealand Additional Disclosures has resulted in a change to the way in which imputation credits have been calculated. Imputation credits are now calculated on an accruals basis. In accordance with the standard this change has been applied retrospectively. No other standards have been adopted during the year which have had a material impact on these financial 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 financial statements. expected life of the financial asset, or, where appropriate, a shorter period to the carrying amount of the financial 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 Flow Statement is prepared exclusive of GST, which is consistent with the method used in the Income Statement. Definition of terms used in the Cash Flow Statement: Operating activities include all transactions and other events that are not investing or financing activities. Investing activities are those activities relating to the acquisition and disposal of current and non-current investments and any other non- current assets. Financing activities are those activities relating to changes in the equity and debt capital structure of the Company and Group and those activities relating to the cost of servicing the Company’s and the Group’s equity capital. p) Employee Entitlements A liability for annual leave and long service leave is accrued and recognised in the Balance Sheet. The liability is equal to the present value of the estimated future cash outflows as a result of employee services provided at balance date. Provisions made in respect of employee benefits expected to be settled within 12 months, are measured at their nominal values using the remuneration rate expected to apply at the time of settlement. Provisions made in respect of employee benefits which are not expected to be settled within 12 months are measured at the present value of the estimated future cash outflows to be made by the Group in respect of services provided up to reporting date. q) Segment Reporting The Group’s operating segments are identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker (Chief Executive) 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. Group 2013 $’000 2012 $’000 Parent 2013 $’000 2012 $’000 NOTES 1,811,465 – 10,506 – – – 1,198 – – – 1,823,169 1,423,398 – 3,117 176 – – 1,746 – – 242 1,428,679 170 257 – 585 (128) 33 500 44 (1,597,475) – (2,227) (1,263,234) – (1,769) (8,979) (614) (9,593) (14) (4,922) (1,514) (6,572) (415) (6,987) (293) (3,674) (94) (9,227) (29) (76,213) (2,927) (5,993) (71,833) (1,781,967) 42,214 (7,614) (34) (58,783) (1,728) – (48,817) (1,393,027) 36,101 16 16 10 14 55,788 10,986 – – 440 1,155 233 3,208 39,623 – 111,433 (2) 257 – – (43,655) (1,406) (192) (5,019) (9) (5,028) (20) (552) – (1,061) (5) (10,967) (107) (5,993) (7,724) (76,710) 34,978 56,002 10,269 – – 440 128 972 4,700 22,677 – 95,188 (47) 33 – – (44,103) (1,252) (205) (3,716) (606) (4,322) (4) (433) – (716) (7) (11,134) (79) – (8,235) (70,490) 24,684 2. profit from 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 Interest revenue – inter group Interest revenue – external Royalty income – inter group Dividends – inter group Gain on disposal of associate 3 1 0 2 t r o p e R l a u n n A — d e t i m i l p u o r g s o b e (b) Profit before income tax expense Profit before income tax has been arrived at after crediting/ (charging) the following gains and losses from operations: Gain/(loss) on disposal of property, plant and equipment Change in fair value of derivative financial instruments Share of dividends from associates Share of equity accounted investments (net of dividends from associates) Profit before income tax has been arrived at after (charging) the following expenses by nature: Cost of sales – external Purchases inter group Write-down of inventory Finance costs: Bank interest Other interest expense Total finance costs Net bad and doubtful debts arising from: Impairment loss on trade and other receivables Depreciation of property, plant and equipment Amortisation of finite life intangibles Operating lease rental expenses: Minimum lease payments Donations Employee benefit expense Defined contribution plan expenses Costs associated with acquisition of subsidiaries Other expenses Total expenses Profit before income tax expense 40 — 41 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFor the Financial Year ended 30 June, 2013 3. income taxes (a) Income tax recognised in income statement Tax expense/(credit) comprises: Current tax expense/(credit): Current year Adjustments for prior years Deferred tax expense/(credit): Origination and reversal of temporary differences Adjustments for prior years Group 2013 $’000 2012 $’000 Parent 2013 $’000 2012 $’000 13,135 860 13,995 171 (159) 12 10,108 (245) 9,863 (2,026) 315 (1,711) (460) 299 (161) 270 9 279 118 514 (419) 95 (78) 19 (59) 36 Total income tax expense 14,007 8,152 The prima facie income tax expense on pre-tax accounting profit from operations reconciles to the income tax expense in the financial statements as follows: Profit before income tax Income tax expense calculated at 28% (2012: 28%) Non-deductible expenses/(non-assessable income) Effect of differences arising from investment interests in other jurisdictions Effect of different tax rates of subsidiaries operating in other jurisdictions Under/(over) provision of income tax in previous year Other adjustments 42,214 36,101 34,978 24,684 11,820 998 – 441 701 47 10,108 (11) (289) (47) 70 (1,679) 9,794 (9,984) – – 308 – 6,912 (6,187) (289) – (400) – Total income tax expense 14,007 8,152 118 36 The tax rates used are principally the corporate tax rates of 28% (2012: 28%) payable by New Zealand and 30% (2012: 30%) payable by Australian corporate entities on taxable profits under tax law in each jurisdiction. 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: Group 2013 $’000 2012 $’000 Parent 2013 $’000 2012 $’000 1,628 735 722 333 6,378 6,988 – – 34,361 7,426 310 645 (48,365) (14,004) (10,880) (3,454) (2,220) (1,910) (2,026) (1,381) 3 1 0 2 t r o p e R l a u n n A — d e t i m i l p u o r g s o b e 2013 Gross deferred tax liabilities: Property, plant and equipment Provisions Other financial assets – derivatives Intangible assets Gross deferred tax assets: Property, plant and equipment Provisions Doubtful debts and impairment losses Other financial liabilities – derivatives Tax losses carried forward Net movement in deferred tax 2012 Gross deferred tax liabilities: Property, plant and equipment Provisions Intangible assets Gross deferred tax assets: Provisions Doubtful debts and impairment losses Other financial liabilities – derivatives Tax losses carried forward Net movement in deferred tax 42 — 43 Group Group Opening balance $’000 Charged to income $’000 Group Charged to other comprehensive income $’000 Group Group Acquisitions $’000 Closing balance $’000 (1,936) (26) – (8,918) (10,880) – 4,610 766 71 1,979 7,426 (1,609) – (7,097) (8,706) 3,219 744 191 384 4,538 163 17 26 164 370 (30) 148 6 (221) (285) (382) (12) (327) (26) (1) (354) 445 22 3 1,595 2,065 1,711 – – (316) 387 71 (68) (346) 38 (43) (103) (522) (451) – – – – – – (123) – (123) (123) – – – (37,926) (37,926) 6,309 20,768 – 762 – 27,839 (1,773) (9) (290) (46,293) (48,365) 6,211 25,180 810 569 1,591 34,361 – – (1,820) (1,820) (1,936) (26) (8,918) (10,880) 946 – – – 946 4,610 766 71 1,979 7,426 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFor the Financial Year ended 30 June, 2013 2013 Gross deferred tax liabilities: Property, plant and equipment Intangible assets Other financial assets – derivatives Gross deferred tax assets: Provisions Doubtful debts and impairment losses Other financial liabilities – derivatives Net movement in deferred tax 2012 Gross deferred tax liabilities: Property, plant and equipment Intangible assets Gross deferred tax assets: Provisions Doubtful debts and impairment losses Other financial liabilities – derivatives Net movement in deferred tax Parent Parent Opening balance $’000 Charged to income $’000 Parent Charged to other comprehensive income $’000 (637) (1,389) – (2,026) 571 39 35 645 (650) (1,388) (2,038) 524 39 130 693 21 – – 21 (300) – – (300) (279) 13 (1) 12 47 – – 47 59 – – (215) (215) – – (35) (35) (250) – – – – – (95) (95) (95) Parent Closing balance $’000 (616) (1,389) (215) (2,220) 271 39 – 310 (637) (1,389) (2,026) 571 39 35 645 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 Imputation credits available directly and indirectly to shareholders of the parent company: Group 2013 $’000 Group 2012 $’000 1,399 8,690 4. key management personnel compensation Short-term employee benefits 5. remuneration of auDitors Auditor of the parent entity (Deloitte) Audit of the financial statements Audit related services for review of financial statements not included above Investigating accountants report* Due diligence Information technology services Financial modelling assistance Internal control assurance services * These costs have been netted off against share capital Other auditors of entities in the group Audit of financial statements Other non-audit services 6. traDe anD other receivables Trade receivables (i) Other receivables Allowance for impairment (ii) Group 2013 $’000 9,625 9,625 2012 $’000 7,092 7,092 Parent 2013 $’000 6,942 6,942 2012 $’000 4,727 4,727 432 6 105 278 10 92 12 935 224 9 233 364 50 – 121 140 – 18 693 – – – 64 – 105 258 10 – – 437 – – – 70 26 – 121 140 – – 357 – – – 742,028 11,449 (17,048) 736,429 176,476 1,395 (2,159) 175,712 9,678 859 (138) 10,399 8,937 144 (138) 8,943 (i) Trade receivables are non-interest bearing and generally on monthly terms. No interest is charged on the trade receivables for the first 60 days from the date of the invoice. Thereafter, interest may be charged at 3% per annum on the outstanding balance. The Group’s Pharmacy business units generally holds collateral over its trade receivables balances. (ii) Allowance for Impairment Balance at the beginning of the year Arising from businesses acquired Impairment loss recognised on trade receivables Amounts written off as uncollectible Amounts recovered during year Impairment losses reversed Effect of foreign currency exchange differences (2,159) (15,329) (222) 280 (7) 208 181 (17,048) (1,625) (631) (296) 395 (5) 3 – (2,159) (138) – (20) 20 – – – (138) (138) – (4) 4 – – – (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. The impairment recognised represents the difference between the carrying amount of these trade receivables and the present value of the expected liquidation proceeds. The Group does not hold any collateral over these balances. The net carrying amount is considered to approximate their fair value. 3 1 0 2 t r o p e R l a u n n A — d e t i m i l p u o r g s o b e 44 — 45 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFor the Financial Year ended 30 June, 2013 (iii) Aging of impaired trade and other receivables Current 30 – 60 days 60 – 90 days 90 days+ Group 2013 $’000 4,334 2,387 961 12,888 20,570 2012 $’000 43 50 32 3,413 3,538 Parent 2013 $’000 – – – 138 138 2012 $’000 – – – 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 $82.36m (2012: $23.74m) and Parent $2.217m (2012: $1.51m) 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 At net realisable value 9. other financial assets – Derivatives At Fair Value: Foreign currency forward contracts (i) Foreign currency forward contracts (ii) Interest rate swaps (ii) (i) Financial asset carried at fair value through profit or loss (“FVTPL”). (ii) Designated and effective as cash flow hedging instrument carried at fair value. 65,760 8,785 7,815 82,360 17,692 3,128 2,920 23,740 1,806 198 213 2,217 821 113 576 1,510 7,837 16 7,853 4,540 195 4,735 838 – 838 1,577 – 1,577 558,350 – 558,350 162,705 292 162,997 9,146 – 9,146 9,114 – 9,114 160 2,615 771 3,546 109 – – 109 160 885 771 1,816 – – – – 10. property, plant anD equipment Gross carrying amount Balance at 1 July, 2011 Additions Disposals Acquisition through business combinations Net foreign currency exchange differences Balance at 30 June, 2012 Additions Disposals Acquisition through business combinations Net foreign currency exchange differences Group Freehold land at cost $’000 Buildings at cost $’000 Leasehold improvement at cost $’000 Plant and vehicles at cost $’000 Office equipment furniture & fittings at cost $’000 1,895 – – 187 (6) 2,076 – (49) 28,529 (316) 9,043 – – 238 (8) 9,273 4 (90) 10,238 (131) 2,058 273 (370) 1,071 (31) 3,001 120 (128) 7,252 (182) 7,466 1,773 (476) 4,311 (111) 12,963 1,569 (667) 21,675 (630) 12,438 1,825 (648) 882 (42) 14,455 792 (1,083) 7,810 (266) Total $’000 32,900 3,871 (1,494) 6,689 (198) 41,768 2,485 (2,017) 75,504 (1,525) Balance at 30 June, 2013 30,240 19,294 10,063 34,910 21,708 116,215 3 1 0 2 t r o p e R l a u n n A — d e t i m i l p u o r g s o b e Accumulated depreciation Balance at 1 July, 2011 Disposals Depreciation expense Net foreign currency exchange differences Balance at 30 June, 2012 Disposals Depreciation expense Net foreign currency exchange differences Balance at 30 June, 2013 Net book value As at 30 June, 2012 As at 30 June, 2013 – – – – – – – – – (2,051) – (273) 3 (2,321) 42 (367) 9 (1,182) 289 (376) 13 (1,256) 95 (476) 64 (4,219) 5 (1,214) 27 (5,401) 562 (2,016) 174 (8,474) 969 (1,811) 15 (9,301) 1,067 (2,063) 104 (15,926) 1,263 (3,674) 58 (18,279) 1,766 (4,922) 351 (2,637) (1,573) (6,681) (10,193) (21,084) 2,076 30,240 6,952 16,657 1,745 8,490 7,562 28,229 5,154 11,515 23,489 95,131 46 — 47 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFor the Financial Year ended 30 June, 2013 Freehold land at cost $’000 Buildings at cost $’000 Parent Leasehold improvement at cost $’000 Plant and vehicles at cost $’000 Office equipment furniture & fittings at cost $’000 Gross carrying amount Balance at 1 July, 2011 Additions Disposals Balance at 30 June, 2012 Additions Disposals Balance at 30 June, 2013 Accumulated depreciation Balance at 1 July, 2011 Disposals Depreciation expense Balance at 30 June, 2012 Disposals Depreciation expense Balance at 30 June, 2013 Net book value As at 30 June, 2012 As at 30 June, 2013 694 – – 694 – – 694 – – – – – – – 2,920 – – 2,920 – – 2,920 (298) – (83) (381) – (80) (461) 694 694 2,539 2,459 198 117 (198) 117 14 – 131 (148) 159 (11) – – (13) (13) 117 118 Total $’000 6,047 1,457 (1,010) 6,494 234 (567) 823 795 (224) 1,394 113 (300) 1,412 545 (588) 1,369 107 (267) 1,207 1,209 6,161 (559) 206 (139) (492) 287 (205) (410) 902 797 (1,005) 583 (200) (622) 267 (254) (2,010) 948 (433) (1,495) 554 (552) (609) (1,493) 747 600 4,999 4,668 Group plant includes finance leases capitalised with a cost of $5.261m (2012: $0.304m) and book value of $4.936m (2012: $0.222m). Land and buildings in Auckland with a carrying value of $5.196m (2012: $5.381m) 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 $9.6m. Land and buildings in Christchurch has a carrying value of $3.153m (2012: $3.233m) which approximates its expected fair value. Land and buildings acquired as part of the acquisition of ZHHA Pty Limited (Symbion Group) at 1 June 2013 were valued by Jones Lang LaSalle, in accordance with IAS16, with a fair value of $37.9m. This valuation has been reflected in the property, plant and equipment acquired as part of the acquisition of the Symbion Group – refer note 24. Aggregate depreciation recognised as an expense during the year: Buildings Leasehold improvements Plant and vehicles Office equipment, furniture & fittings Group 2013 $’000 367 476 2,016 2,063 4,922 2012 $’000 273 376 1,214 1,811 3,674 Parent 2013 $’000 80 13 205 254 552 2012 $’000 83 11 139 200 433 11. capital work in progress Capital work in progress Group 2013 $’000 787 2012 $’000 9 Parent 2013 $’000 – 2012 $’000 – The capital work in progress relates to software development ($469,000) – there are no further costs to complete the project (2012: $48,000), and a refrigeration system ($318,000) – the cost to complete the project is $137,000. 12. gooDwill Gross carrying amount Balance at beginning of financial year Recognised on acquisition during the year Effects of foreign currency exchange differences Net book value Allocation of goodwill to cash-generating units Group 2013 $’000 2012 $’000 180,553 542,736 (1,131) 722,158 114,132 66,669 (248) 180,553 Parent 2013 $’000 1,728 – – 1,728 2012 $’000 1,728 – – 1,728 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 Pharmacy Wholesaler and Logistic Services (PRNZ Limited): Healthcare – Pharmacy/Logistics NZ. • New Zealand Animal care sector (Masterpet Corporation Limited (NZ)): Animal care – NZ. • Australian Animal care sector (Masterpet Australia Pty Limited): Animal care – Australia. The carrying amount of goodwill allocated to cash-generating units is as follows: Healthcare Australia Healthcare NZ (Parent) Healthcare – Pharmacy/Logistics NZ Animal care – NZ Animal care – Australia Group 2013 $’000 503,910 1,728 95,043 66,375 55,102 722,158 2012 $’000 17,137 1,728 95,043 66,375 270 180,553 Parent 2013 $’000 – 1,728 – – – 1,728 2012 $’000 – 1,728 – – – 1,728 The goodwill recognised in relation to the acquisition of the Symbion Group was also tested for impairment as at 30 June 2013. The respective amounts arising from the acquisition of Symbion Group’s healthcare and animal care operations have been allocated to the Healthcare Australia and Animal care – Australia cash generating units. During the year ended 30 June 2013, management have determined that there is no impairment of any of the cash generating units containing goodwill (2012: Nil). 3 1 0 2 t r o p e R l a u n n A — d e t i m i l p u o r g s o b e 48 — 49 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFor the Financial Year ended 30 June, 2013 The recoverable amounts (i.e. higher of value in use and fair value less costs to sell) of those units are determined on the basis of value in use calculations. Management has determined that the recoverable amount calculations are most sensitive to changes in the following assumptions: • Healthcare Australia, Healthcare NZ, Animal care NZ and Animal care Australia – Maintaining market share and gross margin being maintained during a period of high volatility in foreign currency during the budget period. • Pharmacy/Logistics NZ – Maintaining market share and controlling operational costs during the assessment period. • Gross margins during the period for Healthcare Australia, Healthcare NZ, Pharmacy/Logistics NZ, Animal care NZ and Animal care Australia 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 budget period, adjusted each year for any anticipated growth. The value in use calculation uses cash flow projections based on financial forecasts approved by management covering a five year period and managements past experience. Annual growth rates of 1.4% to 5% (2012: 2.5% to 4%), which is below current historical growth rates; an allowance of 1.4% to 5% (2012: 2% to 3%) for increase in expenses, and pre tax discount rates of 13.1% to 17.4% (2012: 12.9% to 17.4%) have been applied to these projections. Cash flows beyond the five year period have been extrapolated using a 2% to 2.5% (2012: 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 Gross carrying amount Balance at 1 July, 2011 Recognised on acquisition during the year Net foreign currency exchange differences Balance at 30 June, 2012 Recognised on acquisition during the year Net foreign currency exchange differences Group Symbion Brands $’000 Group Other Pharmacy Brands $’000 Group Masterpet Brand & Intangibles $’000 Group Group Trademarks $’000 Total $’000 – – – – 28,871 (310) 6,556 – (25) 6,531 – (118) – 7,110 – 7,110 – – 17,240 – – 17,240 – – 23,796 7,110 (25) 30,881 28,871 (428) Balance at 30 June, 2013 28,561 6,413 7,110 17,240 59,324 Net book value As at 30 June, 2012 As at 30 June, 2013 – 28,561 6,531 6,413 7,110 7,110 17,240 17,240 30,881 59,324 Gross carrying amount Balance at 1 July, 2011 Balance at 30 June, 2012 Balance at 30 June, 2013 Net book value As at 30 June, 2012 As at 30 June, 2013 Parent Other Pharmacy Brands $’000 4,960 4,960 4,960 4,960 4,960 Parent Total $’000 4,960 4,960 4,960 4,960 4,960 3 1 0 2 t r o p e R l a u n n A — d e t i m i l p u o r g s o b e 13. inDefinite life intangibles CONTINUED The carrying amount of indefinite life intangibles (brands and trademarks) has been allocated to the cash generating units as follows: Healthcare Australia Healthcare NZ Pharmacy/Logistics NZ Animal care – NZ Group 2013 $’000 32,584 2,390 17,240 7,110 59,324 2012 $’000 4,141 2,390 17,240 7,110 30,881 Management have assessed these as having an indefinite useful life. In coming to this conclusion management considered expected expansion of the usage of the brands across other products and markets, the typical product life cycle of these assets, the stability of the industry in which the brands are operating, the level of maintenance expenditure required and the period of legal control over the brands. During the current year management have determined that there is no impairment of any of the brands (2012: Nil). The value in use calculation uses cash flow projections based on financial forecasts approved by management covering a five year period and managements past experience. The calculation of the recoverable amounts for indefinite life intangibles have been determined based on a value in use calculation that uses cash flow projections based on financial budgets approved by management covering a five-year period. Management has determined that the recoverable amount calculations are most sensitive to change in the following assumptions. Annual growth rates of 1.4% to 3% (2012: 2% to 5%), and an allowance of 1.4% to 3% (2012: 2% to 4%) for increases to expenses, and pre-tax discount rates of 12.9% to 19.2% (2012:13.2% to 19.2%) have been applied to these projections. Cash flows beyond the five-year period have been extrapolated using a 2% to 2.5% (2012: 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. Group Group Supply Contracts $’000 Software $’000 Group Customer Relationships/ Contracts $’000 1,490 – – – 1,490 (1,458) (32) – (1,490) 330 1,853 142 (67) 2,258 (83) (367) 35 (415) – 95,443 – (1,026) 94,417 – (1,115) – (1,115) Total $’000 1,820 97,296 142 (1,093) 98,165 (1,541) (1,514) 35 (3,020) 32 – 247 1,843 – 93,302 279 95,145 14. finite life intangibles Gross carrying amount Balance at 30 June, 2012 Recognised on acquisition during the year Other additions Net foreign exchange differences Balance at 30 June, 2013 Accumulated amortisation & impairment Balance at 30 June, 2012 Amortisation expense Net foreign exchange differences Balance at 30 June, 2013 Net book value As at 30 June, 2012 As at 30 June, 2013 50 — 51 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFor the Financial Year ended 30 June, 2013 Allocated to cash generating units as follows: Pharmacy/Logistics NZ Animal care – NZ Animal care – Australia Healthcare Australia 15. subsiDiaries Parent and Head Entity EBOS Group Limited The following entities comprise the trading and holding companies of the Group: Subsidiaries (all balance dates 30 June) EBOS Healthcare (Australia) Pty Limited EBOS Group Pty Limited EBOS Health & Science Pty Limited EBOS Shelf Company New Zealand Limited EBOS Shelf Company Australia Pty Limited PRNZ Limited EBOS Limited Partnership Healthcare Distributors Pty Limited Masterpet Corporation Limited Natures Recipe Pet Foods Limited Masterpet Australia Pty Limited Botany Bay Imports and Exports Pty Limited Aristopet Pty Ltd (formerly Beaphar Australia Pty Limited) EBOS Australia Holdings Pty Limited ZHHA Pty Ltd* ZAP Services Pty Ltd* Symbion Pty Ltd* Intellipharm Pty Ltd* Clinect Pty Ltd* Lyppard Australia Pty Ltd* APHS Packaging Pty Ltd* 2013 $’000 – 127 13,976 81,042 95,145 2012 $’000 32 81 166 – 279 Country of Incorporation Ownership Interests and Voting Rights 2012 2013 Australia Australia Australia New Zealand Australia New Zealand Australia Australia New Zealand New Zealand Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 0% 0% 0% 0% 0% 0% 0% 0% * These entities represent the entities acquired as a result of the acquisition of the Symbion Group on 1 June 2013. These entities currently have a 31 December balance date, however it is intended to have this changed to 30 June. 16. investment in associates Name of business acquired Principal activities Date of acquisition Proportion of shares and voting rights acquired Cost of acquisition $’000 2012 Animates NZ Holdings Limited Animal care supplies December 2011 50% 18,150 The reporting date for Animates NZ Holdings Limited is 30 June. Animates NZ Holdings Limited is incorporated in New Zealand. Although the company holds 50% of the shares and voting power this entity is not deemed to be a subsidiary as the other 50% is held by a single shareholder and significant transactions require 75% shareholder approval. In December 2011 the Group acquired a 50% shareholding in Aristopet Pty Ltd (formerly Beaphar Australia Pty Limited) for $50,000. In June 2012 the remaining 50% shareholding was also acquired by the Group at which point Aristopet Pty Ltd became a subsidiary of the Group. The summary financial information in respect of the Group’s associate is set out below: Statement of financial position Total assets Total liabilities Net assets Group’s share of net assets Income Statement Total revenue Total profit for the period Group’s share of profits of associates Movement in the carrying amount of the Group’s investment in associates: Balance at beginning of financial year New investments Share of equity accounted investments (before dividends) Share of dividends Disposal of associate Balance at end of financial year 3 1 0 2 t r o p e R l a u n n A — d e t i m i l p u o r g s o b e 2013 $’000 2012 $’000 28,461 (21,512) 6,949 3,475 28,965 (23,185) 5,780 2,890 56,061 1,170 585 35,157 1,046 544 Group 2013 $’000 18,428 – 585 – – 19,013 2012 $’000 – 18,200 544 (500) 184 18,428 Goodwill included in the carrying amount of the Group’s investment in associates 15,945 15,945 The Group’s share of the contingent liabilities of associates The Group’s share of capital commitments of associates – – – 1,736 52 — 53 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFor the Financial Year ended 30 June, 2013 17. borrowings Current Bank loans (i) Bank loans – securitisation facility (ii) Finance lease liabilities (iii) Advances from subsidiaries (at call) (iv) Non-current Bank loans (i) Finance lease liabilities (iii) Total borrowings Group 2013 $’000 21,798 193,877 1,189 – 216,864 151,357 3,296 154,653 371,517 2012 $’000 10,156 – 534 – 10,690 Parent 2013 $’000 4,000 – – 29,319 33,319 2012 $’000 4,000 – – 29,576 33,576 129,684 1,064 130,748 141,438 87,412 – 87,412 120,731 107,250 – 107,250 140,826 (i) Bank term loans and revolving cash advance facilities of $196.3m, of which $69.5m was unutilised at 30 June 2013, operate under a negative pledge deed provided to ANZ National Bank Limited and Bank of New Zealand Limited by the parent company and its subsidiaries, excluding the Symbion Group entities acquired on 1 June 2013. Bank loans of $46.3m at 30 June 2013, resulting from the Symbion Group acquisition, are subject to a security over the Symbion Group assets, excluding trade receivables that are security for the securitisation facility referred to below, in favour of the National Australia Bank Limited. There have been no breaches of the banking covenants. (ii) The Group, through a subsidiary company, has a trade debtor securitisation facility of $496.7m of which $302.8m was unutilised at 30 June 2013. The securitisation facility involves Symbion Pty Limited providing security over the future cash flows of specific trade receivables of Symbion Pty Limited, which meet certain criteria, in return for cash finance on a contracted percentage of the security provided. As recourse, in the event of default by a trade debtor, remains with Symbion Pty Limited the trade receivables provided as security and the funding provided by the National Australia Bank Limited are recognised on the Group’s balance sheet. Interest is charged on the average monthly balance of the funding provided under the securitisation facility. At 30 June 2013 the value of trade receivables as security under this securitisation facility was $283.8m. The net cash flows associated with the securitisation programme are disclosed in the cash flow statement as cash flows from financing activities. The Symbion Pharmacy Services Trade Receivables Trust (“SPS Trust”), which is consolidated, was established solely for their purpose of purchasing qualifying trade receivables from Symbion Pty Limited and funding the same from National Australia Bank Limited. The SPS Trust has directly provided funding to Symbion Pty Limited to acquire the rights to the cashflows of the securitised receivables. (iii) Secured by the assets leased. (iv) Unsecured. The fair value of non current borrowings is approximately equal to their carrying amount. On 5 July 2013 the Group refinanced its term debt, working capital and securitisation facilities that were in place at 30 June 2013. As part of this process the Group also combined its security agreements with its bankers – refer notes 28 and 32. 18. traDe anD other payables Current Trade payables Other payables Non-current Other payables Total trade and other payables Group 2013 $’000 2012 $’000 781,156 111,489 892,645 258,209 17,339 275,548 8,489 901,134 3,943 279,491 Parent 2013 $’000 4,344 4,828 9,172 – 9,172 2012 $’000 5,045 3,086 8,131 – 8,131 3 1 0 2 t r o p e R l a u n n A — d e t i m i l p u o r g s o b e 19. leases Finance leases Minimum future lease payments Finance leases relate to office equipment, plant and motor vehicles. The Group has options to purchase the equipment for a nominal amount at the conclusion of the lease agreements. Finance lease liabilities Minimum Future Lease Payments Present Value of Minimum Future Lease Payments Group 2013 $’000 1,504 2012 $’000 665 3,590 1,199 5,094 (609) 1,864 (266) 4,485 1,598 Not later than 1 year Later than 1 year and not later than 5 years Minimum lease payments* Less future finance charges Present value of minimum lease payments Included in the financial statements as: Finance leases – current portion Finance leases – non current portion Parent 2013 $’000 2012 $’000 – – – – – Group 2013 $’000 1,189 2012 $’000 534 3,296 1,064 4,485 – 1,598 – – – – – – 4,485 1,598 1,189 3,296 4,485 534 1,064 1,598 Parent 2013 $’000 2012 $’000 – – – – – – – – – – – – – – – – * Minimum future lease payments include the aggregate of all lease payments and any guaranteed residual. The fair value of the finance lease liabilities is approximately equal to their carrying value. Operating leases Leasing arrangements Operating leases relate to certain property and equipment, with lease terms of between one to fifteen years with options to extend for a further one to fifteen 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 Group 2013 $’000 2012 $’000 Parent 2013 $’000 23,701 72,114 48,209 144,024 8,680 22,706 11,697 43,083 1,021 2,943 2,520 6,484 2012 $’000 1,015 3,096 3,192 7,303 54 — 55 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFor the Financial Year ended 30 June, 2013 20. other financial liabilities – Derivatives At fair value: Foreign currency forward contracts (i) Interest rate swaps (ii) (i) Financial liability carried at fair value through profit or loss (“FVTPL”). (ii) Designated and effective as cashflow hedging instrument carried at fair value. 21. share capital Group 2013 $’000 – 2,872 2,872 2012 $’000 100 430 530 Parent 2013 $’000 – – – 2012 $’000 98 124 222 Fully paid ordinary shares Balance at beginning of financial year Issue of shares to executives and staff under employee share ownership scheme 52,107 63 107,970 250 52,107 – 107,970 – 2013 No ’000 2013 $’000 2012 No. ’000 2012 $’000 Dividend reinvested – October 2012 – April 2013 Bonus issue – June 2013 Institutional placement – June 2013 Share issue costs 429 357 1,999 10,591 – 65,546 3,445 3,100 – – – – – – – 90,026 (3,503) 201,288 – – 52,107 – – 107,970 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, 452,100 (2012: 389,500) shares have been issued raising $971,905 (2012: $721,505). 22. reserves Foreign currency translation reserve Balance at beginning of the year Translation of foreign operations Balance at end of the year Group 2013 $’000 690 (6,365) (5,675) 2012 $’000 2,473 (1,783) 690 Exchange differences, principally relating to the translation from Australian dollars, being the functional currency of the Group’s foreign controlled entities in Australia, into New Zealand dollars, are brought to account by entries made directly to the foreign currency translation reserve. Retained Earnings Balance at beginning of the year Profit for the year Dividends (note 23) Balance at end of the year Cash Flow Hedge Reserve Balance at beginning of the year Gain recognised on cash flow hedges Related income tax Balance at end of the year Group 2013 $’000 2012 $’000 Parent 2013 $’000 100,359 28,207 (21,298) 107,268 88,824 27,949 (16,414) 100,359 20,061 34,860 (21,298) 33,623 (418) 2,773 (359) 1,996 (471) 176 (123) (418) (90) 1,532 (250) 1,192 2012 $’000 11,827 24,648 (16,414) 20,061 (338) 343 (95) (90) The hedging reserve represents gains and losses recognised on the effective portion of cash flow hedges. The cumulative deferred gain or loss on the hedge is recognised in profit or loss when the hedged transaction impacts profit or loss. 23. DiviDenDs Recognised amounts Fully paid ordinary shares – Final – prior year – Taxable bonus issue – current year – Interim – current year Unrecognised amounts Final dividend 2013 Cents per share Total $’000 2012 Cents per share Total $’000 20.5 – 17.5 38.0 10,682 1,411 9,205 21,298 18.0 – 13.5 31.5 9,379 – 7,035 16,414 15.0 21,992 20.5 10,682 A dividend of 15.0 cents per share was declared on 20 August 2013 with the dividend being paid on 22 October 2013. As the dividend reinvestment plan will be in operation for this dividend shareholders may elect to reinvest part or all of their dividends in the Company. The anticipated cash impact of the dividend is $15.0m (2012: $7.323m). 3 1 0 2 t r o p e R l a u n n A — d e t i m i l p u o r g s o b e 56 — 57 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFor the Financial Year ended 30 June, 2013 24. acquisition of subsiDiaries Name of business acquired Principal activities Date of acquisition Proportion of shares acquired Cost of acquisition $’000 2013 ZHHA Pty Limited (Symbion Group) Healthcare and animal care supplies June 2013 100% 865,000 865,000 Assets and liabilities acquired 2013 Current assets Cash and cash equivalents Trade and other receivables Provision for doubtful debts Prepayments Inventories Other financial assets – derivatives – investment – subordinated notes Non-current assets Property, plant and equipment Deferred tax assets Indefinite life intangibles Finite life intangibles Current liabilities Trade and other payables Finance leases Bank loans Employee benefits Other financial liabilities – derivatives Non-current liabilities Bank loans Trade and other payables Finance leases Employee benefits Deferred tax liabilities Net assets acquired Goodwill on acquisition Consideration Less cash and cash equivalents acquired Deferred purchase consideration Net cash (inflow) on acquisition Symbion Group $’000 Fair value adjustment $’000 Fair value on acquisition $’000 49,263 682,961 (15,329) 4,067 375,709 338 59,541 96,543 27,839 – 27,774 (705,340) (199) (249,097) (15,215) (2,879) (33,405) (4,460) (3,298) (4,531) (4,914) 285,368 – – – – – – (59,541)1 (21,039)2 – 28,8713 69,5223 (7,446)4 – 59,5411 – – – – – – (33,012)5 36,896 49,263 682,961 (15,329) 4,067 375,709 338 – 75,504 27,839 28,871 97,296 (712,786) (199) (189,556) (15,215) (2,879) (33,405) (4,460) (3,298) (4,531) (37,926) 322,264 542,736 865,000 (49,263) (865,000) (49,263) 1. To offset investment in subordinated notes against borrowings as a result of a difference in accounting policies, resulting in the actual amount owing to the National Australia Bank being recognised as bank loans. 2. Decrease to the value of plant and equipment by $10.1m and a reduction in land and buildings acquired by $10.9m as a result of an independent valuation performed at acquisition. 3. To recognise customer relationships and brands as a result of independent valuations performed at acquisition. 4. Provision to recognise required maintenance and land duty on property acquired as part of the acquisition. 5. Deferred tax resulting from the above fair value adjustments recognised and also to recognise deferred tax on the intangibles of the Symbion Group which were not previously recognised as a result of a difference in accounting policies. 24. acquisition of subsiDiaries CONTINUED Name of business acquired Principal activities Date of acquisition Proportion of shares acquired Cost of acquisition $’000 2012 Masterpet Corporation Ltd (MCL) supplies Beaphar Australia Pty Ltd (BAPL) supplies Assets and liabilities acquired 2012: Animal care Animal care December 2011 June 2012 100% 100% 86,800 265 87,065 MCL $’000 Fair value adjustment $’000 Fair value on acquisition $’000 BAPL $’000 Fair value adjustment $’000 Fair value on acquisition $’000 Total fair value on acquisition $’000 3 1 0 2 t r o p e R l a u n n A — d e t i m i l p u o r g s o b e Current assets Cash and cash equivalents Trade and other receivables Provision for doubtful debts Prepayments Inventories Other financial assets: derivatives Non-current assets Property, plant and equipment Receivable from jointly controlled entity Deferred tax assets Indefinite life intangibles Finite life intangibles Current liabilities Bank overdraft Trade and other payables Finance leases Bank loans Current tax payable Employee benefits Other financial liabilities – derivatives Non-current liabilities Bank loans Finance leases Employee benefits Deferred tax liabilities Net assets acquired Goodwill on acquisition Gain on disposal of associate Consideration Less cash and cash equivalents acquired Plus bank overdraft acquired Net cash outflow on acquisition 342 29,985 (631) 981 28,057 214 5,587 1,258 946 610 318 (3,957) (12,444) (536) (224) (2,066) (2,133) (31) (29,046) (1,054) (448) – 15,728 – – – – – – – – – 6,500* – – – – – – – – – – – (1,820) 4,680 342 29,985 (631) 981 28,057 765 850 – 109 1,435 214 – 5,587 1,102 (2,315) – – – – (1,528) – – – (188) – – – – – 230 1,258 946 7,110 318 (3,957) (12,444) (536) (224) (2,066) (2,133) (31) (29,046) (1,054) (448) (1,820) 20,408 66,392 – 86,800 (342) 3,957 90,415 – – – – – – – – – – – – – – – – – – – – – – – 765 850 – 109 1,435 1,107 30,835 (631) 1,090 29,492 – 214 1,102 6,689 (2,315) – – – – (1,528) – – – (188) – – – – – 230 277 (242) 265 (765) – (500) (1,057) 946 7,110 318 (3,957) (13,972) (536) (224) (2,066) (2,321) (31) (29,046) (1,054) (448) (1,820) 20,638 66,669 (242) 87,065 (1,107) 3,957 89,915 * As part of the assessment in identifying the assets and liabilities acquired on the acquisition of Masterpet Corporation Limited a $6.5m brand value was identified and recognised at acquisition. 58 — 59 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFor the Financial Year ended 30 June, 2013 Goodwill arising on acquisition Goodwill arose in the acquisition of ZHHA Pty Limited (Symbion Group) in 2013 and Masterpet Corporation Limited (Masterpet Group) in 2012 because the cost included a control premium paid. In addition, the consideration paid for the benefit of future expected cashflows above the current fair value of the assets acquired and the expected synergies and future market benefit expected to be obtained. These benefits are not recognised separately from goodwill as the future economic benefits arising from that cannot be reliably measured and they do not meet the definition of identifiable intangible assets. The Symbion Group and the Masterpet Group were acquired as they share, with EBOS, many of the core competencies required to be successful in a market focused on health professionals, whether that’s doctors or veterinarians. The Symbion Group provides the Group with a significant presence in the Australian healthcare sector, which may also provide a beachhead for further growth opportunities in this sector. Masterpet provides the Group with growth opportunities in the NZ and Australian animal care sectors and an ability to spread income streams away from government funding sources, as does the Symbion Group’s animal care operation – Lyppard Pty Limited. Impact of acquisition on the results of the Group Included in the Group profit for the current year is $4.687m attributable to the Symbion Group (2012: $8.232m Masterpet Group). Had this business combination been effected at 1 July 2012 the revenue of the Group from continuing operations, inclusive of costs associated with acquisition of subsidiaries, would have been $6,240m (2012: $1,490m) and the Group profit for the period from continuing operations would have been $90.0m (2012: $29.6m). 25. notes to the cash flow statement (a) Subsidiaries acquired Note 24 sets out details of the subsidiaries acquired. Details of the acquisitions are as follows: Consideration Cash and cash equivalents Deferred purchase consideration Represented by: Net assets acquired (Note 24) Investment in subsidiaries Goodwill on acquisition Gain on disposal of associate Consideration Net cash (inflow)/outflow on acquisition Cash and cash equivalents consideration Less cash and cash equivalents acquired Plus bank overdraft acquired Group 2013 $’000 2012 $’000 Parent 2013 $’000 2012 $’000 – 865,000 865,000 322,264 – 542,736 – 865,000 – (49,263) – (49,263) 87,065 – 87,065 20,638 – 66,669 (242) 87,065 87,065 (1,107) 3,957 89,915 – 865,000 865,000 – 865,000 – – 865,000 – – – – 105,000 – 105,000 – 105,000 – – 105,000 105,000 – – 105,000 Group 2013 $’000 – 2,186 2,186 2012 $’000 307 1,398 1,705 Parent 2013 $’000 – 1,250 1,250 2012 $’000 – 1,250 1,250 367,032 371,975 739,007 139,840 64,383 204,223 91,412 64,750 156,162 111,250 64,750 176,000 28,207 27,949 34,860 24,648 4,922 (170) – 1,514 (585) (257) 12 (441) 4,995 (560,276) (3,118) (395,353) (1,503) 621,643 21,832 (6,421) (323,196) 3,674 128 (242) 94 (228) (33) (1,711) (97) 1,585 (22,818) (1,215) (41,190) 3,876 15,770 4,093 (1,918) (43,402) 552 2 – – – (257) 279 – 576 (1,456) 739 (32) (389) 6,787 2,802 – 8,451 433 47 – – – (33) (59) – 388 1,240 (633) (767) (976) (695) 800 – (1,031) 5,993 – – – 310,416 26,415 41,980 28,112 – 43,887 – 24,005 25. notes to the cash flow statement CONTINUED (b) Financing facilities Bank overdraft facility, reviewed annually and payable at call: Amount used Amount unused Bank loan facilities with various maturity dates through to 2016 (2012: August 2016): Amount used Amount unused (c) Reconciliation of profit for the year with cash flows from operating activities Profit for the year Add/(less) non-cash items: Depreciation (Gain)/loss on sale of property, plant and equipment (Gain) on disposal of associate Amortisation of finite life intangible assets Share of profits from associates (Gain) on derivatives/financial instruments Deferred tax Provision for doubtful debts Movement in working capital: Trade and other receivables Prepayments Inventories Current tax refundable/payable Trade and other payables Employee benefits Foreign currency loss on translation of working capital balances Cash costs classified as investing activities: Costs associated with acquisition of subsidiaries Working capital items acquired Net cash inflow from operating activities 3 1 0 2 t r o p e R l a u n n A — d e t i m i l p u o r g s o b e 60 — 61 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFor the Financial Year ended 30 June, 2013 26. earnings per share calculation Basic earnings per share (refer Income Statement and Note 21) Basic earnings per share Earnings used in the calculation of total basic earnings per share Group 2013 Cents 2012 Cents 52.9 53.6 $’000 28,207 $’000 27,949 Weighted average number of ordinary shares for the purposes of basic earnings per share 53,361 52,107 Diluted earnings per share (refer Income Statement and Note 21) Diluted earnings per shares Earnings used in the calculation of total diluted earnings per share Cents 52.9 Cents 53.6 $’000 28,207 $’000 27,949 Weighted average number of ordinary shares for the purposes of diluted earnings per share 53,361 52,107 27. commitments for expenDiture Capital expenditure commitments Plant Software development 28. contingent liabilities & contingent assets Group 2013 $’000 18,046 802 2012 $’000 – – Parent 2013 $’000 – – Group 2013 $’000 2012 $’000 Parent 2013 $’000 2012 $’000 – – 2012 $’000 Contingent liabilities Guarantees given to third parties Guarantees arising from the deed of cross guarantee with other entities in the wholly-owned group 16,908 10,062 458 600 – – 35,420 28,590 In May 2012 the Company renegotiated its bank facilities and entered into a banking syndication agreement with ANZ National Bank Limited and Bank of New Zealand Limited. Bank term loans and revolving cash advance facilities operate under a negative pledge deed provided to the syndicated banks by the Company and its subsidiaries. On 1 June 2013 the Group acquired the Symbion Group of companies (refer note 15). From acquisition until 5 July 2013 the Symbion Group debt and securitisation facilities acquired were subject to a security over the Symbion Group assets in favour of the National Australia Bank Limited. On 5 July 2013, post balance date, all Group debt and securitisation facilities became subject to a new single negative pledge deed to the syndicated banks by the Company and its subsidiaries. The Group’s syndicated bankers from 5 July 2013 to the present are ANZ National Bank Limited, Bank of New Zealand Limited and the National Australia Bank Limited. 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 company’s 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 $5.283m (2012: $7.635m). The Directors are of the opinion that provisions are not required in respect of these matters, as it is not probable that a future sacrifice of economic benefits will be required or the amount is not capable of reliable measurement. 28. contingent liabilities & contingent assets CONTINUED A performance bond of up to $1m (2012: $1m) is also held by the bank on behalf of a supplier. Property lease guarantees of $9.278m (2012: $Nil) are held by the bank on behalf of landlords of the Symbion Group. All companies acquired as part of the Symbion Group acquisition, refer note 15, are party to a deed of cross guarantee in which each entity guarantees the debts of the others. 29. 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. Animal care: Incorporates the sale of animal care products in a range of sectors, own brands, retail and wholesale activities. The Animal care operations were acquired in December 2011. Corporate: Includes net funding costs and parent company central administration expenses that have not been allocated to the healthcare or animal care segments. The corporate segment is the result of a 2013 financial year change in the Group’s internal reporting structure. Comparative numbers have been restated. (b) Segment revenues and results The following is an analysis of the Group’s revenue and results by reportable segment: 3 1 0 2 t r o p e R l a u n n A — d e t i m i l p u o r g s o b e Revenue from external customers Healthcare Animal care Corporate Profit/(loss) before depreciation, amortisation, finance costs and income tax Healthcare Animal care Corporate Segment expenses Healthcare: Depreciation Amortisation of finite life intangibles Income tax expense Animal care: Depreciation Amortisation of finite life intangibles Income tax expense Corporate: Finance costs Income tax credit Profit/(loss) for the year Healthcare Animal care Corporate Group 2013 $’000 2012 $’000 1,652,450 169,521 1,198 1,340,633 86,300 1,746 49,068 18,670 (9,495)* 39,571 10,150 (2,865) (3,785) (1,194) (13,146) (3,142) – (10,294) (1,137) (320) (4,588) (532) (94) (616) (9,593) 3,727 (6,987) 2,758 30,943 12,625 (15,361)* 26,135 8,908 (7,094) * Includes costs associated with the acquisition of subsidiaries of $5.993m. The accounting policies of the reportable segments are consistent with the Group’s accounting policies. Segment result represents profit before depreciation, amortisation, finance 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. 62 — 63 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFor the Financial Year ended 30 June, 2013 (c) Segment Assets Assets are not allocated to segments as they are not reported to the chief operating decision maker at a segment level. (d) Revenues from major products and services The Group’s major products and services are the same as the reportable segments i.e. healthcare, animal care and corporate. Revenues are reported above under (b) Segment revenues and results. (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 financial 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 (f) Information about major customers No revenues from transactions with a single customer amount to 10% or more of the Group’s revenues (2012: Nil). 30. relateD party Disclosures (a) Parent Entities The Parent entity in the Group is EBOS Group Limited. (b) Equity interests in Related Parties Equity interests in subsidiaries Details of the percentage of ordinary shares held in subsidiaries are disclosed in note 15 to the financial statements. (c) Transactions with Related Parties Transactions involving the parent entity Amounts receivable from and payable to related parties at balance date are: PRNZ Limited EBOS Group Pty Limited EBOS Shelf Company New Zealand Limited Healthcare Distributors Limited EBOS Health and Science Pty Limited Masterpet Corporation Limited Zuellig Group Incorporated Group 2013 $’000 2012 $’000 1,257,302 565,867 1,823,169 1,252,123 176,556 1,428,679 206,945 765,616 972,561 210,465 24,941 235,406 2013 $’000 2012 $’000 – 4,073 (29,319) 348 1,364 28,683 (865,000) (859,851) 3,570 1,925 (29,576) 348 1,087 19,836 – (2,810) 30. relateD party Disclosures CONTINUED At 30 June 2013 ZHHA Pty Limited owed CB Norwood Pty Limited, a subsidiary of the Zuellig Group, $7.230m and Zuellig Group Incorporated $1.856m. During the financial year, EBOS Group Limited received dividends of $39.623m (2012: $22.677m) from its subsidiaries. During the financial year, EBOS Group Limited provided accounting and administration services to its subsidiaries for a consideration of $0.44m (2012: $0.44m) and charged royalties for the use of intellectual property, brand names and patents totalling $3.208m (2012: $4.7m). During the financial year, EBOS Group Limited rented warehouse space and contracted labour from its subsidiaries for a total cost of $Nil (2012: $90,000). 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% – 5% (2012: 0% – 5%). During the financial year, EBOS Group Limited received interest of $1.155m (2012: $0.128m) from loans to subsidiaries, and paid interest of $Nil (2012: $0.606m) to subsidiaries. No amounts were provided for doubtful debts relating to debts due from related parties at reporting date (2012: Nil). Guarantees provided or received As detailed in note 28, EBOS Group Limited has entered into a deed of cross guarantee with certain wholly-owned subsidiaries. (d) Key Management Personnel Remuneration Details of key management personnel remuneration are disclosed in note 4 to the financial statements. 31. financial instruments (a) Financial risk management objectives The Group’s corporate treasury function provides services to the Groups entities, co-ordinates access to domestic and international financial markets, and manages the financial risks relating to the operation of the Group. The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. The use of financial derivatives is governed by the Group’s policies approved by the Board of Directors, which provide written principles on the use of financial derivatives. Compliance with policies and exposure limits is reviewed on a regular basis. (b) Market Risk The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign currency risk, including: • forward foreign exchange contracts to hedge the exchange rate risk arising on imports of product; and • interest rate swaps to mitigate the risk of rising interest rates. (c) Foreign currency risk management The Group undertakes certain transactions denominated in foreign currencies, hence exposures to exchange rate fluctuations arise. Exchange rate exposures are managed within approved policy parameters utilising forward foreign exchange contracts. Forward foreign exchange contracts It is the policy of the Group to enter into forward foreign exchange contracts to cover specific foreign currency payments and receipts within 60% to 100% of the exposure generated. The Group also enters into forward foreign exchange contracts to manage the risk associated with anticipated sales and purchase transactions out to 12 months within 20% to 75% of the exposure generated. 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. 3 1 0 2 t r o p e R l a u n n A — d e t i m i l p u o r g s o b e 64 — 65 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFor the Financial Year ended 30 June, 2013 Outstanding Contracts 2013 2012 2013 FC’000 2012 FC’000 2013 $’000 2012 $’000 2013 $’000 2012 $’000 Average exchange rate Foreign currency Contract value Fair value Group Buy Australian Dollars Less than 3 months 3 to 6 months 6 to 9 months Buy Euro Less than 3 months 3 to 6 months 6 to 9 months 9 to 12 months Buy Pounds Less than 3 months Buy US Dollars Less than 3 months 3 to 6 months 6 to 9 months Sell Australian Dollars Less than 3 months 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 Sell Australian Dollars Less than 3 months 0.821 0.823 0.837 0.632 0.638 0.631 0.624 0.779 – – 0.618 0.620 0.626 – 1,214 525 525 1,496 4,020 1,410 2,349 1,131 – – 1,604 900 300 – 1,478 638 627 2,368 6,301 2,233 3,763 1,452 – – 2,597 1,453 479 – 0.557 0.490 450 510 808 1,042 0.824 0.856 0.833 0.797 0.807 0.825 2,356 3,657 800 4,043 1,500 500 2,860 4,270 960 5,073 1,859 606 (46) (19) (8) 150 523 176 287 77 188 474 87 0.839 – 105,000 – 125,147 151,453 – 14,561 885 2,774 (12) – – (48) (13) 3 – (35) 40 44 30 – 9 Average exchange rate Foreign currency Contract value Fair value 2013 2012 2013 FC’000 2012 FC’000 2013 $’000 2012 $’000 2013 $’000 2012 $’000 Parent 0.832 0.777 600 800 721 1,030 (14) (11) 0.631 0.607 250 300 396 494 0.557 0.489 450 510 808 1,042 0.827 0.773 850 1,100 1,028 1,423 25 77 72 0.839 – 105,000 – 125,147 128,100 – 3,989 885 1,045 (18) (35) (34) – (98) The fair value of forward foreign exchange contracts outstanding are recognised as other financial assets/liabilities. Hedge accounting is applied for certain forward foreign exchange contracts. Typically these contracts that have hedge accounting applied are for periods greater than 3 months. 3 1 0 2 t r o p e R l a u n n A — d e t i m i l p u o r g s o b e 31. financial instruments CONTINUED (d) Interest rate risk management The Group is exposed to interest rate risk as it borrows funds at floating interest rates. The risk is managed by the use of interest rate swap contracts. Interest rate swap contracts Under interest rate swap contracts, the Group agrees to exchange the difference between fixed and floating rate interest amounts calculated on agreed notional principal amounts. Such contracts enable the Group to mitigate the risk of changing interest rates on debt held. The fair value of interest rate swaps are based on market values of equivalent instruments at the reporting date. Outstanding Contracts Outstanding variable rate for fixed contracts Less than 1 year 1 to 3 years 3 to 5 years Outstanding Contracts Outstanding floating for fixed contracts 3 to 5 years Group Average contracted fixed interest rate 2013 % 2012 % Notional principal amount Fair value 2013 $’000 2012 $’000 2013 $’000 5.17 4.68 3.24 5.13 4.03 3.28 90,877 22,424 70,482 183,783 2,500 5,102 74,082 81,684 (2,168) (555) 621 (2,102) Average contracted fixed interest rate 2013 % 2012 % Parent Notional principal amount Fair value 2013 $’000 2012 $’000 3.16 3.16 57,500 57,500 57,500 57,500 2013 $’000 771 771 2012 $’000 (16) (82) (332) (430) 2012 $’000 (124) (124) The fair value of interest rate swaps outstanding are recognised as other financial 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. 66 — 67 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFor the Financial Year ended 30 June, 2013 (e) Liquidity The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve banking facilities by continuously monitoring forecast and actual cashflows and matching maturity profiles of financial assets and liabilities. The following tables detail the Group’s remaining contractual maturity for its financial assets and financial liabilities. The tables have been drawn up based on the undiscounted cash flows of the financial assets and liabilities. The table includes both interest and principal cash flows. Maturity Dates Group – 2013 Financial assets: Cash and cash equivalents Trade and other receivables Other financial assets – derivatives Financial liabilities: Trade and other payables Finance leases Bank loans Other financial liabilities – derivatives Group – 2012 Financial assets: Cash and cash equivalents Trade and other receivables Other financial assets – derivatives Financial liabilities: Bank overdraft Trade and other payables Finance leases Bank loans Other financial liabilities – derivatives Weighted average effective interest rate % 2.5 – – – 8.6 4.6 – Weighted average effective interest rate % On Demand $’000 Less than 1 year $’000 1–2 Years $’000 2–3 Years $’000 3–4 Years $’000 4–5 Years $’000 5+ Years $’000 Total $’000 198,014 736,429 – 934,443 – – 3,546 3,546 – – – – – – – – – – – – 892,124 – – 521 1,504 232,078 5,255 2,841 79,859 521 749 18,068 521 – 61,436 – 892,124 2,872 236,975 – 87,955 – 19,338 – 61,957 – – – – 521 – – – 521 – – – – 198,014 736,429 3,546 937,989 4,167 – – 903,630 5,094 391,441 – 4,167 2,872 1,303,037 Maturity Dates On Demand $’000 Less than 1 year $’000 1–2 Years $’000 2–3 Years $’000 3–4 Years $’000 4–5 Years $’000 5+ Years $’000 Total $’000 2.5 – – 5.4 – 8.6 4.6 – 52,646 175,712 – 228,358 307 275,027 – – – – 109 109 – – – – – – – – – 521 665 15,676 – 521 495 9,931 – 521 704 61,307 – 275,334 530 17,392 – 10,947 – 62,532 – – – – – 521 – 7,080 – 7,601 – – – – – 521 – 65,315 – 65,836 – – – – – 4,687 – – 52,646 175,712 109 228,467 307 282,319 1,864 159,309 – 4,687 530 444,329 31. financial instruments CONTINUED Maturity Dates Parent – 2013 Financial assets: Cash and cash equivalents Trade and other receivables Other financial assets – derivatives Advances to subsidiaries Financial liabilities: Trade and other payables Bank loans Advances from subsidiaries Parent – 2012 Financial assets: Cash and cash equivalents Trade and other receivables Advances to subsidiaries Financial liabilities: Trade and other payables Bank loans Other financial liabilities – derivatives Advances from subsidiaries 3 1 0 2 t r o p e R l a u n n A — d e t i m i l p u o r g s o b e Weighted average effective interest rate % On Demand $’000 Less than 1 year $’000 1–2 Years $’000 2–3 Years $’000 3–4 Years $’000 4–5 Years $’000 5+ Years $’000 Total $’000 2.5 – – 3.8 – 4.5 – 89,305 10,399 – – 99,704 9,172 – – 9,172 – – 1,816 35,769 37,585 – 8,045 29,319 37,364 – – – – – – – – – – – – – – – – 58,155 – 58,155 – 5,316 – 5,316 – 27,155 – 27,155 – – – – – – – – – – – – – – – – – – 89,305 10,399 1,816 35,769 137,289 9,172 98,671 29,319 137,162 Weighted average effective interest rate % On Demand $’000 Less than 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 2.5 – 5.0 – 4.5 – – 7,413 8,943 – 16,356 8,131 – – – 8,131 – – 28,104 28,104 – 23,045 222 29,576 52,843 – – – – – 8,027 – – 8,027 – – – – – 59,481 – – 59,481 – – – – – 5,265 – – 5,265 – – – – – 26,855 – – 26,855 – – – – – – – – – 7,413 8,943 28,104 44,460 8,131 122,673 222 29,576 160,602 As disclosed in note 32 the $865m deferred consideration payable owing to the Zuellig Group was settled on 5 July 2013. No interest was payable on this balance. As at 30 June 2013 the Group maintains the following lines of credit: • $2.2m (2012: $1.7m) overdraft facilities and term loan/revolving credit facilities of $123m maturing in August 2014 and of $119m maturing in 2016 (2012: $124m maturing in August 2014 and $80m maturing in 2016). • Interest is payable at a base rate plus specified margin. • A subsidiary of the Group, Symbion Pty Limited, has a trade debtor securitisation facility of $496.7m maturing in September 2015. 68 — 69 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFor the Financial Year ended 30 June, 2013 (f) Sensitivity Analysis (i) Interest Rate Sensitivity Analysis The sensitivity analysis below has been determined based on the exposure to interest rates for financial instruments at the balance date. The analysis is prepared assuming the amount of the financial instrument outstanding at the balance sheet date was outstanding for the whole year. The impact to Profit for the Year and Total Equity as a result of a 100 basis point movement in interest rates is as follows: + 100 basis point shift up in yield curve Impact on Profit Impact on Total Equity – 100 basis point shift down in yield curve Impact on Profit Impact on Total Equity (ii) Foreign Currency Sensitivity Analysis Group 2013 $’000 – 3,142 2012 $’000 – 2,939 Parent 2013 $’000 – 1,626 2012 $’000 – 2,144 – (3,249) – (3,083) – (1,692) – (2,251) The following table details the Group’s sensitivity to a 10% increase or decrease on foreign currency contracts 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 profit and equity where the functional currency weakens 10% against the relevant currency. + 10% shift in NZD rate Impact on Profit for the Year Impact on Total Equity – 10% shift in NZD rate Impact on Profit for the Year Impact on Total Equity Group 2013 $’000 2012 $’000 Parent 2013 $’000 (283) 8,733 (353) (1,323) (283) 11,010 346 (10,668) 432 1,619 346 (13,457) 2012 $’000 (353) (353) 432 432 In management’s opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk as the year end exposure does not reflect the exposure during the year. The significant increase in the outcome of the current year sensitivity analysis is in relation to A$105m in foreign currency contracts in place at 30 June 2013 for the acquisition of the Symbion Group which was settled on 5 July 2013. (g) Credit Risk Management Credit risk refers to the risk that a counter party will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with credit worthy counter parties and obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults. Trade receivables consist of a large number of customers, spread across diverse industries and geographical areas. Ongoing credit evaluation is performed on the financial condition of the trade receivables. The carrying amount of financial assets recorded in the financial statements, net of any allowances for losses, represents the Group’s maximum exposure to credit risk without taking account of the value of any collateral obtained. The maximum credit risk associated with guarantees provided by the Group and Parent are disclosed in note 28. The Group does not have any significant credit risk exposure to any single counter party or any Group of counter parties having similar characteristics. The credit risk on liquid funds and derivative financial instruments is limited because the counter parties are banks with high credit ratings assigned by international credit rating agencies. 31. financial instruments CONTINUED (h) Fair value of financial instruments The Directors consider that the carrying amount of financial assets and financial liabilities recorded in the financial statements approximates their fair values. The fair values and net fair values of financial assets and financial liabilities are determined as follows: • the fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices; • the fair value of other financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis: and • the fair value of derivative instruments are calculated using quoted prices. Where such prices are not available use is made of discounted cash flow analysis using the applicable yield curve for the duration of the instruments. Transaction costs are included in the determination of net fair value. (i) Liquidity risk management The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. (j) Capital Risk Management The Group manages its capital to ensure that each entity within the Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity. The Group’s overall strategy remains unchanged from 2012. 32. events after balance Date On 4 July 2013 EBOS Group Limited received a net $140m in proceeds from a non re-nounceable rights issue to existing shareholders. On 5 July 2013, in accordance with the sale and purchase agreement to purchase the Symbion Group, the full deferred consideration payable balance of $865m was settled in favour of the previous owners of the Symbion Group, the Zuellig Group. This consideration was made through an issue of EBOS Group Limited shares to the Zuellig Group of $498m and cash consideration of $367m. The cash consideration paid was funded by additional debt funding of $134m and cash reserves. The net effect of these transactions post balance date on the consolidated Balance Sheet of EBOS Group Limited were: Share capital increased Bank debt increased Cash and cash equivalents decreased Settlement payable decreased $638m $134m $93m $865m As a result of this transaction the Zuellig Group holds 40% of the shares in EBOS Group Limited. Also on the 5 July 2013 two new Directors, Peter Williams and Stuart McGregor, were appointed to the Board of EBOS Group Limited and represent the Zuellig Group. As disclosed in notes 17 and 28 on 5 July 2013 the Group refinanced its syndicated banking facilities. This refinancing replaced the Group’s syndicated term debt and working capital facilities that were in place at the time of the acquisition of the Symbion Group along with the term debt, working capital and securitisation facilities that were acquired as part of the Symbion Group acquisition on 1 June 2013. These new syndicated facilities in place from 5 July 2013 are summarised below and are subject to a new negative pledge deed over the Group’s assets in favour of the Group’s syndicated bankers. These new facilities are based on financial terms similar to those of the previous facilities in place. 3 1 0 2 t r o p e R l a u n n A — d e t i m i l p u o r g s o b e Facility Term debt facilities Term debt facilities Term debt facilities Working capital facilities Securitisation facility Amount (NZD) Maturity $100.8m $100.8m $106.9m $93.1m $495.7m July 2015 July 2016 July 2017 July 2015 September 2015 The effect of this refinancing was to retain the facility head room that was in place at 30 June 2013 in addition to funding the settlement of the acquisition of the Symbion Group on 5 July 2013. This refinancing also extended the maturity profile of the Group’s borrowing facilities. The Group is committed to repayments of its term debt facilities of approximately $20m per year with quarterly repayment terms. Subsequent to year end the Board have approved a final dividend to shareholders. For further details please refer to note 23. 70 — 71 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFor the Financial Year ended 30 June, 2013 aDDitional stock exchange information As at 31 July, 2013 Twenty Largest Shareholders Sybos Holdings Pte Limited Tea Custodians Limited – NZCSDWhyte Adder No 3 Limited Accident Compensation Corporation – NZCSD Sybos Holdings Pte Limited Custodial Services Limited New Zealand Superannuation Fund Nominees Limited – NZCSD Forsyth Barr Custodians Limited <1-33> HSBC Nominees (New Zealand) Limited – NZCSD BNP Paribas Nominees (NZ) Limited – NZCSD Herpa Properties Limited Custodial Services Limited JP Morgan Chase Bank NA – NZCSD HSBC Nominees (New Zealand) Limited A/C State Street – NZCSD Custodial Services Limited National Nominees New Zealand Limited – NZCSD Forsyth Barr Custodians Limited <1-17.5> FNZ Custodians Limited Citibank Nominees (New Zealand) Limited – NZCSD Custodial Services Limited Fully paid shares Percentage of paid capital 53,459,397 7,742,615 6,793,634 4,764,464 4,667,445 3,259,281 2,697,903 2,580,734 2,486,223 2,048,025 1,286,747 1,180,013 1,121,511 1,071,715 1,064,392 985,744 979,662 959,564 923,068 832,630 100,904,767 36.46% 5.28% 4.63% 3.25% 3.18% 2.22% 1.84% 1.76% 1.70% 1.40% 0.88% 0.81% 0.77% 0.73% 0.73% 0.67% 0.67% 0.65% 0.63% 0.57% 68.83% Substantial Security Holders As at 31 July 2013 the following persons are deemed to be substantial security holders in accordance with Section 26 of the Securities Amendment Act 1988. Sybos Holdings Pte Limited Whyte Adder No 3 Limited & Herpa Properties Limited 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 Total Registered Address of Shareholders New Zealand Overseas Total Fully paid shares Percentage of paid capital 58,126,842 8,080,381 66,207,223 39.64% 5.51% 45.15% Holders Fully paid shares Percentage of paid capital 1,452 2,908 1,015 781 59 31 15 15 6,276 615,201 7,274,275 7,088,892 14,642,800 3,807,855 5,600,044 11,361,108 96,224,099 146,614,274 5,991 285 6,276 85,065,255 61,549,019 146,614,274 0.42% 4.96% 4.84% 9.99% 2.60% 3.82% 7.75% 65.62% 100.00% 58.02% 41.98% 100.00% Waiver from the New Zealand Stock Exchange A summary of all waivers granted by NZX and relied upon in the 12 month period preceding the date 2 months before the date of this annual report is published and will remain on the EBOS website www.ebos.co.nz for a period of 12 months. traDing entities new ZealanD australia 3 1 0 2 t r o p e R l a u n n A — d e t i m i l p u o r g s o b e ebos healthcare 14 – 18 Lovell Court Rosedale PO Box 302-161 North Harbour Postal Centre Auckland New Zealand Phone: +64 9 415 3267 Fax: +64 9 415 4004 www.ebos.co.nz pharmacy wholesaler russells PO Box 71-149 Rosebank 1348 Auckland New Zealand Phone: + 64 9 968 6750 Fax: +64 9 968 6754 www.pwr.co.nz onelink healthcare logistics 56 Carrington Road PO Box 44-027 Pt Chevalier Auckland 1246 New Zealand Phone: + 64 9 815 2600 Fax: +64 9 815 1911 www.onelink.co.nz propharma PO Box 62-027 Sylvia Park Auckland 1644 New Zealand Phone: +64 9 570 1080 Fax: +64 9 915 9581 www.propharma.co.nz 58 Richard Pearse Drive Mangere Auckland 2022 New Zealand Phone: +64 9 918 5100 Fax: +64 9 918 5101 www.hconline.co.nz masterpet new ZealanD 1 – 9 Bell Road South Lower Hutt 5010 New Zealand Phone: +64 4 570 3232 Fax: +64 4 570 3229 www.masterpet.com ebos healthcare lypparD Unit 2, 109 Vanessa Street PO Box 100 Kingsgrove, NSW 2208 Australia Phone: +61 2 9502 8410 Fax: +61 2 9502 8411 www.eboshealthcare.com.au symbion Level 3, 484 St Kilda Road Melbourne Victoria 3004 Australia Phone: +61 3 9918 5555 Fax: +61 3 9918 5599 www.symbion.com.au vital meDical supplies PO Box 100 Kingsgrove, NSW Phone: +61 2 1300 557 651 Fax: +61 2 1300 557 631 www.vitalmed.com.au masterpet australia Lot 2, 31 Topham Road Smeaton Grange, NSW 2567 Australia Phone: +61 2 1300 651 111 Fax: +61 2 1300 652 222 www.masterpet.com 14 – 16 Fiveways Blvd Keysborough, Victoria 3173 Australia Phone: +61 3 8769 0500 Fax: +61 3 9798 5599 www.lyppard.com.au aristopet 874 Kingsford Smith Dr Eagle Farm, QLD 4009 Australia Phone: +61 7 3630 2166 Fax: +61 7 3630 2177 www.masterpet.com/aristopet botany bay imports exports 24 Underwood Avenue Botany, NSW 2019 Australia Phone: +61 2 9700 0800 www.botanybayimports.com.au aphs packaging 6 Dividend Street Mansfield, QLD 4122 Phone: +61 7 3347 9500 www.aphs.com.au clinect Level 3, 484 St Kilda Road Melbourne, Victoria 3004 Australia Phone: +61 3 9918 5555 www.clinect.com.au 72 — 73 Directory corporate heaD office Directors 108 Wrights Road PO Box 411 Christchurch 8024 New Zealand Telephone +64 3 338 0999 Fax +64 3 339 5111 Email: ebos@ebos.co.nz Internet: www.ebos.co.nz auDitor Deloitte Christchurch bankers ANZ National Bank Limited Auckland Bank of New Zealand Christchurch solicitor Chapman Tripp Christchurch Independent Chairman Chief Executive and Managing Director Independent Director Independent Director Rick Christie Mark Waller Elizabeth Coutts Peter Kraus Stuart McGregor Sarah Ottrey Barry Wallace Peter Williams senior executives Chief Executive Group General Manager – Healthcare Logistics/ProPharma General Manager – Group Projects/Mergers & Acquisitions Chief Executive – Symbion Group Mark Waller Michael Broome Angus Cooper Patrick Davies Dennis Doherty Chief Financial Officer Sean Duggan Kelvin Hyland David Lewis Greg Managh Chief Executive – Masterpet Group General Manager – EBOS Healthcare New Zealand General Manager – EBOS Healthcare Australia Group General Manager – Onelink/MIS share register Computershare Investor Services Ltd Private Bag 92119 Auckland 1142 159 Hurstmere Road Takapuna, North Shore City 0622 New Zealand Telephone +64 9 488 8777 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 General enquiries can be directed to: • enquire@computershare.co.nz • Private Bag 92119, Auckland 1142, New Zealand • Telephone +64 9 488 8777 Facsimile +64 9 488 8787 Please assist our registrar by quoting your CSN or shareholder number. 3 0 0 O B E m o c . t h g i s n i y b d e n g i s e d www.ebos.co.nz