Impairment

The Group reviews the carrying value of its tangible and intangible assets (except for inventories) annually and if events occur which call into question the carrying value of the assets to determine whether there is any indication of impairment. If any such indication exists, the recoverable amount of the asset is estimated, being the higher of the asset’s fair value less cost 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 the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows (cash-generating units). Where the carrying value exceeds the estimated recoverable amount, such assets are written down to their recoverable amount.

In addition IAS 36, Impairment of Assets requires:

• The recoverable amounts of intangible assets not yet available for use are assessed for impairment annually, irrespective of whether there is an indication that they may be impaired;
• The recoverable amounts of intangible assets with indefinite useful lives are assessed for impairment annually, irrespective of whether there is an indication that they may be impaired; and
• Goodwill acquired in a business combination is tested for impairment annually.

Impairment losses recognised for goodwill are not reversed in subsequent periods. Non-financial assets other than goodwill that have been impaired in past periods are reviewed for possible reversal of impairment at each reporting date. The Group assesses at each year-end whether there is objective evidence that a financial asset or group of financial assets is impaired. Impairment testing of trade receivables is described in note 36 of the Group financial statements.

Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of goods in the ordinary course of the Group’s activities. Revenue, net of trade discounts, distribution fees paid to independent wholesalers and excluding value added tax, comprises the total invoice value of goods, co-marketing fees, royalties and licensing fees. In the determination of revenue, all intra-group transactions are excluded.

Sales are recorded when significant risks and rewards of ownership of the goods are transferred to the buyer based on the date goods are delivered to customers, the amount of revenue can be measured reliably and it is probable that future economic benefits will flow to the entity. Revenue arising from co-marketing and royalty agreements is recognised on the accrual basis in accordance with the substance of the relevant agreements. Upfront payments received under licensing and other agreements are recognised as deferred revenue and recognised in the income statement over the period of the agreement.

Other income and investment income

Rental income received under operating leases is accounted for on a straight-line basis over the period of the lease.

Investment income is recognised on a time proportion basis, taking account of the principal outstanding and the effective rate over the period to maturity, when it is determined that such income will accrue to the Group. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flows discounted at the original effective interest rate of the instrument, and continues to unwind the discount as interest income.

Dividends are recognised when the right to receive payment is established.

Headline earnings per share

The calculation of headline earnings per share is based on the net profit attributable to equity holders of the parent, after excluding all items of a non-trading nature, divided by the weighted average number of ordinary shares in issue during the year. The presentation of headline earnings is not an IFRS requirement, but is required by JSE Ltd and Circular 8 of 2007.

An itemised reconciliation of the adjustments to net profit attributable to equity holders of the parent is provided in note 31 of the Group financial statements.

Discontinued operations

The profit or loss on the disposal or abandonment of a discontinued operation is determined from the date when the entity enters into a binding sale agreement or when there is a formal plan and it is announced. The profit or loss includes operating results from this date as well as all costs and expenses directly associated with the disposal.

If a loss is expected, full provision is made from the discontinuance date. If a profit is expected, it is recognised only when realised. Profits or losses in respect of the discontinued operations are included in attributable profits of the Group until date of discontinuance.

The results of discontinued operations are presented separately in the income statement. Refer to note 33 of the Group financial statements.

Segmental reporting

Reporting segments

The Group has two main reportable segments that comprise the structure used by the chief operating decision-maker to make key operating decisions and assess performance. The Group’s reportable segments are operating segments that are differentiated by geographical areas with each segment having different market dynamics and market strategies.

The Group evaluates the performance of its reportable segments based on operating profit. The Group accounts for inter-segment sales and transfers as if the sales and the transfers were entered into under the same terms and conditions as would have been entered into in a market related transaction.

The financial information of the Group’s reportable segments is reported to the chief operating decision-maker for purposes of allocating resources to the segment and assessing its performance.

In addition to the main reportable segments, the Group also includes a geographical analysis of revenue. The following segments have been identified:

• South Africa – pharmaceutical
• South Africa – consumer
• East Africa
• Latin America
• Global brands
• Rest of the world

The South African pharmaceutical division comprises prescription generic and ethical pharmaceutical products, OTC products and APIs. All products of Schedule 2 and above are included in the pharmaceutical division.

The South African consumer division comprises IMFs, selfmedication and personal care products. Schedule 0 and 1 medicines are included in the consumer division.

Rest of the world consists of all operations in geographical areas that do not have a specific segment allocated to it.

Global brands consist of all revenue related to the following brands:

• Eltroxin;
• Lanoxin;
• Imuran;
• Zyloric;
• Indocid;
• Aldomet; and
• Aggrastat.

Distributions to shareholders

Capital distributions to ordinary shareholders and ordinary dividends are only accounted for in the financial statements in the year in which the capital distributions or dividends are approved by the Company’s shareholders.

Preference share dividends payable are recognised as the dividends accrue to preference shareholders and are included in financing costs.

Comparative figures

Comparative figures are reclassified or restated as necessary to afford a proper and more meaningful comparison of results as set out in the affected notes to the financial statements.

In the current year the accounting for the PharmaLatina business combination has been finalised. The comparative figures have been restated to present the prior year as if the acquisition accounting was finalised in the prior year.

IAS 1 revised requires the Group to prepare three statements of financial position when a retrospective restatement is made. The following statement of financial position should be presented:

• the end of the current period;
• the end of the previous period; and
• the beginning of the earliest comparative period.

No statement of financial position for the year ended 30 June 2007 has been presented as the effect of the PharmaLatina business combination affected only the year ended 30 June 2008.

Translation from South African Rand to US Dollar

The presentation currency of the Group is South African Rand. Supplementary unaudited US Dollar information is provided for convenience only. Refer to annexure 1.

The conversion to US Dollar is performed as follows:

• Assets and liabilities are translated at the closing rate of exchange at year-end;
• Income and expenses are translated at average rates of exchange for the years presented except for significant transactions which are translated at rates of exchange ruling on the transaction dates; and
• The resulting translation differences are included in shareholders’ equity.