Notes to the Group Annual Financial Statementsfor the year ended 30 June 2016

1.

Intangible assets

Accounting policy

 

Recognition and measurement

Intangible assets are stated at historical cost less accumulated amortisation and accumulated impairment losses. Intangible assets are not revalued.

Cost

Expenditure on acquired patents, trademarks, dossiers, licences and know-how is capitalised. Expenditure incurred to extend the term of the patents or trademarks is capitalised. All other expenditure is charged to the statement of comprehensive income when incurred.

Development costs directly attributable to the production of new or substantially improved products or processes controlled by the Group are capitalised (until the date of commercial production) if the costs can be measured reliably, the products and processes are technically feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. All the remaining development costs are charged to the statement of comprehensive income. Research expenditure is charged to the statement of comprehensive income when incurred.

The amounts that are recognised as intangible assets consist of all direct costs relating to the intellectual property and also include the cost of intellectual property development employees and an approximate portion of relevant overheads. Other development costs that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.

Rights acquired to co-market or manufacture certain third-party products are capitalised to intangible assets.

Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software.

Costs associated with developing or maintaining computer software programmes are recognised as an expense as incurred. Costs that are directly associated with the production of identifiable and unique software products controlled by the Group, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets if they meet the following criteria:

  • the costs can be measured reliably;
  • the software is technically feasible;
  • future economic benefits are probable;
  • the Group intends to and has sufficient resources to complete development; and
  • the Group intends to use or sell the asset.

An indefinite useful life intangible asset is an intangible asset where there is no foreseeable limit to the period over which the asset is expected to generate inflows for the Group.

Accumulated amortisation

Intangible assets are recognised at cost and amortised on a straight-line basis over their estimated remaining useful lives. Estimated useful lives are reviewed annually. Amortisation is included in other operating expenses in the statement of comprehensive income. Development costs amortised from the commencement of the commercial sale of the product to which they relate, being the date at which all regulatory requirements necessary to commercialise the product are met. Product participation and other contractual rights are amortised on a straight-line basis over the financial years of the agreements.

Impairment

An impairment assessment is performed on indefinite useful life intangible assets annually for impairment, or more frequently if there are indicators that the balance might be impaired. Finite useful life intangible assets are reviewed annually, but only assessed for impairment when there are indicators that the balance might be impaired. Impairment testing is performed by comparing the recoverable amount to the carrying value of the intangible asset.

The recoverable amount of the intangible assets are determined as the higher of value-in-use and fair value less costs to sell.

Value-in-use

Key assumptions relating to this valuation include the discount rate and cash flows used to determine the value-in-use. Future cash flows are estimated based on the most recent budgets and forecasts approved by management covering a period of 10 years and are extrapolated over the useful life of the asset to reflect the long-term plans for the Group using the estimated growth rate for the specific business or product. The estimated future cash flows and discount rates used are pre-tax based on assessment of the current risks applicable to the specific entity and country in which it operates.

Management determines the expected performance of the assets based on the following:

  • an assessment of existing products against past performance and market conditions;
  • an assessment of existing products against existing market conditions; and
  • the pipeline of products under development, applying past experiences of launch success and existing market conditions.

The growth rate used to extrapolate cash flow projections beyond the period covered by the budgets and forecasts take into account the long-term average rates of the industry in which the cash generating unit is operating. Estimations are based on a number of key assumptions such as volume, price and product mix which will create a basis for future growth and gross margin. These assumptions are set in relation to historic figures and external reports on market growth. If necessary, these cash flows are then adjusted to take into account any changes in assumptions or operating conditions that have been identified subsequent to the preparation of the budgets.

The weighted average cost of capital rate is derived from a pricing model based on credit risk and the cost of the debt. The variables used in the model are established on the basis of management judgement and current market conditions. Management judgement is also applied in estimating the future cash flows of the cash generating units. These values are sensitive to the cash flows projected for the periods for which detailed forecasts are not available and to the assumptions regarding the long-term sustainability of the cash flows thereafter.

Intangible assets that have been impaired in past financial years are reviewed for possible reversal of impairment at each reporting date.

 

Significant judgements and estimates

 

Indefinite useful life intangible assets

Significant judgement is needed by management when determining the classification of intangible assets as finite or indefinite useful life assets. The following factors are taken into account when this classification is made:

  • the ability to use the asset efficiently. Historical product sales, volume and profitability trends as well as the expected uses for the asset further evident from budgets, future growth and plans to invest in each of the assets over the long term are taken into account when this is being assessed;
  • estimates of useful lives of similar assets – historical trends, market sentiment and/or the impact of any competitive activity will be taken into account;
  • the strategy (2017 budget, specific marketing plans, specific enhancement plans and the identification of new markets) for obtaining maximum economic benefit from the asset;
  • rates of technical, technological or commercial obsolescence in the industry are very slow and evident in the fact that most of the reinvestment in technology is mainly expansion rather than replacement due to obsolescence;
  • the stability of the industry and economy in which the asset will be deployed;
  • expected actions by competitors and potential competitors;
  • the willingness and ability of the entity to commit resources to maintain the performance of the asset;
  • the period of the entity’s control over the asset and any legal or other restriction on its ability to use the asset;
  • redundancy of a similar medication due to changes in market preferences; and
  • development of new drugs treating the same disease.

Indefinite useful life intangible assets constitutes 82% of total intangible assets (2015: 81% of total intangible assets).

Amortisation rates and residual values

The Group amortises its assets over their estimated useful lives. The estimation of the useful lives of assets is based on historic performance as well as expectations about future use and therefore requires a significant degree of judgement to be applied by management. The actual lives of these assets can vary depending on a variety of factors, including technological innovation, product life cycles and maintenance programmes.

Significant judgement is applied by management when determining the residual values for intangible assets. In the event of contractual obligations in terms of which a termination consideration is payable to the Group, management will apply a residual value to the intangible asset.

The estimated remaining useful life information for 2016 was as follows:

Intellectual property Up to 17 years 
Product participation and other contractual rights  Up to 43 years 
Computer software  Up to 10 years 
 

Reconciliation of balance

    Intellectual
property
R’billion
Develop-
ment
costs
R’billion
Product
participation
and other
contractual
rights
R’billion
Computer
software
R’billion
Total
R’billion
 

2016

         
 

Carrying value

         
  Cost  48,9  1,3  2,6  1,2  54,0 
  Accumulated amortisation  (2,7) (0,2) (0,3) (0,4) (3,6)
  Accumulated impairment losses  (1,3) –  –    (1,3)
    44,9  1,1  2,3  0,8  49,1 
 

Movement in intangible assets

         
  Carrying value at the beginning of the year  36,6  1,0  2,4  0,5  40,5 
  Acquisition of subsidiaries and businesses  1,1  –  –  –  1,1 
  Additions  0,2  0,4  0,2  0,3  1,1 
  Disposals  (0,1) (0,1) –  –  (0,2)
  Amortisation  (0,4) (0,1) –  (0,1) (0,6)
  Reclassification between categories  0,5  (0,1) (0,4) –  – 
  Impairment losses  (0,8) (0,1) –  –  (0,9)
  Currency translation movements  7,8  0,1  0,1  0,1  8,1 
    44,9  1,1  2,3  0,8  49,1 
 

2015

         
 

Carrying value

         
  Cost  39,0  1,2  2,7  0,8  43,7 
  Accumulated amortisation  (1,8) (0,1) (0,3) (0,3) (2,5)
  Accumulated impairment losses  (0,6) (0,1) –  –  (0,7)
    36,6  1,0  2,4  0,5  40,5 
 

Movement in intangible assets

         
  Carrying value at the beginning of the year  31,8  1,0  2,5  0,4  35,7 
  Acquisition of subsidiaries and businesses  2,1  –  –  –  2,1 
  Additions  0,2  0,4  –  0,2  0,8 
  Disposals  (0,1) –  (0,1) –  (0,2)
  Amortisation  (0,3) (0,1) –  (0,1) (0,5)
  Reclassification between categories  0,2  (0,2) –  –  – 
  Reclassification to assets classified as held-for-sale  (1,3) –  (0,1) –  (1,4)
  Impairment losses  (0,1) (0,1) –  –  (0,2)
  Currency translation movements  4,1  –  0,1  –  4,2 
    36,6  1,0   2,4  0,5  40,5 
 

2014

         
 

Carrying value

         
  Cost  33,9  1,1  2,7  0,6  38,3 
  Accumulated amortisation  (1,7) (0,1) (0,2) (0,2) (2,2)
  Accumulated impairment losses  (0,4) –   –  –  (0,4)
    31,8  1,0  2,5  0,4  35,7 
  All intangible assets were acquired from third parties, except for development costs that are both internally generated and outsourced to third-party development companies. 
 

Indefinite useful life intangible assets

 

Split of balance

2016
R’billion
2015
R’billion
  (1) ELIZ products  5,3   4,3 
  (2) Specialist global brands  4,5   3,5 
  (3) GSK over-the-counter (“OTC”) brands  3,6   3,0 
  (4) GSK classic brands  2,5   2,2 
  (5) Novartis pharmaceutical products  0,6   0,7 
  (6) Merck Sharpe & Dohme (“MSD”) business  8,8   7,2 
  (7) API business  0,6   0,5 
  (8) GSK Thrombosis business  10,6   8,7 
    Mono-Embolex business  2,1   1,7 
    Florinef and Omcilon business  0,7   0,5 
    HPC business#  0,6   – 
    Other brands  0,4  0,5 
      40,3  32,8 
 

# The HPC business was acquired in the current financial year. An initial review identified no impairment and a full impairment test will be performed in the financial year ending 30 June 2017.

  The key brands for the above mentioned indefinite life intangible assets are as follows 
  (1) Eltroxin, Lanoxin, Imuran and Zyloric. 
  (2) Alkeran, Leukeran, Purinethol, Kemadrin, Lanvis, Myleran, Septrin and Trandate. 
  (3) Phillips Milk of Magnesia, Dequadin, Solpadeine, Cartia, Zantac and Borstol. 
  (4) Imigran, Lamictal, Mesasil and Zofran. 
  (5) Enablex and Tofranil. 
  (6) Deca Durabolin, Desogrestrel, Dexmethasone, Meticorten, Metrigen, Orgaran, Ovestin, Testosterone and Thyrax. 
  (7) Heparin, Etonogestrel, Rocuronium Bromide, Desogestrel. 
  (8) Arixtra and Fraxiparine. 
 

Impairment of intangible assets

  Key assumptions on impairment tests for significant indefinite useful life intangible assets were as follows 
    Carrying
value of
intangible
assets
R’billion
Period
covered by
forecasts
and budgets
Growth in
revenue
(% per annum)
Gross profit
(% per annum)
Growth
(% per annum)*
Pre-tax
discount rate
applied to
cash flows
(% per annum)
  ELIZ products 5,3  10 years  Ranging between
(3) and 3 
Average of 73  Ranging between 9 and 11 
  Specialist global brands 4,5  10 years  Ranging between 1 and 7  Average of 84  Ranging between 8 and 10 
  GSK OTC brands; 3,6  10 years  Ranging between 2 and 10  Average of 72  Ranging between 9 and 24 
  GSK classic brands 2,5  10 years  Ranging between 0 and 8  Average of 68  Ranging between
(5) and 1 
  MSD business 8,8  10 years  Ranging between
(13) and 14 
Average of 67  12 
  GSK Thrombosis business 10,6  10 years  Ranging between
(1) and 10
Average of 47  12 
  Mono-Embolex business 2,1  10 years  Ranging between 1 and 3  Average of 41 
  Florinef and Omcilon business 0,7  10 years  Ranging between
(1) and 20 
Average of 76  Ranging between
(3) and 1 
Ranging between
8 and 13 
 

* Growth rate used to extrapolate cash flows beyond period covered by above mentioned budgets and forecasts.

  Management has used a forecast period greater than five years to better reflect the impact of a gradual slowing in growth over the medium term. Based on the calculations the appropriate impairments were recognised for these indefinite useful life intangible assets. There are no reasonable possible changes in any key assumption which would cause the carrying value of the remaining indefinite useful life intangible assets to exceed its value-in-use. 
    2016
R’billion
2015
R’billion
 

Impairment of intangible assets (included in other operating expenses)

   
 

Impairment of intangible assets can be split as follows

   
  International segment     
  (1)    Brands in AGI    0,5  0,2 
  (2)    Brands in Brazil    0,4  – 
    0,9  0,2 
  (1) This related to certain brands in the Specialist global brands, GSK OTC brands and GSK classic brands categories in AGI for which the outlook on revenue evolution and profitability has declined. The carrying value of intangible assets was determined based on value-in-use calculations. The key assumptions detailed above were used. 
  (2) The impairment relates primarily to certain OTC products for which the outlook on profitability and revenue evolution has declined and this resulted in a write-down of the net book value of these brands.
 

Commitments

   
    2016
R’billion
2015
R’billion
  Capital commitments, include all projects for which specific Board approval has been obtained up to the reporting date. Capital expenditure will be financed from funds generated out of normal business operations and existing borrowing facilities. Projects still under investigation for which specific Board approval has not yet been obtained are excluded from the following     
  Authorised and contracted for  0,4  0,1 
  Authorised but not yet contracted for  0,5  0,2 
    0,9  0,3 
   
 

Other disclosures

  No intangible assets have been pledged as security for borrowings. 

2.

Property, plant and equipment

Accounting policy

 

Recognition and measurement

Property, plant and equipment is stated at historical cost less accumulated depreciation and accumulated impairment losses.

Cost

Historical cost includes expenditure that is directly attributable to the acquisition of the items.

The cost of self-constructed assets includes expenditure on materials, direct labour and an allocated proportion of project overheads. Costs capitalised for work-in-progress in respect of activities to develop, expand or enhance items of property, plant and equipment are classified as part of assets under capital work-in-progress. Subsequent costs are included in the asset’s carrying value, or recognised as a separate asset, only when it is probable that the future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of comprehensive income in the period in which they are incurred.

Gains or losses on disposals of property, plant and equipment are determined by comparing proceeds with the carrying value and are included in operating profit in the statement of comprehensive income.

Costs directly attributable to major development projects of property, plant and equipment are capitalised to the asset.

Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased assets or the present value of the minimum lease payments.

Depreciation

Property, plant and equipment is depreciated to its estimated residual value on a straight-line basis over its expected useful life. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each year end date. The property, plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset or the lease term.

Land and buildings comprise mainly factories and office buildings. Owned land is not depreciated. Leasehold improvements are depreciated over the lesser of the period of the lease and the useful life of the asset.

Impairment

The Group reviews the carrying value of its property, plant and equipment 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.

Operating leases

Leases where a significant portion of risks and rewards of ownership is retained by the lessor are classified as operating leases. Operating lease costs (net of any incentives from the lessor) are charged against operating profit on a straight-line basis over the period of the lease.

 

Significant judgements and estimates

 

Depreciation and residual values

The Group depreciates its assets over their estimated useful lives. The estimation of the useful lives of assets is based on historic performance as well as expectations about future use and therefore requires a significant degree of judgement to be applied by management. The actual lives of these assets can vary depending on a variety of factors, including technological innovation, product life cycles and maintenance programmes. These depreciation rates represent management’s current best estimate of the useful lives of these assets.

Significant judgement is applied by management when determining the residual values for property, plant and equipment. In the event of contractual obligations in terms of which a termination consideration is payable to the Group, management will apply a residual value to the asset. When determining the residual value the following factors are taken into account:

  • external residual value information (if available); and
  • internal technical assessments for complex plant and machinery.

The Group has reviewed the residual values and useful lives of the assets. No material adjustment resulted from such review in the current year.

Depreciation rates

The estimated remaining useful life information for 2016 was as follows:
Buildings (including leasehold improvements) Up to 50 years 
Plant and equipment  Up to 25 years 
Computer equipment  Up to 10 years 
Office equipment and furniture  Up to 10 years 
 

Reconciliation of balance

    Land and
buildings
R’billion
Plant and
equipment
R’billion
Other    
tangible    
assets@
R’billion    
Capital
work-in-
progress
R’billion
Total
R’billion
 

2016

         
 

Carrying value

         
  Cost  4,1  4,8  0,9     3,3  13,1 
  Accumulated depreciation  (0,8) (2,0) (0,5)   –  (3,3)
  Accumulated impairment losses  (0,1) –       –  (0,1)
    3,2  2,8  0,4     3,3  9,7 
 

Movement in property, plant and equipment

         
  Carrying value at the beginning of the year  3,0  2,0  0,4     2,5  7,9 
  Additions  0,1  0,6  0,1     0,9  1,7 
  Borrowing costs capitalised  –  –       0,2  0,2* 
  Depreciation  (0,2) (0,3) (0,1)   –  (0,6)
  Reclassification between categories  –  0,3       (0,3) – 
  Currency translation movements  0,3  0,2       –  0,5 
    3,2  2,8  0,4     3,3  9,7# 
 

@ Other tangible assets comprise computer equipment, office equipment and furniture.

* Borrowing costs capitalised represent financing costs arising on the construction of qualifying assets. The average effective interest rate for the year was 7,7% (2015: 7,1%).

# Included in the total are leased assets amounting to R52,2 million (2015: R28,8 million).

Land and
buildings
R’billion
Plant and
equipment
R’billion
Other    
tangible    
assets@
R’billion    
Capital
work-in-
progress
R’billion
Total
R’billion

2015

Carrying value
Cost 3,7  3,7  0,7     2,5  10,6 
Accumulated depreciation (0,6) (1,7) (0,3)   –  (2,6)
Accumulated impairment losses (0,1) –       –  (0,1)
  3,0  2,0  0,4     2,5  7,9 

Movement in property, plant and equipment

Carrying value at the beginning of the year 3,1   2,2  0,3          1,5  7,1 
Acquisition of subsidiaries and businesses 0,1  –       –  0,1 
Additions 0,1  0,1  0,1     1,3  1,6 
Borrowing costs capitalised –   –       0,1  0,1*
Disposals (0,1) –       –  (0,1)
Depreciation (0,1) (0,3) (0,1)   –  (0,5)
Reclassification between categories 0,1  0,2       (0,3) – 
Reclassification to assets classified as held-for-sale –  (0,1)      –  (0,1)
Currency translation movements (0,2) (0,1) 0,1   (0,1) (0,3)
  3,0  2,0  0,4   2,5  7,9#

2014

Carrying value

Cost 3,7  3,6  0,5   1,5  9,3 
Accumulated depreciation (0,5) (1,4) (0,2)  –  (2,1)
Accumulated impairment losses (0,1) –     –  (0,1)
  3,1  2,2  0,3   1,5  7,1 

@Other tangible assets comprise computer equipment, office equipment and furniture.

*Borrowing costs capitalised represent financing costs arising on the construction of qualifying assets. The average effective interest rate for the year was 7,7% (2015: 7,1%).

#Included in the total are leased assets amounting to R52,2 million (2015: R28,8 million).

Property, plant and equipment (carrying values)

Depreciation

 

Commitments

   
    2016
R’billion
2015
R’billion
 

Capital commitments

   
  Capital commitments, excluding potential capitalised borrowing costs, include all projects for which specific Board approval has been obtained up to the reporting date. Capital expenditure will be financed from funds generated out of normal business operations and existing borrowing facilities. Projects still under investigation for which specific Board approvals have not yet been obtained are excluded from the following     
  Authorised and contracted for  0,8  0,6 
  Authorised but not yet contracted for  2,1  2,4 
    2,9  3,0 
 

Operating lease commitments

   
  The Group rents buildings under non-current, non-cancellable operating leases and also rents offices, warehouses, parking and other equipment under operating leases that are cancellable at various short-term notice periods by either party.     
  The future minimum operating lease payments are as follows     
  Less than one year  0,1  0,1 
  Between one and five years  0,2  0,2 
    0,3  0,3 
  Operating leases comprise a number of individually insignificant leases. These leasing arrangements do not impose any significant restrictions on the Group.     
 

Other disclosure

   
 

Summary of land and buildings

   
  Land  0,8  0,7 
  Buildings  2,4  2,3 
    3,2  3,0 
 

The depreciation charge was classified as follows in the statement of comprehensive income

   
  Cost of sales  0,5  0,4 
  Administrative expenses  0,1  0,1 
    0,6  0,5 
  No property, plant and equipment was pledged or committed as security for any borrowings. 

3.

Goodwill

Accounting policy

 

Recognition and measurement

Goodwill on the acquisition of subsidiaries or businesses is capitalised and shown separately on the face of the statement of financial position and carried at cost less accumulated impairment losses.

Cost

Goodwill is initially measured as the excess of the aggregate of the consideration transferred, the acquisition date fair value of previously held equity interests and the fair value of non-controlling interests over the net identifiable assets acquired and liabilities assumed. If the cost of the acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the statement of comprehensive income.

The profit or loss realised on disposal or termination of an entity is calculated after taking into account the carrying value of any related goodwill.

Impairment

For the purposes of impairment testing, goodwill is allocated to the smallest cash generating unit. Each of those cash generating units represents the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The allocation is made to those cash generating units or groups of cash generating units that are expected to benefit from the business combination in which the goodwill arose. Impairment assessments are performed annually, or more frequently if there are indicators that the balance might be impaired. Impairment testing is performed by comparing value-in-use of the cash generating unit to the carrying value. Impairment testing is only performed on cash generating units that are considered to be significant in comparison to the total carrying value of goodwill.

Value-in-use 

Key assumptions include the discount rate and cash flows used to determine the value-in-use. Future cash flows are estimated based on the most recent budgets and forecasts approved by management covering periods between four and 10 years and are extrapolated over the useful life of the asset to reflect the long-term plans for the Group using the estimated growth rate for the specific business or product. The estimated future cash flows and discount rates used are pre-tax based on an assessment of the current risks applicable to the specific entity and country in which it operates.

Management determines the expected performance of the assets based on the following:

  • an assessment of existing products against past performance and market conditions;
  • an assessment of existing products against existing market conditions; and
  • the pipeline of products under development, applying past experiences of launch success and existing market conditions.

The growth rate used to extrapolate cash flow projections beyond the period covered by the budgets and forecasts take into account the long-term average rates of the industry in which the cash generating unit is operating. Estimations are based on a number of key assumptions such as volume, price and product mix which will create a basis for future growth and gross margin. These assumptions are set in relation to historic figures and external reports on market growth. If necessary, these cash flows are then adjusted to take into account any changes in assumptions or operating conditions that have been identified subsequent to the preparation of the budgets.

The weighted average cost of capital rate is derived from a pricing model based on credit risk and the cost of the debt. The variables used in the model are established on the basis of management judgement and current market conditions. Management judgement is also applied in estimating the future cash flows of the cash generating units. These values are sensitive to the cash flows projected for the periods for which detailed forecasts are not available and to the assumptions regarding the long-term sustainability of the cash flows thereafter.

Impairment losses recognised for goodwill are not reversed in subsequent financial years.

 

Reconciliation of balance

    2016
R’billion
2015
R’billion
  Carrying value at the beginning of the year  5,0   6,6 
  Acquisition of subsidiaries and businesses    0,2 
  Reclassification to assets classified as held-for-sale    (1,4)* 
  Currency translation movements  1,0   (0,4)
    6,0   5,0 
 

* On 20 May 2015 Aspen Australia entered into an agreement with Strides in terms of which Aspen Australia divested a portfolio of approximately 130 products for a consideration of AUD217 million. The portfolio of products in this transaction comprised a generic pharmaceutical business together with certain branded pharmaceutical assets. Goodwill amounting to AUD146 million related to the divested portfolio was reclassified to assets classified as held-for-sale.

   
 

Split of balance

   
 

South African segment

   
  FCC  0,2   0,2 
  GSK transactions  0,1   0,1 
  South African infant nutritionals business  0,2   0,2 
 

Asia Pacific segment

   
  Sigma business  4,5   3,8 
  Australian infant nutritionals business  0,1   0,1 
 

International segment

   
  MSD business  0,3   0,3 
  GSK thrombosis business  0,2   0,1 
  Latin American infant nutritionals business  0,1   0,1 
  Other  0,2  – 
 

SSA segment

   
  Shelys Africa Limited  0,1   0,1 
    6,0   5,0 
 

Impairment of goodwill

  Key assumptions on the impairment tests for the goodwill balances below were as follows 
    Carrying
value of
goodwill
(R’billion)
Period
covered
by
forecasts
and budgets
Growth in
turnover
(% per annum)
Gross profit
(% per annum)
Capital
expenditure
(per annum)
Growth rate  
(% per annum)*
Pre-tax
discount rate
applied to
cash flows
(% per annum)
  Sigma business 4,5  5 years  Ranging between
(2) and (5)
54  Ranging between
AUD3 million and
AUD12 million 
10 
  MSD business 0,3  10 years  Ranging between
(13) and 14 
Average of 67  Nil  12 
  GSK thrombosis business 0,2  10 years  Ranging between
(1) and 10 
Average of 47  Nil  12 
  South African infan nutritionals business 0,2  4 years  Ranging between
12 and 18 
Ranging between
55 and 58 
Nil  17 
  FCC 0,2  5 years  Ranging between
3 and 57 
Ranging between
38 and 53 
Ranging between
R57 million
and R330 million 
16 
 

* Growth rate used to extrapolate cash flows beyond period covered by above mentioned budgets and forecasts.

  Management has used a forecast period greater than five years to better reflect the impact of a gradual slowing in growth over the medium term. Based on the calculations no impairments were recognised. There are no reasonable possible changes in any key assumptions which would cause the carrying value of goodwill to exceed its value-in-use. 

4.

Deferred tax

Accounting policy

 

Recognition and measurement

Deferred tax is provided in full, using the liability method, at currently enacted or substantively enacted tax rates in operation at year end, that are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Full provision is made for all temporary differences between the tax base of an asset or liability and its statement of financial position carrying value.

No deferred tax asset or liability is recognised in those circumstances, other than a business combination, where the initial recognition of an asset or liability has no impact on accounting profit or taxable income.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred tax is charged or credited to other comprehensive income or directly to equity if the tax relates to items that are credited or charged, in the same or a different period, to other comprehensive income or directly to equity respectively.

Deferred tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

Deferred tax is calculated in full on temporary differences under the liability method using a principal tax rate of 28% (2015: 28%).

 

Reconciliation of balance

   
    2016
R’billion
2015
R’billion
  Deferred tax liabilities – opening balance  1,7   1,4 
  Deferred tax assets – opening balance  (1,1)  (0,8)
  Net deferred tax liabilities – opening balance  0,6   0,6 
  Statement of comprehensive income credit – included in tax    (0,2)
  Acquisition of subsidiaries and businesses    0,1 
  Currency translation movements  0,1   0,1 
    0,7   0,6 
 

Split of balance

   
  Deferred tax liabilities  1,8   1,7 
  Deferred tax assets  (1,1)  (1,1)
    0,7   0,6 
 

Deferred tax balance comprises

   
  Property, plant and equipment  0,4   0,3 
  Intangible assets  0,7   0,6 
  Investments in joint venture and subsidiaries  0,8   0,7 
  Inventories  (0,2)  (0,3)
  Trade and other receivables  (0,1)  – 
  Net deferred tax assets not able to be recognised  0,2   0,1 
  Unfavourable and onerous contracts  (0,5)  (0,4)
  Retirement and other employee benefit obligations  (0,1)  (0,2)
  Trade and other payables  (0,4)  (0,3)
  Tax losses  (0,4)  (0,3)
  Other  0,3   0,4 
    0,7   0,6 
 

The statement of comprehensive income credit comprises

   
  Property, plant and equipment  0,1   0,1 
  Intangible assets  0,1   – 
  Inventories    (0,2)
  Trade and other receivables  (0,1)  – 
  Net deferred tax assets not able to be recognised  0,2   – 
  Retirement and other employee benefit obligations  0,1   (0,1)
  Tax losses  (0,1)  – 
  Other  (0,3)  – 
      (0,2)