EBOS GROUP LIMITED — Interim / Quarterly Report 2017

Mar 20, 2017

1

31 DECEMBER 2016

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EBOS Group has recorded a positive start for the first half of the financial year across both its Healthcare and Animal Care segments.

3

Half year 2017 at a glance

FINANCIAL HIGHLIGHTS

+ $4.0 billion revenue +17.2% increase

+ $119.9 million EBITDA +5.4% increase

+ $68.8 million net profit after tax +7.2% increase

+ 45.4 cents earnings per share +6.7% increase

+ 30.0 cents interim dividend per share +15.4% increase

All figures are in New Zealand Dollars, unless otherwise stated.

FIVE YEAR REVENUE TREND

For the six months to 31 December ($millions)

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2016 3,960
2015 3,380
2014 3,120
2013 3,000
2012 755
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FIVE YEAR EBITDA TREND

For the six months to 31 December ($millions)

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2016 119.9
2015 113.7
2014 100.3
2013 94.8
2012 26.8
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FIVE YEAR NPAT TREND

For the six months to 31 December ($millions)

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2016 68.8
2015 64.2
2014 53.9
2013 49.4
2012 15.0
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4

Dear Shareholder

Segment & Divisional Earnings Overview

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5% 9%
Consumer Products Contract Logistics
16% 19%
Animal Care Institutional
Healthcare
NIMALCARE 16% HEALTHCARE
A 84
%
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51%

Pharmacy (Wholesale and Retail)

It is with great pleasure that we provide you with the interim report for the six months to 31 December 2016 including the highlights of our performance.

The interim results reflect the strong operating performance across both our Healthcare and Animal Care segments, and demonstrates the success of our investment strategy in Australia and New Zealand that continues to deliver both short and long term returns to shareholders.

The highlights of the six months included:

• Completion of the strategic merger of our Chemmart business with the Terry White Group to create one of Australia’s largest retail pharmacy networks;

• Strong sales of Hepatitis C medicines in Australia;

• Improved productivity and cost savings from our Healthcare business;

• Strong growth from our recently acquired Red Seal consumer products business; and

• Strong performances from our key Animal Care brands, Black Hawk and Vitapet.

The Group generated revenue for the halfyear of $4 billion, up 17.2% on the same period last year with Healthcare up by 18.1% and Animal Care up by 2.7%.

Our earnings before net finance costs, tax, depreciation and amortisation (EBITDA) increased by 5.4% to $119.9 million with Healthcare up by 6.9% and Animal Care up by 7.8%.

Net Profit after Tax (NPAT) increased to $68.8 million, representing an increase of 7.2% on the prior half-year, and earnings per share increased by 6.7%.

The reported profit growth rates were negatively impacted by the stronger NZD/AUD exchange rate and, in constant currency, EBITDA grew by 9% and NPAT grew by 10.9%.

INTERIM DIVIDEND INCREASE

Your Directors declared an interim dividend of 30 cents per share, an increase of 15.4% on the prior corresponding period. The interim dividend will be imputed to 25% for New Zealand resident shareholders and will be fully franked for Australian resident shareholders. The record date for the dividend is 17 March 2017 and the dividend will be paid on 7 April 2017.

HEALTHCARE

Our Healthcare activities continued to deliver strong EBITDA growth of 6.9%, underpinned by a significant increase in revenue of 18.1%.

The reported growth rates were negatively impacted by the stronger NZD/AUD exchange rate and, in constant currency, revenues grew by 21.5% leading to EBITDA growth of 10.6%.

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The interim results reflect the strong operating performance across both our Healthcare and Animal Care segments…

In Australia, revenues climbed 22.3% with EBITDA growth of 7.1%. Revenue growth was driven by the full six months’ sales of Hepatitis C medicines. In the Australian pharmacy market, wholesale revenue growth (excluding Hepatitis C medicines) was affected by the ongoing impact of PBS reforms and lower levels of activity in the non-prescription over-the-counter channel.

The Healthcare business continues to offset the negative impact of PBS reforms by expanding its revenue streams and generating cost savings and improved productivity across its operations.

We have maintained our market leading positions in both the Australian and New Zealand institutional markets due to strong Hepatitis C medicine sales, market growth and the contributions from Onelink Australia and Zest.

The New Zealand Healthcare operations delivered a solid performance over the period with revenue increasing 3.4% and EBITDA increasing 6.3%.

The Group’s consumer products division recorded strong revenue growth with a full six month contribution from Red Seal (acquired on 30 November 2015). Red Seal is performing well in both domestic and international markets with like-for-like revenue growth of 8.4%.

ANIMAL CARE

Our Animal Care business recorded 2.7% revenue growth and 7.8% EBITDA growth for the period.

A number of strategic initiatives in the first half have helped drive this growth including the launch of Black Hawk’s premium grain free product range and an Australian national television advertising campaign. Customer response to these initiatives and the performance of Black Hawk continues to exceed expectations.

The Animates business, of which we own 50%, also continues to perform well, driven by sales growth from network expansion with five new retail stores opening in the period. The business now operates 37 retail stores and 10 veterinary clinics in New Zealand.

INVESTMENT IN OPERATIONS

We are committed to investing in our operational excellence to further improve customer service levels and productivity. Capital expenditure for the period was $16.0 million with $11.7 million spent on a new wholesale distribution facility in Brisbane, Queensland. The total investment for this site is projected to be $58 million and is expected to be operational by mid-2018.

The Group is also progressing with the expansion of its Australian contract logistics business with the development of a new site in Sydney, New South Wales.

PERFORMANCE METRICS

Operating cash flow before capex for the period was $47.9 million, representing a slight increase on the prior corresponding period and the Group’s Net Debt/EBITDA ratio at 31 December 2016 was 1.25 times.

Return on capital employed increased 1.7% to 16.0% reflecting the increased operating profits and benefits of the Group’s recent investments and disciplined approach to managing capital.

OUTLOOK

We have recorded a positive start for the first half of the financial year across both our Healthcare and Animal Care segments. In October 2016, we provided guidance of underlying, constant currency, net profit after tax growth in FY17 of between 7% to 10% compared to the prior year. We now expect full year FY17 earnings to be at the upper end of this range.

We look forward to writing to you again following the end of the financial year on the performance of the Company and we appreciate your continued support.

Patrick Davies Mark Waller Chief Executive Officer Chairman of Directors

6

Financial Statements

Summary of consolidated fnancial highlights	7
Shareholder calendar	7
Auditor’s review report	8
Condensed consolidated income statement	9
Condensed consolidated statement of comprehensive income	10
Condensed consolidated statement of changes in equity	11
Condensed consolidated balance sheet	13
Condensed consolidated cash fow statement	15
Notes to the condensed consolidated interim fnancial statements	16
Directory	28

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7

Summary of consolidated financial highlights

	Six months	Six months	Year ended
	31 Dec 16	31 Dec 15	30 Jun 16
	$’000	$’000	$’000
	(Unaudited)	(Unaudited)	(Audited)
Revenue	3,960,204	3,379,749	7,101,455
Earnings before net fnance costs, tax expense, depreciation
and amortisation (EBITDA)	119,868	113,725	225,475
Earnings before interest and tax expense (EBIT)	107,534	101,419	200,785
Proft before income tax expense	98,602	91,744	180,715
Proft for the period	69,269	64,170	126,997
Proft for the period attributable to owners of the Company	68,785	64,170	126,997
Equity attributable to owners of the Company	1,108,189	1,070,248	1,087,277
Earnings per share	45.4c	42.5c	84.0c
Interim dividend per share	30.0c	26.0c	26.0c
Net interest bearing debt to net interest bearing debt plus equity	20.3%	26.2%	18.5%

Shareholder calendar

Release of half year result	22 February 2017
Interim dividend record date	17 March 2017
Interim dividend payable	7 April 2017
Release of full year result	24 August 2017
Annual Meeting	17 October 2017

8

Independent review report to the shareholders of EBOS Group Limited

We have reviewed the condensed consolidated interim financial statements of EBOS Group Limited and its subsidiaries (‘the Group’) which comprise the condensed consolidated balance sheet as at 31 December 2016, and the condensed consolidated income statement, condensed consolidated statement of changes in equity and condensed consolidated statement of cash flows for the six months ended on that date, and a summary of significant accounting policies and other explanatory information on pages 9 to 26.

This report is made solely to the Group’s shareholders, as a body. Our review has been undertaken so that we might state to the Group’s shareholders those matters we are required to state to them in a review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Group’s shareholders as a body, for our engagement, for this report, or for the opinions we have formed.

BOARD OF DIRECTORS’ RESPONSIBILITIES

The Board of Directors are responsible on behalf of the Group for the preparation and fair presentation of the condensed consolidated interim financial statements, in accordance with NZ IAS 34 Interim Financial Reporting and IAS 34 Interim Financial Reporting and for such internal control as the Board of Directors determine is necessary to enable

the preparation and fair presentation of the condensed consolidated interim financial statements that are free from material misstatement, whether due to fraud or error.

OUR RESPONSIBILITIES

Our responsibility is to express a conclusion on the condensed consolidated interim financial statements based on our review. We conducted our review in accordance with NZ SRE 2410 Review of Financial Statements Performed by the Independent Auditor of the Entity (‘NZ SRE 2410’). NZ SRE 2410 requires us to conclude whether anything has come to our attention that causes us to believe that the condensed consolidated interim financial statements, taken as a whole, are not prepared, in all material respects, in accordance with NZ IAS 34 Interim Financial Reporting and IAS 34 Interim Financial Reporting. As the auditor of EBOS Group Limited, NZ SRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial statements.

A review of the condensed consolidated interim financial statements in accordance with NZ SRE 2410 is a limited assurance engagement. The auditor performs procedures, primarily consisting of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

The procedures performed in a review are substantially less than those performed

in an audit conducted in accordance with International Standards on Auditing (New Zealand). Accordingly we do not express an audit opinion on those financial statements.

Other than in our capacity as auditor and the provision of due diligence, taxation advisory services and information technology services, we have no relationship with or interests in EBOS Group Limited or its subsidiaries. These services have not impaired our independence as auditor of the Group.

CONCLUSION

Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated interim financial statements of the Group do not present fairly, in all material respects, the financial position of the Group as at 31 December 2016 and its financial performance and cash flows for the six months ended on that date in accordance with NZ IAS 34 Interim Financial Reporting and IAS 34 Interim Financial Reporting.

Chartered Accountants,

21 February 2017 Christchurch, New Zealand

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Please see www.deloitte.com/about for a more detailed description of DTTL and its member firms

9

Condensed consolidated income statement

Condensed consolidated income statement
For the six months ended 31 December 2016		Six months Six months	Year ended
		31 Dec 16 31 Dec 15	30 Jun 16
		$’000 $’000	$’000
	Notes	(Unaudited) (Unaudited)	(Audited)
Revenue	2(a)	3,960,204 3,379,749	7,101,455
Income from associates	2(b)	1,948 1,852	3,823
Proft before depreciation, amortisation, net fnance costs and
income tax expense		119,868 113,725	225,475
Depreciation	2(b)	(6,519) (6,416)	(12,933)
Amortisation of fnite life intangibles	2(b)	(5,815) (5,890)	(11,757)
Proft before net fnance costs and income tax expense		107,534 101,419	200,785
Finance income	2(b)	1,219 1,404	2,503
Finance costs	2(b)	(10,151) (11,079)	(22,573)
Net fnance costs	2(b)	(8,932) (9,675)	(20,070)
Proft before income tax expense	2(b)	98,602 91,744	180,715
Income tax expense		(29,333) (27,574)	(53,718)
Proft for the period		69,269 64,170	126,997
Proft for the period attributable to:
Owners of the Company		68,785 64,170	126,997
Non-controlling interests		484 -	-
		69,269 64,170	126,997
Earnings per share
Basic (cents per share)		45.4 42.5	84.0
Diluted (cents per share)		45.4 42.5	84.0

10

Condensed consolidated statement of comprehensive income

For the six months ended 31 December 2016	Six months Six months	Year ended
	31 Dec 16 31 Dec 15	30 Jun 16
	$’000 $’000	$’000
	(Unaudited) (Unaudited)	(Audited)
Proft for the period	69,269 64,170	126,997
Other comprehensive income
Items that may be reclassifed subsequently to proft or loss:
Cash fow hedge gains/(losses)	5,074 (1,615)	(4,017)
Related income tax	(1,470) 452	1,283
Translation of foreign operations	(2,270) (14,000)	(18,885)
Total comprehensive income net of tax	70,603 49,007	105,378
Total comprehensive income for the period is attributable to:
Owners of the Company	70,119 49,007	105,378
Non-controlling interests	484 -	-
	70,603 49,007	105,378

11

Condensed consolidated statement of changes in equity

For the six months ended 31 December 2016			Foreign
			currency		Cash fow
		Share	translation	Retained	hedge
		capital	reserve	earnings	reserve	Total
	Notes	$’000	$’000	$’000	$’000	$’000
Six months ended 31 December 2015 (unaudited):
Opening balance		880,628	(17,876)	189,595	(1,319)	1,051,028
Proft for the period		-	-	64,170	-	64,170
Other comprehensive income for the period, net of tax		-	(14,000)	-	(1,163)	(15,163)
Payment of dividends	4	-	-	(37,672)	-	(37,672)
Dividends re-invested	3	7,885	-	-	-	7,885
Balance at 31 December 2015		888,513	(31,876)	216,093	(2,482)	1,070,248
Year ended 30 June 2016 (audited):
Opening balance		880,628	(17,876)	189,595	(1,319)	1,051,028
Proft for the year		-	-	126,997	-	126,997
Other comprehensive income for the year, net of tax		-	(18,885)	-	(2,734)	(21,619)
Payment of dividends	4	-	-	(77,014)	-	(77,014)
Dividends re-invested	3	7,885	-	-	-	7,885
Balance at 30 June 2016		888,513	(36,761)	239,578	(4,053)	1,087,277

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Condensed consolidated statement of changes in equity (continued)

For the six months ended 31 December 2016				Foreign
			Share based	currency		Cash fow	Non-
		Share	payments	translation	Retained	hedge	controlling
		capital	reserve	reserve	earnings	reserve	interests	Total
	Notes	$’000	$’000	$’000	$’000	$’000	$’000	$’000
Six months ended 31 December 2016 (unaudited):
Opening balance		888,513	-	(36,761)	239,578	(4,053)	-	1,087,277
Proft for the period		-	-	-	68,785	-	484	69,269
Other comprehensive income for
the period, net of tax		-	-	(2,270)	-	3,604	-	1,334
Payment of dividends	4	-	-	-	(49,372)	-	-	(49,372)
Arising on acquisition of subsidiaries		-	-	-	-	-	20,303	20,303
Share based payments		-	165	-	-	-	-	165
Efect of exchange rate fuctuations		-	-	-	-	-	(412)	(412)
Balance at 31 December 2016		888,513	165	(39,031)	258,991	(449)	20,375	1,128,564

13

Condensed consolidated balance sheet

As at 31 December 2016	31 Dec 16 31 Dec 15	30 Jun 16
	$’000 $’000	$’000
	Notes (Unaudited) (Unaudited)	(Audited)
Current assets
Cash and cash equivalents	175,679 115,810	120,251
Trade and other receivables	1,134,832 869,559	1,320,387
Prepayments	9,093 6,671	8,234
Inventories	596,174 548,776	578,513
Current tax refundable	83 88	83
Other fnancial assets – derivatives	8 576 468	-
Total current assets	1,916,437 1,541,372	2,027,468
Non-current assets
Property, plant and equipment	106,914 102,884	97,973
Capital work in progress	8,303 -	6,494
Prepayments	209 330	234
Deferred tax assets	43,730 44,547	47,043
Goodwill	859,858 828,922	829,163
Indefnite life intangibles	107,316 92,058	91,147
Finite life intangibles	56,263 61,779	55,341
Investment in associates	34,480 35,576	36,778
Other fnancial assets	- -	1,255
Total non-current assets	1,217,073 1,166,096	1,165,428
Total assets	3,133,510 2,707,468	3,192,896

14

Condensed consolidated balance sheet (continued)

As at 31 December 2016		31 Dec 16 31 Dec 15	30 Jun 16
		$’000 $’000	$’000
	Notes	(Unaudited) (Unaudited)	(Audited)
Current liabilities
Trade and other payables		1,424,184 1,028,647	1,611,611
Finance leases		118 540	143
Bank loans	7	188,866 307,970	106,976
Current tax payable		12,862 13,577	18,203
Employee benefts		34,134 29,368	35,598
Other fnancial liabilities – derivatives	8	4,154 6,638	8,652
Total current liabilities		1,664,318 1,386,740	1,781,183
Non-current liabilities
Bank loans	7	274,778 186,458	260,672
Trade and other payables		14,297 10,324	12,926
Deferred tax liabilities		46,622 48,936	46,120
Finance leases		- 109	36
Employee benefts		4,931 4,653	4,682
Total non-current liabilities		340,628 250,480	324,436
Total liabilities		2,004,946 1,637,220	2,105,619
Net assets		1,128,564 1,070,248	1,087,277
Equity
Share capital	3	888,513 888,513	888,513
Share based payments reserve		165 -	-
Foreign currency translation reserve		(39,031) (31,876)	(36,761)
Retained earnings		258,991 216,093	239,578
Cash fow hedge reserve		(449) (2,482)	(4,053)
Equity attributable to owners of the company		1,108,189 1,070,248	1,087,277
Non-controlling interests		20,375 -	-
Total equity		1,128,564 1,070,248	1,087,277

15

Condensed consolidated cash flow statement

For the six months ended 31 December 2016	Six months	Six months	Year ended
	31 Dec 16	31 Dec 15	30 Jun 16
	$’000	$’000	$’000
	Notes (Unaudited)	(Unaudited)	(Audited)
Cash fows from operating activities
Receipts from customers	4,146,399	3,280,499	6,536,472
Interest received	1,219	1,404	2,503
Dividends received from associates	682	590	1,113
Payments to suppliers and employees	(4,053,068)	(3,195,047)	(6,238,864)
Taxes paid	(37,218)	(29,812)	(54,529)
Interest paid	(10,151)	(11,079)	(22,573)
Net cash infow from operating activities	5 47,863	46,555	224,122
Cash fows from investing activities
Sale of property, plant & equipment	45	5,046	5,209
Purchase of property, plant & equipment	(13,471)	(5,853)	(9,771)
Payments for capital work in progress	(1,852)	-	(6,494)
Payments for intangible assets	(670)	(958)	(1,354)
Acquisition of associates	-	(1,107)	(1,107)
Acquisition of subsidiaries	(11,961)	(89,457)	(89,724)
Investment in other fnancial assets	-	-	(1,255)
Net cash (outfow) from investing activities	(27,909)	(92,329)	(104,496)
Cash fows from fnancing activities
Proceeds from issue of shares	3 -	7,885	7,885
Proceeds from borrowings	85,848	84,429	-
Repayment of borrowings	-	-	(36,061)
Dividends paid to equity holders of parent	4 (49,372)	(37,672)	(77,014)
Net cash infow/(outfow) from fnancing activities	36,476	54,642	(105,190)
Net increase in cash held	56,430	8,868	14,436
Efect of exchange rate fuctuations on cash held during the period	(1,002)	(2,579)	(3,706)
Net cash and cash equivalents at beginning of period	120,251	109,521	109,521
Net cash and cash equivalents at end of period	175,679	115,810	120,251

16

Notes to the condensed consolidated interim financial statements

For the six months ended 31 December 2016

1. Financial Statements

These unaudited condensed consolidated interim financial statements have been prepared in accordance with Generally Accepted Accounting Practice (“GAAP”). They comply with the New Zealand Equivalent to International Accounting Standard 34 (NZ IAS 34) “Interim Financial Reporting” and International Accounting Standard IAS 34, as applicable for profit orientated entities.

During the period the Group recognised a non-controlling interest in a subsidiary acquired. The fair value of the non-controlling interest was measured as the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets. Aside from this new policy the same accounting policies and methods of computation are applied in the interim financial statements as were applied in the financial statements for the year ended 30 June 2016. These financial statements should be read in conjunction with the financial statements and related notes included in the Group’s Annual Report for the year ended 30 June 2016. The information is presented in thousands of New Zealand dollars unless otherwise stated.

2. Profit from Operations

2. Proft from Operations
	Six months	Six months	Year ended
	31 Dec 16	31 Dec 15	30 Jun 16
	$’000	$’000	$’000
	(Unaudited)	(Unaudited)	(Audited)
(a) Revenue Revenue from the sale of goods	3,890,309	3,326,984	6,989,949
Revenue from the rendering of services	69,895	52,765	111,506
	3,960,204	3,379,749	7,101,455
(b) Proft before income tax expense Proft before income tax has been arrived at after crediting/(charging) the following gains and losses from operations:
Gain/(loss) on sale of property, plant and equipment	2	(191)	(274)
Change in fair value of derivative fnancial instruments	-	(770)	(770)
Income from associates Proft before income tax has been arrived at after (charging) the following expenses by nature:	1,948	1,852	3,823
Cost of sales	(3,593,238)	(3,044,051)	(6,418,523)
Write-down of inventory	(2,842)	(2,012)	(6,392)
Net fnance costs: Finance income	1,219	1,404	2,503
Finance costs	(10,151)	(11,079)	(22,573)
Total net fnance costs	(8,932)	(9,675)	(20,070)

17

Notes to the condensed consolidated interim financial statements (continued)

For the six months ended 31 December 2016

1. Profit from Operations (continued)

2. Proft from Operations(continued)
			Six months			Six months	Year ended
				31 Dec 16		31 Dec 15	30 Jun 16
				$’000		$’000	$’000
			(Unaudited)			(Unaudited)	(Audited)
(b) Proft before income tax expense (continued)
Impairment on trade & other receivables				(465)		(861)	(2,423)
Depreciation of property, plant & equipment				(6,519)		(6,416)	(12,933)
Amortisation of fnite life intangibles				(5,815)		(5,890)	(11,757)
Operating lease rental expenses				(16,038)		(14,766)	(30,352)
Donations				(17)		(81)	(101)
Employee beneft expense				(119,025)		(106,251)	(220,960)
Defned contribution plan expense				(6,448)		(6,299)	(12,635)
Other expenses				(104,213)		(92,594)	(187,373)
Total expenses, net of interest revenue			(3,863,552)			(3,288,896)	(6,923,519)
Proft before income tax expense				98,602		91,744	180,715
3. Share Capital
		Six months		Six months			Year ended
		31 Dec 16		31	Dec 15		30 Jun 16
	No.	$’000	No.		$’000	No.	$’000
	‘000	(Unaudited)	‘000	(Unaudited)		‘000	(Audited)
Fully paid ordinary shares
Balance at beginning of period	151,314	888,513	150,687	880,628		150,687	880,628
Dividend reinvested – October 2015	-	-	627		7,885	627	7,885
Shares issued – September 2016	600	-	-		-	-	-
	151,914	888,513	151,314	888,513		151,314	888,513

18

Notes to the condensed consolidated interim financial statements (continued)

For the six months ended 31 December 2016

1. Dividends

4. Dividends
		Six months	Six months		Year ended
		31 Dec 16	31 Dec 15		30 Jun 16
	Cents	$’000 Cents	$’000	Cents	$’000
	per share	(Unaudited) per share	(Unaudited)	per share	(Audited)
Recognised amounts
Fully paid ordinary shares
Final – prior year	32.5	49,372 25.0	37,672	25.0	37,672
Interim – current year	-	- -	-	26.0	39,342
	32.5	49,372 25.0	37,672	51.0	77,014
Unrecognised amounts
Final dividend	-	- -	-	32.5	49,372
Interim dividend	30.0	45,574 26.0	39,342	-	-
	30.0	45,574 26.0	39,342	32.5	49,372

The Board approved an interim dividend of 30.0 cents per share on 21 February 2017. The record date for the dividend is 17 March 2017 and the dividend will be paid on 7 April 2017.

19

Notes to the condensed consolidated interim financial statements (continued)

For the six months ended 31 December 2016

1. Notes to the Cash Flow Statement

5. Notes to the Cash Flow Statement
Six months Six months	Year ended
31 Dec 16 31 Dec 15	30 Jun 16
$’000 $’000	$’000
(Unaudited) (Unaudited)	(Audited)
Reconciliation of proft for the period with cash fows from operating activities Proft for the period 69,269 64,170	126,997
Add/(less) non-cash items: Depreciation of property, plant and equipment 6,519 6,416	12,933
Amortisation of fnite life intangibles 5,815 5,890	11,757
(Gain)/loss on sale of property, plant & equipment (2) 191	274
Income from associates (1,948) (1,852)	(3,823)
Expense recognised in respect of share based payments 165 -	-
Loss on derivative fnancial instruments - 770	770
Deferred tax (1,816) 212	(4,819)
8,733 11,627	17,092
Movements in working capital: Trade and other receivables 185,555 (65,720)	(516,548)
Prepayments (834) 1,373	(94)
Inventories (17,661) (30,504)	(60,241)
Current tax refundable/(payable) (5,341) (3,413)	1,218
Trade and other payables (186,056) 76,672	662,238
Provision for employee benefts (1,215) (4,378)	1,880
Foreign currency translation of opening working capital balances (3,316) (14,249)	(18,400)
(28,868) (40,219)	70,053
Working capital items relating to investing activities 682 1,701	6,706
Working capital items acquired on acquisition (1,953) 9,276	3,274
Net cash infow from operating activities 47,863 46,555	224,122

20

Notes to the condensed consolidated interim financial statements (continued)

For the six months ended 31 December 2016

6. 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 human 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.

Corporate: Includes net financing costs and central administration expenses that have not been allocated to the Healthcare or Animal Care segments.

(b) Segment revenues and results

The following is an analysis of the Group’s revenue and results by reportable segment:

Six months	Six months	Year ended
31 Dec 16	31 Dec 15	30 Jun 16
$’000	$’000	$’000
(Unaudited)	(Unaudited)	(Audited)
Revenue from external customers Healthcare 3,744,059	3,169,276	6,686,415
Animal Care 216,145	210,473	415,040
3,960,204	3,379,749	7,101,455
Segment result (EBITDA) Healthcare 106,659	99,755	195,028
Animal Care 21,115	19,587	42,308
Corporate (7,906)	(5,617)	(11,861)
119,868	113,725	225,475

21

Notes to the condensed consolidated interim financial statements (continued)

For the six months ended 31 December 2016

1. Segment Information (continued)

Six months	Six months	Year ended
31 Dec 16	31 Dec 15	30 Jun 16
$’000	$’000	$’000
(Unaudited)	(Unaudited)	(Audited)
Segment expenses Healthcare: Depreciation of property, plant and equipment (5,970)	(5,766)	(11,691)
Amortisation of fnite life intangibles (4,591)	(4,683)	(9,283)
Income tax expense (28,909)	(26,855)	(52,607)
(39,470)	(37,304)	(73,581)
Animal Care: Depreciation of property, plant and equipment (549)	(650)	(1,242)
Amortisation of fnite life intangibles (1,224)	(1,207)	(2,474)
Income tax expense (5,317)	(4,958)	(10,803)
(7,090)	(6,815)	(14,519)
Corporate: Net fnance costs (8,932)	(9,675)	(20,070)
Income tax credit 4,893	4,239	9,692
(4,039)	(5,436)	(10,378)
Proft for the period
Healthcare 67,189	62,451	121,447
Animal Care 14,025	12,772	27,789
Corporate (11,945)	(11,053)	(22,239)
69,269	64,170	126,997

The accounting policies of the reportable segments are consistent with the Group’s accounting policies. Segment result represents profit before depreciation, amortisation, net 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.

(c) Segment assets

The following balance sheet and cash flow items are not allocated to operating segments as they are not reported to the chief operating decision maker at a segment level:

• Assets

• Liabilities

• Capital expenditure

(d) Revenues from major products and services

The Group’s major products and services are transacted the same as its reportable segments i.e. Healthcare, Animal Care and Corporate.

22

Notes to the condensed consolidated interim financial statements (continued)

For the six months ended 31 December 2016

6. Segment Information (continued)

(e) Geographical information

The Group operates in two principal geographical areas; New Zealand (country of domicile) and Australia.

The Group’s revenue from external customers by geographical location (of the reportable segment) and information about its segment assets (non-current assets excluding financial instruments, investments in associates and deferred tax assets) are detailed below:

Six months	Six months	Year ended
31 Dec 16	31 Dec 15	30 Jun 16
$’000	$’000	$’000
Revenue from external customers (Unaudited)	(Unaudited)	(Audited)
New Zealand 761,251	737,225	1,468,037
Australia 3,198,953	2,642,524	5,633,418
3,960,204	3,379,749	7,101,455
Non-current assets
New Zealand 286,278	286,558	286,171
Australia 852,585	799,415	794,181
1,138,863	1,085,973	1,080,352

(f) Information about major customers

No revenues from transactions with a single customer amount to 10% or more of the Group’s revenues (December 2015: Nil, June 2016: Nil).

7. Bank Facility and Borrowings

The Group fully complies with and operates within the financial covenants under the arrangements with its bankers. At 31 December 2016 the Group had unutilised term and revolving cash advance facilities of $86.3m (December 2015: $87.7m, June 2016: $85.3m).

The Group also has a trade debtor securitisation facility of which $255.1m was unutilised at 31 December 2016 (December 2015: $182.7m, June 2016: $337.3m).

As at 31 December 2016 the maturity profile of the Group’s term debt, working capital and securitisation facilities was:

Facility	Amount	Maturity
Term debt facilities	$2.7m	Within the next 12 months
Working capital facility	$85.0m	1-2 years
Securitisation facility	$441.3m	1-2 years
Term debt facilities	$92.4m	1-2 years
Term debt facilities	$99.9m	2-3 years
Term debt facilities	$31.9m	3-4 years
Term debt facilities	$51.9m	4+ years

23

Notes to the condensed consolidated interim financial statements (continued)

For the six months ended 31 December 2016

8. Financial Instruments

The Group enters into foreign currency forward exchange contracts to hedge trading transactions, including anticipated transactions, denominated in foreign currencies and 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.

	Six months Six months	Year ended
	31 Dec 16 31 Dec 15	30 Jun 16
	$’000 $’000	$’000
Fair value of derivative fnancial instruments	(Unaudited) (Unaudited)	(Audited)
Other fnancial assets – derivatives:
Foreign currency forward exchange contracts	576 468	-
	576 468	-
Other fnancial liabilities – derivatives:
Foreign currency forward exchange contracts	(132) (1,103)	(1,475)
Interest rate swaps	(4,022) (5,535)	(7,177)
	(4,154) (6,638)	(8,652)

The Group has categorised these derivatives, both financial assets and financial liabilities, as Level 2 under the fair value hierarchy contained within NZ IFRS 13.

The fair value of foreign currency forward exchange contracts is determined using a discounted cashflow valuation. Key inputs include observable forward exchange rates, at the measurement date, with the resulting value discounted back to present values.

Interest rate swaps are valued using a discounted cashflow valuation. Key inputs for the valuation of interest rate swaps are the estimated future cash flows based on observable yield curves at the end of the reporting period, discounted at a rate that reflects the credit risk of the various counterparties.

There have been no changes in valuation techniques used for either foreign currency forward exchange contracts or interest rate swaps during the current reporting period.

There were no transfers between fair value hierarchy levels during either the current or prior periods.

24

Notes to the condensed consolidated interim financial statements (continued)

For the six months ended 31 December 2016

9. Acquisition of Subsidiaries

The following material acquisitions of subsidiaries took place during the period.

On 31 October 2016 the Group acquired the Terry White Group (‘TWG’). EBOS Group transferred its Chemmart business assets, investment in VIM Health Pty Limited, and cash of $19.1m to the acquiree, in return for a controlling equity interest in TWG (50.000002%). The transaction also permitted TWG to make a $13.8m payment to the TWG shareholders that were in place immediately preceding the acquisition by EBOS. Details of the acquisition are as follows:

Assets and liabilities acquired:

Assets and liabilities acquired:
Carrying	Fair value	Fair value
value	adjustment	on acquisition
$’000	$’000	$’000
(Unaudited)	(Unaudited)	(Unaudited)
Current assets Cash and cash equivalents 5,442	-	5,442
Trade and other receivables 9,321	-	9,321
Prepayments 1,148	-	1,148
Inventories 7,596	(136)1	7,460
Non-current assets Property, plant and equipment 2,930	-	2,930
Deferred tax assets 1,078	1,0302	2,108
Indefnite life intangibles 1,918	14,8583	16,776
Finite life intangibles 5,280	1,0123	6,292
Current liabilities Trade and other payables (11,407)	(16,039)4	(27,446)
Current tax payable (1,632)	-	(1,632)
Employee benefts (1,914)	-	(1,914)

25

Notes to the condensed consolidated interim financial statements (continued)

For the six months ended 31 December 2016

1. Acquisition of Subsidiaries (continued)

9. Acquisition of Subsidiaries(continued)
Carrying	Fair value	Fair value
value	adjustment	on acquisition
$’000	$’000	$’000
(Unaudited)	(Unaudited)	(Unaudited)
Non-current liabilities Bank loans (14,542)	(299)5	(14,841)
Trade and other payables (674)	(707)4	(1,381)
Deferred tax liabilities (108)	(6,072)2	(6,180)
Loans to related parties (1,278)	-	(1,278)
Employee benefts (350)	-	(350)
Net assets acquired 2,808	(6,353)	(3,545)
Goodwill on acquisition		27,559
Less disposal of associate		(3,711)
Consideration: Non-controlling interest arising on acquisition		20,303
Cash and cash equivalents acquired on acquisition		5,442
Net cash infow from acquisition		5,442

1. To recognise the fair value of inventory acquired on acquisition.

2. To recognise the deferred tax impact of fair value adjustments.

3. To recognise the fair value of intangible assets (including brands, finite life and indefinite life assets) acquired on acquisition.

4. To recognise additional liabilities identified on acquisition.

5. To recognise the fair value of borrowings acquired on acquisition.

Due to the timing of the acquisition the above figures have not yet been able to be finalised and are currently considered provisional.

26

Notes to the condensed consolidated interim financial statements (continued)

For the six months ended 31 December 2016

1. Acquisition of Subsidiaries (continued)

Goodwill arising on acquisition

Goodwill arose on the acquisition of the business operations of TWG because the cost of acquisition included a control premium paid. In addition, goodwill resulted from the consideration paid for the benefit of future expected cash flows above the current fair value of the assets acquired and the expected synergies and future market benefits expected to be obtained. These benefits are not recognised separately from goodwill as the expected future economic benefits arising cannot be reliably measured and they do not meet the definition of identifiable intangible assets.

TWG was acquired as it is a profitable healthcare business which the Group believes fits strategically with its Australian healthcare business assets.

Impact of the acquisition on the results of the Group for the period ended 31 December 2016

TWG contributed $967,000 to the Group profit for the period. Group revenue for the period includes $23,702,000 in respect of TWG. Had the TWG acquisition been effective at 1 July 2016, the revenue of the Group from continuing operations would have been $3,990,025,000 and the profit for the period from continuing operations would have been $70,039,000.

Transaction costs incurred on the acquisition of TWG were $2,389,000 for the period.

10. Events after Balance Date

Subsequent to 31 December 2016, the Board approved an interim dividend to shareholders. For further details please refer to Note 4.

27

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