EBOS GROUP LIMITED — Interim / Quarterly Report 2017

Feb 21, 2017

EBOS GROUP LIMITED INTERIM REPORT FOR THE SIX MONTHS ENDED 31 DECEMBER 2016

EBOS GROUP LIMITED INTERIM REPORT 2017

CONTENTS	Page
Summary of Consolidated Financial Highlights	1
Shareholder Calendar	1
Auditor’s Review Report	2
Condensed Consolidated Income Statement	3
Condensed Consolidated Statement of Comprehensive Income	4
Condensed Consolidated Statement of Changes in Equity	5
Condensed Consolidated Balance Sheet	7
Condensed Consolidated Cash Flow Statement	8
Notes to the Condensed Consolidated Interim Financial Statements	9
Directory	18

EBOS GROUP LIMITED INTERIM REPORT 2017 SUMMARY OF CONSOLIDATED FINANCIAL HIGHLIGHTS

Six months 31 Dec 16 $’000 (Unaudited) Six months 31 Dec 15 $’000 (Unaudited)

Year ended 30 Jun 16 $’000 (Audited)

Revenue 3,960,204 3,379,749 Earnings before net finance costs, tax expense, depreciation and amortisation (EBITDA) 119,868 113,725 Earnings before interest and tax expense (EBIT) 107,534 101,419 Profit before income tax expense 98,602 91,744 Profit for the period 69,269 64,170 Profit for the period attributable to owners of the Company 68,785 64,170 Equity attributable to owners of the Company 1,108,189 1,070,248 Earnings per share 45.4c 42.5c Interim dividend per share 30.0c 26.0c Net interest bearing debt to net interest bearing debt plus equity 20.3% 26.2%

7,101,455 225,475 200,785 180,715 126,997 126,997 1,087,277 84.0c 26.0c 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 General Meeting	17 October 2017

1

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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 3 to 16.

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.

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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

2

EBOS GROUP LIMITED CONDENSED CONSOLIDATED INCOME STATEMENT

For the six months ended 31 December 2016

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

3

EBOS GROUP LIMITED CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 31 December 2016

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

4

EBOS GROUP LIMITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 31 December 2016

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

5

EBOS GROUP LIMITED

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Continued)

For the six months ended 31 December 2016

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

6

EBOS GROUP LIMITED CONDENSED CONSOLIDATED BALANCE SHEET

As at 31 December 2016

Notes Current assets Cash and cash equivalents Trade and other receivables Prepayments Inventories Current tax refundable Other financial assets – derivatives 8 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 Investment in associates Other financial assets Total non-current assets Total assets Current liabilities Trade and other payables Finance leases Bank loans 7 Current tax payable Employee benefits Other financial liabilities – derivatives 8 Total current liabilities Non-current liabilities Bank loans 7 Trade and other payables Deferred tax liabilities Finance leases Employee benefits Total non-current liabilities Total liabilities Net assets Equity Share capital 3 Share based payments reserve Foreign currency translation reserve Retained earnings Cash flow hedge reserve Equityattributable to owners of the company Non-controllinginterests Total equity	31 Dec 16 $’000 (Unaudited) 175,679 1,134,832 9,093 596,174 83 576 1,916,437 106,914 8,303 209 43,730 859,858 107,316 56,263 34,480 - 1,217,073 3,133,510 1,424,184 118 188,866 12,862 34,134 4,154 1,664,318 274,778 14,297 46,622 - 4,931 340,628 2,004,946 1,128,564 888,513 165 (39,031) 258,991 (449) 1,108,189 20,375 1,128,564	31 Dec 15 $’000 (Unaudited) 115,810 869,559 6,671 548,776 88 468 1,541,372 102,884 - 330 44,547 828,922 92,058 61,779 35,576 - 1,166,096 2,707,468 1,028,647 540 307,970 13,577 29,368 6,638 1,386,740 186,458 10,324 48,936 109 4,653 250,480 1,637,220 1,070,248 888,513 - (31,876) 216,093 (2,482) 1,070,248 - 1,070,248	30 Jun 16 $’000 (Audited)
			120,251 1,320,387 8,234 578,513 83 -
			2,027,468
			97,973 6,494 234 47,043 829,163 91,147 55,341 36,778 1,255
			1,165,428
			3,192,896
			1,611,611 143 106,976 18,203 35,598 8,652
			1,781,183
			260,672 12,926 46,120 36 4,682
			324,436
			2,105,619
			1,087,277
			888,513 - (36,761) 239,578 (4,053)
			1,087,277
			-
			1,087,277

7

EBOS GROUP LIMITED

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

For the six months ended 31 December 2016

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

8

EBOS GROUP LIMITED 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

(a) (b)	Revenue Revenue from the sale of goods Revenue from the renderingof services 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 sale of property, plant and equipment Change in fair value of derivative financial instruments Income from associates Profit before income tax has been arrived at after (charging)the followingexpenses bynature: Cost of sales Write-down of inventory Net finance costs: Finance income Finance costs Total net finance costs Impairment on trade & other receivables Depreciation of property, plant & equipment Amortisation of finite life intangibles Operating lease rental expenses Donations Employee benefit expense Defined contribution plan expense Other expenses Total expenses,net of interest revenue Profit before income tax expense	Six months 31 Dec 16 $’000 (Unaudited) 3,890,309 69,895 3,960,204 2 - 1,948 (3,593,238) (2,842) 1,219 (10,151) (8,932) (465) (6,519) (5,815) (16,038) (17) (119,025) (6,448) (104,213) (3,863,552) 98,602	Six months 31 Dec 15 $’000 (Unaudited) 3,326,984 52,765 3,379,749 (191) (770) 1,852 (3,044,051) (2,012) 1,404 (11,079) (9,675) (861) (6,416) (5,890) (14,766) (81) (106,251) (6,299) (92,594) (3,288,896) 91,744	Year ended 30 Jun 16 $’000 (Audited)
				6,989,949 111,506
				7,101,455
				(274) (770) 3,823 (6,418,523) (6,392) 2,503 (22,573)
				(20,070) (2,423) (12,933) (11,757) (30,352) (101) (220,960) (12,635) (187,373)
				(6,923,519)
				180,715

9

EBOS GROUP LIMITED NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)

For the six months ended 31 December 2016

3. SHARE CAPITAL

		Six months 31 Dec 16 No. ’000 $’000 (Unaudited) 151,314 888,513 - - 600 - 151,914 888,513 Six months 31 Dec 16 Cents per share $’000 (Unaudited) 32.5 49,372 - - 32.5 49,372 - - 30.0 45,574 30.0 45,574		No. ’000 150,687 627 - 151,314 Cents per share	Six months 31 Dec 15 $’000 (Unaudited) 880,628 7,885 - 888,513 Six months 31 Dec 15 $’000 (Unaudited) 37,672 - 37,672 - 39,342 39,342	No. ’000 150,687 627 - 151,314 Cents per share 25.0 26.0 51.0 32.5 - 32.5	Year ended 30 Jun 16 $’000 (Audited)
Fully paid ordinary shares Balance at beginning of period Dividend reinvested – October 2015 Shares issued – September 2016 DIVIDENDS Recognised amounts Fully paid ordinary shares Final – prior year Interim – currentyear Unrecognised amounts Final dividend Interim dividend							880,628 7,885 -
							888,513
							Year ended 30 Jun 16 $’000 (Audited)
				25.0 -			37,672 39,342
				25.0			77,014
				- 26.0			49,372 -
				26.0			49,372

4. DIVIDENDS

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.

10

EBOS GROUP LIMITED NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)

For the six months ended 31 December 2016

5. NOTES TO THE CASH FLOW STATEMENT

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

11

EBOS GROUP LIMITED 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:

Revenue from external customers Healthcare Animal care Segment result (EBITDA) Healthcare Animal care Corporate Segment expenses Healthcare: Depreciation of property, plant and equipment Amortisation of finite life intangibles Income tax expense Animal care: Depreciation of property, plant and equipment Amortisation of finite life intangibles Income tax expense Corporate: Net finance costs Income tax credit Profit for the period Healthcare Animal care Corporate	Six months 31 Dec 16 $’000 (Unaudited) 3,744,059 216,145 3,960,204 106,659 21,115 (7,906) 119,868 (5,970) (4,591) (28,909) (39,470) (549) (1,224) (5,317) (7,090) (8,932) 4,893 (4,039) 67,189 14,025 (11,945) 69,269	Six months 31 Dec 15 $’000 (Unaudited) 3,169,276 210,473 3,379,749 99,755 19,587 (5,617) 113,725 (5,766) (4,683) (26,855) (37,304) (650) (1,207) (4,958) (6,815) (9,675) 4,239 (5,436) 62,451 12,772 (11,053) 64,170	Year ended 30 Jun 16 $’000 (Audited)
			6,686,415 415,040
			7,101,455 195,028 42,308 (11,861)
			225,475 (11,691) (9,283) (52,607)
			(73,581) (1,242) (2,474) (10,803)
			(14,519) (20,070) 9,692
			(10,378) 121,447 27,789 (22,239)
			126,997

12

EBOS GROUP LIMITED NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)

For the six months ended 31 December 2016

6. SEGMENT INFORMATION (Continued)

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.

(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:

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

13

EBOS GROUP LIMITED NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)

For the six months ended 31 December 2016

7. BANK FACILITY AND BORROWINGS (Continued)

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

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

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.

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

14

EBOS GROUP LIMITED 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: Current assets Cash and cash equivalents Trade and other receivables Prepayments Inventories Non-current assets Property, plant and equipment Deferred tax assets Indefinite life intangibles Finite life intangibles Current liabilities Trade and other payables Current tax payable Employee benefits Non-current liabilities Bank loans Trade and other payables Deferred tax liabilities Loans to related parties Employee benefits Net assets acquired Goodwill on acquisition Less disposal of associate Consideration: Non-controlling interest arising on acquisition Cash and cash equivalents acquired on acquisition Net cash inflow from acquisition
	Carrying Value $’000 (Unaudited) Fair value adjustment $’000 (Unaudited)	Fair value on acquisition $’000 (Unaudited)
	5,442 - 9,321 - 1,148 - 7,596 (136)1 2,930 - 1,078 1,030_2_ 1,918 14,858_3_ 5,280 1,012_3_ (11,407) (16,039)4 (1,632) - (1,914) - (14,542) (299)5 (674) (707)4 (108) (6,072)2 (1,278) - (350) -	5,442 9,321 1,148 7,460 2,930 2,108 16,776 6,292 (27,446) (1,632) (1,914) (14,841) (1,381) (6,180) (1,278) (350)
	2,808 (6,353)	(3,545) 27,559 (3,711)
		20,303
		5,442
		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.

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EBOS GROUP LIMITED

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)

For the six months ended 31 December 2016

9. 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.

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EBOS GROUP LIMITED DIRECTORY

CORPORATE HEAD OFFICE

108 Wrights Road PO Box 411 Christchurch 8024 New Zealand Telephone +64 3 338 0999 E-mail: ebos@ebosgroup.com Internet: www.ebosgroup.com

AUSTRALIA HEAD OFFICE

Level 7, 737 Bourke Street Docklands Melbourne 3008 Australia Telephone +61 3 9918 5555

DIRECTORS

Mark Waller Chairman Elizabeth Coutts Independent Director Peter Kraus Stuart McGregor Sarah Ottrey Independent Director Peter Williams

SHARE REGISTER

Computershare Investor Services Ltd Private Bag 92119 Auckland 1142 New Zealand Telephone: +64 9 488 8777

Computershare Investor Services Pty Ltd GPO Box 3329 Melbourne, Victoria 3001 Australia Telephone: 1800 501 366

Managing Your Shareholding Online:

To change your address, update your payment instructions and to view your investment portfolio including transactions, please visit: www.investorcentre.com/nz

General enquiries can be directed to:

• enquiry@computershare.co.nz

• Private Bag 92119, Auckland 1142, New Zealand or GPO Box 3329, Melbourne, Victoria 3001, Australia

• Telephone (NZ) +64 9 488 8777 or (Aust) 1800 501 366

• Facsimile (NZ) +64 9 488 8787 or (Aust) +61 3 9473 2500

Please assist our registrar by quoting your CSN or shareholder number.

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