Significant accounting policies
for the year ended 30 September 2012
United Drug plc (‘the Company’) is a public limited company incorporated in Ireland. The consolidated financial statements of the Company for the year ended 30 September 2012 comprise the Company and its subsidiaries (together referred to as ‘the Group’) and the Group’s interest in joint venture and associate undertakings using the equity method of accounting.
The accounting policies applied in the preparation of the financial statements for the year ended 30 September 2012 are set out below.
Statement of compliance
The Group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU. The individual financial statements of the Company (‘Company financial statements’) have been prepared in accordance with IFRS as adopted by the EU and as applied in accordance with the Companies Acts, 1963 to 2012. The Company has availed of the exemption contained in Section 148(8) of the Companies Act 1963, which permits a company that publishes its Company and Group financial statements together to exclude the Company income statement and related notes that form part of the approved Company financial statements, from the financial statements presented to its members.
IFRS that were adopted by the EU and that were effective for annual periods ending on or before 30 September 2012, have been applied in the preparation of the Group and Company financial statements. The following standards and interpretations and amendments to existing standards were adopted during the financial year.
- IAS 24 (revised) – Related party disclosures- this revised standard removes the requirement for government related entities to disclose details of all transactions with the government and other government related entities and it clarifies and simplifies the definition of a related party. This standard did not have a significant impact on the Group’s financial statements.
- Amendments to IFRS 7 – Financial instruments: Disclosures’ on transfers of assets - the amendments promote transparency in the reporting of transfer transactions and improve users’ understanding of the risk exposures relating to transfers of financial assets and the effect of those risks on an entities financial position, particularly those involved in securitisation of financial assets. This standard did not have a significant impact on the Group’s financial statements.
- Amendment to IFRIC 14 – Prepayments of a minimum funding requirement - this amendment applies to entities that are required to make minimum funding contributions to defined benefit pension plans. It removes an unintended consequence of IFRIC 14, IAS 19 – The limit on a defined benefit asset, minimum funding requirements and their interaction, relating to voluntary pension pre-payments when there is a minimum funding requirement. This amendment did not have a significant impact on the Group’s financial statements.
- Improvements to IFRSs 2010 – the improvements include changes in presentation, recognition and measurement plus terminology and editorial changes. These improvements have not had a significant impact on the Group’s financial statements.
The IASB and the International Financial Reporting Interpretations Committee (IFRIC) have issued the following standards and interpretations that are not yet effective for the Group:
- Amendment to IAS 1 – Financial statement presentation regarding other comprehensive income
- Amendment to IAS 12* – Income taxes
- Amendments to IFRS 1* – First time adoption, on fixed dates and hyperinflation
- Amendment to IAS 19 – Employee benefits
- IAS 27 (revised 2011)* – Separate financial statements
- IAS 28 (revised 2011)* – Associates and joint ventures
- Amendment to IAS 32* – Financial instruments: Presentation, on offsetting financial assets and financial liabilities
- Amendments to IFRS 1* – First time adoption, on government loans
- Amendments to IFRS 7* – Financial instruments: Disclosure, on offsetting financial assets and financial liabilities
- IFRS 9* – Financial instruments: classification and measurement
- IFRS 10* – Consolidated financial statements
- IFRS 11* – Joint arrangements
- IFRS 12* – Disclosure of interest in other entities
- IFRS 13* – Fair value measurement
- Annual improvements 2011*
A number of the standards (*) set out above have not yet been EU endorsed. These standards, interpretations and amendments to existing standards will be applied for the purposes of the Group and Company financial statements with effect from their respective effective dates. These are not expected to have a material impact on the Group or Company financial statements.
Basis of preparation
The Group and Company financial statements are prepared on a historical cost basis except for the following items which are measured at fair value or grant date fair value:
- derivative financial instruments;
- pension assets; and
- share-based payment arrangements.
The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.
Information about critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements is included in the following notes:
- goodwill – note 10;
- intangible assets – note 11;
- trade and other receivables – note 14;
- provisions – note 23;
- employee benefits (including share-based payments) – note 27; and
- financial instruments – note 28.
The accounting policies set out below have been applied consistently by all of the Group’s subsidiaries and joint ventures to all periods presented in these financial statements.
Functional and presentation currency
The consolidated financial statements are presented in euro and rounded to the nearest thousand, which is the Company’s functional currency.
Basis of consolidation
The Group’s financial statements include the financial statements of the Company and all of its subsidiaries and joint ventures.
Accounting for subsidiaries, joint ventures and associates
Subsidiaries are entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefit from its activities. In assessing control, potential voting rights that currently are exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the Group financial statements from the date that control commences until the date that control ceases.
Intragroup balances and any unrealised or income and expenses arising from intragroup transactions are eliminated in preparing the Group financial statements. Unrealised gains arising from transactions with equity accounted joint ventures are eliminated against the investment to the extent of the Group’s interest. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent there is no evidence of impairment.
Joint ventures are those entities over whose activities the Group has joint control, established by contractual arrangement and requiring unanimous consent for strategic financial and operational decisions. An associate is an enterprise over which the Group has significant influence, but not control, through participation in the financial and operating policy decisions of the investee. Joint ventures and associates are included in the financial statements using the equity method of accounting, from the date that joint control and significant influence commences until the date that joint control and significant influence cease. The income statement reflects in operating profit, the Group’s share of profit after tax of its joint ventures in accordance with IAS 31, Interests in Joint Ventures. The Group’s interest in its net assets is included as investment in joint ventures in the balance sheet at an amount representing the Group’s share of the fair value of the identifiable net assets at acquisition plus the Group’s share of post acquisition retained profits or losses and other comprehensive income and dividends received of the joint ventures and goodwill arising on the investment.
Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group.
The Group measures goodwill at the acquisition date as:
- the fair value of the consideration transferred; plus
- the recognised amount of any non-controlling interests in the acquire; plus
- if the business combination is achieved in stages, the fair value of the pre-existing equity interest in the acquire; less
- the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.
When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.
The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss.
Transaction costs, other than those associated with the issue of debt or equity securities that the Group incurs in connection with completed business combinations are expensed as incurred.
Any deferred and contingent consideration payable is measured at fair value at the acquisition date. If the deferred and contingent consideration is classified as equity, then it is not measured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the deferred and contingent consideration are recognised in profit or loss.
When share-based payment awards (replacement awards) are required to be exchanged for awards held by the acquiree’s employees (acquiree’s awards) and relate to past services, then all or a portion of the amount of the acquirer’s replacement awards is included in measuring the consideration transferred in the business combination. This determination is based on the market-based value of the replacement awards compared with the market-based value of the acquiree’s awards and the extent to which the replacement awards relate to past and/or future service.
Intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and impairment losses, when separable or arising from contractual or other legal rights and when they are reliably measurable.
Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of the intangible assets. Intangible assets are amortised over the following range of periods:
Property, plant and equipment
Property, plant and equipment is reported at cost less accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. Depreciation is calculated, on a straight line basis on cost less estimated residual value, to write property, plant and equipment off over their anticipated useful lives using the following annual rates:
Land and buildings
- Freehold land
- Freehold buildings
Plant and equipment
10% - 20%
20% - 33%
Depreciation is provided on additions with effect from the first day of the month following commissioning and on disposals up to the end of the month of retirement. The residual value of assets, if not insignificant, and the useful life of assets is reassessed annually. Gains and losses on disposals are determined by comparing the consideration received with the carrying amount at the date of disposal and are included in operating profit.
Assets held for Sale
Non-current assets that are expected to be recovered primarily through sale rather than continuing use are classified as held for sale. These assets are shown in the balance sheet at the lower of their carrying amount and fair value less any disposal costs. Impairment losses on initial classification as assets held for sale and subsequent gains or losses on re-measurement are recognised in the income statement.
Impairment reviews and testing
The carrying amounts of the Group’s non-financial assets, other than inventories, (which are carried at the lower of cost and net realisable value) and deferred tax assets, (which are recognised based on recoverability), are reviewed at each reporting date to determine whether there is any indication of impairment.
The recoverable amount of a non-financial asset or cash generating unit is the greater of its 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 purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows that are largely independent of the cash inflows of other assets or groups of assets (the “cash generating unit”). Goodwill acquired in a business combination is allocated to cash generating units that are expected to benefit from the combination’s synergies. An impairment loss is recognised if the carrying amount of an asset or its cash generating unit exceeds its estimated recoverable amount.
Goodwill is tested for impairment at each balance sheet date.
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates, that one or more events have had a negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortised cost, is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. An impairment loss arising on financial assets is recognised in the income statement. Individually significant financial assets are tested for impairment on an individual basis.
An impairment loss, other than in the case of goodwill, is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
All impairment losses are recognised in the income statement.
Leases of property, plant and equipment, where the Group assumes 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 asset and the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in interest-bearing loans and borrowings. The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. 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.
Leases where substantially all of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the income statement on a straight line basis over the term of the lease.
Inventories are measured at the lower of cost and net realisable value. Cost is based on the first in, first out principle and includes all expenditure which has been incurred in the normal course of business in bringing the products to their present location and condition. Net realisable value is the estimated selling price of inventory on hand in the ordinary course of business less all costs expected to be incurred in marketing, distribution and selling.
Transactions in foreign currencies are translated into the functional currency of the related entity at the foreign exchange rate ruling at the date of the transaction. Non-monetary assets and liabilities carried at historic cost are not subsequently re-translated. Non-monetary assets carried at fair value are subsequently re-measured at the exchange rate at the date fair value was determined. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into functional currencies at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement, except for qualifying cash flow hedges and a financial liability designated as a hedge of the net investment in a foreign operation which are recognised directly in other comprehensive income.
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated to euro at the foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated to euro at the average exchange rate for the financial period. Foreign exchange differences arising on translation of the net investment in a foreign operation are recognised directly in other comprehensive income.
On disposal of a foreign operation, accumulated currency translation differences are recognised in the income statement as part of the overall gain or loss on disposal. However, it the foreign operation is a non-wholly owned subsidiary, then the relevant proportion of the translation difference is allocated to non-controlling interests. When a foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. When the Group disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non-controlling interests. When the Group disposes of only part of its investment in an associate or joint venture that includes a foreign operation while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss. The cumulative currency translation differences arising prior to 1 October 2004 (the transition date to IFRS) have been set to zero for the purposes of ascertaining the gain or loss on disposal of a foreign operation subsequent to that date.
Translation differences arising from 1 October 2004 are presented as a separate component of equity in the foreign currency translation reserve to the balance sheet.
Hedge of net investment in foreign operation
Foreign currency differences arising on the retranslation of a financial liability designated as a hedge of a net investment in a foreign operation are recognised directly in other comprehensive income to the extent that the hedge is effective and are presented within equity in the foreign currency translation reserve. To the extent that the hedge is ineffective, such differences are recognised in profit or loss. When the hedged part of a net investment is disposed of, the associated cumulative amount in equity is transferred to profit or loss as an adjustment to the profit or loss on disposal.
Financial guarantee contracts
Where the Group enters into financial guarantee contracts to guarantee the indebtedness of other parties, the Group considers these to be insurance arrangements and accounts for them as such. The Group treats the guarantee contract as a contingent liability until such time as it becomes probable that the Group will be required to make a payment under the guarantee.
Revenue represents the fair value of consideration received or receivable (net of returns, trade discounts and rebates) for products and services provided in the course of ordinary activity to third party customers in the financial reporting period. The fair value of sales is exclusive of value added tax and after allowances for discounts and is recognised in the income statement when the significant risks and rewards of ownership have been transferred to the buyer, the consideration can be measured reliably and it is probable that the economic benefits will flow to the Group. Discounts granted to customers are recognised as a reduction in sales revenue at the time of the sale based on managements’ estimate of the likely discount to be awarded to customers.
Revenue from services rendered is recognised in the income statement in proportion to the stage of completion of the related contract or fully when no further obligations exist on the related service contract. Where the outcome of the contract can be measured reliably, stage of completion is measured by reference to services completed to date as a percentage of total services to be performed. Where services are to be performed rateably over a period of time, revenue is recognised on a straight-line basis over the period of the contract.
When the Group acts in the capacity of an agent rather than as the principal in a transaction, the revenue recognised is the net amount of commission earned by the Group.
With respect to exceptional items, the Group has applied an income statement format which seeks to highlight significant items within Group results for the year. Such items may include restructuring costs, profit or loss on disposal or termination of operations, litigation costs and settlements, profit or loss on disposal of investments and impairment of assets. The Group exercises judgement in assessing the particular items, which by virtue of their scale and nature, should be disclosed in the income statement and related notes as exceptional items. The Group believes that such a presentation provides a more helpful analysis as it highlights material items of a non-recurring nature.
Finance income and expense
Finance income comprises interest income on funds invested, changes in the fair value of financial assets at fair value through profit or loss, and gains on hedging instruments that are recognised in profit or loss. Interest income is recognised as it accrues in profit or loss, using the effective interest method.
Finance expense comprises interest expense on borrowings, unwinding of the discount on provisions, changes in the fair value of financial assets at fair value through profit or loss and losses on hedging instruments that are recognised in profit or loss. All borrowing costs are recognised in profit or loss using the effective interest rate method.
Employee benefitsPension obligations
A defined contribution pension plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement as incurred.
A defined benefit plan is a post-employment plan other than a defined contribution plan. The Group’s net obligation in respect of defined benefit pension plans is calculated, separately for each plan, by estimating the present value of the amount of future benefits that employees have earned in return for their service in the current and prior periods, less the fair value of any plan assets. The discount rate applied is the yield at the balance sheet date on high quality corporate bonds that have maturity dates approximating the terms of the Group’s obligations. The calculation is performed by a qualified actuary using the projected unit credit method. All actuarial gains and losses as at 1 October 2004, the date of transition to IFRS, were recognised in full against retained earnings as permitted by IFRS 1. The Group recognises current and past service costs, interest on scheme obligations and expected return on scheme assets in administrative expenses in the income statement. Actuarial gains and losses for subsequent periods are recognised in the statement of recognised income and expense as they arise.
Performance related incentive plans
The Group recognises the present value of a liability for short term employee benefits including costs associated with performance related incentive plans in the income statement when an employee has rendered service in exchange for these benefits and a constructive obligation to pay those benefits arises.
Share-based payment transactions
The Group operates a long term incentive plan and share option scheme which allow executive directors and employees acquire shares in the Company. The Group also operated share incentive schemes which awarded shares to executive directors and employees. All schemes are equity settled arrangements under IFRS 2 Share-based Payment.
The grant-date fair value of the share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with market based vesting conditions, the grant-date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.
Income tax expense
Income tax expense for the year comprises current and deferred tax. Taxation is recognised in the income statement except to the extent that it relates to items recognised directly in equity or other comprehensive income, in which case the related tax is recognised directly in equity or other comprehensive income.
Current tax is the expected tax payable on the taxable income for the year, using tax rates and laws that have been enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. If the deferred tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction does not affect accounting nor taxable profit or loss, it is not recognised. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same tax entity or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis.
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker who is responsible for allocating resources and assessing performance of the operating segments. The Group has determined that it has three reportable operating segments: Healthcare Supply Chain, Packaging & Specialty and Sales, Marketing & Medical.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and deposits, including bank deposits of less than three months maturity from the commencement date. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the Group and Company cash flow statement.
Financial instrumentsDerivative financial instruments
The Group uses derivative financial instruments to hedge its exposure to foreign exchange and interest rate risks arising from operational, financing and investment activities. In accordance with its treasury policy, the Group does not hold or issue derivative financial instruments for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments.
Derivative financial instruments are recognised at fair value. The gain or loss on re-measurement to fair value is recognised immediately in the income statement, except where derivatives qualify for hedge accounting, in which case recognition of any resultant gain or loss depends on the nature of the item being hedged, as set out below.
The fair value of interest rate swaps and forward exchange contracts is the estimated amount that the Group would receive or pay to terminate the swap or the forward contract at the balance sheet date, taking into account current interest rates and the current creditworthiness of the swap counterparties.
Cash flow hedges
Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability, or a highly probable forecasted transaction, the effective part of changes in the fair value of the derivative financial instrument is recognised directly in other comprehensive income in the cash flow hedge reserve. When the forecasted transaction results in the recognition of a non-financial asset or non-financial liability, the associated cumulative gain or loss is removed from equity and included in the initial cost or other carrying amount of the non-financial asset or liability. In other cases, the associated cumulative gain or loss is removed from equity and recognised in the income statement in the same period or periods during which the hedged item affects profit or loss. The ineffective part of any gain or loss is recognised immediately in the income statement.
When a hedging instrument expires or is sold, terminated or exercised, or the entity revokes designation of the hedge relationship but the hedged forecast transaction is still expected to occur, then hedge accounting is ceased prospectively and the cumulative gain or loss at that point remains in equity and is recognised in accordance with the above policy when the transaction occurs. If the hedged transaction is no longer expected to take place, the cumulative unrealised gain or loss recognised in equity is reclassified immediately to the income statement.
Fair value hedges
Where a derivative financial instrument is designated as a hedge of a change in the fair value of an asset or liability, gains or losses arising from the re-measurement of the hedging instrument to fair value are reported in the income statement. In addition, any changes in the fair value of the hedged item which is attributable to the hedged risk is adjusted against the carrying amount of the hedged item and reflected in the income statement. Where the adjustment is to the carrying amount of a hedged interest-bearing financial instrument, the adjustment is amortised to the income statement with the objective of achieving full amortisation by maturity.
Non-derivative financial instruments
Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables. Non-derivative financial instruments are initially recognised at fair value and subsequently measured at amortised cost.
A financial instrument is recognised when the Group becomes a party to the contractual provisions of the instrument. Financial assets are de-recognised if the Group’s contractual rights to the cash flows from the financial assets expire or if the Group transfers the financial asset to another party without retaining control of substantially all risks and rewards of the asset. Purchases and sales of financial assets are accounted for at trade date i.e. the date that the Group commits itself to purchase or sell the asset. Financial liabilities are de-recognised if the Group’s obligations specified in the contract expire or are discharged or cancelled.
Interest-bearing loans and borrowings
Interest-bearing loans and borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing loans and borrowings, other than those accounted for under the fair value hedging model outlined above, are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowings on an effective interest basis. Effective interest rate is calculated by taking into account any issue costs and any expected discount or premium on settlement.
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation which can be measured reliably. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects.
Where share capital recognised as equity is repurchased, the amount of the consideration paid, including directly attributable costs, net of any tax effects, is recognised as a deduction from equity. Repurchased shares are classified as treasury shares and are presented as a deduction from total equity.