Interactive Integrated report 2021

2021 Integrated Report

for the year ended 30 June

At a glance	Corporate governance	Our performance	Sustainability	Remuneration	Financial results	Notice of AGM

About this report

Adcock Ingram regards the presentation of this report as a valuable opportunity to engage with its stakeholders and to respond to issues raised by them.

The matters reported in the Integrated Report are considered by leadership throughout the year as being vital to the sustainability of the Group and include all material aspects up to the date of issue of this report.

The report also contains a summarised set of the annual financial statements.

Contents

Adcock Ingram at a glance

About this report	01
Organisational overview	02
Integrated thinking in our business model	04
Operating environment	06
Regulatory environment	08

Grounded in good corporate governance

Board of Directors	11
Executive committee	12

Our performance

Leadership review from our Chairperson and CEO	39
Financial review	44
Consumer	48
OTC	54
Prescription	60
Hospital	66

Sustainability	72
Human Capital	76
Social and Relationship Capital	86

Reporting principles

During the period under review, Adcock Ingram was compliant in all material respects with the requirements of King IVTM (unless otherwise stated), the Companies Act, the Johannesburg Stock Exchange Limited Listings Requirements and acted in terms of its Memorandum of Incorporation (MOI). The Group subscribes to best practice governance. For more details, and an overview of the Group governance and structures, please see the corporate governance section from page 10 onwards.

The Group adheres to International Financial Reporting Standards (IFRS) in compiling its annual financial statements.

Scope and boundary

Adcock Ingram's Integrated Report covers the financial year 1 July 2020 to 30 June 2021. Comparatives are for the year

1 July 2019 to 30 June 2020 and included where available.

The report is released at least 15 business days prior to its Annual General Meeting to be held on 23 November 2021.

The report provides a general narrative on the performance of the Group which includes the holding company and its subsidiaries and joint Ventures. The business in South Africa has a material impact on the overall sustainability of the Group. The Group's presence in India constitutes a small percentage of the Group's operations and is for that reason excluded from the operational review.

The B-BBEE assessment, as well as the employment equity statistics, exclude all non-South African companies and operations.

Assurance

Adcock Ingram's Board of Directors subscribes to compliance with applicable laws and regulations in all jursidictions in which the Group operates. It acknowledges its responsibility to ensure the integrity of the Integrated Report. The Board has accordingly applied its mind to the Integrated Report and, in its opinion, the report fairly presents the integrated performance of the Group.

Annual financial statements 2021

The annual financial statements for the year ended 30 June 2021 were approved by the Board on 24 August 2021.

An independent audit of the Group's annual financial statements was performed by PricwaterhouseCoopers Inc. The full set of annual financial statements is available as a separate report on the Company's website www.adcock.com

B-BBEE scorecard

The Group's B-BBEE status has been verified by Empowerlogic, an independent verification agency, for the codes of the B-BBEE Act. The B-BBEE level 3 rating is valid until 23 November 2021.

Carbon footprint

The Group's carbon footprint in South Africa, has been determined by "Carbon Calculated" for the 2021 financial year.

Other information

The rest of the Integrated Report has not been subjected to independent review or audit, and is derived from the Group's own internal records.

Material matters	14
Governance	15
Risk management	22
Executing on our strategy	32
Stakeholder engagement	34

Feedback

Your feedback is important to us and we welcome your input to enhance the quality of our reporting.

Please visit www.adcock.com

or email [e-mail]

Intellectual Capital	90
Natural Capital	94
Remuneration	96
Summarised financial results	112
Notice of Annual General Meeting	123
Corporate information	135

Document navigation

Capitals

Strategic focus areas

Divisions

FC

Financial Capital

SR

Social and

Build on the foundation

Over the counter

Hospital

Manufactured

Relationship Capital

Growth and expansion

MC

IC

Intellectual Capital

Prescription

Consumer

Capital

NC

Natural Capital

HC

Human Capital

Transformation

Material matters

Scheduling status of codeine

COVID-19

Growth

Regulatory environment

Technology and information

Relationships

INTEGRATED REPORT 2021 1

Organisational overview

Who we are

Our operational footprint

At a glance	Corporate governance	Our performance	Sustainability	Remuneration	Financial results	Notice of AGM

Adcock Ingram is a leading South African pharmaceutical manufacturer, listed on the Johannesburg Stock Exchange. The Group manufactures, markets, and distributes a wide range of consumer and healthcare products and is a leading supplier to the private and public sectors of the market.

Adcock Ingram started as a small pharmacy in Krugersdorp more than 130 years ago and now ranks as the second-largest manufacturer in the private pharmaceutical market and third-largest supplier to the public sector in South Africa. Beyond the borders of our own country, we serve markets in other African countries and also conduct operations out of India.

The Group's head office is located in Midrand, South Africa.

Operations are concentrated in Southern Africa and manufacturing facilities are based in South Africa and India. In India, the Group has a 49.9% share in a manufacturing facility, and full ownership of an entity providing regulatory support services to the Southern African businesses.

Sub-Saharan Africa

India

Our mission

We are committed to providing quality products that improve the health and lives of people in the markets we serve

Respec t	Empowerment
Have respect for	Believe in
people, society and	empowerment of
the environment	our people, thus
	encouraging
	entrepreneurship,
Integrit y	innovation and	Qualit y
accountability
Act with integrity at		Provide quality
all times		products and services

Equalit y	Our core	Transparenc y
Practice non-discrimination	Believe in transparency
and equal opportunities	values	and open communication

Business units

Adcock Ingram operates through a decentralised, autonomous operational structure that consists of four business units, each one structured to serve specific customer and consumer needs, and to meet applicable regulatory requirements.

Proudly South African company

As members of Proudly South African we

Listed on the JSE (AIP)

	Consumer	Over the Counter	Prescription
Consumer competes mainly in	Over the Counter focuses on	The Prescription portfolio
the Fast Moving Consumer	medicinal products sold	comprises products
Goods (FMCG) retail space,	predominantly in corporate	prescribed by medical
selling a range of healthcare,	and independent pharmacies,	practitioners and includes a
personal care and homecare	without a prescription, where	range of quality and
products and includes	the pharmacist plays a role in	affordable branded generic
market-leading brands such as	the product choice.	medicines, as well as
Panado, Epi-max, Bioplus and	Key brands include Corenza,	specialised instrumentation
Plush.		Allergex and Citro-Soda.	and surgical products.
(%)	16
Turnover		22

Hospital

The Hospital division is a leading supplier of critical care products, including intravenous solutions, blood collection products and renal dialysis systems.

23

share a commitment to an uplifting ethos that promotes social and economic change and progress.

We make meaningful contributions to building South Africa's economy, alleviating unemployment and retaining existing employment opportunities.

Market Capitalisation of R7.4 billion Revenue of R7.8 billion

Number of employees 2 223

1. Level 3 B-BBEE contributor Majority shareholder of Adcock Ingram

		39
(%)	26
prot
Trading		24
32
assets (%)	17
Total	25	28

18

20

Adcock Ingram Holdings Limited Group Structure

100

Adcock

100

Adcock

49.9

Adcock Ingram

100

Adcock

100

Adcock

100

Adcock

Ingram International

Ingram Healthcare

Ltd (India)

Ingram Critical Care

Ingram Intellectual

Ingram Ltd

(Pty) Ltd

(Pty) Ltd

(Pty) Ltd

Property (Pty) Ltd

51

Adcock Ingram

49

100

Plush

100

Adcock Ingram

100

Dilwed

100

Adcock Ingram

49

Menarini SA

100

Adcock Ingram

East Africa

Professional Leather

Pharma Private

Investments

Intellectual

(Pty) Ltd

Pharmaceuticals

Ltd (Kenya)

Care (Pty) Ltd

Limited

(Pty) Ltd

Property No 1 (Pty) Ltd

(Pty) Ltd

10

Relicare Tech

90

100

Lulu

50

National Renal

100

Novartis

100

Premier

Services Private Ltd

and Marula

Care (Pty) Ltd

Ophthalmics

Pharmaceutical

(India)

(Pty) Ltd

(Pty) Ltd

Company (Pty) Ltd

100

Virtual Logistics

50

Metamorphosa

(Pty) Ltd

(Pty) Ltd

100

Genop

100

Genop

%

Shareholding percent

Contribution to group

Holdings		Healthcare		Dormant entities
(Pty) Ltd		(Pty) Ltd

2 INTEGRATED REPORT 2021

INTEGRATED REPORT 2021 3

Integrated thinking in our business model

At a glance	Corporate governance	Our performance	Sustainability	Remuneration	Financial results	Notice of AGM

The operating environment (page 6) as well as the regulated environment (page 8) in which Adcock Ingram operates, have a direct influence on the business model and business activities of the Group.

Our Capitals defined

Financial	We use cash generated by our operations
as well as debt financing to run our
Capital	business and fund growth
Human	Consists of a diverse set of people with
specialist skills and experience suitable for
Capital	the needs of the Group

Our inputs

The Group has R48 million in cash as well as access to working Capital facilities of R1 billion to finance operations, expansions and acquisitions

2 233 permanent employees

98.9% of employees able to work during COVID-19

Overlaying the business model, the Board applies good governance (page 15) in the execution of their duties, including:

• Actively managing the risk universe and identify opportunities (page 22),
• Executing the strategy (page 32) by allocating resources and making trade-offs between Capitals
• Whilst taking the needs of all material stakeholders (page 34) affecting the activities or affected by the activities of the Group, into account
• Overseeing the performance (page 38) of all operations.

Intellectual	Consists of our proprietary and licenced
products, brands, dossiers, technologies,
Capital	software, licences, and standard operating

1 371 registered trademarks and

82 pending trademark registrations in South Africa

Business activities

	Produc t
	development
Sales and	Product
marketing	sourcing

Capital outcomes for stakeholders

Financial Capital

R297 million of taxes paid

R140 million of dividends paid

R256 million of share repurchases made

R48 million of interest paid

Human Capital

When making decisions on how to manage and grow the

business, we consider those resources and relationships which are critical to our ability to create value. Input of each of the six Capitals are needed for the effective management and subsequent value creation for all our stakeholders.

	Regulatory
	environment
	(Page 8)
Distribution	Manufacturing

R1.3 billion remuneration paid to employees, including share-based payments

R49.9 million spent on training

Social and Relationship Capital

R24.4 million CSR and ED spend

Manufactured Capital

R112 million capex (maintenance and expansion) spend

Social

Relationship

Capital

Manufactured Capital

Natural

Capital

Compliant facilities producing quality products

We require packaging material, raw products, water, fuel, electricity, land and air to conduct our activities and operations

progress in conjunction with key stakeholders.

3 manufacturing plants in South Africa

1 manufacturing plant (JV) in India

The Group also has access to various 3rd party manufacturers and various distribution centres/hubs throughout South Africa

Electricity usage (kWh): 52 189 931

Water usage (Kl): 358 983

Industrial coal usage (tonnes): 3 568

Product	•	Buy intellectual property
development	•	Develop intellectual property
	•	Innovation
Product	•	Raw materials sourced locally and internationally
sourcing	•	Finished goods sourced locally and internationally
Manufacturing	•	Each owned facility has been built for specific formulations
Distribution	•	In relationship with an outbound logistics service provider,
		warehousing and storage facilities are available across
		South Africa
Sales and	•	Sales and marketing activities are based on customer needs
marketing		into four commercial divisions
Consumer	Over the Counter
Prescription	Hospital

Intellectual Capital

R148 million spent on additions to intangible assets

Outputs

Intended	•	A diversified basket of products spanning
		many therapeutical areas
Unintended	•	Various waste products form part of the
		unintended output of the Group's operations
	• 1 662 tonnes of waste to landfill
	• 1 163 tonnes of waste recycled
	•	40% recycled

4 INTEGRATED REPORT 2021

INTEGRATED REPORT 2021 5

Operating environment

An overview of South Africa

At a glance	Corporate governance	Our performance	Sustainability	Remuneration	Financial results	Notice of AGM

Local industry and peers

South Africa has 9 administrative districts

LIM

Population1	Male	29 million
Children	17 million
60 million
Female
31 million
		1 Statistics South Africa

Per IQVIA June 2021 Market Report, the total pharmaceutical market is	Total pharmaceutical market
Value: R60.4 billion
valued at R60.4 billion, growing 4.0% in value and declining 1.3% in
volume. The private market represents 81% of the total market and is	Growing +4.0%
valued at R49.2 billion, growing at 5.1% in value and 6.4% in volume.
Volume -1.3%

N W G P MP

FSK Z N

N C

E C

WC

Macro-economic indicators

• An early and long lockdown at the start of the COVID-19 pandemic had a significant impact on South Africa's economy.
• The pandemic resulted in a decline in employment with the unemployment level at its highest ever.
• South Africa's GDP per capita shows that the growing population has become less productive.
• The national budget tabled in February 2021 shows a reduction in public health spending over the next three years.
• Increase in medical aid contributions are generally above CPI.

649

Corporations

competing in the total private market in South Africa

Top 20 corporations	Private market		Public market
Contributing 71.4% of the	Value:		Value:
R49.2 billion		R11.2 billion
total private market value
Growing +5.1%		Declining -0.4%
	Volume +6.4%		Volume -9.2%
Top 10 corporations
Represent 53.0% of the
Prescription market		OTC market

Healthcare in South Africa

The national government's Department of Health formulates healthcare policy and co-ordinates public health services, but responsibility for managing health budgets and administering provision lies with provincial and district health authorities. The public healthcare system provides access to a range of services, which are largely free at the point of delivery.

The healthcare system, which is split along socio-economic lines comprises:

CIPLA	NOVARTIS
7.1%	5.9%	SANOFI
ADCOCK
	5.3%
INGRAM
9.5%

total private market value	Value:	Value:
	R30.4 billion	R18.8 billion
	Growing +1.2%	Growing +12.2%
	Volume +1.4%	Volume +9.1%

ASPEN 10.8%

Top 5

Pharma companies in the private market

OTHER 61.4%

1. small, well-funded and well-appointed private sector, with

15%

or 9 million having access to insured medical care facilities

1. large, under-resourced and overused public sector, with

85%

or 51 million having access to state medical facilities

Top corporations	Aspen continues to be the overall market leader and the leader in the Prescription market, with
		Adcock Ingram leading the "Pure" OTC and non-scheduled markets.
Rank	Overall	Rx	OTC	Non-schedule	State
	All schedules	Schedule 3 and above	Schedule 1 & 2 only	Scheduling not applicable	All schedules
1	ASPEN*	ASPEN*	ADCOCK INGRAM*	ADCOCK INGRAM*	PHARMACIA & UPJOHN
2	ADCOCK INGRAM*	NOVARTIS	ASPEN*	RECKITT BENCKISER	SANOFI
3	CIPLA	CIPLA	CIPLA	GLAXOSMITHKLINE	ADCOCK INGRAM*
4	NOVARTIS	SANOFI	JOHNSON & JOHNSON	NATIVA	ASPEN*
5	SANOFI	ADCOCK INGRAM*	NOVARTIS	ASPEN*	ABBVIE
Total	649	134	81	587	381

• denotes local corporations

6 INTEGRATED REPORT 2021

INTEGRATED REPORT 2021 7