The Group uses certain adjusted earnings measures, including adjusted operating profit to provide additional clarity about the underlying performance of the business. As a consequence of the acquisition of Mead Johnson Nutrition, the Group has refined its accounting policy to make reference to adjusting items in presenting the Group’s principal adjusted earnings measures. Adjusting items comprise exceptional items, which have historically been excluded from the Group’s adjusted earnings measures, and the amortisation of acquired finite- life intangible assets.
Exceptional items, which remain as previously defined, are material, non-recurring items of expense or income incurred during a period. Examples of exceptional items include the following:
• Restructuring and other expenses relating to the integration of an acquired business and related expenses for reconfiguration of the Group’s activities;
• Impairments of current and non-current assets;
• Gains/losses on disposals of businesses;
• Acquisition-related costs, including advisor fees and certain financing fees incurred for significant
transactions and adjustments to the fair values of assets and liabilities that result in non-recurring charges to
the income statement; and
• Costs arising because of material and non-recurring regulatory and litigation matters.
Other Adjusting items comprise the amortisation of certain acquired finite-life intangible assets.
On 15 June 2017, the Group acquired 100% of the issued share capital of Mead Johnson Nutrition for cash consideration of £13,044 million ($16,642 million)
Mead Johnson Nutrition is a leader in global infant and children’s nutrition. The acquisition of Mead Johnson Nutrition is aligned with the Group’s well-established strategic focus on growing in consumer health and on investing in Powerbrands with attractive growth prospects. Provisional goodwill of £8.1 billion arises on the acquisition, of which £3.2 billion is a consequence of the requirement to record deferred tax liabilities for certain acquired assets. Goodwill represents the potential for further synergies arising from combining the acquired business with the Group’s existing businesses, together with the value of the workforce acquired. None of the goodwill is expected to be deductible for income tax purposes.
From the date of acquisition to 30 June 2017 the acquisition contributed £126 million to net revenue and £19 million to adjusted operating profit. Had the acquisition taken place at 1 January 2017, using the pro-forma financial information (p10), the enlarged Group consolidated net revenue would have been £6,319 million and adjusted operating profit would have been £1,455 million.