Johannesburg – JSE Limited listed Aspen Pharmacare Holdings Limited (APN), the ninth largest generic company in the world and Africa’s largest pharmaceutical manufacturer, has announced excellent results for the year ended 30 June 2013.
Group Performance
- Revenue from continuing operations increased by 27% to R19.3 billion.
- Operating profit from continuing operations rose by 28% to R5 billion.
- Normalised headline earnings, being headline earnings adjusted for specific non-trading items, advanced 32% to R3.8 billion.
- Normalised diluted headline earnings per share from continuing operations increased by 31% to 836 cents.
- Total distribution of 157 cents per share comprising a cash dividend of 131 cents per ordinary share and a capital distribution of 26 cents per ordinary share.
Stephen Saad, Aspen Group Chief Executive said, “While all business segments recorded substantial growth, the International business excelled with a superb performance driven by a combination of organic and acquisitive revenue growth.. The largest revenue contribution to the Group came from the Asia Pacific business while Latin America was the fastest growing customer geography.”
South African Business
In the South African business, revenue improved by 20% to R7.4 billion and operating profit before amortisation, adjusted for specific non-trading items (“EBITA”) increased 11% to R2.0 billion.
Revenue in the Pharmaceutical division rose 20% to R6.2 billion driven by organic growth and a strong contribution from new product launches in the private sector. In the public sector expanding demand for antiretrovirals (“ARVs”) added to the growth momentum although the greater weighting of revenue from low margin ARVs was the largest factor in the contraction of margin percentages. The weakening of the rand and rising inflation in administered costs also put pressure on margins although this was partially relieved by gains in production efficiency and procurement savings.
The Consumer division delivered an 18% increase in revenue with nutritionals being the biggest growth driver. Innovative new products, growing-up-milk and ready-to-feed infant milk were launched expanding Aspen’s offering in the nutritional sector.
Capital expansion projects have continued according to plan at all of the South African sites. In Port Elizabeth, land was acquired immediately adjacent to Aspen’s site. Part of this land is already under construction with the commencement of the building of the high containment suite while the remaining land remains available for future projects. The upgrade of packing capabilities is also underway in Port Elizabeth. The expansion and enhancement of manufacturing capabilities is continuing at Fine Chemicals in line with the strategy to achieve greater vertical integration of this site with Group active pharmaceutical ingredient (“API”) demands. The projects underway in East London and at Clayville are nearing completion.
Asia Pacific Business
The region’s continuous record of growth since the business was established in this territory in 2001 continued with a gain of 26% in revenue to R7.6 billion and with EBITA increasing by 30% to R1.9 billion. Rand-denominated performance was enhanced by the relative strengthening of the local currencies. The Asia Pacific region was the largest contributor to revenue in the Group for the first time, accounting for 37% of total gross revenue. This was achieved despite the mandated price cuts in Australia imposed by existing legislation. Revenue growth was supported by acquired products and pleasing progress in the Asian territories. EBITA advances benefitted from the continuation of the project to source more competitive product costs including the migration of production to the Port Elizabeth site in South Africa. The newly established subsidiary in Malaysia commenced trade in July 2013 and a further subsidiary has been established in Taiwan. Distribution in Australia of the classic brands portfolio acquired by the Group from GlaxoSmithKline (“GSK”) in December 2012 and the infant milk products acquired by the Group from Nestlé in May 2013 have been successfully taken on.
International Business
The International business showed strong growth with revenue increasing 48% to R3.7 billion and EBITA rising 59% to R1.5 billion. Latin America showed the biggest advance where sales to customers in this territory climbed 53% to R1.6 billion. A combination of organic and acquisitive growth propelled the Latin American performance despite the impact of the currency devaluation in Venezuela. The global brands portfolio was an important contributor to the growth achieved in the International business and the margin improvement projects for these products continued to yield favourable outcomes. Contributions from certain territories in this business have also benefitted from relative currency strength against the rand.
Sub-Saharan Africa Business
Gross revenue in Sub Saharan Africa increased 26% to R2.1 billion driven by expanded promotional support. The negative growth in EBITA during the first six months was reversed with an increase of 16% in EBITA in the second six months bringing the result for the year to R252 million, an increase of 2%.
Impending Transactions
Aspen has undertaken extensive corporate activity over the past year and the following transactions are being progression by Group companies:
- The acquisition of an API manufacturing business, primarily in the Netherlands, from MSD for approximately €36 million plus the value of inventory, to be effective 1 October 2013. Further details appear in the SENS announcement of 27 June 2013.
- In a related agreement with MSD, Aspen has an option to acquire a portfolio of 11 branded finished dose form molecules covering a diverse range of therapeutic areas for approximately US$600 million. The most likely date for the acquisition of this portfolio through the exercise of the option is 31 December 2013. Further details appear in the SENS announcement of 27 June 2013.
- A binding, irrevocable offer submitted to GSK to acquire the Arixtra and Fraxiparine/Fraxodi brands worldwide (excluding China, India and Pakistan) together with the specialised sterile production site which manufactures these brands for approximately £700 million. In terms of the offer, the date of acquisition of the brands would be 31 December 2013 and the date of acquisition of the site would be 30 April 2014. Further details appear in the SENS announcements of 18 June 2013 and 24 July 2013.
- The acquisition of certain licence rights to infant nutritional intellectual property, net assets including a production facility in Mexico and shares in infant nutritional businesses in several countries in Latin America from Nestlé with a proposed effective date of 28 October 2013. Further details appear in the SENS announcement of 7 August 2013.
- The acquisition from Nestlé of certain rights to intellectual property licenses and net assets in the infant nutritionals business presently conducted by Pfizer in certain southern African territories, including South Africa, remains subject to the approval of the South African competition authorities. Further details appear in the SENS announcement of 18 April 2013.
Prospects
The completion of the impending MSD and GSK transactions will transform the Group, expanding the global brands portfolio with the addition of established products which have strong market acceptance and widening Aspen’s geographic reach. This will enable Aspen to establish its own business units in Russia, other former Soviet republics and across Europe as well as extending its influence in Latin America and Asia. Significant management attention is being devoted to the development and implementation of the plans necessary to successfully execute these acquisitions. It is expected that synergies will be realised between these two transactions in addition to the focus Aspen will place on pursuing opportunities to achieve greater market penetration with the brands and improving production efficiencies.
The International business will be the greatest beneficiary of the completion of the impending transactions and this will add further momentum to the impressive growth achieved by this region in the past year.
Growth in the Asia Pacific territory will be supported by the impending transactions and the development of Aspen’s footprint in Asia.
As the market leader in the private and public pharmaceutical sectors in South Africa, Aspen is well positioned to extend the solid performance achieved in the past year through organic growth. An entire new management team has been positioned in the Consumer division with further impetus pending the approval by the competition authorities of the infant nutritional transaction with Nestlé.
In Sub Saharan Africa the focus will be on continuing the progress made in the second half of the past year. This territory remains vulnerable to geo-political volatility.
Provided there are no material changes in the prevailing macro-economic conditions, in the forthcoming year it is expected that the solid growth platform already established in all regions will be strongly supplemented by contributions to the International and Asia Pacific territories from the take-on of the impending transactions, particularly in the second half of the year. Debt levels in the Group will initially be close to Aspen’s self-imposed limits, but this gearing is expected to reduce quite rapidly through strong operational cash flows.
