| Mon 27 Aug 2007, 7:00 | | ENL - Enaleni - Unaudited results for the 6 months |
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ENL
ENL
ENL - Enaleni - Unaudited results for the 6 months ended 30 June 2007
Enaleni Pharmaceuticals Limited
Registration number 2002/018027/06
JSE ENL
ISIN ZAE000067740
UNAUDITED RESULTS
for the 6 months ended 30 June 2007
Revenues increase 29% to R479,2 million
Sixth largest SA pharmaceutical company
Restructuring costs of R6,6 million
Impairment charge of R7,3 million
Strategically focused on pharmaceuticals
Sale of non-core assets progressing
Ranked SA`s most empowered JSE-listed company
R125 million equity raised for upgrade and expansion
CONSOLIDATED INCOME STATEMENTS
6 months 6 months Year ended
ended ended 31 December
30 June 2007 30 June 2006 2006
Unaudited Unaudited Audited
R`000 R`000 R`000
Revenue 479 214 371 056 789 494
Gross profit 233 296 182 919 388 392
Other operating income 1 036 5 289 7 478
Operating expenses* (147 941) (95 116) (205 861)
Operating profit before
financing costs and taxation 86 391 93 092 190 009
Finance costs (18 963) (14 529) (32 084)
Finance income 7 705 3 089 7 446
Profit before taxation 75 133 81 652 165 371
Taxation (27 799) (28 407) (60 856)
Profit after taxation 47 334 53 245 104 515
Attibutable to:
Equity holders of the parent 46 945 52 833 104 079
Minority interest 389 412 436
Profit for the period 47 334 53 245 104 515
Reconciliation of headline
earnings
Profit attributable to
ordinary shareholders 46 945 52 833 104 079
Adjusted for: 5 031 (3 086) (4 257)
Impairment of property, plant
and equipment 5 160 - -
Profit on disposals of
property, plant and equipment (55) (3 086) (3 073)
Excess of assets acquired
over purchase price (74) - (1 184)
Headline earnings 51 976 49 747 99 822
Number of shares (`000)
Weighted average (basic) 413 566 400 360 400 609
Weighted average (diluted) 415 454 407 491 408 530
Earnings per share (cents)
Basic 11,4 13,2 26,0
Diluted 11,3 13,0 25,5
Headline earnings per share (cents)
Basic 12,6 12,4 24,9
Diluted 12,5 12,2 24,4
NOTES
Operating expenses*
Restructuring costs
The board has approved plans to restructure the corporate office and relocate
the head office of the Enaleni Pharmaceuticals Limited Group (`Enaleni`) to
Cape Town at the end of 2007. Restructuring costs of R6,6 million, primarily
related to employee termination and relocation costs, have been recognised
during the period ended 30 June 2007.
Impairment of plant and machinery
Included in operating expenses is an impairment charge of R7,3 million for the
period ended 30 June 2007. Newer assets being integrated into the upgraded
manufacturing facility has led to some assets being rendered redundant
resulting in the impairment of certain plant and machinery.
CONSOLIDATED BALANCE SHEETS
30 June 2007 30 June 2006 31 Dec 2006
Unaudited Unaudited Audited
R`000 R`000 R`000
ASSETS
Non-current assets 1 468 122 1 213 746 1 446 339
Property, plant and equipment 44 917 22 323 30 261
Intangible assets 1 403 911 1 174 807 1 400 848
Investments 5 071 5 510 5 071
Loans receivable - 2 136 -
Deferred tax 14 223 8 970 10 159
Current assets 473 042 324 098 421 760
Inventories 111 689 84 930 91 718
Income tax receivable 1 378 61 24
Trade and other receivables 207 764 160 112 144 280
Loans receivable 4 825 - 3 453
Cash and cash equivalents 147 386 78 995 182 285
Total assets 1 941 164 1 537 844 1 868 099
EQUITY AND LIABILITIES
Capital and reserves 1 176 658 942 680 997 821
Minority interest 170 (1 147) (213)
Total equity 1 176 828 941 533 997 608
Non-current liabilities 491 861 252 169 352 550
Loans and borrowings 487 025 250 688 350 416
Deferred tax 4 836 1 481 2 134
Current liabilities 272 475 344 142 517 941
Bank overdraft 3 776 2 067 3 175
Loans and borrowings 17 628 101 472 308 922
Income tax payable 12 328 45 703 36 744
Trade and other payables 238 743 194 900 169 100
Total liabilities 764 336 596 311 870 491
Total equity and liabilities 1 941 164 1 537 844 1 868 099
CONDENSED CONSOLIDATED CASH FLOW STATEMENTS
6 months ended 6 months ended Year ended
30 June 2007 30 June 2006 31 Dec 2006
Unaudited Unaudited Audited
R`000 R`000 R`000
Cash flows from
operating activities 25 114 55 309 89 308
Cash flows from
investing activities (31 161) (3 629) (42 820)
Cash flows from
financing activities (29 453) (82 172) 25 202
Net (decrease) increase
in cash and cash equivalents (35 500) (30 492) 71 690
Cash and cash equivalents
at beginning of the period 179 110 107 420 107 420
Cash and cash equivalents
at end of the period 143 610 76 928 179 110
CONDENSED SEGMENTAL REPORT
6 months ended 6 months ended Year ended
30 June 2007 30 June 2006 31 Dec 2006
Unaudited Unaudited Audited
R`000 R`000 R`000
Segment revenue
Pharmaceutical 402 598 318 045 673 586
Consumer and vitality 76 616 53 011 115 908
Total 479 214 371 056 789 494
Segment result
Pharmaceutical 81 253 91 347 184 568
Consumer and vitality 5 138 1 745 5 441
Total 86 391 93 092 190 009
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to equity holders of the parent
Share Share Treasury
capital premium shares
R`000 R`000 R`000
Balance at 1 January 2006 403 875 218 (2 651)
Profit for the year - - -
Issue of share capital 6 18 216 -
Share issue expenses - (2 706) -
Shares held by share
incentive trust - - (16 222)
IFRS 2 Share-based payments - - -
Acquisition of minority interest - - -
Balance at 1 January 2007 409 890 728 (18 873)
Profit for the period - - -
Issue of share capital 33 128 184 -
Share issue expenses - (1 577) -
Issued from share
incentive trust - - 3 818
IFRS 2 Share-based payments - - -
Acquisition of minority interest - - -
Balance at 30 June 2007 442 1 017 335 (15 055)
Attributable to equity holders of the parent
Retained
earnings Total
R`000 R`000
Balance at 1 January 2006 18 596 891 566
Profit for the year 104 079 104 079
Issue of share capital - 18 222
Share issue expenses - (2 706)
Shares held by share
incentive trust - (16 222)
IFRS 2 Share-based payments 2 882 2 882
Acquisition of minority interest - -
Balance at 1 January 2007 125 557 997 821
Profit for the period 46 945 46 945
Issue of share capital - 128 217
Share issue expenses - (1 577)
Issued from share
incentive trust - 3 818
IFRS 2 Share-based payments 1 434 1 434
Acquisition of minority interest - -
Balance at 30 June 2007 173 936 1 176 658
Minority Total
interest equity
R`000 R`000
Balance at 1 January 2006 (1 559) 890 007
Profit for the year 436 104 515
Issue of share capital - 18 222
Share issue expenses - (2 706)
Shares held by share
incentive trust - (16 222)
IFRS 2 Share-based payments - 2 882
Acquisition of minority interest 910 910
Balance at 1 January 2007 (213) 997 608
Profit for the period 389 47 334
Issue of share capital - 128 217
Share issue expenses - (1 577)
Issued from share
incentive trust - 3 818
IFRS 2 Share-based payments - 1 434
Acquisition of minority interest (6) (6)
Balance at 30 June 2007 170 1 176 828
COMMENTARY
FINANCIAL PERFORMANCE
It is our pleasure to announce a satisfactory set of interim results, in the
light of a revised strategy for the group and the challenging regulatory
environment. The group is now focused on the exciting and growing
pharmaceutical market with particular emphasis on generics and OTC (Over The
Counter) medicines, and continues to show market share gains.
Revenue for the period increased by 29% to R479,2 million (2006: R371,1
million), a satisfactory performance considering that this is primarily organic
growth, with no acquisitions having been concluded in the current calendar
year. The minimum growth across all business units was 25% as the group
continued to benefit from the positive environment for generic medicines and
the buoyancy in consumer spending patterns.
The gross margin for the period is 49% (2006: 49%) despite the effect of a
relatively weaker Rand in this period compared to 2006.
Operating profit for the period is R86,4 million (2006: R93,1 million), a
decrease of 7%. In 2006 operating profit included gains of R3,6 million related
to the profit on disposal of the Phoenix-based consumer factory and net foreign
exchange of R8,3 million. In the current period foreign exchange losses amount
to R2,3 million and other expenses for restructuring costs and impairment
charges on PPE of R13,9 million were recorded. Thus comparable operating profit
is R81,2 million and R102,6 million for 2006 and 2007 respectively, an increase
of 26%.
The group has utilised the R500 million facility provided for the acquisition
of Cipla Medpro consequent to the additional payment to the Cipla Medpro
vendors of R300 million in March and April. During the period under review, the
total interest expense was R19 million (2006: R14,5 million) and R7,7 million
interest was earned from cash balances on hand. The group benefited from
interest rate swap fair value adjustments of R9,5 million (2006: R7,9 million).
The effective taxation rate for the period is 37% (2006: 35%), the primary
adjustments to the statutory tax rate emanating from non-deductible interest of
R19,9 million, IFRS 2 expenses of R1,4 million and STC of R1,7 million.
Profit after taxation for the period is R47,3 million (2006: R53,2 million)
resulting in basic EPS of 11,4 cents (2006: 13,2 cents), a decrease of 14%, and
basic HEPS of 12,6 cents (2006: 12,4 cents), an increase of 2%.
Interest-bearing borrowings, net of cash on hand are R361 million (2006:
R275,2 million). Subsequent to the utilisation of the R500 million borrowing-
facility in connection with the Cipla Medpro acquisition, the group has repaid
R3,6 million and redeemed R22,2 million of this during the period under review.
The excess cash on hand results from the capital-raising exercise conducted in
May and this money has been set aside for the R100 million factory upgrade.
The gearing ratio is 31% (2006: 29%).
Cash flows from operating activities are R25,1 million (2006: R55,3 million).
The lower cash flow at this level relates to the payment of the first
provisional tax payment for 2007 clearing the bank account prior to the cut off
date. Cash flows from investing activities relate primarily to expenditure on
the pharmaceutical factory upgrade. Cash flows from financing activities
include the net effect of the R125 million raised to finance the factory
upgrade, and Cipla Medpro vendor payments of R300 million net of the preference
shares issued.
BOARD ANNOUNCEMENTS
In pursuit of the pharmaceutical strategy, the board appointed Cipla Medpro CEO
Jerome Smith as the incoming CEO in June 2007 and Trevor Edwards announced his
retirement. The leadership transition has been relatively smooth with Mr Smith
focusing his energy on integrating the pharmaceutical businesses and addressing
the challenges in the pharmaceutical facility, and Mr Edwards devoting his time
to ongoing leadership of the consumer and vitality businesses and managing the
disposal process for these assets. With the handover now complete and the
disposal of the Consumer and Vitality Division businesses progressing according
to plan, Mr Edwards resigned from the board with effect from 17 August 2007. We
thank Trevor for his valuable contribution, vision and leadership of the
Enaleni business since its inception.
Andrew Hall the CFO resigned from the board with effect from 17 August 2007 due
to family reasons and a decision to relocate back to Johannesburg. Our thanks
to Andy for his solid financial leadership of the business over the past year.
The appointment of a replacement for Mr Hall is well progressed and will be
announced in due course.
The board has appointed Mr Chris Aucamp as commercial director, with effect
from 17 August 2007. Mr Aucamp, a chartered accountant, has been the financial
director of Cipla Medpro for 11 years and has substantial knowledge of the
pharmaceutical industry. He was an integral member of the team that oversaw
Enaleni`s Cipla Medpro acquisition and capital-raising.
Mr Aucamp will also fulfil the duties of Group CFO in the interim until such
time as a replacement for Mr Hall is appointed.
Sweet Sensations, the empowerment consortium which has a 18,5% shareholding in
Enaleni continues to add valuable strategic input through non-executive
directors Dr Gil Mahlati and Miss Thembisa Dingaan. The IDC continues to be
represented by Miss Mpho Mosweu.
OPERATIONAL REVIEW
Pharmaceutical Division
Cipla Medpro continues to grow from strength to strength and the integration of
FirstPharm into Cipla Medpro, which is progressing according to expectations,
will strengthen the OTC division. This integration has resulted in Cipla Medpro
opening a new distribution channel into food stores which presents positive new
opportunities for the business. The integration of the two businesses will also
realise efficiencies and it is anticipated that sales of FirstPharm products
such as AlkaFizz, Gelacid and Cipladol will be positively impacted by the
larger sales force and additional marketing activities of Cipla Medpro.
Cipla Medpro alone has increased its total market share from 2,5% in June 2006
to 3,1% in June 2007. Its current growth is 37,6% whereas the total
pharmaceutical market is growing at 11%. This growth of 37,6% is the highest of
the top ten pharmaceutical companies. (Source: IMS)
Cipla Medpro has launched a number of exciting new products during the period
under review and the company continues to benefit from the strong pipeline of
products from Cipla India. Cipla Medpro continues to build on its range of
ARV`s and is well positioned to capitalise on the major tender opportunities in
2008. The company has also invested in a substantial and aggressive marketing
strategy to increase brand awareness amongst existing and potential consumers.
The campaign which is driven by television, seeks to position Cipla Medpro as
the pharmaceutical company championing affordable healthcare as a right, not a
privilege.
Under increasing regulatory pressure, in late June 2007 the board decided to
temporarily suspend manufacturing activity in the pharmaceutical facility and
accelerate the R100 million upgrade of the factory to become one of the first
PIC/S compliant facilities in South Africa. The decision resulted from the
Medicines Control Council (MCC) becoming PIC compliant on 1 July 2007 which
changed the dynamics of the local industry. We are working with Cipla India and
internationally renowned consultants on the upgrade and we remain optimistic
that this will prove to be an excellent strategic investment in light of
government`s drive to promote local pharmaceutical manufacturing.
The upgrade is within budget and on schedule, and had no causal effect on the
disruption to manufacturing. During the period under review the Contract
Manufacturing division made an operating loss of R2,4 million before PPE
impairments of R7,3 million and inventory write-offs of R3 million. These were
provided due to the redundancy of older plant and machinery in the upgraded
manufacturing facility and the board`s decision to temporarily suspend
manufacturing on 29 June 2007.
Consumer and Vitality Division
Subsequent to the announcement by the board to divest of the businesses in this
division, namely Bioharmony, Muscle Science and the Consumer Division, as they
are no longer strategically aligned with the pharmaceutical strategy, the group
has received expressions of interest from a number of potential bidders and has
distributed information memoranda to short-listed parties. In spite of the
strategic move away from consumer products these businesses have enjoyed
excellent growth during the period under review, achieving combined revenue of
R76,6 million (2006: R53 million), an increase of 45%. More pleasing, on the
back of this impressive revenue performance, the operating profit nearly
trebled to R5,1 million thereby representing almost 6% of the group`s operating
profit.
Bioharmony
This business has achieved a 100% increase in revenue and has improved its
operating margin to more than 10% despite the relatively heavy investment in
marketing via television advertising.
Muscle Science
Performance in this sports supplements business, the third largest in South
Africa, has also continued to improve with an increase in revenue of 33% from
the prior period and operating margin in excess of 11%. Market share continues
to increase, distribution has improved and a new listing in Clicks stores
promises further increases in market share, particularly within the weight loss
market.
Consumer Division
This business reflects a 31% increase in revenue on the previous period and
particularly pleasing is that the key brands, Caivil and Hercules, have both
grown in excess of 40%. The business continues to invest substantially in
marketing activities to promote these two key brands, particularly in the
targeted `black diamond` consumer market and there are few businesses as well
positioned to capitalise on this sector. Consumer research was recently
undertaken which confirmed the company`s belief that Hercules and Caivil are
valuable assets. The business made an operating profit of R1,2 million during
the period under review.
Management is of the opinion that these three well-established businesses are
desirable assets for potential purchasers as all three boast high levels of
consumer recognition, growing support within the local markets and, in the case
of Hercules and Caivil, significant growth opportunities within the growing
emerging market. Management is optimistic that the values realised will be
ahead of initial expectations.
Relocation of Group Head Office
In conjunction with Mr Smith`s appointment as CEO, the group will relocate its
head office to Cape Town by the end of the year. The head office relocation
will improve efficiencies and streamline communications and operations. The
plan is proceeding smoothly and consensual termination agreements have been
concluded with a number of employees resulting in a charge of R6,6 million
during the period under review.
Prospects
The second half of 2007 will see new product launches and the finalisation of
the sale of the Consumer and Vitality Division businesses. While the next six
months will be a challenging period given the restructuring, we will continue
to build the platform for a pure pharmaceutical company focusing on the OTC and
generics markets. We believe the company will continue to show revenue growth
and market share gains. We will continue to leverage off our strong
relationship with Cipla India to realise our vision of becoming a top five
pharmaceutical company within the next three years.
BASIS OF PREPARATION OF THE UNAUDITED RESULTS
The interim consolidated financial statements consist of an income statement,
balance sheet, statement of changes in equity, condensed cash flow statement
and condensed segment report for the period ended 30 June 2007.
The interim financial statements have been prepared in accordance with IAS 34,
Interim Financial Reporting, and in accordance with the Companies Act in South
Africa. The accounting policies adopted in the preparation of these
consolidated financial statements are consistent with those followed in the
preparation of the group`s annual financial statements for the year ended 31
December 2006.
DIVIDENDS
Currently all earnings generated by the group are utilised to repay debt and
fund growth opportunities.
PCS LUTHULI JS SMITH TD EDWARDS
Chairman Joint CEO Joint CEO
17 August 2007
CORPORATE INFORMATION
Non-executive directors PCS Luthuli (Chairman), Dr G Mahlati, T Dingaan,
M Mosweu
Executive directors JS Smith (Joint CEO), TD Edwards (Joint CEO),
AG Hall (CFO) PA Pillay, Chris Aucamp (appointed 17
August 2007)
Registration number 2002/018027/06
JSE ENL
ISIN ZAE000067740
Registered address 1474 South Coast Road, Mobeni, KwaZulu-Natal, 4052
Postal address PO Box 32003, Mobeni, 4060
Transfer secretaries Computershare Investor Services 2004 (Proprietary)
Limited
Telephone +27 31 451 3800
Facsimile +27 31 451 3889
Sponsor Nedbank Capital
These results may also be viewed at www.enaleni.com
Date: 27/08/2007 07:00:01 Produced by the JSE SENS Department.
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