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ENL
ENL - Enaleni Pharmaceuticals Limited - Preliminary reviewed group results
Enaleni Pharmaceuticals Limited
(Incorporated in the Republic of South Africa)
(Registration number 2002/018027/06)
JSE code: ENL ISIN: ZAE000067740
("Enaleni")
PRELIMINARY REVIEWED GROUP RESULTS
FOR THE YEAR ENDED 31 DECEMBER 2007
- Revenues increase 19% to R940,7 million (2006: R789,5 million)
- Basic EPS of 31,0 cents (2006: 26,0 cents)
- Basic HEPS of 24,7 cents (2006: 24,9 cents)
Condensed Consolidated Income Statement
Restated
Year ended Year ended
31 December 31 December
2007 2006
Reviewed Audited
R`000 R`000
Continuing operations
Revenue 806 234 673 586
Cost of Sales (392 611) (343 171)
Gross profit 413 623 330 415
Other income 14 864 3 842
Selling and distribution expenses (154 179) (111 751)
Administrative expenses (54 512) (30 325)
Other expenses (21 099) (8 478)
Profit before financing costs and income tax 198 697 183 703
Net finance costs (33 666) (23 888)
Finance costs (54 182) (31 322)
Finance income 20 516 7 434
Share of profit of equity accounted investees
(net of tax) 317 -
Profit before income tax 165 348 159 815
Income tax expense (58 880) (60 104)
Profit from continuing operations 106 468 99 711
Discontinued operations
Profit from discontinued operations (net of tax)* 26 348 4 804
Profit for the year 132 816 104 515
Attributable to:
Equity holders of the parent 131 841 104 079
Minority interest 975 436
Profit for the year 132 816 104 515
Number of shares (`000)
Weighted average (basic) 425 603 400 609
Weighted average (diluted) 426 550 408 530
Total
Earnings per share (cents)
Basic 31,0 26,0
Diluted 30,9 25,5
Continuing operations
Earnings per share (cents)
Basic 25,0 24,9
Diluted 24,9 24,4
Headline earnings
Reconciliation of headline earnings
Profit attributable to ordinary shareholders 131 841 104 079
Adjusted for: (26 865) (4 257)
Gain on disposals of property, plant and
equipment (188) (3 073)
Gain on disposals of intangible assets (8 236) -
Gain on disposals of discontinued operations (24 642) -
Excess of assets acquired over purchase price (74) (1 184)
Impairment of property, plant and equipment 5 616 -
Impairment of intangible assets 976 -
Share of profit of equity accounted investees (317) -
104 976 99 822
Total
Headline earnings per share (cents)
Basic 24,7 24,9
Diluted 24,6 24,4
Continuing operations
Headline earnings per share (cents)
Basic 24,5 24,6
Diluted 24,5 24,1
* Note: Included in profit from discontinued operations is profit on disposal
of businesses net of the applicable taxes.
Condensed Segmental Information
Restated
Year ended Year ended
31 December 31 December
2007 2006
Reviewed Audited
R`000 R`000
Segment revenue
Pharmaceutical 806 234 673 586
Consumer and Vitality* 134 506 115 908
Total 940 740 789 494
Segment results
Pharmaceutical 198 697 184 703
Consumer and Vitality* 39 383 5 306
Total 238 080 190 009
* Note: The Consumer and Vitality division has been discontinued.
Condensed Consolidated Balance Sheet
31 December 31 December
2007 2006
Reviewed Audited
R`000 R`000
ASSETS
Non-current assets 1 491 865 1 446 339
Property, plant and equipment 130 909 30 261
Intangible assets 1 355 431 1 400 848
Other investments 328 5 071
Deferred tax assets 5 197 10 159
Current assets 445 274 421 760
Inventories 85 356 91 718
Income tax receivable 1 186 24
Trade and other receivables 156 078 144 280
Loans receivable 42 234 3 453
Cash and cash equivalents 160 420 182 285
Total assets 1 937 139 1 868 099
EQUITY AND LIABILITIES
Capital and reserves 1 270 222 997 821
Minority interest 152 (213)
Total equity 1 270 374 997 608
Non-current liabilities 448 356 352 550
Loans and borrowings 442 6 78 350 416
Deferred tax liabilities 5 678 2 134
Current liabilities 218 409 517 941
Bank overdraft 771 3 175
Loans and borrowings 5 072 308 922
Income tax payable 25 126 36 744
Trade and other payables 187 440 169 100
Total liabilities 666 765 870 491
Total equity and liabilities 1 937 139 1 868 099
Condensed Consolidated Cash Flow Statement
Year ended Year ended
31 December 31 December
2007 2006
Reviewed Audited
R`000 R`000
Cash generated by operations 232 001 157 345
Finance costs paid (55 936) (29 324)
Finance income received 20 599 7 446
Income tax paid (71 516) (44 073)
Secondary tax on companies paid (4 433) (2 086)
Cash flows from operating activities 120 715 89 308
Acquisition of property, plant and equipment (122 587) (17 440)
Acquisition of intangible assets (5 015) (9 253)
Proceeds on disposals of property, plant and
equipment 3 184 8 872
Proceeds on disposals of intangible assets 21 565 -
Disposal of discontinued operations (net of tax) 73 295 -
Acquisition of subsidiaries - (20 350)
Acquisition of minority interests (1 738) (4 000)
Increase in loans receivable (39 060) (649)
Cash flows from investing activities (70 356) (42 820)
Proceeds from the issue of share capital 125 000 -
Share issue expenses (1 615) (719)
Proceeds from the exercise of share options 10 166 -
Net proceeds on redeemable preference shares 107 670 222 000
Increase in loans payable (311 041) (196 079)
Cash flows from financing activities (69 820) 25 202
Net (decrease) increase in cash and cash
equivalents (19 461) 71 690
Cash and cash equivalents at beginning of the
year 179 110 107 420
Cash and cash equivalents at end of the year 159 649 179 110
Condensed Consolidated Statement of Changes in Equity
Attributable to equity holders of the parent
Share Share Treasury Retained
capital premium shares income
R`000 R`000 R`000 R`000
Balance at 1 January 2006 403 875 218 (2 651) 18 596
Total recognised income and
expenditure (profit for
the year) - - - 104 079
Issue of share capital 6 18 216 - -
Share issue expenses - (2 706) - -
Shares acquired by share
incentive trust - - (16 222) -
IFRS 2 Share based payments - - - 2 882
Acquisition of minority
interest - - - -
Balance at 31 December 2006 409 890 728 (18 873) 125 557
Total recognised income and
expenditure (profit for
the year) - - - 131 841
Issue of share capital 34 130 183 - -
Share issue expenses - (1 615) - -
Issued from share
incentive trust - - 10 166 -
IFRS 2 Share based payments - - - 1 792
Acquisition of minority
interest - - - -
Disposal of minority
interest - - - -
Balance at 31 December 2007 443 1 019 296 (8 707) 259 190
Minority Total
Total interest equity
R`000 R`000 R`000
Balance at 1 January 2006 891 566 (1 559) 890 007
Total recognised income and
expenditure (profit for the year) 104 079 436 104 515
Issue of share capital 18 222 - 18 222
Share issue expenses (2 706) - (2 706)
Shares acquired by share
incentive trust (16 222) - (16 222)
IFRS 2 Share based payments 2 882 - 2 882
Acquisition of minority interest - 910 910
Balance at 31 December 2006 997 821 (213) 997 608
Total recognised income and
expenditure (profit for the year) 131841 975 132 816
Issue of share capital 130217 - 130 217
Share issue expenses (1615) - (1 615)
Issued from share incentive trust 10166 - 10 166
IFRS 2 Share based payments 1792 - 1 792
Acquisition of minority interest - (6) (6)
Disposal of minority interest - (604) (604)
Balance at 31 December 2007 1 270 222 152 1 270 374
Commentary
Overview
We are pleased to announce a reasonable, under the circumstances, set of annual
results in light of the revised strategy of the group and the continuing
challenging regulatory environment. 2007 saw significant changes within the
group, most notably the board`s decision to focus solely on pharmaceuticals and
divest of the Consumer and Vitality division, which is now complete.
A sale agreement was signed with Marico
South Africa Consumer Care (Pty) Ltd for all the shares and claims in Enaleni
Pharmaceuticals Consumer Division (Pty) Ltd for a purchase price of R92,8
million. On 30 November, a sale agreement for the shares and claims in
Bioharmony and Muscle Science was signed with Arcay Merchant (Pty) Ltd.
Enaleni`s 100% shareholding of Bioharmony was sold for R26,6 million while its
67% shareholding in Muscle Science was sold for R8,6 million and the purchase
price was settled in cash.
The group is now concentrating its activities within the pharmaceutical market,
with particular emphasis on chronic medicines, over the counter (OTC)
medicines, its veterinary business and focussed therapeutic categories with
high margins and few competitors such as ophthalmology, oncology and asthma.
Agrichemicals will be a growth area for the business as well. As indicated in
the group`s June 2007 interim results, the head office function has relocated
to Cape Town. The relocation was effective 1 January 2008 and has improved
efficiencies.
Financial Performance
Total revenue for the period increased by 19% to R940,7 million (2006: R789,5
million), a satisfactory performance in light of the temporary cessation in
manufacturing at the Contract Manufacturing Division for the majority of the
second half of 2007.
Total group profit after taxation for the year is R131,8 million (2006: R104,1
million) which represents an increase of 27%. The total basic EPS is 31,0 cents
(2006: 26,0 cents), an increase of 19% and basic HEPS has decreased by 1% to
24,7 cents (2006: 24,9 cents). This decrease can be attributed to the dilution
of 6% due to the issue of new shares during 2007, and the abnormal expenses
incurred in the Contract Manufacturing division.
Interest-bearing borrowings, net of cash on hand are R288,1 million (2006:
R480,2 million). Subsequent to the utilisation of the R500 million borrowing-
facility in connection with the Cipla Medpro acquisition, the group has repaid
loans of R24 million and redeemed R46,3 million of preference shares during the
period. The excess cash on hand results from the as yet unutilised balance of
the funds from the capital raising exercise concluded in May 2007 for the R125
million upgrade and the proceeds from the disposal of the Consumer and Vitality
division. The gearing ratio has reduced from 48% to 23% in 2007. The group
benefited from interest rate swap fair value adjustments of R10,5 million
(2006: R5,1 million). Preference share dividends paid during the year amount to
R28,0 million (2006: R16,1 million).
Cash flows from operating activities are R120,7 million (2006: R89,3 million).
Cash flows from investing activities relate primarily to expenditure on the
pharmaceutical 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 of
R154 million.
Continuing operations
Revenue is up 20% to R806,2 million (2006: R673,6 million), and gross profit
has followed suit and has increased 25% from the previous period.
Operating profit marginally increased by 8%, as capital gains of R29,5 million
related to the profit on the disposals of the Consumer and Vitality division
businesses has been included below under profit from discontinuing operations.
Capital gains from the sale of intangible assets, amounting to R10,6 million,
has been included in continuing operations.
Profit after taxation for the year is R106,5 million (2006: R99,7 million)
resulting in basic EPS of 25,0 cents (2006: 24,9 cents), an increase of 0,4%
and basic HEPS of 24,5 cents (2006: 24,6 cents).
The effective taxation for the year is at 35,6% (2006: 37,6%). The primary
adjustment to the statutory tax rate emanates from non-deductible interest of
R38,6 million, IFRS 2 expenses of R1,8 million and STC of R3,9 million.
Discontinuing operations
Profit from discontinued operations has increased due to the profit on the sale
of the Consumer and Vitality Division businesses, net of capital gains tax paid
and the repayment of the R24 million loan facility which was housed within
Enaleni Pharmaceuticals Consumer Division business, as well as the associated
breakage costs paid to Nedbank.
Board Announcements
Appointments
In light of the revised pharmaceutical strategy, Cipla Medpro CEO Jerome Smith
was appointed as group CEO in August 2007. Cipla Medpro financial director
Chris Aucamp was appointed to the board as commercial director on 17 August
2007 and subsequently assumed the position of group CFO on 1 October 2007.
Both gentlemen possess significant pharmaceutical industry knowledge and have
confirmed their commitment to the group through the extension of their
contracts until December 2010.
Empowerment Consortium Sweet Sensations members, Mr Bongani Caga and Ms
Nthabiseng Mokone were appointed as non-executive directors on 13 November
2007. Sweet Sensations continues to hold a 20,3 % shareholding in Enaleni.
Mr Caga is an executive director of Umnombo Investment Holdings and a non-
executive director of a Cape Town based Geo Satellite manufacturing company. He
was previously an executive director of Decorum Capital Partners (Pty) Limited,
and before that an Investment Banker in the corporate finance division of
Standard Corporate and Merchant Bank (SCMB). Mr Caga also served as a corporate
finance advisor with SCMB and was involved in various corporate finance
transactions and a number of BEE transactions, including the Telkom IPO and
listing on the JSE Limited and New York Stock Exchange.
Ms Mokone is the head of a Private Equity Fund at Amabubesi Investments and
currently serves as a non-executive director of Digicore Holdings and Alliance
Group (Auction Alliance).
Resignations
Commercial director Stan Whitfield retired with effect from 30 April 2007 while
executive director Umesh Parusnath resigned from the board on the same date.
Former CEO Trevor Edwards and CFO Andrew Hall resigned from the board with
effect from 17 August 2007 while executive director Pamela Pillay resigned from
the board on 19 October 2007.
Sweet Sensations consortium member Thembisa Dingaan resigned from the board on
13 November 2007 due to family reasons. Ms Dingaan`s role as chairperson of the
Audit and Risk Committee has been filled by non-executive director Ms Mpho
Mosweu (who was appointed to represent the Industrial Development Corporation
(IDC), following Nomini Rapoo`s resignation in February 2007). The board thanks
Ms Dingaan for her valuable contribution and commitment to the group.
The Audit and Risk, Remuneration and Executive Committees continue to function
well and within the board`s mandates.
It is the board`s intention to further increase the depth of pharmaceutical
industry knowledge and expertise at board level.
Operational Review
Cipla Medpro
Cipla Medpro continued to grow its market share ahead of the local
pharmaceutical market during 2007. Its total market share increased from 2,9%
in December 2006 to 3,4% in December 2007. Its Evolution Index of 115 is the
highest of the top twenty pharmaceutical companies and has been achieved
through growing the market share of its top ten products, a significant
increase in the company`s sales force and an aggressive marketing strategy
which included television advertising, aimed at increasing corporate and brand
awareness amongst existing and potential new customers. The first two months of
2008 showed the rewards of this strategy. Sales are significantly up over the
corresponding period last year by 37,5% (unaudited).
January 2008 saw the appointment of two deputy CEO`s, Dr Skhumbuzo Ngozwana
and Dr Pieter Potgieter. With a Masters in Clinical Pharmacology and an MBA
from the Gordon Institute of Business Science Dr Ngozwana boasts more than a
decade`s experience in the health services sector with his areas of speciality
including HIV/Aids medical management, business development and strategy
development. Prior to joining Cipla Medpro in 2002 and subsequently developing
the company`s diabetes division, Dr Pieter Potgieter spent some 12 years
garnering expertise in medical practice, doctor groups and managed healthcare
as both an owner and consultant.
The integration of FirstPharm into Cipla Medpro went smoothly with staff. Many
FirstPharm products remained out of stock for the latter part of 2007.
Manufacturing has now been settled and new packaging completed which saw the
return to stock of the majority of products during January 2008.
Cipla Medpro continues to enjoy a strong pipeline of products from Cipla India
resulting in the planned launch of three first to market products where the
innovators enjoy in excess of R300 million in sales.
Cipla Dibcare, the diabetes division, positions the company as the only one in
SA to offer a complete spectrum of diabetes products, from diagnostics, insulin
s to over the counter treatments. This young division is also starting to
realise good growth in marketshare.
Growth across a number of other portfolios was also achieved during the year,
including the Cipla Animal Healthcare division which comprises two rapidly
growing young companies, Cipla Vet and Cipla Agrimed which target the companion
animal (dogs, cats and horses) and large animal (cattle and sheep) markets
respectively. The launch of innovative and affordable medicines has seen this
division achieve strong growth and by the last quarter of 2007, Cipla Vet`s
Pegamax was South Africa`s top selling equine dewormer.
Contract Manufacturing
Under increasing regulatory pressure and with the Medicines Control Council
(MCC) becoming signatories to international Pharmaceutical Inspection Co-
operation Scheme (PIC/S) regulations compliant on 1 July 2007, the board
decided on 29 June 2007 to temporarily suspend manufacturing activity in the
pharmaceutical facility to expedite the R125 million upgrade. The upgrade is
progressing reasonably well and is due for completion by June 2008. A further
investment of R50 million has been budgeted for to allow for investment in
sophisticated machinery to replace that which was originally ordered by the
previous management and considered to be completely inappropriate by Cipla.
Production of Dettol and Disprin resumed on 14 September 2007 in a new MCC-
approved interim manufacturing facility and in January 2008 manufacturing on
these lines moved to a new, permanent, MCC-approved facility on the premises.
During the period under review, the Contract Manufacturing division made an
operating profit of R38,1 million before incurring abnormal expenses of PPE
impairments of R7,8 million (added back for HEPS), inventory write offs of
R11,7 million and retrenchments of R6 million. These were incurred due to the
redundancy of older plant and machinery in the upgraded manufacturing facility
and the board`s decision to temporarily suspend manufacturing in June 2007.
New senior management appointments were made within this division in the latter
part of 2007. Marc Gardiner was appointed general manager and brings a wealth
of pharmaceutical manufacturing expertise to the group, as does new engineering
manager Jeroen Wentink. Mark Daly, the group`s corporate finance executive, was
appointed finance executive for the Contract Manufacturing division.
We continue to work closely with Cipla India and international consultants on
the upgrade and the board remains confident that this will prove to be a
strategically sound investment.
Prospects
We envisage that 2008 will be a challenging year for the local pharmaceutical
industry at large. Price increases seem unlikely to materialise and the
Rand/Dollar exchange rate continues to impact the industry. However, Enaleni is
well positioned in spite of the challenges, through its strong relationship
with Cipla India that will continue to result in a number of new dossiers and
product registrations during the course of 2008. With the upgrade to the
manufacturing facility due for completion in June, this division is poised to
become a significant contributor to revenues.
Dividends
Currently all earnings generated by the group are utilised to repay debt and
fund growth opportunities.
Basis of preparation
The preliminary reviewed group results have been prepared in accordance with
the recognition and measurement criteria of International Financial Reporting
Standards (IFRS) and the presentation and disclosure requirements of IAS 34,
Interim Financial Reporting.
The accounting policies and methods of computation have been applied
consistently with the previous year.
Auditor Report
KPMG Inc`s unmodified review report on the preliminary reviewed group results
is available for inspection at the company`s registered office.
PCS LUTHULI JS SMITH
Chairman CEO
17 March 2008
CORPORATE INFORMATION
Non-executive directors PCS Luthuli (Chairman); Dr GS Mahlati; MT Mosweu;
MB Caga; ND Mokone
Executive directors JS Smith (Chief Executive Officer); C Aucamp
(Chief Financial Officer)
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 (Proprietary) Limited
Telephone +27 31 451 3800
Facsimile +27 31 451 3889
Sponsor Nedbank Capital
Auditors KPMG Inc.
These results may also be viewed at www.enaleni.com
Date: 17/03/2008 07:29:47 Produced by the JSE SENS Department.
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