| Tue 9 Sep 2008, 9:00 | | ENL - Enaleni Pharmaceuticals - Unaudited results for the six months ended 30 |
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ENL - Enaleni Pharmaceuticals - Unaudited results for the six months ended 30
JUNE 2008
Enaleni Pharmaceuticals
JSE Code: ENL
ISIN: ZAE000067740
UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2008
* Revenue (continuing operations) increased 15% to R463,4 million
* PBIT (continuing operations) increased 24% to R108,4 million
* Basic EPS increased 29% to 14,7 cents
* Basic HEPS increased 14% to 14,4 cents
* Continuing operations: Basic EPS increased 37%
* Continuing operations: Basic HEPS increased 20%
* Total debt reduction of R76,9 million
* Factory upgrade due for ultimate completion October 2008
* Sixth largest South African pharmaceutical company
CONSOLIDATED INCOME STATEMENTS
Unaudited Unaudited* Audited
Six months Six months Year ended
30 June 30 June 31 December
2008 2007 2007
Notes R`000 R`000 R`000
Continuing operations
Revenue 463 433 402 598 806 234
Gross profit 1 223 116 199 930 413 623
Other operating income 3 602 1 008 14 864
Operating expenses 2 (118 289) (113 259) (229 790)
Profit before financing
costs and income tax 108 429 87 679 198 697
Finance costs (19 781) (24 650) (54 182)
Finance income 11 449 7 698 20 516
Share of profit of
associate (net of tax) - - 317
Profit before income tax 100 097 70 727 165 348
Income tax expense (35 061) (26 355) (58 880)
Profit from continuing
operations 65 036 44 372 106 468
Discontinued operations
Profit from
discontinued operations
(net of tax) 3 - 2 962 26 348
Profit for the period 65 036 47 334 132 816
Attributable to:
Equity holders of the
parent 64 622 46 945 131 841
Minority interest 414 389 975
Profit for the period 65 036 47 334 132 816
Number of shares (`000)
Weighted average (basic) 439 550 413 566 425 603
Weighted average
(diluted) 439 909 415 454 426 550
Total
Earnings per share
(cents)
Basic 14,7 11,4 31,0
Diluted 14,7 11,3 30,9
Continuing operations
Earnings per share
(cents)
Basic 14,7 10,7 25,0
Diluted 14,7 10,7 24,9
Headline earnings
Reconciliation of
headline earnings
Profit attributable to
ordinary shareholders 64 622 46 945 131 841
Adjusted for: (1 130) 5 031 (26 865)
Loss on disposals of
property, plant and
equipment 183 (55) (188)
Gain on disposal of
intangible assets (935) - (8 236)
Gain on disposals of
discontinued operations (378) - (24 642)
Excess of assets
acquired over purchase
price - (74) (74)
Impairment of property,
plant and equipment - 5 160 5 616
Impairment of
intangible assets - - 976
Share of profit of
associate - - (317)
Total 63 492 51 976 104 976
Headline earnings per
share (cents)
Basic 14,4 12,6 24,7
Diluted 14,4 12,5 24,6
Continuing operations
Headline earnings per
share (cents)
Basic 14,4 12,0 24,5
Diluted 14,4 11,9 24,5
* Comparative figures have been re-presented for continuing and discontinued
operations as per IFRS 5 Non- current Assets Held for Sale.
NOTES
1. Gross profit
The financing element relating to foreign purchases has been reallocated from
cost of sales into finance costs in terms of IAS 39 Financial Instruments:
Recognition and Measurement. The amount reallocated in June 2007 is
R10,4 million (June 2008: R6,4 million).
2 Operating expenses
Restructuring costs
In the prior year, the board had 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 charges of
R6,6 million, primarily related to employee termination and relocation costs,
had been recognised during the period ended 30 June 2007.
Impairment of plant and machinery
Included in operating expenses for the period ended 30 June 2007, is an
impairment charge of R7,3 million. Newer assets being integrated into the
upgraded manufacturing facility had led to some assets being rendered
redundant resulting in the impairment of certain plant and machinery.
3. Profit from discontinued operations (net of tax)
Included in profit from discontinued operations for the year ended 31 December
2007, are profits on the disposal of the Consumer and Vitality division net of
the applicable taxes.
CONSOLIDATED BALANCE SHEETS
Unaudited Unaudited Audited
30 June 30 June 31 December
2008 2007 2007
R`000 R`000 R`000
ASSETS
Non-current assets 1 578 337 1 468 122 1 491 865
Property, plant and equipment 196 424 44 917 130 909
Intangible assets 1 374 610 1 403 911 1 355 431
Other investments 7 5 071 328
Deferred tax assets 7 296 14 223 5 197
Current assets 470 953 473 042 445 274
Inventories 119 390 111 689 85 356
Income tax receivable 1 117 1 378 1 186
Trade and other receivables 197 589 207 764 156 078
Loans receivable 2 682 4 825 42 234
Cash and cash equivalents 150 175 147 386 160 420
Total assets 2 049 290 1 941 164 1 937 139
EQUITY AND LIABILITIES
Capital and reserves 1 336 734 1 176 658 1 270 222
Minority interest 566 170 152
Total equity 1 337 300 1 176 828 1 270 374
Non-current liabilities 378 377 491 861 448 356
Loans and borrowings 369 843 487 025 442 678
Deferred tax liabilities 8 534 4 836 5 678
Current liabilities 333 613 272 475 218 409
Bank overdraft - 3 776 771
Loans and borrowings 992 17 628 5 072
Income tax payable 57 613 12 328 25 126
Trade and other payables 275 008 238 743 187 440
Total liabilities 711 990 764 336 666 765
Total equity and liabilities 2 049 290 1 941 164 1 937 139
CONDENSED CONSOLIDATED CASH FLOW STATEMENTS
Unaudited Unaudited Audited
Six months Six months Year ended
30 June 30 June 31 December
2008 2007 2007
R`000 R`000 R`000
Cash flows from operating
activities 114 608 25 114 102 423
Cash flows from investing
activities (47 564) (31 161) (36 247)
Cash flows from financing
activities (76 518) (29 453) (85 637)
Net decrease in cash and cash
equivalents (9 474) (35 500) (19 461)
Cash and cash equivalents at
beginning of the period 159 649 179 110 179 110
Cash and cash equivalents at end
of the period 150 175 143 610 159 649
CONDENSED SEGMENTAL REPORT #
Unaudited Unaudited Audited
Six months Six months Year ended
30 June 30 June 31 December
2008 2007 2007
R`000 R`000 R`000
Segment revenue
Pharmaceutical 463 433 402 598 806 234
Non-factory
Factory 25 679 64 010 85 260
Head office - - -
Consumer and vitality - 76 616 134 506
Total 463 433 479 214 940 740
Segment result
Pharmaceutical 108 429 87 679 198 697
Non-factory 126 880 113 831 232 094
Factory (15 971) (11 788) (18 612)
Head office (2 480) (14 364) (14 785)
Consumer and vitality - 5 138 39 383
Total 108 429 92 817 238 080
# The basis of segmentation since the year ended December 2007 has changed, as
the chief operating decision maker reviews the segments on a factory versus
non-factory basis. In the previous financial year, the business was reviewed by
the chief operating decision maker on a pharmaceutical versus consumer and
vitality basis. Towards the end of the previous financial year, the businesses
belonging to the consumer and vitality segment were sold.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to equity holders of the parent
Share Share Treasury Retained
capital premium shares earnings
R`000 R`000 R`000 R`000
Balance at
1 January 2007 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) - -
Shares issued from share
incentive trust - - 10 166 -
IFRS 2 Share-based Payments - - - 1 792
Acquisition of minority
interest - - - -
Disposal of minority
interest - - - -
Balance at 1 January 2008 443 1 019 296 (8 707) 259 190
Total recognised income and
expenditure (profit for the
period) - - - 64 622
Shares issued from share
incentive trust - - 398 -
IFRS 2 Share-based Payments - - - 1 492
Balance at 30 June 2008 443 1 019 296 (8 309) 325 304
Total Minority interest Total equity
R`000 R`000 R`000
Balance at 1 January 2007 997 821 (213) 997 608
Total recognised income
and expenditure (profit
for the year) 131 841 975 132 816
Issue of share capital 130 217 - 130 217
Share issue expenses (1 615) - (1 615)
Shares issued from share
incentive trust 10 166 - 10 166
IFRS 2 Share-based Payments 1 792 - 1 792
Acquisition of minority
interest - (6) (6)
Disposal of minority
interest - (604) (604)
Balance at 1 January 2008 1 270 222 152 1 270 374
Total recognised income
and expenditure (profit
for the period) 64 622 414 65 036
Shares issued from share
incentive trust 398 - 398
IFRS 2 Share-based Payments 1 492 - 1 492
Balance at 30 June 2008 1 336 734 566 1 337 300
COMMENTARY
OVERVIEW
We are pleased to announce a favourable set of interim results for the period
ended 30 June 2008. The first six months of 2008 have seen good progress within
both divisions, namely the results of Cipla Medpro Holdings (Pty) Limited
(Cipla Medpro), based in Cape Town, and the upgrading of the manufacturing
facility, based in Durban. The group is currently in the process of
restructuring and as a result the manufacturing operations are currently being
sold from Enaleni Pharmaceuticals Limited (Enaleni) into a new company, namely
Cipla Medpro Manufacturing (Pty) Limited (CMM). Once the restructuring is
complete the listed company will materially no longer house the operations of
the factory, and limited transactions will remain in Enaleni.
Cipla Medpro continued to grow market share across a range of categories,
including asthma, cardiovascular, neuropsychiatry, over the counter (OTC) and
its animal health divisions. Some extremely significant product launches took
place during the first half of the year, the impact of which will be felt in
the months to come.
The upgrade of the factory is progressing well and its modular design allows
for the immediate utilisation of many suites for manufacturing.
FINANCIAL PERFORMANCE
Despite very limited production in the factory due to the upgrade so far, the
group still succeeded in presenting a solid set of results.
This is attributable to the continued strong performance of Cipla Medpro. The
single exit price (SEP) increase of 6,5% was effective from 1 May 2008. The
effect of this price increase was really only apparent during June 2008 as a
result of stockpiling by wholesalers.
Due to the disposal of the consumer and vitality segment in the second half of
2007, the 31 December 2007 results were split between continuing and
discontinued operations in accordance with the presentation requirements of
IFRS 5 Non-current Assets Held for Sale. For comparability, the interim results
have also been presented on this basis. There are no discontinued operations at
30 June 2008.
Revenue from continuing operations for the period increased by 15% to
R463,4 million (2007: R402,6 million), a satisfactory performance considering
that this is primarily organic growth. The Cipla Medpro core division grew
revenue by 41%.
The gross margin achieved for the period is 48% (2007: 50%). This decrease in
the margin is mainly attributable to the limited production in the
manufacturing division and the higher average rate of hedging compared to June
2007. The volatility of the Rand in the last six months has been significant
although effective hedging has enabled us to limit the margin deterioration.
Profit before financing costs and income tax (PBIT) from continuing operations
for the period is R108,4 million (2007: R87,7 million), an increase of 24%. The
operating profit included net foreign exchange losses of R5,6 million (2007:
R2,3 million) and an increase in stock provisions of R4,9 million (2007:
decrease of R0,8 million). Other expenses for restructuring costs and
impairment charges on PPE of R13,9 million were recorded in the prior interim
period (Rnil in 2008). Thus comparable PBIT is R118,9 million and R103,1
million for 2008 and 2007 respectively, an increase of 15%.
During the period under review, the total interest expense was R19,8 million
(2007: R24,7 million). The finance costs are shown net of the benefit that the
group obtained from interest rate swap fair value adjustments of R11,2 million
(2007: R9,5 million). Finance income of R11,4 million (2007: R7,7 million)
includes interest on cash balances of R4,6 million (2007: R5,3 million),
dividend income of R2,1 million (2007: R0,6 million), and cash settlements on
interest rate swaps of R4,7 million (2007: R1,8 million).
The effective taxation rate for the period is 35% (2007: 37%) and the primary
adjustments to the statutory tax rate are attributable to non-deductible
interest of R18,9 million, IFRS 2 expenses of R1,5 million and STC of R1,9
million. Non-taxable income included a Government grant of R1,0 million and
dividends received of R2,1 million.
Profit after tax for the period is R65,0 million (2007: R47,3 million)
resulting in basic and fully diluted EPS of 14,7 cents (2007: basic 11,4 cents
and fully diluted 11,3 cents), an increase of 29% and 30% respectively, and
basic and fully diluted HEPS of 14,4 cents (2007: basic 12,6 cents and fully
diluted 12,5 cents), an increase of 14% and 15% respectively.
The reconciliation to headline earnings comprises the following amounts, all
net of the applicable taxes:
- Gains on the disposal of intangible assets of R0,9 million;
- Gains on the disposal of discontinued operations of R0,4 million; and
- Loss on the sale of property, plant and equipment of R0,2 million.
Cipla Medpro increased its shareholding in Cipla Agrimed (Pty) Limited from 43%
to 75% at a cost of R4,7 million, and acquired a 50% share in Agricare (Pty)
Limited for R5,4 million.
Interest-bearing borrowings, net of cash on hand are R220,7 million (2007:
R361,0 million). During March 2008 the group voluntarily redeemed R35,0 million
of preference shares out of freely available cash over and above the compulsory
redemption of R25,1 million made in May 2008. An additional R25,1 million will
be settled in September 2008. We also settled a further R16,8 million relating
to working capital loans and instalment sale agreements. We aim to pay down our
debt as soon as possible, which will continue to improve our effective tax
rate. The excess cash on hand is a result of the capital-raising exercise
concluded in May 2007 and the cash injection from the disposal of the consumer
and vitality division. This money is being utilised to fund the factory
upgrade. The group`s gearing ratio has improved to 17% (2007: 31%).
Cash flows from operating activities are R114,6 million (2007: R25,1 million).
The higher cash flow at this level is mainly attributable to the tax payment of
R55,5 million not being presented to the bank for payment by 30 June 2008. The
remainder of the increase is due to improved working capital management. Cash
flows from investing activities relate primarily to expenditure on the
pharmaceutical factory upgrade - R69,2 million, as well as additions to
intangible assets of R7,6 million.
BOARD OF DIRECTORS
Stability returns to the board as it remains unchanged from December 2007 with
two executive directors, JS Smith (CEO) and C Aucamp (CFO), and five
non-executive directors, PCS Luthuli (Chairman), Dr GS Mahlati, MT Mosweu,
MB Caga and ND Mokone. Mr Caga and Ms Mokone represent empowerment consortium,
Sweet Sensations, which holds an 18,5% shareholding in Enaleni.
CHANGE OF GROUP/LISTED ENTITY NAME
At the recent AGM, shareholders voted in favour of a change in the group`s name
to Cipla Medpro South Africa Limited. We see this as a very positive step
forward that will allow the group to leverage off the reputation and marketing
of Cipla Medpro, as well as the strong association with Cipla India Limited.
The name change should happen within the next few months.
OPERATIONAL REVIEW
Cipla Medpro
Cipla Medpro retains its position as the sixth largest pharmaceutical company
in the local market and continued to grow market share during the first six
months of the year. With the total private market growing at 13,4%, Cipla
Medpro grew at 26,6%, and the company`s share of the private market increased
from 3,3% in December 2007 to 3,7% in June 2008.
This growth is attributed to a consistent aggressive marketing strategy as well
as the launch of new products. The OTC market locally is growing at 8,9% while
Cipla Medpro`s OTC division is growing at 15,4%. With no SEP, strong margins
and mass market opportunities, OTC remains a key focus of the business for
2008, and the future, with numerous new product launches scheduled for the
period ahead.
Seven SEP products were launched during the six months under review, three of
which have sales potential in excess of R4,0 million per month.
The launch of South Africa`s first generic escitalopram antidepressant,
(Lexamil TM) against the innovator who has a value market share of R112,0
million per annum, saw Cipla Medpro continuing to champion its ethos of
providing world class yet affordable healthcare, with our product available at
up to more than 50% less than the originator price. We are already making
significant gains within this category.
The company also launched another significant generic product, this time in the
cardiovascular category. The originator has a value market share of R176,0
million. The Cipla Medpro product (4 mg) is available at approximately 20% less
than the originator price. Added to this, Cipla Medpro is also launching a
first to market 8 mg strength. Due to favourable outcomes of landmark
morbidity and mortality trials with the 8 mg product, we anticipate growing
this market significantly.
The Animal Health business continues its very pleasing growth. The Cipla Vet
small animal business revenue has grown by approximately 65% when compared to
the comparative period. The business has focused on significant new product
registrations during the first half of the year and these launches will
commence during the second half of the year.
The Cipla Agricare division spent much of the six month period focusing on
product registrations. By mid-year 12 products had been registered with a
further eight expected by October. This ensures that selective launches will
roll out from November 2008, coinciding with the seasonal high of the local
agri-chemical industry.
Manufacturing division
This division was not expected to be a significant contributor to revenues in
2008, and made an operating loss before interest of R16,0 million during the
period under review. This was expected as limited production is taking place
due to the full scale upgrade.
Work on the upgrade of the manufacturing facility to international
Pharmaceutical Inspection Co-operation Scheme (PIC/S) standards is nearing
completion. With an additional R50,0 million budgeted this year for investment
in sophisticated equipment and the introduction of additional resources and
capabilities not previously catered for at the outset of the upgrade, work has
still progressed smoothly during the year.
Having brought a wealth of manufacturing expertise to the division, the new
management team has reviewed, addressed and ensured the upgraded plant`s
flexibility, capacity and varying manufacturing volumes. These included
increasing the dispensary by 152 m2, obtaining superior equipment to that which
was previously ordered and introducing effervescent powder packing
capabilities.
The facility, undergoing a name change to Cipla Medpro Manufacturing (Pty)
Limited, now offers production and packaging of oral solid dosages, liquids,
creams, ointments and effervescents.
The MCC conducted a final inspection in July 2008 and we anticipate final
approval of our PIC/S facility mid-September 2008.
Interim approval has been granted to fully commission the plant in order for
all due processes to be performed. We are in the process of negotiating with
selected large pharmaceutical companies to contract manufacture on their
behalf.
PROSPECTS
We foresee Cipla Medpro continuing to increase its market share across numerous
categories through the growth of existing markets and the launch of a number of
new products.
CMM will be in full production next year, and will contribute to the group by
manufacturing our own products, as well as contract manufacturing for some key
pharmaceutical companies, including multinationals. We aim to be one of the
leading facilities in the country, and regard ourselves as ahead of the curve
given that many of the now ailing facilities will scramble to undertake similar
factory upgrades.
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 2008.
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 2007.
DIVIDENDS
Currently all earnings generated by the group are utilised to repay debt,
complete the upgrade to the factory and fund growth opportunities.
PCS Luthuli JS Smith
Chairman Chief Executive Officer
9 September 2008
CORPORATE INFORMATION
Non-executive directors PCS Luthuli (Chairman), MB Caga, Dr GS Mahlati,
ND Mokone, MT Mosweu
Executive directors JS Smith (Chief Executive Officer),
C Aucamp (Chief Financial Officer)
Company secretary MW Daly 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
Attorneys Deneys Reitz Incorporated
Auditors Mazars Moores Rowland
These results may be viewed at www.enaleni.com
Date: 09/09/2008 09:00:02 Produced by the JSE SENS Department.
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