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APN
APN
APN - Aspen Holdings - Reviewed preliminary Group financial results for the
year ended 30 June 2008 and capitalisation issue
Aspen Pharmacare Holdings Ltd ("Aspen")
(Registration number 1985/002935/06)
Share code: APN
ISIN: ZAE000066692
Revenue +21%
2008: R4,9 billion
2007: R4,0 billion
Net profit before tax +20%
2008: R1,2 billion
2007: R1,0 billion
Headline earnings per share +10%
2008: R231,3 cents
2007: R210,1 cents
Reviewed preliminary Group financial results for the year ended 30 June 2008
GROUP INCOME STATEMENT
Reviewed Audited
30 June 30 June
Change 2008 2007
% Rm Rm
Revenue 21 4 881,3 4 025,9
Cost of sales (2 658,5) (2 084,2)
Gross profit 14 2 222,8 1 941,7
Selling and distribution (668,3) (536,9)
expenses
Administrative expenses (276,0) (208,3)
Other operating expenses (136,3) (133,3)
Other operating income C # 90,3 13,4
Operating profit 14 1 232,5 1 076,6
Investment income D # 263,4 139,8
Financing costs E # (287,1) (207,0)
1 208,8 1 009,4
Share of after-tax net (1,1) -
losses of associates
Net profit before tax 20 1 207,7 1 009,4
Tax (343,2) (291,7)
Profit after tax 20 864,5 717,7
Attributable to:
Equity holders of the 862,9 717,4
parent
Minority interest 1,6 0,3
20 864,5 717,7
Weighted average number 351 792 348 850
of shares in issue
(`000)
Earnings per share - 19 245,3 205,7
basic (cents)
Earnings per share - 19 240,1 201,8
diluted (cents)
#See notes on supplementary information.
HEADLINE EARNINGS
Reconciliation of headline
earnings
Net profit attributable to equity 862,9 717,4
holders of the parent
Adjusted for:
- Loss on disposal of property, 0,5 0,4
plant and equipment (net of tax)
- Profit on disposal of (37,0) (3,4)
intangible assets (net of tax)
- Impairment of intangible assets 8,2 8,2
(net of tax)
- Profit on sale of 51% of Co- (16,6) -
pharma Ltd
- Adjustment to write down on - 10,5
disposal of 50% of FCC
- Profit on sale of Shimoda (4,3) -
shares (net of tax)
Headline earnings 11 813,7 733,1
Headline earnings per share 10 231,3 210,1
(cents)
Headline earnings per share - 10 227,0 206,1
diluted (cents)
CAPITAL DISTRIBUTION
Capital distribution per share (cents) 13 70,0 62,0
The capital distribution of 70,0 cents per share paid in the year ended 30
June 2008 relates to profits earned in the 2007 financial year.
No capital distribution is proposed in respect of the earnings for the year
ended 30 June 2008.
GROUP BALANCE SHEET
Reviewed Audited
30 June 30 June
2008 2007
Rm Rm
ASSETS
Non-current assets
Property, plant and equipment 1 744,6 855,1
Investment in associates 25,8 -
Goodwill 589,9 295,0
Intangible assets F # 3 723,1 844,7
Preference share investment - 376,8
Non-current financial assets 4,8 6,0
Deferred tax assets 1,0 15,1
Total non-current assets 6 089,2 2 392,7
Current assets
Inventories 1 447,0 936,8
Receivables and prepayments 1 331,1 871,2
Deferred receivable 459,2 -
Cash and cash equivalents 1 522,2 3 331,2
Total current assets 4 759,5 5 139,2
Total assets 10 848,7 7 531,9
SHAREHOLDERS` EQUITY
Share capital and share premium 493,8 746,4
Treasury shares (571,6) (598,9)
Share-based compensation reserve 62,4 47,5
Non-distributable reserves 462,0 267,8
Retained income 2 649,2 1 757,6
Ordinary shareholders` equity 3 095,8 2 220,4
Equity component of preference shares 162,0 162,0
3 257,8 2 382,4
Minority interest 61,1 7,0
Total shareholders` equity 3 318,9 2 389,4
LIABILITIES
Non-current liabilities
Preference shares - liability component 402,1 403,5
Borrowings 75,9 25,9
Deferred-payables and other non-current 2,5 10,6
financial liabilities
Deferred tax liabilities 155,1 65,3
Retirement benefit obligations 9,4 7,2
Total non-current liabilities 645,0 512,5
Current liabilities
Trade and other payables 1 004,8 648,1
Financial liability for products acquired 2 653,0 -
Borrowings 3 103,5 3 801,8
Deferred-payables and other current 12,2 65,3
financial liabilities
Current tax liabilities 111,3 114,8
Total current liabilities 6 884,8 4 630,0
Total liabilities 7 529,8 5 142,5
Total equity and liabilities 10 848,7 7 531,9
Number of shares in issue (net of treasury 352 411 350 634
shares) (`000)
Net asset value per share (cents) 878,5 633,3
GROUP CASH FLOW STATEMENT
Reviewed Audited
year ended year ended
30 June 30 June
2008 2007
Rm Rm
Cash flows from operating activities
Cash operating profit 1 492,7 1 322,0
Changes in working capital (434,9) (353,0)
Cash generated from operations 1 057,8 969,0
Net financing costs paid (347,5) (193,8)
Investment income received 263,4 139,8
Tax paid (321,6) (206,4)
Net cash generated from operating 652,1 708,6
activities
Cash flows from investing activities
Replacement capital expenditure - (79,3) (67,2)
property, plant and equipment
Expansion capital expenditure - property, (300,0) (220,5)
plant and equipment
Proceeds on disposal of tangible assets 3,2 0,8
Replacement capital expenditure - (5,2) (2,8)
intangible assets
Expansion capital expenditure - intangible (160,8) (144,3)
assets
Proceeds on disposal of intangible assets 55,2 8,5
Acquisition of subsidiary and joint (1 357,5) (0,1)
ventures, net of cash acquired G #
Disposal of 51% of Co-pharma Ltd, net of 10,1 -
cash
Increase/(decrease) in non-current 1,2 (6,0)
financial assets
Redemption of investment in preference 376,8 -
shares
Net cash used in investing activities (1 456,3) (431,6)
Cash flows from financing activities
Proceeds from borrowings 5 004,3 2 477,3
Repayment of borrowings (3 506,5) (2 351,1)
Repayment of deferred-payables (64,5) (12,3)
Proceeds from deferred-payables 9,5 24,3
Dividend paid (1,5) -
Net capital distribution paid (246,0) (216,0)
Proceeds from issue of ordinary shares 15,4 27,0
Net cash generated from/(used in) 1 210,7 (50,8)
financing activities
Movement in cash and cash equivalents 406,5 226,2
before exchange rate changes
Effects of exchange rate changes 40,8 9,0
Cash and cash equivalents
Movement in cash and cash equivalents 447,3 235,2
Cash and cash equivalents at the beginning 497,5 262,3
of the year
Cash and cash equivalents at the end of 944,8 497,5
the year
Reconciliation of cash and cash
equivalents
Cash and cash equivalents per the balance 1 522,2 3 331,2
sheet
Less:Bank overdrafts 577,4* 2 833,7*
Cash and cash equivalents per the cash 944,8 497,5
flow statement
*Bank overdrafts are included within borrowings under the current liabilities
on the balance sheet.
For the purposes of the cash flow statement, cash and cash equivalents
comprise cash-on-hand, deposits held on call with banks less bank overdrafts
which form an integral part of Aspen`s cash management.
SEGMENTAL ANALYSIS
South Africa
Reviewed Audited
30 June 30 June
2008 % 2007 %
Rm of total Rm of total
Primary segments:
Geographical
Gross revenue 3 759,7 73,3 3 275,4 77,4
Less: Intersegment (1,3) (9,1)
sales
Revenue 3 758,4 77,0 3 266,3 81,1
Operating profit
before
amortisation
and disposals 1 059,1 81,6 1 049,2 87,9
Profit on sale of 40,8 -
Natural products
Profit on sale of 5,0 -
Shimoda shares
Profit on sale of - -
51% of Co-pharma
Ltd
Profit on sale of - 3,4
Avid Brands
Operating profit 1 104,9 81,2 1 052,6 87,9
before
amortisation
Amortisation - (68,3) 53,5 (71,4) 59,0
intangible assets
Operating profit 1036,6 84,1 981,2 91,1
SEGMENTAL ANALYSIS (CONTINUED)
Australia
Reviewed Audited
30 June 30 June
2008 % 2007 %
Rm of total Rm of total
Primary segments:
Geographical
Gross revenue 709,0 13,8 508,5 12,0
Less: - -
Intersegment
sales
Revenue 709,0 14,5 508,5 12,6
Operating profit
before
amortisation
and disposals 95,7 7,4 71,2 6,0
Profit on sale of - -
Natural products
Profit on sale of - -
Shimoda shares
Profit on sale of - -
51% of Co-pharma
Ltd
Profit on sale of - -
Avid Brands
Operating profit 95,7 7,0 71,2 5,9
before
amorisation
Amortisation - (14,2) 11,1 (11,5) 9,5
intangible assets
Operating profit 81,5 6,6 59,7 5,5
SEGMENTAL ANALYSIS (CONTINUED)
India
Reviewed Audited
30 June 30 June
2008 % 2007 %
Rm of total Rm of total
Primary segments:
Geographical
Gross revenue 281,0 5,5 189,8 4,5
Less: (82,2) (90,3)
Intersegment
sales
Revenue 198,8 4,1 99,5 2,5
Operating profit
before
amortisation
and disposals 47,3 3,6 21,0 1,8
Profit on sale of - -
Natural products
Profit on sale of - -
Shimoda shares
Profit on sale of - -
51% of Co-pharma
Ltd
Profit on sale of - -
Avid Brands
Operating profit 47,3 3,5 21,0 1,8
before
amorisation
Amortisation - (9,8) 7,7 (8,7) 7,2
intangible assets
Operating profit 37,5 3,0 12,3 1,1
SEGMENTAL ANALYSIS
Latin America
Reviewed Audited
30 June 30 June
2008 % 2007 %
Rm of total Rm of total
Primary segments:
Geographical
Gross revenue 82,9 1,6 - -
Less: - -
Intersegment
sales
Revenue 82,9 1,7 - -
Operating profit
before
amortisation
and disposals 2,4 0,2 - -
Profit on sale of - -
Natural products
Profit on sale of - -
Shimoda shares
Profit on sale of - -
51% of Co-pharma
Ltd
Profit on sale of - -
Avid Brands
Operating profit 2,4 0,2 - -
before
amorisation
Amortisation - (1,4) 1,1 - -
intangible assets
Operating profit 1,1 0,1 - -
SEGMENTAL ANALYSIS (CONTINUED)
East Africa
Reviewed Audited
30 June 30 June
2008 % 2007 %
Rm of total Rm of total
Primary segments:
Geographical
Gross revenue 46,7 0,9 - -
Less: - -
Intersegment
sales
Revenue 46,7 1,0 - -
Operating profit
before
amortisation
and disposals 10,6 0,8 - -
Profit on sale of - -
Natural products
Profit on sale of - -
Shimoda shares
Profit on sale of - -
51% of Co-pharma
Ltd
Profit on sale of - -
Avid Brands
Operating profit 10,6 0,8 - -
before
amorisation
Amortisation - (0,6) 0,5 - -
intangible assets
Operating profit 10,0 0,8 - -
SEGMENTAL ANALYSIS (CONTINUED)
Rest of the world
Reviewed Audited
30 June 30 June
2008 % 2007 %
Rm of total Rm of total
Primary segments:
Geographical
Gross revenue 250,4 4,9 256,8 6,1
Less: (164,9) (105,2)
Intersegment
sales
Revenue 85,5 1,8 151,6 3,8
Operating profit
before
amortisation
and disposals 82,7 6,4 52,9 4,4
Profit on sale of - -
Natural products
Profit on sale of - -
Shimoda shares
Profit on sale of 16,6 -
51% of Co-pharma
Ltd
Profit on sale of - -
Avid Brands
Operating profit 99,3 7,3 52,9 4,4
before
amorisation
Amortisation - (33,5) 26,2 (29,5) 24,4
intangible assets
Operating profit 65,8 5,3 23,4 2,2
SEGMENTAL ANALYSIS (CONTINUED)
Total
Reviewed Audited
30 June 30 June
2008 % 2007 %
Rm of total Rm of total
Primary segments:
Geographical
Gross revenue 5 129,7 100,0 4 230,4 100,0
Less: (248,4) (204,6)
Intersegment
sales
Revenue 4 881,3 100,0 4 025,9 100,0
Operating profit
before
amortisation
and disposals 1 297,8 100,0 1 194,3 100,0
Profit on sale of 40,8 -
Natural products
Profit on sale of 5,0 -
Shimoda shares
Profit on sale of 16,6 -
51% of Co-pharma
Ltd
Profit on sale of - 3,4
Avid Brands
Operating profit 1 360,2 100,0 1 197,7 100,0
before
amorisation
Amortisation - (127,8) 100,0 (121,1) 100,0
intangible assets
Operating profit 1 232,5 100,0 1 076,6 100,0
SEGMENTAL ANALYSIS (CONTINUED)
Pharmaceutical
Reviewed Audited
30 June 30 June
2008 % 2007 %
Rm of total Rm of total
Secondary
segments: Business
Revenue 3 785,9 77,6 3 031,7 75,3
South Africa 2 807,5 2 397,3
Australia 585,1 393,3
India 198,8 99,5
Latin America 77,8 -
East Africa 46,7 -
Rest of the world 70,0 141,6
Operating profit
before
amortisation
and disposals 1 053,1 81,1 948,9 79,5
South Africa 853,0 838,8
Australia 70,9 39,0
India 47,3 21,0
Latin America 2,1 -
East Africa 10,6 -
Rest of the world 69,2 50,1
Operating profit 1 074,7 79,0 948,9 79,2
before
amortisation
South Africa 858,0 838,8
Australia 70,9 39,0
India 47,3 21,0
Latin America 2,1 -
East Africa 10,6 -
Rest of the world 85,8 50,1
Operating profit 964,4 78,2 842,5 78,3
South Africa 798,7 780,8
Australia 56,7 27,9
India 37,5 12,3
Latin America 0,9 -
East Africa 10,0 -
Rest of the world 60,6 21,5
SEGMENTAL ANALYSIS (CONTINUED)
Consumer
Reviewed Audited
30 June 30 June
2008 % 2007 %
Rm of total Rm of total
Secondary
segments:
Business
Revenue 1 095,4 22,4 994,2 24,7
South Africa 950,9 869,0
Australia 123,9 115,2
India - -
Latin America 5,1 -
East Africa - -
Rest of the world 15,5 10,0
Operating profit
before
amortisation
and disposals 244,7 18,9 245,4 20,5
South Africa 206,1 210,4
Australia 24,8 32,2
India - -
Latin America 0,3 -
East Africa - -
Rest of the world 13,5 2,8
Operating profit 285,5 21,0 248,8 20,8
before
amortisation
South Africa 246,9 213,8
Australia 24,8 32,2
India - -
Latin America 0,3 -
East Africa - -
Rest of the world 13,5 2,8
Operating profit 268,1 21,8 234,1 21,7
South Africa 237,9 200,4
Australia 24,8 31,8
India - -
Latin America 0,2 -
East Africa - -
Rest of the world 5,2 1,9
SEGMENTAL ANALYSIS (CONTINUED)
Total
Reviewed Audited
30 June 30 June
2008 % 2007 %
Rm of total Rm of total
Secondary
segments:
Business
Revenue 4 881,3 100,0 4 025,9 100,0
South Africa 3 758,4 3 266,3
Australia 709,0 508,5
India 198,8 99,5
Latin America 82,9 -
East Africa 46,7 -
Rest of the world 85,5 151,6
Operating profit
before
amortisation
and disposals 1 297,8 100,0 1 194,4 100,0
South Africa 1 059,1 1 049,2
Australia 95,7 71,2
India 47,3 21,0
Latin America 2,4 -
East Africa 10,6 -
Rest of the world 82,7 52,9
Operating profit 1 360,2 100,0 1 197,7 100,0
before
amortisation
South Africa 1 104,9 1 052,6
Australia 95,7 71,2
India 47,3 21,0
Latin America 2,4 -
East Africa 10,6 -
Rest of the world 99,3 52,9
Operating profit 1 232,5 100,0 1 076,6 100,0
South Africa 1 036,6 981,2
Australia 81,5 59,7
India 37,5 12,3
Latin America 1,1 -
East Africa 10,0 -
Rest of the world 65,8 23,4
SUPPLEMENTARY INFORMATION
Reviewed Audited
30 June 30 June
2008 2007
Rm Rm
A. Capital expenditure
Incurred 545,3 434,8
- tangible assets 379,3 287,7
- intangible assets 166,0 147,1
Contracted
- tangible assets 62,6 96,3
- intangible assets - 4,3
Authorised but not contracted for
- tangible assets 457,5 330,9
- intangible assets 0,8 -
B. Operating profit has been arrived at after
charging
Depreciation of property, plant and equipment 74,6 60,3
Amortisation of intangible assets 127,7 121,1
Share-based payment expenses - employees 32,9 29,4
C. Other operating income
Profit on sale of Natural products 40,8 -
Profit on sale of Shimodo shares 5,0 -
Profit on sale of 51% of Co-pharma Ltd 16,6 -
Profit on sale of Avid Brands - 3,4
Other 27,9 10,0
Total other operating income 90,3 13,4
D. Investment income
Preference share dividends received 33,3 29,3
Interest received 230,1 110,5
Total investment income 263,4 139,8
E. Financing costs
Interest paid (322,8) (174,0)
Net foreign exchange gains 60,4 22,7
Fair value gains/(losses) on financial 3,5 (19,4)
instruments
Notional interest on financial instruments 9,9 (3,8)
Preference share dividends paid (38,1) (32,5)
Financing costs (287,1) (207,0)
F. Intangible asset movement
Opening balance 844.7 803.4
Acquisition of subsidiary and joint ventures 153.3 -
Additions - GSK 2 655.8 -
Additions - other 176.3 146.7
Disposals (14.2) (5.1)
Amortisation (127.7) (121.1)
Effects of exchange rate changes 43.3 31.5
Net impairment of intangible assets (8.2) (10.8)
Closing balance 3 723.1 844.7
G. Acquisition of subsidiary and joint
ventures, net of cash acquired
Shelys - East Africa 231,5 -
Powercliff Ltd - Oncology franchise 124,4 -
Onco Therapies Ltd - Oncology franchise 69,1 -
Lakerose Ltd - Latin American businesses 1 065,5 -
Total purchase consideration 1 490,5 -
Cash and cash equivalents in acquirees (133,0) -
Cash outflow on acquisition 1 357,5 -
H. Other commitments
During the 2003 financial year Aspen entered
into a 12-year agreement with GlaxoSmithKline
South Africa (Pty) Ltd to distribute and
market a range of their products. In terms of
this agreement Aspen is committed to pay the
following amounts to GlaxoSmithKline South
Africa (Pty) Ltd:
- payable within one year 15,1 17,7
- payable thereafter 47,5 62,6
62,6 80,3
During the 2005 financial year Aspen
Australia Pty Ltd entered into a 10-year
agreement with Novartis Pharmaceuticals
Australia Pty Ltd to distribute and market a
range of their products. In terms of this
agreement Aspen is committed to spend the
following amounts on promotion of the
products:
- payable within one year 10,5 9,0
- payable thereafter 46,8 45,6
57,3 54,6
I. Contingent liabilities
There are contingent liabilities in respect
of:
Additional payments in respect of the Quit 7,8 7,1
worldwide intellectual property rights
Guarantee covering potential rental default - 1,1
relating to sale of discontinued operations
Guarantees covering loan and other 23,2 20,4
obligations to third parties
STATEMENT OF CHANGES IN GROUP EQUITY
Share capital Treasury Share-based Non-
compensation distributable
and premium shares reserve reserves
Rm Rm Rm Rm
Balance as at 954,4 (623,0) 31,2 191,2
30 June 2006
Fair value - - - 0,7
movement on
available-for-
sale
financial
assets
Currency - - - 69,2
translation
differences
Profit for - - - -
the year
Capital (240,1) 24,1 - -
distribution
Cash flow - - - (5,2)
hedges
realised
Cash flow - - - (0,1)
hedges
recognised
Issue of 32,1 - - -
ordinary
share capital
Share options - - 24,2 -
and
appreciation
rights
awarded
Transfer from - - (7,9) -
share-based
compensation
reserve
Non- - - - 12,0
distributable
portion of
earnings
Equity - - - -
portion of
tax claims in
respect of
share schemes
Balance as at 746,4 (598,9) 47,5 267,8
30 June 2007
Currency - - - 112,8
translation
differences
Amounts - - - 92,1
retained in
equity due to
hedge
accounting of
acquisitions
Profit for - - - -
the year
Dividend paid - - - -
Capital (273,3) 27,3 - -
distribution
Acquisition - - - -
of subsidiary
Disposal of - - - (10,8)
51% of shares
in Co-pharma
Ltd
Cash flow - - - 0,1
hedges
realised
Issue of 20,7 - - -
ordinary
share capital
Share options - - 27,6 -
and
appreciation
rights
awarded
Transfer from - - (12,7) -
share-based
compensation
reserve
Equity - - - -
portion of
tax claims in
respect of
share schemes
Balance as at 493,8 (571,6) 62,4 462,0
30 June 2008
STATEMENT OF CHANGES IN GROUP EQUITY (CONTINUED)
Equity
component
Retained of preference Minority
income shares interest Total
Rm Rm Rm Rm
Balance as at 997,2 162,0 6,7 1 719,7
30 June 2006
Fair value - - - 0,7
movement on
available-for-
sale
financial
assets
Currency - - - 69,2
translation
differences
Profit for 717,4 - 0,3 717,7
the year
Capital - - - (216,0)
distribution
Cash flow - - - (5,2)
hedges
realised
Cash flow - - - (0,1)
hedges
recognised
Issue of - - - 32,1
ordinary
share capital
Share options - - - 24,2
and
appreciation
rights
awarded
Transfer from 7,9 - - -
share-based
compensation
reserve
Non- (12,0) - - -
distributable
portion of
earnings
Equity 47,1 - - 47,1
portion of
tax claims in
respect of
share schemes
Balance as at 1 757,6 162,0 7,0 2 389,4
30 June 2007
Currency - - - 112,8
translation
differences
Amounts - - - 92,1
retained in
equity due to
hedge
accounting of
acquisitions
Profit for 862,9 - 1,6 864,5
the year
Dividend paid (1,5) - - (1,5)
Capital - - - (246,0)
distribution
Acquisition - - 52,5 52,5
of subsidiary
Disposal of 21,7 - - 10,9
51% of shares
in Co-pharma
Ltd
Cash flow - - - 0,1
hedges
realised
Issue of - - - 20,7
ordinary
share capital
Share options - - - 27,6
and
appreciation
rights
awarded
Transfer from 12,7 - - -
share-based
compensation
reserve
Equity (4,2) - - (4,2)
portion of
tax claims in
respect of
share schemes
Balance as at 2 649,2 162,0 61,1 3 318,9
30 June 2008
BASIS OF ACCOUNTING
The consolidated preliminary results have been prepared in accordance with
International Financial Reporting Standards ("IFRS"), IFRIC interpretations,
the Listings Requirements of JSE Ltd and Schedule 4 of the South African
Companies Act (Act 61 of 1973, as amended).
These results have been reviewed by Aspen`s auditors, PricewaterhouseCoopers
Inc. Their unqualified review report is available for inspection at the
company`s registered office.
The accounting policies used in the preparation of these preliminary results
are consistent with those used in the annual financial statements for the year
ended 30 June 2007. The acquisitions of Shelys, Lakerose Ltd, Onco Therapies
Ltd and Powercliff Ltd were accounted for on a provisional basis and will only
be finalised in the year ending 30 June 2009.
COMMENTARY
INTERNATIONALISATION OF THE GROUP
The group has evolved into an international pharmaceutical business through
considerable corporate activity during the past twelve months. The following
major transactions were concluded by Aspen:
- Effective 28 December 2007, the acquisition of a 50% stake in a global
oncology franchise ("Onco/Powercliff") which Strides Arcolab ("Strides") had
initiated as a greenfield venture. Specialist manufacturing capabilities in
oncological injectables, semi solids and solids have been established in
India. Onco/Powercliff have the rights to 32 oncology products in
development. The total investment in this joint venture is USD 43 million.
- Effective 1 March 2008, the acquisition of a 50% interest in Strides` Latin
American business comprising operations in Brazil, Mexico and Venezuela for
USD 152,5 million. As announced today, the acquisition of a further 1% in the
Latin American business has now given Aspen a controlling interest.
- Effective 1 May 2008, the acquisition of a 60% shareholding in Shelys Africa
Ltd ("Shelys") for of USD 39 million. Shelys operates in Tanzania, Kenya and
Uganda.
- Effective 30 June 2008, the acquisition from GlaxoSmithKline ("GSK") of the
international rights to four established, branded pharmaceutical products,
Eltroxin, Imuran, Lanoxin and Zyloric ("the GSK brands") for GBP 170 million.
The products are distributed in more than 100 countries.
- On 23 July 2008, the finalisation of a licensing and supply agreement with
GSK in terms of which Aspen will license intellectual property and supply
finished dosage form pharmaceuticals to GSK.
- The disposal of a 51% interest in its UK subsidiary, Co-pharma Ltd, and 80%
of its South African natural products business, both to Strides. A profit
before tax of R57 million was realised from these two transactions.
Further to its leadership position in the South African market, the Group now
has an increased presence in emerging markets and a particular strength in the
southern hemisphere. In addition, Aspen`s worldwide product portfolio has
been expanded by the addition of the GSK brands and the investment in the
oncology franchise.
GROUP PERFORMANCE
The Group recorded a 21% increase in revenue to R4,881 billion whilst
operating profit improved by 14% to R1,233 billion and profit after tax
increased 20% to R865 million. Earnings per share was up 19% to 245 cents and
headline earnings per share ("HEPS"), was up 10% to 231 cents.
SOUTH AFRICAN OPERATIONS
The South African business grew revenue by 15% to R3,758 billion. The
pharmaceutical division, in spite of a decline in the active pharmaceutical
ingredient ("API") business, achieved satisfactory revenue growth of 17% at
R2,808 billion. The consumer division did well to increase revenue by 10%
given the unfavourable retail environment. Revenue performance was also
inhibited by an unacceptable level of out of stocks which arose as the public
sector placed orders substantially ahead of its forecasts. This was
compounded by the inability to procure many APIs because of a worldwide
chemical shortage caused by the closure of facilities in response to an
environment clamp down in China in advance of the Beijing Olympics.
Earnings before interest, tax and amortisation ("EBITA") increased by 5% to
R1,105 billion. After excluding the gains made from disposals, normalised
EBITA increased by 1% to R1,059 billion. The significant factor influencing
operating profit was a contraction in operating margins. The major causes
were:
- the delay by the Department of Health ("DoH") in granting a price increase
under the single exit pricing legislation despite rising costs and a
weakening currency. The price increase expected in January 2008 was only
granted in May 2008. The 6.5% increase granted was less than the rise in
costs of goods;
- the worldwide shortage in APIs resulted in extraordinary price increases.
The DoH has consented to an increase in prices in the public sector to
compensate for the surge in API costs, but this only became effective after
the year end. Application for an extraordinary price increase in the private
sector is still under consideration by the DoH. Aspen has continued to make
loss making products available in the public interest, but this is clearly not
sustainable;
- the re-scheduling of products containing ephedrine from schedule 2 (over-the-
counter) to schedule 6 (the highest schedule, prescription only) by the DoH
without any phasing provisions. This has necessitated a substantial stock
write off as the restricted access arising from the re-scheduling has resulted
in a significant reduction in demand; and
- a decline in the profits of Fine Chemicals Corporation ("FCC").
The Group`s investment in manufacturing capabilities in South Africa continued
during the year with capital expenditure of R334 million. The primary
projects are the upgrade of the heritage General Facility, the completion of
the Sterile Facility and the addition of packing capacity to the Oral Solid
Dose Facility. The adoption of the Pharmaceutical Inspection Convention
("PIC") standards by the South African Medicines Control Council ("MCC") has
resulted in an elevation of standards which has seen other domestic producers
suspended from manufacture. Aspen is committed to maintaining and improving
standards of production at its South African sites in line with the PIC
standards and its other international accreditations. This will entail an
ongoing programme of investment.
Despite the challenging environment, Aspen retained its position as the
leading supplier of pharmaceuticals in the private and public sectors. The
excellent results achieved in the South African government`s anti-retroviral
("ARV") tender awarded in June provided further evidence of Aspen`s
international competitiveness. Aspen was awarded 72% by forecast volume of
the entire ARV tender.
INTERNATIONAL OPERATIONS
The international businesses performed extremely well with revenue increasing
48% to R1,123 billion and normalised EBITA rising 65% to R239 million. Whilst
acquisitions have contributed to the results, strong growth was achieved from
existing operations. The international business made up 23% of the Group`s
revenue and 19% of the Group`s EBITA.
Aspen Australia continued its impressive record of growth with revenue up 39%
to R709 million and EBITA up 34% to R96 million. The growth was driven by the
pharmaceutical division which expanded its product offering over the course of
the year. The consumer business was negatively impacted by supply issues with
its deodorant brands which have since been resolved.
Aspen Resources also reported solid growth, raising EBITA by 35% to R75
million. In an internal restructuring exercise with effect from 30 June 2008,
the Aspen Resources business was sold to Aspen Global which has been
established in Mauritius as the Group`s international holding company and
trading business. Aspen Global is the acquirer of the GSK brands and is in
the process of establishing an extensive worldwide distribution platform that
will allow the Group to effectively leverage its international intellectual
property.
Astrix reported a strong improvement in performance despite a small decline in
sales to Aspen. The Group`s 50% share in this joint venture recorded a
doubling in revenue at R199 million with EBITA growing even more strongly to
R47 million.
The first four months of Aspen`s 50% holding in the Latin American businesses
contributed revenue of R83 million and EBITA of R2 million. Improved
operating margins should be forthcoming with the opening of the Campos
production facility before the end of the calendar year.
Shelys was part of the Group for the final two months of the year during which
time revenue of R47 million and EBITA of R11 million was generated.
FUNDING
During the course of the year the Group invested R1,5 billion in the
investments in the oncology franchise, in Latin America and in East Africa.
These investments were funded by the Group`s cash resources. Available cash
at year end was augmented by the redemption of an investment in preference
shares which realised R377 million. At year end the Group carried a liability
to GSK of R2,7 billion in respect of the acquisition of the GSK brands. This
has since been settled by means of a bridging loan. Negotiations are
substantially complete for the replacement of this bridging loan with 5 year
US Dollar denominated funding.
Net Group debt, inclusive of the GSK liability, was R4,3 billion at year end.
Although Aspen is substantially more geared than it has been for a number of
years, the strong cash flow capabilities of the South African business and the
GSK brands acquired by Aspen Global provide the Group with sufficient capacity
to service and reduce this level of debt.
In view of the higher gearing levels of the Group and the ongoing capital
expenditure programme, the Board has resolved that no capital distribution
will be paid to shareholders in respect of the current year. In terms of the
proposed new banking arrangements to fund the acquisition of the GSK brands,
payment of future cash distributions to shareholders may not be declared
without the prior consent of the banks providing this funding.
PROSPECTS
The transformation of the Group which has taken place during the past year
will change the balance of contributions to future operating performance. In
the forthcoming year it is expected that earnings from outside of South Africa
will be approximately 40% of the Group`s total.
In spite of the disappointing performance from the South African business in
2008 the fundamental drivers to growth remain strong. The pharmaceutical
division is favourably positioned as the market leader in both the private
sector and the public sector. An outstanding product pipeline has the
potential to accelerate performance once a consistent flow of product
registrations is forthcoming from the MCC. In a market with a growing demand
for quality generics Aspen provides the most extensive product offering,
manufactured at proven and trusted standards. Aspen is pro-actively
confronting the margin contraction experienced in the past year by inter alia
intensifying efforts to lower costs by more effective procurement and more
efficient production methods. Aspen also continues to engage constructively
with the South African government on pricing and on a number of regulatory
issues. Statements from government and the identification of the
pharmaceutical sector as a strategic industry have been encouraging. The
award of the ARV tender almost exclusively to local manufacturers augurs well
for future support of the sector. Steps have been taken to sharpen the focus
of the consumer division and improved profitability is expected despite the
down turn in retail sentiment. Performance in the opening months of the new
year suggests that the South African business is responding well to the
measures taken to improve profitability.
Aspen Australia has consistently out-performed the market. The Australian
industry is confronting newly implemented legislation which has reduced the
prices of many products. This will provide a challenge to the excellent
Australian management team in the forthcoming year.
Astrix succeeded in expanding its customer base over the past year and the
continued demand for ARV APIs from these customers will dictate the success of
this business.
Aspen`s investments in Latin America and East Africa bring to the Group
established businesses with regional management expertise in emerging markets
with exciting growth potential. These businesses have established development
plans which should see improvement in performance in the year ahead. The
addition of a pipeline of products leveraging off the Group`s intellectual
property portfolio is planned to add growth once these products complete the
regulatory process and start coming to market in two to three years` time.
The Group`s investments in the GSK brands and in the oncology franchise were
undertaken to build Aspen`s portfolio of differentiated products with global
demand. Aspen Global is in the process of developing an international
distribution network which will ensure the GSK brands continue to be made
available to patients in over 100 countries. This distribution capability
provides Aspen Global with extensive reach into world markets which can be
utilised as new products are added to its range. The oncology franchise has a
substantial pipeline of specialist products, the first of which are expected
to be launched into multiple global markets in 2010. The above product range
will also supplement the balance of Aspen`s intellectual property offering in
the licensing and supply arrangement with GSK. There is considerable focus
within Aspen on a successful introduction of the licensed products into the
GSK marketing network. This roll out has the potential to materially enhance
Aspen`s revenue and profit streams for the next decade. The first products to
market under this deal are also expected in 2010.
Since 1999, the year in which Aspen was transformed by means of the
acquisition of the South African Druggists pharmaceutical business, it has
delivered an unbroken growth trajectory in both revenue and HEPS at a compound
annual growth of 28% and 34% respectively. The Group has been set on a path
of internationalisation by the completion of a number of carefully selected
transactions over the past year. The acquired businesses and products add
immediate value to Aspen`s earnings and provide enhanced capabilities to allow
a continuation of growth into the next decade. Together with an improved
performance from the South African business this should enable the Group to
sustain the compound annual growth rate in earnings achieved since 1999 until
the end of this decade.
CAPITALISATION ISSUE
The Board has resolved to issue fully paid ordinary shares in the company as a
capitalisation issue to ordinary shareholders. The number of capitalisation
shares to which shareholders are entitled will be determined as follows :
1,75 ordinary shares for every 100 ordinary shares held
The capitalisation issue ratio is based on the 5-day volume weighted average
price (VWAP) for Aspen shares for the week ended 12 September 2008.
Fractions and fractional entitlements
Trading in the Strate environment does not permit fractions and fractional
entitlements. Accordingly where a shareholder`s entitlement to new ordinary
shares calculated in accordance with the ratio mentioned above gives rise to a
fraction of a new ordinary share, such fraction will be rounded up to the
nearest whole number where the fraction is greater than or equal to 0.5 and
rounded down to the nearest whole number where the fraction is less than 0.5.
Tax implications
Participation in the capitalisation issue may have tax implications for
resident as well as non-resident shareholders. Shareholders are therefore
encouraged to consult their professional advisors should they be in any doubt
as to the appropriate action to take.
For purposes of the South African Capital Gains Tax (CGT)regime, the base cost
for CGT purposes of any capitalisation shares issued is zero. This may result
in a taxable capital gain rising on the future disposal by a shareholder of
capitalisation shares issued.
Capitalisation of share premium
The capitalisation issue will be made by way of application from Aspen`s share
premium account.
Salient dates and times
In compliance with Strate, the company has determined the following salient
dates for the capitalisation issue:
Friday, 3 October 2008
Last day to trade to participate in the capitalisation issue
Monday, 6 October 2008
Shares commence trading ex the capitalisation issue
Monday, 6 October 2008
Listing of the maximum number of new ordinary shares to be issued in terms of
the capitalisation issue
Friday, 10 October 2008
Record date to participate in the capitalisation issue
Monday, 13 October 2008
New shares issued and posted or CSDP or broker accounts credited
Wednesday, 15 October 2008
Number of shares in issue to be adjusted
Shares may not be dematerialised or rematerialised between Monday, 6 October
2008 and Friday, 10 October 2008, both days inclusive.
Changes to the Board
Since the annual general meeting held in November 2007, the following Board
changes have taken place:
19 February 2008 Resignation of non-executive director, Maxim Krok
27 March 2008 Passing of non-executive director, Leslie Boyd
26 August 2008 Appointment of Roy Andersen as an independent non-executive
director.
By order of the board
SB Saad
(Group Chief Executive)
MG Attridge
(Deputy Group Chief Executive)
HA Shapiro
(Company Secretary)
Woodmead: 15 September 2008
Directors
NJ Dlamini* (Chairman), AJ Aaron*, RJ Andersen*, MG Attridge, MR Bagus*, JF
Buchanan*, P Dyani*,
CN Mortimer*, DM Nurek*, SB Saad, D Thomas* (alternate to P Dyani), S Zilwa*.
*Non-executive directors
Company secretary
HA Shapiro
Transfer secretaries
Computershare Investor Services (Pty) Ltd (Registration number
1987/003382/06)
70 Marshall Street, Johannesburg 2001. PO Box 61051, Marshalltown 2107
Registered office
Building 8, Healthcare Park, Woodlands Drive, Woodmead
Disclaimer
We may have made statements that are not historical facts and relate to
analyses and other information based on forecasts of future results and
estimates of amounts not yet determinable. These are forward-looking
statements as defined in the U.S. Private Securities Litigation Reform Act of
1995. Words such as "believe", "anticipate", "expect", "intend", "seek",
"will", "plan", "could", "may", "endeavour" and "project" and similar
expressions are intended to identify such forward-looking statements, but are
not the exclusive means of identifying such statements. By their very nature,
forward-looking statements involve inherent risks and uncertainties, both
general and specific. There are risks or uncertainties that predictions,
forecasts, projections and other forward-looking statements will not be
achieved. If one or more of these risks materialise, or should underlying
assumptions prove incorrect, actual results may be very different from those
anticipated. The factors that could cause our actual results to differ
materially from the plans, objectives, expectations, estimates and intentions
expressed in such forward-looking statements will be discussed in each year`s
annual report. Forward-looking statements apply only as of the date on which
they are made, and we do not undertake other than in terms of the Listings
Requirements of JSE Ltd, any obligation to update or revise any of them,
whether as a result of new information, future events or otherwise. All
profit forecasts published in this announcement are unaudited.
Woodmead
16 September 2008
Sponsor: Investec Bank Limited
Date: 16/09/2008 13:25:01 Produced by the JSE SENS Department.
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