| Wed 3 Mar 2010, 13:31 | | APN - Aspen raises profits by 31% as South African business shines |
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APN
APN
APN - Aspen raises profits by 31% as South African business shines
Aspen Pharmacare Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration Number 1985/002935/06)
(Share code APN ISIN: ZAE000066692)
("Aspen")
Press release
Aspen raises profits by 31% as South African business shines
Johannesburg - JSE listed Aspen (APN), Africa`s largest pharmaceutical
manufacturer, has recorded strong returns for the six months ended 31 December
2009. The excellent performance from the South Africa business underpinned the
results.
Group Performance:
Group revenue increased by 10 percent to R4.576 billion (R4.142 billion).
Group operating profit increased by 16 percent to R1.314 billion (R1.136
billion).
Group headline earnings per share (HEPS) from continuing operations increased by
27 percent to 242.3 cents (193.8 cents).
Group profit after tax from continuing operations increased by 31 percent to
R889 million (R690 million).
Stephen Saad, Aspen Group Chief Executive said "the excellent performance
recorded by the South African business was driven by robust volume growth and
margin improvements. Revenue growth in the international business is attributed
to gains from Global brands, the Asia Pacific domestic brands, the oncology
business and from the Glaxosmithkline ("GSK") transactions."
Completion of the GSK transactions:
With effect from 1 December 2009, Aspen completed a series of strategic,
interdependent transactions with GSK ("the GSK transactions") which had been
announced on 12 May 2009. The GSK transactions comprise:
- The acquisition of the rights to distribute GSK`s pharmaceutical products
in South Africa;
- The formation of a collaboration agreement between Aspen and GSK in
relation to the marketing and selling of prescription pharmaceuticals in sub-
Saharan Africa;
- The acquisition by Aspen Global of eight specialist branded products
(Alkeran, Leukeran, Purinethol, Kemadrin, Lanvis, Myleran, Septrin and Trandate)
for worldwide distribution;
- The acquisition of GSK`s manufacturing facility in Bad Oldesloe, Germany;
and
- The issue by Aspen of 68.5 million ordinary shares to GSK at R66.80 per
share amounting to a total value of R4.576 billion.
South African Business:
The South African business maintained its leadership position across the private
and public sectors of the pharmaceutical market and grew revenue by 23% to
R2.550 billion. Operating profit from the South African business increased from
R484 million to R806 million. Other operating income includes an amount of R145
million received as insurance compensation for loss of profits and asset
replacement arising from the explosion which occurred at the Nutritionals
Facility in August 2009. Profit margins improved after the contractions in the
previous two years caused by a weak Rand and delays in the passing of an
increase to the SEP in the private pharmaceutical market.
The pharmaceutical division led growth in the South African business with
revenue rising 30% to R1.975 billion. Aspen`s robust growth in pharmaceuticals
was characterised by volume gains across the extensive product offering.
The consumer division increased revenue by 6% to R575 million. This credible
performance was recorded despite the prevailing recessionary effects in the
retail environment as well as the negative impact on sales of infant milk
formula due to the temporary unavailability of certain products resulting from
the damage incurred at the Nutritionals Facility.
The Group`s South African manufacturing facilities achieved impressive
efficiency gains as the benefits of the significant capital expenditure
programme of the last few years begin to be realised. The second Oral Solid
Dose Facility and the eye-drop suite of the Sterile Facility commenced
production at the Port Elizabeth-based site. The hormonal suite of the Sterile
Facility is scheduled to commence commercial production before the end of the
2010 financial year. Capital projects in progress include the addition of
increased tableting capacity and the installation of suppository and dutch
medicines manufacturing at the East London site. Reconstruction of the drying
tower at the Nutritionals Facility is well advanced and production is expected
to recommence within the next six months.
Sub-Saharan Africa Business:
In anticipation of the future materiality of this region, Aspen has established
a separate management and reporting structure for the sub-Saharan Africa
business. Included in this business segment are exports into sub-Saharan Africa
from South Africa, the Shelys Africa business based in East Africa and the GSK
Aspen Healthcare for Africa collaboration.
Revenue from the sub-Saharan Africa business declined from R464 million in the
prior period to R279 million and operating profit decreased from R99 million to
R45 million. The steep reversal in results was due to export business lost
through the genericisation of patented ARV molecules marketed by Aspen. Sales by
Shelys Africa were also reduced as this business shed low margin tenders in
accordance with the strategic plan for the operation, without affecting profits.
GSK Aspen Healthcare for African began operations on 1 December 2009 and will in
future be the most material contributor to the region.
International Business:
Revenue from the international business increased by 12% to R1.797 billion.
Gains from Global brands, the Asia Pacific domestic brands, the oncology
business and the additional revenue from the GSK transactions were partially
offset by reversals in Latin America. Operating profit declined from R554
million to R463 million largely as a consequence of losses in Latin America and
a strengthening of the Rand against most of the underlying trading currencies.
An 18% increase in revenue to R824 million from the Global brands is largely
attributable to revenue from Eltroxin, Lanoxin, Imuran and Zyloric, which were
acquired with effect from 30 June 2008. Worldwide sales from these four Global
brands achieved double-digit growth in United States Dollars ("USD"). The
balance of the growth in the Global brands came from the addition of Aggrastat
and the introduction of the eight products acquired from 1 December 2009 under
the GSK transactions.
The Asia Pacific domestic brands increased revenue by 8% to R522 million. This
business, largely Australian based, again performed well considering the
downward pricing pressure being experienced in this territory.
Aspen has exercised its call on the remaining 49% shareholding in the Latin
American businesses. Given that Aspen already has full rights to the economic
performance of these businesses there is no further purchase consideration
required for the acquisition of this remaining shareholding.
Revenue from domestic brands in Latin America declined by 15% to R345 million.
The primary underperformer was the Brazilian business, Aspen`s largest operation
in the region. Aspen has assumed full operational control of the Brazilian
business and has implemented a restructuring plan to shape this operation in
accordance with the business model, which the Group has planned for Brazil. Key
actions include:
Disposal of selected assets, including the Campos Facility and related products
to Strides Arcolab ("Strides"). Consideration receivable from Strides amounts
to approximately USD 75 million;
Right sizing of business structures and reshaping of sales teams to take account
of the new business model; and
Identification and pursuit of opportunities to increase the private market
product portfolio, of which some are at an advanced stage of negotiations.
The disposal of the Campos Facility will complete as soon as the requisite
regulatory approvals are met. In the interim, Strides have been engaged to
manage Campos and will assume the risks and rewards of its operation. An
improvement in the performance of the Brazilian business is anticipated over the
next six months as the restructuring plan takes effect.
The oncology joint ventures which Aspen has with Strides concluded a license and
supply agreement with Pfizer in December 2009 in terms of which Pfizer has
exclusive rights to market the oncology products in the United States. An
upfront non-refundable license fee of USD 12 million was brought to account in
the six- month period to December 2009 of which 50% has been recognised, that
being Aspen`s share under the joint ventures.
Funding:
Borrowings, net of cash, have been reduced from R4.0 billion at 30 June 2009 to
R3.5 billion at 31 December 2009. Strong operating cash flows and favourable
exchange rate movements were the biggest contributors to this reduction. The
lower debt levels and the additional share capital in issue following the GSK
transactions has resulted in gearing in the Group improving from 51% at 30 June
2009 to 29%.
Interest paid, net of interest received, of R190 million was covered seven times
by earnings before interest, taxes and amortisation. Gains on foreign exchange
and forward cover contracts amounted to R32 million (2008 : R27 million loss) as
underlying currencies strengthened against USD denominated obligations.
Prospects:
Aspen has established a leadership position in the South African pharmaceutical
sector through more than a decade of unparalleled achievement in the industry.
The Group is positively positioned to maintain this leadership with an excellent
product pipeline set to add to the most extensive product offering in the market
and backed up by an outstanding team. The recently awarded public sector
tenders again verified Aspen`s production competitiveness, with the Group
continuing as the largest supplier of pharmaceuticals to government. The ARV
tender remains to be awarded. The ARV tender documents are yet to be published,
although expectations are for an award to be made before the end of this
financial year. The recently announced support for local manufacturers under
the South African Government`s Industrial Policy Action Plan is encouraging as
is the focus on developing the pharmaceutical industry in South Africa.
The fundamental growth drivers of the South African pharmaceutical market remain
intact. This growth is however likely to be tempered by a delay in the annual
SEP price increase by the Department of Health. South African pharmaceutical
companies will therefore absorb the net effects of exchange rate fluctuations
and inflation from February 2010 until the date of the award.
Growth in the consumer business in South Africa is likely to be constrained by
the economic circumstances. Full supply of the infant milk products has been
restored through the importation of product from Europe. Overall performance
indicators will continue to be distorted until full production is resumed at the
Nutritionals Facility and the insurance payments are settled.
The sub-Saharan Africa business has excellent prospects. The supplementation of
GSK`s existing portfolio with Aspen`s pipeline of relevant products and
supported by GSK`s proven distribution network should allow the GSK Aspen
Healthcare for Africa collaboration to increase access to high quality
medication in the region. Shelys Africa has an active product launch plan for
the remainder of the financial year as this operation becomes more focused on
private sector business.
The transition of Global brands acquired in prior years to the Aspen
international distribution network is well advanced. Projects have been
implemented which will result in significant cost of goods savings for the
Global brands in the medium term and opportunities to supplement the Global
brands portfolio will continue to be sought.
The Asia Pacific business is anticipated to continue its excellent record of
growth by adding to the range of products under distribution. The Group has
established a company in Hong Kong to manage the third party distributors
deployed in South East Asia. Prospective investments in the region are also
under investigation.
Implementation of the restructuring plan in Brazil is expected to yield positive
results before the end of the financial year, improving the performance in the
Latin American region. Investment in the international product pipeline
continues to be a major Group focus area. This will create growth momentum for
all markets over the forthcoming two to three years.
The completion of the GSK transactions will promote the Group`s strategies in
South Africa, sub-Saharan Africa and internationally. Over the balance of the
financial year growth in South Africa will be restrained by the absence of an
increase in the SEP whilst a turnaround in the Latin American business should
contribute to an improved performance from the international business in the
second half. Relative exchange rate movements will continue to influence
results.
Issued by: Shauneen Beukes, Shauneen Beukes Communications
Tel: +27 12 661-8467 : Cell: +27 82 389 8900
On Behalf Of: Stephen Saad, Aspen Holdings Group Chief Executive
Tel: +27 31 580-8602
Gus Attridge, Aspen Holdings Deputy Group Chief Executive
Tel: +27 31 580-8604
Roshni Gajjar, Aspen Investor Relations
Tel: +2731 580-8649; Cell: +27 82 789 1826
Aspen Group Overview:
Aspen has businesses in South Africa, Australia, India, Cyprus, Brazil, Mexico,
Venezuela, Kenya, Tanzania, Uganda, Mauritius, Dubai, Germany and the United
Kingdom.
Aspen is listed on the JSE Ltd and is Africa`s largest pharmaceutical
manufacturer.
Aspen is a supplier of branded and generic pharmaceuticals in approximately 100
countries across the globe and of consumer and nutritional products in selected
territories
Aspen is a leading generics manufacturer in the southern hemisphere.
Aspen is the leading supplier of generic medicines to both the private and the
public sectors in South Africa.
Aspen is one of the top 20 generic manufacturers worldwide and South Africa`s
number one generic brand.
Aspen has 16 pharmaceutical manufacturing facilities at 11 pharmaceutical
manufacturing sites on five continents. Four of the sites are located in South
Africa, one in India, two in East Africa, two in Brazil, one in Mexico and one
in Germany.
Aspen has production capabilities for a wide variety of product types including
tablets, capsules, steriles, injectables, oral contraceptives, penems, infant
milk formulations (IMFs), lyophilized vials, cytotoxics, suppositories, vials,
fine chemicals, form-filled seals, liquids and semi-solids.
Aspen is one of the leading global players in generic antiretrovirals (ARVs)
Aspen has an outstanding generic pipeline. These products are developed under
the direction of highly skilled scientists employed by Aspen and in
collaboration with other global pharmaceutical companies and research
facilities.
Aspen products are renowned for their quality, efficacy and affordability.
For additional information on the Aspen Group, click on www.aspenpharma.com.
3 March 2010
Sponsor: Investec Bank Limited
Date: 03/03/2010 13:31:01 Produced by the JSE SENS Department.
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