| Thu 15 Feb 2001, 0:00 | | Aspen Pharmacare - Interim Financial Results |
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INTERIM FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2000
ASPEN PHARMACARE HOLDINGS LIMITED
("Aspen Pharmacare")
(Registration number 1985/002935/06)
HIGHLIGHTS
Headline earnings per share up by 50% to 21,6 cents
Group Income Statement
Restated
Unaudited Unaudited Restated
Six months Six months Audited
ended ended Year ended
31 December 31 December 30 June
2000 1999 % 2000
R'000 R'000 change R'000
Revenue 503 408 635 491 1 205 522
Continuing operations 503 408 482 525 4 984 385
Discontinued operations - 152 966 221 137
Cost of sales (232 647) (328 305) (612 692)
Gross profit 270 761 307 186 592 830
Operating expenses (134 913) (181 811) (342 028)
Operating profit before
amortisation of
intangible assets 135 848 125 375 250 802
Continuing operations 128 848 107 927 19 219 919
Discontinued operations 7 000 17 448 30 883
Amortisation of
intangible assets (2 003) (1 908) (3 816)
Operating profit 133 845 123 467 246 986
Net financing costs (15 764) (56 169) (86 634)
Net profit before taxation
and exceptional items 118 081 67 298 75 160 352
Exceptional items - - (29 725)
Net profit before taxation 118 081 67 298 130 627
Taxation (33 131) (15 514) (29 919)
Net profit attributable to
ordinary shareholders 84 950 51 784 64 100 708
Weighted average number of
shares in issue (000's) 368 234 367 312 367 312
Earnings per share (cents) 23,1 14,1 64 27,4
Headline earnings per
share (cents) 21,6 14,4 50 33,8
Reconciliation of headline
earnings
Net profit attributable
to ordinary shareholders 84 950 51 784 100 708
Profit on sale of fixed
assets (329) (797) (2 057)
Amortisation of goodwill 2 003 1 908 3 816
Profit on disposal of
subsidiary (7 000) - -
Exceptional items - - 21 798
Headline earnings 79 624 52 895 124 265
Exceptional items
Loss on discontinued
operations - - (13 973)
Restructuring costs - - (15 752)
Exceptional items before
taxation - - (29 725)
Taxation - - 7 927
Exceptional items after
taxation - - (21 798)
Supplementary Information
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2000 1999 2000
R'000 R'000 R'000
Capital expenditure:
Incurred 16 276 13 178 22 469
Contracted 5 710 3 905 10 868
Authorised not contracted 1 459 2 798 1 275
Depreciation 11 238 19 136 32 863
Net financing costs
Interest received 12 991 8 173 16 580
Interest paid (28 755) (64 342) (103 214)
(15 764) (56 169) (86 634)
Operating lease commitments
- payable in one year 6 890 8 142 8 774
- payable thereafter 24 147 49 377 30 989
Group Balance Sheet
Restated Restated
Unaudited Unaudited Audited
31 December 31 December 30 June
2000 1999 2000
R'000 R'000 R'000
Assets
Non-current assets 486 882 612 007 446 384
Property, plant and equipment 165 610 244 504 158 402
Intangible assets 120 488 133 603 74 923
Investments and loans 144 20 000 144
Deferred taxation asset 200 640 213 900 212 915
Current assets 498 389 537 508 508 973
Inventories 213 112 192 036 166 947
Trade and other receivables 217 950 224 720 187 506
Cash and cash equivalents 67 327 117 568 140 238
Taxation prepaid - 3 184 14 282
Total assets 985 271 1 149 515 955 357
Equity and liabilities
Capital and reserves
Share capital 51 429 51 079 51 079
Non-distributable reserves 193 535 205 494 194 777
Retained income 94 923 (50 253) (2 301)
Ordinary shareholders' equity 339 887 206 320 243 555
Minority interest 8 853 - -
Non-current liabilities
Interest-bearing borrowings 266 629 509 714 280 300
615 369 716 034 523 855
Current liabilities 369 902 433 481 431 502
Trade and other payables 197 788 216 300 192 666
Interest-bearing borrowings 85 276 105 285 122 588
Taxation 1 390 - -
Current provisions 85 448 111 896 116 248
Total equity and liabilities 985 271 1 149 515 955 357
Number of shares in issue (000's) 368 234 367 312 367 312
Net asset value per share (cents) 92,3 56,2 66,3
Statement of Changes in Group Equity
Share Non-dis-
capital tributable Retained
and premium reserves income Total
R'000 R'000 R'000 R'000
Balance as at
1 July 1999 as
previously reported 51 079 210 291 (96 462) 164 908
Effect of adopting
AC 131 (amortisation
of goodwill) - - (1 272) (1 272)
Restated balance at
1 July 1999 51 079 210 291 (97 734) 163 636
Transfer between
reserves - (257) 257 -
Currency translation
differences - (1 605) - (1 605)
Net proit for
the year - - 100 708 100 708
Intangible assets
written off - - (27 768) (27 768)
Recoupment of
intangible assets
previously written
off - - 4 700 4 700
Deffered taxation
asset recognised - 11 921 - 11 921
Deferred taxation
asset reversed
on sale of business - (7 440) - (7 440)
Proportional release
of deferred taxation
asset - (24 997) 24 997 -
Cash flow hedges
recognised - (597) - (597)
Transfer of translation
difference resulting
from sale of
subsidiary - 7 461 (7 461) -
Balance as at
30 June 2000 51 079 194 777 (2 301) 243 555
Currency translation
differences - 9 517 - 9 517
Net profit for the
period - - 84 950 84 950
Proportional release
of deferred
taxation asset - (12 274) 12 274 -
Cash flow hedges
recognised - 1 515 - 1 515
Issue of share
capital - share
options 350 - - 350
Balance as at
31 December 2000 51 429 193 535 94 923 339 887
Group Cash Flow Statement
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2000 1999 2000
R'000 R'000 R'000
Cash operating profit 157 649 137 503 245 853
Working capital requirements (103 686) 33 645 113 350
Cash generated from operations 53 963 171 148 359 203
Net financing costs (15 764) (56 169) (86 634)
Taxation paid (5 186) (13 484) (32 697)
Net cash inflow from operating
activities 33 013 101 495 239 872
Net cash (outflow)/inflow from
investing activites (64 223) 177 674 276 147
(Acquisition)/Disposal of
subsidiary companies and
businesses (46 047) 318 000 455 594
Acquisition of intangible assets (1 900) (4 560) (31 459)
Acquisition of property,
plant and equipment (16 276) (13 178) (22 469)
Balance of purchase consideration
paid on acquisiton of
SADruggists businesses - (122 588) (125 519)
Net cash (outflow) from
financing activities (52 855) (271 030) (483 141)
Proceeds from share issues 350 - -
Decrease in long-term borrowings (15 893) (271 030) (89 781)
Decrease in short-term borrowings (37 312) - (393 360)
Movement in cash and cash
equivalents (84 065) 8 139 32 878
Cash and cash equivalents at
the beginning of the year 140 238 116 003 116 003
Cash and cash equivalents of
subsidiaries and businesses
acquired/(disposed of) 11 154 (6 574) (8 643)
Cash and cash equivalents at
the end of the year 67 327 117 568 140 238
Segmental analysis*
Revenue
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2000 % 1999 % 2000 %
R'000 R'000 R'000
By business segment
Pharmaceutical 321 056 63,8 307 008 63,6 615 479 62,5
Consumer 182 352 36,2 175 517 36,4 368 906 37,5
Continuing operations 503 408 100,0 482 525 100,0 984 385 100,0
Discontinued
operations - 152 966 221 137
503 408 635 491 1 205,522
OPERATING PROFIT BEFORE AMORTISATION OF INTANGIBLE ASSETS
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2000 % 1999 % 2000 %
R'000 R'000 R'000
By business segment
Pharmaceutical 89 682 69,6 72 437 67,1 142 334 64,7
Consumer 39 166 30,4 35 490 32,9 77 585 35,3
Continuing
operations 128 848 100,0 107 927 100 219 919 100,0
Discontinued
operations 7 000 17 448 30 883
135 848 125 375 250 802
*Disclosure of segmental Balance Sheet information has not been produced.
Having regard to the integration of the assets and liabilities of the
continuing operations, there is no objective method of allocating these items
and no allocation between the business segments relating to the amortisation of
intangible assets has been made.
Basis of accounting
The interim results have been prepared in accordance with AC 127 and schedule 4
of the South African Companies Act. The accounting policies used in the
preparation of the interim financial statements are consistent with those used
in the annual financial statements for the year ended 30 June 2000, except as
indicated below, and conform with Statements of Generally Accepted Accounting
Practice in South Africa. In prior periods, intangible assets and goodwill were
accounted for in terms of the Group's stated accounting policies as follows:
Trademarks and other intellectual property:
Trademarks and other intellectual property acquired were written off in the
first instance against share premium or, where insufficient share premium
existed, the remaining balance was charged against opening distributable
reserves.
Goodwill:
The difference between the fair value of the consideration paid and the fair
value of the net assets of subsidiaries at the date of acquisition was charged
or credited to goodwill arising on consolidation. Goodwill was not amortised.
In order to comply with the new Statements of Generally Accepted Accounting
Practice AC 129 and AC 131 relating to intangible assets and goodwill, the
Group's new accounting policies are, with effect from 1 July 2000, to
capitalise all acquired trademarks and other intellectual property as well as
goodwill. Also with effect from 1 July 2000, intangible assets and goodwill are
now amortised over their estimated useful lives which range from 5 to 20 years.
As permitted by the transitional provisions of AC 129, no retrospective
application of the requirements of this accounting statement has been made in
respect of trademarks and other intellectual property.
In compliance with the transitional provisions of AC 131, the carrying amount
of goodwill as at 1 July 2000 has been restated as if the amortisation of
goodwill had always been determined in terms of this statement. Accordingly,
prior period results have been restated to reflect this change in accounting
policy. The effect of this change in accounting policy was to reduce net profit
attributable to ordinary shareholders by R2,0 million for the six months ended
31 December 2000 (R1,9 million for the six months ended 31 December 1999).
Comparatives:
Where necessary, comparative figures have been adjusted to conform with changes
in presentation in the current year.
COMMENTARY
The robust nature of the Aspen Pharmacare business has been demonstrated during
the-six month period ended 31 December 2000. Despite the material negative
consequences of the Group fulfilling its obligations to distribute through
Kinesis Logistics (Pty) Limited ("Kinesis"), as discussed in more detail below,
a creditable performance for the first six months of the current financial year
has been achieved.
This is reflected particularly in a 4% increase in turnover notwithstanding a
loss of over 35% of the domestic private market turnover in July and August
2000 due to the Kinesis problem. Headline earnings per share of 21,6 cents
represent a 50% increase over the comparable prior year period. Net profit
attributable to ordinary shareholders increased by 64% over the same period
last year to R85 million.
With the Kinesis operation and distribution now settled, the focus is on
delivering significantly enhanced results for the ensuing six-month period.
Kinesis
Aspen Pharmacare inherited a contractual obligation from SA Druggists Limited
to change its primary distribution channel to Kinesis in terms of agreements
concluded by Pharmacare Limited ("Pharmacare") before the acquisition of that
company from SA Druggists, in March 1999. The management of Aspen Pharmacare
recognised the onerous obligations of the Kinesis contract at the time of the
acquisition of Pharmacare and in this regard raised a fair value provision at
that time. Although this provision, amounting to R26,1 million, has now been
released to operating profit to compensate for the lost trade caused by the
transition to Kinesis, the impact thereof has further negatively influenced the
following aspects of the results reported for the six-month period:
The Kinesis distribution fee of R22,9 million was incurred over and above
normal distribution costs. This fee gave rise to no commercial benefit.
Revenue from continuing operations was severely constricted in July and August
2000. Following the normalisation of trade after the Kinesis transition, a 15%
growth in revenue from Pharmacare's domestic operations for the period
September to December 2000 was recorded.
Working capital levels were negatively affected. The primary debtors were
converted from a few wholesalers to numerous pharmacies/doctors, and
inventories which were previously owned by the wholesalers had to be supplied
on a consignment basis to multiple Kinesis locations. This resulted in an
extension of debtor days and an increase in stock holdings.
Management has placed particular focus on finding a solution to the Kinesis
problem. Meaningful progress has been made in this regard. Aspen Pharmacare and
its four multinational partners in Synergistic Alliance Investments (Pty)
Limited ("SAI"), the 100% holding company of Kinesis, have signed Heads of
Agreement in terms of which Tibbett & Britten (Pty) Limited will acquire SAI
and will provide distribution services to Aspen Pharmacare and its fellow
members of SAI under separate contracts. The terms of the transaction with
Tibbett & Britten have been submitted to the Competition Commission for
approval. The transaction, which is subject to the successful completion of a
due diligence investigation by Tibbett & Britten, is expected to result in
material savings in distribution costs.
Funding
Net finance costs for the period were covered more than eight times by
operating profit, well ahead of Group target levels. The net cash inflow from
operating activities was R33,0 million, despite the effect of the Kinesis
agreement. Management is confident that the working capital cycle has
stabilised following the transition to the Kinesis distribution channel. Cash
inflow from operating activities will increase in the second half of the year.
Investment in capital expenditure and acquisitions amounted to R64,2 million.
The level of gearing within the Group is well within acceptable limits. There
will continue to be a focus on re-investing cash generated in value-enhancing
ventures and projects.
Domestic operations
Aspen Pharmacare continues to be the leading player in the private generic
market. This business has been enhanced by the launch of five major generic
molecules. These molecules are the generic equivalent of the branded products
Augmentin, Renitec, Immovane, Nizoral and Ditrapan. The full benefits of these
product launches will only be evident in the second half of the financial year.
The launch of Mybulin, a non-narcotic analgesic, takes place in February 2001.
Mybulin is the only similar molecule to the market leader in this therapeutic
class, which is the sixth largest-selling product in the private market.
Mybulin is covered by the same patent.
The pharmaceutical division will also benefit from various transactions
concluded with multinational companies which become effective in the second
half of the financial year. An exciting deal has been concluded with the
Spanish company, Almirall Prodesfarma, in terms of which Aspen Pharmacare has
secured the marketing rights in Southern Africa for three growing ethical
products. The most established of these is Kestine, a non-sedating
antihistamine, which is a major challenger in the fastest growing segment of
the allergy market. A co-marketing agreement has been signed with Schering
(Pty) Limited in terms of which Aspen Pharmacare will promote the oral
contraceptive Dianne 35. In addition, as a result of the success of the initial
co-marketing agreements with AstraZeneca covering Losec, Zestril and
Zestoretic, extensions to these agreements are close to finalisation.
The consumer division of the domestic business has benefited from ten product
launches. Of these, Kitobind is already the leader in the herbal
cholesterol-lowering-agent segment of the market. However, the consumer
division was negatively impacted by the expiry of the Redken haircare licence.
Additional brands have been acquired, but these will take time to reach the
levels of market penetration which had previously been achieved by Redken
products.
The oral contraceptive facility in East London has been commissioned. It was
completed within budget and on time.
International operations
A 51% interest in Co-pharma Limited, a UK generic and over-the-counter ("OTC")
marketing and distribution business, was acquired in December 2000. Goodwill
amounting to R36,7 million has arisen on this transaction. The acquisition of
Co-pharma will create opportunities to:
exchange intellectual property;
leverage off the domestic business at an OTC level;
utilise Southern Africa as a manufacturing export base;
extend the relationship existing between Co-pharma and E.Merck;
expand the Group's relationships with multinational pharmaceutical companies.
The residual proceeds on the disposal of the Pharmatec business in Italy, which
was concluded in June 2000, has been recognised as a profit under discontinued
operations during this period. An amount of approximately R7 million, which was
held in escrow in terms of the transaction, has been paid over to Aspen
Pharmacare.
Initiatives with Government
Aspen Pharmacare has positioned itself at the forefront of assisting and
partnering government with combating social responsibility diseases including
TB, malaria, HIV/AIDS and related opportunistic infections. Agreements have
been signed with technology partners abroad, which will enable local
manufacture of products catering for the treatment of these diseases at costs
competitive with those being achieved by the Brazilian government. Our future
strategy will be determined by government direction.
Corporate social investment
In line with its corporate social investment strategy, Aspen Pharmacare
recently completed the construction of a large modern primary health-care
clinic at a cost of R1,5 million in Engcobo, Eastern Cape. The clinic has
already made a meaningful impact on the lives of the communities of Engcobo,
servicing in excess of 180 people per day.
Prospects
Aspen Pharmacare has a number of further product launches scheduled for the
ensuing months. These launches, together with the impact of the deals concluded
with multinational pharmaceutical companies, ensure that there is an exciting
pipeline of products to support the Group's growth expectations.
Turnover growth in excess of 15% over the comparable period last year is
anticipated for the remaining six months of the current financial year. On this
turnover growth, operating profit will increase materially. Management remains
confident of achieving headline earnings per share growth in its target range
of 40% to 50%.
General provision
As reported in prior years, a general provision was created by the Group in the
form of a fair value consolidation adjustment to cover certain risks associated
with the acquisition of the SA Druggists pharmaceutical businesses. The effect
of this adjustment was to increase the Group's goodwill and provisions by R50
million. The directors are of the opinion that the provision should remain in
place at this point in time until it can be established, beyond reasonable
doubt, that risks relating to this matter no longer exist. The report of the
independent auditors, PricewaterhouseCoopers Inc., was qualified for the year
ended 30 June 2000 in this regard, as in their opinion, the Group had been
unable to demonstrate that a legal or constructive liability existed at that
date. A reversal of this provision will have no effect on Aspen's net asset
value and headline earnings.
Dividends
No dividend has been declared due to the Group's funding requirements in
respect of its debt repayment schedule and the financing of further growth.
By order of the board
SB Saad MGAttridge
(Group Chief Executive) (Group Chief Financial Officer)
HA Shapiro
(Company Secretary)
Johannesburg
15 February 2001
Transfer secretaries: Mercantile Registrars Limited (Registration number
87/03382/06) 10th Floor, 11 Diagonal Street, Johannesburg, 2001 (PO Box 1053,
Johannesburg, 2000)
