| Wed 22 Aug 2001, 0:00 | | Aspen Pharmacare - Audited Financial Results For T |
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Short code: APN
ISIN: ZAE000023586
ASPEN PHARMACARE HOLDINGS LIMITED
(Registration number 1985/002935/6)
AUDITED FINANCIAL RESULTS FOR THE YEAR ENDED 30 JUNE 2001
HIGHLIGHTS
* Revenue from continuing operations up by 18%.
* Net profit attributable to ordinary shareholders up by 78%.
* Headline earnings per share from continuing operations up by 81%.
GROUP INCOME STATEMENT
RESTATED
YEAR ENDED YEAR ENDED % CHANGE
30 JUNE 2001 30 JUN 2000
R'000 R'000
Revenue 1,149,046 1,205,522
Continuing operations 1,118,082 950,622 18
Discontinued operations 30,964 254,900
Cost of sales -519,171 -612,692
Gross profit 629,875 592,830
Operating expenses -322,442 -342,028
Operating profit before amortisation
of intangible assets 307,433 250,802
Continuing operations 298,541 212,402 41
Discontinued operations 8,892 38,400
Amotisation of goodwill -5,955 -3,816
Amortisation of intellectual property -10,590 -
Operating profit 290,888 246,986
Net financing costs -42,829 -86,634
Net profit before taxation and
exceptional items 248,059 160,352 55
Exceptional items - -29,725
Net profit before taxation 248,059 130,627 90
Taxation -67,235 -29,919
Net profit after taxation 180,824 100,708
Minority interest -1,889 -
Net profit attributable to ordinary
Shareholders 178,935 100,708 78
Weighted average number of shares
in issue (000's) 365,787 367,312
Earnings per share (cents) 48.9 27.4 78
Headline earnings per share (cents) 48.4 33.8 43
Headline earnings per share from
continuing operations (cents) 47.9 26.4 81
Reconciliation of Headline earnings
Net profit attributable to ordinary
Shareholders 178,935 100,708
Profit on sale of fixed assets -798 -2,057
Amortisation of goodwill 5,955 3,816
Profit on disposal of subsidiary -7,097 -
Exceptional items - 21,798
Headline earnings 176,995 124,265
Profit in respect of discontinued
operations (net of taxation) -1,766 -27,292
Headline earnings from continuing
Operations 175,229 96,974
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
GROUP BALANCE SHEET
RESTATED
30 JUNE 2001 30 JUNE 2000
R'000 R'000
ASSETS
Non-current assets 607,036 449,349
Property, plant and equipment 158,310 158,402
Goodwill 109,477 71,232
Intellectual property 138,092 3,691
Investments and loans 2,954 144
Long-term receivables 11,310 -
Deferred taxation asset 186,893 215,880
Current assets 575,059 508,973
Inventories 185,395 166,947
Trade and other receivables 254,458 187,506
Cash and cash equivalents 135,206 140,238
Taxation prepaid - 14,282
Total assets 1,182,095 958,322
EQUITY AND LIABILITIES
Capital and reserves
Share capital 51,429 51,079
Non-distributable reserves 180,238 194,777
Retained income 194,262 -9,221
Treasury shares -75,755 -
Ordinary shareholders' equity 350,174 236,635
Minority interest 10,697 -
Non-current liabilities
Interest-bearing borrowings 176,065 280,300
Non interest-bearing deferred payables 78,581 -
Retirement benefit obligations 9,885 9,885
625,402 526,820
Current liabilities 556,693 431,502
Trade and other payables 269,635 199,687
Interest-bearing borrowings 201,831 122,588
Taxation 3,800 -
Current provisions 81,427 109,227
Total equity and liabilities 1,182,095 958,322
Number of shares in issue
(net of treasury shares) (000's) 349,422 367,312
Net asset value per share (cents) 100.2 64.4
GROUP CASH FLOW STATEMENT
YEAR ENDED YEAR ENDED
30 JUNE 2001 30 JUNE 2000
R'000 R'000
Cash operating profit 339,237 245,853
Working capital requirements -51,582 113,350
Cash generated from operations 287,655 359,203
Net financing costs -42,829 -86,634
Taxation paid -20,885 -32,697
Net cash flow from operating activities 223,941 239,872
Net cash (outflow)/inflow from
investing activities -204,185 276,147
(Acquisition)/disposal of subsidiary companies
and businesses -80,752 455,594
Acquisition of intangible assets (note 1) -31,535 -31,459
Acquisition of property, plant and equipment -16,143 -22,469
Balance of purchase consideration paid on
acquisition of SA Druggists businesses - -125,519
Acquisition of treasury shares -75,755 -
Net cash (outflow) from financing activities -29,066 -483,141
Proceeds from share issues 350 -
Decrease in interest-bearing long-term borrowings -108,479 -89,781
Increase/(decrease) in interest-bearing
short-term borrowings 79,063 -393,360
Movement in cash and cash equivalents -9,310 32,878
Cash and cash equivalents at the beginning of
the year 140,238 116,003
Cash and cash equivalents of subsidiaries and
businesses acquired/(disposed) 4,278 -8,643
Cash and cash equivalents at the end of the year 135,206 140,238
Note 1
Gross acquisition of intangible assets -110,116 -31,459
Increase in non-interest bearing deferred payables 78,581 -
Net cash outflow -31,535 -31,459
STATEMENT OF CHANGES IN GROUP EQUITY
Share capital Non-distributable Retained Treasury
and premium reserves income shares Total
R'000 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
Effect of adopting
AC 116 (employee
benefits) -6,920 -6,920
Restated balance at
1 July 1999 51,079 210,291 -104,654 156,716
Transfer between
reserves - -257 257 -
Currency translation
differences - -1,605 - -1,605
Net profit 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
Deferred taxation asset
Recognized - 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 recognized - -597 - -597
Transfer of translation
difference resulting
from sale of subsidiaries - 7,461 -7,461 -
Balance as at
30 June 2000 51,079 194,777 -9,221 - 236,635
Currency translation
differences - 9,689 - - 9,689
Net profit for the period - - 178,935 - 178,935
Proportional release of
deferred taxation asset - -24,548 24,548 - -
Cash flow hedges recognized - 320 - - 320
Issue of share capital
- share options 350 - - - 350
Acquisition of
treasury shares -75,755 -75,755
Balance as at
30 June 2001 51,429 180,238 194,262 -75,755 350,174
SUPPLEMENTARY INFORMATION
YEAR ENDED YEAR ENDED
30 JUNE 2001 30 JUNE 2000
R'000 R'000
Capital expenditure:
Incurred 16,143 22,469
Contracted 6,759 10,868
Authorised not contracted 45,155 1,275
Depreciation 22,621 32,863
Net financing costs
Interest received 24,427 16,580
Interest paid -67,256 -103,214
-42,829 -86,634
Operating lease commitments
- payable in one year 6,313 8,774
- payable thereafter 19,637 30,989
25,950 39,763
SEGMENTAL ANALYSIS
REVENUE
Year ended Year ended
30 June 2001 % 30 June 2000 %
R000 R'000
By business segment
Pharmaceutical 760,969 68.1 615,479 64.7
Consumer 357,113 31.9 335,143 35.3
Continuing operations 1,118,082 100.0 950,622 100.0
Discontinued operations 30,964 254,900
1,149,046 1,205,522
By geographic segment
Continuing operations
South African operations 1,072,845 96.0 950,622 100.0
Australian operation* 6,700 0.6 - -
United Kingdom operations ** 38,537 3.4 - -
1,118,082 100.0 950,622 100.0
Discontinued operations
South African operations 30,964 112,774
United Kingdom operations - 63,992
Italian operations - 78,134
1,149,046 1,205,522
OPERATING PROFIT BEFORE AMORTISATION OF INTANGIBLE ASSETS
Year ended Year ended
30 June 2001 % 30 June 2000 %
R000 R'000
By business segment
Pharmaceutical 215,455 72.2 142,334 67.0
Consumer 83,086 27.8 70,068 33.0
Continuing operations 298,541 100.0 212,402 100.0
Discontinued operations 8,892 38,400
307,433 250,802
By geographic segment
Continuing operations
South African operations 294,861 98.8 217,913 102.6
Australian operation * 1,539 0.5 - -
United Kingdom operations ** 6,308 2.1 - -
Other offshore -4,167 -1.4 -5,511 -2.6
298,541 100.0 212,402 100.0
Discontinued operations
South African operation 1,795 21,096
United Kingdom operations - 7,876
Italian operation 7,097 9,428
307,433 250,802
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.
* comprises trading from 1 May 2001 to 30 June 2001
** comprises trading from 1 January 2001 t0 30 June 2001
Basis of Accounting
The accounting policies used in the preparation of the 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 years, 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 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 capitalize 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 been determined in terms of this statement.
Accordingly prior year 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 R6.0 million for
the year ended 30 June 2001 (R3.8 million for the year ended 30 June 2000).
Post-retirement medical obligations
In order to comply with the new Statement of Generally Accepted Accounting
Practice AC 116 (employee benefits), in terms of which the total amount of
post-retirement medical obligations is to be reflected as a liability, the
group's new accounting policy in this regard, with effect from 1 July 2000,
is to quantify the present value of the expected future defined benefit
obligations, to the extent that service has been rendered, and to reflect
such liability on the balance sheet.
Annual charges incurred to reflect additional service rendered by employees
as well as any variation resulting from changes in the employee composition,
are charged/credited to the income statement in the year of incurral.
In compliance with the provision of AC 116, the actuarial value of the
liability as at 1 July 2000 has been restated as if it had always been
determined in terms of this statement. Accordingly prior year comparative
amounts in the balance sheet have been restated to reflect this change in
accounting policy. The effect of this change in the balance sheet is as
follows:
Year ended 30 June 2001 Year ended 30 June 2000
Gross post-retirement
Obligations 9,885 9,885
Deferred taxation effect -2,965 -2,965
Net charge against opening
retain income 6,920 6,920
The change in accounting policy has no material effect on operating profit
in the current and prior years and consequently no restatement of income
statement comparative amounts is considered necessary.
Comparatives:
Where necessary, comparative figures have been adjusted to conform with
changes in presentation in the current year.
Earnings per share:
No fully diluted earnings per share in respect of outstanding share options
convertible into shares in the future, have been disclosed, as the potential
dilution is not material.
COMMENTARY
A substantially enhanced performance in the second six months of the year
ended 30 June 2001 has contributed significantly to the strong results
delivered by Aspen Pharmacare for the year. The first half of the year was
negatively impacted by Aspen Pharmacare fulfilling its inherited obligations
to change its primary distribution channel to Kinesis Logistics (Pty)
Limited ("Kinesis"). The following performance measures illustrate the
outstanding results attained in the second half of the financial year
against the achievement for the full year :
Full year Second six months
From continuing operations:
Revenue +18% +31%
Operating profit before amortisation of
intangible assets +41% +58%
The Group benefited considerably from the increased focus of management on
the operational side of the business in the second six months. Operating
margins grew due to a combination of improved levels of turnover, financial
disciplines and manufacturing efficiency. Headline earnings per share of
48,4 cents represented an increase of 43% on the prior year. After
excluding discontinued operations, the increase in headline earnings per
share was 81%.
South African Operations
The South African operations were the cornerstone of the Group's impressive
results. Growth over the period was boosted by several successful product
launches. The most notable of these was the non-narcotic analgesic,
Mybulen, which was launched in February 2001. Sales of this product have
exceeded management expectations. Indications suggest that Mybulen will
become one of Aspen Pharmacare's leading brands.
The Pharmaceutical Division delivered particularly pleasing results. Aspen
Pharmacare has retained its position as the leader in the private generic
market. An increased number of State tenders has been won thanks to
competitive pricing facilitated by improved manufacturing efficiencies.
Good relationships with multinationals continued to have a positive
influence on Aspen Pharmacare's access to ethical products. Over the year
deals were concluded with AstraZeneca (the intranasal corticosteroid,
Rhinocort), Schering (the oral contraceptive, Diane-35) and Almirall
Prodesfarma (the non-sedating antihistamine, Kestine).
The performance of the Consumer Division was also positive with good
continued market share growth recorded in the over-the-counter ("OTC")
sector. Aspen Pharmacare's strength in natural products was enhanced by the
acquisition of the Formule Naturelle range. Under difficult market
conditions the Fast Moving Consumer Goods product lines showed enduring
demand at reasonable margins. The license for Redken hair products held by
the Twincare personal care business expired during the course of the year.
The loss of this leading brand reduced Twincare to a marginal contributor
and the business was sold to management at net asset value with effect from
1 May 2001.
The progress achieved in improving manufacturing cost efficiencies has
transformed Aspen Pharmacare into a globally competitive low cost
pharmaceutical producer. Management is aware that continued improvements in
technology and productivity will be necessary to retain this competitive
position and the strategic development of both manufacturing sites is
currently under review.
The oral contraceptive facility was completed within budget and on time.
This state of the art manufacturing unit is amongst the leading facilities
of its kind in the world and currently manufactures most of the State's oral
contraceptive requirements.
Kinesis was disposed of to Tibbett & Britten (SA) (Pty) Limited ("T&B") with
effect from 26 May 2001. Aspen Pharmacare has entered into an agreement
with T&B, one of the world's leaders in supply chain management, for the
provision of its distribution requirements.
Linda Philip succeeded Mark Lotter as Chief Executive of the Group's South
African operations in March 2001 when Mark was appointed to head up the
Group's European operations. Linda brings enormous experience and
expertise to the Group. The seamless transition in leadership of the local
operations is a credit to Linda, Mark and the rest of the South African
management team.
International Operations
The Group has pursued a strategy of establishing or acquiring businesses in
foreign markets where the benefit of synergies can be developed with the
South African business in the following areas:
* exchange of intellectual property;
* leverage off the South African OTC business;
* utilisation of South Africa as a manufacturing base when the necessary
regulatory approvals are received;
* extension of the Group's worldwide relationship with multinational
pharmaceutical companies.
In terms of this strategy, a foothold was established in both the United
Kingdom and Australia during the course of the year. Both of these
businesses achieved their performance targets for their periods of
operation.
A 51% interest in Co-Pharma Limited, a UK generic and OTC marketing and
distribution company, was acquired in December 2000. Goodwill of R36,7
million arose on this transaction. Aspen Pharmacare Australia (Pty)
Limited, a start-up operation, acquired a range of pharmaceutical and
consumer products from Aventis Australia on 1 May 2001 for R34,3 million.
Increased interaction with multinational pharmaceutical companies,
particularly in the European market, caused the Group to recognise the
potential for unique opportunities in this region. Important existing
relationships and his successful track record made Mark Lotter the obvious
choice to spearhead this development initiative.
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. In this regard, a further
amount of approximately R7,1 million, which was held in escrow in terms of
the transaction, has been paid over to the Group .
Funding
At year end, the Group's net consolidated debt stood at R242,7 million,
representing a reduction of R20 million from the previous year. This was
achieved despite the net outlay of a total of R204,2 million, comprising:
* R47,8 million on both tangible and intangible assets in South Africa.
* R80,6 million on the acquisitions in the UK and Australia.
* R75,8 million on the buyback of 18.8 million shares at R4 per share
(disclosed as Treasury Shares in the balance sheet).
The implementation of the Kinesis distribution channel had a negative
influence on cash flows during the first half of the year. The resolution
of this situation has seen a return to Aspen Pharmacare's customary strong
operating cash flows. Net cash inflows from operating activities amounted
to R223,9 million over the year of which R190,9 million was generated in the
second half.
Operating cash flow per share of 61,2 cents exceeded headline earnings per
share. This represents the third consecutive year that Aspen Pharmacare has
delivered operating cash flow per share in excess of earnings per share.
Anti-retrovirals ("ARV's")
Aspen Pharmacare is acutely aware that it is in a position to play a
meaningful role in tackling the HIV/AIDS pandemic in Southern Africa.
Agreements have been concluded with a technology partner abroad which
provides access to the active pharmaceutical ingredient ("API") for most of
the ARV cocktails. The right to produce the patented ARV molecules,
Stavudine and Didanosine, in Southern Africa has been secured from Bristol
Meyers Squibb and work has already commenced on the development of the
necessary pharmaceutical dossiers. The Group's objective in this area is to
contribute in a socially responsible manner in the fight against HIV/AIDS.
Aspen Pharmacare is aware of the challenges facing government on tackling
the pandemic and is committed to providing support to the policies
implemented.
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
provides the community in the region with a fully functional delivery room
for pregnant women, doctors' consulting rooms, nurses' training facilities
and a medicine dispensary. The trainee nurses received on-the-job training.
Aspen Pharmacare has provided all computer equipment and infrastructure to
support this training. The clinic has already made a meaningful impact on
the lives of the communities of Engcobo, servicing in excess of 180 people
per day.
Accounting Matters
The management of Aspen Pharmacare recognised the onerous obligations of the
Kinesis contract at the time of the acquisition of Pharmacare Limited from
SA Druggists in March 1999, and in this regard raised a fair value provision
at that time. This provision, amounting to R26,1 million, was utilised in
the year under review to compensate for the lost trade caused by the
transition to Kinesis in the first half of the year.
As reported in the prior year, a general provision of R50,0 million was
created by the Group in the form of a fair value consolidation adjustment to
cover risks associated with the acquisition of the SA Druggists' businesses.
During the year under review, the South African Revenue Service ("SARS") has
reviewed a transaction which was entered into by SA Druggists prior to the
acquisition by Aspen Pharmacare of those businesses and has raised a tax
assessment relating thereto. The directors believe that SARS's view is
incorrect and have objected to that assessment. Nevertheless, the general
provision has been maintained to cover any possible tax risks which may
arise out of this matter.
Prospects
The withdrawal of the court case brought by the Pharmaceutical Manufacturers
Association against government has cleared the way for the long anticipated
changes in legislation which will lead, inter alia, to mandatory generic
substitution. As the country's leading provider of generic medicines Aspen
Pharmacare is ideally placed to benefit from this change in legislation
In the year ahead, increased market penetration by recent product launches,
further product launches, and access to additional products through
alliances with multinational pharmaceutical companies is expected to drive
growth. Both the UK and Australian operations will increase their
contributions to the Group results and efforts will be focussed on aligning
these businesses most effectively with the South African business. It is
anticipated that Aspen Pharmacare will be able to report tangible progress
in respect of the European development initiative before the end of the
year.
For the year ahead Aspen Pharmacare has budgeted for growth in both turnover
and profitability, which in the absence of unforeseen circumstances, will
result in an increase in headline earnings per share exceeding 25%.
Dividends
Taking into account the excellent results and reduced gearing the directors
have declared a dividend of 8 cents per share which is covered 6 times by
headline earnings per share. Aspen Pharmacare's anticipated cash flow will
enable it to fund debt repayment and further growth. In compliance with the
new Statement of Generally Accepted Accounting Practice AC 107 (events after
the balance sheet date), this dividend will only be accounted for in the
financial statements in the year ending 30 June 2002. It is the intention
that in future Aspen Pharmacare will declare a final dividend after the
audited results for each financial year have been released.
By order of the board
SB Saad MG Attridge HA Shapiro
(Group Chief Executive) (Deputy Group Chief Executive) (Company Secretary)
Johannesburg
22 August 2001
