| Mon 17 Feb 2003, 12:19 | | Aspen Pharmacare Holdings Limited - Interim Financ |
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ASPEN PHARMACARE HOLDINGS LIMITED
("Aspen")
(registration number 1985/002935/06)
Share code: APN
ISIN: ZAE000023586
INTERIM FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2002
Revenue from continuing operations 33%
Operating profit from continuing operations before amortisation of intangible
assets 25%
Headline earnings per share 22%
Group Income Statement
Restated
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
31 December 31 December 30 June
2002 2001 % 2002
R`000 R`000 changeR`000
Revenue 903 044 678 848 1 582 837
Continuing operations 903 044 678 848 33 1 577 603
Discontinued operations - - 5 234
Cost of sales (502 792) (336 006) (831 187)
Gross profit 400 252 342 842 751 650
Operating expenses (169 180) (158 417) (321 477)
Operating profit before
amortisation of intangible
assets 231 072 184 425 430 173
Continuing operations 231 072 185 294 25 431 533
Discontinued operations - (869) (1 360)
Reversal of general provision - - 50 000
Amortisation of
goodwill - accelerated - - (50 000)
Amortisation of
goodwill - recurring (3 409) (4 238) (8 363)
Amortisation of intangible
assets (19 059) (12 040) (31 654)
Operating profit 208 604 168 147 390 156
Net financing costs (21 946) (20 398) (48 084)
Profit on sale of
discontinued operations - - 2 256
Net profit before taxation 186 658 147 749 26 344 328
Taxation (60 618) (46 655) (112 318)
Net profit after taxation 126 040 101 094 232 010
Minority interest (1 741) (1 321) (6 226)
Net profit attributable
to ordinary shareholders 124 299 99 773 25 225 784
Weighted average number
of shares in issue (000`s) 352 083 349 696 350 364
Earnings per
share - basic (cents) 35,3 28,5 24 64,4
Earnings per share -
diluted (cents) 34,4 27,8 24 62,5
Headline earnings
per share (cents) 36,2 29,6 22 64,6
Reconciliation of Headline earnings
Net profit attributable to
ordinary shareholders 124 299 99 773 225 784
Adjusted for :
-Reversal of general
-provision - - (50 000)
-Amortisation of
goodwill - accelerated - - 50 000
-Amortisation of
-goodwill - recurring 3 409 4 238 8 363
Profit on disposal of
property plant and
equipment (net of taxation) (278) (366) (3 924)
Profit on disposal of
discontinued
operations (net of taxation) - - (2 162)
Capital receipt - - (1 694)
Headline earnings 127 430 103 645 226 367
Group Balance Sheet
Restated
Unaudited Unaudited
31 December 31 December 30 June
2002 2001 2002
R`000 R`000 R`000
ASSETS
Non-current assets 699 797 638 069 687 162
Property, plant and equipment 162 993 151 919 151 179
Goodwill 66 232 105 237 49 981
Intangible assets 233 050 152 933 284 797
Investment and loans 50 399 3 151 144
Financial assets 5 783 11 308 8 481
Deferred taxation asset 181 340 213 521 192 580
Current assets 740 828 644 406 817 586
Inventories 278 197 243 818 292 443
Trade and other receivables 325 289 267 851 341 079
Cash and cash equivalents 137 342 132 737 184 064
Total assets 1 440 625 1 282 475 1 504 748
EQUITY AND LIABILITIES
Capital and reserves
Share capital 63 297 52 869 57 545
Non-distributable reserves 172 579 271 709 229 241
Retained income 486 398 270 238 403 332
Treasury shares (75 807) (75 807) (75 807)
Ordinary shareholders` equity 646 467 519 009 614 311
Minority interest 6 367 11 704 17 118
Non-current liabilities
Interest-bearing borrowings 350 163 049 54 013
Interest-bearing deferred
payables 76 891 49 135* 135 428*
Deferred taxation liability 39 635 35 637 39 635
Retirement benefit
obligations 9 321 9 885 9 321
779 031 788 419 869 826
Current Liabilities 661 594 494 056 634 922
Trade and other payables 250 325 268 901 362 592
Interest-bearing borrowings 298 552 117 750 160 891
Interest-bearing deferred
payables 55 760 18 926* 60 522*
Taxation 37 209 13 952 30 169
Current provisions 19 748 74 527 20 748
Total equity and liabilities 1 440 625 1 282 475 1 504 748
Number of shares in issue
(net of treasury shares)
(000`s) 353 518 350 221 351 517
Net asset value per
share (cents) 182,9 148,2 174,8
* Previously disclosed as non interest-bearing deferred payables. Now disclosed
as interest-bearing in accordance with the Group`s
changed accounting policy to comply with AC133.
Supplementary Information
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2002 2001 2002
R`000 R`000 R`000
Capital expenditure:
Incurred
-oral solid dosage facility 12 540 - 3 609
-other tangible assets 11 637 11 539 28 664
-proceeds on disposal of
-tangible assets (476) - (11 214)
-intangible assets 30 614 9 311 24 518
Contracted
-increase in Co-pharma
shareholding* 55 160 104 273 94 472
-oral solid dosage facility 7 996 - -
-other 4 526 12 999 5 794
Authorised not contracted
-oral solid dosage facility 125 855 - 146 391
-other 533 48 081 11 234
Depreciation of tangible
assets 11 524 11 116 23 443
Amortisation of intangible
assets 19 059 12 040 31 654
Net financing cost
-Interest received 10 912 7 714 18 237
-Net foreign exchange
gain/(loss) 4 465 4 449 (2 175)
- Interest paid (27 986) (32 561) (64 146)
Finance costs on
interest-bearing deferred
payables (9 337) - -
Net financing costs (21 946) (20 398) (48 084)
Operating lease commitments
- payable in one year 10 618 6 217 9 783
- payable thereafter 8 751 20 237 9 992
19 369 26 454 19 775
* This obligation is GBP 4 million (GBP 6 million at 31 December 2001 and 30
June 2002) and is subject to variation dependent on performance of the Co-pharma
business.
The funds required to meet this obligation are held offshore with South African
Reserve Bank approval.
Contingent liabilities
There are contingent liabilities in respect of:
Additional payments in respect of the Quit worldwide intellectual
property rights 7 739 10 779 9 279
Guarantees covering loan and
other obligations
to third parties 1 301 1 624 1 449
Guarantee covering potential
rental default relating to
sale of
discontinued operations 9 459 15 569 12 372
The Group together with other third party pharmaceutical companies has an
obligation to Tibbett and Britten in respect of additional expenditure which may
be necessary to complete the implementation of a computer application at
Kinesis. In the opinion of the directors, no significant costs are expected to
arise out of this arrangement.
In June 2000 a number of pharmaceutical wholesalers lodged a complaint with the
Competition Commission against a number of pharmaceutical manufacturers,
including Pharmacare Ltd. In the complaint they alleged that the manufacturers
had engaged in a number of prohibited practices. The pharmaceutical wholesalers
also instigated interim relief proceedings before the Competition Tribunal in
respect of the matters set out in the complaint. Aspen and the other
pharmaceutical manufacturers have defended both the complaint and the interim
relief proceedings. The Competition Commission did not refer the complaint to
the Competition Tribunal and as a result the pharmaceutical wholesalers have
themselves referred the matter to the Competition Tribunal. On advice from the
company`s legal advisors, the directors are of the view that this action is
unlikely to have a material
adverse impact on Aspen`s business in the future.
Group Cash Flow Statement
Restated
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
31 December 31 December 30 June
2002 2001 2002
R`000 R`000 R`000
Cash operating profit 242 194 195 018 448 010
Working capital requirements (82 258) (68 271) (108 765)
Cash generated from operations159 936 126 747 339 245
Net financing costs (21 946) (20 398) (48 084)
Taxation paid (42 839) (26 818) (50 656)
Net cash flow from operating
activities 95 151 79 531 240 505
Net cash outflow from
investing activities (137 326) (21 098) (36 068)
Acquisition of minority
interest in subsidiary comp
any (31 669) - -
Goodwill acquired (468) - -
Disposal of joint ventures,
subsidiary companies and
businesses - - 7 000
Expansion capital expenditure
-intangible assets (30 614) (9 311) (24 518)
Expansion capital expenditure
-oral solid dosage facility (12 540) - (3 609)
Replacement capital
expenditure (11 637) (11 539) (28 664)
Proceeds of disposal of
property plant and equipment 476 - 11 214
Acquisition of treasury shares - (52) (52)
(Investment in)/realisation
of financial assets (619) - 2 561
Increase in investments
and loans (50 255) (196) -
Net cash inflow/(outflow)
from
financing activities 30 543 (134 603) (203 454)
Proceeds from share issues 5 752 1 440 6 116
Decrease in long - term
interest-bearing borrowings (53 663) (13 463) (119 755)
Increase/(decrease) in
short-term interest-bearing
borrowings 137 661 (84 081) (40 940)
Decrease in long-term
interest-bearing
deferred payables (13 465) (6 821) (58 793)
(Decrease)/Increase in
short-term interest-
bearing deferred payables (4 762) (3 699) 37 897
Dividends paid (40 980) (27 979) (27 979)
Effects of exchange rate
changes (35 090) 73 701 53 847
Movement in cash and cash
equivalents (46 722) (2 469) 54 830
Cash and cash equivalents
at the
beginning of the year 184 064 135 206 135 206
Cash and cash equivalents
of subsidiaries
and businesses disposed - - (5 972)
Cash and cash equivalents at
the end of the period/year 137 342 132 737 184 064
Segmental Analysis
Revenue Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2002 2001 2002
R`000 % R`000 % R`000 %
By business segment
Pharmaceutical 678 448 75,1 494 704 72,9 1 184 967 75,1
Consumer 224 596 24,9 184 144 27,1 392 636 24,9
Continuing operations 903 044 100,0 678 848 100,0 1 577 603 100,0
Discontinued operations - - 5 234
903 044 678 848 1 582 837
By geographic segment
Continuing operations
South African
operations 697 557 77,2 589 002 86,8 1 275 314 80,8
Australian operation 42 269 4,7 30 241 4,4 65 028 4,1
United Kingdom
operation 163 218 18,1 59 605 8,8 237 261 15,1
903 044 100,0 678 848 100,0 1 577 603 100,0
Discontinued
operations
South African
operations - - 5 234
903 044 678 848 1 582 837
OPERATING PROFIT BEFORE Unaudited Unaudited Audited
AMORTISATION OF Six months Six months Year
INTANGIBLE ended ended ended
ASSETS 31 December 31 December 30 June
2002 2001 2002
R`000 % R`000 % R`000 %
By business segment
Pharmaceutical 181 412 78,5 142 608 76,9 338 041 78,3
Consumer 49 660 21,5 42 686 23,1 93 492 21,7
Continuing operations 231 072 100,0 185 294 100,0 431 533 100,0
Discontinued operations - (869) (1 360)
231 072 184 425 430 173
By geographic segment
Continuing operations
South African operations 211 092 91,3 178 683 96,4 403 225 93,4
Australian operation 9 078 3,9 6 416 3,5 12 392 2,9
United Kingdom operation 13 241 5,8 3 959 2,1 20 240 4,7
Other offshore (2 339) (1,0) (3 764) (2,0) (4 324) (1,0)
231 072 100,0 185 294 100,0 431 533 100,0
Discontinued operations
South African operations - (869) (1 360)
231 072 184 425 430 173
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.
Statement of Changes in Group Equity
Share Non-dis-
capital Tributable Retained Treasury
and premium reserves income shares Total
R`000 R`000 R`000 R`000 R`000
Balance as at 1
July 2001 51 429 180 238 186 170 (75 755) 342 082
Currency translation
differences - 69 009 - - 69 009
Net profit for the year - - 225 784 - 225 784
Dividend paid - - (27 979) - (27 979)
Proportional release
of deferred
taxation asset - (23 250) 23 250 - -
Deferred taxation asset
adjustment - 1 794 (3 893) - (2 099)
Cash flow hedges
recognised - 1 450 - - 1 450
Issue of share
capital-share options 6 116 - - - 6 116
Acquisition of treasury
shares - - - (52) (52)
Balance as at 30 June
2002 as
previously reported 57 545 229 241 403 332 (75 807) 614 311
Effect of implementation
of AC 133 relating to
product participation
rights - - (11 878) - (11 878)
Restated balance as
at 30 June 2002 57 545 229 241 391 454 (75 807) 602 433
Currency translation
differences - (34 118) - - (34 118)
Net profit for the
period - - 124 299 - 124 299
Dividends paid - - (40 980) - (40 980)
Proportional release
of deferred
taxation asset - (11 625) 11 625 - -
Cash flow hedges
recognised - (10 919) - - (10 919)
Issue of share
capital-share options 5 752 - - - 5 752
Balance as at
31 December 2002 63 297 172 579 486 398 (75 807) 646 467
COMMENTARY
Group
Aspen`s performance for the six months ended 31 December 2002 is characterized
by a significant increase in revenue and continued strong earnings growth.
Revenue grew by 33% to R903 million of which 23% (R205 million) was contributed
by the offshore businesses. Operating profit before amortisation of intangible
assets increased to R231,1 million, a rise of 25%. The international operations
contributed 9% of this amount, up from 4% at the interim stage last year.
The increasing influence of the international operations on the Group is
reflected in these results. Headline earnings per share increased from 29,6
cents in December 2001 to 36,2 cents, growth of 22%.
South African operations The South African operation produced outstanding
results in a challenging environment, substantially outperforming the market.
Revenue from continuing operations was up 18% and operating profit before
amortisation of intangible assets grew by 19%. Despite pricing pressure in the
market, operating margins were maintained through effective cost management.
The Pharmaceutical Division achieved impressive growth in revenue through
increasing market share, the contributions of recent generic product launches
and an increase in marketing fees.
Ongoing pricing pressure in the retail environment resulted in some contraction
in FMCG margins. However, the successful redirection of the marketing strategy
for the pharmacy over-the-counter products is reflected in the overall strong
performance of the Consumer Division.
As at 31 December 2002, all of the conditions in respect of the acquisition of
Triomed had not been fulfilled.
Therefore the assets and liabilities have not been consolidated in the balance
sheet as at the period end. The R50 million purchase consideration has been
disclosed as an investment. Subsequent to the period end, the transaction has
been successfully completed. In terms of the ruling of the Competition
Commission, two non-core products (Cyclidox and Triomin) require to be disposed
of due to Aspen`s existing strength in the tetracycline combination market.
International Operations
Aspen increased its shareholding in Co-pharma from 51% to 80% with effect from 1
July 2002 at a cost of 2 million. Co-pharma maintained the outstanding
performance recorded in the second half of the previous
financial year, as the company`s range of distributed products continued to
attract demand in the market. Revenue of R163,2 million reflected a substantial
increase on the R59,6 million posted at the same stage last year.
Operating profit before amortisation of intangible assets showed an equally
impressive increase, up from R4,0 million to R13,2 million. However, the
business continues to run at a low operating margin of 8% and remains vulnerable
to cyclical changes in the UK commodity generics market.
Aspen Australia recorded strong results increasing revenue by 40% to R42,3
million and operating profit before amortisation of intangible assets by 41,5%
to R9,1 million. This performance was partially influenced by a 15% appreciation
in the value of the Australian dollar against the rand over the respective
reporting period. Aspen Australia has increased its reach into the consumer
market with the recent conclusion of a marketing agreement in respect of seven
established consumer brands.
Funding
Aspen continues to generate strong operating cash flows. Working capital
requirements increased by R82,3 million due to the settlement of certain non-
recurring creditors at Co-pharma. The Group`s stock and debtors carrying values
were reduced despite the increase in trading activity.
Consolidated interest-bearing debt has been restated to include the obligations
under various marketing agreements which are considered interest-bearing in
terms of the new accounting standard AC 133. Net financing costs are covered
10.5 times by operating profit before amortisation of intangible assets.
Anti Retrovirals ("ARVs")
Aspen is awaiting the registration by the South African Medicines Control
Council ("MCC") of the generic ARV`s for the original Bristol Myers Squibb
products. The GlaxoSmithKline ARV products are all in development and are
expected to be submitted to the MCC shortly. Development work is currently
focused on the production of the generic for Boeringher Ingelheim`s Nevirapine.
Aspen is committed to providing a generic ARV option in South Africa. The
Group`s development facilities have worked almost exclusively on ARVs for the
past 18 months.
Black Economic Empowerment
In December 2002 it was announced that Peu Health (Pty) Limited ("Peu Health"),
a wholly-owned subsidiary of Peu Investment Group (Pty) Limited ("Peu") had
acquired 21,3 million ordinary shares in Aspen (5,72% of the
Aspen ordinary shares in issue). This, together with CEPPWAWU Investments (Pty)
Ltd`s 7.2% holding of Aspen ordinary shares, increased the black empowerment
participation in the equity of Aspen, to 13%.
Peu is a wholly owned and managed investment holding company with a strong track
record of tangible contributions to its underlying investments. It is intended
that Peu will dilute its interest in Peu Health in order to accommodate the
Intsika Enablement Trust, a broad based black economic empowerment entity, as a
significant shareholder of Peu Health.
Prospects
Management`s objectives include the growth of the local and offshore businesses.
The Aspen business in South Africa continues to outperform the market. An
extensive product pipeline supports the continuity of this position. As the
leading provider of generic medicines in South Africa to both the private and
public sectors, Aspen is effectively positioned to benefit from generic
substitution. Private sector pressures brought to bear by the health care
funders have already commenced this process. The Medicines and Related Substance
Amendment Act providing for inter - alia, legislated generic substitution, was
published in January 2003 as Act 59 of 2002 (replacing "Act 90") and is expected
to be passed into law shortly.
Aspen Australia has achieved good market penetration and is well positioned to
take advantage of opportunities as these arise. Co-pharma is performing well,
but remains vulnerable to changes in the UK market place.
Diversification in Co-pharma`s product portfolio remains a goal.
Aspen remains of the view that the Group will achieve an increase in headline
earnings per share for the year ending 30 June 2003 in excess of 20%.
Dividend declaration
In accordance with previously stated Group policy, no interim dividend has been
declared. It is intended to declare a final dividend after completion of the
financial year.
By order of the board
SB Saad
(Group Chief Executive)
MG Attridge
(Deputy Group Chief Executive)
HA Shapiro
(Company Secretary)
Woodmead
17 February 2003
Basis of Accounting
The interim results have been prepared in accordance with AC 127, the Listings
Requirements of the JSE Securities Exchange South Africa 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 2002, except as indicated below, and conform with
Statements of Generally Accepted Accounting Practice in South Africa.
Product participation rights
In prior years the gross value of product participation rights was recognised as
intellectual property and the corresponding obligation disclosed as a non
interest-bearing deferred payable. In order to comply with the new Statement of
Generally Accepted Accounting Practice AC 133 (Financial instruments -
recognition and measurement), the Group`s policy in this regard is to discount
the gross values of both the intellectual property and related obligation to
their present values using an appropriate discount rate. In terms of this
policy, revised amortisation and finance charges have been disclosed in the
income statement. In accordance with AC133, these charges have only been
recognised in the current period under review and have not been applied
retrospectively. Consequently comparative figures have not been restated to give
effect to this change in policy. The effect of the cummulative change on the
opening balance of retained income at 1 July 2002 is separately disclosed in the
Statement of Changes in Group Equity. The net effect for the six months ending
31 December 2001 of this change in policy has been to reduce attributable and
headline earnings by R4,3 million.
Comparatives
Where necessary, comparative figures have been restated to conform with changes
in presentation and classification in the current year.
Transfer secretaries: Computershare Investor Services Limited (Registration
number 87/03382/06)
70 Marshall Street, Johannesburg, 2001 (PO Box 1053, Johannesburg, 2000)
Registered office: Building number 8, Healthcare Park, Woodlands Drive,
Woodmead.
www.aspenpharma.com
Date: 17/02/2003 12:00:00 PM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
