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ASPEN PHARMACARE HOLDINGS LIMITED - INTERIM FINANCIAL RESULTS FOR THE SIX MONTHS
ENDED 31 DECEMBER 2003 AND WITHDRAWAL OF CAUTIONARY
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 2003 AND
WITHDRAWAL OF CAUTIONARY
- Operating profit from continuing operations before amortisation of intangible
assets up 26%
- Revenue from continuing operations up 18%
- Headline earnings per share up 30%
Group Income Statement
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2003 2002 % 2003
R"000 R"000 change R"000
Revenue 1 055 569 903 044 1 900 805
Continuing operations 1 055 569 894 699 18 1 890 244
Discontinued operations - 8 345 10 561
Cost of sales (557 186) (502 792) (1 039 967)
Gross profit 498 383 400 252 860 838
Operating expenses (206 291) (169 180) (359 954)
Selling and distribution
costs (127 949) (108 428) (231 143)
Administration expenses (78 342) (60 752) (128 811)
Operating profit before
amortisation of
intangible assets 292 092 231 072 500 884
Continuing operations 292 092 231 330 26 501 260
Discontinued operations - (258) (376)
Reversal of other
provisions - - 17 518
Amortisation of
goodwill - accelerated (2 157) - (17 518)
Amortisation of
goodwill - recurring (6 108) (3 409) (8 074)
Amortisation of
intangible assets (28 483) (19 059) (45 957)
Operating profit 255 344 208 604 446 853
Net financing costs (17 182) (21 946) (56 889)
Loss on sale of
discontinued operations - - (1 053)
Net profit before
taxation 238 162 186 658 28 388 911
Taxation (78 594) (60 618) (115 501)
Net profit after
taxation 159 568 126 040 273 410
Minority interest - (1 741) (2 765)
Net profit attributable
to ordinary
shareholders 159 568 124 299 28 270 645
Weighted average
number of shares in
issue (000"s) 355 773 352 083 353 079
Earnings per share -
basic (cents) 44,9 35,3 27 76,7
Earnings per share -
diluted (cents) 43,4 34,4 26 74,8
Headline earnings per
share (cents) 47,2 36,2 30 79,1
Headline earnings per
share - diluted (cents) 45,6 35,3 29 77,1
Dividend per share
(cents)* - - 20,0
Reconciliation of headline earnings
Net profit attributable
to ordinary
shareholders 159 568 124 299 270 645
Adjusted for:
- Reversal of other
provisions - - (17 518)
- Amortisation of
goodwill - accelerated 2 157 - 17 518
- Amortisation of
goodwill - recurring 6 108 3 409 8 074
Profit on disposal
of property, plant
and equipment
(net of taxation) (73) (278) (570)
Loss on disposal of
discontinued operations
(net of taxation) - - 1 053
Headline earnings 167 760 127 430 279 202
*Relates to dividend declared after year-end. The policy of Aspen is to declare
a final dividend after the preliminary results for each financial year has been
released
Group Balance Sheet
Unaudited Unaudited Audited
31 December 31 December 30 June
2003 2002 2003
R"000 R"000 R"000
ASSETS
Non-current assets 936 610 699 797 853 727
Property, plant and equipment 269 127 162 993 187 210
Goodwill 100 811 66 232 67 478
Intangible assets 409 024 233 050 429 931
Investment and loans - 50 399 -
Financial assets 19 540 5 783 19 422
Deferred taxation asset 138 108 181 340 149 686
Current assets 811 043 740 828 827 978
Inventories 264 767 278 197 213 527
Trade and other receivables 371 964 325 289 414 105
Cash and cash equivalents 174 312 137 342 200 346
Total assets 1 747 653 1 440 625 1 681 705
EQUITY AND LIABILITIES
Capital and reserves
Share capital 73 280 63 297 67 571
Non-distributable reserves 147 476 172 579 153 731
Retained income 741 376 486 398 642 116
Treasury shares (75 807) (75 807) (75 807)
Ordinary shareholders" equity 886 325 646 467 787 611
Minority interest - 6 367 7 364
Non-current liabilities
Interest-bearing borrowings 177 177 350 144 711
Interest-bearing deferred
payables 74 467 76 891 81 199
Deferred taxation liability 43 051 39 635 42 289
Retirement benefit obligations 11 155 9 321 11 155
1 192 175 779 031 1 074 329
Current liabilities 555 478 661 594 607 376
Trade and other payables 333 534 250 325 336 380
Interest-bearing borrowings 141 331 298 552 151 498
Interest-bearing deferred
payables 56 834 55 760 66 120
Taxation 21 549 37 209 51 148
Current provisions 2 230 19 748 2 230
Total equity and liabilities 1 747 653 1 440 625 1 681 705
Number of shares in issue
(net of treasury shares) ("000) 356 309 353 518 354 646
Net asset value per
share (cents) 248,8 182,9 222,1
Group Cash Flow Statement
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended
31 December 31 December 30 June
2003 2002 2003
R"000 R"000 R"000
Cash operating profit 307 630 242 194 530 973
Working capital requirements (11 130) (82 258) (26 542)
Cash generated from operations 296 500 159 936 504 431
Net financing costs (17 182) (21 946) (56 889)
Taxation paid (92 771) (42 839) (54 127)
Net cash flow from operating
activities 186 547 95 151 393 415
Net cash outflow from investing
activities (156 688) (137 326) (352 311)
Acquisition of minority interest
in subsidiary company (48 934) (31 669) (31 669)
Goodwill acquired - (468) -
Acquisition of subsidiary
companies and businesses - - (50 412)
Disposal of subsidiary
companies and businesses - - 5 144
Expansion capital expenditure -
intangible assets (11 973) (30 614) (196 330)
Expansion capital expenditure -
oral solid dosage facility (83 922) (12 540) (34 229)
Replacement capital
expenditure (12 037) (11 637) (31 019)
Proceeds on disposal of
property, plant and equipment 178 476 1 374
Investment in financial assets - (619) (15 170)
Increase in investments
and loans - (50 255) -
Net cash (outflow)/inflow from
financing activities (61 805) 30 543 21 010
Proceeds from share issues 5 709 5 752 10 026
Increase/(decrease) in
long-term interest-bearing
borrowings 69 382 (53 663) 92 186
(Decrease)/increase in
short-term interest-bearing
borrowings (48 399) 137 661 (8 070)
Decrease in long-term
interest-bearing deferred
payables (6 946) (13 465) (38 347)
(Decrease)/increase in
short-term interest-bearing
deferred payables (9 663) (4 762) 6 122
Dividends paid (71 888) (40 980) (40 907)
Effects of exchange
rate changes 5 912 (35 090) (46 827)
Movement in cash and cash
equivalents (26 034) (46 722) 15 287
Cash and cash equivalents at
the beginning of the year 200 346 184 064 184 064
Cash and cash equivalents of
subsidiaries and businesses
acquired - - 995
Cash and cash equivalents at
the end of the period/year 174 312 137 342 200 346
Basis of Accounting
The interim results have been prepared in accordance with AC127, 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 2003 and conform with Statements
of Generally Accepted Accounting Practice in South Africa.
Supplementary Information
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended
31 December 31 December 30 June
2003 2002 2003
R"000 R"000 R"000
Capital expenditure:
Incurred
- oral solid dosage facility 83 922 12 540 34 229
- other tangible assets 12 037 11 637 31 019
- intangible assets 11 973 30 614 196 330
Contracted
- increase in Co-pharma
shareholding* - 55 160 50 263
- oral solid dosage facility 45 779 7 996 96 348
- other 8 140 4 526 6 946
Authorised not contracted
- oral solid dosage facility 7 434 125 855 20 049
- other 273 533 421
Proceeds on disposal of
tangible assets 178 476 1 374
Depreciation of
tangible assets 13 856 11 524 27 580
Amortisation of intangible
assets 28 483 19 059 45 957
Net financing costs
Interest received 14 014 10 912 36 379
Net foreign exchange
(loss)/gain (5 394) 4 465 (10 277)
Interest paid (19 023) (27 986) (65 332)
Net finance costs on
interest-bearing deferred
payables and financial assets (6 779) (9 337) (17 659)
Net financing costs (17 182) (21 946) (56 889)
*The group acquired an additional 20% in the shareholding of Co-pharma Limited
for the amount of GBP 4,1 million with effect from 1 July 2003, bringing its
total shareholding in this company to 100%. This amount was funded out of
existing cash resources held offshore with South African Reserve Bank approval.
Operating lease commitments
- payable in one year 4 268 10 618 7 879
- payable thereafter 27 303 8 751 20 600
31 571 19 369 28 479
Finance lease commitments
- payable in one year 2 675 - 2 940
- payable thereafter 494 - 1 514
3 169 - 4 454
Other commitments
During the 2003 financial year Aspen entered into a 12-year agreement with
GlaxoSmithKline(GSK) to distribute and market a range of their products. In
terms of this agreement Aspen is committed to pay the following amounts to GSK
over the 12 year period:
- payable within one year 41 578 - 52 727
- payable thereafter 140 112 - 161 267
Contingent liabilities
There are contingent liabilities
in respect of:
Additional payments in respect of
the Quit worldwide intellectual
property rights 6 102 7 739 6 768
Guarantees covering loan and
other obligations to third
parties 1 479 1 301 1 662
Guarantee covering potential
rental default relating to
sale of discontinued
operations 6 102 9 459 7 520
In June 2000, a number of pharmaceutical wholesalers lodged a complaint with the
Competition Commission against a number of pharmaceutical manufacturers,
including Pharmacare Limited. In the complaint they alleged that the
manufacturers had engaged in a number of prohibited practices. The
pharmaceutical wholesalers also instituted interim proceedings before the
Competition Tribunal in respect of the matters set out in the complaint. On 18
June 2003, the Competition Tribunal dismissed with costs this application for
interim relief and ruled in favour of the manufacturers. The pharmaceutical
wholesalers have subsequently appealed against this decision. No further
developments have taken place since this appeal. On advice from the company"s
legal advisors, the directors of Aspen continue to hold the view that this
action is unlikely to have a material adverse impact on Aspen"s business in the
future.
Tibbett and Britten have claimed R20,6 million additional distribution fees from
Pharmacare Limited. This claim has been disputed on the basis of the
distribution agreement with Tibbett and Britten. To date this matter remains
unresolved and has now been referred for independent adjudication to senior
counsel. Aspen"s advisors continue to hold the view that this claim is
unlikely to have a material adverse impact on Aspen"s business in the future.
Segmental Analysis
REVENUE Unaudited Unaudited Audited
Six months Six months Year ended
ended ended
31 December 31 December 30 June
2003 2002 2003
R"000 % R"000 % R"000 %
By business
segment
Pharmaceutical 783 794 74,3 678 448 75,8 1 413 944 74,8
Consumer 271 775 25,7 216 251 24,2 476 300 25,2
Continuing
operations 1 055 569 100,0 894 699 100,0 1 890 244 100,0
Discontinued
operations - 8 345 10 561
1 055 569 903 044 1 900 805
By geographic
segment
Continuing
operation
South African
operation 840 015 79,6 689 212 77,0 1 486 079 78,6
Australian
operation 110 812 10,5 42 269 4,7 108 953 5,8
United Kingdom
operation 104 742 9,9 163 218 18,3 295 212 15,6
1 055 569 100,0 894 699 100,0 1 890 244 100,0
Discontinued
operations
South African
operation - 8 345 10 561
1 055 569 903 044 1 900 805
OPERATING PROFIT BEFORE AMORTISATION OF INTANGIBLE ASSETS
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended
31 December 31 December 30 June
2003 2002 2003
R"000 % R"000 % R"000 %
By business
segment
Pharmaceutical 233 764 80,0 181 412 78,4 388 768 77,6
Consumer 58 328 20,0 49 918 21,6 112 492 22,4
Continuing
operations 292 092 100,0 231 330 100,0 501 260 100,0
Discontinued
operations - (258) (376)
292 092 231 072 500 884
By geographic
segment
Continuing
operations
South African
operation 253 873 86,9 211 350 91,4 457 327 91,2
Australian
operation 19 871 6,8 9 078 3,9 21 070 4,2
United Kingdom
operation 18 348 6,3 10 902 4,7 22 863 4,6
292 092 100,0 231 330 100,0 501 260 100,0
Discontinued
operations
South African
operation - (258) (376)
292 092 231 072 500 884
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.
Statement of Changes in Group Equity
Share
capital Non-dis- and tributable
Retained Treasury
premium reserves income shares Total
R"000 R"000 R"000 R"000 R"000
Balance as at
1 July 2002 57 545 228 113 389 569 (75 807) 599 420
Currency
translation
differences - (43 190) - - (43 190)
Net profit for
the year - - 270 645 - 270 645
Dividend
declared - - (40 907) - (40 907)
Proportional
release of
deferred
taxation asset - (23 156) 23 156 - -
Deferred
taxation asset
adjustment - (565) (347) - (912)
Cash flow
hedges realised - (519) - - (519)
Cash flow hedges
recognised - (6 952) - - (6 952)
Issue of share
capital (share
options
exercised) 10 026 - - - 10 026
Balance as at
30 June 2003 67 571 153 731 642 116 (75 807) 787 611
Currency
translation
differences - (1 261) - - (1 261)
Net profit for
the period - - 159 568 - 159 568
Dividend
declared - - (71 886) - (71 886)
Proportional
release of
deferred
taxation asset - (11 578) 11 578 - -
Cash flow
hedges realised - 6 952 - - 6 952
Cash flow hedges
recognised - (368) - - (368)
Issue of share
capital (share
options
exercised) 5 709 - - - 5 709
Balance as at
31 December
2003 73 280 147 476 741 376 (75 807) 886 325
COMMENTARY
Group
Aspen has recorded headline earnings per share of 47,2 cents for the six months
ended 31 December 2003, growth of 30% over the prior year. These earnings were
derived from operating profit before amortisation of intangible assets of R292,1
million which is an increase of 26% over last year"s interim results. The
international businesses contributed 13% of the operating profit before
amortisation of intangible assets, increased from 9% at this stage last year.
Revenue from continuing operations grew by 18% to R1 056 million. The lower
growth rate for revenue is a consequence of a R58 million decline in the revenue
of the UK business, Co-pharma, which operates at low profit margins.
South African operations
The South African business produced excellent results despite the tough trading
environment. Pricing pressure in the market resulted in deflationary
conditions. Nevertheless revenue grew by 22% and operating profit before
amortisation of intangible assets by 20%. Operating margins were maintained
despite competitive pressure and the low inflation environment leading to
falling selling prices. This was achieved by a combination of increased
volumes, production efficiencies and the lower costs of raw materials as a
consequence of the stronger rand.
The pharmaceutical division recorded volume driven revenue growth of 27%. This
increase in sales was achieved even though the average selling price of
pharmaceutical products marketed by this division fell by 8% over the comparable
period. New products and the performance of co-marketing and distribution
agreements supported the strong showing by this division. Despite increased
competition from importers benefiting from the exchange rate, Aspen achieved
very satisfactory results in the recent state tender awards. The tender period
has been extended from one year to two years.
The Consumer division reported revenue growth slightly ahead of inflation. Over
the counter products ("OTC"), in which segment Aspen continues to increase
market share, were the best performers in this division. The Aspen OTC team was
recently placed first in the nationwide Campbell Belman Confidence Standing
survey. This survey of retail pharmacies and buying groups assessed the 36
leading OTC companies in South Africa.
The construction of the oral solid dosage facility is nearing completion. R122
million, including capitalized funding costs, had been spent at the end of the
reporting period. Commissioning of the plant is on track to commence in the
final quarter of the financial year. The additional capacity will relieve the
pressure being experienced due to increased volumes.
International operations
The international operations have continued to grow their contribution to the
Group"s operating profit despite a weakened performance from Co-pharma. At
R38,2 million, operating profit before amortisation of intangible assets was 91%
higher than at the same stage last year. Revenue of R215,5 million made up 20%
of the Group"s total. Muted by the contraction in revenue at Co-pharma, this
was 5% higher than the prior period.
Aspen Australia continues to increase its presence in both the pharmaceutical
and consumer markets. Revenue for the six months of R110,8 million and
operating profit before amortisation of intangibles of R19,9 million represents
growth of more than 100% on the comparative interim results.
UK based Aspen Resources, the intellectual property owning subsidiary, has
performed well. Operating profit before amortisation of intangible assets of
R14,2 million was recorded.
Co-pharma, the UK commodity generics distributor has struggled as competition
has eroded margins and supply problems have restricted revenue. Revenue is down
from R163,2 million to R104,7 million and operating profit is down from R13,2
million to R4,2 million on a comparable basis. Management continue to seek
opportunities to diversify the Co-pharma product portfolio into areas of
improved margin.
Cash flows and finance costs
Net cash flow from operating activities increased by 96% over the prior period
to R186,5 million as Aspen maintained its strong cash generation. Investment in
working capital was limited to R11,1 million as the planned increase in stock
holding was offset by a cyclical decline in debtors.
Net financing costs are covered 17 times by operating profit before amortisation
of intangible assets.
Social responsibility diseases
Aspen has regularly stated its commitment to playing a role in what it terms the
social responsibility diseases of HIV/AIDS, tuberculosis and malaria.
Aspen"s capability as a globally competitive low cost producer of quality
generics was further endorsed by its selection to supply antiretrovirals
("ARV"s") under the programme being implemented by the Clinton Foundation.
Aspen was one of only three manufacturers worldwide to be chosen for the launch
of this programme. The fact that Aspen has developed all of the generic ARV"s
in its own laboratories is testimony to the Group"s scientific skills. Aspen is
awaiting registration of essential ARV dossiers by the South African Medicines
Control Council.
Multinational Eli Lilly recognised Aspen"s manufacturing capabilities and its
status as a leader in the fight against infectious diseases in Africa in a
partnership announced on 5 February 2004. This partnership provides for the
transfer to Aspen by Lilly of global technology, intellectual property and
funding that will enable Aspen to manufacture essential antibiotics (capreomycin
and cycloserine) needed to treat patients with multi-drug resistant
tuberculosis.
Prospects
In the commentary on Aspen"s preliminary results for the year ended 30 June 2003
it was reported "Legislated changes in the health care landscape will create
uncertainty". On 16 January 2004 the Minister of Health published the draft
Regulations Relating to a Transparent Pricing System for Medicines and Related
Substances, the so called single exit pricing legislation. The objective of
this legislation is to lower the cost of medicines to the general public. This
objective is supported. However, there are aspects of the legislation, which if
implemented in accordance with the current draft, could have a material negative
impact on the pharmaceutical industry in South Africa. Aspen does not believe
that this is the true intention of government. The industry has until 16 April
2004 to submit comments on the draft legislation for consideration. Aspen is
confident that the laudable objectives of the legislation can be achieved
without threatening the future of the pharmaceutical industry in South Africa.
Comment subsequent to the release of the legislation has indicated that it is
not intended to undermine local manufacturers. The single exit pricing
legislation is scheduled for implementation on 2 May 2004.
The South African business remains competitively well positioned. The
outstanding capabilities of management and staff together with the best generic
pipeline in the country make this business a formidable force with the ability
to continue to outperform the market. The commissioning of the new oral solid
dosage facility in the final quarter of this financial year will bring the
benefits of new technologies, added capacity and access to international markets
in the next financial year. It will also entrench Aspen"s position as the
leading pharmaceutical manufacturer in Africa. It is anticipated that ARV
production for the domestic market will begin to escalate with the roll out of
the government plan in this regard.
The international operations are set to continue growing led by the Australian
business.
WITHDRAWAL OF CAUTIONARY
Shareholders are advised that the cautionary announcement relating to the
release of the trading update on 15 January 2004 has now been lifted.
By order of the board
SB Saad
(Group Chief Executive)
MG Attridge
(Deputy Group Chief Executive)
HA Shapiro
(Company Secretary)
17 February 2004
Woodmead
Transfer secretaries: Computershare Limited (Registration number 1987/003382/06)
70 Marshall Street, Johannesburg, 2001 (PO Box 61051, Marshalltown, 2107)
Registered office: Building number 8, Healthcare Park, Woodlands Drive, Woodmead
www.aspenpharma.com
Date: 17/02/2004 02:40:16 PM Produced by the JSE SENS Department
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