| Mon 19 Mar 2007, 6:59 | | ENL - Enaleni Pharmaceuticals Limited - Abridged A |
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ENL
ENL
ENL - Enaleni Pharmaceuticals Limited - Abridged Audited Group Results
Enaleni Pharmaceuticals Limited
(Incorporated in the Republic of South Africa)
(Registration number 2002/018027/06)
(JSE code: ENL & ISIN: ZAE000067740)
("Enaleni")
ABRIDGED AUDITED GROUP RESULTS
for the year ended 31 December 2006
Revenue trebles to R789 million
PBIT increases sevenfold to R190 million
HEPS increases 177% to 24,9 cents
Cash flows from operating activities exceed R80 million
Top ten pharmaceutical company
Laid the building blocks for significant growth
CONSOLIDATED INCOME STATEMENT
Year ended Year ended
31 December 31 December
2006 2005
Audited Audited
Actual Actual
R`000 Change R`000
Revenue 789 494 3,2 x 245 078
Cost of sales (401 102) (136 008)
Gross profit 388 392 3,6 x 109 070
Other operating income 7 478 4 016
Operating expenses (205 861) (88 157)
Staff costs (104 657) (38 748)
Depreciation (3 179) (2 013)
Other operating expenses (98 025) (47 396)
Operating profit before financing
costs and taxation 190 009 7,6 x 24 929
Net finance costs*** (24 638) (6 850)
Finance costs (32 084) (7 862)
Finance income 7 446 1 012
Profit before taxation 165 371 18 079
Taxation (60 856) (5 541)
Profit after taxation 104 515 8,3 x 12 538
Attributable to:
Equity holders of the parent 104 079 13 204
Minority interest 436 (666)
Profit for the year 104 515 12 538
Earnings per share (cents)
Basic 26,0 120% 11,8
Diluted 25,5 120% 11,6
Reconciliation of headline earnings
Profit attributable to ordinary
shareholders 104 079 13 204
Adjusted for: (4 257) (3 101)
Restructuring costs - 830
Profit on sale of fixed assets (3 073) (75)
Excess of assets acquired over
purchase price (1 184) (3 856)
Headline earnings 99 822 10 103
Weighted average shares in issue
on which earnings per share
are based (`000) 400 609 112 119
Weighted average fully diluted
shares in issue on which diluted
earnings per share are based (`000) 408 530 113 988
Headline earnings per share (cents)
Basic 24,9 177% 9,0
Diluted 24,4 174% 8,9
Year ended
31 December
2005**
Unaudited
% Pro-forma
Change* R`000
Revenue 26 625 746
Cost of sales (318 979)
Gross profit 27 306 767
Other operating income 20 238
Operating expenses (182 863)
Staff costs (92 354)
Depreciation (4 884)
Other operating expenses (85 625)
Operating profit before financing
costs and taxation 32 144 142
Net finance costs*** (38 061)
Finance costs (42 551)
Finance income 4 490
Profit before taxation 106 081
Taxation (33 733)
Profit after taxation 44 72 348
Attributable to:
Equity holders of the parent 73 761
Minority interest (1 413)
Profit for the year 72 348
Earnings per share (cents)
Basic 41 18,4
Diluted 41 18,1
Reconciliation of headline earnings
Profit attributable to ordinary shareholders 73 761
Adjusted for: (3 101)
Restructuring costs 830
Profit on sale of fixed assets (75)
Excess of assets acquired over purchase price (3 856)
Headline earnings 70 660
Weighted average shares in issue on which
earnings per share are based (`000) 400 360
Weighted average fully diluted shares in issue
on which diluted earnings per share are based (`000) 407 491
Headline earnings per share (cents)
Basic 41 17,6
Diluted 41 17,3
*2006 actual versus 2005 pro-forma
** The unaudited summary of group earnings if all entities were included in
the group for the entire year is included for illustrative purposes.
***The pro-forma net finance costs for the year ended 31 December 2005
includes an estimate for finance costs of R33 066 000 to fairly compare with
the then forecast net finance costs for the year ended 31 December 2006.
CONSOLIDATED BALANCE SHEET
31 December 31 December
2006 2005
Audited Audited
R`000 R`000
ASSETS
Non-current assets 1 446 339 1 209 779
Property, plant and equipment 30 261 22 950
Intangible assets 1 400 848 1 170 001
Investments 5 071 5 010
Loans receivable - 1 917
Deferred tax 10 159 9 901
Current assets 421 760 287 530
Inventories 91 718 60 796
Income tax receivable 24 61
Trade and other receivables 147 733 114 485
Cash and cash equivalents 182 285 112 188
Total assets 1 868 099 1 497 309
EQUITY AND LIABILITIES
Capital and reserves 997 821 891 566
Minority interest (213) (1 559)
Total equity 997 608 890 007
Non-current liabilities 352 550 124 448
Long-term loans and borrowings 350 101 123 608
Accrued operating leases 315 245
Deferred tax 2 134 595
Current liabilities 517 941 482 854
Bank overdraft 3 175 4 768
Short-term loans and borrowings 308 922 307 711
Income tax payable 36 744 21 813
Trade and other payables 169 100 148 562
Total liabilities 870 491 607 302
Total equity and liabilities 1 868 099 1 497 309
CONSOLIDATED CASH FLOW STATEMENT
Year ended Year ended
31 December 31 December
2006 2005
Audited Audited
R`000 R`000
Cash generated by operations 157 345 7 918
Finance costs (29 324) (7 862)
Finance income 7 446 1 012
Dividends paid - (478)
Taxation paid (46 159) (22 312)
Cash flows from operating activities 89 308 (21 722)
Expenditure to maintain operating capacity
Acquisition of property, plant and equipment (17 440) (7 908)
Acquisition of intangible assets (9 253) (4 249)
Proceeds on disposals of property, plant
and equipment 8 872 4 991
Expenditure for expansion
Acquisition of subsidiaries, net of cash
acquired (20 350) (1 122 824)
Acquisition of minority interests (4 000) -
Acquisition of unlisted investments - (5 001)
Decrease in loans receivable (649) 35 189
Cash flows from investing activities (42 820) (1 099 802)
Proceeds from the issue of share capital - 875 621
Share issue expenses (719) -
Acquisition of treasury shares - (2 651)
Loans raised 25 921 348 174
Cash flows from financing activities 25 202 1 221 144
Net increase in cash and cash equivalents 71 690 99 620
Cash and cash equivalents at beginnning
of the year 107 420 7 800
Cash and cash equivalents at end of the year 179 110 107 420
SEGMENTAL REPORT
Year ended Year ended
31 December 31 December
2006 2005
Audited Audited
R`000 R`000
Segment revenue
Pharmaceutical 673 586 166 139
Consumer and vitality 115 908 78 939
Total 789 494 245 078
Segment results
Pharmaceutical 184 568 21 704
Consumer and vitality 5 441 3 225
Total 190 009 24 929
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to equity holders of the parent
Share Share Treasury Retained
capital premium shares income
R`000 R`000 R`000 R`000
Balance at 1 January 2005 - - - 5 154
Total recognised income and
expenditure - - - 13 204
Issue of share capital 403 875 218 - -
Shares held by share
incentive trust - - (2 651) -
IFRS 2 Share-based payments - - - 238
Acquisition of minority
interest - - - -
Balance at 1 January 2006 403 875 218 (2 651) 18 596
Total recognised income and
expenditure - - - 104 079
Issue of share capital 6 18 216 - -
Share issue expenses - (2 706) - -
Shares held by share
incentive trust - - (16 222) -
IFRS 2 Share-based payments - - - 2 882
Acquisition of minority
interest - - - -
Balance at 31 December 2006 409 890 728 (18 873) 125 557
Minority Total
Total interest equity
R`000 R`000 R`000
Balance at 1 January 2005 5 154 (278) 4 876
Total recognised income and expenditure 13 204 (666) 12 538
Issue of share capital 875 621 - 875 621
Shares held by share incentive trust (2 651) - (2 651)
IFRS 2 Share-based payments 238 - 238
Acquisition of minority interest - (615) (615)
Balance at 1 January 2006 891 566 (1 559) 890 007
Total recognised income and expenditure 104 079 436 104 515
Issue of share capital 18 222 - 18 222
Share issue expenses (2 706) - (2 706)
Shares held by share incentive trust (16 222) - (16 222)
IFRS 2 Share-based payments 2 882 - 2 882
Acquisition of minority interest - 910 910
Balance at 31 December 2006 997 821 (213) 997 608
COMMENTARY
FINANCIAL PERFORMANCE
It is our pleasure to announce a satisfactory set of annual results which are
substantially in-line with our forecast published at the end of 2005. In the
circular issued to shareholders on 28 November 2005, Enaleni forecast revenue
of R731,0 million for 2006 and profit before interest and tax of R178,5
million. We have exceeded those figures by 8% and 6% respectively.
The gross margin for the year is 49% (2005: 45%). The increase in the gross
margin is largely the effect of incorporating Cipla Medpro in the group for an
entire year. The Cipla Medpro gross margin is healthy despite the weakening in
the local currency during 2006 as the subsidiary benefited from a prudent and
well-judged hedging strategy.
Operating expenses for the year as a percentage of revenue is 26% (2005: 36%).
Operating expenses include net foreign exchange losses of R2,2 million (2005:
R0,2 million gain) and IFRS 2 (Share-based Payment) charges of R2,9 million
(2005: R0,2 million). This has resulted in an operating margin of 24%,
significantly ahead of the 2005 margin of 10%.
Basic EPS for the year is 26,0 cents (2005: 11,8 cents), an improvement of 120%
over the comparative year and 0,3 cents (1,2%) ahead of the published forecast.
On a fully diluted basis EPS for the year is 25,5 cents (2005: 11,6 cents), an
improvement of 120% over the comparative year and marginally ahead of the
published forecast. The dilution is related to 7,8 million (2005: 7,1 million)
share options in issue to management and staff.
HEPS for the year is 24,9 cents (2005: 9,0 cents), an improvement of 177% over
the comparative year. The reconciliation to Headline Earnings is made up of the
net profit on sale of property, plant and equipment (R3,6 million), adjusted
for the CGT effect on the sale of the Phoenix factory, as well as negative
goodwill related to the acquisition of Adroit Pharmaceuticals (R1,2 million).
Diluted HEPS for the year is 24,4 cents (2005: 8,9 cents), an improvement of
174% over the comparative year.
Net cash resources at the end of the year increased to R179,1 million (2005:
R107,4 million). Operating cash flows generated after interest and tax payments
were R89,3 million, of which R42,8 million was utilised to fund capital
expansion and growth. The current ratio has improved to 0,81 (2005:
0,60).
Total loans and borrowings have increased to R659 million (2005: R431 million)
of which R309 million is current. Loans and borrowings are materially comprised
of a R100 million five-year term facility, R222 million of five-year cumulative
redeemable preference shares bearing dividends at rates linked to prime, and
R294 million (at discounted present value) due to the Cipla Medpro vendors. In
terms of IAS39, the preference shares are accounted for as debt instruments and
the related dividends as interest. The gearing ratio at the end of the year is
48% and interest cover for the year is a comfortable 6 times.
We are pleased to report that Cipla Medpro, which was acquired for R1,2 billion
in November 2005, has continued to perform extremely well with revenue
increasing by 38% over the previous year. The vendors have exceeded their
maximum earn-out targets and are thus contractually entitled to a total payment
of R300 million. This payment, to be made in two tranches of R150 million each,
will be funded through the cash reserves in the business and the issue of up to
R154 million of preference shares, bringing the total acquisition cost to R1,4
billion.
Inventory has increased to R92 million, with improved days in inventory of 83
since the mid-year. These inventory levels are reflective of the significant
revenue growth across the businesses and the necessary safety stock levels
required to cover the lead-times on importation of goods from Cipla India, from
whom the business continues to benefit with regard to favourable payment terms.
Accounts receivable have increased to R148 million, including financial
instrument assets of R6,7 million. Days in trade accounts receivable have
improved since mid-year to 65 and credit control within the group is
satisfactory.
CHANGES TO THE BOARD OF DIRECTORS
In line with good corporate governance the board will be restructured to
improve the balance between non-executive and executive directors.
Nomini Rapoo, the former company secretary of IDC, has resigned her position at
that company resulting in her resignation from the Enaleni board. IDC, being
entitled to appoint a non-executive director in her place onto the Enaleni
board, has appointed Ms Mpho Mosweu as its representative. Mpho is a chartered
accountant (SA). She is employed as a senior account manager by the IDC in the
Techno Industries Business Unit. In addition to her role at the IDC, she is the
chairperson of a shared audit committee at the Mpumalanga Department of Finance
and a member of the investment committee panel for the Support Programme for
Industrial Innovation. She has significant commercial experience, which together
with her technical accounting and corporate governance acumen will add
significant value to the board of Enaleni.
Stan Whitfield, a founder member of Enaleni and the current Commercial Director
of the company will retire with effect from 30 April 2007. The company recently
recruited a Corporate Finance Executive, Mark Daly, from one of the Big Four
accounting firms and is confident that he is a suitable replacement for Stan.
Umesh Parusnath, also a founder member of Enaleni will resign from the board
with effect from 30 April 2007. However, as the company has embarked on the
upgrade of its facility, Umesh retains his role as head of manufacturing for
the pharmaceutical facility.
We thank these directors for the considerable contribution each has made to our
success over the last three years.
The Audit and Risk, Remuneration and Executive Committees are functioning well
and within the mandates approved by the board.
OPERATIONAL REVIEW
Pharmaceutical Division
Cipla Medpro, FirstPharm and the Contract Manufacturing Division`s financial
performance have been pleasing with combined annual revenues having increased
from R530 million to R674 million on the back of strong volume growth and
launches of new products.
The continued growth in the generics market has seen Cipla Medpro increase
sales considerably over the previous year and the company increased its market
share, moving from fifteenth in 2005 to the tenth largest pharmaceutical
company in South Africa by the end of the year. The company continues to focus
on chronic medicines and generates high annuity income and good profit levels
as a result of this strategy. It also boasts a fledgling but fast growing
animal health business - Cipla Vet - which has significant potential for the
future.
FirstPharm has refocused its busines model more towards over the counter
healthcare. Previously concentrating on dispensing doctors, the company has
expanded distribution to include pharmacy chains and food retailers and
strengthened its sales force. FirstPharm sales have increased 28% over the
prior year.
The manufacturing plant is currently undergoing an upgrade of approximately
R100 million to international PIC/S standards. The upgrade has been
logistically co-ordinated to ensure that there will be minimal disruption to
production during the period. Once complete, tablet manufacturing capacity will
be increased fourfold. This investment will strategically position the group to
take advantage of future government tenders, ensure available capacity for
group production as well as enhance our export and other contract manufacturing
opportunities. The upgrade will be substantially completed within the next 12
months.
Consumer and Vitality Division
Performance in this division was positive across its healthcare, vitality and
personal care brands, particularly in the second half as a result of new
product launches and increased marketing drives. Sales were 23% up on the
previous year with record figures recorded in November.
Bioharmony increased sales by 42% over the previous year and demonstrated
strong growth in the second half of the year. The company continues its
association with world renowned nutritional expert, Patrick Holford. The
acquisition of Galilee introduced MenoClove, a popular herbal menopause
treatment, into the Bioharmony range.
Exchange rate fluctuations saw sports supplements company Muscle Science facing
increasing pressure from imported bodybuilding products during the year.
Consolidation during the first six months refocused the business into the
weight loss, and recreational and endurance sports markets and sales growth
accelerated in the last quarter.
We continue to make progress in establishing our Consumer Division, a second
strategic pillar to the Enaleni business, and with the continued merging of
pharmaceutical and retail outlets, it is strategically essential that we
continue to build this division. Already 30% of sales across our consumer
business are generated from healthcare and OTC products.
BLACK EMPOWERMENT
Enaleni continues to remain a leader in black empowerment, having been ranked
by the Financial Mail as the fourth most empowered company on the JSE as well
as the exchange`s top empowered pharmaceutical company. BEE shareholding is
currently at 33%. The company holds an AA rating from Empowerdex and is
committed to further increasing its BEE shareholding.
CIPLA LIMITED INDIA
We are proud of our association with Cipla India and place on record our thanks
for their continued support of our pharmaceutical business.
PROSPECTS
Growth continues in 2007 and within the first two months of this year the
combined Cipla Medpro and FirstPharm marketshare saw Enaleni increase its
ranking from tenth to seventh position. We believe that the investments made in
2006 together with the factory upgrade, an exciting new product pipeline and
entry into new therapeutic classes will result in an even greater share of the
market across pharmaceutical, vitality and wellness markets. We are cautiously
optimistic for additional tenders in the next round and have laid the
foundations and building blocks for growth.
BASIS OF PREPARATION OF THE AUDITED RESULTS
a) Statement of compliance
The abridged financial statements comprise a consolidated balance sheet at 31
December 2006, a consolidated income statement, consolidated statement of
changes in equity and summarised consolidated cash flow statement for the year
ended 31 December 2006, and summarised segment report. The abridged financial
statements have been prepared in accordance with the recognition and
measurement criteria of International Financial Reporting Standards (IFRSs) and
the presentation and disclosure requirements of IAS 34, Interim Financial
Reporting.
The basis of preparation is consistent with the prior comparative year.
The abridged financial statements were approved by the board of directors on
14 March 2007.
b) Basis of measurement
The abridged financial statements have been prepared on the historic cost basis
except for financial assets and liabilities measured at fair value.
c) Functional and presentation currency
These summarised consolidated financial statements are presented in SA Rands,
which is the company`s functional currency. All financial information presented
in Rands has been rounded to the nearest thousand.
MINORITY INTERESTS
Minority holders share in the losses with the group in accordance with a
contractual arrangement.
DIVIDENDS
Currently all earnings generated by the group are utilised to repay debt and
fund acquisitions and other growth opportunities.
AUDITOR`S REPORT
KPMG Inc.`s unmodified auditor`s reports included in the annual financial
statements and on the abridged financial statements contained in this report
are available for inspection at the company`s registered office.
On behalf of the board
PCS LUTHULI TD EDWARDS
Chairman CEO
16 March 2007
CORPORATE INFORMATION
Non-executive directors PCS Luthuli (Chairman), Dr G Mahlati, T Dingaan,
MT Mosweu
Executive directors TD Edwards (CEO), AG Hall (CFO), PA Pillay, U Parusnath,
JS Smith, S Whitfield
Registration number 2002/018027/06
JSE ENL
ISIN ZAE000067740 www.enaleni.com
Registered address
1474 South Coast Road Mobeni
KwaZulu-Natal 4052
Postal address
PO Box 32003 Mobeni 4060
Transfer secretaries
Computershare Investor
Services (2005)
(Proprietary) Limited
Telephone
+27 31 451 3800
Facsimile
+27 31 451 3889
Sponsor
Nedbank Capital
Date: 19/03/2007 06:59:53 Produced by the JSE SENS Department.
