JSE Limited listed Aspen Pharmacare Holdings Limited has announced positive results for the year
OREANDA-NEWS. JSE Limited listed Aspen Pharmacare Holdings Limited (APN), a leading pharmaceutical company in the southern hemisphere, has announced positive results for the year ended 30 June 2016 notwithstanding economic pressures and currency weaknesses.
Stephen Saad, Aspen Group Chief Executive said, “The positive results underpin the strong foundation set which the business will build on in the 2017 financial year. The recent transactions, with a focus on anaesthetics which has been identified as a key therapeutic category for the Group’s strategic development plans, will further strengthen Aspen’s presence in the hospital sector. The International business remained the largest contributor to Group revenue and delivered strong comparable revenue growth. Manufacturing revenue from South Africa’s Active Pharmaceutical Ingredients (“APIs”) and finished dose forms showed pleasing growth of 52% and 69% respectively. Asia Pacific recorded a 11% comparable revenue increase to R7,4 billion, with Japan leading Asia’s 29% increase in sales. Gross revenue in sub-Saharan Africa increased 18% to R3,3 billion.”
- Comparable revenue increased by 12% to R35.4 billion.
- Comparable normalised operating profit before amortisation, adjusted for specific non-trading items improved by 9% to R9.4 billion.
- Comparable normalised headline earnings per share rose 15% to 1222 cents.
- A dividend of 248 cents per ordinary share was declared.
As reported in the interim results, the factors set out below have significantly affected comparability with the results of the prior year and need to be considered when assessing performance for the 2016 financial year:
- The completion on 31 August 2015 of the divestment of the generics business conducted in Australia as well as certain branded products distributed in Australia to Strides group companies, the related termination of license arrangements in Australia and the completion on 1 October 2015 of the divestment of a portfolio of products distributed in South Africa to Litha Pharma (collectively “the Divestments”). The Divestments gave rise to a pre-tax profit on disposal of R1,6 billion. However, as a consequence of the timing of these transactions, the contribution to the trading results by the Divestments is substantially reduced in the 2016 financial year. In the period from 1 July 2015 until the effective date of divestment, revenue from the Divestments was R0,2 billion whereas revenue from the Divestments for the year ended 30 June 2015 was R1,8 billion.
- The economic situation in Venezuela deteriorated over the year to 30 June 2016 and the Venezuelan authorities have increasingly limited authorisations to pay for pharmaceutical imports using the official DIPRO rate during this period of between Venezuelan Bolivar (“VEF”) 6,30 and 10,00 per US Dollar (“USD”). As a consequence of the limited payment approvals and the uncertain economic and political situation in Venezuela, before reporting the interim results for the 6 months ended 31 December 2015 , the Group concluded that it would be more appropriate to apply the DICOM exchange rate (VEF628.34 per USD at 30 June 2016) to report the Venezuelan business’ financial position, results of its operations and cash flows for the year ended 30 June 2016. This has resulted in a one-off currency devaluation loss on foreign denominated liabilities of R870 million.
The profit arising from the Divestments, the currency devaluation loss and the hyperinflationary adjustments relating to Venezuela are excluded, in addition to other specific non-trading items, in determining normalised performance. In order to provide meaningful comparability of the financial performance of the ongoing underlying business, a comparable measure has been determined by removing the contribution from the Divestments and including the results of Aspen’s business in Venezuela translated at VEF628.34 per USD in the prior reporting period.
The key performance measures for the Group for the year ended 30 June 2016 and the percentage change from the prior year are summarized as follows:
|Revenue||Operating profit before amortisation||HEPS**|
|Comparable normalised***||R35,4 billion||+12%||R9,4 billion*||+9%||1 222,0 cents||+15%|
|Normalised||R35.6 billion||-2%||R9,5 billion*||+3%||1 263,7 cents||+10%|
|Unadjusted||R35,6 billion||-2%||R9,6 billion||+7%||889.0 cents||-23%|
* operating profit before amortisation, adjusted for specific non-trading items
** headline earnings per share
*** The comparable information has been derived from the reviewed financial information and has not been reported on by Aspen’s auditors. This information has been prepared for illustrative purposes only and is the responsibility of the Board of Directors of Aspen
The International Business increased comparable revenue 19% to R18,9 billion and grew comparable operating profit before amortisation, adjusted for specific non-trading items (“EBITA”), 15% to R5,9 billion.
Commercial revenue from pharmaceutical product sales to health care providers in Europe and the Commonwealth of Independent States (“Europe CIS”) improved 22% to R8,5 billion. The acquisition of Mono-Embolex, a thrombolytic product with almost all of its sales in Germany, in the second half of the previous year further strengthened Aspen’s portfolio in this therapeutic area.
In Latin America (excluding Venezuela), revenue to customers increased 3% to R3,5 billion. Nutritional sales were the growth driver, increasing 18% and Infacare was successfully launched in Mexico, securing an important government tender. Aspen has suspended trade in Venezuela pending an improvement in the economic conditions.
Sales to customers in the North America and the Middle East North Africa territories increased strongly off relatively low bases, growing by 42% and 51% respectively.
Manufacturing revenue continued to advance with particularly strong growth in active pharmaceutical ingredient (“API”) sales of 19% to R4,0 billion.
The installation of a new high speed pre-filled syringe filling line at Aspen Notre Dame de Bondeville was completed during the period and commercial production is underway. At Aspen Oss the capital expenditure projects include adding new production capabilities and maintaining the sustainability of the site.
SOUTH AFRICAN BUSINESS
Comparable revenue in South Africa was down 1% at R8,1 billion. Nutritionals products maintained their growth momentum, adding 11% to revenue and there were impressive increases in manufacturing revenue for both APIs (+52%) and finished dose forms (+69%). The pharmaceutical business was however constrained by supply problems, which were compounded by sub-optimal prioritisation of available capacity, leading to a weak second half performance. Private sector comparable pharmaceutical revenue was 7% lower. Margins came under pressure from a weakening local currency, which raised the cost of imports and from operating expense growing faster than sales. This was the primary cause of the comparable EBITA for the South African business dropping 15% to R1,5 billion.
The new high volume, high potency multipurpose API facility at Fine Chemicals has commenced production. The high containment facility in Port Elizabeth has been completed and manufacturing trials are in progress. Construction of the additional specialist sterile manufacturing facility in Port Elizabeth is progressing and a number of capacity enhancement projects are also underway at this site. These capital projects will provide an important strategic advantage to the Group by enabling it to add value to its expanding portfolio of products that require complex manufacture.
ASIA PACIFIC BUSINESS
In the Asia Pacific region, comparable revenue was up 11% to R7,4 billion and comparable EBITA was 10% higher at R1,6 billion. In Australasia, sales of pharmaceuticals to customers increased 2% to R4,4 billion with a strong performance from core pharmaceutical products in a challenging trading environment being offset by a reduced contribution from licensed products in the process of being phased out. Revenue from the nutritionals range was 6% higher at R1,0 billion. Sales to customers in Asia continued to grow, climbing 29% with Japan leading the way.
Gross revenue in sub-Saharan Africa increased 18% to R3,3 billion. Currency weakness across the region and unfavourable new VAT legislation in Tanzania squeezed margins, but a compensation payment in the Collaboration assisted the region to raise EBITA 31% to R0,4 billion.
The transactions announced after the closing of the 2016 financial year represent further steps in Aspen’s strategy to move towards sharpened focus on key therapy areas and to move away from areas where the Group is less able to add value. This intent is also reflected in the Divestments completed earlier in the year. A key element of Aspen’s inorganic expansion strategy is to acquire products within therapeutic areas that are both niche in nature and complementary to its existing operations. Anaesthetics have been identified as a therapeutic category aligned to the Group’s strategic development plans. The AZ portfolio and the GSK portfolio are complementary, providing Aspen with a leading range of anaesthetic products distributed globally. As a category of pharmaceuticals that primarily involves sterile manufacturing and that is dispensed largely in hospitals and clinics, anaesthetics present an opportunity to leverage both Aspen’s existing hospital focused sales force that is currently promoting thrombolytic products and, potentially in due course, sterile manufacturing capabilities. Furthermore, the key territories in which the anaesthetics are sold represent an excellent fit with Aspen’s existing operational geographic footprint and those territories where the Group has ambitions to establish a presence. The transactions also have initiated the establishment of a material business in China where the acquisition of the thrombolytic products from GSK creates synergistic opportunities with the acquired AZ Portfolio.
Significant work has been done in effectively consolidating the major acquisitions that were concluded in the 2015 financial year, including bringing three major manufacturing sites into the Aspen supply network and transferring more than 2 000 new employees to Aspen. The foundation has been well set for the business units to continue to build on the positive results delivered in the 2016 financial year. The South African private sector pharmaceutical division is expected to record growth in the forthcoming year although the first half will continue to suffer from supply issues.
Inventory carrying levels remain too high in certain business units and various projects are underway to rectify this position. Inevitably though, working capital will need to be built to sustain the recent acquisitions.
Aspen trades in a diversified mix of currencies that generally diminishes currency risk on a Group-wide basis. This risk has been further mitigated by the replacement of USD debt with EUR debt, achieving better matching between trading cash flows and borrowings.
In the 2015 final results announcement, Aspen identified a number of projects aimed at delivering synergies from recent acquisitions, targeting an additional R2,5 billion in EBITA from these synergies by the 2019 financial year. These projects include lowering the cost of goods for the thrombolytic products, improving margins in the infant nutritionals business, bringing new manufacturing capacity and technologies on-line, building the third party API business and leveraging acquired intellectual property. Particular opportunities have been identified to build a niche business based on supply of specialised APIs and finished dose forms to the United States. Significant progress has been made over the last year in regard to the realisation of these synergies and the first benefits came through late in the past year. Aspen is confident that this target will be achieved and exceeded. Benefits of approximately R300 million came through during the past financial year. It is anticipated that between R500 million and R1 billion in further synergies will be achieved in the 2017 financial year. The realisation of these synergies, ongoing organic growth from the base business and the added contribution from the recently announced anaesthesia acquisitions are expected to result in a strong increase in earnings in the 2017 financial year.
Aspen is a leading global player in specialty, branded and generic pharmaceuticals with an extensive basket of products that provide treatment for a broad spectrum of acute and chronic conditions experienced through all stages of life. Aspen continues to increase the number of lives benefitting from its products, reaching more than 150 countries.
Aspen has a strong presence in both emerging and developed countries. Its emerging market footprint includes Sub-Saharan Africa, Latin America, South East Asia, Eastern Europe and the Commonwealth of Independent States, comprising Russia and the former Soviet Republics. From a developed world perspective Aspen is one of the leading pharmaceutical companies in Australia and has a growing presence in other developed countries, most notably in Western Europe.
Aspen operates with an established business presence in approximately 50 countries spanning 6 continents and employs more than 10,000 people. The Group operates 26 manufacturing facilities across 18 sites. Aspen holds international manufacturing approvals from some of the most stringent global regulatory agencies including the FDA, TGA and EMA. Aspen’s manufacturing capabilities are scalable to demand and cover a wide variety of product-types including oral solid dose, liquids, semi-solids, steriles, biologicals, APIs and infant nutritionals.