Johannesburg – JSE Limited listed Aspen Pharmacare Holdings Limited (APN), a global multinational specialty pharmaceutical company, has announced unaudited interim financial results for the six months ended 30 December 2021.
Stephen Saad, Aspen Group Chief Executive said, “The business has delivered pleasing results and has proven to be in robust shape over the past six months. We are positioned to maintain the current positive momentum, provided we experience no further unexpected headwinds as a result of COVID-19. The past 12 months have been extraordinary, and Aspen has successfully navigated these turbulent times ensuring delivery of medicines to patients. During these challenging times, Aspen employees remained committed to contributing to the fight to combat the effects of the virus. We persevered with the build project to increase our sterile capabilities and capacity, we began the transfer of our Anaesthetics products to Aspen sites and remained steadfast in our commitment to patients and customers ensuring all manufacturing and commercial operations continued, uninterrupted.”
COMMENTARY
GROUP HIGHLIGHTS (CONTINUING OPERATIONS)
Despite the many challenges arising from COVID-19, Aspen has maintained uninterrupted operations, including at our 15 manufacturing sites. This has been due to robust business continuity plans and, most importantly, the resilience and commitment of our employees. This has enabled us to continue to supply our medicines to patients in need across the world and to make an important contribution in assisting to combat the effects of the virus.
Group revenue for the six months ended 31 December 2020 grew 17% to R18,6 billion following 12% and 36% increases by Commercial Pharmaceuticals and Manufacturing, respectively. Commercial Pharmaceuticals delivered revenue growth across all regions and revenue also advanced in each of the Manufacturing segments. Normalised EBITDA was up 11% to R5,2 billion as well controlled operating expenses partially offset both a lower gross profit percentage and lower other operating income. Normalised headline earnings per share (“NHEPS”) increased 16% to R6,76, benefitting from reduced net financing costs.
Net borrowings declined to R27,7 billion from R35,2 billion at 30 June 2020. The reduction in net borrowings was supported by the upfront cash consideration from the completion of the divestment of the European Thrombosis assets and the relative strengthening of the ZAR. The leverage ratio, as at 31 December 2020, is 2,83 times against the banking covenant of 3,50 times. Operating cash flow was in line with our expectations, given the abnormally high inflows in the prior financial year. The outstanding consideration for the European Thrombosis assets, amounting to R7,0 billion, is receivable before the end of June 2021. This provides a further opportunity to reduce both debt and the leverage ratio.
The table below compares performance from continuing operations in the prior comparable period at reported exchange rates and then at constant exchange rates (“CER”). The higher growth at reported rates is due to the weakening of the average rate of the ZAR over the reporting period against the majority of the other currencies in which Aspen trades.
| 1 | Calculated in terms of the Facilities Agreement |
| 2 | EUR 389 million at Aspen’s 31 December 2020 exchange rate of ZAR 17,91 to EUR 1 |
| Six months ended 31 December 2020 | ||||
| Continuing operations | Reported H1 2021 R’million |
Restated H1 2020^ R’million |
Change at reported rates % |
Change at CER# % |
| Revenue | 18 633 | 15 984 | 17 | 6 |
| Normalised EBITDA* | 5 192 | 4 680 | 11 | 2 |
| NHEPS** (cents) | 676,2 | 585,1 | 16 | 7 |
| ^ | H1 2020 has been restated as a result of the discontinuation of operations in H1 2021. |
| # | The CER % change is based upon the performance for the six months ended 31 December 2019 restated using the average exchange rates for the six months ended 31 December 2020. |
| * | Operating profit before depreciation and amortisation adjusted for specific non-trading items as defined in the Group’s accounting policy. |
| ** | NHEPS is HEPS adjusted for specific non-trading items, being transaction costs and other acquisition and disposal-related gains or losses, restructuring costs, settlement of product related litigation costs, net monetary adjustments and currency devaluations relating to hyperinflationary economies and significant once-off tax provision charges or credits arising from the resolution of prior year tax matters. |
DISCONTINUED OPERATIONS
Discontinued operations for the six months ended 31 December 2020 include the European Thrombosis assets to date of disposal (being 27 November 2020), the costs relating to this disposal, related Thrombosis product discontinuations, other product divestments and the residual costs related to prior period disposals. Discontinued operations in the prior period includes the results of the operations classified as discontinued in the current period as well as those discontinued in the prior financial year, the most material of which was the Japanese Business.
SEGMENTAL PERFORMANCE (CONTINUING OPERATIONS)
Commercial Pharmaceuticals
Commercial Pharmaceuticals, which comprises Aspen’s Regional Brands and Sterile Focus Brands, grew 12% (+4% CER) to R14,3 billion. Gross profit increased 8% (+1% CER) to R8,2 billion. The margin percentage was diluted by an unfavourable mix in Sterile Focus Brands as well as higher manufacturing and supply chain costs associated with the pandemic.
Regional Brands
Regional Brands revenue increased 7% (+1% CER) to R8,8 billion. COVID-19 continued to negatively affect demand for medicines treating communicable diseases, most notably in South Africa and Australia. Despite this, the affected regions of Africa Middle East (+2% CER) and Australasia (+4% CER) contributed to the growth of the segment with Asia (+6% CER) and Americas (+4% CER) also providing momentum. Gross profit percentage was marginally higher for the period at 55,8% in spite of the higher costs associated with operating under COVID-19 conditions.
Sterile Focus Brands
Revenue from Sterile Focus Brands increased 20% (+7% CER) to R5,6 billion, benefitting from improved supply and tender management. COVID-19 driven demand added to strong gains in Europe CIS (+19% CER) while Asia (+1% CER) finished above the pre-COVID sales levels recorded in the comparative period.
A greater weighting of sales from lower margin products as well as higher costs associated with operating under COVID-19 conditions weighed on the gross profit percentage.
Manufacturing
Manufacturing revenue increased 36% (+17% CER) to R4,3 billion supported by positive performances from each of the Manufacturing segments despite various challenges brought about by the pandemic. Revenue was boosted by R244 million in terms of supply commitments related to recent transactions with Mylan/Viatris and Sandoz. Heparin API sold to third parties amounted to R473 million (H1 2020: R297 million (CER: R350 million)).
Gross profit increased 20% (-2% CER). A reduction in the gross margin percentage resulted from the dilution caused by transaction-related supply at low to no margin, incremental operating and supply chain costs as a result of the pandemic and a change in product mix.
PROSPECTS
The results achieved in the six months to 31 December 2020 demonstrate strong organic revenue growth. We continue to work actively on the technical transfer of the Janssen (a Johnson & Johnson company) COVID-vaccine to enable manufacture at our SA Manufacturing Operations. The technical transfer is expected to be completed during the second quarter of calendar year 2021 with commercial production contributing to our results toward the end of the current financial year.
Active portfolio management within the parameters of the defined capital allocation model will be undertaken where it is considered beneficial, entailing acquisitions and disposals of products to ensure a Commercial Pharma offering that remains aligned to the Group’s areas of core focus. Under the capital allocation model, Aspen remains committed to the re-introduction of dividend payments, to be announced in conjunction with the preliminary results for the 2021 financial year.
The supply arrangements with Mylan/Viatris in terms of the European Thrombosis transaction will dilute the gross profit percentage. Several initiatives are in progress to improve the gross profit percentage over the medium term.
The business has proven to be in robust shape over the past six months and is positioned to maintain the current positive momentum. Provided we experience no further unexpected headwinds as a result of COVID-19, CER revenue and NHEPS growth percentages from continuing operations for the full financial year are expected to be at least at the levels achieved in the first half of the year. The manufacture of the COVID-vaccine at our SA Manufacturing Operations has the potential to assist in accelerating the achievement of our published capacity utilisation targets for Third Party Manufacturing. Reported results will be influenced by the relative movements of the exchange rates of the main currencies in which the Group trades.
