Johannesburg – JSE Limited listed Aspen Pharmacare Holdings Limited (APN), a global multinational specialty pharmaceutical company, has announced reviewed provisional Group financial results for the year ended 30 June 2020.
COMMENTARY
RESHAPING OF THE GROUP
The recently announced agreement to divest the assets related to the commercialisation of Aspen’s Thrombosis business in Europe to Mylan (refer SENS announcement of 8 September 2020) marks the end of the process to reshape the foundation of the Group. Following the completion of this transaction, Aspen’s Commercial Pharmaceuticals business will be heavily weighted towards territories where we have demonstrated capabilities and a strong performance record, largely in Emerging Markets. A higher proportion of our business will be exposed to the private sector and will be better positioned to benefit from the expanding middle classes in Emerging Markets, where our trusted and proven brands are well placed to support the increasing medical demands of these growing populations.
The receipt of the proceeds from the aforementioned transaction with Mylan will again give us scope for acquisitive investment to support initiatives aimed at enhancing value in areas of strength.
Our significant investment in capital expenditure to build our sterile manufacturing capacities has been slightly delayed by the COVID-19 pandemic. This investment is planned to peak in the year ahead before reducing rapidly in subsequent years as the projects reach their end. The complex and niche production capabilities installed will allow us to reduce cost of goods within our existing portfolio. It also allows us to leverage this sought after capacity, particularly with big pharma, to further expand our global presence in steriles thus enhancing our offering of quality, affordable medicines.
As a result of our reshaping of the Group and our significant investment in sterile manufacturing, Aspen is highly differentiated from our peer group as it is the most Emerging Market-focused specialty pharmaceutical company and a global leader in the production of sterile products.
COVID-19 IMPACT
The COVID-19 pandemic has created great uncertainty and many challenges for people and companies across the globe. Despite this, Aspen’s business model has proven resilient. Our relevant product portfolio, effective business continuity plans and safety measures to protect our employees have enabled us to remain in full operation throughout this period. We are most proud of the commitment shown by all of Aspen’s employees, with special gratitude to those at the production sites, for ensuring we have been able to maintain the supply of essential medicines to COVID-19 and other patients around the world under these circumstances.
The volatility associated with the pandemic has had an adverse impact on our results in the second half of the 2020 financial year. This impact has varied by timing and region. The hard lockdown in China significantly restricted sales of medicines there for at least three months. Conversely, early in the first wave we experienced a spike in demand for certain of our medicines, most notably in South Africa, Australia and Mexico. This was followed by the predicted drop in demand as the resultant abnormally high inventory in-market levels were normalised. In Europe, there was a significant need for our sterile products required to treat COVID-19 patients during the height of infections, but a decline in orders for products related to elective surgeries. The period after the first wave has been characterised by continued social distancing, leading to reduced infection rates in non-COVID-19 communicable diseases and a slow and uncoordinated resumption of elective surgeries which has adversely impacted our performance.
Despite the many challenges experienced during the second half of the financial year, we have made great progress against each of our medium-term priorities, while maintaining the supply of our medicines to patients in need around the world.
GROUP PERFORMANCE (CONTINUING OPERATIONS)
Group revenue increased 9% to ZAR 38,6 billion and Normalised EBITDA increased 7% to ZAR 11,0 billion for the 12 months ended 30 June 2020. The increase in Group revenue was supported by growth from Commercial Pharmaceuticals (+6%), despite the difficult trading conditions, and a pleasing performance from Manufacturing (+22%). Normalised headline earnings per share (NHEPS) increased 9% to ZAR 14,65, favourably impacted by lower financing costs.
Strong second half cash flows resulted in a positive cash inflow from working capital for the 12 months ended 30 June 2020 and supported a cash conversion rate of 142%. Net borrowings declined ZAR 3,8 billion to ZAR 35,2 billion. The strong cash generation was offset by ZAR 5,6 billion in unfavourable currency movements. The leverage ratio in terms of the Facilities Agreement of 2.89 times is comfortably below the covenant leverage ratio of 3.5 times.
Testing of intangible and tangible assets for impairment has resulted in impairments of ZAR 1,5 billion arising primarily from a decline in the outlook for the affected products.
Discontinued operations include the Nutritionals Business, the Asia Pacific non-core pharmaceutical portfolio, both divested in the 2019 financial year, as well as the Japanese Business and the Public Sector ARVs. The Japanese business divestment became effective on 31 January 2020. The South African Public sector ARV transaction with Laurus, a leading Indian producer of ARV APIs, became effective in June 2020.
Material relative movements in exchange rates in the last four months of the financial year have had a positive impact on financial performance, as is illustrated in the table below (which compares performance in the prior comparable period at previously reported exchange rates and then at constant exchange rates (“CER”)). The CER results for the 12 months ended 30 June 2019 restate the performance for that period using the average exchange rates for the 12 months ended 30 June 2020.
| For the 12 months ended 30 June 2020 | ||||||
| Continuing operations | Reported FY 2020R’million | Restated ReportedFY 2019^ R’million | Change at reportedrates % | Restated CER FY2019 ^ | Change at CER % | |
| Revenue | 38 647 | 35 514 | 9% | 37 320 | 4% | |
| Normalised EBITDA * | 10 968 | 10 277 | 7% | 10 699 | 3% | |
| NHEPS ** (cents) | 1 464,6 | 1 344,8 | 9% | 1 397,7 | 5% | |
^ FY 2019 has been restated as a result of discontinued operations
* Operating profit before depreciation and amortisation adjusted for specific non-trading items as defined in the Group’s accounting policy.
** NHEPS are 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.
SEGMENTAL PERFORMANCE (CONTINUING OPERATIONS AT CER)
Commercial Pharmaceuticals
Commercial Pharmaceuticals, which comprises Aspen’s Regional Brands and Sterile Focus Brands, grew 1% to ZAR 31,1 billion. Gross profit declined 3% to ZAR 17,1 billion on lower margins from Regional Brands (refer below).
Regional Brands
Regional Brands revenue increased 3% to ZAR 16,9 billion. Revenue was adversely impacted by reduced demand during the lockdown period. In these circumstances, Sub-Saharan Africa (+6%), Latin America (+10%) and MENA (+8%) all delivered excellent growth.
Gross profit percentage was adversely impacted by the increased cost of doing business under COVID-19, the recall of Zantac in Australia and generic competition placing pricing pressure on the oncology portfolio in Europe CIS.
Sterile Focus Brands
Despite heightened demand for certain Anaesthetics Brands used in the clinical management of COVID-19 patients, the postponement of elective procedures negatively impacted the Sterile Focus Brands segment.
Revenue from Sterile Focus Brands, comprising Anaesthetics and Thrombosis Brands, decreased 1% to ZAR 14,3 billion, primarily due to the lost sales in China during the hard lockdown period. Europe CIS revenue was flat while good growth was achieved in Latin America and MENA.
Despite the adverse effect of the material slowdown in China and the higher cost of goods sold for Thrombosis Brands (as guided), the gross profit percentage remained stable.
Manufacturing
Manufacturing revenue increased 14% to ZAR 7,5 billion, benefitting from the increase in sale of heparin (+ZAR 668 million) and non-heparin based APIs to third parties. Gross profit percentage increased to 30,1% on improved production efficiencies.
PROSPECTS
While the underlying business has demonstrated good performance over the past year and is well positioned for this momentum to continue, the uncertainty created by the enduring unfavourable influence of COVID-19 is likely to impact results in the year ahead.
As reported, the weakening of the ZAR against almost all of the basket of Aspen’s trading currencies has resulted in an uplift of our reported 2020 results. Should prevailing ZAR weakness persist, this uplift in earnings will be even more pronounced in the 2021 financial year.
DIVIDEND TO SHAREHOLDERS
Taking into account the uncertainty created by the current COVID-19 pandemic, notice is hereby given that the Board has decided that it would not be prudent to declare a dividend at this time. The Board will re-evaluate the circumstances regularly with a view to declaring a dividend when it is considered prudent to do so.
