Johannesburg – JSE listed Aspen Pharmacare Holdings Limited, Africa’s largest pharmaceutical manufacturer, has produced excellent results for the year ended 30 June 2009. Prevailing global economic conditions did little to deter the strength of the Group’s performance, with the South African and Australian businesses continuing to perform well. Aspen’s international expansions resulted in substantially increased contributions from the offshore businesses, delivering an operating profit of R1.076 billion.
GROUP PERFORMANCE:
- Group revenue increased by 80% to R8,450 billion (R4.881 billion).
- Group operating profit improved by 82% to R2,183 billion (R1.298 billion).
- Group headline earnings per share (HEPS) grew by 68% to 389.4 cents (231.3 cents).
Stephen Saad, Aspen Group Chief Executive said, “The Group’s international operations delivered positive results, delivering an increased contribution to earnings of 47% up from 15% last year. The South African business has achieved excellent growth and has increased its contribution to earnings by 14%, while retaining its position as the market leader in the pharmaceutical sector and improving its market share in all market segments.
SOUTH AFRICAN OPERATIONS RETAIN MARKET LEADERSHIP
Aspen’s South African business remains the market leader in the total private pharmaceutical market, the private generic market, the public sector pharmaceutical market and in the supply of anti-retrovirals (ARVs) to both the private and the public sectors. Campbell Belman’s independent Confidence Standing Survey of 42 over-the-counter (OTC) companies by 146 top retail pharmacies, again ranked Aspen as the top OTC company for the fourth time in the past six years.
The South African business increased revenue by 30% to R4,868 billion amidst difficult trading conditions. Notwithstanding margin pressure, EBITA grew by R149 million to R1,208 billion. Restrictive factors such as accelerated raw material prices, production inflation and legislated fixed Single Exit Prices (SEP) impacted returns in the first half. A margin improvement was seen in the final quarter as a consequence of the Department of Health’s 13.2% increase in SEP in February 2009 and the implementation of the state tender price adjustment mechanism.
An impressive performance was delivered by the pharmaceutical division, with revenue increasing by 34% to R3,767 billion. These results were driven by organic volume growth and the successful launches of Truvada, Viread, Vectoryl and Aspen Efavirenz. The consumer division’s 16% revenue increase to R1.101 billion was positive given the depressed retail sector. Leading brands such as Lennon Dutch Medicines, Infacare, S26, Guronsan C and Hamburg Tea delivered a credible performance. Prospects for the ophthalmic portfolio were enhanced with the addition of Eye-gene and Murine, while Melegi, a new infant milk formulation was launched and exported into selected African countries.
Additional oral solid dose (OSD) manufacturing capacity was realised in Port Elizabeth with the completion of more packing lines. This provided relief to production pressure driven by unprecedented public sector demand. The new OSD tabletting production plant, presently undergoing validation, will provide further capacity before the end of 2009. The Sterile Facility’s eye-drop suite has commenced exporting Clear Eyes and Murine to Prestige Brands in the United States, while trials have been initiated in the hormonal suite.
An explosion in the drying tower at Aspen’s Nutritionals Facility on 18 August 2009 caused extensive damage to that section of the production site. Blending and packing areas were unaffected and production in the drying tower should recommence before the end of the 2010 financial year. Contingency plans have been implemented to ensure continued supply of infant milk formulations to the market.
INTERNATIONAL OPERATIONS DELIVER PLEASING RETURNS
Over the past 18 months, the Group’s international expansion has been driven by acquisitions in Brazil, Mexico, Venezuela, Tanzania, Kenya and Uganda. With effect from 30 June 2008, the Group’s intellectual property portfolio in international markets was significantly enhanced by the acquisition of four globally branded products, Eltroxin, Lanoxin, Imuran and Zyloric from GSK for GBP 170 million. The global product range was also supplemented by two licensing transactions for branded products with US-based Iroko Pharmaceuticals. Aspen products are now distributed to more than 100 countries across the world.
This expansion has resulted in a substantial increase in the contribution from international operations to the Group. Revenue of R3,869 billion was achieved, up from R1,123 billion and EBITA from continuing operations was R1,071 billion, up from R209 million. The global brands comprised R1.438 billion of revenue. Transition of distribution arrangements for the global brands to the Aspen network has already commenced, with the remainder of the transition scheduled in the 2010 financial year.
Aspen Australia’s positive performance yielded a 29% increase in revenue to R915 million, despite legislated price cuts. These results were driven by effective product promotions and expanded product offerings.
Aspen’s Latin American business recorded revenue of R841 million, but the potential of this territory remains to be realised. Initiatives receiving active attention include the strengthening of management, increasing representation in the private sector, launching new products and establishing a medium-term product pipeline.
The Group’s East African business reported revenue of R373 million in a year in which political unrest in Kenya had a negative impact upon trade.
Aspen disposed of its 50% shareholding in the ARV active pharmaceutical ingredient manufacturer, Astrix, for USD 39 million, with effect from 31 May 2009.
GSK TRANSACTIONS
On 12 May 2009 Aspen announced that it had agreed terms on a series of strategic interdependent transactions (“the GSK transactions”) with GSK, being:
- the acquisition of the rights to distribute GSK’s pharmaceutical products in South Africa;
- the formation of a collaboration arrangement between Aspen and GSK in relation to the marketing and selling of prescription pharmaceuticals in sub-Saharan Africa;
- the acquisition by Aspen Global of eight specialist branded products (Alkeran, Leukeran, Purinethol, Kemadrin, Lanvis, Myleran, Septrin and Trandate) for worldwide distribution;
- the acquisition of GSK’s manufacturing facility in Bad Oldesloe, Germany; and
- Aspen to issue 68.5 million shares to GSK as consideration for the transactions.
The completion of the transactions was subject to the fulfillment of a number of conditions precedent. Certain of these conditions precedent have now been fulfilled, amongst these the approval of the South African Competition Authorities and the German Competition Authorities. The material conditions precedent which remain to be fulfilled are in respect of the approval of the Exchange Control Department of the South African Reserve Bank and competition filings in international markets. It is anticipated that the GSK transactions should complete before the end of 2009.
PROSPECTS
Aspen’s business in South Africa remains well positioned. Completion of the transaction to acquire the rights to distribute GSK products in South Africa will strengthen Aspen in the branded products segment of the market. Growth will be complemented by the increase in SEP, currency stability and the excellent product pipeline. Aspen will remain competitive in public sector tenders. The retail sector remains subdued, but Aspen’s strategy to maintain focus on its core brands is expected to put the consumer division in a positive position when this market improves.
The Group expects to be able to add a number of new products to the collaboration with GSK in sub-Saharan Africa should the GSK transactions complete. GSK’s strong presence and effective distribution network in sub-Saharan Africa will be supplemented with Aspen’s pipeline of relevant products to provide for increased access to quality healthcare across this region.
As a consequence of the Group’s exposure to a wide number of currencies, exchange rate fluctuation could influence future results. Investment opportunities to support the growth of the international business will continue to be explored. In the event of the GSK transaction completing, eight specialist products will be added to the global brands portfolio, which will allow for additional extraction of value from Aspen’s international distribution network. Excellent progress has been made in developing a product pipeline to support the international business. The benefits of this should become apparent in two to three years. Aspen intends to exercise its call option to acquire the remaining 49% of the Latin America businesses in Brazil, Mexico and Venezuela
Having given consideration to the Group’s existing debt service commitments and future possible investments, Aspen’s Board of Directors has resolved that there will be no distribution paid to shareholders this year.
