Johannesburg – JSE listed Aspen (Apn), Africa’s largest pharmaceutical manufacturer, has announced impressive results for the financial year ended June 30, 2006. These are the first set of annual results reported under International Financial Reporting Standards (IFRS).
- Headline earnings per share (HEPS) grew by 235 percent to 185.5 cents (144.7 cents).
- Revenue increased by 23 percent to R3.449 billion (R2.9 billion).
- Operating profit increased by 96% to R968 million (R493 million).
- Capital distribution of 62 cents (48 cents) per ordinary share was declared. This represents an increase of 29% over the previous year distribution and is covered 3 times by headline earnings per share.
These results have however been effected by a number of once-off transactions in both the prior and current year, the most material of which are:
- A charge of R282,4 million in the prior year in respect of the Black Economic Empowerment (“BEE”) transaction concluded by Aspen in June 2005.
- The claiming of the Strategic Investment Project tax allowance under section 12G of the Income Tax Act relating to the investment by Aspen in its Oral Solid Dosage (“OSD”) facility. This has reduced the tax charge in the year under review by R31,9 million.
- Costs relating to Aspen’s unsuccessful bid to acquire PLIVA dd, a Croatian based generic pharmaceutical company, during the latter part of the year under review which amounted to R21,3 million.
After adjusting for the once-offs, “normalised” headline earnings per share increased by 32% to 182.1 cents (144.7cents).
Stephen Saad, Group Chief Executive said “Aspen’s impressive performance was driven by organic volume growth, new product launches, a strong performance from the consumer division led by infant milk formulations and an increased contribution from anti-retrovirals (ARVs). This is a highly credible performance despite the three year price freeze, an extremely competitive generic market, regulatory limitations placed on selected marketing activities and currency pressures.”
SOUTH AFRICAN OPERATIONS
The South African business continued to deliver solid results. Revenue grew by 24% to R2,849 billion and EBITA was up 21% at R913 million. These increases were achieved despite the disposal of 50% of Fine Chemicals Corporation (Pty) Ltd (FCC) to Matrix Laboratories Limited (“Matrix”) midway through the year.
Pharmaceutical Division revenue increased by 24% to R2,054 billion. Finished dosage form pharmaceuticals raised revenue by 26% mainly through organic volume growth and new product launches. Aspen once again led the market in new product launches.
Aspen increased volumes on award of the most recent South African public sector tender which commenced in October 2005. ARV sales for the year were R266 million of which more than R100 million was from exports to Africa with the balance coming from the South African private and public sectors. Aspen ARV’s presently cover the lives of an estimated 300 000 patients.
The Consumer Division’s revenue increased by 24% to R795 million. This strong performance was led by Aspen’s infant milk formula brands which have increased market share over the year. The launch of Playgirl deodorants and line extensions to the Playboy and Vinolia brands further supported the good performance in the consumer market.
Aspen’s Group Operations provided for continued high levels of production. Capacities were improved in the Port Elizabeth-based OSD facility with the addition of a second integrated granulation suite and the extension of packing capabilities. An investment in more efficient packing equipment was also made in the Port Elizabeth general facility. The additional capacity has allowed Aspen to manage increased demand more effectively and service levels are presently at an acceptable level.
Construction of the sterile facility in Port Elizabeth is proceeding well. This R360 million rand facility will have production capabilities in injectables, eye drops and freeze-dried vials for multi-drug resistant tuberculosis products. The facility is planned to position Aspen at the highest international standards in an area of niche manufacture. Initial validation remains scheduled for the beginning of 2008.
INTERNATIONAL OPERATIONS
Aspen Australia recorded a 28% increase in revenue to R396 million whilst improving EBITA by 22% to R53 million. The decline in operating margin percentage is a consequence of the full year effect of a long term distribution contract with Novartis which is only expected to become profit generating in the 2008 financial year. The consumer offering in Australia was expanded by the distribution of a range of deodorant brands commencing in January 2006.
UK-based Aspen Resources increased its intellectual property portfolio by the acquisition of the deodorant brands which are distributed by Aspen Australia. Aspen Resources increased EBITA by 12% to R41 million. The UK commodity generic market remained intensely competitive. Co-pharma reported a decline in revenue of 23% to R162 million and a reduction of 64% in EBITA to R3 million.
Aspen USA was incorporated during the year. This operation is in its formative stage and is presently focused on developing strategic opportunities in the USA market for the Group. No material trade took place during the year.
Aspen acquired 50% of Indian-based Astrix Laboratories Limited (“Astrix”) in January 2006 for R233 million. Astrix is jointly owned with Matrix and provides vertical integration into the manufacture of active pharmaceutical ingredients used in the production of ARVs. As such, revenue and profits generated by Astrix in its transactions with Aspen are eliminated on consolidation.
INFECTIOUS DISEASES
Aspen continues to commit substantial resources to the enhancement of its portfolio of generic ARVs. The development of ARVs, including combination products, are prioritised at the Group’s Pharmaceutical Research laboratories in Port Elizabeth. Aspen will also seek opportunities to further extend its influence in infectious diseases, particularly those afflicting Africa.
PROSPECTS
Growth prospects are likely to be most strongly influenced by the extent of additional generic substitution which takes place in the South African market, the market penetration achieved by new product launches which are driven by Aspen’s robust pipeline, the acceptance of price increases in the South African pharmaceutical market and demand patterns in the ARV markets serviced by Aspen. Aspen is investing in development and manufacturing capabilities in areas identified as potential future growth drivers.
The Group is committed to remaining at the forefront of the global generic ARV market. Significant further expansion of this market is anticipated as UNAIDS and the World Health Organisation seek to achieve universal access to ARVs by 2010.
