Johannesburg – JSE Limited listed Aspen Pharmacare Holdings Limited (APN), a leading pharmaceutical company in the southern hemisphere, has announced favourable results for the six months ended 31 December 2016. Stephen Saad, Aspen Group Chief Executive said, “The Group has transformed into a global multinational organisation focused on therapeutic specialties over the past few years. This has been a significant undertaking which has required substantial investment in order to build the necessary infrastructure. The contribution from the anaesthesia portfolio acquired from AstraZeneca with effect from 1 September 2016 boosted performance in a period where there were a number of challenges in the operating environment. Particularly pleasing was the marked improvement in cash generated from operating activities which more than doubled as measures to improve working capital management took effect.” GROUP PERFORMANCE • Revenue increased by 13% to R19.8 billion. • Normalised headline earnings per share rose 6% to 692.0 cents. • Normalised EBITDA rose by 7% to R5,5 billion. • Operating cash flow per share escalated 111% to 708,7 cents. • Headline earnings per share increased 53% to 640,9 cents. In addition to the anaesthetics acquisition, the conclusion of a supply and distribution agreement with a major pharmaceutical company which contributed a further R0.4 billion to revenue from the sale of Hydroxyprogesterone Caproate (HPC) in the USA had a positive impact on performance. These upsides were partially offset by the following factors: • The anticipated decline in the South African business which is nonetheless well on its path to recovery; • Margin pressure in the Latin American nutritional business due to reduced production activity as surplus inventories arising from Aspen’s withdrawal from Venezuela were redeployed; • Legislated price decreases, GBP weakness following the Brexit vote, supply constraints and adjustments to the distribution model weighing on performance in the Europe CIS territory; and • Foreign exchange losses, primarily arising from the Rand strengthening against forward exchange contracts. INTERNATIONAL BUSINESS The International business remained the largest segment of the Group, contributing 50% to revenue from customers. Sales to customers in this business increased 11% to R10.0 billion. The Europe CIS territory was the biggest contributor to the International business, increasing sales to customers by 2% to R6.7 billion. Sales of finished dose form pharmaceutical products to healthcare providers (“commercial pharma”) in this territory were up 9% to R4.5 billion. This performance benefitted from the inclusion of the AZ anaesthetics with the offsetting factors mentioned earlier tempering growth achieved. In Latin America, revenue from customers increased 11% to R2.0 billion and commercial pharma sales were 26% higher at R1.3 billion. Excluding the AZ anaesthetics, the underlying pharmaceutical portfolio increased sales 4% to R1.0 billion. Revenue from nutritionals grew in local currencies, but the weakness of the Mexican Peso, in particular, caused reported revenue to decline 9% to R0.7 billion. Margins were unfavorably affected by lower volumes of production in the Vallejo manufacturing site in Mexico for the reasons reported earlier. In the USA, the arrangements with the initially appointed distributor for HPC were terminated and a supply and distribution agreement was signed with a major pharmaceutical company which acquired R0.4 billion of product. Future sales of HPC in the USA will be dependent on the success of this distributor in placing the product in the trade. It is unlikely that there will be further material sales of HPC by Aspen during the 2017 calendar year. Capital projects to enhance production efficiency and ensure highest technical support levels continue at the Notre Dame de Bondeville site in France. At the Oss active pharmaceutical ingredient site in the Netherlands, new capacity is being added and investment in the sustainability of the site is ongoing. SUB-SAHARAN BUSINESS In light of the cancellation of the collaboration with GSK in SSA outside of South Africa, the business segment previously referred to as SSA has been combined with South Africa under the heading of the SSA business. Sales to customers in SSA declined 1% to R4.6 billion. Nutritionals revenue grew 9% to R0.5 billion and manufacturing revenue improved 34% to R0.7 billion. However, as previously communicated, commercial pharma remained under pressure as the resolution of supply chain issues continued, causing sales to decline 8% to R3.4 billion. Despite a month-long strike at the Port Elizabeth and East London manufacturing sites in August, significant progress has been achieved in overcoming the supply constraints affecting the commercial pharma division which delivered improved results in the latter months of the period. The building of a second sterile facility in Port Elizabeth is underway, creating new opportunities to bring additional production to this site. ASIA PACIFIC BUSINESS Sales to customers in the Asia Pacific business increased 36% to R5.2 billion. This region benefits most from the AZ anaesthetics which added R1.6 billion to the sales achieved. In Australasia sales from the base pharmaceutical portfolio grew 3% to R2.3 billion. Sales of nutritionals were 23% lower at R0.4 billion and margin percentages came under pressure. The Australian nutritional industry continues to adapt to lower demand following the withdrawal of informal traders barred from importing product into China. In Asia, the business has expanded substantially with the addition of the AZ anaesthetics. Trade has commenced in China where R0.6 billion of anaesthetic sales was achieved in the period. The underlying commercial pharma portfolio in Asia advanced revenue 17% to R0.9 billion. PROSPECTS In transforming Aspen into a global multinational organisation, it has been necessary to build infrastructure, establish new supply sources and transition management of product portfolios across the world. There have been resultant inefficiencies in overhead structures and working capital management which continue to receive high levels of focus. Unfavourable currency movements and legislated price cuts have also placed pressure on performance. Consequently, this will dilute the synergies realised from various projects. Results in the second half of the 2017 financial year will be influenced by the strengthening of the Rand which, if sustained, will dilute foreign earnings which comprise the greatest portion of Aspen’s income. The outlook to 30 June 2017 will
