Johannesburg – JSE Ltd listed Aspen Pharmacare Holdings Limited, Africa’s largest pharmaceutical manufacturer, has produced excellent results for the year ended 30 June 2010. The South African business was the leading driver of the growth achieved.
GROUP PERFORMANCE:
- Group revenue increased by 20% to R10.147 billion (R8.441 billion).
- Group operating profit improved by 20% to R2.615 billion (R2.175 billion).
- Group headline earnings rose 39% to R1.941 billion (R1.394 billion).
- Group headline earnings per share (HEPS) grew by 24% to 482.9 cents (389.4 cents).
- Group earnings per share increased by 32% to 494.9 as a consequence of a capital profit on the sale of Onco Therapies.
- A capital distribution of 70 cents per ordinary share (zero) by way of a capital reduction has been declared.
Stephen Saad, Aspen Group Chief Executive said, “The South African business delivered pleasing results and retained its position as the market leader in the pharmaceutical sector. Ongoing organic growth was instrumental in Aspen maintaining its position as the leading supplier of pharmaceuticals to both the private and public sectors in South Africa. The Group’s international business continued to perform well and all of the strategic investments undertaken with GlaxoSmithKline (“GSK”) have bedded down well.
COMPLETION OF THE GSK TRANSACTIONS
With effect from 1 December 2009, Aspen completed a series of strategic, interdependent transactions with GSK (“the GSK transactions”) which had been announced on 12 May 2009.
The GSK transactions comprise:
- The acquisition of the rights to distribute GSK’s pharmaceutical products in South Africa;
- The formation of a collaboration agreement 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
- The issue by Aspen of 68.5 million ordinary shares to GSK at R66.80 per share amounting to a total value of R4.576 billion.
SOUTH AFRICAN BUSINESS
Revenue from the South African business increased 31% to R5.652 billion. The pharmaceutical division raised revenue from domestic brands by 40% to R4.391 billion and the consumer division increased revenue by 5% to R1.161 billion. Operating profit increased from R1.045 billion to R1.588 billion. Profit margins recovered after the contractions of the previous two years due to improved production efficiencies and procurement savings supported by a stronger Rand, which lowered the cost of imported materials.
The integration of GSK’s South African pharmaceutical business was successfully executed and has immediately yielded positive results reflected in an increase in share of the branded products sector.
Growth in consumer revenue was achieved in a sluggish retail sector battling to emerge from the recession. Performance was also negatively affected by an interruption in the supply of infant milk formula due to the explosion at the Nutritionals manufacturing facility last year. Insurance compensation of R162 million was received during the year, covering the consequent loss of profits and the restoration of the facility, and has been reported under “other operating income”.
SUB-SAHARAN AFRICA BUSINESS
Revenue for the sub-Saharan African business declined 2% to R910 million and operating profits decreased from R173 million to R66 million. The GSK Aspen Healthcare for Africa collaboration commenced on 1 December 2009 and met all performance expectations.
Aspen has established a separate management and reporting structure for the sub-Saharan Africa business. Included in this business segment are exports into sub-Saharan Africa from South Africa, the Shelys Africa business based in East Africa and the GSK Aspen Healthcare for Africa collaboration.
INTERNATIONAL BUSINESS
The international business increased revenue by 27% to R4.053 billion whilst operating profit before amortisation and impairments was 10% higher at R1.114 billion. Operating profit was diluted by the reduced contribution from the Latin American (“Latam”) operations and the reduction in profits resulting from the transition of the Global Brands to the Aspen distribution network.
Revenue from Global Brands grew by 33% to R2.008 billion. Eltroxin, Lanoxin, Imuran and Zyloric, the four Global Brands acquired from GSK with effect from 30 June 2008, comprise the greatest portion of this revenue. These four Global Brands were largely transitioned to the Aspen distribution network during the course of the year and achieved double digit revenue growth in US dollars. The balance of the growth in the Global Brands came from the products added to this portfolio during the year.
The Asia Pacific domestic brands increased revenue by 11% to R1.016 billion. This was achieved despite regulated price reductions in Australia, the most material territory in this region.
Revenue from domestic brands in Latam declined by 3% to R813 million. However, the successful implementation of a restructuring plan in the Brazilian business resulted in improved revenue growth of 8% during the second half of the year. As part of the reshaping of the Brazilian operation, agreement was reached to sell the Campos manufacturing facility and related products to Strides Arcolab (“Strides”).
The Group also restructured its oncology arrangements with Strides. Aspen has entered into agreements to sell its interest in the Onco Therapies and Onco Laboratories joint ventures to Strides for USD 117 million. Aspen has in turn secured a license for existing and future oncology products from Strides in specified territories. The sale of Onco Therapies was completed prior to 30 June 2010, giving rise to a profit on disposal of R155 million. Conditions precedent relating to the sale of Onco Laboratories remain to be fulfilled, completion being expected during the year ahead. The Onco Laboratories assets have been classified as “held for sale”.
PROPOSED ACQUISITION OF THE SIGMA PHARMACEUTICAL BUSINESS
On 16 August 2010, Aspen announced that the board of directors of Sigma Pharmaceuticals Limited (“Sigma”) had agreed to support an offer by Aspen to acquire the pharmaceutical business conducted by Sigma (“Sigma pharmaceutical business”) for a cash consideration AUD 900 million. Completion of this transaction is conditional upon, inter alia, requisite regulatory approval and the approval of Sigma shareholders. Work is ongoing on the fulfillment of these conditions.
The Sigma pharmaceutical business manufactures and markets an extensive product portfolio of well-known and trusted Australian brands, which recorded revenue of over AUD 600 million in the year to 31 January 2010. The Group sees the following opportunities from the alignment of the Sigma pharmaceutical business with Aspen’s highly successful subsidiary in Australia:
- Synergies out of the consolidation of the two businesses;
- The Sigma pharmaceuticals business provides an established point of entry to the Australian generics and OTC sectors for the introduction of Aspen’s pipeline of generic and OTC products;
- It will provide a strong foundation for further development of Aspen’s business in the Asia Pacific Region; and
- The Australian manufacturing presence will supplement Aspen’s global manufacturing capabilities.
PROSPECTS
Aspen’s South African pharmaceutical business is well set to continue to thrive as a consequence of the addition of the GSK brands and the people who promote and support these brands, the regulatory stability and government’s stated intention to support the local pharmaceutical industry.
South Africa’s difficult consumer trading environment has necessitated a focus on efficiency of structures which should stand Aspen in good stead when the retail cycle improves.
Initiatives being undertaken in the sub-Saharan African region should result in an increased contribution to Group profits in the year ahead. An upswing in results in Latam, continued organic growth in Asia Pacific and the benefit of a full year of contribution from the Global Brands acquired over the last year will be growth drivers for the international business in the year ahead. Completion of the acquisition of the Sigma pharmaceutical business will add further growth momentum.
The Group has the fundamentals in place to enjoy a thirteenth consecutive year of uninterrupted real growth in 2011.