Johannesburg – JSE listed Aspen (Apn), Africa’s largest pharmaceutical manufacturer, has recorded strong revenue growth for the six months ended 31 December 2008. The positive returns were stimulated by Aspen’s recently expanded international operations. The existing businesses in South Africa and Australia have once again recorded sustained growth.
- Revenue increased by 91 percent to R4 264 million (R2 230 million).
- Operating profit increased by 84 percent to R1 163 million (R633.8 million).
- Headline earnings per share (HEPS) increased by 77 percent to
- 193.8 cents (109.6 cents).
- Increase in earnings per share (“EPS”) was lower than HEPS at 54 percent to 192.5 cents (125.0 cents) owing to the inclusion of non-recurring capital profits in the determination of EPS in the prior year.
Stephen Saad, Aspen Group Chief Executive said “we are pleased to have delivered such positive results in a challenging operating environment. The Group’s international businesses have been the primary growth driver for the period under review. For the first time, profits from offshore operations exceeded those of the South African business. Aspen’s local presence remains strong with increased market share in all pharmaceutical categories. The Group retaining its ranking as the leading pharmaceutical company in the South African private and public market sectors.”
SOUTH AFRICAN OPERATIONS
Aspen’s South African business increased revenue by 32% to R2 331 million (R1 771 million). This growth was led by the pharmaceutical division which grew sales by 35% to R1 789 million driven by a substantial increase in volumes and a positive performance from recently launched products such as Truvada™, Viread™, Vectoryl™ and Aspen effavirenz. Growth in earnings before interest, tax and amortisation (“EBITA”) was limited to 10% at R586 million owing to a change in product mix due to a lower margin in public sector products, higher commodity prices, inflationary pressures and fixed pricing under both the Single Exit Pricing (“SEP”) regulations and the State Tender awards.
The over-the-counter (“OTC”) division delivered good results with leading brands such as Flusin™, Lenadol® and Sinuclear® contributing positively. Aspen has successfully launched replacement products under its major slimming brands Thinz®, Leanor™ and Slenz® due to the South African Medicines Control Council’s (“MCC”) banning of d-norpseudoephedrine, the active ingredient in slimming preparations.
Household brands such as Lennon Dutch Medicines®, Woodwards™ Gripewater and Guronsan® C supported the consumer division’s 22% revenue growth which is a pleasing return given the pressure felt in the retail sector. Laxative brands are being re-developed following the MCC’s withdrawal of phenolphthalein-containing products.
Excellent returns were recorded by Aspen Nutritionals. The existing portfolio of infant nutritional brands such as Infacare®, S26® and SMA® was enhanced with the launch of Melegi™, which is exported to selected African countries.
High levels of productivity were achieved at Aspen’s manufacturing facilities in order to respond to growing volumes. Continued investment in manufacturing will unlock additional capacity at the Port Elizabeth site. Commercialisation of eye-drops at Aspen’s Sterile Facility is expected to take place before year-end. Aspen will supply eye-drops to the USA market under a contract with Prestige Incorporated.
INTERNATIONAL OPERATIONS
Contributions from Aspen’s international operations increased sharply, following the Group’s recent expansion into more than 100 new markets. An increase in revenue was recorded at R1 934 million (R460 million) while EBITA rose to R630 million (R101 million). The Group also strengthened its intellectual property portfolio with the acquisition of Eltroxin™, Lanoxin™, Imuran™ and Zyloric™ from GlaxoSmithKline (“GSK”) and licensing deals with US-based Iroko Pharmaceuticals for the distribution of products into emerging markets. Revenue from global brands amounted to R696 million.
Aspen Australia recorded sustained growth through the expansion of its product offering, thereby increasing revenue by 55% to R484 million (R311.7 million).
Group revenue from the Latin American operations comprised 10% with sales of R408 million. The primary contributor was Brazil’s Cellofarm accounting for R330 million, with the Mexican and Venezuelan companies contributing the balance. Strategies are in place to grow the Brazilian market share, with focus being re-directed to the private sector. A brand development strategy has been initiated and 150 experienced sales representatives have been recruited for the fulfilment thereof.
Construction of the manufacturing facilities in Campos, Brazil has been completed. The Brazilian authorities have accredited the Penem Facility thereby enabling the commencement of commercial production. The Penicillin Facility is awaiting final regulatory approval.
Shelys, the Group’s business in East Africa, recorded revenue of R200 million in Tanzania, Kenya and Uganda. The OTC Manufacturing Facility under construction in Nairobi, is due for completion before the end of 2009.
PROSPECTS
Growth in South African volumes is expected to remain buoyant during the second half of the year. The 13.2% increase in SEP will offset the impact of higher supply costs. Despite trading difficulties in the retail sector, it is anticipated that the successful strategies implemented by the consumer division will yield favourable results.
Additional production capacity will be realised during the forthcoming calendar year when Aspen’s three major capital projects in Port Elizabeth, valued at R1 billion, are completed. The solid dosage manufacturing and packing capabilities will cater for anticipated growth in demand from domestic and international markets. The Sterile Facility will provide Aspen with production capabilities in injectables, hormonal injectables and eye-drops for all major international markets.
It is expected that the international businesses will provide significant impetus to the Group’s growth. Cognisance should be taken of influencing factors most notably global currency exposures and world market volatility. The product pipeline for the international business remains a major focus area with benefits expected to become apparent in the next two to three years. The Bangalore Oncology Facility has been accredited by the Australian Therapeutic Goods Association and commercial production is scheduled to commence in 2010.
The disposal of Aspen’s 50% shareholding in Astrix remains subject to fulfilment of conditions precedent.
Aspen’s performance in the first half of this financial year has shown resilience and strategies have been implemented which are designed to add to the Group’s performance in future years.