JSE Ltd listed Aspen Pharmacare Holdings Limited (APN), Africa’s largest pharmaceutical manufacturer, has announced pleasing results for the year ended 30 June 2012, extending its record of growth for a fourteenth consecutive year.
Group Performance
- Revenue from continuing operations rose by 23 percent to R15.3 billion.
- Operating profit from continuing operations increased by 25 percent to R3.9 billion.
- Normalised headline earnings from continuing operations, being headline earnings from continuing operations adjusted for restructuring costs, transaction costs and a foreign exchange gain on transaction funding, increased by 22% to R2.9 billion.
- Normalised diluted headline earnings per share from continuing operations rose 22 percent to 636.2 cents.
- A capital distribution of 157 cents per ordinary share (2011: 105 cents) by way of a capital reduction payable out of share premium.
Stephen Saad, Aspen Group Chief Executive said, “During the year Aspen increased its diversity in product offerings and geographic exposure. The Group’s positive performance was led by exceptional growth in the Asia Pacific business, while the International business and the Sub-Saharan Africa business also achieved strong gains. The South African business had a positive second half, but consistent with previously communicated expectations, showed negative growth for the year as a whole.”
South African Business
The South African business returned to growth in the second half, as projected. A number of well-documented once-off factors unfavourably influenced results, particularly in the first six months of the year. The effect of the difficult first half is evident in full year revenue being 2% lower at R6.2 billion and operating profit before amortisation, adjusted for specific non-trading items (“EBITA”), being down 9% at R1.8 billion.
Revenue in the Pharmaceutical division was up 9% in the second half resulting in the full year revenue coming in flat at R5.2 billion. This creditable result was achieved against a backdrop of a strike, government procurement of anti-retrovirals (“ARVs”) from donors in preference to accessing the awarded tender and the two biggest products in the Pharmaceutical division, Seretide and Truvada, facing generic competition for the first time. These set-backs were mitigated over the course of the year through Aspen’s success with Foxair, the generic of Seretide and by the launch of Tribuss, the first generic once-a-day triple combination ARV in South Africa. Furthermore, with the depletion of the donor funds, the tender offtake regularised in the second half of the year. Profit margin percentages were reduced for the year, affected by energy costs and wage inflation rising considerably more rapidly than the 2.14% increase in the single exit price granted by the Department of Health. Lower pricing in the ARV tender also contributed to the margin squeeze. Fortunately Aspen managed to offset most of the margin pressure through efficiency gains in production.
The Consumer division suffered a contraction in revenue of 11% to R1.0 billion. The major factor was the expiry towards the end of the 2011 financial year of the license with Pfizer for a range of infant milk products, which contributed approximately R250 million to revenue on an annual basis. Growth of over 20% in Aspen’s infant milk brand, Infacare, has been effective in reducing the impact of the reversal.
The Group has continued to invest in capital projects to upgrade and expand production capabilities in Port Elizabeth and in East London. A major refurbishment of the active pharmaceutical ingredient facility at the Fine Chemicals business in Cape Town is also underway.
Asia Pacific business
The Asia Pacific business, bolstered by the acquisition of the Sigma pharmaceutical business in Australia in the second half of the 2011 financial year, delivered exceptional results. This region has increased its contribution to Group revenue from 23% to 37%. Revenue doubled to R6.0 billion and EBITA grew by 128% to R1.5 billion.
The business acquired from Sigma has been fully integrated with Aspen’s pre-existing business in Australia. Synergies have been gained in the establishment of a single business platform. Further benefits have come through reduced cost of goods which have been realised by taking advantage of Aspen’s competitive manufacturing and procurement competencies.
Aspen Philippines commenced trade during the year and has approximately 100 sales personnel actively deployed.
International Business
The International business recorded a 3% reduction in revenue to R2.5 billion, but nevertheless raised EBITA by 28% to R0.9 billion. Customer sales in Latin America increased 11% to R1.0 billion buoyed by strong performances in Brazil and Venezuela. In Mexico sales were flat, but revenue was sacrificed to third party distributors of global brands in the balance of the territory. The overall reduction in revenue in the International business was as a consequence of the transitioning of certain global brands to third party distributors and the elimination of low margin sales to third parties. Profit margins benefitted from the ongoing projects to reduce the cost of goods of global brands.
Sub-Saharan Africa business
In Sub-Saharan Africa, gross revenue increased by 27% to R1.7 billion and EBITA improved 40% to R248 million. Growth in profit was achieved by each of the three elements of the business. The GSK Aspen Healthcare for Africa collaboration advanced revenue strongly with increased representation and new product launches. The Shelys operation, based in East Africa, achieved excellent margin gains through improved business efficiency. Exports into the region also increased.
Prospects
Aspen has withstood the challenges of the last year and has remained the top supplier of medicines in South Africa. One in four prescriptions dispensed in the country in the private sector is for an Aspen product. The Group’s leadership position in the public sector was endorsed with the recent award of the oral solid dose tender with Aspen once again receiving the largest allocation of 25%. The benefits of a strong product pipeline will see increased growth momentum in the 2013 financial year. A number of legislative changes remain under consideration by the regulator, including international benchmarking and the capping of logistics fees. The timing and consequences of the resolution of these matters remain uncertain. The South African government’s policy decision to support domestic manufacturers in future public sector tenders is welcomed and will be of assistance to Aspen in the upcoming ARV tender due for award in December 2012. The Consumer division is targeting an improved performance supported by innovation in the infant nutritionals range.
The Asia Pacific business is destined to become Aspen’s biggest contributor to revenue once it commences distribution of the portfolio of 25 established pharmaceutical brands which the Group has agreed to acquire from GlaxoSmithKline. Completion of this transaction is conditional upon the approval of the Australian competition authorities which is expected in the last quarter of 2012. Aspen is uniquely positioned in the Australian market with the most extensive product offering which spans branded, generic, over-the-counter and consumer products.
Prospects for future growth from South East Asian markets is being actively explored. Trade has commenced in Aspen’s newly established subsidiary in the Philippines and the feasibility of expansion into Thailand, Taiwan and Malaysia is presently under investigation.
The Group continues to see Latin America as the area of greatest growth potential within the International business. Aspen will seek opportunities to establish a presence in further Latin American territories in addition to the existing operations in Brazil, Venezuela and Mexico. Expansion of its portfolio of global brands remains a focus area for the Group in the year ahead.
There are a number of new product launches planned in Sub-Saharan Africa over the next year to support growth initiatives. The region does however remain vulnerable to political instability.
The Group will continue to focus on strengthening existing businesses, extending territorial coverage and increasing the product offering in areas which offer good future growth potential.