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Aspen-Reviewed Preliminary Group Financial Results: year ended 30 June 2006
ASPEN PHARMACARE HOLDINGS LIMITED
("ASPEN")
Aspen Pharmacare Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1985/002935/06)
Share code: APN & ISIN: ZAE000066692
Reviewed Preliminary Group Financial Results for the year ended 30 June
2006
HIGHLIGHTS
Revenue +23%
2006: R3,449 billion 2005: R2,815 billion
Normalised Earnings per Share +32%
2006: 182 cents 2005: 138 cents
Distributions to Shareholders +29%
2006: 62 cents 2005: 48 cents
GROUP INCOME STATEMENT
Reviewed IFRS restated
year ended year ended
% 30 June 2006 30 June 2005
change Rm Rm
Revenue 23 3 449,3 2 814,6
Cost of sales (1 789,0) (1 424,0)
Gross profit 19 1 660,3 1 390,6
Other operating income 2,2 4,7
Selling and distribution costs (462,3) (374,8)
Administrative expenses (195,8) (176,0)
Other operating expenses (108,9) (388,7)
Investment income 72,9 37,6
Operating profit 96 968,4 493,4
Net financing costs (113,7) (99,4)
Net profit before tax 117 854,7 394,0
Tax (216,6) (207,6)
Net profit after tax 242 638,1 186,4
Attributable to:
Equity holders of the parent 638,0 186,4
Minority interest 0,1 -
Weighted average number of
shares in issue ("000) 344 128 340 606
Earnings per share -
basic (cents) 239 185,4 54,7
Earnings per share -
diluted (cents) 238 179,2 53,2
Capital distribution
per share (cents)* 29 62,0 48,0
*Relates to capital distribution declared after year-end. The policy of
Aspen is to recommend a final distribution to shareholders when the
preliminary results for each financial year are released.
HEADLINE EARNINGS AND NORMALISED EARNINGS
Reconciliation of headline earnings
Net profit attributable to
equity holders of the parent 638,0 186,4
Adjusted for:
- Deferred tax asset in respect
of Nutricia (Pty) Limited
("Nutricia") assessed loss raised (15,6) (7,0)
- Goodwill in respect of
acquisition of Nutricia
written down 0,5 7,0
- Profit on disposal of property,
plant and equipment (net of tax) - 0,1
- Fair value adjustment of
investment property (net of tax) - 0,5
- Loss/(profit) on disposal of
intangible assets (net of tax) 0,1 (1,4)
- Investment in FCC written
down to fair value (net of tax) 14,2 -
- Impairment of intangible
assets (net of tax) 1,9 3,2
- Profit on sale of investment
property (net of tax) (0,7) -
Headline earnings 238 638,4 188,8
Headline earnings per
share (cents) 235 185,5 55,4
Headline earnings per share -
diluted (cents) 233 179,3 53,9
Reconciliation of normalised
earnings
Net profit attributable to
equity holders of the parent 638,0 186,4
Adjusted for:
- Costs relating to PLIVA dd bid 21,3 -
- Section 12G claim
(Strategic Industrial
Project allowance) (31,9) -
- BEE transaction - 282,4
- Deferred tax asset in respect
of Nutricia assessed loss raised (15,6) (7,0)
- Goodwill in respect of
acquisition of Nutricia
written down 0,5 7,0
- Investment in FCC written
down to fair value (net of tax) 14,2 -
Normalised earnings 34 626,5 468,8
Normalised earnings per
share (cents) 32 182,1 137,6
Normalised earnings per
share - diluted (cents) 32 176,1 133,9
GROUP BALANCE SHEET
Reviewed IFRS restated
30 June 2006 30 June 2005
Rm Rm
ASSETS
Non-current assets
Property, plant and equipment 613,1 477,7
Investment property - 4,0
Goodwill 262,1 195,6
Intangible assets 820,5 665,8
Preference share investment 376,8 376,8
Non-current financial assets 12,9 0,1
Deferred tax assets 34,4 57,6
Total non-current assets 2 119,8 1 777,6
Current assets
Inventories 798,3 428,2
Receivables and prepayments 721,9 509,7
Current tax assets 3,0 2,0
Current financial assets 1,3 1,0
Cash and cash equivalents 625,2 439,6
Total current assets 2 149,7 1 380,5
Total assets 4 269,5 3 158,1
SHAREHOLDERS" EQUITY
Share capital and share premium 954,4 1 100,8
Treasury shares (623,0) (641,7)
Share-based compensation reserve 31,2 16,3
Non-distributable reserves 191,2 52,6
Retained income 997,5 426,3
Ordinary shareholders" equity 1 551,3 954,3
Preference shares - equity component 162,0 162,0
1 713,3 1 116,3
Minority interest 12,5 -
Total shareholders" equity 1 725,8 1 116,3
LIABILITIES
Non-current liabilities
Preference shares - liability
component 403,3 406,6
Interest-bearing borrowings 49,0 62,7
Interest-bearing deferred-payables 23,7 23,2
Deferred revenue 2,1 -
Deferred tax liabilities 103,9 71,6
Non-current financial liabilities - 3,6
Retirement benefit obligations 7,3 10,6
Total non-current liabilities 589,3 578,3
Current liabilities
Trade and other payables 713,6 571,9
Interest-bearing borrowings 1 173,8 761,7
Interest-bearing deferred-payables 4,8 48,6
Current tax liabilities 62,2 81,3
Total current liabilities 1 954,4 1 463,5
Total liabilities 2 543,7 2 041,8
Total equity and liabilities 4 269,5 3 158,1
Number of shares in issue
(net of treasury shares) ("000) 347 449 339 441
Net asset value per share (cents) 446,5 281,1
GROUP CASH FLOW STATEMENT
Reviewed IFRS restated
year ended year ended
30 June 2006 30 June 2005
Rm Rm
Cash flows from operating activities
Cash operating profit 1 127,5 929,3
Changes in working capital (487,5) (52,9)
Cash generated from operations 640,0 876,4
Net financing costs (128,3) (84,6)
Investment income 72,9 37,6
Tax paid (182,2) (176,6)
Net cash from operarting activities 402,4 652,8
Cash flows from investing activities
Replacement capital expenditure -
property, plant and equipment (55,6) (23,1)
Expansion capital expenditure -
property, plant and equipment (119,1) (58,0)
Proceeds on disposal of property,
plant and equipment 0,4 0,4
Proceeds on disposal of investment
property 4,7 -
Replacement capital expenditure -
intangible assets (9,2) -
Expansion capital expenditure -
intangible assets (123,2) (93,4)
Proceeds on disposal of intangible
assets 1,0 4,0
Acquisition of subsidiaries and
joint ventures, net of cash acquired (267,6) (262,1)
Disposal of 50% of FCC, net of cash 120,8 -
Investment in preference shares - (376,8)
Decrease in non-current financial
assets - 9,2
Net cash used in investing
activities (447,8) (799,8)
Cash flows from financing activities
Proceeds from interest-bearing
borrowings 1 767,5 734,7
Repayment of interest-bearing
borrowings (1 736,4) (434,0)
Repayment of interest-bearing
deferred-payables (49,7) (59,3)
Proceeds from interest-bearing
deferred-payables 4,2 2,7
Net capital distribution/dividend
paid (166,0) (101,2)
Proceeds from issue of ordinary
shares 33,7 13,1
Proceeds from issue of ordinary
shares (BEE) - 256,6
Share repurchase - cancellation
of shares - (32,1)
Share repurchase - acquisition of
treasury shares - (641,7)
Proceeds from issue of preference
shares - 376,8
Net cash (used in)/from financing
activities (146,7) 115,6
Effects of exchange rate changes 14,8 5,5
Cash and cash equivalents
Movement in cash and cash
equivalents (177,3) (25,9)
Cash and cash equivalents at the
beginning of the year 439,6 465,5
Cash and cash equivalents at the
end of the year 262,3 439,6
Operating cash flow per share (cents) 116,9 191,7
SEGMENTAL ANALYSIS
SOUTH AFRICA
Reviewed IFRS restated
year ended year ended
30 June 2006 % June 2006 %
Rm of total Rm of total
Primary segments:
Geographical
Revenue 2 848,6 82,6 2 297,4 81,6
Normalised operating
profit before
amortisation and
investment income*** 912,6 89,2 751,3 89,4
Adjusted for:
- PLIVA dd costs (21,3) 100,0 - -
- BEE transaction - - (282,4) 100,0
- Goodwill in respect
of acquisition of
Nutricia written down (0,5) 100,0 (7,0) 100,0
- Investment in FCC
written down (13,9) 100,0 - -
Operating profit
before amortisation
and investment income 876,9 88,8 461,9 83,9
Amortisation -
intangible assets (59,3) 64,6 (67,8) 71,5
Investment income 69,3 95,1 34,9 92,9
Operating profit 886,9 91,6 429,0 86,9
Pharmaceutical
Reviewed IFRS restated
year ended year ended
30 June 2006 % 30 June 2005 %
Rm of total Rm of total
Secondary segments:
Business
Revenue 2 562,1 74,3 2 092,3 74,3
South Africa 2 028,2 1 655,2
Australasia and Asia 376,6 233,6
United Kingdom and
United States 157,3 203,5
Normalised operating
profit before
amortisation and
investment income*** 794,5 77,7 673,8 80,2
South Africa 711,6 606,6
Australasia and Asia 39,7 22,3
United Kingdom and
United States 43,2 44,9
Operating profit
before amortisation 764,7 77,5 462,0 83,9
South Africa 681,8 394,8
Australasia and Asia 39,7 22,3
United Kingdom and
United States 43,2 44,9
Operating profit 755,5 78,0 415,3 84,2
South Africa 701,6 372,2
Australasia and Asia 28,3 14,4
United Kingdom and
United States 25,6 28,7
*Net of inter-segment sales to Aspen Australia of R85,0 million (2005:
R80,1 million).
** Net of inter-segment sales to the South African segment of R25,5
million.
***Represents operating profit before amortisation, adjusted for PLIVA dd
costs, the writedown of the investment in FCC to fair value and the
writedown of the Nutricia goodwill, as well as the BEE charge in 2005.
SEGMENTAL ANALYSIS
AUSTRALASIA AND ASIA
Reviewed IFRS restated
year ended year ended
30 June 2006 % 30 June 2005 %
Rm of total Rm of total
Primary segments:
Geographical
Revenue 437,2** 12,7 308,5 11,0
Normalised operating
profit before
amortisation and
investment income*** 66,4 6,5 43,5 5,2
Adjusted for:
- PLIVA dd costs - - - -
- BEE transaction - - - -
- Goodwill in respect
of acquisition of
Nutricia written down - - - -
- Investment in FCC
written down - - - -
Operating profit
before amortisation
and investment income 66,4 6,7 43,5 7,9
Amortisation -
intangible assets (13,0) 14,2 (9,0) 9,5
Investment income 1,6 2,2 0,9 2,4
Operating profit 55,0 5,7 35,4 7,2
Consumer
Reviewed IFRS restated
year ended year ended
30 June 2006 % 30 June 2005 %
Rm of total Rm of total
Secondary segments:
Business
Revenue 887,2 25,7 722,3 25,7
South Africa 794,9 642,2
Australasia and Asia 86,1 74,9
United Kingdom and
United States 6,2 5,2
Normalised operating
profit before
amortisation and
investment income*** 228,5 22,3 166,2 19,8
South Africa 201,0 144,7
Australasia and Asia 26,7 21,2
United Kingdom and
United States 0,8 0,3
Operating profit
before amortisation 222,6 22,5 88,6 16,1
South Africa 195,1 67,1
Australasia and Asia 26,7 21,2
United Kingdom and
United States 0,8 0,3
Operating profit 212,9 22,0 78,1 15,8
South Africa 185,3 56,8
Australasia and Asia 26,7 21,0
United Kingdom and
United States 0,9 0,3
*Net of inter-segment sales to Aspen Australia of R85,0 million (2005:
R80,1 million).
**Net of inter-segment sales to the South African segment of R25,5 million.
***Represents operating profit before amortisation, adjusted for PLIVA dd
costs, the writedown of the investment in FCC to fair value and the
writedown of the Nutricia goodwill, as well as the BEE charge in 2005.
SEGMENTAL ANALYSIS
UNITED KINGDOM AND UNITED STATES
Reviewed IFRS restated
year ended year ended
30 June 2006 % 30 June 2005 %
Rm of total Rm of total
Primary segments:
Geographical
Revenue 163,5* 4,7 208,7* 7,4
Normalised operating
profit before
amortisation and
investment income*** 44,0 4,3 45,2 5,4
Adjusted for:
- PLIVA dd costs - - - -
- BEE transaction - - - -
- Goodwill in respect
of acquisition of
Nutricia written down - - - -
- Investment in FCC
written down - - - -
Operating profit
before amortisation
and investment income 44,0 4,5 45,2 8,2
Amortisation -
intangible assets (19,5) 21,2 (18,0) 19,0
Investment income 2,0 2,7 1,8 4,7
Operating profit 26,5 2,7 29,0 5,9
TOTAL
Reviewed IFRS restated
year ended year ended
30 June 2006 % 30 June 2005 %
Rm of total Rm of total
Secondary segments:
Business
Revenue 23 449,3 100,0 2 814,6 100,0
South Africa 2 823,1 2 297,4
Australasia and Asia 462,7 308,5
United Kingdom and
United States 163,5 208,7
Normalised operating
profit before
amortisation and
investment income*** 1 023,0 100,0 840,0 100,0
South Africa 912,6 751,3
Australasia and Asia 66,4 43,5
United Kingdom and
United States 44,0 45,2
Operating profit
before amortisation 987,3 100,0 550,6 100,0
South Africa 876,9 461,9
Australasia and Asia 66,4 43,5
United Kingdom and
United States 44,0 45,2
Operating profit 968,4 100,0 493,4 100,0
South Africa 886,9 429,0
Australasia and Asia 55,0 35,4
United Kingdom and
United States 26,5 29,0
*Net of inter-segment sales to Aspen Australia of R85,0 million (2005:
R80,1 million).
**Net of inter-segment sales to the South African segment of R25,5 million.
***Represents operating profit before amortisation, adjusted for PLIVA dd
costs, the writedown of the investment in FCC to fair value and the
writedown of the Nutricia goodwill, as well as the BEE charge in 2005.
SEGMENTAL ANALYSIS
TOTAL
Reviewed IFRS restated
year ended year ended
30 June 2006 % 30 June 2005 %
Rm of total Rm of total
Primary segments:
Geographical
Revenue 3 449,3 100,0 2 814,6 100,0
Normalised operating
profit before
amortisation and
investment income*** 1 023,0 100,0 840,0 100,0
Adjusted for:
- PLIVA dd costs (21,3) 100,0 - -
- BEE transaction - - (282,4) 100,0
- Goodwill in respect
of acquisition of
Nutricia written down (0,5) 100,0 (7,0) 100,0
- Investment in FCC
written down (13,9) 100,0 - -
Operating profit
before amortisation
and investment income 987,3 100,0 550,6 100,0
Amortisation -
intangible assets (91,8) 100,0 (94,8) 100,0
Investment income 72,9 100,0 37,6 100,0
Operating profit 968,4 100,0 493,4 100,0
Secondary segments:
Business
Revenue
South Africa
Australasia and Asia
United Kingdom and
United States
Normalised operating
profit before
amortisation and
investment income***
South Africa
Australasia and Asia
United Kingdom and
United States
Operating profit
before amortisation
South Africa
Australasia and Asia
United Kingdom and
United States
Operating profit
South Africa
Australasia and Asia
United Kingdom and
United States
*Net of inter-segment sales to Aspen Australia of R85,0 million (2005:
R80,1 million).
**Net of inter-segment sales to the South African segment of R25,5 million.
***Represents operating profit before amortisation, adjusted for PLIVA dd
costs, the writedown of the investment in FCC to fair value and the
writedown of the Nutricia goodwill, as well as the BEE charge in 2005.
STATEMENT OF CHANGES IN GROUP EQUITY
Share
Share- based Non-
capital compen- distribu-
and Treasury sation table
premium shares reserve reserves
Rm Rm Rm Rm
Balance as at
1 July 2004 764,0 (75,8) 5,5 (3,2)
Negative goodwill
adjustment in terms
of IFRS 3 - - - -
Restated opening balance 764,0 (75,8) 5,5 (3,2)
Currency translation
differences - - - 22,3
Net profit for the year - - - -
Dividend paid - - - -
Cash flow hedges realised - - - 3,2
Cash flow hedges
recognised - - - 4,7
Issue of ordinary share
capital 13,1 - - -
Share repurchase
- acquisitionof treasury shares - (641,7) - -
Cancellation of treasury
shares (32,1) 75,8 - -
Preference shares issued - - - -
Share options awarded - - 11,5 -
Transfer from share-based
compensation reserve - - (0,7) -
Issue of ordinary share
capital (BEE) - net of
transaction costs 355,8 - - -
Non-distributable portion
of earnings - - - 25,6
Balance as at
30 June 2005 1 100,8 (641,7) 16,3 52,6
Surplus on revaluation
of available-for-sale
financial assets - - - (0,6)
Currency translation
differences - - - 63,8
Net profit for the year - - - -
Capital distribution (184,7) 18,7 - -
Acquisition of
subsidiaries - - - -
Cash flow hedges realised - - - (4,7)
Cash flow hedges
recognised - - - 5,2
Issue of ordinary share
capital 38,3 - - -
Share options and
appreciation
rights awarded - - 23,0 -
Transfer from share-based
compensation reserve - - (8,1) -
Non-distributable portion
of earnings - - - 74,9
Balance as at
30 June 2006 954,4 (623,0) 31,2 191,2
STATEMENT OF CHANGES IN GROUP EQUITY (CONTINUED)
Equity
component
of
Retained preference Minority
income shares interest Total
Rm Rm Rm Rm
Balance as at
1 July 2004 434,8 - - 1 125,3
Negative goodwill
adjustment in terms
of IFRS 3 4,4 - - 4,4
Restated opening balance 439,2 - - 1 129,7
Currency translation
differences - - - 22,3
Net profit for the year 186,4 - - 186,4
Dividend paid (101,2) - - (101,2)
Cash flow hedges realised - - - 3,2
Cash flow hedges
recognised - - - 4,7
Issue of ordinary
share capital - - - 13,1
Share repurchase
- acquisition of
treasury shares - - - (641,7)
Cancellation of treasury
shares (73,2) - - (29,5)
Preference shares issued - 162,0 - 162,0
Share options awarded - - - 11,5
Transfer from share-based
compensation reserve 0,7 - - -
Issue of ordinary share
capital (BEE) - net of
transaction costs - - - 355,8
Non-distributable portion
of earnings (25,6) - - -
Balance as at
30 June 2005 426,3 162,0 - 1 116,3
Surplus on revaluation of
available-for-sale
financial assets - - - (0,6)
Currency translation
differences - - - 63,8
Net profit for the year 638,0 - 0,1 638,1
Capital distribution - - - (166,0)
Acquisition of
subsidiaries - - 12,4 12,4
Cash flow hedges realised - - - (4,7)
Cash flow hedges
recognised - - - 5,2
Issue of ordinary share
capital - - - 38,3
Share options and
appreciation rights
awarded - - - 23,0
Transfer from share-based
compensation reserve 8,1 - - -
Non-distributable portion
of earnings (74,9) - - -
Balance as at
30 June 2006 997,5 162,0 12,5 1 725,8
SUPPLEMENTARY INFORMATION
Reviewed IFRS restated
year ended year ended
30 June 2006 30 June 2005
Rm Rm
Capital expenditure
Incurred 307,1 174,5
- tangible assets 174,7 81,1
- intangible assets 132,4 93,4
Contracted 113,0 35,1
Authorised but not contracted for 282,7 221,1
Operating profit has been arrived at
after charging:
Depreciation of property, plant
and equipment 47,5 35,4
Amortisation of intangible assets 91,8 94,8
Share-based payment expenses
- BEE - 282,4
Share-based payment expenses
- employees 27,6 11,6
Investment income
Preference share dividend received 25,3 1,0
Interest received 47,6 36,6
Total investment income 72,9 37,6
Net financing costs
Interest paid (93,2) (76,2)
Net foreign exchange loss (7,1) (8,3)
Fair value gains/(losses) on
financial instruments 14,8 (7,7)
Notional interest on financial
instruments (0,1) (7,2)
Preference share dividends paid (28,1) -
Net financing costs (113,7) (99,4)
Other commitments
During the 2003 financial year Aspen
entered into a 12-year agreement with
GlaxoSmithKline ("GSK") South Africa
to distribute and market a range of
their products. In terms of this
agreement Aspen is committed to
pay the following amounts to
GSK South Africa:
- payable within one year 21,6 30,6
- payable thereafter 80,3 101,3
101,9 131,9
During the 2005 financial year
Aspen Australia entered into a
10-year agreement with Novartis
Pharmaceuticals Australia Pty Limited
to distribute and market a range of
their products. In terms of this
agreement Aspen is committed to
spend the following amounts on
promotion of the products:
- payable within one year 8,0 8,7
- payable thereafter 48,2 54,5
56,2 63,2
The dispute with Tibbett and Britten
Africa (Pty) Limited, regarding a
claim of approximately R39 million
for additional distribution fees,
was withdrawn during the year.
This claim was previously reported
as a contingent liability.
Contingent liabilities
There are contingent liabilities in
respect of:
- Additional payments in respect of
the Quit worldwide intellectual
property rights 6,6 6,0
- Guarantee covering potential
rental default relating to sale
of discontinued operations 2,5 3,7
- Guarantees covering loan and other
obligations to third parties 5,4 1,6
Basis of Accounting
The consolidated preliminary results have been prepared in accordance with
International Financial Reporting Standards ("IFRS"), the Listings
Requirements of the JSE Limited and Schedule 4 of the South African
Companies Act.
These results have been reviewed by Aspen"s auditors,
PricewaterhouseCoopers Inc. Their unqualified review report is available
for inspection at the company"s registered office.
The date of the Group"s transition to IFRS is 1 July 2004, and this is the
first full-year financial results prepared under IFRS. IFRS 1 - First-time
adoption of IFRS, has been applied in the preparation of this report.
The audited results for the year to June 2005 have been restated to comply
with IFRS. The June 2005 balance sheet as published at the interim stage
has subsequently been finalised.
The following are the most significant exemptions available in terms of
IFRS 1 which Aspen elected to use:
- Business combinations: The Group has elected not to retrospectively
apply the requirements of IFRS 3 - Business Combinations to business
combinations with agreements dated before 31 March 2004.
- Fair value as deemed cost: The Group has elected to measure certain
individual items of property, plant and equipment at fair value at the date
of transition to IFRS.
- Cumulative translation differences: The Group has elected to transfer
all foreign currency translation reserves to distributable earnings at the
date of transition to IFRS.
Normalised earnings
Aspen believes that excluding material once-off transactions from its
results represents a better indicator of the Group"s performance.
Reconciliation of net profit attributable to ordinary shareholders
Year ended
30 June 2005
Rm
SA GAAP 494,0
Share-based payment expenses - BEE (note 1) (282,4)
Share-based payment expenses - employees (note 2) (11,6)
Amortisation (note 3) (21,5)
Depreciation 5,9
Other 2,0
As reported under IFRS 186,4
RECONCILIATION OF EQUITY
30 June 1 July
2005 2004
Rm Rm
SAGAAP 1 106,8 1 066,5
Property, plant and equipment 28,1 23,1
Investment property - (0,9)
Goodwill (76,2) (71,1)
Intangible assets 133,0 157,2
Inventories 2,3 (3,7)
Other current assets (15,6) (1,6)
Preference shares - liability component (57,6) -
Other liabilities 19,9 1,2
Tax effect of adjustments (24,4) (45,4)
As reported under IFRS 1 116,3 1 125,3
Note 1
Represents the amount expensed in terms of IAS 32 - Financial Instruments:
Presentation and IFRS 2 - Share-based Payment in respect of the ordinary
shares and preference shares issued in terms of the BEE transaction.
Note 2
IFRS 2 has been applied to all grants of equity-settled share options and
share appreciation rights awarded to employees after
7 November 2002, that had not vested by 1 January 2005. Equity-settled
instruments are measured at fair value as at grant date.
Note 3
The most significant adjustment to amortisation comprises the additional
amortisation in respect of recognition of intangible assets previously
written off, and now reinstated.
COMMENTARY
Group
Aspen"s results for the year ended 30 June 2006 reflect a 235% increase in
headline earnings per share to 185,5 cents. This increase is affected by a
number of material once-off transactions in both the prior and current
year, namely:
* 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; and
* 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 these once-off transactions, Aspen has recorded an
increase of 32% in "normalised earnings" per share of 182,1 cents.
Revenue of R3,449 billion reflected growth of 23% whilst normalised
earnings before interest, investment income, tax and amortisation ("EBITA")
rose by 22% to R1,023 billion. Normalised earnings in the second half of
the year exceeded those reported in the first half with 53% of normalised
earnings being recorded in the second half.
The results for the year ended 30 June 2006 are the first reported under
IFRS. The most material adjustments between reporting under IFRS and
previous reporting under South African Statements of Generally Accepted
Accounting Practice ("SA GAAP") are:
* the recognition of share-based payment expenses in respect of employees
of R27,6 million (prior year R11,6 million);
* the recognition of expenses in respect of the prior year BEE transaction
of R282,4 million; and
* additional amortisation arising from the reinstatement of intangible
assets previously written off of R16,6 million (prior year R21,1 million).
South African operations
The South African business once again turned in 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) Limited ("FCC") to Matrix Laboratories Limited ("Matrix")
midway through the year. FCC made an outstanding first-half contribution
before difficult market conditions tempered its performance in the second
half.
Pharmaceutical Division revenue increased by 24% to R2,054 billion. This
was muted by the reduced shareholding in FCC in the second half. Finished
dosage form ("FDF") pharmaceuticals raised revenue by 26%. The FDF
performance was achieved entirely through organic volume growth and new
product launches. The price freeze implemented by the regulator based on
2003 average prices has eliminated price-driven growth and the highly
competitive generic market has continued to deflate the prices of many
product lines. New pharmaceutical product launches from Aspen"s rich
product pipeline once again led the market.
Aspen increased volumes on award of the most recent South African public
sector tender which commenced in October 2005. However, business was gained
at reduced margins and the overall contribution from the public sector
declined slightly for the year. Anti-retroviral ("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 sector (R79
million) and public sector (R83 million). Aspen ARVs presently cover the
lives of an estimated 300 000 patients throughout Africa.
Revenue from the Consumer Division improved 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 infant milk formulations also
contributed to improved operating margins in the Consumer Division as the
benefits of production for a full year from Aspen"s Clayville-based factory
were realised. The launch of Playgirl deodorants and line extensions to the
Playboy and Vinolia brands further supported the good performance in the
consumer market. For the third consecutive year Aspen was placed first in
the nationwide Campbell Belman Confidence Standing survey. This independent
survey of retail pharmacies and buying groups assessed the 39 leading OTC
companies in South Africa.
High levels of production were maintained over the year. Capacities were
improved in the 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, with a significant improvement in
service levels.
Construction of the sterile facility in Port Elizabeth is proceeding well
and initial validation remains scheduled for the beginning of 2008. In
order to cater for the considerable opportunities in the United States
market in particular, Aspen has further enhanced the facility
specifications and capacity. The revised capital cost of the enlarged
project is expected to be R360 million.
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 abovementioned consumer brands which are distributed
by Aspen Australia. Aspen Resources increased EBITA by 12% to R41 million.
The UK commodity generic market remained intensely competitive and 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 very much in
its formative stage and is presently focused on developing strategic
opportunities in the USA market. 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. During the course of the year the Group has
secured a voluntary licence with Merck Sharp and Dohme for the generic ARV
Efavirenz and has concluded an agreement with Bristol-Meyers Squibb for the
technology transfer and manufacture of a generic version of the new
generation ARV, Atazanavir.
Aspen has widened its coverage of infectious diseases with the arrangement
reached with Lupin Limited ("Lupin") of India to provide tuberculosis
medication to the southern African market. Lupin is the world leader in
generic tuberculosis drugs. In addition, Aspen and Lupin are in the process
of finalising a proposed joint venture to manufacture and distribute
tuberculosis products globally, with the exception of southern Africa
(exclusively Aspen), India and the USA (exclusively Lupin).
Investment income, finance costs and cash flows
IFRS disclosure requires that investment income be disclosed in operating
profit and separately from net financing costs which is disclosed after
operating profit. Both items are a consequence of the management of Aspen"s
financial resources and should sensibly be considered together. Interest
paid, net of interest received, has been contained to a rise of 15% to R46
million despite the sharp increase in working capital. Finance costs
attached to interest-bearing deferred-payables decreased in the current
year as these commitments have now terminated. A fair value gain on
financial instruments of R15 million was recorded in the current year
(prior year: loss of R8 million).
The net cash inflow from operating activities of R402 million was less than
earnings of R638 million. This is a consequence of an investment in working
capital of R488 million. An additional R409 million in stock was carried at
year-end. Of this amount, R240 million is in additional ARV materials and
finished products necessary to service the anticipated increase in ARV
offtake, R52 million is in stockholding relating to new product launches
and R117 million is in increased safety stock levels to optimise customer
service. Maintenance of prudent levels of ARV stock is essential given the
life-critical dependence of patients on constant availability of the
medication. The increase in debtors and creditors was in line with
increased trading activity.
Prospects
The Group is presently investing strongly in development and manufacturing
capabilities in areas that have been identified as potential growth drivers
for the future. An example is the sterile production facility currently
under construction, which is planned to position Aspen at the highest
international standards in an area of niche manufacture. As evidenced by
the recent unsuccessful bid for PLIVA dd, Aspen is prepared to explore
growth opportunities in new geographies provided these are expected to be
value enhancing for shareholders.
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. Further substantial revenue growth can be expected from
ARVs albeit at subdued margins. The proposed joint venture with Lupin in
the international tuberculosis market is expected to commence trade in the
year ahead. Aspen will also seek opportunities to further extend its
influence in infectious diseases, particularly those afflicting Africa.
In the year ahead, Aspen is set to retain its leadership position in
generics in the South African private market and in the public sector,
supported by a robust product pipeline. The weakening of the Rand in recent
months will create margin pressure as the cost of imported raw material
rises. The Department of Health has been approached in respect of an
approved price increase as contemplated in the applicable legislation
which, if granted, will provide relief from the currency exposure as well
as the effects of inflation since prices were frozen at 2003 levels.
Competitive forces in the market will, however, act to moderate the benefit
of any price increase which is granted.
Growth prospects over the forthcoming year are likely to be most strongly
influenced by the extent of additional generic substitution which takes
place in the South African market, market penetration achieved by new
product launches, the level at which price increases are accepted in the
South African pharmaceutical market and demand patterns for ARVs.
Capital distribution
Taking into account the earnings performance for the year, notice is hereby
given that in terms of a general authority to distribute the company"s
capital granted by shareholders at the annual general meeting held on 26
October 2005 a capital distribution of 62 cents per ordinary share (prior
year: 48 cents) has been declared, payable to shareholders recorded in the
share register of the company at the close of business on Friday, 10
November 2006.
This represents an increase of 29% over the previous year distribution and
is covered three times by headline earnings per share.
In compliance with IAS 10 - Events After The Balance Sheet Date, the
capital distribution will only be accounted for in the financial statements
in the year ending 30 June 2007. It remains the policy of Aspen to declare
a final distribution to shareholders when the preliminary results for each
financial year are released.
In compliance with STRATE, the company has determined the following salient
dates for the payment of the capital distribution:
Last day to trade cum capital
distribution Friday, 3 November 2006
Shares commence trading ex capital
distribution Monday, 6 November 2006
Record date Friday, 10 November 2006
Payment date Monday, 13 November 2006
Share certificates may not be dematerialised or rematerialised between
Monday, 6 November 2006 and Friday, 10 November 2006, both days inclusive.
By order of the board
SB Saad
(Group Chief Executive)
MG Attridge
(Deputy Group Chief Executive)
HA Shapiro
(Company Secretary)
Woodmead: 21 August 2006
Aspen Pharmacare Holdings Limited ("Aspen")
(Registration number 1985/002935/06)
Share code: APN ISIN: ZAE000066692
http://www.aspenpharma.com
Date: 21/08/2006 01:00:27 PM Supplied by www.sharenet.co.za
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