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ASPEN PHARMACARE HOLDINGS LIMITED
("Aspen Pharmacare")
(Registration number 1985/002935/06)
Share code APN ISIN: ZAE000023586
INTERIM FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2001
HIGHLIGHTS
- Revenue from continuing operations up by 41%
- Headline earnings per share from continuing operations up by 42%
Group Income Statement
Restated
Unaudited Unaudited Restated
Six months Six months Audited
ended ended Year ended
31 December 31 December 30 June
2001 2000 % 2001
R'000 R'000 change R'000
Revenue 678 848 503 407 1 149 046
Continuing operations 678 848 482 802 41 1 118 082
Discontinued operations - 20 605 30 964
Cost of sales (315 188) (232 647) (519 171)
Gross profit 363 660 270 760 629 875
Operating expenses (179 235) (135 460) (323 539)
Operating profit before
amortisation of intangible
assets 184 425 135 300 306 336
Continuing operations 184 425 125 461 47 297 444
Discontinued operations - 9 839 8 892
Amortisation of goodwill (4 238) (2 003) (5 955)
Amortisation of
intellectual property (12 040) - (10 590)
Operating profit 168 147 133 297 289 791
Net financing costs (20 398) (15 764) (42 829)
Net profit before
taxation 147 749 117 533 26 246 962
Taxation (46 655) (32 966) (66 905)
Net profit after taxation 101 094 84 567 180 057
Minority interest (1 321) - (1 889)
Net profit attributable to
shareholders 99 773 84 567 18 178 168
Weighted average number of
shares in issue (000's) 349 696 368 234 365 787
Earnings per share
(cents) 28,5 23,0 24 48,7
Headline earnings per
share (cents) 29,6 21,5 38 48,2
Headline earnings per
share from continuing
operations (cents) 29,6 20,9 42 47,7
Reconciliation of
headline earnings
Net profit attributable
to shareholders 99 773 84 567 178 168
Profit on sale of fixed
assets (366) (329) (798)
Amortisation of goodwill 4 238 2 003 5 955
Profit on disposal of
subsidiary - (7 000) (7 097)
Headline earnings 103 645 79 241 31 176 228
Profit in respect of
discontinued operations
(net of taxation) - (2 192) (1 766)
Headline earnings from
continuing operations 103 645 77 049 35 174 462
Supplementary Information
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2001 2000 2001
R'000 R'000 R'000
Capital expenditure:
Incurred 11 539 16 276 16 143
Contracted 12 999 5 710 6 759
Authorised not contracted 48 081 1 459 45 155
Depreciation 11 116 11 238 22 621
Net financing costs
Interest received 7 714 5 359 17 996
Net foreign exchange transaction
gains 4 449 7 632 6 431
Interest paid (32 561) (28 755) (67 256)
(20 398) (15 764) (42 829)
Operating lease commitments
- payable in one year 6 217 6 890 6 313
- payable thereafter 20 237 24 147 19 637
26 454 31 037 25 950
Group Balance Sheet
Restated Restated
Unaudited Unaudited Audited
31 December 31 December 30 June
2001 2000 2001
R'000 R'000 R'000
Assets
Non-current assets 602 432 482 138 598 944
Property, plant and equipment 151 919 154 597 146 749
Goodwill 105 237 111 540 109 477
Intellectual property 152 933 8 948 138 092
Investments and loans 3 151 144 2 954
Long-term receivables 11 308 - 11 310
Deferred taxation asset 177 884 206 909 190 362
Current assets 644 406 498 389 575 059
Inventories 243 818 213 112 185 395
Trade and other receivables 267 851 217 950 254 458
Cash and cash equivalents 132 737 67 327 135 206
Total assets 1 246 838 980 527 1 174 003
Equity and liabilities
Capital and reserves
Share capital 52 869 51 429 51 429
Non-distributable reserves 271 709 193 535 180 238
Retained income 270 238 80 294 186 170
Treasury shares (75 807) - (75 755)
Shareholders' equity 519 009 325 258 342 082
Minority interest 11 704 8 853 10 697
Non-current liabilities
Interest-bearing borrowings 163 049 266 629 176 065
Non-interest-bearing deferred
payables 68 061 - 78 581
Retirement benefit obligations 9 885 9 885 9 885
771 708 610 625 617 310
Current liabilities 475 130 369 902 556 693
Trade and other payables 262 610 197 788 269 635
Interest-bearing borrowings 117 750 85 276 201 831
Taxation 13 952 1 390 3 800
Current provisions 80 818 85 448 81 427
Total equity and liabilities 1 246 838 980 527 1 174 003
Number of shares in issue
(net of treasury shares) (000's) 350 221 368 234 349 422
Net asset value per share (cents) 148,2 88,3 97,9
Statement of Changes in Group Equity
Share Non-dis-
capital tributable Retained Treasury
and premium reserves income shares Total
R'000 R'000 R'000 R'000 R'000
Balance as at
1 July 2000 as
previously
reported 51 079 194 777 (9 221) - 236 635
Effect of
adopting AC 135
(investment
properties) - - (7 325) - (7 325)
Restated balance
at 1 July 2000 51 079 194 777 (16 546) - 229 310
Currency
translation
differences - 9 689 - - 9 689
Net proit for
the period - - 178 168 - 178 168
Proportional
release of
deferred taxation
asset - (24 548) 24 548 - -
Cash flow hedges
recognised - 320 - - 320
Issue of share
capital-share
options 350 - - - 350
Acquisition of
treasury shares - - - (75 755) (75 755)
Balance as at
30 June 2001 51 429 180 238 186 170 (75 755) 342 082
Currency
translation
differences - 87 657 - - 87 657
Net profit for
the period - - 99 773 - 99 773
Dividends
declared - - (27 979) - (27 979)
Proportional
release of
deferred taxation
asset - (12 274) 12 274 - -
Cash flow hedges
recognised - 16 088 - - 16 088
Issue of share
capital-share
options 1 440 - - - 1 440
Acquisition of
treasury shares - - - (52) (52)
Balance as at
31 December 2001 52 869 271 709 270 238 (75 807) 519 009
Group Cash Flow Statement
Restated Restated
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2001 2000 2001
R'000 R'000 R'000
Cash operating profit 195 018 146 618 328 914
Working capital requirements (68 271) (103 686) (51 582)
Cash generated from operations 126 747 42 932 277 332
Net financing costs (20 398) (15 764) (42 829)
Taxation paid (26 818) (5 186) (20 885)
Net cash flow from operating
activities 79 531 21 982 213 618
Net cash outflow from investing
activites (21 098) (64 223) (204 185)
Acquisition of subsidiary companies
and businesses - (46 047) (80 752)
Acquisition of intangible assets (9 311) (1 900) (31 535)
Acquisition of property, plant
and equipment (11 539) (16 276) (16 143)
Acquisiton of treasury shares (52) - (75 755)
Increase in investments and loans (196) - -
Net cash outflow from financing
activities (134 603) (52 855) (29 066)
Proceeds from share issues 1 440 350 350
Decrease in interest-bearing
long-term borrowings (13 463) (15 893) (108 479)
(Decrease)/increase in interest-
bearing short-term borrowings (84 081) (37 312) 79 063
Decrease in non-interest bearing
deferred payables (10 520) - -
Dividends paid (27 979) - -
Translation differences on cash
and cash equivalents 73 701 11 031 10 323
Movement in cash and cash
equivalents (2 469) (84 065) (9 310)
Cash and cash equivalents at the
beginning of the year 135 206 140 238 140 238
Cash and cash equivalents of
subsidiaries and businesses
acquired - 11 154 4 278
Cash and cash equivalents at the
end of the year 132 737 67 327 135 206
Segmental Analysis
Revenue
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2001 2000 2001
R'000 % R'000 % R'000 %
By business segment
Pharmaceutical 494 704 72,9 321 055 66,5 760 969 68,1
Consumer 184 144 27,1 161 747 33,5 357 113 31,9
Continuing operations 678 848 100,0 482 802 100,0 1 118 082 100,0
Discontinued operations - 20 605 30 964
678 848 503 407 1 149 046
By geographic segment
Continuing operations
South African operations 589 002 86,8 482 802 100,0 1 072 845 96,0
Australian operation 30 241 4,4 - - 6 700* 0,6
United Kingdom operation 59 605 8,8 - - 38 537** 3,4
678 848 100,0 482 802 100,0 1 118 082 100,0
Discontinued operations
South African operations - 20 605 30 964
Italian operation - - -
678 848 503 407 1 149 046
OPERATING PROFIT BEFORE AMORTISATION OF INTANGIBLE ASSETS
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2001 2000 2001
R'000 % R'000 % R'000 %
By business segment
Pharmaceutical 141 739 76,9 89 134 71,0 214 358 72,1
Consumer 42 686 23,1 36 327 29,0 83 086 27,9
Continuing operations 184 425 100,0 125 461 100,0 297 444 100,0
Discontinued operations - 9 839 8 892
184 425 135 300 306 336
By geographic segment
Continuing operations
South African operations 177 814 96,4 126 817 101,1 293 764 98,8
Australian operation 6 979 3,8 - - 1 539* 0,5
United Kingdom operation 4 522 2,5 - - 6 308** 2,1
Other offshore (4 890) (2,7) (1 356) (1,1) (4 167) (1,4)
184 425 100,0 125 461 100,0 297 444 100,0
Discontinued operations
South African operations - 2 839 1 795
Italian operation - 7 000 7 097
184 425 135 300 306 336
Disclosure of segmental Balance Sheet information has not been produced.
Having regard to the integration of the assets and liabilities of the
continuing operations, there is no objective method of allocating these
items and no allocation between the business segments relating to the
amortisation of intangible assets has been made.
* comprises trading from 1 May 2001 to 30 June 2001
** comprises trading from 1 January 2001 to 30 June 2001
Basis of Accounting
The interim results have been prepared in accordance with AC 127 and
schedule 4 of the South African Companies Act. The accounting policies used
in the preparation of the interim financial statements are consistent with
those used in the annual financial statements for the year ended 30 June
2001, except as indicated below, and conform with Statements of Generally
Accepted Accounting Practice in South Africa.
Building depreciation
In prior years, owned factory buildings which are used in the production
process, were not depreciated. In order to comply with the new Statement of
Generally Accepted Accounting Practice AC 135 (investment properties), the
Group's new accounting policy in this regard, is to depreciate these
buildings over their expected useful lives on a systematic basis.
Accordingly, the carrying amount of these buildings as at 30 June 2001 has
been restated as if depreciation of factory buildings had been determined in
terms of this statement. Prior year results have been restated to reflect
this change in accounting policy.
The effect of this change in the balance sheet is as follows:
Six months Year
ended ended
31 December 30 June
2001 2001
Cumulative depreciation adjustment 11 561 10 464
Deferred taxation effect (3 469) (3 139)
Net charge against opening retained income 8 092 7 325
The effect of thischange in accounting policy in the income statement was to
reduce net profit attributable to shareholders by R0,4 million for the six
months ended 31 December 2001 (R0,4 million for the six months ended 31
December 2000).
Comparatives:
Where necessary, comparative figures have been adjusted to conform with
changes in presentation in the current year.
Earnings per share
No fully diluted earnings per share in respect of outstanding share options
convertible into shares in the future, have been disclosed, as the potential
dilution is not material.
COMMENTARY
Aspen Pharmacare has produced excellent interim results for the the six
months ended 31 December 2001. Revenue from continuing operations of R678,8
million increased 41% over the comparative period last year. Operating
profits from continuing operations before amortisation of intangible assets
of R184,4 million are up 47%, reflecting a further improvement in operating
margins.
Growth of 38% in headline earnings per share was recorded (42% after
excluding operations discontinued in the previous financial year).
South African operations
The South African operations remain the driving force behind the Group's
performance. Operating margins before amortisation of intangible assets have
continued to improve. This has been achieved by the combined impact of
supply chain refinement and cost containment.
The Pharmaceutical Division delivered an outstanding performance. The
benefits of new product launches were seen in an increase of 28% in revenue
. These results reflect Aspen Pharmacare's continued leadership in both the
private and public sectors of the generics market. Good growth has also been
achieved in ethical products, led by Mybulen (the non-narcotic analgesic)
which has gained material market share since its launch in February 2001.
The Consumer Division continues to hold its own despite the difficult
trading conditions prevailing in the retail sector. Growth in revenue of 9%
was achieved over the comparative period last year and margins were
maintained.
Aspen Pharmacare is a competitive low cost producer of pharmaceuticals
through its production facilities in Port Elizabeth and East London. The
surge in sales experienced this year has resulted in record production
volumes. Following a strategic review, work is at an advanced stage on a
plan for the enlargement and enhancement of the manufacturing capabilities
of the Group to meet its objectives for the longer term. The prime objective
of the plan is to enable the Group to meet local demand. In addition,
internationally accepted manufacturing processes should broaden the Group's
scope for exports. The project will be funded by operating cash flows.
International operations
The Group's businesses in the United Kingdom and Australia only commenced
trading on 1 January and 1 May 2001 respectively. They accounted for R89,8
million (13,2%) of Group revenue and R11,5 million (6,3%) of Group operating
profit before amortisation of intangible assets. It is expected that these
contributions will increase in future through organic growth and
acquisitions. Aspen Pharmacare Australia exceeded its growth targets for the
first six months of the financial year. The business contributed R30,2
million to revenue and R7,0 million to operating profit before amortisation
of intangible assets. A number of initiatives to expand the Australian
business are under consideration.
Co-pharma, the 51% owned generics and over-the-counter business situated in
the United Kingdom, showed satisfactory results over the period. Revenue of
R59,6 million was well ahead of expectations. However, extremely competitive
trading conditions have suppressed margins resulting in an operating profit
of R4.5 million before amortisation of intangible assets. Performance in the
second half of the year will be boosted by a number of new product launches.
Management is actively pursuing opportunities to direct the business into
areas of higher contribution.
Funding
Aspen Pharmacare again recorded strong operating cash flows. The Group's net
consolidated debt has been further reduced from R242,7 million to R148,1
million. Finance costs were covered 9,0 times by operating profit before
amortisation of intangible assets.
Investment in working capital has increased by R68,3 million , predominantly
due to an increase of R52,1 million in inventories to R243.8 million.. The
South African business has been deliberately building stock levels in
anticipation of strong demand going into the winter period.
Anti Retrovirals ("ARVs")
Aspen Pharmacare has continued to position itself to be able to play a
meaningful role in tackling the HIV/AIDS pandemic in Southern Africa.
Development work on Stavudine and Didanosine, the ARVs in respect of which
Bristol Myers Squibb has waived its patent rights in Southern Africa, is at
an advanced stage. Submission to the Medicines Control Council of the
product dossiers for these products is expected shortly. The patented ARV
products for which Aspen Pharmacare has secured voluntary licenses in South
Africa from GlaxoSmithKline (i.e. AZT, 3TC and Combivir) are under
development.
Black economic empowerment
Aspen Pharmacare recognises the importance of black empowerment and
transformation in South Africa. After a lengthy period attempting to
identify a suitable black empowerment partner, it was announced on 31
January 2002 that CEPPWAWU Investments (Pty) Limited had acquired
26,7 million shares in Aspen Pharmacare. CEPPWAWU Investments is the
investment company of CEPPWAWU, the COSATU affiliated trade union which
represents organised labour in the Group's South African business. Aspen
Pharmacare's unionised employees have thus become stakeholders in the
business for which they work. The executive chairman of CEPPWAWU
Investments, Mr Muzi Buthelezi, has been elected to the board of Aspen
Pharmacare.
Taxation
As previously reported, South African Revenue Services ("SARS") has raised a
tax assessment for R39,2 million plus accrued interest in respect of a
transaction entered into by Pharmacare Limited prior to its acquisition by
Aspen Pharmacare. Based on professional advice received, the directors
strongly believe that the view of SARS is incorrect and have objected to the
assessment. The general provision on the balance sheet has nevertheless been
maintained to cover any liability which may arise out of this matter.
The group has been advised by SARS of its intention to adjust the
amortisation period of trademark allowances claimed under section 11(g) (A)
of the Income Tax Act from 10 years to 25 years. The directors intend to
object to this adjustment as they believe a write-off period of 25 years is
inappropriate. Should the position of SARS be upheld, there would be a
charge to the income statement of R3,5 million for accrued interest, a
liability of R23,0 million in favour of SARS would arise and the deferred
taxation asset would be increased by R19,5 million.
Prospects
Aspen Pharmacare has a strong product pipeline underpinning its prospects
into the future. This product pipeline has been enhanced by the conclusion
of an intellectual property transfer agreement in September 2001 with Merck,
one of the world's leading multinational generic companies. The cross-
pollination of intellectual property between the Group's international and
local operations will also add to the product pipeline.
The South African business has positioned itself to deal proactively with
the legislative changes to the healthcare environment. The implementation of
components of this legislation is believed to be imminent. When implemented,
the Group, as the leading provider of generics, will benefit from generic
substitution.
Aspen Pharmacare is well positioned to take advantage of the changing
circumstances in the South African market. Opportunities exist for the
further development of the international businesses in the United Kingdom
and Australia. It is envisaged that performance in the second half of this
financial year will exceed the first half. Given the excellent second half
performance in the previous financial year, the percentage growth achieved
in this period is likely to be less than that achieved in the first half.
Management nonetheless remains confident that, in the absence of unforeseen
circumstances, the targeted increase in headline earnings per share in
excess of 25% for the year will be achieved.
Dividends
In accordance with previously stated Group policy, no interim dividend has
been declared. It is intended to declare a final dividend after completion
of the financial year.
By order of the board
SB Saad MGAttridge HA Shapiro
(Group Chief Executive) (Deputy Group (Company Secretary)
Chief Executive)
Woodmead
12 February 2002
Transfer secretaries: Mercantile Registrars Limited (Registration number
87/03382/06) 10th Floor, 11 Diagonal Street, Johannesburg, 2001 (POBox
1053, Johannesburg, 2000)
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