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Aspen - Preliminary financial results for the year ended 30 June 2002
ASPEN PHARMACARE HOLDINGS LIMITED
("ASPEN")
(Registration number 1985/002935/06)
Share code: APN
ISIN: ZAE 000023586
FROM CONTINUING OPERATIONS
Revenue up 41%
Operating profit before amortisation of intangible assets up 45%
Headline earnings per share up 36%
Preliminary financial results for the year ended 30 june 2002
Group Income Statement
Restated
Reviewed Audited
Year ended Year ended
% 30 June 2002 30 June 2001
change R`000 R`000
Revenue 1 582 837 1 149 046
Continuing operations 41 1 577 603 1 118 082
Discontinued operations 5 234 30 964
Cost of sales (831 187) (545 306)
Gross profit 751 650 603 740
Operating expenses (321 477) (304 501)
Operating profit before
amortisation of intangible
assets 430 173 299 239
Continuing operations 45 431 533 298 174
Discontinued operations (1 360) 1 065
Amortisation of goodwill (8 363) (5 955)
Amortisation of intellectual
property (31 654) (10 590)
Operating profit 390 156 282 694
Net financing costs (48 084) (42 829)
Profit on sale of discontinued
operations 2 256 7 097
Net profit before taxation 39 344 328 246 962
Taxation (112 318) (66 905)
Net profit after taxation 232 010 180 057
Minority interest (6 226) (1 889)
Net profit attributable
to shareholders 27 225 784 178 168
Weighted average number of
shares in issue (000`s) 350 364 365 787
Earnings per share -
basic (cents) 32 64,4 48,7
Earnings per share -
diluted (cents) 32 62,4 47,2
Headline earnings per
share (cents) 34 64,6 48,2
Headline earnings per share
from continuing operations
(cents) 36 65,0 47,9
Reconciliation of headline earnings
Net profit attributable to
shareholders 225 784 178 168
Profit on sale of fixed assets (3 924) (798)
Amortisation of goodwill 8 363 5 955
Profit on disposal of
discontinued operations
(net of taxation) (2 162) (7 097)
Capital receipt (1 694) -
Headline earnings 28 226 367 176 228
Profit in respect of
discontinued operations
(net of taxation) 1 360 (1 036)
Headline earnings from
continuing operations 30 227 727 175 192
Supplementary Information
Restated
Reviewed Audited
Year ended Year ended
30 June 2002 30 June 2001
R`000 R`000
Capital expenditure:
Incurred 21 059 16 143
Contracted
- increase in Co-Pharma shareholding* 94 472 67 680
- other 5 794 6 759
Authorised not contracted 11 234 45 155
Depreciation 23 443 23 718
Net financing costs
Interest received 18 237 17 996
Net foreign exchange (loss)/gain (2 175) 6 431
Interest paid (64 146) (67 256)
(48 084) (42 829)
Operating lease commitments
- payable in one year 9 783 6 313
- payable thereafter 9 992 19 637
19 775 25 950
*This obligation is 6 million and is subject to variation dependant on
performance of the Co-Pharma business. The funds required to meet this
obligation are held offshore with South African Reserve Bank approval.
Group Cash Flow Statement
Restated
Reviewed Audited
Year ended Year ended
30 June 2002 30 June 2001
R`000 R`000
Cash operating profit 448 010 328 914
Working capital requirements (108 765) (51 582)
Cash generated from operations 339 245 277 332
Net financing costs (48 084) (42 829)
Taxation paid (50 656) (20 885)
Net cash inflow from operating
activities 240 505 213 618
Net cash outflow from investing
activities (36 068) (204 185)
Disposal/(acquisition) of
subsidiary companies and businesses 7 000 (80 752)
Acquisition of intangible assets
(note 1) (24 518) (31 535)
Acquisition of property plant and
equipment (21 059) (16 143)
Acquisition of treasury shares (52) (75 755)
Decrease in investments and loans 2 561 -
Net cash outflow from financing
activities (203 454) (29 066)
Proceeds from share issues 6 116 350
Decrease in long-term interest-bearing
borrowings (44 893) (108 479)
(Decrease)/increase in short-term
interest-bearing borrowings (115 802) 79 063
Repayment of non-interest-bearing
deferred payables (20 896) -
Dividend paid (27 979) -
Effects of exchange rate changes 53 847 10 323
Movement in cash and cash equivalents 54 830 (9 310)
Cash and cash equivalents at the
beginning of the year 135 206 140 238
Cash and cash equivalents of
subsidiaries and businesses
(disposed)/acquired (5 972) 4 278
Cash and cash equivalents at the
end of the year 184 064 135 206
Note 1
Gross acquisition of intangible
assets (162 783) (110 116)
Increase in non-interest-bearing
deferred payables 138 265 78 581
Net cash outflow (24 518) (31 535)
Statement of Changes in Group Equity
Share Non-
capital distri-
and butable Retained Treasury
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 profit 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
exercised) 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 - 69 009 - - 69 009
Net profit for the
period - - 225 784 - 225 784
Dividend declared - - (27 979) - (27 979)
Proportional release
of deferred taxation
asset - (23 250) 23 250 - -
Deferred taxation
asset adjustment - 1 794 (3 893) - (2 099)
Cash flow hedges
recognised - 1 450 - - 1 450
Issue of share
capital (share
options exercised) 6 116 - - - 6 116
Acquisition of
treasury shares - - - (52) (52)
Balance as at
30 June 2002 57 545 229 241 403 332 (75 807) 614 311
Group Balance Sheet
Restated
Reviewed Audited
30 June 2002 30 June 2001
R`000 R`000
ASSETS
Non-current assets 697 527 598 944
Property plant and equipment 151 179 146 749
Goodwill 99 981 109 477
Intellectual property 284 797 138 092
Investments and loans 144 2 954
Long-term receivables 8 481 11 310
Deferred taxation asset 152 945 190 362
Current assets 817 586 575 059
Inventories 292 443 185 395
Trade and other receivables 341 079 254 458
Cash and cash equivalents 184 064 135 206
Total assets 1 515 113 1 174 003
EQUITY AND LIABILITIES
Capital and reserves
Share capital 57 545 51 429
Non-distributable reserves 229 241 180 238
Retained income 403 332 186 170
Treasury shares (75 807) (75 755)
Ordinary shareholders` equity 614 311 342 082
Minority interest 17 118 10 697
Non-current liabilities
Interest-bearing borrowings 128 875 176 065
Non-interest-bearing deferred
payables 135 428 55 956
Retirement benefit obligations 9 321 9 885
905 053 594 685
Current liabilities 610 060 579 318
Trade and other payables 351 143 276 007
Interest-bearing borrowings 86 029 201 831
Non-interest-bearing deferred
payables 60 522 22 625
Taxation 30 169 3 800
Current provisions 82 197 75 055
Total equity and liabilities 1 515 113 1 174 003
Number of shares in issue
(net of treasury shares) (000`s) 351 517 349 422
Net asset value per share (cents) 174,8 97,9
Segmental analysis
Restated
Reviewed Audited
Year ended Year ended
% 30 June 2002 % 30 June 2001
REVENUE R`000 R`000
By business segment
Pharmaceutical 75,1 1 184 967 68,1 760 969
Consumer 24,9 392 636 31,9 357 113
Continuing operations 100,0 1 577 603 100,0 1 118 082
Discontinued operations 5 234 30 964
1 582 837 1 149 046
By geographic segment
Continuing operations
South African operations 80,8 1 275 314 96,0 1 072 845
Australian operation 4,1 65 028 0,6 6 700*
United Kingdom
operations 15,1 237 261 3,4 38 537**
100,0 1 577 603 100,0 1 118 082
Discontinued operations
South African operations 5 234 30 964
1 582 837 1 149 046
OPERATING PROFIT BEFORE
AMORTISATION OF
INTANGIBLE ASSETS
By business segment
Pharmaceutical 78,3 338 041 72,1 215 088
Consumer 21,7 93 492 27,9 83 086
Continuing operations 100,0 431 533 100,0 298 174
Discontinued operations (1 360) 1 065
430 173 299 239
By geographic segment
Continuing operations
South African operations 93,4 403 225 98,8 294 494
Australian operation 3,1 13 337 0,5 1 539*
United Kingdom
operations 4,9 21 186 2,1 6 308**
Other offshore (1,4) (6 215) (1,4) (4 167)
100,0 431 533 100,0 298 174
Discontinued operations
South African operations (1 360) 1 065
430 173 299 239
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 consolidated preliminary results have been prepared in accordance with South
African Statements of Generally Accepted Accounting Practice, the Listings
Requirements of the JSE Securities Exchange South Africa 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 accounting policies used in the preparation of the financial statements are
consistent with those used in the annual financial statements for the year ended
30 June 2001 except as indicated below.
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:
Year ended Year ended
30 June 2002 30 June 2001
R`000 R`000
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 this change in accounting policy in the income statement was to
reduce net profit attributable to shareholders by R0,8 million for the year
ended 30 June 2002 (R0,8 million for the year ended 30 June 2001).
Comparatives
Where necessary, comparative figures have been adjusted to conform with changes
in presentation in the current year.
Commentary
Group
Aspen has again produced strong results for the second six months of the year
ended 30 June 2002 to complement the excellent results at the interim reporting
stage. All sectors of the business achieved an improved showing in the second
half of the year over an already impressive first half performance. This
translates into a 41% increase in revenue from continuing operations over the
previous year to R1,578 billion. Aspen`s offshore businesses in the United
Kingdom and Australia contributed 19% to revenue in their first full year of
operation.
Operating profit from continuing operations before amortisation of intangible
assets of R431,5 million was recorded, an increase of 45%. The offshore
businesses contributed 7% of this amount. Headline earnings per share from
continuing operations increased to 65,0 cents (47,9 cents in the prior year),
growth of 36%.
South African Operations
From continuing operations, revenue was up 19% and operating profit before
amortisation of intangible assets was up 37%. These impressive results were
supported by the market penetration achieved by several product launches and the
increased contribution from marketing fees earned in terms of arrangements with
multinational pharmaceutical companies.
The results of the Pharmaceutical Division were outstanding. Revenue increased
by 26% over the previous year. Sales of pharmaceutical products grew by 23% and
revenue from marketing fees grew 92% to R48,3 million. Aspen`s leadership
position in the generics market place was reinforced by new product launches
including the oral contraceptive Minerva (the generic of Dianne-35) and the anti
histamine AP-Loratadine (the generic of Clarityne). A growth in state tender
business further added to volume increases in generics. In the ethical market
Mybulen (the non-narcotic analgesic) has continued to aggressively grow its
share of this therapeutic class. Marketing fees were boosted by the conclusion
in March 2002 of a 12-year deal with Novartis to promote a basket of twelve
products which includes Voltaren, Slow-K, Estraderm and Syntocinon. In
accounting for this arrangement, Aspen has recognized its obligations to
Novartis by raising a non-interest-bearing deferred payable of R138,3 million
for right of use. These costs are amortised over the life of the agreement.
Similar marketing arrangements are also in place with other multinational
companies.
The Consumer Division maintained market share over the course of the year, but
was faced with difficult trading conditions. Consequently growth was muted.
Despite limited new product offerings during the year, the division managed to
hold its own through the initiatives taken by management.
International Operations
Aspen`s international operations in the United Kingdom and Australia both posted
pleasing results in the first full year of operations. Although the results of
these businesses were enhanced by the weakness of the rand during the trading
period, each of the businesses exceeded its performance objectives in their
currency terms.
Aspen acquired a 51% share in UK-based Co-Pharma on 1 January 2001. Of Co-
Pharma`s revenue of R237,3 million, 75% was generated in the second half of the
year. This was achieved by gaining access to the distribution rights to a number
of first-to-market generic products. Due to the ongoing competitive nature of
the UK generics market, margins remained tight resulting in an operating profit
before amortisation of intangible assets of R21,2 million. In terms of the Co-
Pharma purchase agreement, Aspen will increase its stake in Co-Pharma to 80%
with effect from 1 July 2002, for 2 million, and to 100% with effect from 1
July 2003 for a further 4 million, subject to warranty terms.
Aspen Australia began trading on 1 May 2001 and has established itself in this
market over the course of the year. The product portfolio has been added to
during the period in niche market areas. The business delivered revenue of R65,0
million and contributed R13,3 million to operating profit before amortisation of
intangible assets.
Production Facilities
The strong growth in sales resulted in record production volumes during the year
from the Group`s production facilities situated in Port Elizabeth and East
London. The Port Elizabeth site ran several production lines at full capacity
during periods of the year. Due to the pressure placed on both manufacturing and
the supply chain by unprecedented volumes, a conscious decision has been taken
to withdraw from certain high volume, marginal tenders for the year ahead.
Following the strategic review of the Group`s manufacturing capabilities, it was
concluded that to maintain Aspen`s position as a competitive producer of quality
pharmaceuticals, an enlargement and enhancement of its production facilities is
necessary. After exhaustive investigation and planning, a project to establish a
new oral solid dosage (tablets and capsules) manufacturing facility at the Port
Elizabeth site has been authorised. The capital cost of the project, before
funding costs, is estimated at R150 million which has been authorised but not
contracted subsequent to the year-end. It is anticipated that the facility will
be operational during 2004. The facility has been designed to internationally
accepted manufacturing process standards which will provide Aspen with increased
export opportunities. The project will be funded by operating cash flows.
Funding
Aspen continues to generate strong operational cash flows, the net cash inflow
from operating activities amounted to R240,5 million. The Group`s net
consolidated interest-bearing debt was reduced from R242,7 million to R30,8
million over the reporting period. Finance costs were covered 8,9 times by
operating profit before amortisation of intangible assets. Finance costs
increased to R48,1 million from R42,8 million in the prior year. The provision
for possible interest on the unresolved tax objection discussed below added R6,4
million to the interest charge. Furthermore, net foreign exchange transaction
losses of R2,2 million were incurred as a result of the strengthening of the
South African Rand after committing to forward exchange contracts (prior year
foreign exchange transaction gains of R6,4 million).
Investment in working capital increased by R108,8 million during the year. This
increase was the consequence of the growth achieved in the business and higher
stockholding values. An additional R103,2 million of working capital was
committed to inventories. Inflation in the value of inventories in the South
African operation as a consequence of the devaluation of the rand and the
deliberate building of stocks in the South African business in order to improve
service levels are contributing factors to this increase. Inventory levels are
receiving specific management attention.
Anti Retrovirals ("ARVs"), Tuberculosis and Malaria
Aspen has submitted dossiers to the Medicine Control Council ("MCC") for the
Bristol Myers Squibb ARV generic products for "fast-track" approval to supply
the market It is hoped that such approval will be granted shortly. The
GlaxoSmithKline ARV products are all in development and expected to be submitted
to the MCC in the next six months. Aspen is immediately able to manufacture high
quality, affordable ARVs in South Africa. It is expected that South African
corporates will support this local iniative to supply these essential medicines
needed to combat the HIV/Aids pandemic.
Furthermore Aspen is exploring opportunities to play a more effective role in
accessing pharmaceuticals which can combat two of the other most prevalent
diseases in the region, tuberculosis and malaria.
Black Economic Empowerment
Aspen Pharmacare recognises the importance of black economic 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 ("CI") had acquired 26,7 million shares in
Aspen. CI is the investment company of CEPPWAWU, the COSATU affiliated trade
union which represents organised labour in Aspen`s South African business.
Aspen`s unionised employees have thus become stakeholders in the business for
which they work. The executive chairman of CI, Mr Muzi Buthelezi, has been
appointed to the board of directors of Aspen.
Taxation
It was reported at the interim stage that the South African Revenue Services
("SARS") had advised Aspen of its intention to adjust the period of trademark
allowances claimed under section 11(g)(A) of the Income Tax Act. Following
discussions with SARS, this matter has been satisfactorily resolved.
In addition, as previously reported, SARS has raised a tax assessment of R39,2
million in respect of a transaction entered into by Pharmacare Limited prior to
the acquisition of that company by Aspen. Based on professional advice, the
directors strongly believe that the view of SARS is incorrect and have appealed
against the assessment. The general provision on the balance sheet has
nevertheless been maintained to cover any liability which may arise in this
regard.
Prospects
Aspen has a strong product pipeline underpinning its future prospects. The
further strengthening and extension of the product pipeline is an area of
continuous focus.
Pressures being exerted by health care funders and shifts in the traditional
distribution channels will undoubtedly give rise to changes in the South African
pharmaceutical market in the year ahead. Aspen has actively positioned itself to
deal constructively with such changes and to ensure that the Group is equipped
to optimise these opportunities. As the leading provider of generics in South
Africa, Aspen is ideally placed to benefit from generic substitution, whether
legislated or funder driven.
In the year ahead attention will be paid to the further development of Co-Pharma
and Aspen Australia. Both of these businesses are capable of material growth
given their very small presence in their respective markets. However, Co-Pharma
remains vulnerable to the commodity cycle in the UK and efforts will be made to
diversify the product portfolio of this business.
Aspen has budgeted for growth in both turnover and profitability in the year
ahead, which in the absence of unforeseen circumstances, will result in an
increase in headline earnings per share exceeding 20%.
Dividends and Dividend Declaration
Taking into account the excellent results and reduced gearing, the directors
have declared a dividend of 11 cents per share (an increase of 38% over the
previous year), which is covered 6 times by headline earnings per share.
Notwithstanding this dividend Aspen`s anticipated cash flow will enable it to
fund the upgrade of its manufacturing facilities referred to above and further
growth. In compliance with AC 107 (events after balance sheet date), this
dividend will only be accounted for in the financial statements in the year
ending 30 June 2003.
It remains the policy of Aspen to declare a final dividend after the preliminary
results for each financial year have been released.
The last day to trade "cum" the dividend in order to participate in the dividend
will be Friday 25 October 2002. The shares of Aspen will commence trading "ex"
the dividend from the commencement of business on Monday 28 October 2002 and the
record date will be Friday 1 November 2002. The dividend will be paid on Monday
4 November 2002. Share certificates may not be dematerialised or rematerialised
between Monday 28 October 2002 and Friday 1 November 2002, 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 2002
Transfer secretaries: Computer Share Investor Services Limited. 11 Diagonal
Street, Johannesburg 2001.
Registered office: Building number 8, Healthcare Park, Woodlands Drive,
Woodmead.
Date: 21/08/2002 11:00:00 AM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department