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Aspen - Reviewed preliminary financial results for the year ended 30 June 2003
Aspen Pharmacare Holdings Limited
(Registration number 1985/002935/06)
Share code APN
ISIN number ZAE 000023586
("Aspen")
Revenue from continuing operations up 21%
Headline earnings per share up 26%
Dividend per share up 82%
Reviewed preliminary financial results for the year ended 30 June 2003
Group Income Statement
Restated
Reviewed Audited
Year ended Year ended
30 June 2003 30 June 2002
% change R"000 R"000
Revenue 1 900 805 1 582 837
Continuing operations 21 1 890 244 1 561 160
Discontinued operations 10 561 21 677
Cost of sales (1 039 967) (846 502)
Gross profit 860 838 736 335
Operating expenses (359 954) (321 477)
Operating profit before amortisation of intangible assets
500 884 414 858
Continuing operations 20 501 260 416 008
Discontinued operations (376) (1 150)
Reversal of general provision 17 518 50 000
Amortisation of goodwill -
accelerated (17 518) (50 000)
Amortisation of goodwill -
recurring (8 074) (8 363)
Amortisation of intangible
assets (45 957) (25 937)
Operating profit 446 853 380 558
Net financing costs (56 889) (48 221)
(Loss)/profit on disposal of
discontinued operations (1 053) 2 256
Net profit before taxation 388 911 334 593
Taxation (115 501) (109 398)
Net profit after taxation 21 273 410 225 195
Minority interest (2 765) (6 226)
Net profit attributable to
Ordinary shareholders 24 270 645 218 969
Weighted average number of
shares in issue(000"s) 353 079 350 364
Earnings per share -
basic (cents) 23 76,7 62,5
Earnings per share -
diluted (cents) 23 74,8 60,6
Headline earnings per
share (cents) 26 79,1 62,7
Headline earnings
per share - diluted (cents) 27 77,1 60,8
Reconciliation of headline
earnings
Net profit attributable to
ordinary shareholders 270 645 218 969
Adjusted for:
- Reversal of general provision (17 518) (50 000)
- Amortisation of goodwill -
accelerated 17 518 50 000
- Amortisation of goodwill -
recurring 8 074 8 363
- Profit on disposal of property,
plant and equipment (net of taxation) (570) (3 924)
- Loss/(profit) on disposal of
discontinued operations
(net of taxation) 1 053 (2 162)
Capital receipt - (1 694)
Headline earnings 279 202 219 552
Group Balance Sheet
Restated
Reviewed audited
30 June 2003 30 June 2002
R"000 R"000
ASSETS
Non-current assets 853 727 632 567
Property, plant and equipment 187 210 151 179
Goodwill 67 478 49 981
Intangible assets 429 931 234 241
Investments and loans 139 144
Financial assets 19 283 4 959
Deferred taxation asset 149 686 192 063
Current assets 827 978 812 137
Inventories 213 527 286 994
Trade and other receivables 414 105 341 079
Cash and cash equivalents 200 346 184 064
Total assets 1 681 705 1 444 704
EQUITY AND LIABILITIES
Capital and reserves
Share capital 67 571 57 545
Non-distributable reserves 153 731 228 113
Retained income 642 116 389 569
Treasury shares (75 807) (75 807)
Ordinary shareholders" equity 787 611 599 420
Minority interest 7 364 17 118
Non-current liabilities
Interest-bearing borrowings 143 798 54 013
Interest- bearing deferred payables 81 199 94 040
Deferred taxation liability 42 289 35 469
Retirement benefit obligations 11 155 9 321
1 073 416 809 381
Current liabilities 608 289 635 323
Trade and other payables 336 380 362 993
Interest-bearing borrowings 152 411 160 891
Interest- bearing deferred payables 66 120 60 522
Taxation 51 148 30 169
Current provisions 2 230 20 748
Total equity and liabilities 1 681 705 1 444 704
Number of shares in issue (net of
18,8 million treasury shares) (000"s) 354 646 351 517
Net asset value per share (cents) 222,1 170,5
Supplementary Information
Restated
Reviewed audited
Year ended Year ended
30 June 2003 30 June 2002
R"000 R"000
Capital expenditure :
Incurred
- oral solid dosage facility 34 229 3 609
- other tangible assets 31 019 28 664
- intangible assets 196 330 24 518
Contracted
- increase in Co-pharma shareholding* 50 263 94 472
- oral solid dosage facility 96 348 -
- other 6 946 5 794
Authorised not contracted
- oral solid dosage facility 20 049 146 391
- other 421 11 234
Proceeds on disposal of
tangible assets 1 374 11 214
Depreciation of tangible assets 27 580 23 443
Amortisation of intangible assets 45 957 25 937
Net financing costs
Interest received 36 379 18 237
Net foreign exchange (loss)/gain (10 277) 8 692
Interest paid (65 332) (64 146)
Net finance costs on interest bearing
deferred payables and financial assets (17 659) (11 004)
Net financing costs (56 889) (48 221)
*This obligation is GBP 4,1 million
(GBP 6 million at 30 June 2002).
The funds required to meet this
obligation are held offshore with
South African Reserve Bank approval.
Operating lease commitments
-payable within one year 7 879 9 783
-payable thereafter 20 600 9 992
28 479 19 775
Finance lease commitments
- payable within one year 2 940 -
- payable thereafter 1 514 -
4 454 -
Other commitments
During the financial year Aspen entered
into a 12-year agreement with
GlaxoSmithKline (GSK) to distribute and
market a range of their products.
In terms of this agreement Aspen is
committed to pay the following amounts to GSK over the 12-year period:
- payable within one year 52 727
- payable thereafter 161 267
Contingent liabilities
There are contingent liabilities in
respect of:
Additional payments in respect of the
Quit worldwide intellectual property
rights 6 768 9 279
Guarantee covering potential rental
default relating to sale of discontinued operations 7 520
12 372
The Group together with other third party pharmaceutical companies has an
obligation to Tibbett and Britten in respect of additional expenditure which may
be necessary to complete the implementation of a computer application at
Kinesis. An agreement is in the process of being finalised in terms of which the
Group liability in this regard is limited to R0,5 million. This amount has been
accrued for in the financial statements at 30 June 2003.
In June 2000, a number of pharmaceutical wholesalers lodged a complaint with the
Competition Commission against a number of pharmaceutical manufacturers,
including Pharmacare Limited. In the complaint they alleged that the
manufacturers had engaged in a number of prohibited practices. The
pharmaceutical wholesalers also instigated interim proceedings before the
Competition Tribunal in respect of the matters set out in the complaint. On 18
June 2003, the Competition Tribunal dismissed with costs this application for
interim relief and ruled in favour of the manufacturers. The pharmaceutical
wholesalers have subsequently appealed against this decision. On advice from the
company"s legal advisors, the directors of Aspen continue to hold the view that
this action is unlikely to have a material adverse impact on Aspen"s business in
the future.
Tibbet and Britten have claimed R20,6 million additional distribution fees from
Pharmacare Limited. This claim has been disputed on the basis of the
distribution agreement with Tibbet and Britten. To date this matter remains
unresolved and has been referred for independent adjudication to Deloitte &
Touche. Aspen"s advisers are of the view that this claim is unlikely to have a
material adverse impact.
Group Cash Flow Statement
Restated
Reviewed audited
Year ended Year ended
30 June 2003 30 June 2002
R"000 R"000
Cash operating profit 530 973 432 696
Working capital requirements (26 542) (103 034)
Cash generated from operations 504 431 329 662
Net financing costs (56 889) (48 221)
Taxation paid (54 127) (50 656)
Net cash inflow from operating
activities 393 415 230 785
Net cash outflow from investing
activities (352 779) (34 590)
Acquisition of minority interest in
subsidiary company (31 669) -
Goodwill acquired (468) -
(Acquisition)/disposal of subsidiary
companies and businesses (45 268) 7 000
Expansion capital expenditure -
intangible assets (196 330) (24 518)
Expansion capital expenditure - oral
solid dosage facility (34 229) (3 609)
Replacement capital expenditure (31 019) (28 664)
Proceeds on disposal of property,
plant and equipment 1 374 11 214
Acquisition of treasury shares - (52)
(Investment in)/realisation of
financial assets (15 170) 4 039
Net cash inflow/(outflow) from
financing activities 21 010 (193 928)
Proceeds from share issues 10 026 6 116
Increase/(decrease) in long-term
interest-bearing borrowings 92 186 (119 755)
Decrease in short-term interest-bearing
borrowings (8 070) (40 940)
Decrease in long-term interest-bearing
deferred payables (38 347) (49 267)
Increase in short-term interest-bearing
deferred payables 6 122 37 897
Dividends paid (40 907) (27 979)
Effects of exchange rate changes (46 359) 52 563
Movement in cash and cash equivalents 15 287 54 830
Cash and cash equivalents at the
beginning of the year 184 064 135 206
Cash and cash equivalents of
subsidiaries and businesses acquired/(disposed) 995
(5 972)
Cash and cash equivalents at the
end of the year 200 346 184 064
Restated
Reviewed audited
Segmental Analysis Year ended Year ended
30 June 2003 % 30 June 2002 %
REVENUE R"000 R"000
By business segment
Pharmaceutical 1 413 944 74,8 1 184 967 75,9
Consumer 476 300 25,2 376 193 24,1
Continuing operations 1 890 244 100,0 1 561 160 100,0
Discontinued operations 10 561 21 677
1 900 805 1 582 837
By geographic segment
Continuing operations
South African
operations 1 486 079 78,6 1 258 871 80,6
Australian operation 108 953 5,8 65 028 4,2
United Kingdom
operations 295 212 15,6 237 261 15,2
1 890 244 100,0 1 561 160 100,0
Discontinued operations
South African
operations 10 561 21 677
1 900 805 1 582 837
OPERATING PROFIT BEFORE AMORTISATION OF INTANGIBLE ASSETS
By business segment
Pharmaceutical 388 768 77,6 323 016 77,6
Consumer 112 492 22,4 92 992 22,4
Continuing operations 501 260 100,0 416 008 100,0
Discontinued operations (376) (1 150)
500 884 414 858
By geographic segment
Continuing operations
South African
operations 457 327 91,2 387 699 93,2
Australian operation 21 070 4,2 11 808 2,8
United Kingdom
operations 22 863 4,6 16 501 4,0
501 260 100,0 416 008 100,0
Discontinued operations
South African
operations (376) (1 150)
500 884 414 858
Disclosure of segmental Balance Sheet information has not been produced. Having
regard to the integration of the assets and liabilities of the pharmaceutical
and consumer business segments, there is no objective method of allocating these
items.
Statement of Changes in Group Equity
Share
capital Non-
and distributable Retained Treasury
premium reserves income shares Total
R"000 R"000 R"000 R"000 R"000
Balance as at
1 July 2001 as previously
reported 51 429 180 238 186 170 (75 755) 342 082
Effect of change
in application of AC 133
(Financial
instruments: Recognition and
Measurement) - 156 (6 948) - (6 792)
Restated balance
at 1 July 2001 51 429 180 394 179 222 (75 755) 335 290
Currency
translation
differences - 68 246 - - 68 246
Net profit for
the year - - 218 969 - 218 969
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
realised - 410 - - 410
Cash flow hedges
recognised - 519 - - 519
Issue of share
capital (share
options
exercised) 6 116 - - - 6 116
Acquisition of
treasury
shares - - - (52) (52)
Balance at
30 June 2002 57 545 228 113 389 569 (75 807) 599 420
Currency
translation
differences - (43 190) - - (43 190)
Net profit for
the year - - 270 645 - 270 645
Dividend
declared - - (40 907) - (40 907)
Proportional
release of
deferred
taxation asset - (23 156) 23 156 - -
Deferred
taxation asset
adjustment - (565) (347) - (912)
Cash flow
hedges
realised - (519) - - (519)
Cash flow
hedges
recognised - (6 952) - - (6 952)
Issue of share
capital (share
options
exercised) 10 026 - - - 10 026
Balance as at
30 June 2003 67 571 153 731 642 116 (75 807) 787 611
Commentary
GROUP
Aspen"s impressive performance for the year ended 30 June 2003 translated into
headline earnings per share of 79,1 cents, an increase of 26% on the prior year.
Aspen has produced an excellent second half set of results for the year ended 30
June 2003. Combined with the strong showing at the interim this has allowed the
Group to report full-year results reflecting revenue growth in continuing
operations of 21% at R1,9 billion and growth in operating profit before
amortisation of intangible assets of 20% at R0,5 billion. Despite continued
growth in Aspen"s offshore businesses situated in the United Kingdom and
Australia, the South African operations remain the cornerstone of the business.
The South African operations generated 79% of Group revenue and 91% of Group
operating profit before amortisation of intangible assets.
South African Operations
It has been a year marked by tough trading conditions in the pharmaceutical
industry. Pricing pressure has been applied through private sector initiatives.
Legislated generic substitution was finally implemented in May 2003 through Act
59 of 2002 (the successor to "Act 90"). The strengthening of the rand has
provided a competitive advantage to companies which are importers of finished
product. Despite these pressures, the South African business recorded growth of
18% over last year in both revenue and in operating profit before amortisation
of intangible assets. The operating margin was maintained at 30,8%.
The performance of the Pharmaceutical Division was strong given the prevailing
market conditions. Revenue grew at 17% and new product launches allowed for the
effective combating of pricing pressures. Aspen maintained its leading share of
the generics market. This position was reinforced by new product launches which
included the anti-histamine AP Loratadine (the generic of Clarityne), the
antibiotic Orpic (the generic of Ciprobay), the anti-depressant Cilift (the
generic of Cipramil) and the antibiotic Tafloc (the generic of Tarivid).
Aspen"s growing presence in the patented market was underlined by the conclusion
of a 12-year agreement with GlaxoSmithKline to distribute and market a basket of
40 products. Further strong growth was experienced by the non-narcotic analgesic
Mybulen. In the public sector, where business is awarded by tender, Aspen has
continued to demonstrate its ability to compete as a low-cost producer by
retaining its position as the leading provider of pharmaceuticals to the State.
The Consumer Division also delivered robust results. Market share has been
gained in the over-the-counter ("OTC") market. This has been further supported
by the acquisition with effect from 1 January 2003 of Triomed (Pty) Limited
("Triomed") for a purchase consideration of R50 million. Whilst Triomed has a
generic offering, the primary motivation for the acquisition was the
complimentary nature of Triomed"s OTC portfolio. This is particularly strong in
the cough and cold segment, with established brands such as Rinex and Sinumed.
The FMCG business displayed much resilience in tough trading conditions where a
degree of margin was sacrificed.
During the year construction commenced on the new oral solid dosage production
facility situated at the Port Elizabeth manufacturing site. This project is on
track with the timetable to commence production in mid-2004. R38 million had
been spent on the project by 30 June 2003. It is estimated that the new facility
will cost R150 million before funding costs. The completed facility will
introduce new technologies to Aspen, will improve production capacity and will
increase access to export markets.
International Operations
The international operations reported another year of impressive growth. Revenue
recorded by these businesses grew by 34% to R404,2 million and operating profit
before amortisation of intangible assets grew by 55% to R43,9 million.
Co-pharma Limited ("Co-pharma") continues to focus on the UK commodity generics
market. The strong revenue reported in the previous year was further increased
by 24% to R295,2 million. However, ongoing margin pressure resulted in operating
profit growing by only 10%, to R21,7 million. With effect from 1 July 2003,
Aspen increased its shareholding in Co-pharma from 80% to 100%. In terms of the
earn out formula, a consideration of GBP 4,1 million is payable for this final
tranche of the acquisition, bringing the total acquisition value to GBP 10,1
million.
The Group commenced a new initiative in the final quarter of the year through a
wholly owned UK based subsidiary, Aspen Pharmacare Resources Limited ("Aspen
Resources"). It is intended that Aspen Resources will invest in pharmaceutical
intellectual property for offshore territories and will then contract out the
distribution of the products which Aspen Resources will also supply. In its
first transaction, Aspen Resources has acquired the intellectual property for 12
products in Australia from Eli Lilly for R104,8 million. Aspen Australia has
been contracted to distribute these products.
Aspen Pharmacare Australia Proprietary Limited ("Aspen Australia") had an
outstanding year. Revenue was grown by 68% to R108,9 million and operating
profit before amortisation of intangible assets increased 78% to R21,1 million.
Funding
Aspen continued its history of strong operational cash flows during the year
under review, generating a net cash inflow from operating activities of R393,4
million (prior year R230,8 million). The increased investment in working capital
amounted to only R26,5 million despite the strong growth in trade. This was
primarily due to a reduction in the investment in stock by R78,5 million in the
South African business. This reduction in stock holding is the consequence of
supply chain initiatives. The current stock levels are considered to be lower
than the desired level to ensure optimum service delivery and some stock build
should be anticipated.
Deferred payables, arising from various marketing agreements, have been restated
as interest-bearing debt as a consequence of the full implementation of the
accounting standard AC 133.
Finance costs of R56,9 million were covered 8,8 times by operating profit before
amortisation of intangible assets. The finance cost element of payments against
deferred payables increased from R11,0 million to R17,7 million. Foreign
exchange losses of R10,3 million were incurred, mainly on forward cover
contracts which closed at rates above the spot rate, this as a consequence of
the strengthening rand. By contrast, foreign exchange gains of R8,7 million were
made in the prior year.
Anti retrovirals ("ARVs")
On 6 August 2003, Aspen announced the launch of the first generic ARV developed
and manufactured in South Africa, Aspen Stavudine. This breakthrough bears
testimony to the capabilities of Aspen"s scientists who were responsible for the
product development. The launch of this generic was made possible by Bristol
Myers Squibb ("BMS") relaxing its patent protection over the original product,
Zerit. The remaining ARVs for which Aspen has obtained voluntary licences have
been submitted to the South African Medicines Control Council ("MCC") for
registration.
Aspen has committed itself to providing generic ARV options in South Africa. The
launch of Aspen Stavudine is evidence of its ability to provide ARVs at prices
comparable with the World Health Organisation"s approved generic providers. Once
registration has been obtained from the MCC for the remaining ARVs, Aspen will
be able to provide a cocktail therapy to treat HIV/AIDS sufferers at less than
the benchmark price of USD1 per day.
Prospects
In the year ahead the Group will continue to position itself to effectively meet
the challenges arising in the South African pharmaceutical environment.
Legislated changes to the health care landscape will create uncertainty.
Pressure on pricing is expected to continue. However, over the past year Aspen
has demonstrated that it is well equipped to operate in this dynamic and
competitive environment. The largest generic pipeline in the South African
market and Aspen"s leadership position in the generic sector are critical areas
of strength. The ability to produce high-quality product at competitive prices
is essential and management is confident that the Group"s manufacturing
facilities, in the process of further enhancement, provide this key advantage.
Aspen Australia should continue its impressive record of growth as it develops
further critical mass in this market. It is anticipated that Aspen Resources
will make a positive contribution in the first year of this new initiative. The
extremely competitive nature of the UK commodity generics market is likely to
make further growth in this field difficult for Co-pharma. However, full
ownership of this business together with the future sourcing of product from
Aspen"s own facilities will provide more opportunities for repositioning.
Management expects to continue to deliver real growth in both revenue and
earnings.
Dividend declaration
Taking into account the earnings performance and strong cash flows, the
directors have declared a dividend of 20 cents per share for the year ended 30
June 2003, payable to those shareholders recorded in the register on Friday, 31
October 2003. This represents an increase of 82% over the previous year and is
covered 4 times by headline earnings per share. 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 2004. 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, 24 October 2003. The shares of Aspen will commence trading "ex"
the dividend from the commencement of business on Monday, 27 October 2003 and
the record date will be Friday, 31 October 2003. The dividend will be paid on
Monday, 3 November 2003. Share certificates may not be dematerialised or
rematerialised between Monday, 27 October 2003 and Friday, 31 October 2003, both
days inclusive.
By order of the board
SB Saad
(Group Chief Executive)
MG Attridge
(Deputy Group Chief Executive)
HA Shapiro
(Company Secretary)
Woodmead
20 August 2003
Transfer secretaries: Computershare Limited. 70 Marshall Street, Johannesburg
2001.
Registerd office: Building 8, Healthcare Office Park, Woodlands Drive, Woodmead.
Basis of accounting
The consolidated preliminary results have been prepared in accordance with South
African Statements of Generally Accepted Accounting Practice, the listing
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 2002 except as relating to certain aspects of AC 133, referred to below.
Hedge accounting and fair value of financial assets and liabilities
As disclosed in the 2000 annual report the Group adopted the South African
Statement of Generally Accepted Accounting Practice AC133 - Financial
Instruments: Recognition and Measurement. Certain aspects of AC133 relating to
hedge accounting and the fair value of financial assets and liabilities were not
strictly implemented as the impact thereof was not considered to be significant.
As it is anticipated that the impact of these aspects is likely to become more
significant in future years, during the year under review, the Group has made
the following changes:
Hedge accounting
For hedge accounting purposes relating to transactions with suppliers that are
denominated in foreign currency, the settlement of the creditor is now
designated as the hedged item as opposed to the import transaction.
Fair value of financial assets and liabilities
In prior years the gross values of product participation rights were recognised
as intangible assets and the corresponding obligations were disclosed as non-
interest-bearing deferred payables. To comply with AC133 in this regard, the
gross values of both the intangible assets and the related obligations have now
been discounted to their present values using an appropriate discount rate.
Furthermore certain other non-interest-bearing receivables which were previously
carried at original cost have been similarly discounted to fair value.
Restatement of comparatives
To facilitate comparability between 2003 and 2002, comparative amounts have been
restated as if the matters described in the above paragraphs had always been
implemented. Accordingly, the effect of these changes on retained income and
non distributable reserves in respect of periods prior to 1 July 2001 is
separately disclosed in the Statement of Changes in Group Equity.
The net effect of the prior year restatement is a reduction of R6,8 million in
net profit attributable to ordinary shareholders.
In addition to the above, comparative figures have been adjusted to conform with
changes in presentation in the current year, where necessary.
Date: 20/08/2003 11:24:07 AM Supplied by www.sharenet.co.za
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