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Aspen - Interim financial results for the six months ended 31 December 2004
Interim financial results for the six months ended 31 December 2004
Aspen Pharmacare Holdings Limited ("Aspen")
(Registration number 1985/002935/06)
Share code: APN
ISIN: ZAE000023586
32% increase in revenue
35% growth in headline earnings
Net cash from operating activities increased from R186,5m to R323,3m
World first for aspen to produce generic AIDS drugs
Group income statement
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2004 2003 % 2004
Rm Rm Change Rm
Revenue 1 390,8 1 055,6 32 2 201,7
Cost of sales (730,4) (545,9)** (1 143,6)
Gross profit 660,4 509,7 30 1 058,1
Other operating income 0,9 0,9 4,2
Selling and distribution
costs (172,6) (127,9) (285,9)
Administrative expenses (99,2) (79,2) (149,7)
Other operating expenses (34,7) (36,7) (73,0)
Operating profit 354,7 266,6 33 553,8
Net financing costs (32,9) (28,5)** (25,3)
Net profit before
taxation 321,8 238,2 35 528,5
Taxation (104,6) (78,6) (172,9)
Net profit attributable
to shareholders 217,1 159,6 36 355,6
Weighted average number
of shares in issue (`000) 340 817 355 773 356 223
Earnings per share -
basic (cents) 63,7 44,9 42 99,8
Earnings per share -
diluted (cents) 61,6 43,4 42 97,2
Headline earnings per
share (cents) 63,7 47,2 35 103,7
Headline earnings per
share - diluted (cents) 61,6 45,6 35 101,0
Dividends per share
(cents)* - - 30,0
Reconciliation of
headline earnings
Net profit attributable
to ordinary shareholders 217,1 159,6 355,6
Adjusted for:
- Amortisation of
goodwill - 8,3 13,8
- Profit on disposal
of property, plant
and equipment
(net of taxation) (0,1) (0,1) (0,1)
Headline earnings 217,0 167,8 369,3
*Relates to dividend declared after year-end. The policy of Aspen is to declare
a final dividend when the preliminary results for each financial year are
released.
**Net financing costs for the six months ended 31 December 2003 have been
restated to exclude the profit of R11,3 million in respect of embedded
derivatives which is now included in cost of sales. This is consistent with
disclosure for both the current reporting period and the year ended 30 June
2004.
Group balance sheet
Unaudited Unaudited Audited
31 December 31 December 30 June
2004 2003 2004
Rm Rm Rm
ASSETS
Non-current assets
Property, plant and equipment 436,9 265,1 313,0
Investment property 4,6 4,0 4,6
Goodwill 283,9 100,8 86,2
Intangible assets 471,2 409,0 437,2
Non-current receivables 1,3 19,5 7,5
Deferred taxation assets 114,6 138,1 124,5
Total non-current assets 1 312,5 936,6 972,9
Current assets
Inventories 325,0 264,8 245,7
Receivables and prepayments 455,0 372,0 425,6
Cash and cash equivalents 236,8 174,3 465,5
Total current assets 1 016,8 811,0 1 136,7
Total assets 2 329,3 1 747,7 2 109,7
SHAREHOLDERS" EQUITY
Share capital and share
premium 56,6 73,3 81,5
Treasury shares (281,6) (75,8) (75,8)
Non-distributable reserves 96,1 147,5 111,8
Retained income 1 080,8 741,4 949,0
Total shareholders" equity 951,9 886,3 1 066,5
LIABILITIES
Non-current liabilities
Interest-bearing borrowings 66,9 177,2 156,2
Interest-bearing
deferred-payables 41,1 74,5 39,7
Deferred taxation liabilities 90,6 43,1 61,6
Retirement benefit
obligations 12,3 11,2 10,8
Total non-current liabilities 210,9 305,9 268,4
Current liabilities
Trade and other payables 432,4 333,5 353,4
Interest-bearing borrowings 569,8 141,3 290,0
Interest-bearing
deferred-payables 58,2 56,8 55,2
Current taxation liabilities 106,1 21,5 76,2
Provisions - 2,2 -
Total current liabilities 1 166,5 555,5 774,8
Total liabilities 1 377,5 861,3 1 043,2
Total equity and liabilities 2 329,3 1 747,7 2 109,7
Number of shares in issue
(net of treasury shares)
("000) 338 028 356 309 358 208
Net asset value per share
(cents) 281,6 248,8 297,7
Supplementary information
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2004 2003 2004
Rm Rm Rm
Capital expenditure
Incurred
- tangible 39,2 95,9 158,1
- intangible assets 22,5 12,0 90,6
Contracted 14,6 53,9 10,1
Authorised but not contracted
for 2,8 7,7 18,6
Operating profit has been
arrived at after charging:
Depreciation of tangible
assets 20,3 13,9 27,5
Amortisation of goodwill - 8,3 13,8
Amortisation of intangible
assets 34,6 28,5 59,1
Net financing costs
Interest received 16,2 14,0 27,3
Net foreign exchange loss (1,3) (11,4) (10,2)
Fair value (losses)/gains on
financial instruments (8,1) (5,3) 6,6
Interest paid (35,3) (19,0) (37,0)
Net finance costs on
interest-bearing deferred -
payables and financial assets (4,4) (6,8) (12,0)
Net financing costs (32,9) (28,5) (25,3)
Operating lease commitments
- payable in one year 10,6 4,3 8,3
- payable thereafter 30,3 27,3 27,2
41,0 31,6 35,5
Finance lease commitments
- payable in one year 1,3 2,7 1,2
- payable thereafter 0,5 0,5 0,7
1,8 3,2 1,9
Other commitments
During the 2003 financial year
Aspen entered into a 12-year
agreement with 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 36,0 41,6 39,5
- payable thereafter 114,5 140,1 129,0
150,5 181,7 168,5
Contingent liabilities
There are contingent
liabilities in respect of:
Additional payments in respect
of the Quit worldwide
intellectual property rights 5,5 6,1 5,7
Guarantee covering potential
rental default relating
to sale of discontinued
operations 4,0 6,1 5,0
Guarantees covering loan and
other obligations
to third parties 4,6 1,5 1,8
Tibbett and Britten Africa (Proprietary) Limited have instituted a claim of
approximately R39 million for additional distribution fees. This claim has been
disputed and is being defended on the basis of the distribution agreement with
Tibbett and Britten. No further developments have taken place since 30 June
2004. Aspen"s advisors continue to hold the view that this claim is unlikely to
have a material adverse impact on Aspen"s business in the future.
Acquisition by Aspen of Fine Chemicals Corporation (Pty) Limited ("FCC") and
Nutricia (Pty) Limited ("Nutricia")
The Aspen Group has acquired with effect from 9 July 2004:
- 100% of the shares and shareholder claims against FCC for approximately R277
million of which R253 million has been paid out of existing cash resources. The
balance is due after the results for the year ending 30 June 2007 are finalised;
and
- 100% of the shares of and shareholder claims against Nutricia for R17,4
million, which has been paid from existing cash resources.
Specific share repurchase
With effect from 30 July 2004, 21,3 million Aspen shares were acquired by Aspen
from Peu Health (Pty) Limited in terms of a specific share repurchase for a
purchase consideration of R235,3 million (1 100 cents per Aspen share).
2 677 450 ordinary shares have been cancelled and reverted to authorised but
unissued share capital, while 18 622 550 shares have been repurchased by
Pharmacare Limited, a wholly owned subsidiary of Aspen, and are held as treasury
shares.
The purchase consideration has been paid from existing cash resources.
Statement of changes in group equity
Share Non-
capital distri-
and butable Retained Treasury
premium reserves income shares Total
Rm Rm Rm Rm Rm
Balance as at
1 July 2003 67,6 153,7 642,1 (75,8) 787,6
Currency translation
differences - (23,3) - - (23,3)
Net profit for
the year - - 355,6 - 355,6
Dividend declared - - (71,9) - (71,9)
Proportional release
of deferred taxation
asset - (23,2) 23,2 - -
Cash flow hedges
realised - 7,0 - - 7,0
Cash flow hedges
recognised - (2,4) - - (2,4)
Issue of share capital
(share options
exercised) 13,9 - - - 13,9
Balance as at
30 June 2004 81,5 111,8 949,0 (75,8) 1 066,5
Negative goodwill
adjustment in terms
of IFRS 3 - - 4,4 - 4,4
Restated opening
balance 81,5 111,8 953,3 (75,8) 1 070,9
Currency translation
differences - (5,3) - - (5,3)
Net profit for the
six months - - 217,1 - 217,1
Dividend declared - - (101,2) - (101,2)
Proportional release
of deferred taxation
asset - (11,6) 11,6 - -
Cash flow hedges
realised - 2,4 - - 2,4
Cash flow hedges
recognised - (1,3) - - (1,3)
Issue of share capital
(share options
exercised) 4,5 - - - 4,5
Share repurchase -
cancellation of
shares (29,5) - - - (29,5)
Share repurchase -
acquisition of
treasury shares - - - (205,8) (205,8)
Balance as at
31 December 2004 56,6 96,1 1 080,8 (281,6) 951,9
Group cash flow statement
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2004 2003 2004
Rm Rm Rm
Cash flows from operating
activities
Cash operating profit 432,5 318,9 670,6
Changes in working capital
(excluding the effects
of acquisition and disposal
of subsidiaries) (23,0) (11,1) (44,2)
Cash generated from operations 409,5 307,8 626,4
Net financing costs paid (32,9) (28,5) (25,3)
Taxation paid (53,3) (92,8) (102,3)
Net cash from operating
activities 323,3 186,5 498,7
Cash flows from investing
activities
Replacement capital expenditure (6,5) (12,0) (16,2)
Expansion capital expenditure -
tangible assets (32,7) (83,9) (141,9)
Proceeds on disposal of property,
plant and equipment 0,1 0,2 0,5
Expansion capital expenditure -
intangible assets (22,5) (12,0) (90,6)
Acquisition of subsidiaries
and businesses, net of
cash acquired (262,2) (48,9) (45,3)
Decrease in long-term
receivables 6,4 - 10,8
Net cash used in investing
activities (317,4) (156,7) (282,7)
Cash flows from financing
activities
Proceeds from interest-bearing
borrowings 358,9 83,2 234,1
Repayment of interest-bearing
borrowings (237,0) (62,3) (73,6)
Repayment of interest-bearing
deferred payables (20,5) (23,5) (58,2)
Proceeds from interest-bearing
deferred payables 0,8 6,9 10,0
Dividends paid (101,2) (71,9) (71,9)
Proceeds from issue of
ordinary shares 4,5 5,7 13,9
Share repurchase - cancellation
of shares (29,5) - -
Share repurchase - acquisition
of treasury shares (205,8) - -
Net cash from financing
activities (229,7) (61,8) 54,4
Effects of exchange rate
changes (4,8) 5,9 (5,3)
Cash and cash equivalents
Movement in cash and cash
equivalents (228,7) (26,0) 265,2
Cash and cash equivalents at
the beginning of the year 465,5 200,3 200,3
Cash and cash equivalents at
the end of the period/year 236,8 174,3 465,5
Segmental analysis
South Africal
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2004 % of 2003 % of 2004 % of
Rm total Rm total Rm total
Primary segments:
Geographical
Revenue 1 155,5 83,1 840,0 79,6 1 763,6 80,1
Operating profit
before
amortisation 342,8 88,1 265,2 87,4 548,9 87,6
Amortisation -
Goodwill - 0,0 (1,4) 16,5 (2,0) 14,3
Amortisation -
Intangible
assets (21,1) 60,9 (17,6) 61,8 (35,3) 59,7
Operating profit 321,7 90,7 246,2 92,3 511,6 92,4
Segmental analysis (continued)
Australia
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2004 % of 2003 % of 2004 % of
Rm total Rm total Rm total
Primary segments:
Geographical
Revenue 147,8 10,6 110,8 10,5 234,7 10,7
Operating profit
before
amortisation 24,7 6,3 19,9 6,5 37,7 6,0
Amortisation -
Goodwill - 0,0 (0,2) 2,4 (0,4) 2,9
Amortisation -
Intangible
assets (4,4) 12,6 (4,3) 15,0 (8,9) 15,1
Operating profit 20,3 5,7 15,4 5,8 28,4 5,1
Segmental analysis (continued)
United Kingdom
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2004 % of 2003 % of 2004 % of
Rm total Rm total Rm total
Primary segments:
Geographical
Revenue 87,5* 6,3 104,7* 9,9 203,5* 9,2
Operating profit
before a
mortisation 21,8 5,6 18,3 6,0 40,1 6,4
Amortisation -
Goodwill - 0,0 (6,7) 81,1 (11,4) 82,7
Amortisation -
Intangible
assets (9,1) 26,4 (6,6) 23,2 (14,9) 25,1
Operating profit 12,7 3,6 5,0 1,9 13,8 2,5
Segmental analysis (continued)
Total
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2004 % of 2003 % of 2004 % of
Rm total Rm total Rm total
Primary segments:
Geographical
Revenue 1 390,8 100,0 1 055,6 100,0 2 201,7 100,0
Operating profit
before
amortisation 389,3 100,0 303,4 100,0 626,6 100,0
Amortisation -
Goodwill - 0,0 (8,3) 100,0 (13,8) 100,0
Amortisation -
Intangible
assets (34,6) 100,0 (28,5) 100,0 (59,1) 100,0
Operating profit 354,7 100,0 266,6 100,0 553,8 100,0
Segmental analysis (continued)
Pharmaceutical
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2004 % of 2003 % of 2004 % of
Rm total Rm total Rm total
Secondary segments:
Business
Revenue 1 024,9 73,7 811,2 76,9 1 702,7 77,3
Operating profit
before
amortisation 332,0 85,3 265,7 87,6 544,8 86,9
Amortisation -
Goodwill - 0,0 (7,3) 88,7 (12,2) 88,7
Amortisation -
Intangible
assets (30,3) 87,4 (25,5) 89,4 (52,9) 89,4
Operating profit 301,7 85,1 233,0 87,4 479,7 86,6
Segmental analysis (continued)
Consumer
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2004 % of 2003 % of 2004 % of
Rm total Rm total Rm total
Secondary segments:
Business
Revenue 365,9 26,3 244,3 23,1 499,0 22,7
Operating profit
before
amortisation 57,3 14,7 37,6 12,4 81,9 13,1
Amortisation -
Goodwill - 0,0 (0,9) 11,3 (1,6) 11,3
Amortisation -
Intangible
assets (4,3) 12,6 (3,0) 10,6 (6,3) 10,6
Operating profit 53,0 14,9 33,7 12,6 74,0 13,4
Segmental analysis (continued)
Total
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2004 % of 2003 % of 2004 % of
Rm total Rm total Rm total
Secondary segments:
Business
Revenue 1 390,8 100,0 1 055,6 100,0 2 201,7 100,0
Operating profit
before
amortisation 389,3 100,0 303,4 100,0 626,6 100,0
Amortisation -
Goodwill - 0,0 (8,3) 100,0 (13,8) 100,0
Amortisation -
Intangible
assets (34,6) 100,0 (28,5) 100,0 (59,1) 100,0
Operating profit 354,7 100,0 266,6 100,0 553,8 100,0
The secondary segment reporting for the June 2004 and December 2003 periods has
been restated after a re-evaluation of the composition of the Pharmaceutical and
Consumer segments, in terms of which Schedule 2 medicines have been transferred
from the Consumer segment to the Pharmaceutical segment. This re-categorisation
has taken place as a consequence of the introduction of legislation restricting
the advertising of Schedule 2 medicines.
*Net of inter-segment sales to Aspen Australia of R40,8 million (December 2003:
R22,5 million; June 2004: R54,1 million).
Commentary
Group
Aspen has recorded excellent results for the six months ended 31 December 2004.
Headline earnings per share ("HEPS") of 63,7 cents represents growth of 35% on
the prior year interim results (47,2 cents). Reported HEPS benefited by 1,7
cents from the buy-back by Aspen of 21,3 million shares from Peu Health (Pty)
Limited at 1 100 cents per share with effect from 30 July 2004. Earnings growth
was underpinned by an increase in revenue of 32% to R1,4 billion and by an
increase in operating profit of 33% to R355 million.
South African operations
The South African business turned in a sound performance. Revenue growth of 38%
was complemented by the acquisition of Fine Chemicals Corporation (Pty) Limited
("FCC") and Nutricia (Pty) Limited during the period. Earnings before interest,
tax and amortisation ("EBITA") increased by 29%.
The Pharmaceutical Division recorded an increase in revenue of 30%. Finished
dosage form ("FDF") revenue was up 17% whilst revenue from active pharmaceutical
ingredients ("APIs") amounted to R82 million after eliminating intra Group
sales. The increase in FDF revenue was largely volume driven despite a
contraction in pharmacy stockholdings in response to the legislative changes.
The private market remains subject to persistent pricing pressure arising from
robust competition and the regulated freeze in prices as a consequence of the
introduction of the single exit pricing legislation. The sustained strength of
the rand on imported raw materials, effective procurement and further production
efficiencies mitigated pricing pressure on the margin line.
Revenue growth of 62% in the Consumer Division was buoyed by the contribution of
the infant milk formula ("IMF") products which are an addition to this division.
Performance was also positively influenced by the improved trading conditions in
the fast moving consumer goods market where Aspen has achieved strong market
penetration with its leading personal care brands.
Aspen retained its first position in the Campbell Belman Confidence Standing
Survey, underlining once again the excellence of Aspen"s sales personnel. This
survey of retail pharmacies and buying groups assessed the 39 leading over-the-
counter companies in South Africa.
The newly commissioned Oral Solid Dosage ("OSD") facility has received
accreditation by the South African Medicines Control Council and the United
States Food and Drug Administration ("FDA"). Inspections by other international
regulatory bodies, including the UK Medicines and Healthcare Products Regulatory
Agency and the World Health Organisation will take place in the forthcoming
months. Increasing volume demand has maintained pressure on production
capacities. This is expected to be relieved by the end of the financial year as
the OSD facility takes on an increased share of production. API revenue
benefited from improved volumes, but the enduring strength of the rand curtailed
overall performance as a primary market for these products is the United States.
Settlement has been reached in respect of the previously reported complaint by a
number of pharmaceutical wholesalers against a number of pharmaceutical
manufacturers, including Pharmacare Limited, lodged with the Competition
authorities. The wholesalers concerned have withdrawn their complaint and Aspen
is not required to make any payment in terms of the settlement, other than
previously incurred costs relating to defending the complaint.
International operations
The international businesses contributed revenue of R235 million, a 9% increase
over the prior year. EBITA rose by 22% as the higher margin businesses of Aspen
Australia and Aspen Resources increased their relative contribution. Performance
of the international businesses was muted by the stronger rand.
Aspen Australia increased revenue by 33% to R148 million. Operating margins
reduced as a consequence of the addition of lower margin products distributed on
behalf of Aspen Resources which were introduced in the last quarter of the
previous financial year. EBITA was up by 24% at R25 million.
Aspen Resources, with its expanded product range, contributed R19 million to
EBITA, an increase of 31%.
The Co-pharma business in the UK commodity generics market showed a 16% decline
in revenue and a 20% decline in EBITA to R3 million.
Cash flows and finance costs
Net financing costs increased to R33 million from R29 million in the previous
year. The utilisation of cash generated for the funding of acquisitions and the
Peu share buy back necessitated additional borrowings to meet working capital
requirements resulting in an increase in interest paid. This was partially
offset by a decrease in foreign exchange losses.
Net cash flows from operating activities of R323 million substantially
outstripped earnings of R217 million, once again proving the strong cash
generating capabilities of the Group. Working capital remained well managed,
increasing by only R23 million despite the higher level of business activity.
However, stock levels are below optimum as a consequence of recent demand
exceeding production output. A build up of stockholding is planned as increased
utilisation of the OSD facility improves overall production capacity.
Anti-retrovirals ("ARVs")
Aspen confirmed its global leadership status as a manufacturer capable of
supplying generic ARVs to those most in need when it became the first generic
ARV manufacturer in the world to receive tentative approval from the FDA for the
supply of a generic triple combination ARV therapy in a co-packed form. The
approval is classified as "tentative" as there are still patents over the
originator products in the United States. This approval qualifies Aspen as the
first generic supplier under President Bush"s Emergency Plan for AIDS relief
("PEPFAR") programme to which funding of US$15 billion has been committed. Aspen
was also one of the only three ARV manufacturers worldwide to be initially
recognised by the Clinton Foundation initiative for combating HIV/AIDS. This
international recognition endorses Aspen"s world class development and
production capabilities.
The award of the ARV tender for the South African market has been delayed, but
an announcement in this regard is expected shortly.
Black Economic Empowerment (BEE) transaction
Aspen is firmly committed to increasing broad based BEE ownership. Shareholders
are referred to the cautionary announcement dated 15 February 2005, in terms of
which shareholders were advised that negotiations have been resumed in respect
of a proposed BEE transaction, which takes into account the principles set out
in the draft Codes of Good Practice of Broad Based Black Economic Empowerment.
Prospects
Legal challenges to recently implemented legislation in the South African
healthcare environment have caused an extension of the period of uncertainty for
the market. Aspen"s exceptional generic product pipeline and commitment to the
low cost manufacture of quality generics has nevertheless enabled the Group to
continue to achieve excellent results.
Aspen anticipates a substantial increase in the number of products it launches
into the South African market over the period to 30 June 2006. Legislated
generic substitution should also favour the Group"s leadership status in the
South African generics market.
The Group"s investment in the OSD facility will drive production efficiencies
flowing from technological advances, will allow access to lower cost production
for the Group"s international businesses and will also open up new offshore
markets.
Aspen remains well positioned for real growth.
By order of the board
S B Saad
(Group Chief Executive)
M G Attridge
(Deputy Group Chief Executive)
H A Shapiro
(Company Secretary)
Woodmead
21 February 2005
Basis of accounting
The interim results have been prepared in accordance with AC 127, the Listings
Requirements of the JSE Securities Exchange South Africa and Schedule 4 of the
South African Companies Act.
The accounting policies used in the preparation of the interim financial
statements conform with South African Statements of Generally Accepted
Accounting Practice, and are consistent with those used in the annual financial
statements for the year ended 30 June 2004, except for the adoption of the
following revised South African Statements of GAAP: IAS 36 (AC 128) - Impairment
of Assets and IAS 38 (AC 129) - Intangible Assets as well as IFRS 3 (AC 140) -
Business Combinations, which replaced AC 131.
The above statements are applicable to all business combinations for which the
agreement date is on or after 31 March 2004, as well as financial years
commencing on or after 31 March 2004.
In addition, the amortisation of goodwill was discontinued as from 1 July 2004.
The carrying amount of goodwill will now be tested annually for impairment in
accordance with the requirements of AC 128.
www.aspenpharma.com
Directors: A J Aaron (Chairman)*, M G Attridge, M K Bagus*, L Boyd*, J F
Buchanan*, M E Buthelezi*, M Krok*, C N Mortimer*, D M Nurek*, S B Saad, W van
Rensburg.
*Non-executive directors
Transfer secretary: Computershare Investor Services 2004 (Pty) Limited
(Registration number 1987/003382/06) 70 Marshall Street, Johannesburg, 2001
(PO Box 61051, Marshalltown, 2107)
Registered office: Building number 8, Healthcare Park, Woodlands Drive, Woodmead
Date: 21/02/2005 01:00:12 PM Supplied by www.sharenet.co.za
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