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Aspen - Interim financial results for the six months ended 31 December 2005
Aspen Pharmacare Holdings Limited
(Registration number 1985/002935/06)
Share code: APN & ISIN: ZAE000066692
("Aspen")
INTERIM FINANCIAL RESULTS
for the six months ended 31 December 2005
- 27% increase in revenue
- 34% increase in operating profit
- 45% growth in headline earnings
GROUP INCOME STATEMENTS
Unaudited Restated Restated
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2005 2004 % 2005
Rm Rm Change Rm
Revenue 1 686,9 1 326,2 27 2 814,6
Cost of sales (880,1) (673,9) (1 418,1)
Gross profit 806,8 652,3 24 1 396,5
Other operating income 1,4 0,7 4,9
Selling and
distribution costs (203,2) (169,3) (356,6)
Administrative
expenses (115,0) (99,8) (198,6)
Other operating
expenses (60,1) (47,2) (390,5)
Investment income 43,9 16,2 38,0
Operating profit 473,8 352,9 34 493,7
Net financing costs (63,5) (49,3) (99,9)
Net profit before
taxation 410,3 303,6 35 393,8
Taxation (121,8) (101,0) (208,8)
Net profit attributable
to ordinary
shareholders 288,5 202,6 42 185,0
Weighted average number
of shares in issue
("000) 341 546 340 817 340 606
Earnings per share -
basic (cents) 84,5 59,4 42 54,3
Earnings per share -
basic diluted (cents) 82,0 57,8 42 52,9
Capital distribution
per share (cents) - - 48,0
HEADLINE EARNINGS AND EBITDA
Unaudited Restated Restated
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2005 2004 % 2005
Rm Rm Change Rm
Headline earnings per
share (cents) 86,3 59,4 45 138,0
Headline earnings per
share - diluted
(cents) 83,7 57,8 45 134,2
Reconciliation of
headline earnings
Net profit attributable
to ordinary
shareholders ("basic
earnings") 288,5 202,6 185,0
Adjusted for:
- BEE transaction - - 282,4
- Deferred tax asset in
respect of Nutricia
assessed loss raised (8,2) - (7,0)
- Goodwill in respect
of Nutricia written
down 0,5 - 7,0
- Fair value adjustment
to investment property - - 0,5
- Impairment of
intangible assets
(net of tax) - - 3,3
- Investment in FCC
written down to fair
value 14,1 - -
- Profit on disposal
of intangible assets
(net of tax) - - (1,4)
- (Profit)/loss on
disposal of property,
plant and equipment
(net of tax) (0,1) (0,1) 0,1
Headline earnings 294,8 202,5 469,9
Reconciliation of
EBITDA
Operating profit 473,8 352,9 493,7
Adjusted for:
- Depreciation 21,6 14,1 35,4
- Amortisation 45,6 47,1 94,8
- Investment income (43,9) (16,2) (38,0)
- Investment in FCC
written down to fair
value 13,9 - -
- BEE transaction - - 282,4
EBITDA 511,0 397,9 28 868,3
GROUP BALANCE SHEETS
Unaudited Restated Restated
31 December 31 December 30 June
2005 2004 2005
Rm Rm Rm
ASSETS
Non-current assets
Property, plant and equipment 499,3 457,2 477,8
Investment property - 3,7 4,0
Goodwill 176,0 281,9 270,4
Intangible assets 607,9 635,7 665,9
Preference share investment 376,8 - 376,8
Non-current receivables 0,1 1,3 0,1
Deferred tax assets 37,1 51,2 50,6
Total non-current assets 1 697,2 1 431,0 1 845,6
Current assets
Inventories 585,8 316,5 428,2
Receivables and prepayments 823,7* 444,5 513,1
Current tax assets 9,1 0,7 2,0
Cash and cash equivalents 482,0 236,5 439,5
Total current assets 1 900,6 998,2 1 382,8
Assets classified as held
for sale 172,5 - -
Total assets 3 770,3 2 429,2 3 228,4
SHAREHOLDERS" EQUITY
Share capital and share
premium 946,8 739,1 1 100,8
Treasury shares (623,0) (281,6) (641,7)
Non-distributable reserves 50,5 (3,9) 56,2
Share-based compensation
reserve 25,0 11,4 15,8
Retained income 744,7 602,8 490,8
Ordinary shareholders" equity 1 144,0 1 067,8 1 021,9
Preference shares - equity
component 144,6 - 144,6
Total shareholders" equity 1 288,6 1 067,8 1 166,5
LIABILITIES
Non-current liabilities
Preference shares - liability
component 404,9 - 406,6
Interest-bearing borrowings 51,4 66,9 62,7
Interest-bearing deferred-
payables 24,1 41,1 23,2
Deferred tax liabilities 94,9 75,9 88,9
Retirement benefit obligations 9,9 12,1 10,6
Total non-current liabilities 585,2 196,0 592,0
Current liabilities
Trade and other payables 686,7+ 432,0 571,4
Interest-bearing borrowings 1 054,5 569,8 761,7
Interest-bearing deferred-
payables 28,8 58,2 48,7
Current tax liabilities 97,5 105,4 88,1
Total current liabilities 1 867,5 1 165,4 1 469,9
Liabilities associated with
assets classified as held
for sale 29,0 - -
Total liabilities 2 481,7 1 361,4 2 061,9
Total equity and liabilities 3 770,3 2 429,2 3 228,4
Number of shares in issue (net
of treasury shares) ("000) 345 961 338 028 339 441
Net asset value per share
(cents) 330,7 315,9 301,1
*Includes pre-payment in respect of acquisition of 50% of Astrix (R232,5
million).
+Includes receipt in advance in respect of sale of 50% of FCC (R127,4 million).
STATEMENTS OF CHANGES IN GROUP EQUITY
Non-
Share capital distributable Retained Treasury
and premium reserves income shares
Rm Rm Rm Rm
Balance as at
1 July 2004 764,0 (3,3) 500,0 (75,8)
Negative goodwill
adjustment in
terms of IFRS 3 - - 4,4 -
Restated opening
balance 764,0 (3,3) 504,4 (75,8)
Currency
translation
differences - 25,9 - -
Net profit for
the year - - 185,0 -
Dividend
declared - - (101,2) -
Share options
awarded - - - -
Transfer to
retained income - - 1,3 -
Cash flow hedges
realised - 3,3 - -
Cash flow hedges
recognised - 4,7 - -
Issue of share
capital (share
options
exercised) 13,1 - - -
Issue of share
capital (BEE) -
net of
transaction
costs 355,8 - - -
Issue of
preference
share capital - - - -
Cancellation of
treasury shares (32,1) - (73,1) 75,8
Share repurchase
- acquisition of
treasury shares - - - (641,7)
Non-distributable
portion of
earnings - 25,6 (25,6) -
Balance as at
30 June 2005 1 100,8 56,2 490,8 (641,7)
Currency
translation
differences - (28,9) - -
Net profit for
the six months - - 288,5 -
Capital
distribution (184,7) - - 18,7
Share options
and appreciation
rights awarded - - - -
Cash flow hedges
realised - (4,7) - -
Cash flow hedges
recognised - (6,7) - -
Issue of share
capital (share
options
exercised) 30,7 - - -
Non-distributable
portion of
earnings - 34,6 (34,6) -
Balance as at
31 December
2005 946,8 50,5 744,7 (623,0)
STATEMENTS OF CHANGES INGROUP EQUITY (CONTINUED)
Equity
Share-based component
compensation of preference
reserve shares Total
Rm Rm Rm
Balance as at
1 July 2004 5,5 - 1 190,4
Negative goodwill
adjustment in
terms of IFRS 3 - - 4,4
Restated opening
balance 5,5 - 1 194,8
Currency
translation
differences - - 25,9
Net profit for
the year - - 185,0
Dividend
declared - - (101,2)
Share options
awarded 11,6 - 11,6
Transfer to
retained income (1,3) - -
Cash flow hedges
realised - - 3,3
Cash flow hedges
recognised - - 4,7
Issue of share
capital (share
options
exercised) - - 13,1
Issue of share
capital (BEE) -
net of
transaction
costs - - 355,8
Issue of
preference
share capital - 144,6 144,6
Cancellation of
treasury shares - - (29,4)
Share repurchase
- acquisition of
treasury shares - - (641,7)
Non-distributable
portion of
earnings - - -
Balance as at
30 June 2005 15,8 144,6 1 166,5
Currency
translation
differences - - (28,9)
Net profit for
the six months - - 288,5
Capital
distribution - - (166,0)
Share options and
appreciation
rights awarded 9,2 - 9,2
Cash flow hedges
realised - - (4,7)
Cash flow hedges
recognised - - (6,7)
Issue of share
capital (share
options
exercised) - - 30,7
Non-distributable
portion of
earnings - - -
Balance as at
31 December 2005 25,0 144,6 1 288,6
SUPPLEMENTARY INFORMATION
Unaudited Restated Restated
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2005 2004 2005
Rm Rm Rm
Capital expenditure
Incurred
- tangible assets 78,6 41,9 81,1
- intangible assets 29,3 23,1 86,2
Contracted 54,6 14,6 35,1
Authorised but not
contracted for 217,3 2,8 219,3
Operating profit
has been arrived
at after charging:
Depreciation of
tangible assets 21,6 14,1 35,4
Amortisation of intangible
assets 45,6 47,1 94,8
Share-based
payment expenses - BEE - - 282,4
Share-based
payment expenses
- employees 13,8 6,0 11,6
Investment income
Preference share
dividend received 12,8 - 1,0
Interest received 31,1 16,2 37,0
Total investment income 43,9 16,2 38,0
Net financing costs
Interest paid (49,8) (36,1) (76,8)
Preference share
dividend paid (14,2) - (1,5)
Net foreign exchange
gain/(loss) 2,3 (3,3) (6,7)
Fair value losses on
financial instruments
(non-cash) (0,9) (5,5) (7,7)
Net finance costs on
interest-bearing deferred-
payables and financial
assets (non-cash) (0,9) (4,4) (7,2)
Net financing costs (63,5) (49,3) (99,9)
Operating lease commitments
- payable in one year 10,3 10,6 10,2
- payable between
1 and 5 years 28,1 30,3 31,6
- payable thereafter 1,4 - -
39,8 40,9 41,8
Finance lease commitments
- payable in one year 1,9 1,3 0,6
- payable between
1 and 5 years 1,7 0,5 0,1
- payable thereafter 1,8 - -
5,4 1,8 0,7
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 21,6 36,0 30,6
- payable thereafter 79,7 114,5 101,3
101,3 150,5 131,9
During the 2005 financial year Aspen entered into a 10-year agreement with
Novartis Australia 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 7,9 - 8,7
- payable thereafter 49,6 - 54,5
57,5 - 63,2
CONTINGENT LIABILITIES
There are contingent
liabilities in respect of:
Additional payments in
respect of the Quit
worldwide intellectual
property rights 5,5 5,5 6,0
Guarantee covering potential
rental default relating to
sale of discontinued
operations 2,3 4,0 4,0
Guarantees covering loan
and other obligations to
third parties 1,5 4,6 1,6
The dispute with Tibbett and Britten Africa (Proprietary) Limited, regarding a
claim of approximately R39 million for additional distribution fees, was
withdrawn during the period. This claim was previously reported as a contingent
liability.
GROUP CASH FLOW STATEMENTS
Unaudited Restated Restated
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2005 2004 2005
Rm Rm Rm
Cash flows from operating
activities
Cash operating profit 522,2 430,8 922,3
Changes in working capital
(excluding the effects of
acquisition and disposal
of subsidiaries) (278,2) (20,3) (59,8)
Cash generated from
operations 244,0 410,5 862,5
Net financing costs paid (61,7) (39,4) (85,0)
Investment income received 43,9 16,2 38,0
Tax paid (89,2) (53,4) (170,0)
Net cash from operating
activities 137,0 333,9 645,5
Cash flows from investing
activities
Replacement capital
expenditure - property,
plant and equipment (33,1) (9,3) (23,1)
Expansion capital
expenditure - property,
plant and equipment (45,5) (32,7) (58,0)
Proceeds on disposal of
property, plant and
equipment 0,2 0,1 0,4
Replacement capital
expenditure - intangible
assets (2,5) - -
Expansion capital
expenditure - intangible
assets (26,8) (23,1) (86,2)
Proceeds on disposal of
intangible assets 1,0 - 4,0
Investment in preference
shares - - (376,8)
Acquisition of subsidiaries
and businesses, net of cash
acquired - (262,2) (262,1)
Acquisition of joint venture
- prepayment made (232,5) - -
Receipt in advance on
disposal of 50% of FCC,
net of cash 120,8 - -
Decrease in long-term
receivables - 7,6 9,2
Net cash used in investing
activities (218,4) (319,6) (792,6)
Cash flows from financing
activities
Proceeds from interest-
bearing borrowings 1 267,0 358,9 734,7
Repayment of interest-
bearing borrowings (976,2) (242,5) (434,0)
Repayment of interest-
bearing deferred-payables (20,1) (25,4) (59,3)
Proceeds from interest-
bearing deferred-payables - - 2,7
Net capital distribution/
dividend paid (166,0) (101,2) (101,2)
Proceeds from issue of
ordinary shares (share
options) 26,1 4,5 13,1
Proceeds from issue of
ordinary shares (BEE) - - 256,6
Share repurchase -
cancellation of shares - (29,5) (32,1)
Share repurchase -
acquisition of treasury
shares - (205,8) (641,7)
Proceeds from issue of
preference shares (BEE) - - 376,8
Net cash from financing
activities 130,8 (241,0) 115,6
Effects of exchange rate
changes (6,9) (2,3) 5,5
Cash and cash equivalents
Movement in cash and cash
equivalents 42,5 (229,0) (26,0)
Cash and cash equivalents
at the beginning of the
year 439,5 465,5 465,5
Cash and cash equivalents
at the end of the
period/year 482,0 236,5 439,5
SEGMENTAL ANALYSIS
South Africa
Unaudited Restated Restated
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2005 % of 2004 % of 2005 % of
Rm total Rm total Rm total
Primary segments:
Geographical
Revenue 1 392,1 82,6 1 099,7 82,9 2 297,4 81,6
Operating
profit before
amortisation 424,0 89,1 337,9 88,0 460,9+ 83,7
Amortisation -
Intangible
assets (32,3) 71,0 (33,9) 72,0 (67,7) 71,5
Investment
income 42,2 96,1 15,0 92,6 35,3 92,9
Operating
profit 433,9 91,6 319,0 90,4 428,5+ 86,8
SEGMENTAL ANALYSIS
Australia
Unaudited Restated Restated
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2005 % of 2004 % of 2005 % of
Rm total Rm total Rm total
Primary segments:
Geographical
Revenue 208,1 12,3 139,0 10,5 308,5 11,0
Operating
profit before
amortisation 27,3 5,8 24,5 6,4 45,1 8,2
Amortisation -
Intangible
assets (4,7) 10,4 (4,4) 9,3 (9,0) 9,5
Investment
income 0,6 1,4 0,4 2,6 0,9 2,4
Operating
profit 23,2 4,9 20,5 5,8 37,0 7,5
SEGMENTAL ANALYSIS
United Kingdom
Unaudited Restated Restated
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2005 % of 2004 % of 2005 % of
Rm total Rm total Rm total
Primary segments:
Geographical
Revenue 86,7* 5,1 87,5* 6,6 208,7* 7,4
Operating
profit before
amortisation 24,2 5,1 21,4 5,6 44,5 8,1
Amortisation -
Intangible
assets (8,5) 18,6 (8,8) 18,7 (18,1) 19,0
Investment
income 1,1 2,5 0,8 4,8 1,8 4,7
Operating
profit 16,8 3,5 13,4 3,8 28,2 5,7
SEGMENTAL ANALYSIS
Total
Unaudited Restated Restated
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2005 % of 2004 % of 2005 % of
Rm total Rm total Rm total
Primary segments:
Geographical
Revenue 1 686,9 100,0 1 326,2 100,0 2 814,6 100,0
Operating
profit before
amortisation 475.5 100,0 383,8 100,0 550,5+ 100,0
Amortisation -
Intangible
assets (45,6) 100,0 (47,1) 100,0 (94,8) 100,0
Investment
income 43,9 100,0 16,2 100,0 38,0 100,0
Operating
profit 473,8 100,0 352,9 100,0 493,7+ 100,0
SEGMENTAL ANALYSIS
Pharmaceutical
Unaudited Restated Restated
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2005 % of 2004 % of 2005 % of
Rm total Rm total Rm total
Secondary segments:
Business
Revenue 1 233,9 73,1 976,6 73,6 2 092,2 74,3
South Africa 983,3 790,0 1 655,2
Australia 166,6 101,2 233,5
United
Kingdom 84,0 85,4 203,5
Operating
profit before
amortisation 377,7 79,4 310,2 80,8 462,7 84,1
South Africa 337,9 274,9 394,6#
Australia 16,0 14,0 23,9
United
Kingdom 23,8 21,3 44,2
Operating
profit 376,3 79,4 287,5 81,5 416,4 84,3
South Africa 348,1 261,2 372,5#
Australia 13,2 13,0 16,0
United
Kingdom 15,0 13,3 27,9
SEGMENTAL ANALYSIS
Consumer
Unaudited Restated Restated
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2005 % of 2004 % of 2005 % of
Rm total Rm total Rm total
Secondary segments:
Business
Revenue 453,0 26,9 349,6 26,4 722,4 25,7
South Africa 408,8 309,7 642,2
Australia 41,5 37,8 75,0
United
Kingdom 2,7 2,1 5,2
Operating
profit before
amortisation 97,8 20,6 73,6 19,2 87,8 15,9
South Africa 86,1 63,0 66,3
Australia 11,3 10,5 21,2
United
Kingdom 0,4 0,1 0,3
Operating
profit 97,5 20,6 65,4 18,5 77,4 15,7
South Africa 85,7 57,8 56,1
Australia 10,0 7,5 21,0
United
Kingdom 1,8 0,1 0,3
SEGMENTAL ANALYSIS
Total
Unaudited Restated Restated
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2005 % of 2004 % of 2005 % of
Rm total Rm total Rm total
Secondary segments:
Business
Revenue 1 686,9 100,0 1 326,2 100,0 2 814,6 100,0
South Africa 1 392,1 1 099,7 2 297,4
Australia 208,1 139,0 308,5
United
Kingdom 86,7 87,5 208,7
Operating
profit before
amortisation 475,5 100,0 383,8 100,0 550,5 100,0
South Africa 424,0 337,9 460,9+
Australia 27,3 24,5 45,1
United
Kingdom 24,2 21,4 44,5
Operating
profit 473,8 100,0 352,9 100,0 493,7 100,0
South Africa 433,8 319,0 428,5+
Australia 23,2 20,5 37,0
United
Kingdom 16,8 13,4 28,2
* Net of inter-segment sales to Aspen Australia of R46,1 million (December
2004: R40,8 million; June 2005: R80,1 million).
+ Includes an amount of R282,4 million relating to the BEE transaction, expensed
in terms of IFRS.
# Includes an amount of R211,8 million relating to the BEE transaction, expensed
in terms of IFRS.
Includes an amount of R70,6 million relating to the BEE transaction, expensed
in terms of IFRS.
COMMENTARY
Group
Aspen"s results for the six months ended 31 December 2005 reflect the
continuation of the Group"s impressive growth record. Headline earnings per
share ("HEPS") of 86,3 cents are up 45% on the comparable prior year interim
performance. Revenue of R1,687 billion showed growth of 27% and operating profit
of R474 million represented an increase of 34%. The Group"s performance was
improved by a decrease in the effective tax rate from 33.3% to 29.7%.
The interim results are the first under International Financial Reporting
Standards ("IFRS"). The most material adjustments between reporting under IFRS
and reporting under South African Generally Accepted Accounting Practice ("SA
GAAP") under which results were previously prepared are:
- the recognition of share-based payment expenses;
- additional amortisation arising from the reinstatement of intangible assets
previously written off; and
- a reduction in depreciation as a consequence of a revision of the expected
useful lives of certain fixed assets.
Had the results for the six months ended 31 December 2004 and 2005 been reported
under SA GAAP, an increase in HEPS of 45% to 92,5 cents would have been
recorded.
SOUTH AFRICAN OPERATIONS
A good performance by the South African business once again underpinned the
results. Revenue increased by 27% and earnings before interest, investment
income, tax and amortisation ("EBITA") recorded growth of 25%. EBITA includes a
write down in the fair value of Fine Chemicals Corporation (Proprietary) Limited
("FCC") of R14 million. This write down is a consequence of the strengthening in
the Rand after setting off the US Dollar purchase consideration paid by Matrix
Laboratories Limited ("Matrix") for 50% of FCC in terms of the joint ventures
established between Aspen and Matrix.
Pharmaceutical Division revenue increased by 24% with finished dosage forms
("FDFs") up 25% and active pharmaceutical ingredients ("APIs") up 23%. The
freeze in prices in the private market imposed by legislation continued over
this period. A competitive generic market has resulted in downward pressure on
pricing and growth has been achieved through increased volumes significantly
bolstered by the contribution from new products. 20 new pharmaceutical products
were launched by Aspen during the six months. Aspen has derived more revenue
from new product launches in the private market than any other company over the
previous one year and two year periods, the most active new product launch
period in the Group"s history.
Revenue from anti-retroviral ("ARV") products increased materially and total
sales from the South African private and public sectors together with exports
into Africa exceeded R100 million.
The growth in the API business was export driven at attractive margins. The
joint venture transactions with Matrix in terms of which Matrix acquired 50% of
FCC for US$ 20 million and Aspen acquired 50% of Astrix Laboratories Limited
("Astrix"), a specialist ARV API producer in India for US$ 36,5 million became
effective on 1 January 2006.
Consumer Division revenue rose by 32% as the division increased its contribution
to Group earnings. The primary driver was the excellent performance by infant
nutritionals which also benefited from supply problems experienced by the market
leader in this area. Infant nutritional margins widened as Aspen successfully
took over production of the complete range, substituting more expensive imports
with local production.
Aspen"s production facilities continue to operate at high production levels. The
oral solid dosage ("OSD") facility is being used substantially for the
manufacture of ARVs and is still in the process of building its capabilities.
Previously reported difficulties in maintaining optimum inventory levels and in
service delivery are again being experienced as the escalating demand for ARVs
is prioritised. The capacity of the OSD facility will be enhanced by
approximately 40% with the commissioning of a second integrated granulation
suite in the forthcoming months.
The sterile facility in the process of construction in Port Elizabeth has been
expanded to cater for increased volumes. Consequently the project time frame has
been extended with initial production scheduled for the beginning of 2008. The
expected capital cost of the enlarged plant has increased to R 295 million.
The long running claim of approximately R39 million for additional distribution
fees by Tibbett and Britten Africa (Proprietary) Limited, now owned by Exel plc
("Exel"), was withdrawn during the period. Aspen has concluded a new five-year
agreement with Exel for fine distribution whilst taking back control of bulk
distribution previously performed by Exel.
INTERNATIONAL OPERATIONS
Aspen Australia increased revenue by 50% to R208 million. However, R50 million
of the increase in revenue is attributable to a distribution agreement with
Novartis which will only begin to contribute to earnings in 2008. EBITA of R27
million was up 11%.
In the UK, Aspen Resources increased EBITA by 19% to R21,8 million whilst Co-
pharma"s EBITA declined from R3,1 million to R2,4 million on flat revenue.
INVESTMENT INCOME, FINANCE COSTS AND CASH FLOWS
IFRS disclosure requires that investment income be disclosed before operating
profit and separately from net financing costs which is disclosed after
operating profit. Both amounts are a consequence of the management of Aspen"s
financial resources and should sensibly be considered together. A reduction in
interest paid, net of interest received has been achieved through careful
treasury management, despite a sharp increase in the investment in working
capital. Finance costs of interest-bearing deferred-payables have reduced as
most of these commitments have terminated. Foreign exchange gains and reduced
fair value losses on financial instruments also contributed to a decrease of R14
million in net finance costs.
The net cash inflow from operating activities of R137 million was less than
earnings of R289 million due to an increase in working capital of R278 million.
An additional R193 million has been invested in stock. The anticipated increase
in ARV business coupled to the critical stockholding requirements for ARV
products has lead to an increased investment of R107 million in ARV materials
and finished products. Stockholding has increased by a further R33 million due
to new product launches. Further increases in stockholding should be expected as
the ARV business continues to grow and levels of safety stock are increased
across all product lines as more production capacity comes on line. Debtors
increased by R99 million, which is consistent with the increase in trading
activity.
INFECTIOUS DISEASES
Aspen has continued to position itself as a world leader in generic ARVs. The
time consuming process of complying with the varying regulatory requirements of
each different market for ARVs in Africa is finally yielding positive results.
It is expected that the export markets for Aspen ARVs in the remainder of this
financial year will include Botswana, Zambia, Nigeria, Ethiopia, Tanzania,
Kenya, Uganda, Namibia and Malawi.
Aspen has added to its pipeline of ARV products. A voluntary license has been
secured from Merck Sharp and Dohme SA for the generic version of Efavirenz. The
development of Efavirenz by Aspen is at an advanced stage. The recently
announced agreement with Bristol-Meyers Squibb caters for both the technology
transfer and the manufacture of a generic version of the new generation ARV,
Atazanovir. In terms of the agreement, Aspen has the right to market the product
in some seventy countries.
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 to this arrangement, Aspen and Lupin have
reached an understanding for the establishment of a joint venture which will
acquire Lupin"s manufacturing and development capabilities for tuberculosis
products. The proposed joint venture will market tuberculosis products to the
global market with the exception of Southern Africa (exclusively Aspen), India
and the USA (exclusively Lupin). Aspen and Lupin are busy working together on
the details of the proposed joint venture.
PROSPECTS
Growth in the use of generic medicines in the South African market as well as
the performance of the new product launches are expected to be key drivers to
Aspen"s growth over the remainder of the financial year. Greater legislative
certainty may also emerge during this period. The strong increase in sales of
ARV products should continue, particularly in export markets, albeit at
significantly lower margins to the rest of the business. Unlocking production
capacity to match demand growth will remain a focus.
Investments completed and currently under negotiation are planned to
strategically position Aspen for continued growth. The joint ventures with
Matrix and Lupin will help place Aspen as a leader in fighting infectious
disease. The construction of the sterile manufacturing facility and the
development of sterile products will create a domestic and international
presence for Aspen in a specialist product area. Opportunities in existing and
new territories continue to be evaluated for strategic fit with the Group.
It is anticipated that growth in HEPS for the full year will be significant, but
the percentage growth for the second six months will not match that of the first
six months.
By order of the board
S B Saad (Group Chief Executive)
M G Attridge (Deputy Group Chief Executive)
H A Shapiro (Company Secretary)
Woodmead * 27 February 2006
RECONCILIATION OF NET PROFIT ATTRIBUTABLE TO ORDINARY SHAREHOLDERS
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2005 2004 2005
Rm Rm Rm
SA GAAP 309,5 217,1 494,0
Share-based payment expenses
- BEE1 - - (282,4)
Share-based payment expenses
- employees2 (13,8) (6,0) (11,6)
Amortisation3 (8,8) (12,4) (21,5)
Depreciation 2,0 6,2 5,9
Other (0,4) (2,3) 0,6
As reported under IFRS 288,5 202,6 185,0
Notes
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.
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, and are expensed over the vesting period, taking into
account the percentage expected to vest.
3. The most significant adjustment to amortisation comprises the additional
amortisation in respect of recognition of intangible assets previously written
off, and now reinstated.
RECONCILIATION OF EQUITY
31 December 30 June 1 July
2004 2005 2004
Rm Rm Rm
SAGAAP 951,9 1 106,8 1 066,5
Property, plant and
equipment 20,2 28,2 23,1
Investment property (0,9) - (0,9)
Goodwill (2,0) (1,4) -
Intangible assets 164,3 133,0 157,2
Inventories (8,5) 2,3 (3,7)
Receivables and prepayments (10,6) (13,1) (1,6)
Preference shares -
liability component - (57,6) -
Retirement benefit
obligation 0,2 - -
Trade and other payables 0,5 23,9 1,2
Tax effect of adjustments (47,3) (55,6) (51,4)
As reported under IFRS 1 067,8 1 166,5 1 190,4
BASIS OF ACCOUNTING
The condensed interim results have been prepared in accordance with IFRS, IAS 34
- Interim Financial Reporting, the Listings Requirements of the JSE Limited and
Schedule 4 of the South African Companies Act.
The date of the Group"s transition to IFRS is 1 July 2004, and this is the first
interim financial information prepared under IFRS. The financial statements for
the year ending 30 June 2006 will be the first full-year financial statements
prepared under IFRS. IFRS 1 - First-time adoption of IFRS, has been applied in
the preparation of this report.
The interim information has been prepared in accordance with the IFRS and IFRIC
interpretations as adopted for use in South Africa at the time of the
preparation of the information. As these standards and interpretations are
subject to ongoing review, they may be amended between the date of this report
and the finalisation of the annual financial statements for the year to June
2006.
The audited results for the year to June 2005, and the unaudited results for the
six months to December 2004 have been restated to comply with IFRS.
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.
www.aspenpharma.com
Directors: A J Aaron (Chairman)*, M G Attridge (Deputy Group Chief Executive), M
K Bagus*, L Boyd*, J F Buchanan*, M Krok*, C N Mortimer*, N J Dlamini*, P
Dyani*, D M Nurek*, S B Saad (Group Chief Executive), 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: 27/02/2006 12:28:20 PM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
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