Wrap Text
Reviewed, condensed, provisional, consolidated annual results for the year ended 31 December 2012
CIPLA MEDPRO
SOUTH AFRICA LTD
Registration number 2002/018027/06
JSE code CMP
ISIN ZAE000128179
REVIEWED, CONDENSED,
PROVISIONAL, CONSOLIDATED
ANNUAL RESULTS
for the year ended 31 December 2012
- Cipla India FIA to acquire 100% of CMSA for approximately R4,5 billion
- Revenue of R2,297 billion increased by 30%
- 3rd largest, and fastest growing of the top 10 pharmaceutical companies in SA, by value
- HEPS of 37,6 cents and EPS of 36,6 cents
decreased by 32% and 30% respectively compared to the restated results
- Normalised HEPS and EPS of 46,8 cents remained flat compared to the restated results
- 24% of ARV tender won by the CMSA group (R1,448 billion (including VAT))
CONDENSED PROVISIONAL CONSOLIDATED
STATEMENT OF FINANCIAL POSITION
Reviewed Restated Restated
31 December 31 December 31 December
2012 2011 2010
R'000 R'000 R'000
ASSETS
Non-current assets 1 920 769 1 925 787 1 833 442
Property, plant
and equipment 427 811 444 457 420 125
Intangible assets 1 397 749 1 390 057 1 371 197
Other investments 12 8 6
Loans receivable 1 596 3 191
Deferred tax assets 93 601 88 074 42 114
Current assets 1 092 157 850 750 668 000
Inventory 433 869 389 253 289 661
Income tax receivable 38 273 1 312 742
Trade and
other receivables 518 254 439 811 323 440
Loans receivable 4 424 3 881 7 709
Cash and
cash equivalents 97 337 16 493 46 448
Total assets 3 012 926 2 776 537 2 501 442
EQUITY
AND LIABILITIES
Capital and reserves 1 948 369 1 830 937 1 702 319
Non-controlling
interest 17 789 12 544 7 472
Total equity 1 966 158 1 843 481 1 709 791
Non-current liabilities 302 042 325 344 314 428
Loans and borrowings 268 003 282 722 314 428
Provisions 16 765 42 622
Deferred tax liabilities 17 274
Current liabilities 744 726 607 712 477 223
Trade and
other payables 615 611 431 683 381 521
Loans and borrowings 18 692 21 976 17 354
Provisions 44 282 30 000
Income tax payable 195 17 090 7 052
Bank overdrafts 65 946 106 963 71 296
Total liabilities 1 046 768 933 056 791 651
Total equity
and liabilities 3 012 926 2 776 537 2 501 442
CONDENSED PROVISIONAL CONSOLIDATED
STATEMENT OF COMPREHENSIVE INCOME
Reviewed Restated
Year ended Year ended
31 December 31 December
2012 2011
R'000 R'000
Revenue 2 297 224 1 767 561
Gross profit 1 142 936 1 029 862
Other income 15 422 121 264
Other operating expenses (831 814) (766 818)
Profit before finance costs
and income tax 326 544 384 308
Finance income 4 380 15 586
Finance costs (78 814) (58 212)
Profit before income tax 252 110 341 682
Income tax expense (83 746) (102 768)
Profit for the year 168 364 238 914
Profit attributable to:
Equity holders of the parent 161 369 233 888
Non-controlling interest 6 995 5 026
Profit for the year 168 364 238 914
Other comprehensive income
for the year (net of income tax)
Total comprehensive income
for the year 168 364 238 914
Total comprehensive income
attributable to:
Equity holders of the parent 161 369 233 888
Non-controlling interest 6 995 5 026
Total comprehensive income
for the year 168 364 238 914
Number of shares ('000)
In issue (including treasury shares) 446 462 446 462
Weighted average (excluding
treasury shares)
Basic 441 078 446 945
Diluted 443 292 449 264
Earnings per share (cents)
Basic 36,6 52,3
Diluted 36,4 52,1
CONDENSED PROVISIONAL CONSOLIDATED
STATEMENT OF CHANGES IN EQUITY
Reviewed Restated
Year ended Year ended
31 December 31 December
2012 2011
R'000 R'000
Total equity at beginning
of the year 1 843 481 1 709 791
Total comprehensive income
for the year 168 364 238 914
Share buy-back (49 983)
Shares issued from the
CMSA Share Option Trust 24 769
IFRS 2 Share-based Payments 2 729 1 455
Changes in ownership interest 1 407
Dividends paid (73 185) (58 103)
Total equity at end of the year 1 966 158 1 843 481
Comprising:
Capital and reserves 1 948 369 1 830 937
Non-controlling interest 17 789 12 544
Total equity 1 966 158 1 843 481
RECONCILIATION OF HEADLINE EARNINGS
Reviewed Restated
Year ended Year ended
31 December 31 December
2012 2011
R'000 R'000
Profit attributable to equity holders
of the parent 161 369 233 888
Adjusted for: 4 653 13 278
Gain on disposals of property,
plant and equipment (2) (72)
Loss on disposal of joint venture 385
Impairment of intangible assets 5 426 18 142
Total tax effects of adjustments (771) (5 177)
Headline earnings 166 022 247 166
Headline earnings per share (cents)
Basic 37,6 55,3
Diluted 37,5 55,0
CONDENSED PROVISIONAL CONSOLIDATED
STATEMENT OF CASH FLOWS
Reviewed Restated
Year ended Year ended
31 December 31 December
2012 2011
R'000 R'000
Cash flows from operating
activities 163 110 112 008
Cash flows from investing
activities (47 673) (107 021)
Cash flows from financing
activities 6 424 (70 609)
Net increase (decrease) in cash
and cash equivalents 121 861 (65 622)
Cash and cash equivalents at
beginning of the year (90 470) (24 848)
Cash and cash equivalents at
end of the year 31 391 (90 470)
CONDENSED PROVISIONAL
CONSOLIDATED SEGMENTAL REPORT
Reviewed Restated
Year ended Year ended
31 December 31 December
2012 2011
R'000 R'000
Segment revenue external
customers
SEP 1 729 994 1 258 717
OTC 410 680 391 955
Other operating segments 156 550 116 889
Total 2 297 224 1 767 561
Segment result
SEP 254 850 390 647
OTC 40 770 84 802
Other operating segments 30 924 26 118
Unallocated item legal settlement* (117 259)
Total 326 544 384 308
* The unallocated item relates to the RBSA settlement.
OVERVIEW
- Cipla Limited (Cipla India) firm intention announcement (FIA) of 100% of
Cipla Medpro South Africa Limited's (CMSA) share capital, at R10,00 per
share, announced on 28 February 2013. The circular to shareholders is
targeted for posting on or about 28 March 2013 and the Scheme meeting
of shareholders to consider and approve the transaction is planned for
30 April 2013.
- Revenue continues to grow at a pleasing rate despite all the distractions
of 2012. This is a testament to the commitment and dedication of our
exceptional sales force, assisted by the various key support functions
across our business.
- Single exit price (SEP) increase of only 2,1% granted during the 2012 year
an increase for 2013 of 5,8% effective from March 2013.
- Delays experienced at the Medicines Control Council (MCC) with the
registration of new molecules continue to hamper our ability to launch
new products.
- Gross margins come under pressure as a result of the change in product
mix and impact of the exchange rate.
- Incorrect application of our accounting policy on intangible assets in the
past resulted in an annual amortisation charge and impairments in 2012
as well as a prior period restatement relating to historic amortisation
charges and impairments of certain intangible assets.
- Chief Executive Officer (CEO) suspended in August 2012 and then
subsequently resigned in October 2012. Chief Financial Officer (CFO)
resigned in November 2012.
- Unauthorised bonuses paid to the former CEO and CFO were repaid in
2012 and are recorded in other income.
- KPMG Inc. appointed as the independent external auditors.
REVIEW OF OPERATIONS
We present our results for the year ended 31 December 2012 after another
challenging year that saw significant movements in the exchange rate and
an SEP increase of only 2,1%. Like the rest of the industry, we continue to face
challenges with the registration of new products at the MCC, many of which
are potentially first to market opportunities. Despite these restrictions on
our growth prospects, we are satisfied that we have continued to maintain
a leadership position and grow sales across various product lines and
therapeutic categories. Our ability to build enduring brands is reflected in
the fact that our leading brands like Lexamil and Venlor (central nervous
system); Asthavent and Budeflam (respiratory); and Carloc (cardiovascular)
have all maintained leadership positions in the market despite significant
and robust competition and the entry of new players with aggressive pricing
in the South African pharmaceutical market.
The South African pharmaceutical market continues to grow and presents
significant opportunities for the future. Unlike the mature markets of the
west, generic utilisation is still fairly low at around 58% (compared to 82%
in the US (Generic Pharmaceutical Association of America and IMS Health)
and in the 70%'s in some European markets (European Generics Association
and IMS Health)). This, combined with the significant patent expirations that
will occur in the next few years, will continue to see robust growth in generic
usage and opportunities for our company. We will continue to leverage off
Cipla India's pipeline and platform technologies and look forward to many
first to market opportunities in the future.
Despite the challenges noted above Cipla Medpro Holdings Proprietary
Limited (Cipla Medpro), a wholly owned subsidiary of CMSA, has continued
to grow on the back of a strong sales and marketing team, reliable supply
and excellent channel relationships. The total pharmaceutical market grew
by 7,1% in Rand value, whilst Cipla Medpro posted a growth of 15,3% with an
evolution index of 107,7; the highest of the top 10 pharmaceutical companies
in South Africa (IMS, December 2012).
Our overall market share has held steady at 5,2% and we are now entrenched
as the third largest pharmaceutical manufacturer by value (IMS, December
2012). We are pleased that our other divisions continue to show steady growth
with sales of R27,0 million (2011: R23,4 million) for our small animal business
(Cipla Vet) and R106,3 million (2011: R77,0 million) for our large animal
business (Cipla Agrimed).
Our Oncology division, with a broad portfolio of products, is gaining traction
and we have now launched a total of 17 products to the market (plus another
four products to be launched shortly). We are making inroads and will, in
addition, this year launch a number of other previously registered products.
The broad portfolios and our competitive pricing will stand us in good stead
for the next tender cycle.
We are pleased with the improved performance of our tender division which
bodes well for us going into the future, especially in light of the proposed
National Health Insurance (NHI). In real terms, in 2012 we delivered
131 stock keeping units (SKUs) to the state (2011: 108), shipped 24,9 million units
(2011: 14,3 million) an increase of 74,1%, received tender buy-outs (for tenders
awarded to other companies who were not able to deliver) to the tune of
R80,3 million excluding VAT (2011: R18,7 million) and achieved total tender
sales of R692,7 million excluding VAT (2011: R372,4 million). Significant gains
were made in the antiretroviral (ARV) tender, wherein for some product
lines we delivered more than two times the awarded tender volumes. We
are particularly pleased that the tender unit was able to grow sales from
buy-out opportunities more than three-fold. We were once again awarded
the respiratory tender and rounded off 2012 with the award of a significant
portion of the ARV tender from government worth a combined value of
approximately R1,448 billion (including VAT) for a two-year period that
commenced on 1 January 2013. This is a major achievement for CMSA and
an improvement from the previous ARV tender in which our award was
valued at R633 million (including VAT) from 2010 to 2012. The company's
portion now represents 24% of the total tender award. As per Government's
estimates included in the tender documents, our ARV tender combined
with the previously awarded respiratory tender could result in our tender
business with the State exceeding R2 billion over the next two years.
A material portion of these products will be manufactured at our
manufacturing facility (CMM) based in Durban.
CMM revenues grew by 46% from R197,9 million in 2011 to R288,9 million
in 2012, before inter-company eliminations. We continue to contract
manufacture for third parties and although opportunities to perform more
third-party manufacturing continue to present themselves, we are selective in
our approach so that priority is afforded to the recently awarded ARV tender
products and Cipla Medpro private sector products. We are committed to
continuously improve our efficiencies and drive cost containment initiatives
while we invest in new equipment and technology at our manufacturing
facility to meet the evolving good manufacturing practices and volume
requirements of our valued clients.
REVIEW OF RESULTS
Subsequent to the release of our 2011 annual results on SENS on 15 March
2012 and before finalisation of our 2011 Integrated Annual Report, the RBSA
matter was settled and we were required to restate our 2011 results, which
were then released on SENS on 29 June 2012. During the audit of our 2012
annual results, three issues have come to light that have resulted in prior
period restatements. As a result, the comparative information included in
this advert, and the base used for the analysis in the commentary, has been
restated accordingly. The restatements relate to a change in application of
the accounting policy relating to intangible assets, a VAT receivable and
VAT payable that needed to be raised (Rnil effect on retained income) and
an adjustment relating to stock which was overstated in 2011. We will refer
throughout to the 2011 results and these are the 'restated' results which take
into account the RBSA settlement, intangible asset impact (amortisation
charge and impairment, where applicable), VAT impact as well as the effect
on stock.
Earnings per share (EPS) has decreased from 52,3 cents to 36,6 cents
based on profit attributable to equity holders of the parent of R161,4 million
(2011: R233,9 million). Headline earnings per share (HEPS) has decreased
from 55,3 cents to 37,6 cents mainly as a result of the non-recurring
settlement income in 2011 of R68,8 million (2012: Rnil), the gains on the
mark to market valuation of forward exchange contracts (FECs) in 2011 of
R109,2 million (2012: losses of R47,8 million) and the impact of the RBSA
settlement in 2011 of R109,9 million (2012: Rnil). These calculations are
based on 441,1 million (2011: 446,9 million) weighted average number
of shares in issue for the 12 months of 2012 (before the effects of
dilution are taken into account). Headline earnings of R166,0 million
(2011: R247,2 million) were achieved after adjusting for the impairment of
intangible assets of R4,7 million (2011: R13,1 million), the gain on disposal of
property, plant and equipment in 2011 of R0,1 million (2012: one thousand
Rand) and the loss on the deemed disposal of a joint venture in 2011 of
R0,3 million (2012: Rnil), all net of tax.
In order to arrive at our normalised HEPS and EPS of 46,8 cents
(2011: 46,9 cents), the following adjustments (before tax) were made:
- added back the finance cost portion of the RBSA provision of R4,1 million
(2011: deducted the finance income portion R7,4 million) and in 2011
added back the RBSA settlement costs of R117,3 million and related legal
costs of R15,9 million (2012: Rnil);
- added back the net effect of interest rate swap entries (fair value
adjustments and swap settlements) of R0,3 million in 2011 (2012:
seventeen thousand Rand);
- added back the losses on the mark to market valuation of FECs of
R47,8 million (2011: deducted gains of R109,2 million);
- added back impairment on intangible assets of R5,4 million
(2011: R18,1 million);
- added back due diligence costs related to the Cipla India transaction of
R2,9 million (2011: Rnil); and
- in 2011 deducted the non-recurring settlement income of R68,8 million
(2012: Rnil).
After taking the above adjustments into account, normalised HEPS and EPS
have decreased slightly with 0,2% compared to the restated 2011 results.
Revenue improved by 30,0% to R2 297,2 million (2011: R1 767,6 million),
breaking through the R2 billion landmark with strong sales in the second
half of the year (June 2012: R1 079,8 million). The SEP increase of 2,1% was
granted with effect from 26 March 2012 and the increase for 2013 of 5,8%
with effect from 18 March 2013. The revenue growth was achieved mainly
through increased supply of ARVs to the State (increased by more than
100%), private market growth of approximately 13% and growth in the other
operating segments of approximately 34%. As a result of the product mix
changing based on the significant growth in ARVs supplied to the State and
the weakening Rand, gross margins came under pressure. The gross profit
(GP) increased by R113,0 million to R1 142,9 million (2011: R1 029,9 million)
with the GP margin reducing to 49,8% (2011: 58,3%).
Other income has decreased from 2011 mainly as a result of the non-
recurring settlement income of R68,8 million included in other income in 2011
(2012: Rnil) and the net effect of foreign exchange movements and gains on
mark to market valuation of FECs of R49,3 million (2012: R5,9 million).
Other operating expenses have increased by 8,5% from R766,8 million to
R831,8 million, including:
- losses on the mark to market valuation of FECs of R47,8 million
(2011: R109,2 million gains included in other income);
- advertising and marketing costs of R226,7 million (2011: R204,1 million);
- transport and freight of R34,0 million (2011: R26,2 million);
- amortisation charges of R22,5 million (2011: R24,4 million);
- impairment of intangible assets of R5,4 million (2011: R18,1 million); and
- depreciation of R21,9 million (2011: R18,5 million).
Operating expenses have been a key focus area for management over the
past six months and strict measures and corrective actions have been put
in place to ensure we start widening the gap between sales growth and
expenses, to ensure a sustainable and profitable future. We have covered
more than 80% of the purchases for the first six months of 2013 with FECs at
an average rate of approximately R8,74/USD currency.
A detailed exercise was undertaken with regard to the intangible assets
which resulted in the following:
- reassessment of the original purchase price allocation that was performed
when CMSA (previously Enaleni Pharmaceuticals Limited) acquired 100%
of the share capital of Cipla Medpro in December 2005; and
- reassessment of the useful lives.
The useful lives can be summarised as follows:
Useful life Period
Dossiers Indefinite and finite Finite: 2 to 56 years
Trademarks and registrations Indefinite and finite Finite: 2 to 56 years
Goodwill Indefinite N/A
Brands Indefinite N/A
The amortisation and impairment of intangible assets (excluding computer
software) are as follows:
2012 2011 2006 to 2010
R'000 R'000 R'000
Amortisation 20 224 22 971 101 597
Impairment 5 426 18 142 4 055
At 31 December 2012 there was a favourable net cash balance of R31,4 million
when compared to an overdrawn position of R90,5 million at 31 December
2011. Cash generated from operations increased from R112,0 million to
R163,1 million while cash outflows from investing activities reduced from
R107,0 million to R47,7 million as a result of less investment in property, plant
and equipment and intangible assets. Cash flows from financing activities
resulted in an inflow in 2012 of R6,4 million (2011: outflow of R70,6 million
which was mainly due to the share buyback and redemption of preference
shares that took place in 2011).
No final dividend will be declared for the 2012 year as a result of the Cipla
India transaction.
Restated
31 December 31 December
Ratio analysis 2012 2011
Debtors days* (days) 60 64
Inventory days (days) 130 168
Creditors days* (days) 133 165
Gearing/debt: equity ratio (%) 13,0 21,4
Current ratio (times) 1,5 1,4
Solvency ratio (times) 2,9 3,0
* This excludes the VAT receivable and payable.
BASIS OF PREPARATION
These condensed financial statements have been prepared in accordance
with the framework concepts and the measurement and recognition
requirements of International Financial Reporting Standards (IFRS), the
interpretations adopted by the International Accounting Standards Board,
South African Institute of Chartered Accountants Financial Reporting Guides
as issued by the Accounting Practices Committee and Financial Reporting
Pronouncements as issued by the Financial Reporting Standards Council
and include disclosure as required by IAS 34 Interim Financial Reporting and
the Companies Act of South Africa.
The financial statements have been prepared using accounting policies
that comply with IFRS and which are consistent with those applied
in the preparation of the financial statements for the year ended
31 December 2011, except for the incorrect application of the accounting
policy relating to intangible assets as mentioned above.
The condensed consolidated financial statements for the year ended
31 December 2012, have been reviewed by the group's external auditors
and their unqualified opinion is available for inspection at the company's
registered office.
MW Daly (CFO) is responsible for these condensed consolidated financial
statements and has been involved with the preparation thereof in conjunction
with E van der Merwe, both of whom are qualified Chartered Accountants
(South Africa).
DIRECTORATE
The following changes have been made to the board:
- former CEO, JS Smith, was suspended in August 2012 and then resigned
in October 2012;
- former independent, non-executive board member, JvD du Preez was
appointed as acting CEO in August 2012;
- former CFO, C Aucamp, resigned in November 2012; and
- MW Daly, former Company Secretary and Financial Director of CMM, was
appointed as CFO in November 2012.
The board continues to function in accordance with its approved charter.
R Manilall was appointed as Company Secretary in December 2012.
SUBSEQUENT EVENTS
During February 2013, as mentioned above, Cipla India made a firm intention
offer for the acquisition of 100% of the share capital of CMSA. This did not
impact the group's results for the year ended 31 December 2012.
Other than the event referred to above, the directors are not aware of any
other matter or circumstance which is material to the financial affairs of the
group, which has occurred subsequent to 31 December 2012, that has not
been otherwise dealt with in the consolidated financial results.
PCS Luthuli JvD du Preez
Chairman Acting Chief Executive Officer
19 March 2013
FORWARD-LOOKING STATEMENTS
This announcement contains certain forward-looking statements with respect
to the financial condition and results of the operations of Cipla Medpro South
Africa Limited that, by their nature, involve risk and uncertainty because they
relate to events and depend on circumstances that may or may not occur in
the future. These may relate to future prospects, opportunities and strategies.
If one or more of these risks materialise, or should underlying assumptions
prove incorrect, actual results may differ from those anticipated. By
consequence, all forward-looking statements have not been reviewed or
reported on by the group's auditors.
Non-executive directors PCS Luthuli (Chairman);
MB Caga; ND Mokone; MT Mosweu; SMD Zungu
Executive directors JvD du Preez (Acting Chief
Executive Officer); MW Daly (Chief Financial Officer)
Company secretary R Manilall
Registration number 2002/018027/06
JSE code CMP
ISIN ZAE000128179
Registered address 1474 South Coast Road
Mobeni, KwaZulu-Natal, 4052
Postal address PO Box 32003, Mobeni, 4060
Transfer secretaries Computershare Investor Services
Proprietary Limited
Telephone +27 31 451 3800
Facsimile +27 31 451 3889
Email investor@ciplamedpro.co.za
Whistle-blowing hotline 0800 21 21 51 (toll-free)
Sponsor Nedbank Capital
External auditors KPMG Inc.
Legal advisors Norton Rose South Africa
(incorporated as Deneys Reitz Inc.)
www.ciplamedsa.co.za
Date: 26/03/2013 07:10:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
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