Wrap Text
Reviewed Provisional Group Financial Results for the year ended 30 June 2014
Aspen Pharmacare Holdings Limited (“Aspen Holdings” or "the Company")
(Registration number 1985/002935/06)
Share code: APN
ISIN: ZAE000066692
and its subsidiaries (collectively “Aspen” or “the Group”)
Reviewed provisional Group financial results for the year ended 30 June 2014
- Normalised headline earnings per share increased 27% to 1 064,2 cents
- Earnings per share increased 42% to 1 097,9 cents
- Headline earnings per share increased 29% to 1 016,3 cents
- Distribution to shareholders per share increased 20% to 188 cents
- Operating profit increased 47% to R7,4 billion
- Revenue increased 53% to R29,5 billion
- Significant acquisitions amounting to R19,8 billion concluded during the year
- Offshore contribution increased to 78% of Group operating profit
Commentary
Group performance
Aspen raised gross revenue 51% to R31,4 billion and increased operating profit 47% to R7,4 billion in the year ended
30 June 2014. The improvement in operating profit was moderated by transaction costs of R339 million incurred in respect
of the significant acquisitions which were completed during the year. Profit for the year and earnings per share were
both 42% higher at R5,0 billion and 1 098 cents respectively. Normalised headline earnings, being headline earnings
adjusted for specific non-trading items, was up 27% to R4,9 billion and normalised headline earnings per share also advanced
27% to 1 064 cents. The International business was the most significant growth driver and was also the business segment
which made the largest contribution to revenue and to operating profit.
Significant transactions
A number of significant transactions were completed during the financial year and were influential in the performance
of the Group. These transactions have created important new opportunities for Aspen in both product offering and geographic
coverage.The key terms of these transactions are set out below:
- The acquisition of the active pharmaceutical ingredient (“API”) manufacturing business, primarily in the
Netherlands, from MSD for EUR31 million net of cash acquired, became effective 1 October 2013 and trades as Aspen Oss and
Aspen API.
- The acquisition of a portfolio of 11 branded finished dose form molecules from MSD in a related transaction for
USD600 million, of which USD67 million is subject to delayed payment terms, became effective on 31 December 2013.
- The acquisition of the Arixtra and Fraxiparine/Fraxodi thrombolytic brands worldwide (excluding China, India and Pakistan)
from GlaxoSmithKline (“GSK”) for GBP505 million became effective on 31 December 2013.
- In a connected transaction, which became effective on 30 April 2014, a further GBP194 million was paid to GSK for the
acquisition of the specialised sterile production site in France which manufactures these brands and the related inventory.
This business trades as Aspen Notre Dame de Bondeville (“Aspen NDB”).
- The acquisition, from Nestlé, of certain licence rights to infant nutritional intellectual property, net assets, including
a production facility in Mexico, and shares in infant nutritional businesses in several countries in Latin America
for a purchase consideration of USD180 million was completed with effect from 28 October 2013.
- The acquisition, from Nestlé, of certain rights to intellectual property licenses and net assets of the infant
nutritionals business previously conducted by Pfizer in certain southern African territories, including South Africa, was
approved by the competition authorities and became effective on 27 January 2014. The purchase consideration for this
transaction of USD43 million was prepaid in the prior financial year.
International business
The International business advanced revenue 242% to R12,7 billion and increased operating profit before amortisation,
adjusted for specific non-trading items (“EBITA”), 144% to R3,6 billion. The margin percentage in the International
business narrowed as a consequence of lower margin rates in the Aspen Oss business and in the infant nutritional business in
Latin America acquired during the year. The International business gained most from the significant transactions
completed during the financial year and contributed 40% of Group gross revenue and 47% of Group EBITA. Performance was also
boosted by positive organic growth from the pre-existing global brands portfolio.
With effect from 1 January 2014, Aspen introduced a specialised sales and marketing team into Europe and the
Commonwealth of Independent States (formerly the Soviet Union) (“CIS”) for the first time. Aspen now has a substantial footprint
across Europe and the CIS with more than 400 active sales and marketing focussed personnel in 18 countries, the
majority of whom transferred from GSK in terms of the arrangements under the acquisition of Arixtra and Fraxiparine.
Revenue from customers of Europe CIS was over five times greater than the prior year at R7,2 billion. Of this amount,
R4,0 billion was derived from sales of finished dose form pharmaceuticals to healthcare providers and the major portion
of the balance was from sales of APIs.
There was also a strong acceleration of revenue from customers in Latin America where sales climbed 122% to R3,5 billion.
The acquisitions made by the Group accounted for the largest portion of this increase despite some supply issues,
supported by good performances in Mexico and Venezuela.
In the Rest of the World, sales to customers were up 181% to R1,7 billion influenced by an increased exposure to the
US resulting from the acquisitions concluded during the year and by positive progress in the Middle East North Africa
territory.
Significant activity has been undertaken at the Aspen Oss API manufacturing site and also at the Aspen NDB specialist
sterile manufacturing site. At both of these sites it has been necessary to disentangle the manufacturing operations
from the systems of the vendors. Capital expenditure projects are also ongoing at both these sites. At Aspen Oss,
improvements to the safety profile of the site are receiving urgent attention and at Aspen NDB, additional capacity
is being added with the construction of an entirely new production area.
On 10 September 2014, Aspen Global Incorporated ("AGI") entered into an agreement with Mylan Ireland Limited ("Mylan") in terms
of which AGI will dispose of its rights to commercialise the fondaparinux products it recently acquired from GSK (being
Arixtra and the authorised generic thereof) in the United States ("US") to Mylan. AGI will also enter into a supply agreement to
supply these fondaparinux products to Mylan on specified terms. The transaction will complete upon the satisfaction of certain
conditions precedent, including regulatory approvals. Mylan will pay Aspen USD 225 million upon completion of the transaction.
An additional USD 75 million will be held in escrow and released upon satisfaction of certain conditions. AGI took the
decision to enter into this transaction as a consequence of the Group's current absence of sales representatives in the
US which prevents it from being able to optimise the commercial performance of the fondaparinux products in that country.
AGI has retained all of its remaining rights to the intellectual property and to the commercialisation of Arixtra worldwide
other than in the US.
Asia Pacific business
Revenue in the Asia Pacific region increased 12% to R8,5 billion, assisted by a full-year of contribution from the
pharmaceutical and infant nutritional products acquired in the prior year, good performances from the recently established
companies in South East Asia and a favourable relative exchange rate. EBITA at R1.9 billion was only 3% higher due to lower
margins from the products acquired in the prior year for which the Asia Pacific region is the distributor. Legislated price
cuts in Australia were largely offset by cost of goods savings, pricing strategies and the reduction of discounts.
Revenue increased 6% in local currency terms in Australia. Additional revenue was driven by distribution of products
from recent acquisitions made in the Group. Sales of Aspen-owned products in the pre-existing portfolio was slightly up on the
prior year in AUD while there were reductions in co-marketing revenue and sales of licensed products. The Group is seeking to limit
co-marketing and licensed product activities as part of a strategy aimed at achieving greater focus on adding value to Aspen’s
own higher margin brands.
Asia is a target growth territory for Aspen. Revenue to customers in this territory improved 63% to R923 million.
Revenue from products distributed on behalf of Aspen in Japan as well as by the Philippines, Malaysian and Taiwan business
units increased significantly.
South African business
The South African business raised revenue 1% to R7,4 billion. Aspen’s private sector pharmaceutical sales grew at 9%,
maintaining the Group’s leadership position. The consumer division performed well, particularly as there has been
diminishing consumer spending, with revenue rising 12% to R1,3 billion through organic growth and the bolstering of the infant
nutritional offering following completion of the transaction with Nestlé. However, in the public sector, revenue
contracted due to a combination of lower antiretroviral (“ARV”) prices under the most recent tender award, sharply lower ARV
volumes in the second half of the financial year as the Department of Health (“DoH”) amended its procurement plans and a
decline in revenue from other public sector tenders.
EBITA was unfavourably affected by the weakening of the Rand which added to the cost of goods. The single exit price
increase of 5,82% granted by the DoH which was implemented in March 2014 has proven insufficient to counteract the
currency weakness as well as wage and energy cost inflation. These input pricing pressures, together with the negative effect
of the lower value and volumes under the ARV tender were influential in an 8% reduction in EBITA of the South African
business to R1,8 billion.
Expansionary capital expenditure projects are ongoing at the Port Elizabeth finished dosage form manufacturing site
and the Cape Town API manufacturing site. In Port Elizabeth, the construction of a high containment facility is well
progressed and the addition of further specialist sterile manufacturing capabilities has commenced. Once operational,
the specialist sterile facility now under construction will provide enhanced security of supply for Arixtra and
Fraxiparine as an alternate manufacturing source to Aspen NDB. In Cape Town, the upgrade and enlargement of the
Fine Chemicals facilities to integrate with the Group’s API plans is proceeding.
Sub-Saharan Africa business
In Sub-Saharan Africa, solid organic growth by all parts of the business supported an increase in gross revenue of
32% to R2,7 billion and a gain in EBITA of 32% to R334 million.
Funding
Borrowings, net of cash, increased by R18,7 billion over the year to R29,8 billion. R19,8 billion was spent on
investments in new subsidiaries and businesses during the year and an additional R2,0 billion was invested in capital
expenditure while R1,0 billion was realised from the disposal of assets. Highly successful local and international
debt syndication processes were concluded during the first half of the year providing the Group with the necessary
funding to support the recent transactions. Group operating cash flows remained strong although this was tempered by
a once-off increase in working capital balances in the newly acquired businesses. Gearing moved up to 51% at the financial
year end. Financing costs, net of interest received, were covered eight times by operating profit before amortisation.
Prospects
The significant transactions which Aspen has recently concluded are expected to contribute new and important growth
drivers which will add momentum to the Group’s performance in the years ahead. Anti-coagulants and products in related
therapeutic areas are a focus area. There are opportunities to grow Arixtra and Fraxiparine, particularly in emerging
markets, and to extend the number of territories where Orgaran is marketed once unconstrained supply of API is secured.
The project undertaken to tackle this limitation is progressing positively. Initiatives are also underway to lower the cost
of goods of these products in the future, targeting gains in efficiency and procurement in finished dose form production
at Aspen NDB as well as by lowering the cost of the heparin API used in Fraxiparine which is produced at Aspen Oss.
Assessment of the product portfolio is ongoing to ensure that the Group invests resources in areas that are likely to
achieve the best medium-term outcomes for stakeholders. This has resulted in a rationalisation of the product pipeline
and disposals of intellectual property and commercialisation rights in the Asia Pacific and International regions over
the past year.
The greatest portion of revenue and profits attributable to the recent significant transactions falls into the
International segment and consequently this area is expected to show strong growth in the year ahead. These transactions
have facilitated a substantial increase in Aspen’s footprint with several new business units established across Europe, the
CIS and in Latin America in the past year. Organic growth prospects for this region are strongest in the emerging markets
of Latin America, Russia and Eastern Europe. The disposal of the fondaparinux products to Mylan for the US will clearly
lead to the termination of the related revenue and profits.
A decline in revenue and EBITA in the Asia Pacific segment is anticipated in the next year due to the disposal of
certain non-core products in the current year and the impending exit from license arrangements. This is aligned with the
Group strategy to narrow and intensify promotional support on owned brands.
In South Africa the business is expected to deliver solid organic growth with the Pharmaceutical division retaining its
position as the leader in both the private and public sectors. Performance will be influenced by the extent and direction
of fluctuations in the value of the Rand, the quantum of the single exit price increase granted in 2015 and the outcome
of proposed changes to legislation. Aspen has remained the largest supplier of tablets and capsules to the public sector
under the recently awarded oral solid dose tender. The ARV tender is due for renewal in the second half of Aspen’s 2015
financial year. Prospects for the Group for this tender will be better understood once the requirements are published.
The Consumer division is expected to maintain its favourable progress.
Sub-Saharan Africa is likely to continue to deliver good organic growth provided socio-political influences do not
interfere unduly.
During the 2015 financial year, progress should be achieved in respect of the multiple initiatives flowing from the
significant transactions recently completed. The benefits of these transactions was reflected in the second half
performance of the past year and 2015 will be the first full year of operation for a number of newly
established business units. Performance will be influenced by organic growth achieved and reductions arising
from disposals.
The resultant strong operational cash flows
inherent in the Aspen business model will be deployed to reduce gearing and to pursue identified new growth
opportunities, as appropriate.
Capital distribution
Taking into account the earnings and cash flow performance for the year ended 30 June 2014, existing debt service
commitments and future proposed investments, notice is hereby given that the Board has declared a capital distribution
of 188 cents per ordinary share by way of a capital reduction payable out of contributed tax capital to shareholders recorded
in the share register of the company at the close of business on 10 October 2014 (2013: dividend of 131 cents per share and
capital distribution of 26 cents per share).
Shareholders should seek their own tax advice of the consequences associated with the distribution.
The directors are of the opinion that the company will satisfy the solvency and liquidity requirements of Sections 4
and 46 of the Companies Act, 2008.
Future distributions will be decided on a year-to-year basis.
In compliance with IAS 10: Events After Balance Sheet Date, the capital distribution will only be accounted for in the
financial statements in the year ending 30 June 2015.
Last day to trade cum
capital distribution Friday, 3 October 2014
Shares commence trading
ex capital distribution Monday, 6 October 2014
Record date Friday, 10 October 2014
Payment date Monday, 13 October 2014
Share certificates may not be dematerialised or rematerialised between Monday, 6 October 2014 and Friday, 10 October 2014.
By order of the Board
NJ Dlamini SB Saad
(Chairman) (Group Chief Executive)
Woodmead
10 September 2014
These results have been prepared under the supervision of the Deputy Group Chief Executive, MG Attridge, CA(SA), and
approved by the Board of Directors.
Group statement of financial position
Reviewed Audited
2014 2013
for the year ended 30 June 2014 Notes R’million R’million
ASSETS
Non-current assets
Property, plant and equipment 7 150,8 4 342,6
Goodwill 6 641,8 5 973,2
Intangible assets 35 698,9 18 933,0
Other non-current assets 298,9 26,7
Contingent environmental indemnification asset F# 727,1 -
Deferred tax assets 817,1 369,2
Total non-current assets 51 334,6 29 644,7
Current assets
Inventories 10 275,2 4 100,9
Receivables and other current assets 12 712,0 5 657,5
Cash and cash equivalents 8 225,6 6 018,6
Total current assets 31 212,8 15 777,0
Total assets 82 547,4 45 421,7
SHAREHOLDERS' EQUITY
Share capital (including treasury shares) 3 867,9 3 989,2
Reserves 25 006,3 18 804,6
Ordinary shareholders' equity 28 874,2 22 793,8
Non-controlling interests 1,9 5,1
Total shareholders’ equity 28 876,1 22 798,9
LIABILITIES
Non-current liabilities
Borrowings 29 915,5 8 923,5
Deferred tax liabilities 1 351,1 600,5
Retirement and other employee benefits 497,6 94,0
Contingent environmental liability F# 727,1 -
Unfavourable and onerous contracts G# 2 638,7 -
Other non-current liabilities 2 499,3 139,5
Total non-current liabilities 37 629,3 9 757,5
Current liabilities
Trade and other payables 6 884,0 4 174,6
Borrowings* 8 075,3 8 152,7
Other current liabilities 747,4 538,0
Unfavourable and onerous contracts G# 335,3 -
Total current liabilities 16 042,0 12 865,3
Total liabilities 53 671,3 22 622,8
Total equity and liabilities 82 547,4 45 421,7
Number of shares in issue (net of treasury shares) (’000) 455 914 455 208
Net asset value per share (cents) 6 333,3 5 007,3
#See notes on Supplementary information.
*Bank overdrafts are included within borrowings under current liabilities.
Group statement of cash flows
Reviewed Audited
2014 2013
For the year ended 30 June 2014 Notes R’million R’million
CASH FLOWS FROM OPERATING ACTIVITIES
Cash operating profit 7 911,2 5 960,1
Changes in working capital (2 187,5) (590,1)
Cash generated from operations 5 723,7 5 370,0
Net financing costs paid (709,1) (584,6)
Tax paid (1 178,3) (799,3)
Cash generated from operating activities 3 836,3 3 986,1
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditure - property, plant and equipment A# (1 328,9) (667,1)
Proceeds on the sale of property, plant and equipment 106,3 10,7
Capital expenditure - intangible assets A# (700,4) (3 654,9)
Proceeds on the sale of intangible assets 898,8 3,5
Acquisition of subsidiaries and businesses K# (19 764,2) (1 578,6)
Payment of deferred consideration (85,9) -
Prepayment in anticipation of acquisition - (394,7)
Stamp duty on acquisitions - (2,1)
Net investment hedge profit in Aspen Asia Pacific 23,9 -
Cash used in investing activities (20 850,4) (6 283,2)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from borrowings 20 183,3 4 336,0
Capital distribution and dividends paid (716,2) (715,1)
Proceeds from issue of ordinary share capital 2,7 9,6
Treasury shares purchased (22,3) (21,1)
Decrease in cash restricted for use as security
for borrowings - 1,3
Cash generated from financing activities 19 447,5 3 610,7
Movement in cash and cash equivalents before effects
of exchange rate changes 2 433,4 1 313,6
Effects of exchange rate changes 312,2 112,8
Movement in cash and cash equivalents 2 745,6 1 426,4
Cash and cash equivalents at the beginning of the year 3 416,2 1 989,8
Cash and cash equivalents at the end of the year 6 161,8 3 416,2
Diluted operating cash flow per share (cents) 840,9 874,1
RECONCILIATION OF CASH AND CASH EQUIVALENTS
Cash and cash equivalents per the
statement of financial position 8 225,6 6 018,6
Less: bank overdrafts (2 063,8) (2 602,4)
6 161,8 3 416,2
For the purposes of the statement of cash flows, cash and cash equivalents comprise cash-on-hand,
deposits held on call with banks less bank overdrafts.
#See notes on Supplementary information.
Group statement of comprehensive income
Reviewed Audited
2014 2013
for the year ended 30 June 2014 Notes Change R’million R’million
Revenue 53% 29 515,1 19 308,0
Cost of sales (15 793,2) (10 077,3)
Gross profit 49% 13 721,9 9 230,7
Selling and distribution expenses (4 401,3) (2 343,5)
Administrative expenses (1 652,5) (1 366,0)
Other operating income 692,4 104,2
Other operating expenses (935,7) (582,1)
Operating profit B# 47% 7 424,8 5 043,3
Investment income C# 278,1 298,8
Financing costs D# (1 346,4) (852,7)
Profit before tax 42% 6 356,5 4 489,4
Tax (1 351,0) (975,3)
Profit for the year 42% 5 005,5 3 514,1
OTHER COMPREHENSIVE INCOME, NET OF TAX*
Currency gains / (losses) on net investment in subsidiaries 40,8 (133,3)
Net investment hedge profit in Aspen Asia Pacific 23,9 -
Net gains from cash flow hedging in respect of business
acquisitions K# 75,1 -
Currency translation gains E# 1 788,5 2 675,7
Cash flow hedges recognised 3,0 20,3
Remeasurement of retirement and other employee benefits (25,3) (4,7)
Total comprehensive income 6 911,5 6 072,1
Profit for the year attributable to
Equity holders of the parent 5 007,6 3 520,1
Non-controlling interests (2,1) (6,0)
5 005,5 3 514,1
Total comprehensive income attributable to
Equity holders of the parent 6 915,4 6 078,2
Non-controlling interests (3,9) (6,1)
6 911,5 6 072,1
Weighted average number of shares in issue ('000) 456 116 455 397
Diluted weighted average number of shares in issue ('000) 456 219 456 027
EARNINGS PER SHARE
Basic earnings per share (cents) 42% 1 097,9 773,0
Diluted earnings per share (cents) 42% 1 097,6 771,9
DISTRIBUTION TO SHAREHOLDERS
Capital distribution per share (cents) 26,0 157,0
Cash dividends per share (cents) 131,0 -
157,0 157,0
The total distribution to shareholders of 157,0 cents relates to the distribution declared on 11 September 2013
and paid on 14 October 2013 (the capital distribution of 157,0 cents relates to the distribution declared on
12 September 2012 and paid on 15 October 2012).
* Remeasurement of retirement and other employee benefits will not be reclassified to profit and loss. All other
items in other comprehensive income may be reclassified to profit and loss.
Group statement of headline earnings
Reviewed Audited
2014 2013
for the year ended 30 June 2014 Change R’million R’million
HEADLINE EARNINGS
Reconciliation of headline earnings
Profit attributable to equity holders of the parent 42% 5 007,6 3 520,1
Adjusted for:
- Profit on the sale of intangible assets (net of tax) (479,8) (2,5)
- Net (reversal of impairment) / impairment of
property, plant and equipment (net of tax) (5,8) 9,5
- Net impairment of intangible assets (net of tax) 112,6 60,4
- Loss on the sale of property, plant and equipment (net of tax) 1,1 0,9
29% 4 635,7 3 588,4
HEADLINE EARNINGS PER SHARE
Headline earnings per share (cents) 29% 1 016,3 788,0
Diluted headline earnings per share (cents) 29% 1 016,1 786,9
NORMALISED HEADLINE EARNINGS
Reconciliation of normalised headline earnings
Headline earnings 29% 4 635,7 3 588,4
Adjusted for:
- Restructuring costs (net of tax) 29,4 106,2
- Transaction costs (net of tax) 435,9 82,0
- Settlement of product litigation (net of tax) - 36,6
- Net foreign exchange gains from hedging of
business acquisitions (net of tax) 1,7 -
- Foreign exchange gain on settlement of transaction
funding liability (net of tax) (248,9) -
27% 4 853,8 3 813,2
NORMALISED HEADLINE EARNINGS PER SHARE
Normalised headline earnings per share (cents) 27% 1 064,2 837,3
Normalised diluted headline earnings per share (cents) 27% 1 063,9 836,2
Group statement of changes in equity
Total
Share capital attributable to
(including treasury equity holders Non-controlling
shares) Reserves of the parent interests Total
for the year ended 30 June 2014 R’million R’million R’million R’million R’million
BALANCE AT 1 JULY 2012 4 703,1 12 686,3 17 389,4 8,7 17 398,1
Total comprehensive income - 6 078,2 6 078,2 (6,1) 6 072,1
Profit for the year - 3 520,1 3 520,1 (6,0) 3 514,1
Other comprehensive income - 2 558,1 2 558,1 (0,1) 2 558,0
Capital distribution and dividends paid (714,9) - (714,9) (0,2) (715,1)
Stamp duty on acquisitions - (2,1) (2,1) - (2,1)
Issue of ordinary share capital - share schemes 9,6 - 9,6 - 9,6
Treasury shares purchased (21,1) - (21,1) - (21,1)
Deferred incentive bonus shares exercised 12,5 (12,5) - - -
Share-based payment expenses - 20,0 20,0 - 20,0
Equity portion of tax claims in respect of share schemes - 23,8 23,8 - 23,8
Hyperinflationary adjustment - Venezuela - 10,9 10,9 2,7 13,6
BALANCE AT 30 JUNE 2013 3 989,2 18 804,6 22 793,8 5,1 22 798,9
Total comprehensive income - 6 915,4 6 915,4 (3,9) 6 911,5
Profit for the year - 5 007,6 5 007,6 (2,1) 5 005,5
Other comprehensive income - 1 907,8 1 907,8 (1,8) 1 906,0
Capital distribution and dividends paid (118,6) (597,4) (716,0) (0,2) (716,2)
Issue of ordinary share capital - share schemes 2,7 - 2,7 - 2,7
Treasury shares purchased (22,3) - (22,3) - (22,3)
Deferred incentive bonus shares exercised 16,9 (16,9) - - -
Share-based payment expenses - 21,8 21,8 - 21,8
Equity portion of tax claims in respect of share schemes - 10,8 10,8 - 10,8
Hyperinflationary adjustment - Venezuela - (132,0) (132,0) 0,9 (131,1)
BALANCE AT 30 JUNE 2014 3 867,9 25 006,3 28 874,2 1,9 28 876,1
Group segmental analysis
Reviewed Audited
Restated
2014 2013 Change
for the year ended 30 June 2014 R’million % of total R’million % of total %
REVENUE
International@ 12 724,8 40 3 726,1 18 242
Asia Pacific 8 517,2 27 7 590,5 37 12
South Africa^ 7 446,3 24 7 376,8 35 1
Sub-Saharan Africa 2 744,3 9 2 081,5 10 32
Total gross revenue 31 432,6 100 20 774,9 100 51
Adjustment* (1 917,5) (1 466,9)
Total revenue 29 515,1 19 308,0 53
OPERATING PROFIT BEFORE AMORTISATION
Adjusted for specific non-trading items ("EBITA")
International 3 636,1 47 1 488,7 27 144
Operating profit# 3 633,1 1 321,7 175
Amortisation of intangible assets 180,4 60,8
Transaction costs 255,0 -
Settlement of product litigation - 43,0
Profit on the sale of intangible assets (522,0) -
Impairment of assets 89,6 63,2
Asia Pacific 1 944,6 25 1 894,0 34 3
Operating profit# 1 811,6 1 608,2 13
Amortisation of intangible assets 138,2 128,0
Transaction costs 7,0 6,0
Restructuring costs 42,1 151,8
Reversal of impairement of assets (5,8) -
Profit on the sale of intangible assets (48,5) -
South Africa 1 816,5 24 1 965,3 35 (8)
Operating profit# 1 652,7 1 867,5 (12)
Amortisation of intangible assets 65,1 60,5
Transaction costs 77,4 31,3
Impairment of assets 21,3 6,0
Sub-Saharan Africa 333,6 4 252,3 4 32
Operating profit# 327,4 245,9 33
Amortisation of intangible assets 6,2 6,4
Total EBITA 7 730,8 100 5 600,3 100 38
ENTITY WIDE DISCLOSURE - REVENUE
Analysis of revenue in accordance
with customer geography
South Africa 7 451,4 24 7 376,9 35 1
Asia Pacific 8 798,7 28 7 697,6 37 14
Europe CIS 7 200,1 23 1 387,4 7 419
Latin America 3 484,6 11 1 567,3 8 122
Sub-Saharan Africa 2 752,6 9 2 123,7 10 30
Rest of the world 1 745,2 5 622,0 3 181
Total gross revenue 31 432,6 100 20 774,9 100 51
Adjustment* (1 917,5) (1 466,9)
Total revenue 29 515,1 19 308,0 53
@Excludes intersegment revenue of R1 691,8 million (2013: R1 201,5 million).
^Excludes intersegment revenue of R91,5 million (2013: R43,0 million).
*The profit share from the Aspen GSK Healthcare for Africa collaboration has been disclosed as revenue in the statement
of comprehensive income. For segmental purposes the total revenue for the Aspen GSK Healthcare for Africa collaboration has
been included to provide enhanced revenue visibility in this territory.
#The aggregate segmental operating profit is R7 424,8 million (2013: R5 043,3 million).
Group supplementary information
Reviewed Audited
2014 2013
for the year ended 30 June 2014 R’million R’million
A. CAPITAL EXPENDITURE
Incurred 2 029,3 4 322,0
- Property, plant and equipment 1 328,9 667,1
- Intangible assets 700,4 3 654,9
Contracted 477,2 651,8
- Property, plant and equipment 425,7 525,5
- Intangible assets 51,5 126,3
Authorised but not contracted for 2 967,1 1 242,2
- Property, plant and equipment 2 652,9 1 052,0
- Intangible assets 314,2 190,2
B. OPERATING PROFIT HAS BEEN ARRIVED AT AFTER
CHARGING / (CREDITING):
Depreciation of property, plant and equipment 433,9 294,5
Amortisation of intangible assets 389,9 255,7
Net (reversal of impairment) / impairment of
property, plant and equipment (8,2) 9,6
Net impairment of intangible assets 113,3 59,6
Share-based payment expenses - employees 47,5 31,2
Transaction costs 339,4 37,3
Restructuring costs 42,1 151,8
Settlement of product litigation - 43,0
Hyperinflationary reduction in operating profit 80,9 1,3
C. INVESTMENT INCOME
Interest received 278,1 298,8
D. FINANCING COSTS
Interest paid (1 295,9) (842,3)
Debt raising fees on acquisitions (154,7) (51,9)
Net foreign exchange gains / (losses) 80,7 (34,3)
Foreign exchange gain on settlement of transaction funding liability 248,9 -
Fair value (losses) / gains on financial instruments (86,0) 77,5
Notional interest on financial instruments (131,4) (1,7)
Net hyperinflationary adjustments (8,0) -
(1 346,4) (852,7)
E. CURRENCY TRANSLATION MOVEMENTS
Currency translation movements on the translation of the offshore businesses is
as a result of the difference between the weighted average exchange rate used in
the statement of comprehensive income and the opening and closing exchange rate
applied in the statement of financial position. For the period the weaker closing
Rand translation rate increased the Group net asset value.
F. CONTINGENT ENVIRONMENTAL LIABILITY AND INDEMNIFICATION ASSET
The contingent environmental liability and contingent environmental indemnification
asset relate to environmental remediation required at the Moleneind site at Oss, in the
Netherlands, acquired as part of the API business. The remediation is being managed,
undertaken and funded by the seller. However, as owner of the site, Aspen has
inherited a legal obligation for the remediation for which it has been indemnified
by the seller. Consequently, Aspen has recognised a contingent liability and a
corresponding contingent indemnification asset based on an independent estimate of the
remediation cost of EUR50 million. In view of the seller’s involvement in the remediation
process, the balances have been referred to as contingent as the settlement of the liability
and the realisation of the indemnification asset are not expected to have any
cash flow implications for the Group.
G. UNFAVOURABLE AND ONEROUS CONTRACTS
Certain supply contracts for the third party manufacture of products in Aspen Oss and
in Aspen NDB have been classified as either unfavourable or onerous. These liabilities will
be released to revenue over the term of the contract in terms of IAS 18: Revenue.
H. CONTINGENT LIABILITIES
There are contingent liabilities in respect of:
Contingency relating to product litigation 27,6 25,9
Customs guarantee 14,8 -
Indirect tax contingent labilities 36,1 10,4
Contingencies arising from labour cases 2,8 4,3
Other contingent liabilities 5,7 2,0
I. INCOME TAX CONTINGENCY
Following an audit, the South African Revenue Service has issued tax assessments on
various South African companies in relation to historic transactions. Aspen has lodged
an appeal against these assessments and has filed a review application to have the
assessments set aside. Aspen is confident that it will succeed in this dispute based
on the outcome of recent court cases dealing with similar matters. Due to the
uncertainties inherent in the process, the timing of resolution of the dispute and the
outcome thereof cannot be determined.
J. GUARANTEES TO FINANCIAL INSTITUTIONS
Material guarantees given by Group companies for indebtedness of subsidiaries to
financial institutions 12 888,7 5 600,6
K. ACQUISITION OF SUBSIDIARIES AND BUSINESSES
2014
API business
On 1 October 2013, the Company acquired 100% of the issued share capital in an API manufacturing business from MSD
which manufactures for MSD and the market generally and which is located in the Netherlands with a satellite production
facility and sales office in the US for a purchase consideration of EUR31 million (net of cash acquired).
MSD business
AGI, a wholly owned subsidiary of the Company, exercised an option to acquire a portfolio of 11 branded finished dose
form molecules from MSD for a consideration of USD600 million effective on 31 December 2013. USD533 million of the
consideration was paid on 2 January 2014, and the balance of this consideration will be paid in five equal annual
instalments commencing at the end of the first year after the acquisition date.
GSK thrombosis business
The two components of the acquisition set out below are linked and have been classified as one cash generating unit for
purchase price allocation purposes.
Arixtra and Fraxiparine brands
On 31 December 2013 AGI, a wholly owned subsidiary of the Company, acquired the Arixtra and Fraxiparine brands and
related business worldwide from GSK, except in China, Pakistan and India for a purchase consideration of GBP505 million.
Aspen NDB
On 30 April 2014, the Company acquired a specialised sterile production site in France which manufactures the Arixtra
and Fraxiparine products and the related inventory for a purchase consideration of GBP194 million.
Latam infant nutritional business
On 28 October 2013 Aspen Group companies concluded agreements with Nestlé in respect of the acquisition of certain
license rights to intellectual property, net assets (including an infant nutritional production facility located in
Vallejo, Mexico) and 100% of the issued share capital in the infant nutritional businesses presently conducted by Nestlé and
Pfizer in Latin America, predominantly in Mexico, Venezuela, Colombia, Ecuador, Chile, Peru, Central America and the
Caribbean for a purchase consideration of USD180 million.
South African infant nutritional business
The Company concluded agreements with Nestlé in the prior financial year in respect of the acquisition of certain
rights to intellectual property licenses and net assets in the infant nutritionals business previously conducted by Pfizer
which distributed a portfolio of infant nutritional products to certain Southern African territories (South Africa,
Botswana, Namibia, Lesotho, Swaziland and Zambia). The acquisition of the South African infant milk business from Nestlé was
approved by the Competition Tribunal in December 2013. The effective date upon which Aspen assumed control of the
business was 27 January 2014. The USD43 million consideration paid in May 2013 which was previously classified as a prepayment
has been set off against the fair value of the assets acquired.
South
Latam African Australian
GSK infant infant infant
API MSD thrombosis nutritional nutritional nutritional
business business business business business business* Total
for the year ended 30 June 2014 R’million R’million R’million R’million R’million R’million R’million
Fair value of assets and liabilities acquired
Property, plant and equipment 589,1 - 561,3 620,0 - - 1 770,4
Intangible assets 506,3 6 250,3 10 533,5 736,2 253,4 - 18 279,7
Contingent environmental indemnification asset 680,1 - - - - - 680,1
Non-current financial receivables - - 267,1 - - - 267,1
Deferred tax assets 47,0 - 424,8 - - 19,5 491,3
Current tax assets - - - 3,0 - - 3,0
Inventories 3 267,0 - 1 688,3 520,6 58,5 (2,3) 5 532,1
Trade and other receivables 392,5 - 354,1 465,1 62,3 (21,3) 1 252,7
Cash and cash equivalents 1 272,5 - - - - - 1 272,5
Contingent environmental liabilities (680,1) - - - - - (680,1)
Environmental liability (74,5) - - - - - (74,5)
Unfavourable and onerous contract (2 791,1) - (215,9) - - - (3 007,0)
Retirement and other employee benefits - - (298,6) (37,2) - - (335,8)
Deferred tax liability - (187,5) (310,1) (2,7) (73,8) - (574,1)
Trade and other payables (349,9) - (376,0) (549,5) (57,0) 1,7 (1 330,7)
Non-current and current financial liabilities (1 146,2) - (718,7) - - - (1 864,9)
Fair value of net assets acquired 1 712,7 6 062,8 11 909,8 1 755,5 243,4 (2,4) 21 681,8
Goodwill acquired - 187,5 135,3 14,3 171,5 (13,5) 495,1
Deferred consideration - (650,2) - - (20,8) - (671,0)
Prepayment set off against the fair value of
the assets acquired - - - - (394,1) - (394,1)
Purchase consideration paid 1 712,7 5 600,1 12 045,1 1 769,8 - (15,9) 21 111,8
Net gains from cash flow hedging in respect
of business acquisitions - - (75,1) - - - (75,1)
Cash and cash equivalents in acquired companies (1 272,5) - - - - - (1 272,5)
Cash outflow on acquisition 440,2 5 600,1 11 970,0 1 769,8 - (15,9) 19 764,2
With the exception of the Australian infant nutritional business which was finalised in the current financial year,
the initial accounting for these acquisitions, which have been classifed as business combinations, has been reported on
a provisional basis and will only be finalised in the year ending 30 June 2015.
Post-acquisition revenue included in the statement of comprehensive income was R8,5 billion made up as follows:
API business R3,1 billion
MSD business R1,1 billion
GSK thrombosis business R2,7 billion
Latam infant nutritional business R1,5 billion
South African infant nutritional business R0,1 billion
The estimation of post-acquisition operating profits is impracticable and not reasonably determinable due to the
immediate integration of the businesses into the existing operations of the Group. The determination and disclosure of
historical audited revenue and operating profits for the 12 months preceding the effective date is not possible as the
information for the full period is not available from the vendors.
All transaction costs relating to the acquisition of these businesses have been expensed in other operating expenses
in the statement of comprehensive income and adjusted for in normalised headline earnings.
Goodwill
1. The goodwill arising on the acquisition of the Latam and South African infant nutritional businesses recognises:
- the benefit to the products of Aspen’s knowledge and expertise relating to its existing infant milk business; and
- the synergies from the consolidation of the infant milk businesses with Aspen’s existing businesses in Latin
America and South Africa, including cost savings and increased sales force coverage benefits.
2. The goodwill arising on the acquisition of the MSD business recognises:
- the benefit to the products of Aspen’s additional promotional focus; and
- the synergies from the consolidation of the MSD business with Aspen’s existing businesses, particularly in Latin
America and Europe, including cost savings and increased sales force coverage benefits.
3. The goodwill arising on the acquisition of the GSK thrombosis business recognises:
- the benefit to the products of Aspen’s additional promotional focus;
- the synergies from the consolidation of the acquired business with Aspen’s existing business, particularly in
Europe; and
- the synergies from the vertical integration with the heparin production capabilities at the API Business.
The total amount of goodwill recognised is not tax deductible.
2013
AGI and Aspen Asia Pacific concluded agreements with Nestlé on 29 April 2013 in respect of the acquisition of certain
rights to intellectual property licenses and 100% of the issued share capital in the infant nutritionals business
previously conducted by Pfizer which distributes a portfolio of infant nutritional products in Australia.
2013 2014 2014
Preliminary Adjustments Final
R’million R’million R’million
Fair value of assets and liabilities
acquired in subsidiary
Property, plant and equipment 1,7 - 1,7
Intangible assets 1 246,1 - 1 246,1
Deferred tax assets 9,9 19,5 29,4
Inventories 74,2 (2,3) 71,9
Trade and other receivables 294,5 (21,3) 273,2
Trade and other payables (274,3) 1,7 (272,6)
Fair value of net assets acquired 1 352,1 (2,4) 1 349,7
Goodwill acquired 176,5 (13,5) 163,0
Purchase consideration paid/(received) 1 528,6 (15,9) 1 512,7
Deferred receivable 50,0 - 50,0
Cash outflow on acquisition 1 578,6 (15,9) 1 562,7
* The initial accounting for this business combination was reported on a provisional basis in 2013 and was finalised
in the year ended 30 June 2014. As a result of the finalisation the fair value of the purchase consideration decreased
by R15,9 million to R1 562,7 million.
Basis of accounting
The reviewed provisional Group financial results have been prepared in accordance with International Financial
Reporting Standards, IFRIC interpretations, the Listings Requirements of the JSE Limited South African Companies Act, 2008
and the presentation and disclosure requirements of IAS 34: Interim Reporting.
The accounting policies used in the preparation of these provisional Group financial results are consistent with those
used in the annual financial statements for the year ended 30 June 2013.
The entity wide analysis included in the segmental analysis for the year ended 30 June 2014 was restated to disclose
the Europe CIS region separately due to the increased materiality of this region to the Group. South Africa was restated
to disclose only the total revenue in the entity wide disclosure as the split between pharmaceutical and consumer
businesses is no longer material to the total Group results.
Audit review
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. Any reference to future financial performance included in
this announcement, has not been reviewed or reported on by the Company’s auditors.
Subsequent events
On 9 September 2014, AGI entered into an agreement with Mylan in terms of which AGI will dispose of its rights to
commercialise the fondaparinux products it recently acquired from GSK (being Arixtra and the authorised generic
thereof) in the US. AGI will also enterinto a supply agreement to supply these fondaparinux products to Mylan on
specified terms. The transaction will complete upon the satisfaction of certain conditions precedent, including
regulatory approvals. Mylan will pay Aspen USD 225 million upon completion of the transaction.
An additional USD 75 million will be held in escrow and released upon satisfaction of certain conditions. AGI took the
decision to enter into this transaction as a consequence of the Group's current absence of sales representatives in the
US which prevents it from being able to optimise the commercial performance of the fondaparinux products in that country.
AGI has retained all of its remaining rights to the intellectual property and to the commercialisation of Arixtra worldwide
other than in the US.
Disclaimer
We may make statements that are not historical facts and relate to analyses and other information based on forecasts
of future results and estimates of amounts not yet determinable. These are forward looking statements as defined in the
U.S. Private Securities Litigation Reform Act of 1995. Words such as “prospects”, “believe”, “anticipate”, “expect”,
“intend”, “seek”, “will”, “plan”, “indicate”, “could”, “may”, “endeavour” and “project” and similar expressions are intended
to identify such forward looking statements, but are not the exclusive means of identifying such statements. By their
very nature, forward looking statements involve inherent risks and uncertainties, both general and specific, and there
are risks that predictions, forecasts, projections and other forward looking statements will not be achieved. If one or
more of these risks materialise, or should underlying assumptions prove incorrect, actual results may be very different
from those anticipated. The factors that could cause our actual results to differ materially from the plans, objectives,
expectations, estimates and intentions expressed in such forward looking statements are discussed in each year’s annual
report. Forward looking statements apply only as of the date on which they are made, and we do not undertake other than
in terms of the Listings Requirements of the JSE Limited, any obligation to update or revise any of them, whether as a
result of new information, future events or otherwise. All profit forecasts published in this report are unaudited.
Building Number 8, Healthcare Park, Woodlands Drive, Woodmead
PO Box 1587, Gallo Manor, 2052
Telephone + 27 11 239 6100
Telefax + 27 11 239 6144
Directors
N J Dlamini (Chairman)*, R C Andersen*, M G Attridge, M R Bagus*, J F Buchanan*, K D Dlamini*, S A Hussain*,
M M Manyama-Matome* C N Mortimer*, S B Saad, S V Zilwa* *Non-executive director
Company Secretary: R Verster
Maureen Manyama-Matome was appointed as a non-executive director on 1 June 2014.
Registered office
Building Number 8, Healthcare Park, Woodlands Drive, Woodmead
Sponsor
Investec Bank Limited
Transfer secretary
Computershare Investor Services Proprietary Limited. (Registration number 2004/003647/07),
70 Marshall Street, Johannesburg, 2001. (PO Box 61051, Marshalltown, 2107)
www.aspenpharma.com
Date: 10/09/2014 01:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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