Wrap Text
Interim results for the six months ended 31 December 2015
Ascendis Health Limited
(Incorporated in the Republic of South Africa)
Registration number 2008/005856/06
JSE share code ASC
ISIN ZAE000185005
("Ascendis" or "the group")
INTERIM RESULTS
for the six months ended 31 December 2015
HIGHLIGHTS
Revenue
R1.9 billion UP 40%
EBITDA
R287 million (margin up 100 bps) UP 50%
Operating profit
R245 million UP 52%
Headline earnings per share
49 cents per share UP 37%
Normalised HEPS
56 cents per share UP 31%
Interim dividend
9.5 cents per share UP 19%
- Continued strong profit growth of 66%
- Margin expansion through focus on efficiencies
and cost control
- Successful mitigation of foreign exchange impact
- Integration of first international acquisition in Spain
- Announced R345 million Akacia pharma acquisition
Commentary
Overview
The directors are pleased to present the interim results to the stakeholders of Ascendis Health and the broader
investment community both in South Africa and offshore. The business continues to be one of the top
performers on the JSE and has proved to be resilient in difficult trading conditions. The current financial year
has primarily been a period of consolidation following numerous acquisitions in the past three years, including
the first international acquisition in Europe. Management has been focused on maximising the efficiencies and
the synergies between the business units, and the fruits of these efforts are demonstrated in the quality of the
underlying financial results.
Business model
Ascendis Health is an integrated health and care company selling a portfolio of market-leading brands for
animals, plants and humans. The brands are housed in three divisions: Consumer Brands (nutraceuticals,
complementary medicines, sports nutrition and derma-cosmeceuticals); Phyto-Vet (plant and animal health
and care) and Pharma-Med (prescription drugs, OTC and medical devices).
The business model is designed around strong and resilient brands, with many being price setters in their
market segments. The brands are integrated along the value chain, from sourcing of raw materials, new product
development and manufacturing, to marketing and selling products to consumers through retail, wholesale,
pharmacies, hospitals, laboratories, public tenders, dispensing doctors and direct selling channels in Southern
Africa and increasingly in global markets.
The group's strategy is based on organic, acquisitive and synergistic growth locally and internationally. The group
is targeting to achieve 30% revenue from outside South Africa in the medium term through its international
expansion strategy which includes exports, establishing own offices or subsidiaries and acquiring international
businesses. Ascendis brands are currently exported to more than 50 countries globally.
Financial performance
Revenue for the first half increased by 40% to R1 870 million (Dec 2014: R1 333 million), with the performance
driven by new product launches, international growth and key acquisitions concluded over the past year.
This includes revenue from the acquisition of Farmalider in Spain for five months. Revenue generated from
foreign markets increased by 220% to R365 million, accounting for 20% of the group's total sales (Dec 2014: 9%).
On the divisional performance, Pharma-Med increased revenue by 95% to R1 037 million (55% of total revenue).
Consumer Brands grew revenue by 3% to R478 million (26% of group revenue). Phyto-Vet revenue increased by
16% to R355 million, contributing 19% of group revenue.
The group's gross margin at 43.5% (2014: 44.8%) was mainly impacted by a change in product mix due to
acquisitions. The group's prudent hedging strategy, growth in exports and above-inflation price increases limited
the impact of the currency devaluation on the gross margin.
Earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 50% to R287 million, with an
EBITDA margin of 15.3% (Dec 2014: 14.3%). Strict cost control and restructuring activities helped to limit overall
fixed cost growth and to improve the EBITDA margin over the previous financial year. These restructuring projects
started in the reporting period and have created the base for further scalability of the Ascendis business.
Operating profit increased by 52% to R245 million (Dec 2014: R161 million). Profit after tax was 66% higher
at R147 million (Dec 2014: R89 million). Profit attributable to shareholders increased by 49% to R132 million,
including R16 million attributable to minority shareholders in relation to the Farmalider business.
The performance for the six months translated into headline earnings growth of 48% to R131 million
(Dec 2014: R89 million), with headline earnings per share (HEPS) increasing 37% to 49 cents. HEPS on a
normalised basis increased by 31% to 56 cents.
The directors have increased the interim dividend by 19% to 9.5 cents per share.
Acquisitions
The Scientific Group, which was bought in February 2015, has been successfully integrated into the Pharma-Med
division and is delivering sales and profits according to expectations. Their export activities in Southern Africa are
currently used as a base for an African export strategy for the remaining Medical brands.
The first international acquisition of Spanish pharmaceutical group, Farmalider SA, for R210 million was
accounted for from 1 August 2015. Farmalider follows a successful business-to-business model and develops,
out-licenses and manufactures mainly generic pharmaceutical products, with a market leading position in the
ibuprofen and paracetamol markets in Spain and a growing presence in other European markets.
Ascendis purchased 49% of Farmalider and has the right to acquire the remainder of the business over the next
five years. The acquisition is aligned with the group's international growth strategy of diversifying across different
markets and increasing foreign denominated earnings. Farmalider contributed R212 million sales and R29 million
profit after tax to the Pharma-Med division for the five months ended December 2015. The cross licensing of
dossiers between Farmalider and the Pharma division in South Africa is already under way.
Smaller bolt-on acquisitions were concluded and integrated into the three operating divisions. This includes the
acquisition of Sandoz dossiers which will unlock considerable sales potential for Ascendis Pharma.
The group announced the R345 million acquisition of the pharmaceutical business of Akacia Healthcare in
November 2015 and the final condition precedent is expected to be met during March. Akacia manufactures
the market leading Reuterina probiotic range and cold and flu brands Sinucon and Sinuend, and the integration
into Ascendis will create access for these brands into the dispensing doctors market. Akacia also owns a sizeable
manufacturing facility in Johannesburg. Akacia is expected to contribute to earnings in the second half of the
financial year.
Outlook
Following on from a period of consolidation of its operations in South Africa, management will continue to focus
on international acquisitive growth to further improve its hard currency revenue base. Opportunities are currently
being evaluated to acquire platform companies for all three divisions in Australia and Europe. In South Africa, the
group is in negotiations for further bolt-on acquisitions across all divisions.
The finalisation and integration of the Akacia acquisition for the Pharma division will enhance operating margins
and open up new distribution channels for Ascendis Pharma. Management is focusing on extracting synergies
across the three pharma manufacturing sites in Johannesburg and Madrid, and on increasing in-house and
domestic production to de-risk the business from Rand volatility and to improve the value chain.
Operationally the group's priorities are to improve margins through strict cost control and focus on efficiencies,
finalise the Sports Nutrition joint production project, open new routes to market in South Africa, accelerate
growth in export sales and continue new product development and innovation.
In striving to deliver competitive returns to shareholders, the group will pursue its organic, acquisitive and
synergistic growth strategies as it develops Ascendis into a global company founded on strong South African
health brands.
Dr Karsten Wellner Kieron Futter
Chief Executive Officer Chief Financial Officer
Johannesburg
9 March 2016
Unaudited condensed group statement of financial position
at 31 December 2015
Unaudited Unaudited
six months six months Audited
ended ended year-end
31 December 31 December 30 June
2015 2014 2015
R'000 R'000 R'000
ASSETS
Non-current assets
Property, plant and equipment 257 015 158 313 149 252
Intangible assets and goodwill 2 506 053 1 582 915 2 054 456
Investment in subsidiaries – 44 044 –
Investment in joint ventures and associates – – –
Other financial assets – 1 731 17 949
Loan to related party 26 098 49 596 –
Deferred income tax asset 19 930 – 20 888
Derivative financial instruments 2 662 – 4 335
2 811 758 1 836 599 2 246 880
Current assets
Inventories 762 218 520 325 585 081
Loans to related parties 65 417 37 951 78 802
Trade and other receivables 787 617 520 446 571 450
Other financial assets 28 497 11 908 20 539
Current tax receivable – – 3 395
Derivative financial instruments 15 417 – 15 706
Cash and cash equivalents 140 404 219 928 125 428
1 799 570 1 310 558 1 400 401
Non-current assets held for sale and assets of disposal groups 425 435 425
Total assets 4 611 753 3 147 592 3 647 706
EQUITY
Equity attributable to holders of parent
Stated capital 1 591 512 1 590 262 1 576 730
Retained earnings 348 757 199 815 299 417
Other reserves (74 363) (51 761) (51 909)
1 865 906 1 738 316 1 824 238
Non-controlling interest 140 075
2 005 980 1 738 316 1 824 238
LIABILITIES
Non-current liabilities
Derivative financial instruments 2 933 – 4 890
Borrowings and other financial liabilities 856 834 547 430 798 258
Other financial liabilities 122 420 – –
Deferred vendor liabilities 15 761 41 857 36 758
Deferred income tax liabilities 214 594 118 526 134 937
1 212 542 707 813 974 843
Current liabilities
Trade and other payables 638 079 367 288 463 548
Provision for onerous contracts – 16 510 –
Derivative financial instruments 7 169 – 15 039
Borrowings and other financial liabilities 345 498 177 478 38 371
Current tax payable 22 868 16 786 –
Deferred vendor liabilities 289 508 66 514 281 048
Loans from related parties 26 453 26 286 26 405
Bank overdraft 63 656 30 601 24 214
1 393 231 701 463 848 625
Total liabilities 2 605 772 1 409 276 1 823 468
Total equity and liabilities 4 611 753 3 147 592 3 647 706
Unaudited condensed group statement
of comprehensive income
for the six months ended 31 December 2015
Unaudited Unaudited
six months six months Audited
ended ended year-end
31 December 31 December 30 June
2015 2014 2015
R'000 Note 1 R'000 R'000
Revenue 1 870 500 40% 1 333 229 2 816 717
Cost of sales (1 056 621) (735 597) (1 588 194)
Gross profit 813 879 36% 597 632 1 228 523
Other income (Note 2) 8 600 25 515 27 476
Selling and distribution cost (203 158) (152 781) (291 516)
Administrative expenses (304 029) (246 363) (502 289)
Other operating expenses (70 077) (63 010) (100 020)
Operating profit/loss 245 215 52% 160 993 362 174
Net finance cost (47 741) (37 020) (69 066)
Losses from equity accounted investments – (850) (546)
Profit before taxation 197 474 60% 123 123 292 562
Taxation (50 103) (34 464) (82 575)
Profit for the period 147 371 66% 88 659 209 987
Other comprehensive income
Items that may be reclassified to profit and loss:
Foreign currency translation reserve 29 897 6 –
Effects of cash flow hedges 204 (798) (949)
Other reserves (1 700)
Other comprehensive income for the year net of
taxation 28 401 (792) (949)
Total comprehensive income for the year 175 772 87 867 209 038
Note 1: 12-month growth December 2014 to December 2015.
Note 2: Other income mainly relates to unrealised foreign exchange gains in 2015.
Total comprehensive income attributable to:
Owners of the parent 157 046 87 719 208 887
Non-controlling interest 18 726 152 152
Profits attributable to:
Owners of the parent 131 760 88 507 209 836
Non-controlling interest 15 611 152 152
Other comprehensive income attributable to:
Owners of the parent 25 286 (788) (949)
Non-controlling interest 3 115
Earnings per share
Basic earnings per share (cents) 48.75 35.50 80.54
Diluted earnings per share (cents) 48.75 35.13 80.54
Unaudited condensed group statement of changes in equity
for the six months ended 31 December 2015
Total
attributable
to equity holders
Accumulated (loss)/ of the group/ Non-controlling
Stated capital Other reserves retained income company Interest Total equity
R'000 R'000 R'000 R'000 R'000 R'000
Balance as at 1 July 2014 (Restated) 1 108 036 (56 119) 152 068 1 203 985 6 805 1 210 790
Profit for the period 88 507 88 507 152 88 659
Other comprehensive income/(loss) for the period (788) (788) (788)
Total comprehensive income for the year – (788) 88 507 87 719 152 87 871
Dividends (40 760) (40 760) (40 760)
Issue of ordinary shares 483 124 483 124 483 124
Raising fees capitalised (898) (898) (898)
Total changes in ownership interests in subsidiaries
that do not result in a material loss of control 5 159 5 159 (6 957) (1 798)
Total contributions by and distributions to owners of
the company recognised directly in equity 482 226 5 159 (40 760) 446 625 (6 957) 439 668
Balance as at 31 December 2014 1 590 262 (51 748) 199 815 1 738 329 – 1 738 329
Profit for the period 121 329 121 329 – 121 329
Other comprehensive income/(loss) for the period (161) (161) (161)
Total comprehensive income for the year – (161) 121 329 121 168 – 121 168
Purchase of own/treasury shares (13 371) (13 371) (13 371)
Raising fees capitalised (161) (161) (161)
Dividends (21 727) (21 727) (21 727)
Total contributions by and distributions to owners of
the company recognised directly in equity (13 532) – (21 727) (35 259) – (35 259)
Balance as at 30 June 2015 1 576 730 (51 909) 299 417 1 824 238 – 1 824 238
Profit for the period – – 131 760 131 760 15 611 147 371
Total comprehensive income for the period – 25 286 – 25 286 3 115 28 401
Total comprehensive income for the year – 25 286 131 760 157 046 18 726 175 772
Dividends – – (30 296) (30 296) – (30 296)
Treasury shares held for payments of acquisitions 14 782 – – 14 782 – 14 782
Reclassify to retained earnings – 52 124 (52 124) – – –
Non-controlling interest arising on business combination – – – – 121 349 121 349
Put option written on non-controlling interest – (99 865) – (99 865) – (99 865)
Total contributions by and distributions to owners of
the company recognised directly in equity 14 782 (47 741) (82 420) (115 379) 121 349 5 970
Balance as at 31 December 2015 1 591 512 (74 364) 348 757 1 865 905 140 075 2 005 980
Unaudited condensed group cash flow statement
for the six months ended 31 December 2015
Unaudited Unaudited
six months six months Audited
ended ended year-end
31 December 31 December 30 June
2015 2014 2015
R'000 R'000 R'000
Cash flows from operating activities 257 908 120 776 285 805
Income taxes paid (32 549) (34 368) (122 988)
Investment income received 5 075 9 680 24 234
Interest expense paid (54 305) (46 699) (93 300)
Net cash inflow from operating activities 176 129 49 389 93 751
Cash flows from investing activities
Net cash used in investing activities
Payment for acquisition of subsidiary, net of cash acquired (79 923) (275 646) (453 099)
Payment for acquisition of joint venture – 4 089 5 768
Purchases of property, plant and equipment (93 208) (18 180) (45 918)
Proceeds from sale of property, plant and equipment – 1 211 16 646
Payments to acquire an intangible assets (231 538) (1 298) (43 156)
Proceeds from deferred vendor loans raised 124 857 – –
Repayments on deferred vendor loans (137 394) (16 934) (13 511)
Payments of loans to related parties – – (14 748)
Repayments on loans from related parties 25 867 – –
Proceeds on loans from related parties – – 54 000
Payments made to acquire Other financial assets (14 888) – (9 009)
Proceeds from Other financial instruments – 2 115 –
Non-current assets held for sale – 5 616
(406 227) (304 643) (497 411)
Cash flows from financing activities
Net cash used in financing activities
Loans to shareholder – – (41 670)
Proceeds on shareholder loans – 15 249 119
Repayments on shareholder loans (2 000) – –
Proceed from issue of shares – 455 059 479 465
Payments for shares bought back – – (10 771)
Proceeds from borrowings raised 320 325 (96 900) 850 000
Repayments of borrowings (80 670) 129 849 (691 315)
Finance lease payments – 549 –
Dividends paid (29 440) (40 760) (62 487)
Non-controlling interest acquired as part
of the business combination – (12 500) (12 500)
208 216 450 546 510 841
Net increase/(decrease) in cash and cash equivalents (21 884) 195 292 107 181
Cash and cash equivalents at beginning of period 101 214 (5 966) (5 966)
Effect of exchange difference on cash balances (2 582) – –
Cash and cash equivalents at end of period 76 748 189 326 101 215
* All acquisition cost relating to the business combinations are incurred by and for the account of Coast to Coast.
** No cash transactions with non-controlling interest occurred during the interim period.
Earnings per share, diluted earnings per share and headline earnings per share
The group presents basic and diluted earnings per share (EPS) for its ordinary shares. Basic EPS is calculated by dividing
the profit or loss attributable to ordinary shareholders by the weighted average number of ordinary shares in issue.
Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average
number of ordinary shares in issue for the dilutive effects of all share options granted to employees.
The calculation of headline earnings per share is based on the profit attributable to equity holders of the parent,
after excluding all items of a non-trading nature, divided by the weighted average number of ordinary shares in issue
during the period. The presentation of headline earnings is not an IFRS requirement, but is required by JSE Listings
Requirements and the JSE Circular 3 of 2012.
(a) Basic
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the company by the
weighted average number of ordinary shares in issue during the period, excluding ordinary shares purchased by the
company and held as treasury shares.
Weighted average number of shares in issue is calculated as the number of shares in issue at the beginning of the
period, increased by shares issued during the period weighted on a time basis for the period during which they have
participated in the profit of the group. Shares which are held by a subsidiary company as treasury shares have been
adjusted on a time basis when determining the weighted average number of shares in issue.
Unaudited Unaudited
six months six months Audited
ended ended year end
31 December 31 December 30 June
2015 2014 2015
R'000 R'000 R'000
Profit from continuing operations 131 760 88 507 209 836
Total 131 760 88 507 209 836
Weighted average number of ordinary shares in issue 270 259 249 601 260 527
Earnings per share (cents) continuing operations 48.75 35.46 80.54
(b) Diluted
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to
assume conversion of all dilutive potential ordinary shares.
The company has three categories of dilutive potential ordinary shares: share options, share appreciation rights and
convertible preference shares. The convertible debt is assumed to have been converted into ordinary shares, and the
net profit is adjusted to eliminate the interest expense less the tax effect. For the share options, a calculation is done to
determine the number of shares that could have been acquired at fair value (determined as the average annual market
share price of the company's shares) based on the monetary value of the subscription rights attached to outstanding
share options. The closing price is used for share appreciation rights, as these are classified as contingently issuable
shares in terms of IAS 33 – Earnings per share. The number of shares calculated as above is compared with the
number of shares that would have been issued assuming the exercise of the share options.
Unaudited Unaudited
six months six months Audited
ended ended year-end
31 December 31 December 30 June
2015 2014 2015
R'000 R'000 R'000
(b) Diluted Earnings
Profit from continuing operations attributable to owners
of the parent 131 760 88 507 209 836
Profit used to determine diluted earnings per share 131 760 88 507 209 836
Profit from discontinued operations attributable to owners
of the parent
Total 131 760 88 507 209 836
Weighted average number of ordinary shares in issue 270 259 251 958 260 527
Weighted average number of ordinary shares for diluted
earnings per share 270 259 251 958 260 527
Earnings per share (cents) – continuing operations 48.75 35.13 80.54
(c) Headline earnings per share
Profit attributable to equity holders of the parent –
continued operations 131 760 88 507 209 836
Adjusted for:
– Loss/(profit) on the sale of property, plant
and equipment (395) – (779)
Gross amount (549) – (1 082)
Tax effect 154 – 303
– Impairment of intangible assets – 74 –
Gross amount – 103
Tax effect – (29) –
– Loss/(profit) on investment disposal (234) – –
Gross amount (325)
Tax effect 91 – –
Headline earnings 131 131 88 581 209 057
Weighted average number of shares in issue 270 259 249 601 260 527
Headline earnings per share – continuing operations 48.52 35.49 80.24
(d) Diluted headline earnings
Profit attributable to equity holders of the parent –
continued operations 131 760 88 507 209 056
Adjusted for:
– Loss/(profit) on the sale of property, plant and equipment (395) – –
Gross amount (549) – –
Tax effect 151 – –
– Impairment of intangible assets – 74 –
Gross amount – 103
Tax effect – (29) –
– Loss/(profit) on investment disposal (234) – –
Gross amount (325) – –
Tax effect 91 – –
Headline earnings 131 131 88 581 209 056
Weighted average number of ordinary shares for diluted
earnings per share 270 259 251 958 260 527
Diluted headline earnings per share (cents) –
continuing operations 48.52 35.16 80.24
e) Normalised headline earnings per share
Normalised headline earnings per share is calculated by dividing the normalised headline earnings by the weighted average
number of ordinary shares in issue during the period, excluding ordinary shares purchased by a subsidiary of Ascendis and
held as treasury shares.
Normalised headline earnings is calculated by excluding amortisation from earnings. Since Ascendis Health is a pharmaceutical
company and not an investment entity, the income statement effect of intangible assets of its subsidiaries should be excluded.
Unaudited Unaudited
six months six months Audited
ended ended year-end
31 December 31 December 30 June
2015 2014 2015
R'000 R'000 R'000
Reconciliation of normalised headline earnings
Headline earnings 131 137 88 581 209 056
Adjusted for:
Once-off costs 3 200 5 731 12 474
Finance cost on derivative 1 485
Tax effect thereof (1 104) (1 758) (3 493)
Amortisation 22 884 20 220 37 127
Tax effect thereof (6 155) (5 662) (10 396)
Normalised headline earnings 151 447 107 112 244 768
Weighted average number of shares in issue 270 259 249 601 260 527
Normalised headline earnings per share (cents) 56.04 42.91 93.95
(f) Normalised diluted headline earnings per share
Normalised diluted headline earnings per share is calculated
on the same basis used for calculating diluted earnings per
share, other than normalised headline earnings being the
numerator.
Normalised headline earnings: 151 447 107 112 244 769
Adjusted normalised headline earnings 151 447 107 112 244 769
Weighted average number of shares for diluted headline
earnings per share 270 259 251 958 260 527
Shares to be issued to vendors
Weighted average number of shares in issue 270 259 251 958 260 527
Diluted normalised headline earnings per share (cents) 56.04 42.51 93.95
Reporting segments
(a) Ascendis Health Limited Group accounting policy
The group has three main reportable segments that comprise the structure used by the group executive committee
(EXCO) to make key operating decisions and assess performance. The group's reportable segments are operating
segments that are differentiated by the activities that each undertakes and the products they manufacture and market
(referred to as business segments). Each business utilises different technology, manufacturing and marketing strategies.
The group evaluates the performance of its reportable segments based on operating profit after remeasurement items.
The group accounts for inter-segment sales and transfers as if the sales and transfers were entered into under the
same terms and conditions as would have been entered into in a market related transaction.
The financial information of the group's reportable segments is reported to the EXCO for purposes of making decisions
about allocating resources to the segment and assessing its performance.
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
decision-maker. The chief operating decision-maker is responsible for allocating resources and assessing performance
of the operating segments.
(b) Ascendis Health Limited Group qualitative application of the segmental accounting policy
The EXCO is the group's chief operating decision-maker. Management has determined the operating segments
based on the information reviewed by the strategic steering committee for the purposes of allocating resources and
assessing performance.
The EXCO considers the business from both a geographic and product perspective. Geographically, management
considers the performance within South Africa and internationally. From a product perspective, management
separately considers the activities in these geographies on a segmental basis. Ascendis operates and sells health and
care products through three divisions across the full health spectrum, two of which cater for human health (Consumer
Brands and Pharma-Med) and one for the plant and animal health sector (Phyto-Vet).
The three operating divisions are:
- Consumer Brands Division (human health), incorporating all of the Ascendis Over The Counter (OTC), derma-
cosmeceuticals and Complementary and Alternative Medicines (CAMs) consumer brands products;
- Pharma-Med Division (human health), incorporating Ascendis' pharmaceutical business and its medical
devices business; and
- Phyto-Vet Division (animal and plant health), incorporating all of the Ascendis animal and plant health and care
products.
Consumer Brands Division
The Consumer Brands Division comprises health and personal care products sold to the general public, primarily at the
retail store level. The health products sold to these consumers are products catering for preventative health needs and
can be categorised into OTC medicines and CAMS (including vitamins and minerals), homeopathic, ayurveda products,
herbals, derma-cosmeceuticals, functional foods, functional super foods, sports nutrition, health beverages, weight
management and therapeutic cosmetics.
The brands have been established in the South African market for between 6 and 45 years and are generally targeted
at higher LSM customers. Some of the divisions' products are already successfully exported into Euro and Dollar export
markets. As a result this division has shown itself to be resilient in difficult economic times, hence its consistently
strong historical financial performance.
Pharma-Med Division
This division comprises the sale of prescription, selected OTC pharmaceuticals, and includes medical devices.
Ascendis' pharmaceutical products are typically sold through dispensing and doctors, wholesalers, pharmaceutical
retailers and hospitals to both the Private and Government sectors. Ascendis' medical device products are focused on
the areas of general surgery gynaecology, urology, ear, nose and throat, cardiology, diagnostic and radiology and the
marketing of devices in a South African agent function, on an exclusive basis, for international brands of high value-
add. Ascendis imports and sells pharmaceutical products and medical devices through its Pharma-Med Division which
targets the human health sector via medical professionals (doctors and pharmacists) using the following channels:
medical practices, pharmacies, wholesalers, laboratory and pathology service providers and hospitals (both state and
privately owned).
Phyto-Vet Division
The Phyto-Vet Division supplies health and care products to the plant and animal markets. The Phyto-Vet Division
manufactures and supplies mainly its own brands which in aggregate comprise 3 500 different products supplied to
over 4 500 retail stores throughout South Africa and a further 20 African countries. The division also sells products into
20 African countries via a network of distributors or direct governmental tender participation.
(c) Ascendis Health Limited Group quantitative application of the segmental accounting policy.
(c1) Statement of comprehensive income measures applied
Sales between segments are carried out at arm's length.
There has been no inter-segment revenue during the financial period. All revenue figures represents revenue from
external customers.
Total segment revenue
Unaudited Unaudited
six months six months Audited
ended ended year-end
Revenue 31 December 31 December 30 June
2015 2014 2015
R'000 R'000 R'000
Revenue split by division
Consumer Brands 478 177 462 457 949 127
Phyto-Vet 355 551 340 217 619 568
Pharma-Med 1 036 772 530 555 1 248 022
Total revenue 1 870 500 1 333 229 2 816 717
Geographical revenue split
South Africa 1 505 986 1 219 072 2 557 665
Foreign 364 514 114 157 259 052
Total revenue 1 870 500 1 333 229 2 816 717
The group has an expanding international presence and currently exports products to 52 countries, mainly in Africa and
Europe.
During the financial period the group made a total of R364 514 (2014: R114 157) in foreign sales (other African countries
and Europe).
Unaudited Unaudited
six months six months Audited
ended ended year-end
31 December 31 December 30 June
2015 2014 2015
EBITDA R'000 R'000 R'000
Consumer Brands
Operating profits 76 289 77 052 139 985
Amortisation 8 491 9 362 17 384
Depreciation 4 944 2 518 6 894
Impairment of assets – – –
Consumer Brands EBITDA 89 733 88 932 164 262
Phyto-Vet
Operating profits 42 012 34 898 69 435
Amortisation 3 588 3 372 7 339
Depreciation 3 358 2 944 4 801
Impairment of assets – 103 –
Phyto-Vet EBITDA 48 959 41 317 81 574
Pharma-Med
Operating profits 163 116 76 816 210 143
Amortisation 12 679 6 735 12 405
Depreciation 8 792 3 971 10 287
Impairment of assets – – –
Pharma-Med EBITDA 184 587 87 522 232 834
Head office adjusted expenses (36 211) (26 819) (56 228)
Non-controlling interest proportionate share (20 724)
Total EBITDA attributable to the parents 266 344 190 952 422 442
Unaudited Unaudited
six months six months Audited
ended ended year-end
31 December 31 December 30 June
2015 2014 2015
Reconciliation of EBITDA to Consolidated Results R'000 R'000 R'000
Consolidated operating profit 245 215 160 993 362 174
Total consolidated Amortisation, Depreciation and
Impairments 41 853 29 005 60 268
Head-office portions excluded from segmental analysis – 954 –
Non-controlling interest proportionate share (20 724)
Total EBITDA attributable to the parents 266 344 190 952 422 442
EBITDA is a measure of a company's operating profitability. It equals earnings before interest, tax, depreciation
and amortisation. Due to the fact that EBITDA excludes depreciation and amortisation, EBITDA therefor provides a
measurement criteria view of a segment's core profitability.
(c2) Statement of financial position measures applied
Unaudited six months ended
31 December
2015
R'000
Segmental assets Total assets Total liabilities
Consumer Brands 1 243 813 (600 818)
Phyto-Vet 622 249 (381 982)
Pharma-Med 2 707 603 (1 593 954)
Head office 38 088 (29 020)
Consolidated value 4 611 753 (2 605 774)
Audited year-end 30 June
2015
R'000
Segmental assets and liabilities Total assets Total liabilities
Consumer Brands 1 231 058 (535 684)
Phyto-Vet 525 689 (295 683)
Pharma-Med 1 745 922 (972 940)
Head office 145 037 (19 161)
Consolidated value 3 647 706 (1 823 468)
Unaudited six months ended
31 December
2014
R'000
Segmental assets and liabilities Total assets Total liabilities
Consumer Brands 1 063 917 (401 370)
Phyto-Vet 407 162 (348 936)
Pharma-Med 1 589 332 (648 334)
Head office 87 182 (10 636)
Consolidated value 3 147 592 (1 409 276)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. Corporate information
Ascendis is a fast growing health and care brands company consisting of three divisions, Consumer
Brands (nutraceuticals, vitamins, sports nutrition and derma-cosmeceuticals); Pharma-Med (prescription
drugs and medical devices) and Phyto-Vet (plant and animal health). The group's vision, which is
encapsulated in its motto 'A healthy home, a healthy you', is to bring health to the consumer at all stages
of his or her life – from health maintenance (preventative medicine) to chronic medication and critical
care (intervention). These consolidated group interim financial results as at and for the six months ended
31 December 2015 comprise of the company and its subsidiaries (together referred to as the group) and
the group's interest in joint ventures.
2. Going concern
The directors consider that the group has adequate resources to continue operating for the foreseeable
future and that it is therefore appropriate to adopt the going concern basis in preparing the group's
financial statements. The directors have satisfied themselves that the group is in sound financial position
and that it has access to sufficient borrowing facilities to meet its foreseeable cash requirements.
3. Presentation of annual financial statements:
The interim consolidated financial statements are prepared in accordance with the requirements of
the JSE Limited Listings Requirements for interim reports, and the requirements of the Companies Act
applicable to interim financial statements. The Listings Requirements require interim reports to be prepared
in accordance with the framework concepts and the measurement and recognition requirements of
International Financial Reporting Standards ("IFRS") and the SAICA Financial Reporting Guides as issued by
the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting
Standards Council and also, as a minimum, contain the information required by IAS 34 Interim Financial
Reporting. The accounting policies applied in the preparation of the interim consolidated financial
statements are in terms of International Financial Reporting Standards and are consistent with those
accounting policies applied in the preparation of the previous consolidated annual financial statements.
3.1 Statement of Compliance
The unaudited condensed group interim financial results for the six-month period ended 31 December 2015
have been prepared under the supervision of K Futter (CA)SA, in accordance with International
Accounting Standard (IAS) 34 Interim Financial Reporting, the SAICA Financial Reporting Guides as
issued by the Accounting Practices Committee, the Listings Requirements of the JSE Limited, Financial
Pronouncements as issued by the Financial Reporting Standards Council and the requirements of the
South African Companies Act, No 71 of 2008. The condensed unaudited group interim financial results
should be read in conjunction with the audited group annual financial statements as at and for the year
ended 30 June 2015, which have been prepared in accordance with International Financial Reporting
Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
3.2 Basis of preparation
The interim financial statements have been prepared on the historical cost basis, except for the
measurement of certain financial instruments and property, plant and equipment at fair value. The
accounting policies used in preparation of the interim financial results are consistent with those applied in
the audited financial statements for the year ended 30 June 2015.
The interim financial statements are presented in South African Rands, which is the functional currency of
Ascendis Health Group.
3.3 Judgments and estimates
In preparing these unaudited condensed group interim financial results, management made judgments,
estimates and assumptions that affect the application of accounting policies and the reported amounts
of assets, liabilities, income and expense. Actual results may differ from these estimates. The significant
judgments made by management in applying the group's accounting policies and the key source of
estimation uncertainty were the same as those applied to the audited group annual financial statements
as at end for the year ended 30 June 2015 with the exception of the following:
- The acquisition of a 49% interest in Farmalider in the current reporting period. The ultimate aim of the
transactions is for the value of the Company to grow sustainably over the mid-term and for Ascendis
to acquire 100% of the company via the put option. The control assessment in terms of IFRS 10 of
Farmalider is considered to be a key estimate.
- Management has considered the requirements of IFRS 10, the terms of the contractual
arrangement and the substance of the transaction and concluded Ascendis has sufficient
substantive voting rights which provides Ascendis with the power to direct the relevant activities
and receive variable returns from Farmalider. Ascendis controls Farmalider in terms of IFRS 10,
and has accounted for it accordingly.
- In addition to the above, management of Ascendis has assessed the risk and reward relating to
the remaining 51% interest to which the parties to the contract are exposed to. Management
concluded both Ascendis and the non-controlling interest party share in the risks and the
rewards associated with the day-to-day business operations in relation to their proportionate
shareholding. Based on the above the risk and rewards have not transferred to Ascendis. Ascendis
has recognised the non-controlling interest (51%).
3.4 Underlying concepts
The financial statements are prepared on the going concern basis using accrual accounting.
Changes in accounting policies are accounted for in accordance with the transitional provisions in the
standards. If no such guidance is given, they are applied retrospectively, unless it is impractical to do so,
in which case they are applied prospectively. Changes in accounting estimates are recognised in profit
or loss. Prior period errors are retrospectively restated unless it is impractical to do so, in which case they
are applied prospectively.
3.5 Recognition of assets and liabilities
Assets are only recognised if they meet the definition of an asset. It is probable that future economic
benefits associated with the asset will flow to the Group and the cost or fair value can be measured reliably.
Liabilities are only recognised if they meet the definition of a liability. It is probable that future economic
benefits associated with the liability will flow from the entity and the cost or fair value can be reliably measured.
Financial instruments are recognised when the entity becomes a party to the contractual provisions of
the instruments. Financial assets and liabilities as a result of firm commitments are only recognised when
one of the parties has performed under the contract. Regular way purchase and sales are recognised
using trade date accounting.
4. JSE Limited Listings Requirements
The interim results announcement has been prepared in accordance with the Listings Requirements of
the JSE Limited.
5. Corporate governance
Detailed disclosure of the company's application of the principles contained in the King Report on
Governance for South Africa 2009 (King III) is available on the company's website in accordance with the
JSE Listings Requirements. No material changes have occurred since the disclosure. Efforts are constantly
employed to address the areas requiring improvement.
Please contact the Group Company Secretary, A Sims, for any additional information in this regard.
6. Significant accounting policies
6.1 Standards, interpretations and amendments effective and adopted in
the current period
International Financial Reporting Standards and amendments effective for the first time for period ended
30 June 2016:
Number Effective date Executive summary
Amendment to IAS 19 1 July 2014 These narrow scope amendments apply to contributions
'Employee benefits', from employees or third parties to defined benefit plans.
regarding defined The objective of the amendments is to simplify the accounting
benefit plans for contributions that are independent of the number of years
of employee service, for example, employee contributions that
are calculated according to a fixed percentage of salary.
6.2 Standards, interpretations and amendments not yet effective
The following accounting standards, interpretations and amendments to publish accounting standards
which are relevant to Ascendis Health but not yet effective, have not been adopted in the current year.
These standards are not expected to have any significant effect on the results of operations or financial
position of the group.
Number Effective date Executive summary
Amendments to 1 January 2016 The IASB has issued this amendment to eliminate the
IFRS 10, 'Consolidated inconsistency between IFRS 10 and IAS 28. If the non-
financial statements' monetary assets sold or contributed to an associate or joint
and IAS 28, venture constitute a 'business', then the full gain or loss will be
'Investments in recognised by the investor. A partial gain or loss is recognised
associates and joint when a transaction involves assets that do not constitute a
ventures' on sale or business, even if these assets are housed in a subsidiary.
contribution of assets
Amendments 1 January 2016 The amendments clarify the application of the consolidation
to IFRS 10, exception for investment entities and their subsidiaries.
'Consolidated financial
statements' and
IAS 28,'Investments in
associates and joint
ventures' on applying
the consolidation
exemption
Amendment to IFRS 11, 1 January 2016 This amendment adds new guidance on how to account
'Joint arrangements' for the acquisition of an interest in a joint operation that
on acquisition of constitutes a business. The amendments specify the
an interest in a joint appropriate accounting treatment for such acquisitions.
operation
IFRS 14 – Regulatory 1 January 2016 The IASB has issued IFRS 14, 'Regulatory deferral accounts'
deferral accounts specific to first time adopters ('IFRS 14'), an interim standard
on the accounting for certain balances that arise from rate-
regulated activities ('regulatory deferral accounts').
Rate regulation is a framework where the price that an entity
charges to its customers for goods and services is subject to
oversight and/or approval by an authorised body.
Amendments to 1 January 2016 In December 2014 the IASB issued amendments to clarify
IAS 1, 'Presentation of guidance in IAS 1 on materiality and aggregation, the
financial statements' presentation of subtotals, the structure of financial statements
disclosure initiative and the disclosure of accounting policies.
Amendment to IAS 16, 1 January 2016 In this amendment the IASB has clarified that the use of
'Property, plant and revenue based methods to calculate the depreciation of an
equipment' and asset is not appropriate because revenue generated by an
IAS 38,'Intangible activity that includes the use of an asset generally reflects
assets', on factors other than the consumption of the economic benefits
depreciation and embodied in the asset. The IASB has also clarified that
amortisation revenue is generally presumed to be an inappropriate basis
for measuring the consumption of the economic benefits
embodied in an intangible asset.
Amendments to 1 January 2016 In this amendment to IAS 16 the IASB has scoped in bearer
IAS 16, 'Property, plant plants, but not the produce on bearer plants and explained that
and equipment' and a bearer plant not yet in the location and condition necessary
IAS 41, 'Agriculture' on to bear produce is treated as a self-constructed asset. In this
bearer plants amendment to IAS 41, the IASB has adjusted the definition
of a bearer plant include examples of non-bearer plants and
remove current examples of bearer plants from IAS 41.
Amendments to 1 January 2016 In this amendment the IASB has restored the option to use
IAS 27, 'Separate the equity method to account for investments in subsidiaries,
financial statements' joint ventures and associates in an entity's separate financial
on equity accounting statements.
IFRS 15 – Revenue 1 January 2018 The FASB and IASB issued their long awaited converged
from contracts with standard on revenue recognition on 29 May 2014. It is a
customers. single, comprehensive revenue recognition model for all
contracts with customers to achieve greater consistency
in the recognition and presentation of revenue. Revenue
is recognised based on the satisfaction of performance
obligations, which occurs when control of good or service
transfers to a customer.
IFRS 9 – Financial 1 January 2018 This IFRS is part of the IASB's project to replace IAS 39. IFRS 9
Instruments (2009 and addresses classification and measurement of financial assets
2010) and replaces the multiple classification and measurement
- Financial liabilities models in IAS 39 with a single model that has only two
- Derecognition classification categories: amortised cost and fair value.
of financial The IASB has updated IFRS 9, 'Financial instruments' to
instruments include guidance on financial liabilities and derecognition of
- Financial assets financial instruments. The accounting and presentation for
- General hedge financial liabilities and for derecognising financial instruments
accounting has been relocated from IAS 39, 'Financial instruments:
Recognition and measurement', without change, except for
financial liabilities that are designated at fair value through
profit or loss.
Amendment to 1 January 2018 The IASB has amended IFRS 9 to align hedge accounting
IFRS 9 – 'Financial more closely with an entity's risk management. The revised
instruments', on standard also establishes a more principles-based approach
general hedge to hedge accounting and addresses inconsistencies and
accounting weaknesses in the current model in IAS 39.
Early adoption of the above requirements has specific
transitional rules that need to be followed. Entities can elect
to apply IFRS 9 for any of the following:
- The own credit risk requirements for financial liabilities.
- Classification and measurement (C&M) requirements
for financial assets.
- C&M requirements for financial assets and financial
liabilities.
- The full current version of IFRS 9 (that is, C&M
requirements for financial assets and financial liabilities
and hedge accounting).
The transitional provisions described above are likely to
change once the IASB completes all phases of IFRS 9.
7. Business combinations
Being an acquisitive group, the directors and Investment Committee use various internal measurements
and risk mitigating procedures to ensure the acquisition will be value enhancing to our shareholders.
Currently the group focuses on two types of acquisitions as defined below:
Platform company
Consist of the main subsidiaries within each sector which have the market share, brands, operational
and administrative infrastructure to stand alone as businesses in their own right. The platform companies
in the three segments in South Africa had been established prior to the listing of Ascendis in 2013. Part
of the internationalisation strategy will be to acquire platform companies in new territories.
Bolt-on
These are companies, or parts of companies, which can be purchased and "bolted-on" to the platform
in a way that leverages the existing strength of either the bolt-on or the platform in a synergistic manner,
with the result that the two businesses together share the benefits of combined (or even enhanced)
revenue and a lower cost base. Examples include businesses which, after acquisition, share production
facilities, or sales teams, or accounting and administrative functions.
For accounting purposes, management uses the following criteria to treat the purchase as a business
combination or as an asset acquisition:
Management's main assumptions in evaluating this as a business acquisition and not an asset group, were
made on the basis that a business consists of inputs and processes applied to those inputs, which have
the ability to create outputs.
(a) The inputs acquired include:
- Tangible items: Equipment, infrastructure and working capital necessary for trade within the
business acquired.
- Intangible items: Computer software, software licences, and trademarks.
- Other items not necessarily included in the financial statements: A management team, the
process and knowhow of the business, studies and test results, market knowledge, relationships
with the licensing body and management knowledge of the industry.
(b) The processes acquired include: management processes, corporate governance, organisational
structures, strategic goal-setting, operational processes and human and financial resource
management.
(c) The outputs acquired include: access to research results, access to management's strategic
plans, revenue from customers, access to new markets, increased efficiency, synergies, customer
satisfaction and reputation.
During the period Ascendis Health Limited acquired the following businesses:
- Sandoz Dossiers – 100%
- Farmalider Group in Spain – 49% (Ascendis obtained effective management control)
- Bioswiss Proprietary – 100%
- OTC Pharma – 100%
A preliminary purchase price allocation has been performed on all business acquisitions which has been
included in the financial result for the interim period financial results.
Farmalider is considered to be a material platform acquisition.
The following table illustrates the consideration paid and net assets acquired for the material subsidiary
acquired during the year:
Unaudited Unaudited
six months six months Audited
ended ended year-end
31 December 31 December 30 June
2015 2014 2015
R'000 R'000 R'000
Other
Farmalider acquisitions Total Total Total
Cash 102 279 52 038 154 317 273 540 471 176
Transfers from joint ventures
to subsidiaries – – – 27 168 41 820
Equity instruments – 4 347 4 347 – 25 719
Vendor loans 111 863 12 994 124 857 72 372 278 385
214 142 69 379 283 521 373 080 817 100
Cash and cash equivalents 66 110 8 284 74 394 (2 106) 18 077
Property, plant and equipment 32 802 120 32 922 42 178 55 610
Existing intangibles within acquiree – – – – 4 580
Other financial assets 1 129 90 1 219 1 397 26 831
Inventories 61 769 15 822 77 591 57 408 84 270
Trade and other receivables 125 172 3 638 128 810 93 498 150 540
Provisions – (150) (150) – (13 894)
Trade and other payables (156 660) (8 003) (164 663) (35 133) (94 190)
Borrowings (43 782) – (43 782) (31 825) (42 690)
Current tax payable – (5) (5) (1 160) (8 678)
Contingent liability – – – (3 211) –
Deferred tax assets/(liabilities) – 114 114 1 268 3 773
Total identifiable net assets 86 540 19 910 106 450 122 314 184 229
Non-controlling interest (121 349) – (121 349) – –
Initial resultant goodwill 248 951 49 469 298 420 250 766 632 871
Intangible assets identified (212 250) (31 568) (243 818) (96 279) (190 688)
Deferred tax 60 996 8 839 69 835 26 958 53 393
Remaining goodwill 97 697 26 740 124 437 181 445 495 576
Total cash paid for acquisitions (102 279) (52 038) (154 317) (273 540) (471 176)
Cash available in acquired company 66 110 8 284 74 394 (2 106) 18 077
Cash flow relating to
Vendor loan payment reconciliation
Closing balance 30 June 2015 317 806
Additional vendor loans raised 124 857
Settlement of vendor loans (Note a) (137 394)
Closing balance 31 December 2015 305 269
Note a: Settlement of vendor loans
Cash settled (137 394)
Settled in other forms
Total amount of vendor loans settled in cash (137 394)
Pharma-Med platform acquisition – Purchase 49% of Farmalider Group
in Spain and obtaining effective control
Ascendis aims to complement its organic, acquisitive and synergistic growth in the domestic healthcare
market through a strategy of international expansion, targeting to achieve 30% of revenue in offshore
markets in the medium term in order to grow and diversify across different markets and increase foreign
denominated earnings. The purchase consideration is R214 million (R102 million on 31 July 2015,
R111.8 million payable on 1 Dec 2017). In addition to the acquisition of the 49% interest, Ascendis also has
the option by means of a put-call option to acquire the remaining 51% interest for a further R99.8 million
payable exercisable in 2018 (R50 million) and 2021 (R49.8 million) respectively (Refer to Statement of
changes in equity).
In terms of IFRS 10, when assessing control of an investee, "an investor shall consider the purpose and design
of the investee in order to identify the relevant activities, how decisions about the relevant activities are
made, who has the current ability to direct those activities and who receives returns from those activities."
Ascendis is exposed to variable returns from its involvement with Farmalider in the form of dividends and other
distributions that may be received from Farmalider as well as changes in the value of Ascendis investment in
Farmalider. In terms of the voting rights provided to Ascendis by the contractual arrangement, Ascendis has
the power to direct the relevant activities and receive variable returns in this regard.
Farmalider, founded 30 years ago in 1986, is an established Spanish pharmaceutical group of companies
on a business-to-business model, involved in the development, registration, licensing and production of
generic pharmaceutical products, specialising in pain management as evidenced by its market leading
position in the ibuprofen and paracetamol markets in Spain, with a growing presence in other European
markets. Farmalider has historically achieved consistent growth in both sales and earnings with promising
ongoing projects in various markets. Moreover, Farmalider has a growing portfolio of innovative over
the counter (OTC) products, which accords with the broader Ascendis strategy of ongoing investment
into typically, high margin, and branded OTC health products and provides Ascendis' consumer brands
division an additional route to market in Europe.
This transaction results in Ascendis acquiring Farmaliders' current portfolio of c.200 pharmaceutical
dossiers, its GMP accredited production facility in Madrid, as well as its pipeline of products, all of which
are highly complementary to the Ascendis pharma division's current portfolio and its internationalisation
strategy. Synergies relating to the cross-border sharing of products and pharmaceutical dossiers are
expected to be realised throughout the value chain, particularly by opening up new distribution channels,
new markets and a new customer base as result of Farmaliders' very successful licensing-out model.
This acquisition provides Ascendis with an entry into the attractive €23 billion Spanish pharmaceutical
market and lays the foundation to expand the Company's reach into one of Europe's five largest
pharmaceutical markets.
The Farmalider and Ascendis management team are fully aligned in their strategic views on how to
globalise its product range and extract synergies across the group.
Due to the size and nature of this business, it is seen as an offshore platform company to the PharmaMed
division, where it will be complemented by our other successful pharmaceutical companies.
The revenue included in the statement of comprehensive income since August 2015 contributed by the
acquisition was R211.7 million. The acquisition contributed profit after tax of R29.1 million over the same
period (R15.6 million attributable to the owners of Ascendis).
Other acquisitions consists of the following:
Pharma-Med Division
Pharma-Med bolt-on acquisition – Sandoz Dossiers Acquisition
Ascendis Health acquired dossiers for 46 and 85 products respectively with existing South African
marketing-authorisations from Sandoz South Africa (Pty) Ltd. Sandoz, the generic pharmaceuticals
division of Novartis, is a worldwide leader in the field of generic medicines. The purchase consideration
was R30 million (R8 million on 11 August 2015 and R22 million on 20 September 2015 respectively).
The acquisition of these dossiers will allow Ascendis future access to registered products in the new and
rapidly emerging therapeutic areas including oncology, women's health and urology, while strengthening
their current position within the anti-invective's and neuroscience areas.
The acquisition of these dossiers and successful development of the products will offer sustained organic
and new market growth opportunities for the Pharma-Med division within Ascendis and will unlock
operational efficiencies and explore new markets.
Due to the size and nature of this business, it is seen as a bolt-on to the Pharma-Med division, where it
will be complemented by our other successful pharmaceutical companies.
As at 31 December 2015, no revenue or profit after tax has been generated. This is due to the fact that
revenue can only be generated once the dossier transfer process has been completed. This process
typically takes approximately 12 months. Revenue and profit after tax is considered to be viable once the
move of the dossier registration to the new owner has been completed.
Pharma-Med bolt-on acquisition – Bioswiss Proprietary Limited
Ascendis Health Group acquired Bioswiss for a purchase consideration of R17.9 million (R10.8 million
cash on 1 July 2015, R4.3 million of shares and R2.7 million payable 31 December 2015).
Through various international partners, Bioswiss has access to innovative biotechnological products to
manage and treat diabetes. The portfolio of medicines includes insulins, diabetes care devices, diabetes
care OTC products and oral hypoglycaemic medications.
Due to the size and nature of this business, it is seen as a bolt-on to the Pharma-Med division, where it
will be complemented by our other successful pharmaceutical companies.
The revenue included in the statement of comprehensive income since July 2015 contributed by the
acquisition was R9.8 million. The acquisition contributed profit after tax of R2.4 million over the same period.
Consumer Brands – Division
Consumer Brands bolt-on acquisition – OTC Pharma South Africa
Ascendis Health Group acquired OTC Pharma South Africa for a purchase consideration of R21.3 million
(R10.9 million cash paid on 1 July 2015, R8.4 million cash upon verification of the inventory purchased
and two subsequent cash payments of R1 million payable after 12 and 24 months respectively).
OTC Pharma South Africa (OTC) markets and distributes a range of internationally branded, high quality
health care products, including leading brands such as: Marcus Rohrer Spirulina, Diabecinn, Picksan,
Bye Wart, Bye Mouth Ulcer. OTC's products are sold through retail pharmacies and health shops
throughout South Africa.
Due to the size and nature of this business, it is seen as a bolt-on to the CAMS division, where it will be
complemented by our other successful consumer brands companies.
The revenue included in the statement of comprehensive income since 1 July 2015 contributed by
acquisition was R8.9 million. The acquisition contributed profit after tax of R1.8 million over the same
period.
8. Other reserves
Other reserves within the Statement of changes in equity consists for the following:
Other reserves
R'000
Put option Farmalider
Foreign Change in Share-based non-controlling statutory
translation Revaluation Hedging ownership payment interest reserve
reserve reserve reserve reserve reserve reserve (Note b) Total
Balance as at 1 July 2014 (Restated) 188 976 – (70 516) 13 233 – – (56 119)
Other comprehensive income/(loss) for the period 10 – (798) – – – – (788)
Total changes in ownership interests in subsidiaries that do not
result in a material loss of control – – – 5 159 – – – 5 159
Balance as at 31 December 2014 198 976 (798) (65 357) 13 233 – – (51 748)
Other comprehensive income/(loss) for the period (10) (151) (161)
Balance as at 30 June 2015 188 976 (949) (65 357) 13 233 – – (51 909)
Reclassify to retained earnings (Note a) – – – 65 357 (13 233) – 52 124
Put option written on non-controlling interest (Note c) – – – – – (99 865) – (99 865)
Total comprehensive income for the period 25 915 – 204 – – (833) 25 286
Balance as at 31 December 2015 26 103 976 (745) – – (99 865) (833) (74 364)
Note a
Reclassification of equity components relating to profit and loss to retained earnings. This reclassification
represents a more reliable presentation of the nature of the equity components.
Note b
Farmalider statutory reserve is a statutory reserve in terms of Spanish legislation.
Note c
The Put option on the non-controlling interest reserve relates to a put option Ascendis holds to acquire
the 51% non-controlling interest in Farmalider. Ascendis acquired a 49% interest in Farmalider, in terms of
IFRS 10 Ascendis has the ability to control the variable returns and consolidates Farmalider on that basis.
In addition to this Ascendis has recognised a financial liability relating to the put option, since the contract
contains an obligation to deliver cash in exchange for its own equity shares (the shares of Farmalider).
The initial redemption liability is a reduction of Ascendis equity (Put option on non-controlling interest
reserve), since risks and rewards of ownership remained with the non-controlling interest (See key
management estimates). The put option liability is recognised in Other financial liabilities.
9. Fair value information
The table below analyses assets and liabilities carried at fair value, by valuation method. The different
levels are defined as follows:
- Level 1: Quoted unadjusted prices in active markets for identical assets or liabilities that the group can
access at measurement date.
- Level 2: Inputs other than quoted prices included in level 1 that are observable for the asset or liability
either directly or indirectly.
- Level 3: Unobservable inputs for the asset or liability.
No changes in the valuation technique, key inputs or classification of financial instruments disclosed
within the fair value hierarchy has changed since the previous audited financial statements. For detailed
disclosures on the valuation techniques, key inputs and classification of financial instruments, refer to the
30 June 2015 annual financial statements.
The following table presents the Group's financial assets and liabilities that are measured and disclosed at
fair value at 31 December 2015:
Unaudited six months ended 31 December
2015
R'000
Liabilities Level 1 Level 2 Level 3 Total
Financial liabilities at fair value through profit
Deferred vendor liabilities 99 331 99 331
Derivatives used for hedging
Foreign exchange contracts 52 52
Interest rate swaps 10 050 10 050
Financial liabilities at amortised cost
Put call option on subsidiary equity instruments 122 420 122 420
Deferred vendor liabilities 205 938 205 938
Borrowings – Other 677 332 677 332
Borrowings – Bond 525 000 525 000
Total liabilities – 535 102 1 105 021 1 640 123
Assets Level 1 Level 2 Level 3 Total
Financial assets at fair value through profit or loss
Derivatives used for hedging
– Foreign exchange contracts 7 779 7 779
– Interest rate swaps 10 300 10 300
Total assets – 18 079 – 18 079
Note A:
The derivative relates to the Put-call liability raised as part of the Farmalider business combination.
The derivative is initially measured at fair value, and subsequently measured at amortised cost.
The generally accepted definition of "Market Value" is the value as applied between a hypothetical willing
vendor and a hypothetical willing prudent buyer in an open market and with access to all relevant information.
Put-call parity defines a relationship between the price of a European call option and European put option, both
with the identical strike price and expiry, namely that a portfolio of a long call option and a short put option is
equivalent to (and hence has the same value as) a single forward contract at this strike price and expiry.
The key inputs into valuation therefore are:
-The annualised risk free rate of (1.82% which is considered to be market related in the European
market); and
-The strike price using a growth rate of 6.5% – 9% per annum and the expected contractual cash flows
from the contract.
A decrease in the growth rate applied in the model to 3% would result in the liability to reduce to R59.9 million.
Based on the current economic conditions, a growth rate in excess of 9% is considered unlikely based on the
current conditions within the European market.
The following table presents the Group's financial assets and liabilities that are measured and disclosed at
fair value at 31 December 2014:
Unaudited six months ended 31 December
2014
R'000
Liabilities Level 1 Level 2 Level 3 Total
Financial liabilities at fair value through profit
Deferred vendor liabilities 39 380 39 380
Financial liabilities at amortised cost
Deferred vendor liabilities 68 991 68 991
Borrowings – Other 177 478 177 478
Total liabilities – – 285 849 285 849
*No asset are measured or disclosed at fair value.
The following table presents the Group's financial assets and liabilities that are measured and disclosed at
fair value at 30 June 2015:
Audited year-end 30 June
2015
R'000
Liabilities Level 1 Level 2 Level 3 Total
Financial liabilities at fair value through profit
Deferred vendor liabilities 115 485 115 485
Derivatives used for hedging
Foreign exchange contracts 11 509 11 509
Interest rate swaps 8 420 8 420
Financial liabilities at amortised cost
Deferred vendor liabilities 202 321 202 321
Borrowings – Other 449 361 449 361
Borrowings – Bond 387 267 387 267
Total liabilities – 407 196 767 167 1 174 363
Assets Level 1 Level 2 Level 3 Total
Financial assets at fair value through profit or loss
Derivatives used for hedging
– Foreign exchange contracts 12 577 12 577
– Interest rate swaps 7 465 7 465
Total assets – 20 042 – 20 042
10. Foreign Exchange
During the reporting period Ascendis Health acquired its first international acquisition Farmalider.
The functional currency of this company is Euro and it is translated into South African Rand's to obtain
a similar presentation currency as Ascendis Health.
The results and financial position of an entity are translated into a different presentation currency using
the following procedures:
- Assets and liabilities for the balance sheet presented are translated at the closing rate at the date of
that balance sheet. This includes goodwill arising on the acquisition of a foreign operation and any
fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of
the foreign operation are treated as part of the assets and liabilities of the foreign operation;
- Income and expenses for each income statement are translated at average exchange rates at the dates
of the transactions; and
- All resulting exchange differences are recognised in other comprehensive income.
Currency
Unaudited Unaudited
six months six months Audited
ended ended year-end
31 December 31 December 30 June
2015 2014 2015
Average EUR (ZAR/EUR)
(1 August 2015 to 31 December 2015)* 15.28 n/a n/a
Closing EUR (ZAR/EUR)* 16.94 n/a n/a
Source: www.oanda.com (mid-price option)
The following chart serves to illustrate the total foreign exchange impact, as a result of the weakening of
the South African Rand (ZAR) to the Euro in the 5 months since the acquisition of Farmalider, on Revenue
and EBITDA as included in the consolidated condensed financial statements as at 31 December 2015.
Foreign exchange impact is calculated as the different between the spot rate as at acquisition date of
Farmalider and the average rate as at 31 December 2015.
11. Income tax
This note provides an analysis of the Ascendis groups' income tax expense.
Unaudited
six months
ended
31 December
2015
Percentage R'000
Effective tax rate reconciliation:
Tax at the South Africa tax rate 28% 55 293
Difference in overseas tax rates
Spain R&D Innovation tax credit (3%) (5 190)
Income tax expense 25% 50 103
R&D innovation tax credit
In terms of Spanish tax legislation, large incentives are given to entities who incur specific research and
development cost. This incentive is akin to an investment tax credit. Since the R&D innovation tax credit
is not substantially different to regular tax credits the benefit is recognised as a reduction of current tax
in the year in which they are claimed on the entity's tax return. Unused tax credits are recognised as
deferred tax to the extent allowed as per IAS 12, par 34.
The R&D innovation credit is a reoccurring amount which will be received and recognised on an annual
basis since the research and development expenses to which the tax credit relates are key to and part the
normal business operations of Farmalider (Spanish subsidiary).
12. Dividend
Interim dividend declaration
The board of directors has approved an interim gross ordinary dividend of 9.50 cents per share
(2015: 8 cents per share).
The source of the dividend will be from distributable reserves and paid in cash.
Additional information
Dividends Tax ("DT") at the rate of 15% amounting to 1.425 cents per ordinary share will be withheld in
terms of the Income Tax Act. Ordinary shareholders who are not exempt from DT will therefore receive a
dividend of 8.075 cents per share net of DT.
The company has 271 729 482 ordinary shares in issue. Its income tax reference number is 9810/017/15/3.
Shareholders are advised of the following salient dates in respect of the interim dividend:
- Last day to trade "cum" the dividend – Friday, 6 May 2016
- Shares trade "ex" the dividend – Monday, 9 May 2016
- Record date – Friday, 13 May 2016
- Payment to shareholders – Monday, 16 May 2016
Share certificates may not be dematerialised or re-materialised between Monday, 9 May 2016 and Friday,
13 May 2016, both days inclusive.
The directors of the company have determined that dividend cheques amounting to R50.00 or less
due to any ordinary shareholder will not be paid unless a written request to the contrary is delivered to
the transfer secretaries, Computershare Investor Services Proprietary Limited, by no later than close of
business on Friday, 6 May 2016 being the last day the shares trade "cum" the dividend.
Unpaid dividend cheques will be aggregated with other such amounts and donated to a charity to be
nominated by the directors.
By order of the board
Andy Sims
Company Secretary
9 March 2016
13. Contingent Liabilities
There are no additional contingent liabilities since the reporting period ended on 31 December 2015.
14. Events after reporting period
Additional finance raised
Subsequent to the end of the reporting period, Ascendis Group raised additional finance collectively
amounting to R260 million. The additional finance raised consists of the following:
- Original term facility amounting to R160 million was raised from Standard Bank Limited. Ascendis
utilised a portion of this facility to settle the initial cash component of the Afrikelp acquisition (refer
below). The remaining balance of the facility will be utilised toward the Akacia acquisition (SENS (ASC)
19/11/2015).
- Additional facility amounting to R100 million has been raised from FirstRand Bank Limited. Ascendis
has utilised a portion of this facility to settle the Revolving credit facility (R60 million), and to reduce
the Ascendis Group overdraft facility (R40 million).
Ascendis has also renegotiated and increased its General Banking, Derivative and Guarantee facilities with
Nedbank Limited collectively with an additional R40 million.
Capital raised
Ascendis has entered into an equity settled share-based payment transaction with a counter-party.
Ascendis will raise R125 million in consideration from the relevant counterparty to facilitate the
transaction. As part of the settlement of this transaction Ascendis will procure and transfer the
ordinary shares to which this transaction relates to the relevant counter party.
Phyto-Vet acquisition
Ascendis entered into an agreement to acquire a company into its Phyto-Vet division:
The total purchase consideration for the Acquisition of R170 million ("Purchase Consideration") is payable
as follows:
- Payable on transaction the Effective Date falls ("Closing Date"):
- R71 million payable in cash;
- R75 million to be settled by way of so many Ascendis ordinary shares during the 2016 financial year; and
- R35 million deferred cash payment payable on the subsequent anniversaries of the contract closing
date subject to the achievement of agreed performance targets.
This acquisition and the existing Phyto-Vet products and exporting ability, presents Ascendis with a
strong platform to grow and expand its Phyto business both domestically and internationally.
Akacia Healthcare Holdings (Pty) Ltd acquisition
Ascendis entered into an agreement to acquire Akacia Healthcare Holdings (Pty) Ltd into its Pharma-Med
division (SENS: (ASC) 19/11/2015). The completion of this acquisition is subject to the fulfilment of certain
outstanding conditions, which include Competition Authorities approval.
Ascendis obtained approval for this acquisition from the Competition Authorities in February 2016.
15. Related party transactions
During the period the company, its subsidiaries and joint ventures, in the ordinary course of business,
entered into various sale and purchase transactions. These transactions were subject to terms that are no
less or more favourable than those arranged with third parties.
16. Audit
These results and any references to future financial performance included in this announcement have not
been audited or reviewed by the external auditors.
Corporate information
Ascendis Health Limited
Registration number 2008/005856/06
JSE share code ASC
ISIN ZAE000185005
Registered office 22 Sloane Street, Bryanston, Gauteng, 2191
PostNet Suite #252, Private Bag X21, Bryanston, 2021
Contact details +27 (0)11 036 9600/info@ascendis.co.za
Sponsor Investec Bank Limited
Auditors PricewaterhouseCoopers Inc
Transfer secretaries Computershare Investor Services (Pty) Limited,
70 Marshall Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
Company secretary Andy Sims CA (SA)
Directors J Bester (Chairman)*
Dr K Wellner (CEO)
OP Cunningham*
CD Dillon#
B Harie*
GJ Shayne#
K Futter (CFO)
C Sampson (MD)
* Independent non-executive # Non-executive
ASCENDIS HEALTH LTD
22 Sloane Street | Bryanston | Johannesburg | South Africa
p +27 (0) 1 1 036 9400 | f +27 (0)86 510 8865 | e info@ascendis.co.za
www.ascendis.co.za
Date: 09/03/2016 08:00:00 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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