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ASPEN PHARMACARE HOLDINGS LIMITED - Voluntary trading statement

Release Date: 21/02/2020 17:05
Code(s): APN     PDF:  
 
Wrap Text
Voluntary trading statement

ASPEN PHARMACARE HOLDINGS LIMITED
(Incorporated in the Republic of South Africa) (“Aspen Holdings”)
Registration number: 1985/002935/06
Share code: APN
ISIN: ZAE000066692
LEI: 635400ZYSN1IRD5QWQ94
and its subsidiaries (collectively “Aspen” or “the Group”)

VOLUNTARY TRADING STATEMENT

This voluntary trading statement is provided to Aspen Holdings shareholders as guidance on the key
performance metrics relating to the results of the Group for the six months ended 31 December 2019,
expected to be published on SENS on 5 March 2020, after market close. The Japanese Business and South
African public sector ARVs (commercial related activities only) have been reclassified to discontinued
operations for the period ended 31 December 2019 and the results have been restated for the comparative
period ended 31 December 2018.

The results of the Group for the six months ended 31 December 2019 are slightly ahead of the guidance
provided at the 2019 full year results presentation, supported by the performance of Commercial
Pharmaceuticals in certain regions and heparin sales to third parties. The key performance metrics set out
below refer to continuing operations unless stated otherwise:

•   Revenue growth as reported, and in constant exchange rates (“CER”), is expected to be within the
    following range:

          Reported and CER revenue growth:         2% to 4%

•   Revenue growth (CER) from Commercial Pharmaceuticals is expected to be between 1% and 3%.
    Manufacturing revenue has been favourably impacted by the reinitiating of commercial sales of heparin
    API to third parties, with underlying operations performing in line with expectations.

•   Included in Other operating income is an amount of ZAR 147 million relating to the receipt of the
    Hydroxyprogestrone caproate (HPC) milestone payment (USD 10 million) in August 2019.

•   The Group delivered improved operating cash flows over the comparable period in the prior year, for the
    six months to 31 December 2019.

•   The operating cash flow to headline earnings conversion ratio is expected to be reported at more than
    80% for the six months ended 31 December 2019, up from 43% for the six months to 31 December 2018.
    Aspen has a cyclically stronger operating cash flow in the second half of the financial year.

•   Net borrowings declined to approximately ZAR 38.0 billion at 31 December 2019. The implementation of
    IFRS 16 – leases on a modified retrospective basis was immaterial from an income statement perspective
    but did result in a once off increase in borrowings of ZAR 550 million.

•   The leverage ratio is expected to end between 3.50x and 3.60x against a covenant threshold of 4.0x, as
    at 31 December 2019. Assuming the net proceeds from the sale of the Japanese Business (EUR 270.3
    million) were received on 31 December 2019 and these proceeds were applied to the net borrowings in
    its entirety at this date, the pro-forma leverage ratio would have been between 3.20x and 3.30x. The net
    proceeds of EUR 270.3 million from the sale of the Japanese Business were received in February 2020.

•   Potential intangible asset impairment risk has been assessed based on the performance for the six
    months ended 31 December 2019 and expected performance for the 12 months ending 30 June 2020.
    Certain Regional Brands were identified due to lower performance vs prior expectations, and the
    resulting impairment is expected to be ZAR 500 million. A rigorous and detailed impairment test of
    tangible and intangible asset values is performed annually, at year-end based upon updated long-term
    future forecasts.
The Japan Business and public sector ARVs have been reclassified to discontinued operations for the period
ended 31 December 2019. The continuing operations for the prior period have been restated taking into the
following discontinued operations:
     • Japan Business (1)
     • Public sector ARVs (2)
     • Nutritionals Business
     • Asia Pacific non-core pharmaceutical portfolio

Note 1: In November 2019, the Group concluded an agreement (subject to conditions precedent) to divest
of its Japanese operations and any related intellectual property to Sandoz, a Novartis Division. The Japan
Business has been classified as a discontinued operation with all related assets and liabilities transferred to
assets-held-for-sale in terms of IFRS 5. The disposal transaction was concluded effective 31 January 2020.

Note 2: The Group concluded a transaction in September 2019 (subject to conditions precedent, which have
not yet been fulfilled) in terms of which the commercialisation and distribution rights for its major public
sector ARVs were licensed to Laurus, a leading Indian API manufacturer. In terms of the agreement, Aspen
would continue to manufacture the products for Laurus. The deal forms part of Aspen's strategy to exit the
commercialisation of public sector ARVs while ensuring that patients have access to competitively priced and
effective treatment.

Normalised headline earnings per share (“NHEPS”) for the year ended 31 December 2019 is expected to vary from those reported in the prior year ended 31 December 2018 within the following ranges:

 Measure                                             Range                Cents per share - 31            Cents per share in              Note
                                                                             December 2019                   the prior year -
                                                                                                         31 December 2018
                                                                                                                  Restated*
 NHEPS - Continuing                             -2% to 2%                        688.3 to 716.4                        702.4                   3
 NHEPS - Total                                 -5% to -1%                        746.3 to 777.7                        785.6                   3

*NHEPS continuing has been restated taking into account the impact of discontinued operations, namely the Nutritionals Business, the Asia Pacific
non-core pharmaceutical portfolio, Japan Business and the South African public sector ARVs. The net impact is a decrease of 83.2 cents to NHEPS
continuing for the six months ended 31 December 2018.


Note 3: NHEPS comprises headline earnings per share adjusted for specific non-trading items. NHEPS is the primary measure used by management to assess Aspen’s underlying financial performance.

Headline earnings per share for the year ended 31 December 2019 is expected to vary from those reported
in the prior year ended 31 December 2018 within the following ranges:

 Measure                                             Range                Cents per share - 31            Cents per share in              Note
                                                                             December 2019                   the prior year -
                                                                                                         31 December 2018
                                                                                                                  Restated*
 Headline earnings per                          -2% to 2%                        622.8 to 648.2                        635.5               4
 share - Continuing
 Headline earnings per                         -6% to -2%                        675.6 to 704.3                        718.7               4
 share - Total

*Headline earnings per share - continuing has been restated taking into account the impact of discontinued operations, namely the Nutritionals
Business, the Asia Pacific non-core pharmaceutical portfolio, Japan Business and the South African public sector ARVs. The net impact is a decrease
of 83.2 cents to HEPS - continuing for the six months ended 31 December 2018.


Note 4: Headline earnings per share has been negatively impacted by increases in ongoing product litigation costs, restructuring costs and transaction related costs.
Earnings per share for the year ended 31 December 2019 is expected to vary from those reported in the prior year ended 31 December 2018 within the following ranges:

 Measure                              Range                               Cents per share - 31             Cents per share in                 Note
                                                                            December 2019                    the prior year -
                                                                                                             31 December 2018
                                                                                                                    Restated*
 Earnings per share -                         -11% to -7%                          523.3 to 546.8                     588.0 5
 Continuing operations
 Earnings per share -                         -12% to -8%                          566.2 to 592.0                       643.5               5
 Total

*Earnings per share - continuing has been restated taking into account the impact of discontinued operations, namely the Nutritionals Business, the
Asia Pacific non-core pharmaceutical portfolio, Japan Business and the South African public sector ARVs. The net impact is a decrease of 55.5 cents to
EPS - continuing for the six months ended 31 December 2018.


Note 5: Earnings per share – continuing operations, has been negatively impacted by impairments in continuing operations.

The financial results on which this voluntary trading statement is based have not been reviewed or reported on by Aspen’s external auditors.

Durban
21 February 2020

Sponsor
Investec Bank Limited

Date: 21-02-2020 05:05:00
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