Interim Financial Results: For The Six Months Ended 31 December 2006
Interim Financial Results: For The Six Months Ended 31 December 2006
Interim Financial Results: For The Six Months Ended 31 December 2006
HIGHLIGHTS
1 935,9 1 686,9 2 100
Aspen Pharmacare Holdings Limited (Aspen) (Registration number 1985/002935/06) Share code: APN ISIN: ZAE000066692
COMMENTARY
Group Aspen increased both revenue and net profit after tax by 15% for the six months
1 800 1 500 1 326,2 1 055,6* 903,0* 900 600 300 0 1 200
ended 31 December 2006, to R1,936 billion and R332 million respectively. This translates into growth of 13% in earnings per share to 95,3 cents as the weighted average number of shares in issue rose as a consequence of the issue of 2,6 million ordinary shares in terms of the Aspen share incentive schemes. Headline earnings per share of 95,6 cents represents an 11% increase. South African operations The South African business produced satisfactory results, growing revenue 11% to R1,550 billion and earnings before interest, investment income, tax and amortisation (EBITA) by 16% to R493 million. These results were achieved despite the sale of 50% of the equity in Fine Chemicals Corporation (Pty) Ltd (FCC) midway through the prior financial year. As a consequence, only half of the results achieved by FCC are consolidated into the results for the current period. Furthermore, the comparative period EBITA has been reduced by a R14 million writedown in the fair value of FCC. The Pharmaceutical Division performed well, growing revenue by 14% despite the inclusion of only 50% of FCC. On a like-for-like basis revenue growth was 21%. Finished dosage form (FDF) revenue increased 21% through organic growth supported by recent product launches. This growth was generated in the private market, as the public sector business was flat, given that it is the second year of a two-year tender cycle. The generic market in South Africa continues to be highly competitive with international generic companies increasing their interest in the market. Aspen has nevertheless managed to improve its generic market share over the six months (IMS data reflects at 35% market share for the twelve months to December). FDF margins remained under
02
03
04
05
Revenue (Rm)
*SA GAAP
15%
increase in revenue
332,2 288,5 350 300 250 202,6 200 159,6* 126,0* 150 100 50 0
02 03 04 05 06
06
pressure, particularly with the weakening of the rand against import currencies over the past year. The price increases permitted by the Department of Health (DoH), relieving the price freeze implemented by the regulator based on 2003 average prices, only became effective after the period end. Revenue from FDF antiretrovirals (ARVs) increased by 66% from R104 million to R173 million. Growth in the offtake of ARVs in the South African public sector has been particularly strong, reflecting increasing momentum to the governments programmes. The South African government tender for ARVs is due for re-award in the first half of 2008. FCC, the active pharmaceutical ingredient (API) manufacturer, matched the strong first-half performance delivered in the prior year at both revenue and operating profit levels. The weaker rand and a strong export order book should assist in maintaining this momentum. The infant nutritional range has consolidated the substantial gains made in the prior year, but the rate of revenue growth slowed. This contributed to slower revenue growth in the Consumer Division, where revenue increased 6% to R432 million. Profit margins have however improved as a consequence of cost curtailment. High production output has been maintained as stock levels have been raised to ensure optimum service. An upgrade of the heritage manufacturing facility in Port Elizabeth is at an advanced stage of planning.The upgraded facility will provide enhanced technologies and capacities. Construction of the sterile facility, which is designed to United States Food and Drug Administration Standards, is on track. Initial validation of this facility is planned for the beginning of 2008.
15%
increase in net profit
95,6 86,3 80 100
M G Attridge
(Deputy Group Chief Executive)
H A Shapiro
(Company Secretary)
International operations Aspens international operations increased revenue by 31% and EBITA by 51%. This was achieved despite a poor performance from Co-pharma Ltd, but with the benefit of the inclusion of Astrix Laboratories Ltd (Astrix), the India-based API joint venture which commenced business in January 2006.
40
60
Basis of accounting The condensed interim results have been prepared in accordance with IFRS, IAS 34 Interim Financial Reporting, the Listing Requirements of the JSE Limited and Schedule 4 of the South African Companies Act (Act 61 of 1973, as amended). The accounting policies used in the preparation of these interim results are consistent with those used in the annual financial statements for the year ended 30 June 2006. The December 2005 income statement and balance sheet have been restated, as the IFRS conversion process was only finalised in June 2006. More details are provided in the notes to the income statement and balance sheet. The interim information has been prepared in accordance with the IFRS and IFRIC interpretations as adopted for use in South Africa at the time of the preparation of the information. As these standards and interpretations are subject to ongoing review, they may be amended between the date of this report and the finalisation of the annual financial statements for the year to June 2007.
Aspen Australia Pty Ltd recorded revenue of R259 million, an increase of 24%, whilst improving EBITA by 36% to R37 million. Both Pharmaceutical and Consumer Divisions showed robust growth with the Consumer Division benefiting from new product additions. Aspen Resources Ltd, the United Kingdom-based intellectual property and sourcing company, produced another positive performance, raising EBITA by 32% to R29 million. Co-pharma Ltd returned a small loss despite increased volumes. Astrix, which specialises in ARV APIs, increased its contribution to gross revenue from R67 million in its first six months of trade to R80 million. The largest portion of this increase was attributable to trade with Aspen.
20
02
03
04
05
11%
growth in headline earnings per share
06
Investment income, finance costs and cash flows Interest paid, net of interest received, has increased from R19 million to R34 million. Rising interest rates and higher borrowings due to increased levels of working capital
Directors: A J Aaron (Chairman)*, M G Attridge, M R Bagus*, L Boyd*, J F Buchanan*, N J Dlamini*, P Dyani*, M Krok*, C N Mortimer*, D M Nurek*, S B Saad, D Thomas* (Alternate to P Dyani), S Zilwa* *Non-executive directors Transfer secretary: Computershare Investor Services 2004 (Pty) Limited (Registration number 1987/003382/06) 70 Marshall Street, Johannesburg, 2001 (PO Box 1053, Johannesburg, 2000) Registered office: Building number 8, Healthcare Park, Woodlands Drive, Woodmead Company Secretary: H A Shapiro
Supplementary Information
Unaudited Unaudited Six months Six months ended ended 31 December 31 December 2006 2005 Rm Rm A. Capital expenditure Incurred tangible assets intangible assets Contracted tangible assets intangible assets Authorised but not contracted for tangible assets intangible assets B. Operating profit has been arrived at after charging Depreciation of tangible assets Amortisation of intangible assets Share-based payment expenses C. Investment income Preference share dividend received Interest received Total investment income D. Net financing costs Interest paid Preference share dividend paid Net foreign exchange gains/(losses) Notional interest on financial instruments Fair value (losses)/gains on financial instruments Net financing costs E. Operating lease commitments payable in one year payable between one and five years payable thereafter Audited Year ended 30 June 2006 Rm
31 December 31 December
717,0 265,1 840,6 376,8 3,5 19,9 2 222,9 882,2 802,2 2,3 13,2 1 694,2 3 394,1 5 617,0
499,3 107,24 607,9 376,8 0,1 46,65 1 637,9 585,8 823,7 9,1 482,0 1 900,6 172,5 3 711,0
613,1 262,1 820,5 376,8 12,9 34,4 2 119,8 798,3 721,9 3,0 1,3 625,2 2 149,7 4 269,5
131,1 67,9 135,2 23,3 146,8 0,5 30,0 57,9 18,9 14,2 41,9 56,1 (75,5) (15,8) 13,5 1,0 (17,2) (94,0) 14,7 30,7 45,4
78,6 29,3 54,6 203,8 13,5 21,6 45,6 13,8 12,8 31,1 43,9 (49,8) (14,2) 2,3 (0,9) (0,9) (63,5) 10,3 28,1 1,4 39,8
174,7 132,4 91,9 21,1 282,7 47,5 91,8 27,6 25,3 47,6 72,9 (93,2) (28,1) (7,1) (0,1) 14,8 (113,7) 15,1 35,3 50,4
727,7 (598,9) 219,0 34,5 1 327,9 1 710,2 162,0 1 872,2 13,0 1 885,2
954,4 (623,0) 191,2 31,2 997,5 1 551,3 162,0 1 713,3 12,5 1 725,8
*Relates to the capital distributions declared in respect of the 2005 and 2006 financial years. The policy of Aspen is to recommend a final distribution to shareholders when the preliminary results for each financial year are released. # See notes on Supplementary Information. The income statement for the six months to December 2005 has been restated as follows: 1. An amount of R25 million has been reclassified from cost of sales to selling and distribution costs. 2. An amount of R19 million has been reclassified from administrative expenses to cost of sales.
F. Other commitments During the 2003 financial year Aspen entered into a 12-year agreement with GlaxoSmithKline South Africa (Pty) Ltd to distribute and market a range of their products. In terms of this agreement Aspen is committed to pay the following amounts to GlaxoSmithKline South Africa (Pty) Ltd: payable within one year payable thereafter 19,1 70,7 89,8 21,6 79,7 101,3 21,6 80,3 101,9
Headline Earnings
Unaudited Six months ended 2006 Rm Reconciliation of headline earnings Net profit attributable to equity holders of the parent Adjusted for: Impairment of intangible assets (net of tax) Investment in FCC written down to fair value (net of tax) Deferred tax asset in respect of Aspen Nutritionals (Pty) Ltd assessed loss raised Goodwill in respect of Aspen Nutritionals (Pty) Ltd written down Loss on disposal of intangible assets (net of tax) Profit on disposal of property, plant and equipment (net of tax) Profit on sale of investment property (net of tax) Headline earnings Headline earnings per share (cents) Headline earnings per share diluted (cents) 332,6 95,6 93,2 (0,2) 294,8 86,3 83,7 13 11 11 (0,7) 638,4 185,5 179,3 0,5 0,5 0,1 (8,2) (15,6) 14,2 14,2 0,9 1,9 331,7 288,5 638,0 Unaudited Six months ended 2005 Rm % change Audited Year ended 30 June 2006 Rm
401,5 38,2 3,2 120,9 7,3 571,1 609,7 2 500,3 31,2 19,5 3 160,7 3 731,8 5 617,0 348 545 490,7
404,9 51,4 24,1 77,56 9,9 567,8 686,8 1 054,5 28,8 97,5 1 867,6 29,0 2 464,4 3 711,0 345 961 313,5
403,3 49,0 25,8 103,9 7,3 589,3 713,6 1 173,8 4,8 62,2 1 954,4 2 543,7 4 269,5 347 449 446,5
31 December 31 December
During the 2005 financial year Aspen entered into a 10-year agreement with Novartis Pharmaceuticals Australia Pty Ltd to distribute and market a range of their products. In terms of this agreement Aspen is committed to spend the following amounts on promotion of the products: payable within one year 8,6 7,9 8,0 payable thereafter 45,9 49,6 48,2 54,5 G. Contingent liabilities There are contingent liabilities in respect of: Additional payments in respect of the Quit worldwide intellectual property rights Guarantee covering potential rental default relating to sale of discontinued operations Guarantees covering loan and other obligations to third parties 57,5 56,2
Liabilities associated with assets classified as held for sale Total liabilities Total equity and liabilities Number of shares in issue (net of treasury shares) (000) Net asset value per share (cents) The balance sheet for December 2005 has been restated as follows:
4. The goodwill balance has decreased by R69 million, relating to an impairment of the Co-pharma Ltd goodwill, as more fully described in the 2006 annual report. The foreign currency translation reserve has also been adjusted by R6 million. 5. Deferred tax assets have increased by R10 million. This adjustment relates to deferred tax on reinstated intangible assets. 6. Deferred tax liabilities have decreased by R17 million, and the equity component of preference shares has increased by R17 million. The net effect of the adjustments is a decrease in retained income of R65 million.
Net cash from operating activities Cash flows from investing activities Replacement capital expenditure property, plant and equipment Expansion capital expenditure property, plant and equipment Expansion capital expenditure sterile facility Proceeds on disposal of property, plant and equipment Proceeds on disposal of investment property Replacement capital expenditure intangible assets Expansion capital expenditure intangible assets Proceeds on disposal of intangible assets Acquisition of subsidiaries and joint ventures, net of cash acquired Disposal of 50% of FCC, net of cash disposed Decrease in non-current financial assets Net cash used in investing activities Cash flows from financing activities Proceeds from borrowings Repayment of borrowings Repayment of deferred payables Proceeds from deferred payables Net capital distribution paid Proceeds from issue of ordinary shares Net cash from/(used in) financing activities Movement in cash and cash equivalents before exchange rate changes Effects of exchange rate changes Cash and cash equivalents Movement in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the period/year
For the purposes of the cash flow statement, cash and cash equivalents comprise cash-on-hand, deposits held on call with banks, other highly liquid investments with original maturities of three months or less and bank overdrafts which form an integral part of Aspens cash management. Bank overdrafts are included within borrowings under current liabilities on the balance sheet.
Segmental Analysis
South Africa Unaudited Six months ended 31 December 2006 Rm* Primary segments: Geographical Gross revenue Less: Intersegment sales Revenue Operating profit before amortisation and investment income Amortisation intangible assets Investment income Operating profit 1 549,7 1 549,7 492,7 (33,9) 52,8 511,6 Unaudited Six months ended 31 December 2005 Rm* 1 392,1 1 392,1 424,0 (32,4) 42,2 433,8 Pharmaceutical Unaudited Six months ended 31 December 2006 Rm Secondary segments: Business Revenue South Africa Australia Asia United Kingdom and United States Operating profit before amortisation and investment income South Africa Australia Asia United Kingdom and United States Operating profit South Africa Australia Asia United Kingdom and United States 1 442,8 1 117,8* 201,6 44,9 78,5 448,0 388,7* 20,0 12,5 26,8 447,2 407,3* 17,2 8,2 14,5 1 233,9 983,3* 166,6 84,0 377,7 337,9* 16,0 23,8 376,3 348,1* 13,2 15,0 2 562,1 2 053,7* 310,0 41,1 157,3 764,7 681,8* 26,1 13,6 43,2 755,5 701,6* 18,4 9,9 25,6 493,1 431,9 57,2 4,0 122,4 104,0 17,2 1,2 121,4 104,3 15,9 1,2 453,0 408,8 41,5 2,7 97,8 86,1 11,3 0,4 97,5 85,7 10,0 1,8 887,2 794,9 86,1 6,2 222,6 195,1 26,7 0,8 212,9 185,3 26,7 0,9 1 935,9 1 549,7* 258,8 44,9 82,5 570,4 492,7* 37,2 12,5 28,0 568,6 511,6* 33,1 8,2 15,7 1 686,9 1 392,1* 208,1 86,7 475,5 424,0* 27,3 24,2 473,8 433,8* 23,2 16,8 3 449,3 2 848,6* 396,1 41,1 163,5 987,3 876,9* 52,8 13,6 44,0 968,4 886,9* 45,1 9,9 26,5 Unaudited Six months ended 31 December 2005 Rm Audited Year ended 30 June 2006 Rm Unaudited Six months ended 31 December 2006 Rm Audited Year ended 30 June 2006 Rm* 2 848,6 2 848,6 876,9 (59,3) 69,3 886,9 Unaudited Six months ended 31 December 2006 Rm 258,8 258,8 37,2 (5,7) 1,6 33,1 Australia Unaudited Six months ended 31 December 2005 Rm 208,1 208,1 27,3 (4,7) 0,6 23,2 Consumer Unaudited Six months ended 31 December 2005 Rm Audited Year ended 30 June 2006 Rm Unaudited Six months ended 31 December 2006 Rm Audited Year ended 30 June 2006 Rm 396,1 396,1 52,8 (9,3) 1,6 45,1 Unaudited Six months ended 31 December 2006 Rm 80,3 (35,4) 44,9 12,5 (4,3) 8,2 Total Unaudited Six months ended 31 December 2005 Rm Audited Year ended 30 June 2006 Rm Asia Unaudited Six months ended 31 December 2005 Rm Audited Year ended 30 June 2006 Rm 66,6 (25,5) 41,1 13,6 (3,7) 9,9 United Kingdom and United States Unaudited Six months ended 31 December 2006 Rm 136,7 (54,2) 82,5 28,0 (14,0) 1,7 15,7 Unaudited Six months ended 31 December 2005 Rm 132,8 (46,1) 86,7 24,2 (8,5) 1,1 16,8 Audited Year ended 30 June 2006 Rm 248,5 (85,0) 163,5 44,0 (19,5) 2,0 26,5 Unaudited Six months ended 31 December 2006 Rm* 2 025,5 (89,6) 1 935,9 570,4 (57,9) 56,1 568,6 Total Unaudited Six months ended 31 December 2005 Rm* 1 733,0 (46,1) 1 686,9 475,5 (45,6) 43,9 473,8 Audited Year ended 30 June 2006 Rm* 3 559,8 (110,5) 3 449,3 987,3 (91,8) 72,9 968,4
www.aspenpharma.com
BASTION GRAPHICS
*With effect from January 2006, 50% of FCC was sold. 100% of the FCC results was included in Group results until December 2005 and only 50% for periods thereafter.