ASCENDIS HEALTH LIMITED - Ascendis Health adopts new strategic focus

Ascendis Health adopts new strategic focus

Ascendis Health Limited
(Incorporated in the Republic of South Africa)
(Registration number 2008/005856/06)
Share code: ASC
ISIN: ZAE000185005
(“Ascendis Health” or “the group”)


ASCENDIS HEALTH ADOPTS NEW STRATEGIC FOCUS


A. INTRODUCTION
Ascendis Health embarked on a strategic review of its business in March 2018 following the
appointment of Thomas Thomsen as Chief Executive Officer.

The review was aimed at achieving the following objectives:
-    creating a sustainable and leading market position for the business; and
-    improving performance by accelerating organic growth, improving cash generation and
     enhancing profitability.

The review process identified the need for Ascendis Health to become more strategically focused by
strengthening the core of the business to facilitate scale and higher returns, while becoming more
consumer and people centric. Ascendis Health has a market-leading brand portfolio, successful
business units and high quality and passionate people, which together provide a solid foundation to
embark on a new strategic direction.

B. NEW STRATEGIC FOCUS
Pharma and Consumer Healthcare have been identified by the group as core focus areas, based on
the strategic fit and growth potential of these sectors. The directors believe that increased focus on
these sectors will bolster the group’s market position and build on Ascendis Health’s globally
competitive businesses in the Pharma and Consumer Healthcare sectors.

Ascendis Health plans to drive geographic expansion and growth by strengthening its current foothold
in Europe, the Middle East and Africa.

Strategic acquisitions will be considered to enhance and complement the core businesses, based on
pre-defined investment criteria, including strategic alignment and financial returns.

The core businesses will be complemented by two solid performing divisions, Medical and Animal
Health. These businesses are strategically aligned with the rest of the group and management aims
to strengthen and scale these businesses to continue to provide stable returns.

Strategic non-core businesses should be divested to ensure greater focus on the core operations.
Biosciences has been identified as non-core and the logical next step is for Ascendis Health to divest
from the business. As announced on SENS on 25 June 2018, three other assets were identified for
divestment, namely      Ascendis Sports Nutrition, Ascendis Direct Selling and the group’s
pharmaceutical manufacturing facility in Isando, Gauteng (refer to paragraph below headed
“Divestments” below).

As a consequence of the new focused strategy, the Ascendis Health operating model will shift from
the current geographic structure, focused on South Africa and Europe, to a global divisional model
comprising Pharma, Consumer Healthcare, Medical and Animal Health. The new structure is aimed at
driving stronger organic growth by better meeting consumer and customer needs, creating economies
of scale and maximising competitive advantages.

A single global operating model will reduce complexity and allow for a clear strategy with faster
decision making and greater accountability. The operating model will, during 2019, be underpinned by
global support functions across finance, risk/legal, technology , human resources, marketing, sales
capabilities and communications.

The new strategic focus and business model is targeted at driving sustainable value creation.
Through this model, the group’s targeted objective is to generate a 7% to 10% organic revenue
growth rate and 22% to 25% earnings before interest, tax, depreciation and amortisation (“EBITDA”)
margin by the 2023 financial year.


C.       SUPPORT IN RESPECT OF NEW STRATEGY
Group capabilities are being enhanced to support the new strategic focus, while five core strategies
are being consistently implemented across the four business divisions:

     -   creating focused portfolio and winning brands;
     -   selecting power geographies, customers and channels;
     -   driving commercial excellence;
     -   improving operational efficiency; and
     -   developing world-class leaders who learn.

Governance has been significantly improved by introducing four Ascendis Health management
committees to better manage performance through clearer accountability, rigour and speed of
decision making, and transparency. These are the executive committee; divisional management
committee; capital, cash and investment committee; and the innovation forum.

Four senior executive appointments have been made to strengthen Ascendis Health’s core
capabilities.


D.       SCITEC TURNAROUND PLAN
The turnaround plan to address the under-performance at Scitec is delivering encouraging early
results and the group remains committed to its investment in Scitec. While the business operates in a
highly competitive sector, the sports nutrition market is growing at around 4% - 5% per annum and is
profitable.

New consumer segments have been identified which will effectively double the size of Scitec’s target
market, with specific focus on key markets such as Hungary, UK, Germany and the Middle East.
Scitec’s total brand portfolio has been rationalised with a material reduction already.

Revenue from contract manufacturing has increased by approximately 17% over the past two
financial years. The group’s objective remains to optimise factory costs and improve operating
efficiencies, while Scitec’s headcount has been reduced by 10% as at year to date.

E.       DIVESTMENTS
Four assets which are either non-core to the longer-term strategy or not performing optimally in the
current group structure have been identified for divestment. Proceeds from the disposal of these
assets will be reinvested in the business to improve organic revenue growth, reduce gearing and
enhance financial returns.

1. Biosciences business

The Biosciences business, comprising Avima/Klub 5, Efekto, Marltons and Afrikelp, is considered
non-core to the group’s new strategy. In addition, while these businesses are performing well, they
serve a different set of customers, and require capabilities and skills that are not core to Ascendis
Health.

In the 2018 financial year, the Biosciences businesses contributed revenue of R933 million (12% of
group) and EBITDA of R131 million (10% of group).

Management plans to consider the optimum divestment process and shareholders will be advised
accordingly.



2. Update on other divestments

2.1     Ascendis Sports Nutrition, South Africa

The Ascendis Sports Nutrition business in South Africa has been sold for R54 million and the effective
date of the transaction is 1 August 2018. The business was sold as a going concern including the five
brands, Evox, SSN, Supashape, Muscle Junkie and Nutrimax.

The group’s sports nutrition strategy will, in future, focus solely on its biggest sports nutrition brand,
Scitec, in targeted consumer segments and geographies. The Scitec brand was introduced into South
Africa in early 2016.

The divestment of the Ascendis Sports Nutrition business is uncategorised in terms of the JSE
Listings Requirements.

2.2     Ascendis Direct

Agreement has been reached for the sale of Ascendis Direct, the group’s direct selling and network
marketing business, for R40 million.

The divestment of Ascendis Direct is uncategorised in terms of the JSE Listings Requirements.

2.3     Supply chain: Isando manufacturing facility

Ascendis is in the final stages of concluding a sale agreement for the Isando manufacturing facility.
The sale will be conditional on Ascendis concluding a supply agreement to continue manufacturing
the current products at the Isando factory. Shareholders will be advised when the transaction has
been finalised.

Part of the proceeds of this sale will be invested in upgrading production efficiency at the group’s
other pharmaceutical manufacturing facilities.

INVESTOR PRESENTATION
The group’s annual results for the year ended 30 June 2018 and the new strategic focus will be
presented to investors in Johannesburg today and in Cape Town tomorrow, 26 September 2018.

The presentation will be webcast from 10:00 today, 25 September 2018, and will be available at the
following link: www.corpcam.com/Ascendis25092018. A recording of the webcast will be available at
the same link from 14:00 today. The presentation is also available for downloading on the group’s
website at www.ascendishealth.com/investor-relations/


25 September 2018
Johannesburg

Sponsor
Questco Corporate Advisory (Pty) Ltd                                  
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