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Unaudited Interim Group Financial Results for the six months ended 31 December 2023
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" or "the Company")
UNAUDITED INTERIM GROUP FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2023
This reporting period was significant for Aspen, as we exceeded our financial guidance and consolidated our
tangible progress in delivering the foundation for robust future growth. Noteworthy achievements in this
half include, inter alia, the following:
Sterile manufacturing contract for mRNA filling reaches commercialisation stage
Successful completion of the required trial and validation batches has resulted in the fulfillment of the
suspensive conditions to the previously disclosed agreement for the manufacture of mRNA platform
products. The commercialisation of this opportunity will benefit revenue and contribution in the last quarter
of H2 2024. The impact of the volume ramp up and its annualisation will be materially higher from FY2025
onwards.
Heparin business transitions to a toll manufacturing model
Manufacturing agreements for the supply of heparin-based syringes are transitioning to a toll contract
manufacturing arrangement. The heparin active pharmaceutical ingredient ("API") will now be owned by the
customers. This will reduce Aspen's investment in heparin inventory and increase operating cash flows in
both FY2024 and FY2025. In H1 2024, Aspen's investment in heparin inventory reduced by R1 billion with a
further R2 billion reduction anticipated by the end of June 2024.
China volume-based procurement ("VBP") mitigation strategy well on track
Aspen announced that it had concluded agreements with Sandoz AG ("Sandoz"), including acquiring the
Sandoz business in China. The net upfront consideration is EUR27.9 million followed by potential net
milestone payments of EUR9.2 million. Approval for the transaction from the Competition Authority in China
is anticipated in May 2024. The transaction will materially mitigate the negative impact of VBP on Aspen's
existing business in China on an annualised basis from FY2025.
Commercial Pharmaceuticals portfolio enhancement strategy set to drive strong growth in H2 2024 revenue
H2 2024 will be boosted by the distribution and promotion agreement with Lilly for sub–Saharan Africa and
the product purchase agreement with Viatris for Latin America. The agreement with Lilly is effective from
January 2024. Subsequent years will benefit from the launch of key pipeline products including Lilly's
Tirzepatide, marketed globally as Mounjaro®. Viagra, Lipitor, Norvasc, Lyrica and Celebrex are key brands
included in the product portfolio acquired for Latin America.
SALIENT HIGHLIGHTS
Aspen reported the following salient highlights:
- Revenue increased by 10% (2% in constant exchange rate ("CER")) to R21,1 billion (December 2022:
R19,2 billion);
- Normalised EBITDA increased by 2% (-5% in CER) to R5,2 billion (December 2022: R5,1 billion);
- Normalised headline earnings per share increased by 1% (-5% in CER) to 688.3 cents (December
2022: 679.6 cents);
- Headline earnings per share decreased by 6% (-12% in CER) to 620.7 cents (December 2022: 660.6
cents);
- Earnings per share decreased by 13% (-18% in CER) to 520.8 cents (December 2022: 602.0 cents);
- Operating cash flow per share increased by 44% to 553,2 cents (December 2022: 384,3 cents).
GROUP PERFORMANCE
The Group has exceeded its guided performance growing normalised EBITDA ahead of H1 2023 and
overcoming the negative impact of VBP in China as well as the loss of grant funding which benefitted the
prior period.
Group revenue for the six months ended 31 December 2023 grew 10% (2% CER) to R21 141 million, with
Commercial Pharmaceuticals revenue up 3% (-3% CER) and Manufacturing revenue increasing by 33% (17%
CER). Group gross profit grew 4% (-3% CER) muted by an increased Manufacturing sales mix. Normalised
EBITDA rose 2% (-5% CER) to R5 194 million. Elevated transaction costs primarily relating to acquisitions,
together with increased intangible asset impairments due to the VBP impact in China, resulted in operating
profit declining.
Normalised net financing costs of R566 million were 3% (-10% CER) lower than the prior year. Increased net
interest costs, fueled by higher rates, were more than offset by lower foreign exchange losses resulting
from reduced volatility in emerging market currencies relative to the Euro. NHEPS advanced 1% (-5% CER)
aided by the lower net financing costs. Financing costs in H2 2024 will continue to be influenced by the
interest rate cycle and emerging market foreign currency volatility. HEPS declined by 6% (-12% CER) and
earnings per share ended 13% lower (-18% CER) affected by the higher transaction costs and intangible
asset impairments respectively.
Operating cash flow per share of 553 cents grew significantly, up 44%, supported by an improved operating
cash conversion rate of 89% (H1 2023: 58%). Solid trading cash flows coupled with the benefit of reducing
the Group's investment in heparin inventory were the key catalysts in this positive and permanent shift.
Net debt increased from R22,2 billion in June 2023 to R27,3 billion in December 2023 with investments in
product portfolios and the manufacturing facilities being the key contributors. The acquisition of the
product portfolio from Viatris for Latin America, totalling R5,3 billion, was fully funded and paid for in H1
2024. The leverage ratio ended at 2,4x comfortably within the Group's targeted range.
SEGMENTAL PERFORMANCE
Commercial Pharmaceuticals
Aspen has revised and refined its reportable segments to align to the Group's Commercial Pharmaceuticals
growth strategy. The new segments comprise Prescription, Over-the-counter ("OTC") and Injectables which
have been defined in the basis of accounting section of the financial results.
Commercial Pharmaceuticals revenue grew by 3% (CER -3%) to R 15 029 million underpinned by organic
growth in OTC and Prescription offset by a decline in Injectables revenue. Gross profit margins remained
consistent at 59.8% (H1 2023: 60.0%).
Prescription
Prescription Brands recorded revenue of R5 306 million enjoying steady momentum of 7% (CER 1%) aided
by growth in its largest region, Africa Middle East, and the Americas. Australasia, the second largest region
in this segment, was adversely impacted by further regulated price reductions.
Gross profit percentage was up at 61.6% (H1 2023: 60.7%) augmented by a favourable sales mix, which
more than offset the regulated price cuts in Australia.
OTC
OTC, the second largest segment in Commercial Pharmaceuticals, grew revenue by 10% (CER 4%) to R4 893
million with all regions reporting solid growth. Gross profit percentage of 58.8% remained in line with the
prior year of 58.6%.
Injectables
This segment was heavily impacted by further VBP in China and the reduction in demand in Russia CIS.
Strong hormonal injectable brand growth in the Americas (most notably Brazil) partly mitigated the overall
segment sales reduction which recorded a revenue decline of 6% (CER -12%) to R4 830 million.
Gross profit percentage declined to 58.9% (H1: 2023 60.5%) influenced by the impact of VBP, partly offset
by further cost of goods savings from insourcing sterile production.
Manufacturing
Manufacturing revenue grew significantly, increasing 33% (CER 17%) partly aided by exchange rate
tailwinds. API, the largest and most profitable segment in Manufacturing, rebounded strongly in H1 2024
with revenue growing by 18% (CER 4%). Finished Dose Form ("FDF") revenue increased by 10% (CER -2%)
impacted by the loss of final COVID vaccine sales included in the previous year. Heparin incremental
revenue growth of R957 million over the comparable period was augmented by the transition to toll
manufacture. Following this transition the Heparin segment which previously included the full value chain
contribution from all heparin containing products being APIs and FDF sales, will now include heparin API
sales only.
Gross profit percentage was in line with the prior year at 5.3% (H1 2023: 5.2%) with the loss of grant
funding being offset by a strong performance from API, the benefit of additional Heparin sales and the
delay to the second half of FY2024 of a technical shutdown at the Group's French facility.
PROSPECTS
The Group has achieved results in the first half which were well aligned to guidance provided.
H2 2024 is the start of the journey to both realising the tangible benefits from sterile manufacturing
investments and delivering a predictable growing base Commercial Pharmaceuticals business that has
managed and successfully absorbed the VBP risks faced in China.
Based upon current exchange rates, and notwithstanding the impact of VBP in China and the loss of grant
funding of USD30 million which benefitted the prior year, we anticipate mid-single digit reported growth in
normalised EBITDA for FY2024. The targeted growth is underpinned by expected reported revenue growth
in both Commercial Pharmaceuticals and Manufacturing.
For Commercial Pharmaceuticals, we expect the H1 2024 revenue increase to be boosted by an additional
R1 billion in revenue growth targeted for H2 2024 over H2 2023. This growth will be driven organically and
complemented by the inclusion of portfolio acquisitions in South Africa and Latin America partly offset by
the impact of VBP in China, including the addition of Diprivan in the latest round. Manufacturing is poised
to enjoy a strong second half supported by the expected contribution of R500 million flowing from the
initiation of sterile contracts and a seasonally stronger performance from the API business.
We expect manufacturing inventory levels to reduce in H2 2024 as the Heparin business fully transitions to
a working capital light toll manufacturing model. The lower anticipated working capital cash flow
investment compared to FY2023 should assist us in achieving an operating cash conversion greater than
our target of 100%.
During H2 2024, we will be looking to close out further opportunities, currently under discussion or
diligence, to more fully utilise our available sterile capacities. We remain confident in achieving the guided
contributions of at least R3 billion in FY2025 increasing to no less than R4 billion in FY2026. These
contributions, together with a de-risked Commercial Pharmaceuticals' base business will form the
cornerstone for strong organic revenue and earnings growth into the future.
Any forecast information in the above-mentioned paragraphs has not been reviewed or reported on by the
Group's auditors and is the responsibility of the directors.
REGULATORY REQUIREMENTS
The contents of the short form announcement are the responsibility of the Board of directors of Aspen. The
information in the short form announcement is a summary of the full announcement. Any investment
decisions by shareholders/investors should be based on the full announcement available on the Company's
website at https://www.aspenpharma.com/investor-relations/#financial-results-and-presentations on 4
March 2024 and accordingly does not contain full or complete details. The full announcement can also be
accessed online at https://senspdf.jse.co.za/documents/2024/jse/isse/APN/HYresults.pdf
The information in this announcement has been extracted from the unaudited interim Group financial
results for the six months ended 31 December 2023, but the short-form announcement itself has not been
reviewed by the Company's auditors. These unaudited interim financial results have been prepared under
the supervision of the Group Chief Financial Officer, Sean Capazorio, CA(SA).
For and on behalf of the Board
Kuseni Dlamini Stephen Saad Sean Capazorio
Chair Group Chief Executive Group Chief Financial Officer
Registered office
Building 8
Healthcare Park
Woodlands Drive
Woodmead
Sandton
Woodmead
04 March 2024
Sponsor:
Investec Bank Limited
Date: 04-03-2024 12:45:00
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