The once heavily indebted pharma company has cut its cloth and is now reaping the rewards of its more focused, but no less ambitious, strategy.
Aspen Pharmacare has grown organic earnings by 10% for the six months to December 2021, its first double-digit growth in many years. This is significantly better than the 1% earnings growth reported in September for the full 2021 year, and the 3% growth reflected at the end of the 2020 year and was achieved despite Covid-19 headwinds which disrupted procurement, supply, logistics, employee productivity, and customer demand.
The silver bullet was not Covid-19, or the production of a vaccine for Johnson & Johnson, although this did have an impact, but solid organic growth across all business units, good expense management, and a reduction in finance repayments.
Rounding off the strong half-year, was the announcement that the group has finally signed the much-anticipated agreement with Johnson & Johnson that will see the multinational license – for the first time ever – its intellectual property to a third party. This will enable Aspen to produce its own Aspen branded Covid-19 vaccine, Aspenovax which will enable an African firm to make a meaningful contribution to improving equitable vaccine access for Africa. While Covid-19 may be diminishing in daily importance, it also places Aspen firmly on the global stage when it comes to sterile manufacturing, with other multinationals already engaging the company in exploratory discussions with regard to commercialisation of other sterile products, including vaccines.
On the financial front, group revenue for the six months rose 10% at constant currencies to R19.4-billion with Commercial Pharmaceuticals growing by +5% in constant currencies and Manufacturing up 30%.
(Aspen prefers to report in constant currencies to show the performance of its business units without the influence of rand fluctuations).
Normalised earnings rose 15% to R5.7-billion. Earnings growth exceeded revenue growth thanks to improving margins and the leverage provided by lower operating expenses. Normalised headline earnings per share increased 26% to R8.16, helped by reduced net financing costs.
All eyes are on borrowings, given Aspen’s concerted efforts to bring debt down from R53.5-billion in 2018 to the R16.3-billion reported at the June year-end. Borrowing has increased to R19.3-billion driven primarily by deferred consideration payments relating to prior year business transactions, a dividend paid to shareholders and the weaker Rand closing rate relative to 30 June 2021.
Operating cash flow was marginally higher than in the previous interim period, despite an increased investment in inventory by Manufacturing which sought to avoid supply chain snarl ups caused by Covid-19 disruption of global supply chains and logistics.
The investment in sterile manufacturing capacity has started to deliver benefits to financial results, with strong potential to be an influential growth driver as capacities created become more fully utilised over the next few years, says CEO Stephen Saad.
In addition, the strong balance sheet provides stability for capital allocation decisions including ongoing investments in the business and other potential strategic options. It also provides a measure of safety in an increasingly uncertain geopolitical environment, says CFO Sean Capazario. “The headwinds we face include the direct and indirect influence on the business of the Russian / Ukrainian conflict.” Aspen has annual revenue of R1-billion in these countries, he says, which is at risk while inflationary pressures are being accelerated by the consequences of the conflict.
A strong recovery from Manufacturing is anticipated in the second half as this segment implements mitigation plans to address the pressures experienced in the first six months. Strong cyclical second half cash flows are expected to deliver an operating cash conversion rate above the Group target of 100% for the financial year. BM/DM