Our sustainable business strategy

celebrating 20 years Financial review

cash flow
Gus Attridge
Deputy Group Chief Executive
Cash flow

The Group's performance was underpinned by strong operating cash flows with a conversion rate of operating profits to cash of 105% being achieved as a result of a sustained focus on managing our investment in working capital.

Performance overview

Revenue was up 3% to R42 596 million and NHEPS was 10% higher at 1 604,9 cents in the year ended 30 June 2018. On a CER basis, revenue increased 5% and NHEPS grew 10%.

Significant factors influencing performance for the year were as follows:

  • Underlying positive growth in Commercial Pharmaceuticals;
  • Strong growth in China in the first full year of operation in that country;
  • The inclusion for the full year of the Anaesthetics portfolios acquired during the course of the prior year and the margin benefit of the residual rights to the AstraZeneca anaesthetics acquired with effect from 1 November 2017;
  • A decline in manufacturing revenue and profitability; and
  • Additional operating expenditure related to the development of structures in China and Japan.

The synergy programme yielded benefits of approximately R500 million during the year. This helped offset the impact of Anaesthetics supply challenges and price cuts in Developed markets.

Relative movements in exchange rates had a minor impact on financial performance as illustrated in the table below, which compares performance for the past year to performance in the prior year at previously reported exchange rates and then at CER, being a restatement of 2017 performance at 2018 average exchange rates.

30 June 2018
30 June 2017
R’ million
30 June
Revenue 42 596 41 213 3 40 690 5
Normalised EBITDA 12 031 11 416 5 11 427 5
NHEPS (cents) 1 604,9 1 463,2 10 1 462,5 10

Lower earnings in the second half of the year than in the first half were primarily influenced by the unfavourable impact of the strengthened ZAR. On a CER basis, revenue in the second half of the financial year was in line with that of the first half. However, the stronger ZAR in the second half resulted in ZAR reported second half revenue being lower by R1 254 million. This is well illustrated in the graph below.

CNYRelative ZAR movements June 2017 – June 2018 (base to 100)
CNYRelative ZAR movements June 2017 – June 2018 (base to 100)

Volatility in relative foreign exchange rates is a factor which can influence ZAR reported performance. The weakening of the ZAR, as has been the trend in the period since the financial year-end, is likely to give rise to improved ZAR reported results given that South African earnings amount to less than 20% of those of the Group.

Margin improvement

The gross profit percentage improved 2,4% to 50,7%. This was a consequence of the gross profit gained from the acquisition of the residual rights to the AstraZeneca anaesthetics and improvements in cost of goods of the Thrombosis portfolio. Increases in net operating expenses, largely attributable to investment in increased structure in China and Japan, diluted the improved gross profit margin resulting in an increase in normalised EBITDA margin percentage of 0,5% to 28,2%.

Contribution to change in normalised EBITDA margin
incomeContribution to change in normalised EBITDA margin

20 years of earnings growth

Normalised net funding costs declined 12% to R1 861 million, influenced by foreign exchange related gains. The normalised effective tax rate remains stable at 17,2% (2017: 17,1%). Normalised headline earnings of R7 325 million was 10% higher, a twentieth successive year of growth.

Normalised headline earnings, which adjusts for specific non-trade items set out in our accounting policies, is the primary measure management uses to assess Aspen's underlying financial performance. The vast majority of international pharmaceutical companies adopt a similar measure in reporting adjusted earnings per share. We measure earnings per share at the basic, headline and normalised headline levels. Stakeholders are encouraged to consider each of the measures disclosed and to make their own decisions as to which is most appropriate to their needs. Set out below is a reconciliation between earnings per share at these three measurements levels:

Earnings per share measures

  June 2018
June 2017
Basic earning per share (EPS) 1 316,6 1 123,4 17
Net impairments 151,5 136,7  
Loss on sale of assets 0,7 39,4  
Headline earning per share (HEPS) 1 468,8 1 299,5 13
Capital raising fees 44,4 23,4  
Restructuring costs 27,5 66,7  
Transactions costs 35,0 45,3  
Redundancy costs 4,1 12,7  
Product litigation costs 64,1 45,6  
Foreign exchange on acquisitions (39,0) (30,0)  
Normalised HEPS 1 604,9 1 463,2 10

Strong operating cash flow maintained

We maintained our strong operating cash flow generation. Cash generated from operating activities of R7 017 million represented operating cash flow per share of 1 537,3 cents and a 105% conversion of earnings to cash.

Despite the strong operating cash flows, borrowings net of cash increased by R9 649 million to R46 780 million. The effect of the weaker ZAR on foreign denominated borrowings accounted for R2 288 million of this increase. In total, R6 083 million was spent on capital expenditure related to intangible assets, primarily being the acquisition of the residual rights to AstraZeneca anaesthetics, and a further R4 599 million was spent in settling deferred purchase consideration relating to prior year business acquisitions. Capital expenditure on property, plant and equipment was R2 145 million.

In May 2018, Aspen announced the successful closing of a multi-currency syndicated facilities agreement with 28 lenders, equivalent to approximately EUR3,4 billion, which refinanced Aspen's existing term debt facilities. A significant oversubscription allowed the facilities to be upsized.

Net borrowings: R46 780 million
Net borrowings: R46 780 million

Analysis of R46 780 million net borrowings

Maturity profile Gross
< 3 months 9 846   (1 324)
> 3 months < 6 months 1 238   1 238
> 6 months < 1 year 200   200
2 years 16 044   16 044
4 years 30 803   30 803
Capital raising fees and finance leases (181)   (181)
Total 57 950 (11 170) 46 780

Future capital expenditure

Deferred purchase consideration of R5 557 million (at 30 June 2018 exchange rates) is payable in the 2019 financial year of which by far the greatest portion is payable in November 2018. Thereafter, a further R377 million remains to be paid in the 2020 and 2021 financial years.

Aspen has undertaken extensive capital expenditure programmes at its Port Elizabeth, Notre Dame de Bondeville and Bad Oldesloe sites in order to facilitate the in-house manufacture of the majority of the Anaesthetics portfolio. Capital expenditure on property, plant and equipment is expected to amount to approximately R2 800 million in the 2019 financial year with a further amount of approximately R2 800 million authorised for investment thereafter.

Nutritionals disposal will reduce gearing

The Group's leverage ratio for the year ended 30 June 2018, measured in terms of the syndicated facilities agreement, stood at 3,78 against a threshold of 4,00. On 13 September 2018 we announced that an agreement had been reached with the Lactalis Group for the disposal of the Nutritionals business for a consideration of EUR739,8 million. We anticipate that net proceeds from the disposal, expected to be completed no later than the end of March 2019, will be of the order of EUR644 million. The net proceeds will be used to reduce Aspen's gearing, creating greater headroom and capacity.

Increased dividend

Having taken into account the earnings and cash flow performance for the year ended 30 June 2018, existing debt service commitments, the expected completion of the disposal of the Nutritionals business, future proposed investments and funding options, the Board was pleased to declare a gross dividend of 315 cents (2017: 287 cents) per ordinary share to shareholders. The dividend was paid on 8 October 2018.

Accomplished finance team

The Finance team has worked with great diligence over the past few years in enhancing the quality and depth of financial reporting available to the Group. This is an ongoing project. Congratulations are extended to Sean Capazorio, our Group Finance Officer, for his recognition this year as winner in the category "Finance Transformation Award" at the South African CFO Awards 2018.

Gus Attridge
Deputy Group Chief Executive