The market appeared to overlook Aspen Pharmacare Holdings first half 15% decline in headline earnings per share, with its share price closing 13.29% higher yesterday at R160.75 after the group outlined positive expectations for the second half and beyond.
CEO Stephen Saad said they were confident the multinational speciality pharmaceutical group would report second half earnings that exceed the previous year.
Revenue decreased by 1% to R19.2 billion and normalised earnings before interest tax and amortisation fell 11% to R5.1bn.
“We are very positive about the second half. In particular, we have stuck our position to the mast on getting R8bn out of our new sterile manufacturing capacity business, and that we hope to target R4bn in the 2025 calendar year,” chief financial officer Sean Capazorio said in a telephone interview.
He said the first half earnings decline was due to a number of factors, including the cancellation of the J&J vaccine contract, lockdowns in China - the group’s third biggest market - the war in Ukraine that resulted in lower sales in Russia and foreign exchange related losses, and volume based procurement benefits from China.
However, improved Commercial Pharma gross profit margins helped deflect inflationary headwinds. He said they also made significant advances in contract negotiations with multinational customers seeking to secure a portion of Aspen’s sterile manufacturing capacities.
The technical transfer project for manufacture of the finished dose form vaccines licensed from Serum Institute of India was well advanced.
Saad said the first half performance had been anticipated and was aligned to guidance
Capazorio said they were in advanced negotiations to fill a portion of the additional sterile manufacturing capacity that had been developed. Once concluded, this new business was anticipated to already realise a R2bn contribution in the 2024 calendar year.
In addition, important product portfolio transactions that could not yet be disclosed would also benefit the Commercial Pharmaceuticals businesses in Latin America and South Africa, he said.
Group revenue fell 1% to R19.2bn, with Commercial Pharmaceuticals revenue growing 2% and manufacturing revenue falling by 10%. Gross profit fell by 5% as the reduction in manufacturing gross profit margins from lost Covid vaccine contributions more than offset the improvement in Commercial Pharmaceuticals gross profit margins.
The group said its leverage ratio remained comfortably below target levels with reported net borrowings of R18.8bn.
During the period, Aspen reached agreements with the Bill & Melinda Gates Foundation and the Coalition for Epidemic Preparedness Innovations (CEPI) to support African regional manufacturing capacity for an affordable vaccines supply.
Commercial Pharmaceuticals revenue, comprising Regional Brands and Sterile Focus Brands, declined by 4% to R14 55bn.
Revenue from the largest segment, Regional Brands, increased by 2% to R9.36bn with 7% growth from each of Australasia and the Americas being the major contributors. Excluding the impact of the product divestment in South Africa, Regional Brands revenue grew 6% with growth in Africa Middle East of 5% on a comparable product basis.
Revenue from Sterile Focus Brands fell 13% to R5 19bn due to the challenges in both Russia and China.
Manufacturing revenue decreased 12% to R4.6bn from the lower Covid vaccine sales. Heparin revenue was impacted by the prioritisation of technical transfer work related to new customers, offset by increased pricing to counter the rising cost of raw heparin.
The receipt of the grant funding from the Gates Foundation and CEPI helped to partially offset sterile production costs related to the introduction of the Serum Institute of India vaccines.
BUSINESS REPORT