Aspen Pharmacare Holdings Limited

Annual Report 2012  |  Annual Financial Statements 2012
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Sustainability report

 

Message from the Group Chief Executive

Increasing and improving access to healthcare is a priority in most countries around the world and Aspen is in the business of supplying life-sustaining medicines to customers across six continents. Aspen strives to supply a diverse range of high quality products, at cost competitive prices, in order to address disease management requirements in territories to which it supplies. Our regional product portfolios target relevant therapeutic categories, are registered and manufactured in accordance with regulatory requirements and supplied in a responsible manner. In this way, the Group is able to support healthcare needs of its customers across more than 150 countries.

Through consistent development over a period of time, Aspen has established a solid foundation from which to further grow its global influence and leverage its credibility as an internationally recognised pharmaceutical brand and a business partner of choice. This achievement can be attributed to Aspen’s entrepreneurial culture and the grounding provided by the Group's values of Integrity, Innovation, Excellence, Commitment and Teamwork. Accountable entrepreneurship requires a healthy balance between the quest for earnings growth and a responsibility for broader environmental consequences. This is reflected in our strategic objectives and supported by effective risk management strategies in order to sustainably add value to all stakeholders. The successful day-to-day implementation of this approach by the Group's leadership and management teams underpins the Group's successes to date.

Despite a competitive and challenging trading environment, compounded by once-off factors adversely affecting the South African business, the Group delivered double-digit growth for the 14th consecutive year, with compound annual growth since listing in the 40% to 50% range for revenue, operating profit and headline earnings per share. Value added per employee increased by 22% to R1.3 million. Aspen continues to be the leading supplier of scripted medicines in South Africa and Australia which is strong evidence of customer confidence in the Aspen brand. In June 2012, Aspen was ranked 25th in the JSE Top 40 Index, improving its position from 29th place the year previously.

The Group is well positioned to continue this growth trajectory through organic and acquisitive means. The IMS value of Aspen’s five-year product pipeline is USD9,1 billion. Product launch structures have been strengthened to further stimulate the successful launch of new products across the regions. Significant investment has been made in establishing a sophisticated global supply chain network. The extensive international distribution platform continues to provide growth opportunities for the Group.

Committed steps were taken during the year to strengthen SHE management protocols throughout the Group. The South African business implemented a structured project plan to prepare policies, procedures and systems for OSHAS 18001 and ISO 14001 accreditation during the 2013 financial year. Legal compliance assessments were conducted in the international businesses to evaluate the status of and prioritise identified corrective actions for health, safety and environmental compliance.

The caring and strong sense of community of Aspen’s employees around the world was evidenced in the way they embraced the Nelson Mandela International Day, investing many hours to make a difference in the lives of the less fortunate. During the week of 18 July 2012, 29 community upliftment projects were initiated across 11 countries on six continents. Some of these beneficiaries have been adopted into Aspen’s long-term CSI plans to ensure that these communities continue to be supported.

Aspen qualified for the JSE’s SRI for the second consecutive year and the South African business again participated in the CDP. Aspen’s GRI-based sustainability reporting programme is progressing well, with material performance indicators having been further integrated into business processes and management reporting protocols during the year. Aspen remains committed to achieving its strategic objectives as a responsible corporate citizen. To this end, every endeavour will be made to uphold Aspen’s reputation as a respected global supplier of high quality, affordable medicines and, simultaneously, be alert to those opportunities that will responsibly and sustainably enhance the Group's value proposition for its stakeholders.

Stephen Saad
Group Chief Executive

22 October 2012

Progress of Aspen’s sustainability reporting process

GRI Compliance level

Aspen’s 2011 Sustainability Report, included in the 2011 Annual Report, was released in November 2011. This report was self-assessed by Aspen at C-Level compliance. Following an application level check, we are pleased to report that Aspen’s 2011 Sustainability Report was certified, by GRI Reporting Services, as B-Level compliance.

Aspen’s 2012 Sustainability Report is self-assessed at B-Level compliance. The report will be submitted to GRI Reporting Services for an application level check in December 2012, following the release of the 2012 Annual Report.

Reporting parameters

The Sustainability Report is prepared annually, reflecting information for the financial year under review. To the extent that the information collected after 30 June supports initiatives which were in place at year-end, subsequent events are disclosed.

The Group's economic, environmental and social indicators are selected with reference to their relevance and materiality to the Group's sustainability objectives and to aid a broader understanding of the Group by its stakeholders. The sustainability indicators are formally monitored by the Board. Aspen’s material KPIs are discussed under key sustainability themes which are considered to be relevant to the Group and as pertains to the pharmaceutical industry within which Aspen operates.

The scope of the Sustainability Report extends to the Group's continued operations in the South Africa, SSA, Asia Pacific and the International business. The report extends to operating subsidiary companies and businesses/facilities controlled by the Group. Comparative information is disclosed on a consistent basis to that of the relevant reporting period. Selected social and environmental indicators have been measured, managed and reported more comprehensively in respect of the South African business, due to the maturity of this business. During the year, active steps have been taken towards reviewing and considering necessary systems requirements to measure, monitor and report on these indicators in the offshore businesses. Current best practice economic, environmental and social governance frameworks, policies and protocols from the South African business have been shared with these offshore businesses as appropriate.

The application of environmental indicators is limited to the Group's manufacturing sites where environmental management indicators are material to these businesses. Economic and social indicators are applied across all reporting business units.

Reported data has been measured using generally accepted measurement techniques for reported indicators. Where comparative information was required to be restated owing to refinement of measurement systems and standardisation of recording methodologies, concise explanations support the restated values on the pages upon which these performance indicators are disclosed.

Following the establishment of Aspen’s presence in Asia Pacific, information for the Hong Kong and Philippines businesses have been added to the 2012 information, where applicable.

Sustainability governance

The Board is responsible for monitoring sustainability in the Group and, consequently, regularly reviews performance indicators. The Social & Ethics Committee was constituted in March 2012 with the purpose of monitoring the governance of social and ethics issues in the Group in accordance with the provisions of the Companies Act. In performing its obligations, the Terms of Reference of this committee are aligned to the applicable global objectives advocated by:
  • King III;
  • JSE SRI;
  • the Employment Equity Act and the BBBEE Act (South Africa);
  • the 10 principles set out in the United Nations Global Compact Principles; and
  • the Organisation for Economic Cooperation and Development (OECD) recommendations regarding bribery and corruption.
Following the establishment of this committee, policies and procedures governing ethics and social responsibility have been reviewed and amended in accordance with Aspen’s strategic objectives and best practice. Focus areas of this committee include:
  • ethics and ethics management – including prevention of fraud, corruption and dishonesty;
  • human rights and non-discriminatory practices;
  • CSI initiatives in South Africa;
  • environment/public and occupational health and safety;
  • consumer responsibilities and relationships in South Africa;
  • labour and employment practices; and
  • transformation objectives in South Africa.

Members of this committee have the necessary experience and insight to guide executive management on relevant matters related to sustainability management in the Group. As sustainability is considered to be a common thread weaving Group strategy with day-to-day operational, compliance and risk management activities, neither non-executive directors nor executive management performance measures consider sustainability aspects in isolation.

Evolution of Aspen’s sustainability reporting programme

In alignment to the Group's sustainability reporting objectives, a culture of continuous improvement is being applied to evolving the underlying reporting process, developing a history of KPIs, benchmarking material indicators and promoting greater stakeholder inclusivity. In this way a more consistent base of information can be developed to identify, analyse and interpret trends meaningfully.

Steps are being taken to systematically prepare for external verification of material KPIs during 2013.

Benchmarked performance

Aspen’s 2011 Sustainability Report was independently assessed as “GRI Compliant” in the 2012 Review of Sustainable Reporting in South Africa published by Integrated Reporting and Assurance Services (IRAS), a specialist sustainability consultancy in South Africa. This result confirmed that Aspen has adequately applied the GRI Guidelines, inclusive of the principle of ‘materiality’, ultimately achieving a compliance score of 63% against the Pharmaceutical and Biotechnology average of 53%.

Key sustainability themes are covered in the 2012 Sustainability Report and have been set out as follows:

  Key sustainability theme   Page  
  Sustaining life and health through high quality and affordable medicines   137  
  Adding value to stakeholders   139  
  Geographic diversity for future growth   141  
  Sustaining a cost-competitive manufacturing base   143  
  Maintenance of financial health   145  
  Creating an environment in which our employees can thrive   146  
  Respecting human rights and promoting equality   150  
  Contributing to the health of the community   152  
  Providing a safe working environment   155  
  Playing a role in preserving the environment   157  
  Conserving scarce resources   162  
  Referenced GRI standard disclosure profile   165  

 


Sustaining life and health through high quality, affordable medicines

Aspen is proud of its heritage, dating back more than 160 years, of supplying efficacious medicines to its customers. From its roots in South Africa, Aspen’s customer base has expanded to more than 150 countries worldwide. The strategy for each business unit is carefully developed, monitored and refined to ensure that due consideration is given to addressing the current and emerging prevalent disease profiles, socio-economic conditions, regulatory requirements and commercial feasibility of Aspen’s business model and product pipeline in each territory.

Aspen’s product pipeline represents acquired or developed intellectual property for generic alternatives to existing originator molecules which have an IMS value of USD9,1 billion. Products in the pipeline are at various stages of registration as an authorised medicine. New generic products are launched only after regulatory approval is received and patent expiry is confirmed. This includes regulatory approval of artwork and packaging in accordance with registration requirements in each territory. This full process can take up to five years. The product pipeline is managed and monitored in alignment to the Group's organic growth objectives for each region. Products for the pipeline cover a diverse range of therapeutic categories in an attempt to address the evolving medicinal needs of the potential patient base, particularly in the emerging markets.

Aspen’s pipeline by value

Therapeutic category   South Africa  
USD’million  
Asia Pacific  
USD’million  
Latin America  
USD’million  
SSA(2)
USD’million    
Total  
USD’million  
Analgesic   40   176   265   –     481  
Anaesthetic   7   4   4   –     15  
Anti-histamine   8   –   13   –     21  
Anti-microbial   59   68   104   5     236  
Anti-viral   2   24   19   –     45  
ARV   1   32   –   –     33  
Cardiovascular   71   830   1 968   4     2 873  
Central nervous system   92   252   812   3     1 159  
Cold and flu   44   –   55   –     99  
Dermatological   –   56   18   –     74  
Endocrine   61   11   221   –     293  
Gastrointestinal   65   333   424   –     822  
Hormonal   16   18   993   –     1 027  
Immunomodulator   22   65   67   –     154  
Musculoskeletal   1   46   –   –     47  
Infant nutritional   –   –   85   –     85  
Oncology   38   101   98   –     237  
Ophthalmic   3   140   202   –     345  
Respiratory   –   310   93   –     403  
Urinary   7   112   356   –     475  
Vitamin, herbal and complementary   24   –   149   –     173  
Total   561   2 578   5 946   12     9 097  
Anticipated launch in:            
0 – 2 years   378   1 871   3 211   12     5 472  
2 – 5 years   183   707   2 735   –     3 625  
Total   561   2 578   5 946   12     9 097  
Important explanatory notes to the product pipeline table:
1. With the exception of SSA, values stated have been derived from IMS. IMS is an independent measure of the pharmaceutical market in the respective territories. Public sector tender values have been excluded. The IMS values reported herein record the annual market value of the molecule for the year to 31 December 2011 for the products which were in Aspen’s pipeline at 30 June 2012.
2. In the absence of IMS data, values for SSA represent Aspen’s estimate of the value of the total private sector in SSA per molecule.
3. In assessing the potential value to Aspen of the molecule to be launched, the following needs to be taken into consideration: 
(i) The generic equivalent of an originator molecule trades at a discount to the originator product.
(ii) The entry of generic products to the market will result in greater competition.
4. Products have only been included where Aspen has a physical product dossier in hand. Not all products have as yet been submitted to the applicable regulatory authorities for registration. 

During the year the Group was successful in unlocking a material portion of the pipeline value with the launch of key brands such as Tribuss (ARV) in South Africa and Anastrol (oncology), Torvastat (cardiovascular) and Lanzek (central nervous system) in Australia. Molecules and infant milk formula, valued at USD393 million, were added to the pipeline over the last year. With respect to patent compliance requirements and confirmed timing of patent expiry dates, two molecules having an IMS value of USD212 million remain in the product pipeline but the anticipated launch milestones for these molecules have been postponed to beyond the five year horizon.

Aspen’s new product launch process is designed to ensure that all products meet the necessary regulatory and quality requirements prior to being launched into the market.

All products supplied by Aspen are manufactured at facilities which are accredited by relevant regulatory authorities. Regulatory authorities perform inspections at the facilities periodically to verify the accreditation. Furthermore, raw materials are purchased from accredited suppliers who meet the necessary regulatory and quality requirements, in addition to compliance with Aspen’s materials specifications. A significant portion of products are manufactured at Aspen-owned sites. The balance of production takes place at reputable third party manufacturers which are identified, audited and approved for manufacture through a prescribed process. All suppliers are monitored to ensure that the prerequisite quality, service and cost criteria are consistently adhered to. The Quality Assurance function conducts potential and existing vendor audits on an ongoing basis. This enables Aspen to retain its credibility as a reliable, responsive and cost effective supplier to customers.

Throughout the product lifecycle, and as part of regulated processes governing the pharmaceutical industry, stringent protocols are in place to monitor the quality of manufactured products and efficacy of products supplied to customers. Aspen’s sales representatives or appointed third-party agents engage with prescribing doctors and dispensing pharmacists to monitor and evaluate customer feedback on the quality and efficacy of Aspen’s products. Corrective action is prioritised, with urgency, to ensure patient safety and to maintain regulatory compliance.

During the year, Aspen recorded five (2011: three) product recalls. Two of these product recalls were quality related and appropriate remedial action has been taken. A further three products were recalled owing to stability/shelf life issues which are being actively addressed. Remedial action is being taken to address these recalls. Aspen is pleased to report that no adverse reactions to patients occurred as a result of the identified problems found in these recalled products.

Aspen has established itself as a leading supplier of medicines in South Africa and Australia. In South Africa one in four script lines dispensed by pharmacists continues to be for an Aspen product and Aspen supplies one in four tablets under the South African state tender. In Australia one in seven scripts written are for a product distributed by Aspen and the results of the Cegedim survey confirmed that Aspen Australia’s sales representatives are recognised as the most effective and highly regarded in that market. Brand recognition is being strengthened in Latin America, SSA and South East Asia as the investment in promotional activities in these territories starts to produce returns and as new products are launched.

Adding value to stakeholders

The Group's value added statement for the year ended 30 June 2012 is shown below:

  Change     2012  
R’million
  
%     2011  
R’million  
%  
Net revenue   23%     15 256       12 383    
South Africa   (2%)    6 160       6 296    
Sub-Saharan Africa   17%     552       470    
Asia Pacific   100%     6 021       3 004    
International   (3%)    2 523       2 613    
Other operating income       219       193    
Less: Purchased materials and services   23%     (8 921)      (7 257)   
Value added from operations   23%     6 554   96,0     5 319   96,5  
Investment income       275   4,0     193   3,5  
Total wealth created   24%     6 829   100,0     5 512   100,0  
Employees   19%     2 124   31,0     1 784   32,5  
Providers of capital – finance costs   36%     1 234   18,1     908   16,5  
Finance costs       776   11,4     605   11,0  
Capital distribution paid to shareholders       458   6,7     303   5,5  
Governments       671   9,9     577   10,4  
Reinvested in the Group   25%     2 800   41,0     2 243   40,7  
Depreciation and amortisation       465   6,8     354   6,5  
Deferred tax       125   1,8     36   0,7  
Income retained in the business   19%     2 210   32,4     1 853   33,6  
Total value distribution   24%     6 829   100,0     5 512   100,0  
Value added statistics                
Number of full-time employees*       5 210       5 168    
Ratios                
Revenue per employee (‘000)  22%     2 928       2 396    
Value added per employee (‘000)  22%     1 258       1 029    
Wealth created per employee (‘000)  23%     1 311       1 067    
Monetary exchanges with government                
Current taxes (excluding deferred tax)      647       546    
Customs and excise duty       19       18    
Rates and similar levies       5       13    
Gross contribution to central and local governments       671       577    
Additional collections on behalf of government                
Employees’ taxes       448       291    
Withholding taxes       8       –    
Net value added tax paid       591       588    
      1 047       879    
* The Group's total number of employees during the year comprises 5 210 (2011: 5 168) permanent employees and 969 (2011: 1 151) temporary employees, totalling 6 179 (2011: 6 319).  

Total wealth created and total value distributed increased by 24% during the year. The largest portion of value distribution remains reinvested in the Group with employees being the second biggest recipient of value. Finance costs paid to lenders can be attributed mainly to the recent investments made in the acquisition of the Sigma pharmaceutical business for R5,9 billion in 2011 and for the acquisition of the OTC brands from GSK for R2,1 billion in April 2012 as well as the remaining debt in respect of strategic transactions concluded with GSK during 2008 and 2009. Borrowings comprise currency-denominated debt pools in Australian Dollars, US Dollars and South African Rand. Interest rates are mostly linked to BBSY, LIBOR and JIBAR for the respective debt pools. The synergies extracted from the Sigma investment are evident in the strong performance of the Asia Pacific segment. Further returns are expected over the medium term as the benefits of promotion and market penetration are realised.

Value added per employee and wealth created per employee grew by 22% and 23% respectively, indicating efficient contribution by employees to business performance. Gross contributions to central and local governments increased by 16% to R671 million representing Aspen’s economic value add to the economies in which it operates. Aspen received subsidies mainly from the South African government for capital investment projects at the manufacturing sites and for investment in learnerships amounting to R16,7 million (2011: R4,9 million). In Brazil, an Imposto sobre Circulação de Mercadorias e. Serviços (ICMS) State Value-Added tax reduction is granted to companies registered locally on the import of goods where companies embark upon capital and technological investment projects and conduct foreign trade transactions.

Taking consideration of the Group's performance during 2012 and status of cash flows to support short- and medium-term requirements, a capital distribution of 157 cents per share (2011: 105 cents) was declared in favour of shareholders. Despite a challenging economic climate across all territories, Aspen has been able to sustain favourable returns to shareholders.

An investment in Aspen of R10 000 on 1 July 1999 would have been worth R311 600 on 30 June 2012 (2011: R246 418) with reinvestment of distributions to shareholders. The value of the investment would hence have grown by 31 times over 13 years. Aspen has delivered CAGR of 29% to shareholders who have remained continuously invested in the Company since 1 February 1999.

The Group has / S recorded double digit growth in revenue, EBITA* and normalised headline earnings per share for 14 consecutive years. This has been achieved through a combination of organic and inorganic strategies comprising sustained growth of pre-existing products and businesses, successful launches from the product pipeline, supplemented by strategic business and product acquisitions, as well as commercial alliances with leading multinational pharmaceutical companies.

* EBITA represents operating profit from continuing operations before amortisation adjusted for specific non-trading items as set out in the segmental analysis here.

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