POSITIVE OPERATING CASH FLOWS
Operating cash flows for the year were extremely strong. This was influenced
by a substantially improved working capital position with working capital
from continuing operations at year-end expressed as a percentage of Group
revenue decreasing from 37% to 27%. Stockholdings were reduced to optimum
levels. The value of stock at year-end was lower than at the beginning
of the year, despite the expansion of the Group. Stock levels did benefit
from the interim distribution arrangements for the global brands, but
substantial improvements were made elsewhere. In particular, the volume
of ARV raw materials on hand in the South African business was well controlled.
The past year was a period of significant investment. In addition to
the business and product acquisitions, R627 million was spent on property,
plant and equipment of which R530 million was in expansion capital expenditure.
This represents the high point in spending on the existing capital projects
and a decline in capital expenditure is anticipated in the forthcoming
year.
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GEARING COMFORTABLE
The Group’s funding arrangements clearly reflect the investments made.
Gearing has risen from 40% at 30 June 2008 to 51% at 30 June 2009.
Interest is covered six times by operating profit. This nevertheless
remains a comfortable level for Aspen. A five-year US Dollar-denominated
loan of USD385 million was put in place with a consortium of banks
in October 2008 which settled the bridging finance used to fund the acquisition
of global brands from GSK effective 30 June 2008. An element of short-term
funding which previously existed has been replaced with longer term debt.
Short-term interest-bearing debt of R2,7 billion at year-end was
significantly covered by cash of R2,1 billion. Upon completion of
the GSK transactions announced in May 2009, gearing will improve further
as these acquisitions will be settled in equity. Taking consideration
of this factor and the Group’s strong operating cash generating capabilities,
which will be enhanced by the GSK transactions, Aspen has capacity to
take on further debt if additional funding is required for the Group’s
development.
 FAVOURABLE OUTLOOK
Aspen is set for a positive performance in the year to June 2010 although
growth will not be of the magnitude achieved over the year just completed.
The following factors are likely to drive growth in the period:
- The pharmaceutical sector in South Africa is robust and the Aspen
business has sound fundamentals to generate organic growth;
- The effect of the SEP increase in South Africa is likely to result
in improved profit margins provided the Rand remains relatively stable;
- New manufacturing capacity will be unlocked in the South African
operations with Unit 2, an OSD Facility, coming into production;
- The eye drop suite in the Sterile Facility has commenced production
with product being exported to Prestige Brands Inc in the United States;
and
- The GSK transactions, once completed, are expected to be earnings
accretive from the outset.
Partially offsetting this momentum will be the transition of the global
brands to the Aspen distribution network. In territories where the Group
does not have an affiliate, Aspen’s global distribution network is serviced
by third parties. These external service providers will absorb an element
of revenue and profits. Finally, the movement in the relative exchange
rates between the currencies in which Aspen trades could influence results
positively or negatively, depending on the nature and extent of the movements.
Gus Attridge
Deputy Group Chief Executive
22 October 2009 |
