Aspen mulls sales of more assets
Pharmaceutical company sees shares rally as it takes debt medicine
● Aspen Pharmacare is considering more asset sales as part of its plans to reduce debt, says CEO Stephen Saad.
After the company reported results for the year to end-June this week, its shares rallied by more than 11% as the announcement also revealed debt had come down from R53.5bn to R38.9bn in the second half.
Saad is comfortable with the current debt level, he told Business Times, but the company is working on reducing it even faster.
The Durban-based drugmaker grew rapidly for most of the past decade, expanding operations into the US, Europe and Asia, mostly financed by borrowing abroad.
But its share price plummeted last year as investors became concerned that the company’s debt had become unsustainable.
The sell-off continued into this year, with Aspen shares trading at R65 last month compared to a high of more than R400 in 2015. This week, the share price recovered to R94.62.
But Aspen is still reviewing its European pharmaceutical business, the company said in a statement accompanying the results. This means exploring possible partnerships and reallocating existing resources.
Since March, it has rejigged its South African operations to focus more on consumers, a move it says is showing promising initial results.
Aspen sold its nutrition business earlier this year as it pivots back to its core portfolio of pharmaceuticals. It is now having a look at what to put on the block next.
“What we are looking at is potentially some asset sales within Aspen and that would mean an expedited deleveraging of our debt,” says Saad. He did not give details.
To further conserve cash, Aspen has decided not to declare a dividend.
Saad and deputy CEO Gus Attridge listed the business two decades ago and have seen to its expansion from manufacturing generic pharmaceuticals for the local market to being an international player. Two years ago the company had a larger market value than Absa and Nedbank.
“Aspen has been a grave worry lately, as their debt levels were too high and sales were not as strong as hoped. In fact, sales and profits have been flat since 2015,” says Vestact CEO Paul Theron in a note.
But Vestact, a long-term investor in Aspen, believes debt levels have peaked and are coming down rapidly.
Aspen could have opted to trade itself out of trouble thanks to strong organic cash flow, but it might have taken too long, says Saad.
The company’s revenue from continuing operations ticked up slightly to R38.9bn, from R38.3bn, but operating profit dipped to R5.5bn, from R8.5bn the previous year.
“The positive reaction by the market on the back of the results reflects the impact of the debt reduction,” says Unum Capital trading desk analyst Lester Davids.
He adds that management’s outlook for the second half of the 2020 financial year and the company’s positive free cash flow also contributed to Aspen’s rally this week.
“The substantial reduction in debt signals management’s commitment to fast-track the group’s deleveraging in order to free up capital to stabilise the group and continue positioning for future growth,” says Davids.
Over the past decade, Aspen outgrew South African rival Adcock Ingram by expanding abroad at the right time.
“Adapting the business model to align with evolving circumstances has been a key strength of Aspen, moving us from a predominantly generics business to a business based on branded products with a focus on sterile injectables in recent years,” the company said. — Additional reporting by Penelope Mashego