Aspen Pharmacare's strong interim earnings boosts the share price by 10.6%

Aspen Pharmacare Holding’s share price shot up by as much as 10.6% on Monday after it reported strong performances across all segments of the business for the six months to December 31.

The share price of South Africa's biggest pharmaceuticals group traded at R180.61 on Monday afternoon on the JSE. The price was also 10.4% above the R163.50 that it traded at on the same day a year ago.

Looking to the second half, group financial officer Sean Capazorio said it was likely to be a period of consolidation and growth, with the focus on their GLP-1 drug for diabetes and obesity, further growth from an already strong performance in only one month in Lilly’s Tirzepatide based product, branded Mounjaro, which was launched in South Africa in December, and strong growth from FDF (finished dosage forms) sterile manufacturing contracts both in South Africa and France.

Group revenue grew 4% or by 9% at constant exchange rates (CER), with gross profit rising well ahead of revenue at 12% (20% CER), influenced by a higher proportion of sales in Commercial Pharmaceuticals and improved profitability in Manufacturing.

Diluted normalised headline earnings per share (NHEPS) increased 5% (17% CER) to 724 cents. Earnings a share were affected by higher restructuring costs and intangible asset impairments.

Higher Manufacturing inventory, largely seasonal, weighed on operating cash flows. The higher inventory investment reduced the operating cash conversion rate to 63% (89%). Debt increased to R30 billion from R26.9bn, although it is comfortably within group target ranges.

“Aspen has delivered operationally, as well as executing on and advancing its strategy. Robust normalised EBITDA of 21% and NHEPS of 17% in CER are underpinned by strong performances in both Commercial Pharmaceuticals and Manufacturing,” said CE and co-founder Stephen Saad in a statement.

However, the strength of the rand against all of Aspen’s trading currencies over the period significantly diluted reported performance compared to the CER performance.

Commercial Pharmaceuticals delivered CER growth of 13% in revenue and normalised EBITDA.

Normalised EBITDA in the Manufacturing more than doubled, driven by an increased contribution from sterile contract manufacturing.

Mounjaro was expected to be a key contributor to growth in the Africa Middle East region. Products acquired in Latin America boosted revenue growth after being successfully integrated.

Earnings growth was reduced by a rise in the tax rate, primarily due to South Africa’s implementation of the Organisation for Economic Co-Operation and Development rules on a global minimum tax rate of 15%.

Prescription Brands, the largest segment in Commercial Pharmaceuticals, enjoyed double-digit growth of 19% (25% CER), with revenue of R6.34bn. The Americas, which benefitted from the added contribution from the acquired products, led the growth, followed by Africa Middle East, boosted by the Lilly portfolio.

OTC revenue fell 3% (+2% CER) to R4.74bn, impacted by order delays in Africa Middle East, but it was expected to rebalance in the second half. Excluding Africa Middle East, the other regions enjoyed solid CER growth of 6%.

The Injectables portfolio returned to growth, rising by 4% (10% CER) to R5.02bn. Africa Middle The recent product swap transaction with Sandoz impacted Asia positively and Europe negatively, while providing a strong net benefit to Injectables growth.

Manufacturing revenue of R5.86bn ended 4% lower (0% CER) following declines in the Heparin and API businesses. FDF (finished dosage forms) revenue was up 59%, supported by the growing contribution from sterile manufacturing contracts. The Heparin revenue reduction was anticipated as the business benefitted from the transition to a working capital light toll model in the prior year.

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