On 04 March 2014, JSE Ltd listed Ascendis Health announced their maiden results for half year ended 31st of December 2013.
The group recorded Revenue up 114% to R662m, Operating profit up 366% to R88m, Operating margin improved from 6% to 13% and Headline earnings up from –R4m to R54m. These numbers are ahead of what could have been expected for the first half of the Financial Year in relation to the forecast submitted with the Pre-Listing Statement published for the listing on the Johannesburg Stock Exchange (pharma board) in November 2013. The earnings do not include the full 6 months of earnings for recently acquired businesses in the 6 month period.
Commenting on the performance, Ascendis Chief Executive Officer Dr. Karsten Wellner said, “We are very pleased with our performance and positioning going forward which affirms our original commitment to shareholders.”
Ascendis is a fast growing health and care group which markets health and care brands for humans, plants and animals. Listed on the JSE on 22 November 2013, the group consists of three divisions: Consumer brands (nutraceuticals, vitamins, sports nutrition and skin care products); Phyto-Vet (plant and animal health and care) and Pharma-Med (prescription drugs and medical devices.) The group currently exports products to 45 countries, mainly in Europe and Africa and increased its foreign revenues by 209% (16% of total sales) in the reporting period.
“The increase in export performance together with the strong market position of our brands (enabling Ascendis to pass on price increases) allows Ascendis to counteract against the higher than expected imported inflation due to the Rand weakness,” says Dr. Wellner.
Ascendis is a synergistic group of health and care brands spanning the value chain, from imports of raw materials, manufacturing, brand development to distribution to consumers through retail and direct selling channels locally and internationally.
Organic growth from the group’s established, market-leading brands is healthy and will be supported by the acquisition of complementary businesses and brands for synergistic growth. This includes vertical integration across the value chain and horizontal integration from bolt-on acquisitions.
Ascendis has delivered on the commitments made to shareholders at the time of the listing, with the results for the six months indicating that the group is well on track to exceeding its pre-listing year end forecasts. The performance has benefited from several acquisitions made over the last financial period, healthy organic growth of the underlying established brands, synergistic benefits and cost savings from integrating the businesses.
Revenue for the period increased by 114% from R310m to R662m. Foreign revenue increased by 209%.
The gross margin expanded from 42% to 47% despite the pressure from imported inflation from the devaluation of the Rand. The improvement was achieved through better buying, selected price increases and a better product and customer mix. Further savings could be achieved by extracting synergies across the value chain, including joint manufacturing, warehousing and route to market activities in the Consumer Brands and Phyto-Vet divisions.
The operating profit increased by 366% from R19m to R88m and the operating margin improved from 6% to 13%.
The performance for the period translated into an increase in headline earnings of R54m (Dec 2012: -R4m.)
On the divisional performance, Consumer Brands generated revenue of R299m (Dec 2012: R117m) and accounted for 45% of group revenue; Phyto-Vet R292m (Dec 2012: R193m) and Pharma-Med R70 million (only 2 months included in the reporting period.)
The group has a track record of acquiring established businesses and brands which are integrated into the divisional operations to create synergies. Shortly after the listing the group acquired Surgical Innovations, a distributor of high-end medical devices to surgeons, for R300 million. The effective date of the acquisition was 01 January 2014 and the business is currently being integrated into the Pharma-Med division.
Last week Ascendis announced the acquisition of PharmaNatura, pending competition approval. PharmaNatura markets well established and trusted nutraceutical, homeopathic and herbal brands such as Vitaforce, Bettaway, Homeoforce and Herbaforce which are manufactured in their own GMP approved plant. Ascendis is confident that the brands of PharmaNatura are well positioned, particularly in relation to the new CAM (complementary and alternative medicines) regulatory environment. This acquisition together with its manufacturing site in Johannesburg will enable Ascendis to extract vertical synergies within its Consumer Brands division.
Ascendis has a portfolio of resilient, well-established brands which offer both pricing leverage and strong export potential which positions it well in the face of a tough consumer economy, a more stringent regulatory environment and a depreciating currency.
The high LSM brands in the Consumer Brands and Phyto-Vet divisions make the business more resilient in the face of weaker economic conditions, while the lower LSM brands in the pharmaceutical sector of the Pharma-Med division will benefit from government’s focus on making medicines more affordable and accessible, and the National Health Insurance implementation.
Dr. Wellner adds, “The integration of acquired businesses is proceeding according to plan and organic sales remain in double digits. We are well positioned to accelerate growth through selective acquisitions which are currently in discussions. In addition, we have had interest from well established offshore distributors for certain of our brands that are not yet exported which will accelerate our international expansion.”
Ascendis is at an advanced stage in terms of replacing part of its existing debt with senior banks with the issue of a corporate bond during the second half of the financial year.
A key focus for the remainder of the financial year will be to continue delivering strong organic growth, integrating recent acquisitions and continuing to extract synergies both within and across all operating divisions.
Dr. Wellner concludes, “We are firmly on track and confident that we are going to exceed our committed full year pre-listing earnings forecast for the 2014 financial year.”