BUSINESS DAY TV: Lower pay for sales staff offers opportunity in east Europe
Ascendis Health CEO Karsten Wellner discusses the finalisation of acquisitions in Eastern Europe and Cyprus
Karsten Wellner is Ascendis Health CEO.
BUSINESS DAY TV: Ascendis Health has sealed its acquisition of Romania-based Sunwave Pharma SRL and Cyprus’s NHP Natural Health Pharma. It says the deal is in line with its Central and Eastern European strategy. Its CEO, Karsten Wellner, joins us in the studio now.
Karsten … so Eastern European exposure cemented, do you now hit the road running when it comes to Sunwave Pharma in Romania and NHP in Cyprus?
KARSTEN WELLNER: Yes, it’s one company and they hold their IPs in Cyprus. Sunwave has a dominant market position in Eastern Europe, especially in Romania.
We like Eastern Europe, where South African businesses are doing well. In an article I found about Romania some weeks ago, they called Romania the Eastern European tiger. The economy is growing nicely and of course it comes from a lower base, with 20-million people, the health of the economy is doing well, the health system is doing well, so from that side we’re quite excited. The business had double-digit growth rates over three years, a market-leading position in nutraceuticals and for us it’s a perfect entry into the wellness space in Eastern Europe.
BDTV: Standing in contrast to the kind of economic growth we’re seeing in SA right now so what this move has done is certainly buy you more of a rand-hedge quality. Half of your business now based on business outside of SA, so are you now cushioned enough against the rand volatility or are you comfortable with the level of South African exposure you’ve got?
KW: I remember two years ago when you asked me the question, what keeps me awake at night, and at that time it was the rand. Nowadays it’s not the rand anymore, what troubles me now sometimes is, how do I find the right talent?
Because with our European businesses we now have what you call a natural hedge against rand volatility. It’s probably even, so we hedge our local exposure in SA but the translation effect of a weaker rand helps us to balance that. On that side we’re not too worried about the rand volatility, which we always wanted to have. We wanted to have a balanced business, a resilient business giving less risk to our investors who actually still want to have a high growth share but in a less risky environment.
BDTV: Having said that though how much opportunity are you seeing in the acquisitive space in the international arena right now? Are those apparent?
KW: There are definitely lots of opportunities and our acquisition model is that of entrepreneurial businesses where we keep the entrepreneur in our business with a restraint. Of course, being acquisitive, we often get questioned as to why our PEs are so high and if we are acquisitive it immediately affects the balance sheet but not in the P&L, and you then have an artificially high PE for a certain time. But in the end, the acquisitions we find in Europe are always, as in SA, value-enhancing, with headline earnings per share being accretive from day one.
We still find nice little bolt-ons in SA and last week we announced the Agrimed business from Cipla which we’re adding on as a nice bolt-on to our Efekto, Marltons, our Phyto-Vet business. But in Europe you find a lot more of the bigger deals, which give us platforms, while in SA, more bolt-on acquisitions, which will enhance value in our South African business.
BDTV: Let’s hone in on the platforms that these deals have afforded you because you said Sunwave’s distribution model could be replicated in other Eastern European territories that you operate in. What are your plans there?
KW: Yes, they have a sales force of 290 people, a very dominant market position in that nutraceutical OTC (over-the-counter) space. We can add some of our OTC products, for example Solal, which is a strong brand in SA. We’ve already checked it with the Sunwave team, whether we can add some Solal products with their team. They have nine different indications there and they could add in a tenth area of healthy ageing where Solal is positioned and sell this to the doctors.
They have a very nice concept where they sell nutraceuticals, which are highly scientific with clinical studies and marketing studies. Going to the doctors who prescribe the product, the patient then goes with the prescription to the pharmacy, where he gets the product and where he pays out of his own pocket — but that model we think is replicable in the Eastern European markets.
Of course, 290 sales reps must be financed first, that’s the reason we think it’s very good for Eastern Europe. In Western Europe the salary levels for reps are probably too high, but in Eastern Europe there are a lot of opportunities to internationalise this business.
BDTV: And it sets up that pipeline of product for you to sell in your other active markets where you are targeting high-growth markets. What kind of growth are you anticipating in the year ahead?
KW: In SA we’re still aiming for 10% double-digit growth on the top line and a little bit more on the bottom line. We hadn’t achieved this at half-year results for some extraordinary reasons like the drought, which we had for some time, and probably some other homemade problems, but we are still focusing on double digits in SA and in Europe we are definitely achieving double-digit growth rates in our businesses.
When I say Europe, they are based in Europe where, for example, we have a pharma business based in Cyprus, they go into emerging markets, 80% of their business in emerging markets but with the high-quality of the European business. So it’s an emerging-markets business where we’ve seen double-digit growth rates over the last years — it’s still ongoing double digits, so we achieve double-digit growth.
BDTV: I know you say you’re targeting double-digit growth in SA — how nervous does a headline like today’s make you where you’ve got SA now officially in a recession?
KW: Yes, it sometimes depends on the customer you look at. We have products going to the high LSM customers, which are a little bit more resilient to economic downturns, and then you have lower end customers, where you are of course seeing more downsizing, more downscaling in their purchases. If a customer went into a Dis-Chem or Clicks with a basket of three or four products before, they now go home with a basket of two or three products. We are seeing this, but less because we focus on a high-end consumer. It’s what I sometimes call the "bullwhip" effect. "Bullwhip" is less affected than for example the lower-end retailer who focuses on the lower-end market.