Newly appointed Ascendis CEO Thomas Thomsen has wasted little time in writing a new prescription to reinforce cash flows and restore the balance sheet at the ailing healthcare group.
An investor update issued on Monday showed plans are well under way to dispose of two noncore and underperforming South African operations and a sizeable pharmaceutical production plant in Gauteng.
This is part of a larger strategic review that will be more fully detailed when Ascendis presents its year to end-June 2018 results on September 11.
Ascendis — which grew rapidly by making an array of local and offshore acquisitions over the past 10 years — has fallen out of market favour as investors increasingly fretted about expensive offshore acquisitions and growing debt levels.
The share price peaked at R28 in September 2016 and has lost more than 50% in the past year. But Ascendis shares responded positively to Thomsen’s restructuring plans, recovering 3.7% to R10.94.
This is still substantially below the R20/share at which a R750m rights issue — mostly underwritten by majority shareholder Coast2Coast — was pitched in 2017.
Many market watchers welcomed the rapid intervention by Thomsen, who only took over the reins from the long-serving Karsten Wellner in March 2018.
Ricco Friedrich, portfolio manager at Denker Capital, said the proposed disposals were proof that Ascendis’s acquisition-led strategy has not worked. "Clearly the company had to do something drastic to improve its fortunes, so kudos to the new CEO for being decisive and moving quickly."
Improving cash generation
In a presentation to investors, Thomsen stressed that improving cash generation and reducing gearing levels were strategic and financial priorities.
He said significant progress had been made in improving cash generation and reiterated that management remained committed to achieving its cash conversion target of 75% for the 2018 financial year.
"A cross-functional team, together with business unit heads, has focused on generating cash and the more efficient utilisation of assets to improve cash conversion and … enhance the group’s return on tangible net assets," said Thomsen.
He added that Ascendis was reviewing its capital structure to ensure capacity to meet future vendor debt liabilities but was not contemplating any form of equity capital raise.
At the interim stage ended December 2017, Ascendis held offshore debt of R3.3bn and local debt of around R1.4bn.
Thomsen said Ascendis had not pencilled in a ball-park figure for proceeds to be collected from the proposed disposals.
But he remarked that "there are too many small South African brands which require investment to perform."
The key proposal involves Ascendis selling locally based Ascendis Sports Nutrition (ASN) to concentrate on its recently acquired European sports nutrition business SciTec.
ASN supplies brands like Evox, SSN, Supashape, Muscle Junkie and Nutrimax, and the business is expected to be sold by the end of July 2018.
Plans are also afoot to sell Ascendis Direct, the direct selling and network marketing business that sells Sportron and Swissgarde products.
Ascendis has done a turnabout on its Isando manufacturing facility, which was secured with the acquisition of pharmaceutical company Akasia in late 2015. The group initially opted to consolidate its manufacturing operations at Isando. Thomsen’s strategic review revealed it was more financially and operationally beneficial to retain the Wynberg plant as it had a competitive advantage in key technologies used in many local business units.
Thomsen said capital expenditure was also planned to improve efficiency and in-fill rates for core brands, including key Ascendis brand Solal.
Correction: June 26 2018
Ascendis held R3.3bn of offshore debt at end-December, not €3.3bn as originally reported.