Shareholders celebrate after Aspen slashes debt
Shares in Africa’s biggest pharmaceutical manufacturer jump 11% despite sleepy results
Shares in Africa’s biggest pharmaceutical manufacturer, Aspen Pharmacare, closed 10.97% higher on Thursday, its biggest one-day gain in more than 19 years, as investors sighed in relief at news that it had slashed its debt and planned to cut more in the year ahead.
Aspen has seen its share price drop by more than a third this year after a series of setbacks deepened investor concern about its high debt levels, which stood at R53.5bn in December. The company was battered by, among other things, a delay in the sale of its infant milk business to French dairy company Lactalis and an £8m (R146m) fine it agreed to pay the UK’s National Health Service after admitting to anticompetitive behaviour.
Aspen’s shares surged despite the company’s lacklustre performance for the year to June 30, which saw it report revenue growth of just 1% to R38.87bn and a 15% decline in headline earnings per share to 1,254c.
Aspen said it had reduced its debt by 27% in the second half of the year to R39bn and said it would not pay a dividend to shareholders for the first time since 2010, a further signal to investors that management sees debt as a top priority. Aspen paid out R1.4bn in dividends last year.
“We are very focused on deleveraging the business,” said Aspen CEO Stephen Saad in a presentation to investors. “It is top of all our plans.”
Aspen built up its debt pile through a series of strategic acquisitions that have reorientated the company from selling commoditised generics to niche products with high barriers to entry. These included a 2016 deal to buy British drug giant AstraZeneca’s anaesthetics portfolio and the acquisition of GlaxoSmithKline’s thrombosis drugs in 2013.
Aspen Group CE Stephen Saad speaks to Business Day TV about the group's strategy to resuscitate growth.
Unlike many other JSE-listed companies that have used equity to finance their deals, Aspen has funded its acquisitions with debt.
It remains averse to raising capital by issuing shares, said Saad. “This is a company that has built close to R11bn in ebitda [earnings before interest, tax, depreciation and amortisation] without issuing equity,” he said.
Aspen closed its financial year with a leverage ratio of 3.62, comfortably below the 4.0 covenant threshold set by its lenders. The leverage ratio is the ratio of debt to ebitda.
Protea Capital Management CEO Jean Pierre Verster said Aspen is “delicately balanced”. There is good news in the strong cash flows reported in the second half and management’s commitment to further debt reduction in the year ahead, but Aspen is not showing any top-line growth and continues to face challenges in many of its markets, he said.
Vestact Asset Management CEO Paul Theron, who described himself as a “long-term believer in Aspen”, took a more optimistic view on the company. Aspen’s moves to establish strong sales and management teams in Europe and the reorganisation of its manufacturing operations place the company in a strong position to open new markets and do new deals.
Saad told Business Day that Aspen is poised to sign a deal with an Indian company to provide it with the active pharmaceutical ingredients used for making HIV/Aids drugs
Aspen’s share closed at R94.25, still some way off its R448.68 peak in January 2015.