Ascendis flags huge profit swing due to restructuring and finance costs
Although its core businesses have grown profits, finance costs have doubled, while the health group has warned of hefty transaction costs
Health group Ascendis, which is battling with a hefty debt pile far exceeding its market capitalisation, has warned of an almost R200m swing in headline profit, as it grapples with a crushing debt position.
Ascendis is valued at only R235m on the JSE, and has businesses in the consumer health, pharmaceutical and animal health categories. It has recently caught the attention of private equity groups interested in its assets and who have snapped up most of its debt vehicle.
This debt has come back to bite Ascendis, which said net finance costs had more than doubled to R545m in its six months to end-December 2020, while it had also incurred transaction-related and restructuring costs of R118m.
In an updated trading statement on Thursday, the group warned of a normalised headline loss from continuing operations of up to R47m in the six months to end-December, from a restated profit of R138m previously.
This is despite growth in normalised earnings before interest, taxation, depreciation and amortisation (ebitda), a measure of operating profit, of up to 53% from a restated R529m in 2019.
Ascendis further warned of writedowns to continuing operations of R150m, and R96m for discontinued operations.
The group expects a basic loss per share of up to 145.1c, from basic earnings of 46c previously — a loss of about R710m, from earnings of about R223m previously.
The company restructured its debt in mid-2020, giving it breathing room to try to complete asset sales, notably its crown jewel, Cyprus-based pharmaceutical maker Remedica, which remains highly profitable.
Part of this restructuring was undertaken via a payment in kind, a type of high-risk loan or bond that allows borrowers to pay interest with additional debt.
The group announced in January that two of its creditors, London-based investment firm Blantyre Capital and L1 Health Group, preferred a recapitalisation to the sale of profitable assets with long-term value, and which now hold more than three quarters of its debt vehicle.
The group said earlier in March that its lenders had agreed to waive various repayment rights until end-April as talks on restructuring continue, further warning shareholders that if they vote against any plan, lenders’ patience may run out. Ascendis said it is expected that the debt will be swapped in exchange for chunks of its operating subsidiaries.
This has also prompted the formation a group of Ascendis activist shareholders, who are demanding transparency for shareholders regarding the restructuring talks and, in particular, how the businesses of the group have been valued.
Spokesperson for the group, Harry Smit, said on Thursday that the collective now represents about a fifth of Ascendis shares, and while it had met with Ascendis management, it is understandably preoccupied with forthcoming results.
Smit said the group is making progress towards a 25% stake — sufficient to veto any restructuring deal — and did not view the trading update on Thursday as particularly negative. The financing costs and writedowns had been expected, said Smit, while the continuing businesses of Ascendis had shown exceptional operating profit growth.
Ascendis has been battling with debt after a series of offshore acquisitions, and net debt of R7.96bn at the end of June.
In February, the group also provided an update on its six months to end-December, saying it had a strong operational performance, internationally and in SA, where it generates about half its revenue.
In SA, its medical devices business experienced robust demand, given that it supplies high-flow oxygen units and ventilators that are critical in treating patients with Covid-19. It also supplies testing equipment used to detect the coronavirus.
Remedica’s revenue is expected to be between €65m (R1.17bn) and €68m, an increase of 17%-23% over the comparable prior period, with normalised ebitda expected to rise as much as 40% to €24m.
Ascendis is expected to release its results on March 31.
In afternoon trade on Thursday, the group’s share was down 5.77% to 49c, having lost almost 98% of its value over the past five years.
Update: March 25 2021
This article has been updated with comment from Ascendis shareholders.f
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