Stephen Saad. Picture: Bloomberg/Waldo Swiegers
Stephen Saad. Picture: Bloomberg/Waldo Swiegers

Aspen has spent much of the year clawing back from the brink of overindebtedness, helping its shares to a 2020 high of R154 in June. But since then the stock has given up most of its gains and results for the year to end-June show that, operationally, only its manufacturing business, which accounts for 11% of gross profit, grew its bottom line. We asked CEO Stephen Saad why.

SS: The issue for us across many of our territories was the additional cost that we incurred, particularly in our factories, during Covid. You just couldn’t be efficient: you had to close down shifts, sometimes the cost of goods spiked, so definitely some of that affected the gross margin. But if you look at our total returns — earnings before interest and tax to turnover — they increased.

On balance has Covid been good or bad for Aspen?

SS: It’s been a net negative. [In the] regional brands business, there was big buying into March, then a fall-off afterwards, and because people were social distancing and not going to schools and so on, we had no colds and flu season, and low antibiotic sales. The market was down 20%.

Then, in the steriles business, the anaesthetic business in Europe took off over Covid, so that had a positive impact, but then China went into lockdown. Now, you’ve got the reverse: you’ve got China out of lockdown and we seem be getting back to almost where it was, and then you go to Europe and they are not sure whether their second wave is going to bring more sickness or less, and so there’s still a lot of empty beds in hospitals.

And few elective surgeries …

SS: Exactly. But the other part of our business that did well was manufacturing, particularly in Europe, because a lot of people seemed to have switched their manufacturer from Asian suppliers — they’d rather have certainty from a European supplier.

You sold your thrombosis business in Europe to Mylan. Does this mean that what is left of Aspen is, basically, a manufacturing partner for any major pharma group that needs to make sterile medicines?

SS: We’ve now worked our way up into a really upmarket neighbourhood. We’ve got all the infrastructure, we’ve got fantastic foundations, and the products are like furniture: so you might change your furniture or furnishings.

Our sites have been built that will reduce the cost of goods, particularly in our anaesthetics business, and that will mean improved gross margin. We really have got hundreds of millions more dosage capacity. Now, we’ve partnered with multinationals, we’ve done it with Merck, with GlaxoSmithKline, and we’re hoping to do this in steriles, because it represents the pinnacle of manufacture. So we’ll get higher value-add opportunities.

And it’s no secret, we’d really like to be a partner in vaccines. Our Port Elizabeth facility has a lot of the capacity installed so I really would like to position Aspen as a company that assists in manufacturing a Covid vaccine.

Do you have to go out and sell Aspen to the pharma giants, such as Pfizer or AstraZeneca? Do you get the audiences you want?

SS: We had to do so right in the beginning. [But] Aspen has got a really well-established and proven manufacturing capability. It’s not like I’ve got to knock on the door and try to get a presentation [opportunity]. Yes, we still have to sell it, and what we’ve had to do is create awareness.

Are you seeing business coming in?

SS: There are opportunities, definitely.

But have you actually struck any deals?

SS: We are talking, and I’m pretty comfortable we will.

Do you have to sell any more assets now? Have you had to sacrifice future sales and profit growth just to cut debt?

SS: Look at our history: we haven’t used equity, as you know, so we’ve always had a situation where if we make transformational acquisitions, from there we have to get organic growth. In Europe we thought we’d give it a full go, but if we found we were subscale we’d need to find a partner. And this is what we’ve done.

Is it a golden Aspen rule — never issue equity?

SS: You can’t have golden rules. But you know what I like about it: it forces performance. By not issuing equity, it creates the pressures to deliver returns. If you look at our debt now, we’re degeared. Now we’ve shown the value of the steriles business. At the very worst we reduce the existing cost-of-goods of our anaesthetics business … I’m pretty happy with where we are now because what we have got is a growth plan.


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