Aspen dividend payment possible
• CEO Stephen Saad cautiously optimistic after creating wiggle room
Aspen Pharmacare, Africa’s largest drug maker, will reconsider in September the decision to suspend dividend payments. The company made the announcement on Friday. The possible resumption of dividend payments in the 2020 financial year comes as the group’s efforts to reduce its hefty debt appears to be paying off.
Aspen Pharmacare, Africa’s largest drugmaker, will reconsider in September the decision to suspend dividend payments.
The company made the announcement on Friday. The possible resumption of dividend payments in the 2020 financial year comes as the group’s efforts to reduce its hefty debt appear to be paying off.
The pharmaceutical company withheld its dividend for the year to end-June 2019 for the first time in almost a decade but now feels more comfortable with its position, after slashing debt 38% to R33.4bn over about 12 months.
“We are in a pretty good place and we have the headroom that we wanted,” CEO Stephen Saad said.
Aspen’s share price has lost almost three-quarters of its value over the past five years, partially due to market scepticism about debt taken on in an acquisition spree in recent years.
The company has since been disposing of assets, with the sale of its Japanese business concluded at end-January. Net proceeds of €271m (about R4.6bn) were received in February.
In November 2019 it announced plans to sell its Japanese business to Sandoz for up to €400m. It followed just a few months after the finalisation of the sale of a portfolio of drugs to Mylan for as much as A$188m (about R1.9bn) and the disposal of its nutritionals business to French dairy company Lactalis for €635m.
Aspen closed its financial year with a leverage ratio of 3.5 times, comfortably below the four times covenant threshold set by its lenders. Including the disposals, this figure has fallen to about 3.3 times, said Saad.
The leverage ratio is the ratio of debt to earnings before interest, tax, depreciation and amortisation (ebitda).
The company will consider its position regarding dividend payments in September, said Saad. He was cautiously optimistic about its prospects to June 2020.
Aspen expects its second half to be better than its first, when it reported that normalised earnings before ebitda from continuing operations grew marginally to R5.3bn.
A major headwind is the coronavirus outbreak, though the economic effect cannot be quantified, Saad said.
“There will definitely be an economic effect,” he said.
Aspen does not have manufacturing facilities in China, but its commercial team in that country has been largely inactive since February, though inventories have prevented any negative effect.
The virus has spilt over into other markets and could hit other parts of the business as people delay elective surgeries to avoid hospitals, Saad said.
The virus has caused increased demand for some Aspen products, such as antibiotics and chronic medication, said Saad.
Aspen is also reviewing its European operations, Saad said, and aims to leverage its highquality manufacturing through partnerships with large companies, which may offer it scale. Details about that might be announced in the next six months, he said.
The disposal of some of the group’s prized assets has been necessary to ensure it does not breach loan covenants, senior investment analyst at Protea Capital Management Richard Cheesman said, but growth from continuing operations has been muted.
“We will have to see what comes from the strategic review of Aspen’s European business, but partnering in areas where Aspen is subscale makes sense,” Cheesman said.
Vestact analyst Michael
Treherne said that overall Aspen’s results are in line with its market guidance and the main thing the market has been looking at is debt levels, which have reduced.
“The last thing current investors want is for Aspen to be forced to do a rights issue, to increase equity and reduce debt levels,” Treherne said. “The market seems to be happy with the results,” he said.
The impact of the coronavirus will depend on how long it takes to find a vaccine, said Treherne, but delayed elective surgeries were likely to take place later. “So when things go back to normal, Aspen should see a big spike in demand,” he said.
The stock dropped to about R60 per share last year.
On Friday Aspen’s share price closed 2.05% weaker at R107,75, having fallen about 22% over the past 12 months. At the same time, the JSE all share fell 2.29%.