Ascendis still has R600m available for acquisitions

CAPE TOWN — Health brands conglomerate Ascendis — which recently spent R7.3bn to acquire Cyprus-based pharmaceutical manufacturer Remedica and European sports nutrition business Scitec — still has some fuel left in its deal-making tank.

At a presentation covering year to end-June results on Wednesday, Ascendis CEO Karsten Wellner said the company still had R600m available for acquisitions. He said that meant Ascendis was still able to target companies that could add R100m in profit after tax without resorting to further capital raisings via equity issues.

Although the financial year ahead would be largely a period of integrating Remedica and Scitec, Wellner said the company would continue to search for “bolt-on” deals in its three divisions — Pharma, Consumer Brands and Phyto-Vet.

Wellner said Remedica and Scitec provided strong platforms for further deal-making — especially in Eastern Europe (via Remedica) and other emerging markets. Scitec has recently ventured into the US market, but he said it was still too early to make any meaningful assessments.

In the year to end-June, export sales accounted for 22% of Ascendis’ revenue of R3.9bn. This included 11 months of revenue contributions from recently acquired Spanish generics manufacturer Farmalider, but no contributions from Remedica and Scitec.

Wellner said foreign revenue covered 54% of the firm’s imported cost-of-sales (compared with 26% last year). This cover percentage will become relatively meaningless in the year ahead when revenue contributions from Remedica and Scitec start flowing through.

In an investment presentation, Ascendis said Remedica and Scitec were earnings accretive from August and were both on track in terms of profit performances.

Wellner said Remedica and Scitec’s respective ebitda’s (earnings before interest, tax, depreciation and amortisation) were up 13% and 7% compared with the six months to end-June 2015. He said an added benefit to Ascendis in the year ahead would be cross-selling opportunities between Farmalider, Remedica and the South African pharma divisions as well as Scitec and locally based consumer brands businesses.

Wellner said profit contributions from Remedica and Scitec could push up group margins by more than 2% in financial 2017. The gross margin came in just below 40%, down on last year’s 43.6%. He said margins were negatively affected by a change in product mix due to acquisitions as well as higher tenders won at a lower margin.

“But the impact of this on the bottom line was successfully mitigated through efficient cost control, growth in exports and above-inflation price increases.

Normalised earnings came in at 121c per share — 30% up on last year and at the top-end of guidance given to the market earlier. A final dividend of 12c per share was declared, bringing the full year payout to 21.5c.

Most market watchers seemed positive on developments at Ascendis, which faced some market scepticism over its growth-by-acquisition strategy when it listed in late 2013.

One investor did inquire about the company’s ability to convert its profits to cash. Financial director Kieron Futter stressed cash conversion rates varied from business to business, but pencilled a range of between 94% and 100%.