Business Day

As­cendis still has R600m avail­able for ac­qui­si­tions

- MARC HASENFUSS Ed­i­tor At Large hasen­ Business · Finance · Consumer Goods · Investing · Cyprus · European Union · United States of America · R3

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%.

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