Aspen’s prospects at mercy of forex
Profit for year increases 4%
PHARMACEUTICAL giant, Aspen Pharmacare, yesterday posted improved profit in its latest financial year despite currency volatility, which saw a strong US dollar devaluing revenue flows and raising costs.
Aspen is a JSE-listed supplier of drugs to 150 countries including the US, Nigeria and Brazil. “The group remains exposed to the strength of the US dollar against its primary trading currencies,” Aspen said in a statement.
The company imports many of its drug-making ingredients and pays using the euro, the rand and the Australian dollar, meaning that a stronger US dollar erodes its earnings.
The share fell 0.32 percent to close at R324.91 as Aspen reported a 4 percent improvement in profit for the year to R5.2 billion, which compares with a R5.16bn estimate of six analysts surveyed by Bloomberg.
Gus Attridge, the group’s deputy chief executive, said its immediate prospects were going to be shaped by the movement of foreign exchange rates.
“The group was negatively impacted by the volatile exchange rate as the bulk of our earnings are outside of South Africa,” Attridge said.
A total of R479 million of foreign exchange losses were incurred mainly as a result of the strengthening of the dollar against Aspens primary trad- ing currencies, the company said. Aspen largely trades in the euro, rand and the Australian dollar, which was partially offset by favourable hyperinflation adjustment of R335m in Venezuela.
Venezuela’s inflation reached its highest level since it started measuring the indicator around 60 years ago, it has been reported by private economists who want to make up for lack of official figures on prices this year.
Aspen is looking for acquisitions and seeking to expand its infant nutrition business and it is in talks to buy a baby food business to add to the company’s nutritional unit two years after it bought licences to sell Nestlé infant formula.
The company was seeking purchases in China, Japan and south-east Asia, Attridge said.
While Aspen “won’t walk away from any great opportunity”, the company was seeking to expand its infant-milk, anti-coagulant and women’s health units, he added.
The company has spent more than $2bn (R28bn) on acquisitions from drug mak- ers including GlaxoSmithKline and Merck in the past three years to boost its portfolio of medicines and manufacturing sites.
Results
London-based Glaxo took a stake in the company’s Japanese unit in October to boost operations in that country.
Talks to buy an infant-nutrition business, made public in May, had been called off without a deal, Attridge said.
In terms of financial results, Aspen revenue for the international business rose 46 percent to R18.6bn and revenue in its South African business rose 16 percent to R8.6bn.
Asia Pacific declined by 5 percent to R8.1bn while sales in Australasia were 8 percent lower at R7.2bn.
Cost of goods in Australia rose due to the weak Australian dollar against the US dollar, in which many input costs are denominated, the company said.
The termination of licences and contract manufacturing arrangements in the second half weighed heavily on the performance of the Asia Pacific region.
In the local business, pharmaceutical sales rose by 12 percent through a combination of organic growth and new product launches.
In the local public sector sales grew by 14 percent led by demand under the antiretroviral tender.
The Department of Health in December awarded four drug makers, including Aspen, with a joint R10bn tender to provide millions of South African patients with anti- retroviral medication for three years.
Aspen Pharma received R2.5bn, Mylan Pharmaceutical received R2.8bn, Cipla Medpro R2bn and Sonke Pharmaceuticals was awarded R3bn. – With Bloomberg and Reuters
The group was badly affected by the volatile exchange rate as the bulk of its earnings were outside of SA.