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Cape Town – Ascendis Health [JSE:ASC] on Tuesday reported strong growth in normalised headline earnings of 92% to R645m for the year to June 2017 as the group significantly increased international sales following the completion of three acquisitions in Europe during the year.
The JSE-listed health and care brands group increased revenue by 64% to R6.4bn, with acquisitions contributing R2.3bn.
In a challenging environment in South Africa the group’s normalised earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 78% to R1.1bn, with the EBITDA margin strengthening by 130 basis points to 16.9%.
Since listing in 2013 Ascendis has grown revenue at a compound rate of 81% and EBITDA by 102% per annum.
CEO Dr Karsten Wellner told Fin24 that the company's performance was due to a big team effort.
The results of the consumer brands division in SA reflect the strain on consumer spending at the moment, he said.
In SA some of its SA businesses did not do as well as the company would have wanted - especially in the lower income groups. Yet, there some strong brands like Solal and other brands in the wellness stable did well.
As for the impact of the stronger rand "working against" the company results, Wellner said they nevertheless remained diligent in their hedging as they don't want to gamble with the currencies.
"And despite these factors our numbers are promising," he told Fin24. "The SA consumer environment is not the greatest at the moment, but as we are a diversified business, we could grow in other areas."
Wellner said following the international acquisitions of pharmaceutical manufacturer Remedica Holdings in Cyprus and leading European sports nutrition business Scitec, Ascendis has been transformed into a global healthcare business, with a natural hedge against currency fluctuations.
“These acquisitions have been game changing as 60% of our earnings are now generated outside SA,” he said.
Three divisions
The company has three main divisions, namely Phyto-Vet, Pharma-Med and Consumer Brands.
The Phyto-Vet division showed double digit growth from a revenue and profit point of view. It showed growth even when excluding acquisitions. This is because of new markets it explored, good product development and despite the drought impacting the division at the beginning of the financial year. The division also managed to find synergies between its businessnes, including one of them in the US.
In the Consumer Brands division, apart from the effect of the constrain on SA consumer spending, Ascendis had bought a big sports nutrition business in Europe, which was impacted by an increase in the price of whey protein due to global shortages, especially in Europe.
"Our margin went down a bit, but due to savings and synergies we could soften that impact a bit and now the whey protein price is coming down again," said Wellner.
"I expect in the second half of the financial year we will see improvement in margins again. Solal is a high-end brand and we could get double digit growth in Solal again in SA."
In the Pharma-Med division revenue grew 55%, mainly based on what Wellner calls the excellent performance of the new acquired business in Cyprus. About 80% of that business' products are exported to emerging markets and it also launched some new products.
The medical devices section of Pharma-Med also grew double digits.
"This division showed a very pleasing performance for us and with already 40% of business of the medical devices section being outside of SA. We hold the agency in SA for these devices," said Wellner.
Acquisitions and exports
Late in the reporting period Ascendis concluded the acquisition of Sun Wave Pharma in Romania. Sun Wave Pharma is am over-the-counter (OTC) and food supplements business which provides Ascendis entry into the high-growth Romanian and eastern European markets.
The group’s foreign revenue rose by 497% to R2.8bn and accounts for 43% of total sales. Products are currently exported to over 120 countries. Ascendis has operations in Spain, Cyprus, Hungary, Romania and Australia.
While most businesses are focused on their home and regional markets, Remedica in Cyprus exports approximately 80% of products into high-growth emerging markets.
Wellner said Remedica has been successfully integrated, with ongoing synergy projects within the Ascendis Pharma-Med division covering cross-selling, procurement, research and development, new product development and production. Remedica generated revenue of R987m since acquisition, with profit of R243m being ahead of expectations.
External factors
Scitec, the third largest sports nutrition brand in Europe, reported sales of R1.2bn and profit of R121m.
“The business has been negatively impacted by external factors, including the increase in world market prices of whey protein, one of the most important raw materials in sports nutrition," said Wellner.
"We have taken decisive steps to improve profitability, including appointing a new head of the business, focusing on new sales channels, expanding into new markets and developing a strong new product development pipeline.”
International platform
Wellner said Scitec provides an international platform for Ascendis’ Evox and SSN brands to expand abroad, and for Scitec to grow in Africa and Australia.
Locally Ascendis acquired the southern African animal health operations of Cipla India with effect from June 2017.
“This business creates access to the attractive veterinary pharma market, with high margin products in strong growth segments. This is supported by the opportunity to increase export sales and create synergies with the existing African network of Ascendis Phyto-Vet,” said Wellner.
Outlook
As for the company's outlook, Wellner said its three to five year medium term strategy is still to grow 10% organically. It also wants to create a synergy and have a natural hedge against rand volatility.
"We have achieved our aim of having 50% to 60% of our business being international. This is, among other things, to make the company attractive to international investors too," said Wellner. Currently about 20.7% of the shareholders are international investors and compared to 16.2% a year ago and about 4% to 5% when the company started.
Another aim is to achieve 20% acquisitive growth and enhance margins. As for synergies, the company wants to enhance value between the different businesses.
"It is about doing the right thing in a better way to have more profitability. While in the medium term we want to grow organically, acquisitively and synergistically, in the short term our focus is more on organic growth, like through marketing and product launches," said Wellner.
"I am definitely optimistic going ahead. We have been listed already for four years now and every year we have outperformed the promises we made. We are not changing our approach, because it is very important to be consistent in your hedging and we also do not want to gamble with currencies. That is what international investors like about our approach too. We started as a SA company with exports, while we are now a global company with strong roots in SA and with a hedge against rand volatility because of our international business."
The acquisition strategy in 2018 will be focused on buying smaller complementary bolt-on businesses, mainly in the higher growth economies in central and Eastern Europe, and SA, while targeting fast growing health and care market segments.”
By late afternoon Ascendis' share price was down 2.05% at R21.06 per share.
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