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Ascendis Health, owner of sports nutrition brands Evox and SSN and garden chemicals brand Efekto, among others, is relying on the so-called “Woolworths effect” in the South African retail industry to boost local sales and profit growth. In addition, the company is turning its attention to Europe’s fastest-growing economy, Spain, in a bid to capture a slice of the generic drugs market.
“Woolworths gets a 5% higher customer base every year because people move up the ladder in the Maslow pyramid,” says Dr Karsten Wellner, CEO of Ascendis Health. “We see the same with our products. Most of our brands go to the mid-level and higher LSMs.”
Wealthier consumers tend not to worry too much about the economy, he explains. This market also tends to be the least affected during an economic slump as these consumers’ spending power remains largely intact. SA’s economy shrank by 1.3% quarter-on-quarter annualised in the three months through 30 June, according to Stats SA.
The company’s consumer division, which includes brands such as Evox, SSN and Bolus, generated an earnings before interest, tax, depreciation and amortisation (EBITDA) margin of 17% for the 12 months ending June, according to Wellner.
“We have strong cash-generative brands in this division,” Wellner explains.
The consumer division’s 11% organic growth rate was primarily driven by new product launches and expanding the underlying brands’ geographic footprint in South Africa, he explains. This growth was generated despite the vitamin and nutritional supplement brand Solal hitting a “little speed bump” with government compliance leading to the recall of R33m worth of products in June, he explains.
Expanding the pharma division
Nevertheless, the company limits its exposure to clinical medicine and only 10% of its products are subject to the department of health’s (DOH’s) single-exit price regulations, Wellner says. The DOH sets the price that pharmacies and hospitals can charge for clinical medicine and which medical insurers use to compile their own reference prices.
Ascendis targets a worldwide consolidated split in revenue of 40% to consumer medicine, 40% to pharmaceuticals and 20% to what it calls phytovet – its pet and garden medicine unit.
Boosting its pharma division’s EBITDA margin to 18% is its medical devices unit. Ascendis acquired diagnostic products business The Scientific Group for R358m during February after a successful R480m capital raising in the market. This acquisition was incorporated with previously-bought Surgical Innovations and RCA making the new combined unit the country’s second-largest supplier of medical devices.
Medical devices have the “highest margins” in the business, according to Wellner.
Going forward, the company’s sales and profit growth will be derived from acquisitions, organically and from synergies when combining different business units, he explains.
Ascendis targets organic growth contributing between 10% and 15% to revenue a year whereas acquisitions would contribute between 20% and 25% of “topline” growth, Wellner says.
“From synergies and integrating these businesses along the value chain and via bolt-ons with brands and pharmaceutical dossiers, for example, you can achieve another 5% on the bottom line,” he says.
This is an excerpt of an article that originally appeared in the 15 October 2015 edition of Finweek. Buy and subscribe to the magazine here.
