JSE-listed Ascendis Health managed to narrow its normalised operating loss by 49% year-on-year to a loss of R94-million for the six months ended December 31.

The basic loss a share from continuing operations improved by 29% to 102.1c, compared with a basic loss a share of 144c posted for the six months ended December 31, 2020.

The company’s normalised headline loss a share, which has been adjusted for one-off transaction-related and restructuring costs, improved by 23% year-on-year to 91c, compared with a headline loss a share of 118.5c in the prior corresponding period.

The group did not declare a dividend for the reporting period and its bank debt totalled R582-million as at December 31, compared with R6.7-billion of bank debt as at December 31, 2020.

Ascendis finalised a group recapitalisation plan in October 2021 and shortly thereafter sold its Animal Health and Respiratory Care Africa businesses.

The group now comprises three South African businesses – Medical Devices, Pharma and Consumer Brands.

If the group is unable to implement the recapitalisation plan, it will need to find an alternative mechanism to ensure the debt can be repaid in full by June 30 this year or face the risk that lenders will enforce their security, which will result in a business rescue process.

In an accelerated business rescue-driven asset disposal process, it is likely that lower proceeds will be realised given the distressed circumstances in which divestments take place and additional tax liabilities and costs will be incurred, which will rank ahead of the claims of shareholders.

The board has assured in its results statement that, as soon as the recapitalisation is implemented, it will focus on rebuilding the company through sustainable growth strategies supported by stringent capital allocation metrics.

For example, Ascendis will focus on optimising its Consumer Brands business, which comprises key, large vitamin, mineral and supplement brands in South Africa, expanding through acquisitive growth within a well-defined capital allocation framework.

It also intends to transition its head office into an investment holding company model responsible for strategic, capital allocation and merger and acquisition support, with a leaner and more focused team.

Investment firms Blantyre and L1 Health in January last year suggested that the Acendis board negotiate a capital restructure of the group instead of only a divestment strategy, indicating a willingness to invest further into the company to achieve this outcome.

Meanwhile, the period under review saw a post-lockdown resurgence in elective surgery and trauma cases that resulted in improved performances by Surgical Innovations and Ortho-Xact within Medical Devices.

This was tempered by underperformance in The Scientific Group, which has been impacted by the reallocation of donor funding in the rest of Africa to Covid-19 vaccine procurement and distribution, and away from diagnostic testing.

The Pharma business delivered strong sales growth following a market recovery to pre-Covid-19 levels and market share gains in key brands such as Reuterina, Sinuend and Sinucon.

This was further supported by a positive earnings before interest, taxes, depreciation and amortisation (Ebitda) performance, which was driven by improved margins and the benefits of cost-cutting initiatives.

The Consumer Brands business encountered headwinds in contract manufacturing and the slower-than-expected reopening of beauty salons and some going out of business.

Port strikes and global supply chain challenges also impacted on the strategic procurement business, Chempure. However, a continued focus on SKU rationalisation and cost optimisation ensured the business delivered 24% improvement in normalised Ebitda.

Chairperson Harry Smit concludes that the recapitalisation plan provides an opportunity for the group to be debt-free, with excess cash for reinvestment into optimising Consumer Brands and rebuilding the group.

The plan is still subject to shareholder approval.