JSE-listed health and care brands group Ascendis Health posted a 9%, or R18-million, year-on-year decrease in its normalised headline earnings to R170-million for the six months ended December 31.
It also did not declare a dividend.
The company on Wednesday stated that its results were impacted on by adverse trading conditions in the South African consumer market, offset by improving results from the company’s European businesses.
Ascendis was able to post a net profit after taxation of R205-million, following significant operational losses in 2018.
However, the company warned that its current liabilities of R8-billion exceeded the current assets of R4.4-billion, indicating the group’s insufficient solvency ratio, compared with assets of R11-billion against liabilities of R8.9-billion in the prior reporting six months.
The company explained in its results statement on Wednesday that it remained focused on restructuring its balance sheet, prioritising the sale of noncore assets and maximising value from the sale of businesses.
Ascendis’ management has identified measures to reduce costs and improve liquidity by between R55-million and R125-million over the next 12 months.
This includes a headcount freeze, limitation on travel, consolidation of office space across multiple offices, deferral of certain non-critical capital expenditure, inventory reduction, enhanced government debtor collection and a reduction in marketing expenditure.
The company terminated negotiations for the sale of its Remedica business in December and therefore is now classified as a continuing operation, after being classified as a discontinued operation in the year ended June 30, 2019.
CAPITAL MANAGEMENT
Although the company had ended the reporting six months with a positive cash balance of R204-million, to address the company’s risk of short-term cash pressure, management has prepared a budget for the 2020 financial year, as well as a robust liquidity model that includes cash flow forecasts covering a period of 12 months.
These forecasts have been reviewed by independent international external advisers as part of the debt refinance project. A comprehensive report recommending the optimal capital structure for the group and the pathway to refinancing was presented to the board of directors in February.
A target leverage ratio of two times was recommended. This proposal was subsequently approved by the board and a draft proposal was presented to Ascendis’ lender consortium.
Additionally, an independent company restructuring adviser was appointed in August last year to review and evaluate the group’s cash flow forecasting process and restructuring plans including progress on the disposal of group companies. The outcome of these reviews has been incorporated into the group’s forecasts.
After the termination of the negotiations with the preferred bidder on the disposal of Remedica, the group and its advisers have proposed debt restructuring/refinancing options which the board has approved and which have been submitted to the lender consortium for their review and agreement.
Another independent company restructuring adviser has been appointed, on request of the lender consortium, in January this year to review the group’s cash flow forecasts and restructuring plans. The board now awaits further feedback from the lender consortium.
Meanwhile, the company is undertaking detailed performance and liquidity operational improvement initiatives, including retrenchments at its Scitec business and its head office and selling the remaining businesses in the company’s Bioscience segment, after some business were already sold in July last year.
The company also closed down some unsustainable businesses, including the Sports Nutrition business, in Australia, since December last year, and the company’s Direct Selling business, which is currently up for sale.
The board remained confident it would realise assets and discharge liabilities in the normal course of business going forward.