Ascendis Health records strengthened interim gross margin

18th March 2019 By: Tasneem Bulbulia - Senior Contributing Editor Online

Ascendis Health’s gross margin for the six months ended December 31, 2018, strengthened by 260 basis points to 44.9%, mainly owing to improved raw material pricing through strategic sourcing in Farmalider and Remedica, the discontinuation of low-margin products in the Wellness, Biosciences and Pharma divisions, the acquisition of the high-margin Kyron Laboratories (Kyron) business and improved selling prices in Biosciences owing to rand weakness.

In the months ahead, the company’s management plans to maintain its strong focus on organic revenue and earnings before interest, taxes, depreciation and amortisation (Ebitda) growth, as well as cash conversion, while addressing areas of underperformance in the South African operations and accelerating its Scitec plans.

In June last year, the company announced that following the review of its sports nutrition business, it had decided to focus solely on its biggest brand, Scitec, and would be divesting of Ascendis Sports Nutrition in South Africa.

The group is committed to implementing a more efficient capital structure to refinance its debt and improve the health of its balance sheet.

The completion of the Biosciences transaction and progressing the Remedica offer are major priorities, while the group’s strategy will be revised should the Remedica business be sold.

Further, during the interim period under review, selected businesses and assets were identified as noncore to the group's strategy and classified for divestment.

Negotiations are at an advanced stage for the sale of the Efekto, Marltons and Afrikelp businesses, which form part of the Biosciences division. The remaining business within Biosciences – Avima and KlubM5 – may be considered for disposal in the short to medium term.

An agreement was concluded with Mylan on December 20, 2018, for the sale of the group’s Isando manufacturing facility for R130-million. The group realised a profit on the sale of R19.6-million.

The South African Sports Nutrition business was, meanwhile, sold with effect from September 1, 2018, for R54-million, with Ascendis incurring a loss on the sale of R500 000.

An agreement was reached for the sale of Ascendis Direct on September 10, 2018; however the sale did not materialise and negotiations with a potential buyer are continuing.

After the end of the reporting period, the group received an unsolicited offer for the Remedica business unit in Cyprus. The board is in ongoing negotiations regarding the potential disposal of Remedica and has extended the process to include other potential bidders.

FINANCIAL PERFORMANCE

Group revenue for the six months under review increased by 3% year-on-year to R3.96-billion. International revenue increased by 7% year-on-year to R1.96-billion and accounts for 50% of the group’s total sales. Revenue generated in South Africa declined by 1%.

Operating expenses grew by 15% owing to increased investment in sales, marketing, distribution and head office costs, and the costs of Kyron, which was acquired in March 2018.

Normalised Ebitda increased by 1% to R684-million. The Ebitda margin contracted by 20 basis points owing to the higher operating expenses.

Higher depreciation and finance costs resulted in a 4.4% year-on-year decrease in normalised profit after tax for the six months. Normalised headline earnings from continuing operations, which excludes capital profits of R19.6-million from the sale of the Isando manufacturing facility, declined by 6% to R351-million.

Normalised headline earnings a share were 10% lower at 72.5c.

The directors have again elected not to declare a dividend and to retain the cash to settle debt obligations.