Release Date: March 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Aspen Pharmacare Holdings Ltd (JSE:APN, Financial) achieved its financial guidance for H1, with organic growth in the base business absorbing negative impacts from China and Russia.
- The company reported double-digit growth in group revenue, driven by strong performance in the manufacturing segment, particularly in heparin sales.
- Aspen's strategic acquisitions, such as the LatAm product acquisition and the Eli Lilly distribution agreement, are expected to drive significant growth in H2.
- The company has secured take-or-pay contracts in sterile manufacturing, providing revenue certainty and positive amendments to existing contracts.
- Aspen's strong cash flow performance, with an operating cash conversion rate of 89%, is expected to exceed 100% by the end of the financial year, indicating robust financial health.
Negative Points
- Aspen Pharmacare Holdings Ltd (JSE:APN) faced significant challenges in China due to the VBP (Volume-Based Procurement) policy, impacting revenue from major products.
- The company experienced a decline in gross margins in the injectables segment, primarily due to the VBP impact in China and lower sales demand in Russia.
- The manufacturing segment's gross margin was diluted due to high heparin sales, although this was necessary for cash flow benefits.
- Aspen's net debt increased by ZAR5 billion due to acquisitions, raising the leverage ratio from 1.9x to 2.4x, which, while within guidance, indicates higher financial risk.
- The company faces ongoing operational challenges, including port congestion and supply chain disruptions, which could impact future performance.
Q & A Highlights
Q: How should we be thinking about the gross margins in your manufacturing business over the medium term, and will the European facility shutdown impact profitability?
A: The manufacturing business should be modeled by considering the losses in Finished Dose Form (FDF) and the profitability in the Active Pharmaceutical Ingredient (API) business. The shutdown might have a minor impact, but it is not significant enough to worry about in modeling.
Q: Are you less exposed to port congestion risks compared to other companies like Adcock due to your sterile manufacturing in South Africa?
A: While Aspen faces similar issues like load shedding and Transnet inefficiencies, the impact is relatively less significant due to the global nature of our business. We manage these risks by holding more stock and planning for contingencies.
Q: Can you give insights on the performance of the Eli Lilly products relative to the ZAR450 million in sales in 2022?
A: The Eli Lilly products have performed slightly better than the base in the first two months since the Competition Commission approval in January.
Q: Is the Mounjaro contract signed and sealed, and can you export from South Africa to other regions? How much do you expect it to contribute?
A: The contract is signed, and we have sub-Saharan Africa as a region. The contribution will depend on the supply of dosage forms, which is currently a global challenge.
Q: With the lower heparin sales in 2025, how will the gross profit margin be affected?
A: The gross profit margin will be positively affected as there will be fewer sales with a decent gross margin, leading to a higher overall gross margin.
Q: What sort of new sterile opportunities, other than potential obesity contracts, are you looking at? Should we expect an announcement relating to potential obesity contracts soon?
A: The obesity market offers significant opportunities, but it also displaces other customers, creating additional opportunities. We are seeing increased opportunities to fill our manufacturing capacity, and announcements may follow soon.
Q: Can you comment on the progress of tech transfers for Novo Nordisk human insulins and serum vaccines in South Africa?
A: All tech transfers are progressing well, and we expect revenue from these contracts in this financial year. The mRNA platform products transfer has been completed, which is crucial for future product additions.
Q: Was the guidance provided at the Capital Markets Day of ZAR5.50 additional incremental NHEPS in FY26 based on existing signed manufacturing contracts?
A: Yes, the guidance was based on existing signed contracts only.
Q: What is the duration of existing manufacturing contracts, and what is the minimum duration you would expect on future contracts?
A: Existing contracts typically range between five to ten years, and we tend not to go below five years for future contracts.
Q: Are there additional commercial pharmaceutical acquisitions in the pipeline?
A: We are always looking for opportunities to leverage our existing platforms and are engaged in ongoing discussions for potential acquisitions and partnerships.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
