Income Statement Re-analysed

1
(No Transcript)
2
Income Statement Re-analysed

6 mths ended
6 mths ended Change

31 Dec 2007
31 Dec 2006 Revenue 2 230 1
936 15 Cost of sales (1 177) (991) Gross
profit 1 053 945 11 Net operating
expenses (415) (375) 11 Profit on
disposal of businesses 58 --- EBITA
696 570 22 Amortisation (61)
(58) Operating profit 635
512 24 Net funding costs (35)
(38) PBT 600 474 26 Tax (162)
(142) PAT 438 332 32 EPS

125.0 cents 95.3
cents 31 HEPS
109.6 cents
95.6 cents 15
3
HEPS Growth Bridge
4
Segmental EBITA Margins

• 12 mths
  ended 6 mths ended 12 mths
  ended 6 mths ended
• 
  June 2006 Dec 2006
  June 2007 Dec 2007
• PHARMACEUTICALS
• SA 35 35 35 33
• Australia 8 10 10 14
• Asia 33 28 21 22
• UK / USA 27 34 35 56
• Total 31 31 31 30
• CONSUMER
• SA 25 24 25 23

Excluding Exceptionals
5
Abridged Balance Sheet
31 Dec 2007 31 Dec 2006
Rm Rm
Assets
Non-current assets 2 897 2 223
Tangible fixed assets 1 071 717
Intangible fixed assets 1 385 1 106
Investment in associates 25 ---
Financial assets 400 380
Deferred tax assets 16 20
Current assets 2 019 1 700
Cash 1 870 1 694
6 786 5 617
Equity Liabilities
Shareholders equity 2 618 1 885
Preference shares liability 402 402
Long term interest bearing debt 13 38
Short term interest bearing debt 2 701 2 500
Other non-current liabilities 13 11
Deferred tax liabilities 63 121
Current liabilities 976 660
6 786 5 617
6
Cash Flow from Operations

• 
  6 mths
  ended 6 mths ended
• 
  31
  Dec 2007 31 Dec 2006
• 
  
  Rm Rm
• Cash operating profit 716 625
• Working capital requirements (183)
  (287)
• Cash generated from operations 533 338
• Net financing costs (196) (80)
• Investment income 147 56
• Tax paid (136)
  (153)
• Net inflow from operating activities 348 161

7
Geographic Distribution of Fund Managers
As at 31 December 2007
8
Investment in Oncology Franchise

• 50/50 joint venture with Strides
• Specialist production facility in India (Onco
  Therapies)
• Intellectual property managed from Cyprus
  (Powercliff)
• Pipeline of 32 oncology products is in
  development
• Exclusive to Aspen in SADC, exclusive to Strides
  in India
• Acquisition was effective 28 December 2007
• Initial payment of USD 25 million at R6.92/USD
• Further investment of up to USD 24 million

9
Investment in Latin America

• 50/50 joint venture with Strides
• Effective 1 March 2008
• Brazil (Cellofarm), Mexico (Solara), Venezuela
  (Sumifarma)
• Brazil has two manufacturing sites Mexico has
  one manufacturing site
• Strong pipeline to be augmented by leveraging
  Aspens intellectual property
• Move from traditional tender business into
  private market

10
Investment in Latin America (cont.)

• Investment of USD 152.5 million forward cover
  at R6.78/USD
• USD 40 million war chest
• EBITDA of USD 28 million warranted in first year
  adjustment at 4.66x
• Put and call for remaining 50 after one year
• Strong growth curve
• Campos facility
• pipeline
• Aspen products
• Dilutory over first four months

11
Total Private Market
Dec 2007 R15.4 billion (Dec 2006 TPM R13.9
billion)
Ethical R8.1bn
OTC R4.5bn
Generic R2.8bn
12
South African Private Sector (per IMS Dec 2007)

• Key growth drivers in
• Branded Market - Price and some volumes
• - Nexium / Novartis new launch
• Generic Market - Volumes and patent expirations
• OTC Market - Price

13
Private Generic Market
MAT Rand Shares as at December 2007
Aspen Pharmacare - 34.0
Adcock / Parke Med - 14.4
Cipla / Enaleni - 13.9
Sandoz (Novartis) - 11.8
Other - 12.3
Ranbaxy / Be-Tabs - 5.7
Pharma Dynamics - 3.3
Servier - 4.6
14
Total Pharma Market (next unit growth)
MAT Rand Shares as at December 2007
ADCOCK INGRAM
ASPEN
MAT PFIZER
MAT SANOFI-AVENTIS
MAT NOVARTIS
ENALENI PHARM
MAT GSK
14
11.94
11.84
11.88
11.97
11.92
11.98
11.92
12.02
11.89
11.88
11.94
11.89
12
11.72
11.61
11.58
11.44
11.32
11.36
11.38
11.19
11.23
11.24
11.19
11.33
10
8
7.36
7.28
7.23
7.24
7.19
7.20
7.20
7.18
7.19
7.17
7.17
7.17
6.77
6.79
6.81
6.80
6.71
6.73
6.60
6.60
6.64
6.58
6.59
6.58
6
5.49
5.46
5.45
5.41
5.38
5.35
5.31
5.26
5.21
5.15
5.11
5.10
4
2
0
Jan-07
Feb-07
Mar-07
Apr-07
May-07
Jun-07
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
15
Ethical / Generic Split
MAT Rand Market Share (Sch 3-7) as at December
2007
90
80
76.26
76.10
75.93
75.72
75.51
75.23
75.01
74.76
74.60
74.33
74.15
74.02
70
60
50
40
30
25.85
25.98
25.67
25.40
24.99
25.24
24.77
24.49
24.28
23.90
24.07
23.74
20
10
0
Jan-07
Feb-07
Mar-07
Apr-07
May-07
Jun-07
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
16
Ethical / Generic Split
MAT Units Market Share (Sch 3-7) as at December
2007
60
55.13
55.03
54.83
54.27
54.50
54.07
55
53.90
53.63
53.42
53.18
53.04
52.83
50
47.17
46.96
46.82
46.58
46.37
46.10
45.93
45.73
45.50
45.17
44.97
44.87
45
40
35
30
25
20
15
10
5
0
Jan-07
Feb-07
Mar-07
Apr-07
May-07
Jun-07
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
17
South African Private Generic Industry

• Aspen has a leadership position
• Demand buoyant
• Volume increase
• period of increased patent expiration
• continue until 2011
• generic switch
• increasing middle class
• Negatively effected by
• depreciating rand if no compensating price
  increase
• legislative uncertainties

18
Volume Growths
MAT Unit Growth as at December 2007
19
South African Pharma Market
Volume
The BIG Four
Margins
Pricing
20
South African Pharma Market (cont.)

• VOLUME
• Double digit growth
• Legislative changes once implemented will further
  grow volume shares
• GEMS, LIMS and migration of public sector to
  private sector
• Affordability driving shift
• Consumer confidence in Aspen quality

21
South African Pharma Market (cont.)

• NEW BUSINESS / PRODUCTS
• Generic industry experiencing period of
  unprecedented patent expiration
• Large molecules expected between now and 2011
• ARV voluntary licenses
• pre-patented access to key molecules
• Aspen has a robust pipeline
• anticipate numerous key registrations
• increasing in the second half of calendar year
  2008
• Pressure on some multinationals increasing
• Aspens positioning, presence, market coverage,
  should result in increased co-operations

22
South African Pharma Market (cont.)

• PRICING
• 1 January 2007 5.2 price
  increase
• 1 January 2008
  ?
• Delayed because of an attempt to link
  international benchmarking to increase in price
• Has now been de-linked
• Consistent methodology will result in 8 - 9
  increase
• subsequent rand devaluation not accounted for

23
South African Pharma Market (cont.)

• PRICING (cont.)
• General price increase problematic i.e. one size
  fits all has challenges
• differing products have differing cost drivers
• most pronounced in periods of exchange
  volatibility
• Timing expect announcement within weeks
• Quantum hospitals awarded between 5 - 6,
  Pharma may be similar?

24
South African Pharma Market (cont.)

• MARGINS
• Import component negatively effected by
  depreciating rand
• Public sector more effected
• has lower gross margins than private sector
• tender provides delayed relief from exchange
  movements for imported component
• Private sector dependant on
• general price increases and
• mechanism to handle extraordinary price increases

25
South African Pharma Market (cont.)

• SA PUBLIC SECTOR (excluding ARVs)
• Aspen awards exceeded our expectations
• two year project targeting input costs, processes
  and manufacturing interventions
• Turnovers at historic highs
• Increasing tender volumes and increased demand
  for ARVs
• Operational stress on business
• high backorders at year end
• weakness of the tendering system
• Will be resolved by end March
• impressive outputs from operations
• recoveries at all time highs

26
South African Pharma Market (cont.)

• IN SUMMARY
• We are optimistic on
• volumes
• new products and opportunities
• We are cautious on
• margins
• consistency of application price increase
  methodology
• Price increases in the private market are not in
  our hands
• Margins run some risk, although afforded relief
  at the SA tender level
• Depreciating exchange rates provide advantages
  against importers
• the rupee has appreciated by 20 against the rand
  in the last 12 months
• We believe this section of the business has
  performed and will be sustainable with potential
  upsides

27
Antiretrovirals (ARVs)

• And now
• Sales for total ARVs up 79 to R390m
• FDF R308m (2007 R173m)
• API R82m (2007 R45m)
• Growth driven by
• volume increases
• registration of second line therapies Viread
  and Truvada
• awaiting future fixed drug combinations
• Predatory pricing putting pressure on first line
  exports
• Multinational tie ups giving us first to market
  opportunities
• SA tender to be awarded in May 2008

The BIG Five!
28
Antiretrovirals (ARVs) (cont.)

• FACTORS INFLUENCING THE SA TENDER
• Volumes are increasing monthly
• Expect pricing pressure
• Exchange rate could add to margin pressure
• may have to absorb into margins
• Increased number of competitors
• New products and protocols
• Aspen has the only Tenofovir
• Efavirenz the highest value line item on SA
  tender
• Aspen has registration and voluntary license

29
Antiretrovirals (ARVs) (cont.)

• OTHER FACTORS
• Aspen has a broad range
• Aspen has registered additional products since
  previous tender
• SA government respects patents and Aspen has
  voluntary licenses
• Government has committed itself to increasing
  local preference
• Aspen has a proud record of delivery to the SA
  government
• worlds largest ARV programme
• key consideration in tender awards
• Anticipate sales growth at reduced margin
  percentages

30
South African Consumer Division

• PERFORMANCE MUTED
• Key component include infant milk formulas
• Core registered brands
• Personal care / Nutriceuticals
• IMF
• Good sales growth
• Cost of goods pressures particularly milk -
  increases of 60
• Watching commodity cycles, if persists expect
  price increases

31
South African Consumer Division (cont.)

• CORE REGISTERED PRODUCTS
• Solid performance
• Base brands growing
• Laxatives under regulatory pressure
• replacement registrations have been received with
  others expected soon
• Relatively immune to retail cycle
• PERSONAL CARE / NUTRICEUTICALS
• Nutriceuticals division disposed
• regulatory headache for Aspen
• Considering all options on personal care
  including outsource
• Very susceptible to retail cycle
• Not our core expertise
• Has substantially underperformed on last year

32
Group Operations

• STRATEGIC IMPERATIVE
• Capacity and capabilities to match our future
  international and domestic footprint
• STERILE
• Construction complete
• Capacities include
• start up underway
• first production Q3 2008
• commercial activity Jan 2009

33
Group Operations (cont.)

• OSD
• Producing more ARVs than any facility in the
  world
• Production ramped up output has more than
  doubled y.o.y
• Enhanced packing capability to be commissioned
  before calendar year end
• OSD capability to pack all it can manufacture
• Coped with ARV roll out
• Non-ARVs now becoming more significant

34
Group Operations (cont.)

• GENERAL FACILITY
• Upgrade in process
• consistent with stringent regulated market
  standard
• increased capacity
• meet increased local and international demand

• Our makeover is not cosmetic
• focus on skills development is paying dividends
• period of consolidation is now over
• our people and infrastructure are now aligned in
  time for our next leap

Operations transforming with capacities and
capabilities ramping up to match the increased
sales forecast and anticipated international
volumes
35
International Operations

• CHEMICALS
• Good performance at Astrix muted by
  underperformance at FCC
• FCC impacted by
• loss of Adcock
• expect an improved performance in second half
• Astrix improved volume off takes
• Both businesses heavily impacted by exchange rate
  movements

36
International Operations (cont.)

• AUSTRALIA
• Great team
• Embrace Aspen philosophy
• Continue to over-perform
• Strong detailing capabilities
• reflected in strong IMS growths
• Expect further multinational deal flow
• Sustained growth through rollout of the organic
  pipeline

37
International Operations (cont.)

• LATAM
• Exciting market with people and growth
• Brazil and Mexico
• 300m people
• valued 10th and 11th in the Pharma world
• Heavy preferences for local manufacture
• Offsets for imports if you do manufacture
• 3 facilities acquired

38
International Operations (cont.)

• LATAM (cont.)
• Market similar to SA
• branded private market
• numerous tender driven government contracts
• Strategy is simple
• Strides focus has been the government market
• use experience to grow branded Private market
  leveraging Aspens
• extensive basket of products
• manufacturing experience
• relationships with multinationals
• capability to train and manage branded sales
  divisions
• Expect this geographic region to be a substantial
  part of Aspens future earnings

39
Focus on International Strategy

• We have created an operational capability and
  capacity that can
• facilitate an international business larger than
  our current SA business.
• The time has come to use it.
• Limitations
• access to international capital
• acquisitions at significantly higher multiples
  than Aspens
• paybacks difficult, particularly given our cost
  of capital
• the folly of overpayment haunting many of our
  competitors
• Ego-driven acquisitions

40
Focus on International Strategy (cont.)

• ACQUISITION STRATEGY
• Company acquisitions
• Product acquisitions
• COMPANY ACQUISITIONS
• Create platforms that best suit the Aspen
  capabilities
• Latam was an obvious target
• emulate our Australian model

41
Focus on International Strategy (cont.)

• PRODUCT ACQUISITIONS
• Demonstrated ability to leverage our
  multinational relationships
• Successful beyond SA
• offering appealed to multinationals in
  Australasia also
• Latam and some other geographies identified
  together with multinationals
• Immediate company credibility
• Facilitate an international distribution base
• Facilitate credible introduction of Aspen IP
• Affordable, predictable earnings stream and cash
  generative
• OBJECTIVES
• Establishment of an international sales and
  distribution platform
• Owned platform or third party
• critical mass and/or the extent of the organic
  opportunity

42
Focus on International Strategy (cont.)

• International distribution platform to be
  utilised
• to leverage Aspens strengths
• conduit for our extensive basket of IP
• for our manufacturing expertise
• to broaden our relationship with multinationals
• recognised products provide an easier entry for
  Aspen IP
• Given our IP, manufacturing advancements, broader
  geographical
• reach and the strategic relationships developed
  Aspen is now well
• positioned to capitalise on identified
  international opportunities

43
Prospects

• SA BUSINESS
• Confident that volumes and turnover growth rates
  will be retained
• Confident of a price increase
• reservations on the quantum
• Growth in the FDF business sustainable
• Consumer division being addressed
• ARV business is growing
• well positioned for the SA tender
• margin challenges

44
Prospects (cont.)

• INTERNATIONAL OPERATIONS
• Australian growth trajectory is sustainable
• Latam opportunity to provide sustainable growth
  trajectory
• 18 Months ago we said
• We have had sustained exponential growth, we
  now need to
• consolidate our operations

I am confident that the period of enforced
consolidation is behind and we have now laid the
foundations from which to launch
aggressively. Aspen has world class capabilities
- skilled, confident people and plans to
capitalise on what we have delivered to date.