Drop in Covid-19 vaccine sales hits Aspen’s bottom line

Aspen Pharmacare reported a 4% decrease in its annual profit yesterday thanks to higher inflation and a fall in Covid-19 vaccine sales. Photo: Supplied

Aspen Pharmacare reported a 4% decrease in its annual profit yesterday thanks to higher inflation and a fall in Covid-19 vaccine sales. Photo: Supplied

Published Aug 31, 2023


Aspen Pharmacare reported a 4% decrease in its annual profit yesterday thanks to higher inflation and a fall in Covid-19 vaccine sales.

In its financial results for the year ended June 30, 2023, the drug maker said headline earnings per share decreased by 4% to 1 405.4 cents compared to June 2022, when they were 1 461.2 cents.

Revenue increased by 5% to R40.7 billion. Gross profit grew 3% ending lower than the growth in revenue, with the impressive improvement in commercial pharmaceutical gross profit margins being more than offset by the loss of Covid vaccine contribution in manufacturing, the group said.

Aspen group finance officer Sean Capazorio told Business Report that two elements caused the decrease in headline earnings.

“In last year's numbers, we had the Covid-19 vaccine in our sales, and this year, we've lost that target, and we haven't got any new manufacturing contract revenue to replace that yet. That's what we're working on in terms of pulling out capacity going forward.

“There was a lot of volatility in exchange rates. We have also had an increase in interest rates,” he said.

The group declared a dividend that increased by 5% to 342 cents per ordinary share. In the previous comparable period, it was 326 cents.

Aspen group chief executive Stephen Saad said: “We are pleased to announce solid results for the year with record revenue and normalised Ebitda (earnings before interest, taxes, depreciation, and amortisation) delivered in the second half of 2023. Pleasing reported revenue growth was achieved by commercial pharmaceuticals and manufacturing of 6% and 3%, respectively, despite the volatile global trading environment.

“We have achieved outstanding progress in our endeavours to secure additional manufacturing volumes for our newly installed expanded sterile production capacities. We are tracking well to achieve our previous guidance of related contributions of R2bn in the calendar year 2024, increasing to R4bn in the calendar year 2025.”

Saad said these new long-term collaborative opportunities in manufacturing, together with the Serum agreement, concluded in 2022, would provide substantial support to the company’s medium-term strategy to fill its sterile manufacturing capacity.

“This in turn presents a potential annual contribution of at least R8bn per annum. In addition, the product distribution agreement announced with Lilly earlier today, together with the recent Amgen and Viatris announcements, will provide growth momentum in our commercial pharmaceuticals segment,” he said.

Meanwhile, Aspen announced that it had secured three sterile manufacturing agreements with multinational pharmaceutical companies for production at its French manufacturing facility.

“Additional agreements are under negotiation including one agreement for the Gqeberha facility already progressed to an advanced technical transfer stage,” it said.

Capazorio said Aspen's balance sheet was very good. “Everybody has been saying ‘you've got a nice balance sheet, when are you going to start using it?’ we are starting to use it now. Our leverage ratios are very comfortable, sitting at 1.9, we've got good operating cash flows,” he said.

Looking ahead, the group said based upon current exchange rates, reported normalised Ebitda was expected to grow.

“The second half of 2024 should represent a significant inflection point for the group and should form the foundation for sustainable strong future earnings growth.

“Over the medium term, the group is anticipating accelerated growth. This will be underpinned by the annualised income streams covered above, flowing from new opportunities realised during the second half of 2024,” it said.

Sanlam Private Wealth chief investment officer David Lerche said the market responded negatively to the Aspen results on the back of a few different factors.

“First, the guidance for the next six months was a bit below expectations, with the company suggesting no growth in the first half of the calendar year.

“Additionally, Aspen announced a R1bn (roughly R2.20/share) impairment of intangible assets as a result of a lower revenue and profitability outlook for certain products”.

He said this was due to a variety of factors including price pressures in China, increased competition and the fact that one of the products is sold in Russia.

“Aspen is making progress towards filling its manufacturing capacity, but there are up-front costs associated with technical transfer activities and this will prove a headwind to profitability in the very short term,” Lerche said.

On the positive side, Lerche said Aspen’s normalised headline earnings per share (which excludes the impairments as well as some transaction and restructuring costs) came out marginally ahead of our estimates, and the group’s guidance for the 2024 financial year as a whole is positive.

“Aspen also announced an agreement that will help fill its manufacturing capacity in France, which makes it more likely that the group will achieve its medium-term targets. Finally, Aspen announced a deal with Eli Lilly to distribute certain products in sub-Saharan Africa, which together with a deal with Viatris relating to Latin America should make a healthy contribution to revenue growth,” he said.