DUDU RAMELA: Pharmaceutical manufacturer Aspen Pharmacare is shaving off debt, well below the levels required by its lenders and shareholders. It couldn’t be happier, while R1.2 billion will be paid to shareholders for the financial year ended June 30. It hasn’t always been smooth sailing, though. You’ll remember just before Covid hit in 2019, Aspen scrapped dividends due to high debt it acquired during a series of acquisitions, among other things.
We speak now to Gus Attridge, deputy CEO of Aspen Pharmacare. Gus, quite a journey you’ve had. At the worst of it, the share price fell, the stock fell as markets and investors were jittery due to the high debt. But you’ve turned the tide quite well. How have you managed to do this?
GUS ATTRIDGE: Dudu, we always did have a plan. I think it was quite difficult for the market sometimes to buy into the plan because the debt had climbed. It was part of our strategic initiative to globalise our business, and that did involve a lot of investment. We were reluctant to issue share capital, as we did believe we would be able to finance it all with debt.
Once we had finished our acquisitions, we took a very careful look at them to see which of those acquisitions were fitting really well with the group strategy, and which were maybe surplus to our strategy, and (we) embarked on a reshaping exercise to put our business into a fit-for-future state. That entailed disposing of some businesses to others who perhaps would be able to create more value than we could with them.
In the last two years we’ve made two notable disposals, one of our Japanese business and one of our European thrombosis business. That has brought some good cash into the coffers to help retire debt. We have also always been a very strong cash-generating business, so our operating cash flows have always exceeded our earnings. That record has also been very instrumental in reducing debt.
DUDU RAMELA: I guess congratulations are in order. You managed to reduce the debt from R35.2 billion in the 2020 financial year to R16.3 billion.
GUS ATTRIDGE: Yes, it was a big step down, and it puts us in a position where we’ve got plenty of headroom for future investments should we see exciting opportunities out there to pursue.
DUDU RAMELA: You reported a 12% increase in the revenue. What drove that growth?
GUS ATTRIDGE: It was split between our commercial pharmaceutical business – that’s our sales and marketing endeavours straight to the market – and also our manufacturing business where we manufacture for other people whose products they are, and who actually sell and market those products. So it was well balanced between the two portfolios.
DUDU RAMELA: Aspen started manufacturing J&J (Johnson & Johnson) vaccines at its Gqeberha-based facility. Walk us through the vaccine delivery journey.
GUS ATTRIDGE: Yes. It was a real ratification of our strategy to invest heavily in that facility in the Eastern Cape and to build our sterile manufacturing capacity which is suitable for vaccine manufacture. We did make the investment in the belief that sterile manufacture would continue to grow in demand globally. At the time there was no thought in the world of something called Covid, so we won’t claim to have done it in anticipation of Covid at all.
But when Covid did arrive we were really well positioned to be able to tender with others for business in Covid (vaccine) manufacture. And we were fortunate that Johnson & Johnson were impressed with our facility and also had trust in Aspen as a management team. We have had a very positive relationship with them ever since, and are a big manufacturer of vaccines on behalf of Johnson & Johnson. That process has now had an opportunity to take a step up towards a deeper collaboration, potentially some more manufacture for Johnson & Johnson, and vaccines.
But we are also in discussions with them about the prospect of actually licensing the vaccine from them as well, which would enable us not only to manufacture the product on their behalf, but to manufacture an Aspen-branded product which Aspen would be able to sell to agencies and governments in Africa, which would really be a great step forward towards the reduction of the inequities in vaccine supply for Africa.
DUDU RAMELA: We understand that at Aspen your Covid-19 vaccine sales began in the third quarter of your financial year, and generated revenue – about R400 million. Are you at liberty to share the margin on the jabs?
GUS ATTRIDGE: No, that is a privileged information, Dudu. But what I should say is that the value chain is long and there are various people in the value chain.
We are just a part of that value chain. So we aren’t getting most of the value out of the vaccine manufacture presently.
The licence arrangement may change those odds a little bit. We’ll have to see what terms we can reach with Johnson & Johnson. It has been very good for our manufacturing site, though, because it has put what was capacity we’d created in anticipation of future demand to use, and has absorbed a lot of overheads on that site, which makes manufacturing on the side of all products much more competitive. So there’s not only the relatively small margin in the vaccine manufacture, but also knock-on benefits across all manufacturing on that site.
DUDU RAMELA: You speak of creating a fit-for-future business. Your outlook for 2022 with an expected end to Covid-19?
GUS ATTRIDGE: I think for 2022, all things being equal and business as usual, we are looking for revenue growth to continue to be sound in the higher single digits. And we are looking for improved Ebitda margins. So even higher growth in Ebitda, and then which would lead to another leverage up on a very strong bottom line.
DUDU RAMELA: Gus Attridge is the deputy CEO of Aspen Pharmacare. Once again, big congratulations to you and thank you very much for your time this evening, Gus.
GUS ATTRIDGE: Thank you, Dudu, it’s a pleasure.