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Acquisitions a boon for Ascendis Health

More corporate action expected.
Ascendis Health CEO Karsten Wellner.

The rousing deal-making of Ascendis Health continues to pay off, and the health and care brands company is on the prowl for new growth avenues.

Since listing in 2013, Ascendis has been aggressive in building scale and its momentum is seemingly not slowing down.

Acquisitions have put the company in good stead, as revenue for the 12 months to June 30 2015, jumped 74% to R2.8 billion.

Acquisitive growth accounts for 74% of of revenue, organic growth generated 11% of revenue and the balance is derived from synergistic growth from its operations.  Operating profit rose by 69% to R362 million.  

CEO Karsten Wellner says the fact that the company integrates the businesses it acquires along its value chain, both vertically and horizontally, makes it difficult to drill into acquisitive and organic growth on its bottom line.  

Ascendis, with a market capitalisation of R3.8 billion, acquired privately held hospital products company RCA, originally Respiratory Care Africa, and health products from Arctic Healthcare. It further acquired medical device business Scientific Group for R284 million.

Shortly after year-end, it made a foray into the Spanish market acquiring a 49% stake in pharmaceutical group, Farmalider SA for R210 million. Ascendis looks to acquire the remainder of the business over the next five years.

The acquisitions have added critical mass to its three divisions: Consumer Brands (nutraceuticals, complementary medicines, sports nutrition and skin care products), Pharma-Med (prescription drugs and medical devices) and Phyto-Vet (plant and animal health).

Pharma-Med was the star performer, with a 204% increase in revenue to R1.2 billion, accounting for 44% of overall revenue. The Consumer Brands division delivered revenue growth of 44% to R949 million and Phyto-Vet’s revenue jumped 13% to R620 million.

Says Wellner on the performance of the divisions: “It shows that a lot of businesses we acquire we integrate nicely and we are extracting synergies.”

Ascendis invests in its entire value chain, from importing raw materials, manufacturing and marketing products across its brands. It distributes its products to retailers and through direct selling channels. It also exports products to 52 countries globally.

Revenue generated from foreign markets increased by 39% to R259 million, accounting for 9% of the group’s total sales.

Overall, Ascendis’ results are credible, says Jean Pierre Verster, an analyst at 36ONE Asset Management. “They are sustainable going forward as they are looking for more acquisitions for growth.

“There seems to be enough opportunities for Ascendis,” he says.

Verster’s views are supported by the company’s investment plans locally and internationally. Locally, it has entered into a bolt-on phase, whereby it will acquire businesses that are in line with its three divisions. Internationally, Wellner says, platform companies in jurisdictions such as Australia, Europe, USA and the African continent will be acquired with a view to grow its offshore exposure to 30% of its revenue.  

He quips: “We are doing acquisitions like fishermen. You never know which fish is biting and you have to lure the fish to you and you have to have persistence and wait sometimes.”

Market watchers say Ascendis’ cash flow and reasonable debt is supportive of its growth ambitions.  

Wellner says its net debt ratio of 1.9 times vs its Earnings before interest, tax, depreciation and amortisation (Ebitda) of R422 million, can allow it to raise the ratio to three with its bank covenants. It also has more than R1 billion from its Domestic Medium Term Note programme with three major South African banks. It will also secure funding from international players.

The share price rose 3.5% to R14.20 on the day.

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