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Ascendis Health’s ship is sailing

To SA, Europe and beyond.
Ascendis Health CEO Karsten Wellner.

Although tough times are now in full swing and are likely to undermine the growth of many companies, now is the time when management’s abilities to be agile and resilient are put to the test.

Health and care brands company Ascendis Health continues to ride out the SA slump through management’s focus on creating efficiencies within the business and largely its rousing deal making.

This has allowed the company – which is controlled by private equity firm Coast2Coast – to deliver a credible set of results for the half year to December 31.

Ascendis posted revenue growth of 40% to R1.9 billion while its operating profit rose by 52% to R245 million. It also saw a 37% rise in headline earnings per share to 49 cents.   

Although it’s difficult to split organic, acquisitive and synergistic growth on its bottom-line given that Ascendis integrates the businesses it acquires along its value chain, the company pegs organic growth on a comparable basis to 7.5%.  

Much of the company’s focus has been on aggressively building scale since listing in 2013.  Its latest deal is the R345 million worth acquisition of pharmaceutical business Akacia Healthcare, which manufactures branded generic prescription and over-the-counter medicine available at several pharmacies. Akacia is expected to contribute to earnings in the second half of the financial year.

The Akacia transaction is hot-on-the-heels of Ascendis’ first offshore acquisition of a 49% stake in Spanish drug maker Farmalider and its purchase of 85 registered product dossiers from Sandoz, a generic medicines company.

Ascendis has the right to acquire the remainder of Farmalider over the next five years. The business, which develops, licenses and manufactures mainly generic pharmaceutical products, contributed R212 million to Ascendis’ revenue.

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

Pharma-Med was the star performer, with a 95% increase in revenue to R1 billion; the Consumer Brands division marginally grew revenue by 3% to R478 million; and Phyto-Vet’s revenue jumped by 16% to R355 million.

AlphaWealth portfolio manager Keith McLachlan says the standout disappointment was Ascendis’ consumer brands division, as the pressures faced by domestic consumers are evident in the division.

“Despite this, it’s a good set of results and you could see that the acquisitive growth is taking effect. The acquisitive, organic and synergistic growth that management promised, they delivered,” says McLachlan. He says going forward it might be difficult for Farmalider to create synergies with Ascendis’ other brands in the business.

Going offshore

The focus for the company will now be building scale in foreign markets, as it is on the prowl for more deals to improve its hard currency revenue base.  It’s already in negotiation to potentially acquire businesses in Australia and Europe.  

CEO Karsten Wellner tells Moneyweb: “In international markets we are looking at platform companies and these will be sizable. We foresee international growth to be chunky when it comes.” In SA, Wellner says negotiations for further bolt-on acquisitions across all divisions are being negotiated.

Revenue from foreign markets increased by 220% to R365 million, which accounts for 20% of total sales.  “We are targeting to have 30% of revenue from outside SA by 2017 through exports, establishing offshore offices and acquiring international businesses,” says Wellner.

Ascendis brands are currently exported to more than 50 countries globally, specifically in the African continent and Europe.  It declared an interim dividend growth of 19% to 9.5 cents per share.

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20% foreign sales isn’t a diversified revenue stream – they are still very much at the mercy of the South African market. Management are proactive about changing this but we all know this isn’t a quick or easy process plus offshore markets are inherently different. Rushing exansion generally increases risks disproportionately – lets see if management can navigate their offshore acquisitions prudently while still generating growth.

Credit to the management for the results over the last few years, this will be an interesting company to watch with a 5 year view – in my subjective opinion they are going places and, beyond the two key risks (SA economy, global growth decline), this company should be an excellent share to own.

End of comments.

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