Moneyweb Interview With Stephen Saad
September 21, 2000 -- MONEYWEB: Aspen Pharmaceuticals. Here's a company that has done incredibly well. In fact, the last two interviews are with two huge turnaround situations. Well. The last one is, but this is a company that has done incredibly well, coming from a very small, from a bit player, you could call it, to South Africa's biggest listed pharmaceuticals group, and in record time as well. Before we speak to chief executive Stephen Saad, Belinda Anderson of Moneyweb has got this background report. Belinda?
BELINDA ANDERSON: Alec, Aspen Pharmacare
came onto the JSE in 1998, when it reverse-listed into Medhold. It then changed its name to Aspen in January 1999 and acquired the SA Druggists Pharmacare operation in March 1999. That was basically what catapulted it from a tiny operation into a huge business. It currently has a market cap of about R2.4bn and it was the second-largest listed player on the pharmaceuticals sector until Tiger delisted Adcock Ingram
, and that took Aspen to the number one spot. Now, if we look at a revenue breakdown, Aspen currently has most of its revenue coming from pharmaceuticals, and about 75% of that is from generic pharmaceuticals, which are basically not patented drugs. They are copies of the originals. Some of its other revenue, about 30%, comes from consumer goods and another 18% comes from its discontinued operations, which we might want to speak to Stephen about. If you look at future growth sources for Aspen, there areR900m worth of products coming off patents in the next five years which Aspen can benefit from. It also has specific skills in the lifestyle market, so it can move more strongly into over-the-counter-medicines, and it has cut costs in its manufacturing, so it's very competitive in state tenders. In fact it's the largest pharmaceutical supplier to the State at the moment. One issue that Aspen has been involved in quite recently is around a distribution company that actually skips out the traditional wholesaler, used to be called Druggist Distributors. It's now Kinesis Logistics, and involves Aspen as well as four multinationals, and recently they've had the Competition Tribunal awarding an interim relief audit to the wholesalers, so it might be nice to ask Stephen Saad, chief executive, what this means for Aspen.
MONEYWEB: Well let's kick off with that one, Stephen. The Competition Tribunal's award against you - are you going to appeal it, or what happens now?
STEPHEN SAAD: We're in partnership with four multinationals and certainly the intention is to appeal it. From a personal business point of view, what Kinesis did do for us is put us in opposition to wholesalers, which was disruptive to our business because we couldn't give them the commissions that they got before for distribution. The negative Competition Commission ruling has in fact seen an increase in our turnover and we have to review our position in Kinesis very carefully. As I say, we'd like to be cautious in what we say, because we do have flour other partners.
MONEYWEB: Does it mean, Stephen, that you might actually have to move out of Kinesis?
STEPHEN SAAD: Yes, it could mean that.
MONEYWEB: Well, let's have a look. You've certainly done everything right up until this point - 73% growth in headline earnings per share. You're now making R250m in headline profit, which is a long, long way from where you were a couple of years ago, but the big question mark was always debt - how did you do on the debt side in this past financial year?
STEPHEN SAAD: If we look at our consolidated debt, we had an opening position of R895m and, as we sit today, at financial year end, we reached a consolidated debt position of R263m, which was quite a significant reduction. And obviously at that rate, with the operating profit at R250m and consolidated debt at R263m, we're very comfortable where we are.
MONEYWEB: Are you debt-averse? After having R2.5bn worth of debt when you did the acquisition initially, do you want to get all that debt off your balance sheet?
STEPHEN SAAD: No, no. We've generated cash flow per share of 65c-odd which was almost double our earnings per share, which is consistent with the previous year where we had 19c earnings and 38c in cash flow per share, so we're very strongly cash-positive and I think to create a cash pool would be counter-productive.
MONEYWEB: Let's find out what you're going to be doing from here now. You're a young man, 35 years old, you've achieved a great deal in the past couple of years - where to now for Aspen, because surely, after having the excitement of acquiring and bedding down as you've done, SA Druggists, you have got to be looking for something with a bit more action than just rolling up to work every day?
STEPHEN SAAD: It's not quite there yet. We haven't bedded down the businesses in total, there's still a lot of growth to be extracted from the businesses. There is a lot of organic growth to still be achieved. There are some acquisitions locally which could be interesting and we do have a good intellectual capital base in this country - and I'm talking about people, contacts, research, development, manufacturing processes etc, which we have in South Africa and we are hoping to cross-leverage those skills into an offshore market. And on two fronts we are taking a bold stand here, we're going to be manufacturing from South Africa for First World markets offshore, and we're going to do that from an oral contraceptive facility that we've just got up in East London, and we are just fixing up a section of our PE facility - and also we're hoping to maybe look at a small platform company offshore that we can leverage our OTC products into. We've been very strong on OTCs, we've more than doubled what the old SA Druggists used to do on the OTC level and we've got very big skills there. We're hoping that those skills we can get into offshore markets quite quickly. A lot of those products don't need registration, we can almost move right away into that.
MONEYWEB: Stephen Saad, chief executive of Aspen and he's tapping into the brain power of South Africa as he said, looking to take South African products into the First World markets. Wish him the best of luck.
By: Alec Hogg - article courtesy of Moneyweb