Ascendis Health Limited (ASC) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the interim results for Ascendis Health for the 6 months ended 31 December 2020. What we plan to take you through today, probably 3 important parts. One is an operational overview. I will go through some of the strategy look-back. I'll go through each of the underlying businesses just to talk to what went well, what the impact of COVID was and some of the strategic vectors that we're chasing. We then tip into the financial review, which is the scorecard for the last 6 months. And then importantly, I will talk about the recap, and where we are in relation to permanently resetting the balance sheet. And then, of course, we'll flick to Q&A at the end. I would ask you to please submit your questions while we go through the presentation. I've also got a list of questions that I've received in advance, which I will deal with at the end of the presentation. Maybe just to call out some key themes. So I think we've been consistent saying across the board, good business, bad balance sheet. And I think the difference this time around is the amplification of both of those things. So the good businesses have got better, and the balance sheet has got worse. It's fortunate for the good -- the business has remained as strong as it has because had we not performed as we had right now, I think that business would be in a very different place. So the first thing to mention is that in aggregate, our business is largely COVID defensive. The reason I say largely, when you look at revenue up 33% and EBITDA, up 50%, would assume all the businesses have fired in COVID, but there are some, which I'll come to a bit later, which have been negatively impacted by COVID. If you took into operational performance, so that's the bit that talks to EBITDA, the proxy for cash earnings, Europe up 56% and South Africa 28%. Just remember, there is some currency translation in those numbers. I mean when I talk to the business units, I will do it in constant currency. So Europe, I'll refer to euros. In South Africa, I will refer to SA rand. I think it's important to say that there are a fair bit of talks about building on momentum that we created over the last sort of 18 months. Certainly, when I arrived in October 2019, the business was in a very different place. I think what has been key over the last 18 months is restoration of belief in the underlying businesses and also taking away a lot of the distraction and the noise that comes with being overly indebted away from the businesses, and pivoting that triangle to make head office right at the bottom and putting businesses right at the front end to make sure that they drive the right operational behavior. And I suppose releasing the DNA that is inherent in entrepreneurs. Often in a corporate, you try to rein that in. There are guardrails, of course, that one needs to observe. But the very thing that attracted you to those assets is something that you need to harness in this period. And I think what we did particularly well, was allowing the business to trade in this environment despite the very tough balance sheet conditions. So in aggregate, those first 3 points talk to operational profits. The fourth bullet talks to balance sheet losses. So all the good stuff then on the top part of the P&L is undone by the time we get to headline earnings, by finance costs going up, the quantum of the debt going up and the fact that we have a near-term maturity in that debt by 31 December, that debt expires. And so the urgency around a permanent reset in the balance sheet is paramount for the company and the management team. And the last bullet point, I think just important. We get a lot of questions around where are we on the, what we call noncore assets. We're well advanced in the sale of Animal Health, Biosciences and Dezzo is, in fact, completed. We call them noncore, not because they're not good businesses but because they don't fit squarely into the human value chain. Animal Health deals with large, small animals and production. Biosciences plays into the plant health space. Importantly, also, those disposals will also assist in the overall de-gearing in the business. I just quickly flick to our COVID impact across the business. So when you have a 1-in-100-year event, it's difficult to know what the best response is. And I think what we can say is candidly, the lessons we learned in wave 1 were hardwired into wave 2. So first and foremost, protecting our staff, safety and well-being. Two, making sure that our supply chain remains intact. So where we've had to pivot from sea freight to airfreight because of the urgent need of getting devices on patient. We've managed to do that despite the extortion at cost. And similarly, we saw, for example, in immunity and some of the APIs we needed in Europe that when you have breakdowns in the supply chain, it's important to front-load some of those purchases to make sure that you can respond in wave 2. I think everyone knows pretty much about what's happening the vaccination programs in Europe. I understand London is -- what the U.K. is now opened. As the vaccine program rolls out, you will have varying degrees of reopening of those economies. South Africa, I think we're a slightly different place. Everything we hear is the third wave is a real risk. And as we embark into this Easter weekend, I think we just need to be very vigilant that we don't increase the chances of spreading the disease in a manner that could be avoided. But I will also talk individually to each of the businesses, and where the impact of COVID was most prevalent. I think this is pretty much covered on the previous slide. I think in summary, if you're looking at a top-down approach, minimal production closures because we looked after our people, we managed shifts appropriately, we made sure that social distancing was adhered to. And where appropriate, our people had the appropriate PPE. I'll talk about shipping delays and freight costs. That did come to hurt to the GP margin. And you'll see that a bit later because you would expect with the operating leverage, certainly at the top line, you may have expected a greater EBITDA result, but there is an offset on those freight and distribution costs. We did manage to pull the hand break up on marketing costs. Obviously, you can't get out as much. But we did pivot into I'll recall a more clever or digital-based marketing strategies, and we travel a whole lot less. The priorities remain under this COVID environment, our people first and their safety. Keeping the wheels moving, business continuity. And making sure, for example, when we provide these nasal high flow devices and ventilation equipment that we can continue to play a meaningful part of combating the impact of the pandemic. Sticking on to the strategy. I think the asset test that we always benchmark ourselves against is if strategy is good and its execution is good, then the value of an organization will improve on a sustainable basis. And so this is what I always look to as my scorecard. I think the 3-pillar strategy is as relevant today as it was 18 months ago when I arrived, with 3 buckets of stabilized, optimize and monetize remain fundamental to the way we're looking to restore the fortunes of the business. Stabilize, if you go to that bottom bucket is fix the balance sheet. So we didn't fix the balance sheet in June 2020. What we did was bought some time to fix the balance sheet. And during that time, I think what is fundamentally important to part of this result is how we managed liquidity. Without liquidity, you cannot move forward. Now I'll give you an example, for every ZAR 100 million of additional sales that you make, you need to have ZAR 30 million of additional working capital, which you got to buy stock, you've got to invest in debtors and you've got to pay your creditors. That incremental demand wasn't known to us at the time setting the June financial set of statements. And I think the boxing clever that we had to do during that period is probably in 3 big buckets. One, we raised ZAR 100 million ahead of the refi to buy these lifesaving ventilation devices. And then we entered into a number of, what I'd call operational agreements, either with banks or with our lenders to make sure we have sufficient buffer to meet wave 3. So the forbearance agreement, which I'll come to a bit later, is basically an interest standstill. Come 31 March, which is today, we don't have to pay ZAR 79 million worth of interest. We raised additional facilities against the Remedica asset. We haven't drawn those down, but they are there to act as a buffer in the event that we do need them given the uncertainty of a wave 3. And we negotiated to keep the Dezzo proceeds. That is the business I'll talk to a bit later. That sat in pharma. It's our state and dispensing doctor business. That's important because those proceeds, although the deal was done at a net asset value basis, does provide additional liquidity. But the big thing we have to get right is this permanent reset in the balance sheet, and that is the recapitalization which comes in part 3 of the presentation. So fix the balance sheet, in progress but we're not there yet. I think as we often lament internally, it's like we've run the 100 meters in under 10 seconds or run at a Usain Bolt time but you haven't got out of the starting blocks. And part of what I think I really tip my hat to my management team is how innovative they've been during this period at driving the performance of the business with all the Ascendis noise around it. If I tip into optimize quickly, the scorecard there simply is EBITDA and revenue. So EBITDA up 50% period-on-period. That's more than what -- how we did it, I think, is equally important. So whenever you come in into a turnaround, it's not business as usual. So employing either a project office or what we call the transition team to go after high-value projects within each of the businesses becomes fundamentally important. So we focused, obviously, on working capital, and there are certain supply chain initiatives. Rationalization of SKUs, optimizations and factories, some warehouse management strategies. All of which allow you to create platforms. And platforms are important when you look to monetize the exit of business. So I think the intense work that, that team has brought to bear and these various value creation plans to unleash the power in each of these businesses is representative in these results. We've also done a lot of work on head office costs. And we have commenced a head office cost optimization program in the business went progress of doing this operational review, and we'll be engaging with our key stakeholders on that over the next month or 2. The last piece is, we always said that we have an owner-led entrepreneurial DNA. It's important for businesses to remain focused on their day jobs. And that is very difficult when you have the Ascendis noise around you and you have a liquidity constrained environment. And having a long-term incentive plan that aligns those interests with our key employees, and those of shareholders is fundamentally important. And I think that owner-led value maximization behavior is now prevalent across the business and evident in the results. The last bucket is monetize. I remembered, I think, my first address to all of you, I spoke about what Ascendis really is. And if you go to your purpose, which is to make tomorrow healthier, that's all good and well. But is there a golden thread that pulls each of these businesses together in a way that you could say you are an operating company. And I think the answer to that is no. We've been consistent on that. The operating synergies between each of those businesses will become evident as I explained, the business models of each of those. So you're very much an investment holding company. And so your job as an investment holding company is like any private equity business is to invest for a period and then to harvest for a period. And I think we're in that latter period, combined with a permanent reset on the balance sheet. Just a couple of important data points in that monetized bucket. We sold Scitec. I think it's important just to pause there for a second. It's well publicized, we paid EUR 170 million for that business. We did the deal at the same time as doing Remedica, by the way. So there's one extremely good asset purchasing, and one, let's call it unfortunate purchase. We sold that business for EUR 5 million. Importantly, had we not sold that business, we would have had to put another EUR 15 million, close to another ZAR 300 million, in that entity just to keep it going. It produces things. It manufactures nutraceuticals in a market which, let's just say, was fundamentally challenged. But the impact on the share price, if you take the delta between what you bought it from and what you sold it for, multiplied by the exchange rate, is around ZAR 3 billion. Divide that by the number of shares is around ZAR 6 a share of permanent value destruction in that particular asset. And of course, the debt stays behind. I think the second -- or the second and third bullets are relatively de minimis. We sold direct selling for 10 million more than the prior offer. And Dezzo, I'll come to a bit later. We have significantly progressed on Animal Health and Biosciences. And there will be natural inflection points to engage with you on those because they will be either category 1 or category 2. So we were really circulus on each of those assets as and when we get to a disclosable point, and that's normally when you've signed a sale and purchase agreement or what we call an SPA. And then the last piece, I think there'll be a lot of questions around strategy and where to from here. So strategy reformulation in a COVID environment is particularly challenging because you've come through an environment where COVID has been so prevalent. You're now looking forward, certain countries will emerge from COVID faster than others. Others will remain COVID impacted for a while. And how does that impact the business planning? So we've just gone through a detailed 3-year plan in each of the underlying businesses to look for a couple of things. One, what is your base case? And what is an upside case? Two, how much money do you need on day 1? I can't do a permanent recapitalization of our balance sheet until I know what the day 1 money requirement is each -- in each of the underlying businesses. And third, because if you believe this thesis that we ultimately are the custodians of returning value to shareholders, then we need to see is there a point in that 3- or 5-year plan, which suggests we should sell earlier or later. And I think the triangulation of the business plans, base case, upside case, day 1 new money and these various inflection points in the cash flow emergence will give us a view on how and when to exit and return value to shareholders. Just going into some of the detail. I'm not going to spend too long on this slide because CJ will cover it in some detail. Just perhaps to call out that the relative proportions at a revenue line remain relatively constant between Europe and South Africa. That's still a 55%, 45% split. When you tip into EBITDA, interestingly, you see the proportions from 69% to 73% moving up. That's a function of portfolio in the South African side. And some currency translation, but we'll come to that in a moment. But I think on any metric, these are very credible results in a very difficult operating environment. If I go sort of from biggest to smallest. On Remedica, just to remind everyone, the business model -- Remedica largely manufactures and markets generics. It's a phenomenally efficient manufacturing operation based in Cyprus, so it makes things. It's important just to remember that because as I categorize the various other businesses, you will see why we say the golden thread that pulls these businesses together is not self-evident. There's 4 different channels to market. So we have an out-licensing bucket or what is known as B2B. In out-licensing, what you do is you develop product on behalf of other big corporates. So we will make ARVs and onco products for Mylan, Sanofi, Sandoz, et cetera, white-labeled under their brand into their markets. That's about 1/3 of our revenue. The other 1/3 comes from agents. These agents are in 75 countries, and we have 90 agents spread across a whole host of emerging markets. So a very wide and disparate presence in the agent or B2C platform. And then we have 2 other routes to market are the NGOs, the nongovernment organizations. And here, I would say, I tip my hat again to the Remedica team because in COVID, the unintended consequence of a lot of companies and countries is they suffer. And NGOs like the WHO that's played a vital role in getting these vital medicines into these countries that can't afford to pay for them. So we made a deliberate effort in chasing the NGO business. It is lower margin but it is the right thing to do. And that also informed the relative outperformance on the top line. And then we have a home market in Cyprus. Cyprus recently introduced NHI or National Health Insurance. Remedica now from a standing start is, I think, #2 by pricing, #1 by volume in that market. Cyprus is a particularly important market as a test market for other countries. So experimenting with new offerings in its home market is a fundamentally important part to the other distribution channels. I would say, in large part, a strong performance across the board, but it would be remiss of me to say that this is not a complex business. I'll come to it a bit later. But the complexities that came back through the sale process from the various buyers were as follows. One, you've got 1/3 of your business which is B2B, and 2/3 of your business, which is B2C. So the NGOs, the home Cyprus market and agency is regarded B2C, direct to customer. If you are a trade buyer and you are competing with a Mylan or a Sandoz or a Sanofi, that part of the business is anathema because you are not supplying to the very people you are competing with. So you take a whole chunk of potential buyers out because of the B2B mix. Others prefer the B2B mix and not the B2C mix. So some degree of complexity around, let's say, the shape and the complexity of the revenue. Some concerns around emerging market presence. And the potential lack of control because we sell through agents. You are not there on the ground. You're reliant on agent in-country forces to sell and distribute our products. So you are one removed from the end customer. And I think perhaps the most important one is the fundamental value other than being a really good low-cost manufacturer of generics is your pipeline. So what's coming down the pipe? What are the new molecules that are going to be important? Because the price of generics never goes up, they only go down. And so you need a competence to develop those new key therapeutic areas. We've engaged with Pharmazac as one potential partner for the antidiabetics and the antithrombotics. But the key one, currently resident inside the Remedica tent is Pharos. Pharos develops ARVs and onco products, specifically for Remedica. It is the largest part of the pipeline, and it informs that out-licensing bucket. All the out-licensing revenues come from the Pharos-Remedica joint venture. A joint venture works in a way that it's a 50-50 profit split, and we own the intellectual property 50-50. In any transaction, where you look to conclude a sale of Remedica, that relationship will need to be written down one way or the other because you don't have ownership control, but you have enough vested interest to keep it in a straight arrow. And then the third piece is just to Ascendis noise. I'll come back to that a lot. You'll see when I get to the restructuring piece. When you're overly indebted with an expiring option on the debt to 31 December and you're running multiple sales processes, that naturally tips as an advantage into potential buyers. Equally, you've got the overlay of a bank or a lender-led process at the time. Bank's priorities are getting capital and interest back whereas shareholders and the likes of you and I look for the upside. And so that is a fundamental disconnect. And those 3 or 4 things or those factors also played a role in the Remedica purchase. But more about that a bit later. I think, again, just across the board to my team in Remedica, to Michalis and the team over the last 12, 18 months have been a phenomenal support to us. And the way that they've engaged with us during this crisis has been nothing short of phenomenal, so well done and thank you. If we go into Sun Wave Pharma, this business model is fundamentally different. Sun Wave doesn't make anything. It develops nutraceutical and OTC products, so things of the clever molecules to put inside the drug that you take. But it is predominantly a sales and marketing organization. So a big chunk of its costs will come in marketing. It will have good gross margin lines. But it is fundamentally not a generics manufacturer. It is a marketing and sales organization, and that's prevalent in its DNA. From a standing start, 10 or 12 years ago, they are now #1 in nutraceuticals in Romania and moved from 5 to 4 in over the counter or OTC products. Its key challenge is taking that phenomenally efficient model in Romania and externalizing it to other markets. That's always challenging that there are far too many stories about domestically strong businesses looking to attract other markets. And you then redeploy your A team or your B team, both are equally bad into these new markets. And forget about the own market and its importance to the business. So that inflection or strategic point is still to be explored but a fundamentally strong business in an environment which is slightly different from the rest of Europe. So the Romanian regulatory environment is different to the rest of Europe when we looked to exit Sun Wave Pharma, a number of the trade players said, look, until this harmonization of regulatory environments across the board, it's difficult for us to come into the story. That then leaves you with a set of exclusively private equity players left in the business. And then you -- in an environment where we still owe your vendors money. So in Sun Wave Pharma, I'll just remind everybody we have a DVP or deferred vendor payment, which post year-end has subsequently been fully repaid. But it is a senior ranking obligation. In other words, it ranked alongside all of the other debt. So it is something that we had to prioritize to pay. It's costing us 2% a month. You can imagine, when your buyer universe has now shrunk all the trades are out, it was private equity. And you're now engaging with the very people that you owe this money to, the ability to extract leverage and value in that environment becomes challenging. So notwithstanding all the good stories around strong business model, phenomenal performance. In an exit environment, it is more challenged than people might think. Farmalider. The complexity here lies more in what we own or what we don't own. We own 49% of the business. So that's neither in my world, fish or fowl. The business model is primarily pain management. There's a manufacturing competence and an out-licensing competence, primarily into Spain. So I think 65%, 75% of the business is done in its home market. I think if you're going to meaningfully grow Farmalider, you will have to out-license these very unique niche pain and niche generics in other markets. They've got a great product, sildenafil, which is -- comes in liquid form. Which they're looking to expand into the U.S. We think that is something and it comes up late in some of the Q&A we can use here in South Africa, particularly for the SA pharma business. And an intravenous ibuprofen hospital product, which is phenomenally important in going to the direct part of the pain when you're in hospitals. It's intravenous. The problem with ibuprofen is it often hurts your stomach. But going intravenously, the onset of action is very effective. And as a hospital product, we think, has great legs for South Africa. But in that particular scenario, Farmalider, we either need to sell the business, in my view, back to the owners because you can contract for those additional pipelines. You don't have to own the business in order to have the contractual exclusivity for the products I just spoken about or we jointly sell the business together. I think that's probably the best way to effectively monetize our relationship there. Tipping into the South African assets. So Pharma SA is half the size of growth last year, and that's because we've sold Dezzo. Dezzo was the state dispensing doctor and tender business. The problem with this business, it is highly capital consumptive. I think I consumed about ZAR 110 million worth of working capital, and it was profitable every other year. So when you put a return on invested capital lens on it, it very seldom meets the 15% benchmark that we look at across the business. With that out, you left with a predominantly private business and predominantly reliant on what I call probably 2 specific products. You've got Sinuend and Sinucon, they're playing different parts of the value chain. This is a cough and cold medication where we have leading market shares. Interestingly, although the revenues didn't perform nearly as well as the prior period, our market share went up. So when people did believe it wasn't COVID and you went to get something that addressed a cough and cold, they chose Sinuend and Sinucon above the competitors. Similarly with Reuterina, if you felt sick, the last thing you thought about was antibiotic because you believed you had a viral infection. And so Reuterina sales, which is a probiotic that you take with any amoxicillin broad-based antibiotic. Those sales have also been negatively impacted. When cold and flu reemerges and post COVID, we expect that to be the case, those market-leading businesses will certainly start to reflect. In the numbers, there's some noise around stock. We are in the business of -- or in the process of changing our supply from 1 particular supply to 2 others to diversify the sources of supply on those key products that I've spoken about. But in terms of strategy, moving fundamentally away from a capital-intensive, low-margin business, into niche areas of pain. I spoke about ibuprofen intravenous; cough and cold, which is Sinuend and Sinucon; GIT or gastrointestinal which is Reuterina; insulin, we've got some of the glargines, which is a phenomenally important product in an environment where diabetes becomes increasingly prevalent; and some niche generics, sildenafil and 1 or 2 others. So we think that business is, let's say, pre hitting its straps, but what we've done is at least sever the margin dilutive and working capital-intensive part of that business. Moving on to medical devices. This was by far and away, the strongest performer in our South African portfolio. Two parts of the business. Well, first of all, taking -- going back a step, we don't own the things we sell here. These are contracts or licenses with third parties to distribute amongst the hospitals and clinics in South Africa. 2 parts of the value chain we plan, something called IVD, which is in vitro diagnostic equipment. So that does all the testing. There's no patient onset of action with the stuff we do. So we test your blood to tell you you're O, A, B+. We will test for PCR testing, antigen testing, et cetera. It's a very important part of our business because that, I think, is a lot of where medicine is going. The ability to early diagnose what the problem is will then make the treatment that is stapled to it far more efficient. That business, which sits in -- particularly well because of the molecular testing part of it. And the remaining 3 businesses, let's start with RCA Respiratory Care, I think the name speaks for itself, has played a phenomenal part in addressing COVID in this country. Initially, all the rage was the ventilation equipment. Unfortunately, for ventilation, it typically happens at the end of a COVID experience. You have to be sedated, you have to be integrated because you're putting the foreign thing into your lungs, and it effectively takes over the lung function, which is why it's a last-line treatment. Importantly, the nasal high-flow devices have almost become the standard of care. The beauty of these devices, you can strap 2 beds to the same instrument. It doesn't require ICU interventions. So your ability to allow a vast number of people within the hospital to administer this treatment is extreme. And then we also supply the monitoring equipment around it as well. That's important because that monitoring equipment is stable to the device that you have. It creates a walled garden around the technology and obviously creates a closed wall or you can't put, for example, the BMW part in a TRD engine. So the downside, of course, is you probably saw 3 or 4 years worth of ventilation equipment into this country. So as we look at that 3-year model, when is the right time to exit that business versus the installed base of ventilation equipment? And now I pivot into something that is more consumer-based and monitoring equipment. So that is something that myself and the Board and CJ are currently working through as to when is the right exit opportunity. The 2 remaining businesses, Surgical Innovations and Ortho-Xact were very badly impacted by elective. So all the hospital wards were allocated to COVID with the vast majority. And trauma, Ortho-Xact does the extremity fixing when you're in a car accident. So I think the function -- or the combination of those 2 was more than offset by the outperformance in RCA and TSG. I think where to from here? Maybe just on the EBITDA numbers very briefly. You would have expected more operating leverage at the EBITDA line, given the top line grew so strong. But it's a consistent theme, the cost of getting these devices on to patient. We couldn't wait to put them on ships to save money. This had to be patient on patient. We never bought anything for stock. Interestingly, it was always in a patient on patient onset. And when you put something on an airplane, it is 5 to 10x more expensive than the normal modes of transport. Just internally, some of the strategic or what I call value creation plan initiatives. We're getting a demand planning tool, stock optimization tool and a warehouse management system inside the business to create this platform that you can then scale and put other agencies on. And I think there's a longer-term program here to move some of the licenses where you are not -- you're at the mercy of the license part to a large degree. But in a joint venture where you jointly are accountable for the future and the ups and downs, I think it's something where COVID has taught a very good lesson in how you manage supply chain and your relationships. And the whole concept of partnership I think is one that can usefully be built to bear in this business. In Consumer Health, this business model, again, is we do own the stuff, but the DNA is marketing and selling. What worked well in COVID was the vitamins, minerals and supplements business. So anything that paid into immunity did well. Anything that related to a, I suppose, skin or an environment where you had to, for example in Nimue, we have this fantastic brand. It is what we call a SkinCeutical. So it's not something you can buy over the counter. It's not something that needs to be prescribed by a doctor. But it does have active ingredients that make it important to be administered through a professional salon force. 25% of the salon base in this country closed. And so with your sort of volume or your base shrinking, that business was negatively impacted. Equally, the factory was closed for 6 weeks. And the contract manufacturing a bit that informs the revenue for the factory was also reduced during the period. I think that was a necessary evil. We had to close the factory to make sure that it was appropriate for our people. We had to redetermine how the shifts were scheduled. And we had to make sure that there was appropriate social distancing inside the factory to make sure people were appropriately protected. In terms of where to from here, I think there's -- in any business that has a lot of brands, SKU rationalization is important. You typically find that half your SKUs or 20% of your SKUs give you more than half your money. They're a distraction, if you don't cut the tail. Skin is a phenomenally good business, which I think, because we own the brand, you can internationalize. It's a capital-light model of getting penetration into other markets with other people's money. And then I think there's the whole digital strategy, if the salon base is shrinking, how else do you reach your customers? So to the extent we can interact jointly with the salon base and a manner that doesn't disenfranchise our partners in the salon based. And I think it's important to look at these various digital strategies. And of course, ongoing factory efficiencies. That's it for me for now on the underlying businesses. What I'll do now is hand over to CJ to take you through the numbers in some detail.

Okay. Thank you, Mark. And good morning, everyone. For those of you who are meeting me for the first time, my name is CJ, and this is my first results presentation at Ascendis.

Welcome.

Okay. As I get into the results, I think one of the things that I need to reiterate is what Mark said earlier. This strong performance across our portfolio at an operational level. And this strong performance comes at a time when we are going through particularly challenging circumstances. As you can see from the income statement, our revenue is up 33%. And despite a 16% increase in our operating expenses, our normalized EBITDA is up 50% from the prior period, closing at ZAR 794 million. That normalized EBITDA excludes the costs that have been incurred in terms of the transactions and the various restructuring and debt restructuring. We incurred cost of ZAR 119 million related to that during the half year period, and therefore, our reported EBITDA is sitting at ZAR 643 million, which still compares favorably against the same number in the prior period of ZAR 429 million. We took a decision to perform a robust impairment review during this half year. We typically perform that impairment review at each year-end. So what you'll see in these results is an impairment loss of ZAR 150 million, which I'll unpack later in my presentation. And typically, you would have seen that impairment adjustment coming through at a year-end period as opposed to an interim period. That brought our operating profit down to ZAR 368 million. Still a very, very, very favorable result, 18% up against last year. And when you look at the normalized equivalent of that at ZAR 486 million, that's sitting at 27% above the prior period which at ZAR 383 million. Mark has really emphasized the strong operational performance that the businesses have had over the last 12 to 18 months. And you start to see it when you compare our normalized headline -- normalized operating profit of ZAR 486 million, which is sitting at 9x that of the full year for June 2020. Unfortunately, it's completely eroded by the net cost of funding our debt. Our net financing costs for the half year are sitting at ZAR 545 million. Included in that ZAR 545 million is a payment in kind, or PIK, which amounted to ZAR 280 million during the half year period. I'll unpack the borrowings and the related funding costs later in the presentation. I think it's quite important to understand that, particularly given the group recapitalization. In addition, we saw a higher tax expense coming through during the half year. That's driven by a combination of both strong performance in Remedica and Medical Devices as well as a more conservative approach to our deferred tax assets. And so we're limited certain recognition on our deferred tax asset. What that brings us to is a headline loss per share of ZAR 0.311 per share and at a normalized headline loss level, ZAR 0.09 per share. I want to spend a little bit of time on the analysis by business. Mark has gone through quite a lot of detailed context setting in terms of each of the businesses. And what I'll do over this slide and the next slide is really to just to reemphasize a few key points. Our international businesses from a revenue perspective were up 15% year-on-year, driven predominantly by the performance in Remedica. And you start to see the rand hedge impact of the international businesses when you compare that 15% to the equivalent, which is 35% in rand terms. Our South Africa business' revenue were up 30%, driven by medical -- outperformance in Medical Devices, which showed a 59% increase in revenue. What you also see on this slide is the revenue from our discontinued operations, which is shown separately. We concluded the disposal of both Scitec and direct selling during the year in July and August, respectively, and Animal Health and Biosciences are reflected as discontinued operations, and those disposals are still in progress. If I flip over to the EBITDA. Our EBITDA increased. Again, if you look at a euro level, 33% translates to 56% in rand terms. Across all our businesses, we took a fairly measured approach to costs, in particular, costs related to marketing. Only critical vacancies were filled from a payroll perspective, and that helped us to manage our margins as best as we could. In our international businesses, this was particularly the case in Remedica and Sun Wave, and what you'll see in Farmalider is also the impact of increased volumes on the licensing segment of that revenue. It's higher-margin business compared to the rest of their segments. In our local market, I just want to highlight Pharma and consumer. I think Medical, Mark has talked to it in great detail. In our Pharma business, that negative EBITDA is really the result of 2 main things: firstly, the business has been increasing stock levels as it is in the process of transitioning manufacturing suppliers. And so from a risk perspective, it's taken a decision to increase the stock levels and manage availability of their products. And in addition, there are a number of legacy legal matters that are sitting in some of the underlying Pharma businesses and some of those costs are sitting in the Pharma business. We are looking to close out on all those legacy matters in the next few months. In consumer, the business has had the double whammy of the lower sales, as indicated earlier. But also under recoveries in the manufacturing facilities and increased distribution and freight costs. Our head office costs for the half year stood at ZAR 67 million compared to ZAR 55 million in the prior year. And that's largely driven by increased audit fees and legal fees incurred over the 6-month period. And again, you see that continuing operations EBITDA at ZAR 794 million compared to ZAR 529 million. Our discontinued operations are outlined on the slide as well. I won't necessarily go in into the detail of the discontinued operations. But if the -- if there are questions on these, happy to take them as we progress. I mentioned the transaction-related and restructuring costs, the ZAR 119 million that erodes our normalized EBITDA. And this is a breakdown of those transaction-related costs. Three main drivers during our half year numbers. The first are costs linked to the disposal processes for Remedica. Then we have a ZAR 52 million impact. It's not a cash cost. It's really deregistration losses on Efekto. Efekto was part of Biosciences one disposal that took place in the prior period. And then we've got the debt -- the residual debt restructuring costs of ZAR 41 million that's sitting in that number. As I mentioned earlier, we did take a decision to conduct a robust impairment exercise at half year. Two main triggers for that were, firstly, the fact that our net asset value trades, our market cap is much lower than our net asset value. But also when you look at the impact of COVID-19, there are certain macro assumptions that we needed to revisit and make sure that we have taken an appropriate view. What that resulted in was a ZAR 70 million impairment within Surgical Innovations. Surgical Innovations sits within the Medical Devices segment. Mark has also touched on Surgical Innovations. It's one of the businesses that was negatively impacted by the pandemic, and you see that result coming through on the goodwill. We've also included -- we also ended up with impairments under our intangible assets, both in Pharma Africa and Farmalider, totaling ZAR 80 million. And we had to recognize an IFRS 5-related impairment adjustment for the Biosciences business that's sitting in our discontinued operation. Our closing balances on the goodwill at ZAR 2.1 billion and the intangibles, ZAR 2.5 billion. And I think when you take a step back and just look at it from a reasonability perspective, Remedica makes up ZAR 1.8 billion of that ZAR 2.1 billion and about ZAR 1.5 billion of the intangible assets. So if you consider how much Remedica contributes to our portfolio, I do think that our intangibles and goodwill are sitting at a more appropriate level at the moment. As I mentioned earlier, I joined the business in December, and I suppose the benefit of having a fresh set of eyes and just really working closely with the team to understand historical impairments versus what we were proposing to impair in the current year, we realized that there had been an oversight in some of the adjustments that had been processed in historical periods. We had adjusted the impairment but had overlooked adjusting the related deferred tax expense. The impact of that is ZAR 147 million impact on our opening retained earnings and a reduction in our deferred tax liability on our balance sheet. There is no impact on our income statement for this half year period or the comparative half year period, and that's largely driven by the historical timing of when impairments took place. We have performed quite a detailed review of our financials for the half year. And I believe that we have identified any potential errors. And I don't believe that there's any additional adjustments that we would need to make. The next 2 slides, I'll talk through our balance sheet, starting with our assets. I've already talked about our most significant assets, being the intangible assets and goodwill. And as I reflected earlier, it was important for us to just make sure that, that number in our balance sheet is appropriate. You see in our trade and other receivables and inventory, the impact of a more efficient working capital management approach in the higher trading environment with those balances sitting slightly below the closing balances for June 2020. I'll talk about cash in a short while. I've got a separate slide on the cash. And then just to flag the tax-related assets and the reduction that you see from June 2020 to December 2020, driven largely by the more conservative deferred tax asset recognition approach. When you look at our liabilities, 95% of our borrowings are now classified as current. Mark has talked about this -- the looming repayment of 31 December 2021, and I'll unpack our borrowings shortly after this slide. And our deferred vendor liabilities are sitting at ZAR 926 million, come to ZAR 1.1 billion at June 2020. What we've done over the past few months is really had a phased repayment of Sun Wave. That particular deferred vendor liability set at a senior -- ranked quite senior in terms of our debt and it was quite important that we resolved that. I'm quite happy to announce that we have fully paid off the Sun Wave deferred vendor liability post the half year period as well. Our trade and other payables, I think, are a testament to the challenges that the current noise within Ascendis has. So a number of our credit insurers have really put us under quite immense pressure. We are currently negatively rated by the majority of our credit insurers. And what that's driven is a situation where we either have to prepay for supply or make early payments on our suppliers. And so despite this exceptional trading and the higher trading environment, what you see is that reduction in trade and other payables to ZAR 1.2 billion versus ZAR 1.5 billion. Certainly not how we would have managed our cash and our trade payables in a more normalized environment. Our other liabilities comprise of lease liabilities -- a combination of lease liabilities and our provisions. I do think it's important to spend a bit of time on our borrowings and just unpack our borrowings in more detail, given the context of the group recapitalization program that is in progress. Our total borrowings are ZAR 6.9 billion as of December 2020. ZAR 6.4 billion of those relate to the senior facilities agreement that was signed off on the 5th of June 2020. And you'll see that we do have additional facilities that sit in our Europe businesses. The Cyprus facility, particularly, Mark touched on earlier, we've managed to increase it. It's the Remedica facility. And we do have access to that facility as part of our liquidity headroom and in thinking of our liquidity buffer. If we look at that senior debt, the ZAR 6.4 billion, one of the measures that was included as part of the senior facilities agreement was this payment in kind, or PIK, that ranges between 5% to 10%. For the half year, that PIK was ZAR 280 million. That is almost our total market cap at the moment. That amount is capitalized to the debt, and so what ends up happening is you are really running to stand still. So the ZAR 280 million gets accrued. And so what you find is even in these half year numbers, you don't actually see the impact of the proceeds that we received from the Scitec and direct selling businesses. The debt will continue to increase, and our PIK at the end of January increased by an additional 2.5%. And so we anticipate that our H2 funding costs are going to be higher than our H1 funding costs. This slide just really shows that narrative in a waterfall format. If you compare our financing costs at half year, the EUR 246 million compared with our closing financing costs of EUR 545 million, and then take into account our total financing cost for the full year up to 30 June 2020, we're sitting at 64% of our financing costs. And again, I reemphasize the point, great, great operational performance completely eroded by the costs of the balance sheet and the debt that's on the balance sheet. If we take a look at our gearing and our covenants and maybe just a quick note on this slide, we have made a slight change to how we reflect our gearing and aligned it to the covenants reporting that we provide to the debtors. What we do see is the upside of the strong operational performance coming through. Our net debt-to-EBITDA ratio is sitting at 4.4, comfortably within the requirement of 7.3. So from a covenant perspective, we are meeting that covenant. Our debt is held in South Africa, in Luxembourg, Malta and Cyprus. And we have the operating entities in the group specifically identified as guarantors under the SFA. What we have sought to do is to prioritize and make sure that there is liquidity available for operations. Our businesses are doing particularly well in a very challenging environment. We find that we are under additional pressure because of the increased credit risk from the credit insurers. And we felt that it was important to enter into an interest standstill interest forbearance agreement. What it does is it provides us with additional liquidity headroom and gives us the opportunity instead of paying cash towards interest to rather deploy that to make sure that it's available for operational requirements. Mark is going to outline and provide more detail about the interest forbearance agreement when he talks about the recapitalization. In solving for the borrowings, you've also got to solve for the deferred vendor liabilities. So this slide just outlines those deferred vendor liabilities. As I've indicated, Sun Wave Pharma fully paid post the period end. Klub M5, we've made significant progress, and the last payment will be made at the end of April. The Kyron deferred vendor liability will be set off against the proceeds from Animal Health, which means that the Remedica deferred vendor liability will need to form part of the recapitalization considerations. Just in conclusion, this slide talks about our cash utilization during the period. We often get questions asked, where does the cash go? The businesses are doing so well, what happens with the money? And what you see there quite distinctly is the businesses have generated cash, and that's the green bar, but you do see the negative impact of the changes in working capital primarily driven by the impact of having to pay our payables a lot faster as well as you see the actual cash outlay in terms of the net finance costs. As I indicated earlier, a portion of those costs is capitalized to the debt, and this reflects the actual payments that were made. We've also incurred a level of CapEx to maintain dossiers. Most of that is related to Remedica and maintaining dossiers and improving some of the manufacturing facilities. I think it's important, as I hand over to Mark, just to reiterate the need to stabilize the liquidity -- short-term liquidity environment, and we believe that the group recapitalization program provides a stable platform for us to do that. I'll hand back to Mark. Thank you.

Thanks, CJ. Well done. Right, ladies and gentlemen, I'm going to just go through a couple of slides that talk to the recapitalization. Just a health warning upfront. I'm not a recapitalization specialist, but I'm going to try and explain the world we're in, in relatively simple terms, certainly that I can understand. Maybe before I do that, just to reflect on the last slide that CJ put up. Cash is everything. So that ZAR 697 million of cash generated by operations. Normally, you would say, well, deduct the working capital, deduct the CapEx. That's what you've got left to keep -- once you kept the lights on, this is what you've got left. It's just fundamentally important when you look at that working capital number, that is artificially negative because of the impact of credit guarantee. And the way credit guarantees work is, so if I'm buying life-saving devices for onset of patient care in South Africa. And I've got, say for example, a $5 million credit facility, typically, the way that will work is the company that I'm buying from will give me $1 million of, let's say, their own risk, and then they will ensure $4 million of that with a Atradius, a CGIC or one of the other big credit insurers. When the credit insurers pull those lines, where I previously had another $4 million of credit available to me, now goes to 0. And you've got to prepay those amounts in order to get the equipment. That's then overly, I suppose, muddied by the fact that you have increasing demand. And remember that stuff I gave you previously, for every ZAR 100 million of above anticipated demand that we have in the business, there's ZAR 30 million of that, that s to go to fund working capital in a normal environment. That's been exacerbated by the CGIC position. So I think it's important just to bear that in mind. That is not a -- what we would normally look to see in working capital, but is a function of being overly indebted. So again, impact on short-term liquidity is also largely impacted by the overall state of the balance sheet. So where are we now? What I'm trying to do in this slide here is to say, the process that we were on before, to the one that was set in motion in June 2020 was as follows and what were the implications of that process. So if we recap, and again, this is almost the baseline that we use to try and compare alternatives when we go into this negotiation with Blantyre and LetterOne. So in 2020, the only way to get the money back was to sell the majority of the assets. There's no other path open to the business at that point. It was a set of parameters or guide rails that lenders said, here are the assets we want you to sell. Here's the time in which you need to have done certain things. And if you don't, certain bad things will happen, but run hard in selling the vast majority of the assets. The first unintended consequence is you are running a lot of things at the same time. So you're trying to sell Remedica. You're trying to sell Sun Wave. You're trying to sell Animal Health. You're trying to sell Biosciences. You're trying to sell Medical Devices. Now sales processes in and of themselves are disruptive, not least of which for the management teams that are going through it because the demand on them for information and various stakeholders looking at the asset is extraordinary. So again, I think it's important just to put that in context of these results despite all this off-the-board action, these results and what has been achieved by our management team, I think, is nothing short of extraordinary. So the second bullet just talks about the guide rails. There are things that we could and couldn't do within those parameters, and there were certain milestones that needed to be achieved on the way, basically keeping the company's feet to the fire to make sure that the selling processes were appropriately managed and appropriately prioritized. And then we come to the complexity of these deferred vendor liabilities. Now I'll give you a broad sort of parameter way of saying how these deals were structured, and it's not entirely rocket science or entirely -- maybe not entirely correct. But 1/3 would be our own money equity, 1/3 would be debt -- bank debt and 1/3 would be the money of the people that we're buying the business from. That's what DV is, a deferred vendor, vendor being the person we buy the money from. The complexity lies in how these deferred vendor liabilities are structured. So in Sun Wave's case, as I mentioned earlier, it is a senior ranking obligation. So it sits alongside everybody else. It also carried a 2% interest rate per month. So the overriding objective was to use the Sun Wave cash flows to pay down that DVL plus some lender money to make sure we extinguish that as soon as we can. Also, when you're looking to negotiate an exit, particularly on Sun Wave, where you have the Sword of Damocles hanging over your head by the senior obligation, and you're negotiating with the very person you owe the money to. It is not the most advantageous point to enter into a negotiation. Similarly with Remedica, the previous owner was owed a deferred vendor payment of EUR 40 million plus interest. That DVL was, of course, subordinated, but in any transaction, you would require -- it was subordinated but had security over the underlying shares. So when you sell the business, you would need their authority to release the shares in that transaction. Don't say it wouldn't have happened, but it is a complicating factor in when you're looking to exit the business. I think the big bullet 3 is probably the most important one for me, certainly, is a lender's view, and rightly so, is to get their money back and their interest. It's not to maximize value. So if a number is -- if you're owed 80 and a number of 100 comes on the table or 90, you're almost indifferent between the 2 outcomes because you get your capital plus interest. That is a -- what I would call a disconnect which doesn't favor shareholder value maximization. And in that process, while we don't have the benefit of hindsight, it's not clear what value would have been returned to shareholders. So I can't speculate because we don't have the benefit of being able to have run that process through to its natural endpoint. I think where there's a lot of questions is around Remedica, rightly so because it does represent the fundamentally largest part of the value in the business. So what I can say is we had I think 60 information -- 60 teasers that went out to various potential buyers. There was just over 20 requests for additional information. That additional information came in the form of a confidential info memo. All these documents, I've got to go to great pain just to remind everybody, are governed by confidentiality. The contract we sign with a Jefferies or a Rothschild or an A&O is governed by confidentiality provisions where we are prohibited from disclosing it. But I'm trying to give you some data points to at least start to anchor thinking around the particular asset. So we then had -- so these 20 people had these confidential information memoranda. Then come early mid-December, we got a total of 5 bids in. One was above 300 million and 4 were below. There was an outlier. We kicked the outlier out. At that point, the lenders looked at what the recovery would be. And this is where I -- again, I've got to try and assume what the lenders were thinking. I'm no expert on this. But if I'm a lender, you compare 2 outcomes. One is, okay, here are the numbers. They're below what we expected. If these -- if this deal gets concluded, I will get X. I then got to compare that with an offer from, Blantyre and LetterOne, which is another number that I can get now versus a different number at a later point with some risk. At that point, Blantyre and LetterOne then bought up, I think, just over 1/3 of the debt. And the important point around that interaction is you need 2/3 majority to approve the sale of any asset. If you don't have that 2/3 majority, you cannot sell an asset, one, unless you give all the lenders their money back plus interest. So unless you can find bridge financing to cover the entire debt pool, there is no world in which Blantyre and LetterOne would allow you to sell those assets. We did engage briefly post the December numbers because we were waiting for last 12-month EBITDA numbers to come out for Remedica to go back to those buyers and say, look, you've based your numbers based on 30 June numbers. Here are the December numbers. What would your view be? We did get another bid, I think, on the 30th of January. Again, a bit covered by confidentiality. But the lender still said unless you can give us our capital back plus interest, we're not interested. And we don't believe it's in all the stakeholders and the company's best interest to keep deploying management time to run these processes, which are fraught because there is also this Ascendis noise that continues to plague each of the potential asset disposals. These data points, by the way -- so where shareholders should get comfort is that these data points will be shared with PSG, who is doing it fair and reasonable. So there are a thousand different ways you can value a business. One is business rescue. What do you get in that environment? Two is what does the current market cap represent as a proportion of market cap plus debt? What is the DCF on the various underlying businesses? What were the values, nonbinding, indicative, et cetera, during the processes that we ran? And the fifth one is, right, what is the pain and hurt money that I'm going to avoid by not going down business rescue? There is a number as well. So those 5 key data points, I suspect, and again, I suspect some on next burdens will be brought to bear in determining what a fair and reasonable outcome is for shareholders. If I move to the next slide, I think this is just important just to contextualize what it was that we were supposed to sell and by when. So the block on the left, this, again, is the reference point as I refer to it. So anything in red was in the departure lounge. So what you're left with is Farmalider. You go back to the presentation to look at the EBITDAs of that, Consumer Health and Pharma. It is -- well, you can make up your own mind on those results. Of course, it's fundamentally important to determine what you would have got for those assets. So that you have to compare and contrast. So that was the journey from January 2020 to January '21. From January to March, as I mentioned previously, there was this controlling interest or this negative controlling interest on Day 1 that Blantyre and LetterOne took up. And then Blantyre and LetterOne now sit with 75% of the entire consortium. That means they have super majority, and they can waive and they can grant without having to consult with the remaining members of the consortium. I will say the negotiations to-date have been consensual. They have been positive and productive, but I'm also in no illusion as to the environment that Ascendis currently finds itself in. The forbearance agreement was there to provide this interim stability as we go into Wave 3 for the life-saving devices and to offset some of the negative impact of that credit insurance that we lost. The benefits of the recapitalization theoretically is, of course, to provide liquidity. Without liquidity, this business cannot move forward. And it's a herculean feat to have delivered, I think, what this business has in a liquidity-constrained environment. If the recapitalization results in a fundamental reset of the debt, i.e., no debt, your ability to then sell businesses without that debt overhang is considerably enhanced. I think that then tips into, theoretically, the third bullet, your ability to extract maximum value is then preserved. And the recap should for once and for all provide certainty for all stakeholders. If I go through some of the principles, I think it's equally important just to outline these. The first is the Board's overarching sort of priorities to make this consensual. The alternative to consensual is business rescue. I'll come to that a bit later. But that is -- we've modeled that. It doesn't look like a good outcome for shareholders. And arguably, there's 0 wealth that accrues to shareholders. So the priority of consensual is paramount. Balance sheet stability goes to that stabilized part of the balance sheet. Levels of gearing are too high. The debt is due in 12 months. We need short-term liquidity to continue to operate in that environment where credit lines have been pulled or under-optimized. And I think the other thing is this, if you have a Day 1 capital structure that allows these businesses to really do what they can do, in -- against this backdrop of a capital structure which hasn't been appropriate for these businesses, I suspect the future could look fundamentally different. We're still going to continue with the sale of noncore assets. We call them noncore because they don't play necessarily into the human part of the value chain, and that is Biosciences. Animal Health, is -- as I explained previously, has been sold. And the way that this recapitalization is going to be done is not through an exposure into the listed company. So there's going to be no conversion of debt into Ascendis topco. The debt will be exchanged for interest in the underlying businesses. So Blantyre and LetterOne will have no impact or influence on the remaining assets of listco. They will sit in a separate subsidiary removed from the Ascendis holdco. Where you have a safeguard and a guardrail is shareholder approval will be required for a consensual deal. And equally, to inform that shareholder approval is fair and reasonable with PSG is a requirement to inform your approval. What does the forbearance agreement mean? It just means you don't have to pay the interest. And if you don't have to pay the interest, we're not going to come after it now. The quid pro quo for getting -- not having to pay the interest today is that we enter into negotiations with Blantyre and LetterOne on a permanent reset of the balance sheet. There's 2 important inflection points here. The one is 30 April. It is a date by which the company has to have agreed a consensual recapitalization with LetterOne and Blantyre. If we don't, then enforcement action may follow. In other words, they'll say, okay, we couldn't get to the consensual route. In order to protect the company and its multiple stakeholders in an environment where liquidity is challenged, we may need to go down the enforcement action route. There's a second sort of guide rail, if you will, assuming we get past the 30th of April, then there is a shareholder approval inflection point where you as shareholders get to decide on the fairness and the reasonableness of the transaction, and you can vote for or against. If you vote against, that itself will then proceed with an enforcement action. At that point, there will be no further guide rail, and the company will be obliged to move or to make sure that it is prepared for an enforcement scenario. So what does nonconsensual mean? I have to say -- I must say, I really hate reading out these slides because it is not the way I'd like to characterize the particular environment we're in from an operating perspective. But nonconsensual basically means on the 30th of April, company doesn't agree with Blantyre/LetterOne, or the terms are, in our view, egregious, and it would be better to go down business rescue. And secondly, assuming we pass that first hurdle, shareholders don't approve the transaction. In both cases, Ascendis will have to enter business rescue or business rescue process. We'll have to appoint a business rescue practitioner to conduct an orderly sale of the business. Now the problem with orderly sale is when the business rescue sign is above the door, the multiples that you will get for those businesses, given the time imperative you want to sell soon, starts to erode 1, 2, 3x multiples of EBITDA. And that's what drives the negative recovery in the business rescue process. Importantly, in a BR process, as I understand it, shareholders rank behind all the other creditors. I think the other thing important to note is, in the creditor bucket, the senior ranking creditors will be Blantyre and LetterOne and the other members of the syndicate. They will have more than 75% of the creditor, let's say, exposure. And in that scenario, their ability to affect outcomes is quite strong. And the last 2 bullet points just talk to what I spoke to previously is that, if you try and sell something quickly and you have a distressed sale sign out the door, so Ascendis always had a distressed sale sign outside the door. We were just given time to do it. When you overlay distress plus an imperative around time, value evaporates very quickly. And in that scenario, as I mentioned earlier, the outcome for shareholders is not particularly promising or certainly based on the advice that we received. I think where, certainly, I take comfort and I think shareholders can take some comfort, we've got some really good advisers on board. So Rothschild is a particularly strong adviser locally here in South Africa and has a global presence so can advise us on transactions that sit in this part of the world and where 70%, 80% of the value lies in Europe. Similarly with Allen & Overy, it's one of the -- I think they call them affectionally the golden circle firms who can advise both here and abroad. Questco has been our adviser for the longest time with the JSE. PwC is a -- the name speaks for itself, so reporting accountants and auditors. And PSG have been appointed independent expert to provide that fair and reasonable. And again, in providing the fair and reasonable, these data points that I spoke to previously will be disclosed to them, and it will be for them to opine on the fairness and the relevance of those data points in coming to a evaluation assumption. Broadly in terms of timetable, again, there is at 30 April, which is management and the Board with Blantyre/LetterOne. As soon as that transaction has been concluded, we will immediately release that on SENS with the relevant details. Assuming we tick the box on 30 April, a circular will then go out to shareholders. There is a minimum amount of time that shareholders need. It's at least 21 days, but there's a whole lot of drafting that needs to be done. So by 30 June, shareholders will receive this document, which will outline what happens in a consensual and a nonconsensual environment. I think it's important to be anchored on the alternative. And as much that we can disclose to you about the nonconsensual transaction, I think, is going to be vitally important as well as the fair and reasonable piece that speaks to the potential upside. And then by the 31st of July, we will have had the shareholder vote on the group recapitalization. So there's a fundamentally enormous amount of work to do between now and the end of July. And I think with that, let me hand over to -- well, let me move on to Q&A.CJ, if you don't mind, I've received some questions from the Ascendis activist investors. So to [ Suhail ], [ Harry ] and [ Rios ], thank you very much for sending these to me in advance. I think I just also want to acknowledge the support that you've voiced for the management team in these results, and I appreciate the way that which you've engaged with me during this process. There are some other activist groups with whom I haven't had the opportunity to engage. Ladies and gentlemen, if you have a spokesperson, by all means, reach out to me. I'm happy to have a similar dialogue. But perhaps just to go through the questions sequentially, and then we'll go on to those on the screen. The first is, please, could you clearly outlined the process to be followed in the coming weeks and key decisions? I think that was covered on certainly the slides towards the back end. Advise when the valuation process will be completed by. Now the deadline is the end of April, but between now and then, the valuation work will be done with PSG. They will have access to all the information that I spoke about, anything that's relevant in those what I would call those 5 buckets, which is business rescue, market cap versus market cap plus debt, DCF, price discovery on the various processes and nuisance value of having to go down a nonconsensual path. Is there a value or approximate value for the European assets that we have in mind? We certainly have one in mind. I'm afraid I cannot share that with you because, obviously, it's price sensitive, but we are in negotiations with the other side. And it is incumbent on us to set our stall out as -- I suppose, as sensibly as possible to get to a consensual outcome and one that benefits all stakeholders. There's a question on, what is the distribution of debt to various holders? How much does Absa hold? How much does Blantyre/LetterOne hold currently? Who holds the remaining debt? So I can say Absa doesn't hold any more debt. The Blantyre/LetterOne collectively is 75%. There is another -- there are another 2 holders of the debt. And unfortunately, for reasons of disclosure, I'm not allowed to disclose who they are. But it is largely Blantyre/LetterOne that are directing traffic in the process. What is the role of Absa in the transaction? Absa, until about a week or 2 ago, played the role of an agent, which is the postbox that gets all the information to the various lenders. They're no longer agent, and they longer hold any debt. What is the current shareholding by institutions and pension funds as a percentage? Which institutions have sold their shareholding? So it's broadly a 65 institutional, 35 retail split. Interestingly, we've now got, I think, just under 12,000 shareholders. 7,000 of those shareholders own 1,000 shares or less. So it is a very fragmented shareholder base. With -- in some cases, 7,000 people own less than ZAR 350, ZAR 500 worth of Ascendis. So a very disparate shareholder base. Those that have been selling -- this is publicly available information -- Mergence has been selling down, [ Monroe's ] Investment Company have been selling down, and the PIC has been selling down. Question 7, can the CEO please outline the various scenarios that are being considered for shareholders? So this is something that's probably vexed me certainly a lot, but I think the -- where we're starting to emerge is a lot clearer. What we're trying to sell for shareholders is, in whatever structure we do, I think there are certain fundamental things we want to sell for one is, how long is it going to take for you to receive money or cash, whether it's in dividends or whether it is getting the proceeds of the sale of business? So time to cash, I think, is important. Two, if there's a requirement to contribute further capital at a later stage, how would shareholders feel about that? And I think you've been quite clear in that anathema of a rights issue or contributing further capital is something that -- isn't something that you would support. And that's important because a number of the European businesses will require additional capital, significant additional capital to meet their growth objectives, whether it's Remedica buying in an ability to hardwire the ferrous relationship, whether it is putting an injectables plant on-site, whether it is adding additional shifts. Those will require significant pots of money. And equally, if it's -- if you're going to go and buy in some of your front end in emerging markets where you look to consolidate some of the agency base, that will require lots of money. So the requirement to contribute future capital is something we'd be looking to solve for you. And the control of your outcome. If you are a significant minority shareholder in a set of unlisted assets, your ability to affect outcomes is limited. So how do we build in something that meets those 3 objectives. And then there's a technical one that says, again, these listed holding companies apparently trade at discounts of 20% to 25% to the underlying value. Is there a way that we can solve for that as well? So just to remind everybody, the scenarios that we're looking at is trying to solve for how quickly to get cash back to you, to avoid the requirement to contribute further capital, control over the outcome as opposed to being a passenger with a minority stake, and this technical issue of, in a listed environment, if you have exposure to these unlisted entities, will that entity trade as a -- trade at a discount? That was a hell of a long answer, but it's so important to how we embark on this consensual negotiation with Blantyre/LetterOne. There's a question, what is the relationship between Blantyre and LetterOne? Do all the debt holders have the necessary license for holding debt in the respective geographies? So there's no formal relationship that I'm aware of between Blantyre and LetterOne. LetterOne is a high net worth family office with around $24 billion of capital to deploy. They're effectively a private equity firm, but seeded by private money as opposed to institutional money. Blantyre is a special situations fund that invests in what they call businesses that have temporary capital challenges but have good underlying businesses, but there's no formal relationship, as I'm aware of, between the 2. In terms of a lending license, a lending license is not required by Blantyre or LetterOne to lend into Ascendis. By -- and I got to read this because this is all technical stuff. By lending into Ascendis debt, Blantyre and L1 are not conducting the business of a bank. In other words, they're not taking deposits that would require you to be governed by the bank set. And it's very common for funds such as Blantyre and LetterOne to lend into corporates, particularly in a highly leveraged market. There's then a question on strategy, which is outline please the business strategy to build forward irrespective of the scenarios. The European assets would be -- we would effectively lose control, but would the strategy be to leverage the dossiers and businesses for growth in the domestic and international markets? So yes. So the point I made around Farmalider with some of those very niche products that could be used here in South Africa, I think that certainly can be leveraged. I don't think we have to own Farmalider to confer the same benefits. They can be contractually legislated for. It would also depend on the structure, whether we have more control over one asset versus another. And to the extent that we have more control over a particular asset, that will then determine the ultimate strategy. So I would say, in terms of strategic priority, my #1 priority is to get a consensual deal done. In order to do that, I've got to agree value, relative value with Blantyre/LetterOne. I've also got to agree a Day 1 capital structure. So all the work we've done in the business plans to determine what money we need on Day 1 is going to be fundamentally important. Then also need to determine how much money we need in order to put those businesses on a path such that they can maximize value for shareholders. That I've got to do before -- when I say [indiscernible] that's us. It's you, me and the team. The other that we have to be fundamentally sure about is not to take your eye off the ball. The businesses still performed well, and I cannot have people distracted by a process which is obviously anxiety provoking. So making sure that beneath sort of the hood like that swan that's on the lake with the legs going like hell underneath that the businesses continue to focus on the operations, that we make sure that we sell Animal Health and Biosciences and that, that process is properly run and staffed and that we make a dent in the head office costs and the head office optimization strategy. And we have embarked on that already. And there'll be more of that, I think, at the time that we make the announcement in -- at the end of April. How much would we get in rands for noncore investment? Should we continue with noncore divestment if the debt is settled? So at the moment, we need to continue with the noncore sales because those do provide a return against the debt. I think there are no regret sales because the values that we're looking at I think are sensible in light of where we are and given the underlying performance of both Biosciences and Animal Health. But in all worlds, it makes sense to get the debt down as much as we can. Please acknowledge engagements of the AI group. I believe I've done that. CEO to guide on whether this is a consensual process or whether the lenders will look to take this company on the cheap. So consensual is, for sure, my #1 priority, and it is to make sure that a fair deal is done, whatever that means at the end of the day. Can the Board confirm if there are any protection clauses for the company in the loan agreements that have been signed with lenders. So yes, the lenders have session pledge of the shares in the unlisted South African hold company. They also have pledge over the assets, and you also have the underlying subsidiary providing guarantees to the topco. So this is a belts and braces security package. I think those are the -- I think that's all of the questions from the Ascendis activist investors. Can we now maybe move to some of those on the screen?

Okay. So Mark, I'll give you a break, and I'll address some of the questions that have come through. There are questions -- and what I'll do guys is, I'm not necessarily going to read the full questions, but I'm going to try and address as many of them in one as possible. There seems to be a number of questions asking about the ability of the business to effectively trade out of the debt position. So I think [ James Wu ] asks the question, with an EBITDA increasing by roughly 50% into the -- this could easily cover normalized interest expense. [ James, ] you're absolutely right, but ours is not a normalized interest expense. So the SFA that was signed last year was necessary. But again, I reiterate that pick at 5% to 10% means that the debt is increasing at close to your market cap every 6 months. One of the first things that struck me when I joined was the fact that even though the businesses were doing so well, you actually don't cover your interest. So if you look at the results that we flagged on one of my slides earlier, at a normalized operating profit level, you are still sitting below the 545 million funding costs that were incurred in the first half of the year. There is a question, and I think that question is echoed a few times, around the ability to sell some of the assets and pay down the debt, the Remedica deferred vendor liability, depending on where you're sitting in terms of debt SENS rates, that already takes you north of the EUR 300 million. And then you've got to take into account the fact that this debt is not standing still. So that debt is increasing at a factor -- at quite a high factor every 6 months. So that analogy that we keep using that we're running to stand still is quite an important one to remember when you're thinking about how much debt we need to resolve. We have, over the years, and my understanding is the business has looked at alternative debt structures. A few years ago, there was exploration of potentially a bond raise, looking at alternative debt. None of those have been successful. Hence, the situation that we find ourselves in, particularly with the expiring option of this debt that is due on the 31st of December. There's also a question around the fact that we potentially are not providing sufficient effort to bringing down the cost of debt. I think I've addressed that.

Maybe just one other thing to add in, in the cost of debt. So the only other way we had available to us to get the debt down of selling the assets is to go and raise the money to take out the debtholders. That's that high EUR 300 million number. Now during the course of the last year, I engaged with a number of private equity firms. These are the great and the good of corporate private equity in South Africa and 1 or 2 abroad, to look at a alternative solution, equity-led solution to solving for the balance sheet issues. And the conundrum you run into is that, in the first case, for South African private equity, where you've got 70% of the value sitting in Europe, they say that's out of mandate. You then get the European private equity guy saying, well, Europe's in mandate, but South Africa is not. And the entry point is the South African listed entity. So there's a question of one of mandate in relation to geography. The second one was that, in order to get to the equity, you almost have to come through the debt, which is -- typically is what's playing out now. So you almost first have to refinance that debt, and we looked at a number of structures, which looked at doing some opco gearing plus a convertible bond, underpinned by private equity and/or strategic shareholders. But none of it got over the line because of the complexity of, not just the Ascendis story, but then some of the underlying assets. And so the ability to affect a different outcome was just -- well, certainly impossible. And it's certainly not without bringing a whole host of innovation to trying to solve for that how do we completely refinance this business, given that the cost of this money, when you include the pick, is in the mid-teens. There is a question on head office costs. So yes, go...

Okay. I can address the head office costs, and then I'll hand back to you. We are in the process of doing quite a detailed analysis of head office costs. What -- the view that we've taken as a management team is the costs that are within our control and that don't impact operational performance. We've really got to reduce that burn rate as quickly as possible. And so quite a detailed review has started on the head office costs. Unfortunately, it does mean that we have had to issue a contemplation notice to head office staff. And we are in the process of looking at some of our high-cost buckets such as the leasing of our building as well as other costs that are included in there. So our view is to reduce those costs as quickly as we can without introducing any risk and additional complexity into the business. Mark, do you want to address the question around share appreciation rights and consensual...

Yes. Thanks, [ Nazir ]. I know [ Nazir ] has been in touch with me on a number of occasions on this particular point. So the ones -- when I arrived, there was a share option scheme put in place, but shareholders voted it down. And the reason for that was, I think at the time, the share was around ZAR 3 or ZAR 4, I can't remember. But I think the principle was there have been so much value attrition to that point that adding in another dilutive instrument to create a long-term incentive plan was just anathema to shareholders. So we then pivoted into something that then matched a cash element. So when we sold businesses, that's when management would participate so to avoid any future share dilution but align interests on maximizing value. And that was the scheme that was put to shareholders, I think, in the AGM in November last year. So the reason we don't have one is because the shareholders voted against it. There's another one from [ Rios ]. Is this a consensual process? To-date, yes, it is. So we've got the entrance forbearance. That's important. It means we can continue to play a meaningful role on Wave 3 and buffer or buttress some of the credit guarantee insurance that has eluded us. We understand we may end up in business rescue, but really have you and the Board in a position to protect shareholders? Yes. Yes. We're hearing -- my fundamental departure point in any negotiation is when you don't have power and authority, the only alternative is energy and influence. And that's what we're trying to bring to bear in spades between now and the end of April. Also remember that we've built -- we've inherited a balance sheet that hasn't been optimized. But we have an underlying set of businesses which have momentum behind them. If you look at what's been carried through from the half year to the full year, these businesses have momentum. The last thing you want to do is destroy that momentum. I haven't been through, touch wood, a business rescue process or an enforcement event, but I can guarantee that will undermine momentum in the underlying businesses. And I don't believe that's in anybody's best interests. So the absolute priority for me is to get a consensual outcome.

Mark, perhaps to add to that as well. As a team, what we are really focused on is this value preservation path. And so we are in the process of looking at how can we prepackage a nonconsensual route if it were to come to that and really manage the downside of any potential business rescue. And so that's one of the things that we're looking at. And as Mark indicated in his presentation, when the circular comes out, we will provide full view of the recapitalization as well as what a nonconsensual path would look like.

A quick question from [ Carsten ]. How could another unsuccessful search process for Remedica cost ZAR 26 million? So [ Carsten ], I don't have the full detail on the ZAR 26 million, but there was no -- obviously, the advisers who were looking to conclude the sale were on a success basis. So that is not in that number. It would be legal. It would be the work that we had to do on the dossiers because remember, there was all the noise around whether the dossiers were under-invested. And I think the good thing is in this last year, we've put about EUR 15 million into the dossiers and some factory enhancements, but that's brought the dossiers back on track. The work confirmed that our dossier portfolio compared favorably with those in other parts of Europe. And the bit that was at risk is about 2%, which I think was an exposure to Saudi Arabia. So a fair bit of money on that. There's also the reporting accountants who have to do both a June set of numbers, then a September inflection point because you want to do the last quarter post-June, and then there would be some work that's done at the end of December. There's bound to be other costs, but that's typically how the costs moved up.

Yes. And I think it's also important to highlight that a lot of the costs that were incurred related to these transactions are in euros because advisers are sitting in Europe as well.

Yes. [ Carsten ], since when has there been a project also [indiscernible] Medical Devices? So Medical Devices was, I think it's in the -- it's disclosed in the annual report or in the annual financials.

Yes.

I think it's Page 33, 34 or both.

It's 39.

Thirty-nine. It's got a 3 in it, yes. The initial recommendation or the initial want from the lender consortium at the time was to embark on a process commencing 1 July. We pushed back hard on that. And I think that, that proved to be the right decision because the earnings, as you've seen, from 1 July to 30 December have been astounding. Not just the COVID impact and not just the RCA performance but also because the business, in my view, wasn't yet a platform business. There were certain operational challenges that hadn't been bedded down, getting a warehouse management system that met the needs of all of the 4 underlying business units, having a demand planning tool because, obviously, often what gets businesses into trouble is having a nonautomated system that tells you when or when not to buy stock. So we had to implement something that regularized how you purchase stock, particularly in a liquidity-constrained environment. So that was on the cards, and it was deferred through to January this year.

Mark, I do think the second part of the question is something that maybe a lot of people hadn't internalized. And if you look at the 30 June 2020 financials and look at the detail that underpinned that and lender-led divestment program, it is, as Mark indicated on his slides, the majority of the assets were identified as part of this divestment program.

Yes.

I think we've answered...

What is the current shareholder consensus towards proving a rights issue? So rights issue isn't on the cards. But certainly, what I normally do after every set of results and every time a SENS announcement goes out, I interact with all of our institutional shareholders, and lately, certainly the Ascendis activist investors to get a view on, what, first of all, explaining where there's ambiguity but equally to test certain parameters of what a transaction could look like. And across the board, and this goes back to January last year when I engaged our shareholder base around contributing new capital to get some of the debt down, the view was, at the time that, given the level of the quantum of debt relative to the market cap, you'd have to put 10 or 15x your current stake just to protect what you've got right now. And that's difficult in an environment when the share price performance has been so poor. So I think a question of having to contribute significant capital just to maintain your position in a cap structure is one. And then two, if you look at the shareholder base, yes, it's currently 2/3 retail, but there is a 1/3 that sits in -- sorry, 2/3 institutional. There is 1/3 that sits in retail. And when I've just explained, you've got 7,000 shareholders with less than 1,000 shares, the ability for those individuals to meaningfully participate in a way that doesn't dilute them becomes very problematic. So I think this is one where I think we took the advice collectively and said, rights issue, not a great idea. Best to completely blitz the debt. So we left with assets that we can either sell in an unencumbered way or have them properly or appropriately capitalized on Day 1 in order to chart their future forward. Can I elaborate on how advanced the discussions with consortium is? So yes, [indiscernible]. So we've -- I think we've got broad agreement on structure. I still have to interact with a number of our shareholders just to confirm that we're aligned on where we think this is going to end up. We are at the early stages of the valuation debate. And again, there's valuation and then there's price. There are a gazillion ways you can look to value these things. At the end of the day, I suspect it will come down to something that reflects a price that is equally egregious to both sides but one that gets a deal done. But that is a process between now and the end of November that we need to run hard at as well as the legals behind it as well because you can't have an agreement done by the 30th and not have it enshrined in a legal document. So what if Blantyre are not happy with fair and reasonable value? Will they then pursue different avenues? So it's a good question. Logically, I don't think that can happen because, by the 30th of April, we either get to a consensual number or not. No, I see your question. If we don't get to a consensual, in other words, Blantyre and LetterOne say, this is rubbish, we're never going to get there. Then I suspect you do tip into business rescue. So it is going to be important for us to manage the engagement with them in a manner that keeps us on track for this consensual outcome.

There's a question there around have we knocked on doors and considered any mergers, for example, with the likes of Aspen?

Yes. So you normally don't -- when you're in distress, you don't have to knock on doors. People come to you. They say, okay, we know everything is up for sale. What is it? I will tell you that we have had a number of expressions of interests for, not only our South African assets but some abroad as well. And we are looking to actively pursue those within this contract of this consensual arrangement. So it will also inform the path that we go down. For example, if we get a sense that there's reasonable price discovery for some of the local assets, as an example, we made that harder to keep more of those because we can control that outcome and use that as a lever to get money back to shareholders sooner. But yes, we -- you can see from the results, we have a fundamentally good underlying performance. Not uncomplex. I don't want to paint an overly picture about the underlying assets. They do have complexity. That complexity can be solved for, but it will require capital, and it will require time. But certainly, on the SA side, there is -- there are a number of our assets that I think would be very interesting to a number of both private equity players and trade players.

Okay. And there are probably the residual questions around the level of information that the shareholders will be privy to, to enable them to make the right decisions. And certainly, the work we're doing on the circulars, we are aiming to provide a robust circular that gives you the information that you require within the confines of any legal agreements. But certainly, we believe that it's important and things like the fair and reasonable opinion from PSG will certainly help to support whatever is sitting in the circular. I think -- I do think we've covered -- we might not have addressed every single question, but I think we have covered the general questions that cover -- in some cases, we've covered more than one question with our response.

Yes. And equally, look, after this, I will have one-on-one engagements with the institutional shareholders as well as key representatives of either AAI or one of the other activist groups, and I'm open and willing to engage with everybody. If you just understand there are certain parameters under which we have to operate. There's a fairness in the quality of treatment to all shareholders. There are things we can't say that would impact potential outcome. And we have a very sensitive period between now and the end of April to go through this negotiation with Blantyre and LetterOne as well as keeping an eye on the operations, making sure that we don't take our eye off the ball of the disposals and make sure that we keep the various plates spinning.

There is one question there that I think is worth me just addressing just so that it is part of this webcast. A question from [ Harry ] around the last 3 months operations. The businesses have continued on quite a strong path. The rate is slightly lower than last year, as you can imagine, in H2, but we are anticipating that the business will continue to perform strongly. And that's why Mark's views, let's protect the operations, let's make sure the operations continue to do what they do best, and as a head office team, we manage the group recapitalization process.

And just a health warning. That is not a profit forecast, by the way, I just wanted to make it clear. I just think it's important to know that the handbrake hasn't come up post year-end. Although it does sometimes in this business feel like you're driving this Ferrari with a handbrake on, and that handbrake being the debt.

Okay. I think...

Ladies and gentlemen, thank you.

Thank you.