Aspen Pharmacare Holdings Limited ($APN)

Good afternoon, and welcome. Thank you for joining today's live webcast, where we will discuss the completion of the divestment of Aspen APAC. The transaction that was announced late last year. Mr. Stephen Saad will begin with some remarks on the transaction, after which we will open the floor to questions specifically relating to the transaction, both Stephen and Sean Capazorio are available to answer your questions.[Operator Instructions] I'm now going to hand it off over. Good afternoon, Stephen.

Good afternoon, everyone, and good afternoon to all of you, and thank you for joining us. Apologies, we've actually planned for this to be on Monday but it looks like the Straight of Hormuz opened for us a little earlier, thankfully. I think today, it's a significant milestone for Aspen being the successful completion of the divestment of our Asia Pacific business. All the condition precedents have been fulfilled and the transaction closed in line with the terms we gave in our circular. Just to remind you, some of the conditions that we had included moving licenses across, which could have, one, either [ return ] the deal or, 2, result in change of value. And I'm happy to say that we've managed to achieve all of that successfully without any loss of value. We're going to look ahead, of course, to understand where we head to from here, but I think let's just have a little -- spend a bit of time just reflecting on the business that is represented in Asia Pacific. I remind you, it was a start-up and over time, it developed into a leading provider of quality pharmaceuticals in Australasia and a growing presence in Asia, too. If I go back in time before we divested our generic business at one stage, I think I'm quite close on this, but in one stage, we were supplying one in every five medicines that were dispensed into the Australian market. So incredible penetration and an unbelievable business that was created. In financial year '25 to our financial years of June, APAC was about ZAR 2.4 billion, and it was about just over 1/4 of our EBITDA. I think it's clear that the value from the divestment is compelling. Every shareholder voted in favor of it. And it also gives tangible evidence of the value that Aspen has been able to create over time. And also, I think it puts a value on Aspen's underlying assets. And I think this is something you've heard from us in the past about that value. I think there's a demonstration of that value and it continues to support the view that we have at the current share price doesn't reflect the intrinsic [ sum of parts ]. I think it's even more relevant now because if you think about now, it's a context of the business now with a stronger balance sheet and it's got very good future organic earnings growth profile from continuing operations. We'll talk about that, but obviously, there's drivers in the emerging markets. There's GLP-1s, where we're very well positioned. Those are the weight loss products. And we've got facilities that have been heavily invested in that require filing and all of that will add value. If we just spend a little bit of time on the numbers here, the valuation achieved was 11.5x our EBITDA. So it's was a good value and a much, much higher value than the rest of our business, which I've told you has got some good reasons to be excited about the balance. We received it in full and the transaction proceeds that is and the -- I think the transaction costs have been really well managed. We seldom use advisers as Aspen, and it's well managed in line with the guidance we provided earlier. We were fortunate in that the exchange rate movements were positive for us, and we did some fairly effective hedging well done to our treasury team. And so we've got proceeds of over ZAR 28 billion and in the circular, we said it would be somewhere over -- just over ZAR 26 billion. So a big change. I mean, to give you a sense of the sensitivity, when the Australian dollar was say -- when the euro was EUR 164 to AUD 1, if it dropped just by AUD 0.01 to EUR 163, the [ change ] alone was [ ZAR 150 million ] at a time. So some really big movements in exchange rates. So the gross proceeds of ZAR 28 billion, we expect -- our estimate is that we would receive ZAR 27 billion net. And it's a couple of billion more than the ZAR 25 billion we told you on the circular. We're going to use the proceeds to reduce debt, which obviously has a materially strengthens our balance sheet. And when I think about strengthening our balance sheet, I mean let's be candid. There's never a wrong time to have a very strong balance sheet. But Aspen is a very global company. And our experience in say, the last 6 years versus 16, the 10 years before that is the world has become a pretty choppy place. And you keep thinking, "Well, this will be the last hiccup", it seems to not be a one in 10-year event. It seems like we're getting challenged even more than once a year. So I think in terms of timing, it's a good time to have a strong balance sheet. Obviously, leverage has reduced significantly. And I mean, I had a chat to Sean. And if we're not in net cash, we're very close to a net cash position today. It's the first time I've been able to say that in 30 years. And it's a sort of a defining moment for us, too, because we've never issued any shares. And so what it really means is that every transaction that we've done, every facility we've built and there have been many of both over this period have all been fully paid up without having to come back to our shareholders. And I think the net result is we can't argue as we have all the assets and we don't have any debt against them. Logically, the finance costs will decline significantly meaningfully, and we've obviously got increased financial flexibility and I mean, we completely -- we're in a different situation from we've never been in the past. So there's a material enhancement of that flexibility. So where does that take us to going forward? What is our focus from here? It's not dissimilar to what we shared with you in our interim results presentation. We've got strong growth drivers in our balance of our business. And if we take what we made in financial year '25, which was ZAR 9.6 billion, we adjusted, and we say, listen, we want to get back to there by 2027. To get back there, we've got to cover for two big holes being, one, the divestment of this business, two, the loss of the mRNA contract. So between those two contracts -- between those two events, we're about ZAR 3 billion less, so ZAR 3.6 billion less. So we need -- we've got to grow our base business by -- if we grow the base business by 60% in the next couple of years, we would get to ZAR 9.6 billion. So that's a big ask, a big organic ask. And so what would support it, if I look at our commercial pharma business, Well, we've got a larger percentage of our business in our commercial pharma in emerging markets. And that's important because over the last 20 years, you would have noticed within Aspen, we've had very strong organic volume growth, and there's just a growing middle class there who would demand a quality branded medicine. So I think that's known and understood. And now it's a bigger part, as I say, a bigger percentage of the business. And then we've got two real opportunities, big opportunities in the GLP-1 field. One Mounjaro, we're doing fantastically in South Africa. And we are now moving to expand across sub-Saharan Africa. The first target territories are Nigeria and Kenya. And then we've got GLP-1 launches. We expect our products in Canada and some key emerging markets as well. So we look well positioned there as well. In terms of our sterile manufacturing, it's been a massive focus for us in this period and going into next year. And what's key to us is to restore the loss-making facilities in France and South Africa to profitability by financial year '27. To do that, we're going to have to reshape our cost base and we've got to commercialize an insulin contract. Just successful execution of those two will result in an EBITDA upliftment of ZAR 1.7 billion, and we're well on track to achieve those milestones. In addition, what are we trying to do? We're also securing regulatory approval for the pediatric vaccines we have from serum and that has progressed well, and you would have seen the discussions we've had with the Africa CDC. Also, we've looked to try and do further contracts, and we are in discussions around further contracts as well as bringing our GLP-1 injectables volumes into our facilities, both into France and South Africa. And if we bring those products incrementally products into our facility, we really have enhanced profitability because it's now of a largely fully absorbed fixed cost base. What else are we looking at? Let's talk a little bit about cash generation and capital discipline, is that we've got -- on free cash flow. And how are we driving it, well we've got our operating cash conversion ratios, which we want to maintain, and they think consistently about 100% or above. We've got reduced capital expenditure because we've done with our facilities and we spent most of the money we need to spend on creating and building the intellectual property base around GLP-1s, and we'll have a low working capital intensity. I think there is quite an advantage for us because we have a very strong invested capital base. So the growth opportunities sit within these existing assets. And what does that mean? We're not dependent on having to build a new facility to deliver the growth that we have to achieve. So our focus is really on execution and we're not worried about our IP, we're getting really good feedback on the GLP-1 IP. So our focus in execution and returns of an existing asset base and earnings growth, obviously, in a situation where you're growing earnings without investing a lot of capital will mean more free cash generation. A strong balance sheet, combined with the clear organic growth drivers position Aspen really well to continue delivering improving returns and the enhanced balance sheet flexibility gives us a chance to consider share buybacks. I mean, if we believe there's a discount between this and the sum of parts, and we've got to consider share buybacks as a means of delivering returns to shareholders. So with that, really, before we go to questions, I'd like to just thank those who contributed to the success of the transaction, and our teams did fantastically across the group to deliver this and deliver it in full our advisers, partners and all stakeholders involved. But I'd like to give a particular mention to those that [indiscernible] are all up in Australia over Christmas and New Year and our external adviser to [ Chris Mortimer ], he's a champion and to [ Michelle Else ] and her internal legal team, thank you for all you've done and to our team in [indiscernible] and the team, who've done a fantastic job in making sure that this did happen. But I think most importantly, I'd like to recognize the management team and all the employees of our APAC businesses for their commitment and their contribution over many years. There's an overwhelming sense of gratitude really to have had a privilege that very few others would ever get and we're so thankful to have an opportunity to be part of building this business in Australia and in truth not just Australia, you have an opportunity anywhere in the world is a privilege from a start-up to a business that is worth ZAR 28 billion. And mostly has contributed so meaningfully to society. What is achieved in our humble opinion is remarkable and something all of us are immensely proud of. But going back to the team, I really need to thank you. Thank you for your commitment. I know it's late now in Australia, but your -- and really, you testament to the success of our federated model to grow this business organically across so many geographies, we've had to put trust in people. We just simply couldn't visit and oversee everybody in every place. And it really gave testament to the belief and trust we have had in our people over the years, and we thank you because you took this trust so seriously, and you never gave us cause to waiver. I can only wish you every success in your next phase. You certainly have more than earned your stripes and you deserve to be center stage as you grow and you shape the new business. You know, moments like these are never easy. It's a bit like watching your children leave home. But I think it's so much easier when you know that your investments in them has left them equipped to manage all life can throw at them. [ Trevor ], to you and your team, I can only say well done. You've established an absolutely rock-solid business. And I think you've got a perfect platform to launch the next chapter. As I said, you've done -- you've earned your stripes, you deserve to be center stage and I'm really looking forward to working closely together with you and the team into the future and really go out there and continue to make us proud. That's all I can say to you and the team. Thank you once again, and thank you, everyone.

Thank you very much, Stephen. I think everybody has been listening quite intently. [Operator Instructions] Stephen, if we can just give it 30 seconds, there's no questions that are on line at the moment. So it's obviously pretty clear. But let's just give it 30 seconds and see if they come through.

There can't be anything clearer than having cash and [indiscernible] don't have to discuss a whole of that [indiscernible].

Yes, exactly. I think they want to know what you're going to do with the cash, and I think it's been quite clear in your overview. Just looking at my colleague, Stephen, [indiscernible] are any questions?

No, nothing.

All right. So no questions are coming through. So what I think if there are any questions, please feel free to e-mail either myself or [indiscernible] and we'll happily follow up. Stephen, Sean, any closing remarks and otherwise, we'll close the call.

I think from my side, clearly, I've said it all [indiscernible] Sean from your side?

[ I'm thinking ] about the cash flow on my head now really looking [indiscernible] driving a stronger free cash flow going forward.

Quick questions that are coming through. They all relate to the capital allocation. Have you got authority for SBB, share buybacks, I presume that is. So we got authority? Yes, we do have authority.

Up to 20% or [indiscernible].

We've got approval for 20% per annum.

I think [indiscernible] whether we [indiscernible] share buybacks. Well, thank you very much for joining. Yes, Stephen, I'll let you close it off.

Thank you. Thank you all, and it's a pleasure [ one ] to announce this. We've had trickier ones and easier ones, and this will probably be one of the more pleasant. So a lot of hard work gone into it, and we're really in a great position now, and it's to [ cement ] the advantage that [ we do ]. So thank you, everyone, and thank you for your time.