Ascendis barking up the right tree


Ascendis barking up the right tree - [] Ascendis barking up the right tree - []

Steenberg-based health brands conglomerate looks intent to fatten up its phyto-vet offering after recently paying R375m to acquire the South African agrimed and vet businesses of Indian-owned pharmaceutical giant Cipla.

The Cipla businesses are highly profitable, having earned R31m in profit after tax in the year to end March 2016. The respective management teams also stay on board, ensuring operational continuity.

Ascendis CEO Karsten Wellner said Cipla’s agrimed and vet business units had performed well over the last three years with double digit compound annual growth rates in sales and profits. The businesses also hold 20% and 16% market shares respectively, and are strongly cash generative.

The additional upside could come from expanding into Africa, where Ascendis’ phtyo vet already has already cornered viable niches. Wellner noted that Cipla’s businesses currently only earned 10% of revenues from export markets, arguing that there was an opportunity for synergies with Ascendis’ existing African networks.

Cipla Agrimed (production animals) and Cipla Vet (companion animals) have considerable operational traction, having been established in 2004. Cipla India’s decision to sell off these businesses stems from a decision to focus on their core pharmaceuticals competencies.

Wellner said the deal offered Ascendis a well-known range high quality animal medicines at attractive margins – including 300 Agrimed and 45 Vet SKUs (stock keeping units) with more than 210 marketing authorisations. Agrimed sells mainly via agri co-operatives, and has tenders in SA and Botswana and services large farmers.

The Vet business sells via wholesalers, vet shops and vet practices, and Wellner reckoned the offering is “very complementary” to the company’s existing phyto-vet division (especially the strong retail presence in SA).

At the interim stage Ascendis’ phyto-vet division made up only 16% of the company’s total turnover. But the performance was commendable with revenue rising 38% to R491m and operating profits increasing 53% to R75m. Most impressive is that the operating margin has grown from 12.1% in 2014 to 15.2%, and is likely to fatten further with the Cipla businesses making a large contribution.

According to a recent investor update, Ascendis’ phtyo-vet businesses are still enjoying double digit organic growth with recovering Sub-Saharan Africa markets offsetting the water restrictions now in place in the Western Cape. The company also expected a normal fertilizer season again (between September and November). Wellner also highlighted the positive impact of the high margin Afrikelp brand – a Western Cape based kelp products specialist that is increasingly internationalising its operations.

Wellner also noted that further growth for the phyto-vet division in African markets was likely in the second half of the financial year. Overall, Ascendis looks in rude health with Wellner reporting that further growth was likely to be notched up in the pharma-med and consumer brands divisions.

He noted ongoing double digit growth in the Medical Devices division where the loss of one agency was compensated for by adding new brands. Wellner added that overall performance in the second half of the financial year would be helped by synergy projects between three medical business units as well as a good performance of from hospital businesses and export gains.

The consumer brands division should benefit from the launch of a ‘high end doctors’ Solal range in SA. Wellner said the skin market still looked rosy despite tougher economic conditions. Business levels would be helped by the launch of a new high end cosmetics range, a strong new product development pipeline and further growth in the sports and nutrition market in South Africa.

Wellner said Ascendis was addressing two new routes to market (internet and mass retail) for its sports and nutrition businesses. Although most recently deal-making has been internationally focused, there remains a possibility of Ascendis clinching small bolt-on acquisitions before the end of the financial year.

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