Aspen Expects Higher Earnings on Purchases From Glaxo, Merck

Aspen Pharmacare Holdings Ltd. (APN), Africa’s largest generic-drugs maker, said it expects the purchase of manufacturing sites from GlaxoSmithKline Plc (GSK) and Merck & Co. (MRK) to boost earnings this year.

Growth will be “strongly supplemented by contributions to the international and Asia-Pacific territories” from the transactions, particularly in the second half of the current fiscal year, which began in July, the Durban, South Africa-based company said today in a statement.

Net income climbed 25 percent to 3.52 billion rand ($354 million) in the year through June as sales from international businesses rose, Aspen said. Revenue increased 27 percent to 19.3 billion rand, beating the 19.2 billion-rand estimate of nine analysts surveyed by Bloomberg.

Aspen, which supplies medicines in more than 150 countries, agreed to a $1 billion deal in June to buy pharmaceutical assets from Merck. It has offered to buy heart medicines Arixtra and Fraxiparine from Glaxo, as well as a related manufacturing site in France, for about 700 million pounds ($1.1 billion).

“We recognize that debt levels may breach Aspen’s self-imposed limits in the short-term, but as long as this is followed by cash flow from these acquisitions quickly thereafter, that’s fine,” Chief Executive Officer Stephen Saad said in a telephone interview from Johannesburg.

International Banks

Gearing, which increased to 33 percent at the end of the year, from 29 percent a year earlier “is expected to reduce quite rapidly through strong operational cash flows,” the company said today.

Aspen has raised the bulk of the $3.4 billion debt needed for acquisitions from banks with which it currently has relationships, Saad said. The company is now in the second phase of debt-raising with a wider group of international banks. These lenders are due to submit their interests by the end of September, he said.

“Our basket of debt is more heavily weighted to U.S. dollar debt, which is the cheapest,” Saad said. “The cost of debt is in the 4 percent to 5 percent range for the total basket on a weighted basis.” The company is not actively searching for further acquisitions, he said.

The Asia Pacific region took over from South Africa to become Aspen’s largest contributor to sales in the fiscal year, accounting for 37 percent of total revenue. The region will remain Aspen’s largest business in the 2014 fiscal year, Saad said. Aspen expects to be adding to its Japanese portfolio this year, he said.

The shares rose for a fifth day, adding 4.3 percent to 254.42 rand by the close in Johannesburg, the highest price since at least December 1990. The stock has gained 51 percent this year.

Aspen maintained its dividend at 157 cents.

To contact the reporter on this story: Janice Kew in Johannesburg at jkew4@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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