NZINGA QUNTA: Aspen has announced that, with Serum Institute of India, Aspen SA operations will manufacture, market and distribute four Aspen-branded routine vaccines in Africa, excluding certain markets due to the Serum Institute having provided prior rights to third parties.
Of course, it’s also [Aspen’s annual] results day, August 21, 2022, so we thought we’d get Stephen Saad, CEO of Aspen, in. Thanks so much for your time on the SAfm Market Update with Moneyweb, Stephen. Let’s just talk about the numbers first. Revenue from continuing operations increased 2% to over R38 billion. What drove that?
STEPHEN SAAD: Currently it’s always a bit of a negative for us in this environment because the rand was stronger, largely against the euro. So we had R1 billion less.
But the good growth drivers in there for us were [from] our manufacturing business, which continues to grow and we’ve made investments in the past in our manufacturing, and it continues to deliver there.
And our commercial business did particularly well in constant currency. It’s a business that took quite big body blows from Russia, from the China lockdowns, and from the fire in our South African business.
So all in all a good improvement, a good result. What really worked for us regionally was Latin America and particularly Australia.
NZINGA QUNTA: Stephen, how did the trading environment and inflation affect your performance?
STEPHEN SAAD: Just to give you one number, in our second half of this year our freight bill was R225 million more than in the prior year. There are massive inflationary increases, there are cost increases everywhere. There is uncertainty with pricing.
Remember, we sit with quite a few facilities in Europe. One day they’ll turn the gas on, then they’ll decrease it, and the price goes up and down – but largely up. So a very tricky inflationary environment.
That said, we were very fortunate that we had quite a few strategies that we had invoked before this to reduce the cost of goods by insourcing products into our own facilities, and really have real discipline over our operating expenses. The net result was actually that our margins ended up improved.
But that’s not a sustainable position, as inflation sustains at these levels. We simply don’t have an ability to pass on all our costs.
NZINGA QUNTA: Manufacturing revenue increased 18%. Where did that come from?
STEPHEN SAAD: It came really from two areas. It came from our French facility and our South African facility. The South African facility made Covid vaccines, which was a boost. And then the French facility made a lot of Heparin-based injectable products, and there was quite a strong demand during Covid for those as well.
NZINGA QUNTA: Speaking of manufacturing vaccines, let’s talk about this deal [with Serum]. Give us the background. How did it come about?
STEPHEN SAAD: We saw what happened with Covid. You see this massive health disparity and Africa didn’t receive any vaccines, and Africa realised that 99% of all vaccines are imported. The first vaccines, and by far the most vaccines that Africa actually got, were out of Aspen, where we made 225 million doses for the continent. Africa was right at the back of the queue. Of course that’s not a good situation.
So what happened was we showed an ability to manufacture vaccines effectively, efficiently.
Africa had said, ‘We want more vaccine security’. Much of Africa is under Unicef and Gavi [the vaccine alliance], and buyers like that. They are multilateral buyers who buy globally.
Africa is pushing for 30% to 40% of all vaccines on the continent [to] come from the continent. That meant that even very big Indian players like Serum, the largest vaccine manufacturer globally, tuned to Aspen and said, listen, we think it would be very good to partner you – one, because we get Africa health security, and [to] help us secure some of our chemical volumes.
So it’s a very important deal for us because, if you look at what we’ve got from Covid, at any one stage over this period – and I’m still not sure going forward – people are asking anything from zero to 1.2 billion doses; and that’s not a great way to run a factory. One day you’ve got nothing, then maybe you need to put in 20 lines.
What this does is, because they are paediatric vaccines, there is a constant and consistent demand for volumes. That is very important for us in order to be able to keep our facilities here going, give them certainty. But if Covid came back or some pandemic of any nature came back, at least you know you’ve got regional capacities which can be used here.
So I think it’s a very, very important transaction for us and it has given us confidence. We think it’s an important first transaction, but there are many others talking to us, and our hope is that ultimately through our capacities we would be able to provide cover for the continent.
NZINGA QUNTA: Stephen, looking forward to the future, what are you expecting from your performance as Aspen, and what challenges do you foresee on the horizon?
STEPHEN SAAD: When we look at our future there is a short term, say 12 months, and there’s a longer-term future. If we look at our commercial pharma business, we’ve got to hope that these costs ultimately stabilise, and that some normality comes back. But those businesses [where] we have divested products out of there, I think that sort of cycle might reverse out to maybe acquiring more products.
Now, if you’ve got a good business with strong organic growth demonstrated again and again, you get comfort[able] to invest products into it.
So I think that the manufacturing business is probably a very exciting area for us in that we see capacities where we have a lot of capacity we’ve already put in and paid for.
We see that rolling out. So we see, for example, Serum is a transaction and we see more to follow, and there is a pipeline of opportunities there. But moving a vaccine or transferring a product can take 12 months to 24 months, so it’s not immediate.
I think there could be a short-term impact on manufacturing if we don’t get any Covid orders or Aspenovax orders. We are not sure where we stand on that. The world doesn’t know where it stands on Covid. There is commitment to buy from Aspen, but of course there has to be demand – and so we need to understand [that] when the stocks run down I’m sure they are going to buy Aspen products first.
But for us it’s quite important that we have it in the next 12 months, otherwise we are going to spend the next 12 months putting Serum products, putting our anaesthetics, on those lines which won’t generate turnover immediately because they’ve got to be registered, etc. But we will have all the expenses. I’d say that gives you a headline.
But we are in a very good position. Our debt is sound, our business growth is sound, and [we are] now building on all of those positives.
NZINGA QUNTA: Stephen Saad, CEO of Aspen, thanks so much for your time on the SAfm Market Update with Moneyweb this evening.