Health group Ascendis, which has been battling with a hefty debt pile and the threat of being forced to sell its most profitable assets, has reported that interim operating profits were up more than a third amid robust demand for vitamins and supplements during the Covid-19 pandemic.
A move to recapitalise the group is also looking more likely, with Ascendis saying two of its lenders, who want a halt to asset disposals, have now increased their share of the group’s debt vehicle to three-quarters.
In a trading update for the six months to end-December, the group described its portfolio of assets as “Covid-19 defensive”, with revenue expected to rise as much as 35% to R4bn when accounting for the effect of business disposals.
Normalised earnings before interest, taxation, depreciation and amortisation (ebitda), a measure of operating profitability, is expected to grow 36%-56%, the group said, to an expected R718m-R822m.
Ascendis — which has businesses in the consumer health, pharmaceutical and animal health categories — is battling with debt after a series of offshore acquisitions, but recently indicated it may be able to halt its asset disposals amid interest from private equity groups.
Net debt of R7.96bn at end-June compares unfavourably with its R382m market capitalisation, but Ascendis said in January that two of its creditors, London-based investment firm Blantyre Capital and L1 Health Group, preferred a recapitalisation rather than the sale of profitable assets with long-term value.
The firms, then holding more than a third of the group’s debt vehicle, would be able to effectively veto disposals, with Ascendis saying on Tuesday the lenders have since increased their exposure in the debt vehicle to 75%, and the planned disposals of Cyprus-based Remedica and Sun Wave Pharma in Romania have been called off.
Discussions about the way in which a recapitalisation would proceed are ongoing, the statement reads.
Small Talk Daily’s Anthony Clark said the operational performance is robust, but the group’s debt continues to be the major threat to shareholders. It is unclear what the consortium of lenders paid for their 75% stake of the debt, but they are unlikely to have paid 100c to the rand and may have acquired it at a deep discount, he said.
Existing shareholders, who would need to approve any rights issue, may baulk at the hefty dilution of their shareholding that could follow converting some or all of the lender’s debt into equity, said Clark.
Shareholders may simply sell their shares instead of following their rights, offering the prospect that the lenders may, theoretically, acquire Ascendis for less than they would have paid for Remedica at auction, should an underwritten rights offer proceed, said Clark.
Ascendis’s largest shareholder is Citibank, with a holding of 16.74% as of November; there are many smaller, mainly retail, investors. Therefore the group lacks a powerful set of shareholders who could oppose the lenders, he said.
Shareholders will still need to approve the rights issue, offering the possibility of an impasse, said Clark. “The question is at what equitable level will they allow a portion of that debt to be converted into equity.”
Remedica’s revenue
Pharmaceutical business Remedica remains the largest contributor to revenue and operating profit in the group’s international operations, and delivered a strong performance to end-December, the group.
Remedica’s revenue is expected to be between €65m (R1.17bn) and €68m, an increase of 17%-23% over the comparable prior period, with normalised ebitda expected to rise as much as 40% to €24m.
In SA, which generates about half of group revenue, its medical devices business experienced robust demand, given it supplies high-flow oxygen units and ventilators that are critical in treating patients with Covid-19. It also supplies testing equipment used to detect the coronavirus.
Medical devices revenue is expected to rise as much as 62% to R1.14bn and normalised ebitda 59% to R218m.
“The business is expected to continue at higher-than-normal operating levels while SA continues to battle a second wave of Covid-19, which has resulted in higher infection and hospitalisation rates than the first wave,” Ascendis said.
Salon closures, which affected the group’s skin and body segment, and a reduction in the need for cold and flu medication, weighed a little on the SA performance, Ascendis said.
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