Full Year 2019 Aspen Pharmacare Holdings Ltd Earnings Presentation
Johannesburg Sep 12, 2019 (Thomson StreetEvents) -- Edited Transcript of Aspen Pharmacare Holdings Ltd earnings conference call or presentation Thursday, September 12, 2019 at 6:30:00am GMT
TEXT version of Transcript
* Sean M. Capazorio
Aspen Pharmacare Holdings Limited - Group Finance Officer
* Stephen Bradley Saad
Aspen Pharmacare Holdings Limited - Group CEO & Executive Director
* Vishma Chetty
Sean M. Capazorio, Aspen Pharmacare Holdings Limited - Group Finance Officer 
All right. Good morning, everyone. Welcome to the 2019 Aspen Annual Results Presentation. We're really grateful for all your attention this morning and your interest in Aspen.
So a couple of important initial slides, I'm not going to dwell on them. But if you could pay your attention to them on the booklets. And then, I'm going to cover financial review before Stephen speaks in more detail about performance and then talks a little bit about our outlook.
So just the basic financial summary of the performance over the financial year. I'm going to talk on this slide a little bit about reported earnings, which is what you would have seen in the front page of the SENS announcement and so on, but we're going to mainly talk today in constant exchange rate, which really eliminates all of the noise which is created by currency and gives you an apples with apples comparison.
So net revenue at ZAR 38.9 billion was 1% up in reported earnings. But because we had some favorable ForEx headwinds was 2% down inconstant exchange rate.
Gross profit held pretty much firm in constant exchange rate. Normalized EBITDA, minus 2%, minus 4% at ZAR 10.8 billion. The tax rate ticked up slightly, and we came in at ZAR 0.1414 of normalized headline earnings per share, which is management's earnings per share measurement that we really judge the business by, which was down 8% in constant exchange rate terms.
Operating cash flow, ZAR 0.1319. And operating cash flow conversion that is cash to headline earnings per share of 107%. We really try and get as close to 100% as possible, so we're very pleased with that outcome. Earnings down over the year by 17% to ZAR 39 billion, and down a lot more from the ZAR 53.5 billion that we had at the half year, which bought us down to a gearing ratio of 3.62%.
A point note not on this slide, which I'll deal with upfront as well is that with our current prioritization of deleveraging the balance sheet, the Board decided yesterday that we wouldn't pay a dividend this year, and that is something which has had some early headlines, but I think is the prudent thing to have done at this stage.
We look at the segmental performance on the next slide. We split here between the main pillars of our business, and we managed to provide some additional insight into Manufacturing, which I think is very relevant to the performance over this year.
So we have Regional Brands and Sterile brands as our main Commercial Pharmaceutical elements of the business. And then we have a Manufacturing business, which not only manufacturers for Aspen, but also sells product to third-party customers.
If we look at Regional Brands, we show a small revenue growth, and this is notwithstanding some rather large declines in our oncology portfolio, which started from some price losses and that also impacted upon the gross profit margin.
Sterile Focus Brands, managed to increase its gross profit despite a 2% decline in revenue and that was also back of improved manufacturing processes and efficiencies, particularly in the Thrombosis portfolio.
Manufacturing did weigh on the business. This was information that we shared 12 months ago and at the half year that really relates to a reduction in the contracting manufacturing business. Stephen will give a bit more insight into that. But that did result in some losses of revenue and gross profit.
Overall constant exchange rate now. Gross profit percentage was flat to 50.7%. And the Sterile Focus Brands, you can see with gains in gross profit percentage from 52% to 54.8%. As I said, Thrombosis, in particularly, having superior gross profits this year off the back of our cost of goods initiatives. And that allowed us to pick up the slight decline in Regional Brands, driven by those drops in oncology prices and the effect of the lost business in the Manufacturing.
If we look at the difference between gross profit at 50.7%, flat, and normalized EBITDA percentage of revenue, which was 27.8% against 28.1% a year ago really, the mover is in operating expenses, which although they remained almost exactly flat over the year, just the fact that in constant exchange rate terms, revenue was slightly lower, means that as a percentage of revenue have ticked up a bit and hence, the slight fall in EBITDA percentage.
I'm now going to talk about impairments. So just a bit of backdrop on impairments. Aspen classify certain of its intangible assets as being of an indefinite life. That means that we are not sure a period of time over which that, that asset will be able to continue to add value, but we believe it is an extremely long period. Each year, we carry out a very vigorous test of the carrying values of those assets. And if any of them have been impaired, those were then written down. And this represents our write-downs of not only our tangible assets but some of our other asset classes during the past year.
Now this test of value is a one way test. If you find the value to be less than your book value, you write it down. If you find your value to be higher than your book value, you're not allowed to write it up. So I think that should be considered here because in essence, what we're saying is the ZAR 67 billion of intangible assets that sit on our balance sheet are some of them, the ones that have been written down, have been written to equal value, and all of the others are of higher value than the carrying book value. Write-down amounted to just over 3% of the opening book value, and there were a couple of points worth highlighting.
I've already spoken about the oncology portfolio where increased generic competition has led to a loss of pricing, so we've taken a fairly conservative outlook on that portfolio and affected ZAR 750-odd million write-down.
In Anaesthetics, we had a product, one of the Anesthetic products, which had an earnout attached to it. We don't believe that earnout will be paid any longer, so that liability have been released and this is a matching write-down of the asset value. So that actually has a contra-income flow elsewhere in the P&L.
Development costs, we've been doing a lot of work about rationalizing our pipeline and these are projects which we will no longer bring to the market. So those have been written off. And then there are some other of our Regional Brands, which where we have affected write-offs.
The goodwill write-down is related to the same brands, the goodwill relating to the brands that were impaired under intangible assets.
In property, plant and equipment, some of our facilities that have become redundant as efficiency gains have allowed us to close facilities and some of our strategy shifts have also led to write-downs.
Then finally, the financial asset write-down, which is rather small, is the share and the development has where we're no longer confident we're going to get positive results.
If we look at the currency impact on our earnings over the past year, you will see just on a contribution to revenue, the biggest currencies, the ones which are most important to us: Euros, 29% contribution; Australian dollar, 11%; the South African rand, 19%; and the Chinese renminbi, 7%; U.S. dollar, 6%. So those are the major currencies to which we're exposed.
However, if you look at the normalized EBITDA, there's quite a big shift. And you see that the euro percentage contribution at EBITDA level is much lower at revenue. This is because we have a lot of costs and EBITDA, particularly -- and euros, particularly a lot of manufacturing in euros where the products are actually sold to other territories. And China is a good example.
So China, which only contributes 7% to revenue, contributes 16% to EBITDA. The reason for that, most of its cost of goods are euro-denominated. So there's a changing mix as one looks at different levels of the financial statements.
The U.S. dollar, because we have a lot of raw material input cost on U.S. dollars, was actually negative. It's an outflow at EBITDA level.
The rand at 21% is the biggest contributor to EBITDA.
If you look at the effects on currency between the reported earnings and constant exchange rates and the benefits, we got -- we had a tailwind from currencies on a reported earnings this year, revenue uplift between 3% and 4%. Normalized EBITDA, around 2%.
We'll move on to looking at effective tax rates. On this graph, we have 2 lines. The pale blue line is the group effective tax rate from continuing operations. The dark blue line is the group normalized effective tax rate.
So the effective tax rate rather than normalized one, shows spikes in 2016 and 2019. These are essentially abnormal factors, which occurred during the period. In 2016, we had the Venezuela business that we unfortunately had to write-off at that time. This year, the higher impairments, which are not part of normalized earnings give an uplift in the effective tax rate.
Normalized effective tax rate has been falling for the last few years, and it slightly ticked up this year. Anticipated changes in the year ahead and the balance of earnings between higher and lower tax jurisdictions means that we expect this rate to continue to rise by at least 1% and potentially as much as 2%.
I always like to put the reconciliation of constant exchange rate normalized headline earnings per share with basic earnings per share and headline earnings per share into the presentation. While management use normalized headline earnings per share as our judge of the underlying performance of our core business, every investor and every user of these financial statements is welcome to choose to measure that they believe is most appropriate. So we've set it all out here, we give you all of the movements between the various levels and we invite you to base your analysis on what you believe is the most appropriate.
Moving on to working capital. We had a very strong cyclical unwind of working capital in the second half of 2019. It benefited the cash flow by ZAR 875 million in the second half of the year. I do stress that there's a cyclical element to Aspen's working capital cycle, which I'll come back to, and that was a benefit. There's also some benefit from slightly lower-than-planned inventory levels at year-end, some supply constraints and in particular, the strike at the South African production sites meant that year-end inventory was lower than we had initially expected.
We also had the benefit of recovering some VAT receivables, which we highlighted at the half year as being part of the course of the higher working capital balance at that stage. So those were collected into the second half.
Investment in working capital, so actual payments outgoing for working capital in FY 2020, the year that we are in now, is likely to follow the same cyclical trend as in 2019. The higher inflow in the first half and a lower inflow in the second -- higher outflow in the first half than in the second half.
In the first half of this year, there will be some replenishment of inventory, as the strike has now been resolved and production gets back to normal levels. And during the course of the year, there will be also some replenishment of anaesthetics stock around the world as production improves and moves to normality.
Higher heparin prices, which is a major raw material in our Thrombosis business were also weigh on the inventory value. And of course, you always need to bear in mind that working capital is exposed to currency movements.
You'll note some metrics in the top left-hand corner, working capital as a percentage of revenue, including and excluding the Oss business. The Oss business is a big chemical -- pharmaceutical chemical business we have in the Netherlands and it has its own very long working capital cycle. So lots of inventory is tied up at Oss. But stripping Oss out, we've got working capital as a percentage of revenue around 34% now, was around 33% a year ago. We expect those kind of levels to be maintained at the end of FY 2020.
We are running a number of big capital projects the moment and we spent ZAR 2.4 billion on bricks and mortar CapEx in the past financial year. We have a larger spend planned for this year, ZAR 2.6 billion, and then it starts to fall quite sharply to ZAR 1.5 billion, ZAR 1.2 billion and by 2023, it should be lower than ZAR 1.2 billion.
The planned CapEx is based on all of our current expectations. And we really do not foresee any major strategic projects coming online in the near term.
So I think this is a fairly reasonable view of the outlook.
Of the CapEx, approximately ZAR 400 million to ZAR 500 million a year is maintenance CapEx and the rest is expansion CapEx.
Our strategic projects for the anesthetic products where we're running major products to bring our anesthetic products in house, the total value of those, we've previously shared with you, was around ZAR 4.5 billion. It's moved up slightly or ZAR 4.9 billion. And that's largely an exchange rate influence. And expected first commercial production from these products is between financial year 2021 and financial year 2022 depending on which of the 3 sites you want to look at. Full commercial benefits are likely to start flowing in financial year 2024.
Borrowings at the moment receives a lot of attention, and we'll linger a little on borrowings for the next couple of slides. So on this slide, all of the indicators and metrics at the top of the slide, I'll particularly draw your attention to the declines in gearing and the gearing ratio and then to the net borrowings overall.
Bottom left-hand corner of the slide, we have our debt profile. We have EUR 560 million of debt, which comes due on the 1st of July 2020. We expect that to be fairly significantly paid down through free cash flow and also through some of the initiatives that we have underway relating to value realization. To the extent it does not, we have a strong level of support and interest from our banking syndicates and refinancing.
The net debt-to-EBITDA covenant of 4 will continue for the 12-month measurment period at 31% for 2019 before dropping down to 3.5x at the 30th of June 2020. And we are confident that these are covenant levels that we can manage very comfortably at Aspen.
The net borrowings bridge gives you a good insight into how borrowings have evolved over the last 12 months. Between the opening and closing balances, there hasn't been a lot of FX impact. And then, we have translation -- transaction-related inflows and outflows. We had deferred payments relating to past transactions of ZAR 5.6 billion, which were paid during the year. And then the ZAR 13.3 billion we yielded from the proceeds of assets we disposed, largely the Nutritionals business and a ZAR 1 billion outflow, which was part of the Nutritionals transaction. So those 2, you can look at together effectively ZAR 12.3 billion. So some ZAR 6.7 billion of transaction-related inflows.
On an operations-related basis. Cash flow from operating activities, ZAR 6-odd billion. CapEx of various sorts, including intangible assets, ZAR 3.6 billion. The distribution to shareholders last year, ZAR 1.4 billion and some small other items. So all in all, a net inflow from operations of ZAR 1 billion over the past year. The year ahead, obviously, we will not be having a distribution to shareholders. So therefore, it does end at the ZAR 39-odd billion of closing net borrowings.
And to those of you who are analysts, we also are providing some insights into our future cash flow trends and tracking those against some of our recent past. So we start with the property, plant and equipment CapEx, where we spent ZAR 2.1 billion and ZAR 2.4 billion over the last few years. We see that increasing slightly in the year ahead before declining rather sharply in 2021 and then stabilizing. And you can refer to the earlier slide for more detail there.
And intangible assets, we had a big spend in 2018, smaller this year. And for the year ahead, we have ZAR 700 million planned at the moment. That's largely on development cost. This is an opportunity dependent slide as lined on the slide, but ZAR 700 million is currently the plan.
Dividends, we've spoken about a few times. So it will be 0 from the ZAR 1.4 million in the current year or the year that's under reporting at the moment.
Deferred payables, I mentioned in the previous slide, this was a big number and a big commitment that we had over a few years. So it was ZAR 4.6 billion in 2018, ZAR 5.6 billion in 2019, drops right down to just over ZAR 300 million in 2020 and will trend lower unless we do some future transaction, which has a deferment. But at the moment, that's not in plan.
The European investigations, most of you who follow Aspen closely would have read about the developments with the U.K. investigation and the commitments we have made there. That is moving towards finalization and of course, we'll update the market when finalization is reached. But based on those arrangements and some of our other commitments, we have just over ZAR 300 million of payments that we expect to make in the year ahead. And then future payments will be largely dependent on the one remaining investigation with the European Commission.
Deferred receipts should be figured in this analysis as well. Through the course of this year, we expect to have ZAR 380-odd million of payments coming in from amounts still owing under disposals we've made, and then almost further ZAR 500 million coming in the year thereafter.
And then we have some more contingent or conditional future payments and receipts, of which there's about ZAR 350 million relating to the working capital true-up, which may be payable on the Nutritionals disposal. And then, there's another ZAR 750 million net receipt payment potentially in 2022, depending on various possible outcomes.
And that actually wraps up all I have to share with you this morning. Thank you for your time and attention, I hope that have given you some deeper insight into our financial performance and our financial commitments going forwards.
Steve, over to you.
Stephen Bradley Saad, Aspen Pharmacare Holdings Limited - Group CEO & Executive Director 
Thank you. Good morning, everyone. Once again, thank you all for being here. I think you can see the numbers are fairly large and it's been a year of quite a bit of action. And the year ahead is going to be no different, we hope. And what I'm going to talk to you about is operations and what I'm hopefully be able to demonstrate to you clearly is where we're performing, where we have our challenges, and I'm going to look at it both geographically and therapeutically.
Let's just deal with the results as we see them. We've got, in constant exchange, our Commercial Pharma business grew at 3%. In constant currency, it was minus 1%. And the Manufacturing business was minus 5% in reported and minus 11% in constant currency, giving us a group revenue up by 1% in rands and in constant currency, minus 2%.
Now we look at our business in constant currency. I can't ask Russians to perform in rands. And so I'm going to do all future slides, I keep it in constant exchange rates for you.
What we will show you geographically is the performance in Commercial Pharma where we were negatively impacted in the Europe CIS, our anaesthetics supply and we had a strike in our South African business. And then we had some very positive results in other areas of the business as well, which we will cover.
The Manufacturing business is an interesting business and the heparin business is something where we suspended supply -- of our third-party API supply. But as you know, we bought a bit of stock. And there's 2 parts to the story for Aspen, and I know that from what I've read the impression that I received that this is generally very negative for Aspen. But perhaps, that might not be correct. So let's cover that a little bit later as well.
So let's look at the business by geography, and we have many, many countries, many moving parts, and we like the fact that we have this very broad income base and it does give us some resilience, of course and it gives us some broad currency hedges as well.
But I think, if you take one thing out of this slide, you can look at this and say, well the regions are generally performing. Of course Africa-Middle East was flattish but heavily impacted by the strike in South Africa. But if you look at the business, it's a business where we've got growing businesses in Asia Pacific and Americas. And when you read Americas, that's largely Latin America. And we have a business in the Europe CIS, which is at 30% of the business, and yet it is down 7% and actually weighed on the entire group's results. So very simply, if you want to try and think of Aspen in big picture, you've got 3 regions that give you about 30% of your business, 10% really out of Lat Am and you've got that 130% piece that weighs on our results.
So let's get straight into the Europe CIS, which has weighed on results and understand why and how it is weighed on the results. The European business is largely a Sterile business. It's 80% in steriles. It's got some Regional Brands that do about 20% of the business. Those Regional Brands, actually outside of oncology, actually grew by 1%. That's what that pie chart tells you, meaning that plus-minus of ZAR 200 million decrease is around the oncology portfolio.
The Sterile-based brands, there are a couple of other areas that we should talk about and I'm going to spend a bit of time under the therapies and what we're doing to affect them. But under this slide, what I'm going to cover with you is the -- and I've discussed Russia and the change in distribution strategy and what we did, we take our products back, an event that the wholesaler that was trading in them, their stocks depleted. So some of the impact, there's a one-off impact from Russia. There were constrained supply in Anaesthetics. But what I want to spend time is the commercial structures on this slide. We really have tried to work out the best structures and how we manage this region, and we've collapsed the broad regionally structure and split it into 8 clusters. And those clusters are countries that are lumped together or it might just be an individual country if it's material like Germany or France. And we've put that oversight right under our head -- commercial head in South Africa speaking directly to the (inaudible).
We looked at our existing sales resources between therapies and countries, and we're focusing on the highest -- we saw a lot of people. In some regions, we have not enough. And in some therapies, we're giving more focus than we should. So we tried to put to where we could create the highest commercial advantage and where we've got our highest revenue growth potential.
Now I will show you just now how important scale is, and particularly in Europe. We've looked at sales effectiveness, and we want to say who are the right people for Aspen to talk? Who's making the buying decision. It's not always the same people, and Europe isn't one market. So it's almost market-specific where we have to go to.
And then we're looking at a formalized team to management to ensure readiness for when Anaesthetics supply. And I'll speak to you about Anaesthetics and how the way -- and the market works in that space.
So the last slide on the regional slide, and this is the Aspen region, excluding Europe CIS. And what will find here is an Aspen model that you might be a bit be sort of familiar with. You've got organic growth both across Regional Brands and Sterile brands. And when you look at those 2 different pieces, your Sterile brands are very heavily weighted towards Asia Pacific. So if you perform in Asia Pacific and Latin America, you've got 90% of your business in Anaesthetics. Asia Pacific, largely China, Japan, Australia.
When you look at your Regional Brands, they're very influenced by what we do in Middle East, Africa, obviously, largely South Africa and Asia Pacific, which is largely Australia. So those are areas if you want to look at some analysis. Those are areas if you look at and understand should drive most of your understanding of what happens here.
So if we look at Regional Brands, Australia, we did a quite a heavy restructure and sell-down on some products and rationalization and really, an excellent performance. It's a tough market but you know Aspen has done particularly well in this market for a very long time now since, I think it was 2001. And very strong management team and they continue to perform. And Australasia, just to be clear, is Australia and New Zealand defined. So that so far -- that grew 5%.
The South African Regional Brands were flat. It was -- we were up at 5% at the half year. And by the end of May, in the private sector, we were still up 5%. And so a lot of that impact -- flat as a result of a big consequence of the strike action.
And Latin America has grown and continues to grow in the South African business. Those of you might remember our very, very early days in Brazil, will remember the trials and tribulations we went through to get into this position but certainly -- and perseverance has paid in that region. And we're in a very strong position and good branding in the region.
In terms of the Sterile Focus Brands, China is a very big portion of what we do in Anaesthetics and in steriles and has grown to 13%. It's been a particularly good market for us. We certainly aren't seeing the pricing pressures other have felt. And I think so many times, I'm going to tell you this over the presentation, I think where we'll be taking the business to be trying to take it out of commoditization, things that are easily replaceable but things that aren't so easy to replace. And in China, we're doing particularly well there. Unfortunately, the Asia Pacific performance was offset largely out of Australia where the performance was impacted by a supplier of one of our contract manufacturers. Once again, Latin America has performed here, too and has grown at 7%. So this is an area that grows and an area we need to build on as well.
If I go now to look at the different therapies, Aspen has got Regional Brands and we've got Sterile Brands. And then the equal Regional Brands is a little weighted towards Regional Brands. And here, when we focus one should look at sub-Saharan Africa and Australia, which will give you sort of nearly -- just over 60% of the business. And the Australian business that I mentioned earlier grew at 5% with OTCs growing at 8%. So it's -- they're doing very well in OTCs, and our business generally has been very strong growth across OTC, consumer and branded. Now those are good businesses because there's brand equity and there's -- an ability to retain margin. Margins is a very important part of what Aspen does.
The South African business was restructured into Aspen and Ethicare for heightened customer focus. Ethicare, for example, includes a lot of our traded business. It includes hospital business. It includes our ARVs. And the public sector ARVs are also in this turnover and they amount to ZAR 1.3 billion in sales in this year.
Having split the business, having believed, having been through a strategic review and having split the business, we're getting more and more confidence that we've done the right thing here, and we're really seeing some positive signs. Albeit very early days, but I will take you through a little bit more detail on our strategic group, both on South Africa and Australia.
The ARV tender's effective from 1 July. We received significantly reduced volume versus the prior tender. The tender really doesn't favor local manufacturers. It's quite a tricky tender when you think about it. There are about 5 API suppliers globally of any consequence, all based in India, almost based in the same place. And you'll -- and it's a very big portion of the total cost of goods. So it's -- your value add is to take the part and turn it into a tablet with most of the value sits in the API. And I'm going to speak to you about how we intend dealing with these areas. But there is a supplementary tender out, and that tender is expected to be awarded in October 2019. So it's a couple of months time. And it's a fairly material tender in terms of value. I've have got to be clear, there's not a lot of outside facility recoveries. There's not a lot of profitability, if any, in these tenders.
The NHI, a lot of questions around NHI. You've just got to believe that with broader access to medicines, particularly given Aspen's position, strong positions in both the private and public sector, that any new growth in medicine would be a positive. But I'm not going to dwell on how much volume growth versus how much price growth. But more money is spent on health care, more access to the general population for medicines. We're broadly positive about what NHI might bring to Aspen.
The European performance, as I showed you earlier was negatively impacted by the oncology products. And Latin America had some very good growth from its domestic brands.
I'm going to spend a little bit more time on the sterile products and sterile brands, and going to give you a little bit of detail, and let's dig in and understand as to what we -- where we're going and what we hope to do.
We have been constrained on manufacture. And what we did was we took our business and we took sort of half the business that was constrained and the other half of the business that was less constrained. And Japan is less constrained because they have a lot of production out of Japan. China was constrained. The turnover could be significantly more, but we've had to limit how much stock we can even put into wholesalers. But it was a priority market for us, and Latin America as well. And we treated those as less constrained markets.
So if you look at your less constrained countries. So if you take Anaesthetics in a whole, we're down 2% in constant exchange. And if you look at the less constrained markets, they grew at 4%. And you look at the more constrained markets, and they were down 7%.
If you look at what -- these out of stocks, what are the costs? How did it cost? AstraZeneca paid us compensation in this period of $20 million for the short supplies and the shortfalls. And as you might remember, there was $10 million last year. Even if you just add that compensation payment on top of the Anaesthetics turnover this year, you would find some -- you would find that the turnover was at the very least flat compared to the prior year, giving you a sense of the problems that we have had in that space.
We expect Anaesthetics turnover to improve during H2 in 2020, and it's going to be -- it's an important turning point for us. We believe in this franchise. We're investing heavily in this franchise. We believe it is essential pillar to where Aspen will be in 10 or 15 years time. A lot of people don't fully understand what this market represents. And if I look at -- for example, if we look at Europe which has taken a lot of the pain and that minus 7%, and you look at the total market, when we talk about improvement, it's stabilization of existing supply. It's not bringing on Aspen new supply. And stabilizing of supply in a market, you might say, well, it's a tender market. Very diverse range. Some is in tenders, some is not. And if you look at a European market, once again, every market is different, but I give you a broad understanding of Europe. 60% of that market, I would say, plus/minus 60% is a tender market as you understand the market. And then there's 40%, which is a contracted market, which I would call a private market.
Aspen's portfolio, although we have 11% or 12% of that European market is very centered on the contracted market. You've got a private hospital in Germany, you've got a bundle of products together, and that's what you sell. So it's really about stabling at 40%.
What Aspen supply brings is opportunity to address the 60% of the market, for example, in Europe, that's not addressed by Aspen. So I will give you the largest product in Europe is a product called propofol. That product does EUR 400 million across Europe, and there's 2 or 3 competitors in the market. And Aspen is building a very big propofol site in Port Elizabeth, Jamaica's competitor. Of that EUR 400 million in tender business, Aspen has just EUR 8 million of sales to date out of the EUR 400 million. So there's an opportunity. If we get 10% of the market, you go from EUR 8 million to EUR ZAR 40 million and et cetera, et cetera. So there is a short-term strategy to stabilize the plan and a longer-term strategy, which gives us competitiveness and access to tenders. Don't be confused that the tenders that are affecting the Aspen business. Our current business in Europe is a contracted business largely in the private market.
So the suppliers, I said, is expected to increase and obviously, the CapEx is critical. One, to stabilize supply; two, to give us quality; three to give ourselves priority; and four, as an example I'm given you is to give us competitiveness to access markets. I know these -- this is -- I know it's been a painful phase, but I want to tell you that these investments in the long term, and they're all long-term investments. Unfortunately, it takes 5, 6 years to get these facilities up and running. They are what give Aspen sustainable -- sustainability and sustainability to margins.
The barriers to entry, we don't have research and development. We're not interested in being commoditized products, so you've got to create your own moat around your business. There's not a lot of people that would spend this amount of money. There are not a lot of people in the world that are going to get your #1 in anaesthetics outside the U.S.A. and #2, in injectable. Coagulants around the U.S.A., which gives us massive critical mass to be able to afford these facilities. Big ventures, expensive ventures, but we believe will pay in the long term.
The second area is to talk about Thrombosis business, Sterile Focus Brands, and let's talk a little bit about -- and every time, one of the major multinationals puts out their results on the enoxaparin, there's that massive panic, I get 100 calls from analysts, "What's going on? They're down 20%. They're down 10%. Your business is going to be impacted." So I though, let's just put it out there. Let's just understand where these biosimilars are playing in the European market. And there's a very clear trend coming out of of here.
When I talk about low molecular weight market, remember, this is not Aspen's total portfolio of Thrombosis in Europe. Just -- but it is 2/3 plus/minus of our business. And if I look at that 2/3 over the last 2 years, we've declined just minus -- or minus 1%, that's 0 come 7%, minus 1% over that 2-year period across Europe CIS. And the originator brand has come down at 12%.
Now let's look at the originator's published accounts and what they've told us. They told us by the end of '18, that's the middle bar chart, so we're down 14% and they're down about 20% for this -- for the last -- for these 2 halves to June '19.
Now the originator is about half the market. So when you look at those numbers, you saw how much of the market has been lost, plus/minus 7% for '18, if you look at the last quarter, and maybe they're down 10% -- maybe the market has been a 10% loss or erosion of the total market. And where has that 10% gone? What has really gone to biosimilars, which have gone from 2% or 3% up to a 9% stake in the business.
What I want to tell you is that you have the plot this graph against a generic, that biosimilar story would have been 80%. It gives you a sense of the resilience of the class. These are not just generics. These are biosimilars. There's not massive erosions in the branded product.
And other important point to note is that it's not impacting Aspen. And if it is, it's very small. The impact is on the branded product. Why is it impacted because that's where you can get a direct switch. We have a different molecule. You can't switch our product across -- they might decide to change it, they might outmaneuver us at a hospital. But you're not seeing the same impact. So please, when you see the branded company's results and they're down, do not automatically assume that Aspen has assumed a similar impact.
On the performance of the portfolio, a couple of areas to look at. We've had pretty consistent performance over the last couple of years. And in the total -- and in the total business, you would have seen a growth in rands of just over 5%. And in constant currency, a couple of percent.
And we've -- and then, if you look at the portfolio, and this is quite an important area for us is in terms of how the split is taken, we're finding a decline in EU CIS, which was about 6% and our remaining regions grew at 14%, of which Russia was about 33% or 34% growth -- I mean, China, sorry. China was -- we had tremendous growth in China. Some of that was offset because we discontinued or chosen -- we didn't tender in some of the Middle Eastern countries or ceased tendering because the economics never made sense for us.
This is an important point I'm going to make now, not just for the point itself, but when we just talk to you about our strategy and why we're embarking on our strategy is this next point. If we split the businesses as I told you into 8 clusters in Europe. In our top -- in our 5 clusters that make up 90% of the revenue, we've shown growth of 2% in Thrombosis. So where we have a little bit of scale, we've shown some growth.
In our smaller regions, we've declined at 7% per annum. And overall, we're up 1%. Why is that 1% different to the minus 1% in the previous slide? The minus 1% in the previous slide was our low molecular heparin, our heparin-based products. What this tells you is our nonheparin-based products have grown the total portfolio. So they've taken the decline of heparin and grown the total portfolio to give us a growth of 1%.
So we did a strategic stock but we took -- there was a lot of concern in the half year around working capital. We did a strategic stock build on heparin, as you know and we never decreased. So when Gus showed you the working capital slides and the great cash conversion we had, we never decreased our heparin to achieve that operating cash flow. It wasn't achieved out of decreases in heparin.
The prices are very volatile, and they're moving in one way and that direction is up and continue to move up as we speak, even more sharply than they did before. And we expect a negative gross margin impact on this portfolio and I'll finish those portfolio of about -- of up to -- could be up to EUR 10 million. It should have been a lot more but our stock will certainly -- certainly assisted us there and through this year, and it could be up to a further EUR 10 million in financial year 2021.
So I've heard a lot of people talking about the Aspen model, and I get 2 hours a year -- I get 2 hours a year to speak to you, and the other -- all the other hours are spent by people who know a lot more about Aspen than we know. So let's just go back to the Aspen model and understand what we're doing.
We've relied -- we believe we've got a dynamic model. We rely very heavily on organic growth, so models works with organic growth. It has to. And why does it have to? Because we think about an Aspen business, we don't issue yet or we don't issue equity. And then you've got a -- begs the question, why we list it. And I don't know, this is my 41st presentation and it took -- not too smart to work this out now. But this is a company that's built nearly up to ZAR 11 billion of EBITDA with almost no equity.
So what do you have to do to achieve something like that from a 0 base? You need organic growth and you need to have some very efficient portfolio and renewal. So what does that mean? You better buy and sell pretty well as also. And you need a lot of free cash flow to generate and invest to be able to service debt and to be able to reinvest. And for me, that's the most important measure of a company and particularly of Aspen is cash flow because intangibles can confuse you but they don't involve cash. At the end of the day, you can fudge many, many things but you can't fudge cash.
And then the Aspen model, what do we require? We need to -- we have to adapt to circumstances for sustainability. And we're not scared to change our model. And sometimes, it involves massive shifts in the model. And that's been evidenced in our evolution from generic business to branded and sterile portfolios. And if I tell you where the market was before we did these transactions, generics could do no wrong, there was big price opportunities and gains in the U.S. markets, and everybody was very pro-generics, and they will leave it up and they're getting lots of money to go and make more acquisitions of generic businesses.
At that juncture, Aspen chose to sell much of our generic business, and we chose to acquire sterile businesses. Where we are today is there are many American companies, very highly levered with acquisitions that are now worth a lot less than they paid for them. And the one area -- and a huge price erosion across some of those generic businesses. The one area in the U.S. where price has maintained is in steriles -- in sterile businesses.
So it's just a point to note that that's where we saw this for this -- where we're taking the business. And so successful execution of this strategy, I believe, will get to the end result that we want to. But everything in life, you can have all the greatest ideas about this but execution.
And we invest in differentiated products and manufacturing capabilities. Why do we do that? And why do we like brands? Why do we like OTCs and branded products? Because you have sustainable gross margins, and those margins are what generates cash for you. And gross margins are very important indicator, I believe, of the positioning and your competitive advantages within the business.
And I think, we've had efficient portfolio renewal. We value create in our products as evident by the profits in almost all of our disposals. The Nutritionals alone generated maybe ZAR 6 billion of profit. And there are many people who said we sold the golden goose. Well, I'll tell you what, we really got a golden price. So we're very, very comfortable with what we've achieved there.
And we've established leadership presentations in therapeutic categories to synergistic transactions. What does that mean? It means that our Thrombosis business is probably, and in our Anaesthetics business, is a combination 7 or 8 transactions with 3 -- 4 multinational companies. So that's a feat in itself to do one deal with one multinational. But to do this across 4 multinationals, to put these baskets together, is what given us the strong leadership position and gives us some more strong competitive advantages in some of the markets we're in.
And then the one thing I hope I don't have to remind you of after all this time is that the Aspen management is completely aligned through our equity holding with our shareholders' interest. And so that is one of the reasons we are very cautious about how we issue equity. How we deploy capital is very important to us.
So let's look and see how we're performing against some of these metrics we're seeing to us.
In organic growth. Many of our regions now are delivering organic growth in some difficult times where you take this sort of the regions that we showed outside the U.S. with strikes, we had supply issues, if they delivered organic growth in constant exchange rates. In Europe CIS, we're working to a solution. I'll talk to you a bit about that solution when we talk about our strategic reviews and what -- and our outlook for that business. And the manufacturing revenue is stabilizing, and there is potentially a larger opportunity or largest opportunity for heparan upside, which we'll talk to you about just now as well.
How's our free cash generation? Well, for our 21st year, we have -- we've reduced debt by 27% in the last 6 months. It's a big number. And management take that debt number really seriously. I want to tell you this, the one area that we absolutely focus on is deleveraging, and deleveraging swiftly. It's not -- this is not a many year game. This is -- we actively of deleverage and I hope that we've displayed some of that in the last 6 months.
Our operating cash flow conversion has been 100%, 107%. I think if you took a graph for the last 21 years, you'd find that it would be a very, very tight range between 90% and 100% for -- 110% for the full 21 years that we've had it there.
Our CapEx spend, it will decline as Gus showed you after financial year 2020. So we're seeing some decreases. We're seeing some life there. But most importantly or more importantly are the deferred payables. What's a deferred payable? If somebody gives you terms to pay for assets, and they -- these were big assets and we paid them and we really -- we finally over [debt up]. And that was a very important time to get over for us. And so there's no longer material commitments there.
And we really actively engage in further value realizing opportunities. We think that our model was sound. It's been sound for us for the last 20 years. And we believe it's more sound now than ever, given the dynamic changes in the former landscape. No one wants to pay for medicines. Government are often payer s. You've got to make sure you're in the right spaces here, otherwise you're going to have problems in pharmaceuticals. But there are opportunities with some massive market.
So let's give you some feedback. We used some bland terms, strategic reviews, South Africa strategic review, Europe. So let's have a look at some of the outcomes of the -- of our South African review. We see unbelievable potential in the Aspen portfolio. And we think the South African market is a dynamic market, it's a growing market, it's a really good market. But you've got to know where to play. It's one of the stronger markets globally for what Aspen represents. I'm talking at a macro level.
And then if you're go into a micro level, we've got an unbelievable portfolio in Aspen. We treat everything from ARVs to Lennon Dutch medicines. So if you want [Borsdruppels] or [Lewendruppels] or Lennon's essence, sorry, we've got it. And we've got to decide where we put our focus in this. And we will continually reassess our portfolio in South Africa as to whether where it fits, does it fit strategically for us, doesn't it? We've got really good understanding of it. So we're very bullish on the prospects within South Africa and the opportunity for growth is really going towards consumer and OTC products, and we were made acutely aware of it when we find -- we had huge supply constraints around liquids and liquid capabilities.
And then the third area that -- we've got to be candid with ourselves. In some areas, we're just simply structurally disadvantaged. And sometimes, that's around the commodities and even around the ARV public sector tenders.
So what have we done to address focus? We split our business into 2. The Aspen business, which is a branded business. It will deal in the sort of big pharma products, the OTCs, some of the consumers. And Ethicare is a commoditized business and it's a branded business and you are trading with hospitals, with chronic houses, et cetera, across your portfolio.
And there's 2 sort of different mindsets needed and 2 different type of people and folk that are needed. And that split, we think, is really going to drive some good growth in South Africa.
Consumer health and OTC, we really want to unlock the growth potential there. We think there's significant growth potential and it's something I'm going to hopefully be talking to you over the next 3 or 4 years. And there, we put new liquid capacity in and we've managed to -- we've got it commercially operationalized last month. And by October, November, we should start seeing the benefits of that improved supply.
If I look at public sector ARVs, Aspen has a social commitment to patients and continues to manufacture ARVs. And I think that's something that we're all well aware of and people understand the history of Aspen will know the important part that we have played historically, and we hope to continue to play in the business.
What we are seeing is really no real benefits towards local manufacturer. We talk about benefits of there might be a 10% price increase. But when compared to this whole -- all the cards in terms of what you're going to be supplied, there's -- don't be surprised if you squeezed out at some point.
And what has 999 interesting is that Aspen has continued to step, and I cannot remember tender awarded to us where we haven't been asked to step in. The tender, I've forgot to put that in, the price, the exchange rates go wild and then suddenly, they disappear. And then some even didn't meet their specs that they promised in the [dice]. So these are the type of things we've stepped in. And this is why we're very scared to not be involved in this business, not from a commercial perspective, purely from a South African patient perspective.
But the reality is ARVs have foreign exchange and working capital exposure. The largest input cost of ARVs is the API and that's priced in US dollars. The API cost component is paid in advance, and you receive your date of payment only afterwards so that affects your working capital. However, volumes are meaningfully in the facilities, and volumes mean jobs. And jobs are really important in the South African environment. So you've got to try and get that balance right.
So what have we done? We've entered into agreement to a partner to ARVs with probably the largest API supplier globally of ARVs and our interim arrangement is this: Aspen will pay for the API, only once a debtor has been collected and Aspen has deducted its share. And what that means is effectively the API will be paid when you receive the money and is effectively paid in rands, [rand-based fee].
The final agreement that we're working towards, and this is subject to competition of authorities, Aspen will manufacturer for the partner and so we'll take manufacturing fee for that, and we'll be paid a license fee for what we do for around marketing and distribution of the product. So we would be -- we would have a -- no exposure, currency exposure and no working capital exposure. And we paid for what really matters to us, which are the people in the facilities and our strengths, obviously, to leverage of our distribution strengths and market presence.
Then let's look at Europe, and Europe has been a very, very interesting review for us. What I showed you is where we have large sales representation, performance was enhanced. In some regions, in terms of commercialization, we subscale. Even in those areas where we have scale, we told you we have scale, scale relative to ourselves, but we really don't have scale. Aspen is positioned to be a partner of choice within the noncommoditized sterile business. And this is very important because these brands are really valuable to people who are in commoditized spaces.
And our significant investment in manufacturing capability ensure quality cost-effectiveness and reliable supply of medicines because people are seeing the broader opportunity that Aspen manufacture brings to the party outside of what you're seeing now, which is stability of supply. This is something a little bit broader. So we've adopted a far more focused approach to the region, and we're seeking partners with capabilities to drive commercial growth and recognize the value of the capabilities that Aspen products and production bring.
So many people read into the word strategic review divestment. I want to be clear here because that's was something I can -- Aspen is committed to retaining a European presence. The Europe profit is really an important income stream for Aspen. We like to divest. We like to have our Australian dollars. We like to have our euros as much as we like to have our renminbis.
So Aspen explored an option for a single partner for Sterile Focus Brands in Europe. So we were in discussions with a partner, I don't want to give away too many confidentialities, but what I will tell you is the valuation was compelling. It was certainly valuation that we were comfortable with and we looked at. But really, the final deal structure could not be -- it was not agreed. But we learned a lot from that process. We learned a lot of -- we learned that the portfolio might require to get the right partner and the right partnership opportunities, we might need to look at our portfolio in bundles, in some different bundles.
And what are the bundles? We're looking at partners who have specific capabilities in the region or with product groups, and we're running it through whereas this was sort of a one-off discussion that is just -- was an opportunity that arose. We're running a much more structured and focused process with advisers. So we're running a structured process to make sure we get the right deal in each space. So we're quite comfortable to do 3 transactions or 4 transactions or one transaction or whatever the number is. But we've got to make sure that we have the right partner. And what is the right partner? Someone who's ability to deliver sustainable growth. So their forecast are key to us.
And why is the growth important, just take a money and run? No. Of course, the valuation is important. What is important to us is someone who gives us growth. Why do we want growth? Because those volumes going into our facilities, this big global facilities. When those volumes go, what do they do? They drive down our cost of goods. They keep us sustainably competitive. And we'll make sure the business is good, up and running, fit for purpose a decade or more ahead. So that is what we've done, and that's why it's not about just valuations. Very important for us is that our partner deliver some growth.
Let's have a look at some specific opportunities within the Aspen environment. We were committed to building a safety stock of heparin API. It is a very expensive API, so it really does have working capital consequences. We had 18 months of stock at Oss, and there was additional stock that we held at our finish dose form facility in various forms, and we've got over 2 years of stock in our supply chain.
The market price of heparin has increased significantly. Why has it is increased significantly? One, some of the biosimilar is coming. But that didn't really affect the total demand-supply. African swine fever, which I'm sure you've all read about, has affected the pigs around the world, particularly in China, has hit, and what happens first of all, is to make sure you lose the pig -- you slaughter pigs more in larger volumes upfront with the swine fever. And that actually meant there was an oversupply of meat. So when everyone was worried about that there was more supply coming out because there were more pigs being slaughtered. What we're seeing now is the effect of the lesser pigs in the market and lower slaughtering rates and the price is shooting up like this. So very simply, prices going up like this, Aspen's brought down here, there's a commodity cycle and we have a lot more stock than we need for our own products. And from an Aspen perspective, we've got an advantage over people that only play in finished dose form or people that only play in APIs because we've got our products, have got relatively stable prices in the market. When the price goes below certain level, we know we can buy this commodity with confidence because we've got our own products to utilize in selling. And that's what we did there.
If the price shoots up now, we've got to make a decision, do we want to benefit from this commodity cycle, and how much do we want to benefit from it. So there is an opportunity there, and it's one that we haven't quantified in any of our forecast or projections or whatever we give you in terms of outlook just now.
HPC, I think we mentioned the last results, we hope to get egregious in this period. We did, which was a positive. And we received it. We have -- or we'll receive a $10 million milestone for that achievement. We'll also get a further $20 million. It's split into two $10 million payments once we get to $50 million of sales together. The first one -- it's a lower -- the first one is at a lower amount. I think it's $15 million. And the second one -- the second payment is at $30 million. And thereof, we have a profit share agreement of above $30 million. So these -- some positive developments there.
We continue to progress our woman's health portfolio. I had mentioned to you previously, we had a partner. We actually broadened our search for partners. We don't have to pick a partner today. We've got a lot of interest in this portfolio, and particularly as we make our advances. But we need to move relatively quickly now because the first launch of conjugated estrogens will be in the second half of calendar year 2020. And further -- we got further products and pipeline launches, which we'll update you within due course.
Orgaran is a product we've put a lot of time and effort into and it's really paying dividends and really part of the reason why we showed you those compounded growth in the non-heparin products in Thrombosis. And we were approved in Port Elizabeth for Danaparoid manufacturer, quite a difficult process where we need a veterinary certificate, believe it or not, to get it through. So that was all -- it was -- there was some challenge there but we managed to get it. We've got FDA approval for us to make a product out of our South African facilities. And the authorities have approved [dossier] to be reactivated. So it was dormant, we get it reactivated, people can order.
What we have to do is get the indication, which we have across the rest of the world on this dossier. It was used in the U.S. before off label. We are busy doing HIT, and that's for heparin-induced thrombocytopenia, and that will give us a good market and a very niche market to address in the U.S. And to do this, we have to do some clinical trials, which we're in the process of doing. Unfortunately, one of the things we're finding is it's quite hard to recruit patients because of the nature of the illness or nature of the disease. But we're really positive here. We moved forward. We officially can sell the product in the U.S. now. We're now working on indication as well.
And then something I mentioned earlier, we're continually engaged in pursuing further value realization opportunities. And these opportunities. I'm talking about I've spoken to you more specifically about some, but these would be opportunities I haven't spoken to you about on this presentation where we might look at territories or product portfolios that we don't think Aspen model will work sustainably or for which we think the value that we would get for that -- for those assets are more than the value we might realize. And those are opportunities that we are pursuing and there are discussions around some of those opportunities.
Let's talk about efficient and effective deleveraging. So when we were sitting with you 6 months ago, our debt was at ZAR 53.5 billion, and that debt has now dropped to ZAR 39 billion. It's ZAR 14.5 billion dropped. It's a very sizable decrease in the debt and certainly at the top end of our own expectations. And we do -- we are very focused on deleveraging the business. It's something that we would -- we're going to continue to work on. It's top of mind, top of all our plans. And it's a focus to drive this -- the business and the debt down. We had a 27% decline in our net debt.
On the chart next to it, we sort of show you what our rolling earnings or trailing earnings were at December 2018, so our calendar year 2018 EBITDA, which was ZAR 11.7 billion. And for financial year 2019, you see -- you saw it at ZAR 10.8 billion. So we sort of lost -- we're 8% down in EBITDA against a decline of debt of some 27%.
Let's talk a little bit about the outlook. We really have got a very strong weighting in these results on H2 versus H1, and some of the factors should become apparent now. If we look at the European CIS business, and we look at our Sterile Focus Brands where we're down 7-odd percent in the set of results, and we expect for the year for them to be flat to positive over financial year '20.
H1 is going to continue to be down, we think, maybe around 5%. It could be down. But just commercial intervention, if we brought in anaesthetics supply will drive a much stronger H2 2020. Our Regional Brands could continue to decline by 5% or 10%. Once again, it could be the oncology effect on there. And we'll update you on this as we go along.
If you look at our Aspen regions, excluding Europe, CIS, you've seen growth -- organic growth across Regional Brands and Sterile Focus Brands in this set of results. I can't call the South African tender, but what I can say to you is that those businesses grow organically. And there will be impetus this year as long as we don't have another strike of the South African private sector business because South Africa is a very good contributor towards the regions, and we're expecting some good growth in South African going to the next year.
In terms of manufacture, we've got the South African striker has been resolved. We continue to get production efficiency gains. We've seen some of those just coming through improve. Our turnover was down in steriles. Our margins are up. And I think with all of that in, we expect the manufacturing to be relatively stable, and the wildcard will be how much of the heparin API supply opportunity we take in this period, and that might positively impact manufacturing and the group actually. And we -- and if we look at our group, we -- if you do all of those adjustments, we expect to have our normalized earnings broadly in line with what we've achieved in this financial year.
Yes. I'm not going to take you through the appendices. So thank you. So thank you, everyone. It's our story. I appreciate it. Are we doing questions?
Questions and Answers
Stephen Bradley Saad, Aspen Pharmacare Holdings Limited - Group CEO & Executive Director 
Are we doing questions, Vishma?
Vishma Chetty, 
Questions from the room.
Stephen Bradley Saad, Aspen Pharmacare Holdings Limited - Group CEO & Executive Director 
Are there any questions?
Vishma Chetty, 
Okay. While we wait for some questions from the room, I'm going to take one from the webcast. [Eugene Princely] from [Extriga], can you please elaborate on what can be done or needs to happen for the company to achieve organic growth in the future?
Stephen Bradley Saad, Aspen Pharmacare Holdings Limited - Group CEO & Executive Director 
To achieve organic growth?
Vishma Chetty, 
In the future.
Stephen Bradley Saad, Aspen Pharmacare Holdings Limited - Group CEO & Executive Director 
Okay. Well, obviously we didn't do a very good job today then e. So to achieve organic growth in the future, I think if we can resolve what we have to do in Europe CIS, we will have the organic growth that we look in and that's -- I've tried to speak to you through both therapies and strategic reviews and the improvement in supply. So I would think those are -- I think just a big picture on to that point.
Vishma Chetty, 
Do we have any more questions from the room?
Stephen Bradley Saad, Aspen Pharmacare Holdings Limited - Group CEO & Executive Director 
Okay. Well, thanks, once again. Thank you. I appreciate it.