Aspen Pharmacare Hldgs

And welcome to Aspen's Financial Year 2023 results. I'm Sbong Angkosi, Aspen's Investor Relations Manager. For today's program, we will have Stephen, who will do the performance highlights, and then he will hand it over to Sean, who will take us through the financials, and then hand it back over to Stephen before we open the floor up to Q&A. Thank you, Stephen.

Good morning, everyone. Good to be here. You sit back there and you suddenly see 25 years up there. 25 years. It's an irony, though, that I feel I've got as much energy today as I had on day dot. And I think that's the advantage of having a purpose-led organization and having the passion for it. And just reflecting a little bit from a really little house near Gravel Racecourse to having South Africa's most global company in 25 years. And you'll see the benefit of that. You'll see the tailwinds of the currency hedges that we've created. I think in those 25 years it's... Never been a straight road, and the road never is straight. But it hasn't been a roller coaster, because we've never gone back to base. And we've built a foundation, and we've consolidated on new foundations and built from there. And I'm hoping you'll see where we are in our journey at the moment, a very exciting part of our journey. You know, the thing with Aspen is you never get time to celebrate milestones. And it's simply, I mean, our motto is very simply that rest is rust. It's always been the way we've carried ourselves. We look forward. History belongs to those that write the books. And, I mean, if you speak to Russie and the Springbok team, yes, they beat the All Blacks convincingly last week, but it actually means nothing for their next game. So that is why people, why you can't have time to celebrate in times like this. But I tell you this because I'm worried because I've had a few comments been made to me in the last couple of days about celebrating or not celebrating. And there's been a particular concern from investors about that we're sort of treating ourselves here. And I want to be clear and categoric that this is not a reflection on the company or management. But there is no message in the fact that we have acquired both Munjarra and Viagra. So this is something that has been put out there. I mean, I had another expression, which I think is probably better used off camera. So on a much more serious note, I think what you should get out of these results is Aspen is a company you can go to war with. We take knocks, very big knocks. For those of you that remember H1, we were down nearly 20%. We got down, and we were down at the half, but we get up. We get up, we learn better from our experience, and what do we do? We produce the record H2 for you. Over 25 years, I would think that there's been no more than five occasions that I feel we're in the position we're in at the moment. It's a very exciting position that we're in. We've built that foundation, and it's not an accident. It's not by accident that we're here. We made calls. We made very bold calls at the time, years ago, and I think when it's far away, it's hard to conceptualize it, even when you've got there. And you've got the ideas. But where we are, I believe, is that we're in the position, and it's so tangible now, it's coming up in this next financial year, is we're starting to see the fruits of some of that labor. It's in our hands to make bold calls into exceptional calls. And that's something that we determined as a team to do. The most positive thing about the calls that we have is that really the destiny is in our own hands. We've got the assets. We've got the agreements. And it's a thin line between success and failure. And the thin line between success and failure is executing on everything we've achieved. So I think that's, if I can talk, if I can digress just for those 25 years, that's what I'd tell you. And so I'll move on to what I think most of you want to hear, and that's about our performance. As Simonga said, Sean will do finance, and I'll come back and talk about where we are after that. So when we speak about performance, we had a pretty bold guidance around EBITDA. We talked about the prior year performance. And in H1, we had EBITDA down 11%. So that was quite a big percentage to have to pull back on. And we had big losses from the prior year, you know, to take a COVID vaccine out of our business. And Sean will show you in the margins the impact it has in losing things like that. What you should also read into it when Sean talks is, If that's how badly it affects you when it goes out, what happens when you put products in? Because that's obviously the inverse, the converse. So this was a negative impact in China, and I don't have to tell you about what went on in Russia. And we had divestments, which affect EBITDA as well. And in spite of these challenges, we had increased normalized EBITDA to 11.1 billion, And we also got our revenue up on the prior year. So I'd like to just speak about the second half a bit because it's been a pretty important half for us to realize our ambitions and where we're trying to achieve. We achieved 21 billion in sales, which represents our highest achievement of H2 sales. Our normalized EBITDA for the period was also a record of over 6 billion. When we look at the figures, you'll see every area has grown considerably. Commercial pharma up 11%, manufacturing up 15%. And it was up 45% on H1, which was something we guided to you, was that we had some closures to make for our contracts, and so we were going to have a much stronger H2, and that's exactly what we had. And, of course, some strong currency wins. Now, when you think about manufacturing being up 15%, And in constant currency, it was relatively flat. Bear in mind that in the prior year, we had a COVID vaccine and we lost that. So as I say, we take our knocks, but we make our comebacks. Revenue in both manufacturing and commercial pharma are up on the prior year. And the gap has really been closed by strong organic performance and strong currency benefits as well. We look at the parts of our business. We've got, obviously, the group, and then we'll look separately at regional brands, sterile brands, and manufacturing. Before I hand over to Sean, lots of numbers on these slides, but I think that when you look at it, our revenue was boosted by a strong H2, resulting in commercial farmer moving up from plus two to plus six. To cover that gap, you've You've got to sort of double that to work out what we achieved in the second half. Manufacturing was bounced back in H2. We were, I remind you, we were at minus 10 and it's gone to plus 3 at a reported level. And the improved heparin product sales offset the COVID losses. We had a negative impact from the COVID vaccine loss, and of course we had positive tailwinds. And you can see that tailwinds between the difference between constant exchange rate and reported exchange rate. Regional brands, this is the biggest part of our business. And it's a business that it's sort of it's grown across all areas, which is really positive. And it's important for us to do well because this is sort of the heart of the business and our commercial farmer business. And it's shown resilience, stability and sustained growth in a tricky global environment. And if you run through it, you'll see Australia's up. Everywhere is up except Africa, Middle East, and really that's because of the impact of the divestment last year. We had products in South Africa we divested for 1.8 billion rand, and without that, if we adjusted for that, our regional brands would have been up 11%, and the Africa, Middle East would be up 3%. There was also impacts to our South African business of a SAP implementation, but the bigger adjustment was for the prior year divestment. The sterile branch had a really interesting and good bounce in the second half. And the reason for that is that in the first half, and even in the second half, obviously the Russian business fitted very largely into the steriles, and you'll see that impact in Europe, CIS. And the business in China had a very bad first half because of the COVID shutdown, so that bounced back too. So what you'll see here is... is the reported revenues up. H2 was particularly strong. You know, that's up 14% on the prior year. And even then, constant exchange rate was up 2%. Unfortunately, you know, Russia, which was a billion rand turnover business for Aspen, is significantly smaller than that. And our projection is that it will continue to decline, albeit now for much smaller base. And of course, Asia's up as a result of the China lockdowns being suspended. So a good, very strong comeback from steriles as well. Manufacturing. Manufacturing is probably going to be some of the more interesting parts of our business going forward. It's going to play a bigger part. It continues to grow as a part of our business and probably is anticipated to be a bigger and bigger contributor towards revenue and particularly profitability going forward. In the first half, we had revenue down 10% and 12% in constant exchange rate. And you can see where we are now. We're at 3% and a minus 6%. The heparin was key to our growth driver here. You know, we closed the heparin business. We had closed our facilities in the first half or closed off our French facility to upgrade for the manufacturing coming into that business, but we guided towards a much stronger second half. So that really was as guided. The other thing that's happening in the heparin business, and I'll talk a bit about it later, was during the year, it continued to increase in price. It just was It also relies on power and was treated as one of the commodities. The result was higher selling price, but also higher cost prices. But that also helped drive the revenue there. And of course, the finished dose form steriles is literally halved and a pretty big knock on profitability as well. And that was from the loss of the COVID vaccines. The positive, of course, is that other contracts, which are outside of these, contributed earlier contracts we signed in our french facility contributed to a 300 million rand offset from the steriles and with that i'll i'll see you now on the uh the broad the uh guidance and prospects and i'll hand over to sean to give you a financial review

someone gonna make it bigger okay no worries

Right, I'm going to talk off a small screen. Thanks, Stephen. That was a good overview and it gave us a good sense of where we've gone on the revenue side. It's safe to say that it's been a very challenging but a very exciting year and we're really excited about the period ahead. I think just to sort of start off... Throughout my presentation, and I think you've also picked it up from Stephen, but we're going to refer back to the guidance we've given you previously. And if you look at that, we've met all of that guidance. And I think we take our guidance seriously. So when you look at the 2024 guidance that we take you through in the presentation that's in the commentary, just bear in mind what we've achieved to date in terms of guidance and the fact that we do take it very seriously and take cognizance of that. We're very excited about the future. We believe the business is in really good shape and is poised for very, very strong medium-term growth. Right, now I've got a blank screen. On the financial highlights, we've had a record H2, as Stephen has spoken about, both on revenue and on the EBITDA. If we look at the revenue, you can see, if I just explain these bars quickly to you, we start with FY22 on the left, moving to the FY23 on the right, with the two halves in between. So if I start with revenue, we're up 13% on the second half versus the first half, a really, really strong revenue performance. EBITDA was even stronger. If you look at the next bar, we climbed up 18% in the second half from the first half, ending the second half with just over 6 billion rand. So really, really good achievement. Sorry, can we just pause and please fix this?

The screen keeps going blank on my screen here. Can you make it full screen please?

Thank you.

that's better thank you all right so thank you so much right just to digress quickly just to um get back back on song yeah last year when i was doing my presentation we had uh We had load shedding. And as I was talking, I looked at everyone's faces and they weren't listening anymore. I thought, oh, I must be saying something very bad. And then I realized that the power had gone down. So this year we had the IT problem. But fortunately, finance fixes power and they fix the IT problem. So we're back on song. So... Going on to the normalized headline earnings, you can see even there, if you look at our second half, a record just under $0.820 for the half, up 20% on the second half. You'll also notice that the NFs has declined 8% relative to the EBITDA, growing by 1%. And that impact is heavily influenced by foreign exchange losses, which are embedded in our finance costs. If you take the impact of that, it's a 141% impact, a 9% impact. So if you had to assume last year's finance costs in this year's results, we would have had a 141% improved NHEP. So certainly quite a significant impact, and I'll cover that in a lot of detail in a separate slide, but it's certainly something to bank that operationally we've driven a very, very good performance, but we have been impacted by foreign exchange. On the financial side, on the borrowings, if we look at these graphs on the one on the far left, you can see our borrowings has come down 1%. What we've done in that graph, we've restated the FY22 at CER because we have had quite a lot of The RAND has weakened in this period, so we've restated borrowings last year from 16.1 back up to 18.6 to get it comparable, and you can see a nice drop of 1% in our borrowings. You can see our covenant ratio at 1.9, holding steady, and if you go back to FY21, that covenant ratio is sitting at 2.1, so very nice trajectory, very comfortable. We're really proud of our operating cash flow per share. That's grown 5%. Bearing in mind our EBITDA only grew at 1%. We've seen a 5% growth in the cash flow per share. Not where we wanted it to be. We wanted it to be higher than that, but certainly still a very proud achievement of 5%. That also flowed into our operating cash conversion rate, where we ended the year at 88%, below our target of 100%, but still an improvement on this year. And I'll take you through a slide later on where we can show you that in the second half, we actually achieved 115% cash growth. cash conversion rate. All of this supports our dividend declaration, which we've increased by 5%. And we're also very comfortable, and I'll take you through some detail on that a bit later, that our future cash flows are very strong. We do see an improved profile in our working capital investment and our cash flows going forward. So we do see strong support for future dividend declarations going forward. But certainly, We stand behind a 5% dividend declaration for this financial year. I thought this was quite an interesting slide, and perhaps just to explain it before we delve into the detail. So the blue bars there are our revenue numbers in the second halves from 2019 to 2023. And the little dotted line that sort of goes at the bottom is our EBITDA over that same time period. And you can see that from 2019, we've gone from $15 billion turnover up to $21.6 billion, and our EBITDA has gone from $5 billion up to $6 billion over that period. And both of those numbers in 23 are record numbers. We've gone right back to the little house in Gravel, and this is certainly the highest number we've achieved to date. So certainly a very proud moment for Aspen, and something that we did guide to in the first half interim results. Just to sort of some sound bites out of that, if you look at our H2 revenue, I think Stephen already covered it, we're up 12% on last year's H2, with commercial pharma up 11% and manufacturing up 15%. We did have the benefit of currency tailwinds, so what I did put here is also what it was in CER. So even in CER, we were 1% up on last year's H2, and that was after absorbing the more than R1.3 billion loss in the COVID vaccine revenue, as well as the product divestment in South Africa. So on a CER basis and on a reported basis, certainly a very strong H2 performance that we are very proud of. On to gross profit percentage. If I just explain these, these are our four segments of the business, regional brands, sterile focus, manufacturing, and then ending with group. And what we've analyzed in each of those bars is the FY22 gross margin going through the halves of 23 and then ending with the 23 gross margin. So if we start with the left, the left quadrant. You can see our regional brands last year at the end of FY22 gross margin was 56.5%. And throughout this year, we've driven up that margin and ended the year at 59.6. And both are very consistent at 59.7 and 59.6, driven by cost of good savings, good product sales mix. And I think the important thing to underline is it's the resilience of our emerging markets to be able to fight inflation. We have got pressure in our businesses, but emerging markets provide us with quite a lot of opportunity to manage this in a very, very constructive way. On to sterile focus brands, if you recall, we had the VBP of Naropin in the first half or second half of FY22, and we can see the margins again starting to recover quite nicely. You can see at the end of last year we ended at 60%, and this year consistently growing, 60.5% off one, 60.8% off two, and ending the year at 60.6%. And a good recovery trend, obviously underpinned by our site transfer savings that we've been guiding you on, and also a lot of portfolio optimization initiatives that we've undertaken. Down to the bottom left quadrant, which is our manufacturing. Very happy to be able to say that we achieved the double digit. If you remember, we got a double digit manufacturing margins in the second half. We achieved 15.7% relative to 5.2%. But we're not patting ourselves on the back here. That's not a great margin. And you can see that at the end of the year, we ended at 11.4%. versus last year's 20%. That delta of the 20 to the 11 is heavily influenced by the loss of the COVID vaccine, which is one line in our Quebec facility. So you can see as we start to build on that volume in our Quebec facility and in our French facility, you can see it's going to have a massive exponential benefit to our gross margins going forward. To lose 10% on one line, you can imagine how it will, I think from a medium-term perspective, we look at good growth on our manufacturing gross margins. If you throw all of that into the wash for the group growth gross margins, we've had slight dilution between 2022 and 2023, 47.2 down to 46.5. That obviously is underpinned by the improved gross margins in pharma, offset by the loss of the lower manufacturing margins. But going forward with our medium-term guidance, we see this margin trend turning to a positive trend over the medium term based on sterile manufacturing strategies. Onto what the accountants like, the income statement. This is just an income statement showing our normalized EBITDA. So quickly, just to explain the table, we've got revenue, gross profit going all the way down to normalized EBITDA. And the columns, we're comparing FY23 to FY22 reported. And then on the far right, we're just also comparing it to our constant exchange rate, which is the way we measure ourselves. On the revenue side, we've already spoken through that. I'm not going to go through that in any detail, but 5% up in reported terms. Gross profit, we've also covered. Slight dilution, but we know why, and we know that there's medium-term opportunity to grow that. If we then flick down, I think the thing I really do want to highlight on this slide is if you look at our operating expenses in constant exchange rate, we've only gone up 2%. Notwithstanding all the inflationary pressures in the business, we've managed to cap our expense growth to 2%. We've also had the benefit of some operating income. A lot of that has come from our one-off compensation in a fire we had in India, so that has given us some benefit. In terms of normalized EBITDA, we ended the year at $11.1 billion versus $11 billion last year reported. And going back to what I said at the start, this is exactly in line with where we got it. We actually came in slightly ahead of guidance. So again, going back to the guidance and the fact that we take our guidance very seriously. I think this is the slide that we'll have the most discussion on. It's our net financing cost slide. So perhaps just to go and talk you through the table, this is our normalised financing costs and it breaks the financing cost down into its components, being interest paid and forex losses and some notional interest and then giving us the totals. So perhaps if I could just focus on the interest paid line first. which is the first line there. And if you look at the table, we're comparing FY22 on the far right, half one, half two, coming through to FY23. I know it's normally the other way around, but I got convinced by the IR team that people do look from right to left sometimes, so I decided to be different on this slide. So you can see last year we ended our effective interest rate was at 2.9%, first half 2.8%, that was slightly down in the first half. And we ended the second off at 3.55, which is 73 basis points up on half one. And we did guide between 60 and 80. So we came within the guidance and ended the year 3.2%. Again, this wouldn't have been possible without the protection of the IFC loan of 600 million at 0% fixed rate that gave us a lot of protection against these rising rates. So the IFC loan certainly was a big factor in keeping our interest rates capped at these levels. I think you might have to put your sunglasses on for this next slide, but I'm going to put it up there. The big challenge we had this year was on foreign exchange losses. If you look to the table first, last year we had a foreign exchange gain of $184 million. This year we ended the year at a loss of $434 million, with pretty much equal losses in each half. So a swing of over $600 million loss. which, as I said, has heavily impacted our normalised headline earnings per share. If we now glance to the right, if we first look at the graph at the bottom, what these graphs are depicting on the axis that's got the one, that's the euro, and all the other currencies, the emerging market currencies, are based against the euro, because a lot of our intergroup trading is euro-based, and so that's why we measure ourselves against the euro, and that's where all of our foreign exchange volatility sits. If you look at 2022, you can see relatively stable. You can see on the right, there's a sort of light blue line at the top there. That's the Russian ruble weakening against the euro. Sorry, strengthening against the euro. If you look at that dark blue line, sorry, I'm just looking at the Russian ruble, the dark blue line that goes underneath the trend, you can see the ruble strengthening there and going below the one. And that was quite a big factor in driving our foreign exchange gain last year. If you then flick to the top, you can see the volatility that we've had this year. All of the rates have weakened against the or most of the rates have weakened against the euro. And you can see the Russian ruble going from that dark blue line at the bottom going being under one is now way above one. So a lot of volatility. You may well ask, well, is this what you're going to see going forward? We know that foreign exchange volatility is not something we can control, but certainly we have acknowledged as a team we can do things better. So we've sort of done a lot of introspection on how we can do that. And we actually had this decision quite some time back. We are going to be implementing a centralized treasury system across the group, which is going to give us much better visibility of our foreign exchange positions. It's going to help us to do more advanced and effective hedging techniques and also help us to manage our intercompany transactional flows and to make sure that we're not sitting exposed in any one currency. It won't eliminate the risk, but certainly we've got these plans in place to try and reduce this risk going forward, because certainly it has been quite a disruptor to an otherwise very strong operating performance this year. I think the $753 million, we've covered that already, and then for guidance purposes, we do see our effective interest rates going up between 120 and 150 basis points versus the prior year end point of 3.2%. We're hoping that the interest rate cycle is topping out and that things will improve after that. On to working capital. Quite a busy slide, but I think quite a lot of nice messaging on this. I think if I could take your eyes to the top left first, which is our operating cash conversion cycle. You can see the dark blue line is our 12-month moving average. And you can see that both in 2022 and 2023, we ended below 100%. And the last time we were above 100% was in 2021, where you see the dark blue line is above the red dotted line. However, you can see that we've achieved 115% in the second half versus 58% in the first half of this year. So certainly a big improvement in our cash conversion rate in the second half, and we do anticipate this, and we are targeting to achieve over 100% conversion rate in the future, and I'll take you through that when we talk about working capital. If we then go to the bridge on the right, that really is bridging our working capital values from reported to the current year. So if you start with the number on the left, 17.3 billion, that was our reported number. You might say, wow, working capital has gone up quite significantly, but you've got to add 2.7 billion rand back first because that's the foreign exchange. We have to restate all our working capital at closing rates. So if you do that, your working capital is then at 20 billion rather than the 17.2 billion. and the big driver of the increase this year has been in our inventory levels. What we've done in the block of inventory, we've broken it down into components, and if you look at the middle block there, which is the heparin, we've invested about a billion rand in heparin this year, and that is done deliberately to support the Viatras tax transaction, which we announced recently, which will... we do expect to unwind as that transaction becomes effective from October next year. So certainly we've built up that to be able to support that contract, and we do see a liquidation of that investment over the FY24 year. On the other manufacturing, our APR business, the unwind there was slower than anticipated this year. We do see some opportunity of better revenue growth in the APR business in the year ahead, and we do anticipate that inventory to also unwind in FY24. unusually, and it's one that we were quite irritated about, but we had to do it. But in Australia, for their regulated products, they sprung a surprise on us and said that you have to have minimum safety stock levels for all your reimbursed products. So we had to go and build up to six months stock on all our reimbursed products in Australia in the second half to comply with this legislation. Otherwise, we would have been fine. So It's a one-off thing that we've had to take a knock on in our commercial pharma, but certainly something that wasn't anticipated, but is a one-off in nature. On the receivables, we've had a big increase in receivables, particularly in the last quarter, and that was driven heavily by the improved manufacturing performance in our second half, which is very much Q4 weighted. So we do see those receivables also liquidating in Q1 of 2024. So if you throw all of those into the mix, you can see why we're quite confident that we aim to achieve over 100% cash conversion ratio in 2024. And then maybe going to the block in the bottom left corner, net working capital as a percentage of revenue, you can see that's also increased over the period. But we do anticipate with all of these measures that those ratios on the right be below FY22 over the medium term. I think quite an important message, and it'll come through in Stephen's presentation, but all these new sterile agreements, all toll manufacture, they're very working capital-like. So you're going to get a lot of revenue with very little inventory investment. So that'll also have a big impact on the net working capital to revenue ratio over the next two to three years. So certainly one that we're confident of turning the cycle on. It would be remiss of me to talk just about profits and finance without ESG. So ESG really is, we absolutely committed to all of our ESG commitments, all four pillars of them. Sorry, I'm just moving my pages around here. I'm not going to go through all the detail on ESG, but it is a cornerstone of our strategy. I think the key area that we always focus on, which is our biggest focus, is providing patient access to high-quality, affordable medicines, and that really is the cornerstone. I think the serum contract that we signed last year is a good driver of that strategy, and we're quite excited with those four vaccines being rolled out over the period going forward to support that initiative of providing access, in addition to all of our other measures that we do on access. The other thing perhaps to call out is on the people side, we've launched the Global Talent Management Programme, which also includes improving gender representation, Quite importantly, we've managed over the last five years to increase women in top management positions from 19%. It's now sitting at 33%. So certainly quite a big achievement. But we are big on talent management and succession planning. So quite a big driver in our process. On the society side, we've got a whole lot of measures there that we're driving in terms of maintaining our BE status and supporting socioeconomic activities. And then I think on some soundbites on the environment one, we have achieved a 23% reduction in our scope one and two carbon emissions, which is a big achievement since 2018. And also, I think, if you recall last time, I think there was quite a lot of interest in our Quebec facility and how we're going to be saving power, et cetera, going forward. We've made good strides there. We're about to implement a steam from what's called biomass from wood chips. It's offcuts from the timber yards that we're going to be using to drive our steam generation. And on top of that, if you remember, we've also got the recycling process. I'm going to try and pronounce it pyrolysis, where you convert... the recycled plastic into gas, which drives electricity. And we did guide that that project would put us fully off the grid. And that's still on track to be launched around about January 2025. at which point the Quebecois side should be then fully off the grid. I think underpinning all of these ESG commitments, it's not just talk on a piece of paper. All of our business units are measured on these things. It's all in their scorecards, and at an executive level, it's a key driver in terms of our balance scorecard that we need to achieve, and you'll see it is embedded in our KPIs. So we do take ESG seriously, and it's a key driver underpinning all of our financial objectives. So I think on that note, I'd like to hand back to Stephen. Stephen, you've now got the big screen back. Well done, Sean.

Thank you very much. Thanks, Sean. That was well presented. I think on ESG, Aspen is recognised as globally for what we do to access to medicines, which is really positive, you know, whether it's with the United Nations, even at the latest BRICS summit we, has been presented on pandemic preparedness, and when you see the number of multinationals that are going through our Quebec facility also, just to see what they can do with us to create access. It's a very exciting position that we're in, and it's very great to be in that position. And of course, and I'm not biased because I've got four daughters, but Women are much better than men in business at the end of the day. And that 33 is not good enough till it's beyond 50. So that's something that we committed to keep moving and moving forward. On the strategic review. You know, if I try and visit every Aspen operation around the world, I'd run out of lifespan. So it's that many operations. I would never be able to get to every operation practically. So I'm very clear. I said, look, we're an African company. I'm an African. And I really can only understand the big five. So please don't give me more than five things, not 100-page power presentations, five things that move the needle for you. The five things that if you get right, your business goes forward. The other 95, of course, they're important. But if they don't change the needle for you, what are the five things that you need to get right? So in fairness to the investing community, I'm going to tell you about our big five and the five things that keep the Exco driving forward. And in our commercial pharma, there's three areas. We've got to drive organic growth. You know, the commercial farmer business, if you look at it over the last four years, has been allocated no capital. We've obviously allocated to building our sterile manufacturing. So driving organic growth has been really important. And the fact that we have had organic growth over that period on a like-for-like basis, it gives you a very positive on the business. If you look at other companies with post-patent brands, they certainly aren't showing growth. So that tells you about the execution, the markets we plan, and our commercial expertise in the markets. The VBP impact in China, so that's where there's a sort of a price reduction and a tender process. You don't lose all your volumes, but I experience it as you can lose around about a half of your volumes. And mitigating that is very important for us because we've done particularly well in China, and China is an important part of our strategy going forward. We have said it before and I'll say it again, and we really think that China is a market which should be the largest territory within the Aspen business if we get it right. And then, of course, we need to supplement our base growth by bulking up our emerging market footprint. And having that footprint is important because it draws in partners. Bigger multinational partners who are important to Aspen have always been very important to Aspen's progress. They also have focus and they focus on the key markets, U.S., Europe. Japan, etc. And so to have somebody credible that can meet compliance requirements and give a financial result would make Aspen a very important and valuable partner across emerging markets. For manufacturing, well, manufacturing, we really, we've got contracts. We have to close the contracts because we are a material contributor to the group. We built a very relevant global sterile footprint. I know many were questioned and doubted, have you got a sterile, you know, is this the right strategy? I think we've got a very relevant strategy. And events now in the market are making it even more relevant, and we'll talk a little bit under manufacturing about that. And understanding that we spent a whole lot of money on CapEx, with that comes all the related depreciation and you've got your HVAC, your air conditioning system that you keep them on 24-7. You've got your people doing OpEx there who are really part of your OpEx incurred. So putting contracts in is very, very incremental, both to profitability, which is no expenses, and to cash flow. And our API business took quite a knock during the COVID period, and we want to restore profitability to pre-COVID levels. And when you look at our business, manufacturing business, we have a profit in API business, which more than compensates for the losses that we have in our factories while they're running these losses at the moment. And I'll take you through that under manufacturing. So let's talk about the footprint that we've often put, last time I put a picture of, I think there were toes in a footprint, and see what the value of a footprint really is. And I think the value of a footprint is probably best demonstrated in South Africa. We've got a respected team here. They're a very professional team and they're very capable across southern Africa. And it's demonstrated by the multinationals who partner with us. As you know, we've had a long-term relationship with GSK. And what is the value for a partner and what is the value for Aspen? The value for the partner is that you have a very competent team who are absolutely focused, who've got much more headcount on the ground, and these are our core territories, and this is what moves the needle for us. For them, it's a small entity. They don't invest too much. Product comes on patent or patent. They can't hire and fire people all the time. They know with Aspen you've got this presence on the ground. From an Aspen perspective, in a market which is volatile, the farmer markets are moving markets, generic markets can be tough, who knows what NHR brings, etc. But you have access to new chemical entities, biosimilars, branded products, research-based pipeline, and there's no commoditization risks. And particularly when you're starting to get the A pipeline, not just of one multinational, not two, but now three. It's a real, it's really going to be a game changer for our South African business. The sales from Lilly and Amgen are sort of 750 million. But I think that number is a number that we actually believe the pipeline is worth a whole lot more than that base value. The Lilly pipeline is one of the strongest globally. Lilly is the largest pharmaceutical company by market capitalization in the world. And I think products like Munjara, we're hoping to launch in Q1 of next year. They've got products, and they've got five products. I think there was five novel products to be launched in the short term. They're in oncology, immunology, pain, diabetes. And Amgen2 is also a $100 billion-plus company. And they've got new chemical entities. They've got biosimilars, also in oncology, immunology, and ophthalmology. Now, we battle in oncology, and we battle in some of these areas because those areas are really, there's so much new innovation coming, there are new products, that our products tend to be older. And there's no time to almost get a generic in those markets because as you get a generic, there's a new product that comes online. So we're on the front foot here with these companies. And I think one thing you should think about here is the trust that big companies are placing in Aspen with the intellectual property and managing the intellectual property tells you not just about the commercial expertise I spoke about, but the compliance within Aspen. And to have that type of compliance in the business and to have it across areas like Latin America, etc., are very valuable in having these discussions. You could be the best executors commercially, but if you haven't got compliance, you can forget about doing a transaction with any of these companies. So that's the benefit of the footprint. Now I'd like to speak to you about Latin America, where we talk about building this footprint. Our Latin American team is a team that has performed brilliantly within Aspen. It's one of those regions which has, we bumbled along and we had lots of issues and many of you said, get out of Brazil and get out of here. And I always said to you, I understand we're battling, but it will have no impact on our income statement to get out. But there would be an opportunity loss. And I think we've been proven right here because LATAM has just done brilliantly for Aspen, and we've had double-digit growth over the last seven years. Fantastic team, settled, understand their market. And they've really been rewarded. We've given them some key household brands that have bolted on to this business and has given us increased exposure in countries like Ecuador, Colombia, Peru, Chile, Argentina. And by having this broader footprint and big footprint, we are hoping to attract further partners. On the products themselves, these are growing products. They post-patent lifestyle brands and there's some pretty loyal support. for these products. So many of you will recognise those names, I hope, of some of the products there. And there are opportunities to combine some of them, line, extend, come in with different dosage forms, which are things that Viatras too are looking at and for which we have access. You might say, why? Why look at these products? Well, we actually... We acquired these products in Australia. We've done very well with the products. We understand them well. We understand the manufacturing opportunities for these products as well, as well as the positioning of the product. So a good position for us to be in. And, you know, why would Viatris exit? Well, Viatris had no presence in these markets. Standalone, they were products they acquired from Pfizer. So it's quite a nice opportunity for us, particularly given that they're growing in spite of the fact they've been in a vacuum. The sales are 92 million, and as Sean told you, we've got the cash, but a big part of the funding here is a reduction in the HEPRIN stockpile. So there's cash and stock, if you could see it that way. LATAM will be a material contributor to regional brands now, and also it will improve our profitability ratios across the group. So a very exciting transaction for us and for the group, and one that hopefully we're going to be spending some very positive time. Of course, there's a competition approval required, and we think that will come through in October or November of this year. So China. China is what I call a strategy for a future footprint. If you speak to people on China, there's so many different views on China and opportunities. So I think I read. last night or the night before. I think someone from the U.S. called China uninvestable. And someone from the U.K. said it's potential to have more investment. So it's a market that, from an Aspen perspective, we did in lots of markets. We've been in Venezuela. We've crossed many of the emerging markets. We've also sat in Europe. We've probably had our greatest challenges, particularly when you're in inflation, non-inflationary environment and with the war. But China is a country that suits the Aspen model. Growing middle class, strong growing middle class, like branded products, and so it's a country that we really believe an Aspen model has to succeed in. In the same way we're adamant about Latin America, we feel similarly about China. And we really are trying to work out how we can get this in the short to medium term. So that's within the next two to three years to become a larger and the largest contributor into Aspen. It also has the last wrinkle that we've got in commercial farming. We're expecting VVP impacts in 2024, and the sales of about $2 billion will be affected. We don't have, the VBP hasn't been declared yet on some of our key products, but we, our insight and our instinct is to say this is the year that it will be impacted. And this, we have factored in a dilution of these sales and some of the related profit contributions against that in China. As I told you before, numerous other companies are impacted by VBP, and many are exiting and looking for partners. So some people have only got one big product. Maybe we can do something with Aspen. The way I see VBP in laypeople's terms, it's China's way of having a patent expiration because post-patent products continue to grow in China. And that's not healthy for a system where you don't have generic penetration. So it's almost an enforced generic penetration. The Aspen model is taking brands after they've had generic penetration. So a post-VBP model is what Aspen does and does best. Or post-patent models where we have expertise. So we're not uncomfortable in this situation. You're just uncomfortable if you have it before it goes off patent or to VBP. But post-VBP, we see opportunities with others maybe. So that's our only product and we're leaving. But you need very big sales teams behind here. So there's a cost base attached to that. So we've been speaking a bit about looking at opportunities. I'm happy to say we're in advanced negotiations and some pretty exciting opportunities. And we're hoping that if EBP is as we anticipate, we think we've got potential to at least mitigate the financial year 2024 impact of EBP. I do just want to stress that assumption is not in our guidance. Our guidance is even if we don't achieve those. If I look at manufacturing, and I'm just going to give you a little bit of a background because that's the commercial. So we've dealt with commercial pharma, and now we move on to the second part, manufacture. The API business is important to us, as I told you earlier around profitability, and it's approaching pre-COVID levels, and the rebound that we're seeing, we believe, will be sustained. The heparin business, we expect, we are seeing for the first time in, I don't know, two, three years, the price just didn't look, it's supposed to be a commodity, it was just going up and up and up. But we are starting to see downward pressure on pricing in raw materials, and this will drive down cost and selling price. It's a bit of a strange business, the heparin business, from an Aspen perspective, I think it's best for us when the price is lower. Why? Because if the heparin price is 10 and your markup is 5, you get 15. If the heparin price is 50, they still give you a markup of 5 and you're selling at 55. I mean, that's sort of roughly what it is. So your markup's relatively flat and with your base input costs. So coming down is great. The problem you don't want to be doing is stuck with stock at the top of the cycle that's expensive when the price comes down. And certainly having the, you know, building up our stock, we obviously were aware we were going to do this transaction with Viatrix. We built up our stock. We know what we're selling it for. So we, you know, if there is that type of curve, we are covered. That said, it takes about a year to convert the product. So when the pricing comes down now, you really only feel impact in about a year's time. So you might buy it now cheaper, the inputs, but it takes a year to convert it into your finished product. I think if there's one area to focus on in the presentation, I would think that it's this section, the sterile volumes. I think they're absolutely imperative for material growth, really material growth to our EBITDA and our lines in the Aspen business. When you think about what our sterile business is, we have vials. What are vials and cartridges in our Quebec site? Vials are what you got a COVID vaccine out of. You know, they can take one, two, three, four, five. They take an injection, pull it out, throw away the injection. The French site makes pre-filled syringes. So that is one injection. It's already in the syringe with the needle and you throw it away. We've told you before, and we aligned with it, and we'll update you if it does increase, but our contribution has potential for at least 8 billion rand. And our under-recovery in our factories is about 1.1 billion rand. Now, other people might want to capitalize these numbers and say we've got this capacity for the future. I want to be clear, we expense that number. So that is expensed on our income statement, that 1.1 billion rand. And what is an under-recovery? Because there's so many jargon, so much term. It's really the cost of your install capacity and your OPEX, what I referred to earlier, your depreciation, your expenses in your factory that you incur, versus the recoveries from your product. So you've got this under-recovery. It's effectively a loss in your factories. And if you increase the volumes, you'll have a material impact on group profitability. Because there isn't a lot of cost that goes, an incremental cost you need, but you get, you know, someone said, I want... 100 million vials from you. Even if you're charging them at 5 rand a vial or 10 rand a vial, whatever it is, it's a very big increase. It's a billion rand of revenue with very little cost attached to it. So if I was sitting on your side of the desk or sitting where I sit, we have a huge focus on the volumes, the values, and how we fill these facilities. And it will have a material impact, I've told you, on group profitability for those reasons. And I'll unpack that a little bit more in the next slide. We have agreements in place, and as I've told you, and many more discussions in progress. Discussions in progress are hard because to me those are very binary discussions. Once people are doing tech transfers into your factory and that you get a much higher degree of confidence, yes, they will stay with you, providing it works. In the South African facility, we are seeing quite a high degree of interest from multinationals to work with Aspen in Africa and beyond. We are pretty advanced with insulin arrangements, and we advance with the tech transfer there, and hopefully we will be able to give you more announcements later. The Serum Institute is a transaction that you know, and our focus is on Gavi for volumes for Africa. If you look at the transaction and the different values, the values out of our South African facility are higher volume, lower per unit cost. The French factory, lower volume, higher per unit cost. And I think that's logical. In France, we've had three agreements signed with multinationals. They covered things like vaccines and mRNA. It's quite hard because it was interesting in doing these transactions why companies were a little reticent about when you mention or if you can mention their names at all. And we spent so much time on the contracts. So the tech transfers were really important. But we spent a lot of time on the contracts around IT, right? It seems a crazy thing, but there's a real concern during a tech transfer process. Many of them are very comfortable to have their names mentioned after the tech transfer process. But during the tech transfer process, they feel there's a very high risk around cybersecurity. And you can't believe the checks and balances we've had to put in around our IT systems to cover for that in that process. But as I say, we will have those discussions at the time. One of the big, when we did steriles and we had no idea of COVID, of course, and that was an opportunity and we showed you how quickly we could harness that opportunity. We also had no idea the impact. So this market is impacted by flu and people taking more flu vaccines and RSV is going to come as respiratory vaccines and COVID vaccines also are now in the space as an annual volume. So there's just been those type of things and ARVs going into injections and just Biological is going into pre-fill, so it seemed logical, but I think the one that's really taken us globally by surprise and been very beneficial to Aspen, and we hope we're going to be able to harness a lot of these benefits, is the diabetes weight loss markets. So I have many, many of you in the audience and outside asking us, can you make an auto-injector? Now, why are you asking us why we can make an auto-injector? Because all the obesity products are sitting in auto-injectors. What is an auto-injector? An auto-injector very simply is either pre-filled syringe or cartridge, which we make both with a plastic device over it. All the works in filling the syringe, the device, someone said, Aspen, can you make an auto-injector? Yes, we can, but you're going to pay for the packaging. Why do we say you're going to pay? Because it is bespoke. So if I'm company ABC and I put that particular packaging over my product, then it's only valuable while you have that contract. So either your contract must cover you for it for that period, or you simply make the cartridge and the pre-filled syringe, you send it back to the innervator and they put it into an auto-injector. But the weight loss market is causing quite a big pressure on the volumes in the business and its volumes for those products and also those products are displacing other volumes in the market. So it's something we're working quite hard on. It's quite a neat opportunity for us. And it's been one of the key areas that we're looking at in terms of future volumes and As I told you, these things are binary, so we're not making any promises, but there certainly are opportunities there and related opportunities for both of our facilities. And as those progress, we'll update you. But for now, our focus has to be on executing the contracts that we have. In terms of guidance, you know, at the half year we guided $2 billion of contribution for calendar year 24 and $4 billion for calendar year 25. And contribution conversion of at least 70% to EBITDA. So that's quite important. We talk contribution. What is contribution? It's really sales less the materials of it. So it's the money that goes towards labor overheads. And if it's components, it would be like for the vial, the actual cost of the vial or a stopper. So a very high portion of that contribution turns into EBITDA. It's something I've sort of spoken to you about in terms of OPEX, et cetera. So that guidance is maintained, and we're working positively to grow the space with additional contracted volumes. We expect gross margin to be flat with the prior year. Why would it be flat if you're getting new contracts? In NDB, we have to close our site both in July and October to cater for some machinery adjustments and regulatory requirements needed for mRNA vaccine manufacturing. In the prior year, we had grant income. Grant income is to cover some of our expenses. We don't think we're going to get grant income this year. That was $30 million, so just over 500 million rand. The volume, we expect the contracted volumes to come up in H2. That's absolutely consistent with what we guided, which was calendar year 2024, which is the second half of this year. And I think their value, it's very hard to pin a number on the value because we've got seasonal vaccines that come in May and June because some of these are for flu and those type of seasonal areas. So it's hard to give you a number. But if I had to, we're probably looking at from our contracts, probably about 500 million rand if I had to give you a roundabout number of turnover that we expect in that very short period. The potential for serum cells is also in Q4-24. And that's our first two we're looking at is a hexavalent and a pneumococcal vaccine. And we have less certainty on those. The others, a lot of the variables are in our hands. In that one, we are dependent on a regulator and we're dependent on GAVI orders. So with that, let me just, we've had, you've had quite a long discussions with us on, and I hope it's very clear the picture we built with our commercial footprint and our manufacturing footprint. I'd like to just give you a quick summary here and then we can go to a couple more pages on gardens. We've got very strong short to medium growth prospects for both commercial farmer and manufacturer. We expect double digit growth in reported revenue. And that's driven by the organic growth and recent transactions in LATAM and sub-Saharan Africa. Remember LATAM, I told you we expect to come halfway through this half. The Lilly transaction will be in the second half of our financial year. We have assumed that China will negatively impact growth in H1, and we're hoping for a possible acquisitive offset in China which would further enhance revenue. Manufacturer is all on focus of execution of the sterile contracts. We've got $8 billion of potential contribution, which is really our target to try and see what we can get to there. Signed agreements, we will achieve $2 to $4 billion in financial years 2025 to 2026. And we've got additional opportunities under review. I've always had this vision. A lot of people say, where are you going and when are you going to do your next contract? I always just look at our team and I say, watch that baboon in the sugar cane field. He takes one piece of sugar cane and then he takes another piece of sugar cane and then he says, I want the third one and he drops the first one. This is about execution. I want to make sure that what we do, we deliver and we deliver properly. This is an important slide, I believe. And for us, there's a very, as I told you, things are five years away. And you think, phew, it's a long time away. And then it's four. And then it's three. And it still seems a long time. And it's really feeling really tangible. And we believe this is the year which we will have our inflection point as a group. I spoke to you about in the 25 years we built onto a foundation. And then you've got a period of strong growth. that comes and then another foundation a period of strong growth and if you look through the years you will you'll see that track and i think this is this h24 is that point so we we see growth for financial year 24 projected led by double digit revenue growth from commercial pharma the results are heavily awaited to h2 h1 is in line with the prior year results and and we're talking there really about at an ebitda level At a revenue level, we see growth, and that growth could approach double digits as well. It would probably certainly be in high double digits, and the reason we are a little more cautious on the EBITDA line is because In the prior year, you had grants, you had China VBP impacts, and both of those go straight to profitability. You take profitability away. So you could have revenue growth, but a lesser profitability growth. And so that guidance with the prior year, it doesn't relate to revenue, but rather to profitability. H2, and bear in mind we've had a stronger H2 in record, and so we are projecting an even stronger H2 than the prior year. Acquisitive growth obviously will come through in H2, and we're also hoping to achieve some potential China offsets in H2. And manufacturing revenue will also begin in H2. So that obviously means, I mean, when you read all of that, it's obvious why I tell you now we think H2 is a pretty important inflection point. But it's not just an event. We see that as a foundation, and it's a strong foundation for future earnings growth, because when you look at our projections going forward for 2025 and 2026, these are periods of accelerating growth. We've got annualised value of commercial opportunity, so a lot of them come in the second half, so next year they're for the full period, and then the positive of the sterile secured, because also... On the sterile contracts, you start off slowly. Smaller batches, you make 500, then you make 1,000. And so those volumes, even in the contracts we have, they increase in the subsequent years. So that is a real opportunity, as is, of course, opportunities from securing future manufacturing contracts. So all in all, a pretty exciting time for Aspen. As I say, and I say again, execution is key. to delivery here so thank you very much and thank you so much for your attendance and so bongo we're going to move to q a now thank you all right thank you

Thank you very much. We will now move on to the Q&A section of the program. For those who are joining us online, you're requested to type your question on the far left-hand side of the screen. Sam will be taking the questions from the floor first. Sam, if you can help me with that.

Sam, you're not going to ever go answering. I threatened Sam with the TV interview loss yesterday.

Hi, this is Christina from Battler Capital. Thank you so much for your presentation. I have a question on the commercial farmer products generating revenue of $100 million. Just a better understanding on what that revenue means for Aspen. Is there like a take rate that you get on those products? How do you book the sales? Just some explanation on that. Sure.

Sure. So when you look at where that $100 million sales come, so they come from really three areas, a couple of contracts in South Africa with Amgen and Lilly, and then the transaction in Latin America. We expect in Latin America to be booking revenue from either October or November, that's our best guess. Amgen, we're already booking revenue, and we're doing fantastically, by the way. Our growth already off the base that we achieved has been exceptional. So that's Amgen, and I think I put 750 million sales for South Africa. That's Amgen and Lilly. The Lilly sales are dependent on the competition tribunal. There isn't an overlap of product, but just the size of Aspen acquiring this relationship, because this relationship is effectively a 20-year arrangement. has meant that it needs to go to a higher, because of Aspen's revenue to a higher. So it's a period there, you know, those, I don't know, I don't want to guess for you, but I would say it would, if I had to have a guess, it's somewhere between January and March of next year. My very best guess, but it's just a guess. Charles?

Thanks, James.

Sorry, did I answer your question, Christiane?

Are you taking a percentage off that? That's the total revenue generated from those products and you're receiving these products essentially as finished goods, if I'm understanding correctly?

No, so what we do is we've acquired the product. We will now sell those products for ourselves in the period and the guidance we gave you of the 90 odd million. So we should do $90 million of sales in Latin America times by how many months we have it, 8 over 12. That will be revenue we book and we would be acquiring the products at a cost of goods. Okay, sorry for the confusion.

Thanks, James. I'm from Ashburton. The billion rand of heparin that you've added to your working capital, can you just talk to the commercial terms for the sale of it? Obviously, looking back with the thrombosis deal in Europe, the sale of heparin was done at very little contribution to the group as part of the sale process deal. The new sales for Viatris, are those more on commercial terms or are they at similar terms to what we've been used to in the past?

No, they're commercial. That's why we've given no negative guidance on hip and profitability, etc. If there was an issue there, we would have given you that guidance. But we had to get the stock because we didn't know if the price was going to go up or down. That's the risk. But we knew we had a fixed sell price. So that's why we sort of locked in that profitability.

I've got four questions, if I may. Just your comments on the opportunity in China. How will that play out? Would you have to acquire products and lines and businesses there so you'd be paying out something to get that product, similar to the other acquisitions you've done? And then the second question is on the growth in manufacturing, the potential. What's the working capital impact on that? What's the working capital cycle in the manufacturing? Would you have to stock up ahead of that? And what would the cash flow impact be? And then the third question, I mean, you mentioned the ESG and the focus on affordable medicines. And globally, particularly in emerging markets, there's still an issue of medicines not being affordable. So how concerned are you, if at all, about pressure on your pricing? This latest acquisition you did in LATAM, you mentioned that the gross margin is higher than your group gross margin. So is there a risk that there's pressure on that to come down?

Okay, so I'm going to try and remember all of those now. Mohamed, you might just have to just lead me through them one by one. I'm not sitting like those politicians with the notepads here. So let me start with your last one because I remember that one, Prisha. These are branded products. So people either do or don't buy. There's a really significant generic competition in the market. So there's Viagra. There's 10 Viagras. People still buy the brand Viagra. So that isn't, we don't see the on-pricing pressures. Those people who are buying it for price have already moved off the product. So that's that one. The manufacturing comments, a very good question. I mean, a very logical question. And that's why we often refer to contribution here. So when you deal with multinationals, Without exception. So let's just take serum off the thing. For the rest, they come, they say, here's our secret ingredients, here's our potion. All we want you to do is to put it into a syringe for us, a pre-filled syringe. So our costs would be limited to either buying a pre-filled syringe or vial. But the real value adds the labor and overheads and the process of your laboratories, et cetera. So I see them as being working capital light, very light compared to the other things. So you asked four questions. China is going to be a bit of a mix. There are people leaving and they might want some of your products and you want some of theirs, so there might be that. But there will largely be product acquisitions. Our focus on China is we've got a big, Focus on hospitals. Hospitals are quite easy to regulate for a government. They can say, all our hospitals, we want you to do this. Whereas if you're in the retail or pharmacy, you have less of that exposure because people like they do in Latin America want to buy their particular type of brand or product. So our focus there is to look at a slightly broader range. Within our own anesthetic baskets, we are launching things like Emla creams, things that you could use for tattoos, Botox, in hospitals, in a pharmacy if you've got insect bites. So we're looking at that, but we're also looking for product ranges in that region. So it's likely there will be product acquisitions required.

Okay, I just had one more and that's some guidance or color on the finance cost line because the debt has gone up quite a bit. The finance costs have also gone up quite a bit and you're making the acquisitions post the year end.

Yes, I think on the interest rate line I've given guidance on about 120 to 150 basis points on the interest line. On the forex, we've got mitigating steps, so we will try and manage that as best we can, but unfortunately forex is a challenge for most, especially if you're exposed to emerging market currencies, but we certainly see a lot more optimization and focus on the forex line.

So those are the two guidances that we've provided in the

By centralizing Treasury, let's just be clear, we're never going to eliminate foreign exchange issues. What you are going to do is cap your downside and your upside. So in the previous year when we made $180 or $200 million profit and this year make $600, you make less profit and you make less losses, which is something, you know, we're not traders in foreign exchange. So we really prefer to have that out of our income statement. Thanks, Mohamed.

Hi, Stephen and Sean. Thank you for allowing me to ask some questions. If I can just further on to the question on VBP for China and acquisitions that you're doing. I know historically you've given us a sense of where leverage could end up with these acquisitions. Can you give us an idea of where you're looking for leverage to go with the new acquisitions coming on?

You know, we've got covenant limits, and then there's our internal limits. And generally, our internal limits for Aspen, in this phase of where we are, where there's nothing majorly strategic that we're doing, our building factories, et cetera, we tend to not want to go beyond two and a half times Aspen. And if it is, it can't be for more than six months. That's sort of our internal limits. And I hate saying the thing because then you get someone pins you on it. But that's roughly where we, if you say to us, Sean, where are you? That's what Sean and I would tell you.

Okay, and then just one more question for you and one for Sean, please. On the donor sort of discussions with Gavi and et cetera, can you give us maybe an update on that? And then, Sean, on the Merck loan that is coming due, I see you gave us a note in the financials. What happens with the inventory portion of that agreement? As far as I understand, there was inventory on the reversal back.

Yeah, you want me to go first? Yeah. Yeah, so the inventory is not linked to the loan. I think originally it was, but the inventory is there to support the distribution agreement with MSD. We've now spun off into MSD and Orgonon. So that'll be supporting. We've signed a new distribution agreement for the next period of five years. So that agreement will support the inventory level. So that's decoupled from the loan. And effectively, the loan, we've managed to get an extended payment terms with an interest rate benefit as well, an interest rate benefit.

You know, in terms of donor and donor funds, you know, I'm not a lover of donor or donor funds. I think it's very bad for Africa and for anyone and for business. I think it makes you lazy. So I think that we have the Gates Foundation. We have CEPI. I mean, our factory is like a tourist spot. I think they can just put one plane to Quebec for Aspen people. So in terms of donor and donor funding, my very blunt comments are that we want the orders. So we'd like you to make sure that you help us through these processes. Because when people need things urgently, lots of things can happen, like COVID vaccines, everything can happen. We'd like to see that same urgency for African manufacture, for Africa. And There are strong heads of Africa within the Gabby Foundation. In fact, the interim head is a South African at the moment. And we had the Africa CDC. We had our factory last week. So there's a voice coming here. It can't just be lost. If you have problems over, we'll focus on one problem at a time. If it's COVID, then you go to Ukraine. Sorry, no, listen, we need to be talking about this here. And the African voice is getting stronger within Gabby Foundation. But, you know, as I say, I can't talk for them. But certainly an interest in the factories, you know, there's lots of exciting new chemical entities for infectious diseases where clearly aspirin is getting first chance at it or first ability to do it. So there's some positives for us.

from the IFC. You announced in the sense a couple of days ago the Lilly partnership where you're taking on distribution rights for South Africa and the rest of Africa. Will there be any manufacturing associated with that? What's the impact of that on your working capital?

Sure. Ken, in terms of the distribution agreement, no manufacturing attached to it. In terms of broad lily, I'd rather not comment. But thank you for your support, Ken, and I'm going to be coming to visit you again soon, so just a heads up.

Ken, on the working capital, go through the normal cycle that we have in our commercial business. I know it's in the same sort of cycle as the rest, so no big impact. No.

The Lilly transaction, you should see, because we've got lots of, we've got economies of scale and lots of synergies, you should see the returns on that transaction in Amgen in line with the line with our broader South African business. These are not like 5% and distribute our products. But the assumption is there's some quite big volume growth relative, and in fact we are outpacing that already on Amgen. Okay.

Hi, morning. It's Junaid from Lauriam Capital. Thanks for the presentation, Stephen and Sean. Just to clarify on the agreements with the multinationals regarding the French facility, are those all included in the 2, 4, and 8 billion contribution that was previously guided?

So let's get that right. 2 and 4, we've guided. Because the next thing we're going to be told, we committed to the 8. We committed to trying to get to the 8, but it's in the guidance of the 2, 2, 4.

Yeah. OK.

Thanks. OK.

All right, so I think I'll move on to... Okay, sure.

Hi, I'm Nancy from Excelsior Capital. So just on the two and the four, which is already conservative, just based on how you've put it out, I just want to know what would the risks be to that not being achieved, if any?

So you've got long-term agreements. and you've got what's called a take or pay. In other words, if you don't use the capacity, you still pay for the capacity, which is not something you can do during COVID because someone comes to you and says, hey, would you make this vaccine? I don't know if this vaccine is going to work or not. You need to take the risk with us. And that answer is, fine, we'll take the risk with you, but then you need to pay all our capital costs, et cetera, along the way. But you can't say we want a five-year and ten-year agreement. So there are no contractual risks from that perspective to those. Your risk is that you don't deliver or you don't get it right in that process. It's what I see. It goes down to that one single word, execution. That's it. I don't think there's not financial risk attached to it. The only one with variability is not that contract. It's the serum deal where you own the intellectual property and you go and get your own orders from Gavi and you are dependent on getting a registration, getting your own orders. Will we get registrations? Yes, we will. For me, the issue is timing. How much time are WHO going to need? We know Serum have the registration, so why shouldn't we've got the same product with the same ingredient? So it's not whether it will be registered, it's when. And then it's how committed are Gavi to buying in Africa for Africa? Lots of nice words on podiums, but I've heard lots of nice words during COVID. So let's just say that we've just got to make sure it happens at the rate and the scale that we would like. that there is a commitment to buy is clear, that the African CDC has got a big voice is also clear, and that they really want it made in Africa is also good. But I want to see all those nice sentiments where someone says, here's an order for $50 million, here's an order for $100 million. I've got no doubt it will happen, but also it's, you know, I don't want someone to do it in 2028 or 2027. We want to know it's going to be now.

Okay, I think we'll move on to questions from the online viewers. The first one is going to come from Anuja Joshi from Standard Bank Securities. There's a couple of questions, so I'll go through them one by one. Can you please share further details on capacity utilization of your South African sterile facility? What is the proportion of capacity that will be dedicated for serum vaccines versus insulin?

So if you look at our total capacity, we tell you we have at least 8 billion and we've got 4 billion. So on a total basis in steriles, you can roughly say they're doing probably just a little bit under 50% of the capacity. If I have to tell you is what is the breakdown between France and South Africa, and of course it all depends on the contracts and the contract values and how much they pay per unit. But if you want a rough rule of thumb that we work with internally, it's maybe 60% France, 40% or so South Africa. The insulins, so the question was what is the utilization within each one? So I think France has got higher utilization through these contracts than the South African facility. The South African facility will depend on the I can't give you a sense on Gavi and all that, but my best guess would be sort of 50 to 150 million doses, so it's a really very wide guess for you on Gavi and Serum and where you could get to. The insulins, they're bulkier, they're big, so you get... If you take, for example, a COVID vaccine, I'll just go back to those. If you take in a vial for J&J, you'd get five doses. If you're in a Pfizer, you've got 10 doses out of it. For insulin, you just get one. So it is a much higher conversion rate per unit. So it will be five times or 10 times the price that you would charge per conversion on a on a Pfizer or J&J. So it takes up a lot more capacity from that perspective. So that could give you a sense on the Quebec. I think that we are working to fill both sites in the medium term, short to medium term. It's very hard for me to call, you know, how much we're going to get out of Gavi, but if we got... sort of 100 million and we look at the sort of insurance that we're doing, you're probably less than 50% there, maybe 35% odd, somewhere between 30 and 40. And the French side, over 50, maybe 60 to 70. I was trying to work that in my head.

Thank you, Stephen. The next question is, how frequently can we expect non-revenue generating tech transfers over the next three years in manufacturing?

Non-generating. All tech transfers tend to be non-revenue generating. So what is a tech transfer? Tech transfer comes, you put your site down and you put product in. And they pay you often for that tech transfer. When does it become costly and when doesn't it become costly? It becomes costly. It's not costly if you've got four lines. You're only working on one and you use a second one. Yeah, there's cost, but there's no cost to your revenue. In our French side, we've got three lines. And if you take one down, invariably you're losing revenue, but you could have made something else. So that's when it becomes costly. And you see it very clearly in this set of results where in H1 in France, which is where the heparin number comes from, was low and H2 was very high because we effectively had five months versus six months. So that is when a non-generating tech transfer, so they never generate revenue besides maybe covering your costs, but they can be impactful on your income statement.

And it becomes harder as you get fuller, of course. If you're sitting with one out of four, it's cool, but if you're sitting with four out of four lines full or three and a half and you take one line down, it's costly. Yeah, opportunity cost.

Okay, I think we only have time for one last question. Can you share an update on the progress of in-house production of anesthetics and associated savings?

Yes, we can. So the anesthetics fell into three baskets for us, three of our different facilities. The German facility made the creams and ointments, and those have been transferred. Those were the MLS, those have been transferred. In the French facility, we're taking on what's called blow-full seal. You get the plastic, you blow it, you put the put the product in, the liquid in, and then it seals. That's called blowfoil. That's coming online, Sean? That'll be in 2024. 2024. And in the South African facility, we have brought on some of the vials and ampoules into our facility. We have delayed one of the anesthetic products, a big anesthetic product, to do the tech transfers into Quebeca that we are talking about. I would say we are probably just over halfway through in terms of capturing that value of the anesthetics. I think we gave a value of 800 million Rand. We're probably just over halfway through. And the decisions often made, you know, I rather suspend the anesthetics because I know we can get them tomorrow. We've got a third party. But gee, it's nice to get these tech transfers in through the other products.

Thank you, Stephen. That's all we have time for today. For those joining us online, this is where today's program ends. And for those who are joining us for the fireside chat, we're going to have a short break and commence at quarter past 10 today. Yes, at the same venue. Thank you so much.

Thank you so much. Thank you, everyone. I appreciate you being here. Thank you. Thank you.