Enaleni's H1 Revenues Up as Top Management Stresses Business Reshuffle

Revenues Up But Profits Down

South African pharma firm Enaleni has ended the first half of 2007 with a strong organic growth performance in revenues at 479.2 million rand (US$66.5 million). Contributions from its subsidiaries Cipla Medpro and FirstPharm and its over-the-counter (OTC) businesses have continued, with the divisions averaging a 25% year-on-year (y/y) rise in growth. Operating expenses have registered a huge increase of 56%, mainly as a result of restructuring costs and impairment of plant and machinery, according to the Enaleni. The company is set to restructure the corporate office and relocate to Cape Town by the end of the calendar year. Costs attributed to restructure stood at 6.6 million rand, with additional expenses worth 7.3 million rand in impairment charges with upgradation and integration of facilities. Foreign-exchange losses amounted to 2.3 million rand, with other operating costs totalling 13.9 million rand, impinging on operating profits and profit after tax during the period under review.

The company has also suffered from the temporary closure of its manufacturing facility in Durban after the Medicine Controls Council (MCC) adjudged the plant failed to meet International Pharmaceutical Inspection Convention and Cooperation Scheme standards, Business Day reports. The regulatory agency was particularly concerned over the risk of cross-contamination between products due to an earlier-planned upgrade, which is costing the company 100 million rand. The plant will be closed until the end of September.

Board Changes and Company Restructure

During the past six months, there have been significant changes in the top management of the company. Founder Trevor Edwards is set to retire by the end of 2007, with CEO Andrew Hall resigning in August due to personal reasons. Cipla Medpro's CEO Jerome Smith is the new incumbent, with Chris Aucamp taking over as commercial director. The new team has outlined a reshuffle of the company's business interests, including selling off its consumer and vitality businesses. The concept is to maintain strong focus on the company's pharmaceutical division with the planned integration of Cipla Medpro and FirstPharm. Enaleni will divest from business units Bioharmony, Muscle Science and the Consumer Division. However, the combined revenue of these three businesses in the first half of this year has garnered 76.6 million rands—a growth rate of 45%. The relocation of the company's head office to Cape Town is expected to improve efficiencies and streamline communications and operations. Trevor Edwards will remain joint-CEO until the end of 2007 and will oversee the sale of the consumer business units.

Outlook and Implications

The financial performance of the company was considerably marred by several factors, including foreign-exchange losses and the plant closure. Clearly, revenues from Cipla Medpro and other generic divisions have been strong, but operational expenses have affected the final profit figures. The MCC's decision regarding the Durban facility is the result of a new decree following South Africa's signing of the Pharmaceutical Inspection Convention and Cooperation Scheme to set standards for drug manufacturing. The regulatory agency's directive is a blow to Enaleni's image, with the company touted as one of the top 10 generic drug-makers in the South African pharma market, and has cast a shadow over its upgradation plans. The closure is expected to be temporary and limited to just two months, but Jerome Smith was quoted by the Financial Mail as stating that the company could suffer from a lost income amounting to eight million rand, as the facility produces two Reckitt Benckiser products—Dettol and Dispirin.

The planned restructuring will no doubt add a strategic focus to the company's business operations, with generic drugs and OTC products from the integrated divisions from Cipla Medpro and FirstPharm. However, the severing of its other business operations will have a short-term impact on operational profit as employee layoffs and severe packages are expected to amount to 10.6 million rand on account of the restructuring. The business units are expected to be sold off by the end of 2007. The change in management is also expected to bring in a new order as media reports have already suggested Jerome Smith's unhappiness over Trevor Edwards’s decisions in the recent past. However, the company's strong portfolio, especially in the antiretroviral (ARV) drugs market, and its existing alliances will maintain hold over revenues in the forthcoming quarters.

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