STRONG FUNDAMENTALS

The financial fundamentals of the Group are sound following this period of rapid expansion, particularly internationally. Growing profits have converted into strong cash flows. Working capital and debt levels are well under control.

SHARP INCREASE IN HEADLINE EARNINGS PER SHARE

The Group recorded growth in headline earnings per share of 68% to 389,4 cents for the year ended 30 June 2009. The increase in earnings per share of 53% was lower than the increase in headline earnings per share due mainly to the exclusion of non-recurring capital profits or losses from the determination of headline earnings per share.

GROWTH DRIVERS

Headline earnings per share from continuing operations increased by 68% to 379,5 cents. Material influences on this outcome were:

• An 80% increase in revenue to R8,5 billion. International operations which were in the first full year of trading added R2,7 billion to revenue and organic growth in the South African business added R1,1 billion;
• Operating margins before amortisation, profits on disposals and impairments remained steady year-on-year at 27% as South African margins contracted and international margins widened;
• Operating profit increased by 82% to R2,2 billion. The contribution to operating profit from international operations increased from 13% to 46%;
• Net funding costs (finance costs net of investment income) rose from R17 million to R475 million, primarily due to the increase in offshore debt which was used to acquire global brands, but also influenced by an unfavourable swing of R119 million in foreign exchange and fair value gains/losses of R53,3 million; and
• A decline in effective tax rate from 28,3% to 21,2% as a consequence of a change in mix of earnings towards the lower effective tax rate of the international business.

Aspen disposed of its 50% shareholding in Astrix Laboratories Ltd, with effect from 31 May 2009, for USD39 million. A strong South African Rand to US Dollar exchange rate at the time of completion of this transaction resulted in a loss on sale of R20 million.

PRESSURE ON SOUTH AFRICAN MARGINS

In South Africa, operating margins were under pressure for much of the year as raw material prices increased in response to the weaker Rand and production inflation accelerated while selling prices remained fixed. Margins improved in the last quarter as the SEP increase and the State's tender price adjustment mechanism took effect.

EXPOSURE TO CURRENCY VOLATILITY

Operating margins in the international business improved for the year due to the realisation of better margins in the expanded operations, most notably from the global brands. The operating margins in the international business were however reduced in the second half of the year following an unfavourable change in the mix of relative exchange rates. The extent of Aspen’s international business means that the Group is, and will continue to be, exposed to the vagaries of relative exchange rate movements. The table below sets out the major currencies in which revenue was earned over the past year as well as the average movement of these currencies against the US Dollar, the functional currency of Aspen Global, which is the holding company of almost all of the Group’s international businesses.

The table demonstrates how all of the Group’s major currencies, with the exception of the Japanese Yen, were weaker on average over the year against the US Dollar when compared to the exchange rates for the first day of the year. As the greatest weighting of currencies was, on average, weaker against the US Dollar than the South African Rand, foreign currency-denominated revenue converted to less Rand than would have been the case had this revenue been converted at opening exchange rates. As cost of goods in all territories are heavily influenced by the US Dollar exchange rate movements over the year were unfavourable to Group earnings in US Dollars and in South African Rands.