Gary Shayne Feedback Ascendis PDF
Daily Maverick: The UIF/PIC has, of course, also lost a heap of money
(some R1.4-billion, if I’m not mistaken) through the Kefolile Health/
Ascendis debacle. In other words, yourself and/or Coast2Coast has now
caused for more than R3-billion in UIF/PIC/public monies to go down the
drain. What is your response to this?
Gary Shayne: Whilst Coast2Coast was the founder and builder of Ascendis
its ability to influence the board by 2018 had diminished significantly, holding
only one of nine board positions. There are many misconceptions about what
happened at Ascendis and I will give you some background as to what
actually happened:
▪ From the period of its listing in November 2013 to
when I resigned as a director from the board around
April 2019, Ascendis’ normalised earnings per share
grew 207% from 52c/share to R159.7/share. From its
first reporting year after listing being June 2014 up to
June 2018 Ascendis’ normalized earnings before
interest, tax, depreciation and amortization
(“EBITDA”) grew from R247m to R1,34bn. This puts
Ascendis amongst the top 10% of performers with
regard to earnings growth on the JSE over that period.
This increased the Company’s indirect investment in
Ascendis to approximately R3.4bn at its peak in
September 2016.
▪ Owing to the purchase of Remedica and Scitec,
Gearing in Ascendis increased in June ’17 to 5 x
EBITDA. During that period the share price continued
to grow in tandem with the normalised earnings per
share. The following year gearing dropped to 4.4 x
EBITDA. The market and lenders were fully aware of
Ascendis’ acquisitions strategy as well as the gearing
levels.
▪ In late 2017 Coast2Coast injected R750m into Ascendis
Health at R20/share in order to help Ascendis reduce
its debt. Coast2Coast was the only shareholder to
contribute a significant amount of capital into Ascendis
from that point onwards.
▪ The negative sentiment from the fallout of Steinhoff
in December 2017 impacted companies that had
concluded acquisitions with higher gearing than JSE
companies relying solely on organic growth. Around
that time this included companies like Woolworths,
Famous Brands, Mediclinic and Aspen. The disconnect
between earnings and valuations driven by sentiment
continued to put pressure on the Ascendis share price,
dropping it to R10.21 in H1 2018 whereafter it climbed
to R12.00/share in early September 2018.
▪ The table below shows Ascendis’ earnings and share
price performance relative to a number of blue-chip
counters over a 5 year period to when I left as director
of the board of Ascendis around April 2019.
▪ Between early September 2018 and the end of
November 2018 two events triggered the dramatic fall
in Ascendis’ share price. The first was Aspen
announcing that it expected that the sale of its baby
formula business would fetch significantly less than it
originally anticipated and this dropped Aspen’s share
price by 29% in one day in September 2019 and
Ascendis’ by 9% on the same day. The second event
was the sell-off in global stocks triggered by the trade
wars between China and the USA as mentioned above.
As Ascendis is one of three companies listed in the
pharmaceutical sector of the JSE and is similar to
Aspen in terms of its acquisitive nature and gearing
levels, Ascendis’ share price followed the path of
Aspen’s and subsequently that of the general JSE
index.
! From its listing to the date when I resigned from the Ascendis board,
owing to a change in sentiment triggered by the events of Steinhoff,
Ascendis’ share price dropped from R11/share on listing to
approximately R5/share despite the increase in its earnings per share.
! At the beginning of 2019 it was clear that Ascendis was not going to
meet its debt obligations in the next 2 years and it may not be able to
refinance its debt at that point so I recommended to the board that the
company take the difficult decision to sell Remedica which would have
brought its gearing down from about 5 x EBITDA (around R6.5bn) at
that stage to an acceptable 1.8 x EBITDA. Coast2Coast identified a
potential buyer willing to make an offer significantly above the original
purchase price of Remedica and I referred this to the board for
consideration. It was a “cut off the leg to save the body” decision and
although a difficult decision was the correct decision. Unfortunately,
the other 8 board members were against this idea and were supported
by a number of institutional investors who were against the sale.
Frustrated, I left the board around April 2019.
! Later the board later made a U-turn on its decision and realized that
this was the most viable solution. Much valuable time had been wasted
over that 6 month period and Ascendis subsequently found another
buyer for Remedica whose purchase was linked to the buyer selling
another business they owned and they required exclusivity on the
acquisition too. I wrote to the board at that stage and recommended
that they introduce another buyer. Unfortunately that did not happen,
the buyer did not come through and the share price collapsed to R1,20
in December 2019.
! It is common knowledge that, as with most acquisitive companies on
the JSE, after the Steinhoff debacle Ascendis’ debt was unacceptably
high. However, this was the same case with Aspen Pharmacare (that
had a similar gearing level) but Aspens management made the timeous
decision to sell off assets to reduce debt and they executed quickly on
these. Up until I left the board of Ascendis Health and Coast2Coast
lost its representation and ability to influence decisions in Ascendis,
Ascendis and Aspen’s share price tracked a similar path. Unfortunately,
post my exit and the board challenging the need to dispose of assets,
Ascendis botched the sale of Remedica which resulting in an 80% drop
in the Ascendis share price, after which it did not recover unlike Aspen.
Coast2Coast ultimately suffered the biggest loss as a shareholder in
Ascendis after it lost the ability to influence the board.
