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Adcock Ingram’s Turnover from Continuing Operations Increases by 8% to R4.5 billion
22 November 2011
Today, Adcock Ingram announced its financial results for the year ended 30 September 2011.
• Headline earnings from continuing operations for the year ended 30 September 2011 of R793.9 million (465.1 cents per share).
• HEPS increase 31.1% to 465.1 cents per share
• Turnover increased 8% to R4.5 billion (2010: R4.1 billion)
• Final distribution to shareholders increased 4% to 106 cents per share
Headline earnings for the year ended 30 September 2011 of R793.9 million represents a 28.8% increase over the comparable figure for 2010 of R616.3 million and translate into an increase of 31.1% in headline earnings per share. A non-tax-deductible IFRS 2 share-based payment expense of R269 million was incurred in the 2010 financial year, in relation to the Broad Based Black Economic Empowerment (BBBEE) transaction.
Commenting on the results, Adcock Ingram CEO, Dr Jonathan Louw, said: “It is encouraging to note that this result was achieved during a year in which Adcock Ingram was allocated a disappointing 4% of the Anti-retroviral (ARV) tender, saw the temporary suspension of sales of dextropropoxyphene-containing (DPP) products and experienced significant upgrade-related production disruptions in its Critical Care facility.”
The impact of the acquisitions of NutriLida, Bioswiss and Ayrton Drug Manufacturing Limited (Ayrton) in Ghana, and the various co-promotion and distribution agreements with multinational (MNC) partners, supported turnover growth of 8% to R4 454 million (2010: R4 130 million). With the significant reduction in DPP and ARV revenue, the decline in revenue excluding acquisitions and MNC revenue was 4.6%.
Gross profit for the twelve months decreased by 1.5% to R2 169 million (2010: R2 201 million) with margins declining from 53.3% to 48.7%. Gross margins across all businesses benefitted from the strong rand, which affected imported raw materials and finished products, but this was offset by adverse manufacturing variances in plants undergoing upgrades and a change in the revenue mix.
Operating profit before abnormal items decreased by 8.6% to R1 068 million (2010: R1 168 million) with the percentage on sales reducing from 28.3% to 24.0%.
The division has continued with a strong revenue performance in its core business, but the setback of the hampered commercialisation of DPP-containing products and the ARV tender has resulted in a decline in operating profit of 1.7%. Turnover has been boosted by the recent multinational collaborations (MNC) as well as a strong OTC performance supported by recent acquisitions.
The business of NutriLida, a vitamins, minerals and supplements (VMS) company was acquired on 31 July 2011 and contributed R43.1 million turnover in the subsequent two months. The acquisition makes Adcock the leader in VMS in the FMCG sector.
The OTC segment has grown turnover by 21.5% from R1 427 million to R1 735 million for the year, while operating profit increased by 51% to R615 million (2010: R407 million). The operating margin was positively impacted by synergies achieved from the improved integration of acquisitions. The Wellbeing portfolio has achieved significant market share gains and ended the year as number 1 in FMCG by volume and value.
In the Prescription segment, turnover remained relatively flat at R1 646 million (2010: R1 666 million). The generics portfolio outside of ARV’s, has continued to show good growth in both value and volume terms.
Ayrton continues to deliver a good performance and has benefitted from exports in the region. The recently registered OTC brands are starting to generate revenue. The East African operation continues to deliver encouraging results. Strong growth in the Adcock brands has been bolstered by the performance of the newly-signed multinational contracts. Exports into neighbouring territories have been positive.
The upgrades to the general facilities and the construction of the high-volume liquids plant in Clayville, continue to be on schedule. The business experienced a strike during the year which had an impact on inventory levels, impacting on supply for a period. Despite the strike, service levels have shown an improvement year on year.
Hospital Products Division
Turnover increased by 3.5% to R1 073 million (2010: R1 036 million). The public sector tender gains effective from March 2010 have exceeded published estimates on critical items, resulting in core product unit growth, but at significantly lower margins.
Products were imported to meet customer demand contributing to an erosion of gross margins from 38.2% in the prior year to 30.9% in the current year. Manufacturing disruptions, due to factory upgrade activities contributed to reduced factory output, compounded by product supply being adversely affected by the national strike in July 2011.
At the end of the year under review, the R290 million upgrade is progressing according to planned timeframes, but with significant disruption to production. Final completion and validation of the facility is planned for January 2012. This facility, the only medical grade plastics manufacturer in Southern Africa, built to world class standards, will see the division achieving compliance with the International Pharmaceutical Inspection Convention and Pharmaceutical Co-operation scheme – jointly referred to as PIC/S- standards, adopted by the South African Medicines Control Council (MCC).
The renal division continues to gain market share with growth reflected in all portfolios including haemodialysis, peritoneal dialysis and new dialysis treatments in acute care in the hospital. In the generic market the division continued to invest in injectable antibiotics and speciality drugs. Penetration into the Oncology market has been slow. The Transfusion Therapy division, in spite of inventory shortages in the early part of the year due to reduced factory output, achieved growth in line with expectations. Blood donor numbers increased by 5% and this trend is expected to continue.
Adcock Ingram’s key focus for 2011 was to consolidate the new BEE shareholdings in the group and to increase Enterprise Development activities. The 2010 BEE transaction and the awarding of shares in March 2011 to all qualifying black employees resulted in the maximum BEE scorecard rating for Equity Ownership. The Owner Driver project which was initiated earlier in the year, is an important Enterprise Development initiative which is now being implemented.
On 15 November 2011, the court has re-instated a ‘Dear Healthcare Professional’ Letter issued by the Medicines Control Council (MCC) on 28 September 2011, withdrawing DPP-containing products from the market in South Africa. As a response, the Company immediately suspended the sale of products containing DPP pending the outcome of the appeal process. In the best interests of patients requiring analgesia, Adcock has called on the Department of Health to expedite the appeal committee process into the review of products containing DPP.
The Company believes that this appeal process remains the most competent channel in resolving any arguments for, or against, the continued availability of products containing DPP and that an expedited process is in the best interests of all parties involved. Critical to this is an understanding that no scientific evidence exists to substantiate potential risks surrounding the continued sale and use of these products. Adcock has rejected in the strongest possible terms any arguments that DPP-containing products are so called “killer drugs” and fervently maintains that an accelerated MCC appeal process will correctly position the available scientific data in support of these objections.
Adcock Ingram maintains that the study used by the MCC as the basis for its actions is not credible enough to substantiate its actions in respect of DPP-containing products as this study made use of a single non-representative sample of six patients. We replicated the study conducted by the FDA through an independent CRO, but with increased patient numbers, in order to fully outline the suspected risks with Synap Forte, the results of which did not detect any negative medical signals, and were comparable to placebo. DPP products remain in use in both the UK and Europe with tighter controls on scheduling and availability. In addition to this, the Company has clinical and epidemiological data that supports the safety of its DPP-containing products. These products have been used safely for over 30 years, are still used in 39 countries and DPP use in South Africa represents less than 1 % of global use by value, according to IMS. It is important to note that DPP containing drugs tested overseas are not the same formulation as those used in South Africa. Critically, there is no evidence of cardiotoxicity in SA safety data. We place the health of patients at the centre of our business. At no stage would we ever compromise on this ethic.
The completion of Adcock Ingram’s manufacturing facility upgrades, which will enable international accreditation of facilities, remains a key focus area during the next year.
Louw says that Adcock Ingram will also continue to investigate acquisition opportunities in the well-being and personal care categories and that the business continues to invest in brands, people and customers from existing platforms.
“The multinational partner of choice strategy has delivered attractive value as we diversify our revenue streams and decrease independence on mature products. We expect to extend the MNC partnerships as Adcock Ingram’s expansion into the rest of Africa continues. The current economic climate remains uncertain and the impact on consumer spending is concerning. In addition, the absence of a SEP increase in 2012 is likely to impact margins negatively in an environment of cost pressure, particularly on labour, transport and utilities, and active ingredient prices which are directly impacted by current rand weakness”, concludes Louw.
For more information please contact:
Corporate Affairs, Investor Relations and Government Relations: Adcock Ingram
Tell: (011) 635 0171
Cell: 071 689 9796
External Communications: Adcock Ingram
Tel: (011) 635 0130
Cell: 082 561 9443
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– Adcock Ingram Holdings Limited
– Adcock Ingram Critical Care (Pty) Ltd
– Active Pharmaceutical Ingredient(s) used in the manufacturing of products
– Antiretrovirals, used in the treatment of HIV and AIDs
– Broad based black economic empowerment, as defined by the codes of BEE good practice
– Black economic empowerment
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