Adcock shocks market with forecast of first half-year loss

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Analysts realise Adcock has had a tough year, but the warning of a loss came as a shock. Photo: Supplied

Johannesburg - A warning from Adcock Ingram that it was expecting its first half-year loss knocked the pharmaceutical company’s stocks 2.49 percent lower to R60.34 by the close yesterday.

Analysts said that while investors understood the troubles the company had been through in the period, reporting a loss came as a shock.

The country’s second biggest drug maker issued a trading statement advising its shareholders that it was expecting to report a loss a share of between 24c and 25c for the six months to March, compared with earnings a share of R1.88 in the interim period last year.

A headline loss a share of between 22c and 24c was also forecast, compared with headline earnings a share of R1.881 a year earlier.

Adcock will publish its results for the interim period next Tuesday, May 27.

It said these forecast figures took into account the final write-off of all expenses related to the failed takeover bid by CFR Pharmaceuticals.

Adcock’s new majority shareholder, Bidvest, blocked the Chilean drug maker’s attempts to take over Adcock by raising its stake to 34.5 percent and vetoing the deal.

In its trading update on March 19, Adcock said costs related to the CFR bid process were expected to total approximately R140 million.

But this amount included R35m that was expensed in the 2013 financial year. Therefore, the costs of this transaction in the six months to March were just above R100m.

Jean Pierre Verster, an analyst at 36One Asset Management, said the expected headline loss indicated that the company’s operating results also made a significant contribution to the interim loss.

“Their profit in March last year was R317m, when you take into account the impact of over R100m costs related to the CFR bid for this year, it does seem their operating profit was less than R60m. It’s a significant decrease and it does indicate possible further write-offs,” Verster said.

According to his calculations, Verster expected the company to announce a loss of R42m for the interim period, after taking into account the CFR transaction costs.

Verster said Adcock’s share price reaction to this news indicated that even though shareholders had expected the company’s profit to be much lower, not everyone had expected it to incur a loss.

“It was expected that profitability would be affected because Adcock’s operating performance has been under pressure, but to incur a loss is something different,” he said.

But Warwick Lucas, a senior investment analyst at Imara SP Reid, said the announcement should not have been a huge shock, given that the issues facing pharmaceutical firms in South Africa were well known.

“The losses are a little bit of a surprise. To some degree they reflect the failed CFR deal, but they also reflect the costs associated with the changes that Bidvest is starting to implement,” he said. - Business Report


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