Adcock warns of tough times ahead

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Pharma REUTERS A pharmacist counts pills in a pharmacy.

Johannesburg - South Africa's second-biggest drugmaker Adcock Ingram warned of tough times ahead after posting a hefty nine-month loss, hit by writedowns related to a turnaround plan and weak demand.

The company is trailing rivals such as Aspen Pharmacare as it grapples with slowing sales, an over-reliance on a heavily regulated home market and a poor distribution network.

Adcock is in the middle of a restructuring drive aimed at reorganising the business to match the decentralised model of top shareholder Bidvest.

“This is not going to be a quick fix. To put a timeline on it will be very difficult,” chief executive Kevin Wakeford said.

“It's too early to provide shareholders with any comfort regarding a return to profitability in the short term.”

The turnaround plan, which was a dealt blow last week when the antitrust watchdog blocked the company from cutting jobs for a year, aims to streamline the business and improve its distribution network.

Bidvest chief executive Brian Joffe has a record of taking stakes in underperforming companies and turning them around by focusing on cash flow, capital allocation and improving distribution.

“Many people look at Adcock as a pharmaceutical business. I don't do that. I think it's a distribution business,” said Reuben Beelders, portfolio manager at Gryphon Asset Management, which has a small stake in Adcock, told Reuters in an interview last week.

“So from the outset I've seen this as a very good acquisition for Bidvest. It is the kind of business that Brian Joffe has run very well in the past and I think he'll run this one very well.”

 

WRITEDOWNS

Adcock fell into a 303 million rand headline loss, or 179.5 cents per share, after taking 282 million rand in writedown charges.

Wakeford, an industry newcomer appointed weeks after Bidvest took its 34.5 percent stake, said company had to write down the value of everything from drugs inventory, factories and trademarks to businesses in Ghana and India following his appointment in April.

Adcock said sales were flat at 3.6 billion rand as cash-strapped consumers at home cut back on over-the-counter drugs while the weaker rand pushed up the cost imported raw materials.

Adcock has the largest share of South Africa's over-the-counter medicines, some of which are not covered by medical insurance and therefore vulnerable to consumer downturns.

It makes more than 90 percent of its profit in South Africa where it frequently complains that some of the regulated medicine price increases are not enough to cover rising costs of raw materials.

Shares in the company, down about one third so far this year, hardly moved in mid-morning trade.

Reuters reported last week that Bidvest intends to raise its stake to above 50 percent.

The stock, whose 10 percent gain over the past week has helped it recover from a near five-year low, was off 0.4 percent at 51.79 rand by 11:45 SA time.

Bidvest, a vast conglomerate that spans shipping to catering, acquired its 34.5 percent stake in Adcock early this year to block a $1.2 billion (R12.8 billion) takeover bid from Chile's CFR Pharmaceuticals.

Bidvest, from which investors expect a lot because some felt robbed of easy payout when it scuppered the CFR transaction, has said it has yet to make a decision on whether or not to make an offer to shareholders. - Reuters



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