Adcock navigated SA’s tough environment well, say analysts

Adcock Ingram Medicine factory in Olifantsfontein, North of Pretoria. Photo: Supplied

Adcock Ingram Medicine factory in Olifantsfontein, North of Pretoria. Photo: Supplied

Published Feb 21, 2024


Analysts say pharmaceutical and health care company, Adcock Ingram managed to navigate a difficult South African operating environment after the company scraped off some marginal earnings increases in the half year period to the end of December.

Although gross profit for the interim period was 2% lower at R1.6 billion, headline earnings per share in Adcock Ingram firmed rose by a marginal 1% to 293 cents, helping it to declare an interim dividend of 125 cents per share.

Across all of its categories, Adcock Ingram had revenue of R4.7 billion, which was 1.4% up on the prior year half year period.

“Overall, Adcock Ingram navigated a challenging environment well, maintaining profitability and shareholder returns,” market analyst, Marco Olevano, said yesterday after the release of the company’s half year financials.

Adcock Ingram’s CEO, Andy Hall, says the company will now focus on “expanding its product portfolio” either through acquisitions or partnerships, particularly “in less price-regulated”product classes. This would help the company grow its revenue and protect margins.

“We are encouraged by the Single Exit Price Adjustment awarded for 2024 of 6.79%, which will go some way to alleviating the pressure caused by the weak Rand,” he said.

During the half year period under review, organic volumes in Adcock Ingram declined by 10%, attributable to South Africa’s “challenging economic environment, where discretionary spend remains under pressure” in addition to supply constraints on Bioplus sachets.

This resulted in the company’s gross margins closing the period lower compared to the prior comparative period. Significant cost pushes from suppliers, the weaker rand exchange rate and the inclusion of E45 cream at a lower average margin did not help matters for the company.

In spite of this, the consumer turnover of R866 million for the period to December was 2.3% ahead of the comparative period, driven by a mix benefit of 7.5% due to the on-boarding of the E45 skincare range and line extensions in established brands. There was also an average price increase of 4.8% that was realised for the period, helping to protect the turnover base for the company.

Turnover from over the counter category amounted to R1.1bn, broadly flat with prior year levels despite achieving average price realisation of 6.6%

The over the counter division was impacted by inventory supply challenges emanating from the Durban port congestion. There were additional costs too related top the airlifting of inventory while the gross margin was adversely impacted by the weaker rand currency.

Sales across the hospitals category firmed up by 5% to R1bn during the half year period, with organic volumes strengthening by 3%, aided by the three-year Large Volume Parenterals (LVP) tender awarded on October 1, 2023.

Gross margins for the hospitals category closed the period lower than the comparative period following the change in the sales mix with higher LVP tender sales, numerous production challenges, including overtime to build inventory for the tender and water supply interruptions, and the adverse impact of the exchange rate.

This resulted in a 16% decrease in the hospitals category’s trading profit which stood at R74m.

In terms of costs for the period, Adcock Ingram’s tight controls yielded a 2.5% decrease in operating expenses.Cash generated from operations stood at R445m against R236m a year earlier after working capital increased by R199m.

Inventories however decreased by R52m due to supply chain challenges related to port delays while the trade receivables for the period surged by R129m.

Trade and other payables for the interim period declined by R122m since June 2023, driven largely by the decrease in inventories.

Adcock Ingram closed the December 2023 half year period in a net debt position of R75m compared to net cash resources of R84m as at the end of the same period a year earlier.