South African Adcock Ingram has reported disappointing financial results for the nine months to 30 June 2014, reflecting ongoing challenging market conditions. In response to the challenges, the company has announced the commencement of a restructuring programme.
IHS Life Sciences perspective | |
Significance | Adcock Ingram (South Africa) has announced financial results for the nine months to 30 June 2014 (reflecting a change in the company's financial reporting year), showing revenues largely remaining flat but overall operating losses of ZAR975 million (USD338.7 million). Increases in revenues from international markets were offset by poor sales in South Africa. |
Implications | Losses were driven by a number of impairments, including market saturation in some segments, trademarks, and the imposition of VAT on drugs in Ghana. |
Outlook | The company has begun a process of splitting the company's South African operations into five units. Experts have however suggested that it may take some time for the company to realise the impact of this restructuring. |
South African Adcock Ingram has announced financial results for the period 1 September 2013 to 30 June 2014 (the first nine months of the company's financial year), showing turnover of ZAR3.615 billion (USD338.7 million). Turnover was down against the equivalent period of 2012/13 when turnover totalled ZAR3.617 billion. It should be noted that the results reflect a change in the company's financial year from a 1 October–31 September period to a 1 July–30 June model. Adcock Ingram has suggested that turnover for the period saw some 3.6% growth due to price increases, but overall turnovers were down slightly due to a 10.4% decline in sales volumes. A copy of Adcock Ingram's financial results for the period can be accessed here.
Adcock Ingram select financial results, nine months to June 2014 (ZAR mil.) | ||
Nine months to June 2014 | Nine months to June 2013 | |
Turnover | 3,615.29 | 3,617.40 |
-Selling and distribution expenses | 567.44 | 463.88 |
-Marketing expenses | 160.24 | 143.58 |
-Research and development expenses | 81.10 | 75.32 |
-Fixed and administrative expenses | 337.89 | 225.34 |
Trading (loss)/profit | (7.09) | 595.67 |
Operating (loss)/profit | (974.74) | 606.76 |
Source: Company reported information | ||
Despite turnover remaining near flat, the company reported operating losses of ZAR974.74 million for the period, down from a profit of ZAR606.76 million in the equivalent period of 2013. The losses for the period reflected a number of impairments and added costs. Impairments of ZAR281.9 million were recorded related to trademarks, the imposition of value added tax (VAT) on pharmaceutical products in Ghana, and market saturation of antiretrovirals in the South African market place, among other factors.
Adcock Ingram turnover by geography (ZAR mil.) | ||
Nine months to June 2014 | Nine months to June 2013 | |
Southern Africa | 3,245.09 | 3,368.03 |
Rest of Africa | 206.477 | 144.426 |
India | 177.709 | 113.872 |
*note figures within this table do not total turnover in the table above due to intercompany sales. Source: Company Reported Information | ||
In terms of turnover by geographical region, turnover from the company's Southern Africa region declined 3.7% in the period year on year (y/y) to total ZAR3.25 billion. Despite y/y growth of 5.9% in prescription drug sales, and 3.2% in hospital drug sales, sales growth in these areas could not offset y/y declines of 16.4% in revenues from Adcock Ingram's over-the-counter (OTC) products.
Turnover from the "Rest of Africa" region totalled ZAR206.48 million for the period, up 43.0% y/y against the equivalent period of the previous year. Sales in this region were driven by expansion into countries neighbouring Kenya, and Ghana. Adcock Ingram did warn however of challenging market conditions in Ghana due to the imposition of VAT and Zimbabwe's ongoing financial crisis. Despite sales in India increasing to total ZAR177.71 million in the period, Adcock Ingram has stated that it does not consider these sales optimal.
Outlook and implications
The results are likely to be viewed as a disappointment to Adcock Ingram and, in an effort to turn around the fortunes of the company, the management has begun a process of restructuring. The restructuring has seen the formation of five business units in South Africa: fast-moving consumer goods, OTC medicines, hospital drugs, prescription drugs, and distribution. The company believes that the formation of these units may help it make these sections more accountable. Despite this reorganisation, the chief investment officer of South African Aeon Investment Management, interviewed by BDLive, said it could take between three and five years before a sustainable point could be reached.
The future of Adcock Ingram remains in question following reports that compatriot Bidvest, a minority shareholder in Adcock Ingram, has speculatively applied to the South African Competition Commission for permission to increase its stake in the company (see South Africa: 26 August 2014: Bidvest to increase stake in Adcock Ingram). This follows Bidvest's successful moves to block Chilean company CFR Pharmaceuticals' efforts to acquire Adcock Ingram (see Sub-Saharan Africa - Chile: 3 February 2014: Bidvest thwarts CFR's bid to acquire Adcock).