Adcock not yet out of the woods

SHARES of drug maker Adcock Ingram fell 5.27% to R48.68 yesterday after the group warned it will report a headline loss of between 175c and 185c a share for the nine months to June.

The group is changing its financial year from September to June following its acquisition by industrial group Bidvest earlier this year.

It said it experienced an extremely weak trading performance over the period, not only as a result of a general decline in turnover, but also through significant pressures on margins and profits. This was caused by unfavourable currency conversion rates, key overhead inflation and an inadequate single exit price percentage escalation.

In addition, some of the group’s manufacturing facilities operated at relatively low levels of production capacity, intensifying the adverse consequences of under-recovered fixed costs.

Adcock said due to structural changes within the group several substantial impairments had been made in this period and that the financial effect had been included and was accounted for in the trading update.

“It is too early for the board to provide shareholders with any comfort regarding a return to profitability in the short term, but the board remains optimistic about the group’s longer-term prospects,” read the statement.

Adcock has struggled as a standalone business since listing in 2008.

Bidvest pounced on it with a view to turn Adcock around, but has yet to achieve that.

Aeon Investment Management CIO Asief Mohamed said it would take between two and three years for Adcock to turn the corner. “It’s not an overnight thing,” he said, adding that writing off some assets will create a clean base for the new management.