Fewer flu cases hit Adcock Ingram’s earnings

ADCOCK Ingram Group’s headline earnings a share fell 3 percent to 404.7 cents in the year to June 30 in which its revenue was badly hit by lower medicine sales from the lack of colds and flu in South Africa through the Covid-19 pandemic.

Nevertheless, chief executive Andy Hall said in an interview yesterday, a final dividend of 90c a share was declared, bringing the total to R1.70 per share for the year, compared with no final dividend declared in 2020 due to the uncertainties of the Covid-19 pandemic at the time. Turnover rose 6 percent to R7.8 billion. Operating expenses fell 6 percent, like-for-like.

Hall said demand was poor for cough, colds and flu medicine due to the absence of a flu season in South Africa. With the exception of the OTC business unit, which is the largest cough, colds and flu company in South Africa, all business units posted solid trading performances, achieving good turnover growth with disciplined cost control and healthy growth in trading profit.

Hall said the OTC business unit in a normal year comprised some 25 to 30 percent of group turnover. In the year under review, its sales fell 15 percent. It was difficult to predict the prevalence of colds and flu, which might resume a normal spread post the pandemic, or once many more South Africans were vaccinated against Covid-19 and life returned to normal, Hall said.

On the other hand, he said, people’s behaviours and mobility had changed due to the pandemic, and this may affect the demand for these medications over a long term, he said. In the past year, low levels of patients consulting doctors and postponement of elective surgeries also affected the performance of certain, mainly acute, prescription medicines and ophthalmic surgical products and instruments.

“Adcock Ingram delivered these results under challenging trading and operating conditions due to the impact of the pandemic. The group’s people displayed resilience, with an agile supply chain, sales, marketing and innovation strategies.” Hall said.

He said although they remained cautious of Covid-19, “we are confident of continued value creation for our shareholder.” Lockdown restrictions also impacted many hospital products – due to a reduced number of trauma and medical admissions – as well as on shoe care and sun care products.

The Consumer division, which includes a full year contribution from the Plush shoe and household care business, increased turnover by 42 percent to R1.3bn.

Demand for immune-boosting products was good, as was demand for small-volume parenterals and acute renal dialysis products associated with the treatment of Covid-19.

The gross margin fell to 34 percent from 37 percent, driven by a 9 percent depreciation of the rand against the dollar and euro, which affected the cost of imported goods, and a higher proportion of antiretroviral products (ARVs) in the sales mix.

Headline earnings fell 5 percent to R671 million, which following the group’s share repurchases in the year, translated into a decrease of 3 percent in headline earnings per share.

Non-trading expenses of R64.9m included retrenchment costs of R32.6m, after the group reduced its headcount by close to 200 to about 2 400 staff towards the end of the 2020 calendar year, in response to the weak economic environment and Covid-19 uncertainty.

Inventories increased by R64.8m due to the investment in ARVs following the uptick in demand for the State tender, and higher safety inventory held to address global supply constraints consequent to Covid-19. The group currently held, as a local manufacturer, about 10 percent of the current ARV tender, he said.

Adcock Ingram closed 0.11 percent lower at R45.31 on the JSE yesterday.