Adcock Ingram Integrated Report 2018

PERFORMANCE The encouraging results reflected for the past financial year can be attributed to our investment in sales, marketing and brand innovation, well controlled expenses and prioritising customer service. We reported a 10% increase in turnover and an increase in trading profit of 20%, which was achieved through combined efforts from staff at the coal-face and the support functions across the Company. Our commercial divisions continue to show growth by reporting improvements in trading profit, with the Prescription, Consumer and Hospital divisions each having trading profit growth of more than 20%. Our in-market performance as measured by IQVIA shows that we are growing at 9.5% on a moving-annual-turnover (MAT) basis, significantly ahead of the market growth of 7.1%. The data also shows that the Company has grown its overall market share of the total private market over the course of the financial year. There was an increase in headline earnings from continuing operations for the period under review from R513.7 million in 2017 to R644.7 million, which translates into an increase in headline earnings per share from continuing operations of 25.5% over the prior year to 387.7 cents. In line with the Group’s strategy of increasing our reach into less-regulated brands, we acquired Genop Holdings Proprietary Limited (Genop) during the second half of the financial year. With a heritage that spans over 90 years, Genop is a specialised healthcare company with a portfolio that includes, ophthalmic, optometry, aesthetic and skincare brands. Genop’s portfolio will enhance and complement the Company’s existing range of products. LIVING THE STRATEGY Although the businesses within the Group operate through a decentralised and autonomous business model, all divisions are very much aligned to the overall business strategy, with customer service excellence being central to our approach. In addition to customer service, to facilitate operational excellence, the Company concentrates its efforts on selling activities, marketing investments, strict cost controls, achieving greater efficiencies in the supply chain and uncompromising adherence to regulatory requirements. The OTC division has recorded good growth as measured by IQVIA in most of the categories in which it competes. In line with the division’s strategy of diversifying the product offering, the division has been appointed as sole distributor for a range of Abbott Laboratories products namely, Brufen, Creon, Duphalac and Calmettes for South Africa, Lesotho and Swaziland. The business prioritises innovation and recently launched Immuenza, an immune booster. The Prescription division is focused on building and offering a broad range of quality and affordable medicines in targeted therapeutic areas for patients consulting healthcare professionals, generally where prescriptions are required. The division manufactures products in South Africa and India and also sources products from a broad range of partner companies, primarily based in Europe. Our ARV products are doing well in the private sector and Trivenz is one of the fastest growing brands amongst the top 10 pharma brands as reported by IQVIA, showing 41% growth over the previous year. The division continues to build on the strategy of being the multinational partner of choice with the addition of Aclasta from Novartis in 2018. 2018 also saw the full integration of the former Astellas products Protopic, SBR, Locoid and Zineryt into the Adcock Ingram portfolio after the global acquisition of these brands by Leo Pharma. The division acquired the first to market generic for Etoricoxib, a product for the relief of pain and inflammation. Approval from SAHPRA for the transfer of applicancy and a name change were received, and the launch of Adco-Etoricoxib is expected before the end of the calendar year. Our Hospital division has progressed several innovations throughout 2018 which support growth ambitions in its base business and diversification of its product range. The large-volume parenterals have grown in public sector hospitals, due to being awarded more than 80% of the three-year tender in September 2017, coupled with good private sector gains, particularly within the Netcare Group and independent networks. The division successfully attained license rights for a leading kinesiology tape, SpiderTech, and further innovation is evident through the launch of its own range of hand and surface disinfectants under the Adco-Hygiene brand. Our Consumer division continues to protect and grow its core business through investment, innovation and marketing, and is focusing on the acquisition of products within less-regulated categories. Our operations in the Zimbabwe and Kenya made decent improvement in their trading following the improvement in stock availability in Zimbabwe, whilst the improvement in the Kenyan operation is due to the OTC division diligently fulfilling its management responsibility to grow the business. With the aim of expanding the national footprint and becoming a full-service logistics solution, the Distribution division embarked on a rebranding exercise of Virtual Logistics to AVL Healthcare. The national network now includes ten sites and has cross-docking hubs positioned across the country with the aim of improving service delivery levels to our customers. TRANSFORMATION In line with our transformational journey, we are pleased to report that the Company achieved a level 3 B-BBEE rating in November 2017. This feat can be attributed to the focus on every element of economic empowerment by the business with particular emphasis on procurement, employment equity and enterprise supplier development over the last 18 months. We need to work in a focused and diligent manner to maintain this level as we on-board owner- managed businesses, which often have little or no B-BBEE credentials, as part of our growth strategy. Adcock Ingram implemented a Gender and Race diversity policy at Board level, which include gender and race targets, as required in the JSE Listings Requirements. Through this policy, the Company will focus on capacitating women through various leadership initiatives, that include mentorship and training programmes, as well as succession management and talent retention strategies. Adcock Ingram was recently awarded the“Gender Reporting by a JSE-listed Company”award from the JSE, which recognises and acknowledges companies that have embraced both the spirit and the letter for this new listings requirements and report on the development of females. On the enterprise development front, our owner-driver initiative now in its sixth year, is very much aligned to our transformational objectives by promoting entrepreneurship within the organisation. The number of entrepreneurs has increased by over 7% during the past year, now with a total of 39 female and male owner-drivers, with a fully-functional and compliant fleet of 116 vehicles and 232 employees. MANUFACTURING At the core of our business are our manufacturing sites and we pride ourselves to continuously improve these facilities to ensure that we remain relevant in an ever-changing regulatory and consumer environment. All of our South African manufacturing sites have been awarded National Key Point status, reflecting the importance of these factories to the provision of healthcare in the country. At the high-volume liquids facility at Clayville, there has been progress with the installation of the powder sachet packing line to increase capacity and meet demand for Citro-soda and vita-thion. The construction of the ophthalmic manufacturing plant is earmarked for completion by the end of calendar year 2019. Turning our focus to the tablet, capsule, creams and ointments facility inWadeville, the site has seen improved volumes in the manufacturing of Trivenz, our ARV product. Wadeville also secured a technical agreement with Litha (now owned by Acino Health) to register as a manufacturing site, and is expected to commence with manufacturing certain products for the local market towards the end of the 2019 financial year. The upgrade to the Liquids, Creams and Ointments facility experienced some delays, but the first phase was completed in August 2018 and validations will be done before the calendar year end. The Hospital division in Aeroton was awarded more than 80% of the government tender for large-volume parenterals in the September 2017. BOARD The Board of directors of Adcock Ingram continues to assess the effectiveness of the Company’s processes, practices and structures which it uses to direct and manage the operations of the Group following the implementation of King IV, which was informed by the gap analysis conducted in the previous year. The outcome of the gap analysis continues to guide the Board’s implementation of King IV. The Group is substantially compliant with the King IV Report and the few instances of non-compliance are highlighted in the report. The Board continues to improve its compliance with King IV to ensure meaningful implementation thereof. WAY FORWARD Adcock Ingram is confident in the equity and resilience of the well-diversified basket of brands in the Group, although the Company expects increased pressure on consumer spending. We will remain focused on seeking additional products to defend our position in the market, and expanding our non-regulated portfolio to limit the impact of the exchange rate and SEP environment. APPRECIATION As a parting note, thanks is extended to the Board, healthcare professionals and consumer who place their trust in our products, suppliers, partners and particularly our employees who have displayed commendable strength in a difficult operating environment. ADCOCK INGRAM  Integrated Report 2018 17