Adcock Ingram

CONTINUING OPERATIONS

Revenue increases 11% to R7,089 million

Gross profit improves 11% to R2,789 million

Trading profit increases 12% to R955 million

Headline earnings per share increases 11%

Total dividend increases 16% to 200 cents per share

The Board of Directors (Board) is pleased with the robust results delivered by the Group in a volatile market, characterised by weak economic growth and declining consumer spend. Under these circumstances, each of the business units performed well, with core brands showing encouraging market share, indicative of the brand resilience of our trusted portfolio. The Group’s Zimbabwean enterprise, which was reflected as an asset held-for-sale at 31 December 2018, was disposed of in January 2019 and the results are reflected as a discontinued operation. The Group has also disposed of its investment in Ayrton Drug Manufacturing Limited, the associate in Ghana as performance from this business did not meet expectations.

REVENUE AND PROFITS

Revenue from contracts with customers for the year under review increased by 10.9% to R7,078 million (2018: R6,383 million), driven by a change in mix of 5.4%, of which Genop contributed 4.6% following its inclusion for the full year, compared to six months in the prior year. Volumes increased by an impressive 3.7%, and price mainly in the OTC and Consumer business segments, contributed to the balance.

The slight gross margin improvement from 39.3% to 39.4%, arose from an advantageous sales mix.

Total operating expenses increased by 10.4%, and excluding the impact of Genop, increased by 5.1%, resulting in a 12.4% improvement in trading profit to R955.4 million (2018: R849.9 million).

NON-TRADING EXPENSES

Non-trading expenses of R71.9 million include share-based expenses of R41.8 million, retrenchment costs of R12.3 million, impairments of R8.6 million and corporate activity costs of R5.8 million.

HEADLINE EARNINGS

Headline earnings from continuing operations for the year increased to R701.0 million (2018: R634.0 million). This translates into headline earnings per share from continuing operations of 421.7 cents (2018: 381.3 cents), an improvement of 10.6%.

Cash generated from operations amounted to R1,029 million (2018: R861.2 million) after working capital increased by R208.6 million (2018: R343.0 million). Trade and other payables decreased by R99.8 million, almost equivalent to the decrease in inventories (R99.1 million), following a reduction in the stock holding of certain multinational partners’ portfolios. Trade and other receivables increased by R207.8 million, but remained well controlled and the average days outstanding are 64 (2018: 65 days).

The Group had net cash resources of R448 million (2018: R156 million) at the end of the year.

The Board has declared a final dividend of 100 cents per share for the year ended 30 June 2019 out of income reserves. The total dividend distribution will therefore be 200 cents per share, an improvement of 16% compared to 2018.

OTC, which focuses on products in the pain, coughs, colds and flu, and anti-histamine therapeutic areas through the pharmacy channel, turnover was flat at R1,983 million (2018: R1,989 million), adversely impacted by the challenging trading environment, down-scheduling of certain brands which were formerly only available on prescription in the analgesic therapeutic area and delays in obtaining export permits from the South African Health Products Regulatory Authority (SAHPRA). In general, the pain and cough portfolio performed below expectations, but top brands like Corenza C and Citro-Soda showed excellent growth.

Gross margin ended in line with the prior year resulting in trading profit declining by 2.8% to R388.4 million (2018: R399.6 million). In the second half of the financial year, the Division underwent leadership changes. Subsequently, some strategy realignment and reorganisation has taken place and we expect to see an improvement in customer focus, brand marketing support and trading performance.

Prescription turnover improved by 22.4% to R2,740 million (2018: R2,238 million), of which Genop contributed 13.2%. The launches of Innuvair, Rapacid and Versatis added 0.7% to the mix. The Division showed strong growth of 6.6% in the prescription private market segment as measured by IQVIA, compared to the market growth of 3.2%. Ex-factory volumes increased by 8.7% mainly as a result of increased demand in the ARV private market, and down-scheduling of some pain products.

Gross margin ended in line with the prior year, resulting in trading profit of R310.0 million 29.5% ahead of the prior year (R239.4 million). The Division concluded an agreement with Leo Pharmaceuticals to perform the sales, marketing and distribution of their recently acquired Bayer dermatology portfolio in South Africa, which includes Advantan, Scheriproct, Travocort and Skinoren, effective 1 July 2019.

Consumer turnover improved by 14.6% to R787.0 million (2018: R687.0 million), an excellent result in a very challenging environment, characterised by limited consumer discretionary spend. Notwithstanding an increasingly competitive environment, the Division’s focus on its flagship brands, Panado, Compral and Bioplus, combined with good cost control, resulted in trading profit increasing by 19.6% to R134.2 million (2018: R112.2 million). Overall, an excellent performance from a rejuvenated management team.

Hospital sustained its upward trajectory, with turnover improving by 7.9% to R1,455 million (2018: R1,348 million) and all product categories achieving growth. The gross margin improved as a result of a favourable sales mix with good gains in the private market. Trading profits improved by an impressive 17.7% to R112.2 million (2018: R95.3 million).

Rest of Africa Turnover in the Group’s Kenya operation increased by 5.3% to R68.5 million (2018: R65.1 million) and it achieved a trading profit of R8.6 million, a solid performance compared to the R1.9 million reported in the prior year.

The following changes were effective 20 February 2019:

• Dr Claudia Manning was appointed as a member of the Social, Ethics and Transformation (“SET”) Committee and the HR, Remuneration and Nominations (“REM”) Committee. She relinquished her position as a member of the Risk and Sustainability Committee;
• Dr Anna Mokgokong was appointed as the Chairperson of the SET Committee; and
• Mr Andrew Hall resigned as a member of the SET Committee but remains a permanent invitee.

The following changes were effective 30 June 2019:

• Mr Clifford Raphiri retired as the Chairman of the Board and the Nominations Committee and as member of the REM Committee; and
• Dr Roger Stewart retired from the Board and as a member of the Audit Committee as well as the Chairman of the Risk and Sustainability Committee.

Mr Lindsay Ralphs was appointed as Chairman of the Board and Prof Matthias Haus was appointed as the Lead Independent Director, effective 1 July 2019.

Ms Jenitha John resigned from the Board and as Chairperson of the Audit Committee, effective 31 July 2019.

Ms Debbie Ransby and Dr Sibongile Gumbi were appointed as members of the Board, effective 14 August 2019.

The Bidvest Group’s shareholding in Adcock Ingram recently increased to 50.1%. This will enhance interactions between the entities in exploring strategic and operational possibilities for Adcock Ingram’s operations and options for growth. Bidvest is supportive of Adcock Ingram’s current decentralised and autonomous business model and sees opportunity for the Company to grow.

The Board expects that the current economic environment, exchange rate weakness and volatility, and constraints on consumer spending will not change in the short-term. The Group remains committed to the growth of our well-respected and diversified basket of brands, and seeking additional affordable brands to augment our portfolios across the business.

The Board has declared a final gross dividend out of income reserves of 100 cents per share in respect of the year ended 30 June 2019. The South African dividend tax (“DT”) rate is 20% and the net dividend payable to shareholders who are not exempt from DT is 80 cents per share. Adcock Ingram currently has 175 756 026 ordinary shares in issue and qualifying for ordinary dividends. The income tax reference number is 9528/919/15/3.

The salient dates for the distribution are detailed below:

Share certificates may not be dematerialised or rematerialised between Wednesday, 18 September 2019 and Friday, 20 September 2019, both dates inclusive.

27 August 2019