Adcock Ingram has turned its focus to bulking up the production capacity of its facility in Wadeville to counter the effect that port congestion has had on the availability of its over-the-counter (OTC) brands.
The R8.8bn JSE-listed pharmaceutical company on Wednesday said delays at SA’s ports limited product and raw material availability in the six months to end-December.
CEO Andy Hall told investors on Wednesday the OTC division — specialising in pain, cough, cold, flu and allergy medication — was hardest hit by inventory supply challenges stemming from the Durban port congestion, with stocks of its two biggest brands in the unit running dry.
“The port delays hit us in November and December, and they were pretty unexpected. The units’ biggest brands, Adco-Dol and Allergex, suffered [as] we were effectively out of stock on those products with back orders,” he said.
The inventory supply challenges resulting from the Durban port congestion led to the group incurring additional costs as it had to invest in the airfreighting of inventory to mitigate the effects. As a result, trading profit decreased 9% to R165m from R181m in 2022.
“If we would have been able to service those back orders before the end of the year, we would have been just ahead of the comparative number,” Hall said.
Inventories decreased by R52m due to supply chain challenges related to port delays.
In the meantime, Adcock is eyeballing its Wadeville plant as an alternative producer for when products that are sourced from its Bangalore, India, facility are delayed in the future.
The company said it was forging ahead with preparing the Germiston-based facility to make some of its high-demand products.
The CEO said the group had completed test batches at the facility and was now busy with validation batches.
“The three products we are going to manufacture there are Adco-Dol, Gen-Payne and Myprodol,” said Hall. “And we won’t do full production at the factory here, we will just make sure that we do enough to cover any potential supply chain problems that come our way.”
In its annual integrated report, the group said it was making significant progress in the repurposing of the Wadeville facility, which is aimed at expanding its oral liquids formulations, reporting a doubling in production volumes.
It recently reintroduced the manufacturing of Panado paediatric syrup at the plant coupled with the implementation of automated label sensors and variable data readers.
The JSE-listed group also has international supply chain partners and imports some products, mainly from India alongside a range of raw materials, making its reliance on SA ports high.
Hall said while most of Adcock’s containers had since been unloaded, there was a subsequent bottleneck in post-importation.
“The problems have not remedied themselves,” he said, pointing out that the group held a back order of about R70m in January on the two products, which is yet to be shaved down significantly.
“We probably need about four weeks to get over that problem.”
The group, which counts Panado painkillers and cold-and-flu product Corenza C among its brands also flagged lower antiretroviral drugs tender sales resulted in a 5% decline in organic volumes.
Amid a cost-push by suppliers and the weaker exchange rate, the consumer unit introduced the E45 skincare range at a lower average margin but said it could not recover costs through higher selling prices. Turnover improved 2.3% to R866m for the half-year to December.
Operating four divisions including, hospital, OTC, prescription and consumer, Adcock makes, markets and distributes a wide range of consumer and healthcare products to the private and public sectors — exporting to at least nine African countries.
The pharmaceuticals manufacturer reported sluggish profit growth in the period under review.
Adcock reported a 1% increase in headline earnings per share (HEPS) to 293c, aided by the group’s repurchase of 1.7-million shares in the current reporting period and 7.7-million shares repurchased during the second half of the previous financial year.
Turnover increased 1% to R4.7bn supported by price realisation of 4% and a mix benefit of 2%, the group said.
Notwithstanding the challenges and subsequent flat results, the board declared an interim dividend of 125c per share.
Adcock counts the Bidvest Group and Government Employees Pension Fund among its largest shareholders.
Adcock shares slipped 3.44% to R52.14 on Wednesday, having risen more than 22% over the last three years.
Update: February 21 2024
This story has been updated with new information.
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