Pharmaceutical group Adcock Ingram has reported lower profits at the halfway stage of the financial year, with the group’s operational and financial performance affected by sector-specific factors.
Revenue for the six months to end-December decreased 0.6% to R4.7bn, due to a slowdown in both the independent and pharmaceutical wholesale channels, the latter having reduced their average inventory holdings on a number of key brands, the group said on Thursday.
Headline earnings declined 12.8% to R390m, which translates into headline earnings per share (HEPS) of 265.5c, a decline of 9.4%.
An interim dividend of 115c was declared, compared with 125c a year ago.
CEO Andy Hall pointed to the slowdown in the independent and pharmaceutical wholesale channels. “Although the results fell short of expectations, the company has retained its status as the number one pharmaceutical player in the SA private market,” Hall said.
“In the prevailing economic climate, our teams are focused on growing market share, excelling at customer service and exercising strict cost control,” he said.
The group said the performance was affected by constrained consumer spending within the lower living standard measures (LSMs) and reduced inventory holdings in the pharmaceutical wholesale channel, evidenced by sales to pharmacies exceeding orders placed with the company.
The reduced demand adversely affected Adcock’s gross margin due to far lower production levels in the period, particularly at the Wadeville facility.
The gross margin declined from 34% to 32.6%, affected by an unfavourable sales mix with a lower proportion of branded and generic prescription products, as well as antiretroviral sales in the private market.
The reduced demand for certain key brands was largely replaced by large-volume parenteral tender sales in the mix, but at lower-than-average gross margins. This was worsened by much lower production levels at the Wadeville facility, which produces products in the prescription and over-the-counter portfolios, it said in a statement.
The implementation of a single exit price adjustment of 5.25% in February will assist in countering the gross margin pressure, but Adcock does not foresee that the Wadeville facility will materially increase output in the next six months.
“Lower interest rates and reduced inflation should provide some relief to constrained consumers. Nonetheless, we remain concerned about unemployment, the effect of which has an impact on a number of our brands,” it said.
“We expect some recovery in the independent wholesale channel and envisage a movement towards normal inventory holdings in at least one of our large pharmaceutical wholesale customers. Management remains committed to seeking additional affordable brands to expand the non-price-regulated portfolio and pursuing further partnerships with multinational pharmaceutical companies as they evaluate their front-end models in SA,” it said.
Updated: 20 February 2025
The story has been updated with CEO’s comment.
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