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ADCOCK INGRAM HOLDINGS LIMITED - Audited group financial results for the year ended 30 June 2020

Release Date: 26/08/2020 07:05
Code(s): AIP     PDF:  
Wrap Text
Audited group financial results for the year ended 30 June 2020

Adcock Ingram Holdings Limited 
(Incorporated in the Republic of South Africa) 
(Registration number 2007/016236/06)            
Share code: AIP   ISIN: ZAE000123436 
("Adcock Ingram" or "the Company" or "the Group")

Audited Group Financial Results

Continuing operations

  -  B-BBEE Level 1         
  -  REVENUE +4%
  -  CASH ON HAND R317m                       

On 11 March 2020, the World Health Organisation officially declared
COVID-19 a pandemic, resulting in the South African Government declaring
a state of national disaster on 15 March 2020. The Government took drastic
measures in the form of a national lockdown to manage the spread of the
disease, protect the people of our country, and reduce the impact of the virus
on the society and the economy. Adcock Ingram is regarded as an essential
service provider, and therefore no restrictions were imposed on the operations
during the lockdown, albeit that the effects of the pandemic were evident
across the business units in varying degrees.
As the pandemic increased in both magnitude and duration, the Group
has experienced conditions associated with a general economic downturn,
including significant cost-push due to Rand weakness, global supply chain
disruptions, and declines in demand for certain categories of medicine and
products, and consumer discretionary spending.

Under these circumstances, the Board of Directors is pleased with the results
delivered by the Group in a depressed and unpredictable market.

Performance including COVID-19 impact

OTC, which focuses on products in the pain, coughs, colds and flu, and 
anti-histamine therapeutic categories through the pharmacy channel, increased
turnover by 1.8% to R2,018 million. Growth was adversely impacted in the
fourth quarter of the financial year, by the virtual absence of a cold and flu
season in South Africa, resulting in very few orders for replenishment of the
winter basket. Nonetheless, a number of the top brands including Corenza C,
Alcophyllex and Allergex showed double-digit growth year on year.

Prescription turnover increased 0.7% to R2,759 million. The significant decrease
in volume (7.1%) is attributable to the COVID-19 outbreak and subsequent
lockdown. This resulted in lower levels of patients consulting doctors, lower
dispensary traffic in pharmacies, as well as the postponement of elective
surgeries. This impacted many of the acute medicines marketed by the Division,
including the pain, dermatology, urology and ophthalmology portfolios.
A significant portion of the Genop business, that markets surgical products and
medical equipment, primarily to ophthalmic surgeons and optometry practices,
saw virtually no demand during lockdown. However, Epi-max, this business's
anchor personal care brand, continues to grow.

Consumer turnover improved by 13.4% to R892.4 million, delivering a
strong performance throughout the year, but also benefitting from the
unprecedented demand for Panado and immune-boosting products amid
the COVID-19 outbreak. Demand for personal care and energy products
was generally weak during the COVID-19 pandemic. Plush, included for a
month after the acquisition became unconditional on 27 May 2020, is a well-
established company offering an extensive range of homecare, cleaning and
leather care products, which are sold at most major retailers in South Africa.
This company's shoe-care products struggled under lockdown, particularly with
the closure of schools and shoe retailers.

Hospital turnover improved by 11.9% to R1,628 million with robust sales
from the Renal segment, strategic purchases of intravenous fluids prior to the
COVID-19 pandemic and exceptional demand for Adco Hygiene products.
These effects compensated for the decline in demand for products used
in elective surgeries, and trauma and medical cases, all of which were
significantly reduced during the COVID-19 pandemic. The new Sports Science
and Rehabilitation business had shown good potential in the two-months
subsequent to its launch in January 2020, but COVID-19 effectively brought this
business to a standstill during lockdown, with many physiotherapy practices
closed or seeing reduced numbers of patients.

Gross margin decreased from 39.4% to 37.3%, adversely impacted by the
unfavourable exchange rate and unanticipated COVID-19 expenditure.

The Group spent R31 million during the financial year on COVID-19 related
costs, including the provision of meals and transport during lockdown level 5,
and additional hygiene protocols including disinfecting and decontamination
procedures at all sites, with special measures in the factories, canteens and
ablution facilities.

Non-trading expenses include retrenchment costs of R33.5 million, the Group
having reduced its non-bargaining unit employee count by 64 people towards
the end of the financial year, in response to the weak economic environment.

Headline earnings from continuing operations for the year increased by 1.2%
to R709.5 million (2019: R701.0 million). As a result of a R10 million ex-gratia
payment to Ad-izinyosi and the lower number of treasury shares subsequent to
unwinding of the B-BBEE Scheme, headline earnings per share from continuing
operations decreased 1% to 417.5 cents (2019: 421.7 cents). The ex-gratia
payment and the lower number of treasury shares, on a combined basis,
adversely impacted HEPS by 18.1 cents.
Cash generated from operations amounted to R1,081 million
(2019: R1,029 million) after working capital increased by R164.7 million
(2019: R208.6 million), mainly arising from investment in active pharmaceutical
ingredients related to the ARV tender, on-boarding of additional Leo Pharma
dermatology brands, the launch of the Sports Science and Rehabilitation
business in the Hospital Division, the take-on of Plush, and higher safety
inventory held to address global supply constraints consequent to COVID-19.

                                          Change       Audited      Audited
                                               %          2020         2019

Continuing operations
Revenue from contracts
with customers                  (R'000)       4      7 346 558    7 078 438
Gross profit                    (R'000)      (2)     2 739 056    2 789 106
Trading profit                  (R'000)      (1)       944 280      955 421
Operating profit                (R'000)      (2)       862 181      883 537

Headline earnings per share     (cents)      (1)         417.5        421.7
Basic earnings per share        (cents)      (4)         398.0        414.8

Total operations
Revenue                         (R'000)       3      7 346 558    7 164 699
Gross profit                    (R'000)      (3)     2 739 056    2 814 202
Trading profit                  (R'000)      (2)       944 280      960 340
Operating profit                (R'000)      (3)       862 181      886 635

Headline earnings per share     (cents)      (1)         417.5        422.8  
Basic earnings per share        (cents)      (4)         398.0        413.8

Total assets                    (R'000)              7 181 750    6 250 793
Net asset value per share       (cents)                2 708.6      2 505.7
Dividend declared per share     (cents)                  100.0        200.0

Group response to COVID-19
The unprecedented effect of the COVID-19 pandemic has had a profound
impact on the lives of millions around the globe. In the midst of this
devastating pandemic, the Group responded with the following support for
employees and stakeholders:

-  established a COVID-19 Crisis Communication Committee Task Team to
   provide strategic policy guidelines to safeguard employees' safety and
   wellness in the workplace, and implement protocols to curb the spread
   of the virus, test and trace at-risk employees, and manage employees in
   isolation or quarantine;
-  all our factories, distribution network and other departments critical to the
   continuity of operations were operational throughout the lockdown period;
-  the majority of our employees (75%) worked on site during the lockdown,
   with the remaining 25% working predominately from home, but, as
   essential workers, able to come to the office when required. Employees
   over 60 years of age and those with comorbidities, health issues and any
   certain social factors, e.g. parents with school-going children under the
   age of 18, have been prioritised to work predominantly from home where
-  non-executive and executive directors of the Board, and certain senior
   managers, voluntarily donated 20% of their fees or salaries, for three
   months to the Solidarity Fund, or as a cost saving in their respective
-  raised funds to support employees of the in-house car wash service
   during the lockdown period;
-  donated hospital beds and respirators through corporate social
   responsibility projects;
-  provided food parcels and facemasks to communities in need;
-  made early settlement of payments due to small medium enterprises
   suppliers (SME's); and
-  collaborated with the South African Depression and Anxiety Group and
   The Healthcare Workers Care Network to offer healthcare workers access
   to support, therapy, resources, training and psycho-education via the
   Adcock Ingram Depression and Anxiety Helpline, to assist them to cope
   with the mental strain of the pandemic.

At the date of approval of this report, the COVID-19 infection status within the
Company is as follows:

-  262 positive cases;
-  253 cases recovered and returned to work;
-  6 active cases; and
-  sadly 3 deceased employees. Our thoughts and prayers are with their
   families, friends and colleagues.

In addition, we currently have 18 employees in self-quarantine. Over the course
of the pandemic, outside of the positive cases reported above, 587 employees
have self-quarantined and returned to work in accordance with our protocols.

The COVID-19 pandemic has highlighted how much the country depends
upon essential workers, who worked and continue to do so, throughout the
pandemic. We are tremendously grateful to the people serving on the frontlines
of COVID-19 in essential services, especially healthcare workers, as well as
our own employees who ensure that life-saving intravenous fluids and other
medicines, essential to manage the crisis, are manufactured and distributed.

Given the uncertain nature of the COVID-19 pandemic and the probable
prolonged negative impact on the economy, particularly unemployment levels
and the weak exchange rate, South Africans and corporates face a difficult path
in the short to medium term.

In the absence of relief on the Single Exit Price, margin compression in the
Group is inevitable at current exchange rate levels. In addition, the longer the
pandemic persists, the greater the risk that current levels of weak demand in
parts of the Group's portfolio will continue.

The Group continues to examine its structures and operating model, taking into
account customer and consumer behaviour during the lock-down period, to
remain relevant in a post-COVID-19 economy and protect the sustainability of
the business.

Notwithstanding the impact of COVID-19, the Group owns, produces and
distributes an extensive range of affordable pharmaceutical, medical and
consumer products, including many iconic South African brands. The Board
therefore remains optimistic about the longer term prospects of the Company.

Adcock Ingram is in a healthy financial position and generated strong cash flows 
in 2020. As a result of the slow performance of the pharmaceutical market subsequent 
to March 2020, as well as the extraordinary levels of uncertainty in the economy and 
operating environment brought about by COVID-19, the Board of Directors resolved not 
to declare a final dividend, but adopt a prudent approach and preserve cash until the 
full impact of COVID-19 is better understood.

LP Ralphs                                                     AG Hall
Chairman                                      Chief Executive Officer

Approved by the Board: 25 August 2020

SENS release date: 26 August 2020            

Company secretary 
NE Simelane

Registered office 
1 New Road, Midrand, 1682 

Postal address 
Private Bag X69, Bryanston, 2021 

Transfer secretaries 
Computershare Investor Services Proprietary Limited, Rosebank Towers, 
15 Biermann Avenue, Rosebank, Johannesburg, 2196. PO Box 61051, Marshalltown, 2107

PricewaterhouseCoopers Inc, 4 Lisbon Lane, Waterfall, 2090 

Rand Merchant Bank (a division of FirstRand Bank Limited), 
1 Merchant Place, corner Fredman Drive and Rivonia Road, Sandton, 2196 

Nedbank Limited, 135 Rivonia Road, Sandown, Sandton, 2146. 
Rand Merchant Bank, 1 Merchant Place, corner Fredman Drive and Rivonia Road, Sandton, 2196. 
Investec Bank Limted, 100 Grayston Drive, Sandton, 2146

This short-form announcement is the responsibility of the directors of the Company. It is only a 
summary of the information in the full announcement and does not contain full or complete details. 
Any investment decision should be based on the full announcement, published and available at and on the Company's 
website PricewaterhouseCoopers Inc, the Company's 
independent auditor, has audited the Consolidated Annual Financial Statements ("AFS") of Adcock 
Ingram from which this announcement has been derived, and has expressed an unqualified audit 
opinion thereon.  
The auditor's report (with Key Audit Matters) together with the accompanying AFS can be accessed 
at This announcement itself is not audited and is 
therefore not covered by the audit report. Copies of the full announcement are available for 
inspection at the registered office of the Company and may be requested without charge during 
office hours by phoning +27 11 635 0143. 

Date: 26-08-2020 07:05:00
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