Release Date: August 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Turnover improved by 6% to ZAR9.6 billion, driven by strong performances in the over-the-counter and hospital divisions.
- Headline earnings per share increased by 9.9%, benefiting from a share buyback.
- The company maintained a net cash position of ZAR89 million and had access to working capital facilities of ZAR1.75 billion.
- The OTC division saw an 8% revenue increase and a 10% rise in trading profit, driven by strong winter demand for cold and flu products.
- Adcock Ingram Holdings Ltd (JSE:AIP, Financial) achieved a Level 2 BEE rating and continued to invest in corporate social responsibility projects, including renewable energy solutions and community health initiatives.
Negative Points
- Gross margin declined from 34.9% to 33.4%, impacted by a weak exchange rate and sales mix.
- The hospital division faced operational challenges, including water supply interruptions and equipment failures, leading to a 16% decrease in trading profit.
- The consumer division experienced weak demand for paracetamol and aggressive discounting by competitors, resulting in only a 2% trading profit growth.
- The company had to implement safety restrictions on codeine-containing medicines for children under 12, impacting revenue from these products.
- The Plush brand underperformed due to cost pressures and competitive pricing, leading to an impairment of ZAR107 million.
Q & A Highlights
Adcock Ingram Holdings Ltd (JSE:AIP) Earnings Call Highlights
Q: If the extent to which the brands you acquire are consumer discretionary, a consideration in your acquisition decision.
A: (Andrew Hall, CEO) Certainly, it's a consideration. However, a bigger consideration is maintaining a balanced portfolio of price-controlled and non-price-controlled products. Currently, 59% of our portfolio is subject to SEP pricing. We aim to balance consumer healthcare, personal care, and home care, with an intention to enter baby care if suitable brands become available.
Q: On the cost of the Dermopal acquisition, it seems expensive. Can you please talk us through how we think about valuation?
A: (Andrew Hall, CEO) The revenue multiple is accurate, but we haven't disclosed the EBIT multiple. Dermopal's revenue grew from ZAR12 million to ZAR50 million in three years. We calculated a forward-looking EBITDA and believe it's a single-digit EBITDA multiple. The brand complements our existing sun care range and has significant growth potential.
Q: Could you provide insight into the 20% growth in equity accounted earnings from joint ventures?
A: (Andrew Hall, CEO) The Indian JV profits were up about 30%, driven by supply chain efficiencies and solar energy incentives. The JV also manufactures for another significant OTC player. While not all of the 30% growth is sustainable, about half of it is.
Q: What drove the recovery in volumes in H2 versus the declines in H1 for the consumer and OTC segments?
A: (Andrew Hall, CEO) In the consumer segment, brands like Bioplus and Epi-max saw significant recovery. In the OTC segment, resolving supply chain issues and a strong winter season boosted volumes. Products like Corenza C and Citro-Soda performed well.
Q: In the hospital division, how are operational challenges and aging equipment being addressed, and what capital outlay is required?
A: (Andrew Hall, CEO) Quality is our top priority. We're assessing the factory's configuration with consultants to determine if reconfiguration or new facilities are needed. While it's too early to comment on capital outlay, we're investing in necessary upgrades, such as a new laboratory.
Q: Do you have longer-term target utilization rates for your factories?
A: (Andrew Hall, CEO) We aim for above 75% capacity utilization. For the Wadeville oral solid dosage facility, we target above 50% capacity by bringing in small batches of products currently made in India.
Q: Can you provide insight into why the Plush business has not performed to expectations?
A: (Andrew Hall, CEO) Plush faced a difficult year with gross sales declining and margin pressures due to cost increases and competitive pricing. We've made personnel changes and brought in expertise to improve sales strategies. We expect a better performance in the coming year.
Q: What drove the recovery in volumes in H2 versus the declines in H1 for the consumer and OTC segments?
A: (Andrew Hall, CEO) In the consumer segment, brands like Bioplus and Epi-max saw significant recovery. In the OTC segment, resolving supply chain issues and a strong winter season boosted volumes. Products like Corenza C and Citro-Soda performed well.
Q: In the hospital division, how are operational challenges and aging equipment being addressed, and what capital outlay is required?
A: (Andrew Hall, CEO) Quality is our top priority. We're assessing the factory's configuration with consultants to determine if reconfiguration or new facilities are needed. While it's too early to comment on capital outlay, we're investing in necessary upgrades, such as a new laboratory.
Q: Do you have longer-term target utilization rates for your factories?
A: (Andrew Hall, CEO) We aim for above 75% capacity utilization. For the Wadeville oral solid dosage facility, we target above 50% capacity by bringing in small batches of products currently made in India.
Q: Can you provide insight into why the Plush business has not performed to expectations?
A: (Andrew Hall, CEO) Plush faced a difficult year with gross sales declining and margin pressures due to cost increases and competitive pricing. We've made personnel changes and brought in expertise to improve sales strategies. We expect a better performance in the coming year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
