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AIP
AIP - Adcock - Abridged Audited Group Results for the year ended
30 September 2009
ADCOCK INGRAM HOLDINGS LIMITED
(Registration number 2007/016236/06)
(Incorporated in the Republic of South Africa)
Share code: AIP ISIN:ZAE000123436
("Adcock" or "the company" or "the group")
Abridged Audited Group Results for the year ended 30 September 2009
Adcock Ingram provides an extensive portfolio of branded and generic medicines,
has a strong presence in over-the- counter (OTC) brands, is South Africa`s
largest supplier of hospital and critical-care products and supplies established
brand name consumables and equipment to medical, research and servicing
pathology laboratories.
Highlights
- Turnover UP 21%
- NPAT UP 19%
- HEPS UP 16%
"We are very pleased that a year after listing on the JSE, Adcock Ingram has
delivered strong financial performance and a sound balance sheet." CEO, Jonathan
Louw
Consolidated income statements
for the years ended 30 September
2009
R`000 %
Audited change
Note
REVENUE 2 4 115 265
TURNOVER 2 4 005 153 21,3
Cost of sales (1 968 238)
Gross profit 2 036 915 11,7
Selling and distribution expenses (421 969)
Marketing expenses (130 026)
Research and development expenses (64 472)
Fixed and administrative expenses (375 619)
Operating profit 1 044 829
Finance income 2 100 493
Finance costs (118 224)
Dividend income 2 9 619
Profit before taxation and
abnormal items 1 036 717
Abnormal items 3 -
Profit before taxation 1 036 717 14,3
Taxation (246 835)
Net profit for the year 789 882 19,1
Attributable to:
Owners of the parent 782 396
Minority interests 7 486
789 882
Number of ordinary shares in issue (000`s) 173 626
Weighted average number of
ordinary shares on which
headline earnings and basic
earnings per share are based (000`s) 173 206
Diluted number of shares (000`s) 173 810
Basic earnings per ordinary share(cents) 451,7 19,3
Diluted basic earnings per
ordinary share (cents) 450,1 19,7
Headline earnings per ordinary
share (cents) 450,0 16,1
Diluted headline earnings per
ordinary share (cents) 448,4 16,4
Reconciliation between earnings
and headline earnings:
Earnings as reported 782 396
Adjustments:
Impairment of intangible assets -
(Profit)/loss on disposal of property,
plant and equipment (3 050)
Headline earnings 779 346 16,5
Pro forma Statutory 1
2008 2008
R`000 R`000
Audited Audited
REVENUE 3 463 333 1 772 659
TURNOVER 3 300 894 1 758 808
Cost of sales (1 478 123) (813 272)
Gross profit 1 822 771 9 45 536
Selling and distribution expenses (365 295) (193 277)
Marketing expenses (115 286) (65 765)
Research and development expenses (56 245) (33 066)
Fixed and administrative expenses (281 312) (151 879)
Operating profit 1 004 633 501 549
Finance income 151 739 11 042
Finance costs (188 406) (67 666)
Dividend income 10 700 2 809
Profit before taxation and
abnormal items 978 666 447 734
Abnormal items (71 295) (17 791)
Profit before taxation 9 07 371 429 943
Taxation (243 996) (105 209)
Net profit for the year 663 375 324 734
Attributable to:
Owners of the parent 653 087 318 399
Minority interests 10 288 6 335
663 375 324 734
Number of ordinary shares in issue (000`s) 173 055 173 055
Weighted average number of
ordinary shares on which
headline earnings and basic
earnings per share are based (000`s) 172 554 172 630
Diluted number of shares (000`s) 173 645 173 721
Basic earnings per ordinary share(cents) 378,5 184,4
Diluted basic earnings per
ordinary share (cents) 376,1 183,3
Headline earnings per ordinary
share (cents) 387,6 195,6
Diluted headline earnings per
ordinary share (cents) 385,2 194,3
Reconciliation between earnings
and headline earnings:
Earnings as reported 653 087 318 399
Adjustments:
Impairment of intangible assets 17 791 17 791
(Profit)/loss on disposal of property,
plant and equipment (2 040) 1 428
Headline earnings 668 838 337 618
1: Statutory represents six months of trading
Consolidated statements of comprehensive income
for the years ended 30 September
Pro forma Statutory 1
2009 2008 2008
R`000 R`000 R`000
Audited Audited Audited
Net profit for the year 789 882 663 375 324 734
Other comprehensive income (12 910) 5 523 (4 284)
Exchange differences on translation
of foreign operations (5 045) 1 735 (5 097)
Movement in cash flow hedge accounting
reserve, net of tax (7 865) 4 004 813
Legal reserves and other - (216) -
Total comprehensive income
for the year, net of tax 776 972 668 898 320 450
Attributable to:
Owners of the parent 769 486 658 610 314 115
Minority interests 7 486 10 288 6 335
776 972 668 898 320 450
1: Statutory represents six months of trading
Consolidated statements of changes in equity
for the years ended 30 September
Attributable to holders of the parent
Share Share Retained
capital premium income
R`000 R`000 R`000
STATUTORY
2008
- Audited
1 April 2008 17 248 1 187 121 32 018
Share issue 58 8 431
Capital distribution
out of share premium (1 890)
Share-based
payment expense
Total comprehensive income 318 399
Dividends (10 300)
Balance at
30 September 2008 17 306 1 193 662 340 117
2009
- Audited
Share issue 57 10 192
Share-based payment expense
Total comprehensive income 782 396
Dividends (120 571)
Balance at 30 September 2009 17 363 1 203 854 1 001 942
Attributable to holders of the parent
Total
attribut-
Non- able to
distri- ordinary
butable share-
reserves holders
R`000 R`000
STATUTORY
2008
- Audited
1 April 2008 73 849 1 310 236
Share issue 8 489
Capital distribution
out of share premium (1 890)
Share-based payment expense 7 741 7 741
Total comprehensive income (4 284) 314 115
Dividends (10 300)
Balance at 30 September 2008 77 306 1 628 391
2009
- Audited
Share issue 10 249
Share-based payment expense 13 098 13 098
Total comprehensive income (12 910) 769 486
Dividends (120 571)
Balance at 30 September 2009 77 494 2 300 653
Minority
interests Total
R`000 R`000
STATUTORY
2008
- Audited
1 April 2008 16 277 1 326 513
Share issue 8 489
Capital distribution
out of share premium (1 890)
Share-based payment expense 7 741
Total comprehensive income 6 335 320 450
Dividends (10 300)
Balance at 30 September 2008 22 612 1 651 003
2009
- Audited
Share issue 10 249
Share-based payment expense 13 098
Total comprehensive income 7 486 776 972
Dividends (5 155) (125 726)
Balance at 30 September 2009 24 943 2 325 596
Consolidated balance sheets
at 30 September
Statutory/
Pro forma
2009 2008
R`000 R`000
Audited Audited
ASSETS
Property, plant and equipment 599 746 452 019
Deferred tax 20 030 12 447
Investments 138 037 138 037
Investment in associate 12 200 -
Intangible assets 304 240 222 186
Non-current assets 1 074 253 824 689
Inventories 583 704 566 580
Trade and other receivables 1 036 605 915 585
Cash and cash equivalents 692 938 406 025
Current assets 2 313 247 1 888 190
Total assets 3 387 500 2 712 879
EQUITY AND LIABILITIES
Capital and reserves
Issued share capital 17 363 17 306
Share premium 1 203 854 1 193 662
Non-distributable reserves 77 494 77 306
Retained income 1 001 943 340 117
Total shareholders` funds 2 300 653 1 628 391
Minority interests 24 943 22 612
Total equity 2 325 596 1 651 003
Long-term liabilities 117 076 277 833
Post-retirement medical liability 14 298 13 698
Deferred tax 6 683 4 013
Non-current liabilities 138 057 295 544
Bank overdraft 221 10 727
Trade and other payables 630 743 543 401
Short-term borrowings 194 405 161 119
Provisions 68 752 30 719
Taxation payable 29 726 20 366
Current liabilities 923 847 766 332
Total equity and liabilities 3 387 500 2 712 879
Net cash/(debt) 3 81 236 (43 654)
Consolidated cash flow statements
for the years ended 30 September
2009
R`000
Audited
Note
Cash flows from operating activities
Operating profit before working capital changes 1 176 280
Cash related abnormal items -
Working capital changes (46 120)
Cash generated from operations 1 130 160
Finance income 100 493
Finance costs (118 224)
Dividend income 9 619
Dividends paid (125 726)
Taxation paid (242 635)
Net cash inflow from operating activities 753 687
Cash flows from investing activities
(Increase)/decrease in Black Managers` Trust -
Purchase of intangible assets (11 025)
Cost of business acquired 5 (79 049)
Purchase of property, plant and equipment (228 609)
Proceeds on disposal of property, plant and equipment 4 163
Cost of investment in associate (12 200)
Net cash outflow from investing activities (326 720)
Cash flows from financial activities
Proceeds from issue of share capital 10 249
(Increase)/decrease in amounts
owing by related parties -
Repayment of borrowings (138 966)
Net cash (outflow)/inflow from
financing activities (128 717)
Net increase in cash and cash equivalents 298 250
Net foreign exchange difference on
cash and cash equivalents (831)
Foreign currency translation reserve -
Movement in hedge accounting reserve -
Cash and cash equivalents at beginning of year 395 298
Cash and cash equivalents at end of year 692 717
Pro forma Statutory 1
2008 2008
R`000 R`000
Audited Audited
Cash flows from operating activities
Operating profit before working capital changes 1 071 686 576 740
Cash related abnormal items (53 504) -
Working capital changes (276 702) (255 361)
Cash generated from operations 741 480 321 379
Finance income 151 739 11 042
Finance costs (188 406) (67 666)
Dividend income 10 700 2 809
Dividends paid (42 725) (11 016)
Taxation paid (233 712) (49 170)
Net cash inflow from operating activities 439 076 207 378
Cash flows from investing activities
(Increase)/decrease in Black Managers` Trust (16 343) 38 607
Purchase of intangible assets (18 756) (18 350)
Cost of business acquired (31 930) (101 180)
Purchase of property, plant and equipment (230 387) (162 013)
Proceeds on disposal of property,
plant and equipment 17 361 8 831
Cost of investment in associate - -
Net cash outflow from investing activities (280 055) (234 105)
Cash flows from financial activities
Proceeds from issue of share capital 1 210 968 6 599
(Increase)/decrease in amounts
owing by related parties (133 057) 475 150
Repayment of borrowings (79 513) (55 440)
Net cash (outflow)/inflow from
financing activities 998 398 426 309
Net increase in cash and cash equivalents 1 157 419 399 582
Net foreign exchange difference on
cash and cash equivalents - -
Foreign currency translation reserve 1 735 (5 097)
Movement in hedge accounting reserve 4 004 813
Cash and cash equivalents at beginning of year (767 860) -
Cash and cash equivalents at end of year 395 298 395 298
1: Statutory represents six months of trading.
Segment report
Pro forma Statutory 1
2009 2008 2 2008 2
R`000 R`000 R`000
Audited Audited Audited
Turnover
Over the counter 1 288 966 1 087 900 580 862
Prescription 1 466 736 1 041 710 560 597
Pharmaceuticals 2 755 702 2 129 610 1 141 459
Hospital products 1 249 451 1 171 284 617 349
4 005 153 3 300 894 1 758 808
Depreciation and amortisation
Pharmaceuticals 37 367 32 073 18 332
Hospital products 45 403 36 535 18 454
82 770 68 608 36 786
Impairment losses
Over the counter - - -
Prescription - 11 558 11 558
Pharmaceuticals - 11 558 11 558
Hospital products - 6 233 6 233
- 17 791 17 791
Operating profit
Over the counter 402 448 417 368 201 111
Prescription 421 788 336 811 171 613
Pharmaceuticals 824 236 754 179 372 724
Hospital products 220 593 250 454 128 825
1 044 829 1 004 633 501 549
Capital expenditure 3
Pharmaceuticals 156 605 190 339 136 651
Hospital products 72 004 40 048 25 362
228 609 230 387 162 013
1: Statutory represents six months of trading.
2: The group has elected to early adopt IFRS 8 Operating Segments and
comparative information has been restated in accordance with IFRS 8.
3: Capital expenditure consists of additions to property, plant and equipment,
but excludes additions to intangible assets.
Notes to the financial statements
1. BASIS OF PREPARATION
The abridged audited results have been prepared in accordance with International
Financial Reporting Standards, IAS 34 Interim Financial Reporting, the South
African Companies Act and the Listings Requirements of the JSE Limited. The
condensed financial information has been audited by Ernst & Young Inc. in
accordance with the bases of preparation as detailed below. The unqualified
opinions are available for inspection at the company`s registered office. The
consolidated financial statements have been revised to bring it in line with the
IAS1R - Presentation of Financial Statements and IFRS 8 Operating Segments.
BASES OF PREPARATION OF 2008 INFORMATION
Statutory information
On 31 March 2008, Adcock Ingram Holdings Limited acquired 100% of Adcock Ingram
Healthcare (Pty) Limited, Adcock Ingram Critical Care (Pty) Limited and Adcock
Ingram Intellectual Property (Pty) Limited. On 1 April 2008, Adcock Ingram
Holdings Limited acquired 100% of Adcock Ingram Limited and 49,9% of Adcock
Ingram Limited India (joint venture). On 1 July 2008, Adcock Ingram Holdings
Limited acquired 50% of Thembalami Pharmaceuticals (Pty) Limited, a dormant
company.
Statutory information therefore represents only six months of trading.
Pro forma information
The basis of preparation and the disclosures of the pro forma information are
not intended to be in compliance with the requirements of International
Financial Reporting Standards. Such Standards do not set out standards of
preparation of "pro forma information". It is acknowledged however that the
financial information upon which the pro forma information has been prepared in
accordance with such Standards and been reported on by the independent auditors
without qualification.
Pro forma figures have been presented on the following basis:
- These figures have been presented as if the Adcock group as at 30 September
2008 had been in existence for the entire year.
- Accounting policies adopted by the group for statutory purposes have been
consistently applied to these figures.
Business combinations as a result of the unbundling have not been separately
disclosed.
- No pro forma statement of changes in equity has been provided.
- The earnings per share calculation has been done as if shares were in issue
from the first day of the financial year.
- As Adcock was part of the Tiger Brands group for 11 months of the year,
Tiger Brands was regarded as a related party for disclosure purposes.
The pro forma financial information is the responsibility of the directors and
has been presented to provide a meaningful year-on-year comparison of the
business.
The pro forma financial information is prepared for illustrative purposes only
and because of its nature, it may not fairly present Adcock`s financial
position, changes in equity, results of operations or cash flows.
Pro forma Statutory 1
2009 2008 2008
R`000 R`000 R`000
Audited Audited Audited
2. REVENUE
Revenue comprises
- Turnover 4 005 153 3 300 894 1 758 808
- Finance income 100 493 151 739 11 042
- Dividend income 9 619 10 700 2 809
4 115 265 3 463 333 1 772 659
3. ABNORMAL ITEMS
Impairment of intangible assets - (17 791) (17 791)
Competition Commission settlement - (53 504) -
- (71 295) (17 791)
4. CHANGES IN ACCOUNTING POLICIES
The accounting policies adopted are consistent with those of the previous
financial year except as follows:
The company and the group have adopted the following new and amended IFRS
interpretations during the year. Adoption of these revised standards and
interpretations did not have any effect on the financial performance or position
of the group. They did however give rise to additional disclosures, including in
some cases, revisions to accounting policies.
IAS 1 (Revised) Presentation of Financial Statements
The group has elected to early adopt IAS 1 (Revised). The amendment mandates
requirements for the presentation of financial statements on the basis of shared
characteristics. Changes in equity arising from transactions with owners in
their capacity as owners are separated from other changes in equity. The
statement of changes in equity for the prior periods is therefore restated.
IFRS 8 Operating segments
The group has elected to early adopt IFRS 8 Operating Segments, which requires
the disclosure of information based on the "management approach" to reporting on
the financial performance of operating segments. Generally, the information to
be reported would be what management uses internally for evaluating segment
performance and deciding how to allocate resources to operating segments.
IFRIC 14 The limit on a Defined Benefit Asset, Minimum Funding Requirements and
their Interactions
The group adopted IFRIC 14 from 1 October 2008, which addresses the measurement
of an asset and specifies whether a surplus represents an economic benefit for
the entity.
5. BUSINESS COMBINATIONS
Tender Loving Care (Pty) Limited (TLC)
On 2 April 2009, Adcock Ingram Holdings Limited acquired 100% of the
shareholding in Tender Loving Care - Hygienic, Cosmetic and Baby Products (Pty)
Limited, an unlisted company in South Africa.
The fair value of the identifiable assets as at the date of acquisition was:
2009
R`000
Property, plant and equipment 817
Other intangibles 65 248
Cash and cash equivalents 1 346
Inventories 11 707
Accounts receivable 12 746
Short-term borrowings (16 151)
Accounts payable (7 335)
Deferred tax (21)
Receiver of Revenue (3 284)
Long-term liabilities (73)
Fair value of net assets 65 000
Cash and cash equivalents (1 346)
Goodwill 15 395
Net cash purchase price (79 049)
From the date of acquisition, TLC contributed R26,9 million towards revenue and
R4,9 million towards profit before income tax.
6. CAPITAL COMMITMENTS
2009 2008
R`000 R`000
Capital commitments 932 784 614 704
- contracted 14 3693 115 879
- approved 789 091 498 825
7. EVENTS AFTER THE BALANCE SHEET DATE
7.1 Unique Formulations
On 17 November 2009, the group acquired 100% of the assets as a going concern of
Unique Formulations, a vitamin and mineral supplement company based in Cape
Town, for a cash consideration of R35 million. The consideration will be paid in
three tranches over a two-year period. The acquisition of Unique Formulations is
congruent with the group`s expansion strategy into the complementary medicines
market.
7.2 Long-term loan finance facilities
The group signed a long-term loan facility to the value of R800 million to
finance the group`s capital expenditure in relation to an upgrade and
refurbishment of a current manufacturing facility in the Hospital Products
segment as well as the construction of a new high-volume liquids manufacturing
plant in the Pharmaceutical division over the next four years.
7.3 Broad-based Black Economic Empowerment (BEE) transaction
In March 2009, Adcock Ingram announced its intention to facilitate the
introduction of meaningful and sustainable black economic empowerment (BEE)
equity participation in Adcock Ingram. Adcock Ingram has today announced the key
terms of its BEE equity ownership transaction to shareholders, which has been
done in a separate announcement. Adcock Ingram is committed to transformation
through the introduction of broad-based BEE equity partners into the business to
add to the significant progress it has made in the areas of, inter alia,
employment equity, skills development, preferential procurement and enterprise
development. For more details of Adcock Ingram`s broad-based BEE transaction,
please refer to the SENS announcement of 24 November 2009.
7.4 Ayrton
On 20 November 2009, Adcock Ingram delivered a letter to the board of directors
of Ayrton Drug Manufacturing Limited ("Ayrton") in terms of which Adcock Ingram
specified its firm intention to make an offer to acquire the entire issued
ordinary share capital of Ayrton, subject to obtaining a minimum of 51% of the
company. The offer price of GHc 0.16 per share values Ayrton at the equivalent
of R178 million.
For and on behalf of the board
JJ Louw KDK Mokhele
Chief Executive Officer Chairman
23 November 2009
SALIENT FEATURES
- Turnover up 21% to R4,0 billion
- Earnings per share improved 19,3% to 451,7 cents
- Cash on hand R693 million
- Final dividend 80 cents per share
We are very pleased to present Adcock Ingram`s annual results in respect of its
first full year as an independent group. We are satisfied to have delivered very
strong revenue growth, significant improvement in headline earnings per share
(HEPS) and a strong balance sheet, despite the operational challenges
encountered and a demanding external environment.
FINANCIAL REVIEW
Headline earnings
Headline earnings for the year ended 30 September 2009 of R779,3 million (2008:
R668,8 million) reflect an increase of 16,5% over the prior year. At the HEPS
level, this translates into an improvement of 16,1% to 450,0 cents (2008: 387,6
cents), based on 173,2 million (2008: 172,6 million) weighted average number of
shares in issue.
Earnings per share (EPS) improved by 19,3% to 451,7 cents (2008: 378,5 cents),
marginally more than the increase in HEPS as a result of the impairment of
intangible assets in 2008 reducing earnings in that year.
Turnover
Turnover was 21,3% higher at R4,0 billion (2008: R3,3 billion) benefiting from
12% volume growth, the Single Exit Pricing (SEP) increase and changed product
mix. The Prescription segment had an excellent volume increase, primarily
through ARVs, and the Hospital division showed 3% volume growth in a
particularly tough trading environment. Over-the-counter (OTC) volumes were
maintained year-on-year despite significant down-trading in this portfolio.
Turnover grew against the backdrop of:
- an SEP price increase of 13,2% granted in January 2009. The price increase
was effective for the entire second half of the financial year in the
Pharmaceutical division, but the Hospital Products division did not benefit from
the price increase as discussions with the Department of Health on unit-based
(per millilitre) pricing are still ongoing;
- contract manufacturing revenue in the OTC business valued at R92 million
that terminated at the end of August 2009; and
- the loss of two significant agencies in the Hospital Products division
which on a combined basis contributed R90 million to revenue in 2008.
Profits
Gross profit increased by 11,7% to R2,0 billion (2008: R1,8 billion), while the
gross profit margin declined from 55% in 2008 to 51% in 2009. The primary
contributing factors were:
- significant Rand weakness in the first half of the year, which unfavourably
impacted imported raw materials and finished products; and
- a change in the product sales mix with increased anti-retroviral sales, the
contract manufacturing business and inventory impairments. Against the backdrop
of Rand appreciation, however, gross margins showed a notable improvement to 52%
in the second half of the financial year from 49% in the first half. This
improvement was evident across all business units.
Operating profit before abnormal items increased by 4,0% to R1 045 billion
(2008: R1 005 billion), with margins reducing to 26,1% (2008: 30,4%). Operating
expenses increased by 21% to R992 million (2008: R818 million). Additional
distribution costs during the start-up phase of the Midrand distribution centre
and the establishment of a new sorting centre amounted to R14 million, half of
which is expected to be a recurring expense. Operating costs in 2009 are
inclusive of TLC (R8,2 million), Adcock Ingram East Africa (R4,3 million)
expenditure for the first time and IFRS2 charges of R32,7 million (2008: R21,0
million).
Operating profit after abnormal items rose 11,9% to R1 045 billion (2008: R933
million), the prior year having been negatively impacted by abnormal expenses of
R53,5 million through the settlement of the Competition Commission and
intangible asset impairments amounting to R17,8 million.
Finance costs, net of dividend income of R9,6 million (2008: R10,7
million),amounted to R8,1 million (2008: R25,9 million), inclusive of commitment
fees.
Profit before tax grew by 14,3% to R1 037 billion (2008: R907,4 million). The
effective tax rate is 23,8% (2008: 26,9%). This resulted in profit after tax
growing by 19,1% to R789,9 million (2008: R663,4 million).
Cash flows and gearing
Cash operating profit increased by 15.5% from R1.02 billion to R1.18 billion.
After working capital changes, finance costs, taxation and dividend outflows,
net cash inflow was R754 million (2008: R439 million). Inventory levels of R584
million at year-end are R17 million higher than the prior year, R33 million down
since March 2009. Days in inventory are 105, significantly down by 25 days when
compared to September 2008. Trade accounts receivable, net of provisions, are
R937 million at year-end and R247 million higher than the prior year.
Whilst the absolute balance has increased, the days outstanding in debtors at
year-end are 62, a slight improvement on the prior year. Trade accounts payable,
including accrued expenses and provisions, increased by R125 million to R699
million, with days outstanding at 60. The current ratio remains healthy at 2,5
times (2008: 2,4 times).
The Group generated net operating cash inflows of R427 million, funding Adcock
Ingram`s capital expenditure programme during the year under review. The Group
has secured facilities of R800 million subsequent to year-end to fund the
extensive regulatory upgrade at the Aeroton facility and the construction of the
high-volume liquids facility at Clayville. After net cash outflows of R129
million in financing activities, the Group generated cash of R298 million.
Adcock Ingram is carrying interest-bearing debt of R311 million (2008: R439
million). The Group has adequate cash reserves of R693 million at year-end
(2008: R395 million) and is ungeared with a net cash position of R381 million
(2008: R44 million net debt) and R500 million of aggregate available unutilised
short-term facilities.
OPERATIONAL REVIEW
Pharmaceutical Division
The Pharmaceutical Division manages a wide and comprehensive portfolio of
branded and generic prescription medicines across various therapeutic
categories, as well as South Africa`s leading portfolio of branded OTC products.
Sales of R2,8 billion are 29% higher than 2008 (R2,1 billion) on the back of a
sterling performance from ARVs and branded prescription products, augmented by
the SEP price increase. Operating profits, although impacted by exchange rate
fluctuations, increased 9% to R824 million (2008: R754 million).
The financial year under review was challenging for the Pharmaceutical Division,
not only due to the economic slowdown, but also consequent on the investment in
supply chain infrastructure, which hampered stock availability and our ability
to service our customers. The economic conditions impacted consumer spending
patterns in both Pharmacy and FMCG channels, with the FMCG channel being hardest
hit. The second six months of the year saw a recovery of the premium brands in
pharmacy, mainly due to the seasonality in the cold and flu portfolio.
The new distribution centre is now fully operational and service levels have
returned to normalised levels with the establishment of an in-house sortation
centre. The Clayville and Bangalore plant upgrades were completed during the
year under review and significant progress was made at the Wadeville plant where
output of ARVs has met all of the requirements under the state tender.
Additional upgrades at the latter site are due for completion in February 2010.
Other factory upgrades and expansionary projects will be finalised in 2012.
As part of our growth into the rest of Africa, Adcock Ingram delivered a letter
to the board of directors of Ayrton Drug Manufacturing Limited ("Ayrton") in
terms of which Adcock Ingram specified its firm intention to make an offer to
acquire the entire issued ordinary share capital of Ayrton, subject to obtaining
a minimum of 51% of the company. The offer price of GHc 0.16 per share values
Ayrton at the equivalent of R178 million.
Hospital Products
Adcock Ingram Hospital Products Division consists of Critical Care and The
Scientific Group.
Adcock Ingram Critical Care (AICC)
AICC`s sales increased by 12%, including volume growth of 4%, price increases of
5%, outside of SEP regulated products, and the balance in sales mix, when
compared with last year. AICC`s renal operation, including growth from new
products, reflected 19% growth compared to last year. In addition, the Company`s
export division realised an overall growth of 30% over last year, while
increased blood donor drives produced double-digit growth from this division.
The performance of AICC is sensitive to a number of both local and international
issues, including negative currency fluctuations which impact raw material
purchases, inflation and local medicine pricing controls. While the private
hospital sector continued to reflect organic growth and strong demand on the
backdrop of increases in admissions, hospital beds, and maternity and theatre
cases, the public sector proved to be less robust, with budgetary constraints,
chronic shortages of healthcare professionals and the negative impact of the
doctors` pay dispute all taking their toll. The full impact of the loss of
public sector tender business for intravenous fluids was realised during this
period.
The relationship with multinational, Baxter Healthcare, which has an option to
purchase 50% of AICC and gain control of the business in 2010, remains mutually
beneficial. AICC also sources some product lines from other world leading
principals.
During the next financial period, the potential growth areas are the generic
injectable range and renal products as well as a new range of oncology products
following the launch of our first-to-market Granisetron generic.
The Scientific Group
The Scientific Group (SG) reflected a decline in turnover of 8%, albeit against
the background of strong organic growth over the last three years. The business
realised a decline in turnover of R62 million as a result of the loss of Becton
Dickinson Pre Analytical Systems (BD PAS) from 1 October 2008. SG delivered
turnover growth of 12% after excluding the impact of the BD PAS.
Next year SG expects to see continued organic growth within the clinical
diagnostics and bioscience product ranges, while building critical mass in the
medical portfolio via select niche acquisitions of medical companies and new
agencies.
REGULATORY ENVIRONMENT
Health Minister Aaron Motsoaledi announced the appointment of Kuben Pillay,
Adcock Ingram`s Strategic Trade Executive, to Government`s new advisory
committee on the proposed National Health Insurance (NHI) legislation. Adcock
looks forward to constructive healthcare industry engagement with Government on
regulatory issues, including NHI.
On 21 April 2009, the amended Medicines and Related Substance Act came into
effect. It includes a broader definition of "medicine", and the provisions for a
new Medicine Regulatory Authority (MRA) and a Marketing Code of Practice.
Adcock Ingram is satisfied with the progress made with this Act and we look
forward to a more efficient MRA and improved industry self-policing in the
marketing arena.
Good Manufacturing Practices, as prescribed by the MCC, PICs, WHO and FDA, will
continue to be Adcock Ingram`s benchmark standard in our commitment to the
provision of safe, high quality and efficacious medicines. This applies to
locally manufactured as well as imported medicines.
TRANSFORMATION
Adcock Ingram, as a proudly South African company and responsible corporate
citizen, remains committed to broad based transformation. The Group has made
excellent progress towards its transformation objectives for preferential
procurement and corporate social investments and employment equity is in line
with our targets. On 6 March 2009, Adcock Ingram commenced its Broad-based Black
Economic Empowerment (BEE) transaction (the Proposed Transaction) with a public
call for expressions of interest. It is envisaged that the Proposed Transaction
will be implemented at the Adcock Ingram listed level. The magnitude of the
Transaction will equate to approximately 13% of Adcock Ingram`s issued share
capital. The preferred BEE partners will be allocated a minimum of 75% of the
Proposed Transaction with a maximum of 25% of the Proposed Transaction being
allocated to qualifying Adcock Ingram employees.
Following a very thorough external partner selection process, Kagiso Consortium
(Pty) Limited and Kurisani Youth Development Trust have been selected as Adcock
Ingram`s preferred BEE partners.
STRATEGY
Adcock Ingram`s growth strategy is focused on South Africa, the rest of Africa,
and other emerging markets.
In South Africa, our core market, volumes in the period under review indicate
reasonable organic growth across both divisions, albeit with reduced margins.
Further, we continue to pursue growth through innovation in existing product
categories through a pipeline of New Chemical Entities (NCEs), generics and OTC
products.
Our organic growth strategy in South Africa will build upon the Tender Loving
Care (TLC) brand, which allows Adcock Ingram access to an established range of
baby care, supplements and personal care products.
This acquisition has provided Adcock Ingram with a vehicle to launch these
products, expanding the Group`s portfolio and reinforcing our presence in the
FMCG market. Subsequent to the year under review, Adcock Ingram also acquired
Unique Formulations which will expand the Group`s presence in vitamins, minerals
and supplements (VMS). Growth of new and existing products in the FMCG market is
also a strategic focus for the business.
In Africa, we opened our Kenya operations in March 2009, with 24 employees.
Kenya will serve as the hub for Adcock Ingram`s expansion into East Africa. In
addition, we acquired a Kenyan OTC analgesic brand and we have made an offer to
acquire Ayrton in West Africa.
Other emerging markets represent potential growth areas for the Group. In India,
our Bangalore facility has been approved by the Medicines Control Council (MCC)
and is now fully operational.
We have continued with our capital expenditure programme for regulatory upgrades
and expansionary activities and it is expected that up to R555 million
will be invested in fixed assets during the 2010 financial year, largely on
Clayville`s high-volume liquids facility and Aeroton`s regulatory upgrade, with
the balance of the capital commitments of R378 million to be disbursed in
subsequent years.
We will continue our manufacturing focus on areas of competitive advantage and
volume growth in South Africa, particularly for the OTC market and for major
opportunities that exist in the public sector general tender and ARV market.
PROSPECTS
Whilst current economic conditions remain challenging, particularly at a
consumer level, we expect further volume growth in our core businesses. Gross
margin should be maintained while the Rand remains at current levels.
On the regulatory front, we await the outcome of the NHI advisory committee to
the Minister of Health during the course of 2010. We also note the issuance of
the Government Gazette in late October detailing the mechanics of the SEP
increase for 2010 and the amended dispensing fee for pharmacists.
We look forward to achieving success for Adcock Ingram in the various government
tenders in both the Pharmaceutical and Hospital Products division and remain
committed to supporting government in its rollout of ARVs.
Adcock Ingram continues to seek opportunities to access other high growth
emerging markets and expects to diversify its earnings beyond the borders of
South Africa. We will leverage the capacity in our efficient supply chain,
product pipeline and competence in brand building in these markets and we are
well placed for acquisitive growth given our significant financial capacity.
DECLARATION OF ORDINARY DIVIDEND
The directors of Adcock Ingram have declared a final cash dividend of 80 cents
per share in respect of the 2009 financial year, payable to shareholders
recorded in the register of the Company at the close of business on Friday, 15
January 2010.
The salient dates for the payment of the final dividend are detailed below:
Last day to trade cum dividend Friday, 8 January 2010
Shares trade ex dividend Monday, 11 January 2010
Record date Friday, 15 January 2010
Payment date Monday, 18 January 2010
Share certificates may not be dematerialised or rematerialised between Monday,
11 January 2010 and Friday, 15 January 2010, both dates inclusive.
R Naidoo
Company Secretary
Johannesburg
23 November 2009
For and behalf of the Board
KDK Mokhele JJ Louw
Chairman Chief Executive Officer
Executive directors
JJ Louw (Chief Executive Officer)
AG Hall (Chief Financial Officer)
Non-executive directors
KDK Mokhele (Chairman)
EK Diack
T Lesoli
CD Raphiri
LE Schonknecht
RI Stewart
AM Thompson
Company secretary
R Naidoo
Registered office
1 New Road, Midrand, 1685
Postal address
Private Bag X69, Bryanston, 2021
Share registrars
Computershare Investor Services (Pty) Limited
70 Marshall Street, Johannesburg, 2001
Postal address
PO Box 61051, Marshalltown, 2107
Auditors
Ernst & Young Inc.
Sponsor
Deutsche Securities (SA) (Pty) Limited
for more information please visit www.adcock.com\
Johannesburg
24 November 2009
Sponsor:
Deutsche Securities (SA) (Proprietary) Limited
Date: 24/11/2009 07:06:03 Produced by the JSE SENS Department.
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