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AIP
AIP
AIP - Adcock Ingram Holdings Limited - Unaudited financial results for the
six-month period ended 31 March 2011
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")
Unaudited financial results for the six-month period ended 31 March 2011
Foreword
The multinational partner of choice strategy has delivered attractive value
as Adcock Ingram diversifies its revenue streams and decreases its dependence
on mature products.
CEO, Jonathan Louw
Adcock Ingram provides an extensive portfolio of branded and generic
medicines, has a strong presence in over-the-counter (OTC) brands and is
South Africa`s largest supplier of hospital and critical-care products.
Salient features
Turnover from continuing operations increased 14% to R2,2 billion
EBITDA from continuing operations increased 3% to R580 million
HEPS from continuing operations decreased 1%
Distribution per share increased 4% to 81 cents
2,5% of issued ordinary shares bought back
Consolidated statements of comprehensive income
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 Mar 31 Mar 30 Sep
2011 Change 2010 2010
Continuing Note R`000 % R`000 R`000
operations
REVENUE 2 2 221 575 13 1 961 474 4 200 022
TURNOVER 2 2 152 267 14 1 884 378 4 130 087
Cost of sales (1 093 230) (889 462) (1 928 956)
Gross profit 1 059 037 6 994 916 2 201 131
Selling and (250 046) (214 976) (442 805)
distribution
expenses
Marketing expenses (91 377) (80 562) (162 442)
Research and (33 213) (31 528) (65 287)
development expenses
Fixed and (158 153) (146 082) (362 290)
administrative
expenses
Operating profit 526 248 1 521 768 1 168 307
Finance income 2 61 857 70 665 59 288
Finance costs (41 483) (64 232) (37 931)
Dividend income 2 7 451 6 431 10 647
Profit before 554 073 4 534 632 1 200 311
taxation and
abnormal items
Abnormal items 3 - - (269 000)
Profit from 554 073 4 534 632 931 311
continuing
operations before
taxation
Taxation (165 645) (143 854) (308 542)
Profit for the 388 428 (1) 390 778 622 769
period from
continuing
operations
(Loss)/profit after 7 (28 152) 7 937 20 459
taxation for the
period from a
discontinued
operation
Profit for the 360 276 (10) 398 715 643 228
period
Other comprehensive (19 209) 3 716 (528)
income
Exchange differences (19 046) 1 560 (4 156)
on translation of
foreign operations
Movement in cash (163) 2 156 3 628
flow hedge
accounting reserve,
net of tax
Total comprehensive 341 067 402 431 642 700
income for the
period, net of tax
Net profit
attributable to:
Owners of the parent 353 361 393 744 631 459
Non-controlling 6 915 4 971 11 769
interests
360 276 398 715 643 228
Total comprehensive
income attributable
to:
Owners of the parent 334 152 397 460 630 931
Non-controlling 6 915 4 971 11 769
interests
341 067 402 431 642 700
Continuing
operations:
Basic earnings per 8 221,3 (1) 223,3 354,9
ordinary share
(cents)
Diluted basic 8 220,8 (1) 222,7 354,1
earnings per
ordinary share
(cents)
Headline earnings 8 221,3 (1) 223,1 354,8
per ordinary share
(cents)
Diluted headline 8 220,7 (1) 222,5 354,0
earnings per
ordinary share
(cents)
Total operations:
Basic earnings per 8 204,9 (10) 226,6 363,5
ordinary share
(cents)
Diluted basic 8 204,3 (10) 226,0 362,7
earnings per
ordinary share
(cents)
Headline earnings 8 221,5 (2) 226,5 363,4
per ordinary share
(cents)
Diluted headline 8 221,0 (2) 225,9 362,6
earnings per
ordinary share
(cents)
Consolidated statement of changes in equity
Attributable to holders of the parent
Total
attri-
butable
Non- to
distribu- ordinary
Share Share Retained table share-
capital premium income reserves holders
R`000 R`000 R`000 R`000 R`000
Balance at 30 17 363 1 203 854 1 001 942 77 494 2 300 653
September 2009
Share issue 22 2 383 2 405
Share-based payment 133 133
expense
Total comprehensive 393 744 3 716 397 460
income
Profit for the 393 744 393 744
period
Other comprehensive 3 716 3 716
income
Dividends (138 922) (138 922)
Balance at 31 March 17 385 1 206 237 1 256 764 81 343 2 561 729
2010 (unaudited)
Share issue 11 1 981 1 992
Movement in (31) (17 928) (17 959)
treasury shares
Share-based payment 271 962 271 962
expense
Acquisition of A
ordinary shares by
Blue Falcon Trading
69 (Pty) Limited -
non-controlling
interest
Acquisition through
business
combination: Ayrton
Drug Manufacturing
Limited
Subsequent (922) (922)
acquisition of non-
controlling
interests in Ayrton
Drug Manufacturing
Limited
Total comprehensive 237 715 (4 244) 233 471
income
Profit for the 237 715 237 715
period
Other comprehensive (4 244) (4 244)
income
Dividends (135 618) (135 618)
Balance at 30 17 365 1 190 290 1 357 939 349 061 2 914 655
September 2010
(audited)
Share issue 4 465 469
Movement in (471) (272 158) (272 629)
treasury shares
Share-based payment 3 185 3 185
expense
Acquisition of non- 1 387 1 387
controlling
interests
Disposal of (831) (831)
business (Note 7)
Total comprehensive 353 361 (19 209) 334 152
income
Profit for the 353 361 353 361
period
Other (19 209) (19 209)
comprehensive
income
Dividends (177 157) (177 157)
Balance at 31 March 16 898 918 597 1 535 530 332 206 2 803 231
2011 (unaudited)
Non-
controll-
ing
interest Total
R`000 R`000
Balance at 30 24 943 2 325 596
September 2009
Share issue 2 405
Share-based payment 133
expense
Total comprehensive 4 971 402 431
income
Profit for the 4 971 398 715
period
Other comprehensive 3 716
income
Dividends (838) (139 760)
Balance at 31 March 29 076 2 590 805
2010 (unaudited)
Share issue 1 992
Movement in (17 959)
treasury shares
Share-based payment 271 962
expense
Acquisition of A 93 750 93 750
ordinary shares by
Blue Falcon Trading
69 (Pty) Limited -
non-controlling
interest
Acquisition through 33 636 33 636
business
combination: Ayrton
Drug Manufacturing
Limited
Subsequent (69) (991)
acquisition of non-
controlling
interests in Ayrton
Drug Manufacturing
Limited
Total comprehensive 6 798 240 269
income
Profit for the 6 798 244 513
period
Other comprehensive (4 244)
income
Dividends (4 506) (140 124)
Balance at 30 158 685 3 073 340
September 2010
(audited)
Share issue 469
Movement in (272 629)
treasury shares
Share-based payment 3 185
expense
Acquisition of non- (1 414) (27)
controlling
interests
Disposal of (12 644) (13 475)
business (Note 7)
Total comprehensive 6 915 341 067
income
Profit for the 6 915 360 276
period
Other (19 209)
comprehensive
income
Dividends (21 045) (198 202)
Balance at 31 March 130 497 2 933 728
2011 (unaudited)
Consolidated statements of financial position
Unaudited Unaudited Audited
31 Mar 31 Mar 30 Sep
2011 2010 2010
Note R`000 R`000 R`000
ASSETS
Property, plant and equipment 983 322 679 128 857 471
Deferred tax 18 060 19 241 23 967
Investments 139 012 138 037 139 012
Investment in associate 12 200 12 200 12 200
Intangible assets 388 775 334 869 424 149
Non-current assets 1 541 369 1 183 475 1 456 799
Inventories 731 746 553 392 719 236
Trade and other receivables 1 173 341 1 047 007 1 150 393
Cash and cash equivalents 1 110 401 918 007 1 430 917
Current assets 3 015 488 2 518 406 3 300 546
Total assets 4 556 857 3 701 881 4 757 345
EQUITY AND LIABILITIES
Capital and reserves
Issued share capital 9 16 898 17 385 17 365
Share premium 918 597 1 206 237 1 190 290
Non-distributable reserves 332 206 81 343 349 061
Retained income 1 535 530 1 256 764 1 357 939
Total shareholders` funds 2 803 231 2 561 729 2 914 655
Non-controlling interests 130 497 29 076 158 685
Total equity 2 933 728 2 590 805 3 073 340
Long-term liabilities 340 934 206 431 453 830
Post-retirement medical 17 192 15 487 15 808
liability
Deferred tax 23 415 7 023 23 961
Non-current liabilities 381 541 228 941 493 599
Trade and other payables 793 264 607 496 957 922
Short-term borrowings 400 454 215 899 126 787
Provisions 31 579 38 107 84 464
Taxation payable 16 291 20 633 21 233
Current liabilities 1 241 588 882 135 1 190 406
Total equity and liabilities 4 556 857 3 701 881 4 757 345
Consolidated abridged statements of cash flows
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 Mar 31 Mar 30 Sep
2011 2010 2010
Note R`000 R`000 R`000
Cash flows from operating
activities
Operating profit before 538 504 547 919 1 319 448
working capital changes
Working capital changes (274 374) 666 115 364
Cash generated from operations 264 130 548 585 1 434 812
Finance income 61 857 70 665 59 288
Finance costs (41 483) (64 232) (37 931)
Dividend income 7 451 6 431 10 647
Dividends paid (198 202) (139 760) (279 884)
Taxation paid (171 306) (154 646) (324 832)
Net cash (outflow)/inflow from (77 553) 267 043 862 100
operating activities
Cash flows from investing
activities
Increase in Investments - - (975)
Cost of business acquired - (35 000) (139 502)
Proceeds on disposal of 7 84 989 - -
business
Purchase of property, plant (217 343) (118 877) (333 062)
and equipment
Proceeds on disposal of 892 708 2 819
property, plant and equipment
Net cash outflow from (131 462) (153 169) (470 720)
investing activities
Cash flows from financing
activities
Acquisition of non-controlling (27) - (991)
interest
Proceeds from issue of share 469 2 405 4 397
capital
Purchase of treasury shares (272 629) - (17 959)
Subscription for "A" shares - - 93 750
Increase in borrowings 161 357 109 138 269 033
Net cash (outflow)/inflow from (110 830) 111 543 348 230
financing activities
Net (decrease)/increase in (319 845) 225 417 739 610
cash and cash equivalents
Net foreign exchange (671) (127) (1 410)
difference on cash and cash
equivalents
Cash and cash equivalents at 1 430 917 692 717 692 717
beginning of period
Cash and cash equivalents at 1 110 401 918 007 1 430 917
end of period
Notes to the consolidated financial statements
1. BASIS OF PREPARATION
1.1 Introduction
The abridged interim results have been prepared in accordance with
International Financial Reporting Standards (IFRS), IAS 34 Interim financial
reporting, the South African Companies Act, the Listings Requirements of the
JSE Limited as well as the AC500 standards as issued by the Accounting
Practices Board or its successor. The financial results for the six-month
period ended 31 March 2011 have not been reviewed or audited.
1.2 Changes in accounting policies
The accounting policies and the methods of computation are consistent with
those of the previous annual financial statements except for the adoption of
the following new and amended IFRS interpretations during the year:
- IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments
- IAS 32 Classification of Rights Issues - Amendment to IAS 32
- Amendment to IFRS 2 Share-based Payments - Group Cash-settled Share-based
Payment Arrangements
The adoption of standards and interpretations above did not have any effect
on the financial performance or position of the Group.
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 Mar 31 Mar 30 Sep
2011 2010 2010
R`000 R`000 R`000
2. REVENUE
Continuing operations
Revenue comprises
- Turnover 2 152 267 1 884 378 4 130 087
- Finance income 61 857 70 665 59 288
- Dividend income 7 451 6 431 10 647
2 221 575 1 961 474 4 200 022
3. ABNORMAL ITEMS
Share based payment expenses - - (269 000)
4. SEGMENTAL REPORTING
Turnover
Continuing operations
Over the Counter 803 436 634 817 1 427 291
Prescription 826 498 748 696 1 666 373
Pharmaceuticals 1 629 934 1 383 513 3 093 664
Hospital Products 522 333 500 865 1 036 423
2 152 267 1 884 378 4 130 087
Discontinued operations
Hospital Products (Note 7) 90 103 144 020 310 567
2 242 370 2 028 398 4 440 654
Operating income
Continuing operations
Over the Counter 289 440 207 900 407 082
Prescription 167 688 203 810 540 440
Pharmaceuticals 457 128 411 710 947 522
Hospital Products 69 120 110 058 220 785
526 248 521 768 1 168 307
Discontinued operations
Hospital Products (Note 7) 4 528 12 695 31 995
530 776 534 463 1 200 302
5. INVENTORY
The amount of inventories written 11 890 20 279 28 110
down recognised as an expense in
cost of inventories
6. CAPITAL COMMITMENTS
Capital commitments
- contracted 406 191 552 414 503 362
- approved 110 555 291 054 154 992
516 746 843 468 658 354
7. DISPOSAL OF BUSINESS
The Scientific Group (Pty) Limited
On 31 January 2011, the Group disposed of its 74% holding in The Scientific
Group (Pty) Limited (TSG).
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 Mar 31 Mar 30 Sep
2011 2010 2010
R`000 R`000 R`000
The results of TSG are presented
below and the 31 March 2011 figures
include trading for the four-month
period ended 31 January 2011:
Turnover 90 103 144 020 310 567
Cost of sales (52 265) (88 507) (176 871)
Gross profit 37 838 55 513 133 696
Selling and distribution expenses (20 397) (26 705) (57 126)
Marketing expenses (794) (514) (1 266)
Fixed and administrative expenses (12 119) (15 599) (43 309)
Operating profit 4 528 12 695 31 995
Finance costs (1 046) (1 142) (2 542)
Profit before taxation 3 482 11 553 29 453
Taxation (2 780) (3 616) (8 994)
Profit for the period from 702 7 937 20 459
discontinued operation
Loss on disposal of the (27 737) - -
discontinued operation
Attributable taxation (1 117) - -
(Loss)/profit after tax for the (28 152) 7 937 20 459
period from a discontinued
operation
Cash inflow on disposal:
Consideration received 77 827
Net overdraft disposed of with the 7 162
discontinued operation
Net cash inflow 84 989
8. HEADLINE EARNINGS
Earnings attributable to owners of 353 361 393 744 631 459
Adcock Ingram
Adjusted for:
Profit on disposal of property, (64) (238) (221)
plant and equipment
Loss on disposal of business net of 28 854 - -
tax
Headline earnings 382 151 393 506 631 238
9. SHARE CAPITAL
Number of shares
`000 `000 `000
Number of ordinary shares in issue 199 941 173 849 199 904
Number of A and B shares held by (25 944) - (25 944)
the BEE participants
Number of ordinary shares held by (728) - (309)
the BEE participants
Number of ordinary shares held by (4 285) - -
subsidiary
Net shares in issue 168 984 173 849 173 651
Weighted average number of ordinary 172 496 173 766 173 712
shares on which headline earnings
and basic earnings per share are
based
Diluted weighted average number of 172 929 174 231 174 101
shares
10. SUBSEQUENT EVENTS
10.1 NutriLida (Pty) Limited (NutriLida)
Adcock Ingram announced on 29 March 2011, the acquisition of the business of
NutriLida, a vitamin, mineral and supplements company based in Johannesburg,
pending Competition Commission approval. The acquisition will strengthen
Adcock Ingram`s foothold in the growing supplements market and further enable
the Group to gain market share in the FMCG category. The submission to the
Competition Commission was made on 4 May 2011.
10.2 Ayrton Drug Manufacturing Limited
Since 31 March 2011, Adcock Ingram International (Pty) Limited acquired an
additional 4% of the issued shares of Ayrton Drug Manufacturing Limited
(Ghana), increasing its ownership to more than 71%.
10.3 Bioswiss (Pty) Limited (Bioswiss)
On 16 May 2011, Adcock Ingram acquired a 51% share in the business of
Bioswiss, a specialised diabetes pharmaceutical company.
SALIENT FEATURES
- Turnover from continuing operations increased 14% to R2,2 billion
- EBITDA from continuing operations increased 3% to R580 million
- HEPS from continuing operations decreased 1%
- Distribution per share increased 4% to 81 cents
- 2,5% of issued ordinary shares bought back
FINANCIAL REVIEW
Headline earnings
The Group achieved headline earnings for the six months ended 31 March 2011
of R382,2 million. This represents a 3,0% decrease from the comparable figure
for 2010 of R393,5 million. After including the effects of a share buy-back
of 2,5% of issued shares by a subsidiary in the Group, this translates into a
decrease of 1% from continuing operations at both the headline earnings per
share (HEPS) and earnings per share (EPS) level. This result was achieved
during a period in which Adcock Ingram was allocated a disappointing 4% of
the Anti-retroviral (ARV) tender, saw the temporary suspension of sales of
dextropropoxyphene-containing (DPP) products and experienced significant
upgrade-related production disruptions in its Critical Care facility.
Continuing operations
Turnover
The impact of the acquisition of Ayrton Drug Manufacturing Limited (Ayrton)
in Ghana, and the conclusion of various co-promotion and distribution
agreements with multinational (MNC) partners, supported turnover growth of
14% to R2 152 million (2010: R1 884 million). Despite the significant
reduction in DPP and ARV revenue, the growth excluding acquisitions and MNC
revenue was 1%.
Price reductions averaged 2% for the half year. In the Prescription segment,
the Single Exit Price (SEP) increase of 7,4% granted by Government in June
2010 was implemented only on products where market conditions allowed. Prices
in the ARV portfolio reduced by 19%, resulting in an overall price decrease
for the segment of 4%. Against this pricing pressure, Prescription revenue
growth of 10% was achieved. Over-the-counter (OTC) turnover growth of almost
27% reflects a 7% price inflation, while the Hospital Products division
revenue growth of 4% includes an 11% decrease in pricing due to increased
volumes being sold into the public sector.
Profits
Gross profit from continuing operations for the six months increased by 6,4%
to R1 059 million (2010: R995 million) with margins declining from 52,8% to
49,2% (September 2010: 53,3%). Gross margins as a percentage of sales
benefited from the strong Rand, which affected imported raw materials and
finished products. The average exchange rates for procurement were R7,06
(2010: R7,50) and R9,64 (2010: R11,07) for US Dollar and Euro imports
respectively with total contracts settled during the period amounting to
R330,8 million (2010: R313,5 million). This benefit was offset by increased
adverse manufacturing variances of R25 million in plants undergoing upgrades,
very low margins in the public sector in Critical Care as finished goods
needed to be imported to meet demand, and the inclusion of MNC revenue at
significantly lower than average gross margins.
Operating profit improved by 1% to R526 million (2010: R522 million) with the
percentage on sales reducing from 27.7% to 24.4% (September 2010: 28.3%).
Operating expenses increased by 12.6% to R533 million (2010: R473 million),
with new businesses not in the base contributing 2.2% to the increase. The
primary drivers of the increase in expenses were selling, distribution and
marketing, including additional expenditure of R26,8 million to support the
MNC partnerships.
After net finance income and dividends received, profit before tax grew 4% to
R554 million (2010: R535 million). The effective tax rate for the period was
29.9% (2010: 26.9%), resulting in profit after tax from continuing operations
declining 1% to R388 million (2010: R391 million).
Discontinued operations
The Group disposed of its 74% holding in The Scientific Group (Pty) Limited
on 31 January 2011, realising a net cash inflow of R85 million.
Cash flows and financial position
Cash generated from operations was R264 million (2010: R549 million) after
working capital increased by R274 million.
Trade accounts and other receivables increased by R95 million with trade
accounts receivable days at the end of the period being 63 days, a
deterioration from the 58 days reported in September 2010. This negative
performance was influenced by overdue amounts of R42 million due from the
Government. In accordance with agreed contract terms with MNC partners, R55
million was settled shortly after 31 March 2011. Less than R1 million was
written off during the period in relation to doubtful debts.
Inventory increased by R75 million, mainly as a result of increased
stockholding of co-promotion items. In addition, the inventory holdings of
certain key items were increased to take advantage of the stronger Rand.
Trade and other accounts payable reduced by R104 million, the significant
movement being in relation to non-trade payables.
After net finance income, dividends and taxation, cash outflow from
operations was R78 million. The upgrade at the Aeroton facility and the
construction of the high-volume liquids facility at Clayville progressed well
with total capital expenditure amounting to R217 million (2010: R119
million).
During the period, the Group bought back 2,5% (4 285 163 shares) of its
ordinary shares over a two week period in February at an average cost,
including taxes and transaction fees, of R58,07 per share, R248 million in
aggregate. A further amount of R25 million of treasury shares purchases were
made by the special purpose vehicles party to the Broad Based Black Economic
Empowerment (BBBEE) transaction concluded in April 2010. Subsequent to
September 2010, an additional R270 million was drawn down from the Capex loan
facility. The total facility (R290 million) for the upgrade at the Aeroton
plant will be repaid in one bullet payment in November 2011. The facility for
the high-volume liquids plant (R510 million) will be repaid in quarterly
instalments from December 2011 with the final instalment due in the last
quarter of the 2013 calendar year. Cash equivalents decreased by R320
million, giving the business a gross cash position of R1,1 billion (September
2010: R1,4 billion).
Distribution incorporating a reduction of share premium in lieu of interim
dividend
The Board has declared a distribution of 81 cents per share for the period
ended 31 March 2011 out of share premium, an increase of 4% over the
comparable dividend distribution in 2010. The Company`s objective of an
annual dividend or distribution, covered three times by headline earnings,
remains in place.
BUSINESS OVERVIEW
Pharmaceutical Division
The division has produced a strong performance despite the setback of the
temporary suspension of sales of DPP-containing products and the
disappointing ARV tender award during the period. The recent agreements with
MNC partners (MSD, Lilly, Roche, Novartis) have contributed towards the 18%
turnover increase to R1 630 million (2010: R1 384 million). This increase is
despite a reduction in DPP and ARV sales of R145 million.
Profit before interest and tax has shown a pleasing increase of 11% to R457
million (2010: R412 million) during the period under review. A strong
performance by the branded OTC portfolio, as well as the strong Rand,
compensated partially for the lower margins earned on the MNC partnerships,
and the loss of ARV and DPP revenue.
The OTC segment has grown turnover by 27% from R635 million in the comparable
period to R803 million in the current period, while operating profit
increased by 39% to R289 million (2010: R208 million). The operating margin
was positively impacted by sales and marketing synergies achieved from the
improved integration of acquisitions. Economy OTC brands continue to perform
well, although there has been some shift back to premium brands in Pharmacy
over the period. The Personal Care and Wellbeing businesses acquired during
2010 have been integrated and are starting to contribute to the OTC
performance. The Wellbeing portfolio has achieved significant market share
gains, which will be further enhanced by the acquisition of NutriLida
(subject to Competition Commission approval) announced during March 2011.
Within Pharmacy, Adcock Ingram`s OTC range has significantly outgrown the
market in both value and volume terms.
In the Prescription segment, the objective to become the multinational
partner of choice has borne fruit during the period and supported turnover
growth of 10% to R826 million (2010: R749 million). Further opportunities
with current and other partners continue to be explored. The segment has also
been boosted by the return to growth of the generics portfolio in both value
and volume terms. Regrettably, the segment has been negatively impacted by
the regulator`s actions on DPP-containing products and the ARV tender award.
Our Ghanaian subsidiary, Ayrton, continues to deliver good performance and
offers further growth in the region. A basket of Adcock Ingram OTC brands has
recently been launched in Ghana. Due to an increase in demand, the Bangalore
facility will manufacture several Ayrton brands whilst the manufacturing
capacity in Ghana is being increased.
The Kenyan operation continues to deliver encouraging results. The conclusion
of MNC partnerships is supporting increased sales and the introduction of
Dawanol into neighbouring territories has proved successful and further
growth is anticipated.
Upgrades to the supply chain remain on schedule. The new MCC- and Pharmacy
Council-accredited warehouse and distribution facility in Durban is fully
operational. The upgrade of our various distribution facilities has allowed
the business to attract third party distribution opportunities through the
collaboration agreements. The construction of the high-volume liquids plant
in Clayville is progressing to plan and is anticipated to be commissioned
during the second half of 2012.
With the loss of ARV volumes, the division has embarked on corrective
measures by repatriating production previously outsourced due to capacity
constraints. This, together with the potential for toll manufacturing, will
allow the facilities to adequately recover factory overheads within due
course.
Hospital Products Division
Turnover increased only 4,3% over the comparable period to R522 million
(2010: R501 million). Whilst the public sector tender wins in 2010 were
significant, the required volumes exceeded published estimates on certain
products, resulting in an overall market share gain on a unit level but not
on a monetary basis. This, combined with the upgrade activities and
intermittent factory shut-downs, negatively impacted our supply of products
as market share gains in the public sector were realised at the expense of
losses in the private sector. Products were imported to meet customers` needs
and eroded gross margins from 38,6% in 2010 to 31,3% in the current period.
At the end of the period under review, the R290 million plant upgrade is
progressing according to planned timeframes, but with significant disruption
to production. Final completion and validation of the facility is planned for
December 2011. This facility, built to world class standards, will see the
division achieving compliance with the international Pharmaceutical
Inspection Convention and Pharmaceutical Co-operation Scheme - jointly
referred to as PIC/S - standards, adopted by the South African Medicines
Control Council (MCC). On completion of the upgrade, improved output and
enhanced efficiencies are expected.
The renal division continues to grow market share with growth reflected in
all portfolios including haemodialysis, peritoneal dialysis (PD) and new
dialysis treatments in acute care. In the generic market the division
continued to invest in the injectable analgesics, antibiotics and speciality
drugs. Both Medicine Delivery and Transfusion Therapy were impacted by stock
issues due to the reduced factory output. Blood donor numbers increased by 5%
and, with the trend expected to continue, the Transfusion Therapy division is
likely to grow.
Following the decision by Baxter not to exercise their call option, Adcock
Ingram remains committed to growing its relationship with Baxter.
REGULATORY ENVIRONMENT
The Department of Health has announced that no SEP increase will be
implemented during 2011.
International benchmarking and the capping of logistics fees are likely to
have an impact on Adcock Ingram. However, the quantum for each will not be
known with any certainty until the final regulations are published. Adcock
Ingram has cooperated with the Pharmaceutical Task Group in its submissions
made or to be made to the Department of Health on these issues.
TRANSFORMATION
Following the conclusion of Adcock Ingram`s BBBEE transaction in April 2010,
an independent verification was conducted, measuring the Group`s Broad Based
Black Economic Empowerment status against the Codes of Good Practice. This
has resulted in Adcock Ingram being rated a Level 4 BBBEE contributor, from
Level 6 only a year ago. To date more than 1 400 black employees have
benefited from Mpho ea Bophelo, Adcock Ingram`s Employee Share Option Scheme.
Having demonstrated excellent performance in other elements of the scorecard,
a concerted effort is being placed on Enterprise Development in this
financial year.
CHANGES TO DIRECTORS` RESPONSIBILITIES AND APPOINTMENT OF COMPANY SECRETARY
Mr LE Schonknecht resigned as Chairman of the Human Resources, Remuneration
and Nominations Committee. However, he will continue to serve the Board as an
independent non-executive director and member of the Risk and Sustainability
Committee. Mr CD Raphiri, an independent non-executive director, will assume
the role of Chairman of the Human Resources, Remuneration and Nominations
Committee and Mr AM Thompson, an independent non-executive director, has been
appointed to the Human Resources, Remuneration and Nominations Committee. Mr
Thompson remains a member of the Audit Committee and Transformation
Committee. These changes became effective on 28 January 2011.
The Company appointed Mr Ntando Simelane as Company Secretary with effect
from 1 April 2011.
PROSPECTS
The integration of the Hospital and Pharmaceutical businesses has been slower
than expected, but we foresee the integration gaining momentum in the second
half of the year.
The multinational partner of choice strategy has delivered attractive value
as Adcock Ingram diversifies its revenue streams and decreases its dependence
on mature products. We expect to extend the MNC partnerships as Adcock
Ingram`s expansion into sub-Saharan Africa continues.
We await the approval of the Competition Commission for the acquisition of
NutriLida, with the decision expected within the next six weeks.
The Group maintains its focus on the acquisition of businesses and brands in
high growth emerging markets as well as the acquisition of intellectual
property that is globally relevant.
We are still awaiting MCC approval for key ARV registrations in South Africa,
as well as several first-to-market generics. The MCC has not adequately
addressed its capacity constraints which result in registration delays.
For and on behalf of the Board
KDK Mokhele JJ Louw AG Hall
Chairman Chief Executive Officer Chief Financial Officer
CAPITAL REDUCTION OUT OF SHARE PREMIUM IN LIEU OF INTERIM DIVIDEND
The Board has declared a capital reduction distribution (in lieu of an
interim dividend) out of share premium of 81 cents per ordinary share,
payable to shareholders, in respect of the six months ended 31 March 2011.
The salient dates for the capital reduction are
detailed below:
Last date to trade cum distribution Friday, 17 June 2011
Shares trade ex distribution Monday, 20 June 2011
Record date Friday, 24 June 2011
Payment date Monday, 27 June 2011
Share certificates may not be dematerialised or rematerialised between
Monday, 20 June 2011 and Friday, 24 June 2011, both dates inclusive.
By order of the Board
NE Simelane
Company Secretary
Johannesburg
23 May 2011
Directors:
KDK Mokhele (Chairman)*
JJ Louw (Chief Executive Officer)
EK Diack*
AG Hall (Chief Financial Officer)
T Lesoli*
CD Raphiri*
LE Schonknecht*
RI Stewart*
AM Thompson*
*Non-executive
Company secretary:
NE Simelane
Registered office:
1 New Road, Midrand, 1682
Postal address:
Private Bag X69, Bryanston, 2021
Transfer secretaries:
Computershare Investor Services (Pty) Limited
70 Marshall Street, Johannesburg, 2001
Postal address:
PO Box 61051, Marshalltown, 2107
Auditors:
Ernst & Young Inc.
Wanderers Office Park, 52 Corlett Drive, Illovo, 2196
Sponsor:
Deutsche Securities (SA) (Pty) Limited
3 Exchange Square, 87 Maude Street, Sandton, 2146
Bankers:
Nedbank Limited
135 Rivonia Road, Sandown, Sandton, 2146
Rand Merchant Bank
1 Merchant Place, cnr Fredman Drive and Rivonia Road, Sandton, 2196
Attorneys:
Read Hope Phillips
30 Melrose Boulevard, Melrose Arch, 2196
www.adcock.com
Midrand
24 May 2011
Sponsor to Adcock Ingram:
Deutsche Securities (SA) (Proprietary) Limited
for more information please visit www.adcock.com
Date: 24/05/2011 07:05:21 Produced by the JSE SENS Department.
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