Adcock Ingram Holdings rebounds in second half amid NATCO Pharma acquisition

Adcock Ingram Holdings, which will be delisted following global group NATCO Pharma's acquisition of a 36.7% shareholding, rebounded strongly in the second half of its year to June 30, with headline earnings per share (HEPS) up by 36% compared with the first half.

The South African pharmaceutical group’s revenue was up 1% to R9.76bn. Gross profit increased by 3% to R3.22bn. Operating profit was up 1% to R1.77bn. Full-year HEPS increased by 1% to 625.6 cents. A final dividend of 165 cents per share was declared, bringing the total up by 2% to 280 cents per share.

“The group delivered an outstanding operational and financial improvement in the second half, underpinned by strong demand for its over-the-counter (OTC) and consumer healthcare products, supported by management's focus on customer service, brand investment, operational planning, and cost discipline,” the board said on Friday.

“We are pleased with the overall performance for the year, particularly the turnaround our teams delivered in the second half,” said CEO Andy Hall. The second half recovery saw strong demand for the winter basket, a well-executed informal sector strategy, and normal buying patterns among pharmacy wholesalers.

NATCO Pharma's acquisition of the stake in Adcock Ingram will see it delisted from the JSE and operate as a privately held company, with Bidvest remaining as the controlling shareholder.

“The group had experienced weak demand in the second quarter in the independent wholesale channel, and pharmaceutical wholesalers and corporate pharmacies reduced stock levels. However, the second half reflected an excellent recovery,” said Hall.

The gross margin fell to 33% down from 33.4%, due to a less favourable sales mix and low recoveries at the Wadeville facility. These factors were somewhat offset by a favourable exchange rate, a 5.25% SEP (single exit price) increase, and strong demand for the winter basket, personal care, and analgesics in the second half.

Operating expenditure was well controlled and increased by 2.4%, below inflation, and includes salary increases.

“This resulted in a full-year decline of 3.7% in trading profit to R1.18bn, a highly commendable recovery from the 16.6% decline reported after six months,” said Hall.

The consumer segment revenue increased by 6% to R1.81bn. The OTC segment revenue was up 2% to R2.44bn. Prescription drug revenue fell by 3% to R3.33bn. The hospital segment revenue increased by 7% to R2.19bn.

At a trading profit level, consumer trading profit was up 6% to R384.94m, OTC was up 5% to R404.48m, prescription was down 25% to R265.02m, while hospital segment revenue fell by 2% to R125.27m.

The board said the acquisition of shares by NATCO Pharma presented a meaningful opportunity to unlock shareholder value and long-term strategic and operational benefits.

“NATCO Pharma brings complementary capabilities in generic product and dossier development, intellectual property, and raw material sourcing. These strengths will enhance Adcock Ingram's competitiveness, product offering, and supply chain resilience,” the board said.

Adcock Ingram, with its broad portfolio of branded and generic medicines, strong presence in over-the-counter brands, and South Africa’s largest supplier of hospital and critical care products, would remain a South African-based business.

“The group is well-positioned to pursue targeted growth opportunities, strengthen its position in the local healthcare market, and deliver sustained value to stakeholders,” said Hall.

Adcock Ingram’s share price closed 1.1% higher at R71.77 on the JSE on Friday, slightly below the R75 per share that was offered by NATCO Pharma, which at the time represented a 43.7% premium to Adcock Ingram’s share price on the day the deal was announced.

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