API sees profit slump

Half-year results show a 14.4% drop in reported net profit, which API says is primarily due to challenging retail conditions

For the half year ending 28 February 2018, Australian Pharmaceutical Industries (API) has revealed an 8.1% decrease in underlying net profit after tax (NPAT), from $29.1 million at this time last year to $26.8 million.

The decrease on the prior corresponding period is slightly ahead of revised guidance, says API CEO and Managing Director Richard Vincent.

Meanwhile the company’s reported NPAT was down 14.4%, from $29.1 million to $24.9 million.

Underlying earnings before interest and tax was down 8.3%, dropping from $48.6 million to $44.6 million.

Earnings before interest and tax declined primarily due to suppressed retail conditions, which affected the Priceline/Priceline Pharmacy brand through the period, say company directors.

“The retail environment continues to be challenging and this result is in line with expectations expressed at the AGM in January,” say the directors in their report released 19 April.

“The group has undertaken a number of initiatives during the period to combat suppressed consumer sentiment, with an aim to provide improved sales trending and protect profit performance.

“These include a number of in-store initiatives, product differentiation and a more streamlined Priceline / Priceline Pharmacy operational structure.”

Mr Vincent says that API has delivered underlying NPAT slightly ahead of the outlook provided on 22 January 2018, and has seen an increase in total network sales for Priceline Pharmacy on the same period from last year.

“Although like-for-like sales have remained negative, we’ve also held overall health and beauty market share steady during this time,” he says.

He adds that the group is making moderate progress despite challenges in the retail environment, which he signals will persist through 2018.

“We have refined our tactical sales activity, which is now more targeted and responsive to changes in the increasingly competitive market,” says Mr Vincent.

“Despite the combination of consumer sentiment being challenging for the foreseeable future and increased competition, the strength of our combined marketing assets, particularly our Sister Club loyalty program, continues to be the primary source of sales growth.”

Demand for new stores from potential franchise partners reportedly remains positive, while Priceline Pharmacy network numbers increased to 466 at 28 February 2018 and further openings occurring after the balance date.

API: exclusive distribution undermining intent of CSO

According to API, pharmacy distribution revenue was “flat” compared to the prior period, influenced by the reduction in demand for high-cost Hepatitis C medicines.

“This slow down is consistent across the market,” say API’s directors.

“Adjusting for the effect of Hepatitis C, overall reported sales growth was 6.3%.

“When normalised for the impact of the PBS reforms and Hepatitis C, the underlying sales growth would have been 9.8% over the corresponding period.”

Mr Vincent emphasised that the pharmacy distribution business “continued to perform strongly”, adding that underlying sales growth of 9.8% is “particularly pleasing given the impact of some of the more profitable PBS medicines now being distributed exclusively outside the CSO wholesaling system.

“The pharmacy distribution business performed very well in what remain testing conditions,” he says.

API says that Astra Zeneca’s decision to deliver selected products via an exclusive direct distribution arrangement with a non-CSO wholesaler had a minor impact late in the period.

The group urged the Federal Health Minister to introduce measures that allow CSO distributors to deliver on the government’s national medicines policy, to ensure equal access to PBS medicines for all Australians.

“We’ve seen exclusive distribution of PBS medicines in the last period further undermining the intent of the CSO, so remedial regulatory action is necessary,” says Mr Vincent.

The group’s shares dropped 2.33% to $1.47 on the day of the half-year results announcement.

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