Pharmaceutical manufacturer the Adcock Ingram Group posted headline earnings from continuing operations of R709.4-million for the financial year ended June 30.

This was an increase on the headline earnings of R701-million posted for the 2019 financial year.

This translates into headline earnings a share from continuing operations of 417.5c, a decrease of 1% year-on-year, after taking into account the lower number of treasury shares subsequent to the unwinding of the broad-based black economic empowerment scheme.

Turnover increased by 4% year-on-year to R7.3-billion, driven by an average price realisation of 2.6% and a mix benefit of 4.2%.

Volumes, however, declined by 3%, mainly in the over-the-counter (OTC) and prescription businesses.

The gross margin declined from 39.4% to 37.3%, adversely impacted by the unfavourable exchange rate and Covid-19-related expenditure in the factories.

Operating expenditure decreased by 2%, resulting in a 1.2% decrease in trading profit to R944.3-million.

Although having to operate under extraordinary conditions, both the consumer and hospital divisions achieved double-digit growth in sales and trading profit, supported by higher demand at the start of the Covid-19 outbreak for products such as Panado, immune-boosting consumer products and intravenous fluids; and exceptional demand for the Adco Hygiene range.

The OTC division’s performance was impacted on by the absence of a cold and flu season in South Africa and the weaker currency, but it still grew sales and profitability.

The prescription division was significantly impacted on by the Covid-19 outbreak and subsequent lockdown, which resulted in lower levels of patients consulting doctors and visiting dispensaries and the postponement of elective surgeries.

The group notes that it achieved these results despite the challenging conditions driven by the general economic downturn, significant cost-push owing to rand weakness, global supply chain disruptions and declines in demand for certain categories of medicine and products.

"This set of results has been achieved despite the depressed trading environment and the challenges that have been brought about by the Covid-19 pandemic, such as the significantly weak rand and unplanned expenditure.

"Despite these challenges, we have remained focused on ensuring that we continue to produce and supply life-saving and acute medicines in South Africa that are much needed during the pandemic," comments CEO Andy Hall.

COVID-19

As an essential service, the group operated throughout the Covid-19-related lockdown, with the majority of employees in the factories, distribution networks and other departments critical to the continuity of the operations, working on site.

During this period, Adcock supported communities in need by providing food parcels and face masks, made early settlement of payment to small and medium-sized enterprises and donated hospital beds and respirators through corporate social responsibility projects.

Its directors and certain senior managers voluntarily donated 20% of their fees or salaries, for three months, to the Solidarity Fund, or as a cost saving in their respective business unit.

To date, the company has had 262 positive Covid-19 cases, of whom 253 have made full recoveries. Three employees succumbed to the virus.

Apart from the positive cases, around 600 employees have self-quarantined and returned to work in line with strict protocols at various stages of the pandemic.

Although the company is in a healthy financial position and generated strong cash flows in 2020, the pharmaceutical market has seen a slow-down subsequent to March, notes the group.

The extraordinary levels of uncertainty in the economy and operating environment brought about by Covid-19, resulted in no final dividend being declared, the company preferring to adopt a prudent cash preservation approach, until the full impact of Covid-19 is better understood.

"The Covid-19 pandemic will continue to adversely impact the economy and this will inevitably have a knock-on effect on our country’s unemployment levels, the exchange rate and a change in consumer spending and behaviour.

"The group continues to assess its structures and operating models and will adapt these based on customer and consumer behaviour. Despite the difficult short-term outlook, the group remains optimistic about the sustainability of the company,” says Hall.