SIMON BROWN: I’m chatting now with Andy Hall, CEO of Adcock Ingram. Of the many data flows yesterday, one was results from Adcock Ingram for the year ending June 30, 2021. Revenue up 6%, Heps down 3.1%, a 90 cent dividend.
Andy, I appreciate the early morning time. One of the weird things about a pandemic – and there are lots of weird things – is that some of the healthcare stocks are struggling. In your case, it’s that absence of a flu season and absence of elective surgery. If I just look at your OTC (over-the-counter) products, my sense is if you’d had the flu season as per normal you would have picked up about an extra 5% revenue, maybe another R100 million in profits. It would have given you a slightly better year. Is that really the drag on the business – that fact that people are not going out, not getting sick, not having surgeries?
ANDY HALL: Simon, good morning. It’s a fair assessment. We’ve experienced some swings and roundabouts. Unfortunately, the negative impacts of the pandemic, as you point out – on people contracting colds and flu and going to get over-the-counter medicines – outweighed the positive impact on some of the other parts of the business such as renal dialysis, immune boosters, and the like. So you are right.
But I think we were blessed by the fact that we’ve got a really broad portfolio of products, so at least we had elements that could make up to some extent for what was happening in that part of the business.
SIMON BROWN: It is fairly broad. The recent acquisition which really boosted the consumer segment, of course, because it’s new, is the (acquisition of) Plush Professional Leather Care. I looked at that and I scratched my head a bit. But then I read through it. You are looking for, my sense is, bolt-on acquisitions and you’re looking to sort of pick up some acquisitions that don’t have the regulated pricing that we see from single-exit pricing.
ANDY HALL: Exactly, Simon. One of the risks we face in the industry, including at Adcock Ingram, is we have this annual single exit-price increase which is granted by the Department of Health. Generally, that increase tends to lag inflation and definitely tends to lag the deterioration in the exchange rate over time.
So we do need to make sure that we’ve got a properly balanced portfolio of defensive regulated products, but also products that are non-regulated, where we can have some pricing power.
If you look at our consumer business this last 12 months, it managed to push in the price of close to double digits with big brands like Panado and Bioplus and Compral. So there’s no doubt that that does give us a bit of a hedge.
SIMON BROWN: You mentioned inflation, and we get that. But of course, it’s also always the currency. I imagine it’s not just that you’re at times importing the finished product, but even in the manufacturing space, it’s ingredients. So currency really is an influence on the numbers that you produce.
ANDY HALL: Exactly, Simon. A strong currency would be a huge tailwind for us, but unfortunately, we know that that’s not really the trend with the rand. If you look at it statistically, more than half of our active ingredients or finished goods are actually paid for in foreign currency. So it is a big swing factor on our business, depending on what happens in the rand period to period.
SIMON BROWN: As much as half – that was about to be my next question. Supply chains? [There] must’ve been some challenges. We’ve seen it the world over, maybe a little bit easier for an Adcock Ingram in that you’re not bringing in giant products and the like, but how have supply chains held up over the past year?
ANDY HALL: I think we’ve learned to manage it, Simon. To be honest, in the early part of the pandemic it was a bit of a nightmare getting products in from India and the like, where products were embargoed and not allowed to leave that country. But I think we’ve learned to manage it well. We make sure that we keep strategic stocks of products that might become problematic. And in general, we’re very happy with our inventory holdings at the moment.
The only area where we are suffering a bit – and it’s unrelated really to the pandemic – is the difficulties that are being experienced in the port in Durban at the moment.
Transnet has had some of its own problems.
So we are battling to get all our products through that port. We are short of a couple of products in the prescription division at the moment, but we are hoping that will resolve by the end of September or mid-September, probably.
SIMON BROWN: Mid-September. I want to go back to elective surgeries. Obviously, people are avoiding elective surgery, if they can. If you need [e.g.] a knee operation, maybe [one is thinking] I can do it later. Did you see a sort of uptick in elective surgeries as we moved into lower lockdowns, as we moved out of the first wave, the second wave? Or are people really saying, let’s get this pandemic out of the way first?
ANDY HALL: Look, when there are sporadic suspensions of surgeries in the particular provinces, it’s not going back to the levels that it was operating at pre-pandemic, but it’s certainly going at sustainable levels. So even now in Gauteng, where we effectively have got through this wave, we see those elective surgeries start to tick up again. The area of the business where it impacts us the most is in the ophthalmic business, where we are effectively the biggest supplier of surgical and ophthalmic instrumentation to ophthalmologists. That’s starting to pick up again in Gauteng, but in the other provinces where the wave is still hitting us hard, it’s still pretty much at a standstill.
SIMON BROWN: We’ll leave that there. Andy Hall, CEO of Adcock Ingram, I appreciate the early morning.
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