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Australian Pharmaceutical Industries Limited, improving financials

Team Veye | 27 Jan 2021 ASX - API
Australian Pharmaceutical Industries Limited, improving financials

Australian Pharmaceutical Industries Limited (ASX: API)

Australian Pharmaceutical Industries Limited (ASX: API) on 20 January 2021 provided financial insights under its AGM.

The company has delivered solid results in 2020 despite facing the varied challenges caused by both the bushfires in the Eastern States followed by the national impacts of COVID, state by state lockdowns and the on-going restricted movement of people.

The Pharmacy Distribution reported a strong result backed by a solid performance in its retail businesses, Priceline Pharmacy and Clear Skincare. The strong results were reported when stores and clinics faced mandatory closures throughout the year in different states combined with the sustained impact of reduced foot traffic in CBD locations. Pharmacy Distribution business generated significant cash flow and underpins its balance sheet with strong working capital and efficient supply chain management

Consumer Brands business felt the effect of restricted access to raw materials from China and India.

(Chart source: TradingView)

Performance Highlights:

  • Reported total revenue of $4 billion, representing a 0.2% increase over the prior year.
  • Pharmacy Distribution revenue, excluding Hepatitis C sales, was $2.9 billion, an increment of 6.1 %on last year
  • Underlying EBIT was down by 40.1% as compared to the prior year at $56.3 million, This decline was largely due to the impact COVID-19 had on the retail businesses.
  • Underlying NPAT reported 42.6% decline from the previous year at $32.5 million
  • Underlying return on capital employed was down to 10.35% from 16.29 per cent in the 2019 financial year.  The decline was driven by the COVID disruptions impacting the retail network.
  • Significant improvement in the Actual cash conversion days improved reflecting a strong focus on inventory optimisation and debtor collections.
  • Cash conversion days were 20% better than the 2019 financial year.
  • Improved working capital with reported net debt of $18 million, compared to $199.1 million in the prior year, representing a significant achievement.
  • Reported Reduction in Cost of Doing Business over the year of 70bps to 10.20 percent.
  • Dramatic fall in the foot traffic as a result of lockdown restrictions and people’s travel and working behaviours.
  • Clear Skincare being a high margin business reported gross profit for the year at $33.7million.
  • Retail network revenue was down by 5.2% at $2.1 billion
  • Total network like-for-like front of shop sales was down by 5.9% but including dispensary, sales were only down by 2.6% (Data Source – Company Reports)

 

Veye’s Take

The pharmacy Distribution business remained a reliable, cash-generating business with a highly competitive offering for independent pharmacists. The pharmacy Distribution business continued to achieve underlying revenue growth which will accelerate with the 777 Pharmacy group coming on board. The full impact of this association will be witnessed in the FY21 financial year. API achieved efficiencies by closing its Canberra and Newcastle distribution centres. The 7th Community Pharmacy agreement well in place allows it to make a further capital investment and offset cost increment. The upside rally in the stock is well seen on the price charts. The stock is trading above its support at $1.190 well supported by RSI and MACD positive cross overs. It is trying to move above Ichimoku cloud on both short term and long term charts, indicative of gaining strength. The stock is expected to have upside potential in the near term. Veye maintains a "Hold" on “Australian Pharmaceutical Industries Limited” at the current price of $1.245 

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