Adcock Drops to 2-Year Low as Profit Falls: Johannesburg Mover

Adcock Ingram Holdings Ltd., a South African supplier of hospital products and over-the-counter medicines, fell to its lowest level in more than two years after it said profit declined.

The shares dropped 2 percent to 53.65 rand by the close in Johannesburg, the lowest since February 2010. About 2 million shares changed hands, or more than five times the daily average over the last three months.

Net income decreased 6 percent to 706 million rand ($80 million) in the 12 months through September from a year earlier, the Johannesburg-based company said in a statement today. Earnings per share declined 9 percent to 4.18 rand, missing the median estimate of 4.32 rand of six analysts surveyed by Bloomberg.

“We didn’t really succeed in arresting the declining margins,” Chief Executive Officer Jonathan Louw said by phone. “Our margins are still very robust. It is difficult to raise prices when you operate in a cost-control environment.”

Adcock reported a decline in full-year gross profit margin to 45.5 percent from 48.7 percent a year earlier. The company said on May 29 the first-half margin had been 46.7 percent following an average 2 percent reduction of selling prices.

The margin was hit by inflation in the cost of production, upgrades to facilities and the weaker rand, the company said. The rand has slumped 8.6 percent against the dollar this year, the worst performer of 16 major currencies tracked by Bloomberg after Brazil’s real.

Big Issue

“A big issue for Adcock is the gross margin for its over-the-counter division,” Mathew Menezes, an equity analyst at Avior Research, said by phone from Johannesburg before the results were released. “They need to come up with a solution to stop the margin declines.”

Adcock said the full-year dividend would be 201 cents, up from 187 cents in 2011.

Adcock, which sells Panado painkillers and Corenza cold medicine, said revenue increased 2 percent to 4.6 billion rand. Aspen Pharmacare Holdings Ltd., South Africa’s largest generic drugmaker, said on Sept. 12 sales rose 23 percent for the 12 months through June compared with a year earlier.

“In South Africa, drug prices are driven, to a large extent, by the government’s single exit price guidelines,” said Menezes. He cut his recommendation of Adcock to under-perform following the company’s half-year earnings in May.

Adcock said on July 10 it agreed to buy some assets of Cosme Farma Laboratories Ltd., based in Goa, India, for 708 million rand. The company owns Ayrton Drug Manufacturing Ltd., a Ghanaian drugmaker. Adcock’s sales from outside South Africa increased 15 percent to 295 million rand a year earlier.

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