Adcock considers expansion to mitigate risks
Pharmaceutical company Adcock Ingram is considering exports to the Asia-Pacific and South America as it looks to build its international business, CEO Andy Hall says.
While growing the business in other parts of Africa was an immediate focus, Hall said the company was "starting to look outside of the continent at some potential distributorships".
"Maybe within a year or so we will be able to give feedback on those initiatives," Hall said in an interview on Wednesday.
There could be opportunities to export consumer brands to Australia and Southeast Asia, while a number of South American countries were potentially attractive "if we can get over regulatory hurdles".
The group remains highly concentrated on the South African market, though it has a relatively small but fast-growing rest-of-Africa business.
Its businesses in Zimbabwe and Kenya account for about 4% of sales while exports to other African countries make up another 3% of turnover.
Expansion "is certainly a focus for us", Hall said.
"Most of our business comes from [SA] and that links us to economic risk in the country and rand risk. So we do encourage our divisions, where possible, to look for export markets."
Hall said Adcock wanted to grow its personal care portfolio and the company planned to enter the baby-care segment.
"That’s where we’re curr-ently focusing our efforts in the acquisition universe, but assets are scarce – most of the big personal-care players are multinational companies [that] don’t dispose of brands easily – similarly in baby-care."
That meant Adcock was looking for bolt-on deals whereby it would acquire owner-managed businesses.
The company had net cash of R492m at the end of December. Hall said Adcock would pay about R120m of that in dividends to shareholders, while the bulk of the balance would be used to settle the Genop acquisition.
"We are still cash generative so as we build up that cash again over the next year, our intention is to put it into acquisitions should we find attractive assets," he said.
Adcock’s balance sheet "is strong", says Aslam Dalvi, associate portfolio manager at Kagiso Asset Management. "We would expect the group to complement its organic growth opportunities through strategic partnerships and smaller bolt-on acquisitions," he said.
In the six months to December, Adcock grew turnover by 7.4% to R3.2bn, while trading profits rose 25% to R428m.
"It’s been a good six months for us," said Hall.
"We’ve kept up the momentum of the past 18 months or so and continued with margin expansion" the CEO said.
Dalvi said: "Adcock delivered a strong result," and the rand’s gains "should act as a buffer for margins and offset any negative impact of the low ‘single exit price’ [state-set maximum prices for medicines] increase".