Shares in Australian Pharmaceutical Industries (API) dipped 1.4% in yesterday’s stronger market as investors reassessed last Thursday’s announcement of big write downs in loan assets, but improved trading conditions.
The shares fell 0.8% to 56c from Thursday’s steady close of 56.5c.
In other words investors remained basically happy with the company, despite the red ink revealed last week.
Last Thursday’s performance was a solid end to a difficult day’s trading – the shares slumped 13% on the news of the write downs and losses of more than $131 million, but recovered to close unchanged after investors had reassessed the accompanying commentary on the 2013-14 results, which will be confirmed on April 30.
The size of the losses meant the company has had to negotiate with its bankers about the payment of an interim dividend.
That was cleared and API says the board will be in a position to consider an interim payout next week.
API 1Y – API’s writedowns and losses outweighed by trading update
"Each impairment is a non-cash item and, as such, does not affect the ongoing cash flows of the business," API told the market.
"The company has received waivers from its key financiers along with a 30 day extension for its cash advance facilities due for renewal on 5 May 2014.
"The Board is confident in the underlying performance, and subject to banking approvals, expects to recommend the payment of an interim dividend fully franked for shareholders.
"The Company will have the capacity to maintain a final dividend fully franked to shareholders," directors added.
The one-off $131 million impairment charge for API (which has a market capitalisation of $270 million) followed the three day trading halt and suspension for the company.
API revealed an extensive list of write downs and losses in last Thursday’s statement.
The company, which owns the Pharmacist Advice brand Priceline and Soul Pattinson chains, said $52 million of its write down was for bad debts with its retail customers.
A further $20 million was for the underperforming Cliff Hallam Healthcare, while $44 million was a write down of the value of their retail businesses. Another $15 million was due to the strong New Zealand dollar’s impact on its New Zealand manufacturing unit.
API chief executive Stephen Roche said he did not expect further significant impairments. He said the board had ”taken a prudent and conservative approach”.
But the news of the company’s performance gave investors some confidence that the write downs did not reflect a worsening in the company’s underlying businesses.
On Thursday, API said the improvement in its underlying business performance was driven by:
"Industry leading like for like retail sales growth of 5.3% in Priceline and Priceline Pharmacy stores; continuing growth in Priceline and Priceline Pharmacy store numbers to 373 (up 10 from the full year end) and the Sister Club loyalty program now at 4.6 million members (up from 4.3 million at the year end); pharmacy distribution underlying sales growth of 8.0%, excluding PBS reforms; strong management of the impact of PBS reforms throughout the business; and group supply chain volume up 6.0% on prior year with costs flat.
“The company’s core assets in pharmacy distribution and retail have driven a strong underlying net profit after tax which is expected to be $16.2 million, subject to final auditor review. This is 29% up on the same period last year. The improved performance has been delivered through strong management of retail, pharmacy distribution and supply chain,” CEO Roche said.
