Australian Pharmaceutical Industries, part of the group of companies clustered around Sydney-based Washington H Soul Pattinson, has dropped its interim dividend to shareholders as it prepares to face the gathering COVID-19 pandemic storm.
API said it had decided to suspend its interim dividend until it knows more about the revenue implications of the pandemic.
The company paid out 3.75 cent interim dividend in 2018-19 and a 4 cent final dividend which must also be in doubt later this year.
That rational decision saw API shares drop more than 11% to $1 on Thursday.
In the half-year results yesterday API warned that it will consider closing stores due to a drop in customer traffic if landlords won’t negotiate on rents in the face of COVID-19.
“We have engaged in discussions with our landlords and in most instances those discussions are proving fruitful, but where they are not fruitful, we are not afraid to permanently close stores or clinics,” API CEO Richard Vincent said in a conference call for the company’s half-year results on Thursday.
Mr Vincent said Vicinity was the largest landlord across API’s more than 1500 sites but refused to be drawn on whether one landlord, in particular, had been slower to negotiate.
“Our conversations have been unfolding very slowly. In a lot of cases, they [landlords] have said ‘we’ll get to you, or a particular store, in due course’.”
Media reports yesterday said that Vicinity has been writing to some of its tenants complaining they had breached their agreements by closing their doors as part of moves to protect their staff.
Nine/Fairfax Media papers reported yesterday that “The $5 billion Vicinity Centres, which manages 63 shopping centres including Melbourne’s Chadstone shopping centre and Chatswood Chase in Sydney, wrote to a string of tenants in the past month to warn them against shutting their doors amid the pandemic.”
ASX-listed API’s store network includes Priceline Pharmacy, Soul Pattinson Chemists and Clear Skincare in Australia and New Zealand.
While many of those outlets are seeing a rise in prescription orders during the coronavirus pandemic, Mr Vincent said the business could not predict the longer-term impacts amid tough consumer spending conditions and fewer shoppers in CBDs and shopping centres.
“We think we’re in for a number of years of relatively low growth,” he said on the call.
In its profit report on API reported a 2.8% increase in revenue for the half-year to $2 billion, with earnings before interest and tax down 11.5% from the first half of 2018-19 to $39.3 million.
Net profit fell 9.5% to $22.5 million.
These half-year numbers largely reflect conditions prior to the outbreak of COVID-19 and the company warned it was impossible to predict the pandemic’s true impact on the business.
Mr Vincent said API was well-positioned for the impact of the pandemic on business, though it was hard to be certain about the outlook. The company has cut debt after selling its stake in Sigma and the suspension of the dividend will retain more cash in the business.
“API’s strengthened balance sheet will give it flexibility in managing the business and investing for growth. From a capital management perspective, our focus will be on preserving cash in the short term.” He said.
“We previously announced that we are exploring options for a new, highly automated distribution centre in Sydney, which is likely to be $50 million over and above normal capital expenditure levels.
“If we proceed according to the current timetable, there will be minimal spend in FY20. We anticipate the majority of the spend would be in FY22,” Mr Vincent said.
