Australian Pharmaceutical Industries (ASX:API) talks growing distribution and retail footprint


by Carolyn Herbert

Australian Pharmaceutical Industries Limited (ASX:API) Managing Director and CEO, Richard Vincent discusses the company’s growth strategy for its Australian pharmacies and outlook.

By way of introduction to API, API is an ASX 200 company, our market cap’s around $900 million, we’re made up of three divisions. We have a retail business, which is Priceline Pharmacy, Australia’s most loved beauty brand. We have a wholesale division that services pharmacies all around Australia, and we have a niche manufacturing business in New Zealand.

In terms of my experience in the industry, I’ve been in the industry for more than 20 years in various capacities. Everything from supply chain to business development, to franchise development, to merchandise, to IT, to finance. And then at a more strategic level, running strategy for API and mergers and acquisitions. So it’s a combination of a range of pieces across the industry and I feel like I’m really well placed, to take API to the next level.

It’s been a very good six months for API, very solid results. Our sales topped the $2 billion mark, it was 12.7 per cent up, but our NPAT was 15 per cent up at $29.1 million. So a combination of operational excellence and financial management, and management of our balance sheet fundamentally, that’s delivered that result. If we look at it from a shareholder perspective, shareholder returns were up to 10.7 per cent for return on equity. And that allowed us to pay a dividend to shareholders of 3.5 cents, which is a 40 per cent increase on the same period last year.

Retail business, so fundamentally we’re talking about Priceline and Priceline Pharmacy, again we’ve grown our store numbers. We’re up to 450 stores at the half; we’re on track for 20 new stores by the end of the year. That business has grown in a market where the consumer sentiment has been somewhat depressed. And we’ve done that through our core categories, the colour cosmetics and skincare, where we’ve continued to gain shares. So very happy with where we’ve gotten to with Priceline.

Our pharmacy distribution business is all about managing the Government reforms and maintaining our profitability, and maintaining our share. We’ve done a good job of that, which has turned into a lot of cash generation that we’ve used to pay down debt, and also to invest into our retail business. And our consumer brands business continues to be an opportunity.

The growth of our business will come from our retail business. Let me first say that our distribution business is a maintained strategy. It’s a business where it’s about maintaining profitability and maintaining market share, in an environment where the Government are changing prices and lowering our margins, over a period of time. So that’s a maintenance strategy and if we do maintain and keep that business generating profit, it’ll generate a lot of return for shareholders, which in turn generates cash for our business.

The growth engine for this business is our Priceline Pharmacy business. You’ve seen that through our strategy in our results over the last few years. You can see that we’re growing our store numbers by about 20 stores per annum, as a minimum. That will continue we have a lot of franchisees, existing franchisees that have interest in additional stores, as well as other pharmacists that are looking to join the brand.

On top of that it’s absolutely about nurturing that customer experience and maintaining the relevance, to the women that shop in our stores. That’s why we’ve invested in our Sister Club, which is our loyalty program. While we’ve invested in a new store format, making the experience even better than it is today, so that we can maintain our relationship with our customer.

Our outlook for the full year, inclusive of the first half, we called this out only six weeks ago when we announced our half-year results. And really it was based around consumer sentiment remaining where it is today. If that’s the case, we expect to be 10 per cent up for the full year.