API profits rise 20pc on Priceline and pharmacy distribution gains

Sue MitchellColumnist

Updated Oct 20, 2016 – 4.48pm, first published at 11.42am

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Outgoing Australian Pharmaceutical Industries chief Stephen Roche says the owner of Priceline Pharmacies and Soul Pattinson chemists is poised for further growth after delivering a 20 per cent increase in earnings and reducing net debt by 63 per cent in 2016.

Net profit rose 19.8 per cent to $51.7 million in the year months ended August 31, slightly above market forecasts and API's guidance, which was upgraded earlier this month.

Underlying net profits, excluding a $2.7 million loss on the sale of API's shareholding in CH2 in 2016 and writedowns in 2015, rose 18 per cent to $51.4 million.

Outgoing Australian Pharmaceutical Industries CEO Stephen Roche is leaving the company in healthy shape. Ben Rushton

Sales rose 11.1 per cent to a better than expected $3.84 billion, underpinned by an 11.2 per cent increase in pharmacy distribution revenue to $2.7 billion and a 7.6 per cent rise in Priceline Pharmacy sales to $1.1 billion.

Since Mr Roche took the helm 10 years ago, underlying earnings have more than doubled and Priceline has been transformed into one of Australia's biggest health and beauty retailers.

Retail sales have risen from $520 million, or 20 per cent of group revenue, to more than $1.1 billion, or 30 per cent of revenue, and the number of stores has climbed from 133 to 442, countering more moderate growth from pharmacy distribution.

Mr Roche said he had achieved what he set out to achieve in 2006 and had no regrets about stepping down to pursue non-executive roles.

"I can honestly say there's not [unfinished business]," Mr Roche told The Australian Financial Review. "We have executed everything we were imagining at that time plus more ... and there's potential for further momentum.

"The business is in very good shape – there's a management team and depth of capability to continue this momentum."

Mr Roche said API's priorities for 2017 were up to his successor, Richard Vincent – API's general manager of business development, operations and strategy – who takes the helm in mid-February.

However, he said API would open another 20 Priceline Pharmacy stores this year and refurbish existing stores, introducing the most successful elements from a new store format that has been delivering encouraging sales growth.

"The elements of those stores we see resonating we'll roll out as part of the standard formula," he said. These elements include service bars with cosmeticians and streamlined access and visibility.

"The trials are meeting expectations and that's why we locking down some of those elements as we move forward."

API increased its final dividend 40 per cent to a fully franked 3.5¢ a share, taking the full-year payout to 6¢ a share, representing a payout ratio of 57 per cent.

In light of the strength of API's balance sheet (net debt fell by 63 per cent to $26 million as working capital returned to normal) the board has decided to lift the future payout ratio to 60 per cent.

API shares moved 0.3 per cent higher to $1.92 on Thursday.

Sue Mitchell writes the fortnightly Window Shopping column for the Financial Review and has covered retailing for over 30 years. Connect with Sue on Twitter. Email Sue at smitchell2045@gmail.com