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HY21 result: API (ASX:API) share price falls

The Australian Pharmaceutical Industries Ltd (ASX: API) share price is down over 2% after reporting its FY21 half-year result.

API HY21 result

API reported that its total revenue was down 2.6% to $2 billion. Statutory EBIT (EBIT explained) was down 25.2% to $29.4 million. Underlying EBIT fell 26.5% to $32 million.

Statutory profit was down 29.3% to $15.9 million and underlying net profit fell 30.3% to $17.7 million.

What impacted these numbers?

The company said that the decline was because of COVID-19-related lockdown restrictions and lower CBD foot traffic on API’s retail businesses in ANZ.

Priceline Pharmacy – the key profit driver of the business – saw significant like for like sales fall in its two largest CBDs with Melbourne down by 65% and Sydney down by 51%.

Positive highlights

API said that pharmacy distribution prescription medicine growth was in line with the market growth. The majority of Priceline stores reflected like for like growth outside of CBD stores.

Another positive was that Clear Skincare has bounced back strongly after extensive lockdowns.

It invested $50.5 million over the half year in retail digital assets, Clear Skincare acquisition tranche, new clinics and the NSW distribution centre (which is being developed on schedule and on budget).

In an effort to speed up growth, API has accelerated the expansion of its Clear Skincare network and product offering, as API ownership has increased customer traffic and average value per customer – up 54% since acquisition.

The company has done well to reduce costs in this operating environment. The cost of doing business has been reduced to 10.6%, 20 basis points (0.20%) lower than the prior corresponding period with $38 million of costs being removed.

API dividend

The pharmacy business decided to declare a dividend of 1.5 cents per share, representing a dividend payout ratio of 47% of net profit.

It didn’t pay a dividend in the first half of FY20, so this is a return to growth.

Management comments on the outlook

API CEO and Managing Director Richard Vincent said:

Our suburban retail businesses have rebounded strongly since COVID restrictions have eased and our negotiations with CBD landlords to achieve acceptable rental outcomes are ongoing.

We’re already accelerating our Clear Skincare network to take advantage of the considerable untapped demand out there for the range of treatments our clinics offer. Once established, these clinics will deliver significant profit growth for API shareholders.

So, assuming we do not experience any more major economic shocks, such as higher than anticipated unemployment levels, and on the basis that workers return to shopping in the CBDs, we expect our full year profit result to be broadly in line with current market expectations.”

Summary thoughts

The API share price may be down, but I thought this result was surprisingly resilient considering there was such as heavy disruption to the important CBD stores. Online sales are becoming increasingly important and the Clear Skincare acquisitions seems like a really important move in hindsight. However, the comment that hitting market expectations relies on workers returning to CBD shopping will lead profit being “broadly in line” means the share price decline is probably logical.

It’s not the type of business I’d buy for my own portfolio, but it could deliver decent long term returns when combining the dividends with growth of online sales and Clear Skincare.

There are also other ASX dividend shares that might be options for income.

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At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.

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