API remains confident on Amazon’s arrival

pricelinestoreAustralian Pharmaceutical Industries (API) CEO Richard Vincent is confident that Amazon’s prospective move into pharmaceuticals in the US is unlikely to have an impact on the Australian market.

Speaking to Inside FMCG after reporting a 5.4 per cent increase in underlying net profit after tax (NPAT) to $54.2 million for the year ended 31 August yesterday, Vincent said that the nature of the Australian market insulates established players.

“In the pharmacy side of our business 80-85 per cent of all products are regulated by the government, so it’s quite a unique market that’s very different to most around the world,” he said.

“The Government controls the way product moves through the wholesale system right to pharmacies and out to patients, so in some respects the nuances around Australia mean that from an Amazon perspective it’s a different proposition.”

Vincent yesterday laid out a strategy for API’s retail business Priceline that will see it combat difficult market conditions and mounting competition with more exclusive product launches, the roll-out of a new store format, developments in digitisation and a possible move into China.

But it was API’s pharmaceutical division that drove the most pleasing result for the giant in FY17, booking a 7.5 per cent increase in overall revenue when the normalised impact of PBS reforms and Hepatitis C medicine are factored in. Vincent told investors that the division did an “excellent job” in a disruptive year that included wide ranging regulatory changes.

“In many ways this has been a particularly pleasing result, while the divisions role has been historically to maintain market position and generate cash for us, it has managed to achieve that and deliver more in a market that’s seen more disruptive activity in 2017 than I’ve seen for many years,” Vincent said.

API will also open a new distribution centre in Western Australia in FY18, which is slated to deliver “more timely and efficient stock management” at a cost of $5 million.

Its manufacturing business, based in New Zealand, improved in the second half on new manufacturing contracts, but overall sales fell by 5.4 per cent on the prior year. API said it anticipates improvements made in the second-half to continue through FY18.

Priceline

Priceline was impacted by what Vincent described as “difficult market conditions” during FY17, with first-half growth being offset by second-half weakness, driving like-for-like sales across its 125 company-owned stores down 0.4 per cent.

Retail register growth (excluding dispensary sales) slowed by 5.8 per cent to $1.15 billion, while total network sales increased by 5 per cent to $2.1 billion on the addition of 20 new locations to the overall 462 store portfolio.

Underlying earnings before interest and tax (EBIT) for API more broadly increased by 5.5 per cent to $91.9 million, underpinned by a 5.8 per cent increase in total revenue to $4.06 billion, while net profit after tax increased by 5.4 per cent, ahead of guidance.

Speaking to Inside FMCG on Thursday, Vincent said planning for a Chinese expansion that would focus on skincare and cosmetics was underway, but that API was being sensible about its prospects in Asia.

“Growth has to be profitable, you hear lots of stories about growth into China and then you hear about people not making money through that growth,” Vincent said.

“Growth for the sake of growth isn’t what I’m about, we’ve got a number of connections into China and other countries in Asia, so we’ll look to leverage skincare and cosmetics – but it’s very early days.”

The Chinese market has run rivers of gold for some of API’s competitors in recent years, particularly Chemist Warehouse, which has emerged as one of market specialist Alibaba’s most successful partners, having turned over $2 million in the first 13 minutes of its ‘Singles Day’ shopping festival last year.

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