The company is divided into three main segments; Pharmacy Distribution, Retail, and Manufacturing.
Pharmacy Distribution distributes pharmaceutical and medical products to pharmacies. The division distributes to customers from its Distribution Centres throughout Australia.
Through Retail, API sells various health, beauty and lifestyle products and operates retail store brands including Soul Pattinson, Priceline, Priceline Pharmacy and Pharmacist Advice.
The Manufacturing business involves the ownership of rights in pharmaceutical medicines and consumer toiletries.
API’s 1H12 results were a marked improvement on the same period in 2011. Underlying net profit was $11.8 million, up 10.3% from the prior corresponding half.
Profit growth came despite revenue dropping 12.5% to $1.61 billion. Underlying operating margin increased from 1.5% to 1.8%, highlighting the effectiveness of cost cutting strategies the company has been implementing.
Another aspect that impressed was the 3.1% growth in the group’s retail sales on the prior period. Comparable store sales also grew at a solid 2.8%. The retail growth is especially encouraging considering the tough trading environment in which several other retailers have been experiencing.
Approximately 75% of API’s earnings in the first half were from its wholesale business. The company is targeting an even split in earnings between its retail and wholesale divisions. The retail growth is expected to come from Priceline pharmacy.
API has been working on infrastructure for several years and the company believes it has the ability to double the current number of Priceline stores. We believe the split will be beneficial for the group’s bottom line given the gross profit margin for its retail arm is 23%, compared to wholesale’s 7.6%.
On September 24th, API announced that Priceline has expanded its store network to 350 stores. This decision reflects increased interest from pharmacists in joining Priceline, and highlights the growth potential of the Priceline chain.
API has undertaken some significant structural changes that are starting to deliver benefits. Through increased operating margins the company was able to record an increase in profit despite a fall in revenue.
We believe that given the tough consumer environment, companies that are able to achieve efficiency gains will be well placed to prosper when consumer sentiment improves, and API is a prime example of this.