2018 FULL YEAR RESULTS PRESENTATION - 61 Financial · 2018 FULL YEAR RESULTS PRESENTATION 20 API...

2018 FULL YEAR RESULTS PRESENTATIONTHURSDAY 18 OCTOBER 2018

2018 FULL YEAR RESULTS PRESENTATION 2

Important Notice

The material in this presentation is of general information about API’s activities current at the

date of the presentation. It is information given in summary form and does not purport to be

complete. Nothing in this presentation should be construed as a recommendation or forecast

by API or an offer to sell or a solicitation to buy or sell shares. It does not take into account the

investment objectives, financial situation or needs of a particular investor. These should be

considered with or without professional advice when deciding if an investment is appropriate.

This presentation contains certain non‐IFRS measures that API believes are relevant and

appropriate for the understanding of the business. Refer to Appendix 1 for further information.

GROUP PERFORMANCERICHARD VINCENT

CEO & MANAGING DIRECTOR

2018 FULL YEAR RESULTS PRESENTATION 4 4

FY18 Results snapshot

HIGHLIGHTS FOR FY18

Final dividend payment up 14.3% and payout ratio increased from prior year

Delivered FY18 underlying NPAT guidance

Balance sheet remains strong and provides flexibility

Completed Stage 1 of Clearskincare acquisition

Managed challenging trading conditions and rebased support office cost structure

Revenue

$4.0bn

Underlying1

EPS

11.1c

Underlying1

NPAT

$54.7m

Underlying1

EBITDA

$119m

Total dividends

7.5c/share1 Refer to Appendix 1 for definition


FY18 Business highlights

Priceline Pharmacy • Improved like-for-like sales trend during 2H18 • Network growth with franchise partner sentiment further

strengthened

Pharmacy Distribution• Underlying sales growth and consolidated gains from FY17• Managed margin impact of PBS price changes and exclusive

direct distribution

Consumer Brands• Increased EBIT contribution by $2.1m• Strong pipeline and product development for FY19

Corporate• Decreased ongoing operating costs and CODB to 10.3%• Continued to reduce reported net debt, excluding acquisition

funding• Completed stage 1 of Clearskincare acquisition in July

BALANCED MANAGEMENT OF TRADING CONDITIONS AND GROWTH OPTIONS


The API Growth agenda and priorities

Pharmacy Distribution to deliver stable

ROCE and cash generation

Evolve Priceline Pharmacy offer

to address customer changes

Build Consumer Brands portfolio

and earnings contribution

Expand Clearskincare network and

grow profitability

Leverage existing infrastructure and market expertise

Growth outlook

Financial strength and flexibility

Existing capability in heritage assets can maximise return across the business portfolio

Building on infrastructure to improve operational performance and flexibility in customer offer

Financial strength remains following Clearskincare acquisition

Bolstered management capability to execute growth plans

COMPLEMENTARY PORTFOLIO OF HEALTH ANDBEAUTY ASSETS TO DELIVER GROWTH

FINANCIAL RESULTSPETER MENDO

CHIEF FINANCIAL OFFICER


Financial overview

Underlying1 NPAT $m Underlying1 EBIT $m CODB2 (% of revenue)

IMPROVED FINANCIAL POSITION

Results achieved despite ongoing PBS Reforms and price adjustments Continued balance sheet improvements underpinned stable result Acquired Clearskincare and restructured costs for future benefit CODB starting to reflect the new cost base for FY19

1 Refer to Appendix 1 for definition; 2 Underlying cost of doing business excluding depreciation and Hepatitis C

51.4

54.2 54.7

FY16 FY17 FY18

87.1

91.9 90.5

FY16 FY17 FY18

10.4 10.4

10.3

FY16 FY17 FY18


Working capital

WORKING CAPITAL IMPROVED

Cash Conversion Days improved 3.6 days to the half and 1.7 days to prior year end

Consistent Working Capital results produced in a challenging environment

Results reflect the seasonal business cycle with an improved position in 2H18

Summary FY17 1H18 FY18

Trade Debtor Days 40.6 36.0 39.6

Inventory Days 37.2 37.7 37.2

Trade Payable Days 55.8 49.6 56.4

Cash Conversion Days 22.1 24.0 20.4

Summary FY17 1H18 FY18

Trade Receivables 682 609 655

Inventories 399 404 395

Trade Payables 805 702 775

Net Working Capital 276 311 275


Cash flow & debt

DEBT PROGRESS AHEAD OF EXPECTATIONS

Reported net debt reflects a strong underlying position following Clearskincare acquisition

Cash generated from operations reduction reflects acquisition and restructure costs, working capital change from Hep C

Net cash from investing includes business acquisition costs of $61.6m, capex $25.7m

A$m FY17 1H18 FY18

Cash generated from operations

129.8 22.8 98.7

Net cash from investing activities

(27.8) (8.0) (82.3)

Free cash 102.0 14.8 16.4

Debt movement including leasing

(18.8) 19.6 59.3

Dividends paid (34.3) (17.2) (34.5)

Net movement in cash before interest & tax*

48.9 17.1 41.2

Key Metrics FY17 1H18 FY18

Reported net debt $m (7.2) 25.1 55.9

Net debt#/(net debt + equity) (1.3%) 4.3% 9.9%

Net debt#/EBIT (0.1x) 0.6x 0.7x

EBIT/interest 6.9x 7.0x 6.6x

# Net debt includes annual insurance premium funding and finance leasing liabilities;

* As per the 4E Consolidated Statement of Cash Flows, excluding interest and tax


Capital management

Underlying1 ROE% Underlying1 ROCE% Dividend paid $m

RETURNS TO SHAREHOLDERS CONTINUE TO GROW

Strong CAGR growth across all metrics

Underlying ROE increase reflects the impact on equity of Clearskincare acquisition future payments

ROCE reduction reflects additional debt in use for acquisition

1 Refer to Appendix 1 for definition;

9.589.78

10.29

FY16 FY17 FY18

15.49

16.8916.54

FY16 FY17 FY18

24.4

34.334.5

FY16 FY17 FY18


Capital management

Capex FY19 to be consistent with FY18

Continue to review options for the future investment in a Sydney DC

Clearskincare acquisition payments will be made in September 2020 and 2021

Sufficient franking credits for future dividend payments

Balance sheet capacity for ongoing flexibility

CAPITAL MANAGEMENT OUTLOOK

OPERATIONAL UPDATESRICHARD VINCENT

CEO & MANAGING DIRECTOR

Priceline Pharmacy


Priceline Pharmacy results

IMPROVED TRENDS DURING 2H18

Total network sales¹ up 2.1% to $2.11bn Total register sales¹ (excl dispensary) up 0.4% to $1.158bn Retail register like-for-like sales -1.1%, improved 60bp on 1H18 Retail network at 475 stores as at 31 August Gross profit result reflects management focus Franchise partner sentiment strengthened further on FY17

1147

1153

1158

FY16 FY17 FY18

Retail Register Revenue $m

1 Refer to Appendix 1 for definition

237

239

240

FY16 FY17 FY18

Retail GP $m


Priceline Pharmacy - 2H improvement & strong base

STOCK & PROMOTIONAL CONTROL

Sales events changed to maximise profit outcome with reduced category-wide discounting

Improved margin management and return on investment

Improvements on all inventory metrics during 2H18 with GMROI up 10bps on 1H18

UNLOCKED STORE VALUE

Focussed teams on basket size, up 1.9% and loyalty card acquisitions

Professional service demand increasing with flu vaccinations up 50% on FY17

Improved terms on leases starting to emerge in 2H18

CUSTOMER CONNECTION

Status as favourite destination for beauty for Australian women

New marketing campaign to broaden appeal and action

Still gaining exclusives and first to market opportunities with key brands such as Bondi Sands, Kristin Ess, Andalou, The Base Collective, Alya

SISTER CLUB PROGRAM

Remains the largest health and beauty loyalty program in Australia and growing

“Sister Club only” sales events successfully implemented

Richest data for women’s purchasing behaviours in health and beauty

Advancing analytics to increase effectiveness


Priceline Pharmacy evolution

REINVIGORATE PRODUCT OFFER

Accentuate strength of product range as a destination for favourites with greater focus on new, exclusive and on-trend offers

Extension of key categories to take advantage of growth segments

Capitalise on opportunistic trends and leverage brand strength as a one-stop-shop for all health and beauty needs

CUSTOMER FIRST CULTURE

Emphasis on store execution across all formats

Introduction of new customer satisfaction measurement tool in 2019

Increase tailoring of product selection by category by store

MAXIMISE LOYALTY & DIGITAL PLATFORM

Stage 1 in mining data and trends from loyalty platform in effect

Increased use of targeted offers and using data with suppliers

Major upgrade to loyalty to commence in 2H19 complemented by inventory management system investment as first stage in move to click and collect

Trial “click and collect” solution during FY19

BUILD NETWORK STRENGTH

Focus on right stores in right location Further improve margin and returns for

franchise partners Store opening focus to net revenue in

preference to “doors” Continue to “land-bank” stores and convert

to pharmacies in the right location

Pharmacy Distribution


Pharmacy Distribution results

SUSTAINED PERFORMANCE IN TOUGHMARKET

Underlying revenue growth of 6.4% excluding PBS Reforms and Hepatitis C

Hep C sales decreased by $155m Total revenue of $2.9bn down 1.2% on

FY17 Despite competition pressure

maintained GP margin at 7.8% Combination of PBS changes and

exclusive direct distribution removed more than $10m gross profit

2754

29562920

FY16 FY17 FY18

Distribution Revenue $m

217232 228

FY16 FY17 FY18

Distribution GP $m


API brand development

INVESTMENT TO GROW API-OWNED BRANDS

API-owned independent brands with scope for development and growth

New leadership has defined market position and key opportunities for growth

Increased engagement with improved services, advisory committees and brand forums

Developed partnerships with service providers to accelerate complete retail offer early in FY19 and secure increased revenue streams

Investment in API Brands

2017New leadership and dedicated resources

2018Developed new market

position and tactics

2019Integrate key partnerships to

execute growth strategy


Pharmacy Distribution market

GOVERNMENT ENGAGEMENT

Engagement with Department of Health, Health Minister and Pharmacy Guild has been promising

PBS pricing reform impact on the sector continues price deflation

Exclusive direct distribution remains inconsistent with the Federal Government’s stated National Medicines Policy

CSO review expected in coming weeks

MARKET DEVELOPMENTS

Indicators point to stable performance and confidence in financial health of independent pharmacies

Dual strategy to develop API-owned retail offers and develop partnerships with key independent groups in growth

Potential for small bolt-on acquisitions to enhance market offering in adjacent services

Consumer Brands


Consumer Brands results

MOMENTUM WITH NEW BASELINE PERFORMANCE ESTABLISHED

Developing as a key portfolio in API future growth agenda EBIT up $2.1m on FY17 with similar growth expected in FY19 Sales growth primarily from Australian OTC health product

growth Broadening portfolio of high-quality low-cost products that

provides one of the strongest range offers in trans-Tasman market

Improved product supply and range through mix of locally manufactured and in-sourcing products

54

51

59

FY16 FY17 FY18

24 22

27

FY16 FY17 FY18

Revenue $m

GP $m


Consumer Brands development

KEY CHANGES FOR OUTLOOK

New management team in FY17 with right mix of technical and leadership skills

Improved understanding of market requirements to become the preferred supplier

Key partnerships with international providers of finished product and raw materials

Collaboration with local experts in Asian markets to explore growth from small base

Focussed on strengths in product development in toiletries plant to grow Health Basics, Only Good brands in NZ market

NEXT STEP IN GROWTH

Introduction of unique formulations in OTC health market in FY19

Broadening product range through agreements with reputable international partners

Expand contracts with Australian retailers for product supply

Develop the opportunity in Asian market

2018 FULL YEAR RESULTS PRESENTATION

Clearskincare


Clearskincare results Revenue* $m

CLINICS TRADING TO PLAN

First stage of acquisition completed on plan at end of July 2018 Trading in line with business plans prior to acquisition with EBITDA

margins at 28% Integration is bringing API capability to Clearskincare Strengthening leadership team to accelerate business scale Existing owners and store teams engaged with growth plans

2632

39

FY16 FY17 FY18

* Unaudited Clearskincare revenue sourced from vendor management accounts for a 12 month period ending 31 July on a 100% ownership basis

CUSTOMER DEMAND

Customer demand remains strong for breadth of services Opportunity to grow core treatments within existing network

capacity Significant number of under-serviced geographical markets remain

in Australia and NZ


Clinic growth outlook

PREMISE UNDERLYING THE ACQUISITION AND GROWTH

Management executing according to the initial premise of acquisition rationale

Strong position within competitive market and further upside once operational disciplines in place

IMPROVE UNDERLYINGBUSINESS PERFORMANCE

Leveraging loyalty database to increase exposure to new customers

Ongoing marketing program expanded for existing and new stores

Using supplier relationships to improve cost of doing business

OPERATIONAL DISCIPLINESTO IMPROVE ROLLOUT

Developing more consistency in store roll out and planning

Franchise business model developed for future network growth

API CAPABILITY CANACCELERATE GROWTH

Growth trajectory for services continues

Network expansion key to further value accretion

CONTINUED ROLL OUT OFNEW CLINICS

First tranche of stores to open in 2Q18 under company ownership

Scoped sites in Australia and NZ to develop core network growth plan


FY19 Outlook

CONFIDENCE IN GROWTH PORTFOLIO

Breadth of portfolio will deliver

growth in FY19

Retail trading in line with our FY19

expectation although

environment remains tough

Christmas trading remains pivotal

Balance sheet provides flexibility

for further capital management

strategies as required

Pharmacy Distribution to deliver stable

ROCE and cash generation

Evolve Priceline Pharmacy offer

to address customer changes

Build Consumer Brands portfolio

and earnings contribution

Expand Clearskincare network and

grow profitability

Leverage existing infrastructure and market expertise

Growth outlook

Financial strength and flexibility


Appendix 1 ASIC

ASIC Regulatory Guide 230 Disclosing non-IFRS financial information In December 2011 ASIC issued Regulatory Guide 230. To comply with this Guide, Australian Pharmaceutical Industries Limited is required to make a clear statement about the non-IFRS information included in the Profit announcement and Full Year presentation for the period ending 31 August 2018. In addition to statutory report amounts, the following non-IFRS measures are used by management and the directors as the primary measures of assessing financial performance of the Group and Individual Segments:

Underlying Earnings before interest tax (EBIT) Underlying Earnings before interest, tax, depreciation, amortisation (EBITDA) Free cash Comparable Store Growth Underlying Return on capital employed (ROCE) Underlying Return on Equity (ROE) Pharmacy Growth Underlying Pharmacy Revenue Growth Retail register sales Underlying NPAT Underlying Earnings per share

The directors consider that these performance measures are appropriate for the purpose of presenting meaningful information on the underlying drivers of the continuing business. Many of the measures used are common practice in the industry within which Australian Pharmaceutical Industries Limited operates. The Profit Announcement and Full Year presentation has not been audited or reviewed in accordance with Australian Auditing Standards.


Appendix 1 definitions

EBITDA - Result from operating activities before Depreciation and Amortisation

EBIT – Result from operating activities

Underlying EBIT – EBIT calculated as above without including one-off impairment or other one-off charges

Underlying NPAT – NPAT calculated with the same exceptions as underlying EBIT

Free Cash – Cash generated from operations less capital expenditure and acquisition costs. It does not include financing costs and tax paid

Comparable Store Growth - Sales performance compared to last period for stores trading in the retail network greater than one year

Net Debt or Net Cash – Borrowings less cash on hand

Underlying Return on Capital Employed (ROCE) – Underlying EBIT/Average Total Capital Employed

Underlying Return on equity (ROE) – Underlying NPAT/Average Equity

Retail network sales – all register sales in franchise and company stores in the Priceline/Priceline Pharmacy brand, including dispensary sales

Retail register sales – Sales recorded at the register of all network stores which excludes dispensary sales. Register sales made by franchisees do not form part of the result of the consolidated entity

Underlying Pharmacy Revenue growth – revenue calculated on sales before any PBS price changes that occur during the course of the year as directed by the Federal Department of Health


Appendix 3 2018 income statement

$M AUD FY17 FY18 Change

Revenue 4061.2 4026.3 -0.9%

Gross Profit 493.6 496.7 0.7%

Less Operating Costs net of other income 404.3 414.3 2.5%

EBIT 89.3 82.4 -7.7%

Less Financing Costs 12.9 12.4 -3.9%

Less Tax Expense 24.0 21.8 -9.2%

NPAT pre adjustment 52.4 48.2 -8.0%

Add back business acquisition & restructure costs 1.8 6.6 226.7%

Underlying NPAT 54.2 54.8 1.1%

Less non controlling interests 0.0 0.1

Underlying NPAT attributable to members 54.2 54.7 0.9%

2018 YEAR RESULTS PRESENTATIONTHURSDAY 18 OCTOBER 2018

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