Australian Pharmaceutical Industries Ltd (ASX: API) has reported its FY20 result, which included a heavy profit decline.
API’s difficult FY20 year
API reported that statutory earnings before interest and tax (EBIT – click here to learn what EBIT means) was $4.4 million and reported net profit after tax was actually a loss of $7.9 million.
The statutory result included the write down of the Soul Pattinson Chemist brand name of $37.5 million as well as restructuring costs totaling $12.3 million.
Total revenue was $4 billion, an increase of 0.2%. Online sales grew by 69% compared to FY19, with more than 100% online sales growth since March.
Its underlying EBIT fell 40.1% to $56.3 million and underlying net profit after tax (NPAT), excluding AASB 16, was $32.5 million, down 42.6% on the prior corresponding period (pcp) because of retail lockdowns and reduced foot traffic.
On the positive side of things, cash conversion days reduced to 16.8, an improvement of 4.2 days in FY19. The cost of doing business also improved by 0.70% (70 basis points) to 10.2%.
Priceline company-owned stores (non-pharmacy) and Clear Skincare clinics were closed for up to 17 weeks with a reopening in Victoria apparently imminent. Clear Skincare launched a new website that boosted online sales.
The company said there was a significant shift in consumer spending towards products and services that address physical and mental wellbeing, and also towards value-based products which fit well with API’s offering. That meant there was a shift away from high margin categories including colour cosmetics and cold & flu medicine.
API dividend
The API board decided to declare a final dividend of 2 cents per share, which represents a 33% payout ratio of underlying net profit. The company didn’t pay an interim dividend due to COVID-19 concerns about preserving cash.
Outlook
Management believe API is well positioned for 2021 and beyond, it’s looking to secure more efficiencies in the coming year.
Priceline Pharmacy can do well from the shift to value based beauty and health products and services. The company expects to expand its network in 2021 as more independent pharmacies look for benefits that its brand and systems deliver to the bottom line.
API says that it has all the capex it needs to fully exploit the growth opportunities for its various divisions.
The company couldn’t give guidance, but it said that all the fundamentals are in place to deliver strong forward momentum.
According to CommSec, it’s priced at 12 times the estimated earnings for the 2021 financial year, with a projected fully franked yield of 5.9% from an estimated annual dividend of 6.2 cents per share. If that happens, then API could deliver good total returns over the next 12 months.
But I’m not sure about its long term profit growth prospects. That’s why I would rather buy other ASX dividend shares like Brickworks Limited (ASX: BKW) which could also see a good recovery of earnings over the next 12 months.
