Adcock Ingram Holdings Limited (AIP) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to Adcock Ingram's year-end results presentation. [Operator Instructions] Please note that this event is being recorded. I'd now like to hand the conference over to the CEO, Mr. Andy Hall. Please go ahead, sir.

Thank you, Judith. Good morning, ladies and gentlemen. Welcome to our results webcast for the year ended 30 June 2023. We appreciate you taking time to show interest in the company. Although we're reporting a good set of results, yesterday was a very sad day for Adcock Ingram. When we established the OTC Sponsors of Brave during COVID, which effectively was a campaign established to recognize healthcare workers who are doing exceptional things during COVID, and post the pandemic, to recognize healthcare workers who do good work in their communities, Derek Watts came on as the ambassador of the Sponsors of Brave and he's been with us since that campaign was started. Unfortunately, you would have heard yesterday of the sad passing of Derek. He was an extremely good ambassador for our company and someone who epitomized bravery in all aspects of his life. At the company, we extend our condolences to his wife, Belinda, his children, Kirstin and Ty and all his family and loved ones. A great giant has fallen in the broadcasting industry and I think in South Africa in general. And we wish that Derek's brave soul will rest in peace. I'm going to take you through an overview of what we consider to be a solid financial and operational performance. Once again, I think, at Adcock Ingram, we've been fortunate on the resilience and defensive nature of our healthcare portfolio and our team's ability to adapt to what's happening in the market at the moment, particularly with the depressed consumer and a weak rand. According to IQVIA, the company that measures pharmaceutical market shares, Adcock Ingram has retained its top ranked position in the private pharmaceutical market in South Africa. And they also report again at the end of June that Adcock Ingram is the biggest provider to the state in South Africa. For the year under review, turnover improved by 5% to ZAR 9.1 billion. This was aided particularly by strong trading performances from our OTC and Prescription divisions. Mix contributed 4% to the increase and included the onboarding of the E45 skincare range, which we got from a Scandinavian company called Karo Pharma, and we also had a number of new product launches in the Prescription division. Organic volumes did decline by 3%, and this was mainly due to reduced demand for products used in the treatment of COVID-19. And as you will recall, we also had a much lower ARV tender award in the last adjudication. So those volumes also were down significantly. The organic volume declines, though, were mostly compensated for by improved demand in the OTC business, which really recovered nicely and the Prescription private sector portfolio. We got overall price realization out of our portfolio of 3%. The gross margin declined marginally from 35.1% to 34.9%. We think that's a pretty exceptional outcome if you take into account the weaker exchange rate, Dorette will give you the exact figures later on, the additional operating costs due to electricity and water disruptions, significant cost push from suppliers over the last year as well as wage increases. So effectively holding that margin at 35% we thought was a very good outcome from our teams. Operating expenses were well controlled. They increased by just 3%, and that then resulted in a 6% improvement in trading profit to ZAR 1.18 billion. With the benefit of a lower tax rate, some good joint venture income and the effect of a share repurchase that we did during the year, that all translated into double-digit growth in headline earnings per share. And we pushed the total dividend for the year up by 17%. The HEPS was up 12%. Just moving on to some regulatory issues. As you know, the quantum of the annual single exit price adjustment that's awarded by Department of Health determines, to a large extent, the pressure on our margins in our regulated portfolio. We did receive a sub-inflation single exit price adjustment in January 2023, that was 3.28%. But since then, we've had a significant amount of interaction between the industry and the Department of Health that eventually resulted in a top-up adjustment being granted by the minister, there top-up being 1.73%. And we're busy with the administrative work around getting that into the portfolio, probably will become effective at the end of September. We welcome, of course, that top-up adjustment. But if we look at the combined annual adjustment and the top-up, it is still below our current input inflation and also below the consumer price index for the last 12 months. So we can still expect quite a bit of margin pressure on the price regulated basket of products going forward. Looking at the highlights of the divisions. Our Consumer division, which competes in healthcare, personal care and home care segments of the market, mainly in analgesia, energy and dermatology, smaller portfolios in sun care, vitamins, minerals and supplements, shoe care and home care. The business is now home to 4 brands with revenue in excess of ZAR 200 million per annum and reported an increase in turnover of 6% during the year. The standout performance was from one of our flagship brands called Bioplus, which has shown growth in excess of 20% and the widely used Epi-max brand grew in double digits, very close to 20%. The division did experience significant cost push from its suppliers, a large proportion of its portfolio is imported in dollar terms. And with the adverse impact of the weak rand, the 6% increase in turnover yielded trading profit of just 2%. As previously reported, this division also commenced with the selling, marketing and distribution of the well-known E45 skin treatment range in January 2023. And in the 6 months, we got revenue of just under ZAR 50 million out of that brand. There were also line extensions within the existing portfolio that added another ZAR 50 million in revenue, mainly in Epi-max where we put some body washes, some soap, baby wipes and lip balm into the market. We've broadened the GynaGuard and Cepacol offerings. And then Plush our home care business also launched some range extensions during the year. So we've seen nice innovation from that business over the last year just to count to those volume declines. Our OTC division, which, as you all know, is the market leader in pain, cough, cold and flu, digestive and allergy therapeutic categories through the pharmacy channel in South Africa, has a market share of about 19% in Schedule 1 and Schedule 2 medicines in pharmacy. We now have 3 brands in that business producing revenue in excess of ZAR 200 million per annum. And we've grown another 2 brands this year to revenue in excess of ZAR 100 million for the year. So a nice core portfolio in this division. We saw turnover improve there by 11%. Products like Allergex, which is the biggest brand in that division; Alcophyllex; Adco-Mayogel; and Scopex all posted double-digit ex-factory growth. The gross margin was softer than the prior year, again, mainly due to the weak currency and increases in production costs. But trading profit, not far off the revenue growth increased by an impressive 10% to ZAR 349 million. Our Prescription division, which is the division that markets our branded and generic medicines that require scripts from doctors, also does some specialized skin care products and is the biggest ophthalmology company in the country, also promotes brands on behalf of multinational partners. They grew turnover by 2%, which I know will not look particularly impressive, but there was a solid performance from all the segments, except ARVs, where we had a big decline in the tender volumes. The performance of this business has been supported by a normalization in elective surgeries and also full health care practitioner rooms in visits post COVID-19. And they had a good year in terms of product launches. In their branded prescription portfolio, 8 of the 10 top products are in growth and in the generic medicine portfolio, 7 of the top 10 products are growing and they've retained their fourth place ranking in the prescription market according to IQVIA. Launched 5 new products during the year, including a product for breakthrough cancer pain on behalf of Teva, one of our partners, and VIMOVO, a combination of a nonsteroidal anti-inflammatory and proton pump inhibitor from Grünenthal, also one of our multinational partners. That VIMOVO brand, in fact, did more than ZAR 40 million since launch. So good product for us. On the back of the revenue increases, some nice gross margin expansion because of less ARVs in the mix. This division grew trading profit by an exceptional 16% during the year. Our Hospital division is the leading manufacturer and supplier of critical care and hospital products in South Africa. Turnover here increased by just 2% as there was lower demand for products used in the treatment of COVID-19. The business and a number of its key suppliers also experienced production and supply chain challenges during the year. And with increased production costs, this led to trading profit decline of 7% in this part of the business. The South African large volume parenteral tender, where we currently have a share of about 60%, expires at the end of September 2023 and we expect adjudication of that tender imminently. So we'll know what things look like there going forward. Looking at our manufacturing and distribution facilities at Clayville. This is our plant that does high-volume oral liquids, effervescence and powders and also eye drops. They had some operational issues during the year, including power supply challenges, some civil action in the broader Tembisa area where it's located. Nonetheless, the oral liquids facility operated in excess of 50% of capacity during the year and the effervescence facility above 70%. And utilization of that ophthalmic facility is steadily increasing. We have, at Wadeville, a liquids facility, which has shown very good improvement in throughput during the year, we pulled in some third-party manufacturing into that business. Contract manufacturing, it was done on our products. We're now doing internally. So manufacturing unit output in that part of the facility doubled year-on-year. The oral solid dosage part of that facility has now been reconfigured for shorter runs, following the low allocation in the ARV tender and capacity utilization in that part of the factory was equivalent to the previous financial year despite the significantly reduced ARV tender volumes. At Ayrton, where we do our intravenous drips and renal fluids. Again, some production problems there mainly around complications with electricity supply interruptions, which also have a knock-on effect onto water supply, resulted in some fairly hefty product -- in-process product write-offs and a lot of diesel usage at that factory, but still ran at capacities in excess of 90% during the year. Our distribution business operates in partnership with RTT who do all our outbound logistics for us. We have a contract with them that expires at the end of February 2024. We have executed a new contract with RTT just subsequent to the year-end and that will start running from the first of March 2024 for a period of 40 months. Our focus in distribution remained service levels, which were good during the year. We had a 98.5% on-time delivery, regulatory compliance, and, of course, cost containment. The biggest issue there in terms of cost being what happens with the diesel price. The 3 major risks in our warehousing and logistics operations are that diesel plus price, reliable power supply and any civil unrest or industrial action, which may affect the transport industry, which you have seen quite commonly over the last year. Moving on to our ESG journey. In our efforts to manage the effects of unreliable electricity supply and move towards renewable energy, we now have solar installed at 5 of our sites, including our Clayville manufacturing site and all of our distribution centers. Our Clayville installation that we did this year accounts -- can supply up to 30% of our daytime energy usage at that factory. So solar energy is starting to grow in our business. It made up 5% of our electricity supply over the last year. And if we include the electricity supplied by our generators, we generated about 11% of our electricity during the year. We've put real-time water and electricity meters in at all of our sites. Our other environmental initiatives are focused on water harvesting. We've installed water harvesting at most of our sites now. And we are particularly focused on our waste management and reducing the waste that we send to landfill. That's improved significantly over the last year. We've also got a pilot project running. We've got a couple of electric trucks that go and collect our pallets from our customers. And we're extending that pilot project as we speak. Our transformation remains a key focus in the group. We are still a Level 2 B-BBEE rating as of the end of November 2022. We will have a new accreditation done at the end of November 2023, effectively based on where we ended at June, but we don't expect any significant deterioration in our rating. We've also expanded our enterprise and supply development program during the year and continued to invest in corporate social responsibility projects. These CSR projects included a new fully equipped computer laboratory at a Feed My Lamb school here in Eldorado Park near Soweta. We did that with the SAME foundation. And we are still continuing to financially support the SMILE foundation, which does magnificent work and operations on children born with facial abnormalities. That concludes my overview of the company. Dorette will give you a detailed commentary on the financials, and then we will be happy to take questions after that.

Thank you, Andy, and good morning, ladies and gentlemen. Before I get into the details of the financial results, I would just like to mention that the annual financial statements are available on our website as well as on the SENS platform. We have also provided summary financials on our website and this investor presentation will be made available a bit later today. I will now move to the financial results, which we regard as a healthy financial performance for the year. And I'll start with the income statement and just give a bit more color to certain figures Andy already mentioned. Revenue for the year under review increased by 4.9% to ZAR 9.1 billion. Mix contributed 4.2% and includes the onboarding of E45 from Karo Pharma as well as the number of the new product launches in Prescription division and some line extensions in the Consumer division. Overall price realization of 3.4% was achieved. The organic volumes declined by 2.7% due to the lower demand for products used in the treatment of COVID-19 as well as the lower ARV tender sales. Much of this decline was compensated for by the strong demand in the OTC and other Prescription portfolios. Gross profit of almost ZAR 3.2 billion ended 4.2% ahead of the prior year. Some slight deleveraging from the sales increase that we've seen. The gross margin declined marginally, as Andy alluded, 9.2% in forward exchange rates for products acquired in foreign currency. The significant cost push from both local and foreign suppliers, increased production costs due to the interruptions in water and electricity supply and wage increases of 7%. Every attempt was made to mitigate the margin compression through selling price increases in the nonregulated portfolio, increased throughput and efficiencies in the factories and concentrating the sales mix on products with higher margins. So in the prevailing circumstances, we are very satisfied with the margin that we achieved in the business. In a closer look at the impact of the exchange rate, we bought the following material foreign currencies during the year: USD 72 million at an average rate of ZAR 17.19, which represents a 12.9% weakening relative to the prior year, which was at ZAR 15.22; and EUR 46 million at an average rate of ZAR 18.19, which represents a 3.9% weakening compared to the previous year, which was at ZAR 17.51. With approximately 60% of FECs in U.S. dollars and 40% in euro, the weighted cost of our basket of all currencies weighted on actual settlements in the period was then 9.2% higher than last year. At 30 June, the group was carrying the following open FEC: USD 16.2 million at ZAR 18.64, which is a further weakening of 8.4% over the ZAR 17.19 we achieved in the 2023 financial year. We also carried EUR 25.8 million at ZAR 20.30, which is an 11.6% weakening over the ZAR 18.19 achieved in the 2023 financial year. Looking at operating expenses of just over ZAR 2 billion, have been well controlled and increased only by 3.1%, below inflationary levels. And the primary driver was increased distribution, regulatory and IT expenses. Trading profit of just short of ZAR 1.2 billion ended 6.1% higher than last year. The non-trading expenses of ZAR 45 million consist of share-based expenses of ZAR 44 million and a fair value adjustment on a long-term receivable of ZAR 1 million, leaving operating income of ZAR 1.14 billion, 7.9% above the prior year. Net finance costs were ZAR 52 million during the year, including IFRS 16 finance costs of ZAR 50 million. This was ZAR 11 million higher than the prior year, following the increase in the average borrowing cost of 7.4% last year to 10.2% in the current year. Equity accounted earnings from joint ventures for the year improved an impressive 36.9% to just short of ZAR 120 million. National Renal Care, our JV with Netcare showed growth of 27%. And our joint venture in India with Medreich, Meiji showed growth of 42.3%. Just as a note, India comprise about 2/3 of those earnings. The effective tax rate adjusted for equity-accounted earnings is 28.3% with nondeductible expenditure causing the increase over the statutory rate. We no longer have any minority interest as both of the companies with minorities, which were Novartis Ophthalmics and Menarini have been dissolved. Headline earnings for the year amounted to almost ZAR 900 million compared to the prior year of ZAR 812 million, an improvement of 10.7%. The group increased its treasury shares held by a subsidiary by an additional 9.2 million shares during the year at an average cost of ZAR 51.16 and this supported the increase in headline earnings per share to ZAR 561.3, 11.8% above the previous year. If we turn to the balance sheet and starting with noncurrent assets, within the noncurrent assets, depreciation charges amounted to ZAR 189 million, which was ZAR 5 million ahead of the prior year and include depreciation charges of ZAR 44 million on the separately disclosed right-of-use assets. Intangible assets, including goodwill, have a carrying value of ZAR 1.2 billion and comprised of Consumer, OTC and generic trademarks and license agreements. Amortization in the year was similar to 2022 and was ZAR 9.4 million. And looking at the current assets, we had inventory of ZAR 2.4 billion, which is stated at the lower of cost and net realizable value. Our days in inventories increased from last year's 133 days at June to 141 days at the end of this past June. The increase from last year include supplier price increases and the exchange rate impact. We had extended lead times on certain raw materials, so bought up some safety stock. We had new product launches as well as the onboarding of E45. And then there were items that were previously out of stock back into stock. Our trade accounts receivables of ZAR 1.8 billion are shown net of provisions of ZAR 58 million. And despite being ZAR 217 million higher than last year, which is purely a factor of the higher sales in the -- towards the last quarter of the year, days in receivables are now 55 days, an improvement from the 58 days we reported last year. Government debt makes up 12% of this trade receivables figure. And of this, 64% of the amount is due within 60 days or less. The net cash and cash equivalents amounted to ZAR 82 million as we do disclose a cash balance of about ZAR 92 million an average of balance of ZAR 10 million. Looking at the bottom part of the balance sheet. The group has shareholders' funds of ZAR 5.4 billion at June 2023. The ZAR 87 million movement in the nondistributable reserves since June last year relates to changes in the foreign currency translation reserve of ZAR 45 million relating to the Indian JV conversion. The share-based payment reserve increased by ZAR 35 million and the cash flow hedge accounting reserve by ZAR 5 million. And then there was some smallish year-end fair value revaluation on the post-retirement medical aid and an investment. So turning to the segmental information and starting with the Consumer division. Consumer turnover of ZAR 1.66 billion ended 5.9% above the prior year. The increase in their turnover was supported by an average selling price increase of 6.9% and a mix benefit of 5% due to product extensions in Epi-max, Cepacol, GynaGuard and Plush and the onboarding of the E45 skincare product range. Organic volumes declined by 6% due to the lower demand for Panado, which benefited from COVID-19 vaccination campaign in the prior year. The lower volumes are also an indication of pressure on consumers' wallets. The gross margin ended well below that of the prior year as the full impact of the significant cost pushes from suppliers as well as the weaker exchange rate, this division was mainly impacted by the move in the U.S. dollar, could not be fully compensated for by the selling price increases. Operating expenses were very well controlled and ended below the prior year due to savings in discretionary expenses and curtailed marketing expenditure in an attempt to compensate for the pressure on the gross margin. As a result, trading profit ended on ZAR 357 million, 1.6% ahead of the prior year, a performance, which we regard as commendable. Moving to the OTC business with turnover of just ZAR 2.3 billion ended a very healthy 10.8% above the prior year due to strong sales performances from the pain, cough and cold and allergy portfolios in the first half and the last quarter of the financial year. Volumes improved by 5.1% with major brands like Allergex, Alcophyllex, Adco-Mayogel and Scopex continuing to show good growth. Average price realization in this business was excellent at 5.7%. The gross margin ended below that of the prior year and was adversely impacted by the weakening of the rand as well as increased API costs and increased production costs during water and electricity disruptions. Operating expenditure ended pretty much flat compared to last year and they also curtailed some marketing expenditure following the pressure on the gross margin. As a result, trading profit of almost ZAR 350 million ended 9.6% higher than the prior year, and we think that's a very good achievement under the circumstances. In looking at Prescription with sales of just under ZAR 3.3 billion ended 2.1% ahead of the prior year. Mix contributed 8.6% with several new product launches, as Andy mentioned earlier. Organic volumes declined by 7.8% attributed to the loss of the ARV tenders. And the average price increase at this division realized was only 1.2%. The gross margin improved since last year, and it was impacted by this beneficial sales mix with a lower proportion of low-margin ARV tender sales. As a result, trading profit of ZAR 320 million ended at a very impressive 15.8% ahead of the prior year. Lastly, our Hospital division, sales of ZAR 1.9 billion ended 2.4% above the prior year as this division was impacted by local and international supply and production challenges and the reduced demand for COVID-19-related products. A price increase of 1.9% was realized with volumes and mix contributing to the balance of the increase. The gross margin ended below the prior year with the adverse impact from the exchange rate. So this division is mainly impacted by the euro rate, which was a little bit better than the depreciation of the dollar rate. And they also have seen higher production costs, but those were partly compensated for by the beneficial sales mix of higher private market sales. As a result, trading profit declined by 7.4% to ZAR 152 million. Thank you, ladies and gentlemen. That concludes my part of the presentation. And I will hand back to Judith, the operator, and we welcome any questions.

[Operator Instructions] At this stage, we have no questions on the telephone lines. I will now hand over to Dorette Neethling for questions on the webcast.

Thank you, Judith. I'll start with a question from Grant Morris from Clucasgray. And Grant, if you don't mind, I'm going to maybe combine it with a question from James Corkin on Steyn Capital Management. So there are actually 2 questions, Andy. The first one with regard to the top-up single exit price adjustment of 1.73%. So Grant is asking what brought this about? What is the industry lobbying about? And what is the approach going forward given that the SEP calculation still seems to be far off from the actual formula calculation. So maybe if you deal with that, I'll give you the share buyback question after that.

Thanks, Dorette. Look, there's no question that 3.28% increase we got at the beginning of the calendar year was significantly below the input cost inflation for the industry. And if you recall at the time, effectively that's when the rand has sort of fallen out of bed. And there was going to be -- and was significant pressure on margins, not only at Adcock Ingram, but you can assume in any part of the pharmaceutical industry that imports product, which is everybody. Through our Pharmaceutical Task Group, which is an industry association, which represents 4 of the smaller industry associations in the country, we are part of an association called PHARMISA, which represents local manufacturers, with very extensive interactions with the pricing committee at the Department of Health, the Director General of the Department of Health as well as the Minister, and eventually managed to persuade those forums that some sort of adjustment on top of the 3.28% was necessary. And this is not only a margin thing from year to year. This is about making sure that we protect the local pharmaceutical manufacturing industry and have a sustainable industry in South Africa. So I think the minister was gracious. He heard the arguments and I think acted in the best interests of the pharmaceutical -- local pharmaceutical manufacturing sector in terms of sustainability. So we felt he did the right thing. Going forward, in fact, PTG will be making its submission to the pricing committee before the end of this month because we are allowed to make comments once a year before the annual adjustment is made. So for the 2024 adjustment, we will be asking the pricing committee again to make reference to the formula that's in the regulations. That formula says 70% CPI; 15% rand-dollar and 15% rand-euro. So we will make reference to that formula. We will also make reference to CPI, which is running at about 7%. If you look at the average time period for the last year. And then effectively, it's in the hands of the pricing committee relative to whatever recommendation they might give to the minister. But at the end of the day, the full discretion on the SEP price increase lies with the minister.

Thank you, Andy. Then the question with regards to the share buyback is, firstly, confirm that the status of the current approval is complete, which I can confirm. Will a further program be considered? And then linking on to that, James asks, if it's our intention to cancel the almost 17 million treasury shares, we have bought and continue buying shares. And would we use debt to do that.

Look, on the share buyback, we have completed the mandate that we got from shareholders in November 2022. So there's nothing that we can do in the market at the moment. We will be going at the AGM again and asking for a buyback authority from shareholders. And I can tell you that our controlling shareholder is supportive of buybacks and our significant minority shareholders in general are supportive of buybacks, although some of them do raise liquidity concerns, which obviously we try and take into account in terms of the size of the mandate that we ask for. So we will be back in the market after November depending obviously on the price at which the share is trading. At the moment, as you see, we have no debt on the balance sheet, but we have about ZAR 1.5 billion worth of approved facilities at the moment. So if the share price relative to the borrowing costs makes sense, then there's no reason why you wouldn't see debt on the balance sheet. But we're not specifically raising funds to buy back shares.

There is a question from Zintle Twala from Steyn Capital, saying, could you please explain why the receivables grew by 13%? There's a 5% growth in sales. Zintle, I'll deal with that. So our receivables are actually a factor of the sales in the last 2 months. As I mentioned, our debt-to-sales did decrease, so which is an indication that we had very robust sales towards the start of the winter season. And I think we all knew in the market that we have seen a bit of an earlier winter. In the prior year, the winter was a bit lighter and I think we only saw more robust sales on the winter products starting in July...

June...

June -- and then July, whilst this year, it was more starting April, May and June. So it's really just a seasonal impact. Then Nelli Brand-Jonker. Nelli asks, are the volumes of Panado sold less than before the pandemic?

Nelli, so Panado volumes are effectively at the level that they were pre-pandemic. So we had a big spike on Panado sales in the previous fiscal year when a lot of health care practitioners were recommending Panado when people got their vaccinations to help them with the side effects. So effectively, we're back to where we were. We haven't gone backwards.

Then there's a question from [ 36ONE ] Asset Management. Operating expenses have been controlled exceptionally well. Maybe talk a little about how you managed to achieve this in the context of so many inflationary pressures.

Yes. Look, 3% OpEx control, we think, is good. So the major push in OpEx this year came on the distribution costs because of the diesel price increase; regulatory costs, which continue to increase in the industry. So that's something that we all have to learn to live with. And then we've done quite a bit of IT work this last year, including on cybersecurity and the like. Where we've sort of held back spend is on what we call the discretionary spend of in-store promotions, those types of things, that line selling expenses, and then now above-the-line marketing spend, we've also managed to hold back. But going forward, I think we need to be investing again in our above-the-line marketing campaigns. So I think it would be difficult to show you a sub-inflation increase in OpEx in the year going forward.

So Lianda from Nedbank. I assume that also answers your question on what are the sustainable marketing expenditure levels given that we have cut this cost. So I assume that is answered there as well. Then Patsy from All Weather Capital. Andy, can you please unpack the increase in replacement CapEx? So I can maybe get to that, Patsy. In 2 of -- or not in 2, in certain of our plants, we are obliged to do some regulatory upgrades that are necessary for SAHPRA accreditation. So some of those products, especially at the critical care plant, has started in the current year. And we've already committed to that spend going forward. We've also seen in our distribution facilities that we have to do some regulatory improvements with regards to our HVAC system across our bigger facilities. So both of those actually helped with -- both of those contributed to the increase in the replacement CapEx. Let me just see. [ Nick DeFoe from Centor ]. Nick asked, if we can discuss the India JV in a bit more detail as it's becoming a more meaningful number on the bottom line.

Yes, Nick, we've had a joint venture in India. It's effectively just a contract manufacturing company. We've had that joint venture for around about 15 years now. So that business does most of our tablet and capsule manufacture aside from tablets and capsules that we receive from our multinational partners. And then it also does contract manufacturing on behalf of some companies in Europe, some other companies here and other companies in Australia. The main reason for producing in India is the cost of capital there is lower, capital equipment is lower and the cost of skilled labor is lower. So there tends to be a financial reason for manufacturing over there. We've recently put up another factory there within that JV. So outside of the tablets and capsules, this facility will be doing effervescence and some additional other oral solid dosage forms. It's just received Indian regulatory approval. It's just had SAHPRA inspection. So we are waiting for the SAHPRA report to see if that facility gets issued with a license or not. So that's effectively how that operation runs. We have a 49.9% share. We don't have any managerial control in the business. That's all done by our Indian partner.

[ Zane Warren from Bartalier]. If we can comment on any significant changes in the shareholding registered, particularly if any changes in the offshore share holding. So [ Warren ] what I can tell you and if Andy, can maybe add to that is like, in the previous financial year, 6% of our shares were held outside of South Africa. And in the past year, it's 5.8%. So I don't know if there's a movement within the shareholders, but there isn't a big uptick from the countries outside of South Africa. Then we have a question from [ Sesya Botma from Oyster Catcher Investments ], asking what percentage of our portfolio now consists of SEP regulated products.

So in this current state of financial results, it's 57% SEP based and obviously, 43% non-SEP.

And then we have Geena Kopping from Allan & Grey they want a split of the ACP products or -- by segment. I can maybe help with that as well. So Geena, if we look at the [ assorted ] Consumer, they are predominantly non-ACP and have a very small portfolio of ACP. Only the stronger Panado or bigger formulations of Panado, stronger formulations. Then in OTC about 2/3 of ACP and 1/3 non-ACP. In the Prescription division, it's about 80% ACP and 20% non-ACP. Just a reminder there, that division has all the instruments and the ophthalmology as well as dermatology products in it. And the Hospital business is very much 50-50. It seems like there are no further questions. Let me just make sure. Yes, that is all from my side. There seems to be -- Judith, one that came back on the Chorus Call from Charles Boles from Titanium Capital. We are happy to take that now.

Charles Boles of Titanium Capital.

Andy, Dorette, good set of results. I had a couple of questions, if I could just shoot through them quickly. You say that ARVs is about 8% of Prescription turnover. If you were to lose that, how big a factor would that be in terms of sort of factory under recoveries and sustainability, how big of an impact would that be?

Yes, Charles, it's not a big impact anymore because we've reconfigured that Wadeville facility to do other oral solid dosage forms. We do some Allergex space, some Panado and we're bringing back some Myprodol, some Genpayne, some Adco-Dol production into that factory. So on the tablets and capsules is not a big problem for us. And the triple combination that we sell into the private sector, we actually get from an Indian partner. So we import that in any event. We do some liquids on the tender, but we brought in a large amount of other liquids into the factory now from a contract manufacturer. So again, I don't think this will have a significant impact on the factory. But we'll still keep servicing the private sector. It's really the government sector where we lost a huge chunk of business.

Got you. On Bioplus, so a couple of question. I would have thought with the proliferation of energy drinks, which would seem to be a substitute or an alternative to Bioplus that might have pressured Bioplus and yet it's still growing quite strongly. Maybe just some understanding of that.

Yes. You should come and get a job here in marketing. My people keep telling me our Bioplus drinks are going to do so well in the market. So look, the drinks is a very small component of the Bioplus brand. So we don't go up against the real big guys like Red Bull and Monster and those guys. So it's very much just a convenience factor of where Bioplus drinks can be available, they are sold. But that is a very small part of the almost ZAR 300 million of Bioplus. The part of Bioplus that's really growing are these what we would call convenient formulations. If you go into a forecourt store or a point of sale, you often see these Bioplus sachets, which people can take on the run. And that's effectively just what the Bioplus therapy used to find in bottles, now in a much more convenient form. So those are the ones that are the formulation that's causing the growth in that brand.

I'm sort a little surprised that somebody goes into a forecourt where they might have bought Bioplus before, they now could buy an energy drink, makers of the same caffeine or kind of energy kick. I'm interested that it's continued to grow.

Yes. Look, Bioplus has huge brand equity, as you know, particularly amongst youngsters, when they study, varsity students when they study. So the brand equity kind of remains. And don't forget, if you're selling a sachet of Bioplus, there's a huge price differential between buying a kind of expensive drink and buying a Bioplus sachet. So that also, I think, helps. And then during COVID-19, we didn't sell a lot of Bioplus because effectively, people weren't out and about. Whereas now people are out and about, they come home from a party, whatever it might be, and Bioplus is one of the go-tos.

That's useful. Codeine, is it -- any regulatory still on the radar? Or has that gone quieter? Any issues there that you think about?

Yes. There are still issues to think about this. As you know, SAHPRA is being looking at the scheduling status of codeine for a few years now, the focus turned in the last year towards the use of codeine in patients under the age of 12. So the industry had to submit the information to SAHPRA to support the use of codeine in children under the age of 12. There's not a lot of good clinical data to support the use of codeine in children. So SAHPRA has now asked the industry to provide periodic safety updates in case anything goes wrong with the administering codeine to children. And the industry is now doing that. But that's been the only part of the codeine focus over the last year.

Andy, would I be reading it correctly that it's still leaning towards ensuring responsible dispensing rather than banning? Is that a fair assessment?

Yes. Look, one never knows what a regulator is going to do, right, because they have to act independently. But certainly, from an industry perspective, we believe that if there is a responsible sale of codeine, responsible recording of repurchases of codeine. Then it will be -- then it can be properly controlled and be given for people who need it for the right conditions. So we will continue to support that. We, at Adcock Ingram, we restrict our sales now to only certain big corporate customers because we know they've got the right controls in place to sell the product. I'm talking particularly of the cough syrup. So -- and we are also still working on what's called the Codeine Care Initiative, where we effectively are educating and trying to help pharmacists into making sure that there is a responsible sale of these products.

Got you. Sorry, just 2 other questions, if I may. The first one is your Indian joint venture, you answered that, that's useful. It seems it's got a carrying value of [ ZAR 471 million ]. So it is quite meaningful. Is that kind of locked in, in the future? In other words, they are a contract manufacturer. It's a good partnership. You would never have a reason to exit or realize that? Or does that lock you into that manufacturer? I mean, could you ever exit that investment if you had to? Is that not a consideration?

Charles, we can exit it, although I think it would be unlikely. So they do a good job on quality. They do a good job on price. And they do a good job on service. So I think we'd be unlikely to liquidate that investment. But certainly, we could. The benefit of being a shareholder, of course, is as a customer of that factory, we get treated well. So I think it would be unlikely we consider exiting that unless supply chain issues go completely awry in India. In other words that -- getting our hands on certain products with certain active ingredients in India becomes a problem. But we try and mitigate that by making sure that we can at least manufacture the products here that we manufacture in India, albeit on much lower scale.

Got you. And just linked to that, you had an unusual shareholder that popped up on your register, NATCO, which seems to be controlled by a business out of India. Is there any link to your joint venture partner there? Or is it a completely separate party?

NATCO is an Indian pharmaceutical company, I think they have operations outside of India as well, but they have no relationship with our contract manufacturer, and we have no commercial relationship with them.

Got you. And my last question, if I may. You alluded to products that are growing. And one of the questions or concerns, I suppose, has been with the Adcock portfolio. Is it a lot of the -- you've got, if I can use, older molecule type formulations that might be dated or become more competitive. How do you -- monitor what portion of your portfolio is in growth? And what is at risk of becoming more commoditized, if that makes sense?

Yes. No, it does make sense. So the data that we get from IQVIA, which is the company that measures the pharmaceutical industry and another company called [indiscernible], which does the FMCG sector. That goes all the way down to product level and, in fact, down to regional levels. So you can see in every part of the country, how well you're doing. What one tends to find is that in the generic space, particularly prescription generics, there, these brands do get commoditized over time. And in fact, we discontinued 3 generic products in the last year because we simply can't make money out of them, given the proliferation of people in the market selling those products. But if you stick to big brands -- and I don't mean big, I just mean in terms of equity, not necessarily in terms of size in South Africa, those products are difficult to commoditize. So if you think of a brand like Panado, there are dozens of Panado generics out on the market, including good brands that other companies sell. But yet the brand equity is there because there's a trust in the brand. So the real issue is to get the brand reinforced in the minds of the health care practitioner and the consumer and then you can still get your price and get your brand equity.

This is going to sound like a completely nonpharmaceutical comment. But when you look at a product like Panado and you think paracetamol is paracetamol kind of more or less I mean simplistic, but it's interesting that a fairly standard product is that much brand equity, but it seems to.

Yes. It is interesting, but it's not only a factor of the brand. So Panado is effectively Panadol in the U.K. So it's effectively the same formulation. But if you go and buy half a dozen paracetamol products off the shelf in any pharmacy or ShopRite or wherever you might go and open it, you'll see that these things are pressed differently. So in other words, in the tableting machine, some of them start giving off a powder, so they don't stay together as well as they should. Some of them are more difficult to swallow because our product is polished. So there is a reason why people would go to a brand like Panado. It looks better, it swallows better and it's trusted. It works.

We have no further questions from the telephone lines.

Judith, thank you. I think we may be done, Dore?

There is one more question, sorry, Andy, just before lunchtime. So actually it's Richard, from Protea Capital Management. So your question was answered on the NATCO investment that you also raised. And then we had the last question from Geena from Allan & Gray. So 2 questions. Are there any acquisitions planned for the next year? And do we have any further thoughts on the development of NHI and the impact on the company? And with that, we will conclude. Thanks, Judith.

Okay. Thanks, Geena. Look, in terms of acquisitions, we are still looking where we can to bolster our nonprice regulated portfolio. So effectively trying to put products into our Consumer division. Mainly, we are looking at personal care and home care at the moment. There's nothing on the table at the moment, but certainly, we will continue to search in the private company sector of the market over the next year. And then on NHI, we are obviously involved with discussions with the rest of the private sector in terms of making representation to government on how NHI can be rolled out. As a company, Adcock Ingram remains in favor of universal health care coverage. We believe that everyone has a right to health care. We don't believe the impact on pharmaceuticals is as material as it may be on the other sectors of the private market. So we are -- I don't want to say going with the flow, but we are giving input and watching where we might end up. But we do believe that there are significant questions to be asked around how NHI will be funded, whether the public sector infrastructure can cope with NHI and also on the ability of people to access insurance outside of NHI. And those are the sorts of issues we are making representation to government on in collaboration with all private sector players. Judith, thank you. We appreciate everyone dialing in. We wish everyone a good day, and thanks also for your very able assistance.

Thank you very much, sir. Ladies and gentlemen, that concludes today's event. Thank you for joining us, and you may now disconnect your lines.