API’s $131m impairment
April 22, 2014
Australian Pharmaceutical
Industries Ltd (API) announced it
would incur an asset impairment
charge of $131m (PD breaking
news 17 Apr).
Following an extended trading
halt on shares, the company said
the non-cash charge was comprised
of, in part, $15m for New Zealand
manufacturing, due to the strong
Kiwi dollar.
The unit would make a first
half loss of about $750,000,
compounded by declines in
contract volumes due to a large
amount of stock carried over by the
industry as a result of the relatively
mild cold and flu season last year,
API said.
The company told PD it would
continue to review the role of
the unit, given that it had “real
potential” to manufacture private
label products for the Australian
business.
Other factors contributing to the
overall charge included pharmacy
customers with long term debts.
The company said as a matter
of policy it never commented
on the number or ownership of
pharmacies involved.
“Finalisation of documentation
will occur when these customers
satisfactorily renew their financing
arrangements with their nominated
bank.
“We expect this to be concluded
in the second half of the year,
which then provides API with
flexibility to review the assets again
at the full year, which may result in
a write back.”
Another contributing factor was
$20m for Clifford Hallam Healthcare
(CH2), due to “continued
underperformance.”
API said CH2 was an investment
and not core to its strategy.
“We will continue to work with
management and the other
major shareholders to maximise
performance with a view to a sale
at an appropriate time.”
A charge of $44m for retail was a
result of impairment modelling on
store network growth rates, driven
by the Board’s decision to take a
more conservative approach to the
size of the network over the five
year horizon, API said.
“In combination with the
relatively high discount rate of
17.5% the regrettable outcome
is formulaic and reflects the
appropriate accounting standards.
“As indicated in our
announcement, the trading
performance for Priceline and
Priceline Pharmacy has been very
strong in the first six months with
market leading like for like growth
of 5.3% and a further growth of 10
stores since the full year.”
API said its Sister Club had a
database of 4.6m registered
members who had joined either
in-store or online.
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