The Australian Pharmaceuticals Industries Ltd (ASX: API) share price will be on watch this morning following the company's release of a trading update late Friday.
At the closing bell on Friday, which was prior to the announcement, the Australian Pharmaceuticals share price finished the day at $1.06, down 1.4%. A catalyst for the slight drop in the company's shares could have been the broad sell-off in the market.
In comparison, the All Ordinaries Index (ASX: XAO) ended Friday's session down 0.5% at 6,385 points.
Trading update
Friday evening, Australian Pharmaceuticals provided shareholders with an update in relation to its full-year results, and the impacts of COVID-19.
For the period ending 31 August, the company advised its underlying net profit after tax (NPAT) will be broadly in line with market expectations. Australian Pharmaceuticals is expecting to report an underlying NPAT in the range of $30 million to $31 million.
The company noted that during the second-half, significant improvements in key balance sheet metrics were made. These included net debt and cash conversion days.
In addition, Australian Pharmaceuticals also made the decision to downsize its Priceline store network (non-pharmacy stores). Management said the closure of 14 Priceline stores, among other restructuring costs, are an outcome of the long-term impacts of COVID-19.
After reviewing its balance sheet to determine its core assets in the post-pandemic world, the company made several adjustments. The Soul Pattinson Chemist brand has been written down to the carrying value of $37.5 million. The pre-tax reduction is a one-off, non-cash item.
With the permanent closure of 14 non-pharmacy Priceline stores, Australian Pharmaceuticals completed a detailed stock review and identified surplus inventory. The company will seek to use these items in a clearance pricing strategy, further reducing working capital costs. This will create an NPAT reduction of $5.5 million, and will be considered as a non-cash accounting adjustment.
The company will announce its full-year results to the market on 22 October.
What did the CEO say?
Australian Pharmaceuticals Industries CEO, Richard Vincent, spoke about the Victorian COVID-19 restrictions, and the anticipated demand when lockdown laws ease. He said:
We currently have 14 Clear Skincare clinics and 22 Priceline company-owned stores temporarily closed in Victoria. These will re-open when COVID-19 lockdown rules allow. Where we have re-opened Clear Skincare clinics after mandated shutdowns, pent-up demand has been significant, with comparative sales up 25% on pre COVID-19 levels, followed by a sustained uplift. Since the half year, a further eight clinics have been opened, with the pipeline for further openings remaining strong.
Furthermore, Mr Vincent touched on Priceline's performance. He added:
Priceline company stores and Priceline Pharmacies are also trading strongly compared to the same period last year in those States where COVID-19 restrictions have been lifted. Priceline's online sales reflect growth of more than 100%, albeit from a low but growing base.
About the API share price
The API share price has been on a bumpy road over the last five years. The company reached a multi-year high in April 2017, but has been on a downhill trend ever since. With a market capitalisation of $522 million, the Australian Pharmaceuticals share price could be considered as modest with a price-to-earnings (P/E) ratio of 10.
