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Why the Australian Pharmaceuticals (ASX:API) share price is lower today

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The Australian Pharmaceuticals Industries Ltd (ASX: API) share price is falling today following the release of its full-year results.

In early morning trade, shares in the Australian health and beauty company are down 2.79% at $1.04. However, this could partly be attributed to a broader market-sell off mimicking Wall Street’s lead overnight.

Let’s take a look at what API reported for the financial year.

FY20 review

For the full-year ending September 30, API delivered a mixed FY20 result. The company advised it has been focused on managing the COVID-19 impact, which closed half of its business.

Underlying earnings before interest and tax (EBIT) dropped 40.1% to $56.3 million over the prior corresponding period (pcp). In turn, this affected net profit after tax (NPAT), which fell 42.6% to $32.5 million.

However, revenue growth proved resilient as it increased 0.2% to $4 billion on FY19. This was despite retail lockdowns in both its Priceline and Clear Skincare portfolio.

Cost of doing business (CODB) was down 10.2% to 70bps. This reflected ongoing cost savings that included the closure of two distribution centres.

API reported a strong balance sheet, with net debt reduced to $18 million from the previous $181.1 million recorded on the pcp.

Management declared a fully-franked dividend of 2 cents representing a payout ratio of 33% of NPAT. The dividend will be paid to shareholders on December 15.

What did management say?

API CEO and managing director Richard Vincent said:

This result is testament to the strength of API’s combined portfolio of businesses. Pharmacy Distribution revenue excluding Hepatitis C increased 6.1% which demonstrates the resilience of that business throughout COVID-19.

With half of API’s revenue coming from its retail businesses, we were exposed to the impact of mandatory lockdowns to non-pharmacy Priceline stores and Clear Skincare clinics.

From a capital management perspective, we made significant improvements before and during COVID-19, we built on our strong net debt position from the first half and further improved our cash conversion days.

Outlook

API said it was well positioned for FY21 and beyond as it seeks to support future growth.

The start of its seventh community pharmacy agreement is expected to provide additional funding to address rising distribution costs. This will provide an uplift on the company’s bottom line for the new financial year.

In addition, API anticipates its pharmacy distribution business to return to growth with a significant network expansion pipelined for FY21. New cash generation is forecast as the company takes advantage of a shift to value-based beauty and health products.

Given the uncertain economic environment, API did not provide an earnings guidance for FY21.

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