AUSTRALIAN PHARMACEUTICAL INDUSTRIES LIMITED FULL YEAR FY12 RESULTS PRESENTATION THURSDAY 25 OCTOBER 2012 1
Important notice The material in this presentation is of general information about API s activities current at the date of the presentation. It is information given in summary form and does not purport to be complete. Nothing in this presentation should be construed as a recommendation or forecast by API or an offer to sell or a solicitation to buy or sell shares. It does not take into account the investment objectives, financial situation or needs of a particular investor. These should be considered with or without professional advice when deciding if an investment is appropriate. This presentation contains certain non IFRS measures that API believe are relevant and appropriate for the understanding of the business. Refer to Appendix 1 for further information. 2
Welcome 3
OVERVIEW IMPROVED NET PROFIT AND OPERATIONAL PERFORMANCE 4
Executive summary Solid operating performance NPAT of $30.3m following prior year loss of $23.3m EPS lift to 6.2 cents with Underlying NPAT* up 12.8% on last year Final fully franked dividend of 1.5 cents bringing annual dividends to 3 cents an increase of 20% on the prior year Return on funds (RoFE) employed of 9.6% with 60 bps lift in underlying returns Priceline continues to deliver top tier retail sales performance with 2.3% comparable store sales growth Renewed growth in Priceline network with a net increase of 20 stores for the year * Definition of underlying NPAT and RoFE refer Appendix 1 5
Executive summary PBS Reforms continue to be managed through reductions in operating costs and pharmacist discounts Successfully settled insurance claim from Queensland floods Reduction in net debt and renegotiated securitisation facilities to May 2015 6
FINANCIAL OVERVIEW FY12 GRAEME FALLET CHIEF FINANCIAL OFFICER 7
FY12 financial highlights Revenue down 6.1% to $3.2b Gross profit up 5.2% to $389m EBIT of $68.5m with underlying EBIT* up 8.5% NPAT of $30.3m following prior year loss with underlying NPAT* up 12.8% Lift in operating cashflow following insurance settlement EPS lift to 6.2 cents per share Final fully franked dividend of 1.5 cents bringing the annual dividend to 3.0 cents being a 20% lift on prior year * Definition of underlying NPAT, EBIT and free cash refer Appendix 1 FY12 FY11 Revenue $3.215b $3.425b Gross profit $389.0m $369.8m Dep / Amort $20.2m $20.2m EBIT $68.5m $(6.7)m Financing $25.2m $24.5m NPAT $30.3m $(23.3)m Free Cash* $23.4m $31.5m EPS 6.2c (4.8)c DPS 1.5c 1.5c 8
Underlying earnings reconciliation A$m 2012 2011 Underlying earnings reconciliation Reported result from operating activities 68.5 (6.7) Accounting treatment of guarantees (2.5) 50.0 Insurance recoveries / loss from QLD floods* (9.1) 9.1 Underlying result from operating activities 56.9 52.4 Reported net profit after tax 30.3 (23.3) After tax effect of underlying adjustments (8.1) 41.8 NZ tax provision - 1.4 ATO ruling on lease make-good payments - 0.9 Share of profit from associates (0.1) (1.2) Underlying net profit pre associates after tax 22.1 19.6 Earnings adjusted to remove the effect of the Queensland floods in 2011 and the $50m Financial Guarantee Charge in February 2011 * $9.1m contingent asset reported as at 31 August 2011 refer Appendix 2 for reconciliation of Insurance proceeds 9
Revenue Pharmacy Distribution sales down 9.5% following the exit of Pfizer in February 2011 and additional PBS reforms $130m of Pharmacy Distribution new business generated Priceline reported sales* up 3.3% to $657.2m Priceline comparable store growth 2.3% Priceline Company Stores 42.6% of reported sales (43.4% FY 11) Priceline Franchise Stores 57.4% of reported sales (56.6% FY 11) following increase in store network during the year NZ Sales flat following renewal of Blackmores agreement to reflect the new agency contract Earnings lifted 27.4% * Excludes Dispensary Sales 10
Operating margins A$ FY12 FY11 Revenue 3,215m 3,425m Underlying EBITDA* 77.1m 72.6m EBITDA Margin 2.40% 2.12% Underlying EBIT* 56.9m 52.4m EBIT Margin 1.8% 1.5% Pharmacy Distribution margin improvement following management of PBS reforms in Feb 2011 and April 2012 Retail margin increase following register margin increase and increase scan and supplier rebates NZ Margin reduction following renewal of Blackmore's agreement to reflect Agency relationship * Underlying EBIT and EBITDA refer Appendix 1 11
Operating costs Queensland flood insurance claim settled with recovery of 2011 and 2012 losses Warehousing and distribution costs include the recommissioning costs of the Brisbane distribution centre post the 2011 flood with full recovery reflected in insurance recoveries Sales and marketing reduction reflects the $50m financial guarantee charge in the prior year. $2.5m write back to profit in 2012 Administration expenses include additional $4.2m insurance premiums following material shift in insurance underwriting risk post QLD floods 12
Working capital A$m FY12 FY11 Trade Receivables 542.5 545.3 Inventories 313.8 320.2 Trade Payables 529.5 530.1 Net Working Capital 326.8 335.4 Trade debtors days 44.8 44.9 Inventories days 44.1 45.0 Trade payables days 47.1 47.4 Cash Conversion Cycle 41.8 42.5 Cash conversion improved following reduction in debtors day and inventory holdings 13
Cashflow Operating cashflow improvement following settlement of insurance claim Increase in investing outflows include: Commencement of systems infrastructure upgrade Priceline E Commerce platform Company store refurbishment $5.5m financial guarantee payment as expected following 2011 financial guarantee charge A$m FY12 FY11 Operating 47.8 45.2 Investing (24.4) (13.8) Financing (38.4) (26.2) Net movement (15.0) 5.2 14
Improved financial position A$m FY12 FY11 Cash 19.5 34.6 Debt 164.7 188.5 Net Debt 145.2 153.9 Net Debt/(Net Debt + Equity) 20% 22% Underlying EBIT/Interest 2.3x 2.1x Average Net Debt 227.8 244.0 Reduction in average net debt during the year Securitisation facility refinanced to May 2015 Improvement in interest cover and debt coverage Underlying EBIT refer Appendix 1 Average net debt is the average of all long term and short term borrowings offset by average cash on hand over the financial year 15
Enhanced returns on funds employed A$m FY12 FY11 Underlying EBIT* 56.9 52.4 Underlying NPAT* 22.1 19.6 Equity 568.3 554.4 Net debt 145.2 153.9 Funds employed 713.5 708.3 Underlying RoFE* 8.0% 7.4% Underlying ROE* 3.9% 3.5% Underlying EPS* 4.5 cents 4.0 cents Lift in Return on Equity and Funds Employed RoFE 9.6% ROE 5.3% Underlying returns reflect earnings lift * Underlying EBIT, NPAT RoFE, ROE and EPS refer Appendix 1 16
Retail segment highlights Solid revenue and sales performance Segment revenue up 4.4% to $748m Sales* up 3.3% to $657.2m Comparable store sales up 2.3% Gross profit up 8.0% to $176.4m A$m FY12 FY11 % Revenue 748.1 716.6 4.4 Gross Profit 176.4 163.4 8.0 GP Margin 23.6% 22.8% - Debtors Days 62.5 66.0 - Reduction in debtors days following reductions in deferred payment terms * Excludes Dispensary Sales 17
Pharmacy Distribution segment highlights Sales decline reflects impact of Pfizer leaving the channel and additional PBS reform adjustments and further generic entries Gross profit margin increase reflects reduction in trading discounts in both years Reduction in debtors days and cash conversion cycle A$ FY12 FY11 % Revenue 2,427m 2,669m (9.1) Gross Profit 193.7m 186.2m 4.0 GP Margin 8.0% 7.0% Debtors days 40.1 40.5 18
OPERATIONAL SUMMARY FULL YEAR FY12 STEPHEN ROCHE CEO & MANAGING DIRECTOR 19
Priceline continues to deliver Priceline retail performance continues to be very strong Retail sales* growth of 3.5% Like-for-like* growth of 2.3% Store network has expanded to 350 We expect momentum to be sustained in 2013 Currently in advanced discussions with another 20 potential partners * Excludes Dispensary Sales 20
Franchisee satisfaction ratings continue to be very high Survey completed annually 3 rd anniversary Conducted by FRI covers 100 individual franchisors, with over 10,000 franchisees surveyed from a range of industries Overall satisfaction* 2012 ranking 80 th percentile Sense of involvement 2012 ranking 81 st percentile Consultation 2012 ranking 87 th percentile Marketing 2012 ranking 97 th percentile * Highest result achieved by Priceline well above the total franchise sector average 21
Priceline continues to deliver Sister Club now 3.9 million members Focus is now on increasing buying activity of members Step-up in marketing activity Leverage clear strength in beauty to an increased health recognition Our marketing spend will increase and our Go Pink activity will highlight our health offering 22
Priceline increased focus on Health
Priceline increased focus on Health
Priceline online Launched late-september 2012 10,000 products available for purchase online Most popular categories: Mother and baby Cosmetics Fragrances Early results are encouraging with 700,000 page views per week 26
Pharmacy performance strong Sales impacted by PBS reforms 2H FY 12 1.8% rolling growth $130m new business generated Soul Pattinson, Pharmacist Advice and Premium members now total 690 members Gross margin lift to 8% - maintaining income/earnings line We continue to manage PBS impacts by a combination of reduced discounts and operational adjustments 2013 will see the groundwork laid for 2015 Community Pharmacy Agreement API is determined to ensure that wholesalers participate fully in the process 27
New Zealand gathers momentum New Zealand business continues to develop Blackmores sales and marketing partnership remains strong Won the Cancer Society of New Zealand sunscreen contract Ongoing potential for Private Label health products expertise in cough & cold, analgesics 28
Dividend implies 6.6% yield Final fully franked dividend declared of 1.5 cents per share. Full year dividends total 3.0 cents being a 20% lift on the prior year Rolling 12 month dividend payments imply healthy yield of over 6.6% fully franked on 30 VWAP 29
OUTLOOK STEPHEN ROCHE CEO & MANAGING DIRECTOR 30
Outlook Fundamentals in both the retail and wholesaling business remain solid and are expected to drive a further lift from the 2012 underlying earnings* Outlook is subject to: no material change in consumer or customer demand a stable economic climate no unforeseen adjustments to the regulatory environment or reforms to the Pharmaceutical Benefits Scheme * 2012 Underlying earnings was $22.1m 31
In summary An improved operational performance with a lift in EPS to 6.2 cents and underlying earnings growth of 12.8% Return on funds employed lift to 9.6% with net debt decreasing and improvement in interest cover Final fully franked dividend of 1.5 cents reflects a 20% increase on the annual dividend The reported result illustrates operational strategies Priceline is a strong growth engine Continue to manage structural changes to wholesale market Expect a further lift in underlying earning in 2013. 32
THANK YOU 25 OCTOBER 2012 33
Appendix 1 ASIC Regulatory Guide 230 Disclosing non-ifrs financial information In December 2011 ASIC issued Regulatory Guide 230. To comply with this Guide, Australian Pharmaceutical Industries Limited is required to make a clear statement about the non-ifrs information included in the Profit announcement and Half Year presentation for the period ending 29 February 2012. In addition to statutory report amounts, the following non-ifrs measures are used by management and the directors as the primary measures of assessing financial performance of the Group and Individual Segments: Non-IFRS measures used in describing the Business Performance include: Earnings before interest tax (EBIT) Earnings before interest, tax, depreciation, amortisation (EBITDA) Free cash Comparative Store Growth Interest cover Underlying EBIT Interest Cover Adjustment Return on funds employed (RoFE) In addition to the above the following non-ifrs measures are used by management and the directors to assess the underlying performance of the Group following the Queensland floods in January 2011 and the Financial Guarantee impairment charge in February 2011. Underling NPAT Underlying EBIT Underlying EBITDA Underlying RofE The directors consider that these performance measures are appropriate for their purposes and present meaningful information on the underlying drivers of the continuing business after considering the impact of the Queensland floods in January 2011 and the Financial Guarantee Charge brought to account in February 2011. Many of the measures used are common practice in the industry within which Australian Pharmaceutical Industries Limited operates. The Profit Announcement and Full Year presentation has not been audited or reviewed in accordance with Australian Auditing Standards. 34
Appendix 1 - Definitions EBITDA - Result from operating activities before Depreciation and Amortisation EBIT Result from operating activities (includes late fee income from overdue trade debt) Free Cash Net cash from operating activities plus net cash from investing activities Comparative Store Growth - Sales performance compared to last period on stores trading in the network greater than one year Interest Cover Result from operating activities divided by net financing costs Net Debt Borrowings less cash on hand Return on funds employed EBIT / Equity plus Net Debt Underlying EBIT Refer page 9 Underlying EBITDA Underlying EBIT less depreciation and amortisation Underlying NPAT Refer page 9 35
Appendix 2 Net insurance recoveries / loss from QLD floods Underlying earnings reconciliation Accounting loss from 2011 (Contingent asset 2011) 3.6 Business Interruption losses in 2011(Contingent asset 2011) 5.5 Total prior year recoveries 9.1 Business Interruption losses in 2012 5.4 A$m Total Insurance recovery as per Note 7 Financial Report 14.5 Business interruption losses include loss of Gross Profit from lost sales and increased costs of doing business The indemnity period for recovery was for 12 months post event ceasing on 15 January 2012 API finalised a commercial settlement with its insurer in April 2012 that satisfactorily recovered its preflood position. This settlement included recovery of extra costs incurred, an estimate of Gross Profit forgone from the Pharmacy Distribution and Retail segments and an estimate of the additional cost of doing business predominantly from the company's distribution network after taking into account the level of investment the company has recently invested in its distribution network The commercial settlement does not allow an accurate apportionment between Gross Profit and additional supply chain costs of doing business. As a result management has allocated the 2011 recovery on the estimate as at 31 August 2011 of $5.5m which was reported as a contingent asset as at 30 August 2011. Recovery of the 2011 accounting loss of $3.6m has been apportioned in full to 2011 36