New Adcock Boss to Overhaul Structure of Loss-Making Drugmaker

By Tiisetso Motsoeneng

JOHANNESBURG (Reuters) – The new boss of South Africa's Adcock Ingram announced an overhaul of the struggling drugmaker to allow its different businesses to operate more independently in a bid to make them more nimble and increase accountability.

South Africa's No.2 drugs company, which posted its first loss on Tuesday since going public six years ago, is lagging behind rivals both operationally and in the stock market.

It is grappling with slowing sales, hit by an over-reliance on its heavily regulated home market and a poor distribution network.

Its top shareholder, industrial conglomerate Bidvest, has been pushing through changes at Adcock after blocking a $1.2 billion takeover bid from Chile's CFR Pharmaceuticals earlier this year.

Adcock Chief Executive Kevin Wakeford, appointed weeks after CFR dropped the bid, said the priority was to reorganise the company to match the decentralised model of Bidvest, which runs more than 300 businesses.

"The board has approved a new decentralised structure with separate operating divisions," he told investors at the presentation of the company's first-half results. "I believe that our actions will play a significant part in putting it on a path to restoring profitability."

He declined say how long it would take before the company returned to profit.

Adcock has an over-the-counter drugs business, a prescription medicine operation and a hospital equipment unit that will all draw up and execute their own strategies, Wakeford said. The new structure would be implemented from the beginning of July, he added.

Investors are expecting a lot from Bidvest, which owns about 34 percent of Adcock, because some felt robbed of an easy payout when it sank CFR's cash-and-shares bid that would have also pushed Adcock into fast-growing markets in Latin America and Southeast Asia.

"Bidvest is able to put a lot of pressure on its underlying businesses by holding managers to account and that's what it's about. Business is about delivering and that's why Bidvest has been so successful," said Nic Norman Smith, a portfolio manager at Lentus Asset Management.

"WEALTH CREATOR"

Adcock profits have fallen by more than 22 percent in the past five years while its closest rival, Aspen Pharmacare – the market leader by both revenue and market value – has booked a nearly six-fold increase over the same period thanks to its aggressive overseas expansion.

Adcock's share price has fallen 2.7 percent over the last two years, against a 41 percent rise in Johannesburg's All-Share index. Aspen shares have more than doubled in that time.

Since 1990, Bidvest's share price has increased about 150-fold. Its Chief Executive Brian Joffe, also chairman of Adcock, has said Bidvest "outscores Jack Welch's GE and Warren Buffet's Berkshire Hathaway as a wealth creator".

Adcock posted its first loss since listing in 2008 with half-year headline loss coming in at 39 million rand ($3.77 million), or 24.8 cents per share, hit by rising raw materials prices and costs related to the failed bid, and forcing it suspend dividends.

It reported headline earnings of 317 million rand, or 188 cents per share, a year earlier.

Adcock shares were down 2.09 percent at 58 rand at 1123 GMT, underperforming a 0.19 percent dip in the All-share index.

Headline earnings per share, the most widely watched profit gauge in South Africa, strips out certain one-off and non-trading items.

Adcock, which makes more than 90 percent of its sales in South Africa, is also struggling with a weaker rand, which has pushed up prices of imported raw materials and finished products while debt-laden consumers cut back on spending.

($1 = 10.3574 South African Rand)