JOHANNESBURG (Reuters) – South African drugmaker Adcock Ingram said on Tuesday its margins would be under pressure over the next 12 months as a government-allowed price increase on regulated drugs would not be enough to cover the cost of local inflation and power cuts.
In December, the government allowed a price increase of 3.28% on regulated medicines, inviting strong opposition from drugmakers.
Adcock CEO Andy Hall said for the six months through December the local currency had depreciated 7%, hitting imports of raw materials for drugs it manufactures.
It had also had to increase wages above inflation and shell out 22 million rand ($1.21 million) to run diesel generators, he said.
“We think there’s going to be pressure on that gross margin, we think it will probably shrink in the next six to 12 months.”
Adcock, which sells half of its products under government-regulated prices, posted a gross margin of 35% for the first half that ended Dec. 31.
Companies in South Africa have flagged hours of power cuts one as of the biggest factors that could hurt growth and profitability.
South Africa’s state-utility Eskom’s power generation has dropped to where it was two decades ago amid increasing demand, forcing it to implement rolling blackouts, sometimes for up to 10 hours a day.
This comes at a time when the country is also facing food inflation of 13% and youth unemployment of up to 45%.
“Things are uncertain at the moment and we are anxious,” Hall told Reuters in an interview.
Adcock will bank on its broad portfolio of products and price increases in consumer goods, over-the-counter products and hospital supplies to cushion its gross margins to some extent, he said.
The company sells a mix of over-the-counter and prescription drugs, consumer goods and hospital supplies.
It posted a headline earnings per share, a profit measure, of 289.9 cents, a 20% increase, sending its shares up 2% at 0930 GMT against a broader index which was down a percentage point.
($1 = 18.2083 rand)
(Reporting by Promit Mukherjee. Editing by Jane Merriman)
