Cipla hints on potential acquisition

As its profit after tax drop more than seven times to Shs 6.8bn in 2018

Kampala, Uganda | ISAAC KHISA | The Kampala-based pharmaceutical firm, Cipla Quality Chemical Industries Ltd has hinted on a move to acquire a small company to boost its business growth.

This comes at a time the company is reporting a drop in profit after tax by more than seven times to Shs6.8bn in 2018.

The company’s Chairperson, Emmanuel Katongole, and the CEO Nevin Bradford said in a joint statement that the ‘the Board is investigating a small acquisition opportunity that will further support growth initiatives and diversification’to widen its revenue sources.

However, the duo could not disclose the firm that they plan to acquire.

Financial results released on May 22 shows that the pharmaceutical firm recorded a sharp drop in net profit from Shs44.6bn to Shs6.8bn for the year ending March 31.

The decline was attributed to an increase in operational costs including a one-off Initial Public Offer and related new accounting standards.

It recorded a 14.2% decline in revenue from Shs227.3bn in 2017 to Shs195.1bn in 2018 as one of its major client, Global Fund, re-directed funds from cure (medicines) to prevention.

“In addition, and across the funded markets, the increased competitiveness leads to price drops in both ARVs and Anti-Malarials. The base has been reset and companies are forced to find efficiencies to offset this impact,” the firm’s executives said.

“This coupled with supply and pricing challenges out of China due to changing environmental legislation, put margins under pressure in FY 2019.”

The executives said the margin challenges highlighted the need for a strategic relationship to secure the supply of the Active Pharmaceutical Ingredients (API) at competitive prices.

This development comes when the firm’s price on the Uganda Securities Exchange is oscillating between Shs170-180, down from Shs 256.5 per share during the IPO period.

The Board has resolved not to pay an annual dividend to its shareholders in order to invest in the business for growth, capital expenditure, working capital and a potential acquisition.

Boosting revenue growth

The good news, however, is that CQCIL operationalised its long-term supply agreement for the supply of life saving, quality, affordable medicines with the Zambia to address the decline in the GF business.

This, in addition to its agreement with the Ugandan government and the supply contract with the GF, enabled CQCIL to supply more than 30 million malaria treatments across Africa as well as ARVs to more than 500,000 patients living with HIV in Uganda and Zambia.

Similarly, the firm recently secured the first ever tender award by the USA President’s Malaria Initiative (PMI) for World Health Organisation Prequalified anti-malarials to an Africa based manufacturer, further cementing trust in the CQCIL manufacturing facility.

“First orders have been received and delivery should commence in the next two months in accordance with the requirements set out by PMI,” the executives said, adding that the firm is strategically placed to maximise this opportunity due to the in-market presence, cost advantage due to lower freight charges versus non-African based manufacturers and its heightened ability to respond quickly to orders.

CQCIL listed on the USE in September last year, becoming the first pharmaceutical company to list on stock market in East Africa.

The firm focuses primarily on the production of WHO pre-qualified first-line treatments for HIV/AIDS and Malaria.

It also manufactures the two first-line WHO recommended therapies for Hepatitis B, and obtained regulatory approval for the new first line triple combination ARV therapy for males, tenofovir lamivudine dolutegravir, from Uganda’s National Drug Authority in January this year. Additional regulatory approvals are anticipated in the next quarter.

In addition to its WHO prequalification, CQCIL has been approved by national regulatory bodies in 14 African countries including, Kenya, Rwanda, Tanzania, Namibia, Ivory Coast, Zambia, Zimbabwe and south Sudan.

Financial experts that spoke to The Independent said CQCIL drop in profit is abnormal and that its management needs to share more information with the market.

“There is need for more data for analysis of the company performance and how the planned new markets could enable the company to recover the lost revenue as result of losing business from Global Fund,” said Aeko Ongodia, the Chief Executive Officer of Xeno technologies, an online investment management platform based in Kampala.

CQCIL completed its Shs12billion, 4,500 pallet storage facility, distribution centre and warehouse that will enable the consolidation of several existing facilities and provide ample warehousing to support future growth.

It has also completed a capacity enhancement project that has increased its monthly output capacity by 30% to approximately 130 million tablets per month.

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