I had a brief look at the annual report and presentation - not yet in full but bits and pieces. Will read the whole thing soon. Here are my insights so far looking through the numbers:
If you take these into account you get a normalised NPAT of:
1H: $45.1m
2H: $39.6m
which shows a better second half. The NPAT of $85m nevertheless is still low.
HOWEVER, note that due to the Teva acquisition in relation to the contracts, the company needs to amortise some of their intangibles. For the full year it was $67.2m!! The company only spent $27.8m on capitalised development costs (this does not include any other capex), so in effect the P&L is overstating intangible expenses by $40m because of an accounting treatment and has no impact on the cash flow.
The company also wrote off / took up a provision of $18.8m of inventory - bad management or otherwise I don't know but you would hope it doesn't happen again (presentation suggests it is in relation to the Teva acquisition).
So FCF is really approx is $144m assuming development cost stays the same and no material inventory writedowns moving forward. This is simply looking at what happened in FY17.
What about in FY18 and moving foward? I seriously need to go through the presentations and the reports to understand everything but here is what i gathered:
1) Generic - Decreasing revenue and GP margin isn't good. But if you reduce margin by another 10% , this company will still do circa $100m FCF which is still good, and that is not taking into account any new products in the pipeline.
2) Specialty Brands - you would have noticed the revenue and GP has increased approx $8m and $6m in 2H vs 1H. Look at page 10 of the presentation. Looking at the graph, I expect the three new drugs to deliver additional $3m next half (conservative) just by doing nothing as they really only started to sell from March onwards and they have been increasing sales since. Doxycycline seems to have stabalised from June onwards.
Who knows what the addition to the sales team will do to sales?
3) MCS - Greenville site expansion to be completed early 2018 - anyone know what the potential impact of this might be?
4) MPI - new products but off a low base - not sure if they would be big sellers?
Plenty of question markets regarding the future:
Generic drugs margin pressure vs plenty of new products and expansions in pipeline. I hope any headwinds (if GP does go down further) will be offset by management initiatives.
Up for discussion on any of the numbers above and future outlook. At the moment I don't see any reason to sell.
(20min delay)