Australian Pharmaceutical Industries (ASX:API)

Richard Vincent
Market Cap (AUD): 667.55M
Sector: Health Care
Last Trade (AUD): 1.355 +0 (+0%)
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1. About

Australian Pharmaceutical Industries Limited is one of Australia’s leading pharmaceutical distribution and fastest growing health and beauty retailers. It is the parent company of Priceline Pharmacy, Soul Pattinson Chemist and Pharmacist Advice. The Company’s services include wholesale product delivery, retail services, marketing programs, and business advisory services.

Australian Pharmaceutical Industries Limited (API) is an integrated healthcare services company that divides its operations into two segments:

  • Australia: The distribution of pharmaceutical, medical, health, beauty and lifestyle products to pharmacies across Australia.
  • New Zealand: The key manufacturer of pharmaceutical products such as over the counter medical products and consumer toiletries.

2. Business model


The Group operates the following divisions:[1]



Revenue (AUD’000)

% of Revenue

% of Gross Profit

Profit drivers[2]





  • Priceline and Priceline Pharmacy recorded register sales (including dispensary) growth of 2.1% to $2.1 B
  • The Priceline Pharmacy network finished at 475, up from 462 at 31 August 2017. Consumer engagement has always been a strong focus of the brand and remains a key driver of loyalty for the brand and continues to grow
  • Pharmacy Distribution sales were consistent with prior year at $2.9 B. Excluding Hepatitis C Medicine, overall reported sales growth was 4.7%. Adding back Pharmaceutical Benefits Scheme reforms, the underlying sales growth was 6.4%

New Zealand




  • The New Zealand manufacturing segment recorded an increase in profit to $2.8 M
  • Continued focus on profitable market segments, has resulted in the winning of new contracts to support the growth of the healthcare range in Australia and New Zealand as well as the Personal care product range in other export markets






3. Strategy


The overall business strategies relevant to the Company’s future financial position and performance are set out below.[3]

By applying the strategic goals to the Company’s business plans, there will be a continued emphasis on capitalising on the strengths of the Company in the health and beauty retail market and to optimise its strong national community pharmacy wholesale distribution business. This means the Company intends to:

  • Consistently deliver a differentiated and personalised experience for its customers, and continue to promote the Priceline Pharmacy Franchise proposition to grow the store network
  • Priceline Pharmacy to continue to be a compelling proposition for pharmacists who wish to offset the impact of PBS reform, leverage pharmacy expertise, and drive further growth from integrated dispensary and retail programs
  • Build loyalty and increase engagement of the Priceline Sister Club loyalty program, and promote increased customer engagement through all channels including the Priceline website and social media
  • Optimise the size and value of the store network for all brands – Deliver superior value and service to independent pharmacy customers
  • Provide consistent, valued, and measurable service improvement to all customers and suppliers
  • Optimise the value of its business portfolio through investment, divestment, and acquisition
  • Be at the forefront of Health, Beauty and Wellbeing industry trends, insights and innovation, and use customer insight to drive connectivity of Beauty, Health, and the Dispensary
  • Enrich the community by active support of its Sisterhood Foundation
  • Enhance the employee value proposition, and to create an environment to generate, prioritise and execute innovation
  • Increase lead indicator safety performance



  •  Introduction of unique formulations in OTC health market in FY19
  •  Broadening product range through agreements with reputable international partners
  •  Expand contracts with Australian retailers for product supply
  •  Develop the opportunity in Asian market

4. Markets


The Group operates in markets including:[4]


Industry (Australia)

Industry Revenue (2018)

Growth Rate (Annual 14-19)

Pharmaceuticals Wholesaling

$14 billion


Cosmetic and Toiletry Retailing

$4 billion


Pharmacies market

$16 billion


5. Competition


Major competitors include:[5]


  • Novogen Limited (ASX:NRT)
  • Pharmaxis Ltd. (ASX:PXS)

6. History



Three Chemists David Williams, Edgar Schofield and James Constable established the Chemists’ Co-operative company of NSW



Known as the ‘Forty Thieves’ the Co-op had 40 members, and operations are run out of a borrowed cellar until 1917



The Chemists Co-operative company officially changed its name to the Wholesale Drug Company (WDC) purchased its first real estate purchase in 1934 to accommodate growth of the business



The Pharmaceutical Benefits Scheme was Introduced in Australia



Rapid Growth of WDC continued during the late forties and early fifties, with revenue surprising GBP 1,000,000



The first distribution facility outside of Sydney commenced operations Wagga Wagga



Membership in the WDC rapidly increased, reaching 1,000 pharmacist customers



WDC became known as Australian Pharmaceutical Industries Ltd (API)



API became the leading pharmaceutical wholesaler in NSW



The Company opened its new warehouse complex in Northmead, the largest pharmaceutical distribution centre in the southern hemisphere



API acquired distribution centres in Canberra and Melbourne, taking a step towards national distribution



API reached more than 2,000 Pharmacist customers



Turnover surpassed half a billion dollars, with employee numbers reaching 512



The first Pharmacist Advice pharmacy opened



API was listed on the Australian stock exchange



API reached annual revenue of one billion dollars



API acquired the Soul Pattinson Chemist brand



Northmead was replaced by Camellia as the new centre of operations in Sydney. Manufacturing operations were acquired in New Zealand and API became an international player. The first Priceline Pharmacy Opened in Pakenham, Victoria



API took control of New Price Retail- the owners of Price Attack, and Priceline (including Priceline Pharmacy)



CSO (Community Service Obligation) was introduced by the Australian Federal Court



The API members program - API premium was introduced



Priceline (incorporating Priceline Pharmacy) opened its 300th store



The Revitalise program commenced, signified the start of integration of the retail and wholesale supply chains



Priceline Clubcard membership reached 300 million. API conducted Australia’s biggest health check, surveyed more than 25,000 women



The API network had 330 Priceline stores and pharmacies, 86 soul Pattinson Chemists, 72 Pharmacist advice pharmacies and 800 pharmacies participating in the API members program

The Priceline Sisterhood was formed, giving back to the women it loves through five charities that support the Company’s biggest health concerns



The API club card launched in 2002 was rebranded to the Sister Club program, and exceeded more than 5.2 million members



Priceline Pharmacy won the prestigious Australian Retailer’s Association’s Retailer of the Year Award. Priceline / Priceline Pharmacy reached 400 stores making it one of the largest speciality retailers in Australia

The Sisterhood gained foundation status and passes more than $1 million in funds raised for the Company’s charities



API celebrated its 105th year, reporting $3.35 billion in revenue. API successfully implemented SAP - the first wholesale and retail project of its scale in the world



API Implemented succession plan and confirmed forecast for 17% Growth in underlying NPAT for FY16



API to invest more into Soul Pattinson and Pharmacist Advice



API to acquires Clearskincare Clinics

7. Team


Board of Directors[7]


Mr. Mark Smith – Chairman, Independent Non-Executive Director

Mr. Richard Vincent – CEO & Managing Director

Mr. Robert D Millner – Non-Executive Director

Ms. Lee Ausburn – Independent Non-Executive Director

Mr. Gerard J Masters – Independent Non-Executive Director[8]

Mr. Kenneth W Gunderson-Briggs – Senior Independent Non-Executive Director

Ms. Jennifer Macdonald – Independent Non-Executive Director


Management Team


Mr. Richard Vincent – CEO and Managing Director

Mr. Steve Arthurson – General Manager – People

Mr. Peter Mendo – Chief Financial Officer

Mr. Clyde Morgan – General Manager, Pharmacy Business Development

Mr. Jim Redfern – General Manager, Supply Chain, and Consumer Brands

Mr. Dean Matthews – Chief Information Officer

Mr. Peter Sanguinetti – General Counsel and Company Secretary

Ms. Tamalin Morton – General Manager – Priceline Pharmacy

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8. Financials


2018 Full Year Results Presentation


Financial Year 2017/18 (ended 31 August):[9]



Revenue (AUD’000)

% Change

Gross Profit (AUD’000)

% Change






New Zealand















9. Risk


Major risks include:[10]


Material Business Risks

The Group’s activities expose it to a number of economic and business risks. The Group’s risk management framework involves an annual review of the risk profile of the Group, by management and the Audit, Risk and Compliance team, along with a refresh at half year which includes assessing the effectiveness of current controls in place to manage the identified risks. The results of these reviews are provided to the Audit and Risk Committee for its consideration and recommendation to the Board. The most recent update in respect of risk profile and risk management plans was in July 2018. The risks are then reviewed throughout the year.

The risk management process is integrated with the strategic planning process and involves identifying the risk universe and documenting those factors that contribute to the inherent risk environment. Inherent risk is determined by combining likelihood and consequences assessments determined in the absence of any controls within the business.

The following is a summary of the most material and significant risks facing the Group, and how the Group addresses the risk factors.


Structural reforms within the Australian Community Pharmacy sector

This relates to the risk of continued Government PBS reforms, changes in Government initiatives, regulation and legislation.


Continued competitor threats

There is a risk that the Group is exposed to significant existing or new competitors in the Australian pharmacy, retail, health and beauty markets.


Execution of Retail Pharmacy strategy with associated growth of Priceline Pharmacy stores

There is a risk that the expansion of the Priceline Pharmacy franchise network is unsuccessful or the growth in the next five years is slower than planned.


Merger & Acquisition Execution

There is a risk that integration of the Clear Skincare clinics and Products businesses into the group is not successful or the projected growth is not achieved.


Cyber security and IT systems failure

There is a risk that the Group’s IT systems are breached by a cyber threat, including customer privacy breaches, or there are major IT system failures that adversely impact the business.


Financial Risk
The Group has exposure to a number of financial risks including customer payment defaults, financial guarantees supporting Pharmacy customers, and general retail trading conditions.


Financial Risk Management


Credit Risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Credit risk arises principally from the Group’s receivables from customer sales and financial guarantees the Group has provided for certain trade debtors. The maximum exposure to credit risk is the carrying value of trade receivables.

The Group has established credit policies that ensure new customers are subject to credit worthiness verification including review of external credit ratings, financial position, past experience and industry reputation. Purchase limits are established for each customer. Customers that fail to meet the benchmark credit worthiness only transact with the Group on a prepaid basis. In monitoring customer credit risk, customers are grouped by state and reviewed monthly. “High risk” customers are placed on “credit hold”, with orders manually released as appropriate. All goods sold are subject to retention of title clauses, so that in the event of non-payment the Group may have a secured claim in respect of the goods sold.


Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The approach to managing liquidity is to ensure, as far as possible, that there will be sufficient liquidity to meet liabilities when due, under both normal and stressed conditions.


Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates, will affect the income of the Group or the value of the financial instruments held by the Group. The objective of market risk management is to manage and monitor market risk exposures within acceptable parameters, whilst optimising the return on risk.  

Currency risk

The Group had no material exposure to foreign currency risk on sales and purchases that are denominated in a currency other than the respective functional currencies of the entities within the Group.

Interest rate risk

The Group is exposed to interest rate risk on its financing facilities. The Group adopts a policy that up to 85% of its exposure to the changes in interest rates on its long-term variable rate borrowings relating to the securitised trade receivables may be hedged on a fixed rate basis. At 31 August 2018, the Group had interest rate swaps with a notional contract amount of $36,000,000, with a maturity date of September 2019 and weighted rate of 1.99%. The Group classifies interest rate swaps as cash flow hedges. The notional contracted interest cash flows are consistent with highly probable forecast interest cash flows to August 2019 based on the forecast of used facilities for the securitised trade receivables.


  1. ^ Annual Report 2018, P.43
  2. ^ Annual Report 2018, P. 11
  3. ^ Annual Report 2018, P. 12
    Investor Presentation 2018, P. 24
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  9. ^ Annual Report 2018, P. 43
  10. ^ Annual Report 2018, P. 12-13, 60-62