Pharmaceutical, health, and beauty products supplier, Australian Pharmaceutical Industries (API), expects to lift its first half underlying profit by more than 20 per cent despite a tough retail environment.

API supplies stores under the Priceline, Soul Pattinson, and Pharmacist Advice banners.

“The first few months of the current financial year have seen consumers continue their caution,” API CEO, Stephen Roche, told shareholders at the company’s annual general meeting in Sydney on Thursday.

“We believe that the retail market was particularly soft just prior to Christmas, with many retailers responding by offering substantial discounts well before expectation.”

Roche said consumer caution would likely persist in 2015.

He said API’s market had also attracted new competitors.

But API’s outlook remained positive despite the conditions experienced across the retail sector. Up to late January, total sales at the 400 Priceline and Priceline Pharmacy stores had grown by 7.5 per cent.

API expects to add another 20 stores by May 2015, with more expected to open during the year.

Roche said the performance of API’s retailing operations, combined with the continued steady performance of API’s pharmaceuticals distribution business, was expected to generate an underlying net profit for the first six months of the fiscal year about 20 to 25 per cent above the $16.2 million achieved a year earlier.

Roche said government cuts to subsidies under the Pharmaceutical Benefits Scheme since December 2013 had had a deflationary effect on pharmaceutical prices and saved more than $1 billion for the government on an annualised basis.

During that time, pharmacies, manufacturers and wholesalers had made ongoing adjustments to retain acceptable returns on investment.

Roche said API did not expect any substantive change to the existing PBS reforms process nor any material adjustments in payments to wholesalers.

Shares in API were 3.5 cents higher at 90 cents at 1446 AEDT.

AAP