Sigma pays big time for lack of direction

Company News

by Glenn Dyer

Investors in Sigma Healthcare (ASX:SIG) reacted negatively to yesterday’s half year results, details of a major change in strategy and a bare bones interim dividend to shareholders – sending the shares down more than 7% at one stage.

Even though the wider market again sold off, the fall in Sigma shares was outsized in comparison and reflected some concerns about the company which seems to swing from strategy to strategy without much in the way of a lasting improvement in performance.

Yet again, the company reported more impairments which produced a net loss for the half year.

Sigma shares fell 5.7% to 66 cents yesterday and there was no comfort from the half a cent a share interim dividend, down 50% from a year ago.

Net Revenue for first half to the end of July was up 6.0% to $1.84 billion supported by high volume sales of Covid rapid antigen tests.

Reported after tax net profit was a loss of $1.5 million “resulting from specific write-offs of $38.7 million covering inventory and asset impairments,” Sigma directors explained.

Net Debt at 31 July 2022 of $86 million was down 43% from $149 million at 31 January 2022.

At the same time, the company announced the outcomes of a strategic review undertaken by the Sigma Board and new CEO Vikesh Ramsunder in the hope a stronger and more capable business with a diversified earnings base will emerge in the next year or so.

The incoming CEO commented, “We have made significant progress over the last six months and in today’s results announcement set a clear direction for sustainable growth. Our ERP platform is now providing the necessary operational stability as our focus shifts to driving efficiencies, overcoming stock availability issues, and executing our strategy.”

“Sigma’s renewed strategy has set four key objectives that will focus on leveraging our investment in distribution infrastructure, consolidating our franchise brand portfolio to deliver a sustainable growth strategy via Amcal and Discount Drug Stores (DDS), divesting non-core assets, and diversifying our income streams in the health, beauty and wellness categories,” he said.

Sigma saw a 3.3% decline in wholesale sales to community pharmacy, impacted by factors including software implementation and Distribution Centre (DC) transition issues “which have largely been rectified,” according to directors.

“The decline was weighted towards PBS medicines, which were down 7.9% as pharmacists sought certainty of supply to service their customers through these months. Offsetting this, frontshop sales were up 2.7%, supported by strong sales of RATs. Pleasingly, sales to Sigma’s own franchise brands were up 5.0% for the half.”

Sigma said its hospital pharmacy sales “continued to grow, with sales up 7.0%, ensuring Sigma maintained a 10% share of the national hospital pharmacy market”

“The third-party logistics business also performed strongly, growing 15.9% for the first half. MPS Connect, our dose medication services business has returned to profit, recovering from the impact of Covid-19 and is beginning to benefit from an operational and strategic review completed to enhance performance.”

“With our expanded Truganina DC and new Hobart DC both becoming operational from December, this concludes our major infrastructure upgrade that provides a world class DC network that can sustain our current business over the long term. Capex of $15 million was spent in 1H23, with a further $25 million expected in 2H23. We anticipate maintenance capex to return to $5 – $10 million per annum,” Sigma added.

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