Small profit, even smaller payout for Sigma

Company News

by Glenn Dyer

Sigma Healthcare (ASX:SIG), Australia’s biggest pharmaceutical wholesaler, is paying a tiny half a cent per share final dividend after it slashed debt, boosted revenues and swung back to a small profit for the year to the end of January.

Sigma, which owns the Amcal and Discount Drug Stores brands, said the company faced difficult conditions over the 12 months and complained about costs driven up by an “acute” labour shortage, higher freight and energy prices, inflation and interest rate increases.

But it slashed its debt to cut exposure to the Reserve Bank’s succession of interest rate increases in the six-month period. Net debt was halved to $67 million by the end of January from $149 million a year previously.

With the tiny final, the company will pay a total of one cent per share for the year to January and has set a new dividend policy of paying out between 50% and 60% of reported net profit after tax to shareholders going forward.

Net revenue was up 6.6% to $3.66 billion and net earnings totalled $1.8 million, up from the previous period’s loss of $7.3 million, while earnings before interest and tax of $19.3 million were up 733%.

Sigma shares edged up (in yesterday’s weaker market) to end the day at 62 cents, up 0.8%.

CEO Vikesh Ramsunder said in the statement that while it was “too early for specific guidance for the full year ahead, we anticipate that the steps taken in the year to improve our operational performance and cash position will lead to Reported EBIT being between $26m to $31m in FY24.”

Mr Ramsunder said in Thursday’s statement that after 12-months in the role, he was “pleased to report that we have returned to profit, strengthened our balance sheet and made significant progress in the transformation of the company.”

“We now have a much stronger operational platform to improve service delivery to customers, which underpins our pursuit of growth opportunities and will incrementally deliver improved financial outcomes for shareholders.”

“During the year, Sigma announced a new Retail strategy, moving from five franchise brands to two, focusing on supporting the Amcal and Discount Drug Stores franchise brands. Whilst this may lead to some disruption in the current year, the merger of brands will provide critical mass to drive customer engagement and support our longer-term strategy. Sales in our franchise brands were up 4.2% for the year.

“The merger of the Guardian brand is on track to achieve our targets, with around 50% of our identified members already committing to convert. In parallel, we are rebuilding our internal capability to ensure we have the required skillset to support brand members, grow our private and exclusive label range, and pursue sustainable and profitable growth.” Mr Ramsunder said.

On 10 March, Sigma announced that an agreement had been reached to sell the CHS Hospital distribution business for consideration of $44 million, effective 1 March 31 2023 (subject to regulatory approval). CHS Hospitals delivered approximately $364 million in sales in FY23, however due to structural margins in this sector, it was not profitable.

Mr Ramsunder commented: “This is the fourth transaction as part of our strategy to simplify our business and focus on our core community pharmacy operations. Hospital distribution was a very low margin business that would require significant investment to integrate into our systems and distribution capability. The sale will release $35m to $40 million of cash for the business.”

With the disposal of the hospital distribution business, Sigma will rename the CHS business to Sigma Healthcare Logistics and pursue further opportunities in the third-party logistics sector.

“We currently have around 30,000 pallets of inventory under management for 3PL customers with latent capacity to absorb another 20,000 pallets following the recent extension of our Truganina Distribution Centre in Victoria.”

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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