Even after all the warnings, the 2009-10 result from Sigma Pharmaceuticals yesterday was still a surprise, and shocking.
It’s the only way to describe the long-awaited financials from Sigma with the nasty loss of $389 million, asset impairment write-downs of $424 million, no final dividend and news that the company has breached its lending covenants, but it is not in default.
The rapid slump in the fortunes of what was the country’s leading generic drug manufacturer and chemist supplier has been rapid and poorly explained, even after yesterday’s statement.
The performance of the shares told the market’s loss of faith in the company.
The company reported at 1.35 pm, the shares were relisted two minutes later and whooshka, down they plunged.
They were relisted after being suspended (at the company’s request) since February 25 and the 90c last sale price on February 24 very quickly became a low of 38c, and a fall of 53%.
They then bounced to around 56.5c, then again fell in late trading to close at 46.5c, down a massive 48.3%.
At that level the company was valued at just under $500 million, compared with on and off balance sheet debt of more than double that figure and assets cut by $424 million.
The question now for the market and shareholders is if this report and the terrible loss manage to staunch the loss of confidence in management and the board.
The credibility of the report will now be tested by analysts and shareholders.
The company said the loss compares with a profit of $80.1 million last year and "includes a non-cash impairment charge of $424.2 million to the group’s goodwill following a review of intangible carrying values.
"In that review, the company has taken into account recent increases in market pressures in generics in the last quarter of FY2010. As a result, the future cash flow forecasts that support the carrying value of goodwill have declined. Sigma’s estimated weighted average cost of capital has also increased."
There was no sign of any boardroom or management changes, something that will undermine the credibility of the report.
Sigma said that the company breached loan covenants as a result of these adjustments.
After that breach, borrowings amounting to $279.4 million were reclassified as current liabilities because the lenders had the right but not the obligation to demand immediate repayment of the facility.
As a result Sigma had a working capital deficiency of $45.719 million as at January 31, 2010 (the end of its financial year).
Chairman Dr Stocker said the company was disappointed with the 2010 result and the suspension of Sigma shares but the board strongly believed that Sigma’s underlying business was sound.
Total sales revenue rose 4.5% to $3.22 billion while "underlying FY2010 net profit was $67.7 million, a 15.5 per cent decrease on the prior year due principally to increasing market pressures in generics and a lack of uptake in year end promotions," the company said yesterday.
The company said the pharmaceuticals division, which includes generics, consumer, manufacturing and medical, had net sales of $670.9 million for the year to January 31, a 5.6% drop on the prior year.
Underlying earnings before interest and tax declined 23.7% to $105 million, which wasn’t a good result in itself.
Sigma’s healthcare division, which includes wholesale distribution and pharmacy retail banner groups, generated sales of $2.549 billion, up 7.5%.
After impairment of goodwill relating to anticipated synergies between generics and wholesaling and other adjustments, reported EBIT for the division was a loss of $174.9 million.
