Shares in Sigma Pharmaceuticals eased yesterday after the company revealed, as expected, a big loss for the first half of its 2010-11 financial year.
The previously forecast impairment revaluation caused by the sale of the drugs business to Aspen of South Africa led to a $220 million non-cash impairment against goodwill in Sigma’s July 31 half year results released yesterday.
With that impairment, Sigma posted a half year net loss of $218.527 million, down from a $32.217 million profit in the prior corresponding half year.
It came after the even bigger $389 million loss for the January 31 full 2009-10 financial year.
Sigma shares edged up to a day’s high of 48.5c, then fell 3% to 46.5c as shareholders concluded that while there were no more bombs in the results, there were no pleasant surprises for long suffering shareholders to enjoy.
Revenue was up 6.5% at $1.6394 billion, and earnings before interest and tax (EBIT) were down to a loss of $180.2 million.
The company said this "included sales revenue growth of 8.0% for the Healthcare Division and 1.8% for the Pharmaceuticals Division."
As previously announced, Sigma omitted an interim dividend, after paying three cents fully franked in the first half of fiscal 2010.
But it held out the possibility of a capital return if the sale of the drugs business happens.
"If the sale of the Pharmaceuticals Business to Aspen proceeds, the Board will consider using part of the proceeds to fund capital management initiatives," the company said in yesterday’s statement.
With the drugs business on the way to Aspen Sigma said its reported earnings now would be lower than previous guidance due to the impairment charge, one off expenses in the current half year, and the effect of discontinued operations with the potential sale of its pharmaceuticals business.
"The Group maintains its previous guidance of underlying EBIT between $140 million to $150 million for the full year ending January 31, 2011, subject to the sale… to Aspen and assuming a continuation of a normal operating environment," Sigma said.
As well as the $220 million non-cash impairment on goodwill, Sigma also posted one-off charges of $24.7 million in the first half of fiscal 2011. Sigma also said it had continued negotiations with lenders after the end of its financial year, with lenders agreeing to ‘‘certain one-off adjustments".
As a result, Sigma said it was not in breach of its covenants.
"Sigma’s challenges over the past six months are well documented and of disappointment to the Board, management and shareholders," Sigma’s managing director, Mark Hooper, said in a statement.
"While there is much more to do to reconfigure the business for a stronger future, in the few weeks since I started as MD I have seen encouraging signs of stability returning to the business."
These signs included a strong increase in sales within the Healthcare Division and, albeit smaller, in the Pharmaceutical Division, Mr Hooper said.
"The growth in Pharmaceutical sales were achieved in an environment of highly competitive generic pricing and lower promotional sales in this half year.
"The challenge remains to ensure this sales growth converts to improved earnings in the future."
Sigma announced in August that it had agreed in principle to sell its pharmaceuticals division to Aspen Pharmacare Holdings for $900 million.
Aspen had earlier indicated a possible bid for all of Sigma at firstly 60c a share, then 55c.
The sale of the drugs side of the company then followed the lowered price announcement.
"Net on and off balance sheet debt as at 31 July 2010 was $819.0 million (31 July 2009: $883.7 million)," the company said yesterday.
"Total gearing was 49.0% as at 31 July 2010 compared to 42.1% as at 31 July 2009.
"Net operating cash flow from operations was $40.5 million. On 30 August 2010, the Group repaid the $40 million of its syndicated bank loan liability which was due on 30 September 2010.
"The repayment was funded through improvements to working capital."
