Surprise on the upside and you will be rewarded, even in a dodgy market like yesterday and its nasty near 1% plus sell off.
And so it was for Sigma Pharmaceuticals (SIP).
The drugs retailer and distributor upgraded its full year earnings forecast after revealing a 26% jump in interim net profit to $23.7 million for the six months to July 31. – and that news sent the shares sharply higher yesterday.
The company also boosted interim dividend from 2.0 cents a share to 2.5 cents.
Sigma’s sales for the six months to July 31 rose 28 per cent to $2.15 billion.
The news of the higher profit, dividend and upgraded outlook saw Sigma shares leap more than 13% at one stage yesterday before closing up 11.3% on $1.29.
In the report to the ASX, CEO Mark Hooper said the drug wholesaler and distributor was “optimistic about future growth and is pleased to announce an upgrade to FY2017 earnings guidance."
“We are really pleased with how the business in now positioned. We have diversified our earnings away from PBS, which has also shifted our earnings mix between first and second half earnings contributions. Whilst the second half remains a larger overall contributor to earnings due to ongoing seasonality, this is less pronounced as we trend towards a more even balance,” said Mr Hooper.
“Our business performance provides the confidence to upgrade our FY2017 earnings growth expectations to 10%,” the CEO added.
Directors said in the announcement that the sharp jump in earnings saw reported earnings before interest and tax up 15.5% (17.0% on an underlying basis), with reported net after tax profit up 26.4% (up 14.5% on an underlying basis).
The continued implementation of a clear strategy to broaden our earnings base has seen Sigma deliver strong first half earnings growth. Reported EBIT was up 15.5%, with Underlying EBIT up 17.0% – both comfortably above revised guidance of at least 10% outlined in May this year.
Mr Hopper said “The momentum that built through the half has exceeded expectations. To deliver underlying earnings growth of 17%, is outstanding, and the momentum has carried through into year to date performance. The growth has been sustained and has been delivered across the board, from both market share growth and other general services income growth.
“At the same time we are also investing in strategic development opportunities that will help sustain our growth well beyond the current year. The mix of our business is shifting, so it is an exciting phase ahead for us,” he said.
He said the sharp rise in revenue for the half year was “heavily influenced by the PBS listing of the high cost, low margin Hepatitis C medications from March 2016. Excluding Hepatitis C, sales revenue was up 7.8%, with half of the growth coming from non-PBS revenue.”
Sigma’s branded pharmacy network has "continued to perform strongly over the last six months. A recent IBIS World pharmacy report shows pharmacies operating under a Sigma brand represent close to 20% market share of consumer spend in pharmacy. Like for like sales across our pharmacy brands was up 7.2%, excluding Hep C sales,” Mr Hooper added.
“Amcal and Guardian have been well known brands in the market for a long time. The more recent additions of Discount Drug Stores, Pharmasave and Chemist King has meant we have the largest pharmacy footprint in Australia. We are very focused on harnessing our broader business to deliver the local services, programs, and pricing that our community pharmacists and their customers want.” said Mr Hooper.
Sigma’s retail opportunity has been expanded with entry into the Chinese market, through the online Amcal store cn.amcal.com.au.
“We entered the Chinese consumer market with a very deliberate and measured strategy, and it is exceeding all expectations to date. We know the Australian market very well, but we needed a partner to target China. Joining with Azoya for the execution of this direct to market online strategy using the Amcal brand as the banner gives us the strength on the ground to grow the awareness of the Amcal brand name.
"The results so far have more than doubled our expectations with strong visitation numbers, sales data and breadth of products sold through the site. This venture is at an early stage, but provides considerable scope for expansion.” Mr Hooper said.
And Sigma’s wholesale distribution business continues to expand geographically and through market share growth.
“Volumes delivered were up 5.2% for the period, reflecting a combination of PBS volume growth and market share gains. Whilst our focus on driving efficiency gains has seen costs grow at a slower rate than volumes, future step changes will come when our infrastructure investment program begins to come on line towards the end of calendar 2017,” Mr Hooper said.
