Lower sales amid a softer consumer environment plus the loss of a key customer saw Sigma Healthcare suffer fall in full-year underlying revenue and earnings for 2017-18 financial year.
And the company is not looking for any improvement in 2018-19 as more obstacles emerge to hinder sales and profit growth.
The pharmaceutical wholesaler said sales fell 5.4% to $4.13 billion in the period ending January 31. Sigma shares fell 7.3% yesterday to 81.5 cents as investors concluded it was a weak result
Net profit rose 3.5% to $55 million, but underlying profit eased but underlying earnings before interest and tax (EBIT) fell 10% to $90.3 million, in line with its guidance, reflecting an expected decline in sales of low-margin hepatitis C medication, soft consumer sentiment, and the departure of some Queensland pharmacies that were not complying with Amcal store branding requirements.
Final dividend was cut half a cent to 2.5 cents a share, making a total for the year of 5 cents a share, down from 5.5 cent the previous year.
Sigma CEO Mark Hooper says the company is working hard to ensure it can grow and diversify its earnings.
“We are also very focused on being more aggressive on an M&A (merger and acquisition) front,” he said. “ e’re looking for opportunities along the supply chain where it’s ideally services-based income that doesn’t rely on the government to pay us money," he said.
He said Sigma had appointed Goldman Sachs as financial adviser to assist with potential acquisitions.
Historically, much of Sigma’s business has involved supplying drugs under the federal government’s Pharmaceutical Benefits Scheme and receiving payment from the government.
But frequent government cost cuts to the PBS (which are passed on to wholesalers especially) has made supplying drugs to the PBS less profitable for drug wholesalers like Sigma.
As part of its diversification strategy, Sigma acquired Medication Packaging Systems (MPS), Australia’s largest provider of dose administration services to the aged care sector and community pharmacy patients.
Mr Hooper also said Sigma is making a very significant investment in warehouse infrastructure in Queensland, Western Australia and NSW, after years of doing very little on that front, which will have a positive impact on the group.
Sigma is forecasting EBIT of $90 million for 2018-19, which is another reason why the shares fell so heavily yesterday
Mr Hooper said earnings would be hit by extra rebate payments to be made to Chemist Warehouse as part of settlement of a legal battle, and the continued impact of the rescheduling of codeine as a prescription-only drug.
"From an organic perspective it’s going to be largely flat in 2019," Mr Hooper said.
