Chemist Warehouse has delivered a massive profit uplift as Sigma merger decision nears

Chemist Warehouse has boosted profit by almost 80 per cent and continued to expand as the competition regulator prepares to rule on its merger with Sigma Healthcare.

Sigma Healthcare managing director Vikesh Ramsunder. Picture: Luis Ascui

Chemist Warehouse’s profit has surged almost 80 per cent to well over half a billion dollars as the date for its $8.8bn merger with Sigma Healthcare draws closer.

Both companies delivered a strong set of numbers on Wednesday, with Sigma reporting normalised net profit for the half year to the end of July of $13.7m, up 303.6 per cent before costs associated with the merger were accounted for, on revenue of $1.84bn, up 17.3 per cent.

Sigma managing director Vikesh Ramsunder told The Australian the company had responded to concerns raised by the Australian Competition and Consumer Commission (ACCC) in a statement of issues released in June, and now awaited the regulator’s recision which is scheduled to be made public on October 24.

Deal teams working on the merger proposal told The Australian last month that despite earlier fears that a major reworking of the deal might be required by the regulator, those concerns had eased.

The ACCC said in June it had strong concerns about the tie-up between Chemist Warehouse which is a major pharmacy retailer with Sigma, which is both a wholesaler and a retailer.

Those concerns surrounded the “major structural change for the pharmacy sector”, the possibility of weakening competition in pharmacy product supply and access, and the use of commercially sensitive data relating to pharmacies.

Mr Ramsunder told The Australian on Wednesday that as a major supplier of medicines to the pharmacy sector, it already had access to customer data which it managed in an appropriate manner.

“I certainly think that’s something that can be managed,’’ Mr Ramsunder said.

“It’s a question I certainly get from my members ... which I have responded to and dealt with, because we protect data today.

“We have customers’ information today that we don’t use for any other reasons except managing and supporting our supply to them, and managing and supporting the franchise brands.’’

Mr Ramsunder said he was hoping for a positive determination by the ACCC in late October, but would continue to work with them should that be required.

Mr Ramsunder would not be drawn on whether there would be changes to the deal structure should it be approved, in the light of Chemist Warehouse’s surging profit and his own company’s share price, which is up significantly on the 74c it was trading at before the deal was announced in December.

“The way I can describe it - all the relevant information around the proposed merger is in the marketplace,’’ Mr Ramsunder said.

“What’s pending is the ACCC announcement, and analysts and investors are making their decisions based on that market data that’s available.

“Now, Chemist Warehouse and ourselves today remain competitive.

“We serve them as a wholesaler, but we compete with them at a retail franchise level. So we are certainly not spending time talking about the merger until we know for sure that the merger is approved.

“Once we have certainty we’ll start to work closely together in terms of what value can be extracted, but we’ve also said openly that we believe there’s $60m worth of synergies that can be extracted.’’

Sigma shareholders would own slightly more than 14 per cent of the merged entity after the deal should it be approved.

Sigma shares were changing hands for $1.36 on Wednesday, down 3.7 per cent.

Mr Ramsunder said Sigma had started a new five year supply agreement with Chemist Warehouse in July, which would contribute about $3bn in annualised revenue.

At the company’s Amcal and Discount Drug Stores branded retail outlets, like for like sales increased by an averaghe of 13 per cent over the half.

Sigma also said it is planning to release 220 new private and exclusive label products in the second half of the year, after launching 32 in the first half.

“Third party logistics also remains a key part of Sigma’s strategy to diversify our earnings

and grow our margin,’’ the company said.

“Whilst capacity utilisation is only around 45 per cent currently, we have contracts in place to build momentum into 2026.’’

Meanwhile Chemist Warehouse reported on Wednesday that its full year net profit had come in at $539.7m, up from $302.5m the previous year, on revenue of $3.29bn, up from $3.09bn.

The group paid $217.7m in dividends, down from $264.1m the precvious year.

“During the year international expansion continued with new Chemist Warehouse stores opening in New Zealand, Ireland and China,’’ the group said.

Slightly more than $3bn of the company’s full year revenue was earned in Australia with $288.9m earned offshore.

The company opened 19 new stores in Australia during the year and 16 internationally, and now has 637 stores in total.

The directors of Chemist Warehouse, including Sam and Jack Vance who founded the business in 1972 and early partner Mario Verrochi, were not paid a salary during the year.

Originally published as Chemist Warehouse has delivered a massive profit uplift as Sigma merger decision nears