Chemist Warehouse profits jump as merger partner tells pharmacies ‘don’t panic’

Chemist Warehouse has posted a spike in half-year profits as Sigma Healthcare, the wholesaler and distribution company it hopes to merge with to create an $8.8 business, moves to hose down the concerns of its pharmacy customers about the implications of the proposed merger.

Sigma’s full-year results unveiled on Thursday included details of Chemist Warehouse’s figures for the first half of fiscal 2024, including a 28.6 per cent lift in statutory profits before tax and a 13.5 per cent jump in total network sales to $4.56 billion.

Sigma’s full-year results provided a glimpse of Chemist Warehouse’s numbers.Credit: Eamon Gallagher

Meanwhile, Sigma’s revenue for the 2023 financial year slid 9.2 per cent to $3.3 billion, but statutory earnings jumped 20.4 per cent to $23.2 million and net profit more than doubled to $4.5 million after merger costs of $8.2 million were absorbed and as operating costs declined 10.7 per cent.

Sigma chief executive Vikesh Ramsunder said the proposed merger would not undercut its existing customer base of more than 1200 pharmacies, 400 of which operate under the Amcal, Discount Drug Store, Guardian and PharmaSave brands.

“What we’ve managed to do for the bulk of our customers is convince them not to panic and make a decision without letting reality unfold. We are very clear that we will service all our customers in an equitable manner,” Ramsunder said.

Vikesh Ramsunder would remain CEO of Sigma Healthcare while Mario Verrocchi will run Chemist Warehouse if the merger proceeds.Credit: Eamon Gallagher

He admitted that a “very small number” of customers had cut ties with Sigma after the merger was announced but also pointed out that Sigma had signed up new customers, resulting in a “net neutral” balance of customers.

“We’ve treated this as business as usual. And obviously a healthiest, strongest Sigma is better for all our customers. We have greater availability of stock that’s there for them, scale gives us efficiency. So in fact, this helps our customer service levels into the future.”

“If you look at the facts, even when you merge with Chemist Warehouse, if the regulators approve that, it doesn’t change the way you operate as a wholesaler,” he added.

This masthead revealed in early December that Chemist Warehouse was planning a reverse listing to the ASX through Sigma and would together form an $8.8 billion titan. Chemist Warehouse shareholders will own 85.75 per cent of the group if the deal is complete. It will need the approval of the ACCC, which is seeking submissions from the public on whether the merger will impact competition. The regulator is expected to deliver its decision by July,

Investors welcomed the update from Sigma, sending the company’s share price 3.3 per cent higher in afternoon trading.

In a call to investors, Ramsunder acknowledged it was contending with “significant competition” from the likes of Wesfarmers-owned API, which operates pharmacy brands including Priceline and Soul Pattinson chemists.

“The competition comes in price … on the discount you’re willing to provide to win that business,” Ramsunder said. “We’ve probably got fewer customers, but our earnings are improving because we’re not providing as high a discount as we used to previously.“

Chemist Warehouse’s like-for-like sales have grown at 9 per cent, while Sigma’s has grown at 4.3 per cent. The industry average is 3 per cent.

Regardless of the ACCC’s decision, Sigma and Chemist Warehouse will continue to have a close working relationship as the pair have signed a five-year supply contract that will commence from July 1 this year.

Founders Jack Gance and Mario Verrocchi will own 49 per cent of the merged group and join Sigma’s board, with existing chairman Michael Sammells and chief executive Ramsunder to remain in their roles.

With Colin Kruger

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