Sigma crashes to full-year loss of $12.33m, but flags growth ahead

Pharmacy group Sigma is expecting strong growth as the coronavirus sweeps the nation, after its slump to a full-year loss.

Sigma Pharmaceuticals CEO Mark Hooper. Picture: David Geraghty

Healthcare and pharmacy group Sigma has crashed to a full-year loss of $12.33 million, a swing from a profit of $36.52 million in the 12 months to January 2019, following the loss of its multi-billion dollar contract with the giant My Chemist and Chemist Warehouse retail group, and costs linked to transforming the business.

Revenue for the year fell 18 per cent to $3.244 billion.

The pharmacy group has reported a strong uplift in demand in the wake of the coronavirus pandemic, as consumers rush pharmacies for medicines and supplements, but given the uncertainty around the health crisis it is not providing earnings guidance for 2020.

There will be no final dividend for shareholders and the interim dividend for 2020 is also on hold. However the pharmacy supplier believes the hard work done to resurrect its business in the midst of a tough retail environment is starting to show results.

Sigma posted EBITDA of $24.2m for fiscal 2020, with the result mainly impacted by the one-off costs of transforming the business. Underlying EBITDA of $46.7 million was in line with updated market guidance provided in December 2019.

Sigma chief executive Mark Hooper said he was pleased with the fact Sigma hit its underlying earnings guidance, which was built on a period of significant change as the company continued to successfully implement its structured Project Pivot transformation program through 2020 and its continued investment program.

“We expect strong growth for the year ahead which has been initially boosted by abnormally high demand flowing from the COVID-19 pandemic,” Mr Hooper said. “However, given the uncertainty caused by COVID-19 we are not giving full year guidance for FY21.”

The company’s earnings were hit by the loss of key contracts with major retailers My Chemist and Chemist Warehouse during the year. The contracts contributed $1.7 billion in annualised sales, and ceased on June 30. The impact is reflected in the decrease in sales and gross profit for the year, as well as a decrease in warehousing and delivery expenses, plus a significant return in working capital evident in operating cash flow and on the balance sheet, and decreases in trade receivables, trade payables and inventory.

A loss of this volume from Sigma’s network resulted in employee redundancies and other restructuring costs from the closure of regional distribution centres, and the consolidation of network operations in Western Australia.

Sigma also recently began reviewing a sale and leaseback of its distribution centre network to unlock unrecognised value in land and buildings and strengthen the balance sheet.

“Early indications are that this portfolio of assets are now valued significantly above our original $160m capital investment. Realising this unrecognised value will generate significant opportunities to both reduce debt and pursue further growth options”, Mr Hooper said.

Mr Hooper commented: “It has been a challenging time with the bushfire crisis and now COVID-19, placing significant pressures on the supply chain. While we have seen a significant increase in demand for medicines and FMCG products for the first seven weeks of this financial year, it is impossible to predict how this will unfold for the remainder of this year.

“One thing I am certain of however, is the determination of our team, suppliers and pharmacists to continue to serve the community during this difficult period.”

Mr Hooper said the company’s wholesale team had achieved outstanding results in a challenging market.

“In the past year, we have onboarded a significant number of new customers who represent annualised sales in excess of $180 million. Importantly, they are a mix of customer type and location, adding to business diversification and sustainability,’’ said Mr Hooper

Excluding Chemist Warehouse and high-cost hepatitis-C sales, revenue from the remainder of Sigma’s ongoing business was up 8.5 per cent with growth from its customer base helping to overcome the ongoing impact of PBS price disclosure reform, which had a 1.6 per cent price impact over the course of fiscal 2020.

Sigma’s pharmacy brands have continued to perform above average market growth, with like for like sales across our brands up 11.7 per cent (excluding Hep-C).

“Our strategy has focused on helping our customers run better businesses,” Mr Hooper said.

“This in turn has led to great results from our voice of customer engagement, which is translating into improved business performance. Sales to franchise partners has performed strongly, and our brand member pipeline is healthy. We have also continued to innovate with the launch of the Amcal+ Life Clinic model, and the national expansion of the WholeLife brand.”