Sigma’s new CEO Vikesh Ramsunder unveils path back to profit

Australia’s biggest pharmaceutical wholesaler, Sigma Healthcare, has slumped to a full-year loss as Omicron disrupted the launch of a new software system.

Sigma Healthcare's new chief executive Vikesh Ramsunder expects the company to return to profit this year.

Australia’s biggest pharmaceutical wholesaler, Sigma Healthcare, says labour – not technology – is the main reason it swung to a full-year loss after it commissioned a new distribution centre and software system at the height of the Omicron outbreak.

Sigma closed its distribution centre at Rowville in Melbourne’s southeast to move into a new facility at Truganina on the opposite side of the city in January.

At the same time, it launched a new enterprise resourcing planning (ERP) system while the highly infectious but less severe Covid variant sparked chaos across supply chains, forcing large percentages of staff into isolation.

For Sigma, the disruption meant it could not train its staff at Truganina to use the ERP system – which had one-off implementation costs of $30m – leading to lost sales across its customer base that not even a spike in demand for Covid rapid antigen tests could offset.

As a result, the company – which owns the Amcal, Guardian and Discount Drug Stores brands – reported a loss of $7.24m in the 12 months to January 31, compared with a $43.53m net profit in the previous year. Sigma had previously told investors the loss could be as much as $10m.

Sigma’s new chief executive Vikesh Ramsunder – who replaced Mark Hooper last month – said training staff to use the system was challenging. But he expected the situation to stabilise by the end of April and be ironed out fully by January next year.

“The biggest challenge has actually been change management,” Mr Ramsunder said.

“It’s not so much the stability of the system or technical changes. People are doing a lot of new things. The system is new, they’re learning, they’re adjusting and teams have trained during Covid … (with) restrictions.

“So we’re having to go through a process again. Getting people to be proficient using the system, and it takes time because people learn and adjust at different pace.”

Overall, Sigma’s full-year revenue firmed 1.3 per cent to $3.4bn, with most of the gains recorded in the first six months.

“While revenue was up 5.5 per cent in the first half, the second half bore the brunt of lost sales from our core customer base due to the challenges experienced during the ERP implementation and move to Truganina,” Mr Ramsunder said.

“The negative sales impact was cushioned by high volume growth in sales of Covid-19 RAT kits in January 2022. This growth extended into the new financial year, but demand has slowed in line with lower rates of infection.”

Mr Ramsunder’s appointment comes as Wesfarmers finalises its $763m takeover of Sigma’s rival and Priceline owner, Australian Pharmaceutical Industries.

Sigma is hoping Mr Ramsunder’s retail acumen, which spans three decades at South Africa’s Clicks Group – which has a $6bn market capitalisation and owns brands including The Body Shop, GNC and Claire’s – will sharpen the company’s competitiveness.

But Mr Ramsunder said it was “too early” to say which tools he would deploy to tackle the challenge from Wesfarmers.

“I just want to get the basics right. You can’t build anything on a foundation that’s not strong.

“With eight weeks at Sigma now behind me, I will work with my team to sharpen our strategic focus and operational execution to prepare the business for growth that is built on a platform of delivering exceptional customer service, ultimately leading to strong shareholder returns.”

Since June last year, Sigma’s pharmacist partners have administered 650,000 Covid vaccines.

Mr Ramsunder said its hospital business grew stronger than the market, with revenue up 5.6 per cent. Sigma has a 10 per cent share of the hospital pharmacy distribution market.

The company did not provide guidance but said it expected to return to profit. It said the capital investment cycle over the past four years was ending with the expansion of the Truganina distribution centre and building of a new centre to support its Tasmanian customers.

“This will collectively see around $40m-$45m invested in FY23, with capital expenditure to then return to more normal operating levels of $5m to $10m per annum,” Mr Ramsunder said.

“We are entering a year where the disruption will progressively wane, and the investments made can begin to be optimised.”

It will pay a dividend of 1c a share, fully franked, on April 21. This takes this year’s total payout to 2c a share.