Pharmacies supplier and drugs wholesaler Sigma Healthcare says it will be more aggressive in seeking acquisitions that will help reduce its reliance on government payments.
Sigma, the owner of pharmacy brands Amcal, Guardian and Chemist King, on Thursday reported a 3.5 per cent lift in net profit to $55.1 million in the year to January 31, due to fewer one-off costs than in the prior year.
Underlying earnings before interest and tax (EBIT) fell 10 per cent 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 exit of some pharmacies in Queensland that were not complying with Amcal store branding requirements.
Sigma chief executive 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.
“We’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.”
Sigma has 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 changes to the PBS as the government seeks to cut costs has made supplying drugs to the PBS less profitable for drug wholesalers.
Last year, 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.
“MPS is a great example: it’s a service for patients both in an aged care and community setting,” Mr Hooper said.
“It leverages off the existing business because we physically supply the product to MPS, but it’s a services-based income stream.”
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 in fiscal 2018/19.
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.
Shares in Sigma were down 7.75 cents, or 8.8 per cent, at 80.25 cents at 1515 AEDT.
LOWER HEP C DRUG SALES HIT SIGMA UNDERLYING PROFIT
* Net profit up 3.5pct to $55.1m
* Underlying profit down 10.5pct to $59.9m
* Revenue down 5.4pct to $4.13b
* Final dividend down 0.5 cents to 2.5 cents, fully franked