Despite its optimism, drugs maker and distributor Sigma Pharmaceuticals would probably wonder why its 2007 annual result was given a bit of a roughing up by the market yesterday.
The shares fell 8c to $2.55 despite signs the merger with Arrow Pharmaceuticals was paying off with a solid pipeline of new generic drugs, higher sales and margins and of course better profits.
Perhaps investors were taken aback by the ‘static’ in the result from the new accounting rules or perhaps the result had been well anticipated by last week’s short run up in the shares above $2.60 so some easy profits were taken.
The market overall was up by around half a per cent and the healthcare sector on the whole was better with small price rises for rivals Symbion (+1c to $3.71) and API (+6c to $2.12).
The outlook commentary seemed confident enough with SIP expecting underlying profit growth of 10 to 15 per cent for the 2007-08 financial year.
Sigma reported a full year net profit for 2006/07 of $101.8 million, which was down 2.9 per cent on the prior year but before tax earnings rose 34.1 per cent to $134.6 million, showing the impact of the Arrow merger which happened in December 2005.
According to some brokers the underlying result looked a bit short of pre-release estimates with some forecasting earnings up around the $120 million mark.
Sigma said the main reason for the decrease in net profit after tax (NPAT) was the impact of a significant item in the 2006 result.
As a result of Sigma’s merger with Arrow Pharmaceuticals, Sigma was required to restate tax values for various Sigma assets.
Consequently, a tax benefit of $36.6 million was recognised in the financial statements, of which $3.4 million was recognised in the current financial year and $33.2 million in 2006 prior year, which depressed this year’s result on a comparative basis.
“We forecast underlying NPAT growth of between 10 to 15 per cent for 2007/08,” Sigma managing director Elmo de Alwis said in a statement announcing the results.
Sigma said that profit after tax for the underlying business, excluding plant rationalisation and restructure costs, was up 15.4 per cent to $104.6 million.
Sigma said the higher profit came from a full 12-month contribution from the Arrow business and continued market share gains in the underlying business.
The company’s pharmaceuticals operations performed strongly, with earnings before interest and tax (EBIT) up 15.5 per cent to $127.4 million, while healthcare operations saw EBIT rise 13 per cent to $56.2 million.
Mr de Alwis also said that ‘Embrace’, the company’s program to bring more pharmacies into the Sigma fold continued to build momentum, with more than 830 pharmacies so far committed to a long-term business partnership with Sigma.
That is looking like the most important development to come out of the company over the past year, apart from confirmation that the Arrow merger is producing results.
Sigma’s sales revenue for the year to January 31 rose 24.4 per cent to $2.69 billion, again reflecting the impact of joining with Arrow.
Sigma will pay a final dividend of 5.15 cents per share, bringing the total dividend for the year to 8.75 cents.
The company says it is less interested in another tilt at Australian Pharmaceutical Industries after two goes in 2006.
