Restructure costs halve Sigma profit

By Glenn Dyer | More Articles by Glenn Dyer

Shares in Sigma Healthcare slumped 11% after yesterday after the drugs supply group revealed the cost of cleaning up the company’s structure after losing the lucrative Chemist Warehouse supply contract.

Sigma said net profit plunged more than 50% in first-half profit to $13.4 million, partly due to restructuring costs following the loss its Chemist Warehouse supply deal.

The group took $6.1 million of restructuring costs in the six months to July 31 on top of the impact of a 2% drop in sales to $1.96 billion.

Directors said that fall was “largely impacted by the decline in low margin Hepatitis C medications and some impact from the up-scheduling of codeine-based products from February. Excluding Hepatitis C alone, sales revenue was up 3.2% to $1.82 billion.”

“The growth is a combination of volumes up 1% and an increase in sales in the Sigma Hospitals business, partly offset by PBS reform pricing adjustments.

Chief executive Mark Hooper said investment in new distribution infrastructure in NSW, Queensland, WA and SA is on schedule and under budget, and Sigma has hired financial services firm Accenture to help oversee the restructuring.

Mr Hooper maintained 2018-19 guidance of $75 million in underlying revenue.

“The second half set to benefit from costs already removed from the business. Management also continues to target FY20 Underlying EBIT in the range of $40 – $50 million, with greater clarity expected as the detailed business re-engineering program advances,” he said.

There was a bit of pain for shareholders – interim dividend was sliced to 1.5 cents a share from 2.5 cents a share previously.
That means the company will have to either borrow or use surplus cash to pay the reduced dividend which represents a payout ratio of 11.9% of profit (in total) against 80% a year earlier.

But investors were not convinced.

Sigma shares were down 11.5%, to 53.5 cents at the close yesterday in a market painted red by steep across the board falls with an overall fall of more than 1%.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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