Sigma has announced that it has made a new supply agreement with Chemist Warehouse
In a market update, the wholesaler announced that a new first-line agreement has been reached with the My Chemist/Chemist Warehouse Group for the supply of FMCG products.
The announcement follows a clarification earlier this month by Sigma in which it confirmed it was in negotiations with Chemist Warehouse.
The previous supply arrangement between Sigma and MC/CW was finalised at the end of the last financial year, following legal action by Sigma against the discount giant. At the time, Sigma claimed that under the then existing agreement, Chemist Warehouse was not entitled to source some products from a different CSO wholesaler.
Sigma ultimately dropped that action and a formal negotiation period was entered, after which it was decided that EBOS would take over the exclusive wholesale distribution of pharmaceuticals to MC/CWH’s more than 450 pharmacies from 1 July 2019.
In December 2018, it was announced that DHL would supply MC/CWH with front-of-store FMCG items directly into the pharmacy network.
The new agreement is effective from 1 December 2019, with the progressive build-up of supply expected to reach a full run rate by July 2020.
According to Sigma, the arrangements secure the first-line supply contract for four and a half years, with sales in the first full year of operations of approximately $700-800 million.
Other terms of the agreement remain commercial in confidence and follow an approach by MC/CW for Sigma to resume the supply of FMCG products, which had previously transitioned to another provider.
Mark Hooper, Sigma Managing Director and CEO said, “Sigma understands what is required to provide effective support on these product ranges, and the financial terms of the new agreement provide an acceptable return on capital employed for Sigma shareholders”.
“The investment we have already made in our distribution centres provides the efficient platform to absorb this volume, maintain our growth ambitions, and enhance our ability to better service our existing customer base which has achieved above market growth over the course of the year.”
Sigma advised its shareholders that initial work and costs will be required to transition in the volume associated with the MC/CW agreement.
This will delay the timing of some of the Project Pivot savings and is likely to impact FY20 EBITDA guidance, it warned. A market update will be provided once this has been worked through.
“More importantly, we expect our growth to accelerate in FY21 and beyond as we benefit from contributions from Project Pivot, efficiencies from our distribution centre investments, and the progressive ramp up of the CW contract,” Mr Hooper said.