EBOS Group has announced that it has won the tender to act as the exclusive third party distributor to the My Chemist Group
EBOS will deliver pharmaceutical products to the more than 400 Chemist Warehouse and My Chemist stores across the country.
Both the parties expect to enter into a five-year supply agreement, to take effect from 1 July 2019, with the potential to extend it for another three years.
EBOS says it estimates that sales to the Chemist Warehouse Group will generate around AUD$1 billion in revenue in the first year of the agreement.
EBOS Group CEO John Cullity says that to be chosen to partner with the Chemist Warehouse Group is an endorsement of the Group’s significant growth over the past five years.
It had acquired Symbion in 2013, and now has annual sales revenue of about NZ$7.5 billion and a market capitalisation of NZ$2.7 billion.
“To be selected as a trusted partner by Chemist Warehouse Group reinforces our capital investment strategy and reflects the efficiencies we have made over a number of years to our operation,” Mr Cullity says.
“It’s a great endorsement of EBOS’s wholesale pharmacy business, and reflects the high level of expertise and service standards that we offer the industry more broadly.”
Mr Cullity says that growing its health care business remains a high priority for EBOS, and that the Chemist Warehouse partnership is a “natural progression”.
EBOS Group Chairman Mark Waller says the group has invested well to ensure it is well placed to service an agreement of this nature.
“We’re very well equipped to meet growing demand across the entire industry, including from our existing customers, and continue to uphold the high standards we set.”
Meanwhile Sigma said that discussions between it and the My Chemist group had “reached the stage where the proposed terms for a contract extension could not be agreed”.
“We made it clear at the start of the negotiations that we would only enter into a new contract if it made commercial sense and provided an adequate return on invested capital,” Sigma Managing Director and CEO Mark Hooper said.
“We are not prepared to risk significant shareholder funds without adequate and sustainable returns.”
He said that the move provides a “clearer future and a runway to make the required changes to re-shape the operating and fixed cost base of our business”.
More than $300 million in cash will be freed up at the contract’s conclusion, which Mr Hooper said will enable Sigma to expedite the execution of its strategy to diversify and strengthen the business with a broader healthcare focus.
Sigma also revised its guidance to an underlying EBIT of around $75 million, following the continuation of softer market conditions.
“The decision on the MC/CW contract creates an important pivot point for Sigma,” Mr Hooper said.
“It may be a step back in our short term financial results, but it improves the risk profile of our earnings and also releases significant capacity to better leverage our infrastructure and resources in areas that can provide long term sustainable growth.
“The medium term target is to put Sigma in a position where earnings will be at the same level as if it had retained the MC/CW contract on the terms proposed but with the added benefit of the release of $300 million of funding and a substantially de-risked business.”
Sigma will continue to supply Chemist Warehouse and My Chemist pharmacies until 30 June 2019, under the terms of the existing supply arrangement.