Is Sigma set to boost its pharmacy spending as it deals with the aftermath of the CWH/EBOS deal?
Sigma Healthcare faces some difficult choices as it deals with the aftermath of the new deal between the My Chemist/Chemist Warehouse Group and the wholesaler’s rival EBOS Group.
Announced this week, the deal between EBOS and MC/CWH will kick in when the discount giant’s current deal with Sigma expires in June 2019.
The decision led to initial carnage for Sigma on the Australian Stock Exchange with its shares slumping by 37% to $0.505, according to market analyst Business Insider.
Based on current assumptions and excluding any acquisitions, Sigma anticipates underlying EBIT of
between $40 million and $50 million for FY20, with this year’s EBIT revised to approximately $75 million.
However its balance sheet will be improved by the return of over $300 million as the current
MC/CW payment terms unwind.
“This decision provides a clearer future and a runway to make the required changes to re-shape the operating and fixed cost base of our business,” said Mark Hooper Sigma Healthcare CEO.
“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,” he said.
“Over $300 million cash will be freed up at the conclusion of the contract which will enable us to expedite the execution of our strategy to diversify and strengthen our business with a broader healthcare focus.”
A spokesperson for Sigma Healthcare told AJP that the company remains “fully supportive” of pharmacy, and that the new situation would allow it to diversify its resources.
“Sigma has already been steadily increasing its commitment of resources to services in our pharmacies,” the spokesperson said.
“This will be very likely to increase now we have the opportunity to deploy more time, attention and resources into an area we have already identified as crucial in the future – delivering patients service programs through our pharmacy network.”
“Pharmacy is absolutely still core to our business.”