The Sigma Healthcare Ltd (ASX: SIG) share price will be on watch on Thursday following the release of the embattled pharmacy chain operator and distributor's full year results.
Here's how Sigma performed in FY 2019 compared to the prior corresponding period:
- Revenue down 2.9% to $3.98 billion.
- Underlying EBITDA down 9.2% to $90.5 million.
- Underlying net profit after tax down 22.7% to $46.3 million.
- Reported net profit after tax down 37% to $37 million.
- Underlying earnings per share of 4.8 cents.
- Final dividend of 2 cents per share, bringing its total dividend to 3.5 cents per share.
Although this was a very disappointing 12 months for Sigma, the market may respond positively to this result as it has come in higher than its guidance.
The company's underlying EBIT result, which excludes restructuring and due diligence costs, came in at $76.2 million. This was 1.6% higher than its underlying EBIT guidance of $75 million provided to the market in September.
In addition to this, excluding Hepatitis C sales, the company's sales would have been 2.9% higher year on year to $3.75 billion. This was driven by growth in Sigma Hospitals and MPS medication management services businesses. Sales of the low margin Hepatitis C medicines fell $226 million or 50% during the 12 months.
Looking ahead, the company's business transformation program is underway following the completion of the initial diagnostic review by Accenture which identified over $100 million in efficiency gains over the next two years.
Management advised that this is a significant program of work that will also rebase Sigma's operations to a more efficient cost base with greater capacity for growth following the end of the contract with MyChemist/Chemist Warehouse in June 2019.
Sigma's CEO and managing director, Mark Hooper, appears optimistic on the company's future thanks to the business transformation program.
He said: "The recent events have provided the catalyst for us to undertake a detailed review of our operations to ensure we have a sustainable business operating efficiently, but importantly one that adopts a growth mindset to capture the emerging opportunities we see for the business."
Before adding: "We are confident with our ability to execute our strategy to deliver these savings. This work has already commenced with plans and timeframes communicated to our DC team members in March."
Outlook.
Sigma confirmed its EBITDA guidance of $55 million to $60 million for FY 2020. This will be a 34% to 39% decline on FY 2019's underlying EBITDA result.
Should you invest?
Although I would have preferred to see the company merge with rival Australian Pharmaceutical Industries Ltd (ASX: API), if Sigma can deliver the $100 million of efficiency gains over the next two years then it could prove to be a great investment at the current level.
However, I intend to stay clear of its shares until these efficiency gains start to show up in its results.
Until then, I would sooner buy healthcare shares such as CSL Limited (ASX: CSL) or ResMed Inc. (ASX: RMD) instead.
