Chemist Warehouse merger target Sigma reports 149% FY24 profit jump

This could be the last set of results from Sigma as we know it if its merger is approved.

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The market may be charging higher today, but the same cannot be said for the Sigma Healthcare Ltd (ASX: SIG) share price.

The shares of the pharmacy chain distributor and operator, which is planning to merge with Chemist Warehouse, are down slightly to 1.5% to $1.20.

This follows the release of the company's full-year results this morning.

Sigma share price falls on results

  • Net revenue down 9.2% to $3.3 billion
  • EBITDA up 3.9% to $51.5 million
  • Net profit after tax up 149% to $4.5 million
  • Partially franked final dividend of 0.5 cents per share.

What happened in FY 2024?

For the 12 months ended 31 December, Sigma posted a 9.2% decline in net revenue to $3.3 billion. This reflects its decision to dispose of its hospital distribution business during the year and elevated sales of Rapid Antigen Tests in FY 2023 that have not repeated.

Nevertheless, the company's EBIT came in 20.4% higher year on year at $23.2 million, with reported net profit after tax increasing 149% to $4.5 million. This includes initial costs of $8.2 million relating to its proposed merger with Chemist Warehouse.

Excluding merger transaction costs, EBIT was $31.4 million and net profit after tax was $12.7 million for the year.

Management advised that it was able to deliver strong earnings growth despite its revenue decline thanks to efficiencies. Sigma's CEO and Managing Director, Vikesh Ramsunder, said:

With our operating performance strong, we have been able to drive efficiencies across our business, reducing total operating costs by 10.7% after absorbing merger proposal costs, providing a catalyst for our current and future financial performance. The company-wide simplification program and divestment of non-core assets has delivered a leaner operating model.

Outlook

The company has re-affirmed its medium-term EBIT target of 1.5% to 2.5% on a standalone basis.

This compares to its EBIT margin (before Chemist Warehouse merger costs) of 0.95% for FY 2024.

Chemist Warehouse merger update

Ramsunder spoke briefly about the proposed merger with Chemist Warehouse, once again reiterating the benefits of the move. He said:

This merger proposal is truly transformational for Sigma. It will diversify our earnings and growth profile whilst also creating opportunities for Sigma to enhance the support provided to pharmacy owners, helping them to profitably grow their business and better support their communities.

Sigma submitted its submission to the ACCC in February, and on 8 March the competition regulator commenced a public consultation process. Mr Ramsunder is hopeful that a decision on the merger could be made in the second half of 2024. He adds:

This is a significant and complex transaction which will require a detailed review by the regulator. There will be community interest and a wide consultation process which adds to the complexity of predicting timeframes. We are hopeful of a decision from the ACCC in the second half of the calendar year, which will precede a number of other steps required to reach completion.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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