Review proves Sigma can thrive without API deal, says CEO
Sigma Healthcare chief executive Mark Hooper says the pharmaceuticals group “absolutely” has a future as a stand alone company – if it is unable to reach suitable merger terms with Australian Pharmaceutical Industries (API) – after unveiling details of its strategic review on Monday.
Sigma said it had identified $100 million in annual cost savings after completing a four-month strategic review which maps out the company’s future after the lucrative Chemist Warehouse contract ends this year.
“Sigma as an independent company has a positive future,” Mr Hooper told The Sydney Morning Herald/The Age on Monday.
“The program has now identified cost efficiencies over $100 million per annum, which will be delivered over the next 18 to 24 months,” Mr Hooper said.
The cost savings will enable underlying earnings to rebound to 2019 levels by the 2023 financial year, according to Sigma which also announced that “high-level due diligence” has commenced with with API.
Sigma shares rose more than 5 per cent to 59¢ on Monday. API’s share and cash offer is currently worth 63.5¢.
Following the review, Sigma reaffirmed its underlying earnings before interest and tax (EBIT) guidance of $75 million for the 2019 financial year.
It is now forecasting underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of $55 million to $60 million for the 2020 financial year.
Cost efficiencies from the strategic review were then expected to deliver double-digit earnings growth up until the 2023 financial year, which will see EBITDA return to FY2019 levels.
“Pleasingly, this outcome is achievable without assuming any upside from acquisitions,” Mr Hooper said.
The loss of the Chemist Warehouse contract will free up around $300 million cash for further acquisitions to boost “invest in income streams that build off the same infrastructure,” Mr Hooper said.
It gives the company a strong base to negotiate from with suitor API.
Sigma shares soared 45 per cent on December 14 after API snatched up a 13 per cent stake in its rival and unveiled a $726 million indicative takeover bid subject to due diligence.
Speaking of the API proposal on Monday, Sigma chairman Brian Jamieson said: “We are open to continuing discussions on identifying potential merger opportunities, but this needs to be assessed in the context of what is in the best interests of Sigma shareholders.”
The API proposal is subject to Australian Competition and Consumer Commission (ACCC) approval.