‘Very, very confident’: Sigma chief defends go-it-alone plan as jobs cut
Sigma Healthcare will cut about 500 staff this year as part of its plans to generate $100 million in annual cost savings when its Chemist Warehouse contract ends in July.
Sigma chief executive Mark Hooper remains “very, very confident” about the company’s future, saying the market has shown its support for two controversial decisions it has made over the past year: to end the Chemist Warehouse contract; and spurn the proposed merger with Australian Pharmaceutical Industries (API) last week.
Sigma’s full-year net profit dropped 33 per cent to $37 million for the year ending January 31, largely thanks to $10 million in restructuring and due diligence costs ahead of the Chemist Warehouse contract ending.
“Every decision we have made over the last 12 months has been the right one but the hard one,” Mr Hooper told analysts and investors on Thursday.
“The easy decision would have been to take the API offer … the easy decision would have been to agree to the Chemist Warehouse terms, but we’ve taken the right decisions that we think are ultimately going to deliver benefits for our shareholders.”
Sigma’s shares plunged last week when it announced the API merger proposal was not in the best interests of shareholders. API walked away from the proposal and said it was reviewing the 13 per cent stake in Sigma it acquired in December when it announced its plans.
Sigma shares closed 0.5¢ lower at 54.5¢ on Thursday, well ahead of the 40¢ they were trading at when API lobbed what was then a 68.6¢-a-share cash and scrip bid.
“It’s really pleasing to see that reflected in the share price,” said Mr Hooper of the market’s support for Sigma’s decisions.
API still faces a significant loss on its Sigma stake if it sells at the current share price. It acquired 84.76 million shares from fund manager Allan Gray at 64¢ each.
Allan Gray’s Simon Mawhinney, who supported the merger proposal, accepted Sigma’s decision to reject it but warned the onus was now on the company to deliver.
Sigma’s full-year results had already been well flagged to the market, but underlying earnings before tax of $76.2 million was slightly ahead of its guidance of $75 million.
Sales revenue fell 2.9 per cent to $3.98 billion, reflecting a $226 million decline in sales of “low margin” Hepatitis C medication.
Sigma reaffirmed its guidance for earnings before interest, tax, depreciation and amortisation (EBITDA) of $55 million to $60 million for the 2020 financial year. This excludes up to $35 million in costs associated with its restructure, triggered by the loss of the Chemist Warehouse contract, to extract $100 million in annual savings over the next 18 to 24 months.
The costs are expected to ramp up in the second half of the year after the Chemist Warehouse contract ends.
Sigma said it would close its distribution centres in Shepparton, Newcastle and Launceston with the loss of 300 employees and 200 agency staff. Sigma currently employs 1300 people.
It announced a final dividend of 2¢ a share, payable on April 4, and said its share buyback remained a “live option looking forward”.