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Summary
- Cost rationalisation initiatives have delivered strong results during the pandemic, while JobKeeper payment also added to strong earnings.
- The company seeks to return towards profitable growth from FY22. It has a target EBITDA margin of 15%.
Paragon Care Ltd (ASX:PGC) has reported improved profitability and cashflows. The medical device company has released first-half FY21 results.
It has been working on a cost rationalising strategy over the last year. As a result, the company delivered $7 million through initiatives in inventory, facilities consolidation, and freight management. These savings were in addition to $3 million JobKeeper payments in Q1 FY21.
While revenue fell 5% to $115 million, its EBITDA was up 63% to $14.7 million. Paragon said marketing and travel expense cuts added to the gains in EBITDA. Overall, it expects cost savings to be sustainable, but travel expenses would increase as the economy re-opens.
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During the half-year, the company also paid $14.3 million in earn-outs related to previous acquisitions. Cash flows would improve from the second half because only $1 million is left in vendor conditional payables.
Cost initiatives taken by the firm are also delivering reduced working capital cycle and improved cash management. In H1FY21, the company had a working capital cycle of 133 days, down 28 days from 161 days in the same period last year.
Net profit after tax improved by 271% to $5.2 million from $1.4 million. At the end of the period, the company had cash of $26.6 million and net debt of $76.3 million.
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Paragon Care has been aggressive in its acquisition. It had completed 17 acquisitions between FY15 and FY18. Earning contribution is also diversified across products and services. During the half-year, the company’s revenue rose in devices and diagnostics but fell in capital & consumables and service & technology.
Paragon Care expects flat revenue in FY21 and growth in FY22. The company has an EBITDA margin target of 15% and gross margins of over 38% from 2H FY21. The Board remains committed to paying dividends, and a dividend reserve was created for the resumption of dividend payments.
PGC shares were trading at $0.26, down 3.7% on Tuesday.
