AUS
NZ
UK
CA
USA
IND
Highlights
- Sigma Healthcare reports a 67% drop in interim earnings due to merger costs with Chemist Warehouse.
- Chemist Warehouse achieved strong growth with a net profit of $540 million for FY2024.
- The ACCC's decision on the Sigma-Chemist Warehouse merger is expected by October 24, 2024.
Sigma Healthcare Ltd (ASX:SIG), a leading pharmacy wholesaler and retailer, has reported a significant decline in its interim earnings for the half-year ending July 31, 2024. The company attributed this 67% drop, resulting in a statutory net profit of $3.7 million, to the ongoing costs associated with its impending merger with Chemist Warehouse, impacting the ASX healthcare stock.
Merger Costs Impacting Results
The merger deal, valued at $8.8 billion, is set to bring Sigma's wholesale pharmacy business together with Chemist Warehouse’s extensive retail network, which includes almost 600 stores across Australia. However, these one-off costs related to the merger and the accompanying new supply contract have had a noticeable impact on Sigma’s bottom line.
Despite these challenges, Sigma saw revenue increase by 9.4%, reaching $1.84 billion during the half-year period. Additionally, the company will maintain an interim dividend of half a cent per share. Excluding the one-off costs, Sigma’s net earnings increased to $13.7 million on a normalized basis.
Chemist Warehouse's Strong Performance
In contrast to Sigma’s interim results, Chemist Warehouse reported impressive full-year results. For the year ending June 30, 2024, Chemist Warehouse saw its net profit rise to $540 million, up from $302 million the previous year. Revenue also increased to $3.29 billion, marking a jump from $3.09 billion in 2022-23. Gross profit crossed the billion-dollar threshold for the first time, reaching $1.043 billion, compared to $917 million in the previous year.
Merger Outlook and ACCC Approval
The proposed merger between Sigma and Chemist Warehouse was first announced in December 2023. As part of the deal, Sigma’s wholesale pharmacy business, which includes brands like Amcal and Discount Drug Store, would integrate with Chemist Warehouse’s retail operations. However, the merger is still awaiting approval from the Australian Competition and Consumer Commission (ACCC), which has raised concerns about competition in certain retail pharmacy markets, particularly in parts of Melbourne.
A decision from the ACCC is expected by October 24, 2024.
Sigma’s Future Growth Strategy
In the company’s statement, Sigma CEO Vikesh Ramsunder noted that Sigma had initiated a significant new supply contract during the half-year. This contract is expected to drive growth over the next five years and provide strong fixed-cost absorption for Sigma. Even with the additional volume from the new contract, Sigma will still have around 35% capacity available in its wholesale operations to support future growth without the need for major capital investment.
Market Reaction
Following the announcement, Sigma Healthcare (ASX:SIG) shares experienced a decline of 2.4%, briefly falling over 3% during the day. Investors remain focused on the finalization of the Chemist Warehouse merger, which could have a substantial impact on Sigma’s future performance and market position.
As the market awaits the ACCC’s decision on the merger, Sigma’s long-term outlook could see a significant shift, potentially creating a more dominant player in the Australian pharmacy landscape.
