Sigma Healthcare Limited (ASX: SIG) is a leading Australian pharmaceutical wholesaler founded in Melbourne in 1912. As a wholesaler, their distribution centres receive over 265 million units from pharmaceutical manufacturers, packing and dispatching more than 12 million totes and cartons every year.
In Australia, they operate over 880 franchised pharmacies across four brands, Amcal, Chemist Warehouse, Discount Drug Stores and My Chemist.
The Group also (now merged with Chemist Warehouse) partly owns 50 retail pharmacies in New Zealand, 10 retail pharmacies in Ireland, and 2 in Dubai. They are planning an additional 10 to be operated in China through services agreements with local companies.
Financial Position & Cash Flow
Sigma reported a substantial increase in revenue, reaching $4.8 billion, a 45.7% rise compared to the previous year. This growth was driven by the successful onboarding of the Chemist Warehouse Group (CWG) and the commencement of a new five-year supply contract.
Despite macroeconomic challenges such as higher interest rates and cost-of-living pressures, Sigma’s normalised earnings before interest and tax (EBIT) surged by 183.5% to $68.0 million. However, statutory EBIT was impacted by merger-related costs, resulting in a decrease to $21.7 million. Cost of goods sold rose significantly by 46.90% to $4.56 billion.
Sigma’s balance sheet remains strong, with total assets amounting to $1.83 billion, up 32.85%, and net assets of $839.3 million. Their largest asset, trade and other receivables, rose 199.85% to $952.72 million. Total liabilities rose 96.17% to $991.29 million while total equity fell 3.82% to $839.28 million.
The company ended the fiscal year with a net cash position of $14.6 million, down from $356.5 million the previous year, primarily due to investments in working capital to support the new CWG supply contract. Operating cash flow was negative $315.6 million, reflecting increased payments to suppliers and employees.
Warehouse and delivery expenses were up $15.7 million while sales and marketing expenses rose 16.4% and advertising and marketing expenses increased $4.7 million which was attributed to new franchisee support costs and higher media campaign spend to promote the Amcal brand.
On the 10th of February, Sigma terminated their existing bank debt facilities with a total limit of $500 million to mature in November 2026, they entered into a new secured syndicated facility with a total of $1.5 billion to mature in February 2028.
Strategic Merger with Chemist Warehouse
A pivotal moment for Sigma Healthcare was the merger with CW Group Holdings Limited, the parent company of Chemist Warehouse. The Federal Court of Australia approved the scheme of arrangement on February 3, 2025, and the merger was completed on February 12, 2025. There was a consideration of $0.44646929 in cash and 6.31829351 new Sigma shares for each Chemist Warehouse share they held as of the record date on February 6th, 2025.
Post merger, CWG shareholders own 85.75% of the merged entity while Sigma shareholders hold the remaining 14.25%. The main operational synergies expected include operational efficiencies and scale, particularly in distribution and retail pharmacy services.
This strategic move is expected to create a leading ASX-listed healthcare company, enhancing Sigma’s service offerings and expanding growth opportunities both domestically and internationally.
Operational Achievements
Sigma’s operational performance remained strong throughout the year, with productivity levels in its distribution centres surpassing previous records. The company maintained high service levels, evidenced by consistent delivery in full (DIF) and dispatch on time (DOT) metrics, averaging 99% each month.
The integration of CWG into Sigma’s operations was seamless, demonstrating the strength and efficiency of Sigma’s management team.
Dividend Policy & Remuneration Report
Due to the merger and the transition to a new financial year ending June 30, Sigma Healthcare did not declare a final FY25 dividend. The company has received relief from ASIC to align its financial reporting with Chemist Warehouse’s fiscal year. This strategic alignment is expected to streamline operations and reporting processes for the merged entity.
The annual report also includes detailed information on executive remuneration. The CEO and CFO received 100% of their maximum short-term incentive (STI) awards, reflecting their pivotal roles in the merger process, the CEO/Managing Director was awarded a 3.5% increase and the CFO a 2.5% increase to their fixed renumeration. Non-executive director fees were increased by 7% during the year, acknowledging the significant workload associated with the merger.
Outlook
Looking ahead, Sigma Healthcare is poised for continued growth and expansion. The merger with Chemist Warehouse is expected to drive value creation for shareholders and enhance Sigma’s competitive position in the healthcare industry. The company’s strategic initiatives and strong operational performance and financial position provide a solid foundation for future success.
