Sigma Healthcare's Financial Performance Boosted by New Supply Contract

Financial Performance Overview

Sigma Healthcare Limited has reported a robust financial performance for the first half of the fiscal year 2025, ending 31 July 2024. The company achieved a normalised net revenue of $1.84 billion, marking a 17.3% increase compared to the previous period. This growth is attributed to the commencement of a new 5-year supply contract with Chemist Warehouse Group (CWG), which is expected to contribute $3.0 billion in annualised revenue.

Normalised EBITDA rose by 6.3% to $31.1 million, while statutory EBITDA fell by 45.7% to $20.0 million due to one-off costs related to the CWG merger proposal and upfront costs for the new supply contract. Normalised EBIT increased by 20.6% to $18.0 million, whereas statutory EBIT decreased by 69.4% to $6.9 million.

Operational Highlights

The new CWG supply contract, which began in July 2024, is expected to bring in approximately $2.0 billion per annum in new revenue. Sigma has demonstrated its ability to efficiently absorb a 40% increase in volume, leveraging its existing infrastructure without significant capital expenditure.

Like-for-like sales across Sigma's retail brands, Amcal and Discount Drug Stores, increased by an average of 13%, reflecting the successful execution of the company's retail brand strategy. The performance of these brands was further recognized by consumers, with Amcal winning Canstar Blue’s 2024 Most Satisfied Customer Award (Pharmacies).

Cost Management and Efficiency

Despite the increased volume, Sigma managed to keep warehouse and logistics costs down by 0.1%, showcasing its operational efficiency. The company invested an additional $151 million in inventory to prepare for the new supply contract, ensuring a smooth transition and uninterrupted service to its customers.

Statutory operating expenses for the first half of 2025 were $140.2 million, up 10.4% from the previous period. However, on a normalised basis, operating expenditure increased by only 2.4%. Depreciation and amortisation expenses decreased by $1.2 million to $13.1 million, benefiting from Sigma's reduced capital expenditure requirements.

Future Outlook

Sigma operates in a competitive but defensive market segment, resilient to macro-economic downturns. The company expects to continue benefiting from the new CWG supply contract and has approximately 35% available capacity to absorb future growth without major capital investments. Sigma has provided normalised EBIT guidance of $50 to $60 million for the full year.

The company is also in advanced negotiations with the Federal Health Minister and Department of Health for a new industry funding agreement, expected to conclude in the coming months. Additionally, the ACCC is set to announce its decision on the proposed merger with CWG by 24 October 2024.