Sigma Healthcare 1H24 earnings call highlights

Sigma Healthcare (ASX: SIG) shares dipped as much as 6% in early trade after its first-half 2024 results missed analyst expectations amid volatile labour costs and uncertainty around its merger with Chemist Warehouse.

1H24 Earnings Summary

All the below figures refer to normalised earnings, which exclude one-off costs.

• Net revenue up 17.3% to $1.84bn vs. Macquarie estimates of $1.69bn (8.8% beat)

• EBITDA up 6.3% to $31.1m vs. estimates of $38m (18.1% miss)

• NPAT up 303.6% to $13.7m

• Interim dividend of 0.5 cents per share (1H23: 5 cents)

• Full-year normalised EBIT guidance between $50-60m

Unclear whether or not these figures are comparable to Macquarie's 1H24 forecasts of $38 million EBITDA and $20.6 million NPAT.

Earnings Call Highlights

The below topics have been answered by CEO Vikesh Ramsunder and CFO Mark Conway.

First-half FY24 results: "On a normalised basis, we have grown revenue by over 17% in the half and with the successful onboarding of the new Chemist Warehouse supply contract."

Labour market: "Productivity dipped in the May to June period due to the onboarding of approximately 300 additional employees across the May and June period and an investment of 15,000 additional training hours for both existing and new employees."

Sigma and Chemist Warehouse merger: "The merger proposal between Sigma and the Chemist Warehouse Group is proceeding in line with our expectations ... The ACCC has identified an indicative date of October 24, 2024, to announce their findings from this review."

One-off merger costs: "After adjusting for the $11.2 million in one-off costs relating to the Chemist Warehouse merger proposal and new supply onboarding, normalised costs were up 2.4%."

Gross margin performance: "Overall, gross profit was higher for the period, reflecting the onboarding of the new supply contract in July. This was in part offset by the loss contribution of the hospital business."

Private label products: "We successfully launched 32 products in the first half ... We currently have 460 private label products in the market with a further 220 launching in the second half to help contribute to our FY26 results."

Outlook: "FY25 has started well with positive network sales momentum continuing like-for-like sales growth versus the previous corresponding period in network stores and more store openings."

Analyst Q&A Highlights

Examples of onboarding costs: "As you can imagine, recruiting sort of 300 people in a tight labor market, we needed to bring those on progressively. So the $2.8 million really reflects bringing those people on through May and June period. It also reflects the training efforts so additional employees needed to be backfilled while we train them."

Timing of Chemist Warehouse transaction: "We are dependent really on the ACCC, either approval or rejection and then we'll take the process from there. But as I've outlined, once we do get ACCC approval, if it is approved, there are several steps to consider before for that for timing really subject to the regulators at present."

Gross margin performance: "There's no doubt that margin remains under pressure, because, as you know, governments work very closely with manufacturers to reduce the price of medicines, and we earn a fee on the percentage of that price of medicine. So as the price of medicines comes down, there's certainly pressure on wholesalers."

Offset margin pressures: The way we try to offset that is by driving the growth of our private label exclusive brands so that we can sell more franchisee products, more of our own product to make up for the compression that you naturally get in margin."

Competitive landscape: "We certainly find more pressure on independent customers in the first six months of the first half. Interestingly, there were more second line independent customers than first line, which, as you can see, if you don't really service too many second line customers, you end up with more cost efficiency ... Although we've lost some customers, that loss has stabilised."

This article was generated with the support of AI and reviewed by an editor.