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API chair expects Sigma deal to be signed shortly

Australian Pharmaceutical Industries (API) chairman Mark Smith told shareholders on Wednesday that he expects to sign a non-disclosure agreement with Sigma Healthcare shortly, which will kick off a due diligence process to commence the proposed merger of the two businesses.

API offered a 69.3 per cent premium on the Sigma share price on December 14, 2018, in an effort to bring the Priceline Pharmacy, Pharmasave, Soul Pattinson Chemist and Chemist King under one roof.

Should the due diligence and regulatory approval go through, the merger will provide the best opportunity to deliver significant benefit to consumers, shareholders and the independent pharmacy community, according to Smith.

“In the face of slowing revenue growth and compressed margins in the wholesaling sector, this would provide scale and volume, giving greater scope for the ongoing investment in technology,” Smith told investors at the company’s AGM.

“Such investment would ensure a more competitive, sustainable and more efficient wholesaling model.”

The merger is expected to create infrastructure and back office cost savings and could provide community pharmacies with beneficial trading terms, potentially allowing them to offer lower retail prices on pharmaceuticals and associated health and beauty products.

According to Smith, the combined business would deliver annualised pro-forma gross cost savings of approximately $60 million per annum by year three.

What’s in store for 2019?

API chief executive Richard Vincent updated shareholders on what to expect from the business in 2019, confirming he expects to commence a Priceline Pharmacy “click-and-collect” trial later in the calendar year, allowing customers to order online and pick up their purchases at the most convenient store.

However, the company’s trading performance has “remained patchy” over the holiday period.

“In the Priceline Pharmacy network like-for-like sales in December were flat on the prior year despite the general weakness reported across retail,” Vincent said.

“To the middle of January like-for-like sales for the year were 0.7 per cent down on the prior year while overall health and beauty market share has been held over the year to November 2018.”

According to Vincent, the group’s Priceline Pharmacy and Clearskincare networks are set to record growth at the end of February. Group earnings before interest and tax are expected to be up 5 per cent year-on-year for the first half of the 2019 financial year.

“We expect this operational performance to remain sound, bearing in mind that results for the first half will also see an increase in financing costs, largely due to to funding required for the acquisition of shares in Sigma,” Vincent said.

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