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Sigma confident of turnaround plan after profit slide

Pharmaceutical retailer Sigma Healthcare’s net profit fell 33.1 per cent to $37 million in FY19, down from $55 million in the prior corresponding period.

Total revenue also decreased in the year to January 31, 2019, falling 2.9 per cent to $3.98 billion, compared to $4.09 billion in FY18.

The business declared a final dividend for FY19 of 2 cents per share, and Sigma chairman Brian Jamieson stated the business remained committed to returning a high proportion of its NPAT to shareholders.

Sigma also shared with investors further details about Project Pivot, the turnaround initiative it unveiled after dropping its Chemist Warehouse contract in September 2018, including over $100 million of efficiency gains to be enacted over the next two years.

“Whilst a large proportion of the cost savings come from extracting costs incurred to directly deliver services to [Chemist Warehouse], additional cost savings will come from a restructure of functional areas within Sigma, and changes within our DC network,” Sigma chief executive and managing director Mark Hooper said.

“This work has already commenced with plans and timeframes communicated to our DC team members in March.”

As part of these changes, Sigma will cut staff and close three distribution centres, in Shepparton, Newcastle and Launceston, by October 2019.

The retailer recently refused an offer to merge with Priceline owner Australian Pharmaceuticals Industries on the grounds that it undervalued its long term prospects, and that the $60 million of savings the combined company was forecasted to make was not as efficient as its own $100 million savings plan.

API countered this claim last week, stating that the cost savings Sigma cites are uncertain and unclear, and that the company has so far released little information in regards to its restructure.

“While the Sigma Board is not philosophically against industrial consolidation, the assessment of management, the Board and our advisors was united – this proposal was not in the best interest of Sigma shareholders,” Jamieson, the company’s chairman, said.

“Our Project Pivot review and the cost efficiencies to flow from it, along with the structural reforms we are implementing to provide step change to our operations, give us great confidence in the direction we are heading and the future of our business on a standalone basis.”

Sigma has reaffirmed its EBITDA guidance for FY20 of $55-60 million, with the savings of Project Pivot not likely to come into effect immediately. Hooper had previously stated it was unlikely EBITDA would return to FY19 levels until FY23.

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