Trading conditions for May and June 2018 have not been favorable for this healthcare group, Sigma Healthcare Limited, which plunged about 38% on July 02, 2018, 3:20 PM AEST. The group delivered a weak trading update; and based on excluding any acquisitions and current assumptions, Sigma anticipates underlying EBIT of between $40 million and $50 million for FY20. Importantly, Sigma’s balance sheet will be improved by the return of over $300 million as the current MC/CW payment terms unwind. However, the group will be witnessing a shortfall in sales in FY19.
The medium term strategy will be to focus on further cost reductions in the structural rationalization of the Sigma DC network, business and targeted sales opportunities including hospitals and 3PL/4PL contracts. Further, SIG aims to deliver the same or better return metrics and the return of significant funds to Sigma also enhances their ability to look at other M&A opportunities in the short to medium term that fit their strategic direction.
The group has highlighted that the decision on the MC/CW contract creates an important pivot point for Sigma. It may be a step back in the short term financial results, but it improves the risk profile of earnings and also releases significant capacity to better leverage infrastructure and resources in areas that can provide long term sustainable growth.
The medium term target is to put Sigma in a position where earnings will be at the same level as if it had retained the MC/CW contract on the terms proposed but with the added benefit of the release of $300 million of funding and a substantially de-risked business.
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