Sigma Pharmaceuticals says it is well placed to pursue growth opportunities, and will buy back up to 10 per cent of its shares.
The drugs wholesaler and pharmacy support services provider on Thursday booked a net profit for the six months to July 31 of $26.1 million, down 2.1 per cent from the prior corresponding period.
Sigma, which is behind pharmacy retail brands Amcal, Amcal Max and Guardian, said sales for its first half rose despite pricing reforms to the Pharmaceutical Benefits Scheme (PBS) in April 2012.
Sales lifted 3.5 per cent to $1.4 billion as the company gained market share.
But earnings and profit fell, mainly because a $4 million inventory gain from the sale of the company’s pharmaceutical division to Aspen Australia in January 2011 was not repeated in the first half of fiscal 2012.
Operating costs, especially in warehouse and delivery expenses, were higher, reflecting the impact of a strike at the company’s Victorian distribution centre in February and March, and increased activity resulting from higher sales.
Sigma said cutting costs would be a focus for the company in future.
“Sigma is building a reliable, predictable and agile business that is well placed for growth in 2013,” chief executive Mark Hooper said.
Sigma declared a fully franked interim dividend of two cents per share, up from 1.5 cents at the same time in the previous year.
The company said similar dividends were expected in the future, due to strong operating cash flows.
Sigma also announced that it would undertake an on-market share buyback of up to 10 per cent of its shares and may consider other forms of capital management.
Mr Hooper said Sigma’s share buyback and strong potential dividend payout ratio did not indicate that the company had run out of ideas for growth.
“We’ve got a whole pile of money that we think we can give back that doesn’t compromise the other growth initiatives and options we think we have in front of us,” he said.
He said a 10 per cent share buyback would cost about $70 million to $80 million, which would leave Sigma with between $40 million and $50 million in net cash.
Mr Hooper said trading conditions for the second half of Sigma’s fiscal year were likely to be similar to the first half.
The retail pharmacy environment was still challenging, but Sigma would not be sitting around, wringing a hanky (handkerchief).
“We can hopefully position the Sigma business, together with out pharmacist partners, to deliver on some of the solutions that we think can ameliorate those impacts,” Mr Hooper said.
This could involve creating a wider range of services in pharmacies rather than just having a pharmacist sitting in the dispensary handing out prescription drugs.
Sigma would also seek to make more sales directly to consumers by boosting its on-line operations.
Mr Hooper said PBS growth was likely to be flat in the next 12 months but Sigma’s objective was still to grow sales year-on-year.
Shares in Sigma were two cents lower at 67 cents.
