Pharmacy wholesaler and retailer Sigma Healthcare (ASX:SIG) says its significant drop in interim earnings is due to ongoing costs associated with the impending merger with retail chain Chemist Warehouse.
Sigma told the ASX on Wednesday that net profit for the half-year ending July 31 plunged 67%, down to just $3.7 million on a statutory basis.
The company attributed the fall to one-off costs related to the looming $8.8 billion deal, which still requires ACCC approval, for the merger and the new supply contract that accompanies it, replacing the one previously held with EBOS (Symbian) of New Zealand.
Revenue rose by 9.4%, reaching $1.84 billion, and the company will pay an unchanged interim dividend of half a cent per share.
Sigma stated that without the one-off costs, net earnings increased to $13.7 million on a ‘normalised’ basis.
Sigma also disclosed the full-year figures for Chemist Warehouse, which reported a net profit increase to $540 million for the year ending June 30, up from $302 million in 2022-23.
Chemist Warehouse reported revenue for the year to June 30 rose to $3.29 billion, up from $3.09 billion in the previous year. Gross profit surpassed the billion-dollar mark for the first time, reaching $1.043 billion, up from $917 million in 2022-23.
Under the deal announced last December, Sigma and Chemist Warehouse outlined a merger that would bring together Sigma’s wholesale pharmacy business, including the Amcal and Discount Drug Store pharmacy brands, with the larger Chemist Warehouse network, which consists of nearly 600 stores.
The Australian Competition and Consumer Commission (ACCC) has yet to approve the deal due to concerns over retail chemist competition in some areas of the country, such as parts of Melbourne.
A decision from the Commission is now expected by October 24.
In Wednesday’s statement, Sigma CEO Vikesh Ramsunder said the company had initiated a large new supply contract during the half-year, which “will underpin Sigma’s growth for the next five years and provide strong fixed cost absorption.”
Even after incorporating the new supply contract volumes, Sigma will still have approximately 35% available capacity in its wholesale business to support future growth ambitions without the need for major capital investment.
Shares fell by 2.4% and were down more than 3% at one stage, as investors, hoping for a positive update, remain focused on the Chemist Warehouse deal being finalised.