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Sigma to expand in hospitals market

Sigma Pharmaceuticals hopes to expand its activities in providing medicines for hospitals as it continues to become less reliant upon revenue from the Pharmaceutical Benefits Scheme.

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The drugs distributor and pharmacy support provider has been focusing on increasing its non-PBS-related revenue, including income from over-the-counter drugs and products, specialist services provided by pharmacists, and fees from marketing and promotion.

“Certainly, in hospitals we see a significant opportunity for growth,” chief executive Mark Hooper said on Thursday.

Mr Hooper said Sigma’s business in the $2.5 billion hospitals market was small at the moment, generating $80 million to $100 million in revenue in Victoria.

Sigma wants to push up the east coast into NSW and Queensland hospitals.

“I don’t think, from an earnings perspective, you’ll see anything significant in the current year, but I would expect you’ll start to see something from next year on,” Mr Hooper said.

Sigma, whose pharmacy banners include Amcal, Amcal Max and Guardian, reported a statutory net profit of $18.9 million in the half year to July 31, down 15.5 per cent from $22.4 million in the prior corresponding period.

But, stripping out accounting adjustments related to the acquisition of Discount Drug Stores and Central Healthcare Services in 2014, Sigma’s underlying net profit rose 23 per cent to $27.6 million.

Sigma said profit growth came from diversifying the group’s business and moving away from reliance on PBS revenue.

Non-PBS revenue now represents 43 per cent of Sigma’s total revenue, up from 40 per cent for the same period last year.

Sigma has benefited from higher sales of over-the-counter products, such as the Boots Laboratories skin care range, and more profitable private label and exclusive products.

Revenue was also boosted by a full six-month contribution from Discount Drug Stores and Central Healthcare Services, which were acquired in 2014 and are performing ahead of expectations.

PBS-based revenue is expected to remain flat to declining, as government reforms to make medicines cheaper continue to have an impact.

Sigma said the outlook for the remainder of the 2016 financial year and beyond was positive.

One priority is a new contract with Chemist Warehouse, Sigma’s biggest customer, with the current contract expiring in October.

Morningstar analyst Chris Kallos said Sigma had produced a good result.

Its acquisitions were performing above expectations, the private label business was good, and the group’s diversification strategy was working.

Sigma shares were two cents lower at 74 cents, at 1424 AEST, in line with heavy falls across the broader stock market.

NON-PBS REVENUE HELPS BOOST SIGMA

* Statutory half-year net profit down 15.5pct to $18.9m

* Underlying profit up 23pct to $27.6m

* Revenue up 11.5pct to $1.67b

* Interim dividend of two cents per share, fully franked. No dividend in prior corresponding period.

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