Ebos annual result flat as M&A costs hit bottom line

By Jenny Ruth

Aug. 22 (BusinessDesk) - Ebos is promising “a significant increase” in earnings this year as it reports a flat result for the year ended June.

Annual net profit rose to $137.7 million from $137.3 million the previous year while sales fell 0.8 percent to $6.93 billion, reflecting lower hepatitis C medicine sales in Australia and the impact of reform of Australia’s pharmaceutical benefits scheme.

Combined, those two causes reduced revenue by $425 million. Ebos says its underlying profit rose 5.2 percent.

A loss on the sale of surplus property, transition costs for new major warehouses and transaction costs all had a $6.7 million one-off impact on the bottom line.

Ebos spent $93.6 million on acquisitions and raised $175 million in fresh capital during the year.

The company estimates it has $300-350 million available for acquisitions while still keeping its net debt to earnings before interest, tax, depreciation and amortisation ratio between 1.7-2.3 times. That measure stood at 1.41 times at June 30.

“2019 has been a year of high activity and strategically important for the group as it has set the foundation for the next wave of growth,” chief executive John Cullity says in a statement.

“We commenced operations in two brand new facilities in Brisbane and Sydney providing further warehouse capacity. We also moved to 100 percent ownership of TerryWhite Chemmart, signed the Chemist Warehouse Group pharmaceutical contract and retained Blooms The Chemist, one of our largest independent pharmacy group customers,” Cullity says.

The Chemist Warehouse Group contract, which will add about $1 billion to sales, kicked in from July 1 and Ebos says the “big bang” start to supplying the group’s more than 450 stores across Australia “has been at our normal high standards of excellence, ensuring a very smooth transition.”

The company says it will update shareholders on the outlook for the current year at the annual shareholders’ meeting on Oct. 15.

Ebos will pay a final dividend of 37 cents per share, taking the annual payout to 71.5 cents, up 4.4 percent on the previous year.

The dividend, which will be paid on Oct. 11 to those on the register on Sept. 27, is fully-franked for Australian shareholders but only imputed to 25 percent for New Zealand shareholders.

Shareholders can elect to take shares in lieu of the dividend at a 2.5 percent discount to the volume-weighted average share price.

Cullity says the community pharmacy division continues to operate in highly competitive markets.

"We have withstood changing market dynamics and competitive pressures and delivered both solid underlying earnings growth and another strong cash result.”

The firm's cash-flow from operations fell 26.9 percent to $118.5 million while free cash flow eased 11.7 percent to $92 million, reflecting the costs of gearing up for the Chemist Warehouse Group business and the unwinding of cash benefit of the hepatitis C business.

The overall healthcare segment saw sales ease 0.9 percent to $6.5 billion while underlying ebitda rose 4.6 percent to $226.6 million.

Cullity says healthcare revenue in Australia fell 3.5 percent but underlying ebitda there rose 5.7 percent, “driven primarily by the performance of our institutional healthcare and Contract Logistics businesses.”

Cullity says the financial stability of the pharmacy industry is at a "critical juncture" with wholesalers being significantly impacted by reform of the pharmaceutical benefits scheme.

“Approximately 80 percent of distribution volumes now generate a margin of less than $1, given there has been no effective increase in wholesaler remuneration since 2010,” he says, arguing that the Australian government has to provide additional financial support if the wholesale industry is to maintain its service standards.

New Zealand healthcare earnings were flat with revenue growth of 8.7 percent largely offset by higher labour and freight costs in the wholesale business.

The healthcare segment’s consumer products division, which includes the Red Seal and Faulding brands, lifted revenue 4.9 percent, driven by both organic growth and the acquisition of Quitnits, a brand sold in Australian grocery outlets for treating head lice.

Ebos’ animal care segment lifted revenue 1 percent to $382 million and ebitda rose 5.7 percent to $48.3 million.

Cullity says the Black Hawk brand remains one of Australasia’s fastest-growing pet food brands with sales growth of 11.4 percent in the latest year.

Overall pet division sales were impacted by a manufacturer’s decision to bypass the wholesale channel which shaved about $21 million off revenue.

Ebos shares edged up 1 cent to $24.51 when trading opened and are up about 17 percent from a year ago.

(BusinessDesk)

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