Pharmacy Industry News: Sigma’s clean bill of health
Sigma’s clean bill of health
Chairman Brian Jamieson and his then-new chief executive Mark Hooper decided last year that Sigma Pharmaceuticals, despite its near-death experiences, did have a down-sized independent future and rejected what appeared to be a reasonable offer in the group’s distressed circumstances. Today’s results would appear to vindicate that decision.
While Sigma rejected the $650 million bid from South Africa’s Aspen Pharmacare, it did strike a deal with its suitor to sell its pharmaceutical division to that group for $900 million. That wiped out Sigma’s net debt, allowed it to pay a special dividend, and created a simpler and less volatile healthcare business focused on wholesaling and distribution and its own retail pharmacy brands.
Today Sigma reported a $26.7 million profit for the six months to end-July, which compares with a $211 million loss for the same half last year. That’s despite losing a contract to distribute Pfizer’s products, representing about 15 per cent of its sales, when Pfizer decided to distribute directly to pharmacists last year.
Sigma’s underlying sales grew 9 per cent and its earnings before interest and tax were up 55 per cent, so Hooper is generating some momentum in what remains a tough sector, where ongoing reform of the Pharmaceutical Benefits Scheme means the wholesalers are under continuing pressure.
Sigma was destabilised by a combination of poor management, too much debt and the difficult industry environment in which its former pharmaceutical business was operating in.
Its inability to extract synergies from acquisitions, blow-outs in inventory levels that inflated its working capital requirements, overly generous payment terms offered to large customers and heavy discounting were contributing factors.
The sectoral issues that afflicted its pharmaceutical business – intense competition for market share in generics in anticipation of a range of blockbuster drugs coming off patent over the next few years – were also an influence in Pfizer’s decision to take control of its own distribution.
Hooper has steadily reduced the group’s working capital position by improving (from Sigma’s perspective) the terms offered to customers and getting its inventory position under control. A year ago, working capital stood at $777 million. Today it is about $522 million.
He’s improved margins and cash flow conversion, with the group’s operating cash flows rising from $40 million to $106 million. Sigma has no net debt – it has net cash of about $88.5 million after making major debt repayments and paying the 15 cents a share special dividend earlier this year.
Future results should also benefit from Sigma’s coup in winning a contract to supply about 300 pharmacies previously aligned with its rival, Australian Pharmaceutical Industries, as well as from further reductions in costs and improvement in the detail of its businesses.
Its now pristine balance sheet, rising cash flows and improving returns on capital provide insurance against the probable contraction in the PBS scheme next year and the continuing ripples from the Pfizer decision.
Sigma may remain a work-in-progress but the decisions to reject Aspen’s bid, sell the pharmaceutical business and concentrate on better managing what was left appear to be paying off.
‘Good Leadership’ll Change Nigeria in 6 Months’
Former Minister of Health and Chairman Juli Pharmacy Plc, Prince Julius Adeluyi, has declared that Nigeria can turn around in six months, if only it has a good leadership, governance, and transparent structure in place.
Adeluyi was the guest speaker at the 2011 seminar and luncheon of the Professional Practice Group (PPG) of the Lagos Chamber of Commerce and Industry (LCCI) tagged: ‘A Roadmap to Enhance the Professional Business Environment: Best Practice’.
He said Nigeria was not faced with the issue of poverty alone but added that that there also exists a poverty of leadership and ideas.
In his words, “Nigeria does not have any business being poor because Nigeria naturally is not poor. All this can turn around in 6 months if we have good leadership. There is a poverty of leadership which we must address. The biggest problem we have in this country has to do with governance; the quality of governance at every level must be addressed.”
According to him, 80 per cent of all the money is in the hands of one per cent of the people, urging the chamber to press for good and transparent governance through an authoritative democracy. “If this is in place and we have good people to implement them, Nigeria will change in six months and this poverty will disappear,” he said.
“I will say there is a displaced priority. Until we have good leadership, governance, transparency and integrity driving the system corruption will continue, and when there is corruption progress is excluded,” he added.
He pointed out that it was difficult to preach ethics in Nigeria due to poverty, adding that the challenges were too many to be unethical.
In his words, “There are lots of people talking about ethics today that do not even practice it. Sometimes it is almost a crime to be ethical in a non-ethical setting. This is where the chamber of commerce must come out and say they are celebrating not because of their bottom line but showing people that even in this harsh operating environment business can still be done ethically.
“We must never give up. The Chamber, after it has strengthened itself, must make sure that it continues to do advocacy. If this chamber must change, it must select and utilise the younger generation and also partner with similar chamber formations. If you team up, you will have a good network and then you will have a good net worth such that if your name is mentioned in any particular forum what you will get is response and respect,” he said.
The President, LCCI, Otunba Femi Deru, said the theme of the seminar was significant to the declining ethical standards in the corporate world. He said best practices should be promoted and practiced by professionals in the country because it was the only way to curb unwholesome practices in the business community and the economy at large.
The Chairperson, PPG, Mrs. Toki Mabogunje, said the seminar was another opportunity to bring into focus important issues affecting the professionals and the economy.
She said, as part of the group’s contribution to the development of the professional practice, it was organising interactive sessions such as this seminar to address topical issues affecting the sector and the economy as a whole, while proffering solutions to the problems confronting operators within the sector.
She added that the group was one of the active and vibrant organs of the chamber, focusing on the impact of professional practice on the economy.