Future focused healthcare Annual Review 2018/19 Our Vision The preferred partner for connecting health solutions Contents 01 Our Strategy for the Future 22 Supporting the Community 02 Chairman’s Report 24 Supporting the Environment 04 CEO and Managing Director’s Report 26 Board of Directors 06 Retail Pharmacy Services 28 Executive Leadership Team 09 Initiatives 29 Key Corporate Contacts 10 Distribution Centres Infrastructure Build 30 Consolidated Statement of 13 Supply and Logistics Services Comprehensive Income 14 Sigma Hospital Services 31 Consolidated Balance Sheet 17 mps 32 Five Year Summary 18 Supporting Our Team 33 Contacts ABN 15 088 417 403 Sigma Healthcare Limited Our Strategy for the Future Connecting Health Solutions We continue to invest in and expand our for Customers professional service offerings and support for our network of branded and independent At Sigma, we aim to leverage our national pharmacies to help them become better footprint of Distribution Centres to supply businesses, including TGA approved products and services to over 5,500 medication management solutions to community pharmacies, to public and help better manage health outcomes private hospitals, and to institutional health for all Australians. providers. We offer 3PL and 4PL logistics services to support our manufacturing In all markets where we operate, we partners bring products to market. are customer-centric, benefits driven, and outcome focused. We look for opportunities to grow our core business, extend our reach into new markets, and enhance the efficiency and effectiveness of our business, and our customers’ businesses. +1.0m +$250m ~20 % Dose Administration Aids medication invested in an efficient and effective of consumer spend in pharmacy packettes packed each week Distribution Centre network to is at one of our branded stores enhance customer support Sigma Healthcare Limited Annual Review 2018/19 01 Chairman’s Report Prudent management of our capital remains a strong focus of the Board, with Return on Invested Capital continuing to be a critical factor in our investment criteria. The past year has been an important • Underlying Return on Invested Capital 3. Capital management – Ensuring an period for Sigma. Whilst we have had our of 12.2% ongoing disciplined focus on return challenges, significant decisions and actions • Earnings per share of 3.8 cents on capital employed; and have been taken to pivot our business for • Total dividends per share of 3.5 cents 4. People and Culture – Ensuring we future long-term success. have the right organisational structure, • A dividend payout ratio of 80.1% alignment, and intellectual capital to Financial Performance of underlying NPAT take us forward. The financial results we delivered this year Consistent with our strong emphasis on slightly exceeded our updated guidance Transformation Program aligning senior management remuneration provided to the market July 2018 and to shareholder value, performance incentives In October 2018, Sigma management confirmed in September. The results were not paid in respect of the current year commenced a broad and far reaching review however did not meet our own expectations (other than those relating to safety). of our business. The review was prompted at the start of the year. This was due to by the decision not to renew the My Chemist/ several contributing factors, including softer What has gone to plan this year is our Chemist Warehouse (MC/CW) contract, retail sales conditions and the ongoing attention to the initiatives that will sustain however we are also taking the opportunity impact of PBS price reform, which was much our future success. They are: to fundamentally transform and reposition larger than anticipated. As a result, Sigma the Sigma business. Whilst much of the has delivered: 1. Transformation program – Setting a findings from this review are commercially clear roadmap to pivot Sigma to a more • Revenue of $3.97 billion, down 2.9% sensitive, it has given the Board tremendous efficient version of ourselves with strong confidence that: • Underlying EBITDA of $89.7 million, and targeted growth aspirations; down 9.7% • The core of our strategy remains 2. Investment focus – Ongoing investment appropriate but will be supported by more • Underlying NPAT of $46.3 million, in critical infrastructure to support our targeted implementation; down 13.7% growth and the growth of our customers; 02 Annual Review 2018/19 Sigma Healthcare Limited • We have the levers to achieve a step the coming year, with construction well In December 2018 we agreed a new $500 Our Future change in our operating costs to better advanced on our new DC at Kemps Creek million debt facility which includes a three- At the time of writing, Sigma had formally reflect our future business operations. in New South Wales and Pooraka in year, $250 million facility with the balance rejected a merger proposal put forward by Indeed, the review has identified over South Australia. an overdraft facility and short-term debt Australian Pharmaceutical Industries (API). $100 million of efficiency gains to be with timing linked to the release of working This decision was made after a thorough captured from targeted improvement On completion, this investment is an capital at the end of the MC/CW contract. assessment, with Management, the Board programs across the business; important component of our ability to drive and our advisors united that it was not in step change in our operations, with the Sigma also has a long history of paying a • We can better leverage our existing the best interests of shareholders. capabilities and capacities to organically program providing strong payback on the high percentage of profits as a dividend, automation, even with the loss of volume and this year is no exception. We are pleased grow our core, and in particular to pursue More importantly, our recently completed from the end of the MC/CW contract. to reward shareholders with a final dividend new business opportunities; and business review has validated that Sigma of 2.0 cents per share, bringing the total in has a very clear and strong future as a stand- • We have the financial capacity, capability, We are also embarking on an IT respect of the year to 3.5 cents per share, alone business with growth opportunities willingness and opportunity to expand infrastructure upgrade that will see the which represents a payout ratio of 80.1% providing further upside. our operations including through implementation of an ERP system that of underlying NPAT. targeted acquisitions. enables the integration of core processes. We remain focused on improving our Meanwhile, the step up in our investment business, driving operational efficiencies, This transformation program is fully Importantly for our customers and cycle over the last 12-months has meant a and looking for opportunities to organically supported by the Board and will be a major shareholders, the DC and IT system more tempered approach to our share buy- and acquisitively grow Sigma’s business. initiative over the coming 18-24 months. investments enhance our operating efficiency back program. The share buy-back program and bolster our capacity to target new does however remain an open option for As we embark on a transformational Investment Focus business opportunities, including organic the Board and management to consider. year for Sigma, I would like to take this growth and potential acquisitions. Over the past three years, Sigma has opportunity to thank our loyal shareholders. implemented a program to upgrade our People and Culture We understand it has at times been difficult network of Distribution Centres (DC) across Capital Management Perhaps not surprisingly during this period to hold, however we are very focused the country. This investment has seen the Prudent management of our capital remains of significant challenge and change, our on driving business improvement and successful opening of facilities at Berrinba a strong focus of the Board, with Return on engagement and culture surveys have sustainable shareholder value. I would also in Queensland and Canning Vale in Western Invested Capital continuing to be a critical highlighted the need for greater clarity of like to thank my fellow Directors and our Australia. This program will continue over factor in our investment criteria. purpose and direction, to maintain efforts wonderful team members at Sigma, who are to build a climate of trust and respect, and collectively going through some challenging Whilst our net debt position has increased enhancements to meaningful two-way times but stand as one as we forge a path to $243 million at year end, this is the result communication. Management is actively to truly becoming the preferred partner of a deliberate strategy to leverage into our responding. Several initiatives have been for connecting health solutions. investment in physical DC infrastructure. implemented, including the refinement of Sigma’s strategy and future direction, which was rolled out across the business in February 2019, and structured and regular communications across the business. Brian Jamieson Chairman Sigma Healthcare Limited Annual Review 2018/19 03 CEO and Managing Director’s Report Our focus is less on trying to replace the quantum of revenue, but very much on profitably growing sales, expanding our customer base and reach, and continuing to diversify our risk away from a reliance on PBS medicines. The challenges we have faced and review, which identified the opportunity