UPDATE: Ebos outlook subdued after Symbion acquisition driven profit boost

Wednesday 27th August 2014

Ebos Group is unlikely to repeat a trebling of annual profit fuelled by last year acquisition of the Symbion pharmaceutical wholesaler and distributor in Australia, where regulatory changes are putting pressure on the sector.

The $1.1 billion cash and scrip Symbion purchase in June 2013 was a game-changer for the Christchurch-based healthcare and animal care manufacturer company, more than tripling annual revenue in a deal that gave Symbion’s owner Zuellig Group a cornerstone 40 percent stake in the New Zealand business. Net profit jumped to $92.1 million, or 62.8 cents a share, in the year ended June 30, its first full year after the acquisition, from $28.2 million, or 46.8 cents, a year earlier, it said in a statement, while sales soared 216 percent to $5.76 billion.

"It is pretty difficult to compare to the prior year because of that acquisition, which is a huge material uplift in their earnings," said Sam Trethewey, investment analyst at Milford Asset Management. "The big thing that really hurt them was the currency rate against the Australian dollar, that hurt their earnings when you translate it back into kiwi dollars. The result was in line, or slightly below what the market was expecting."

Australia now makes up 78 percent of sales and 80 percent of pretax earnings for the group. Changes to the country's Pharmaceutical Benefits Scheme has seen the Australian government reduce the number of drugs it funds, putting pressure on the drug retailing sector as a whole.

Ebos was coy on its outlook, saying while it faced "on-going regulatory challenges in our pharmacy markets we have always demonstrated innovative ways to generate earnings growth and we are confident that our management team can continue the company’s strong track record of growth into FY15."

Milford's Trethewey said it was unlikely 2015 would again see a trebling in profits but a falling New Zealand dollar against the Australian currency would support some growth, even as the Australian Federal government cuts to PBS funding in coming years squeezes margins for the pharmaceutical sector.

"It is a pretty subdued growth outlook for at least half their business," he said.

Ebos's healthcare segment's earnings before interest, tax, depreciation and amortisation rose 212 percent to $153 million, although the earnings margin slipped to 2.8 percent from 3 percent, while sales at the company's Australian pharmacy business were little changed from a year earlier. The company's animal care division reported a 100 percent jump in sales to $338.9 million and a 58 percent increase in Ebitda to $29.4 million, while the Ebitda/revenue margin shrank to 8.7 percent from 11 percent.

The company will pay a final dividend of 20.5 cents a share on Oct. 17, imputed at 35 percent. That takes payments for the year to 41 cents.

Shares of Ebos edged up 0.1 percent $9.46 in morning trading, and have slipped 2.6 percent this year while the benchmark NZX 50 Index rose 9.7 percent. The stock is rated a 'hold' based on the consensus of five analysts polled by Reuters, with a median price target of $10.29.

BusinessDesk.co.nz

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