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UPDATE: Ebos lifts annual earnings 10.3% as pharmaceutical, animal health margins expand

Thursday 23rd August 2018

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Ebos Group boosted annual earnings in line with its forecast even though revenue fell, as the pharmaceutical and animal health products company increased margins and benefited from acquisitions.

Underlying earnings before interest, tax, depreciation, amortisation on a constant currency basis increased 10.3 percent to $272.4 million in the year ended June 30, in line with its forecast for 10 percent growth. Revenue slipped 2.5 percent to $7.6 billion. The company's healthcare business lifted its ebitda profit margin to 3.28 percent from 2.9 percent, while the animal care unit expanded margins to 12.08 percent from 10.57 percent.

Ebos has lifted ebitda 55 percent since 2014 as it pursued acquisitions across New Zealand and Australia and has invested $33.6 million on in the past year. Its latest investments included a 14 percent stake in Australia's leading digital medication management company MedAdvisor, the acquisition of New Zealand's leading footcare consumer brand Gran's Remedy, and the purchase of the management company of Australian pharmacy retail group Ventura Health. In addition, it integrated HPS, Australia's largest provider of outsourced pharmacy services to hospitals, which it bought at the end of last financial year, and launching its premium pet-food brand Black Hawk into the New Zealand market.

"We have been a very acquisitive company but what can also be overlooked is that we are growing organically as well," chief executive John Cullity told BusinessDesk. "The strategy is very much to continue building our healthcare business and our animal care business across both Australia and New Zealand."

Ebos said it is confident of further profit growth in the current 2019 financial year on an underlying, constant currency basis. It will provide a performance update at its annual shareholder meeting on Oct. 16.

The company's growth saw its net debt increase to $471.1 million as at June 30, from $434.7 million a year earlier, although its net debt to ebitda ratio improved to 1.74x from 1.79x. Its net cashflow from operating activities lifted to $176.2 million from $143.9 million a year earlier.

Cullity said the improved cash position gives the company additional acquisition capacity of about $150 million.

He said the company's current focus was "very much" on Australia and New Zealand.

"We still think there’s still capacity and there’s still opportunities for us to undertake within those markets," he said. "There may come a time in the medium to long-term where we look to overseas markets but I don’t think we have reached that point yet.

"What does pleasantly surprise us is that as the group does get bigger I feel the number of opportunities in front of us also increase."

Ebos is a minnow in global terms, dwarfed by large international players such as McKesson Corp, Cardinal Health, and Henry Schein which are many times its size.

The company will pay a final dividend of 35.5 cents per share on Oct. 12, taking its annual dividend to 68.5 cents, ahead of 63 cents in 2017.

The shares slipped 0.7 percent to $20.86, having gained 19 percent over the past year. 

In its healthcare business, ebitda increased 10.4 percent to $235.9 million on a constant currency basis, as revenue fell 2.3 percent to $7.2 billion due to a $364 million reduction in hepatitis C medicine sales.

Animal care ebitda grew 9 percent to $49.8 million on a constant currency basis as revenue slipped 5.1 percent.

The company said Black Hawk sales in Australia grew 23 percent and was one of Australia's fastest growing premium pet food brands with a leading market position in the pet specialty retail channel.

"Total animal care revenue declined for the year principally due to the business ceasing sales of low-margin wholesale products to a major Australian retail chain and discontinuing sales of other products upon the introduction of Black Hawk into New Zealand," Ebos said. "The business has strategically realigned its focus on developing its own brands to drive greater margin and shareholder value."

Ebos signalled plans to report earnings in Australian dollars in the future, given about 82 percent of its earnings are now generated in Australia and its results are significantly impacted by movements in the currencies.


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