UPDATE: Ebos sees room for further acquisitions despite jump in gearing, capex

Thursday 24th August 2017

(Recasts, adds comment from CEO Davies, updates shares)

Ebos Group posted a 4.9 percent gain in annual profit and raised its final dividend saying it has room to make further acquisitions despite an increase in gearing that followed the debt-funded purchase of pharmacy outsourcing firm HPS.

Net debt climbed to $435 million in 2017 from $248 million in the previous year while gearing rose to 27.4 percent from 18.5 percent, according to Christchurch-based Ebos's annual accounts. Net debt to ebitda widened to 1.79 times from 1.14 times, which chief executive Patrick Davies said is "well within our tolerances."

"We've enough wiggle room to pursue further acquisitions," he said.

Ebos announced the acquisition of HPS, Australia’s largest provider of outsourced pharmacy services to hospitals, for A$154 million, adding to the Terry White Group (TWG) deal last October, when Ebos poured its Chemmart and VIM Health investment into TWG and gave the target company $19 million in cash in return for a controlling stake of just over 50 percent in the enlarged business. The latest deals round out a four-year, $470 million acquisition spree since Ebos transformed itself in 2013 with the purchase of Australian pharmaceutical wholesaler and distributor Symbion.

In that time the shares have gained 82 percent and underlying earnings per share have jumped 45 percent to 91.3 cents. The shares were unchanged at $17.61 today. Ebos said it is "confident of further profit growth into FY18 on an underlying, constant currency basis," and will update guidance at its annual meeting on Oct. 17.

In the latest year, capital expenditure rose to $37.6 million from $17.6 million in 2016. Ebos said it expects to incur "significant additional capex" in 2018 on new warehouses in Brisbane and Sydney, which will cost about $40 million on their own. Davies said the company currently has 4-5 logistics facilities under construction across Australia and New Zealand.

"We're right in the jaws of a major capex programme. When they are done we will pull capex down to more traditional levels" of $20 million to $30 million, he said.

Profit rose to $133 million in the 12 months ended June 30, from $127 million a year earlier, Ebos said. Revenue climbed to $7.6 billion from $7.1 billion.

Commenting on the HPS purchase, he said Ebos sees an ongoing trend of both government agencies and the private sector outsourcing pharmacy services and as an "existing and trusted partner of government" the company expected to pick up more of that market. "HPS is clearly the vehicle we will use to soak up more of that," he said.

Ebos's healthcare revenue rose 7.7 percent to $7.2 billion in the year and ebitda gained7.1 percent to $208.8 million. Of that Australian earnings rose 6.1 percent to $165 million and New Zealand contributed $44 million, up about 11 percent on the year.

Pharmacy revenue in Australia rose 11 percent, reflecting a full 12-month contribution from sales of hepatitis C medicines. Institutional healthcare sales gained 13 percent on a constant currency basis to $2.5 billion and consumer product sales rose 24 percent to $105 million. Contract logistics sales fell 1.4 percent to $485 million.

Animal care sales rose 2 percent to $423 million and ebitda climbed 5.7 percent to $44.7 million. Sales of Black Hawk pet food jumped 48 percent and the company recently rolled out the products in the New Zealand market, replacing the IAMS and Eukanuba ranges it used to distribute from Mars Inc.

"In the animal care market the competition is global giants - Mars and Nestle - and we need to compete against them," Davies said.

Ebos will pay a final dividend of 33 cents a share imputed to 25 percent and franked to 100 percent for Australian shareholders. That brings payments for the year to 63 cents, up from 58.5 cents in the previous year.

(BusinessDesk)

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