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Ebos's cash flow, balance sheet strong enough for dividends and acquisitions, Davies says

Wednesday 24th February 2016

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Ebos Group's businesses are spinning out enough cash that the animal and healthcare company can continue to make acquisitions and invest to grow, while meeting its target for returns to shareholders, said chief executive Patrick Davies.

Ebos stock rose 4 percent to $14.25 after the Christchurch-based company posted a 19 percent gain in first-half profit to $64 million and declared a bigger-than-expected interim dividend. The stock is up 41 percent in the past 12 months.

The first-half results show Ebos was holding cash of about $116 million at Dec. 31, up 68 percent from a year earlier, while unused debt facilities stood at $87.7 million. At the same time, the company's net cash inflow from operations jumped 53 percent to $46.6 million.

Ebos announced the $80 million purchase of New Zealand vitamin and herbal tea maker Red Seal last November, adding to a string of recent acquisitions including specialty pharmaceuticals firm Zest, Australian pharmacy retailer Good Price Pharmacy Warehouse and the BlackHawk Premium Pet Care pet food business. Davies declined to comment on reports Ebos was interested in buying current business partner Green Cross.

"The cash flow we're generating from the current crop of businesses if very good," Davies told BusinessDesk. "Our board policy on dividends is about 60 percent to 70 percent of net profit. The interim dividend is within that range and that's likely to continue. And it still gives us room to pay back debt and grow."

Davies said he is "very relaxed about where our balance sheet is today."

Hong Kong-based Zuellig took a 40 percent stake in the company when it sold Australian pharmaceutical wholesaler and distributor Symbion to Ebos in July 2013, transforming the company and tripling its revenue. Australia generates almost four times the revenue of Ebos's New Zealand operations, with 7.8 percent growth to $2.6 billion in the latest half. New Zealand sales climbed 9.7 percent to $737 million.

Davies reiterated that the company is ambitious to expand into Asia, a region where it has previously said access could be facilitated in partnership with Zuellig.

"We've started to do that a little bit with Red Seal," he said. "It's very early in that journey. There's demand for quality products that have a local market presence in New Zealand and Australia" such as vitamins, which do very well in supermarkets in Asia, he said.

The acquisition of Red Seal has increased Ebos's role as a brand owner and developer rather than just a distributor of third-party products, which meant taking responsibility for developing and marketing new products, but also offered higher profit margins.

Ebos's ebitda (earnings before interest, tax, depreciation and amortisation) margin widened by 14 points to 3.36 percent across its two divisions in the first half, although Davies said it was difficult to draw conclusions on margin given the spread of businesses.

"Really, the big revenue contributors, the wholesale and distribution businesses, typically margins are very fine," he said. "There's very large quantities of medicines and we clip a very small margin. Any time we can see a little bit of improvement, we're happy with that."

BusinessDesk.co.nz

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