Ebos group’s revenue tops $7 billion

Terry White Chemist_in store pharmacy photo (2)Ebos Group posted a 20 percent gain in full-year profit and lifted its dividends as revenue topped $7 billion for the first time, saying it expects further earnings growth in the current year.

Profit rose to $127 million, or 84 cents a share, in the 12 months ended June 30, from $105.9 million, or 70.8 cents, a year earlier, Christchurch-based Ebos said in a statement. Sales rose to $7.1 billion from $6.1 billion, exceeding brokerage Forsyth Barr’s $6.7 billion forecast.

Ebos shares have climbed 69 percent in the past 12 months, more than twice the S&P/NZX 50 Index’s gain, as the medical consumables and pet products group throws off enough cash to pay dividends, repay debt and continue making acquisitions, the latest being a deal flagged this month to merge its Australian Chemmart pharmacy chain with rival Terry White Group, taking a half stake in the enlarged business and potentially listing it down the track.

That deal, which requires approval of Terry White shareholders, would allow Ebos to reap synergies from a larger retail group and benefit its wholesale division because “we would pick up the additional wholesale business that flows from that,” chief executive Patrick Davies told BusinessDesk.

“Some time down the track we could separately list that vehicle on the Australian exchange” giving it access to a broader market “should it need to raise capital in the future or do deals that are easier as a listed company,” he said. Ebos would likely retain its current holding in the event of a listing, he said.

The 2016 results show Ebos’s operating cash flow surged 68 percent to a record $224 million in the latest year while return on capital employed rose to 16.3 percent from 13.7 percent.

The company transformed itself in 2013 with the purchase of Australian pharmaceutical wholesaler and distributor Symbion, its biggest-ever deal, and has since bought New Zealand vitamin and herbal tea maker Red Seal, pharmaceuticals firm Zest, Australian pharmacy retailer Good Price Pharmacy Warehouse and the BlackHawk Premium Pet Care pet food business.

Its healthcare division posted an 18 percent gain in revenue to $6.68 billion and a 15 percent increase in earnings before interest, tax, depreciation and amortisation to $195 million. The revenue split was $5.3 billion from Australia and $1.4 billion from New Zealand, while the ebitda split was $155 million and $39.8 million respectively.

Its animal care division posted a 10 percent gain in sales to $415 million and ebitda growth of $42.4 million, helped by a full 12-month contribution from BlackHawk, which was acquired in October 2014 and achieved sales growth of 55 percent in the latest year.

Asked whether Ebos would remain a long-term owner of the pet products business, Davies said the company asks itself across all its businesses whether it is still the logical owner. “In animal care, we’ve had such a terrific run. We still think there are opportunities there for our group.”

The company raised its final dividend by 30 percent to 32.5 cents a share, making 58.5 cents for the year, up by about 25 percent from the year earlier. That amounts to a payout ratio of 70 percent of profit, at the top end of the 60- percent-to-70 percent range it targets.

The result “reflects our ability to capture the growth opportunities that continue to emerge within our prime business segments,” Davies said. “Ebos Group has recorded a strong financial performance in 2016 and the company is confident of further profit growth into FY17 on a constant currency basis.”

Strong cash flow also allowed Ebos to repay debt, which fell to $248 million atJune 30, from $317 million a year earlier, reducing its gearing ratio to 18.5 percent from 23.2 percent.

Davies, who headed Symbion for six years before the merger, said part of the success of the group’s expansion was that in acquiring Symbion it was taking on a business that didn’t need repairs and had characteristics that were familiar to Ebos. It was critical through the acquisition “to hold onto and motivate all the key executives at Symbion and across the business,” he said.

Davies said he is confident that the Terry White deal will be consummated in October. The transaction to create one of Australia’s largest retail pharmacy networks with annual sales of about A$2 billion will see Ebos sell its Chemmart business into Terry White and then subscribe for shares in the enlarged company. He said he expects more consolidation in the sector.

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