Sigma's profit drop

Yesterday Sigma reported a first half net profit of $30.3 million, down 39 per cent on the prior corresponding period.

Sigma also said it expected an underlying net profit of $88 million to $93 million for the 2008 financial year, excluding the effect of interest associated with a previously announced share buyback.

In July, Sigma had forecast underlying net profit for fiscal 2008 to be in line with the prior year's $104.6 million.

Before that, Sigma had forecast the same profit line to grow 10-15 per cent in fiscal 2008.

Sigma managing director, Elmo de Alwis, said the result and the revised profit forecast was extremely disappointing and reflected a particularly challenging period for both Sigma and the industry.

"Despite the sales growth, margins have declined when compared with the corresponding half year, reflecting the impact of increased generics competition, the government’s CSO program which is not delivering in line with expectations, and the non-compliance with generics and OTC commitments of the Embrace program," he said.

Mr de Alwis said while the Embrace program, launched 12 months ago, continued to attract new members, it had not delivered in line with expectations.

"While the industry continues to express enthusiasm for our Embrace program, as evidenced by increasing membership, Sigma has not achieved compliance. The incremental returns that the program was designed to achieve will not be fully realised in the current financial year.

"Measurement and enforcement of compliance is now the key focus of our sales teams; which, in time, will enable the program to deliver the full benefits," he said.

Other factors in the profitability dive included deferred product launches for a number of generic and OTC products and underperformance of the Herron brand.