Sigma drops guidance on ERP setback

Sigma Healthcare shares took a hit on Monday after it updated its earnings guidance for FY22. With 10 months of the financial year complete, Sigma now anticipates underlying EBITDA to be down around 10% versus FY21.

Sigma noted that the update reflected a challenging second half of the year, which was been impacted by shorter-term operational issues resulting from the roll-out of its Enterprise Resource Planning platform, with the company switching to the SAP environment in August. These issues were compounded further by the protracted COVID-19 impacts. The combination of these factors in the second half of FY22 materially impacted sales and resulted in an unexpected increase in operating costs through the transition. One-off and non-operating costs are likely to be higher at around $25-$30 million. As a result, peak net debt will also be commensurately impacted.

Notwithstanding the ERP set-back, Sigma said it remains confident in its future growth profile, which was further underlined with the board recently approving the extension to its new Victorian Distribution Centre in Truganina. This will see $20 million invested to double existing capacity to 40,000 square metres to accommodate the company’s growth pipeline ahead. The extension is expected to be completed over the next 18-months.

Sigma had undertaken an extensive transformation program over the past four years that it expects will put them on a strong footing for its new CEO Vikesh Ramsunder to execute the company strategy, focussing on actions to accelerate long-term growth and improve margins. The company said it remains focused on growing its core business, whilst continuing to build on business expansion opportunities across areas such as Hospital Services, Contract Logistics and medical devices and consumables.

Interim Chief Financial Officer Jeff Sells commented: “A total ERP upgrade is a significant change management program for any company, and whilst we reached go-live on this project broadly on budget and on time through a pandemic, we have faced additional challenges in the context of completing implementation through the height of COVID-19 restrictions. Unfortunately, this has had some significant impacts on our customers, and we are rectifying these issues as quickly as possible. We are confident the actions already taken and in progress will see the technical challenges with our ERP implementation largely confined to FY22. However, these issues have affected sales in FY22 which will flow through to FY23 sales, with the impact expected to abate as we progress through FY23.”