Ebos posts gain in full-year profit as sales lift
Ebos Group [NZX: EBO] posted a 20% gain in full-year profit and lifted its dividends as revenue topped $7 billion, expecting further 2016 earnings growth.
Profit rose to $127 million, or 84c a share, in the 12 months ended June 30, from $105.9 million, or 70.8c, 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% 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 is 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 the 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 flowing 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," says Mr Davies. Ebos would likely retain its current holding in the event of a listing.
The 2016 results show Ebos' operating cash flow surged 68% to a record $224 million in the latest year while return on capital employed rose to 16.3% from 13.7%.
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% gain in revenue to $6.68 billion and a 15% increase in earnings before interest, tax, depreciation and amortisation (ebitda) 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% 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% in the latest year.
Asked whether Ebos would remain a long-term owner of the pet products business, Mr Davies says 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 for our group."
The company raised its final dividend by 30% to 32.5c a share, making it 58.5c for the year, up 25% from 2015. That amounts to a payout ratio of 70% of profit, at the top end of the 60-to-70% range it targets.
The result "reflects our ability to capture the growth opportunities that continue to emerge within our prime business segments," says Mr Davies.
"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 at June 30, from $317 million a year earlier, reducing its gearing ratio to 18.5% from 23.2%.
Mr Davies, who headed Symbion for six years before the merger, says part of the success of the group's expansion was the Symbion acquisition took on a business which didn't need repairs and had characteristics 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 says.
Mr Davies is confident 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 $A2 billion will see Ebos sell its Chemmart business into Terry White and then subscribe for shares in the enlarged company. He expects more consolidation in the sector.
Ebos shares climbed 2.1% to $17.55.
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