Sigma Healthcare (SIG:ASX) FY 2026 earnings call transcript

Good morning. I'm Vickes Ramstrander, the Chief Executive of Sigma Healthcare, and welcome to our full year results presentation for the 12 months ending June 2026. I'm joined here today by Mark Conway, our Chief Strategy Officer, and Gary Woodford, our Head of Corporate Affairs and Investor Relations. Richard Murray, our CFO, is unable to join us today as he had a medical procedure on Tuesday and is recuperating at home.

We wish him a speedy recovery and expect him back at work next week. Mark Ponway, who was Sigma's CFO pre-merger, will fill in for Richard today, and we are fortunate to have the management bench strength in the business. In terms of today's agenda, I will provide an overview of the group's performance. Mark will then go into the financial performance in more detail, and I will then provide you with an overview of our operational highlights, strategic insights, and priorities for the year ahead.

Firstly, the strength and strategic execution of our business model is continuing to deliver strong results. We have a network approaching 1,000 pharmacies globally with a solid pipeline of growth in each market. This brings significant scale that leverages our existing infrastructure capabilities and expertise and is underpinned by defensive industry characteristics. With most of the infrastructure in Australia already in place and a clear runway for growth, we are confident the model will continue to compound value.

Let me start with the headline numbers for the year. Group revenue grew 15.5% to $10.8 billion. That fell through to stronger EBIT growth, which increased over 20% to almost $1.1 billion. To put that in context, in the prospectus ahead of the merger, for a former EBIT for FY24 was $605 million. This demonstrates that the merger is working and strong value has been created for our stakeholders.

Net profit after tax increased 22% to $732 million. Importantly, we delivered this while maintaining a conservative balance sheet with a net debt-to-normalized EBITDA ratio of just under 0.6 times.

And our capitalized model in Australia continues to convert growth into strong return on invested capital, which is over 19% for the year. For shareholders, that translates into normalized EPS of 6.4 cents per share, up 22%, and a final dividend of $0.02 per share representing a payout ratio of approximately 63%. This brings total dividends for FY26 to $0.04 per share.

The financial highlights I've just outlined are an outcome of the discipline execution of our four strategic pillars. Domestically, the Chemist Warehouse branded network sales reached $10.2 billion, up 16%. This was driven by the addition of 24 new stores, combined with a like-for-like growth of 13%. GLP-1s have provided a structural tailwind, which we expect to continue. GLP-1 units were up over 75% per year, contributing to sales and EBIT growth. This category is, however, diluted to gross margin percentage. Whilst not benefiting us in this year's results, we are also progressing with a clear program to reinvigorate the AMCAL and DDS network. The international store network sales grew 23% to $1.6 billion, also driven by the addition of 20 new stores and like-foods-like sales growth of 12%.

The distribution center in Ireland is now fully functional and supporting growth, and work is progressing to open a New Zealand DC by September to support growth in that market. The product differentiation strategy continues to build momentum. With more than 470 owned and exclusive label products launched this year, sales are approaching $1 billion, which is around 10% of Chemist Warehouse branded store sales, directly enhancing both customer value and margin.

And in our fourth pillar, volume was up 6.5% through the DCs, with our cost per unit distributed down 2%, reflecting disciplined cost management. We have combined our support centers in Preston and rationalized our DC network. The $100 million for Anna's Synergy program remains on track with a $32 million contribution in this financial year. Overall, in a short time as a merge group, there has been significant progress made in delivering on our strategy.

I will now hand over to Mark to discuss the financial performance in more detail.

Thanks, Vikesh. I will now take you through the financial result, the segment drivers, the balance sheet, and cash flow. The central point is that broad-based revenue growth converted into faster EBIT and NPAT growth.

Turning to group performance, as Bikesh outlined, revenue grew 15.5% to $10.8 billion, and importantly, revenue growth outpaced expense growth.

Gross profit rose 15.2% to $1.96 billion, with gross margin holding at 18.1% for FY26. In the context of strong growth in GLP-1 sales, which is diluted to margin percentage, this is a strong outcome from our buying team. Our share of profits from associates and joint ventures was up 25.7%, reflecting the continued strong growth and performance of our New Zealand stores.

The result flowed through to the bottom line. Normalised EBIT was up 20.6% with EBIT margin expanding 43 basis points as we captured scale benefits and efficiencies across the business.

Statutory NPAT was $708.7 million and on a normalised basis, NPAT grew 22.3% to $732.3 million. In summary, we've grown the top line, protected margin and delivered a strong result. This year we are providing expanded segment disclosure for Australia and international. Australia remains the earnings engine while international is beginning to contribute at scale. Three points before we get into the detail.

First, our growth is broad based. Revenue of $10.8 billion is up 15.5% or nearly $1.5 billion. Australia grew 14.9% for the year and 15.7% for the second half. Australia delivered almost 93% of the revenue growth for the group, showing continued strong performance in our core market.

Second, we held total margin while continuing to invest. Gross profit is up 15.2% whereas cost of doing business grew 9.4%. This highlights fleeting operating leverage with our cost of doing business improving 47 basis points to 8.6% of sales.

Third, that leverage drops through to earnings with our normalised EBIT margin up 43 basis points to 10.1%, and both segments expanding margin.

For the year, international EBIT grew 91% to $56 million, with particularly strong performance in the second half, with Ireland contributing positive earnings for the first time.

With that, let me take you through the detail. Starting with Australia, which remains the core engine of this business, revenue of 10.4 billion is up 14.9% and this has converted into EBIT of $1.03 billion up 18.3%. Earnings is growing faster than revenue. Total cost of doing business grew 7.7% against revenue growth of 14.9%. Cost of doing business improved 52 basis points to 7.8% of sales. Despite a Despite a step down in gross margin to 17.6%, EBIT margin lifted 28 basis points to 9.9%. Briefly on the cost lines, warehouse and distribution rose 7.7% on higher volumes, but unit economics continued to improve.

The network saw increased activity during the period, driven by both integration activities and bringing a strategic supplier into our DC network from direct to store. Marketing and sales expenses were up 8.2% and admin and general expenses were up 9.5%. Employee expense growth was only 2.7%. The key drivers were investment in business and customer acquisitions, including Kili's soaps now being consolidated into the group results.

Other costs included IT and marketing subscriptions and license fees related to private label. There was also a one-off FX loss of $3.7 million incurred during the period.

As with the group numbers, these are normalised and exclude $33.8 million of integration and PPA costs. In short, we have a cash generative core still compounding with productivity, brand mix and synergies still ahead of us. Now to international, which is moving from an investment phase towards meaningful earnings contribution. Revenue of $421.4 million is up 33%. Gross profit was up 47.6% and EBIT of $55.8 million has nearly doubled. EBIT margin expanded 400 basis points to 13.2%. The chemist's warehouse offer is resonating with more customers across more markets.

We have contributions from new and recently opened stores. Retail network sales across the international business was up 23.3%. Two things drove the margin. Gross margin lifted 303 basis points to 30.6% on margin and supplier support. and revenue growth of 33% outpaced total expense growth of 23.7%. With increased scale, we now saw cost of doing business down 200 basis points to 26.5% of sales.

On the cost lines, warehousing distribution fell 9.3%, which includes the closure of China. marketing and sales were up 29% and admin in general up 17.6% reflecting employee growth in new international stores and the operating expenditure needed to support expansion this is the cost of building the network international is now delivering genuine scale benefits and efficiencies in distribution and supply arrangements which we expect to continue as the network grows Turning to the balance sheet.

Our balance sheet provides flexibility while we continue to fund integration and growth. Net assets grew 7.1% to almost $5 billion. We reduced debt facilities to $1.4 billion while keeping ample headroom and adding tenure to the book.

Net debt fell to $663 million, down from $752 million a year ago. Our disciplined approach to capital management is reflected in our leverage. Net debt to normalised EBITDA improved to a conservative 0.57 times, comfortably below prior year.

We had capital expenditure in the year of $56.7 million, investing in store rollout and distribution centre infrastructure. Our model remains capital light in Australia with spend aligned to our growth agenda. We are also funding a final dividend of $0.02 per share for FY26, payable on the 22nd of September, taking the full-year dividend to $0.04 per share.

Overall, we have a resilient, well-capitalised balance sheet to support our strategic ambitions. Now to cash flow. Firstly, I note that the prior period reflects just four and a half months of Sigma cash So the statutory comparison isn't like-for-like.

Net cash flows from operations was $574 million. It was impacted by an investment in working capital, which I will talk to shortly.

Income tax paid of $114 million reflects timing differences that were normalized in the first half of the year. Free cash flow was $500.4 million, and net debt is down to $663 million. In short, we have a strong operating cash generation, disciplined capital allocation, and a balance sheet that gives us flexibility to fund growth and returns. And finally, to working capital position, which is our clearest opportunity to further improve. Net working capital increased to $1.6 billion and the cash conversion cycle extended by by 7.1 days to 54 days. Inventory levels increased 22% for three key reasons. Firstly, growth in own and exclusive label products including Wagner. Secondly, the transition of a significant supplier away from direct to pharmacy into our supply chain.

And thirdly, overall growth in sales. Day sales outstanding is up marginally, reflecting timing of store receipts that were settled in July. We see working capital management as an opportunity to further drive cash flow with a one day improvement in CCC days equating to around $30 million and we have plans in place to realise these benefits. Overall, we have a balance sheet with low leverage, a refinance facility with strong lender support and further opportunities to increase cash flow.

I will now hand back to Vikesh.

Thank you, Mark. I will start by again reminding you of the four pillars of our growth strategy. Our business is built off the defensive nature of the healthcare industry, where demand is less discretionary, and as a discounter, Chemist Warehouse is also best placed to traverse economic cycles. That resilience is reinforced by the following structural terms. Positive domestic demographics and an aging community that steadily lifts prescription volumes a stable and supportive regulatory environment deep and longstanding supply partnerships and the scale benefits that make us a critical link in the pharmacy supply chain.

On that stable base sits our four clear pillars of earnings growth. Firstly, in Australia, where we continue to build our market leadership, drive life-for-life sales growth, and expand our pharmacy franchise network. Second is international, where we are focused on pursuing profitable growth in existing operations while we carefully assess and seed new markets.

Third, relates to product differentiation. By expanding our own and exclusive label ranges, we enhance customer loyalty and margins. Fourth is operating leverage. As we integrate, expand, and execute our synergy program, we better leverage the combined scale of the business to convert revenue growth into stronger returns. This is a compelling investment case, a defensive, market-leading position that generates dependable cash flows paired with multiple levers that compound earnings.

For investors, that means resilience when conditions are uncertain and genuine upside as we execute our plans. Our first pillar is domestic growth, where the runway remains strong and is built to the execution of our three brand strategy. Our three brands, Chemist Warehouse, Amcal, and Discount Drug Stores, now let us enter underpenetrated locations that a single brand may not serve as effectively. Chemis Warehouse is the leading discount pharmacy operator in Australia, and I will talk to this brand on the next slide. The Amcal and Discount Drugstore brands have been through a natural transitionary phase with member numbers declining over the last two years as we progress to the merger and integration program. With the brands now rebased, the focus is on executing our growth plans, supported by stronger retail execution, strategic investments, marketing, improved supply confidence, and a renewed customer proposition.

Encouragingly, we have 82 new Amcal and DDS members who have committed to be onboarded through FY27. Continuing with the domestic network, where Chemist Warehouse has delivered more than 10 years of double-digit sales growth, the Chemist Warehouse branded network grew to 561 stores and generated a milestone $10 billion in network sales at a 10-year tag-up of over 11%. Beyond opening new stores, like-for-like growth provides a strong quality signal.

The CW branded network delivered like-for-like sales growth of 13.4%. That came from three clear drivers. Our unwavering commitment to great everyday prices, a focus on product newness, and a strong demand in healthcare categories, including GLP-1 medicines.

Pleasingly, Chemist Warehouse was once again recognized by our suppliers as the number one pharmacy retailer in Australia. Looking ahead, the pipeline remains strong. In half-1-27, we anticipate opening 13 Chemist Warehouse branded stores and refurbishing a further 12. The strategy for domestic growth is clear. more stores, more productive stores, and a multi-brand runway.

Turning to international, which is both an established and an emerging story, delivering real scale, real momentum, and a clear growth pathway.

New Zealand is a great example of our international expansion capabilities, with a store network up to 75 stores and sales up 20%. In Ireland, sales grew 45% for the year, with Ireland now a net contributor to profit for the first time.

And in the UAE, where we are in an early stage, we have grown to three stores and are seeing positive trends.

Across our core international markets, we opened 20 stores this year, taking our network to 98 stores. with total international store sales of around $1.6 billion, up 23%, and like-for-like sales growth of 12%. As previously announced, the focus on profitable growth led our shift to an online-only strategy in China. We expect to complete our store closure program by FY28.

This helps ensure that our capital and energy are directed to the markets with the strongest prospects and returns. And as announced in May this year, we have entered an agreement with the Greenlight Pharmacy Group to enter the UK market. We anticipate opening two stores prior to Christmas, with plans underway for a further three next year. This is a great opportunity to learn and adapt in an attractive market with a population of around 70 million people. Looking at the first half of FY27, we expect to open a further 19 stores in our international markets.

Our third pillar is product. This is where product differentiation provides a structural margin lever and the opportunity to drive customer brand loyalty. Firstly, I would like to reaffirm that Chemist Warehouse is and will remain a house of brands. We are not displacing the brands customers love. We are building brands alongside them and expanding category growth. This protects our supply relationships, but still allows us to build differentiation versus our competitors.

Own and exclusive label sales grew 15% and is now approaching $1 billion, which is around 10% of the CW branded store network sales. We do not have a specific target for own label penetration. but our merchandise team tactically executes opportunities that benefit the business over the long term.

Own an exclusive label carries structurally high margin, and newness is important for growth, with over 470 new product lines added in FY26. One example is Wagner Generics, which achieved 88% customer adoption. that's customers, using our brand at scale, and it points to a strong end-to-end execution capability across the franchise network.

Turning to pillar four, operating leverage. Our supply chain is world-class. We executed over 600,000 deliveries and distributed 579 million units to pharmacies during the year, with volume up 6.5% on last year. That's an additional 35 million units for the year. This is where the benefits of scale, automation, and our fixed and variable cost structure make a difference to the bottom line.

And we are not standing still. We are rationalizing our footprint to drive further optimization. The thought Guildford DC in Western Australia closed in May and our Port Adelaide DC will be consolidated into our Paraca DC in the first quarter of F127. We are also upgrading our Townsville and Hobart distribution centers to strengthen service in those markets. On logistics, we are optimizing routes, consolidating providers, and leveraging automation to take cost out of every unit we move. Importantly, for our wholesale customers, we are maintaining our high service standards with delivery full above 99% and on-time delivery above 97%. Our performance has been recognized by an independent supplier survey, which recently ranked Sigma the number one wholesaler in Australia.

A key part of pillar four of our strategy is our focus on synergies. with $100 million annualized target is clear, achievable, and firmly on track. The $32 million of synergies that we achieve this year will also benefit FY27.

The one-off cost of $26 million to achieve the synergies is in line with expectations. Importantly, this is not just about consolidation.

We have mapped the change management required to deliver our integrated technology solution. It is important to note, this is not an SAP implementation. It is an SAP upgrade and integration of the Chemist Warehouse Group onto existing IT architecture.

We are also introducing AI capability across the business to support decision-making and drive further efficiencies. So let me close on why I'm confident about the year ahead and the value we're building for our stakeholders.

Tigma enters FY27 structurally stronger than ever. We have four proven growth pillars, a strong balance sheet, and the ability to continue driving operating leverage from integration. We expect our positive sales momentum to remain strong across every market in which we operate, and the start to FY27 supports this.

Including the annualization of GLP-1s, like-for-like sales across the CW Australian store network is continuing in double-digit growth. Consistent with previous years, I will provide a trading update at our AGM in October.

Growth will come from four places. Domestically, we expect to onboard 13 chemistroir stores and 42 AMCAL and DDS stores in the first half. A further 19 stores will also be added internationally in Hap 1, including our entry into the UK market.

We are also focused on supporting margins with ongoing investment in our own and exclusive label products and maintaining our relentless pursuit of cost efficiencies.

GLP-1 demand and the pending introduction of the oral form in Australia also continues as a structural tailwind for the business. Importantly, our $100 million per annum synergy target is still largely to be captured by FY29, and our conservatively geared balance sheet lets us fund both growth and dividends. The investment case is clear. Sigma has a defensive and differentiated healthcare platform that is compounding double-digit earnings with proven growth levers and margin opportunities still to be captured.

We have the scale, the balance sheet, and execution capability to continue delivering value for shareholders. Thank you for listening, and we will now take your questions.

Yeah, hi Sean Look, in terms of that there was no sort of standout you know, big driver of that coming down. All I'll say is we're starting to see some of the benefits of removing the duplication and some of the efficiency measures that we're putting in place And was that where a lot of the synergies were landed?

I wouldn't say a lot of it but there was definitely some benefits of duplication being removed in that line, correct?

Well, if I can even add to that, I would say to you, it just wasn't quite timing. If you consider the merger last year, there was some costs that had slowed down and that had lifted this year. So you're starting to get the normalization of cost spend come through. And that's why you're trying to, you're seeing the trend go downward in terms of expenditure.

Yeah, that's right. The increase in inventory was due to a strategic supplier. TillySoaps was more an acquisition we made during the period that we're now consolidating. So that was more through an impact of the P&L rather than the balance sheet. I think you're right. The answer is somewhere in between that number as we continue to grow. Obviously, you've got high costs like GLP-1s coming in, but a further benefit down the track of when we get to one system, we'll be able to optimise the inventory a lot better.

Yeah, it does. We had very negligible CAPEX in FY26. A lot of the IT costs, SAS costs are expense. So that's right, Sean, it will flow into FY27. Broadly, we expect the CapEx number to be pretty consistent year on year.

And as well as the same time, Sean, the way the build will begin is automation will probably only take about 18 months to kick in. So you will have the CapEx dripping in over probably two years for the New Zealand DC.

Can you talk to how vitamins and other discretionary categories like fragrances, for example, performed in the fourth quarter and how they tracking now please I not sure I can directly link it to the budgets but there no doubt there a category that probably come under a little bit of pressure I would say to you it's the vitamin market.

And at the same time, what we're seeing in, let's just say, ladies' fragrances is probably a bit of a trade-down because volume is a lot, right? But men's fragrances are doing exceptionally well. So if I look at most of the categories, quite frankly, They're all performing really, really well. So I would say to you, I can't really say we're feeling the impact, right, of the consumer pressure at the moment, but certainly categories like vitamins or ladies' fragrances, which tend to be a little bit more discretionary, we can probably see a little bit of impact there. But then we're picking it up in hair care, in health care, and a whole lot of other categories. So it's balancing it out.

I think that's an ongoing process because, you know, we call them our SOS team, right? Our store team that focuses on working with franchisees and execution in stores. So if I just look at the impact on the cross-sell, for example, protein in our stores, that is exceptionally high growth. If I look at hair care and the complementary products that effectively a consumer would be looking for, right? Digestion, et cetera. Those categories are performing exceptionally well. So I would say to you, I think that is an ongoing process in our stores. And a key metric that I provided in May, and that continues, the basket size of a GLP-1 customer is 40% larger than a non-GLP-1 customer.

So that trend has continued, which is obviously encouraging for the cross-sell. And the cross-sell opportunities will continue in stores.

Yes, it was slightly softer in May and June. There were two reasons for that. Actually, the comps were really big to last year, and that's obviously seasonality kicking in. And the cold and flu season certainly started later this year. But as you can see, I've stated that we've got double-digit growth life-for-life in the new financial year. So that trend has turned at the moment.

It's probably two things, right? big concern last year and a later start to the cold and blue season for this year.

Yeah, that's right. I think there are quite a few. I mean, if I start with warehousing costs, we were transitioning our Tier 1 suppliers across from February, which meant we incurred some additional employee costs there in temporary labor. As you're transitioning, you ramp up before you ramp down. And that transition is now complete. we also obviously brought on a strategic supplier, and we did have EPA negotiations, so we did carry some extra labour during some of those periods.

Yeah, Tilly Soaps was consolidated in from about December. I think that's around 6.5 mil. And then, yeah, the FX loss was certainly one-off. So, yeah, there is, you know, the business is going through a lot in terms of integration, so there is kind of some cost. We normalised some of them, but obviously you can never normalise everything.

Yeah, I mean it's flying through each of the P&L lines so you'll sort of see it annualising into that number through December. But yeah, I mean it's not a meaningful EBIT contribution at this point. It's more just that the costs have started to flow through.

Yeah, so I think the good news is Ireland's made a profit and it's been quite a good turnaround for the year. And we expect that momentum to continue because you really needed the scale to absorb the fixed costs and the overheads of the office. And once we have done that, right, and you can see Ireland's up 45%, so you're getting really good growth momentum from the existing stores as well, which means we expect Ireland to continue being profitable and growing in profitability.

The UK, of course, will be loss-making, right? You're opening two new stores. We'll probably open another three in the second half of FY27. So we expect that business to be loss-making for a period of time as we grow scale in that market.

Yeah, I mean, to be fair, I think we always knew that the GLP-1 trend would continue. What we find really encouraging is that it's kind of maintained a growth momentum. You know, you can't think really big numbers on last year. So you can't expect that kind of level of growth to flow through, right? But what I think is good is I'll give you the average price. We're averaging around $300, you know, of the mix of products. Because as you can understand, some products are funded by the PBS, a very small portion. Most of it is private.

So I actually find GLP-1s as a category will continue to grow. What's interesting for me is when the oral dose will be registered in Australia. I truly believe that's a real tailwind for the business. We don't know what the pricing could be or anything like that, but there's probably two big and important things in that medicine category.

If the government puts it onto the PBS, which is obviously still being negotiated, and the oral dose comes into Australia, I think the market size starts to grow materially. and if you look at them, the cross-sell opportunities, that lifts our front shop. So this category for me, I think, will continue to give us a tailwind into the future.

But I'm probably expecting a proportion of that to be offset by the increase in volume, right? With the market size increasing, you know, the safe uplift on other products could probably offset that. If it's slightly cheaper, the margin percentage kind of moves up. So, you know, we're all hypothesizing here because we have no idea what price it's going to be, you know, registered at in the country. But it's probably the best negative cost I'm happy to take, right? Because there's extra, if you recognize what you're looking for is long-term volume consumption, and if the market size increases and customers are buying complementary products, then that's better for the business over the long term.

Yeah, absolutely. Yeah, yeah.

Yeah. So I would say to you, there's no doubt, right? If you look at the long-term, the 10-year run rate of growth at about 11% of CAGR, and the fact that we have been outstripping that over the past kind of, say, 18 to 24 months, it actually means that GLP-1s are helping drive that. So it's not normal to expect us to be growing at 16%, right, on an ongoing basis. So what we aim for on a consistent basis in the company is double-digit like-for-life sales growth. Now, that gets harder over time, right? The laws of gravity start to catch up with you as the base gets bigger, et cetera. But the ambition and the way we target growth in the organization is at least aiming for double-digits like-for-life sales growth.

and you've seen the 13% really that's been driven by GLP ones. So that's slightly above the norm, but we would be very happy with, let's just say, high single-digit, double-digit life-for-life sales growth.

Okay, and then obviously you're feeling comfortable around that for fiscal 27, given how you sort of talked about trading up that new outlet for the first half. Yeah, I mean, and that's the thing. We're in the middle of seasonality at the moment, right? We're slack-dying in the middle of cold and flu season and it's very dependent on what happens with script demand over that period. It drives footfall and consumption of cold and flu medicine. So that's really why I'm feeling comfortable that we probably had a later cold and flu season start and we've gotten into double digit growth now.

Yeah. So we don't give the basket size mix, as you can understand. That's information we'd love to keep away from our competitors, right? But what I would say to you, what's interesting, if you think of the category mix in that additional 40%, I would break them down into actually more medicines, you know, OTC products. So the consumer that's dispensering the script is also buying more analgesics. I cannot tell you why, but you can see that in their basket, right? They're buying more beauty products. They're certainly buying more protein. So you can actually see that these are complementary products to support their healthcare for taking the JLP1 medicine. So that trend, I think, just continues.

Internally, Mario's called it Fit Beauty. So it's really about the fact that you know, we're selling products linked to individuals who are taking those medicines, that they probably feel better, so they're buying more kind of beauty products and more healthcare-related vitamins and supplements.

Yeah. I actually think the model that we enter in the UK is actually a very interesting model because one of the most challenging things when you enter a new market is how do you attract new scripts? And if you look at the density of footfall in pharmacy in the UK, it's actually double that of Australia. So that means the density of people entering pharmacy is twice that of Australia. So if you have a JV partnership and effectively you're opening a store and moving a license, you're opening day one essentially with the script volume and the people coming into your stores. And in the UK, the front shops tend to be really small, right, in independent pharmacy compared to the prescription base.

So what we will be offering, actually opening up, is immediately customers are coming and dispensing the scripts and a much larger front shop offering. So if this model works, we can certainly, you know, duplicate this with other partners in the UK and accelerate our growth there. But we've got to test and learn initially.

We'll certainly look at all opportunities that come our way. But the way we also look at that is how we allocate capital, right? So that would be a key consideration in making any of these decisions.

So let's answer the last part of that first. At the moment, it is, but I would say on OTC, we're moving more to creating standalone brands, and you've seen some of that come through recently. But on the generic side, we've got about 278 Wagner generic medicines. It makes up roughly a third of our preferred range of generic medicines in the network And the margin profile of that is obviously stronger So what I expect to continue is probably another 14 new products because we're getting to the tail of new products in Wagner.

But as we grow new stores, on average 20 stores a year, and this continues to be rolled out in Australia, we expect Wagner growth to continue.

Yeah, sure. So, yeah, I'll start off the same. I'm really pleased with the progress of integration, reporting the 32 million of synergies today. I mean, obviously, roughly half the synergies will come through the efficiencies in our supply chain. The next phase, which Bakesh talked to in his presentation, was bringing the back office together. It is a SAP upgrade, not a transformation project. So it's about bolting the legacy chemist-wower systems onto the existing Sigma network. And then there will be layers of duplication there across ERP and various applications that we'll be able to take out. Then obviously lastly, it will be both sort of buying terms with our suppliers and indirect procurement.

It's really the comps on last year and the latest start for the cold winter season. That's really it.

Well, it's not on our framework at the moment, but never say never.

Yeah, you're right. The growth margin did decline slightly. I wouldn't say it was related to that supplier coming on. It was really consistent with what Vikesh was talking about before. Obviously, the GLP-1s are diluted to margin percentage, and then obviously there was that seasonality impact that flowed through that as well.

I'd say it's very small at the moment. And obviously, as we open these stores, they'll take time to build up in volume scale. And really, if that flows through our warehousing and distribution, so it really is a very small mix. That's where we spend a lot of our energy calling out the Chemist Warehouse Network, which is the biggest driver of earnings.

Caleb, I would say that the competitive tension has probably remained the same. I can't say to you that the market's probably become any more, any less competitive. We always keep an eye on our competitors. We never become complacent and we respond accordingly.

But a rising tide lifts all ships, right? So there's no doubt that the GLP-1 category has listed all the groups. But when I look at our market shares, we continue to gain market share, which means we're performing really well, particularly in the kind of healthcare categories and beauty categories. So I feel confident that our strategy is working and will allow us to continue taking share into the future.

I dare say particularly, you know, where there's cost of living pressures, without a doubt, we are a very value-centric consumer-faced organization and we will remain the customer's friend. So we will be very competitive and will continue to be very competitive moving forward.

Well, if you think about it, Rod, it's back to the four levers once again. So value will continue to be driving value. And as we get the efficiencies on the fourth pillar, if we need to continue reinvesting that to take share, we will do that. That's the levers we have at the moment. As an example, we certainly have differentiation. as we build more private label products. We also have penetration.

So if you consider we're opening an average 20 chemist warehouse stores a year, and the base of pharmacies and community pharmacy tends to be pretty static, roughly 6,000 pharmacies, so you're getting more penetration. And now with, say, 82 Amcals and DDSs opening, you're getting further penetration. So if you think of the Australian market, right, that continues driving penetration and scale for us. And all of that goes back into our wholesale business, quite frankly, which adds further operating leverage on the back end. So you can see this picture, right? It's scale, scale, scale, penetration, market share gain, and then obviously ultimately balancing what falls to the bottom line.

I think the ones that we've bringing, these are franchisees who are choosing to come across to us as owners of those pharmacies. So effectively they will be an Amcal or a DDS because they make sense. Where a chemist's warehouse has to open I think we'll make a decision related to the location and the size of shop and that would be for that owner to pick up. So we don't see massive conversions from an Ankel or a DDS to a chemist warehouse, by the way. We see them actually as a multi-brand strategy, fitting a particular segment or location, which is actually the power of having three brands over the long term.

Without sort of going into too much detail, I think that's more around the accounting policy alignment with the merger. So I wouldn't probably read too much into that, Phil.

Yeah, predominantly, and New Zealand growth.

It's our fees to them. So you're right, the stores do sit in the equity line, but our fees to them sit in that line, as in the group fees to the New Zealand stores.

That's probably about 20%. If you really look at the mix of products that the stores buy from our distribution standards, it's roughly between 70% to 80%, right? But not all the suppliers would ever come into our network. The suppliers that have their own infrastructure that's very hard to move, et cetera. We had a list of top 10 suppliers that we think we'd like in our network. And to be fair, where we've seen the benefit of the supply coming into our network has It's been the availability of stock.

So the turnover, quite frankly, in our stores have grown significantly by bringing the supply in because we were able to supply our network of stores through wholesale far more effectively than they could themselves. So it's more strategic and tactical rather than just trying to bring all the suppliers in to manage ourselves.

There's probably a few others. but we are certainly looking at it. And where we have done it, we can immediately see the difference, right, in the turnover because the service levels out of our network is just far superior.

I think it's very difficult for me to comment. We put out an ASX announcement probably a couple of months ago describing the intentions of the founders. Mario's made it very clear that he's holding on to his stock And Jack and Sanders said they would potentially sell up to 20%. And that's really dependent on those individuals. The company really doesn't get involved in that. I just want to clarify, though, is although the escrow arrangements end today, our trading policy only allows for that to end tomorrow evening. So if there's anything that's probably going to happen, it's probably going to happen next week that the market will see.

overall it just moves it you know from a markup and then it comes back into the pool you know and then it's obviously picked up in what happens to the overall funding envelope so it shouldn't impact overall margin do you feel though is it an advantage for you in terms of volume or is it a disadvantage so therefore it gives some sort of direction of where you think the margin is going to go based on those changes?

I mean, I think it's, yeah, it's pretty neutral. It's really what, I mean, how we view it is just what happens to the overall funding envelope, which I think was positive.

Well, firstly, it's very hard for me to hypothesize. That's dependent on the industry and the government engagement in that. What I would say to you is that we trade in an industry like Australia, where we can't own the network and we work with our franchisees. And then we also own stores in other markets. So we literally work in those type of legislative environments.

Ultimately, in the end, we prefer the one that drives the lowest cost to consumers and the best patient care. But quite frankly, that's a much larger decision. And if it does come out to a debate, we'll then provide our views on that. But today, our views is focused on trade within the regulations that exist.

Thank you everyone for listening and thank you for your questions. And we'll meet some of you on our roadshows over the next couple of weeks. Thank you and goodbye from Gary, Mark, and myself.