Ebos posts 4.9 per cent gain in full-year profit, lifts dividend

Ebos chief executive Patrick Davies.

Ebos Group posted a 4.9 per cent gain in annual profit and raised its final dividend saying it has room to make further acquisitions despite an increase in gearing that followed the debt-funded purchase of pharmacy outsourcing firm HPS.

Net debt climbed to $435 million in 2017 from $248m in the previous year while gearing rose to 27.4 per cent from 18.5 per cent, according to Christchurch-based Ebos's annual accounts. Net debt to ebitda widened to 1.79 times from 1.14 times, which chief executive Patrick Davies said is "well within our tolerances."

"We've enough wiggle room to pursue further acquisitions," he said.

Ebos announced the acquisition of HPS, Australia's largest provider of outsourced pharmacy services to hospitals, for A$154m, adding to the Terry White Group (TWG) deal last October, when Ebos poured its Chemmart and VIM Health investment into TWG and gave the target company $19m in cash in return for a controlling stake of just over 50 per cent in the enlarged business. The latest deals round out a four-year, $470m acquisition spree since Ebos transformed itself in 2013 with the purchase of Australian pharmaceutical wholesaler and distributor Symbion.

In that time the shares have gained 82 per cent and underlying earnings per share have jumped 45 per cent to 91.3 cents. The shares were unchanged at $17.61 today. Ebos said it is "confident of further profit growth into FY18 on an underlying, constant currency basis," and will update guidance at its annual meeting on October 17.

In the latest year, capital expenditure rose to $37.6m from $17.6m in 2016. Ebos said it expects to incur "significant additional capex" in 2018 on new warehouses in Brisbane and Sydney, which will cost about $40m on their own. Davies said the company currently has 4-5 logistics facilities under construction across Australia and New Zealand.

"We're right in the jaws of a major capex programme. When they are done we will pull capex down to more traditional levels" of $20m to $30m, he said.

Profit rose to $133m in the 12 months ended June 30, from $127m a year earlier, Ebos said. Revenue climbed to $7.6 billion from $7.1b.

Commenting on the HPS purchase, he said Ebos sees an ongoing trend of both government agencies and the private sector outsourcing pharmacy services and as an "existing and trusted partner of government" the company expected to pick up more of that market. "HPS is clearly the vehicle we will use to soak up more of that," he said.

Ebos's healthcare revenue rose 7.7 per cent to $7.2b in the year and ebitda gained 7.1 per cent to $208.8m. Of that Australian earnings rose 6.1 per cent to $165m and New Zealand contributed $44m, up about 11 per cent on the year.

Pharmacy revenue in Australia rose 11 per cent, reflecting a full 12-month contribution from sales of hepatitis C medicines. Institutional healthcare sales gained 13 per cent on a constant currency basis to $2.5b and consumer product sales rose 24 per cent to $105m. Contract logistics sales fell 1.4 per cent to $485m.

Animal care sales rose 2 per cent to $423m and ebitda climbed 5.7 per cent to $44.7m. Sales of Black Hawk pet food jumped 48 per cent and the company recently rolled out the products in the New Zealand market, replacing the IAMS and Eukanuba ranges it used to distribute from Mars Inc.

"In the animal care market the competition is global giants - Mars and Nestle - and we need to compete against them," Davies said.

Ebos will pay a final dividend of 33 cents a share imputed to 25 per cent and franked to 100 per cent for Australian shareholders. That brings payments for the year to 63 cents, up from 58.5 cents in the previous year.