It looks like the OEM business will now consist solely of Terumo. With The company doing an estimated $2.1M in OEM sales during FY2017 and CareFusion comprising $1.6M this implies Terumo will be ~$500K per annum.
The argument around OEM being a reason for accepting the SIA offer is undermined by the company itself in earlier announcements -
(1) There was no mention pf OEM as being a key factor in the SIA announcement to the market in early August; and
(2) The company's own earlier words jar with the tone now (emphasis mine below) -
- July 2016 - This (Tuta sales growth) has been an ongoing focus for the company, as growth in sales of its own products will make the business less reliant on OEM contracts and further boost gross margins - 4C Report
- Feb 2017 - Whilst it (loss of CareFusion contract) accounts for a meaningful amount of annual revenue, we are well placed to supplement this from increased sales of existing Tuta and Clements branded products, and the sale of new products that we are now progressively bringing onstream - CareFusion Announcement
- Aug 2017 - The Company faces a substantial challenge to replace the lost revenue and associated margin of the CareFusion business. At this stage, this does not seem possible in the OEM market segment and will have to be won in the other areas of the business - 4E Report
- Aug 2017 - It also should be noted that the associated negative impact on gross margin is significant and, given the low level of overheads attributed to this business, the impact on profit is greater - 4E Report
In other words it will require less than $1.6M of Tuta and Clements sales to make up for the loss of CareFusion because of the better margins in these businesses. The increase in the AUD to be around 80 US cents is going to further boost margins in the Tuta and Clements businesses.
I agree with most people on this forum in that the 8.6c offer is too low. The 8.6c offer would be more attractive if the company was going backwards or wasn’t being well managed. This is not the case.
The company has never been in a better position in its history on the ASX and on its way up. I’d argue a 50% premium (10c ) would be fairer and 40% (9.3c) might be something I could live with, but I think 8.6c is simply too low.
I’m a believer in leaving something on the table for the next person. At 8.6c though, way too much is being left on the table for the next person. I respect others may value the company differently and want a higher premium.
Interesting to note in the SIA agreement available on the company’s website they acknowledge all their key contracts for the first time in many years.
(a) Health Administration Corporation (NSW);
(b) Terumo Australia Pty Ltd
(c) Ramsay Health Care Investments Pty Ltd
(d) Health Purchasing Victoria;
(e) Amsino Healthcare (Shanghai) Co., Ltd;
(f) Hanscent (Ningbo) Co., Ltd;
(g) R R Taylor Pty Ltd;
(h) Catheter Connections, Inc.;
(i) Ardo Medical AG; and
(j) Australian Breastfeeding Association.
Given the lack of sales with DualCap I’m not sure Catheter Connections belongs as a “key contract” there though!
