News: SIG Sigma Healthcare decides to commence legal proceedings against My Chemist/Chemist..., page-170

the announcement stated that if CW proceeded with there intentions of using an alternate CSO for certain items the impact to SIG EBIT will be 5-10m ... this to me reads there is margin...

now we don't know how much of the current rev these certain items represent ... the statement alludes to a small portion however a 5-10m impact on EBIT which equated a 5-10% reduction on pcp it would seem a large portion...

  CW EBIT Contrubution to SIG FY17  Calculation (best guess on what info we have)

- CW contrubutes 37% rev (widely published)  0.37 x 4.36B= 1.61B

- assuming certain items represents max 30% of  CW rev contubution = 483M

- CW EBIT margin = 10M/483M = 2.07%

- SIG EBIT margin  FY17 = 2.29%  

- margin on CW is less than other customers which should be the case as a major customer, and taking that reported effect of certain items is 30% of CW business maximum which is a reasonable assumption we have  the margin on CW is appx 2.07%

- total CW  EBIT = 0.0207 x 1.61 = 33m  = 33% reduction in FY17 EBIT

how does this not affect the value of SIG business?

- even if we assume items represents 50% of current CW rev which is a stretch... 800M

-  CW EBIT margin = 10M/800M = 1.25%

- total CW  EBIT =0.0125 x 1.61 = 20M

again a 20M reduction in SIG EBIT = 20% reduction to FY17 EBIT


now we are assuming the worse case scenario in terms CW no longer dealing with SIG... however this is very much live and a possible outcome which must be considered  along with the large CAPEX planned which will be a non event and will occur some losses due to canning projects.


in my opinion CW walking away does have an impact to the intrinsic value of the business

the current share price may or may not reflect this scenario....