sip weighs up post-sale strategy for recovery

Written by Eli Greenblat, Sydney Morning Herald
September 30, 2010
.SIGMA PHARMACEUTICALS shareholders will have to wait until next year for a return to dividend payments as the struggling healthcare company ponders how to best use the $900 million secured from the sale of its pharmaceutical division and the level of appropriate gearing the new slimmer business should have.

The new chief executive, Mark Hooper, said the board had yet to decide how much of the company's $819 million of debt to pay down once the pharmaceuticals operations was sold to Aspen Pharmacare, but that he favoured a ''conservative'' balance sheet.

However, he all but ruled out Sigma using all of the funds to pay down its debt completely, raising hopes some of the sale money could be directed towards a special dividend or share buyback.

''I'm not sure if anyone would give us a big warm round of applause for not having any debt on the balance sheet. I think the exercise we are going through at the moment is to look at what earnings we have post the Aspen sale,'' Mr Hooper said.

''As a general statement, given the challenges we have had over the last 12 months we are going to err on the side of being more conservative with debt levels going forward, but there is clearly going to be some surplus over and above that and that's what we have flagged as potentially being available for a range of capital management initiatives.''

Sigma yesterday skipped its interim dividend after it reported a net loss of $218.5 million for the half-year to July 31, as sales rose 6.9 per cent to $1.62 billion. Much of the loss was driven by a goodwill impairment of $220 million against its pharmaceutical division.

Shareholders will vote in November on the sale to Aspen, discarding a business unit that has generated 20 per cent of Sigma's sales and 40 per cent of its pre-tax earnings.

Sigma was forced to negotiate with its banks when the impairment caused it to technically breach its loan covenants. More than $424 million in goodwill write-downs decimated Sigma's full-year accounts this year.