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Ebos promises productivity improvements and acquisitions

Pharmaceuticals and petfood company Ebos demonstrated how it will improve productivity and hinted at potential acquisitions and other avenues for growth at its latest investor day.

In its presentation filed with the New Zealand stock exchange, Ebos says that since it opened its new warehouse in Victoria, Australia in October 2015, its productivity has increased more than 50 percent.

It is expecting similar improvements in productivity and cost improvements from its new 10,000 square metre warehouse in Brisbane which opened on October 15.

Ebos is also expecting productivity at all its warehouses in Australia to improve once its $A1 billion contract to exclusively supply the Chemist Warehouse Group’s more than 400 chemist stores with pharmaceutical products kicks in from July 1 next year.

That contract will make Ebos Australia’s largest community pharmaceutical wholesaler – it already supplies the Terry White Chemmart Group and is in the process of buying the 50 percent of the Terry White franchisor that it doesn’t already own for A$50 million.

Driving efficiencies and cutting costs is a key part of Ebos’ strategy, as is buying add-on or adjacent businesses. The company says it is looking for other investments in community pharmacy management companies.

It is also looking for acquisition opportunities in the medical consumables sector.

Ebos, which this year expects to achieve a return on capital employed in excess of 15 percent, achieved a 15.8 percent return in the year ended June, down from 16.4 percent the previous year.

It has completed 20 deals since 2000. Recent ones include:

- buying Warner & Webster, a medical and surgical supplies wholesaler in Victoria and South Australia, in August this year,

- the purchase of the Gran’s Remedy brand in March

- taking a 14 percent stake in ASX-listed MedAdvisor, Australia’s leading digital medication management company, in October last year.

Ebos departed from its usually parsimonious approach to acquisitions when it paid A$154 million, between 11 and 12.8 times 2018 operating earnings depending on currency and earnings assumptions, for hospital pharmacy company HPS. Ebos typically pays between six and eight times operating earnings for acquisitions.

In August, chief executive John Cullity said Ebos has between $150 million and $200 million available for acquisitions without stretching net debt beyond its target of 1.5-2.3 times earnings before interest, tax, depreciation and amortisation.

Ebos has bought a number of consumer brands over the last few years, including Red Seal and Anti-Flamme for humans and pet brands such as Black Hawk, Vitapet and Animates.

The company says brands diversify its earnings, provide consistent and reliable growth, and higher gross margins.

“We are deeply passionate about helping people through our brands and helping our people to reach the full potential,” the company says.

“We can be the best in the world at delivering trusted brands built on sincere belief.”

The company estimates the Australasian pet sector is worth about $14 billion and is growing at 2 percent or 3 percent a year, driven by factors such as the “humanisation” of pets and the trend towards premium pet foods.

The Black Hawk pet food brand has been Australia’s fastest growing premium brand over the last four years, growing 23 percent in 2018 after 48 percent growth the previous year.

Vitapet claims 63 percent of the New Zealand grocery petfood market and 23 percent of Australia’s, Ebos says.

It estimates the consumer health and wellbeing market in Australia is worth $17.4 billion and $1.28 billion in New Zealand and that Red Seal has 22 percent of the New Zealand supermarket sales of vitamins, 33 percent of specialty tea sales and 82 percent of natural toothpaste sales.

Extending sales of its brands into Asia is a key part of Ebos’ growth strategy.

For example, it estimates China’s pet food market is growing at more than 30 percent a year but that only about 5 percent of Chinese households own pets compared to about 60 percent in Australasia.

At the same time as it pursues growth opportunities, the company remains committed to paying out 60-70 percent of net profit in dividends.


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