Sigma Healthcare Limited (SIG) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Sigma Healthcare Full Year Results Announcement. [Operator Instructions] I would now like to hand the conference over to Mr. Vikesh Ramsunder, Managing Director and CEO. Please go ahead.

Good morning. I'm Vikesh Ramsunder, the Chief Executive of Sigma Healthcare, and welcome to our full year results presentation for the 12 months ending June 2026. I'm joined here today by Mark Conway, our Chief Strategy Officer; and Gary Woodford, our Head of Corporate Affairs and Investor Relations. Richard Murray, our CFO, is unable to join us today as he had a medical procedure on Tuesday and is recuperating at home. We wish him a speedy recovery and expect him back at work next week. Mark Conway, who was Sigma's CFO pre-merger, will fill in for Richard today, and we are fortunate to have the management bench strength in the business. In terms of today's agenda, I will provide an overview of the group's performance. Mark will then go into the financial performance in more detail, and I will then provide you with an overview of our operational highlights, strategic insights and priorities for the year ahead. Firstly, the strength and strategic execution of our business model is continuing to deliver strong results. We have a network approaching 1,000 pharmacies globally, with a solid pipeline of growth in each market. This brings significant scale that leverages our existing infrastructure capabilities and expertise and is underpinned by defensive industry characteristics. With most of the infrastructure in Australia already in place and a clear runway for growth, we are confident the model will continue to compound value. Let me start with the headline numbers for the year. Group revenue grew 15.5% to $10.8 billion. That flowed through to stronger EBIT growth, which increased over 20% to almost $1.1 billion. To put that in context, in the prospectus ahead of the merger, pro forma EBIT for FY '24 was $605 million. This demonstrates that the merger is working and strong value is being created for our stakeholders. Net profit after tax increased 22% to $732 million. Importantly, we delivered this while maintaining a conservative balance sheet with a net debt to normalized EBITDA ratio of just under 0.6x. And our capital-light model in Australia continued to convert growth into strong return on invested capital, which is over 19% for the year. For shareholders, that translates into normalized EPS of $0.064 per share, up 22% and a final dividend of $0.02 per share, representing a payout ratio of approximately 63%. This brings total dividends for FY '26 to $0.04 per share. The financial highlights I've just outlined are an outcome of the disciplined execution of our four strategic pillars. Domestically, the Chemist Warehouse branded network sales reached $10.2 billion, up 16%. This was driven by the addition of 24 new stores, combined with like-for-like growth of 13%. GLP-1s have provided a structural tailwind, which we expect to continue. GLP-1 units sold were up over 75% for the year, contributing to sales and EBIT growth. This category is, however, dilutive to gross margin percentage. Whilst not benefiting us in this year's results, we are also progressing with a clear program to reinvigorate the Amcal and DDS network. The international store network sales grew 23% to $1.6 billion, also driven by the addition of 20 new stores and like-for-like sales growth of 12%. The distribution center in Ireland is now fully functional and supporting growth, and work is progressing to open a New Zealand DC by September to support growth in that market. The product differentiation strategy continues to build momentum. With more than 470 owned and exclusive label products launched this year, sales are approaching $1 billion, which is around 10% of Chemist Warehouse branded store sales, directly enhancing both customer value and margin. And in our fourth pillar, volume was up 6.5% through the DCs with our cost per unit distributed down 2%, reflecting disciplined cost management. We have combined our support centers in Preston and rationalized our DC network. The $100 million per annum synergy program remains on track with a $32 million contribution in this financial year. Overall, in a short time as a merged group, there has been significant progress made in delivering on our strategy. I will now hand over to Mark to discuss the financial performance in more detail.

Thanks, Vikesh. I will now take you through the financial results, the segment drivers, the balance sheet and cash flow. The central point is that broad-based revenue growth converted into faster EBIT and NPAT growth. Turning to group performance. As Vikesh outlined, revenue grew 15.5% to $10.8 billion. And importantly, revenue growth outpaced expense growth. Gross profit rose 15.2% to $1.96 billion, with gross margin holding at 18.1% for FY '26. In the context of strong growth in GLP-1 sales, which is dilutive to margin percentage, this is a strong outcome from our buying team. Our share of profits from associates and joint ventures was up 25.7%, reflecting the continued strong growth and performance of our New Zealand stores. The result flowed through to the bottom line. Normalized EBIT was up 20.6%, with EBIT margin expanding 43 basis points as we captured scale benefits and efficiencies across the business. Statutory NPAT was $708.7 million and on a normalized basis, NPAT grew 22.3% to $732.3 million. In summary, we have grown the top line, protected margin and delivered a strong result. This year, we are providing expanded segment disclosure for Australia and International. Australia remains the earnings engine, while international is beginning to contribute at scale. Three points before we get into the detail. First, our growth is broad-based. Revenue of $10.8 billion is up 15.5% or nearly $1.5 billion. Australia grew 14.9% for the year and 15.7% for the second half. Australia delivered almost 93% of the revenue growth for the group, showing continued strong performance in our core market. Second, we held total margin while continuing to invest. Gross profit is up 15.2%, whereas cost of doing business grew 9.4%. This highlights pleasing operating leverage with our cost of doing business improving 47 basis points to 8.6% of sales. Third, that leverage drops through to earnings with our normalized EBIT margin up 43 basis points to 10.1%, and both segments expanding margin. For the year, international EBIT grew 91% to $56 million, with particularly strong performance in the second half with Ireland contributing positive earnings for the first time. With that, let me take you through the detail. Starting with Australia, which remains the core engine of this business. Revenue of $10.4 billion is up 14.9%, and this has converted into EBIT of $1.03 billion, up 18.3%. Earnings is growing faster than revenue. Total cost of doing business grew 7.7% against revenue growth of 14.9%. Cost of doing business improved 52 basis points to 7.8% of sales. Despite a step down in gross margin to 17.6%, EBIT margin lifted 28 basis points to 9.9%. Briefly on the cost lines. Warehouse and distribution rose 7.7% on higher volumes, but unit economics continue to improve. The network saw increased activity during the period, driven by both integration activities and bringing a strategic supplier into our DC network from direct to store. Marketing and sales expenses were up 8.2% and admin and general expenses were up 9.5%. Employee expense growth was only 2.7%. The key drivers were investment in business and customer acquisitions, including Tilley Soaps now being consolidated into the group results. Other costs included IT and marketing subscriptions and license fees related to private label. There was also a one-off FX loss of $3.7 million incurred during the period. As with the group numbers, these are normalized and exclude $33.8 million of integration and PPA costs. In short, we have a cash-generative core still compounding with productivity, brand mix and synergies still ahead of us. Now to international, which is moving from an investment phase towards meaningful earnings contribution. Revenue of $421.4 million is up 33%. Gross profit was up 47.6% and EBIT of $55.8 million has nearly doubled. EBIT margin expanded 400 basis points to 13.2%. The Chemist Warehouse offer is resonating with more customers across more markets. We have contributions from new and recently opened stores. Retail network sales across the international business was up 23.3%. Two things drove the margin. Gross margin lifted 303 basis points to 30.6% on margin and supplier support, and revenue growth of 33% outpaced total expense growth of 23.7%. With increased scale, we now saw cost of doing business down 200 basis points to 26.5% of sales. On the cost lines, warehouse and distribution fell 9.3%, which includes the closure of China. Marketing and sales were up 29% and admin and general, up 17.6%, reflecting employee growth in new international stores and the operating expenditure needed to support expansion. This is the cost of building the network. International is now delivering genuine scale benefits and efficiencies in distribution and supply arrangements, which we expect to continue as the network grows. Turning to the balance sheet. Our balance sheet provides flexibility while we continue to fund integration and growth. Net assets grew 7.1% to almost $5 billion. We reduced debt facilities to $1.4 billion while keeping ample headroom and adding tenure to the book. Net debt fell to $663 million, down from $752 million a year ago. Our disciplined approach to capital management is reflected in our leverage. Net debt to normalized EBITDA improved to a conservative 0.57x, comfortably below prior year. We had capital expenditure in the year of $56.7 million, investing in store rollout and distribution center infrastructure. Our model remains capital-light in Australia with spend aligned to our growth agenda. We are also funding a final dividend of $0.02 per share for FY '26, payable on the 22nd of September, taking the full year dividend to $0.04 per share. Overall, we have a resilient, well-capitalized balance sheet to support our strategic ambitions. Now to cash flow. Firstly, I note that the prior period reflects just 4.5 months of Sigma cash flows, so the statutory comparison isn't like-for-like. Net cash flows from operations was $574 million. It was impacted by an investment in working capital, which I will talk to shortly. Income tax paid of $114 million reflects timing differences that will normalize in the first half of the year. Free cash flow was $500.4 million, and net debt is down to $663 million. In short, we have a strong operating cash generation, disciplined capital allocation and a balance sheet that gives us flexibility to fund growth and returns. And finally, to working capital position, which is our clearest opportunity to further improve. Net working capital increased to $1.6 billion and the cash conversion cycle extended by 7.1 days to 54 days. Inventory levels increased 22% for three key reasons. Firstly, growth in owned and exclusive label products, including Wagner. Secondly, the transition of a significant supplier away from direct to pharmacy into our supply chain. And thirdly, overall growth in sales. Days sales outstanding is up marginally, reflecting timing of store receipts that were settled in July. We see working capital management as an opportunity to further drive cash flow with a 1-day improvement in CCC days equating to around $30 million, and we have plans in place to realize these benefits. Overall, we have a balance sheet with low leverage, a refinance facility with strong lender support and further opportunities to increase cash flow. I will now hand back to Vikesh.

Thank you, Mark. I will start by again reminding you of the four pillars of our growth strategy. Our business is built off the defensive nature of the health care industry where demand is less discretionary and as a discounter, Chemist Warehouse is also best placed to traverse economic cycles. That resilience is reinforced by the following structural trends. Positive domestic demographics and an aging community that steadily lifts prescription volumes, a stable and supportive regulatory environment, deep and long-standing supplier partnerships and the scale benefits that make us a critical link in the pharmacy supply chain. On that stable base sits our four clear pillars of earnings growth. Firstly, in Australia, where we continue to build our market leadership, drive like-for-like sales growth and expand our pharmacy franchise network. Second is international, where we are focused on pursuing profitable growth in existing operations while we carefully assess and seed new markets. Third, relates to product differentiation. By expanding our own and exclusive label ranges, we enhance customer loyalty and margins. Fourth is operating leverage. As we integrate, expand and execute our synergy program, we better leverage the combined scale of the business to convert revenue growth into stronger returns. This is a compelling investment case, a defensive market-leading position that generates dependable cash flows paired with multiple levers that compound earnings. For investors, that means resilience when conditions are uncertain and genuine upside as we execute our plans. Our first pillar is domestic growth, where the runway remains strong and is built through the execution of our three brand strategy. Our three brands, Chemist Warehouse, Amcal and Discount Drug Stores now let us enter underpenetrated locations that a single brand may not serve as effectively. Chemist Warehouse is the leading discount pharmacy operator in Australia, and I will talk to this brand on the next slide. The Amcal and Discount Drug Stores brands have been through a natural transitionary phase, with member numbers declining over the last 2 years as we progress through the merger and integration program. With the brands now rebased, the focus is on executing our growth plans, supported by stronger retail execution, strategic investments, marketing, improved supplier confidence and a renewed customer proposition. Encouragingly, we have 82 new Amcal and DDS members who have committed to be onboarded through FY '27. Continuing with the domestic network, where Chemist Warehouse has delivered more than 10 years of double-digit sales growth. The Chemist Warehouse branded network grew to 561 stores and generated a milestone $10 billion in network sales at a 10-year CAGR of over 11%. Beyond opening new stores, like-for-like growth provides a strong quality signal. The CW branded network delivered like-for-like sales growth of 13.4%. That came from three clear drivers: our unwavering commitment to great everyday prices, a focus on product newness and a strong demand in health care categories, including GLP-1 medicines. Pleasingly, Chemist Warehouse was once again recognized by our suppliers as the #1 pharmacy retailer in Australia. Looking ahead, the pipeline remains strong. In half 1 '27, we anticipate opening 13 Chemist Warehouse branded stores and refurbishing a further 12. The strategy for domestic growth is clear, more stores, more productive stores and a multi-brand runway. Turning to international, which is both an established and an emerging story, delivering real scale, real momentum and a clear growth pathway. New Zealand is a great example of our international expansion capabilities, with the store network up to 75 stores and sales up 20%. In Ireland, sales grew 45% for the year, with Ireland now a net contributor to profit for the first time. And in the UAE, where we are in an early stage, we have grown to three stores and are seeing positive trends. Across our core international markets, we opened 20 stores this year, taking our network to 98 stores, with total international store sales of around $1.6 billion, up 23% and like-for-like sales growth of 12%. As previously announced, the focus on profitable growth led our shift to an online-only strategy in China. We expect to complete our store closure program by FY '28. This helps ensure that our capital and energy are directed to the markets with the strongest prospects and returns. And as announced in May this year, we have entered an agreement with the Green Light Pharmacy Group to enter the U.K. market. We anticipate opening two stores prior to Christmas, with plans underway for a further three next year. This is a great opportunity to learn and adapt in an attractive market with a population of around 70 million people. Looking at the first half of FY '27, we expect to open a further 19 stores in our international markets. Our third pillar is product. This is where product differentiation provides a structural margin lever and the opportunity to drive customer brand loyalty. Firstly, I would like to reaffirm that Chemist Warehouse is and will remain a house of brands. We are not displacing the brands customers love. We are building brands alongside them and expanding category growth. This protects our supplier relationships, but still allows us to build differentiation versus our competitors. Owned and exclusive label sales grew 15% and is now approaching $1 billion, which is around 10% of the CW branded store network sales. We do not have a specific target for own label penetration, but our merchandise team tactically executes opportunities that benefit the business over the long term. Owned and exclusive label carries structurally higher margin and newness is important for growth, with over 470 new product lines added in FY '26. One example is Wagner generics, which achieved 88% customer adoption. That's customers using our brand at scale, and it points to a strong end-to-end execution capability across the franchise network. Turning to pillar four, operating leverage. Our supply chain is world-class. We executed over 600,000 deliveries and distributed 579 million units of pharmacies during the year, with volume up 6.5% on last year. That's an additional 35 million units for the year. This is where the benefits of scale, automation and our fixed and variable cost structure make a difference to the bottom line. And we are not standing still. We are rationalizing our footprint to drive further optimization. The South Guildford DC in Western Australia closed in May, and our Port Adelaide DC will be consolidated into our Pooraka DC in the first quarter of FY '27. We are also upgrading our Townsville and Hobart distribution centers to strengthen service in those markets. On logistics, we are optimizing routes, consolidating providers and leveraging automation to take cost out of every unit we move. Importantly, for our wholesale customers, we are maintaining our high service standards with delivery in full above 99% and on-time delivery above 97%. Our performance has been recognized by an independent supplier survey, which recently ranked Sigma the #1 wholesaler in Australia. A key part of pillar four of our strategy is our focus on synergies, with the $100 million annualized target is clear, achievable and firmly on track. The $32 million of synergies that we achieved this year will also benefit FY '27. The one-off cost of $26 million to achieve the synergies is in line with expectations. Importantly, this is not just about consolidation. We have mapped the change management required to deliver our integrated technology solution. It is important to note this is not an SAP implementation. It is an SAP upgrade and integration of the Chemist Warehouse Group onto existing IT architecture. We are also introducing AI capability across the business to support decision-making and drive further efficiencies. So let me close on why I'm confident about the year ahead and the value we're building for our stakeholders. Sigma enters FY '27 structurally stronger than ever. We have four proven growth pillars, a strong balance sheet and the ability to continue driving operating leverage from integration. We expect our positive sales momentum to remain strong across every market in which we operate, and the start to FY '27 supports this. Including the annualization of GLP-1s, like-for-like sales across the CW Australian store network is continuing in double-digit growth. Consistent with previous years, I will provide a trading update at our AGM in October. Growth will come from four places. Domestically, we expect to onboard 13 Chemist Warehouse stores and 42 Amcal and DDS stores in the first half. A further 19 stores will also be added internationally in half 1, including our entry into the U.K. market. We are also focused on supporting margins with ongoing investment in our own and exclusive label products and maintaining our relentless pursuit of cost efficiencies. GLP-1 demand and the pending introduction of the oral form in Australia also continues as a structural tailwind for the business. Importantly, our $100 million per annum synergy target is still largely to be captured by FY '29, and our conservatively geared balance sheet lets us fund both growth and dividends. The investment case is clear. Sigma has a defensive and differentiated health care platform that is compounding double-digit earnings with proven growth levers and margin opportunities still to be captured. We have the scale, the balance sheet and execution capability to continue delivering value for shareholders. Thank you for listening, and we will now take your questions.

[Operator Instructions] Today's first question comes from Shaun Cousins with UBS.

I've got two questions. Maybe first around administration costs. They were up some 17% in the first half and only up 10% in the full year. Can you just talk a little bit about how you managed to slow the growth rate down in that administration cost line and how we should think about how that cost line grows over -- going forward, please?

Look, in terms of that, there was no sort of standout big driver of that coming down. All I'll say is we're starting to see some of the benefits of removing the duplication and some of the efficiency measures that we're putting in place.

And was that where a lot of the synergies were landed?

I wouldn't say a lot of it, but there was definitely some benefits of duplication being removed in that line, correct.

If I can add to that, I would say to you, it was just quite timing. If you consider the merger last year, there were some costs that had slowed down and that had lifted this year. So you're starting to get the normalization of cost spend come through. And that's why you're trying to -- you're seeing the trend go downward in terms of expenditure.

Yes. Okay. Great. And so maybe then secondly, just around cash conversion and the cash conversion cycle you'd call out sort of stepping up to 54 days. I guess how much of that was the onetime just related to the bringing in -- I think you mentioned Tilley Soaps into the DC and how much of it's broader growth? Because I'm just assuming that your working capital intensity will increase, one, because you're a growth business. But secondly, it should also increase as the New Zealand DC is operating as well, if that -- I just want to get an idea around how we should think about cash conversion cycles going forward. Is 54 doesn't appear the right number, but 46.9 might not be the right number either as you're a growth business and you're making some changes.

Yes, that's right. The increase in inventory was due to a strategic supplier. Tilley Soaps was more an acquisition we made during the period that we're now consolidating. So that was more through the -- an impact of the P&L rather than the balance sheet. I think you're right. The answer is somewhere in between that number as we continue to grow. Obviously, you've got higher costs like GLP-1s coming in, but a further benefit down the track of when we get to one system, we'll be able to optimize the inventory a lot better.

I might just squeeze one quick one in. New Zealand, your CapEx, your guidance is flat. You had $40 million of New Zealand DC CapEx. How much of that was in '26? And then maybe does your guidance of flat CapEx '27 or similar '27 or '26, does that also include most all of the residual $40 million coming in, in '27, please?

Yes, it does. We had very negligible CapEx in FY '26. A lot of the IT costs, SaaS costs are expensed. So that's right, Shaun, it will flow into FY '27. Broadly, we expect the CapEx number to be pretty consistent year-on-year.

And as well at the same time, Shaun, the way the build will begin is the automation will probably only take about 18 months to kick in. So you will have the CapEx dripping in over probably 2 years for the New Zealand DC.

The next question comes from Adrian Lemme with Citi.

My first question was relating to the federal budget. So we understand that the vitamin market actually fell materially post the budget in May, with multivitamins down double digits. Can you talk to how vitamins and other discretionary categories like fragrances, for example, performed in the fourth quarter and how they're tracking now, please?

I'm not sure I can directly link it to the budgets, but there's no doubt there's a category that's probably come under a little bit of pressure. I would say to you, it's the vitamin market. And at the same time, what we're seeing in, let's just say, ladies fragrances is probably a bit of trade down because volume is still up, right? But men's fragrances are doing exceptionally well. So if I look at most of the categories, quite frankly, they're all performing really, really well. So I would say to you, I can't really say we're feeling the impact, right, of the consumer pressure at the moment. But certainly, categories like vitamins or ladies fragrances, which tend to be a little bit more discretionary, we can probably see a little bit of impact there. But then we're picking it up in hair care, in health care and a whole lot of other categories. So it's balancing it out.

That's helpful. And could I ask a second question? We talked in February about the opportunity to improve the process and how you, the pharmacist co-recommend other products like protein, fiber, et cetera, with GLP-1 scripts. I'd just be interested to see if much progress has been made with franchisees in recent months on that and just how meaningful you think the upside to the business is from this?

I think that's an ongoing process because we call them our SRS team, right, our store team that focuses on working with franchisees and execution in stores. So if I just look at the impact on the cross-sell, for example, protein in our stores, that is exceptionally high growth. If I look at hair care and the complementary products that effectively a consumer would be looking for, right, digestion, et cetera, those categories are performing exceptionally well. So I would say to you, I think that is an ongoing process in our stores. And a key metric that I provided in May, and that continues, the basket size of a GLP-1 customer is 40% larger than a non-GLP-1 customer. So that trend has continued, which is obviously encouraging for the cross-sell. And the cross-sell opportunities will continue in stores.

The next question comes from Peter Marks with Goldman Sachs.

I just wanted to drill down into that Australia sales growth trends over the half and then into the trading update. It looks like May and June sort of slowed to 8%. Can you give us like a bit more color on what you think has driven that? Is there anything in there on the flu season and then also like the bounce back in FY '27?

Yes. It was slightly softer in May and June. There were two reasons for that. Actually, the comps were really big to last year, and that's obviously seasonality kicking in. And the cold and flu season certainly started later this year. But as you can see, I've stated that we've got double-digit growth like-for-like in the new financial year. So that trend has turned at the moment. That's really -- it's probably two things, right, big comps in last year and a later start to the cold and flu season for this year.

Okay. That's great. And then on the cost base in Australia, like I think you've called out -- are there any one-off costs that we should be thinking about? Like is that 3.7% FX, is that in those numbers? And then how big is that like Tilley Soaps acquisition? Is that like you taking on some of the losses there? Are there any like -- I guess I'm trying to get at is, are there any like one-offs that we might adjust for as we look into '27?

Yes, that's right. I think there are quite a few. I mean if I start with warehousing costs, we did have -- we were transitioning our Tier 1 suppliers across from February, which meant we incurred some additional employee costs there and temporary labor. As you're transitioning, you ramp up before you ramp down. So there's certainly -- and that transition is now complete. We also obviously brought on a strategic supplier, and we did have EBA negotiations. So we did carry some extra labor during some of those periods. Yes, Tilley Soaps was consolidated in from about December. I think that's around $6.5 million. And then yes, the FX loss was certainly one-off. So yes, there is -- the business is going through a lot in terms of integration. So there is kind of some costs. We normalize some of them, but obviously, you can never normalize everything.

Yes, that's great. Just on the Tilley Soaps, like does that go to -- how does that look into '27? Would you be looking to like improve that? Or does it -- can you get it to 0? How should we think about that?

I mean it's flowing through each of the P&L lines. So you'll sort of see it annualizing into that number through December. But I mean, it's not a meaningful EBIT contribution at this point. It's more just that the costs have started to flow through.

The next question comes from Tom Kierath with Barrenjoey.

Just on Ireland and the U.K., it's great to see Ireland profitable. I think you're rolling out a bunch of stores over the next kind of 12 to 18 months. Should we expect like the profit to potentially go to a loss as you do that and you invest in those stores? Or can you just maybe help us understand what the trajectory looks like a bit in Ireland, please?

So I think the good news is Ireland's made a profit, and it's been quite a good turnaround for the year. And we expect that momentum to continue because you really needed the scale to absorb the fixed costs and the overheads of the office. And once we have done that, right, and you can see Ireland is up 45%. So you're getting really good growth momentum from the existing stores as well, which means we expect Ireland to continue being profitable and growing in profitability. The U.K., of course, will be loss-making, right? You're opening two new stores. We'll probably open another three in FY -- second half of FY '27. So we expect that business to be loss-making for a period of time as we grow scale in that market.

Great. And just on GLP-1s, I know it throws around the sales a lot. Can you maybe just talk through what trends you're seeing there in terms of volumes and also the ASP. I understand that people are kind of trading up going to heavier doses as they're on their GLP-1 journey. But can you just talk through what you're seeing in GLP-1s, please?

I mean, to be fair, I think we always knew that the GLP-1 trend would continue. What we find really encouraging is that it's kind of maintained a growth momentum. You can't think really big numbers in last year. So you can't expect that kind of level of growth to flow through, right? But what I think is good is -- I'll give you the average price. We're averaging around $300 of the mix of products because, as you can understand, some products are funded by the PBS, a very small portion. Most of it is private. So I actually find GLP-1s as a category will continue to grow. What's interesting for me is when the oral dose will be registered in Australia. I truly believe that's a real tailwind for the business. We don't know what the pricing could be or anything like that. But there's probably two big and important things in that medicine category. If the government puts it on to the PBS, which is obviously still being negotiated, and the oral dose comes into Australia, I think the market size starts to grow materially. And if you look to then the cross-sell opportunities, that lifts our front shop. So this category for me, I think, will continue to give us a tailwind into the future.

The next question comes from Brian Gilbert (sic) [ Ben Gilbert ] with Jarden.

Just following up from that GLP-1 question. Just if we did see the old doses coming in and the cheaper pricing, do you expect that there's going to have to be a bit of a reset. So say price is half or more than half, do you think there's going to be a bit of a reset period for 6 to 12 months when comps to take a hit? I'm just trying to think about how we sort of ready for that if it does come and you see participation goes into [ 3 to 6 ].

Potentially, yes, because it's a really high value item. But I'm probably expecting a proportion of that to be offset by the increase in volume, right? With the market size increasing, the sales uplift on other products could probably offset that. If it's slightly cheaper, the margin percentage kind of moves up. So we're all hypothesizing that because we have no idea what price is going to be registered at in the country. But it's probably the best negative comp I'm happy to take, right? Because there's extra -- if you recognize what you're looking for is long-term volume consumption. And if the market size increases and customers are buying complementary products, then that's better for the business over the long term.

Yes. Intuitively, if you took a hit from say it's adding 3% or 4% comp at the moment and say goes to 0 for a period, but you get that 40% basket uplift and penetration doubles, your net after 12% is materially higher, right?

Yes, absolutely.

And just thinking about the Australian composition of comps, I appreciate you don't want to break it down explicitly for us. But if we look at the double-digit run rate that you're at, I'm just trying to get a bit of a feel for what of it is GLP-1 versus going to larger store sizes versus just core more productivity out of your front of store. Is it a relatively even mix that's flowing through in terms of that double digit? And as we look forward, I know you've been sort of talking to GLP-1 impacts starting to wane, but it doesn't seem like it. How are you thinking about your ability to maintain that double-digit comp rate through fiscal '27?

So I would say to you, there's no doubt, right? If you look at the long term, the 10-year run rate of growth at about 11%, the CAGR and the fact that we have been outstripping that over the past kind of, say, 18 to 24 months, it actually means that GLP-1s are helping drive that. So it's not normal to expect us to be growing at 16%, right, on an ongoing basis. So what we aim for on a consistent basis in the company is double-digit like-for-like sales growth. Now that gets harder over time, right? The laws of gravity start to catch up with you as the base gets bigger, et cetera. But the ambition and the way we target growth in the organization is at least aiming for double-digit like-for-like sales growth. And you're seeing the 13%, really, that's been driven by GLP-1s. So that's slightly above the norm. But we would be very happy with, let's just say, high single-digit, double-digit like-for-like sales growth.

Okay. And then obviously, feeling comfortable around that for fiscal '27, given how you sort of talked to the trading up in the outlook for the first half.

And that's the thing. We're in the middle of seasonality at the moment, right? We're slap bang in the middle of cold and flu season, and it's very dependent on what happens with script demand over that period. It drives footfall and consumption of cold and flu medicines. So that's really why I'm feeling comfortable that we probably had a later cold and flu season start, and we've gotten into double-digit growth now.

The next question comes from Bryan Raymond with JPMorgan.

Just back on GLP-1s again. Just it's helpful to get that ASP on the -- I assume that's just on the GLP-1s themselves at $300. Just wondering, you've talked about 40% -- sorry, 40% higher, I think it's units per basket for those on GLP-1s. I'd just be interesting to get the sort of overall basket size, if it's possible to sort of dimension the degree to which you're getting those additional sort of add-on sales, those adjacent products in terms of dollars, like how that might look relative to that $300 ASP?

So we don't give the basket size mix. As you can understand, that's information we'd love to keep away from our competitors, right? But what I would say to you, what's interesting, if you think of the category mix in that additional 40%, it's -- I would break them down into actually more medicines, OTC products. So the consumer that's dispensing the script is also buying more analgesics. I cannot tell you why, but that, you can see that in their basket, right? They're buying more beauty products. They're certainly buying more protein. So you can actually see that these are complementary products to support their health care for taking the GLP-1 medicine. So that trend, I think, just continues. Internally, Mario has called it Fit Beauty. So it's really about the fact that we're selling products linked to individuals who are taking these medicines, that they probably feel better, so they're buying more kind of beauty products and more health care-related vitamins and supplements.

Okay. That's interesting. And then just going back on the U.K., I understand it's small and going to be loss-making for a little while. But can you just talk more broadly about the opportunity there? Obviously, you explored the boots side of things. You're now going forward with the JV partner. Is there potential for more JV partners outside of London? Is there -- how do you think about sort of the long run in the U.K. beyond this year where I think you mentioned only a couple of stores is the plan?

Yes. I actually think the model that we're entering the U.K. with is actually a very interesting model because one of the most challenging things when you enter a new market is how do you attract new scripts. And if you look at the density of footfall in pharmacy in the U.K., it's actually double that of Australia. So that means the density of people entering pharmacy is twice that of Australia. So if you have a JV partnership and effectively, you're opening a store and moving a license, you're opening day 1 essentially with the script volume and the people coming into your stores. And in the U.K., the front shops tend to be really small, right, in independent pharmacy compared to the prescription base. So what we will be offering actually opening up is immediately you have customers who are coming and dispensing the scripts and a much larger front shop offering. So if this model works, we can certainly duplicate this with other partners in the U.K. and accelerate our growth there. But we've got to test and learn initially.

And just as a follow-up to that, would you prefer other JVs or maybe other acquisitions if that's the way to go, if there's others on offer that obviously be smaller than Boots, I'm sure.