Dis-Chem to continue acquisition trail as it targets community-based pharmacy group

Pharmacy group Dis-Chem reported revenue growth of 8.1% in the six months ended August 2020, to R12.8 billion and a 16.1% increase in headline earnings per share, despite a challenging trading and economic environment.

“The onset of the Covid-19 lockdown period coincided with the current six-month reporting period, which has been challenging for the group.

“During the early lockdown levels, the prohibited sale of non-essential categories which equates to 20% of our business, saw us operating under extremely difficult circumstances, with a change in trading hours, significantly reduced weekend trading and a noticeable downturn in both impulse buying and footfall.

“Having said that, we adapted quickly to an unexpected trading environment resulting in total income improving by 9.4% to R3.6 billion as we continue to focus on return on invested capital, with total income margin improving by 40 basis points to 27.9%,” says Ivan Saltzman, chief executive officer of Dis-Chem.

Retail revenue grew by 6% to R11.4 billion, while fast-moving consumer goods (FMCG) and healthcare and nutrition categories, and like-for-like retail sales grew at 1.5%, it said.

Dis-Chem’s wholesale revenue increased by 14.9% to R9.3 billion with wholesale total income benefitting from the combination of more favourable terms and an increase in external customers.

For the first time, the wholesale business made an operating profit of R41 million. TLC franchises and independent pharmacies drove external sales growth of 28.1%.

Saltzman said the online contribution to revenue growth grew by as much as 353% during the period under review. “This is the result of significant investment in the online store’s processes and systems over the past five years, with the application of much behind-the-scenes work to boost operational efficiencies.”

Across the group the current average online basket size is significantly higher than the in-store equivalent, but Saltzman said that Dis-Chem anticipates online numbers to level out as the stay-home economy shrinks and as consumers start to venture back into stores

Over the six months, Dis-Chem opened thirteen new stores with a total floor space of just over 11,500 sqm, taking the total number to 182. Plans remain on track for ten additional store openings scheduled to year end which will take total floor space to 254,968 sqm.

Following the Baby City acquisition, announced in May and which is still pending Competition Commission approval, the group said it intends continuing its acquisition trail.

Rui Morais, Dis-Chem’s chief financial officer says the group is investigating an acquisition of a community-based pharmacy group that will expand its store base and ability to provide primary healthcare solutions.

Currently in the due diligence stage, this acquisition will increase the existing store network with most locations being in convenience centres.

Furthermore, a non-binding indicative offer had been made on a primary healthcare asset, and due diligence has commenced, the executive said.

“We are in the advanced stages of concluding the acquisition of a strategic interest in a healthcare asset, with specialisation in the design, administration, risk management and delivery of primary healthcare insurance, as well as gap cover and psychological wellbeing.”

This transaction will see Dis-Chem benefitting from vertical integration into the health value chain, with access to a unique set of assets in a sector of the healthcare market that is experiencing rapid and sustainable growth, it said.

“This investment will significantly further entrench our primary healthcare mandate as it will provide us with access to segments of the population who have historically not been covered by the private healthcare sector. In so doing, Dis-Chem will assist in providing deeper access to healthcare, to a wider and underserved community.”

Due to pending acquisitions and the on-going uncertainty around the Covid-19 recovery, Dis-Chem said that dividends will be retained.

Looking forward, Saltzman said that while the group is under no illusions that the upcoming reporting period will continue to be challenging as consumers remain under severe pressure, it believes that steps taken in recent months point to a positive six months ahead.

“While we return to pre-Covid trading hours and category sales mix will put pressure on margins in the second half of the financial year, we are confident that our latest and intended acquisitions will be value-enhancing for all our stakeholders,” he said.

Read: Dis-Chem is buying Baby City for R430 million

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Dis-Chem to continue acquisition trail as it targets community-based pharmacy group