Pharmacy and healthcare retail group Dis-Chem says it is trading at pre-Covid levels in South Africa, with expansions and acquisitions boosting its reach and driving profitability.
In its interim results for the six-month period ending 31 August 2022, Dis-Chem reported group revenue growth of 9.3% to R16.3 billion over the corresponding half-year period.
Retail revenue grew by 9.3% to R14.4 billion, with comparable pharmacy store revenue at 3.6%. If the contribution of Covid-19 vaccines and testing are excluded from both periods, retail revenue grew by 10.0%.
Headline earnings increased by an exceptional 44.3% over the prior corresponding period, with basic headline earnings per share (HEPS) at 70.3 cents – an increase of 44.3%.
Total profit was recorded at R623.3 million, up 43%.
The group declared an interim dividend of 28.1c per share based on 40% of headline earnings. This is an increase of 44.3% from the prior comparable period.
“With consumer shopping habits and routines just about restored to pre-Covid levels, we have experienced a normalisation in our operating environment for the first time in over two years,” said Dis-Chem chief executive officer, Ivan Saltzman.
“Dis-Chem’s entrenched everyday low-price strategy has never been more important in circumstances where consumers are continuing to experience significant financial hardship. Under such affordability constraints, our group is committed to driving down cost and increasing access to quality healthcare through the integration of capabilities along the healthcare value chain.”
Looking forward, Saltzman said that the rebranding of acquired Medicare stores would extend Dis-Chem’s position as South Africa’s largest retail pharmacy group by dispensary market share.
“Work has commenced on replicating our leading pharmacy market share in Gauteng, across other provinces. In this regard, we continue to innovate to realise our vision of integrated primary healthcare, aimed at increasing access, reducing cost and delivering better health outcomes for more South Africans,” he said.
However, the group expects that the consumer will continue to remain constrained due to the current economic climate.
Expansion
During the six months to 31 August 2022, five Dis-Chem stores and three Baby City stores were opened. The group extended its baby retail leadership position by acquiring a net 15 Baby Boom stores effective 1 March 2022. These events resulted in a total of 251 retail pharmacy stores and 53 retail baby stores as of 31 August 2022.
The Group’s wholesale revenue grew by 10.6% to R12.1 billion from the corresponding period. Wholesale revenue to the group’s own retail stores remains the biggest contributor and grew by 10.7%. External revenue to independent pharmacies and The Local Choice (TLC) franchises grew by 9.7%.
When excluding wholesale revenue to Medicare stores in the prior period (internalised since 1 October 2021), external revenue grew by 20.4%, comprising independent pharmacy growth of 15.8% and TLC growth of 22.5%.
The TLC growth is due to a combination of an increase in TLC franchise stores from 134 to 153 together with the increasing support of the group’s supply chain from existing TLC franchisees. Independent pharmacy growth is attributable to both new customers and increased support from the current base.
Total income grew by 22.8% to R5.2 billion, with the group’s total income margin rising to 31.7% from 28.2% in the prior comparative period. The group met and exceeded its target of 30% total income margin 18 months sooner than initially anticipated. This increase has resulted in improvements in both EBITDA and operating margins, it said.
Retail total income grew by 19.1%, with the retail margin increasing from 27.7% to 30.2% over the comparable period.
The group continued to benefit from increases in transactional gross margin of core categories due to several factors: the normalisation of gross margins with fewer lower margin Covid-19 related lines; as well as continued improvement in back-end trading terms and service income through increasing scale and focus on return on invested capital.
Wholesale total income grew by 31.2%, with the wholesale margin now at 8.9%.
On 1 April 2022, the group acquired 100% of the shares in three of its distribution centres. These acquisitions resulted in the release of the existing lease liability and right-of-use asset on the statement of financial position resulting in a R72 million gain recognised in other income in the statement of comprehensive income.
“If this once-off gain was excluded from the wholesale segment, wholesale total income grew by 22.3% with the wholesale margin at 8.3%. This increase is attributable to a higher contribution of more profitable pharmacy volume following the Medicare acquisition, together with a continued focus on increasing fees earned on the back of ever-increasing wholesale scale.”
Expenses grew by 20.7% over the corresponding period. Excluding the Medicare and Baby Boom acquisitions for a like-for-like comparison, expenses grew by 15.8%.
Retail expenses grew by 20.0% (or 14.0% excluding Medicare and Baby Boom) as the Group invested in new stores and acquisitions since the corresponding period. Employee costs (excluding Medicare and Baby Boom) increased by 12.9%, which is well below retail total income growth of 19.1%.
Wholesale expenses grew by 12.9% due to the increase in third-party sales and higher fuel prices, resulting in higher delivery costs compared to the prior comparable period. Expenses were also impacted by an increase in casual labour shifts to accommodate increased volumes through the wholesale environment.
Read: Solidarity to launch legal action against Dis-Chem over ‘no whites’ policy – here’s why it thinks it has a case
