Dischem delivers healthy first half numbers

Dischem began as a family business in 1978. Two young pharmacists, Ivan and Lynette Saltzman opened their first retail store in Mondeor, South Africa. At the time the concept of a discount pharmacy was new to South Africans. Four decades later Dischem is a household name with 165 local stores and a presence in Namibia and Botswana. The company has multiple acquisitions in the pipeline and managed to open 13 new stores this year despite a challenging first half. – Melani Nathan

Dis-Chem delivers 8,1% group revenue growth, increases heps by 16,1%

In the six months to 31 August 2020, Dis-Chem continued to report revenue growth of 8,1% to R12,8 billion and a 16,1% increase in headline earnings per share to 36 cents per share, despite a challenging trading and economic environment, reiterating the defensive nature of the business.

“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.

Read also: Dis-Chem fined R1.2m for overcharging for face masks during Covid-19 pandemic

Retail revenue grew by 6% to R11.4 billion, underpinned by strong sales in personal care, FMCG and healthcare and nutrition categories, and like-for-like retail sales grew at 1.5%. 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%.  Working capital days, now sitting at 32 days, continued its downward trend.

Saltzman says the online contribution to revenue growth grew by a remarkable 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 says that Dis-Chem anticipates on-line 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 500m², 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 968m².

Following the Baby City acquisition, announced in May and which is still pending Competition Commission approval, the group 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.

Read also: Dis-Chem fires off profit warning as strike takes its toll

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

“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.

“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.  This transaction builds on other strategic infrastructure and asset investments made in prior periods.”

Due to pending acquisitions and the on-going uncertainty around the COVID-19 recovery, the board has unanimously agreed that dividends will be retained.

Looking forward, Saltzman says 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.  Concurrent to that, the group’s swift adaptation to changes brought on by the pandemic has positioned us well to continue to deliver value to our shareholders,” he said.

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