Acquisition Dis-Chem increases profits

Dudu Ramela: For the full year ended February 28, 2022, Pharmacy Group Dis-Chem reported revenue growth of 15.7% to R30.4 billion, and headline earnings increased 27.6% to 99 cents / share over the corresponding period. The group that acquired Baby City – they made that acquisition in 2020 – rebranded the stores as Dis-Chem Baby City and opened three new outlets. It also opened 12 new Dis-Chem stores and acquired 48 Medicare outlets, with its retail pharmacies reaching 254 and its baby stores reaching 35 by February.

Retail revenue rose 15.6% to R27.1 billion and wholesale revenue rose 13.7% to R21.9 billion.

Let us know more about the results, and we’ll talk to Rui Morais. He is the chief financial officer of Dis-Chem. Rui, thank you so much for joining us tonight.

Rui Morais: It’s a joy, dudu, and good evening for your audience.

Dudu Ramela: Despite a complex operating environment, some pleasant results. How would you characterize them?

Rui Morais: Our operating is in a very complex environment. I think it’s gratifying to see that through the environment we’ve not only done biologically good business, but we’ve also managed to fix and stabilize some of our recent acquisitions, and they’ve landed together. We had your point, Baby City, recently Medicare and Kylo which was an insurance business that we partially invested in. So the integration has been positive and now we want to consolidate and yield the returns of those acquisitions.

Dudu Ramela: Talk to us about increasing retail and wholesale income. What drives growth?

Rui Morais: Sure. As I said, organic growth. We’ve seen some normalization in the trading pattern from consumers, of course in terms of how often they come to our mall-based stores. We’ve definitely been over-listed in terms of competition when it comes to the number of stores in our malls. We see foot traffic coming back to the malls and other types of anecdote-type subtleties.

So we’re seeing more frequent foot traffic, slightly smaller baskets – quite different from what we were seeing during the Covid period. So all that contributes to a strong retail revenue number.

And then on top of that, just the acquisition: Baby City being represented for a whole year; Medicare, re-branding at Dis-Chem Pharmacy, is being represented for five months. And of course our participation in the vaccine program, which has brought us closer to half a billion rand of revenue during the financial period.

Dudu Ramela: Would you say, especially with the increase in foot traffic in stores, you are going back to pre-covid situations? We’ve also seen a higher mix of beauty products.

Rui Morais: Of course there is a return. We are not saying that we are at the pre-covidial level, but of course when you look at the structural features of each of our results, of course the way we traded, we can see that the normal trend is back. Our number. All those cowardly tendencies [are] Conversely so we are definitely on the right track in terms of getting back into the pre-coupid shopping environment in South Africa.

Dudu Ramela: Sure. Of course we remember the scenes of 2021, when Dis-Chem was affected by the unrest in parts of KwaZulu-Natal and Gauteng. When we look at the results, would you say it had an effect?

Rui Morais: It is, of course, from a sentimental point of view [did]. Consumers are clearly being affected by what we have seen in that environment and I think retailers are approaching cautiously. We were lucky enough that not too many of our stores were affected and we reopened them relatively soon.

We have a concentrated network relative to some food grocers, and [are] Then concentrated in metro areas, which were probably better protected. So we had a limited impact – but that doesn’t deter consumers. So we saw that impact on our consumers.

We are slowly starting to see those consumer patterns back again, so hopefully we have a relatively unpleasant year ahead of us, with covid normalization and hopefully just a normal trading environment. It’s good to see.

Dudu Ramela: Sure. We’ll get to the point in a few moments, but I want us to focus on the recent launch of a medical insurance and gap cover offer called Dis-Chem Health. Have you been able to measure the impact of that proposal?

Rui Morais: Like the insurance business, it is relatively small. I think so [one of our] We had the opportunity to enter space when ambitious. If you think about the amount of uninsured South Africans employed, when you point out that anyone is able to receive healthcare or affordable healthcare, not in a medical scheme product, and is receiving it on a cash basis or [being] Depending on the state, it has a chance of 10 million lives. So rather big.

But more importantly, I think – and we’ve seen that we’ve partnered or collaborated with the state on vaccine programs or rollouts – that the private sector can certainly play a role in providing low-cost healthcare.

It is very necessary in South Africa. We saw that opportunity. We think our brand is in a good position. We think Kaelo at the center of the product is the best kind in the class, and we look forward to investing in it and seeing its trajectory.

Dudu Ramela: Sure. I guess it leads to the final question of our group’s point of view.

Rui Morais: I guess probably, as with many people [we are] Cautiously optimistic. I think from our point of view we are excited about the insurance space. We see this as something that extends away from our core business, but at the same time something that we can really contribute to. We will continue to open the store.

We’re excited about Medicare’s rebranding opportunity, and the brand at the door – in the absence of a good term – brings sales numbers to those stores. And then, hopefully, a normal trading period that I mentioned.

But [we are] Conscious that consumers are going to be very value-driven, very value-conscious – and this plays a good role with the resilient healthcare sector and of course for the core principles of Dis-Chem, which are services. And lower prices every day.

Dudu Ramela: Rui, we appreciate your time this evening. Rui Morais is the chief financial officer of Dis-Chem. Thanks.

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