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Interim Condensed Consolidated Financial Results for the six months ended 31 August 2020
Dis-Chem Pharmacies Limited
(Incorporated in the Republic of South Africa)
(Registration number 2005/009766/06)
Share code: DCP
ISIN: ZAE000227831
("Dis-Chem" or "the Company" or "the Group")
Interim Condensed Consolidated Financial Results
for the six months ended 31 August 2020
This short-form announcement is the responsibility of the Company's board of directors and is only a summary
of the information in the full announcement and therefore does not contain full or complete details. Any
investment decisions by investors and/or shareholders should be based on consideration of the full
announcement published on the Group's website www.dischemgroup.com and on the JSE website using
https://senspdf.jse.co.za/documents/2020/jse/isse/dcpe/HY21.pdf
Copies of the full announcement are available for inspection at the registered office of the Company and
the Company's Sponsor, at no charge, during office hours. For more information contact
investorrelations@dischem.co.za or visit our website.
The information in this announcement has not been audited, reviewed or reported on by the Group's
external auditors.
6 months to 6 months to
31 August 31 August %
2020 2019 change
Group revenue R12.8 billion R11.8 billion 8.1%
Earnings per share 36.0 cents 31.0 cents 16.1%
Headline earnings per share 36.0 cents 31.0 cents 16.2%
Overview
Despite a tough economic environment with the Covid-19 pandemic directly overlapping the reporting period
together with the deepening economic recession, the Dis-Chem Group achieved positive results.
Earnings attributable to shareholders and headline earnings increased by 16.1% and 16.2% respectively over
the corresponding period. Earnings per share (EPS) and headline earnings per share (HEPS) are both
36 cents per share, an increase of 16.1% and 16.2% respectively.
Retail operating profit was R585 million and the wholesale segment reported a positive operating profit of
R41 million.
Covid-19
Despite the Group being an essential service provider and trading throughout the lockdown period, the various
Covid-19 regulations imposed during the different levels of lockdown, restricted the Group from trading over
its usual operating hours and selling across all its categories. During level 5 of the lockdown period, the Group
was unable to sell 20% of its products, including higher-margin products from its Beauty category.
The various restrictions during each level of lockdown dramatically changed the shopping behaviour of
customers and the Group experienced significant online sales growth of 353%. The quick deployment of
additional hub stores together with continued investment in the Group's e-commerce platform enabled it to
meet the increased demand as best as possible.
As a result of social distancing, increased sanitising measures, people working from home and children not
going to school, the country experienced fewer cold and flu cases than in previous years. This adversely
impacted the dispensary category, specifically over the counter ("OTC") sales. Strong chronic drug adherence
due to health education, awareness and higher patient risk, partially offset the impact.
The Group has taken and continues to take every possible step to safeguard the well-being of its employees,
customers and patients. Costs directly related to Covid-19 amounted to R45.4 million mainly relating to
providing personal protective equipment, screening costs, staff Covid testing and the largest cost being related
to the staff vouchers valued at R23.5 million that the Group distributed to all staff as a gratuity for their
commitment to the front-line fight against the virus.
The growth seen in our clinics together with our Telemedicine offering, will play an important role in the
delivery and growth of the primary care market within South Africa's healthcare system. We believe the
pandemic has highlighted the need to solve for increased, lower priced healthcare delivery to more South
Africans.
The Group has taken several steps to strengthen its financial position and maintain financial liquidity and the
Group's financial position has been assisted by the lowering of interest rates. The Group believes the
adaptation of the business to a focussed Return on Invested Capital ("ROIC") approach positions it well to fast
changing trading patterns.
Review of financial performance
Revenue
During the six-month period from 1 March 2020 to 31 August 2020, Dis-Chem recorded Group revenue growth
of 8.1% to R12.8 billion.
Retail revenue grew by 6% to R11.4 billion with comparable store revenue at 1.5%. The Group opened 23 new
stores and acquired one new pharmacy from the corresponding period resulting in 182 stores at August 2020.
These new stores contributed R448 million to revenue.
Wholesale revenue grew by 14.9% to R9.3 billion. Revenue to our own retail stores, still the biggest contributor
to wholesale revenue, grew by 12.8% while external revenue to independent pharmacies and The Local Choice
("TLC") franchises grew by 36.4% and 25.7% respectively from the corresponding period. TLC growth is due to a
combination of an increase in TLC franchise stores from 96 to 110 together with increasing support of the
supply chain from existing TLC franchisees. Independent Pharmacy growth is due to new customers and
increased support from the current base. The Group has been able to maintain its excellent service levels
during these trying times in terms of operating hours, delivery times and stockholding.
Total income
Total income grew by 9.4% to R3.6 billion. With the continued focus on Return on Invested Capital (ROIC), the
Group's total income margin increased from 27.5% to 27.9%.
Retail total income grew by 6.2% with the retail margin increasing from 27.2% to 27.3%. The Group
experienced a change in its sales and gross margin mix due to sales restrictions during level 5 of lockdown, with
the sales of lower margin Covid-19 related products increasing and reduced impulse purchases because of
lower foot traffic. The Group is slowly starting to see the sales and gross margin mix normalise but continues to
expect gross margin to track behind sales growth into the second half of the financial year.
Wholesale total income grew by 20.7% with the wholesale margin increasing from 7.5% to 7.9%. The
wholesale segment has benefitted from better terms as prior investments in technology is utilised to enhance
visibility of supplier profitability.
Other expenses
Retail expenses (excluding depreciation) grew by 11.1% as the Group invested in 24 new stores since the
corresponding period as well as due to the additional Covid related expenses.
Excluding costs directly related to Covid-19, retail expenses (excluding depreciation) grew 9.1%.
Employee costs (Excluding employee costs directly related to Covid-19), the biggest contributor of expenses,
was well managed in experiencing growth of 6.5%. With the reduction in trading hours across the different
levels of lock down, the group was able to reduce employee variable cost in stores.
Wholesale expenses (excluding costs directly related to Covid-19) only grew by 0.3% compared to the prior
comparable period. This low growth in wholesale expenses is a result of the investment in technology in the
prior financial year that allows for greater visibility of productivity, customer performance and individual
supplier profitability within the wholesale space.
Net finance costs
Net financing costs have decreased by 17.4% from the prior period due to the reduction in the prime interest
rate as well as lower levels of working capital due to the focus on ROIC. R125 million capital repayments have
also been made on the ABSA loan reducing the interest paid on the long term loan.
Net working capital
During the current period, the Group's inventory increased by R334 million from February 2020 due to the
holding of additional Covid specific inventory. The majority of Covid specific inventory was purchased
cash-on-delivery without terms and is now cycling out of the balance sheet.
Net working capital, at 32.1days, continued to improve from 33.3 days at 29 February 2020 as the group
continues to focus on ROIC.
Capital expenditure
Capital expenditure on tangible and intangible assets of R229 million comprised R183 million of expansionary
expenditure as the Group invested in additional stores as well as information technology enhancements across
both the retail and wholesale segments. The balance of R46 million relates to replacement expenditure
incurred to maintain the existing retail and wholesale networks.
Directorate
Mr. Mahomed Gani resigned as a non-executive director of Dis-Chem on 9 September 2020 due to ill-health.
The board of directors thanks Mr. Gani for his past services and contribution as a director of the Company and
wishes him all the best for the future.
Dividend declaration
Due to the future unknown impact of Covid-19 together with a number of potential strategic
acquisitions, including the acquisition of Baby City, it has been decided to preserve cash resources in
order to fund these acquisitions and not declare a dividend.
Outlook
For the 9 weeks to 31 October 2020, Group revenue has grown by 7.1% from the prior comparable period.
The Group expects that the consumer will continue to remain constrained and the full extent of the impact of
Covid-19 still unknown. The gross margin pressure currently being experienced by the Group is expected to
continue into the second half of the year. As South Africa's economy opens and we shift through the different
levels of lockdowns, the stores' trading hours will return to normal which will increase the employee variable
costs in store.
With the focus on ROIC, the resilient nature of the markets in which the Group operates, together with the
brand position, the Group is continuing to adapt quickly to the current environment, with a focus on mitigating
the near-term impact whilst positioning itself for success in the future.
Acquisitions
Community Based Pharmacy Group
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 the majority
of these being in convenience centres.
Health Care Insurance Asset
The group is 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. COVID-19 has highlighted that individuals and
companies are more prepared than ever to spend on healthcare and has also led to a deeper understanding of
the importance of mental health, accelerating the need for companies to provide support to employees and
their families.
Through this transaction, the group will benefit 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. All this at margins that are significantly higher than those in the core retail business.
This investment also provides access to segments of the population who have historically not been covered by
the private healthcare sector. In so doing it will assist in providing deeper access to healthcare to a wider and
under-served community. This transaction builds on other strategic infrastructure and asset investments
made in prior periods, which together promote economies of scale, and deliver enhanced value to all
stakeholders, customers and benefit members.
The financial information in this outlook paragraph has not been audited, reviewed or reported on by the
Group's external auditors.
Approval
The interim condensed consolidated results of the Group were authorised for issue in accordance with a
resolution of the directors on 4 November 2020.
On behalf of the Board
Ivan Saltzman Rui Morais
Chief Executive Officer Chief Financial Officer
Supplementary information
Registered office: 23 Stag Road, Midrand, 1685
Independent non-executive directors: LM Nestadt (Chairman), MJ Bowman, A Coovadia, JS Mthimunye
and MSI Gani (resigned 9 September 2020)
Executive directors: IL Saltzman (Chief Executive Officer), LF Saltzman (Managing Director),
RM Morais (Chief Financial Officer) and SE Saltzman (Alternate for LF Saltzman)
Company secretary: WT Green
Registered auditors: Ernst & Young Inc.
Sponsor: The Standard Bank of South Africa Limited
Transfer secretaries: Computershare Investor Services Proprietary Limited
5 November 2020
Midrand
Date: 05-11-2020 07:05:00
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