Wrap Text
Provisional Reviewed Annual Condensed Consolidated Results for the twelve months ended 29 February 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")
Provisional Reviewed Annual Condensed Consolidated Results
for the twelve months ended 29 February 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/FY20.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 been reviewed by the Group's external auditors.
Restated*
12 months to 12 months to 12 months to Restated
29 February 28 February 28 February % %
2020 2019 2019 change change
Group revenue R24.0 billion 21.4 billion R21.4 billion 12.0% 12.0%
Earnings per share 69.6 cents 85.4 cents 83.6 cents (18.5%) (16.7%)
Headline earnings per share 69.6 cents 85.4 cents 83.6 cents (18.5%) (16.7%)
* The financial information presented for the prior period is restated due to the adoption of IFRS 16.
Overview
In the current period, with the challenges of the corresponding period strike coming to an end and the
decentralisation of the wholesale space now concluded, the Group continued to focus on Return on Invested
Capital (''ROIC'') to ensure optimal returns to shareholders over the long term. This has resulted in the
necessary inventory reductions and rationalisation across the wholesale space without compromising revenue
to our customers. Cash generated from operating activities, which takes into account the effect of the ROIC
focus, increased by R671 million or 115% from the corresponding period.
Despite the difficult consumer environment, revenue has grown by 12% over the corresponding period.
External revenue in the wholesale environment grew by 23.3%, mainly due to the successful acquisition and
integration of Quenets — the acquired Western Cape wholesaler. The Group continues to report revenue
growth ahead of market growth, as it grows space and benefits from a maturing store base. As a result, the
Group has improved its market shares across all core categories.
The Group's earnings in the current period were not only impacted by once off items (as described below) but
were also impacted by the low growth in purchases from suppliers of only 2.6% against the corresponding
period which, despite the successful improvement in additional trade terms, has resulted in the total income
margin declining.
Earnings in the first half of the year decreased by 37.4% compared to the corresponding period due to the
majority of the inventory rationalisation taking place in this period. As more normalised purchases took place
in the second half of the year, earnings increased by 16.7% compared to the corresponding period. Earnings,
excluding once off items, decreased by 5.9% over the corresponding period.
Earnings attributable to shareholders and headline earnings both declined by 16.8% over the corresponding
period. Earnings per share ("EPS") and headline earnings per share ("HEPS") are both 69.6 cents per share, a
decrease of 16.7%.
IFRS 16 Leases
The Group adopted IFRS 16, Leases, in the current period and elected to present financial information on a
restated basis in order to allow for comparability between periods.
The adoption of IFRS 16 impacted certain key performance indicators ("KPI's") such as EBITDA, EBIT, EPS, ROCE
and gearing ratios. Importantly, however, it does not change the Group's underlying, fundamental economic
business model, investment case or strategy.
The Group's EPS at 28 February 2019, which was previously 85.4 cents per share, has been restated to 83.6
cents per share.
Review of financial performance
Revenue
During the twelve-month period from 1 March 2019 to 29 February 2020, Dis-Chem recorded Group revenue
growth of 12% to R24 billion.
Retail revenue grew by 11% to R21.8 billion with comparable store revenue at 4%. The Group restricted selling
price inflation to 2.2% thereby achieving positive volume growth despite the difficult economic climate. The
Group opened 18 new stores and acquired 3 new pharmacies from the corresponding period resulting in 170
stores at February 2020. These new stores contributed R656 million to revenue, including R165 million from
the acquisition of Springbok Pharmacy on 1 April 2019.
Wholesale revenue grew by 14% to R16.6 billion. Revenue to our own retail stores, still the biggest contributor
to wholesale revenue, grew by 12.8% while external revenue grew by 23.3% from the corresponding period.
The external wholesale revenue growth of 23.3% is due to the successful acquisition of Quenets (acquired in
November 2018) which resulted in additional revenue of R271 million as well as the number of TLC franchises
growing from 91 at February 2019 to 104 at February 2020.
Total income
Total income grew by 9.8% to R6.8 billion. In the corresponding period the Group benefitted from the release
of unearned rebates of approximately R81 million as a result of a redistribution of inventory across the retail
and wholesale segments which did not occur again in the current period. Excluding this once off amount, total
income grew by 11.3%.
Despite the continued and successful improvement of additional trade terms, the Group's total income margin
reduced from 29.1% (28.7% excluding the corresponding years unearned rebate release) to 28.5%. Due to the
majority of the inventory rationalisation taking place in the first half of the year, the total income margin
increased from 27.5% in the first half of the year to 28.5% in the second half of the year.
With the optimisation of inventory levels together with the increased focus on ROIC in the current period, the
lower increase in purchases from suppliers (2.6%) compared with the increase in revenue (12%) resulted in a
negative impact on the total margin of the Group. Lower purchases resulted in a sacrifice of purchase driven
growth rebates together with lower supplier purchase linked fee for service income.
Retail total income grew by 7.5%, carrying the majority of the terms sacrifice as a result of the lower purchases
while wholesale total income, excluding the once off unearned rebate release, grew by 13.1%.
Other expenses
Other expenses grew by 15.2% over the corresponding period to R5.6 billion. This increase is partly due to the
following once-off transactions that impacted the current and corresponding period:
• The change in the Group's bonus policy relating to employee's 13th cheques resulting in a lower
bonus in the corresponding year of R60 million compared to the current year; and
• Additional strike-related costs (additional security and payroll) incurred between the FY19 year end
and the conclusion of the strike on 10th April was approximately R19 million compared to strike-
related costs of R50 million in the corresponding year.
Excluding these once-off costs, expenses would have grown by 14.6% over the corresponding period.
Retail expenses, excluding the once-off transactions, grew by 13% as the Group invested in 21 new stores since
the corresponding period. Wholesale expenses, excluding the once-off transactions, grew by 5.2%.
The low growth in Wholesale expenses is a result of the investment in technology that allows for greater
visibility of productivity, customer performance and individual supplier profitability within the wholesale
space. Supplier profitability within the wholesale space was driven by understanding factors influencing the
cost of carrying supplier inventory. Factors included inventory turn, space allocation and bin consumption
across each warehouse within our wholesaling environment. This supplier specific profitability analysis
enabled better informed commercial discussions to ensure improved space optimisation and efficiencies.
Net finance costs
Net finance costs increased by 10.1% to R380 million. This increase was primarily due to additional interest
cost in the first half of the year as a result of the additional inventory held over the strike period to avoid
compromising stock levels in our stores. Net finance costs (excluding IFRS 16) in the first half of the year
amounted to R77 million compared to R61 million in the second half of the year. The Group took advantage of
favourable financing by replacing the existing ABSA facility with a new facility in order to facilitate acquisitions
in both the retail and wholesale businesses.
Net working capital
During the current period, the Group reduced inventory holdings by R609 million from February 2019. This was
achieved through the afore-mentioned ROIC processes and simplified by normalised trade in our wholesale
business post the strike, allowing more efficient replenishment cycles and focus on excess stock levels. This net
working capital improvement, from an outflow of R404 million in February 2019 to an inflow of R266 million
has resulted in a greatly improved cash generation for the Group.
The Group's net working capital improved from 28 February 2019 of 38.3 days to 33.3 days at 29 February 2020.
Capital expenditure
Capital expenditure on tangible and intangible assets of R363 million comprised R223 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 R140 million relates to replacement expenditure
incurred to maintain the existing retail and wholesale networks.
Capital expenditure on acquisitions amounted to R60 million with the acquisition of three independent
pharmacies and a pharmaceutical adherence business in the current period.
Directorate
No changes have been made to the board since year-end or the corresponding period.
Dividend declaration
With the on-going Covid-19 pandemic and the uncertainty around how quickly South Africa will transition
through the new stage-based plan announced by the government, it has been decided to preserve cash
resources. The dividend payment will be deferred until the next dividend cycle once the Group better
understands normalised trading conditions and considers the funding sources for the Baby City transaction.
The Group returned R266 million to shareholders in dividend payments during the year, 11.7% lower than the
prior period.
Trading subsequent to year end
After year end, due to the Covid-19 pandemic, the Group has experienced different trading patterns to that of
corresponding years. During March, before the lock down came into effect on 27 March 2020, retail stores
experienced a substantial increase in revenue compared to the corresponding period of 45.6% as customers
stocked up on products. Increased revenue were seen across all categories but especially in the pharmacy,
healthcare and nutrition category. This trading pattern was then reversed during the lock down, when only
essential products could be sold, and retail revenue decreased by 20.9% compared to the corresponding
period. Since level 4 came into effect the Group is starting to see a recovery in its revenue with retail revenue
increasing by 2.8% from 1 May until 16 May 2020 compared to the corresponding period.
For the eleven weeks to 16 May 2020, retail revenue grew by 6.2% and wholesale revenue grew by 25% from
the corresponding period.
The wholesale business benefitted from the resilient nature of independent pharmacy with pharmacy,
healthcare and nutrition revenue growing both prior to and during the Covid-19 period. In addition a business
to business solution was developed, offering all businesses returning back the ability to access the
appropriated products (PPE, sanitation products) and services (screening and testing services offered by our
clinic sisters) at wholesale prices.
Outlook
The Group is pleased to announce that on 11 May 2020 it entered into inter-conditional agreements in terms
of which it will acquire 100% of the issued share capital in and shareholder claims of Fairy Tales Boutiques
(Proprietary) Limited and Somerset Baby Hyper (Proprietary) Limited, which in aggregate, comprise the
well-known baby care products retailer Baby City. Michel Aronoff, who conceptualised and strategized Baby City's
direction, will continue to serve as managing director of Baby City following closure of the transaction and
current staff will be retained. The Group will pay a purchase consideration of R430 million upon closure. The
transaction remains subject to suspensive conditions, including approval from competition authorities, which
are subject to fulfilment by 31 October 2020.
Chief Executive Officer, Ivan Saltzman, "The acquisition is a great cultural fit and has been a target of ours for
many years. The brands and businesses were built with similar philosophies, ensuring management team
alignment as we take steps to unlock the value we see in the Baby City brand."
The Group expects that the consumer will continue to remain constrained and the full extent of the impact of
Covid-19 is still unknown. The ultimate impact on trade in the 2021 financial year is currently unknown, as it
will depend heavily on the duration of the lock down levels and the normalisation of retail trade. With the
focus on ROIC and the cash generation in the 2020 financial year, the Group has a strong balance sheet and 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.
The Group continues to remain focused on adding retail stores with 21 stores planned to be opened in the
2021 financial year.
The provisional reviewed condensed consolidated results have been reviewed by independent external
auditors, Ernst & Young Inc. and their unmodified review report is available for inspection at the Company's
website: www.dischemgroup.com. This short-form announcement itself has not been reviewed and reported
on by the company's auditors. The financial information in this outlook paragraph has not been audited,
reviewed or reported on by the Group's external auditors.
Approval
The provisional annual condensed consolidated results of the Group were authorised for issue in accordance
with a resolution of the directors on 19 May 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
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
20 May 2020
Midrand
Date: 20-05-2020 07:05:00
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