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Dis-Chem benefits from medicine price hike

Increase in wholesale revenue also helps retailer.
Dis-Chem's trading volumes jumps following the company's investment in technologies such as the click-and-collect service and FNB's banking app. Picture: Moneyweb

South African drugstore chain Dis-Chem Pharmacies said on Wednesday that its revenues rose 13.5% in the five months through July, thanks to an increase in medicine prices and a jump in wholesale revenues.

Dis-Chem, which competes with Clicks Group, said revenue from March 1 to July 31 rose to R9.9 billion ($650 million).

Retail sales rose by 12% to R9 billion, with comparable sales growth of 5.3%, helped by a 3.78% increase in medicine prices which came into effect in March.

The company had been hit by prolonged strike action from November last year to March this year over workers’ wage demands, which led it to miss earnings expectations for its full fiscal year that ended in February.

On Wednesday it flagged one-off costs such as a change in the firm’s bonus policy, strike-related costs and an unearned rebate, which will negatively impact the first-half earnings for the financial year 2020.

Its shares, however, were up 3.3% at R21.43 after Wednesday’s trading update as investors were encouraged by the revenue growth.

Dis-Chem has been investing in technological and innovative ways to drive dispensary volumes such as click-and-collect services and partnering with FNB bank, which allows customers to order prescription medicine by using the FNB App.

As a result, it said it saw marginally improved trading volumes driven by strong dispensary trade.

“We are pleased to see that the group delivered strong revenue performance in a tough economic environment with increased competition and a constrained consumer,” Chief Executive Ivan Saltzman said in a statement.

“I am extremely satisfied with the rationalisation of stock levels post the strike and SEP buy-in, as we focus on improving free cash flow ensuring we require less net working capital investment which will better enable us to fund future growth strategies.”

SEP refers to the Single Exit Price mechanism in South Africa that lists the maximum price that a medicine can be charged by dispensers.

To date, the company has added nine new stores and is on track to add another 13 stores before year-end, it said.

Wholesale revenue increased by 15.3% to R6.8 billion, with sales to independent pharmacies and The Local Choice (TLC) franchisees up by 49% and 27.7% respectively, mainly due to the Western Cape wholesaler acquisition in November 2018 and a growing TLC customer base.

“With national warehouse representation now enabling us to access the independent pharmacy markets in the Western Cape and KwaZulu-Natal, we will continue to focus on growing the TLC and independent customer bases,” the firm said. 

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