Pharmacy group Dis-Chem says its recent string of acquisitions helped its revenue exceed R30bn for the first time in its history in its 2022 financial year, and it is optimistic about both a normalisation of shopping habits and better-than-expected uptake of its new health insurance offerings.
Dis-Chem’s health and personal care focus means it remains in the resilient part of the consumer retail market, CFO Rui Morais told Business Day, and the group is encouraged by returning footfall at larger malls, which consumers had avoided during the pandemic.
While expansion with an eye on additional market share gains continues, the pharmacy group isn’t actively hunting for additional assets for now, he said, but rather focusing on getting more out of existing ones by leveraging its brand.
The pharmacy chain is SA’s largest by value of medications dispensed, and in March, the beginning of its 2023 year, it launched its new range of Dis-Chem branded insurance products, part of a new focus on improving the amount of primary-healthcare services it offers.
Revenue grew 15.7% to R30.4bn in the year to end-February, the group said on Monday, with comparable store retail revenue growing 6.1%. Dis-Chem continued its expansion strategy in 2022, when it opened 12 new Dis-Chem and three Baby City stores.
Dis-Chem remains focused on securing additional space, CEO Ivan Saltzman said during an investor presentation, with area for 16 new Dis-Chem stores and seven new baby stores in place for 2023.
“We have seen a continued stabilisation in our operating environment,” he said. “Covid-19 waves became less severe with the consumer resuming their pre-pandemic routines and shopping habits, driving normalisation of baskets and seasonal patterns.”
Dis-Chem said it has also been benefiting from successfully integrating its recent acquisitions, and it had spent R282m acquiring the Medicare group, effective October, which added 48 pharmacies to the its portfolio. The group had 254 retail pharmacy stores and 35 retail baby stores as of February.
The group had focused on integrating its new acquisitions in 2020, rebranding about half of Medicare stores so far, and moving them onto common technology platforms. The group has also been rolling out group-wide loyalty programmes to further benefit from its brand equity, and is adding clinic services to its new baby-focused retail store network.
Baby boom
In 2020, the group had announced the R430m acquisition of Baby City, which has given it about a 16.1% share of the baby care market.
In March it picked up yet another asset for R23m, Baby Boom, bringing it about an additional 20 stores. While a smaller asset, Baby Boom had an attractive array of private label products, Morais said, such as cots and travel seats that were already certified, something that can be a lengthy process.
Dis-Chem’s dispensary market share, referring to medication, grew to 23.3% at the end of February from 21.8% in 2021, with the group reporting further gains after year end. Its share in the personal care and beauty market picked up to 17.1%, from 16% previously.
After-tax profit rose 29.4% to R890m and Dis-Chem upped its total dividend 27.6% to 39.7c per share, representing a R341.5m payout for a group valued at R28.8bn on the JSE.
In its 2019 year, pre-Covid-19, the group had paid out a 34.2c dividend, and generated R764m in profits.
Dis-Chem also had agreed to pay R195m in November for a 25% stake Kaelo Holdings, which offers both gap cover to pay for hospital bill shortfalls not covered by medical schemes and other basic health insurance products for people without medical schemes.
In the two months since being launched, uptake of the group’s medical insurance and gap cover offering, Dis-Chem Health, had exceeded initial expectations, Morais said.
“They are benefit-rich and affordably priced,” he said. “It has confirmed our thinking that there is a substantial market for these types of products.”
Dis-Chem is planning to roll out even more, with Morais declining to go into specifics, but saying they would be in the health and life insurance area.
By the JSE’s close on Monday, Dis-Chem’s shares had gained the most in six weeks, up 2.54% to R37.25. They have fallen 3% so far in 2022, but have risen almost 88% over the past two years. Over the same time periods, rival Clicks has fallen 8% and risen 30% respectively.
Update: May 23 2022
This article has been updated with additional information throughout.
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