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Turnover: R 19.600bnTrading Profit: R 4.800bnTrading Margin: 24.49%
Stores: 129Employees: 1,500
Listed: NoHEPS: 677.00 cents


Dis-Chem is a leading retail pharmacy group in South Africa with a “Pharmacy First” approach meaning that ALL stores have a dispensary. We have an Everyday Low Price (EDLP) strategy, positioning ourselves as a discount brand.Dis-Chem operates two main divisions namely Retail and Wholesale. The retail division contributes the majority share to turnover and operating profit. It consists of our store base, clinic services, the courier business known as Dis-Chem Direct, our online business and our ancillary services which include our beauty and hair salons.

The wholesale division operates a fine picking wholesale business. It has three contributors to turnover: 1) Dis-Chem, 2) Independent pharmacies and 3) TLC. Dis-Chem has 129 stores across the country, with its predominant exposure in Gauteng, including three stores in Namibia. The group operates from three store formats: 1) Big box format, 2) Alternative format and 3) Dis-Chem The Local Choice. Dis-Chem is positioned to be a destination store, where consumers can shop a full basket of products from our dispensary, personal care and beauty, healthcare and nutrition, baby care and other categories.



The Board considers not only financial performance but also the impact of the company’s operations on society and the environment. Dis-Chem’s direct impact on the environment is limited and we focus on implementing mechanisms to effectively manage the Group’s utilities where applicable. This includes minimising our carbon footprint, energy and water efficiency considerations, and recycling and control of water waste.



I’m personally well satisfied with the results Dis-Chem recorded to close out our first full financial year as a listed company. Reading these in the context of an economy that struggled throughout 2017/18, Dis-Chem largely outperformed the general retail sector and our competitors. Some commentators had anticipated that Dis-Chem would shoot out the lights with high double-digit earnings growth, yet the reality is that we met our internal targets and rolled out the 21 new stores planned for the year. Yes, healthcare is a sound investment choice in stagnant economies, but realistically the sector is not wholly recession proof. Like any other commercial sector, healthcare is subject to reduced consumer spend, surprise VAT increases, and the continuing impact of politics on business and consumer confidence. We have always been in business for the long-term and remain so. When preparing to list, we particularly sought out long-term investors who would appreciate Dis-Chem’s inherently sound value proposition. Nevertheless, we respect that analysts and journalists who focus on the immediate results also have a voice, so we have taken note that our investor communications to market must be better timed and probably more frequent.

Operating and regulatory environment

The pharmaceutical sector is tightly regulated with the Department of Health (DoH) annually determining a Single Exit Price (SEP) for regulated drugs to discourage unnecessary usage of high-cost products and make private healthcare affordable for more South Africans. The 1.26% percentage increase in SEP awarded this year does not compensate for inflationary drivers in the industry such as input costs and employee wages. With operating costs rising by an average of between 6% and 7%, the Group has to manage our own costs tightly to compensate for this abnormally low SEP increase.

The Dis-Chem brand is positioned on offering value, which compels us to remain price competitive. In this environment, we will pursue growth through increasing sales volumes and basket sizes.

Group performance

Dis-Chem reported a 6.6% rise in headline earnings for the year and achieved our primary targets for our retail and wholesale businesses, although certain distribution targets were missed due to licence delays and strike actions in the wholesale space. Turnover grew 13.3% to R19.6 billion, with the retail business lifting 15% to R18 billion and wholesale and distribution rising 19.6% to R13.1 billion. Earnings before interest, tax, depreciation and amortisation (EBITDA) improved by 6.6%, accompanied by a 6.6% growth in profit after tax. Return on equity came in at 50%. We expanded market share in all categories where Dis-Chem competes. The dispensary business, which takes in 37% of our overall revenue, lifted market share to 22.7% (2017: 21.4%), while personal care and beauty, which contributes 27% to turnover, raised its market share to 15.8% (2017: 15%). The Group continued gaining in healthcare and nutrition, where we recorded 44.2% against the previous year’s 43.1% of market share. During this period, we also improved our overall working capital position from 43 days to 36 days. The improvement was principally due to a concerted effort by management to extend creditor days, improving these from 61 days at February 2017 to 73 days at February 2018. We intend maintaining our average working capital position between 35 and 40 days going forward. Dis-Chem declared a final dividend of 12.7c, taking us to a total of 31.5c for our first full year on the JSE. I attribute our strong retail performance to a maturing store base, good margin management and the additional stores that opened to the public in this time. Retail’s solid performance was countered by the operating losses of R169 million in our wholesale and distribution business. This figure was due to our two-year investment into infrastructure and distribution capacity that did not contribute to revenues, while costing rentals and salaries, because of delayed trading licence approvals in the Western Cape and KwaZulu Natal. On the positive side, Dis-Chem has now funded sufficient warehousing capacity to support at least four years of ongoing store roll-outs.

Our national wholesale infrastructure was expanded by 13 4 43m2 and stock control of the wholesale inventory was slightly enhanced. On the retail side, we added 21 stores to end the financial year with 129 outlets. When compared to competitors with considerably larger store numbers, our relative growth on store footprint was higher.

Retail pharmacy review

Our retail business comprises Dis-Chem’s network of retail pharmacy stores and e-commerce website, wellness clinics and delivery service Dis-Chem Direct. Turnover in the retail business lifted 15%, with like-for-like turnover in stores increasing by 6.6%. Our retail segment increased operating profit by 19.4%. This strong performance is primarily due to maturing stores, astute margin management and the 21 new stores that commenced trading in this period. All core categories recorded strong volume growth from maturing operations and we continued gaining market share in these categories. Despite a concern that Dis-Chem’s growth could result in prime retail locations becoming difficult to access, ‘big box’ stores such as Edgars and Game are shedding space due to restructuring and the rise of online shopping. We have secured leases for flagship stores in Sandton, Gateway and Eastgate, with a smaller outlet at Southgate. The Dis-Chem model is designed for various retail nodes and we actively seek opportunities in large malls and centres in convenient nodes as key components of our overall business model. Independent pharmacies are under pressure to remain profitable, primarily due to the SEP and insufficient front shop offerings. Dis-Chem provides a welcoming home for those seeking to access our wholesale network or convert into a TLC – or even a Dis-Chem – when the site is right. Numerous independents are in contact and this year we anticipate converting at least four independent stores into TLCs.

Wholesale and distribution review

In this period we were unable to recover the costs for building out our distribution footprint across the country. Consolidating this investment into this year’s financials resulted in our wholesale and distribution business recording an operating loss of R169 million. This position was caused by not getting wholesale pharmacy licences – particularly in KwaZulu Natal and the Western Cape – approved in line with planning, resulting in rental and payroll costs ahead of the warehouses being operational.

CJ Distribution, our pharmaceutical wholesaler, grew its turnover by 19.6% and now supplies 79% of total stock into our retail stores. After the year-end, CJ Distribution acquired – pending competition commission approval – a regional wholesaler in Cape Town. A successful acquisition would add scale and synergies to our wholesale operations in the Western Cape.

Trading licences

The healthcare industry is highly regulated and delayed licencing of crucial operations has become a priority. We carefully select sites for their locale and the likelihood of being awarded trading licences within a reasonable time. Dis-Chem was particularly impacted by delayed licensing in this period, although all industry players face this risk.

Managing transition

We had drawn up a succession plan well before the JSE listing in early 2017. This includes a succession plan for myself as CEO. In this period, we recruited and appointed experienced professionals in key positions. Along with the board, they will be a fundamental part of transforming Dis-Chem from a family dominated business into a best practice listed company. At the same time, we do not want to lose the attributes that have made Dis-Chem into such a great business. We have always planned for sustainable operations and long term returns, which has enabled Dis-Chem to continue growing through several economic downturns over the past four decades, albeit slower than when GDP growth is higher. As a result, we were taken aback by analyst and media reaction to our results, which caused a temporary fall in the Dis-Chem share price. The lesson learnt is that our investors viewing Dis-Chem through a short term lens can be easily alarmed into selling their shares at the wrong time. We must ensure our messaging is accurately timed and expressed.

Dis-Chem’s strategy and business model

Dis-Chem’s business model is tweaked from year-to-year as necessary and is long proven to deliver consistent results. Our model is based on recognising retail opportunities early and engaging through astute management and tested growth planning.

Our value proposition to customers and shareholders is built on the ‘Pharmacy First’ philosophy, which requires that service-driven pharmacists anchor excellent dispensaries stocking medications at the most competitive prices for consumers and medical schemes. Each Dis-Chem dispensary is the hub of a wider offering of healthcare, complementary medicine, personal care and selected food ranges. This carefully selected and well-priced inventory, supported by excellent service, encourages bigger baskets of purchases which is crucial in a low price inflation phase such as now. Store growth and efficiencies, trading densities and tight cost controls remain at the forefront of our short and medium-term strategy to ensure sustainable growth. To drive growth, KPIs have been set for key management personnel.

Retail strategy

Our primary thrust in retail is to continually add stores of various sizes to the Dis-Chem and TLC portfolios. Within the stores, we have intensified our focus on the dispensary function to improve store trading densities. The Group recently implemented a new Customer Relationship Manager (CRM) system. We are utilising its enhanced analytics capability to learn more about our customers’ needs, secure their loyalty to Dis-Chem and encourage larger baskets of purchases.

Wholesale strategy

Adding new retail outlets and independent customers to our portfolio inevitably grows our wholesale volumes. Besides the Group’s major investments into storage capacity over the past two years, we are also seeking out suitable wholesalers to acquire. As part of this drive, we recently purchased a Cape Town-based wholesaler, subject to the approval of the Competition Commission. The Group also installed additional IT and supply chain infrastructure as an early step in establishing a pre-distribution business.

Looking ahead

Our first set of full-year post-listing results is reassuring. These show that Dis-Chem is delivering shareholder value in line with our set targets. We will continue driving growth through space maturity in our existing stores and by opening new outlets, with about 24 400m² of additional retail space to be added during the current financial year. The 20 new Dis-Chem outlets already confirmed for the current period will include three flagship stores at Sandton City, Gateway in KwaZulu-Natal and at Eastgate in Gauteng, while we will also open our first Dis-Chem in Botswana and a fourth store in Namibia.

To spread the Dis-Chem footprint more widely, we are energetically marketing our TLC brand to well established independent pharmacies, with several expected to join the TLC stable this year. Although political and economic sentiment has improved in recent months, South Africa’s economy remains under severe pressure and contracted by over 2% in Q1 2018. We expect consumer spend to remain constrained, although spend on healthcare tends to be more robust than most sectors. Dis-Chem is well positioned to gain revenues from improved consumer sentiment and additional disposable income.

Appreciation and conclusion

So many people have contributed to Dis-Chem’s first full financial year that I hardly know where to start. Lynette Saltzman – Dis-Chem’s co-founder and my wife – has stood out by taking on a far bigger role than previously. Lynette has become an invaluable contributor to whole store planning and not just the cosmetics and beauty sections, while also taking on direct responsibility for the Dis-Chem Foundation.I also had the unprecedented pleasure of standing alongside Lynette on stage when we jointly won the All Africa Business Leader Entrepreneur of the Year awards for Africa. Those were unforgettable moments. Our young and energetic CFO, Rui Morais, is attracting wide attention for his financial acumen and won three of the five CFO orientated awards for which he was nominated. We are fortunate to have the support of an appropriately skilled Chairman and Board, a settled and deeply experienced management team and a widespread team of Dis-Chem people across southern Africa, all determined to take our brand to the next level. Having undergone a difficult business transition under exceptionally trying circumstances, I’m looking forward to the next milestones in the Dis-Chem journey.

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Operating environment

South Africa’s economy made a promising start to 2017, but investor and business confidence was dashed by an unexpected political decision in March 2017. Within weeks the Fitch and S&P ratings agencies downgraded South Africa’s debt to sub-investment grade. Economic activity contracted in the first quarter, but slowly regained momentum and in the fourth quarter grew by 3.1% quarter-on-quarter (seasonally adjusted and annualised) to record a sluggish 1.3% for the year. Further downgrades in November 2017 signalled that substantial economic reforms were required to prevent the country from sliding into across-the-board junk status.

Following the major political shift in December 2017, South Africa entered 2018 in a more confident mood, but consumers remain under severe pressure from rising costs from utilities, the recent VAT increase and continuing political volatility. Although GDP contracted by 2.2% in Q1 2018, most commentators remained confident that our fundamentals remain sound. Early in the year, ratings agency Moody’s affirmed South Africa’s investment-grade credit rating and revised its credit outlook from negative to stable. Standard & Poors (S&P) consequently reaffirmed South Africa’s rand debt at “BB+” and kept the country’s foreign-currency debt unchanged at “BB”. These ratings agencies have evidently adopted a “wait and see” stance while the new Presidency installs new leadership teams in government departments and public institutions. Consumer disposable income will remain constrained until the economy revives, though South Africa’s ageing medical aid population will inevitably drive up the need for pharmaceuticals. Nevertheless, our strong fundamentals and Dis-Chem’s positioning in the resilient healthcare industry bodes well for ongoing expansion in a muted yet stable economy.


Many of Dis-Chem’s product categories are regulated. Staying abreast of these regulations are written into the KPIs of each category executive. We are working steadily to remain fully compliant by removing all remedies and products that our testing reveals fall short of current or incoming standards. A quality assurance team screens all new suppliers, their facilities and products before considering these for our catalogue. New regulations for medical devices and personal care are also in the pipeline. Constant regulatory amendments have made compliance an operational priority. The Board is establishing a compliance framework that will comprise an overarching set of rules and compliance characteristics that can be applied throughout the business. Management will also utilise this framework for audit and risk purposes.

Dis-Chem presently holds over 40% of the Complementary and Alternative Medicines (CAMs) market, which is being impacted by the roll-out of CAMs legislation that sets new regulations and registration criteria for the category. Government’s intention is to eliminate questionable remedies from the market, which we welcome wholeheartedly. On the other hand, this regulatory process could impede the development of new formulations and cutting edge products.

Stakeholder relationships

Following an employee strike in January 2018, Dis-Chem agreed to recognise the involved trade union when it achieves sufficient representation in terms of current labour legislation. Although the union had not reached the required membership threshold, we have considered the issues raised by our employees and taken corrective action where necessary. As our employee communications sought improvement, our CEO, Ivan Saltzman, and other senior executives now personally attend in-house work forum meetings, along with representatives from our unionised and non-unionised employees. These discussions have proven invaluable for understanding the challenges our employees face and are fundamental to building trust and a more proactive relationship with the workforce.

Sustainable operations

From their early years in business, the Saltzmans have believed that doing good for the community is good business. The Dis-Chem Foundation was launched as their social responsibility enabler and our customer loyalty programme is now 15 years old. Being a good corporate citizen and giving back to the community is built into Dis-Chem’s corporate DNA. This empathetic culture informs our approach to employee training and development, with a particular focus on preparing young adults for productive and fulfilling lives. We have enthusiastically engaged government’s tax-based initiative to provide job and learning opportunities for South Africa’s underprivileged youth. Where we can, we bring these young people into Dis-Chem or healthcare, as the industry is perennially short of skilled people. The Group is preparing a comprehensive environmental and waste reduction programme, which we will report on in greater detail in the next reporting cycle. An early part of this process is to assess our emissions, materials used and environmental impacts, so that appropriate measures can be built into the programme. In the meantime, the wholesale business has equipped our stores with specialised balers that prepare discarded packaging for recycling.

Leadership and corporate governance

Dis-Chem’s listing in November 2016 brought with it a fundamental restructuring of the Board. We inducted non-executive directors with the appropriate skills for overseeing a healthcare business and repositioned several previous directors into operational executive roles. I am satisfied that Dis-Chem has an optimum mix of Board members for this time, though we continually look for opportunities to broaden its diversity and introduce individuals who will add value.

The Board approves strategy and sets KPIs across categories, stores and regions. The Group’s strategy remains focused on consolidating retail and wholesale healthcare facilities through Dis-Chem’s differentiated business model. In our view, the business and the brand will continue gaining traction through Dis-Chem’s market-leading offering to consumers, independent pharmacies and distributors. This year, the Board paid close attention to the challenges facing our wholesale business following the major investment into additional wholesale storage and distribution capacity. Obtaining the necessary distribution licences became a drawn-out process that was not sufficiently factored into our planning. These delays hindered new distribution and caused Dis-Chem to pay for salaries and storage capacity that generated no returns. As a consequence, our wholesale business reported a R169 million operating loss, which dampened the Group’s year-end results.


The Board declared a gross final cash dividend of 12.74 cents per share for the financial year ended 28 February 2018. This figure was based on 40% of adjusted headline earnings.


We expect consumer spend to remain muted until the future direction of South Africa’s economy becomes clearer. Nevertheless, Dis-Chem operates within a particularly resilient market that is well protected from foreign entrants.

Thank you

The Board and I appreciate the consistent support and encouragement of our shareholders, who understand that Dis-Chem is on a journey to create value for all, year after year.Dis-Chem’s journey is assured by the expert stewardship of CEO, Ivan Saltzman, the executive team and management, who have worked ceaselessly to maintain sustainable growth as a newly listed company under exceptionally tough circumstances. Dis-Chem is home to exceptional people, who contribute at every level to fulfil the high expectations of our customers. That is how the Dis-Chem promise to all stakeholders is delivered. Last and by no means least, my sincere thanks to a relatively new Board for quickly merging into an effective team. I am confident that Dis-Chem has the right combination of oversight and leadership to continue unlocking value for all who depend on us.
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