DUDU RAMELA: In the full year ending February 28, 2022, pharmacy group Dis-Chem reported revenue growth of 15.7% to R30.4 billion, and a 27.6% increase in headline earnings to 99 cents/share over the corresponding period. The group, which has acquired Baby City – they did that acquisition back in 2020 – rebranded those stores as Dis-Chem Baby City, and opened three new outlets. It also opened 12 new Dis-Chem stores and acquired 48 Medicare outlets, bringing its retail pharmacies to 254 and its baby stores to 35 as of February.

Retail revenue grew by 15.6% to R27.1 billion with wholesale revenue growing by 13.7% to R21.9 billion.

Let’s get you more on the results, and we speak to Rui Morais. He is the chief financial officer at Dis-Chem. Rui, thank you so much for joining us this evening.

RUI MORAIS: It’s a pleasure, Dudu, and good evening to your listeners.

DUDU RAMELA: In spite of a complex operating environment, some pleasing results. How would you characterise them?

RUI MORAIS: Our operating is in a very complex environment. I think it’s pleasing to see that through the environment we’ve not only organically traded well, but we’ve also managed to bed down and settle some of our recent acquisitions, and they landed all together. We had, to your point, Baby City, recently Medicare, and Kaelo which was an insurance business that we partially invested in. All of these landed in close proximity to one another. So the integration has been positive and now we look to integrate and yield the returns of those acquisitions.

DUDU RAMELA: Talk us through the retail and wholesale revenue growth. What drove the growth?

RUI MORAIS: Sure. Like I said, organic growth. We’ve seen some sort of normalisation in trading patterns from consumers, certainly in terms of how they frequent our mall-based stores. We are definitely over-indexed relative to competition when it comes to the number of stores that we have in malls. We are seeing foot traffic returning to malls, and other kinds of anecdotal-type nuances.

So we’re seeing more frequent foot traffic, slightly smaller baskets – quite different from what we were seeing during the Covid period. So all of that is contributing to a strong retail revenue number.

And then on top of that, just the acquisitions: Baby City being represented for a full year; Medicare, rebranding to Dis-Chem Pharmacy again, being represented for five months. And of course our participation in the vaccine programme, which drove close on half a billion rand worth of revenue during the financial period.

DUDU RAMELA: Would you say, especially with the increase in foot traffic at stores, that you’re returning to pre-Covid conditions? We also saw a higher mix of beauty-product sales.

RUI MORAIS: There’s definitely a return. We wouldn’t say that we are quite at pre-Covid levels, but certainly when you look at each of the structural features of our results, certainly in the way that we’ve traded, we are seeing the normal trends kind of come back into our number. All of those Covid trends [are] reversing. So we’re definitely on the right path in terms of South Africa returning to what was a pre-Covid shopping environment.

DUDU RAMELA: Sure. Of course we remember the scenes of 2021, when Dis-Chem was impacted by the unrest that took place in KwaZulu-Natal and some parts of Gauteng. When we take a look at the results, would you say that had an impact at all?

RUI MORAIS: From a sentiment perspective it certainly [did]. What we’ve seen in that environment is obviously the consumer being impacted by that and, I suppose, cautiously approaching retail. We were lucky enough for not too many of our stores to be affected and we reopened them relatively soon.

We have quite a concentrated network relative to some of the food grocers, and [are] then more concentrated in metro areas, which were probably securitised better. So we had a limited impact – but it doesn’t detract from the consumer impact. So we did see that impact on our consumers.

We are again slowly starting to see those consumer patterns return, so hopefully we have a relatively uneventful year ahead of us, with Covid normalisation and hopefully just a normal trading environment. Good to see that.

DUDU RAMELA: Sure. We’ll get into the outlook in a few moments, but I’d like us to focus on the recent launch of a medical insurance and gap cover offering called Dis-Chem Health. Have you been able to measure the impact of that offering?

RUI MORAIS: As with insurance businesses it’s relatively small. I think [one of our] ambitions when we entered the space was the opportunity. If you think about the extent of employed uninsured South Africans, when you kind of contextualise that anyone who’s not on a medical scheme product but is able to consume healthcare or affordable healthcare, and is either consuming it on a cash basis or [being] reliant on the state, that’s 10 million life opportunities. So rather large.

But importantly, I think – and we’ve seen it as we’ve partnered or collaborated with the state in the vaccine programme or rollout – there’s certainly a role that the private sector can play in delivering part of the low-cost healthcare.

It’s very much needed in South Africa. That was the opportunity that we saw. We think our brand is well positioned. We think that Kaelo at the heart of the product is kind of best in class, and we look forward to investing in that and seeing the trajectory of that.

DUDU RAMELA: Sure. I guess that leads us to the final question of outlook for the group.

RUI MORAIS: I guess probably, as with many people [we are] cautiously optimistic. I think from our perspective we are excited about the insurance space. We see it as something that is augmented away from our core business, but at the same time something that we can really contribute to. We will continue to open stores.

We are excited about the Medicare rebranding opportunity, and what the brand above the door – for lack of a better term – brings to the sales number in those stores. And then, just hopefully, a normalised trading period as I spoke about.

But [we are] very conscious of the fact that consumers are going to be very value-driven, very value-conscious – and that plays well into what is the resilient healthcare sector, and certainly to the core principles of what Dis-Chem stands for, which is service and everyday low price.

DUDU RAMELA: Rui, we appreciate your time this evening. Rui Morais is the chief financial officer at Dis-Chem. Thank you.