QUESTION ONE [60]

Read the following articles and answer the questions that follow: ARTICLE ONE Dis-Chem's success formula delivers 10% increase in revenue By Sandile Mchunu 20 February 2020 DURBAN - Dis-Chem reported a 10percent increase in revenue to R10.3billion for the 22- week period from September 1, 2019, to February 2 this year, driven by opening more stores and its low-price strategy despite a subdued economy. Chief executive Ivan Saltzman said the weak macroeconomic environment in South Africa was unsupportive of business as constrained consumers continued to trade down resulting in smaller basket sizes. "Our pharmacy focus, everyday low-price strategy coupled with focused promotional campaigns and availability of choice for our customers enable us to drive strong footfall into our stores, this despite the negative impact of load shedding," Saltzman said. In spite of the positive trading update, its share price declined by more than 5percent on the JSE. The share slid to R22.54 a share, down from Tuesday's closing price of R24, then closed 1.88percent lower at R23.55 on the JSE yesterday. Saltzman said Dis-Chem's increased focus on return on invested capital continued to deliver strong results with improved trade terms from their suppliers as well as more efficient inventory levels. "Inventory levels are approximately R4.45bn, R650million lower than at our 2019 financial year-end. We expect a slight increase by year-end as a result of return enhancing buy-ins ahead of the gazetted single exit price (SEP) increase," he said. Dis-Chem's retail division reported a 9.2percent increase in revenue to R9.4bn and the group continued to gain market share in core categories. Comparable store revenue growth and selling price inflation were 2.1 and 1.2 percent respectively. "These numbers continue to be impacted by a constrained consumer and very competitive pricing across all categories. We welcome the recently gazetted SEP increase of 4.53percent," the group said. Page 3 of 7 Dis-Chem added 12 new stores during the period and they contributed R145m to revenue. Its wholesale revenue shot-up by 18.3percent to R7.1bn and sales to their retail stores increased by 18.2 percent. The group said sales to external customers, The Local Choice, and to independent pharmacies grew by 30.7 and 14.9percent, respectively. https://www.iol.co.za/business-report/companies/dis-chems-success-formula-delivers-10-increase-inrevenue-43045918 ARTICLE TWO Dis-Chem set to acquire Pure Pharmacy Holdings for R282m By Sandile Mchunu 22 December 2020 Dis-Chem Pharmacies said it has entered into a binding agreement with Pure Pharmacy Holdings and its existing shareholders to acquire 100 percent of its issued share capital and shareholder claims for R282 million. Dis-Chem first announced its intention to acquire Pure Pharmacy Holdings, trading as Medicare Health, during its interim results presentation last month. The group said the transaction includes a net working capital guarantee to ensure that the working capital metrics align with that of Dis-Chem and the transaction remains subject to suspensive conditions, including approval from the competition authorities. The group explained the rationale behind the acquisition is that it recognises that the characteristics of Medicare align with those of Dis-Chem. "Both groups are committed to delivering an unrivalled one-stop healthcare experience, with convenience, excellent customer service and value at the core of the brand promise. Many of the stores in the Medicare portfolio are located in convenience centres, in geographies where Dis-Chem is currently under-represented, giving the group access to new markets," Dis-Chem said. Medicare is a healthcare and pharmacy group, offering a one-stop solution for everyday pharmacy and primary healthcare needs, all under one roof, in 50 pharmacies across four provinces. Medicare generated revenue of R1 billion for the year to end February 2019, with dispensary contributing two thirds to the revenue. Page 4 of 7 The group also announced that it has entered into agreements with the founding shareholders and management of the Kaelo group of companies, in which it will acquire 25 percent of the issued share capital and shareholder claims of Kaelo Holdings. Dis-Chem chief executive Ivan Saltzman said: "The acquisitions announced significantly extend the group's footprint and reaffirms the group's commitment to the enablement of clinics as the primary healthcare point of entry to the private healthcare system, at an affordable price while enhancing customer convenience." Dis-Chem also announced that the acquisition of Baby City which was announced in May has met all the outstanding conditions and the transaction has been completed and the effective date for the transaction is January 1, 2021. This comes after the Competition Tribunal gave its go-ahead towards the end of last month. https://www.iol.co.za/business-report/companies/dis-chem-set-to-acquire-pure-pharmacy-holdings-for-r282m ARTICLE THREE Dis-Chem sales lifted by consumers guarding against Covid 1 7 F E B R U A R Y 2 0 2 1 K A R L G E R N E T Z K Y A N D K A T H A R I N E C H I L D Pharmacy group Dis-Chem says it reaped the benefits of consumers' increased interest in preventing disease, reporting "remarkable growth" in the sale of vitamins and chronic drugs in response to the coronavirus pandemic over the past few months. Consumers have been taking vitamins in a bid to be healthier as they feel it will reduce their risk of contracting the virus or help them recover after becoming ill. In a trading update for the 22 weeks to February 2, the group said it had gained market share as consumers focused more on preventive health care, with group sales rising 12.1% to R11.6bn. Traffic in busier shopping centres remains depressed due to Covid-19, the group said. A change in sales mix has put pressure on profit margins, which remain below pre-pandemic levels. Dis-Chem targets mid-to-upper-income consumers and has two operating segments retail and wholesale though it primarily sells to itself in the latter. Retail revenue increased 10.3% to R10.4bn to February 2, Dis-Chem said, while wholesale revenue grew 20% to R8.6bn. Inter-group sales amounted to R7.37bn, and Page 5 of 7 rose almost a fifth, while external sales grew 30.6%, which Dis-Chem said was partially due to its growing distribution network. Dis-Chem had 182 stores at the end of August and opened 10 new stores in the five or so months to February 2. These were trading above expectations, the group said, which validates its selection of sites. Stores in convenience centres are still outperforming those in more crowded malls, Dis-Chem said, reporting its stores in malls posted a 0.6% fall in sales in the five months to February 2. This is an improvement from the 8% fall in the previous five months. "It is encouraging to see, and a testament to the Dis-Chem brand's destination status, the significant recovery in many of our older stores located in regional malls," said CEO Ivan Saltzman. The company, which got approval for the purchase of Baby City's 33 stores, said the baby-products retailer contributed R73.4m to retail revenue from January 1 to February 2. Online sales continued their strong trajectory and grew by 218.7%, compared to the previous corresponding period. However, these still remain a very small part of the overall turnover. https://www.businesslive.co.za/bd/companies/retail-and-consumer/2021-02-17-dis-chem-reports-salesboost-as-consumers-seek-to-be-healthier/ ARTICLE FOUR Dis-Chem reports huge increase in revenue Dis-Chem Pharmacies yesterday reported double-digit growth of 12.1 percent in group revenue to R11.6 billion for the 22 weeks to February 2. Sandile Mchunu 18 February 2021 DURBAN - DIS-CHEM Pharmacies yesterday reported double-digit growth of 12.1 percent in group revenue to R11.6 billion for the 22 weeks to February 2, with online sales surging 218 percent despite the Covid-19 second wave disrupting the business. Dis-Chem said the increase in online sales was a result of consumers preferring to stay safe and shopping from the comfort of their homes as new Covid-19 infections climbed towards the end of last year. The group said its retail revenue increased 10.3 percent to R10.4bn despite the weak macro environment, but the group continued to gain market share in all its core categories. Page 6 of 7 It said healthcare, vitamins and chronic drug sales reported remarkable growth as consumers continue to focus on preventative healthcare. Dis-Chem said that like-for-like revenue growth and selling price inflation were 5.1 percent and 3.6 percent, respectively. Chief executive Ivan Saltzman said the group was in a fortunate position in that they can continue to provide their customers with quality service, competitive prices and an extensive range of products during these very challenging times. "The group continued to show its resilience as the country experienced the second wave of the Covid-19 pandemic. "The change in consumer shopping behaviour due to Covid-19 continued to impact our sales mix and in turn, our margins," Saltzman said. "Despite the strong top-line growth, margins are still lagging pre-Covid-19 levels. We welcome the recently gazetted single exit price (SEP) increase of 3.68 percent." Saltzman said Dis-Chem increased its store network by 10 new stores, and they contributed R123 million to revenue. "Our new stores continue to trade above our expectations, validating our site selection method. "In addition, we opened two Dis-Chem Pharmacies on Mediclinic sites on February 1, 2021 and closed one underperforming store," he said. "We now have a store base of 193 stores, excluding Baby City." Saltzman said the group acquired 33 newly acquired Baby City stores, which contributed R73.4m to retail revenue from the beginning of January, the date from which the transaction became effective, to February 2, 2021. He said the group's wholesale revenue grew 20 percent to R8.6bn, with sales to its retail stores increasing 18.5 percent. Saltzman said the group's external customers sales growth of 30.6 percent was driven by its growing distribution network and greater support from The Local Choice (TLC) and independent pharmacies which grew by 30.4 percent and 30.8 percent respectively. DisChem has 117 TLC franchise stores compared to 110 during the same period last year. The group expects to release its results for the year to end February on May 21. DisChem rose 1.8 percent on the JSE yesterday to close at R23.69. https://www.iol.co.za/business-report/companies/dis-chem-reports-huge-increase-in-revenue Page 7 of 7

Questions:

1.1 Undertake a SWOT analysis of Dis-Chem. (16)

1.2 Identify and evaluate the strategies adopted by Dis-Chem (14)

1.3 Outline the competitive advantage(s) of Dis-Chem and discuss the source(s) of these advantages. (10)

1.4 Recommend how Dis-Chem can sustain these advantages. (5) 1.5 Critically discuss the strategic leadership role of Ivan Saltzman in Dis-Chem's apparent success