Nedcor Securities
Healthcare Conference
March 2004
New Clicks – Healthcare in changing
regulatory environment
• Healthcare strategy
• Integrated channel to market
– UPD
– Clicks Pharmacy
• Legislative changes
• Draft pricing regulations
Healthcare strategy
• Leverage benefits of integrated channel to market
• Extend retail presence & expertise into pharmacy
• Establish efficient, compliant & profitable low-cost
drugstores
• Promote co-ownership model
• Improve front to back shop ratio
• Synergies from combining pharmacy with current
offering - lower overheads & increased footfall
• Franchise model retained – using compliant format
• Explore black empowerment opportunities
Wholesale & distribution - UPD model
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Model tried & tested internationally
Largest national wholesaler in SA
Efficient working capital management
Expertise in fine distribution
UPD provides distribution for integrated channel to market
• Pharmacies carry less stock
• Act as warehouse for pharmacies
• Distribution & service levels key
Wholesale & distribution - UPD model
UPD: 43%
of other
wholesale
business
All Other
Wholesalers
R 3 788m
40%
Manufacturers
R 988m
11%
Distributors
R 4 626m
49%
UPD
• Growth in turnover from PM&A & independent pharmacies
• Retained most independent pharmacy customers
• Standardised terms on FMCG suppliers
• Clicks pricing on top FMCG lines available to customer
base
• Two franchise models in the group – Link + Multicare
• Develop Link offering as premium banner
• Develop programmes to enhance Link pharmacy loyalty to
UPD – new franchise agreement
Clicks Pharmacy
• Create an experience of pharmacy never
seen before in SA
• Combine the best of what Clicks offers with
the best of the pharmacy experience
• Enhance the Clicks brand qualities of value
with convenience & service
Pharmacy in Clicks
• Regulatory approval for PM&A deal
• Application for licences
– PM&A (waiting for approval of licence transfers
to be able to consolidate)
– Additional licences in selected stores
– Underserviced areas – discuss with government
• All New Clicks wholly-owned/JV pharmacies
to be rebranded Clicks
Check this
Learning from Australia
Conversions:
• Converting existing Priceline store (Prahran)
– Sales growing in excess of 40%
– Back & middle shop sales already at 18% - should
double
• Converting existing pharmacy (Bentleigh)
– Script sales grown by 20%
– Front shop sales up from 10% to 75%
New site:
• Mornington
– Turnover A$45k per week from 300m²
– Front shop sales 50%
Legislative changes
• Original source procurement
– Levelling of the playing field – ethical standards +
transparency
– Small impact on current wholesale customers
– Service levels will be the differentiator
• Generic substitution
– Single channel distribution - lower market share
of branded ethicals - better placed to benefit
– Currently, margins better
• Single exit pricing
Draft pricing regulations
• Support statutory intervention to
– address current medicine pricing anomalies
– make pricing more transparent
– make medicines more affordable & accessible
• Concerned about negative impact on viability of
pharmacy wholesaling & retailing
• 90 day period to engage in constructive dialogue –
working together with other interest groups
• Don’t expect regulations to be implemented in current
form or by May 2004
• Aim to achieve the objectives in a constructive &
sustainable way that does not undermine the viability
of pharmacy & pharmaceutical services
Impact on New Clicks
• Retail pharmacy
– Even though reduced pharmacy margin &
volumes, will be benefit from increased front
shop sales
– Independent pharmacists under threat –
potential to attract them into the group
– Competitive advantage of discount pharmacies
to be eroded
Impact on New Clicks (continued)
• Wholesale/distribution
– Viable for UPD because of efficient model,
although volumes would be reduced
– However, may lead to consolidation of other
distributors - opportunity for UPD to increase
volumes & widen geographical footprint
– Multinational manufacturers may withdraw from
SA – opportunity for UPD to reach distribution &
marketing agreements
– Public/private partnership possibilities in terms of
distribution & dispensaries
Questions ?
Thank You