A STRIKE has cut R76.5 million from Dis-Chem’s profits, as it had to spend more on security measures. African News Agency (ANA)
DURBAN - Pharmaceutical company Dis-Chem fell more than 5percent in early trade on the JSE yesterday after the group reported that the five-month strike at its stores pushed profits below estimates for the year to end February.

Dis-Chem said yesterday that the strike cut R76.5million off its profits as it had to spend more on security measures and legal costs across its operation.

The group said that this led to a 9.76percent retail revenue growth of R19.6billion, with the pharmaceutical division taking a particular hit as it had to absorb additional direct costs associated with the strike.

“In December, which was the most impacted trading month, retail revenue growth was only 6.2percent, with comparable store revenue of negative 2.5percent, which was well below our expectations,” the group said.

About 2300 employees belonging to the National Union of Public Service and Allied Workers went on a national strike from November last year until April, demanding among other things a rise in the minimum wage.

The industrial action affected close to a third of the group’s financials for the year, with indirect costs ranging from R22.3m to R26m.

Although contingency plans were in place to ensure minimal disruption at its retail stores, the group experienced lost opportunity sales, primarily due to stock supply challenges.

“This was further supported by the fact that we reported our lowest market share gains of the financial year in the month of December,” the group said.

Dis-Chem said its total revenue grew 10percent to R21.4bn, while total income, comprising of gross profit and other income, grew by 14.2percent to R6.2bn, with total income margin improving from 28 to 29.1percent.

Operating profit grew 8.2percent to R1.2bn, with an operating margin of 5.7percent.

Headline earnings per share increased by 7.4percent to 85.4cents a share and the group declared a final cash dividend of 13.47c a share.

“The demands by the union were unreasonable, considering the economic climate and the nature of the industry in which we operate,” chief executive Ivan Saltzman said.

“Constrained consumers are continually searching for value offerings. We believe these gains are driven by our everyday low-price strategy, coupled with aggressive promotional activity, our trusted in-store service, the availability of choice and our continued focus on private label and exclusive brands.”

Jordan Weir, a trader at Citadel, said Dis-Chem earnings fell short of expectations, owing as a result of one or two once-off events that negatively impacted the firm’s performance throughout the financial year.

“National strike action and an extremely competitive product-pricing market both placed pressure on Dis-Chem over the course of the year. All-in-all, the results were not as disappointing as the share’s negative market price reaction on yesterday morning seemed to suggest,” Weir said.

Dis-Chem shares closed 0.91percent lower on the JSE yesterday at R27.29.