Dis-Chem Pharmacies Limited (DCP) Earnings Call Transcript & Summary

Welcome to the results presentation of Dis-Chem half year 2021. Across several consumer voting platforms, Dis-Chem remains South Africa's favorite pharmacy. Public sentiment is positive, reaffirming that our long-held policy of value, service selection and competitive pricing continues to resonate well with South African shoppers. However, we can't downplay COVID-19, a once in a lifetime occurrence, which coincided at the start of this reporting period on the first of March, still continues today at Level 1. Conditions during the period under review saw uncharacteristic shopping behavior with fewer shopper visits but with greater basket sizes. This was particularly evident during the early lockdown phases. Peak trading times also changed. Fewer customers were arriving the store, drill time was down. There was a noticeable downturn in weekend trade due to social distancing. Stores in super regionals and regional malls were particularly affected with extremely low more foot counts. March was a bumper month with strong footfall numbers and increased pantry buying. As an essential service provider in the health care industry, we remained open throughout the lockdown period. Across levels for 4 and part of 3, the prohibited sale of nonessential categories, which caters to 20% of our business, saw us operating under extremely difficult circumstances and resulted in the negotiation of partial rent relief for April for the loss of trade on nonessential items. With fragrances and color cosmetics trading opening up only in the middle of May, we lost a very important Mother's Day trading opportunity. However, as despite these constrained times, Dis-Chem continues to gain market share in the luxury fragrance market from retailers, including from department stores. Stores located in commercial nodes have noticeably felt the pinch of consumers working from home. While we are generally starting to see an increase in footfall since Level 3 at larger malls, the speed at which the CBD stores and pharmacies in commercial nodes return to full customer capacity is largely dependent on when office workers return to work. I'm pleased to say and want to emphasize that every permanent staff position has been retained and each employee was rewarded with ZAR 1,500 bonus in recognition of the exceptional dedication. Numerous staffers went extra mile of putting in for colleagues who are ill and many battle with public transport, yet managed to get to work. We salute our frontline essential health care workers in retail and wholesale, whose diligence and commitment deserves acknowledgment. Most of Dis-Chem's office staff work from home. We minimized the pandemic's economic impact by introducing various cost-cutting measures, such as reducing overtime hours across our retail and wholesale divisions and operating with fewer staff while always stringently following all health and safety protocols to ensure the absolute safety of our staff and customers. Over and above the usual protocols wide-spread testing of any employee showing symptoms was undertaken by clinic sisters. Leveraging our very strong position as the primary health care provider, we established numerous COVID-19 testing stations across the country, the only retailer to do so. Although we were forced to temporarily close this offering due to severe backlog at laboratories around the country, we subsequently reopened [indiscernible] could open to continue to provide the valuable service in the fight against the pandemic. We have now introduced testing for antibodies at all our clinics. Deliveries, particularly of dispensary items, increased substantially, and online sales were catapulted beyond any expectations. Despite the virtual absence of the usual cold and flu scripts in OTC sales, thanks to the measures taken to contain and avoid infection by the general public. Dis-Chem was the only corporate pharmacy that showed growth in the dispensary category. [indiscernible] is extended to my colleagues, the beginning of the pandemic was difficult with increased operational demands, but Dis-Chem team lived up to the saying, when the going gets tough, the tough gets going. I thank them for their quick action and adaption in introducing greater operational efficiencies and cost-cutting measures under very trying circumstances. The group's ability to pivot and react appropriately meant we still produce good results over this period. I'm now going to go over the group's highlights. During the reporting period, group's revenue increased by 8.2% to ZAR 12.8 billion, reiterating the defensive nature of our business. Total income improved by 9.4% to ZAR 3.6 billion as we continue to focus on return on invested capital, and total income margin improved by 30 basis points to 27.8%. Headline earnings per share grew by 16.1% to ZAR 0.36 per share. We again decreased our working capital days, which is now 32 days. Retail revenue grew by 6% to ZAR 11.4 billion, underpinned by strong sales in personal care, FMCG and health care and nutrition. The group experienced a change in its sales mix due to sales restrictions during levels 5 and 4 of the lockdown. Like-for-like retail sales grew at 1.5%. During the 6 months, we opened 13 new stores with a total floor space of just over 11,500 square meters. Our wholesale revenue increased by 14.9% to ZAR 9.3 billion. Our TLC franchises and independent pharmacies drove external sales growth of 29.2%. Wholesale total income benefit from more favorable terms as well as an increase in external customers. We are also pleased to announce that our wholesale business made an operating profit for the first time of ZAR 41 million. The group is investigating an acquisition of a community-based pharmacy group that would expand its store base and ability to provide primary health solutions. Currently in the due diligence stage, the acquisition will increase the existing store network with the majority of this network in community convenience centers. The group is in the advanced stages of concluding an acquisition of a strategic interest in a health care asset, with specialization in the design, administration, risk management and delivery of primary health care insurance as well as gap cover and psychological well-being. COVID-19 has highlighted that individuals and companies are more prepared than ever to spend on health care. Through this transaction, the group will benefit from vertical integration into the health value chain with access to a unique set of assets. This investment also provides access to segments of the population who have historically not been covered by the private health care sector. I will now hand over to Rui for the financial results.

Thank you, Ivan. Good morning, everyone. As is customary, I will take you through the statement of comprehensive income. Statement of financial position, and we'll talk to each of the lines separately as we flow through the slides. As you can see in the statement of comprehensive income as a result of our reporting period overlapping, directly overlapping COVID, we've included a version of our results that excludes directly related COVID costs. Those directly related COVID costs, which I talked to and break down later in the presentation, totaled ZAR 45.4 million. And we have an instance that shows our reporting against H1 2020 and H1 2020 excluding COVID-19-related costs. If we run down some of the highlights of the income statement, as Ivan mentioned, revenue increased by 8.1% to ZAR 12.8 billion. We were able to increase total income ahead of revenue by 9.4% to ZAR 3.5 billion. And we increased equity to holders of our parent company by 16.1%, in line with HEPS growth. Two important points to make on the summary slide. The reduction in finance costs of 17.4% really driven by 3 levers. The first being the reduced Absa term debt, which we have been paying down. ZAR 125 million has been paid since the prior reporting period. The second being the preferential interest rates that we have seen. And the third is the working capital improved position that the group has delivered as a focus on -- of return on invested capital. If we then move into the statement of our financial position, a few points worth noting, again, I talk to each of the lines separately. The property, plant and equipment line and the lease liability line moving in very similar trajectories. That is a function of IFRS 16 with space growth now being capitalized. The intangible asset has moved by 15%. We took the opportunity of a very attractive commercial negotiation to acquire ZAR 80 million worth of SAP licenses. The SAP licenses allow us the ability to change our point-of-sale system. We will be moving to an SAP-driven point-of-sale system to encourage and allow greater retail flexibility. Examples include access to greater tender types, the ability to have more flexibility when dealing with promotion and pricing. The other point on the summary statement of financial position that is worth noting is the change in other liabilities. The change in other liabilities totaled ZAR 70 million and grew at 19.3%. Interestingly enough as a result of the COVID period, we had a substantial increase of ZAR 40 million in the leave pay liability as a function of our employees being at the front line and not being able to take leave. Together with that, we had an increase of ZAR 37 million in our benefit point liability. As a result of reduced foot traffic, which came about as a result of the implemented regulations of COVID-19, we saw lower benefit point redemptions in our stores and hence the liability increasing. We take these 2 costs as indirect COVID-related costs and haven't taken them into account in the statement of comprehensive income, which takes out direct COVID-related costs. Group revenue increased by 8.1% to ZAR 12.8 billion. Retail revenue grew by 6% to ZAR 11.3 billion. Retail impact -- retail revenue was very much impacted by COVID-19 regulations. As Ivan mentioned, we saw much higher baskets and much lower foot traffic. Our network of stores is weighted towards regional centers. And as a result, the inability of consumers to travel in the geographical containment of consumers influenced the like-for-like and sales trajectory of malls when compared to convenience centers. Towards the back end of the presentation, I'll take you through the different levels and the recovery of malls relative to convenience centers and how we're seeing those sales patterns changing. Wholesale revenue grew at 14.9% to ZAR 9.3 billion. External wholesale, which is important for us from a volume perspective in terms of getting wholesale to a profitable situation grew 28.1%, and that was again supported by independent pharmacy and the inroads we've been making into TLC. TLC growth clammed as a function of new members and increased support and independent supported us as a function of the benefit that they saw because of customers' geographical containment. Internal supply or intergroup revenue grew at 12.8%. It was quite influenced by the COVID-related stock that was sold from warehouse into retail. Excluding the COVID-related stock sales, intergroup sales would have grown at under 6%, which talks to the stock control that we've seen in our stores, which we will discuss later in the return on invested capital slide. Like-for-like retail growth was at 1.5%, again, influenced by the metrics and some of the points that I've highlighted previously that came out of COVID-19. And in terms of sales price inflation, incredibly difficult to compare and arrive at a price inflation number because of the SKU changes and category changes as a result of the COVID period, which drove both retail revenue moves and transactional margin moves which I talk when we go through the operational results. If we move on to total income, total income really had 2 levers. We had transactional gross margin, which affected the retail portion of our business, lagging sales, transactional gross margin at 3.5% compared to retail sales at 6%. That's very much impacted by category mix and the inability for us to grow our beauty segment, which is a higher-margin segment. It was in retail. It was supported by better back-end terms, again, as a function of the return on invested capital exercise and the normalization of purchases when compared to the prior reporting period. That offset assisted in increasing total income in the retail business to 6.2% and a slight increase of 10 basis points to 27.3% compared to total income margin of 27.2% in our retail business. Our wholesale business saw total income growing at 20.7% from 7.5% in the comparable period to 7.9% in the current period. The reason for that was better back-end terms, which was concentrated to wholesale. So Chris will talk about the exercises that we've gone to better understand supplier profitability and cost in our wholesale, and that has allowed us to extract better terms from suppliers. And that has been one of the levers that has allowed us to drive profitability of wholesale. In total, the group moved its total income margin from 27.5% to 27.9%, growing at 9.4%, ahead of sales growth at 8.1% and a good result considering the pressure that we saw at a transactional growth margin level in our retail business. So prior to going to expense growth, we wanted to give some more clarity and break down the buckets of COVID-19-related costs. These are direct costs, as I've spoken about in terms of the statement of comprehensive income. The biggest driver of costs were staff vouchers and donations. These will be weighted towards the first half of the year, and we don't expect these to occur in the second half of the year. We gave our staff vouchers of ZAR 1,500 that was centered around food and health in light of them being in the front line of the pandemic and working tirelessly day in, day out to support South Africa through the pandemic. PPE and screening costs. We will continue to incur these costs into the second half of the year and have been incurring these costs into the second half of the year. It's important and a priority to ensure the safety of our employees and customers. Staff testing was weighted towards the first half of the year. We still absorb the cost of soft testing and as much as the infection rate has reduced into the second half of the year, it is likely that some of these costs, although residual will still be incurred into the second half of the year. And the other costs are costs of -- that we incurred in terms of setting up our head office staff to work remotely. So these would be infrastructure costs and also infrastructure costs that were invested in our office to ensure that the pockets of staff that have returned to work have returned safely and feel comfortable working in our environment. If we move into retail operating expenditure, it has been a challenge to maintain cost growth below total income growth. If I talk through each of the lines, depreciation and amortization has grown at 17.8%. That is really a function of space growth and as a result of IFRS 16. If you exclude depreciation and amortization and you exclude the COVID-related costs, which predominantly set in retail as a function of the majority of our employees sitting in the retail environment, operating costs increased by 9.1%. So slightly ahead of total income growth, which was severely impacted by transactional gross margin. We did get the benefit of lower trading hours in terms of employment costs. And you can see employment costs well-managed at 6.5% excluding COVID-related costs. We have seen and we do anticipate an increase in 10% to 15% in trading hours in the second half of the year as we normalize -- as Level 1 normalizes and as we are mandated by our leases. We feel that it is going to be a challenge to manage variable costs as we see increased public holiday and the necessity for some of our staff to take leave. We feel that, that, combined with some of the margin pressure, will result in cost management being a focus for the second half of the year to ensure delivery of good results. If we move into wholesale operating expenditure, wholesale operating expenditure, excluding COVID-related cost, was well-managed at 0.3% growth. Depreciation and amortization, again, a function of some of the investment in assets that we have made historically. Occupancy costs, although small, grew by 28% as a function of a once-off municipal electrical back billing. Employment costs well-managed at 6.8%, considering the 14% growth and the 28% external growth. And that was really driven by the continuous improvements that we make in the output volumes in the DC and other operating costs reducing by 6.5% due to the investment in technology that we made in the prior period allowing us greater visibility of productivity, customer performance and individual supply performance together with staffing and shift pattern understanding. We saw the benefits, and Chris will explain of allocating and changing weekend shift patterns to allow cost management in the wholesale environment. If we move on to operating profit, all of that rolled up, excluding COVID-related costs. We saw operating profit move from 5% to 5.1% and growing at 10.8%, which implies an improvement in in operating margin if you take the direct COVID costs out and a good performance, we think, considering the environment and the direct overlap of the COVID period. Taking into account the COVID-related costs, operating profit grew by 3.1%, absorbing and taking into account the ZAR 45 million spent in operating costs. We saw the pressure on retail. So retail margin -- retail operating margin reducing by 6.8%, and that's purely a function of the transactional gross margin pulling down on the total income growth and your total expense growth running ahead of that. And we saw operating -- and we saw the wholesale environment, moved from a loss-making position at the end of last year in terms of the comparative period into an operating profit of ZAR 41 million as a function of better total income and well-managed cost growth, really centered around more and more volumes and efficiencies coming through the wholesale channel. If we think about earnings per share and headline earnings per share, just a summary. So earnings per share and headline earnings per share, ZAR 0.36 per share growing 16.1% as we benefited from each of the lines that I had spoke to previously as well as the benefit of finance charges. And excluding COVID costs, just for the purposes of comparison, earnings per share and headline earnings per share would have grown at 28.5% with the weighted average number of shares barely or insignificantly moving year-on-year. If we move to working capital, this is the lowest working capital the group has reported since listing. And we've seen a steady improvement of working capital across the 4 years since we've listed. This has been a big area of focus for us. If we look through each of the different lines, debtor days are slightly pushed out from 23 at FY '20 year-end to 25, purely a function of an over-indexed external wholesale supply to independents, which obviously comes with terms. Inventory days at 83 -- at 86. That includes COVID stock, which we had to buy COD. So we didn't get terms on COVID-related stock, which Craig will talk to you a little bit later. Excluding COVID-related stock and looking at it from an operational rolling stock day metric, the group is at 78 days, a slight improvement from 79 days at FY 2020. And creditor days at 79, allowing us a neutral position between inventory and creditor days. We have also seen substantial support for the supply chain finance program that we introduced with more and more vendors participating in that highlighting the continued need for cash through this difficult COVID period, and we're glad that we were able to assist with what we believe is an excellent solution that allows our vendors attractive cost of finance. In total, working capital improved to 32 days from 34 days at the end of the financial period 2020 and from 37 days at the comparable period. And if you consider rolling stock days, our actual net working capital position is at 24 days. If we move to cash management, a lot of these bullets we would have covered. The working capital movements of ZAR 482 million investment talks to the COVID-related stock that we invested in, that was done with hard terms and on COD basis. The net finance costs I've spoken to and we can see an improvement. If you compare that to the previous cash management graph as a function of lower finance costs. Tax talks to the single provisional tax payments we've made. There's a small dividend line that reflects dividends that we've paid to our minority partners from our -- in our minority interest line. CapEx and -- Capex, I'll talk to you in a separate slide. And then loans, treasury share and finance lease repayments, that talks -- that continues to talk to the Absa loan repayment. It talks to the contingent consideration, which is in its last cycle. These were some of the franchisees that we bought on listing, and we showed a decrease in cash and cash equivalents of ZAR 281 million since February 2020. As the stock, the COVID-19-related stock has cycled out of our balance sheet, as of today, the cash position is ZAR 350 million higher than it was at half year. If we move to capital management, expansion CapEx has increased by 30.9% as we've added new stores in the first half of the year. A big portion of that ZAR 183 million relates to the ZAR 80 million in SAP licenses that I previously spoke about. As I mentioned, this is in preparation for a point-of-sale upgrade. We are moving away from our current point-of-sale solution to a SAP GK POS solution. The solution, as I've mentioned, gives us greater retail flexibility and is important for us as a group to take the next step to be able to offer innovative solutions to our customers. Interestingly enough, the cost per square meter has ticked up slightly from -- between ZAR 7,500 and ZAR 8,000 per square meter. We are seeing a slight increase in this as a function of running slightly smaller stores. And expansionary CapEx, and Ivan alluded to the 4 stores that we've opened and the 6 to come potentially could be influenced by COVID in the long term, either this year or in the 2022 financial year. If we move on to retail trading performance and core category performance, as I've explained, one of the fundamental levers and drivers of our results has been the difference between revenue growth and the change in transactional gross margin. We can see revenue growth at 6% with transactional gross margin at 3.5%. If we break each of the categories down, dispensary grew revenue at 2.7%. In our mind, the dispensary growth, and we talked to it in the market share movement growth, we outperformed the rest of the market in dispensary growth, even though our network is more specific, and that just really talks to dispensary being at the heart of the brand. Transactional margin grew slightly ahead of that and benefited from SAP increases, better negotiated dispensing fees with certain schemes as well as the higher OTC margin that was generated during level 5 and Level 4 and pre-lockdown levels. Personal care and beauty grew revenue at 4.1%, with transactional margin declining by 4%. Two specific reasons for that. The first was the inability for us to sell beauty during Level 5 and 10 days into Level 4. Beauty comes with much higher gross margins. And with reference to personal care, personal care was overweight from a SKU perspective in some of the commoditized lines that are lower price points and lower margin lines with less impulse buying, as Ivan mentioned. Health care and nutrition grew 19% revenue and 14.5% gross margin, very similar in characteristics to personal care in terms of commoditized lines like vitamin C being shopped and less impulse buying, which resulted in gross margin lagging sales growth. Baby was similar again, characteristically, so we saw a change in revenue of 1.6% compared to a decline in margin of 9.6% with overweight indexed commodity lines such as baby paper, being nappies, et cetera, wipes and baby food. Others saw a very slight uptick in revenue. Biggest contributor of others is obviously confectionery, and it's very much impacted by lower foot traffic with gross margins tracking slightly behind at 0.1%. If we look at category market shares, interesting to note that we saw a decline in all of our categories from a market share perspective. Ivan spoke about the reduced foot traffic, which was driven by regulations. We also think and we can start to see the recovery as the economy opens up that consumers were very much impacted by single shop patterns that were driven predominantly by food. And what we mean by that is we see instances of other categories being shopped in food retailers from shoppers to avoid multiple shops and the risk of multiple shops certainly during Level 5 and Level 4. The dispensary market share, as I mentioned in the previous slide, was the least impacted and highlighting our best-in-class dispensary position of the brand and some of the initiatives that we'll talk to later that we were able to ensure grew our chronic basket. As we move to the market weighted share trend of our core categories through lockdown, this highlights and shows the recovery of our market shares as we move through the different levels. As I mentioned, we believe that the single shop patterns of consumers impacted market shares with the food grocers benefiting from a single shop. And as consumers become more comfortable with multiple shops and engaging with multiple retailers and as the regulations changed across the levels of lockdown, you can see that personal care and beauty and health care and nutrition have recovered substantially and almost at the same levels of market share market shares prior to lockdown. And you can see the impact in dispensary was much more muted, again, as a function of our destination and position of our brand, even considering the overweight store network in large malls. On slide -- on the specific slide, we have only taken it to Level 3, which align with our half year, but we have continued to see market share improvement across both Level 2 and Level 1. I'll now hand over to Craig to take you through the benefits and the improvements we've seen on our return on invested capital strategy.

Thank you, Rui, and good morning to everyone listening in. I'm going to take you through the progress made in our ROIC improvement strategy. From a margin perspective, these half year numbers covered the full COVID period. So transactional margin was under pressure as a result of the change in consumer basket mix and our inability to sell certain [indiscernible] categories deemed nonessential during periods of lockdown. Retail gross margin growth was therefore lower at 3.5% compared to turnover growth at 6%. Despite the GP margin pressure, total income growth at 6.2% still exceeded turnover growth as a result of the strong improvements in back end terms and rebates coming through from the base work we did towards the end of the previous financial year. As South Africa has moved through the lockdown levels from 5 to 1, we started to see normalization in transactional mix as well as a gradual recovery in gross margin. Health and beauty is very resilient, but we do still expect continued GP margin pressure during the second half of the financial year. We know our customers are under pressure. So we'll continue to invest in price, providing the best possible value. From a private label perspective, we saw share gains across the core categories over the 6 months. Trade terms income grew at 15.2% versus purchases at 9%. This increase in terms of percent of purchases came as a result of deeper penetration into our supplier base as we expanded coverage. The terms increases drove the total income margin growth ahead of turnover growth, and that included the portion of COVID purchases. Some of these goods being in scarce supply at the time led to COD purchases with no rebates. Total stock days decreased from 95 to 86. And from an operational stock perspective, so looking at stock as a function of 91-day cost of sales, stock days reduced from 79 to 78 days, and that's excluding COVID stock. To support these improvements, we increased the pace of rollout of our SAP automated forecasting replenishment system, or F&R. This newer generation system uses advanced algorithms and machine learning to optimize demand forecasting, replenishment volume and timing and ultimately inventory management. Coverage of turnover on full auto replenishment increased to 31.6% of total front shop. And I'm going to give you a brief overview of the impact on ROIC levers that we are seeing after turning vendors on to F&R auto. Creditors days at 79 were flat compared to a year ago and slightly lower than at financial year '20 year-end. The reduction versus year-end was partly influenced by the COVID COD purchases. Rolling stock days were in line at 79, so we maintained our neutral stock creditors working capital position. And we saw increased usage of our supply chain finance solution across the period with it allowing our suppliers increase flexibility in managing working capital. The SAP forecasting and replenishment slide illustrates the impact our F&R system is having on the key ROIC levers as we rode it out. These numbers are for 18 suppliers that we converted to full F&R auto at the end of June, and it's a decent sample size at around ZAR 90 million turnover per month. I've compared the results from 3 months prior to 3 months post implementation, and the metrics we analyze are potential loss sales, total stock levels, sales growth and system forecast accuracy. So we achieved a ZAR 387,000 reduction in average monthly potential lost sales, so that's 12.6% down. If you look -- if you compare the previous 3 month low versus post automation low, we reduced that by ZAR 952,000. As with machine learning systems traditionally, accuracy improves the more data you feed it. If loss sales are looked at as a percentage of sales, this shifted from 4.8% to 3.3% on average and a low of 2.6% in October. We also carried on average 16.2 days less stock post automation. So stock shifted from 98.9 days cover to 82.7 on average with a 5.2% reduction in average stock on hand at cost for these 18 suppliers. Turnover growth was still higher year-on-year at 11.2% and the trend prior to automation. The working capital chart is a graphical illustration of operational stock days, so again, based on 91 day cost of sales versus creditor day trends across multiple periods. As you can see from the gray versus yellow dotted chart lines, we ended in a neutral stock versus creditors position, yellow being creditors days and the gray line being group's stock days, excluding COVID. We previously explained the decentralization team that led to an initial increase in DC and group stock at the end of selected previous reporting periods. Then as it played out, stock decreased to below pre-decentralization levels with the improved efficiencies that resulted. From then on, we maintained what we felt was a closer to optimal stock levels. And after 6-month period to August, stock days were stable at 78, with a slight reduction in store stock as seen by the dark green line to 45 days cover. There may still be a couple of days improvement we can find in some of our more mature stores and from gains in replenishment efficiencies. Our response to extreme shortages of COVID-related items in March through May, along with the high volatility in demand resulted in higher stock position in specific categories, as is evident in the closing stock number at end August. It will be a case of cycling through the stock to more normalized levels. Timing would be influenced by COVID and how that progresses. A portion of the COVID high stock could potentially be exposed to price volatility risk but we've not seen any impact as yet. I'm now going to hand over to Saul to discuss online and benefits.

Thank you, Craig. Loyalty card benefit members. We have 10.1 million customer profiles, of which 5.7 million are benefit members, up from 9.7 million and 5.5 million, respectively. Both our For YOUth customer base ages 18 to 25 years and the baby members are showing good growth by 9% and 13%, respectively. We have shown steady growth on our app, which are up 29% at 257,800 downloads driven by chronic dispensing initiative, comprehensive above the line advertisement, digital strategy and member statements. During lockdown, we successfully launched 2 banking partnerships: Absa Rewards and Standard Bank UCount, both which has got off to a flying start. We also put together an offering with Clientele Life and Vodacom Vodabucks rewards. With the start of our COVID pandemic, we saw consumer shopping behavior continue to shift to shopping online. In line with the South African lockdown restrictions, following similar trends experienced in international markets, this boom saw online sales grow remarkably, up to 427% in July, leveling off to 344% by end August, elevating it to our largest store or 3x larger than the average Dis-Chem store and the fastest-growing store across the group. Partly due to the lockdown restrictions, it accelerated our e-commerce goals by 3 years within the past few months. With that said, we are also seeing online shopping steadily leveling up to what's going to be a new normal as consumers start to venture back into stores, but will remain high and continue to grow. We have been investing in our online platform for over the past 5 years, a lot of work has been completed behind the scenes to boost efficiencies operationally as we doubled our number of performing hubs in order to continue to meet customers' expectations on these massive new demand levels. We partnered with third-party tech firms, furthering embracing technology for additional efficiencies and to drive down fulfillment costs while enhancing the last-mile service delivery. This implementation is now being piloted in some of our stores, and we will soon be seeing the fruits of these enhancements. We have embraced different technologies that allows customers to choose the services that suit their specific needs and convenience. Our 1-day online-only wonder Wednesday deals has taken off well and is achieving our objectives of creating a Black Friday like buzz on the website every Wednesday. Wednesdays have become our most popular day in terms of the order rate. It has doubled our average daily sales from being the least number of average order days to the most. The split between click and collect and delivery is 70% delivery and 30% click and collect. Our online store is a profit contributor as a function of us using decentralized fulfillment hubs, increasing operational efficiencies, and we expect further improvement as we scale up. Back to Rui to conclude operational performance.

Thank you, Saul. If we move into the primary care space, and you would have seen this slide depicted previously. Ivan spoke about our interest in primary health care insurance assets. And our differentiated clinic infrastructure allows the delivery of health care at lower costs, which obviously opens up margin in the health care insurance business. The slide tries to depict the different channels that encourage footfall into our stores and then how we use the strategic health care assets that we've acquired, which would be bolstered and complemented by the health care insurance assets to recycle patients and consumers into our stores. As we've mentioned, we believe we have a differentiated clinic infrastructure. We will talk about our telemedicine offering and uptake that we've seen, and we believe we are well positioned as we control the 3 biggest cost levers of primary health care insurance. In terms of the size of the opportunity, currently with 4 million medical scheme policies they employed but uninsured lives in South Africa that are consuming health care on a cash basis and potentially become the market for health care insurance products are around 12.4 million. So as Ivan mentioned, a great opportunity for us to vertically integrate into part of the health care channel that allows and opens up potential margin. One of the strategic assets that we have spoken about and that has assisted during the COVID period is Health Window. Health Window is a chronic adherence business, and analytically, tracks and insures adhering from chronic consumers. As you can see, the first half of 2021 has grown 3.5% relative to the comparative base, a 3.5% growth in volume, and that is much higher index than any comparative pharmacies in the market. On the right-hand side of the slide, you can see a distinct shift change on the trading range of chronic volumes as we've adopted this chronic management solution across our entire chronic base. There's, of course, a lot of volatility across the COVID period, but important to note that the trading range continues and drives dispensary volumes, hence, the minimal movement in dispensary market share. If we move on to the next slide, which denotes Pack My Meds. And as a reminder, Pack My Meds is our digital chronic adherence solution, so we touch our consumers in multiple ways, the first being through a call center. We then also offered, for convenience purposes, a digital solution. The digital solution comes with 2 mechanisms. It's either SMS or app driven. And what the graph illustrates, it shows the adoption of this digital solution across the COVID period and the facilitation of many more chronic scripts through a digital service. So trends and matches some of the online store growth that Saul has seen, and it's important in terms of delivery as we find multiple channels to touch our consumer base. Health Window is one of the strategic assets that we think will help us manage risk and cost within primary care insurance products and potentially ensure optimized routing to reduce further the primary care price point of these products and make them very competitive in terms of how consumers see them and how health care gets spent on and consumed. If we move on to Clinic Connect, Clinic Connect is the solution that we offer in-store that gives consumers access to telemedicine or the ability of our clinic system to pass on a consumer into a GP or practitioner environment, if necessary. You can see the adoption rate has increased drastically. And even in the COVID period, where we saw lower foot traffic from the inception in December '19 to October 2020, we are now doing the most telemed consults that we've ever done. Importantly and denoted by the 2 pie graphs in the middle of the slide, you can see that the script conversion ratio remains relatively high, which talks to the point that I mentioned on the first primary care slide around recycling our customers that again assisted and is enforced by adherence management. And on the right-hand side of the slide, you can see the consultation payment methods have now opened up from it being predominantly a cash-based solution to support from the medical schemes. And the reason for this is that it becomes a much more efficient way of dealing with health care cost as in many instances, the nurse is able to solve for the solution without passing the person onto the GP environment, which is obviously a lot more costly. The last point to add on the slide and maybe going back to the utilization of the GP is that we are able and we have been increasing the scope of services of our clinic systems in terms of what that means from a pass-through percentage into the GP environment. And again, the lower the percentage pass-through, the lower the health care cost for the consumer. And again, that opens up potential margin in a primary health care insurance asset. It also allows us to better price primary health care insurance assets. And again, telemedicine and Clinic Connect as a brand, fundamentally important as we potentially take a stake and a strategic stake in the primary health care insurance asset. I'll now hand over to Chris to take us through the wholesale trading performance.

Good morning, ladies and gentlemen. I was going to start the session by playing this song eye of the tiger, the theme song of Rocky, as a celebratory song for being profitable in the wholesale section. But Rui said, it's not allowed, and I'll, in any case, just be giving away my age. So as you have heard and you will now see more detail of, the wholesale division had a very successful trading period in very tough and challenging times. I truly believe that these results are a culmination of concerted efforts which were well-executed at a very -- by very capable operational and financial team. As a part of our strategy, we've established a continuous improvement team called CIT, which main focus is constant efficiency improvements. We have adjusted our focus from a daily output target, which is a finite goal to an infinite goal of adding value to the entire supply chain, from supplier to store to consumer. By adopting this goal, we have identified a number of areas in our business where we could, by making small 1% improvements in these areas, achieve long and sustainable improvements in efficiency. By adopting this 1% principle, we have seen that multiple small improvements throughout the process clearly resulted in exponential gains from an operational perspective, which, in turn, filtered through to our improved financial results. If we go to the first slide, external wholesale revenue, you'll see that external growth is at an astonishing 28.1% during these challenging unprecedented times. You'll see the second bar shows a negative ZAR 22 million, that is for 2 pharmacies that we acquired that's now seen as internal stores, and we just backed it out of the base when we compared revenue growth. Quenets, the wholesaler that we took over in the Western Cape grew by 20.3% year-on-year. The growth in the revenue and volumes in Quenets over the past 18 months resulted in the need to consolidate into the Western Cape DC as the Quenets DC was bursting at the seams. We have started the consolidation process in September, and I'm happy to report that we have successfully implemented 2 of the 4 stages, whereby we have rolled about 40% of the Quenets customer base into the Cape DC already. This process will be completed by the end of February 2021 with anticipated savings. Looking at the TLC support, TLC customer growth revenue grew by 25.7%, reemphasizing the feasibility and success of that business model. The TLC franchise stores increased from 96 to 110 stores. We mentioned last year the establishment of a corporate TLC model. We acquired a pharmacy on the first of March 2020, which is currently running very well. In the second half, we've acquired another store, which we actually took over the weekend on the 1st of November, which we are very excited about the opportunity. The independent pharmacy support grew by a phenomenal 36.4%. We believe that our sustained focus on service levels during the COVID lockdown period contributed to the success. We were able to maintain our cutoff times and delivery schedules right throughout the various levels of lockdown. Due to restrictions on people's movements, consumers opted to support their local independent pharmacy, which had a positive impact from a supply chain perspective. If we look at the next slide, supply profitability, you'll see 4 levers there. As mentioned previously, we developed a tool that helps us measure profitability at a supplier level. We have 4 levers that we make use of to improve supplier profitability. The 2 levers that have had the biggest impact have been increased stock turn, in other words, reducing the days stock cover, which can be seen in our inventory days coming down. The second successful lever that was implemented is renegotiating better logistic fees, which contributed to the growth we can see in our margin. This is, however, a continuous process of improvement as we endeavor to improve the profitability of suppliers. Turning to the expense slide. This graph seeks to compare total revenue growth to total expense growth. It can be seen that revenue has grown by an impressive 14.9% compared to the same period last year. However, the figure that excites me more is the fact that expenses only grew by 0.3% over the same period despite the growth we have seen in revenue and output. As mentioned earlier, this was achieved by sustained focus on efficiencies and the 1% principle that I spoke about. The main contributor to do this was their payroll expense. During COVID, with the restrictions on travel and curfews at night, we were forced to relook at our shifts. By rescheduling and relooking at how we staff our weekly shifts, we were able to increase output and reduce the need for weekend shifts. This resulted in considerable savings, especially on our overtime costs. Two other expenses that we'd like to highlight is, firstly, motor vehicle expenses, which were reduced by a combination of things. The first being the renegotiation of maintenance contracts, delivering savings as high as 30% to 40% monthly. Secondly, we were able to cancel certain truck rental contracts because of better and optimized routes. Lastly, we concluded a national diesel supply rebate contract with favorable rebates. When we look at computer expenses, savings were achieved by the cancellation of external IT consultant fees. These resources were used last year to help implement the technology platforms we use to better measure profitability and efficiencies. Going on to The Local Choice side. We decided this year to provide insight into the TLC franchise group at a retail level. You might wonder why the image of a tree. We adopted this image as a symbol of what we strive to achieve in our long-term strategy. The more you take care of the basics, being the roots, the better the results. The roots depicts our inputs from a franchisor point of view and the fruits are the results we achieve from these inputs. If you look at the image, you'll see everything around the roots are the franchisor inputs, being things like business intelligence, centralized stockpile, choice card loyalty program to consumers. There's retail support. We measure compliance management. We do merchandising, ranging, store design and layout. We offer operational support. There's clinic assistance. We do local area marketing, national marketing on both radio and TV, franchisees qualify for DSPs with medical aids, and we also have an in-house industry-specific training academy. These inputs deliver some impressive results. The annual turnover of the group at a retail level is just below ZAR 1.9 billion. The average sized pharmacy is 248 square meters. We currently have 110 The Local Choice pharmacies. 89 of these pharmacies have clinics. To date, 31 of these 89 clinics offer video-made functionality. The group is currently 10 years old and growing. We have a franchise in 8 out of the 9 provinces in South Africa. From a group perspective, the monthly average sales growth is 41.5%. And if we look at the dispensary versus front shop split, it's sitting at 67% dispensary versus 33% front shop, which is above the average for independent pharmacies. Rui and I will now take you through the COVID trading period in wholesale and retail.