Healthcare Announcement

APRIL 2002

Our Vision
Our vision is to elevate our healthcare role to establish a focused and disciplined network of pharmacies combining the best of business and pharmacy practices, to the benefit of pharmacists, healthcare consumers and our shareholders.

Southern Africa
Aids, poor nutrition, rampant diseases, high inflation in the cost of medication, poor delivery in under-serviced areas and a dearth of resources have placed healthcare in South Africa in a state of crisis. We believe that consolidating, modernising and upgrading pharmacy in South Africa will go a long way towards alleviating the healthcare crises. Government's stated objective is that healthcare should be affordable and accessible to all South Africans. We believe that the key to achieving this is to allow and encourage increased involvement by responsible corporates such as New Clicks.

Pharmacists in South Africa and world-wide are increasingly recognising the need to form alliances and groupings to improve efficiencies and meet the increasing challenges of the profession. We believe that the ultimate stage of this process is meaningful corporate participation. As a major retailer with world-class information, distribution facilities and buying systems, we are optimally placed to play a pivotal role in addressing the ever-increasing needs of healthcare delivery in South Africa.

An efficient network of pharmacies, drawing on the best of professional and corporate expertise, knowledge, experience and facilities would be unique in South Africa, although such networks are commonplace in North America, the United Kingdom and many other parts of the world. Other countries, notably New Zealand, are going through a process of statutory reform to allow for this. These initiatives are aimed at increasing pharmacy business efficiencies and restoring the role of the pharmacist to that of a pivotal healthcare provider. We believe that pharmacy and healthcare in South Africa have embarked on this journey and there is no turning back.

New Clicks has been at the forefront of developments to shift the pharmacy paradigm in South Africa. About two years ago we made an investment in the Link Investment Trust. We recently increased our interest to 56 % (fifty six percent). We also agreed to fund the acquisition of a flagship chain of pharmacies owned and controlled by Trevor Milton and other entrepreneurial pharmacists. The recipient of these funds, a company called Purchase Milton and Associates, has succeeded in acquiring some of the best pharmacies in South Africa. In the current legislative environment, New Clicks cannot own Purchase Milton & Associates. By virtue of the arrangements we have with that company we are entitled to acquire all or certain of its pharmacies, subject to certain conditions, when the law relating to pharmacy ownership changes to allow for this.

There are historic relationships between Purchase Milton & Associates and Link. Trevor Milton was a founder member and chief executive officer of Link Investment Trust. In line with the shared vision of identifying the Link brand as the differentiator in pharmacy value and service, Purchase Milton & Associates has joined the Link Organisation. Members of Trevor Milton's team have been instrumental in the development of the LinkMax drug store model.

The Link franchise has close to 400 stores with a combined turnover of about R3 billion. We believe that Link, with the commitment and backing of Purchase Milton & Associates, constitutes the ideal base from which to build our envisioned pharmacy network.

New Clicks has a state-of-the-art retail offering which would generate obvious synergies for pharmacy front shop development and incorporation,

New Clicks also has a well established network of Discom stores in the under-serviced healthcare areas which could be re-deployed in a structured and co-ordinated effort to extend pharmaceutical services to those in dire need of improved service. We look forward to the opportunity to extend our pilot projects of employing nurses in certain Discom stores in under-serviced areas to fully fledged pharmaceutical services.

Corporate/Professional pharmacy models - The Canadian model
We have studied the pharmacy industry world-wide and have formed close working relationships with many large drugstore chains in other countries. For us, a Canadian company called Shoppers' Drug Mart has developed the most compelling model. Through the growth and success of Shoppers' Drug Mart, Canada has experienced a transformation from fragmented to corporatised pharmacy which has led to improved professional standards, pharmacist/community relationships, cost savings and efficiencies. Detailed analyses of the North American statistics clearly illustrate how this model has benefited all role players in pharmacy, notably the pharmacist. Access to capital, coupled with a well developed and well integrated business model, in an arrangement of co-ownership where the pharmacist has complete autonomy in respect of the professional aspects of the pharmacy, gives participating pharmacists a huge advantage over independent pharmacists. Such business models hold huge promise for the South African market where new opportunities need to be created for young pharmacists, particularly from disadvantaged backgrounds, to join a vibrant, productive and profitable profession.

The simple imperative of the Shoppers' Drug Mart model is to encourage more direct and useful interaction between the pharmacist and his or her patient. The objective is to elevate the role of the pharmacist to focus on healthcare advice, disease management, drug interaction and utilisation. These services and facilities are under utilised in South Africa where pharmacists generally do not have the time or the infrastructural support to extract and provide this information and advice. In order to fulfil these roles effectively a centralised computer database system is critical. In the fragmented pharmacy environment in which we currently find ourselves, such services and facilities are beyond the reach of most pharmacists.

The Shoppers' Drug Mart model is based on a co-ownership / partnership arrangement, optimising the professional and corporate capabilities.

Our model
We believe that the Clicks or Discom front shop together with a pharmacy dispensary would be a winning and super-efficient formula. The combination would result in the dramatic reduction of wasteful overheads and the presentation of the most compelling pharmacy offering. We believe that this offering can be effectively achieved in a number of ways. Firstly, by relocating dispensaries into Clicks or adding Clicks/Discom front shop products into pharmacies. Secondly,we are in favour of a co-ownership model similar to that of Shoppers' Drug Mart which would pave the way for us to give aspirant pharmacists a meaningful equity stakeholding in a pharmacy and in Clicks and Discom stores themselves. Thirdly, we would look at wholly owned models and entirely independently owned franchised pharmacies.

There can be no exceptions to the rule that the professional aspects of pharmacy must remain the exclusive domain of the trained and registered pharmacist.

It is irrefutable that we can add huge value to the profession through funding, bulk buying of goods and products, as well as services and retail experience.

Our initiatives with Link and Purchase Milton & Associates allow us to operate legitimately within the confines of existing pharmacy legislation, whilst at the same time place us in an optimal position to benefit from any pharmacy ownership deregulation. Under the existing legislation we cannot own pharmacies or derive profits from pharmacies. We are not precluded from charging fees or returns on arm's length services.

The pharmacy environment (ownership and licensing) in South Africa is controlled through the Pharmacy Act 53 of 1974. This Act restricted lay ownership of pharmacies and the sharing of profits of pharmacies with non-pharmacists. The Act was amended in 1997 although all the provisions included in the amendments have yet to be published as regulations. The current situation is that lay ownership would be possible depending upon the regulations governing the licensing of pharmacies. Draft regulations were published in November 1999 but have not as yet been implemented. It is anticipated that the licensing regulations will be implemented during the course of 2002, although the precise details are uncertain.

The Draft Regulations opened the door to lay ownership but unfortunately were withdrawn after vociferous criticism by independent pharmacists, certain of whom would prefer not to have to meet the challenges of a more efficient and competitive pharmacy environment.

Government is committed to introducing statutory reform to address its national health and drug policies; the pressing requirement being the need to extend the accessibility and affordability of pharmacy in South Africa.

We are well placed to contribute towards the delivery of pharmaceutical services in the under-serviced areas, primarily through our Discom stores and through leveraging off our existing infrastructure, resources and capabilities. However, we do not believe that there is any reasonable prospect of addressing the South African healthcare challenges by issuing licenses only in under-serviced areas on an ad hoc or piecemeal basis.

Recent discussions with senior representatives in the Department of Health suggest that the promulgation of these regulations is imminent. The debate as to whether or not to deregulate pharmacy ownership is over. The only question now is how and when.

We believe that there are more than enough examples of successful corporatisation of pharmacy in the rest of the world and that restricting lay ownership curtails economic activity and service delivery, and has no bearing on professional independence and integrity.

During the next few weeks we expect pleadings to close in the review application brought by Van Staden & Stolz and sponsored by the Pharmaceutical Society of South Africa (PSSA) against the decisions of the Pharmacy Council to register Purchase Milton & Associates and other pharmacy companies funded by us. Our initiatives and advances clearly do not sit well with the independent pharmacists who control this organisation and would cling to their vested rights and protections. These pleadings, once filed, will be a matter of public record and analysts and investors can draw their own conclusions on the PSSA attack.

The PSSA has indicated that this matter was to have been disposed of during February of this year but this was a misreckoning of the court process. We expect that a date of hearing may be obtained towards the end of this year at the earliest. We envision further attacks by the PSSA and similar organisations against initiatives that threaten vested interests.

Pharmacy success will ultimately turn on who can deliver the most compelling model for all stakeholders in healthcare in South Africa and not the protection of vested interests.


Our major initiatives are:

  • We are developing a common information technology platform and network to which we expect approximately 100 pharmacies will be connected within the next 3 months. This will allow for stock replenishment and other management tools (e.g. category management). This network opens the door to a more scientific application of data and information and an overall improvement in the efficiency of the Link operations. A centralised IT platform will also lead to efficiencies in accounts payable, accounts receivable, financial reporting, interfacing to medical aid funds, loyalty / customer response management programmes (CRM), drug utilisation and review applications etc. The connecting of the remaining Link stores will follow.

  • We have sponsored the establishment of a pharmacy training academy, which is registered with the South African Pharmacy Council. The academy is currently training 50 pharmacist assistants and it is envisaged that this training will improve and enhance professional standards within Link pharmacies and free up Link pharmacists to conduct more intensive "one on one" interactions with patients and customers and to generally perform a more strategic function in the growth and development of their pharmacies.

  • The Link brand is being considerably strengthened through formative and thought provoking marketing and promotional campaigns, thus improving its positioning in the pharmacy market. These emphasise the role of the Link pharmacist as a healthcare provider.

  • A new thrust is to re-instate the high regard for pharmacists through proactive community initiatives.

  • We are currently making know-how and expertise available to Link in respect of store design and lay out, product ranges and other retail aspects. These will further enhance the newly established LinkMax large pharmacy brand and improve the traditional community pharmacy model.

  • With Link, we have a plan to co-sponsor pharmacy ownership in under-serviced areas with the Industrial Development Corporation.

  • Link is implementing a dedicated drug utilisation and review (e.g. to prevent harmful drug interactions) and disease management service in order to support the Link pharmacies and raise the level of advice given to customers/patients.

  • We shall very shortly be in a position to announce agreements with third parties on pioneering projects for the procurement of pharmaceuticals and FMCG products that will give Link franchisees tangible business and professional advantages.

  • An alliance has been struck with United Pharmaceutical Distributors for the distribution of goods to pharmacies.

  • We have re-energised the private label and generic programme, which will result in improvements to Link pharmacies. Generic drugs will play an important role in bringing down the cost of medication and a large network such as Link is essential to this programme.

  • GPNet (a network of medical doctors) and Link have agreed to explore ways to work together to reduce the cost of and to improve the quality and the accessibility of healthcare to the South African public. This would include scientific formularies, implementation of disease management programmes, generic substitution where appropriate, healthcare screening, patient education and an increased focus on ethics and professionalism.

Although these are time consuming projects, they are progressing steadily and these initiatives have and will continue to develop and consolidate Link as the foremost pharmacy brand synonymous with efficient business and best pharmaceutical practice. In this regard, and in order to facilitate the consultations and commercial initiatives a pioneering group of some one hundred Link pharmacies have engaged in this process with a view to leading the way forward for the remaining pharmacists.


Our strategy has two major phases:
The first phase is to create the best pharmacy franchise in South Africa and earn benefits through the following:

  • procurement and wholesaling of pharmaceutical and FMCG products to Link pharmacies

  • fees for value added services; and

  • interest on funds advanced.
Through nearly 400 Link pharmacies and the continued development of support infrastructure, this objective is progressing rapidly.

Our strategy has been devised to ensure that in the event of legislation not being passed, we would still be able to proceed. Phase one achieves this objective.

The second phase is to add dispensaries to Clicks and Discom stores in partnership with pharmacists.

With the advent of a change in the law, which now seems imminent, we could be entitled to operate pharmacies where stores meet the licence qualification criteria. The right to own would give us opportunities in respect of co-ownership and partnership agreements with pharmacists to maximise the benefits of corporate and professional co-operation.

The objective is to have a nation-wide network of approximately 800 pharmacies that will supply the highest standards of pharmacy to all South Africans. Different ownership models would apply: wholly owned; partnership; franchise.

Clicks and Discom operate in Zimbabwe in a franchise arrangement with the Meikles Group acting as franchisees.

Healthcare provision in Zimbabwe has many similarities to South Africa. Currently there are two stores that operate pharmacies in conjunction with the Medix group, a chain of 14 pharmacies. Meikles have taken a significant stake in Medix in order to provide the finance to further develop synergies that are apparent between Clicks and Medix in Zimbabwe.

In Australia pharmacy law has similar roots to that in South Africa and also restricts lay ownership. We believe that we can, however, extend our business into pharmacy through stores that are owned by pharmacists but where we supply goods and services and retail expertise. We have built up a competent store support infrastructure in Australia. This can be applied to an increased number of outlets even if we do not own them. As a transnational organisation, there are major opportunities for shared learning and leverage that can be brought to this initiative. We are currently investigating several opportunities.

The Medicines and Related Substances Control Act (MRSA)

Government has indicated to us that it wishes to co-ordinate the deregulation of pharmacy ownership with changes proposed to the MRSA. Changes proposed to this legislation (by way of the MRSA Amendment Act of 1997) contemplate more effective and transparent pricing systems for medicines and the so called "single exit" pricing strategy whereby it is contemplated that a single price will be stipulated for the purchase and sale of medicines. There are a host of complications around the legislative proposals to date which will need to be addressed, including adequate provision for wholesaling, and we do not expect that these statutory changes will be finalised in the short term.

This legislation also contemplates changes in the controls of dispensing by professionals other than pharmacists by way of a licensing process so that professions other than pharmacists will dispense by exception rather than by a general right. This proposal has obviously caused consternation amongst dispensing doctors and we believe that further debate around these issues will ensue. The amended legislation also makes provision for pharmacists to apply generic substitution even without endorsement by the prescribing doctor. Whereas we are obviously following these developments with interest, we do not expect the resolution of all of these issues to have a direct bearing on the implementation of our strategies.

We believe that many opportunities can be unlocked for the New Clicks group by a direct involvement in the pharmacy retail sector with benefits to pharmacists and all other stakeholders. Change is imperative and we believe that through our blue chip track record and our initiatives in healthcare and pharmacy support to date, we are best placed to take the opportunities, which a new statutory regime will provide with benefits for our shareholders.

Registration Number 1996/000645/06
Share Code: NCL
ISIN: ZAE000014585