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Pharmaceutical group Dis-Chem spends big to cut rental expenses

DIS-CHEM Pharmacies has gone on an acquisition drive of more than R216 million to buy three of its five distribution centres in three provinces in a bid to reduce its rental expenses and unlock long-term growth.

Siphelele Dludla | IOL

The cash-flush pharmaceutical group yesterday said that it had entered into sale and purchase agreements relating to distribution centres from a small related party.

The distribution centres, in the Western Cape, KwaZulu-Natal and Mpumalanga, were purchased through the group’s wholly owned subsidiary, Dis-Chem Distribution Proprietary Limited.

Dis-Chem acquired CT Distribution Centre in Bellville from Commercial Properties for R75.5m where it was paying a monthly rental of R1.97m, excluding VAT.

The group also bought KZN Warehouse in New Germany from Commercial Properties for R73.7m after paying R1.25m a month for rent.

Commercial Properties and Minlou Holdings sold their rental property company Eleadora in Delmas to DisChem for R67.5m.

Eleadora was earning a monthly rental of R494 316 from CJ Enterprises from the property.

Commercial Properties and Minlou Holdings are related parties to Dis-Chem as they are wholly-owned by directors, previous directors and prescribed officers of Dis-Chem, who collectively are also material shareholders of Dis-Chem.

In a statement, Dis-Chem said these acquisitions would enable it to reduce its rental costs and boost its assets on the balance sheet.

“The transactions allow Dis-Chem to own three of its five distribution centres and achieve a reduction in rental expenses incurred outside the group,” it said.

“The ownership of the assets ensures that the group holds the necessary strategic assets for long-term growth.”

The effective date of the transactions is March 1, but consolidation into the group will only become effective once the approvals from competition authorities have been met.

During the six-month period to August 31, Dis-Chem continued to take market share in all categories and delivered strong cash generation as its total income grew by 18.1 percent to R4.2 billion.

The group made capital expenditure of R84m on tangible and intangible assets for expansionary expenditure as it invested in additional stores as well as ICT enhancements.

The balance of R60m expenditure was incurred to maintain the existing retail and wholesale networks during the same six-month period.

Dis-Chem shares closed 2.27 percent lower at R35.75 on the JSE yesterday.


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