The stellar results reported last Wednesday by JB Hi-Fi (41% rise in net profit); the steady progress by Woolworths and the solid Metcash performance raise questions not only for the total retail market, but particularly for the healthcare sector.
After all, healthcare companies — and particularly those with retail pharmacy dominance — should be “insured” against recession. They cater for markets which needs their products (much like Woolworths and groceries).
In fact, the largest health and beauty retailer in the Southern Hemisphere (New Clicks in South Africa) has started a “lipstick barometer” to explain their continued impressive growth and shareholder returns. It’s a well known fact that consumers spend more on lip colour in a time of recession, and with our ageing population it’s our pharmacies who keep us alive with chronic medication!
At the other end of the spectrum we have Australian Pharmaceutical Industries’ chairman Peter Robinson wringing his hands in exasperation at the 50.5c API share price and the normally ebullient Sigma CEO Elmo de Alwis staying well below the parapet with a share price languishing at $1.06 (share prices as at 12th February 2009).
The third player Symbion is now privately owned by Zuellig but Metcash’s bid to buy them was thwarted by Terry White threatening to withdraw support if Symbion was bought by a ‘dreaded’ and efficient retailer.
At the AGM, Robinson tried to spin that it was all about the ASX performance and market sentiment. The share price fluttered to 53c and then returned back to its previous level of 50.5c. And, let’s not forget that in the heady days of 2006, this was a share price in the upper $2s and has declined steadily since — hitting 35c just before Christmas 2008.
Perhaps the answer lies in the address given at the API AGM by its taciturn CEO Stephen Roche. In his address to shareholders, Roche fired off the first salvo in the negotiations for the next Government-Pharmacy Guild agreement due to commence later this year and become effective in 2010 for another five years.
Roche’s theme was that API “stood firm behind its pharmacists” and supported “fully” any moves to retain regulation within the sector.
Added to this, speeches and company policy at the recent Dubai junket which Sigma gave its leading pharmacists were concurrent with their support of a “no change” to the regulations.
It seems that the industry is locked in the 90s. Terrified of competition, secure that their management mandarins can continue to earn massive bonuses for less-than-stellar performance and allow the Pharmacy Guild to wield unnatural power in Canberra.
The market does not like it. The marketplace (i.e. the suppliers and consumers) do not like it. They want efficiency, cheaper medicines, more convenience and, above all, integrity.
Shares will continue to languish. Current shareholders will remain disaffected. The sector is crying out for change.
Are we going to see it in the next Guild-Government agreement? (this agreement details the funding and distribution of monies within the Pharmaceutical Benefits Scheme (PBS), defining margins, subsidies and other regulations).
It’s a heavy hitting political agreement. It’s something that should be occupying the minds of the Department of Health. Especially as influential lobbyists Hawker Britton from the Rudd camp have been hired to work on behalf of the Guild.
Simon Burrow trained as a schoolteacher and journalist before embarking on a career in health and beauty retailing for over twenty years. He is now consulting, predominantly in health and beauty, and works in Australia, India, Singapore, South Africa and France. He is best known as the brains behind both the Clicks (South Africa) and Priceline (Australia) customer loyalty schemes — ClubCard.