New Clicks – Healthcare in changing regulatory environment Healthcare strategy

• Nedcor Securities Healthcare Conference

• March 2004

New Clicks – Healthcare in changing regulatory environment

• Healthcare strategy

• Integrated channel to market

• UPD
• Clicks Pharmacy

• Legislative changes

• Draft pricing regulations

Healthcare strategy

• Leverage benefits of integrated channel to market

• Extend retail presence & expertise into pharmacy

• Establish efficient, compliant & profitable low-cost drugstores

• Promote co-ownership model

• Improve front to back shop ratio

• Synergies from combining pharmacy with current offering - lower overheads & increased footfall

• Franchise model retained – using compliant format

• Explore black empowerment opportunities

Wholesale & distribution - UPD model

• Model tried & tested internationally

• Largest national wholesaler in SA

• Efficient working capital management

• Expertise in fine distribution

Wholesale & distribution - UPD model

UPD

• Growth in turnover from PM&A & independent pharmacies

• Retained most independent pharmacy customers

• Standardised terms on FMCG suppliers

• Clicks pricing on top FMCG lines available to customer base

• Two franchise models in the group – Link + Multicare

• Develop Link offering as premium banner

• Develop programmes to enhance Link pharmacy loyalty to UPD – new franchise agreement

Clicks Pharmacy

• Create an experience of pharmacy never seen before in SA

• Combine the best of what Clicks offers with the best of the pharmacy experience

• Enhance the Clicks brand qualities of value with convenience & service

Pharmacy in Clicks

• Regulatory approval for PM&A deal

• Application for licences

• PM&A (waiting for approval of licence transfers to be able to consolidate)
• Additional licences in selected stores
• Underserviced areas – discuss with government

• All New Clicks wholly-owned/JV pharmacies to be rebranded Clicks

Learning from Australia

• Conversions:

• Converting existing Priceline store (Prahran)

• Sales growing in excess of 40%
• Back & middle shop sales already at 18% - should double

• Converting existing pharmacy (Bentleigh)

• Script sales grown by 20%
• Front shop sales up from 10% to 75%

• New site:

• Mornington

• Turnover A$45k per week from 300m²
• Front shop sales 50%

Legislative changes

• Original source procurement

• Levelling of the playing field – ethical standards + transparency
• Small impact on current wholesale customers
• Service levels will be the differentiator

• Generic substitution

• Single channel distribution - lower market share of branded ethicals - better placed to benefit
• Currently, margins better

• Single exit pricing

Draft pricing regulations

• Support statutory intervention to

• address current medicine pricing anomalies
• make pricing more transparent
• make medicines more affordable & accessible

• Concerned about negative impact on viability of pharmacy wholesaling & retailing

• 90 day period to engage in constructive dialogue – working together with other interest groups

• Don’t expect regulations to be implemented in current form or by May 2004

• Aim to achieve the objectives in a constructive & sustainable way that does not undermine the viability of pharmacy & pharmaceutical services

Impact on New Clicks

• Retail pharmacy

• Even though reduced pharmacy margin & volumes, will be benefit from increased front shop sales
• Independent pharmacists under threat – potential to attract them into the group
• Competitive advantage of discount pharmacies to be eroded

Impact on New Clicks (continued)

• Wholesale/distribution

• Viable for UPD because of efficient model, although volumes would be reduced
• However, may lead to consolidation of other distributors - opportunity for UPD to increase volumes & widen geographical footprint
• Multinational manufacturers may withdraw from SA – opportunity for UPD to reach distribution & marketing agreements
• Public/private partnership possibilities in terms of distribution & dispensaries

• Questions ?

• Thank You