Anecdotally, service levels have dropped at Clicks, with multiple complaints online about the lengths of queues at the dispensary. The company is trying to cut costs and I can see why in the latest numbers .
The troubles at Clicks are visible in UPD, the wholesale business. Distribution costs increased by a substantial 8.4%, bearing the brunt of higher fuel and other costs. Revenue grew by a tepid 0.6%, so margins went firmly in the wrong direction.On the same day, Dis-Chem released a trading statement for the latest year, reflecting an increase in headline earnings per share of between 24.5% and 29.5%.
As utilisation rates fell during the pandemic , EBITDA collapsed. On the way back up, modest revenue growth can still drive improvements in EBITDA. In primary care , revenue increased by between 5.2% and 5.7%, and EBITDA shot up by between 30% and 32%. This is a perfect example of operating leverage.
As supply chain pressures continue and inflation picks up, corporate balance sheets will need to grow to keep supporting operations. Even if the debt:equity mix is maintained rather than increased, that’s great for banks.
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