v2 Report - Additional Information Supplement
LPL Life Pharmacy Limited
Press releases
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26 Jul, 2007, 16:13 MEETING Life Pharmacy - Completes $5.25 Million Investment |
| Auckland, 26 July 2007 - Life
Pharmacy Limited (NZX:LPL) is pleased to announce that today it
has received an investment of $5.25 million from LPL Trustee
Limited (the Trust). The $5.25 million represents subscription
funds for 7,000,000 ordinary shares in Life Pharmacy. The Trust is backed by Andrew Bagnall & Associates and the transaction was first announced to the market on 24 May 2007. The investment was made after Life Pharmacy's shareholders approved the deal at its Annual Meeting held earlier today. Under the terms of the agreement Life Pharmacy also grants to the Trust an option to subscribe for up to 50.01% of Life Pharmacy's entire issued share capital for a period of two years at a price of $0.75 per share in year one and $0.825 per share in year two. Liz Coutts, Chairperson of Life Pharmacy, said: "We are delighted that the shareholders have wholeheartedly endorsed this initiative enabling Life Pharmacy to secure a substantial equity injection. Andrew Bagnall has considerable expertise in franchisee businesses like ours and we are confident that his expertise will bring real value to the company and its shareholders." Liz Coutts also welcomed Life Pharmacy's new CEO - Philip Ingham. Philip arrived in New Zealand yesterday to take up his post with effect from 1 August 2007. Previously, Mr. Ingham was the CEO for Global Merchandise Development with A.S. Watson Health and Beauty, the retail division of Hutchinson Whampoa Hong Kong. A.S. Watson is the world's largest health and beauty retailer, operating 7,800 stores in 33 Countries across Europe and Asia. Mr. Ingham has been with A.S. Watson for more than 20 years working in CEO roles and being responsible for operations in many countries throughout Europe and Asia. When he joined A.S. Watson it had only 70 stores and he has played a major role in its growth - both organic and by acquisition - to the current number of stores, opening up markets in Taiwan, China, Malaysia, Thailand and the Philippines and undertaking acquisitions in the UK and Europe. Liz Coutts said: "We are delighted that Philip has agreed to come to New Zealand with his returning Kiwi wife and family to lead Life Pharmacy. His expertise and track record, in facilitating growth will be invaluable to this company." About Life Pharmacy Life Pharmacy Limited owns the Life Pharmacy brand and holds a 49 percent shareholding in 17 pharmacy companies, representing 16 of the 21 Life Pharmacy stores operating throughout New Zealand. Stores are located in Auckland, Hamilton, Bay of Plenty, Wellington and Christchurch. ENDS Contacts: Liz Coutts Chairperson Life Pharmacy Limited, +64 21 892 220 Allan Botica Botica Butler Raudon Partners Limited +64 21 400 500 allanb@botica.co.nz |
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Life Pharmacy Limited LPL 19 Jun, 2007, 14:38 TAKEOVER LPL signs documentation to secure $5.25 million investment |
| Life Pharmacy signs documentation
to secure $5.25 million investment Auckland, 19 June 2007 - Life Pharmacy Limited (NZX: LPL) today announced that it has signed formal documentation for the transaction with Segoura Limited which was announced on 24 May 2007. Segoura nominee, LPL Trustee Limited (the Trust), which is backed by Andrew Bagnall and associates, will subscribe $5,250,000 for a total of 7 million shares in Life Pharmacy at a price of 0.75 per share. Under the terms of the agreement Life Pharmacy will grant the Trust an option to subscribe for up to 50.01 percent of Life Pharmacy's entire issued share capital for a period of up to two years at a price of $0.75 per share in year one and $0.825 per share in year two. The agreement is conditional upon (amongst other things): 1. shareholder approval 2. obtaining waivers from the Takeovers Code and the NZX Listing Rules 3. obtaining a ruling from the NZX to allow the Trust to appoint two directors for two years and 4. Life Pharmacy adopting a new constitution giving shareholders the right to appoint directors proportionate with their voting right in Life Pharmacy, consistent with NZX Listing Rule 3.3.5. Liz Coutts, Chair of Life Pharmacy, says, "We are delighted to have concluded this agreement, which will inject substantial equity into Life Pharmacy. We are equally pleased for the company to be associated with Andrew Bagnall, who has considerable expertise in franchisee businesses like ours. I'm confident that his investment and expertise will bring real value to the company and its shareholders. This is a substantial investment which will enable Life Pharmacy to grow and to achieve the benefits of scale." The transaction will be put to shareholders at Life Pharmacy's Annual Meeting, which will be held at Level 1, Building B, 600 Great South Road, Auckland on Thursday 26 July 2007 at 9.30am. A Notice of Meeting will be circulated to all shareholders in due course. The Annual Meeting was to be held on Thursday 28 June 2007; however, the Board has moved the date out to allow shareholders to consider, and if appropriate approve, the proposed transaction with the Trust. About Life Pharmacy Life Pharmacy Limited owns the Life Pharmacy brand and holds a 49 percent shareholding in 17 pharmacy companies, representing 16 of the 21 Life Pharmacy stores operating throughout New Zealand. Stores are located in Auckland, Hamilton, Bay of Plenty, Wellington and Christchurch. Contact: Liz Coutts Chair Life Pharmacy Limited +64 21 892 220 Allan Botica Botica Butler Raudon Partners +64 21 400 500 allanb@botica.co.nz |
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Life Pharmacy Limited LPL 24 May, 2007, 10:58 TAKEOVER Life Pharmacy secures investment of NZ$5,250,000 |
| Life Pharmacy secures investment
of NZ$5,250,000 Life Pharmacy Limited (NZX:LPL) is pleased to announce pursuant to NZSX Listing Rule 10.1.1 (continuous disclosure of material information) that it has today signed a heads of agreement with Segoura Limited (Segoura). Under the heads of agreement Segoura will subscribe $5,250,000 for a total of 7,000,000 shares in LPL at a price of $0.75 per LPL share. Segoura is backed by Andrew Bagnall and associates. Under the terms of the heads of agreement LPL has agreed to grant to Segoura an option to subscribe for up to 50.1% of LPL's entire issued share capital for a period of up to two years. The subscription price under the options is $0.75 per share in year one and $0.825 per share in year two. The agreement is conditional upon (amongst other things) shareholder approval and obtaining the waivers from the Takeovers Code and the NZSX Listing Rules necessary to facilitate the granting of the options. LPL and Segoura will now move to encapsulate the heads of agreement in formal documentation and a further market update will be released then. Once the agreement is signed a meeting will be convened of LPL shareholders at which they will be asked to approve the arrangement. Liz Coutts, chair of LPL said: "Life is delighted to have secured such a substantial equity injection from Segoura. Segoura is backed by Andrew Bagnall who has considerable expertise in franchisee businesses such as Life and we are confident that his investment and expertise will bring real value to Life and its shareholders. This investment will ensure that Life has the funds to grow and to achieve scale benefits." Ends About Life Pharmacy Life Pharmacy Limited owns the Life Pharmacy brand and holds a 49 percent shareholding in 17 pharmacy companies, representing 16 of the 21 Life Pharmacy stores operating throughout New Zealand. Stores are located in Auckland, Hamilton, Bay of Plenty, Wellington and Christchurch. Contacts: Liz Coutts, Chair, Life Pharmacy Limited, +64 21 892 220 |
Chairman's report
Life Pharmacy Limited (LPL) is very conscious of our changing operating environment and we have spent considerable time this year reviewing the pharmacy market. We have a strong desire to be a major participant in the New Zealand pharmacy market to secure the considerable benefits from having a larger scale and be well positioned for further deregulation. The market is very fragmented and this provides a significant opportunity to grow our franchise and pharmacy businesses.
We have faced another challenging year on many fronts. We were keen to work with, and or invest in Pharmacybrands to achieve scale benefits and strengthen the franchise model for all stakeholders. Our preferred approach was a merger of the two companies however the sale of the API shareholding in Pharmacybrands to Propharma, a pharmaceutical wholesaler thwarted these plans. After it became apparent a merger as planned was not possible, the Board sought investors to fund a takeover of Pharmacybrands subject to 75% acceptance.
We were able to certify funding and file a notice of intention of takeover on 20 April 2007, the same day Pharmacybrands held a special shareholders meeting to vote on the sale of the API shareholding to Propharma. Unfortunately Pharmacybrands shareholders did not get sufficient opportunity to fully consider our offer as proxies had already been cast.
The Board is committed to growing and investing in the business to achieve scale benefits and fulfil Life’s vision as an innovative health and beauty multi-brand retailer at the forefront of the customer experience. This requires new capital and the Board has been working to seek investors who can provide the foundation capital and have an interest and expertise in our business.
We were delighted to announce on 24 May we had signed a heads of agreement with Segoura Limited which will subscribe $5,250,000 for a total of 7,000,000 shares in LPL at a price of $0.75 per LPL share. Segoura is backed by Andrew Bagnall who has considerable expertise in franchise businesses such as Life. Under the terms of the heads of agreement LPL has agreed to grant to Segoura an option to subscribe for up to 50.1% of LPL’s entire issued share capital for a period of up to two years. The subscription price under the options is $0.75 per share in year one and $0.825 per share in year two.
The agreement is conditional upon ( amongst other matters) shareholder approval and obtaining waivers from the Takeovers Code and the NZSX Listing rules necessary to facilitate the granting of the options. We received shareholder approval at the special shareholder meeting on 24 April 2007 to authorise LPL to renegotiate each of its shareholder agreements with its 17 pharmacy companies and enter into new agreements with a new put and call option at fair value.
These agreements were completed on 11 May 2007 which removed a barrier to further equity raising. We invested in two new pharmacies, Life Pharmacy Sylvia Park and Supa Chem Porirua, and signed a lease for a third new pharmacy at Westfield Albany. Life Pharmacy Sylvia Park commenced trading in August 2006 with a very slow first six months and trading losses were higher than expected. Since Stage 3 of the mall development opened, trading has improved significantly.
We are confident of an improved performance as the next stage of the mall is due to open in July 2007 which includes a medical centre and Life Pharmacy Sylvia Park will open a second smaller Life Pharmacy. Supa Chem opened in September 2006 trading below expectation. Management are working on plans to improve the offering and financial returns. Life Pharmacy Albany is due to commence trading in September 2007. We are intending to sell down 51% of the shareholding. There is keen interest in the investment by pharmacists.
Financial Performance
For the year ended 31 March 2007 group revenues were $5.0 million (2006: $5.5 million),and a net loss of $6.5 million (2006: profit of $1.1 million) was recorded. Associates contribution was $0.76 million (2006: $0.9 million) with the improvements across the majority of our pharmacies offset by an unexpected disappointing performance at Queensgate, and start up losses at Sylvia Park and Porirua as it has taken much longer than anticipated to build momentum in these new stores.
The LPL Board made the decision to reduce the value of the company’s investment in associates by $6.0 million following an assessment of the last two years trading and a review of the latest associate companies directors’ financial forecasts. The Group net loss before impairment was $0.5 million (2006: profit $1.1 million) and included significant investment in the Tony Ferguson Weight Management Program, the Life Living customer loyalty card, planning and evaluation for in store hearing services, establishing the merchandising and category management functions and the support given to set up the new pharmacies.
The previous year had included $0.5 million gain from the sell down of 51% of the shares in Sylvia Park. The sell down of 51% shareholding in Life Pharmacy Albany was planned before year end but did not occur because franchise and contractual documentation was not in place. It is expected the share sale will take place shortly. Legal and financial consulting costs were incurred for the proposed merger and partial takeover of Pharmacybrands.
Life’s subsidiary, Origins Botany Downs, which had been trading at a loss and was not considered to be a strategic investment to justify ongoing support, was closed subsequent to balance date. The products and services relocated to Life Pharmacy Botany Downs which operates under a Life franchise. Life’s group net assets are $21.9 million (2006: $28.0 million). Investments in associates reduced by $6.5 million as a result of the $6.0 million reduction in the value of the investment in associates, sale of Life Pharmacy Westcity partially offset by the share capital in Life Pharmacy Sylvia Park and Supa Chem Porirua.
Group advances reflect the back-to back loan facility with associates and were reclassified as current as required under NZ IFRS. The financial covenants have not been met by the associates or by the charging group. The associates most effected were those in start up or had just completed a refit. We have been addressing the capitalisation and funding of associates and taking actions to rectify the breaches to the satisfaction of the bank.
Board
Steve Smith was appointed as a new independent director on 21 August 2006. He has brought considerable skills in business finance, mergers and acquisitions, and Chairs the Audit and Finance Committee. Gordon Ritson resigned from the Board as at 30 April 2007. Gordon played a major role in establishing Life Pharmacy and seeing it through its initial period as an NZSX-listed company.
Chief Executive
We announced our Chief Executive Officer, Tim Roper’s, retirement in early 2007. Tim has continued to work with us in an advisory capacity which has been appreciated given his substantial industry knowledge. Des Flynn, Chief Operating Officer, has been Acting Chief Executive Officer until a permanent appointment is made. The Board would like to take this opportunity to thank both Tim and Des for their contribution and efforts.
Staff
Our staff in our pharmacies and central office have put in a great effort in changing times. On behalf of the Board I thank them for their belief in the values of Life and willingness to work towards our business goals.
Outlook
LPL has a strong brand in Life Pharmacy, an outstanding reputation for customer service, franchise and customer offering and with new capital invested and expertise is well placed for the future. We will be working to capitalise on these strengths and obtain scale benefits to bring real value to LPL and its shareholders.
Liz Coutts
Chairman
CEO's Report
This year has been one of preparing for the future, with a focus on developing and implementing common business processes in both the retail and central office environment, increasing the level of activity in professional services, planning for growth in sales in existing stores, and planning for new stores. To achieve this, it has been necessary to invest in building the team to support the new initiatives, and to invest in the initiatives to test and develop them for national implementation. This has proven to be costly, but necessary to develop competencies to compete in the changing competitive environment.
It has been a challenging year for sales. While we registered an increase in prescriptions dispensed, the revenue decreased due to the regulated price charged to the 40 – 65 years of age group. In general retail, we noted a decrease in customer traffic, but sales training and goal setting with our sales team enabled an increase in items per transaction, and therefore an increase in average sale to compensate for this.
Through the development and pilot programme for our loyalty card, we have seen an increase in both frequency of shopping and a higher average sale from these shoppers, which we expect will have a positive effect on total sales when applied nationally. There has been the need to invest in the development of leadership qualities in both individuals and teams to ensure we are well poised for future growth and succession planning.
Strategic Growth Initiatives
- Product Development
Two major product development initiatives were commenced during the year:
Tony Ferguson Weight Management Program
As part of our Professional Services development, when researching the major health issues facing New Zealanders, it became obvious that obesity had common links to many other illnesses such as diabetes, hypertension, arthritis, and heart disease. By addressing weight management, as a professional service, which involves trained specialist consultants, and where appropriate, pharmacist intervention, we needed to identify a proven holistic system which would encompass the major components of a programme to lose weight, customized exercise programme and healthy eating education which would enable the weight reduction to be sustainable. The Tony Ferguson Weight Management Program is successful in Australia, and was identified as a viable option appropriate for the New Zealand market.
We acquired the Master Franchise for NZ, set up in all stores to be operational in December 2006, to enable the full commencement of the programme directly after New Year. The full capital costs for the franchise fee and fitout were incurred in this year, as was the launch television campaign.
Hearing Centres
Another health issue facing our country is hearing impairment. Although it can affect people of any age, nearly one third of our population over 60 years of age have significant hearing loss. By using specially trained clinicians using specialised audiology equipment, hearing tests and assessments can be made accessible from the services being installed in many stores. Due diligence was carried out on the New Hearing Centre business during the year, and it was decided that appropriate stores would be invited to take up a Hearing Centre franchise. Franchise operations are currently being established.
- Market Penetration
Five major market penetration initiatives were developed during this year.
Loyalty Programme
In order to build stronger relationships with our customers, we have engaged in a Customer Relationship Management programme (CRM). At the heart of this initiative is our loyalty card – the Living Card. Customers can shop across the entire store (excluding prescriptions) and earn points on both beauty and health products. Vouchers are awarded on points accrued, and are issued quarterly for redemption in store.
The Living Card initiative replaces and enhances the previous decentralised and fragmented clubs which were store specific, and unites the entire group on a system common to all stores where customers can use their Living Card at any store. The pilot programme was tested in Christchurch and Hamilton during the year with valuable learning gained to fine tune the programme for a national launch. The full impact of the set-up costs were incurred this year, with only five stores participating.
It had been planned to have the national launch withinthis year, and therefore spread the costs over the total business, but the decision to have the pilot programme proved to be a valuable exercise which allowed the modification and improvement of systems and communication processes. It also provided an understanding of the value of each customer, shopping habits, frequency of purchase, as well as personal interests, so that the direct mail communication is effective and appreciated.
New store development
Life Pharmacy Sylvia Park opened in August with sales below expectations. This is a staged centre development, which has yet to provide the customer with a full shopping offer, and as each new stage opens, sales are rapidly increasing. Planning was also commenced on a second pharmacy for this centre. Supa Chem was developed as a discount pharmacy, with a typical supermarket style layout. The first store was opened in October at Porirua in Wellington. Refinements to the strategy are still being implemented to maximise sales and profitability before any additional stores are considered.
Life brand extension
As opportunities for full Life Pharmacies, mainly based in large shopping malls, become more difficult to source, to assist in the development of a robust growth plan, and to take advantage of market opportunities, it has been decided to develop the Life Metro model. This would be applicable to convenience based locations, such as CBD’s and High Streets with high foot traffic and a core range of products and services but tailored to meet the local customer needs.
Website Development
Beauty Direct was our retail website, with the Life Pharmacy website being an information and store location site, which was predominantly used for career advertising. In the second half of the year we merged the two sites to become www.lifepharmacy.co.nz This fulfils all of the functionality of both previous sites as well as providing the customer and staff entry point to our Living Card loyalty club. The full development costs of this project have been incurred this year.
Category Management
We have invested in the development of a full merchandise team, covering both health and beauty, to better manage our sales and gross profit margins. Terms of trade have been established with all major suppliers. The positive effect of range rationalisation, and effective planograms through category management disciplines and planning will provide future benefits.
Integrated promotional planning has also been received positively by our suppliers, and we have received strong support of our marketing programmes which will move in emphasis from mass marketing to incorporate direct mail as we implement the CRM programme.
Business Processes
Information
During the year we introduced a management reporting software package, Toniq Corporate, and progressively connected all stores to this to allow daily reporting of scanned sales, indicative margins, and stock records. This information is essential to facilitate the category management process.
Communication
All stores had their IT platforms reconfigured and connected to the central office server to facilitate email, Microsoft products, and a central repository file. This also facilitates the use of the Living Card, and access to the reporting structure that sits behind it.
Accounting
We ran a successful pilot programme for in-house accounting with three stores. This provided a major benefit of standardising reporting structures, electronic payment of accounts, receiving information on time, and also lowered the cost of accounting services to stores. It is planned to invest in an appropriate software product to enable all stores to be connected by March 2008.
Human Resources
The foundation of our Human Resource strategy is the ability to build our business and return shareholder value, lies in the ability to attract, develop and retain Life Stars to provide excellence in service for our customers. We aim to provide an environment where our team members feel valued and valuable and therefore are able to deliver value to our customers while developing their careers. Our values are integral in achieving this objective and we endeavour to work within the values structure at all times.
This year has been focused on building our Employment Value Proposition to increase our attractiveness in a tight labour market. Initiatives have included broadening the benefits available to team members such as discounted medical insurance, team member discounts across all stores, development of an alumni to retain contact with past team members. In the coming year this offering will increase to include other health and beauty related benefits.
We have worked closely with Investors in People – the international benchmark of people and performance towards accreditation for our stores with considerable success and have closely aligned ourselves with Curekids as our Charity of Choice. The first Life Star Curekids Support has recently participated in the Ticket to Hope trip to Queenstown with a group of Curekids children as part of their reward and all team members have had the opportunity to support this cause in store and personally.
We provide the most comprehensive training offering in retail health and beauty in New Zealand including a LPL specific tertiary level qualification through Monash University – Centre of Retail Studies. Our career pathway programme provides real opportunities for team members with the ambition and commitment to develop a career in professional pharmacy practice.
The Year Ahead
Your company has now established substantial competitive advantage in the pharmacy market place and confidently expects to grow this advantage. We now have in place the infrastructure to expand and are positioned for the accompanying economies of scale. In September we will open Life Pharmacy in the Westfield Centre at Albany. This store is 410m2 based on a similar format to Sylvia Park. The Albany centre will open in two stages in quick succession in September and October and will be heavily marketed for Christmas trading. This gives us the confidence the opening sales will be more successful than the Sylvia Park opening.
There are two Life Metro Stores in development with many more planned for the year. Additional Tony Ferguson Weight Management Clinics are also planned. Our strategy for growth through the initiatives detailed previously is being implemented, and we have a team committed to deliver this.
We will continue with our investment in people, and provide career path opportunities for our team members. I thank our Central Office and store teams for their continuing substantial contribution toward our achievements. We have the passion, drive and expertise to deliver our shareholders substantial value growth in their investment.
Des Flynn
Acting Chief Executive
