City Pharmacy: Pharmaceuticals

THE COMPANY: City Pharmacy (CPL) was established in 1986. It is one of the leading retail/wholesale companies in Papua New Guinea, with branches located through out the country. CPL operates pharmacies, supermarkets, hardware supply stores and Bon Café outlets. The company was listed on the Port Moresby Stock Exchange in 2002, and is one of the top performing stocks on the bourse.

CPL bought the Stop ‘n’ Shop supermarket business from Steamships Trading Company in 2005 and integrated it with the City Pharmacy business. Following the acquisition, sales from the combined businesses grew at a compound average growth rate (CAGR) of 108%, from $86m in 2007 to $153m in 2011.

The group has entered into a partnership with the Vinod Patel group from Fiji, acquiring the Hardware Haus business (formerly Steamships Hardware) in 2008. Both parties hold a 50% interest. Since the acquisition, Hardware Haus profits, attributed to the CPL group, have increased seven-fold, reflecting increased sales and gains achieved through inventory turnover and sales margin gains.

In the past year CPL formed a three-way joint venture with PNG FM and Fiji’s Damodar group in the Paradise Cinema business. A three-screen cinema complex was opened at Vision City in Port Moresby in February 2012, and the group is now reviewing other sites in Port Moresby to expand their cinema interests. CPL also acquired Cost Save in 2012.

Cost Save is a Sydney-based pharmaceuticals and wholesale distribution company serving Australian pharmacists, doctors and industrial groups. The acquisition was funded internally. The business has current turnover of $4.8m, and CPL expects to double its revenues over the next year.

Total group assets grew at a CAGR of 117% to PGK147.8m ($70.3m) in 2011, up from PGK65.4m ($31.1m) in 2007. The rise reflects a number of acquisitions made by the group in the past five years. Total group assets are expected to increase to around PGK165m ($79m) in 2012 when taking into account the assets of Cost Save and new store openings.

CPL’s net profit after tax grew at a CAGR of 130% from PGK5.06m ($2.4m) in 2007 to PGK19.47m ($9.3m) in 2011, reflecting increased sales growth and strong cost control management over the last five years. A strong performance in 2011 reflects increased demand and income growth due to the construction of the PNG liquefied natural gas project and related developments. Total returns to shareholders have averaged 25% per year over the last five years.

DEVELOPMENT STRATEGY: The group is expected to make further international acquisitions, as this forms a major part of its expansion philosophy.

CPL seeks out companies that can expand its geographic reach in new markets. Potential acquisitions must have a solid base, with infrastructure support and leading edge technology. The assets must also be complementary to those already operating in PNG.

CPL views its acquisition of Cost Save as a soft entry into the Australian market. Cost Save is the first overseas acquisition by CPL Group. Its management has extensive retail experience, assisted by a well-trained workforce. Training and occupational health and safety are a hallmark of the group.

CPL is strategically positioned to continue to see rising profits amid the rapid growth of PNG minerals and the continued inflow of capital and revenues from the sale of its minerals. A change in diet from traditional foods to manufactured food products will see demand for manufactured food continuing to rise. The rise in construction is also set to continue, both in cities and in rural areas.

Demand for pharmaceuticals products will also increase with rising per capita income. Other areas such as cafeterias and theatrical entertainment will also benefit from the increase in money supply and change in lifestyle in the urban centres of PNG.

CPL’s ability to foresee and strategise to capitalise on the country’s growth path must be commended.