Looking Cheap imo, page-7

I noticed in API Presentation to Shareholders this week that Priceline Pharmacies continues to be a shining light for them and they are keen to grow the number of stores. Within this growth strategy the focus though is on "Locations" and the plan is to "Landbank" stores that are suitable candidates.

Interesting to contemplate and question the best strategy for API to achieve this? Most of the prime shopping centre locations pharmacies are predominantly already affiliated with major banner groups like Terry White, Guardian or Priceline already where the strip pharmacies and smaller shopping centre businesses are branded with the various discount groups or other banners (e.g. Pharmacist Advice, Soul Pat etc) suitable for the smaller independents. The impact of the Chemist Warehouse (CW) juggernaut's expansion of course has prompted a massive consolidation of pharmacies into these groups with far tighter affiliations required than we have ever seen before.

In my view API can only significantly grow the Priceline "prime location" Pharmacy franchise by winning over some of the well located Guardian and Terry White Pharmacies. I think converting the Terry Whites will be in the too hard basket but perhaps a different story for Guardian Pharmacies. I think there are many owners who think their Guardian profile is very tired and would perhaps seriously look at an approach by API to rebrand to Priceline.

So I see Sigma being in a vulnerable position if I interpret API's very much understated expansion strategy correctly. Along with the loss of the CW business if Sigma start losing some pharmacies in prime locations to Priceline as well, there will be no alternative but play along with API and seek a merger. I think it would be far better to be talking now than later when they are in a weaker position.

The synergies of a merger are obvious and the best means of competing with the ubiquitous CW and the very powerful EBOS/Symbion affiliated pharmacies is to merge now. Both Sigma and API have been modernising their distribution centre network that will bring greater efficiency and economies of scale.

Aside, I note their are some very heavyweight discussions on the CSO (Community Service Obligations) front with full line pharmacy wholesaler representation coming up shortly shortly with government. I am hopeful this will result in the CSO Wholesalers regaining the distribution rights of PBS products that have gone to direct distribution in recent years. That would be a real positive and be a blow to Pfizer Direct and DHL's Australian ambitions.