CAPE TOWN New Clicks Holdings will have to close its smaller pharmacies and those in rural areas if current medicine pricing regulations remain unchanged, said CEO Trevor Honneysett at the company's annual general meeting yesterday.

A number of parties, including New Clicks, have taken legal action over government's introduction of new regulations last year which cap the price at which medicines can be sold. L ast year the Supreme Court of Appeals ruled the regulations were invalid, but government will argue in mid-March for permission to appeal to the Constitutional Court.

Honneysett said that New Clicks went to court because pharmacies were making a loss as a result of the regulations. The returns that the group was making from pharmacies were driven by the additional volumes that dispensaries generated in large stores, but smaller stores continued to battle, he said.

"We would like the situation to be cleared up as soon as possible as it is not in the best interests of consumers or service providers to have this ongoing chaos," he said.

Asked about the lease costs of closing smaller stores, Honneysett said the group had about 650 leases across the group, and about 65 come up for renewal each year.

In that context, the costs of extricating about 20 smaller pharmacy stores from their leases would not be dramatic.

Honneysett was also asked about recent reports that the health department had said it was prepared to reconsider the medicine pricing regulations.

After the appointment of a new director-general of health from the beginning of this year, New Clicks was attempting to communicate directly with him and was willing to try to reach an amicable outcome, Honneysett said.

Compared with the fourth quarter of the last financial year, when Clicks stores were hit by shrinkage and a higher comparative base because of a seasonal promotion in the previous year, the division had recovered well so far, he said.

But the stores had to adapt to the challenge of operating in a low-inflation or deflationary environment, and they also faced competition from food-based retailers and drug discounters, Honneysett said.