Sigma and CWG Merger Risks and Management Overview

NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES Key Risks 58 - Risks that are Common to Both Sigma and CWG Key Risk Inadequate or poor inventory management Impact of the need for community pharmacy customers to obtain approvals from State pharmacy regulators Impact of Australia's pharmacy ownership laws and stakeholder activism Summary Each Merger Party relies on its data analytics, human analysis and inventory management system to manage its business; in particular its stock levels and stock purchasing. If a Merger Party's inventory management system or data analytics fail or use inaccurate information or assumptions, there could be errors in order fulfillment, delayed shipments, and increased administrative costs. If a Merger Party's demand planning is inaccurate, then this could lead to stock imbalances. Excess inventory could tie up capital, lead to higher holding costs, including occupying excess warehouse space and increasing the risk of obsolete stock. In the event of insufficient stock, delayed order fulfillments might mean loss of sales (for both the Merger Party, their franchisees and wholesale community pharmacies, and loss of customers. in the case of Sigma, it could also mean that Sigma is unable to meet its obligations for supplying PBS medicines under the CSO Deed. The consequences for Sigma being unable to meet its supply obligations under the CSO Deed, include financial or non-financial sanctions, and potentially, exclusion from the CSO funding pool or termination of the CSO Deed by the Commonwealth. If a Merger Party fails to achieve appropriate stock holdings, including efficiently managing stock return arrangements, this could adversely impact their financial position via a build-up of stock, an increase in write-offs, increased working capital requirements, inefficient use of capital and decreased productivity, any of which could have a material adverse effect on that Merger Party's financial and operating performance. Sigma's Supply Agreement with CWG will involve a significant inventory build-up by Sigma (or, if the Proposed Merger completes, by the combined group), to ensure operational readiness when supply to CWG franchisees under the contract commences on 1 July 2024. In addition to increased inventory levels, a smooth transition also requires the consideration of new risks such as the onboarding of new suppliers, appropriate warehouse infrastructure capacity (e.g. increased slots to efficiently process increased volume), IT infrastructure capacity (increased transaction volume), increased labour and optimised route commitments (both inbound and outbound). Failure to manage these risks effectively may impact the operations of Sigma and its revenue and profitability. Although wholesaler, franchisor, lessor and/or business lender relationships between non-pharmacists and pharmacists are well-established and accepted in Australia, the laws preventing non- pharmacists from holding a 'financial', 'ownership' or 'proprietary' interest in a pharmacy (depending on the jurisdiction) impact the commercial terms which can be agreed between the Merger Parties and their pharmacy customers. These laws may also make certain provisions in agreements between suppliers and pharmacies void. In States and Territories other than Queensland (where the law is proposed to be changed to align with other States), a franchisee of a Merger Party cannot open a new pharmacy, relocate or undergo a change of ownership without obtaining approval from the pharmacy regulator. If the regulator considers that the documents submitted with the application will give a non-pharmacist (e.g. a franchisor) an impermissible interest in the applicant pharmacy, the application may be rejected or the regulator may require changes to be made to the documents before the application will be approved. The pharmacy and the franchisor or other suppliers may in practice need to make the required changes even if they disagree with the regulator's position, to avoid a delay which adversely affects the pharmacy, which may impact financial performance of a Merger Party. A Merger Party could also be subject to regulatory action if a regulator considers that the Merger Party's arrangements with a pharmacy give a Merger Party an impermissible interest in the pharmacy or undue influence or control. The consequences were this to occur could include the imposition of criminal penalties or the possibility that the arrangements are declared void. Although some agreements, including franchise agreements, are reviewed by State and Territory pharmacy regulators when approvals are obtained, a risk of regulatory action may arise if the regulator considers that it was not aware of the full import of the arrangements between the Merger Party and a franchisee, or forms the view that the in-practice arrangements differ from the documents which were reviewed. Historically pharmacy stakeholders have been known to oppose proposed changes to Australia's pharmacy ownership laws and of agitating for regulatory intervention where a business model emerges (or is speculated) that they perceive as insufficiently protective of the interests of pharmacists, notwithstanding that some pharmacists may wish to participate in that business model. It is possible that pharmacy stakeholders may seek to disrupt the relevant Merger Party's or their community pharmacy franchisees' or wholesaler customers' growth or expansion into new areas or new activities, and/or to encourage regulators to do so. Pharmacy stakeholders may seek to argue in the public domain or in representations to government that aspects of a Merger Party's arrangements are or should be prohibited or void. If a Merger Party's compliance with (and support for) the pharmacist-owned community pharmacy model becomes a matter of public contention, confidence in the Merger Party's revenue base may be negatively impacted until the issues are resolved. Pharmacy stakeholders may also seek to argue for additional regulatory restrictions to be enacted which would negatively impact the Merger Parties and/or their franchisees or wholesale pharmacy customers compared to their respective competitors.

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