Sigma and CWG Merger Risks and Management Overview

NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES Key Risks - - 56 Risks that are Common to Both Sigma and CWG Whilst the majority of the following risks affect both Sigma and CWG (each a Merger Party for the purposes of the risks in Appendix E), certain elements of the risks, should they eventuate, would affect each standalone business differently, and not necessarily in a proportionately equivalent way. Key Risk Operating in a regulated environment, regulatory reform and other legislative changes Summary Both Merger Parties may be affected by changes to government policies and legislation, including those relating to the pharmaceutical industry (including in relation to the PBS or, for Sigma, community service obligations (CSO)), the community pharmacy sector (to which the Merger Parties supply products and services), taxation, the regulation of trade practices, competition, franchisees or other legal or regulatory changes which could impact the structure and/or operations of each Merger Party's business. As a pharmaceutical wholesaler, any adverse changes to the PBS generally or in relation to PBS medicines sold by Sigma could lead to lower prices being paid for medicines which may lead to a lower regulated distribution margin. Sigma has no control over any PBS price adjustments. Furthermore, any changes to the pharmacy location rules, or which reduce the PBS revenue available to community pharmacies, may negatively impact the viability of some community pharmacies (which are wholesale customers of Sigma or franchisees to which the Merger Parties supply), and which may reduce demand for the products and services supplied by a Merger Party. Under an agreement between the Commonwealth Government, the Pharmacy Guild of Australia and the Pharmaceutical Society of Australia, the Federal Government established a CSO funding pool in recognition of the costs faced by pharmaceutical distributors such as Sigma in providing the full range of PBS medicines to pharmacies, particularly when distributing to remote geographic regions. The CSO arrangements are highly regulated under Deeds of Agreement between the Commonwealth Government and CSO wholesalers, including Sigma. There is no guarantee that the CSO funding pool will continue to be available or will not be reduced over time, that there will be no changes to the way in which payments to eligible beneficiaries are calculated, that Sigma will be able to meet any changing criteria to be eligible to access the funding pool, or that future community pharmacy agreements may not bring about other changes that impact Sigma's pharmaceutical distribution business and potentially make it less profitable. In this case, Sigma may need to reconsider its business model and determine whether being a signatory to the CSO deed continues to be commercially viable. There is the possibility of other changes to pharmaceutical industry regulation or government policy, which may impact the respective businesses of the Merger Parties. For example, changes which increase the range of pharmaceuticals which can be sold in general retail outlets rather than only in pharmacies, will reduce sales of such goods by community pharmacies and therefore reduce wholesale demand from pharmaceutical wholesalers and pharmacy distributors. Other regulatory changes that reduce the need for end customers to visit community pharmacies (e.g. recent regulatory changes in Australia that extended the maximum allowable supply of certain prescription medications from 30 days to 60 days), may result in reduced PBS contributions or margins for community pharmacies for a variety of reasons including increased pack size, and may also reduce footfall in pharmacy customers of the Merger Parties and therefore also reduce sales of "front of store" products. Any of these changes could have a material adverse effect on a Merger Party's financial performance. Given both Merger Parties operate in a highly regulated environment, the Merger Parties are inherently exposed to the risk of non-compliance with applicable laws and regulations (which may be inadvertent), including in their respective capacities as a sponsor of TGA registrations for Pharmaceuticals, wholesaler, distributor, importer, franchisor, advertiser, employer, lender and recipient of personal and health information (e.g. through their respective websites). The failure of a Merger Party to comply with any applicable laws and regulations may lead to negative publicity, claims by third parties, enforcement actions by regulators (including regulatory and judicial orders that may lead to a cessation or curtailing of operations) and potential civil or criminal fines or penalties, as well as, in Sigma's case, loss of access to the CSO funding pool. This may require changes to a Merger Party's business model or operations which may increase cost or impact on their ability to generate revenue. If any of the above were to occur, it could result in a material adverse effect on a Merger Party's operations and financial performance, reputation or competitive position.

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