SCL HUB 2024 Presentation - Matt Addison, Alliance Healthcare

I'll stay away from that, she's got all the knowledge, so if I can't answer a question, I'll have a really good go and I'll get corrected. You're here to talk about supply chain sustainability and ESG. If you're here expecting all the answers, I'm sorry, I haven't got them. What I'm hoping is within this room, you help me with some of my answers as we travel forward. I firmly believe as we all go on our sustainability journey, it is firmly about collaboration — collaboration in sector and across sectors. Alliance Healthcare — anyone heard of us? Hopefully our vans haven't cut you up. I've been with Alliance Healthcare for about five and a half years. Prior to that, 17 years with P&G, and before that four years in builder's merchants. Then I ended up in pharmaceutical drugs. Technically, we are both the biggest legal drug dealers in the UK — you're not recording this, are you? Alliance Healthcare has 43% market share by volume. If you go into any pharmacy in the country, you're likely to pick up one of our products. Our purpose is united in our responsibility to create healthier futures — that's part of our global vision. Alliance Healthcare in the UK is part of Cencora, which was just knocked out of the Fortune 10 — dropped to 11, Chevron knocked us down one spot. Cencora is $262 billion annual revenue with 46,000 employees worldwide. Alliance Healthcare Europe was taken over by Cencora on May 31, 2021 — before that, we were part of WBA, Walgreens Boots Alliance. In the UK, we serve 17,500 pharmacies, dispensing doctors, all hospitals, with twice-daily delivery and Saturday morning — 11 deliveries a week. I've got a fast nimble lunchtime pick and a high-volume evening pick for morning replenishment. If you get a prescription at morning surgery, the pharmacist says 'I can get it this afternoon' — our vans are out by 2:00 and at the pharmacy by 5:00. One in three products I ship end up in the NHS. Every lateral flow test during COVID came through me. We supply pharmacies, GPs, home care with nurses going into people's houses, clinics, prisons, and the MOD. Supply chain complexity: controlled drugs requiring Home Office approved vaults, cold chain between 2 and 8 degrees, ambient, bulk, bespoke surgical dressings — all shipping across the country. I've got 11 regional service centers, 60 link points — secure GDP-compliant buildings with 3 to 20 vans breaking bulk for national twice-a-day coverage — plus three central service centers. I also distribute everything in Boots stores through 12 cross-stock centers, legacy from the WBA ownership. Sustainability challenge: 1,100 long-wheelbase temperature-controlled vans that still run when parked to maintain temperature, plus about 500 heavy goods vehicles, all mine because I'm time-critical. How do you get that to net zero with all that diesel and temperature control? It's the right thing we all have to face into.

We've literally just done that in the last few months. We changed our company car policy to make it attractive for people to take electric or hybrid — we didn't force it. By getting really good deals, we've seen a switch to 93% battery, plug-in hybrid, or hybrid. The tax allowance makes a massive difference. At some point we'll draw the line, but we're going softly, softly. For HGVs, every time I read a new article it's hydrogen, it's electric. For the miles we do, what's available isn't feasible yet. We're keeping an eye on that. As part of Cencora, we've signed up to the Science Based Targets initiative. I'd counsel you — we chose after COP26 in Glasgow to make this move. Before that, it wasn't talked about at the executive table. It just felt like the right thing to do. We resourced it, but struggled with the dialogue — internally and with manufacturers, partners, and customers. We have two sets of customers: manufacturers like Pfizer and GSK, and pharmacy chains. How do we talk to them in a common language? My recommendation is to use the UN Sustainable Development Goals and relate all your ESG activity back to those 17 goals. You need a different language with your FD or CFO. The investment process is different. We're not doing this to just add cost to the P&L — it will either pay off now or you should anticipate taxes coming. But we can't just saddle the business with cost — it won't exist. Electric cars are significantly more expensive but have high residual value. Solar panels on van roofs proved they eliminated diesel. We are obliged to make those routes and deliveries — I can't trim routes. We deliver to hospitals on timing because clinics depend on those medicines. We're constrained, and that's what we accept because we serve patients. Six key challenges: One — no long-wheelbase temperature-controlled electric van existed. We've now worked with Mercedes to bring one into the country. Treat the first vans as a pilot. I've got 1,200 drivers to convert — they'll just run out of charge, so I need a recovery process. Two — charging infrastructure. DNO capacity problems, sites where other industry has already bought the higher thresholds. We're working on commercial closed-loop charging with Royal Mail, police, ambulance — a commercial network. Three — HGV fuel, likely hydrogen. Four — aging facilities, gas heating conversion, and the financial model to support it. Five — scope 3 is a whole different beast. Six — data literacy: battery life, charging cycles, mileage per kilowatt hour, carbon reporting. None of that exists in my business today.

We've done a pilot on an electric van. We took the straight range and reduced it by 80% and said that's the route. I'd counsel you all — just get a van, borrow a van. Manufacturers will lend you one for 4 weeks, 8 weeks, 3 months, because it helps you understand how it'll be accepted in your business. The new Mercedes coming in will have a range of about 150 miles. We're targeting London routes — not high mileage, just slow — to get more vans in and understand how we work. Country routes with high mileage and low volume — we've got more work to do.

There's about four things we've learned. Some vans are in link points and those drivers typically go home — not every driver can park off-road and plug in. We've got to understand that dynamic. Vans based at sites go back every night where we'll install charging — varying degrees of speed, some fast charging for rotation, more conventional 7kW for most vans. We'll rotate them through the night because you won't have one charger per van. Then a closed network — talk to manufacturers because even servicing changes: you drop the van off and stipulate how much charge you expect back, because servicing takes it out of its normal charging cycle. All of this we've got to learn, which is why we want the first phase of vans into three sites.

We've done trials on HGVs, but the network's not there for us with our usage. We had a Volta truck in central London — the driver loved it. I think they've gone into liquidation, but hopefully they come back. We're now looking at hydrogen and engaging with manufacturers. But my priority is the vans — that's where most of my carbon is. The HGV solution will come in due course. You've got to tie these into your asset replacement cycle. I'm now replacing vans — so in four years I've got to be ready with an electric solution. My HGVs were replaced a couple of years ago, so I've got a bit longer. You've got to be looking at your asset lives and being ready for renewal.

Right, okay, you're probably a little bit further ahead of us on those HGVs. Literally a couple of slides left. It would be remiss of me not to talk about all the other ESG activity beyond carbon and diesel. We've actually built that up over the last two years. You've got to look at the whole gamut, not just carbon — otherwise your organization becomes quite polarized. The other things I'd counsel: what are your customers' challenges? The NHS's biggest carbon issue is disposing of inhalers. We go to pharmacies twice a day, so we can collect all of that and take it back to be properly recycled. We can collaborate to help others remove their carbon, because at some point we'll need that favor returned. Two overriding points: reducing carbon requires collaboration — within sector, across sectors. It needs to be done cost-neutral for your P&L. That's the challenge, and you've got to work hard. My team keeps coming to me wanting to spend money, and I say no — it's got to still make the right financial sense. That's the last slide. You've seen all of my slides — any other questions in the 10 seconds we have left?

My lorries go out full. They come back absolutely empty — there's space on those vehicles. If I had a magic wand and it was my business and I wasn't commercially minded, I would go to my direct competition who also run vans twice a day to every pharmacy and say, 'You know what? We can't have a formal partnership, but can we deliver together?' That's the commercial challenge within my business. Some big retailers have done this — they're not competing in the supply chain, they're competing on the shelf. It's changing that mindset: 'I can do this, it's the right thing for the environment — go compete on price elsewhere.' I do deliver for third-party chemists who don't have a fleet — I take the carbon. But Alliance Healthcare and Phoenix, my direct competition, are running fleets the same as me. That would be my magic wand. Okay, super. Thank you for listening. Thanks. Stacy.