1 interim results 2004. 2 outline of presentation introduction financial results group operations...
TRANSCRIPT
1
Interim Results 2004
2
Outline of presentation
• Introduction
• Financial results
• Group operations
Ongoing consistent improvement
3
In our 2003 Annual Report
We said our business strategy was to:
• Strengthen & rejuvenate retail brands
• Introduce pharmacy into Clicks
• Drive efficiency & productivity – shared services
• Focus on improving stock turns
• Boost profitability – improved turnover & margin
• Create further value for shareholders
Progress in most areasbut still work to be done
4
In our 2003 Annual Report
We also said we would:
• Shift focus from strategy to delivery
• Aim for ROE target of 4% to 5% above cost of capital in
medium-term
• Address the composition of the board & increase the
number of independent non-executives
• Adopt a board charter
• Establish a nominations committee
5
Review of the period
• Disposal of Australian operations
• Turnaround in lifestyle category
• Value proposition of Clicks paying off
• Improved performance from Discom
• Continued benefits of UPD acquisition
• Turnover growth ahead of expense increase
• Continued focus on stock turn improvements
• Challenging pharmacy environment
• Transfer of pharmacy licences albeit delayed
• Single exit pricing legislation proposed
6
Financial Results
André Vermeulen
Ongoing consistent improvement
7
Performance (continuing operations)
Feb 2004
Feb 2003 % change
Turnover (R’m) 3 523 2 546 38.4
Turnover excl. UPD (R’m) 2 468 2 217 11.3
Headline earnings (R’m) 138 101 36.0
Headline EPS (cents) 38.8 31.5 23.2
Diluted headline EPS (cents) 38.2 30.3 26.1
Gross profit margin (%) 21.1 24.1 (12.4)
GP margin excl. UPD (%) 26.5 26.3 0.8
Operating profit margin (%) 6.5 6.7 (0.03)
ROE (%) 19.0 21.0 (9.5)
8
Headline earnings per share (continuing operations)
Undiluted Diluted
For six months to 28 February 2003 31.5 30.3
Increased by:
Net decrease in PM&A interest provision
1.2 1.7
Net impact of acquisition of UPD 1.5 1.2
Organic growth 4.6 4.4
Impact of share options - 0.6
For six months to 29 February 2004 38.8 38.2
9
Turnover
R’m Feb 2004 Feb 2003 % change
Clicks 1 693 1 522 11.2
Discom 452 392 15.4
Music Division 284 268 6.1
The Body Shop 29 25 14.2
Link – own brand 10 10 4.7
Total SA excl. UPD 2 468 2 217 11.3
UPD 1 055 329 *
Total SA 3 523 2 546 38.4
Australia 655 891 **
Total group 4 178 3 437 21.6* UPD included for 2 months in 2003 (comparatively up by 3.3%)
** Australia turnover impacted negatively by strong Rand, but only included for 4 months in 2004
10
Feb2003
Discom17.7%
Body Shop1.1%
Music12.1%
LIT0.4%Clicks
68.7%
Retail turnover by brand (South Africa)
Feb2004
Discom18.3%
Body Shop1.2%
Music11.5%
LIT0.4%Clicks
68.6%
11
Gross profit margin
Feb 2004
R’m
Feb 2004
%
Feb 2003
R’m
Feb 2003
%
SA – Retail 655 26.5 584 26.3
SA – UPD 90 8.6 30 9.2
Total SA 745 21.1 614 24.1
Australia 210 32.0 309 34.7
Total Group 955 22.9 922 26.8Impact on gross margin from:• Turnaround in Lifestyle category• Competitive pricing• Musica margin mix• Rand strength – particularly UPD
12
Expenditure – after cost allocationR’000 Feb 2004 Feb 2003 % change
Clicks 374 141 350 526 6.7
Discom 126 896 113 268 12.0
Music Division 87 534 80 676 8.5
The Body Shop 11 348 8 138 39.4
Link Investment Trust 6 815 9 623 (29.2)
Intercare 6 984 3 077 127.0
Total SA excl. UPD 613 718 565 308 8.6
UPD 88 836 26 977 *
Total SA 702 554 592 285 18.6
Australia 239 413 325 420 **
Total group 941 967 917 705 2.6* UPD included for 2 months in 2003 (comparatively up by 5.1%)
** Australian expenses impacted positively by strong Rand and only included for 4 months in 2004
13
Operating profitR’000 Feb 2004 Feb 2003 % change
Clicks 177 521 138 327 28.3
Discom 2 693 (4 820)
Music Division 10 929 19 999 (45.4)
The Body Shop 7 282 5 556 31.1
Link Investment Trust 852 987 (13.7)
Intercare (327) (362) 9.7
Total SA Retail 198 950 159 687 24.6
UPD 28 557 10 095 *
Total SA 227 507 169 782 34.0
Australia 41 606 44 778 **
Total group 269 113 214 560 25.4
* UPD included for 2 months in 2003 (comparatively up 11.5%)
** Australia profit benefited by strong Rand, but only included for 4 months in 2004
14
Interest
Feb 2004 Feb 2003
Net interest bearing debt to shareholders’ funds at period end
22.5% 24.1%
Net int. bearing debt (net of cash) to shareholders’ funds at period end
3.9% 24.1%
R’000 R’000 % change
Interest paid (40 737) (45 121) 9.7
Interest from PM&A 24 986 28 835 (13.4)
Interest impairment (24 986) (28 835) (13.4)
Other interest received 4 442 2 367 87.7
Net interest paid (36 295) (42 754) 15.1
• Decrease in rates (Ave prime H1 2004: 12.3%, H1 2003: 16.9%)
• Increase in inventory• Proceeds received from sale of Australia in February 2004
15
Taxation (group)
Feb 2004
Aug 2003
Feb 2003
Effective tax rate 29.9% 28.1% 28.0%
Impacted by:
• Unwinding of preference share structure in Australia
• Prior year – deferred taxation of R5m
• STC increased as no further scrip dividends
16
PM&A - performance
R’m Feb 2004
Aug 2003
Feb 2003
Turnover
Stores rebranded Hyperpharm
132 327 238 534 136 717
Other stores 328 384 714 454 323 511
Operating (loss)/profit
Stores rebranded Hyperpharm
(1 146) 5 779 2 280
Other stores (9 672) (5 956) (10 396)
Loan to PM&A 334.0 295.3 283.1
Interest charge 25.0 59.3 28.8
Provision against interest (25.0) (59.3) (28.8)
17
PM&A – shareholders’ deficit(including interest expense)
R’m
Shareholder deficit at Aug 2003 (176.1)
Post year-end adjustments (3.2)
Adjusted deficit (179.3)
Pre-acquisition losses – Leon Katz (14.9)
Loss for the period (10.8)
Interest (25.6)
Goodwill (12.2)
Shareholder deficit at Feb 2004 (242.8)
18
PM&A - take-on balance sheet at 1 March 2004R’m
Goodwill 173 978
Property & equipment 29 926
Investments 753
Inventories 131 811
Accounts receivable 36 367
Other assets 12 714
Total assets 385 549
Shareholders’ deficit (242 844)
Loan from New Clicks 496 293
Accounts payable 104 145
Other liabilities 27 955
Total equity & liabilities 385 549
Notes:
Subject to the finalisation of fair value adjustments, most of which are likely to be in respect of trademarks
Loan includes interest expense & is pre impairments
19
PM&A – goodwill on acquisition
Calculation:PM&A goodwill
+Shareholders’ deficit
-Loan impairment
+/-Fair value adjustments
=Goodwill on acquisition
20
Balance sheet
R’000Feb 2004
Aug 2003 excl. Aus
Feb 2003 excl. Aus
% change Feb to Feb
Property & equipment 636 269 613 570 568 492 11.9
Inventories 1 187 893 1 124 528 1 014 898 17.0
Accounts receivable 414 207 363 643 390 796 6.0
Accounts payable 1 041 803 1 141 858 824 583 26.3
21
Inventory
Feb 2004 Feb 2003 % change
Inventory turn (times)
SA Retail 4.7 5.1
UPD 11.1 10.4
Inventory (R’m)
Held at the DCs 211 316 173 603 21.7
Held at stores 805 472 674 767 19.4
UPD 171 105 166 528 2.7
Total SA inventory 1 187 893
1 014 898
17.0
22
• Clicks & Discom - aggressive & successful
promotions
- better on-shelf position
- more regular import programme
• Body Shop growth - new stores
- improved stock turns
Inventory levels
23
Loans to third parties
R’m Feb 2004 Feb 2003
PM&A 334.0 283.1
Share trust 70.0 61.3
Franchise set-up (Aus) - 9.2
Intercare professionals 24.4 2.9
Other 0.6 1.5
Total 429.0 358.0
24
Cash flow (group)
R’000 Feb 2004 Feb 2003
Operating activities (18 934) 76 529
Investing activities 180 858 (104 667)
Property & equipment (90 095) (79 793)
Acquisition of subsidiary (203) 3 572
Disposal of subsidiaries 328 353 -
Loans (57 197) (28 446)
Financing activities 5 002 (7 186)
Net increase/(decrease) 166 926 (35 324)
Note: UPD acquisition through share issue
25
Capital expenditureCapital expenditure during the period: R’m
Store refurbishments 35 008
New stores 7 148
Pharmacy conversions 1 621
IT 39 202
Other 8 130
Total 91 109
Forecast for the balance of the year to August 2004:
Store refurbishments 10 922
New stores 15 397
Pharmacy conversions 29 900
IT 41 758
Other 1 344
Forecast total expenditure 190 430
26
Sale of Australian operations
• The key reason for selling Australia was to concentrate
on the opportunity in SA
• Multiple on sale 14.2
• Profit on sale R4.5m
• Effective date 27 Dec 2003
• Cash repatriated Aus $87.3m
• Cash repatriation date 17 February 2004
• Effective exchange rate Aus $4.98 to R1
27
Group Operations
Trevor Honneysett
Ongoing consistent improvement
28
Clicks - snapshot
Feb 2004 Feb 2003
Sales R’000 1 693 253 1 522 393
Sales growth % 11.2 12.4
Comparable store sales growth % 7.9 8.6
Operating profit before interest & after allocation of net costs of support structures R’000 177 521 138 327
Number of stores
Company owned
Franchised
264
14
253
14
Number of full-time permanent employees 3 724* 3 400
Weighted trading area m² 144 258 138 960
Net increase in trading area for the period % 3.8 5.2
Weighted annual sales per m² R 21 910 20 450
* During the period, a number of part-time employees became full-time employees, in terms of the new Labour Relations Act
29
2003
42.3%
57.7%
2004
41.9%
58.1%
Lifestyle
Health &Beauty
Clicks - turnover growth
R’m Feb 2004 Feb 2003 % change
Lifestyle 709 627 13.1
Health & Beauty 984 895 9.9
1 693 1 522 11.2
30
Clicks
• Internal selling price inflation 3% - 4%
• Local purchase price inflation 3% - 4%
• Active ClubCard holders 2.1 m
• Gold card holders 720 k
31
Clicks
We said during 2004 we would:
• Improve the in-stock position ✔ but stock up
• Continued focus – “Expect to pay less” ✔
• Focus on uplifting in-store experience ✔ more to
come
• Enhance performance of top 50 stores ✔
• Introduce a new core homeware range ✔
• Aggressive promotional strategy ✔
• Reduce operating costs ✔
32
Clicks Pharmacy / PM&A
We said during 2004 we would:
• Open first 5 Clicks Pharmacies in 2003, subject to licences
• Convert most PM&A stores to Clicks during 2004
• Introduce pharmacies into many refurbished stores
• Introduce other disease management programmes
• Develop relationships with medical funders
What happened:
• Licences delayed – opened March 2004
• Now scheduled 2004 & 2005 due to licence delays
• Awaiting licences
• On track - next initiative May – 3 others planned for 2004/5
• Took time – all but one of the major schemes
33
Clicks performance
“Expect to pay less”
Inroads into visual
merchandising
Expense control
Heavy promotional
drive
Datamining initiatives
Improved lifestyle mix
Stock turnBetter in-
stock position
Turnaround started
Store refurbishment
on track
FMCG continues to
perform
34
Clicks - comparative pricing
Clicks Competitor A
Competitor B
Competitor C
Gauteng R2 711.71 R2 732.14 R2 721.89 R2 786.75
KZN R2 779.94 R2 769.74 R2 760.87 R2 790.32
E Cape R2 709.77 R2 755.16 R2 727.69 R2 781.78
W Cape R2 726.18 R2 743.16 R2 737.34 R2 804.58
Industry survey conducted by an independent research house
- basket of 132 items
Clicks cheapest in 3 out of 4 provincesbefore ClubCard benefits
35
Clicks - key action plans
• Further enhance homeware experience• Value proposition maintained• Continued focus on top 50 stores • Store presentation – 77 of 270 stores in 2004• Continued aggressive promotional programme• Maintain focus on costs• New datamining initiatives in May• Developing Clicks/Discovery Health alliance• Profitable pharmacy integration
36
37
38
39
Pharmacy performance
Delay in licences &
Clicks branding
Postal medicines
Time taken to secure agreements
with funders
Heavier medical aid discounting
Holding onto unsuitable stores
for licences
Disappointing resultsCompetitive pressure in Gauteng
Disease state mgmt on track
40
Pharmacy implementation
41
Pharmacy implementation
42
Pharmacy implementation
43
Pharmacy implementation
44
Pharmacy - key action plans
Challenges• Delay in licences &
Clicks branding
• Competitive pressure
Immediate responses• Aggressive promotions
for PM&A
Internal pricing comparison - top 148 lines:
Hyperpharm R4 581.01
AN Other Competitor R4 626.31
45
Pharmacy implementation continued
46
Pharmacy
Stores
Already converted to Clicks 5
Conversion in process: remain in current location 5
To be converted in current location 13
Second applications to move to Clicks store 27
Hyperpharm 14
Under review 16
Total 80
Approximate cost of conversion - pharmacy to Clicks Pharmacy R500 000
Approximate cost of combining - pharmacy into a Clicks store R600 000
47
Pharmacy
Environment remains uncertain
• Single exit pricing legislation
• Timing of licence approvals:• Balance of PM&A stores
• Applications for all new Clicks stores
• Second applications for transfers into Clicks stores
• Success of Hyperpharm
• Success of Clicks Pharmacy
Positive to date, but still early days
48
Pharmacy - key action plans
• Integration into Clicks – 5 stores done, next 4 by June/July
• Category management/buying further integrated with Clicks
• More focused & aggressive promotions
• Generic substitution going well & expanding
• PM&A to move closer to branding used in Clicks Pharmacy
• Hyperpharm introduced – monitored
• IT platform integration on track – automated centralised
pricing by August
• Sustain relationship with government
• Introduce Clicks Chronic Direct
49
50
UPD - snapshot
Feb 2004 Feb 2003 *
Sales R’000 1 055 409 329 393
Operating profit before interest & after allocation of net costs of support structures R’000 28 557 10 095
Inventory turn 11.1 10.4
Debtors days 35.8 38.7
Number of full-time permanent employees 580 572
* Two months
51
UPD
We said during 2004 we would:
• Provide group pricing benefits to independent customers to grow turnover
• Simplify the Multicare offering
• Develop the Link offering as a premium banner
• Develop programmes to enhance Link pharmacy loyalty to UPD
Progress
• Ongoing with some success so far
• Franchise model being reviewed
• Regional discussions complete
• National forum scheduled
52
UPD
Performance
• Trading profit up 11.5%
• Continued growth in turnover from PM&A & independent pharmacies
• Good cost control – 5.1% increase
• Continued sound working capital & cost management
Key action plans
• Continued dialogue with government
• Continued focus on service & value added services
• Increase volumes – industry rationalisation
53
Discom - snapshot
Feb 2004 Feb 2003
Sales R’000 452 164 391 732
Sales growth % 15.4 6.4
Comparable store sales growth % 12.75 9.5
Operating profit/(loss) before interest & after allocation of net costs of support structures R’000 2 693 (4 820)
Number of stores
Company owned
Franchised
178
1
178
2
Number of full-time permanent employees 1 529* 1 232
Weighted trading area m² 49 680 49 339
Net increase in trading area for the period % 0.7 (6.6)
Weighted annual sales per m² R 16 990 14 821
* During the period, a number of part-time employees became full-time employees, in terms of the new Labour Relations Act
54
Discom
We said during 2004 we would:• Return Discom to profitability in
2004• Improve margin - stronger lifestyle &
import programme • Close 12 stores, open 10 new
stores & relocate 3 stores• Have strong sales & margin growth
for ethnic beauty & hair care products
• Implement POSware platform & merchandise planning
Progress:
• On track
• Realising benefits
• Closed 5, opened 5 & relocated 4 so far
• Progressing well
• Still on track for August
55
Discom - performance
Strong growth in “dry hair”
Some inroads into visual
merchandising
Expense control
Improved lifestyle mix
Differentiation from Clicks &
market
Stock turn
Marginal improvement in shrinkage
Strong FMCG growth
On track – profit for 2004
Trading densities improved
Vitamin & health
products doing well
56
Discom - key action plans
• Procure new store locations
• Entrench dominant position in African beauty & hair care
• Continued & sustainable improvement in margin
• Continuing improvement in lifestyle offering
• Implement POSware platform & merchandise planning
• Exploit potential of inland consumer markets
• Continual improvements in store design for new stores
• Focused promotion activity
57
Music Division - snapshot
Feb 2004 Feb 2003
Sales R’000 284 333 268 041
Sales growth % 6.1 10.6
Comparable store sales growth % 4.5 8.9
Operating profit before interest & after allocation of net costs of support structures R’000 10 929 19 999
Number of stores
Company owned 139 137
Number of full-time permanent employees 567 558
Weighted trading area m² 21 904 17 185
Net increase in trading area for the period % 27.5 5.4
Weighted annual sales per m² R 24 231 29 115
58
Music Division
We said during 2004 we would:
• Reposition from music to broader entertainment products
– 70 stores by December 2003
– Branded lifestyle accessory range
• Implement POSware retail store system by March 2004
• Major marketing drive for Christmas
• Open 7 new stores, relocate / revamp 7 stores
Progress:
• On track and being expanded
– 98 stores converted by Dec 2003 (106 currently)
– In stores by December 2003
• Done
• Flat Christmas sales
• On track: 5 opened, 3 upgraded & 3 closed to date
59
Music Division - performance
• Musica
– Declining trend in CD sales
– Gaming, DVD’s & lifestyle products grew from 8.3% to 16.5% of sales
• CD Wherehouse
– Drop in CD sales
– Strong growth in DVD sales
– DVD biggest category in 2 of 4 CDW stores
• Expense growth ahead of sales growth
• We believe we are moving in the correct direction with entertainment
60
Music Division - key action plans
• Continuing repositioning from music to broader
entertainment products
• Store plans: 4 new stores, 2 stores relocated &
2 revamped
• Aggressive price promotions
• Collaboration with NuMetro & Ster Kinekor to dominate
DVD market
61
The Body Shop - snapshot
Feb 2004 Feb 2003
Sales R’000 28 433 24 903
Sales growth % 14.2 106.6
Operating profit before interest & after allocation of net costs of support structures R’000 7 282 5 556
Number of stores
Company owned 21 13
Number of full-time permanent employees 80 63
Weighted trading area m² 1 154 802
Net increase in trading area for the period % 43.9 253.0
Weighted annual sales per m² R 45 992 57 962
62
The Body Shop
We said during 2004 we would:• Continue to show growth but at a slower
rate• Heighten brand awareness through
catalogue mailing & promotions• Focus on Christmas gifting• Introduce new range of sun care & hair
care products• Open five new stores
• Introduce four new concept stores in Clicks stores
✔
✔
✔✔
3 opened, 2 to open in April
✔
63
The Body Shop
Performance• Good sales growth• Good cost control• Increased number of stores nationally to 21• Stock turn improves to 6.25
Key action plans• Promotions programme & radio advertising• Opening two new stores• ClubCard points - earned at Body Shop from May• Tight control on costs with further savings
64
Shared Services
We said we would:• Align shared services
infrastructure with the needs of the brands
• Improve the management of stock in stores
• Implement a new financial system
• Improve the speed & quality of information
Progress:• On track
• Disappointing progress
• Phase 1 complete – balance on track
• On track
65
The next six months
• Integration of pharmacies
• Continued focus on lifestyle category
• Clicks to be the pre-eminent health, home & beauty brand
• UPD integral to healthcare plans
• Increase volumes in UPD
• Increasing profitability in Discom
• Enhancing entertainment offering in music
• Focus on stock distribution & management systems
• Continued focus on expense control
Ongoing consistent improvement
66
Questions ?
Ongoing consistent improvement
67
Thank You
Ongoing consistent improvement