interim results 2004

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


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


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


• 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

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


42


43


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

50

UPD - snapshot

Feb 2004 Feb 2003 *

Sales R’000 1 055 409 329 393


Inventory turn 11.1 10.4

Debtors days 35.8 38.7

Number of full-time permanent employees 580 572

* Two months

51

UPD


• 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



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


Net increase in trading area for the period % 0.7 (6.6)


* 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




Number of stores

Company owned 139 137





58

Music Division


• 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



Number of stores

Company owned 21 13


Weighted trading area m² 1 154 802



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


66

Questions ?


67

Thank You


interim results 2004

Documents