Post on 29-Dec-2015
Group Results 2003
Outline of presentation
• Financial Results André Vermeulen
• New Clicks Australia Jeff Sher (video)
• New Clicks South Africa Trevor
Honneysett
• Conclusion Trevor Honneysett
Financial Results
André Vermeulen
Performance
2003 2002 % change
Turnover (R’m) 7 368 5 488 34.3
Turnover growth excluding UPD
8.2
Headline earnings (R’m) 221 158 40.5
Headline EPS (cents) 65.6 52.2 25.7
Diluted headline EPS (cents) 64.5 49.7 29.8
Diluted HEPS increase adjusted for PM&A provision
13.4
Gross profit margin (%) 24.3 28.3 (14.1)
Operating profit margin (%) 5.2 5.8 (10.3)
ROE (%) 16.2 14.9 8.7
Headline earnings per share
Undiluted Diluted
At 31 August 2002 previously reported 70.3 66.9
PM&A impairment (18.1) (17.2)
Restated 31 August 2002 52.2 49.7
Increased by:
Acquisitions 16.3 16.3
Organic growth 5.1 5.1
Decreased by:
Cost of acquisitions (6.8) (7.3)
Impact of exchange rate movement (1.2) (1.2)
Impact of share options 1.9
At 31 August 2003 65.6 64.5
Performance per six months
1st half 2003
2nd half 2003 Total
Turnover
Total 3 437 3 931 7 368
Excluding UPD
Percentage
3 107
52.3
2 829
47.7
5 932
100.0
Headline earnings
Total 124 97 221
Excluding UPD
Percentage
114
62.3
69
37.7
183
100.0
Turnover
R’m 2003 2002 % change
Clicks 2 997 2 693 11.3
Discom 772 721 7.0
Music Division 482 439 9.8
Body Shop 46 27 68.6
Link – own brand 20 16 23.1
Total SA excl. UPD 4 317 3 896 10.8
UPD 1 431 -
Total SA 5 748 3 896 47.5
Australia 1 620 1 592 * 1.8
Total group 7 368 5 488 34.3
* Australia impacted by exchange rate & move to franchise model
2002
Southern Africa71%
Australia29%
Turnover - geographic contribution
2003
Southern Africa78%
Australia *
22%
* Australia impacted by exchange rate & move to franchise model
Turnover - Australia
AU$’000 2003 2002 % change
Turnover
Priceline 310 290 283 788 9.3
Priceline Pharmacy 3 460 -
House 2 022 3 048
Price Attack 785 -
NCA Total 316 557 286 836 10.4
House Franchisee turnover 89 615 68 496 30.8
Price Attack Franchisee t/o
Pharmacy Franchisee t/o
87 269
5 329
-
-
NCA Total (incl Franchisees) 498 770 355 332 40.4
Notes:
Priceline Pharmacy Sales = Distribution Fee of product sales to franchisees
House Sales = 1 Company Store & Import Sales. Last Year 2 stores operating
Price Attack = 2 Company Owned stores for part year
Gross profit margin - group
2003 2003 excl
UPD
2002
Gross profit 1 791 1 632 1 555
Gross profit margin (%) 24.3 27.5 28.3
Reduction in gross margin due to:
• UPD operates at a lower gross profit margin
• Impact of lower Lifestyle product contribution
ExpenditureR’000 2003 2002 % change
Clicks 514 176 475 839 8.1
Discom 175 320 177 406 (1.2)
Music Division 125 560 111 776 12.3
Body Shop 14 372 8 011 79.4
Link Investment Trust 23 010 23 452 (1.9)
Intercare 8 430 2 994 181.6
Shared Services – SA 322 137 269 199 19.7
Priceline 483 297 474 658 * 1.8
House 10 383 13 639 * (23.8)
Shared Services – Australia 107 639 101 587 * 6.0
1 784 324 1 658 561 7.5
Priceline Pharmacy 4 046 -
Price Attack 9 001 3 141
UPD 139 769 -
Total group 1 937 140 1 661 702 16.6* Impacted by exchange rate (total benefit of R51 865k) & move to franchise model
Expenditure
R’000 2003 2003 excl UPD
2002 % change
Depreciation 103 726 100 778 96 425 4.5
Occupancy costs 398 875 392 579 358 865 9.4
Employment costs 869 402 817 331 756 006 8.1
Other costs 565 137 426 683 450 406 (5.3)
Total 1 937 140 1 797 371 1 661 702 8.2
Operating profit
R’000 2003 2002 % change
Clicks 259 281 262 974 (1.4)
Discom (5 571) (20 637)
Music Division 25 675 21 470 19.6
Body Shop 10 017 5 176 93.5
Link Investment Trust (2 712) (2 801)
Intercare (962) (1 764)
Shared Services unallocated (7 376) 2 167
Total SA excl. UPD 278 352 266 585 4.4
UPD 54 304 -
Total SA 332 656 266 585 24.8
Australia 49 347 51 975 * (5.1)
Total group 382 003 318 560 19.9
* Australian profit in Rand adversely impacted by strong Rand
Operating profit - AustraliaAU$’000 2003 2002 % change
Priceline 29 594 21 943 34.8
Retail 24 424 21 943 11.3
Store sales 5 170 -
Priceline Pharmacy (397) -
House 2 257 2 301 (1.9)
Retail 2 257 1 701 32.7
Store sales - 600
Price Attack 3 518 (17)
Shared Services (20 158) (14 882) (35.6)
NCA Total 14 814 9 367 58.2
Retail 9 644 8 767 10.0
Store sales 5 170 600Notes:
Priceline Pharmacy = Costs for setup, late opening of stores
Priceline = 2 Stores converted to Pharmacies
Interest2003 2002
Net interest bearing debt to shareholders’ funds at year end
27.7% 28.0%
R’000 R’000 % change
Interest paid 88 760 70 684 25.6
Interest PM&A (net) - - -
Other interest received 4 643 3 464 34.0
Net interest paid 84 117 67 220 25.1• Increase in rates (Average 2003: 13.5%, 2002: 11.0%)
• Funding for acquisition of Price Attack (R72.2m / A$12.2m)• Increase in inventory
PM&A
R’m 2003 2002
PM&A EBIT
1st half (8.1) 0.2
2nd half 7.9 (15.3)
Total (0.2) (15.1)
Loan to PM&A 295.3 276.6
Interest charge 59.3 45.5
Provision against interest (59.3) (45.5)
PM&A
R’m
Shareholder deficit at Aug 2002 (78.3)
Post year-end adjustments (14.6)
Adjusted deficit (92.9)
Loss for the period (0.2)
Interest (59.3)
Goodwill (23.7)
Shareholder deficit at Aug 2003 (176.1)
Balance sheet
R’000 2003 incl. UPD
2003 excl. UPD 2002
% change excl. UPD
Fixed assets 751 843 684 423 617 767 10.8
Inventories 1 401 061 1 226 322 1 055 137 16.2
Accounts receivable 417 305 185 756 196 624 (5.5)
Accounts payable 1 373 743 990 976 887 542 11.7
Inventory2003 2002
Inventory turn (times) 5.4 5.2
Inventory (R’m) % change
Held at the DCs 255 203 25.6
Held at stores 695 538 29.2
UPD 175 -
Total SA inventory 1 125 741 51.7
Australia 276 314 (11.9)
Total inventory at year end 1 401 1 055 32.8
• Inventory turn in SA, incl. UPD 5.3 times
• Inventory turn in SA, excl. UPD 4.5 times (2002: 5.2)
• Inventory turn in Aus 5.9 times (2002: 5.1)
• Clicks - aggressive & successful promotions
• Discom - additional promotions during this period
• Body Shop growth - new stores & cosmetics range
• DC growth is apportioned to new suppliers
• Imports up 57% to R217m & landing earlier this year
• Music - lower sales & decentralised buying controls
Inventory levels
Loans to third parties
R’m 2003 2002
PM&A 295.3 276.6
Share trust 46.2 54.8
Franchise set-up (Aus) 37.3 -
Intercare professionals - 0.4
Other 5.2 -
Total 384.0 331.8
Cash flow
R’000 2003 2002
Operating activities 337 209 213 665
Investing activities (258 782) (310 034)
Property & equipment (198 595) (151 337)
Acquisition of subsidiaries 1 797 (89 723)
Investments (7 550) -
Loans (54 434) (68 974)
Financing activities 180 230 717
Net increase/(decrease) 258 657 (95 652)
Note: UPD acquisition through share issue
New Clicks Australia
Jeff Sher
New Clicks Australia – Review
• Shared service capability now in place
• Franchise skills developing
• Successful integration of Price Attack
• Formulated & started to roll out pharmacy model
• New management structure – ASF/OMF
• Restructured to meet future growth
• Leading the way in haircare, homeware & healthcare
New Clicks Australia – The new way
1. Selling of stores:
– Non-performers converted to Pharmacy
– Franchisees who do not meet compliance standards - managed
– Buying & selling now part of the business
– Not limited to Priceline
2. Profit centres:
– Marketing services
– Store development
New Clicks Australia – Behind the numbers
• One-off costs quite significant for pharmacy &
completion of Price Attack acquisition
• Anomalies in the House performance
• Pharmacy development
• Reallocation of costs to meet demands of
franchise business
Priceline - Snapshot
2003 2002
Sales A$’000
R’000
310 290
1 587 711
283 788
1 574 694
Sales growth % (A$)
% (R)
9.3
0.8
13.4
52.8
Comparable stores sales growth % (A$) 4.6 6.4
Operating profit before interest & before allocation of net costs of support structures
A$’000
R’000
24 424
124 974
21 943
121 758
Number of stores
Company owned 133 125
Number of full-time permanent employees 767 732
Weighted trading area m² 62 761 59 356
Net increase in trading area for the period % 5.7 6.3
Weighted annual sales per m² A$
R
4 930
25 226
4 393
24 376
Priceline Pharmacy - Snapshot
2003
Operating loss before interest & before allocation of net costs of support structures
A$’000
R’000
(397)
(2 029)
Number of stores
Franchised 7
Weighted trading area m² 2 999
Franchisee sales A$’m
R’000
5 329
27 263
Franchise fees A$’000
R’000
381
1 949
Priceline & Priceline Pharmacy
HIGHLIGHTS
• Appointment of Phillip Smith – brand leader
• Appointment of John Stapleton – merchandise head
• Restructure to meet demands of Pharmacy operations
• Repositioned in response to market
• 1.2m ClubCard members
• 15 new stores (7 pharmacies)
• Stock growth well below income growth
• Achieved good sales growth in tough market
Priceline & Priceline Pharmacy
KEY ACTION PLANS• Interlocking marketing
programme underpinned by “You Pay Less”
• Change to Priceline business model
• Changes to operational structure to deal with pharmacy
• Supplier relationships for middle shop product
• Investment in technology to cope with systems requirements
• Upgrade in security procedures
CHALLENGES• EDLP approach & Woolworths
aggression
• Pharmacy positioning
• Pharmacy supply chain
• Systems development
• Shrinkage
Priceline Pharmacy – Success factors
Conversions:
• Converting existing Priceline store (Prahran)
– Sales growing in excess of 40%
– Back & middle shop sales already at 18% - should double
• Converting existing pharmacy (Bentleigh)
– Script sales grown by 20%
– Front shop sales up from 10% to 75%
New site:
• Mornington
– Turnover A$45k per week from 300m²
– Front shop sales 50%
House - Snapshot
2003 2002
Operating profit before interest & before allocation of net costs of support structures
A$’000
R’000
2 257
11 548
2 301
12 768
Number of stores
Company owned
Franchised
1
90
-
82
Franchisee sales A$’m
R’m
89.6
459.5
68.5
380.1
Franchisee fees A$
R
3 632
18 584
2 949
16 363
House
HIGHLIGHTS• Brand Repositioning –
Inspirational Homewares• Appointment of Simon Dryden
& a restructured brand team • Developed a Local area
marketing approach• Developed strategic Supplier
relationships enhancements to other income to follow
• Achieved 23% growth in Franchise fees
• Won National Award for Retail Excellence
House
KEY ACTION PLANS• New marketing programme
& Pay-TV alliance• Redefine product
classification• Implementation of new
in-store positioning• Franchisee compliance • Upgraded receivables• Development of extranet &
enhancement to billing
CHALLENGES• Growth in competition• Sameness of product
• SARS – impact on import quantity
• Bad debts
Price Attack - Snapshot
2003
Operating profit before interest & before allocation of net costs of support structures
A$’000
R’000
3 518
17 999
Number of stores
Franchised 101
Franchisee sales A$’m
R’m
87.3
446.7
Store openings during the year 12
Price Attack
HIGHLIGHTS• Successful integration into
business• Resolved all franchise
agreements• Appointed Carmelo Francese as
the new brand leader• Resolved Master Franchisee in
Western Australia• Adopted a Marketing focus• Overcome supplier & franchisee
scepticism
Price Attack
CHALLENGES• Complexity of salon vs retail• Competition in Victoria• Transition from previous
culture• Private label acceptance
KEY ACTION PLANS• New store format• New customer
communication• Salon contract• Association with women’s
basketball• Local area marketing• Change of IT platform -
easier decision making
Shared Services
HIGHLIGHTS• Store development &
marketing services shift to nil cost
• Development of franchise skills
• JDA first phase completed• Developed an Integrated IT
pharmacy solution• Realigned costs from the
centre to brands
CHALLENGES• Moving from cost centre to
profit generation• Growth in staff numbers to
deal with franchise capability• Getting expense allocations
right with diversity of business models
• Office accommodation
New Clicks Australia – The year ahead
• Restructured – governance in place
• No additional funding required – store sale methodology
• Priceline positioning
• Store growth in pharmacy
• House marketing
• Price Attack – Victoria solution
• Systems development – Franchise
• Enhance capability – reduce costs
New Clicks South Africa
Trevor Honneysett
New Clicks South Africa – Review of the year
• Deregulation of pharmacy now a reality
• Lifestyle category in transition …
• … significant steps taken to address this
• “You Pay Less at Clicks” is back
• Benefits of UPD acquisition
• Improving performance from Discom
• PM&A performance improving as we move to integration
• Stock turn improvements not sustained
Clicks - Snapshot
2003 2002
Sales R’000 2 997 226 2 692 620
Sales growth % 11.3 15.4
Comparable store sales growth % 7.1
Operating profit before interest & after allocation of net costs of support structures R’000 259 281 262 974
Number of stores
Company owned
Franchised
260
14
248
13
Number of full-time permanent employees * 3 552 2 865
Weighted trading area m² 140 099 133 864
Net increase in trading area for the period % 4.7 5.4
Weighted annual sales per m² R 21 394 20 115
* During the year, a number of part-time employees became full-time employees, in terms of
the new Labour Relations Act
Clicks
HIGHLIGHTS
• Pharmacy now a reality• PM&A integration started• PM&A showing ongoing improvement• Brand decision for pharmacy taken –
Clicks• Focused leadership team• Integrated merchandising team• FMCG & Beauty continue
to do well
2002
43%
57%
2003
40%
60%
Lifestyle
Health &Beauty
Clicks turnover growth
R’m 2003 % increase
Lifestyle 1 203 4.0
Health & Beauty 1 794 18.3
2 997 11.3
Clicks
KEY ACTION PLANS• New core homeware range• Value proposition• Store presentation• “Expect to pay less”• Basket checks vs competitors• Promotions• Reduce operating costs• Greeters & aisle walkers• Focus on top 50 stores• Dedicated staff for home & beauty• Merchandising solution –
clustering & ranging
CHALLENGES• Reverse decline in homewares
• Price competitiveness
• Entire customer experience• In-store look & feel
• In stock position
Pharmacy
HIGHLIGHTS
• Multifunctional, implementation team set up
• Key legislation in place• Product & pricing benefits
through UPD• Better buying discipline• Centralised pricing• Reduced staff costs
• Improved shrinkage• Professional training• Disease management• Promotions
Pharmacy integration project
PROGRESS:
• Preparation work well underway
– Marketing, IT, Operations, OD, Category, Store development, Finance,
Legal, Change management
• Pilot store (Glengariff PM&A) -> Clicks Pharmacy on 3 Nov as a JV
• Planning to convert 4 other PM&A pharmacies in 2003
• First conversion of a newly opened Clicks store to JV Clicks Pharmacy
format in 2003
• For 2004:
– Other PM&A stores to convert
– Up to 17 new Clicks stores with Pharmacy
– Up to 40 Clicks refurbs with pharmacy
Pharmacy
KEY ACTION PLANS• Integration into Clicks• Category management/buying• In store promotions• Generic substitution• Phase-out of LinkMax• Focus on ICU stores• Integration of IT platform
• Medical aids• Build relationships with doctors• Sustain relationship with
government
CHALLENGES
• Sales & profit growth• Stock turn too slow
• Integration of pharmacy systems
• Relationship with funders • Relationship with doctors
Legal - Competitions Commission, pharmacy licenses,de-link, lease, JV, finance structure
Finance - Integrating 2 systems, debtors, feasibilities(new pharmacies, new partners), budgets
Store development - look and feel, low cost model,property issues
Operations - Operational structures, SOP’s, storeconversion procedures, training
OD/HR - Conditions of service, induction, performancedevelopment program, organizational development
Change Management - Leadership, interfacing,communication
Category - Ranging ‘new formats’, understanding ‘newproducts’
Marketing - Market offering around service, value,convenience and ClubCard. Signage, uniforms
IT - Development store systems, development hostsystems, testing. Ideal to follow
September October November December
Glengariff
13 3
BalfourPark
Rosebank
Atterbury
West CoastVillage
To follow next year: 75 other PM&A’s, Approximately 50 pharmacist enquiries,17 New Clicks Stores, 40 Clicks refurbs
Edgemead
20
27
4
9
9
Preparation/Ground Work Pharmacy Opening Schedule
UPD - Snapshot
2003
Sales R’000 1 431 304
Operating profit before interest & after allocation of net costs of support structures R’000 54 304
Inventory turn 10.9
Debtors days 30.4
Number of full-time permanent employees 576
UPD
HIGHLIGHTS
• Acquisition smoothly integrated
• Growth in turnover from PM&A
& independent pharmacies
• Retained most independent
pharmacy customers
• Clicks pricing on top FMCG lines
available to wider customer base
• Standardised terms on FMCG suppliers
• Solid profit performance enhanced by sound working capital
& cost management
UPD
CHALLENGES• Two franchise models in the
group• Increase turnover from Link
• Continue to add value to third party customers
KEY ACTION PLANS• Simplify Multicare offering
• Develop Link offering as premium banner
• Develop programmes to enhance Link pharmacy loyalty to UPD
• Concentrate on bringing Clicks pricing to wider customer base
Discom - Snapshot
2003 2002
Sales R’000 771 441 720 895
Sales growth % 7.0 12.1
Comparable store sales growth % 8.7
Operating loss before interest & after allocation of net costs of support structures R’000 (5 571) (20 637)
Number of stores
Company owned
Franchised
177
1
180
2
Number of full-time permanent employees 1 335 1 298
Weighted trading area m² 49 351 51 821
Net increase in trading area for the period % (4.8) 8.6
Weighted annual sales per m² R 15 632 13 911
Discom
HIGHLIGHTS
• Ongoing differentiation from Clicks
• Three hair salons opened
• Strong growth in ‘dry hair’ market
• Introduction of private label
• Bolstered leadership team
• Dedicated category leadership
Discom
KEY ACTION PLANS
• Improvement in lifestyle – currently
being evidenced
• Entrench dominant position in African
beauty & hair care
• Improve margin through a stronger
lifestyle & import programme
• Procure new store locations
• Implement POSware platform
& merchandise planning
CHALLENGES
• Decline in homewares business
• Return to profitability
Music Division - Snapshot
2003 2002
Sales R’000 482 287 439 333
Sales growth % 9.8 24.9
Comparable store sales growth % 9.6
Operating profit before interest & after allocation of net costs of support structures R’000 25 675 21 470
Number of stores
Company owned 138 135
Number of full-time permanent employees 545 496
Weighted trading area m² 17 134 16 154
Net increase in trading area for the period % 6.1 10.9
Weighted annual sales per m² R 28 148 27 197
Music Division
HIGHLIGHTS
• Market share growth despite
slowdown in national music sales
• Strong growth in DVD sales
• Popularity of local artists
• Major growth opportunity in
gaming & DVD
Music Division
KEY ACTION PLANS
• Repositioning from music to
broader entertainment products
– 70 stores by December
– Branded lifestyle accessory
range
• POSware retail store system
implemented by March 2004
• Major marketing drive for
Christmas
• Store plans: 7 new stores, 7 stores
relocated / revamped
CHALLENGES
• Maturity of CD format
• Global decline in CD sales
• Piracy & downloads
• Shrinkage
• Eliminating redundant stock
The Body Shop - Snapshot
2003 2002
Sales R’000 45 781 27 161
Sales growth % 68.6 -
Operating profit before interest & after allocation of net costs of support structures R’000 10 017 5 176
Number of stores
Company owned 18 11
Number of full-time permanent employees 75 69
Weighted trading area m² 942 344
Net increase in trading area for the period % 173.8 -
Weighted annual sales per m² R 48 600 -
The Body Shop
HIGHLIGHTS
• Strong sales growth
• Increased number of stores
nationally to 18
• Stock turn improves to 5.8
• Piloted first Body Shop in a
Clicks store - Tableview
The Body Shop
CHALLENGES• Slower than expected take
off of new stores in suburban areas
• Novelty factor of the brand wearing off
KEY ACTION PLANS• Catalogue mailings &
promotions programme• Focus on Christmas gifting -
accounts for 25% of sales• Opening five new stores• Four new concept stores
planned in Clicks stores
Supply Chain - what have we learned ?
• Expectations of stock turns 5x, 6x, 7x when Centralised
Distribution introduced
• Not achieving this - questions Centralised Distribution
• What we have learned :
– Previously focused on Supply side of Supply Chain i.e. DC’s
– Need to focus on Demand side of supply chain - category,
planning, promotions, replenishment & data integrity
Shared Services
DC efficiency improvements
R2.16
2.60% 2.93%
1.47%1.23%
R2.67
0.45%
57%66%
0.64%
19.53% 6.70%Group expenses vs transfer growth
Clicks/Discom cost to transfer
Clicks/Discom cost per shipper
Group cartage costs
Volume centralised
DC wastage
2002 2003
1
Demand Supply
MF/ SUP = Manufacturer/ Supplier 3rd P = 3rd Party Distributors POMS = Purchase Order Mngmnt System DC’s = Distribution Centres CAT = Category MER = Merchandising OPS = Operations CUST. = Customer
MF/ SUP
3rd P
POMS
DC’s
CAT
MER
OPS
CUST.
Investment needed now !
Supply chain ‘pipe’
Supply chain – ‘demand’ side
• Address physical store layout, merchandise
promotion, ranging
• Implemented merchandise planning from JDA for
lifestyle category
• Benefits already evident
New Clicks South Africa – The year ahead
• Roll-out & bedding down of pharmacies
• Continued focus on Lifestyle category
• Implementation of financial systems to improve speed &
quality of information
• Focus on stock distribution & management systems
• Continued focus on expense control – alignment of size of
shared services platform to the business
Summary of year ahead
• SA & Australia managed autonomously
• Pharmacy proving itself in Australia – expanded opportunity for growth
• Australia well positioned in a competitive market
• Pharmacy implementation in SA
• Emergence of Clicks as a pre-eminent healthcare brand
• UPD integral to healthcare plans
• Ongoing turnaround in Discom
• Continued focus on improvement of stock turns
Questions ?
Thank You