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Interim Results 2004

An overview of the financial results and ongoing improvement strategies for a retail company, including progress made and challenges faced in various areas of the business.

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Interim Results 2004

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  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)

  8. Booklet only Headline earnings per share(continuing operations)

  9. Turnover * 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. Booklet only Retail turnover by brand (South Africa)

  11. Gross profit margin Impact on gross margin from: • Turnaround in Lifestyle category • Competitive pricing • Musica margin mix • Rand strength – particularly UPD

  12. Expenditure – after cost allocation * 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 profit * 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. Booklet only Interest • 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. Booklet only Taxation (group) • 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

  17. Booklet only PM&A – shareholders’ deficit(including interest expense)

  18. Booklet only PM&A - take-on balance sheet at 1 March 2004 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. Booklet only PM&A – goodwill on acquisition Calculation: PM&A goodwill + Shareholders’ deficit - Loan impairment +/- Fair value adjustments = Goodwill on acquisition

  20. Booklet only Balance sheet

  21. Inventory

  22. Booklet only Inventory levels • Clicks & Discom - aggressive & successful promotions - better on-shelf position - more regular import programme • Body Shop growth - new stores - improved stock turns

  23. Booklet only Loans to third parties

  24. Cash flow (group) Note: UPD acquisition through share issue

  25. Booklet only Capital expenditure

  26. Booklet only 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. Booklet only Clicks - snapshot * During the period, a number of part-time employees became full-time employees, in terms of the new Labour Relations Act

  29. Booklet only Clicks - turnover growth

  30. Booklet only 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. 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 Clicks Pharmacy / PM&A

  33. Clicks performance “Expect to pay less” Heavy promotional drive FMCG continues to perform Datamining initiatives Inroads into visual merchandising Improved lifestyle mix Turnaround started Expense control Better in-stock position Store refurbishment on track Stock turn

  34. Clicks - comparative pricing 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. Pharmacy performance Delay in licences & Clicks branding Heavier medical aid discounting Holding onto unsuitable stores for licences Competitive pressure in Gauteng Disappointing results Disease state mgmt on track Postal medicines Time taken to secure agreements with funders

  37. Pharmacy implementation

  38. Pharmacy implementation

  39. Pharmacy implementation

  40. Pharmacy implementation

  41. Challenges Delay in licences & Clicks branding Competitive pressure Immediate responses Aggressive promotions for PM&A Pharmacy - key action plans Internal pricing comparison - top 148 lines: Hyperpharm R4 581.01 AN Other Competitor R4 626.31

  42. Pharmacy implementation continued

  43. Booklet only Pharmacy Approximate cost of conversion - pharmacy to Clicks Pharmacy R500 000 Approximate cost of combining - pharmacy into a Clicks store R600 000

  44. Booklet only 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

  45. 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

  46. Booklet only UPD - snapshot * Two months

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