Group Results 2003

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


A$’000

R’000

2 257

11 548

2 301

12 768

Number of stores

Company owned

Franchised

1

90

-

82


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


A$’000

R’000

3 518

17 999

Number of stores

Franchised 101


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 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



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


Net increase in trading area for the period % (4.8) 8.6


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




Number of stores

Company owned 138 135





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 -


Number of stores

Company owned 18 11


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

Documents

Group Results 2003