Clicks Group Limited · JSE:CLS
Clicks — H1 2006 Earnings Presentation
44 slides from Clicks's earnings presentation, 2006
Slide 1: Interim results for the six months ended 28 February 2006
Interim results for the six months ended 28 February 2006
Slide 2: Outline of presentation
Outline of presentation Strategy & objectives Review of the period Financial results Operational review Prospects Medium-term goals Questions
Slide 3: Strategy & objectives
Strategy & objectives David Kneale
Slide 4: Strategy
Strategy Specialist retail group … range + value + trust Focus on … health + beauty + entertainment + homewares Operating through multiple formats … to target different customer groups Organised to be … efficient & cost effective … focus on delivery
Slide 5: Strategy (continued)
Strategy (continued) Barriers Priorities Few measures Clear targets Shared accountabilities Clear accountabilities Complexity Make business simpler Lack of planning Get the basics right
Slide 6: Medium-term goals
Medium-term goals Delight our customers Motivated & competent people Improve ROE
Slide 7: Review of the period
Review of the period David Kneale
Slide 8: Review of the period
Review of the period Satisfactory turnover growth Clicks performance stabilising Strong performance from other brands Headline earnings up 8.1% … business in transition
Slide 9: Review of the period (continued)
Review of the period (continued) New leadership New systems ■ Management information starting to flow ■ Business processes being adapted New financial reporting ■ Implementation of IFRS ■ Accounting standards
Slide 10: Financial results
Financial results Keith Warburton
Slide 11: Turnover
Turnover Feb Feb % same R’m 2006 2005 change store % change Clicks 2 463 2 296 7.3 10.0 Discom 541 491 10.1 5.7 Entertainment 418 353 18.5 12.2 The Body Shop 35 33 5.4 1.6 Other 4 2 57.0 Total - Retail 3 461 3 175 9.0 9.5 UPD 1 838 1 426 28.9 Intragroup turnover (301) (223) 34.9 Total group 4 998 4
Slide 12: Gross profit margin
Gross profit margin Feb 2006 Feb 2006 Feb 2005 Feb 2005 R’m % R’m % Retail 973 28.1 895 28.2 UPD 60 3.3 60 4.2 Total 1 033 20.7 955 21.8 Group margin down due to UPD UPD margin down due to ethical mix UPD margin no longer includes logistics fees under IFRS Retail margin stable Group surplu
Slide 13: Total income
Total income Feb 2006 Feb 2005 Increase R’m R’m % Retail 1 088 994 9.5 Gross profit 973 895 8.7 Other revenue 115 99 16.1 UPD 158 140 12.5 Gross profit 60 60 (0.7) Other revenue 98 80 22.3 Total 1 246 1 134 9.8
Slide 14: Operating expenditure
Operating expenditure Feb Feb % R’m 2006 2005 change Clicks 511 477 7.1 Discom 133 118 11.7 Entertainment 97 85 14.6 The Body Shop 13 12 11.5 UPD 105 100 5.7 Shared services & other 160 133 20.1 Total group 1 019 925 10.1
Slide 15: Operating expenditure (continued)
Operating expenditure (continued) % Feb Feb R’m chang 2006 2005 e Depreciation & amortisation 51 50 2.7 Occupancy costs 155 148 4.5 Employment costs 465 406 14.3 Other operating costs 348 321 8.6 Total group operating expenditure 1 019 925 10.1 Increase in employment costs impacted by: Payment to
Slide 16: Operating profit
Operating profit R’m Feb Feb % 2006 2005 change Clicks 186 168 10.6 Discom 30 20 51.2 Entertainment 46 30 52.2 The Body Shop 7 6 3.2 UPD 53 41 29.1 Shared services & other (67) (56) (18.3) Group surplus shrinkage provision (28) Total operating profit 227 209 8.5
Slide 17: Impact of adjustments
Impact of adjustments Prior to Profit after taxation Feb Feb Aug August R’m 2006 2005 2005 2004 Share options (2.9) (2.5) (5.4) (9.0) Re-recognise trademarks - - - 260.4 Inventory adjustment 2.4 (3.2) (14.0) (113.4) Irrecoverable debtors - - - (25.1) Leave pay & bonus 6.8 9.7 (0.1) (13.0) Onerous le
Slide 18: Inventory
Inventory Turn (times)* Inventory (R’m) Feb Feb Feb Feb 2006 2005 2006 2005 Clicks 6.2 5.8 744 769 Discom 4.7 5.0 217 197 Entertainment 5.2 4.9 151 135 The Body Shop 8.7 7.9 7 7 Other 4.9 3.9 1 1 Total Retail 5.8 5.6 1 120 1 109 UPD 12.4 13.1 277 232 Intragroup (3) (3) inventory Total inventory 6.7
Slide 19: Cash – utilisation
Cash – utilisation R’m Feb 2006 Feb 2005 Cash from operations (pre dividends) 239 197 Increase in accounts receivable (279) (132) Decrease in accounts payable (349) (172) Decrease/(increase) in inventory 46 (89) Shares issued 39 47 Other cash inflow - 6 (304) (143) Fixed asset purchases (64) (73) Lo
Slide 20: Distribution to shareholders
Distribution to shareholders Cash distribution of 11.2 cents Distribution out of share premium ■ Earnings enhancing ■ Cash flow benefit
Slide 21: Financial priorities
Financial priorities Enhancing financial management ■ Including final shrinkage numbers Tighter expense control Cash flow generation ■ Continued stock reduction ■ Other working capital management … improving ROE
Slide 22: Operational review
Operational review Michael Harvey & David Kneale
Slide 23: Clicks – category performance
Clicks – category performance Feb Feb % R’m 2006 2005 chang e Healthcare 759 696 9.1 Beauty 914 835 9.5 Lifestyle & other 790 765 3.3 2 463 2 296 7.3 2006 30.3% 2005 30.8% Healthcare Beauty Lifestyle & other 36.4% 32.1% 37.1% 33.3%
Slide 24: Clicks – store performance
Clicks – store performance 5.9% increase in transactions to 32.6 million Attracting new customers ■ Pharmacy ■ Value-based promotions Front shop baskets ■ ClubCard +1.4% ■ Non-ClubCard +10.5% Opportunity to convert new customers to ClubCard
Slide 25: Clicks – store performance (continued)
Clicks – store performance (continued) Comparable store sales growth Stores with dispensaries 17.2% Stores without dispensaries 4.6% All stores 10.0% Stores with dispensaries ■ Front shop an additional 5% ■ Total store growth 17% Load-up going to plan in existing stores … currently 100 dispensar
Slide 26: Clicks – pharmacy focus areas
Clicks – pharmacy focus areas Volume growth ■ ClubCard holders (30% converted in 5 months) ■ OTC
Slide 27: Clicks – OTC merchandising
Clicks — OTC merchandising harge a dispensing % OF GQ maximum
Slide 28: Clicks – OTC merchandising
Clicks – OTC merchandising
Slide 29: Clicks – pharmacy focus areas
Clicks – pharmacy focus areas Volume growth ■ ClubCard holders (30% converted in 5 months) ■ OTC Operating efficiency ■ Optimal staffing model, including clinics ■ Building future capacity – accredited training academy Gross margin ■ Constructive relationship with Department of Health
Slide 30: Clicks – other priorities
Clicks – other priorities Margin management ■ Product mix ■ Private label products (currently 13.2% of sales)
Slide 31: Clicks – private label product
Clicks – private label product
Slide 32: Clicks – other priorities
Clicks – other priorities Margin management ■ Product mix ■ Private label products (currently 13.2% of sales) Stock management ■ Reducing stock levels ■ ….but focus on improving availability ■ Shrinkage …trend improving Store standards & customer service … getting the basics right
Slide 33: Clicks - summary
Clicks - summary Volume growth 10 new stores Consolidating pharmacy Margin opportunities Stock management Empowering people … focus on delivery of strategy
Slide 34: Discom
Discom Turnover - Lifestyle up 10.7% - FMCG up 9.0% Performance highlights ■ Strong Christmas ■ Inland division Operating margin up from 4.1% to 5.6% Focus ■ Driving existing store sales ■ Stock management … continuing to realise potential
Slide 35: Entertainment
Entertainment Turnover: DVD, gaming & lifestyle increased from 26% to 33% of sales Operating margin up from 8.6% to 11.1% Growth opportunities ■ Extending the offer – Virgin Mobile ■ Widening access – 3 pilot stores in rural areas ■ Building E-commerce capability – up 59% … broader entertainme
Slide 36: The Body Shop
The Body Shop Turnover up 5.7% Comparable stores up 1.6% Operating margin 18.8% ‘Love Your Body’ loyalty programme launched New make-up stands being rolled out L’Oreal acquisition of Body Shop International not expected to impact local franchise … brand generating healthy returns
Slide 37: UPD
UPD Turnover growth boosted by strong increase in ■ Sales to hospitals ■ Sales to Clicks Margin impacted by higher volumes of ethical products Expenses well-managed to 5.7% of sales (2005: 7.0%) Operating margin maintained at 2.9% Prospects ■ Awarded contract by MediClinic / Disamed ■ Lea
Slide 38: Summary & outlook
Summary & outlook David Kneale
Slide 39: Prospects
Prospects Trading in line with expectations 21 new stores anticipated by year end Pharmacy rollout continues ■ Building volume ■ Improving operational efficiency ■ Pricing clarity Improving working capital … increasing profitability
Slide 40: Medium-term goals
Medium-term goals Delighting our customers ■ Building health & beauty authority ■ Building our entertainment proposition Motivated & competent people ■ Strengthened HR function ■ Better performance management Improving ROE ■ Higher operating profit ■ Better stock management ■ More efficient ca
Slide 41: Handout only slides
Handout only slides
Slide 42: Interest
Interest Debt Average Feb 2006 Feb R‘m rate R’m 2005 R’m Structured rate debt 191.5 16.3 (16.9) (21.9) Variable rate 7.2 (16.9) (5.8) Total interest paid (33.8) (27.7) Interest received 3.8 1.2 Net interest paid (30.0) (26.5)
Slide 43: Clicks – pharmacy stores
Clicks – pharmacy stores Non- Clicks integrated stores with Total pharmacies dispensaries Aug 2005 29 60 89 Closed / sold (9) - (9) Transferred (8) 8 - New - 12 12 Feb 2006 12 80 92 Close / sell (3) - (3) Transfer (8) 8 - New - 21 21 Aug 2006 1 109 110
Slide 44: Retail – store footprint
Retail – store footprint Committed Aug 2005 Opened Closed Feb 2006 new stores H2 2006 Clicks 286 13 (3) 296 10 Non-integrated pharmacies 29 - (17) 12 - Discom 179 10 (6) 183 5 Entertainment 139 7 (5) 141 6 The Body Shop 27 2 (1) 28 - Style Studio 3 - - 3 - Total 663 32 (32) 663 21 (company owned sto