Clicks Group Limited · JSE:CLS
Clicks — New Clicks Holdings — H1 2004 Earnings Presentation
67 slides from Clicks's earnings presentation, 2004
Slide 1: Interim Results 2004
NEW CLICKS HOLDINGS { LIMITED = Interim Results 2004 uo
Slide 2: Outline of presentation
Outline of presentation • Introduction • Financial results • Group operations Ongoing consistent improvement 2
Slide 3: In our 2003 Annual Report
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
Slide 4: In our 2003 Annual Report
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
Slide 5: Review of the period
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 • C
Slide 6: Financial Results
Financial Results André Vermeulen Ongoing consistent improvement 6
Slide 7: Performance (continuing operations)
Performance (continuing operations) Feb Feb 2003 % change 2004 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 ma
Slide 8: Headline earnings per share
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 1.2 1.7 provision 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
Slide 9: Turnover
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 groupfor 2 months in 2003 (compa
Slide 10: Retail turnover by brand (South Africa)
Retail turnover by brand (South Africa) Feb Feb 2004 2003 Discom Discom 18.3% 17.7% Body Body Shop Shop 1.2% 1.1% Music Music 11.5% 12.1% LIT LIT Clicks 0.4% Clicks 0.4% 68.6% 68.7% 10
Slide 11: Gross profit margin
Gross profit margin Feb Feb Feb Feb 2004 2004 2003 2003 R’m % R’m % 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 26.8 Impact on gross margin from: • Turnaround in Lifestyle category • Competitive pricing • Musica
Slide 12: Expenditure – after cost allocation
Expenditure – after cost allocation R’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
Slide 13: Operating profit
Operating profit R’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 5
Slide 14: Interest
Interest Feb 2004 Feb 2003 Net interest bearing debt to 22.5% 24.1% shareholders’ funds at period end Net int. bearing debt (net of cash) to 3.9% 24.1% shareholders’ funds at period end R’000 R’000 % change Interest paid (40 737) (45 121) 9.7 Interest from PM&A 24 986 28 835 (13.4) Interest impairme
Slide 15: Taxation (group)
Taxation (group) Feb Aug Feb 2003 2004 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 15
Slide 16: PM&A - performance
PM&A - performance R’m Feb Aug Feb 2003 2004 2003 Turnover Stores rebranded 132 327 238 534 136 717 Hyperpharm Other stores 328 384 714 454 323 511 Operating (loss)/profit Stores rebranded (1 146) 5 779 2 280 Hyperpharm Other stores (9 672) (5 956) (10 396) Loan to PM&A 334.0 295.3 283.1 Interest ch
Slide 17: PM&A – shareholders’ deficit
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)
Slide 18: PM&A - take-on balance sheet at 1 March 2004
PM&A - take-on balance sheet at 1 March 2004 R’m Goodwill 173 978 Property & equipment 29 926 Notes: Investments 753 Subject to the Inventories 131 811 finalisation of fair Accounts receivable 36 367 value adjustments, Other assets 12 714 most of which Total assets 385 549 are likely to be in respec
Slide 19: PM&A – goodwill on acquisition
PM&A – goodwill on acquisition Calculation: PM&A goodwill + Shareholders’ deficit - Loan impairment +/- Fair value adjustments = Goodwill on acquisition 19
Slide 20: Balance sheet
Balance sheet R’000 Aug 2003 Feb 2003 % change Feb 2004 excl. Aus excl. Aus 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 20
Slide 21: Inventory
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 1 014 17.0 893 898 21
Slide 22: Inventory levels
Inventory levels • Clicks & Discom - aggressive & successful promotions - better on-shelf position - more regular import programme • Body Shop growth - new stores - improved stock turns 22
Slide 23: Loans to third parties
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 23
Slide 24: Cash flow (group)
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 increas
Slide 25: Capital expenditure
Capital expenditure Capital 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
Slide 26: Sale of Australian operations
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
Slide 27: Group Operations
Group Operations Trevor Honneysett Ongoing consistent improvement 27
Slide 28: Clicks - snapshot
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 264 253 Franchised 14 14 Nu
Slide 29: Clicks - turnover growth
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 2004 2003 Lifestyle 41.9% 42.3% Health & Beauty 58.1% 57.7% 29
Slide 30: Clicks
Clicks • Internal selling price inflation 3% - 4% • Local purchase price inflation 3% - 4% • Active ClubCard holders 2.1 m • Gold card holders 720 k 30
Slide 31: Clicks
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 ✔
Slide 32: Clicks Pharmacy / PM&A
Clicks Pharmacy / PM&A We said during 2004 we would: What happened: • Open first 5 Clicks Pharmacies • Licences delayed – opened in 2003, subject to licences March 2004 • Convert most PM&A stores to • Now scheduled 2004 & 2005 Clicks during 2004 due to licence delays • Introduce pharmacies into many
Slide 33: Clicks performance
Clicks performance Heavy FMCG “Expect to Datamining promotional continues to pay less” initiatives drive perform Inroads into visual Turnaround started Improved lifestyle mix merchandising Better in- Store Expense stock refurbishment Stock turn control position on track 33
Slide 34: Clicks - comparative pricing
Clicks - comparative pricing Industry survey conducted by an independent research house - basket of 132 items Clicks Competitor Competitor Competitor A B 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 Cap
Slide 35: Clicks - key action plans
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 Cl
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Slide 39: Pharmacy performance
Pharmacy performance Delay in Heavier Holding onto licences & medical aid unsuitable stores Clicks branding discounting for licences Competitive pressure in Disappointing results Gauteng Time taken to Postal Disease state secure agreements medicines mgmt on track with funders 39
Slide 40: Pharmacy implementation
Pharmacy implementation Step 1 Application for transference of ownership of 80 stores 40
Slide 41: Pharmacy implementation
Pharmacy implementation Step 2 33 licences granted 41
Slide 42: Pharmacy implementation
Pharmacy implementation Step 3 5 Clicks branded store open Further roll-out 42
Slide 43: Pharmacy implementation
Pharmacy implementation Step 4 Launch of 12 ~*9)(CXGEEEED stores as the price fighting’ “model
Slide 44: Pharmacy - key action plans
Pharmacy - key action plans Challenges Immediate responses • Delay in licences & • Aggressive promotions Clicks branding for PM&A • Competitive pressure Internal pricing comparison - top 148 lines: Hyperpharm R4 581.01 AN Other Competitor R4 626.31 44
Slide 45: Pharmacy implementation continued
Pharmacy implementation continued 45
Slide 46: Pharmacy
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 Approxi
Slide 47: Pharmacy
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 Positive to date, • Success of Clicks Pharmacy but
Slide 48: Pharmacy - key action plans
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 • Hype
Slide 49: Clicks Pharmacy
i WIC LICKS Pharmacy | 49
Slide 50: UPD - snapshot
UPD - snapshot Feb 2004 Feb 2003 * Sales R’000 1 055 409 329 393 Operating profit before interest & after allocation of net costs of support structures R’000 28 557 10 095 Inventory turn 11.1 10.4 Debtors days 35.8 38.7 Number of full-time permanent employees 580 572 * Two months 50
Slide 51: UPD
UPD We said during 2004 we would: Progress • Provide group pricing • Ongoing with some benefits to independent success so far customers to grow turnover • Simplify the Multicare offering • Franchise model being • Develop the Link offering as reviewed a premium banner • Regional discussions • Develop
Slide 52: UPD
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 service
Slide 53: Discom - snapshot
Discom - snapshot Feb 2004 Feb 2003 Sales R’000 452 164 391 732 Sales growth % 15.4 6.4 Comparable store sales growth % 12.75 9.5 Operating profit/(loss) before interest & after allocation of net costs of support structures R’000 2 693 (4 820) Number of stores Company owned 178 178 Franchised 1 2 Nu
Slide 54: Discom
Discom We said during 2004 we would: Progress: • Return Discom to profitability in 2004 • On track • Improve margin - stronger lifestyle & import programme • Realising benefits • Close 12 stores, open 10 new stores & relocate 3 stores • Closed 5, opened 5 & • Have strong sales & margin growth reloca
Slide 55: Discom - performance
Discom - performance Vitamin & Strong Differentiation Improved health growth in from Clicks & lifestyle mix products doing “dry hair” market well Some inroads into visual On track – profit for 2004 Stock turn merchandising Strong Trading Marginal Expense FMCG densities improvement control growth imp
Slide 56: Discom - key action plans
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
Slide 57: Music Division - snapshot
Music Division - snapshot Feb 2004 Feb 2003 Sales R’000 284 333 268 041 Sales growth % 6.1 10.6 Comparable store sales growth % 4.5 8.9 Operating profit before interest & after allocation of net costs of support structures R’000 10 929 19 999 Number of stores Company owned 139 137 Number of full-tim
Slide 58: Music Division
Music Division We said during 2004 we would: Progress: • Reposition from music to broader • On track and being entertainment products expanded – 70 stores by December 2003 – 98 stores converted by – Branded lifestyle accessory range Dec 2003 (106 currently) • Implement POSware retail store system by
Slide 59: Music Division - performance
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
Slide 60: Music Division - key action plans
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 60
Slide 61: The Body Shop - snapshot
The Body Shop - snapshot Feb 2004 Feb 2003 Sales R’000 28 433 24 903 Sales growth % 14.2 106.6 Operating profit before interest & after allocation of net costs of support structures R’000 7 282 5 556 Number of stores Company owned 21 13 Number of full-time permanent employees 80 63 Weighted trading
Slide 62: The Body Shop
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 3 opened, 2 • Introduce four
Slide 63: The Body Shop
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
Slide 64: Shared Services
Shared Services We said we would: Progress: • Align shared services • On track infrastructure with the needs of the brands • Improve the management • Disappointing progress of stock in stores • Implement a new financial • Phase 1 complete – system balance on track • Improve the speed & quality • On
Slide 65: The next six months
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
Slide 66: Questions ?
Questions ? Ongoing consistent improvement 66
Slide 67: Thank You
Thank You Ongoing consistent improvement 67