Transcript Document

Analyst Presentation 2002
Welcome
Programme
• Strategic Review
• Financial Results
• Healthcare
• New Clicks Australia (NCA) Review
• New Clicks South Africa (NCSA) Review
• Questions
Strategic Review
• Vision
• Mission
• Positioning Statement
Our Vision
We wish to be a world-class trans-national player,
specialised and highly networked with local market
responsiveness and accountability, rapid distribution
capability, adding value to the quality of life through
the convenient supply of health, home and beauty
products and services with a preferential interactive
relationship with our customers
Our Mission
To be a major multi-brand retailer of Health,
Lifestyle and Beauty products in the Asia Pacific
Region by 2005, without limiting our activities and
dominance in southern Africa
Our Positioning Statement
We are world-class originators and distributors of a
range of compelling and differentiated health,
lifestyle and beauty retail products and services to
multiple brand formats in a variety of ownership
models.
GSF
Trevor Honneysett…..
David Nurek………….
Allen Zimbler…………
Errol Gray…………….
Jeff Sher……………..
Peter Green………….
Raymond Godfrey…..
Simon Burrow……….
Simon Kilner…………
George Meiliunas……
Group Leader
Non-Executive Chairman
Non-Executive Director
NCSA Country Leader
NCA Country Leader
Group Finance
Group Merchandise
Group Marketing
Group IT/Supply Chain
Group OD
Agenda
• High-level financial overview
• Purchase Milton & Associates
• Healthcare update - South Africa
Financial Results
for year ending
31 August 2002
Income Statement
• Turnover
• Operating Profit
• Operating Margin
Excluding Discom
• Operating Profit
• Operating Margin
R5.5bn
R318m
+25.7%
+21.3%
5.8%
+31.9%
7.04%
Goodwill
Link
House
Price Attack
Total
Balance Sheet
Rm
16.120
78.304
88.078
Income Statement
Rm
0.895
9.042
1.419
182.502
11.346
Accounts Receivable
• Increases due to:
– acquisitions
– franchisees
SA
Aus
2002
Rm
120.353
76.271
2001
Rm
82.630
24.640
Total
196.624
107.270
Accounts Payable
• Increases due to extending terms
Cash Flow
• Big Improvement
– Improving Working Capital
Cash Flow from Operating
2002
2001
Rm
Rm
296.927
145.337
Future Focus
• Continue to focus on:
– Asset turnover (stock turn goal 7x over 3 years)
– Cash generation
– Improving margins (goal still 8%) - (UPD will
lower margin but has high asset turnover)
• Resulting in improving:
– Returns and EVA (ROE goal still 30%)
Strengthened Financial
structure as we go forward
• Appointment of CFO in each geography
• Focus on efficiency improvements
• Trans-national project:
– cost centres to profit centres - franchising
– process innovation to reduce overall costs
– strict financial regime
Loan to Pharmacy (PM&A)
2002
Rm
276.900
45.5
11.4
2001
Rm
239.028
10.1
4.0
Loan
Interest charge
Cost recovery
• Interest turn
• Fees income Link
• Loan impairment & recoverability
PM&A
• They are budgeting high profit growth as they
consolidate
• Some of the largest stores were acquired
• Acquisitions stopped - consolidation phase convert to largest and most profitable chain of
Pharmacies in SA
• Operating profit could exceed 10% if we
could integrate (7% otherwise)
• Cash generating
Healthcare
SA
NCH
New Clicks Holdings
South Africa
Funding &
Suspensive Sale
56%
LIT
PM&A
Franchise
Stores
100%
Ownership
248 Stores
76 Stores
R2 Billion
R1 Billion
NCH
Fees for
Services
New Clicks Holdings
South Africa
Wholesale
Margin &
Rebates
Interest
56%
LIT
Franchise
Fees,
LOB,
Rebates
Franchise
Stores
Funding
PM&A
100%
Ownership
Different store ownership
models
• There will always be franchise (LINK)
– income from fees, rebates,
wholesale profits
but if law allows there will also be:
• pharmacies in Clicks & Discom
• 100% ownership (PM&A)
• JV (80%:20% for any of the brands)
Centralised services model
Owned Stores
(100%:0%)
Merchandising
OD / HR
Marketing
Logistics
IT
Fin & Admin
Joint Venture Stores
(80%:20%)
Store Design
Store Develop
Supply Chain
Distribution
Buying
Store Services
Franchise Stores
(0%:100%)
New Clicks
South Africa
100% now; JV in
future
56%
Funding
DISCOM
CLICKS
LIT
PM&A
Franchise
Stores
182 Stores
261 Stores
248 Stores
76 Stores
R721 Million
R2,7 Billion
R2 Billion
R1 Billion
PRESENT PHARMACY NETWORK
DESIRED FUTURE PHARMACY NETWORK
The Objective
A nationwide network of +/- 800 efficient,
compliant, professional and profitable
pharmacies within various ownership
models
The Integrated Healthcare Model
Back
Shop
Front
Shop
Pharmacy
Retail consumer
health
Clinical
Care
Intercare
• A close relationship with the doctors who
prescribe
• Objective is to improve pharmacy turnover
• Pilot project
Link Investment Trust
•
•
•
•
Budgeting for break-even
Funding new initiatives
Link - The best known pharmacy brand
Income from
– franchise fees - potential for new
members,
– rebates
– own brands
UPD transaction reminder
• R 2 billion turnover, NPAT R43m
• Transaction to be funded through issue of
39 024k New Clicks shares at R7.20
• P/E for valuation was 6.5x
• Earnings enhancing
• Awaiting approval from Competition
Commission
Healthcare Legal Issues
Status of Law
•Ownership
–still awaiting regulations
–under-serviced areas - Discom
–need urban stores as well (PM&A)
•Single Exit Pricing
–schedule 3, some only
–modelling difficult for total pharmacy
–believe no impact on UPD
• Court Case
State of the Industry
• Healthcare in SA is in crisis
• Need for greater affordability & access
• Potential changes to Legislation
– Lay ownership/deregulation
– Professional Fee
– Dispensing Doctors
• Fragmented Industry
• Opportunities for greater efficiencies
• We are the best suited to play a role
Jeff Sher Country Leader
Agenda
•
•
•
•
•
Introduction - a perspective
The year in review
Our pharmacy model
The year ahead
Summary
August 2001
Australian
Management Forum
Shared Services
2001/02 Performance
Results – Aug 2002
• Sales
up 13.9%
• Operating Profit
up 22.9%
Results – Aug 2002
• Franchise Income
up 99.2%
• Operating Profit
up 117.5%
• Store Growth
10
NOTE! Pre-allocation of Support Office costs
House Key Issues
• Response to competitive environment
through differentiation
- Private label
- Direct imports
• Government home loan scheme ends
• Competent team now in place
• NZ on hold due to supply chain complications
Results – Aug 2002
• Sales
Up 13.2%
• Operating Profit
Up 10.34%
• Store Growth
9
NOTE! Pre-allocation of Support Office costs
Priceline Key Issues
• Why did we only open 9 stores
• Intense competition – our response
– Lifestyle category repositioning
– Differentiation through imports
– Loyalty - a positive outcome
• Leverage to be gained with Price Attack
• Margin focus
• Loyalty - a positive outcome
• Stock levels - growth due to strategic
opportunity
• Operating Profit - 7.61% to sales
A Snapshot
• 94 stores
• Average turnover per store - $950 000
• Franchise fees - 5% on sales
• Advertising fee - 3% of sales
• Local area marketing - 1% of sales
• Master franchise arrangement - WA, SA 1% franchise fee, 3% marketing fee
Opportunities
• Synergy with Sunday Group - access to
1800 formulations
• Private label
• Easily transported
• Monopolistic environment
• High margin
•
•
•
•
•
Make-up of the industry
Regulatory environment
Our offer
How income is generated
Store growth
• Number of pharmacies in Australia:
Approximately 4,900
• Bannered pharmacies:
• Approximately 1,900 (39%)
Retail Pharmacy Sales Mix
Retail Pharmacy
$6.5b
Prescriptions
$4.1b
72%
OTC
$2.4b
S2/S3
$550m
Non Sched
$639m
Non Pharm.
$1.2b
WHOLESALERS
SIGMA
API
MAYNE
Amcal
395
Soul Patt
230
Terry White
105
Chemmart
255
Guardian
264
Chemworld
131
Healthsense
110
Full Life
40
Pharm Adv.
91
Med. Shoppe
7
Wholesaler & Pharmacist
Relationship
• Wholesalers guarantee loans for pharmacists to
acquire pharmacies.
• The pricing mechanism for pharmacists is artificially
inflated, 1:1 ratio of turnover to goodwill
• Pharmacists align to a banner through loose
agreement
• Distribution on a twice-a-day basis
• Banner groups offer marketing programmes and some
operational support
• Private label products are key to the relationship
Regulatory environment
• Agreement between Government & Pharmacy Guild
• No corporation can have pecuniary interest
• Geographic restriction
• Usage clause restriction - landlord
• Limit to numbers in shopping centres
• Regulations applied by Pharmacy Board - layout of stores
• Approval numbers
• Pharmacy Act - differs in each state
Pharmacy Paradox
Prescriptions & medicines
back of store
Front of
store
Sales
70%
30%
Costs
20%
80%
Margins
10%
32%
Our Offer
•
•
•
•
•
Category management - increased margin
Rebalance front and back of shop - increase sales
Common IT platform
Marketing programme - including ClubCard
Retail services (merchandising and space
management)
• The Pharmacy Academy
• Operational focus - shopfloor productivity
• Brand equity
Benefits for Fees
•
•
•
•
•
•
Annual franchise fee - a flat amount
Distribution fee linked to purchases on front of shop
IT annual maintenance fee
Marketing fee linked to marketing programme costs
Supplier rebates
Significantly - no capital employed
Store Growth
• Three Opportunities
• Existing Pharmacies convert to Priceline model
• Convert Priceline stores to Pharmacies through a
franchise arrangement
• Secure new locations and through a relationship
with pharmacists acquire approval numbers
• Objective
• 14 - 20 Stores secured by August 2003
• 1000 by ??
The Year Ahead
The Year Ahead –
Store Growth
14 - 20
13
12
16
AMF
A Committed Team - Going Places
Jeff Sher………………
George Meiliunas……
Alan Wein…………….
Amanda Brook……….
Rob Ellis………………
Bradley Wein…………
Andrew Grant………..
Simon Burrow………..
Trevor Harris…………
Country Leader
Organisational Development
Brand Leader - House
Brand Leader - Priceline
Brand Leader - Price Attack
Franchising
Logistics/IT
Marketing
Finance
Summary
A Positive Outlook
•
•
•
•
•
Price Attack, full year of profit
Controlled growth of costs
Loyalty to deliver
Leverage gains in merchandise
Roll-out of pharmacy
Errol Gray Country Leader
Agenda
• NCSA performance
• NCSA achievements
• NCSA year ahead
NCSA Performance
Sales
up 17.1%
Operating Profit
up 15.3%
Comparative without Discom
Sales up 18.2%
Operating profit up 27.2%
Clicks Performance
Sales
up 15.4%
Operating Profit
up 23.7%
Store Growth
21
Clicks Existing Store Growth
12
10
% increase
8
2001/2002 Cumulative
2000/2001 Cumulative
6
4
2
0
September October November December January
February
March
April
May
June
July
August
Clicks Key Issues
• Repositioned Clicks - Live Life Beautifully
• CRM loyalty programme
- Data mining
- ClubCard relaunch
• Aggressive store upgrade
• Stock reduction
• Service campaign
• New healthcare statement
- 20 stores
Discom Performance
Sales
up 12.1%
Operating Profit
Down
Stores
Refurbished
Discom Existing Store Growth
14
12
% increase
10
8
6
2001/2002 Cumulative
2000/2001 Cumulative
4
2
0
September October November December January February
-2
-4
March
April
May
June
July
August
Discom Key Issues
• Focus on re-engineering the margin mix
• Exploring new primary health statement in store
• Test a hair salon in Mitchell’s Plain store
• Continue to develop private label
• Ongoing focus on expenses
• Ethnic haircare focus - R100m in sales
• Leadership
Music Division Performance
Sales
up 24.9%
Operating Profit
up 104%
New Stores
7
Music Existing Store Growth
16.00
14.00
12.00
% increase
10.00
8.00
6.00
4.00
2.00
0.00
-2.00
-4.00
2001/2002 Cumulative
2000/2001 Cumulative
Music Division Key Issues
• Maintaining margins
• Increased stockturns
• CDW opening two new stores
• Market dominance - 35%
• Bucking international market trends
• Leadership
The Body Shop Performance
Sales
R27.1m
Operating Profit
R3.4m
Store Growth
11
The Body Shop Key Issues
• Mature brand internationally
• New in SA - years of growth ahead
• Brand being revitalised internationally
• First corporate to be awarded a Master Franchise
NCSA Achievements
• Stock management
• Discom repositioning
• Data mining
• SAMF
Stock Management
• Next year goal R250m improvement
• Centralising imports, single item
picking, algorithms
• Stock turn 5x, 6x, 7x, over next years
to generate cash (JIT)
NCSA DC's
Year on Year Stock
R 375,000,000
R 350,000,000
R 325,000,000
Selling Value (Rands)
R 300,000,000
R 275,000,000
R 250,000,000
R 225,000,000
R 200,000,000
R 175,000,000
R 150,000,000
R 125,000,000
R 100,000,000
R 75,000,000
R 50,000,000
R 25,000,000
R0
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Financial Months
Apr
May
Jun
Jul
Aug
1998/1999yr
1999/2000yr
2000/2001yr
2001/2002yr
NCSA Stocks
1500000
1400000
1300000
2001/2002
1200000
2000/2001
value
1100000
1000000
900000
800000
700000
600000
S
O
N
D
J
F
M
month
A
M
J
J
A
The Year Ahead - Store Growth
24
8
7
9
SAMF
Errol Gray……………..
Andre Vermeulen…….
Lara Bryant……………
Trevor Vroom…………
Mike Harvey…………..
Colin Robb……………
Monica Goertz………..
Simon Kilner………….
Byron Hofmeyr……….
Country Leader
Finance
Marketing & Merchandise
Brand Leader - Clicks
Brand Leader - Discom
Brand Leader - Music Division
Brand Leader - Healthcare
Supply Chain
IT
Year Ahead
• Sustainable stockturn improvement
• Discom profitability
• Healthcare integration and performance
• Clicks revitalisation
• Focused brand performance
Our Positioning Statement
We are world-class originators and distributors of a
range of compelling and differentiated health,
lifestyle and beauty retail products and services to
multiple brand formats in a variety of ownership
models.
Thank You