Transcript Slide 1

Interim Results 2004
1
Outline of presentation
• Introduction
• Financial results
• Group operations
Ongoing consistent improvement
2
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 areas
but still work to be done
3
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
4
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
5
Financial Results
André Vermeulen
Ongoing consistent improvement
6
Performance (continuing operations)
Feb 2004
Feb 2003
% change
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 margin excl. UPD (%)
26.5
26.3
0.8
6.5
6.7
(0.03)
19.0
21.0
(9.5)
Operating profit margin (%)
ROE (%)
7
Headline earnings per share
(continuing operations)
Undiluted
Diluted
31.5
30.3
Net decrease in PM&A interest provision
1.2
1.7
Net impact of acquisition of UPD
1.5
1.2
Organic growth
4.6
4.4
-
0.6
38.8
38.2
For six months to 28 February 2003
Increased by:
Impact of share options
For six months to 29 February 2004
8
Turnover
R’m
Clicks
Discom
Music Division
The Body Shop
Link – own brand
Total SA excl. UPD
UPD
Total SA
Australia
Total group
Feb 2004
Feb 2003
1 693
452
284
29
10
2 468
1 055
3 523
655
4 178
1 522
392
268
25
10
2 217
329 *
2 546
891 **
3 437
% change
11.2
15.4
6.1
14.2
4.7
11.3
38.4
21.6
* 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
9
Retail turnover by brand (South Africa)
Feb
2004
Feb
2003
Discom
17.7%
Body
Shop
1.1%
Music
12.1%
Discom
18.3%
Body
Shop
1.2%
Music
11.5%
Clicks
68.6%
LIT
0.4%
Clicks
68.7%
LIT
0.4%
10
Gross profit margin
Feb 2004
R’m
Feb 2004
%
Feb 2003
R’m
Feb 2003
%
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 margin mix
• Rand strength – particularly UPD
11
Expenditure – after cost allocation
R’000
Clicks
Discom
Music Division
The Body Shop
Link Investment Trust
Intercare
Total SA excl. UPD
UPD
Total SA
Australia
Total group
Feb 2004
374 141
126 896
87 534
11 348
6 815
6 984
613 718
88 836
702 554
239 413
941 967
Feb 2003
350 526
113 268
80 676
8 138
9 623
3 077
565 308
26 977 *
592 285
325 420 **
917 705
% change
6.7
12.0
8.5
39.4
(29.2)
127.0
8.6
18.6
2.6
* 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
12
Operating profit
R’000
Feb 2004
Feb 2003
% change
Clicks
177 521
138 327
28.3
2 693
(4 820)
Music Division
10 929
19 999
(45.4)
The Body Shop
7 282
5 556
31.1
852
987
(13.7)
(327)
(362)
9.7
198 950
159 687
24.6
Discom
Link Investment Trust
Intercare
Total SA Retail
UPD
28 557
Total SA
227 507
Australia
41 606
Total group
269 113
10 095 *
169 782
34.0
44 778 **
214 560
25.4
* 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
13
Interest
Feb 2004
Feb 2003
22.5%
24.1%
3.9%
24.1%
R’000
R’000
% change
(40 737)
(45 121)
9.7
Interest from PM&A
24 986
28 835
(13.4)
Interest impairment
(24 986)
(28 835)
(13.4)
4 442
2 367
87.7
(36 295)
(42 754)
15.1
Net interest bearing debt to
shareholders’ funds at period end
Net int. bearing debt (net of cash) to
shareholders’ funds at period end
Interest paid
Other interest received
Net interest paid
• 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
14
Taxation (group)
Effective tax rate
Feb 2004
Aug 2003
Feb 2003
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
PM&A - performance
R’m
Feb 2004
Aug 2003
Feb 2003
Stores rebranded Hyperpharm
132 327
238 534
136 717
Other stores
328 384
714 454
323 511
Stores rebranded Hyperpharm
(1 146)
5 779
2 280
Other stores
(9 672)
(5 956)
(10 396)
Loan to PM&A
334.0
295.3
283.1
Interest charge
25.0
59.3
28.8
(25.0)
(59.3)
(28.8)
Turnover
Operating (loss)/profit
Provision against interest
16
PM&A – shareholders’ deficit
(including interest expense)
R’m
Shareholder deficit at Aug 2003
Post year-end adjustments
Adjusted deficit
(176.1)
(3.2)
(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)
17
PM&A - take-on balance sheet at 1 March 2004
R’m
Goodwill
Property & equipment
Investments
Inventories
173 978
29 926
753
131 811
Accounts receivable
36 367
Other assets
12 714
Total assets
385 549
Shareholders’ deficit
(242 844)
Loan from New Clicks
496 293
Accounts payable
104 145
Other liabilities
Total equity & liabilities
27 955
385 549
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
18
PM&A – goodwill on acquisition
Calculation:
PM&A goodwill
+
Shareholders’ deficit
Loan impairment
+/Fair value adjustments
=
Goodwill on acquisition
19
Balance sheet
R’000
Property & equipment
Inventories
Accounts receivable
Accounts payable
Aug 2003
Feb 2004 excl. Aus
Feb 2003
excl. Aus
% change
Feb to Feb
568 492
11.9
1 187 893 1 124 528 1 014 898
17.0
636 269
414 207
613 570
363 643
390 796
6.0
1 041 803 1 141 858
824 583
26.3
20
Inventory
Feb 2004
Feb 2003
% change
4.7
5.1
11.1
10.4
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
1 187 893
1 014 898
17.0
Inventory turn (times)
SA Retail
UPD
Inventory (R’m)
Total SA inventory
21
Inventory levels
• Clicks & Discom - aggressive & successful promotions
- better on-shelf position
- more regular import programme
• Body Shop growth
- new stores
- improved stock turns
22
Loans to third parties
R’m
Feb 2004
Feb 2003
334.0
283.1
70.0
61.3
Franchise set-up (Aus)
-
9.2
Intercare professionals
24.4
2.9
0.6
1.5
429.0
358.0
PM&A
Share trust
Other
Total
23
Cash flow (group)
R’000
Feb 2004
Feb 2003
Operating activities
(18 934)
76 529
Investing activities
180 858
(104 667)
(90 095)
(79 793)
Acquisition of subsidiary
(203)
3 572
Disposal of subsidiaries
328 353
-
Loans
(57 197)
(28 446)
5 002
(7 186)
166 926
(35 324)
Property & equipment
Financing activities
Net increase/(decrease)
Note: UPD acquisition through share issue
24
Capital expenditure
Capital expenditure during the period:
Store refurbishments
R’m
35 008
New stores
7 148
Pharmacy conversions
1 621
IT
Other
Total
39 202
8 130
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
41 758
Other
Forecast total expenditure
1 344
190 430
25
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
26
Group Operations
Trevor Honneysett
Ongoing consistent improvement
27
Clicks - snapshot
Feb 2004
Feb 2003
1 693 253
1 522 393
Sales
R’000
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
264
14
253
14
3 724*
3 400
Number of stores
Company owned
Franchised
Number of full-time permanent employees
Weighted trading area
m²
144 258
138 960
Net increase in trading area for the period
%
3.8
5.2
Weighted annual sales per m²
R
21 910
20 450
* During the period, a number of part-time employees became full-time employees, in terms
of the new Labour Relations Act
28
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
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
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
✔
31
Clicks Pharmacy / PM&A
We said during 2004 we would:
What happened:
• Open first 5 Clicks Pharmacies
in 2003, subject to licences
• Licences delayed –
opened March 2004
• Convert most PM&A stores to
Clicks during 2004
• Now scheduled 2004 &
2005 due to licence delays
• Introduce pharmacies into
many refurbished stores
• Awaiting licences
• Introduce other disease
management programmes
• On track - next initiative
May – 3 others planned for
2004/5
• Develop relationships with
medical funders
• Took time – all but one of
the major schemes
32
Clicks performance
“Expect to
pay less”
Heavy
promotional
drive
FMCG
continues to
perform
Datamining
initiatives
Inroads into
visual
merchandising
Turnaround started
Improved
lifestyle mix
Expense
control
Better instock
position
Stock turn
Store
refurbishment
on track
33
Clicks - comparative pricing
Industry survey conducted by an independent research house
- basket of 132 items
Clicks
Competitor
A
Competitor
B
Competitor
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 Cape
R2 726.18
R2 743.16
R2 737.34
R2 804.58
Clicks cheapest in 3 out of 4 provinces
before ClubCard benefits
34
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
35
36
37
38
Pharmacy performance
Delay in licences
& Clicks
branding
Competitive
pressure in
Gauteng
Postal
medicines
Heavier medical
aid discounting
Holding onto
unsuitable stores
for licences
Disappointing results
Disease state
mgmt on track
Time taken to
secure agreements
with funders
39
Pharmacy implementation
40
Pharmacy implementation
41
Pharmacy implementation
42
Pharmacy implementation
43
Pharmacy - key action plans
Challenges
• Delay in licences &
Clicks branding
• Competitive pressure
Immediate responses
• Aggressive promotions
for PM&A
Internal pricing comparison
- top 148 lines:
Hyperpharm
R4 581.01
AN Other
Competitor
R4 626.31
44
Pharmacy implementation continued
45
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
Approximate cost of combining - pharmacy into a Clicks store
R600 000
46
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
47
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
48
49
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
UPD
We said during 2004 we would:
• Provide group pricing
benefits to independent
customers to grow turnover
• Simplify the Multicare
offering
• Develop the Link offering as
a premium banner
• Develop programmes to
enhance Link pharmacy
loyalty to UPD
Progress
• Ongoing with some
success so far
• Franchise model being
reviewed
• Regional discussions
complete
• National forum scheduled
51
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 services
• Increase volumes – industry rationalisation
52
Discom - snapshot
Feb 2004
Feb 2003
452 164
391 732
Sales
R’000
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)
178
1
178
2
1 529*
1 232
Number of stores
Company owned
Franchised
Number of full-time permanent employees
Weighted trading area
m²
49 680
49 339
Net increase in trading area for the period
%
0.7
(6.6)
Weighted annual sales per m²
R
16 990
14 821
* During the period, a number of part-time employees became full-time employees, in terms
of the new Labour Relations Act
53
Discom
We said during 2004 we would:
• Return Discom to profitability
in 2004
• Improve margin - stronger
lifestyle & import programme
• Close 12 stores, open 10 new
stores & relocate 3 stores
• Have strong sales & margin
growth for ethnic beauty & hair
care products
• Implement POSware platform
& merchandise planning
Progress:
• On track
• Realising benefits
• Closed 5, opened 5 &
relocated 4 so far
• Progressing well
• Still on track for
August
54
Discom - performance
Strong
growth in
“dry hair”
Some inroads
into visual
merchandising
Expense
control
Improved
lifestyle mix
Vitamin &
health products
doing well
On track – profit for 2004
Strong
FMCG
growth
Trading
densities
improved
Differentiation
from Clicks &
market
Stock turn
Marginal
improvement
in shrinkage
55
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 markets
• Continual improvements in store design for new stores
• Focused promotion activity
56
Music Division - snapshot
Feb 2004
Feb 2003
284 333
268 041
Sales
R’000
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-time permanent employees
567
558
Weighted trading area
m²
21 904
17 185
Net increase in trading area for the period
%
27.5
5.4
Weighted annual sales per m²
R
24 231
29 115
57
Music Division
We said during 2004 we would:
Progress:
• Reposition from music to
• On track and being
broader entertainment products
expanded
– 70 stores by December
2003
– 98 stores converted by
Dec 2003 (106 currently)
– Branded lifestyle accessory
range
– In stores by December
2003
• Implement POSware retail
store system by March 2004
• Done
• Major marketing drive for
Christmas
• Flat Christmas sales
• Open 7 new stores, relocate /
revamp 7 stores
• On track: 5 opened, 3
upgraded & 3 closed to date
58
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 are moving in the correct direction with
entertainment
59
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
The Body Shop - snapshot
Feb 2004
Feb 2003
28 433
24 903
14.2
106.6
7 282
5 556
Number of stores
Company owned
21
13
Number of full-time permanent employees
80
63
Sales
R’000
Sales growth
%
Operating profit before interest & after
allocation of net costs of support structures
R’000
Weighted trading area
m²
1 154
802
Net increase in trading area for the period
%
43.9
253.0
Weighted annual sales per m²
R
45 992
57 962
61
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
• Introduce four new concept stores in
Clicks stores
✔
✔
✔
✔
3 opened, 2 to
open in April
✔
62
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 with further savings
63
Shared Services
We said we would:
• Align shared services
infrastructure with the
needs of the brands
• Improve the management
of stock in stores
• Implement a new financial
system
• Improve the speed & quality
of information
Progress:
• On track
• Disappointing progress
• Phase 1 complete –
balance on track
• On track
64
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 stock distribution & management systems
• Continued focus on expense control
Ongoing consistent improvement
65
Questions ?
Ongoing consistent improvement
66
Thank You
Ongoing consistent improvement
67