Transcript Slide 1

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
Turnover (R’m)
2003
2002
% change
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
Gross profit margin (%)
Operating profit margin (%)
ROE (%)
13.4
24.3
28.3
(14.1)
5.2
5.8
(10.3)
16.2
14.9
8.7
Headline earnings per share
Undiluted
Diluted
70.3
66.9
(18.1)
(17.2)
52.2
49.7
16.3
16.3
5.1
5.1
Cost of acquisitions
(6.8)
(7.3)
Impact of exchange rate movement
(1.2)
(1.2)
At 31 August 2002 previously reported
PM&A impairment
Restated 31 August 2002
Increased by:
Acquisitions
Organic growth
Decreased by:
Impact of share options
At 31 August 2003
1.9
65.6
64.5
Performance per six months
1st half
2003
2nd half
2003
Total
Total
3 437
3 931
7 368
Excluding UPD
Percentage
3 107
52.3
2 829
47.7
5 932
100.0
Total
124
97
221
Excluding UPD
Percentage
114
62.3
69
37.7
183
100.0
Turnover
Headline earnings
Turnover
R’m
2003
2002
% change
Clicks
Discom
2 997
772
2 693
721
11.3
7.0
Music Division
Body Shop
Link – own brand
Total SA excl. UPD
UPD
Total SA
Australia
482
46
20
4 317
1 431
5 748
1 620
439
27
16
3 896
3 896
1 592 *
9.8
68.6
23.1
10.8
Total group
7 368
5 488
34.3
* Australia impacted by exchange rate & move to franchise model
47.5
1.8
Turnover - geographic contribution
Australia
*
22%
2003
2002
Australia
29%
Southern
Africa
78%
* Australia impacted by exchange rate & move to franchise model
Southern
Africa
71%
Turnover - Australia
AU$’000
2003
2002
% change
310 290
283 788
9.3
Priceline Pharmacy
3 460
-
House
2 022
3 048
785
-
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
-
498 770
355 332
Turnover
Priceline
Price Attack
NCA Total
NCA Total (incl Franchisees)
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
40.4
Gross profit margin - group
Gross profit
Gross profit margin (%)
2003
2003
excl
UPD
2002
1 791
1 632
1 555
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
Expenditure
R’000
2003
2002
% change
Clicks
514 176
475 839
8.1
Discom
175 320
177 406
(1.2)
Music Division
Body Shop
125 560
14 372
111 776
8 011
12.3
79.4
23 010
23 452
(1.9)
8 430
2 994
181.6
Shared Services – SA
322 137
269 199
19.7
Priceline
483 297
474 658 *
1.8
10 383
13 639 *
(23.8)
107 639
101 587 *
6.0
Link Investment Trust
Intercare
House
Shared Services – Australia
1 784 324
1 658 561
Priceline Pharmacy
4 046
-
Price Attack
9 001
3 141
139 769
-
1 937 140
1 661 702
UPD
Total group
* Impacted by exchange rate (total benefit of R51 865k) & move to franchise model
7.5
16.6
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)
1 937 140
1 797 371
1 661 702
8.2
Total
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)
(962)
(1 764)
(7 376)
2 167
278 352
266 585
54 304
-
Total SA
332 656
266 585
Australia
49 347
Intercare
Shared Services unallocated
Total SA excl. UPD
UPD
Total group
382 003
* Australian profit in Rand adversely impacted by strong Rand
51 975 *
318 560
4.4
24.8
(5.1)
19.9
Operating profit - Australia
AU$’000
2003
2002
% change
Priceline
29 594
21 943
34.8
Retail
24 424
21 943
11.3
5 170
-
Priceline Pharmacy
(397)
-
House
2 257
2 301
(1.9)
2 257
1 701
32.7
-
600
3 518
(17)
(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
600
Store sales
Retail
Store sales
Price Attack
Shared Services
Notes:
Priceline Pharmacy = Costs for setup, late opening of stores
Priceline = 2 Stores converted to Pharmacies
Interest
Net interest bearing debt to
shareholders’ funds at year end
Interest paid
Interest PM&A (net)
Other interest received
Net interest paid
2003
2002
27.7%
28.0%
R’000
R’000
% change
88 760
70 684
25.6
-
-
-
4 643
3 464
34.0
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
1st half
(8.1)
0.2
2nd half
7.9
(15.3)
(0.2)
(15.1)
Loan to PM&A
295.3
276.6
Interest charge
59.3
45.5
(59.3)
(45.5)
PM&A EBIT
Total
Provision against interest
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
Fixed assets
Inventories
Accounts receivable
Accounts payable
2003
2003
incl. UPD excl. UPD
751 843
684 423
% change
2002 excl. UPD
617 767
10.8
1 401 061 1 226 322 1 055 137
16.2
417 305
185 756
196 624
(5.5)
1 373 743
990 976
887 542
11.7
Inventory
Inventory turn (times)
2003
2002
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
-
1 125
741
51.7
276
314
(11.9)
1 401
1 055
32.8
Total SA inventory
Australia
Total inventory at year end
Inventory levels
• 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
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
5.2
-
384.0
331.8
Other
Total
Cash flow
R’000
2003
2002
337 209
213 665
(258 782)
(310 034)
(198 595)
(151 337)
1 797
(89 723)
(7 550)
-
(54 434)
(68 974)
Financing activities
180 230
717
Net increase/(decrease)
258 657
(95 652)
Operating activities
Investing activities
Property & equipment
Acquisition of subsidiaries
Investments
Loans
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$’000
R’000
Number of stores
Franchised
(397)
(2 029)
7
Weighted trading area
m²
2 999
Franchisee sales
A$’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
CHALLENGES
• EDLP approach & Woolworths
aggression
•
•
• Pharmacy positioning
•
• Pharmacy supply chain
•
• Systems development
•
• Shrinkage
•
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
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$45k per week from 300m²
– Front shop sales 50%
House - Snapshot
Operating profit before interest & before
allocation of net costs of support structures
A$’000
R’000
Number of stores
Company owned
Franchised
Franchisee sales
A$’m
R’m
Franchisee fees
A$
R
2003
2002
2 257
11 548
2 301
12 768
1
90
82
89.6
459.5
68.5
380.1
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
CHALLENGES
• Growth in competition
• Sameness of product
• SARS – impact on import
quantity
• Bad debts
•
•
•
•
•
•
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
Price Attack - Snapshot
2003
Operating profit before interest & before
allocation of net costs of support structures
A$’000
R’000
Number of stores
Franchised
Franchisee sales
Store openings during the year
3 518
17 999
101
A$’m
R’m
87.3
446.7
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
2 997 226
2 692 620
15.4
Sales
R’000
Sales growth
%
11.3
Comparable store sales growth
%
7.1
Operating profit before interest & after
allocation of net costs of support structures
R’000
Number of stores
Company owned
Franchised
Number of full-time permanent employees
259 281
262 974
260
14
248
13
* 3 552
2 865
Weighted trading area
m²
140 099
133 864
Net increase in trading area for the period
%
4.7
5.4
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
Clicks turnover growth
R’m
2003
% increase
Lifestyle
1 203
4.0
Health & Beauty
1 794
18.3
2 997
11.3
2003
2002
Lifestyle
40%
Health &
Beauty
60%
43%
57%
Clicks
CHALLENGES
• Reverse decline in homewares
• Price competitiveness
• Entire customer experience
• In-store look & feel
• In stock position
•
•
•
•
•
•
•
•
•
•
•
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
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
CHALLENGES
• Sales & profit growth
• Stock turn too slow
• Integration of pharmacy
systems
• Relationship with funders
• Relationship with doctors
•
•
•
•
•
•
•
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
Preparation/Ground Work
Pharmacy Opening Schedule
September
Legal - Competitions Commission, pharmacy licenses,
de-link, lease, JV, finance structure
October
13
November
December
3
Glengariff
IT - Development store systems, development host
systems, testing. Ideal to follow
20
BalfourPark
Marketing - Market offering around service, value,
convenience and ClubCard. Signage, uniforms
27
Rosebank
Category - Ranging ‘new formats’, understanding ‘new
products’
4
Atterbury
Finance - Integrating 2 systems, debtors, feasibilities
(new pharmacies, new partners), budgets
9
Edgemead
Change Management - Leadership, interfacing,
communication
OD/HR - Conditions of service, induction, performance
development program, organizational development
Operations - Operational structures, SOP’s, store
conversion procedures, training
Store development - look and feel, low cost model,
property issues
9
West Coast
Village
To follow next year: 75 other PM&A’s, Approximately 50 pharmacist enquiries,
17 New Clicks Stores, 40 Clicks refurbs
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
771 441
720 895
12.1
Sales
R’000
Sales growth
%
7.0
Comparable store sales growth
%
8.7
Operating loss before interest & after
allocation of net costs of support structures
R’000
Number of stores
Company owned
Franchised
Number of full-time permanent employees
(5 571)
(20 637)
177
1
180
2
1 335
1 298
Weighted trading area
m²
49 351
51 821
Net increase in trading area for the period
%
(4.8)
8.6
Weighted annual sales per m²
R
15 632
13 911
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
CHALLENGES
KEY ACTION PLANS
• Decline in homewares
business
• Improvement in lifestyle – currently
being evidenced
• Return to profitability
• 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
Music Division - Snapshot
2003
2002
482 287
439 333
24.9
Sales
R’000
Sales growth
%
9.8
Comparable store sales growth
%
9.6
Operating profit before interest & after
allocation of net costs of support structures
R’000
25 675
21 470
Number of stores
Company owned
138
135
Number of full-time permanent employees
545
496
Weighted trading area
m²
17 134
16 154
Net increase in trading area for the period
%
6.1
10.9
Weighted annual sales per m²
R
28 148
27 197
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
CHALLENGES
• Maturity of CD format
• Global decline in CD sales
KEY ACTION PLANS
• Repositioning from music to
broader entertainment products
• Piracy & downloads
– 70 stores by December
• Shrinkage
– Branded lifestyle accessory
range
• Eliminating redundant stock
• POSware retail store system
implemented by March 2004
• Major marketing drive for
Christmas
• Store plans: 7 new stores, 7 stores
relocated / revamped
The Body Shop - Snapshot
2003
2002
45 781
27 161
68.6
-
10 017
5 176
Number of stores
Company owned
18
11
Number of full-time permanent employees
75
69
Sales
R’000
Sales growth
%
Operating profit before interest & after
allocation of net costs of support structures
R’000
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
Shared Services
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
DC efficiency improvements
Group expenses vs transfer growth
6.70% 19.53%
2003
2002
Clicks/Discom cost to transfer
2.60%
2.93%
Clicks/Discom cost per shipper
R2.16
R2.67
Group cartage costs
1.23%
1.47%
66%
57%
0.45%
0.64%
Volume centralised
DC wastage
Supply chain ‘pipe’
Supply
3rd P
POMS
Demand
CAT
DC’s
MER
OPS
MF/SUP
MF/SUP
3rd P
POMS
DC’s
CAT
MER
OPS
CUST.
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=
=
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=
=
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CUST.
Manufacturer/Supplier
3rd Party Distributors
Purchase Order Mngmnt System
Distribution Centres
Category
Merchandising
Operations
Customer
Investment needed now !
1
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