Clicks Group Limited · JSE:CLS
Clicks — New Clicks Holdings — FY2003 Earnings Presentation
69 slides from Clicks's earnings presentation, 2003
Slide 1: Group Results 2003
NEW CLICKS HOLDINGS Hy LIMITED e ~” ba ids “== Group Results 2003 A
Slide 2: Outline of presentation
Outline of presentation • Financial Results André Vermeulen • New Clicks Australia Jeff Sher (video) • New Clicks South Africa Trevor Honneysett • Conclusion Trevor Honneysett
Slide 3: Financial Results
Financial Results André Vermeulen
Slide 4: Performance
Performance 2003 2002 % change Turnover (R’m) 7 368 5 488 34.3 Turnover growth excluding 8.2 UPD 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 13.4 adjusted for PM&A provision Gross profit margin (%) 24.3 28
Slide 5: Headline earnings per share
Headline earnings per share Undiluted Diluted At 31 August 2002 previously reported 70.3 66.9 PM&A impairment (18.1) (17.2) Restated 31 August 2002 52.2 49.7 Increased by: Acquisitions 16.3 16.3 Organic growth 5.1 5.1 Decreased by: Cost of acquisitions (6.8) (7.3) Impact of exchange rate movement (1
Slide 6: Performance per six months
Performance per six months 1st half 2nd half 2003 2003 Total Turnover Total 3 437 3 931 7 368 Excluding UPD 3 107 2 829 5 Percentage 52.3 47.7 932 100. 0 Headline earnings Total 124 97 221 Excluding UPD 114 69 183 Percentage 62.3 37.7 100.
Slide 7: Turnover
Turnover R’m 2003 2002 % change Clicks 2 997 2 693 11.3 Discom 772 721 7.0 Music Division 482 439 9.8 Body Shop 46 27 68.6 Link – own brand 20 16 23.1 Total SA excl. UPD 4 317 3 896 10.8 UPD 1 431 - Total SA 5 748 3 896 47.5 Australia 1 620 1 592 * 1.8 Total group 7 368 5 488 34.3 * Australia impact
Slide 8: Turnover - geographic contribution
Turnover - geographic contribution Australia 2003 2002 * 22% Australia 29% Southern Southern Africa Africa 71% 78% * Australia impacted by exchange rate & move to franchise model
Slide 9: Turnover - Australia
Turnover - Australia AU$’000 2003 2002 % change Turnover Priceline 310 290 283 788 9.3 Priceline Pharmacy 3 460 - House 2 022 3 048 Price Attack 785 - NCA Total 316 557 286 836 10.4 House Franchisee turnover 89 615 68 496 30.8 Price Attack Franchisee t/o 87 269 - Pharmacy Franchisee t/o 5 329 - NCA
Slide 10: Gross profit margin - group
Gross profit margin - group 2003 2003 2002 excl UPD Gross profit 1 791 1 632 1 555 Gross profit margin (%) 24.3 27.5 28.3 Reduction in gross margin due to: • UPD operates at a lower gross profit margin • Impact of lower Lifestyle product contribution
Slide 11: Expenditure
Expenditure R’000 2003 2002 % change Clicks 514 176 475 839 8.1 Discom 175 320 177 406 (1.2) Music Division 125 560 111 776 12.3 Body Shop 14 372 8 011 79.4 Link Investment Trust 23 010 23 452 (1.9) Intercare 8 430 2 994 181.6 Shared Services – SA 322 137 269 199 19.7 Priceline 483 297 474 658 * 1.8
Slide 12: Expenditure
Expenditure R’000 2003 2003 excl 2002 % UPD change Depreciation 103 726 100 778 96 425 4.5 Occupancy costs 398 875 392 579 358 865 9.4 Employment costs 869 402 817 331 756 006 8.1 Other costs 565 137 426 683 450 406 (5.3) Total 1 937 140 1 797 371 1 661 702 8.2
Slide 13: Operating profit
Operating profit R’000 2003 2002 % change Clicks 259 281 262 974 (1.4) Discom (5 571) (20 637) Music Division 25 675 21 470 19.6 Body Shop 10 017 5 176 93.5 Link Investment Trust (2 712) (2 801) Intercare (962) (1 764) Shared Services unallocated (7 376) 2 167 Total SA excl. UPD 278 352 266 585 4.4
Slide 14: Operating profit - Australia
Operating profit - Australia AU$’000 2003 2002 % change Priceline 29 594 21 943 34.8 Retail 24 424 21 943 11.3 Store sales 5 170 - Priceline Pharmacy (397) - House 2 257 2 301 (1.9) Retail 2 257 1 701 32.7 Store sales - 600 Price Attack 3 518 (17) Shared Services (20 158) (14 882) (35.6) NCA Total 1
Slide 15: Interest
Interest 2003 2002 Net interest bearing debt to shareholders’ funds at year 27.7% 28.0% end R’000 R’000 % change Interest paid 88 760 70 684 25.6 Interest PM&A (net) - - - Other interest received 4 643 3 464 34.0 Net interest paid 84 117 67 220 25.1 • Increase in rates (Average 2003: 13.5%, 2002: 11
Slide 16: PM&A
PM&A R’m 2003 2002 PM&A EBIT 1st half (8.1) 0.2 2nd half 7.9 (15.3) Total (0.2) (15.1) Loan to PM&A 295.3 276.6 Interest charge 59.3 45.5 Provision against interest (59.3) (45.5)
Slide 17: PM&A
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)
Slide 18: Balance sheet
Balance sheet R’000 2003 2003 % change incl. UPD excl. UPD 2002 excl. UPD Fixed assets 751 843 684 423 617 767 10.8 Inventories 1 401 061 1 226 322 1 055 137 16.2 Accounts receivable 417 305 185 756 196 624 (5.5) Accounts payable 1 373 743 990 976 887 542 11.7
Slide 19: Inventory
Inventory 2003 2002 Inventory turn (times) 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 - Total SA inventory 1 125 741 51.7 Australia 276 314 (11.9) Total inventory at year end 1 401 1 055 32.8
Slide 20: Inventory levels
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 & cosme
Slide 21: Loans to third parties
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 Other 5.2 - Total 384.0 331.8
Slide 22: Cash flow
Cash flow R’000 2003 2002 Operating activities 337 209 213 665 Investing activities (258 782) (310 034) Property & equipment (198 595) (151 337) Acquisition of subsidiaries 1 797 (89 723) Investments (7 550) - Loans (54 434) (68 974) Financing activities 180 230 717 Net increase/(decrease) 258 657 (
Slide 23: New Clicks Australia
New Clicks Australia Jeff Sher
Slide 24: New Clicks Australia – Review
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, hom
Slide 25: New Clicks Australia – The new way
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
Slide 26: New Clicks Australia – Behind the numbers
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
Slide 27: Priceline - Snapshot
Priceline - Snapshot 2003 2002 Sales A$’000 310 290 283 788 R’000 1 587 711 1 574 694 Sales growth % (A$) 9.3 13.4 % (R) 0.8 52.8 Comparable stores sales growth % (A$) 4.6 6.4 Operating profit before interest & before A$’000 24 424 21 943 allocation of net costs of support structures R’000 124 974 1
Slide 28: Priceline Pharmacy - Snapshot
Priceline Pharmacy - Snapshot 2003 Operating loss before interest & before A$’000 (397) allocation of net costs of support structures R’000 (2 029) Number of stores Franchised 7 Weighted trading area m² 2 999 Franchisee sales A$’m 5 329 R’000 27 263 Franchise fees A$’000 381 R’000 1 949
Slide 29: Priceline & Priceline Pharmacy
Priceline & Priceline Pharmacy HIGHLIGHTS • Appointment of Phillip Smith – brand leader • Appointment of John Stapleton – merchandise head • Restructure to meet demands of Pharmacy operations • Repositioned in response to market • 1.2m ClubCard members • 15 new stores (7 pharmacies) • Stock growth w
Slide 30: Priceline & Priceline Pharmacy
Priceline & Priceline Pharmacy CHALLENGES KEY ACTION PLANS • EDLP approach & Woolworths • Interlocking marketing aggression programme underpinned by “You Pay Less” • Change to Priceline business model • Pharmacy positioning • Changes to operational structure to deal with pharmacy • Supplier relation
Slide 31: Priceline Pharmacy – Success factors
Priceline Pharmacy – Success factors Conversions: • Converting existing Priceline store (Prahran) – Sales growing in excess of 40% – Back & middle shop sales already at 18% - should double • Converting existing pharmacy (Bentleigh) – Script sales grown by 20% – Front shop sales up from 10% to 75% Ne
Slide 32: House - Snapshot
House - Snapshot 2003 2002 Operating profit before interest & before A$’000 2 257 2 301 allocation of net costs of support structures R’000 11 548 12 768 Number of stores Company owned 1 - Franchised 90 82 Franchisee sales A$’m 89.6 68.5 R’m 459.5 380.1 Franchisee fees A$ 3 632 2 949 R 18 584 16 363
Slide 33: House
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 Nat
Slide 34: House
House CHALLENGES KEY ACTION PLANS • Growth in competition • New marketing programme • Sameness of product & Pay-TV alliance • SARS – impact on import • Redefine product quantity classification • Implementation of new in-store positioning • Franchisee compliance • Bad debts • Upgraded receivables • D
Slide 35: Price Attack - Snapshot
Price Attack - Snapshot 2003 Operating profit before interest & before A$’000 3 518 allocation of net costs of support structures R’000 17 999 Number of stores Franchised 101 Franchisee sales A$’m 87.3 R’m 446.7 Store openings during the year 12
Slide 36: Price Attack
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
Slide 37: Price Attack
Price Attack CHALLENGES KEY ACTION PLANS • Complexity of salon vs retail • New store format • Competition in Victoria • New customer communication • Transition from previous • Salon contract culture • Association with women’s • Private label acceptance basketball • Local area marketing • Change of I
Slide 38: Shared Services
Shared Services HIGHLIGHTS CHALLENGES • Store development & • Moving from cost centre to marketing services shift to profit generation nil cost • Growth in staff numbers to • Development of franchise deal with franchise capability skills • Getting expense allocations • JDA first phase completed righ
Slide 39: New Clicks Australia – The year ahead
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
Slide 40: New Clicks South Africa
New Clicks South Africa Trevor Honneysett
Slide 41: New Clicks South Africa – Review of the year
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
Slide 42: Clicks - Snapshot
Clicks - Snapshot 2003 2002 Sales R’000 2 997 226 2 692 620 Sales growth % 11.3 15.4 Comparable store sales growth % 7.1 Operating profit before interest & after allocation of net costs of support structures R’000 259 281 262 974 Number of stores Company owned 260 248 Franchised 14 13 Number of full
Slide 43: Clicks
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
Slide 44: Clicks turnover growth
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% 43% Health & Beauty 60% 57%
Slide 45: Clicks
Clicks CHALLENGES KEY ACTION PLANS • Reverse decline in homewares • New core homeware range • Value proposition • Price competitiveness • Store presentation • “Expect to pay less” • Basket checks vs competitors • Entire customer experience • Promotions • In-store look & feel • Reduce operating costs
Slide 46: Pharmacy
Pharmacy HIGHLIGHTS • Multifunctional, • Improved shrinkage implementation team set up • Professional training • Key legislation in place • Disease management • Product & pricing benefits • Promotions through UPD • Better buying discipline • Centralised pricing • Reduced staff costs
Slide 47: Pharmacy integration project
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 co
Slide 48: Pharmacy
Pharmacy CHALLENGES KEY ACTION PLANS • Sales & profit growth • Integration into Clicks • Stock turn too slow • Category management/buying • In store promotions • Generic substitution • Phase-out of LinkMax • Focus on ICU stores • Integration of pharmacy • Integration of IT platform systems • Relatio
Slide 49: Preparation/Ground Work Pharmacy Opening Schedule
Preparation/Ground Work Pharmacy Opening Schedule September October November December Legal - Competitions Commission, pharmacy licenses, de-link, lease, JV, finance structure 13 3 Glengariff IT - Development store systems, development host systems, testing. Ideal to follow 20 BalfourPark Marketing
Slide 50: UPD - Snapshot
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
Slide 51: UPD
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 so
Slide 52: UPD
UPD CHALLENGES KEY ACTION PLANS • Two franchise models in the • Simplify Multicare offering group • Increase turnover from Link • Develop Link offering as premium banner • Develop programmes to enhance Link pharmacy loyalty to UPD • Continue to add value to • Concentrate on bringing third party cust
Slide 53: Discom - Snapshot
Discom - Snapshot 2003 2002 Sales R’000 771 441 720 895 Sales growth % 7.0 12.1 Comparable store sales growth % 8.7 Operating loss before interest & after allocation of net costs of support structures R’000 (5 571) (20 637) Number of stores Company owned 177 180 Franchised 1 2 Number of full-time pe
Slide 54: Discom
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
Slide 55: Discom
Discom CHALLENGES KEY ACTION PLANS • Decline in homewares • Improvement in lifestyle – currently business being evidenced • Return to profitability • Entrench dominant position in African beauty & hair care • Improve margin through a stronger lifestyle & import programme • Procure new store location
Slide 56: Music Division - Snapshot
Music Division - Snapshot 2003 2002 Sales R’000 482 287 439 333 Sales growth % 9.8 24.9 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
Slide 57: Music Division
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
Slide 58: Music Division
Music Division CHALLENGES KEY ACTION PLANS • Maturity of CD format • Repositioning from music to • Global decline in CD sales broader entertainment products • Piracy & downloads – 70 stores by December • Shrinkage – Branded lifestyle accessory • range Eliminating redundant stock • POSware retail sto
Slide 59: The Body Shop - Snapshot
The Body Shop - Snapshot 2003 2002 Sales R’000 45 781 27 161 Sales growth % 68.6 - Operating profit before interest & after allocation of net costs of support structures R’000 10 017 5 176 Number of stores Company owned 18 11 Number of full-time permanent employees 75 69 Weighted trading area m² 942
Slide 60: The Body Shop
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
Slide 61: The Body Shop
The Body Shop CHALLENGES KEY ACTION PLANS • Slower than expected take • Catalogue mailings & off of new stores in promotions programme suburban areas • Focus on Christmas gifting - • Novelty factor of the brand accounts for 25% of sales wearing off • Opening five new stores • Four new concept stores
Slide 62: Shared Services
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
Slide 63: DC efficiency improvements
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% Volume centralised 66% 57% DC wastage 0.45% 0.64%
Slide 64: Supply chain ‘pipe’
Supply chain ‘pipe’ Supply Demand 3rd P POMS DC’s CAT MER OPS MF/ SUP CUST. MF/ SUP = Manufacturer/ Supplier 3rd P = 3rd Party Distributors POMS = Purchase Order Mngmnt System DC’s = Distribution Centres I nvestment needed now ! CAT = Category MER = Merchandising OPS = Operations CUST. = Customer 1
Slide 65: Supply chain – ‘demand’ side
Supply chain – ‘demand’ side • Address physical store layout, merchandise promotion, ranging • Implemented merchandise planning from JDA for lifestyle category • Benefits already evident
Slide 66: New Clicks South Africa – The year ahead
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
Slide 67: Summary of year ahead
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 healthcar
Slide 68: Questions ?
Questions ?
Slide 69: Thank You
Thank You