Clicks Group Limited · JSE:CLS
Clicks — FY2005 Earnings Presentation
48 slides from Clicks's earnings presentation, 2005
Slide 1: Annual Results for the year ended 31 August 2005
ANNUAL RESULTS for the year ended 31 August 2005
Slide 2: Outline of presentation
Outline of presentation Review of year Financial results ERP II implementation Retail operations Wholesale distribution Conclusion
Slide 3: Review of the Year
REVIEW OF THE YEAR TREVOR HONNEYSETT
Slide 4: At interim … … status
At interim … … status We said priorities were: Progress made Address performance of Clicks brand Remains a priority – improving H2 Manage shrinkage in Clicks Ongoing, L-T objective Manage expenses in Clicks Progress made Accelerate pharmacy integration Ahead of plan Maintain moment
Slide 5: Review of year – Clicks
Review of year – Clicks Fulfilling Clicks’ heritage Integrated pharmacies proving strategy effective – Increased footfall lifting turnover On track for 90 pharmacies by end December 2005 Constitutional Court ruling on pricing regulation Improved H2 performance from Clicks … new dispensarie
Slide 6: Review of year (continued)
Review of year (continued) UPD continues strong growth Discom well ahead of expectations Transformation of Entertainment sustaining performance Migration to enterprise-wide platform successfully completed Leadership restructured & new external appointments to strengthen leadership team … c
Slide 7: Financial Results
FINANCIAL RESULTS KEITH WARBURTON
Slide 8: Performance
Performance 2005 2004 % change Headline earnings (R’m) 221.6 264.7 (16.3) Continuing operations 221.6 242.1 (8.4) Discontinued operations - 22.6 Diluted headline EPS (cents) Group 63.2 72.9 (13.3) Continuing operations 63.2 66.7 (5.3) ROE (%) 16.7 18.4 (9.3) Operating profit margin (%) 4.1 5.3 (23.8
Slide 9: Turnover
Turnover R’m 2005 2004 % change Clicks 4 469 3 789 * 17.9 Discom 975 879 11.0 Entertainment 662 544 21.7 The Body Shop 58 51 14.0 Other 9 6 Total SA - Retail 6 173 5 269 17.2 UPD 3 046 2 285 33.3 Intragroup elimination (505) (185) Total SA 8 714 7 369 18.2 Australia - 655 ** Total group 8 714 8 024
Slide 10: Gross profit margin
Gross profit margin 2005 2005 2004 2004 R’m % R’m % SA – Retail 1 467 23.8 1 336 25.4 SA – UPD 242 8.0 204 8.9 Intragroup elim.* - - (3) - Total SA 1 709 19.6 1 537 20.9 Australia - - 210 32.0 Total group 1 709 19.6 1 747 21.8 * Margin in respect of stock on hand at year end sold by UPD to Clicks
Slide 11: Operating expenditure
Operating expenditure 2004 Pharmacy Pro forma % R’m 2005 * H1 2004 2004*** change Depreciation & 105 101 13 114 (7.9) amortisation Occupancy costs 291 247 21 268 8.6 Employment 847 723 78 801 5.7 costs Other operating 651 545 38 583 11.7 costs 1 Total SA 1 616 150 1 766 7.3 894 Australia** - 237 - 2
Slide 12: Operating expenditure (continued)
Operating expenditure (continued) Pharmacy Pro forma % R’m 2005 2004 change H1 2004 2004*** Clicks 1 169 938* 150 1 088 7.4 Discom 267 257 - 257 3.7 Entertainment 221 196 - 196 12.9 The Body Shop 26 20 - 20 32.0 Other 9 16 - 16 Total SA – Retail 1 692 1 427 150 1 577 7.3 UPD 202 189 - 189 6.6 Total
Slide 13: Operating profit
Operating profit (gross profit + other revenue – operating expenditure) R’m 2005 2004 % change Clicks 209.7 293.5 * (28.5) Discom 28.9 4.2 596.0 Entertainment 27.6 19.0 45.1 The Body Shop 9.5 10.0 (5.2) Other (6.2) (11.4) Total SA - Retail 269.5 315.3 (14.5) UPD 89.1 75.6 17.9 Total SA 358.6 390.9 (
Slide 14: Operating profit (continued)
Operating profit (continued) R’m 2005 2004 % change Clicks Pharmacy* (70.0) (4.5) Other 279.7 298.0 (6.1) Total 209.7 293.5 (28.5) * Estimated loss, only included for 6 months in 2004
Slide 15: Cash – utilisation
Cash – utilisation R’m Total Cash from operations (pre dividends) 321 Less: increase in inventory (211) Less: other working capital requirements (11) Shares issued 57 Other cash inflow 14 170 Store refurbishment & pharmacy conversion (70) Information technology (75) Other fixed asset purchases (25)
Slide 16: Inventory
Inventory Turn (times)* Inventory (R’m) 2005 2004 2005 2004 Clicks 6.1 5.8 739 735 Discom 6.3 6.5 154 135 Entertainment 4.8 4.8 137 114 The Body Shop 22.1 23.0 3 2 Held at DCs 300 217 Total Retail 4.6 4.7 1 333 1 203 UPD 10.4 10.9 292 210 Intragroup elim. (3) (2) Total inventory 5.4 5.6 1 622 1 411
Slide 17: ERP II Implementation
ERP II IMPLEMENTATION KEITH WARBURTON
Slide 18: ERP II implementation
ERP II implementation Different way of measuring & managing business Started process 30 months ago Systems conversion successfully completed end August – on time & within budget Focus for next 2 years – adapting business & adding to systems & processes to allow extraction of benefits … platf
Slide 19: ERP II status
ERP II status Key building blocks used – Point of sale (Retalix) – Merchandise management (JDA MMS) – Distribution centre management (Aquitec SCM) – Financials (SAP) Daily sales & cash management in place Invoice matching in place Stock take in pilot – implementation 2006 Outgoing margin d
Slide 20: ERP II objectives
ERP II objectives Ultimately to be able to: View sales, margin & stock following day in all stores at all product levels Obtain performance information, including expenses, daily & finalised within 2 weeks of month end Receive provisional stock take results within 48 hours Achieve efficient
Slide 21: Key financial management objectives
Key financial management objectives Working capital management – Leverage benefits of ERP II systems – Cash flow management Expense management – Continual focus on cost efficiencies – Extract synergies from ERP II Improving management information Capital management – Optimise capital & geari
Slide 22: Retail Operations
RETAIL OPERATIONS MICHAEL HARVEY
Slide 23: Clicks – strategy
Clicks – strategy Vision to be “the best discount drugstore in SA” Mission to “dominate mass market health & beauty products & services” Brand to reflect “strong value proposition” Health & beauty offering to be retail market differentiator Supported by homeware offering Integrated front shop
Slide 24: Clicks – strategy (continued)
Clicks – strategy (continued) Making stores an exciting retail destination Business to embrace diversity Enhance ClubCard opportunity Performance driven culture People empowered & passionate about brand … point of difference in SA retail landscape
Slide 25: Clicks – performance
Clicks – performance Improved performance in H2 Medicine pricing regulations lowered margin Estimated impact of pricing regulations R48m Shrinkage trend continues Expense control improved in H2 Integration of pharmacy into Clicks on track – 60 stores Performance of integrated stores pr
Slide 26: Clicks – performance: shrinkage
Clicks – performance: shrinkage Continuing poor shrinkage trend, particularly inland To counter this, we have: – Reduced management spans of control – Focused on improving in-store disciplines & controls – Started using new systems for more timeous monitoring & tighter control of stock & cash –
Slide 27: Clicks – industrial action
Clicks – industrial action Strike well managed by operational team Minimal reputational damage to brand Acknowledge customer support during strike Turnover loss estimated at R9m Net impact of strike approx R3m (costs + GP loss) Impacted staff morale at a critical time Rebuild trust wit
Slide 28: Clicks – performance: pharmacy
Clicks – performance: pharmacy Full Clicks store conversions (excl. new stores) 25 Front shop sales 2005 (since conversion) (R’000) 256 999 Front shop sales 2004 (R’000) 221 782 Increase 15.88% Dispensary sales August 2005 (R’000) * 8 689 Total August 2005 sales (R’000) 50 650 Dispensary as % of sal
Slide 29: Clicks – pharmacy: pricing
Clicks – pharmacy: pricing Constitutional Court ruling allow parties to collectively develop a workable pricing model Judgment vindicates decision to go to court Legal process not hampered implementation strategy Continuing to charge R26 / 26% in interim to remain competitive Will continue
Slide 30: Pharmacy licence update
Pharmacy licence update New applications 132 Relocations 27 Total applications to date 159 Approved 69 Pending 90
Slide 31: Clicks – conclusion
Clicks – conclusion Focusing on health & beauty while integrating pharmacy Pharmacy strategy – seeing uplift in front shop Continue with roll-out of dispensaries Integration / closure of remaining non-integrated pharmacies by early 2006 Address shrinkage Improving stock management Stre
Slide 32: Discom – performance
Discom – performance Strong profit growth driven by continued improvement in margin & reduced shrinkage Growth in higher margin categories of toiletries, electrical appliances & audio / video Expenses contained below sales growth Continue to dominate African hair care market New management
Slide 33: Discom – action plans
Discom – action plans Further differentiating & growing core categories Continue to improve trading margin Enhancing product mix for new locations Continued expansion in inland region Net growth in retail space Enhance health & wellness offering … innovation a differentiator
Slide 34: Entertainment – performance
Entertainment – performance R99.95 pricing strategy brought traffic into stores Strong turnover growth also driven by ‘new’ categories – DVD +92%; gaming +160%; lifestyle +45% – Account for 39% of turnover (2004: 29%) Margin as expected Shrinkage improved Converted 18 stores to ‘urban’ mod
Slide 35: Entertainment – action plans
Entertainment – action plans Continued focus on growth genres of gaming, DVD, lifestyle & local music Maintain aggressive pricing & promotions strategy Explore opportunities in cellular market Lead music industry technology – integrate store & online offering Store growth – 8 new stores, 1
Slide 36: The Body Shop – performance
The Body Shop – performance Stronger H2 reversed poor profit performance of H1 Comparable store growth down Expenses up 12% – occupancy costs & depreciation Advertising curtailed in H2 with no negative impact Margin remained steady
Slide 37: The Body Shop – action plans
The Body Shop – action plans Consolidate store base as close to market saturation Grow existing store sales Continued focus on expense management Adopt Body Shop International global strategies – New brand identity created & to be launched – Introduce ‘Love Your Body’ loyalty programme – New
Slide 38: Retail – store footprint
Retail – store footprint Committed Aug Opene Close Aug new 2004 d d 2005 stores 2006 Clicks 285 16 (15) 286 13 Non- integrated 59 - (30) 29 - pharmacies Discom 173 20 (14) 179 9 Entertainment 138 5 (4) 139 8 The Body Shop 24 4 (1) 27 - Style Studio 2 1 - 3 - (company owned stores only) Total 681 … c
Slide 39: Retail – conclusion
Retail – conclusion Focus on improving performance in Clicks – Pharmacy integration – Business efficiencies Drive Clicks strategy Continue to pursue current strategies in Discom, Entertainment & The Body Shop Benefit of new management structure
Slide 40: Wholesale Distribution
WHOLESALE DISTRIBUTION TREVOR HONNEYSETT
Slide 41: UPD – performance
UPD – performance Turnover increase of 33% driven by strong growth in pharmacy (+32%) & hospital business (new channel) Market share gains from single channel distributors Continued growth in turnover from Clicks Pharmacy Margin impacted by lower logistics fees owing to single exit pricing –
Slide 42: UPD – hospital business
UPD – hospital business Awarded contract by Life Healthcare (ex Afrox Hospital Group) to channel all health purchases through UPD – Strategic alignment of major hospital group with UPD – Expected to add R350 million to turnover – Main benefit derived from operating efficiencies through higher volu
Slide 43: UPD – challenges for 2006
UPD – challenges for 2006 Expected capping of logistics fee – Calling for fee to be split into fine & bulk plus a funding element – Clarity on role of wholesaler vs distributor Dispensing fee for retail pharmacy – Appropriate for independent pharmacy to survive Benchmarking of manufacturer pri
Slide 44: UPD – action plans
UPD – action plans Increase negotiated logistics fees with suppliers based on value-added services Increase volumes & capitalise on industry consolidation Expansion of third party distribution Continual tight management of expenses, debtors’ book & stock
Slide 45: Conclusion
CONCLUSION TREVOR HONNEYSETT
Slide 46: 2006 priorities
2006 priorities Continue with Clicks brand turnaround Expand dispensary roll-out Maintain performance in UPD, Discom & Entertainment Start extracting synergies & operating efficiencies from new ERP II systems Aligning complementary skills of new leadership team … clearer focus & stronger p
Slide 47: Thank you
THANK YOU
Slide 48: Questions?
QUESTIONS?