Clicks Group Limited · JSE:CLS
Clicks — FY2017 Earnings Presentation
31 slides from Clicks's earnings presentation, October 2017
Slide 1: Annual Results for the Year Ended 31 August 2017
ANNUAL RESULTS FOR THE YEAR ENDED 31 AUGUST 2017
Slide 2: Presentation Outline
PRESENTATION OUTLINE ▪ Review of the year ▪ Financial results ▪ Trading performance ▪ Outlook ▪ Questions CLICKS GROUP ANNUAL RESULTS 2017 2
Slide 3: Review of the Year
REVIEW OF THE YEAR DAVID KNEALE
Slide 4: Review of the Year
REVIEW OF THE YEAR ▪ Strong Clicks trading performance ▪ Continuing good volume growth ▪ Increased market shares across the board ▪ Opened 111 Clicks stores ▪ Good sales and profit performance from UPD ▪ R2 billion cash generated by operations ▪ Another record year of capital investment ▪ Additional
Slide 5: Financial Results
FINANCIAL RESULTS MICHAEL FLEMING
Slide 6: Financial Highlights
FINANCIAL HIGHLIGHTS ▪ Group turnover up 10.9% ▪ Health & Beauty turnover up 14.7% ▪ UPD turnover up 11.4% ▪ Operating margin up from 6.5% to 6.8% ▪ Diluted HEPS up 14.5% to 502.1 cps ▪ Cash generated by operations R2.0 billion ▪ Total dividend of 322 cps, up 18.4% ▪ 60% dividend payout ratio ▪ Retu
Slide 7: Sustained Financial Performance
SUSTAINED FINANCIAL PERFORMANCE 59% 59% 60% 56% 56% 56% 50% 50% 50% 46% 502 10-year 439 CAGRs 384 337 Diluted HEPS: 322 298 17.2% 273 272 250 235 211 Dividend per 190 166 168 share: 20.9% 152 132 125 106 84 Total 61 shareholder return**: 28.9% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Divide
Slide 8: Turnover
TURNOVER % same R′m % % 2017 2016 change stores inflation growth Retail 18 893 16 640 13.5 8.0 4.9 Health & Beauty 14.7 Musica (7.0) Distribution 12 321 11 055 11.4 5.8 Intragroup turnover (4 405) (3 524) 25.0 Total group 26 809 24 171 10.9 5.3 ▪ Good volume growth in health and beauty brands ▪ UPD
Slide 9: Total Income
TOTAL INCOME 2017 2016 % 2017 2016 R′m R′m change % margin % margin Retail 6 335 5 604 13.0 33.5 33.7 Distribution 937 867 8.1 7.6 7.8 Intragroup (125) (103) Total group 7 147 6 368 12.2 26.7 26.3 ▪ Impact of stronger growth in pharmacy category ▪ Investment in every day competitive pricing in Retai
Slide 10: Operating Expenditure - Retail
OPERATING EXPENDITURE - RETAIL R′m 2017 2016 % change Depreciation and amortisation 252 223 12.9 Occupancy costs 793 680 16.7 Employment costs 2 612 2 319 12.6 Other operating costs 1 193 1 076 10.9 Total retail costs 4 850 4 298 12.8 % of turnover 25.7% 25.8% ▪ Investing in stores and pharmacies ▪
Slide 11: Operating Expenditure - Distribution
OPERATING EXPENDITURE - DISTRIBUTION R′m 2017 2016 % change Depreciation and amortisation 31 29 6.0 Occupancy costs 3 4 (32.3) Employment costs 234 232 0.9 Other operating costs 339 326 4.0 Total distribution costs 607 591 2.7 CLICKS GROUP ANNUAL RESULTS 2017 11
Slide 12: Operating Profit
OPERATING PROFIT 2017 2016 % 2017 2016 R′m R′m change % margin % margin Retail 1 485 1 306 13.7 7.9 7.8 Distribution 330 276 19.6 2.7 2.5 Intragroup (1) (10) Total group 1 814 1 572 15.4 6.8 6.5 ▪ Musica profit R28m lower ▪ Both divisions benefiting from increased scale CLICKS GROUP ANNUAL RESULTS 2
Slide 13: Inventory
INVENTORY Days in stock Inventory (R′m) 2017 2016 2017 2016 % change Retail 69 72 2 529 2 338 8.1 Distribution 38 40 1 267 1 181 7.3 Intragroup inventory (42) (40) Total group 65 66 3 754 3 479 7.9 CLICKS GROUP ANNUAL RESULTS 2017 13
Slide 14: Cash Management
CASH MANAGEMENT 2 040 - (6) (31) (472) R'm (518) 331 (677) (5) Operating Working Net finance Taxation Capex Dividends Other Net increase profit capital costs financing in cash before movements and working investing capital activities CLICKS GROUP ANNUAL RESULTS 2017 14
Slide 15: Capital Expenditure
CAPITAL EXPENDITURE ▪ R680m capex planned for FY2018 ▪ R300m on stores, including: - 25 – 30 new Clicks stores - 30 – 35 new pharmacies - 60 store refurbishments ▪ R380m on infrastructure, including: - Clicks Centurion DC expansion - R74m for UPD ▪ Capex of R650m – R700m p.a. over the next three yea
Slide 16: Medium-Term Financial Targets
MEDIUM-TERM FINANCIAL TARGETS Achieved Medium- in FY2017 term target ROE (%) 44.1 50 – 60 ROA (%) 14.0 14 – 18 Inventory days 65 60 – 65 Group operating margin (%) 6.8 6.5 – 7.5* Retail 7.9 7.5 – 8.5 Distribution 2.7 2.2 – 2.7* Dividend payout ratio (%) 60 60 – 65 * Targets increased CLICKS GROUP AN
Slide 17: Trading Performance
TRADING PERFORMANCE DAVID KNEALE
Slide 18: Health & Beauty Sales Performance
HEALTH & BEAUTY SALES PERFORMANCE % change % contribution Pharmacy 25.7 29.9 Front shop health 13.7 22.9 Beauty and personal care 9.5 31.6 General merchandise 8.4 15.6 Total turnover 14.7 100.0 ▪ Comparable stores turnover growth +8.6% CLICKS GROUP ANNUAL RESULTS 2017 18
Slide 19: Review of the Year
REVIEW OF THE YEAR ▪ Expanding store network ▪ 622 Clicks stores with 473 pharmacies ▪ Only 57 SA stores still to get a pharmacy ▪ Strong performance in pharmacy & health ▪ Good winter for cold and flu ▪ Continued switch to generics +30.4% ▪ Repeat Prescription Service ▪ Promotional sales +24.1% ▪ 3
Slide 20: Review of the Year (Continued)
REVIEW OF THE YEAR (CONTINUED) ▪ Continued investment in customer experience ▪ Private label maintained at 22% of sales ▪ Front shop at 28.5% ▪ Pharmacy at 6.1% ▪ 7.0 million active ClubCard members ▪ 77.4% of sales ▪ Enhanced digital capability ▪ Online platform well received ▪ Clicks app launched
Slide 21: Market Shares
MARKET SHARES % Aug 2017 Aug 2016 Health Retail pharmacy* 22.2 19.7 Front shop health** 29.7 29.0 Baby** 13.9 12.2 Beauty Skincare** 28.3 27.3 Haircare** 27.2 25.7 General merchandise Small household appliances*** 20.0 19.2 * Per Quintiles IMS (Private Retail Pharmacy S1-6) ** Per AC Nielsen (restat
Slide 22: Clicks Group Annual Results 2017
CLICKS GROUP ANNUAL RESULTS 2017 22
Slide 23: Musica Performance
PERFORMANCE Turnover Market share* % change % contribution Aug 2017 Aug 2016 Music (12.8) 39.1 77.6% 69.2% Movies (7.9) 21.8 59.8% 52.3% Gaming (4.3) 18.1 13.9% 15.0% Technology 6.6 21.0 Total turnover (7.0) 100.0 ▪ Structural change exacerbated by weak release schedule in music and movies ▪ Musica
Slide 24: Clicks Group Annual Results 2017
CLICKS GROUP ANNUAL RESULTS 2017 24
Slide 25: Fine Wholesale Turnover
FINE WHOLESALE TURNOVER 3.7% 14.3% 52.2% 29.8% ▪ Wholesale turnover up 12.1% ▪ Benefit of two SEP increases and core customer growth ▪ Wholesale market share 25.6%* * MAT per IMS CLICKS GROUP ANNUAL RESULTS 2017 25
Slide 26: Review of the Year
REVIEW OF THE YEAR ▪ Total managed turnover +8.8% to R16.5bn ▪ 20 distribution clients ▪ Ongoing margin pressure from product mix ▪ Generics increased from 47.2% to 49.1% of wholesale turnover ▪ Business continues to identify efficiency improvements ▪ Service levels further improved – over 96% order
Slide 27: Outlook
OUTLOOK DAVID KNEALE
Slide 28: Drivers of Longer Term Growth
DRIVERS OF LONGER TERM GROWTH ▪ Favourable market dynamics ▪ Expansion of retail footprint ▪ Goal of 900 Clicks stores in South Africa ▪ 30% retail pharmacy market share goal ▪ Differentiated product offer ▪ Objective of 30% front shop private label and exclusive brands ▪ Leveraging customer loyalty
Slide 29: Outlook for FY2018
OUTLOOK FOR FY2018 ▪ Consumer environment will remain challenging ▪ Selling price inflation to come down ▪ 2018 SEP increase likely to be much lower than 2017 ▪ Health & beauty markets and business model are resilient ▪ Investment in stores, IT, supply chain and people to enable growth ▪ Confident o
Slide 30: Thank You
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Slide 31: Disclaimer
DISCLAIMER Clicks Group has acted in good faith and has made every reasonable effort to ensure the accuracy and completeness of the information contained in this presentation, including all information that may be defined as 'forward-looking statements' within the meaning of United States securities