New Clicks Holdings Limited Reviewed Group Results
HomeFinancial highlightsIncome statementSupplementary infoBalance sheetCash flow statementChanges in equityGeographical splitCommentary
CommentaryNew Clicks Holdings
  Commentary

Review by the independant auditor
The financial information has been reviewed by KPMG Inc. whose unqualified review opinion is available for inspection at the company's registered office. It is anticipated that an unqualified audit opinion will be issued in due course once the detailed annual financial statements have been finalised.

Review of trading
We are pleased to report the group results for the year to August 2002. Group sales are up 25.7% and operating profit before interest and tax is up 21.3%. These results reflect intense focus on our group strategies, aimed at aggressive growth and supply chain management.

Growth has been achieved both organically and through acquisitions and the number of stores, including both company-owned stores and franchised stores, has increased from 1 077 at August 2001 to 1 215 stores at August 2002. Franchising is an important element of our future growth strategy as we position ourselves increasingly as a provider of goods and services to multi-brand store formats in a variety of ownership models.

Significant, one-off costs, amounting to R9,1 million were incurred in the repositioning of the Discom brand. In the year ahead the repositioning of the brand will be completed and it is expected to return to its previous levels of profitability A major achievement of the year under review was improved management of stock and working capital. The benefits of the group’s supply chain strategies are beginning to be realised, with stocks in South Africa having been reduced by over R70 million in the six months to August 2002.

Acquisitions
Price Attack
In July 2002 the group acquired Price Attack, a 94-store Australian franchise business of speciality haircare stores with salons. The cost of this acquisition was R89 million. R65 million of this amount was paid on the acquisition date in cash from South Africa and the balance is payable, based on performance, at set future dates.
The brand has considerable growth potential both inside and outside of Australia and will leverage off the New Clicks Australia infrastructure

New United Pharmaceutical Distributors (UPD)
In July 2002, the group concluded an agreement to acquire UPD for an amount of R281 million, subject to approval from the Competition Commission.This approval is expected by November. The acquisition has significant implications in terms of the strategic positioning of New Clicks in the South African healthcare industry. The aim is to help restore margin to retail pharmacy through enhanced productivity and efficiency in the supply chain.

Healthcare update
In terms of the group’s healthcare strategies the group has formed an association with a pharmacy chain, Purchase Milton & Associates (PM & A) providing funding and services to this company. By vir tue of the arrangements with PM & A New Clicks is entitled to acquire all or certain of its pharmacies, subject to certain conditions, when the law relating to pharmacy ownership changes to allow for this.

The loan at the year end amounted to R277 million (2001: R239 million) after the impairment referred to below. During the year under review interest amounting to R45,5 million (2001: R10,1 million) was charged to PM & A in respect of the funding provided. In addition the group also charged R11,4 million (2001: R4 million) in respect of costs incurred on behalf of PM & A.
PM & A has incurred losses in this, the integration and consolidation phase of its business. As a result the directors have decided to subordinate and impair and amount of R78 million of the loan to PM & A.

Despite the conservative approach, the directors are confident that the full amount of the loan will be recovered in the future and the company is fully committed to its journey into healthcare.

Brand overview
Clicks

Total sales for the brand increased by 15.4%, while the sales growth for existing stores was 8.2%. The existing stores sales growth for the second half year was 11.3%.
The ClubCard base continues to grow and advanced data mining techniques are being used to exploit the base enhance and sales.
A strong store development program is in place for the year 2002/03 year. 24 new stores will be opened and a significant number of older stores renovated.
Number of stores

Company-owned 248
Franchised 13
Contribution to group sales 49.1%
Contribution to group operating profit 82.3%

Discom
The rebranding and repositioning of the Discom stores commenced in the year under review with the first of the new-look stores having opened in November 2001.
Total sales for the brand increased by 12.1%, while the sales growth for existing stores was 10.9%.The existing stores sales growth for the second half year was 20.5%.
32 stores were closed during the year and the platform has now been established for significantly improved performance in the 2002/03 year.
Number of stores

Company-owned 180
Franchised 2
Contribution to group sales 13.1%
Contribution to group operating profit -5.4%

Music Division – Musica and the Compact Disc Wherehouse
The Music division produced exceptional performance for the year with all stores sales growth of 24.9% and operating profit growth in excess of 100%.The existing stores sales growth for the year was 12.0%. The success of the Compact Disc Wherehouse large-store format will see two new stores opening during the 2002/03 year. Number of stores

Company-owned 135
Contribution to group sales 8.0%
Contribution to group operating profit 7.1%

The Body Shop
The first Body Shop in South Africa opened in Cavendish Square, Cape Town in October 2001 and a further 10 stores had been opened by the end of August.These stores have been well accepted by consumers and are trading ahead of initial expectations.
During the 2002/03 year an additional nine stores will be opened.
Number of stores

Company-owned 11
Contribution to group sales 0.5%
Contribution to group operating profit 1.1%

The Link Investment Trust (LIT)
The group owns 56% of this trust which holds the franchise for the Link pharmacy group. During the year under review there has been a high level of activity as the capabilities and capacity to provide value to the franchisees has been enhanced. Huge effort has gone into positioning the Link brand as the pre-eminent healthcare brand and the aggressive marketing of the brand has added value to the franchisees.
Number of stores

Franchised 324

Intercare
The first Intercare facility opened in Lynnwood, Pretoria at the end of May 2002. This venture, in which the group has an 80% holding, enables a comprehensive range of healthcare services to be provided under one roof and additional Intercare centres will be opened during the 2002/03 year. The loss reflected for the year was as a result of costs incurred in the start-up phase.

Priceline
Priceline achieved an all store sales increase of 13.4% and an existing store sales increase of 6.5% in a low, 2%, inflation environment. Nine new stores were opened during the year and the success of the ClubCard in Victoria led to the national launch in May 2002. The ClubCard, which already has in excess of 800 000 members, is expected to contribute significantly to turnover growth in 2002/03.
The brand has been positioned for the intergration of pharmacy and costs have been incurred in building the infrastructure for new store activity. During the 2002/03 year 16 Priceline and 14 franchised Priceline pharmacies are planned to open.
Number of stores

Company-owned 126
Contribution to group sales 28.7%
Contribution to group operating profit 14.0%


House
House is Australia’s largest and most successful dedicated kitchenware and giftware retail brand. The results for House are for the first time, for a full twelve months. Ten new franchised stores were opened during the year and the two, previously company-owned stores, were franchised during the year.
Private label and direct importation programmes have added to the differentiation of the brand.
12 new stores will open during the 2002/03 year.
Number of stores

Franchised 80
Contribution to group sales 0.3%
Contribution to group operating profit 2.3%

Price Attack
Acquired effective from 3 July 2002, the franchise income for the two months amounted to over R2,5 million but was offset by non-recurring management and legal costs incurred to develop a compelling franchise model.
Number of stores

Franchised 95

Prospects
Assuming that there will not be a significant worsening of economic conditions the group is optimistic that a strong performance will be achieved in the 2002/03 year. The benefits of key strategies are being realised, a turnaround in the Discom performance is expected and the ongoing growth capabilities of the brands will enhance performance. Additionally, in Australia, the launch of the Priceline Pharmacy and the inclusion of Price Attack for a full year will benefit the group.

Capitalisation share award
The Board has resolved to award capitalisation shares to ordinary shareholders recorded in the share register of the company at the close of business on Friday, 6 December 2002 (“the record date”).The rounded number of capitalisation shares to which a shareholder will be entitled in terms of the capitalisation award will be determined by multiplying the number of ordinary shares held by the shareholder by a ratio. This ratio will be determined by multiplying 14,1 cents per share by 1,05 and dividing the result by the weighted average trading price of the ordinary shares of the company on the JSE Securities Exchange South Africa (“the JSE”) for the three days ending Wednesday, 20 November 2002 (“the issue price”).The last day to trade New Clicks shares on the JSE “cum” the capitalisation award to ensure a purchaser appears as the owner on the record date, will be Friday, 29 November 2002. Shareholders will be given the opportunity to decline the award of capitalisation shares in respect of all or part of their shareholding and instead may elect to receive a cash dividend of 14,1 cents per share (“the cash election”). Documentation in respect of the capitalisation award and the cash election will be posted to shareholders on or about Wednesday, 6 November 2002. In order to be valid, completed forms of election for certificated shareholders wishing to receive the cash election will need to be received by the company’s transfer secretaries by no later than 12:00 on Friday, 6 December 2002. In the case of dematerialised securities, shareholders must inform their duly appointed Central Securities Depository Participants (“CSDP”) or brokers in the manner and time stipulated in the agreement between the shareholder and the CSDP or broker, as to their election. Application will be made to the JSE for the maximum number of capitalisation shares to be listed with effect from the commencement of business on Monday, 2 December 2002 when the price of the company’s securities will be quoted “ex” the capitalisation award. Cheques and share certificates (where required) in respect of new ordinary shares will be posted to shareholders on Monday, 9 December 2002. Shareholders’ accounts in respect of dematerialised securities will be credited by their CSDPs or brokers on Monday, 9 December 2002. Share certificates may not be dematerilaised or rematerialised between Monday, 2 December 2002 and Friday, 6 December 2002, both days inclusive.

By order of the Board
Allan Scott
Company Secretary
14 October 2002

 

Registered address
Cnr Searle and Pontac Streets,
Cape Town 8001 PO Box 5142, Cape Town 8000
Transfer secretaries
Computershare Investor Services Limited
70 Marshall Street, Johannesburg 2001
PO Box 61051, Marshalltown 2107

Directors
DM Nurek*,TC Honneysett, RB Godfrey, PWG. Green, E Osrin*, JC Sher (Australian), PEI Swartz*, A Zimbler*
* non-executive

 
  31 August 2002