New Clicks Holdings increased turnover by 34% to R7.4 billion for
the financial year, a performance which was bolstered by the acquisition
of New United Pharmaceutical Distributors (UPD) during the year.
Comparable turnover growth was a more modest 8.2% and this was negatively
impacted by declining sales in the lifestyle merchandise category
in South Africa and the effect of the strengthening Rand on the
results of New Clicks Australia.
The group lifted operating profit by 20% from R319 million to R382
Headline earnings per share grew 26% to 65.6 cents per share, while
diluted headline earnings per share showed a 30% rise to 64.5 cents
per share. The increase is largely due to an impairment of R32.5
million of the loan to pharmacy group Purchase Milton & Associates
(PM&A) which was reflected in the 2002 figures. No further impairment
was considered necessary in 2003. Diluted headline earnings per
share adjusted for the PM&A provision increased by 13.4%.
The 10.3% decline in the group’s operating margin from 5.8%
to 5.2% can be attributed to the lower margin profile within UPD’s
business and the change in product mix as a result of the disappointing
Interest paid by the group rose by 25.1% owing to the higher average
interest rates during the period, the financing costs for the purchase
of Price Attack in Australia and the increased inventory levels.
Year-end stock levels, excluding UPD, were 16% higher than last
year, mainly as a result of the stocks required for the promotional
strategy being pursued by the Clicks and Discom brands, the increased
volumes of imports and the earlier landing of these stocks, as well
as the growth in the number of Body Shop stores.
A strategic decision has been taken by the board of New Clicks Holdings
to operate the South African and Australian divisions on an autonomous
basis. Management structures spanning the two regions have been
dismantled and the respective leadership teams have been given responsibility
for their own strategic planning and implementation. Cost savings
are expected to flow from the separation of the two geographic divisions.
New Clicks South Africa and New Clicks Australia will continue to
have a working relationship and share knowledge and information
at a high level.
New Clicks South Africa
The changes in legislation allowing for corporate ownership of pharmacies
has enabled the group to translate its healthcare vision into reality
and move towards introducing dispensaries into Clicks stores.
Allied to this was the approval granted by the Competition Tribunal
for New Clicks to acquire PM&A, which operates 80 pharmacies
around the country. It is encouraging that PM&A has started
to show an improved operating performance, posting a profit before
interest and goodwill write-off for the second half of the year.
The performance of the core Clicks brand was impacted by the disappointing
lifestyle turnover, and despite strong real growth in both the beauty
and health merchandise categories, turnover growth was restricted
The new leadership team has taken strong remedial action to arrest
the decline in homewares by anticipating customer needs and focusing
on the presentation of merchandise in its promotional campaigns.
Early indications are that the recently introduced homewares range
is meeting customers’ expectations for both value and quality.
Discom continues its turnaround and despite not yet returning to
profitability, reduced its operating loss from R20.6 million to
R5.6 million. Discom has shown strong growth in its African beauty
and hair care products but has been hampered by a slowdown in homeware
sales. The youthful image and upbeat brand positioning of Look Good,
Feel Good is finding increasing favour with emerging market consumers.
The benefits of the acquisition of UPD are already starting to emerge,
with the division contributing R54.3 million for the eight months
it has been in the group. This profit is slightly ahead of initial
expectations and is a positive reinforcement of management’s
confidence in the future of the division. With its inclusion in
the group, UPD is able to negotiate more favourable prices from
manufacturers and these are already being passed on to PM&A
and Link pharmacies, as well as other independent customers.
The music division increased profit by 19.6%, despite tough trading
conditions and a general slowdown in sales in the music industry.
The Body Shop, while coming off a low base, increased its stores
during the year and showed a 93.5% growth in profit.
New Clicks Australia
New Clicks Australia (NCA) experienced a difficult trading period
and its contribution to the group’s headline earnings declined
in Rand terms.
During the year NCA implemented its pharmacy strategy. The model
adopted in Australia enables pharmacists to continue owning and
managing the pharmacy, while NCA provides ‘front shop’
expertise and services. This provides pharmacists with a more sustainable
business with higher margin and increased turnover. Seven pharmacies
were opened and further stores are planned for the new financial
NCA has developed a strategy to convert selected stores to pharmacy
and sell the businesses to franchise holders. The sale of two Priceline
stores during the reporting period realised A$5.2 million (R26.5
million) and the stores will in future generate franchise fees for
Price Attack, which was acquired in July 2002, was successfully
integrated into NCA.
A new management structure was implemented to enable NCA to operate
as an independent business. Brand leadership was also strengthened,
with new leaders being appointed for Priceline and Price Attack,
while a new brand team was assembled for House.
The first Clicks Pharmacy will be opened in November, with a substantial
number of pharmacies planned for the forthcoming year. Pharmacy
dispensaries will allow Clicks to offer an essential commodity to
customers for the first time and ensure that a higher volume of
sales will be generated through an existing infrastructure. The
pharmacy offering, together with an improved lifestyle merchandise
range, will lead to the emergence of Clicks as the pre-eminent healthcare
Discom is expected to return to profitability this year as the benefits
of its restructuring and repositioning become evident.
Management is committed to a substantially increased focus on performance
delivery, as well as delivery on a number of strategic objectives
across the group.
Based on the forecast performance for the group, the directors are
confident that shareholders can expect continued real growth in
earnings in the year ahead.
The board of directors has declared a final cash dividend of 15.1
cents per share payable on Monday, 8 December 2003 to shareholders
recorded in the register of the company at the close of business
on Friday, 5 December 2003. The last day to trade (“cum”
the dividend) in order to participate in the dividend will be Friday,
28 November 2003 and the shares will trade “ex dividend”
from the commencement of business on Monday, 1 December 2003. The
record date will be Friday, 5 December 2003.
Share certificates may not be dematerialised or rematerialised between
Monday, 1 December 2003 and Friday, 5 December 2003, both dates
|By order of the Board
15 October 2003
Cnr Searle and Pontac Streets,
Cape Town 8001
PO Box 5142, Cape Town 8000
70 Marshall Street, Marshalltown, Johannesburg 2001
PO Box 61051, Marshalltown 2107
DM Nurek (chairman)*, TC Honneysett, RB Godfrey, E Osrin*, JC Sher
(Australian), PEI Swartz (deputy chairman)*,