reviewed preliminary group results for the year ended 31 August 2007

Overview

New Clicks has delivered a strong trading, operational and financial performance as the group continues to make encouraging progress towards achieving its medium-term performance targets.

The focus on working capital management saw the group generate cash of R420 million after repurchasing shares of R558 million and continuing to invest for long-term growth across its businesses.

Shareholder value has been enhanced with a 45.2% increase in total distributions for the year to 48.2 cents per share. The groupís return on equity (ROE) continued its strong growth trend, improving from 16.7% to 24.7%.

The senior management teams in Clicks, UPD and Musica have all been strengthened to increase the depth of management talent in the group.

Following the sale of Discom, the ethnic beauty and hair care retailer, with effect from the beginning of September 2007, the groupís retail brands are all now focused on middle and upper income customers.

Financial performance

Group turnover increased by 12.0% to R11.2 billion (2006: R10.0 billion), with selling price inflation (ďinflationĒ) for the period measured at 2.3%. Retail turnover increased by 13.1% and by 13.2% on a comparable store basis, with inflation of 2.5%. UPD increased turnover by 11.2% and experienced inflation of 2.0% for the year.

Retail gross margin improved to 27.3% (2006: 27.1%), resulting in retail gross profit increasing by 13.8% to R2.1 billion. UPDís total income (gross profit and other income) improved to 8.5% of turnover (2006: 8.3%).

The growth in operating expenditure of 9.0% was held below turnover growth.

Costs were impacted by higher employee incentive scheme expenses relating to improved performance, the introduction of the blueprint store renewal programme in Clicks and volume-related costs.

Operating profit increased 35.8%, reflecting the improved turnover, margin and operating efficiencies.

Headline earnings increased by 41.9% to R356.9 million (2006: R251.6 million). Diluted headline earnings per share grew 45.1% to 103.0 cents per share, in line with the earnings forecast range communicated in the groupís trading statement on 3 October 2007. During the year the group sold properties at a capital profit of R28.4 million (after tax), which resulted in basic earnings per share growing by 58.5% to 113.2 cents per share.

Working capital management continued to be a priority for the group. Inventory levels were reduced by 2.8% over the previous year, despite the 12.0% growth in turnover, while inventory measured by days in stock improved from 66 to 57 days.

The improved cash generation is also reflected in the 32.1% reduction in net interest paid.

The group repurchased 14% of its issued share capital during the year, including R558 million in the open market and R125 million by forward agreement, at an average price of R13.68 per share. The group plans to continue the share repurchase programme in the new financial year and will utilise the net proceeds of the Discom sale towards this purpose.

Trading performance

Retail

Clicks has continued to realise the benefits of its focused merchandise strategy, increasing turnover by 14.3%. The performance was driven mainly by growth of 19.0% in health and 15.6% in beauty, with these two categories now accounting for 70.4% of total turnover. Comparable store sales grew by 14.3% with inflation of 2.8% for the year. Further operating efficiencies led to a 43.2% increase in operating profit to R296 million. Clicks expanded its store base to 320 and opened a further 21 dispensaries to bring the national pharmacy network to 125.

Musica has further entrenched its position as an entertainment brand and strong growth in DVD and gaming sales contributed to a 12.1% increase in turnover. Same store sales growth was 10.0% while the business experienced deflation of 1.3%. Non-music merchandise accounted for 41% of turnover (2006: 35%). Musicaís operating profit increased 67.7% to R43 million.

The Body Shop increased turnover by 26.3%, boosted by the opening of four new stores and customer response to its loyalty programme. Comparable store sales grew 19.3% with inflation of 5.3%. Operating profit increased 24.7% to R14 million.

Discom lifted turnover by 7.0%, with operating profit up 17.9% to R40 million. During the year 25 stores were closed, including six which were converted to Clicks and one to Musica.

Wholesale distribution

UPD increased turnover by 11.2% and continued to diversify its client base. An automated pharmaceutical distribution facility was taken into operation late in the financial year at an investment of R43 million to further enhance efficiencies. UPDís expenses were well managed and the operating margin increased from 3.0% to 3.2%, resulting in a 21.0% increase in operating profit to R139 million.

Prospects

Management is confident that the groupís strategy will provide sustainable competitive advantage. Plans have been developed to deliver the strategy, including implementing the Clicks blueprint programme, diversifying UPDís revenue base and expanding the entertainment offering of Musica. Retail space will be expanded by 5% with the planned opening of 38 to 40 new stores.

The trading environment is expected to become more challenging in 2008 and uncertainty continues to prevail over healthcare regulations.

Nevertheless, the group remains confident of delivering improvements in operating margin and continued cash generation, and anticipates achieving the ROE target of 30% in 2008. Earnings are expected to grow at a more normalised level off the higher base set in 2007.