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