REVIEWED PRELIMINARY GROUP RESULTS for the year ended 31 August 2008


New Clicks posted strong real sales growth for the year, demonstrating the resilient nature of its business and product offering in a slowing consumer economy. The group’s businesses all strengthened their market position and recorded market share gains in the period.

Return on shareholders’ interest (ROE) increased from 24.7% to 32.8% as the group achieved all its medium-term financial targets. The group’s ROE has more than doubled since 2005 while diluted headline earnings per share (HEPS) has shown a three-year compound growth rate of 32.0%.

Despite the challenging trading environment the group has continued to invest for longer-term growth.

Financial performance

Continuing operations

Turnover increased by 12.2% to R11.3 billion (2007: R10.1 billion), with selling price inflation of 3.9% for the year.

Turnover from the retail businesses of Clicks, Musica and The Body Shop rose by 11.6% and 9.2% on a comparable store basis, with price inflation of 3.8%. UPD, the groupís pharmaceutical distributor and wholesaler, lifted turnover by 13.3% and reported price inflation of 3.9%.

Total income (gross profit plus other income) increased 15.0% to R2.7 billion.

The 13.5% growth in operating expenditure was contained below the growth in total income. Operating expenditure includes the costs relating to the hedge on the employee incentive schemes, with the value of the hedge moving in line with market movements. When the mark-to-market valuation of the hedge is excluded, growth in operating expenditure was held at 10.8%.

The retail operating margin improved from 5.4% to 6.1% while UPDís margin was maintained at 3.2%, resulting in an overall increase in the margin to 5.2% (2007: 4.9%).The improved margin and higher turnover growth translated into a 19.9% increase in operating profit to R592 million.

Total group

Headline earnings increased 12.3% from R357 million to R401 million.

Diluted HEPS per share increased 28.1% to 131.9 cents per share, continuing to benefit from the share buy-back programme. Diluted earnings per share were boosted by the disposal of businesses and sale of land during the year and rose 32.5% to 145.6 cents per share. This performance is in line with the earnings forecast ranges provided with the interim results and the tighter ranges communicated in the trading statement published on 6 October 2008.

Cash generated from operations increased by 16.3% to R724 million. The free cash flow(cash inflow from operating activities before distributions) of R264 million is impacted by two factors: firstly, changes to working capital funding over the past two years and secondly, timing differences attributed to cash tax payments after utilising tax losses. Management believes a normalised level of free cash flow for the period would be R643 million.

Trading performance

Clicks continued its strong performance and increased turnover by 12.1%, with real sales growth of 8.2%. Sales on a comparable store basis increased 10.2%. The key drivers of growth were the health and beauty merchandise categories which grew 19.5% and 13.0% respectively, confirming the defensive nature of the Clicks offering in a tough economic environment. Clicks extended its pharmacy network to 157 following the opening of 32 new pharmacies. Improved store processes and better buying lifted the operating margin from 5.3% to 6.0%, resulting in a 26.7% increase in operating profit.

UPD increased turnover by 13.3%, benefiting from the growth of the Link pharmacy buying group, a new distribution contract and sales to hospital groups. Overall market share increased from 25.6% to 26.4%. Despite pressure on transport costs, improved operating efficiencies resulted in a steady increase in operating profit in the second half, with growth of 11.0% for the financial year.

Musica increased turnover by 7.7% as trading slowed in the second half. DVD sales grew 19.7% and gaming 26.2%, although CD sales declined 3.0%. Musica has made a successful transition from music to an entertainment business, with sales of non-music products increasing from 41% to 46% of total turnover for the year. Tight cost control and good merchandise buying contributed to a 16.7% increase in operating profit.

The 17.5% growth in turnover in The Body Shop was driven by new store openings and the Love Your Body loyalty programme. Operating profit increased by 13.0%.


The groupís strategic objectives remain unchanged and the medium-term ROE target has been revised upwards to 35 Ė 40% to reflect improved prospects.

The performance over the past year has shown that the groupís businesses are robust and well positioned in the current trading environment. Capital expenditure of R250 million has been committed for the year ahead.

In the absence of any marked deterioration in trading conditions, shareholders can expect continued real earnings growth in the 2009 financial year.