interim group results for the six months ended 29 February 2008

Overview

New Clicks showed the resilient nature of its business by posting a pleasing level of real sales growth in the first six months of the 2008 financial year, despite an overall slowdown in consumer spending in the country. The group has benefited from this good trading and its ongoing focus on efficient cash and capital management to exceed its medium-term ROE target of 30% in the period. At the same time the group continued to invest in people, processes and stores for the long-term growth of the business.

Financial performance

Group turnover from continuing operations increased by 13.1% to R5.64 billion (2007: R4.98 billion), with selling price inflation measured at 3.4% for the six month period. Retail turnover increased by 10.7% and 8.5% on a comparable store basis, against inflation of 3.7%. UPD increased turnover by 13.6% and experienced inflation of 3.1% for the period.

Retail total income (comprising gross profit and other income) grew by 16.7% to R1.16 billion, with UPDís total income up 5.3% to R185 million.

The retail operating margin improved from 5.9% to 6.3%, while UPDís margin declined from 3.2% to 2.8%.

The 15.2% increase in group operating expenditure from continuing operations includes a provision for the employee incentive schemes which reflect the current performance of the group, set-up costs for the Blueprint retail programme and Musica store opening costs. Management expects cost growth to be contained below the level of turnover growth for the full year.

Operating profit increased 15.2% as a result of higher turnover and the improved retail margin.

The groupís headline earnings increased 12.0% from R188 million to R210 million, with the results of the Discom business included in the comparative period.

Diluted headline earnings per share benefited from the share buy-back programme and grew 25.8% to 67.8 cents per share. Diluted earnings per share increased 54.0% to 82.4 cents per share, lifted by profit from the disposal of Discom, Style Studio and land adjacent to the groupís head office during the period.

Inventory continued to be well managed, with stock levels increasing by only 4.9% against turnover growth of 13.1%.

During the period the group repurchased 8.8% of its issued share capital, partly funded by the proceeds of the Discom sale.

Cash flow for the period was impacted by timing differences in working capital and the group moving into a net tax cash paying position.

Trading performance

Clicks increased turnover by 11.1%, showing real sales growth of 7.4%. The performance was attributable to the growth of 16.8% in the health category and 13.5% in beauty, highlighting the defensive nature of Clicks in a tightening economy. These categories now account for 73% of total turnover in Clicks. Operating profit increased 22.6% owing to lower shrinkage and wastage, increased private label sales and further efficiencies in the supply chain.

UPD grew turnover by 13.6%, boosted by increased sales to independent pharmacies owing to the success of the Link initiative as well as benefiting from new distribution contracts. Operating profit increased 1.7%. Management anticipates that the business will show a recovery in the second half through improved operating efficiencies and increases in logistics fees.

Strong growth in DVD and gaming sales in Musica contributed to an 8.5% increase in turnover. CD sales declined owing to a lack of popular new local releases, although Musica continued to gain market share. While operating profit for the period was flat, Musica performed in line with budget and was impacted by the opening of 11 new stores. The business is expected to show double digit profit growth for the full year.

The Body Shop grew turnover by 19.8%, supported by the success of the Love Your Body loyalty programme and new store openings. Operating profit increased by 30.4%.

Prospects

The group has clearly defined operational plans to deliver on its strategy and achieve its medium-term targets.

While the trading environment is expected to become more challenging with increasing pressures on consumer expenditure, New Clicks is a largely defensive business which is proving fairly resilient in the current economic climate. Sales for March and April have continued in line with the performance for the first half.

Full-year earnings forecast

In the absence of any unforeseen factors in the macroeconomy and any marked deterioration in the trading environment, the board and management expect diluted headline earnings per share to increase by between 20% and 30% for the year to 31 August 2008. Diluted earnings per share are forecast to grow by between 30% and 40%. These forecasts have not been audited or reviewed by the companyís auditors.