| Fri 11 Apr 2003, 10:20 | | New Clicks Holdings Limited - Interim Group Result |
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New Clicks Holdings Limited - Interim group results for the six months ended 28
February 2003
NEW CLICKS HOLDINGS LIMITED
Registration Number 1996/000645/06
Share Code: NCL ISIN: ZAE000014585
Interim group results for the six months ended 28 February 2003
Turnover +23.1%
Operating Profit +21.2%
Diluted Headline EPS +10.4%
Improved Cash Flow
Consolidated Income Statement
6 months to 6 months to Year to
28 February 28 February 31 August
2003 2002 2002
(unaudited) (unaudited) % (audited)
R"000 R"000 change R"000
Turnover 3 436 679 2 792 414 23.1 5 487 791
Operating profit 214 560 177 034 21.2 318 560
Net interest paid (42 754) (28 961) 47.6 (67 220)
Interest paid - excluding PM&A (42 754) (28 961) (67 220)
Interest accrued - PM&A 28 835 18 593 45 525
Provision - PM&A interest (28 835) (18 593) (45 525)
Net profit after interest 171 806 148 073 16.0 251 340
Provision for impairment of loan - - (32 475)
Net profit before exceptional items 171 806 148 073 16.0 218 865
Exceptional item - goodwill amortised (10 519) (3 786) (11 346)
Net profit before taxation 161 287 144 287 207 519
Taxation 48 106 41 722 15.3 61 319
Profit attributable to ordinary
shareholders 113 181 102 565 10.4 146 200
Adjustment for goodwill amortised 10 519 3 786 11 346
Headline earnings 123 700 106 351 16.3 157 546
Headline earnings per share (cents)
Undiluted 38.5 35.4 8.8 52.2
Diluted 37.0 33.5 10.4 49.7
Earnings per share (cents)
Undiluted 35.2 34.2 2.9 48.4
Diluted 33.9 32.3 5.0 46.1
Distribution per share (cents) 10.9 9.9 10.1 24.0
Consolidated Balance Sheet
As at As at As at
28 February 28 February 31 August
2003 2002 2002
(unaudited) (unaudited) (audited)
R"000 R"000 R"000
ASSETS
Non-current assets 1 363 239 1 053 394 1 195 134
Property plant & equipment 691 885 584 044 617 767
Goodwill 245 924 74 987 182 502
Loans 358 018 364 247 331 755
Deferred taxation 67 412 30 116 63 110
Current assets 1 755 058 1 259 682 1 266 656
Inventories 1 288 652 1 094 058 1 055 137
Accounts receivable 466 406 162 729 196 624
Taxation prepaid - 2 895 14 895
Total assets 3 118 297 2 313 076 2 461 790
EQUITY AND LIABILITIES
Capital and reserves
Ordinary shareholders" interest 1 558 789 1 144 794 1 221 757
Non-current liabilities
Interest-bearing liabilities 235 037 235 305 230 546
Current liabilities 1 324 471 932 977 1 009 487
Accounts payable 1 163 406 753 549 887 542
Short-term borrowings 139 984 179 428 108 583
Taxation payable 21 081 - 13 362
Total equity and liabilities 3 118 297 2 313 076 2 461 790
Consolidated Cash Flow Statement
6 months to 6 months to Year to
28 February 28 February 31 August
2003 2002 2002
R"000 R"000 R"000
Net cash flow from operations 269 051 224 238 418 834
Movement in working capital (105 235) (149 063) (10 705)
Net interest paid (42 754) (28 961) (67 220)
Taxation paid (35 937) (55 252) (89 508)
Cash effects of operating activities 85 125 (9 038) 251 401
Distributions to ordinary shareholders (8 596) (16 186) (37 736)
Net cash effects of operating activities 76 529 (25 224) 213 665
Net cash flow utilised in
investing activities (104 667) (132 506) (310 034)
(28 138) (157 730) (96 369)
Net cash effects of financing activities (7 186) (8 576) 717
Net decrease in cash and cash
equivalents (35 324) (166 306) (95 652)
Consolidated Changes in Equity
6 months to 6 months to Year to
28 February 28 February 31 August
2003 2002 2002
(unaudited) (unaudited) (audited)
Increase in share capital and premium 336 651 21 990 39 952
(Decrease)/increase in non-distributable
reserve (69 727) 38 189 83 611
Net profit for the period 113 181 102 565 146 200
Distributions to shareholders (43 073) (33 483) (63 539)
Net increase in shareholders" funds 337 032 129 261 206 224
Opening shareholders" interest 1 221 757 1 015 533 1 015 533
Closing shareholders" interest 1 558 789 1 144 794 1 221 757
Percentage increase in closing
shareholders" interest 36.2
Segmental Analysis
The geographical split and split per brand of turnover and profit is as follows:
6 months to 6 months to
28 February 28 February
2003 2002 %
R"000 R"000 change
Turnover
Clicks 1 522 393 1 354 224 12.4
Discom 391 732 368 063 6.4
Music division 268 041 242 278 10.6
The Body Shop 24 903 12 056 106.6
Link Investment Trust 9 431 6 504 45.0
United Pharmaceutical Distributors 329 392 -
Southern African operations 2 545 892 1 983 125 28.4
Priceline 882 777 799 050 10.5
House 6 581 10 239
Price Attack 1 429 -
Australian operations 890 787 809 289 10.1
Total 3 436 679 2 792 414 23.1
Operating profit before interest and tax
Clicks 139 294 140 131 -0.6
Discom (2 214) (13 447)
Music division 18 625 15 532 19.9
The Body Shop 3 357 1 004 234.4
Link Investment Trust 987 (1 812)
Intercare (362) (759)
United Pharmaceutical Distributors 10 095 -
Southern African operations 169 782 140 649 20.7
Priceline 35 840 32 145 11.5
House 4 053 4 240 -4.4
Price Attack 4 885 -
Australian operations 44 778 36 385 23.1
Total 214 560 177 034 21.2
Impact of foreign currency fluctuations
The rates of exchange applied in the conversion of the Australian dollar to the
rand are reflected below (rands to the Australian dollar).
2003 2002
Income statement items - average rate
for the 6 months to 28 February 5.31738 5.32669
Balance sheet items - rate at 28 February 4.92580 5.73710
The impact of the exchange rate movement on the group"s performance is reflected
below by restating the turnover and operating profit for the Australian
operations for the current period at the rate applied for the period ended
February 2002.
6 months to 6 months to
28 February 28 February
2003 2002 %
R"000 R"000 change
Turnover
Southern Africa 2 545 892 1 983 125 28.4
Australia 892 346 809 289 10.3
3 438 238 2 792 414 23.1
Operating profit before interest and tax
Southern Africa 169 782 140 649 20.7
Australia 44 856 36 385 23.3
214 638 177 034 21.2
Supplementary Information
28 February 28 February 31 August
2003 2002 2002
Number of ordinary shares in issue ("000) 353 468 302 173 305 172
Weighted average number of shares in
issue ("000) 321 246 300 142 301 772
Weighted average diluted number
of shares in issue ("000) 334 075 317 720 317 272
Net asset value per share (cents) 441 379 400
Net tangible asset value per share (cents) 371 354 341
Depreciation (R"000) 52 418 46 150 96 426
Capital expenditure (R"000) 80 998 69 627 158 005
Capital commitments (R"000) 116 966 43 792 225 011
Accounting policies and restatement of comparatives
These interim financial statements have been prepared in accordance with the
South African Statements of Generally Accepted Accounting Practice, and the
accounting policies are consistent with the prior year, other than the changes
reflected in the notes below.
1. Loan to Purchase Milton & Associates (PM&A)
For the period under review, PM&A, the pharmacy chain that the group has an
association with, traded at a loss of R8,2 million before the interest charge
from the group, and had a shareholders" deficit of R140,8 million as at February
2003. The loan to PM&A from the group amounted to R283,1 million at the end of
February 2003 after the impairment disclosed at August 2002 and the interest
provision explained in note 2 below. PM&A are however forecasting a trading
profit for the full year to August 2003 before interest. The directors are of
the opinion that no further impairment of the loan is required on the basis of
the value in use calculation, as they are pleased with the progress in the
turnaround of the business and its future potential. It is anticipated that the
imminent changes in healthcare legislation will allow New Clicks Holdings to
acquire the business of PM&A and to consolidate its operations, subject to the
relevant regulatory approvals.
2. Net interest
As PM&A traded at a loss for the period, the directors have decided to
provide in full for the interest accrued on the loan to PM&A, and will continue
to do this until such time as the interest is covered by trading profits.
The comparatives for the six months to February 2002 have been restated on the
same basis, which has resulted in a reduction in headline earnings of R13
million and a reduction in undiluted headline earnings per share of 4.4 cents.
In addition, for the year to August 2002, to achieve consistency, part of the
impairment has been allocated as a provision against interest accrued, with the
balance remaining as an impairment. The effect of this on headline earnings is
included in note 3 below.
3. Accounting circular on headline earnings
In line with the new definition of headline earnings, any impairment in
respect of the loan to PM&A must be taken into account in headline earnings. The
comparative figures for the year to August 2002 have been restated in line with
this. The effect of this change for the year to August 2002 is to reduce
headline earnings by R54,6 million and to reduce undiluted headline earnings per
share by 18,1 cents.
Commentary
Group results
New Clicks Holdings has continued to focus on consolidating its multi-brand
retail offering in the health, beauty and lifestyle sectors. The executive team
has paid particular attention to supply chain and stock management, the
rejuvenation of core brands and improving overall financial management. The
group has also been strategically repositioning itself to embark on a growth
strategy in anticipation of the legislative changes allowing for corporate
pharmacy ownership.
Group turnover for the six months exceeded the R3 billion mark for the first
time, increasing by 23% to R3,4 billion. Operating profit before interest and
tax showed a 21% improvement to R215 million. These figures have been positively
impacted by the acquisitions of Price Attack in Australia and New United
Pharmaceutical Distributors (UPD). When the contribution from these acquisitions
is excluded, the growth in group turnover was 11%, with operating profit posting
a 13% increase.
The 48% rise in interest paid by the group is a factor of the prevailing high
interest rate environment, and the financing raised for the purchase of Price
Attack. The increase in several balance sheet items, including goodwill, can be
attributed mainly to the inclusion of UPD from January 2003.
Divisional review
New Clicks South Africa
The trading conditions during the period under review proved challenging for
most brands, as sales volumes and margins were generally below expectations.
More aggressive promotional programmes have been developed to stimulate sales
growth. Consumer spending is likely to benefit from lower inflationary
prospects. The impact of the tax concessions announced in the Budget will start
to filter into the economy and interest rate cuts are expected later in the
year.
Clicks
Sales of health and beauty merchandise have shown strong real growth. This
has been tempered by the slowdown in sales of certain categories of higher
margin lifestyle goods, which resulted in a 12% overall increase in turnover.
Operating profit declined marginally, mainly due to the change in product mix
from declining sales in parts of the lifestyle category. The category team has
been restructured, which we believe will result in an improved buying strategy,
particularly for lifestyle products. Owing to the nature of buying cycles for
lifestyle goods - many of which are imported - the refocused buying process will
take time to deliver results and can only realistically be expected to have an
impact in the latter stages of calendar year 2003. An extensive store
refurbishment programme is in progress.
Discom
After suffering major losses in 2002 during the restructuring and
repositioning of the Discom brand, the business has turned around and in the
period under review it has reduced its operating loss from R13,4 million to R2,2
million, which is a significant improvement of R11,2 million. The business is
forecasting a profit for the year to end August 2003. Discom has traditionally
focused on lower margin FMCG merchandise but has recently altered the product
mix to increasingly focus on hair care and African beauty. Discom also struggled
to source appropriate lifestyle products for its market. The refocusing of the
category teams addresses this and should contribute to further increases in
sales growth. As the brand repositioning continues, eight stores in rural areas
have been closed and new stores are being planned in shopping centres which are
appropriate for this re-energised and vibrant brand.
Music Division - Musica and Compact Disc Wherehouse
Following a successful performance in the previous financial year, the growth
rates in the Music Division have slowed down in line with general retail trading
trends. Musica continues to dominate its market, and prospects remain positive
as the local music and entertainment industry is in a healthy state, despite the
pressures on this industry worldwide.
The Body Shop
The performance of The Body Shop continues to exceed expectations, with sales
of R24,9 million and a R3,4 million contribution to operating profit in its
second year. A further ten stores are planned to be opened during this calendar
year.
New United Pharmaceutical Distributors (UPD)
The acquisition of UPD came into effect on 1 January 2003 and consequently
the performance of UPD has been incorporated into the group results for two
months. UPD continues to perform according to plan, and positions the group to
maximise potential in the healthcare market. By combining this integrated
channel to market and the negotiating capabilities of the New Clicks group, UPD
will make available better product and price to all of its 5 200 customers.
Link Investment Trust (LIT)
Link has shown a pleasing turnaround and management is satisfied with its
operating profit level. For the first time, we are able to add significant value
in sales and margins to the Link franchise through our new subsidiary, UPD.
Intercare
Intercare combines the professional services of independent doctors and
pharmacy. This concept allows doctors and pharmacists to work more efficiently
in the interests of their patients. The project is in its pilot phase and is
progressing in line with expectations. Three more centres are planned to open
during the year.
South African healthcare update
It is anticipated that the long-awaited changes to legislation governing
pharmacy ownership will be promulgated within the next month. We expect that as
a result of the changes, New Clicks will be able to implement the purchase
agreement of Purchase Milton & Associates and to allow pharmacists to operate in
Clicks stores, subject to licensing criteria and the approval of the competition
authorities. We look forward to the change in legislation, which will lead to
more affordable healthcare being accessible to a broader range of South
Africans. The group is committed to the healthcare industry and will ensure that
the process is implemented to the benefit of all stakeholders, including the
public and pharmacists.
New Clicks Australia
Consumer confidence has declined and shopping habits have been dampened by
continuing unfavourable news emanating from the business sector and on the
international front. Management is, however, confident that consumers are well
positioned to drive moderate spending growth, given positive economic data and
the historic low levels of interest rates. In light of this environment, we are
pleased with the sustained market share gains by our Australian businesses.
Priceline
Priceline achieved a sales increase of 10.5%, with seven new stores opened
during the six month period. Priceline ClubCard signed its millionth member in
March, just seven months after launch, and more than 12 000 members are joining
each week. Two Priceline Pharmacy franchise stores have been opened, and a
further eight are planned in the current year.
House
House has delivered a pleasing performance and while operating profit has
declined, this can be attributed to the disposal of two company-owned stores to
franchisees during the year. Franchise stores in this environment generate a
better return on capital. The newly appointed leadership team is creating a
fresh positioning for the brand, particularly in the face of an increasingly
competitive environment which has seen several new entrants into the market.
Eight new franchise stores have been opened and four more are planned in the
next six months.
Price Attack
Price Attack reinforced its position as Australia"s leading salon hair care
franchise chain through aggressive promotions and innovative area marketing to
deliver a strong result. Franchisees have benefited from the shared service
structure of New Clicks Australia. Four new franchise stores have been opened in
the last six months and a further six will be opened before August 2003.
Prospects
During the past few years several areas of the business have been
restructured and strategies have been implemented to increase the focus on core
areas of performance and growth. The outcome of these initiatives has resulted
in the group being well positioned for future growth and the directors are
confident that this will lead to an improved performance from the core brands.
New Clicks has also invested considerable resources in planning and gearing up
for the potential that exists when the laws governing pharmacy ownership in
South Africa are changed. The group"s healthcare model - aimed at providing more
affordable healthcare in the pharmacy arena - presents widespread opportunities.
These factors are expected to contribute to an improved performance in the
second half of the year when compared to the corresponding period last year.
Capitalisation award with interim dividend option
The Board has resolved to award capitalisation shares to ordinary
shareholders recorded in the share register of the company at the close of
business on Friday, 4 July 2003 ("the record date"). The rounded number of
capitalisation shares to which a shareholder will be entitled in terms of the
capitalisation award will be determined by multiplying the number of ordinary
shares held by the shareholder by a ratio. This ratio will be determined by
multiplying 10,9 cents per share by 1,05 and dividing the result by the weighted
average trading price of the ordinary shares of the company on the JSE
Securities Exchange South Africa ("the JSE") for the three days ending
Wednesday, 18 June 2003 ("the issue price") which ratio will be announced on
Thursday, 19 June 2003. The last day to trade New Clicks" shares on the JSE
"cum" the capitalisation award to ensure a purchaser appears as the owner on the
record date, will be Friday, 27 June 2003. Shareholders will be given the
opportunity to decline the award of capitalisation shares in respect of all or
part of their shareholding and instead may elect to receive a cash dividend of
10,9 cents per share ("the cash election"). Documentation in respect of the
capitalisation award and the cash election will be posted to shareholders on or
about Monday, 26 May 2003. In order to be valid, completed forms of election for
certificated shareholders wishing to receive the cash election will need to be
received by the company"s transfer secretaries by no later than 12:00 on Friday,
4 July 2003. In the case of dematerialised securities, Central Securities
Depository Participants ("CSDP") or brokers should be notified of beneficial
owner elections in sufficient time for the CSDP to inform the company by 12:00
on Friday, 4 July 2003, as to their election. Application will be made to the
JSE for the maximum number of capitalisation shares to be listed with effect
from the commencement of business on Monday, 30 June 2003 when the price of the
company"s securities will be quoted "ex" the capitalisation award. The number of
shares listed will be adjusted on or about Tuesday, 8 July 2003. Cheques and
share certificates (where required) in respect of new ordinary shares will be
posted to shareholders on Monday, 7 July 2003. Shareholders" accounts in respect
of dematerialised securities will be credited by their CSDPs or brokers on
Monday, 7 July 2003. Share certificates may not be dematerialised or
rematerialised between Monday, 30 June 2003 and Friday, 4 July 2003, both days
inclusive.
By order of the Board
ALLAN SCOTT
Company Secretary
10 April 2003
Sponsor:
Investec Securities Limited
Member of the JSE
(Registration number. 1972/008905/06)
Registered address:
Cnr Searle and Pontac Streets,
Cape Town 8001
PO Box 5142,
Cape Town 8000
Directors:
D.M. Nurek*, T.C. Honneysett, R.B. Godfrey, P.W.G. Green, E. Osrin*,
J.C. Sher (Australian), P.E.I. Swartz*, A. Zimbler*
* non-executive
Transfer Secretaries:
Computershare Investor Services Limited
70 Marshall Street, Marshalltown, Johannesburg 2001
PO Box 61051, Marshalltown 2107
This information together with additional detail is available on the
New Clicks Holdings website: http://www.newclicks.co.za
Registration Number 1996/000645/06 Share Code: NCL ISIN: ZAE000014585
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