| Fri 22 Oct 2004, 11:42 | | New Clicks earnings below expectations |
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New Clicks earnings below expectations
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Group`s shares fall about 10% in past 10 days
Consumer Industries Editor
CAPE TOWN Retail group New Clicks Holdings, which owns chains such as Clicks and The Body Shop that focus on health and beauty, reported growth in annual headline earnings below market expectations as it continued restructuring to take advantage of opportunities in the pharmacy sector.
The I-Net Bridge consensus forecast was that the group would report headline earnings of 79,9c for the year to August and a dividend of 31,5c.
Instead, New Clicks grew diluted headline earnings 15,5% to 74,5c compared with the corresponding period last year but it raised the total dividend 34,6% to 35c a share.
The group`s shares have fallen about 100c, or 10%, to 755c in the past 10 days after it published a trading update warning that its core retail brands had underperformed in the second half of the financial year, and it would make a goodwill write-off on Purchase Milton & Associates (PM&A).
PM&A is the pharmacy group that owns various Link-branded pharmacies.
New Clicks financial director André Vermeulen said yesterday that accounting conventions required a write-down of goodwill since its projected cash flows for the next five years were lower than its carrying value as new medicine pricing regulations would reduce margins.
The new regulations limit the markups that pharmacists can charge for dispensing, and New Clicks is challenging these in court.
Group revenue from continuing operations rose 27,8%, to R7,8bn, but profit before interest and tax fell 64,3%, to R116,2m, after the R258,2m goodwill impairment on PM&A. The segmental breakdown shows the core Clicks chain, which contributes almost half of group turnover, increased turnover by 9% and profit before interest and tax by 17,3%.
New Clicks group leader Trevor Honneysett said at a presentation yesterday that Clicks` August sales fell 12% because in August last year sales were boosted by a special promotion that could not be equalled this year.
In the first seven weeks this year, Clicks turnover had risen 11% over last year, Honneysett said.
PM&A reported a loss of R5,5m for the six months in which it was included with group results, instead of breaking even as anticipated, as it was affected by the uncertainty over the regulations.
United Pharmaceutical Distributors increased its contribution to profits in the 12-month period compared with eight months last year and recorded particularly strong growth in the final quarter as its service levels and valueadded services gave it a competitive edge. Discom, a producer of beauty and hair-care products, grew turnover 13,9% and turned from an operating loss last year to a profit this year.
The entertainment division, which includes Musica and CD Wherehouse, reported a 19,8% decline in profit as a result of a weak first half, but it performed strongly in the second half.
The Body Shop, a beauty chain run under licence from the UK group, raised profit only 2,4% after rolling out six new stores and spending on marketing.
The group`s planned capital spending in the current financial year is R225m, of which about R72m will be spent on converting Clicks stores to pharmacies.
