| Wed 26 Oct 2005, 8:30 | | New Clicks - Reviewed group results for the year e |
|
New Clicks - Reviewed group results for the year ended 31 August 2005
New Clicks Holdings Limited
Registration Number 1996/000645/06
Share code: NCL ISIN: ZAE000014585
REVIEWED GROUP RESULTS FOR THE YEAR ENDED 31 AUGUST 2005
Consolidated Income Statement
Year to Year to
31 August 31 August
2005 2004 %
(reviewed) (restated) change
R"000 R"000
Continuing operations
Revenue 9 257 116 7 831 855 18.2
Turnover 8 714 338 7 369 472 18.2
Cost of merchandise 7 004 862 5 831 863 20.1
Gross profit 1 709 476 1 537 609 11.2
Other revenue 542 778 462 383 17.4
Expenditure 1 910 781 1 892 342 1.0
Operating expenditure 1 893 697 1 607 759 17.8
Impairment of property, plant and
Equipment 13 496
Loss on disposal of property, plant
and equipment 270 1 920
Goodwill amortised 10 971
Goodwill impaired 16 814 258 196
Profit before interest and tax 341 473 107 650
Net interest paid (49 086) (54 470) (9.9)
Net interest paid normal operations (49 086) (54 470)
Interest accrued Purchase Milton &
Associates (PM&A) 24 986
Provision against interest accrued
PM&A (24 986)
Net profit before taxation 292 387 53 180
Taxation 87 754 91 044 (3.6)
Net profit/(loss) from continuing
Operations 204 633 (37 864)
Discontinued operations
Turnover 654 651
Profit before interest and tax 38 932
Net interest paid (5 308)
Net profit before taxation 33 624
Taxation 14 287
Net profit from discontinued operations 19 337
Net profit/(loss) attributable to
Ordinary shareholders 204 633 (18 527)
Adjustments for
Impairment of property, plant and
Equipment 9 447
Profit on sale of Australian operations (1 738)
Profit on sale of Intercare (587)
Loss on disposal of property, plant
and equipment 191 1 597
Goodwill amortised 16 272
Goodwill impaired 16 814 258 196
Headline earnings 221 638 264 660 (16.3)
Comprises:
Headline earnings from continuing
Operations 221 638 242 094 (8.4)
Headline earnings from discontinued
Operations 22 566
Undiluted headline earnings per share
(Cents)
All operations 65.2 74.9 (13.0)
Continuing operations 65.2 68.5 (4.9)
Diluted headline earnings per share
(Cents)
All operations 63.2 72.9 ( 13.3)
Continuing operations 63.2 66.7 (5.3)
Undiluted earnings per share (cents)
All operations 60.2 (5.2)
Continuing operations 60.2 (10.7)
Diluted earnings per share (cents)
All operations 58.4 (5.1)
Continuing operations 58.4 (10.4)
Distributions per share (cents)
Paid June/July 11.2 12.5
Proposed/paid December 18.5 22.5
29.7 35.0 (15.1)
Consolidated Balance Sheet
As at As at
31 August 31 August
2005 2004
(reviewed) (restated)
R"000 R"000
Assets
Non-current assets 951 117 883 486
Property, plant and equipment 708 895 659 347
Trademarks 3 280 3 930
Goodwill 83 950 98 280
Deferred taxation assets 102 264 95 475
Loans 52 728 26 454
Current assets 2 239 058 2 273 947
Inventories 1 621 880 1 411 339
Accounts receivable 494 515 443 762
Taxation prepaid 37 903 8 442
Cash on hand 70 315 410 404
Derivatives 14 445
Total assets 3 190 175 3 157 433
Equity and liabilities
Capital and reserves
Ordinary shareholders" interest 1 340 223 1 319 155
Non-current liabilities 277 939 355 841
Loans payable 167 683 259 730
Deferred taxation liabilities 24 750 19 623
Other non-current liabilities 85 506 76 488
Current liabilities 1 572 013 1 482 437
Short-term borrowings 13 903 8 710
Accounts payable 1 451 713 1 390 084
Loans payable 93 024 80 819
Taxation payable 13 373 2 824
Total equity and liabilities 3 190 175 3 157 433
Consolidated Cash Flow Statement
Year to Year to
31 August 31 August
2005 2004
(reviewed) (restated)
R"000 R"000
Net cash flow from operations 479 416 546 696
Movement in working capital (221 751) (68 400)
Net interest paid (49 086) (59 778)
Taxation paid (109 258) (101 732)
Cash effects of operating activities 99 321 316 786
Distributions to ordinary shareholders (112 465) (97 824)
Net cash effects of operating activities (13 144) 218 962
Net cash effects of investing activities (182 660) 164 523
Net cash effects of financing activities (149 478) (128 115)
Net (decrease)/increase in cash and cash
Equivalents (345 282) 255 370
Consolidated Changes in Equity
Year to Year to
31 August 31 August
2005 2004
(reviewed) (restated)
R"000 R"000
Increase in share capital and premium 57 061 33 025
Increase in treasury shares held (126 697) (122 981)
Decrease in non-distributable reserve (1 464) (35 480)
Net profit/(loss) for the year 204 633 (18 527)
Distributions to shareholders (112 465) (97 824)
Net increase/(decrease) in shareholders" funds 21 068 (241 787)
Opening shareholders" interest 1 319 155 1 560 942
Closing shareholders" interest 1 340 223 1 319 155
Percentage increase in closing shareholders"
interest 1.6
Supplementary Information
31 August 31 August
2005 2004
Number of ordinary shares in issue ("000) 370 260 361 205
Number of ordinary shares in issue
(net of treasury shares) ("000) 340 519 345 391
Weighted average number of shares in issue ("000) 339 914 353 571
Weighted average diluted number of shares in issue
("000) 350 433 363 046
Net asset value per share (cents) 394 382
Net tangible asset value per share (cents) 368 352
Depreciation and amortisation (R"000) 104 734 109 021
Capital expenditure (R"000) 170 106 160 349
Capital commitments (R"000) 164 034 225 669
Segmental Analysis
The split per brand of turnover and profit is as follows:
Year to Year to
31 August 31 August %
2005 2004 change
R"000 R"000
Turnover
Clicks 4 469 078 3 789 307 17.9
Discom 975 223 878 703 11.0
Entertainment 662 293 544 221 21.7
The Body Shop 58 442 51 276 14.0
United Pharmaceutical Distributors 3 045 934 2 284 860 33.3
Shared Services 8 475 5 825 45.5
Intragroup elimination (505 107) (184 720)
Continuing operations 8 714 338 7 369 472 18.2
Discontinued operations Australia 654 651
Total 8 714 338 8 024 123 8.6
Profit before interest and tax
Clicks 209 712 293 472 (28.5)
Discom 28 926 4 156 596.0
Entertainment 27 607 19 025 45.1
The Body Shop 9 522 10 047 (5.2)
United Pharmaceutical Distributors 89 137 75 600 17.9
Shared Services unallocated (5 954) (7 567)
Capital items (17 084) (284 583)
Intragroup elimination (393) (2 500)
Continuing operations 341 473 107 650
Australia 43 625
Intercare (1 356)
Capital items (3 337)
Discontinued operations 38 932
Total 341 473 146 582
Notes
Accounting policies
These reviewed financial results have been prepared in accordance with South
African Statements of Generally Accepted Accounting Practice, and the
Accounting policies used are consistent with those applicable for the 2004
annual financial statements except in the case of accounting for goodwill
(which is no longer amortised but is subject to an annual impairment test),
operating leases and obligations to employees in terms of share appreciation
rights as described below. These results have been reviewed by KPMG Inc. and
their unqualified review report is available for inspection at the company"s
registered office.
On 2 August 2005 the South African Institute of Chartered Accountants issued
Circular 7/2005 dealing with the requirements of AC105 Leases, in respect of
operating leases which include fixed rental increases. AC105 states that lease
expense/income should be recognised on a straight-line basis over the lease
term unless another systematic basis is more representative of the time pattern
of the user"s benefit. It is now considered that the definition of a "user"s
benefit" is only affected by factors that impact the physical usage of the
property. The straight-line method results in an equal charge in the income
statement in each reporting period irrespective of the fact that the cash
payments for rent differ.
The impact of this change in interpretation on opening distributable reserves
and current year performance is set out below:
2005 2004
R"000 R"000
Effect on opening distributable reserves (53 542) (47 568)
Effect on current year net profit before taxation (9 018) (8 534)
Taxation 2 615 2 560
Effect on current year net profit/(loss) (6 403) (5 974)
Effect on earnings and headline earnings per share
(cents per share) (1.9) (1.7)
Effect on diluted earnings and diluted headline
earnings per share (cents per share) (1.8) (1.6)
The effects disclosed are net of deferred taxation at the rates prevailing
during the relevant year. Comparatives have been restated.
The group issued share appreciation rights to certain employees during the year
in terms of an incentive programme. The value of the obligation in terms of the
share appreciation rights is expensed over the vesting period of the rights and
the related liability raised. Any change in the fair value of the liability is
recognised in profit/loss for the period. A hedge was acquired to limit the
group"s exposure in respect of this obligation. The derivative acquired to
serve as the hedge is fair valued in accordance with AC133, with changes in
fair value being recognised in profit/loss for the period.
Change in comparatives
For segmental reporting purposes, Clicks and Pharmacy, which were previously
reported as separate segments, have been combined into a single segment
referred to as Clicks. This is to reflect the operating philosophy and future
strategy of the Clicks brand. Comparatives have been restated accordingly. The
results of the Pharmacy business are therefore included in the comparative
results of Clicks for a period of six months.
An amount of R24.7 million has been reallocated from cost of merchandise to
turnover in 2004 in respect of New United Pharmaceutical Distributors (UPD).
This amount relates to discounts granted by UPD which were previously included
in cost of merchandise. This has resulted in turnover reducing from R8 048.8
million to R8 024.1 million and cost of merchandise reducing from R6 301.5
million to R6 276.8 million. The reallocation was necessary in order to
correctly state the group"s turnover.
Commentary
The business of New Clicks has continued to undergo transformation over the
past year with the group addressing several strategic issues which are expected
to deliver long-term benefits. These include
* the ongoing integration of pharmacy into Clicks, which is providing evidence
that the group"s pharmacy model is effective as the volume of customer activity
increases significantly in stores that have opened dispensaries;
* the successful implementation of an enterprise-wide information systems
platform which will transform business processes; and
* several senior appointments and changes to the group"s leadership structure
to enhance the depth and experience of the management team.
Financial performance
While the group"s overall results are disappointing, having been impacted by
the poor results from Clicks, it is pleasing to note that Clicks has started to
show the initial signs of an improvement in performance during the second half.
There were, however, strong performances from Discom, the Entertainment
division (Musica and CD Wherehouse) and wholesale distributor, New United
Pharmaceutical Distributors (UPD).
The group increased turnover from continuing operations by 18.2% to R8.7
billion for the year, bolstered by the inclusion of the pharmacy operations for
the full financial year compared to only six months in the 2004 results.
However, a 28.5% decline in the operating profit (gross profit plus other
revenue less operating expenditure) of Clicks from R293.5 million to R209.7
million adversely affected the group"s results. This decline resulted mainly
from a loss of approximately R70 million in the pharmacy business for the year,
the continued high level of shrinkage in the brand and a proportionately higher
allocation of central costs.
An estimated R48 million of the pharmacy losses can be attributed to the impact
of the lower margin on dispensing fees adopted by Clicks to meet competitive
pressures.
Owing to the relative size of the Clicks brand within the group, there has been
a 8.6% decline in the operating profit from continuing operations to R358.6
million.
Diluted headline earnings per share from continuing operations reduced by 5.3%
to 63.2 cents per share (refer to Notes: Accounting policies). Diluted basic
earnings per share at 58.4 cents per share (2004: 5.1 cents loss per share)
were lower than diluted headline earnings per share owing to an impairment of
the Link Investment Trust goodwill as well as various other capital items which
together totalled R17.0 million.
Working capital management remains an opportunity and therefore a key area of
focus. Net cash flow from operations amounted to R479 million, which was
applied to capital formation in stores, improved information technology, loan
repayments, dividend payments, share repurchases and working capital funding.
The group had a negative cash flow of R345 million for the year.
The results reported are in line with the trading statement issued on 11
October 2005.
Trading performance
Retail brands
The retail sector continues to experience strong growth considering the low
inflation rates currently being experienced in the country. However, sales of
fast moving consumer goods (FMCG) have not experienced the same growth rates as
the fashion goods sold mainly by credit-based retailers.
Clicks increased turnover by 17.9% to R4.5 billion, inflated by the inclusion
of the pharmacy results for the full financial year. When the turnover from the
pharmacy operations is excluded, the core Clicks brand increased turnover by
9%.
The performance of the brand stabilised in the second half of the year and
Clicks has started to show the early signs of a turnaround. The shrinkage trend
has continued, while the margin was negatively impacted when Clicks adopted the
medicine pricing regulations. Expense control improved in the second six
months.
Clicks has significantly advanced the implementation of its strategy following
the integration of pharmacy into the brand. The brand aims to be the "best
discount drugstore in South Africa" by dominating mass market pharmacy health
and beauty products and services. This core health and beauty range will
continue to be supported by a homeware offering.
Following the Constitutional Court"s judgment on the medicine pricing
regulations, Clicks will continue to charge a dispensing fee of R26/26% in the
interim period while a more workable pricing model is being sought. Clicks will
continue to adopt a competitive pricing stance, supporting its value
proposition of "You Pay Less at Clicks".
The performance of the integrated Clicks stores with dispensaries is proving
the model that front shop sales will increase from the higher footfall through
stores from pharmacy customers. Front shop sales from the integrated stores
have increased 15.9% since being converted to include pharmacy.
Discom increased turnover by 11% to R975.2 million and lifted operating profit
seven-fold to R28.9 million. The benefits of the brand"s restructuring over the
past few years are becoming increasingly evident, with continued improvement in
margin, shrinkage and expense management.
An aggressive pricing strategy and increased sales of entertainment merchandise
contributed to a 21.7% sales growth in the Entertainment division. In line with
diversifying the income stream, sales of DVD, gaming and lifestyle merchandise
now account for 39% of total turnover (2004: 29%). Operating profit increased
45.1% to R27.6 million.
The Body Shop increased turnover 14.0% to R58.4 million, although comparable
store growth declined by 1.5%. The brand experienced a stronger performance in
the second half but this was not sufficient to overcome the disappointing first
six months and profit declined 5% to R9.5 million for the year.
New Clicks has grown its store base by a net 12 stores over the year to 663. An
aggressive store expansion programme is planned for 2006 with a further 30
stores scheduled to be opened across Clicks (13), Discom (9) and Entertainment
(8).
Wholesale distribution
UPD increased turnover by 33.3% to R3.0 billion for the year, driven by strong
growth in sales to independent pharmacies. Growth in turnover from Clicks
Pharmacy has increased as the rate of pharmacy integration increases, while
sales to private hospitals is a major growth area. Margins were impacted by the
lower logistics fee owing to the introduction of single exit pricing, but this
was compensated by the increased sales volumes. Expenses were well managed at
6.6% of turnover (2004: 8.3%).
Prospects
The performance of Clicks is critical to the overall success of the group and
the turnaround in Clicks remains management"s main priority. While the brand
showed an improved trading performance in the second half of the year and this
upward trend is expected to continue, management considers that the full
benefits of the recovery are realistically not likely to be achieved in the
short term.
Discom will build on its recent success and expand into the health and wellness
market, while the Entertainment division will focus on growing gaming, DVD,
lifestyle merchandise and local music, as well as exploring opportunities in
the cellular market.
UPD will continue to target volume growth. While the regulatory environment
remains challenging with the expected capping of logistics fees and uncertainty
on the retail pharmacy dispensing fee, UPD is well positioned for strong profit
growth.
Following the migration to the enterprise systems platform, the group will
focus on leveraging the benefits of the system and adapting to this new way of
managing the business. The new systems will ultimately provide daily sales,
margin and stock information, more timeous performance information, stock take
results within 48 hours and also facilitate efficient end-to-end processing in
the supply chain.
The directors and management believe that the group now has a clearer focus, a
more experienced management team and a stronger platform for growth which is
expected to contribute to improved profitability and earnings in the year
ahead.
Dividend declaration
The Board of Directors has declared a final cash dividend of 18.5 cents per
share payable on Monday, 19 December 2005 to shareholders recorded in the books
of the company at the close of business on Thursday, 15 December 2005. The last
day to trade ("cum" the dividend) in order to participate in the dividend will
be Thursday, 8 December 2005 and the shares will trade "ex dividend" from the
commencement of business on Friday, 9 December 2005. The record date will be
Thursday, 15 December 2005.
Share certificates may not be dematerialised or rematerialised between Friday,
9 December 2005 and Thursday, 15 December 2005, both dates inclusive.
By order of the Board
ALLAN SCOTT
Company Secretary
25 October 2005
Registered address: Cnr Searle and Pontac Streets
Cape Town 8001
PO Box 5142,
Cape Town
8000
Directors: D.M. Nurek* (Chairman), T.C. Honneysett, R.B. Godfrey, E. Osrin*,
R.L. Lumb*, L.A. Swartz*, P.E.I. Swartz*, A. Zimbler*
* non-executive
Transfer Secretaries: Computershare Investor Services 2004
(Proprietary) Limited
70 Marshall Street
Johannesburg 2001
PO Box 61051
Marshalltown 2107
Sponsor: Investec Bank Limited
This information, together with additional detail is available on the New
Clicks Holdings website: http://www.newclicks.co.za
Date: 26/10/2005 08:30:15 AM Produced by the JSE SENS Department
