| Thu 4 May 2006, 9:00 | | New Clicks - Interim Group Results for the six mon |
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NCL
NCL
New Clicks - Interim Group Results for the six months ended 28 February 2006
New Clicks Holdings Limited
Registration Number 1996/000645/06
Share code: NCL
ISIN: ZAE000014585
Interim Group Results for the six months ended 28 February 2006
Turnover R5.0 billion
Headline Earnings up 8.1%
Diluted Headline EPS 40.2 cents
Condensed Consolidated Income Statement
6 months to 6 months to Year to
28 February 28 February 31 August
2006 2005 restated % 2005 restated
R"000 (unaudited) (unaudited) change (unaudited)
Revenue 5 210 196 4 556 949 14.3 9 100 263
Turnover 4 997 631 4 378 101 14.2 8 714 338
Cost of merchandise 3 964 348 3 422 705 15.8 6 935 760
Gross profit 1 033 283 955 396 8.2 1 778 578
Other revenue 212 565 178 848 18.9 385 925
Expenditure 1 020 267 932 155 9.5 1 859 156
Operating
expenditure 1 019 110 925 324 10.1 1 835 929
Impairment of
property, plant and
equipment 182 4 671 6 143
Loss on disposal
of property, plant and
equipment 975 2 160 270
Goodwill impairment - - 16 814
Profit before interest
and taxation 225 581 202 089 11.6 305 347
Net interest paid 29 956 26 512 13.0 49 086
Interest paid 33 724 27 692 21.8 56 964
Interest received (3 768) (1 180) (7 878)
Profit before taxation 195 625 175 577 11.4 256 261
Taxation 56 916 51 283 11.0 77 098
Profit 138 709 124 294 11.6 179 163
Undiluted earnings
per share (cents) 40.6 36.5 11.2 52.7
Diluted earnings
per share (cents) 40.0 35.9 11.4 51.3
Distributions
per share (cents)
Declared/paid
- June/July 11.2 11.2 11.2
Paid - December 18.5
Headline Earnings Reconciliation
6 months to 6 months to Year to
28 February 28 February 31 August
2006 2005 restated % 2005 restated
R"000 (unaudited) (unaudited) change (unaudited)
Profit 138 709 124 294 11.6 179 163
Adjustments for
Impairment of
property, plant and
equipment 129 3 316 4 362
Loss on disposal
of property, plant and
equipment 692 1 512 191
Goodwill impairment - - 16 814
Headline earnings 139 530 129 122 8.1 200 530
Undiluted headline
earnings per share
(cents) 40.8 37.9 7.7 59.0
Diluted headline
earnings per share
(cents) 40.2 37.3 7.8 57.4
Condensed Consolidated Statement of Changes in Equity
6 months to 6 months to Year to
28 February 28 February 31 August
2006 2005 restated 2005 restated
R"000 (unaudited) (unaudited) (unaudited)
Increase in share
capital and premium 38 997 47 063 57 061
Decrease in
non-distributable reserve (37) (601) (1 464)
Increase in treasury shares - (126 806) (126 697)
Profit for the period restated 138 709 124 294 179 163
Profit for the period reported 129 233 128 938 204 633
Adjustments 9 476 (4 644) (25 470)
Share option reserve 2 913 2 466 5 379
Distributions to shareholders (63 533) (75 097) (112 465)
Net increase/(decrease)
in shareholders" funds 117 049 (28 681) 977
Opening shareholders"
interest restated 1 416 939 1 415 962 1 415 962
Opening shareholders"
interest as previously stated 1 340 223 1 319 155 1 319 155
Adjustments 76 716 96 807 96 807
Closing shareholders" interest 1 533 988 1 387 281 1 416 939
Adjustments
Impact on profit Cumulative
for the period 6 months to 6 months to Year to prior to
28 February 28 February 31 August 31 August
R"000 2006 2005 2005 2004
Re-recognition of
trademarks previously
written off - - - 260 400
Inventory adjustments 2 396 (3 210) (14 046) (113 407)
Irrecoverable debtors"
balances written off - - - (25 080)
Leave pay and
bonus accruals 6 836 9 687 (110) (13 006)
Onerous leases 984 (3 222) (2 854) (10 697)
Other 2 173 (5 433) (3 081) (1 403)
Total adjustment
to equity 12 389 (2 178) (20 091) 96 807
Share options (2 913) (2 466) (5 379) (9 035)
Total adjustment
to profit 9 476 (4 644) (25 470) 87 772
The effects disclosed are net of deferred taxation at the rates prevailing
during the relevant period.
The group has applied IFRS2 - Share-based payments to all options granted after
7 November 2002, which had not vested at 31 August 2004. The fair value of these
options was determined at the grant date using the Binomial option pricing
model. The fair value of the options that are expected to vest have been
amortised over the vesting period. The cumulative value amortised at 28 February
2006 amounts to R17.3 million
The provisions of IFRS1 have required the group to re-recognise trademarks to
the value of R372 million, which were written off against share premium in 1996.
These trademarks are treated as intangibles with indefinite useful lives in
accordance with IAS38 - Intangible assets. Accordingly these trademarks are not
amortised, but are subject to an annual impairment test.
Rebates, settlement discounts and distribution costs have been included as part
of the cost of merchandise which has had the effect of reducing the value of
inventories. In addition, the group has historically used the Retail Inventory
Method to estimate the FIFO cost of inventory. The assumptions and methodology
applied by the group in using the Retail Inventory Method were reviewed and
refined during the period, in the context of more reliable information becoming
available, to more accurately reflect the FIFO cost of inventory.
Irrecoverable debtors" balances represent amounts that should have been written
off in previous years.
Leave pay and bonus accruals relate to known over and underprovisions in the
periods indicated.
Onerous leases relate to onerous contract costs, which had previously not been
recognised.
As reported in the annual report for the year ended 31 August 2005, the group
changed its accounting treatment in respect of operating leases subject to a
fixed escalation. The group now recognises the total value of lease payments
over the term of the lease on a straight-line basis. This change was effected
after the results for the six-month period ended 28 February 2005 were published
and the comparatives have accordingly been restated.
In addition to the reallocation of rebates and settlement discounts from other
revenue to gross profit and the reallocation of distribution costs from
operating expenditure to gross profit as described above, the group has also
reallocated distribution and logistic fee income in its distribution business
from gross profit to other revenue.
Condensed Consolidated Balance Sheet
As at As at As at
28 February 28 February 31 August
2006 2005 restated 2005 restated
R"000 (unaudited) (unaudited) (unaudited)
Assets
Non-current assets 1 298 154 1 215 265 1 282 857
Property, plant
and equipment 703 323 664 356 697 149
Trademarks 374 955 375 605 375 280
Goodwill 83 950 98 390 83 950
Deferred taxation
assets 80 302 53 622 73 750
Financial assets 55 624 23 292 52 728
Current assets 2 209 757 1 987 940 2 048 822
Inventories 1 393 919 1 338 344 1 440 090
Trade and other
receivables 775 107 578 084 496 073
Taxation prepaid - - 37 903
Cash on hand 28 259 71 512 60 311
Derivative financial
assets 12 472 - 14 445
Total assets 3 507 911 3 203 205 3 331 679
Equity and liabilities
Capital and reserves
Ordinary
shareholders" interest 1 533 988 1 387 281 1 416 939
Non-current liabilities 275 893 328 468 291 009
Financial liabilities 138 864 222 703 167 683
Deferred taxation
liabilities 46 631 24 921 37 820
Lease accrual 90 398 80 844 85 506
Current liabilities 1 698 030 1 487 456 1 623 731
Short-term borrowings 458 968 131 705 13 903
Trade and other payables 1 154 710 1 265 921 1 503 431
Financial liabilities 76 119 84 022 93 024
Taxation payable 8 233 5 808 13 373
Total equity
and liabilities 3 507 911 3 203 205 3 331 679
Condensed Consolidated Cash Flow Statement
6 months to 6 months to Year to
28 February 28 February 31 August
2006 2005 restated 2005 restated
R"000 (unaudited) (unaudited) (unaudited)
Operating profit before
working capital changes 290 518 268 191 454 812
Movement in working
capital (581 952) (392 822) (197 147)
Net interest paid (29 956) (26 512) (49 086)
Taxation paid (21 894) (44 943) (109 258)
Cash effects of
operating activities (343 284) (196 086) 99 321
Distributions to
ordinary shareholders (63 533) (75 097) (112 465)
Net cash effects of
operating activities (406 817) (271 183) (13 144)
Net cash effects of
investing activities (63 573) (66 516) (182 660)
Net cash effects of
financing activities (6 727) (114 184) (149 478)
Net decrease in cash
and cash equivalents (477 117) (451 883) (345 282)
Segmental Analysis
The split per business unit of turnover and profit is as follows:
6 months to 6 months to
28 February 28 February
2006 2005 restated %
R"000 (unaudited) (unaudited) change
Turnover
Clicks 2 463 073 2 295 682 7.3
Discom 541 078 491 241 10.1
Entertainment 418 257 352 978 18.5
The Body Shop 34 691 32 901 5.4
Style Studio 3 552 2 358 50.6
United Pharmaceutical
Distributors 1 837 521 1 425 882 28.9
Intragroup turnover (300 541) (222 941) (34.8)
Total 4 997 631 4 378 101 14.2
Profit before
interest and taxation
Clicks 186 352 168 453 10.6
Discom 30 149 19 946 51.2
Entertainment 46 401 30 484 52.2
The Body Shop 6 513 6 309 3.2
Style Studio 629 (258)
United Pharmaceutical
Distributors 52 516 40 678 29.1
Shared services (67 574) (56 299) (20.0)
Group surplus
shrinkage provision (28 248) -
Intragroup profit - (393)
Capital items (1 157) (6 831)
Total 225 581 202 089 11.6
Supplementary Information
28 February 28 February 31 August
2006 2005 restated 2005 restated
Number of ordinary
shares in issue ("000) 376 738 368 554 370 260
Weighted average
number of shares
in issue ("000)
(net of treasury shares) 341 662 340 627 339 914
Weighted average
diluted number of shares
in issue ("000)
(net of treasury shares) 346 723 346 344 349 358
Net asset value
per share (cents) 407 376 383
Depreciation and
amortisation (R"000) 51 074 49 722 99 321
Capital
expenditure (R"000) 63 743 72 376 170 106
Capital
commitments (R"000) 78 559 130 809 164 034
Notes
Accounting policies
The group is reporting for the first time in accordance with International
Financial Reporting Standards (IFRS) for the year ending 31 August 2006 and
accordingly, comparative figures have been restated. The unaudited results for
the half-year ended 28 February 2006 have been prepared in accordance with the
group"s accounting policies, which comply with IFRS. These standards are subject
to ongoing review and possible amendment by interpretive guidance from the
International Financial Reporting Interpretations Committee. The results may
therefore be subject to change at future reporting dates. A full set of the
group"s accounting policies is available on request from the company"s
registered office. The disclosures required in terms of IFRS1 - First time
adoption of IFRS concerning the transition from South African Statements of
Generally Accepted Accounting Practice and the requisite changes in accounting
policies are set out under the heading of Adjustments and as part of the
Statement of Changes in Equity.
Commentary
Overview
The transition of New Clicks has continued over the period, with financial
performance improving and turnover growing at satisfactory levels.
The decisive management action taken in Clicks over the past year is starting to
reflect in an improved operating performance, evidence that the business is
stabilising. Discom, the Entertainment division (Musica and CD Wherehouse) and
wholesale distributor, UPD, continued to deliver strong performances.
Following the appointment of David Kneale as chief executive officer in January
2006, a new executive team was formed to lead the group, comprising Kneale,
Keith Warburton as chief financial officer and Michael Harvey as managing
director of Clicks. In addition, Peter Eagles and Martin Rosen were appointed as
non-executive directors with effect from 10 April 2006.
During the reporting period the following resigned as directors: Raymond Godfrey
as an executive director on 31 December 2005; Trevor Honneysett as an executive
director on 23 January 2006; and Peter Swartz and Allen Zimbler as non-executive
directors on 10 April 2006.
Management has focused on embedding the new information systems platform
implemented during 2005, with business processes being adapted accordingly and
the quality of management information starting to improve.
Financial performance
Group turnover increased by 14.2%. UPD maintained its strong performance with
growth of 28.9%. Retail turnover increased by 9.0% (9.5% on a comparable store
basis) despite a benign inflationary environment.
Total income (gross profit and other revenue) grew by 9.8%, with gross profit up
8.2% and other revenue up by 18.9%. Gross margin declined by 1.1% to 20.7% as a
result of the increased proportion of UPD within the mix. Retail operations
maintained a stable margin despite the inclusion of a group surplus shrinkage
provision of R28 million. Management has taken the prudent view that this amount
should not be released to income until the year-end inventory count has been
concluded.
Operating expenses grew by 10.1%.
Profit before interest and taxation, despite the inclusion of the group surplus
shrinkage provision, grew by 11.6%.
Interest paid increased by R3.4 million on the previous year, reflecting the
higher levels of borrowings to support additional working capital requirements.
Headline earnings grew by 8.1% with diluted headline earnings per share up by
7.8% to 40.2 cents.
Capital expenditure in the group decreased to R63.7 million from R72.4 million
in the last six months, while working capital needs increased by R582 million in
the period. This increased requirement is primarily attributable to additional
funding of accounts receivable in UPD following the acquisition of hospital
supply contracts and timing differences in the levels of funding provided by
suppliers.
Inventories increased by 4.2% despite the 14.2% increase in turnover, reflecting
the greater focus on stock management. Consequently inventory turn increased to
6.7 times from 6.5 times in 2005.
Trading performance
Clicks increased turnover by 7.3%, with comparable stores increasing by 10%.
This reflects the impact of the closure or conversion of most of the remaining
non-integrated pharmacies, with only 12 left at the end of February and this has
since been further reduced to six.
13 new Clicks stores opened in the period, bringing the total store base to 308,
including 92 dispensaries. Clicks opened its 100th dispensary in late April.
Despite current pharmacy pricing, healthcare sales grew by 9.1% with pharmacy
sales building to plan. Operating profit of R186.4 million is an improvement of
10.6% on last year.
Discom increased turnover by 10.1%, with comparable stores growing by 5.7%. The
total number of stores at end-February 2006 was 183, a net increase of three
over the six months. Operating profit grew by 51.2% to R30.1 million, with
operating margin improving from 4.1% to 5.6%.
The Entertainment division enjoyed another successful trading period and
increased turnover by 18.5%, with comparable stores growing by 12.2%.
The contribution of DVD, gaming and lifestyle merchandise continues to increase
with these categories now accounting for 33% of total sales. A net two stores
were opened, with stores totalling 141 at period-end. Operating profit of R46.4
million was up 52.2% on last year.
The Body Shop turnover increased by 5.4%, with comparable stores up 1.6%.
Operating profit was up by 3.2%.
UPD"s turnover growth of 28.9% was driven mainly by the new hospital supply
contracts and 35% growth in sales to Clicks stores. Gross margins are lower on
the hospital business, although this was offset by improved efficiencies.
Operating profit grew by 29.1%.
Prospects
Trading in March and April has been in line with management"s expectations
and is anticipated to continue at current levels for the remaining four
months of the financial year.
21 new stores are planned to be opened by the financial year-end.
The pharmacy rollout in Clicks will continue, but at a more measured pace as
the business focuses on building volume and improving operating
efficiencies.
Management will continue to focus on embedding the new systems into the
business to provide the foundations for future operations.
Improvements in working capital will be generated from the ongoing focus on
inventory management.
The directors and management are confident that the continued improvement in
the operating performance will result in increased profitability for the
full year.
Distribution
The directors have proposed a cash distribution by way of a reduction of share
premium of 11.2 cents per ordinary share for the six months ended 28 February
2006 ("the distribution"), subject to the approval of shareholders at a General
Meeting to be held on Friday, 9 June 2006.
Shareholders are advised of the following salient dates relating to the
distribution:
Last day to trade "cum" the distribution Friday, 23 June 2006
Shares trade "ex" the distribution Monday, 26 June 2006
Record date Friday, 30 June 2006
Payment to shareholders Monday, 3 July 2006
Share certificates may not be dematerialised or rematerialised between Monday,
26 June 2006 and Friday, 30 June 2006, both days inclusive.
By order of the Board
ALLAN SCOTT
Company Secretary
4 May 2006
Registered address
Cnr Searle and Pontac Streets, Cape Town 8001, PO Box 5142, Cape Town 8000
Directors
D.M. Nurek* (Chairman), P.F.K. Eagles*, M. Harvey, D.A. Kneale#
(Chief Executive Officer), R.L. Lumb*, E.Osrin*, M. Rosen*,
L.A. Swartz*, K.D.M. Warburton (Chief Financial Officer)
# British
* 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
Registration Number: 1996/000645/06
Share code: NCL
ISIN: ZAE000014585
Date: 04/05/2006 09:00:21 AM Produced by the JSE SENS Department
