| Wed 1 Nov 2006, 8:14 | | New Clicks - Unaudited Preliminary Group Results: |
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NCL
NCL
New Clicks - Unaudited Preliminary Group Results: year ended 31 August 2006 and
distribution
NEW CLICKS HOLDINGS LIMITED
Registration Number 1996/000645/06
Share code: NCL & ISIN: ZAE000014585
Unaudited Preliminary Group Results for the year ended 31 August 2006
- Turnover up 14.8%
- Operating profit up 19.6%
- Diluted headline EPS up 23.7%
- Return on equity 16.7%
Commentary
Overview
The group continues to make steady progress in its turnaround towards
sustainable performance, with encouraging turnover growth over the past year and
improvements in several key performance measures.
The operational performance of Clicks is reflected in improved turnover growth
and profitability, while the group"s wholesale pharmaceutical distributor, UPD,
continued to perform well.
During the year under review a new group executive was formed and the board of
directors was extensively restructured and strengthened.
The implementation of the enterprise-wide systems platform has proved
challenging. After addressing systems stability issues in the early months of
the financial year, business processes have had to be adapted to the
requirements of the new systems. Operational compliance with these processes has
taken longer than expected. As compliance improves, we anticipate further
benefits in the quality of reporting and analysis.
As a consequence of the above, the year-end financial reporting and audit
process has taken longer to complete than anticipated. KPMG Inc."s modified
review report on the preliminary results presented is available for inspection
at the company"s registered office. The board and management have decided to
publish unaudited results and are confident that the audited results will not
materially differ.
Financial performance
Group turnover increased 14.8% to reach the R10 billion mark for the first time.
Retail turnover grew 10.0% in a period when both Clicks and Discom experienced
price deflation. UPD lifted turnover by 26.8%.
Gross profit margin declined by 90 basis points as a result of the increased
contribution of UPD"s sales within the group. By the nature of its business, UPD
operates at much lower gross margins and its decline in margin from 4.0% to 2.9%
reflects the higher volume of ethical product distributed. Retail gross margin
increased by 30 basis points to 27.1%.
Operating expense growth was contained at 9.5%, resulting in an increase in
operating profit before capital items of 19.6%. Operating profit margin
increased to 3.9% from 3.8% in 2005.
Headline earnings grew by 25.5% with diluted headline earnings per share
increasing by 23.7% to 71 cents per share.
Return on equity improved from 14.2% in 2005 to 16.7%.
R220 million in cash was generated by operating activities during the year.
This was driven by a significant improvement in the second half of the year,
where the group generated R563 million compared to R295 million last year. This
improvement in cash flow management is largely attributable to better working
capital management.
The efficient management of stock is reflected in inventory levels only
increasing by 0.2% despite the 14.8% increase in turnover. Inventory turn
increased from 6.1 times in 2005 to 6.9 times.
Trading performance
Clicks increased turnover by 8.8%, with the core categories of healthcare
growing by 11.7% and beauty rising 9.4%. Comparable store turnover increased by
10.8%, reflecting the impact of the closure or conversion of the remaining non-
integrated pharmacies. Operating profit improved by 13.3% to R207 million.
The drugstore model adopted by Clicks is proving effective, evidenced by a 19%
increase in turnover in stores with dispensaries. Clicks opened 45 dispensaries
during the year and now has 110 in-store dispensaries.
Discom continues to realise its potential as a health, beauty and lifestyle
retailer for the lower to middle income groups. Turnover increased by 10.5%,
with comparable stores growing by 5.7%. Discom"s operating profit grew by 37.8%
to R34 million.
Musica"s turnover growth of 17.6% was driven mainly by a strong increase in DVD
and gaming sales. Comparable stores grew 10.8%. Entertainment-related
merchandise categories now account for 34.5% of total sales. Operating profit
increased 11.0% to R26 million.
The Body Shop increased turnover by 11.8% as sales in the second half of the
year grew by 20%. Comparable store sales rose 3.1%. Operating profit increased
19.3% to R11 million.
UPD"s turnover growth of 26.8% is mainly attributable to two major hospital
supply contracts received during the year and to increasing sales to Clicks.
Continued tight expense management contributed to a 28.0% increase in operating
profit.
Prospects
Trading in the first two months of the new financial year has been satisfactory.
However, the trading environment for 2007 is likely to be affected by increasing
interest rates, although it is too early to determine the impact on spending
patterns and consumer confidence levels. Modest levels of price inflation are
expected in the year ahead.
The group has developed clear plans for each business to improve its offer to
its customers. 34 new stores are planned for the year ahead. Operationally the
group will have the benefit of its new systems for a full year in 2007 and will
focus on improving distribution efficiency and expense control.
The directors and management are confident of delivering real earnings growth in
2007.
Distribution
The board of directors has approved a distribution of 22 cents per share (2005:
18.5 cents per share) comprising a final cash dividend of 6.8 cents per share
and a distribution out of share premium of 15.2 cents per share in lieu of a
dividend (collectively "the distribution") payable on Monday, 18 December 2006
to shareholders recorded in the register of the company at the close of business
on Friday, 15 December 2006.
The last day to trade ("cum" the distribution) in order to participate in the
distribution will be Friday, 8 December 2006 and the shares will trade "ex
distribution" from the commencement of business on Monday, 11 December 2006.
The record date will be Friday, 15 December 2006.
Share certificates may not be dematerialised or rematerialised between Monday,
11 December 2006 and Friday, 15 December 2006, both dates inclusive.
By order of the Board
ALLAN SCOTT
Company Secretary
1 November 2006
Condensed Consolidated Income Statement
Year to Year to
31 August 31 August
2006 2005 %
R"000 (unaudited) (restated audited) change
Revenue 10 461 712 9 108 141 14.9
Turnover 10 000 621 8 714 338 14.8
Cost of merchandise 8 047 045 6 935 760 16.0
Gross profit 1 953 576 1 778 578 9.8
Other income 449 721 385 925 16.5
Expenses 2 015 950 1 859 156 8.4
Operating expenses 2 010 328 1 835 929 9.5
Impairment of property,
plant and equipment 3 159 6 143
Loss on disposal of
property, plant and equipment 1 209 270
Goodwill impairment 1 254 16 814
Operating profit before
financing costs 387 347 305 347 26.9
Net financing costs (57 219) (49 086) 16.6
Financial income 11 370 7 878 44.3
Financial expenses (68 589) (56 964) 20.4
Profit before tax 330 128 256 261 28.8
Income tax expense 84 138 77 098 9.1
Profit for the year 245 990 179 163 37.3
Undiluted earnings
per share (cents) 71.4 52.7 35.5
Diluted earnings
per share (cents) 69.4 51.3 35.3
Distributions
per share (cents)
- interim paid 11.2 11.2
- final declared/paid 22.0 18.5
33.2 29.7 11.8
Headline Earnings Reconciliation
Year to Year to
31 August 31 August
2006 2005 %
R"000 (unaudited) (restated audited) change
Profit for the year 245 990 179 163
Adjustments for
Impairment of property,
plant and equipment 3 159 4 362
Loss on disposal of
property, plant and equipment 1 209 191
Goodwill impairment 1 254 16 814
Headline earnings 251 612 200 530 25.5
Undiluted headline
earnings per share (cents) 73.1 59.0 23.9
Diluted headline
earnings per share (cents) 71.0 57.4 23.7
Condensed Consolidated Balance Sheet
As at As at
31 August 31 August
2006 2005
R"000 (unaudited) (restated audited)
Assets
Non-current assets 1 284 722 1 298 271
Property, plant and equipment 696 736 668 926
Investment property 6 900 6 900
Intangible assets 397 450 396 603
Goodwill 83 950 83 950
Deferred tax assets 24 363 73 750
Loans receivable 75 323 68 142
Current assets 2 399 685 2 033 408
Inventories 1 443 161 1 440 090
Trade and other receivables 792 557 480 355
Income tax receivable 86 474 37 903
Loans receivable 1 481 -
Cash and cash equivalents 40 111 60 311
Derivative financial assets 35 901 14 749
Total assets 3 684 407 3 331 679
Equity and liabilities
Equity
Ordinary shareholders" interest 1 593 949 1 416 939
Non-current liabilities 325 785 308 466
Interest-bearing
loans and borrowings 150 855 167 683
Employee benefits 28 116 17 457
Deferred tax liabilities 45 669 37 820
Operating lease liability 101 145 85 506
Current liabilities 1 764 673 1 606 274
Bank overdraft 47 000 13 903
Trade and other payables 1 490 386 1 370 099
Employee benefits 105 475 71 285
Provisions 41 416 42 090
Interest-bearing
loans and borrowings 62 851 93 024
Derivative
financial liabilities - 2 500
Income tax payable 17 545 13 373
Total equity and liabilities 3 684 407 3 331 679
Condensed Consolidated Cash Flow Statement
Year to Year to
31 August 31 August
2006 2005
R"000 (unaudited) (restated audited)
Operating profit before
working capital changes 505 930 454 150
Working capital changes (154 666) (196 485)
Net interest paid (60 003) (49 086)
Taxation paid (71 301) (109 258)
Cash effects of operating activities 219 960 99 321
Distributions to shareholders (102 323) (112 465)
Net cash effects of operating activities 117 637 (13 144)
Net cash effects of investing activities (101 543) (182 660)
Net cash effects of financing activities (69 391) (149 478)
Net decrease in cash and cash equivalents (53 297) (345 282)
Segmental Analysis
The split per business unit of turnover and profit is as follows:
Year to Year to
31 August 31 August %
R"000 2006 2005 change
Turnover
Clicks 4 864 521 4 469 078 8.8
Discom 1 077 682 975 223 10.5
Musica 778 798 662 293 17.6
The Body Shop 65 342 58 442 11.8
Style Studio 7 120 5 337 33.4
United Pharmaceutical
Distributors 3 863 143 3 045 934 26.8
Group Services 286 3 138
Intragroup elimination (656 271) (505 107)
Total 10 000 621 8 714 338 14.8
Operating profit
before financing costs
Clicks 206 906 182 635 13.3
Discom 33 905 24 608 37.8
Musica 25 635 23 094 11.0
The Body Shop 11 067 9 274 19.3
Style Studio 1 075 (341)
United Pharmaceutical
Distributors 114 838 89 697 28.0
Capital items (5 622) (23 227)
Intragroup elimination (457) (393)
Total 387 347 305 347 26.9
Supplementary Information
31 August 31 August
2006 2005
Number of ordinary shares in issue (`000) 355 488 370 260
Number of ordinary shares in
issue (net of treasury shares) (`000) 347 613 340 519
Weighted average number of shares in issue (`000) 344 337 339 914
Weighted average diluted number
of shares in issue (`000) 354 365 349 358
Net asset value per share (cents) 448 383
Net tangible asset value per share (cents) 313 253
Depreciation and amortisation (R"000) 108 602 104 734
Capital expenditure (R"000) 162 315 170 106
Capital commitments (R"000) 160 600 164 034
Condensed Consolidated Statement of Changes in Equity
Year to Year to
31 August 31 August
2006 2005
R"000 (unaudited) (restated
audited)
Increase in share capital and premium 74 394 57 061
Increase in treasury shares held (46 784) (126 697)
Increase/(decrease) in
non-distributable reserve 110 (534)
Tax rate adjustment - (930)
Profit for the year restated 245 990 179 163
Profit for the year reported 238 020 204 633
Adjustments 7 970 (25 470)
Share option reserve 5 623 5 379
Distributions to shareholders (102 323) (112 465)
Net increase in shareholders" interest 177 010 977
Opening shareholders" interest restated 1 416 939 1 415 962
Opening shareholders" interest reported 1 340 223 1 319 155
Adjustments 76 716 96 807
Closing shareholders" interest 1 593 949 1 416 939
Percentage increase in
closing shareholders" interest 12.5
Adjustments
Cumulative
Impact on profit for the period Year to Year to prior to
31 August 31 August 31 August
R"000 2006 2005 2004
Re-recognition of trademarks
previously written off - 3 720 260 400
Change in estimate relating
to useful lives of assets 4 434 - -
Inventory adjustments 6 868 (15 668) (113 407)
Irrecoverable debtors"
balances written off - - (25 080)
Leave pay and bonus accruals (6 865) (295) (13 006)
Onerous leases 3 240 (3 007) (10 697)
Other 5 916 (4 841) (1 403)
Total adjustment to equity 13 593 (20 091) 96 807
Share options expense (5 623) (5 379) (9 035)
Total adjustment to profit for the
year 7 970 (25 470) 87 772
The effects disclosed are net of deferred tax at the rates prevailing during the
relevant year. The 2005 impact includes the impact of the change in tax rate on
the cumulative 31 August 2004 adjustment.
The group is reporting for the first time in accordance with International
Financial Reporting Standards (IFRS) for the year ended 31 August 2006 and
accordingly, comparative figures have been restated. The unaudited results for
the year ended 31 August 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 are available on request from the company"s
registered office. The disclosures required in terms of IFRS 1 - 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 below and as part of the Statement of Changes in Equity
above.
The group has applied IFRS 2 - 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 were 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 31 August
2006 amounts to R20.0 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.
The group has revised its assessment of the residual values and remaining useful
lives of its assets in accordance with IAS16 - Property, plant and equipment.
The historic impact was not considered material and has accordingly been
adjusted for prospectively. The change relates to land and buildings and motor
vehicles.
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 first-in-first-out (FIFO) cost of inventory. The
assumptions and methodology applied by the group in using the Retail Inventory
Method were reviewed and refined during the year 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 impaired
in previous years.
Leave pay and bonus accruals related to known over and under provisions in the
years indicated.
Onerous leases relate to onerous contract costs which had previously not been
accrued for.
In addition to the reallocation of rebates and settlement discounts from other
income to gross profit and the reallocation of distribution costs from operating
expenses to gross profit as described above, the group has also reallocated
distribution and logistic fee income in its pharmaceutical distribution business
from gross profit to other income.
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*,
R.V. Smither*, L.A. Swartz*, K.D.M. Warburton (Chief Financial Officer)
* non-executive
# British
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: 01/11/2006 08:14:26 AM Produced by the JSE SENS Department
