Slide1: Interim Results 2005


Outline of presentation: Outline of presentation Review of the period Financial results Retail operations Distribution Conclusion


Slide3: Review of the period Trevor Honneysett


Review of the period: Review of the period Disappointing performance from Clicks Low inflation & deflationary environment Continued uncertainty in pharmacy pricing environment Pharmacy continues to record losses Large front shop integrated pharmacy stores proving the pharmacy model Pharmacy integration gathers momentum … pharmacy strategy remains intact


Review of the period (continued): Review of the period (continued) UPD posts strong growth Discom ahead of expectations Sterling performance from Entertainment Implementation of enterprise-wide IT platform a priority Share buyback programme Leadership restructured to ensure succession & focus … adapting to change


Slide6: Financial results André Vermeulen


Performance: Performance


Turnover: Turnover * Pharmacy not included in 2004 ** Australia included for 4 months in 2004


Gross profit margin: Gross profit margin


Operating expenditure: Operating expenditure * Pharmacy not included in 2004 ** Australia included for 4 months in 2004


Profit before capital items, interest & tax (gross profit + other revenue – operating expenditure): Profit before capital items, interest & tax (gross profit + other revenue – operating expenditure) * Pharmacy not included in 2004 ** Australia included for 4 months in 2004


Interest: Interest


Cash - utilisation: Cash - utilisation


Capital expenditure: Capital expenditure


Inventory: Inventory * Inventory on turnover


Slide16: Retail operations Michael Harvey


Clicks - snapshot: Clicks - snapshot


Clicks – performance: Clicks – performance Disappointing profit performance Turnover slightly below expectations Poor expense control Shrinkage higher than expected Non-integrated & smaller pharmacies unprofitable Performance of integrated large stores support pharmacy strategy


Clicks - turnover growth: Clicks - turnover growth


Clicks – inflation at cost: Clicks – inflation at cost


Clicks - ClubCard: Clicks - ClubCard New ClubCard holders during the period 315 k Active ClubCard holders 2 m Active Gold ClubCard holders 920 k Average ClubCard spend up 14% Average units per spend up 9% Average frequency of use up 2%


Clicks – performance: margin: Clicks – performance: margin Margin impacted by lower than expected turnover change in mix: dispensary at lower margin less high margin imported lifestyle merchandise challenging environment with low inflation shrinkage


Clicks – performance: shrinkage: Clicks – performance: shrinkage Deteriorating shrinkage trend, particularly in inland stores Over-extended regional spans of control In-store disciplines & controls Prevailing industrial relations environment Irregular flow of stock around promotions


Clicks – performance: expenses: Clicks – performance: expenses Increased IT & store refurbishment costs Employment costs up Rising advertising costs to drive promotional activity


Clicks – performance: stock: Clicks – performance: stock Stock turn up from 5.66 to 5.79, due to inclusion of pharmacy Not an optimal stock turn Impacted by new healthcare ranges High stock levels impacted shrinkage Irregular flow of stock for promotions


Clicks – performance: pharmacy: Clicks – performance: pharmacy


Clicks – performance: pharmacy: Clicks – performance: pharmacy * 3 Clicks stores with dispensary (integrated for the full 6 months) ** Same 3 Clicks stores plus the separate pharmacies Note: Based on 6 months of trading, normalised shrinkage, no depreciation effect & once-off staff & occupancy costs adjusted for


Clicks – addressing performance: Clicks – addressing performance Senior management team restructured increased accountability & focus Operational management being restructured reduced spans of control pharmacy integration Improving margin & stock management reviewed strategy of promotional spend to generate higher sales at lower cost address poor stock availability


Clicks – addressing performance (continued): Clicks – addressing performance (continued) Address shrinkage reduce spans of control manage stock flows more efficiently in-store controls Pharmacy accelerate integration or closure of remaining non-integrated pharmacies at least possible cost ensuring the success of pharmacy from a margin mix perspective


Pharmacy – store projection: Pharmacy – store projection Strategy unchanged – “a dispensary in every store” Subject to licences


Pharmacy licence update: Pharmacy licence update


Discom - snapshot: Discom - snapshot


Discom - performance: Discom - performance New management team - all internal appointments Strong increase in profit driven by improved margin & reduced shrinkage Shift in mix to higher margin categories of toiletries & electrical appliances Expenses well below sales growth Strong performance from inland division Closed 8 stores, opened 10 stores (including 3 mall stores) & relocated 2 stores Entrenched hair care strategy


Discom – inflation at cost: Discom – inflation at cost


Discom – action plans: Discom – action plans New management team to continue current strategy Further improve operating profit Strengthening focus on African beauty & lifestyle Implementation of perpetual counting stock control at store level Implementation of merchandise management system module of JDA


Entertainment - snapshot: Entertainment - snapshot


Entertainment - performance: Entertainment - performance Strong turnover growth, boosted by exceptional December sales Margin down – top 20 CD promotion & changing margin mix to DVD & gaming Shrinkage continues to improve Introduced digital downloading via website Radically changed pricing perception in industry Converted 2 stores to ‘urban’ model


Entertainment – action plans: Entertainment – action plans Continue aggressive pricing & promotions Challenge to improve turnover post anniversary of top 20 CD promotion in April Convert further 17 stores to urban model DVD-only store opportunities


The Body Shop - snapshot: The Body Shop - snapshot


The Body Shop - performance: The Body Shop - performance Comparable store growth down – new stores impacted turnover of neighbouring stores Margin negatively affected by stock mark-downs ClubCard discounts absorbing some Body Shop Intnl price increases Expenses up - doubling of advertising & marketing costs & new stores


The Body Shop – action plans: The Body Shop – action plans Focus on sales growth from existing stores – no further store openings planned Year-round gifting strategy launched Selective price increases to reduce margin pressure ClubCard benefits to be discontinued from July Expense control – reduce marketing & staff expenditure & rental reductions Reduce stock holdings


Retail - conclusion: Retail - conclusion Focus on Clicks Pharmacy integration business efficiencies Continue the current strategies in Discom & Entertainment


Slide43: Distribution Kevin Vyvyan-Day


UPD - snapshot: UPD - snapshot


UPD – impact of legislation: UPD – impact of legislation Negotiated logistics fees with manufacturers Medicine prices lower Reduced margin Upswing in business from single channel distributors


UPD – performance : UPD – performance Turnover increased by 36% Strong growth in sales from independent pharmacies – moved from single channel distributors to UPD Continued growth in turnover from Clicks Pharmacy Hospital business increased strongly Sales to doctors declined due to dispensing regulations Margin impacted by single exit pricing – largely neutralised by increased sales volumes Expenses tightly controlled at 4.4% increase


UPD – action plans : UPD – action plans Increase volumes & capitalise on industry consolidation Continued focus on service & delivering value added services Continual tight management of expenses & debtors’ book


Distribution - conclusion: Distribution - conclusion Continue to grow UPD client base & share of existing client base Optimise efficiencies in distribution for the group


Slide49: Conclusion Trevor Honneysett


The next six months … and beyond: The next six months … and beyond Address performance of Clicks brand – priority no 1 Accelerate pharmacy integration into Clicks Maintain momentum in UPD & other retail brands Manage expenses & shrinkage in Clicks Continue to adapt to low inflation environment Systems implementation to deliver greater efficiencies Improve ROE through efficient capital management ongoing improvement in margin & mix enhanced performance of retail brands


Slide51: Questions ?


Slide52: Thank you