analyst presentation 2002 welcome
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Analyst Presentation 2002
Welcome
Programme
• Strategic Review
• Financial Results
• Healthcare
• New Clicks Australia (NCA) Review
• New Clicks South Africa (NCSA) Review
• Questions
Strategic Review
• Vision
• Mission
• Positioning Statement
Our Vision
We wish to be a world-class trans-national player,
specialised and highly networked with local market
responsiveness and accountability, rapid distribution
capability, adding value to the quality of life through
the convenient supply of health, home and beauty
products and services with a preferential interactive
relationship with our customers
Our Mission
To be a major multi-brand retailer of Health,
Lifestyle and Beauty products in the Asia Pacific
Region by 2005, without limiting our activities and
dominance in southern Africa
Our Positioning Statement
We are world-class originators and distributors of a
range of compelling and differentiated health,
lifestyle and beauty retail products and services to
multiple brand formats in a variety of ownership
models.
GSF
Trevor Honneysett…..
David Nurek………….
Allen Zimbler…………
Errol Gray…………….
Jeff Sher……………..
Peter Green………….
Raymond Godfrey…..
Simon Burrow……….
Simon Kilner…………
George Meiliunas……
Group Leader
Non-Executive Chairman
Non-Executive Director
NCSA Country Leader
NCA Country Leader
Group Finance
Group Merchandise
Group Marketing
Group IT/Supply Chain
Group OD
Agenda
• High-level financial overview• Purchase Milton & Associates• Healthcare update - South Africa
Financial Resultsfor year ending31 August 2002
Income Statement
• Turnover R5.5bn +25.7%• Operating Profit R318m +21.3%• Operating Margin 5.8%
Excluding Discom• Operating Profit +31.9%• Operating Margin 7.04%
Goodwill
Balance Sheet Income Statement
Rm Rm
Link 16.120 0.895
House 78.304 9.042
Price Attack 88.078 1.419
Total 182.502 11.346
Accounts Receivable
• Increases due to:– acquisitions – franchisees
2002 2001 Rm Rm
SA 120.353 82.630Aus 76.271 24.640
Total 196.624 107.270
Accounts Payable
• Increases due to extending terms
Cash Flow
• Big Improvement– Improving Working Capital
Cash Flow from Operating
2002 2001
Rm Rm
296.927 145.337
Future Focus
• Continue to focus on:– Asset turnover (stock turn goal 7x over 3 years)– Cash generation– Improving margins (goal still 8%) - (UPD will
lower margin but has high asset turnover)• Resulting in improving:
– Returns and EVA (ROE goal still 30%)
Strengthened Financial structure as we go forward• Appointment of CFO in each geography• Focus on efficiency improvements• Trans-national project:
– cost centres to profit centres - franchising– process innovation to reduce overall costs– strict financial regime
Loan to Pharmacy (PM&A)
2002 2001
Rm Rm
Loan 276.900 239.028
Interest charge 45.5 10.1
Cost recovery 11.4 4.0• Interest turn• Fees income Link• Loan impairment & recoverability
PM&A• They are budgeting high profit growth as they
consolidate
• Some of the largest stores were acquired
• Acquisitions stopped - consolidation phase - convert to largest and most profitable chain of Pharmacies in SA
• Operating profit could exceed 10% if we could integrate (7% otherwise)
• Cash generating
Healthcare SA
New Clicks Holdings South Africa
NCH
Funding & Suspensive Sale
PM&A100%
Ownership
R1 Billion
76 Stores
56%
LIT
R2 Billion
248 Stores
FranchiseStores
New Clicks Holdings South Africa
NCH
56%
LIT
Funding
PM&A
FranchiseStores
100% Ownership
Interest
Franchise Fees, LOB,
Rebates
Wholesale Margin & Rebates
Fees for Services
Different store ownership models
• There will always be franchise (LINK)– income from fees, rebates,
wholesale profits
but if law allows there will also be:• pharmacies in Clicks & Discom• 100% ownership (PM&A) • JV (80%:20% for any of the brands)
Merchandising
OD / HR
Marketing
Fin & Admin
Logistics
IT
Store Design
Store Develop
Supply Chain
Distribution
Buying
Store Services
Franchise Stores(0%:100%)
Joint Venture Stores(80%:20%)
Owned Stores(100%:0%)
Centralised services model
56%
LIT
Funding
PM&A
R2 Billion
248 Stores
FranchiseStores
R1 Billion
76 Stores
100% now; JV in future
CLICKS
R2,7 Billion
261 Stores
DISCOM
R721 Million
182 Stores
New Clicks South Africa
PRESENT PHARMACY NETWORK
DESIRED FUTURE PHARMACY NETWORK
A nationwide network of +/- 800 efficient, compliant, professional and profitable pharmacies within various ownership
models
The Objective
The Integrated Healthcare Model
Pharmacy
Clinical Care
Retail consumer health
BackShop
FrontShop
Intercare
• A close relationship with the doctors who prescribe
• Objective is to improve pharmacy turnover • Pilot project
Link Investment Trust
• Budgeting for break-even • Funding new initiatives• Link - The best known pharmacy brand• Income from
– franchise fees - potential for new members,
– rebates– own brands
UPD transaction reminder
• R 2 billion turnover, NPAT R43m • Transaction to be funded through issue of
39 024k New Clicks shares at R7.20• P/E for valuation was 6.5x• Earnings enhancing• Awaiting approval from Competition
Commission
Healthcare Legal Issues
Status of Law•Ownership
–still awaiting regulations –under-serviced areas - Discom–need urban stores as well (PM&A)
•Single Exit Pricing–schedule 3, some only–modelling difficult for total pharmacy–believe no impact on UPD
• Court Case
State of the Industry • Healthcare in SA is in crisis • Need for greater affordability & access • Potential changes to Legislation
– Lay ownership/deregulation– Professional Fee – Dispensing Doctors
• Fragmented Industry
• Opportunities for greater efficiencies
• We are the best suited to play a role
Jeff Sher Country Leader
• Introduction - a perspective• The year in review• Our pharmacy model• The year ahead• Summary
Agenda
August 2001
AustralianManagement Forum
Shared Services
2001/02 Performance
Results – Aug 2002
• Sales up 13.9%
• Operating Profit up 22.9%
Results – Aug 2002
• Franchise Incomeup 99.2%
• Operating Profit up 117.5%
• Store Growth10
NOTE! Pre-allocation of Support Office costs
House Key Issues
• Response to competitive environment
through differentiation
- Private label
- Direct imports
• Government home loan scheme ends
• Competent team now in place
• NZ on hold due to supply chain complications
Results – Aug 2002
• Sales Up 13.2%
• Operating ProfitUp 10.34%
• Store Growth9
NOTE! Pre-allocation of Support Office costs
Priceline Key Issues
• Why did we only open 9 stores • Intense competition – our response
– Lifestyle category repositioning– Differentiation through imports– Loyalty - a positive outcome
• Leverage to be gained with Price Attack• Margin focus• Loyalty - a positive outcome• Stock levels - growth due to strategic
opportunity• Operating Profit - 7.61% to sales
A Snapshot
• 94 stores
• Average turnover per store - $950 000
• Franchise fees - 5% on sales
• Advertising fee - 3% of sales
• Local area marketing - 1% of sales
• Master franchise arrangement - WA, SA -
1% franchise fee, 3% marketing fee
Opportunities
• Synergy with Sunday Group - access to 1800 formulations
• Private label• Easily transported• Monopolistic environment• High margin
• Make-up of the industry• Regulatory environment• Our offer• How income is generated• Store growth
• Number of pharmacies in Australia:
Approximately 4,900
• Bannered pharmacies:
• Approximately 1,900 (39%)
Retail Pharmacy Sales Mix
Retail Pharmacy$6.5b
Non Pharm.$1.2b
Prescriptions$4.1b
OTC$2.4b
Non Sched$639m
S2/S3$550m
72%
Amcal395
Guardian 264
Chemworld131
Pharm Adv.91
Soul Patt230
Med. Shoppe7
Healthsense110
Full Life40
Terry White105
Chemmart255
SIGMA API MAYNE
WHOLESALERS
Wholesaler & Pharmacist Relationship
• Wholesalers guarantee loans for pharmacists to acquire
pharmacies.
• The pricing mechanism for pharmacists is artificially
inflated, 1:1 ratio of turnover to goodwill
• Pharmacists align to a banner through loose agreement
• Distribution on a twice-a-day basis
• Banner groups offer marketing programmes and some
operational support
• Private label products are key to the relationship
Regulatory environment
• Agreement between Government & Pharmacy Guild
• No corporation can have pecuniary interest
• Geographic restriction
• Usage clause restriction - landlord
• Limit to numbers in shopping centres
• Regulations applied by Pharmacy Board - layout of stores
• Approval numbers
• Pharmacy Act - differs in each state
Sales
Pharmacy Paradox
Prescriptions & medicines
back of storeFront of
store
70% 30%
Costs 20% 80%
Margins 10% 32%
Our Offer• Category management - increased margin• Rebalance front and back of shop - increase sales• Common IT platform• Marketing programme - including ClubCard• Retail services (merchandising and space
management)• The Pharmacy Academy• Operational focus - shopfloor productivity• Brand equity
Benefits for Fees
• Annual franchise fee - a flat amount• Distribution fee linked to purchases on front of shop• IT annual maintenance fee• Marketing fee linked to marketing programme costs• Supplier rebates• Significantly - no capital employed
Store Growth
• Three Opportunities• Existing Pharmacies convert to Priceline model
• Convert Priceline stores to Pharmacies through a
franchise arrangement
• Secure new locations and through a relationship
with pharmacists acquire approval numbers
• Objective• 14 - 20 Stores secured by August 2003
• 1000 by ??
The Year Ahead
The Year Ahead – Store Growth
14 - 20 13 12 16
AMF
Jeff Sher………………
George Meiliunas……
Alan Wein…………….
Amanda Brook……….
Rob Ellis………………
Bradley Wein…………
Andrew Grant………..
Simon Burrow………..
Trevor Harris…………
Country Leader
Organisational Development
Brand Leader - House
Brand Leader - Priceline
Brand Leader - Price Attack
Franchising
Logistics/IT
Marketing
Finance
A Committed Team - Going Places
Summary
• Price Attack, full year of profit • Controlled growth of costs• Loyalty to deliver• Leverage gains in merchandise• Roll-out of pharmacy
A Positive Outlook
Errol Gray Country Leader
• NCSA performance
• NCSA achievements
• NCSA year ahead
Agenda
NCSA Performance
Salesup 17.1%
Operating Profitup 15.3%
Comparative without Discom
Sales up 18.2%
Operating profit up 27.2%
Clicks Performance
Salesup 15.4%
Operating Profitup 23.7%
Store Growth21
Clicks Existing Store Growth
0
2
4
6
8
10
12
September October November December January February March April May June July August
% i
ncr
ease
2001/2002 Cumulative2000/2001 Cumulative
Clicks Key Issues
• Repositioned Clicks - Live Life Beautifully
• CRM loyalty programme
- Data mining
- ClubCard relaunch
• Aggressive store upgrade
• Stock reduction
• Service campaign
• New healthcare statement
- 20 stores
Discom Performance
Salesup 12.1%
Operating Profit Down
Stores Refurbished
Discom Existing Store Growth
-4
-2
0
2
4
6
8
10
12
14
September October November December January February March April May June July August
% i
ncr
ease
2001/2002 Cumulative2000/2001 Cumulative
Discom Key Issues
• Focus on re-engineering the margin mix
• Exploring new primary health statement in store
• Test a hair salon in Mitchell’s Plain store
• Continue to develop private label
• Ongoing focus on expenses
• Ethnic haircare focus - R100m in sales
• Leadership
Music Division Performance
Salesup 24.9%
Operating Profitup 104%
New Stores7
Music Existing Store Growth
-4.00
-2.00
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
Septe
mbe
r
Octob
er
Novem
ber
Decem
ber
Janu
ary
Febru
ary
Mar
chApr
ilM
ay
June
July
Augus
t
% i
ncr
ease
2001/2002 Cumulative2000/2001 Cumulative
Music Division Key Issues
• Maintaining margins
• Increased stockturns
• CDW opening two new stores
• Market dominance - 35%
• Bucking international market trends
• Leadership
The Body Shop Performance
SalesR27.1m
Operating ProfitR3.4m
Store Growth11
The Body Shop Key Issues
• Mature brand internationally
• New in SA - years of growth ahead
• Brand being revitalised internationally
• First corporate to be awarded a Master Franchise
NCSA Achievements
• Stock management
• Discom repositioning
• Data mining
• SAMF
Stock Management
• Next year goal R250m improvement
• Centralising imports, single item
picking, algorithms
• Stock turn 5x, 6x, 7x, over next years
to generate cash (JIT)
NCSA DC'sYear on Year Stock
R 0
R 25,000,000
R 50,000,000
R 75,000,000
R 100,000,000
R 125,000,000
R 150,000,000
R 175,000,000
R 200,000,000
R 225,000,000
R 250,000,000
R 275,000,000
R 300,000,000
R 325,000,000
R 350,000,000
R 375,000,000
Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
Financial Months
Sel
lin
g V
alu
e (R
and
s)
1998/1999yr
1999/2000yr
2000/2001yr
2001/2002yr
NCSA Stocks
600000
700000
800000
900000
1000000
1100000
1200000
1300000
1400000
1500000
S O N D J F M A M J J A
month
va
lue
2001/2002
2000/2001
The Year Ahead - Store Growth
24 8 7 9
SAMF
Errol Gray……………..
Andre Vermeulen…….
Lara Bryant……………
Trevor Vroom…………
Mike Harvey…………..
Colin Robb……………
Monica Goertz………..
Simon Kilner………….
Byron Hofmeyr……….
Country Leader
Finance
Marketing & Merchandise
Brand Leader - Clicks
Brand Leader - Discom
Brand Leader - Music Division
Brand Leader - Healthcare
Supply Chain
IT
Year Ahead
• Sustainable stockturn improvement
• Discom profitability
• Healthcare integration and performance
• Clicks revitalisation
• Focused brand performance
Our Positioning Statement
We are world-class originators and distributors of a
range of compelling and differentiated health,
lifestyle and beauty retail products and services to
multiple brand formats in a variety of ownership
models.
Thank You
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