Clicks Group Ltd S/Adr

Good day and welcome to the webcast of our interim results for the half year, which ended on the 28th of February. I am Bettina Engelbrecht, the Chief Executive Officer of the CLICS Group. Joining me here today is Michael Flemming, our Chief Financial Officer. Together, we will take you through today's presentation. This is the outline of the presentation. I will start with a review of the past six months. Michael, will follow with an overview of our financial results. Hereafter, I will take you through our trading performance for the retail business, followed by the UPD business. I will then close with the outlook for the group. Please feel free to submit your questions via the webcast during and after the presentation. Sue Hemp from our investor relations will read out your questions to which Michael and I will respond. Starting then with the review. The group has once again delivered a pleasing set of results, gaining market share in its core retail pharmacy, beauty and general merchandise categories. The ongoing disruptive impact of COVID-19 on lives and livelihoods continued to be felt. resulting in reshaped consumer behaviors and perceptions of value. Our unique customer value proposition premised on great everyday prices, a differentiated product offer, our iconic club card loyalty program, ease of access to healthcare and convenient network positions the brand for sustained success. This is evidenced by these results and the growth in our clock card loyalty program to 9.5 million active members. In the private hospital channel, activity was muted due to lower admission rates related to the Omicron variant and the deferment of elective surgery procedures. This, coupled with a sharp decline in the independent pharmacy channel, resulted in a challenging first half for UPD. We honored our commitment to support the national COVID-19 vaccination program. Since the inception to date, we have administered over 3 million vaccines, making us the largest private vaccinator in the country. Our accelerated store and pharmacy rollout program created direct and indirect job opportunities and contributes to our economic recovery. In March, we opened up our 800th store in Somerset Crossing here in the Western Cape. The impact of the civil unrest on retail sales was most pronounced in KwaZulu-Natal. To date, six stores in that region remain closed. We are, however, confident that five of these will be reopened within this financial year. In the UPD business, The implementation of the new ERP and warehouse management systems originally scheduled to commence in July of 2021 was delayed as a consequence of the civil unrest. In the period, our continuing diluted headline earnings per share adjusted for the SASREA payments received increased by 10.2 percentage points. with our interim dividend per share up by 26.3%. I will now hand over to Michael, who will take you through the financial results of the group.

Thank you, Bettina. Good afternoon. By way of introduction, you will note both in this presentation and in the SENS announcement that we provide certain financial information based on continuing operations. Continuing operations obviously excludes the performance of the Musica business, which we closed in May last year. Secondly, and more importantly, certain figures in continuing operations have been adjusted for the second interim SASREA insurance payment received in respect of the civil unrest in July last year. Where any such once-off adjustments are made in respect of the SASREA insurance proceeds, we clearly note this in the presentation by means of an asterisk and a footnote in order to present a normalised view of the underlying business performance. Group turnover increased by 9% for the first six months. Retail turnover grew strongly at 13.6%, which was driven by COVID-19 vaccinations contributing 6.5% to sales growth. On the other hand, UPD had a much tougher six months, with turnover growing by only 0.6%, as the wholesale business experienced a reduction in sales to private hospitals and to independent pharmacies. The group operating margin at 7.8% was impacted by the large volume of COVID-19 vaccinations clicks administered, as these have a very low margin. Diluted headline earnings per share for the group increased to 467 cents per share, which was up 26%. As Bettina mentioned, On a continuing operations basis, diluted adjusted HIPs, which excludes the SAS reinsurance proceeds we received, was up 10.2%. The group's return on equity has increased to 47.2%, which is now well within our targeted range of 40 to 50%. We ended the half year with cash of $838 million on the balance sheet. This was after we paid last year's final dividend of $848 million in January. and used $446 million to buy back shares. Subsequent to the half year, we received $317 million, including VAT from SASRIA, being the final amount owing to us in respect of our claim for the damage caused by the civil unrest, on which I will elaborate shortly. Our interim dividend, declared of $0.180 per share, is up 26.3% and will be paid to shareholders on the 4th of July. The impact of the civil unrest on the group in July last year was significant. The group, as you know, was and is fully insured against the risk of political violence and unrest through SASRA, as well as having general insurance for business interruption. The final claim made in terms of our SASRA policy amounted to 713 million, which represented the insured value of assets looted or destroyed. The claim comprised 524 million for inventory, 167 million for fixed assets, and 22 million for additional costs insured under the SASRIA policy. Last year, we accounted for the first interim payment of 217 million in our annual results. This year, we've also accounted for the second interim payment of 217 million in the first half, and we will account for the final payment from SASRIA of 276 million, which excludes VAT, in our year-end results. As a reminder, our business interruption claim for the civil unrest has not been finalized as it covers a 12 month period for stores and it's subject to a seven day average deductible. Looking at the direct impact on headline earnings and diluted HEPs, you can see operating profit was increased by 130 million and headline earnings by 94 million, which in turn equated to an increase of 38.3 cents per share for the six months. In other words, diluted headline earnings per share would have increased by at least 10.2% had it not been for the civil unrest. The impact of COVID-19 has continued to hamper both our economy and consumer behavior in general. In particular, while we had anticipated the fourth COVID wave would resemble the Delta variant and its associated impact, the economic impact of Omicron was substantially less severe than Delta's predecessor, the beta variant. In addition, South Africa has been able to vaccinate vulnerable sectors of the population for six months prior to Omicron arriving. While this was favorable for our retail business, it was less so for our UPD business, as the number of patients treated for COVID-19 in hospitals decreased significantly, which ultimately is good news. Retail sales grew by 13.6%. the same stores growing 10.2%, which in turn was driven by providing COVID-19 vaccinations in over 530 of our conveniently located pharmacies. New stores and pharmacies added a further 3.4% to the top line, while selling price inflation was contained to 3.7% for the period. The distribution business experienced low selling price inflation of 1.9% and saw declining volumes in the wholesale business as the impact of COVID-19 began to wane in South Africa. Bettina will elaborate on the detail of each business's performance later in the presentation. This slide reflects our total income earned, which increased by 10.6% to 5.3 billion for the six months. You can see the total income margin in retail was 40 basis points lower than last year. This was mainly due to the very low margin on COVID-19 vaccinations. On the other hand, UPD's total income margin was up 20 basis points to 8.7%. UPD has continued to benefit from the addition of bulk distribution contracts gained both during the previous year as well as in the current year. We continue to focus on cost efficiency. Retail has reduced operating expenditure as a percentage of turnover by 30 basis points to 23.6%. Operating costs in retail, however, were up 12.2%, largely due to the addition of staff to assist with the COVID-19 vaccinations, which began to roll out in clicks from the end of May last year. Over the past 12 months, we've opened 39 click stores, 45 pharmacies, of which 17 stores and 25 pharmacies were opened in the last six months. This addition of new space has added approximately 3.2% to the cost base and has supported the growth in the top line. We've also extended space in eight stores during the first half. On a comparable basis, retail costs were up 6.5%. UPD's costs increased by 8.4% for the period, driven by additional operating costs associated with the growth in total managed turnover which was up 6.7%. I had previously mentioned at our results presentation last year that the business continues to have an element of inefficiency in the cost base in Johannesburg. This takes the form of extra operational costs incurred in the rented warehouses, which are used to service the additional distribution contracts UPDS won and include higher transport, security and insurance costs. Retail grew operating profit by 12%, with the margin declining by 10 basis points to 9.1%. As I said earlier, this was as a consequence of the high number of COVID-19 vaccinations CLICS administered during the period, which equated to additional turnover of $832 million at a very low margin. UPD's operating profit declined by 4.4%, with the operating margin being 20 basis points lower. This was due to ongoing cost pressure combined with lower wholesale sales, particularly in hospital and independent pharmacy channels. Overall, the group's operating profit increased by 7.5% to over R1.5 billion for the six months. Looking at inventory, retail stock days were four days lower than the prior year. In the prior year, we had consciously buffered FunShop Health stock to cater for increased demand, as well as certain supply chain disruptions. Both local and global disruptions to the supply chain continue to persist, but which we have by and large been able to overcome. Distribution stock cover reduced by seven days as UPD responded to lower sales demand from the hospitals and independent pharmacies. Overall, inventory levels for the group are well managed and have improved by five days to 78 days. This slide reflects the movement of cash between the cash on the balance sheet at the end of August 2021 and the end of February this year. At the end of last year, we had cash of 2.2 billion Rand, which is reflected in dark blue on the left-hand side. And we ended the half year with 838 million, also reflected in dark blue on the right-hand side of the slide. For the six months, the group has generated cash of 2.3 billion Rand, highlighted in green, before the repayment of lease liabilities amounting to 343 million, working capital changes of 1.1 billion, and tax payments of 513 million. Last year, we had arranged temporary extended creditor terms on stock looted during the civil unrest, as well as obtained additional banking facilities to assist us with working capital funding while we waited for the insurers to pay out the balance of our claim. Those extra credit amounts on hand at the end of last year were settled during this reporting period. We have invested 352 million in capex over the past six months on new stores, including 63 store refurbishments, mainly related to the damage caused by this July civil unrest, as well as IT and distribution center equipment. Finally, as mentioned earlier, we returned 1.3 billion to shareholders during the period. This was in the form of dividends of 848 million and share buybacks of $446 million. This leaves the group with a strong balance sheet at the end of the period and in good shape to fund the interim dividend, which amounts to $439 million. We continue to view the investment prospects for organic growth as highly attractive. Capital expenditure and commitments of $876 million are planned for this year. This amount includes 167 million for replacing assets damaged in the civil unrest and 46 million carried forward from last year due to delays caused by the impact of COVID-19. 565 million will be invested in our store and pharmacy network. This will include 45 new click stores, 54 new pharmacies, including the acquisition of 14 pharmacies trading in a pick and pay store, as the other 11 pick and pay pharmacies have been relocated to existing Clicks pharmacies. 35 retail store refurbishments to ensure our stores stay modern and completing the restoration of all 53 stores that were damaged in the civil unrest. 311 million will be spent on IT systems and infrastructure. 109 million of this amount will be invested on UPD IT and warehouse equipment, including fitting out an additional rented warehouse in Cape Town. We will invest a balance of $202 million in retail IT systems and infrastructure. This also includes installing solar panels on all of our distribution centres in the second half, which will improve our contribution to renewable energy and result in significant savings in the group's electricity costs. I'll now hand back to Bettina to take you through the rest of the presentation.

Thank you, Michael. I will now take you through our trading performances, starting with retail and followed by UPD. This is the breakdown of the retail sales by category. In the period, total turnover grew 13.6%, while comparable existing stores grew 10.2%, with volume uplift of 6.5%, attributable to our COVID-19 vaccination program. Inflation increased by 50 basis points to 3.7%, and we maintained our price competitiveness. First, let me provide some context to our sales performance. As it became clear that the Omicron variant was more infectious, yet less severe than the preceding Delta variant, the sharp increase in front-shop healthcare products was not repeated. The ongoing requirement to socially distance and wear masks indoors continued to curtail the transmission of acute infections. The eventual easing of the COVID restrictions led to a gradual opening up of the economy. Food traffic in shopping centres is once again increasing. In the education sector, learners return to school by mid-February month and employees are returning to workplaces. Pharmacy sales excluding vaccinations increased by 7.7% in value and 8.8% in volume. with pleasing growths in key provinces. Branch of health grew by 3.6% off a high base in the prior year. The star performers were medicinal, up 14.2%. First aid and food care both recorded double-digit growths. Despite some import shipment delays, we achieved good sales growths in baby accessories and baby toiletries. the beauty and personal care categories are recovering well. Standout performances were seen in dermal skin care, up 18.6%, sun care, up 23.9%, and luxury bath, up 20.5%. Pleasingly, colour cosmetics is up 12.6%, buoyed by the opening up of the economy as people return to work schools and social engagements. General merchandise recorded solid performances in convenience categories and in small household appliances. We continued to consolidate our market share gains of the prior year in our core retail pharmacy, beauty and general merchandise categories. In health, Market share gains in retail pharmacy was muted at 40 basis points. Our higher volume gains reflect the faster growth of generics and our higher share of the Schedule 1 and 2 market. In the key provinces of Gauteng and the Western Cape, we recorded good gains, confirming that we are selecting our new store and pharmacy locations wisely. Although our market share in FrontShop Health declined by 20 basis points, this was off a very high base in the prior year attributable to the Beta and Delta variants. Baby marginally declined by 10 basis points due to some import shipment delays. In our FrontShop Beauty segment, all categories gained market share. Facial skincare gained 100 basis points, aided by strong performances in moist wipes, facial care, facial wash, and acne preparation. Hair care achieved a slight gain of 10 basis points. This despite the decline in at-home hair treatments, styling aids, and hair straighteners as consumers returned to hair salons. Personal care was the top performing category. registering a gain of 110 basis points, aided by strong performances in most of the departments, notably in luxury bath and sun care. Our incremental market share gains in general merchandise is being sustained. We gained 30 basis points in small household electrical appliances, driven by strong sales growths in indoor cooking and food makers. I will now go into detail on the key drivers that supported our growth. Whilst we are hopeful that the devastating impact of the COVID-19 pandemic on human lives and health is abating, the economic impacts remain. Additional macro environmental factors, such as a higher unemployment rate, rising inflation, as well as power outages, continue to adversely impact the economy, raising the importance of delivering value to consumers. The Clix brand positioning is rooted in value, exemplified by our signature, feel good, pay less at Clix. We have, as reflected on this slide, maintained great everyday prices and remain price competitive all national retailers based on a volume weighted price index that excludes our renowned 342 promotions. To put this into perspective, you would have paid 7% less for your basket of overlapping products if you shopped at a click store rather than at retailer A. We grew our promotional sales by 8.3%. to 42.7% of sales. This on the back of strong promotional sales growths in fine fragrances and color cosmetics. Our value offering though extends beyond price. By offering patients the choice of generic medicines at our pharmacies, we assist them to extend their medical aid benefits. Our Club Card loyalty program delivers great rewards with R302 million in cashback returned to our customers over these past six months. The tiering of our extensive range of private label products provides us with the opportunity to offer appropriately priced private label products for customers who trade down. Our range of private label and exclusive brands increases consumers' choice and is a key driver of growth based on differentiation. In the period, we increased our private label contribution to 24.6% of sales, contributing 29.9% in front shop and 9.9% in pharmacy. The slight decline of 10 basis points in front shop was due to delayed import shipments, which impacted home and electrical, and the baby accessories category, as well as certain supplier out-of-stocks. The improved performance of 50 basis points in pharmacy was fueled by strong sales growths in antibiotics, antivirals, and mental health products. In furtherance of our sustainability agenda, all private label products are endorsed by Beauty Without Cruelty and All private label packaging is plant-based or recyclable. We currently have three standalone Clix Baby showroom stores and we'll open up our fourth Clix Baby store later this year. These stores offer expanded baby ranges supported by our online baby strategy. Turning to personalization. The Clicks Clubcard is an enabler of our personalization strategy and a key contributor to our sustained performance. The value of the Clicks Clubcard loyalty program is keenly appreciated by consumers. We have grown our membership to 9.5 million active members, contributing 80.5% to sales. The investment in digital enablement spurred the growth in our clicks app downloads, which reached 2.7 million by the half year. Our marketing and analytics teams are collaborating to develop actionable insights that will continue to drive our engagement and promotional campaigns. Whilst we have the building blocks in place to enhance the quality of our customer engagement and participation in personalized promotions, we will continue to invest in digital. We enable efficient access to healthcare in a number of ways. We have a convenient pharmacy network of 646 pharmacies and the most extensive private clinic network of 192 clinics. We actively manage a repeat prescription program that supports patient care and chronic medication adherence through a reminder service and pre-packed parcels. And we provide access to telemedicine consultation services in 133 of our clinics, delivering cost savings and improved access to primary healthcare. The implementation of the Blue Yonder retail merchandising system is on track for completion by June. In line with our convenience strategy, we accelerated our store opening program, increasing our footprint to 796 click stores at the half year, and now have over 800 click stores. We are showing steady progress on our objective of every click store with a pharmacy, with a total now of 646 pharmacies. At the half year, We had received approval to transfer 11 of the 25 pharmacies acquired from pick and pay to clicks. The transfer of the remaining 14 pharmacies will happen in our second half. Our accelerated store and pharmacy opening program has enabled us to reduce the number of click stores in South Africa without a pharmacy to 64. Strategically, we increased the number of stores in our convenience format to 593, improving our proximity to consumers. As anticipated, the growth in online sales moderated, contributing 1.3% of front shop sales. Positive mix changes benefited the home and electrical and baby categories. Our online store is double the size of the biggest click store, And our online-only ranges continue to outperform, driven by range extensions, new ranges, and enhanced marketing communication. That completes retail. I will now move on to UPD's trading performance. This slide sets out the breakdown of UPD's wholesale turnover. excluding bulk distribution and preferred supplier contracts. The independent pharmacy and other channels declined sharply by 28.2% of a high base in the prior period and lower frequencies. This channel now constitutes 11.5% of UPD's turnover. Export sales declined due to decreased activity and more restrictive import legislation in key territories. The negative sales performance in the private hospital channel is attributed to lower COVID-19 admissions and lower elective surgery procedures. CLICS now accounts for 50.2% of UPD's wholesale turnover, up 4.7%. Operationally, the teams are focused on driving purchasing compliance to above our targeted 98%. The wholesale market share is marginally down 20 basis points to 30.1%, largely attributable to the decline in the private hospital channel. UPD's total managed turnover, which includes fine wholesale sales, preferred supplier bulk distribution sales, and notional distribution sales, grew by 6.7% to R14.2 billion for the half year. UBD's bulk distribution delivered double-digit sales growth, despite some supplier out of stocks and subdued market activity. In the period, it acquired two new distribution clients and onboarded another in March. The business is reaching capacity in its DCs, and opted to rent additional facilities. Sales of originator medicines continue to decline, offset by a strong growth of 14.6% in generic medicines, which now constitutes 72% of UPD's volume. The ERP and warehouse management systems have now been implemented in the Durban DC in conjunction with our global implementation partners. These systems are stable and the Durban DC is maintaining normalized service levels. In the interest of prudency, the phased rollout of the systems to the remaining four distribution centers will be extended through 2023, starting with the Geberge DC in July this year. Whilst lower than in 2021, The single exit price increase of 3.5% is marginally higher than anticipated. This is helpful given the impact of higher fuel prices on UPD's cost base. Demand in the CLICS channel is gaining momentum and should benefit further from the upcoming winter season. UPD remains well positioned to also benefit from the recovery in the private hospital channel driven by increased elective surgery procedures. That completes the review of the business over the past six months. We are blessed with incredibly resilient people. The last two years in particular have stretched our teams. We are proud of the positive manner in which they support our business and our customers. despite the extraordinary challenging environment we face. On behalf of our board and our executive teams, thank you for your passion and commitment to our brand. I will now conclude our presentation with the outlook for the remainder of this financial year. Our key drivers of sustained volume growth, value, convenience, and differentiation and our growing loyal customer base positions us well to respond to consumer needs and to do so in a personalized manner. Whilst the COVID-related public health crisis seems to be abating, the economic impacts, which are fueled by unemployment, rising inflation, load shedding, and a constrained fiscus are taking center stage. This will constrain the consumer environment. The expected recovery in the beauty category is advantageous to the group, as is the relaxation of the requirement to wear masks ahead of the winter season. The opening up of space in shopping centres and our strong cash position will enable us to open 45 Clix stores, including another Clix baby store in this financial year. Activity in the private hospital channel is recovering. due to increased demand for elective surgery procedures. This will benefit UPD. As mentioned, UPD has secured another bulk distribution contract, which started in March. Rising inflation will create cost pressures, with UPD in particular facing the pressure of increasing transport costs. Our investments in new IT systems in both our retail and distribution businesses as well as our investment in digital engagement will assist us to extract efficiencies. We remain committed to support the national COVID-19 vaccination program. This will further cement our positioning as the country's leading private sector vaccinator. The impacts of the COVID pandemic and global crises have reinforced our interconnectedness and confirmed that our commitment to sustainable business practices is good for our business, hence our substantial investment in solar, which Michael referenced. In his presentation, Michael provided clarity on the impact of the civil unrest and the three Satria payments on our financial results. Our claim has been fully settled. The final payment was received post our half year. Consequently, our forecasted range is to grow our group diluted HEPs by between 30 to 35%, continuing diluted HEPs by between 25% to 30%, and continuing adjusted diluted HEPs by between 8 and 13%. The resilience of our business model and our ability to adapt to changing market dynamics have been proven over time. We trade in defense of growing categories and continue to grain market share because of our loyal customer base and our offer. I am therefore confident of the group's ability to continue delivering on our medium-term targets. Thank you for listening. I am happy to take your questions. So I will now hand over to Sue Hemp from our Investor Relations to manage the process on behalf of Michael and myself.

Thanks, Tatiana. I have a question from Brian Thomas at Lorien Capital. Thank you for providing guidance as to the expected EPS range for the full year. In the assumptions you make around these earnings, do you anticipate, A, that you will vaccinate a similar number of people in H2 as you did in H1, and B, aligned to this, do you anticipate that margins will recover in half two?

I think we're going to vaccinate a lot less people in the second half, simply because one would have expected anybody who wanted to be vaccinated to have to have done so. Anybody who wanted a booster shot, for example, could certainly have done so. As you know, government has shortened the timeframe down from what was previously 42 days down to effectively less than a month. And booster shots are available both with J&J and Pfizer for anybody who wants. So I think we would probably do less than half the amount that we've done in the first half in terms of turnover and vaccinations. We've also continued to right-size our footprint in terms of that. So as the decline in demand happens, so we effectively move the supply of those vaccines down in the stores or the clinics that we're offering them in. So in a nutshell, if employers begin to drive mandatory vaccinations, for example, that will help continue with the ongoing demand, but we are seeing it fall down to probably around 200,000 vaccines a month at the moment.

And then maybe I was just going to add to that as well, Michael. I mean, the range is not informed by an equivalent performance in terms of COVID-19. We had always had the view within our organisation that vaccination will ultimately lead to the opening up of the economy. And that is what we can now already see in certain of our categories, particularly our core categories.

The other question related to margin, Brian, that you asked. So again, hopefully I say this cautiously because obviously one doesn't want people to fall sick, but we do in many respects think that there will be a more normalised winter season. So flu and colds, you know, they've already started to increase in the last week or so. And I think as people, you know, relax on the masks, for example, not wearing masks outdoors, as more and more people return to work, the kids are all at school. We would imagine that there would be a more traditional winter season, which again comes at lower margin. But so you can think of the vaccinations and pharmacy in the winter season having similar margins. But the point is, there'd be more people in stores. For us, that's important, that dress front shop. And we would expect to see margin recover as a result of those behaviors.

We have another question from Tertius Peltzer at Kathmandu, some of which we've already answered, so I'll just ask the additional questions. Is it possible for you to disclose the margin on vaccines? As Kim previously mentioned, a 7.1% EBITDA margin on vaccines.

No, we don't disclose it, but it's similar to pharmacy.

Question from Chris Gilmore at Selma Research.

who is manufacturing your private label goods and what further capacity exists to enhance the 24.6 penetration even further well maybe if i can just and we will both do this particular question there are a number of private label suppliers chris so if you just think about the broad categories in which we've got private label i mean you can go all the way from pharmacy through to front shop um What I would have said, if you're looking at the categories that are in particular growing, baby as an example would be one of those. We already have an extensive range within the baby category, both in terms of accessories, baby clothing, and then of course our diapers and our baby foods. We've got in healthcare, the thing that I'm most excited about when you're thinking about, well, what else is there, is that we've just launched our range of clicks domestics. It's called Xtreme. I've been using it over the last couple of weeks within my own home, and it's a really great product range in total. Michael?

Yeah, so I mean, obviously we have a diverse manufacturing base, some of it offshore, some of it onshore. And we have a variety of manufacturers that we can switch to as well. In terms of the target, I mean, it will take some time to get up to the target. I mean, we ultimately would like to see private label, you know, touch around 30%. There's still further upside in terms of generic medicines as those get approved through the process. And then on front shop, obviously, we continue to offer consumers choice across a variety of brands in our stores. And there are opportunities still to grow that, as Bettina's mentioned, in the front shop categories. So long term, 30% would be a target we aspire to. 25% actually was our our target we've been reaching for for many years, and we're almost about to touch it.

I was just going to say, Michael, it sounds like we're going to have to up that target.

And our medicines, we're now touching 10%. So, you know, that's also taken a long time to get there. So, yes, slowly but surely, we continue to expand the range.

And I think, in fact, on medicines, we've set our eventual target is 15% on the pharmacy side. But upside still, I think, in terms of front shop.

Dino Constantino from Investec asks, what is generic penetration and prescription medicine at CLICS pharmacies and where do you see this getting to?

I think for EPD, generic penetration is probably a useful point of reference. The fact that we're doing 72% there and that's across the market is indicative of how this has moved If you go back in time, it used to be 50, then it's 60 and now hitting 70%. In some developed countries, it's as high as 85%. So it really depends on SAPRA's ability to approve dossiers and then obviously competition to drive generics in the market. As you know, Qlik actively provides generic substitution, which we compel to by law, and the pharmacist will offer customers the choice of generics. I think we can see it getting north of 70 towards 80 in the longer term, but the very long term, as more and more dossiers are approved in the country.

And then Pele from ARSA has a couple of questions. Firstly, are you seeing significant negative revisions in rentals? Also, where is the growth in stores, convenience or destinations?

We're seeing growth in both, actually. So, you know, convenience stores continue to grow, albeit at a slightly slower rate, because, as you know, with destination malls and shopping behavior opening up again, we're seeing very good growth coming through on destination stores. Still not quite back at the levels that they were pre-COVID, but nevertheless, very encouraging growth, strong growth coming through there. And the convenience stores continue to remain resilient. And I have no doubt at some point we may enter a fifth wave. It looks like we might be starting one. And again, convenience, you know, will become probably as useful as it's always been. But pharmacy is fundamentally predicated on the convenience platform. So when you're sick, you generally feel quite lousy. You don't want to go too far to your closest pharmacy. If you've got to get chronic medication, typically again, convenience does play very strongly to pharmacy. as well as FunShop. So I think from that perspective, that probably answers the question, Sue. Oh, on the rental, sorry, yes. On the rentals, we continue to see reductions coming through. Landlords, you know, also are open to postponing increases and escalations, I think, are pretty much stabilised in terms of the reductions.

And then also asked, what is the target number of stores for Plex Bailey? And will they be in the same locations as normal clicks stores? Or if not, can you include dispensaries in them at some stage?

The intention would not be to open dispensaries in the clicks baby stores. I mean, in terms of our strategy, it's a showroom of our extended baby range products. The objective is to get to about 10 to 11 clicks baby showroom stores. We believe that that's sufficient in order to reach the objective, which is that that is a showroom. They happily cohabit with the Clicks store in the same shopping center. For example, Canal Walk here. We've got Clicks Baby and Clicks probably a few meters from one another, and they both do well. The Baby Showroom store really is a destination for mom or granny or guard mom or guard dad to go and visit and just see what's on offer.

Dylan Ross from M&G Investments asks, can you provide some colour on why promotional sales were up 8.3% versus like-for-like retail turnover of 10.2%?

I think the simple answer is really we offered the COVID vaccination program in our existing stores. So as we said, that increased sales by 6.5%. So that would be the key reason why the turnover growth was higher than promotional sales growth.

Bruce Williamson from Integral Asset Management says, can you talk about your cost inflation assumptions for some of the important costs across all the businesses?

Yeah, the cost inflation is obviously proving to be a little bit challenging going forward, I think, simply because you've got these significant increases in electricity, particularly transport costs, which will impact the whole economy, you know, every Good that has to be picked and packed and delivered to store or to homes costs money. Consumers are under pressure for the same reason. We've seen significant increases in insurance, so all of these are likely to go up double digit, as you know, they're significant. People are using payment methods like credit cards and debit cards more than they used to in terms of cash, so that also does go in line with turnover growth. We are still seeing, as I said, you know, cost containment on the lease side. So that is helpful. And then when we come to salaries and wages, you know, we've been very considered. Our salaries and wages haven't gone up. They've gone up less than 5% the last two years. So again, I think there's a bit of pressure on that going forward. You know, CPI sitting at about 5.7 odd percent, 5.9 now as of this week. We would probably see that's also going to be a pressure in the year ahead. But I think by and large, containing our cost of 6.5% so far has been a good achievement. And bearing in mind as well, we were working off a base last year where there were curtailed trading hours, there were curfews, there were people visiting shops less. Some of that now has to be put back into the business in terms of sustainable base. So I do think you will continue to see the cost pressure that you've seen in the first half. In the second half, where it relates to COVID vaccines, obviously we can take that out as the vaccines diminish in their contribution. On UPD's side, again, I think you'll see a significant cost pressure coming through there, particularly on transport. As I said, leased additional warehouse in Cape Town. So that'll come with additional costs. But again, we've got turnover to support that. So not as efficient as we would like, but there will be cost pressure on both businesses in the second half and into 2023.

There appears to be no further questions. So I'd just like to thank everybody on the call. Thank you for joining us today and have a good day further.