Clicks Group Ltd S/Adr

Good afternoon and a warm welcome to the webcast of our annual results for the year end of 31 August 2023. I am Bettina Engelbrecht, Chief Executive Officer of the FIGS Group. Joining me here today is Gordon Trail, our Chief Financial Officer. We will be taking you through the presentation of our annual results and respond to your questions after the conclusion of our presentation. This slide sets out the outline we will follow. I will start with a review of our financial year. Gordon will follow with an overview of our financial results. Hereafter, I will take you through the trading performances of our business units, first Plex, then UPG. And I will close with the outlook for the group. Please submit any questions that you may have via the webcast platform during and after the conclusion of our presentation. Sue Hemp from our investor relations team will read out your questions to which Gordon and I will respond.

I will now commence with the review of the year.

Over the past 55 years of our existence, we faced unprecedented social, economic, and political changes, which tested the resilience of our business model and our people. Our sustained performance is a testament to the fact that we did not merely survive, we thrived. For the year, we delivered adjusted diluted headline earnings per share of 11.5% despite increased low chain. This result is ahead of market expectations. Our retail pharmacy team in particular demonstrated the value of focused alignment. We continue to invest for growth, and opened a net 45 new stores, which included three stores outside South Africa. We opened our 700th pharmacy in Paule, here in the Western Cape, and our 850th store in the new Ocean's Mall, Kuzulu-Natal. Customers responded favorably to our product and price offers, resulting in market share gains across every one of our retail categories. Our acquisitions closely align to our health and beauty focus areas. Sorbet, largest professional salon beauty business in South Africa, enhances our positioning as a destination for beauty amongst higher LSM customers. Enkim, a 24-hour specialized pharmacy, extends the convenience of our retail pharmacy offering and strengthens our healthcare credentials. 180 Degrees, a pharmacy software company, will enable us to offer an improved service experience to pharmacy customers. The UPD business had a tough year with the first half results impacted by the post systems implementation. The business delivered a much improved second half performance and is on track for recovery in the new financial year. This was a record year for capital investment to support our growth. We invested in our store and pharmacy network, supply chain and IT capability. The acquisitions I just referenced. Gordon will shortly provide more detail to you in this regard. The cataclysmic events of the last few years have reinforced the interconnectedness of people, planet and profit. We have fully integrated sustainability management in our planning processes. ESG metrics are applied as a downward modifier in our incentive schemes. Our inclusion in the FTSE for Good Index for the past seven years and our AA ESG rating from MSCI recognizes the progress we have made in advancing sustainability. Our investment in human capital development and collaborative shaping of an inclusive culture has seen us maintain our position as the top employer within the retail sector for the seventh consecutive year. We are advancing gender empowerment by focusing on improving gender representation at all levels, investing the tertiary education of women in health sciences, procurement from women-owned enterprises, and gender advocacy. Our leadership in this regard has been recognized in the Gender Mainstreaming Awards Africa, with us winning multiple awards. In progressing towards the goal of carbon neutrality, we are investing in solar battery storage. This will minimize our reliance on the national grid and reduce costs. In our communities, we are advancing access to healthcare through three national partnerships. Students on the Go, an initiative conceptualized by the WITS Student Representative Council and sponsored by Dr. Judy Chlamini, the WITS Chancellor, is aimed at ending period poverty. The Transnet Palapepa Clinic Train has a fantastic record of delivering healthcare to vulnerable rural communities. The positive impact of Dr. Imtiaz Suleiman and the gift of the givers extends beyond our national borders. We are honored to be of service at his request. I will now hand over to Gordon Trail, our CFO, who will take you through the group's financial results in more detail.

Thank you, Bettina. Good afternoon. By way of introduction, and I trust for the last time, you will note both in this presentation and in the SENS announcement that we provide certain financial information adjusted for the significant financial impact related to the insurance recoveries received last financial year as a result of the civil unrest in 2021. Where any such once-off adjustments are made in respect to the insurance recoveries from SASREA, We clearly note this in the presentation by means of an asterisk and footnote in order to present a more normalised view of the underlying business performance. In light of what I've just said, if we consider the group financial highlights, group turnover increased by 8.2%, excluding COVID vaccinations. Retail turnover, excluding COVID vaccinations, grew strongly at 12.2% ahead of turnover growth at interim, which was supported by the normalisation of trading. UPD had a better second half, although growth was still muted for the year at 1.5%, as the wholesale business experienced growth through clicks and the hospital channel. The group operating margin excluding insurance proceeds at 8.7% increased by 30 basis points due to the faster growth of retail as the economy continued to normalise and minimal sales from lower margin COVID vaccines. Diluted headline earnings per share adjusted for the receipt of SASRA insurance proceeds in the prior period was up 11.5%. Diluted headline earnings per share for the group increased to 1,045 cents per share, up 1.1% from last year. The group's operations generated strong cash inflows of 5.9 billion. During the period, we returned 2.3 billion to shareholders in dividends and share buybacks. The group's return on equity has, at 43.6%, remain within our targeted range. The dividend declared for the year has been increased by 6.6% to 679 cents per share. As you know, and as highlighted previously, the group was insured against the risk of political violence and civil unrest through Sazria. During the previous financial period, Sazria paid out certain amounts to us, specifically $325 million in respect of the loss of inventory and other costs incurred, which is recorded in other income, and $167 million in respect of damaged fixed assets, which is recorded as proceeds received on capital items. This was utilised to restore the damaged stores so they could trade again. If one simply takes the 2022 reported figures and adjusts them by the insurance proceeds received, you can see that diluted headline earnings per share was up 11.5%. The normalisation of trade continued to have a positive impact on the retail business. UPD has also seen improvement in the second half. Retail sales, excluding COVID vaccinations, grew by 12.2%, with same stores growing 7.7%. which was driven by the normalisation of trade with beauty sales recovering strongly. New stores and pharmacies added 4.5% to the top line, while selling price inflation increased to 7% for the year. The distribution business continued to experience low selling price inflation of 1%. However, volumes in the wholesale business were positive, preferred suppliers. Sales to hospitals have increased by 5.5% and clicks by 6.6%. Bettina will elaborate on the detail of each business's performance later in the presentation. This slide reflects our total income earned, which has increased by 10.8% for the year. You can see the total income margin in retail was 130 basis points higher than last year due to the discontinuation of vaccines, which were at a low margin, and the normalisation of trading with the recovery of higher margin categories. Adjusting for the lower margin vaccines, margin increased by 30 basis points for the year. UPD's total income margin was up 20 basis points to 9.3%. This was largely due to a reduction in shrink and waste in the second half. Overall, the faster growth of the retail business at 12.2% and the improvement in UPD has resulted in the group's total income margin being 150 basis points higher than last year. Our cost base in retail remains efficient, with retail expenditure as a proportion of sales at 24.2%. Retail costs grew 11.4% and remained well controlled despite the cost pressures from dealing with load shedding, higher electricity costs, and higher insurance, as well as new stores, pharmacies, and depreciation capital expenditure. In this regard, we have added 45 click stores and 38 pharmacies to the chain during the year. Our investment in mChem has exceeded expectations. Comparable retail cost growth, excluding new stores, was up 7.4%. UPD's costs have grown ahead of turnover due to adding additional employment costs to ensure customer service levels are met during the rollout of the ERP systems and increased costs for load shedding, fuel and higher insurance costs. The largest DC lead line went live at the beginning of September, The learnings we have taken previously have been well applied and the impact on performance has been much less. Overall, UPD's total managed turnover was up 4.8%, while costs were up 13.4% from the year. Retail grew operating profit by 14.1%, with the margin improving by 60 basis points to 10%. This has been due to the normalisation of trade and the recovery of higher margin categories, together with the lower vaccine sales in the current year. UPD's operating profit declined by 13.4%, with the operating margin falling 50 basis points to 2.8%. However, significantly improved from the first half. This was due to ongoing cost pressure combined with low sales growth. performance in half two has been significantly better than half one. Overall, the group's operating profit increased by 9% to over 3.6 billion rand for the year. This slide reflects the growth in turnover, operating profit and margin of the group over the past five years. Despite having had to deal with difficult economic headwinds in South Africa, over a number of years and a pandemic, the company has sustainably grown its performance through various economic cycles. This is important to all stakeholders. This is particularly true for shareholders who objectively evaluate a company performance. What is pleasing to note is how the group has been able to continue evolving the operating margin over the past five years. Inventory levels for the group are one day lower at 71 days. Retail stock days are four days higher than last year. Vaccine sales which contributed significantly in sales but had low stock holding levels contributed three days to the lower stock days in the previous period. UPD stock days at 39 days are 10 days lower than last year as improved inventory management and inventory normalising from high levels of COVID-related stock carried in the prior year. This slide shows the movement of cash during the year. As you can see, we started the year with cash of 2 billion reflected in dark blue on the left-hand side and ended the year with 2.5 billion on the right-hand side of the slide. The group has generated cash of 5.2 billion highlighted in green Working capital inflows of 673 million, repayment of lease liabilities amounting to 955 million and tax payments of 969 million. 930 million was reinvested in capital expenditure across the group. Of this amount, 509 million was invested in new stores as well as click store refurbishments. 105 million was spent on distribution centres. and $316 million was spent on IT and other retail infrastructure. We have continued to invest in solar panels and battery storage at our largest distribution centre, Lee Glen, and our head office. This is to be completed by the end of the calendar year and will allow both of these facilities largely to be off-grid. As Bettina mentioned earlier, we carried out three acquisitions, namely Sorbet, and 180 degrees for a total net cash impact of 241 million. As I mentioned earlier, we returned 2.3 billion to shareholders this year. This was in the form of dividends of almost 1.6 billion and share buybacks of 704 million. The final cash dividend of 1.2 billion will be paid out to shareholders in January. Detailed above are the amounts paid for the three acquisitions together with selected financial results over the last 12 months. Note that the purchase of 180 degrees will only realize benefits over the rollout of the pharmacy management software, which is to take place over the next three years. We are rolling out a pilot of 10 stores over the next two months with two stores already in pilot and successfully functioning. We are very happy with the implementation so far. CapEx of 880 million is planned for the year ahead. 487 million will be invested in our store and pharmacy network. This will include 40 to 50 new click stores and pharmacies, 50 to 60 retail store refurbishments to ensure they remain modern and relevant to our customers. £393 million will be spent on IT systems and infrastructure. £77 million of this amount will be invested in UPD IT and warehouse equipment to complete the ERP WMS rollout. And we will invest the balance of £316 million in retail IT systems and infrastructure. As part of this, we will invest £35 million in the rollout of our new pharmacy management system. We will continue to grow our retail footprint and plan to support the increased scale of the group by improving efficiency in our distribution centres, replacement of the pharmacy management systems and by implementing other appropriate IT tools and systems. This slide reflects our medium term financial targets. You will note we are in the range of all our medium term financial targets. Importantly, the group has continuing headroom for growth, particularly in expanding the retail store base. We do expect retail to continue to grow faster than the more mature distribution business, which therefore allows the group margin to continue to expand to between 8% and 9%. We recognize that we are at the upper end of some of these metrics. However, we consider it would be appropriate to only consider these ranges again in the next planning cycle. We have introduced a new metric which we will target, which is return on invested capital, excluding the IFRS 16 adjustment. This is being introduced as a new target in setting long-term incentives for the group. In framing these medium-term targets, we continue to seek to optimize the balance sheet, improve working capital efficiency, enhance cash returns to shareholders, maintained the dividend payout ratio between 60 and 65%, and ultimately continuing delivering a high-quality return on equity of between 40 and 50%. Likewise, this slide demonstrates how the group has sustained its financial performance over the past decade. This is reflected in the 10-year compound annual growth rates achieved in diluted headline earnings per share 13.4% per annum, and dividend per share growth of 15% per annum. The compound annual total shareholder return over the past 10 years equates to 19.8% per annum. These excellent growth rates have been driven by strong organic growth, particularly in our health and beauty business, which has been supported by an efficient supply chain. This has in turn translated into strong cash returns, which have not only been reinvested in the business, but also allowed us to progressively increase our dividend payout ratio to our target payout ratio of between 60 and 65%. I would also like to emphasise that in the past 10 years, the group has returned over £12 billion to shareholders in the form of dividends and share buybacks, underpinning the quality of the stock. I will now hand back to Bettina to take you through the trading performance.

Thank you very much, Gordon. We'll take you now through the trading performance, starting with Clix, followed by UPD.

This is the review of the Clix business.

The retail pharmacy business delivered another strong set of results, as reflected on this slide, with growth in total turnover up 12.2%. This is our fourth consecutive six-month reporting period in which we improved on our total retail turnover growth, despite a 200% increase in the number of store trading hours impacted by power outages. Existing stores grew sales by 7.7%, with inflation up 7% and volume growth of 0.7%. Despite a relatively weaker colds and flu season, pharmacy sales accelerated, growing by 9.7%. Club Card customers' sales now comprise over 86% of pharmacy sales. The convenience of our retail pharmacy network drove strong sales growth in our acute prescription sales, up 11.9%. Branch of Health, grew 5.3% despite strong COVID-19-related product sales in the prior year. The weaker sales growth in the medicinal subcategory was due to the subdued colds and flu season. We did, however, achieve double-digit sales growth in sports and slimming, and the growth in our incontinence product sales was exceptional, up 22.8%. In the baby category, accessories and diapers delivered double-digit sales growth. Our beauty and personal care category delivered another superior performance, up 18% with every sub-department showing strong double-digit growth. The investments in our elevated beauty halls, impact of our beauty influencer squad, and sold-out beauty playground events are driving sales, and brand affiliation. General merchandise performed strongly, up 15%, despite the negative impact of load shedding on electrical sales. Our snack deal continues to benefit post-COVID-19, with beverages up 27%, impulse confectionery up 15%, and snacks up 23%. Even though all convenience categories performed well, Paperware delivered a standout result of 27%. I will turn to market shares. We are continuing to extend our market shares in each of our core retail categories. Let me take you through these, starting with health. The accessibility and convenience of our healthcare network remains a key driver of growth. We extended this network. We increased the number of retail pharmacies to 711, including mChem, the number of registered National Department of Health patient pickup points to 450, and the number of primary care clinics to 203. Our focus on organic growth delivers results. We gained 40 basis points in pharmacy, and are steadily growing our repeat prescription service. Front Shop Health also gained market share up 50 basis points with strong gains across a number of sub departments, such as sports and swimming up 190 basis points and food care up 180 basis points. Our comprehensive baby execution, which integrates our private label offering convenient locations, competitive pricing, baby club card benefits and online strategy is driving a market share gain of 50 basis points in baby. Turning to beauty and personal care. Skincare gained 150 basis points, fueled by strong gains in face care and eye skincare products. Haircare gained 70 basis points, with strong gains in hair conditioners, up 110 basis points, and hair treatments, up 70 basis points. Personal care also gained market share, up 90 basis points, with strong gains in sub-departments, such as luxury bath, fan pro, sun care, and body fresheners. Finally, general merchandise. We continue to gain market share in our legacy category, of small household electrical appliances up 110 basis points with strong gains recorded in seasonal and linen care appliances.

I will now turn to the key drivers that support our growth. Starting with value.

In a constrained economic environment, our brand positioning of feel-good pay-less resonates with all consumers. We have maintained great everyday pricing and remain competitively priced against all major retailers on a volume-weighted price index that excludes our 3-for-2 promotions, bulk offers, and club card benefits. We grew promotional sales by 14.9% to account for 43.6% of turnover and achieved exceptionally strong promotional sales growths across all of our franchise categories. We have always maintained that value extends beyond price. By offering patients the choice of generic medicines, we assist them to save and extend their medical aid benefits against the growth of generic sales to 59% of value and 70% of volume. The convenience of our store, clinics, pharmacy locations, and clicks online offering saves our customers both time and transport costs. Our iconic Club Card program, the first such program in Africa, delivered 700 million rand in cash back to our loyal customers this year and over 2.8 billion grand in cashback over the past five years. Private label and exclusive brands not only increase the options available to customers, it also enables us to respond to changing economic environments that may compel customers to trade up or down. Private label and exclusives continued its strong growth up 15.4% and contributed 25.2% to total sales. Our Clix Made for Baby range is performing exceptionally well across a number of product categories, such as baby foods and diapers. Today, one in every three diapers sold in our stores is a Clix branded diaper because of its price and quality. We are proud that our Clix Made for Baby Dry Protect Diaper won the 2023 SA Product of the Year. The execution of our elevated beauty hauls shown on this slide is driving increased sales in the big beauty brands, as well as in brands exclusively available in Clix. The biggest increases are in premium skincare, color cosmetics, and fragrance. The new Body Shop workshop format is resonating with customers who place a premium on sustainability. The new concept is driving strong sales growth in the Body Shop. Now that we have agreed the extension of our franchise agreement, we will accelerate the rollout of this new format. Sorbet is the largest and most recognizable professional salon business in South Africa. with 194 stores. The teams are integrating well, and the business is growing ahead of expectations. The performance of baby performance is encouraging. We will be extending our Clicks Baby store-in-store concept and accelerate the opening of standalone Clicks Baby stores. In fact, yesterday, we opened our latest standalone store in Galleria in KwaZulu-Natal. The Clicks Clubcard loyalty program is a phenomenal asset valued by customers and provides us with a mechanism to engage our customers through personalization. We are still growing our Clubcard membership and added another 400,000 active members since our entrance. The contribution of our Clubcard members to total sales has also increased. and now accounts for 80.2% of sales. When we launched the Club Card Loyalty Program, the objective was to reward loyal customers. More than two decades later, we are still going strong and proud of the accolades that the loyalty program and clicks brand continues to garner. Kudos to our marketing team who were recognized for making the best strategic use of data analytics and CRM applications. In the past year, the Clix brand scooped two out of the top five Kenta Brand Z awards for delivering a top brand experience, function, and meaning. The Clix brand has broad appeal as evidenced by the fact that Gen Z once again rated us as the coolest health and beauty store.

The expansion of our store and pharmacy footprint is progressing well.

We ended the year with 885 Qlik stores and 711 pharmacies. We remain committed to delivering affordable, accessible health care. 50% of the South African population now live within a 5.1 kilometer radius of a Qliks pharmacy. a 24-hour specialized pharmacy with a superb diabetic clinic, travel clinic, and wounds management practice has been fully onboarded. And Mr. Malik, the Imchem found, and his team are a great fit to our brand. We are accelerating our presence in low-income areas with 228 of our stores now located in low-income areas. These stores, contributed 22.5% to our turnover. The investments made in our e-commerce capabilities, including Salesforce and data analytics, is facilitating ROPO, which stands for Research Online and Purchase Offline. So, while online sales fueled by strong performance of our online-only product ranges counted for 1.2% of online sales, when we include the impact of ROPO, accounted for 4% of total front-shop sales from online. We are adding our second dark store to improve delivery times, which will enhance our customer experience. That completes the review of the Clicks business.

I will now turn to UPD's training performance. This slide

sets out the breakdown of UPE's fine wholesale turnover, which excludes bulk distribution and preferred supplier contracts. The performance of fine wholesale is improving. A year ago, turnover was down 5.2%. At the entrance, we reported a marginal increase of 1.6%. As highlighted by Gordon, Operational performance improved in half two, resulting in turnover for the full year up 3.5%. I will briefly turn to the core customers in this channel. Clix remains UBD's largest customer and accounted for 52.3% of turnover. Improved purchasing compliance in half two on the bank of improving operational stability within UBD led to an increase in click sales, up 6.6% for the full year versus 5% up at the intrams. Although those sales in private hospitals grew by 5.7% in value, volume growth was much higher at 10.8% due to a shift in the hospital's case and product mix. Sales within independent pharmacy is continuing to decline due to reduced demand in that channel and the application of stricter credit risk management by our UBD team. The decline of 80 basis points in UBD's fine wholesale market share is due to the operational challenges faced during its anti-systems transition, which resulted in buyaways by cliques and private hospital groups. This trend is reversing. and we are confident that UBD remains on track to achieve a recovery in the new financial year. UBD's total managed turnover, which includes fine wholesale sales, as well as turnover managed on behalf of bulk distribution clients, increased by 4.8% to R32.1 billion. We are in the process of rationalizing the distribution portfolio to sharpen focus on profitable bulk distribution contracts, ensure that we have available capacity to support portfolio acquisitions and line extensions by such profitable clients. Despite load shedding, as well as the Western CAC taxi strike, UBD was once again able to showcase its proven business continuity credentials as it continued to operate and supply its call Over the past year, we have focused on a number of key initiatives to set UBD up for future success. I will briefly share some of these with you. We have upskilled our key account management teams to improve the quality of our customer query resolution process. We have made capital investments in our DCs to drive service level improvements and extract operational efficiencies. We have implemented strict contract management oversight by our group legal team, and we are refocusing our regulatory teams to further entrench quality assurance. These initiatives are yielding positive results. The purchasing compliance levels of clinics and private hospitals are growing. And as Gordon pointed out, employment cost growth and shrinkage have been contained. The cost pressures on UPD were significant, especially in light of a very low S&P increase and continued faster growth in generic medicines up 5.3%. In accordance with our phased IT systems implementation plan, we went live with Lee Glenn, our largest EC in September with great onsite support from our implementation partners. These systems are stable. Our focus in the new financial year will be on entrenching the new ways of working and realizing further operational efficiencies. This completes the review of our trading performance for the year. The retail business, under the leadership of the Kash Singh and Clicks executive team, has delivered another superb performance as they honed in on the execution of the brand's key drivers of success, value, differentiation, personalization, and convenience. The UPD team has been stretched by rising cost and the impact of the IT systems implementation. The improved performance during half two is continuing, setting the business up for a recovery in the new financial year. Our board has been unwavering in its support to the executive, and our chairman, David Newrick, has been pivotal in onboarding the new board members and stabilizing the executive team. People are the difference. On behalf of our board and executive teams, to all of our people and their families. Thank you. I will now conclude our presentation with an overview of our six strategic objectives and close with the outlook for the new financial year. Earlier, Gordon highlighted how our sustained performance enabled us to deliver a total share return of 19.8% based on a 10-year KGAR. Our focus discipline, predicated on delighting customers through engaged people who are motivated to excel within an inclusive culture, enables us to deliver sustained, superior returns to shareholders. Strategic alignment is not only facilitated by our balanced scorecard performance and recognition practices, but also by our incentive schemes and continued investment in engaging employees the specific contributions expected from them and their teams to drive our business success. I will briefly touch on strategic objectives one, two, five, and six, and then close with the remainder. Our expanding store and pharmacy network, e-commerce platform, and extensive range of products and services are widening access and increasing our appeal to customers. We are accelerating our market share gains in pharmacy and our core retail categories. Our investment in people and commitment to an inclusive culture in which talent excels at all levels are creating capabilities that support our future growth. We have embedded sustainability practices in our medium-term planning processes are being recognized by our thought leadership in ESG. The group remains highly cash generative and we are focused on further improving our working capital management. As regards strategic objective three, the improving UPD performance is positive and positions us to recapture our lost fine wholesale market share. In our distribution business, we remain focused on rationalization to drive improved profitability. Finally, turning to strategic objective four. Within both the retail and distribution business, we believe that we still have opportunities to optimize our supply chain. We remain true to our heritage as a value retailer and prioritize customer care as the cornerstone of sustained long-term shoulder returns through a retail-led health, beauty, and wellness offering premised on convenience, differentiation, and personalization.

I will now turn to the outlook.

The macroeconomic environment has been challenging. Electricity outages, rising inflation and interest rates affected all consumers. indications are that the consumer environment will remain extremely constrained. This, though, advantages retailers with a strong value positioning and broad appeal to a loyal customer base such as Clix has. We ended the year with 885 Clix stores and 711 pharmacies and will continue to invest in the extension of our store and pharmacy network by opening up 40 to 50 new stores and pharmacies each year. Our private label and exclusive brands provide differentiation and a margin opportunity. Our private label products are valued by customers with the growth in private label products continue to be well ahead of the rest of the brand. Enkem facilitates our ability to expand our specialized health offering and our partnerships with medical aid schemes enable us to add service offerings such as diabetes management in our clinics. We are investing in technology to create a frictionless repeat prescription service and to extend our virtual doctor consultation offering. As a responsible corporate citizen, We embrace our role as an environmental steward for future generations. It is this view that underpins our commitment to carbon neutrality. Our sustained performance, despite challenging times, affirms the resilience of our business model and defensiveness of the categories within which we operate, as well as our collective ability to adapt to changing market dynamics and changing consumer preferences. It is this proven resilience and ability to adapt that inspires my confidence in the group's ability to deliver on our medium-term targets, which Gordon shared with you earlier. Thank you for listening. I now hand over to Sunhim, who will assist us with taking your questions.

I have a few questions here from Yaish Patel at SVG Securities. Thank you for the presentation. How has increasing competition in the personal care segment, particularly from grocers, reinvigorating their strategies in this category, impact the group? How does pricing compare in this category, excluding private label?

If you excluded private label, it's still extremely strong performance. And in fact, that is backed up by the growth in share gain. So really, private label, of course, always important. But on all of our product ranges, excluding private label, superb performance. Evidence by market share gains.

Please can you indicate the key differences of stores located in low income areas versus major metros or malls? Trading densities, farmer versus front shop sales, but medical aid versus cash required delivery frequency.

We don't differentiate how we service low and high LSM stores. They get the same delivery frequency. The ranging is the same. The pricing is the same. You probably will see in lower LSM areas that medical aid membership is probably lower, so there's higher cash sales. And the purchase of OTC product can be higher in lower LSM stores. But again, that comes at a higher margin than the SAP product.

And a final question from him. Please, can you provide more detail regarding the uptick in payable days?

So that was impacted by two things. I think the first thing is in the prior year, if you look at the creditor days to a certain extent were understated due to the higher vaccine sales that we had. And then the other thing was that we made a decision during August to bring in more stock to support the higher sales growth that we were seeing. So we ended up with a bit higher stock and ended up with higher creditor days.

A couple of questions from Tepello Marconioni at HSBC. How does your level of promotional sales compare with key competitors and do you think that continues to grow?

I think every one of the competitors, I think, has understood that value in this constrained economic environment is incredibly important. You'll have seen in the year, as we referenced, promotional sales up 14.9%, still accounted for 43.6% of sales. And always the issue is this. I think that we understand very, very clearly the range of products that we need to have available. And then secondly, the different price points. I think everybody has improved their competitiveness. We, though, I think have a couple of things that count very strongly in our favor. The first is really we are renowned for the three for two promotions. Secondly, the bulk offers that we put out are really very well supported by the customer. Third, I mean, I've indicated in this past year, 700 million cash back. Really what that does, it has the customer returning to you. So we've got a couple of things that clearly set us apart.

How has the discovery insurance product performed so far relative to expectations and how has it benefited CLICS?

Well, I guess you would say, you know, this is one where in a constrained economic environment for that particular level of the market, it's a bit slower going. I have every confidence, though, that Discovery, with the phenomenal marketing capability that they have, that that will continue to grow in the future.

I have a few questions on Unicorn that I'll just combine together. So they're from Michael Tenobriga at Avior, Brian Thomas at Lauriam, and Keenan Chunu at Anchor. Good day. Thank you for the presentation. How have discussions gone with the Director General on the Unicorn matter? Do you expect the business to be affected by the outcome? Are you able to comment on what the current status of the unicorn business is? Although unicorn does not have a large direct revenue impact for CLEPS, does it restrict you from acquiring new pharmacy licenses? Please, could you provide some color for the delay in the outcome of the engagements with the DOE? Thank you very much. Very good set of questions.

The first in terms of the engagements with the DOE that we obviously commenced with after April month. What I would say is that I'm encouraged by the content of those discussions. I'm extremely encouraged by the fact that the Director General has indicated in his letters to us that they are supportive in terms of the National Department of Health by resolving this particular matter. And also he's on record as saying that he understands that this matter needs to be dealt with at pace. Now, I also just want to mention that we are also getting phenomenal support from our partners at NEDLAC. Specifically, COSATU and the Labour contingent has been extremely supportive. Because what Labour understands, of course, is that any delays means that we are not opening new pharmacies. And that really means that job opportunities in those areas are not being created, both direct and indirect job opportunities. So the Director General has indicated in his last communication that he has requested his team, which will be extended to include his legal advisors, to sit down with us in order for us to resolve the matter finally. So that encourages me. What you would have seen in our results is over the course of the last year, we opened up net 38 new pharmacies and we have licenses in hand that will also fuel the opening of pharmacies in the current financial year. It is critically important, I think for fullness to indicate that we definitely want this to be resolved because else I think that that will be a difficulty going forward. However, I must say great support from the DG and great support from our business partners and Labour at NEDLAC.

A couple of other questions from Karen Chenu. Following the Pretoria High Court ruling in August, are CLICS pharmacies allowed to dispense ARVs and TB medication?

Yes. So that dealt with really whether or not PCT pharmacists could do that. That matter has been really resolved by the judgment, and yet they can continue.

He asked, what is the strategy for mChem? Could you open Plex-branded healthcare hubs like that?

The team is very excited. I think, first of all, to say, I mean, Mr. M is just such a phenomenal individual. So the reason that we acquired mChem was because it has got really such an renowned, specialized pharmacy offering. I think I've spoken about certain of that. And to that, I will also just add a huge orthopedic range, which is important. we are learning from the MChem acquisition. We always said that we'd want to hold it for about a year, learn from it, and then define how we're going to get that further up. Now, when we acquired the business, we could see that we'd probably grow that to 10 similar sorts of formats. And really, when you think about the turnover, which is referenced on slide 17, I think, or on your back, You know, turnover for mChem on an annual basis is about 240 million rand. That's a phenomenal future opportunity for us.

Michael Denobriga at Avio asks, could we please get an indication of the operating margin that Sorban and mChem contribute to the group?

We've given indications of what the profit is going to be on a 12-month basis. The impact that's had on this financial year has been fairly low because both of these acquisitions have only been part of the group for a very short period of time. So, so far, there's been minimal impact on our current results, but we're very happy with the performance of both of these businesses.

On the topic of acquisitions, Andrew Moses from Mipha has asked, please, can you explain the rationale for buying a software business?

I'm going to, I think Auden and I will both take this one. Let's put it this way. Every jurisdiction has its own healthcare regulations and jurisdictions. So there is no software that you can import from anywhere else. And this particular software company really in essence is the original author of the pharmacy software in this country. And so it made sense given the age profile of the founders and of course our aspirations in terms of growing our pharmacy business and market share for us to ensure that we bear that down in terms of owning the software. What it will do for us It will, first of all, ensure that we are able to improve the service offering to the pharmacy customers by specifically focusing on how we make repeat pharmacy prescription service much more frictionless. Odin, of course, has been just hugely instrumental in this particular work, and maybe, Gordon, you may want to add some more flavour.

Yep, so the Our new management software is a modern web-based version that has been developed with the corporate in mind. So the advantages it gives us is much faster to use than the existing software that we've got. And it will give us certain revenue generating opportunities over the next three years once we have the software rolled out, pharmacy management software tends to be country specific because of the regulations governing pharmaceuticals in each of the different countries. So this allows us to own our own destiny rather than potentially being reliant on another company. who may or may not be acquired or may or may not develop the software to how we want it to work.

Emmanuel Berkley from Alawani Capital Partners asks, what is the outlook for UPD? How much growth relies on a higher SEP increase? And is the slower growth among independent pharmacies structural or do they expect a rebound in 2024?

Well, I mean, you know, I think it would be fair to say that everybody was extremely disappointed by just how low the SEP was in this year. Thankfully, you know, some things prevailed and there was an additional increase that came about quite late in our financial year. Which just means, I think, that the basis for the SEP in the new, in the 2024 year was slightly higher. That's tough, I think, for a business like UPD, specifically because there are a number of drivers of expenses, such as, for example, delivery costs. UPD had to obviously keep the refrigeration going because medicines have to be kept at ambient temperatures, and certain of the fridge lines, of course, have to be refrigerated very specifically, and you've got to make those particular investments. Having said that, We, over the last sort of 60 months, Gordon, in particular, have been working very closely with the UPD team, as we indicated to our investors, in order for us to identify inefficiencies and extract those efficiencies. And we are very encouraged by what it is that we have seen. And we are most certainly seeing, post the results, a continuing improving momentum within the UPD business, which is what is giving us confidence that UPD will be continuing into recovery in the new financial year. Gordon, did you want to add anything to that?

I think there's the part around the independent pharmacies structural. Some of that is through the corporate pharmacies opening more stores. There is a gradual decline in independent pharmacy market share. going to the corporate pharmacies as they grow over time as well.

Question from Brian Thomas at Larium Capital. Are you able to disclose the average price at which shares were repurchased before and after year end? Can you remind us of the extent of the authority that you have for share repurchases?

So at our AGN in January, then, you know, Our resolution was passed, which allows us to purchase up to 5% of our issued share capital. We're not close to that at this point. You can work out the average price that we purchased at. If you look at our statement of changes in equity, we disclosed the number of cancelled shares, 2.8 million, and the amount purchased, which was 704 million, so it's a touch over 250 rand a share. I'm not going to disclose at this point how much we have paid for the shares purchased post-year-end. We can give that information at our interims, but we are happy with the price that we've paid for them.

A couple more questions from Ken and Chunu at Anchor. How much more steam do you expect from the post-COVID spend on beauty and personal care?

I must say, you know, I said earlier in one of the media interviews, we kind of had June painful in our diaries, because that was the time last year, in 2022, that we could first take off masks, and we thought that you would see a decline in beauty. In fact, there are new trends emerging within beauty, and it's around ingestible beauty, for example. People most certainly are taking more care of their skins, and so skin care regimes, also in terms of eye care. In a country such as we live in, sun care becomes incredibly important. And more and more, I think, globally, there's this push towards people moving back to in-office. And in-office means that people continue to spend more on cosmetics and on fragrances as well. What we have most certainly seen is not a decline post that period in either beauty or personal care. It's held up very, very strongly.

What is management's view of expanding into the rest of Africa in the medium to long term?

Well, we are already in Africa, both in South Africa, Lesotho, Swaziland, Botswana and Namibia. There are prospects. You know, what we've always said is that there's massive opportunities still in South Africa. But having said that, of course, I think that there are opportunities in terms of Africa. Those are part of what we are considering. And probably around about this time next year, we'll be able to provide you with more colour on that.

And then a couple of two questions on the same topic from Chris Rady at Allweather and Yaish Patel at SEG. Can you comment on post-period sales by division? And can you comment on post-period end trade or momentum relative to the second half of the 2023 financial year?

We haven't seen a slowdown, so we're quite happy with the sales post-year end.

And if I just say that none, CFOs, the momentum is continuing to our liking.

Thank you, Bettina and Gordon. That's all the questions we have.

Thank you very much, Sue, for assisting us. Thank you very much, everyone, for your questions. Since there are no further questions, thank you once again for joining us today.