Clicks Group Ltd S/Adr

Good afternoon and a warm welcome to the webcast of our interim results for the six-month ended 29 February 2024. I am Bettina Engelbrecht, Chief Executive Officer of the Clicks Group. Joining me here today is Gordon Trail, our Chief Financial Officer. We will be taking you through the presentation of our interim results and respond to your questions after the conclusion of our presentations. This slide sets out the outline of our presentation. As usual, I will start with a review of our performance over the past six months. Boarding will follow with an overview of our financial results. I will then take you through the trading performances of our operating business units, starting with CLICS, followed by UPD. Hereafter, 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. Just before I take you through the review of the past six months, I'd like to share with you this joyous celebration of the opening of our 900th store in Barlow Park, Gauteng. and now for the review of the past six months. The constrained trading environment compelled us to assess how we continue to deliver sustained performance that delights all stakeholders. Our resilient business model and strong market shares in our core categories are underpinned by a loyal customer base, mutually beneficial partnerships, and unique organizational capabilities. Our results, which we will be sharing with you in more detail today, reflect our commitment to putting customers first, investing in our people, and respecting all of our stakeholders. We delivered strong diluted headline earnings per share, up 13%, in spite of the tough trading environment. We continue to invest in the expansion of our store and pharmacy network, increasing our store count to 902 and our pharmacy count to 718. Our early investment in launching our Club Card loyalty program in 1995 continues to yield positive outcomes and we increased our active Club Card members to 11 million, adding 100,000 new members each month. Our retail business continues to outperform and deliver strong turnover and profit growth. The retail sales growth was driven by promotional sales performance of 14%. Trading also benefited from lower levels of load shedding, good availability in key categories, and strong in-store execution supported by effective marketing campaigns during key trading events. Our retail IT investment is enabling us to improve forecasting and extract margin improvements. And in the period, our private label and exclusive brands grew ahead of the total business, which further supported margin growth. Our investment in Sorbet the largest professional beauty salon business in South Africa, and Emchem, our first 24-hour specialized pharmacy business, is performing ahead of expectations. The UPD business is improving and stable. We implemented the new systems in Eaglin, the largest DC in September, and stabilized operational performance by November. we signaled that this would be a recovery year for UPD. The team is on track to deliver the improvement plan with a notable improvement in quarter two, which has continued into March and April. In furtherance of our sustainability agenda, we rolled out battery storage at Lidl and our head office and added additional solar panels in Lidl. This investment in renewable energy will also reduce our electricity costs. I now hand you over to Gordon, who will take you through our financial results.

Thank you, Bettina. Good afternoon. If we consider the group financial highlights, group turnover increased by 9% for the period, with both businesses performing stronger post the trading update. Retail turnover grew strongly at 12.4%, which was supported by the growth of key high margin categories. UPD reported turnover increasing by 1.3%, continuing to improve and recovering well from the system's implementation at Lee Glen. The group operating margin at 8.5% increased by 30 basis points due to the faster growth of retail and the continued improvement at UPD. The diluted headline earnings per share for the group increased to 5.34 per share, up 13% from last period. The dividend declared for the period has been increased by 13.5% to 210 cents per share, and this is ahead of headline earnings. In the six-month period, we returned over 2 billion to shareholders in dividends and share buybacks. Groups' return on equity at 43.4% has increased from the prior period supported by share buybacks. Retail sales increased 12.4%, with same stores growing 8.8%, which was driven by key categories including beauty and personal care. New stores and pharmacies added 3.6% to the top line. while selling price inflation was 7.4%. The distribution business experienced low selling price inflation of 1.6%. In September, UPD went live with its last wholesale DC, and although this was well managed, it did impact sales during the implementation. Sales to clicks were up 4.7%, while hospitals were down 8.1% for the period. Bettina will elaborate on the detail of each business's performance later in the presentation. This slide reflects the group's total income, which has increased by 14.1% for the period. You can see the total income margin in retail was 60 basis points higher than last year due to continued growth in high margin categories, private label, and the contribution from acquisitions in the prior year. UPD's total income margin was up 80 basis points to 9.6%, helped by the higher SEP increase this year and faster growth in wholesale since November. Overall, the faster growth of the retail business at 14.7% resulted in the group's total income margin being 130 basis points higher in the prior period. The cost base in retail increased in the period partially due to acquisitions, which added 3% to the cost growth, as these were only acquired in the second half of last year. Retail costs grew overall by 14.8%, with higher electricity, insurance, increased advertising and provisions for staff bonuses, as well as new stores, pharmacies and depreciation and capital expenditures. Over the last 12 months, we have added 41 click stores, one body shop, seven Sorbet and 27 pharmacies to the group. Investments in Sorbet and Enken are performing ahead of expectations. The IFRS 16 interest charge increased as a result of two factors, the increase in the number of renewals in the period and the higher discount rate as a result of higher interest rates. Comparable retail employment cost growth was up 8.5% and comparable retail cost growth overall, excluding new stores, was up 8.7%. UPD's costs have grown at 10.8% ahead of turnover due to completion of the systems rollout at Lee Glen. Additional employment costs were added to ensure customer service levels were met during the rollout of the ERP WMS systems. although we have seen these normalized post the implementation. Depreciation also increased as a result of the completion of the system. Operating costs overall were well controlled. Retail grew operating profit by 14.5%, with the margin increasing by 10 basis points to 9.8%. This growth has been driven by high margin categories and private labels. UP's operating profit increased by 11.2%, with the operating margin increasing by 20 basis points due to the SEP increase, improved sales, partially offset by additional employment costs during the ERP rollout, and increased depreciation related to the system. Overall, the group's operating profit increased by 13.5% to 1.9 billion for the period driven by the strong performance in retail. Inventory levels for the group were higher at 86 days. Retail stock days were three days lower than last period and growing well below sales growth. Systems implemented previously contributed to better stock quality and reducing lost sales. Retail networking capital days reduced by seven days due to better inventory management and improved trade creditor days. The trade creditor days resulted from an increase in supply chain financing with suppliers and better terms. UPD stock days, 61 days, were 13 days higher than last year. This is temporary as UPD increased stock to benefit from the higher SAP increase granted this year. Trade debtor days improved by three days and trade creditor days increased by eight days due to the inventory buy-in. Despite the higher inventory levels, net group working capital improved by three days. This slide shows the movement of cash during the period. As you can see, we started the period with cash of 2.5 billion reflected in dark blue on the left-hand side and ended the period with 0.9 billion on the right-hand side of the slide. The group generated cash of 2.7 billion highlighted in green before the repayment of lease liabilities amounted to 400 million, working capital outflows of 889 million and tax payments of 571 million. 314 million was reinvested in capital expenditure across the group. With this amount, 245 million was invested in new stores as well as 33 click store refurbishments. 30 million was spent in distribution centres and 39 million was spent in IT and other infrastructure. We returned over 2 billion to shareholders during the period through dividends and share buybacks. CapEx of 920 million is planned for the full year. 514 million will be invested in our store and pharmacy network. This will include 50 to 55 new click stores and 10 to 20 new pharmacies. 50 to 60 retail store refurbishments to ensure they remain modern and relevant for our customers. $406 million will be spent on IT systems and infrastructure. $76 million of this amount will be in UPD IT and warehouse equipment. And we will invest the balance of $330 million in retail IT systems and infrastructure. Expansion of our Centurion DC, now that planning permission has been received, We will also commence the rollout of our new pharmacy system. We will continue to grow our retail footprint, invest in the rollout of an up-to-date pharmacy system, and invest in further DC capacity in our retail business. This slide is coincidental, as both myself and Bettina joined the group in 2006. This was the commencement of the Share Buyback Program. The slide shows dividends paid and share buybacks over the last 19 years. And over this period, we have returned over 19 billion through dividends and share buybacks, which is good for our long-term shareholders. On that note, I will hand over to Bettina to finish the presentation.

Thank you, Gordon. 2006 was clearly a fantastic year. I will now take you through our trading performance, starting with clicks. than you believe. This is the review of the clicks business. The retail pharmacy business delivered another strong set of results as reflected on this slide with growth in total turnover up 12.4%. Existing stores grew sales by 8.8% with inflation up 7.4% and pleasing volume growth of 1.4%. Despite a subdued level of sinusitis and other respiratory conditions, pharmacy sales grew by 8.7%. Job card customers now constitute over 85% of pharmacy sales. The strong growth in our pharmacy sales is driven by our investment in improving service, the attractiveness of our value offering, and convenience of our retail pharmacy network. Our clinics delivered sales growth of 13%, buoyed by the introduction of new clinic services and our partnerships with medical aid schemes. Friendship Health is regaining momentum, up 9.5%. Strong growth was achieved in the supplements category, with branded supplements up 18.4% and homeopathy up 10.8%. The star sub-department was external health. of 21.5% fueled by double digit sales growth in continents of 21.2%. The baby category is a highly contested category, especially baby foods and diapers. We are directing our investment into our clicks made for baby diaper, where we grew private level contribution to 38.4% of diaper sales in our stores. In baby foods, we delivered sales growth of 13.9%, driven by innovation in snacks and our private label, Made for Tots Noodles range. The performance of our standalone baby showroom stores, up 13.5%, coupled with a higher realized margin in these stores and the exceptional performance of our new baby store-in-store execution, up over 35%, is providing assurance that our integrated baby strategy is on point. Our beauty and personal care department delivered another complete performance of 17% with every sub-department achieving exceptional growth. The investment in service, elevated beauty halls, private label and exclusive offering, and customer marketing campaigns such as our sold-out beauty playground events are driving brand affiliation and positioning us as the beauty destination. General merchandise also delivered a strong result, up 14%, despite the impact of our higher share of air fryer sales in the prior period. Our snack deal remains a key driver, with beverages up 25%, impulse confectionery up 14.3%, and snacks up 17.5%. The convenience category performance was exceptional and delivered another standout result, up 26.9%. Despite an increasingly competitive environment, we are continuing to extend our market shares. Let me take you through these, starting with health. The constraint in opening up new pharmacies as we work on resolving the unicorn matter has sharpened our focus on enhancing service. The success of our customer first approach has enabled us to grow market share in retail pharmacy by 80 basis points to 24.3% and to extend the contribution of our Clubcard members to over 85% of pharmacy sales. As always, The accessibility and convenience of our healthcare network remains a key driver of growth. In the period, we increased the number of retail pharmacies to 718, the number of registered National Department of Health patient pickup points to 530, and the number of primary care clinics to 204. Friendship Health also gained market share up 50 basis points. Although the vitamins and supplements market share was flat at 39%, strong market share gains were recorded in all other categories, particularly in first aid up 160 basis points and foot care up 140 basis points. Our comprehensive baby strategy, which integrates our private level offering, convenient locations, differentiated formats, competitive pricing, baby club card benefits, and online strategy is driving performance, and we expect to see a gain at the full year. Turning to beauty and personal care. Skincare gained 120 basis points, fueled by strong gains in facial, care up to 150 basis points, as well as gains in eye skincare and moist wipes. Haircare gained 40 basis points with strong gains in hair treatments of 80 basis points and hairspray up a whopping 340 basis points. Personal care is continuing its momentum, recording market share gains of 120 basis points with strong market share gains across all categories within personal care. Finally, general merchandise. Our market share in our legacy category of small household appliances declined by 40 basis points due to the relatively higher contribution of air fryer sales in the prior period. I will now turn to the key drivers that support our growth. We remain true to our heritage and brand position of feel good, pay less, This resonates strongly with all consumers, especially in a constrained economic environment. We maintain great everyday pricing and remain the cheapest retailer against all other major retailers for any overlapping basket items. Promotional sales accounted for 44.7% of turnover, up 14%, as we achieved exceptionally strong promotional sales growths across all of our franchise categories. Our mantra is that value extends beyond price. Customers value the convenient locations of our stores, clinics, and pharmacies, the ease of accessing our clicks online offering, and our simplified repeat prescription service. Our three for two promotional mechanics understood and valued by consumers and this serves as a great footfall traffic driver. Our Club Card program delivered 387 million Rand in cash back to our loyal customers, an increase of 11% in value relative to the same period last year. Our differentiation strategy is premised on responding to changes in consumer demographics preferences, and shopping behaviors within the context of the trading environment we face. Our private label and exclusive ranges increase the options available to customers who may choose to trade up or down. Private label and exclusives continued each strong low up 14.3%, increasing its contribution to 26.1% of total retail sales. Our private label and exclusive ranges now account for 13.9% of friendship sales and 11.7% of retail pharmacy sales. Our new look beauty walls provide customers with extended tiered product ranges and an elevated in-store experience. These walls are value accretive and recorded strong growths in premium skincare and fine fragrance. which is why we are embarking on a similar elevation of our Friendshop Healthcare aisle. Our standalone baby showroom stores have been designed with a customer in mind. They enable us to showcase our extended range and elevate our in-store service. We have further refined our baby strategy to include baby store-in-stores and are pleased with the early results. our Clicks Made for Baby range is performing exceptionally well across a number of product categories, such as baby foods and diapers, which we credit to our investment in innovation, quality, and price. Sorbet, the preeminent professional salon business in South Africa, delivered strong sales growth of 14.9% with Sorbet Man and Sorbet Hybrid formats, performing well ahead of expectations. There has been some anxiety about the Body Shop after Aurelius, the new shareholders, placed their corporate retail stores in the USA, UK and Canada under administration. Aurelius has reassured us that the Body Shop franchise business is a significant contributor to the overall business profitability and future growth. Our franchise agreement has been extended to 2022, and we are investing in the new workshop format as it drives sales. The Clicks Clubcard loyalty program is a phenomenal asset and highly valued by our customers. We are still growing our Clubcard membership and added 600,000 active members over the past six months, taking our account of active members to 11 million. The contribution of our Clubcard members to total sales has increased and accounted for 82% of total retail sales. When we launched the Clubcard loyalty program in 1995, the objective was to reward loyal customers. We are extending our Clubcard-only deals and investing in our affinity partners to ensure that our value proposition remains relevant. In April, we launched our new Clix app, which will enhance our capabilities to drive personalization. The pilot phase of our new pharmacy management system is complete, and we are planning to roll this out to 50 pharmacies by the end of this year. Finally, I'll turn to convenience. The expansion of our store and pharmacy footprint is progressing well. We ended the period with 902 click stores and 718 pharmacies. We remain committed to delivering affordable, accessible healthcare. 223 of our stores are located in low-income areas and contributed 22% of our retail turnover. And 51% of the South African population now reside within a five-kilometer radius of a clinic's pharmacy. Mr. Malik and his team at mChem, a 24-hour specialized pharmacy with a superb diabetic clinic, travel clinic, and wounds management practice, have been fully onboarded, and the business is performing well. The new specialized pharmacy format has been fully developed with support from external consultants, and we are gearing up for the rollout of more of these in-chem type formats. We continue to invest in enhancing our e-commerce capabilities, including Salesforce and data analytics. We have successfully rolled out our new dark store in Cape Town to enhance customer experience and have added in-store stock availability on our online site. That completes the review of the Clicks business. I will now turn to UPD's trading performance. This slide sets out the breakdown of UPD's fine wholesale turnover, which excludes bulk distribution and preferred supplier contracts. The performance of fine wholesale, down 2.3%, must be seen in the context of the go-live of our ERP WMS systems implementation in lead lending in September. which accounts for 60% of UPD's buying wholesale sales. The systems have stabilized and the business is improving. In the second quarter, buying wholesale turnover was up 5.7% with clicks up 13% and hospitals up 0.4% as purchasing compliance improved. In our January update, trading update, we reported that wholesale turnover had increased by 6.9%. From November to the end of February, wholesale turnover was up 7.7%. To support the recovery of our sales performance, we implemented a key account management team to improve customer service and communication to drive improved purchasing compliance. I will briefly turn now to the core customers in this channel. Clicks remains UPD's largest wholesale customer, increasing its contribution to 55.6% of turnover. The decline in sales to private hospitals has, as referenced earlier, improved in quarter two as we stabilized our lead-link systems transition. Whilst sales in the independent pharmacy channel is continuing to decline due to market consolidations, the export sales channel is returning to strong growth, up over 40% in quarter two. The decline of 90 basis points in UPD's final wholesale market share is due to the operational challenges faced during its IT systems transition, which resulted in buyaways by clinics and private hospital groups. This trend is reversing. Purchasing compliance is improving, and we are confident that UPD is on track to achieve a recovery in this year. UPD's total managed turnover combining fine wholesale turnover and turnover managed on behalf of its bulk distribution clients decreased by 6.4%. In the previous slide, I provided more detail on our fine wholesale sales and its improvement in quarter two. The strength is continuing. Let me look at some of the others. Bulk sales had a very strong performance, up 14% for the period and up over 30% for quarter two. Turning to notional sales, at our full year results presentation, we indicated that we had embarked on a process to rationalize our distribution portfolio with the objective to sharpen focus on profitable bulk distribution contracts and to ensure that we have available capacity to support portfolio acquisitions and line extensions by such clients. We elected to not renew two distribution contracts with a combined annual turnover of 3 billion rand. This will have negative impact on our notional sales, but a positive impact on our expense line and enable us to exit some of our existing rented DC facilities as leases expire. In accordance with our phased IT systems implementation plan, we went live with Leaglen in September. The Leaglen implementation was completed by the end of quarter one and the systems are stable. Our focus in this year is on improving customer service levels, extracting further operational efficiencies. The recovery initiatives we implemented are yielding positive results. Purchasing compliance levels of clicks has already improved from 93% in half one 2023 to 96%, and we are on track to achieve our internal purchasing compliance target of 98%. And purchasing compliance in the private hospital channel is also improving. This completes the review of our trading performance for the year. The retail business under the leadership of Vikash Singh and his team is maintaining good momentum as reflected in the turnover and profit performance. The growth in our pharmacy market share ahead of the market and strong sales contribution of our Clubcard customers indicate that we are winning the hearts and minds of customers. Trevor McCoy, and the UBD team continue to display incredible resilience. The organizational restructure has been completed and operational performance has stabilized. Purchasing compliance from the core wholesale customers is improving, with quarter two showing a marked improvement. And UBD is poised to be a key beneficiary of the stronger Clix Pharmacy growth. As an executive, we have benefited from robust engagement at board level and appreciate the support and guidance provided to us by our chairman, David Nurick, and our board members. Our people have shown extraordinary commitment to deliver our performance metrics and are proud brand ambassadors. 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 the outlook. Consumer spending will remain constrained due to inflationary cost pressures. Potential disruption ahead of the general election in May and the resumption of low sharing pose risks to the trading environment. Such a constrained consumer environment favors retailers with a strong value position, convenient locations, and broad appeal to a loyal customer base such as Clicks. We are on track to further accelerate the opening of our Clicks stores and plan to open between 50 to 55 new stores this year. This is ahead of our guidance on store openings. We are encouraged by the constructive engagements with the Department of Health and its legal teams in respect of the restructure of our unicorn private label medicine business and expect a resolution to be imminent. This will pave the way for the issuance of our outstanding and future pharmacy licenses. The UBD business is on track to deliver on its post systems recovery plan and will further benefit from the SEP increase. As a responsible corporate citizen, We embrace our role as an environmental steward for future generations, hence our increased production and use of renewable energy. Our sustained performance on turnover, profit, customer, sustainability, and operational metrics affirm the resilience of our business model, defensiveness of our categories, and our organizational ability to adapt to changing market dynamics and consumer preferences. It is our proven resilience and quality of our people, products and services that inspires my confidence in the group's ability to deliver on our earnings forecast of between 10 to 15% for this financial year. Thank you so very much for listening. I will now hand over to Suhim would assist us with taking your questions.

I have a number of questions here from Yash Patel at SBG Securities. Margins are trending higher, particularly in retail, so continuing on this trajectory would imply breaching the upper bounds of prior guidance. Is this trend one-off, considering lower farmer growth relative to other categories, or is it sustainable, therefore nudging medium-term targets higher?

Well, we are on record. We'll both answer this question. I think the first to say we are on record to say that in July this month, we will be reviewing our medium-term targets and we'll update the market accordingly. But thank you very much for the compliment. I think, Jaish, in that, I'll hand over to Gordon.

Yeah, I think it's been referenced in our update now that we continue to see strong trading in key high margin categories, which is supporting the margin, has been consistent with the prior year. And I think I'll then go back to Bettina's point, is that we will be reviewing the guidance and that's something that we said that we would do at the end of last year as well.

As we cycle the base where acquisitions are baked in, can we assume cost growth into the second half trends in line with the comparable growth over the first half? or does base growth shift this cost trajectory higher, while also acknowledging the duplicated employee costs in the base?

We would expect costs to come in lower in H2, and it was expected that we would have higher costs in H1, and some of that is purely regarding the higher bonuses for staff and some increased costs in the electricity side, but overall, I do expect that costs will be coming in lower in H2.

How have the revamps of the beauty halls performed sales uplift relative to non-revamped stores?

Probably wouldn't give a number on that, but let's just say it is quite significant, and that is the reason that we are continuing with that elevation. In fact, the results there has inspired us to do a similar elevation in our friendship healthcare aisle as well. Very great performance in there, particularly in high margin categories that Gordon has also referenced, fine fragrance doing exceptionally well, as well as premium skincare.

How does the group utilize data from the Club Card program to drive customer insights for both the group and its suppliers? Are there any efforts to monetize insights from the data?

So we do monetize the data with suppliers, but on an anonymized basis. And we do look at the customer behavior and aim to have relevant offers for specific groups of customers. So that is something that's on an ongoing basis. We did it in the past. We're just able to do it better with Salesforce and the analytics team.

Maybe if I can just add to that, specifically as regards to new clicks actively launched. What it will do is if they look at these screens, it will give them personalized offers and content based on their purchasing or other related behavior. And then the screens will also be used to promote popular brands, which is the monetization platform. A little bit about that, and customers can also create shortcuts to their most used areas of the app.

Why is UPD hospital revenue on a sustained downward trend? Initially, it was relating to the COVID stock-up, but this has passed. Who is gaining share, or is hospital demand at a market level overall lower?

It's the activity within the hospitals and then the change in the mix within the hospitals itself. the listed hospitals are also constrained by the pace at which they are granted new licenses. And so that's really what we see in terms of hospitals. UPD still has over 85% of market share within the listed hospital space. So it's not really gone anywhere else. I would have said in the first quarter, the purchasing compliance was impacted by the system's implementation, but that has changed in the second quarter of this period. that we are reporting on.

Cash balance is artificially low due to increased investment in working capital due to the SEP buy-ins. How should we therefore think about buybacks into the second half as this working capital build-up unwinds? Will they continue at a similar pace?

always look at our excess cash that we have in business and we either aim to return this to shareholders through dividends or share buybacks. Any buybacks that we do are governed by strict mandates from the board. So it's, we'd be like to do some more probably, but only at the right price.

I've got a number of questions here on unicorns. I'll read them all out together. From Yais, how should we think about the DOH progress on unicorn restructure and its impact on productivity on new stores? Is footfall lower? What are the trading densities doing? But he acknowledges the total income margins will likely be better than it has been over the first half. Um, covers layers from, or whether asks, please, can you update us on the timeline when the newly opened pharmacies are expected to be granted licenses? Um, then, uh, Michael did not bring up from every or capital markets. Um, asks, how has the progress been on setting the unicorn dispute? What approvals do you require to move forward? Um, And then Emmanuel Boca from Adewani asks, how will the unicorn restructuring unfold? Yeah, I think that's all the questions. Sorry, there's one on from Nantu Zulu from Invest Eggwell. How many pharmacy licenses does the group have on hand to continue with the store rollouts? Thank you.

I just wanted to close by finding out the question that Gordon answered before, which is, despite the high inventory levels, group working capital would actually improve by three days in the period. But now going across to the questions around Unicorn, we expect the resolution to be imminent. And that's based on the progress that we have made. I hope that you can all just bear with us. There's some of these discussions that I'm not able to share because that's just the nature of the engagement with the Department of Health. However, the scheme has been reviewed. And it does appear that the scheme that we have presented is acceptable. The first scheme that we presented was not acceptable to the Department at all, and we did some more work on that. In terms of timelines, we've also been engaging with the regulatory authority just to gauge now that the expectation for the resolution is imminent. on what the process would be. And they assured us that they have got all of the licenses, license applications that have been lodged, and they are ready to start that as soon as the full approval is provided. On the issue of growth, you know, the stores have already opened of the period. We always bought the pharmacy from the very beginning. And so as soon as those licenses are issued, what we would have already done is established footfall traffic into those stores, which will benefit from the opening up of pharmacies. And we certainly are beginning to work to ensure that we've got the teams ready to be employed into those particular pharmacies. And then of course, I think, you know, the point is correct. The great front shop margin in the stores, the great front shop sales has also benefited margin. But what I'm most pleased about is the fact that Despite the constraint on opening new pharmacies, we have got a market share ahead of anybody else. And that's all as a consequence of improvement in service.

A related question from Cobra Celia Zaloreba. Does the F124 DHEP's guidance of 10% to 15% growth have any specific timeline assumption for when the newly opened pharmacy licenses will be granted?

Well, what we have guided in terms of the part of the presentation of Gordon is that we would open up between 10 to 20 pharmacies in this year. We are trying to do that. And so the guidance must be seen within that overall comment and I think notation of Gordon. Really, it's looking at 10 to 20 pharmacies in this year.

Question from Damon Bass at M&G. Could you provide more detail on the new IT system for retail? What are the expected benefits and how are you mitigating the risk of disruption during the implementation? There's a related question from . Have you tested the rollout of the new pharmacy management system in stores yet? How has the experience been and do you expect any disruptions?

It's actually two separate questions. I think the first question is referring to the retail systems that we implemented at the end of 2021, beginning of 2022. It takes time to get it fully implemented and to derive the benefits. We saw some of the benefits come through last year. We're now seeing the benefits come through strongly this year. And, you know, some of the benefits associated with the system are better forecasting capability down to store SKU level, and that allows better availability on shelf and reduces lost sales. There's also capability around looking at the ranging at store levels that can improve the trading density, which we are still working on. So we still expect some benefits to come through on that side. So any disruption is actually in the past. We've just got the benefits to come through going forward. Secondly, on the pharmacy system, we've implemented it in 10 stores. It has been very... positively received by the pharmacies where it's implemented. None of them want to go back to the previous system and will shortly be rolling it out on a wider basis across the network over the next few months. And part of the reason for the POC was to avoid any disruption to the business.

A number of questions from Keenan Schooner at Anka Stockbrokers. What locations would you look to open the new MCAM store formats? Metros or outlying areas?

It would probably be more in the metropolitan areas. First of all, because of course, you know, these are, from a turnover point of view, it's quite large. Secondly, it must be where there's a sizable population. And thirdly, where there are medical specialists. So what we've seen out of these types of formats is actually the medical specialists are the ones referring the patient through to the clinics at a site such as this. So that's where it would probably be. Our estimation is that we could probably reach between 10 to 15 of these over the medium term. So, you know, three years and out would be the kind of pace at which we would be doing this.

Will Clix be able to charge higher dispensing fees in the mChem format versus Clix Pharmacy's?

The medical aids do differentiate in terms of the dispensing fees. They allow for a higher dispensing fee for independent pharmacies and also for specialized pharmacies.

Do you foresee heightened competition from established e-commerce cares entering the SA market? Or could you use this as an opportunity to increase product distributions?

We wouldn't use it as an opportunity to increase product distribution. I think that we would create a problem for ourselves. I mean, I think in terms of it, you know, we've all lived in this country with take a lot over probably 10, 15 years. And I think, you know, we understand how to compete. The really great thing about South Africans is that malls, just because of their very nature, is very attractive. It's got security. It's got everything under roof, both entertainment, clothing, food. And so, you know, I think where we are located is going to be important, but we have to continue to invest in e-commerce capability, which is why we are doing that.

Salome Maruma from Emergence asks, please elaborate on how you are able to grow total income margin in retail while you are increasing the level of promotional sales to now almost 45% of sales.

Well, thank you, first of all, for the compliments. It's twofold. The first is you have to understand that we are growing private label and exclusives, which carry a high margin. So that's the first one. Second, it is because of our size and our track record of effective marketing campaigns, suppliers support us in terms of promotional campaigns. And then, of course, it's really the way in which you plan your inventory. before, during, and after any promotional campaign to ensure, you know, that you remain less. Because if you've got, if you're carrying too much inventory, your problem is that you're going to need to mark that down and therefore lose a margin of opportunity. Got anything that you would have wanted to add to that? I think that pretty much answers that question. Thank you.

So Kenneth Zondy from Battler asks, can you provide some colour on the opportunity examples that the non-renewals of UPD contracts have? on providing capacity for growth in other bulk contracts?

One of the largest ones, I think it's well known, you know, that Aspen has been an incredible partner for the group, but also within our UBD business. And of course, Aspen in terms of portfolio and line extensions, you see Amgen, which is really within the biosimilar sort of category of medicines, and then Eli, which I think everybody makes you wait given Eli's global market share in weight loss drugs. You know, so it's there for your ability to ensure that when these large profitable distribution partners are either doing portfolio or line, portfolio acquisitions or line extensions, that you've got the capacity to be able to support them. And so that's really, you know, what that would be all about.

Ajamila Mashalaba from 91 says, well done on a great performance. But what are we missing with regards to the four-year earnings guidance? If margins remain strong in retail with strong top line continuing and costs coming lower, plus a recovery in UPD, earnings growth should be much stronger.

I think there's a great compliment somewhere. I think there are a couple of things that would still give us pause. The first is that the consumer environment remains constrained. It's great to see inflation coming down, but you can see in areas such as food inflation and transport inflation, you know, that's quite debilitating for the consumer. And then, you know, it's the uncertainty in terms of low churning, even the Minister of Electricity was alluding to that. And then, of course, you know, we've got the general elections coming up in May. Now, I have a great belief in the strength of our democratic processes in South Africa. but it is probably one of the most contested general elections that we will be having. It would therefore make sense, I think, to be a bit cautious when you're setting up earnings guidance, because as a group, we have never missed our earnings guidance.

Saad Chafia from Citi says, well done on the results. Can you provide some color on post-Hafia sales growth and inflation for retail and UPD?

I mean, the sales growth... post-February has continued in line. UPD has continued to improve since the trading update. So we haven't seen any real change in terms of any decline in the sales performance. I would expect that inflation, because of the... SAP increase on the pharmacy side is going to be higher. It's inevitable. But if you look at our inflation August relative to now, we've already seen a decline in the inflation on the front shop side from the end of August compared to the first six months of this year. But it's been partially offset by the SAP increase on the pharmacy side.

Well, Gordon thinks about some of the other questions that may be coming. I just wanted to say, I mean, we have looked at sales growth in retail post the end of February. It is strong in that momentum we see continuing now in the month of April. As far as UBD is, the reason I gave a bit more detail than we ordinarily did was to provide assurance that when you look at quarter one versus quarter two, really there is a marked improvement. You know, between Gordon and myself, we probably are quite tough on the UBD team, and they have responded incredibly well. And I must say, it is wonderful to see turn around in quarter two in the UBD business. There being no further questions, thank you so very much for gracing us. Thank you very much for the quality of the questions. If there are any more, I'm sure Sue will respond. ensure that we get to answer them. Thank you very much.