Clicks Group Ltd S/Adr

Good afternoon and a warm welcome to the webcast of our annual results for the year ended 31 August 2024. I'm Bettina Engelbrecht, Chief Executive Officer of the Clicks Group. I'm joined by 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. As usual, I will start with a review of our financial year. Aude will follow with an overview of our financial results. Year after, I will take you through the trading performances of our business units, first Qliks, then UPD. I will then 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. Suyin from our investor relations team will read out your questions to which Gordon and I will respond. I will now commence with a review of the year. As a business, we remain optimistic about the economic, social and political environment of our region. Despite some challenges, we maintained our growth and performance momentum. We attribute our sustained performance over the past two decades to the proven resilience of our business model, defensiveness of our core product offering, brand strength, relentless focus on incremental efficiency gains, and the commitment of our people. For the year, we delivered another strong performance, with diluted headline earnings per share up 14.3%. This result is in line with increased market expectations. We continued to invest in the expansion of our store and pharmacy network, increasing our Qlik store count to 936, pharmacy count to 720, primary care clinics to 206, and standalone Qlik's baby stores We opened a net 51 click stores ahead of our published range of 40 to 50 new stores and net nine pharmacies, which is below our range of 40 to 50 pharmacies due to the unicorn licensing matter. I am pleased to report that we have amicably resolved the unicorn matter and in the process strengthened our relationship with the Department of Health, one of our key stakeholders. Post the year end, some licenses have been issued, which augurs well for our pharmacy expansion program. In a tough trading environment, consumers responded favorably to our product and price offers as we leveraged our positioning as a value retailer. This resulted in market share gains across all of our core retail categories. The investments in our supply chain improved our in-store availability and quality of our inventory. Our investments in people and processes enhance our customer service and affinity. I will provide greater detail on the market share and category performances in the retail segments, business We continue to position our UBD business for sustained profitable growth. The systems implementation for the wholesale business, as well as the organization restructure was completed and stabilized by the end of the first quarter. The operational metrics and purchasing compliance of the core wholesale customers by pre-systems implementation levels. This drove a much improved second half performance with great momentum going into the 2025 financial year. Businesses do not operate in a vacuum. We recognize that we are part of a broader ecosystem and embrace the opportunity to make a positive impact. We are extending the integration of our sustainability processes to our acquisitions and partners. Our inclusion in the Food City for Good Index for the past eight years and our improved AA ESG score from MSCI validates the progress we are making in driving sustainability. We are advancing gender diversity and empowerment. We do this by focusing on improving gender representation at all levels, investing in the tertiary education of women in health sciences, procuring from women-owned enterprises, and using our platforms for gender diversity and advocacy. These focused actions are benefiting our transformation goals, and we are anticipating an improved BBVE score once this is verified. As a signatory to the UN Women's Empowerment Principles, we stand in solidarity with multi-stakeholder networks to foster business practices that empower women in our workplaces, marketplace, and communities. In our 2024 WIPPS progress report, we achieved an 89% score against the eight performance indicators set up in support of the 2030 Agenda for Sustainable Development. In our communities, we are advancing access to healthcare through national partnerships, such as with the transit fellow paper health clinic trains. In the year, we increased our renewable energy generation as a percentage of total consumption from 3.4 to 4.5%. And we invested in solar battery capacity and our plan to extend this investment in renewable energy. I will now hand over to our CFO Gordon Trail to take you through the group's financial results in more detail.

Thank you, Bettina. Good afternoon. In the following slides, we will cover the financial performance of the group, starting with the group highlights. If you consider the financial highlights, group turnover increased by 9.2%, Retail turnover grew strongly at 11.7% for the year, with half two slightly slower due to acquisitions from the prior year being an anniversary from the delay rollout of pharmacies. UPD had a better second half, although growth was still muted for the year. The group trading margin at 9.2% increased by 50 basis points due to the growth of retail with good cost control and an improved performance from UPD. Diluted headline earnings per share for the group increased to 1,193.5 cents per share, up 14.3% from last year. The group's operations generated strong cash inflows of 6 billion. During the year, we returned over 2.5 billion to shareholders in dividends and share buybacks. The group's return on equity at 46.4% increased from 43.6% in the prior year. The dividend declared for the year has been increased by 14.3% to 776 cents per share, which is a 65% payout ratio. Retail continued to perform very strongly in the year, and it is pleasing to note that UPD has had a stronger year, particularly in second half. Retail sales grew by 11.7%, with same stores growing 8.4%, with strong sales across all categories. New stores and pharmacies added 3.3% to the top line, while selling price inflation averaged 6.3% through the year, although this moderated in the second half. We have seen a more consistent performance this year both due to the reduced load shedding and the systems we implemented a couple of years ago, getting the right stock to the right stores at the right time. The distribution business had stronger growth, particularly in the second half, and despite selling price inflation of 3%, still showed volume growth for the year. We have seen a strong sales performance in the first months of the year compared to last year, when Lee Glen went live with their systems implementation. 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 12.8% for the year. You can see the total income margin in retail was 40 basis points higher than last year, as there was good growth across all categories and a particularly strong performance in beauty and personal care. UPD's total income margin was up 70 basis points to 10%. This was due to the larger SEP increase granted in January of this year and continued good management of shrink and waste. Overall, the faster growth of the retail business at 13.2% And the improvement in UPD has resulted in the group's total income margin being 100 basis points higher than last year. Retail costs grew 12.5% and remain well controlled despite the cost pressures from dealing with load shedding in the first half, higher electricity costs, as well as new stores, pharmacies, and depreciation in capital expenditure. What is pleasing to note is that in the second half, cost growth was 10.4%. Excluding prior year acquisitions, cost growth in the second half was up 9.1%. Initiatives such as solar, electricity monitoring at stores has limited the headline growth in electricity costs, despite tariff increases. What is particularly pleasing is the increase of 21% in bonuses paid to store staff for the year, which has been well-deserved based on this year's performance. In the year, we have added 51 click stores and net nine pharmacies to the chain. We are looking forward to opening more pharmacies in the next financial year now that the unicorn licensing matter has been resolved. Comparable retail cost growth, excluding new stores, was up some 0.4% for the year, cost growing at a lower rate in the second half. As highlighted at our interim results, the IFRS 16 charge increased as a result of two factors, being the increase in number of renewals in the period and the higher discount rate as a result of higher interest rates. The growth was consistent with the interim. UPD's costs have grown ahead of turnover. However, this was mostly the result of the system's implementation in the first half. In the second half, costs grew by 4.3%, which was below turnover growth. Employment costs in the second half were particularly well controlled and reduced 2.6%. This result was inclusive of provision for bonuses for the year. Other costs also only grew by 2.1% in the second half. Costs overall were very well managed for the year. The investments in solar have paid off with electricity costs for the year declining by 1.8% despite the higher electricity tariffs. Further investments are being made to allow delivery with electric vehicles, further reducing our carbon footprint. This will go live in the 2025 financial year. Retail grew trading profit by 14.8%, with the margin improving by 20 basis points to 10.2%. This has been due to the good sales growth together with efficient cost management. UPD's trading profit increased by 17.6%, with the operating margin increasing by 40 basis points to 3.2%. This was due to the ongoing recovery in sales, a better SEP increase and good cost control. Overall, the group's operating profit increased by 15.1%, 4.2 billion rand for the year. This slide reflects the growth in turnover, trading profit and margin of the group over the past five years. The company has sustainably grown its performance through various economic cycles. This is important to all stakeholders. This is true for shareholders who objectively evaluate their company performance. I feel particularly optimistic that perhaps in a year's time, we'll be talking about the growth the company is deriving from strong economic growth. It is quite a pleasure not to have to mention Mochel. That said, what is pleasing to note is despite challenges, the group has continued to evolve the operating margin over the past five years. Inventory levels for the group has increased by three days to 74 days. Retail stock days are one day higher than last year. Inventory has been brought in slightly earlier this year to avoid any shipping delays. UPD stock days at 42 days and three days higher than last year, partially due to higher levels of unicorn stock held at year end. Overall, working capital was well managed with net working capital days, 35 days, although at the higher end of the target. This slide shows the look of the cash during the year. As you can see, we started the year with cash at 2.5 billion, reflected in dark blue on the left-hand side, and ended the year with 2.7 billion on the right-hand side of the slide. The group has generated cash of 5.9 billion, highlighted in green. Working capital inflows of 99 million, repayment of lease liabilities amounting to 1 billion, and tax payments of 1.1 billion. 891 million was reinvested in capital expenditure across the group. Of this amount, 583 million was invested in new stores, as well as pick store refurbishments. 109 million was spent on distribution centres, including the expansion of our Centurion DC. And 199 million was spent on IT and other retail infrastructure. We completed the investment in solar panels and battery storage at our largest pharmaceutical distribution centre, Lee Glen, and our head office. Further investments are planned in our other DCs. We returned 2.5 billion to shareholders this year. This was in the form of dividends of almost 1.7 billion and share buybacks of 835 million. The final cash dividend of 1.4 billion be paid out to shareholders in January. CapEx of over a billion is planned for the year ahead. 578 million will be invested in our store and pharmacy network. This will include 40 to 50 new click stores and pharmacies and 70 to 80 retail store refurbishments to ensure they remain modern and relevant to our customers. £447 million will be spent on IT systems and infrastructure. £86 million of this amount will be invested on UPD IT and warehouse equipment, including further solar investment. And we will invest the balance of £361 million in retail IT systems and infrastructure. This will include the rollout of our new pharmacy management system and the implementation of a new warehouse management system at our Cape Town retail DC. We will continue to grow and invest in a retail footprint. UKD will improve efficiency now that the implementation has been completed. And we will continue investments in systems for pharmacy and our distribution centres in the retail business. This slide reflects a medium term financial targets. We have made good progress against those targets. Importantly, the group has continuing headroom for growth, particularly in expanding the retail store bids. As previously noted, we were at the upper end of our group and retail trading margin guidance. Given the recovery of UPD, we now have the confidence to amend these targets upwards with total group now between 9% and 10% and retail 10% to 11%. UPD will remain at the current guidance at least for another year. In framing these medium-term targets, we continue to seek to optimise the balance sheet, improve working capital efficiency, enhance cash returns to shareholders, and maintain the dividend payout ratio between 60% and 65%. This slide demonstrates how the group has sustained its financial performance over the past decades. This is reflected in the 10-year compound annual growth rates achieved in diluted headland earnings per share of 13.5% per annum and dividend per share growth of 15.1% per annum. The compound annual total shareholder return over the past 10 years equates to 20.7% 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. This graph shows the group's share price performance over the last 10 years. This performance is testament to the hard work of all our employees throughout the group. Earlier, I noted that bonuses for employees have grown significantly. And it is also pleasing to note that our long-term shareholders have also benefited. I will now hand over to Bettina to cover the trading performance.

Thank you, Gordon. I will now take you through our trading performances, starting with clicks and followed by the bidding. This is the review of the clicks business. The retail business delivered another strong set of results, as reflected on this slide, with growth in total turnover up 11.7%. Existing stores grew sales by 8.4%, inflation slowed down to 6.3%, and volume growth improved to 2.1%. I will turn to our four broad categories to provide greater details. Despite the constraint we faced in opening new pharmacies, pharmacy sales accelerated, growing by 8.9%. Club Card customers contributed over 87% of pharmacy sales, and we continue to be rated as the customer's first choice retail pharmacy. The convenience of our retail pharmacy network underscores our preeminence in a retail-led pharmacy offering. Friendship Health achieved strong double-digit growth of 10.7%, driven by promotional sales growth of 15.9% and the impact of our new healthcare elevation. Our integrated baby strategy is consolidating our positioning as a leading baby. Sales growth is accelerating and we are evolving margins. baby foods delivered a standout performance. Here, private label was a key in AbleHealth growth. Private label and exclusive baby toiletries grew by 19.9% and our private label baby diaper range by 28.6%. Our beauty and personal care category delivered another superior performance of 15.8% despite a high base. In beauty, skin care was the star, up 21.6%. The investment in our elevated beauty halls, private label and exclusive office, personalization campaigns, club card offers, and sold-out beauty playground events are driving sales and entrenching us as the customer's destination for beauty. The personal care category performance was exceptional. of 19% driven by strong private level sales, which was up to 87%. Our Qlik Sun Protect brand is now the number one sun care brand in our network and contributed over 50% of our total sun care sales volume. The ownership of the Body Shop International has been resolved. The consortium has acquired all of the Bioshock International's assets. This is an exciting development as the consortium has the financial capital, track record of managing luxury brands, and competence in product development to drive a successful turnaround. General merchandise sales of 10.1% was adversely impacted by increased competition in electrical and paperwork. Our snack deal continues to deliver pleasing results, whilst our domestic category grew sales by 26.9%, driven by improved promotional mechanics and stock availability. Turning to market shares. Despite the increasingly competitive environment, we are continuing to extend our market shares in each of our core retail categories. They've been taken through these, starting with health. Over the past two years, we have been constrained from opening new pharmacies in line with our guidance of 40 to 50 pharmacies. We worked collaboratively with the Department of Health to resolve the matter, since the accessibility and convenience of our healthcare network remains a key driver of growth. Our focus on organic growth delivers results. We gained 50 basis points in pharmacy and are steadily increasing customer participation in our repeat prescription service. Friendship Health is consolidating its market strength. We gained 110 basis points in market share, fueled by strong gains across a number of sub departments, such as food care, up 300 basis points, with medicinal and first aid each gaining 150 basis points. Our comprehensive baby execution, which integrates our private label offering, convenient locations, competitive pricing, baby club card benefits, and online strategy drove our market share gain of 150 basis points in May. turning to beauty and personal care. Skin care gained 110 basis points, fueled by strong gains in facial care, acne preparation, and moist wipes. Hair care gained 50 basis points, with strong gains in hair treatments and hair colorants. Personal care continues to gain market share, up 140 basis points, with strong gains across all the sub-departments. Very strong market share gains were recorded in sub-departments such as body freshness, deodorants, soaps, and sun care. In general merchandise, our performance was muted and we declined by 50 basis points in our legacy category of small household 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, payless resonates with all consumers. Despite increasing competition, we maintained great everyday pricing and are 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 14.6% to account for 44.9% of turnover and achieved exceptionally strong promotional sales growth across all of our franchise carriers. We remain committed to extending the benefits of our medical aid customers by consistently offering them the choice of more affordable generic medicines. In the year, generics grew 10%, accounting for 59% of sales by value and 69% by volume. Rewards remain relevant, especially in a tough economic environment. During the year, we returned a whopping 780 billion rand to our loyal customers in the form of cash back rewards. This is an increase. of 13.2%. Our differentiation strategy is premised on responding to changes in consumer demographics, preferences, and shopping behaviors within the context of the trading environment. Private label and exclusives maintained its growth of 13.5% and contributed 25.4% to total sales 30.3% for front shop and 11.5% to pharmacy sales. Our private label team drives innovation, supports our sustainability agenda and goals to increase localization. In the year, our clicks made for baby nappy range and sorbet BB cream were voted as the 2024 SA product of the year in their respective categories. And we are all proud of the fact that our Sorbet BB Cream won the overall 2024 SA Product of the Year. Customers trust our private-level brands because of its proven quality and price positioning. Sales in our six standalone baby stores increased by 31.3%, while our five Pigs Baby store-in-store executions delivered a combined baby sales growth of 35%. The execution of our new look elevated beauty halls, which is now in 44 stores, is driving increased sales in the big beauty brands and in brands exclusively available in TRIX. Our sorbet business, the largest and most recognizable professional salon business in South Africa, is continuing to outperform, delivering an increase of 12.3% in turnover. Our affinity partnership with Olk, a retail brand focused on the premium beauty market, enables us to extend our access to the premium beauty customer where we are still under indexed. The Kicks Clubcard loyalty program is a great asset and valued by our customers. It provides us with the mechanism to attract, engage, and retain our customers through personalization. We are still growing our Clubcard membership, which has now increased to 11.8 million active Clubcard members. The contribution of Clubcard members to total sales has increased to 81.7% accounting, for 79.5% of front shop and 87.3% of pharmacy sales. When we launched the Club Card Loyalty Program, the objective was to drive an increase in our customer base and enhance customer loyalty. Our teams have been focusing on shaping a loyalty program that integrates rewards, customer engagement, and personalized experiences to reinforce the customer's emotional affiliation to our brand. The use of advanced analytics to drive focused customer segmentation and tailored rewards is therefore critical to the success of our Clubcard loyalty program. So kudos to our marketing and omni team who were recognized for making the best strategic use of data analytics and CRM applications as well as the best use of AI to improve loyalty experiences at the 2024 SA Loyalty Awards. We are investing in building our Omni capability. This investment covers technology, supply chain, and people. Pharmacy is a key driver of our performance. We commenced the national deployment phase of our league pharmacy management system in May and have now successfully deployed to over 200 stores. We are on track to conclude this rollout by the end of 2025. The expansion of our store network is progressing to plan. And now that we have resolved the important matter, we are recommencing our pharmacy rollout program. We remain committed to delivering affordable, accessible healthcare 51% of the South African population live within a five kilometer radius of the Creeks pharmacy. Post the unicorn resolution, we can now move ahead with extending our unique health specialized pharmacy format. We recently introduced our front shop private label offer with great success in this new format. And this coupled with our elevated beauty offer is driving improved sales. In the year, we increased our primary care clinics to 206. These are profitable due to our partnerships with medical aid schemes. Our team is now also reviewing the feasibility of smaller format stores. We are accelerating our presence in lower income areas with 234 of our stores located in such areas contributing 22.4% of turnover. We have extended our primary care drug therapy offering to 11 stores. And whilst in the early stages, it is pleasing to note that the uptake of these PCT services is growing strongly. We will be increasing the number of trial sites over the next year to firm up the offer. That completes the review of the Qliks business. I will now turn to UBE's trading performance. This slide sets out the breakdown of UBD's fine wholesale turnover, which excludes bulk distribution and preferred supplier contracts. The performance of fine wholesale is improving. At the end of half one, turnover was down 2.3%, but has since recovered in half two due to improved operational performance, which in turn fueled increased purchasing compliance from UBD's core wholesale customers. I will briefly turn to the core customers in this channel. Clix remains UPD's largest customer and accounted for 56.1% of turnover. Improved purchasing compliance in half too, on the back of improving operational stability with e-UPD, led to an increase in Clix purchases of 8.5% with second half and 6.8% for the full year. Although purchasing compliance within the hospital channel is improving, sales performance is still muted. Signals, though, are that patient days are increasing, and we have certainly seen an improvement in sales over the past month. The decline of 130 basis points in UBD's fine wholesale market share is due to the operational challenges faced during its IT systems transition, which resulted in byways by clicks and private hospitals. This trend is reversing. Purchasing compliance has improved in line with the targets, and we remain confident that UPE will sustain its improved performance. UPD's total managed turnover, which includes fine wholesale, as well as turnover managed on behalf of bulk distribution clients, declined by 6.7% to 29.9 million rand. We have rationalized the distribution portfolio to sharpen focus on profitable bulk distribution contracts. In this process, we did not renew two large contracts with a combined annual turnover of three billion grand. This, though, enables us to terminate our Cape Town distribution lease by January next year, as well as the lease of one of our Johannesburg facilities later in 2025. This will have a positive impact on our expense line. In accordance with our phased IT systems implementation plan, we went live with Reglen, our largest DC, in September last year. The implementation was completed by the end of quarter one, and the systems are stable, although it did impact wholesale performance. Our initiative to improve customer service levels and extract operational efficiencies set the business up for a much improved half two, with carry-on momentum for the 2025 financial year. The purchasing compliance levels of the core fine wholesale clients are at the pre-systems implementation levels. And as shared by Gordon earlier, employment cost growth and shrinkage have been contained. There are nevertheless still areas that require management focus. We need to improve our SLA reporting capability, especially to our distribution partners. And we need to improve our customer value proposition to our link and independent pharmacy customers. Doing good is also good for our business. In support of our commitment to a sustainable carbon neutral future, we have ordered 42 electric vehicles for using more densely populated gouting and cacti nodes. And we will be fitting the solar batteries on existing delivery vehicles to power refrigeration. This completes the review of our trading performance for the year. The retail business under the leadership of Vikash Singh has delivered a superb performance as they hold in on the execution of the brand's key drivers of success, value, differentiation, personalization, and convenience. Despite limited new pharmacy openings, the business gained pharmacy market share as well as market share gains in its core retail categories. Trevor McCoy and the new leader UPG team continue to display exceptional resilience and commitment to the recovery of the business. The purchasing compliance from PICS and the four large private hospital groups are improving and UPG will benefit from the growth in PICS. Our group services team, under the leadership of our CFO Gordon Trail, has ably supported our operational business units in identifying commercial opportunities and efficiency gains that benefit the group. The group services team is also great at incubating talent for the group. People are the difference. In this year, we were one team made up of individuals and functional teams that all delivered above expectations, which is reflected in the bonus values for the year. On behalf of our board and executive teams, to all of our people and their extended families, thank you. I will now conclude our presentation with the outlook. A year ago, confidence levels were depressed due to electricity outages, political uncertainty, high inflation and interest rates, which affected all consumers. Indications are that the consumer environment is improving due to lower inflation, a stronger currency, lower fuel costs, and greatly reduce electricity outages. We, though, are well positioned to leverage this to our benefit. We have a competitive advantage in defense of health and beauty sectors. We have market-leading shares in our core retail categories and in pharmaceutical distribution and pharmaceutical wholesale. We have long-term growth prospects underpinned by a legacy value proposition. We have an extremely loyal Clubcard membership base, which is still growing, and we are increasing the scale of our operations, which we can leverage for efficiency and reach. We remain well on track to deliver on our medium-term target of 1,200 tech stores. We ended the year with 956 tech stores, 720 pharmacies, and 206 clinics. We will continue to invest in the extension of our store network by opening 40 to 50 new stores each year. We are anticipating a higher level of pharmacy openings now that the processing of our pharmacy medicines applications has resumed. The unicorn resolution also opens the pathway for us to accelerate our uni health hubs up to 10 such specialized policies over the medium term. We are continuing to invest for sustainable growth with planned capex of 1 billion rand per annum over the next three years. As a responsible corporate citizen, we embrace our role as an environmental steward for future generations. This underpins our commitment carbon neutrality and informs our increased generation and use of renewable energy. We have significantly strengthened our executive teams to reflect our strategic intent and develop a healthy planning pipeline of future Indus. Specific areas in which we have strengthened capability is in e-commerce, specialised pharmacy and in our retail investments. By solidifying the functional reporting lines of our shared services functions, such as IT, finance, and HR, we will enhance governance, leverage efficiencies, and create career progression opportunities. As you can see, we are preparing for our future in a deliberate, considerate manner to ensure that we deliver sustained, improved performance that unites all of our stakeholders. I'm therefore confident that the group will continue to deliver on our medium-term targets. Gordon has shared these with you, but let me reiterate that the group and retail trading margin targets have been revised upwards. The retail trading margin has been increased to between 10 and 11%, and the group trading margin target increase to between 9% and 10%. As an employee and a long-term shareholder, that pleases me. That concludes the outlook. I wish to make a few of the final remarks. The refresh of our board has been completed. We have the privilege of an extraordinary chairman in David Murek, who will hand over the reins of the chairmanship of the group to JJ and JK at our AGM in January. JJ has been on the board for over three years. He's our current lead independent director and chair of our audit and risk committee. He's therefore familiar with the group strategy and our executive team, which will ease his transition to the chairmanship role. David, thank you for your dedication and commitment to the success of the group. You are a truly passionate leader. During your tenure as our chairman, you have courageously shaped the strategy and performance ethos of the group. You have also been an incredibly wise mentor and coach to our board, executive teams, and to me personally. Thank you, David. Thank you so much all for listening. I will now hand over to Suhim to assist us with taking your questions.

First question is from Saad Chafia at Citi. Hi there, well done on the results. Can you provide some colour post-wearing trade and inflation guidance?

Just on inflation, I think what you've got to bear in mind is that the SEP increase that was granted in January is still going to have an impact on H1 of FY24-25. So that means on the pharmaceutical side, inflation is going to be a little bit higher than in previous years and also impacting the retail side as well, because it'll be non-comp. We have seen the front shop inflation moderating, and we would expect it to moderate into FY24, 25. So we'd expect overall inflation to be lower next year than this year, but it's still going to be supported by the S&P increase in the first half.

And maybe just to add, I think, you know, we've seen the inflation as, you know, long as yesterday. So I think the inflation continues to take down. I would have said, because one of the questions that he has is around post-trade, post-year-end trade. Very pleasing. in terms of what we've seen. And that also, I think, talks to the improved consumer confidence. I've talked about the hospital and the fact that they will signal to patients that it's improving. And we certainly have seen it as well in terms of purchasing supplies and purchasing from hospitals in the UPD business.

Can you elaborate on why the store guidance was lowered from the 50 to 55 per annum provider in the first half?

The 50 to 55 was for FY24. We haven't changed the median term target of 40 to 50. But if opportunities present themselves, we're not going to turn those down.

What did mChem contribute to sales in FY24?

We've also indicated that mChem is about 250 million in sales when we purchased it. So, you know, Last year, I remember that we only took it over in April. So for the first half of the year, we'd be non-comp against prior year, but $250 million is what we purchased, and we've grown a bit from that.

But similar questions from Funaka Maseko, JP Morgan, Yash Patel at SDG, and Michael Dunar-River at Avior Capital Markets. How will the resumption of primacy rollout affect the retail total income or trading margins? What are the support levers to offset this?

I think to note on that is that we have always managed this in the past and we have consistently evolved our margin over time. In one way, it's going to be positive because if you think for the last year, we've really not been opening a significant number of pharmacies. So those stores that are already trading are you know, when they get a pharmacy license, it's going to always boost the front shop sales in those stores, which is one of the reasons that we open a pharmacy. And, you know, the levers that we use, we've highlighted before. So, you know, private label exclusives allows us to support the marginal dilution that you get to a certain extent with opening pharmacies.

So I mean, it's reflected in the confidence, you know, we've guided upwards in terms of the retail trading margin. And that's with all of the information that we haven't had as well as the group trading margin. So we feel fairly confident that we know how to do this and that we have a track record of doing it well.

I have a few questions from Dina Constantinov in NASDAQ on Unicorn. Is the cash in Unicorn really all that was disposed of? This is what it looks like for your disclosure. Why has Unicorn not been classified as a discontinued operation? And what does the disposal mean for the strategic initiative on increasing private data penetration in dispensary?

So Unicorn hasn't been classified as a discontinued operation because it was a material to the group. The assets and liabilities that sat in Unicorn were really very small. And we, in terms of private label penetration, we still own the brand Unicorn. And that's a brand that we are very proud of. So we have been making sales in the market since the beginning of August. And that's been positive for the group as well.

Just that point, I think I would like to stress that. I mean, the really great thing post the resolution is, of course, you know, we said that the unicorn product range would be available to the market. I mean, and kudos that we've established that brand so well that the market is buying both in terms of private hospital groups and independent pharmacy, the unicorn range. So that's very positive.

I have a few more questions from Yash Patel at SCG. A solid set of results. Well done. How should we think about the impact on operations from the implementation of the new WMS in the Cape Town DC? What percentage of retail volumes move through this DC?

So Cape Town is our second biggest DC, but it's significantly smaller than our Centurion DC. So it's a good place to put the system in and it's close to support The second thing is, this is not an untried WMS for us. We've actually used this in rolling out our dark store in Cape Town. So we've been using the dark store rollout to really test software. So quite confident that this won't have any significant impact on the operations.

The share gains in the personal care and baby categories, any insights as to who or where this gain is coming from? Who is losing share? Is it the grocers?

We can see our own performance. We are not given data that shows us where it's being lost. We can have an idea. Bettina can elaborate.

I mean, you know, I think our premise holds true. We did say that during COVID, some personal care actually moved to the grocers. And our premise was that it would return to us. And it has returned to us. And it is continuing to return to us. The other one is, if you look at the personal care performance, I mean, in that private label, it's up 27%. That's all about customers really trusting the quality and price position of our brands.

A number of questions from . Good day. Well done on a great performance. Now that the unicorn matter is settled, why does the group not plan to open more pharmacies compared to click stores? Your slide shows them opening at an even rate.

So there's two parts to that. One is we are still going to be reliant on those licenses being granted, although we've I had a good start to the year on that. And the second thing is that's 40 to 50 pharmacies being newly built in stores. So in existing stores, in a lot of the cases where we've applied for licences, those pharmacies are ready to go. So if we can move faster, subject to receiving the licences, we will go faster.

In fact, Gordon, both in your voiceover and in mine, in terms of the outlook, we have said that we are anticipating a higher rollout of promises.

That answers Michael's second question on the process of obtaining new licenses. Then he asks, how has the rollout of the new LEAP system progressed? With 200 stores now using the LEAP system, what benefits have you observed so far?

So I think it's very early days in the rollout because in most of the instances, those stores have literally had weeks. I think the first point to make is the rollout has not had any impact on our operations, meaning there's been no negative impact at this point. So the first game was in getting everybody trained on how to use the new system, which is going very well. We're now looking at accelerating the rollout. The second point is that now we can really look at, since we've got a significant number of getting the benefits that were part of the business case. So I hope to talk about that from February onwards.

How do you expect the rollout of the two-part system to impact revenue in FY25? particularly for the beauty and personal care and general merchandise categories?

Oh, that's a tough one. I think I always thought that some Africans that were going to access and withdraw from the Tupac, that they would do so in a responsible manner, you know, that they would settle debts. And we've certainly been hearing that people are paying school fees, for example. So all of that's positive. And, of course, the very positivity is, you know, the viscous. I mean, through SARS. I mean, they're doing a darn good job there. But when people are feeling more confident, you know, they've been relieved of a great part of the debt that they've made within Shelby, I think that you'll see that with people treating themselves. And people treat themselves maybe by going to Sorbet, which will benefit us, maybe by getting their pedis and manicures done, maybe by going through AHRQ. and probably buying some fine fragrance within a click store or a beauty product within a click store. So I think we are very well positioned. And of course, I think if you're thinking about homeware, home and electrical will be a category that people will probably kind of buy some products from. But I think it's too early to say, you know, what will people be? I don't want to call spending. I'm hoping that people will be thinking and investing and really thinking about good development such as mortgage funds, car repayments, and education for the kids.

Question from Talia Ginzburg from Turnbow Wealth. How are you able to have a big store rollout expansion without risking cannibalization, margin contraction, and ultimately ROE contraction?

I think we've highlighted that in the past that we still see high time. It's a big area where It's an opportunity for us as a growth area. And, you know, in terms of rolling out new stores, it doesn't matter if it's in Western Cape, Eastern Cape, KZM, is we always look at data before deciding to open a store. And, you know, in looking at opening a store, distance is not necessarily an indicator of impact. And we've got enough data to allow us to assess the impact of where we can open without significantly cannibalising existing stores. And I think that we've seen that over the last few years.

Another question from Yanish at ACG. What are the smaller formats referred to in the presentation? What will be the number of SKUs relative to current stores? Where will they be located?

It's too early. What I've indicated is that we are evaluating them, reviewing what those are. And of course, you guys know what we are all like. We triple check all of the boxes. It will go through the normal challenges that we have within challenge session within the group. And then, you know, we'll come up with what the new small store format for us would look like. But it's exciting. I think it just provides so many more opportunities for us to go into areas that maybe, you know, with a 650 store format, we wouldn't be able to access. So I'm super excited about that.

Jovan Johnson from Fairtree says, good day and well done on a good set of results. For UPD, what is the reason for the slower recovery in hospital sales? What were historic levels versus the current 37.6% and when do you expect to recover to this level?

I think historically we've been above 40%, especially during COVID when sales took off in the hospitals. I mean, part of the reason has been the slower recovery of patient days, which is getting better for us. Some of it is permanent because hospitals have been moving away from originators to generics as well. So that has also had an impact.

Two similar questions here from Jimmy Okioa at All Africa Partners and Paul Stegers at MedBank. So I'll combine them. Can you give guidance on share buybacks in the next three to five years? And Paul says your balance sheet remains strong. Will you do acquisitions or pursue share buybacks or raise the dividend or pay a special?

So we've given guidance on our dividend policy and we're at the upper end of that. We retain the flexibility through, you know, With that dividend policy to either deploy it in buybacks or if we have acquisitions that we want to do, we've got sufficient resources to carry out those acquisitions. So we'd always aim to use our return cash to shareholders so that we maintain our return on equity target 40 to 50%.

There appears to be no further questions. It's been such a pleasure and honor hosting all of you. Thank you once again for joining us today.