Clicks Group Ltd S/Adr

Good afternoon. Thank you for joining the webcast of our interim results for the six months ended 28 February 2025. I am Bettina Engelbrecht, Chief Executive Officer of the CLICS Group. I am joined here today by Gordon Trail, our Chief Financial Officer. Together, we will take you through the presentation of our interim results. I will respond. together with Gordon, to any questions that you may have after the conclusion of our presentation. This slide sets out the outline of our presentation. I will kick off with a review of our performance of the past six months. Gordon will follow with an overview of our financial results. Hereafter, I will walk you through the trading performances of our operating business units, starting with clicks, followed by UPD. I will then close with the outlook for the group. Please feel free to submit any questions you may have via the webcast platform during or after the conclusion of our presentation. Sue Hemp will read out your questions to which Gordon and I will respond. Before I commence with the review of the period, I would like to acknowledge the invaluable contribution of David Newrick, our former chairman, who retired in January. His keen insights, selfless commitment to the company, and support to our executive team will be sorely missed. Thank you, David. I will now take you through the review of the period. We delivered another solid set of results, with diluted headline earnings per share up 13.2% in spite of the tough trading environment. Our performance is due to the proven resilience of our business model and defensiveness of our core offering. As a group, we remain focused on delighting and creating value for customers. We achieve this by investing in the expansion of our store and pharmacy network, technology enablement, all stakeholders, including our people, and our sustainability agenda. In the period under review, we opened our 950th click store in Clarksdorp and our 740th pharmacy in Freyheit. And we increased our pharmacy care clinics to 216. Our active loyal Clubcard customer membership base increased by 1.1 million new members over a 12-month period to 12.1 million, and they contributed over 81% of retail turnover. UPD has recovered from its wholesale systems implementation and managed its expenses, as Gordon will shortly detail, very well. In February, UPD launched South Africa's first fleet of pharma-compliant electric vehicles. Most of these have been assigned to our owner-drivers. The teams also worked hard at improving all elements of our transformation agenda and achieved a BBBEE Level 3 rating. I now hand over financial results.

Thank you Bettina. Good afternoon. If we consider the group financial highlights, group turnover increased by 6.2% for the period. Retail turnover grew at 6.4%. And UPD reported turnover increased by 7.6% as legal and recovered from the system implementation in the prior year. The group trading margin at 9.1% increased by 60 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 604 cents per share, up 13.2% on last period. In the six months, 1.7 billion was generated in cash from operations after working capital. The group's return on equity at 46.2% has increased from the prior period. And to note that subsequent to the end of the period, we have carried out buybacks of 372 million, which will benefit the return on equity and HEPs for the full year. The dividend declared for the period has been increased by 13.3% to 238 cents per share, slightly ahead of headline earnings. Retail sales increased 6.4%, with same stores growing 4.6%. Sales, excluding the unicorn disposal and the extra trading day in the prior year, increased by 8.3%. Same store growth, excluding the extra day in the prior year, grew by 5.4%. The distribution business experienced low selling price inflation of 2.1%. UPD sales were stronger in half one as they recovered from the systems implementation in the prior year. Sales to clicks were up 14.7%, while hospitals were up 4.7% 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 8.9% for the period. You can see the total income margin in retail was 50 basis points higher than last year due to continued growth in beauty, health and private label. UPD's total income margin was down 20 basis points to 9.4%, which was due to the lower SEP increase compared to two increases in the prior year. Overall, the faster growth of the retail business at 7.8%, together with the lower intergroup turnover elimination resulting from the unicorn disposal, resulted in the group's total income margin being 80 basis points higher than the prior period. The cost base in retail increased in the period, partially due to the wage increase of 7%, higher electricity costs, although lower than the headline rate increase. Card acquiring charges growing slightly ahead of turnover due to mix and advertising costs. Retail costs grew overall by 8.5%, with new stores contributing 2.5% to the cost increase, with the lower rollout of stores in half one. Over the last 12 months, we have added 48 click stores and 22 pharmacies to the group. Pleasingly, we have opened 20 pharmacies in the last six months with the resumption of licenses being issued. The IFRS 16 interest charge increased as a result of the number of renewals in the period. Comparable retail cost growth overall, excluding new stores, was up 6%. UPD's costs have grown at 1.6%, which was behind turnover and has recovered from the system's implementation in the prior year. Depreciation also increased as a result of the completion of the system implementation. Employment costs were well controlled and costs related to the system stabilization in the prior year were removed. Other costs grew slightly faster due to higher packaging and delivery costs. Packaging costs are expected to reduce with the further rollout of reusable packaging. Operating costs overall were well controlled. Retail grew trading profit by 5.9% with the margin flat year on year. With the inclusion of the entry group turnover elimination as a result of the unwinding of the unicorn unrecognized income, the margin was 10.2%. This is within the guided range given in the prior year. UPD's trading profit increased by 15.8%, with the trading margin increasing by 20 basis points due to improved sales and better operating cost control. Overall, the group's trading profit increased by 12.6% to 2.1 billion for the period, driven by a strong performance in both businesses. Inventory levels for the group were slightly lower at 85 days. Retail stock days were two days higher than last period and growing slightly ahead of underlying sales growth. Inventory was slightly higher due to the growth in pharmacies, SEP and targeted front shop buy-ins. Retail net working capital days reduced by two days due to improved trade debtor and trade creditor days. UPD inventory days at 52 days were nine days lower than last year. Trade debtor days were higher by four days due to some late payments received at the beginning of the following month and trade creditor days decreased by five days due to the lower inventory levels. Net group working capital increased by one day. This slide shows the movement of cash during the period. As you can see, we started the period with cash of 2.7 billion reflected in dark blue on the left hand side and ended the period with 1.7 billion on the right hand side of the slide. The group generated cash of 3 billion highlighted in green before the repayment of lease liabilities amounting to 405 million, working capital outflows of 1.3 billion and tax payments of 646 million. 222 million was reinvested in capital expenditure across the group. Of this amount, 123 million was invested in new stores, as well as store refurbishments. And 59 million was spent on IT and other infrastructure, including the completion of the 6,000 square metre expansion of our Centurion DC. We returned 1.3 billion to shareholders during the period through dividends. CapEx of over $1 billion is planned for the full year. $578 million will be invested in our stores and pharmacies. This will include 45 to 55 new click stores and pharmacies, 70 to 80 retail store refurbishments to ensure they remain modern for our customers. $447 million will be spent on IT systems and infrastructure. 86 million of this amount will be invested in new PD IT and warehouse equipment. And we will invest the balance of 361 million in retail IT systems and infrastructure. We will continue to grow our retail footprint and grow the number of pharmacies and complete the rollout of our modern pharmacy system.

Thank you very much, Gordon. I will now take you through our trading performances in greater detail, starting with clicks, then UPD. Let us turn to the retail performance. This slide sets out the retail sales performance and contribution at the category level. We have, for comparative purposes, excluded the turnover of Unicorn Pharmaceuticals, as well as the extra trading day in the 2024 period. Clicks has delivered a solid performance, with turnover up 8.3% for the period. Sales turnover in comparable stores, excluding the extra trading day, was up 5.4% as inflation declined from 7.4% to 3.3%, while volume growth improved from 1.4% to 2.1%. Whilst small in contribution, our 54 stores located outside of South Africa outperformed local stores, achieving turnover growth of 10.3%. I will now briefly turn to each of the categories on this slide. Our continuing focus on enhancing our service offering is the key to the outperformance of healthcare, with both pharmacy and front shop health growing turnover ahead of the total clicks business. These two categories now constitute 51% of turnover. Growth in pharmacy of 9.2% was driven by all of the scheduled medicine classes, even though the issuing of our pharmacy licenses only commenced in November. In Schedule 1 and 2, the top performing categories were stomach health, and muscular. In Schedule 3+, diabetes performed exceptionally well due to the increased demand for Ozempic and Monjaro. Front Shop Health was our top performing category, up 9.8%. Whilst all subcategories performed well, customers clearly focused on sports, slimming, and supplementation. Private Label created differentiation and newness as we extended our SmartBytes range, launched GLUT, a weight loss brand, as well as OptiHealth, which is our first premium supplements range. The rollout of the health elevation lifted the FrontShop Health performance overall, hence our decision to roll this out to 50 more stores in half two. The investments in our elevated beauty halls and fragrance counters enhance our beauty offering. In color, big brands like L'Oreal, Catrice and Essence achieved strong double digit growths. We invested in skincare project stores supported by strong promotional campaigns to entrench our positioning as a beauty destination. In beauty, newness and innovation is a key driver of turnover. In the period, newness contributed 8%. This is short of our target of 10%. Personal care performance was buoyed by exceptional growth in private label sales up 20.5%. This was due to the outperformance of products such as Qlik Sun Protect, Clicks Body Freshness and Clicks Sanpro. Promotional sales up 18% was also instrumental in the performance of the personal care category. Our performance in general merchandise up 4.5% was disappointing and will be an area of focus as we seek to improve our competitive positioning, promotional mechanics and range assortment. I will now turn to our market share performances starting with health. The retail pharmacy market share was maintained at 23.8% despite the delay in the issue of new pharmacy licenses. The South African Pharmacy Council monthly meeting schedule was impacted by a number of factors such as the summer holiday period. We nevertheless opened 20 new pharmacies in this period, mainly in the second quarter. We have a steady pipeline of pharmacy licenses, which inspires confidence that we will resume our market share gain in retail pharmacy this year. Friendship Health gained 30 basis points overall, fueled by strong gains in food scrubs, up 306 basis points, and sports and slimming, up 122 basis points. The execution of our multi-pronged baby strategy is the driver of our market share gain of 170 basis points, fueled by particularly strong performances of our private label and exclusive brands. Whilst every subcategory gained market share, standout performances were recorded in baby diapers, up 188 basis points and baby dry food, up 423 basis points. We are a destination for beauty. Our annual beauty playground event is a must do opportunity for beauty enthusiasts. Skincare gained 120 basis points with strong gains recorded in facial scrubs up 185 basis points and face masks up 201 basis points. Haircare too turned in a solid performance and gained 20 basis points in market share. Personal care gained 90 basis points with strong gains in hand and body up 146 basis points and body freshness up 90 basis points. The decline of 70 basis points in market share of our legacy category of small household electrical appliances can be attributed to share declines in indoor cooking and food prep whilst we continue to gain share in electrical beauty. Great value as a key brand pillar has sustained the group during constrained economic conditions such as we are currently facing. Competitors are investing in price to compete yet We remain price competitive with all national retailers, even excluding our promotional pricing, bulk offers, and 3-for-2 promotions. Over the years, our strapline has evolved from You Pay Less to Feel Good Pay Less. Our monthly Pay Less promotional campaigns resonate and drive shoppers to our stores and our online platform. was up 13.2% and contributed 47.1% of turnover. Confirmation that the consumer responds to value. In pharmacy, we deliver value with lower cost generic medicines, which was up 7.5%, accounting for 59% of sales by volume and 70% by volume. the weaker value growth of generics was impacted by the surge in demand for originator products such as Ozempic and Manjaro. In the past six months, we paid back a whopping R438 million in cashback to loyal Clubcard members as a reward and to ease their financial stress. Incredibly, we have paid back R3.3 billion to Clubcard members over the past five years. Private label and exclusives differentiate our product offer, allow us to tier our pricing to support customers who trade up or down, and to maintain our total income margin as we open up more pharmacies. More than 15 years ago, when we decided to invest in building our private label capability, we did not imagine that it would deliver such a considerable strategic advantage. Our private label program also supports local product development and local manufacturing. Private label delivered double-digit growth of 10.1% and contributed 26.5% of total retail sales. In front shop, the contribution was 31.4%, and in pharmacy, 11.8%. Our brand values resonate with customers. Our focus on quality as the anchor of our private label product portfolio has been rewarded with both our clicks made for baby diaper and sorbet BB cream recognized as South African product of the year. In 2023, one in four diapers sold in a Clix store was a Clix private label diaper. In 2024, it was one in every three. Now, it is one in every two. In this reporting period, private label sales contributed just under five billion rand of total retail sales. We are understandably proud of the quality portfolio that our private label team has built. Our Clixbaby standalone stores are creating a halo effect. Over the past year, we focused on our product ranging and service elements to enhance profitability. Our baby store in store sales are exceeding expectations. Consequently, we will increase the count from the current eight baby store in stores to 15 by the end of this financial year. Baby sales in our online channel is now our fastest growing category, yet we believe that we still have opportunities to enhance our online offering. We have built partnerships with medical aides to drive patients to our clinics for a range of services, such as diabetic care. These partnerships have been instrumental in the delivery of turnover growth of 11.6% in our primary care clinics. The investment in our stores and pharmacies go beyond refurbishment. In our core categories, we are determined to improve the customer experience. This drives turnover. Our beauty and skincare elevation continues to drive increased turnover. We have implemented our healthcare elevation in 80 stores. This too increases turnover, which is why we will extend the healthcare elevation to an additional 50 stores by the end of this financial year. Our equity investment in ARC, a premium beauty store format targeted at the higher LSM market, is doing exceptionally well. This is positive for CLICS. as the our Clubcard customer is our most valuable customer. The Clicks Clubcard loyalty program with its strong affinity partners is highly valued by our customers and is a key enabler of personalized engagement. Incredibly, we increased our loyal active Clubcard membership base to 12.1 million Clubcard members who contributed well over 81% of total sales. Our iconic club card program received an early 30th birthday present when it clinched the top spot overall as the most used loyalty program in South Africa, achieving the highest margin ever recorded in the latest truth and brand map loyalty white paper. According to the loyalty white paper, loyalty programs play a significant role in combating financial strain for consumers who use loyalty programs to deal with a rising cost of living. In the past six months, our cashback rewards of R438 million certainly brought welcome relief to Clubcard customers. We are leaning into extending the convenience of our customer offering beyond store locations, engagement tools, and smart lockers. Pleasingly, We achieved app downloads of over 800,000 for the year to date. Our app shoppers contributed 33.8% of online sales. This is up 23% for the period. We are well on track to finalize the implementation of our modern leap pharmacy system. This year, to date, we have completed the rollout to over 450 pharmacies. Turning to convenience, our store location strategy is premised on convenience and proximity to customers. In the period, we achieved a notable milestone as we celebrated the opening of our 950th Click Store in Clarkstorp Village and our 740th Pharmacy in Princess Kabayi Mall in Freyheit. As you can see, we are on track to deliver on our medium term target of 1,200 stores. There can be no doubt that proximity plays a huge role in cementing our position as the customer's first choice health and beauty retailer. 53% of the population reside within a five kilometer radius of a Clicks pharmacy. We have increased the number of primary care clinics to 216 and are enhancing our clinic offer with the support of medical aid schemes. In addition, we are trialing smaller click store formats to further extend our reach. We remain focused on providing affordable, accessible healthcare. 241 of our convenient format stores are located in lower LSM areas. Currently, More than 50% of chronic scripts are enrolled on our medicine management system. We are encouraged by the progress we are making in the primary care drug therapy pilot stores, which we have extended to 17 such pilot stores. UniHealth, our 24-hour specialized pharmacy format, continues to exceed expectations. Post the integration process, we have invested in support structures to enable us to roll out the format to more sites. The learnings we gleaned from Mr. Malik and the mChem team have been instructive, and we will open our first greenfield site in the second half of this year. That completes the review of the retail business. I will now take you through our distribution trading performance. Wholesale turnover was up 9.3%, boosted by the improved purchasing compliance from CLICS and private hospitals, the increase in the number of pharmacy openings in CLICS, and the higher demand for GLP-1 products such as Ozempic and Monjaro. CLICS accounted for 58.3% of UBD's fine wholesale turnover, 14.7%. Clix's improved purchasing compliance is positive, especially given its aspirations to grow its share of retail pharmacy. Although turnover in the private hospital channel grew by 4.7% in value, volume growth by 10% was due to increased genericization in this channel. The rate of the decline in the independent pharmacy space is lessening. The performance in link pharmacies is improving with purchasing compliance of the top 10 link stores at 75% for half one. Whilst we are pleased with the improved trading performance of the UPD business, there is still room for improvement. We need to forge even closer partnerships with the private hospital groups to deliver sustained service levels. and address instances of controlled supply by some pharma manufacturers in a more collaborative manner. The second area of focus is link, where the UPD team has in collaboration with link owners embarked on a drive to enhance the competitive positioning of link. Independent acute hospitals are the final focus area. The visible improvements in turnover, which we track weekly, is due to active management. The delivery of the plans outlined above, together with seamless service to clicks, will drive the sustained recovery of UPD's wholesale market share. UPD's total managed turnover, which includes fine wholesale and turnover managed on behalf of bulk distribution clients, grew by 4.8% to 14.1 billion Rand for the six-month period. We are tracking the improvements to plan in our fine wholesale channel, which, as I mentioned, is steadily improving. Value growth continues to be impacted by the higher volume growth of generics, which contributed 75% to UPD's fine wholesale sales in the period. The rationalization of our distribution portfolio has now enabled us to exit two rented DCs in December. This is positive to our expense line. We held our breath as we embarked on the upgrade of our SAP production system in September, but it went without any hitches, affirming that our team has assimilated the learnings that come from large-scale systems implementations. In February month, we also completed the Club WMS rollout at our Bloemfontein DC. Once again, to plan. We took proud delivery of the 42 EV vehicles in February month. This project not only supports our environmental sustainability agenda, but our social agenda as these vehicles are primarily used by our UPD owner drivers. That completes the review of our trading performance for the period. As always, I am inspired by the work of the people that work with us. Gordon and I are privileged to present results that are reflective of the unwavering commitment of our unbelievably proud brand ambassadors across every one of our teams. I would like to take this opportunity to both recognize and thank our people and their extended families for their individual and collective contribution to our results. This is our first set of results under the chairmanship of JJ Njeke, who has taken over the mantle of board chairman from David Nurek. Thank you, JJ, for your gracious guidance to our executive team. I will now conclude our presentation with the outlook. During the first quarter, we kicked off with positive consumer and business sentiment. Inflationary cost pressures were easing. Our currency was improving. We experienced uninterrupted electricity supply and savored the prospect of positive economic growth. Since then, much has changed. Our view is that the consumer environment will remain constrained due to the impact of the likely VAT increase and geopolitical risks. However, we have a proven capability to trade positively through constrained trading conditions. This is because we have a strong value proposition, an extensive private label program, a loyal customer base of over 12 million Clubcard members who benefit from the most generous loyalty program in the country and broad appeal to customers as evident in our strong market shares in core retail categories. We also have long-term growth prospects powered by a strong balance sheet and increasing loyal customer base that now extends to Sorbet, Arc, The Body Shop and UniHealth, a growing contribution from our private label portfolio and a pipeline of exciting store and pharmacy locations. As noted by Gordon, we bought back shares to the value of over R372 million as part of our ongoing share buyback program. We are on track to exceed our annual new store target by opening between 45 to 55 new stores. To date, we have opened a total of 29 new pharmacies and are confident that we will also open up between 45 to 55 new pharmacy in this financial year. Our investments in AHRQ, Sorbet and Unihealth not only captures the consumer across multiple brands, allowing us to affiliate that customer to Clix, but each one is beating its original investment case. Our engagements with the Body Shop International is positive. And we believe that product innovation that appeals to the body shop customer will materialize under the new owners. Scale is important, but so too is achieving efficiency without compromising service. The work in this regard has kicked off as we look to manage operating expenses to create the necessary leverage to grow profits. I'm therefore pleased to report that we plan to deliver an improved earnings forecast of between 11% to 16% growth in diluted headline earnings per share for this financial year. That concludes the presentation. Thank you so much for your attentive listening. At this point, I'm handing over to Sue Hemp who will facilitate our Q&A session. Sue?