Clicks Group Ltd S/Adr

Good afternoon. Thank you for joining the webcast of our interim results for the six months, end of 28 February, 2026. I'm Bettina Engelbrecht, Chief Executive Officer of the Clicks Group. I am joined by Gordon Trail, our Chief Financial Officer, who is in a completely different time zone. Gordon and I will take you the presentation of our interim results and we'll respond to any questions you may have after the conclusion of our presentation. This slide sets out the outline of our presentation. I will, as usual, kick off with a review of our performance of the past six months. Gordon will then present an overview of the financial results. I will walk you through the training performances of our operating business units, starting with CLICS followed by UPD. And 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. I will now take you through the review of the period. It has been a tough six months. Despite some interest rate relief and signs of a slow recovery in the economic environment, trading conditions remain constrained. especially for middle-income households. Competition intensified as new players entered the market. Traditional players extended into health and beauty categories, giving rise to heightened levels of promotions aimed at capturing a greater share of the consumer's wallet. Over the period, we experienced lost sales exacerbated by low availability due to the rollout of our warehouse management system in the Western D.C. over the peak trading period. We invested in the expansion of our store and pharmacy network, technology enablement, and progress both our people and sustainability agenda. The number of pharmacy droplets were, however, lower than planned. In the period under review, we opened our 1005th store and our 797th pharmacy at Kitts Beach in the Eastern Cape. We also increased our primary care clinics to 226 as we deepen partnerships with medical funders. Our club card customer membership increased by 800,000 new members over the period to 12.9 million active members and contributed 83.7% of retail turnover. we continue to be recognized as one of the strongest brands in South Africa. UPD delivered strong growth in its wholesale channel and exceptional growth in its preferred bulk contracts. And whilst UPD managed every element of its income statement well, it really managed expenses in a disciplined manner. UPD extended its wholesale fleet of pharma-compliant electric vehicles most of which have been assigned to our owner drivers. This initiative not only supports our cost savings initiative, but also our sustainability agenda. We remain strongly cash generative and in accordance with our capital allocation strategy, bought back 752 million rands worth of shares to the benefit of long-term investors. In the period, diluted headline earnings per share increased by 8.1%, and we increased the interim dividend by 8.4%. I now hand over to Gordon, who will take you through our financial results.

Thank you, Bettina. If we consider the group financial highlights, group turnover increased by 74% from the period Retail turnover grew 5.4% and UPD's reported turnover increased by 13% with a strong performance from wholesale and a preferred bulk contracts. The group trading margin at 9.1% was maintained despite increased promotional activity and faster growth of GLP-1s. The diluted headline earnings per share for the group increased to R6.53 per share, up 8.1% in the prior period. In the six months, R1.9 billion was generated in cash from operations after working capital. The group's return on equity at 45.7% has remained strong. to note that during the period, we carried out buybacks of 752 million, which will benefit return on equity and headline earnings per share for the full year. And the dividend declared for the period has been increased by 8.4% to 258 cents per share, slightly ahead of headline earnings. Retail sales increased 5.4% with same stores growing 3.1%. The warehouse management system implementation at our Western Cape distribution centre had a short-term impact of 175 million on sales. This reduced sales growth by 0.9% in retail. The distribution centre is now working optimally and is capable of picking as much as our Centurion distribution centre, which is one and a half times its size. The distribution business continued to experience low selling price inflation of 1.5%. Nevertheless, wholesale was up 7% and a preferred bulk distribution business up 31.1% performed strongly. Sales to clicks were up 11.1% while hospitals were up 2% for the period. Tina 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 6.5% for the period. You can see the total income margin in retail was 70 basis points higher due to the growth in private label volumes. UPD's total income margin was down 50 basis points to 8.9%, which was due to the lower SEP increase. Good performance and preferred bulk distribution contracts at a lower margin, partially offset by two distribution contracts that were not renewed in the prior year. Overall, the high growth in the distribution business at a lower margin has resulted in the group total income margin being slightly lower by 30 basis points. The cost base in retail increased in the period partially due to the wage increase of 7%, higher costs from the WMS implementation to ensure service levels in store were maintained and pharmacy openings. Retail costs grew overall by 6.1% with new stores contributing 2% to the cost increase with the lower rollout of stores in the first half. Over the last six months, we have added 14 clicks in Unicare stores and 17 pharmacies to the group. The IFRS 16 interest charge increased as a result of the number of renewals in the period. Comparable retail cost growth overall was well controlled up 5.4%. In our distribution business, depreciation increased as a result of investments in the warehouse systems. Employment costs were well controlled and the increase reflects IT contractors being taken on and moving from other costs. Taking other costs and employment costs together, costs increased by 6.8%. Further investments in electric vehicles have been made and these will be fully rolled out in the second half. Operating costs overall were well controlled. Retail grew trading profit by 11%, with the margin slightly up in last year if the intra-group turnover elimination as a result of the unwinding of the unicorn unrecognised income is taken into account in the prior year. UPD's trading profit increased by 7%. the trading margin decreasing 10 basis points due to reasons outlined earlier overall the group's trading profit increased by 7.4 to 2.3 billion for the period driven by a good performance performance in both businesses inventory levels for the group were higher by four days at 89 days Retail stock days were eight days high last period and increased ahead of underlying sales. Inventory was driven by higher purchases after recovery from the warehouse management systems implementation and investment in new stores and pharmacies. Retail networking capital days increased by two days. UPD inventory days at 49 days were three days lower than last year and well controlled. net group working capital decreased by two days. This slide shows the movement of cash during the period. As you can see, we started the period with cash of 3.3 billion reflected in dark blue on the left-hand side and ended the period with 1.2 billion on the right-hand side of the slide. The group generated cash of 3.2 billion highlighted in green before the repayment of lease liabilities amounting to 456 million, working capital outflows of 1.4 billion and tax payments of 651 million. 311 million was reinvested in capital expenditure across the group. Of this amount, 186 million was invested in new stores as well as 34 revamps and 15 pharmacy drop-ins. and 125 million was spent on IT and other infrastructure. We returned 1.5 billion to shareholders during the period through dividends and carried out 752 million of share buybacks. CapEx of 1.3 billion is planned for the full year. 662 million will be invested in our stores and pharmacies. This will include 40 to 50 new click stores and pharmacies, and 80 to 90 retail store refurbishments. 594 million will be spent on IT systems and infrastructure. 88 million of this amount will be invested on UPD IT and warehouse equipment, and we will invest the balance of 506 million in retail IT systems, including the further rollout of the warehouse management system and online systems. We will continue to grow our retail footprint, grow the number of pharmacies, and continue investment in our IT systems. I will now hand over to Bettina.

Thank you, Gordon. I will now take you through our trading performances in greater detail, starting with clicks, then UPD. Starting firstly to the retail performance. This slide reflects the retail sales, growths, and category contributions. clicks delivered a muted performance with turnover up 5.4% for the period. This was due to intensified competition, a slower rollout of new pharmacies, and the short-term impact of the WMS rollout. Sales turnover in comparable stores was up 3.1%, inflation slowed to 2.3%, and volume was up just under 1%. Our 60 stores located in neighboring countries showed pleasing growth of 8.8%. I will now briefly turn to each of the categories on this slide. Our positioning as a trusted healthcare provider anchors our customer value proposition. Pharmacy remains a key driver of footfall traffic, repeat visits, and market share gains. Pharmacy performance has been driven by the growth in chronic scripts and select therapies, such as diabetes, which also influenced the margin mix. Improved availability supported the positive performance in schedules one and two, with skin health up 9%, preventative health up 13.8%, and lifestyle supplements up 18.4%. The strong growth of GLP-1s is continuing, with our extensive pharmacy network providing a clear competitive advantage. Friendship health performance was muted, but improved margin. Branded supplements grew by 18% and health foods by 20.1%. Private label ranges such as SmartBytes Food and OptiHealth, which is our premium supplements range, continue to outperform. We launched 70 new OptiHealth stock keeping units and are launching further range extensions this month. A sales decline of 1% in baby reflects the impact of low availability and high deflation in diapers and accessories. We actively defended our market share and improved gross margin due to a higher private level contribution of 29% to baby sales and 56% to the category margin. Although the beauty category remains heavily competed, The biggest adverse impact was due to the WMS implementation in the Western Cape, which is our strongest beauty node. We continue collaborating with suppliers to elevate service levels in our beauty halls and fragrance counters, resulting in those stores delivering results in line with plan. Personal care delivered a strong performance, up 7.9%. despite the substantial impact of lost sales. Our partnerships with key suppliers delivered exceptional outcomes. In the hand and body category, sales grew 12.3%, driven by Vaseline, Nivea, Dove, Satiskin, and Sanex. In the body freshness category, our exclusive brands grew 26%, as we sold 20 million roll-ons, resulting in over 40 million very fresh armpits. promotional sales up 12.8% was instrumental in the performance of the personal care category. Although performance in general merchandise was up just 2.9%, we achieved category share gains across cotton and small household appliances. This supports differentiation and improves the margin mix. Interestingly, over the one week Black Friday promotional period, we sold the equivalent of six months worth of Tony and Guy hair straightness. Turning to market shares, despite the muted sales performance due to intensified competition, low availability, and some supply out of stocks, I am proud that we gained market shares in retail pharmacy, personal care, and small household electrical appliances, whilst actively defending our market shares in baby and hair care. The retail pharmacy market share gained share to 24.9% despite the delay in the issue of new pharmacy licenses. We nevertheless opened 70 new pharmacies in half one and have a steady pipeline of licenses. This will enable us to deliver on our targeted number of pharmacies for this year. Friendship health declined by 80 basis points due to supply constraints in core lines, some manufactured product recalls and increased competitive pressure. Despite competition, we actively defended our baby market share with standout gains in baby ready to drink up 460 basis points and baby wet food up 140 basis points. We maintained our market share in infant milk, but declined in baby diapers, which was down 30 basis points. Our market share loss of 100 basis points in skincare is due to the double-digit decline in a major brand in which we have a substantial share, but experience poor availability and a lack of innovation. In response, we have embarked on range and space optimization initiatives and are also reinforcing service levels in our beauty malls and fragrance counters in collaboration with suppliers. We recognize the role that is growing of digital beauty sales and are investing in our e-commerce platform and mobile app to drive personalized customer engagement. We defended our haircare market share, gaining 10 basis points with strong gains in shampoo, hair colorants, and hairspray. Personal care gained 60 basis points with strong gains in hand and body up 80 basis points, oral health up 60 basis points and body freshness up 70 basis points. The gain in market share of 150 basis points in our legacy category of small household electrical appliances is accelerating across every subcategory and every measurement period. Standout gains were recorded in beverage makers up 300 basis points, food makers up 430 basis points, and indoor cooking up 140 basis points. Great value as a key brand pillar has sustained the group during tough economic conditions such as we are currently facing. Our strapline, feel good, pay less, and our promotional campaigns resonate and drive shoppers to our stores and our online platform. Promotional sales were up 8.1% and contributed 47.8% of turnover. Confirmation with the consumer responds to value. In pharmacy, we deliver value with lower cost generic medicines up 6%, accounting for 58% of sales by value and 72.1% by volume. the weaker value growth of generics is due to the surging demand for GLP-1 products. In the past six months, we returned 527 million rand in cash back to Clubcard members to reward them for their loyalty and to ease financial stress. The competitive landscape is evolving due to new entrants and traditional retailers extending into product categories. to capture a greater share of the customer's wallet. Competitors are forming novel strategic partnerships to enhance the customer experience. They are also investing in data capabilities to support personalization aimed at shifting customer behavior and to develop targeted loyalty mechanics that enable more precise price investment. We have an African proverb that states, If the drumbeat changes, the dance must change. We have recognized the need to adapt to the new competitive reality whilst remaining firmly anchored in affordable, accessible healthcare supported by a fit for all times customer loyalty program and a focused private label and exclusives portfolio. In fact, our private label and exclusives portfolio is a key strategic pillar It mitigates against the margin impact of increasing our share of pharmacy, creates a clear point of differentiation based on consumer trust in the quality of our brands, and enables us to maintain our total income margin despite competitive pricing pressures. Over the period, we sold 110 million units of private label and exclusive brands. A fun fact. is that we sold enough toilet paper rolls to circumnavigate the earth 100 times. The mutant performance of private label and exclusives up 4.6% is because 60% of our bath and body cells are accounted for during the peak training period when we were most impacted by the WMS implementation. We are though reaping the benefits of working with local suppliers to develop ranges in South Africa. This supports the national agenda to drive localization and employment. Our locally produced ranges are continuing to perform exceptionally well, with expert ranges up 35%, click skincare collections up 11%, and smartphone food ranges up 40%. Our made-for-touch ranges grew 75% due to range expansion and improved formulations. We also pursue differentiation through our service offering and in-store elevations. A big focus in this year will be on elevating our main schooling, informed by the overwhelming positive sales impact of our Grow Nation campaign and strong growth of our Sorbet Man range, up 29%. I am excited at the prospect of what our in-store electronic elevation which is strongly supported by suppliers, will achieve in elevating the customer experience whilst also growing both sales and income. Despite its challenges, the Body Shop remains our fourth most profitable exclusive brands. The improved performance of the newly introduced ranges and improved availability is therefore encouraging. The investment in the premium ARC beauty retail brand continues to add value with the ARC customer spent totaling R331 million, up 21% over the past 12 months. This is because for every R1 in cashback that the ARC customer earns at ARC, they spend R5.72 at a click store. Our loyalty program is a primary demand driver it underpins customer affiliation, enabling us to defend and grow market shares. The Kix Clubcard loyalty program with its strong affinity partners is our most valuable asset with 12.9 million active members who contributed 83.7% of sales. Over the period, we added a whopping 800,000 new active Clubcard members. Encouragingly, is the most used loyalty program in the mass market and among the youth. The Club Card program plays a significant role in easing financial strain on consumers during tough times, which is the reason we moved to monthly cashback payments. In the period, our cashback rewards of over half a billion rand certainly brought welcome relief to Club Card customers. as to the benefits of our affinity partnership with Enjin and F&B's eBucks program to single out two. E-commerce, up 17.9% for the period, accelerated strongly in quarter two, driven by increasing mobile app adoption, personalization enabled by loyalty data, and improvements in our fulfillment execution. our app shop has contributed 46.5% of online sales with a click and collect option contributing 31% of online sales. We fully implemented Leap, the only modern pharmacy management system in South Africa across all of clicks. In response to market demand, we are now marketing the Leap pharmacy software system to third parties. Over the past 66 months, we have, on average, increased our store count by just over three stores per month in pursuit of our medium-term expansion target of 1,200 stores. At the half year, we closed on 1,003 click stores, 795 clicks pharmacies, two Unicare specialized pharmacies, and 226 primary care clinics. A week ago, we opened up our 800th pharmacy in Ootsweren, a rural town which is roughly five hours drive outside of Cape Town. Our store location strategy, which remains premised on convenience and proximity to customers, is key to our consistently broad appeal. Over 53% of households reside within five kilometres of a Clicks pharmacy. We increased the number of primary care clinics to 226 and are also extending our virtual doctor network. In Unicare, we are extending space to doctors and partnering with medical funders to provide first-level triage after hours. We are opening another Unicare Greenfield site at the end of this month and completing another Unicare acquisition in May. We remain strongly aligned to the national healthcare agenda and committed to providing affordable, accessible healthcare to all. 252 of our convenient format stores are located in lower LSM areas accounted and accounting for 23.4% of turnover. That completes the review of the retail business. I will now provide an overview of our distribution trading performance. Wholesale turnover was up 7%, boosted by the improved purchasing compliance from its core wholesale customers. Clicks accounted for 16.5% of UBD's fine wholesale turnover, up 11.1%. Qliks' improved purchasing compliance of 98% is in line with our internal target. This is positive for UPD, but less so for competitors who benefited from Qliks' buyaways in prior periods. UPD will continue to benefit from the growth in Qliks as it increases its pharmacy count in H2. The hospital channel remains constrained by controlled supply rather than demand as they manage their ethical generic mix and inventory levels. Purchasing compliance though has stabilized due to improved service levels. Over the period, UBD's market share of the independent acute private hospital channel improved from 30% to 33%. The dedicated hospital key account management structure, which we introduced over a year ago is yielding positive results. The stabilization of link pharmacies is due to a relaunched link offer and dedicated resourcing. The revised front-shop offer to independent pharmacies is beginning to stimulate sales in that channel. Whilst we are pleased with the improved trading performance, expense management, efficiency extraction, and other income gains, there remains room for improvement. The delivery of the strategic initiatives outlined next, together with superior service to all of UBD's customers, will deliver the recovery of UBD's wholesale market chain. Quality, regulatory compliance, and service excellence underpins UBD's performance. Operational stability with the on-time and in-full metric at 96.4%, and customer infill rate at 99.3% resulted in improved purchasing compliance for fine wholesale customers, whilst preferred bulk contracts delivered a truly stellar performance. However, the loss of the two bulk contracts adversely impacted total managed turnover. Value growth continues to be impacted by the higher volume growth of generics, which contributed 76.9% to UBD's fine wholesale sales. Our strategic initiatives are progressing broadly in line with plan. I will highlight a few of these. Medical consumables remain a strategic growth opportunity. The acquisition of a medical consumables business to fuel this opportunity has been finalized. We have completed the integration process. The sales targets are being pursued in a disciplined manner, and we have extended our inventory pipeline to ensure that we have the requisite stock mix for scaling this in our core hospital channel, as well as the private sector in Southern Africa. In December, a crosstalk facility located at the retail DC became fully operational with the early benefits already evident. This crosstalk facility enables us to service our core wholesale customers in the Pretoria node much more effectively, which will also reduce buyaways to competitors. In a low margin business such as UPD, a relentless focus on efficiencies and expense management is critical. Over the past few years, we have worked on route optimization and on reducing our fuel costs through our electric vehicle conversion program. By the end of this month, 86% of our wholesale fleet will comprise of EVs, covering 74% of total kilometers covered. Over the past 12 months, fuel, as a percentage of transport costs, have already reduced from 40% to 35%. UPD's strong top line momentum accelerated in quarter two, driven primarily by preferred bulk sales. The business will benefit from a stronger Clicks Pharmacy opening program in half two, improving link purchasing compliance and the ramp up of medical consumables. Profitability will remain under pressure, hence the UPD team are focusing on maintaining service excellence, working capital improvement and disciplined cost management. This completes the review of our trading performance for the period. As always, I am inspired by the proud brand ambassadors in our company. The WMS impact tested our resilience, but our people in our stores, DCs, IT, regional offices, and HU were unwavering in their commitment to getting us through that period. On behalf of our board and the executive teams, I would like to thank each employee, team, and their families. for their individual and collective contribution to our results, I will now conclude the presentation with the outlook. It would appear that the only constant is change. In early January, most economists were cautiously optimistic about the economic outlook for South Africa. Because South Africa imports most of its crude and refined oil products, Any increases in fuel prices will have a knock-on effect on the costs of transport and food. In turn, this will adversely impact inflation and interest rates, leading to depressed consumer spending. We too will be affected by fuel price increases. The investment to convert more than 80% of the UBD wholesale fleet to EV is already delivering fuel cost savings. This will enable us to mitigate against a fuel surcharge for our customers whilst also supporting our sustainability agenda. In half two, we will also be absorbing the impact of the very low SEP increase, primarily in UPD, but also in CLICS. We, though, have a proven capability to trade positively through constrained trading conditions. This is because of fiercely loyal Clubcard customers, extensive private label and exclusives portfolio, and our strong market shares in defense of retail categories. The investments made in ARC and Sorbet are attracting new customers to Clicks. Unicare is extending its service offering by creating space in its stores for doctors. The cold and flu season lies ahead. In May, we will trial our on-demand, over-the-counter medicine delivery service, which will be fully pharma compliant. We will achieve our target of opening 40 to 50 new stores and 40 to 50 pharmacies this year based on data-driven insights. Despite some delays, we will open two additional unicare format pharmacies by the end of May and one more by the end of this year. taking our total Unicare count to five by the end of this financial year. We are on track to pilot 10 clearly differentiated concept stores in this year. UBD has a clear, targeted plan to grow sales of its higher margin medical consumables business in its core hospital channel and in the Southern African private sector. Scale is important. because it provides the opportunity to pursue efficiency gains. Earlier, I shared some of UPD's strategic initiatives. All our retail businesses and shared services teams are executing plans aimed at stimulating sales and margin improvements, as well as sustainable cost management initiatives to create the necessary leverage to enhance profits. We wrestled with the earnings guidance because of the high levels of uncertainty and volatility as a result of geopolitical events, which will impact on inflation, interest rates, consumer spend, supply chains, product margins, and costs in the months ahead. These are the factors that weigh on us in settling on guiding for an increase in diluted headline earnings per share for this financial year of between 4% and 9%. That concludes the presentation. Thank you so much for taking the time to listen to us. We are available to take your questions or your comments. So I am now handing over to Suhim who will facilitate the Q&A.

Thank you, Bettina and Gordon. We have a number of questions here from the All Capital Markets. Good afternoon, and thank you for taking the questions. Firstly, competition in the drug retail space appears to be intensifying, particularly around loyalty programs. How is the group thinking about maintaining its competitive position, and could this lead to any evolution of the Clicks Club card offering over time? I'll take that question.

Michael, thank you very much. That's an excellent question. First, I guess I'm buoyed by the increase in our pharmacy market share. That's probably the clearest indication of whether or not we are winning against the hyping competition. But what will we do in addition to that? The first is we are excited at the prospect of trialling our over-the-counter, on-demand medicine delivery service, as we've said in Mayman. Secondly, we are going to be hitting our target of up to 60 pharmacies in this financial year. Very well on track with this. And we already have a fair number of those licenses already in hand. Thirdly, we continue to see the exceptional loyalty of Clubcard within pharmacy. You know, when you talk about Clubcard, 83.7% of total sales in pharmacy, they're only over 87%. And then fourthly, we are extending Unicare which is really a specialized pharmacy format. And we are hopeful that by the end of this year, we will get to five. Definitely, we know that by May, we will get to four.

Your second question, as the WMS will be rolled out to the Durban DC next, what key lessons have you taken from the Ketone implementation? Should we expect any further disruption during the rollout?

I can take that one. In terms of the rollout to the Cape Town, it's not a start off from zero again, so any bugs or operational issues would have been ironed out. I think the second thing to bear in mind is that Cape Town is, in terms of complexity, our most complex distribution centre and We've tested every aspect of the warehouse management system over the last few months and we've moved people from Cape Town to take the Durban staff through how to work with the new system. So there's very good change management. So in short, we are not expecting to experience the same level of issues that we had with Cape Town and it's had a quieter part of the year. I think the last aspect to just bear in mind is the relative size of the DC. So Durban is about a third of the size in terms of Cape Town in volume. So there's a very good plan to mitigate or alleviate some pressure when we go live on the stores that Durban serves. So we expect that Durban, the next DC, will be successful.

So if I may just add to some of that, because I think, Michael, what you're asking is what have we learned? The first I think that we have learned is that take a bit more time to really consider, you know, if you've had a delay, where do you go? So complexity of the distribution centre, I think, would be one of the key factors that we take into account. And as Gordon has said, Durban is the least complex of all of the retail VCs. The second one is have a plan B, but also a plan C. The third one, I think, is that We've already put in place work towards our micro-fulfillment centres, which will alleviate the pressure on the Durban DC when we go live. And then fourthly, part of our plan is that if anything were to go wrong, which we do not anticipate at all because we've been stable now for two months flat, is that we are able to serve our Durban customers, stores, sorry, from both league length and then also via Cape Town, the Eastern Cape Point, which is really serviced out of the Durban DC at the moment.

Your third question, thank you for the full year guidance. Could you maybe give us a bit of colour on the key assumptions, particularly around diesel prices and inflation?

Well, we did outline the impact of what the diesel price increase is going to be on our bottom line, but I don't think that has an impact, but it's not the major impact. It's also what price increases that suppliers are going to be looking to pass through to ourselves and the impact on the wider economy, because it's As the consumer has less money in their pocket, it's how much are they going to pull back on spend? So just now, inflation remains fairly muted. We expect it to go up in terms of the cost price inflations that are passed through or that suppliers want to pass through. We'll always negotiate for a period of time, but it is going to have some, I think the more worrying impact is the the general impact on the consumer going forward.

His fourth question, Dave mentioned the rollout of on-demand OTC medicine delivery from May. Could you provide more detail on the scope, initial regions, and how you see the scaling over time?

So I mean, we're going to do the rollout trial from May. We're well on track on that. Much of the work Michael has been around really understanding how we ensure that we are compliant from the very beginning. We will be first to market with us. And so I think it's important that we do that. In terms of the mechanics of all of that, I mean, that's what the team are currently firming up on. When we've got a bit more detail on that, we will let you guys all know about that via Zoom.

Then his fifth question and last question of this section, could you elaborate on the delays in obtaining pharmacy licenses and how you expect approval timelines to evolve going forward?

How long is a piece of string? There were two things really. I mean, there are resource constraints within both the SAPC and the Department of Health. You know, just in terms of the inspectors, you need a physical inspection of the site. The second one really is that there was a bit of an irregular meeting schedule for some reasons that were completely understandable, such as, for example, tragedies in some of the family members that sit on that licensing committee. But we are really hoping that the meeting schedule will be more regular going forward. The important thing, I think, at this stage is to note that we have a fair number of the licenses to support our rollout program of pharmacies. for the remainder of this year.

Thank you. Then we have two questions on the same topic, from from Invest Securities and from SVG, both asking for some insight on the retail post-period trading. Has it improved from the circa 3% print from the last six weeks of the first half?

Bottom line is, yes, it has improved from the 3% print. It's still not where we would, you know, we always wanted higher. But it's still fairly early since we've introduced the additional club card rewards at the end of February. So and the deep cut deals, which has been performing particularly well for the products that we put on promotion there. And we've seen that our suppliers are quite excited about that and wanting to speak to us more about support around those sorts of deals. But definitely ahead of the 3% that we saw in the last six weeks.

And maybe then just to add to that, I mean, we haven't really had a high level of new store openings since the half. But today, for example, we're opening up doors today. I think between, I think five of them today. Unicare actually goes next week on the 28th. Our third Unicare store opens next week on the 28th.

So you partially answered the first part of Michael Jackson Bank of America's question. which is how is your awards program performing since implementing changes in Q1 and should we expect an increase in promotional cadence for H2? But he also asks, will this impact gross margin negatively in H2 or can you offset this by growing private label further?

Partially the offset will always be around growing private label further, but it's also going to be about, you know, how you use the revised club card offer. in a much more selective way as opposed to broadly. So that's some of the work the team is looking at at the moment.

Yash Patel from SVG asks another question. Retail wage increases seem quite high in the context of a moderate CPI for now. What led to such a high negotiated increase?

It's something that happened more than two years ago. So it was a multi-year deal. And most certainly what we have done is that we have had discussions with the negotiation team. They commenced the negotiation for the new deal, which will be implemented in July month. So the process has kicked off.

Bruce Williamson from Integral Asset Management says, congrats on continued store growth and good results in a very difficult trading environment. In deciding on the split between dividends and the share buyback, what value did you put in the fixed share?

We never disclose what that value is. We do have a model and we base it on our forecast results and that's put to the board by management and approved by the board, but there's never a number that we disclose.

We've answered a couple of his questions, but he says thanks for the opportunity to ask him. Front Shop Health growth has lagged pharmacy. Could you provide some color on the competitive pressures faced currently? Which categories and entities do these pressures stem from? Does this mean sustained promotional activity going forward?

I don't think sustained promotional activity is required. It essentially has been in the more premium vitamin and supplements range, and that's the reason we're accelerating our range extensions within OptiHealth, which is really performing exceptionally well. I may also say, I mean, we've seen a fantastic performance out of GNC over the last couple of months. I spoke to our head of healthcare last night, And he had just come back from leave and he came to tap me on the shoulder and said, Bettina, the team are working really, really very hard on this. So vitamins and supplements, I think we're quite clear in terms of what the area is. But there were, you know, we had some core lines that were out of stock. And those are some of the areas that we are attending to at the moment.

I'm sorry, we're getting multiple questions on the same thing. So I hope we've answered people's questions. Saad Chathia from Citi says, has asked if we can give an inflation outlook for half two and for FY2027.

The mirror that I'm looking at is super opaque on that one. I mean, you know, yesterday, I mean, the Reserve Bank kind of signaled that you may be looking at inflation getting closer to four to four and a half percent by probably by around about the end of May. It's unclear to us at this stage as to what that would mean. I mean, clearly, I think, you know, suppliers are already knocking on the doors, talking about price increases. All of us in our personal capacities have already had some of our domestic service providers talk to us about fuel surcharges. So I think inflation is ticking up, but it really is all going to depend on what happens, not necessarily in this country, but what happens in the Middle East.

Saad Chafia from Citi asks if we're able to share sales and profit of the medical consumables business.

There is a plan. The reason we are not talking about any shift in the guidance as far as UPD is concerned is because those plans must now be realized. And so I think it's early days. The team, I must say, have put together a really impressive plan. They've already started engagements with hospitals both in the acute as well as within the illicit hospital space. Let's just say the margin is significantly and substantially higher than what the margin would be within UBD's fine wholesale business.

Komoto Makabani from Sanam Private Wealth asks, private label growth was only 4.6% despite its margin benefit. What held back the growth? In pharmacy private label is still relatively low versus the generic volume. What are the main barriers to scaling private label opportunity there?

The biggest impact on private label growth over the period was because 60% of our birth and body, which is a massive category for us, those cells really happened over the peak trading period. And so that was a major impact. What would we be doing? I mean, the constraint in pharmacy would be that there's a regulatory process that you have to go through. you'll know that we disinvested off Unicorn and we no longer have applicants on any of those products. And so it's the work really that we do with the Unifarma team in terms of making a broader range available. And there are very specific categories such as mental health, which are much more challenging to shift a patient that is on an originated product. Those are probably some of the feedback that I'm getting on that. Sorry, the final thing that I was just going to say is, of course, as well, it's the surging growth of the GLP-1s, which are all originating. At this stage. At this stage.

Nero Ramadike from Masi Asset Management says, should the shift to EVs at UPD be interpreted as a move to integrate electric trucks into their logistics fleet? Maybe. Maybe meaning the retail business as well. Oh, into the retail business as well.

I think, Gordon, you guys help me out here.

Sorry. The trucks that used in UPD are much smaller. We are trialing EVs in the retail fleet, but just now the economics of the larger trucks versus traditional ICE vehicles aren't quite there just yet. but it is something that we are looking at very closely because the economics in the larger trucks are changing very very quickly so a few years ago this you know the smaller electric vehicles probably wouldn't have been feasible for UPD and that's just changed in the last couple of years that makes it very attractive and fortuitous just now given you know the recent events But it is something that we are looking at, but we're not quite there yet.

Theata Drazit from Berenshin Fund Management says, the 1,200 stores medium term target, how should we think about a longer term target or runway? Thank you.

Look, I mean, we're going to get to around about at least 1,040 click stores probably by the end of this financial year. So the targets, achieving the 1,002 target is insight. And we've said once there's closer proximity to that target, we will be providing an updated target. So definitely there is a clear understanding within our business that that is not the final target. We will be revising that target upwards, closer to reaching the target itself.

I have a few questions, more questions from Komoto Makabani at Sanam. Has the move to a monthly club card cashback changed how you think about promotions and margin management? Also from a customer perspective, what has been the impact on customer frequency and basket size?

The cashback monthly payment cycle was really, you know, we did a lot of research and benchmarked ourselves and it became clear, especially in a constrained economic environment, Customers didn't have enough time to wait for two months off before they could redeem. And so that's important, I think, to just assist the customer. Actually, when we look at it, Clubcard customer contribution to sales is up. In fact, even as I speak, I was just looking at last year's, it's beyond the contribution that I outlined as of the half year period. So definitely that change and shift in the Clubcard program does seem to be bearing fruit.

The WMS impact at the DC appears to have increased the inventory levels with double digits ahead of top nine. Can you give some color on clearing inventory out and any potential impact on margins?

So the inventory that was brought in was really as a result of not being able to get the stock in during the implementation. So we made a decision to push stock into the DC once things had settled down into January. So it's not a... impact that we, you know, the inventory levels that we have shouldn't give rise to a significant need for any sort of markdown or clearance, etc. So it's not something that we're particularly worried about at this point.

Actually, Gordon, I might make the point to say that given the price increases, it could be fortuitous that we have the stock.

Yes, but I think we didn't plan on that, but it's fortuitous.

We didn't plan on it, but it's fortuitous, yes. Can you give a bit more detail on the 10 differentiated concept stores you plan to pilot?

Well, I mean, first of all, you know, why would we even look at this as opposed to saying, you know, you just change clicks and make it smaller? it's because we really want to be true to what the Qliks brand is all about, and that is about integrated front jump and healthcare offering. The second bit is that Qliks really needs, I mean, I know that we've got some smaller stores, but in an ideal world, Qliks really has a store size, probably a minimum of 500 square meters. We can live smaller, but I think it's in very specific lifestyle estates. That immediately constrains where you would be able to put this up. So We believe if we look at some of the most highly, most densely populated areas in South Africa, where you've got massive transport hubs, that those are the areas that we'll be looking at. And then of course, as well in some of the rural areas where the competitors are not.

And a final question from Komoto, or there might be more still coming, but can you get some color on CEO succession planning, particularly in the context of the group's executive retirement plan? policy at age 63?

I think I can say I was actually checking the IRR and we didn't mention it, but the board has asked and I have agreed that I would stay on as the CEO until the end of August 2028. And we have started the process of both identifying and preparing succession candidates within the group. which obviously is the remit of the board. Importantly, I think to say is that we've reinstated the Nominations Committee. We had the first Nominations Committee about a week ago, and that is a primary focus of the chairman and of the Nominations Committee.

Now, Ramatheke from Amazi has another question. In 2023, you acquired a software company called 180 Degrees. Did this company have anything to do with the WMS?

No, it did not, but... It had a lot to do with a very successful project called Leap, which is the only modern pharmacy management system in South Africa. It really, the implementation went extremely smoothly. And of course, now we've got overwhelming demand from the private sector. And we are starting the process to market and roll that out within the private sector.

Rendani Magalena from Amsterdam CIB. With regards to UPD, you mentioned subdued performance in the hospital and independent segments. Could you please touch on the strategies to erase the subdued performance?

Within the hospitals, really, it's about the difference between value and volume, because hospitals are definitely managing the ethical generics mix, as well as the inventory levels across the network. So that's the one part of that. What are we doing to try and increase our size of basket within hospitals? That's really all about the medical consumables. So the engagements have begun in terms of extending that into the hospitals. And we are hopeful that we are making and will be able to make inroads. In the independent space, the team have just started about four weeks ago the revised front shop offer. and the way in which that is being communicated, and I must say the early uptake is really, really encouraging. So that's good to see that we are able to now look at arresting, not only arresting, but I think improving the performance in the independent pharmacy space.

A technical question for Gordon from Yash Patel at SVG. How should we think about the growth in the finance cost line post double-digit growth in the first half?

That's really all about the earlier share buybacks that we did this year compared to the prior year, so the IFRS 16 cost has been coming down, but it was offset by the early buybacks we did in the first quarter.

We're running out of time, so I'm going to just ask one final question from Rajendra, Peter said Omtomba wealth. What do you think would need to go right for CLICS HEPs to again grow around 13% to 14% going forward in the medium term? And what is your medium term target for HEPs growth?

Well, I think what needs to go right, what needs to go right probably is that we get the pharmacies as expected. That's critically important because it's the anchor and the footfall target driver. Secondly, I would probably say... It would be difficult to think of something that operationally we need to do differently, to be honest with you, because I look, for example, just at shrink. It's half of what it was a year ago. I mean, a year ago, we were already best in class globally. So I would have said the biggest for me would be to actually get the pharmacy licenses. The final one would be, you know, I think we're going to have to be pretty tough with suppliers who have chosen where they... invest disproportionately and i don't think it's only our company i think it's all of the other retailers that are going that are knocking on those doors and saying that was most unfortunate but you're going to have to give us the same let's see what they do now it would seem to me that you know we could go on for two more days with you guys thank you so much for the quality of your questions um we have responded to those that we have sue will get back to you if we haven't responded. So can I just say thank you once again for your time and all of the best.