Directors' Report

Your directors have pleasure in presenting their report together with the financial statements of the company and of the group for the year ended 31 August 2003.

Nature of business
The company is an investment holding company. Its trading subsidiaries are engaged in the retailing of health, beauty and lifestyle products and services on a cash basis in southern Africa and in Australia. Its wholly-owned subsidiary, New United Pharmaceutical Distributors, is engaged in the buying and distribution of pharmaceutical products.

Certain subsidiaries operate as franchisors. In addition, the company is the sole shareholder of property owning subsidiaries.

Acquisitions
New United Pharmaceutical Distributors (UPD)
In July 2002 the group concluded an agreement to acquire UPD subject to approval from the Competition Commission. The approval was given and the acquisition became effective from 1 January 2003. The purchase consideration was settled by the issue of 40 848 044 ordinary shares in the company at a price of R7.20 per share.

Purchase Milton & Associates, J & G Purchase, Milton & Associates and Leon Katz (PM&A)
Following the change to the legislation in May 2003 which resulted in corporate ownership of pharmacies being allowed, in early August 2003 the Competition Tribunal granted the unconditional approval for the New Clicks group to acquire four pharmacy companies collectively known as PM&A. These pharmacy companies operate 80 pharmacies and it is anticipated that once the licensing requirements have been complied with, they will be acquired by the New Clicks group.

Group financial results
The results of operations for the year are set out in the group income statement on page 53. The profit attributable to ordinary shareholders for the year is R214 million (2002: R146 million).

Loan to Purchase Milton & Associates (PM&A) and provision against interest accrued
PM&A, the pharmacy chain that the group is in the process of acquiring, has an estimated shareholders’ deficit of R176.1 million as at 31 August 2003. The net loan to PM&A from the group amounted to R295 million at the end of August 2003, after the impairment disclosed at August 2002 and the interest provision explained below. After trading at a loss of R8 million in the six months to February 2003, PM&A recorded a trading profit of R8 million in the second half of the year to break even for the year, before the interest charge from the group. The directors are of the opinion that no further impairment of the loan is required on the basis of a value in use calculation.

As PM&A traded at a breakeven level for the year, the directors have decided to provide in full for the interest accrued on the loan to PM&A.

The comparatives for the year to August 2002 have been restated to achieve consistency, with part of the R78 million impairment being allocated as a provision against interest accrued, and the balance remaining as an impairment. The full amount also has to be taken into account in headline earnings, and the effect of this on headline earnings for 2002 is to reduce headline earnings by R54.6 million and to reduce diluted headline earnings per share by 17.2 cents.

Share capital
During the year, the authorised share capital of the company was increased by the creation of 200 million ordinary shares with a nominal value of 1 cent each, ranking pari passu in all respects with the existing ordinary shares in the authorised capital of the company, resulting in the company's authorised share capital being R6 million, divided into 600 million ordinary shares of 1 cent each.

During the year under review the issued share capital of the company was increased by the issue of the following ordinary shares of 1 cent each:

Distributions to shareholders
Interim
The directors declared an interim distribution of 10.9 cents per share to shareholders registered on 4 July 2003. Shareholders were given the option of declining the capitalisation share award and to elect to receive a cash dividend. The new shares were issued and the cash dividend was paid on 7 July 2003.

Final
The directors have declared a final cash dividend of 15.1 cents per share to shareholders registered on 5 December 2003. Shareholders were not given the option of receiving a capitalisation share award.

The cash dividend will be paid on 8 December 2003.

Events subsequent to balance sheet date
Subsequent to the balance sheet date, the company issued a cautionary announcement stating that negotiations were underway, which if successful, would result in the sale of the group’s interests in Australia.

At the date of this report, negotiations had not been concluded.

Directors and secretary
The names of the directors in office at the date of this report are set out on page 9, and the company secretary’s details are given on the inside back cover. On 17 June 2003, Mr PWG Green resigned as a director.

In accordance with the company’s articles of association, Messrs PEI Swartz, TC Honneysett and RB Godfrey retire at the forthcoming annual general meeting and, being eligible, offer themselves for re-election.

Directors’ interests in shares
Details of the directors’ interests in the company’s issued share capital are given on page 42.

Details of the share options granted are also given on page 42.

Share incentive scheme
Information relating to the share incentive scheme is set out in note 28 on page 80.

Special resolutions
No special resolutions of a material nature have been passed by the company or its subsidiaries since the last annual general meeting of the company.

Holding company
The company has no holding company.

Subsidiary companies
The names of the company’s main subsidiaries, their countries of incorporation and financial information appear on page 86. The interest of the company in the aggregate income after taxation before exceptional items of its subsidiaries is R229 million (2002: R140 million).