Group results
New Clicks Holdings increased turnover by 34% to R7.4 billion for the financial year, a performance which was bolstered by the acquisition of New United Pharmaceutical Distributors (UPD) during the year. Comparable turnover growth was a more modest 8.2% and this was negatively impacted by declining sales in the lifestyle merchandise category in South Africa and the effect of the strengthening Rand on the results of New Clicks Australia.

The group lifted operating profit by 20% from R319 million to R382 million.

Headline earnings per share grew 26% to 65.6 cents per share, while diluted headline earnings per share showed a 30% rise to 64.5 cents per share. The increase is largely due to an impairment of R32.5 million of the loan to pharmacy group Purchase Milton & Associates (PM&A) which was reflected in the 2002 figures. No further impairment was considered necessary in 2003. Diluted headline earnings per share adjusted for the PM&A provision increased by 13.4%.

The 10.3% decline in the group’s operating margin from 5.8% to 5.2% can be attributed to the lower margin profile within UPD’s business and the change in product mix as a result of the disappointing lifestyle sales.

Interest paid by the group rose by 25.1% owing to the higher average interest rates during the period, the financing costs for the purchase of Price Attack in Australia and the increased inventory levels.

Year-end stock levels, excluding UPD, were 16% higher than last year, mainly as a result of the stocks required for the promotional strategy being pursued by the Clicks and Discom brands, the increased volumes of imports and the earlier landing of these stocks, as well as the growth in the number of Body Shop stores.

Trading review
A strategic decision has been taken by the board of New Clicks Holdings to operate the South African and Australian divisions on an autonomous basis. Management structures spanning the two regions have been dismantled and the respective leadership teams have been given responsibility for their own strategic planning and implementation. Cost savings are expected to flow from the separation of the two geographic divisions.

New Clicks South Africa and New Clicks Australia will continue to have a working relationship and share knowledge and information at a high level.

New Clicks South Africa
The changes in legislation allowing for corporate ownership of pharmacies has enabled the group to translate its healthcare vision into reality and move towards introducing dispensaries into Clicks stores.

Allied to this was the approval granted by the Competition Tribunal for New Clicks to acquire PM&A, which operates 80 pharmacies around the country. It is encouraging that PM&A has started to show an improved operating performance, posting a profit before interest and goodwill write-off for the second half of the year.

The performance of the core Clicks brand was impacted by the disappointing lifestyle turnover, and despite strong real growth in both the beauty and health merchandise categories, turnover growth was restricted to 11.3%.

The new leadership team has taken strong remedial action to arrest the decline in homewares by anticipating customer needs and focusing on the presentation of merchandise in its promotional campaigns. Early indications are that the recently introduced homewares range is meeting customers’ expectations for both value and quality.

Discom continues its turnaround and despite not yet returning to profitability, reduced its operating loss from R20.6 million to R5.6 million. Discom has shown strong growth in its African beauty and hair care products but has been hampered by a slowdown in homeware sales. The youthful image and upbeat brand positioning of Look Good, Feel Good is finding increasing favour with emerging market consumers.

The benefits of the acquisition of UPD are already starting to emerge, with the division contributing R54.3 million for the eight months it has been in the group. This profit is slightly ahead of initial expectations and is a positive reinforcement of management’s confidence in the future of the division. With its inclusion in the group, UPD is able to negotiate more favourable prices from manufacturers and these are already being passed on to PM&A and Link pharmacies, as well as other independent customers.

The music division increased profit by 19.6%, despite tough trading conditions and a general slowdown in sales in the music industry. The Body Shop, while coming off a low base, increased its stores during the year and showed a 93.5% growth in profit.

New Clicks Australia
New Clicks Australia (NCA) experienced a difficult trading period and its contribution to the group’s headline earnings declined in Rand terms.

During the year NCA implemented its pharmacy strategy. The model adopted in Australia enables pharmacists to continue owning and managing the pharmacy, while NCA provides ‘front shop’ expertise and services. This provides pharmacists with a more sustainable business with higher margin and increased turnover. Seven pharmacies were opened and further stores are planned for the new financial year.

NCA has developed a strategy to convert selected stores to pharmacy and sell the businesses to franchise holders. The sale of two Priceline stores during the reporting period realised A$5.2 million (R26.5 million) and the stores will in future generate franchise fees for NCA.

Price Attack, which was acquired in July 2002, was successfully integrated into NCA.

A new management structure was implemented to enable NCA to operate as an independent business. Brand leadership was also strengthened, with new leaders being appointed for Priceline and Price Attack, while a new brand team was assembled for House.

Prospects
The first Clicks Pharmacy will be opened in November, with a substantial number of pharmacies planned for the forthcoming year. Pharmacy dispensaries will allow Clicks to offer an essential commodity to customers for the first time and ensure that a higher volume of sales will be generated through an existing infrastructure. The pharmacy offering, together with an improved lifestyle merchandise range, will lead to the emergence of Clicks as the pre-eminent healthcare brand.

Discom is expected to return to profitability this year as the benefits of its restructuring and repositioning become evident.

Management is committed to a substantially increased focus on performance delivery, as well as delivery on a number of strategic objectives across the group.

Based on the forecast performance for the group, the directors are confident that shareholders can expect continued real growth in earnings in the year ahead.

The board of directors has declared a final cash dividend of 15.1 cents per share payable on Monday, 8 December 2003 to shareholders recorded in the register of the company at the close of business on Friday, 5 December 2003. The last day to trade (“cum” the dividend) in order to participate in the dividend will be Friday, 28 November 2003 and the shares will trade “ex dividend” from the commencement of business on Monday, 1 December 2003. The record date will be Friday, 5 December 2003.

Share certificates may not be dematerialised or rematerialised between Monday, 1 December 2003 and Friday, 5 December 2003, both dates inclusive.

By order of the Board Allan Scott Company Secretary 15 October 2003

Directors
DM Nurek (chairman)*, TC Honneysett, RB Godfrey, E Osrin*, JC Sher (Australian), PEI Swartz (deputy chairman)*,
A Zimbler*

* non-executive