Group results

New Clicks Holdings has continued to focus on consolidating its multi-brand retail offering in the health, beauty and lifestyle sectors. The executive team has paid particular attention to supply chain and stock management, the rejuvenation of core brands and improving overall financial management. The group has also been strategically repositioning itself to embark on a growth strategy in anticipation of the legislative changes allowing for corporate pharmacy ownership.

Group turnover for the six months exceeded the R3 billion mark for the first time, increasing by 23% to R3,4 billion. Operating profit before interest and tax showed a 21% improvement to R215 million. These figures have been positively impacted by the acquisitions of Price Attack in Australia and New United Pharmaceutical Distributors (UPD). When the contribution from these acquisitions is excluded, the growth in group turnover was 11%, with operating profit posting a 13% increase.

The 48% rise in interest paid by the group is a factor of the prevailing high interest rate environment, and the financing raised for the purchase of Price Attack. The increase in several balance sheet items, including goodwill, can be attributed mainly to the inclusion of UPD from January 2003.


Divisional review

New Clicks South Africa

The trading conditions during the period under review proved challenging for most brands, as sales volumes and margins were generally below expectations. More aggressive promotional programmes have been developed to stimulate sales growth. Consumer spending is likely to benefit from lower inflationary prospects. The impact of the tax concessions announced in the Budget will start to filter into the economy and interest rate cuts are expected later in the year.

Clicks
Sales of health and beauty merchandise have shown strong real growth. This has been tempered by the slowdown in sales of certain categories of higher margin lifestyle goods, which resulted in a 12% overall increase in turnover. Operating profit declined marginally, mainly due to the change in product mix from declining sales in parts of the lifestyle category. The category team has been restructured, which we believe will result in an improved buying strategy, particularly for lifestyle products. Owing to the nature of buying cycles for lifestyle goods – many of which are imported - the refocused buying process will take time to deliver results and can only realistically be expected to have an impact in the latter stages of calendar year 2003. An extensive store refurbishment programme is in progress.

Discom
After suffering major losses in 2002 during the restructuring and repositioning of the Discom brand, the business has turned around and in the period under review it has reduced its operating loss from R13,4 million to R2,2 million, which is a significant improvement of R11,2 million. The business is forecasting a profit for the year to end August 2003. Discom has traditionally focused on lower margin FMCG merchandise but has recently altered the product mix to increasingly focus on hair care and African beauty. Discom also struggled to source appropriate lifestyle products for its market. The refocusing of the category teams addresses this and should contribute to further increases in sales growth. As the brand repositioning continues, eight stores in rural areas have been closed and new stores are being planned in shopping centres which are appropriate for this re-energised and vibrant brand.

Music Division – Musica and Compact Disc Wherehouse
Following a successful performance in the previous financial year, the growth rates in the Music Division have slowed down in line with general retail trading trends. Musica continues to dominate its market, and prospects remain positive as the local music and entertainment industry is in a healthy state, despite the pressures on this industry worldwide.

The Body Shop
The performance of The Body Shop continues to exceed expectations, with sales of R24,9 million and a R3,4 million contribution to operating profit in its second year. A further ten stores are planned to be opened during this calendar year.

New United Pharmaceutical Distributors (UPD)
The acquisition of UPD came into effect on 1 January 2003 and consequently the performance of UPD has been incorporated into the group results for two months. UPD continues to perform according to plan, and positions the group to maximise potential in the healthcare market. By combining this integrated channel to market and the negotiating capabilities of the New Clicks group, UPD will make available better product and price to all of its 5 200 customers.

Link Investment Trust (LIT)
Link has shown a pleasing turnaround and management is satisfied with its operating profit level. For the first time, we are able to add significant value in sales and margins to the Link franchise through our new subsidiary, UPD.

Intercare
Intercare combines the professional services of independent doctors and pharmacy. This concept allows doctors and pharmacists to work more efficiently in the interests of their patients. The project is in its pilot phase and is progressing in line with expectations. Three more centres are planned to open during the year.

South African Healthcare update
It is anticipated that the long-awaited changes to legislation governing pharmacy ownership will be promulgated within the next month. We expect that as a result of the changes, New Clicks will be able to implement the purchase agreement of Purchase Milton & Associates and to allow pharmacists to operate in Clicks stores, subject to licensing criteria and the approval of the competition authorities. We look forward to the change in legislation, which will lead to more affordable healthcare being accessible to a broader range of South Africans. The group is committed to the healthcare industry and will ensure that the process is implemented to the benefit of all stakeholders, including the public and pharmacists.

New Clicks Australia

Consumer confidence has declined and shopping habits have been dampened by continuing unfavourable news emanating from the business sector and on the international front. Management is, however, confident that consumers are well positioned to drive moderate spending growth, given positive economic data and the historic low levels of interest rates. In light of this environment, we are pleased with the sustained market share gains by our Australian businesses.

Priceline
Priceline achieved a sales increase of 10.5%, with seven new stores opened during the six month period. Priceline ClubCard signed its millionth member in March, just seven months after launch, and more than 12 000 members are joining each week. Two Priceline Pharmacy franchise stores have been opened, and a further eight are planned in the current year.

House
House has delivered a pleasing performance and while operating profit has declined, this can be attributed to the disposal of two company-owned stores to franchisees during the year. Franchise stores in this environment generate a better return on capital. The newly appointed leadership team is creating a fresh positioning for the brand, particularly in the face of an increasingly competitive environment which has seen several new entrants into the market. Eight new franchise stores have been opened and four more are planned in the next six months.

Price Attack
Price Attack reinforced its position as Australia’s leading salon hair care franchise chain through aggressive promotions and innovative area marketing to deliver a strong result. Franchisees have benefited from the shared service structure of New Clicks Australia. Four new franchise stores have been opened in the last six months and a further six will be opened before August 2003.


Prospects

During the past few years several areas of the business have been restructured and strategies have been implemented to increase the focus on core areas of performance and growth. The outcome of these initiatives has resulted in the group being well positioned for future growth and the directors are confident that this will lead to an improved performance from the core brands. New Clicks has also invested considerable resources in planning and gearing up for the potential that exists when the laws governing pharmacy ownership in South Africa are changed. The group’s healthcare model – aimed at providing more affordable healthcare in the pharmacy arena – presents widespread opportunities. These factors are expected to contribute to an improved performance in the second half of the year when compared to the corresponding period last year.


Capitalisation award with interim dividend option

The Board has resolved to award capitalisation shares to ordinary shareholders recorded in the share register of the company at the close of business on Friday, 4 July 2003 ("the record date"). The rounded number of capitalisation shares to which a shareholder will be entitled in terms of the capitalisation award will be determined by multiplying the number of ordinary shares held by the shareholder by a ratio. This ratio will be determined by multiplying 10,9 cents per share by 1,05 and dividing the result by the weighted average trading price of the ordinary shares of the company on the JSE Securities Exchange South Africa ("the JSE") for the three days ending Wednesday, 18 June 2003 ('the issue price") which ratio will be announced on Thursday, 19 June 2003. The last day to trade New Clicks’ shares on the JSE "cum" the capitalisation award to ensure a purchaser appears as the owner on the record date, will be Friday, 27 June 2003. Shareholders will be given the opportunity to decline the award of capitalisation shares in respect of all or part of their shareholding and instead may elect to receive a cash dividend of 10,9 cents per share ("the cash election"). Documentation in respect of the capitalisation award and the cash election will be posted to shareholders on or about Monday, 26 May 2003. In order to be valid, completed forms of election for certificated shareholders wishing to receive the cash election will need to be received by the company's transfer secretaries by no later than 12:00pm on Friday, 4th July 2003. In the case of dematerialised securities, Central Securities Depository Participants ("CSDP") or brokers should be notified of beneficial owner elections in sufficient time for the CSDP to inform the company by 12:00 pm on Friday, 4 July 2003 , as to their election. Application will be made to the JSE for the maximum number of capitalisation shares to be listed with effect from the commencement of business on Monday, 30 June 2003 when the price of the company's securities will be quoted "ex" the capitalisation award. The number of shares listed will be adjusted on or about Tuesday, 8 July 2003. Cheques and share certificates (where required) in respect of new ordinary shares will be posted to shareholders on Monday, 7 July 2003. Shareholders' accounts in respect of dematerialised securities will be credited by their CSDPs or brokers on Monday, 7 July 2003. Share certificates may not be dematerialised or rematerialised between Monday, 30 June 2003 and Friday, 4 July 2003, both days inclusive.

By order of the Board Allan Scott Company Secretary 10 April 2003

Directors
DM Nurek*,TC Honneysett, RB Godfrey, PWG Green, E Osrin*, JC Sher (Australian), PEI Swartz*, A Zimbler*
* non-executive