Analyst Presentation 2002

1
Analyst Presentation 2002 Welcome
2
Programme
Strategic Review Financial Results
Healthcare New Clicks Australia (NCA) Review
New Clicks South Africa (NCSA) Review Questions
3
Strategic Review
Vision Mission Positioning Statement
4
Our Vision
We wish to be a world-class trans-national
player, specialised and highly networked with
local market responsiveness and accountability,
rapid distribution capability, adding value to
the quality of life through the convenient supply
of health, home and beauty products and services
with a preferential interactive relationship with
our customers
5
Our Mission
To be a major multi-brand retailer of Health,
Lifestyle and Beauty products in the Asia Pacific
Region by 2005, without limiting our activities
and dominance in southern Africa
6
Our Positioning Statement
We are world-class originators and distributors
of a range of compelling and differentiated
health, lifestyle and beauty retail products and
services to multiple brand formats in a variety
of ownership models.
7
GSF
Trevor Honneysett..David Nurek.Allen
Zimbler Errol Gray. Jeff
Sher..Peter Green. Raymond
Godfrey..Simon Burrow.Simon
KilnerGeorge Meiliunas
Group Leader Non-Executive Chairman
Non-Executive Director NCSA Country Leader NCA
Country Leader Group FinanceGroup
MerchandiseGroup MarketingGroup IT/Supply
ChainGroup OD
8
Agenda

• High-level financial overview
• Purchase Milton Associates
• Healthcare update - South Africa

9
Financial Resultsfor year ending31 August 2002
10
Income Statement

• Turnover R5.5bn 25.7
• Operating Profit R318m 21.3
• Operating Margin 5.8
• Excluding Discom
• Operating Profit 31.9
• Operating Margin 7.04

11
Goodwill

• Balance Sheet Income Statement
• Rm Rm
• Link 16.120 0.895
• House 78.304 9.042
• Price Attack 88.078 1.419
• Total 182.502 11.346

12
Accounts Receivable

• Increases due to
• acquisitions
• franchisees
• 2002 2001
• Rm Rm
• SA 120.353 82.630
• Aus 76.271 24.640
• Total 196.624 107.270

13
Accounts Payable

• Increases due to extending terms

14
Cash Flow

• Big Improvement
• Improving Working Capital
• Cash Flow from Operating
• 2002 2001
• Rm Rm
• 296.927 145.337

15
Future Focus

• Continue to focus on
• Asset turnover (stock turn goal 7x over 3 years)
• Cash generation
• Improving margins (goal still 8) - (UPD will
• lower margin but has high asset turnover)
• Resulting in improving
• Returns and EVA (ROE goal still 30)

16
Strengthened Financial structure as we go forward

• Appointment of CFO in each geography
• Focus on efficiency improvements
• Trans-national project
• cost centres to profit centres - franchising
• process innovation to reduce overall costs
• strict financial regime

17
Loan to Pharmacy (PMA)

• 2002 2001
• Rm Rm
• Loan 276.900 239.028
• Interest charge 45.5 10.1
• Cost recovery 11.4 4.0
• Interest turn
• Fees income Link
• Loan impairment recoverability

18
PMA

• They are budgeting high profit growth as they
  consolidate
• Some of the largest stores were acquired
• Acquisitions stopped - consolidation phase -
  convert to largest and most profitable chain of
  Pharmacies in SA
• Operating profit could exceed 10 if we could
  integrate (7 otherwise)
• Cash generating

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Healthcare SA
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Different store ownership models

• There will always be franchise (LINK)
• income from fees, rebates, wholesale profits
• but if law allows there will also be
• pharmacies in Clicks Discom
• 100 ownership (PMA)
• JV (8020 for any of the brands)

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The Objective
A nationwide network of /- 800 efficient,
compliant, professional and profitable pharmacies
within various ownership models

26
The Integrated Healthcare Model
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Intercare

• A close relationship with the doctors who
  prescribe
• Objective is to improve pharmacy turnover
• Pilot project

28
Link Investment Trust

• Budgeting for break-even
• Funding new initiatives
• Link - The best known pharmacy brand
• Income from
• franchise fees - potential for new members,
• rebates
• own brands

29
UPD transaction reminder

• R 2 billion turnover, NPAT R43m
• Transaction to be funded through issue of
• 39 024k New Clicks shares at R7.20
• P/E for valuation was 6.5x
• Earnings enhancing
• Awaiting approval from Competition Commission

30
Healthcare Legal Issues
31
Status of Law

• Ownership
• still awaiting regulations
• under-serviced areas - Discom
• need urban stores as well (PMA)
• Single Exit Pricing
• schedule 3, some only
• modelling difficult for total pharmacy
• believe no impact on UPD
• Court Case

32
State of the Industry

• Healthcare in SA is in crisis
• Need for greater affordability access
• Potential changes to Legislation
• Lay ownership/deregulation
• Professional Fee
• Dispensing Doctors
• Fragmented Industry
• Opportunities for greater efficiencies
• We are the best suited to play a role

33
Jeff Sher Country Leader
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Agenda

• Introduction - a perspective
• The year in review
• Our pharmacy model
• The year ahead
• Summary

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August 2001
36
Australian Management Forum
Shared Services
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2001/02 Performance
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Results Aug 2002

• Sales up 13.9
• Operating Profit up 22.9

39
Results Aug 2002

• Franchise Incomeup 99.2
• Operating Profit up 117.5
• Store Growth10

NOTE! Pre-allocation of Support Office costs
40
House Key Issues

• Response to competitive environment through
  differentiation- Private label- Direct imports
• Government home loan scheme ends
• Competent team now in place
• NZ on hold due to supply chain complications

41
Results Aug 2002

• Sales Up 13.2
• Operating ProfitUp 10.34
• Store Growth9

NOTE! Pre-allocation of Support Office costs
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Priceline Key Issues

• Why did we only open 9 stores
• Intense competition our response
• Lifestyle category repositioning
• Differentiation through imports
• Loyalty - a positive outcome
• Leverage to be gained with Price Attack
• Margin focus
• Loyalty - a positive outcome
• Stock levels - growth due to strategic
  opportunity
• Operating Profit - 7.61 to sales

43
A Snapshot

• 94 stores
• Average turnover per store - 950 000
• Franchise fees - 5 on sales
• Advertising fee - 3 of sales
• Local area marketing - 1 of sales
• Master franchise arrangement - WA, SA - 1
  franchise fee, 3 marketing fee

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Opportunities

• Synergy with Sunday Group - access to 1800
  formulations
• Private label
• Easily transported
• Monopolistic environment
• High margin

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• Make-up of the industry
• Regulatory environment
• Our offer
• How income is generated
• Store growth

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• Number of pharmacies in Australia
  Approximately 4,900
• Bannered pharmacies
• Approximately 1,900 (39)

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Retail Pharmacy Sales Mix
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WHOLESALERS
SIGMA
API
MAYNE
Amcal 395
Soul Patt 230
Terry White 105
Chemmart 255
Guardian 264
Chemworld 131
Healthsense 110
Full Life 40
Pharm Adv. 91
Med. Shoppe 7
51
Wholesaler Pharmacist Relationship

• Wholesalers guarantee loans for pharmacists to
  acquire pharmacies.
• The pricing mechanism for pharmacists is
  artificially inflated, 11 ratio of turnover to
  goodwill
• Pharmacists align to a banner through loose
  agreement
• Distribution on a twice-a-day basis
• Banner groups offer marketing programmes and some
  operational support
• Private label products are key to the
  relationship

52
Regulatory environment

• Agreement between Government Pharmacy Guild
• No corporation can have pecuniary interest
• Geographic restriction
• Usage clause restriction - landlord
• Limit to numbers in shopping centres
• Regulations applied by Pharmacy Board - layout of
  stores
• Approval numbers
• Pharmacy Act - differs in each state

53
Pharmacy Paradox
Prescriptions medicines back of store Front of store
Sales
70
30
Costs
20
80
Margins
10
32
54
Our Offer

• Category management - increased margin
• Rebalance front and back of shop - increase sales
• Common IT platform
• Marketing programme - including ClubCard
• Retail services (merchandising and space
  management)
• The Pharmacy Academy
• Operational focus - shopfloor productivity
• Brand equity

55
Benefits for Fees

• Annual franchise fee - a flat amount
• Distribution fee linked to purchases on front of
  shop
• IT annual maintenance fee
• Marketing fee linked to marketing programme costs
• Supplier rebates
• Significantly - no capital employed

56
Store Growth

• Three Opportunities
• Existing Pharmacies convert to Priceline model
• Convert Priceline stores to Pharmacies through a
  franchise arrangement
• Secure new locations and through a relationship
  with pharmacists acquire approval numbers
• Objective
• 14 - 20 Stores secured by August 2003
• 1000 by ??

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The Year Ahead
58
The Year Ahead Store Growth

14 - 20 13 12 16
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AMF
A Committed Team - Going Places
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Summary
A Positive Outlook

• Price Attack, full year of profit
• Controlled growth of costs
• Loyalty to deliver
• Leverage gains in merchandise
• Roll-out of pharmacy

61
Errol Gray Country Leader
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Agenda
NCSA performance NCSA achievements NCSA
year ahead
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NCSA Performance
Sales up 17.1 Operating Profit up 15.3
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Comparative without Discom
Sales up 18.2 Operating profit up 27.2
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Clicks Performance
Sales up 15.4 Operating Profit up 23.7 Store
Growth 21
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Clicks Existing Store Growth
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Clicks Key Issues

• Repositioned Clicks - Live Life Beautifully
• CRM loyalty programme - Data mining - ClubCard
  relaunch
• Aggressive store upgrade
• Stock reduction
• Service campaign
• New healthcare statement - 20 stores

68
Discom Performance
Sales up 12.1 Operating Profit Down Stores
Refurbished
69
Discom Existing Store Growth
70
Discom Key Issues

• Focus on re-engineering the margin mix
• Exploring new primary health statement in store
• Test a hair salon in Mitchells Plain store
• Continue to develop private label
• Ongoing focus on expenses
• Ethnic haircare focus - R100m in sales
• Leadership

71
Music Division Performance
Sales up 24.9 Operating Profit up 104 New
Stores 7
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Music Existing Store Growth
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Music Division Key Issues

• Maintaining margins
• Increased stockturns
• CDW opening two new stores
• Market dominance - 35
• Bucking international market trends
• Leadership

74
The Body Shop Performance
Sales R27.1m Operating Profit R3.4m Store
Growth 11
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The Body Shop Key Issues

• Mature brand internationally
• New in SA - years of growth ahead
• Brand being revitalised internationally
• First corporate to be awarded a Master Franchise

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NCSA Achievements
Stock management Discom repositioning Data
mining SAMF
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Stock Management

• Next year goal R250m improvement
• Centralising imports, single item picking,
  algorithms
• Stock turn 5x, 6x, 7x, over next years to
  generate cash (JIT)

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NCSA DC's
Year on Year Stock
R 375,000,000
R 350,000,000
R 325,000,000
R 300,000,000
R 275,000,000
R 250,000,000
R 225,000,000
R 200,000,000
Selling Value (Rands)
R 175,000,000
R 150,000,000
R 125,000,000
R 100,000,000
R 75,000,000
R 50,000,000
R 25,000,000
R 0
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Financial Months
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NCSA Stocks
1500000
1400000
1300000
2001/2002
1200000
2000/2001
1100000
value
1000000
900000
800000
700000
600000
S
O
N
D
J
F
M
A
M
J
J
A
month
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The Year Ahead - Store Growth
24
8
7
9
81
SAMF
Errol Gray.. Andre Vermeulen. Lara
Bryant Trevor Vroom Mike
Harvey.. Colin Robb Monica
Goertz.. Simon Kilner. Byron Hofmeyr.
Country Leader Finance Marketing
Merchandise Brand Leader - Clicks Brand Leader -
Discom Brand Leader - Music Division Brand Leader
- Healthcare Supply Chain IT
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Year Ahead

• Sustainable stockturn improvement
• Discom profitability
• Healthcare integration and performance
• Clicks revitalisation
• Focused brand performance

83
Our Positioning Statement
We are world-class originators and distributors
of a range of compelling and differentiated
health, lifestyle and beauty retail products and
services to multiple brand formats in a variety
of ownership models.
84
Thank You