Pharmacies a sweet pill for New Clicks

The group, which owns Clicks, Musica and the Body Shop as well as pharmaceutical wholesale company UPD, lifted diluted headline earnings by 18.8% in the six months to February, the worst six months in the economy in many years.

It is not the only retailer to show strong growth. A trading update from Spar indicated that its operating profit and headline earnings to end-March would increase by 20% to 22%.

Results from Pick n Pay and Shoprite have also pointed to fairly robust trading from mass-market retailers.

New Clicks results show that its aggressive expansion into pharmacies is paying off.

CEO David Kneale, who took over in 2006, must be credited for injecting much-needed energy into the organisation, which he has turned into a leading retail and pharmacy group, with incremental growth in market share. While the group continues to add in-store pharmacies and new stores, it has also recently bought 60% of courier pharmacy business Direct Medicines.

The group's 7% increase in turnover from continuing operations to R6-billion includes a 13.6% retail turnover growth, driven by an excellent performance by the core Clicks chain, partly offset by weaker turnover growth at Musica. Sales of health and beauty products grew strongly, accounting for 75% of sales at Clicks.

After opening 23 dispensaries, the group now has 180 pharmacies. Its accelerated pharmacy expansion has seen its share of the retail pharmacy market grow to 13% from 10.7%.

Kneale said the group's strategy, to attain a leading position in healthcare, has been on track for many years. The past few years have seen it bring more focus to strategy and delivery.

He acknowledged that the group's business is defensive during bad times, as people still need and buy healthcare products and cosmetics. He said this meant it would not experience a dramatic upswing when the economy turns.

Nevertheless, in bad times, the group has increased turnover and profit. Its financial ratios, including the operating margin and return on equity, are improved. Shareholders have been awarded a 30% higher dividend and expectations for the next six months are promising.

The group has forecast that diluted headline earnings would grow by 15% to 20% in the full year to August. It is planning to open 12 to 15 new stores and 20 to 25 new pharmacies in the second half. It is also moving to the more appropriate food and drug retailers sector of the JSE.

Source: Business Times

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