New Clicks reports rise in earnings

An interim distribution of 24.5 cents per share was declared, up from 18.8 cents a year ago.

Group turnover from continuing operations increased by 7% to R6 billion while retail turnover growth of 13.6% was driven by the excellent trading performance of Clicks which lifted turnover by 15.4%.

Selling price inflation for the retail businesses was 6.3%.

The group said in a period characterised by increasingly tough retail conditions, New Clicks delivered "pleasing" financial and trading results.

The group further entrenched its leadership in healthcare retail and supply through the growth of pharmacy in Clicks and the acquisition of a 60% stake in the courier pharmacy business Direct Medicines with effect from 1 December 2008.

New Clicks has also continued to invest for long-term growth, with a capital expenditure plan focusing on opening and refurbishing Clicks stores, extending the national pharmacy network within Clicks and expanding UPD's pharmaceutical distribution capability.

The group said the repositioning of the UPD business model to focus on more profitable and loyal customers resulted in sales growth slowing in line with expectations to 1.7%.

Price inflation for the period was 3.8%.

Total income (gross profit plus other income) increased 12.3% to R1,5 billion.

Operating expenses increased by 10.5%. Excluding the costs relating to the investment in new stores, pharmacies and Direct Medicines, expense growth was well contained to 7.1%.

Operating margin increased from 5.3% to 5.9%, resulting in an 18.5% growth in operating profit to R355 million from R299 million in 2008.

Cash generated from operations increased by 15.7% to R424 million.

The group said Clicks continued its strong sales growth trend and lifted turnover by 15.4%, with real sales growth of 8.9%. Comparable store sales rose by 13.7%.

Growth was driven by the health and beauty merchandise categories which together account for 75.2% of total Clicks sales.

Clicks has accelerated the pace of its pharmacy expansion programme, growing the pharmacy base to 180 following the opening of 23 dispensaries in the period.

Further improvements in operating efficiencies lifted the operating margin from 6.0% to 6.6% which translated into operating profit growth of 27.2%.

Following the repositioning of UPD towards more profitable volume, its core customer groups of Clicks, Clicks Direct Medicines, hospitals and Link pharmacies now account for 76% of UPD's wholesale business, up from 64% in 2008.

UPD's distribution and export business grew by 47.9%. Good expense management and improved operating efficiencies contributed to a 12.0% increase in operating profit.

Musica increased turnover by 3.3% as the slowdown in consumer spending continued to impact discretionary purchases. Operating profit for the period was down 1.9%.

Turnover in The Body Shop benefited from new store openings and increased 9.2%, with operating profit up 9.0%.

Looking ahead the group said retail trading conditions are expected to remain challenging in the coming months. However, the group's business is defensive and competitively advantaged, it said.

The listing of New Clicks on the JSE will be reclassified to the Food and Drug Retailers sector on 22 June 2009, which will more accurately reflect the current and future composition of the group's earnings.

The group continues to be cash generative and R140 million has been committed to capital investment for the remainder of the year.

Trading for the first two months of the second half of the financial year has continued in line with the performance for the first half.

In the absence of any marked deterioration in trading conditions and any unforeseen changes in the macro-economy, the group expects diluted headline earnings per share to increase by between 15% and 20% for the year to August 2009, it said.

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