New Clicks South Africa

Trevor Honneysett

New Clicks South Africa – Review of the year

• Deregulation of pharmacy now a reality

• Lifestyle category in transition …

• … significant steps taken to address this

• “You Pay Less at Clicks” is back

• Benefits of UPD acquisition

• Improving performance from Discom

• PM&A performance improving as we move to integration

• Stock turn improvements not sustained

Clicks - Snapshot

2003 2002

Sales R’000 2 997 226 2 692 620

Sales growth % 11.3 15.4

Comparable store sales growth % 7.1

Operating profit before interest & after allocation of net costs of support structures R’000 259 281 262 974

Number of stores

Company owned

Franchised

260

14

248

13

Number of full-time permanent employees * 3 552 2 865

Weighted trading area m² 140 099 133 864

Net increase in trading area for the period % 4.7 5.4

Weighted annual sales per m² R 21 394 20 115

* During the year, a number of part-time employees became full-time employees, in terms of

the new Labour Relations Act

Clicks

HIGHLIGHTS

• Pharmacy now a reality• PM&A integration started• PM&A showing ongoing improvement• Brand decision for pharmacy taken –

Clicks• Focused leadership team• Integrated merchandising team• FMCG & Beauty continue

to do well

2002

43%

57%

2003

40%

60%

Lifestyle

Health &Beauty

Clicks turnover growth

R’m 2003 % increase

Lifestyle 1 203 4.0

Health & Beauty 1 794 18.3

2 997 11.3

Clicks

KEY ACTION PLANS• New core homeware range• Value proposition• Store presentation• “Expect to pay less”• Basket checks vs competitors• Promotions• Reduce operating costs• Greeters & aisle walkers• Focus on top 50 stores• Dedicated staff for home & beauty• Merchandising solution –

clustering & ranging

CHALLENGES• Reverse decline in homewares

• Price competitiveness

• Entire customer experience• In-store look & feel

• In stock position

Pharmacy

HIGHLIGHTS

• Multifunctional, implementation team set up

• Key legislation in place• Product & pricing benefits

through UPD• Better buying discipline• Centralised pricing• Reduced staff costs

• Improved shrinkage• Professional training• Disease management• Promotions

Pharmacy integration project

PROGRESS:

• Preparation work well underway

– Marketing, IT, Operations, OD, Category, Store development, Finance,

Legal, Change management

• Pilot store (Glengariff PM&A) -> Clicks Pharmacy on 3 Nov as a JV

• Planning to convert 4 other PM&A pharmacies in 2003

• First conversion of a newly opened Clicks store to JV Clicks Pharmacy

format in 2003

• For 2004:

– Other PM&A stores to convert

– Up to 17 new Clicks stores with Pharmacy

– Up to 40 Clicks refurbs with pharmacy

Pharmacy

KEY ACTION PLANS• Integration into Clicks• Category management/buying• In store promotions• Generic substitution• Phase-out of LinkMax• Focus on ICU stores• Integration of IT platform

• Medical aids• Build relationships with doctors• Sustain relationship with

government

CHALLENGES

• Sales & profit growth• Stock turn too slow

• Integration of pharmacy systems

• Relationship with funders • Relationship with doctors

Legal - Competitions Commission, pharmacy licenses,de-link, lease, JV, finance structure

Finance - Integrating 2 systems, debtors, feasibilities(new pharmacies, new partners), budgets

Store development - look and feel, low cost model,property issues

Operations - Operational structures, SOP’s, storeconversion procedures, training

OD/HR - Conditions of service, induction, performancedevelopment program, organizational development

Change Management - Leadership, interfacing,communication

Category - Ranging ‘new formats’, understanding ‘newproducts’

Marketing - Market offering around service, value,convenience and ClubCard. Signage, uniforms

IT - Development store systems, development hostsystems, testing. Ideal to follow

September October November December

Glengariff

13 3

BalfourPark

Rosebank

Atterbury

West CoastVillage

To follow next year: 75 other PM&A’s, Approximately 50 pharmacist enquiries,17 New Clicks Stores, 40 Clicks refurbs

Edgemead

20

27

4

9

9

Preparation/Ground Work Pharmacy Opening Schedule

UPD - Snapshot

2003

Sales R’000 1 431 304

Operating profit before interest & after allocation of net costs of support structures R’000 54 304

Inventory turn 10.9

Debtors days 30.4

Number of full-time permanent employees 576

UPD

HIGHLIGHTS

• Acquisition smoothly integrated

• Growth in turnover from PM&A

& independent pharmacies

• Retained most independent

pharmacy customers

• Clicks pricing on top FMCG lines

available to wider customer base

• Standardised terms on FMCG suppliers

• Solid profit performance enhanced by sound working capital

& cost management

UPD

CHALLENGES• Two franchise models in the

group• Increase turnover from Link

• Continue to add value to third party customers

KEY ACTION PLANS• Simplify Multicare offering

• Develop Link offering as premium banner

• Develop programmes to enhance Link pharmacy loyalty to UPD

• Concentrate on bringing Clicks pricing to wider customer base

Discom - Snapshot

2003 2002

Sales R’000 771 441 720 895

Sales growth % 7.0 12.1

Comparable store sales growth % 8.7

Operating loss before interest & after allocation of net costs of support structures R’000 (5 571) (20 637)

Number of stores

Company owned

Franchised

177

1

180

2

Number of full-time permanent employees 1 335 1 298

Weighted trading area m² 49 351 51 821

Net increase in trading area for the period % (4.8) 8.6

Weighted annual sales per m² R 15 632 13 911

Discom

HIGHLIGHTS

• Ongoing differentiation from Clicks

• Three hair salons opened

• Strong growth in ‘dry hair’ market

• Introduction of private label

• Bolstered leadership team

• Dedicated category leadership

Discom

KEY ACTION PLANS

• Improvement in lifestyle – currently

being evidenced

• Entrench dominant position in African

beauty & hair care

• Improve margin through a stronger

lifestyle & import programme

• Procure new store locations

• Implement POSware platform

& merchandise planning

CHALLENGES

• Decline in homewares business

• Return to profitability

Music Division - Snapshot

2003 2002

Sales R’000 482 287 439 333

Sales growth % 9.8 24.9

Comparable store sales growth % 9.6

Operating profit before interest & after allocation of net costs of support structures R’000 25 675 21 470

Number of stores

Company owned 138 135

Number of full-time permanent employees 545 496

Weighted trading area m² 17 134 16 154

Net increase in trading area for the period % 6.1 10.9

Weighted annual sales per m² R 28 148 27 197

Music Division

HIGHLIGHTS

• Market share growth despite

slowdown in national music sales

• Strong growth in DVD sales

• Popularity of local artists

• Major growth opportunity in

gaming & DVD

Music Division

KEY ACTION PLANS

• Repositioning from music to

broader entertainment products

– 70 stores by December

– Branded lifestyle accessory

range

• POSware retail store system

implemented by March 2004

• Major marketing drive for

Christmas

• Store plans: 7 new stores, 7 stores

relocated / revamped

CHALLENGES

• Maturity of CD format

• Global decline in CD sales

• Piracy & downloads

• Shrinkage

• Eliminating redundant stock

The Body Shop - Snapshot

2003 2002

Sales R’000 45 781 27 161

Sales growth % 68.6 -

Operating profit before interest & after allocation of net costs of support structures R’000 10 017 5 176

Number of stores

Company owned 18 11

Number of full-time permanent employees 75 69

Weighted trading area m² 942 344

Net increase in trading area for the period % 173.8 -

Weighted annual sales per m² R 48 600 -

The Body Shop

HIGHLIGHTS

• Strong sales growth

• Increased number of stores

nationally to 18

• Stock turn improves to 5.8

• Piloted first Body Shop in a

Clicks store - Tableview

The Body Shop

CHALLENGES• Slower than expected take

off of new stores in suburban areas

• Novelty factor of the brand wearing off

KEY ACTION PLANS• Catalogue mailings &

promotions programme• Focus on Christmas gifting -

accounts for 25% of sales• Opening five new stores• Four new concept stores

planned in Clicks stores

Supply Chain - what have we learned ?

• Expectations of stock turns 5x, 6x, 7x when Centralised

Distribution introduced

• Not achieving this - questions Centralised Distribution

• What we have learned :

– Previously focused on Supply side of Supply Chain i.e. DC’s

– Need to focus on Demand side of supply chain - category,

planning, promotions, replenishment & data integrity

Shared Services

DC efficiency improvements

R2.16

2.60% 2.93%

1.47%1.23%

R2.67

0.45%

57%66%

0.64%

19.53% 6.70%Group expenses vs transfer growth

Clicks/Discom cost to transfer

Clicks/Discom cost per shipper

Group cartage costs

Volume centralised

DC wastage

2002 2003

1

Demand Supply

MF/ SUP = Manufacturer/ Supplier 3rd P = 3rd Party Distributors POMS = Purchase Order Mngmnt System DC’s = Distribution Centres CAT = Category MER = Merchandising OPS = Operations CUST. = Customer

MF/ SUP

3rd P

POMS

DC’s

CAT

MER

OPS

CUST.

Investment needed now !

Supply chain ‘pipe’

Supply chain – ‘demand’ side

• Address physical store layout, merchandise

promotion, ranging

• Implemented merchandise planning from JDA for

lifestyle category

• Benefits already evident

New Clicks South Africa – The year ahead

• Roll-out & bedding down of pharmacies

• Continued focus on Lifestyle category

• Implementation of financial systems to improve speed &

quality of information

• Focus on stock distribution & management systems

• Continued focus on expense control – alignment of size of

shared services platform to the business

Summary of year ahead

• SA & Australia managed autonomously

• Pharmacy proving itself in Australia – expanded opportunity for growth

• Australia well positioned in a competitive market

• Pharmacy implementation in SA

• Emergence of Clicks as a pre-eminent healthcare brand

• UPD integral to healthcare plans

• Ongoing turnaround in Discom

• Continued focus on improvement of stock turns

Questions ?

Thank You