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CLICKS GROUP LIMITED - Preliminary Reviewed Condensed Consolidated Results for the year ended 31 August 2016

Release Date: 27/10/2016 08:00
Code(s): CLS     PDF:  
Wrap Text
Preliminary Reviewed Condensed Consolidated Results for the year ended 31 August 2016

CLICKS GROUP LIMITED
Registration number: 1996/000645/06 
Share code: CLS
ISIN: ZAE000134854 
CUSIP: 18682W205


PRELIMINARY REVIEWED CONDENSED CONSOLIDATED RESULTS 
for the year ended 31 August 2016


Retail turnover up 12.8%
Diluted headline EPS up 14.2%
Total dividend up 15.7%
Return on equity of 49.2%


COMMENTARY

OVERVIEW 
The group's retail businesses, in particular Clicks, delivered another strong trading 
performance in 2016 as all brands strengthened their competitive positions and 
reported market share gains.

The performance for the year translated into a 14.2% increase in diluted headline 
earnings per share to 438.5 cents while the group again delivered a high return on 
equity of 49.2%. 

The total dividend was increased by 15.7% to 272.0 cents per share and together with 
the growth in the Clicks Group share price over the past year represents a total 
shareholder return of 35.3%.

FINANCIAL PERFORMANCE
Group turnover increased by 9.5% to R24.2 billion. Retail sales rose by 12.8%, with 
same store sales increasing 9.8%. Distribution turnover increased by 6.1%. Selling 
price inflation for the group was contained to 4.9%.

Total income increased by 11.0% and the group's total income margin improved by 30 basis 
points to 26.3% owing to the favourable mix impact with the faster growth in retail.

The increase in retail operating expenses of 11.2% was contained below sales growth 
despite the investment in new stores, pharmacies and customer service. Comparable 
retail costs increased by 6.4%. UPD demonstrated excellent cost control in a difficult 
market and restricted expense growth to 7.4%.

Operating profit grew by 12.6% to R1.6 billion as both retail and distribution maintained 
margin in the challenging trading conditions. The group's operating margin increased 
by 20 basis points to 6.5%, benefiting from the stronger retail growth.

Inventory days in stock improved from 68 to 66 days.

Cash inflow from operations before working capital changes increased by 8.7% to 
R1.85 billion. As part of the board's commitment to return surplus cash to shareholders, 
the group returned R876 million to shareholders through dividend payments of 
R586 million and share buy-backs of R290 million. 

Capital expenditure of R433 million was invested in new stores and pharmacies, 
refurbishments, IT systems and UPD infrastructure and warehousing.

TRADING PERFORMANCE
Retail health and beauty sales, including Clicks and the franchise brands of 
The Body Shop, GNC and Claire's, increased by 13.5%, with strong growth across all 
product categories.

The Clicks store footprint was expanded to 511 following the opening of a net 25 new 
stores and the pharmacy network reached 400 as 39 in-store pharmacies were opened 
during the year. Clicks launched an online sales platform which offers a "click and 
collect" facility in all stores across South Africa.

Clicks ClubCard membership increased by over one million to reach 6.2 million after 
the successful relaunch of the loyalty programme.

The group has made a considerable investment in improving the quality of customer 
service in store and created over 1 200 new jobs in the past year.

UPD experienced a tough year and grew turnover by 6.1% in a pharmaceutical market 
which has shown minimal volume growth. In addition, the regulated single exit price 
(SEP) increase in 2016 was lower than the previous year. Despite these pressures UPD 
maintained its operating profit margin by driving efficiencies and through good cost 
management.

OUTLOOK
The weak consumer spending environment is expected to continue into 2017 as low economic 
growth, together with ongoing political and social uncertainty, will place further 
financial pressure on consumers.

The core health and beauty markets, as well as the group's business model, are resilient 
and the business will trade through this tough environment by focusing on providing 
value to customers and managing costs efficiently.

Clicks has strong organic growth prospects for the medium to long term, with extensive 
opportunities to expand its store footprint in South Africa.

Record levels of capital expenditure of R577 million will be invested in stores, IT and 
supply chain to support the growth in the business.

Management is confident of the group's ability to sustain performance and deliver on 
its medium-term financial and operating targets.

FINAL DIVIDEND
The board of directors has approved a final gross ordinary dividend of 196.0 cents per 
share (2015: 169.5 cents per share) and a 27.2 cents per ordinary "A" share (2015: 
23.5 cents per share). The source of the dividend will be from distributable reserves 
and paid in cash. 

Additional information
Dividends Tax (DT) amounting to 29.40 cents per ordinary share and 4.08 cents per 
ordinary "A" share will be withheld in terms of the Income Tax Act. Ordinary 
shareholders who are not exempt from DT will therefore receive a dividend of 
166.60 cents net of DT and ordinary "A" shareholders will receive a dividend of 
23.12 cents net of DT.

The company has 246 137 763 ordinary shares and 29 153 295 ordinary "A" shares in issue. 
Its income tax reference number is 9061/745/71/8.

Shareholders are advised of the following salient dates in respect of the final dividend:
Last day to trade "cum" the dividend                         Tuesday, 24 January 2017
Shares trade "ex" the dividend                             Wednesday, 25 January 2017
Record date                                                   Friday, 27 January 2017
Payment to shareholders                                       Monday, 30 January 2017

Share certificates may not be dematerialised or rematerialised between Wednesday, 
25 January 2017 and Friday, 27 January 2017, both days inclusive.

The board of directors have determined that dividend cheques amounting to R50.00 or 
less due to any ordinary shareholder will not be paid unless a written request to the 
contrary is delivered to the transfer secretaries, Computershare Investor Services 
Proprietary Limited, by no later than close of business on Tuesday, 24 January 2017, 
being the day the shares trade "cum" the dividend. Unpaid dividend cheques will be 
aggregated with other such amounts and donated to a charity to be nominated by the 
directors.

By order of the board

Annalize Barnard
Acting company secretary

27 October 2016

This annual results announcement, together with the investor presentation and additional 
financial information, is available at www.clicksgroup.co.za


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
R'000                                             Year to       Year to
                                                31 August     31 August             %
                                                     2016          2015        change
Revenue                                        25 530 967    23 285 096           9.6

Turnover                                       24 170 879    22 070 092           9.5
Cost of merchandise sold                      (19 156 612)  (17 545 318)          9.2
Gross profit                                    5 014 267     4 524 774          10.8
Other income                                    1 353 833     1 210 082          11.9
Total income                                    6 368 100     5 734 856          11.0
Expenses                                       (4 796 464)   (4 338 817)         10.5
Depreciation and amortisation                    (252 662)     (237 670)          6.3
Occupancy costs                                  (682 827)     (619 023)         10.3
Employment costs                               (2 550 731)   (2 255 417)         13.1
Other costs                                    (1 310 244)   (1 226 707)          6.8
Operating profit                                1 571 636     1 396 039          12.6
Loss on disposal of property, 
  plant and equipment                              (6 388)       (9 446)          
Profit before financing costs                   1 565 248     1 386 593          12.9
Net financing costs                               (52 851)      (57 309)         (7.8)
Financial income                                    6 255         4 922          27.1
Financial expense                                 (59 106)      (62 231)         (5.0)
Share of profit of an associate                     2 254             -         100.0
Profit before taxation                          1 514 651     1 329 284          13.9
Income tax expense                               (420 779)     (374 709)         12.3
Profit for the year                             1 093 872       954 575          14.6
                              
Other comprehensive (loss)/income:                              
Items that will not be subsequently 
  reclassified to profit or loss                        -           765           
Remeasurement of post-employment 
  benefit obligations                                   -         1 063           
Deferred tax on remeasurement                           -          (298)          
Items that may be subsequently reclassified 
  to profit or loss                              
Exchange differences on translation of 
  foreign subsidiaries                               (526)        4 777           
Cash flow hedges                                   (6 580)       33 238           
Change in fair value of effective portion          (9 139)       46 164           
Deferred tax on movement of effective portion       2 559       (12 926)          
Other comprehensive (loss)/income for the year, 
  net of tax                                       (7 106)       38 780           
Total comprehensive income for the year         1 086 766       993 355           
                              
Earnings per share (cents)                          460.5         396.7          16.1
Diluted earnings per share (cents)                  436.7         381.5          14.5


HEADLINE EARNINGS RECONCILIATION
R'000                                             Year to       Year to
                                                31 August     31 August             %
                                                     2016          2015        change
Total profit for the year                       1 093 872       954 575           
Adjusted for:                              
Loss net of tax on disposal of property, 
  plant and equipment                               4 599         6 801           
Insurance recovery income net of tax on 
  property, plant and equipment                         -          (921)          
Headline earnings                               1 098 471       960 455          14.4
                              
Headline earnings per share (cents)                 462.4         399.2          15.8
Diluted headline earnings per share (cents)         438.5         383.9          14.2


CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
R'000                                                             As at         As at
                                                              31 August     31 August
                                                                   2016          2015
Non-current assets                                            2 507 207     2 009 163 
Property, plant and equipment                                 1 345 024     1 221 658 
Intangible assets                                               434 083       395 625 
Goodwill                                                        103 510       103 510 
Deferred tax assets                                             347 400       177 037 
Investment in associate                                          20 282             - 
Loans receivable                                                  9 521        13 003 
Financial assets at fair value through profit or loss            16 145        16 668 
Derivative financial assets                                     231 242        81 662 
Current assets                                                5 869 689     5 546 775 
Inventories                                                   3 478 717     3 249 914 
Trade and other receivables                                   2 012 696     1 871 616 
Loans receivable                                                  8 476             - 
Cash and cash equivalents                                       369 800       400 738 
Derivative financial assets                                           -        24 507 
Total assets                                                  8 376 896     7 555 938 
                    
Equity and liabilities                    
Total equity                                                  2 452 241     2 012 807 
Non-current liabilities                                         405 541       308 503 
Employee benefits                                               215 132       128 035 
Operating lease liability                                       190 409       180 468 
Current liabilities                                           5 519 114     5 234 628 
Trade and other payables                                      5 148 411     4 898 114 
Employee benefits                                               241 986       214 943 
Provisions                                                        6 939         5 745 
Income tax payable                                               92 476       115 826 
Derivative financial liabilities                                 26 971             - 
Financial liability at fair value through profit or loss          2 331             - 
Total equity and liabilities                                  8 376 896     7 555 938


CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
R'000                                                           Year to       Year to
                                                              31 August     31 August
                                                                   2016          2015
Operating profit before working capital changes               1 846 993     1 699 743 
Working capital changes                                         (19 467)      (15 451)
Net interest paid                                               (38 831)      (39 025)
Taxation paid                                                  (443 793)     (355 520)
Cash inflow from operating activities before dividends paid   1 344 902     1 289 747 
Dividends paid to shareholders                                 (585 757)     (490 758)
Net cash effects from operating activities                      759 145       798 989 
Net cash effects from investing activities                     (454 765)     (369 381)
Capital expenditure                                            (432 959)     (369 547)
Other investing activities                                      (21 806)          166 
Net cash effects from financing activities                     (335 318)     (224 501)
Purchase of treasury shares                                    (290 171)     (176 264)
Acquisition of derivative financial assets                      (45 147)      (48 237)
Net (decrease)/increase in cash and cash equivalents            (30 938)      205 107 
Cash and cash equivalents at the beginning of the year          400 738       195 631 
Cash and cash equivalents at the end of the year                369 800       400 738


CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
R'000                                                           Year to       Year to
                                                              31 August     31 August
                                                                   2016          2015
Opening balance                                               2 012 807     1 566 973 
Purchase of treasury shares                                    (290 171)     (176 264)
Dividends paid to shareholders                                 (585 757)     (490 758)
Total comprehensive income for the year                       1 086 766       993 355 
Share-based payment reserve movement                            228 596       119 501 
Total                                                         2 452 241     2 012 807 
                    
Dividend per share (cents)                    
Interim paid                                                       76.0          65.5 
Final declared/paid                                               196.0         169.5 
                                                                  272.0         235.0


SEGMENTAL ANALYSIS
The group's reportable segments under IFRS 8 are Retail and Distribution.

R'000                                 Profit
                                      before        Total       Capital         Total
                       Turnover     taxation       assets   expenditure   liabilities
Twelve months to 
  31 August 2016                                                  
Retail               16 640 227    1 305 687    3 937 799       323 243     2 605 804 
Distribution         11 054 959      276 005    5 177 762        34 286     3 900 597 
Inter-segmental      (3 524 307)     (10 056)  (2 425 935)            -    (2 390 519)
Total reportable 
  segmental balance  24 170 879    1 571 636    6 689 626       357 529     4 115 882 
Non-reportable 
  segmental balance           -      (56 985)   1 687 270        75 430     1 808 773 
Total group balance  24 170 879    1 514 651    8 376 896       432 959     5 924 655 
                                                  
Twelve months to 
  31 August 2015                                                   
Retail               14 757 724    1 150 684    3 475 535       280 322     2 386 819 
Distribution         10 415 301      258 578    4 698 119        27 758     3 635 137 
Inter-segmental      (3 102 933)     (13 223)  (1 973 273)            -    (1 947 914)
Total reportable 
  segmental balance  22 070 092    1 396 039    6 200 381       308 080     4 074 042 
Non-reportable 
  segmental balance           -      (66 755)   1 355 557        61 467     1 469 089 
Total group balance  22 070 092    1 329 284    7 555 938       369 547     5 543 131


R'000                                                           Year to       Year to
                                                              31 August     31 August
                                                                   2016          2015
Non-reportable segmental profit before taxation consists of:                    
Loss on disposal of property, plant and equipment                (6 388)       (9 446)
Financial income                                                  6 255         4 922 
Financial expense                                               (59 106)      (62 231)
Share of profit of an associate                                   2 254             - 
                                                                (56 985)      (66 755)


SUPPLEMENTARY INFORMATION
                                                                  As at         As at
                                                              31 August     31 August
                                                                   2016          2015
Number of ordinary shares in issue (gross)          ('000)      246 138       246 138 
Number of ordinary shares in issue including 
  "A" shares issued in terms of employee share 
  ownership programme (gross)                       ('000)      275 291       275 291 
Number of ordinary shares in issue 
  (net of treasury shares)                          ('000)      236 524       239 884 
Weighted average number of shares in issue 
  (net of treasury shares)                          ('000)      237 565       240 603 
Weighted average diluted number of shares in issue 
  (net of treasury shares)                          ('000)      250 501       250 204 
Number of ordinary shares repurchased               ('000)        3 360         2 376 
Net asset value per share                          (cents)        1 037           839 
Net tangible asset value per share                 (cents)          809           631 
Depreciation and amortisation                      (R'000)      264 144       248 054 
Capital expenditure                                (R'000)      432 959       369 547 
Capital commitments                                (R'000)      577 400       432 300


ACCOUNTING POLICIES AND NOTES
1.1  These condensed consolidated financial statements for the year ended 31 August 2016 
     have been prepared in accordance with the requirements of the JSE Limited Listings 
     Requirements for preliminary reports and the requirements of the Companies Act of 
     South Africa. The Listings Requirements require preliminary reports to be prepared 
     in accordance with the framework concepts and the measurement and recognition 
     requirements of International Financial Reporting Standards ("IFRS") and the SAICA 
     Financial Reporting Guides as issued by the Accounting Practices Committee and 
     Financial Pronouncements as issued by the Financial Reporting Standards Council 
     and to also, as a minimum, contain the information required by IAS 34 - Interim 
     Financial Reporting.

     Ernst & Young Inc., the group's independent auditor, has reviewed the preliminary 
     condensed consolidated financial statements contained above and has expressed an 
     unmodified review conclusion on the preliminary condensed consolidated financial 
     statements. Their review report is available for inspection at the company's 
     registered office together with the preliminary condensed consolidated financial 
     statements identified in the auditor's report. These condensed financial statements 
     have been prepared under the supervision of Mr M Fleming CA (SA), the Chief Financial 
     Officer of the group.

     The accounting policies used in the preparation of the financial results for the 
     year ended 31 August 2016 are in terms of IFRS and are consistent with those 
     applied in the Audited Financial Statements for the year ended 31 August 2015.

1.2  Related party transactions for the current year are similar to those disclosed 
     in the group's annual financial statements for the year ended 31 August 2015. 
     No significant related party transactions arose during the current year.

1.3  There were no material business combinations during the period under review. 
     The only acquisition was a 25% interest in an associate, Sorbet Brands Proprietary 
     Limited. The contribution of this acquisition to profit for the year has been 
     presented in the consolidated statement of comprehensive income.

1.4  Under the general authorities granted by shareholders, 3 360 470 shares were 
     repurchased during the current year.

1.5  The carrying value of all financial instruments approximates fair value. All financial 
     instruments are held at amortised cost, with the exception of derivative instruments 
     that are accounted for at fair value through profit or loss. The fair value of 
     financial instruments that are not traded in active markets are determined by using 
     valuation techniques; if all significant inputs required to fair value an instrument 
     are observable, the instrument is included in level 2 and if the significant inputs 
     required to fair value an instrument are unobservable, the instrument is included 
     in level 3. The derivative instruments comprise equity derivative hedges which are 
     calculated using a Monte Carlo option pricing model with reference to the closing 
     share price, 250-day historical volatility, the 12-month trailing dividend yield 
     and the risk-free rate; and forward exchange contracts which are calculated using 
     standard market calculation conventions with reference to the relevant closing 
     market spot rates, forward foreign exchange rates and interest rates. All financial 
     instruments accounted for at fair value through profit or loss are considered to 
     be level 2 investments except for the financial liability relating to the contingent 
     consideration on the acquisition of an associate which is considered to be a 
     level 3 liability, and amounts to R2.3 million. There have been no transfers 
     between levels 1, 2 and 3 during the year.

     The majority of the non-current derivative financial assets are to hedge 
     obligations under the cash-settled share compensation scheme.


Registered address: Cnr Searle and Pontac Streets, Cape Town 8001. 
PO Box 5142, Cape Town 8000
Directors: DM Nurek* (Chairman), F Abrahams*, JA Bester*, BD Engelbrecht, 
M Fleming (Chief Financial Officer), F Jakoet*, DA Kneale# (Chief Executive Officer), 
NS Matlala*, M Rosen*
* Independent non-executive  # British     
Acting company secretary: A Barnard
Registration number: 1996/000645/06
Share code: CLS
ISIN: ZAE000134854
CUSIP: 18682W205
Transfer secretaries: Computershare Investor Services Proprietary Limited, 
70 Marshall Street, Johannesburg 2001. PO Box 61051, Marshalltown 2107
Sponsor:  Investec Bank Limited
www.clicksgroup.co.za


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