CLICKS GROUP LIMITED - Interim Condensed Consolidated Results for the six months ended 28 February 2018

Release Date: 19/04/2018 08:00
Code(s): CLS
 
Wrap Text
Interim Condensed Consolidated Results for the six months ended 28 February 2018

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


INTERIM CONDENSED CONSOLIDATED RESULTS 
FOR THE SIX MONTHS ENDED 28 FEBRUARY 2018


Group turnover up 10.0%
Health and beauty turnover up 14.3%
Cash from operations R1.1 billion
Diluted HEPS up 14.8%
Interim dividend up 16.5%


COMMENTARY
OVERVIEW 
Clicks Group reported another strong health and beauty sales performance in the six months to 
February 2018 and produced improved margins, strong cash flows and attractive returns to 
shareholders. 

Retail health and beauty sales grew by 14.3%, with good volume growth in same stores and market 
share gains in all product categories. 

UPD, the group's pharmaceutical distributor, also performed well in maintaining its operating margin 
and gaining market share.

The group's performance for the half-year resulted in diluted headline earnings per share (HEPS) 
increasing by 14.8% to 266.3 cents. The interim dividend was increased by 16.5% to 102.5 cents 
per share.

FINANCIAL PERFORMANCE
Group turnover increased by 10.0% to R14.4 billion. Retail sales grew by 13.2% and by 7.2% in 
comparable stores, with selling price inflation of only 2.6%. Distribution turnover increased by 8.0%, 
with selling price inflation averaging 5.7% for the six months. 

Total income grew by 11.7% to R3.9 billion. The group's total income margin improved by 40 basis 
points to 27.1% owing to the favourable mix impact from the faster growth of the retail business. 

Retail expenses increased by 12.4% as the group has invested in 46 new stores, 34 pharmacies and 
space extensions in 24 stores over the past 12 months. Comparable retail costs were up by 6.0%. 
UPD costs were again well contained to an increase of only 5.3%. 

Operating profit grew by 12.2% to R942 million, with the group operating margin expanding by 10 basis 
points to 6.5%.

Working capital continues to be efficiently managed and the group's net working capital improved from 
43 to 41 days. Retail stock days were maintained at 81 days and UPD increased from 42 to 43 days. 

Cash generated by operations totalled R1.1 billion for the six months. The group returned R559 million 
to shareholders in dividends. 

Capital expenditure of R269 million was invested in new stores, pharmacies, store refurbishments and 
the enabling supply chain and information technology capabilities. A further R435 million capital 
investment is planned for the second half. 

TRADING PERFORMANCE
Retail health and beauty sales, including Clicks and the franchise brands of The Body Shop, GNC and 
Claire's, increased by 14.3%, driven by buoyant Christmas trading, appealing promotional offers and 
competitive pricing. Comparable stores sales grew by 8.0%.

Clicks expanded its store footprint to 646 with the opening of a net 24 stores in the past six months. 
A net 20 new pharmacies were opened to extend the pharmacy network to 493. Clicks ClubCard increased 
active membership to 7.5 million as the loyalty programme attracted close to 950 000 new customers 
in the past year. 

UPD increased wholesale turnover by 10.9%, with market share growing from 24.6% to 25.9%. UPD's total 
managed turnover increased by 6.0% to R8.4 billion.

OUTLOOK
Consumer confidence appears to be improving but it is too early for this to translate into increased 
disposable income. Consumer spending is therefore expected to remain constrained for the balance of 
the group's financial year.

However, Clicks is anticipated to continue its growth momentum and will be opening 40 new stores 
this year, well ahead of the target of 25 to 30 stores.

UPD aims to mitigate the impact of the lower single exit price (SEP) increase through continued tight 
cost control and the benefit of four new distribution contracts starting in the second half.

The core health and beauty markets in which the business operates are resilient and the group's 
market-leading brands are well positioned to increase market share in the current environment. 

FULL-YEAR EARNINGS FORECAST
The directors forecast that diluted HEPS for the financial year ending 31 August 2018 will increase 
by between 12% and 17% over the 2017 financial year.

The forecast is based on the following key assumptions: 
-  the trading environment will remain relatively constrained in the second half of the financial 
   year; and
-  retail selling price inflation is anticipated to average between 2% and 3% for the financial year.

Shareholders are advised that this forecast has not been reviewed or reported on by the group's 
independent auditor.

INTERIM DIVIDEND
The board of directors has approved an interim gross ordinary dividend for the period ended 
28 February 2018 of 102.5 cents per share (2017: 88.0 cents per share). The source of the dividend 
will be from distributable reserves and it will be paid in cash. 

ADDITIONAL INFORMATION 
Dividends Tax (DT) of 20% amounting to 20.5 cents per ordinary 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 82.0 cents net of DT. 

The company has 253 948 352 ordinary shares and 14 576 648 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 interim dividend:
Last day to trade "cum" the dividend                                          Tuesday, 26 June 2018
Shares trade "ex" the dividend                                              Wednesday, 27 June 2018
Record date                                                                    Friday, 29 June 2018
Payment to shareholders                                                         Monday, 2 July 2018

Share certificates may not be dematerialised or rematerialised between Wednesday, 27 June 2018 and 
Friday, 29 June 2018, both days inclusive.

The board of directors has 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, 26 June 2018, 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


Matthew Welz
Company secretary

19 April 2018


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
R'000                                    Six months to  Six months to                       Year to
                                           28 February    28 February                     31 August
                                                  2018           2017              %           2017
                                            (unaudited)    (unaudited)        change       (audited)
Revenue                                     15 241 637     13 800 328           10.4     28 342 607
                            
Turnover                                    14 432 648     13 125 101           10.0     26 809 101 
Cost of merchandise sold                   (11 320 882)   (10 297 945)           9.9    (21 185 124)
Gross profit                                 3 111 766      2 827 156           10.1      5 623 977 
Other income                                   796 650        671 772           18.6      1 523 005 
Total income                                 3 908 416      3 498 928           11.7      7 146 982 
Expenses                                    (2 966 136)    (2 658 735)          11.6     (5 333 405)
Depreciation and amortisation                 (160 500)      (137 089)          17.1       (283 227)
Occupancy costs                               (458 358)      (375 846)          22.0       (794 796)
Employment costs                            (1 545 231)    (1 396 524)          10.6     (2 845 838)
Other costs                                   (802 047)      (749 276)           7.0     (1 409 544)
Operating profit                               942 280        840 193           12.2      1 813 577 
Loss on disposal of property, plant 
  and equipment                                   (112)        (2 109)         (94.7)        (4 868)
Profit before financing costs                  942 168        838 084           12.4      1 808 709 
Net financing costs                             (1 129)       (27 864)         (95.9)       (37 337)
Financial income                                12 339          3 455          257.1         10 501 
Financial expense                              (13 468)       (31 319)         (57.0)       (47 838)
Profit before earnings from associate          941 039        810 220           16.1      1 771 372 
Share of profit of an associate                  1 345          1 417           (5.1)         2 900 
Profit before taxation                         942 384        811 637           16.1      1 774 272 
Income tax expense                            (263 788)      (228 886)          15.2       (496 630)
Profit for the period                          678 596        582 751           16.4      1 277 642
Other comprehensive loss:                            
Items that will not be subsequently 
  reclassified to profit or loss                     -              -                         3 236 
Remeasurement of post-employment 
  benefit obligations                                -              -                         4 495 
Deferred tax on remeasurement                        -              -                        (1 259)
Items that may be subsequently reclassified 
  to profit or loss                            
Exchange differences on translation of 
  foreign subsidiaries                            (405)        (2 853)                       (6 561)
Cash flow hedges                               (13 440)       (18 653)                      (13 234)
Change in fair value of effective portion      (18 667)       (25 907)                      (17 892)
Deferred tax on movement of effective portion    5 227          7 254                         4 658 
Other comprehensive loss for the period, 
   net of tax                                  (13 845)       (21 506)                      (16 559)
Total comprehensive income for the period      664 751        561 245                     1 261 083
                            
Earnings per share (cents)                       285.5          246.4           15.9          540.2 
Diluted earnings per share (cents)               266.3          231.4           15.1          505.7


HEADLINE EARNINGS RECONCILIATION
R'000                                    Six months to  Six months to                       Year to
                                           28 February    28 February                     31 August
                                                  2018           2017              %           2017
                                            (unaudited)    (unaudited)        change       (audited)
Total profit for the period                    678 596        582 751                     1 277 642 
Adjusted for:                            
Loss net of tax on disposal of property, 
  plant and equipment                               81          1 518                         3 506 
Gain on consolidation of the New Clicks 
  Foundation Trust                                                                          (12 596)
Headline earnings                              678 677        584 269           16.2      1 268 552
                            
Headline earnings per share (cents)              285.5          247.0           15.6          536.3 
Diluted headline earnings per share (cents)      266.3          232.0           14.8          502.1


CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
R'000                                                           As at          As at          As at
                                                          28 February    28 February      31 August
                                                                 2018           2017           2017
                                                           (unaudited)    (unaudited)      (audited)
Non-current assets                                          2 953 653      2 642 084      2 854 281 
Property, plant and equipment                               1 640 482      1 442 171      1 533 935 
Intangible assets                                             451 356        439 915        457 603 
Goodwill                                                      103 510        103 510        103 510 
Deferred tax assets                                           609 422        506 822        572 223 
Investment in associate                                        20 665         20 375         20 039 
Loans receivable                                                8 572          9 521          4 500 
Financial assets at fair value through profit or loss          25 265         22 030         27 580 
Derivative financial assets                                    94 381         97 740        134 891 
Current assets                                              7 833 303      6 419 638      6 866 834 
Inventories                                                 4 522 197      3 990 146      3 753 794 
Trade and other receivables                                 2 244 047      2 153 476      2 212 719 
Loans receivable                                                9 000          8 733          9 000 
Cash and cash equivalents                                     886 543        115 598        700 473 
Derivative financial assets                                   171 516        151 685        190 848 
Total assets                                               10 786 956      9 061 722      9 721 115 
                     
Equity and liabilities                     
Total equity                                                3 707 255      2 732 426      3 300 350 
Non-current liabilities                                       357 086        315 142        402 257 
Employee benefits                                             158 396        131 060        209 231 
Operating lease liability                                     198 690        184 082        193 026 
Current liabilities                                         6 722 615      6 014 154      6 018 508 
Trade and other payables                                    6 356 382      5 623 569      5 475 182 
Employee benefits                                             280 950        276 503        394 460 
Provisions                                                      4 993          6 733          6 733 
Income tax payable                                             53 624         90 033        132 991 
Derivative financial liabilities                               26 666         14 914          9 142 
Financial liability at fair value through profit or loss            -          2 402              -
Total equity and liabilities                               10 786 956      9 061 722      9 721 115


CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
R'000                                                   Six months to  Six months to        Year to
                                                          28 February    28 February      31 August
                                                                 2018           2017           2017
                                                           (unaudited)    (unaudited)      (audited)
Operating profit before working capital changes             1 114 426        972 264      2 040 098 
Working capital changes                                       (56 857)      (242 456)        (5 790)
Net interest paid                                               6 093        (22 452)       (31 090)
Taxation paid                                                (173 973)      (225 375)      (472 023)
Cash inflow from operating activities before dividends paid   889 689        481 981      1 531 195 
Dividends paid to shareholders                               (559 324)      (469 309)      (677 399)
Net cash effects from operating activities                    330 365         12 672        853 796 
Net cash effects from investing activities                   (272 871)      (248 826)      (512 368)
Capital expenditure                                          (269 405)      (249 424)      (517 850)
Other investing activities                                     (3 466)           598          5 482 
Net cash effects from financing activities                    128 576        (18 048)       (10 755)
Acquisition of derivative financial asset                     (62 272)       (39 064)       (39 064)
Settlement of derivative financial asset                      190 848         21 016         28 309 
Net increase/(decrease) in cash and cash equivalents          186 070       (254 202)       330 673 
Cash and cash equivalents at the beginning of the period      700 473        369 800        369 800 
Cash and cash equivalents at the end of the period            886 543        115 598        700 473


CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
R'000                                                   Six months to  Six months to        Year to
                                                          28 February    28 February      31 August
                                                                 2018           2017           2017
                                                           (unaudited)    (unaudited)      (audited)
Opening balance                                             3 300 350      2 452 241      2 452 241 
Dividends paid to shareholders                               (559 324)      (469 309)      (677 399)
Total comprehensive income for the period                     664 751        561 245      1 261 083 
Transaction cost on share issue                                  (283)             -              -
Share-based payment reserve movement                          251 906        188 249        264 425 
Net treasury share movement                                    49 855              -              -
Total                                                       3 707 255      2 732 426      3 300 350 
                     
Dividend per share (cents)                     
Interim declared/paid                                           102.5           88.0           88.0 
Final paid                                                          -              -          234.0 
                                                                102.5           88.0          322.0


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
Six months to 28 February 2018 
(unaudited)                                   
Retail                               10 522 228      793 139    5 335 767      215 787    3 441 718 
Distribution                          6 327 735      152 729    6 014 863       41 689    4 291 257 
Inter-segmental                      (2 417 315)      (3 588)  (2 879 516)           -   (2 839 112)
Total reportable segmental balance   14 432 648      942 280    8 471 114      257 476    4 893 863 
Non-reportable segmental balance              -          104    2 315 842       11 929    2 185 838 
Total group balance                  14 432 648      942 384   10 786 956      269 405    7 079 701 
                                   
Six months to 28 February 2017 
(restated)*                                   
Retail                                9 292 748      700 082    4 239 925      214 485    2 746 307 
Distribution                          5 861 216      139 577    5 427 312       15 971    4 044 639 
Inter-segmental                      (2 028 863)         534   (2 375 145)           -   (2 340 263)
Total reportable segmental balance   13 125 101      840 193    7 292 092      230 456    4 450 683 
Non-reportable segmental balance              -      (28 556)   1 769 630       18 968    1 878 613 
Total group balance                  13 125 101      811 637    9 061 722      249 424    6 329 296 
                                   
Twelve months to 31 August 2017 
(restated)*                                   
Retail                               19 015 139    1 486 266    4 392 678      436 715    2 889 500 
Distribution                         12 334 386      328 712    5 556 531       30 529    4 009 777 
Inter-segmental                      (4 540 424)      (1 401)  (2 610 723)           -   (2 573 907)
Total reportable segmental balance   26 809 101    1 813 577    7 338 486      467 244    4 325 370 
Non-reportable segmental balance              -      (39 305)   2 382 629       50 606    2 095 395 
Total group balance                  26 809 101    1 774 272    9 721 115      517 850    6 420 765 
                                   
* Refer to note 1.2                                   

R'000                                                           As at          As at          As at
                                                          28 February    28 February      31 August
                                                                 2018           2017           2017
                                                           (unaudited)    (unaudited)      (audited)
Non-reportable segmental profit before taxation consists of:                     
Loss on disposal of property, plant and equipment                (112)       (2 109)         (4 868)
Financial income                                               12 339          3 455         10 501 
Financial expense                                             (13 468)       (31 319)       (47 838)
Share of profit of an associate                                 1 345          1 417          2 900 
                                                                  104        (28 556)       (39 305)


SUPPLEMENTARY INFORMATION
                                                                As at          As at          As at
                                                          28 February    28 February      31 August
                                                                 2018           2017           2017
                                                           (unaudited)    (unaudited)      (audited)
Number of ordinary shares in issue (gross)       ('000)       253 948        245 969        245 969 
Number of ordinary shares in issue including 
  "A" shares issued in terms of employee share 
  ownership programme (gross)                    ('000)       268 525        275 122        275 122 
Number of ordinary shares in issue 
  (net of treasury shares)                       ('000)       244 505        236 526        236 526 
Weighted average number of shares in issue 
  (net of treasury shares)                       ('000)       237 678        236 526        236 526 
Weighted average diluted number of shares in 
  issue (net of treasury shares)                 ('000)       254 833        251 821        252 641 
Net asset value per share                       (cents)         1 516          1 155          1 395 
Net tangible asset value per share              (cents)         1 289            925          1 158 
Depreciation and amortisation                   (R'000)       167 959        143 481        297 066 
Capital expenditure                             (R'000)       269 405        249 424        517 850 
Capital commitments                             (R'000)       434 447        327 976        680 513


ACCOUNTING POLICIES AND NOTES
1.1  These condensed consolidated financial statements for the six months ended 28 February 2018 have 
     been prepared in accordance with the requirements of the JSE Limited Listings Requirements for 
     interim reports and the requirements of the Companies Act of South Africa. The Listings 
     Requirements require interim 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 Financial Reporting Standards Council and to also, 
     as a minimum, contain the information required by IAS 34 - Interim Financial Reporting. 

     The information contained in the interim report has neither been audited nor reviewed by the 
     group's external auditors. These condensed consolidated financial results have been prepared 
     under the supervision of M Fleming CA(SA), the Chief Financial Officer of the group.

     The accounting policies used in the preparation of the financial results for the six months 
     ended 28 February 2018 are in terms of IFRS and are consistent with those applied in the 
     Audited Annual Financial Statements for the year ended 31 August 2017.

1.2  The segmental analysis for the period ended 28 February 2017 and the year ended 31 August 2017 
     has been restated due to a change in the composition of reporting segments. Clicks Direct 
     Medicines is now included in Retail due to a change in management reporting lines. This has 
     resulted in an increase in turnover of R54.3 million and R121.6 million, an increase of 
     R17.5 million and R24.0 million in total assets and an increase of R16.1 million and 
     R15.4 million in total liabilities for the retail segment for the period ended 28 February 2017 
     and 31 August 2017 respectively. Within the distribution segment, turnover was increased by 
     R15.6 million and R13.8 million, total assets was increased by R2.9 million and decreased by 
     R3.6 million and total liabilities was increased by R4.3 million and R4.9 million for the 
     period ended 28 February 2017 and the year ended 31 August 2017 respectively. 

1.3  Related party transactions for the current period are similar to those disclosed in the group's 
     annual financial statements for the year ended 31 August 2017. During the period Clicks Group 
     Limited issued 284 155 ordinary shares to the New Clicks Foundation Trust arising from the 
     unwind of 50% of the employee share ownership scheme. No other significant related party 
     transactions arose during the current period.

1.4  In terms of the unwind of 50% of the Clicks Group Employee Share Ownership Scheme, 7 979 384 
     ordinary shares were issued to beneficiaries of the scheme and 14 576 647 ordinary "A" shares 
     were repurchased by Clicks Group Limited from the Employee Share Ownership Trust. The New Clicks 
     Foundation Trust sold 284 155 Clicks Group Limited ordinary shares subsequent to acquiring 
     them through the unwind of the scheme. No other equity share transactions occurred during 
     the period.

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, the investment in 
     Guardrisk Insurance Company Limited, investments in equity and other similar instruments and 
     a contingent consideration liability which arose from the investment in associate in the prior 
     period 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. All financial instruments accounted for at fair value through profit or 
     loss are considered to be level 2 instruments except for investments in equity and other similar 
     instruments which are considered to be level 1 instruments and the contingent consideration 
     liability which arose from the investment in associate in the prior period is considered to be 
     a level 3 liability. There have been no transfers between levels 1, 2 and 3 during the period.

1.6  The majority of the current and 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), NN Gobodo*, F Jakoet*, DA Kneale# (Chief Executive Officer), M Rosen*
* Independent non-executive  # British 
Company secretary: M Welz
Registration number: 1996/000645/06        Income tax number: 9061/745/71/8 
Share code: CLS        ISIN: ZAE000134854        CUSIP: 18682W205
Transfer secretaries: Computershare Investor Services Proprietary Limited
Rosebank Towers, 15 Biermann Avenue, Rosebank 2196. PO Box 61051, Marshalltown 2107
Sponsor: Investec Bank Limited
http://www.clicksgroup.co.za



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