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CLICKS GROUP LIMITED - Preliminary Reviewed Condensed Consolidated Results for the year ended 31 August 2018

Release Date: 25/10/2018 08:00
Code(s): CLS     PDF:  
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Preliminary Reviewed Condensed Consolidated Results for the year ended 31 August 2018

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 2018


Group turnover up 9.1%
Health and beauty sales up 11.7%
Cash generated by operations R2.5 billion
Diluted HEPS up 15.1%
Total dividend up 18.0%
Included in FTSE/JSE Top 40 Index


COMMENTARY

Overview 
Clicks Group continued its strong growth momentum despite increasingly challenging trading 
conditions in the second half of the financial year. The group encountered several headwinds as 
consumer spending came under further pressure, selling price inflation declined to almost zero and 
the lower incidence of colds and flu compared to last winter depressed medicine sales.

Retail health and beauty sales increased by 11.7% as volume growth accelerated over the last year 
and Clicks gained market share in all product categories. 

UPD, the group's pharmaceutical distributor, also performed well as it gained market share and 
maintained its operating margin despite the low increase granted in the single exit price (SEP) 
of medicines in 2018. 

Diluted headline earnings per share (HEPS) increased by 15.1% to 578 cents. The total dividend 
grew by 18.0% to 380 cents per share, with the dividend payout ratio being increased from 60% to 
62%. The group continues to deliver a high return on equity of 38.2%.

Over the past 10 years the group has returned more than R6.7 billion to shareholders and generated 
a compound annual total shareholder return of 32.5%. Diluted HEPS has grown by a compound rate of 
16.0% per annum and dividend per share by 20.1% per annum.

Financial performance
Group turnover increased by 9.1% to R29.2 billion, with retail sales growing by 10.8% and 
distribution turnover by 8.4%. Selling price inflation for the group averaged only 1.9% for the 
year compared to 5.3% in the previous year. 

Total income grew by 10.5% to R7.9 billion. The group's total income margin strengthened by 
30 basis points to 27.0% owing to the faster growth of the retail business. 

Retail expense growth of 10.3% was contained below sales growth despite the extensive investment 
in new stores and pharmacies. Comparable retail costs increased by 5.1%. UPD continued to 
demonstrate good cost control with expenses up 6.5% on last year.

The group's operating profit increased by 12.6% to reach the R2.0 billion mark for the first time, 
with the group's operating margin expanding by 20 basis points to 7.0%.

Working capital continues to be well managed and the group's net working capital improved from 
37 to 36 days through good trade debtor management and improved creditor days. 

Cash generated by operations increased by 20.7% to R2.5 billion. The group returned R812 million 
to shareholders in dividends. Capital expenditure of R671 million (2017: R518 million) was invested 
mainly in new stores and pharmacies, store refurbishments, supply chain and information technology. 
Cash resources increased by R823 million over the previous year and the group ended the year with 
cash of R1.5 billion. 

Trading performance
Retail health and beauty sales, including Clicks and the franchise brands of The Body Shop, GNC 
and Claire's, increased by 11.7%. Comparable stores sales grew by 6.2%, with selling price inflation 
of only 1.1%, reflecting volume growth of 5.1%.

Clicks opened a record 41 new stores and expanded the store footprint to 663. The pharmacy network 
was increased to 510 as a net 37 pharmacies were opened. Clicks ClubCard increased active membership 
by over 800 000 to 7.8 million, with the loyalty programme accounting for 77.2% of sales.

UPD grew turnover by 8.4% and increased market share from 25.6% to 26.0%. The business increased its 
bulk distribution portfolio to 23 clients by gaining three new contracts. UPD's total managed 
turnover, combining wholesale and bulk distribution, increased by 8.9% to R17.9 billion.

Outlook for 2019
The current pressures on consumer spending are unlikely to abate in the months ahead and the retail 
trading environment will therefore remain challenging.

Selling price inflation is expected to remain low in the first half of the new financial year and the 
SEP increase for 2019 is likely to be only marginally higher than 2018. The group will therefore 
continue to operate in a constrained environment. 

The group's core health and beauty markets and business model are resilient. The business continues 
to trade well in these challenging economic conditions and management is confident of maintaining 
sales momentum and sustaining volume growth in the year ahead.

Capital investment of R700 million is planned for the 2019 financial year as the group continues to 
invest for long-term growth. This includes the opening of 25 to 30 new Clicks stores and 30 to 
35 new pharmacies, and 60 store refurbishments. A significant investment will also be made in the 
retail and pharmaceutical supply chain as well as in IT systems to support the increased scale of 
the group. 

Final dividend
The board of directors has approved a final gross ordinary dividend of 277.5 cents per share 
(2017: 234.0 cents per share) and a 38.0 cents per ordinary "A" share (2017: 32.2 cents per share). 
The source of the dividend will be from distributable reserves and paid in cash. 

Additional information 
Dividends Tax (DT) of 20% amounting to 55.5 cents per ordinary share and 7.6 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 222.0 cents net of DT and ordinary "A" 
shareholders will receive a dividend of 30.4 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 final dividend:

Last day to trade "cum" the dividend                                       Tuesday, 22 January 2019
Shares trade "ex" the dividend                                           Wednesday, 23 January 2019
Record date                                                                 Friday, 25 January 2019
Payment to shareholders                                                     Monday, 28 January 2019

Share certificates may not be dematerialised or rematerialised between Wednesday, 23 January 2019 
and Friday, 25 January 2019, 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, 22 January 2019, 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

25 October 2018


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
R'000                                                           Year to       Year to
                                                              31 August     31 August             %
                                                                   2018          2017        change
Revenue                                                      30 982 592    28 342 607           9.3
Turnover                                                     29 239 688    26 809 101           9.1
Cost of merchandise sold                                    (23 062 579)  (21 185 124)          8.9
Gross profit                                                  6 177 109     5 623 977           9.8
Other income                                                  1 717 147     1 523 005          12.7
Total income                                                  7 894 256     7 146 982          10.5
Expenses                                                     (5 852 575)   (5 333 405)          9.7
Depreciation and amortisation                                  (319 976)     (283 227)         13.0
Occupancy costs                                                (927 661)     (794 796)         16.7
Employment costs                                             (3 094 845)   (2 845 838)          8.7
Other costs                                                  (1 510 093)   (1 409 544)          7.1
Operating profit                                              2 041 681     1 813 577          12.6
Loss on disposal of property, plant and equipment                (1 287)       (4 868)       
Profit before financing costs                                 2 040 394     1 808 709          12.8
Net financing income/(costs)                                      2 065       (37 337)       
Financial income                                                 25 757        10 501         145.3
Financial expense                                               (23 692)      (47 838)        (50.5)
Profit before earnings from associate                         2 042 459     1 771 372          15.3
Share of profit of an associate                                   2 541         2 900         (12.4)
Profit before taxation                                        2 045 000     1 774 272          15.3
Income tax expense                                             (569 790)     (496 630)         14.7
Profit for the year                                           1 475 210     1 277 642          15.5
                     
Other comprehensive income/(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       9 242        (6 561)       
Cash flow hedges                                                 58 154       (13 234)       
Change in fair value of effective portion                        80 770       (17 892)       
Deferred tax on movement of effective portion                   (22 616)        4 658        
Other comprehensive income/(loss) for the year, net of tax       67 396       (16 559)       
Total comprehensive income for the year                       1 542 606     1 261 083        
                     
Earnings per share (cents)                                        611.9         540.2          13.3
Diluted earnings per share (cents)                                577.6         505.7          14.2


HEADLINE EARNINGS RECONCILIATION
R'000                                                           Year to       Year to
                                                              31 August     31 August             %
                                                                   2018          2017        change
Total profit for the year                                     1 475 210     1 277 642        
Adjusted for:                     
Loss net of tax on disposal of property, plant and equipment        927         3 506        
Gain on consolidation of the New Clicks Foundation Trust              -       (12 596)       
Headline earnings                                             1 476 137     1 268 552          16.4
                     
Headline earnings per share (cents)                               612.3         536.3          14.2
Diluted headline earnings per share (cents)                       578.0         502.1          15.1


CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
R'000                                                                           As at         As at
                                                                            31 August     31 August 
                                                                                 2018          2017 
Non-current assets                                                          3 232 664     2 854 281 
Property, plant and equipment                                               1 843 402     1 533 935 
Intangible assets                                                             476 761       457 603 
Goodwill                                                                      103 510       103 510 
Deferred tax assets                                                           477 352       572 223 
Investment in associate                                                        20 044        20 039 
Loans receivable                                                               15 003         4 500 
Financial assets at fair value through profit or loss                          82 482        27 580 
Derivative financial assets                                                   214 110       134 891 
Current assets                                                              8 331 413     6 866 834 
Inventories                                                                 4 227 336     3 753 794 
Trade and other receivables                                                 2 331 531     2 212 719 
Loans receivable                                                                9 675         9 000 
Cash and cash equivalents                                                   1 523 815       700 473 
Derivative financial assets                                                   239 056       190 848 
Total assets                                                               11 564 077     9 721 115 
              
Equity and liabilities              
Total equity                                                                4 427 868     3 300 350 
Non-current liabilities                                                       447 546       402 257 
Employee benefits                                                             245 407       209 231 
Operating lease liability                                                     202 139       193 026 
Current liabilities                                                         6 688 663     6 018 508 
Trade and other payables                                                    6 198 435     5 475 182 
Employee benefits                                                             418 216       394 460 
Provisions                                                                      4 993         6 733 
Income tax payable                                                             67 019       132 991 
Derivative financial liabilities                                                    -         9 142 
Total equity and liabilities                                               11 564 077     9 721 115


CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
R'000                                                                         Year to       Year to
                                                                            31 August     31 August
                                                                                 2018          2017
Operating profit before working capital changes                             2 273 606     2 040 098 
Working capital changes                                                       181 949        (5 790)
Cash generated by operations                                                2 455 555     2 034 308
Net interest received/(paid)                                                   16 301       (31 090)
Taxation paid                                                                (267 341)     (472 023)
Cash inflow from operating activities before dividends paid                 2 204 515     1 531 195 
Dividends paid to shareholders                                               (811 578)     (677 399)
Net cash effects from operating activities                                  1 392 937       853 796 
Net cash effects from investing activities                                   (726 900)     (512 368)
Capital expenditure                                                          (671 233)     (517 850)
Other investing activities                                                    (55 667)        5 482 
Net cash effects from financing activities                                    157 305       (10 755)
Proceeds from sale of treasury shares                                          49 855             - 
Acquisition of derivative financial assets                                    (83 115)      (39 064)
Transaction cost on the issue of shares                                          (283)            - 
Settlement of derivative financial asset                                      190 848        28 309 
Net increase in cash and cash equivalents                                     823 342       330 673 
Cash and cash equivalents at the beginning of the year                        700 473       369 800 
Cash and cash equivalents at the end of the year                            1 523 815       700 473


CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
R'000                                                                         Year to       Year to
                                                                            31 August     31 August
                                                                                 2018          2017
Opening balance                                                             3 300 350     2 452 241 
Dividends paid to shareholders                                               (811 578)     (677 399)
Total comprehensive income for the year                                     1 542 606     1 261 083 
Transaction cost on share issue                                                  (283)            -
Share-based payment reserve movement                                          341 284        264 425 
Net treasury share movement                                                    49 855             -
Withholding tax on distribution to shareholders*                                5 634             -
Total                                                                       4 427 868     3 300 350 
              
Dividend per share (cents)              
Interim paid                                                                    102.5          88.0 
Final declared/paid                                                             277.5         234.0 
                                                                                380.0         322.0 
              
* Release of withholding tax overprovision related to the 2012 interim dividend


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 2018                                   
Retail                              21 062 952    1 704 561    5 186 195      539 775     3 244 674 
Distribution                        13 376 110      362 314    6 301 347       74 512     4 391 389 
Inter-segmental                     (5 199 374)     (25 194)  (3 227 746)           -    (3 165 735)
Total reportable segmental balance  29 239 688    2 041 681    8 259 796      614 287     4 470 328 
Non-reportable segmental balance             -        3 319    3 304 281       56 946     2 665 881
Total group balance                 29 239 688    2 045 000   11 564 077      671 233     7 136 209 
                                   
Twelve months to 31 August 2017 
(restated)*                                   
Retail                              19 015 139    1 486 266    4 392 678      436 715     2 889 499 
Distribution                        12 334 386      328 712    5 556 532       30 529     4 009 778 
Inter-segmental                     (4 540 424)      (1 401)  (2 610 724)           -    (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                                                                         Year to       Year to
                                                                            31 August     31 August
                                                                                 2018          2017
Non-reportable segmental profit before taxation consists of:              
Loss on disposal of property, plant and equipment                              (1 287)       (4 868)
Financial income                                                               25 757        10 501 
Financial expense                                                             (23 692)      (47 838)
Share of profit of an associate                                                 2 541         2 900 
                                                                                3 319       (39 305)


SUPPLEMENTARY INFORMATION
                                                                                As at         As at
                                                                            31 August     31 August 
                                                                                 2018          2017 
Number of ordinary shares in issue (gross)                         ('000)     253 948       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 
Number of ordinary shares in issue (net of treasury shares)        ('000)     244 505       236 526 
Weighted average number of shares in issue (net of treasury shares)('000)     241 073       236 526 
Weighted average diluted number of shares in issue 
  (net of treasury shares)                                         ('000)     255 385       252 641 
Net asset value per share                                         (cents)       1 811         1 395 
Net tangible asset value per share                                (cents)       1 574         1 158 
Depreciation and amortisation                                     (R'000)     339 142       297 066 
Capital expenditure                                               (R'000)     671 233       517 850 
Capital commitments                                               (R'000)     698 949       680 513


ACCOUNTING POLICIES AND NOTES
1.1  These condensed consolidated financial statements for the year ended 31 August 2018 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 2018 are in terms of IFRS and are consistent with those applied in the Audited 
     Financial Statements for the year ended 31 August 2017.

1.2  The segmental analysis for the year ended 31 August 2017 has been restated due to a change in 
     the composition of reporting segments. Clicks Direct Medicines was previously included in 
     Distribution and is now included in Retail due to a change in management reporting. This has 
     resulted in an increase of turnover of R121.6 million, R24.0 million in total assets and 
     R15.4 million in total liabilities for the Retail segment whilst turnover was increased by 
     R13.8 million, total assets was decreased by R3.6 million and total liabilities was increased 
     by R4.9 million for the Distribution segment. The intragroup elimination for turnover was 
     increased by R135.4 million and the elimination relating to total assets and total liabilities 
     was increased by R20.3 million.

1.3  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 2017. During the year 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 year.

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 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, 
     the investment in Guardrisk Insurance Company Limited and investments held by the New Clicks 
     Foundation Trust which 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, 
     with the exception of investments held by the New Clicks Foundation Trust which are considered 
     to be level 1 instruments. There have been no transfers between levels 1, 2 and 3 during the year. 

     The majority of the non-current and 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*, F Daniels*, BD Engelbrecht, M Fleming 
(Chief Financial Officer), NN Gobodo*, DA Kneale# (Chief Executive Officer), M Rosen*
* Independent non-executive  # British 
Company secretary: M Welz
Registration number: 1996/000645/06
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

www.clicksgroup.co.za


Date: 25/10/2018 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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