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Tough economic conditions a boon for Clicks

Health and beauty retailer adds 18 new pharmacies during reporting period.

NOMPU SIZIBA: Pharmacy group Clicks released their interim results today [Wednesday 17 April] for the six months ended February 2019. It reported diluted headline earnings per share up 13.2% at 300.1 cents, and cited positive sales growth, particularly in their health and beauty divisions. Group turnover rose by 6.2% to hit R15.3 billion, while operating profit rose 11.3% to R1 billion. Shareholders will get an interim dividend of 118 cents/share, which is up 15.1% on the prior period.

To break down the numbers for us I’m joined on the line by Vikesh Ramsunder, group CEO of Clicks. Vikesh, your headline numbers are looking quite good. To what you attribute this top-line performance?

VIKESH RAMSUNDER: I would say just focusing on a few aspects, making sure that we are delivering value to consumers. You would have seen us trial quite a few promotions over the period as well, as well as investing greatly in pricing for customers. And, more importantly, we’ve also rolled out more private-label and exclusive products. Private label once again gives consumers value and the exclusives differentiate us from the competitors.

NOMPU SIZIBA: Does the demand from consumers for private labels tell us that they are being a lot more discerning in their purchasing?

VIKESH RAMSUNDER: I would certainly say so. I think it’s a sign of trading down. It’s also signalling that consumers are under pressure. And what’s more important, I think, for us, is that they trust our private-label products.

NOMPU SIZIBA: You indicated that you invested in creating competitive prices for your consumers, but how do you balance that and still manage to make profit at the same time?

VIKESH RAMSUNDER: We are certainly more efficient. You would have seen our normalised cost growth was up around 5%, just under 5%. We are comfortable with our management of costs. But again, private label and exclusives are margin-enhancing. So, as customers trade down into private label, our margins and income actually go up.

NOMPU SIZIBA: Of course. Your pharmaceutical area, UPD, which is your pharmaceutical distributor, performed quite well with operating profit up over 27%. Tell us about that and the number of additional pharmacies that you installed.

VIKESH RAMSUNDER: UPD is our pharmaceutical wholesaler and distribution business. Now, what’s affected the growth of that business is that they’ve landed four new distribution clients. We don’t report that as reported turnover – that’s why you would have seen their sales growth at just over 5%, but profit at 27% because essentially the income line has increased significantly.

NOMPU SIZIBA: You managed to increase your pharmacies to 528. How many pharmacies were added in the period under review?

VIKESH RAMSUNDER: In the period under review that was 18 pharmacies.

NOMPU SIZIBA: Okay. And where do you tend to locate those, because presumably location is everything. Is it in malls, or you may buy a standalone in a street somewhere – where do you tend to focus the locations?

VIKESH RAMSUNDER: Our ambition is to open a pharmacy in every Clicks store. We are dependent on the Department of Health granting us pharmacy licences and, when they grant us a pharmacy licence, we open up the pharmacy. So we will open up a pharmacy in Sandton if it becomes available, or in a township.

NOMPU SIZIBA: And you have a relationship with – I forget – one particular hospital where you have been installing some of your pharmacies.

VIKESH RAMSUNDER: Those aren’t our pharmacies. We run the front shop for the Netcare business. So we are merely supporting the front shop of their businesses. The pharmacies we run are in the Medicross facilities.

NOMPU SIZIBA: Right. And in terms of your investment for the rest of the year, I see you are planning to spend about R700 million in your financial year – where are you investing?

VIKESH RAMSUNDER: It’s in three buckets. The first bucket is to revamp our stores. We have a programme of revamping between 50 and 60 Clicks stores a year. You could say that’s quite a bit of money to spend in capex to keep your stores revamped. But we believe that our retail footprint should always be modern and appealing to our customers. The economy will change at some stage and you don’t want a big bill in a revamp cost at that stage. So you want to continue investing.

The second bucket is in opening up new stores and pharmacies. As you can see this year, I’ve said we will open up 41 new stores for the year. And we are taking advantage of, I would say, the tough consumer environment, which has allowed more retail sites to become available.

And, finally, our long-term stated objective is to have 900 stores in South Africa. You need the infrastructure and IT facilities to support that, and we are investing in those as well.

NOMPU SIZIBA: That’s quite ambitious. You currently have 680. And then I see that you had quite a successful broad-based economic share-ownership scheme for your employees, with them on average benefiting to the tune of about R355 000 – which is great. But how many people have qualified for this benefit?

VIKESH RAMSUNDER: Almost 8 000 people in the organisation qualified for the benefits. The scheme was over seven years. Obviously the participants and the beneficiaries of this also have grown the value for themselves over the period. We were very pleased with this and with the programme. As you can understand, it was life-changing for most of our employees.

NOMPU SIZIBA: I can imagine it would be. Is this something that is likely to continue, or are you discontinuing it?

VIKESH RAMSUNDER: Certainly the scheme is now vested. We don’t have any intention to repeat that at the moment.

NOMPU SIZIBA: And then, in your report you did touch on the impact that load shedding has had on consumer sentiment, and so on. But has it had any impact on your operations, or are all your stores fitted with generators?

VIKESH RAMSUNDER: I think it’s important to note that load shedding does have an impact, and it has already had an impact on our business because, although we have generators and we have battery packs to keep our stores open, consumers are worried about their homes, they are worried about what’s happening, so they tend to leave the mall. We may be open and trading but, quite frankly, there are very few customers in our stores. So that’s why I’m concerned about load shedding, because that’s the one thing that can affect us negatively in our second half.

NOMPU SIZIBA: And then, lastly – you did touch on it earlier in our conversation – what is your outlook for the balance of the year? You seem to be optimistic.

VIKESH RAMSUNDER: I think we’ll always remain optimistic as a South African business. We truly believe that we have a pathway for growth. Consumers are always seeking the products we sell and, unless something really dramatic happens, we are truly dependent on the cold and flu season in our half two, and we have no idea how that may result. And, as I said, with load shedding. But, bar that, we feel confident that we can still have within the range of 10% to 15% diluted headline earnings per share growth for the year.

NOMPU SIZIBA: Thanks very much for your time today, Vikesh.

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