Clicks Group Limited (CLS) Earnings Call Transcript & Summary

Good afternoon, and a warm welcome to the webcast of our annual results for the year ended 31 August 2024. I am Bertina Engelbrecht, Chief Executive Officer of the Clicks Group. I am joined by Gordon Traill, our Chief Financial Officer. We will be taking you through the presentation of our annual results and respond to your questions after the conclusion of the presentation. This slide sets out the outline we will follow. As usual, I will start with a review of our financial year. Gordon will follow with an overview of our financial results. Hereafter, I will take you through the trading performances of our business units, first Clicks then UPD. I will then close with the outlook for the group. [Operator Instructions] Sue Hemp from our Investor Relations team will read out your questions to which Gordon and I will respond. I will now commence with a review of the year. As a business, we remain optimistic about the economic, social and political environment of our region. Despite some challenges, we maintained our growth and performance momentum. We attribute our sustained performance over the past 2 decades to the proven resilience of our business model, defensiveness of our core product offering, brand strength, relentless focus on incremental efficiency gains and the commitment of our people. For the year, we delivered another strong performance with diluted headline earnings per share up 14.3%. This result is in line with increased market expectations. We continued to invest in the expansion of our store and pharmacy network, increasing our Click store count to 936, pharmacy count to 720, primary care clinics to 206 and standalone Clicks baby stores to 6. We opened a net 51 Clicks stores ahead of our published range of 40 to 50 new stores and net 9 pharmacies, which is below our range of 40 to 50 pharmacies due to the Unicorn licensing matter. I am pleased to report that we have amicably resolved the Unicorn matter. And in the process, strengthened our relationship with the Department of Health, one of our key stakeholders. Post the year-end, some licenses have been issued, which augurs well for our pharmacy expansion program. In a tough trading environment, consumers responded favorably to our product and price offers as we leverage our positioning as a value retailer. This resulted in market share gains across all of our core retail categories. The investments in our supply chain improved our in-store availability and quality of our inventory. Our investments in people and processes, enhance our customer service and affinity. I will provide greater detail on the market share and category performances in the retail segments business. We continue to position our UPD business will sustain profitable growth. The system's implementation for the wholesale business as well as the organization restructure was completed and stabilized on the ending of the first quarter. The operational metrics and purchasing compliance of the core wholesale customers by pre-systems implementation levels. This drove a much improved second half performance with great momentum going into the 2025 financial year. Businesses do not operate in a vacuum. We recognize that we are part of a broader ecosystem and embrace the opportunity to make a positive impact. We are extending the integration of our sustainability processes to our acquisitions and partners. Our inclusion in the FTSE4Good Index for the past 8 years, and our improved AA ESG score from MSCI validates the progress we are making in driving sustainability. We are advancing gender diversity and empowerment. We do this by focusing on improving gender representation at all levels, investing in the tertiary education of women in health sciences, procuring for women-owned enterprises and using our platforms for gender diversity and advocacy. These focused actions are benefiting our transformation goals and we are anticipating an improved BBBEE score once this has been verified. As a signatory to the UN Women's Empowerment Principles, we stand in solidarity with multi-stakeholder networks to foster business practices that empower women in our workplaces, marketplace and communities. In our 2024 works progress report, we achieved an 89% score against the 8 performance indicators set up in support of the 2030 agenda for sustainable development. In our communities, we are advancing access to healthcare through national partnerships such as for the Transnet Phelophepa health clinic trains. In the year, we increased our renewable energy generation as a percentage of total consumption from 3.4% to 4.5%, and we invested in solar battery capacity, and are planning to extend this investment in renewable energy. I will now hand over to our CFO, Gordon Traill, to take you through the group's financial results in more detail.

Thank you, Bertina. Good afternoon. In the following slides, we will cover the financial performance of the group, starting with the group highlights. If you consider the financial highlights group turnover increased by 9.2%. Retail turnover grew strongly at 11.7% for the year, with half 2 slightly slower due to acquisitions from the prior year being [ anniversaried ] from the delayed roll out of pharmacies. UPD had a better second half, although growth was still muted for the year. The group trading margin at 9.2% increased by 50 basis points due to the growth of retail with good cost control and an improved performance from UPD. Diluted headline earnings per share for the group increased to $1,193.5 per share, up 14.3% from last year. The group's operations generated strong cash inflows of ZAR 6 billion. During the year, we returned over ZAR 2.5 billion to shareholders in dividends and share buybacks. The group's return on equity at 46.4% increased from 43.6% in the prior year. The dividend declared for the year has been increased by 14.3% to $0.776 per share, which is a 65% payout ratio. Retail continued to perform very strongly in the year, and it is pleasing to note that UPD has had a stronger year, particularly in the second half. Retail sales grew by 11.7%, with same stores growing 8.4% with strong sales across all categories. New stores and pharmacies added 3.3% to the topline while selling price inflation averaged 6.3% for the year, although this moderated in the second half. We have seen a more consistent performance this year both due to the reduced load shedding and the systems we implemented a couple of years ago, getting the right stock to the right stores at the right time. The distribution business had stronger growth particularly in the second half, despite selling price inflation of 3%, still showed volume growth for the year. We have seen a strong sales performance in the first months of the year compared to last year when Lea Glen went live with their systems implementation. Bertina will elaborate on the detail of each business' performance later in the presentation. This slide reflects our total income earned which has increased by 12.8% for the year. You can see the total income margin in retail was 40 basis points higher than last year as there is good growth across all categories and a particularly strong performance in Beauty & Personal Care. UPD's total income margin was up 70 basis points to 10%. This was due to the larger SEP increase granted in January of this year and continued good management of shrink and waste. Overall, the faster growth of the retail business at 13.2% and the improvement in UPD has resulted in the group's total income margin being 100 basis points higher than last year. Retail costs grew 12.5% and remained well controlled despite the cost pressures from dealing with load shedding in the first half, higher electricity costs as well as new stores, pharmacies, and depreciation and capital expenditure. What is pleasing to note is that in the second half cost growth was 10.4%. Excluding prior year acquisitions, cost growth in the second half was up 9.1%. Initiatives such as solar, electricity monitoring at stores has limited the headline growth in electricity costs despite tariff increases. What is particularly pleasing is the increase of 21% in bonuses paid to store staff for the year, which has been well desired based on this year's performance. In the year, we have added 51 Click stores and net 9 pharmacies to the chain. We are looking forward to opening more pharmacies in the next financial year, now that the Unicorn licensing matter has been resolved. Comparable retail cost growth, excluding new stores, was up 7.4% for the year, costs growing at a lower rate in the second half. As highlighted at our interim results, the IFRS 16 charge increased as a result of 2 factors being the increase in number of renewals in the period and the higher discount rate as a result of higher interest rates. The growth was consistent with the interim. UPD's costs have grown ahead of turnover. However, this was mostly the result of the systems implementation in the first half. In the second half, costs grew by 4.3% which was below turnover growth. Employment costs in the second half were particularly well controlled and reduced 2.6%. This result was inclusive of provision for bonuses for the year. Other costs also only grew by 2.1% in the second half. Costs overall were very well managed for the year. The investments in solar have paid off with electricity costs for the year declining by 1.8% despite the higher electricity tariffs. Further investments have been made to allow delivery with electric vehicles, further reducing our carbon footprint. This will go live in the 2025 financial year. Retail grew trading profit by 14.8%, with the margin improving by 20 basis points to 10.2%. This has been due to the good sales growth together with efficient cost management. UPD's trading profit increased by 17.6%, with the operating margin increasing by 40 basis points to 3.2%. This was due to the ongoing recovery in sales, a better SEP increase and good cost control. Overall, the group's operating profit increased by 15.1% to ZAR 4.2 billion. This slide reflects the growth in turnover, trading profit and margin of the group over the past 5 years. The company has sustainably grown its performance through various economic cycles. This is important to all stakeholders. This is true for shareholders who objectively evaluate our company performance. I feel particularly optimistic that perhaps in a year's time, we will be talking about the growth the company is deriving with strong economic growth. It is quite a pleasure not to have to mention [indiscernible ]. That said, what is pleasing to note is despite challenges, the group has continued to evolve the operating margin over the past 5 years. Inventory levels for the group has increased by 3 days to 74 days. Retail stock days are 1 day higher than last year. Inventory has been brought in slightly earlier this year to avoid any shipping delays. UPD stock days at 42 days a few days higher than last year, partially due to higher levels of Unicorn stock held at year-end. Overall, working capital was well managed with net working capital days 35 days, although at the higher end of the target. This slide shows the cash during the year. As you can see, we started the year with cash of ZAR 2.5 billion reflected in dark blue on the left-hand side and ended the year with ZAR 2.7 billion on the right-hand side of the slide. The group has generated cash of ZAR 5.9 billion highlighted in green. Working capital inflows of ZAR 99 million, repayment of lease liabilities amounted to ZAR 1 billion and tax payments of ZAR 1.1 billion. ZAR 891 million was reinvested in capital expenditure across the group. Of this amount, ZAR 583 million was invested in new stores as well as Clicks store refurbishments. ZAR 109 million spent on distribution centers, including the expansion of our Centurion DC, and ZAR 199 million was spent on IT and other retail infrastructure. We completed the investment in solar panels and battery storage at our largest pharmaceutical distribution center, Lea Glen and our head office. Further investments are planned in our other DCs. We returned ZAR 2.5 billion to shareholders this year. This was in the form of dividends of almost ZAR 1.7 billion and share buyback of ZAR 835 million. The final cash dividend of ZAR 1.4 billion will be paid out to shareholders in January. CapEx of over ZAR 1 billion is planned for the year ahead. ZAR 578 million will be invested in our store and pharmacy network. This will include 40 to 50 new Clicks stores and pharmacies and 70 to 80 retail store refurbishments to ensure they remain modern and relevant to our customers. ZAR 447 million will be spent on IT systems and infrastructure. ZAR 86 million of this amount will be invested on UPD IT and warehouse equipment, including further solar investment. And we will invest the balance of ZAR 361 million in retail IT systems and infrastructure. This will include the rollout of our new pharmacy management system and the implementation of a new warehouse management system at our Cape Town retail DC. We will continue to grow and invest in our retail footprint. UPD will improve efficiency now that the implementation has been completed, and we will continue investments in systems for pharmacy and our distribution centers in the retail business. This slide reflects the medium-term financial targets. We have made good progress against those targets. Importantly, the group has continuing headroom for growth, particularly in expanding the retail store base. As previously noted, we were at the upper end of our group and retail trading margin guidance. Given the recovery of UPD, we now have the confidence to amend these targets upwards with total group now between 9% and 10% and retail 10% to 11%. UPD will remain at the current guidance at least for another year. In framing these medium-term targets, we continue to seek to optimize the balance sheet, improved working capital efficiency, enhanced cash returns to shareholders and maintain a dividend payout ratio between 60% and 65%. This slide demonstrates how the group has sustained its financial performance over the past decade. This is reflected in the 10-year compound annual growth rates achieved in diluted headline earnings per share of 13.5% per annum and dividend per share growth of 15.1% growth. The compound annual total shareholder return over the past 10 years decreased to 20.7% per annum. These excellent growth rates have been driven by strong organic growth, particularly in our health and beauty business, which has been supported by an efficient supply chain. This has in turn translated into strong cash returns, which have not only been reinvested in the business but also allowed us to progressively increase our dividend payout ratio. This graph shows the group's share price performance over the last 10 years. This performance is testament to the hard work of all our employees throughout the group. Earlier, I noted that bonuses for employees have grown significantly. And it is also pleasing to note that our long-term shareholders have also benefited. I will now hand over to Bertina to cover the trading performance.

Thank you, Gordon. I will now take you through our trading performances, starting with Clicks and followed by UPD. This is the view of the Clicks business. The retail business delivered another strong set of results, as reflected on this slide, with growth in total turnover up 11.7%. Existing stores grew sales of 8.4%, inflation slowed down to 6.3% and volume growth improved to 2.1%. I'll turn to our 4 broad categories to provide greater detail. Despite the constraint we faced in opening new pharmacies, pharmacy sales accelerated, growing by 8.9%. ClubCard customers contributed over 87% of pharmacy sales, and we continue to be rated as the customer's first choice retail pharmacy. The convenience of our retail pharmacy network underscores our preeminence in a retail-led pharmacy offering. Front shop health achieved strong double-digit growth of 10.7%, driven by promotional sales growth, up 15.9% and impact of our new healthcare elevation. Our integrated Baby strategy is consolidating our positioning as a leader in Baby. Sales growth is accelerating and we are evolving margin. Baby Foods delivered a standout performance. Here, private label was a key enabler of growth. Private label and exclusive baby toiletries grew by 19.9%, and our private label baby diaper range by 28.6%. Our Beauty and Personal Care category delivered another superior performance of 15.8% despite a high base. In Beauty, skincare was a star up 21.6%. The investment in our elevated beauty halls, private label and exclusive offers, personalization campaigns, ClubCard offers and sold out beauty playground events, are driving sales and entrenching us as the customers' destination for beauty. The Personal Care category performance was exceptional, up 19%, driven by strong private lable sales, which was up to 27%. Our Clicks Sun Protect brand is now the #1 suncare brand in our network and contributed over 50% of our total suncare sales volume. The ownership of Body Shop International has been resolved. A consortium has acquired all of the Body Shop International's assets. This is an exciting development as the consortium has the financial capital, track record of managing luxury brands and competence in product development to drive a successful turnaround. General merchandise sales up 10.1% was adversely impacted by increased competition in electrical and paperware. Our snack deal continues to deliver pleasing results whilst our domestic category grew sales by 26.9%, driven by improved promotional mechanics and stock availability. Turning to market shares. Despite the increasingly competitive environment, we are continuing to extend our market shares in each of our core retail categories. Let me take you through these starting with health. Over the past 2 years, we have been constrained from opening new pharmacies in line with our guidance of 40 to 50 pharmacies. We worked collaboratively with the Department of Health to resolve the matter since the accessibility and convenience of our healthcare network remains the key driver of growth. Our focus on organic growth delivers results. We gained 50 basis points in pharmacy and are steadily increasing customer participation in our repeat prescription service. Front shop health is consolidating its market strength. We gained 110 basis points in market share, fueled by strong gains across a number of subdepartments such as Food Care up 300 basis points with medicinal and First Aid each gaining 130 basis points. Our comprehensive baby execution, which integrates our private label offering, convenient locations, competitive pricing, baby ClubCard benefits and online strategy drove our market share gain of 150 basis points in baby. Turning to Beauty and Personal Care. Skincare gained a 110 basis points, fueled by strong gains in facial care, acne preparation and moisturizers. Hair care gained 50 basis points with strong gains in hair treatments and hair colorants. Personal care continues to gain market share, up 140 basis points with strong gains across all subdepartments. Very strong market share gains were recorded in subdepartments such as body fresheners, deodorants, soaps and sun care. In general merchandise, our performance was muted, and we declined by 50 basis points in our legacy category of small household appliances. I will now turn to the key drivers that support our growth. Starting with value. In a constrained economic environment, our brand positioning of feel good, pay less resonates with all consumers. Despite increasing competition, we maintained great everyday pricing and are competitively priced against all major retailers on a volume-weighted price index that excludes our 3-for-2 promotions, bulk offers and ClubCard benefits. We grew promotional sales by 14.6% to account for 44.9% of turnover and achieved exceptionally strong promotional sales growth across all of our franchise categories. We remain committed to extending the benefits of our medical aid customers by consistently offering them the choice of more affordable generic medicines. In the year, generics grew 10%, accounting for 59% of sales by value and 69% by volume. Rewards relevant, especially in a tough economic environments. During the year, we returned a ZAR 780 million to our loyal customers in the form of cashback rewards. This is an increase of 13.2%. Our differentiation strategy is premised on responding to changes in consumer graphics, preferences and shopping behaviors within the context of the trading environment. Private label and exclusives maintained its growth of 13.5% and contributed 25.4% to total sales, 30.3% from front shop and 11.5% to pharmacy sales. Our private label team drives innovation, supports our sustainability agenda and goals to increase localization. In the year, our Clicks Made 4 Baby nappy range and Sorbet BB Cream were voted as the 2024 SA Product of the Year in their respective categories. And we are all proud of the fact that our Sorbet BB Cream won the overall 2024 SA Product of the Year. Customers trust our private lable brands because of its prudent quality and price positioning. Sales in our 6 stand-alone Baby stores increased to 31.3% while our 5 Clicks Baby store-in-store executions delivered a combined baby sales growth of 35%. The execution of our new look elevated Beauty halls which is now in 44 stores, is driving increased sales in the big beauty brands and in brands exclusively available in Clicks. Our Sorbet business, the largest and most recognizable professional salon business in South Africa is continuing to outperform, delivering an increase of 12.3% in turnover. Our affinity partnership with ARC, a retail brand focused on the premium beauty market, enables us to extend our access to the premium beauty customer where we are still under indexed. The Clicks ClubCard loyalty program is a great asset and valued by our customers. It provides us with the mechanism to attract, engage and retain our customers through personalization. We are still growing our ClubCard membership, which has now increased to 11.8 million active ClubCard members. The contribution of ClubCard members to total sales has increased to 81.7% accounting for 79.5% for front shop and 87.3% of pharmacy sales. When we launched the ClubCard loyalty program, the objective was to drive an increase in our customer base and enhance customer loyalty. Our teams have been focusing on shaping a loyalty program that integrates rewards, customer engagement and personalized experiences to reinforce the customers' emotional affiliation to our brands. The use of advanced analytics to drive focused customer segmentation and tailored rewards is therefore critical to the success of our ClubCard loyalty program. So kudos to our marketing and omni team who are recognized for making the Best Strategic Use of Data Analytics and CRM Applications as well as the Best Use of AI to Improve Loyalty Experiences at the 2024 SA Loyalty Awards. We are investing building our omni capability. This investment covers technology, supply chain and people. Pharmacy is a key driver of our performance. We commenced the national deployment phase of our LEAP pharmacy management system in May and have now successfully deployed to over 200 stores. We are on track to conclude this rollout by the end of 2025. The expansion of our store network is progressing to plan. And now that we have resolved the matter, we are recommencing our pharmacy rollout program. We are very committed to delivering affordable, accessible healthcare. 51% of the South African population lives within 5-kilometer radius of a Clicks pharmacy. Post the Unicorn resolution, we can now move ahead with extending our UniHealth, specialized pharmacy formats. We recently introduced our front shop private label offer with great success in this new format. And this coupled with our elevated beauty offer is driving improved sales. In the year, we increased our primary care clinics to 206. These are profitable due to our partnerships with medical aid schemes. Our team is now also reviewing the feasibility of small-format stores. We are accelerating our presence in lower income areas with 234 of our stores located in such areas contributing 22.4% of turnover. We have extended our primary care drug therapy offering to 11 stores. And whilst in the early stages, it is pleasing to note the uptake of these PCDT services is growing strongly. We will be increasing the number of trial sites over the next year to firm up the offer. That completes the review of the Clicks business. I will now turn to UPD's trading performance. This slide sets out the breakdown of UPD's fine wholesale turnover which excludes bulk distribution and preferred supplier contracts. The performance of fine wholesale is improving. At the end of half 1, turnover was down 2.3% but has since recovered in half 2 due to improved operational performance, which in turn fueled increased purchasing compliance from UPD's core wholesale customers. I will briefly turn to the core customers in this channel. Clicks remains UPD's largest customer and accounted for 56.1% of turnover. Improved purchasing compliance in half 2 on the back of improving operational stability within UPD led to an increase in Clicks purchases of 8.5% for the second half and 6.8% for the full year. Although purchasing compliance in the hospital channel is improving, sales performance is still muted. Signals though are that patient days are increasing, and we have certainly seen an improvement in sales over the past month. The decline of 130 basis points in UPD's fine wholesale market share is due to the operational challenges faced during its IT systems transition, which resulted in byways by Clicks and private hospitals. This trend is reversing. Purchasing compliance has improved in line with the targets, and we remain confident that UPD will sustain its improved performance. UPD's total managed turnover, which includes fine wholesale as well as turnover managed on behalf of bulk distribution clients declined by 6.7% to ZAR 29.9 billion. We have rationalized the distribution portfolio to sharpen focus on profitable bulk distribution contracts. In this process, we did not renew 2 large contracts with a combined annual turnover of ZAR 3 billion. This so enables us to terminate our Cape Town distribution lease by January next year. As well as the lease of 1 of our Johanannesburg facilities later in 2025. This will have a positive impact on our expense line. In accordance with our phased IT systems implementation plan, we went live with Lea Glen, our largest DC in September last year. The Lea Glen implementation was completed by the end of quarter 1, and the systems are stable, although it did impact wholesale performs. Our initiatives to improve customer service levels and expect operational efficiencies set the business up for a much improved half 2 with carry on momentum, fully 2025 financial year. The purchasing compliance levels of the core by wholesale clients are at the pre-systems implementation levels. And as shared by Gordon earlier, employment cost growth and shrinkage have been contained. There are nevertheless still areas that require management focus. We need to improve our SLA reporting capability, especially to our distribution partners, and we need to improve our customer value proposition to our league and independent policy customers. Doing good is also good for our business. In support of our commitment to a sustainable carbon-neutral future, we have ordered 42 electric vehicles for use in the more densely populated Gauteng and Cape Town notes. And we will be fitting the solar batteries on existing delivery vehicles power refrigeration. This completes the review of our trading performance for the year. The retail business under the leadership of Vikash Singh has delivered a superb performance as they hold in on the execution of the brand's key drivers of success: value, differentiation, personalization and convenience. Despite limited new pharmacy openings, the business gains promising market share as most market share gains in its core retail categories. Trevor McCoy and the new leaner UPD team continue to display exceptional resilience and commitments to the recovery of the business. The purchasing compliance from Clicks and the 4 large private hospital groups are improving, and UPD will benefit from the growth index. Our group services team under the leadership of our CFO, Gordon Traill, has supported our operational business units in identifying commercial opportunities and efficiency gains that benefit the group. The group services team is also great at incubating talent for the group. People are the difference. In this year, we were one team made up of individuals and functional teams that all delivered above expectations, which is reflected in the bonus values for the year. On behalf of our Board and executive teams to all of our people and their extended families, thank you. I will now conclude our presentation with the outlook. A year ago, confidence levels were decreased due to electricity outages, political uncertainty, high inflation and interest rates, which affected all consumers. Indications are that the consumer environment is improving due to lower inflation, a stronger currency, lower fuel costs and greatly reduced electricity outages. We though, are well positioned to leverage this to our benefit. We have a competitive advantage in defensive health and beauty sectors. We have market-leading shares in our core retail categories and in pharmaceutical distribution and pharmaceutical wholesale. We have long-term growth prospects underpinned by legacy value proposition. We have an extremely loyal ClubCard membership base, which is still growing, and we are increasing the scale of our operations which we can leverage for efficiency and reach. We remain well on track to deliver on our medium-term target of 1,200 Clicks stores. We ended the year with 936 stores, 720 pharmacies and 206 clinics. We've all continued to invest in the extension of our store network by opening 40 to 50 new stores each year. We are anticipating a higher level of pharmacy openings now that the processing of our pharmacy license applications has resumed. The Unicorn resolution also opens the pathway for us to accelerate our UniHealth hubs up 10 such specialized pharmacies over the medium-term. We are continuing to invest for sustainable growth with planned CapEx of ZAR 1 billion per annum over the next 3 years. As a responsible corporate citizen, we embrace our role as the environmental stewards for future generations. This underpins our commitment to carbon neutrality and informs our increased generation and use of renewable energy. We have significantly strengthened our executive teams to reflect our strategic intent and develop a healthy pipeline of future leaders. Specific areas in which we have strengthened capability is in e-commerce, specialized pharmacy and in our retail investments. By solidifying the functional reporting lines of our shared service functions, such as IT, finance and HR, we will enhance governance, leverage efficiencies and create career progression opportunities. As you can see, we are preparing for our future in a deliberate considered manner to ensure that we deliver sustained improved performance that [indiscernible] all of our stakeholders. I'm therefore confident that the group will continue to deliver on our medium-term targets. Gordon has shared this with you, but let me reiterate that the group and retail trading margin targets have been revised upwards. The retail trading margin has been increased to between 10% and 11%, and the group trading margin target increased between 9% and 8%. As an employee and long-term shareholder that pleases me. That concludes the outlook. I wish to make a few of the final remarks. The refresh of our Board has been completed. We have the privilege of an extraordinary Chairman in David Nurek who will hand over the reins of the Chairmanship of the group to JJ Njeke at our AGM in January. JJ has been on the Board for over 3 years, is our current Lead Independent Director and Chair of our Audit and Risk Committee. He's therefore familiar with the group's strategy and our executive team which will ease this transition to the Chairmanship role. David, thank you for your dedication and commitment to the success of the group. You are a truly passionate leader, during your tenure as our Chairman you have courageously shaped the strategy and performance ethos of the group. You have also been incredibly wise mentor and come to our Boards, executive teams and to me personally. Thank you, David. Thank you so much all for listening. I will now hand over to Sue Hemp who will assist us in taking your questions.

First question is from Sa'ad Chothia from Citi. Well done on the results. Can you provide some color post year-end trade and inflation guidance?

Just on inflation. I think what you've got to bear in mind is that the SEP increase was granted in January still going to have an impact on H1 of FY '24, '25. So that means on the pharmaceutical side inflation is going to be a little bit higher than in the previous year and also impacting the retail side as well because it will be non-comp. And we have seen the front shop inflation moderating, and we would expect it to moderate into FY '24, '25. So I would expect overall inflation to be lower next year than this year, but it's still going to be supported by the SEP increase in the first half.

And maybe just to add, I think we've seen the inflation numbers yesterday. So the inflation is -- continues to tick down. I would have said this is one of the questions that has is around post year-end trade. Very pleasing in terms of what we see and that also, I think, talks to the improved consumer confidence. I've talked about the hospital and the fact that they will signal the patient base are improving. And we certainly have seen it as well in terms of the purchasing wise and purchasing from hospitals in the UPD business..

Can you elaborate on why store guidance was lowered from the 50 to 55 per annum provided in the first half?

The 50 to 55 was for FY '24. We haven't changed the medium-term targets 40 to 50. But if opportunities present themselves, we're not going to turn those down.

What did [indiscernible] contribute to sales in FY '24?

We've also indicated that income is about ZAR 250 million in sales when we purchased it. So last year, remember that we only took it over in April. So for the first half of the year, it would be non-comp against prior year, but ZAR 250 million is what we purchase and we've grown a little bit from that.

Some other questions from Funeka Maseko from JPMorgan, Ya’eesh Patel from SDG and Michael de Nobrega at Avior Capital Markets. How will the resumption of pharmacy rollout affect the retail total income on trading margins? And what are the support dealers to offset this?

I think to note on that is that we have always managed this in the past, and we have consistently evolved our margin over time. There -- in one way, it's going to be positive because if you think for the last year, we've really not been opening a significant number of pharmacies, those stores that are already trading when they get a pharmacy license, it's going to always boost the front shop sales in those stores, which is one of the reasons that we open pharmacy. And the levers that we use, we've highlighted before. So the private label exclusive allows us to support the margin dilution that you get to a certain extent with opening pharmacy.

So [indiscernible] in the confidence, we've guided upwards in terms of the retail trading margin. And that's with all of the information that we have on hand as well as the group trading margin. So we look very confident that we know how to do this and that we have a track record of doing it well.

I have a few questions from Dino Constantinou from Investec on Unicorn. Is the cash in Unicorn really all that was disposed of? This is what it looks like for your disclosure. Why has Unicorn not being discussed out as a discontinued operation? And what does the disposal means on the strategic initiative on increasing private label penetration in [ SENS ].

Unicorn hasn't been classified as a discontinued operation because it was immaterial to the group. The assets and liabilities that sat in the Unicorn were really very small. And in terms of private label penetration, we still own the brand Unicorn so -- and that's a brand that we are very proud of. So we have been making sales in the market since the beginning of August, and that's been positive for the group as well.

Just a point, I think I would like to stress that I mean they're really great in post the resolution is, of course, we said that the Unicorn product range should be available to the market. I mean kudos that we established our brand so well that the market is buying both in terms of private hospital groups and independent pharmacy, the Unicorn range. So, that's very positive.

More questions from Ya’eesh Patel at SBG. A solid set of results, well done. How should we think about the impact on operations from the implementation of the new WMS in the Cape Town DC? What percentage of retail volumes move through this DC?

So Cape Town is our second biggest DC, but it's significantly smaller than our Centurion DC. So it's a good place to put the system in, and it's close to support. The second thing is this is not an untried WMS for us. We've actually used this in rolling out our dark store in Cape Town. So we've been using the dark store rollout to really test software, so quite confident that this won't have any significant impact on the operations.

The share gains in the personal care and baby categories. Any insights as to who or where this gain is coming from, who is losing share is at the grocers?

We can see our own performance. We are not giving data that shows us where it's being lost. We can -- yes, we can have an idea and Bertina can elaborate.

I think our premise holds true. We did say that during COVID, some personal care actually moved to the grocers and our premise was that it would return to us, and it has returned to us, and it is continuing to return to us. The other one is if you look at the personal care performance, I mean, in that private label is up 27%. That's all about customers really trusting the quality and price position of our brands.

A number of questions from Michael de Nobrega, Avior Capital Markets. Good day, well done on a great performance. Now that the Unicorn matter is settled. Why does the group not plan to open more pharmacies compared to Click stocks. Your slide shows them opening at an even rate.

So there's 2 parts to that. One is we are so going to be reliant on those licenses being granted, although we've had a good start to the year on that. And the second thing is that's 40 to 50 pharmacies being newly built in stores. So in existing stores in a lot of the cases, where we've applied for licenses, those pharmacies are ready to go. So if we can move faster, subject to receiving the licenses, we will go faster.

[indiscernible] Voice over in mind in terms of the outlook. We have said we're anticipating a higher rollout responses.

That answers Michael second question on the process of obtaining new licenses. Then you asked how is the rollout of the new LEAP system progressed with 200 stores now are using the new LEAP system? What benefits have you observed so far?

So I think it's very early days in the rollout because a lot of those -- most of the instances, those stores have literally had weeks I think the first point to make is it doesn't have -- the rollout has not had any impact on our operations, meaning there's been no negative impact at this point. So the first game was in getting everybody trained on how to use the new system, which is going very well. And we're now looking at accelerating the rollout. The second point is that now we can really look at since we've got a significant number of getting the benefits that were part of the business case. So I hope to talk about that from February onwards.

How do you expect the rollout in [ 2-part ] system to impact revenue in FY '25, particularly for the Beauty & Personal Care and general merchandise categories.

Well, that's a tough one. I think I always thought that some Africans that we're going to access the angles draw from the 2-part that they will do so in a responsible manner and settle debt, and we've certainly been getting people are paying school fees, for example. So all of that is positive and of course, their positivity is -- I mean, you know the [indiscernible]. I mean they're doing a darn good job there. So when people are feeling more confident, they've been relieved of a great part of the debt that they've made in [indiscernible]. I think that you'll see that these people treating themselves and people treat themselves maybe by going to Sorbet which will benefit us. Maybe by getting the peddies and manicures done. Maybe by going through ARC and probably buying some fine fragrance within a beauty store. Or a beauty product within a good store. So I think we are very well positioned. And of course, I think you're thinking about homeware. How many electrical will be a category that people will probably kind of buy some products from. But I think it's too early to say what will people be. I don't want to call [indiscernible]. I'm hoping that people will be thinking and investing and really thinking about big ticket items such as mortgage bonds, car repayments and education for their kids.

Question on [indiscernible]. How are you able to have a big store rollout expansion without risking cannibalization, margin contraction and ultimately ROE contraction.

I think we've highlighted that in the past that we still see it. It's a big area where there's an opportunity for us as a growth area and in terms of throwing out new stores, and it doesn't matter if it's in Western Cape, Eastern Cape, KZN, is we always look at data before deciding to open store. And in looking at open stores, distance is not necessarily an indicator of impact. And we've got enough data tell us to assess an impact where we can open without significantly cannibalize the existing stores. And I think that we've seen that over the last few years.

Another question from Ya’eesh at SBG.What or the smaller formats refer to in the presentation? What will be the number of SKUs relative to current stores where we'll now be located.

It's too early. What I've indicated is that we are evaluating it, reviewing what those are. And of course, you guys know what we are all like. We triple check all of the boxes. It will go through the normal challenges that we have within challenge session within the group. And then we'll firm up with what the new smaller store format for us would look like. But it's exciting. I think it just provides so many more opportunities for us to go into areas that maybe with the 650 store format, we wouldn't be able to access. So I'm super excited about that.

Jovan Jackson from Fairtree says today well done on a good set of results. The UPD, what is the reason for the slower recovery in hospital sales. What were historic levels versus the current 7.6% when you expect to recover to these level?

Think historically, we've been above 40%, especially during COVID when sales took off in the hospitals. I mean part of the reason has been the slower recovery of patient days, which is getting better for us. Some of it is permanent because hospitals have been moving away from originators to generics as well. So that has also had an impact.

I'll take some other questions here from [indiscernible] and Paul Steegers at Nedbank. So I'll combine them. Can you give guidance on share buybacks in the next 3 to 5 years and Paul says your balance sheet remains strong. Will you do acquisitions or pursue share buyback or raise the dividend or a pay [ a special ]?

So, we've given guidance on our dividend policy, and we're an upper end of that. And we retain the flexibility through with that dividend policy to either deploy it in buybacks or if we have acquisitions that we want to do, it gives good sufficient resources to carry out those acquisitions. So we always aim to use or return cash to shareholders so that we maintain our return on equity target of 40% to 50%.

It appears to be no further questions. It's been such a pleasure on hosting all of you. Thank you for joining us today.