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Cape Town – Clicks Group increased operating profit by 15.4% to R1.8bn in the year to August 2017, driven by strong retail health and beauty sales which grew by 14.7%, the company announced on Thursday.
Group turnover increased by 10.9% to R26.8bn and diluted headline earnings per share by 14.5% to R5.02. The group increased its operating margin by 30 basis points to 6.8%.
The retailer remains highly cash generative, with cash inflows from operations exceeding R2bn for the first time.
Renier de Bruyn, an analyst at Sanlam Private Wealth, told Fin24 that Clicks has been continued market share growth in all major categories. He added that, although consumers are under pressure, the pharmacy and health and beauty market is more resilient than rest of retail market.
He does not expect the company's growth to slow down as its structured growth story is still in place. Clicks still sees a lot of scope for expanding its number of stores, for instance.
De Bruyn, however, says he cannot help but wonder what will happen when Clicks and Dischem "start running into each other" as both have aggressive plans for growth. For now the market share opportunity still there, though.
Both Dischem and Clicks are trading at high valuation of its share price at the moment and De Bruyn said this is because the market seems to be willing to proportionally reward above average steady growth.
"So, Clicks is in a good space and the growth prospects for the company remain attractive, but the market - in terms of share price - has already rewarded it. Therefore future returns are expected to be lower," explained De Bruyn.
The company said in a statement that the directors have shown their confidence in the group’s prospects by raising the dividend payout ratio to 60% and declaring a dividend of R3.22 per share - 18.4% higher than last year. Dividends have grown at an annual compound rate of 20.9% per annum over the past 10 years.
CEO David Kneale said the group delivered a resilient performance in tough retail trading conditions, evidenced by the robust health and beauty sales, strong cash generation and enhanced returns to shareholders.
“Clicks produced another strong trading performance, led by pharmacy and front shop health sales. Our customers continue to respond positively to the Clicks value promotions and differentiated product ranges, and the chain reported strong volume growth while gaining market share in all product categories,” he said.
Clicks ClubCard reached the milestone of 7 million active members and accounted for over 77% of sales in Clicks.
Clicks opened a record 111 stores during the year and expanded its store footprint to 622. The Clicks pharmacy network was increased to 473 following the opening of an additional 73 pharmacies.
The company plans to increase its store base in SA to 900 in the longer-term, said Kneale.
Distributor
UPD, the group’s pharmaceutical distributor, increased wholesale turnover by 12.1%, with market share increasing to 25.6%. Operating profit increased by 19.6% as the margin expanded to 2.7%.
The group generated a total shareholder return of 25.2% for the year and created additional shareholder value of R7.5bn from share price growth and dividend payments.
Kneale said the retail sector will face headwinds as low economic growth and political uncertainty continue to dampen consumer confidence and constrain spending.
“The core health and beauty markets in which we trade are defensive and have proven to be relatively resilient in challenging trading conditions,” he said.
Kneale said the group is committed to investing for long-term growth and record capital investment of R680 million is planned for the 2018 financial year.
This includes the opening of 25 to 30 new Clicks stores and 30 to 35 new pharmacies, with significant investment in the retail and pharmaceutical supply chain to support the increased scale of the group.
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