Agenda High-level financial overview

Agenda

• High-level financial overview

• Purchase Milton & Associates

• Healthcare update - South Africa

Financial Results for year ending 31 August 2002

Income Statement

• Turnover R5.5bn +25.7%

• Operating Profit R318m +21.3%

• Operating Margin 5.8%

• Excluding Discom

• Operating Profit +31.9%

• Operating Margin 7.04%

Goodwill

• Balance Sheet Income Statement

• Rm Rm

• Link 16.120 0.895

• House 78.304 9.042

• Price Attack 88.078 1.419

• Total 182.502 11.346

Accounts Receivable

• Increases due to:

• acquisitions
• franchisees
• 2002 2001
• Rm Rm

• SA 120.353 82.630

• Aus 76.271 24.640

• Total 196.624 107.270

Accounts Payable

• Increases due to extending terms

Cash Flow

• Big Improvement

• Improving Working Capital

• Cash Flow from Operating

• 2002 2001

• Rm Rm

• 296.927 145.337

Future Focus

• Continue to focus on:

• Asset turnover (stock turn goal 7x over 3 years)
• Cash generation
• Improving margins (goal still 8%) - (UPD will
• lower margin but has high asset turnover)

• Resulting in improving:

• Returns and EVA (ROE goal still 30%)

Strengthened Financial structure as we go forward

• Appointment of CFO in each geography

• Focus on efficiency improvements

• Trans-national project:

• cost centres to profit centres - franchising
• process innovation to reduce overall costs
• strict financial regime

Loan to Pharmacy (PM&A)

• 2002 2001

• Rm Rm

• Loan 276.900 239.028

• Interest charge 45.5 10.1

• Cost recovery 11.4 4.0

• Interest turn

• Fees income Link

• Loan impairment & recoverability

PM&A

• They are budgeting high profit growth as they consolidate

• Some of the largest stores were acquired

• Acquisitions stopped - consolidation phase - convert to largest and most profitable chain of Pharmacies in SA

• Operating profit could exceed 10% if we could integrate (7% otherwise)

• Cash generating

Healthcare SA

Different store ownership models

• There will always be franchise (LINK)

• income from fees, rebates, wholesale profits

• but if law allows there will also be:

• pharmacies in Clicks & Discom

• 100% ownership (PM&A)

• JV (80%:20% for any of the brands)

Intercare

• A close relationship with the doctors who prescribe

• Objective is to improve pharmacy turnover

• Pilot project

Link Investment Trust

• Budgeting for break-even

• Funding new initiatives

• Link - The best known pharmacy brand

• Income from

• franchise fees - potential for new members,
• rebates
• own brands

UPD transaction reminder

• R 2 billion turnover, NPAT R43m

• Transaction to be funded through issue of

• 39 024k New Clicks shares at R7.20

• P/E for valuation was 6.5x

• Earnings enhancing

• Awaiting approval from Competition Commission

Healthcare Legal Issues

Introduction - a perspective

• Introduction - a perspective

• The year in review

• Our pharmacy model

• The year ahead

• Summary

August 2001

Results – Aug 2002

• Sales up 13.9%

• Operating Profit up 22.9%

Results – Aug 2002

• Franchise Income up 99.2%

• Operating Profit up 117.5%

• Store Growth 10

House Key Issues

• Response to competitive environment through differentiation - Private label - Direct imports

• Government home loan scheme ends

• Competent team now in place

• NZ on hold due to supply chain complications

Results – Aug 2002

• Sales Up 13.2%

• Operating Profit Up 10.34%

• Store Growth 9

Priceline Key Issues

• Why did we only open 9 stores

• Intense competition – our response

• Lifestyle category repositioning
• Differentiation through imports
• Loyalty - a positive outcome

• Leverage to be gained with Price Attack

• Margin focus

• Loyalty - a positive outcome

• Stock levels - growth due to strategic opportunity

• Operating Profit - 7.61% to sales

A Snapshot

• 94 stores

• Average turnover per store - $950 000

• Franchise fees - 5% on sales

• Advertising fee - 3% of sales

• Local area marketing - 1% of sales

• Master franchise arrangement - WA, SA - 1% franchise fee, 3% marketing fee

Opportunities

• Synergy with Sunday Group - access to 1800 formulations

• Private label

• Easily transported

• Monopolistic environment

• High margin

Make-up of the industry

• Make-up of the industry

• Regulatory environment

• Our offer

• How income is generated

• Store growth

Number of pharmacies in Australia: Approximately 4,900

• Number of pharmacies in Australia: Approximately 4,900

• Bannered pharmacies:

• Approximately 1,900 (39%)

Retail Pharmacy Sales Mix

Wholesaler & Pharmacist Relationship

• Wholesalers guarantee loans for pharmacists to acquire pharmacies.

• The pricing mechanism for pharmacists is artificially inflated, 1:1 ratio of turnover to goodwill

• Pharmacists align to a banner through loose agreement

• Distribution on a twice-a-day basis

• Banner groups offer marketing programmes and some operational support

• Private label products are key to the relationship

Regulatory environment

• Agreement between Government & Pharmacy Guild

• No corporation can have pecuniary interest

• Geographic restriction

• Usage clause restriction - landlord

• Limit to numbers in shopping centres

• Regulations applied by Pharmacy Board - layout of stores

• Approval numbers

• Pharmacy Act - differs in each state

Pharmacy Paradox

Our Offer

• Category management - increased margin

• Rebalance front and back of shop - increase sales

• Common IT platform

• Marketing programme - including ClubCard

• Retail services (merchandising and space management)

• The Pharmacy Academy

• Operational focus - shopfloor productivity

• Brand equity

Benefits for Fees

• Annual franchise fee - a flat amount

• Distribution fee linked to purchases on front of shop

• IT annual maintenance fee

• Marketing fee linked to marketing programme costs

• Supplier rebates

• Significantly - no capital employed

Store Growth

• Three Opportunities

• Existing Pharmacies convert to Priceline model
• Convert Priceline stores to Pharmacies through a franchise arrangement
• Secure new locations and through a relationship with pharmacists acquire approval numbers

• Objective

• 14 - 20 Stores secured by August 2003
• 1000 by ??

The Year Ahead

The Year Ahead – Store Growth

Summary

• Price Attack, full year of profit

• Controlled growth of costs

• Loyalty to deliver

• Leverage gains in merchandise

• Roll-out of pharmacy

Stock Management

• Next year goal R250m improvement

• Centralising imports, single item picking, algorithms

• Stock turn 5x, 6x, 7x, over next years to generate cash (JIT)