Earnings Call: H2 2021

Oct 21, 2021

Good afternoon, and welcome to the webcast of our annual results for the year ended August 2021. I'm Vikesh Ram Sundar, the Chief Executive of the Clix Group, and I'm joined here today by Michael Fleming, our Chief Financial Officer and Bettina Engelbrecht, our Corporate Affairs Director, who will be taking over as Chief Executive in January 2022. Together, we will take you through today's presentation. This is the outline of the presentation. I will start with a review of the year. Michael will follow with an overview of our financial performance. I will then take you through the trading performance, and Bettina will close with a strategy and outlook for the group. You can submit questions via the webcast during and after the presentation. I'll now begin with a review of the year. The Clicks Group has once again delivered a strong and resilient set of results. This is in the context of the business being impacted by COVID-nineteen for the full year and disruptions to trading at the beginning and end of the financial year. The result was achieved through 3 main drivers. Firstly, in Health and Beauty, our relentless focus on offering customers great everyday prices, a differentiated product offer and a highly accessible strong network secondly, in wholesale, by providing the hospital groups with superior service levels as they dealt with increased COVID-nineteen admissions. Finally, expenses and cash were well managed. COVID-nineteen continued to impact the performance of the business as consumer shopping behavior remained cautious with the country experiencing 2nd and third wave of infections. The most significant impact on our earnings, however, was from the civil unrest in July, and I will provide you with more details shortly. The year also marked the beginning of the national COVID-nineteen vaccination program. We recognize that the fastest way to economic recovery and to reduce human suffering is to fully vaccinate as many citizens as possible and have committed our network and specialist resources to accelerate this program. To date, we have administered almost 1,400,000 vaccinations across 525 sites and are the single largest private vaccinated group in the country. The difficult macro environment did not pamper our growth ambitions, and we opened our 750th Click Store at Cape Quarter in November last year. Unfortunately, the constrained trading environment accelerated the closure of our heritage Musica brand. It was a sad moment for the group, although we have known for some time that the physical consumption of entertainment is no longer relevant for the majority of consumers. UPD continued its strong performance, and I will share more detail on this later in the presentation. Even in a year with such significant challenges, the defensiveness of our strategy and resilience of our business model can be seen with adjusted diluted headline earnings per share increasing by 8.8% and a dividend of $0.490 per share being declared for the full year. The extent of the civil unrest in KZN and Gauteng had an impact on our performance, both financially and operationally. 53 of our stores, which is 6% of our store base, was looted and significantly damaged. Both the UPD and Clix DCs were also looted in Kwazulu Natal. Our business continuity plans kicked into place, and product was provided from distribution centers in the other regions. This put our supply chains under immense pressure and affected stock availability nationally. What made me immensely proud, however, was how the various communities and our teams responded in getting the business up and running in a very short period of time. The UPD facility was up and running in 2 weeks and the Kliks distribution center within a month. To date, 45 stores have been reopened and most of the remaining stores will be opened during the financial year. Beyond the loss of infrastructure and inventory, the unrest had the added impact of significantly affecting sales during the last 7 weeks of the financial year with an estimated sales loss of ZAR250 1,000,000. Due to the complex nature of the business interruption assessment, that insurance claim has not been finalized. We, therefore, have not made any adjustments for lost sales in these results. Stores that have since been reopened are not trading at their usual levels due to ongoing infrastructure recovery in the impacted areas. We expect this drag on sales to continue and improve incrementally during half 1. One of the highlights for the year was a sustained strong cash generation, and Michael will give you more detail on this shortly. Our long term strategy has remained unchanged, and we continue to invest in new stores, technology and the supply chain. ESG isn't something we do on the side. It's integrated into our value system and the way we operate as an organization. The group is once again recognized as a top employer in the retail sector for the 5th consecutive year. Directors have approved a Board succession plan, and the transition of the Board is currently in progress. We have also once again been included in the FTSE for Good Index, which recognizes our strong commitment to ESG practices. In a year that was impacted by COVID-nineteen, 2 significant business disruptions and the closure of Musica, our teams have demonstrated incredible resilience and tenacity. I would like to thank our people for their tremendous dedication, commitment and courage without which these results would not have been possible. I will now hand over to Michael to take you through the financial performance of the group. Thank you, Vitesh. Good afternoon. By way of introduction, you will note both in this presentation and in the SENS announcement that we provide certain financial information based on continuing operations. Continuing operations obviously excludes the performance of Musica along with its closure in May this year. Secondly, and more importantly, certain figures in continuing operations have been adjusted for the significant financial impact relating to the civil unrest. Where any such once off adjustments are made in respect of the civil unrest, we clearly note this in the presentation by means of an asterisk and a footnote in order to present a normalized view of the underlying business performance. I will also separately outline and discuss the financial impact of the civil unrest on the group results. In light of what I've just said, if we consider the Group financial highlights, Group turnover from continuing operations increased by 10.2% for the year. Our Retail Health and Beauty business, which was up 8.3%, did well despite the various disruptions Akesh mentioned. UPD reported very strong growth with turnover up 12.3%, driven mainly by medicines related to COVID-nineteen. The distribution business continues to gain market share through its scale and its overall service proposition. The Group operating margin at 8.2% reduced by 10 basis points. This, however, was simply due to a mix change as a result of the faster growth of UPD. Diluted headline earnings per share for the Group rose to $0.074 per share, up 2.6% on last year. Continuing diluted headline earnings per share adjusted for the direct financial impact of the civil unrest was up 8.8%. Both of these figures are within the earnings guidance range we had provided to the market. The Group operations generated very strong cash inflows of ZAR4.6 billion and our strong balance sheet ensures that the Group is well positioned to recover from the impact of the civil unrest, especially while we wait for SASVIA to pay out the remainder of the insurance proceeds still owing to the Group. During the year, we returned over ZAR2.2 billion to shareholders in dividends and share buybacks. The Group's return on equity has increased to 38.2% and would have touched 40% had it not been for the impact of the civil unrest. The dividend declared for the year of CAD 4.90 per share represents a payout ratio of 63%. As you know, the group is fully insured against the risk of political violence and civil unrest through SASRAC as well as having general insurance for business interruption. The total claim made in terms of our SASIO policy amounts to ZAR726 1,000,000 representing the insured value of assets looted or destroyed. This claim comprises $522,000,000 for inventory that had a carrying value of $334,000,000 $181,000,000 for fixed assets that had a carrying value of $61,000,000 $23,000,000 for additional costs insured under the SASRIOT policy. In total, the Group incurred R31.6 million in additional once off costs in order to deal with the civil unrest. These costs were mostly related to additional private security services required to protect our distribution centers and air transportation to be able to supply UPD customers in KwaZulu Natal. To date, we have received an interim payment of $217,000,000 excluding VAT from SASRA and we are awaiting further payments, which we expect to receive during financial year 2022. Our business interruption claim has not yet been finalized as it covers a 12 month period for stores and is subject to a 7 day average deductible. The impact of the civil unrest on the Group was significant. Including the fixed assets written off, the financial impact was approximately 8% of profit before tax. Looking at the direct impact on headline earnings and diluted headline earnings per share, you can see operating profit was reduced by $148,000,000 and headline earnings by $107,000,000 which in turn equated to a reduction of $0.431 per share for the year. In other words, diluted headline earnings per share would have increased by at least 8.8% had it not been for the civil unrest. In fact, this would have been even higher as we have not adjusted for the lost sales and profit contribution during the last 7 weeks of the financial year post the civil unrest. This element will only be recognized once reimbursed by our insurers in the new financial year. Not only did the unrest impact the top line, but COVID also had a negative impact over the full 12 month period this year compared to only 6 months in our second half last year. Retail Health and Beauty grew same store sales by 5.1%, which included selling price inflation of 3.2%. Our new stores and our pharmacies coincidentally also added 3.2 percent to turnover, leading to overall Health and Beauty sales increasing by 8.3%. Paikesh will elaborate on this performance later in the presentation. The distribution business showed double digit sales growth for the year, driven particularly by the 3rd wave of COVID during our winter. UPD selling price inflation was low at 1.9%. However, we saw pleasing volume growth in the wholesale business, which ensured turnover rose 12.3% as I mentioned previously. This slide reflects our total income earned for the year. You can see the Health and Beauty total income margin at 33.2 percent was 10 basis points lower than last year. This was mainly due to promotions and product mix as in particular sales of higher margin Beauty products were under pressure. This was partially offset by a higher proportion of private label sales. UPD's total income grew 13.4% with the margin benefiting from the growth in bulk distribution contracts and with the SEP increase, which was, however, slightly lower than the prior year. Overall, the faster growth of the distribution business has resulted in a mix change with the group total income margin being 40 basis points lower and the group total income growing 8.4 percent to ZAR10 1,000,000,000. We have continued to improve our efficiency within our cost base with retail expenditure as a proportion of sales reducing to 23.7%. This is evident across the board and costs also included the addition of new space. In this regard, we've added 39 kick stores and 36 pharmacies to the chain during the year. Retail costs grew 7.7%. Comparable retail costs were up only 4%, reflecting the tight management of costs. UPD has continued to win a number of new wholesale and distribution clients, which has resulted in leasing additional warehouses that also comes with additional variable labor, transport and other costs. Overall, UPD's total managed turnover was up 20.6%, while costs were up only 14.9% for the year. When looking at operating profit, you can see both businesses did extremely well to hold the operating margins in line with last year, which is testament to focused cost management measures. UPD increased operating profit by 11%, while at the same time maintaining an operating margin of 3.3%. Overall, Group operating profit was up 8.2% to just over ZAR3 1,000,000,000. Inventory levels for the Group are in line with last year at 66 days. Retail stock days are, however, higher than last year as a result of restocking the DC in August after the civil unrest. EPD stock days are well controlled at 35 days, 3 days lower than last year. And overall, net working capital days for the group have reduced from 37 days down to 30 days. This slide shows the movement of cash during the year. As you can see, we started and ended the year with cash of ZAR2.2 billion reflected in dark blue on the left and the right hand side of the slide. The group has generated cash of ZAR4 1,000,000,000 highlighted in green before the repayment of lease liabilities amounting to ZAR786 1,000,000 working capital inflows of ZAR 542 1,000,000 and tax payments of ZAR671 1,000,000. We also arranged temporary extended creditor terms on stock looted in the civil unrest. This will help in the short term while we wait for the insurers to pay out the balance of the claim. CAD690 1,000,000 was reinvested in capital expenditure across the group and of this amount, dollars 306,000,000 was invested in new stores as well as 41 Click Store refurbishments, dollars 77,000,000 was spent on distribution centers and dollars 307,000,000 was spent on IT and other retail infrastructure. As I mentioned earlier, we returned over ZAR2.2 billion to shareholders. This was in the form of dividends of almost ZAR1.5 billion and share buybacks of ZAR752 1,000,000. Dollars A final cash dividend of C853 1,000,000 will be paid out to shareholders in January. CapEx of C846 1,000,000 is planned for the year ahead. This amount includes $168,000,000 for replacing assets damaged in the civil unrest and $46,000,000 carried forward from 2021 due to delays caused by the impact of COVID-nineteen. Dollars495,000,000 will be invested in our store and our pharmacy network. This will include 25 to 30 new Click stores, 30 to 35 new pharmacies, 45 retail store refurbishments to ensure our stores stay modern and relevant to our customers and completing the restoration of our stores damaged in the civil unrest. Dollars 351,000,000 will be spent on IT systems and infrastructure, €74,000,000 of this amount will be invested on UPD IT and warehouse equipment, and we'll invest a balance of €277,000,000 in retail IT systems and infrastructure. We continue to grow our retail footprints, and we plan to support the increased scale of the group by improving efficiency in our distribution centers and by implementing appropriate IT tools and systems. This slide reflects our medium term financial targets. You will note we are in the range of most of our medium term financial targets, the exception being return on equity. We are confident over the medium term that this will be able to ensure this will also fall within our targeted range. You will see that we've increased the ranges for operating margins in both of the divisions and for the group. So importantly, the group has continuing headroom for growth. In Retail, Health and Beauty, we see the sustainable operating margin being between 9% 10%. On the other hand, distribution is targeted at an operating margin of between 2.8 and 3.3%, which is world class. The wholesale business faces the impact of generic medicines declining in value, placing pressure on the margin, while the bulk distribution business with its large portfolio of distribution clients supports the operating margin and is working capital light. It's worth mentioning we do expect Retail Health and Beauty to continue to grow faster than the more mature distribution business, which therefore allows the Group margin to continue to expand between 8% 9%. In framing these medium term targets, we continue to seek to optimize the balance sheet, improve working capital efficiency, enhance cash returns to shareholders, maintain the dividend payout ratio between 60% 65%, and ultimately, deliver a high quality return on equity of between 40% 50%. The group has had to deal with a global pandemic as well as difficult economic headwinds in South Africa over a number of years. Understanding the ability of a company to sustain its performance through various economic cycles is important to all stakeholders. This is particularly true for shareholders who objectively evaluate how a company performs. This slide reflects the growth in turnover, operating profit and margin of the group over the past 5 years. Low selling price inflation has been a consistent characteristic during this period. Bear in mind, the Group adopted IFRS 16 on a full retrospective basis in 2020 and therefore restated the 2019 comparative. This has increased the EBIT margin by approximately 100 basis points as a portion of the lease costs are now shown as finance costs below the EBIT line. What is important to note, regardless of the IFRS 16 restatement, is how the group has been able to evolve the operating margin over the past 5 years despite operating in these difficult economic conditions. Likewise, 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 12% per annum and dividend per share growth of 14.6% per annum. The compound annual total shareholder return over the past 10 years equates to 24.5 percent 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 from 50% back in 2011 to our targeted payout ratio of between 60% 65%. I'd also like to emphasize that in the past 10 years, the group has returned over ZAR9.7 billion to shareholders in the form of dividends and share buybacks underpinning the quality of the stock. I'll now hand back to Bitesh to take you through the trading performance. Thanks, Michael. I will now take you through the trading performance, starting with Health and Beauty. This is the breakdown of Health and Beauty sales by category. It's important to remember that we are comparing a full year impacted by COVID-nineteen versus 6 months in the previous financial year. We had good sales growth with Front Shop Health being the star performer. COVID-nineteen continued to affect customer buying behavior and impacted category performance. Pharmacy reported an improvement in sales growth of 10.2%. This was supported by the rollout of the COVID-nineteen vaccination program and OTC sales growth of over 10%. The performance of pharmacy is still being impacted by a low prevalence of colds and flu due to the various stages of lockdown and people using masks. Value growth was further suppressed by our constant drive to switch patients to a generic medication. After a slow start, the vaccination program has gained good momentum in clicks with almost 600,000 vaccines being administered by the end of August. Supported by good vaccine availability, just under 1,400,000 vaccinations have been administered to date. Frontshock Health Growth of 14.8% was buoyed by a strong performance of the vitamins and supplements category, up 14% as customers focused on preventative health care to boost immunity levels. Baby sales also continued its outperformance with growth of just under 15% for the year. Mask usage, the lack of social engagement and people working from home has impacted the growth of the beauty and personal care categories. A standout performance was achieved in the luxury bath category, up 21%, but Color Cosmetics was down 6% for the reasons I have just mentioned. The General Merchandise category underperformed, growing only 1%. Due to the high base of the previous financial year, our divestment from mobile hardware and poor growth in confectionery. Our impulse categories are being negatively impacted by a lower frequency of customer store visits. Overall, this resulted in total Health and Media turnover growth of 8.3%. Existing stores grew by 5% with inflation of 3%. As you can see, volume growth was 2% in same stores. The pleasing sales performance in Health and Beauty translated into market share gains across most of our core categories. Pharmacy market share declined slightly, impacted by consumers staying away from shopping malls and opting for home delivery. This has made independent pharmacies more resilient over the short term. Clicks has a relatively small share of the courier pharmacy market. We enabled the delivery service from all our pharmacies in November last year but have resisted driving the growth of deliveries. Deliveries are margin dilutive, and we will not chase market share at any cost. Important to note is that almost 1 in 4 medicines sold in the country today is through a clicks outlet. Good share gains we're seeing in FrontDrop Health getting close to 33%, We're almost at 20% share in Baby, and Beauty reflected a similar trend of market share gains. A strong promotional mechanic last year enabled significant market share growth in small electrical appliances. A more normalized trading pattern this year has resulted in a share decline. I will now go into detail on the key drivers that supported our growth. The first and most important driver was delivering value to customers. The tough economic conditions make cost savings increasingly more important to consumers. Value is an inherent part of the brand's positioning and will remain a key focus area as we live up to our feel good, pay less promise. We delivered savings to customers in several ways: firstly, through great everyday pricing. The table on the slide reflects a snapshot of our price indices in August relative to all major national competitors. Also note, this excludes our renowned 3 for 2 promotions, which further enhances our value proposition. As you can see, the brand remains highly price competitive. Prices are monitored daily and adjusted accordingly. Secondly, through promotions. Relevant and effective promotional activity continues to drive customer footfall and supports sales growth. Promotional sales grew by 12% and now makes up 42% of turnover. Thirdly, we offer value to South Africa's leading loyalty program, the clicks ClockCard. As one of the most generous loyalty programs in the country, Clock Card customers received rewards of ZAR545 1,000,000 during the reporting period. And finally, CLIX is dedicated to offering patients a generic alternative at our pharmacies. Generic medicine sales grew by 10.5% and makes up 69% of volume. The second driver of growth was the differentiation of our product offer. We have an extensive range of trusted quality private label and exclusive brands. Private label remains of strategic importance as it provides us with differentiation, higher margins and ultimately, better value for customers. To reduce the impact on sales from increased private label penetration, we have introduced a tiering strategy with Clicks Expert being the top tier, Clicks being the middle tier and the Payless brand being the entry point into the category. Private Label and Exclusives now contribute 25% to total sales and made up of 30% in Front Shop and 10% in Pharmacy. Online remains an important part of our long term strategy. We use the online store to provide customers with our total range of products, including large bulky items like cots and prams. It is our view that the purchase of large baby accessories will move online into the future as can be seen in several markets across the world. In anticipation of this change in consumer behavior, we are rolling out new stand alone Clicksbaby stores as showrooms to stimulate online purchases. 11 of these stores should provide the business with sufficient coverage to enable the long term strategy. We have started by launching our 1st store at the Gateway Shopping Mall in KwaZulu Natal and the 2nd at the Mall of Africa in Kauteng. The Body Shop in Clicks grew by 5%. Stand alone stores, however, declined by 4%, being impacted by lower footfall in destination malls and the temporary closure of the OR Tambo Airport store. I am pleased to announce that our relationship with The Body Shop remains strong, and both parties have agreed to extend the current franchise agreement. Continuing with our search for differentiation and to support the local economy, a supplier listing portion was launched to improve new line listings with a key focus on developing small and medium sized suppliers. Our commitment to the strategy is reflected by purchases in excess of ZAR1.2 billion from small and medium sized businesses, growing by 69% on the previous year. The next driver of performance was our personalization strategy. Despite the reduced footfall in stores, our teams recruited an additional 600,000 new ClubCloud customers for the year. We now have 9,200,000 active members making up 80% of sales. 2,300,000 customers have now downloaded the Clix app. This is very pleasing as it accelerates the opportunity to connect with customers in a more personal manner, ensuring we become even more relevant. Investments have continued in digital by enhancing our online platform, preparing for the launch of a new marketing platform, and you can now even register for a Clix Club card via WhatsApp. Joining our existing partners like Ngen and Ebox, we have a new affinity partner called Arc Stores, a prestige beauty retailer which opened its first store in Sandton City and will soon be opening at the V and A Waterfront in Cape Town. Points are accumulated at ARC, but can only be used at clicks. This provides us the opportunity to engage directly with a beauty focused customer. Clubcard was once again voted by customers as the number one loyalty program. It's one of the most generous programs in the country and is simple to understand. Just swipe your card or scan your virtual clock card and save. Clix was also voted as the coolest health and beauty retailer and the Sunday Times Next Generation Awards. As I have said before, that's awesome to be cool. But more importantly, the survey reflects the choices of the next generation of shoppers and it's encouraging for the future growth of the brand. The final driver of performance was the expansion of our store network and extension of our convenience strategy. As Michael mentioned earlier, we opened 39 Nucleix stores and 36 new pharmacies. This takes the brand to 7 80 stores with 80% of them being pharmacies. As you can see from the slide, our strategy is being well executed with 74% of our stores now in convenience locations. The expanding footprint makes our health care offer even more accessible, particularly in support of the COVID-nineteen vaccination program with 50% of the population now living just over 5 kilometers of Aclics Pharmacy. A behavioral shift driven by COVID-nineteen was the accelerated growth in online purchases. The online store is now our largest store in the chain with sales growing by 47%. The growth in half 2 was only 3%, competing against strong sales of last year and customers returning to shopping in store as the economy began to open up. Although we expect online to grow over the next decade, the contribution is currently only at 1.4% of Front Shop sales. As I mentioned earlier, customers chose to visit stores less frequently, but encouragingly, their basket value grew by 6.6%. Delivering parcels to patients may increase market share and is ultra convenient for the customer. But at our low dispensing fee, it has a value eroding outcome. An innovative solution to this is to enhance customer convenience by installing digital self-service lockers in store. When the customer signs up for repeat prescription service, their parcels are pre prepared and a digital code is sent to the patient for them to collect when visiting the store. This allows them more time to browse the front shop. We are currently assessing the results of our pilot to understand the scalability of this solution. Finally, the competition authorities last month approved our acquisition of the Pick N Pay pharmacies, and the process to transfer the licenses will now begin. That completes Health and Beauty. I will now move on to UPD. UPD has once again had a very good year, delivering a strong set of results. This is the breakdown of UPE's wholesale turnover, excluding distribution and preferred supply contracts. Wholesale turnover grew 15% with hospitals being the fastest growing channel, up 37%. This performance was driven by high levels of hospitalization due to the impact of COVID-nineteen. Both clicks and independent pharmacies showed slower purchase growth as the use of masks and social distancing reduced acute infections. This trend is expected to reverse itself as more individuals are vaccinated and the country moves into lower levels of lockdown. Flicks remains UPD's largest customer, making up 45% of wholesale turnover. The strong performance of UPD's core customer base has resulted in wholesale market share increasing to 31%. Total managed turnover, that's combining wholesale with the turnover managed on behalf of our bulk distribution clients, increased by 21% to ZAR28 1,000,000,000. Generic medicine sales grew by 17% and now makes up 71% of volume. As I mentioned earlier, the civil unrest, especially in KZN, was highly disruptive with the UPD facility being looted and damaged. No matter how much you plan and run simulations, nothing prepares you for executing your BCP plans in a live situation. The unrest allowed us to properly test ours. The business did an incredible job and proved its service credentials by maintaining the supply of life saving medicines to the region, particularly to the large hospital groups. The picture on the slide highlights some of the measures we had to put into place. UBD has reached its maximum storage capacity. We have solved this challenge by reaching an agreement with the landlord in Johannesburg to extend the size of the current lease facility and by renting an additional facility in Cape Town. This will enable the business to continue growing in the medium term. Finally, UPD has commenced its ERP implementation with the first facility going live in October this year. The investment will allow us to simplify our operations, extract further efficiencies and provide world class reporting to our distribution clients. That completes the review of the business. I will now hand over to Bettina for the balance of the presentation to take you through the strategy and outlook for the year. In our organization, we take pride in the quality of our talent coverage and effectiveness of our succession planning process, and this will now facilitate another seamless leadership transition. Bettina has been with the Clicks Group for 15 years and been an integral part of developing and supporting the execution of the group strategy. She's a seasoned executive with a diverse skill set and will lead the group into its next phase of growth. Thank you, Bikesh, for the kind introduction, for your sponsorship and for the detailed handover plan that you and I will be executing over the next few months. I inherit a highly effective board and proven leadership team on whose support I will be drawing to ensure a smooth transition. At the outset, I would like to stress that our strategy is unchanged and I will now take you through our 6 strategic objectives. 1st, the group continues to invest in organic growth by expanding its retail footprint, bringing the targeted 900 store base ever closer. The convenience of the Group store locations and proximity to its customers provides us with a distinct competitive advantage. Our online store and online only range extensions complement the convenience of our extensive retail and pharmacy footprint. 2nd, the objective to operate a pharmacy in every click store in South Africa has seen the Group opening pharmacies at a faster rate than new store openings. The healthcare markets are defensive and growing due to positive dynamics such as increased urbanization which support the group's organic growth strategy. Our goal of achieving a 30% retail pharmacy market share is therefore unchanged and attainable. 3rd, UPD's operational excellence, empowerment rating and positioning as the preferred pharmaceutical supply chain partner to clicks, the 3 largest private hospital groups and to link pharmacies is attractive to pharmaceutical manufacturers hence its sustained market share gains. In addition, UBD's pricing and speed to market positions it well to achieve its aspiration of its 35% share of the fine wholesale market and 40% share of the bulk distribution market. 4th, our centralized retail distribution centers with UBD as the preferred pharmaceutical supply partner to the retail business enables the group to extract operational efficiencies, improve availability and manage its supplier infill rates. The investments made in supply chain and IT systems will further enhance the Group's operational efficiencies and working capital management. As a proud South African company with a diverse workforce and a customer base that is predominantly female, inclusive transformation has always been integrated into our strategic plans. The group sustained rating as the top BBBEE and gender empowered company in the health, pharmaceutical and retail sector bears testimony to our commitment to transformation. In the past year, we have worked closely with external stakeholders to advance inclusive economic transformation. We continue to support the National Health Agenda through our CLICS Helping Hands Trust, our vaccination program and investment in our pharmacy bursary scheme. We are also building social capital through CSI programs that benefit local communities and we are continuing our advocacy across a broad range of socially relevant issues such as gender diversity, public health care and environmental stewardship. 6th, ESG is an intrinsic part of our culture. This is evident from our continued inclusion in the FTSE for Good Index and Carbon Disclosure Project. Over the past year, we have developed a plan to revitalize our Board. This plan will be implemented over the next 3 years to ensure stability and continuity. We recognize that driving ESG requires us to focus on those ESG issues that have the greatest impact on enterprise value creation. We have therefore incorporated ESG into our medium term planning and long term incentive scheme. I believe that by staying true to our heritage as a value retailer that prioritizes customer care, our strategy of creating sustainable long term shareholder value through a retail led health, beauty and wellness offering, which is premised on convenience, differentiation and personalization will grow our market shares in accordance with our aspirations. I will now turn to the outlook for the current financial year. As is evident from our results, we are trading well despite the socioeconomic effects of COVID-nineteen. Significant job losses, ongoing movement restrictions, as well as the July civil unrest will continue to affect consumer behavior and trading in our current financial year. As the country's leading health and beauty retailer, we remain committed to supporting the national vaccination program. We now have 525 registered vaccination sites capable of administering 600,000 vaccines each month. Value, convenience and differentiation that respond to consumer needs remain key drivers of sustained volume growth. We will therefore continue to offer great value and rewards, competitive prices, effective promotions and a wide range of branded, private label and exclusive brands in formats that are both convenient and accessible to our customers. The substantial investments that we have made in supply chain and IT systems have launched. The focus will be on integrating these systems, setting the teams into the new ways of working and extracting the planned efficiencies. We will continue to invest in digital customer engagement in order to strengthen customer loyalty, build our brand equity and influence customer purchasing behavior of our 9,200,000 active and growing Clubcard customers. Whilst the consumer environment remains extremely constrained, the easing of lockdown restrictions and the resultant opening up of the economy is positive, especially for a value retailer such as Clix that is renowned for its 3 for 2 promotional mechanic. The Group's strength in our core health and beauty markets, coupled with our proven capability to adapt to changing market conditions, to trade through difficult times and maintain volume growth positions us for sustained financial performance. This is because we have a resilient business model. We trade in defensive categories. We are a much loved brand. We have an iconic customer rewards program and teams of engaged people who excel at execution. I am therefore confident in the group's ability to achieve our medium term targets. The increased operating margin targets reflect that confidence. Thank you for your attention. I now hand back to Vitesh. Thanks, Bettina, and thank you for listening, and we are now happy to take your questions. The first question is from info at the Anzio Asset Management. The stores are starting to improve on a weekly basis. They impacted stores. And I certainly think it will probably take it will improve incrementally within the first half of the year. Pharmacy has certainly gone back to a normalized operating level. It's the front shop that's currently being impacted. But I would suspect that it would take around 6 months for that to happen. The question from Nonta Iglombella from Tonga Well. May you provide guidance on the anticipated number of vaccines to be administered in FY 'twenty two? Well, we can accommodate up to 600,000 patients or people who want to be vaccinated a month, but this is dependent on the desire of citizens to vaccinate. So we will continue to provide our resources and open even more vaccination sites if we need to, to get closer to the customers. Good day. The clicks chain, can you please quantify the uplift from participating in the vaccination rollout or uplift in trading and vaccine participating stores versus nonparticipate? It's actually very difficult to calculate effectively what the front shop outflow is. But certainly, the stores that do have vaccination sites, we do see an increase in front shop performance. And there's no doubt we're not trying to do this for financial gain. We ultimately believe that by vaccinating the bulk of the citizens in the country, the economy will ultimately improve and then we will grow in across all our different stores. Sean, is this up with UPD? Was there also a short term uplift as a result from COVID-nineteen business? Do you expect this to reverse? Or can the business build on these gains? Well, as you can see, the bulk of the performance in UBD came from the hospital channel. Now we certainly wouldn't expect as many hospitalizations in the new year coming from COVID-nineteen. But potentially, elective surgeries will begin once again in hospital, so that would support the hospital business. And if we all go back to socializing a bit more in the new year, you could probably see an uplift coming through in pharmacy and acute infection. So that would also support the UPD business moving forward. Warren Mariani from Bachelor and Capital asks, what are your expectations around the return of a normal flu season? Does COVID become annual flu? Well, current annual flu? Well, it's very hard to predict, but you have to believe with the 2 very low seasons that we've had, with more let's look at what's currently happening. As the levels of lockdown have been reduced, there's certainly more traffic on the road, more people returning to work and more engagement. So I do expect that, that would drive acute infections, flu, etcetera. So certainly, I do expect an increased level of flu infections in the coming year. Detailed questions on the impact of the civil unrest. David Fraser from Pure Branded Capital Markets. In the insurance slide, please can you explain the difference between the claim value of stock of €522,000,000 and the carrying value of DKK 334,000,000 Surely, you can only claim back the actual cost of the stock without any mark up? It depends, I suppose, on the policy's wording. But from our perspective, we are insured for the replacement value of fixed assets, which is why we will receive SEK 180,000,000. And for stock, we ensure it at selling prices, less variable costs. So that explains the difference between the cost price written off and the claim. Maureen Rainer from Beth Lepka. For us, how will the remainder of the South Korea insurance proceeds be recognized? Will there be an income statement impact? Or is the balance largely related to fixed asset replacement? Could you also give an indication of the business interruption insurance materiality? The biggest part of the claim is obviously the roughly DKK 500,000,000 that hasn't been paid. So as I said, we've received DKK 217,000,000. You can see in the income statement, we have shown that under a separate line as part of sundry revenue. And likewise, in 2022, when we receive the balance of the claim, we would obviously disclose it separately because it needs to be recognized in revenue, sundry revenue. And the appropriate portion will be going towards capital replacement, which is the $180,000,000 once we receive that because there's 2 components. I've given you the split of both. And it's Prince Chiu from Anadark Capital asks. Dollars 752,000,000 was spent on buying that shares. Can you remind us the principles followed in the current program? In the changes in equity statement, you can see that we bought back roughly 3,100,000 shares for ZAR 752 odd 1,000,000. So I guess that will give you an indication of what we purchased them for. Our long term commitment to shareholders has always been to take the cash that's generated from the business, ensure that we can support organic growth prospects of the business by reinvestment, paying out a healthy dividend, which you can see is 60% to 65% in terms of payout ratio, which we've done. In fact, last year, we had to pay out more because we had passed on the interim dividend in 2020. And you can see actually almost SEK1.5 billion was paid out in the year 2021. And on top of that, we still had surplus cash to apply to share buybacks, which is also a strategy that we believe enhances long term shareholder value over a period of time as long as you buy them at the right price. We use the same kind of methodology you would probably use as in terms of valuation. We look at discounted cash flows. The Board considers the value we'd want to apply in terms of surplus cash and then what price we should buy them. So we typically only reflect that once we've done it. And you can see for the last 2 years, we've actually bought back quite a lot of shares, ZAR 650 odd 1,000,000 last year. I'm talking about 2020 and R750 odd 1,000,000 in 2021. So Nigel from MoneyWeb asks, what percentage of the group sales is now linked to online sales? Can you give us more insight on the group's digital growth plans and partnerships such as being part of the Vodacomps you have? So our online sales are currently only 1.4% of front shop sales. And partnerships with the Vodacom Super App was as another channel to access digitally proficient customers who want to shop online. It's certainly not our strategy to drive online growth. We're a brick and mortar retailer. And on the our online strategy is really a defensive strategy to ensure that we offer all customers channels in ways that they wish to purchase. So the Vodacom Super App made sense to us because these aggregator apps will continue to grow as they have around the world. And we want to be to ensure that we're accessible to customers who want to shop via those channels. Terence also asks, is Clix closing any stores or reducing space of existing stores? Firstly, with its expansion, how much space does a footprint currently cover? And by how much will it increase to with the 25 to 30 new stores? Well, certainly, we're if we see trading is muted and the store is unprofitable, we will close those stores. We do that on a store by store basis. And our objective is to get to 900 stores in South Africa. And these stores may be of various sizes depending where these opportunities arise. So it's impossible to predict the actual space growth. But typically, I mean, space would grow around 2% a year, Michael. Yes. We have been growing about 3% on average. As you said, it depends on where we acquire the stores. But I would think when you look at the stores opened in the previous year, we opened 40, almost 40. And even if you take 30 in the current year, that combined effect would probably give us around 3% to top line. Ray Mishak from Daily Maverick asks, is fixing any impact from the global supply chain disruption in terms of sourcing goods? What is the percentage of imports across the group? So the percentage of direct imports is under 10% for the group. So I think it's roughly 8% directly. Now we typically would do that around some private label lines and, of course, for Christmas. We haven't seen significant impact on those particular lines, particularly because we can manage it ourselves directly with the factories. And we have our Christmas lines in already. There's just very few lines that have been impacted. However, the 90% of the products that we buy in the country has had some level of supply chain disruption. So availability is slightly lower than it typically would be, and that's because of our local purchases rather than what we would buy directly ourselves. Dan Fraser from Paragon Capital has another question. Please can you discuss the nature and risks in the IT system implementation? Is this across both business units? Well, there's always risks when you bring in a new IT system. But I think what we've been very happy with is actually we haven't felt the impact of the introduction of the new IT system. So we're already live with the Clicks, the health and beauty retail merchandising system. It's up and running. And in fact, it's actually around change management as people get used to working with the new system. UPD, in a way, the risk is diminished because they run on different systems. So we started with our Durban facility at the moment. It's now up and running. We will learn from that. And then we will roll out the system into the other distribution centers, ultimately into a fully integrated network. So the risk has been diminished by the way we have managed this. And as I mean, the market has seen no impact. Our stores are running well. And we have stock in all our facilities. Stephen Howards from 3 61 Asset Management says, 1 of your large competitors is focused on growing Primary Health Care. Does Flex have a similar plan to grow Primary Health Care with the backdrop of NHI? So we are already in Primary Health Care. But we have certainly, we haven't spoken about this. It could be a discussion that happens at the Board. Our intention at the moment is not to move into insurance currently because there's a difference. So today, we provide primary health care services to the citizens of the country. But it's certainly not our ambition to compete with the large insurance companies in the country that already have the capability to do that really well. Question from Max Villan Sbora from Namibia Capital Partners. With saying that you're optimistic about reaching an ROE medium term target soon, could you please specify when you intend to reach the target and which actions you are taking to reach the target? Well, I did mention that if we hadn't had the civil unrest, which was most unfortunate, we would have actually touched the lower end of the 40%. So I think it's a combination of 2 things. 1 is obviously the returns we continue to get through reinvesting in the business. And secondly, we have done sizable dividend payout ratios and share buybacks, which obviously has reduced the equity base, which I think if you had to run your numbers, you would probably find that next year, it would be quite easily achievable for the blue. So there appears to be no further questions. As this is my final results presentation, I would like to take this opportunity to thank the Board for their support, particularly in my term as Group CEO. Thank you to my fellow group executive members for your unwavering commitment to the smooth running of the company, and thank you to the people of the organization for being the pillar of its success. Over the past 3 years, I've enjoyed the stimulating engagement with local and international fund managers and analysts, And I thank you all for your interest in the group and belief in our investment case. I have shared many wonderful moments with the group over 28 years and will miss the business dearly. So thank you for Michael, Bettina and myself. Goodbye.