Life Pharmacy Annual Report 2006
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life_web_25th.fh10 6/23/06 10:46 AM Page 1 C M Y CM MY CY CMY K LIFE PHARMACY ANNUAL REPORT 2006 Global Reports LLC Composite life_web_25th.fh10 6/23/06 10:46 AM Page 2 C M Y CM MY CY CMY K A IT’S YOUR B Global ReportsLIFE LLC PHARMACY Composite life_web_25th.fh10 6/23/06 10:46 AM Page 3 C M Y CM MY CY CMY K CONTENTS 4 Results and Achievements 5 Chairman’s Letter to Shareholders 6 Chief Executive’s Report 7 Management Team 8 Corporate Governance 12 Group Entities 13 Report of the Auditors 14 Financial Statements comprising: Income Statement - Page 14 Statement of Changes in Equity - Page 15 Balance Sheet - Page 16 Statement of Cash Flows - Page 17 Statement of Accounting Policies - Pages 18 – 19 C Notes to the Financial Statements - Pages 20 – 33 34 Major Shareholders 37 Company Directory Annual Meeting When: 29 June 2006, starting at 2:30pm Where: Life Pharmacy Central Office, Level 1, Building B, Millenium Centre, 600 Great South Road, Greenlane, Auckland LIFE, ENJOY D A - Life Pharmacy Queensgate B - Sylvia Park interior concept C - DRESS-SMART Mall, Onehunga D - Sylvia Park entrance concept E, F - DRESS-SMART Mall, Onehunga E F Global Reports LLC ANNUAL REPORT 2006 Composite life_web_25th.fh10 6/23/06 10:46 AM Page 4 C M Y CM MY CY CMY K RESULTS AND ACHIEVEMENTS For the year ended 31 March 2006 PARENT ENTITY CONSOLIDATED GROUP FINANCIAL RESULTS SUMMARY $’000 2006 2005* 2006 2005* Revenue 5,172 2,089 5,494 2,473 EBITDA 1,112 365 943 280 EBIT 1,089 360 891 249 Profit before tax 1,153 451 955 340 Profit for the period 1,276 438 1,096 293 Total assets 39,039 28,263 38,819 28,237 Total liabilities 10,692 704 10,797 823 Shareholders equity (net assets) 28,347 27,559 28,022 27,414 Dividend 766 349 766 349 Basic earnings per share (cents) 4.53 1.56 3.89 1.05 Diluted earnings per share (cents) 4.18 1.55 3.59 1.04 Dividends per share (cents) 2.73 1.23 2.73 1.23 Net assets (cents) 101.20 97.33 100.04 96.81 * trading for six months to 31 March 2005 • Pharmacist investment secured and new format store designed for the new Life Pharmacy to open in Sylvia Park, the largest shopping development in Auckland, in August 2006. • Life Pharmacy Remuera sold • The first Life Outlet Store at Dress-Smart, Onehunga, Auckland, opened in November 2005, a joint venture with CS Company Limited • Life Pharmacy Queensgate relocated and significantly expanded to flagship store status in upgraded and enlarged Westfield Mall, Queensgate, Lower Hutt • Chief Operating Officer appointed to strengthen operational, merchandising and marketing leadership • Life Pharmacy central office relocated from shared premises with other pharmacy business to the Millennium Centre, Greenlane, Auckland • Centralised Information Technology platform implemented to enable data transfer across the business • Seventeen pharmacy companies transformed from private family business status to adopting “best practice” business processes Life Pharmacy Sylvia Park, Auckland Global4 ReportsLIFE LLC PHARMACY Composite life_web_25th.fh10 6/23/06 10:46 AM Page 5 C M Y CM MY CY CMY K CHAIRMAN’S LETTER TO SHAREHOLDERS For the year ended 31 March 2006 The year ended 31 March 2006 was the first full year for Life Pharmacy Life Pharmacy Business Model Limited (LPL) as a listed retail pharmacy group. Overall performance Life Pharmacy is founded on a committed professional ethos. The of our pharmacies did not meet expectations while performance was people who manage Life Pharmacy stores all have a very strong mixed between pharmacies. We faced an increasingly competitive personal stake in the business. And thanks to the transformational environment evidenced by a very flat Christmas trading period and efforts put in by our team over the past year that commitment is now competition from parallel importing in the key fragrance category, supported by sound processes, consistent standards and appropriate and our anticipated acquisitions were not concluded. infrastructure. LPL is now in a position to gain the commercial and market advantages that accrue from enhanced efficiency and improved This masked an otherwise very productive year in transforming performance, competitiveness and accountability. seventeen pharmacy companies from private family business status to adopting best practice business processes and pharmacy growth More importantly, a team is now in place that will enable the group initiatives in particular, Life Pharmacy Sylvia Park, Life Pharmacy to address the Board’s major area of focus: to add value to the business Queensgate store upgrade and the Life Outlet Store commencing through acquisitions, green field developments and other growth- trading. enabling strategies and initiatives. All of our people have put in considerable effort to effect this The Life Pharmacy Sylvia Park transaction is evidence of one of LPL’s transformation. We now have an operating structure and capability growth initiatives. LPL entered into an agreement with the Sylvia Park that not only addresses day-to-day operational requirements, but also developers, Kiwi Income Property Trust, to lease 560 square metres provides a platform for capturing significant new opportunities. We of retail space in what will be one of New Zealand’s largest retail are positioned to execute our growth strategy to be an innovative developments and we incorporated Life Pharmacy Sylvia Park Limited multi-brand health and beauty retailer at the forefront of the retail to operate a pharmacy there. Continuing legal restrictions on pharmacy experience for our customers. ownership forced LPL to sell down its shareholding in Life Pharmacy Sylvia Park so that pharmacists would hold the majority share. To meet Key Financial Results * this requirement we have sold 51% of Life Pharmacy Sylvia Park to LPL parent revenue, excluding net interest income, for the year was pharmacist investors. $5.17m ($2.09m). For the year ended 31 March 2006, LPL parent company profit is $1,276,000, compared with $438,000 last year. This transaction represents a major innovation which, while complying The trading activities have generated net cash inflows of $211,000 fully with the regulatory ownership restrictions, generates additional ($69,000 outflow). Earnings per share rose to 4.53 cents from 1.56 revenue for LPL while providing an investment opportunity for pharmacy cents last year. owners without compromising NZX’s spread requirements. The Group result, after consolidating subsidiary losses and the joint To continue to drive innovation and accelerate the rate at which the venture and associate results using the equity method, is a profit for business can further expand, the Chief Operating Officer’s position the period of $1,096,000 ($293,000). was created to lead Life Pharmacy’s operations, marketing, and merchandising functions. Chief Executive Officer, Tim Roper, is now LPL’s consolidated assets are $38.82m ($28.24m). The increase is better placed to focus on the major growth opportunities and expansion primarily as a result of the corporate banking facility borrowings on- projects. lent to associates under back-to-back loan and security agreements with a corresponding increase in total liabilities. Current assets amount One of these projects is to establish a new format pharmacy to meet to $3.29m ($1.37m), whereas total current liabilities are $1.72m the needs of a new market sector. To this end we have entered into ($0.82m). Investment in associates reduced to $24.99m ($25.73m) a lease for retail premises in Porirua and this new store is scheduled which primarily reflects the sale of LPL’s share of Life Pharmacy Remuera. to commence trading in August 2006. There was no impairment of the investments in associates, other than Our People the write-down of goodwill of $51,000 (Nil) arising from the sale of On behalf of the Board, I wish to pay tribute to our people throughout Life Pharmacy Remuera’s operations. the country. They have maintained their commitment to high levels Net indebtedness increased to $7.43m, which reflects the borrowings of customer service while LPL has undergone a challenging on-lent to associates of $8.67m. Net interest-bearing debt to net transformation. Our people have faced enormous challenges to both interest-bearing debt plus equity ratio is 21% as at balance date. improve efficiencies and grow revenue. They have coped admirably with the changes and have demonstrated commendable patience and Shareholders’ equity is higher at $28.02m ($27.4m). team spirit. Dividend Outlook In accordance with its dividend policy, LPL will distribute 60 percent During the next year we will be working to maximise the performance of the parent company’s distributable profits being $766,000 of the group. The Board and management have a strong desire to ($349,000), paying shareholders a final dividend of 2.24¢ per share achieve our growth objectives. (fully imputed), with the payment date set for 28 July 2006. Waiver LPL was granted a waiver extension from the spread requirements in Listing Rule 5.2.3 for a further six month period from 11 March 2006 to 11 September 2006. This rule requires that securities in a particular class must be held by at least 500 shareholders who are members of the public, and that those holders must hold at least 25% of the number of shares in that class. As at 30 April 2006 we had over 500 shareholders and associated persons under the NZX rules held 88%, compared with 96% as at 31 March 2005. Liz Coutts * Trading as a listed retail pharmacy company for six months to Chairman 31 March 2005. Global Reports LLC ANNUAL REPORT 2006 5 Composite life_web_25th.fh10 6/23/06 10:46 AM Page 6 C M Y CM MY CY CMY K CHIEF EXECUTIVE’S REPORT For the year ended 31 March 2006 The financial year ended 31 March 2006 has been challenging for Life The second is to establish capability and build relationships in other Pharmacy Limited (LPL).