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Turnover: R 26.800bnTrading Profit: R 1814.000bnTrading Margin: 6,768.66%
Stores: 622Employees: 14,673
Listed: YesHEPS: 1269.00 cents
The Clicks Group


Clicks Group is a retail-led healthcare group which is listed in the Food and Drug Retailers sector on the JSE.

Founded in 1968, the group has been listed on the JSE since 1996. Following change in South African legislation in 2003 to allow corporate pharmacy ownership, the group entered the retail pharmacy market with the opening of the first Clicks pharmacy in 2004. The group is today a leader in the healthcare market where Clicks is the country’s largest pharmacy chain with 473 in-store pharmacies and a 22.2% share of the retail pharmacy market. UPD has a 25.6% share of the private pharmaceutical wholesale market.


Clicks Group’s strategy is to create sustainable long-term shareholder value through a retail-led health, beauty and wellness offering.

Favourable market dynamics
Healthcare markets are defensive and offer long-term growth opportunities in South Africa.
Improving living standards, increasing urbanisation and longer life expectancy is contributing to a growing market for health and beauty products. An increasing proportion of the population is entering the private healthcare market. The increasing use of generic medicines will continue to make healthcare more affordable.

Capacity to expand retail footprint and pharmacy network
The goal is to expand the Clicks store base in South Africa to 900 in the long term, with a
pharmacy operating in every store. The retail pharmacy market share goal is 30% in the long term (currently 22.2%). Primary care clinics in 195 Clicks stores support the health service offering. The retail footprint is complemented by an online store to increase customer convenience and Clicks Direct Medicines provides a national direct-to-patient courier service.

Differentiated product offer
Private label and exclusive brands offer differentiated ranges at higher margins. Clicks is a brand consumers trust implicitly and the brand has demonstrated its ability to transcend product categories and markets. The portfolio of exclusive franchise brands of The Body Shop, GNC, Sorbet and Claire’s augment Clicks’ private label brands in the health and beauty categories.

Ability to leverage customer loyalty
Clicks ClubCard is one of the largest retail loyalty programmes in South Africa with 7 million active members. ClubCard offers customers attractive cashback rewards and a range of affinity partner benefits. Clicks has extensive opportunities to utilise ClubCard data analytics and marketing capability to increase the customer basket size and value, and frequency of shopping.

Opportunity to grow UPD
UPD provides an efficient healthcare supply chain which supports the growth of the Clicks business. UPD offers national wholesale services to private hospitals and independent pharmacy, including Link pharmacies, as well as a distribution service to local and international pharmaceutical manufacturers based on price, quality control and speed to market. The growth opportunity for the business is supported by a goal of obtaining 30% shares of the fine wholesale and bulk distribution markets.



Clicks delivered another strong trading performance in tough retail conditions, reporting good volume growth and increased market shares in all product categories. The brand continues to demonstrate its resilience in the current constrained spending environment, with healthcare being a necessity and beauty an affordable luxury. Customers continue to make Clicks their first choice health and beauty retailer, responding positively to the brand’s value promotions and differentiated product ranges. Retail health and beauty sales, including Clicks and the franchise brands of The Body Shop, GNC and Claire’s, increased by 14.7%, led by pharmacy and front shop health.

In pharmacy, Clicks is actively switching customers to lower-priced generic medicines to enable medical aid benefits to last longer. Generic medicine sales have grown by 30.4% and now makeup almost 50% of pharmacy sales in Clicks. Front shop sales are being driven by promotional sales which now account for 34.7% of turnover and this is supporting Clicks’ value positioning where the brand is price competitive with all other national retailers. Strong sales growth and the expansion of the pharmacy footprint has seen Clicks increase its share of the retail pharmacy market to 22.2%. Front shop health market share increased to 29.7%, with the baby category growing to 13.9%. In the beauty category, skincare market share grew to 28.3% and haircare to 27.2%.

Clicks has again been voted as the country’s leading health and beauty retailer and leading pharmacy chain, in the authoritative The Times/Sowetan annual shopper survey for 2017. The structural changes in the music market with the move to streaming and downloading, together with a weak release schedule, contributed to Musica’s sales declining by 7% on last year.

Musica continues to gain market share and now has over 77% of the country’s music market and close to 60% of the movie market. Shareholders should note that all Musica’s 113 stores are profitable and the business continues to generate cash. Management aims to further derisk Musica by moving to consignment stock with suppliers, a business model successfully employed by leading music retailers in the UK and Europe. UPD, the group’s pharmaceutical distributor, increased wholesale turnover by 12.1%, with market share increasing to 25.6%. UPD benefited from the growth from Clicks and the private hospital groups and the higher increase in the single exit price (SEP) of medicines in the past year. The performances outlined above contributed to group turnover growing by 10.9% to R26.8 billion.

The group is committed to its strategy of creating sustainable long-term shareholder value through a retail-led health, beauty and wellness offering. The strategic objectives for Clicks and UPD to deliver the group’s strategy are reviewed annually to ensure they remain appropriate for the prevailing economic and trading environment, and to continue meeting the ever-changing needs of customers.

We believe excellent progress has been made over the past year in delivering on these strategic objectives. Clicks opened a record 111 new stores to expand the footprint to 622. A long-term outsourcing agreement concluded with the Netcare Group during the year accounted for 80 of the new stores, with Clicks taking over the management of the pharmacies in 37 Medicross medical and dental centres and opening stores in 43 Netcare hospitals.

The chain has 28 stores in neighbouring Botswana, Lesotho, Namibia and Swaziland. Clicks remains the largest retail pharmacy chain in the country and expanded the network to 473 as a net 73 pharmacies were opened. While the difference between the number of pharmacies and the total number of stores still appears to be large, there are currently only 57 Clicks stores in South Africa that are missing a pharmacy, excluding the stores where we do not plan to open a pharmacy. This includes non-South African stores, the Netcare hospitals and stores which have been identified to be closed. Private label and exclusive brands ensure Clicks provides a differentiated product offer to customers. Sales of private label products accounted for 21.8% of total sales in Clicks, with front shop sales at 28.5% and pharmacy 6.1%. Based on volume sales, one in three of every front shop product sold is only available in Clicks.

ClubCard reached the milestone of 7 million active members and has been independently rated as South Africa’s most popular and easiest to use retail loyalty programme. Customers received over R320 million in cashback this year, with over R1.4 billion being paid out in cashback over the past five years. ClubCard is integral to our digital strategy which aims to complement the store experience and enables us to better understand and engage with customers.

The online shopping platform has been well received, supported by “click and collect” in stores and home delivery, and in the new financial year, we plan to extend the product offer with online-only ranges. UPD provides an efficient healthcare supply chain for Clicks. Total managed turnover has grown to R16.5 billion, highlighting the success of the strategy of developing the bulk distribution business alongside UPD’s traditional fine wholesaling business. UPD manages a portfolio of 20 distribution clients which accounts for almost half of total managed turnover.

Over the past year, record levels of capital expenditure of R518 million have been invested to support the group’s long-term growth aspirations. This included over R340 million for new retail stores and refurbishments to maintain the quality of the store portfolio, R146 million for IT and retail infrastructure, and R30 million for UPD warehousing and infrastructure. Another year of record investment of R680 million is planned for 2018, including R300 million on new stores, pharmacies and refurbishments. The refurbishment programme ensures that stores remain modern and appealing to customers and that trading densities are maximised.

The Clicks distribution centre in Centurion, Gauteng, is being expanded at a cost of R230 million over the next two financial years. The investment in warehousing, IT and infrastructure in UPD has been increased to over R70 million, which includes the expansion of bulk distribution capacity at UPD’s Cape Town warehouse. Our extensive store network and highly integrated supply chain provide competitive advantages which we aim to maintain by investing close to R2 billion over the next three years.

Attracting and retaining scarce retail and healthcare skills is critical to the group’s sustainability. In the past year, R126 million was invested in training over 5 600 employees while more than 600 new jobs were created in the retail business. The broad-based employee share ownership plan introduced in 2011 is a mechanism to retain talent as well as accelerate transformation.

Through the scheme, 5 882 employees are now shareholders in the Clicks Group and are sharing in the long-term growth and success of the business. Black staff account for 88% of the employee shareholders and female employees 66%. Dividends of R28.2 million have to date been paid to participants in the scheme.

Clicks continues to build capacity to assist in addressing the severe shortage of pharmacists in the country. In the past year, Clicks invested R4.4 million in bursaries for 100 pharmacy students, provided 64 pharmacy internships and trained over 300 learners through the in-house Pharmacy Healthcare Academy for pharmacy assistants.

Pharmacy agenda
Clicks Group supports regulation which advance government's healthcare policy of increasing access to affordable medicine. We continue to engage constructively with the Department of Health (DoH) and believe our pharmacy agenda will further government’s aims as the country moves towards implementing National Health Insurance.

Our position is as follows:
• Promote pharmacy as the primary source for basic healthcare needs. This will require the broadening of the scope of practice to empower pharmacists to prescribe medicines above schedule 2 for common conditions.
• Increase access to affordable medicines. This could be achieved by schedule1and 2 medicines being exempted from the SEP

regulations to allow for more competitive pricing and discounting; adopting a more liberal scheduling regime in South Africa in line with international norms; and removing the restrictions on the marketing of schedule 1 and 2 medicines

Regulation of health supplements
The most restrictive regulatory issue facing the group currently is the regulation of health supplements as a subset of complementary medicines under the Medicines Act. This requires all health supplements to be registered through the SA Health ProductsRegulatory Agency SAHPRA) (formerly the Medicines Control Council (MCC)).

We strongly believe that health supplements should be regulated under food law as they are not medicines as defined by the Medicines Act. This regulation is stifling innovation and limiting customer choice and is directly impacting on GNC’s ability to broaden its product offer with new lines. We continue to work in conjunction with the Health Products Association to lobby for change in the regulations and are hopeful that the transition from the MCC to SAHPRA will bring about this change. However, should our engagement not yield the desired results we are prepared to challenge the regulations in court.

The directors and management are optimistic about the prospects for the medium to long-term, supported by the strong organic growth opportunity in Clicks which underpins the group’s investment case. In the external environment, the market dynamics are favourable for the retail sector and, more specifically, for the health and beauty markets in which we operate. Increasing urbanisation, improving living standards and longer life expectancy will create a growing market for our health and beauty products. At the same time South Africa’s middle-income market, which is our core customer base, is showing steady growth.

Clicks can grow its store and pharmacy footprint to make the chain even more convenient. Our research indicates that only about 50% of South African households live within five kilometres of a Clicks store and our long-term goal is to expand the chain to 900 stores in South Africa, with a pharmacy operating in every store.

Clicks has a differentiated product offer with a strong and trusted private label brand complemented by exclusive local and international brands. Customer loyalty can be leveraged through our extensive ClubCard membership base and increasingly through digital engagement with our customers, from the online transaction website to the Clicks mobile app, virtual ClubCard and interactive communication across a range of social media and other digital channels. A further driver of long-term growth is the opportunity to add scale to UPD’s business, particularly in bulk distribution. However, in the year ahead the retail sector will face headwinds from low economic growth and political uncertainty which are expected to continue to dampen consumer confidence and constrain spending. Internal selling price inflation is likely to decline to low single-digit levels, with the annual SEP increase likely to be much lower than it was in 2017.

The core health and beauty markets in which we trade are defensive and have proven to be relatively resilient in challenging trading conditions. We have shown our ability to trade our way through these tough conditions and believe our market-leading brands are well positioned in this environment. We are therefore continuing to invest for growth in new stores, pharmacies and refurbishments, as well as significant investment in the retail and pharmaceutical supply chain to support the increased scale of the group. We are also committed to investing in our people to ensure that growth is sustainable. The directors believe that the group’s strategy remains appropriate to provide continued competitive advantage in the current trading environment, and are confident in the group’s ability to sustain performance and deliver on our targets.

Thank you to our chairman, David Nurek, for his decisive leadership of the board and to our non-executive directors for their ongoing support and guidance. The success of the past year can be ascribed to a true team effort by over 14 600 people and I extend my gratitude to my group executive colleagues Michael Fleming, Bertina Engelbrecht and Vikesh Ramsunder, management and our people at head office, stores and distribution centres across the country. Thank you to our customers who continue to make us their first choice health and beauty retailer, and we look forward to their continued support over the next year as Clicks celebrates the 50th anniversary of its founding.

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In a year marked by significant political instability and uncertainty, deteriorating economic conditions and consequent credit ratings downgrades, financial pressure on South African consumers has continued to intensify. Factors in the macroeconomic environment, together with the muted outlook for domestic growth, have weighed heavily on consumer confidence while rising living costs have eroded disposable income. Against the background of a weak consumer economy, the group produced another outstanding performance. This not only highlights the resilient nature of health and beauty markets but also the quality of the leadership and staff across the group. Group turnover rose by 10.9% to R26.8 billion and diluted headline earnings per share increased by 14.5% to 502.1 cents. Shareholders will receive a total dividend of 322.0 cents per share, 18.4% higher than last year, based on an increased dividend payout ratio of 60%.

The group generated cash of over R2 billion for the first time and created shareholder value of R7.5 billion through share price appreciation and dividend payments. In the 21 years since listing on the JSE the group has created over R40 billion in shareholder wealth.

The listing of the group’s major competitor on the JSE during the past year has increased investor interest in the retail pharmacy sector in South Africa. We believe the Clicks Group offers a compelling case for investors seeking exposure to the country’s retail and healthcare markets, underpinned by our long-term track record in the listed environment and the strong organic growth prospects in Clicks.

The group has delivered a 28.9% total shareholder return on a 10-year compound annual growth rate basis. Diluted HEPS has grown by 17.2% and dividends by 20.9% on the same basis over the past 10 years. The core Clicks chain operates in resilient and growing markets, with over 80% of revenue in defensive merchandise categories. Clicks has a long-term path to growth. The store footprint in South Africa is expected to expand to 900 stores and management remains committed to incorporating a pharmacy into every Clicks store. This will be supported by growing higher margin private label and exclusive brand sales, expanding the ClubCard loyalty base which accounts for 77% of the chain’s sales, increasing its digital and online presence, and maintaining an efficient supply chain through UPD.

Clicks and UPD are both market leaders with globally competitive operating margins which rank in the upper quartile of international drugstores and pharmaceutical wholesalers. The group has a proven capital management strategy which enhances returns to shareholders and ensures strong free cash flows. Over the past three years, R5.5 billion has been generated in cash by operations. Our investment case continues to appeal to foreign investors. At year-end the group’s international shareholding was 66%, having increased from less than 8% in 2008. Currently, nine of the top 10 shareholders are based offshore.

Clicks Group has a strong, stable and independent board. Based on the outcome of the annual self-evaluation the directors believe the board contributes to value creation in the company, is well balanced and has the collective knowledge and expertise to make a meaningful contribution to the group’s affairs. The diversity of our directors in terms of gender, race and their professional backgrounds encourages constructive debate and ensures that the board considers the needs of all our stakeholders and interest groups. In line with the race and gender diversity policy adopted by the board, 44% of our nine directors are female and 44% are black.

Dr Nkaki Matlala, who served as an independent non-executive director since 2010, retired from the board in January 2017. We thank Nkaki for his contribution over the past six years and wish him well. We were pleased to welcome Nonkululeko (Nonku) Gobodo as an independent non-executive director to our board in March 2017. Nonku is a highly respected accounting and auditing professional with extensive business and leadership experience. She was a founder and former executive chairman of SizweNtsalubaGobodo, the country’s largest black-owned accounting firm, and we look forward to her contribution to the board and the audit and risk committee.

The group applied King lll during the reporting period and has already adopted certain elements of the new King lV code which became effective from October 2017. These are detailed in the corporate governance report on the website. King lll was based on the “apply or explain” principle whereas King lV requires companies to “apply and explain” how the code has been implemented. While our remuneration and reward principles remain consistent with last year, the remuneration policy has been aligned to King lV to outline the group’s approach to fair, responsible and transparent remuneration practices across the business. The King lll requirement to propose a company’s remuneration policy for a non-binding advisory vote at the annual general meeting (AGM) has been extended under King lV. Companies are now required to separately table an implementation report at the AGM dealing with the company’s application of its remuneration policy.

The group is committed to sustainable and responsible environmental, social and governance (ESG) practices. The main area of focus are transformation and empowerment; broadening access to healthcare in support of the national agenda to make medicine more affordable and accessible; investing in our people to ensure the success and sustainability of the business, and investing in our communities through socio-economic and enterprise development. Progress in transformation and empowerment is evidenced by the group achieving a level 5 (2016: level 6) rating on the new BBBEE codes of good practice.

Our commitment to ESG practices has been recognised by the group’s inclusion in the FTSE/JSE Responsible Investment Top 30 Index which acknowledges South African companies with leading ESG practices. In addition, the group qualified for the first time for the FTSE4Good Index which recognises strong ESG practices against global standards.

David Kneale and his executive team continue to lead the group with great focus, energy and distinction, and I thank them for their commitment to ensuring the business maintains its market-leading position. I also extend my appreciation to the management and staff across the country for their contribution to another highly successful year for the group.

Thank you to my fellow non-executive directors for their active participation in board and committee meetings, and for providing valuable insight and oversight. The relationships with our external stakeholders, including our customers, shareholders and funders, suppliers and industry regulators, are critical to the sustainability of the business and I thank them for their continued support and engagement.

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