Material Issues, Risks And Opportunities
Material issues have been identified which could impact on the sustainability of the group. These material issues are reviewed annually by the board and management as part of the group’s three-year strategic and financial planning process where all relevant internal, industry and macro-economic factors are evaluated. The interests, expectations and concerns of the stakeholder groups that are most likely to influence the group’s ability to create sustainable shareholder value – notably shareholders, customers, suppliers and staff – are also considered.
In the board’s review for the 2016 financial year, the material issue relating to “Attracting and retaining pharmacy professionals” has been broadened beyond pharmacists to “People” to cover all talent for core business needs.
Risks posed for each of these material issues have been identified and are based on the major risks on the group’s risk register as determined by the methodology applied by the audit and risk committee.
The only change in the major risks has been the inclusion of the risk relating to the group’s ability to trade during periods of Eskom electricity power disruptions. The group invested R13.6 million in alternate power supply solutions in stores during 2015 and plans to invest a further R15 million in 2016 to minimise trading disruptions. Clicks lost approximately 1% of trading hours due to load shedding during the year. All group distribution centres and information technology systems are covered by existing back-up power supply.
Opportunities are detailed for each material issue to indicate to shareholders how the group is mitigating potential risks and also how the business is using its competitive advantage to minimise any negative impacts of the material issues.
Trading environment
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Risk |
Opportunity |
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Further deterioration in the economic environment which will impact on consumer spending which is already under severe pressure. Inability to trade as a result of power outages disrupting stores, information technology systems, distribution centres and third-party service providers. |
•Clicks will continue to pursue an aggressive promotions strategy to maintain price competitiveness, grow sales volumes and entrench Clicks as a value retailer. •Focus on differentiators including extensive and convenient store and pharmacy footprint, private label and exclusive ranges, and ensure customer loyalty through Clicks ClubCard rewards and consistent high standards of customer care. •Alternate power solutions for stores, systems and distribution centres ensure disruptions to trading patterns will be minimised. |
Competition |
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Risk |
Opportunity |
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Expansion by corporate pharmacy and retail chains impacting on market share growth in Clicks. Increasing price competitiveness of retailers could negatively affect sales and profitability in Clicks. |
•Clicks has an extensive store network and plans to open 20 to 25 new stores each year, expanding to over 600 stores in the longer term. •Continued expansion of the pharmacy network with the long-term plan to open dispensaries in all Clicks stores (currently in 77% of South African stores). •Continued recruitment of new members to the Clicks ClubCard. •Ongoing improvement in pricing, product offer and customer service. |
Regulation
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Risk |
Opportunity |
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Healthcare markets are highly regulated across the world and South Africa is no exception. Legislative and regulatory changes introduced by the Department of Health (DoH), SA Pharmacy Council (SAPC) and Medicines Control Council (MCC) could impact on Clicks and UPD. Introduction of international benchmark drug pricing will place pressure on UPD turnover and margins. |
•Continued management engagement with the DoH, SAPC and MCC on legislation and regulation. •Formal written and oral submissions to DoH, SAPC and MCC in response to draft legislation or regulations. •As the market leaders in retail pharmacy and pharmaceutical wholesaling, position Clicks and UPD to benefit from market consolidation arising from changes in legislation and regulation. •Ensure Clicks and UPD are operating efficiently to maintain margins and profitability. |
People |
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Risk |
Opportunity |
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Inability to recruit, attract and retain talent for core business needs, including pharmacy and management. |
•Salaries are externally benchmarked to ensure the group remains competitive. •Group resourcing function established, including specialist pharmacy team. •Bursary and internship programmes to attract pharmacy graduates. •Retail graduate programme to be launched. •Accredited training programmes for store management, key store roles and merchandise and planning being developed. •Senior leadership development programme to strengthen management talent. |
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Key to managing residual risk
Effective mitigation plan in place, risk completely under management control Effective mitigation plan in place but certain risk elements outside management control Mitigation plan in place but risk not fully mitigated/certain risk elements outside management control No or very limited mitigation in place |
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