Chief financial officer's report

Decisive measures to limit the financial impact of the global Covid‑19 pandemic enabled the group to deliver strong earnings growth and healthy returns to shareholders in the most challenging socio-economic conditions experienced in decades.

Cash preservation was a high priority for the group throughout the crisis. Following the declaration of the state of disaster in South Africa on 15 March 2020, management implemented measures to reduce the cost base to off-set the impact of slower sales expected during lockdown.

The group proved its resilience and continued to generate strong cash inflows despite the impact of the lockdown. After returning R1.5 billion to shareholders in dividends and share buy-backs, cash on hand totalled R2.2 billion at year-end.

Tight cost management, continued working capital efficiency, resilient health and beauty sales, and the strong performance of UPD contributed to diluted headline earnings per share increasing by 13.7% to 754 cents.

Michael Fleming

Michael Fleming

After initially deferring the interim dividend declaration in April 2020 to conserve cash and ensure balance sheet flexibility in the wake of the uncertainty from the pandemic, the board declared a dividend of 450 cents per share for the full year, based on a dividend payout ratio of 60%. This dividend amounts to R1.1 billion and will be paid to shareholders in January 2021.

The group enters the new financial year with a robust balance sheet, positioning the business to withstand the headwinds from the ongoing impact of the pandemic.

Impact of Covid‑19

The group conducted a line-by-line assessment on the annual financial statements of the impact of the Covid‑19 pandemic on financial and operating performance. Refer to note 35 for disclosures on material financial statement line items affected by Covid‑19.

Adoption of IFRS 16 Leases

IFRS 16 Leases was adopted during the 2020 financial year on a full retrospective basis, with the date of initial application being 1 September 2019. The comparative information for the prior year has accordingly been restated.

The group has an extensive portfolio of leases across its retail stores and the new accounting standard recognises a right-of-use asset and corresponding lease liability for each retail store. Refer to notes 24 and 34 in the annual financial statements for detail on the impact of IFRS 16.

Financial performance

The analysis of the group’s financial performance for the year ended 31 August 2020 focuses on the key line items of the statements of comprehensive income and financial position which management considers material to shareholders’ understanding of the group’s performance.

The following review should be read together with the annual financial statements as well as the summary statements of comprehensive income and financial position, and the five-year analysis of financial performance respectively.

Statement of comprehensive income


Group turnover increased by 9.6% to R34.4 billion (2019: R31.4 billion). Selling price inflation averaged 2.4% for the year.

Retail turnover, including Clicks, The Body Shop, GNC, Claire’s and Musica, increased by 7.3%. Retail selling price inflation remained low, averaging 2.2%. Comparable stores sales grew by 3.4%.

While there is normally minimal seasonal effect on the group’s retail turnover between the first and second halves of the year, the second six months of the financial year from March to August 2020 was impacted by the national lockdown and trading under Covid‑19 protocols. Retail sales grew by only 6.0% in the second half compared to 8.6% in the first half.

Within the retail division, health and beauty sales increased by 8.4%, reflecting the resilience of the core Clicks brand in the extremely challenging trading environment.

Growth in trading space accounted for 3.9% of the retail turnover growth, with the net opening of 39 Clicks stores and 40 pharmacies.

Distribution turnover grew by 11.2% despite the absence of the annual winter cold and flu season which did not materialise owing to lockdown as people wore masks to avoid infection, social interaction was limited, schooling restricted and many South Africans worked from home.

The trading performances of Clicks and UPD are covered in the business review.

Turnover, operating profit and margin

Total income

Total income grew by 8.4% to R9.4 billion (2019: R8.7 billion).

The retail total income margin was maintained at 33.3%. This was attributable to a higher mix of front shop product sales relative to pharmacy and an increase in promotions, off-set by an increased proportion of private label sales.

UPD’s total income margin strengthened by 30 basis points to 8.5% owing to the benefit of new wholesale and distribution contracts and the higher annual increase in the single exit price (SEP) of medicines of 4.53% in February 2020 compared to 3.78% in March 2019.

The faster growth of the distribution business resulted in a mix change which contributed to the group’s total income margin declining by 30 basis points to 27.3%.

Operating expenditure

Retail operating expenditure as a percentage of turnover improved to 24.2% (2019: 24.3%), reflecting the increasing efficiency in the retail cost base.

Retail expenses grew by only 6.5% despite incurring additional Covid‑19-related costs of R36 million. This was off-set by focused cost management, lower overtime payments owing to restricted trading hours, rental relief of R10.9 million due to the closure of the smaller retail brands during hard lockdown and government funding for employees unable to work during lockdown.

Comparable retail costs were contained to an increase of only 3.8%.

UPD expenses, which include the costs related to the new distribution contracts and R8 million additional Covid‑19 costs, grew by 17.9%. The new contracts have resulted in higher labour and transport costs while UPD has rented a third-party distribution warehouse to accommodate the increased volumes.

The group’s operating expenses increased by 7.5%.

Operating profit

Operating profit increased by 10.4% to R2.8 billion (2019: R2.5 billion) with the group’s operating margin expanding by 10 basis points to 8.1%.

The retail margin was well managed through tight cost management and increased by 20 basis points to 9.1% despite the impact of Covid‑19 on the trading environment. Retail operating profit increased by 9.4%.

The distribution margin was maintained at 3.3% and operating profit increased by 13% to exceed R500 million for the first time.

Summary statement of comprehensive income

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R’million 2020 % of turnover Restated*
% of turnover %
Turnover 34 364 31 352 9.6
     Retail 24 785 72.1 23 105 73.7 7.3
     Distribution 15 474 27.9 13 909 26.3 11.2
     Intragroup (5 895) (5 662)
Total income 9 375 27.3 8 650 27.6 8.4
Operating expenses (6 608) 19.2 (6 144) 19.6 7.5
     Retail (5 988) (5 625) 6.5
     Distribution (804) (682) 17.9
     Intragroup 184 163
Operating profit 2 767 8.1 2 506 8.0 10.4
     Retail 2 260 9.1 2 066 8.9 9.4
     Distribution 513 3.3 454 3.3 13.0
     Intragroup (6) (14)
Loss on disposal of property, plant and equipment,
and subsidiary company
Net financing expense (175) (176) -
Share of profit of an associate 2 3
Income tax (704) (652) 7.9
Profit for the year 1 880 1 681 11.8

Summary statement of financial position

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R’million 2020 Restated*
Non-current assets 5 531 5 045 9.6
     Property, plant and equipment 2 121 2 067 2.6
     Right-of-use assets 2 371 2 046 15.9
     Other non-current assets 1 039 932 11.4
Current assets 9 743 10 024 (2.8)
     Inventories 4 921 4 710 4.5
     Trade and other receivables 2 567 2 567 0.0
     Other current assets 2 255 2 747 (17.9)
Total assets 15 274 15 069 1.4
Equity 5 194 4 787 8.5
Non-current liabilities 1 940 1 689 14.9
Current liabilities 8 140 8 593 (5.3)
     Trade and other payables 6 747 7 303 (7.6)
     Other current liabilities 1 393 1 290 8.0
Total equity and liabilities 15 274 15 069 1.4
* Prior-period amounts restated for the adoption of IFRS 16.

Statement of financial position

The ratio of shareholders’ interest to total assets increased from 31.8% to 34.0%.

The ratio of current assets to current liabilities at year-end was consistent with the prior year at 1.2 times, indicating that working capital remains adequately funded. Other current assets include R2.2 billion in cash.

“The group’s capital management strategy is focused on investing in the organic growth of the business and returning surplus funds to shareholders through dividends and share buy-backs.”

The group continues to hedge direct exposures to foreign exchange rate fluctuations which impact approximately 7% of the cost of sales in the retail business. In addition, the group hedged elements of the long-term incentive scheme for the 2020 to 2022 period. Further detail on the respective hedges and risk management is contained in note 27 in the annual financial statements on the group’s website.

Working capital

The group’s net working capital days increased from 34 to 37 days. Trade debtor days, which relate primarily to UPD, reduced from 37 to 31 days. Creditor days moved from 73 to 60 days as in the prior year the group’s year-end fell over a weekend which resulted in certain creditor payments being settled in the current year.

Inventory days reduced from 70 to 66 days as stock levels were tightly managed in the second half of the year. Retail inventory levels increased by 5.5% and distribution by only 2.4%. During the year, a single pick retail facility was commissioned in the Centurion distribution centre which is aimed at improving stock efficiency.

Return on equity (ROE)

Capital expenditure


Cash and capital management

Cash generated by operating activities before dividends totalled R2.3 billion.

The group’s capital management strategy is focused on investing in the organic growth of the business and returning surplus funds to shareholders through dividends and share buy-backs:

  • Capital expenditure of R307 million was invested in new stores, pharmacies and the refurbishment of 53 Clicks stores; R69 million on distribution centres; and R215 million on IT and retail infrastructure.
  • The group returned R1.5 billion to shareholders through dividend payments of R822 million and share buy-backs of R653 million.

At year-end, the group held cash resources of R2.2 billion.

Cash flow analysis


Cash Flow Analysis


A dividend of 450 cents per share (2019: 445 cents) was declared for the financial year, based on a dividend payout ratio of 60% (2019: 65%) of HEPS.

Information technology

Management aims to ensure IT systems and infrastructure are well maintained and remain relevant to future needs of the business.

During the year the group invested R86 million on computer hardware and R125 million on computer software.

The group is focusing the major portion of IT investment on replacement software solutions for certain core systems within the retail and distribution businesses.

The design and development of these new best-in-class systems have started and will continue into 2021, with the implementation scheduled to roll out during the second half of 2021 on a risk-mitigated basis. These investments comprise three projects:

  • Integrated retail merchandising system incorporating modules for demand forecasting and fulfilment, pricing and promotions, category assortment optimisation and space management.
  • UPD warehouse management system.
  • Cloud-hosted enterprise resource planning (ERP) upgrade for UPD.
“The group’s medium-term financial targets rank in the upper quartile relative to comparable global health and beauty retailers.”

Financial plans for 2021

Capital expenditure of R745 million is planned for the 2021 financial year, which includes R67 million carried forward from 2020 due to delays in capital projects impacted by Covid‑19:

  • R317 million will be invested in the store portfolio, which includes 25 to 30 new Clicks stores, 30 to 35 new pharmacies and 45 store refurbishments to ensure stores remain modern and relevant to customers.
  • R428 million for Clicks and UPD IT systems and infrastructure.

The group plans to invest approximately R670 million in 2022 and R630 million in 2023 to support the expansion of the Clicks store footprint, improve efficiency in the distribution centres, and invest in IT tools and systems.

Health and beauty retail trading space is expected to increase by approximately 5% in 2021.

Medium-term financial targets

Financial targets are disclosed to provide guidance to shareholders on the group’s medium-term performance expectations. The targets are reviewed annually to take account of the group’s current performance and the medium-term outlook for trading.

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Medium-term targets 2020
Return on equity (%) 37.8 40 – 50
Return on invested capital (%) 25.1 20 – 30
Return on assets (%) 12.4 11 – 15
Net working capital days 37 30 – 35
Group operating margin (%) 8.1 7.5 – 8.5
     Retail 9.1 8.5 – 9.5
     Distribution 3.3 2.5 – 3.0
Dividend payout ratio (%) 60 60 – 65

The group’s performance for 2020 was in the range for most of the medium-term targets, with the exception of return on equity and working capital days.

Owing to the expected ongoing impact of Covid‑19, the return on equity target has been revised downwards to 40% to 50% (previously 50% to 60%) which still represents a significant return to shareholders.

A target for return on invested capital has been introduced which incorporates the lease liabilities now included in the statement of financial position following the adoption of IFRS 16.

While the distribution operating margin at 3.3% remains above the medium-term target, the margin target has been maintained at 2.5% to 3.0% as management believes this is a sustainable margin given the ongoing impact of genericisation.

The group’s medium-term financial targets rank in the upper quartile relative to comparable global health and beauty retailers such as Walgreens Boots Alliance (USA), CVS (USA), Raia Drogasil (Brazil) and Celesio (Germany).


Thank you to our finance teams across the business as well as our external auditors for completing the annual financial reporting and auditing process so efficiently while working under the constraints of the Covid‑19 restrictions. We also thank our shareholders for their continuing support and ongoing engagement with management and welcome those who invested for the first time during the year.

Michael Fleming

Michael Fleming

Chief financial officer