Chairman's report
Clicks Group continues to drive organic growth to deliver sustained financial performance which generates competitive returns and creates long-term value for shareholders.
South Africa’s economy entered the national Covid‑19 lockdown in a highly fragile state and this has since been compounded by the destructive financial and social impact of the forced closure of the economy and widespread human suffering.
When the state of disaster was declared ahead of the country going into lockdown, the board and management responded rapidly to protect shareholder value and to ensure the health and safety of our employees and customers. Plans were implemented to reduce the cost base while the interim dividend was deferred to conserve cash at a time when the impact, extent and length of the lockdown was unknown.
At the same time the group heeded the call by President Ramaphosa to support vulnerable communities, which included the executive and non-executive directors donating one-third of their remuneration for three months to the Solidarity Fund.
David Nurek
Our broad strategy was unchanged throughout and the business adapted to the new market dynamics arising out of the Covid‑19 crisis. This is reflected in our double-digit earnings growth in a sector which was severely affected by the pandemic. Fortunately, as essential healthcare services, Clicks and UPD continued to trade during lockdown, although under tight regulatory restrictions at times.
The performance of the past year, with most of the second half under sometimes extremely challenging restrictions, highlights the resilience of the markets in which the group trades and our business model. It also demonstrates management’s continued focus on the execution of our business plans and strategies.
Two strategic focus areas, in particular, benefited the group during this time. Firstly, the investment in developing our omni-channel capability over the past four years positioned Clicks favourably to capitalise on the significant customer demand for online shopping. Secondly, the strategy of expanding the Clicks store footprint proved beneficial as shoppers largely abandoned large malls during this period in preference for convenience-based shopping closer to home.
Sustained shareholder value creation
Against the background of the weakening economy, the group delivered an excellent all-round performance, with turnover increasing 9.6%, diluted headline earnings per share (HEPS) 13.7% higher and a dividend of 450 cents per share being declared to shareholders. The group’s market capitalisation increased by R7.2 billion to R57.2 billion, ensuring our continued inclusion in the FTSE/JSE Top 40 Index.
This performance extends the strong growth trend of the past decade which has seen the group generate a compound annual total shareholder return of 22.5% per annum. Diluted HEPS has grown by a compound rate of 13.6% and the dividend per share by 15.5% per annum.
Importantly, the group has continued to reinvest for growth, with capital expenditure of R4.3 billion over the past 10 years while over R8.4 billion has been returned to shareholders in dividends and share buy-backs.
The value created for our shareholders is evident in the 19.9% compound growth in the share price on the JSE since 2010, significantly outperforming our peers in the Food and Drug Retailers Index which delivered a 6.5% compound return over this period.
Board and governance
As a board our primary responsibility to shareholders is to ensure that we have the necessary expertise and levels of independence to meet our oversight responsibilities and add value to the board’s deliberations.
We welcomed Mfundiso “JJ” Njeke as an independent non-executive director in March this year. JJ is a highly respected company director and has chaired the boards of several JSE-listed groups over the past two decades. Our board is already benefiting from his experience in accounting, business and governance, and shortly after year-end he was appointed as a member of the audit and risk committee.
Nonkululeko Gobodo resigned as a non-executive director in September for personal reasons. Over the past three years she has made a valuable contribution to board and committee affairs with her astute and insightful discourse and we wish her continued success into the future.
We will continue our process to refresh board membership to provide succession for key director and committee roles as we plan for the retirement of our senior, longer-serving directors.
The value of a highly experienced and knowledgeable board, with five of our non-executive directors having served for longer than ten years, was never more evident than in advising, supporting and providing counsel to management during the crises of the past months. This guidance was implemented through numerous engagements which I, on behalf of the board, had with our CEO, Vikesh Ramsunder. This not only related to the Covid‑19 pandemic but also to the disruption caused by the unfortunate TRESemmé haircare advertisement shortly after year-end.
It is important to stress once again that the offensive marketing material was not developed by Clicks and was provided by the product supplier, Unilever. Management nevertheless accepted full responsibility immediately and publicly apologised through an extensive communications and stakeholder engagement programme for the failure to exercise judgement in allowing this material to appear on our digital platform. Vikesh and his management team are to be congratulated for their decisive handling of the crisis and for bringing this highly volatile situation to an end so swiftly. We recognise the work that lies ahead to restore the company’s good name and assure our stakeholders that we remain committed to the principles of diversity and transformation. The first steps in this regard are bearing fruit as trading has returned to relatively normal levels in recent times.
In this regard, the diversity of our directors ensures that the board considers the needs of all our stakeholders and interest groups. Currently 56% of our nine directors are black and 33% are female, exceeding the voluntary targets of 25% contained in our board race and gender diversity policy.
Responsible corporate citizenship
The Covid‑19 pandemic has highlighted the value of companies integrating effective environmental, social and governance (ESG) practices into their businesses to ensure longer-term sustainability. Data from the independent international research house, Morningstar, shows that global sustainability indices have outperformed mainstream market benchmarks during the pandemic and ESG investments have attracted record fund inflows, with assets under management exceeding $1 trillion for the first time in June 2020.
It was pleasing for the Clicks Group to be included in the FTSE4Good Index Series for the fourth consecutive year in 2020. In the evaluation for this Index conducted by FTSE Russell, Clicks Group achieved an ESG score of 4.1 out of 5 in 2020 (2019: 4.1 and 2018: 3.9), far outperforming the drug retailers’ sector average score of 1.6.
The group obtained the maximum score of 5 for the governance component, confirming that our governance standards are in line with international best practice. The group achieved 3.5 for the environment and 3.7 for the social component.
Acknowledgements
Thank you to Vikesh for his astute leadership in managing two crises of this magnitude within his first two years in office. I extend my gratitude to the group executive committee and the leadership teams in Clicks and UPD for ensuring that the group delivered a highly competitive performance while operating under the constraints of the national lockdown.
Our 15 600 employees across the country are to be commended for their hard work during this time of crisis and in particular I thank our store staff for their commitment to selflessly serving our customers.
My fellow non-executive directors provided invaluable insight and counsel in maintaining oversight during this time of uncertainty and I thank them for their continuing support.
Thank you to our external stakeholders, including our customers, shareholders, suppliers and regulators, for their engagement and support throughout the pandemic.
David Nurek
Independent non-executive chairman