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Investment case

Clicks Group offers attractive organic growth prospects for investors seeking non-cyclical exposure to the South African equity market, and in particular the retail and healthcare sectors.

Investment case

1	Favourable market dynamics Healthcare markets are defensive and growing in South Africa Increasing proportion of population entering the private healthcare market Improving living standards, increasing urbanisation and longer life expectancy is contributing to a growing market for health and beauty products
2	Resilient value-adding business model Over 80% of group turnover is in defensive merchandise categories As a value retailer Clicks is price competitive with national retailers As a cash retailer Clicks is less interest rate sensitive than credit retailers
3	Globally competitive operating margins Retail and UPD operating margins rank in the upper quartile of global drugstores and pharmaceutical wholesalers Retail: 7.9% (medium-term target 7.5% – 8.5%) UPD: 2.7% (medium-term target 2.2% – 2.7%)
4	Expanding retail footprint Goal to expand Clicks store base in South Africa to 900 in the long term Over 620 conveniently located Clicks stores Targeting to open 25 – 30 stores each year
5	Expanding pharmacy base Objective to operate a pharmacy in every Clicks store in South Africa Only 57 South African stores still to get a pharmacy Targeting to open 30 – 35 pharmacies each year Retail pharmacy market share goal of 30% in the long term (2017: 22.2%) Primary care clinics in 195 Clicks stores
6	Differentiated product offer Private label and exclusive brands offer differentiated ranges at higher margins Target to grow private label to 25% of total health and beauty sales; currently 22% Exclusive health and beauty brands such as The Body Shop, Sorbet, GNC and Claire’s differentiate Clicks offer
7	Growing customer loyalty ClubCard is one of the largest retail loyalty programmes in South Africa 7.0 million active ClubCard members generate 77.4% of sales Online store offers Clicks product range for in-store or home delivery, as well as online only offers
8	Centralised supply chain Centralised supply from company-owned distribution centres to all retail stores (96.7% of product through centralised distribution) UPD provides an efficient healthcare supply chain channel for Clicks UPD also offers wholesale and distribution services to pharmaceutical manufacturers
9	Effective cash and capital management Highly cash-generative business R5.5 billion cash generated by operations over past three years Returns enhanced through active capital management R2.2 billion returned to shareholders in dividends and share buy-backs in past three years Well-invested store base and supply chain R1.3 billion capital expenditure in past three years
10	Market leadership Clicks and UPD occupy market-leading positions Clicks is the largest retail pharmacy chain in South Africa UPD is the country’s only national full-range pharmaceutical wholesaler