Integrated Annual Report 2017

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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