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Shareholder Information
In a year marked by significant political instability and uncertainty, deteriorating economic conditions and consequent credit ratings downgrades, financial pressure on South African consumers has continued to intensify.
Factors in the macroeconomic environment, together with the muted outlook for domestic growth, have weighed heavily on consumer confidence while rising living costs have eroded disposable income.
Against the background of a weak consumer economy the group produced another outstanding performance. This not only highlights the resilient nature of health and beauty markets but also the quality of the leadership and staff across the group.
Group turnover rose by 10.9% to R26.8 billion and diluted headline earnings per share increased by 14.5% to 502.1 cents. Shareholders will receive a total dividend of 322.0 cents per share, 18.4% higher than last year, based on an increased dividend payout ratio of 60%.
The group generated cash of over R2 billion for the first time and created shareholder value of R7.5 billion through share price appreciation and dividend payments. In the 21 years since listing on the JSE the group has created over R40 billion in shareholder wealth.
The listing of the group’s major competitor on the JSE during the past year has increased investor interest in the retail pharmacy sector in South Africa.
We believe the Clicks Group offers a compelling case for investors seeking exposure to the country’s retail and healthcare markets, underpinned by our long-term track record in the listed environment and the strong organic growth prospects in Clicks.
The group has delivered a 28.9% total shareholder return on a 10-year compound annual growth rate basis. Diluted HEPS has grown by 17.2% and dividends by 20.9% on the same basis over the past 10 years.
The core Clicks chain operates in resilient and growing markets, with over 80% of revenue in defensive merchandise categories.
Clicks has a long-term path to growth. The store footprint in South Africa is expected to expand to 900 stores and management remains committed to incorporating a pharmacy into every Clicks store. This will be supported by growing higher margin private label and exclusive brand sales, expanding the ClubCard loyalty base which accounts for 77% of the chain’s sales, increasing its digital and online presence, and maintaining an efficient supply chain through UPD.
Clicks and UPD are both market leaders with globally competitive operating margins which rank in the upper quartile of international drugstores and pharmaceutical wholesalers.
The group has a proven capital management strategy which enhances returns to shareholders and ensures strong free cash flows. Over the past three years R5.5 billion has been generated in cash by operations.
Our investment case continues to appeal to foreign investors. At year-end the group’s international shareholding was 66%, having increased from less than 8% in 2008. Currently nine of the top 10 shareholders are based offshore.
Clicks Group has a strong, stable and independent board. Based on the outcome of the annual self-evaluation the directors believe the board contributes to value creation in the company, is well balanced and has the collective knowledge and expertise to make a meaningful contribution to the group’s affairs.
The diversity of our directors in terms of gender, race and their professional backgrounds encourages constructive debate and ensures that the board considers the needs of all our stakeholders and interest groups. In line with the race and gender diversity policy adopted by the board, 44% of our nine directors are female and 44% are black.
Dr Nkaki Matlala, who served as an independent non-executive director since 2010, retired from the board in January 2017. We thank Nkaki for his contribution over the past six years and wish him well.
We were pleased to welcome Nonkululeko (Nonku) Gobodo as an independent non-executive director to our board in March 2017. Nonku is a highly respected accounting and auditing professional with extensive business and leadership experience. She was a founder and former executive chairman of SizweNtsalubaGobodo, the country’s largest black-owned accounting firm, and we look forward to her contribution to the board and the audit and risk committee.
The group applied King lll during the reporting period and has already adopted certain elements of the new King lV code which became effective from October 2017. These are detailed in the corporate governance report on the website.
King lll was based on the “apply or explain” principle whereas King lV requires companies to “apply and explain” how the code has been implemented.
While our remuneration and reward principles remain consistent with last year, the remuneration policy has been aligned to King lV to outline the group’s approach to fair, responsible and transparent remuneration practices across the business.
The King lll requirement to propose a company’s remuneration policy for a non-binding advisory vote at the annual general meeting (AGM) has been extended under King lV. Companies are now required to separately table an implementation report at the AGM dealing with the company’s application of its remuneration policy.
We will be presenting both of these proposals at our forthcoming AGM. Refer to rewarding value creation.
The group is committed to sustainable and responsible environmental, social and governance (ESG) practices. The main areas of focus are transformation and empowerment; broadening access to healthcare in support of the national agenda to make medicine more affordable and accessible; investing in our people to ensure the success and sustainability of the business; and investing in our communities through socio-economic and enterprise development.
Progress in transformation and empowerment is evidenced by the group achieving a level 5 (2016: level 6) rating on the new BBBEE codes of good practice.
Our commitment to ESG practices has been recognised by the group’s inclusion in the FTSE/JSE Responsible Investment Top 30 Index which acknowledges South African companies with leading ESG practices. In addition, the group qualified for the first time for the FTSE4Good Index which recognises strong ESG practices against global standards. Refer to creating value through good citizenship.
David Kneale and his executive team continue to lead the group with great focus, energy and distinction, and I thank them for their commitment to ensuring the business maintains its market-leading position. I also extend my appreciation to the management and staff across the country for their contribution to another highly successful year for the group.
Thank you to my fellow non-executive directors for their active participation in board and committee meetings, and for providing valuable insight and oversight.
The relationships with our external stakeholders, including our customers, shareholders and funders, suppliers and industry regulators, are critical to the sustainability of the business and I thank them for their continued support and engagement.
David Nurek
Independent non-executive chairman