Chairman’s report

The Clicks Group has, once again, produced a very pleasing result for the August 2022 financial year.

This performance was achieved in an environment of extreme and, in some cases, unprecedented challenges both globally and in South Africa, demonstrating the resilience of the group’s business model and the defensiveness of its core business. These challenges have been widely documented and have more recently been exacerbated by a number of global issues. These include the continuing war in Ukraine leading to global food insecurity and rising inflation as well as a number of South African domestic issues such as increased load shedding, unprecedented levels of unemployment and declining consumer confidence.

Moreover, the group’s solid performance was achieved in a period of leadership change, following the resignation of our former CEO, Vikesh Ramsunder and the appointment of Bertina Engelbrecht as his successor from January 2022. The transition in the CEO office was seamless and the group’s strategy has been consistently applied, allowing the group to continue on its sustained growth trajectory. This is testament to our succession planning and leadership development programmes which enable us to appoint internal successors who have been integrally involved in the development of strategy and who have gained the trust and confidence of all stakeholders.

Group turnover at R39.6 billion increased by 6.0%, diluted headline earnings per share (HEPS), adjusted for the impact of the civil unrest, grew by 11.9% and the dividend was increased by 30.0% to 637 cents per share. The group generated cash inflows from operations of R4.3 billion while the industry-leading return on equity increased to 48.0%.

The performance of the past year should also be analysed in the context of the strong growth trend over the past decade, with the group generating a compound annual total shareholder return of 20.9% per annum. Diluted HEPS has grown by a 10-year compound rate of 14.2% and the dividend per share by 15.4% per annum.

During this time the group has continued to reinvest for growth, with capital expenditure of R5.4 billion over the past 10 years while over R11 billion has been returned to shareholders in dividends and share buy-backs, underpinning the quality of the Clicks Group share. We remain a proud constituent of the FTSE/JSE Top 40 Index.

Progressing board succession

As a board our primary responsibility to shareholders is to ensure that we have the necessary expertise and independence to meet our oversight responsibilities and add value to the board’s deliberations.

The succession plan aimed at refreshing the board membership has gained momentum over the past year. In September 2021, we welcomed Sango Ntsaluba as an independent non-executive director. Sango is a seasoned non-executive director with over 30 years’ experience in the auditing profession and in corporate leadership positions. In September 2022, after the end of the reporting period, Nomgando Matyumza joined the board as an independent non-executive director. She has extensive finance, accounting and governance experience from holding executive positions in the private and public sectors and is highly respected.

Sango and Nomgando are both experienced chartered accountants and have been appointed to the audit and risk committee.

Shareholders should be reassured that the board refresh does not in any way signal a shift in the strategic direction of the group.

Our succession plan also addresses the issue of long-tenured directors. Our policy dictates that directors who have served at least three terms of three years will retire when their current term comes to an end, unless the board determines otherwise. Our long-tenured directors are therefore retiring over a three year period. In January this year we bade farewell to Fatima Daniels. Ahead of the AGM in January 2023, Prof Fatima Abrahams and Martin Rosen will retire.

These directors have made an outstanding contribution to the board and the committees on which they have served over the years. Their tenure has coincided with a period of exceptional performance by the group and we thank them for their commitment, counsel and guidance.

While we acknowledge the collective benefits of a highly experienced and knowledgeable board, we recognise the oversight advantages and benefits that fresh insights and thinking can add to boardroom debate and deliberations. Following the January 2023 AGM, four of our six non-executive directors will have been appointed within the past three years.

Increasing board diversity

The diversity of our directors ensures that the board considers the needs and concerns of all our stakeholders and interest groups.

The group follows a broad policy to ensure diversity on the board, specifically relating to race and gender, but also additional diversity attributes of skills, qualifications and experience, age and culture. All our board appointments have been made in line with this policy.

Currently 60% of our directors are black and 40% female, exceeding our voluntary targets of 50% black and 25% female representation on the board.

Executive leadership

After 11 years as chief financial officer (CFO) and an executive director, Michael Fleming will be taking early retirement from the group in December 2022. Michael has made an outstanding contribution to the group’s financial and capital management over the past decade and oversaw the finance portfolio during a period of strong growth for the group. We are sorry to say goodbye to Michael and wish him well for the next chapter of his life.

We are pleased to appoint Gordon Traill as an executive director and CFO with effect from 1 January 2023 to succeed Michael. Gordon has been with the group since 2006 and is currently chief of support services in Clicks with responsibility for supply chain, retail distribution centres, property and information technology.

He has extensive experience in senior financial management and strategic and operational portfolios within the group which make him well suited for his new position. Appointing an internal successor of Gordon’s calibre highlights our depth of talent and the quality of our leadership development programmes, enabling the board to promote an executive who has been part of our long-term succession planning.

Governance

The group’s governance standards are independently assessed each year as part of the evaluation for the FTSE4Good Index, where the group again achieved the maximum score for the governance component in 2022, confirming that our governance standards are in line with international best practice. The group achieved an overall ESG score of 4 out of 5, far outperforming the drug retailers’ sector average score of 1.7.

The board has continued to support management in entrenching ESG practices across the business. This included training on climate change, reviewing the group’s environmental and climate change policy, approving the adoption of the JSE’s June 2022 guidance on sustainability and climate change disclosures in our annual reporting and incorporating ESG modifiers in long- and short-term incentive schemes.

The nomination and remuneration committee is considering further amendments to the current long-term incentive scheme to align the group’s remuneration practices with global best practice. The amended scheme will be presented to shareholders during the new financial year and will be implemented for the 2024 financial year.

Acknowledgements

Thank you to our CEO Bertina for her engaging and decisive leadership since assuming office during the year. I also thank our experienced group executive committee and the leadership teams in Clicks and UPD for producing another highly competitive performance in the challenging operating environment.

Our 16 500 employees at head office, stores and distribution centres across the country again delivered on the group’s values and I thank them for a job well done.

My fellow non-executive directors provide invaluable guidance and counsel in maintaining high standards of oversight and I extend my gratitude for their continued support.

Thank you to our external stakeholders, including our customers, shareholders, suppliers and regulators, for their continued support and engagement.

 

David Nurek
Independent non-executive chairman