Chief executive officer’s report

Clicks Group’s sustained performance in the weak consumer economy is evidence that the group did not merely survive, but thrived, in the past financial year, delivering an increase in adjusted diluted headline earnings per share of 11.5%.

Clicks grew turnover by 12.2% (excluding vaccinations) despite an increase of over 200% in store trading hours being impacted by power outages. In this environment of growing pressure on consumer disposable income, Clicks grew market share in all core product categories.

UPD endured a tough year, with the first half results impacted by the post-systems implementation challenges. Encouragingly the business delivered a much improved second half performance and is on track to continue to recover in the new financial year.

The group’s organic growth strategy was complemented by successfully concluding three bolt-on acquisitions closely aligned to its core health and beauty focus.

Sorbet, which is the largest professional beauty salon business in South Africa with 194 stores, enhances the group’s positioning as a beauty destination for higher LSM customers. The group has a long association with the brand, having acquired a 25% shareholding in the Sorbet Brands intellectual property company in 2015, while Sorbet products are also sold in Clicks stores.

M-Kem is a well-established and trusted 24-hour specialised pharmacy which extends the convenience of the retail pharmacy offering. Located in Cape Town’s northern suburbs, the pharmacy offers a diabetic clinic, travel clinic and wounds management practice. The founder of M-Kem, Hylton Mallach, and his team are proving to be a great fit with the Clicks brand and this acquisition will enable Clicks to develop a similar large format specialised health offering in other parts of the country.

Through the acquisition of 180 Degrees, a pharmacy software development company, Clicks will be able to offer an improved service experience to its pharmacy customers.

Delivering on our strategy

Clicks Group’s growth strategy continues to be supported by favourable market dynamics which are increasingly relevant in the current economic downturn. We believe these strategic drivers of our longer-term growth, outlined in the group strategy report, should ensure continued competitive advantage in the health and beauty markets in which we trade.

Our strategy was consistently applied throughout the past year, based on the pillars of value, convenience, differentiation and personalisation.

The group continued to invest for growth, opening a net 45 new Clicks stores to expand the store footprint to 885. Our convenience format stores comprise 75% of the portfolio. Three new stores were opened outside of South Africa, bringing our presence in the neighbouring countries to 49 stores.

While Clicks has traditionally targeted mainly middle to upper income consumers, we have in recent years extended our market and are accelerating our presence in lower income areas. By year end, 228 of our stores were located in lower income areas which contributed 22.5% of turnover.

The baby category is a strategic growth area within Clicks and through our baby offering in all Clicks stores we have grown our market share to 21.0%. There are currently four standalone Clicks Baby stores and we plan to accelerate the rate of opening further stores, as well as extending the Clicks Baby store-in-store concept.

The convenience and accessibility of our healthcare network is a key driver of growth. Clicks is the country’s largest retail pharmacy chain and a further 38 pharmacies were opened during the year, including the 700th pharmacy which opened in Paarl, which extended the national pharmacy presence to 711. Currently 50% of the country’s population live within 5.1 kilometres of a Clicks pharmacy, confirming the convenience and accessibility of the pharmacy network. Clicks increased the number of primary care clinics in stores to 203 while the number of registered national Department of Health medicine collection points was extended to 450 Clicks stores.

The convenience of our store, pharmacy and clinic locations, together with the online store, saves customers both time and transport costs.

Clicks ClubCard, the first such loyalty programme in Africa, enables our personalisation strategy. Membership passed the 10 million mark, increasing by 700 000 to reach 10.4 million, with almost one in six South Africans being an active ClubCard member. These loyal shoppers accounted for 80.2% of sales in Clicks and were rewarded with cashback of R689 million.

One in every four products sold is now a Clicks-branded product or exclusive brand. Our private label strategy aims to increase customer choice and offers an extensive range of trusted quality, great value products which are an alternative to a branded product. Private label sales grew by 15.4%, ahead of the overall sales growth in Clicks, and contributed 25.2% of sales. A particular success has been the Clicks Made4Baby private label range which was voted as the SA Product of the Year 2023.

UPD remains the country’s leading pharmaceutical wholesaler and is a significant service provider in the distribution agency business, with a portfolio of 30 clients. UPD’s total managed turnover, which combines wholesale and bulk distribution, increased by 4.8% to R32.1 billion. Clicks and the private hospital groups account for 92% of UPD’s wholesale turnover, supporting the long-term sustainability of the business.

The group’s financial performance is covered in the chief financial officer’s report, and the trading performance of Clicks and UPD.

Integrating ESG practices

As responsible corporate citizens we strive to understand the inter-relationship of people, planet and profit, and it is this understanding that underpins the group’s commitment to carbon neutrality.

Sustainability management and environmental, social and governance (ESG) practices are integrated into our strategic planning and operational processes, with ESG metrics being applied as downward modifiers in our incentive schemes. Clicks Group’s inclusion in the globally recognised FTSE4Good Index for the past seven years is an independent endorsement of the progress we have made in advancing sustainability.

The investment in human capital development has contributed to the group maintaining its position as the top employer within the retail sector in South Africa for the seventh consecutive year.

Gender empowerment focuses on improving gender representation at all levels within the group, investing in the tertiary education of women in health sciences, procurement from women-owned enterprises and gender advocacy. Our diversity leadership in this regard has been recognised in the Gender Mainstreaming Awards Africa where the group received multiple awards.

As part of our move towards the goal of carbon neutrality, we are installing solar energy solutions and battery storage to minimise our carbon footprint, limit our reliance on the unstable national electricity grid and reduce costs.

The group’s core business creates meaningful social impact through the provision of health products and improving access to reliable and affordable healthcare. We are also advancing community healthcare through three national partnerships. Students on the Go, an initiative conceptualised by the Wits University student representative council, is aimed at addressing period poverty. The Transnet Phelophepa clinic train delivers healthcare to rural communities, and we also support the impactful work of Dr Imtiaz Sooliman and the Gift of the Givers which extends beyond our national borders.

Refer to the sustainability report for detail on the group’s ESG focus areas.

Strategy and outlook

The challenging macro economic environment, with electricity outages, rising consumer price pressure and higher interest rates, affects all consumers, and we anticipate trading conditions to remain extremely constrained in the year ahead.

Management remains positive on the prospects for the group to maintain its growth momentum and to continue to demonstrate its resilience, supported by several strategic advantages.

Clicks’ expanding store and pharmacy network, e-commerce platform and extensive range of products and services are broadening access and increasing appeal to customers. The improving UPD performance positions the business to regain wholesale market share in the new financial year while in the bulk distribution business we remain focused on rationalisation to drive improved profitability. There is also scope to optimise supply chain efficiencies in both Clicks and UPD.

Our extensive store network and integrated supply chain provide competitive advantages which we aim to maintain through capital investment of R880 million for the new financial year.

As a group we remain true to our heritage as a value retailer. We continue to prioritise customer care as the cornerstone of sustained long-term shareholder value creation through a retail-led health, beauty and wellness offering premised on convenience, differentiation and personalisation. Our strength and significant market shares in our core retail markets support our growth aspirations.

Our confidence in the growth prospects of Clicks is reflected in the long-term store target of 1 200 stores, with 40 to 50 stores and 40 to 50 pharmacies planned to open each year.

We believe that the organic growth opportunities in Clicks, together with the group’s strong cash generation and healthy balance sheet, should ensure that the group continues to deliver on its medium-term financial and operating targets.

Appreciation

Thank you to our chairman, David Nurek, for his guidance and positive engagement through the leadership transition and to the board for their unwavering support and wise counsel to executive management.

Our new CFO Gordon Traill has played a highly supportive role since his appointment in January 2023 and I thank him for his commitment and contribution.

The Clicks team delivered another superb performance under the capable leadership of Vikash Singh and his highly experienced and dynamic executive team.

The UPD team has displayed resilience under challenging circumstances. I commend Trevor McCoy and the UPD executive team for the efforts that went into the recovery in the second half of the year.

In our business, people are the difference, and I thank all our staff for ensuring that we have maintained our position as South Africa’s leading health and beauty retail group.

Bertina Engelbrecht
Chief executive officer