Managing stakeholder engagement
Clicks Group’s stakeholder engagement strategy focuses mainly on the five primary stakeholders that management believes are most likely to impact on the delivery of the group’s strategic objectives and influence the ability to create value in the short, medium and long term.
Proactive and transparent relationships enable the group to identify and address the needs, expectations and concerns of these stakeholder groups.
Shareholders and lending institutions
Shareholders:
Local and international institutional and private investors, as well as fund managers and analysts from the broader investment community.
Lending institutions:
South African financial institutions which provide funding and trade finance facilities to the group.
Key engagement issues in 2024
Addressing engagement needs, expectations and concerns
Clicks: Concerns related to the ability to expand the pharmacy network due to the suspension of new retail pharmacy licence applications imposed by the Department of Health (DoH) until Clicks complied with the Constitutional Court judgment on the ownership of the manufacturing pharmacy licence of Unicorn Pharmaceuticals (Unicorn).
Agreement was reached with the DoH that the group would divest its total shareholding in Unicorn to comply with the court ruling. The sale of Unicorn was completed effective 1 August 2024, enabling Clicks to resume its application process for retail pharmacy licences with the DoH. Clicks opened net nine pharmacies over the past year.
Clicks: Impact of the aggressive three-year store expansion strategy announced by the group’s major competitor.
Clicks is committed to expanding its store footprint to at least 1 200, targeting to open 40 to 50 stores and 40 to 50 pharmacies annually. In the past year Clicks opened net 51 stores, bringing the total opened over the past three years to 154. The expansion plan continues to focus on opening convenience format stores, accelerating Clicks’ presence in lower-income areas, targeting upper-income areas in Gauteng where Clicks is under-represented and opening approximately 10 larger format specialist pharmacies following the acquisition of M-Kem.
Clicks: Impact of the weak consumer environment on trading in Clicks due to the pressure on consumer spending from rising food, energy and fuel costs and high interest rates.
While the group is not immune to the downturn in the economic environment, the business model is resilient and the core healthcare markets in which the group trades are highly defensive and non-cyclical, with over 80% of group turnover in defensive categories. Clicks has continued to report volume growth in the past year despite these pressures on consumer spending.
UPD: Impact of the post systems implementation and non-renewal of bulk distribution contracts and plans for the wholesaler to recover market share.
Following the completion of the large-scale systems implementation early in the financial year, performance continued to improve during the year. Operational metrics moved back in line with targets post the implementation at the Lea Glen distribution centre. The rationalisation of the bulk distribution portfolio is aimed at focusing on profitable clients, which has created the capacity for growth of existing profitable clients and to acquire profitable new clients. UPD is expected to recover market share as benefits are realised post the systems implementation and the Clicks Pharmacy purchasing compliance from UPD recovers to the targeted 98%.
Customers
Clicks
primarily targets consumers in the growing middle to upper income markets (LSM 6 – 10).
UPD
customers include Clicks, major private hospital groups, pharmaceutical manufacturers, and independent pharmacies (including buying groups).
Key engagement issues in 2024
Addressing engagement needs, expectations and concerns
Load shedding impacting on business operations and productivity.
South Africa has experienced lower levels of load shedding than in the previous financial year, particularly in the second half of the year, which positively impacted business operations and sentiment. In addition, the group has installed solar battery storage at its head office and UPD’s main distribution centre to augment its energy requirements. Backup power that include inverters, generators and UPS installations have been provided for impacted Clicks stores.
Increased customer expectation of high-quality product and services with improved customer service responsiveness.
The group, considering evolving customer needs and preferences, continually refines its product offering and services using market-leading research benchmarks and customer surveys. In addition, customer complaints resolution mechanisms are in place and reviewed on a continual basis.
Consumer demand for growing private label and promotional activities is critical to address affordability.
The growth of the private label offering is a key focus for the group. To this end, evolving customer needs are assessed, product life cycles are reviewed, and emerging and future trends monitored. Clicks' private label sales increased by 13.5% over the prior year. Private label sales accounted for 25.4% of Clicks' sales. The Clicks store expansion programme is geared toward enhancing customer access as well as convenience.
Employees
All permanent and part-time employees across the group.
Key engagement issues in 2024
Addressing engagement needs, expectations and concerns
Increased focus on employee mental, financial and physical well-being.
The group repositioned its employee wellness programme to be more preventative and holistic. Agreements were concluded with leading health and financial services providers that have delivered savings for the benefit of employees. Additionally, participation in physical wellness assessments increased from 228 in 2023 to 474 in 2024.
Global war for talent and scarce skills that may impact the group.
The group invested R185m in skills development and R2.3m* in bursary support for pharmacy students and other scarce skills at universities. The group has competitive short and long-term incentive schemes in place as part of its talent retention strategy.
Engagement and negotiations with organised labour unions.
The group maintains cordial and productive relationships with organised labour unions, effectively mitigating the risk of business disruptions through strategic stakeholder engagement and negotiations. A two-year wage agreement with the South African Commercial Catering and Allied Workers Union has been concluded at 7%.
* Subsequent to the 2024 year-end, additional bursaries were paid totalling R3.3m, bringing the 2024 total to R5.6m invested.
Suppliers
Local and international suppliers of products and services, including producers of exclusive brands and private label products.
Key engagement issues in 2024
Addressing engagement needs, expectations and concerns
Load shedding has added strain on local manufacturing, with a material impact on small to medium-sized suppliers.
Load shedding has reduced significantly over the second half of the year, which has improved product supply from local manufacturers. Small to medium-sized suppliers have elected to prioritise high-demand production lines to counter the effects of load shedding.
Global supply chain challenges due to rising geopolitical risks in the Middle East and Ukraine. In addition, there were supply chain constraints in China and the USA.
Challenges emanating from congested logistics were managed through better inventory planning and future forecasting.
Congestion and inefficient operations at South African ports.
The group’s import vendor lead times were adjusted and downstream mitigation actions were implemented to expedite shipment and protect service levels. Active safety stock investments were implemented in affected areas of the business to mitigate against continued constrained supply lines, for both local and import supply lines.
Government and industry regulators
Department of Health, South African Revenue Service and other government departments, industry regulatory bodies and local authorities. As a listed company, the JSE Limited is the primary regulator.
Key engagement issues in 2024
Addressing engagement needs, expectations and concerns
National Health Insurance (NHI).
The group is closely monitoring the developments related to NHI. It is expected that the implementation process will be gradual, and the final structure of NHI remains uncertain. The group will continue to collaborate with other stakeholders, including medical schemes, industry bodies and regulators, as necessary and is well positioned to make a positive contribution towards achieving universal access to healthcare.
Notification of data breach.
Following the global data breach of MoveIT by Russian hackers in May 2023, the Information Regulator conducted a self-initiated assessment in terms of section 89 of the Protection of Personal Information Act, 2013 of the group’s response to the breach, as well as its treatment of personal information in general, during October 2023. The group is satisfied that its data governance and cybersecurity protocols are robust and have invested in building capacity in this area.