Chief executive officer’s report

Clicks Group delivered another strong trading and financial performance as retail turnover grew by 11.7% and trading profit passed the R4 billion mark for the first time. The performance was supported by market share gains across all core health and beauty product categories, an increased contribution from private label products and an expanding store base while the Clicks ClubCard attracted 1.4 million new members.

The group’s sustained performance over several years can be attributed to the proven resilience of our business model, the defensiveness of our core product offering, brand strength, relentless focus on incremental efficiency gains and, most importantly, the commitment of our people.

UPD successfully completed its large-scale systems implementation in the first quarter of the financial year. Operational metrics have recovered to pre-systems implementation levels and the business delivered a much-improved second-half performance, also benefiting from the higher increase in the regulated single exit price of medicines in 2024 relative to the prior year.

Late in the financial year the Unicorn Pharmaceuticals (Unicorn) licensing matter was amicably resolved following positive engagement with the Department of Health. After the financial year-end, pharmacy licences are again being issued which is positive for Clicks’ expansion programme.

Delivering on our strategy

Our growth strategy was consistently applied throughout the past year, based on the pillars of value, convenience, differentiation and personalisation. The strategy continues to be supported by favourable market dynamics which we believe should ensure continued competitive advantage in the health and beauty markets in which we trade.

The group continued to make pleasing progress in expanding its store footprint towards the medium-term target of 1 200 stores. During the year, we opened a net 51 new Clicks stores, including the 900th store which opened in Barlow Park, Sandton, and expanded the store footprint to 936.

Our convenience format stores comprise 76% of the portfolio. Clicks has accelerated its store presence in lower-income areas, with 25% of stores now located in these areas and contributing 22.4% of turnover.

Four new stores were opened in Botswana, bringing the group’s presence in the neighbouring countries to 57 stores across Namibia (27), Botswana (23) Eswatini (5) and Lesotho (2).

Our integrated baby offering is positioning Clicks as a leader in this strategic growth category, with our market share growing to 22.5% (2023: 21.0%). Private label ranges are one of the main drivers of growth in the baby category, supported by convenient store locations, the online store and Baby ClubCard benefits. There are currently six standalone Clicks Baby stores and five Clicks Baby store-in-store formats.

Clicks is the country’s largest retail pharmacy chain and we are committed to delivering quality, affordable and accessible healthcare through our convenient network of 720 pharmacies. Primary care clinics are housed in 206 pharmacies. Currently 51% of the country’s population live within 5.0 kilometres of a Clicks pharmacy. While the net nine pharmacy openings was below our target due to the Unicorn-related licensing restrictions, we grew our retail pharmacy market share to 24.2% (2023: 23.7%).

The resolution of the Unicorn issue has enabled management to accelerate plans to introduce a specialised pharmacy format under the UniHealth brand. Modelled on M-Kem, the 24-hour specialised pharmacy acquired by the group in 2023, we plan to open approximately 10 similar large format pharmacies around the country in the medium term.

The Clicks ClubCard, South Africa’s first retail loyalty programme, enables our personalisation strategy. The generous rewards and benefits have increased the membership of the programme to 11.8 million. ClubCard contributed 81.7% of sales in Clicks, accounting for 79.5% of front shop sales and 87.3% of pharmacy sales. Our loyal shoppers were rewarded with cashback of R780 million this year, an increase of 13.2% on the prior year.

Clicks’ investment in advanced analytics to drive customer-focused segmentation and tailored rewards was acknowledged at the 2024 SA Loyalty Awards where the ClubCard was recognised for the best use of artificial intelligence (AI) to improve loyalty experience and the best use of data analytics/CRM applications.

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 13.5%, ahead of the overall sales growth in Clicks, and contributed 25.4% of sales. A particular success has been the Clicks Made4Baby private label diaper range and Sorbet BB Cream which were voted as the SA Product of the Year in their respective categories, with the Sorbet BB Cream being adjudged as South Africa’s overall Product of the Year 2024.

Sorbet, acquired by the group in 2023, is the largest and most recognisable professional beauty salon business in the country. Following its successful integration into the group, Sorbet has continued to perform well and increased turnover by 12.3% over the prior year. The chain has 186 franchised and nine company-owned salons, and enhances the group’s positioning as a beauty destination for higher LSM customers.

Similarly, our affinity partnership with ARC Stores, a premium beauty brand retailer, enables the group to access the premium beauty customer.

UPD remains the country’s leading pharmaceutical wholesaler and a significant service provider in the distribution agency business. The business has pursued a strategy of rationalising its bulk distribution portfolio to focus on profitable clients, resulting in two large distribution contracts with a combined annual turnover of approximately R3 billion not being renewed.

This contributed to UPD’s total managed turnover, combining wholesale and bulk distribution, declining by 6.7% to R29.9 billion. Clicks and the private hospital groups account for 94% of UPD’s wholesale turnover, supporting the long-term sustainability of this 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

We believe that businesses do not operate in a vacuum and recognise that we are part of a broader ecosystem, embracing the opportunity to make a positive impact.

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.

The group’s inclusion in the globally recognised FTSE4Good Index for the past eight years is an independent endorsement of the progress we have made in advancing sustainability, as is our improved “AA” ESG score in the MSCI rating.

We are advancing gender diversity and empowerment by improving gender representation at all levels within the group, investing in the tertiary education of women in health sciences, procuring products from women-owned enterprises and capitalising on opportunities for gender advocacy.

As a signatory to the United Nation’s Women’s Empowerment Principles, we support business practices that empower women in our workplaces, marketplace and communities. In 2024 the group achieved an 89% score against the eight performance indicators set in support of the 2030 Agenda for Sustainable Development.

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 national partnerships, including the Transnet Phelophepa clinic train which delivers healthcare to rural communities.

As a responsible corporate citizen, we embrace our role as an environmental steward for future generations. This underpins our commitment to carbon neutrality and informs our increased investment in renewable energy. In the past year we increased our renewable energy generation by 41% and are planning to extend our investment in renewable energy solutions and solar battery capacity in the new financial year to minimise our carbon footprint.

Refer to the sustainability report for detail on the group’s ESG focus areas and progress over the past year.

Strategy and outlook

We are optimistic about the economic, social and political environment of our region and believe that the medium-term outlook for retail trading is increasingly positive. Lower inflation, interest rate relief, declining fuel costs, the strengthening currency and the extended suspension of load shedding are supporting improved consumer sentiment which should ultimately translate into increased spending. However, we expect spending to remain muted in the short term.

Our confidence in the growth prospects of Clicks is reflected in the medium-term target of expanding our store base to 1 200, with 40 to 50 stores and 40 to 50 pharmacies planned to open each year. We are expecting a higher number of pharmacy openings in the year ahead now that the processing of our pharmacy licence applications has resumed.

UPD is well positioned to regain wholesale market share following the improved performance in the second half and the momentum being carried into the 2025 financial year.

Our extensive store network and integrated supply chain provide competitive advantages which we aim to maintain through capital investment of approximately R1 billion in each of the next three years.

We believe that the group’s market-leading positions in the health and beauty sectors, long-term organic growth opportunities in Clicks and the increasing scale of the business, supported by strong cash generation and a robust balance sheet, should ensure that the group continues to deliver on its medium-term financial targets.

Appreciation

Clicks Group has the privilege of an extraordinary chairman in David Nurek. After serving the group and the board with distinction over many years, David will be retiring at the annual general meeting in January 2025.

I thank David for his dedication and commitment to the success of the group and the role he has played in shaping the strategy and performance ethos of our business. He has been an incredibly wise mentor and coach to the board, our executive team and me personally. We wish him good health and happiness in the next chapter of his life.

In our business, people are the difference. During the past year we were one team comprising individuals and functional teams that all delivered above expectations. The retail business under the leadership of Vikash Singh delivered another outstanding performance while Trevor McCoy and the UPD executive team displayed remarkable resilience and commitment to the recovery of their business. Our group services team, led by chief financial officer Gordon Traill, provided superb support for our operational teams to thrive.

On behalf of the board, I thank our executives and staff for ensuring that we entrenched our position as South Africa’s leading health and beauty retail group.

Bertina Engelbrecht
Chief executive officer