Chief financial officer’s report

Clicks Group maintained its strong growth momentum in the 2024 financial year as good retail sales growth together with improved margins, tight cost management and robust cash flows contributed to an increase of 14.3% in diluted headline earnings per share to 1 193.5 cents.

The total dividend was increased by 14.3% to 776 cents per share (interim dividend 210 cents per share and final dividend 566 cents per share), based on a 65% dividend payout ratio. The final cash dividend totalling R1.35 billion will be paid to shareholders in January 2025.

The group remained strongly cash generative, with cash inflows from operations of R6.0 billion. R2.5 billion was returned to shareholders in dividend payments and share buybacks while R891 million was invested in capital projects. At the financial year-end, the group held cash of R2.7 billion on the balance sheet.

The group again produced industry-leading shareholder return metrics, with the return on equity (ROE) increasing to 46.4% from 43.6% in the prior year. This far exceeds the average ROE of the other listed food and drug retailers in South Africa.

The operational performance for the year shows the group’s sustained growth trend through challenging economic and trading cycles. Over the past five years, a period which included the Covid-19 pandemic and the civil unrest in KwaZulu-Natal, the group’s trading margin has expanded from 8.3% in 2020 to 9.2% in 2024, while turnover has grown by R11.5 billion to R45.4 billion over this time.

Over the past year the group achieved all its medium-term financial targets which is particularly pleasing considering these targets rank in the upper quartile relative to comparable global health and beauty retailers.

Financial performance

The analysis of the group’s financial performance for the year ended 31 August 2024 covers the key line items of the statements of comprehensive income and financial position which management consider material to shareholders’ understanding of the group’s performance.

The following review should be read together with the annual financial statements as well as the summary statements of comprehensive income and financial position, and the five-year analysis of financial performance.

Statement of comprehensive income

Turnover

Group turnover increased by 9.2% to R45.4 billion. Retail turnover, which includes Clicks, GNC, The Body Shop and Sorbet corporate stores, increased by 11.7%. Comparable store turnover grew by 8.4% with inflation of 6.3% and volume growth of 2.1%.

Growth in store and pharmacy trading space accounted for 3.3% of the retail turnover growth, with the net opening of 51 new Clicks stores and nine pharmacies. The acquisitions of Sorbet, M-Kem and 180 Degrees concluded in the prior year contributed 0.4% to revenue growth.

Distribution turnover grew by 3.3% as UPD delivered a stronger second-half performance following the completion of the systems implementation at its main distribution centre in the first half of the year (H1: increase 1.3%; H2 increase 5.2%).

The trading performances of Clicks and UPD are covered in the business review.

Total income

Total income grew by 12.8% to R13.7 billion. The retail total income margin expanded by 40 basis points to 34.6% following good growth across all categories, in particular the beauty and personal care category, as well as the impact of fewer pharmacies being opened in the year.

The 70 basis point increase in the distribution total income margin to 10.0% reflects the benefit of the higher increase in the regulated single exit price (SEP) of medicines in 2024 relative to the prior year as well as continued good management of shrinkage and waste.

The group’s total income margin expanded by 100 basis points to 30.2% due to the faster growth of retail relative to distribution.

Trading expenditure

Retail costs increased by 12.5% due to pressure from higher insurance costs, new stores, depreciation on capital expenditure and higher performance-based incentive payments. The acquisitions concluded in the prior year added 2.0% to retail cost growth.

Comparable retail costs grew by 7.4%, with costs growing at a lower rate in the second half.

Distribution costs increased by 7.4% primarily due to the impact of the systems implementation in the first half of the year while costs were maintained below turnover growth in the second half. The investment in renewable energy is paying off as electricity costs declined by 1.8% for the year despite the higher electricity tariffs.

Trading profit

Group trading profit increased by 15.1% to R4.2 billion while the group’s trading margin increased by 50 basis points to 9.2%. The retail trading margin expanded by 20 basis points to 10.2% due to the stronger growth in higher margin product categories together with efficient cost management.

The group and retail trading margins both exceeded management’s medium-term target ranges.

UPD increased its trading margin by 40 basis points to 3.2% due to the ongoing recovery in turnover, the higher SEP increase and good cost control. Trading profit increased by 11.2% for the first half and by 21.2% for the second half, increasing by 17.6% for the year.

Statement of financial position

The ratio of shareholders’ interest to total assets declined slightly to 30.2% (2023: 31.3%). The ratio of current assets to current liabilities at year-end was consistent with the prior year at 1.1 times, confirming that working capital remains adequately funded.

The group continues to hedge direct exposures to foreign exchange rate fluctuations which impact approximately 7.5% of the cost of sales in the retail business. In addition, the group hedged elements of the long-term incentive scheme for the 2022 to 2024 period. Further detail on the respective hedges and risk management is contained in note 29 in the annual financial statements on the group’s website.

Working capital

The group’s net working capital days moved out from 34 to 35 days.

Inventory levels grew by 11.9% and group inventory days increased by three days to 74 days. Retail inventory days were one day higher due to the earlier import of stock to avoid shipping delays and management’s increased focus on in-store availability to drive sales.

UPD’s stock days at 42 days were three days higher than the prior year.

Cash and capital management

Cash generated by operations totalled R6.0 billion (2023: R5.9 billion).

The group’s capital management strategy remains focused on investing in the organic growth of the business and returning surplus funds to shareholders through dividends and share buybacks:

• Capital expenditure of R891 million (2023: R930 million) was reinvested across the group. This included R583 million for new stores, pharmacies and stores refurbishments.

  A further R199 million was invested in information technology and other retail infrastructure, and R109 million on distribution centres, including the expansion of the Centurion facility.

  The installation of solar panels and battery storage at the group’s head office and the main UPD distribution centre was completed during the year.

• The group returned R2.5 billion to shareholders through dividend payments of R1 676 million and share buybacks of R835 million.

At the financial year-end, the group held cash resources of R2.7 billion.

 

Information technology

Information technology (IT) management aims to ensure IT systems and infrastructure are well maintained and remain relevant to the future needs of the business. During the year the group invested R132 million (2023: R140 million) in computer hardware and R111 million (2023: 245 million) in computer software. The group continues to focus a major portion of IT investment on replacement software solutions for core systems within Clicks and UPD.

The implementation of these best-in-class IT systems continued during 2024 on a risk-mitigated basis.

• UPD’s warehouse management system and cloud-hosted enterprise resource planning (ERP) system was implemented at the main Lea Glen distribution centre in the first quarter of the year. The ERP project will be concluded with the rollout of these systems to bulk distribution clients during the new financial year. In addition, the SAP warehouse management software was successfully upgraded at the start of the 2025 financial year.

• The new pharmacy management system is aimed at delivering operating efficiencies and generating further revenue. The system is currently being rolled out to all pharmacy stores, with the installation being completed at over 200 pharmacies by the financial year-end. The project is planned to be completed by the end of calendar year 2025.

• The Clicks mobile app was refreshed to enhance customer engagement, including improved in-app shopping experience, ClubCard engagement and pharmacy services.

• An integrated order management system and e-commerce distribution centre was rolled out in the first half of the year. The system allows for the fulfilment of orders and delivery from the Cape Town or Johannesburg distribution centres based on location and stock availability. This also allows customers to determine product availability at an individual store.

Summary statement of comprehensive income

 

 

Summary statement of financial position

Medium-term targets

Financial plans for 2025

Capital expenditure of R1 025 million is planned for the 2025 financial year.

This will be utilised as follows:

• R578 million will be invested in the store portfolio, mainly on 40 to 50 new Clicks stores and 40 to 50 new pharmacies. As part of the ongoing store refurbishment programme, 70 to 80 stores will be modernised to remain appealing and relevant to customers.
• R447 million for infrastructure. This includes R361 million on retail systems and infrastructure, including the rollout of the new pharmacy management system and the implementation of a new warehouse management system at the Cape Town retail distribution centre. R86 million will be spent on UPD IT systems and warehouse equipment, including further solar investment.

Retail trading space is expected to increase by approximately 6.0% in 2025.

Medium-term financial targets

We disclose financial targets to guide shareholders on the group’s medium-term performance expectations. These targets are reviewed annually to take account of the group’s current performance and the medium-term outlook for trading.

As the targets for the group and retail trading margins were exceeded, and UPD has shown a strong recovery in the past year, management has revised its group trading margin target to a range of 9% – 10% (previously 8% – 9%). The retail trading margin target has been increased to a range of 10% – 11% (previously 9% – 10%). The target guidance for UPD will remain at the current level for at least another year.

Appreciation

Thank you to our local and international shareholders for your engagement with management and continued belief in the group’s investment case. We welcome those shareholders who have invested for the first time this year. I also extend my thanks to our group and divisional finance teams for their support and commitment to achieving high standards of financial reporting.

 

Gordon Traill
Chief financial officer