Chief executive’s
Report

Clicks Group produced another resilient performance despite the trading disruption from the KwaZulu-Natal (KZN) civil unrest, store protests and the ongoing impact of Covid-19 on consumer shopping behaviour.

The group’s defensive business model continued to adapt to the changing market dynamics which contributed to robust turnover growth from Clicks and UPD, market share gains and the continued expansion of the store and pharmacy network.

One of the highlights of the year was the launch of the national Covid-19 vaccination programme. We recognise that the fastest way to economic recovery and to reduce human suffering is to fully vaccinate as many members of the population as possible, in this way protecting lives and helping to accelerate growth.

Clicks is the largest private-sector vaccination provider in South Africa and by the end of October 2021 had administered over 1.5 million vaccinations across 531 Clicks pharmacies.

The civil unrest in KZN in July 2021 had a significant impact on the group’s earnings. A total of 53 of our stores – or 6% of the store base – as well as the Clicks and UPD distribution centres in the province were looted and vandalised. Business continuity plans were activated immediately and products were supplied from our distribution centres in other regions to customers in KZN. Private security services were contracted to protect the distribution centres while aircraft were chartered to supply life-saving medicines from Johannesburg to UPD customers in the region, particularly the large hospital groups, during the third wave of the Covid-19 pandemic.

It was most encouraging to witness the local communities and our teams working together to restore our operations so quickly. The UPD distribution facility opened within two weeks of the unrest and the Clicks distribution centre two weeks later. Only eight of our stores remain closed. The financial impact of the civil unrest and the related insurance claim is detailed in the chief financial officer’s report.

The constrained trading environment unfortunately accelerated the closure of our heritage entertainment brand Musica in May 2021. The business had been operating in a declining market for several years owing to the shift in the digital consumption of music, movies and games. Musica was the country’s leading music and entertainment retail brand for several decades. The inevitable demise of the brand was a sad moment for the group, although we were fortunate to have been able to save jobs by redeploying Musica staff elsewhere in the group.

Delivering on our strategy

The group’s strategy was consistently applied over the past year despite the many headwinds in the external environment. Our organic growth strategy continues to be supported by favourable market dynamics and the drivers of our longer-term growth are outlined in the group strategy report.

Our retail health and beauty strategy is focused on the three pillars of convenience, differentiation and personalisation, supported by our value offering, and pleasing progress has made been in the past year.

Clicks opened its 750th store during the year, expanding its retail footprint to 782 with the opening of 39 new stores. The store opening programme was again accelerated beyond the targeted 25 to 30 stores owing to opportunities for new space becoming available in existing shopping centres.

While Covid-19 accelerated the growth in online purchases, customers have returned to shopping in-store as lockdown restrictions have been relaxed and online growth has slowed. The Clicks strategy is focused on offering the total range of products to customers via the online store. This enables the chain to enter product categories that are sold online only, including premium beauty, health mobility and baby hardware such as prams, car seats and cots.

Based on the international trend of baby accessories increasingly being bought online, we are opening specialist baby stores as showrooms to stimulate online sales. The first two Clicks Baby stores have been opened and a further nine are planned for major malls across the country. The baby category is a strategic growth area for Clicks where we already hold a 19.6% share of the market.

Clicks is the country’s largest retail pharmacy chain and a further 36 pharmacies were opened, extending the national pharmacy presence to 621. The convenience and accessibility of the pharmacy network is highlighted by the fact that 50% of the country’s population now live within 5.5 kilometres of a Clicks pharmacy.

Extending the convenience strategy, the group acquired 25 Pick n Pay pharmacies during the year. The transaction was approved by the Competition Commission after the end of the reporting period and the application process for the transfer of the licences is under way.

The convenience of the Clicks pharmacy network has been instrumental in supporting the national vaccination programme and by year-end Clicks had administered over 596 000 vaccinations across 300 sites.

Our iconic Clicks ClubCard remains one of the most popular loyalty programmes in the country. ClubCard active membership increased by 600 000 to 9.2 million in the past year and accounted for 80.2% of the brand’s sales. The Clicks mobile app, which incorporates the digital ClubCard, has been downloaded by 2.3 million customers. Clicks ClubCard was again rated as the best loyalty programme in the South African Loyalty Awards for 2021.

Through private label and exclusive brands Clicks offers an extensive range of trusted quality, great value products which are a significant alternative to a branded product.

The contribution from private label and exclusive products increased from 23.8% to 24.5% of total sales, with the goal to increase this to 25% of total sales.

The Body Shop, which sells natural, ethically-produced beauty products through 59 standalone stores and 239 Clicks stores, continues to differentiate our beauty offering and our franchise agreement with The Body Shop International has again been renewed.

UPD is the country’s leading pharmaceutical wholesaler and is a significant service provider in the distribution agency business, with a portfolio of 26 clients. UPD’s total managed turnover, which combines wholesale and bulk distribution, increased by 20.6% to R28.4 billion. Clicks and the private hospital groups account for over 85% of UPD’s wholesale turnover, supporting the long-term sustainability of the business.

Supporting our strategy has been the extensive investment in core information technology (IT) systems in Clicks and UPD, and the ongoing investment in digital technology to enhance our online platform, ClubCard engagement and the trialling of digital pharmacy lockers in stores.

Our extensive store network and integrated supply chain provide competitive advantages which we aim to maintain through the continued investment of over R2 billion in the next three years.

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

Strengthening executive management

During the year we appointed new managing executives for our two main operating businesses, Clicks and UPD.

Vikash Singh, previously the managing executive of UPD, was promoted to managing executive of Clicks in February 2021. His 15-year career with the group has spanned financial, operational and supply chain responsibilities, with extensive experience in logistics management in Clicks and UPD.

Trevor McCoy joined the group as managing executive of UPD in April 2021. Trevor has 25 years’ experience in the pharmaceutical sector including senior roles at Sanofi, Pfizer and Alcon.

We are pleased to have executives of the calibre and experience of Vikash and Trevor heading our two business units while also enhancing the diversity of our most senior leadership team.

Commitment to sustainable ESG practices

Environmental, social and governance (ESG) practices are integrated into our value system and the way in which we operate. The Covid-19 pandemic has highlighted the value of companies integrating effective ESG practices into their businesses to ensure longer-term sustainability and we welcome the increasing use being made by investors of ESG metrics in their company analysis.

The group was included in the FTSE4Good Index Series for the fifth consecutive year in 2021, recognising companies with strong ESG practices measured against global standards. In the index ratings the group far outperformed the sector and industry averages which include major international healthcare companies.

As a proudly South African company with a diverse workforce and a predominantly female customer base, inclusive transformation has always been integrated into our strategic plans. The group’s sustained rating as the top broad-based black economic empowerment (BBBEE) and gender empowered company in the health, pharmaceutical and retail sector bears testimony to our commitment to transformation. Our BBBEE rating improved further to level 4 in 2021.

Further supporting the local economy, Clicks introduced a supplier listing portal focused on developing small and medium-sized suppliers. Our commitment to this strategy is reflected in purchases of over R1.2 billion from small and medium-sized businesses, growing by 69% on the previous year.

Refer to the creating value through good citizenship report and the sustainability report 2021 for detail on the group’s ESG focus areas.

Outlook

Trading conditions will continue to be constrained owing to the ongoing impact of Covid-19, while store turnover in the civil unrest areas of KZN is still well below the levels of the prior year.

However, the relaxation of lockdown restrictions and the acceleration of the national vaccination programme is expected to aid the recovery in the economy. Clicks has the capacity to administer 600 000 vaccinations per month and will continue to play a key role in supporting this national priority.

Management is confident in the group’s ability to achieve its medium-term financial and operating targets, and has increased its operating margin targets for the retail and distribution divisions and the group, which confirms the organic growth prospects in the business.

Appreciation and farewell

In a year impacted by Covid-19, two significant business disruptions and the closure of Musica, our teams have demonstrated incredible resilience and tenacity. I thank our people for their tremendous dedication, commitment and courage which has made these results possible.

After 28 stimulating and fulfilling years I will be leaving the Clicks Group at the end of December 2021 to take up a position in Melbourne, Australia. It has been an honour to lead the group and to have been part of such a dynamic and transformed business which has presented me with career-defining opportunities.

Starting out as a cashier in Clicks I am proud of what I have achieved and am grateful to the many outstanding leaders and mentors who have helped shape my career.

Thank you to the board for their support over many years and for entrusting me to lead the company. My group executive colleagues have been unwavering in their commitment which has contributed directly to the group’s performance.

My successor, Bertina Engelbrecht, has been with the group for 15 years and has played an integral role in developing and supporting the execution of the group strategy. She is a seasoned executive with a diverse skill set and I wish her continued success in her new role.

It is with a heavy heart that I say farewell to the company and the country, and our amazing people who have been the pillar of success of the group. I have many wonderful memories and will miss the business dearly.

Vikesh Ramsunder

Chief executive officer