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Integrated Annual Report 2016


Chief Executive's Report

The group has made excellent progress in delivering on its strategy of creating sustainable long-term shareholder value through a retail-led health, beauty and wellness offering.

David Kneale, Chief executive officer


Clicks ClubCard active members

1 200

new jobs created

The group is planning another year of record capital investment of R577 million in 2017.


bursaries granted to pharmacy students

In the year ahead Clicks will continue to focus on offering customers great value by investing to maintain price competitiveness and offering effective promotions.

We remain positive about the prospects for Clicks in the medium and long term, and believe we can expand the store footprint in South Africa to 800 over the next decade.

Sustained strong retail trading

Clicks Group delivered another strong trading performance in 2016 as all retail brands strengthened their competitive positions and recorded market share gains in the current constrained consumer environment.

Retail health and beauty sales, including Clicks and the franchise brands of The Body Shop, GNC and Claire’s, increased by 13.5% and all of our major product categories showed double-digit growth.

The core Clicks chain performed particularly well, reporting same store volume growth of 6% for the year.

This performance highlights the resilience of the health and beauty markets in which we trade and demonstrates the defensive nature of the group’s business model.

Pharmacy and front shop health sales in Clicks are being underpinned by two key market trends: the greater use of generic medicines and the increasing shift to self-medication. Sales of generics increased by 19% and account for 48% of Clicks’ sales, as we actively switch patients to lower-cost generic alternatives.

The global interest in wellness is particularly evident in South Africa as customers take responsibility for their own health and well-being, and are choosing to self-medicate. This is evident in the 19% growth in over-the-counter pharmacy sales and double-digit growth in front shop medicines and supplements.

The group’s portfolio of retail franchise brands also performed well, with sales growth of 14.2% in The Body Shop driven by new product ranges. GNC, the global leader in health and wellness supplements, is now available in over 260 Clicks stores and has shown impressive growth. However, regulatory challenges are hampering the launch of new products into the South African market (refer to “Burdensome regulations restricting growth” below).

Claire’s, the most recent addition to our franchise brand stable, has shown a pleasing performance in its first full year in the group and has extended its footprint to 123 Clicks stores.

Musica continued to gain market share and now has over 69% of the country’s CD market and 52% of the DVD market. The technology category, which includes headphones, speakers and turntables, showed double-digit growth as total sales in Musica increased by 1.2%. While we acknowledge that Musica is non-core to the group’s strategy, the business remains cash generative and profitable, and we will continue to focus the brand’s store footprint on destination retail locations.

UPD, the group’s pharmaceutical distribution business, experienced a tough year, as we had anticipated, and grew turnover by 6.1%. The pharmaceutical market has shown minimal volume growth while the regulated single exit price (SEP) increase of 4.8% in 2016 was lower than the 7.5% granted in the previous year. Despite these headwinds UPD maintained its operating profit by driving efficiencies and through good cost management.

Overall group turnover increased by 9.5% to R24.2 billion with selling price inflation being contained to 4.9% for the year.

The trading performances of Clicks and UPD are covered in the Clicks operational review and the UPD operational review. The financial performance is detailed in the chief financial officer’s report.

Delivering on our strategy

The group has made excellent progress in delivering on its strategy of creating sustainable long-term shareholder value through a retail-led health, beauty and wellness offering.

The main driver of the group’s strategy is the Clicks chain, which aims to be “the customer’s first choice in health and beauty retailing”. This strategy is founded on the five brand pillars of value, product differentiation, customer care, convenience and rewards as outlined here.

Clicks is the largest retail pharmacy chain in the country with 400 in-store pharmacies, with primary care clinics in 195 of the pharmacies. A net 39 pharmacies were opened and the objective remains to operate a pharmacy in every Clicks store in South Africa. Our share of the retail pharmacy market has increased to 19.6%.

Front shop health market share increased to 29.3% with the baby category growing to 12.1%. In the highly competitive beauty category, skincare market share increased to 27.5% and haircare to 25.7%.

The Clicks store base was expanded to 511 following the opening of a net 25 new stores. The chain has 26 stores in neighbouring Botswana, Lesotho, Namibia and Swaziland.

Clicks extended its footprint further with the launch of its online store which offers 15 000 products, with a “click and collect” facility in all stores across South Africa.

Private label and exclusive brands ensure we offer customers differentiated product ranges. These products now account for 21.0% of total Clicks sales, with one out of every four front shop products sold only being available at Clicks. Our three exclusive franchise brands, The Body Shop, GNC and Claire’s, entrench our product differentiation strategy, as does our partnership with Sorbet.

During the year the group partnered with Sorbet Holdings when it acquired a 25% stake for R20 million in Sorbet Brands, the company which holds the trademarks to the Sorbet brand in southern Africa. Sorbet Brands is responsible for the development of the Sorbet product range which is exclusively available in Clicks stores and in the Sorbet chain of over 100 franchised beauty salons.

Clicks has made an extensive investment in improving customer service in store. This includes employing 300 new beauty advisers (960 in total) and 85 more healthcare and GNC consultants (540 in total), while over 200 pharmacy and clinic professionals were appointed.

Clicks ClubCard attracted over one million new members following the successful relaunch of the loyalty programme, bringing total membership to 6.2 million active customers. ClubCard members received over R300 million in cash back over the past year.

UPD, which provides an efficient healthcare supply chain for Clicks, is a market leader in both pharmaceutical wholesale and bulk distribution. Total managed turnover at R15 billion was consistent with last year owing to market pressures impacting the fine wholesale business and no new distribution contracts being awarded.

Investing for growth

The group has a well-invested store base and supply chain, evidenced by capital expenditure of over R1.1 billion in the past three years.

Record levels of capital expenditure of R433 million (2015: R370 million) have been invested in 2016 to support the group’s growth strategies outlined above.

Over 60% of this investment was in new retail stores and refurbishments to maintain the quality of the existing store estate, with further spend on IT and retail infrastructure, and UPD warehousing and infrastructure.

The group is planning another year of record expenditure of R577 million in 2017. This will include R343 million allocated to 37 new retail stores, 30 to 35 new pharmacies and over 70 store refurbishments. Over R180 million has been allocated to IT systems and retail infrastructure, which will include the commencement of the expansion of the Clicks distribution centre in Centurion. The R47 million for UPD warehousing and infrastructure will include the extension of the pharmaceutical warehouse in Cape Town.

Investing in our future

In the past year Clicks Group created over 1 200 new jobs as we invested in improving customer service, as outlined above. The group now employs 14 100 permanent staff.

Clicks is also investing in developing management capacity within the chain and introduced a future store manager programme, with over 100 trainees in the first year.

Clicks is the largest employer of pharmacy staff in the private sector, with over 2 500 pharmacy and clinic professionals, and is actively building capacity to address the shortage of pharmacists. In the past year Clicks invested in bursaries for 106 pharmacy students, provided 83 pharmacy internships and trained over 280 pharmacy assistants through the in-house Healthcare Academy.

Burdensome regulations restricting growth

We believe the Medicines Control Council’s (MCC) approach to complementary and alternative medicines (CAMS) and health supplements is restricting the growth of these markets and limiting customer choice. In the case of the Clicks Group this is directly impacting on GNC’s ability to broaden its product offer with new lines.

While we support the need to regulate health supplements, we view the MCC’s proposed regulations on CAMS as unclear, impractical and over-burdensome. We are working in conjunction with industry bodies, including the Health Products Association of South Africa (HPASA) and the Self-Medication Association of South Africa (SMASA), to lobby for changes to these regulations.

Our recommendations include the following:

  • CAMS that are produced in licensed facilities in countries with mutual recognition agreements with South Africa should not go through the full registration process. The MCC should allow for a fast-track process for CAMS registered by a recognised authority outside the country.
  • In registering a CAM the MCC should only focus on elements that most directly relate to safety and efficacy, while testing should be limited to the most unstable ingredients in the formulation only.
  • Health supplements should be removed from the definition of a complementary medicine as it is not a medicine as defined by the Medicines Act.
  • Separate standards should be implemented in consultation with industry to regulate supplements under food law.


The directors believe that the group’s strategy remains appropriate to provide competitive advantage in the current trading environment and will continue to deliver sustainable growth. The group strategy, as well as the strategies of Clicks and UPD, is therefore unchanged for the 2017 financial year.

In the year ahead Clicks will continue to focus on offering customers great value by investing to maintain price competitiveness and offering effective promotions. Product ranges will be differentiated through the faster growth of private label ranges and the chain’s portfolio of exclusive and franchise brands.

ClubCard is core to driving engagement with our customers and rewarding them for their loyalty, and we are targeting to achieve 6.5 million active members in the year ahead.

Management will continue to make Clicks even more convenient to customers and plan to open 20 to 25 new stores and 30 to 35 new pharmacies.

UPD will face continuing margin pressure from the faster growth in generics while our independent pharmacy business is also likely to remain under pressure.

On the positive side, the increase in the single exit price (SEP) of medicine for 2017 at 5.7% will be higher than the level of 2016 while the distribution business has scope for growth where it is currently only utilising approximately 70% of capacity.

We expect the weak consumer spending environment to continue into 2017 as low economic growth, together with ongoing political and social uncertainty, will place further financial pressure on consumers.

Our health and beauty markets are resilient and we will trade through this tough environment by providing value to customers and managing our costs efficiently.

One of the key elements of the group’s investment case is the strong organic growth opportunity for Clicks. We remain positive about the prospects for Clicks in the medium and long term, and believe we can expand the store footprint in South Africa to 800 over the next decade.

We are committed to investing in stores, IT and supply chain to facilitate growth, and in the development of our people to meet the needs of the business into the future.

The board and management are confident of the group’s ability to sustain performance and deliver on its financial and operating targets.


Our customers have continued to make us their first choice health and beauty retailer and we thank them for their loyal support.

Thank you to our chairman, David Nurek, and the non-executive directors for their insight and guidance, and support of the executive team.

The group’s performance in demanding trading conditions is a credit to the quality of our people across the business. My thanks are due to all our staff at head office, stores and distribution centres across the country. In particular, I thank my colleagues on the group executive, Michael Fleming, Bertina Engelbrecht and Vikesh Ramsunder, for their leadership and support.

David Kneale
Chief executive officer
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