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AGM Annexure 1 Analysis of Shareholders Shareholders' Diary Definitions

 

Chief Executive's Report

Trading performance

Group turnover exceeded the R12 billion mark for the first time. Retail turnover rose by 15.4% as the Clicks chain produced another year of excellent growth and lifted turnover by 17.7%, continuing to capitalise on its positioning as a value retailer in these tough times.

It was pleasing that even Musica and The Body Shop, the two brands most sensitive to a consumer downturn, performed creditably and demonstrated the benefits of market leadership in Musica and the unique positioning in terms of The Body Shop.

UPD was repositioned during the year to focus on customer profitability and better operating efficiencies, and turnover growth of 4.4% was in line with expectations.

The group’s operating margin increased from 5.3% to 5.8%, with the margins of Clicks and UPD both now benchmarking favourably against comparable international businesses.

The group’s performance is covered in detail in the Chief Financial Officer’s Report  and the trading performance in the Operational Review.

Leadership in healthcare

Clicks continued to expand its pharmacy footprint and reached another milestone with the opening of the 200th in-store pharmacy. The increasing scale of the pharmacy business has seen Clicks grow its market share in retail pharmacy to over 11%, while the share of the front shop health market has increased to more than 37%.

Our market-leading presence in retail pharmacy has been complemented by the acquisition of a majority stake in Direct Medicines, the country’s longest established courier pharmacy, with effect from December 2008. Clicks is the only corporate pharmacy group offering a courier pharmacy service. The business has been rebranded as Clicks Direct Medicines and integrated into Clicks’ offer in the healthcare market.

UPD provides the distribution capability for the group’s integrated healthcare strategy and is the only full-range national wholesaler, with a leading share of the private pharmaceutical market. The refocusing of UPD’s business model will enable it to compete throughout the healthcare supply chain, covering wholesale and distribution.

Strategic objectives

The integrated healthcare retail and supply model provides a competitive positioning for the Clicks Group. While this model is applied effectively in other developed economies, it is unique in South Africa.

The group’s strategy is driven by two key objectives, notably to achieve:

– pre-eminence in health and beauty retailing
– pre-eminence in healthcare supply and pharmacy management

To support these strategic objectives we will enhance capability to deliver sustained performance. This will be done through investing in information technology to improve operating efficiency and customer satisfaction. We will also focus on the development of our people, entrench a performance culture and drive transformation to achieve our target of 100% BBBEE compliance in 2010.

Aligned with this the group continues to strive to be efficient managers of cash and capital and has set a new medium-term target range for ROE of 40% to 50%. The group’s strategic objectives, focus areas for 2010 and financial targets are detailed here.

Healthcare reform

The legislative and regulatory uncertainty outlined to shareholders in last year’s annual report remains unresolved. However, it must be stressed that the absence of regulation in the retail and wholesale pharmaceutical sectors is not impacting on our trading or performance in any way.

Regulation to determine the maximum dispensing fee which may be charged by pharmacists has still not been finalised. We confirm our support for the latest proposals from the Department of Health (DoH) which we believe will provide a fair return for retail pharmacists. We would welcome the speedy resolution of the impasse between the DoH and independent pharmacy interest groups to enable these regulations to be implemented.

We still await clarity on the regulations relating to the maximum logistics fee that can be paid to pharmaceutical wholesalers and continue to argue that a limit should be set by the DoH.

National Health Insurance

Government’s healthcare priority is the introduction of a National Health Insurance (NHI) scheme to provide cover to an estimated 42 million people in our country not currently enjoying private health insurance. We fully support the DoH’s endeavours to improve healthcare services to all South Africans and will seek to engage with the health authorities on the most efficient way to implement NHI.

We have continued to lobby the DoH to promote the role of the pharmacist as the gatekeeper to primary healthcare. Pharmacists are ideally positioned to provide basic primary healthcare services while being accessible and offering lower cost health advice than other medical professionals. Clicks is well positioned to provide these services through its national network of in-store dispensaries and clinics. However, pharmacists and nurse practitioners need to be empowered to prescribe a broader range of scheduled medicines to reduce the cost of patient care and alleviate pressure on a healthcare system which is already under strain.

Commitment to pharmacy profession

As the largest employer of pharmacy professionals in the private sector across Clicks, Clicks Direct Medicines and UPD we are committed to enhancing the profession, upholding its status and ensuring full compliance with ethical standards.

We subscribe to the view that medicines are not ordinary commodities of trade and acknowledge that the profession needs to be regulated, as it is across the world. However, this regulation must encourage fair competition and be in the interests of the profession as well as protecting patient rights.

Scarcity of pharmacy skills continues to be a major challenge for our industry. We are committed to making the profession more attractive and building capacity to sustain the profession. More than 370 pharmacists and pharmacy assistants were trained through our in-house Pharmacy Healthcare Academy, including courses for external bodies such as the Department of Health.

Appreciation

The performance over the past year was truly a team effort and I thank everyone across the group. Thank you to our chairman, David Nurek, for his decisive leadership of the board and to my fellow directors for their valuable insight and guidance. Our business ultimately depends on our people and they have achieved a great deal over the past year. I thank them and look forward to their continued commitment.

Thank you also to our customers who have supported us in increasing numbers despite the economic slowdown in our country.