Group strategy and targets
Good growth prospects in the health and beauty markets, together with the strength and scale of the group’s brands, will allow the business to capitalise on organic growth opportunities to gain market share and ensure sustainable competitive advantage.
Organic growth is complemented by tactical acquisitions to accelerate growth in core markets. This includes acquiring independent pharmacies to attract additional pharmacists into Clicks and, where appropriate, to acquire and convert their premises into a Clicks store.
Owing to the extensive opportunities to expand the current store base and the pharmacy network, South Africa remains the group’s primary focus, with a small presence in the neighbouring African countries of Namibia, Swaziland and Botswana.
While the group’s music and entertainment brand, Musica, is not considered core to the strategy, the business is the market-leading entertainment retailer in the country and is managed to maximise shareholder value.
Positioning in growth markets
The country’s healthcare market is expected to show sustainable long-term real growth owing to the increasing proportion of the population entering the private healthcare market. Currently close to 8.3 million South Africans are covered by medical aid schemes, with this
figure having grown by 1.2 million since 2006 (source: Council for Medical Schemes). The remaining
41.7 million South Africans therefore pay their own medical expenses or are dependent on the
state healthcare system. The government is currently considering ways of extending health cover to the majority of the population (refer to the Chief Executive’s Report for detail on the proposed National Health Insurance scheme).
The average life expectancy of South Africans has increased from 52.3 years in 2006 to 57.1 years in 2011, and this ageing population will require healthcare services for longer (source: Statistics South Africa).
Higher living standards have resulted in a steady growth in the middle class population and an expansion of the universe of formal retail shoppers. Between 2001 and 2011 the number of South Africans in the LSM 6 to 10 categories grew from 34.9% to 55.7% of the population (source: AMPS). This is creating a growing market for the group’s health and beauty products.
An analysis of the LSM groups is contained here.
Pharmacy market in South Africa
Corporate pharmacy, which covers national chain and supermarket pharmacies, has only been operating in South Africa since 2004 and already accounts for 28.7% of the retail pharmacy market. Independent retail pharmacies comprise 56.7% and courier pharmacy the remaining 14.6% of the market (source: IMS). Clicks has first mover advantage in the corporate pharmacy market in South Africa and has a goal to achieve a 30% market share in retail pharmacy over the longer term.
Strategic objectives
Management has identified two core strategic objectives to drive the sustainable growth of the business and to achieve the group’s targets:
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Pre-eminence in health and beauty retailing |
Pre-eminence in healthcare supply
and pharmacy management |
These objectives are supported by two strategic enablers:
| Enhancing organisational capability
to deliver sustained performance |
Efficient management of cash and capital |
Performance against strategic objectives for 2011
In the 2010 annual report the group outlined strategic focus areas and plans for the year ahead and progress against these objectives is outlined below:
Pre-eminence in health and beauty retailing |
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| Focus areas and plans for 2011 | Performance against objectives in 2011 | |
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Pre-eminence in healthcare supply and pharmacy management |
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Strategic goals and plans for 2012
The strategic objectives outlined here remain core to the sustainability of the group and are therefore unchanged for the year ahead. The primary focus will be on maintaining the momentum built in Clicks in recent years while improving performance in UPD and growing its distribution agency business.
The group’s longer term strategic goals, together with objectives for the 2012 financial year, are detailed below:
Pre-eminence in health and beauty retailing |
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| Longer term strategic goals | Objectives for 2012 | |
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Pre-eminence in healthcare supply and pharmacy management |
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Enhancing organisational capability to deliver sustained performance |
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| Performance in 2011 | Target/plans for 2012 |
| Employee turnover improved to 19.4% (2010: 19.8%) | 18 – 20% |
| Employee satisfaction rating increased to 68% (2010: 67%) | 70% |
| BBBEE status improved to level 3 (2010: level 5) | Level 3 |
| Information technology capital expenditure of R59 million | R65 million |
Efficient management of cash and capital |
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| The group determines medium-term financial targets to be achieved over each rolling three-year cycle. The targets have been revised for the three years to 2014 based on budgeted performance and prospects. | ||||
| Medium-term | Medium-term | |||
| targets | Performance | targets | ||
| Financial and operating targets | 2011 – 2013 | in 2011 | 2012 – 2014 | |
| Return on shareholders’ interest (ROE) (%) | 50 – 60 | 62.2 | 55 – 65 | |
| Shareholders’ interest to total assets (%) | 30 – 35 | 22.7 | 27 – 32 | |
| Return on total assets (%) | 14 – 18 | 15.7 | 14 – 18 | |
| Inventory days | 50 – 55 | 60 | 55 – 60 | |
| Operating margin (%) | ||||
| Group | 6.0 – 7.0 | 6.6 | 6.0 – 7.0 | |
| Clicks | 6.5 – 7.5 | 7.7 | 7.0 – 8.0 | |
| UPD* | 2.7 – 3.0 | 2.4 | 2.5 – 3.0 | |
| Musica | 5.0 – 6.0 | 3.5 | 3.0 – 4.0 | |
| The Body Shop | 14.0 – 16.0 | 19.1 | 18.0 – 20.0 | |
| * Margin relates to UPD’s wholesale business only. | ||||
The following assumptions have been applied in determining these targets:
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An analysis of the group’s performance relative to the medium-term financial targets is contained in the Chief Financial Officer’s Report.
Clicks Group Limited