Group strategy and targets

Clicks Group is uniquely positioned in southern Africa as a health and beauty retail and supply specialist, and strong growth prospects in its core markets should ensure the sustainable creation of wealth for shareholders.

The strategic focus in the past year has been on building growth momentum in Clicks and on expanding the distribution agency business of UPD, and this will continue into the 2013 financial year.

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 countries of Namibia, Swaziland and Botswana.

The group follows an organic growth strategy to gain market share and ensure competitive advantage. However, small, tactical acquisitions are made 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 Clicks stores. A total of 123 pharmacies have been acquired by Clicks since 2007.

Growth in health and beauty markets

South Africa’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 8.5 million South Africans are covered by medical
aid and health insurance schemes, having grown by 1.4 million since 2006 (source: Council for Medical Schemes). The remaining 43.3 million, or 83% of the population, are dependent on the state healthcare system or pay their own medical expenses. The government plans to extend health cover to the majority of the population through the proposed National Health Insurance scheme.

Increasing life expectancy and improving living standards among South Africans is creating a growing market for the group’s health and beauty products. The average life expectancy in the country has increased from 52.3 years in 2006 to 57.1 years in 2011 (source: Statistics South Africa), and this ageing population will require healthcare services for longer.

Higher living standards have resulted in a steady growth in the middle-class population and an expansion of the universe of formal retailer shoppers. The number of South Africans in the LSM 6 to 10 categories, the Clicks target market, has grown from 47.0% in 2007 to 57.6% of the population in 2012 (source: AMPS). An analysis of the LSM groups is contained here.

Pharmacy market in South Africa

Corporate pharmacy, which includes national chain and supermarket pharmacies, has only been operating in South Africa since 2004, and already accounts for 32% of the retail pharmacy market. Independent retail pharmacies comprise 52%, and courier pharmacy the remaining 16% 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:

 
Pre-eminence in health
and beauty retailing
  Pre-eminence in healthcare
supply 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 2012

In the 2011 Integrated Annual Report the group outlined strategic focus areas and plans for the year ahead. The progress against these objectives is outlined below:

 

Pre-eminence in health and beauty retailing

 

Objectives for 2012

 

Performance against objectives in 2012

 
  • Open 20 to 30 new Clicks stores
 
  • Net 20 stores opened during the year (2011: 31)
  • Store base 420 at year-end (2011: 400)
 
  • Open 30 to 40 dispensaries in Clicks stores
 
  • 23 dispensaries opened during the year (2011: 32)
  • 306 dispensaries at year-end (2011: 283)
 
  • Increase front shop private label sales to 25% of total sales
 
  • Front shop private label sales 24.2% (2011: 24.2%)
 
  • Expand private label scheduled medicines range
 
  • 12 private label medicines introduced during the year
  • 39 private label medicines on shelf at year-end
 
  • Pharmacy Blueprint project being implemented
 
  • Pharmacy efficiency project piloted for implementation in 2013
 
  • Grow beauty-market shares through product innovation
 
  • 4 300 new products launched in beauty category
  • Skincare market share 33.8% (2011: 33.4%)
  • Haircare market share 30.4% (2011: 29.5%)
 
  • Increase ClubCard membership to 4 million
 
  • 3.9 million members at year-end (2011: 3.4 million)
  • 154 000 Baby Club members
 
  • Introduce new affinity partners where members can earn ClubCard points
 
  • Three new affinity partners introduced
  • Nine affinity partners at year-end
 
  • Maintain pricing parity with food retailers
 
  • Achieved average price index of 98.7
 
  • Improve product availability to 97%
 
  • Product availability 95.1% (2011: 95.1%)
 
  • Complete customer-service excellence programme in all stores
 
  • Completed in all stores
 
  • Increase clinic utilisation, particularly in wellness testing, and mother-and-baby services
 
  • 288 000 customers serviced through 116 clinics (2011: 104), an increase of 20% on 2011
   
 

Pre-eminence in healthcare supply management

 

Objectives for 2012

 

Performance against objectives in 2012

 
  • Increase Link’s buying compliance with UPD to 60%
 
  • Link buying compliance 54% (2011: 55%)
 
  • Improve Clicks’ buying compliance with UPD to 97%
 
  • Clicks buying compliance 96% (2011: 95%)
 
  • Grow volume of business with private hospital groups
 
  • Sales to hospital groups increased 11.2% and contributed 28% (2011: 28%) of turnover
 
  • Broaden range of oncology products
 
  • 48 oncology products added to range
 
  • Secure additional distribution-agency contracts
 
  • Awarded 10 distribution agency contracts in 2012
  • Tripled notional turnover of distribution-agency contracts to R1.7 billion
 
  • Develop oncology business through Clicks Direct Medicines (CDM)
 
  • UPD working with CDM to enhance oncology product offering and improve stock forecasting and availability

 

Strategic goals and objectives for 2013

The strategic objectives outlined here remain core to the sustainability of the group and are therefore unchanged for the year ahead. The strategic goals, together with objectives for the 2013 financial year, are detailed below:

 

Pre-eminence in health and beauty retailing

 

Strategic goals

 

Objectives for 2013

 
  • Expand Clicks network to 500 stores
 
  • Open 20 to 30 new Clicks stores
 
  • Retail pharmacy market share of 30% (2012: 16.2%)
 
  • Open 30 to 40 new pharmacies
 
  • Continued product and service innovation
 
  • Increase front shop private label sales to 25% of total sales
  • Expand private label scheduled medicines range
  • Implement pharmacy efficiency project
  • Embed repeat prescription reminder service in Clicks
 
  • Grow ClubCard membership to 5 million
 
  • Increase ClubCard membership to 4.5 million
  • Introduce new affinity partnerships
 
  • Clicks independently rated No. 1 by consumers for price, range and service
 
  • Maintain pricing parity with food retailers
  • Improve product availability to 97%
 

Pre-eminence in healthcare supply management

 

Strategic goals

 

Objectives for 2013

 
  • Grow UPD to 30% share of private pharmaceutical wholesale market (2012: 24.3%)
 
  • Increase market share to 24.7% in 2013
  • Grow volume of business with private hospital groups and independent pharmacy
  • Increase Clicks’s buying compliance to 97%
  • Increase Link’s buying compliance to 60%
 
  • UPD develops combined distribution-agency/wholesale business model
 
  • Embed contracts awarded in 2012 financial year
  • Expand distribution capacity in UPD
  • Secure additional agency distribution contracts

 

Enhancing organisational capability to deliver sustained performance

 

Performance in 2012

Target/
plans
for 2013
     
  Employee turnover 21.7% (2011: 19.4%) 18 – 20%
  Employee satisfaction rating 65% (2011: 68%) 70%
  BBBEE status at level 3 (2011: level 3) Level 3
  Information technology capital expenditure of R52 million (2011: R59 million) R85 million

Efficient management of cash and capital

The group determines medium-term targets to be achieved over each rolling three-year cycle. The targets have been revised for the three years to 2015 based on budgeted performance and prospects.

 

Financial and operating targets

Medium-term
targets
2012 – 2014
Performance
in 2012
Medium-term
targets
2013 – 2015
         
  Return on shareholders’ interest (ROE) (%) 55 – 65 59.9 55 – 65
  Shareholders’ interest to total assets (%) 27 – 32 28.2 25 – 30*
  Return on total assets (%) 14 – 18 15.3 14 – 18
  Inventory days 55 – 60 63.0 55 – 60
  Operating margin (%)      
 
  • Group
6.0 – 7.0 6.6 6.0 – 7.0
 
  • Clicks
7.0 – 8.0 7.4 7.0 – 8.0
 
  • UPD**
2.5 – 3.0 2.5 2.2 – 2.7*
 
  • Musica
3.0 – 4.0 4.9 3.0 – 4.0
 
  • The Body Shop
18.0 – 20.0 19.4 18.0 – 20.0
  * Indicates targets that have been revised
     
  ** Includes wholesale and distribution business      

 

The following assumptions have been applied in determining these targets:
  • No marked change in the trading environment
  • No increase in dispensing fees currently charged by Clicks
  • No impact from increases in single exit price (SEP) of medicines
  • No adverse regulatory changes

An analysis of the group’s performance relative to the medium-term targets, as well as factors influencing performance, is contained in the Chief Financial Officer’s Report.