Managing stakeholder engagement

Clicks Group’s stakeholder engagement strategy focuses mainly on the five primary stakeholders that management believe are most likely to impact on the delivery of the group’s strategic objectives and influence the ability to create value in the short, medium and long term. Proactive and transparent relationships enable the group to identify and address the needs, expectations and concerns of these stakeholder groups.

Shareholders and lending institutions

Shareholders:
Local and international institutional and private investors, as well as fund managers and analysts from the broader investment community.

Lending institutions:
South African financial institutions which provide funding and trade finance facilities to the group.

Key engagement issues in 2023
Addressing engagement needs, expectations and concerns

Impact of the deteriorating economic environment on trading in Clicks.

While the group is not immune to the prevailing economic headwinds, the business model is resilient and the core healthcare markets in which the group trades are highly defensive and non-cyclical, with over 80% of group turnover in defensive categories.

Concern over the management of the systems implementation in UPD and the cost impact.

The system’s implementation at UPD’s largest distribution centre in Gauteng was completed at the beginning of September 2023. While there were transitional challenges, the implementation has been successfully completed and the system is stable. Management expects efficiencies to start being realised from the 2024 financial year.

The group’s remuneration policy received 73.1% shareholder support in a non-binding advisory vote at the AGM in January 2023, below the required 75% approval. The remuneration implementation report received the requisite shareholder support.

Feedback from investors has been incorporated into the remuneration reporting and has also informed amendments to the long-term incentive scheme. Return on invested capital (ROIC) has replaced total shareholder return (TSR) as a performance measure and headline earnings per share targets have been set relative to growth based on CPI to align shareholder value creation. The vesting period for long-term incentives has been extended from three to five years. A minimum shareholder requirement has also been introduced for the executive directors.

Shareholders raised a concern that the remuneration committee comprised a majority of members who had served on the committee for more than 14 years. A policy has been adopted which will limit members to serve a maximum of three terms of three years plus a final three year term during which period a successor is to be appointed. In the year, 75% of the members of the remuneration committee had less than five years’ service.

Suppliers

Local and international suppliers of products and services, including producers of exclusive brands and private label products.

Key engagement issues in 2023
Addressing engagement needs, expectations and concerns

Impact of load shedding on the distribution centre network

The group has continued to invest in renewable energy through the provision of rooftop solar energy at its eight distribution centres. This is contributing to the reduction in the group’s carbon emissions, reducing the cost of electricity and partially mitigating the impact of load shedding. Battery storage is being installed at the largest distribution centre which will allow the facility to operate independently of the national electricity grid.

Customers

Clicks primarily targets consumers in the growing middle to upper income markets (LSM 6 – 10).

UPD customers include Clicks, major private hospital groups, pharmaceutical manufacturers and independent pharmacies.

Key engagement issues in 2023
Addressing engagement needs, expectations and concerns

Ongoing electricity load shedding disrupted store operations and negatively impacted on the customer shopping experience.

Approximately 40% of the group’s retail turnover is covered by generators (mostly installed and owned by shopping centre landlords), while the remainder of the stores in South Africa have a combination of inverters, batteries or UPS units to enable them to continue trading and serving customers. Clicks has also installed lithium batteries in 357 stores to provide back-up power in stores to minimise disruptions and enable customers to enjoy their shopping experience across the store network and have uninterrupted access to medicines. The three retail distribution centres have generators and backup generators.

As pressure on disposable income mounts, customers are increasingly seeking value and buying on promotions.

As a value retailer, Clicks offers competitive everyday pricing and appealing promotions. This is reflected in the 14.9% increase in promotional turnover in the reporting period, with promotions now accounting for 43.6% of turnover in Clicks. Value is offered through the extensive range of private label products and the generous loyalty benefits of the Clicks ClubCard. Clicks is also committed to offering patients a lower-priced generic alternative to originator medicines.

Employees

All permanent and part-time employees across the group.

Key engagement issues in 2023
Addressing engagement needs, expectations and concerns

Supporting employee well-being.

The group expanded its employee wellness response by increasing support in particular on the mental, financial and physical health pillars with a focus on enabling positive, resilient and sustainable lifestyle changes.

Employee engagement.

The group’s employee engagement survey achieved a record participation rate of 87%, with the outcome of the survey indicating that engagement levels have remained relatively stable. The focus of the employee engagement programme is on improving the employee experience, connecting employees to meaning and purpose, and adding to the group’s employer value proposition.

Skills shortages in the health sector, particularly in relation to pharmacists.

The group’s multifaceted approach to address the chronic skills shortage includes the provision of bursaries to pharmacy students, provision of training, tutorship and internship opportunities.

Government and industry regulators

Department of Health, SA Revenue Service and other government departments, industry regulatory bodies and local authorities. As a listed company, the JSE Limited is the primary regulator.

Key engagement issues in 2023
Addressing engagement needs, expectations and concerns

The Constitutional Court ruled against the Clicks Group in the case against the Independent Community Pharmacy Association (ICPA) concerning the relationship between the group and its pharmaceutical manufacturing division, Unicorn Pharmaceuticals.

The group prepared for the possible negative outcome of the case and is in ongoing discussions with the Department of Health to reach an amicable resolution. The ruling does not prevent Clicks pharmacies from dispensing Unicorn generic medicines. Clicks opened a net 38 pharmacies in the financial year.

Approval and granting of pharmacy licences.

The group lobbies and engages with the pharmacy licencing regulator on an ongoing basis to secure licences, follow up on outstanding applications and resolve queries or disputes.

Approval of new private label medicines.

The group engages with the regulator regarding outstanding medical product approvals as well as any amendments to legislation.