Integrated annual report 2018 - Clicks Group...2015 59% 272 439 2016 322 380 502 578 2017 2018 60%...

Integrated annual report

2018

CONTENTS2 Creating value in 2018

4 Commitment to good governance

6 aBout ClICKS group8 group profile

14 group strategy17 Value-creating business model18 Investment case21 Managing material issues

24 leaderSHIp and perForManCe26 Chairman’s report28 Board of directors30 Chief executive’s report36 Chief financial officer’s report41 Five-year performance review

42 BuSIneSS reVIeW44 Clicks50 upd

54 goVernanCe56 Creating value through good governance

60 Creating value through good citizenship

66 Creating value through stakeholder engagement

68 rewarding value creation

78 SHareHolder InForMatIon80 Shareholder analysis

81 Shareholders’ diary

81 Corporate information

Financial reporting • Annualfinancial

statements 2018• Five-yearfinancialreview• Annualresults2018• Annualresults2018

presentation

governance• Corporategovernance

report2018(incorporating KinglV)

annual general meeting• Noticetoshareholders• Formofproxy

Sustainability• Socialandethicscommittee

report2018• Sustainabilityreport2018

addItIonal onlIne reportIngTheintegratedreportisthegroup’sprimaryreportingmediumandthisissupplementedbyadditionalreportsandinformationwhichisalsoavailableonlineatwww.clicksgroup.co.za

ForWard-looKIng StateMentSTheintegratedreportincludesforward-lookingstatementswhichrelatetothepossiblefuturefinancialpositionandresultsofthegroup’soperations.Thesestatementsbytheirnatureinvolveriskanduncertaintyastheyrelatetoeventsanddependoncircumstancesthatmayormaynotoccurinthefuture.

Thegroupdoesnotundertaketoupdateorreviseanyoftheseforward-lookingstatementspublicly,whethertoreflectnewinformationorfutureeventsorotherwise.Theforward-lookingstatementshavenotbeenreviewedorreportedonbythegroup’sexternal auditor.

Pagereference

Websitereference

Videoavailableonthewebsite

“Creating sustainable long-term

shareholder value through a

retail-led health, beauty and

wellness offering.”

Clicks Group Integrated Annual Report 2018

–1–

CREATING VALUE IN 2018

FINANCIAL

INFRASTRUCTURE

TheIntegratedReportingFrameworkoftheInternational IntegratedReportingCouncil (IIRC)recommendsreportingtostakeholdersonthesixmaincapitalresourcesthatareappliedinthecreationofvalue.ManagementhaschosentoadapttheIIRCcapitalsandapplyterminologywhichismorecommonlyusedinmanagingthebusiness.

IIrC capitals Financial Manufactured Intellectual Human Socialandrelationship Natural

Clicks group capitals Financial Infrastructure Intellectual People Stakeholders Environment

First-time inclusion in

FTSE/JSE Top 40 Index

R2.5 billion cash generated by operations

diluted HepS up 15.1% to 578 cents

dividend up 18% to 380 cents per share

return on equity of 38.2%

total shareholder return 32.5% (10-year Cagr)operating profit exceeds R2 billion for the first time

opened

41 Clicks stores and expanded footprint to 663 stores

online store offering in-store or home delivery nationally

37 new Clicks pharmacies; total now 510

9 distribution centres across Clicks and updR671 million capital investment in stores, supply chain and It

–2–Clicks Group Integrated Annual Report 2018

ENVIRONMENT

INTELLECTUAL

STAKEHOLDERS

PEOPLE

Included in

FTSE4Good Index

7.8 million active Clicks ClubCard loyalty members

Over 700 new private label products launched, reflecting investment in innovation

Clicks remains price competitive with national retailers

Clicks independently rated as leading health and beauty retailer in Sa

upd gained share of the wholesale and distribution markets

R1.3 billion paid to beneficiaries of employee share ownership programme

R812 million paid to shareholders in dividends

15 067 permanent employees; 394 new jobs created

recognised as top employer in retail sector in South africa

R125 million invested in employee training and development

pharmacy staff turnover reduced to 15%

turnover of R29.2 billion generated from customers

R442 million cashback paid to ClubCard members

R3.2 billion paid to employees

R25.2 billion paid to suppliers of goods and services

64% reduction in municipal water usage at head office

37% of waste recycled

1 980 tons of recycling in the supply chain

energy and water reduction targets set to reduce carbon footprint

Clicks increased market share in all key product categories

private label and exclusive brands 22% of health and beauty sales


COMMITMENT TO GOOD

GOVERNANCEGood corporate governance is the

foundation for sustainable value creation and has been proven

to contribute to long-term equity outperformance.

–4–Clicks Group IntegratedAnnualReport 2018

We note the heightened focus on governance amonglocal and international investors in the wake of high-profilecorporatefailuresandwelcometheopportunitytoengagewithshareholdersonthegroup’sgovernancephilosophy,processesand practices. We believe the group’s governance practicesare robust and this is confirmed in leading independentassessmentsofgovernancestandards.

“The group’s approach to governance extends beyond

regulatory compliance, with open, frank and balanced disclosure being at the foundation of our

governance framework”

Throughout this reportweaim todemonstrate in abalancedmanner how the group’s health, beauty and wellnessstrategy creates value for shareholders while balancing ourresponsibilitiestowardsourotherstakeholders.

Theintegratedreportisaimedatourshareholderswhoareourprimaryprovidersofcapital.Wealsorecognisetheroleofotherkeystakeholdersincreatingvalue,namelyourcustomers,staff,suppliers,industryregulatorsandfundinginstitutions.

TheKingIVReportonCorporateGovernance(KinglV)hasbeenapplied throughout the 2018 financial year and the directorsconfirm that the group has in allmaterial respects voluntarilyapplied the principles of the new code. The application ofKing IV is covered in the corporate governance report 2018whichisavailableonourwebsite.

reportIng SCope and BoundaryThe report covers material information relating to thebusiness model, strategy, material issues and related risksand opportunities, governance, financial and businessperformance, and directors’ remuneration for the period1 September2017to31August2018.Inadditionthereportoutlinesthestrategicobjectives,operatingplansandprospectsfor the 2019 financial year as well as the group’s medium-termfinancialtargets.Theintegratedreport issupplemented

bytheannualfinancialstatementswhicharealsoavailableonthe website.

Reporting covers the group’s main operating businesses,ClicksandUPD,whichcollectivelyaccountfor96%ofturnover,and focusesontheoperationsinSouthAfricawherethemajorityofrevenueisgenerated.

Thereportincludesinformationwhichwebelieveismaterialtoinvestors’understandingof thegroup’sability tocreatevalue.Thematerialitytestappliedbytheboardisbasedoninternalandexternalmatters,bothpositiveandnegative,thatsubstantivelyaffectthegroup’sabilitytodeliveritsstrategyandwhichcouldhave a material impact of 5% or more on the group’s profitbeforetaxation.

Independent aSSuranCeThe integrated report has been reviewed by the board buthas not been independently assured. The annual financialstatements have been assured by the group’s independentauditor,Ernst&YoungInc.(EY).

The non-financial and sustainability-related informationcontained in the report has been approved by the board’ssocialandethicscommittee.Accreditedserviceprovidersandagencies have provided selected non-financial performancemetrics,includingmarketsharestatisticsandtheBBBEErating.Managementhasverifiedtheprocessesformeasuringallothernon-financialinformation.

Board approVal The board is responsible for ensuring the integrity of theintegratedreport.Thedirectorshavecollectivelyassessedthecontent and confirm the report addresses allmaterial issues,theintegratedperformanceandthegroup’sstrategy,aswellastheshort,mediumandlong-termprospects.

The audit and risk committee has oversight responsibility forintegratedreportingandrecommendedthereportforapprovalbythedirectors.The2018integratedreportwasunanimouslyapprovedbytheboardon7November2018.

David Nurek David KnealeIndependent Chiefexecutiveofficernon-executivechairman

Effective governance leads to value creation through improved reporting to shareholders,greatertransparencyanddisclosure,improvedqualityofmanagementreportingtotheboardandenhancedaccountabilitytoshareholders.


ABOUT CLICKS GROUP

Founded in 1968, the group is a leader in the healthcare market in

South Africa, where Clicks is the leading health and beauty retailer and UPD is

the country’s largest full-range national pharmaceutical wholesaler.

of valueYEARS


mix & match3 2for


GROUP PROfILE

Clicks group is a retail-led healthcare group which is listed in the Food and drug retailers sector on the JSe.Founded 50 years ago in 1968, the group has beenlisted on the JSE since 1996. Following changes inSouth African legislation in 2003 to allow corporatepharmacy ownership, the group entered the retailpharmacy market with the opening of the first Clickspharmacy in 2004. Today the group is a leader inthe healthcare market, in both retail pharmacy andpharmaceuticalwholesaling.

An overview of the group’s history is available atwww.clicksgroup.co.za.

Our valuesWe are truly passionate about our customers

We believe in integrity, honesty and openness

We cultivate understanding through respect and dialogue

We deliver on our goals

The anchor brand, Clicks, is South Africa’s leadinghealth andbeauty retailer, offering value formoney inconvenientandappealinglocations.

• Clickstargetsconsumersinthegrowingmiddletoupper-incomemarkets(LSM6–10)

• Clicks ClubCard is one of the largest loyaltyprogrammes in South Africa with over 7.8millionactivemembers

• 76%ofClubCardcustomersarewomenand68%areinthe25to49agegroup

• 50%ofhouseholds livewithin fivekilometresof aClicks store

The franchise brands were introduced throughexclusive franchise agreements to provide additionaldifferentiationtotheClicksoffering:

• 2001 – The Body Shop, which sells natural,ethically-producedbeautyproducts

• 2014–GNC,thelargestglobalspecialtyhealthandwellnessretailer

• 2015–Claire’s,oneoftheworld’sleadingspecialtyretailersoffashionablejewelleryandaccessoriesforyoungwomenandgirls

Theheritagebusiness,Musica,isthecountry’sleadingentertainmentretailbrandandwasacquiredin1992.

UPDisSouthAfrica’sleadingfull-rangepharmaceuticalwholesalerandtheonlyonewithanationalpresence.UPDwasacquired in2003 toprovide thedistributioncapabilityforthegroup’shealthcarestrategy.

UPD fulfils the pharmaceutical supply needs ofClicks, major private hospital groups and over1 200 independentpharmacies.UPDalsoprovidesbulkdistributionservicestopharmaceuticalmanufacturers.


GROUP PROfILE (CONTINUED)

32.5% total shareholder

return 10-year Cagr*

20.1% dividend per share

10-year Cagr

16.0% diluted HepS

10-year Cagr

Store FootprInt

Standalone storesPharmacies

Presence in Clicks storesSouth Africa Rest of Africa Total

Clicks 630 33 663 510TheBodyShop 55 4 59 170Claire’s 6 – 6 168GNC – – – 454Musica 100 9 109Total 791 46 837

StoresoutsideSouthAfricaareintheneighbouringcountriesofNamibia,Botswana,SwazilandandLesotho.

SUSTAINED fINANCIAL PERfORMANCE

84

166

2009

50%

106

211

2010

50%

125

250

2011

50%

152

273

2012

56%

168

298

2013

56% 56%

190

337

2014

235

384

2015

59%

272

439

2016

59%

322

380

502

578

2017 2018

60%

62%

Dividendpershare(cents) DilutedHEPS(cents) Dividendpayoutratio**

* Basedonreinvestmentofdividendspaidandtheclosingshareprice** BasedonHEPS


Market share

ViewClicksvideoatwww.clicksgroup.co.za

663 stores

510 pharmacies

23.3% of retail pharmacy

30.8% of front shop health



Market share

Viewcentraliseddistributionvideoatwww.clicksgroup.co.za

5 distribution centres

230 million units of medicine

delivered

26.0% of private pharmaceutical market



PAARLCERES

CAPE TOWN

HERMANUS

GEORGE

MOSSEL BAY

KNYSNA

EAST LONDON

PORT ELIZABETH

UITENHAGE

GRAHAMSTOWN

KING WILLIAM’S TOWN

PIETERMARITZBURG

SHELLY BEACH

MARGATE

SCOTTBURGH

DURBAN

UMHLANGA ROCKS

EMPANGENIRICHARDS BAY

NEWCASTLE

STANDERTON

SECUNDA

WITBANKSPRINGS

MIDDELBURGEMALAHELI NELSPRUIT

POLOKWANE TZANEEN

PRETORIA

JOHANNESBURG

MEYERTON

CARLETONVILLE

BRITS

RUSTENBURGMAHIKENG

POTCHEFSTROOM

BETHLEHEM

FICKSBURGWELKOM

KIMBERLEY

BLOEMFONTEIN

WORCESTERSTELLENBOSCH

RANDFONTEIN

OUDTSHOORN PLETTENBERG BAY

UPINGTON

PHALABORWA

LOUIS TRICHARDT(MAKHADO)

LEPHALALE

ELISRUS

HAZYVIEW

BRONKHORSTSPRUIT

DELMAS

ERMELO

NHLANGANO

PONGOLA

MBABANE

EZULWINI

MANZINI

ZEERUST

LICHTENBURG

VRYBURG

KATHU KROONSTAD

HARRISMITH

LADYSMITH

MTHATHA

PORT ALFREDPENFORD

JEFFREYSBAY

SWELLENDAM

ROBERTSON

BEAUFORT WEST

GRAAFF-REINET

SPRINGBOK

MALMESBURY

KOKSTAD

HARTSWATER

KLERKSDORP

SASOLBURG

MUSINA

BALLITOSTANGER

LANGEBAAN

SOMERSETWEST

VEREENIGING

NIGEL

VRYHEID

DUNDEE ULUNDI

HOWICK

PINETOWN

AMANZIMTOTI

GONUBIE

QUEENSTOWN

DESPATCH

VREDENBURG

CALEDONSTRAND

FRANSCHHOEK

THOHOYANDOU

MOKOPANETHABAZIMBI

MORULENG

MTUBATUBA

BOTSHABELO

ALIWAL NORTH

KURUMAN

KAMEELDORING PLAIN

KALAHARI MALL

VREDENDAL

CLANWILLIAM

PIKETBERG

GANSBAAIBREDASDORP

Favourable market dynamics• Healthcaremarketsaredefensiveandofferlong-termgrowthopportunitiesinSouthAfrica.

• Improvinglivingstandards,increasingurbanisationandlongerlifeexpectancyiscontributingtoagrowingmarketforhealthandbeautyproducts.

• Anincreasingproportionofthepopulationisenteringtheprivatehealthcare market.

• Theincreasinguseofgenericmedicineswillcontinuetomakehealthcaremoreaffordable.

Capacity to expand convenient retail footprint and pharmacy network• ThegoalistoexpandtheClicksstorebaseinSouthAfricato900inthelong-term,withapharmacyoperatingineverystore.

• Theretailpharmacymarketsharegoalis30%inthelongterm.

• PrimarycareclinicsinClicksstoressupportthehealthserviceoffering.

• Theretailfootprintiscomplementedbyanonlinestoreandanationalpharmacydeliveryservicemodeltoincreasecustomerconvenience.

GROUP STRATEGY

StrategIC drIVerS oF longer-terM groWtH

Clicks Group’s strategy is to create sustainable long-term shareholder value through a retail-led health, beauty and wellness offering

page 18 Moreinformationon...

page 19

StrategIC drIVerS oF longer-terM groWtH


GROUP STRATEGY (CONTINUED)

leveraging customer engagement• ClicksClubCardisoneofthelargestretailloyaltyprogrammesinSouthAfricawith7.8millionactivemembers.

• ClubCardofferscustomersattractiveandconvenientcashbackrewardsandarangeofaffinitypartnerbenefits.

• ClickshasextensiveopportunitiestousedigitalengagementthroughtheClicksClubCard,website,onlinestoreandtheClicksapptopersonalisecommunicationtoincreasethecustomerbasketsizeandvalue,andfrequencyofshopping.

differentiated product offer• Privatelabelandexclusivebrandsofferdifferentiatedrangesathighermargins.

• Clicksisabrandthatconsumerstrustandthebrandhasdemonstrateditcantranscendproductcategoriesandmarkets.

• Exclusivefranchisebrands,TheBodyShop,Claire’s,GNCandSorbet,augmentClicks’privatelabelbrandsinthehealthandbeautycategories.

opportunity to grow upd• UPDprovidesanefficienthealthcaresupplychainwhichsupportsthegrowthof theClicksbusiness.

• UPDoffersnationalwholesaleservicestoprivatehospitalsandindependentpharmacies,includingLinkpharmacies.

• Thebusinessoffersadistributionservicetolocalandinternationalpharmaceuticalmanufacturersbasedonprice,qualitycontrolandspeedto market.

• Thegrowthopportunityforthebusinessisevidentinthegoalofobtaininga30%shareofthefinewholesaleandbulkdistributionmarkets.

page 19

page 19

page 19



VALUE-CREATING BUSINESS MODEL


Consistentlygoodvalue-for-moneyproductsdeliveredthroughcompetitivepricesandeffectivepromotions.Clicksispricecompetitivewithnationalretailers.Approximatelyone-thirdofsalesaregeneratedthroughpromotions.

Differentiatedproductofferingthroughwiderangesofprivatelabelandexclusivebrands.Exclusivehealthandbeautyfranchisebrandsofferfurtherdifferentiation.Privatelabelscheduledgenericmedicinerangesofferchoiceatalowerprice.

Greatcustomerexperienceinmodernandappealingstores.Easytonavigatecustomerjourneythroughstores,startingwiththebeautyoffering.Servicefromengagingandknowledgeablestaffinthefrontshopandpharmacy.Primarycareclinicsoperateinmanystores.

Extensivestoreandpharmacynetworkallowingforeasyaccesstocustomers.Storescoverbothdestinationandconvenienceformats.Editedrangesaddtotheconvenienceofshopping.The retailfootprintiscomplementedbyanonlinestoreofferingin-storeorhomedelivery.

Value differentiation Customer care Convenience rewards

LoyaltyisrewardedthroughtheClubCardprogrammewhichaimstoincreasebasketsizeandvalue,andfrequencyofshopping.ClubCardaffinitypartnershipsenhancerewards.ClubCardenablesClickstoengagewithcustomers.

CentralISed Supply CHaInCentralisedsupplyfromcompany-owneddistributioncentrestoallretailstores.

UPDprovidesanintegratedhealthcaresupplychainchannelforClicks,withnationalcoverageanduptotwicedailydelivery.

InForMatIon teCHnologyBespokeandproprietarysystemswhichenablethefollowing:

• Planning,orderingandstoreranging

• Loyaltymanagement

• Healthcaremanagement

• Omni-channelmanagement

• Warehousemanagement

MotIVated and SKIlled peopleValues-drivenculturewithequitablerewardandrecognitionmechanisms.

Investmentintraininganddevelopment.

Capacitybuildingthroughin-housePharmacyHealthcareAcademyandbursaryprogramme.

Clicks Group’s strategy is realised through a value-creating, retail-led business model which appeals to the group’s predominantly

female, middle to upper-income customer base.

The business model is delivered by three strategic enablers:

Through the successful execution of this business model the group aims to create sustainable value for shareholders

and other key stakeholders. Thevaluecreatedinthepastfinancialyearisoutlinedincreatingvaluein2018onpages2and3.

CreatIng Value In 2018


INVESTMENT CASE

Clicks Group offers sustainable growth opportunities for equity investors seeking non-cyclical exposure to the

retail and healthcare sectors in South Africa.

globally competitive operating margins RetailandUPDoperatingmarginsrankintheupper quartileofglobaldrugstoresandpharmaceutical wholesalers• Retail:8.1%(medium-termtarget7.5%–8.5%)• UPD:2.7%(medium-termtarget2.5%–3.0%)

Market leadership ClicksandUPDoccupymarket-leadingpositions• ClicksisthelargestretailpharmacychaininSouth Africa

• UPDisthecountry’sonlynationalfull-rangepharmaceuticalwholesaler

resilient value adding business modelOver80%ofgroupturnoverisindefensivemerchandisecategories• AsavalueretailerClicksispricecompetitivewithnational retailers

Well positioned in growing marketsHealthcaremarketsaredefensiveandgrowinginSouthAfrica• Anincreasingproportionofthepopulationisenteringtheprivatehealthcaremarket

• Improvinglivingstandards,increasingurbanisationandlongerlifeexpectancyiscontributingtoagrowingmarketforhealthandbeautyproducts

Thestrategicdriversoflonger-termgrowthoutlinedinthegroupstrategyonpages 14and 15providefurther contextfortheinvestmentcase.


INVESTMENT CASE (CONTINUED)

efficient group supply chainCentralisedsupplyfromcompany-owneddistributioncentrestoallretailstores(96.9%ofproductthroughcentraliseddistribution)• UPDprovidesanefficienthealthcaresupplychain

channelforClicks• UPDalsoofferswholesaleanddistributionservicestopharmaceuticalmanufacturers

effective cash and capital management• Highlycash-generativebusiness–R6.3billioncashgeneratedbyoperationsoverpastthreeyears

• Returnsenhancedthroughactivecapitalmanagement–Returnonequityaveraging43.8%overpastthree years

–R2.4billionreturnedtoshareholdersindividendsandsharebuy-backsinpastthreeyears

• Well-investedstorebaseandsupplychain–R1.6billioncapitalexpenditureinpastthreeyears

expanding retail footprint GoaltoexpandClicksstorebaseinSouthAfricato900inthelongterm• Over660convenientlylocatedClicksstores• Targetingtoopen25–30storeseachyear

growing customer loyalty and engagement ClubCardisoneofthelargestretailloyaltyprogrammesinSouthAfrica• 7.8millionactiveClubCardmembersgenerate77.2%ofsales

• OnlinestoreoffersfullClicksproductrangeforin-storeorhomedeliveryaswellasonlineonlyoffers

• Digitalchannelssupportstoreoffering

differentiated product offerPrivatelabelandexclusivebrandsofferdifferentiatedrangesathighermargins• Targettogrowprivatelabelto25%oftotalhealthandbeautysales;currently22%

• ExclusivehealthandbeautybrandssuchasThe Body Shop,Sorbet,GNCandClaire’sdifferentiateClicksoffer

expanding pharmacy base ObjectivetooperateapharmacyineveryClicksstoreinSouthAfrica• 510pharmaciesinClicksstores• Targetingtoopen30–35pharmacieseachyear• Retailpharmacymarketsharegoalof30%inthelongterm(2018:23.3%)

• Primarycareclinicsin203Clicksstores



MANAGING MATERIAL ISSUESThe material issues are reviewed annually by the boardand management where all relevant internal, industry andmacroeconomicfactorsareevaluated.Theneeds,expectationsand concerns of the stakeholder groups that aremost likelyto influence the group’s ability to create sustainable value,notably customers, suppliers, regulators, staff, shareholdersandprovidersoffinancialcapitalarecentraltodeterminingthematerialissues.

Following the review for the2019financial year, thedirectorsconfirmthatthecurrentmaterialissuesremainrelevantandareunchangedfromthepreviousyear.

rISKSrelatingtoeachmaterialissuearebasedonthemajorrisksonthegroup’sregister.Theriskheatmapbelowindicatesthe levelsof riskbefore (inherent risk) andafter (residual risk)mitigationplanshavebeenimplemented.

opportunItIeS are presented for eachmaterial issuetoindicatehowthegroupisusingitscompetitiveadvantagetomanagetheimpactsofthematerialissuesonvaluecreation.

Material issues have been identified which

could significantly impact positively or negatively on the group’s ability to

create and sustain value.

TRADING ENVIRONMENT

COMPETITION

REGULATION

PEOPLE

INFORMATION TECHNOLOGY

MaterIal rISKS InHerent rISK (before mitigation) reSIdual rISK (after mitigation)

Impa

ct

Catastrophic

Major

Moderate

Minor

Insignificant

Remote Unlikely Reasonablypossible Probably Almostcertain

probabIlIty

1

1 2

2

3

34

455

1

2

3

4

5


MANAGING MATERIAL ISSUES (CONTINUED)

Low economic growth, deterioratingeconomic conditions and the resultantpoor consumer sentiment are impactingSouth Africa’s already constrained retailtradingenvironment.Consumerdisposableincome has been further eroded by theincrease in VAT, rising fuel and utilityprices, higher health insurance costs andincreasinggenerallivingcosts.

opportunItIeS• Clickswillcontinuetopursueastrategytoimprovepricecompetitiveness,growsalesvolumesandentrenchtheperceptionofClicksasavalueretailer.

• Focusondifferentiators,includingextensiveandconvenientstoreandpharmacynetwork;privatelabelandexclusiveranges;ClicksClubCardloyaltyandconsistentlyhighlevelsofcustomercare.

tradIng enVIronMent

Clicksfacescompetitiononseveralfronts,includingnationalfoodretailersandgeneralmerchandisechains, andotherpharmacybusinesses.

rISKS• Furtherdeteriorationintheeconomicenvironmentwilldepressconsumerspendingwhichisalreadyundersevere pressure.

• Criminalactivity,includingsyndicatedcrime,escalatesduringtimesofeconomichardship.

rISKS• ExpansionbycorporatepharmacyandretailchainsimpactingonmarketsharegrowthinClicks.

• IncreasingpricecompetitivenessofretailerscouldnegativelyaffectsalesandprofitabilityinClicks.

opportunItIeS• Clickshasanextensivestorenetworkandplanstoopen25to30newstoreseachyear,expandingto900storesinthelongterm.

• Continuedexpansionofthepharmacynetworkwiththelong-termplantoopenpharmaciesinallClicksstoresinSouth Africa.

• ContinuedrecruitmentofnewmemberstotheClicksClubCard.

• Ongoingimprovementsinpricing,productofferandcustomerservice.

CoMpetItIon


Retail and healthcare skills are scarce andin high demand locally and internationally.Attracting and retaining talent is thereforecritical to the group’s continued success.Asthelargestemployerofpharmacystaffintheprivatesector inSouthAfricathegroupis actively building capacity to address thecriticalshortageofpharmacists.

opportunItIeS• Salariesandincentivesareexternallybenchmarkedtoensurethegroupremainscompetitive.

• Groupresourcingfunctionestablished,includingspecialistpharmacyteam.

• Bursaryandinternshipprogrammestoattractpharmacygraduates.

• Retailgraduateprogrammeoffered.

• Accreditedtrainingprogrammesforstoremanagement,keystorerolesandmerchandiseandplanningrolledout.

• Seniorleadershipdevelopmentprogrammestrengthenspoolofmanagementtalentandprovidessuccessionplan.

people

MANAGING MATERIAL ISSUES (CONTINUED)

Healthcare markets are highly regulatedacross theworld and approximately 50%of the group’s turnover is in regulatedpharmaceutical products. The groupsupports regulation that advances thegovernment’shealthcareagendaofmakingmedicines more affordable and moreaccessible but opposes regulation whichinhibitsaccesstoaffordablehealthcareandlimitscustomerchoice.

opportunItIeS• EnsureClicksandUPDareoperatingefficientlytomaintainmarginsand profitability.

• ContinuemanagementengagementwiththeDoH,SAPCandSAHPRAonlegislationandregulation.

• Asthemarketleadersinretailpharmacyandpharmaceuticalwholesaling,positionClicksandUPDtobenefitfrommarketconsolidationarisingfromchangesinlegislationandregulation.

• PartnerwithgovernmenttobeapreferredserviceprovidertotheNHI scheme.

regulatIon

Real-time, uninterrupted IT systems areessential in today’s technology-drivenbusiness environment while robust ITsecurity and governance processes arerequired to limit breaches of customerprivacy and loss of data to avoid legalliabilityandreputationaldamage.

opportunItIeS• Improvedinformationsecuritypracticesandcomplianceasaresultofincreasedonlinepresence.

• PlannedimplementationroadmapfornewITsystemswithimprovedsystemefficienciesandcostsavingsthatsupporttheorganicgrowthstrategy.

InForMatIon teCHnology

rISK• Inabilitytorecruit,attractandretaintalentforcorebusinessneeds,includingmerchandiseandplanning,storemanagementandpharmacy.

rISKS• LegislativeandregulatorychangesintroducedbytheDepartmentofHealth(DoH),SAPharmacyCouncil(SAPC)andSAHealthProductsRegulatoryAuthority(SAHPRA)couldimpactonClicks’andUPD’sturnoverandmargins.

• Impactsincludetheabilitytoobtainpharmacylicencesandtolaunchprivatelabelandexclusivescheduledandcomplementarymedicines.

• IntroductionofNationalHealthInsurance(NHI)couldimpactontheprivateandpublichealthcaremarkets.

rISKS• Confidentialcustomerorsensitiveinternaldatacompromisedasaresultofundetecteddatasecuritybreachorcyberattack.

• ITsystemsandarchitecturenolongerappropriateinanenvironmentofever-increasingscaleandrequirementforreal-timeITsystems.

• InabilitytorestorebusinessoperationsandITsystemsintheeventofa disaster.


LEADERSHIP AND

PERfORMANCEClicks Group continues

to drive organic growth to deliver sustained financial

performance which generates competitive returns and creates long-term value

for shareholders.



CHAIRMAN’S REPORT

Inanenvironmentoflowgrowth,deterioratingeconomicconditionsandconstrainedconsumerspending,thegroupproducedanotherexcellentperformanceandentrencheditspositionasthecountry’sforemosthealthandbeautyretailer.

CreatIng Value In a WeaK eConoMy Group turnover grew by 9.1% to R29.2 billion off a highbase created by several years of outstanding performance.Cash generated from operations increased by 20.7% toR2.5 billion and diluted headline earnings per share (HEPS)roseby15.1%to578cents.Shareholderswill receivea totaldividendof380 centspershare,18.0%higherthanlastyear.

Theperformanceofthepastyearagainhighlightsthegroup’sresilientbusinessmodel,withover80%ofturnoverindefensivehealthandbeautymerchandisecategories.Thisiscoretothegroup’sinvestmentcaseofofferinginvestorsnon-cyclicalequityexposuretotheretailandhealthcaremarketsinSouthAfrica.

Overthepast10yearsthegrouphasgeneratedacompoundannual total shareholder return of 32.5% and returnedmorethanR6.7billiontoshareholders.DilutedHEPShasgrownbyacompoundrateof16.0%andthedividendpershareby20.1%per annum. The dividend payout ratio has been increasedprogressivelyfrom46%in2008to62%in2018.

This sustained performance has contributed to strongshare price appreciation and consequent growth inmarket capitalisation,resultinginthegroupbeingelevatedtotheFTSE/JSETop 40IndexforthefirsttimeinJunethisyear.ClicksGroupalsoqualifiedforinclusionintheMSCIEmergingMarkets Index, further acknowledgement of the growingstatureofthegroup.

“Clicks Group was elevated to the FTSE/JSE Top 40 Index

in June this year”

Clicks Group remains attractive to international investors,evidencedby the group’s offshore shareholding increasing to69.9%atyear-endandnineofthetop10shareholdersbeingbasedoffshore.

In the Sunday Times Top 100 Companies survey for 2018Clicks Group was ranked in the top three best-performingcompaniesontheJSE,basedonafive-yearcompoundgrowthinshareholdervalue.

CHange In leaderSHIpAfter13yearsatthehelm,DavidKnealewillberetiringaschiefexecutiveofficer(CEO)andasanexecutivedirectorwitheffectfrom1January2019.

David is an exceptional leader who has made a significantcontributiontothegrowth,developmentandvaluecreationinthe business. Under David’s leadership since 2006 the storebasehasmore thandoubled, revenuehas trebled,operatingprofit has increased six-fold and themarket capitalisation onthe JSE has grown fromR3.2 billion to close to R50 billion.Clicks and UPD are now established market leaders withsignificant organic growth prospects. Significantly, in thesetimes, more than 6 000 jobs have been created across thegroupoverthis period.


CHAIRMAN’S REPORT (CONTINUED)

Onbehalfoftheboardandouremployees,wethankDavidforhisimmensecontributionandwishhimwellasheembarksonthenextchapterofhislife.

David will assume the role of group strategic adviser whileheserveshiscontractualnoticeperioduntil31August 2019.This will enable the business to leverage David’s vastexperienceandensureaseamlesstransitiontothenewCEO,Vikesh Ramsunder.

Vikesh is the natural successor to David and has heldnumerousrolesacrossmultipledisciplinesandbusinessunitsin his 25 yearswith thegroup.Prior to assuminghis currentroleaschiefoperatingofficerofClicks,Vikeshservedas themanaging director of UPDwhere hewas responsible for theimplementation of UPD’s successful distribution strategy.He hasbeenanintegralmemberofthegroupexecutiveteamforseveralyearsandhasbeeninstrumentalindrivingthestronggrowthinClicksoverthepastthreeyears.

“Under David Kneale’s leadership, more than 6 000 jobs have been

created across the group”

Vikesh inheritsanexperienced leadership teamwhichweareconfidentwillcontinuetodeliver.Theboardjoinsmeinwishinghimeverysuccessinhisnewrole.Hewillbeappointedtotheboardasanexecutivedirectoron1January2019.

Board tenureClicks Group has a diverse, stable and independent boardcomprising three executive directors and six non-executivedirectors. Five of the non-executive directors, includingmyself as chairman, have servedon theboard for 10 yearsorlonger.Webelievethattheextensivecollectiveknowledgeof these long-serving directors adds significant value toboardroomdebateandensuresaconsistentapproachtothegroup’s strategy.

Whilethetenureofnon-executivedirectorsisnotadeterminantof independence in terms of King lV, the board neverthelessconducts a stringent annual evaluation of the independenceof the chairman and the other non-executive directors.The evaluation involves both an analysis of compliance withgovernanceandregulatoryregimesandanevaluationofeachdirector’sbehaviouralapproach.

“Currently 44% of our directors are female and 44% are black,

exceeding the voluntary targets of 25% in our board diversity policy”

Following this year’s evaluation the remuneration andnominations committee again concluded that there are nofactors limiting the directors from exercising independentjudgementoractinginanindependentmanner,andallthenon-executivedirectorsareappropriatelyclassifiedasindependent.

Newnon-executivedirectorswillbeappointedfromtimetotimetomaintainfreshandcriticalthinkingandtoensuretheboardhasthenecessaryexpertisetomeetitsoversightresponsibilities.

Board dIVerSItyDiversity at board level encourages constructive debate andensures that the needs and concerns of all our stakeholdergroups are addressed. Currently 44% of our directors arefemale and 44% are black, exceeding the voluntary targetsof 25% contained in our board race and gender diversitypolicy.AftertheleadershipchangesplannedforJanuary2019black directors will constitute 55% of the board, while blackexecutiveswillcomprise66%oftheexecutivedirectors.

aCKnoWledgeMentSThe performance of the past year was truly a team effort.Thank you to David Kneale for his astute and decisiveleadership,soablysupportedbyhishighlycompetentexecutiveteam,aswellasallouremployeesacrossthecountryfortheircommitment tomeeting the needs of our customers and forensuringweremainthemarketleader.

Myfellownon-executivedirectorsprovidevaluableinsightandguidanceandIthankthemfortheirongoingsupport.

Thank you to our external stakeholders, including ourcustomers, shareholders, suppliers and industry regulators,for yourongoingsupportandcontributiontooursuccess.

David NurekIndependentnon-executivechairman


BOARD Of DIRECTORS

Independent non-executive chairmanDip Law, Grad Dip Company LawAppointed1997

David Nurek (68)MemberoftheremunerationandnominationscommitteeMemberofthesocialandethicscommitteeDirectorships: Non-executivechairmanofTrencorExpertise and experience:Legal,commercialandgovernance.David practisedasanattorneywithSonnenbergHoffmanGalombikfor32 years,including23 yearsasapartneranddirector.HejoinedInvestecGroupin2000andisregionalchairmanofthegroup’sWestern CapebusinessesandglobalheadoflegalriskfortheInvestec Group.

Independent non-executive director B Compt (Hons), CA (SA)Appointed2017

Nonkululeko Gobodo (58)MemberoftheauditandriskcommitteeDirectorships: ChairmanofMpumeleloVenturesandnon-executivedirectorofPPCExpertise and experience: Accounting,auditingandfinance.NonkululekowasafounderandformerexecutivechairmanofSizweNtsalubaGobodo,thecountry’slargestblack-ownedaccountingfirm.SheiscurrentlythechiefexecutiveofficerofNkululekoLeadership Consulting.

Independent non-executive directorB Econ (Hons) (cum laude), M Com, D ComAppointed2008

Prof. Fatima Abrahams (56)ChairpersonoftheremunerationandnominationscommitteeChairpersonofthesocialandethicscommitteeDirectorships: LewisGroupandTheFoschiniGroup.ChairpersonofTSiBAEducation.Expertise and experience: Humanresourcesandremuneration.Prof.Abrahamsisanacademic,experiencedcompanydirectorandaregisteredindustrialpsychologist.Sheiscurrentlyaseniorprofessor(parttime)attheUniversityoftheWesternCape,havingalsoservedasdeanoftheFacultyofEconomicandManagementSciences.

Independent non-executive directorB Sc, CA (SA)Appointed2008

Fatima Daniels (58)MemberoftheauditandriskcommitteeDirectorships: MMIHoldings,TongaatHulett,RandRefinery,AfriSam andvariousMTNsubsidiariesExpertise and experience: Accountingandfinance.Afterspendingsix yearsintheauditingprofessionFatimawentontolectureinfinancialaccountingandthenspentoveradecadeinvariouspositionsincorporateSouthAfrica.

Independent non-executive directorB Com (Hons), CA (SA), CMS (Oxon)Appointed2008

John Bester (72)ChairmanoftheauditandriskcommitteeMemberoftheremunerationandnominationscommitteeDirectorships: Non-executivechairmanofAscendisHealthandnon-executivedirectorofHomeChoice,PersonalTrustInternationalandTowerPropertyFund.TrusteeoftheChildren’sHospitalTrustandtheChildren’sHospitalFoundationTrust.Expertise and experience: Accountingandfinance.Johnspent16 yearsintheaccountingprofession,includingservingasapartnerofErnst&Youngfor10years.Hehasbeeninvolvedincommerceandindustryforafurther37years,holdinganumberoffinancialdirectorshipsduringthistime.

non-eXeCutIVe dIreCtorS


Board CoMpoSItIon and dIVerSIty

BOARD Of DIRECTORS (CONTINUED)

Chief executive officerBAAppointedasadirectorin2006

David Kneale (64)MemberofthesocialandethicscommitteeExpertise and experience: Retailandcommercial.Hewaspreviouslychiefcommercialofficerofhealthandbeautyretailer,BootsGroup plc,intheUnitedKingdom,whereheheldpositionsinfinance,buyingandmarketingbeforebeingappointeddirectorofmerchandiseandmarketingin1995,andmanagingdirectorofinternationalretaildevelopmentin1997.AfterthreeyearsasmanagingdirectorofWaterstone’sBooksellersandadirectorofHMVGroup,hereturnedtoBootsin2002asdirectoroftrading,andwasappointedchiefcommercialofficerinJanuary2003.

Group human resources directorB Proc, LL M, admitted attorneyAppointedasadirectorin 2008

Bertina Engelbrecht (55)Expertise and experience: Humanresources.ShewaspreviouslygeneralmanagerforShellSAEnergyandregionalhumanresourcesmanagerforShellOilProductsAfrica.PriortothisshewasdirectoroforganisationaleffectivenessatSeaHarvest,managedherownconsultancypracticeandspenteightyearswithTransnet.

Independent non-executive directorAppointed2006

Martin Rosen (68)MemberoftheremunerationandnominationscommitteeExpertise and experience: Retailandmarketing.Martinisanaccomplishedretailerandmarketer,havingspent33 yearswithPick n Paybeforestartinghisownmarketingconsultancyin2004.

Chief financial officerB Com, CTA, CA (SA)Appointedasadirectorin 2011

Michael Fleming (51)Expertise and experience: Accounting,financeandinvestorrelations management.HewaspreviouslyattheTigerBrandsgroupwherehewasappointedasfinancialexecutiveoftheTigerBrandsconsumerbrandsdivisionin2005andpromotedtochieffinancialofficerinJune 2008.WhileCFOofTigerBrands,healsoservedasanon-executivedirectorofOceanaGroupLimited.

Male 56%

Female 44%

Black 44%

White 56%

Executive 33%

Independent non-executive 67%

eXeCutIVe dIreCtorS


CHIEf ExECUTIVE’S REPORT

50 yearS oF Value2018marked the 50th birthday of the founding of Clicks byvisionary retailer, Jack Goldin, who opened the first store inAugust1968intheCapeTowncitycentre.

Clicks’ unwavering commitment to offering consumersaffordable, everyday value over the past five decades hasseen Clicks becoming increasingly relevant in South Africa’sretail landscape. Today Clicks is the country’s leading healthandbeauty retailer and leadingpharmacychain, as votedbyshoppersintheannualSundayTimes/TheSowetansurveyforthepast10years.

Clickswas conceived as adrugstorebut owing to restrictivelegislation preventing corporate ownership of pharmacies,it took 36 years before Jack Goldin’s founding vision wasrealised.Afteropening thecountry’s first-ever corporate retailpharmacy in2004,Clicksopenedits500thpharmacy inAprilthisyear.

We celebrated our anniversary by supporting 50 charitablecauses in local communities across the country. During ourbirthday month 16 schools received reusable sanitary padsto the value ofR1million as part of the group’sGirls on theGo programme to reduce absenteeism among schoolgirls.We also supported 34 charitable projects with toiletries andbasicessentials,andupgradedfacilitiesatacommunityprimaryschoolwhichadjoinsourheadofficeinWoodstock,CapeTown.

“Over 5 800 employees shared in a payout of R1.3 billion from our

broad-based share ownership plan”

Ourbirthday year coincidedwith the vestingof the first 50%of the group’s broad-based employee share ownership plan(ESOP) when over 5 800 employees shared in a payout ofR1.3billion.86%ofthebeneficiariesoftheschemeareblackemployeesand65%female.Thesecondandfinalpayoutunderthisschemewillbemadein2019.

In our 50th year the group’s operating profit exceededR2 billion for thefirst time. Ithasalsobeena recordyear forcash generation and capital investment. Consistent financialperformanceandgrowthinshareholdervalueoverseveral yearsculminated in Clicks Group being elevated to the FTSE/JSETop 40IndexinJunethisyear.

Strong and reSIlIent perForManCeThegroupcontinueditsstronggrowthmomentumanddeliveredanother resilientfinancialandoperationalperformance for theyear,despitefacingincreasingheadwindsacrossmultiplefrontsinthesecondhalfoftheyear.

Consumer spending came under further pressure as theincrease in the value-added tax rate from 14% to 15% andsignificant increases in fuelcosts reduceddisposable incomeand negatively impacted consumer sentiment. In addition,sellingpriceinflationdeclinedtoalmostzerointhesecondhalfwhichmeantthatturnovergrowthwasdependentonachievingvolume growth. Finally, the lower incidence of colds and flucomparedtothewinterof2017depressedmedicinesales.


CHIEf ExECUTIVE’S REPORT (CONTINUED)

Retailhealthandbeautysales,includingClicksandthefranchisebrands of The Body Shop, GNC and Claire’s, increased by11.7%.Salesincomparablestoresgrewby6.2%,withsellingprice inflation of only 1.1%, as volume growth acceleratedto 5.1%.

OurfoundingcustomerpromiseofvaluecontinuestounderpintheClicksperformancethroughcompetitivepricingandvaluepromotions.Frontshopsalesgrowthwasdrivenbypromotionsinthecurrentconstrainedconsumereconomy,withpromotionalsalesinClicksincreasingby14.7%andaccountingfor35%oftheturnoverinClicks.

Strongsalesgrowth,togetherwiththeexpansionofthestoreandpharmacy network, contributed toClicks gainingmarketshareinallmerchandisecategories.Frontshophealthmarketshare increased to 30.8% and retail pharmacymarket shareto23.3%.Inthebeautycategory,skincaremarketsharegrewto 36.1%andhaircareto28.2%.

“Value continues to underpin the Clicks performance through competitive

pricing and value promotions”

Our pharmaceutical distributor UPD also performed well.Turnover increasedby8.4%,market sharegrew from25.6%to 26.0% and the business gained three new distributioncontracts.UPDmaintaineditsoperatingmarginat2.7%despitethelowincreaseof1.26%grantedinthesingleexitprice(SEP)ofmedicinein2018comparedto7.5%inthepreviousyear.

Overall group turnover for the year increased by 9.1% toR29.2 billion. The financial performance is outlined in thechief financialofficer’sreportonpages 36to 41,andthetradingperformanceofClicksandUPDiscoveredonpages 42to 53.

50th bIRTHDAY CELEbRATIONS



delIVerIng on our StrategyThe group has made pleasing progress over the past yearin delivering on its strategy of creating sustainable long-termshareholder value through a retail-led health, beauty andwellnessoffering.ThestrategyisunderpinnedbythestrategicobjectivesandtargetsofClicksandUPDwhicharereviewedannuallybytheboardandmanagement.

Clicksopenedarecord41newstoresandexpandedthechainto663stores,with33storesoutsideofSouthAfrica.Thestoreopening programme was accelerated beyond the targeted25 to30storesowingtoopportunitiesarisingfornewspaceinexistingshoppingcentres.

“Digital technology provides new ways to engage with ClubCard customers,

including the Clicks mobile app”

The Clicks online store further enhances the convenienceof the brand and in its second year of operation generatedsales equivalent to amedium-sized store.Our data analyticsindicatethattheonlinespendfromourClubCardcustomersisincrementaltotheir in-storespend,whilethepopularityofthe“clickandcollect”serviceisdrivingadditionalspendinstores.

Clicks is the country’s largest retail pharmacy chain andexpanded the network to 510 as a net 37 pharmacieswereopened.WhilethegoalremainstooperateapharmacyineveryClicksstore, therearecurrently71Clicksstoresstill togetapharmacy.Thisexcludesstoreswherewedonotplantoopenapharmacy,being thenon-SouthAfricanstores, theNetcarehospitalsandstoresidentifiedtobeclosed.

Privatelabel,exclusiveandinternationalfranchisebrandsensureClicksprovidesadifferentiatedproductoffertocustomersandreinforceourvalueproposition.Salesofprivatelabelproductsaccountedfor22%oftotalsalesinClicks,withfrontshopsalesat28.2%andpharmacyat5.6%.

ClubCard increased active membership by over 800 000 to7.8 million, with the loyalty programme comprising 77.2%of Clicks’sales.Thebasketspendcontinuestobetwicethatofanon-ClubCardshopperandoverR440millionwaspaidtocustomersincashbackthisyear.Importantly,digitaltechnologyprovides new ways to engage with ClubCard customers,includingtheClicksmobileappwhichisavirtualClubCard.

Clicks has continued to invest in improving the quality ofcustomercare toensureshoppersareservedby friendlyandknowledgeable staff. This includes our dedicated pharmacyteams, our 1 400 beauty advisers and we plan to appoint700 wellnessassistantsinourstoresinthenewyear.Evidenceof our investment in customer care is the reduction in thepharmacystaffturnoverto15%,whichprovidesgreaterstabilityandcontinuityinourpharmacies.

UPD provides an efficient healthcare supply chain for Clickswhich accounts for 54.5% of UPD’s wholesale turnover.The continued success of the strategy of developing thebulkdistributionbusiness in tandemwith thefinewholesalingbusiness has seen UPD’s total managed turnover increaseby 8.9% to R17.9 billion. The business increased its bulkdistributionportfolioto23clientsbygainingthreenewcontractsduringtheyearwhileafurthercontractwassecuredearlyinthenewfinancialyear.

Ourextensivestorenetworkandhighlyintegratedsupplychainprovidecompetitiveadvantageswhichweaim tomaintainbyinvestingapproximatelyR2billionoverthenextthreeyears.



InVeStIng In our peopleIn South Africa the war for talent is ongoing and the groupinvests inattractingand retainingscarce retailandhealthcareskills which are in high demand locally and internationally.In thepastyearR125millionwas invested inthetraininganddevelopmentofover6000ofourpeople.

This investment, together with other initiatives to motivate,reward and retain staff, contributed to the group beingrecognised as the Top Employer in the retail sector by theTop EmployersInstitute.

The ESOP was introduced to allow employees to share inthe long-term growth of the ClicksGroup. In addition to theR1.3 billion paid to beneficiaries earlier this year, participantsin theschemehave receiveddividends totallingR35.4millionsincetheinceptionofthescheme.Extendingequityownershipto employees has also enabled the group to acceleratetransformation and build on the progress that has beenmade across all the other pillars of BBBEE.Clicks has beenconsistently rated as a top empowered retailer and a topgender-empoweredcompany.

“Extending equity ownership through the employee share scheme

has also enabled the group to accelerate transformation”

The ESOP has been complemented by learnerships andgraduate development programmes across several retaildisciplines, as well as our in-house Pharmacy HealthcareAcademywhichtrainspharmacyassistants.

TheNewClicksFoundationwill receiveR100million fromtheEmployeeShareOwnershipTrustoveratwo-yearperiodwhichwill enableClicks togrant100bursarieseachyear toensureasustainablepipelineofpharmacistsenteringtheprofession.

Refer to the creating value through good citizenship report onpages 60to 65forfurtherdetailonourinvestmentinourpeople.

role oF pHarMaCy In prIMary HealtHCare Pharmacy can play a leading role in delivering government’shealthcareagendaofincreasingaccesstoaffordablemedicineasthecountrypreparesfortheimplementationoftheNationalHealthInsurance(NHI).

Private sector pharmacy offers a low-cost way of deliveringimproved access to quality primary care through a networkof over 2 500 community pharmacies across the country.Unfortunately current regulation is impeding progress andseveralregulatoryhurdlesneedtoberemoved.

Ourpublichealthagendaisasfollows:

access to primary health insuranceAn estimated 5 million people in formal employment cannotafford medical cover and need access to funded primaryhealthcare to reduce pressure on state facilities. TheCouncilofMedicalSchemeshasbeenappallingly slow indevelopinga standardised, low-costmedical schemeoption focused onprimaryhealthcare.

ClicksGrouphastakentheleadonthisfrontandwillbeofferinglow-costprimaryhealthinsurancetoover9200lower-incomeearningemployeeswhoarenotcurrentlycoveredbyamedicalaid, fromJanuary2019.Theschemewillbe100%company-fundedatanannualcostofapproximatelyR31million.

We encourage other companies to fund healthcare benefitsforemployees.Collectively,corporateSouthAfricacanplayameaningfulroleinreducingthepressureontheoverburdenedstatehealthcaresystem.

Increase number of prescribing pharmacistsPharmacists are required to undergo a two-year part-timetraining course in primary care drug therapy to prescribeessentialmedicineswithout a doctor’s prescription. Currentlyonly one tertiary institution is accredited to offer this training.Toincreasethenumberofprescribingpharmacistsintheshortterm it is imperative that the SA Pharmacy Council provideaccreditation to additional institutions as amatter of urgencyand that the Department of Health expands the number offacilities available for the practical component of this course.In themediumterm,thistrainingcourseshouldbeincorporatedintothepharmacydegreecurriculum.

Increase access to affordable medicineWebelieveaccesscanbeincreasedinseveralways:

• the exemption of schedule 1 and 2 medicines from theSEPregulationswillallowformorecompetitivepricinganddiscounting;

• the down-scheduling of certain allopathic medicinesto international standards will increase access to self-medication;and

• the removal of the restrictions on the marketing ofschedule 1and2medicineswillincreasepatientawarenessofself-medicationoptions.

Collection points for state patientsRetailpharmacyprovidesaconvenientnetworkforstatepatientsto collect chronicmedicines, whichwould relieve the pressureon overburdened state facilities. Clicks has partnered with theDepartmentofHealthandover400pharmaciesareregisteredascollectionpointsforstatechronicmedicineparcels.



regulatIon oF MedICIneS and HealtH SuppleMentSThe SA Health Products Regulatory Authority (SAHPRA),formerly the Medicines Control Council, remains ineffectiveandtheirinabilitytoregistergenericmedicinesandreducethecurrent backlog in applications continues to inhibit access toaffordablemedicines.

Inlastyear’sintegratedreportweoutlinedthechallengesfacingthe group in relation to the regulation of health supplementsundertheMedicinesAct,whichrequiresallsupplementstoberegisteredthroughSAHPRA.

Weremainfirminourbeliefthathealthsupplementsshouldberegulatedunderfoodlawastheyarenotmedicinesasdefinedby the Medicines Act. It is interesting that the SA RevenueService classifies health supplements as foodstuffs, whichhighlightstheconflictedviewswithinthesestateagencies.

“Over 400 Clicks pharmacies are registered as collection points for state chronic medicine parcels”

Thecurrentregulatoryregimeisstifling innovationandlimitingcustomer choice. Regrettably, our engagement togetherwiththeAssociationofNaturalHealthProducts(ANHP)hasnothadthedesiredoutcome.

TheANHPlaunchedproceedingsintheHighCourtearlierthisyear to challenge the inclusion of health supplements in theregulatoryregimeoftheMedicinesAct.Thebasisofthelitigationis that thedefinition ofmedicines should refer to substanceswith actual or claimed therapeutic effect. If this contention isacceptedbythecourt,theregulationofnutritionalsupplementswouldbeoutsidethepoweroftheMinisterofHealthandtheregulationsshouldthenbesetaside.Judgmentinthecaseisnotexpectedbeforemid-2019.

outlooK For 2019The current pressures on consumer spending are unlikely toabate inthemonthsaheadandtheretail tradingenvironmentwillthereforeremainchallenging.

SellingpriceinflationisexpectedtoremainlowinthefirsthalfofthenewfinancialyearandtheSEPincreasefor2019islikelytobeonlymarginallyhigherthan2018.Thegroupwillthereforecontinuetooperateinaconstrainedenvironment.

The group’s health and beautymarkets and businessmodelare resilient. The business continues to trade well in thesechallengingeconomicconditionsandmanagementisconfidentofmaintainingsalesmomentumandsustainingvolumegrowthintheyearahead.

appreCIatIonOverthepast13years Ihavebeenprivilegedto leadagreatcompanyandagreatteamofhighlymotivated,energeticandtalentedpeople.

Thank you to our chairman,DavidNurek, for his unwaveringsupportandcounselduringmytenureasCEO,andtomyfellowdirectorsforsharingtheirwealthofknowledgeandexperience.

My group executive colleagues, Michael Fleming,Bertina EngelbrechtandVikeshRamsunder, leadbyexampleandIthankthemfortherolethattheyhaveplayedinensuringthesuccessandsustainabilityofthegroup.

To our 15 000 people at head office, stores and distributioncentres across the country, thank you for making us thecountry’sfirst-choicehealthandbeautyretailer.

Mysuccessor,VikeshRamsunder,hasaprovenleadershiptrackrecordanddepthofexperience.Hisappointmentconfirmsthestrengthandqualityofourinternaltalent.Hehasbeendevelopedasmysuccessoroverseveralyearsandishighlyrespectedbothby employees and external stakeholders of the group. I wishVikesheverysuccessasheassumestheleadershipofthegroupandknowthecompanyisingreathands.

David KnealeChiefexecutiveofficer




CHIEf fINANCIAL OffICER’S REPORT

IntroduCtIonClicks Group continued its strong growth momentum withrobust turnover growth supported by good management ofmargins,expensesandworkingcapital,andcontinuedstrongcashgeneration.

Theperformancefortheyeartranslatedintogrowthof15.1%in diluted headline earnings per share (HEPS) to 578 cents.Shareholders will receive a total dividend of 380 cents pershare,anincreaseof18%onlastyear,withthedividendpayoutratiobeing raised from60% to62%.Thegroupgeneratedatotalshareholderreturnof39.0%,basedondividendspaidandthegrowthinthesharepriceovertheyear.

Thegroupcontinuestodeliverahighreturnonequitywhichhasaveraged43.8%overthepastthreeyears.

MedIuM-terM FInanCIal targetSFinancial targets are disclosed to provide guidance toshareholders on the group’s medium-term performanceexpectations.Thetargetsarereviewedannuallytotakeaccountof the group’s current performance and the medium-termoutlookfortrading.

AchievedinFY2018

Medium-term target

Returnonequity (%) 38.2 50 – 60

Returnonassets (%) 13.9 14 – 18

Networkingcapitaldays 36 33 – 38

Groupoperatingmargin (%) 7.0 6.5 – 7.5

Retail 8.1 7.5 – 8.5

Distribution 2.7 2.5 – 3.0

Dividendpayoutratio (%) 62 60 – 65

Theperformanceforthe2018financialyeariswithinthetargetrangesformostmetrics,excludingthereturnonequityandthereturnonassetswhichhavebeenimpactedintheshorttermbythegroup’sbroad-basedemployeeshareownershipscheme.Theseratiosareexpectedtotrendupwardsaftertheschemematuresinthe2019financialyear.

Management has introduced a net working capital targetto replace the inventory target in order to provide guidanceon broader working capital efficiency across the group.The operatingmargintargetrangeforthedistributionsegmenthasbeenincreasedfrom2.2%–2.7%to2.5%–3.0%toreflecttheexpectedmarginbenefitfromUPDsecuringadditionalbulkdistributioncontracts.

The group’smedium-term financial targets rank in the upperquartile relative to comparable global health and beautyretailerssuchasWalgreensBootsAlliance(USA),CVS(USA),Raia Drogasil(Brazil)andCelesio(Germany).

FInanCIal perForManCeThe following review of the group’s financial performance fortheyearended31August2018focusesonthekeylineitemsof the statements of comprehensive income and financialpositionwhichmanagement considermaterial to the group’sperformance.

The following review should be considered togetherwith theannualfinancialstatementsaswellasthesummarystatementsofcomprehensive incomeandfinancialposition,andthefive-year analysis of financial performance on page 38 and 41respectively.


CHIEf f INANCIAL OffICER’S REPORT (CONTINUED)

StateMent oF CoMpreHenSIVe InCoMeturnoverGroup turnover increased by 9.1% to R29.2 billion (2017:R26.8 billion).Sellingpriceinflationforthegroupaveragedonly1.9%fortheyearcomparedto5.3%inthepreviousyear.

Turnover was again relatively consistent across the first andsecondhalvesoftheyear.Thereisgenerallyminimalseasonaleffectonthegroup’sturnoverasthefestiveseasoninthefirsthalfofthefinancialyear iscounter-balancedbythewinterseason,which is the peak trading period for the health and wellnessbusiness.However,theincidenceofcoldsandfluin2018waslowerthanlastwinterwhichdepressedmedicinesales.

Retailturnover,includingClicks,TheBodyShop,GNC,Claire’sandMusica, increasedby10.8%.Retail sellingprice inflationwaslowatonly1.4%.Comparablestoressalesgrewby5.5%.

Withintheretaildivision,healthandbeautysalesincreasedby11.7%,reflectingtheresilientnatureofthecoreClicksbusiness.Musica’s sales were 8.4% lower owing to the pressure ondiscretionary consumer spending and the increase in digitalconsumptionofmusicandmovies.

Growth in retail trading space accounted for 5.3% of theturnover growthwith the net opening of 42 retail stores and37 pharmacies.

Distribution turnover grew by 8.4% as UPD experienced amoderatelystrongersecondhalfperformance.

ThetradingperformancesofClicksandUPDarecoveredinthebusinessreviewonpages 42to 53.

total incomeTotalincomegrewby10.5%toR7.9billion(2017:R7.1billion).

Theretailtotalincomemarginexpandedby20basispointsto33.6%byoptimisingthepromotionalproductmixandeffectivelymanagingpromotionalcampaigns.

UPD’stotal incomemarginwasimpactedbythelowincreasein the single exit price (SEP) of medicine of only 1.26% inMarch 2018 compared to 7.5% in March 2017. However,the impactwaspartiallyoff-setbyUPDonboardingthreenewdistributionclientsinthesecondhalfoftheyearandthemargindeclinedby10basispointsto7.3%.

Owingto the favourablemix impact fromthe fastergrowth inretail,thegroup’stotalincomemarginstrengthenedby30basispointsto27.0%.

operating expenditureRetail operating expenditure as a percentage of turnoverimprovedto25.5%from25.6%intheprioryear.

Retail expense growth of 10.3%was contained below salesgrowth despite the extensive investment in new stores andpharmacies. Comparable retail costs increased by 5.1%,reflectingthetightmanagementofcosts.

UPD continued to demonstrate excellent cost control withexpensesup6.5%onlastyearnotwithstandingtheincreasedlabour and transport costs relating to the onboarding of thethreenewdistributioncontracts.

Thegroup’soperatingexpensesincreasedby9.7%.

operating profitOperating profit increased by 12.6% to R2.0 billion (2017:R1.8 billion) as both the retail and distribution businessesachieved operating leverage and benefited from increasedscale. The group margin strengthened by 20 basis pointsto 7.0%.

Retailincreaseditsoperatingprofitmarginby30basispointsto8.1%andgrewoperatingprofitby14.7%despiteareductionofR19millioninMusica’sprofit.UPDmaintaineditsoperatingmarginat2.7%despitethelowSEPincrease.

AverageROEoftheotherfoodanddrugretailersClicksGroupROE

28.8%

57.0%

2014

29.7%

49.2%

2016

30.2%

53.7%

2015

37.0%

44.1%

2017

33.2%38.2%

2018

Return on equity (ROE)

19 150

6.4%

2014

24 171

6.5%

2016

22 070

6.3%

2015

26 809

6.8%

2017

29 240

7.0%

2018

Turnover and margin

OperatingmarginTurnover(R’million)



SuMMary StateMent oF CoMpreHenSIVe InCoMe

R’million 2018% of

turnover 2017%of

turnover%

change

Turnover 29 240 26809 9.1

Retail 21 063 72.0 19015 70.9 10.8

Distribution 13 376 28.0 12334 29.1 8.4

Intragroup (5 199) (4540)

Totalincome 7 894 27.0 7147 26.7 10.5

Operatingexpenses (5 852) 20.0 (5333) 19.9 9.7

Retail (5 375) (4871) 10.3

Distribution (619) (581) 6.5

Intragroup 142 119

Operatingprofit 2 042 7.0 1814 6.8 12.6

Retail 1 705 8.1 1486 7.8 14.7

Distribution 362 2.7 329 2.7 10.2

Intragroup (25) (1)

Lossondisposalofproperty,plantandequipment (1) (5)

Netfinancingincome/(costs) 2 (37) (105.5)

Shareofprofitofanassociate 2 3

Incometax (570) (497) 14.7

Profitfortheyear 1 475 1278 15.5

SuMMary StateMent oF FInanCIal poSItIon

R’million 2018 2017%

change

Non-current assets 3 233 2854 13.3

Property,plantandequipment 1 844 1534 20.2

Othernon-currentassets 1 389 1320 5.2

Current assets 8 331 6867 21.3

Inventories 4 227 3754 12.6

Tradeandotherreceivables 2 331 2213 5.4

Othercurrentassets 1 773 900 96.9

Totalassets 11 564 9721 19.0

Equity 4 428 3300 34.2

Non-currentliabilities 447 402 11.3

Currentliabilities 6 689 6019 11.1

Tradeandotherpayables 6 199 5475 13.2

Othercurrentliabilities 490 544 (9.8)

Totalequityandliabilities 11 564 9721 19.0


Capital expenditureR’million

MaintenanceExpansion

81

337 370433

518

671 700

256

2014

126

244

2015

129

304

2016

112

406

2017

121

550

2018 2019Planned


StateMent oF FInanCIal poSItIonThe ratio of shareholders’ interest to total assets increased to38.3% (2017: 34.0%) and the average gearing level declinedfrom14.8%in2017toanaverageungearedpositionforthe year.

Theratioofcurrentassetstocurrentliabilitiesatyear-endwas1.2 times (2017: 1.1 times), indicating that working capitalremains adequately funded. Other current assets includeR1.5 billionincash.

The group continues to hedge direct exposures to foreignexchangeratefluctuationswhichimpactapproximatelybetween6%and7%ofthecostofsalesintheretailbusiness.Inaddition,thegrouphedgedelementsofthelong-termincentiveschemefor the2018 to2020period.Furtherdetail on the respectivehedges and riskmanagement is contained in note 28 in theannualfinancialstatementsonthegroup’swebsite.

“The group’s medium-term financial targets rank in the

upper quartile relative to comparable global heath and beauty retailers”

Working capitalWorkingcapitalcontinuestobewellmanagedandthegroup’snetworkingcapitalimprovedfrom37to36days.Tradedebtordays,whichrelateprimarilytoUPD,reducedfrom40to38dayswhilecreditordaysimprovedfrom68to69days.Inventorydaysmovedoutfrom65to67daysowingtohigherretailinventorylevelstoensurestockavailability.Inventorylevelsareexpectedto normalise in the new financial year.Distribution’s inventorydayswereunchangedfromlastyearat38days.

Cash and capital managementCash generated by operations increased by 20.7% toR2.5 billion,drivenbytheincreaseinoperatingprofitandgoodworkingcapitalmanagement.

The group’s capital management strategy is focused oninvesting in theorganicgrowthof thebusinessand returningsurplusfundstoshareholdersthroughdividendsandsharebuy-backs:

• CapitalexpenditureofR350millionwasinvestedinnewstoresandrefurbishments;R198milliononexpandingdistributioncentres, including the first phase of the Clicks distributioncentre inCenturion,Gauteng, and UPD’sCape Town andJohannesburgwarehouses;andR123 millioninITandretailinfrastructure.

• Thegroup returnedR812million to shareholders throughdividendpayments.

Cash resources increased by R823million over the previousyearandthegroupendedtheyearwithcashofR1.5billion.

2 274

Operatingprofitbeforeworking

capital

182

Workingcapital

movements

16

Netfinanceincome

(267)

Taxation

(671)

Capex

(812)

Dividends

101

Otherfinancingandinvesting

activities

823

Netincreasein cash

Cash flow analysis R’million



dIVIdendSThe total dividend for the financial year was increased by18.0% to 380 cents per share (2017: 322 cents), based onan increased dividend payout ratio of 62% (2017: 60%) ofHEPS. This comprises the interim dividend of 102.5 cents(2017: 88 cents) and a final dividend of 277.5 cents (2017:234 cents).

Adividendof38.0centsper“A”share(2017:32.2cents)wasdeclared for participants in the employee share ownershipprogramme.

“The group plans to invest between R650 million and R700 million per year

for the next three years”

InForMatIon teCHnology Management aims to ensure IT systems and infrastructurearewellmaintainedandremainrelevanttofutureneedsofthebusiness.

Key areas of focus in the financial year included improvingthe customer loyalty management system, master datamanagement projects and planning for the replacement oflegacyITsystems.

Intheomni-channelspace,thegrouphascontinuedtoenhancethe www.clicks.co.za transactional website and the ClicksmobileappwhichofferscustomerstheconvenienceofavirtualClicks ClubCard as well as script management, pharmacyservicesandastorelocator.

The group invested R54 million on computer hardware andR65.9million in computer software which included replacingageing IT hardware and software to improve processingcapabilityandenhancecapacitytosupportbusinessgrowth.

FInanCIal planS For 2019Capital expenditure of R700 million is planned for the2019 financialyear:

• R371million will be invested in the store portfolio whichincludes 25 to 30 new Clicks stores, 30 to 35 newpharmaciesand60storerefurbishments.

• R329millioncommittedforITsystemsandretailinfrastructurewhichincludes:

– the 20 900 m² expansion of the Clicks distributioncentreinCenturion.TheprojectwillbeundertakenatatotalcostofR230million,withR123millionexpectedtobeincurredinthe2019financialyearforthecompletionofthesecondphaseoftheproject;and

– R77millionforITandwarehouseequipmentinUPD.

ThegroupplanstospendbetweenR650millionandR700 millionperannumforthenextthreeyearstosupporttheexpansionoftheClicksstorefootprint,increaseefficiencyinthedistributioncentresandinvestinITtoolsandsystems.

Total retail trading space is expected to increase byapproximately6%in2019.

appreCIatIonThankyou toour localand international shareholdersaswellasourfundinginstitutionsfortheircontinuedsupport.Wealsothank the broader investment community for their positiveengagementwithmanagement.Inclosing,Iextendmythankstothefinanceteamsacrossthegroupfortheircommitmenttoconstantlydeliveringahighstandardoffinancialreporting.

Michael FlemingChieffinancialofficer


fIVE-YEAR PERfORMANCE REVIEwfOR THE YEAR ENDED 31 AUGUST

5-yearcompoundgrowth(%) 2018 2017 2016 2015 2014

Statements of comprehensive incomeTurnover (Rm) 10.8% 29 240 26809 24171 22070 19150Operatingexpenses (Rm) 10.3% (5 853) (5333) (4796) (4339) (3954)Operatingprofit (Rm) 13.1% 2 042 1814 1572 1396 1218Profitbeforetax (Rm) 14.3% 2 045 1774 1515 1330 1207Headlineearnings (Rm) 14.3% 1 476 1269 1099 960 838

Statements of financial positionNon-currentassets (Rm) 15.1% 3 233 2854 2507 2009 1772Tradeandotherreceivables (Rm) 9.1% 2 331 2213 2013 1871 1608Inventories (Rm) 13.7% 4 227 3754 3479 3250 2614Othercurrentassets (Rm) 69.1% 249 200 8 25 3Cashandcashequivalents (Rm) 75.3% 1 524 700 370 401 195Totalassets (Rm) 16.3% 11 564 9721 8377 7556 6192

Totalequity (Rm) 26.3% 4 428 3300 2452 2013 1567Non-currentliabilities (Rm) 12.1% 447 402 406 308 286Currentliabilities (Rm) 14.0% 6 689 6019 5519 5235 4339Totalequityandliabilities (Rm) 16.3% 11 564 9721 8377 7556 6192

Statements of cash flowsCashinflowfromoperatingactivitiesbeforedividendspaid (Rm) 16.9% 2 205 1531 1345 1290 1464Dividendspaid (Rm) 15.6% 812 677 586 491 429Capitalexpenditure (Rm) 16.7% 671 518 433 370 337

Returns and margin performance5-year

averageTotalincomemargin (%) 26.6 27.0 26.7 26.3 26.0 27.0Operatingmargin (%) 6.6 7.0 6.8 6.5 6.3 6.4Returnonassets (%) 14.0 13.9 14.0 13.8 14.0 14.4Returnonshareholders’interest (%) 48.4 38.2 44.1 49.2 53.7 57.0Inventorydays 66.0 67 65 66 68 64Assetturnover (times) 2.8 2.5 2.8 2.9 2.9 3.1Returnonnetassets (%) 96.1 102.2 98.6 93.5 96.7 85.2Shareholders’interesttototalassets (%) 30.7 38.3 34.0 29.3 26.6 25.3Netdebttoequity (%) (20.6) (34.4) (21.2) (15.1) (19.9) (12.5)

Share performance

5-yearcompoundgrowth(%)

Headlineearningspershare–basic (centspershare) 15.2% 612.3 536.3 462.4 399.2 341.7Headlineearningspershare–diluted (centspershare) 14.1% 578.0 502.1 438.5 383.9 336.8Cashequivalentearnings (centspershare) 17.3% 858.1 630.0 576.5 527.2 433.7Netassetvalue (centspershare) 26.5% 1 811 1395 1037 839 647Dividendsdeclared (centspershare) 17.7% 380.0 322.0 272.0 235.0 190.0Weightedaveragenumberofsharesinissue(netoftreasuryshares) (’000) 241 073 236526 237565 240603 245364Weightedaveragedilutednumberofsharesinissue(netoftreasuryshares) (’000) 255 385 252641 250501 250204 248892Sharesrepurchased (Rm) – – 290 176 285Sharesrepurchased (’000) – – 3360 2376 4620

Acomprehensivefive-yearreviewisavailableonthewebsiteatwww.clicksgroup.co.za.


BUSINESS REVIEw

Clicks and UPD both occupy market-leading positions in South Africa

and their operating margins rank in the upper quartile of global drugstores and

pharmaceutical wholesalers.





CLICKS BUSINESS REVIEw (CONTINUED)

Clicksdeliveredanotherresilientperformanceintheincreasinglyconstrained consumer spending environment. The strengthof the Clicks brand and its loyal customer base contributedtohealthandbeautysales increasingby11.7%,withvolumegrowthof5.1%insamestores,asClicksgainedmarketshareinallproductcategories.

Clicks was again rated as the country’s leading health andbeauty retailer and pharmacy chain in the Sunday Times/SowetanShopperSurveyfor2018.

SaleS perForManCeClicks has been synonymous with value retailing since itsfounding 50 years ago and value is particularly relevant tocash-strappedcustomersinthecurrentchallengingeconomicclimate.Clickscontinuestoinvesttooffergreateverydaypricingandthisissupportedbyanactivepromotionsstrategy,centredaroundthebrand’swell-known3for2offers.Promotionalsalesincreased by 14.7% and accounted for 35.0% of turnoverin Clicks.

Pharmacy sales grew by 13.2% and comprised 30.8% ofturnover.GrowthwasimpactedbythepoorwinterseasonforcoldsandfluwhichdepressedmedicinesalesaswellasthelowSEPincreaserelativetothepreviousyear.Clickscontinuedtogrowaheadofthemarketandincreaseditsshareoftheretailpharmacymarketfrom22.1%to23.3%.

“Clicks has been synonymous with value retailing since its

founding 50 years ago”

Frontshophealthwasthefastest-growingcategorywithsalesincreasing by 14.1%, supported by the robust performancesofGNC(up19.5%),firstaid(up21.5%)andbaby(up19.6%).The baby sub-category is strategically important in attractingnewcustomersandgrewmarketsharefrom13.7%to15.1%.

Beautyandpersonalcaresalesgrewby7.6%.Owing to thelimited product innovation in these categories, promotionalactivitywaskeytodrivingvolumegrowth.Thebest-performing

sub-categorieswereethnichaircare,giftingandTheBody Shoprangewhichhasbeenextendedintoafurther48Clicksstores.

General merchandise, which has the most discretionaryproductoffering,grewsalesby13.1%.GrowthwasdrivenbybuoyantChristmassales,apleasingpromotionalperformancefrom convenience categories such as paperware andbeverages,and goodgrowthinthehealthysnackingcategory.Clicks remainstheleaderinsalesofsmallelectricalapplianceswithamarketshareof17.9%.

Market share (%) 2018 2017

Health

Retailpharmacy* 23.3 22.1

Frontshophealth** 30.8 30.0

Baby** 15.1 13.7

Beautyandpersonalcare

Skincare** 36.1 36.0

Haircare** 28.2 26.7

Generalmerchandise

Smallelectricalappliances*** 17.9 17.4

* IQVIA(PrivateretailpharmacyS1-6)** ACNielsen(comparativerestated)*** GfK(comparativerestated)

eXtendIng ConVenIenCeClicks opened a record 41 new stores and increased thebrand’sfootprintto663storesatyear-end.Thestoreopeningprogramme was accelerated beyond the targeted 25 to30 stores owing to opportunities arising for new space inexistingshoppingcentres.

“The Clicks online store generated sales equivalent to a

medium-sized Clicks store”

TheClicksfootprintincludes33storesinneighbouringNamibia(21 stores), Swaziland (four stores), Botswana (seven stores)andLesotho(onestore).

During theyear55storesacross thechainwereextendedorrefurbishedtoensurethestoresremainmodernandappealingtocustomers.

ClicksisSouthAfrica’slargestretailpharmacychainandextendeditsnetworkto510withtheopeningof37in-storepharmacies.Thenumberofclinicswasincreasedfrom195to 203.

ClickswasonceagainrankedfirstinthepharmacycategoryintheannualAskAfrikaOrangeIndexserviceexcellencesurvey.

Health and beauty sales* % increase %contribution tosales

Pharmacy 13.2 30.8

Frontshophealth 14.1 23.3

Beautyandpersonalcare 7.6 30.2

Generalmerchandise 13.1 15.7

Totalturnover 11.7 100.0

* IncludesClicks,TheBodyShop,GNCandClaire’s



TheClicksonlinestorefurtherenhancescustomerconvenience,offering the fullproduct rangeavailable in largeClicksstores.Theofferisbeingextendedtoincludeonlineonlyranges,withprestigebeautybeingthefirstoftheseranges.Customerscanselecthomedeliveryorthe“clickandcollect”instoreservice,whichisalsodrivingincrementalspendinginstores.Theonlinestorehasperformedwellinthepastyearandgeneratedsalesequivalenttoamedium-sizedClicksstore.

“ClubCard attracted over 800 000 new members, bringing total active

membership to 7.8 million”

engagIng CuStoMerS ClubCardisintegraltotheClicksdigitalcustomerengagementstrategy which aims to complement the store experienceand enables Clicks to better understand and engage withcustomers,andinfluencethebehaviourofshoppers.

ClubCardisSouthAfrica’smostpopularloyaltyprogrammeandattractedover800000newmembersinthepastyear,bringingtotal active membership to 7.8 million. ClubCard membersaccounted for77.2%ofsales inClicksandR442millionwasreturnedtocustomersincashback.

Digital technology provides new ways to engage withcustomers,includingtheClicksmobileappwhichincorporatesavirtualClubCard,eliminating theneed forcustomers tousethe traditionalplasticcard.Theappalsoallowscustomers tosubmitscriptsandorderrepeatmedication.Customer responsehas been most encouraging and the mobile app has beendownloadedbyover250000customers.



Chief operating officer

Vikesh(47)joinedthegroupin1993andwasappointedaschiefoperatingofficeroftheClicksbrandin2015.HewaspreviouslymanagingdirectorofUPD,thegroup’spharmaceuticalwholesaler,from2010andwasinstrumentalindrivingUPD’sintegratedpharmaceuticalwholesaleanddistributionstrategy.PriortothishewasheadoflogisticsatClicksfortwoyears,andservedinstore,generalmanagementanddistributioncentremanagementpositionsacrossthegroup.HeholdsBComandMBLdegrees.VikeshhasbeenpromotedtochiefexecutiveofficeroftheClicksGroupfrom1January2019.

Vikesh Ramsunder

dIFFerentIated produCt oFFerPrivate label and exclusive brands offer differentiated rangesatcompetitivepriceswhileincreasingtheappealoftheClicksbrandandenhancingmargin.

International franchise brands, The Body Shop, GNC andClaire’s,furtherdifferentiatetheClicksoffer.TheBodyShophasapresencein170Clicksstores,GNCin454storesandClaire’sin168Clicksstores.ClicksisalsotheexclusiveretailstockistoftheSorbetproductrange.

Innovation is a key driver of private label sales and over700 newproductswerelaunchedduringtheyear.Thisincludedthe successful launch of Sorbet Cosmetics, a range of over320 products for faces, lips, eyes and nails, initially sold in123 Clicksstoresand40Sorbetsalons.

Salesofprivatelabelproductsaccountedfor22%oftotalsalesinClicks,withfrontshopsalesat28.2%andpharmacy5.6%.

IMproVIng CuStoMer CareClicks continues to invest in improving customer care toenhance the in-store experience and ensure customers areserved by friendly and knowledgeable staff. In the past yearR102 million was invested in staff training and developmentacrossstoremanagers,pharmacists,pharmacyassistantsandfrontshopstaff,includingbeautyadvisers.

“Clicks has invested over R27 million in pharmacy bursaries

in the past six years”

Asthelargestemployerofpharmacystaffintheprivatesectorwith over 2 800 pharmacy and clinic professionals, Clicks isactively building capacity through the Pharmacy HealthcareAcademyandprovidingfinancialsupporttoaddressthecriticalshortageofpharmacists.

Clicksawarded83bursariestopharmacystudentsin2018andhasinvestedoverR27millioninbursariesinthepastsixyears.During the year 359 pharmacy assistants were enrolled and70 pharmacyinternshipsawarded.

The store operations learnership programme attracted122 traineemanagerswhile20graduatescompletedtheretailgraduatedevelopmentprogramme.

outlooK For 2019Clicks plans to open 25 to 30 new stores and 30 to35 pharmaciesasthechainmovestowardsitslong-termgoalof expanding its South African store footprint to 900, with apharmacyineachstore.Afurther55storeswillberefurbished.

Private label, exclusive and franchise brands are plannedto contribute 29.5% of front shop sales in the new year.The presence of The Body Shop, GNC and Claire’s will beexpanded to additional Clicks stores in the year ahead.The distributionoftheSorbetcosmeticsbrandwillbeextendedtoafurther60stores.Theprivatelabelgenericmedicinerangewillbeextendedby34products.

ClubCardmembershipistargetedtogrowto8.0millionwhiletechnology and data analytics will be applied to personaliseengagementwithcustomers.

TheClicksdistributioncentre inCenturion,Gauteng, isbeingexpandedby20900m²tosupporttheincreasingscaleoftheClicks chain. The project commenced in 2017 and is beingundertaken at a cost of R230million. The first phase of theconstruction has been completed and the second phase isscheduledtobecompletedbySeptember2019.

Vikesh RamsunderChiefoperatingofficer



deliver a competitive and differentiated front shop product offer

plans and targets for 2018

Increasefrontshopprivatelabelandexclusivebrandsalesto29.0%

ExpandpresenceoffranchisebrandsinClicks

• TheBodyShop:150 stores

• GNC:390stores

• Claire’s:150stores

achieved in 2018

Frontshopprivatelabelandexclusivesales28.2%oftotalsales

FranchisebrandsinClicks stores

• TheBodyShop:170 stores

• GNC:454stores

• Claire’s:168stores


Increasefrontshopprivatelabelandexclusivebrandsalesto29.0%


Expandprivatelabelscheduledgenericmedicinesrangeby30 products

Increaserepeatprescription serviceto50%ofrepeat scripts

200clinicsatyear-end

achieved in 2018

120privatelabelmedicines(2017:100)

44%ofscriptsnowonrepeatprescriptionservice

203clinicsatyear-end


Expandprivatelabelscheduledgenericmedicinesrangeby34 products

Increaserepeatprescription serviceto50%ofrepeat scripts

200–210clinicsatyear-end

Create a great customer experience

grow the retail footprint

perForManCe agaInSt oBJeCtIVeS In 2018 and planS For 2019


Open25to30newClicks stores

55storestobeexpanded/refurbished

Open30to35newpharmacies

Insourcedigitalcapabilityandimprovepersonalisation

achieved in 2018

Net41storesopened663storesatyear-end

55storesexpanded/refurbished

Net37pharmaciesopened

510pharmaciesatyear-end

Digitalmarketingcapabilityinsourced


Open25to30newClicks stores

55storestobeexpanded/refurbished

Open30to35newpharmacies

Improvepersonalisationcapability



drive customer loyalty through ClubCard

ensure supply chain excellence


Increasemembershipto7.5 million

GrowBabyClubto520 000members

GrowSeniorsClubto900 000members

Enrol100000customersto virtualClubCard

achieved in 2018

7.8millionmembers

445000BabyClubmembers

925000SeniorsClubmembers

240000customersenrolledtovirtualClubCard


Increasemembershipto8.0 million

GrowBabyClubto500 000members

GrowSeniorsClubto1.0 millionmembers

Enrol500000customerstovirtualClubCard

Maintain a motivated and skilled workforce

perForManCe agaInSt oBJeCtIVeS In 2018 and planS For 2019 (ContInued)


CompleteCenturiondistributioncentreexpansion

achieved in 2018

Phase1completed,adding 14 200 m²


Phase2tobecompletedSeptember2019,adding6 700 m²


300pharmacyassistantstobeenrolled

100pharmacybursarystudents

70internships

20graduatestobeenrolledongraduatedevelopmentprogramme

achieved in 2018

359pharmacyassistantsenrolled


70internships

20graduatesenrolledongraduatedevelopmentprogramme


300pharmacyassistantstobeenrolled


70internships

20graduatestobeenrolledongraduatedevelopmentprogramme


Viewcentraliseddistributionvideoatwww.clicksgroup.co.za


UPD BUSINESS REVIEw (CONTINUED)

UPD maintained its market-leading positions in both thepharmaceutical wholesale and bulk distribution markets asthe businessgainedmarketshare,securednewdistributionclientsandreportedongoingexcellentcontrolofinventoryand costs.

Turnoverincreasedby8.4%andUPDmaintaineditsoperatingmargin at 2.7% despite the low increase of 1.26% in theregulated single exit price (SEP) of medicines, compared to7.5%inthepreviousyear.

“Clicks remains UPD’s largest single customer, accounting for 54.5% of wholesale turnover”

UPD’s total managed turnover, combining fine wholesaleturnoverwiththeturnovermanagedonbehalfofbulkdistributionclients,increasedby8.9%toR17.9billion.

UPDservicesapproximately1200independentpharmaciesandsalestothischannelgrewby1.4%andaccountedfor14.9%ofturnover.Thiswasdrivenbypharmacygroups,particularlyLink,demonstratingthebenefitsofbrandaffiliationandeconomiesofscaleintoughmarketconditions.

Inadditiontotheongoingmarginpressurefromthefastergrowthin lower-priced generics, UPD also encountered headwindsfromthelowerincidenceofcoldsandfluinthesecondhalfoftheyear.Salesofgenericmedicationincreasedby13.2%andnowaccountfor69%ofwholesaleturnovervolume.

AsUPDhasahighfixedcostbasemanagementcontinuouslyseekswaystooff-setmarginpressurebyextractingefficienciesacross all aspects of the operations, including inventorymanagement,labourproductivityandtransportoptimisation.

UPD owns its five distribution centres located in Gauteng(Lea Glen),CapeTown,Durban,BloemfonteinandPortElizabeth.Distributioncapacityhasbeenincreasedbyapproximately30%following theexpansionof theCapeTowndistributioncentre,whichwascompletedinFebruary2018atacostofR30millionandthereorganisationoftheLeaGlenfacility.AllthedistributioncentresareISO9001:2015certified.UPDwonagoldawardatthe2018logisticsachieverawardswhichrecognisesexcellenceinsupplychainandlogistics.

“UPD gained three new distribution contracts and at year-end managed a portfolio of 23 distribution clients”

Productavailability,whichiscoretoofferingsuperiorrangeandservicetocustomers,averaged95%fortheyearwhileon-timedeliverieswere99%.

Through its distribution business UPD offers local andinternational,genericandoriginatorpharmamanufacturersanefficientandcost-effectivesupplychainsolution.UPDgainedthree new distribution contracts and at year-endmanaged aportfolioof23distributionclients.

Wholesale turnover increased by 8.2% with inflation slowingto2.9% for theyearcompared to5.8% in thepreviousyear.UPD’s solid growth resulted in its wholesale market shareincreasingfrom25.6%to26.0%.

Sales to Clicks pharmacies increased by 13.1% and ClicksremainsUPD’s largestsinglecustomer,accounting for54.5%ofwholesaleturnover.

Sales to private hospital groups, including Life Healthcare,MediclinicandNetcare,showedmutedgrowthof4.1%.

Wholesale turnover by channel

54.5% Clicks 28.7% Private hospitals 14.9% Independent pharmacies 1.9% Other channels

2018



Managing director

Vikash(45)wasappointedasmanagingdirectorofUPDinApril2015.Heisaseasonedexecutivewhosecareerhasspannedfinancial,operational,supplychainandlogisticsresponsibilities,withextensiveexperienceinlogisticsmanagementinbothClicksandUPD.Afterjoiningthegroupin2006,heservedinfinanceandriskmanagementrolesindistributionandlogisticsintheClickschain.VikashmovedtoUPDin2010andwasheadofoperationsanddistributionpriortohispromotiontomanagingdirector.HeholdsBCom(Acc)andMBA(cum laude)degrees.

Vikash Singh

outlooK For 2019UPD aims to increase wholesale market share to 26.5%throughthegrowthoftheClickspharmacychannel,benefitingfromtheplannedopeningof30to35newpharmaciesinClicks,and maintainvolumesfromtheprivatehospitalgroups.

The business aims to pursue new distribution contractsandonenewcontract commenced in the first quarter of the2019 financialyear.

Capital expenditure of R77 million has been committed forwarehouse equipment and information technology in theyear ahead.

Themedium-termtargetforUPD’soperatingmarginhasbeenincreased from the current 2.2%–2.7% to a rangeof 2.5%– 3.0%whichmanagement believes is a sustainablemarginowingtothegrowthinthebulkdistributionbusiness.

UPDremainscommittedtoitslong-termstrategicobjectiveofgrowingmarketshare inbothwholesaleandbulkdistributionto30%.

Vikash SinghManagingdirector



growing market share


Increasemarketshareto26.0%

Maintainvolumeofbusinesswithprivatehospitalgroups

IncreaseClicks’buyinglevelsfromUPDto 98.8%

Tenderfornewagencydistributioncontracts

achieved in 2018

Marketshareincreasedto26.0%

Salestohospitalgroupsincreased4.1%withvolumesmaintained

Clicks’buyinglevelsfromUPDat98.8%

Threenewagencydistributioncontractssecured;23contractsmanagedatyear-end


Increasemarketshareto26.5%

Maintainvolumeofbusinesswithprivatehospitalgroups

Clicks’buyinglevelsfromUPDat99%

Tenderfornewagencydistributioncontracts

protecting income


Maintainlicences

achieved in 2018

Licencesmaintained


Maintainlicences

optimising efficiency


Target98.9%on-timedeliveries

Drivefurtherproductivityinitiativesacrossthebusiness

Improveorderfulfilmentto96.2%

achieved in 2018

99%on-timedeliveries

Efficienciesachievedinlabourandtransport

Orderfulfilmentof96.7%achieved


Maintain99%on-timedeliveries

Drivefurtherproductivityinitiativesacrossthebusiness

Improveorderfulfilmentto96.8%

Building capacity


Maintainemployeeturnoverat12%orbelow

Temperature-controlledfleettoberolled out

EstablishUPDlearningacademy

achieved in 2018

Employeeturnover12%

Temperature-controlledfleetrolledout

UPDtrainingacademyestablished


Reduceemployeeturnoverto11%

MaintainTransportedAssetProtectionAssociationcertificationfortransportfleet

MarketUPDtrainingacademy

DesignandbuildreplacementIT system

perForManCe agaInSt oBJeCtIVeS In 2018 and planS For 2019


GOVERNANCEGood governance

contributes to value creation and Clicks Group’s governance

philosophy is founded on the principles of accountability,

transparency, ethical management and fairness.



CREATING VALUE THROUGH GOOD GOVERNANCE

Clicks Group recognises the value of corporate governanceinensuringthesustainabilityofthebusinessandinenhancinglong-termequityperformance.Whilecompliancewithapplicableregulationandvoluntarycodesisagoodbaselinefromwhichto measure governance, and a non-negotiable demand bytheboard,thegroup’scommitmenttogoodgovernancegoesbeyondcompliance.

Thegroup’sgovernanceandcomplianceframeworkisfoundedontheprinciplesofaccountability,transparency,ethicalmanagementandfairness.Soundgovernanceisentrenchedacrosstheentirebusiness.Governanceprocessesareregularlyreviewedtoalignwithregulatorychangesandtoreflectbestpractice.

Theboardbelievesthateffectivegovernanceisalsocontributingtovaluecreationinatleastthefollowingrespects:

• providingaclearerviewofthebusinessthroughagreaterdegree of integration between financial and non-financialreporting;

• improving the quality of reporting bymanagement to theboard;

• promoting greater transparency and disclosure tostakeholders,includingshareholders;

• buildingconsumerconfidenceinthebrands;

• enhancingaccountabilitytoshareholders;

• providingequitableperformancemanagementandrewardstructuresforemployees;

• providing effective leadership and decision-makingthroughoutthebusiness;and

• managingandmitigatingriskmoreeffectively.

Strong compliance structures and processes to support theeffective functioning of these structures are essential to helpavoid sanctions for non-compliance with regulation and tocontribute to the sustainability of the business. The boardaccordingly maintains a focus on supporting and, wherenecessary,enhancingthesestructuresandprocesses.

Thecontributionoftalentmanagementandsuccessionplanningtothesustainabilityofthebusinessisembracedinthegroup.

Thegroup’scorporategovernance report ispublishedon thewebsite.

role oF tHe Board Elected by the shareholders, the directors are responsiblefor thesustainabilityof thebusinesswithin the triplecontextof the economy, society and the environment. The board’scomposition, authority, responsibilities and functioning aredetailedintheboardcharter.

The board fulfils a range of legal duties, while being theprimary sourceof effective, ethical leadership for thegroup.In executing its mandate the board is required to approvestrategicplans;monitoroperationalperformance;ensurethatriskmanagementand internalcontrolsareeffective;monitorregulatory compliance; and promote good governance.It must also approve significant accounting policies andthe annual financial statements; monitor transformationand empowerment; manage the process of selection andappointment of directors; and ensure that the group’sremuneration policies and practices are effective and fair.Certainofthesefunctionsaredelegatedtoboardcommittees.

goVernanCe StruCture

Shareholders regulators

Board of Directors

ExecutiveDirectors

RemunerationandNominations

Committee

SocialandEthicsCommittee

ExternalAudit

InternalAudit

AuditandRiskCommittee


Key ISSueS addreSSed In 2018Theboardaddressedthefollowingkeyissuesduringtheyear:

• approval of the business’s three-year strategic plans andbudgets,includingcapitalinvestment;

• review of talent and succession plans for the business,including for the role of CEO. Vikesh Ramsunder willsucceed David Kneale as CEO from 1 January 2019.David Knealewillremainasastrategicadvisertothegroupuntilhisretirementon31August2019;

• monitoring of the first vesting of shares to beneficiariesin terms of the employee share ownership programme,and the preparation for the second vesting of shares intermsofthisprogramme;

• rotationoftheErnst&Young(EY)auditpartnerforthegroup,withAnthonyCadmantakingoverfromMalcolm Rapsonasdesignatedauditpartner for the2018financialyearaudit.EYhasbeenthegroup’sexternalauditorforsixyearsandwillagainbeproposedforre-electionattheannualgeneralmeetinginJanuary2019;

• approvalofaplantoextendemployer-fundedprimarycarehealth insuranceto lower-incomeearningemployeesfromJanuary 2019;

• approval of the investment in information technology foroperatingdivisionsinthegroup;and

• supportformanagement’sexpansionofthegroup’sretailingactivitiesindigitalchannels.

Board CoMpoSItIonTheboardconsistsofninedirectors,withthreesalariedexecutivedirectorsandsixindependentnon-executivedirectors.Theage,tenure,experienceandexpertiseofeachdirectorisbrieflysetoutintheboardofdirectors’reportonpages28and29.

IndependenCe oF dIreCtorSAllthedirectors,bothexecutiveandnon-executive,understandtheir legalduty toactwith independenceofmind in thebestinterestsofthecompany.

Whilethetenureofnon-executivedirectorsisnotadeterminantofindependenceintermsofKinglV,DavidNurekhasservedasanon-executivedirectorfor22years,MartinRosenfor12 yearsandFatimaAbrahams,JohnBesterandFatimaDanielshaveeach served for 10 years. The company derives extensivebenefit fromthedepthofknowledgeof thebusinessand theconsistentapproachtothestrategythatlong-servingdirectorsbring,particularlywiththeappointmentofanewCEOwhowillbe able to rely on their in-depth knowledge, experience andexpertiseduringthetransitionperiod.Strong,suitablyqualifiednew independent non-executive directors will be appointedfrom time to time to ensure that fresh and critical thinking ismaintainedatboardlevel.

The remuneration and nominations committee conductedanevaluationof the independenceof thechairmanandnon-executivedirectorsduringtheyear.Factorswhichcouldimpacton their independence and performance were considered,in particular the factors contained in King IV and theJSE Listings Requirements.Intheopinionoftheremunerationandnominationscommitteetherearenofactorswhichpreventthe directors from exercising objective, unfettered judgementor acting in an independentmanner.All of thenon-executivedirectors, including the chairman, are therefore appropriatelyclassifiedasbeingindependent.

The company has no controlling shareholder or group ofshareholders and there is no shareholder representation onthe board.

Board dIVerSItyThe directors are diverse in terms of gender, race andprofessional backgrounds, contributing to strong decision-makingandensuringthatarangeofperspectivesarebroughttobearonmattersunderconsiderationbytheboard.The directorshaveextensiveexperienceandspecialistskillsacrossarangeof sectors, including retail, commercial, governance, humanresources remuneration, accounting and finance, legal,healthcareandmarketing.Theboardraceand genderdiversitypolicy sets voluntary targets of 25% black and 25% femalerepresentation at board level. During the year under review44%ofthedirectorswerefemaleand44%wereblack,whichexceedsthesetargets.

dIreCtor eleCtIonAthirdofnon-executivedirectorsarerequiredtoresignateachAGM, and executive directors are required to resign on thethird anniversaryoftheirappointmentormostrecentre-electiontotheboard.Thisprovidesshareholderswiththeabilitytoholddirectors to account and to appoint directors to the boardwhomshareholdersbelievewilladdvaluetothebusiness.

annual perForManCe eValuatIonEachdirectorisrequiredannuallytoassesstheperformanceoftheboard,itscommittees,thechairmanandthechiefexecutiveofficer. This year’s assessment indicated that, in the opinionofthedirectorstheboard, itscommitteesandthecompany’smost senior executives have discharged their responsibilitieseffectively.Thedirectorsbelievethattheboardiswellbalancedin termsof skills,qualificationsandexperience,andmakesameaningfulcontributiontothegroup.

Board and eXeCutIVe relatIonSHIpThe roles of the chairman and the chief executive officer areformalised, separate and clearly defined. This division ofresponsibilitiesatthehelmofthecompanyensuresabalanceof authority andpower,with no individual havingunrestricteddecision-making powers. The chairman leads the board andthe chief executive officer is responsible for the executivemanagementofthegroup.

CREATING VALUE THROUGH GOOD GOVERNANCE (CONTINUED)


CREATING VALUE THROUGH GOOD GOVERNANCE (CONTINUED)

Whiletheboardandexecutivemanagementcollectivelydeterminethestrategicobjectivesofthegroup,theboardisresponsibleforapprovingthegroup’sstrategy,andtheexecutiveisresponsibleforexecutingthisstrategyandfortheongoingmanagementofthebusiness.Regularreportingbytheexecutiveonprogressmadeinexecutingitsmandateallowstheboardtomonitorimplementationofstrategyandtoassessthe effectivenessthereof.Non-executivedirectorshavedirectaccesstomanagementandmaymeetwithmanagementindependentlyoftheexecutive directors.

Board and CoMMIttee MeetIng attendanCe

BoardAudit

and risk

Remuneration and

nominations

Social and

ethics

Numberofmeetings 4 4 3 2

DavidNurek 4+ (4) 3^ 2

FatimaAbrahams 4 3^^+ 2+

JohnBester 4 4+ 3

FatimaDaniels 4 4

BertinaEngelbrecht 4 (4) (3) (2)

MichaelFleming 4 (4)

NonkululekoGobodo 4 4

DavidKneale 4 (4) (3) 2

MartinRosen 4 2

Meetingattendance2018(%) 100 100 92 100

Meetingattendance2017(%) 97 100 100 100

(•) Indicatesnumberofmeetingsattendedasaninvitee+ Chair^ Chairsnominationsagendaitems^^ Chairsremunerationagendaitems

Board oVerSIgHtTheboarddischarges itsoversight functionbothdirectly andthrough its three committees. The board and its committeesare each chaired by independent non-executive directors.The composition of the committees conformed to regulatoryrequirements and King IV for the reporting period. Detaileddisclosure on the roles, functions and composition of thecommittees is contained in the corporate governance reportavailableonthewebsite.

KIng IV applICatIonThe group has applied King IV for the 2018 financial year.CertainelementsofKingIVwerealreadyadoptedbythegroupintheprecedingyear.

etHICS and ValueSThe group subscribes to high ethical standards of businesspractice. A set of values and a behavioural code of conductrequirestafftodisplayintegrity,mutualrespectandopenness.Membersofstaffhaveanobligationtochallengeotherswhoarenotadheringtothesevalues.Thesocialandethicscommitteeis responsible formonitoringethicalpractices.Thegrouphasvarious documented policies which require all employeesto adhere to ethical business practices in their relationshipswith one another, suppliers, intermediaries, shareholders and

investors. Thesepolicies also set stringent standards relatingtotheacceptanceofgiftsfromthirdpartiesanddeclarationsofpotentialconflictsofinterests.Afraudpreventionpolicyensuresthata firmstance is takenagainst fraudand theprosecutionof offenders.

antI-CoMpetItIVe ConduCtOversight,governanceandriskmanagementprocessesareinplacetopromotecompliancewithstatutoryprescriptsrelatingto competition, and the effectiveness of these processes isborneoutbythefactthatthegrouphasnotbeensanctionedfor anti-competitive conduct. The group has market-leadingpositions in healthcare retailing and supply. This emphasisesthe need for the group to remain vigilant in guarding againstengaginginanti-competitivepractices.

goVernanCe FoCuS areaS In 2019With the changes required by King IV now implemented,the group will continue to seek out and apply relevant bestpractices in governance. Initiatives to further strengthengovernance that the groupwill consider for the ensuing yeararelikelytoincludetrainingfordirectorsandprescribedofficers,andtherefreshingandrefinementofcoregovernancepoliciesanddocuments.



CREATING VALUE THROUGH

GOOD CITIzENSHIP

Constituent of the

FTSE4Good Index, recognising strong environmental, social and

governance practices measured against global standards

Level 6 BBBee rating in 2018

Qualified for inclusion in the

FTSE/JSE Responsible Investment Top 30 Index which acknowledges South african companies

with leading environmental, social and governance practices


BROADENING ACCESS TO

HEALTHCAREClicks Group supports the national healthcare agenda of making medicine more affordable and accessible for all South Africans. The group is actively

building capacity through training and financial support to address the critical shortage of pharmacists.

CREATING VALUE THROUGH GOOD CIT IzENSHIP (CONTINUED)

510 Clicks pharmacies

across South africa to broaden access to

healthcare

65 million units of medicine sold

in 2018

898 000 clinic services

provided in 2018

Largest employer of pharmacy staff in the private sector

230 million units of medicine delivered

by upd

203 clinics in Clicks pharmacies provide primary

care health services

2 818 pharmacy and clinic professionals across Clicks

R100 million donated over a two-year period by the employee Share ownership trust to fund 100 bursaries annually

R27.2 million invested in bursaries for pharmacy students since 2012

94 bursaries awarded to pharmacy students in 2018

70 pharmacy internships provided in 2018

359 pharmacy assistants enrolled in 2018

235 Clicks stores serve as collection points for National Health Insurance medicine

partnering with Western Cape and Northern Cape Departments of Health to provide baby immunisation and family planning services

R5.5 million donated to the Public Health Enhancement Fund over the past six years to improve public healthcare, address skills shortages and advance research

BuIldIng CapaCIty partnerSHIpS


the broad-based employee share ownership plan (eSop) was introduced in 2011 to enable employees to share in the long-term growth and success of the business. the eSop aims to attract and retain scarce talent while accelerating transformation.

the first 50% payout under the scheme was made in February 2018 and the final payment will be made in 2019.

R1.3 billion paid to

participants in the scheme in 2018

5 830 employees now

shareholders through the eSop

86% black

beneficiaries of the scheme

65% female

beneficiaries of the scheme

R35.4 million paid in dividends

to participants in the scheme

since 2012

eMployee SHare oWnerSHIp plan


INVESTING IN OUR

PEOPLEThe group is committed to the ongoing investment in its people through training and development, transformation, empowerment, competitive

remuneration and incentive schemes, career path planning and by creating a stimulating working environment.

JoB CreatIon

974 jobs created over the past

two years

15 067 employees across retail

stores, distribution centres and head office


eMployMent eQuIty and dIVerSIty


Board race and gender diversity policy targets exceeded

Clicks group is committed to creating a diverse workforce by attracting and developing previously disadvantaged people, women

and employees with disabilities.

of permanent employees are black

of permanent employees are female

383employees with disabilities

SKIllS deVelopMent

50% black members of the group executive committee

44%black directors female directors

R125 million invested in training and development in 2018

6 078 employees trained in

2018

89% black employees

62% female employees

122 trainee managers registered in store operations learnership

programme in 2018

20 graduates enrolled on the retail graduate development programme

92% 63%



INVESTING IN OUR

COMMUNITYClicks Group continues to demonstrate its commitment to making a sustainable contribution to the communities in which it trades. This is achieved through both enterprise development, by accelerating the

sustainability and financial independence of black enterprises, as well as social investment through financial and product donations to non-profit

organisations and initiatives.

the trust aims to benefit the lives of ordinary South africans by offering free preventative testing and wellness services through the footprint of over

200 Clicks clinics countrywide.

ClICKS HelpIng Hand truSt

r18.4 million invested in socio-economic development projects aligned to the group’s focus on health

and well-being

ViewClicksHelpingHandTrustvideoatwww.clicksgroup.co.za

212 000 lives positively impacted over past six years

Mom and baby wellness and family services have reached over 92 000 families

HIV testing provided to over 58 000 South africans through a campaign to encourage individuals to know their HIV status

Heart disease testing for more than 82 000 people to encourage healthier lifestyle choices

Diabetes testing and education for over 72 000 people on the prevention and early detection of the disease

Girls on the Go campaign has provided reusable and washable sanitary pads to over 18 000 schoolgirls



SupportIng 50 CHarItaBle CauSeS

Clicks celebrated its 50th birthday in august 2018 and to mark the occasion supported 50 local community projects.

upd contracts small enterprise owner-drivers to deliver products from upd to Clicks, independent pharmacies,

hospitals and clinics.

66 owner-drivers contracted to deliver products for UPD

R33 million paid to the driver scheme in 2018

Over R483 million paid since start of the scheme in 2003

the appliance Bank forms part of the highly successful social entrepreneurship

programme, the Clothing Bank. the programme equips unemployed men

with technical skills to repair donated damaged household appliances and

the business skills to buy and on-sell the repaired electrical appliances.

upd oWner-drIVer SCHeMe tHe applIanCe BanK

Clicks donates all returned domestic electrical appliances to the project

119 active business owners

over 86 000 appliances sold by business owners, generating profits of R2.7 million

16 schools received reusable sanitary pads to the value of r1 million, to reduce absenteeism among schoolgirls

34 charitable projects each received toiletries and basic essentials worth r5 000

Chapel Street primary School in Woodstock, which adjoins the group’s head office, received r200 000 for the upgrading of bathroom facilities used by children attending the school

r31.1 million invested in enterprise and supplier development programmes

of valueYEARS


CREATING VALUE THROUGH STAKEHOLDER ENGAGEMENT

Clicks Group’s stakeholder engagement process focuses primarily on the five primarystakeholdersthatmanagementbelievesaremostlikelytoinfluencetheabilitytocreatevalueintheshort,mediumandlongterm.Proactiveandtransparentrelationshipsenablethegrouptoidentifyandaddresstheneeds,expectationsandconcernsofthesestakeholdergroups.

CuStoMerSClickstargetsconsumersinthegrowingmiddletoupper-incomemarkets(LSM6–10)

UPDcustomersincludeClicks,majorprivatehospitalgroups,pharmaceuticalmanufacturersandindependentpharmacies

engagement issues in 2018 Value created through engagement

• Productrangeinstoreandonline

• Productavailabilityinstoreandonline

• Servicelevels

• Pricecompetitiveness

• Pharmacyandclinicservices

• ClubCardbenefits

Clicks:

• Meetingcustomerneedsandcreatingtrustinproductsandpractices: –125.7millioncustomertransactions –41.1millionprescriptionsprocessed –11.7%growthinhealthandbeautysales –Marketsharegainsinallkeycategories

• Increasingcustomerloyalty –800000increaseinClubCardmembershipto7.8millionactivemembers –ClubCardaccountsfor77.2%ofsales

UPD:

• Meetingcustomerneedsthroughrange,availabilityandservice –Over2000corporateandindependentpharmaciesserviced –230millionunitsofmedicinedelivered –96.7%orderfulfilmenttocustomers

SHareHolderS and lendIng InStItutIonSShareholders: Localandinternationalinstitutionalandprivateinvestors,aswellasfundmanagersandanalystsfromthebroaderinvestmentcommunity.

Lending institutions: SouthAfricanfinancialinstitutionswhichprovidefundingandtradefinancefacilitiestothegroup


• Groupstrategy

• Currenttradingenvironment

• Impactofeconomicclimateonconsumers

• Tradingandfinancialperformance

• Storeandpharmacyexpansionplans

• Regulatoryenvironment

• Capitalmanagement

• Growthprospects

• Deliveredtotalshareholderreturnof39.0%andreturnonequityof38.2%

• Meetingswith213localandinternationalfundsandbrokeragescontributedtobetter-informedinvestorcommunity

• Highlevelsofinvestorinterestwith122%ofsharestradedintheyear

• Attractiveinvestmentcasewith70%internationalshareownership

• Engagementissuesaddressedinannualandinterimresultspresentationsandwebcasts,localandinternationalinvestorroadshows,integratedreportandannualfinancialstatements

• Fundingandtradefinancefacilitiesprovidedatcompetitiverates


CREATING VALUE THROUGH STAKEHOLDER ENGAGEMENT (CONTINUED)

eMployeeSAllpermanentandpart-timeemployeesacrossthegroup


• Remunerationandbenefits

• Performancemanagement

• Personaldevelopment

• Careerpathplanning

• Trainingandskillsdevelopment

• Transformation

• Employeeshareownershipplan(ESOP)

• Totalstaffcomplementincreasedby2.7%to15067,with394newjobscreated

• Abilitytoattractandretainstaffreflectedinturnoverof13.9%

• R3.2billionpaidtoemployees

• R1.3billionpaidtoover5800employeesinthefirst50%payoutunderthebroad-basedESOP

• InvestmentofR124.7 millionintrainingandskillsdevelopment

• Transformationofworkforceevidentinemploymentequityprofile: –Blackstaff92%oftotalstaff –Femalestaff63%oftotalstaff

goVernMent and InduStry regulatorSDepartmentofHealth,SARevenueServiceandothergovernmentdepartments,industryregulatorybodiesandlocalauthorities.As alistedcompany,theJSELimitedistheprimaryregulator


• Pharmacylicences

• Registrationofmedicines

• Complementaryandalternativemedicines

• Legislativeandregulatorycompliance

• Taxcompliance

• Submissionofstatutoryreturns

• Clicksoperates510pharmacies

• SlowpaceofmedicineregistrationbySAHealthProductsRegulatoryAuthoritycontinuestorestrictlaunchofnewprivatelabelmedicineranges

• Directengagementwithindustryregulatorsandindirectengagementwithregulatorsthroughindustrybodies

• Lobbyforregulatoryreformandfairlegislationwhichwillnotadverselyaffectreturnstoshareholders

• PaidR267millionindirectandindirecttaxes

SupplIerSLocalandinternationalsuppliersofproductsandservices,includingproducersofexclusivebrandsandprivatelabelproducts


• Quality,safetyandethicalstandards

• Productavailabilityandexclusivity

• Productinnovation,strengthofbrands

• Privatelabelproducts

• TransformationandBEEscorecards

• Legislativecompliance

• Stablesupplyofmerchandisereflectedinsupplierinfilllevelsof84.4%inClicksand96.4%inUPD

• Clicksoffersover13800privatelabelandexclusivebrandproducts

• ConsistentsupplyandmaintenanceoffranchiseagreementswithTheBodyShopInternational,GNCandClaire’s

• Continuedtransformationofthesupplierbasewith64.1%preferentialprocurement

• R25.2billionpaidtosuppliersofgoodsandservices


REwARDING VALUE CREATIONClicks Group’s remuneration policy is aimed at driving ahigh-performance culture that creates sustainable value forshareholders.

The remuneration policy, which is outlined in part 1 of thisreport,willagainbeproposedtoshareholdersforanon-bindingvote at the annual general meeting (AGM) in January 2019.The application of the remuneration policy in 2018, whichdetailshowthegrouphasrewardedvaluecreation,iscoveredinpart 2ofthisreport.InaccordancewiththeKingIVgovernancecode, this implementation report will be tabled separately toshareholdersforanon-bindingvoteattheAGM.

Clicks Group values the views and insights of investors, andencouragesshareholderstoproactivelyengagewithmanagementonremunerationissuestoenableinformeddecisionstobemadewhenvotingonthegroup’sremuneration policy.

In addition to this commitment, and in accordance withKing IV, intheeventthateithertheremunerationpolicyortheimplementationreportreceives25%ormoredissentingvotes,managementwillengagedirectlywiththeseshareholdersto:

• determinethereasonsforthedissentingvotes;and

• address legitimateandreasonableobjectionsorconcernsby clarifying or amending the remuneration policy, itsimplementationorprocesses,orreviewingtheremunerationgovernance,ortakingotherstepstoresolvetheconcerns.

Thestepstakentoaddresslegitimateandreasonableconcernswillbedisclosedinthefollowingyears’integratedreport.

The remuneration philosophy and reward principles remainconsistent with last year when the remuneration policy wasaligned to King IV to outline the group’s approach to fair,responsible and transparent remuneration practices acrossthebusiness.At the2018AGM,93.9%ofshareholderswhovoted supported the group’s remuneration policy and 94.6%supportedthegroup’sremunerationimplementationreport.

This report provides an overview of the remuneration of allgroup employees as well as disclosing executive directorremunerationandthealignmentwithshareholdervaluecreation.Theremunerationpaidtoexecutiveandnon-executivedirectorsforthe2018financialyearisdetailedonpages 75and 77.


REwARDING VALUE CREATION (CONTINUED)

IntroductionThegroup’sremunerationpolicyisbasedonthetotalrewardsmodelandintegratesthefivekeyelementsthatattract,motivateandretainhumancapitaltoachievethedesiredbusinessresults:

• compensation;

• benefits;

• performanceandrecognition;

• learninganddevelopment;and

• work-lifeintegration.

The reward principles of fair and responsible remuneration,market competitiveness, and pay-for-performance areentrenched in the policy. The policy is transparent andincorporatesapayframeworkthatclearlydifferentiatesbetweenoccupationallevelsandpaygradesthatfacilitateremunerationbenchmarkingforeachjobwithinaskillpool.

Theremunerationmixincludesacombinationofmonetaryandnon-monetary rewards for employees in exchange for theirtime,efforts,talentandperformanceatanindividual,teamandcompanylevel.

Monetary rewards include annual guaranteed pay, variablepay such as short and long-term incentives that relate toperformancetoagreedtargets,aswellasotherbenefits.

Non-monetaryrewardsarelesstangibleandrangefromformalandinformalrecognitionprogrammes,trainingandjobrotationopportunitiesandexposuretostimulatingworkassignments,allofwhicharedesignedtomotivate,affiliateandretainemployees.

Employees receive a total reward statement annually whichprovidesapersonalisedcomprehensiveviewofalltheirrewards.

Pay levels are benchmarked on national and retail marketbenchmark data. The 2018 benchmarking process and theresultant pay framework was peer reviewed by independentreward consultants (21st Century) who verified the accuracyof the benchmarking process and outcomes, as well ascompliancetoKingIV.Premiumsarepaidforscarceandcriticalskills such as pharmacy, buying and planning, finance andIT skills,basedontherelevantmarketdata.

Annualsalary increasesaremeritbased,with increasesbeingdirectlyrelatedtoeachemployee’sannualperformancerating.The rangeof increasepercentagesperperformance rating isappliedconsistentlyacrossthegroup,includingtotheexecutivedirectors.Theannualincreaseforanemployeeinthebargainingunit is based on a collective bargaining process (refer to thesectiononremunerationofmanagementandstaffonpage 71).

part 1: reMuneratIon polICy

remuneration structureThe total rewards framework provides flexibility to meet thedifferingneedsofemployees.

Annual guaranteed pay is determined by considering thefollowingfactors:

• the size of the job, based on the Hay job evaluationmethodology;

• thenatureofthejobrelativetoitsdefinedmarketposition,includinganymarketpremiumsforscarceandcriticalskills;

• individualperformanceasassessedduringtheperformancereviewprocess;and

• individual position in the pay band range relative tocompetenceandtalentpositioning.

Theremunerationandnominationscommittee(thecommittee)reviews the group’s overall pay framework annually againstdefinedmarketbenchmarksperjobgrade,jobsizeorskillpool.

Thegroup’sbenchmarkingandmarketinformationisbasedonindependent surveys, including the PricewaterhouseCoopersREMchannel,DeloitteTopExecutiveandTheKornFerrysurveys.Thesebenchmarkingexercisesrecognisethecomplexityinthegroup’sbusinessmodelandtheregulatoryenvironmentwithinwhichthegroupoperates.

Thegroupalsoparticipatesinabiennialbenchmarkingexercisetomaintain a competitive remunerationposition in respect ofpharmacistsandpharmacymanagers.

The annual performance review of all employees focuses onboth financial and non-financial levers across the followingmetrics:

• Financialperformance

• Business process improvement metrics, includingtransformation targets, where this can be influenced bythe employee

• Customersatisfaction

• Learningandgrowth

ExecutivesarealsomeasuredagainsttheobjectivessetbythesocialandethicscommitteeinrelationtoalltheelementsoftheBBBEEscorecard.

All employees are required to achieve a satisfactoryperformanceratingtoqualify for fullparticipation in theshort-termincentive scheme.



eXeCutIVe dIreCtorS’ reMuneratIonThegroup’sremunerationpolicyhasbeenreviewedbythecommitteetoensurethatexecutivedirectors’remuneration is fairandresponsible in the context of overall employee remuneration, particularly given the nature of the retail industry and consideringSouth Africa’ssocio-economiclandscape.

Thepolicyprescribesthatthelevelsofpayandincentivesawardedtoexecutivedirectorsaresetrationallyandimpartially,andarefreefromdiscrimination,self-interest,prejudiceorfavouritism.Executivepayislinkedtovaluecreationandpositiveoutcomes,issubjecttoindependentoversightandapprovalbythecommittee,andisconsideredbythedirectorstobesustainableandresponsible.

Toalignwithshareholderinterests,executiveremunerationislinkedtothegroup’sperformance,withclearlydefinedandmeasurableone-yearandthree-yeardeliverables.

Theremunerationofexecutivedirectorsconsistsofthreecomponents:

guaranteed remuneration Variable and performance-related remuneration

Annualguaranteedpay,comprisingbasesalary,retirementandotherbenefits;allowsforflexibleretirementfundcontributions

Annualshort-termcash-basedincentivebonus

Long-termincentiveschemes

Performance measurement

Annualindividualperformancereview Averagemonthlyreturnonnetassets(RONA)

Operatingprofit

Dilutedheadlineearningspersharegrowthoverathree-yearperiodsubjecttoperformancehurdles

Totalshareholderreturngrowthoverathree-yearperiodsubjecttoperformancehurdles

Theperformanceofthechiefexecutiveofficer isassessedbythe committee,while the performance of the other executivedirectorsisevaluatedbythechiefexecutiveofficerandreviewedbythecommittee.

The annual pay increaseof the executivedirectors is directlyrelated to individual performance ratings and aligned to theannual increaserangesperperformanceratingasdeterminedby the committee and applied consistently across thegroup. The sustainability of the group’s business is critical indetermining remuneration and the board is satisfied that theperformancetargetsdonotencourageincreasedrisk-takingbytheexecutives.

Incentive schemesAsignificantportionofshort-termandlong-termremunerationisvariableanddesignedtoincentiviseexecutivedirectors.

Should executive directors not meet the targets set bythe committee for the short-term and long-term incentiveschemes,thennoamountswillbepayableundertheschemesand executive directors will only receive their guaranteedremuneration. Performance hurdles and caps for both theshort-term and long-term incentive schemes apply to theparticipants,includingtheexecutivedirectors,whicharesetoutbelowandonpages 71to 73respectively.

Short-term incentive schemeAbonusof40%(60%inthecaseofthechiefexecutiveofficer)ofannualguaranteedpayispaidontheachievementofanon-targetperformancewithperformancehurdlesofatleast95%ofthetargetedgroupRONAandoperatingprofit.

• Performance exceeding the targeted performance mayresult in the payment of a higher bonus. This is self-funded and only paid if the group exceeds the targetedoperating profit.

• Theschemeprovidesforastretchperformanceincentivetodriveextraordinaryperformance.Thestretchperformancehurdle ismetwhenthetargetedgroupRONAisachievedandthetargetedoperatingprofithasbeenexceededbyatleast5%.

• Bonuspaymentsarecappedat120%ofannualguaranteedremunerationforthechiefexecutiveofficerandat80%fortheotherexecutivedirectors.

Theachievementoftargetsisreviewedbythecommitteebeforeanyincentivepaymentsaremadetoexecutivedirectors.

long-term incentive schemeExecutive directors participate in the cash-settled long-termincentiveschemewhichisdetailedonpages 72to 74.



reMuneratIon oF ManageMent and StaFFSenior managers receive an annual guaranteed salary andparticipateintheshort-termincentivebonusscheme.Salariesmay include premiums for scarce and critical skills. A limitednumberofseniormanagersparticipateinthelong-termincentivescheme,basedonstrategiccontributiontotheirbusinessunitandtheirindividualperformancelevels.

An annual performance-based salary increase is paid to allpermanent monthly paid non-bargaining unit employees.The annualincreasedateis1Septemberwhichisalignedwiththegroup’sfinancialyearandbudgetingperiod.

Collectivesalaryincreasesarenegotiatedwiththerepresentativetrade union for the Clicks bargaining unit. The negotiationteam is headed by the Clicks human resources executive.Trade union membership comprises 13% of the total groupemployees(2017:18%).Theemployeesinthebargainingunitalsoparticipateinthegroup’sshort-termincentiveschemes.

Allstoreemployees’compensationcomplieswiththesectoraldetermination and is above the national minimum wage orstatutory requirements in all countries in which the groupoperatesandtheminimumratesofpayasdeterminedfortheretailindustryareeithermetorexceeded.

Through a partnership with Discovery Health, and asan additional element within the total reward strategy,approximately 9 000 employees with six months continuousservice incustomerservice,clericalandsupervisory roleswillbeenrolledontheDiscoveryPrimaryCareComprehensiveplanon1January2019.Theemployee’smembershipwillbefundedby the company. Employees will have the option to includetheir spouseandchilddependantsat theirowncost throughamonthlypayrolldeduction.Theplanprovidescomprehensiveprimary and trauma care, including unlimited access to ageneral practitioner, optical and dental benefits, ambulanceand casualty services. The introduction of this health benefitwillcontributetoreducingtheinequalityinhealthcareservicesprovidedtothedifferentsegmentsofsociety,andwillcontributeto increased employee affiliation and retention, as well asimproving the health and well-being of employees and theirfamilymembers.

The healthcare needs of all other permanent employees arecatered for through membership of one of the company’sapproved medical aid schemes (Horizon Medical Scheme,Discovery HealthMedical Scheme and ProfmedMedical AidScheme).

employee share ownership programmeThe employee share ownership programme (ESOP) wasimplemented in2011 toattract and retain scarceandcriticalskills, accelerate transformation, build employee commitmentandenableemployeestoshare inthegrowthandsuccessofthebusiness.

Entrytothisschemeclosedin2015andtheschemematuresin2018and2019.

Theexecutivedirectorsandsenioremployeeswhoparticipateinthegroup’slong-termincentiveschemedidnotparticipateintheESOP.

Through the ESOP scheme 10% of the group’s issuedshares (after the issue of “A” shares equating to 29.2million“A” shares)wereplacedinasharetrustforallocationtoallfull-time permanent staff. Employees with more than five years’service, pharmacists and senior employees from designatedemployment equity groups received a 15% enhancement oftheirshareallocation.

Sharesareheldby7 839beneficiaries,withblackemployeesreceiving 86% and women 65% of the shares. Pharmacistscomprise 5% of the ESOP beneficiaries. Participatingemployees receiveacashdividendannually,equal to10%ofthetotaldividendpaidtoordinaryshareholderseachyear.

group retention schemeThe group retention scheme is aimed at retaining talentedemployeesbyprovidingthemwithalong-termfinancialincentivewhichisalignedwithshareholders’interests.

Theschemetargetshigh-potentialemployees,blackstaffandemployeeswithscarceandcriticalskills.Therearecurrently42employeesparticipatinginthescheme,ofwhom31%areblackand33%arewomen.

InCentIVe SCHeMeSShort-termandlong-termincentivesareanintegralpartofthetotalrewardsframeworkandaimtoalignemployeeperformancewiththeinterestsofshareholders.

Short-term incentive schemesAllpermanentemployeesinthegroupparticipateintheshort-term incentive schemes which reward the achievement ofperformancetargetsofthebusiness.

• RONA-basedshort-termincentivescheme Performance for the group’s RONA-based short-term

incentive scheme is measured at the group, businessunit and team level against agreed targets. Although theschemerewardsteamperformance,individualperformanceas measured through the group’s annual performanceappraisalprocessmaylimitthevalueofthepaymentshouldanemployeenotmeetindividualperformancetargets.

Performance exceeding the targeted performance mayresultinthepaymentofahigherincentive,providedthisisfundedbyanincreaseintheoperatingprofit.Incentivesformanagementandstaffarecappedattwotimesthevalueofanon-targetbonus.

• Retailstoreincentivescheme The retail store incentive scheme rewards staff in retail

storesforoutperformingquarterlystoresalestargets.



long-term incentive schemeLong-termincentive(LTI)schemesareaimedataligningexecutiveremunerationwithshareholderinterestsbyrewardingexecutivesforthecreationofshareholdervalue.TheLTIschemeshaveathree-yearterm,withperformancehurdles.Successiveannualallocationsensurethattheexecutivesandseniormanagerswhoparticipateintheschemeareincentivisedbasedonthesustainedperformanceofthegroupmeasuredbytheincreaseindilutedheadlineearningspershare(HEPS)andtheincreaseintotalshareholderreturn(TSR).

TheLTIschemesareregularlyreviewedandenhancedtoalignwithevolvingbestpracticelocallyandinternationally,andbasedonengagementwithmajorshareholders.

• Theschemesarecashsettledandbasedonshareappreciationunits.AstherearenosharesissuedintermsoftheLTIschemes,thereisnosharedilution.

• Theremunerationmultipleusedtodeterminethenumberofappreciationunitsgrantedisunchanged.

• Acaplimitsthevaluepayableattheendofthethree-yearperformanceperiodtoamaximumoffivetimestheannualguaranteedpayofparticipantsinthescheme.

• ThegrouphasimplementedaprogrammetohedgeagainsttheeconomicrisklinkedtothesharepricebasedontheanticipatedpayoutoftheTSRportionofthelong-termincentive.

Currently 15 (2017: 15) executives participate in the schemes. The relevant amounts are expensed through the statement ofcomprehensiveincome.

• 2015to2018and2016to2019schemes TheLTIschemesalignexecutiveandlong-terminvestorinterestsbyincludingbothanearningsperformancemetricaswellas

exposingparticipantstomarketvolatility.

Thevalueofappreciationunitsareapportionedequallybetweentwoperformancecomponents:

(1)dilutedHEPS;and

(2)totalshareholderreturn(TSR).

(1) HEPS appreciation units ThebasevaluefortheHEPSappreciationunitsiscalculatedatthedateofallocationbymultiplyingthegroup’sreporteddiluted

headlineearningspershare(HEPS)byaninternalpriceearningsratioof12.

Anexercisevalueisdeterminedattheendofthethree-yearperiodbymultiplyingthepublisheddilutedHEPSfortheyearbythesamefactorof12.

Thedifferencebetweentheexercisevalueandthebasevalueistheamountpaidoutincash.

Inordertoenhancethealignmentbetweenexecutiveandshareholderinterests,theHEPSappreciationunitsaresubjecttoperformancehurdlesasfollows:

Diluted headline earnings per share

performance hurdle range (based on three-year Cagr in diluted HepS) percentage of ltI payout

Weak 0%ornegativegrowth 0%

Belowtarget Upto7.9%growth 70%

Ontarget 8%to14.9%growth 100%

Abovetarget 15%to19.9%growth 150%

Exceptional Above20%growth 200%



(2) TSR appreciation units Thebasevalue for theTSRappreciationunits is the20-dayvolumeweightedaverageprice (VWAP)of theClicksGroup

shares,measuredoverthe20businessdaysattheendofthepreviousfinancialyear.

Theexercisevalueisthecorresponding20-dayVWAPattheendofthethree-yearperiod.ThefinancialincentivereceivedbytheparticipantsistheappreciationintheClicksGroupsharepriceoverthethree-yearperiod.

TheTSRunitsaresubjecttothefollowingperformancehurdles:

Total shareholder return

performance hurdle (based on three-year Cagr in tSr) percentage of ltI payout

Below10% Unitallocationforfeited

Above15% Unitallocationincreasedby50%


ForthepurposesofcalculatingtheTSRgrowthinrelationtotheperformancehurdles,TSRisdefinedastheoverallreturntoshareholders,beingtheappreciationinthe20-dayVWAPoftheClicksGroupshare,plusdividendpaymentsreinvestedoverthethree-yearperformanceperiod,dividedbytheVWAPoftheClicksGroupshareatthecommencementoftheperiod,expressedasapercentage.

• 2017to2020and2018to2021LTIscheme Thedesignofthe2018schemeisunchangedfrompreviousschemes,withthevalueofappreciationunitsbeingapportioned

equallybetweendilutedHEPSandTSRunits,whicharesubjecttoperformancehurdles.

TheperformancehurdlesforthedilutedHEPSappreciationunitshaveremainedunchanged,asfollows:

Diluted headline earnings per share

performance hurdlerange (based on three-year Cagr in diluted HepS) percentage of ltI payout

Weak 0%ornegativegrowth 0%

Belowtarget Upto7.9%growth 70%

Ontarget 8%to14.9%growth 100%

Abovetarget 15%to19.9%growth 150%

Exceptional Above20%growth 200%

However,basedonmarketconditions,inparticularthelowerinflationrateandSouthAfricaneconomicgrowthforecastscomparedtoexpectationsatthecommencementofthepreviousschemes,theTSRhurdleshavebeenrevisedforthe2017to2020and2018to2021LTIschemesasfollows:

Total shareholder return

performance hurdle (based on three-year Cagr in tSr) percentage of ltI payout

Below9% Unitallocationforfeited





directors’ participation in the ltIExecutivedirectorshavebeenawardedthefollowingappreciationunits:

2016 – 2019 scheme 2017 – 2020 scheme 2018 – 2021 scheme

HEPS units allocated at R52.62

per unit

TSR units allocated

at R126.03per unit


per unit

TSR units allocated

at R146.10per unit


per unit

TSR units allocated

at R193.96per unit

BertinaEngelbrecht 136830 57129 129461 53388 121107 43308

MichaelFleming 198404 82837 189212 78029 176759 63209

DavidKneale* 547320 228517 525809 216838 – –

* AsaresultofMrKneale’sretirementon31August2019hehasnotbeenawardedanyappreciationunitsinthe2018–2021scheme

Inlinewithbestgovernancepractice,non-executivedirectorsdonotparticipateinincentiveschemes.

eXeCutIVe SerVICe CondItIonSThe chief executive officer is subject to a 12-month noticeperiodandtheotherexecutivedirectorstoasix-monthperiod.The retirementage for thecurrentchiefexecutive is65whiletheotherexecutivedirectors retireat theageof63.Noneoftheexecutivedirectorsareappointedonfixed-termcontracts.

non-eXeCutIVe dIreCtorS’ FeeSThe fee structure for non-executive directors is based on areviewofanumberof internal,economicandmarket factors,and is independently benchmarked each year. The group’spolicyistopaynon-executivedirectorfeesinarangeof80%to120%ofthemedianofacomparatorgroupofJSE-listedretailcompanies.Themedianisbasedonthenumberofboardandcommitteemeetingsheldperannum.Non-executivedirectorsreceiveabasefeeforservingontheboardoranycommittee,together with an attendance fee per meeting. The base feecomprises75%ofthetotalfee.Thechairmanoftheboardoranycommitteereceivesahigherfee.Directors’feesarepaidforacalendaryear.

reMuneratIon goVernanCeThe committee, operating under the authority delegated bythe board, is responsible for overseeing the establishmentand maintenance of the group’s remuneration policy, policyoutcomesandpaypractices.Thecommitteeassiststheboardin ensuring the group has a competitive remuneration policyandgovernance frameworkwhich isalignedwith thegroup’sstrategicandorganisationalperformanceobjectives.

In line with the recommendations of King IV the committeecomprises only independent non-executive directors, namelyProfessorFatimaAbrahams (chair),JohnBester,David Nurek

andMartin Rosen. The chief executive officer and the grouphuman resources director attend committee meetings byinvitationbutare recused fromdiscussions that relate to theirown performance appraisal and remuneration. Detail on thecommitteemeetingattendanceisincludedonpage 58.

An external rewards specialist is retained to advise thecommitteeonremunerationtrendsandbenchmarkingofbothexecutive and non-executive remuneration. The members ofthe committee have independent access to the adviser andmayrequestprofessionaladviceonanyremunerationissue.

Theprimaryresponsibilitiesofthecommitteeinclude:

• ensuringtheremunerationpolicyisalignedtoandpromotesthe achievement of the group’s strategic objectives andencouragesindividualperformance;

• ensuring the critical elements of the remuneration policy,including annual guaranteed pay, scarce skills premiums,benefitsandincentives,areappropriatelybenchmarkedtoensurethegroupiscompetitiveintheemploymentmarket;

• ensuringallbenefits,includingretirementbenefitsandotherfinancialarrangements,arejustifiedandcorrectlyvalued;

• reviewing and approving the performance evaluation ofthechief executiveofficer andexecutivedirectors againstagreeddeliverables;

• reviewing incentive schemes to ensure alignment toshareholder value creation and that the schemes areadministeredintermsoftherules;and

• reviewingtheremunerationofnon-executivedirectorsandrecommendingadjustmentstothefeesattheAGM.



annual salary increaseThe average performance-linked increase effective from1 September 2018is6.0%(2017:5.8%).Negotiationsregardingthe salary increase for the bargaining unit employees inSouth Africahavenotyetbeenconcluded.In2017the averagesalaryincreaseforbargainingunitstaffwas7.8%.

Short-term incentive schemesRONA-basedshort-termincentivescheme:ThetargetedaveragemonthlyRONAwas85.7%and thegroupachieved102.2%.The group achieved 99.7% of the targeted operating profit.TheClicks,UPD,TheBodyShopandgroupservicesbusinessunitsexceededtheshort-termtargetsandR90.4 millionwillbepaidinaccordancewiththeschemerules(2017: R97.5 million).This includesincentivespaidintermsoftheretailstoreincentiveschemewhereR21.0 million(2017: R20.3 million)waspaidtoretailstorestaffforthe2018 year.

employee share ownership schemeInFebruary2018,R1.3billionwaspaidto7839beneficiaries,representingthegainonthefirst50%ofthesharesallocatedunder the ESOP. The remaining 50% will be paid in 2019.A dividend of R7.2 million (2017: R6.8 million) was paid toschemeparticipantsin2018.

part 2: reMuneratIon IMpleMentatIon report 2018

group retention schemeDuringthefinancialyearR46.1million(2017:R50.4million)waspaidouttoparticipantsinthescheme.

long-term incentive schemeForthethree-yearperformanceperiodended31August2018the group achieved the following compound annual growthrates(CAGR):

• DilutedHEPS:14.6%CAGR:Thisiswithinthe“ontarget”performancehurdlerange.

• TSR: 30.2% CAGR: This exceeds the “above 20%”performance hurdle and the TSR share allocations toparticipantswere increasedby 100% in accordancewiththerulesofthescheme.

ThepayoutoftheTSRportionhasbeenfullyhedgedtolimitthecosttothegroup.

The committee approved the long-term incentive payment ofR162.7million(2017:R153.5million)totheschemeparticipants.

dIreCtorS’ reMuneratIonexecutive directors’ remuneration

Director(R’000) Salary

Pension fund

Other benefits

Total annual

guaran-teed pay

RONA short-

term incentive

Per-fomance-

based long-term incentive*

Total variable

pay Total

2018

BertinaEngelbrecht 3 489 411 – 3 900 1 560 17 453 19 013 22 913

MichaelFleming 5 287 356 57 5 700 2 280 25 268 27 548 33 248

DavidKneale** 9 909 649 2 10 560 6 336 52 800 59 136 69 696

Total 18 685 1 416 59 20 160 10 176 95 521 105 697 125 857

2017

BertinaEngelbrecht 3220 380 – 3600 1508 17081 18589 22189

MichaelFleming 4879 284 57 5220 2186 25883 28069 33289

DavidKneale** 9083 515 2 9600 6031 48000 54031 63631

Total 17182 1179 59 18420 9725 90964 100689 119109

* Paymentsrelatingtotheperformancefortheyearended31AugustarepaidinNovember.Theexpenseisprovidedforoverthethree-yearvestingperiodintherelevantfinancialyear

** TheLTIpaymenttoMrKnealehasbeencappedatfivetimesannualguaranteedpayinaccordancewiththerulesofthescheme



non-executive directors’ remuneration

Director(R’000)

2018 Directors’

fees

2017Directors’

fees

DavidNurek 1 169 1059

FatimaAbrahams1 630 459

JohnBester 647 581

FatimaDaniels3 523 408

NonkululekoGobodo2 450 213

NkakiMatlala4 n/a 161

MartinRosen 354 329

Total 3 773 3210

1 ThefeespaidtoProfessorAbrahamsincludeanamountofR78150(2017:R24610)forperformingtheroleofchairpersonofTheClicksGroupEmployeeShareOwnershipTrustandR72917forherappointmentasdirectorofClicksRetailersProprietaryLimited

2 Appointedwitheffectfrom1March20173 ThefeespaidtoFatimaDanielsincludeanamountofR72917forherappointmentasdirectorofClicksRetailersProprietaryLimited4 Retiredwitheffectfrom26January2017

Noneofthenon-executivedirectorshaveservicecontractswiththegroupandnoconsultancyfeeswerepaidtodirectorsduringthe year.

total directors’ remuneration

R’000 2018 2017

Executivedirectors(includingthelong-termincentivescheme) 125 857 119109

Non-executivedirectors 3 773 3210

Total directors’ remuneration 129 630 122319

directors’ shareholdings at 31 august

Director

2018 beneficial shares 2017beneficialshares

Direct Indirect Total Direct Indirect Total

DavidNurek – 100 000 100 000 – 100000 100000

JohnBester 12 000 10 000 22 000 12000 10000 22000

BertinaEngelbrecht 75 068 – 75 068 105068 – 105068

MichaelFleming 30 421 – 30 421 30421 – 30421

DavidKneale 285 370 – 285 370 285370 – 285370

MartinRosen – 2 000 2 000 – 2000 2000

Total 402 859 112 000 514 859 432859 112000 544859

Thetotalnumberofordinarysharesinissueis253 948 352andthepercentageofissuedsharecapitalheldbydirectorsis0.20%(2017:0.22%).DetailsofdealingsinClicksGroupsharesbydirectorsduringthefinancialyeararecontainedinthedirectors’reportintheannualfinancialstatementsonthewebsite.



non-eXeCutIVe dIreCtorS’ FeeSThefeestructurefornon-executivedirectorswasbenchmarkedexternallyagainstaretailcomparatorgroupofTheFoschiniGroup,MrPriceGroup,PicknPayStores,ShopriteHoldings,TheSparGroup,TruworthsInternational,MassmartHoldings,WoolworthsHoldingsandDis-ChemPharmaciesLimited.

Theproposedincreasestothefeestructurefor2019takeintoaccountthesebenchmarkingresults.Higherincreasesareproposedfortheremunerationandnominationscommitteeandsocialandethicscommitteechairs,andmembersoftheremunerationcommittee,whichwerebelowthegroup’spolicyrangeof80%ofthemedianofthebenchmarkedcomparatorgroup.Thetotalfeesproposedfornon-executivedirectorsforthe2019calendaryearrepresentanincreaseof12.5%overthepreviousyear.

Thefeesforthe2019calendaryeararesubjecttoapprovalbyshareholdersattheAGMinJanuary2019.

Boardposition

2019* 2018*

Proposed base fee

R

Proposed meeting fee

R

Proposed total fee

R

BasefeeR

MeetingfeeR

TotalfeeR

Boardchairman** 1 012 500 337 500 1 350 000 900000 300000 1200000

Boardmember 255 000 85 000 340 000 226500 75500 302000

Chair:Auditandriskcommittee 238 500 79 500 318 000 225000 75000 300000

Member:Auditandriskcommittee 126 000 42 000 168 000 120000 40000 160000

Chair:Remunerationandnominationscommittee 105 000 35 000 140 000 86625 28875 115500

Member:Remunerationandnominationscommittee 60 000 20 000 80 000 48825 16275 65100

Chair:Socialandethicscommittee 82 500 27 500 110 000 60000 20000 80000

Member:Socialandethicscommittee n/a n/a n/a n/a n/a n/a

* Feesrelatetothecalendaryear** Feesfortheboardchairmanareinclusiveofallcommitteememberships


SHAREHOLDER INfORMATION

Clicks Group has proven to be

increasingly attractive to international investors

over the past decade and 70% of the group’s shares are now held by

offshore fund managers.



SHAREHOLDER ANALYSISAT 31 AUGUST 2018

Public and non-public shareholdersNumber of

sharesPercentage

of sharesPublicshareholders 243 990 048 96.1%Non-publicshareholdersSharesheldbydirectors 514 859 0.2%TreasurystockheldbyNewClicksSouthAfricaProprietaryLimited 9 443 445 3.7%

Totalnon-publicshareholders 9 958 304 3.9%Totalshareholders 253 948 352 100.0%

Accordingtothecompany’sregisterofshareholders,readinconjunctionwiththecompany’sregisterofdisclosureofbeneficialinterestsmadebyregisteredshareholdersactinginanomineecapacity,thefollowingshareholdersheld3%ormoreoftheissuedsharecapitalat31August2018:

Major beneficial shareholders holding 3% or more

2018Percentage

of shares

2017Percentageofshares

GovernmentEmployeesPensionFund 12.8% 15.5%GICPrivateLimited 3.3% 4.3%FidelityInternationalGrowthFund 3.2% 3.4%

Major fund managers managing 3% or more

2018Percentage

of shares

2017Percentageofshares

PublicInvestmentCorporation(SA) 13.3% 14.2%FidelityManagement&Research(US) 6.5% 5.2%BaillieGifford&Co(UK) 5.2% 5.5%BlackRock(USandUK) 4.1% 1.7%TheVanguardGroup(US) 3.6% 3.4%MawerInvestmentManagement(CA) 3.4% 3.8%GIC(Singapore) 3.3% 4.3%JPMorganAssetManagement(UKandUS) 3.1% 4.1%Fund managers no longer managing over 3%:MFSInvestmentManagement(US) 0.1% 3.3%

Offshore shareholding

47.1%

2010

58.4%

2012

59.3%

2014

68.6%

2016

69.9%

2018

Geographic distribution of shareholders

30.1% South Africa and Namibia

45.4% USA and Canada

9.0% United Kingdom and Ireland

6.6% Europe

8.9% Other countries


SHAREHOLDERS’ DIARY

CORPORATE INfORMATION

annual general meeting 30January2019

preliminary results announcements

InterimresultstoFebruary2019 onorabout17April2019

FinalresultstoAugust2019 onorabout24October2019

publication of 2019 integrated annual report November2019

ordinary share dividend2018 final dividend

Lastdaytotradewithdividendincluded 22January2019

Dateofdividendpayment 28January2019

2019 interim dividend

Lastdaytotradewithdividendincluded July2019

Dateofdividendpayment July2019

2019 final dividend

Lastdaytotradewithdividendincluded January2020

Dateofdividendpayment January2020

Clicks group limitedIncorporatedintheRepublicofSouthAfricaRegistrationnumber1996/000645/06Incometaxnumber9061/745/71/8

JSEsharecode:CLSISIN:ZAE000134854ADRtickersymbol:CLCGYADRCUSIPcode:18682W205

registered addressCnrSearleandPontacStreetsCapeTown8001Telephone:+27(0)214601911

postal addressPOBox5142CapeTown8000

Company secretaryMatthewWelz,LLBE-mail:[email protected]

auditorsErnst&YoungInc.(EY)

principal bankersTheStandardBankofSouthAfrica

JSe sponsorInvestecBankLimited

transfer secretariesComputershareInvestorServicesProprietaryLimitedBusinessaddress:RosebankTowers,15BiermannAvenue,Rosebank2196Postaladdress:POBox61051,Marshalltown2107Telephone:+27(0)113705000

Investor relations consultantsTier1InvestorRelationsTelephone:+27(0)217023102E-mail:[email protected]

Formoreinformation,pleasevisitourwebsiteatwww.clicksgroup.co.za


www.clicksgroup.co.za

Date post:	03-Jun-2020
Category:	Documents
Upload:	others
View:	2 times
Download:	0 times

Integrated annual report 2018 - Clicks Group...2015 59% 272 439 2016 322 380 502 578 2017 2018 60%...

Documents