Clicks is going at fast clip

INVESTORS’ DARLING: RESULTS SHOW TURNOVER UP 9.1% AND OPERATING PROFIT UP 12.6%

Outgoing CEO says goal is 370 more stores within next seven to 10 years.

Thirteen years after Englishman David Kneale accepted an offer to join the Clicks Group, he has delivered his last set of annual results. “I think one should leave when people ask why you are leaving, rather than when you are leaving,” he said.

In that period Clicks has changed dramatically. When he joined, it had lost its way. It wasn’t the pioneering pharmacy company that had launched South Africa’s first loyalty card (today Clicks ClubCard is SA’s biggest loyalty scheme, with 7.8 million users), with a vision of becoming a pharmacy selling many things.

Instead, it was broken and neglected following a long-running battle with government over the right of companies (versus individuals) to legally own pharmacies. In 2005 Kneale was appointed deputy CEO. A few months later he became CEO, following Trevor Honeysett’s resignation.

In a remarkable journey, the group has been rehabilitated and become a JSE (and foreign investor) darling.

In the year to August 2018, it grew diluted headline earnings per share 15.1% to 578 cents. Turnover rose 9.1% to R29.2 billion with operating profit increasing 12.6% to exceed R2 billion (2005: R358 million). The retailer generated cash inflows from operations of R2.5 billion and ended the financial year with cash of R1.5 billion.

Shareholders will receive a total dividend of 380 cents per share, 18% higher than 2017, with the dividend payout ratio being raised from 60% to 62%. Clicks Group was included in the FTSE/JSE Top 40 Index in June.

Over 2005 to 2017, return on equity increased from 14.5% to 44.1%, with a target of 50 to 60%, and headline earnings from 65.2 cents per share to 611.9 cents per share at the end of the 2018 financial year, a compound annual growth of 20.5%. Net asset value per share has increased from 394c to 1 811c.

Business is about continuous improvement, so while Clicks has a few key performance pillars, which have not changed, how these are executed does change. “Take our ClubCard – we used to post paper vouchers in time for Christmas. But the postal service became unreliable so we invested in technology to load the cash back onto your card.

“In the process we saved ourselves R20 million in postage fees and have a better communication channel with our customers.”

Kneale also cited the partnerships with Shell and Sorbet to offer customers rewards for spending with them.

So can the business grow operating profit to R3 billion or R4 billion amid flat economic growth?

“Absolutely. By doing more of the same. Today we have 630 stores and our goal is 900, all with pharmacies.

“This should take us to R3 billion in operating profit and should be achievable within the next seven to 10 years.”

Currently, 50% of SA households live within 5km of a Clicks store. “[It’s about] convenience, that is the heart of the Clicks model,” Kneale said.

“A combination of an urbanising population and the move into small-town South Africa supports the business model. An ageing population helps too.”

Kneale will be on call to new CEO, current chief operating officer Vikesh Ramsunder, until August next year.

Convenience is the heart of the Clicks model.