"New Clicks offers one of the most
compelling organic growth
opportunities in the retail sector"

CHAIRMAN'S STATEMENT

David Nurek
Independent
non-executive chairman

Introduction

New Clicks continued to realise the benefits of a focused strategy and robust business model in an increasingly competitive retail environment. The group posted another good performance off a high base, with the strong real sales growth demonstrating the resilient nature of the business.

The key financial performance measure of diluted headline earnings per share increased 28.1% to 131.9 cents per share, continuing to benefit from the group’s share buy-back programme. Shareholders were rewarded with a 26.8% increase in distributions to 61.1 cents per share for the year.

2008 has also been a year of milestones for the group. Clicks celebrated the 40th anniversary of its founding in August 1968 by the late Jack Goldin. Clicks has emerged as the country’s leading pharmacy, health and beauty retailer and it was fitting that in this 40th birthday year we also marked the opening of the 150th Clicks pharmacy, just four years after the first pharmacy was introduced.

Investment proposition

New Clicks offers arguably one of the most compelling organic growth opportunities in the local retail sector, particularly as the group continues to expand its presence in the healthcare market.

While Clicks is already the largest retail pharmacy chain in the country, the goal is to open a dispensary in every Clicks store, providing the potential to more than double the current pharmacy base. At the same time the Clicks chain will be opening 20 to 30 new stores each year as it expands the store footprint to 400 in the medium term, creating further opportunities for in-store dispensaries.

Corporate pharmacy is still in its relative infancy in South Africa, but already accounts for an estimated 25% of the retail pharmacy market. This is still some way off the market presence in the United States and United Kingdom where corporate pharmacy has a share well in excess of 50%, and this highlights the growth opportunity for corporates within the local market.

UPD is the only full-range pharmaceutical wholesaler in the country, with a strong presence in the hospital and Independent pharmacy markets, as well as being a major supplier to Clicks.

As Clicks and UPD occupy market-leading positions in retail pharmacy and pharmaceutical wholesaling respectively, both are therefore well positioned to benefit from the potential consolidation in their sectors.

The group also acquired two healthcare businesses during the year to accelerate growth in courier pharmacy and pharmaceutical distribution into neighbouring countries.

New Clicks is primarily a defensive stock with a high proportion of turnover in non-cyclical merchandise and as a cash retailer is not exposed to credit risk in the current environment. A detailed investment case is outlined on here which highlights the group’s favourable market positioning, customer offering and growth prospects.

Board of directors

Our board of directors was strengthened in March this year. Professor Fatima Abrahams and Fatima Jakoet were appointed as independent non-executive directors and Bertina Engelbrecht, the group human resources director, was appointed as an executive director.

These appointments have added a range of specialist skills to the board and have further enhanced board level transformation and gender diversity, in line with the group’s overall transformation objectives. Black representation on our board is now 36%, with female directors comprising 27% of the board.

During the year Lucia Swartz and Roy Smither resigned from the board, while Rob Lumb stepped down after the year-end. We thank these directors for their service and wish them well in the future. We also welcomed John Bester to the board in October 2008 as an independent non-executive director.

We noted with sadness the passing of Peter Swartz, a former deputy chairman of the group who served as a non-executive director for nine years.

The composition of the board committees was reviewed to embrace the skills of the newly-appointed directors, with new chairpersons being appointed for the audit (John Bester), risk (Fatima Jakoet) and transformation (Professor Fatima Abrahams) committees.

The board committee structure has also been revised, with the mandate of the risk committee being expanded to incorporate the functions of the governance committee. The risk committee will in future also be responsible for ensuring the group’s compliance with the sustainability principles contained in King ll.

Prospects

After seeing some early signs of improving economic prospects late in the financial year our economy has become more vulnerable with the turmoil in world markets and this could affect the outlook for interest rates, fuel prices and domestic inflation. While we are unlikely to escape unscathed from global recessionary pressures, there are several elements which are likely to sustain our domestic economic growth. All of this creates a challenging retail environment.

However, the group’s business model is proving to be robust, the strategy is focused and the business objectives are clear and well understood by the highly competent management team.

The group’s strategic objectives remain unchanged and the medium-term ROE target has been revised upwards to 35% – 40% to reflect improved prospects within the business.

The performance over the past year has shown that the group’s brands are well positioned in the current trading environment.

In the absence of any marked deterioration in the trading conditions, shareholders can expect continued real growth in earnings in the 2009 financial year.

Acknowledgements

The group continues to benefit from a strong and stable management team which has an unwavering focus on delivering results to stakeholders. Thank you to David Kneale and his executive committee of Keith Warburton, Michael Harvey and Bertina Engelbrecht for their leadership of the group.

I would also like to thank my board colleagues for their support and advice, and welcome the directors appointed over the past year.

Once again I acknowledge the team effort of over 7 000 New Clicks people who have contributed to another year of good performance in 2008.

In closing I express my thanks to the group’s stakeholders for their ongoing support, including our shareholders and the wider investor community, customers, suppliers, business partners, industry regulators and the media.

David Nurek

David Nurek
Independent non-executive chairman