40-50

pharmacies
planned in 2009

GROUP STRATEGY AND TARGETS

Strategy

New Clicks follows a consistent strategic direction in its quest to enhance shareholder wealth and deliver value to all other stakeholders. The group strategy is complemented by strategic objectives or growth drivers which are identified at the start of each financial year. Management believes the achievement of these objectives will give the group a sustainable competitive advantage. A similar planning process is conducted within each business unit to ensure alignment with the group strategy.

New Clicks is a specialist retail group
... and our customers will view us as expert. This means they regard us as best for value, best for range and they trust us.
Focused on health, beauty, entertainment and homeware
... and these are the merchandise categories in which we aspire to be viewed as expert by our customers.
Operating through multiple formats
... to better serve the needs of our customers in the middle to upper income groups.
Organised to be cost-effective and efficient
... with a particular focus on supply chain management, information technology, property and financial management.

PERFORMANCE AGAINST STRATEGIC OBJECTIVES IN 2008
The performance against the 2008 objectives is covered throughout the annual report, with specific achievements over the past year highlighted below.
1.
  
Continue transition of Clicks to a health and beauty specialist
 
  • 72.9% of sales in 2008 from health and beauty merchandise (2007: 70.3%)
  • New store design and layout in 79 stores
2.
  
Build UPD and Clicks pre-eminence in healthcare supply and pharmacy management
 
  • Opened 32 pharmacies; now 157 pharmacies in Clicks stores
  • Further market share gains for UPD
  • Acquired 60% stake in Direct Medicines courier pharmacy
  • Acquired pharmaceutical wholesaler, Kalahari Medical Distributors, in Botswana
3.
  
Continue Musica’s transition to entertainment and widen access to the brand
 
  • Non-music sales now 46% of total sales (2007: 41%)
  • Share gains in entertainment markets
  • Grown store base by 11 to 158 stores nationally
4.
  
Build organisational capability to deliver sustained performance
 
  • Strengthened human resources processes
  • Reduced staff turnover from 23.4% to 21.2%
  • Remuneration system linked to return on assets managed (ROAM) and other financial targets
5.
  
Efficient capital and cash management
 
  • ROE improves from 24.7% to 32.8%
  • Continued share buy-back programme

Medium-term financial targets

New Clicks follows a three-year budget and planning cycle and sets medium-term financial targets to be achieved over each rolling three-year period. The group’s incentive remuneration structure is aligned with these targets.

Following the completion of the three-year planning programme to 2011, the directors have revised certain of these targets to take account of changes in the business and improved prospects.

  Medium-term
targets
(2008 – 2010)
Performance
in 2008
Medium-term
targets
(2009 – 2011)
Return on shareholders’ interest (%) 30 – 35 32.8 35 – 40
Shareholders’ funding to total assets (%) 32 – 37 31.9 30 – 35
Return on total assets (%) 9 – 13 10.6 10 – 13
Inventory days 55 – 60 55 55 – 60
Operating margin (%)      
Group 5 – 6 5.3 5 – 6
Clicks * 6.0 6 – 7
UPD * 3.2 2.7 – 3
Musica * 5.3 5 – 6
The Body Shop * 16.1 14 – 16
         
* not previously disclosed

STRATEGIC OBJECTIVES FOR 2009
The group’s focus areas remain largely unchanged for the 2009 financial year.
The action plans are summarised below and covered in more detail throughout the annual report.
1.
  
Entrench Clicks as a health and beauty specialist
 
  • Targeting 75% sales from health and beauty merchandise
  • Aiming for 17.5% sales from private label and exclusive brands
  • 20 – 25 new stores planned
2.
  
Build UPD and Clicks pre-eminence in healthcare supply and pharmacy management
 
  • 40 – 50 new pharmacies to be opened
  • Implementing bespoke dispensary IT system in Clicks pharmacies
  • Investing in distribution capacity for UPD
  • Aim to relaunch and extend Link-branded product range to 100
3.
  
Position Musica as an entertainment business
 
  • Targeting non-music sales of more than 50%
  • Expand gaming ranges and space allocation in all stores
4.
  
Enhance organisational capability to deliver sustained performance
 
  • Achieve level 4 BBBEE compliance by 2010
  • R40 million committed to IT investment
  • Implement Blueprint processes into distribution centres
5.
  
Manage capital and cash efficiently
 
  • Distribution cover to be reduced from 2.2 times to 2.0 times
  • ROE target increased to 35% – 40%