Clicks reports profit surge; plans to open 28 more stores

In the interims new CEO Bertina Engelbrecht discusses solar plans, carbon disclosure projects, store footfall, vaccinations, changing customer trends and the company’s share price.

FIFI PETERS: Clicks is planning to spend R876 million in the current financial year. It’s spending this money across its stores and its IT systems. The money will go towards solar installations on its distribution centres, as well as on other matters.

Clicks CEO Bertina Engelbrecht, who started in the role in January, joins us to discuss this as well as the group’s half-year numbers released earlier on today. Bertina, thanks very much for your time. First of all, congratulations on your appointment. It’s early days yet, but how are you finding the job?

BERTINA ENGELBRECHT: Thank you very much. I’m finding the job a lot easier than I thought, but that’s only because of the incredible support that I’ve had from within the organisation and outside the organisation; so that’s made it a whole lot easier. Of course, the fact that I’ve been here 16 years has been something that I think made the transition easier as well.

FIFI PETERS: That’s great to hear. Given the fact that you look outside of Clicks and you look into the broader economy and the broader world. things are not easy. Things are pretty tough out there.

I’d like to begin with the distribution centre and the plans to install solar. Talk to me about that. I mean, is this about energy security, is it about reducing emissions, or is it about getting off the grid?

BERTINA ENGELBRECHT: I’m very proud, Fifi, of the fact that more than 10 years ago we sat around the table as an executive team and spoke about what kind of future we would want for our children and their children, if you will. We concluded that we saw ourselves as stewards of the future, and that means that we obviously have to start thinking about the things that we do to lighten up this company.

On that I think consistently the group has always made the responsible investing index, we’ve always been included in the carbon-disclosure project. If you put that in perspective, you’ve got about 9 000 participants in the carbon disclosure projects globally – I’m talking about globally. In fact we were one of the 218 companies globally that actually qualified for inclusion in the CDPs. And so you’ve got to see the work that we will now be doing in terms of the expansion of solar installations on all of our DCs……2:24, and another step in terms of us liking our carbon footprint.

So it’s not about producing or getting away from anything altogether. Most certainly what it will do, it will reduce our utilisation of the national grid, and that will mean that there’s more available for other people on the grid itself. That’s really what that’s about. Of course over time it’ll reduce our cost of legacy pays……2:49 to Eskom.

FIFI PETERS: The reduction coming from the side of Clicks, I’m sure, will be most welcome from Eskom, particularly this winter as it does warn of the potential of more load shedding, just as a result of it being peak-demand season.

But nonetheless, in terms of cost savings for the group, what’s that looking like, and when do you hope to complete the process of installing these solar panels across your distribution centre by?

BERTINA ENGELBRECHT: The distribution centre is quite big, a couple of rugby fields put together. We started the work towards the first part in May, and we are hoping to conclude that by the end of this financial year.

We are really ……3:32 of it because it’s a significant investment, Fifi – anything beyond R20 million in terms of that investment. We have done, as always, a feasibility study and it will more than pay for itself over a five-year period, based on just the way in which we look at any capital investment. Then of course the savings over the period will be quite substantial.

FIFI PETERS: All right. Just putting the focus back on your results released earlier today, you are selling more, but I’d just like to understand from you the picture of your consumer, the state of your consumers based on their buying patterns, how frequently they are coming into your stores and exactly what they’re buying that you can see.

BERTINA ENGELBRECHT: What we do know is that, especially during the more restrictive period, we had a decrease in frequency; but that was offset by an increase in basket. So I think that was quite positive.

The biggest impact I would’ve said for our organisation over the last two years has been because people are wearing masks and not travelling and, because no tourists were coming into the country you actually saw that the transmission of acute infection just didn’t happen. So we think that the relaxation of the requirement to wear masks and [maintain] social distancing will be beneficial to the group as we enter the winter season, because the winter season for a drugstore retailer such as ourselves is like having a second peak-trading period.

I’ve spoken about decreased frequency, which we can now already begin to see in terms of destination stores. Pedestrians are picking up. That’s also important because, of course, we’ve got a much broader range within the destination store, and your opportunity to extract additional margins because the expansiveness of your range is so much better in a destination store. So I think those are the benefits terms of that.

And then we can see the opening up of the economy, Fifi. Once again it means that certain discretionary categories such as beauty and personal care are once again recovering. We’ve seen good growth coming out of those categories. In fact, personal care is our top performing category in terms of markets again, worth 110 basis points over the last period.

FIFI PETERS: So most ladies are going back to the office and having to wear makeup again, it would seem.

BERTINA ENGELBRECHT: You are saying this, Fifi……6:15 ……I bought eyeliner……how I can buy. You know, it becomes…..metrosexual[?] I think in terms of skincare. In South Africa actually, I think there’s a statistic that says the South African male spends more on …… grooming any other male in any other country. So that’s also a fantastic opportunity for us. I can see that in my own household.

FIFI PETERS: That is an interesting statistic. You talk about opportunity. I wasn’t even going to ask the question, but I must ask: how then are you planning to capitalise on this trend in which men are taking care of themselves a lot more as a group in terms of just what goes on your shelf or what you’re thinking of bringing onto your shelves as a result?

BERTINA ENGELBRECHT: Yes, definitely. Already you can see there have been quite a number of range extensions in the male grooming department. And then we’ve also brought on board male influences……7:15, and that to very specifically talk to that segment of the market. So a great opportunity and an expansion in terms of …… profile of our consumer.

FIFI PETERS: All right, a very interesting development. Bertina, I want to talk to you about Covid – just where you are seeing the overhang in your business and, as the largest administer of vaccinations, having administered some three million vaccinations in your year as of February. Could you just talk to us about the vaccination scene and what things are looking like right now? Are people still coming in, or people even coming in for booster shots? What’s the situation on the ground?

BERTINA ENGELBRECHT: Well, interestingly enough, I think that people who have already had the first and the second vaccination don’t necessarily come into the booster.

The second thing that we can see is a bit difficult if we are talking about April, because we’ve had so many public holidays. What we know from public holidays is that people don’t want to queue for a vaccination. So just see that in that context. But we could definitely see that there’s been a decline in people coming for vaccinations. I do think it’s going to be interesting when we look at the increasing positivity trend in terms of what seems to be the beginning of our fifth wave, I think it will be interesting whether once again that spurs people on to go for vaccinations.

I must say the following, though. The guidance that we provided to the market is not based on duplicating the Covid vaccinations that we did in the first half. It’s definitely built on that…..9:01. There’ll be some vaccinations in that number, but nowhere near the extent in terms of what we’ve already done. And then, because you’re quite correct, Fifi, how you begin to extract some of the cost that could be around decreasing the number of sites, because whenever you’ve got a site you’ve got to cordon it off, take away trading space, you’ve got to bring additional chairs into your store, you’ve got to employ additional people to be the vaccination……9:27, vaccination research. You’ve got to employ a local nurse or a local pharmacist to administer the vaccination.

And so those sorts of costs you would need to extract, and that could be part of the programme that we would be running on.

FIFI PETERS: What about the cost of unused vaccines? At a national level we know that there is quite a large batch of vaccines that had to be disposed of as a result of them having reached their shelf life. Has that been a cost for Clicks, just given the declining number of people that have been coming in for a jab, as you have said.

BERTINA ENGELBRECHT: There are expiring dates to the vaccinations, Fifi. That’s something that we manage very, very closely. So what we would do is we would do vaccinations at any particular store and the product that will be brought to that store will be based on that. Making appointments, of course, is another way which you’re able to manage your stock very, very carefully and of course it needs to be refrigerated, which we are really set up for in terms of our pharmacies.

FIFI PETERS: Okay. Bertina, just lastly, I was looking at your stock price and you are trading at a forward price/earnings ratio of 32 times, so you’re not the cheapest stock out there, despite the fact that the group has increased its return on equity and the fact that you’ve paid out R1.3 billion to your shareholders in terms of the dividends and buybacks. Your stock is lower today. It’s barely up on the year. This is on a day that the market is actually rebounding following quite a brutal selloff. For me this suggests that the market is kind of looking for more out of you. Can you talk about this and where growth is coming from, and what your shareholders can look forward to in terms of future value unlock?

BERTINA ENGELBRECHT: Well, what I would say is that the share price actually in the last sort of week-and-a-half rose quite sharpy, and I think that some people are probably taking a little bit of profit over the next couple of days. That’s how we would look at any decline in the price.

But really the price has held up way over the R300 mark from, I think, mid-December; that was the highest the price has ever been. So I think you’ve got to see it in that particular context. I of course have been with the group – this is my 16th year – and I [knew] the group when the share price was sitting at about R9. So I think that our group is a group for an investor who is a long-term investor. If f you had invested in 2006 and held on to your share, you ……12:15 the difference between R300 – I think it was R317 just shortly before we started this interview with you – and R9. That’s a phenomenal [return] on your investment, and that’s over and above the dividend.

The group actually has a very good range in terms of its return on equity, and what it returns to shareholders, not forgetting that we’ve also had the share-buyback programme. And so, if you were a shareholder over all of these years, your opportunity to get a fantastic return I don’t think you could easily have seen anywhere else in the market. So, on a forward PE ratio of 42, it may seem expensive, but bear in mind where that share price has come from.

FIFI PETERS: Okay, ma’am, you defended it quite a well. We’ll leave it there for now. I certainly look forward to further conversations with you. That was the CEO of Clicks, Bertina Engelbrecht.

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