Good afternoon and a warm welcome to the webcast of our annual results for the year ending August 31, 2026. I am Bertina Engelbrecht, Chief Executive Officer of the Clicks Group. Joining me here today is Gordon Traill, our Chief Financial Officer. We will be taking you through the presentation of our annual results and respond to your questions after the conclusion of our presentation. This slide sets out the outline we will follow. I will start with a review of our financial year. Gordon will follow with an overview of our financial results. I will then take you through the trading performances and strategic growth drivers of our retail business, followed by UPD. I will close with the outlook and strategy for the group. Please submit any questions that you may have via the webcast platform during and after the conclusion of our presentation.
Sue Hemp from our investor relations team will read out your questions, to which Gordon and I will respond. I will now commence with a review of the year. Despite a trading environment characterized by weak macroeconomic conditions and intensified competition, the group nevertheless grew turnover by 5.4%, ahead of inflation and exceeding ZAR 50 billion in turnover for the very first time. We continued to invest in our market-leading health and beauty portfolio, ending the year with 1,031 Clicks stores and 835 Clicks Pharmacies. We met our new store opening target and exceeded our new pharmacy opening target. Active ClubCard membership increased to 13.1 million customers, who contributed more than 84% of sales. We expanded our healthcare footprint through the opening of four additional 24-hour UniCare facilities, bringing the total to five sites across three provinces. During the year, we also accelerated certain strategic growth drivers.
We launched KwaMakhi, our new township convenience retail brand. We increased our shareholding in ARC to strengthen our position in the premium beauty market and completed the acquisition of Mr First Aid, a medical consumables business that supports UPD's strategic objectives of increasing share of wallet within private hospitals and of expanding access to new markets. Operational execution remained a key focus as we further tightened cost control. Following initial challenges, the rollout of the warehouse management system to our Durban distribution center was completed in June. We continued to advance our sustainability agenda, increasing the proportion of UPD's wholesale electric vehicle fleet to 86% and deploying the first fully electric retail distribution fleet in Cape Town. We returned ZAR 3.4 billion to shareholders through dividends and share buybacks while remaining resolutely focused on execution and on protecting our total income margin.
Gordon will provide you with more detail on our financial results, so let me now hand over to him.
Thank you, Bertina. Despite a tough trading year, the group continued to focus on its key metrics. Group turnover increased by 5.4%. Retail turnover grew 4.2% from the year, with the second half slower. UPD also had a slightly slower sales growth in the second half. Total income margin declined by 10 basis points. Margin improved in retail by 90 basis points, while in UPD there was a 90 basis point decrease resulting from the lower single exit price adjustment, as well as the non-renewal of two distribution contracts in the prior year. The group trading margin at 9.7%, reduced by 10 basis points due to the lower profit in UPD. Diluted headline earnings per share for the group increased to ZAR 14.22 per share, up 4.4% on last year, within our guided range of 4%-9%. The group's operations generated strong cash inflows of ZAR 6.3 billion.
During the year, we returned over ZAR 3.4 billion to shareholders in dividends and share buybacks. The group's return on equity at 48.7% remains sector-leading. The dividend declared for the year has been increased by 4.4% to ZAR 9.25 per share, which is a 65% payout ratio. Retail had a slower second half due to increased competition and the increasingly under pressure consumer. UPD fine sales improved on last year, while bulk sales improved strongly in fourth quarter, up 25.6%. Retail grew 4.2%, with same stores growing 1.8%. New stores and pharmacies added 2.4% to the top line, while selling price inflation averaged 1.5% for the year. The distribution business had a consistent performance in the second half with good compliance from its major sales channels. The growth was supported by Clicks and bulk sales. Bertina will cover the detail of each business's performance later in the presentation.
This slide reflects our total income earned, which has increased by 5.1% for the year. You can see the total income margin in Retail was 90 basis points higher than last year. Despite increased competition, margin has evolved. UPD's total income margin was down 90 basis points to 9%. This was due to the lower SEPA increase granted in the current year, and the non-renewal of two distribution contracts in the prior year. Overall, the growth of the Retail business at 6.8% was offset by the lower UPD margin, and has resulted in the group's total income margin being 10 basis points lower than last year. Retail costs grew 5.6%, with lower growth in the second half of the financial year and remained well controlled. In the second half, cost growth was 5%.
We continued to invest in the business, resulting in higher depreciation, which has been offset by lower employment costs. In the year, we have added a net 41 Clicks stores and a net 60 pharmacies. Other costs were impacted by increased advertising, electricity, and software license costs. Comparable Retail cost growth, excluding new stores, was up 3.6% for the year, with costs growing at a lower rate than the second half. The IFRS 16 interest charge increased as a result of renewals and new stores in the period, however, has continued to moderate in growth from the prior year. UPD's costs remain well controlled. Costs in the second half being lower than the first half. It's pleasing to note that costs grew 6.8% in the first half and 1.5% in the second half. Other costs, although high, was impacted by some one-off charges. Overall costs were well controlled.
Retail trading profit grew by 9.9%, with the margin improving by 50 basis points to 11%. This has been due to strong other income generation together with efficient cost management. UPD's trading profit decreased by 10.4%, with the trading margin decreasing by 60 basis points to 2.7%. This, as previously highlighted, was due to the lower SEPA and the non-renewal of two distribution contracts in the prior year. Overall, the group's trading profit increased by 4.7% to ZAR 4.9 billion for the year. This slide reflects the growth in turnover, trading profit, and margin of the group over the past five years. The company has sustainably grown its performance through various economic cycles. Although the year started positively, we have seen interest rates and inflation increasing. Despite this, the group was focused on those aspects it can control.
That said, the group has demonstrated its ability to continue to improve the trading margin over the past five years. Inventory levels for the group have increased by four days to 82 days. Retail stock days are two days higher than last year. Inventory remains well controlled. UPD stock days at 50 days are five days higher than last year, partially due to higher levels of stock held for medical consumables, GLP-1, new product launches, and strategic purchases. Overall working capital was well managed with net working capital days at 33 days. This slide shows the movement of cash during the year. As you can see, we started the year with cash of ZAR 3.3 billion reflected in dark blue on the left-hand side, and ended the year with ZAR 2.3 billion on the right-hand side of the slide.
The group has generated cash of ZAR 6.9 billion, highlighted in green, working capital outflows of ZAR 650 million, repayment of lease liabilities amounting to ZAR 1.2 billion, and tax payments of ZAR 1.1 billion. ZAR 1.2 billion was reinvested in capital expenditure across the group. Of this amount, ZAR 679 million was invested in new stores as well as Clicks store refurbishments. ZAR 155 million was spent in distribution centers and ZAR 332 million was spent on IT and other retail infrastructure. We returned ZAR 3.4 billion to shareholders this year.
This was in the form of dividends of ZAR 2.1 billion and share buybacks of ZAR 1.3 billion. The final cash dividend of ZAR 1.5 billion will be paid out to shareholders in January 2027. This slide shows our commitment to a disciplined approach to capital allocation. We expect to continue to invest in the business and return capital to our shareholders through dividends.
Over and above this, our preference is to return any excess cash through share buybacks, which is demonstrated in this graph. Since 2006, we have bought back 168 million shares at a cost of ZAR 9 billion. At August 31, 2026 closing share price, the value of these shares would have amounted to ZAR 33.4 billion. CapEx of over ZAR 1.4 billion is planned for the year ahead. ZAR 780 million will be invested in our store and pharmacy network.
This will include 40- 50 new Clicks stores and pharmacies, and 70- 80 retail store refurbishments to ensure they remain modern and relevant to our customers. ZAR 673 million will be spent on IT systems and infrastructure. ZAR 90 million of this amount will be invested on UPD IT and warehouse equipment, and we will invest the balance of ZAR 583 million in Retail IT systems and infrastructure.
This will include omni-channel initiatives, efficiency improvements, and on-demand pharmacy. We will continue to grow and invest in our retail footprint. On this slide is shown the investment that has been made in our stores, IT, and infrastructure. The dark blue block highlights the investment in our UPD distribution business. The higher CapEx in 2022 and 2023 reflects the investments made in the SAP CLM systems. This is subsequently normalized as can be seen in the reduction of CapEx in subsequent years. The green block details investments we made in our infrastructure and IT. Since 2022, we have replaced our pharmacy management system, invested in our retail warehouse management system, invested in our dark store and online platform. The light blue block details our investment into our stores. In 2022, we invested ZAR 457 million in new stores and refurbishments. In 2027, this has been increased to ZAR 780 million.
This shows our commitment to ensure that all our stores remain modern and appealing for our customers. Despite a tough 12 months, our metrics remain strong. We believe the group has continuing headroom for growth, particularly in expanding the retail store base and the development of our online offering. We will not be revising these targets at this time. In framing these medium-term targets, we remain focused on optimizing the balance sheet, improving working capital efficiency, enhancing cash returns to shareholders, and maintaining the dividend payout ratio between 60%-65%. This slide demonstrates how the group has continued to sustain its financial performance over the past decade. Despite the more difficult year we have had in 2026, our longer-term returns remain strong.
This is reflected in the 10-year compound annual growth rates achieved in diluted headline earnings per share of 12.5% per annum and dividend per share growth of 13% per annum. The compound annual total shareholder return over the past 10 years equates to 11.4% per annum. These growth rates have been driven by strong organic growth, particularly in our health and beauty business, supported by an efficient supply chain. This has allowed us to deliver strong cash returns, which have not only been reinvested in the business, but also allowed us to progressively increase our dividend. Our acquisitions will strengthen our future returns. I will now hand over to Bertina, who will cover the trading performance of each business.
Thank you, Gordon. I will now take you through our trading performances, starting with Retail and then UPD. The Retail performance was characterized by subdued consumer demand, heightening price competition, and uneven category growth. Retail sales growth was positive but concentrated. Pharmacy, beauty, and personal care carried the performance, while some lower growth front-shop categories constrained overall momentum. The lower front-shop sales growth was in part due to the adverse impact of our WMS implementation over the peak trading period, as well as by intensified competitive pressures. The quality of earnings was supported by disciplined margin management, supplier recoveries, and effective cost control. I will now provide greater detail on our category performances, market shares, and on our strategic growth drivers. Pharmacy was the strongest growth driver, increasing by 7.3% and contributing 27.6% of Retail sales. Growth was led by diabetes and GLP-1 medicines.
Sales growth was impacted by another soft cold and flu season. The stronger growth in pharmacy is positive, and we have retained the customer in our stores. Front-shop health and baby grew by 2.2% and contributed 25.1% of Retail sales. The performance in healthcare merchandise was constrained by muted growth in supplements, sports and slimming, and some supply constraints. Within the baby category, diaper deflation, aggressive competitor promotions, and supplier fill challenges weighed on performance, while baby foods and infant formula were positive offsets. Beauty and personal care, the largest grouping at 32.6%, grew by 4.5%. Personal care benefited from stronger growth in private label, luxury bath, sun care, and oral health. Beauty was supported by pharmacy skincare, paid beauty, and our continued beauty hall rollout. Growth, though, was moderated by competitive discounting and a weaker performance in facial skincare.
General merchandise grew by 1.3% and contributed 14.7% of Retail sales. Performance was impacted by paperware deflation, promotional intensity, and reduced clearance activity, whilst domestics, impulse confectionery, and snacks provided the principal positive offsets. Clicks gained share in pharmacy, health leadership positions across all major health and beauty categories, and successfully defended its category leadership despite the most aggressive promotional and digital competition seen in years. We increased our retail pharmacy market share to 24.7%, strengthening our position as the country's most accessible healthcare provider and affirming the strength of our healthcare proposition and store network. The 60 basis points gain in Retail pharmacy is strategically important because pharmacy is our highest quality traffic driver and generally leads front shop growth over time. This is because prescription customers are highly loyal, shop more frequently, and buy across multiple categories. Front of Health market share decreased to 32.6%.
While promotional intensity increased across the category, Clicks nevertheless maintained a clear leadership position. Our baby market share remained effectively flat in value terms, whereas volumes increased. Despite competitive intensity, the retention of our health customer remains strong, supported by our loyalty program. I will now turn to beauty. While skincare share reduced by 100 basis points, Clicks remains the clear market leader, with a share exceeding 40%. More than four out of every ten rand spent in skincare is spent at a Clicks store, enabling us to maintain an unmatched position in the category despite increasing competition. The hair care market share remained resilient at 32.6%. This reflects the strength of the Clicks assortment, loyalty proposition, and category leadership with approximately 1/3 of national hair care spend continuing to flow through the Clicks network. Personal care is an underrated success.
It is a high-frequency driver, reflects everyday shopping behavior, and is sensitive to pricing and value perceptions. Share increased from 22.6% to 23.1%, which indicates that the combination of private label, exclusive brands, and promotional offers resonate with customers. Share gain of 100 basis points in general merchandise is significant because it shows that the Clicks brand extends beyond hair, healthcare, and beauty, and that customers increasingly view Clicks as a broader shopping destination. Our market leadership demonstrates the resilience of our brand strength and customer proposition. Our revitalized ClubCard program remains a significant competitive advantage, fueling an increasingly powerful customer offer. Active membership grew to 13.1 million customers and accounted for 84.2% of sales, while cashback paid to members reached close to ZAR 1 billion. We launched the You Pay Less campaign in August, providing ClubCard members with an additional 10% discount on approximately 3,000 products.
Combined with expanded banking, fuel, and lifestyle partnerships, this further strengthens our customer value proposition at a time when consumers remain under financial pressure. We extended our ClubCard offer partnerships. The joint Clicks, Engen, and FNB eBucks campaign delivered strong customer engagement and was recognized as the best short-term loyalty marketing campaign at the 2026 SA Loyalty Awards. This highlights the strength of our partnership-led approach and the growing relevance of ClubCard beyond the walls of our stores and our online platform. Another key milestone was the extension of our banking partnerships. We expanded the program, adding both Standard Bank and Absa alongside a substantially enhanced FNB proposition. This creates a broader, more inclusive customer offer, allowing customers to both earn and redeem value regardless of their banking preference.
By the end of this month, we will be launching our partnership with a national food grocer, extending ClubCard into more of the customer's shopping missions. The strategic importance of ClubCard is core to our business and is strengthening our customer value proposition. It drives retention, frequency, basket growth, and partner engagement while creating multiple avenues for customers to earn and save across their healthcare, beauty, fuel, banking, and lifestyle needs in an inclusive manner. Health is our strongest loyalty anchor and our most important traffic driver. During the year, we expanded to 835 pharmacies, 225 clinics, and five UniCare specialist pharmacies. More than 54% of South Africans now live within kilometers of a Clicks store, reinforcing our position as the country's most accessible healthcare retailer. We are extending our healthcare proposition beyond the store. We are honing our Pharmacy on Demand offer to ensure regulatory compliance.
Our current OTC trial is in 23 Clicks stores, which will extend to 50 stores in December and thereafter to acute scripts. Through UniCare, we have established capabilities that enable us to offer 24-hour medicine delivery in key metropolitan markets. We are laying the foundations for future growth in specialist healthcare by leveraging the UniCare platform. Our private label healthcare portfolio will be strengthened by a private label GLP-1 product. We are evolving Clicks from South Africa's leading pharmacy retailer into an interconnected healthcare platform. Our strategy remains centered on a pharmacy in every store, supported by clinics, specialist pharmacy capabilities, 24-hour delivery through UniCare, and expansion into higher growth healthcare segments such as oncology. Together, these initiatives strengthen our competitive advantage and significantly expand our long-term growth opportunities. As I've highlighted, our strategy is to expand across the healthcare value chain. UniCare is a key enabler of that strategy.
Our five specialist pharmacies provide 24-hour access to medicines, healthcare advice, as well as a range of specialized services. Importantly, UniCare enables us to offer 24-hour pharmacy delivery and specialist pharmacy services in major metropolitan hubs, extending healthcare access beyond our Clicks store network. UniCare also creates a pathway into higher value healthcare segments. We are continuing to build specialist pharmacy capabilities and are progressing our oncology aspirations aimed at improving patient access to oncology medicines and services. This is an attractive long-term market. While UniCare currently operates from five locations, we see significant scope to expand the footprint to up to 20 sites over time as demand for specialist healthcare grows. By expanding across the healthcare value chain, we are unlocking new profit pools, increasing our addressable market, and creating a longer runway for sustainable growth.
The ARC, Sorbet Group, and Clicks Beauty businesses create a more comprehensive beauty offer that allows us to participate across multiple customer needs, occasions, and spend categories. Sorbet is South Africa's largest professional beauty services brand, delivering more than 4.4 million treatments annually through a network of 211 salons. This business is highly scalable through its franchise model, creating an attractive capital-light growth platform. During the year, Sorbet continued to strengthen its market position across beauty, nails, hair, and men's grooming. We remain particularly excited about the potential of the Sorbet Man format, as this gives us exposure to the fast-growing male grooming segment. The business has also taken its first steps outside of South Africa with a master franchise agreement in Botswana and discussions progressing in Mauritius.
We see meaningful potential to grow product sales through digital channels by leveraging Clicks' scale, product development, sourcing, and loyalty capabilities to strengthen customer engagement. ARC is central to our ambition to capture a greater share of the premium beauty market, estimated at approximately ZAR 6 billion. ARC gives us exposure to a faster-growing, more resilient segment of the market while complementing the strength of the Clicks Beauty offering. During the year, ARC expanded to 11 stores alongside its online platform with a clear pathway to between 20 stores- 25 stores. Same-store sales growth significantly outperformed the market, reflecting strong demand from Millennial and Gen Z customers for differentiated premium beauty brands. ARC, though, is not a standalone investment. It strengthens the broader Clicks customer value proposition.
ARC customers spent approximately ZAR 866 million in Clicks over the last 12 months, affirming the power of our integrated beauty offer to grow the customer lifetime value across multiple formats. Our increasing shareholding reflects our confidence in the long-term opportunity. During the year, our equity stake increased from 22.7%- 25.7% and, subject to the required approvals, is expected to increase to 61%. From a strategic perspective, ARC provides three attractive growth levers: exposure to a growing premium beauty category, access to younger customers, as well as the opportunity to participate more broadly across the beauty value chain. Our private label and exclusive brands strengthen differentiation, enhance our value proposition, and supports margin management. This past year, sales exceeded ZAR 10 billion, contributing over 30% to front shop sales and over 12% to pharmacy sales, a commendable milestone for our private label teams.
We have built customer trust in our brands because of our relentless focus on quality and efficacy, and we are proud that 17 private label brands were voted SA Product of the Year in their respective categories. Over the past few months, the team has been developing a premium private label diaper for launch in March next year. They have also worked with our local manufacturing partners to launch 100 KwaMakhi products. An exciting milestone this year is the launch of the iconic Boots No7 Future Renew skincare range in Clicks. Boots No7 is a top 10 skincare brand in most markets in which it is available. This exclusive relationship underlines the strength of our partnership and opens up opportunities for other appropriate Boots ranges.
This affirms the global recognition of our position as the market leading health and beauty retailer in Southern Africa. Our objective is simple: make it easier for customers to access healthcare, beauty, and everyday essentials whenever, wherever, and however they may choose. Today, the group operates more than 1,000 stores, including 840 pharmacies and 225 clinics, giving us one of the largest and most accessible healthcare and beauty networks in South Africa. Importantly, 270 stores are located in lower income communities, ensuring that quality healthcare and affordable products remain accessible to a broad customer base. Online sales, supported by increasing adoption of omni-channel services, has become a meaningful convenience channel for customers. The relaunch of the Clicks app and continued growth in downloads strengthens our ability to engage customers both digitally and personally.
What differentiates Clicks is not simply the size of our footprint, but the combination of physical reach, digital capability, and trusted healthcare services. Accessibility drives growth. Every additional touch point, whether a store, pharmacy, clinic, click and collect location, or on-demand service, strengthens customer engagement, expands our addressable market, enables us to scale adjacent growth opportunities, and reinforces the long-term competitive advantage of our retail business. The group was an early adopter of renewable energy solutions. Whilst we first reported on our green transition in 2017, the research and planning that informs our sustainability agenda had started much earlier. Our mantra is that doing right for business is right for people, planet, and profit. As committed stewards for future generations, we embrace our duty to ensure that we are lightening our carbon footprint in an efficient and cost-effective manner. We are making steady progress, which I will now highlight.
All of our owned DCs are covered by solar. 86% of the UPD wholesale fleet is covered by EV trucks operating out of all of UPD's distribution centers. Our retail Cape Town DC is the first African DC to operate a 100% electric fleet. We have purchased our first EV bikes for pharmacy and online deliveries in high density nodes. Our investments in charging infrastructure, battery backup, solar investment, and EV vehicles means that renewable energy solutions are in place across most of our transport and distribution network. The annual fuel savings and mitigation against high electricity increases is positive for our opex line and for customer service. The final growth platform I would like to highlight is KwaMakhi, which reflects our strategy of expanding into new customer segments. KwaMakhi is a purposeful convenience format designed for underserved communities.
It offers trusted brands, smaller pack sizes, everyday low prices, and essential health, beauty, and household products in a smaller, more accessible footprint. KwaMakhi extends the reach of the group. It allows us to access a significantly larger convenience market, to deepen private label penetration, and create a new opportunity for growth in communities where a Clicks store may not always be the most appropriate model. We currently operate four pilot stores, which will increase to 10 by the end of this calendar year. We are encouraged by the early customer response. The success of our KwaMakhi private label portfolio is encouraging, with sales contribution already outstripping the space allocated to it. Our private label team, working with five key partners to develop 100 KwaMakhi products, is to be commended, and this will grow. Together, UniCare, Sorbet, ARC, and KwaMakhi demonstrate how we are systematically expanding our growth opportunities.
Each new strategic growth driver increases our participation in attractive adjacent markets and creates additional avenues for sustainable long-term earnings growth. That completes the review of the retail business. UPD had a tough second half, primarily due to the low single exit price adjustment. The muted turnover growth was led by strategically attractive channels, Clicks, UniCare, private hospitals, as well as exports. UPD's exceptional operational metrics demonstrates the reliability of its platform, which supports purchasing compliance and customer retention. We are balancing investment in availability and growth with active working capital management and tight cost control. UPD strengthens the economics of a pharmacy in every Clicks store, enables the expansion of UniCare and specialist healthcare, and broadens our participation across hospital, independent pharmacy, and export channels.
UPD's total managed turnover, which includes fine wholesale sales and turnover managed on behalf of bulk distribution clients, grew by 4.1% to ZAR 31.8 billion, with generic medicines accounting for 77.8% of sales by volume and 58% of sales by value. The contraction of the hospital market, driven by increasing generic substitution and more efficient formulary pricing, coupled with a very low single exit price adjustment, informs UPD's lower sales value growth. Gross bulk sales, fueled by the growth in GLP-1s, was up a whopping 37%. The full-year performance reflects the loss of two notional distribution partners in the second half of 2025. We have now successfully integrated Mr First Aid, enabling us to market our medical consumables product portfolio to hospitals. The UPD team focused on improving quality, customer, and operational metrics, as well as tight cost control to deliver a respectable result.
All distribution sites underwent an ISO 9001 recertification process, and all UPD sites are ISO 13485 certified. UPD managed their costs exceptionally well, supported by our early adoption of solar, battery storage, and electric vehicles. In March, we received another 43 EV vehicles, now covering 86% of the UPD wholesale fleet and enabling EV deliveries from all UPD DCs. UPD's fine wholesale turnover was up 5.7%, despite another subdued winter season and extremely low SEP increase of a maximum of just 1.47%. Sales excellence and quality are core UPD strengths. The customer fill rate of 99.2% improved over the prior year, whilst OTIF of 96.3% was just 0.1% lower than the prior year, even despite the impacts of road closures in coastal areas due to adverse weather conditions. UPD has strong market shares in disciplined compliant channels. Clicks maintain purchasing compliance to the group target of 98%.
Sales grew by 9.1% and accounted for over 60% of sales. Purchasing compliance by UniCare has improved significantly from 25% at the end of quarter one and is now comfortably within their targeted range. Performance of the hospital channel was characterized by muted value growth, primarily driven by increased genericization. Purchasing compliance to UPD improved as hospital groups increasingly looked to partner for mutual benefit. The UPD team is making steady progress in the acute hospital group space, where UPD's market share has now increased to 38%. Although the independent pharmacy channel declined by 15.5%, the team are making inroads driven by franchise promotions, which positively impacts the margin quality. Export sales increased by 11.4%, supported by growth in new customer accounts. The wholesale market share of UPD's— the wholesale market share decline is effect of the contraction of the hospital channel.
This is the reason for us pursuing medical consumables. The acquisition of Mr First Aid facilitates UPD's entry into the commodity medical consumables market segment, estimated at an addressable ZAR 8 billion. Mr First Aid is a natural adjacency to UPD's network and supports its future positioning as a broader healthcare partner. Although this is a hugely fragmented market, Mr First Aid is already a leading distributor of medical devices and consumables throughout Southern Africa. Its product portfolio carries lower technical risk, and in turn, it will benefit from UPD's procurement scale, central stock holding and network. The addition of Mr First Aid has the potential to broaden the addressable market beyond private hospitals at a better margin than that of single exit priced medicines. This completes the review of our trading performance for the year. This was our most challenging year by far.
The sustainability of our business model and quality of our execution capability were questioned. I asked our teams to deliver a credible performance and to do so in a manner that was both measured and sustainable. The teams delivered on the ask. Most importantly, they did so in a way that creates momentum for an improved 2027 performance. Our revitalized ClubCard offer is unmatched in terms of its affinity partners and comprehensive customer value. We have now matched price sustainably. The growth in new ClubCard enrollments is a positive endorsement that we have gotten it right. The heart of our business is our people. On behalf of our board and executive teams, I extend my gratitude and thanks to all of you. I will now conclude our presentation with the strategy and outlook.
We remain confident in our ability to deliver sustainable growth and long-term shareholder value. We operate in defensive health and beauty categories with attractive long-term growth drivers, hold leading market positions across retail, wholesale, and distribution, and continue to gain scale in our core businesses. Our strategy is simple: grow the core, expand the ecosystem, and invest for the future. We see significant runway in profitable store expansion, pharmacy growth, private label, digital, and ClubCard. We are also harnessing new growth opportunities through UniCare, KwaMakhi, Sorbet, ARC, Medical Consumables, and [inaudible]. As we grow, scale will drive greater efficiency, stronger customer value, and attractive returns. We have a resilient core, multiple growth engines, and a clear path to sustainable long-term growth. That is what gives us confidence in our ability to achieve our medium-term targets and continuing creating value for long-term shareholders.
We expect the consumer environment to remain constrained in the near term. Higher fuel costs and higher interest rates will place pressure on disposable income, although the stronger rand should provide some offset. Selling price inflation is expected to remain low, which is why we appreciate the second SEP increase of 2.88% effective the October 1st this year. The retail environment will remain highly competitive and promotionally driven. Our response will, as always, be customer-led and disciplined. The encouraging early response to the revitalized ClubCard offer reinforces our confidence in the strength of our loyalty platform and its ability to support value and customer retention. The store network remains an important and proven growth engine. We are targeting 1,200 Clicks stores over the medium term and plan to open between 40 stores and 50 stores a year. This, though, is not simply a space growth strategy.
We will continue to improve the productivity of the existing estate, expand pharmacy access, and strengthen the economics of every store. We are also scaling adjacencies that extend our addressable markets and deepen customer relationships. UniCare will establish a network of between 15 specialized pharmacies - 20 specialized pharmacies, strengthening our position in specialty healthcare and supporting our aspiration in areas such as oncology. It also enables 24-hour delivery within core metropolitan hubs. KwaMakhi provides a longer-term opportunity to serve customers in underserved markets through an accessible convenience format. Sorbet and ARC extend our participation in professional beauty services, grooming, and premium beauty, while Medical Consumables and [inaudible] broaden our reach into attractive and complementary healthcare categories. A further strategic lever is the contribution of private label and exclusive brands. We are targeting 35% contribution in front-shop and 18% in pharmacy.
This should strengthen differentiation, customer value, and margin resilience while remaining grounded in quality and trust. We plan, as Gordon pointed out, to invest approximately ZAR 1.5 billion in capital expenditure to support stores and pharmacies. Equally important, the systems, data, and omnichannel capability required to improve execution, productivity, as well as the customer experience. In summary, we are managing the immediate consumer and competitive pressures while continuing to invest behind a clear long-term ambition. We are protecting the resilience of the core, investing with discipline, and building multiple growth engines to extend our leadership in health, beauty, and wellness. Thank you for listening. I will now hand over to Sue to assist us with taking your questions.
I have a number of questions here from Michael de Nobrega at Avior Capital Markets. His first one is repeated by a number of people, so I hope we will be addressing all of you. He says, "Could we please get an indication of how trade has responded with the new ClubCard program since August?" Keenan Choonoo sort of further enhances on that with, "Given the new pricing strategy and ongoing peer discounting, are there any signs of positive traction with customers? What gives you confidence the core business can accelerate volumes from here?
I will take that question, and I no doubt will be supported by my CFO. Very encouraged. First of all, you look at the contribution of ClubCard, accelerated actually since the half year, now over 84%. Secondly, it is the increase in the number of ClubCard customers. I mean, now well over 13 million. Thirdly, it is the fact that we just early on this morning, Gordon and I looked at volumes, which is such a strong indicator, and we are very encouraged by the volume growth that we are continuing to see week on week since launch of our revitalized ClubCard offer. There is more to come. In this past—for this month ending, in fact, you will see best market guaranteed price, one of the new ones that we are launching.
As I've indicated in the earlier ones, we are excited by the fact that Food Lover's Market will be the national food grocer that will soon be joining our affinity program.
Michael also asked, "Do you expect to expand this program further by adding products?
Yes. Currently, as I've pointed out, we've got 3,000 products covered. That will be expanding in the next few months.
His second question is about the on-demand OTC delivery offer. "Please could you take us through the rollout plans after December? How many pharmacies are you targeting, and will this include front-shop products in the on-demand delivery?
Already with the EV bikes that we have now taken on board, we are covering both Pharmacy on Demand as well as online. Just in terms of the rollout of OTC on Demand, of course, we have currently 23 stores. We are going to be extending that trial to 50 stores, in fact, across all of the pharmacy categories. Then we are going early in the new year with acute. That is critically important. Why do we go first with OTC on Demand? That really tests every single element, and every element of regulatory compliance. It has also enabled us to ensure that we are geared up operationally to be able to do this.
He also asks, "Are there any difficulties you have picked up so far in operating this service? Could you please give color on any costs or investments that you expect to come through as you roll this out further and onboard the drivers?
We have not. I think the important thing of the way in which we are very disciplined in the things that we do. During the trial process, we really improved on the operational readiness to a very great degree. Secondly, we really worked with training our staff. Then we have started the process of ensuring that we have got a dedicated resource in our pharmacy in order for us to give seamless service through to the customer. So over the trial period, we have significantly reduced the time that it takes within the pharmacy itself to be able to fulfill this. The real benefit is that already today, our total cost, to do deliveries without charging the customer, is around about ZAR 23 million.
No, we do not see, once we are able to make a defined promise to the customer, which we know the market costs to the customer, we do not see anything that will be able to detract from our expense management. Gordon, I am not sure if you wanted to add anything to this.
Yeah. In this first phase, we've got an investment of around about ZAR 30 million, which is largely the technology side. I think the other thing to bear in mind is that pharmacy delivery is not new to us because on average, every week, we do about 10,000 deliveries on the chronic side. So it's not something that we are picking up and learning for the first time.
Some additional questions from Keenon Choonoo at Investec. "With the additional 2.88% SEP increase, how should we think about the benefit to FY 2027 turnover and earnings across both retail and UPD?
I think let's see what happens to the real 2027 SEP increase. Of course, I think you will have noticed that we had a slight elevation in our UPD stock. That will definitely benefit from the 2.88%. But already, I think, given the constraint in the market, many of the pharmacy manufacturers will be looking to see how they actually ask for price reduction. So I think early to call it, but most certainly, I think it brings welcome relief.
Should we expect any further UPD bulk distribution contract losses in FY 2027?
We do not expect any. In fact, what I am hugely encouraged by is that one of UPD's longest distribution partners will, from the 1st of November, actually bring a sizable portfolio into the UPD market. That same distribution partner actually has the copy of Ozempic, and that is also flowing through the UPD business. So actually, UPD is very well set up for this new financial year.
[inaudible] from Investec Securities asks, "What is the funding split between you and suppliers for the 10% discount?
It varies. As any astute retailer, obviously because we are driving market share through our channel for suppliers, and for that, there's support that needs to come. There's a number of our private label products that form part of the portfolio, and we've always said private label provides us with the opportunity to really buffer the consumer against price shocks within the market itself. We always look to ensure that we are achieving adequate levels of supplier recoveries. Gordon?
Yeah. There's obviously a mix across the suppliers from private label to branded. I don't think we would ever give a split of how any of that funding has been agreed. I think the important thing that we are looking at is what's the impact on margin, and does it drive volume and ultimately drive sales?
And maybe I think to that, Gordon, we'd be saying when you look at the past financial year, I think a very good result in terms of margin management from the retail business.
Then we did answer this during the presentation, but what are the timelines for the completion of the WMS installation?
We've already completed 17 out of the 18. We've got one more.
On the retail side.
On the WMS. Sorry, on the retail side.
That would be Centurion will finish in April. Just want to highlight that when we did roll out Durban, we had no issues. That went very smoothly, and I think that bodes well for the last DC to be rolled out.
Jana van Rijn from Harvard House Investment Management says thank you for the presentation. It has been a good year, but good to see great management steering the ship through troubled waters. Could you perhaps unpack the cost recoveries of ZAR 2.4 billion under other income?
Yeah. That's always a mix of advertising, and you've got the distribution contracts on the UPD side, and then we've got other income that is non-sales related and non-purchase related that gets recorded in that line.
Saad Chasia from Citi asked a few questions which we have already covered. He does also ask, what sort of inflation do you think will be passed in H1 2027 and H2 2027?
Do we have a crystal ball?
Yes. Obviously, the headline inflation that the consumer experiences is quite high just now. Our own inflation has been quite moderate. The biggest impact in 2026 was actually coming. The reduction was coming from the lower SEP price in the second half. I would expect from a scheduled medicine side, assuming another increase happens in January and it is not zero, that scheduled medicines will be 3%, 4%, if you take account of the fact that we just had one, plus another one to come in January. There is still a lot of competition and the consumer is still under pressure on front-shop products. I would expect that front-shop selling price inflation would remain relatively muted.
Saad and Simon Stein from Peregrine Capital both are asking about retail employment costs. Saad says, "Can you provide some color on what is being done to drive a very low 0.6% retail employment growth in H2?" Simon asks, "Can you comment on why employment cost inflation was only 2.6% in retail and -0.1% in UPD? Does this relate to lower bonuses within the business? If so, what is a realistic growth number for FY 2027?
Well, I do not want to give any competitors on the line the cheat sheet in how to be as efficient as we are. Of course, it was not a year that we would be expecting to pay out any bonuses. There is a factor of that. The second one is that we have asked all of our teams to look at how do we become more efficient. Not to save costs, but how do we become more efficient. That is in terms of scheduling of staff and the like. That is really what we have done. That is just a continuation of the work that we do every single year.
Saad also asked
For the first time, I was going to say you will know that we had, because you guys have raised this with us, we have had high employment costs in the past because of a two-year deal with the unions in the Clicks brand in particular. That has now come to an end.
Saad also asks, how should we think about the big swing in net finance costs in FY 2026 and then heading into FY 2027?
The higher finance cost was largely as a result of the early share buybacks we did at the beginning of the year, and some of the share buyback that we did towards the end of the financial year. It wasn't from a working capital perspective. That's more from the implementation of the buybacks.
Kgomotso Mokabane from Sanlam Private Wealth says, "Well done on increasing the stake in ARC." They say beauty spend per capita remains relatively low versus developed markets, and the premium offering is still concentrated amongst a few retailers. How do you see the category evolving, and how will Clicks and ARC participate differently in that growth?
Well, Gordon will be able to provide more color on ARC because he represents us on that particular board. But ARC, can I say the number, Gordon?
Yes.
Let's just say that the ARC, when we talk about ARC significantly outperforming the market, well, you can think 20%+ growth actually per annum for the last three years. That's phenomenal. And online, the ARC growth has been well over, I shall say, well over 50%, and you can add a couple of tens to that as well. I'm super excited about the early response that I've seen to Boots No7. Already, and we are only a week or so in, sales is well over ZAR 400,000. And it's really the opportunity now that we have firmed up the relationship with Boots to bring more appropriate Boots ranges to our Clicks offering. So super excited about all of that.
I wouldn't want to pin down any plans and piece of cake because we've still got to go through Competition Commission approval.
Yes.
But we've been long-term investors with ARC, and given our the time that we've spent looking at how they've been operating and how they plan to expand that particular business gave us confidence to want to increase that investment beyond the 25% that we held. I personally am very excited that this is a great opportunity for ARC, but also a great opportunity for Clicks and Sandown Group.
Austin Marabella from Excelsior Capital asks, The target is to get to private label as 35% of front shop and 18% of pharmacy. Will this lead to margin expansion, or is it a more defensive move considering pressure from competitors?
Our front shop private label has been expanding year- on- year, and I think that is because customers really trust the brand. In pharmacy, we have the potential with the GLP-1 generics to really get closer to that target, the revised target that we have set. But we have always guided that the work that we do in private label, of course, it's about driving differentiation, it's around really locking the customer in. But most importantly, it's about managing our total income margin.
Oh, sorry. Luanda from Allweather Capital says, "Could you break down how much of the 90 basis points retail margin gain came from supply chain efficiencies, private label mix, and other income such as supplier funding and bank partner fees? How much of that is repeatable in FY 2027, given you're guiding to continued discounting and low price inflation?
Well, there were no bank fees.
We pushed the call. I think it was the quote from the banking affinity partners.
Okay. Right. Okay. Remember, that's very early. We only announced the banking partnership in October. It's a mix, but it is skewed towards more the trading side. But there were significant supply chain efficiencies that we made. I did see there was a question on our investment in EVs, et cetera, saying how much of the depreciation would be offsetting the savings. Well, the savings we put down is actually a net saving.
Kgomotso Mokabane from Sanlam's got some more questions. How are the economics of the ClubCard partnership structured? Are the rewards funded by the partner, shared with Clicks, or funded differently across partnerships?
It's funded differently across partnerships. We've got different deals with different affinity partners.
Nandi Kubeka from Nedbank Private Wealth says, "Please could we unpack the oncology opportunity?
Too early for us to talk about that, and that is why we were oblique. We're talking about our aspirations, and I'm hoping that by this time next year, we'll be able to provide you with a great more detail on it.
Kgomotso asks again, or another question, UniCare is a high service, high cost format. As you scale from five locations towards 15 to 20, how do you plan to improve the economics and cushion the dilution to the retail margin?
I mean, Gordon will talk now to the margin. One of the things that we've tried to do is to ensure that the same discipline that exists within Clicks is extended. So what have we already done? The first is that we have already set. We look at the contribution in UniCare of private label. In fact, the UniCare private label contribution now already exceeds that of Clicks, and that is what gave us such confidence to kind of revise the pharmacy private label target upwards. The second one is that we looked at saying, we have got a preferred pharmaceutical supply chain partner through UPD. How do we keep all the money within the group? In fact, they've gone from 25% purchasing compliance to well over 85% purchasing compliance since the end of November. So I think that's a positive.
Then, of course, we have begun the process of extending our Clicks franchise private label products into UniCare as well. I think that's also going very, very well. The huge opportunity reflecting on the notification that Discovery has put out is really the opportunity to say, how do we expand on the weight management clinics within the UniCare business? I think that's quite a phenomenal opportunity for us, which we haven't completely sized yet.
Sorry, on the margin side, you've got to bear in mind in that business, it's skewed towards the pharmacy side of the business. So the margin is better on pharmacy in UniCare than it is in Clicks because it's specialized. However, the mix impact is always going to mean that you're going to have a lower margin overall. But the important thing to bear in mind with UniCare is that this is not cannibalizing Clicks stores. This is additional business. It's additional profitable business for us.
Pallavi Ambikar at Coronation asks, "What is the contribution of online sales to total sales?
Well, we've just. We were talking about this earlier. It's just under 2%, but that's excluding all of the deliveries that Gordon referenced. That's excluding the deliveries that we already do in pharmacy.
Khamotsa has another question. Click and collect now represents 30% of online sales. How much of that reflects genuine customer preference, and how much reflects the absence of a same-day delivery option? As last mile delivery moves in-house, should we expect a one-hour or same-day service?
Well, knowing the world, we've looked at the global markets, is there such a promise? I mean, globally, the promise is actually on the same day. I think the South African consumer probably expects that you'll give a service promise also because delivery, the roads infrastructure, and all of those things. You want to be at home, certainly for medicine, you have to be at home to receive the package. A couple of things that we'll be looking at, but the global example is the promise is same day.
For pharmacy.
For pharmacy, yeah. For pharmacy.
A couple of questions on EVs. [inaudible] asks, "As the group moves towards electric trucks, vans, and bikes, how should we think about the trade-off between higher depreciation and the ZAR 22 million- ZAR 28 million of annual fuel and maintenance savings? Is the transition expected to be earnings accretive after depreciation?" Bolewa Ndara from Umthombo Wealth also asks, "What was the CapEx spend for your green transition, and what are the current and estimated cost savings?
We have incurred about just under ZAR 140 million on all our investments since 2017. What is important to bear in mind is that we have an outsourced service in terms of our delivery vehicles, both at UPD and at Clicks. The savings that we have quoted are net savings, so after all other costs, we expect to make those sorts of savings on the electric vehicle offering. Yes, it is earnings accretive.
Then [inaudible] asks, "Private hospital wholesale growth remains constrained by weak occupancy. What prevents the medical consumables business from facing the same volume headwinds, given that hospitals remain an important customer base?
Well, I think, first of all, it will be a completely new growth opportunity for us. I'm encouraged by the engagements the UPD team are having with the hospitals. The second bit is that hospitals have genericized, which is why you're seeing the decline from a value perspective. Medical consumables, of course, has no single exit price. The market is incredibly fragmented, and there's an opportunity for us to consolidate within that market as a consequence of us having acquired Mr First Aid.
Willem Aldervalke from AIS Financial Group says, "Can you give us more color on the timeline and nature of regulatory approvals, as well as planned relative pricing of the Unicorn GLP-1 generic?
I also wish I had a crystal ball. There are a number of manufacturers that have submitted their applications for registration of their GLP-1s, and so I'm expecting that I'm sure that the Department of Health and the medical controls body are looking at these all very, very carefully. What is encouraging is that the manufacturer of the one that has been approved is the manufacturer of a number of the ones that have been submitted. So I've no doubt, with that kind of information already at their disposal, that we should be looking for a speedier outcome.
Thank you. We have a couple of questions here about the retail trading margin relative to our medium-term target. One from Warrick Bam at RMB Morgan Stanley, and another very similar question. Do we think we can hold the retail margin at 11%, or could it fall towards 10%?
The retail margin will be within the guidance of 10%-11%.
A couple of questions from Nick Wilson at News24 about our tie-up with a national grocery retailer, and is that Food Lover's Market, and how would that tie-up work?
Yes, it is Food Lover's Market. I do not want to provide information now, only because it is going to be launched imminently. Then, Nick, I will most certainly ensure that we provide you with the full deck.
Anda asks, "What are our updates on pharmacy openings in the post period time?
Well, I think take your lead from the fact that we opened 60 in the 2026 financial year. We are encouraged by the fact that we have got some pharmacy licenses already in reserve, and that is positive.
Thank you. Nick has also asked about ClubCard customers having increased to 13.1 million. How many were there previously? And you mentioned this is due to a revised loyalty program.
It is not due to the revised loyalty program. The revised loyalty program we have launched at the end of August. So what is great is that the ClubCard customer, or the customer out there, sees the value of ClubCard, and therefore have been continuing to become members of the ClubCard program. We now expect that we will see further growth in terms of that.
David Fraser from Peregrine Capital asks, "Is there any update regarding succession planning progress?
We have appointed an external search company to assist the nominations committee on the board, and that is underway. We will look at all of the pools, both internal and external.
We have still got many, many more questions. They are quite detailed, so I will get back to some of you on those. I think we have taken up enough of our time this year.
Just want to say there are, of course, a whole lot more questions, but Sue has graciously undertaken to provide you with some responses to those. Thank you very much for joining us today. Thank you, Sue, for moderating us.