Business globally faces the challenge of achieving a balance between meeting short-term profitability targets and generating returns to shareholders, while at the same time contributing to the longer term sustainability needs of society.

New Clicks recognises that good citizenship contributes to the long-term sustainability of the business and seeks to develop mutually constructive and beneficial relationships with its broad stakeholder base.

Sustainability reporting measures a company's non-financial performance and addresses the economic, social and environmental issues affecting the business and the relationship with stakeholders in these areas.

Primary stakeholders of the group include shareholders, customers, staff, suppliers, industry regulators, government, labour, media and communities.

As sustainability reporting is in its relative infancy within New Clicks, there are no formalised management systems to monitor or measure non-financial performance. This, however, does not lessen the group's commitment and the directors acknowledge that issues of corporate citizenship need to be afforded a higher priority within New Clicks. These issues will be addressed in a more proactive manner into the future.

STAFF

Staff are central to the sustainability of any organisation and the success of New Clicks is dependent on the motivation, capability and performance of its staff. The group therefore strives to create a business environment that attracts, develops and retains high-quality staff.

Over the past year the group's vision, mission and values were widely communicated to staff across the country to create an understanding of how the vision and values should influence behaviour and translate into an improved business performance.

The integration of pharmacy into the Clicks brand and the implementation of the enterprise-wide information systems platform are two strategic projects which have had far-reaching implications for staff. The inclusion of pharmacy dispensaries in Clicks has created a new people dynamic with the introduction of professional pharmacy staff into stores for the first time. The brand has focused on creating integrated teams to provide a seamless service to customers.

As the new systems platform will change business processes fundamentally, the roles and responsibilities of many staff members have been redefined. These changes and the related restructuring of specific areas of the group have understandably created uncertainty and a higher staff turnover.

Management recognised the challenges within the business environment and provided extensive human resources and change management support aimed at motivating staff and focusing on enhanced performance.

 

Employment equity

New Clicks continues to address the social and economic imbalances of the past through the empowerment and advancement of previously disadvantaged people. The group has made progress in improving the representivity of staff and moving towards gender equity. The main challenge remains in meeting employment equity targets at senior management and executive levels.

The group's policy is to provide employment opportunities for previously disadvantaged individuals to ensure a more representative staff profile. During the past year, black staff accounted for 82% of new appointments and 13% of management level appointments. Women accounted for 56% of new appointments.

Progress towards meaningful employment equity is reflected in the following statistics:

• Black staff account for 85% of the total staff complement (2004: 82%);
• Women comprise 61% of the staff (2004: 60%);
• 69% of management are black (2004: 72%);
• 59% of management are women (2004: 57%);
• 25% of the directors are black (2004: 25%), with one female director.

The group has complied with the requirements of all staff-related legislation, including the Basic Conditions of Employment Act, Labour Relations Act, Employment Equity Act and the Skills Development Act.

Staff development

New Clicks continues to place increasing emphasis on training and invested 2% of the basic payroll cost on skills development over the past year. All training-related functions are co-ordinated by the New Clicks Skills Development Unit (SDU) which is registered with both the Wholesale and Retail Sector Education and Training Authority (SETA) and the Health and Welfare SETA. The SDU is a fully-accredited training provider.

The group once again qualified for a full refund under the Skills Development Levy administered by the Wholesale and Retail SETA and the Health and Welfare SETA, based on the compliance with the Act. All refunds are reinvested in training.

Staff are encouraged to further their education and enhance job-related and technical skills.

The group operates a study scheme which enables staff to enrol for approved courses. Study loans are provided to staff and repaid over the duration of the course. On the successful completion of the course, staff are reimbursed for the total cost. Over the past year 98 people completed degrees, diplomas and short courses with registered institutions at a cost to the company of R1.1 million.

Leadership development

New Clicks presents two formal programmes aimed at developing the leadership structures of the group:

• Management Development Programme
  Ten courses were presented during the year, attended by 85 trainees. The group plans to host 16 courses in the forthcoming year.
• Retail Business School
  The Retail Business School has been operating for the past two years and is targeted at middle to executive management. The innovative training programme combines academic learnings with business disciplines relevant to the New Clicks group, with guest lecturers including academics, industry experts and professional retailers.

Course material covers organisation and strategy, marketing, merchandising, supply chain management, accounting and the economy. Two five-day courses were presented during the year and attended by 60 delegates. Three courses are planned for 2006.

Employee benefits

Retirement funds

The group has four retirement funds which are registered in terms of the Pension Funds Act (No 24 of 1956) and it is a condition of employment that all permanent staff join one of these funds:

• Clicks Group Retirement Fund (administered by Alexander Forbes)
• Clicks Group Negotiated Pension Fund (administered by Metropolitan Employee Benefits)
• Clicks Group Negotiated Provident Fund (administered by Metropolitan Employee Benefits)
• The New UPD Corporate Selection Pension Fund (administered by Liberty Corporate Benefits).

The funds are defined contribution schemes and are actuarially valued each year. Total membership of the funds at year-end was 7 600 and total assets of the funds amounted to R391.6 million.

The funds are managed by boards of trustees, with 50% of the trustees being elected by members and 50% being appointed by management. The member-elected trustees serve for a three-year period and are then eligible for re-election. Training of newly-elected trustees is provided by the group and the trustees are not remunerated for their services. The boards of trustees meet at least twice a year, while sub-committees appointed by the trustees meet more frequently to discuss issues relating to investments and benefits.

All funds provide a death benefit of five times annual salary and a disability benefit of 75% of annual salary. Funeral benefits are provided under the Negotiated Pension and Provident Funds.

In addition to these four retirement funds, employees of UPD can elect to join the SACCAWU National Provident Fund or Chemical Industries National Provident Fund. Employees of the former Purchase Milton & Associates (PM&A), the retail pharmacy chain which was acquired by the group and integrated into Clicks, have membership of the Rainmaker Pension or Provident Funds. None of these funds is operated by the group.

Medical aid

Membership of the Clicks Group Medical Scheme is compulsory for management, unless they are covered by another scheme, and voluntary for all other staff. The scheme is administered on behalf of New Clicks by Old Mutual Healthcare and is fully compliant with the Medical Schemes Act.

The fund is managed by a board of trustees, which includes three representatives of management and three member representatives. The trustees are not remunerated for their services.

The fund had a total membership of 2 171 at year-end and the solvency ratio of the scheme was 13%. The trustees of the fund are obligated to ensure a solvency ratio of 25%. Measures have been implemented to achieve the required solvency ratio by the end of the 2006 financial year.

UPD operates a medical scheme with Discovery Health and while membership is not compulsory, staff are encouraged to join the scheme.

HIV/AIDS management

New Clicks has acknowledged the need to be more proactive in managing the well-being of employees and particularly the vital role it has to play in the fight against HIV/AIDS. While no formal assessment has been commissioned on the impact of HIV/AIDS on the group's business and its markets, it is clear that the disease will impact the group on several fronts.

New Clicks is exposed to a wide range of socio-economic groups given the diversity of its operations and the target markets served by the different brands. It is therefore assumed that the published national and provincial figures of HIV/AIDS infections apply to staff and customers alike. Accurate figures of HIV/AIDS prevalence rates among staff are not available owing to the confidential nature of employees' status.

The group has a documented policy that provides consistent guidelines for dealing with HIV/AIDS and addresses the issues around confidentiality and disclosure, employee benefits, education and prevention programmes, counselling, support and the management of infected employees.

While employees are encouraged to know their HIV status and take appropriate action, they have a common law right to privacy and are under no obligation to disclose their status to the group. No pre-employment medical testing is conducted for any positions in the group, while no one will be refused employment or promotion on the basis of their HIV status. Employees with HIV/AIDS can continue with employment until they are certified as being medically unfit to work.

In summary, the New Clicks HIV/AIDS strategy will aim to limit new infections through education and guidance, extend the life expectancy of HIV-positive employees, support AIDS-diseased employees and eliminate discrimination and prejudice towards infected employees.

In line with the group's commitment to managing employee wellness and HIV/AIDS-related issues in the workplace, a comprehensive strategy has been developed for 2006 and a budget has been committed to the programme for the year ahead. The inseparability of HIV/AIDS with other employee health problems like substance abuse, domestic violence and opportunistic infections has been recognised and will be included in this long-term strategy.

UPD has been operating a wellness programme for the past two years which incorporates the management of HIV/AIDS in the workplace. This programme includes the provision of primary health care to staff not covered by medical aid through a clinic at the UPD head office in Gauteng. The cost of HIV/AIDS testing is covered by the company, while anti-retroviral medication is provided to HIV-positive staff based on their financial means. The company also has a job support programme which seeks to employ family members when a staff member becomes too sick to continue working.

Environment

New Clicks is committed to meeting the needs of its customers and staff in an environmentally sound and sustainable manner. The group has adopted an environmental policy which will be integrated into the business operations to achieve maximum benefit for customers, the company and the environment.

This includes ensuring the safety of the products sold through the retail outlets, complying with environmental legislation and regulations, as well as developing solutions with suppliers to reduce the level of environmental impact on packaging and materials.

The policy also covers ways to minimise waste, conserve energy, optimise water usage and explore recycling opportunities. The group will assess the environmental impact of its business activities and develop systems of environmental management.

Communication forms a key element of the environmental management programme, including advising customers of the safe use and disposal of products, creating awareness among staff and liaising with industry bodies, government agencies and business partners to enhance environmental care.

Occupational health and safety

The group's compliance with the Occupational Health and Safety Act focuses predominantly on the operations of New Clicks' retail and pharmaceutical distribution centres across the country. A safety, health and environmental (SHE) policy has been implemented, as required by King ll.

All employees and contractors have undergone a SHE induction and safety representatives have been appointed in all distribution centres. Emergency teams have also been appointed, and fire and emergency drills take place regularly.

The distribution centres are also subject to external scrutiny. Compliance certificates have been issued by the Automatic Sprinkler Inspection Bureau confirming that the fire protection systems are in sound condition.

The SHE programme needs to be extended to all other areas of the business, notably the group head office and the store network, to move towards complete compliance with King ll and assist in the reduction of incidents and costs.

CUSTOMERS

Customers are the lifeblood of the business and the group engages with its customers in line with its values of passion, integrity, openness and honesty. As a value-oriented retailer, New Clicks aims to be price competitive for customers while at the same time being mindful of the need to provide an attractive return to shareholders.

The retail trading brands of the group are highly accessible to customers, with Clicks, Discom and Musica having extensive, countrywide store networks, while the select locations of The Body Shop and CD Wherehouse reflect the specialist nature of their merchandise offering.

Clicks has been at the forefront of customer loyalty in South Africa, having developed the Clicks ClubCard programme more than ten years ago. ClubCard has grown its membership base to more than two million and today accounts for over 70% of Clicks sales.

SUPPLIERS

The group deals with a range of suppliers both locally and internationally to source inventory across its brands, as well as sourcing non-merchandise services for managing its business. Sound relationships with suppliers are paramount to ensure that the brands receive an uninterrupted supply of inventory to meet customer needs.

Black empowerment procurement

The group is currently developing a black economic empowerment (BEE) strategy for non-merchandise procurement which includes shop fitting, security services, cleaning services, motor vehicles and stationery. In the past year the group's non-merchandise procurement contracts totalled approximately R500 million.

The group's top 30 non-merchandise suppliers were requested to complete a questionnaire outlining their BEE credentials in terms of policy, ownership, employment equity, procurement and social responsibility.

The process of implementing an effective BEE procurement programme has been hampered by the lack of a scorecard for the retail industry in the absence of a BEE charter for the sector.

It is expected that this BEE procurement programme will be effected during the forthcoming year.

UPD has outsourced the bulk of its distribution to self-employed drivers from disadvantaged backgrounds who operate their own vehicles. Through this innovative black empowerment programme, these owner/drivers are guaranteed a minimum workload each month and account for between 70% and 80% of UPD's total distribution volume. At year-end 75 owner/drivers were contracted directly to UPD and these drivers in turn sub-contracted a further 43 drivers.

UPD has operated this programme successfully for the past fifteen years in Cape Town and six years in Johannesburg, Bloemfontein and Port Elizabeth.

SHAREHOLDERS AND MEDIA

Timeous, accurate and relevant reporting is fundamental to sound corporate governance. The group has a formalised market disclosure policy which outlines its commitment to regular and transparent dialogue with the investment community and financial media. Information is provided equally to all shareholders and market participants.

The group's investor relations programme is managed by an external consultancy on an outsourced basis.

The board recognises the role of shareholders as owners of the company and encourages dialogue and engagement. Shareholders are urged to attend the annual general meeting where the group provides an update on developments within the company and its trading performance.

Senior executives meet regularly with local and international shareholders and analysts, and over 60 meetings were held with existing and prospective investors during the year. All investor meetings are attended by more than one person from the group or the investor relations consultancy to ensure consistency of information and to avoid information being disclosed on a selective basis. There are currently seven sell-side analysts who actively analyse and disseminate research on New Clicks Holdings.

Relationships are forged with the financial media on an ongoing basis to ensure balanced coverage of the group's performance and operations. The media has the ability to influence the group's stakeholders and it is critical that the corporate reputation is enhanced through effective use of both print and electronic media. An open and accessible relationship with key journalists covering the retail sector is also important in times of adversity when the group would expect a favourable reception from the media.

The group's interim and final results are presented to investors and media in Cape Town and Johannesburg, and these presentations are followed by roadshows to sell-side analysts and institutional shareholders in both centres.

Presentations are webcast to ensure that information is released simultaneously to all investors, and are archived on the corporate website for ongoing access.

All information released on SENS is also distributed to an extensive database of investors globally. The group strives to go beyond prescribed disclosure requirements in order to create a greater understanding of the business and financial disclosure is continually enhanced.

GOVERNMENT AND REGULATORS

The group engages with government and industry regulators to ensure compliance and sound corporate governance, while at the same time seeking to gain an insight into the legal framework and potential legislation facing the sector.

Following the release of the draft charter for the healthcare sector by the Department of Health in June, the group provided a written submission outlining its views and concerns with the proposed charter.

The Constitutional Court has handed down its judgment in the group's legal dispute with the Department of Health relating to the dispensing fee applied in the medicine pricing regulations.

While New Clicks is supportive of the democratic system in the country, the group has adopted an impartial stance on party politics. It does not contribute funds to any political parties, politicians or candidates for public office.

CORPORATE SOCIAL INVESTMENT

New Clicks is committed to sustainable change in the country and contributes to this ideal by investing in social projects which can improve the lives of disadvantaged communities and lead to personal empowerment. The group's corporate social investment programme is managed by the New Clicks Foundation.

Since the formation of the New Clicks Foundation in 2002, R2.4 million has been invested in social upliftment and development, with R660 000 being committed over the past year.

The activities of the Foundation are co-ordinated by a board of trustees which includes representatives of senior management and staff. The trustees determine funding policy, evaluate requests for support, assess progress of current programmes and monitor the effective usage of funds.

The Foundation is increasingly focusing on social investment projects which can be aligned with the group's business activities. The objective is to link each brand with a major project and to build a long-term partnership between the brand and a non-profit organisation.

All Clicks stores are allocated a budget to assist local communities with product donations. A further budget is administered at the national store support centre (head office) for small, community-focused requests for financial assistance.

The major projects supported by the Foundation during the year include:

Brand-aligned programmes

• Clicks has continued to support the SunSmart campaign in partnership with the Cancer Association of South Africa (CANSA) to promote skin cancer awareness and reduce incidence of the disease. SunSmart highlights the dangers of excessive exposure to the sun and advocates preventative measures to avoid sunburn that could lead to skin cancer. The first campaign over the summer of 2004/2005 proved highly successful, with customer education programmes, awareness campaigns in schools, beach clinics and in-store promotions being used to carry the message of skin cancer prevention. More than 160 Clicks pharmacists and beauty consultants were trained on skin and sun care products. Clicks has committed a further R200 000 to the SunSmart campaign in the year ahead.
• The Body Shop is aligned with the Big Issue, a social development and upliftment project which assists homeless people to earn a living and integrates them into the formal job market. This project also embodies the social philosophy of the The Body Shop International which is aimed at enhancing self-esteem of people from disadvantaged backgrounds. The New Clicks Foundation has invested more than R800 000 in the Big Issue over the last six years, including R125 000 in the past year to fund a vehicle and staff costs to extend the distribution network of the Big Issue to other areas in the Western Cape.
• The Foundation has continued its relationship with The Red Cross War Memorial Children's Hospital in Cape Town. The hospital is the only specialist paediatric facility of its kind in southern Africa, and treats over 250 000 children each year. In conjunction with Clicks Pharmacy, the Foundation donated four specialist fridges valued at R94 000 to the hospital's pharmacy for the storage of medication.
• Musica has partnered Deaf South Africa (DeafSA) since 1994, supporting the brand's market positioning as The Soul Store by aiding people who are unable to experience the pleasures of listening to music. Musica undertakes an annual marketing campaign aimed at promoting deaf awareness and also has collection tins in stores to raise funds for DeafSA. In the past year the New Clicks Foundation provided R75 000 to DeafSA for Deaf Awareness Week and Musica plans to strengthen this relationship further in the year ahead.

Social projects

• The New Clicks Foundation has supported the annual Casual Day run by Epilepsy South Africa since 1998. Thousands of businesses, schools and organisations throughout the country participate in this project and people contribute money to wear casual clothing to show their support for those living with disabilities. Funds are distributed to a range of institutions providing services and assistance to the disabled.
• Childline/Lifeline provides child abuse treatment programmes, counselling and support groups for children who have been abused or raped. The Foundation has been an active supporter of the organisation in the Western Cape.

Community support

• New Clicks has been one of the main supporters of a programme to address the social challenges facing the community of Woodstock, Cape Town, where the group's head office is located. Through the Woodstock Upliftment Project (WUP), New Clicks and other organisations have created a forum to bring all community role players together to discuss crime prevention, education, old age care, waste management, environmental and social issues.

  The efforts of the WUP are having a positive effect on the social landscape in the area, with poverty alleviation, child protection, skills development and senior citizen programmes gaining momentum and crime rates decreasing. The New Clicks Foundation has been instrumental in co-ordinating the holiday programmes for schoolchildren living in the area which are attended by over 100 children each day.

• UPD's social responsibility programme is mainly focused on healthcare training and HIV/AIDS support. The company provides R30 000 each year to the South African Pharmacy Council for a bursary fund which covers the training of five Bachelor of Pharmacy students. UPD provides medication, clothing and equipment to a number of AIDS clinics in Gauteng and the Western Cape.