Pepkor Holdings Ltd. · JSE:PPH
Pepkor — H1 2024 Earnings Presentation
65 slides from Pepkor's earnings presentation, May 2024
Slide 1: Interim Results for the six months ended 31 March 2024
INTERIM RESULTS for the six months ended 31 March 2024 H1FY24
Slide 2: Agenda
Agenda 01 02 03 04 Overview Financial Business Outlook of results performance performance and Q&A 2
Slide 3: Overview of results
01 PIETER ERASMUS – CEO Overview of results Our purpose and values drive our philosophy of continuously building a better business for all stakeholders. 3
Slide 4: H1FY24 in summary
H1FY24 in summary 9.5% +24.5% Strong performance in a challenging growth in revenue to FinTech revenue operating environment R43.3bn 200bps increase in gross profit margin 38.1% 13.0% +4.0% normalised operating statutory profit growth to R5.1bn 7.8% 01 Defensive, cash-generative group with a track r
Slide 5: Traditional Retail
Traditional Retail Robust sales growth and margin improvement Challenging retail operating environment 32.9% Strengthened unemployment sales growth in Q2 High living costs & unemployment +4.4% food inflation Expanded Continued investment market share Short-term reprieve in in renewable solar energy
Slide 6: FinTech
FinTech Momentum builds in FinTech strategic execution – solving customer needs +550 000 Retail credit interoperability accounts to 2.5m Accessible connectivity +200 000 active cellular handset rentals Affordable insurance products 650 000 insurance policies written Expand informal market 165 000 tr
Slide 7: Commendable earnings growth; Capital allocation
Commendable Capital allocation earnings growth Solid cash generation Focused cost reduction Portfolio review Significant customer Disposal acquisition costs announced 7
Slide 8: Financial performance
02 RIAAN HANEKOM – CFO Financial performance We use our scale to keep costs down. 8
Slide 9: Financial performance summary
Financial performance summary 9.5% +24.5% 13.0% +4.0% FinTech normalised statutory revenue growth revenue operating profit basis to R43.3bn growth to R5.1bn 200bps +170bps 7.8% -3.1% gross profit margin retail gross normalised HEPS statutory profit margin basis improvement growth to 75.0c 8.2% +47.7
Slide 10: Financial performance summary
Financial performance summary 3.4% 85.0% increase in inventory LTM cash conversion levels to R16.1bn H1FY23: 71% 552k R3.1bn new accounts 21.1% strategic return on net investment in 202k assets (LTM) credit books active customers Continuing operations 10
Slide 11: Discontinued operations
Discontinued operations Competition Disposal R396m R1.2bn Commission announced impairment consideration approval 29 February 2024 • Reduce debt • Fund strategic growth 11
Slide 12: Statutory vs normalised HEPS
Statutory vs normalised HEPS 3.1% 7.8% 77.4 7.8 75.0 69.6 R392m H1FY23 DC H1FY23 H1FY24 statutory property normalised statutory Rounded cents Continuing operations 12
Slide 13: Reporting segments
Reporting segments Traditional Retail segments FinTech segment 87% 90% 13% 10% of group operating of group operating revenue profit revenue profit Clothing and general Furniture, appliances Financial services Informal market merchandise and electronics 13 Continuing operations
Slide 14: Revenue – Traditional Retail segments
Revenue – Traditional Retail segments 87% of group revenue Segmental revenue Sales growth Cash vs credit sales growth 8.0% 7.0% 13% credit 5.1% 34.0% 87% 4.5% cash 3.8% Clothing & Furniture, Total sales Like-for-like general appliances & growth sales growth merchandise electronics segment segment Co
Slide 15: Revenue – FinTech segment
Revenue – FinTech segment 13% of group revenue 24.5% 13% 54.3% R5.8bn R4.7bn 13% 20.9% 65% 20.6% 5% 12.0% 4% 37.7% H1FY23 H1FY24 Continuing operations 15
Slide 16: Recovery in gross profit margin
Recovery in gross profit margin 200bps 170bps recovery in Retail margin 38.1% Improved full-price sales 36.1% Supported by FinTech High interest rates Credit interoperability Cellular handset rentals Higher margins in H1FY23 H1FY24 Continuing operations 16
Slide 17: Other income
Other income 30.5% 3.6% Insurance excluding proceeds insurance proceeds R537m R150m 20% other R387m R373m 64% 16% commissions marketing H1FY23 H1FY24 Continuing operations 17
Slide 18: Cost of doing business
Cost of doing business 18.9%1 8.2% opex growth normalised 26.6% Forex losses R234m 24.7% Lease modification gains (R210m) Customer acquisition costs R183m Cost drivers: Salary cost 8.6% R2.5bn property cost – IAS 17 5.1% H1FY23 H1FY24 1 Excludes depreciation & amortisation and debtors’ costs Continu
Slide 19: Lease modification gains
Lease modification gains R643m R392m Non-recurring portion: PEP Hammarsdale DC development R255m R279m Recurring portion driven by: R251m Favourable rental renewals: 1.1% R210m Store portfolio optimisation Reduces over time H1FY21 H1FY22 H1FY23 H1FY24 Continuing operations 19
Slide 20: Operating profit
Operating profit 13.0% 4.0% +23.4% +8.1% +12.8% 5 115 4 917 392 4 525 7% 10% Normalised operating margin 83% +30bps 11.8% H1FY23 DC H1FY23 H1FY24 statutory property normalised statutory Before capital items (Rm) Continuing operations 20
Slide 21: Cellular ongoing revenue
Cellular ongoing revenue 8.8% B2B R1.0bn 20% R921m B2C 80% H1FY23 H1FY24 21
Slide 22: Cellular
Cellular Income streams Rbn rounded H1FY23 H1FY24 Revenue 9.5 10.6 10.9% Handset & accessories sales 5.0 5.5 Airtime, data & SIM sales 3.6 4.1 Ongoing revenue (OGR) 0.9 1.0 Gross profit 1.9 2.2 13.3% Operating expenditure (1.0) (1.1) Operating profit 0.9 1.1 19.8% Operating profit margin 9.2% 10.0%
Slide 23: Net finance costs
Net finance costs 12.1% R1.5bn IFRS 16 R1.3bn R702m component R676m R810m 20.4% increase in non-IFRS 16 component R673m Higher interest rates +150bps Average cost of debt c. 9.7% p.a. H1FY23 H1FY24 Continuing operations 23
Slide 24: Effective tax rate
Effective tax rate 31.8% 26.8% 23.6% 27% statutory tax rate 20.3% Tax settlement in FY23 FY24 ETR expected to be c. 24% Normalise in FY25 H1FY21 H1FY22 H1FY231 H1FY241 1 Continuing operations 24
Slide 25: Inventory levels
Inventory levels 3.4% Markdown activity R16.1bn Import supply chain R15.6bn disruption R13.9bn Increased goods R11.7bn in transit New stores H1FY21 H1FY22 H1FY23 H1FY24 Continuing operations 25
Slide 26: Retail credit books – sales enablers
Retail credit books – sales enablers 5.6 Gross book size (Rbn) 4.5 4.0 1.9 1.9 2.0 0.7 0.9 1.0 H1FY23 FY23 H1FY24 H1FY23 FY23 H1FY24 H1FY23 FY23 H1FY24 33% 33% 33% Provision levels % 23% 21% 21% 21% 21% 21% 21% 23% 19% 14% 15% 14% 15% NPL % 13% 13% H1FY23 FY23 H1FY24 H1FY23 FY23 H1FY24 H1FY23 FY23 H
Slide 27: Unsecured lending & Cellular rentals books
Unsecured lending & Cellular rentals books ROE > 20% 3.1 Gross book size (Rbn) 2.5 2.5 0.3 – – H1FY23 FY23 H1FY24 H1FY23 FY23 H1FY24 18% 18% 18% 16% Provision levels % 10% 9% 8% NPL % – – H1FY23 FY23 H1FY24 H1FY23 FY23 H1FY24 27
Slide 28: Increased debtors’ costs
Increased debtors’ costs Driven by A+ Credit & FoneYam 47.7% R430m R1 201m More customers accessing credit R276m R813m +46% +43% R771m R537m Bad debts Movement in Debtors’ Bad debts Movement in Debtors’ Credit Provision provisions cost provisions cost book level growth growth H1FY23 H1FY24 Continuin
Slide 29: Cash generated
Cash generated 388 R3.1bn 85% cash strategic investment in credit books conversion LTM 9 592 1 585 1 467 1 440 7 737 288 256 886 247 +14 2 274 2 630 EBITDA Debtors’ Other Cash Inventory Other Creditors Cash costs generated receivables generated before from working RETAIL CREDIT OTHER LENDING operati
Slide 30: Low net debt
Low net debt Debt repayment profile: (Rbn) FY25 FY26 FY27 FY28 FY29 1.2 times net debt- to- 1.0 times net EBITDA debt-to-EBITDA R11.7bn excl. creditors -0.9 R11.6bn -1.3 early 6.6 times settlement EBITDA-interest cover -3.0 -3.2 -3.2 R2.2bn notes successfully raised Replaced R1.4bn in notes & R500m
Slide 31: Healthy returns
Healthy returns 26.2% 21.1% R52.4bn goodwill & intangible assets Return on net assets Return on equity 8.7% 8.4% LTM LTM H1FY23 H1FY24 H1FY23 H1FY24 31
Slide 32: Capital allocation
Capital allocation Capex Strategic working capital Dividend % of group revenue investments 2.4% 3x earnings cover 2.3% 1.6% R3.1bn invested in credit books No interim 1.8% dividend declared – in line with history M&A opportunities H1FY21 H1FY22 H1FY231 H1FY241 Capex excluding Hammarsdale DC developm
Slide 33: FY23 normalised earnings
FY23 normalised earnings Headline earnings per share (cents) Continuing operations 7.8 5.9 Insurance 140.8 recovery not adjusted 133.0 127.1 for – recovery of lost sales Tax settlement reduced effective tax rate R6.6bn impairment of goodwill & intangibles only applicable to earnings (not included in
Slide 34: Strategy & Business unit performance
03 SEAN CARDINAAL – COO Strategy & Business unit performance Pepkor maintains its focus on achieving growth by delivering affordable value and serving customer needs. 34
Slide 35: Strategy on a page
Strategy on a page CHANNELS EE DSMONETISATION SCALE EX N ER EC M UT O ENABLERS ST IO CU N TECH PEOPLE 35
Slide 36: Passionate about growth
Passionate about growth More wallets Financial Traditional Services & Informal Digital Retail connectivity market channels Share of wallet • Babies’ & kids’ • Credit • Reach • E-commerce wear interoperability • VAS • Omnichannel Grow the wallet • Adult wear • Lending • Single • +more • Home • Insura
Slide 37: Traditional Retail
PEPKOR Traditional Retail
Slide 38: Sales performance
Sales performance Total sales growth LFL sales growth LFL Q1 LFL Q2 Volatile but robust sales 7.0% Retail segments 5.1% 4.6% 5.7% performance Stronger Q2 5.8% 7.5% 5.3% 5.0% Strong Easter CGM segment trade Market share expansion 4.3% 3.9% 5.4% FAE segment 2.7% Continuing operations 38
Slide 39: PEP
PEP 5.4% 4.1% Gains sales growth LFL sales growth in RLC market share 3-, 6-, 12-month basis 2 597 +25 new stores 581k 7% credit mix stores opened accounts 3m Kelmik units 4.1m 50% cellphones smartphones growing local sold sourcing 100% BCI cotton 2.7m +17% parcels 39
Slide 40: Ackermans
Ackermans 6.2% 2.5% 660 bps sales growth LFL sales growth full-price sales Gains 1 037 +16 new stores in RLC market share stores opened 3-, 6-month basis CUBE 1.3m 80% smartphones teen range performing well cellphones sold to be repositioned 19 % credit sales mix 40
Slide 41: Speciality
Speciality 8.5% 4.6% Gains sales growth LFL sales growth in RLC market share 3-, 6, 12-month basis 13% Strong credit sales mix 905 23 LFL sales growth in new stores stores opened Competitive Accelerated 13 branded footwear market expansion in new stores opened Introduction Reposition of product in o
Slide 42: PEP Africa
PEP Africa 22.8% 24.7% +39% sales growth LFL sales growth sales growth in adult Constant currency Growth 228 in customer and stores volume Pick & pack 44 distribution capability merchandise stores implemented introduced 42
Slide 43: Avenida
Avenida 23.4% 9.3% +13% excl. sales growth LFL sales growth cellular Constant currency 42.0% 22 vs 6 163 total sales volume growth new stores opened stores 9.0% Accelerated trading density expansion of stores and improvement distribution network Implemented +40% sales +49% volume Key Value Items str
Slide 44: JD Group
JD Group 4.3% 3.9% sales growth LFL sales growth Gains 893 23 new stores in market share in stores opened Home & Tech1 Brand refresh Launched completed private label brands 1 Stats SA 44
Slide 45: FinTech
FinTech 45
Slide 46: Credit interoperability
Credit interoperability Growing wallets 552 000 new accounts Credit sales mix Approval rate 2.5m account base 10% reduction in 38% average limits 71% able to purchase 33% Reduced approval rate H1FY23 H1FY24 Lower limits allocated 18% 19% 27% new to credit 13% 13% 11% 10% 44% first retail credit 7% c
Slide 47: Connectivity
Connectivity Cellular 5.6m 7 out of 10 prepaid handsets 18% handsets sold sold in SA private label partnership 42% 58% Feature phones Smart phones Ongoing revenue reduce churn ● Handset rentals ● Unique data bundles ● Number for life 19.6m SIM cards sold 47
Slide 48: Cellular handset rentals
Cellular handset rentals Making smartphones affordable 202 000 300 000 as at end active customers May 2024 Next steps: 60 000 80 000 as at end Digital monthly activations May 2024 origination Rolled out to 1 000 1 300 as at end Extend May 2024 to other OEMs stores 48
Slide 49: Insurance
Insurance Leveraging capability 39.0% 87% 95% insurance premiums take-up rate credit life coverage written to R246 million 650 000 +318k 2.7m Abacus insurance policies parcels covered policies 49
Slide 50: Customer value platform
Customer value platform Building digital capability Launched in March 2024 15+ retail brands 5 000+ stores USSD most popular registration channel 24% previously unknown customers 50
Slide 51: Informal market
Informal market Growing reach 27.6% 165 000 growth in throughput traders 25.7% 42.6% growth in turnover per growth in aggregation device turnover 15.2m 36.6 growth in % SIM cards issued turnover 51
Slide 52: Outlook
04 PIETER ERASMUS – CEO Outlook The group builds enduring brands with over a century of history, serving as the foundation for sustainable shared value. 52
Slide 53: In summary
In summary Revenue Like-for-like Margin growth sales growth recovery Strategic Cost Execution management 53
Slide 54: Outlook
Resilient trading Outlook Import supply chain disruption impacting stock inflows Election uncertainty 53rd week in the base Confidence in 01 Defensive, cash-generative group with a track record of healthy returns 02 strategic execution: Closest to customers with unparalleled scale and capabilities •
Slide 55: Q&A
PEPKOR Q&A
Slide 56: Thank you
THANK YOU
Slide 57: Annexures
ANNEXURES
Slide 58: H1FY24 highlights
H1FY24 highlights +9.5% growth in revenue to R43.3bn Building Better Business +200bps increase in gross profit margin to 38.1% Access and affordability +7.8% 22% of Capfin loans used for 01 02 increase in normalised HEPS to 75.0c CUSTOMERS educational purposes EMPLOYEES Loerie award won for TV Ad En
Slide 59: Cash vs credit sales
Cash vs credit sales 7% 0% 5% 19% 13% 100% 42% 12% 20% 13% 93% 95% 87% 88% 87% 81% 80% 58% Credit Cash PEP Ackermans Speciality PEP Avenida JD JD JD Pepkor Africa Group Home Tech group 59
Slide 60: Retail store footprint
Retail store footprint 30 September 2023 Openings Closures Net movement 31 March 2024 Retail Retail area Retail Retail Retail Retail area Retail Retail area stores ‘000 m2 stores stores stores ‘000 m2 stores ‘000 m2 Clothing and general merchandise 4 888 1 870 88 (46) 42 18 4 930 1 888 PEP 2 602 903
Slide 61: H1FY23 Normalised vs Statutory results
H1FY23 Normalised vs Statutory results Statutory Normalised Continuing operations six months ended Non-recurring recovery six months ended Rm 31 Mar 2023 & settlement 31 Mar 2023 Operating profit before capital items 4 918 (392) 4 526 Capital items 15 – 15 Operating items after capital items 4 933 (
Slide 62: H1FY23 modified segments
H1FY23 modified segments Clothing & Furniture, Total general appliances & Building Total Discontinued continuing Rm merchandise electronics materials FinTech operations operations operations Revenue 29 295 5 680 4 141 4 689 43 805 (4 279) 39 526 Amortisation and depreciation (1 873) (226) (156) (38)
Slide 63: H1FY23 modified segments
H1FY23 modified segments Clothing & Furniture, Total general appliances & Building Total Discontinued continuing Rm merchandise electronics materials FinTech operations operations operations Revenue Previously reported 29 809 6 109 4 141 3 746 43 805 (4 279) 39 526 Reallocation of Tenacity (514) – –
Slide 64: H1FY23 modified segments
H1FY23 modified segments Clothing & Furniture, Total general appliances & Building Total Discontinued continuing Rm merchandise electronics materials FinTech operations operations operations Personnel expenses Previously reported (3 334) (682) (543) (282) (4 841) 555 (4 286) Reallocation of Tenacity
Slide 65: H1FY23 modified segments
H1FY23 modified segments Clothing & Furniture, Total general appliances & Building Total Discontinued continuing Rm merchandise electronics materials FinTech operations operations operations Normalised operating profit before capital items Previously reported 4 156 327 201 438 5 122 (205) 4 917 Real