Pepkor Holdings Ltd. · JSE:PPH
Pepkor — FY2023 Earnings Presentation
65 slides from Pepkor's earnings presentation, December 2023
Slide 1: Pepkor Results for the year ended 30 September 2023
PEPKOR RESULTS for the year ended 30 September 2023
Slide 2: Agenda
Agenda 01 02 03 04 Overview Financial Business Outlook of results performance performance & 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: Our operating environment
Our operating environment Improved political certainty Disposable Infrastructure income Robberies Lower damage unemployment Social grant payment 8% Receding interest + disruption rates High living costs Unemployment +9% Food 31.9% Receding inflation Lost trading hours 845k Port delays Diesel cost R1
Slide 5: FY23 in summary
FY23 in summary Highlights The numbers Strong R87.4bn revenue trading in H2 +7.7% Market share gains in 141.3 cps normalised key product categories -6.7% Excellent working R13.0bn cash generated capital management +15.9% Solid cash 48.1 cps generation dividend declared 5
Slide 6: FY23 in summary: customer affordability
FY23 in summary Customer affordability R48 average price point in PEP 1.9bn 794 000 transactions in FY23 new A+ accounts opened 2 out of 3 baby garments sold in SA 1 out of 2 kids’ garments sold in SA 7 out of 10 prepaid cellular handsets sold in SA RLC & GfK 6
Slide 7: FY23 in summary: talent, environment, community
FY23 in summary Talent development Environment 4 100 6.0 MWp learnerships completed solar capacity installed 8.5 MWp by 2024 Community 100% recyclable shopping bags 20 500 children supported 1st in ECD centres submission completed Responsible supply chain FTSE/JSE 94% of CFH suppliers Responsible co
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 7.7% +6.5% 52-week 8.1% -8.0% normalised revenue growth operating profit basis basis to R87.4bn decline to R9.5bn 20 bps -80 bps retail gross 8.7% -6.7% normalised gross profit margin HEPS decrease profit margin 141.3c improvement to 149.1c 6.8 % normalised opex +57.3%
Slide 10: Financial performance summary
Financial performance summary 15.9% 91% cash 27.0% > 25% cash generated return on net target conversion of R13.0bn assets R3.4bn 794k new A+ R6.6bn WACC rate invested in credit impairment of accounts increase books goodwill & intangibles 0.5 % decrease in 48.1 dividend cps Impairment excluded invent
Slide 11: Insurance recovery completed
Insurance recovery completed R1 271m Recognised in FY23 R74m inventory R671m – Cost of sales R275m business interruption – Other income R394m R45m furniture & fittings – Capital items FY21 FY22 FY23 Social unrest – July 2021 Total loss recovered: R1 546m KZN floods – April 2022 Total loss recovered:
Slide 12: Modified reporting segments
Modified reporting segments Traditional retail segments FinTech segment 89% 90% 47 600 5 917 11% 10% 2 400 of group operating of group operating employees revenue profit employees stores revenue profit Clothing and general Furniture, appliances Building materials Financial services Informal market m
Slide 13: Revenue drivers
Revenue drivers 7.7% 6.5% growth 52 weeks +5.2% -0.7% R87.4bn 5.6% 4.3% 52 weeks +11.1% -0.1% growth excl. Avenida R81.2bn 8.8% 10% 12% 11% 4.3% H1 H2 52 weeks Cash vs credit 67% 5.6% Credit Cash 10% 90% FY22 FY23 35.6% 53 weeks 27.2% Continuing operations excl. Avenida 13
Slide 14: Cellular ongoing revenue
Cellular ongoing revenue Income earned on customer 5.9% spend on every sim sold 6-YEAR CAGR R1.9bn R1.9bn Long-term contracts R1.8bn with all MNOs R1.5bn R1.5bn B2C: In-store capability R1.6bn R1.5bn R1.5bn R1.5bn R1.3bn R1.3bn R1.3bn R1.3bn R1.1bn R390m R393m B2B: R263m R319m R193m R216m Informal m
Slide 15: FinTech revenue
FinTech revenue 5.2% 12% 42.1% R10.0bn R9.5bn 13% 18.7% 67% 2.0% 5% 10.8% 3% 11.4% FY22 FY23 15
Slide 16: Gross profit margin improvement
Gross profit margin improvement 20 bps Supported by financial services 35.5% 35.3% Higher interest rates Increased credit granting 80 bps in retail gross profit Markdown activity FY22 FY23 16
Slide 17: Other income
Other income 1.3% 15.4% excluding insurance proceeds R1.4bn R938m R1.2bn 13.0% R950m bill payments 28% other 8% 51% insurance commissions 13% marketing R510m R275m Insurance proceeds FY22 FY23 17
Slide 18: Low cost of doing business
Low cost of doing business 8.7%1 opex growth 26.3% 25.2% 6.8%2 normalised Total Excl. Avenida Salary cost 9.1% 6.4% R4.9bn Total Excl. Avenida property cost – IAS 17 8.6% 6.1% FY22 FY23 1 Excludes depreciation and amortisation, debtors’ costs, forex and IFRS 16 gains 2 Excludes depreciation and amor
Slide 19: Lease modification gains
Lease modification gains R783m R767m R392m Non-recurring portion: PEP Hammarsdale DC development R391m Recurring portion driven by: Favourable rental renewals: 2% Store portfolio optimisation Expected to reduce over time FY22 FY23 19
Slide 20: Operating profit
Operating profit 8.0% 8.1% 10 347 392 439 -10.4% +1.3% +7.0% 9 908 -3.3% 9 512 9 120 5% 6% 10% Operating margin 79% 10.9% FY22 Recovery FY22 FY23 DC FY23 statutory normalised normalised property statutory Before capital items (Rm) Continuing operations 20
Slide 21: Capital items – impairment
Capital items – impairment Goodwill and trade R6.6bn impairment and brand names Annual impairment R5.9bn due to WACC tests (IFRS) Higher WACC rate: ● FY22: 14.4% ● FY23: 15.7% R703m Increased market 90% softer performance volatility 10% attributable to WACC Higher interest rates 21
Slide 22: Net finance costs
Net finance costs 27.1% R3.0bn R2.8bn R1.5bn R1.4bn Non-IFRS 16 component R2.2bn Higher interest rates R2.1bn R0.8bn R0.8bn R2.2bn R2.1bn R1.5bn R1.3bn R1.4bn R1.4bn 88 88 3 3 IFRS 16 component FY20 FY21 FY22 FY23 22
Slide 23: Healthy credit books
Healthy credit books 4.5 Gross book size (Rbn) 3.4 2.2 2.5 1.7 1.9 0.7 0.9 FY22 FY23 FY22 FY23 FY22 FY23 FY22 FY23 31% 33% Provision levels % 24% 20% 21% 21% 17% 18% 21% 19% 16% 13% 13% 14% NPL % 8% 9% FY22 FY23 FY22 FY23 FY22 FY23 FY22 FY23 23
Slide 24: Increased debtors' costs
Increased debtors’ costs 57.3% More customers accessing credit R475m R1 707m Conservative methodology R1 232m +400% maintained +24% R1 085m R990m R95m +24% +22% Bad Movement in Debtors’ Bad Movement in Debtors’ Credit book Provision level debts provisions cost debts provisions cost growth growth FY2
Slide 25: Normalised inventory levels
Normalised inventory levels 0.5% Normalisation R17.1bn R17.0bn Markdown activity R13.8bn R13.3bn R12.0bn Improved freshness New stores FY19 FY20 FY21 FY22 FY23 25
Slide 26: R13.0 billion cash generated
R13.0 billion cash generated 24 91% 2 163 92 cash conversion 3 360 14 227 101% 52-week basis 12 962 R1.4bn creditor payments made before cut-off EBITDA1 Debtors’ Other Net working Credit Cash costs capital books generated by operations 1 EBITDA before capital items (Rm) 26
Slide 27: Low net debt
Low net debt DEBT REPAYMENT PROFILE: 30 SEPTEMBER 2023 (Rbn) R13.9bn 0.8 times 0.7 times FY24 FY25 FY26 FY27 FY28 net debt- net debt- to-EBITDA to-EBITDA 6.8 times 6.5 times -0.9 EBITDA EBITDA interest cover interest cover -2.1 R7.6bn -2.3 R7.1bn R7.1bn R6.2bn -3.0 -3.2 R5.0bn R1.2bn notes successfu
Slide 28: Returns
Returns 7-YEAR AVERAGE 37.8% Return on net assets 35.5% 36.0% 27.0% 27.0% 23.2% Return on equity 15.8% 6.7% 14.0% 10.1% 8.7% 8.7% 6.7% 5.2% 4.0% 3.5% FY17 FY18 FY19 FY20 FY21 FY22 FY23 28
Slide 29: Capital allocation
Capital allocation Organic growth M&A Share repurchases Dividend Capex Opportunities R511m spent FY23 3x earnings cover 2.9% 2.7% continuously maintained 2.4% considered 27.8m shares bought 1.8% back and cancelled 48.1 cps declared CFH & FinTech – impairment disregarded Neutralise equity- based ince
Slide 30: Business unit performance
03 SEAN CARDINAAL – COO Business unit performance Pepkor maintains its focus on achieving growth by delivering affordable value and serving customer needs 30
Slide 31: Our focus
Our focus Traditional retail Financial services, telecoms & informal market Efficiencies & leverage Customer 31
Slide 32: Traditional retail
PEPKOR Traditional retail
Slide 33: Sales performance – 52 weeks
Sales performance – 52 weeks Total sales growth LFL sales growth LFL H1 LFL H2 6.4% Retail segments 0.7% 3.9% 2.2% 5.7% 9.1% 1.5% CGM segment 2.1% 1.2% 2.1% 3.7% 0.2% FAE segment 0.1% 0.8% BM segment 0.8% 0.8% 33
Slide 34: PEP
PEP 8.2% +9.0% 4.5% sales growth +0.5% LFL sales growth H1 H2 52-week basis +96 Gains 2 602 new stores opened in market share in Babies, stores Kids, Adult & Home1 closure 4% 8m 50% credit cellphones smartphones mix sold 96% >20% 4.9m +18% best price price gap parcels leadership 1RLC 12mma 34
Slide 35: PEP new DC commissioned
PEP new DC commissioned 150 000 m2 Efficient & responsible 45% 35% energy savings more storage capacity 45% water savings 50% reduction in processing time 37% in materials Successful 200 local jobs created go-live of Manhattan WMS during construction Self-sufficient 1.5 MWp 3m litre solar water capa
Slide 36: Ackermans
Ackermans 0.7% -8.3% -1.1% 5.1% sales growth LFL sales growth H1 H2 52-week basis Gains 1 027stores 84 in market share in School, new stores opened Younger girls & Lingerie1 18% 2.5m 77% smartphones credit cellphones mix sold Markdowns CUBE implemented to launched clear stock in teens 1RLC 12mma 36
Slide 37: Speciality
Speciality 8.7% +2.4% +7.1% 4.5% sales growth LFL sales growth H1 H2 52-week basis Gains 891 62 new stores in market share stores opened in adult wear1 11% Competitive credit branded footwear mix market Strong Airwalk LFL growth in launched in in 100 stores 1 RLC data 1RLC 12mma 37
Slide 38: PEP Africa
PEP Africa 11.8% +14.1% 9.9% sales growth +6.0% LFL sales growth H1 H2 52-week basis Constant currency Growth 227 10 stores in customer and stores closed volume 4 countries of Nigeria exit 44 stores operation completed Strong cash repatriation 38
Slide 39: Avenida
Avenida 13.6% +8.5% +7.0% 7.8% sales growth LFL sales growth H1 H2 Constant currency 18.7% -15% selling 141 23 new 3 conversions LFL sales volume price stores stores growth 42% Exited 17 3 credit Giovanna closed converted mix stores 10.9% Excl. Accelerated 50 Cellular & expansion of stores new store
Slide 40: JD Group
JD Group 1.2% -3.7% -0.2% 2.1% sales growth LFL sales growth H1 H2 Gains 892 49 new stores in market share in stores opened computer and audio1 11% 20% Launched 5&3 credit in Home 2 new stores mix formats 10 % online contribution Brand optimisation in Tech opportunity 1 GfK 40
Slide 41: The Building Company
The Building Company 0.1% -0.8% -0.8% 0.8% sales growth LFL sales growth H1 H2 Load shedding 137 stores impact Improved Launched 6 new stores range and new convenience opened availability format House brand product categories Garden centres & Sunday launched trade 41
Slide 42: FinTech
PEPKOR Holdings Lin TENACITY CON @capfin == abacus ¥ flash
Slide 43: Credit
Credit 8 SA-based CGM brands Credit interoperability Consistent credit granting methodology Credit sales mix Approval rate1 Lower limits granted 40% 794 000 new FY22 36% FY23 17% 18% accounts opened 40% of cross-shop 11% into new product 10% 10% 8% categories 1% 4% 2.1m accounts Group FY22 FY23 75%
Slide 44: Cellular handset rentals
Cellular handset rentals 11 m cellular handsets 57% smartphones sold in FY23 120 000 Foneyam cellular handset rentals launched in 180 stores in place1 Making smartphones affordable 1 Own and third party 44
Slide 45: Lending
Lending 301 000 +11% 75% loans six-month loans 24 month re-loans introduced 45
Slide 46: Insurance
Insurance 700 000+ Credit life insurance policies written1 introduced in Funeral policies rolled out in 1 Own and third party 46
Slide 47: Informal market
Informal market 11.6% R37.1bn growth in cash throughput digitised 11.3% 44.9% growth in turnover growth in aggregation per device turnover 29m 62.4% sim cards growth in issued turnover > 20% profit growth 47
Slide 48: 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 48
Slide 49: Outlook
Resilient trading when there is money Outlook in the market Port disruption impacting stock inflows Lower product inflation Good progress on value creation plans Save the date: Capital markets day 26 – 27 February 2024 Cape Town
Slide 50: Q&A
PEPKOR Q&A
Slide 51: Thank you
THANK YOU
Slide 52: Annexures
ANNEXURES
Slide 53: Cash vs credit sales
Cash vs credit sales 4% 0% 4% 18% 100% 11% 42% 11% 20% 10% 96% 96% 89% 89% 90% 82% 80% 58% Credit Cash PEP Ackermans PEP Speciality Avenida JD JD JD Pepkor Africa Group Home Tech group 53
Slide 54: Retail store footprint
Retail store footprint 30 September 2022 Openings Closures Net movement 30 September 2023 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 4 809 1 848 269 (190) 79 22 4 888 1 870 PEP 2 5
Slide 55: CGM sales performance
CGM sales performance Total sales growth LFL H1 LFL H2 LFL sales growth 10.1% +8.2% sales growth 52-week basis 0.5% 9.0% 4.5% 2.6% +0.7% sales growth 52-week basis 8.3% 1.1% 5.1% 11.2% +8.7% 2.4% sales growth 52-week basis 7.1% 4.5% 14.6% +11.8% 14.1% sales growth* 52-week basis 9.9% 6.0% 13.6% 8.5%
Slide 56: FY23 Normalised vs Statutory results
FY23 Normalised vs Statutory results Non-recurring Statutory Non-recurring insurance Normalised Continuing operations Year ended IFRS 16 recovery of Year ended Rm 30 Sep 2023 adjustment capital items Impairment 30 Sep 2023 Operating profit before capital items 9 512 (392) – – 9 120 Capital items (6
Slide 57: FY22 Normalised vs Statutory results
FY22 Normalised vs Statutory results Statutory Non-recurring Non-recurring Normalised Continuing operations Year ended recovery & insurance recovery Year ended Rm 30 Sep 2022 settlement of capital items 30 Sep 2022 Operating profit before capital items 10 347 (439) – 9 908 Capital items 169 – (297)
Slide 58: 53rd week impact
53rd week impact Pro forma 53 weeks 52 weeks 52 weeks Continuing operations Year ended Week 53 Year ended Year ended Rm 30 Sep 2023 Adjustment 30 Sep 2023 30 Sep 2022 % change Revenue 87 408 (994) 86 414 81 154 6.5% Operating profit before capital items 9 512 (304) 9 208 10 3497 (11.0%) (Loss)/profi
Slide 59: FY22 modified segments
FY22 modified segments Furniture, Clothing and appliances Total from general and Building Total Discontinued continuing Rm merchandise electronics materials FinTech operations operations operations Revenue 52 815 10 616 8 458 9 507 81 396 (242) 81 154 Amortisation and depreciation (3 458) (447) (284
Slide 60: FY22 modified segments
FY22 modified segments Furniture, Clothing and appliances Total from general and Building Total Discontinued continuing Rm merchandise electronics materials FinTech operations operations operations Revenue Previously reported 53 627 11 411 8 458 7 900 81 396 (242) 81 154 Reallocation of Tenacity (81
Slide 61: FY22 modified segments
FY22 modified segments Furniture, Clothing and appliances Total from general and Building Total Discontinued continuing Rm merchandise electronics materials FinTech operations operations operations Personnel expenses Previously reported (6 017) (1 357) (1 043) (627) (9 044) 25 (9 019) Reallocation o
Slide 62: FY22 modified segments
FY22 modified segments Furniture, Clothing and appliances Total from general and Building Total Discontinued continuing Rm merchandise electronics materials FinTech operations operations operations Normalised operating profit before capital items Previously reported 8 107 601 462 724 9 894 14 9 908
Slide 63: FY23 Highlights
FY23 Highlights +7.7% growth in revenue to R87.4bn -6.7% decrease in normalised HEPS to 141.3 c +15.9% Access and affordability growth in cash generated to R13.0bn R48 average item price in PEP 01 02 48.1 cps 2/3 baby garments sold in SA 1/2 kids’ garments sold in SA dividend declared Enabling Inclu
Slide 64: Inclusive growth
Inclusive growth Learnerships 4 100 learnerships provided in FY23 28% of all W&R SETA sector learnerships provided by Pepkor Pepkor Retail Learnership Academy is an accredited Skills Development Training provider with the QCTO1 40% of the group’s learnerships targeted unemployed individuals 700 spot
Slide 65: Road to green
Road to green LED lights Solar 34% average 68 R62 6.0 million MWp saving in electricity use from lights in stores completed investment total installed solar sites solar capacity x Inverters 1 257 new 28 192 tCO e 2 inverters installed in 2023 saved since 2019 – enough to charge Target 3.4 billion ce