Pepkor Holdings Ltd. · JSE:PPH
Pepkor — FY2017 Earnings Presentation
52 slides from Pepkor's earnings presentation, December 2017
Slide 1: Audited Results for the year ended 30 September 2017
AUDITED RESULTS for the year ended 30 September 2017 0
Slide 2: Introductory video
Introductory video
Slide 3: Welcome
WELCOME Jayendra Naidoo CHAIRMAN
Slide 4: Listing
Ben la Grange CEO LISTING 20 September 2017 3
Slide 5: STAR Listing
STAR LISTING • JSE main board listing completed on 20 September 2017 • R16.4 billion was raised through the placement of 800 million shares (23.19% of issued share capital) at opening price of R20.50 • Good share trading momentum since listing Rationale: • Creates a listed, diversified, multi-format
Slide 6: Agenda
AGENDA 1. FY17 PERFORMANCE BEN LA GRANGE 2. INITIATIVES LEON LOURENS 3. FINANCIAL ANALYSIS RIAAN HANEKOM 4. OUTLOOK BEN LA GRANGE 5
Slide 7: FY17 Performance
FY17 PERFORMANCE Ben la Grange CEO
Slide 8: Who we are
Who we are We are a leading African retailer and a preferred destination for delivering value to the African consumer and all other stakeholders. STAR holds strong market shares in: apparel and footwear, More than electronics and 4 950 stores appliances, furniture across 12 African and home countrie
Slide 9: What we do
What we do PROVIDE EVERYDAY The right product adds PRODUCTS value to An extensive product range focusing customers’ lives on everyday needs AT AFFORDABLE Customer PRICES loyalty through value for Best price leadership ensures money product differentiation AT CUSTOMERS’ Enhanced CONVENIENCE customer
Slide 10: FY17 pro forma highlights
FY17 pro forma highlights INCREASE IN MARGIN REVENUE 13.2% INCREASE 100bps to R58.6bn to 10.4% INCREASE IN OPERATING HEADLINE PROFIT 25.2% EARNINGS 101.9c PER SHARE to R6.1bn Before capital items CASH FROM OPERATIONS R6.5 bn 9
Slide 11: Divisional revenue contribution
STAR GROUP Divisional revenue contribution Pro forma revenue FY17 R58.6bn Discount and value retailers R44.1bn 75% Speciality retailers R14.5bn DIY G2: FASHION AND BEDDING: CONSUMER FOOTWEAR BEDS, BEDDING ELECTRONICS AND MATTRESSES AND APPLICANCES 25% 10
Slide 12: Geographical overview
STAR GROUP Geographical overview Total stores 4 953 Total floor space 2.3 million m2 Geographic revenue contribution Total stores 95% South Africa (incl BLNS) 4 620 Total stores 5% Rest of Africa 333 11
Slide 13: Revenue and Operating Profit
REVENUE AND OPERATING PROFIT 12
Slide 14: Revenue and operating profit growth
Revenue and operating profit growth Pro forma revenue and growth % Divisional revenue contribution R58.6bn REVENUE 13.2% 75% 25% R51.8bn Discount and value Speciality FY16 FY17 Pro forma operating profit and margin Divisional operating profit contribution OPERATING PROFIT R6.1bn R4.9bn 93% 7% 9.4% 1
Slide 15: Revenue
Revenue 12 MONTHS ENDED 12 MONTHS ENDED 30 SEPTEMBER 30 SEPTEMBER 2017 2016 FY17 FY16 PRO FORMA Rm Rm GROWTH Revenue 58 582 51 766 13.2% • Strong revenue growth momentum maintained despite a constrained consumer environment • Resilience of discount and value market position • Store footprint of 4 95
Slide 16: Operating profit and margin
Operating profit and margin 12 MONTHS ENDED 12 MONTHS ENDED 30 SEPTEMBER 30 SEPTEMBER 2017 2016 PRO FORMA FY17 FY16 GROWTH Operating profit (Rm) 6 078 4 855 25.2% Operating profit margin (%) 10.4% 9.4% 100 bps • Continued focus on: – Leveraging scale and supply chain advantages – Lowering cost of do
Slide 17: Discount and Value Retail
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Slide 18: Discount and value: revenue and operating profit growth
Revenue and operating profit growth Pro forma revenue and growth % Discount and value revenue contribution FY17 R44.1bn Pep and REVENUE 85% Ackermans 17.7% R37.5bn 6% Pep Africa FY16 FY17 Furniture and 9% appliances Pro forma operating profit and margin R5.7bn OPERATING PROFIT R4.6bn • Like-for-like
Slide 19: Discount and Value: Pep
DISCOUNT AND VALUE Pep • Double-digit revenue growth achieved – Best price leadership at 98% of products – 123 net store openings – Strong growth in ladies wear – Growth in Pep Home, supported by 25 new stores – Pep Cell voted best cellular store for fourth consecutive year in Times Sowetan Retail A
Slide 20: Discount and Value: Ackermans
DISCOUNT AND VALUE Ackermans • Double-digit revenue growth achieved – 78 net store openings during the year; now trading from 655 stores – Expansion of ladies’ wear – Men’s wear in <10% of stores – Credit sales maintained at 18% • Highest Net Promotor Score achieved in Ask Afrika independent researc
Slide 21: Discount and Value: Pep Africa
DISCOUNT AND VALUE Pep Africa • Low commodity prices impact affordability and consumer spending • Pricing model applied to manage inflation and currency • Double-digit revenue growth in local currency achieved in most countries • 30 net store openings • Stabilisation of Nigeria with good like-for-li
Slide 22: Discount and Value: Furniture and appliances
DISCOUNT AND VALUE Furniture and appliances • Sales of merchandise flat despite nearly 300 stores closed in prior year • Major restructuring of brands, footprint and logistics completed • Systems re-platforming completed in retail and e-commerce • Stringent expense management significantly reduced c
Slide 23: Speciality Retail
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Slide 24: Speciality: revenue and operating profit growth
Revenue and operating profit growth Pro forma revenue and growth % Speciality revenue contribution FY17 R14.5bn DIY REVENUE 47% 1.4% R14.3bn 24% G21 Fashion FY16 FY17 27% and footwear Pro forma operating profit and margin OPERATING PROFIT 417 3% Bedding • Stable like-for-like revenue 221 • 50 net st
Slide 25: Speciality: DIY and G2
SPECIALITY DIY • Challenging operating conditions in the building materials industry • Despite contraction in revenue, operating margins improved • Brand consolidation of Pennypinchers and Hardware Warehouse to Buco completed G2 (Incredible Connection and HiFi Corp) • E-commerce platform established
Slide 26: Speciality: Bedding
SPECIALITY Bedding • Bedding category showed double-digit growth on prior year • Sleepmasters now established as the largest national bedding chain with 163 stores • Sleepmasters format tracking ahead of value creation plan • Sleepmasters private label brand growth exceeds other bedding brands 25
Slide 27: Speciality: Fashion and footwear
SPECIALITY Fashion and footwear • Tekkie Town acquired on 1 February 2017 with 308 stores • Establishment of a central support structure for sub-scale brands to develop and test retail concepts and to dilute central costs for retailers • Dunns repositioning completed with positive indications • Succ
Slide 28: FY17 Initiatives
FY17 INITIATIVES Leon Lourens COO
Slide 29: Adult wear
Adult wear • High Ackermans and Pep growth numbers over three years • More space allocated to ladies’ wear in Ackermans instead of men’s wear • Speciality brands: repositioning results positive • Focus on basic adult merchandise in mass with iconic price points 1.4 million units 1.4 million units 80
Slide 30: General merchandise
General merchandise • Affiliated European retailers (Poundland and PEPCO) providing scale, skills and leverage • Opportunity to increase market share where strategically aligned with brands • stand-alone stores growing and expanding • discount variety store concept pilots with three store openings 2
Slide 31: FMCG
FMCG • Leverage 2 000-store footprint of Pep • Convenience assortment of confectionary, health and beauty and household cleaning • Rolling out 100 new SKUs • Developing private label to enhance margins 30
Slide 32: Handset direct imports
Handset direct imports • Largest mobile phone unit seller in South Africa • 2018: 33% of handsets sourced through direct imports • Margin expansion achieved • Focus on ‘non-smart’ phones representing 50% of units 31
Slide 33: PAXI
PAXI • Leverage footprint of 5 000 stores • Current focus on developing and testing systems • Challenges: pricing model, speed and logistics • Next phase is counter-to-counter distribution Send Collect Return Send gifts, Collect your Changed your products and parcel at mind? documents to your local
Slide 34: Supply chain
Supply chain • >365 million transactions and 1 billion units per year • Estimated deflation of 6% leading to a unit growth of 10% to 15% • Strong supplier base is a competitive advantage • Pepkor Global Sourcing in Shanghai an additional supplier • On-time-in-full results and competitive prices stil
Slide 35: Financial Analysis
FINANCIAL ANALYSIS Riaan Hanekom CFO
Slide 36: Highlights
Highlights Pro forma Statutory 12 months ended 12 months 15 months 30 September ended ended 2017 30 September 2016 30 September FY17 FY16 2016 Rm Rm Growth Rm Revenue 58 582 51 766 13.2% 61 154 Operating profit before capital 6 078 4 855 25.2% 4 050 items Operating margin 10.4% 9.4% 100 bps 6.6% Net
Slide 37: Pro forma 12-month revenue
Pro forma 12-month revenue Rm +13.2% (2 087) 1 513 732 58 582 1 106 51 766 51 234 57 850 FY17 Tekkie Town FY17 FY16 One-off Tekkie Town Iliad Africa FY16 Statutory pre-acquisition Pro forma Pro forma restructuring pre-acquisition pre-acquisition Statutory contribution of furniture contribution contr
Slide 38: Pro forma 12-month EBIT
Pro forma 12-month EBIT Rm +25.2% 72 6 078 191 4 855 998 322 50 3 485 5 815 FY17 Tekkie Town One-off FY17 FY16 One-off Tekkie Town Iliad Africa FY16 Statutory pre-acquisition restructuring Pro forma Pro forma restructuring pre-acquisition pre-acquisition Statutory contribution of furniture of furnit
Slide 39: Taxation
Taxation 12 months ended 15 months ended 30 September 2017 30 September 2016 % FY17 FY16 South African standard rate of taxation 28.0 28.0 Effect of other African countries’ tax rates (0.9) (1.1) Withholding tax 2.0 5.7 Effective tax rate 30.9 32.61 • Lower withholding taxes due to higher than norma
Slide 40: Earnings per share
Earnings per share Shares issued during the year (million) Headline earnings per share (c) 4 000 * 750 3 450 31.7 3 000 132 2 568 2 000 133.6 101.9* 1 000 0 October 2016 Tekkie Town STAR Listing September 2017 Statutory headline Impact of share Pro forma headline acquisition earnings per share issua
Slide 41: Balance sheet
Balance sheet 30 September 2017 30 September 2016 Rm Rm Intangible assets and goodwill 60 826 57 341 Property, plant, equipment 4 613 3 714 Net working capital 4 163 2 389 Other assets 170 950 ASSETS 69 772 64 394 Total equity 52 917 52 695 Net debt 11 951 7 866 Other labilities 4 904 3 833 EQUITY A
Slide 42: Net debt
Net debt Rm 30 September 2017 30 September 2016 Net interest-bearing debt (Rm) 11 951 7 866 Equity excl. non-controlling interest (Rm) 52 892 52 666 Net debt to pro forma EBITDA (times) 1.8 6.7 EBITDA interest cover (times) 11 7 Cost of funding Interest rate % SA prime less Call 8.25% 200 bps 3-year
Slide 43: Finance costs
Finance costs Pro forma Pro forma 12 months ended 12 months ended 30 September 2017 30 September 2016 FY17 FY16 Rm Rm Finance costs (968) (637) • Steinhoff shareholder loan structured and put into place during FY17 • Average cost of debt of 9% per annum 42
Slide 44: Working capital
Working capital 12 months ended 15 months ended 30 September 2017 30 September 2016 Rm Rm Movement in net working capital (805) (984) Increased net working capital levels due to: • Acquisition of Tekkie Town • Increased store base and lead-up to festive season • Direct import of mobile handsets • Du
Slide 45: Cash flow statement
Cash flow statement 12 months ended 15 months ended 30 September 2017 30 September 2016 Rm Rm Operating profit 5 815 3 642 Depreciation and amortisation 960 1 131 EBITDA 6 775 4 773 Other non-cash adjustments 523 1 243 Cash generated before working capital changes 7 269 6 016 Working capital changes
Slide 46: Capex
Capex PEP Kuilsrivier DC capacity to double to 20 000 m2 ACKERMANS Hammarsdale 90 000 m2 DC being developed PEP AFRICA Development of Angola DC FY18 FY18 capital expenditure estimated at 3% of revenue PEP ACKERMANS 45
Slide 47: Outlook
Ray STEINHOFF AFRICA RETAIL Es OUTLOOK Ben la Grange CEO
Slide 48: Outlook
Outlook Revenue growth momentum continues to be strong despite deflationary REVENUE environment and is expected to outperform the market Growth in operating margins of between 20 and 40 bps is expected MARGINS in the medium term The cost of doing business and operating expenses are expected COSTS to
Slide 49: Outlook
Outlook • Grow market share in adult wear in the next three years • Direct importing of handsets PEP • Expansion of FMCG ranges • PAXI receiving to be introduced • Flash: international remittance business and increase in active vendors • General merchandise introduction ACKERMANS • Exit men’s wear •
Slide 50: Outlook
Outlook SHOPRITE Options exercised as announced on 30 November 2017 DISTRIBUTION CENTRES Pep, Pep Africa and Ackermans NET STORE OPENINGS 350 planned for FY18 49
Slide 51: Thank you
Fas THANK YOU
Slide 52: STAR fundamentals
STAR fundamentals Highly cash generative Retail champion with and robust operating model 10 with track record of strong largest footprint in formalising African market 1 financial performance Innovative and experienced High exposure to Africa’s 9 management team; loyal and committed employees emergi