Pepkor Holdings Ltd. · JSE:PPH
Pepkor — H1 2023 Earnings Presentation
52 slides from Pepkor's earnings presentation, May 2023
Slide 1: 2023 Interim Results
2023 INTERIM RESULTS for the six months ended 31 March 2023
Slide 2: Agenda
Agenda Overview of results Financial performance Business unit performance Outlook Q&A
Slide 3: Overview of results
Our purpose To make a positive PIETER ERASMUS – CEO difference in the lives of our customers Overview of results
Slide 4: Our customers' reality today
Our customers’ reality today 35.4% 14% in Ability to 32.9% in women 6.8% food earn an unemployment Needing inflation 8% in income to do more transport under Disruption with less High pressure social grant payments interest rates Lower Disrupted Ability income spending patterns to trade Stats SA 04
Slide 5: Our response in serving our customers' needs
Our response in serving our customers’ needs AFFORDABLE ESSENTIALS CONNECTIVITY 95% Market share 7 out of 10 best price exceeds pre-COVID-19 prepaid handsets leadership levels sold in SA2 Serving Targeted Gains customer cost reduction in market share in key categories1: needs Babies, Ladies, Home Sc
Slide 6: Our strategy
Our strategy Product Accessibility Price Our purpose Variety through: Accessibility through: Affordability through: To make a • Wanted and needed • Flexible store formats • Scale & leverage products and positive • Physical and digital • Low cost of doing services channels business difference in • A
Slide 7: Investment in alternative energy sources
Investment in alternative energy sources Solar 5.9 MWp R55m 8 DC sites solar generation total 4 office sites capacity project investment 56 stores installed in launched PEP Africa – testing SA Generators 4 Enabling operations generators Enhancing job security installed at PepClo Trade-offs to delive
Slide 8: Six months in summary
Six months in summary 8.6% 4.3% Targeted 11.7% normalised revenue cost reduction HEPS decline to growth to 3.6% 80.8cps R43.8bn normalised opex growth 168 Expansion Avenida Progress new stores in the informal performing in portfolio opened market & financial above optimisation 5 929 services expecta
Slide 9: Financial performance
Our vision To be the best place to RIAAN HANEKOM – CFO shop, work and invest Financial performance 9
Slide 10: Financial performance summary
Financial performance summary 110bps 4.3% 35.3% markdowns 3.6% 9.8% revenue gross profit normalised operating profit growth to margin opex growth decline to R43.8bn maintained R5.1bn 11.7% R3.2bn 26.2% R1.2bn HEPS decline to cash return on net debt 80.8cps 8.6% generated assets refinanced normalised
Slide 11: Statutory vs normalised HEPS
Statutory vs normalised HEPS 8.6% 11.7% 91.5 11.6 79.9 7.8 80.8 73.0 R429m R392m H1FY22 Recovery H1FY22 H1FY23 DC property H1FY23 statutory normalised normalised statutory Rounded cents 11
Slide 12: Flood insurance recovery update
Flood insurance recovery update R646m R396m recognised R250m Recognised in H1FY23: • R57m inventory – Cost of sales • R150m business interruption – Other income • R43m furniture & fittings – Capital items FY22 H1FY23 KZN floods – April 2022 • PEP Isipingo distribution centre flooded • c. R130m insur
Slide 13: Revenue drivers
Revenue drivers 4.3% Excluding Avenida 1.1% +8.0% +0.3% -1.5% -7.8% R43.8bn Excluding Flash 5.8% R42.0bn +36.7% Credit sales 14% 9% 9% +23.0% Credit sales +2.6% Cash sales 68% Excl. Avenida Cash sales mix 91% H1FY22 H1FY23 13
Slide 14: Gross profit margin maintained
Gross profit margin maintained 35.3% 35.3% Supported by financial services • Higher interest rates • Increased credit granting 110 bps in retail gross profit • Markdown activity H1FY22 H1FY23 14
Slide 15: Other income
Other income 1.1% 2.9% 18% excluding bill payments insurance R551m R557m proceeds 65% R407m commissions R419m Insurance R132m R150m proceeds 19% 16% other marketing H1FY22 H1FY23 15
Slide 16: Low cost of doing business
Low cost of doing business 3.5%1 opex growth 3.6%2 25.6% normalised 24.3% Total Excl. Avenida Salary cost 11.2% 6.9% H1FY22 H1FY23 1 Excludes depreciation & amortisation and debtors’ costs 2 Excludes depreciation & amortisation, debtors’ costs, Avenida and non-recurring IFRS 16 gain 16
Slide 17: Lease modification gains
Lease modification gains R646m R392m Non-recurring portion: ● PEP Hammarsdale DC development Recurring portion driven by: ● Favourable rental renewals: 2% ● Store portfolio optimisation R279m R254m Expected to reduce over time Total Excl. Avenida R2.4bn property cost – IAS 17 10.6% 6.2% H1FY22 H1FY2
Slide 18: Segmental operating profit
Segmental operating profit 9.9% 392 9.8% +11.5% 5 681 429 5 252 -12.4% 5 122 -4.9% -8.6% 4 730 6% 4% 9% Operating margin 10.8% 81% H1FY22 Recovery H1FY22 H1FY23 DC H1FY23 statutory normalised normalised property statutory Before capital items (Rm) 18
Slide 19: Net finance costs in line with expectations
Net finance costs in line with expectations 31.1% R1.5bn R1.4bn R713m R722m R1.1bn R1.1bn R685m R729m R780m R672m Non-IFRS 16 component Higher interest rates R378m • • Increased net debt 78% 88 88 R333m 3 3 • Avenida acquisition H1FY20 H1FY21 H1FY22 H1FY23 19
Slide 20: Lower effective tax rate
Lower effective tax rate 26.8% 20.3% Deferred tax asset recognition Settlement of dispute FY23 ETR expected to be c. 20% H1FY22 H1FY23 20
Slide 21: Higher inventory levels
Higher inventory levels R17.3bn 11.7% R15.4bn R13.8bn New stores R13.3bn Inflation Markdown activity Avenida Ackermans PEP Other H1FY20 H1FY21 H1FY22 H1FY23 21
Slide 22: Credit books remain healthy
Credit books remain healthy 4.0 3.2 Gross book 2.5 size 1.9 2.1 1.5 1.6 (Rbn) 0.7 0.7 H1FY22 H1FY23 H1FY22 H1FY23 H1FY22 H1FY23 H1FY22 H1FY23 33% 33% Provision levels % 33% 21% 21% 23% 18% 18% 20% 20% 19% 15% 14% NPL % 13% 13% 7% 10% H1FY22 H1FY23 H1FY22 H1FY23 H1FY22 H1FY23 H1FY22 H1FY23 22
Slide 23: Debtors' cost driven by book growth
Debtors’ cost driven by book growth 62.3% More customers R314m R821m accessing credit Conservative methodology maintained R95m R506m R507m R785m +16% R411m +13% Bad Movement in Debtors’ Bad Movement in Debtors’ Credit book Provision level debts provisions cost debts provisions cost growth growth H1F
Slide 24: R3.2 billion generated in cash
R3.2 billion generated in cash 395 44% 71% cash LTM cash 1 089 conversion conversion 3 184 7 415 1 700 3 225 EBITDA1 Debtors’ Other Net working Credit books Cash costs capital generated 1 EBITDA before capital items (Rm) by operations 24
Slide 25: Increased net debt levels
Increased net debt levels R14.1bn R1.2bn notes successfully raised R11.6bn 1.3 times • Replaced R800m net debt-to- • Substantially lower rates achieved EBITDA R8.9bn Debt repayment profile 8.2 times 31 March 2023 (Rbn) EBITDA- FY23 FY24 FY25 FY26 FY27 FY28 interest cover R6.1bn -0.2 -0.9 -2.3 -2.6 -
Slide 26: Continued investment – capex
Continued investment – capex R1.2bn R224m PEP Hammarsdale DC R0.9bn R1.0bn Capex split1 R201m Other 26% R0.7bn % of revenue Stores 2.2% 47% H1FY23 Distribution centres 1.6% H1FY22 10% H1FY22 H1FY23 IT 17% 1 Excluding capex related to PEP DC development and floods of R17m 26
Slide 27: Disciplined and consistent capital allocation
Disciplined and consistent capital allocation 1 2 3 4 Share Organic growth M&A Dividend repurchases Capex • R415m spent • No interim • Clothing dividend in 2.2% in H1FY23 and general line with merchandise • R66m repurchased history 1.6% after March 2023 • FinTech • 3 x earnings cover H1FY22 H1FY23 C
Slide 28: Business unit performance
Our mission To provide easy access SEAN CARDINAAL – COO to everyday products and services at the best prices Business unit performance
Slide 29: Our business
Our business Traditional retail Financial services & Telecoms Efficiency & leverage DIGITAL MARKETING GROUP CONTACT SERVICES CENTRE 29
Slide 30: Traditional retail
PEPKOR Holdings Limited Traditional retail «PEP ACKERMANS (PEP Africa PEPKOR® coDE DUNNS _ ShoeCity® REFINERY Tekkie®) Town SPL ® AVENIDA JD [Russells] B. Braptows BESS zocuester ~—HIFICorp O Timbercity* tiletoria fies Girsc0a@ BI
Slide 31: Sales performance
Sales performance +1.9% 4.8% excl. Avenida 4.8% 3.0% 6.9% group sales sales sales sales growth decline growth growth -2.2% +0.5% -8.3% +2.4% LFL LFL LFL LFL 5.4% 13.3% 2.1% 0.3% sales sales sales sales growth1 growth1 decline growth +5.6% +8.5% -3.7% -0.8% LFL LFL LFL LFL 1 Constant currency 31
Slide 32: PEP
PEP 56 Gains 2 618 new stores 19% in Babies & stores sales growth Ladies & Home in market share1 3% 4.1m cellphones sold credit mix Decision to close Dealz – 17 stores 2.3m PAXI parcels distributed +16% 1 RLC 32
Slide 33: Ackermans
Ackermans 51 8 Gains 999 54 Ackermans new new stores stores Woman stores in School & stores 19 Lingerie market share1 51 Ackermans new Connect stores stores 18% S22 merchandise issues credit mix W23 partial corrective action Leadership changes 1 RLC 33
Slide 34: Speciality
Speciality 29 Gains 876 39.2% new stores in market stores across online sales share1 in 6 brands growth most brands Availability challenges in Tekkie Town Strong performance in Dunns, Shoe City & Refinery Continued focus on CODE & S.P.C.C 1 RLC 34
Slide 35: PEP Africa
PEP Africa 4 5 3.0% 276 8.3% stores stores closed closed volume & stores LFL sales growth transaction in Zambia & growth Mozambique1 Good customer and volume growth Successful repatriation of profits Decision made to exit Nigeria – 44 stores 1 Constant currency 35
Slide 36: Avenida
Avenida 6 15.8% 10.6% 136 new stores sales volume trading density stores 5/20 growth improvement Giovanna stores closed Key value items introduced Cellular removed Leverage sourcing capability Accelerated new store openings – 21 new stores in FY23 36
Slide 37: JD Group
JD Group 22 Gains 888 new stores 20% in market share stores credit sales in a number of contribution categories1 in Home +6.2% 10% online sales 1st Incredible Cellular store opened online Everyshop merged into HiFi Corp contribution Opportunity for further in Tech optimisation 1 GfK 37
Slide 38: The Building Company
The Building Company 136 4 3 stores new stores house brand opened product categories launched Load shedding crippling the industry Improved product range and availability New convenience format launched 38
Slide 39: Financial services & Telecoms
Financial services & Telecoms
Slide 40: Flash
Flash +10% 11% > 20% 167k turnover per device management operating informal turnover profit growth traders growth 9% 51% Informal economy remains resilient growth in aggregation R15.8bn cash digitised cellular turnover activations growth +26% growth in supplier payments 40
Slide 41: Capfin
Capfin +15% 289k 75% 46% growth loans six-month of accounts loans activated from stores Conservative responsible credit granting Satisfactory collections and non-performing loans Credit life insurance product to be launched 41
Slide 42: Tenacity – credit interoperability
Tenacity – credit interoperability 345k 1.8m new accounts < R3k Leverage active average new across CGM accounts account limit retail brands Stable customers in good standing Increased account utilisation Opportunity to leverage data 42
Slide 43: Outlook
Our values Support / Respect / PIETER ERASMUS – CEO Trust / Enable / Grow Outlook
Slide 44: Outlook
Outlook Consumer Trading High inflation environment not improved expected to improve in May • Customers earning less • Customers need to do more with less • No imminent solution to load shedding Elevated 53rd inventory levels week 44
Slide 45: Key focus areas
Key focus areas Entrench position Grow cellular in key product and financial categories services offering Expand discount Expand and value ladieswear proposition in offering Brazil Reduce costs Portfolio review through and value creation efficiencies and leveraging scale Grow presence and reach in t
Slide 46: Q&A
2023 Q&A
Slide 47: Annexures
2023 Annexures
Slide 48: Inclusion
Best price leadership in PEP Customer enablement Independent and Solid Employee 180k training hours diversified board governance development developing 35 000 employees Product Price Convenience 5.9MWp solar Environmental Community R28m socio-economic generation capacity protection Customers support
Slide 49: Cash vs credit sales %
Cash vs credit sales % 3 0 4 9 97 18 100 11 43 11 20 96 91 89 89 82 80 57 Credit Cash PEP Ackermans PEP Speciality Avenida JD JD JD Pepkor Africa Group Home Tech group 49
Slide 50: Retail store footprint
Retail store footprint 30 September 2022 Openings Closures Net movement 31 March 2023 Retail area Retail area Retail area Retail stores ‘000 m2 Retail stores Retail stores Retail stores ‘000 m2 Retail stores ‘000 m2 Closing and general merchandise 4 809 1 848 142 (46) 96 26 4 905 1 874 PEP 2 579 897
Slide 51: Normalised vs statutory results – H1FY23
Normalised vs statutory results – H1FY23 Statutory Normalised Six months ended Non-recurring Six months ended 31 March 2023 IFRS 16 gain 31 March 2023 Operating profit before capital items (Rm) 5 122 (392) 4 730 Taxation (Rm) (762) 106 (656) Profit for the year (Rm) 2 985 (286) 2 699 Headline earnin
Slide 52: Normalised vs statutory results – H1FY22
Normalised vs statutory results – H1FY22 Statutory Normalised Six months ended Non-recurring Six months ended 31 March 2022 Recovery 31 March 2022 Operating profit before capital items (Rm) 5 681 (429) 5 252 Taxation(Rm) (1 218) – (1 218) Profit for the year (Rm) 3 330 (429) 2 901 Headline earnings