Pepkor Holdings Ltd. · JSE:PPH
Pepkor — FY2019 Earnings Presentation
57 slides from Pepkor's earnings presentation, November 2019
Slide 1: Audited results for the year ended 30 September 2019
Audited results for the year ended 30 September 2019
Slide 2: Chairman's remarks
“We believe Pepkor has managed to achieve top-tier operating results. I want to congratulate all the management teams.” JAYENDRA NAIDOO, CHAIRMAN CHAIRMAN’S REMARKS
Slide 3: CEO purpose quote
“It is our purpose to make a positive difference in the lives of our customers.” LEON LOURENS, CEO
Slide 4: Agenda
Agenda 01 The year in review 02 Financial performance 03 Segmental performance 04 Outlook
Slide 5: Who we are
Who we are 5 415 stores in 11 African countries 2.43 million m2 retail space 56 100 employees 400+ million transactions annually One billion units sold 5
Slide 6: Volatile operating environment
Volatile operating environment High unemployment High dependency on social grants 44% 35% 29% 17.5m 45% Females Grant recipients Grant-dependent Black between in SA households SA females 15 – 34 Low economic growth Low consumer confidence 30 25 26 20 +1.7% +2.4% 15 Expected GDP Disposable income 10
Slide 7: Key indicators – comparable
Key indicators – comparable 9.0% 12.0% 8.3% revenue growth to operating profit HEPS growth to 1 R69.6bn 1 growth to R7.2bn 107.3 cents 1 Stock 338 management new stores growth improved opened in market share freshness 1 From continuing operations, before capital items and excluding BVI-related costs
Slide 8: CEO update
CEO update Resilience of our business model Trusted brands Strong value and discount customer propositions Diversified service and product offering Flexible store formats Leveraging store footprint 8
Slide 9: Financial performance
Financial performance “The resilience of our business model was clearly illustrated during the past year.” RIAAN HANEKOM, CFO
Slide 10: Statutory highlights
Statutory highlights 9.0% 15.6% 60bps 16.7% revenue growth to growth in operating growth in operating HEPS growth to R69.6bn1 profit to R6.8bn1 margin to 9.8%1 98.3 cents1 R1.7bn R7.6bn 3x 3X 24.3% capex spent cash generated dividend cover return on net assets (excl. new books) maintained 1 From con
Slide 11: Comparable highlights
Comparable highlights 9.0% 12.0% 30bps 8.3% revenue growth to growth in operating growth in operating HEPS growth to R69.6bn1 profit to R7.2bn1 margin to 10.3%1 107.3 cents1 R1.2bn R3.5bn R318m impairment on invested in new IFRS 9 one-off costs The Building Company credit books 1 From continuing ope
Slide 12: Comparable headline earnings per share
Comparable headline earnings per share +8.3% +16.7% 107.3 9.0 14.8 99.0 98.3 84.2 FY18 statutory One-off costs FY18 comparable FY19 comparable One-off costs FY19 statutory HEPS HEPS HEPS HEPS BVI-related costs IFRS 9 implementation From continuing operations, before capital items and excluding BVI-r
Slide 13: One-off capital items
One-off capital items Impairment R1.2bn Goodwill R672m Trade and brand names R547m 13
Slide 14: Discontinued operations
Discontinued operations Decision to exit Zimbabwe FY19 loss R70m Unrealised FCTR ±R230m 14
Slide 15: Segmental revenue
Segmental revenue FY19 – Rbn FY19 segmental composition +9.0% 10% 43.9% 69.6 0.9% 12% 8.3% 6.5% 13% 63.9 65% FY18 FY19 From continuing operations 15
Slide 16: Gross profit margin effectively managed
Gross profit margin effectively managed Weaker trading Higher markdowns 34.5% 34.6% Inventory management FY19 FY18 16
Slide 17: Other income
Other income increase to +2.3% R960m 21% Commissions Advertising/marketing Strong growth 5% Capfin distribution fee in commissions 56% Insurance 8% Other Reduced Capfin distribution fee 10% 17
Slide 18: Low CODB leader
Low CODB leader CODB composition 25.9% FY19 25% Personnel + 6.2% Personnel Property Depreciation 44% + 7.9% Property 8% Advertising and other Lowest in the market 23% 18
Slide 19: IFRS 9 implementation
IFRS 9 implementation Retrospective application Prospective application on existing credit books on new internally funded credit books Change in provision level 33% 20% 17% 15% 14% 10% Additional gross provision raised R64m R252m + R66m = R318m Retained earnings Impact Incremental costs in FY19 adju
Slide 20: Other IFRS changes
Other IFRS changes IFRS 15 • No significant impact • Applied retrospectively IFRS 16 • To be implemented in FY20 • Modified retrospective approach Right-of-use asset R13.1bn – R14.1bn Lease liability R17.2bn – R18.2bn 20
Slide 21: Credit books
Credit books Business objective Sales enabler Sales enabler Financial services Credit type Revolving credit Term Unsecured lending Gross book size (Rbn) 2.8 1.3 2.2 Growth in gross book (yoy) 20% –* –* No of active accounts 1.4m 147k 287k Segmental sales contribution 7% 19% 0% * New internally funde
Slide 22: Comparable operating profit
Comparable operating profit FY19 – Rm +15.6% +12.0% 66 252 40 7 155 6 797 511 6 391 5 880 FY18 FY18 BVIoff One FY18 FY18 comp FY19 FY19 Comp IFRS JD 9 IFRS TBC 9 BVI Fin FY19FY19 Statutory Statutory Comparable Comparable Statutory From continuing operations before capital items 22
Slide 23: Comparable operating profit growth
Comparable operating profit growth FY19 – Rbn FY19 segmental composition +12.0% 88% (28.5%) >100% 7 155 >100% 3.7% 6 391 8% 2% 2% FY18 FY19 Comparable Comparable From continuing operations, before capital items and excluding BVI-related costs and the implementation of IFRS 9 – refer to annexure 1 23
Slide 24: Finance cost
Finance cost Funding of new +35.4% credit books R1 581m R1 168m FY19 FY18 24
Slide 25: Effective tax rate
Effective tax rate Excluding impairment South African standard rate of taxation 28.0% 28.0% Effective tax rate 44.1% 35.6% 4.7% decrease in taxation to R1.7bn 25
Slide 26: Net working capital
Net working capital 4.8% 3.3% 4.8% % of revenue1 FY19 FY18 Trade Trade +R2.0bn Inventory +R0.8bn receivables2 +R0.6bn payables 1 Year-on-year movement in net working capital as a percentage of total revenue 2 Excluding investment in new credit books 26
Slide 27: Cash generated
Cash generated FY19 – Rm 507 1 299 3 487 R7.6bn 3 392 Cash generated 1 227 excl. books 6 726 2 186 4 086 Operating profit1 H1 FY18 Debtors’ cost2 Debtors cost Amortisation Amort Depn Other non-cash Other non-cash New credit Consumer finance Net changes NetWC in Cash generated Guarantee provision dep
Slide 28: Net debt
Net debt Debt repayment profile – Rbn Net debt R13.9bn Net debt- 1.70 to-EBITDA times -1,5 -2,5 EBITDA interest 5.42 -5,0 cover times -8,0 Targeting 1 x net debt-to-EBITDA FY20 FY21 FY22 FY23 28
Slide 29: Capex and depreciation
Capex and depreciation Capex 10% 2.5% of R1 717m revenue 30% Depreciation 1.9% R1 299m of revenue 30% FY20 expectation: 2.3% capex and similar depreciation levels 29
Slide 30: Segmental performance
Segmental performance “Our group strategy of providing the right product at the best possible price in accessible locations continues to underpin Pepkor’s performance.” LEON LOURENS, CEO
Slide 31: Clothing and general merchandise
Segmental performance Clothing and general merchandise
Slide 32: PEP and Ackermans
PEP and Ackermans 6.3% 2.6% 5.4% sales LFL sales retail space growth growth growth 4.8% 1.5% core CFH core CFH total RSP inflation volume growth 32
Slide 33: PEP
PEP 96.5% 2 327 +117 new stores Best Price stores Leadership 23% >10% >40% sales growth sales growth growth in PEP in PEP Home in FMCG Money transactions 33
Slide 34: Ackermans
Ackermans 18.6% 806 +81 new stores credit mix stores Click & >19% >10% Collect growth in Cellular growth in launched sales and profit Ladies Wear 34
Slide 35: PEP Africa
PEP Africa -4 net stores +14.3% +13.5% 313 3 000 closed sales growth1 LFL sales growth1 stores1 employees (constant currency) (constant currency) Phase of consolidation Zimbabwe operations discontinued 20 stores 1 Excluding Zimbabwe 35
Slide 36: Speciality
Speciality +73 new stores +7.7% +3.0% 949 sales LFL sales stores growth growth Stockholding and inefficiencies receiving attention Healthy market share gains 36
Slide 37: Furniture, appliances and electronics
Segmental performance Furniture, appliances and electronics
Slide 38: JD Group
JD Group 8.3% 2.7% 0.6% R167m 3.9% revenue sales LFL sales operating profit retail growth growth decline before IFRS 9 space +8 net new stores 38
Slide 39: Furniture retail division
Furniture retail division 26.9% 16% 761 lay-bys credit mix stores contribution 39
Slide 40: Consumer electronics and appliances division
Consumer electronics and appliances division 8.1% 4% 90% 139 growth online sales credit mix in online stores contribution transactions 40
Slide 41: Building materials
Segmental performance Building materials
Slide 42: The Building Company
The Building Company 0.9% 2.2% sales growth LFL sales growth 1.9% -4 net stores closed operating margin 120 12k SKU online platform stores launched 42
Slide 43: The Building Company interventions
The Building Company interventions Defining customer value proposition Corporate culture established Restructuring and consolidation Clarification of strategy Realise efficiencies Central procurement 43
Slide 44: FinTech
Segmental performance FinTech
Slide 45: FLASH
FLASH 169k 3.1m 22m +23% average daily monthly traders virtual turnover transactions customers Informal market Group structure 45
Slide 46: Capfin
Capfin 287k 20% 40% 960 active of new loan applications approval rate employees customers are digital Internally funded credit book established IFRS 9 implemented 46
Slide 47: Growth drivers
Growth drivers “We have a range of affordable products, a great team of retailers and a proven business model.” LEON LOURENS, CEO
Slide 48: Growth drivers: leveraging footprint
Growth drivers Leveraging New New New footprint geographies formats channels 40% 15 growth Financial service transactions 71 14 thousands p/m 48
Slide 49: Growth drivers (continued)
Growth drivers (continued) Adult wear Informal New product Store growth market market categories 49
Slide 50: Outlook
Outlook “Pepkor remains optimistic despite the current trading environment. We are focused on exploring the opportunities and potential that this market presents.” LEON LOURENS, CEO
Slide 51: Thank you
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Slide 52: Annexures
PEPKOR Holdings Limited Annexures
Slide 53: Comparable results – FY19
1. Comparable results – FY19 Provision for guarantee Implementation Statutory results and loan impairment of IFRS 9 Comparable results Rm Rm Rm Rm Operating profit before capital items 6 797 40 318 7 155 Capital items (1 278) – – (1 278) Operating profit 5 519 40 318 5 877 Net finance costs (1 581)
Slide 54: Comparable results – FY18
1. Comparable results – FY18 Statutory Provision for guarantee and Comparable results loan impairment results Rm Rm Rm Operating profit before capital items 5 880 511 6 391 Capital items (37) – (37) Operating profit 5 843 511 6 354 Net finance costs (1 168) – (1 168) Profit before taxation 4 675 511
Slide 55: Comparable results (continued)
1. Comparable results (continued) The comparable results as set out in this results presentation have been prepared for illustrative purposes only, in order to provide shareholders with comparable results and to show the impact of the comparability of results adjustments on the company’s statutory r
Slide 56: Continued retail space growth
2. Continued retail space growth FY19 – Retail space (m2) +2.5% +5.6% (3.9%) (3.2%) 2 434k 2 374k FY18 FY19 56
Slide 57: Retail footprint
3. Retail footprint 30 September 2018 Openings Closures Net movement 30 September 2019 Retail area ‘000 Retail area ‘000 Retail area ‘000 Retail stores m2 Retail stores Retail stores Retail stores m2 Retail stores m2 4 181 1 582 289 (75) 214 89 4 395 1 671 PEP 2 231 802 117 (21) 96 30 2 327 832 Acke