interim results for the six months ended 31 March 2020 Our - - PowerPoint PPT Presentation

Unaudited interim results

for the six months ended 31 March 2020

Our mission

2

We make a positive difference to the daily lives of

• ur customers

and the communities in which we operate, by providing convenient access to everyday products and services at affordable prices.

COVID-19 group support

BABY CARE & SANITATION

• Product

donations

• Kangaroo

Unit SOLIDARITY FUND

• Business

support FEEDING

• GoG
• 100 000 meals
• CoCare

DEPT OF HEALTH

• PPE donations
• Patient

admission

• Logistics

SALARY SACRIFICE

• Management

and board

• 3 months

DO MORE FOUNDATION

• Till point

donations

3

Agenda

Segmental performance

03

The six months in review

01

Outlook

04

Financial performance

02

Six months in review

5

Retail

• Gross margin increased 20 bps
• 2% growth in operating expenses
• Technology platforms benefit financial services
• Retail margin improvement
• Severely tough trading conditions
• Strong revenue growth in second quarter
• 90 bps CFH market share growth
• Constrained economy
• High unemployment
• National state of disaster

Trading conditions

Growth

Key indicators

6

1 From continuing operations, before the implementation of IFRS 16 – refer to annexure 1

revenue growth to

R37.6bn1

6.5% 0.3% 145 3.8%

• perating profit

growth to

R3.4bn1 new stores

• pened

decrease in HEPS to

49.3 cents1

Debtors’ costs and finance costs

Reduced profitability in PEP Africa, Speciality and The Building Company

National lockdown loss in trade

Financial performance

RIAAN HANEKOM, CFO

Statutory highlights

8

1 From continuing operations, before capital items and including the implementation of IFRS 16 – refer to annexure 1

6.5%

revenue growth to R37.6bn1

17.2%

• perating profit

growth to R4.0bn1

13.6%

HEPS decline to 44.3 cents1

Statutory results impacted by the adoption of IFRS 16: Leases

75% of leases in first half of term 5 500 leases

Adoption of IFRS 16: Leases

9

Positive earnings impact Negative earnings impact Time IAS 17 Lease expense IFRS 16 Depreciation & interest cost

Adopted 1 October 2019 Modified retrospective approach No restatement of comparatives Key statistics Three- to five-year term Historical store opening programme

IAS 17 vs IFRS 16 Income statement impact

EBITDA1 EBIT1 Finance costs HEPS1 Lease liability

Adoption of IFRS 16: Leases

10

2 584 2 272 2 002 1 266 846 202

Profit before tax IAS 17 Reversal of lease expense Additional depreciation expense Additional interest cost Other Profit before tax IFRS 16

Impact on results Profit before tax impact (Rm)

R1.8bn R576m R846m 5.0cps R17.1bn

• 1 From continuing operations and before capital items
• 10%

Highlights – excluding IFRS 16

11

1 From continuing operations, before capital items and excluding the implementation of IFRS 16 – refer to annexure 1

6.5%

revenue growth to R37.6bn

0.3%

growth in operating profit to R3.4bn

3.8%

HEPS decline to 49.3 cents

22.0%

Return on net assets

Investment in credit books completed IFRS 9 additional provisions: R134m Increased funding costs + 6.1% Lost revenue R476m and R150m operating profit

PEP Africa, Speciality, The Building Company

Revenue growth

12

H1FY20 segmental composition Rbn

From continuing operations

H1FY19

5.4%

• 5.1%

36.4%

+ 6.5%

35.3 37.6 1.7%

H1FY20

R476m lost revenue

65% 11% 10% 14%

13

Weaker trading Financial services Less markdowns

H1FY20 H1FY19

Gross profit margin maintained

34.6% 34.4%

65% 14% 3% 18%

14

Decrease to

R408m

No external distribution fee earned

Commissions Insurance Advertising/ marketing

Strong growth in commissions

• Bill payments
• Money transfers

Other income

Other

• 7.9%

Low CODB leader

15

45% 23% 7% 5% 20%

H1FY20

Lowest in the market

Salaries Depreciation Advertising Property leases

25.4%

+ 3.4% + 0.1%

Property Salaries

CODB composition

Other

Credit books

16

No of active accounts

Credit type

Gross book size (Rbn) Growth in gross book (YOY)

Business objective

187k 333k 2.6 > 100%* 1.8 90%*

Installment sale Sales enabler

1.5m 3.1 21%

Revolving credit Sales enabler Unsecured lending Financial services

* New internally funded credit books

Provision levels

17% N/A 7%

Segmental sales contribution

17% 18% 33% 34% 15% 20%

Comparable operating profit

17

3 405 3 455 3 698 3 414 50 150 134

H1FY19 Statutory IFRS 9 H1FY19 Comparable H1FY20 Comparable COVID-19 Lost trading IFRS 9 H1FY20 excluding IFRS 16

Rm + 7.0% + 0.3%

From continuing operations before capital items and excluding implementation of IFRS 16

H1Y20 segmental composition Rm

92% 2% 0% 6% 8%

Comparable operating profit growth

18

3 405 3 414 11.7% 1.3%

• 90.5%

From continuing operations, before capital items and excluding implementation of IFRS 16 H1FY19

• 0.5%

H1FY20

R134m IFRS 9 impact R150m lost operating profit – lockdown

+ 0.3%

19

Net finance cost

+ 6.1%

Funding of new credit books

H1FY20 H1FY19

R739m R784m

Improvement in effective tax rate

20

Effective tax rate

H1FY19

34.0%

Effective tax rate Irrecoverable foreign withholding taxes Non-deductible finance costs – preference shares Unrecognised tax losses

35.7%

H1FY20

4 077 1 788 1 000 385 2 090 1 584

H1FY20 Debtors cost Other non-cash Consumer finance NetWC IFRS 16

Net changes in working capital

• perations

Cash generated

21

H1FY20 – Rm

R2.9bn

cash generated

• excl. new credit

books

1 Before capital items and including discontinued operations 2 Including IFRS 9 costs 3 Includes movement in provisions, share-based payment expense and unrealised foreign exchange movements, etc.

Debtors’ costs2 Cash generated from operations Net changes in working capital all credit books EBITDA1 Other non-cash adjustments3

22

Net debt

Excluding adoption of IFRS 16

R14.1bn

Net debt

1.72 times

Net debt-to- EBITDA

5.30 times

EBITDA interest cover

3.9 5.0

• 0.5
• 5,0
• 9.0
• 3.3
• 0.2

FY20 FY21 FY22 FY23 FY24 FY25

Cash and cash equivalents Available cash facilities Debt repayments

Debt repayment profile – Rbn

Mar 2020

Credit rating affirmed by Moody’s

Bond programme

23

R10 billion DMTN programme launched R1 billion successfully issued R800m in three-year bonds R206m in five-year bonds

Performance guidance impossible due to high level of uncertainty

COVID-19 impact

24

Debt collections above expectation – expected to decline Impairment indications

COVID 19 COVID 19

Capital structure

COVID 19

• Ambition to reduce gearing to 1 times net debt-to-EBITDA remains in place

Debt covenant waiver and amendment

COVID 19

Dividend payment not expected

COVID 19

• Provision levels expected to increase
• Expected to emerge depending on trading conditions

LEON LOURENS, CEO

Segmental performance

Segmental performance

Clothing and general merchandise

PEP and Ackermans

27

+ 7.3%

sales growth

+ 3.6%

LFL sales growth

+ 4.5%

retail space growth

+ 9.8%

core CFH RSP inflation

28

PEP

97% 26% + 15%

best price leadership price differential sales growth in PEPhome

+ 20% + 21%

sales growth in FMCG stores

2 357

growth in PEPmoney transactions

+ 44

new stores

18% 837 19%

credit sales contribution stores lay-by contribution

+ 15% 20

growth in Babies’ wear stand-alone Ackermans Woman stores

Ackermans

29

+ 33

new stores

Remains profitable

PEP Africa1

30

• 5.5%
• 8.1%

320

sales growth (constant currency) LFL sales growth (constant currency) stores

1 Excluding discontinued operations in Zimbabwe

sales growth (actual rates)

• 15.9%

Zimbabwe exit nearly complete Phase of consolidation

Speciality

31

943

• 0.8%

stores sales growth

• 2.9%

LFL sales growth

24

stores closed

Discretionary apparel and footwear market

Segmental performance

Furniture, appliances and electronics

Segmental performance

33

JD Group

1.7%

• 0.1%

6.3%

revenue growth sales decline

• nline consumer

electronics credit mix in furniture

25.2%

> 100%

transaction growth

921

stores

• 1.8%

retail space

• 2.7%

LFL sales decline

Segmental performance

Building materials

Segmental performance

retail margin sales decline stores LFL sales decline

Improved

The Building Company

35

• 5.1%

120

• 4.0%

Segmental performance

FinTech

172k + 9% + 20%

traders increase in device turnover growth in virtual turnover

37

Informal market

FLASH

Technology platform expertise

Capfin

credit book funding completed

R2.6bn 333k

active accounts More stringent credit granting criteria Focus on collections

38

Outlook

LEON LOURENS, CEO

COVID-19 stages

40

• China supply exposure
• Secure product supply
• Alternative sources

1

Risk of supply

• World-wide pandemic
• Guidelines and protocols
• Adapting to work from home
• Prioritise well-being of employees,

customers, suppliers

2

Safety first

COVID-19 stages

41

COVID-19 stages

42

• Preservation of liquidity and cash flow
• Prioritise employee salaries
• Bank facilities secured
• Scenario planning
• Operating costs and capex reduced
• Merchandise plans adjusted

3

Protection of the business

• Reopening stores, supply chain and logistics
• Trading performance
• Prioritise projects
• Credit book collections
• Reforecast, replan, restructure
• Budget and three-year plan

4

Restart of operations

COVID-19 stages

43

Trading performance

44

96% 48% 19% 65% 37% 15%

• 27%
• 39%
• 16%
• 40%
• 41%
• 29%

71% 32% 24%

w/c 3 May w/c 10 May w/c 17 May

PEP & Ackermans Speciality JD Group The Building Company FLASH*

Estimated lost revenue in April 2020: R5.0bn

COVID 19

May 2020 weekly like-for-like sales growth# %

COVID 19

w/c – week commencing # Based on management accounts * Growth in virtual turnover

COVID-19 – the way forward

45

• Reduction in opex and capex
• Curtailment of credit extension
• Capital allocation
• Accelerate e-commerce
• Portfolio strategy

5

Gearing for growth

Pepkor resilience

• Retail margin improvement
• Severely tough trading conditions
• Investment where it matters most
• Capital light business model
• Restructured cost base
• Constrained economy
• Weak economic environment
• High unemployment
• COVID-19 impact
• Living our purpose
• Disciplined approach
• Retail skills

Discount and value market positions

1

Basic and replenishment products

2

Preferred footprint

3

Leader in low cost of doing business

4

Strong supplier base

5

Leadership and culture

6

46

Our vision

47

To be a globally respected discount and value retailer – by being the best place to shop, work and invest.

Thank you

Annexures

• 1. Pro forma results (excl. IFRS 16)

50

CONTINUING OPERATIONS – H1FY20 Rm Statutory results (incl. IFRS 16) Rm Adoption of IFRS 16 Rm Pro forma results (excl. IFRS 16) Rm INCOME STATEMENT EBITDA 5 910 (1 842) 4 068 Depreciation and amortisation (1 920) 1 266 (654) Operating profit 3 990 (576) 3 414 Net finance cost (1 630) 846 (784) Headline earnings per share (cents) 44.3 5.0 49.3 BALANCE SHEET Net debt 31 219 (17 070) 14 149 CASH FLOW Cash generated by operations 3 780 (1 992) 1 788

Refer to note 11 of the summary consolidated financial statements for further information

• 1. Pro forma results (continued)

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The pro forma results as set out in this results presentation have been prepared for illustrative purposes only, in order to provide shareholders with pro forma results and to show the impact of the comparability of results adjustments on the company’s statutory

• results. The impact of the comparability of results adjustments is deemed to be non-

recurring in nature. Because of its nature, the pro forma results may not fairly present Pepkor’s financial position, changes in equity, results of operations or cash flows. The pro forma results are presented in accordance with the JSE Listings Requirements and the Guide on Pro Forma Financial Information issued by SAICA. The pro forma results and any forward-looking and forecast information presented are the responsibility of the board and were not reviewed or reported on by Pepkor’s auditors.

• 2. Retail footprint

52

30 September 2019 Openings Closures Net movement 31 March 2020

Retail stores Retail area ‘000 m2 Retail stores Retail stores Retail stores Retail area ‘000 m2 Retail stores Retail area ‘000 m2

4 395 1 671 105 (43) 62 13 4 457 1 684

PEP 2 327 832 44 (14) 30 7 2 357 839 Ackermans 806 477 33 (2) 31 10 837 487 PEP Africa1 313 120 10 (3) 7 (1) 320 119 Speciality2 949 242 18 (24) (6) (3) 943 239

900 429 40 (19) 21 (1) 921 428

Furniture brands3 761 341 38 (15) 23 3 784 344 Appliances and electronics brands4 139 88 2 (4) (2) (4) 137 84

120 334 – – – – 120 334 Pepkor 5 415 2 434 145 (62) 83 12 5 498 2 446

1 Excludes discontinued operations in Zimbabwe 2 Includes Dunns, John Craig, Refinery, Shoe City and Tekkie Town 3 Includes Russells, Bradlows, Rochester and Sleepmasters 4 Includes Incredible Connection and HiFi Corp 5 Includes (retail and wholesale) BUCO, Timbercity, Tiletoria, Floors Direct, MacNeil, Cachet, B-One, Buchel, W&B Hardware, Bildware, Citiwood and Brands 4 Africa

5