Pepkor, owners of one of Nigeria leading clothing retail store, Pep and Ackerman’s brands, said it recorded satisfactory results during the six months ended 31 March 2019 amid shrinking consumer wallet and challenging the retail market.
The Pepkor group reported satisfactory results during the six months ended 31 March 2019 (H1FY19) in a challenging retail market.
The group achieved revenue growth of 7.0% to R35.3 billion and reported operating profit growth of 25.2%, before capital items, to R3.4 billion during H1FY19.
Consumer spending remains under pressure, having to contend with increased living costs and high levels of unemployment. Uncertainty prior to the 2019 elections, the implementation of stage four load-shedding and the shift of Easter to April further contributed to a very challenging retail environment.
Respectable earnings growth on a comparable basis was achieved, notwithstanding lower than expected sales growth. Pepkor’s defensive market positioning of offering value to customers by providing everyday products at affordable prices and at customers’ convenience, underpins the group’s performance.
Pepkor grew its market share in the period under review, and the group’s retail store footprint expanded to 5 332 stores, including 164 new store openings during the six-month period.
Pepkor grew its market share in the period under review, and the group’s retail store footprint expanded to 5 332 stores.
Pepkor’s statutory results include one-off items that impact its comparison to the previous period. On a comparable basis, operating profit increased by 6.9% to R3.4 billion and headline earnings per share increased by 3.4% to 52.4 cents.
On a comparable basis, operating profit increased by 6.9% to R3.4 billion and headline earnings per share increased by 3.4% to 52.4 cents.
Further information on how the comparable results were calculated is included in the ‘Comparability of results’ section of this results announcement.
Net finance costs increased by 33.5% to R738 million (29.8% to R718 million excluding one-off costs) as a result of the capital investment made to fund the two new credit books and as a consequence of lower cash generation.
Pepkor’s effective tax rate for the period is 34.0%. South African income tax is calculated at 28% while tax in other jurisdictions is calculated at the prevailing rates.
Items impacting Pepkor’s effective tax rate relate mainly to irrecoverable foreign withholding taxes and non-deductible finance costs.
The internal funding of the new credit books commenced during the reporting period. The new JD Group credit book, Connect Financial Solutions, amounted to
R1.0 billion (gross) and the new Capfin credit book amounted to R0.3 billion (gross)at 31 March 2019. The new credit books are funded by R2.5 billion bridging finance secured during the period. Opportunities to diversify funding sources are being explored.
Cash generation was negatively impacted by the funding of the new credit books and higher net working capital levels due to lower sales growth. Higher inventory levels reported at the end of FY18 due to lower sales activity were successfully managed through disciplined markdowns to manage stock freshness. Higher inventory levels at 31 March 2019 – compared to the prior year – were influenced by lower than expected sales and the shift of Easter to April, as well as an expanded store base. Net debt increased to R15.7 billion from R12.6 billion at 30 September 2018.
The contractual net debt-to-EBITDA ratio of the group is 2.04 times with interest cover at 5.65 times.
Outlook
Pepkor is a group of 49 000 employees whose purpose is to provide value that enriches customers’ lives – making their lives better and easier. This focus will continue to support the group’s performance during the remainder of the 2019 financial year. Management remains cautiously optimistic about the retail environment and expects improved consumer confidence following the completion of South Africa’s elections. The group continues to identify opportunities for growth and expansion and expects to further expand its store footprint, achieving between 3% and 4% space growth in FY19 on a net basis.
