HomeChoice International PLC, the leading participant in southern Africa’s retail homewares and financial services sectors to the expanding urban middle-income mass market, announced steady growth despite a tough second half for the year ended 31 December 2018. Revenue increased by 8,5%, and headline earnings per share remained largely unaltered from the previous year, at 507,7 cents. The group declared total dividends for the year of 194,0 cents per share, up 1,6%.
Chief executive officer South Africa, Shirley Maltz, commented: “Notwithstanding the challenging retail environment, we are seeing the benefit of our continuous investment into improving our customer experience and accelerating our digital transformation, which are both key strategic focus areas for the group. Credit extended via digital channels increased by 43,9% to R1,6 billion.”
Maltz expanded: “Another highlight for us is that the group continues to attract more than 20 000 new customers monthly, attracted by our curated product offers. The group’s active customer base increased by 10,0% this year.”
Capital expenditure, at R126 million, has increased notably in this period and has involved rolling out four additional showrooms and two ChoiceCollect containers, opening a second distribution centre in Gauteng to provide quicker, more convenient deliveries and re-platforming and upgrading technology across the business.
Group revenue increased to R3,2 billion (2017: R3,0 billion), benefiting from a solid contribution from the financial services business, with loan disbursements up 21,5%. This was tempered by weaker retail sales of 6,3%.
Group EBITDA (earnings before interest, tax, depreciation and amortisation) increased by 3,6% to R821 million. Despite significant cost focus, the group could not sufficiently mitigate weaker top-line growth in the second half of the year. Headline earnings increased by 1,3% to R529 million. The group declared a final dividend of 99 cents and a dividend cover of 2,6 times was maintained.
Retail disappoints in H2
Retail revenue increased by 7,4% to R2,5 billion. After a strong sales growth of 18,9% in H1, trading in the second half of the year was impacted by operational challenges at the South African Post Office (SAPO), with delays in the delivery of catalogues and parcels. The non-delivery of monthly catalogues had a substantial impact on sales. The group spent significant effort to assist SAPO and has also sped up the roll-out of showrooms and container hubs to provide additional channels for customers to collect their products. Increased marketing expenses to stimulate sales and additional courier charges to deliver the products to customers were incurred, translating into an EBITDA decrease of 2,9% to R453 million.
The business is however well-positioned to continue its strong historical performance in 2019. Digital sales contribution increased to 16% and will be further enabled with the launch of new e-commerce site. Supporting the much-loved HomeChoice private label, there are now 120 external retail brands on offer which provide variety to existing customers and attract new customers looking for quality homeware, fashion, furniture and personal electronics. The group has also had very positive customer response from the showrooms and ChoiceCollect, with further rollouts planned for 2019.
“Longer-term targets are for 20 showrooms and up to 100 ChoiceCollect containers across the country,” said Maltz.
Loan disbursements in the financial services business increased by 21,5% to R1,8 billion. Pleasingly, loans to existing customers increased to 84,5% of total disbursements, with strong acceptance of MobiMoney, our three-month, digital-only facility product. Revenue increased by 12,2% to R746 million and EBITDA grew by 13,7% to R357 million, highlighting the annuity aspect of the financial services business. Over 40 000 new customers were acquired during the year, increasing the base by 11,4% to 176 000.
Insurance has demonstrated strong growth in funeral products. Gross written premiums increased by 70% over 2017. “The opportunity remains to add more personal insurance products to the portfolio. This vertical represents an attractive growth opportunity to diversify income and increase customer share of wallet,” added Maltz.
At least 86% of customers are now registered on our digital platforms and a third of loan transactions concluded, are done outside of normal trading hours. The richer Mobi platform creates a portal for a multitude of products and value-added services to be offered to customers via their smartphones. The introduction of airtime, data bundles and electricity sales has indicated the potential opportunity to increase customers’ digital engagement with the group.
The group continued to expand a quality credit book with gross trade and loan receivables increasing by 7,5% (on an IFRS 9 comparable basis) to R3,5 billion. Group debtor costs at 17,2% of revenue was marginally above 16,8% in 2017, and remains within the group’s acceptable risk tolerances. Non-performing loans declined, while NPL cover was bolstered by increased provisions. The improving performance metrics are testament to the group’s ongoing conservatism in managing its credit book.
Strong cash generation
Cash generated from operations increased by 32,0% to R474 million, driven by a decrease in retail credit growth in H2, good cash collections, a reduction in loan terms and actively managing cash requirements in working capital.
“The strong cash generation capability of the business is evidenced by the fact the group has managed to grow a credit book of more than R3,5 billion while maintaining a net debt to equity ratio (excluding property) of 22,2%,” Maltz said.
“We will continue to position ourselves as a leading digital partner in the mass market, with an omni channel offering that provides an attractive and seamless retailing experience across all channels,” concluded Maltz.
The group has serviced this market for more than 30 years and has built up a loyal customer base of more than 870 000 active clients. This base, together with our established digital platforms, offer enormous opportunity to extend our product ranges and service offerings.
About HomeChoice International PLC
HomeChoice International plc is an investment holding company listed on the JSE Limited. The group provides retail and financial services to the mass market in southern Africa. HomeChoice services its large, primarily female and middle-income customer base through two trading operations, HomeChoice (Retail) and FinChoice (Financial Services).