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HOMECHOICE REVENUE UP 16% IN TURBULENT CREDIT MARKET

27 March 2014

Cape Town – HomeChoice Holdings, the home shopping retailer and niche loans provider, grew revenue by 16% to R1.7 billion for the year to December 2013 in an environment of increasing consumer and credit stress. Headline earnings per share for the year increased by 8.8% to 306.9 cents.

A final dividend of 66 cents per share was declared, bringing the total dividend for the year to 110 cents, an increase of 120% on the previous year.

Chief executive officer, Shirley Maltz, said the group adopted a defensive stance in 2013 in response to the turbulent credit conditions, focusing on generating cash and maintaining the quality of the debtors’ books.

“We reacted decisively by tightening credit policy and significantly reducing credit extension across our retail and financial services businesses. This resulted in a 20% increase in customer exclusions from marketing campaigns which inevitably impacted our revenue growth.”

She said the defensive stance had paid off, with cash generated by operations increasing by 81% to R278 million. The group’s balance sheet continued to strengthen with the net asset value growing 20% year-on-year to R1.3 billion.

Retail sales increased by 10.5%, with product price inflation averaging 9% and volumes growing by 2%. “The merchandise offer was well received by our mass middle market female customer base. We attracted over 154 000 new customers, growing our retail customer base to 538 000.”

“Currently 9.5% of our retail sales are generated from Botswana, Lesotho, Namibia and Swaziland, “Africa is becoming increasingly attractive and we will continue to expand our customer base and extend our presence into new countries in the medium term,” said Maltz.

The retail gross margin was well managed with the decline contained to 200 basis points to 49.1%. The margin was severely impacted by the 22% depreciation of the Rand against the US dollar and Homechoice passed on some of the price increases to customers.

Against the background of a slowdown in the unsecured lending market and a worsening consumer economy, FinChoice posted a 24% increase in revenue and 16% growth in loan disbursements. The financial services business marginally increased its contribution to group profits to 33% in 2013 (2012: 32%).

“As trading conditions continued to deteriorate FinChoice also adopted a more defensive strategy by focusing on shorter-term products to limit risk. A one-month loan product was launched which significantly reduced the average term of loan accounts booked in 2013 from 11 months to 8 months,” she said.

The group’s debtor books grew by 15.4% to R1.1 billion. Debtor costs increased 39% to R316 million owing mainly to the higher bad debt charge which was not unexpected given the credit turbulence and market deterioration which started in late 2012. Debtor costs as a percentage of revenue increased to 19.0% (2012: 15.9%) and the provision for impairment as a percentage of gross receivables increased to 16.2%. (2012: 15.7%)

The business continued to invest in capital projects despite the prevailing headwinds. This included an investment of R150 million in a new centralised distribution facility in Cape Town which was completed in late 2013, increasing total storage capacity from 80 000 m³ to 200 000 m³.

On the outlook for the new financial year, Maltz said trading conditions are expected to remain unchanged as the negative credit cycle will continue for some time before consumer indebtedness starts to decline.

“We will continue to follow our current credit strategy while maintaining tight control over costs and focusing on cash generation. Currency depreciation will continue to impact price inflation, with increasing food and transport costs affecting our customers and Rand weakness placing pressure on product margins.”

“We have a focused organic growth strategy with exciting plans to expand our omni-channel offering in retail, further drive online sales through the Internet and capitalise on the potential to take the business deeper into Africa,” she added.

Ends

Issued by Tier 1 Investor Relations on behalf of HomeChoice Holdings

For further information kindly contact Graeme Lillie, Tier 1 Investor Relations Tel 021 702 3102 / 082 468 1507