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HOMECHOICE INCREASES REVENUE 13% AND EXPANDS MARGINS

1 September 2014

Cape Town – Home shopping retailer HomeChoice Holdings increased revenue by 13% to R861 million in the six months to June 2014 and reported headline earnings per share growth of 11.6% to 157.1 cents.

An interim dividend of 61 cents per share was declared, an increase of 39% on the previous interim dividend.

Chief executive officer, Shirley Maltz, said the group experienced reasonable demand from customers for both the retail and financial services offerings in the challenging consumer environment.

Retail sales increased by 10.2% to R451 million as both existing and new customers responded positively to the expanded product ranges and new product categories. HomeChoice gained 81 000 new customers in the period, increasing its customer base to 557 000.

“Growing demand from customers to shop on the Internet and via mobile phones saw online sales increase by 34%, with e-commerce now accounting for 9.3% of retail sales. Our focus on increasing sales outside South Africa has driven a 36.5% increase in revenue, with Africa now representing 11.8% of retail sales,” she said.

The gross profit margin improved by 60 basis points to 50.1% as good margin management across the supply chain limited the impact of Rand weakness on merchandise imports.

Group EBITDA increased by 15.5% to R240 million and group operating profit increased 14.0% to R230 million as the operating margin improved by 30 basis points to 26.7%. This has also contributed to operating cash flows before working capital changes increasing by 16% to R242 million.

Maltz said the move to the group’s new centralised distribution centre, built at an investment of R150 million, was successfully completed in January 2014 with minimal disruption to the business. The new facility has increased total storage capacity from 80 000 m³ to 200 000 m³.

The group also reported a much-improved credit performance following the tightening of credit policies over the past two years.

“Encouragingly the group’s credit performance has turned around, with debtor costs as a percentage of revenue reducing from 19.0% to 17.9%, reflecting the benefit of tightening credit policy.”

“As our early credit metrics started to deteriorate in 2012, we took decisive action and significantly tightened credit policy, maintained its shorter-term focus and limited loan sizes,” she said.

This defensive position, together with further tightening of credit policy in 2013, contributed to group debtor costs being contained to an increase of only 6.3%, compared to the group’s revenue growth of 12.9%. Non-performing loans reduced to 8.5% of the retail book (December 2013: 10.1%), and 3.7% of the FinChoice book (December 2013: 4.0%). The strong focus on cash collections combined with effective credit management resulted in a reduction in the provision for impairment as a percentage of gross receivables from 16.2% to 15.5% at June 2014.

The financial services business continued to adopt a cautious approach to lending in the current subdued market environment, only offering personal loans to proven HomeChoice retail customers on short terms.

“The tightened credit policy introduced in 2013 was maintained into 2014 and revenue growth rates moderated as expected, growing by 15%, while loan disbursements grew by 20%.”

Discussing the outlook for the business, Maltz said consumer spending is likely to remain constrained in the months ahead in the turbulent credit environment. “Although our debtor performance has improved significantly, tight credit policies will continue to be applied until the credit environment shows sustained improvement. We will continue to focus on cash generation and containing expense growth.”

She said growth plans include extending product ranges and driving product innovation to meet changing customer needs, developing an e-commerce capability to increase online sales and continuing to enhance the successful KwikServe mobile offering for financial services customers.

“The retail business has experienced good growth outside South Africa and we will continue to expand our customer base and extend our presence beyond the five countries in which we currently trade.”

Maltz added that retail sales for July and August 2014 are in line with the performance for the first half of the year.

Ends

Issued by Tier 1 Investor Relations on behalf of HomeChoice Holdings

For further information kindly contact Shirley Maltz, HomeChoice Holdings Tel 021 680 1057 Graeme Lillie, Tier 1 Investor Relations Tel 021 702 3102 / 082 468 1507