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HOMECHOICE DELIVERS STRONG EARNINGS GROWTH AND CONSIDERS AN EQUITY RAISING TO FUND EXPANSION

8 March 2018

Financial highlights:

  • Retail sales up 16.8% to R1.7 billion
  • Loan disbursements up 17.5% to R1.5 billion
  • Headline earnings per share up 22.9% to 509.4 cents
  • Cash generated from operations up 29.5% to R358.7 million
  • R1.2 billion group credit extended on digital channels
  • Final dividend of 109.0 cents, up 25.2%

Cape Town, 8 March 2018. HomeChoice International PLC (“HIL”), the leading provider of innovative Retail and Financial Services products in southern Africa, today announced solid results for the year ended 31 December 2017.

Chief Executive Officer South Africa, Shirley Maltz, commented: “Customers have responded positively to the extended retail product range, as well as innovation in our financial services products. Excellent progress was achieved in digital transformation across the group, with digital Retail sales increasing by 48% and digital loan disbursements growing 45%. Credit extended from digital channels now accounts for 32% (2016: 27%) of total group credit. These achievements have brought us several steps closer to our long-term objective of becoming a leading digital department store, as well as a digital portal that will offer financial services as well as a range of value added products and services.”

Financial results

HIL has delivered a robust financial performance in what continues to be a challenging retail and credit market. Group revenue increased by 12.7% to R3.0 billion, bolstered by above-market growth in Retail sales of 16.8%, as well as a strong contribution from Financial Services with loan disbursements growth of 17.5%.

Maltz said: “The group has consistently grown its customer base by more than 20 000 new customers per month, contributing to 7.0% growth of the group’s active customer base to 796 000.”

New customers are primarily acquired by the Retail business, attracted to the innovative homewares range. Data analytics on the customer base, combined with robust credit risk and response scorecards, enables effective marketing campaigns to drive profitable demand. FinChoice utilises these scorecards and customer data to offer financial services products to selected low-risk customers.

The Retail business introduced a new credit facility product in April 2016 (from the previous instalment credit product), making credit more affordable to customers. This has resulted in
increased retail demand, however, finance charges and initiation fees earned were flat on 2016. The regulatory requirement that customers provide documentary proof of income continues to adversely impact revenue with increased operating costs.

Earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 14.1% to R800.6 million, benefiting from an improvement in gross margins as well as efficiencies in trading expenses which increased by 14.7%. Group debtor cost growth of 5.3% is well below revenue growth, which reflects prudent credit risk management and improved credit performance in both businesses.

The Retail division’s EBITDA increased by 13.0% to R474.7 million. The solid performance was driven by innovations in the core homeware textiles range and a broadening of the branded goods offering. Maltz added: “We have applied our deep knowledge of the customer by bringing in brands she loves to augment our own brand. This has helped us on our ongoing transformation towards becoming a digital department store”.

Financial Services’ EBITDA grew by 20.4% to R313.8 million. The division delivered continued growth in loan disbursements, increasing 17.5% to R1.5 billion and customers have responded well to the rollout of the group’s suite of funeral insurance products.

MobiMoneyTM, a new credit facility product available exclusively on customers’ mobile phones, was launched in the fourth quarter to positive customer response. During 2017 lending capability was also established in Botswana and Namibia, with the first pilot loan sales to Botswana commencing in February 2018.

Group operating profit increased by 16.0% to R751.9 million with an improvement in operating margin from 24.3% to 25.0%. Headline earnings increased by 24.2% to R527.5 million with HEPS up 22.9% to 509.4 cents.

Cash generated from operations increased by 29.5% to R358.7 million driven by good cash collections and a reduction in average loan terms.

Capital expenditure at R56.3 million reflects continued investment in the group’s technology systems and an initial investment in a Gauteng distribution centre to be opened in 2018.

Equity capital raise and improving share liquidity

The group said it is planning further strategic capital investments, including new product developments, systems and platforms to enhance customer experience and analytics capabilities, and warehousing and logistics infrastructure. In addition to the R800 million long-term funding facility already in place, the group is considering an equity capital raise to fund these expansion projects.

The group has been focusing on improving its free float and share liquidity. An equity raise would have the further benefit of introducing additional shareholders to the group. At the same time, our major shareholders have agreed, as part of an equity capital raising, to sell a portion of their own shareholdings. We believe both actions will be beneficial to the free-float and liquidity in the company’s shares.

Outlook

Maltz concluded: “While we continue to see a challenging trading environment, recent political developments have provided improved consumer and business confidence, as well as cautious optimism for economic growth within South Africa. We continue to see good demand for our product offers across the group and are well positioned to take advantage of any improvement in economic conditions over the next year.”

About HomeChoice International PLC

HomeChoice International PLC is an investment holding company listed on the JSE Limited primarily consisting of two trading operations, HomeChoice (Retail) and FinChoice (Financial Services).

The group has operated for more than 30 years in southern Africa, giving it considerable experience in both retail and credit management, and unique expertise to operate successfully in its target market of mass-market consumers.

HomeChoice is an omni-channel retailer offering a rapidly broadening range of innovative, quality household textiles, homewares, personal electronics, furniture, clothing and footwear to its customers under its trusted HomeChoice brand and more than 60 local and international brands. Customers can engage through a multitude of channels, from digital platforms to call centres, sales agents’ networks, catalogues and showrooms.

FinChoice is a fintech business selling innovative credit, insurance and value-added financial services products via digital platforms, with a call centre providing additional support. FinChoice recently launched MobiMoneyTM, a new credit facility product available only on customers’ mobile phones.

For further enquiries contact or to set up a media interview contact:
Joanne Botha: Aprio Strategic Communications, (+27 (0) 83 395 7076; joanne@aprio.co.za)