Cape Town – Direct marketing group, HomeChoice Holdings, grew headline earnings per share by 20% to 282 cents for the year to December 2012 in an increasingly competitive trading environment and worsening credit conditions.
Chairman Rick Garratt said the group performed strongly and gained market share, despite tightening credit-granting criteria.
Group revenue increased by 28% to R1.43 billion, with the HomeChoice retail business growing revenue by 25% and FinChoice lifting revenue by 41%.
Group receivables grew by 35% to R1 billion, with HomeChoice 25% higher and FinChoice up 39%.
The group’s operating profit increased by 18% to R403 million. The growth in operating profit was below the revenue increase owing to pressure on the gross profit margin which declined from 53.4% to 51.1 %, mainly as a result of the depreciation of the Rand and increased debtor costs in the retail business. However, both the gross margin and operating margin were within management’s targeted range.
“Growth in HomeChoice retail was driven by a 34%increase in new customers and good demand from existing customers for our innovative, own-brand merchandise ranges,” said HomeChoice CEO, Shirley Maltz. “We have remained committed to our target customer, the black urban female, and continued to focus on offering her products that represent value, quality and exclusivity.”
She said the direct marketing model remains HomeChoice’s core strength and continues to differentiate the brand in the market, offering customers a shopping experience that suits their lifestyle and time constraints.
“The electronic and online marketing channels continued to show pleasing growth. Website visitors increased by 23% to 5 million and mobi visitors by 250% to over 1.2 million. The response from customers to our online offering is reflected in HomeChoice being voted the country’s favourite e-commerce website in the 2012 South African e-Commerce Awards,” said Maltz.
HomeChoice’s gross receivables increased 27% to R649 million. Debtor costs as a percentage of revenue increased from 10.0 % to 12.6 %, driven by higher write-offs from planned increased customer acquisition, which has a higher bad debt experience than existing customers, and the credit market deterioration reflected in worsening portfolio performance and increased provisioning. The group responded with tightening of credit policies and marketing cutbacks, and the positive effects are being seen in early customer vintages.
FinChoice, the financial services business, maintained its strong growth momentum and increased loan disbursements by 34 % to R656 million, with repeat loans representing 70% of total loans disbursed.
FinChoice increased its contribution to group profits from 27% in 2011 to 32 % in 2012.
“The health of the FinChoice debtors’ book remains sound, although we began tightening credit policy towards the end of the year owing to concerns around the macro lending environment,” said FinChoice CEO, Sean Wibberley.
“Our strategy of marketing loan products exclusively to HomeChoice customers of known credit risk remains a key strength of our business model. FinChoice limits longer-term exposure risk through its strategy of focusing on shorter-term lending, with 56% of new loans being granted on six month terms.”
The group’s financial position continued to strengthen, with the net asset value increasing by 28 % to 1 062 cents per share. Cash generated from operations before working capital changes increased by 19 % to R414 million. Return on equity at 29.8 % (2011: 31.9 %) is well within the group’s medium-term target of 27 % to 32 %.
Garratt said the group postponed its planned listing on the JSE in the second half of 2012 as uncertain market conditions were not conducive to raising capital through a listing. We will continue to monitor market conditions to find a more suitable time to list the company, he added.
Discussing the prospects for the year ahead, Garratt said continued merchandise innovation will be key to driving sales growth in the competitive retail environment.
“We will continue to maintain a cautious approach to credit granting in 2013 and will tighten credit policies as required. Bad debt levels are expected to increase owing to higher levels of consumer indebtedness.
“In light of the group’s cautious approach and in the absence of any marked deterioration in the economic or trading environment, the group expects to deliver reasonable growth in 2013, although not at the same levels of recent years.”
Capital expenditure of R165 million is planned for 2013. This includes continued investment in the development of an ERP system and the completion of a new distribution facility in Cape Town, which will increase warehousing capacity from 80 000m³ to 200 000 m³.
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
Notes to editors 2012 integrated annual report on website the annual report for the year ended 31 December 2012 is available at www.homechoiceholdings.co.za
Background on HomeChoice Holdings HomeChoice Holdings is a credit-based direct marketer selling homeware merchandise and household textiles through its retail business, HomeChoice, and unsecured personal loan products through FinChoice. The group targets the rapidly expanding urban middle-income mass market (LSM 4 to 8), with 84 % of HomeChoice customers being female and over 80 % of group business conducted with existing customers of known credit standing. Currently 8% of the group’s revenue is generated from the neighbouring countries of Namibia, Botswana, Lesotho and Swaziland.