Leading direct marketer HomeChoice Holdings has delivered a strong performance for the year to 31 December 2010, with pleasing growth from its retail and financial services businesses contributing to a 73% increase in earnings per share to 176.2 cents.
Group revenue increased by 33.5% to R869 million, with operating profit up 76.5% to R250 million. The group has shown consistent growth in shareholder value creation over the last five years, with earnings per share growing at a compound rate of 27.8% per annum.
During the 2010 financial year two distributions of 20 cents per share each were paid to shareholders, and a distribution of 30 cents per share has been proposed for May 201.
Chairman Rick Garratt commented: “These results are attributable to a focused execution of the group’s strategy, increased customer demand for our improved merchandise ranges and the continued strong demand for personal loan products.”
Garratt said the board is pursuing a possible listing on the JSE in 2012. “The major reason to list would be to raise further capital to fund expansion, particularly of FinChoice and the credit business of HomeChoice. A listing will also enhance our ability to retain and attract talented management and staff, as well as improving the tradability of our shares.” Shareholders will be kept informed of the listing plans, he said.
HomeChoice originally listed on the JSE in 1996 and delisted in February 2003. Since 2003 the group has delivered growth in both earnings per share and net asset value per share.
The HomeChoice retail business increased sales by 33.3% to R485 million, driven by enhanced customer loyalty and a broader merchandise offering. Average retail sales per customer grew by 18% and the customer base increased by 12% to 354 000. Retail CEO, Shirley Maltz, said: “We built on our core strength in textiles, particularly bedding which performed well, while the new appliances and electronics categories experienced excellent growth. The retail business also experienced strong growth in online sales as a result of continued focus and innovation in this channel.”
HomeChoice’s gross profit margin increased from 49.9% to 54.5%, ahead of the target of 50%, partly due to the strength of the Rand but also as a result of a change in the product mix. The gross profit improvement, together with good cost control and lower bad debts, resulted in a substantial increase in the operating profit margin from 17.6% to 25.6%.
FinChoice, the financial services business founded in 2007, grew revenue by 66.7% to R121 million. The loan book, which is funded entirely from internal resources, increased by 71.9% to R232 million, with a strong demand for repeat borrowing by existing customers. FinChoice markets personal loans to targeted HomeChoice customers of good credit standing, resulting in low acquisition and marketing costs. Bad debt provisions declined from 11.2% to 10.9% of the debtors’ book. This, together with a stable fixed cost base, resulted in operating profit growing by 109.2% to R57 million.
The cash position remains strong, with the group holding R80 million in cash and cash equivalents at year end. Cash generated by operations before working capital changes increased by 90.1% to R277 million. This enabled management to make a substantial investment of R175 million to grow working capital.
Net asset value increased by 27.2% to 661.3 cents per share at December 2010, having more than doubled from 321.9 cents in 2006. Return on equity grew from 20.8% in 2009 to 28.9% in 2010.
Discussing the group’s prospects, Maltz said the economy is steadily improving and the retail sector is showing signs of growth. “Our target customers, being urban mass market females in the LSM 4 to 8 groups, have benefited from lower inflation, real salary increases and lower job losses.”
In the year ahead HomeChoice will focus on further developing customer platforms, using technology to enhance the customer’s shopping experience, developing planning systems to provide a strong foundation for growth with requisite controls in place, and building training capacity.
FinChoice plans to continue the controlled growth of the loan book, leveraging its technology and operation platforms, as well as introducing product and channel innovations. Profitability will be driven by revenue growth, a stable cost base and controlled debtor costs.
Issued on behalf of HomeChoice Holdings by Tier 1 Investor Relations
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