PEPKOR HOLDINGS LIMITED - Voluntary Trading Update For The Three Months Ended 31 December 2022
30 January 2023 11:00

Voluntary Trading Update For The Three Months Ended 31 December 2022

(Incorporated in the Republic of South Africa)
(Registration number: 2017/221869/06)
Share Code: PPH
Debt Code: PPHI
ISIN: ZAE000247995
(“Pepkor” or the “group”)



Group revenue for the three months ended 31 December 2022 (the “quarter”) increased by 6.5%
to R24.3 billion.

From a traditional retail perspective, the Clothing and general merchandise, Furniture, appliances
and electronics and Building materials segments in aggregate (“Retail segments”), increased
revenue by 8.2%. Revenue in the Fintech segment decreased by 10.0% due to the planned
change in the product mix of the Flash business, as previously reported.

 Revenue growth by               Quarter ended        Quarter ended
 segment                           31 Dec 2022          31 Dec 2021      Growth     Contribution
                                           Rm                   Rm            %                %

 RETAIL SEGMENTS                        22 417               20 713        8.2%            92.2%

  ? Clothing and general                16 766               15 137       10.8%            68.9%

  ? Furniture, appliances                3 442                3 431        0.3%            14.2%
    and electronics

  ? Building materials                   2 209                2 145        3.0%             9.1%

 FINTECH SEGMENT                         1 906                2 118      -10.0%             7.8%

 GROUP                                  24 323               22 831        6.5%           100.0%


Group merchandise sales (“sales”) for the Retail segments increased by 7.7% for the quarter
while group like-for-like sales (which excludes the newly-acquired Avenida business) decreased
by 1.4%. During the quarter the Retail segments opened a total of 132 new stores (112 on a net
basis), expanding the retail store base to 5 942 stores.
Trading performance during the quarter was negatively impacted by unprecedented levels of
electricity disruptions, notwithstanding 70% of stores being able to trade during load shedding
through back-up power systems. The impact of load shedding was more pronounced in the rural
and deeper outlying areas where the group’s retail footprint has higher representation. The
number of trading hours lost during the quarter increased by 221% on the comparable quarter
last year.

The group remains highly cash generative with 91% of sales generated in cash. Cash sales
increased by 1.8% for the quarter while credit sales increased by 21.0% (excluding Avenida).
Credit is not a material sales enabler for the group and growth in credit granting is achieved on a
prudent basis within the group’s credit methodologies. Collections and non-performing loans
remain at satisfactory levels across all four credit books.

Clothing and general merchandise segment

The Clothing and general merchandise segment increased sales by 10.2%. Like-for-like sales
(which excludes Avenida) decreased by 1.5% and were negatively impacted by the poor
performance in Ackermans as communicated in Pepkor’s FY22 results, and depicted in the table

 Growth for the quarter                Total sales growth       Like-for-like sales growth

 PEP                                                 6.2%                             1.4%

 Ackermans                                          -2.9%                            -8.0%

 Speciality                                          8.3%                             3.5%

 PEP Africa - constant                               9.0%                             9.3%

 Avenida - constant                                 11.9%                             6.8%

From a market share perspective, the group remains ahead of its market share preceding the
onset of COVID-19, underscoring the discount and value proposition of Pepkor’s retail brands.
(According to the latest Retailers’ Liaison Committee (“RLC”) data).

Retail selling price inflation in core clothing, footwear and homeware (“CFH”) in PEP, Ackermans
and Speciality amounted to 5.0% in aggregate for the quarter.

Consumer affordability and the pricing gap to competitors were well-managed in PEP during the
quarter, maintaining ‘Best Price Leadership’ within the discount sector. The PEP Home product
category continues to report strong growth and is expanding market share aggressively
(according to RLC data). The stand-alone PEP Home retail format increased sales by 22.9% for
the quarter.
Performance in Ackermans continued to be negatively impacted by a suboptimal merchandise
mix in its summer 2022 range, which was not aligned to its core value proposition of providing
customers with unbeatable value. A comprehensive review of the summer 2022 merchandising
process was completed during the quarter where shortcomings were identified. Markdowns have
been implemented, most notably in the boys and ladies wear departments.

The strategy of Ackermans to grow its market share in the adult wear market, by building a
comprehensive ladies wear offering based on the same value principles the brand is known for,
continues with many learnings adopted.

The Speciality business produced solid results, with its strategy of expanding its market share in
adult wear through a value-based offering reaping success (according to RLC data). Double-digit
sales growth was reported in all brands aside from Tekkie Town, where an extremely competitive
branded footwear market resulted in soft trading.

Avenida performed well despite the political turmoil in Brazil following its national elections in
October 2022. Good progress has been made on the value creation plan of the business to create
a significant player in the Brazilian value and discount retail market. Product pricing levels have
been adjusted to be more competitive and affordable for consumers. Five new Avenida stores
were opened during the quarter, increasing the total store footprint to 140 stores. New store
performance continues to exceed expectations and the business remains on track to open a total
of 15 new stores in this financial year.

Furniture, appliances and electronics and Building materials segments

 Growth for the quarter          Total sales growth       Like-for-like sales growth

 JD Group                                     -0.5%                            -2.7%

 The Building Company                          3.0%                             1.8%

JD Group largely maintained sales levels for the quarter as consumer demand for household
goods and consumer electronics remained constrained. This follows two consecutive years of
double-digit sales growth achieved during this quarter. Black Friday campaigns were successful
and the Tech division outperformed the Home division. The online contribution in the Tech division
increased to 11.1% from 10.7% in the comparable quarter.

The Building Company (“TBCo”) outperformed the market, notwithstanding the significant impact
load shedding has had on TBCo’s business and its entire value chain, including its suppliers who
cannot manufacture products and its building contractor customers who are unable to operate on
site. Performance was supported by the continued execution of its strategy focused on an
improved product range and product availability.

FINTECH segment
The decline in revenue in the Fintech segment is attributable to the FLASH business and its
deliberate change in product mix. This strategic change yields lower statutory revenue but with
improved profitability as it grows its basket of products offered to traders in the informal market.
Total turnover (based on face value of products sold) continues to show double-digit growth and
total cash digitised during the quarter amounted to R9.2 billion. FLASH contributed 84.3% to this
segment’s revenue for the quarter.

Capfin increased revenue by 20.6% for the quarter and its loan base expanded to 287 000 loans
from 250 000 loans a year ago.


Trading in Clothing and general merchandise brands during January 2023 was supported by a
very successful back-to-school season. PEP, Ackermans and Shoe City achieved double-digit
sales growth in back-to-school trade, on a strong base in the prior year. This performance was
underpinned by the ability of these brands to offer customers best value through their unrivalled
volume and scale of operations.

The Clothing and general merchandise segment increased sales in January 2023 by 5.1% and
like-for-like sales turned positive. JD Group reported weaker trading as demand for durable
products deteriorated and trading in TBCo was in line with expectations.

Looking ahead, higher levels of inflation are expected in the coming winter season and customer
affordability remains a key priority for merchandise teams.

Inventory levels are expected to remain elevated into the second quarter of FY23 but is less of a
concern considering the high level of freshness and replenishment nature of the bulk of product
categories. Supply chains have stabilised and distribution costs have reduced.

The operating environment remains challenging. Consumers remain financially constrained and
the worsening situation in terms of electricity supply is detrimental to consumer confidence and
economic growth. Within this context, the group’s primary focus areas include restoring
performance in Ackermans and execution of value creation plans in the following areas:

   -   Growing the group’s presence and reach into the informal retail market in South Africa;

   -   Growing the group’s cellular and financial services offering;

   -   Expanding the group’s offering in ladies wear;

   -   Expanding the group’s proven and very successful discount and value proposition in the
       Brazilian market; and

   -   Reducing costs through efficiencies and leveraging the scale of the group’s operations.

30 January 2023

Equity sponsor
PSG Capital 

Debt sponsor and Corporate broker
Rand Merchant Bank (A division of FirstRand Bank Limited)


Date: 30-01-2023 11:00:00
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