By Tawanda Karombo
Cash generation across budget retail operator Pepkor was robust in spite of economic headwinds and the group – which also benefited from a Steinhoff settlement payment – reported a sharp 93 percent rise in cash sales to R4.1 billion in the half year to March 31.
The non-recurring settlement payment by Steinhoff, which has a 50.6 percent stake in the budget retailer, emanated from an accounting scam unearthed in 2017. This drove down the share price in Steinhoff, with the company subsequently deciding to pay a settlement to shareholders for the share losses.
The settlement from Steinhoff benefited Pepkor by R429 million or 12 cents per share, the company said on Friday, highlighting that it was “pleased to honour its commitment to shareholders in 2018 to recover the funds”.
The settlement boosted Pepkor’s headline earnings per share to 91.5 cents, an increase of about 28.3 percent.
Excluding the settlement, Pepkor raised headline earnings per share by 12.1 percent to 79.9 cents, riding on a 19.1 percent rise in operating profit before capital items to R5.7bn.
This was after revenues increased in spite of disruptions to stores affected by the recent floods in KwaZulu Natal. A second interim insurance claim for business interruption from the civil unrest that rocked KZN and Gauteng last year of R132m was received in April.
Despite economic headwinds affecting the economy emanating from rising costs and surging unemployment, Pepkor remained highly cash generative. Cash accounts for about 93 percent of the company’s sales.
Pepkor chief executive Leon Lourens said: “Our cash generation is still very good at R4.1bn (and) 93 percent of our sales is on cash. We still have the ability to grow and grow our profitably.”
In February, Pepkor completed the acquisition of an 87 percent interest “in well-established Brazilian value retailer, Grupo Avenida”, which operates about 130 stores. The company has had to boost working capital in inventory stocks and sales in addition to a recapitalisation that was part of the acquisition of the Brazilian retailer.
In the South African market, the clothing and general merchandise segment – comprising brands such as Pep, Ackermans and Dunns among others – raised revenue 4.9 percent to R27.6bn. The division accounted for some 65.7 percent of group revenue.
But Pepkor executives said the “operating environment remains challenging as unemployment levels and the cost of living continue to increase”, and they highlighted that the “extension of the monthly R350 Covid-19 Social Relief of Distress grant to March, 2023 would provide much-needed relief for many consumers”.
“While global supply chain uncertainties persist, it seems shipping costs have stabilised and may trend downwards. Strong trading is expected in the second half of the year… Trading in April, 2022 was strong across most businesses with softer trading in May, 2022,” said Pepkor.
Shares in Pepkor gained 60 cents or 2.97 percent to close Friday’s trade session on the JSE at 2078 cents.
BUSINESS REPORT