JOHANNESBURG - Steinhoff Africa Retail (STAR) announced that its board had decided to change the company’s name back to Pepkor Holdings, subject to shareholders’ approval, in a move meant to divorce it completely from troubled owner Steinhoff International.
The group said yesterday that the historic Pepkor brand represents the vast majority of STAR’s current business and has enormous equity and a long legacy.
“The name change reaffirms the listed company’s independence,” the group said.
The group also announced that Johan Cilliers would join the board as lead independent non-executive director, effective immediately, and Pieter Erasmus, the former chief executive of Pepkor, as non-executive director as from October 1.
However, Steinhoff International remains the majority shareholder with 71.01 percent stake in STAR.
The group announced the changes yesterday during the release of its maiden half-year results in which it reported a 10.2 percent increase in sales on a comparable basis to R33 billion, supported by its growing footprint on the continent with 155 new stores opened in the six months to end-March.
STAR is the owner of iconic South African retail brands such as Pep, Ackermans and HiFi Corporation and has more than 5 100 stores in 12 African countries.
The group released its results yesterday following its separate listing in September last year. Operating profit increased by 9 percent to R3.3bn, up from R3bn as a result of strong growth in Ackermans, the No 1 brand for children’s wear in South Africa, and the turnaround and stabilisation of the JD Group. Overall, STAR’s operating margin was largely maintained at 10 percent as compared to last year’s 10.1 percent.
The speciality fashion and footwear division, which includes Tekkie Town, Dunns, John Craig, Refinery and Shoe City, achieved sales growth of 17.3 percent overall and 10.1 percent on a like-for-like basis. Headline earnings per share (Heps) increased by 12.2 percent to 52.6 cents, up from 46.9c.
Despite reporting an increase in earnings, the group admitted that the first half of the financial year has been very challenging from a corporate perspective.
“However, after the recent refinancing of shareholder funding and removal of all cross guarantees pertaining to the Steinhoff shareholder funding, it is financially independent,” the group said. Last year in December, its majority shareholder, Steinhoff International, admitted to accounting irregularities.
This led to a decline in Steinhoff ’s share price of more than 95 percent, with it losing more than R200bn in market capitalisation.
But last week STAR reported that it had raised R18bn from South African institutions. The funding will be used to repay its shareholder funding of R16bn, which was provided by Steinhoff International Holdings as part of STAR’s listing in September 2017, with the remaining R2bn raised in line with STAR’s funding needs and growth in operations. Chief executive Leon Lourens said STAR delivered a solid performance despite the impact of deflation and difficult market conditions.
“The brands delivered positive results over the second quarter of the financial year with very satisfactory unit and transaction growths. We have been dealing with, and concluding, several corporate matters that are unusual to our business. Fortunately, we have very strong leaders in our operating companies who have kept their focus on driving value in the individual businesses,” Lourens said.
STAR shares closed 0.30 percent lower on the JSE yesterday at R16.85 (Steinhoff International shares logged a new low when dropping 9.09 percent to reach R1.30 a share).
Going forward, Lourens said despite the difficult trading conditions the group expected the positive sales momentum to continue and the deflationary impact on some of the retail brands to dissipate as the 2018 summer season arrives.
“In particular, the speciality fashion and footwear brands are expecting strong sales growth,” he said.
The group did not declare a dividend for the period. Ron Klipin, a senior analyst at Cratos Capital, said now that STAR had taken overall services from its parent company, including payment of the shareholder funding, he expected the second half results to meet expectations.
“In the results, Pep Africa faced challenges, especially in Angola with low oil prices. The name change to Pepkor Holdings reaffirms the listed company’s independence, and the additional funding now results in net inflow of R2bn after loan payback,” Klipin said.
However, he cautioned that with the current cash conversion of only 22 percent as compared to 42 percent last year, the management needs to watch this carefully.
“On the plus side, the group has experienced management at operating level and a new board as well as strong brands at the mid to lower end of the LSM, particularly in apparel and shoes and other divisions. There are opportunities for growth, which will result in a long period of profit growth in the future,” he said.