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Pepkor’s annual earnings resilient in face of unprecedented load shedding and KZN floods

Pepkor’s annual earnings resilient in face of unprecedented load shedding and KZN floods

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JSE-listed Pepkor grew its annual earnings in spite of challenging operating conditions in the reporting period as it faced social unrest, “unprecedented” load shedding and KwaZulu-Natal (KZN) floods.

In its results for the year ended September 30, 2022, released yesterday, the group, which owns household brands including PEP, Ackermans, Tekkie Town and The Building Company, said revenue grew 5.3% to R81.4 billion.

Pepkor, which is majority owned by Steinhoff Holdings, said headline earnings rose by 20.1% to 162.6 cents per share, while operating profit grew by 11% to R10.3bn.

Pepkor CEO Pieter Erasmus said Pepkor achieved strong earnings growth for the year ended September 30, 2022 on the back of good operational execution and disciplined cost control.

“We are pleased to announce that Pepkor over the last couple of years has grown 142 basis points in the clothing and homeware market sector, which shows that our model is robust and we continue to grow our customer base,” he said.

In line with the group’s dividend policy of three times earnings cover, a dividend of 55.2 cents was declared for the 2022 financial year, which is almost a 25% increase.

However, Pepkor said the social unrest in July 2021 resulted in the looting and damage of 549 of the group’s stores, and, while 386 of these stores were reopened by September 30, 2021, the reopening of 104 stores could only be completed during the current financial year. A further 37 stores would be reopened in the next financial year.

PEP’s performance was knocked by a disruption in social grant payments and the flooding of its KZN distribution centre. This impacted in-store product availability and sales.

The widespread flooding in KZN in April 2022 damaged the PEP distribution centre, which represents 40% of the PEP business’s total distribution capacity.

“This negatively impacted in-store product availability and resulted in estimated lost sales of R460 million. Operations were fully restored 16 weeks after the floods, and the total loss suffered is estimated at R800 million.

“The group carries insurance cover for material damage and business interruption and the claims process is underway. An interim payment of R396m was received during the year, with the remainder to be recovered in the next financial year,” Pepkor said.

Meanwhile, electricity load shedding increased to unprecedented levels, especially during the last quarter. During the first half of 2022, load shedding increased by 80% compared to the prior year.

“Following this, load shedding increased to level 6. As a result, the group reported 313 000 lost trading hours during the year, reflecting an increase of 123.2% compared to the prior year. While 70.3% of the group’s stores have backup power sources to support trading during power interruptions, the negative impact of load shedding on consumer behaviour is far reaching, with fewer customers visiting stores,“ Pepkor said.

Ackermans’ performance was impacted by constrained consumers, electricity load shedding, which worsened in the last quarter, as well as incorrect merchandise mix decisions in some departments.

Pepkor acquired the Brazilian value retailer, Avenida, in February with 130 stores, which is said was now recapitalised and performing well, “exceeding expectations in many respects".

Erasmus said after the reported period, Pepkor started trading well.

“We started well in October pushing double-digit growth, in November that has slowed down, but we look at the quarter as a whole because there is quite some noise and promotional activity like Black Friday and Christmas sales, and most of them are the unknown and blackouts, hopefully, we will navigate. We have good power backup, so the trading has been going according to plan we will only know once the golden quarter has gotten to a close,” he said.

Looking forward, the group said: “As experienced by many businesses operating in South Africa, the persistently low growth environment presents challenges.

“Consumers are facing increasing inflationary pressure, which means limited disposable income. This is further exacerbated by the country’s infrastructure problems and the resulting unemployment levels and load shedding.”


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