28 August 2019

HiL continues to grow in weak retail environment

  • 180 000 new customers acquired
  • Revenue up 8.6% to R1.7 billion
  • Retail sales up 7.0%
  • Loan disbursements up 34.2%
  • Funeral insurance premiums up 58%
  • EBITDA declines by 6.7% on decision to reduce higher stock holdings
  • Investments in technology and customer experience continue
  • R1 billion credit extended on digital channels – 40.3% of all credit extended
  • Cash conversion improved to 65.7% of revenue
  • Earnings per share down 7.6% to 226.9 cents
  • Headline earnings per share down 7.9% to 229.9 cents
  • Interim dividend of 87.0 cents down 8.4%

HomeChoice International PLC, the leading participant in southern Africa’s retail homewares and financial services sectors to the expanding African urban middle-income mass market, today announced robust volume dials against a tough economic backdrop. Revenue increased by 8.6% and strong growth was achieved in new customer acquisition and Financial services, where loan disbursements increased by 34% and funeral insurance premiums grew by 58%.  The group took a decision to aggressively promote and clear surplus stock holdings remaining after the SAPO strike, resulting in higher markdowns and a reduction in the gross profit for the six-month period. As a result, headline earnings per share decreased by 7.9% to 229.9 cents. An interim dividend was declared of 87.0 cents, in line with maintaining its dividend cover of 2.6 times.

Chief Executive Officer South Africa, Shirley Maltz, commented: “We are pleased that an almost 20% growth in new customers to 915 000 active customers, demonstrates the strength of our brands and the fact that we continue to provide a range of innovative and carefully curated products that our customers love. Notwithstanding the challenging retail environment, we are seeing the benefit of continuous investment into improving our customer experience and accelerating our digital transformation, which are both key strategic focus areas for the Group. We extended some R1 billion of credit via digital channels in the six months, comprising 40.3% of all credit extended. In our FinChoice brand, 83% of all transactions are conducted digitally on our convenient 24/7 digital platforms”.

Financial results exhibit volume-driven growth and continued investment

Group revenue increased 8.6% to R1.7 billion This was boosted by strong loan disbursements growth of R1.2 bn in Financial Services and a volume-driven Retail sales growth of 7.0% to R0.9 billion.

The group continues to accelerate its growth from non-interest-bearing income products to diversify revenue. Fees from ancillary services grew by 19.0%, primarily from the strong customer response and a 16% growth of personal insurance products.

The 2018 South African Post Office (SAPO) strike and the disappointing execution of television marketing campaigns, negatively impacted Retail sales in 2018H2, giving rise to higher opening stock holdings at the beginning of the period. Strong promotional activity was utilised to clear surplus stocks and refresh the product lines, which negatively impacted gross profit for the six-month period, with gross profit margin decreasing by 480 bps to 47.1%.

Debtor costs increased by 25.4%, a function of the provision required on the 34.2% increase in loan disbursements. Debtors written off during the period, net of recoveries, increased by 8.8% reflecting the quality of the book.

Trading expenses were well-controlled across both businesses and benefited from advance propensity models to efficiently target customers and an increase in more efficient digital advertising.

Operating profit decreased by 7.8% to R345 million, impacted by the lower gross profit and debtor costs. 

Retail affected by markdowns

Retail revenue increased by 5.5% to R1.2 billion, with good volume sales growth of 7.0%. EBITDA decreased by 7.4% to R213 million due to the decision to aggressively mark down higher opening stocks remaining after the 2018 SAPO strike, which negatively impacted gross profit margins.

Retail grew new customers by 17.1% or150 000 customers, with an increasing proportion of new customers being acquired through digital channels. With 840 000 active customers, it is evident that the strength of the HomeChoice brand and products continue to appeal to the mass-market and that customers respond positively to ongoing product innovation. With more than 140 external brands on offer, mainly in the appliances, electronic and footwear categories, customers are appreciating the ability to buy well-known external brands utilising their HomeChoice credit account. Sales from external brands now contribute 17.0% of total sales, up from 13.3% in the comparable period. The Group has also had very positive customer response from the showrooms and ChoiceCollect containers, with further rollouts planned for the remainder of 2019.  The showrooms enable customers to see and experience the brand, in addition to providing a click-and-collect offering. The rollout of ChoiceCollect containers also provides a click-and-collect option and a facility to place orders, as well as an exciting opportunity to extend the reach of the HomeChoice brand by bringing it closer to our customers’ homes.

Financial Services generates solid performance

Loan disbursements in the Financial Services business increased by 21.5% to R1.8 billion. Pleasingly, loans to existing customers increased to 84.5% of total disbursements, with strong acceptance of MobiMoney, our three-month, digital-only facility product. Revenue increased by 12.2% to R746 million and EBITDA grew by 13.7% to R357 million, highlighting the annuity aspect of the Financial Services business.

Over 40 000 new customers were acquired during the year, increasing the base by 11.4% to 176 000.

Insurance has demonstrated strong growth in funeral products. Gross written premiums increased by 70% over 2017.  “The opportunity remains to add more personal insurance products to the portfolio. This vertical represents an attractive growth opportunity to diversify income and increase customer share of wallet,” added Maltz.

At least 86% of customers are now registered on our digital platforms and a third of loan transactions concluded, are done outside of normal trading hours. The richer Mobi platform creates a portal for a multitude of products and value-added services to be offered to customers via their smartphones. The introduction of airtime, data bundles and electricity sales has indicated the potential opportunity to increase customer’s digital engagement with the Group.

Stable credit

The Group continued to expand a quality credit book with gross trade and loan receivables increasing by 7.5% (on an IFRS 9 comparable basis) to R3.5 billion. Group debtor costs at 17.2% of revenue, was marginally above 16.8% in 2017, and remains within the group’s acceptable risk tolerances. Non-performing loans declined, while NPL cover was bolstered by increased provisions.  The improving performance metrics are testament to the group’s ongoing conservatism in managing its credit book.

Strong cash generation

Cash generated from operations increased by 32.0% to R474 million, driven by a decrease in Retail credit growth in H2, good cash collections, a reduction in loan terms and actively managing cash requirements in working capital.

“The strong cash generation capability of the business is evidenced by the fact the Group has managed to grow a credit book of more than R3.5 billion while maintaining a net debt to equity ratio (excluding property) of 22.2%,” Maltz said.


“We will continue to position ourselves as a leading digital partner in the mass market, with an omni channel offering that provides an attractive and seamless retailing experience across all channels,” concluded Maltz.

The Group has serviced this market for more than 30 years and has built up a loyal customer base of more than 870 000 active clients. This base, together with our established digital platforms offer enormous opportunity to extend our product ranges and service offerings.