31 August 2020

Strong cash position and sharp acceleration in digital engagement

  • Cash balance of R379 million
  • Cash conversion of 197.8%
  • Revenue down 4.9% to R1.6 billion
  • Retail revenue down 6.7%
  • Digital sales up 39%
  • Loan disbursements curtailed by R400 million, down 30%
  • Funeral insurance premiums up 33%
  • Operating profit declines by 46.7% to R184 million, on lower sales and prudent debtor provisions
  • R778 million credit extended on digital channels, 42% of all credit
  • Headline earnings per share 104.4 cents, down 54.6%
  • No interim dividend declared

Cape Town, 31 August 2020. HomeChoice International PLC is the largest home-shopping retailer in southern Africa and has been selling homeware and financial services to its close to one million customer-base in the urban, African, female, middle-income mass market, for more than 30 years.

The company today announced interim results which reflects the impact of the COVID-19 lockdowns, as well as pleasing outcomes from its decisive response to the pandemic. HomeChoice consciously cut back loan disbursements by R400 million to preserve cash during the national lockdown and to curb credit risk. This, together with some R210 million in lost retail sales, contributed to a reduction in revenue of 4.9% to R1.6 billion. Debtors costs increased by 38.3%, due to payment performance deterioration and prudent provisions raised. The dual impact of lower revenue and increased provisions reduced operating profit by 46.7% to R184 million and HEPS by 54.6% to 104.4 cents per share.

The company had significant success in preserving its cash resources amidst the pandemic – in addition to reduced loan disbursements, HomeChoice also curbed expenses, cut discretionary capex and focused unrelentingly on cash management. These efforts culminated in cash from operations increasing by 80% or R200 million, contributing to a cash conversion rate of 197.8% and a cash balance of R379 million, up 213%, which provides a robust shield against uncertain economic conditions. Conservative investment in key strategic growth initiatives continued, with R56 million spent on an additional showroom, three ChoiceCollect containers, equipment for remote working and new technology systems.

A further highlight in the period was the strong acceleration in digital transformation. The company stopped the printing and distribution of its Retail catalogue for the first time in 35 years and significantly increased its marketing through social media and digital channels. This not only notably reduced marketing costs but digital transactions in Retail more than doubled from 19% in Q1, to 39% in Q2. The Financial Services business, increased  its already high digital transactions from 85% to 90% of all transactions.

Despite the lockdown and a reduced ability to trade in the second quarter, the Retail business attracted 123 000 new customers for the six months to 30 June 2020, while 18 000 new loan customers and 11 000 new insurance customers  joined the FinChoice family in the same period.

Executive chairman, Shirley Maltz, commented: “This has possibly been one of the most challenging periods the company has experienced, and the impact thereof is clearly visible in our financial results. To be able to still  show strong strategic traction under these conditions reflects positively on the quality of our staff, as well as the fact that our brands and products continue to resonate with customers and that our ever-improving customer experience keeps her coming back.”

HomeChoice Retail

Retail revenue decreased by 6.7% to R1.1 billion and sales by 10%. Gross profit margin improved strongly by 390 bps to 51%, a function of lower markdowns as well as supply chain efficiencies. Trading expenses were tightly controlled, increasing by 4.5%. Operating profit decreased by 52.2% to R75 million, largely due to lost sales during lockdown and higher debtor costs.

Digital sales for the period grew by 39%, with exceptional performance in Q2, up 65%. Targeted cash-only offers, the addition of more entry priced products and more competitive pricing, has delivered good cash sales and a great response from customers. Customers’ merchandise is  now either delivered at home or can be collected from third-party collection points, which will soon exceed 1 000 locations.

As part of its well-defined growth strategy, the Retail business aims to expand its merchandise offering to attract higher income earners while maintaining the core customer base. This will be done through a broadened range of products, including innovative and unique merchandise, as well as new merchandise categories.

FinChoice Financial Services

Financial Services’ revenue increased by 0.5% to R426 million, with finance income negatively impacted by the strong reduction in loan disbursements. Ancillary and insurance fees increased by 8.1% on the back of a pleasing 32.9% increase in insurance premiums. Operating profit decreased by 53.2% to R74 million, a function of lower loan disbursements and higher debtor costs.

More than 90% of FinChoice’s transactions are digital and 69% of customers possess a digital-only FinChoice MobiMoneyTM facility product. Increasing digital engagement is also facilitated by the sale of value-added services (airtime, data and electricity) using the MobiMoney platform. The MobiMoney product will evolve into a credit-backed wallet, enabling customers with multiple transaction features.

FinChoice aims to expand the insurance portfolio through additional insurance products and a new cloud-based insurance platform to provide an efficient and effective customer service. The business will also leverage its customer base, platforms and credit knowledge to enter the small and informal business lending market.

Credit performance

Gross trade and loan receivables were flat year-on-year at R3.5 billion, primarily due to the curtailment of loan disbursements and lower sales. Group debtor costs increased by 38.3%, with the impact of COVID-19 adding an additional R96 million.

The company tightened credit granting criteria, reducing credit limits and average term, while FinChoice stopped loans to new customers altogether in April and May, and focused on careful credit extension to customers with an existing credit history with the company. In June lending re-commenced for new customers, with a focus on stable employment sectors and proven employers.

There was a strong focus on collections, particularly digital payments via early debit orders. Debit order collections in the Retail business more than doubled to 31%, through incentivisation of both customers to elect digital collection and sales agents to drive this. At FinChoice, 100% of debt repayments are collected digitally. The number of collections agents was increased by 48% to 148 staff, with good response. The company maintained active engagement with all customers during lockdown to understand their challenges and facilitate financial relief in the form of partial payments and lower payments, where necessary.

A conservative approach to impairments necessitated an increase in provisions, maintaining coverage of non-performing loans within acceptable levels.

Balance sheet and funding

The company refinanced and upsized its banking facilities during the lockdown period to R1.05 billion. Pleasingly, net debt (excluding Group-owned properties) has reduced to R321 million (2019: R512 million) with a net debt: equity ratio of 10.5% (2019: 18.1%). The company  is in a strong position to support future growth and protect itself against future economic shocks with available unutilised facilities and cash of R884 million.


The socio-economic outlook for South Africa remains challenging as the country recovers from the negative impact of the lockdown. “HomeChoice will continue to find opportunities to deliver value and a great experience to our customers, regardless of the muted economic outlook”, said Maltz. “Our customer has shown her resilience during this period and the vibrant informal economy will continue to expand as more individuals supplement their primary income with an income derived from the informal sector”. 

HomeChoice will continue to pursue its strategy to provide customers with exciting products, new merchandise categories and financial services products to customers in stable employment. The company will also continue to accelerate its digital transformation and aggressively use digital marketing and social media tools to capture market share.

“We believe that the group is well positioned for growth and to take advantage of improvements in economic conditions. Our cash position is strong and our balance sheet is robust. We know that our customer loves our product and we will drive customer experience, omni-channel convenience and our digital transformation to ensure that she continues to shop with us for generations”, concluded Maltz.