Not only has the JSE fined Pepkor R5-m for failing to disclose relevant arrangements in its pre-listing statement of 4 September 2017, the company also had to issue a trading statement last week to warn that a significantly lower share price can be expected. A trading statement is a JSE requirement if the financial results is expected to differ by at least 20% from the most recent previous results (September 2017).
R1-m of the non-disclosure fine has been suspended by the JSE for two years.
Pepkor was censured by the JSE for failing to disclose at the time of its listing that it guaranteed a R15-bn debt loan (the Domestic Medium Term Note Programme) for Steinhoff; that it had provided loans to directors and key management personnel to buy Steinhoff shares through Business Ventures Investments (BVI) and that its guarantee of these loans exposed it to a R440-m loss at 31 March 2018. According to Pepkor’s FY2018 audited results these guarantees and non-tax-deductible loans cost the company R511-m.
The trading statement issued by Pepkor last week warned shareholders to expect a 32-42% reduction in headline earnings per share (2017:133c vs 2018:77-90c). In the 2018 financial statement published today, the headline earnings per share was reported as 36.7% down at 84.5c.
Pepkor attributed the share price drop to the effect of the above-mentioned loans, as well as the lower weighted average earnings per share due to 882-m additional shares they issued during 2017.
This included the 132-m shares they paid Steinhoff on 1 February 2017 to buy Tekkie Town, which subsequently contributed R340-m in revenue during the year. Pepkor also issued 750-m shares on 20 September 2017 when they listed on the JSE, which increased the total number of shares issued to 3.45-bn from 2.678-bn.
According to the FY2018 audited financial statements published today, Pepkor grew revenue 10.9% to R64.2-bn and operating profit 1.9% to R5.9-bn (including one-off costs). But, profit for the year was 18.8% down at 2.895-bn.
Sales revenue generated by clothing and general merchandise grew 7.2% to R42.47-bn. The biggest clothing and footwear division, Pep and Ackermans, grew sales 8% and 3.3% like-for-like.
The speciality footwear and fashion division – headed by the former Tekkie Town executives until May-June this year – grew sales 12.5% and 6.9% on a like-for-like basis. According to the group statement Tekkie Town again made the biggest contribution to sales growth in the division.
“The customer value proposition in Dunns remains a focus area and a positive trend is emerging as stores are consolidated,” Pepkor described the performance of the rest of the speciality division in a SENS statement. “John Craig reported excellent results following the repositioning of the business to focus on Polo and the Muratti in-house brand. Shoe City celebrated its 150th store opening during the year but had a challenging year with performance impacted by significant price deflation in footwear. Refinery reported very good results and is profitable in what is only its second year of operation. The brand has successfully gained traction with young adult customers.”
The cost of the ongoing legal action between Pepkor and the former Tekkie Town owners is not disclosed in the financial statements.
The next round will take place in the Cape Town High Court on December 10, when Pepkor will argue that the use of the Mr Tekkie name as well as the logo causes confusion in the market due to its similarity to Tekkie Town. The current Mr Tekkie management and former Tekkie Town shareholders will argue that the name was registered by Reinhard Barnard two years before Braam van Huyssteen founded Tekkie Town, that the two brand names have co-existed without any confusion ever since and that the branding differs considerably.
The current Mr Tekkie owners are also appealing a ruling that restricts them from selling the footwear styles that were stocked by Tekkie Town on and before October 1, 2016, when the chain became part of Steinhoff. According to the judgement the parties were to agree mutually about the list of 2016 styles that was supposed to be attached to the court order as Annexure A.
The Mr Tekkie team argue that “Annexure A”, to which reference is made in the judgment, did not exist at the time that judgment was delivered. They also claim that Tekkie Town is unable to submit this footwear style list, because the unilateral list submitted by them some time after the judgement is vague and does not reflect the shoe styles in stock on October 1, 2016.
And then there are numerous other pending cases, including the BIG hearing to decide whether Steinhoff acquired Tekkie Town illegally in a share swop, when it knew that the value of its shares were overstated … or not.