Pepkor moves to raise cash in response to Covid-19 impact

Photo: Getty Images
Photo: Getty Images
  • Pepkor said it would place up to 172.5 million ordinary shares in the capital of the company to raise cash in response to the impact of Covid-19 on trading.
  • The national lockdown's impact on activities like home renovations and construction loomed as a risk to trading.
  • The group said strong trading in Pep and Ackermans continued, with combined like-for-like sales growth of 40% in May.

Pepkor announced on Tuesday evening that it was launching an accelerated book build, effective immediately, in a bid to raise funds to soften the blow of Covid-19 on trading.

It would place up to 172.5 million ordinary shares, representing up to 4.95% of the company's existing issued ordinary shares, "to certain institutional investors" in line with authority to issue shares for cash granted at its annual general meeting earlier in the year, it said in a statement. 

The Covid-19 novel coronavirus and the subsequent lockdown introduced to slow the pandemic's spread through South Africa rocked businesses, with various sectors taking a battering after restrictions on movement and business brought the economy to a near-halt.

Pepkor businesses include retail outlets trading in clothing, building wares, home decor and electrical appliances. The national lockdown's impact on activities like home renovations and construction loomed as a risk to trading.

The company said in a shareholder notice that while trading following the relaxation of lockdown measures exceeded expectations, the duration and evolution of Covid-19, and the related impact on the group's trading in the near to medium term remained "uncertain".

"Pepkor is continuously assessing various scenarios to ensure that it takes the appropriate financial and operational actions to reduce costs, conserve cash, access liquidity and improve flexibility in its capital structure during these unprecedented times," the company said.

The group said strong trading in Pep and Ackermans continued, with combined like-for-like sales growth of 40% in May. But sales in Pep Africa declined by double digits from April through June, amid weakness in local economies and currencies due to Covid-19.

The electrical appliances division businesses, Incredible Connection and Hi-Fi Corporation, grew sales by 39% in May despite a limited product range being allowed to go for sale. The Building Company was traded negatively due to restrictions on building contractors, showing a negative growth of 1%.

Capfin curtailed the granting of credit and the size of the book reduced to R2 billion.

Pepkor said liquidity improved compared to levels before the Covid-19 due to positive trading and credit book collections, allowing the group to early settle its R521 million bridge term loan facility.

In January the company reported a 7.6% increase in revenue to R20.9 billion from continuing operations largely driven by growing sales in the company's clothing and homeware retail brands.

In November CEO, Leon Lourens said Pepkor's positioning in the value and discount markets proved to be a competitive advantage as high unemployment and slow economic growth constrained consumer spending.

The group said the proceeds from the placement will be used to reduce Pepkor's current gearing level to move towards its stated target net debt and support securing of the business against the current and future uncertainties.

"The Placement is a precautionary measure to strengthen Pepkor's financial flexibility and liquidity position in the light of the continuing COVID-19 pandemic and resulting macro-economic pressure," the notice said.

Pepkor said it would, in the meantime, work to reduce operating expenditure, reduce capital expenditure, curtail credit granting, focus on collections and suspend dividend payment for the current year.

The company said the placement would be conducted through a bookbuild process where Rand Merchant Bank and Morgan Stanley & Co. International would act as joint global coordinators and joint bookrunners of the placement.

By the end of Tuesday, Pepkor's share price settled at R11.87, after sliding from midday.

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