Pepkor Holdings Limited (PPH) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. It is our great pleasure to welcome you to the 8th Annual General Meeting of the Shareholders of Pepkor Holdings Limited. I am honored to convene this AGM in my capacity as Chairman of the Board. We have a quorum in attendance, I therefore declare this meeting properly constituted. In the weeks prior to this AGM, we engaged extensively with shareholders as we always do through various channels. We would like you to know that we appreciate your feedback and take it seriously. We also published a voluntary trading update on the 3rd of February 2025, which stated that Pepkor delivered strong results for the 3 months ended 31st December 2024, with pleasing revenue growth and gross profit margin. A strong sales momentum continued in January and through February 2025, underpinned by a very successful back-to-school season. The strong performance in the first quarter and the ongoing successful execution in fintech positions the group well to deliver solid results in FY '25. Improved macroeconomic conditions have bolstered consumer spending after several years of constrained household budgetary conditions. Finally, Moody's highlighted Pepkor's stable operating performance with demonstrated resilience to economic shocks, positive organic growth, conservative financial policies and robust credit metrics as key factors reflected in Pepkor's credit rating. All directors, including the chairs of the Board committees, are in attendance, and I want to thank them for their role on the oversight and the diligent role that they play to ensure that our Board and Committees are fulfilling their duties. We will now proceed with the formalities of the meeting. Pursuant to clause 22.1.2 of the MOI, I determine that the voting in respect of this meeting shall proceed by way of the poll, which shall be conducted entirely electronically. It was contemplated in Section 63(2) of the Companies Act and Clause 21 of the MOI. This will be done through the electronic online facility provided by the transfer secretaries, Computershare. For the purposes of the poll, I nominate a representative of the transfer secretaries present at this meeting to act as scrutineer. In order to facilitate the conduct of the meeting, all the resolutions to be proposed at today's Annual General Meeting have been supported by Mr. Ian [ Nel ], who is a shareholder. I will now open the voting on the electronic online facility. Voting can be performed at any time during the meeting until I close the voting on the resolutions. You will be able to send messages and view the webcast whilst the poll is open, and we will consider any questions after I have tabled the last resolution on the agenda. I will now table each of the resolutions intend. The first item on the agenda is the presentation of the annual financial statements for the year ended 30th September 2024. They are reports of the Directors, Audit and Risk Committee and Social and Ethics Committee. The full audited consolidated financial statements and the various reports were made available on the company's website. A summarized version of the annual financial statements was enclosed with the notice of this meeting. The report of the Social and Ethics Committee was also attached to the notice of this meeting. We are happy to take any questions on the financial statements and reports, and we'll consider them after voting has taken place on the last resolution on the agenda. We will now proceed to the second item on the agenda, which is the reelection of directors who retire by rotation annually. Ordinary resolutions number 1, 2, 3 and 4, respectively, relates to the reelection of Hester Hickey, Steve Müller, Paula Disberry and Isaac Mophatlane as Directors of the company. I propose their reelection as directors of the company. The CVs of the 4 directors are included in Annexure B of the notice of the AGM. I now invite you to complete your electronic voting in respect of ordinary resolution numbers 1, 2, 3 and 4. [Voting]

Item 2.2 of the agenda is the reappointment of the members of the Audit and Risk Committee. Ms. Hester Hickey, Ms. Fagmeedah Petersen-Cook, Ms. Zola Malinga and Mr. Steve Müller. I propose your approval of resolutions 5 to 8 and invite you to now complete your electronic voting. [Voting]

Item 2.3 of the agenda refers to the appointment of the company's auditors, PricewaterhouseCoopers. The company's audit and risk committee recommended and the board accepted that PricewaterhouseCoopers Inc. be reappointed as auditors for the year and further proposed a rotation with the appointment of Mr. A Hugo, who is designated to lead the audit as the registered auditor. I therefore propose that PricewaterhouseCoopers Inc. be reappointed as the company's auditors with Mr. A Hugo as a registered auditor, and invite you to now complete your electronic voting in respect of ordinary resolution number 9. [Voting]

Item 2.4 of the agenda is the reappointment of the members of the Social and Ethics Committee; Ms. Fagmeedah Petersen-Cook, Ms. Zola Malinga, Ms. Paula Disberry and Mr. Pieter Erasmus. I propose your approval of resolutions 10 to 13, and invite you to now complete your electronic voting. [Voting]

Item 2.5 and 2.6 relates to the nonbinding advisory vote on the company's remuneration policy and the implementation report in respect of the policy. I propose your endorsement of ordinary resolutions 14 and 15, and invite you to now complete your electronic voting. [Voting]

Item 3 on the agenda relates to remuneration for nonexecutive directors. In terms of best practice, approvals of the remuneration of directors as sought by separate resolutions. I propose the approval of special resolutions 1.1 to 1.13 and invite you to now complete your electronic voting. [Voting]

Item 3.2 relates to financial assistance provided to subsidiary companies in terms of Section 45 of the Companies Act. The resolution specifically excludes financial assistance to directors and prescribed officers. I propose the approval of special resolution 2, and invite you to now complete your electronic voting. [Voting]

Item 3.3 on the agenda relates to financial assistance provided to subsidiary companies for the purchase of shares in the company. In terms of Section 44 of the Companies Act, I propose approval of special resolution 3 and invite you to now complete your electronic voting. [Voting]

Item 3.4 of the agenda relates to a general authority to repurchase shares. I propose approval of special resolution #4 and invite you to now complete your electronic voting. [Voting]

The last item on the agenda is to transact any other business that may be transacted at an AGM. Notice has not been received relating to any other business. This, therefore, concludes the matters upon which we are required to vote. I will now address any questions arising from the resolutions tabled at today's Annual General Meeting before closing the voting. Mr. Allie, do we have any questions [indiscernible]?

Chair, we've just received the question from [indiscernible] from ESG Insights. I'm going to read the question now. On behalf of the special pension fund shareholders, he poses the following questions. Director [indiscernible] while the -- and I quote, while the Board demonstrates gender parity, the racial diversity remains lacking, what targeted initiatives and specific performance metrics will the Board adopt to improve racial diversity at both the Board and senior management levels? So first question. And the second question is regarding...

Can we answer one question at a time?

Sure.

Steve? The question is relating to diversity at the board level. Currently, we're at 42%, but the question goes beyond the Board to executive level.

Thank you, Madam Chair. From the executive level, if you look at probably the top 100 execs throughout the Pepkor group, the composition of the positions within that upper echelon does not represent the demographics of South Africa. I've always said that. There's been lots of initiatives to improve that. In my opinion, during the first couple of years, the traction wasn't very good, I think, because the focus was on fighting fires after the -- do I mention that dreaded word sign off implosion, but during the last 2, 3 years, the traction has been much better. One of the initiatives, which I think will make quite a big difference, is that head office will now fund subsidizing [ e-commerce ], the appointment of non-color execs at the various businesses. So that takes away the pressure on earnings growth and in the process, possibly damaging the prospects of making their targets. So I think that will make -- go a long way in improving the situation. We don't see a -- Pieter, I don't know if you want to add to that?

These are very deliberate programs is all I can say. They are measured. The inputs are subsidized where required, and the outputs are measured and reported back. There's also a legislation in terms of the Employment Equity Act, which requires to comply with them. Those sort of determinations have just gone out. So it's not just a voluntary process. There's also a legal process that's been followed, very deliberate, and we can report back these improvement in every year, certainly since my tenure in the last couple of years. So can it be faster always, but we are dealing with realities of the business.

Thank you, Steve. Thank, you Pieter. The second question?

Thank you, Madam Chair, question 2 of 4 now. I'm just wondering you guys saying balance in implementation, and I quote, the CFO received an STI payment exceeding 100% of his guaranteed package despite the stated maximum. Will the Remuneration Committee clarify why an exception was made and will that set a precedent for discretionary payments in the future? Additionally, while 10% of the STI and LTI initiatives are tied to BEE targets, they are now clearly environmental sustainability metrics in executive pay structures. Will Pepkor consider expanding ESG-related performance incentives to include measurable environmental targets, such as carbon reduction goals? That's also [indiscernible].

Thank you, Madam Chair. The CFO situation is a once-off in my view. We have done benchmarking obviously, after 3 pillars of all the execs remuneration, cost of company, short-term incentives and long-term share rights. And during the last financial year in terms of our benchmarking exercise, we moved up from 25% percentile to 50 percentile. So that's why cost in company has gone up quite substantially. I think it's 40% or something. And then just because there was a bit of a disconnect between -- certainly, STI number and the COO and the CEO just felt that we need to make the once-off adjustment. So it's not something, which we will expect to happen again in the future.

Pieter, would like to respond to the question on the ESG targets.

Yes, I can. We are always very circumspect about bringing too many nonfinancial -- directly nonfinancial targets in. We have to balance that with the growth of the company to make sure that it's affordable. So in the situation that the company found itself in for many years of not creating value for shareholders, we've had to address that. So we just balanced -- we are very aware of those KPIs. We are very aware of what shareholders ask us about that. We must make sure we can afford those initiatives. And that's why we balance the financial and, let's call it, nonfinancial KPIs all the time. We are very aware of where we are, and we managed to improve substantially some of the KPIs that we've set for our teams internally, but that doesn't necessarily have to reflect in the rem every time because we are getting the required output there anyway. So we think for now the appropriate mix suits the strategy of the company.

Thanks, Steve. Thank you, Pieter. Do we have further questions?

Yes, Madam Chair, 2 more. The one is the ESG-related one, and I quote, also from the [ Central Bank ], Pepkor has made commendable progress in energy efficiency. Is Scope 2 carbon emissions increased due to higher direct electricity consumption and diesel generation usage. What specific targets and time lines has Pepkor set for transition to renewable energy sources and reduce Scope 2 emissions?

Fagmeedah?

Thank you. So we've -- as the CEO has just alluded to, we've been hesitant to set specific external targets in terms of carbon emission reductions, and we see it more as a journey of the business. And so we have, as you've noted, made extensive investment in rooftop solar sites make it variable. We've also implemented an initiative to reduce our lighting bulb with LED lighting, which we're rolling out in stores. And then we're also now focusing quite heavily on reduction of electricity usage by implementing energy-efficient air conditioning because we do expect that as temperatures increase, we're going to be using air conditioners more intensely and for longer periods. So we have a long-term plan on reduction of usage of electricity, augmented or supported by the [indiscernible]. We also participate in the load curtailment program in the area where we have operations.

Is there anything you'd like to add, Pieter?

I think it's well documented that we are making significant progress, and the business is -- even from a commercial point of view, especially electricity has become a major cost for us. So there's extensive investment in trying to go to cleaner energy just from a pure cost point of view. So the ability to -- of the company to absorb that is because it's a big group has actually been quite good. So we're happy with all the projects that's going on at the moment. We'll achieve a significant reduction over time in the inventory footprint, getting a greener footprint.

Thanks, Fagmeedah. Thanks, Pieter. And the question?

Thank you, Madam Chair. It's wages related question, that's also from [ Central Bank ]. And I quote, with increasing; scrutiny on labor rights and wages within the South African retail sector, how does Pepkor ensure that its labor practices align with the principles of fair remuneration and ethical treatment of workers, especially in the context of rising [indiscernible] costs?

Well, I'll ask Steve to comment on that, and maybe Pieter to make additional context -- comment as well and Fagmeedah will comment.

Thank you, Madam Chair. Well, in the first instance, we don't have specific targets in place. We have very good progress with 9-megawatt peak solar capacity installed. And then secondly, we specifically audit and ensure that our rem is in line with legislation and requirements from the Department of Labor. Pieter, if you want to add anything?

Fagmeedah wants to comment, and then Pieter will comment.

Thank you. Thank you, Chair. So from a human rights perspective, Chair, we subscribed to the UNGC principles, advocating human rights, labor standards and fair labor practices. We promote those values and those standards across our suppliers. And we ensure that we remunerate that, what is there to remunerate [indiscernible].

Is there anything else that you would like to add, Pieter?

Well, I understand the question is about core employees. And I mean, we are a well-governed business for many, many decades that never, in my memory, [indiscernible] to any labor practices in the company that breaks any laws or treats people unfairly. And if it does, there's processes, good representation from all -- either through unions and other bodies. And yes, I was actually quite proud of the practices in terms of human resources. We don't refer them to as labors necessarily. And we have a fantastic business. People serve in positions for many, many decades and get recognition. And we think it's a great place for people to work, and we attract many new entrants every year and add many jobs as a result. So yes, it's certainly not a concern from a business point of view.

Thank you, I hope that those responses address your concerns. Are there any questions that have been raised? If not, then I will now close the voting to allow the counting of the votes to take place. Probably, [indiscernible] address the questions. We will take a minute until the results have been posted. [indiscernible] from here.

Madam Chair, based on the ones on the screen, all have passed, [indiscernible] request of majority, other than ordinary resolution number 15, which is the implementation report on the remuneration policy, which has 65% [indiscernible] .

So all the resolutions have passed, other than resolution 15, and we will engage with the shareholders who have not approved that resolution to understand better what their concerns are. Ladies and gentlemen, I declare that the meeting has now been completed, and I just want to thank all for your attendance and for your support for Pepkor.