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Interim results for the six months ended 30 June 2018 and cash dividend declaration
HOMECHOICE INTERNATIONAL PLC
(Incorporated in Malta)
Registration number: C66099
JSE share code: HIL
ISIN: MT0000850108
("HIL" or "the group")
INTERIM results
for the six months ended 30 June 2018 and cash dividend declaration
FINANCIAL HIGHLIGHTS
Revenue up 16.1% to R1.5 billion
Retail sales up 18.9% to R856 million
Loan disbursements up 30.0% to R853 million
Credit extended on digital channels up 54.7% to 39.1% of all credit
Cash generated from operations up 37.9% to R240 million
Headline earnings per share up 14.7% to 250 cents
Customer base up 5.0% to 836 000
Interim dividend up 15.9% to 95 cents
Commentary
INTRODUCTION
HomeChoice International plc is an investment holding company listed on the JSE Limited. The group
has specialised in the provision of retail and financial services to the mass market in
southern Africa for more than 30 years. HomeChoice services its large, primarily female and
LSM 4 - 8 customer base through two trading operations, HomeChoice (Retail) and FinChoice
(Financial Services).
The Retail business is an omni-channel retailer on a digital transformation journey, with considerable
expertise in both retail and credit management. We provide the customer with the convenience to
engage with our group through their preferred channel, utilising digital platforms, contact centres,
sales agents' networks and showrooms. Our Financial Services business is a fully fledged FinTech
business with a contact centre providing digital support.
The Retail product offering comprises homeware textiles and related products with an increasing
contribution from electronics, home appliances, apparel and footwear. Personal loans, value-added
services and insurance products comprise the Financial Services offering.
KEY FINANCIAL STATISTICS
12 months
6 months ended
6 months ended 31 Dec
ended 30 June % change 2017
30 June 2017 (June to (audited)
2018* (restated)** June) (restated)**
Group
Revenue (Rm) 1 524 1 313 16.1 2 993
EBITDA (Rm) 406 354 14.7 793
EBITDA margin (%) 26.6 27.0 26.5
Operating profit (Rm) 374 327 14.4 744
Operating profit margin (%) 24.5 24.9 24.9
Headline EPS (HEPS) (cents) 249.6 217.7 14.7 503.8
Cash generated from operations (Rm) 240 174 37.9 359
Interim dividend declared/paid (cents) 95.0 82.0 15.9 191.0
Retail
Revenue (Rm) 1 167 997 17.1 2 328
Retail sales (Rm) 856 720 18.9 1 749
Gross profit margin (%) 51.9 50.1 51.2
EBITDA (Rm) 230 196 17.3 467
EBITDA margin (%) 19.7 19.7 20.1
Financial Services
Loan disbursements (Rm) 853 656 30.0 1 468
Revenue (Rm) 357 316 13.0 666
EBITDA (Rm) 168 145 15.9 314
EBITDA margin (%) 47.1 45.9 47.1
* IFRS 9, Financial Instruments, adopted effective 1 January 2018. IAS 39 applied for the
2017 financial year.
** Restated based on the application of IFRS 15, Revenue from Contracts with Customers.
CONTINUED STRONG TRADING AND FINANCIAL PERFORMANCE
Group revenue growth substantially outperformed the market, increasing by 16.1% to R1.5 billion.
Retail sales increased by 18.9%, driven by strong volume growth in homeware textiles and the roll-out
of further external brands which proved popular with customers. The group now sells more than
100 external brands, which contributes 13.3% to the total sales mix.
FinChoice grew revenue by 13.0%, supported by a 30.0% increase in loan disbursements, as well as
insurance revenue. A notable 86% of loan customers are registered for FinChoice's digital platforms,
underscoring its status as a leading FinTech services provider in the mass market.
Pleasingly, the group continues to acquire more than 20 000 new customers per month, contributing to
a 5.0% growth in the group's customer base during the period.
In considering the results, investors should note that the group has adopted IFRS 15, Revenue from
Contracts with Customers and IFRS 9, Financial Instruments with effect from 1 January 2018.
The adoption of IFRS 9 increased the group's provision for the impairment of trade and loan
receivables by 20% on a comparable basis from IAS 39. The application of IFRS 15 reduced revenue
in prior periods by R1 million for the six months ended 30 June 2017 and by R10 million for
the full 2017 financial year. For further details, refer to the Accounting policies note below.
Group finance income showed pleasing growth of 11.3% to R494 million, with a normalisation of the
reduction of the National Credit Regulator's (NCR) maximum prescribed interest rates.
Good traction was achieved in the group's strategy to diversify its income streams beyond finance
income. Fees from ancillary services, which comprises insurance and service fees, increased by
16.8% to R174 million, bolstered by good growth in our new insurance business, and strong adoption
by customers of our mobi-wallet concept, MobiMoneyTM.
Expenses were well controlled, with investments in IT, distribution, merchandise and customer
experience teams. Lingering uncertainty in the regulatory environment continues to necessitate
additional expenditure in systems and processes in respect of compliance.
The group has continued to invest to improve customer experience and accelerate digital transformation.
A R37 million new distribution centre, opened in Gauteng in January 2018, will substantially reduce
delivery times for customers and the roll-out of showrooms and micro hubs is aimed at significantly
enhancing the purchasing experience for our customers. Investment in key data and analytical skills,
and fraud and technology platforms will continue to accelerate digital adoption by our customers
and drive growth.
Excellent progress was achieved in digital transformation across the group during the period.
Credit extended via digital channels increased by 54.7% to R792 million and now accounts for 39.1%
(2017: 32.0%) of total credit extended.
Group earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 14.7% to
R406 million. The EBITDA margin has been maintained, with an 18.7% increase in debtor costs off-set
by lower trading expenses.
Operating profit increased by 14.4% to R374 million. Headline earnings increased by 16.1% to
R260 million and HEPS increased by 14.7% to 249.6 cents, continuing its growth trajectory and
pleasingly ahead of the five-year annual compound growth in HEPS of 13.2%.
The group declared an interim dividend of 95 cents, up 15.9% on the previous year. A dividend cover
of 2.6 times was maintained.
RETAIL
NOTABLE PROGRESS IN OUR TRANSFORMATION TO A DIGITAL DEPARTMENT STORE
Retail revenue increased 17.1% to R1.2 billion, driven by robust merchandise sales growth of 18.9%
and a finance income growth of 11.3%. The latter has normalised, following the lower interest rate
credit facility product introduced in 2016. The good trading performance generated a 17.3% increase
in EBITDA to R230 million.
Improved customer segmentation and strong data analytics continued to drive customer acquisition,
with Retail adding 128 000 new customers during this period. Innovation in our market-leading
homeware textiles category, as well as the introduction of 37 additional retail brands provide
variety to existing customers and attract new customers looking for quality homeware, fashion,
furniture and personal electronics. The contribution from branded sales increased from 11.0%
at June 2017 to 13.3% at the end of June 2018.
Digital continues to be the fastest-growing channel, up 46.7%, and now represents 18.5% of Retail
sales (2017: 14.8%). Customer engagement through digital, especially mobi channels is growing
rapidly, with 60% of Retail digital sales executed from mobile phones. Our investment in Oracle
Commerce Cloud will further accelerate our digital transformation.
The gross profit margin showed a strong improvement to 51.9% from 50.1% in the corresponding period.
Gains made on favourable foreign exchange rates more than off-set both the increase in the VAT rate
on 1 April 2018 (which was absorbed by the group) and the increase in operating cost from the new
distribution centre.
Retail has embarked on a strategy to roll out showrooms in key locations. A second small-format
showroom was opened in Maponya Mall in Soweto during May 2018. We will open a further three
showrooms in the second half of the year, one being a flagship on Rissik Street, Johannesburg.
These showrooms will allow customers the opportunity to experience the products and handle customer
service enquiries, as well as the added choice of a click and collect or delivery.
FINANCIAL SERVICES
A RAPIDLY GROWING FINTECH PLATFORM
Revenue increased by 13.0% to R357 million, supported by an 11.3% growth in finance income to
R257 million. EBITDA grew by a creditable 15.9% to R168 million.
The division delivered strong growth in loan disbursements, increasing by 30.0% to R853 million.
Loans to existing customers increased to 84.5% (2017: 77.5%) of total disbursements over the period,
with increased utilisation of the new MobiMoneyTM facility product and good customers qualified
for increases in their credit limits.
New customers are primarily acquired by the Retail business. Analytics on the customer base,
including payment performance, and risk and response scorecards enables Financial Services to offer
products to selected qualifying Retail customers. This has translated into consistently strong
credit performance from this preselected base. FinChoice continues to explore external sources of
new customers to supplement the Retail database and leverage its digital and credit capabilities.
During the period FinChoice acquired 19 800 new customers, of whom 24% were from external sources.
Financial Services is rapidly growing as a leading FinTech platform in the mass market. With both
a USSD and mobi offering, 86% of customers have signed up to our digital platforms. The mobi site
has grown from 37% registered to 60% due to the strong focus on customer experience and the broader
product suite offering on the richer smartphone platform. Customers are highly engaged on the
platforms; of all loan transactions in the period 78% were concluded digitally, one-third outside
of normal trading hours. The contact centre is now a digital support team, as well as a sales and
customer service channel.
The innovative digital-only credit facility product, MobiMoneyTM, has been well received by
customers and has further helped drive platform adoption and engagement. More than 25% of the active
base has activated and engaged with this new product since its launch in 2017.
The richer mobi platform creates a portal for a multitude of products and value-added services to
be offered to customers via their smartphones. Airtime and data bundles were successfully added as
value-added services to drive increasing customer engagement and additional revenue streams.
The relatively new insurance business continues to show strong growth with its stable of funeral
insurance products. This vertical represents an attractive growth opportunity to diversify income
and increase customer share of wallet. The focus is on consolidating the insurance operations
infrastructure, providing a solid platform to scale and expand the product offering.
MANAGING CREDIT RISK
The group continued to grow a quality credit book with gross trade and loan receivables increasing
by 22.2% to R3.3 billion. Group debtor costs growth of 18.7%, was marginally above comparable
revenue growth of 16.1% and remains within the group's acceptable risk tolerances. Non-performing
loans (NPLs) declined in both divisions, while NPL cover was bolstered by increased provisions.
Credit performance for the period is summarised below:
12 months
6 months ended
6 months ended 31 Dec
ended 30 June % change 2017
30 June 2017 (June to (audited)
2018* (restated)*** June) (restated)***
Group
Gross trade and loans receivable (Rm) 3 345 2 738 22.2 3 136
Debtor costs as a % of revenue** (%) 17.1 16.7 16.8
Retail
Gross trade and loans receivable (Rm) 1 845 1 533 20.4 1 784
Debtor costs as a % of revenue (%) 14.7 14.6 14.9
Provision for impairment as a % of gross
receivables (%) 20.6 18.6 17.9
Non-performing loans (NPLs) (>120 days) (%) 9.8 10.3 9.9
NPL cover (times) 2.1 1.8 1.8
Financial Services
Gross trade and loans receivable (Rm) 1 500 1 205 24.5 1 352
Debtor costs as a % of revenue (%) 24.9 22.9 23.2
Provision for impairment as a % of gross
receivables (%) 16.0 14.9 14.0
Non-performing loans (NPLs) (>120 days) (%) 4.2 4.4 4.2
NPL cover (times) 3.8 3.4 3.3
* IFRS 9, Financial Instruments, adopted effective 1 January 2018. IAS 39 applied for the
2017 financial year.
** Debtor costs include bad debts written off net of recoveries, as well as movements in provisions.
*** Restated based on the application of IFRS 15, Revenue from Contracts with Customers.
Retail debtor costs as a percentage of revenue was stable at 14.7% (2017: 14.6%), supported by
continued focus on training of the collections teams, combined with improvements in internal and
external collections processes. The refinement of scorecards, use of additional credit bureau data
and investment in fraud prevention tools have culminated in improved Retail vintages and NPLs
reducing to 9.8% from 10.3%. The new IFRS 9 provisioning methodology has resulted in the provision
for impairment of trade receivables increasing to 20.6% (Dec 2017: 17.9%), maintaining a conservative
NPL cover of 2.1 times.
Financial Services debtor costs as a percentage of revenue increased to 24.9% (2017: 22.9%).
The increase is primarily attributable to the strong disbursements in the period and the provisions
raised under IFRS 9 on these and is not reflective of a worsening credit performance. Existing
vintages remain stable and NPLs have improved from 4.4% to 4.2%. The provision for impaired loans
has been increased under IFRS 9 to 16.0% (Dec 2017: 14.0%) of the book, increasing the NPL
cover from 3.4 to 3.8 times. The Financial Services business continues to benefit from lending
primarily to targeted Retail customers who have demonstrated good payment behaviour.
STRONG CASH GENERATION
Cash generated from operations increased by 37.9% to R240 million, driven by good cash collections,
a reduction in loan terms and actively managing cash requirements in working capital. Consequently,
the cash conversion rate (cash generated from operations expressed as a percentage of EBITDA)
increased to 59.1% from 49.2% in June 2017. The strong cash-generation capability of the business
is evidenced by the fact that the group has managed to grow a gross credit book of more than
R3.3 billion while maintaining a net debt to equity ratio (excluding property) of 20.3%.
During December 2017 the group finalised an R800 million long-term funding facility, replacing a
R350 million facility and R160 million shareholder loan. As at 30 June 2018 the group had drawn
down R600 million (Dec 2017: R550 million) of this facility.
The net debt to equity ratio has decreased from 29.2% at December 2017 to 28.2%, comfortably below
the board's upper limit of 40.0%.
Capital expenditure increased notably in this period as part of an investment cycle which will span
the next two years. Investments are targeted at upgrading technology and infrastructure such as the
origination engine and debtors' systems, as well as improving customer experience through self-service
facilities, rolling out showrooms and speeding up delivery through an additional distribution centre.
APPLICATION OF NEW ACCOUNTING STANDARDS
As required by International Financial Reporting Standards (IFRS), the group has adopted IFRS 15,
Revenue from Contracts with Customers and IFRS 9, Financial Instruments with effect from 1 January 2018.
IFRS 15 aligns the recognition of revenue earned to the time period in which the transfer of the goods
and services takes place to the customer. The impact of the adoption of IFRS 15 on revenue is immaterial
for the six months ended 30 June 2017 and reduced revenue for the full 2017 financial year by R10 million.
IFRS 9 is the new standard for disclosure and measurement of financial instruments. IFRS 9 requires
that the group classify and measure receivables at fair value, with any changes in that fair
value recognised in the income statement as and when they arise. Using an expected credit loss
model, the group determines the allowance for credit losses on a discounted basis it would incur
in various default scenarios. Under IFRS 9 the group's provision for the impairment of trade and
loan receivables has increased by 20% on a comparable basis from IAS 39. The new standard does not
require restatement to prior periods and the increased provision is accounted for as an adjustment
to opening retained earnings.
The new IFRS 9 models have been reviewed by our independent external auditor, PwC.
OUTLOOK
The group is continuing to position itself strongly for ongoing growth. Innovative Retail and
Financial Services product ranges will appeal to our existing loyal customers and attract new
customers to the group. The rapidly increasing digital engagement by our customers and
development of our omni-channel offering further enhance this growth trajectory.
Whilst investing for the future, the group remains cognisant of the tough trading environment.
Consumers remain under severe pressure, unemployment is at record highs and there is a prevailing
climate of political and labour uncertainty. Exchange rate volatility, as well as strike action,
and particularly the recent postal strike, have the ability to negatively impact on the business.
In this environment tight credit policies, robust cash collections and cost control will remain
key management priorities. We will continue to position ourselves as a leading digital player in
the mass market, with an omni-channel offering that provides an attractive and seamless retailing
experience across all channels.
The above information has not been reviewed or reported on by the group's external auditor.
S Portelli G Lartigue S Maltz
Chairman Chief executive officer Chief executive officer (South Africa)
Qormi, Malta, 27 August 2018
DIVIDEND DECLARATION
Notice is hereby given that the board of directors has declared an interim gross cash dividend of
95.0000 cents (76.0000 cents net of dividend withholding tax) per ordinary share for the six-month
period ended 30 June 2018. The dividend has been declared from income reserves. HIL is registered
in the Republic of Malta and the dividend is a foreign dividend. Withholding tax of 20% will be
applicable to all South African shareholders who are not exempt.
The issued share capital at the declaration date is 104 762 901 ordinary shares.
The salient dates for the dividend will be as follows:
Last day of trade to receive a dividend Tuesday, 11 September 2018
Shares commence trading "ex" dividend Wednesday, 12 September 2018
Record date Friday, 14 September 2018
Payment date Monday, 17 September 2018
Share certificates may not be dematerialised or rematerialised between Wednesday, 12 September 2018
and Friday, 14 September 2018, both days inclusive.
G Said
Company secretary
Qormi, Malta, 27 August 2018
GROUP STATEMENT OF FINANCIAL POSITION
Restated* Restated*
Unaudited Unaudited Audited
Jun 2018 Jun 2017 Dec 2017
Notes Rm Rm Rm
Assets
Non-current assets
Property, plant and equipment 456 421 429
Intangible assets 93 82 86
Investment in associates 1 14 14
Financial assets at fair value through profit and loss 36 22 30
Deferred taxation - 45 -
586 584 559
Current assets
Inventories 274 295 257
Taxation receivable 1 14 4
Trade and other receivables 4 2 772 2 303 2 642
Trade receivables - Retail 1 465 1 248 1 464
Loans receivable - Financial Services 1 260 1 026 1 163
Other receivables 47 29 15
Cash and cash equivalents 80 155 130
Derivative financial instruments 1 - -
3 128 2 767 3 033
Total assets 3 714 3 351 3 592
Equity and liabilities
Equity attributable to equity holders of the parent
Stated and share capital 1 1 1
Share premium 3 003 3 000 3 003
Reorganisation reserve (2 961) (2 961) (2 961)
43 40 43
Treasury shares (3) (3) (3)
Other reserves 21 7 14
Retained earnings 2 453 2 116 2 319
Total equity 2 514 2 160 2 373
Non-current liabilities
Interest-bearing liabilities 627 547 616
Deferred taxation 92 140 120
Other payables 4 4 6
723 691 742
Current liabilities
Interest-bearing liabilities 157 50 166
Taxation payable 31 15 8
Trade and other payables 282 232 241
Provisions 3 15 38
Derivative financial instruments - - 5
Bank overdraft 4 26 19
Shareholder loan - 162 -
477 500 477
Total liabilities 1 200 1 191 1 219
Total equity and liabilities 3 714 3 351 3 592
* See note 3 for details regarding the restatement as a result of the adoption of IFRS 15.
GROUP STATEMENT OF COMPREHENSIVE INCOME
Restated* Restated*
Unaudited Unaudited Audited
six months six months year
ended ended ended
Jun 2018 % Jun 2017 Dec 2017
Notes Rm change Rm Rm
Revenue 1 524 16.1 1 313 2 993
Retail sales 856 18.9 720 1 749
Finance income 494 11.3 444 933
Fees from ancillary services 174 16.8 149 311
Cost of Retail sales (412) 14.8 (359) (853)
Other operating costs (742) 16.7 (636) (1 408)
Credit impairment losses 8 (260) 18.7 (219) (502)
Other trading expenses 8 (482) 15.6 (417) (906)
Other net gains and losses 2 (60.0) 5 1
Other income 2 (50.0) 4 11
Operating profit 374 14.4 327 744
Interest received 2 (33.3) 3 7
Interest paid (43) 7.5 (40) (83)
Share of loss of associates - <100 (1) (9)
Profit before taxation 333 15.2 289 659
Taxation (73) 12.3 (65) (145)
Profit and total comprehensive income for the period 260 16.1 224 514
Earnings per share (cents)
Basic 9.1 249.6 14.7 217.7 496.3
Diluted 9.2 245.8 14.0 215.6 491.2
Additional information (%)
Retail gross profit margin (%) 51.9 50.1 51.2
The Retail gross profit margin percentage has been calculated as Retail sales less cost of Retail
sales, divided by Retail sales.
* See note 3 for details regarding the restatement as a result of the adoption of IFRS 15.
GROUP STATEMENT OF CHANGES IN EQUITY
Unaudited Unaudited Audited
six months six months year
ended ended ended
Jun 2018 Jun 2017 Dec 2017
Rm Rm Rm
Equity at the beginning of the period as originally presented 2 386 2 030 2 030
Change in accounting policy (13) (7) (7)
Change on initial application of IFRS 9 (11) - -
Restated equity at the beginning of the period 2 362 2 023 2 023
Profit and total comprehensive income for the period
(restated for 2017) 260 224 514
Dividends paid (114) (90) (175)
Shares issued - 2 4
Share incentive scheme 6 1 7
Equity at the end of the period 2 514 2 160 2 373
GROUP STATEMENT OF CASH FLOWS
Restated* Restated*
Unaudited Unaudited Audited
six months six months year
ended ended ended
Jun 2018 % Jun 2017 Dec 2017
Notes Rm change Rm Rm
Cash flows from operating activities
Operating cash flows before working
capital changes 401 14.2 351 806
Movement in working capital (161) (9.0) (177) (447)
Cash generated from operations 10 240 37.9 174 359
Interest received 2 (33.3) 3 7
Interest paid (44) 15.8 (38) (78)
Taxation paid (69) (2.8) (71) (123)
Net cash inflow from operating activities 129 89.7 68 165
Cash flows from investing activities
Purchase of property, plant and equipment (44) (8) (28)
Purchase of intangible assets (22) (8) (28)
Investment in associates 13 - (12)
Financial assets at fair value through profit and loss - (8) (8)
Net cash outflow from investing activities (53) (119.6) (24) (76)
Cash flows from financing activities
Proceeds from issuance of shares - 2 4
Proceeds from interest-bearing liabilities 55 4 715
Repayments of interest-bearing liabilities (52) (18) (700)
Finance-raising costs paid - - (9)
Dividends paid (114) (90) (175)
Net cash outflow from financing activities (111) 8.8 (102) (165)
Net decrease in cash, cash equivalents and
bank overdrafts (35) (58) (76)
Cash, cash equivalents and bank overdrafts
at the beginning of the period 111 187 187
Cash, cash equivalents and bank overdrafts
at the end of the period 76 (40.9) 129 111
GROUP SEGMENTAL INFORMATION
Financial
Total Retail Services Property Other Intragroup
2018 Rm Rm Rm Rm Rm Rm
Six months ended 30 June - Unaudited
Segmental revenue 1 553 1 167 357 29 - -
Retail sales 856 856 - - - -
Finance income 494 237 257 - - -
Fees from ancillary services 203 74 100 29 - -
Intersegment revenue (29) - - (29) - -
Revenue from external customers 1 524 1 167 357 - - -
Total trading expenses (refer to
note 8) 742 551 192 14 8 (23)
EBITDA 406 230 168 16 (8) -
Depreciation and amortisation (32) (29) (2) (1) - -
Interest received 2 1 34 (33)
Interest paid (29) (31) (31) 33
Segmental operating profit** 347 201 136 15 (5) -
Interest received - - -
Interest paid (14) (3) (11)
Profit before taxation 333 198 136 4 (5) -
Taxation (73) (45) (25) (2) (1) -
Profit after taxation 260 153 111 2 (6) -
Segmental assets 3 714 2 244 1 916 340 1 264 (2 050)
Segmental liabilities 1 200 930 1 242 280 798 (2 050)
Operating cash flows before working
capital changes 401 225 168 16 (8) -
Movements in working capital (161) (53) (107) 1 (2) -
Cash generated/(utilised) by operations 240 172 61 17 (10) -
Gross profit margin (%) 51.9 51.9
Segmental operating profit margin (%) 22.3 17.2 38.1 51.7
** Refer to note 11 for further details on segments and segmental results.
Financial
Total Retail Services Property Other Intragroup
2017 Restated* Rm Rm Rm Rm Rm Rm
Six months ended 30 June - Unaudited
Segmental revenue 1 341 997 316 28 - -
Retail sales 720 720 - - - -
Finance income 444 213 231 - - -
Fees from ancillary services 177 64 85 28 - -
Intersegment revenue (28) - - (28) - -
Revenue from external customers 1 313 997 316 - - -
Total trading expenses (refer to
note 8) 636 470 172 11 7 (24)
EBITDA 354 196 145 17 (3) (1)
Depreciation and amortisation (28) (27) - (1) - -
Interest received 2 2 26 (26)
Interest paid (26) (26) (26) 26
Segmental operating profit** 302 169 121 16 (3) (1)
Interest received 1 1 -
Interest paid (14) (2) (12)
Profit before taxation 289 168 121 4 (3) (1)
Taxation (65) (39) (28) (1) 3 -
Profit after taxation 224 129 93 3 - (1)
Segmental assets 3 351 1 833 1 141 340 660 (623)
Segmental liabilities 1 191 627 394 286 506 (622)
Operating cash flows before working
capital changes 351 196 141 17 (3) -
Movements in working capital (177) (122) (46) (2) (7) -
Cash generated/(utilised) by operations 174 74 95 15 (10) -
Gross profit margin (%) 50.1 50.1
Segmental operating profit margin (%) 22.5 17.0 38.3 57.1
* See note 3 for details regarding the restatement as a result of the adoption of IFRS 15.
** Refer to note 11 for further details on segments and segmental results.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed consolidated interim financial statements are prepared in accordance with
International Financial Reporting Standard, IAS 34, Interim Financial Reporting, the SAICA
Financial Reporting Guides as issued by the Accounting Practices Committee, Financial
Pronouncements as issued by the Financial Reporting Standards Council and the requirements
of the Maltese Companies Act.
2. ACCOUNTING POLICIES
The accounting policies applied in the preparation of these interim financial statements are in
terms of International Financial Reporting Standards and are consistent with those applied in
the previous consolidated annual financial statements except for the adoption of the following
new standards and interpretations by the group on 1 January 2018:
- IFRS 9, Financial Instruments; and
- IFRS 15, Revenue from Contracts with Customers.
The impact of the adoption of these standards are disclosed in note 3 below.
3. CHANGES IN ACCOUNTING POLICIES
3.1 IFRS 9, Financial Instruments: Classification and Measurement - Impact of adoption
IFRS 9 addresses the classification, measurement and derecognition of financial assets and
financial liabilities, introduces new rules for hedge accounting and a new impairment model
for financial assets.
The adoption of IFRS 9 financial instruments from 1 January 2018 resulted in changes in
accounting policies and adjustments to the amounts recognised in the financial statements.
The new accounting policies are set out in note 3.4 below. In accordance with the
transitional provisions in IFRS 9 (7.2.15), comparative figures have not been restated.
The total impact on the group's retained earnings as at 1 January 2018 is as follows:
Notes Rm
Closing retained earnings 31 December 2017 2 332
Net decrease in trade receivables (iii) (19)
Net increase in loans receivable (iii) 3
Increase in deferred tax assets relating to the above 5
Adjustment to retained earnings from adoption of IFRS 9 (11)
Opening retained earnings 1 January 2018 (before restatement for IFRS 15) 2 321
(i) Classification and measurement
IFRS 9 requires all financial assets to be classified and measured on the basis of the
entity's business model for managing the financial assets and the contractual cash flow
characteristics of the financial assets.
The group's management have assessed which business models apply to the financial assets
held by the group and have classified financial instruments into the appropriate
IFRS 9 categories.
There has been no change to the classification of the group's financial liabilities
and they continue to be classified and measured at amortised cost.
(a) Cell captive insurance contracts
Previously the South African insurance cell captive was accounted for as an
Investment in insurance contract where the net profit or loss after tax was accounted
for in "Fees from ancillary services" in the statement of comprehensive income.
The net investment was shown under "Investment in associates and other" in the
statement of financial position together with the group's investment in associates.
The insurance cell captive satisfies the conditions for classification as financial
assets at fair value through profit and loss and hence there is no change to the
measurement of these assets.The net profit or loss after tax is accounted for in
"Fees from ancillary services" in the statement of comprehensive income. The net
profit or loss after tax from insurance cell operations is the net insurance result
of the investment in insurance contracts. The net result takes into account
insurance premium revenue, insurance claims, salvage and recoveries, acquisition
costs, reinsurance and taxes as accounted for by the insurance cell. The amounts
are payable to the group in terms of the contract subject to certain liquidity and
solvency requirements of the insurance cell. The net investment is no longer shown
under "Investment in associates and other" in the statement of financial position
together with the group's investment in associates, but separately under "Financial
assets at fair value through profit and loss".
(b) All other financial assets
All of the group's other financial assets which were classified as loans and
receivables satisfy the conditions for classification at amortised cost and hence
there is no change to the classification and measurement of these assets.
(ii) Derivatives and hedging activities
The group does not currently apply hedge accounting and continues to account for
forward exchange contracts at fair value through profit and loss.
(iii) Impairment of financial assets - expected credit loss model
IFRS 9 has introduced new expected credit loss (ECL) impairment requirements that
result in the earlier recognition of credit provisions. The ECL requirements apply to
debt financial assets measured at either amortised cost or at fair value through other
comprehensive income (OCI) (FVOCI), loan commitments where there is a present
commitment to extend credit (unless these are measured at fair value through profit
or loss (FVTPL)) and financial guarantees.
ECL is, at a minimum, required to be measured through a loss allowance at an amount
equal to the 12-month ECL of the financial asset. A loss allowance for full lifetime
ECL is required for a financial asset if the credit risk of that financial instrument
has increased significantly since initial recognition.
The group has the following types of financial assets measured at amortised cost
that are subject to IFRS 9's new ECL model:
- trade receivables - Retail;
- loans receivables - Financial Services; and
- other receivables.
The group was required to revise its impairment methodology under IFRS 9 for
each of these classes of assets. The group applies the IFRS 9 general approach
to measuring ECLs for all trade, loans and other receivables. The impact of the
change in impairment methodology on the group's retained earnings and equity
is disclosed in the table above.
Significant accounting judgements, estimates and assumptions
Measurement of ECL allowance
The measurement of the ECL allowance is an area that requires the use of complex
models and significant assumptions about future economic conditions and credit
behaviour. Explanation of the inputs, assumptions and estimation techniques used
in measuring ECL is further detailed below.
A number of significant judgements are also required in applying the accounting
requirements for measuring ECL, such as:
- determining criteria for significant increase in credit risk;
- choosing appropriate models and assumptions for the measurement of ECL;
- establishing the number and relative weightings of forward-looking scenarios
for each type of product/market and the associated ECL; and
- establishing groups of similar financial assets for the purposes of measuring ECL.
The key judgements and assumptions adopted by the group in addressing the
accounting requirements of the standard for ECL measurement are discussed below:
(a) Significant increase in credit risk (SICR)
The group considers a financial instrument to have experienced a SICR since
the time of initial recognition when one or more of the following quantitative,
qualitative or backstop criteria has been met:
Quantitative criteria
- Where a customer has not met his or her minimum contractual obligations
for at least two months
Qualitative criteria
- Where a customer applies for or enters into debt review; where a customer
is allocated a higher risk score category based on the group's various
behaviour scorecards; or where the customer has demonstrated a significant
increase in credit risk on other group credit products
Backstop
A backstop is applied if the borrower is more than 30 days past due on its
contractual payments
The assessment of SICR happens on a monthly basis at a portfolio and person
level for all customers. The criteria used to identify SICR are monitored
and reviewed periodically for appropriateness by the credit risk team.
(b) Definition of default and credit-impaired assets
The group defines a financial instrument as in default, which is fully aligned
with the definition of credit impaired, when it meets one or more of the
following criteria:
Retail
- Where a customer has not met their minimum contractual obligations for
four months since the time of initial recognition
Financial Services
- Where a customer has not met their minimum contractual obligations for
three consecutive months
(c) Measuring ECL - explanation of inputs, assumptions and estimation techniques
The ECL is measured on either a 12-month or lifetime basis depending on whether
a significant increase in credit risk has occurred since initial recognition
or whether an asset is considered to be credit impaired. ECLs are the discounted
product of the probability of default (PD) and exposure at default (EAD)
defined as follows:
- The PD represents the likelihood of a customer defaulting on her financial
obligation, either over 12 months (12-month PD) or over the remaining
lifetime (lifetime PD) of the obligation.
- EAD is based on the amounts the group expects to be owed at the time of
default, over the next 12 months (12-month EAD) or over the remaining
lifetime (lifetime EAD).
The ECL is determined by projecting the PD and EAD for each future month and
for each collective segment. These three components are multiplied together.
This effectively calculates the ECL for each future month, which is then
discounted back to the reporting date and aggregated. The discount rate used
in the ECL calculation is the original effective interest rate, or an
approximation thereof.
The lifetime PD is developed by applying a behavioural matrix against the
current balances. The behavioural matrix looks at how defaults develop on a
portfolio from the point of initial recognition throughout the lifetime of
the contracts. The behavioural matrix is based on historically observed data
and is assumed to be the same across all assets within a portfolio and
credit band. This is supported by historical analysis.
The 12-month and lifetime EADs are determined based on the probability of
write-off, which varies by product type.
(d) Forward-looking information incorporated in the ECL models
The assessment of SICR and the calculation of ECL both incorporate forward-
looking information. The group has performed historical analysis and identified
certain macroeconomic variables correlating with credit losses.
Due to the relative short-term nature of the book and constantly evolving
credit criteria being applied, the impact of extrapolating the forward-looking
information against credit variables was not material, however will continue
to be monitored and reassessed at year-end.
(e) Groupings of instruments for losses on a collective basis
For ECL provisions modelled on a collective basis, a grouping of exposures
is performed on the basis of shared risk characteristics, such that risk
exposures within the group are homogenous. In performing this grouping there
must be sufficient information for the group to be statistically credible.
Group information include the following characteristics:
- new versus existing customers;
- term of the loan; and
- merchandise category.
Each segmentation was further segmented into IFRS 9-defined stages.
The appropriateness of groupings is monitored and reviewed on a periodic
basis by the credit risk team.
Write-off policy
The group writes off financial assets, in whole or in part, when it has
exhausted all practical recovery efforts and has concluded there is no
reasonable expectation of recovery. This is usually the case when the group's
in-house collection department and external collection companies which
supplement the group's collection activities are unable to recover outstanding
balances. The group's write-off policy by segment is as follows:
Retail
- Where the customer has not met his or her minimum contractual obligations
for six months and has not made any payment at all within the last 90 days; or
Financial Services
- Where the debtor has not met his or her minimum contractual obligations
for at least four months and has not made any payment at all within the
last four months.
3.2 IFRS 15, Revenue from Contracts with Customers - Impact of adoption
IFRS 15, which replaces IAS 18, is based on the principle that revenue is recognised when
control of a good or service transfers to a customer.
The adoption of IFRS 15, Revenue from Contracts with Customers from 1 January 2018 resulted
in changes in accounting policies and adjustments to the amounts recognised in the
financial statements.
The new accounting policies are set out in note 3.4 below. In accordance with the transition
provisions in IFRS 15 the group has adopted the new standard retrospectively and has restated
comparatives for the 2017 financial year.
The total impact on the group's retained earnings as at 1 January 2017 is as follows:
2017
Notes Rm
Opening retained earnings 1 January before IFRS 15 restatement
(see note 3.1) 1 988
Restatement for finance income (i) (12)
Decrease in debtor costs (i) 2
Decrease in deferred tax liabilities (i) 3
Adjustment to retained earnings from adoption of IFRS 15 (7)
Opening retained earnings 1 January after IFRS 15 restatement 1 981
(i) Accounting for finance income
In previous reporting periods a portion of initiation fees were allocated based on
IAS 18 multiple element recognition criteria to be recognised upfront as part of revenue.
This recognition criteria was applied to the separately identifiable components of the
transaction in order to reflect the substance of the transaction.
IFRS 15 provides additional guidance on multiple element contracts and, based on this
guidance and the trade receivables being at fair value based on the interest and
initiation fees charged, it was determined that there are no longer separately
identifiable components with regard to initiation fees charged to customers.
The impact of IFRS 15 in the financial statements is disclosed under 3.4 below.
3.3 Accounting policies applied from 1 January 2018
3.3.1 IFRS 9, Financial Instruments
(i) Financial assets
Classification
From 1 January 2018 the group classifies its financial assets in the following
measurement categories:
- those to be measured subsequently at fair value through profit and loss; and
- those to be measured at amortised cost.
The classification depends on the entity's business model for managing the
financial assets and the contractual terms of the cash flows.
Measurement
At initial recognition, the group measures a financial asset at its fair value plus,
in the case of a financial asset not at fair value through profit or loss,
transaction costs that are directly attributable to the acquisition of the financial
asset. Transaction costs of financial assets carried at fair value through profit
or loss are expensed in profit or loss.
Subsequent measurement of debt instruments depends on the group's business model
for managing the asset and the cash flow characteristics of the asset. There are
two measurement categories into which the group classifies its financial instruments:
Amortised cost
These are assets that are held for collection of contractual cash flows where
those cash flows represent solely payments of principal and interest and are
measured at amortised cost.
Interest income from these financial assets is included in finance charges earned
using the effective interest rate method. This is calculated by applying the
effective interest rate to the gross carrying amount of a financial asset except for:
(a) purchased or originated credit-impaired financial assets. For these financial
assets the group applies the credit-adjusted effective interest rate
to the amortised cost of the financial asset from initial recognition; and
(b) financial assets that are not purchased or originated credit-impaired financial
assets but subsequently have become credit-impaired financial assets. For these
financial assets the group applies the effective interest rate to the
amortised cost of the financial asset in subsequent reporting periods.
Initiation fees which are considered to be an integral part of the effective
interest rate are accounted for over the shorter of the original contractual
term and the actual term of the loan or credit sale using the effective interest
rate. Trade receivables are reduced by the deferred portion of these fees.
Any gain or loss arising on derecognition is recognised directly in profit or
loss and presented in gains and losses arising from the derecognition of financial
assets measured at amortised cost.
Fair value through profit and loss
These are assets that do not meet the criteria for amortised cost or fair value
through other comprehensive income and are measured at fair value through profit
and loss. A gain or loss on derivative financial instruments that are subsequently
measured at fair value through profit and loss is recognised in profit or loss and
presented net within other gains/(losses) in the period in which it arises.
Changes in the fair value of equity instruments that are measured at fair value
through profit and loss are recognised in "Fees from ancillary services" in the
statement of profit or loss.
Impairment
From 1 January 2018 the group assesses on a forward-looking basis the expected
credit losses associated with its debt instruments carried at amortised cost.
The impairment methodology applied depends on whether there has been a significant
increase in credit risk. The group applies the general impairment approach.
The group assesses at the end of each reporting period whether the credit risk
on a financial instrument has increased significantly since initial recognition.
Where there has been a significant increase in credit risk since initial recognition
the group measures the loss allowance for a financial instrument at an amount equal
to the lifetime expected credit losses. Where there has not been a significant
increase in credit risk since initial recognition the group measures the loss
allowance for that financial instrument at an amount equal to 12-month expected
credit losses. The group recognises in profit or loss, as an impairment gain or
loss, the amount of expected credit losses (or reversal) that is required to
adjust the loss allowance at the end of the reporting period.
Note 3.2 provides more detail on how the group determines a significant increase
in credit risk and how the expected credit loss allowance is measured.
3.3.2 IFRS 15, Revenue from Contracts with Customers
Revenue is recognised at the amount of the transaction price that is allocated
to that performance obligation excluding amounts collected on behalf of third
parties. Revenue is recognised when (or as) the entity satisfies a performance
obligation by transferring a promised good or service (i.e. an asset) to a
customer. An asset is transferred when (or as) the customer obtains control of
that asset.
The following specific criteria must also be met before revenue is recognised:
(i) Retail sales
Retail sales comprise revenue from the sale of goods, income earned from
the delivery of such goods and related product protection insurance, and is
recognised when control of the products has transferred, usually on delivery
of the goods. It is the group's policy to sell its products to retail
customers with a right to return within 14 days. The group records a
liability for estimated returns based on historical rates. The group does
not operate any loyalty programmes.
(ii) Fees from ancillary services
Fees from ancillary services include revenue earned for administration of
transactions with customers, as well as insurance profits received on credit
life products and group schemes. These fees are recognised in revenue in
the accounting period in which the services are rendered.
3.4 Impact on the financial statements
The following tables set out the impact of the changes in accounting policies and retrospective
adjustments made for each individual line item affected in the financial statements. IFRS 9 was
adopted without restating comparative information and the impact is not reflected in the restated
comparatives but recognised in the opening statement of financial position on 1 January 2018.
Group statement of financial position
Audited Restated Restated
31 Dec 31 Dec 1 Jan
2017 IFRS 15 2017 IFRS 9 2018
Rm Rm Rm Rm Rm
Non-current assets
Financial assets at fair value
through profit and loss 30 - 30 - 30
Current assets
Trade receivables - Retail 1 482 (18) 1 464 (19) 1 445
Loans receivable - Financial Services 1 163 - 1 163 3 1 166
Equity
Retained earnings 2 332 (13) 2 319 (11) 2 308
Non-current liabilities
Deferred taxation 125 (5) 120 (5) 115
Unaudited Restated
30 Jun 30 Jun
2017 IFRS 15 2017
Rm Rm Rm
Non-current assets
Financial assets at fair value through profit and loss 22 - 22
Current assets
Trade receivables - Retail 1 258 (10) 1 248
Equity
Retained earnings 2 123 (7) 2 116
Non-current liabilities
Deferred taxation 143 (3) 140
Group statement of comprehensive income
Unaudited Restated Audited Restated
six months six months year year
ended ended ended ended
Jun 2017 IFRS 15 Jun 2017 Dec 2017 IFRS 15 Dec 2017
Rm Rm Rm Rm Rm Rm
Revenue 1 314 (1) 1 313 3 003 (10) 2 993
Finance income 445 (1) 444 943 (10) 933
Other operating costs (636) - (636) (1 410) 2 (1 408)
Credit impairment losses (219) - (219) (504) 2 (502)
Other trading expenses (417) - (417) (906) - (906)
Operating profit 328 (1) 327 752 (8) 744
Profit before taxation 290 (1) 289 667 (8) 659
Taxation (65) - (65) (147) 2 (145)
Profit and total comprehensive income
for the period 225 (1) 224 520 (6) 514
Earnings per share (cents)
Basic 218.1 (0.4) 217.7 501.9 (5.6) 496.3
Diluted 216.0 (0.4) 215.6 496.7 (5.5) 491.2
Group statement of cash flows
Unaudited Restated Audited Restated
six months six months year year
ended ended ended ended
Jun 2017 IFRS 15 Jun 2017 Dec 2017 IFRS 15 Dec 2017
Rm Rm Rm Rm Rm Rm
Cash flows from operating activities
Operating cash flows before working
capital changes 352 (1) 351 814 (8) 806
Movement in working capital (178) 1 (177) (455) 8 (447)
4. TRADE AND OTHER RECEIVABLES
Restated* Restated*
Unaudited Unaudited Audited
six months six months year
ended ended ended
Jun 2018 Jun 2017 Dec 2017
Rm Rm Rm
Trade receivables - Retail 1 845 1 533 1 784
Provision for impairment (380) (285) (320)
1 465 1 248 1 464
Loans receivable - Financial Services 1 500 1 205 1 352
Provision for impairment (240) (179) (189)
1 260 1 026 1 163
Other receivables 47 29 15
Trade and other receivables 2 772 2 303 2 642
Trade and loan receivables 3 345 2 738 3 136
Provision for impairment (620) (464) (509)
Other receivables 47 29 15
Movements in the provision for impairment were as follows:
Retail
Opening balance (320) (284) (284)
Change on initial application of IFRS 9 (64)
Restated opening balance (384) (284) (284)
Movement in provision 4 (1) (36)
Total debtor costs charged to profit and loss: (171) (146) (348)
Credit impairment losses (171) (146) (348)
Debts written off during the year, net of recoveries 175 145 312
Closing balance (380) (285) (320)
Financial Services
Opening balance (189) (178) (178)
Change on initial application of IFRS 9 (38)
Restated opening balance (227) (178) (178)
Movement in provision (13) (1) (11)
Total debtor costs charged to profit and loss: (89) (73) (154)
Credit impairment losses (89) (73) (154)
Debts written off during the year, net of recoveries 76 72 143
Closing balance (240) (179) (189)
* See note 3 for details regarding the restatement as a result of the adoption of IFRS 15.
Restated* Restated*
Unaudited Unaudited Audited
six months six months year
ended ended ended
Jun 2018 Jun 2017 Dec 2017
Rm Rm Rm
Retail
Total debtor costs as a % of revenue (%) 14.7 14.6 14.9
Total debtor costs as a % of gross receivables
(annualised) (%) 18.5 18.9 19.3
Provision for impairment as a % of gross receivables (%) 20.6 18.6 17.9
Financial Services
Total debtor costs as a % of revenue (%) 24.9 22.9 23.2
Total debtor costs as a % of gross receivables
(annualised) (%) 11.9 12.0 11.4
Provision for impairment as a % of gross receivables (%) 16.0 14.9 14.0
Group
Total debtor costs as a % of revenue (%) 17.1 16.7 16.8
Total debtor costs as a % of gross receivables
(annualised) (%) 15.5 15.9 15.9
Provision for impairment as a % of gross receivables (%) 18.5 17.0 16.2
Non-performing trade and loan receivables
(being accounts 120 days or more in arrears, as a
percentage of the trade and loan receivable books)
were as follows at the reporting dates:
Retail (%) 9.8 10.3 9.9
Financial Services (%) 4.2 4.4 4.2
Credit-impaired trade receivables at transition date and at the end of the current reporting
period were R152 million and R156 million respectively.
Credit-impaired loans receivable at transition date and at the end of the current reporting
period were R47 million and R58 million respectively.
5. CONTINGENT LIABILITIES
The group had no contingent liabilities at the reporting date.
6. EVENTS AFTER THE REPORTING DATE
No event material to the understanding of this interim report has occurred between the end of
the interim period and the date of approval of these interim results.
Restated* Restated*
Unaudited Unaudited Audited
six months six months year
ended ended ended
Jun 2018 Jun 2017 Dec 2017
Rm Rm Rm
7. FEES FROM ANCILLARY SERVICES
Service fees 109 97 198
Insurance fees 60 51 108
Other 5 1 5
174 149 311
8. TOTAL TRADING EXPENSES
Expenses by nature
Credit impairment losses
Trade receivables - Retail 171 146 348
Loans receivable - Financial Services 89 73 154
Total credit impairment losses 260 219 502
Amortisation of intangible assets 15 16 32
Depreciation of property, plant and equipment 17 12 26
Operating lease charges for immovable property 1 1 1
Total operating lease charges 3 4 8
Less: disclosed under cost of Retail sales (2) (3) (7)
Marketing costs 128 104 220
Staff costs 196 165 395
Total staff costs 231 184 441
Less: disclosed under cost of Retail sales (20) (12) (27)
Less: staff costs capitalised to intangibles (15) (7) (19)
Other costs 125 119 232
Total other trading expenses 482 417 906
742 636 1 408
* See note 3 for details regarding the restatement as a result of the adoption of IFRS 15.
9. EARNINGS PER SHARE
9.1 Basic and headline earnings per share
The calculation of basic and headline earnings per share is based upon profit for the period
attributable to ordinary shareholders divided by the weighted average number of ordinary
shares in issue as follows:
Restated* Restated*
Unaudited Unaudited Audited
six months six months year
ended ended ended
Jun 2018 Jun 2017 Dec 2017
Rm Rm Rm
Profit for the period 260 224 514
Adjusted for the after-tax effect of:
Impairment of investment in associate and other - - 4
Share of impairment of property, plant and equipment
of associate - - 4
Headline earnings for the period 260 224 522
Weighted average number of ordinary shares in
issue (million) 104 103 104
Earnings per share (cents)
Basic 249.6 217.7 496.3
Headline 249.6 217.7 503.8
9.2 Diluted earnings and diluted headline earnings per share
The calculation of diluted earnings and diluted headline earnings per share is based upon
profit for the year attributable to owners of the parent divided by the fully diluted
weighted average number of ordinary shares in issue as follows:
Restated* Restated*
Unaudited Unaudited Audited
six months six months year
ended ended ended
Jun 2018 Jun 2017 Dec 2017
Million Million Million
Weighted average number of ordinary shares in issue 104 103 104
Number of shares issuable under the share option scheme
for no consideration 2 1 1
Diluted weighted average number of ordinary shares in issue 106 104 105
Earnings per share (cents)
Diluted 245.8 215.6 491.2
Diluted headline 245.8 215.6 498.6
* See note 3 for details regarding the restatement as a result of the adoption of IFRS 15.
10. RECONCILIATION OF CASH GENERATED FROM OPERATIONS
Restated* Restated*
Unaudited Unaudited Audited
six months six months year
ended ended ended
Jun 2018 Jun 2017 Dec 2017
Rm Rm Rm
Profit before taxation 333 289 659
Share of loss of associates - 1 9
Profit from insurance cells (5) (5) (13)
Impairment of investment in associate - - 5
Depreciation and amortisation 32 28 58
Share-based employee service expense 6 1 7
Exchange (profits)/losses on foreign exchange contracts (6) - 5
Interest paid 42 38 77
Interest received (2) (3) (7)
Capitalised bond costs - amortised cost adjustment 1 2 6
Operating cash flows before working capital changes 401 351 806
Movements in working capital (161) (177) (447)
Increase in inventories (17) (81) (43)
Increase in trade receivables - Retail (22) (35) (253)
Increase in loans receivable - Financial services (94) (57) (193)
(Increase)/decrease in other receivables (32) (5) 9
Increase in trade and other payables 39 17 27
(Decrease)/increase in provisions (35) (16) 6
240 174 359
* See note 3 for details regarding the restatement as a result of the adoption of IFRS 15.
11. GROUP SEGMENTAL ANALYSIS
The group's operating segments are identified as being Retail, Financial Services, Property and
Other. Operating segments are reported in a manner consistent with the internal reporting provided
to the chief operating decision-maker, being HomeChoice International plc's executive directors.
The group's reportable segments are unchanged from the previous reporting date.
Retail consists mainly of the group's HomeChoice and FoneChoice operations, whereas Financial
Services represents the group's FinChoice operations. The group's property company, which owns
commercial properties utilised within the group, are included in the Property segment. The Other
segment relates mainly to the holding company's standalone results, as well as those of its associates.
The chief operating decision-maker monitors the results of the business segments separately for the
purposes of making decisions about resources to be allocated and of assessing performance. They
assess the performance of Retail and Property segments based upon a measure of operating profit and
Financial Services and Other segments based on a measure of operating profit after interest received
and interest paid.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the statement of financial position approximate fair values.
Discounted cash flow models are used for trade and loan receivables. The discount yields in these
models use calculated rates that reflect the return a market participant would expect to receive
on instruments with similar remaining maturities, cash flow patterns, credit risk, collateral
and interest rates.
13. CAPITAL COMMITMENTS FOR PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS
Unaudited Unaudited Audited
six months six months year
ended ended ended
Jun 2018 Jun 2017 Dec 2017
Rm Rm Rm
Approved by the directors 6 36 14
14. RELATED PARTY TRANSACTIONS AND BALANCES
Related party transactions similar to those disclosed in the group's annual financial statements
for the year ended 31 December 2017 took place during the period and related party balances are
existing at the reporting date. Related party transactions include key management personnel
compensation and intragroup transactions which have been eliminated on consolidation.
15. SEASONALITY
Due to its seasonal nature, the Retail business has a history of generating higher revenues
during the second half of the year.
16. PREPARATION AND REVIEW OF INTERIM FINANCIAL STATEMENTS
These interim financial statements were prepared by the group's finance department, acting under
the supervision of P Burnett, CA (SA), finance director of the group.
The interim results have not been reviewed or audited by our auditors, PricewaterhouseCoopers Inc.
17. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
Other than as disclosed under note 3.1 above, the significant judgements made by management
in applying the group's accounting policies and the key sources of estimation uncertainty were
the same as those that applied to the consolidated financial statements for the year ended
31 December 2017.
STATISTICS
Restated* Restated*
Jun 2018 Jun 2017 Dec 2017
Growth in revenue (%) 16.1 14.0 12.3
Retail gross profit margin (%) 51.9 50.1 51.2
Operating profit margin (%) 24.5 24.9 24.9
Earnings before interest, tax, depreciation and
amortisation (EBITDA) (Rm) 406 354 793
Growth in EBITDA (%) 14.7 14.2 13.1
EBITDA margin (%) 26.6 27.0 26.5
Solvency and liquidity
Net asset value per share (cents) 2 417 2 077 2 282
Growth in net asset value (%) 5.9 5.3 15.7
Inventory turn (times) 3.1 2.8 3.6
Net debt/equity ratio (%) 28.2 29.2 28.3
Performance
Growth in trade receivables - Retail (%) 0.1 2.2 19.8
Growth in loans receivable - Financial Services (%) 8.3 5.8 20.0
Growth in cash generated from operations (%) 37.9 20.0 29.2
Cash conversion (%) 59.1 49.2 45.3
Return on equity - annualised (%) 21.2 21.4 23.3
Shareholding
Number of shares (million)
- In issue, net of treasury shares 104 104 104
- Weighted shares in issue, net of treasury shares 104 103 104
- Diluted weighted average 106 104 105
Earnings per share (cents)
- basic 249.6 217.7 496.3
- diluted 245.8 215.6 491.2
- headline (HEPS) 249.6 217.7 503.8
- diluted HEPS 245.8 215.6 498.6
In April 2018 the final dividend for the 2017 financial year of R114 million (109 cents per share)
was paid to shareholders.
In April 2017 the final dividend for the 2016 financial year of R90 million (87 cents per share)
was paid to shareholders.
* See note 3 for details regarding the restatement as a result of the adoption of IFRS 15.
27 August 2018
Directorate
Non-executive directors
S Portelli* (Chairman), A Chorn*, R Garratt, E Gutierrez-Garcia, R Hain*, C Rapa*,
A Ogunsanya (alternate) * Independent
Executive directors
G Lartigue (Chief Executive Officer), P Burnett, S Maltz
Administration
Country of incorporation
Republic of Malta
Date of incorporation
22 July 2014
Company registration number: C66099
Registered office: 93 Mill Street, Qormi, QRM3012, Republic of Malta
Company secretary: George Said
Auditors: PricewaterhouseCoopers, Republic of Malta
Corporate bank: Deutsche Bank International Limited, Channel Islands
Sponsor: Rand Merchant Bank, a division of FirstRand Bank Limited
Transfer secretaries: Computershare Investor Services Proprietary Limited
Website: www.homechoiceinternational.com
Date: 27/08/2018 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
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