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PEPKOR HOLDINGS LIMITED - Unaudited Interim Results For The Six Months Ended 31 March 2019

Release Date: 29/05/2019 08:00
Code(s): PPH     PDF:  
 
Wrap Text
Unaudited Interim Results For The Six Months Ended 31 March 2019

Pepkor Holdings Limited
(‘Pepkor’ or ‘the company’ or ‘the group’)
(Previously Steinhoff Africa Retail Limited)
(Incorporated in the Republic of South Africa)
Registration number: 2017/221869/06
Share code: PPH
ISIN: ZAE000259479


UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 2019


HIGHLIGHTS

7.0% growth in revenue to R35.3bn
25.2% growth in operating profit(1) to R3.4bn
6.9% comparable(2) operating profit growth
39.9% increase in headline earnings per share to 50.7 cents
3.4% comparable(2) headline earnings per share growth to 52.4 cents
164 new stores opened during the period, totalling 5 332 stores
Internal funding of credit books commenced

(1) Before capital items
(2) Comparable results exclude one-off costs. Refer to the ‘Comparability of results’ section for further information.


OVERVIEW

The Pepkor group reported satisfactory results during the six months ended 31 March 2019 (H1FY19) in a challenging retail market. 

Consumer spending remains under pressure, having to contend with increased living costs and high levels of unemployment. Uncertainty 
prior to the 2019 elections, the implementation of stage four load-shedding and the shift of Easter to April further contributed 
to a very challenging retail environment.

Respectable earnings growth on a comparable basis was achieved, notwithstanding lower than expected sales growth. Pepkor’s defensive 
market positioning of offering value to customers by providing everyday products at affordable prices and at customers’ convenience, 
underpins the group’s performance. 

Pepkor grew its market share in the period under review, and the group’s retail store footprint expanded to 5 332 stores, including 
164 new store openings during the six-month period.


FINANCIAL PERFORMANCE

The group achieved revenue growth of 7.0% to R35.3 billion and reported operating profit growth of 25.2%, before capital items, 
to R3.4 billion during H1FY19. 

Pepkor’s statutory results include one-off items that impact its comparison to the previous period. On a comparable basis, operating 
profit increased by 6.9% to R3.4 billion and headline earnings per share increased by 3.4% to 52.4 cents. Further information 
on how the comparable results were calculated is included in the ‘Comparability of results’ section of this results announcement. 

Net finance costs increased by 33.5% to R738 million (29.8% to R718 million excluding one-off costs) as a result of the capital 
investment made to fund the two new credit books and as a consequence of lower cash generation.

Pepkor’s effective tax rate for the period is 34.0%. South African income tax is calculated at 28% while tax in other jurisdictions 
is calculated at the prevailing rates. Items impacting Pepkor’s effective tax rate relate mainly to irrecoverable foreign withholding 
taxes and non-deductible finance costs.  
 
The internal funding of the new credit books commenced during the reporting period. The new JD Group credit book, Connect Financial 
Solutions, amounted to R1.0 billion (gross) and the new Capfin credit book amounted to R0.3 billion (gross) at 31 March 2019. The new 
credit books are funded by R2.5 billion bridging finance secured during the period. Opportunities to diversify funding sources 
are being explored.

Cash generation was negatively impacted by the funding of the new credit books and higher net working capital levels due to lower sales 
growth. Higher inventory levels reported at the end of FY18 due to lower sales activity were successfully managed through disciplined 
markdowns to manage stock freshness. Higher inventory levels at 31 March 2019 - compared to the prior year - were influenced by lower 
than expected sales and the shift of Easter to April, as well as an expanded store base.

Net debt increased to R15.7 billion from R12.6 billion at 30 September 2018. The contractual net debt-to-EBITDA ratio of the group 
is 2.04 times with interest cover at 5.65 times.

The acquisition of FGI Holdings from Wands Investments, a subsidiary of Fulcrum, was approved by the Competition Commission 
and remains subject to conditions precedent, including Prudential Authority approval and a due diligence investigation. 
FGI provides insurance products via its subsidiaries under the Abacus brand to JD Group customers and other group companies.

Steinhoff International Holdings N.V. (Steinhoff) published its 2017 results in May 2019. These financial statements included 
a restatement for the reversal of the Steinhoff Share Right Scheme charges. The reversal of all costs pertaining to open share 
grants for Pepkor employees was adjusted to retained earnings in the current reporting period.

The group has adopted IFRS 9 Financial Instruments, resulting in additional provisions raised on credit books in terms of the new 
impairment model. This resulted in a net impact on opening retained earnings of R68 million in addition to a R50 million provision 
raised on the new JD Credit book.

As in the prior reporting period, the board resolved not to declare an interim dividend.


OPERATIONAL PERFORMANCE

Clothing and general merchandise 

The clothing and general merchandise segment reported revenue growth of 5.2% to R23.1 billion, contributing 66% of group revenue 
for the period under review. Operating profit increased by 6.6% to R3.1 billion. 

The challenging conditions within the discount and retail sectors weighed on sales growth. By Pepkor standards, the sales growth 
achieved by many of its retail brands was lower than expected. However, the group increased its market share according to the Retail 
Liaison Committee (RLC).

Momentum in retail store footprint expansion continued. Retail brands within the segment opened 136 new stores during the period, 
resulting in a total of 4 310 stores and equating to retail space growth of 4.8% year-on-year. The progressive return of selling price 
inflation supported healthy sales growth within the core Clothing, Footwear and Home (CFH) product departments.

PEP and Ackermans
In aggregate, PEP and Ackermans reported merchandise sales growth of 5.4% and like-for-like growth of 1.6%, underscoring the challenging 
consumer environment. Within CFH, selling price inflation of 2.5% was recorded, along with volume growth of 3.5%. Selling price 
inflation is expected to continue during the remainder of FY19.

PEP
PEP maintained market share and its position as price leader despite the particularly challenging trading conditions within the discount 
market sector. Performance was supported by good growth in Babies and Home departments, with strong growth achieved in Fast Moving Consumer 
Goods (FMCG) and Financial Services. 

A total of 5.3 million cellular handsets was sold during the period, which was below expectation following selling price increases 
in handsets. Corrective action in the form of a selling price reduction supported a recovery towards the end of the reporting period. 
Financial Services reported exceptional growth in profitability as PEP’s strategy to expand its value-added services offering continues 
to resonate with customers. 

PEP’s retail store footprint expanded to 2 265 stores, including 47 new stores opened during the period across its traditional PEP, 
PEP Home and PEP Cell retail formats, equating to retail space growth of 3.8% year-on-year.

The PAXI parcel delivery service, which successfully leverages and monetises the PEP retail footprint, celebrated its first full year 
of operation. Good growth momentum continues, with 45 000 parcels currently being sent on a monthly basis.

The new Dealz discount variety retail concept rolled out four additional stores and continues to perform well with strong like-for-like 
and basket size growth. Plans are in place to open a further six stores during the remainder of FY19.

Ackermans
Ackermans’ strong customer value proposition of providing value to ‘women with kids in their lives’ continued to drive growth 
and outperformed the market once again. A total of 31 new stores were opened during the period, expanding the store base to 759 stores 
and adding 6.3% retail space year-on-year. 

The credit sales mix, facilitated by Pepkor’s Tenacity Financial Services business, was maintained at 17%, with lay-bys contributing 
a stable 18% to total sales. Challenges in the new Hammarsdale distribution centre, commissioned towards the end of 2018, negatively 
affected product availability in-store for a few months.

Growth in CFH was supported by double-digit growth in the Essentials, Babies and Women’s Wear product categories. The Ackermans Woman 
retail format continues to perform well, and an additional three stores were opened during the period, bringing the total store base 
to six.

PEP Africa
PEP Africa contributed 3.4% to group revenue during the period and reported like-for-like sales growth of 10.8% in constant currency 
terms(1). The devaluation of Angolan and Zambian currencies resulted in a sales decline of 3.4% in reporting currency terms. The business 
continues to focus on enhancing processes, systems and efficiencies as it consolidates its base. Operations in Nigeria performed very well 
as the dynamics of the local market are better understood. Zimbabwe remains a concern and operations have been intentionally slowed down 
while viability is assessed and risk is managed.

(1) For further information on constant currency disclosure, refer to page 5 of this results announcement.

Speciality
The Speciality division reported strong results with exceptional performances by some of the retail brands, reporting sales growth 
of 9.4% and like-for-like growth of 4.1%.

The total store footprint across five retail brands was expanded to 939 stores, with 47 store openings.

Footwear businesses Tekkie Town and Shoe City currently face challenging market conditions. Tekkie Town management has been successful 
in continuing to grow and expand the business while key projects are underway to enhance its supply chain and stock management ability. 
Dunns has maintained its positive performance trajectory, while John Craig and Refinery continue to report double-digit sales 
and like-for-like growth.

Furniture, appliances and electronics 

JD Group increased revenue by 7.2% to R5.0 billion, supported by the new JD credit book under Connect Financial Solutions. 

Performance in this segment was characterised by difficult trading conditions where customer spending was more focused on essentials 
than durables and resulted in merchandise sales growth of 1.4% and a decline in like-for-like sales of 1.6%. 

Credit sales, now funded internally, are managed conservatively and contributed 18% to sales. This includes a credit sales mix 
of 27% for furniture brands and 7% for consumer electronics and appliances brands. 

Despite the challenging trading environment, an operating profit of R60 million was reported, reflecting the positive outcome 
of management’s focus on efficiency gains and containing the segment’s cost of doing business. This includes an additional provision 
of R50 million raised in terms of IFRS 9 on the new loan book.

Progress has been made in the operations and profitability of all brands. Management continues to optimise the retail store footprint 
of 900 stores, both in terms of locations and improved trading densities.

Building materials 

Segmental revenue increased by 1.5% to R4.0 billion, while operating profit decreased by 66.9% to R42 million.

The Building Company reported sales growth of 1.5% and like-for-like growth of 2.3% during the period with the building materials market 
currently experiencing its worst contraction in more than a decade. As a result, the business faced the dual challenge of defending 
its market share while margins and profitability were under pressure.

Positive sales growth was driven mainly by the wholesale division, with the general building and specialist retail divisions both reporting 
low sales growth. 

Significant pressure on margins resulted in reduced profitability for the period and strategic development continues across the business, 
including initiatives to improve margins. Good cost control further continues to support profitability.

FinTech

The FinTech segment increased revenue by 32.3% to R3.2 billion, while operating profit increased by 36.7% to R201 million.

The FLASH business continues to report strong growth, with virtual turnover growth exceeding 20%. The number of FLASH traders increased 
to 156 000 from 131 000 in the comparative period. 

The Capfin business performed well during the period and Pepkor commenced internal funding for the new Capfin loan book. 
Capfin saw healthy growth in new loan applications of 36% and credit granting continues to be managed on a conservative basis in terms 
of credit scorecards and affordability assessments. The introduction of new digital channels and a new marketing campaign further 
supported performance.


OUTLOOK

Pepkor is a group of 49 000 employees whose purpose is to provide value that enriches customers’ lives - making their lives better 
and easier. This focus will continue to support the group’s performance during the remainder of the 2019 financial year. Management 
remains cautiously optimistic about the retail environment and expects improved consumer confidence following the completion 
of South Africa’s elections. The group continues to identify opportunities for growth and expansion and expects to further expand 
its store footprint, achieving between 3% and 4% space growth in FY19 on a net basis. 


APPRECIATION

Management and the board would like to thank shareholders, customers, employees and suppliers for their continued support and loyalty 
to Pepkor and its retail brands.


Jayendra Naidoo          Leon Lourens                     Riaan Hanekom
Chairman                 Chief executive officer          Chief financial officer
27 May 2019


PEPKOR GROUP’S PRO FORMA CONSTANT CURRENCY DISCLOSURE

The Pepkor group discloses unaudited constant currency information to indicate PEP Africa’s performance in terms of sales growth, 
excluding the effect of foreign currency fluctuations. To present this information, current period turnover for PEP Africa reported 
in currencies other than ZAR is converted from local currency actuals into ZAR at the prior year’s actual average exchange rates. 
The table below sets out the percentage change in sales, based on the actual results for the period, in reported currency 
and constant currency, for the basket of currencies in which PEP Africa operates.

                                                                                                                  Reported       Constant
Change in sales on prior period (%)                                                                               currency       currency 
PEP Africa                                                                                                           (3.4%)         15.6%


UNAUDITED SUMMARISED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 31 MARCH 2019


CONDENSED CONSOLIDATED INCOME STATEMENT 
                                                                              Six months       Six months                   Twelve months
                                                                                   ended            ended                           ended
                                                                             31 Mar 2019      31 Mar 2018                     30 Sep 2018
                                                                               Unaudited        Unaudited                         Audited
                                                                                                 Restated(1)             %       Restated(1)
                                                                  Notes               Rm               Rm           change             Rm
Revenue                                                                           35 298           32 998              7.0         64 144 
Cost of sales                                                                    (22 692)         (21 245)             6.8        (41 913)
Gross profit                                                                      12 606           11 753              7.3         22 231
Operating income                                                                     443              594            (25.4)           938
Operating expenses                                                                (9 060)          (9 084)            (0.3)       (16 107)
Operating profit before depreciation, amortisation 
and capital items                                                                  3 989            3 263             22.2          7 062 
Depreciation and amortisation                                                       (599)            (555)             7.9         (1 134)
Operating profit before capital items                                              3 390            2 708             25.2          5 928 
Capital items                                                         2                2               (1)          (300.0)           (37)
Operating profit                                                                   3 392            2 707             25.3          5 891 
Finance costs(2)                                                                    (846)            (671)            26.1         (1 434)
Finance income(2)                                                                    108              118             (8.5)           242 
Profit before taxation                                                             2 654            2 154             23.2          4 699 
Taxation                                                                            (903)            (899)             0.4         (1 804)
Profit for the period                                                              1 751            1 255             39.5          2 895 
     
Profit attributable to:     
Owners of the parent                                                               1 751            1 249             40.2          2 885 
Non-controlling interests                                                              -                6           (100.0)            10 
Profit for the period                                                              1 751            1 255             39.5          2 895 
    
Basic earnings per share (cents)                                      4             50.8             36.2             40.2           83.6 
Headline earnings per share (cents)                                   4             50.7             36.2             39.9           84.5 
Diluted earnings per share (cents)                                    4             50.4             36.1             39.7           83.3 
Diluted headline earnings per share (cents)                           4             50.4             36.1             39.4           84.2

(1) Refer to note 8 for detail of restatements relating to new accounting standards effective for the current financial year as well 
    as restatements noted in the footnote below.
(2) Net finance charges disclosed in the prior period have been reclassified to indicate finance costs and finance income separately.


SUMMARISED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
                                                                                               Six months       Six months  Twelve months
                                                                                                    ended            ended          ended
                                                                                              31 Mar 2019      31 Mar 2018    30 Sep 2018
                                                                                                Unaudited        Unaudited        Audited
                                                                                   Notes               Rm               Rm             Rm
Profit for the period                                                                               1 751            1 255          2 895 
    
Other comprehensive loss    
Items that may be reclassified subsequently to profit or loss:    
Exchange differences on translation of foreign operations                                            (167)             169             98 
Net fair value gain/(loss) on cash flow hedges                                                         28             (524)           (22)
Net fair value (loss)/gain on cash flow hedges transferred to inventory                               (26)              59            105 
Deferred taxation on cash flow hedges                                                                  28                -            (55)
Foreign currency translation differences relating to hyperinflation                                     -                -             69 
Deferred taxation on foreign currency differences relating to hyperinflation                            -                -            (27)
Exchange differences from translation of net investment in foreign operations          3                -             (621)          (538)
Taxation on exchange differences from translation of net investment 
in foreign operations                                                                                   -               67            161 
Total other comprehensive loss for the period                                                        (137)            (850)          (209)
Total comprehensive income for the period                                                           1 614              405          2 686 
    
Total comprehensive income attributable to:    
Owners of the parent                                                                                1 614              399          2 676 
Non-controlling interests                                                                               -                6             10 
Total comprehensive income for the period                                                           1 614              405          2 686 


SUMMARISED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 
                                                                                               Six months       Six months  Twelve months
                                                                                                    ended            ended          ended 
                                                                                              31 Mar 2019      31 Mar 2018    30 Sep 2018
                                                                                                Unaudited        Unaudited        Audited
                                                                                   Notes               Rm               Rm             Rm
Balance at the beginning of the period                                                             55 711           52 917         52 917 
Share expenses capitalised                                                                              -                1              -
Changes in reserves    
Effect of adopting IFRS 9: Financial instruments (Refer to note 8)                                    (68)               -              -
Total comprehensive income for the period attributable to owners of the parent                      1 614              399          2 676 
Dividends paid                                                                                       (959)               -              -
Shares bought from non-controlling interests                                                           (5)               -              -
Share-based payments                                                                   6             (167)              41            159 
Reserves acquired on acquisition of business                                                            -                2              -
Transfers and other reserve movements                                                  6              203                -            (19)
Changes in non-controlling interests    
Total comprehensive income for the period attributable 
to non-controlling interests                                                                            -                6             10 
Non-controlling interests acquired on acquisition of business                                           -               (1)             -
Transactions with non-controlling equity holders                                                        5                -            (17)
Dividends paid                                                                                          -                -            (15)
Distributions                                                                                          (2)              (6)             -
Balance at end of period                                                                           56 332           53 359         55 711 
    
Comprising    
Ordinary stated capital                                                                            64 690           64 690         64 690 
Common control reserve                                                                            (11 755)         (11 755)       (11 755)
Retained earnings                                                                                   3 677            1 161          2 750 
Share-based payment reserve                                                            6               72               74            239 
Hedging reserve                                                                                       300             (222)           270 
Foreign currency translation reserve                                                                 (713)            (691)          (546)
Other reserves                                                                                         55               78             60 
Non-controlling interests                                                                               6               24              3 
                                                                                                   56 332           53 359         55 711 


SUMMARISED CONSOLIDATED STATEMENT OF FINANCIAL POSITION 
                                                                                              31 Mar 2019      31 Mar 2018    30 Sep 2018
                                                                                                Unaudited        Unaudited        Audited
                                                                                                                  Restated(1)
                                                                                   Notes               Rm               Rm             Rm
ASSETS    
Non-current assets    
Goodwill and intangible assets                                                                     61 036           60 966         61 049 
Property, plant and equipment                                                                       5 209            4 720          5 251 
Investments and loans                                                                                 203              120            253 
Deferred taxation assets                                                                            1 305            1 281          1 365 
                                                                                                   67 753           67 087         67 918 
    
Current assets    
Trade and other receivables(2)                                                                      6 887            5 643          5 874 
Inventories                                                                                        13 664           11 554         12 850 
Current income taxation assets(2)                                                                     377              174            277 
Loans due by related parties                                                                          229              201            224 
Cash and cash equivalents                                                                           3 140            2 921          3 835 
                                                                                                   24 297           20 493         23 060 
Total assets                                                                                       92 050           87 580         90 978 
    
EQUITY AND LIABILITIES    
Capital and reserves    
Ordinary stated capital                                                                            64 690           64 690         64 690 
Reserves                                                                                           (8 364)         (11 355)        (8 982)
Total equity attributable to equity holders of the parent                                          56 326           53 335         55 708 
Non-controlling interests                                                                               6               24              3 
Total equity                                                                                       56 332           53 359         55 711 
    
Non-current liabilities    
Interest-bearing loans and borrowings                                                              17 011               26         15 518 
Loans due to related parties                                                                            -           11 000              -
Employee benefits                                                                                      53              130             91 
Deferred taxation liabilities                                                                       4 112            4 088          4 142 
Provisions                                                                                            473              594            564 
Trade and other payables                                                                              543              580            545 
                                                                                                   22 192           16 418         20 860 
    
Current liabilities    
Trade and other payables(2, 3)                                                                      9 696           10 065         11 595 
Loans due to related parties                                                                          119            5 112            173 
Employee benefits                                                                                     861              669            847 
Provisions(3)                                                                                         778              708            728 
Current income taxation liabilities(2)                                                                649              482            524 
Interest-bearing loans and borrowings                                                                  21               34             19 
Bank overdrafts and short-term facilities                                              5            1 402              733            521 
                                                                                                   13 526           17 803         14 407 
Total equity and liabilities                                                                       92 050           87 580         90 978 
Net asset value per ordinary share (cents)                                                        1 632.6          1 545.9        1 614.7 

(1) Refer to note 8 for detail of restatements relating to new accounting standards effective for the current financial year as well 
    as restatements noted in the footnotes below.
(2) Restatement of current income taxation assets and current income taxation liabilities, previously disclosed as part of trade 
    and other receivables and trade and other payables respectively.
(3) Restatement of Business Venture Investments 1499 RF (Pty) Ltd (BVI) guarantee provision to provisions, previously disclosed 
    as part of trade and other payables.


SUMMARISED CONSOLIDATED STATEMENT OF CASH FLOWS
                                                                                               Six months       Six months  Twelve months
                                                                                                    ended            ended          ended
                                                                                              31 Mar 2019      31 Mar 2018    30 Sep 2018
                                                                                                Unaudited        Unaudited        Audited  
                                                                                                                  Restated(1)
                                                                                                       Rm               Rm             Rm
CASH FLOWS FROM OPERATING ACTIVITIES   
Operating profit:                                                                                   3 392            2 707          5 891 
Adjusted for:   
  Debtors' write-offs and movement in provision                                                       273              150            302 
  Depreciation and amortisation                                                                       599              555          1 134 
  Non-cash adjustments                                                                                397              554          1 316 
                                                                                                    4 661            3 966          8 643 
Working capital changes   
  Increase in inventories                                                                          (1 126)            (515)        (2 161)
  Decrease/(Increase) in trade and other receivables                                                   32             (822)          (834)
  Increase in revolving credit and installment sale receivable movement                            (1 428)            (131)          (289)
  Decrease in trade and other payables                                                             (1 971)          (1 897)           (47)
Net changes in working capital                                                                     (4 493)          (3 365)        (3 331)
   
Cash generated from operations                                                                        168              601          5 312 

Net dividends paid                                                                                   (961)              (6)           (15)
Finance cost paid                                                                                    (856)            (672)        (1 425)
Finance income received                                                                               108              119            242 
Taxation paid                                                                                        (800)            (429)        (1 597)
Net cash (outflow)/inflow from operating activities                                                (2 341)            (387)         2 517 
   
CASH FLOWS FROM INVESTING ACTIVITIES   
Additions to property, plant and equipment and intangible assets                                     (586)            (715)        (1 871)
Proceeds on disposal of property, plant and equipment and intangible assets                             -               24            113 
Acquisition of businesses, net of cash on hand at acquisition                                           -             (297)          (297)
Amounts paid on long-term investments and loans                                                        (1)             (11)          (143)
Proceeds on disposal of business                                                                        -                -              4 
Net cash outflow from investing activities                                                           (587)            (999)        (2 194)
   
CASH FLOWS FROM FINANCING ACTIVITIES   
Share issue expenses                                                                                    -                1              1 
Transactions with non-controlling interests                                                             -                -            (29)
Amounts received on bank overdrafts and short-term facilities                                         880              564            351 
Amounts received/(amounts paid) on long-term interest-bearing loans and borrowings                  1 498              (43)        15 429 
Debt raising fees paid                                                                                 (5)               -           (110)
Amounts received on short-term interest-bearing loans and borrowings                                    2                -              8 
Amounts received/(amounts paid) on related party payable                                                -              279        (15 870)
Net cash inflow/(outflow) from financing activities                                                 2 375              801           (220)
   
NET (DECREASE)/increase IN CASH AND CASH EQUIVALENTS                                                 (553)            (585)           103 
Effects of exchange rate translations on cash and cash equivalents                                   (142)            (291)           (65)
Cash and cash equivalents at beginning of the period                                                3 835            3 797          3 797 
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD                                                      3 140            2 921          3 835 

(1) Refer to note 8 for details of restatements of 31 March 2018 cash flows to better reflect the nature thereof.


NOTES TO THE SUMMARISED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 31 MARCH 2019

Statement of compliance
The summarised consolidated interim financial statements are prepared in accordance with the requirements of the JSE Limited Listings 
Requirements for summarised financial statements and the requirements of the Companies Act applicable to summarised financial statements. 
The Listings Requirements require summarised financial statements to be prepared in accordance with the framework concepts 
and the measurement and recognition requirements of International Financial Reporting Standards (IFRS) and the SAICA Financial Reporting 
Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council 
and to also, as a minimum, contain the information required by IAS 34 Interim Financial Reporting. The accounting policies applied in the 
preparation of the consolidated interim financial statements from which the summarised consolidated interim financial statements were 
derived are in terms of International Financial Reporting Standards and are consistent with those accounting policies applied in the 
preparation of the annual consolidated financial statements for the year ended 30 September 2018, except where the group has adopted 
new standards and interpretations effective in the current financial year, as detailed in note 8.

Basis of preparation
The summarised consolidated interim financial statements are prepared in millions of South African rand (Rm) on the historical cost 
basis, except for certain assets and liabilities, which are carried at amortised cost, and derivative financial instruments, which 
are stated at their fair values (the classification of these assets and liabilities did not change classification subsequent 
to the adoption of IFRS 9: Financial Instruments). The preparation of the summarised consolidated interim financial statements 
for the six months ended 31 March 2019 was supervised by RG Hanekom CA(SA), the group’s chief financial officer.

Restatement
On 1 October 2018, the group adopted IFRS 9: Financial Instruments and IFRS 15: Revenue from Contracts with Customers, effective 
for financial years ending on or after 1 January 2018, which had an effect on the prior period disclosures. The group further 
reclassified certain statement of comprehensive income, statement of financial position and statement of cash flows items 
for the period ending 31 March 2018 to be consistent with the reclassifications done for the year ended 30 September 2018. 
Refer to note 8 for details on these restatements.

Financial statements
These results have not been reviewed or reported on by the group’s auditors. All forward-looking information is the responsibility 
of the board of directors and has not been reviewed or reported on by the group’s auditors. The results were approved by the board 
of directors on 27 May 2019.

Events subsequent to the reporting period
The board is not aware of any significant events after the reporting date that will have a material effect on the company’s results, 
financial performance or financial position as presented in these provisional summarised consolidated financial statements.


                                                                              Six months       Six months                   Twelve months
                                                                                   ended            ended                           ended 
                                                                             31 Mar 2019      31 Mar 2018                     30 Sep 2018
                                                                               Unaudited        Unaudited                         Audited
                                                                                                 Restated(1)             %       Restated(1)
                                                                                      Rm               Rm           change             Rm
1. SEGMENTAL ANALYSIS    
   REVENUE    
   Clothing and general merchandise                                               23 124           21 991              5.2         42 448 
   Furniture, appliances and electronics                                           4 973            4 638              7.2          8 615 
   Building materials                                                              4 035            3 976              1.5          8 105 
   FinTech                                                                         3 166            2 393             32.3          4 976 
                                                                                  35 298           32 998              7.0         64 144 
     
   OPERATING PROFIT BEFORE CAPITAL ITEMS    
   Clothing and general merchandise                                                3 127            2 934              6.6          6 112 
   Furniture, appliances and electronics                                              60                -            100.0           (137)
   Building materials                                                                 42              127            (66.9)           214 
   FinTech                                                                           201              147             36.7            250 
                                                                                   3 430            3 208              6.9          6 439 
     
     
   RECONCILIATION BETWEEN OPERATING PROFIT    
   Operating profit per segmental analysis                                         3 430            3 208              6.9          6 439 
   One-off items                                                                     (40)            (500)            92.0           (511)
   Capital items (note 2.1)                                                            2               (1)           300.0            (37)
   Operating profit per income statement                                           3 392            2 707             25.3          5 891 
   Finance costs                                                                    (846)            (671)           (26.1)        (1 434)
   Finance income                                                                    108              118             (8.5)            242 
   Profit before taxation per income statement                                     2 654            2 154             23.2          4 699 
     
   SEGMENTAL ASSETS                                                               88 478           84 338              4.9         86 666 
     
   RECONCILIATION BETWEEN TOTAL ASSETS AND SEGMENTAL ASSETS    
   Total assets per statement of financial position                               92 050           87 580              5.1         90 978 
   Less: Cash and cash equivalents                                                (3 140)          (2 921)            (7.5)        (3 835)
   Less: Long-term investments and loans                                            (203)            (120)           (69.2)          (253)
   Less: Loans due by related parties                                               (229)            (201)           (13.9)          (224)
   Segmental assets                                                               88 478           84 338              4.9         86 666 

   Basis of segmental presentation
   During the preparation of the 2018 annual consolidated financial statements Pepkor revised its internal management reporting structure 
   and consequently revised its segmental reporting to better reflect the group’s internal management review structure to the chief 
   operating decision-maker (CODM). Accordingly, the 31 March 2018 financial period segmental analysis has been restated to reflect 
   this change.

   The segmental information has been prepared in accordance with IFRS 8: Operating Segments (IFRS 8), which defines requirements 
   for the disclosure of financial information of an entity’s operating segments. IFRS 8 requires operating segments to be identified 
   on the basis of internal reporting of group components that are regularly reviewed by the CODM to allocate resources to segments 
   and to assess their performance. The board of directors has been identified as the CODM.

   Identification of segments
   The identification of segments is consistent with those identified in the annual consolidated financial statements for the year 
   ended 30 September 2018.

   Segmental analysis
   Geographical analysis
   The revenue, operating profit before capital items and assets are all classified as one geographical region.
 
   Major customers
   No single customer contributes 10% or more of the group’s revenue.
 
   One-off items
   One-off items relate to the following:

   Impairment of loans associated to third party debt                                 40               60            (33.0)            60
   Guarantee to RMB in relation to BVI                                                 -              440           (100.0)           451
   One-off items                                                                      40              500            (92.0)           511

   (1) Refer to note 8 for details of restatements relating to new accounting standards effective for the current financial year. 


                                                                                               Six months       Six months  Twelve months
                                                                                                    ended            ended          ended
                                                                                              31 Mar 2019      31 Mar 2018    30 Sep 2018
                                                                                                Unaudited        Unaudited        Audited
                                                                                                       Rm               Rm             Rm
2. OPERATING PROFIT   
       
   2.1 Capital items     
       Capital items reflect and affect the resources committed in producing 
       operating/trading performance and are not the performance itself. These items 
       deal with the platform/capital base of the entity.  Capital items are required 
       to be reported by the Johannesburg Stock Exchange (JSE) as part of the calculation 
       of headline earnings.   
       
       Impairments of property, plant and equipment                                                     -                -             20 
       (Profit)/loss on disposal of property, plant and equipment and intangible assets                (2)               1             15 
       Loss on sale and dilution of investments                                                         -                -              2 
                                                                                                       (2)               1             37 


3. INVESTMENTS IN FOREIGN OPERATIONS
   It has been agreed, by mutual consent between the Pepkor African subsidiaries and Pepkor Trading (Pty) Ltd, that there will be no fixed 
   repayment terms attached to outstanding loans. The loans are now viewed to be capital in nature and no foreign exchange gains and losses 
   relating to revaluation are recognised.

                                                                                               Six months       Six months  Twelve months
                                                                                                    ended            ended          ended
                                                                                              31 Mar 2019      31 Mar 2018    30 Sep 2018
                                                                                                Unaudited        Unaudited        Audited
                                                                                                  Million          Million        Million 
4. EARNINGS PER SHARE   
   
   4.1 Weighted average number of ordinary shares   
  
       Weighted average number of ordinary shares at end of the period for the purpose 
       of basic earnings per share and headline earnings per share                                  3 450            3 450          3 450 
  
       Effect of dilution due to share right issues in terms of share scheme                           23               11             10 
  
       Weighted average number of ordinary shares at end of the period for the purpose 
       of diluted earnings per share and diluted headline earnings per share                        3 473            3 461          3 460 

                                                                                                       Rm               Rm             Rm
   4.2 Earnings and headline earnings   
       Profit for the period                                                                        1 751            1 255          2 895 
       Attributable to non-controlling interests                                                        -               (6)           (10)
       Earnings attributable to ordinary shareholders                                               1 751            1 249          2 885 
       Capital items (note 2.1)                                                                        (2)               1             37 
       Taxation effect of capital items                                                                 -                -             (5)
       Headline earnings attributable to ordinary shareholders                                      1 749            1 250          2 917 

   4.3 Diluted earnings and diluted headline earnings per share   
       
       Share rights issued to employees have been taken into account for dilutive earnings and dilutive headline earnings 
       per share purposes. 

5. FINANCING AND CONTINGENT LIABILITIES   
       
   The group entered into bridge facilities to the value of R2.5 billion on 20 March 2019 for a maximum period of 18 months. 
   The facilities can be used for general corporate and banking purposes, including but not limited to working capital financing 
   for the build-up of consumer finance credit books in Pepkor.  The bridge facility is to be settled by the launch of a bond 
   facility in an effort to reduce the group’s overall funding costs and diversify its sources of funding as originally anticipated 
   upon listing of the group in September 2017. The terms and conditions of the facilities are aligned with that of the current term loans 
   and revolving credit facilities as disclosed in the annual consolidated financial statements for the year ended 30 September 2018. 
   There were no further changes to the contingent liabilities as disclosed in the annual consolidated financial statements for the year 
   ended 30 September 2018.
       
6. REVERSAL OF STEINHOFF SHARE RIGHTS   
       
   Steinhoff International Holdings N.V. (Steinhoff) published its 2017 results in May 2019. These financial statements included 
   a restatement for the reversal of the Steinhoff Share Right Scheme IFRS 2 charges. The restatement did not result in any material 
   adjustment to the Pepkor financial statements. The group has transferred the cumulative amount related to these grants from 
   the share-based payment reserve to retained earnings in the current period.
       
7. RELATED PARTIES   
   During the period, the group entered into related party transactions in the ordinary course of business, the substance of which 
   are similar to those disclosed in the group's annual financial statements.

8. RESTATEMENT OF PRIOR YEAR COMPARATIVES
        
   On 1 October 2018 the group adopted the following accounting standards, effective for financial years ending on or after 1 January 2018, 
   which had an effect on the prior period disclosures.
        
   8.1  IFRS 9: Financial Instruments
        IFRS 9 Financial Instruments (replacing IAS 39 Financial Instruments: Recognition and Measurement) addresses the classification, 
        measurement and derecognition of financial assets and liabilities, introduces new rules for hedge accounting and a new impairment 
        model for financial assets. The key impact of IFRS 9 for the group is due to the new impairment model for financial assets 
        as set out below.
        
        Impairment of financial assets under the new impairment model
        The new impairment model applies to financial assets classified at amortised cost, debt instruments measured at fair value through 
        other comprehensive income (FVOCI), contract assets under IFRS 15: Revenue from Contracts with Customers, lease receivables, 
        loan commitments and certain financial guarantee contracts. At initial recognition, an impairment allowance (or provision 
        in the case of commitments and guarantees) is required for expected credit losses (ECL) resulting from default events that 
        are possible within the next 12 months (12-month ECL). In the event of a significant increase in credit risk, an allowance 
        (or provision) is required for ECL resulting from all possible default events over the expected life of the financial instrument 
        (lifetime ECL). Financial assets where 12-month ECL is recognised are considered to be ‘stage 1’; financial assets that 
        are considered to have experienced a significant increase in credit risk are in ‘stage 2’; and financial assets for which there 
        is objective evidence of impairment are considered to be in default or otherwise credit impaired are in ‘stage 3’. The assessment 
        of credit risk and the estimation of ECL is unbiased and probability-weighted, and incorporates all available information that 
        is relevant to the assessment, including information about past events, current conditions and reasonable and supportable forecasts 
        of economic conditions at the reporting date. In addition, the estimation of ECL takes into account the time value of money. 
        As a result, the recognition and measurement of impairment is intended to be more forward-looking than under IAS 39 
        and the resulting impairment charge will tend to be more volatile. It will also tend to result in an increase in the total level 
        of impairment allowances, since all financial assets will be assessed for at least 12-month ECL and the population of financial 
        assets to which lifetime ECL applies is likely to be larger than the population for which there is objective evidence of impairment 
        in accordance with IAS 39.

        For financial assets where objective evidence of impairment exists (stage 3), the standard requires interest income to be calculated 
        on the carrying value of the debtors, after allowance for expected credit losses based on the original effective interest rate. 
        
        For trade and other receivables without a significant financing component, the group has adopted the simplified approach 
        that recognises lifetime ECL regardless of the stage classification. The group applied a provision matrix based on historical 
        credit loss experience, which was adjusted for forward-looking factors applicable to the trade and other receivables balances 
        and economic factors.
        
        The group has elected to apply the impact of IFRS 9 retrospectively with an adjustment to opening retained earnings 
        on 1 October 2018, therefore comparative information for the prior periods has not been restated.
 
                                                                                                        R
        Closing retained earnings 30 September 2018 as previously reported                          2 750 
        Increase in impairment allowance for trade and other receivables                              (94)
        Increase in deferred tax relating to impairment allowances                                     20 
        Increase in taxation payable relating to impairment allowances                                  6
        Opening retained earnings on 1 October 2018                                                 2 682 
        
        The application of IFRS 9 did not have a material impact on the reported earnings or financial position for the interim results 
        under review.

  8.2  IFRS 15: Revenue from Contracts with Customers
       IFRS 15 Revenue from Contracts with Customers (replacing IAS 18 Revenue) is based on the principle that revenue is recognised 
       as the group satisfies performance obligations and when control of a good or service transfers to a customer, rather than the use 
       of the risks and rewards criteria under IAS 18.
        
       The group has elected to apply the impact of IFRS 15 retrospectively, therefore comparative information for the prior periods 
       has been restated. The key impact of IFRS 15 for the group is set out below.
        
       Agent vs principal assessment
       The group assessed its different revenue streams based on the new guidance under the agent and principle requirements. In certain 
       instances, revenue previously recognised on a gross basis and included in revenue and cost of sales, is now required to be recognised 
       on a net basis in other income.
        
       Rebates from suppliers
       The group assessed its different rebates received from suppliers. In certain instances, rebates relating to the purchase 
       of inventory were recognised either as revenue, operating income or net of operating expenses. According to IFRS 15, rebates relating 
       to the purchase of inventory should be accounted for net of the cost of inventory and unwinded to cost of sales as the goods are sold. 

       Impact on statement of comprehensive income:
                                              Previously                                       Previously
                                                reported                        Restated         reported                        Restated                                        
                                              Six months                      Six months    Twelve months                   Twelve months
                                                   ended                           ended            ended                           ended
                                             31 Mar 2018        IFRS 15      31 Mar 2018      30 Sep 2018          IFRS 15    30 Sep 2018
                                               Unaudited     adjustment        Unaudited          Audited       adjustment        Audited
                                                      Rm             Rm               Rm               Rm               Rm             Rm

       Revenue                                    33 013            (15)          32 998           64 168              (24)        64 144 
       Cost of sales                             (21 281)            36          (21 245)         (42 027)             114        (41 913)
       Gross profit                               11 732             21           11 753           22 141            90 22            231
       Operating income                              553             41              594              875               63            938
       Operating expenses                         (9 577)           (62)          (9 639)         (17 088)            (153)       (17 241)
       Capital items                                  (1)             -               (1)             (37)               -            (37)
       Operating profit                            2 707              -            2 707            5 891                -          5 891 
       Finance costs                                (671)             -             (671)          (1 434)               -         (1 434)
       Finance income                                118              -              118              242                -            242 
       Profit before taxation                      2 154              -            2 154            4 699                -          4 699 
       Taxation                                     (899)             -             (899)          (1 804)               -         (1 804)
       Profit for the period                       1 255              -            1 255            2 895                -          2 895 
        
       Profit attributable to:      
       Owners of the parent                        1 249              -            1 249            2 885                -          2 885 
       Non-controlling interests                       6              -                6               10                -             10 
       Profit for the period                       1 255              -            1 255            2 895                -          2 895


                                                                                               Previously
                                                                                                 reported                        Restated
                                                                                               Six months                      Six months
                                                                                                    ended                           ended
                                                                                              31 Mar 2018                     31 Mar 2018
                                                                                                Unaudited      Restatement      Unaudited
                                                                                                       Rm               Rm             Rm

  Reclassification of prior year comparatives: 
        
  8.3  Statement of comprehensive income   
       Certain statement of comprehensive income figures has been restated 
       as indicated below:   
        
       Operating profit                                                                             2 707                -          2 707 
       Net finance costs                                                                             (553)             553              -
       Finance costs                                                                                    -             (671)          (671)
       Finance income                                                                                   -              118            118 
       Profit before taxation                                                                       2 154                -          2 154 
        
  8.4  Statement of financial position      
       Certain statement of financial position comparative figures has been restated 
       as indicated below:   
        
       Current liabilities      
       Trade and other payables                                                                    10 987             (922)        10 065 
       Current income taxation liabilities                                                              -              482            482 
       Provisions                                                                                     268              440            708 
                                                                                                   11 255                -         11 255 
        
  8.5  Statement of cash flows      
       Certain statement of cash flow comparative figures have been restated 
       as indicated below:   
        
       Cash flow from operating activities   
       Cash generated from operations                                                                 732              (131)          601 
       Increase in revolving credit and installment sale receivable movement                         (131)              131             -
       Net finance costs                                                                             (553)              553             -
       Finance costs                                                                                    -              (671)         (671)
       Finance income                                                                                   -               118           118 
       Net cash flows from operating activities                                                        48                 -            48 
        
       Cash flows from financing activities   
       Amounts received/(amounts paid) on long-term interest-bearing loans and borrowings             236              (279)          (43)
       Amounts received on related party payable                                                        -               279           279 
                                                                                                      236                 -           236 
        
  8.6  Segmental analysis      

       During the preparation of the 2018 annual consolidated financial statements Pepkor revised its internal management reporting 
       structure and consequently revised its segmental reporting to better reflect the group’s internal management review structure 
       to the chief operating decision-maker (CODM). The prior period segmental analysis was thus revised to reflect this and is consistent 
       with the segmental analysis as reported per the annual consolidated financial statements as at 30 September 2018.


COMPARABILITY OF RESULTS

As reported in Pepkor’s interim results for the six months ended 31 March 2018 (H1FY18) on 29 May 2018, and in trading statements published 
on 17 April 2019 and 10 May 2019, H1FY18 results were impacted by one-off costs pertaining to the BVI matter, which entails a provision 
for exposure in terms of a corporate financial guarantee of R440 million and associated loans of R60 million. One-off costs in H1FY18 
therefore amounted to R500 million, impacting H1FY18 earnings per share metrics by approximately 14.5 cents. This is calculated by applying 
the total impact net of tax of R500 million to a weighted average number of shares of 3 450 million.

During H1FY19, accumulated finance costs of R20 million (reflected in finance costs) were incurred in terms of the corporate financial 
guarantee, and R40 million (reflected in operating expenses) was raised in terms of credit exposure pertaining to the associated loans. 
One-off costs in H1FY19 therefore amount to R60 million, impacting H1FY19 earnings per share metrics by approximately 1.7 cents. 
This is calculated by applying the total impact net of tax of R60 million to a weighted average number of shares of 3 450 million. 

Resolution of the BVI matter continues to be evaluated in the context of a claim made by BVI for damages against Steinhoff International 
Holdings N.V.

The comparable results as set out in this results announcement have been prepared for illustrative purposes only, in order to provide 
shareholders with comparable results. The impact of these one-off costs is deemed to be non-recurring in nature, pending the resolution 
of the matter. Because of its nature, the historic financial information may not fairly present Pepkor’s financial position, changes 
in equity, results of operations or cash flows. The comparable results are presented in accordance with the JSE Listings Requirements 
and the Guide on Pro Forma Financial Information issued by SAICA.

The comparable results are the responsibility of the board and were not reviewed or reported on by Pepkor’s auditors.

The table below illustrates the effect of the above:

Results for the six months ended 31 March 2018 (H1FY18)
                                                                                                Statutory                      Comparable
                                                                                                  results                         results
                                                                                                  for the    Provision for        for the
                                                                                               six months        guarantee     six months
                                                                                                    ended         and loan          ended
                                                                                              31 Mar 2018       impairment    31 Mar 2018
                                                                                                       Rm               Rm             Rm
Operating profit before capital items                                                               2 708              500          3 208
Capital items                                                                                          (1)               -             (1)
Operating profit                                                                                    2 707              500          3 207
Net finance costs                                                                                    (553)               -           (553)
Profit before taxation                                                                              2 154              500          2 654
Taxation                                                                                             (899)               -           (899)
Profit for the period                                                                               1 255              500          1 755
Profit attributable to:   
Owners of the parent                                                                                1 249              500          1 749
Non-controlling interest                                                                                6                -              6
   
Basic earnings per ordinary share (cents)                                                            36.2             14.5           50.7
Headline earnings per ordinary share (cents)                                                         36.2             14.5           50.7
Weighted average number of ordinary shares in issue (millions)                                      3 450            3 450          3 450

Results for the six months ended 31 March 2019 (H1FY19)
                                                                                                Statutory                      Comparable
                                                                                                  results                         results
                                                                                                  for the    Provision for        for the
                                                                                               six months        guarantee     six months
                                                                                                    ended         and loan          ended
                                                                                              31 Mar 2019       impairment    31 Mar 2019
                                                                                                       Rm               Rm             Rm
Operating profit before capital items                                                               3 390               40          3 430
Capital items                                                                                           2                -              2
Operating profit after capital items                                                                3 392               40          3 432
Net finance costs                                                                                    (738)              20           (718)
Profit before taxation                                                                              2 654               60          2 714
Taxation                                                                                             (903)               -           (903)
Profit for the period                                                                               1 751               60          1 811
Profit attributable to:   
Owners of the parent                                                                                1 751               60          1 811
Non-controlling interest                                                                                -                -              -
   
Basic earnings per ordinary share (cents)                                                            50.8              1.7           52.5
Headline earnings per ordinary share (cents)                                                         50.7              1.7           52.4
Weighted average number of ordinary shares in issue (millions)                                      3 450            3 450          3 450


CORPORATE INFORMATION

(‘Pepkor’ or ‘the company’ or ‘the group’)

Executive directors 
LM Lourens (Chief executive officer)
RG Hanekom (Chief financial officer)

Non-executive directors 
J Naidoo (Chairman)
JB Cilliers*
PJ Dieperink
LJ du Preez
PJ Erasmus (resigned 29 January 2019)
MJ Harris**
W Luhabe** (appointed 1 January 2019)
SH Müller**
F Petersen-Cook**
DM van der Merwe
JD Wiese
* Lead independent ** Independent

Registered address 
36 Stellenberg Road
Parow Industria 7493
Postal address 
PO Box 6100
Parow East 7501

Telephone 021 929 4800
E-mail info@pepkor.co.za
www.pepkor.co.za

Transfer secretaries 
Computershare Investor Services Proprietary Limited
Rosebank Towers
15 Biermann Avenue
Rosebank 2196

Company secretary 
Pepkor Proprietary Limited

Auditors 
PricewaterhouseCoopers Inc.

Sponsor 
PSG Capital Proprietary Limited

Announcement date 29 May 2019                                                                          
Date: 29/05/2019 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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