Wrap Text
Unaudited results for the six months ended 30 June 2016
HomeChoice International PLC
(Incorporated in Malta)
Registration number: C66099
JSE share code: HIL
ISIN: MT0000850108
("HIL" or "the group")
UNAUDITED RESULTS
for the six months ended 30 June 2016
- Revenue increased by 15,8% to R1 152 million
- Pan-African sales increased by 27,9% to 11,6% of total sales
- EBITDA increased by 15,5% to R310 million
- Cash generated from operations increased by 18,3% to R145 million
- Retail sales through digital channels increased 17,8% to 11,6% of total sales
OVERVIEW
HomeChoice International PLC (HIL) is an investment holding company incorporated in Malta
and listed in the General Retailers sector on the JSE Limited. Through its operating
subsidiaries, HomeChoice and FinChoice, the group sells innovative homewares, apparel,
personal technology and loan products to the rapidly expanding mass middle-income market
in southern Africa.
HomeChoice is the largest home-shopping retailer in southern Africa and offers products
through online channels, call centres, sales agent networks and mail order catalogues.
The group's omni-channel home-shopping retail model and digital Financial Services
business provide a strong platform for achieving its ambitions of becoming a pan-African
retailer and financial services provider.
TRADING AND FINANCIAL PERFORMANCE
The consumer environment in southern Africa remains challenging for customers in the
HomeChoice LSM 4 - 8 market where rising living costs are outpacing wage increases.
The volatility of the Rand continues to impact all importers and, together with the
drought, is creating inflationary pressures.
The unsecured credit environment also remains constrained. The National Credit
Regulator's (NCR) prescribed affordability assessment regulations introduced in
September 2015 continue to negatively impact on access to credit, although consumers
are benefiting from a reduction in the maximum prescribed interest rates introduced
from May 2016. The regulations have required significant changes to business systems
and processes across all channels, resulting in higher compliance costs.
The regulations have also introduced an excessive administrative burden on customers
to produce documentary proof of income. Formally employed customers find it inconvenient
to provide the documentation, whilst informally employed customers often lack practical
access to documentation proving their income. To ease this burden, the group has
developed multiple channels for customers to submit documentation, and invested in
staff training and customer engagement and education to improve her experience.
The affordability regulations have impacted both businesses through increased customer
walkaways and lower credit acceptance, resulting in significant lost revenue.
Despite this challenging economic environment, the group has delivered good results
for the six-month period:
30 Jun 30 Jun %
2016 2015 change
Group
Revenue (Rm) 1 152 995 15,8
EBITDA (Rm) 310 268 15,5
Operating profit (Rm) 280 255 9,8
Operating profit margin (%) 24,3 25,7
Headline EPS (cents) 188,2 169,8 10,8
Cash generated from operations (Rm) 145 123 18,3
NAV per share (cents) 1 816 1 571 15,6
Retail
Revenue (Rm) 875 762 14,9
Retail sales (Rm) 579 499 16,2
Gross profit margin (%) 47,9 48,1
EBITDA (Rm) 172 155 11,1
Financial Services
Loan disbursements (Rm) 583 542 7,4
Revenue (Rm) 277 233 18,8
EBITDA (Rm) 127 103 22,9
Group revenue increased by 15,8% to R1 152,2 million for the six-month period, with
strong growth in Retail sales and Financial Services income. Group earnings before
interest and tax (EBITDA) increased by a similar percentage to R310,1 million,
reflecting the focus on driving operating efficiencies and cost control. This, as well
as continual focus on cash collections, has resulted in cash generation from
operations improving by 18,3% to R145,0 million.
Operating profit increased by 9,8% to R280,4 million. The decrease in operating margin
from 25,7% to 24,3% was driven by a doubling of depreciation and amortisation costs
from R13,6 million to R27,8 million. Over the last three years the group made significant
investments in its technology platforms which were brought on-stream late in 2015.
Furthermore, in December 2015 the estimated useful life of software was revised,
which has impacted the amortisation on a comparable basis.
Headline earnings for the period increased by 11,6% to R191,8 million, with headline
earnings per share (HEPS) up 10,8% to 188,2 cents.
RETAIL PERFORMANCE
Retail revenue increased 14,9% to R875,2 million for the six-month period. Retail sales
increased by 16,2% to R579,2 million, reflecting the benefits of product innovation and
range development, particularly in the core bedding ranges which have seen strong
volume growth. The Retail business has recently introduced branded electronics and
appliances to complement its existing own label ranges, which are performing well.
Finance charges and initiation fees increased by 12,2% to R258,3 million and were
impacted by the lowering of the interest rate caps in May 2016 and introduction of a
revolving credit facility which earns lower interest rates. The business has actively
marketed the lower cost of credit to customers and she has responded positively.
The gross profit margin has been well managed considering Rand volatility declining
by only 20 basis points from 48,1% to 47,9%. Over 90% of merchandise is imported and
US Dollar denominated. After the sharp devaluation of the Rand in December 2015, the
currency's performance against the US Dollar has remained volatile. The impact of
Rand weakness was limited by selective price increases, enhanced operating efficiencies
across the supply chain and continuing to reconfigure product offers to ensure products
remain affordable.
Retail operating profit increased by 2,0% to R145,0 million and was impacted by higher
debtor costs from customer acquisition and amortisation and depreciation doubling from
R12,5 million to R25,0 million. Other trading expenses were well controlled, increasing
by 12,3% for the six-month period. Operating profit, excluding the impact of amortisation
and depreciation, increased by 9,9% over the period.
Digital remains the fastest-growing sales channel and we continue to see migration from
web-based transactions to mobi. Strong customer engagement through digital platforms has
resulted in sales via digital channels increasing 17,8% for the six-month period,
and represents 11,6% of sales. Sales into neighbouring African markets have also
shown strong growth of 27,9% for the period to 11,6% of total sales. Further expansion
into Africa remains a strong growth opportunity over the medium term.
The Retail business continues to build its omni-channel capability and is gaining good
learnings from its first "bricks and mortar" showroom which opened in Wynberg,
Cape Town at the end of 2015. Our home delivery capability continues to be expanded
and has reduced our reliance on the SA Post Office further. The more convenient home
delivery service has also reduced merchandise return rates from customers.
Customers continue to respond well to our product and marketing offers and the
customer base has increased by 5,3% over the six-month period to 674 000.
FINANCIAL SERVICES PERFORMANCE
Revenue increased by 18,8% to R277,1 million for the six-month-period. EBITDA grew by
22,9% to R127,0 million, arising from the growing profitability of the insurance business.
Loan disbursements to customers increased by 7,4% to R583,2 million. The slowing
disbursement growth is a result of the lower acceptance rates from the new affordability
process, in particular first-time loan customers. As a result, loans to existing
customers of good standing increased from 73,4% to 79,9% of total disbursements over
the period. The transition for customers to adapt to the new affordability and
documentation process changes remains challenging; however we continually look to
enhance system processes and customer education to ensure the customer experience is
as simple as possible.
Within the context of moderate disbursement growth the customer base has increased by
1,5% to 135 000 from December 2015. The average term in the FinChoice book is 20,7 months
(December 2015: 20,2 months) and average balance is R9 556 (December 2015: R8 792),
both well below the market averages, reflecting Financial Services' strategy of focusing
on shorter terms and lower loan values. Sales of personal funeral cover to loan
customers are showing encouraging growth. To off-set the margin reduction resulting
from the interest cap lowering, a credit life product was introduced to short-term
loan customers from May.
The KwikServe@ platform continues to service 80% of our existing customers via her
cell phone, while our mobi platform has grown to serve one-quarter of the customer
base as she adopts smartphone technology. Digital self-service accounts for 69% of
FinChoice's repeat loan transactions. The proportion of Rands disbursed via digital
has reduced marginally from 40,2% to 39,1% due to the introduction of new regulatory
processes unfamiliar to the customer. Significant focus has been applied to simplify
these new processes for self-service to encourage her digital engagement and continue
growing this channel further.
MANAGING CREDIT RISK
The group continues to trade in a difficult credit environment where economic growth
rates are low, unemployment is increasing and consumers remain constrained in their
ability to repay debt. Against this backdrop, the group continues to apply strict
credit criteria, sound debtors' management and consistent conservative provisioning
policies.
Credit performance for the period is summarised as follows:
30 Jun 30 Jun %
2016 2015 change
Group
Gross trade and loans receivable (Rm) 2 257 1 924 17,3
Debtor costs as % of revenue (%) 18,9 18,5
Retail
Gross trade receivables (Rm) 1 231 1 079 14,0
Debtor costs as % of revenue (%) 15,7 14,5
Provision for impairment as % of gross receivables (%) 19,0 18,7
Non-performing loans (>120 days) (%) 8,9 9,0
Financial Services
Gross loans receivable (Rm) 1 026 845 21,4
Debtor costs as % of revenue (%) 29,0 31,7
Provision for impairment as % of gross receivables (%) 16,3 16,9
Non-performing loans (>120 days) (%) 4,6 4,6
Group debtor cost growth of 18,1% is higher than revenue growth and has been driven
by the increase in new Retail customer acquisition during the past six months and
challenges in late stage collections impacted by the high volume of debt activities
in the market. The introduction of television as an acquisition channel generated
good demand but at higher risk levels than planned. The Retail business has responded
by tightening credit acceptance criteria, implementing changes to collection
strategies and increasing the use of external debt collection agencies. Provisions
have been increased to 19,0% from 18,7% at December 2015 to cover the higher levels
of new business.
FinChoice benefits from marketing products to creditworthy Retail customers, which has
enabled the business to deliver stable levels of credit performance. Debtor costs in
the Financial Services business reduced as a percentage of revenue from 29,9% in 2015
to 29,0% for the six-month period. The impairment provision was reduced marginally to
16,3% at June 2016 (December 2015: 16,6%). Conservative provisions held on the debt
review portfolio should reduce over time as the Group has greater payment history.
CASH AND CAPITAL MANAGEMENT
The group remains highly cash generative and has increased cash generated from
operations by 18,3% to R145,0 million through efficient management of working capital,
which increased 11,0% to R163,9 million. Cash conversion (cash generated from
operations as a percentage of EBITDA) improved from 45,7% to 46,8% over the period.
Over the last five years the group has made significant investment in property,
constructing a centralised distribution centre and developing a new 1 000-seat call
centre and Retail showroom. Capital expenditure of R27,7 million for the six months
is significantly lower than previous years (June 2015: R79,7 million) and was mainly
focused on investments in the group's technology systems.
The net debt to equity ratio has increased from 26,2% at December 2015 to 27,8% but
remains comfortably within management's targeted range of below 40,0%. The financial
position of the group remains strong, with net asset value increasing by 15,6% to
1 816 cents per share from June 2015.
DIVIDENDS
The directors intend to declare an interim dividend payable in November 2016 of
71 cents per share (2015: 64 cents per share), which represents a dividend cover
of 2,6 times. The details of the declaration will be communicated on SENS in due course.
OUTLOOK
The trading environment is expected to remain largely unchanged for the remainder of
the financial year, with continued financial pressure on consumers and increasing
compliance headwinds in the changing regulatory landscape. In this environment tight
credit policies will be maintained, with cash collections and cost control remaining
key focus areas.
The Retail business has experienced good demand during the first eight weeks of trading,
with customers responding well to the new revolving credit facility. The Financial
Services business is continuing to streamline the impact of the affordability
regulations on customers. The group will also continue to mitigate the impact of the
reduction in maximum interest rates on credit contracts which came into effect from
May 2016.
The group's experienced management team and focused strategies for growth continue
to position the business to take advantage of opportunities in both the South African
and pan-African markets.
The above information has not been reviewed or reported on by the group's external auditor.
GROUP STATEMENT OF FINANCIAL POSITION
Notes Unaudited Unaudited Audited
Jun 2016 Jun 2015 Dec 2015
R'000 R'000 R'000
Assets
Non-current assets
Property, plant and equipment 428 602 344 366 422 243
Intangible assets 95 438 112 247 101 928
Loans to employees - 367 207
Investment in associates 18 989 11 231 13 248
Deferred taxation 29 216 20 941 25 708
572 245 489 152 563 334
Current assets
Inventories 251 078 227 681 170 391
Taxation receivable 14 269 18 812 4 271
Trade and other receivables 2 1 874 735 1 590 779 1 787 273
Trade receivables - Retail 997 038 877 114 982 061
Loans receivable - Financial Services 858 879 702 431 790 575
Other receivables 18 818 11 234 14 637
Cash and cash equivalents 95 119 99 811 88 300
2 235 201 1 937 083 2 050 235
Total assets 2 807 446 2 426 235 2 613 569
Equity and liabilities
Equity attributable to equity holders of the parent
Stated and share capital 1 035 1 022 1 025
Share premium 2 998 296 2 985 262 2 987 580
Reorganisation reserve (2 960 639) (2 960 639) (2 960 639)
38 692 25 645 27 966
Treasury shares (2 666) (2 666) (2 666)
Other reserves 5 144 3 722 4 502
Retained earnings 1 827 818 1 564 172 1 721 626
1 868 988 1 590 873 1 751 428
Non-current liabilities
Interest-bearing liabilities 241 835 272 044 164 324
Deferred taxation 116 913 107 522 112 282
Other payables 4 585 3 855 5 070
363 333 383 421 281 676
Current liabilities
Interest-bearing liabilities 138 775 34 159 221 102
Taxation payable 1 074 1 017 18
Trade and other payables 195 678 183 361 184 550
Provisions 6 000 6 334 12 357
Bank overdraft 76 531 67 239 1 780
Shareholder loan 157 067 159 831 160 658
575 125 451 941 580 465
Total liabilities 938 458 835 362 862 141
Total equity and liabilities 2 807 446 2 426 235 2 613 569
GROUP STATEMENT OF COMPREHENSIVE INCOME
Notes Unaudited Unaudited Audited
six months six months year
ended ended ended
Jun 2016 % Jun 2015 Dec 2015
R'000 change R'000 R'000
Revenue 1 152 247 15,8 995 179 2 232 967
Retail sales 579 189 16,2 498 635 1 197 131
Finance charges and initiation fees earned 480 939 14,0 421 981 893 722
Finance charges earned 354 753 15,2 308 077 652 083
Initiation fees earned 126 186 10,8 113 904 241 639
Fees from ancillary services 92 119 23,5 74 563 142 114
Cost of retail sales (296 757) 16,9 (253 903) (590 010)
Debtor costs 3 (217 857) 18,1 (184 418) (397 469)
Other trading expenses 3 (359 833) 18,9 (302 715) (666 913)
Other net gains and losses 1 190 (176) (1 873)
Other income 1 416 1 410 3 692
Operating profit 280 406 9,8 255 377 580 394
Interest received 1 658 1 033 3 375
Interest paid (27 590) (14 825) (32 809)
Share of profit/(loss) of associates 1 834 (493) (1 137)
Profit before taxation 256 308 241 092 549 823
Taxation (64 474) (69 239) (155 264)
Profit and total comprehensive income for the period 191 834 11,6 171 853 394 559
Profit for the period 191 834 171 853 394 559
Non-headline items, gross of tax effect
Gain on disposal of property, plant and equipment
and intangible assets - - 404
Tax effect - - (113)
Headline earnings for the period 191 834 11,6 171 853 394 850
Earnings per share (cents) 4
Basic 188,2 169,8 388,9
Diluted 186,3 168,8 382,1
Additional information
Retail gross profit margin (%) 48,8 49,1 50,7
The Retail gross profit margin percentage has been calculated as retail sales less
cost of retail sales, divided by retail sales.
GROUP STATEMENT OF CHANGES IN EQUITY
Unaudited Unaudited Audited
six months six months year
ended ended ended
Jun 2016 Jun 2015 Dec 2015
R'000 R'000 R'000
Equity at the beginning of the period 1 751 428 1 578 326 1 578 326
Profit and total comprehensive income for the period 191 834 171 853 394 559
Dividends paid (85 643) (163 062) (228 314)
Shares issued under share option scheme:
share capital and share premium 10 727 3 064 5 385
Share option scheme 642 692 1 472
Equity at the end of the period 1 868 988 1 590 873 1 751 428
GROUP STATEMENT OF CASH FLOWS
Notes Unaudited Unaudited Audited
six months six months year
ended ended ended
Jun 2016 % Jun 2015 Dec 2015
R'000 change R'000 R'000
Cash flows from operating activities
Operating cash flows before working capital changes 308 886 14,3 270 225 636 923
Movement in working capital (163 863) (147 650) (278 434)
Cash generated from operations 5 145 023 18,3 122 575 358 489
Interest received 1 658 1 033 3 375
Interest paid (27 496) (14 825) (31 483)
Taxation paid (72 293) (65 006) (137 495)
Net cash inflow from operating activities 46 892 7,1 43 777 192 886
Cash flows from investing activities
Purchase of property, plant and equipment (17 285) (52 976) (140 434)
Proceeds from disposal of property, plant
and equipment - - 377
Purchase of intangible assets (10 405) (26 725) (46 819)
Loans repaid by employees 207 936 1 095
Investment in associates (3 927) (4 096) (6 709)
Net cash outflow from investing activities (31 410) 62,1 (82 861) (192 490)
Cash flows from financing activities
Proceeds from issuance of shares 10 727 3 064 5 385
Proceeds from interest-bearing liabilities 14 636 187 322 279 464
Repayments of interest-bearing liabilities (23 134) (18 240) (32 983)
Dividends paid (85 643) (163 062) (228 314)
Net cash (outflow)/inflow from financing activities (83 414) (1 018,3) 9 084 23 552
Net (decrease)/increase in cash, cash equivalents
and bank overdrafts (67 932) (30 000) 23 948
Cash, cash equivalents and bank overdrafts at the
beginning of the period 86 520 62 572 62 572
Cash, cash equivalents and bank overdrafts at the
end of the period 18 588 (42,9) 32 572 86 520
STATISTICS
Jun 2016 Jun 2015 Dec 2015
Profitability
Growth in revenue (%) 15,8 15,6 14,0
Retail gross profit margin (%) 48,8 49,1 50,7
Operating profit margin (%) 24,3 25,7 26,0
Earnings beforE interest, tax,
depreciation and amortisation (EBITDA) ('000) 310 062 268 485 632 187
Growth in EBITDA (%) 15,5 12,0 16,7
EBITDA margin (%) 26,9 27,0 28,3
Solvency and liquidity
Net asset value per share (cents) 1 816,3 1 571,4 1 719,3
Growth in net asset value (%) 5,6 0,7 10,2
Inventory turn (times) 2,8 2,6 3,7
Net debt/equity ratio (%) 27,8 27,2 26,2
Performance
Growth in trade receivables - Retail (%) 1,5 1,3 13,5
Growth in loans receivable - Financial Services (%) 8,6 13,0 27,1
Growth in cash generated from operations (%) 18,3 26,6 53,5
Cash conversion (%) 46,8 45,7 56,7
Return on equity - annualised (%) 21,2 21,7 23,7
Shareholding
Number of shares ('000)
- In issue, net of treasury shares 102 900 101 601 101 866
- Weighted shares in issue, net of treasury shares 101 931 101 236 101 468
- Diluted weighted average 102 954 101 812 103 263
Earnings per share (cents)
- basic 188,2 169,8 388,9
- diluted 186,3 168,8 382,1
- headline earnings (HEPS) 188,2 169,8 389,1
- diluted HEPS 186,3 168,8 382,4
In May 2016 the final dividend for the 2015 financial year of R85,6 million (84 cents
per share) was paid to shareholders.
In June 2015 the interim and final dividends for the 2014 financial year of R163,1 million
(161 cents per share) were paid to shareholders.
GROUP SEGMENTAL ANALYSIS
Six months ended 30 June
Financial Elimin-
Retail Services Property Other ations Total
R'000 R'000 R'000 R'000 R'000 R'000
2016 - Unaudited
Segmental revenue 875 156 277 091 26 011 - - 1 178 258
Retail sales 579 189 - - - - 579 189
Finance charges and initiation
fees earned 258 261 222 678 - - - 480 939
Fees from ancillary services 37 706 54 413 26 011 - - 118 130
Intersegment revenue - - (26 011) - - (26 011)
Revenue from external customers 875 156 277 091 - - - 1 152 247
Segmental results* 145 002 108 270 14 992 176 - 268 440
Segmental results margin (%) 16,6 39,1 22,8
Growth in segmental results (%) 2,0 23,9 3,3 6,8
Segmental assets** 1 548 386 933 891 340 151 19 935 (34 917) 2 807 446
Segmental liabilities** 413 437 41 318 251 979 264 311 (32 587) 938 458
Operating cash flows before
working capital changes 170 584 126 329 15 629 (3 656) - 308 886
Movement in working capital (106 058) (61 516) (824) 4 535 - (163 863)
Cash generated from operations 64 526 64 813 14 805 879 - 145 023
Gross profit margin (%) 47,9 48,8
2015 - Unaudited
Segmental revenue 761 993 233 186 15 450 - - 1 010 629
Retail sales 498 635 - - - - 498 635
Finance charges and initiation
fees earned 230 179 191 802 - - - 421 981
Fees from ancillary services 33 179 41 384 15 450 - - 90 013
Intersegment revenue - - (15 450) - - (15 450)
Revenue from external customers 761 993 233 186 - - - 995 179
Segmental results* 142 212 87 391 14 519 8 908 (1 633) 251 397
Segmental results margin (%) 18,7 37,5 24,9
Growth in segmental results (%) 8,3 19,7 14,7 9,1
Segmental assets** 1 370 081 776 447 274 899 17 286 (12 478) 2 426 235
Segmental liabilities** 362 757 35 985 171 418 268 202 (3 000) 835 362
Operating cash flows before
working capital changes 155 312 103 582 15 155 (2 745) (1 079) 270 225
Movement in working capital (65 937) (72 353) (6 265) (3 146) 51 (147 650)
Cash generated/(utilised) from operations 89 375 31 229 8 890 (5 891) (1 028) 122 575
Gross profit margin (%) 48,1 49,1
* 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.
** Excluding group loans.
RECONCILIATION OF SEGMENTAL RESULTS Unaudited Unaudited
Jun 2016 Jun 2015
R'000 R'000
Segmental results as reported above 268 440 251 397
Interest received 957 414
Interest paid (14 923) (10 226)
Share of profit/(loss) of associates 1 834 (493)
Profit before tax 256 308 241 092
NOTES TO THE INTERIM FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
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
and Financial Pronouncements as issued by the Financial Reporting Standards Council
and the requirements of the Maltese Companies Act. 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.
2. TRADE AND OTHER RECEIVABLES
Unaudited Unaudited Audited
six months six months year
ended ended ended
Jun 2016 Jun 2015 Dec 2015
R'000 R'000 R'000
Trade receivables - Retail 1 230 533 1 079 083 1 208 631
Provision for impairment (233 495) (201 969) (226 570)
997 038 877 114 982 061
Loans receivable - Financial Services 1 026 101 845 340 947 586
Provision for impairment (167 222) (142 909) (157 011)
858 879 702 431 790 575
Other receivables 18 818 11 234 14 637
Trade and other receivables 1 874 735 1 590 779 1 787 273
Trade and loan receivables 2 256 634 1 924 423 2 156 217
Provision for impairment (400 717) (344 878) (383 581)
Other receivables 18 818 11 234 14 637
Movements in the provision for impairment
were as follows:
Retail
Opening balance (226 570) (198 179) (198 179)
Movement in provision (6 925) (3 790) (28 391)
Debtor costs charged to profit and loss (137 458) (110 414) (254 374)
Debts written off during the year,
net of recoveries 130 533 106 624 225 983
Closing balance (233 495) (201 969) (226 570)
Financial Services
Opening balance (157 011) (127 103) (127 103)
Movement in provision (10 211) (15 806) (29 908)
Debtor costs charged to profit and loss (80 399) (74 004) (143 095)
Debts written off during the year,
net of recoveries 70 188 58 198 113 187
Closing balance (167 222) (142 909) (157 011)
Retail
Debtor costs as a % of revenue (%) 15,7 14,5 14,5
Debtor costs as a % of gross receivables
(annualised) (%) 22,3 20,5 21,0
Provision for impairment as a % of gross
receivables (%) 19,0 18,7 18,7
Financial Services
Debtor costs as % of revenue (%) 29,0 31,7 29,9
Debtor costs as a % of gross receivables
(annualised) (%) 15,7 17,5 15,1
Provision for impairment as a % of gross
receivables (%) 16,3 16,9 16,6
Group
Debtor costs as % of revenue (%) 18,9 18,5 17,8
Debtor costs as a % of gross receivables
(annualised) (%) 19,3 19,2 18,4
Provision for impairment as a % of gross
receivables (%) 17,8 17,9 17,8
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 (%) 8,9 9,0 9,5
Financial Services (%) 4,6 4,6 4,6
3. DEBTORS COST AND OTHER TRADING EXPENSES
Unaudited Unaudited Audited
six months six months year
ended ended ended
Jun 2016 Jun 2015 Dec 2015
R'000 R'000 R'000
Expenses by nature
Debtor costs
Trade receivables - Retail 137 458 110 414 254 374
Loans receivable - Financial Services 80 399 74 004 143 095
Total debtor costs 217 857 184 418 397 469
Amortisation of intangible assets 16 895 5 603 34 583
Depreciation of property, plant and equipment 10 926 7 997 18 347
Operating lease charges for immovable property 665 996 2 091
Total operating lease charges 2 105 2 146 4 424
Less: disclosed under cost of Retail sales (1 440) (1 150) (2 333)
Marketing costs 92 320 82 751 180 855
Staff costs 142 189 120 319 264 115
Total staff costs 158 740 138 203 300 380
Less: disclosed under cost of Retail sales (10 243) (9 471) (17 950)
Less: staff costs capitalised to intangible assets (6 308) (8 413) (18 315)
Other costs 96 838 85 049 166 922
Total other trading expenses 359 833 302 715 666 913
577 690 487 133 1 064 382
4. BASIC AND HEADLINE EARNINGS
The calculation of basic and headline earnings per share is based upon profit for
the year attributable to ordinary shareholders divided by the weighted average
number of ordinary shares in issue as follows:
Unaudited Unaudited Audited
six months six months year
ended ended ended
Jun 2016 Jun 2015 Dec 2015
R'000 R'000 R'000
Profit for the period 191 834 171 853 394 559
Adjusted for the after-tax effect of:
Loss on disposal of property, plant and
equipment and intangible assets - - 288
Impairment of disposal of property, plant
and equipment 116
Tax effect - - (113)
Headline earnings for the period 191 834 171 853 394 850
5. RECONCILIATION OF CASH GENERATED FROM OPERATIONS
Unaudited Unaudited Audited
six months six months year
ended ended ended
Jun 2016 Jun 2015 Dec 2015
R'000 R'000 R'000
Profit before taxation 256 308 241 092 549 823
Share of (profit)/loss of associates (1 834) 493 1 137
Loss on disposal of property, plant and
equipment and intangible assets - - 288
Depreciation and amortisation 27 821 13 600 52 930
Share-based employee service expense 659 732 1 472
Interest paid 26 212 14 825 32 809
Interest received (1 658) (1 033) (3 375)
Capitalised bond costs - amortised
cost adjustment 1 378 516 1 839
Operating cash flows before working
capital changes 308 886 270 225 636 923
Movements in working capital (163 863) (147 650) (278 434)
Increase in inventories (80 687) (61 318) (4 028)
Increase in trade receivables - Retail (14 977) (11 648) (116 595)
Increase in loans receivable - Financial Services (68 304) (80 627) (168 771)
(Increase)/decrease in other receivables (4 181) 6 269 2 866
Increase in trade and other payables 10 643 24 418 26 815
Decrease in provisions (6 357) (24 744) (18 721)
145 023 122 575 358 489
6. PURCHASE OF PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS
Included in the prior reporting period's purchase of property, plant and equipment
and intangible assets is the capitalisation of R19,1 million of costs relating to
the ERP system implementation, as well as R41,3 million relating to the construction
of the new call centre and showroom.
7. CONTINGENT LIABILITIES
The group had no contingent liabilities at the reporting date.
8. 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 2015 took place during the period and
related party balances are existing at the reporting date. Related party transactions
include key management personnel compensation, loan to directors and intragroup
transactions which have been eliminated on consolidation.
The group entered into a loan agreement with its shareholder, GFM Limited,
in May 2015. The loan carries interest at the South African prime interest rate
and is repayable in 2017.
9. 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.
10. 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.
11. SEASONALITY
Due to its seasonal nature, the Retail business has a history of generating higher
revenues during the second half of the year. In the financial year ended
31 December 2015, 42% of retail sales accumulated in the first half of the year,
with 58% accumulating in the second half.
12. 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.
13. ESTIMATES
In preparing these condensed interim financial statements, 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 2015.
14. 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 companies, which own commercial properties utilised mainly within the group,
are included in the Property segment. The Other segment relates mainly to the holding
company's stand-alone 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.
15. CAPITAL COMMITMENTS FOR PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS
Unaudited Unaudited Audited
six months six months year
ended ended ended
Jun 2016 Jun 2015 Dec 2015
R'000 R'000 R'000
Approved by the directors 16 474 44 232 50 568
Approved by the directors and contracted for - 36 250 -
16 474 80 482 50 568
Registered office: 93 Mill Street, Qormi, QRM3102, Republic of Malta
Transfer secretaries: Computershare Investor Services (Proprietary) Limited,
70 Marshall Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
Auditors: PricewaterhouseCoopers, Republic of Malta
Corporate bank: Deutsche Bank International Limited, Channel Islands
Sponsor: Rand Merchant Bank, a division of FirstRand Bank Limited
Company secretary: George Said
Directors: S Portelli* (Chairman), G Lartigue*** (Chief Executive Officer), P Burnett***
(Financial Director), A Chorn*, R Garratt**, E Gutierrez-Garcia**, R Hain*, S Maltz***, C Rapa*
* Independent non-executive ** Non-executive *** Executive
There have been no changes to directors or company secretary appointments during the period.
www.homechoiceinternational.com
30 August 2016
Date: 30/08/2016 09:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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