Wrap Text
Summarised financial statements for the year ended 31 December 2015
HomeChoice International PLC
(Incorporated in Malta)
Registration number: C66099
JSE share code: HIL
ISIN: MT0000850108
("HIL" or "the group")
SUMMARISED FINANCIAL STATEMENTS
for the year ended 31 December 2015
- Revenue up 14% to R2,2 billion
- Retail sales up 11% to R1,2 billion
- Gross profit margin up from 49,8% to 50,7%
- EBITDA up 17% to R632 million
- Operating profit up 11% to R580 million
- Headline earnings per share up 10% to 389,1 cents
- Credit extended via digital channels up to 28% of total group credit
COMMENTARY
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 Retail (HomeChoice) and
Financial Services (FinChoice) businesses, the group sells innovative homewares merchandise,
personal technology and loan products to the rapidly expanding mass middle-income market in
southern Africa. As a leading home-shopping retailer, products are offered through online
channels, call centres, sales agent networks and mail order catalogues. The omni-channel model
and digital Financial Services business provide a strong platform for realising the group's
ambitions of becoming a pan-African retailer.
Trading and financial performance
The group has achieved good growth despite the deteriorating economic environment and mass market
consumers being under pressure from rising inflation, a weak job market and reduced access to
credit. The business delivered the following trading and financial performance for the year:
31 Dec 31 Dec %
2015 2014 change
Group
Revenue (Rm) 2 233 1 959 14
EBITDA (Rm) 632 542 17
Operating profit margin (%) 26,0 26,6
Cash generated from operations (Rm) 358 234 53
NAV per share (cents) 1 719 1 560 10
Dividend paid per share (cents)
Retail
Revenue (Rm) 1 755 1 572 12
Retail sales (Rm) 1 197 1 082 11
Gross profit margin (%) 50,7 49,8
EBITDA (Rm) 378 338 12
Cash generated from operations (Rm) 277 165 68
Financial Services
Loan disbursements (Rm) 1 131 945 20
Revenue (Rm) 478 386 24
EBITDA (Rm) 233 189 23
Cash generated from operations (Rm) 65 48 34
Group revenue increased by 14% to R2,2 billion, with strong performances from both Retail and
Financial Services. The Retail business continues to attract new customers to the group and grew
the customer base by 9% to 677 000 while maintaining strict credit-granting criteria.
The gross profit margin improved by 90 basis points to 50,7%. Other trading expenses were also
well managed, however exceeded revenue growth due to higher debtor costs and an increase in
amortisation expenses arising from the continued investment in IT systems. Group operating profit
increased by 11% to R580 million and EBITDA increased strongly by 17% to R632 million.
Digital engagement is a core competency of the group and a strategic growth driver. The strength of
our digital performance is reflected in the 20% increase in credit extended by the group via digital
channels to R745 million, which now represents 28% of total credit extended.
Retail
2015 has been a year of strong innovation in products and channels. Retail sales grew 11% with
pleasing volume growth reflecting changes in product mix and the introduction of new ranges.
Customers have responded well to continued innovation in core bedding. During the year we launched
footwear and clothing ranges and are pleased with the performance of both categories. Retail
sales were, however, negatively impacted by credit policy tightening and disruption during the
development of the new call centre building, and the associated higher levels of staff attrition
in the call centre. The new call centre was successfully opened in January 2016 and is anticipated
to contribute to improvements in tenure and performance.
The impact of deterioration in the Rand on merchandise imports was well managed. Gains in the
margin were achieved through selected price increases, effective product management, operating
efficiencies in our logistics operations and a focus on costs throughout the supply chain.
Efficiency gains are being realised from the new distribution centre completed in 2013. Stock was
well managed and stockholding levels at year-end were only 4% higher than the prior year. Stock
turn remained at 3,5 times.
Sales via digital channels grew at 30% and remain the fastest growing channel, increasing from 9%
to 11% of retail sales.
Financial Services
FinChoice maintained its strategic focus on short-term, low-value personal loans to HomeChoice
customers with a good credit record with the Retail business. Loan disbursements increased by 22%
to R1,1 billion, with 73% of disbursements made to existing loan customers. The average term in
the FinChoice book is 20,2 months (December 2014: 19,2 months) and average balance is R8 792
(December 2014: R8 206), both well below the market averages.
As a digital financial services provider, FinChoice has focused strongly on its mobi platform
development and has experienced encouraging take-up and engagement levels on this growing digital
channel. FinChoice customers continue to engage through the successful KwikServe mobile platform,
with R454 million of disbursements (representing over 55% of all repeat loan transactions)
originating via this innovative self-service channel. The number of FinChoice self-service
customer transactions were up 25% to 2,5 million.
Credit management
Credit conditions remain challenging and the group continues to apply strict credit criteria and
conservative provisioning policies.
31 Dec 31 Dec %
2015 2014 change
Group
Gross trade and loans receivable (Rm) 2 156 1 813 19
Debtor costs as a % of revenue (%) 17,8 16,8
Retail
Gross trade receivables (Rm) 1 209 1 064 14
Debtor costs as a % of revenue (%) 14,5 14,0
Provision for impairment as % of gross
receivables (%) 18,7 18,6
Financial Services
Gross loans receivable (Rm) 948 749 27
Debtor costs as a % of revenue (%) 29,9 28,3
Provision for impairment as % of gross
receivables (%) 16,6 17,0
Group debtor costs increased by 20% to R397 million (2014: R330 million) compared to revenue
growth of 14%. On a comparable basis, group debtor costs have increased by 16%. Debtor costs in
2014 were impacted by the change in accounting treatment of the Financial Services debt review
book which is now included in the loan book with a conservative provision of 80%.
Retail debtor costs increased by 15%. The postal strike in the last quarter of 2014 impacted on
our ability to deliver parcels to customers and negatively impacted customer payment performance.
Higher levels of fraud were also experienced. Credit-granting criteria were tightened and fraud
detection systems improved. Early new and existing customer vintages are showing improvements.
The Retail impairment provision was increased to 18,7% (2014: 18,6%).
FinChoice benefits from marketing to creditworthy HomeChoice customers, which lowers credit risk
and significantly reduces customer fraud. Debtor costs in FinChoice reduced (on a comparable basis)
as a percentage of revenue from 30,0% in 2014 to 29,9%. The FinChoice impairment provision was
reduced to 16,6% (2014: 17,0%).
The new affordability assessment regulations introduced by the National Credit Regulator during
2015 were disruptive to the industry as a whole and are particularly challenging for a home-
shopping retailer. The new regulations required the group to reprioritise system development and
change operational processes significantly. The affordability projects have been well implemented
across both businesses.
Cash and capital management
Cash management and collections of the debtors' books remains a key focus and the group generated
cash from operations of R358 million, a 53% increase over 2014. The improvement in the cash
generated was primarily influenced by lower growth in the Retail debtors' book, net of an increase
in the Financial Services loan book, improved collection processes and better management of working
capital. Cash conversion (cash generated from operations expressed as a percentage of EBITDA)
increased substantially from 43,1% in 2014 to 56,7% in 2015.
The group has continued its capital investment programme despite the tough economic environment
and has invested over R500 million on its operations and platform for growth over the last five years.
A new 1 000-seat call centre and retail showroom were developed during 2015, and the group continues
to invest in its IT and digital platforms.
The financial position of the group remains strong, with net asset value increasing by 10% to
1 719 cents per share. Cash and cash equivalents at year-end increased from R63 million to
R87 million. The net debt to equity ratio of 26% remains comfortably within management's targeted
range of below 40%.
Dividends
In the 2015 financial year dividends of R228 million were paid to shareholders. This represented
the final dividend for 2014 of 161 cents per share and the half-year dividend for 2015 of 64 cents
per share. The dividend cover has been increased from 2,2 times to 2,6 times, within the target
range of 2,2 - 2,8. The directors intend declaring a final dividend for 2015 of 84 cents, payable
in June 2016. The details of the declaration will be communicated on SENS after the annual general
meeting on 12 May 2016.
Outlook
Although the credit health of South African consumers appears to be showing early signs of
improvement, customers in the group's target market remain financially constrained and this will
continue to impact on demand for the group's products and services. Management continues to focus
on cost control, cash generation and on sustaining the quality of the debtors' books. We will
maintain a cautious approach to credit.
HomeChoice aims to drive customer and revenue growth through its omni-channel retail model and
digital customer engagement strategy, supported by the extension of product ranges and new
categories. The benefits of the first “bricks and mortar” showroom and the new call centre will
start to be realised in the 2016 financial year. FinChoice continues to be a niche financial
services provider focused on technology-based customer engagement.
The group remains committed to the mass market consumer segment which is expected to continue
to migrate up the LSM spectrum. The group's proven business model, positioning in a growth sector
and focused expansion strategies should ensure sustainable returns to shareholders.
Gregoire Lartigue
Chief Executive Officer
Paul Burnett
Financial Director
Shirley Maltz
Chief Executive Officer (South Africa)
Qormi, Malta
14 March 2016
SUMMARISED GROUP STATEMENT OF FINANCIAL POSITION
2015 % 2014
R'000 change R'000
ASSETS
Non-current assets
Property, plant and equipment 422 243 41,0 299 387
Intangible assets 101 928 11,9 91 125
Loans to employees 207 1 302
Investment in associates 13 248 7 676
Deferred taxation 25 708 18 819
563 334 34,7 418 309
Current assets
Inventories (note 2) 170 391 2,4 166 363
Taxation receivable 4 271 12 232
Trade and other receivables (note 3) 1 787 273 18,8 1 504 773
Trade receivables - Retail 982 061 13,5 865 466
Loans receivable - Financial Services 790 575 27,1 621 804
Other receivables 14 637 (16,4) 17 503
Cash and cash equivalents 88 300 63 005
2 050 235 17,4 1 746 373
Total assets 2 613 569 20,7 2 164 682
EQUITY AND LIABILITIES
Equity attributable to equity holders of the parent
Stated and share capital 1 025 1 018
Share premium 2 987 580 2 982 202
Reorganisation reserve (2 960 639) (2 960 639)
27 966 22 581
Treasury shares (2 666) (2 666)
Other reserves 4 502 3 030
Retained earnings 1 721 626 1 555 381
Total equity 1 751 428 11,0 1 578 326
Non-current liabilities
Interest-bearing liabilities 164 324 (38,3) 266 234
Deferred taxation 112 282 92 721
Other payables 5 070 4 340
281 676 (22,5) 363 295
Current liabilities
Interest-bearing liabilities 221 102 632,1 30 203
Taxation payable 18 2 882
Trade and other payables 184 550 16,5 158 465
Provisions 12 357 31 078
Bank overdraft 1 780 433
Shareholder loan 160 658 -
580 465 160,2 223 061
Total liabilities 862 141 47,0 586 356
Total equity and liabilities 2 613 569 20,7 2 164 682
SUMMARISED GROUP STATEMENT OF COMPREHENSIVE INCOME
2015 % 2014
R'000 change R'000
Revenue 2 232 967 14,0 1 958 575
Retail sales 1 197 131 10,6 1 082 473
Finance charges and initiation fees earned 893 722 745 179
Finance charges earned 652 083 21,2 537 807
Initiation fees earned 241 639 16,5 207 372
Fees from ancillary services 142 114 8,5 130 923
Cost of retail sales (590 010) 8,6 (543 108)
Other operating costs (1 064 382) (892 781)
Debtor costs (note 6) (397 469) 20,5 (329 902)
Other trading expenses (note 6) (666 913) 18,5 (562 879)
Other net gains and losses (1 873) (3 787)
Other income 3 692 2 633
Operating profit 580 394 11,3 521 532
Interest received 3 375 73,3 1 948
Interest paid (32 809) 49,9 (21 883)
Share of loss of associates (1 137) (2 556)
Profit before taxation 549 823 10,2 499 041
Taxation (155 264) 8,0 (143 721)
Profit and total comprehensive income for the year 394 559 11,0 355 320
Earnings per share (cents)
Basic (note 7) 388,9 10,3 352,5
Diluted 382,1 9,5 349,0
Additional information
Retail gross profit margin (%) 50,7 49,8
The retail gross profit margin percentage has been calculated as retail sales less cost
of retail sales, divided by retail sales.
SUMMARISED GROUP STATEMENT OF CHANGES IN EQUITY
Equity
attributable
Stated Reorgan- to owners
and share Share Treasury isation Other Retained of the
capital premium shares reserve reserves earnings parent
R'000 R'000 R'000 R'000 R'000 R'000 R'000
Balance at 1 January 2014 30 980 - (13 733) - 1 902 1 266 575 1 285 724
Changes in equity
Profit and total comprehensive
income for the year - - - - - 355 320 355 320
Treasury shares cancelled (11 067) - 11 067 - - - -
Shares issued on
incorporation of HomeChoice
International PLC 183 - - - - 183
Shares repurchased (183) - - - - (183)
Shares issued in exchange for
shareholding in HomeChoice
Holdings Limited 1 014 2 979 539 (2 666) - - - 2 977 887
Net assets acquired (19 913) - 2 666 (2 960 639) - - (2 977 886)
Shares issued 4 2 663 - - - - 2 667
Dividends paid - - - - - (66 514) (66 514)
Share option scheme - - - - 1 128 - 1 128
Total changes (29 962) 2 982 202 11 067 (2 960 639) 1 128 288 806 292 602
Balance at 1 January 2015 1 018 2 982 202 (2 666) (2 960 639) 3 030 1 555 381 1 578 326
Changes in equity
Profit and total comprehensive
income for the year - - - - 394 559 394 559
Shares issued 7 5 378 - - - - 5 385
Dividends paid - - - - (228 314) (228 314)
Share option scheme - - - - 1 472 - 1 472
Total changes 7 5 378 - - 1 472 166 245 173 102
Balance at 31 December 2015 1 025 2 987 580 (2 666) (2 960 639) 4 502 1 721 626 1 751 428
SUMMARISED GROUP STATEMENT OF CASH FLOWS
2015 % 2014
R'000 change R'000
Cash flows from operating activities
Operating cash flows before working capital changes 636 923 16,6 546 177
Movements in working capital (278 434) (10,9) (312 612)
Cash generated from operations (note 8) 358 489 53,5 233 565
Interest received 3 375 1 948
Interest paid (31 483) (21 883)
Taxation paid (137 495) (137 927)
Net cash inflow from operating activities 192 886 154,8 75 703
Cash flows from investing activities
Purchase of property, plant and equipment (140 434) (18 004)
Proceeds on disposal of property, plant
and equipment 377 492
Purchase of intangible assets (46 819) (38 906)
Loans repaid by employees 1 095 6 830
Loans granted to employees - (1 302)
Investment in associates (6 709) (3 696)
Net cash outflow from investing activities (192 490) 252,6 (54 586)
Cash flows from financing activities
Proceeds from the issuance of shares 5 385 2 667
Proceeds from interest-bearing liabilities 279 464 111 671
Repayments of interest-bearing liabilities (30 342) (24 964)
Finance-raising costs paid (2 641) (500)
Dividends paid (228 314) (66 514)
Net cash inflow from financing activities 23 552 5,3 22 360
Net increase in cash and cash equivalents and
bank overdrafts 23 948 43 477
Cash, cash equivalents and bank overdrafts at
the beginning of the year 62 572 19 095
Cash, cash equivalents and bank overdrafts at
the end of the year 86 520 38,3 62 572
SUMMARISED GROUP SEGMENTAL ANALYSIS
Retail Financial Services
2015 % 2014 2015 % 2014
R'000 change R'000 R'000 change R'000
Segmental revenue 1 754 999 1 571 846 477 968 385 988
Retail sales 1 197 131 10,6 1 082 473 - -
Finance charges and initiation
fees earned 492 296 14,4 430 496 401 426 27,6 314 683
Fees from ancillary services 65 572 11,4 58 877 76 542 7,3 71 305
Dividends received - - - -
Intersegment revenue - - - -
Revenue from external customers 1 754 999 11,7 1 571 846 477 968 23,8 385 988
EBITDA*** 377 702 11,8 337 946 233 358 23,4 189 064
Depreciation and amortisation (50 467) (20 889) (974) (616)
Interest received - - 553 209
Interest paid - - (32 034) (28 348)
Segmental results* 327 235 317 057 200 903 160 309
Interest received 2 255 1 595 - -
Interest paid (5 198) (5 070) - -
Profit before taxation 324 292 3,4 313 582 200 903 25,3 160 309
Taxation (90 762) (89 074) (55 478) (43 614)
Profit for the year 233 530 4,0 224 508 145 425 24,6 116 695
Segmental assets** 1 412 344 1 244 768 848 456 671 802
Segmental liabilities** 317 029 285 109 35 217 31 951
Operating cash flows before
working capital changes 376 886 11,1 339 252 233 736 23,5 189 223
Movements in working capital (100 351) (174 643) (169 147) (140 920)
Cash generated/(utilised)
by operations 276 535 68,0 164 609 64 589 33,7 48 303
Gross profit margin (%) 50,7 49,8
Segmental results margin (%) 18,6 20,2 42,0 41,5
Capital expenditure
Property, plant and equipment 33 834 14 519 955 825
Intangible assets 44 505 38 463 13 307
Items included in segmental results:
Interest received - Other and
Financial Services - - 553 209
Interest paid - Other and
Financial Services - - (32 034) (28 348)
Marketing costs 161 547 8,5 148 906 19 308 11,4 17 338
Staff costs 211 815 14,3 185 315 50 766 13,9 44 567
Depreciation and amortisation 50 467 141,6 20 889 974 58,2 616
Other costs 150 509 19,1 126 339 31 577 22,0 25 892
Other trading expenses 574 338 19,3 481 449 102 626 16,1 88 413
Debtor costs 254 374 15,2 220 725 143 095 31,1 109 177
Total trading expenses (refer
to note 6) 828 712 18,0 702 174 245 721 24,4 197 590
* Refer to note 9 for further details on segments and segmental results.
** Excluding group loans, including loans to share trust.
*** Comparative figures for Other and Eliminations have been restated to provide a more accurate
reflection of other segment EBITDA. This restatement amounts to R14,973 million and relates
to a once-off realisation of profit on donation of treasury shares between subsidiaries.
Property Other
2015 % 2014 2015 % 2014
R'000 change R'000 R'000 change R'000
Segmental revenue 31 075 28 556 - -
Retail sales - - - -
Finance charges and initiation
fees earned - - - -
Fees from ancillary services 31 075 28 556 - -
Dividends received - - - -
Intersegment revenue (31 075) (27 815) - -
Revenue from external customers - (100,0) 741 - -
EBITDA*** 30 259 9,3 27 681 (12 032) (7,0) (12 941)
Depreciation and amortisation (1 272) (1 269) (224) -
Interest received - - 39 016 35 622
Interest paid - - (20 105) (9 553)
Segmental results* 28 987 26 412 6 655 13 128
Interest received 55 26
Interest paid (13 975) (14 415)
Profit before taxation 15 067 25,3 12 023 6 655 (49,3) 13 128
Taxation (4 218) (3 366) (4 806) (7 667)
Profit for the year 10 849 25,3 8 657 1 849 (66,1) 5 461
Segmental assets** 337 355 233 779 27 445 17 833
Segmental liabilities** 253 479 162 629 268 493 110 167
Operating cash flows before working
capital changes 30 505 10,2 27 681 (7 104) (28,7) (9 966)
Movements in working capital (1 012) (313) (4 894) 3 261
Cash generated/(utilised)
by operations 29 493 7,8 27 368 (11 998) 78,9 (6 705)
Gross profit margin (%)
Segmental results margin(%) 93,3 92,5 - -
Capital expenditure
Property, plant and equipment 105 067 5 845 578 -
Intangible assets - - 2 423 136
Items included in segmental results:
Interest received - Other and
Financial Services - - 39 016 35 622
Interest paid - Other and
Financial Services - - (20 105) (9 553)
Share of loss of associates (1 137) (2 556)
Marketing costs - - - -
Staff costs - - 1 534 (10,7) 1 718
Depreciation and amortisation 1 272 0,3 1 269 224 -
Other costs 1 093 21,4 900 14 107 11,6 12 636
Other trading expenses 2 365 9,0 2 169 15 865 10,5 14 354
Debtor costs - - - -
Total trading expenses (refer
to note 6) 2 365 9,0 2 169 15 865 10,5 14 354
* Refer to note 9 for further details on segments and segmental results.
** Excluding group loans, including loans to share trust.
*** Comparative figures for Other and Eliminations have been restated to provide a more accurate
reflection of other segment EBITDA. This restatement amounts to R14,973 million and relates
to a once-off realisation of profit on donation of treasury shares between subsidiaries.
Eliminations Total
2015 % 2014 2015 % 2014
R'000 change R'000 R'000 change R'000
Segmental revenue - - 2 264 042 1 986 390
Retail sales - - 1 197 131 10,6 1 082 473
Finance charges and initiation
fees earned - - 893 722 19,9 745 179
Fees from ancillary services - - 173 189 9,1 158 738
Dividends received - - - -
Intersegment revenue - - (31 075) (27 815)
Revenue from external customers - - 2 232 967 14,0 1 958 575
EBITDA*** 2 900 - 632 187 16,7 541 749
Depreciation and amortisation 7 - (52 930) (22 774)
Interest received (38 504) (35 504) 1 065 327
Interest paid 37 232 28 344 (14 907) (9 557)
Segmental results* 1 635 (7 160) 565 416 509 745
Interest received - - 2 310 42,5 1 621
Interest paid 1 271 7 160 (17 902) 45,2 (12 325)
Profit before taxation 2 907 - 549 824 10,2 499 041
Taxation - - (155 264) (143 721)
Profit for the year 2 907 - 394 560 11,0 355 320
Segmental assets** (12 031) (3 500) 2 613 569 2 164 682
Segmental liabilities** (12 077) (3 500) 862 141 586 356
Operating cash flows before
working capital changes 2 900 (2 2407,7) (13) 636 923 16,6 546 177
Movements in working capital (3 030) 3 (278 434) (312 612)
Cash generated/(utilised)
by operations (130) 1 200,0 (10) 358 489 53,5 233 565
Gross profit margin (%) 50,7 49,8
Segmental results margin (%) - - 25,3 26,0
Capital expenditure
Property, plant and equipment - - 140 434 21 188
Intangible assets (122) - 46 819 38 906
Items included in segmental results:
Interest received - Other and
Financial Services (38 504) (35 504) 1 065 327
Interest paid - Other and
Financial Services 37 232 28 344 (14 907) (9 557)
Share of loss of associates (1 137) (2 556)
Marketing costs - - 180 855 8,8 166 244
Staff costs - - 264 115 14,0 231 600
Depreciation and amortisation (7) - 52 930 132,4 22 774
Other costs (28 273) 20,3 (23 506) 169 013 18,8 142 261
Other trading expenses (28 280) 20,3 (23 506) 666 913 18,5 562 879
Debtor costs - - 397 469 20,5 329 902
Total trading expenses (refer
to note 6) (28 280) 20,3 (23 506) 1 064 382 19,2 892 781
* Refer to note 9 for further details on segments and segmental results.
** Excluding group loans, including loans to share trust.
*** Comparative figures for Other and Eliminations have been restated to provide a more accurate
reflection of other segment EBITDA. This restatement amounts to R14,973 million and relates
to a once-off realisation of profit on donation of treasury shares between subsidiaries.
NOTES TO THE SUMMARISED GROUP ANNUAL FINANCIAL STATEMENTS
1. Basis of presentation and accounting policies
The group annual financial statements for the year ended 31 December 2015 and these summarised
consolidated financial statements have been prepared by the group's finance department, acting
under the supervision of P Burnett, CA(SA) and financial director of the group.
The summarised consolidated financial statements are prepared in accordance with the requirements
of the JSE Limited (JSE) for summarised financial statements. The JSE requires 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 group annual financial statements from which the
summarised consolidated 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 previous group annual financial statements.
No new standards, amendments or interpretations to existing standards, relevant to the group's
operations, became effective for the year ended 31 December 2015.
2. Inventories
2015 2014
R'000 R'000
Merchandise for resale 129 362 124 966
Provision for inventory obsolescence (11 456) (11 500)
Goods in transit 52 485 52 897
170 391 166 363
Inventory sold at less than cost during the current year amounted to R11,966 million
(2014: R15,558 million).
3. Trade and other receivables
2015 % 2014
R'000 change R'000
Trade receivables - Retail 1 208 631 13,6 1 063 645
Provision for impairment (226 570) 14,3 (198 179)
982 061 13,5 865 466
Loans receivable - Financial Services 947 586 26,5 748 907
Provision for impairment (157 011) 23,5 (127 103)
790 575 27,1 621 804
Other receivables 14 637 (16,4) 17 503
Total trade and other receivables 1 787 273 18,8 1 504 773
Trade and loan receivables 2 156 217 19,0 1 812 552
Provision for impairment (383 581) 17,9 (325 282)
Other receivables 14 637 (16,4) 17 503
Movements in the provision for impairment were as follows:
Retail
Opening balance (198 179) 24,4 (159 355)
Movement in provision (28 391) (26,9) (38 824)
Debtor costs charged to profit and loss (254 374) 15,2 (220 725)
Debts written off during the year, net
of recoveries 225 983 24,2 181 901
Closing balance (226 570) 14,3 (198 179)
Financial Services
Opening balance (127 103) 101,6 (63 036)
Movement in provision (29 908) (53,3) (64 067)
Debtor costs charged to profit and loss (143 095) 31,1 (109 177)
Debts written off during the year, net
of recoveries 113 187 150,9 45 110
Closing balance (157 011) 23,5 (127 103)
Retail
Debtor costs as a % of revenue (%) 14,5 14,0
Debtor costs as a % of gross receivables (%) 21,0 20,8
Provision for impairment as a % of
gross receivables (%) 18,7 18,6
Financial Services
Debtor costs as a % of revenue (%) 29,9 28,3
Debtor costs as a % of gross receivables (%) 15,1 14,6
Provision for impairment as a % of
gross receivables (%) 16,6 17,0
Group
Debtor costs as a % of revenue (%) 17,8 16,8
Debtor costs as a % of gross trade receivables (%) 18,4 18,2
Provision for impairment as a % of
gross receivables (%) 17,8 17,9
* Defined as accounts 120 days or more in arrears as a percentage of the trade and
loan receivable book.
4. Contingent liabilities
The group had no contingent liabilities at the current or prior reporting dates.
5. Events after the reporting date
No event material to the understanding of these summarised consolidated financial
statements has occurred between the end of the financial year and the date of approval.
6. Total trading expenses
2015 % 2014
R'000 change R'000
Expenses by nature
Debtor costs
Trade receivables - Retail 254 374 15,2 220 725
Loans receivable - Financial Services 143 095 31,1 109 177
Total debtor costs 397 469 20,5 329 902
Amortisation of intangible assets 34 583 283,5 9 018
Depreciation of property, plant and equipment 18 347 33,4 13 756
Restructuring and listing costs - 10 225
Legal fees - 2 924
Consulting fees - 5 729
Audit fees - 606
Listing - 507
Advertising - 116
Other - 343
Operating lease charges for immovable property 2 091 127,4 920
Total operating lease charges 4 424 4,2 4 247
Less: disclosed under cost of retail sales (2 333) (29,9) (3 327)
Marketing costs 180 855 8,8 166 244
Staff costs 264 115 14,0 231 600
Total staff costs 300 380 12,1 268 077
Less: disclosed under cost of retail sales (17 950) (8,6) (19 630)
Less: staff costs capitalised to intangibles (18 315) 8,7 (16 847)
Other costs 166 922 27,3 131 116
Total other trading expenses 666 913 18,5 562 879
1 064 382 19,2 892 781
7. Basic and headline earnings per share
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:
2015 2014
Gross Net Gross Net
R'000 R'000 R'000 R'000
Profit for the year 394 559 355 320
Adjusted for the after-tax effect of:
Losses on disposal of property, plant
and equipment and intangible assets 288 207 338 243
Impairment of property, plant
and equipment 116 84 - -
Headline earnings 394 850 355 563
Weighted average number of ordinary
shares in issue ('000) 101 468 100 795
Earnings per share (cents)
Basic 388,9 352,5
Headline 389,1 352,8
Basic - diluted 382,1 349,0
Headline - diluted 382,4 349,2
8. Reconciliation of cash generated from operations
2015 % 2014
R'000 change R'000
Profit before taxation 549 823 10,2 499 041
Share of loss of associates 1 137 (55,5) 2 556
Losses on disposal of property, plant and
equipment and intangible assets 288 (14,8) 338
Loans to employees - amortised cost adjustment - (100,0) (147)
Notional interest on loans to employees - (100,0) (321)
Depreciation and amortisation 52 930 132,4 22 774
Share-based employee service expense 1 472 30,5 1 128
Interest paid 32 809 49,9 21 883
Interest received (3 375) 73,3 (1 948)
Capitalised bond costs - amortised cost adjustment 1 839 110,5 873
Operating cash flows before working capital changes 636 923 16,6 546 177
Movements in working capital (278 434) (10,9) (312 612)
Increase in inventories (4 028) (81,2) (21 399)
Increase in trade receivables - Retail (116 595) (34,9) (179 091)
Increase in loans receivable - Financial Services (168 771) 5,7 (159 724)
Decrease in other receivables 2 866 (27,7) 3 963
Increase in trade and other payables 26 815 24,4 21 561
(Decrease)/increase in provisions (18 721) (184,8) 22 078
358 489 53,5 233 565
9. 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 standalone results,
as well as those of its associates.
The chief operating decision-maker monitors the results of the business segments separately
for the purposes of making decisions about resources to be allocated and of assessing
performance. They assess the performance of Retail and Property segments based upon a measure
of operating profit and Financial Services and Other segments based on a measure of operating
profit after interest received and interest paid.
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. Commitments
Leases are contracted for periods not exceeding five years and contain escalation clauses of
between 8% and 9% and renewal options. The lease expenditure charged to profit and loss during
the year is disclosed in note 6.
At 31 December the future minimum operating lease commitments amounted to the following:
2015 2014
R'000 R'000
Properties
Payable within one year 2 453 2 272
Payable between two and five years 206 2 659
2 659 4 931
Suspensive sale agreements
Payable within one year 24 594 19 497
Payable between two and five years 28 023 31 949
52 617 51 446
Future finance charges on suspensive sale agreements (5 409) (4 504)
47 208 46 942
The present value of suspensive sale agreement payments
is as follows:
Payable within one year 21 957 16 846
Payable between two and five years 25 251 30 096
47 208 46 942
Capital commitments for property, plant and equipment and
intangible assets:
Approved by the directors 50 568 83 876
Approved by the directors and contracted for - 84 846
50 568 168 722
12. Stated capital, share capital and share premium
On 28 November 2014 a new entity, HomeChoice International PLC, was placed on top of the
existing group, HomeChoice Holdings Limited, by issuing shares to the existing group
shareholders. This transaction was not a business combination and has been accounted for
as a reorganisation of an existing group that has not changed the substance of the reporting
entity. No capital was raised as part of the reorganisation. At the time of the reorganisation
the shareholders of HomeChoice Holdings became the new shareholders in HomeChoice
International PLC.
At the time of the reorganisation the consolidated financial statements of the new entity,
HomeChoice International PLC, were presented using the values from the group annual financial
statements of the previous group holding company. The equity structure - that is, the issued
share capital, share premium and treasury shares - reflected that of the new company, with
other amounts in equity (such as retained earnings and other reserves) being those from the
group annual financial statements of the previous group holding company. The resulting
difference that arose has been recognised as a component of equity, called reorganisation
reserve.
Share capital, share premium and treasury shares have been adjusted to include the effects of:
- the issue of 101 379 351 shares to the HomeChoice Holdings shareholders in terms of the
reorganisation, issued at a price of R29,40 and a par value of R0,01; and
- the HomeChoice Development Trust held 600 000 shares before and after the reorganisation.
The movement in Treasury Shares represents the adjustments from applying the accounting for
capital reorganisations. Treasury shares are reflected at R2,666 million, being 600 000
shares at R4,44 per share.
The effect of the transaction is to reflect the share capital, share premium and treasury
shares of the new holding company, HIL, and to eliminate HomeChoice Holdings' share capital
and treasury shares and to create a reorganisation reserve with a debit balance of
R2 960 639 million.
13. 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 2014 took place during the period and related party
balances are existing at the reporting date. Related party transactions include key
management personnel compensation and intragroup transactions which have been eliminated
on consolidation.
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 it has a term of one year.
14. Purchase of intangibles
Included in the reporting period's purchase of intangible assets is the capitalisation of
R30,1 million (2014: R25,8 million) of costs relating to the ERP system implementation.
15. Change in accounting estimate
During the year the group reviewed the current condition of certain existing software and licences
and assessed the impact of the continuous evolution in technology on that software and licences.
As a result the estimated useful life of the ERP system included in intangible assets was revised
from ten years to five years. The change in accounting estimate is accounted for prospectively
from 1 January 2015. The net effect of the changes in the current financial year was an increase
in amortisation expense of R9,772 million. Assuming the assets are held until the end of their
estimated useful lives, amortisation in future years in relation to these assets will be increased
by the following amounts:
R'000
Year ending 31 December
2016 5 677
2017 5 677
2018 3 921
16. Audit opinion
This summarised report is extracted from audited information, but is not itself audited.
The group annual financial statements were audited by PricewaterhouseCoopers, who expressed an
unmodified opinion thereon. The audited group annual financial statements and the auditor's report
thereon are available for inspection at the company's registered office. The directors take
full responsibility for the preparation of this report and that the financial information has
been correctly extracted from the underlying group annual financial statements.
Registered office: 93 Mill Street, Qormi, QRM3012, Republic of Malta
Transfer secretaries: Computershare Investor Services (Proprietary) Limited,
70 Marshall Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
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
SENS release date: 15 March 2016
Date: 15/03/2016 09:40:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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