Wrap Text
Unaudited results for the six months ended 30 June 2017 and cash dividend declaration
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 2017
AND CASH DIVIDEND DECLARATION
GROUP HIGHLIGHTS
- Cash generated from operations increased by 19.8% to R174 million
- Revenue increased by 14% to R1 314 million
- Headline earnings per share increased by 15.9% to 218 cents per share
- EBITDA increased by 14.6% to R355 million
COMMENTARY
OVERVIEW
HomeChoice International PLC (HIL) is an investment holding company incorporated in
Malta and listed on the JSE Limited. Through its two main operating companies,
HomeChoice (Retail) and FinChoice (Financial Services), the group operates a retail
direct marketing business and financial service business to the LSM 4 - 8 middle-income
market in southern Africa.
HomeChoice is the largest home-shopping retailer in southern Africa and offers products
through digital channels, call centres, sales agent networks and catalogues. FinChoice
offers personal loans and insurance products to Retail customers of good credit standing.
TRADING AND FINANCIAL PERFORMANCE
Despite the favourable interest rate environment, high levels of unemployment coupled
with persistent inflation in food and household expenditure continue to exert pressure
on consumers. In this difficult retail and credit market the group has delivered
another good financial performance for the period under review:
6 months 6 months 12 months
ended ended % change ended
30 June 30 June (June to 31 Dec 2016
2017 2016 June) (audited)
Group
Revenue (Rm) 1 314 1 152 14.0 2 664
EBITDA (Rm) 355 310 14.6 701
Operating profit (Rm) 329 280 17.2 648
Operating profit margin (%) 25.0 24.3 24.3
Headline EPS (cents) 218.1 188.2 15.9 414.6
Cash generated from operations (Rm) 174 145 19.8 277
NAV per share (cents) 2 086 1 816 14.8 1 973
Retail
Revenue (Rm) 997 875 14.0 2 083
Retail sales (Rm) 720 579 24.3 1 498
Gross profit margin (%) 49.4 47.9 49.3
EBITDA (Rm) 197 172 14.9 420
Financial Services
Loan disbursements (Rm) 655 583 12.4 1 249
Revenue (Rm) 317 277 14.2 581
EBITDA (Rm) 145 127 14.2 261
Group revenue increased by 14.0% to R1 314 million for the six-month period, driven by
strong growth of 24.3% in Retail sales. The National Credit Regulator's (NCR) reduction
of the maximum prescribed interest rates on credit contracts in May 2016, together
with the strategic introduction of a lower interest-earning Retail credit facility
account, resulted in group finance charges and initiation fees declining by 7.5% to
R445 million. The group continues to be negatively impacted by the affordability
assessment regulations introduced by the NCR, in particular the requirement for
customers to provide proof of income, which has resulted in significant cost increases
and lost revenue.
Fees from ancillary services, which comprises insurance and service fees, grew 62.3%
to R149 million and represents 11.4% of total revenue earned, reflecting the group's
reduced reliance on interest revenue.
Despite the impact of the reduced finance charges, group earnings before interest, tax,
depreciation and amortisation (EBITDA) increased by 14.6% to R355 million, highlighting
the continued focus on creating operating efficiencies and improving credit risk
performance over the period. This, together with improvements in customer cash collection
processes, has resulted in cash generated from operations increasing by 19.8% to
R174 million. Operating profit increased by 17.2% to R329 million with the operating
margin improving from 24.3% to 25.0%.
Headline earnings for the period increased by 17.1% to R225 million, with higher
interest costs off-set by a lower effective taxation rate attributable to the Mauritius
insurance business. Headline earnings per share increased by 15.9% to 218.1 cents.
The group is one of the leading digital retailers in southern Africa and is well
positioned to capitalise on strong digital growth. Credit extended via digital channels
across the group has increased by 38.3% to R507 million for the six-month period and
represents 32.2% of total credit extended (2016: 26.8%). The group has over
560 000 Facebook followers and receives over 1 million visitors on its digital platforms
each month. Strong digital engagement has assisted in the growth of the group's customer
base by 4.4% to 776 000 over the reporting period.
RETAIL PERFORMANCE
Retail revenue increased 14.0% to R997 million. Retail sales increased by 24.3% to
R720 million despite the constrained economic environment. Volume growth was 18% with
the average basket value increasing by 14%. This increase was driven by strong demand
in the core textiles range and further expansion of the branded goods offering.
Innovation remains key to growth across all categories. This, coupled with the change
in the credit offer from instalment to facility in May 2016 continues to drive strong
demand from customers.
Digital, now the second-largest sales channel, remains the fastest-growing channel and
represents 15% sales contribution (up from 12%). Customer engagement with digital
channels has been driven by improved digital systems and the marketing of web-only
merchandise. The customer base has increased by 3.6% over the six-month period to
725 000, with 111 000 new customers acquired.
The introduction of the credit facility product (from the previous instalment credit
product) attracts a lower interest rate and resulted in a 17.2% decrease in finance
charges and initiation fees earned for the period to R214 million. Fees from ancillary
services were up 69.5% to R64 million and is attributable to the increase in service
fees in line with the NCR caps on the introduction of the credit facility account.
The gross profit margin has strengthened by 150 basis points from 47.9% to 49.4% despite
the increased mix of branded merchandise at lower margins. The prior year's gross profit
margin was negatively impacted by the devaluation of the Rand, but the currency has
marginally strengthened and been relatively stable since the second half of 2016.
Inventory has increased by 17.3% to R295 million and stock turn maintained at 2.8 times.
Retail EBITDA increased by a pleasing 14.9% to R197 million despite the impact of the
reduction in finance charge revenue.
FINANCIAL SERVICES PERFORMANCE
Revenue increased by 14.2% to R317 million. Interest income earned was impacted by the
reduction in the interest caps in May 2016 and decreased by 4.8% over the prior period.
Revenue earned from insurance products has grown significantly with the introduction of
credit life on short-term products and funeral insurance last year, which is showing
encouraging growth. EBITDA grew by 14.2% to R145 million following good debtors'
performance and the growing insurance business.
Loan disbursements increased by 12.4% to R655 million. Loans to existing customers
decreased marginally from 79.9% to 77.5% of total disbursements over the period,
reflecting greater acceptance by first-time customers of the processes required for the
affordability regulations introduced in 2015. The customer base has increased by
5.0% to 149 000 from December 2016.
Financial Services is a strongly digitally enabled business. Loan transactions concluded
by digital channels account for 67% of all lending, with the remainder concluded through
the call centres. Enhanced self-service functionality on the mobi site and a constant
focus on improving the customer experience on this digital platform is shifting customer
engagement online, with 37% of the active loans base now registered for mobi. The mobi
site has recently overtaken the popular USSD platform in loan disbursements.
The business is strategically positioned as a short-term, low-value lender. The average
term in the book has reduced to 20.4 months (December 2016: 20.8 months) and the average
balance is R9 786 (December 2016: R9 972), which are both well below the market averages.
The shift to shorter terms has resulted in an improved yield out of the book.
The Financial Services business headquartered in Mauritius (FinChoice Africa) is on
track to open lending operations in Botswana later this year to pilot loan products to
the Retail customer base. The Mauritian insurance business is seeing pleasing growth in
its funeral and credit life products and this new business line is expected to grow
strongly going forward.
CREDIT MANAGEMENT
6 months 6 months 12 months
ended ended % change ended
30 June 30 June (June to 31 Dec 2016
2017 2016 June) (audited)
Group
Gross trade and loans receivable (Rm) 2 750 2 257 21.9 2 655
Debtor costs as % of revenue (%) 16.6 18.9 17.9
Retail
Gross trade receivables (Rm) 1 545 1 231 25.5 1 507
Debtor costs as % of revenue (%) 14.6 15.7 15.1
Provision for impairment as %
of gross receivables (%) 18.6 19.0 18.9
Non-performing loans (>120 days) (%) 10.3 8.9 10.3
Financial Services
Gross loans receivable (Rm) 1 206 1 026 17.5 1 147
Debtor costs as % of revenue (%) 22.9 29.0 28.0
Provision for impairment as %
of gross receivables (%) 14.9 16.3 15.5
Non-performing loans (>120 days) (%) 4.4 4.6 4.7
Group debtor cost growth of only 0.4% is well below revenue growth and reflects prudent
credit risk management and better credit performance in both businesses.
The prior year's Retail debtor costs were negatively impacted by the introduction of
television advertising to drive customer acquisition and below-par performance by
external debt collectors (EDCs). The tightening of credit criteria, introduction of
new scorecards, shortening of terms and changes in credit processes for the media
channel saw improved metrics in the second half of 2016 which has continued through
2017. The Retail new business vintages are showing signs of improvement and we expect
the vintages to improve further over the remainder of this year. Rates of silent
customers (fraudulent orders) have also decreased through considerable front-end
focus on fraud prevention tools. Furthermore, investment in collections resources
and a strategic focus on collection processes has resulted in debts written off during
the year (net of recoveries) increasing by 10.8% over the prior period, which is well
below the 25.5% growth in gross trade receivables. Debtor costs as a percentage of
revenue have reduced from 15.7% in 2016 to 14.6% for the reporting period.
The successful implementation of late-payment activation strategies at EDCs, which
improves cash collections but keeps arrear customers on the books for longer, has
resulted in a deterioration in Retail non-performing loans from 8.9% in June 2016 to
10.3% (Dec 2016: 10.3%). However, the improved credit performance has resulted in the
provision for impairment of trade receivables being marginally reduced from 18.9% in
December 2016 to 18.6%. Our conservative approach to provisioning remains the same
and we have completed our IFRS provision model development and are monitoring the results.
Financial Services' initial loans are primarily restricted to Retail customers who
have demonstrated good payment behaviour, and this selection criteria has enabled the
business to deliver consistent credit performance throughout the credit cycle.
The strength of this risk filter, coupled with improved collections and write-off
recoveries, has resulted in debts written off during the year (net of recoveries)
increasing by only 1.1% over the prior period. Debtor costs as a percentage of revenue
have reduced from 29.0% in 2016 to 22.9% for the reporting period, due to improvement
in reloan vintages and strong collections performance which have translated into the
better roll rates and a better recency distribution. Non-performing loans have improved
from 4.6% in June 2016 to 4.4% and the provision for impaired loans has been reduced
from 15.5% at December 2016 to 14.9%.
A new debt collections business, HSA Debt Solutions, was successfully piloted in the
group to levy collections fees on delinquent accounts. This business will provide
incremental income to the group and encourage better customer payment performance.
CASH AND CAPITAL MANAGEMENT
The group remains cash generative and increased cash generated from operations by
19.8% to R174 million through efficient management of working capital, which increased
by 8.9% to R178 million. The cash conversion rate (cash generated from operations as
a percentage of EBITDA) improved from 46.8% to 48.9% over the period. Capital
expenditure of R16 million (June 2016: R28 million) for the six months was focused
mainly on the group's technology systems.
Net cash and cash equivalents was R129 million at 30 June 2017
(December 2016: R187 million).
The interim dividend has been increased by 15.5% to 82 cents per share, with the
dividend cover remaining at 2.6 times headline earnings.
The group's debt structure is unchanged from the December 2016 year-end. The net debt
to equity ratio has increased marginally from 28.7% at December 2016 to 29.0% due to
lower cash balances and remains well below the board's upper limit of 40.0%.
R60 million of the shareholder loan was repaid after the reporting period in July 2017,
and the balance of R100 million will be repaid in the second half of 2017.
The financial position of the group remains strong, with net asset value increasing by
14.8% to 2 086 cents per share from June 2016.
OUTLOOK
The trading environment is expected to remain difficult with continued financial pressure
on consumers. In this environment, tight credit policies will be maintained, with cash
collections and stringent cost control being management priorities. The group will also
continue to mitigate the impact of the annualisation of reduced interest rates by
growing other revenue streams. Driving digital engagement with customers remains a key
strategic focus as the group looks to expand digital penetration in its target customer
market, particularly via the mobile phone.
Both the Retail and Financial Services businesses have experienced good demand during
subsequent trading, although at lower growth levels compared to the very strong
performance in the second half of 2016.
Management believes that the group's clear strategy and proven business model position
it well to deliver returns to shareholders.
The above information has not been reviewed or reported on by the group's external auditor.
S Portelli G Lartigue S Maltz
Chairman Chief executive officer Chief executive officer (South Africa)
Qormi, Malta, 28 August 2017
DIVIDEND DECLARATION
Notice is hereby given that the board of directors has declared an interim gross cash
dividend of 82.0 cents (65.6000 cents net of dividend withholding tax) per ordinary
share for the six-month period ended 30 June 2017. The dividend has been declared
from income reserves.
HIL is registered in the Republic of Malta and the dividend is a foreign dividend.
A dividend withholding tax of 20% will be applicable to all South African shareholders
who are not exempt. The issued share capital at the declaration date is
104 542 901 ordinary shares.
The salient dates for the dividend will be as follows:
Last day of trade to receive a dividend Tuesday, 19 September 2017
Shares commence trading "ex" dividend Wednesday, 20 September 2017
Record date Friday, 22 September 2017
Payment date Tuesday, 26 September 2017
Share certificates may not be dematerialised or rematerialised between Wednesday,
20 September 2017 and Friday, 22 September 2017, both days inclusive.
G Said
Company secretary
Qormi, Malta, 28 August 2017
GROUP STATEMENT OF FINANCIAL POSITION
Notes Unaudited Unaudited Audited
Jun 2017 Jun 2016 Dec 2016
R'000 R'000 R'000
Assets
Non-current assets
Property, plant and equipment 421 222 428 602 425 926
Intangible assets 82 218 95 438 89 654
Investment in associates and other 36 126 18 989 24 259
Deferred taxation 44 809 29 216 38 217
584 375 572 245 578 056
Current assets
Inventories 294 528 251 078 213 750
Taxation receivable 14 328 14 269 4 756
Trade and other receivables 2 2 313 059 1 874 735 2 214 754
Trade receivables - Retail 1 257 669 997 038 1 221 729
Loans receivable - Financial Services 1 026 386 858 879 969 544
Other receivables 29 004 18 818 23 481
Cash and cash equivalents 154 828 95 119 187 277
2 776 743 2 235 201 2 620 537
Total assets 3 361 118 2 807 446 3 198 593
Equity and liabilities
Equity attributable to equity holders of the parent
Stated and share capital 1 045 1 035 1 035
Share premium 3 000 357 2 998 296 2 998 429
Reorganisation reserve (2 960 639) (2 960 639) (2 960 639)
40 763 38 692 38 825
Treasury shares (2 666) (2 666) (2 666)
Other reserves 7 293 5 144 6 377
Retained earnings 2 122 687 1 827 818 1 987 648
Total equity 2 168 077 1 868 988 2 030 184
Non-current liabilities
Interest-bearing liabilities 546 963 241 835 579 140
Deferred taxation 142 609 116 913 134 844
Other payables 4 415 4 585 4 900
693 987 363 333 718 884
Current liabilities
Interest-bearing liabilities 49 514 138 775 31 453
Taxation payable 14 657 1 074 11 801
Trade and other payables 232 097 195 678 214 464
Provisions 15 276 6 000 31 713
Bank overdraft 25 863 76 531 -
Shareholder loan 161 647 157 067 160 094
499 054 575 125 449 525
Total liabilities 1 193 041 938 458 1 168 409
Total equity and liabilities 3 361 118 2 807 446 3 198 593
GROUP STATEMENT OF COMPREHENSIVE INCOME
Notes Unaudited Unaudited Audited
six months six months year
ended ended ended
Jun 2017 % Jun 2016 Dec 2016
R'000 change R'000 R'000
Revenue 1 313 841 14.0 1 152 247 2 664 230
Retail sales 719 694 24.3 579 189 1 497 610
Finance charges and initiation
fees earned 444 657 (7.5) 480 939 940 585
Finance charges earned 312 520 (11.9) 354 753 672 083
Initiation fees earned 132 137 4.7 126 186 268 502
Fees from ancillary services 149 490 62.3 92 119 226 035
Cost of retail sales (358 614) 20.8 (296 757) (759 288)
Other operating costs (635 851) 10.1 (577 690) (1 267 819)
Debtor costs 5 (218 635) 0.4 (217 857) (478 114)
Other trading expenses 5 (417 216) 15.9 (359 833) (789 705)
Other net gains and losses 4 857 308.3 1 190 7 505
Other income 4 360 208.0 1 416 3 532
Operating profit 328 593 17.2 280 406 648 160
Interest received 2 621 58.1 1 658 3 393
Interest paid (40 221) 45.8 (27 590) (64 854)
Share of (loss)/profit of associates (1 377) <100 1 834 (1 564)
Profit before taxation 289 616 13.0 256 308 585 135
Taxation (65 046) 0.9 (64 474) (160 281)
Profit and total comprehensive income
for the period 224 570 17.1 191 834 424 854
Earnings per share (cents)
Basic 6.1 218.1 188.2 414.8
Headline 6.1 218.1 188.2 414.6
Diluted 6.2 216.0 186.3 410.5
Diluted headline 6.2 216.0 186.4 410.3
Additional information (%)
Retail gross profit margin (%) 50.2 48.8 49.3
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 2017 Jun 2016 Dec 2016
R'000 R'000 R'000
Equity at the beginning of the period 2 030 184 1 751 428 1 751 428
Profit and total comprehensive income for the period 224 570 191 834 424 854
Dividends paid (89 532) (85 643) (158 832)
Shares issued under share option scheme 1 939 10 727 10 859
Share option scheme expense 916 642 1 875
Equity at the end of the period 2 168 077 1 868 988 2 030 184
GROUP STATEMENT OF CASH FLOWS
Notes Unaudited Unaudited Audited
six months six months year
ended ended ended
Jun 2017 % Jun 2016 Dec 2016
R'000 change R'000 R'000
Cash flows from operating activities
Operating cash flows before working
capital changes 352 149 14.0 308 886 698 784
Movement in working capital (178 372) 8.9 (163 863) (421 740)
Cash generated from operations 5 173 777 19.8 145 023 277 044
Interest received 2 621 58.1 1 658 3 286
Interest paid (38 189) 38.9 (27 496) (60 512)
Taxation paid (70 588) (2.4) (72 293) (140 574)
Net cash inflow from operating activities 67 621 44.2 46 892 79 244
Cash flows from investing activities
Purchase of property, plant and equipment (7 528) (17 285) (26 282)
Proceeds on disposal of property,
plant and equipment - - 425
Purchase of intangible assets (8 403) (10 405) (20 124)
Loans repaid by employees - 207 207
Investment in associates and other (7 807) (3 927) (6 753)
Net cash outflow from investing activities (23 738) 24.4 (31 410) (52 527)
Cash flows from financing activities
Proceeds from the issuance of shares 1 939 10 727 10 860
Proceeds from interest-bearing liabilities 3 814 14 636 369 574
Repayments of interest-bearing liabilities (18 416) (23 134) (140 371)
Finance-raising costs paid - - (7 191)
Dividends paid (89 532) (85 643) (158 832)
Net cash (outflow)/inflow from financing activities (102 195) 22.5 (83 414) 74 040
Net (decrease)/increase in cash, cash equivalents
and bank overdrafts (58 312) (67 932) 100 757
Cash, cash equivalents and bank overdrafts at the
beginning of the period 187 277 86 520 86 520
Cash, cash equivalents and bank overdrafts at the
end of the period 128 965 >100 18 588 187 277
GROUP SEGMENTAL ANALYSIS
Financial Elimi-
Retail Services Property Other nations Total
R'000 R'000 R'000 R'000 R'000 R'000
Six months ended 30 June 2017 - Unaudited
Segmental revenue 997 329 316 512 27 698 - - 1 341 539
Retail sales 719 694 - - - - 719 694
Finance charges and initiation
fees earned 213 731 230 926 - - - 444 657
Fees from ancillary services 63 904 85 586 27 698 - - 177 188
Intersegment revenue - - (27 698) - - (27 698)
Revenue from external customers 997 329 316 512 - - - 1 313 841
Segment results* 171 020 135 215 16 842 (19 445) - 303 632
Segment results margin (%) 17.1 42.7 22.6
Growth in segment results (%) 17.9 24.9 12.3 13.1
Segment assets** 1 823 559 1 141 655 339 566 79 538 (23 200) 3 361 118
Segment liabilities** 415 845 54 774 238 876 505 748 (22 202) 1 193 041
Operating cash flows before working
capital changes 195 725 142 196 17 488 (3 260) - 352 149
Movement in working capital (121 894) (47 368) (2 486) (6 624) - (178 372)
Cash generated/(utilised)
from operations 73 831 94 828 15 002 (9 884) - 173 777
Gross profit margin (%) 49.4 50.2
Six months ended 30 June 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
Segment results* 145 002 108 270 14 992 176 - 268 440
Segment results margin (%) 16.6 39.1 22.8
Growth in segment results (%) 2.0 23.9 3.3 6.8
Segment assets** 1 548 386 933 891 340 151 19 935 (34 917) 2 807 446
Segment 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
* 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 the 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 SEGMENT RESULTS Unaudited Unaudited
Jun 2017 Jun 2016
R'000 R'000
Segment results as reported above 303 632 268 440
Interest received 1 339 957
Interest paid (13 978) (14 923)
Share of profit/(loss) of associates (1 377) 1 834
Profit before tax 289 616 256 308
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 2017 Jun 2016 Dec 2016
R'000 R'000 R'000
Trade receivables - Retail 1 544 754 1 230 533 1 507 312
Provision for impairment (287 085) (233 495) (285 583)
1 257 669 997 038 1 221 729
Loans receivable - Financial Services 1 205 683 1 026 101 1 147 250
Provision for impairment (179 297) (167 222) (177 706)
1 026 386 858 879 969 544
Other receivables 29 004 18 818 23 481
Total trade and other receivables 2 313 059 1 874 735 2 214 754
Trade and loan receivables 2 750 437 2 256 634 2 654 562
Provision for impairment (466 382) (400 717) (463 289)
Other receivables 29 004 18 818 23 481
Movements in the provision for impairment
were as follows:
Retail
Opening balance (285 583) (226 570) (226 570)
Movement in provision (1 502) (6 925) (59 013)
Debtor costs charged to profit and loss (146 101) (137 458) (315 052)
Debts written off during the year,
net of recoveries 144 599 130 533 256 039
Closing balance (287 085) (233 495) (285 583)
Financial Services
Opening balance (177 706) (157 011) (157 011)
Movement in provision (1 591) (10 211) (20 695)
Debtor costs charged to profit and loss (72 534) (80 399) (163 062)
Debts written off during the year,
net of recoveries 70 943 70 188 142 367
Closing balance (179 297) (167 222) (177 706)
Retail
Debtor costs as a % of revenue (%) 14.6 15.7 15.1
Debtor costs as a % of gross receivables
(annualised) (%) 18.9 22.3 20.9
Provision for impairment as a % of gross
receivables (%) 18.6 19.0 18.9
Financial Services
Debtor costs as a % of revenue (%) 22.9 29.0 28.0
Debtor costs as a % of gross receivables
(annualised) (%) 12.0 15.7 14.2
Provision for impairment as a % of gross
receivables (%) 14.9 16.3 15.5
Group
Debtor costs as a % of revenue (%) 16.6 18.9 17.9
Debtor costs as a % of gross receivables
(annualised) (%) 15.9 19.3 18.0
Provision for impairment as a % of gross
receivables (%) 17.0 17.8 17.5
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 (%) 10.3 8.9 10.3*
Financial Services (%) 4.4 4.6 4.7
* This has been restated from 8.7 which was incorrectly disclosed in the
December 2016 annual financial statements.
3. CONTINGENT LIABILITIES
The group had no contingent liabilities at the reporting date.
4. 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.
5. TOTAL TRADING EXPENSES
Unaudited Unaudited Audited
six months six months year
ended ended ended
Jun 2017 Jun 2016 Dec 2016
R'000 R'000 R'000
Expenses by nature
Debtor costs
Trade receivables - Retail 146 101 137 458 315 052
Loans receivable - Financial Services 72 534 80 399 163 062
Total debtor costs 218 635 217 857 478 114
Amortisation of intangible assets 15 839 16 895 32 498
Depreciation of property, plant and equipment 12 238 10 926 22 408
Operating lease charges for immovable property 570 665 1 304
Total operating lease charges 3 677 2 105 4 022
Less: disclosed under cost of Retail sales (3 107) (1 440) (2 718)
Marketing costs 104 069 92 320 188 863
Staff costs 165 179 142 189 332 010
Total staff costs 184 299 158 740 365 889
Less: disclosed under cost of Retail sales (11 928) (10 243) (21 651)
Less: staff costs capitalised to intangibles (7 192) (6 308) (12 228)
Other costs 119 321 96 838 212 622
Total other trading expenses 417 216 359 833 789 705
635 851 577 690 1 267 819
6. EARNINGS PER SHARE
6.1 Basic and headline earnings per share
The calculation of basic and headline earnings per share is based on profit
for the period 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 2017 Jun 2016 Dec 2016
R'000 R'000 R'000
Profit for the period 224 570 191 834 424 854
Adjusted for the after-tax effect of:
Gain on disposal of property, plant and
equipment and intangible assets - - (241)
Impairment of property, plant and equipment - - 59
Headline earnings for the period 224 570 191 834 424 672
Weighted average number of ordinary
shares in issue ('000) 102 962 101 931 102 419
Earnings per share (cents)
Basic 218.1 188.2 414.8
Headline 218.1 188.2 414.6
6.2 Diluted and diluted headline earnings per share
The calculation of diluted and diluted headline earnings per share is based
on profit for the year attributable to owners of the parent divided by the
fully diluted weighted average number of ordinary shares in issue as follows:
Unaudited Unaudited Audited
six months six months year
ended ended ended
Jun 2017 Jun 2016 Dec 2016
R'000 R'000 R'000
Weighted average number of ordinary
shares in issue 102 962 101 931 102 419
Number of shares issuable under the
share option scheme for no onsideration 1 006 1 023 1 078
Diluted weighted average number of
ordinary shares in issue 103 968 102 954 103 497
Earnings per share (cents)
Diluted 215.2 186.3 410.5
Diluted headline 215.2 186.3 410.3
7. RECONCILIATION OF CASH GENERATED FROM OPERATIONS
Unaudited Unaudited Audited
six months six months year
ended ended ended
Jun 2017 Jun 2016 Dec 2016
R'000 R'000 R'000
Profit before taxation 289 616 256 308 585 135
Share of loss/(profit) of associates 1 377 (1 834) 1 564
Profit from insurance cells (5 437) (5 823)
Gain on disposal of property, plant and
equipment and intangible assets - - (335)
Impairment of property, plant and equipment - - 81
Depreciation and amortisation 28 077 27 821 54 825
Share-based employee share expense 916 659 1 875
Interest paid 38 135 26 212 61 435
Interest received (2 621) (1 658) (3 393)
Capitalised bond costs - amortised cost
adjustment 2 086 1 378 3 420
Operating cash flows before working
capital changes 352 149 308 886 698 784
Movements in working capital (178 372) (163 863) (421 740)
Increase in inventories (80 778) (80 687) (43 359)
Increase in trade receivables - Retail (35 940) (14 977) (239 668)
Increase in loans receivable - Financial Services (56 842) (68 304) (178 969)
Increase in other receivables (5 523) (4 181) (8 844)
Increase in trade and other payables 17 148 10 643 29 744
Increase/(decrease) in provisions (16 437) (6 357) 19 356
173 777 145 023 277 044
8. GROUP SEGMENTAL ANALYSIS
The group's operating segments are identified as being Retail, Financial Services,
Property and Other. Operating segments are reported in a manner consistent with
the internal reporting provided to the chief operating decision-maker, being
HomeChoice International PLC's executive directors. The group's reportable segments
are unchanged from the previous reporting date.
Retail consists mainly of the group's HomeChoice and FoneChoice operations, whereas
Financial Services represents the group's FinChoice operations. The group's property
company, which own commercial properties utilised within the group, are included in
the Property segment. The Other segment relates mainly to the holding company's
standalone results, as well as those of its associates.
The chief operating decision-maker monitors the results of the business segments
separately for the purposes of making decisions about resources to be allocated and
of assessing performance. They assess the performance of Retail and Property segments
based on a measure of operating profit and Financial Services and Other segments
based on a measure of operating profit after interest received and interest paid.
9. 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.
10. CAPITAL COMMITMENTS FOR PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS
Unaudited Unaudited Audited
six months six months year
ended ended ended
Jun 2017 Jun 2016 Dec 2016
R'000 R'000 R'000
Approved by the directors 36 060 16 474 47 238
Approved by the directors and contracted for 2 481 - -
38 541 16 474 47 238
11. 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 2016 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 is repayable in 2017.
12. SEASONALITY
Due to its seasonal nature, the Retail business has a history of generating higher
revenues during the second half of the year.
13. 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.
14. 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 2016.
STATISTICS
Jun 2017 Jun 2016 Dec 2016
Growth in revenue (%) 14.0 15.8 19.3
Retail gross profit margin (%) 50.2 48.8 49.3
Operating profit margin (%) 25.0 24.3 24.3
Earnings before interest, tax, depreciation
and amortisation (EBITDA) ('000) 355 294 310 062 701 422
Growth in EBITDA (%) 14.6 15.5 11.0
EBITDA margin (%) 27.0 26.9 26.3
Solvency and liquidity
Net asset value per share (cents) 2 085.8 1 816.3 1 972.8
Growth in net asset value (%) 5.7 5.6 14.7
Inventory turn (times) 2.8 2.8 4.0
Net debt/equity ratio (%) 29.0 27.8 28.7
Performance
Growth in trade receivables - Retail (%) 2.9 1.5 24.4
Growth in loans receivable - Financial Services (%) 5.9 8.6 22.6
Growth in cash generated from operations (%) 19.8 18.3 (22.7)
Cash conversion (%) 48.9 46.8 39.5
Return on equity - annualised (%) 21.4 21.2 22.5
Shareholding
Number of shares ('000)
- In issue, net of treasury shares 103 943 102 900 102 911
- Weighted shares in issue, net of treasury shares 102 962 101 931 102 419
- Diluted weighted average 103 968 102 954 103 497
Earnings per share (cents)
- basic 218.1 188.2 414.8
- diluted 216.0 186.3 410.5
- headline (HEPS) 218.1 188.2 414.6
- diluted HEPS 216.0 186.3 410.3
In April 2017 the final dividend for the 2016 financial year of R89.5 million
(87 cents per share) was paid to shareholders.
In May 2016 the final dividend for the 2015 financial year of R85.6 million
(84 cents per share) was paid to shareholders.
DIRECTORATE
Non-executive directors
S Portelli* (Chairman), A Chorn*, R Garratt, E Gutierrez-Garcia, R Hain*, C Rapa*
* Independent
Executive directors
G Lartigue (Chief Executive Officer), P Burnett, S Maltz
ADMINISTRATION
Country of incorporation: Republic of Malta
Date of incorporation: 22 July 2014
Company registration number: C66099
Registered office: 93 Mill Street, Qormi, QRM3012, Republic of Malta
Company secretary: George Said
Auditors: PricewaterhouseCoopers, Republic of Malta
Corporate bank: Deutsche Bank International Limited, Channel Islands
Sponsor: Rand Merchant Bank, a division of FirstRand Bank Limited
Transfer secretaries: Computershare Investor Services Proprietary Limited
Website: www.homechoiceinternational.com
28 August 2017
Date: 28/08/2017 08:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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