Wrap Text
Reviewed interim condensed consolidated results for the six months ended 31 August 2018
Dis-Chem Pharmacies Limited
("Dis-Chem" or "the Company")
(Incorporated in the Republic of South Africa)
(Registration number 2005/009766/06)
Share code: DCP
ISIN: ZAE000227831
REVIEWED INTERIM CONDENSED CONSOLIDATED RESULTS
for the six months ended 31 August 2018
COMMENTARY
Overview
Despite a tough economic environment, the Dis-Chem Group reports positive results with improved market shares
across all its core categories and continues to produce attractive returns to shareholders.
Earnings attributable to shareholders and headline earnings both grew by 10.5% over the corresponding period in
the prior year ("corresponding period"). Earnings per share and headline earnings per share are both 51.7 cents per
share, an increase of 10.5%.
Chief executive, Ivan Saltzman: "The continuing increase in the fuel price along with the 1% increase in the VAT
rate continues to put pressure on consumers. After tough trading conditions in April, we experienced another
extremely tough trading month in July. Subsequently we have seen trading improvements in August and then again
in September suggesting consumer confidence is improving slightly. It is pleasing to note that in each of the last six
months we have made market share gains in all of our core categories confirming the success and importance of
our everyday low price strategy and the availability of choice for our customers. Our superior trading densities, high
average basket size and spend by our Benefits Programme members further points to the loyalty that our brand
enjoys in this market."
Financial performance
During the six-month period from 1 March 2018 to 31 August 2018, Dis-Chem recorded Group revenue growth of
9.4% to R10.5 billion.
Retail revenue grew by 9.8% to R9.6 billion with comparable store revenue at 3.5% and selling price inflation of
only 1.2%. Comparable store revenue and selling price inflation were, and will continue to be, negatively impacted
by the 1.26% Single Exit Price ("SEP") increase effective 1 March 2018. The SEP is prescribed by the Department
of Health and impacts approximately a third of Dis-Chem's retail sales. Wholesale revenue grew by 15.1% to
R7.4 billion.
Total income, comprising of gross profit and other income, grew by 13.5% to R3.1 billion. The Group's total income
margin improved from 28.3% to 29.4% as a result of a focused exercise by categories to review and increase gross
margin across inelastic products. The Group also continues to benefit from better trade terms with suppliers as it
grows market share.
Retail expenses grew by 13.2% as the Group invested in 18 new stores over the comparable period. Wholesale
expenses grew by 15.4% as a result of the investment in the new Cape Town facility as well as the extension of space
in the Delmas facility over the last 12 months. Cost efficiency remains a focus as the Group now has wholesale
operations that are more geographically aligned with its retail store base and the independent pharmacy market
that the Group intends to access.
Operating profit grew by 8.3% to R0.7 billion, with the Group operating margin being 6.7%. Retail operating margin
grew by 11% to R0.8 billion. The Wholesale segment incurred an operating loss amounting to R46 million (EBITDA
loss of R25 million). After the reporting period, on a monthly basis, the wholesale segment is breaking even at an
Earnings Before Interest, Tax, Depreciation and Amortisation ("EBITDA") level.
Net finance costs declined by 10.4% to R77 million, primarily due to the R37.5 million quarterly repayments of the
term debt.
Working capital continues to be well managed and the Group's net working capital improved from 36.4 days at
28 February 2018 to 35.7 days at August 2018. Creditors' days have continued to improve due to concentrated
efforts on supply chain finance offered to the Group's vendor base. The Group is holding increased levels of
inventory, especially in the retail segment, due to a concern of potential labour unrest at certain wholesale facilities.
Total capital expenditure of R156 million comprised of R119 million of expansionary expenditure as the Group
invested in seven additional stores as well as information technology enhancements across both the retail and
wholesale segments. The balance of R37 million relates to replacement expenditure incurred to maintain the
existing retail and wholesale network.
Trading performance
Retail
Retail revenue grew by 9.8% to R9.6 billion and was negatively impacted by the 1.26% SEP increase. The SEP is
prescribed by the Department of Health and impacts approximately a third of the Group's retail revenue. Total
dispensary revenue growth was 8.2% lagging the average front shop revenue growth of 10.8%. In the absence of an
additional SEP increase during the remainder of the financial period, we expect dispensary revenue to continue to
lag our front shop categories; Personal Care and Beauty, Healthcare and Nutrition and Baby Care.
In the current period, the Group has opened seven new stores, including flagship stores in Sandton and Gateway,
resulting in 136 stores at August 2018. The addition of new space together with maturing space is the most
prominent driver of retail growth.
In FY2018, the Group added 21 new stores which contributed R667 million to revenue in the six-month period
under review. At August 2018, the Group added seven new stores adding R155 million to revenue.
Wholesale
Wholesale revenue grew by 15.1% to R7.4 billion. Revenue to our own retail stores, still the biggest contributor
to wholesale sales grew by 16.5% as we achieved over 80% of internal supply. The Local Choice revenue growth
continues to be very positive coming in at 15.6% and now contributing 5% to overall wholesale revenue. We expect
to increase external sales with the acquisition of Quenets Proprietary Limited, a wholesaler in the Western Cape,
once final approval is received from the Competition Commission.
Directorate
No changes have been made to the board since year-end or the prior corresponding period.
Outlook
For the six weeks to 14 October 2018, Group revenue grew by 10.3% with comparable store revenue by 3.3%.
The Group expects that the consumer will continue to remain constrained due to the continuing increase in the fuel
price and overall cost of living. As was the case previously, the resilient markets in which the Group operates will
offer protection against the weak environment; the Group is well positioned to benefit from additional consumer
disposable income.
The Group remains focused on adding retail stores. Two stores have been added since the reporting period and an
additional 13 store openings are planned through to February 2019. We reiterate our guidance to end the full year
with a minimum of 151 stores.
Earnings guidance for FY2019
Referring to the trading update on 19 July 2018, the Group expects full-year earnings per share ("EPS") to be
between 92.3 cents and 98.7 cents implying an increase of between 16% and 24%, compared to the EPS of
79.6 cents for the 12 months ended 28 February 2018. Earnings growth is expected to improve in the second half of
the financial year as the benefits of the higher SEP granted in March 2017 predominantly impacts the base for the
interim results to 31 August 2018.
We continue to expect to break even at an EBITDA level in the Wholesale division for the FY2019 period. This will
be driven by additional scale on the back of internal and independent pharmacy sales growth as we access new
markets as a result of our newly invested warehouse space. Additionally, cost efficiency remains a focus as we now
have wholesale operations that are more geographically aligned with our retail store base and the independent
pharmacy market that we intend to access.
The financial information in the outlook and earnings guidance paragraphs have not been audited, reviewed or
reporting on by the Group's external auditors
Dividends declaration
Notice is hereby given that a gross interim cash dividend of 20.69678 cents per share, in respect of the interim
ended 31 August 2018 has been declared based on 40% of headline earnings. The number of shares in issue at the
date of this declaration is 860 084 483. The dividend has been declared out of income reserves as defined in the
Income Tax Act, 1962, and will be subject to the South African dividend withholding tax ("DWT") rate of 20% which
will result in a net dividend of 16.55742 cents per share to those shareholders who are not exempt from paying
dividend tax. Dis-Chem's tax reference number is 9931586144.
The salient dates relating to the payment of the dividend are as follows:
- Last day to trade cum dividend on the JSE: Tuesday, 30 October 2018
- First trading day ex dividend on the JSE: Wednesday, 31 October 2018
- Record date: Friday, 2 November 2018
- Payment date: Monday, 5 November 2018
Share certificates may not be dematerialised or rematerialised between Wednesday, 31 October 2018 and Friday,
2 November 2018, both days inclusive. Shareholders who hold ordinary shares in certificated form ("certificated
shareholders") should note that dividends will be paid by cheque and by means of an electronic funds transfer
("EFT") method. Where the dividend payable to a particular certificated shareholder is less than R100, the dividend
will be paid by EFT only to such certificated shareholder. Certificated shareholders who do not have access to
any EFT facilities are advised to contact the company's transfer secretaries, Computershare Investor Services
Proprietary Limited at Rosebank Towers, 15 Biermann Avenue, Rosebank, Johannesburg, 2196; on 011 370 5000;
or on 0861 100 9818 (fax), in order to make the necessary arrangements to take delivery of the proceeds of
their dividend.
Shareholders who hold ordinary shares in dematerialised form will have their accounts held at their CSDP or broker
credited electronically with the proceeds of their dividend.
Approval
The interim reviewed condensed consolidated financial statements of the Group were authorised for issue in
accordance with a resolution of the directors on 16 October 2018.
On behalf of the Board
Ivan Saltzman Rui Morais
Chief Executive Officer Chief Financial Officer
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Restated* Restated*
Six months to Six months to Year to
31 August 31 August 28 February
2018 2017 2018
(Reviewed) (Reviewed) Six-month (Reviewed)
R'000 R'000 % change R'000
Revenue from contracts with customers 10 464 943 9 568 612 9.4 19 479 553
Cost of sales (7 858 142) (7 197 358) 9.2 (14 710 016)
Gross profit 2 606 801 2 371 254 9.9 4 769 537
Other income 471 667 340 307 38.6 686 271
Total income 3 078 468 2 711 561 13.5 5 455 808
Other expenses (2 373 467) (2 060 587) 15.2 (4 330 728)
Operating profit 705 001 650 974 8.3 1 125 080
Net financing costs (76 664) (85 572) (10.4) (160 082)
- Finance income 9 223 4 660 28 321
- Finance costs (85 887) (90 232) (188 403)
Profit before taxation 628 337 565 402 11.1 964 998
Taxation (168 577) (155 999) 8.1 (266 696)
Profit/Total comprehensive income for the year, net of
tax 459 760 409 403 12.3 698 302
Profit attributable to:
- Equity holders of the parent 445 011 402 877 684 254
- Non-controlling interests 14 749 6 526 14 048
Earning per share (cents)
- Basic 51.7 46.8 79.6
- Diluted 51.7 46.8 79.6
* Refer to note 2
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Restated* Restated*
As at As at As at
31 August 31 August 28 February
2018 2017 2018
(Reviewed) (Reviewed) (Reviewed)
R'000 R'000 R'000
ASSETS
Non-current assets 1 755 671 1 496 540 1 664 700
Property, plant and equipment 1 213 619 1 098 357 1 182 394
Intangible assets 387 957 247 127 300 461
Deferred taxation 154 095 151 056 181 845
Current assets 6 661 332 4 935 977 5 470 665
Inventories 4 358 618 3 578 075 3 947 937
Trade and other receivables 1 211 878 1 074 026 1 118 855
Loans receivable 185 375 88 945 113 876
Taxation receivable 1 667 9 164 9 998
Cash and cash equivalents 903 794 185 767 279 999
Total assets 8 417 003 6 432 517 7 135 365
EQUITY AND LIABILITIES
Equity and reserves 1 968 752 1 460 533 1 630 992
Share capital 6 155 554 6 155 554 6 155 554
Common control reserve - (990 991) -
Retained earnings/(loss) 432 817 (3 704 030) 97 481
Other reserves (4 619 619) - (4 622 043)
Non-controlling interest 65 379 27 290 55 147
Total equity 2 034 131 1 487 823 1 686 139
Non-current liabilities 1 306 593 1 446 406 1 388 846
Finance lease obligation 618 723 625 450 621 543
Operating lease obligation 226 695 194 579 213 198
Loans payable 424 604 571 000 499 605
Contingent consideration 36 571 55 377 54 500
Current liabilities 5 076 279 3 498 288 4 060 380
Trade and other payables 3 755 539 2 852 113 3 262 280
Employee-related obligations 127 365 123 734 146 014
Deferred revenue (contract liability) 61 771 99 893 81 292
Contingent consideration 20 956 22 769 21 749
Finance lease obligation 15 014 3 944 9 943
Loans payable 172 093 200 424 198 798
Taxation payable 49 863 33 783 32 790
Bank overdraft 873 678 161 628 307 514
Total equity and liabilities 8 417 003 6 432 517 7 135 365
* Refer to note 2
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Retained Common Non-
Share earnings/ control Other controlling
capital (loss) reserve reserves interest Total
R'000 R'000 R'000 R'000 R'000 R'000
Restated balance at
28 February 2017* 6 140 554 (4 043 701) (990 991) - 23 581 1 129 443
Profit/Total comprehensive
income for the year - 402 877 - - 6 526 409 403
Shares issued during the year 15 000 - - - - 15 000
Dividends paid - (63 206) - - (2 817) (66 023)
Restated balance at 31 August 2017* 6 155 554 (3 704 030) (990 991) - 27 290 1 487 823
Profit/Total comprehensive
income for the year - 281 377 - - 7 522 288 899
Change in ownership interest in
subsidiary - 50 179 - - 26 104 76 283
Transfer to other reserves - 3 631 052 990 991 (4 622 043) - -
Dividends paid - (161 097) - - (5 769) (166 866)
Restated balance at
28 February 2018* 6 155 554 97 481 - (4 622 043) 55 147 1 686 139
Profit/Total comprehensive
income for the year - 445 011 - - 14 749 459 760
Change in ownership interest in
subsidiary - (135) - - 1 468 1 333
Share-based payment expense - - - 2 424 - 2 424
Dividends paid - (109 540) - - (5 985) (115 525)
Balance at 31 August 2018 (reviewed) 6 155 554 432 817 - (4 619 619) 65 379 2 034 131
* Refer to note 2
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Six months to Six months to Year to
31 August 31 August 28 February
2018 2017 2018
(Reviewed) (Reviewed) (Reviewed)
R'000 R'000 R'000
Cash flow from operating activities 384 671 187 061 348 473
Cash inflow from trading operations 791 315 746 355 1 323 624
Movement in working capital (111 477) (257 733) (295 931)
Finance income received 13 745 4 660 23 836
Finance costs paid (70 716) (77 768) (164 424)
Taxation paid (122 671) (162 430) (305 743)
Dividends paid (115 525) (66 023) (232 889)
Cash flow from investing activities (222 187) (189 726) (396 050)
Additions to property, plant and equipment and intangible
assets
- To maintain operations (37 466) (41 305) (78 242)
- To expand operations (118 610) (131 504) (295 586)
Proceeds on disposal of property, plant and equipment and
intangible assets 3 615 83 1 123
Acquisition of subsidiary and assets and liabilities in business
combination, net of cash acquired (69 726) (17 000) (23 345)
Cash flow from financing activities (104 853) (100 835) (107 577)
Long-term loans repaid (75 000) (76 000) (153 410)
Contingent consideration paid (23 133) (22 941) (22 941)
Finance lease repayment (6 720) (1 894) (6 226)
Change in ownership interest in subsidiary - - 75 000
Net increase/(decrease) in cash and cash equivalents 57 631 (103 500) (155 154)
Cash and cash equivalents at beginning of year (27 515) 127 639 127 639
Cash and cash equivalents at end of year 30 116 24 139 (27 515)
EARNINGS PER SHARE
Restated* Restated*
Six months to Six months to Year to
31 August 31 August 28 February
2018 2017 2018
(Reviewed) (Reviewed) (Reviewed)
R'000 R'000 R'000
Reconciliation of profit for the year to headline earnings
Profit attributable to equity holders of the parent 445 011 402 877 684 254
Net loss/(profit) on disposal of property, plant and equipment
and intangible assets 16 (78) (25)
Taxation (4) 23 7
Headline earnings 445 023 402 822 684 236
Earnings per share (cents)
- Basic 51.7 46.8 79.6
- Diluted 51.7 46.8 79.6
Headline earnings per share (cents)
- Basic 51.7 46.8 79.6
- Diluted 51.7 46.8 79.6
* Refer to note 2
Six months to Six months to Year to
31 August 31 August 28 February
2018 2017 2018
(Reviewed) (Reviewed) (Reviewed)
Reconciliation of shares in issues to weighted average number of
shares in issue
Total number of shares in issue at beginning of the period 860 084 483 859 273 673 859 273 673
Shares issued during the year weighted for the period
outstanding - 788 777 799 703
Total weighted number of shares in issue at the end of the 860 062 450 860 073 376
period 860 084 483
Share options issued during the period 109 710 - -
Total diluted weighted number of shares in issue at the end of
the period 860 194 193 860 062 450 860 073 376
SEGMENTAL INFORMATION
The Group has identified two reportable segments being Retail and Wholesale.
Intergroup/
Retail Wholesale consolidation Total
Six months to 31 August 2018 (reviewed) R'000 R'000 R'000 R'000
External customers 9 600 518 864 425 - 10 464 943
Inter-segment - 6 569 466 (6 569 466) -
Total turnover 9 600 518 7 433 891 (6 569 466) 10 464 943
Cost of sales (7 298 752) (6 813 360) 6 253 970 (7 858 142)
Gross profit 2 301 766 620 531 (315 496) 2 606 801
Other income 489 029 27 842 (45 204) 471 667
Total income 2 790 795 648 373 (360 700) 3 078 468
Other expenses (excluding depreciation and
amortisation) (1 958 236) (673 540) 354 129 (2 277 647)
Depreciation and amortisation (75 459) (20 361) - (95 820)
Net finance costs (46 264) (30 400) - (76 664)
Profit/(loss) before tax 710 836 (75 928) (6 571) 628 337
Earnings before interest, tax, depreciation and
amortisation (EBITDA) 832 559 (25 167) (6 571) 800 821
Capital expenditure (130 346) (25 730) - (156 076)
Total assets 6 446 516 4 747 462 (2 776 975) 8 417 003
Total liabilities 3 952 676 3 612 125 (1 181 929) 6 382 872
Gross profit margin 24.0% 8.3% 24.9%
EBITDA margin 8.7% (0.3%) 7.7%
Operating margin 7.9% (0.6%) 6.7%
Intergroup/
Retail Wholesale consolidation Total
Restated six months to 31 August 2017 (reviewed)* R'000 R'000 R'000 R'000
External customers 8 746 467 822 145 - 9 568 612
Inter-segment - 5 637 759 (5 637 759) -
Total turnover 8 746 467 6 459 904 (5 637 759) 9 568 612
Cost of sales (6 620 092) (5 894 438) 5 317 172 (7 197 358)
Gross profit 2 126 375 565 466 (320 587) 2 371 254
Other income 352 034 15 339 (27 066) 340 307
Total income 2 478 409 580 805 (347 653) 2 711 561
Other expenses (excluding depreciation and
amortisation) (1 726 740) (578 755) 336 676 (1 968 819)
Depreciation and amortisation (69 295) (22 473) - (91 768)
Net finance costs (53 154) (32 418) - (85 572)
Profit/(loss) before tax 629 220 (52 841) (10 977) 565 402
Earnings before interest, tax, depreciation and
amortisation (EBITDA) 751 669 2 050 (10 977) 742 742
Capital expenditure (108 385) (64 424) - (172 809)
Total assets 5 255 101 4 057 387 (2 879 971) 6 432 517
Total liabilities 3 133 450 2 725 018 (913 774) 4 944 694
Gross profit margin 24.3% 8.8% 24.8%
EBITDA margin 8.6% 0.0% 7.8%
Operating margin 7.8% (0.3%) 6.8%
Intergroup/
Retail Wholesale consolidation Total
Restated twelve months to 28 February 2018 (reviewed)* R'000 R'000 R'000 R'000
External customers 17 906 653 1 572 900 - 19 479 553
Inter-segment - 11 481 381 (11 481 381) -
Total turnover 17 906 653 13 054 281 (11 481 381) 19 479 553
Cost of sales (13 538 580) (12 063 447) 10 892 011 (14 710 016)
Gross profit 4 368 073 990 834 (589 370) 4 769 537
Other income 704 331 47 686 (65 746) 686 271
Total income 5 072 404 1 038 520 (655 116) 5 455 808
Other expenses (excluding depreciation and
amortisation) (3 626 131) (1 166 498) 635 353 (4 157 276)
Depreciation and amortisation (132 561) (40 891) - (173 452)
Net finance costs (101 945) (58 137) - (160 082)
Profit/(loss) before tax 1 211 767 (227 006) (19 763) 964 998
Earnings before interest, tax, depreciation and
amortisation (EBITDA) 1 446 273 (127 978) (19 763) 1 298 532
Capital expenditure (308 842) (64 986) - (373 828)
Total assets 5 253 133 4 332 658 (2 450 426) 7 135 365
Total liabilities 3 218 692 3 117 477 (886 943) 5 449 226
Gross profit margin 24.4% 7.6% 24.5%
EBITDA margin 8.1% (1.0%) 6.7%
Operating margin 7.3% (1.3%) 5.8%
* Refer to note 2
FAIR VALUE HIERARCHY
The information below analyses financial assets and liabilities that are carried at fair value or financial assets and
liabilities that have carrying amounts that differ from their fair values:
Level 1 Level 2 Level 3
August 2018 R'000 R'000 R'000
Financial liabilities at fair value through profit and loss
- Contingent consideration - - 57 527
August 2017
Financial liabilities at fair value through profit and loss
- Contingent consideration - - 78 146
February 2018
Financial liabilities at fair value through profit and loss
- Derivative liability - 1 500 -
- Contingent consideration - - 76 249
The derivatives represent forward exchange contracts (FECs). The fair value of the FEC liability is measured
with reference to market data. The key input into this valuation is the forward exchange rate as provided by a
reputable bank.
The fair value of the contingent consideration payable is measured with reference to the performance forecasts
which can be used to estimate future cash flows. The key inputs into this valuation are the estimated future cash
flows and the average discount rate of 11.4% (2017: 12.9%) used to determine the present value of the future
cash flows.
As at As at As at
31 August 31 August 28 February
2018 2017 2018
(Reviewed) (Reviewed) (Reviewed)
R'000 R'000 R'000
Reconciliation of recurring Level 3 fair value movements:
Opening balance 76 249 97 312 97 312
Payments (23 133) (22 941) (22 941)
Interest 4 411 5 890 10 744
Release to other income (1)
- (2 115) (10 735)
Fair value adjustment - - 1 869
Closing balance 57 527 78 146 76 249
(1) Relates to an amount, reflected in other income, that was not paid by the Company due to performance conditions not being met
and expected future performances not being met.
A reasonable movement in the unobservable inputs would not significantly impact the fair value of the contingent
consideration as at the end of the reporting period and therefore not significantly impact profit after tax or equity.
There were no transfers of financial instruments between Level 1, Level 2 and Level 3 fair value measurements
during the period ended August 2018 and 2017.
COMMITMENTS
As at As at As at
31 August 31 August 28 February
2018 2017 2018
(Reviewed) (Reviewed) (Reviewed)
R'000 R'000 R'000
Operating lease commitments
- Within one year 450 299 396 303 437 145
- Two to five years 1 624 226 1 551 222 1 652 874
- Over five years 954 533 1 056 864 1 064 360
Finance lease commitments
- Within one year 74 995 68 079 70 793
- Two to five years 288 697 304 982 292 726
- Over five years 1 161 107 1 268 942 1 187 783
ADDITIONAL INFORMATION
31 August 31 August 28 February
2018 2017 2018
Ordinary shares in issue: 860 084 483 860 084 483 860 084 483
Closing share price (R/share) R33.83 R29.50 R34.40
Six-month (twelve-month) share price (high) (R/share) R38.00 R30.60 R39.95
Six-month (twelve-month) share price (low) (R/share) R25.57 R21.50 R21.40
Net asset value per share (WANOS) (cents/share) 236.5 173.0 196.0
Net asset value per share (actual shares at
year-end) (cents/share) 236.5 173.0 196.0
NOTES TO THE REVIEWED INTERIM CONDENSED CONSOLIDATED RESULTS
1. These interim condensed consolidated financial results for the six months ended 31 August 2018 have been
prepared in accordance with International Financial Reporting Standards (IFRS), International Accounting
Standard (IAS) 34 Interim Financial Reporting, the SAICA Financial Reporting Guides as issued by the
Accounting Practices Committee, the Financial Pronouncements as issued by the Financial Reporting Standards
Council, the requirements of the Companies Act of South Africa and the JSE Listings Requirements. The interim
condensed consolidated financial statements do not include all the information and disclosures required in the
annual financial statements, and should be read in conjunction with the Group's annual financial statements as
at 28 February 2018.
The directors take full responsibility for the preparation of these interim condensed consolidated financial
results, which has been prepared under the supervision of Mr Rui Morais CA(SA), the Chief Financial Officer of
the Group.
The accounting policies and methods of computation used in the preparation of the interim condensed
consolidated financial results are consistent in all material respects with those applied in the Group's annual
financial statements as at 28 February 2018, except for the adoption of IFRS 15 and IFRS 9 the impact of which
is shown in note 2. None of the other new standards, interpretations and amendments effective as of 1 March
2018 have had a material impact on the annual consolidated financial statements of the Group or the interim
condensed consolidated financial statements of the Group.
The Group's assessment of the financial impact of the adoption of IFRS 16: Leases has identified the following
which will impact the financial results when adopted:
- IFRS 16: Leases, predominately relating to stores, will be brought onto the Statement of Financial Position.
The quantitative impact of this standard is expected to be material due to the number of store leases in
place. Due to new leases being entered into and lease renewals occurring on a regular basis the exact
amount of the impact of the new standard is difficult to estimate. The Group currently intends to adopt
IFRS 16 by applying the full retrospective approach. Effective from 1 January 2019.
2. Restatement of comparative figures
The Group adopted IFRS 15, 'Revenue from Contracts with Customers' in the current financial period and
elected to apply the standard on a full retrospective basis whereby the cumulative effect of the retrospective
application is recognised by adjusting the opening retained profits for the earliest comparative period
presented (which for the Group is the comparative period beginning on 1 March 2017). None of the practical
expedients were used in the restatement. The impact has resulted in the recognition of a right to return liability
and right to return asset on a gross basis. Another IFRS 15 key area of impact are the changes in the principal
versus agent recognition of third party vouchers and coupons whereby these transactions are now recognised
on a net basis.
In addition, a new sub-total line has been disclosed on the face of the Statement of Comprehensive Income
called Total income. This additional line item has been included in order to show the total of gross profit and
other income for the period in order to give information that Dis-Chem believes is important to a user of the
financial statements.
August 2017 Adjusted
(previously stated) Restatement Total
R'000 R'000 R'000
Statement of Financial Position
Trade and other receivables 1 068 952 5 074 1 074 026
Trade and other payables (2 845 702) (6 411) (2 852 113)
Deferred taxation 150 682 374 151 056
Retained loss 3 703 067 963 3 704 030
Statement of Comprehensive Income
Revenue from contracts with customers 9 605 723 (37 111) 9 568 612
Cost of sales (7 234 576) 37 218 (7 197 358)
Gross profit 2 371 147 107 2 371 254
Taxation (155 969) (30) (155 999)
2 215 178 77 2 215 255
Basic and diluted earnings per share (cents) 46.8 46.8
February 2018 Adjusted
(previously stated) Restatement Total
R'000 R'000 R'000
Statement of Financial Position
Trade and other receivables 1 113 313 5 542 1 118 855
Trade and other payables (3 255 259) (7 021) (3 262 280)
Deferred taxation 181 431 414 181 845
Retained earnings (98 546) 1 065 (97 481)
Statement of Comprehensive Income
Revenue from contracts with customers 19 560 462 (80 909) 19 479 553
Cost of sales (14 790 890) 80 874 (14 710 016)
Gross profit 4 769 572 (35) 4 769 537
Taxation (266 706) 10 (266 696)
4 502 866 (25) 4 502 841
Basic and diluted earnings per share (cents) 79.6 79.6
Revenue from contracts with customers can be further disaggregated between the following retail categories:
As at As at As at
31 August 31 August 28 February
2018 2017 2018
% % %
Dispensary 37 37 37
Personal care and beauty 27 27 27
Healthcare and nutrition 20 20 20
Baby care 6 6 7
Other 10 10 9
100 100 100
3. Dis-Chem enters into certain transactions with related parties. A finance lease was previously entered into with
Columbia Falls Property 7 Proprietary Limited on which rental of R31 million was incurred during the six-month
period (2017: R30 million). This finance lease obligation amounted to R617 million at 31 August 2018 (2017:
R621 million). Rental paid to other related party property companies amounted to R35 million at 31 August
2018 (2017: R23 million).
Amounts owing from MSDS No.3 Proprietary Limited, Eleador Proprietary Limited and Mathimba Proprietary
Limited at 31 August 2018 amounted to R21 million, R3 million and R22 million respectively (2017: R43 million,
R3 million and Rnil respectively). Amounts owing to Josneo Proprietary Limited and Minlou Proprietary
Limited at 31 August 2018 amounted to R12 million and R2 million respectively (2017: R37 million and
R2 million respectively).
Amounts owing from Dis-Chem Bothamed, Dis-Chem Namibia, Dis-Chem Swakopmund, Dis-Chem Dunes and
Geniob (all Proprietary Limited's) at 31 August 2018 amounted to R59 million (2017: R12 million).
4. There were no impairments of assets in the current and prior comparable period.
5. During the period, no shares were issued (2017: 810 810 shares worth R15 million).
On 1 June 2018, 276 269 shares on the Forfeitable Share Plan and 1 325 970 options on the Share Appreciation
Rights Plan were awarded and accepted.
6. During June 2018, the group acquired 100% of the shares of Bemax Proprietary Limited, an import company
of retail products. The main shareholder of this company is a related party to key management personnel of
Dis-Chem Pharmacies Limited and received 80% of the purchase consideration transferred.
The provisional fair values of the identifiable assets and liabilities of the company as at the date of
acquisition were:
Assets R'000
Property, plant and equipment 112
Trade and other receivables 11 952
Inventories 17 091
Other intangibles 15 623
Liabilities
Trade and other payables (5 586)
Bank overdraft (376)
Taxation owing (2 462)
Deferred tax (4 374)
Total identifiable net assets at fair value 31 980
Non-controlling interest -
Goodwill arising on acquisition 37 370
Purchase consideration transferred 69 350
The goodwill comprises the value of expected synergies arising from the acquisition which is not separately
recognised.
The previous owners of Bemax, to ensure an alignment of interest, will also be entitled to an additional payment
of a percentage of Bemax's net profit after tax as long as they are still employed by Dis-Chem and meet certain
performance conditions.
During the current year, the Group sold 10% of their interest in Dis-Chem Jubilee Proprietary Limited for
R1.3 million and 25% of their interest in Dis-Chem Ballito Lifestyle Proprietary Limited for an additional 5%
interest in Dis-Chem Ballito Junction Proprietary Limited.
In the prior year on 1 April 2017, the group acquired certain assets and liabilities of Optipharm Proprietary
Limited, a pharmaceutical courier.
The fair values of the identifiable assets and liabilities of the company as at the date of acquisition were:
Assets R'000
Property, plant and equipment and software 16 027
Trade receivables 8 767
Other intangibles 121 273
Cash and cash equivalents 5 082
Liabilities
Finance lease (1 272)
Trade and other payables (173 989)
Bank overdraft (25 000)
Loan payable (10 000)
Deferred tax (33 849)
Total identifiable net assets at fair value (92 961)
Non-controlling interest at fair value -
Goodwill arising on acquisition 92 961
Purchase consideration transferred -
The goodwill comprises the value of expected synergies arising from the acquisition which is not separately
recognised.
7. No material subsequent events have taken place since reporting date, except for the potential acquisition of
Quenets Proprietary Limited and Springbok Proprietary Limited.
Both acquisitions are awaiting Competition Commission approval and therefore control has not yet passed
to Dis-Chem.
8. These reviewed interim condensed consolidated results have been reviewed by independent external auditors,
Ernst & Young Inc. and their unmodified review report is available for inspection at the Company's registered
office. The review was performed in accordance with ISRE 2410, Review of Interim Financial Information
Performed by the Independent Auditor of the Entity. Any reference to future financial performance included in
this announcement has not been reviewed or reported on by the Group's external auditors.
Shareholders are advised that in order to obtain a full understanding of the nature of the auditor's engagement,
they should obtain a full copy of the auditor's report from Dis-Chem's registered office.
SUPPLEMENTARY INFORMATION
Directors
Independent non-executive directors
LM Nestadt (South African)
MJ Bowman (South African)
A Coovadia (South African)
JS Mthimunye (South African)
MSI Gani (South African)
Executive directors
IL Saltzman (South African)
LF Saltzman (South African)
RM Morais (South African)
SE Saltzman (South African) (Alternate for L F Saltzman)
Company registration number
2005/009766/06
Registered office
23 Stag Road
Midrand
1685
Company secretary
WT Green
Registered auditors
Ernst & Young Inc.
102 Rivonia Road
Sandton
Johannesburg
2196
South Africa
JSE code
DCP
ISIN
ZAE000227831
Sponsor
The Standard Bank of South Africa Limited
3rd Floor, East Wing
30 Baker Street
Rosebank
2196
Johannesburg
Transfer secretaries
Computershare Investor Services Proprietary Limited
Rosebank Towers
15 Biermann Avenue
Rosebank
Johannesburg
2196
www.dischemgroup.com
Midrand 17 October 2018
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