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Summarised group financial statements for the year ended 31 December 2018 and cash dividend declaration
HOMECHOICE INTERNATIONAL PLC
(Incorporated in Malta)
Registration number: C66099
JSE share code: HIL
ISIN: MT0000850108
("HIL" or "the group")
SUMMARISED GROUP FINANCIAL STATEMENTS
for the year ended 31 December 2018 and cash dividend declaration
FINANCIAL HIGHLIGHTS
Steady growth in a difficult retail environment
Attracted 265 000 new customers
Revenue +8.5% to R3.2 billion
Credit extended on digital channels +43.9% to 38.5% of all credit
Cash generated from operations +32.0% to R474 million
Operating profit +2.6% to R763 million
Earnings per share +2.1% to 506.8 cents
Final dividend 99.0 cents/total dividend +1.6% to 194.0 cents per share
Strong growth in Financial Services
Retail growth disappointing in second half
COMMENTARY
INTRODUCTION
HomeChoice International plc is an investment holding company listed on the JSE Limited. The group
is a leading participant in the retail homeware and financial services sectors to the expanding urban
middle-income mass market in southern Africa. It has serviced this market for more than 30 years and
has built up a loyal, primarily female, customer base of more than 870 000 active customers. The group
operates through two trading operations, Retail and Financial Services.
Restated
31 Dec 31 Dec
2018* 2017** % change
Group
Revenue (Rm) 3 247 2 993 8.5
EBITDA (Rm) 821 793 3.6
EBITDA margin (%) 25.2 26.5
Operating profit (Rm) 763 744 2.6
Operating profit margin (%) 23.5 24.8
Headline EPS (HEPS) (cents) 507.7 504.1 0.7
Cash generated from operations (Rm) 474 359 32.0
Final dividend declared/paid (cents) 99 109 (9.2)
Total dividend (cents) 194 191 1.6
Retail
Revenue (Rm) 2 501 2 328 7.4
Retail sales (Rm) 1 860 1 749 6.3
Gross profit margin (%) 49.6 51.2
EBITDA (Rm) 453 467 (2.9)
EBITDA margin (%) 18.1 20.1
Financial Services
Loan disbursements (Rm) 1 784 1 468 21.5
Revenue (Rm) 746 665 12.2
EBITDA (Rm) 357 314 13.7
EBITDA margin (%) 47.8 47.2
* IFRS 9, Financial Instruments, adopted effective 1 January 2018. IAS 39 applied for 2017 financial year.
** Restated based on the application of IFRS 15, Revenue from Contracts with Customers.
The Retail business is an omni-channel retailer on a digital transformation journey, with considerable
expertise in both merchandise and credit management to the mass market. We provide the customer with
the convenience to shop with us through their preferred channel, utilising digital platforms,
contact centres, sales agents' networks and showrooms. The Retail product offering comprises a curated
range of quality homewares and textiles under the trusted HomeChoice brand, as well as an increasing
contribution from electronics, home appliances and footwear, featuring some 120 well-known external
brands. Affordable and accessible credit enables our customers to create a home they love.
Our Financial Services business is a FinTech business with a contact centre providing digital support.
The 24/7 provision of personal lending, value-added services and insurance products to a growing
mobi-savvy target market puts customers in control of their financial well-being.
TRADING PERFORMANCE
Group revenue increased by 8.5% to R3.2 billion, with a solid contribution from the Financial Services
business with loan disbursements up 21.5%. This was diluted by weaker Retail sales of 6.3% growth,
largely attributable to significant upheavals at South African Post Office (SAPO), currently a key
delivery business partner of HomeChoice.
Pleasingly, the group continues to attract new customers with more than 20 000 acquired monthly.
The group's customer base increased by 10.0% over the period.
The group's strategy to diversify its income streams beyond finance income was boosted by fees from
ancillary services, comprising insurance and service fees, increasing by 19.3% to R371 million.
Gross profit reduced to 49.6% with higher marketing and fulfilment costs and an increase in promotional
activity in response to sales challenges.
Group earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 3.6% to
R821 million. A reduction in expenses could not sufficiently mitigate the weaker top-line growth.
As a result the EBITDA margin declined by 130 bps to 25.2%.
Operating profit increased by 2.6% to R763 million. Headline earnings increased by 1.3% to R529 million
and HEPS increased by 0.7% to 507.7 cents.
The group declared a final dividend of 99.0 cents, bringing the total dividend for the year to
194.0 cents per share, up 1.6% on the previous year. A dividend cover of 2.6 times was maintained.
Digital transformation is a key strategic focus across the group. Credit extended via digital channels
increased by 43.9% to R1.6 billion and now accounts for 38.5% (2017: 32.4%) of total credit extended.
The rapid adoption of FinChoice MobiMoneyTM, our three-month digital-only facility product, has
increased transactions generated on digital platforms to 81.4% of all loan transactions (2017: 70.7%).
RETAIL
Disappointing second-half performance impacts full year
Retail revenue increased by 7.4% to R2.5 billion. After a strong sales growth of 18.9% in H1 the
second half of the year was characterised by significant delays in SAPO delivery of catalogues and
parcels. This lasted for four of the six months culminating in a 2.5% reduction in H2 sales.
Catalogues currently serve as the primary showcase of our products and drive engagement to shop.
The non-delivery of monthly catalogues had a substantial impact on sales. The group spent significant
effort to assist SAPO to deliver the catalogues by pre-sorting with direct delivery to hubs, bypassing
the mail centres which were experiencing the backlogs. We also accelerated the roll-out of our
showrooms and container hubs to provide additional channels for clients to collect their merchandise.
Further, new customer sales were lower than expected due to poor execution of TV campaigns.
Advertised merchandise veered away from our more traditional HomeChoice formula and resulted in
an over-investment in stock.
Gross profit margin declined to 49.6% from the 51.2%. In response to the challenges, higher promotional
activity was required to clear stocks and drive sales, resulting in lower average order values in H2.
Fulfilment expenses increased as deliveries were moved from SAPO to more expensive courier options to
ensure customers were able to receive their orders. The distribution contribution of SAPO reduced from
23% to less than 15% at the height of the backlog and will be reduced to 10% in 2019.
Despite these headwinds Retail added 250 000 new customers during this period. The contribution from
external brands has increased to 16.0% with more than 120 external retail brands on offer. Supporting
the private label, the brands provide variety to existing customers and attract new customers looking
for quality homeware, fashion, furniture and personal electronics.
Digital sales contributed 16.3% (2017: 15.4%) of Retail sales. Implementation of the new e-commerce
site was delayed to early 2019 with limited upgrades to the existing engine. This resulted in
slower digital usage. We expect to finally be able to capitalise on the new engine's extensive
capabilities in 2019.
Retail continued to invest in omni-channel with the roll-out of showrooms in key locations.
One showroom was opened in H1 and a further three showrooms were opened in H2, including a flagship
on Rissik Street, Johannesburg. A trial of two ChoiceCollect containers were launched in townships
near Cape Town. These containers will serve a dual purpose - providing a click and collect location
close to customers' homes, as well as the ability to place orders. We are pleased with the customer
response from the showrooms and ChoiceCollect, with further roll-outs planned for 2019.
The impact of the disappointing sales and lower gross profit, as well as the investment in strategic
growth pillars, have translated in an EBITDA decrease of 2.9% to R453 million. The business is,
however, well positioned to continue its strong historical performance in 2019.
FINANCIAL SERVICES
Acceleration in digital adoption
Revenue increased by 12.2% to R746 million, supported by an increase in finance income of 10.1% and
a 17.6% growth in ancillary fees and insurance income. EBITDA grew by 13.7% to R357 million,
highlighting the annuity aspect of the Financial Services business.
Loan disbursements increased by 21.5% to R1.8 billion. Pleasingly, loans to existing customers
increased to 84.5% (2017: 79.1%) of total disbursements, with strong acceptance of the three-month
digital-only facility product FinChoice MobiMoneyTM.
46 000 new customers were acquired during the year, increasing the base by 11.4% to 176 000.
Financial Services has traditionally leveraged the Retail customer base using data analytics,
payment performance, and risk and response scorecards to offer products to selected qualifying
Retail customers. This has resulted in consistently strong credit performance from this preselected
base. A complementary strategy to acquire external customers from digital affiliate sites was
pursued, adding 14 000 additional "digital ready" customers to the base. Credit performance from
this strategy was conservatively managed, using lower credit limits and shorter term loans to
control exposure.
Financial Services continues to grow as a leading FinTech platform in the mass market. With both a
USSD and mobi offering, 86% of customers are now registered on our digital platforms. The innovative
MobiMoney product has been well received by customers and has further accelerated digital adoption
and engagement. The short term nature of the product was instrumental in reducing the average loan
term from 20.4 months to 19.7 months and loan size from R10 444 to R9 474.
The richer mobi platform creates a portal for a multitude of products and value-added services to
be offered to customers via their smartphones. The introduction of airtime, data bundles and
electricity sales has indicated the potential opportunity to increase customers' digital engagement
with the group.
Insurance has demonstrated strong growth in the current funeral product offering. Gross written
premiums increased by 70% over 2017. The opportunity remains to add more personal insurance products
to the portfolio. This vertical represents an attractive growth opportunity to diversify income and
increase customers' share of wallet.
MANAGING CREDIT RISK
The group continued to grow a quality credit book with gross trade and loan receivables increasing
by 7.5% (on an IFRS 9 comparable basis) to R3.5 billion. Group debtor costs, at 17.2% of revenue,
was marginally above the 16.8% in 2017 and remains within the group's acceptable risk tolerances.
Credit performance for the period is summarised below:
31 Dec % change
2017 31 Dec on
31 Dec (compar- 2017 compar-
2018* able)** (restated)*** able
Group
Gross trade and loans receivable (Rm) 3 464 3 222 3 136 7.5
Debtor costs as a % of revenue**** (%) 17.1 16.8
Retail
Number of active accounts 600 789 580 895
Active accounts able to purchase (%) 70.3 70.0
Gross trade and loans receivable (Rm) 1 865 1 829 1 784 2.0
Debtor costs as a % of revenue (%) 14.9 14.9
Provision for impairment as a % of
gross receivables (%) 19.3 21.0 17.9
Non-performing loans (NPLs) (>120 days) (%) 9.6 9.4 9.9
NPL cover (times) 2.0 2.2 1.8
Financial Services
Number of active accounts 143 303 120 140
Active accounts able to reloan (%) 88.5 88.4
Gross trade and loans receivable (Rm) 1 599 1 393 1 352 14.8
Debtor costs as a % of revenue (%) 24.7 23.2
Provision for impairment as a % of
gross receivables (%) 15.8 16.3 14.0
Non-performing loans (NPLs) (>120 days) (%) 4.1 4.2 4.2
NPL cover (times) 3.8 3.9 3.3
* IFRS 9, Financial Instruments, adopted effective 1 January 2018.
** 2017 assuming IFRS 9, Financial Instruments, adopted.
*** Restated based on the application of IFRS 15, Revenue from Contracts with Customers. IAS 39
applied for 2017 financial year.
**** Debtor costs include bad debts written off net of recoveries, as well as movements in provisions.
Retail debtor costs as a percentage of revenue was stable at 14.9% (2017: 14.9%). The implementation
of a new fraud prevention tool, introduction of an additional credit bureau and pre-scoring for
TV campaigns have translated into improved Retail vintages. Provision for impairment of trade
receivables has decreased to 19.3% (comparable 2017: 21.0%) with a marginal decline in the NPL cover
of 2.0 times, which remains conservative.
Financial Services' debtor costs as a percentage of revenue increased to 24.7% (2017: 23.2%).
The increase is primarily attributable to higher write-offs arising from disbursements booked early
in 2018, off-set by improved recoveries from external debt collectors and a profitable book sale of
written off accounts. The provision for impaired loans has decreased to 15.8% (comparable 2017: 16.3%)
of the book, marginally decreasing the NPL cover from 3.9 to 3.8 times, which remains very
conservative. The Financial Services' business continues to benefit from lending primarily to
targeted Retail customers who have demonstrated good payment behaviour.
STRONG CASH GENERATION
Cash generated from operations increased by 32.0% to R474 million, driven by a decrease in Retail
credit growth in H2, good cash collections, a reduction in loan terms and actively managing cash
requirements in working capital. Consequently, the cash conversion rate (cash generated from
operations expressed as a percentage of EBITDA) increased to 57.7%. The strong cash generation
capability of the business is evidenced by the fact the group has managed to grow a gross credit
book of more than R3.5 billion while maintaining a net debt to equity ratio (excluding property)
of 22.2%.
The total net debt to equity ratio has decreased from 28.2% at December 2017 to 27.6%, comfortably
below the board's upper limit of 40.0%.
Capital expenditure, at R126 million, has increased notably in this period. The group has invested
in an additional distribution centre to support future growth, new channels by rolling out showrooms
and ChoiceCollect containers, and technology. Capital expenditure will continue around these levels
for 2019.
APPLICATION OF NEW ACCOUNTING STANDARDS
As required by International Financial Reporting Standards (IFRS), the group has adopted IFRS 15,
Revenue from Contracts with Customers and IFRS 9, Financial Instruments with effect from 1 January 2018.
IFRS 9 is the new standard for disclosure and measurement of financial instruments. IFRS 9 requires that
the group classifies and measures receivables at fair value, with any changes in that fair value
recognised in the income statement as and when they arise. Using an expected credit loss model,
the group determines the allowance for credit losses on a discounted basis it would incur in various
default scenarios. The increase in provision (R102 million), has had the effect of increasing
provisions by 20%, as shown in the debtors table above. The impact of other recoveries has mitigated
the adjustment to retained earnings to R11 million.
IFRS 15 aligns the recognition of revenue earned to the time period in which the transfer of the
goods and services takes place to the customer. The impact of the retrospective adoption of IFRS 15
on revenue is not material for the 2018 and 2017 financial years.
OUTLOOK
Fundamental support for the economy remains muted and expectations are generally for a slow recovery.
Our vision is to provide for our customers' lifestyle through digitally focused and innovative retail
and financial services products and to continue to position ourselves as a leading digital player in
the mass market. We are pleased with the traction that we have gained across a broad spectrum of
strategic initiatives in 2018, despite operational challenges in Retail.
Technology is a key enabler in our journey to become a leading digital retailer. We will continue
to invest in product innovation, digitalisation and enhancing the customer experience to deliver an
engaging and consistent retail and financial services offering.
We are committed to continue to drive this vision and are well positioned to drive growth.
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, 14 March 2019
DIVIDEND DECLARATION
Notice is hereby given that the board of directors has declared a final gross cash dividend of
99.0000 cents (79.2000 cents net of dividend withholding tax) per ordinary share for the year ended
31 December 2018. The dividend has been declared from income reserves. HIL is registered in the
Republic of Malta and the dividend is a foreign 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 104 909 401 ordinary shares.
The salient dates for the dividend will be as follows:
Last day of trade to receive a dividend Tuesday, 9 April 2019
Shares commence trading "ex" dividend Wednesday, 10 April 2019
Record date Friday, 12 April 2019
Payment date Monday, 15 April 2019
Share certificates may not be dematerialised or rematerialised between Wednesday, 10 April 2019 and
Friday, 12 April 2019, both days inclusive.
G Said
Company Secretary
Qormi, Malta, 14 March 2019
SUMMARISED GROUP STATEMENT OF FINANCIAL POSITION
Restated*
2018 % 2017
Notes Rm change Rm
ASSETS
Non-current assets
Property, plant and equipment 464 8.2 429
Intangible assets 116 34.9 86
Investment in associates - <100 14
Financial assets at fair value through profit and loss 24 (20.0) 30
Deferred taxation 1 >100 -
605 8.2 559
Current assets
Inventories 2 304 18.3 257
Taxation receivable - <100 4
Trade and other receivables 3 2 903 9.9 2 642
Cash and cash equivalents 108 (16.9) 130
3 315 9.3 3 033
Total assets 3 920 9.1 3 592
EQUITY AND LIABILITIES
Equity attributable to equity holders of the parent
Stated and share capital 1 - 1
Share premium 3 005 - 3 003
Reorganisation reserve (2 961) - (2 961)
45 4.7 43
Treasury shares (3) - (3)
Other reserves 18 28.6 14
Retained earnings 2 624 13.2 2 319
Total equity 2 684 13.1 2 373
Non-current liabilities
Interest-bearing liabilities 756 22.7 616
Deferred taxation 66 (45.0) 120
Other payables 6 - 6
828 11.6 742
Current liabilities
Interest-bearing liabilities 92 (44.6) 166
Taxation payable 46 >100 8
Trade and other payables 267 10.8 241
Provisions 3 (92.1) 38
Derivative financial instruments - <100 5
Bank overdraft - <100 19
408 (14.5) 477
Total liabilities 1 236 1.4 1 219
Total equity and liabilities 3 920 9.1 3 592
* See note 1 for details regarding the restatement as a result of the adoption of IFRS 15.
SUMMARISED GROUP STATEMENT OF COMPREHENSIVE INCOME
Restated*
2018 % 2017
Notes Rm change Rm
Revenue 3 247 8.5 2 993
Retail sales 1 860 6.3 1 749
Finance income 1 016 8.9 933
Fees from ancillary services 371 19.3 311
Cost of retail sales (938) 10.0 (853)
Other operating costs (1 550) 10.1 (1 408)
Credit impairment losses 5 (557) 11.0 (502)
Other trading expenses 5 (993) 9.6 (906)
Other net gains and losses (5) 1
Other income 9 11
Operating profit 763 2.6 744
Interest received 3 7
Interest paid (89) (83)
Share of loss of associates (1) (9)
Profit before taxation 676 2.6 659
Taxation (148) (2.1) (145)
Profit and total comprehensive income for the year 528 2.7 514
Earnings per share (cents)
Basic 6 506.8 2.1 496.4
Diluted 499.8 1.6 491.7
* See note 1 for details regarding the restatement as a result of the adoption of IFRS 15.
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
Rm Rm Rm Rm Rm Rm Rm
Balance at 1 January 2017
as originally presented 1 2 999 (3) (2 961) 6 1 988 2 030
Change in accounting policy - - - - - (7) (7)
Restated balance as at 1 January 2017 1 2 999 (3) (2 961) 6 1 981 2 023
Changes in equity
Profit and total comprehensive income
for the year - - - - - 514 514
Shares issued - 4 - - - - 4
Dividends paid - - - - - (175) (175)
Share incentive schemes - - - - 7 - 7
Total changes - 4 - - 7 339 350
Balance at 1 January 2018 1 3 003 (3) (2 961) 13 2 320 2 373
Change on initial application of IFRS 9 - - - - - (11) (11)
Restated equity at the beginning
of the period 1 3 003 (3) (2 961) 13 2 309 2 362
Changes in equity
Profit and total comprehensive income
for the year - - - - - 528 528
Shares issued - 2 - - - - 2
Dividends paid - - - - - (213) (213)
Share incentive schemes - - - - 5 - 5
Total changes - 2 - - 5 315 322
Balance at 31 December 2018 1 3 005 (3) (2 961) 18 2 624 2 684
SUMMARISED GROUP STATEMENT OF CASH FLOWS
Restated*
2018 % 2017
Notes Rm change Rm
Cash flows from operating activities
Operating cash flows before working capital changes 809 0.4 806
Movements in working capital (335) (25.1) (447)
Cash generated from operations 7 474 32.0 359
Interest received 3 7
Interest paid (85) (78)
Taxation paid (156) (123)
Net cash inflow from operating activities 236 43.0 165
Cash flows from investing activities
Purchase of property, plant and equipment (70) (28)
Proceeds on disposal of property, plant and equipment 1 -
Purchase of intangible assets (56) (28)
Investment in associates 14 (12)
Financial assets at fair value through profit and loss 19 (8)
Net cash outflow from investing activities (92) 21.1 (76)
Cash flows from financing activities
Proceeds from the issuance of shares 2 4
Proceeds from interest-bearing liabilities 271 715
Repayments of interest-bearing liabilities (207) (700)
Finance-raising costs paid - (9)
Dividends paid (213) (175)
Net cash outflow from financing activities (147) (10.9) (165)
Net decrease in cash and cash equivalents and bank overdrafts (3) (76)
Cash, cash equivalents and bank overdrafts
at the beginning of the year 111 187
Cash, cash equivalents and bank overdrafts
at the end of the year 108 (2.7) 111
* See note 1 for details regarding the restatement as a result of the adoption of IFRS 15.
GROUP SEGMENTAL ANALYSIS
Financial
Total Retail Services Property Other Intragroup
2018 Rm Rm Rm Rm Rm Rm
Segmental revenue 3 305 2 501 746 58 - -
Retail sales 1 860 1 860 - - - -
Finance charges and initiation fees earned 1 016 484 532 - - -
Fees from ancillary services 429 157 214 58 - -
Intersegment revenue (58) - - (58) - -
Revenue from external customers 3 247 2 501 746 - - -
Total trading expenses (refer to note 5) 1 550 1 153 396 26 22 (47)
EBITDA 821 453 357 33 (22) -
Depreciation and amortisation (59) (54) (4) (1) - -
Interest received 3 - 2 - 66 (65)
Interest paid (62) - (63) - (64) 65
Segmental operating profit** 703 399 292 32 (20) -
Interest received - - - - - -
Interest paid (27) (5) - (22) - -
Profit before taxation 676 394 292 10 (20) -
Taxation (148) (89) (60) (3) 4 -
Profit after taxation 528 305 232 7 (16) -
Segmental assets 3 920 2 443 1 465 343 704 (1 035)
Segmental liabilities 1 236 583 816 278 594 (1 035)
Operating cash flows before working capital changes 809 444 354 33 (22) -
Movements in working capital (335) (134) (198) - (3) -
Cash generated/(utilised) by operations 474 310 156 33 (25) -
Capital expenditure
Property, plant and equipment 70 68 2 - - -
Intangible assets 56 45 3 - 8 -
Change in Retail sales (%) 6.3 6.3
Change in EBITDA (%) 3.6 (2.9) 13.7 (0.1) 6.3
Change in debtor costs (%) 11.0 6.9 20.1
Change in other trading expenses (%) 9.6 9.5 2.4 10.4 211.6
Gross profit margin (%) 49.6 49.6
Segmental results margin (%) 21.3 16.0 39.1 55.2
** Refer to note 8 for further details on segments and segmental results.
Financial
Total Retail Services Property Other Intragroup
2017 Restated* Rm Rm Rm Rm Rm Rm
Segmental revenue 3 049 2 328 665 56 - -
Retail sales 1 749 1 749 - - - -
Finance charges and initiation fees earned 933 450 483 - - -
Fees from ancillary services 367 129 182 56 - -
Intersegment revenue (56) - - (56) - -
Revenue from external customers 2 993 2 328 665 - - -
Total trading expenses (refer to note 5) 1 408 1 061 361 24 7 (45)
EBITDA 793 467 314 33 (21) -
Depreciation and amortisation (58) (53) (4) (1) - -
Interest received 4 - 4 - 61 (61)
Interest paid (54) - (57) - (58) 61
Segmental operating profit** 685 414 257 32 (18) -
Interest received 3 3 - - - -
Interest paid (29) (4) - (25) - -
Profit before taxation 659 413 257 7 (18) -
Taxation (145) (99) (46) 1 (1) -
Profit after taxation 514 314 211 8 (19) -
Segmental assets 3 592 2 137 1 387 341 1 015 (1 288)
Segmental liabilities 1 219 501 1 066 283 658 (1 289)
Operating cash flows before working capital changes 806 470 309 33 (7) -
Movements in working capital (447) (263) (180) (4) (1) -
Cash generated/(utilised) by operations 359 208 130 29 (8) -
Capital expenditure
Property, plant and equipment 28 26 - 2 - -
Intangible assets 28 20 8 - - -
Change in Retail sales (%) 16.8 16.8
Change in EBITDA (%) 13.0 11.1 20.3 5.0 94.0
Change in debtor costs (%) 5.0 10.5 (5.4)
Change in other trading expenses (%) 14.7 11.7 27.3 7.7 (26.2)
Gross profit margin (%) 51.2 51.2
Segmental results margin (%) 22.5 17.8 38.6 57.1
* See note 1 for details regarding the restatement as a result of the adoption of IFRS 15.
** Refer to note 8 for further details on segments and segmental results.
NOTES TO THE SUMMARISED GROUP FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
1.1 Basis of presentation
The group annual financial statements for the year ended 31 December 2018 and these
summarised consolidated financial statements have been prepared by the group's finance
department, acting under the supervision of P Burnett, CA(SA), finance director of the group.
The summary consolidated financial statements are prepared in accordance with the
requirements of the JSE Limited (JSE) for summarised financial statements. The JSE requires
summary 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 summary consolidated financial statements were derived
are in terms of IFRS and are consistent with those accounting policies applied in the
preparation of the previous group annual financial statements.
1.2 Changes in accounting policies
The following new standards, amendments and interpretations to existing standards,
relevant to the group's operations, became effective for the year ended 31 December 2018:
IFRS 2, Classification and Measurement of Share-based Payment Transactions; IFRS 9, Financial
Instruments with IFRS 4: Insurance Contracts - Amendments to IFRS 4; and IFRS 15, Revenue
from Contracts with Customers. The impact of the adoption of these standards are disclosed
as follows:
1.2.1 IFRS 9, Financial Instruments: Classification and Measurement - Impact of adoption
IFRS 9 addresses the classification, measurement and derecognition of financial assets
and financial liabilities, introduces new rules for hedge accounting and a new
impairment model for financial assets.
The adoption of IFRS 9, Financial Instruments from 1 January 2018 resulted in changes
in accounting policies and adjustments to the amounts recognised in the financial
statements.
The total impact on the group's retained earnings is as follows:
Notes Rm
Closing retained earnings at 31 December 2017 2 332
Net decrease in trade receivables (iii) (19)
Net increase in loans receivable (iii) 3
Increase in deferred tax assets relating to the above 5
Adjustment to retained earnings from adoption of IFRS 9 (11)
Opening retained earnings at 1 January 2018
(before restatement for IFRS 15) 2 321
(i) Classification and measurement
IFRS 9 requires all debt instruments to be classified and measured on the basis
of the entity's business model for managing the financial assets and the
contractual cash flow characteristics of the financial assets.
The group's management has assessed which business models apply to the
financial assets held by the group and has classified financial instruments
into the appropriate IFRS 9 categories.
There has been no change to the classification of the group's financial
liabilities and they continue to be classified and measured at amortised cost.
(a) All other financial assets
All of the group's other financial assets which were classified as loans and
receivables satisfy the conditions for classification at amortised cost
and hence there is no change to the classification and measurement of
these assets.
(ii) Derivatives and hedging activities
The group does not currently apply hedge accounting and continues to account
for forward exchange contracts at fair value through profit and loss.
(iii) Impairment of financial assets - expected credit loss model
IFRS 9 has introduced new expected credit loss (ECL) impairment requirements
that result in the earlier recognition of credit provisions. The ECL requirements
apply to debt financial assets measured at either amortised cost or at fair
value through other comprehensive income (OCI) (FVOCI), loan commitments
where there is a present commitment to extend credit (unless these are measured
at fair value through profit or loss (FVTPL)) and financial guarantees.
ECL is, at a minimum, required to be measured through a loss allowance at an
amount equal to the 12-month ECL of the financial asset. A loss allowance for
full lifetime ECL is required for a financial asset if the credit risk of that
financial instrument has increased significantly since initial recognition.
The group has the following types of financial assets measured at amortised
cost that are subject to IFRS 9's new ECL model:
- Trade receivables - Retail
- Loans receivable - Financial Services
- Other receivables
The group was required to revise its impairment methodology under IFRS 9 for
each of these classes of assets. The group applies the IFRS 9 general approach
to measuring expected credit losses for all trade, loans and other receivables.
The impact of the change in impairment methodology on the group's retained
earnings and equity is disclosed in the table above.
1.2.2 IFRS 15, Revenue from Contracts with Customers - Impact of adoption
IFRS 15, which replaces IAS 18, is based on the principle that revenue is recognised
when control of a good or service transfers to a customer.
The adoption of IFRS 15, Revenue from Contracts with Customers from 1 January 2018
resulted in changes in accounting policies and adjustments to the amounts recognised
in the financial statements.
The new accounting policies are set out in note 1.2.2(i) below. In accordance with
the transition provisions in IFRS 15 the group has adopted the new standard
retrospectively and has restated comparatives for the 2017 financial year.
The total impact on the group's retained earnings is as follows:
2017
Notes Rm
Opening retained earnings at 1 January before
IFRS 15 restatement (see note 1.2.3) 1 988
Restatement for finance income (i) (12)
Decrease in debtor costs (i) 2
Decrease in deferred tax liabilities (i) 3
Adjustment to retained earnings from adoption of IFRS 15 (7)
Opening retained earnings at 1 January after IFRS 15 restatement 1 981
(i) Accounting for finance income
In previous reporting periods a portion of initiation fees were allocated,
based on IAS 18 multiple element recognition criteria, to be recognised upfront
as part of revenue. This recognition criteria was applied to the separately
identifiable components of the transaction in order to reflect the substance
of the transaction.
IFRS 15 provides additional guidance on multiple element contracts and, based
on this guidance and the trade receivables being at fair value based on the
interest and initiation fees charged, it was determined that there are no
longer separately identifiable components with regards to initiation fees
charged to customers.
The impact of IFRS 15 on the financial statements is disclosed under
note 1.2.3 below.
1.2.3 Impact on the financial statements
The following tables sets out the impact of the changes in accounting policies and
retrospective adjustments made for each individual line item affected in the financial
statements. IFRS 9 was adopted without restating comparative information and the
impact is not reflected in the restated comparatives but recognised in the opening
statement of financial position on 1 January 2018.
Group statement of financial position
Audited Restated Restated
31 Dec 31 Dec 1 Jan
2017 IFRS 15 2017 IFRS 9 2018
Rm Rm Rm Rm Rm
Current assets
Trade receivables - Retail 1 482 (18) 1 464 (19) 1 445
Loans receivable - Financial Services 1 163 - 1 163 3 1 166
Equity
Retained earnings 2 332 (13) 2 319 (11) 2 308
Non-current liabilities
Deferred taxation 125 (5) 120 (5) 115
Audited Restated
31 Dec 31 Dec
2016 IFRS 15 2016
Rm Rm Rm
Current assets
Trade receivables - Retail 1 222 (10) 1 212
Equity
Retained earnings 1 988 (7) 1 981
Non-current liabilities
Deferred taxation 135 (3) 132
Audited Restated
year year
ended ended
Dec 2017 IFRS 15 Dec 2017
Rm Rm R'000
Group statement of comprehensive income
Revenue 3 003 (10) 2 993
Finance income 943 (10) 933
Other operating costs (1 410) 2 (1 408)
Credit impairment losses (504) 2 (502)
Other trading expenses (906) (906)
Operating profit 752 (8) 744
Profit before taxation 667 (8) 659
Taxation (147) 2 (145)
Earnings per share (cents)
Basic 501.9 (5.5) 496.4
Diluted 496.7 (5.0) 491.7
Group statement of cash flows
Cash flows from operating activities
Operating cash flows before working capital changes 814 (8) 806
Movement in working capital (455) 8 (447)
2. INVENTORIES
2018 2017
Rm Rm
Merchandise for resale 286 213
Provision for inventory obsolescence (15) (18)
Goods in transit 33 62
304 257
Inventory sold at less than cost during the current year amounted to R29 million (2017: R39 million).
3. TRADE AND OTHER RECEIVABLES
Restated*
2018 % 2017
Rm change Rm
Trade receivables - Retail 1 865 4.5 1 784
Provision for impairment (359) 12.2 (320)
1 506 2.9 1 464
Loans receivable - Financial Services 1 599 18.3 1 352
Provision for impairment (252) 33.3 (189)
1 347 15.8 1 163
Other receivables 50 >100 15
Total trade and other receivables 2 903 9.9 2 642
Total trade and loan receivables 3 464 10.5 3 136
Provision for impairment (611) 20.0 (509)
Other receivables 50 >100 15
Movements in the provision for impairment were as follows:
Retail
Opening balance (320) 12.7 (284)
Change on initial application of IFRS 9 (64)
Restated opening balance (384) (284)
Movement in provision 25 >100 (36)
Debtor costs charged to profit and loss (372) 6.9 (348)
Debts written off during the year, net of recoveries 397 27.2 312
Closing balance (359) 12.2 (320)
Financial Services
Opening balance (189) 6.2 (178)
Change on initial application of IFRS 9 (38)
Restated opening balance (227) (178)
Movement in provision (25) >100 (11)
Debtor costs charged to profit and loss (185) 20.1 (154)
Debts written off during the year, net of recoveries 160 11.9 143
Closing balance (252) 33.3 (189)
Retail
Debtor costs as a % of revenue (%) 14.9 14.9
Debtor costs as a % of gross receivables (%) 19.9 19.5
Provision for impairment as a % of gross receivables (%) 19.3 17.9
Financial Services
Debtor costs as a % of revenue (%) 24.7 23.2
Debtor costs as a % of gross receivables (%) 11.6 11.4
Provision for impairment as a % of gross receivables (%) 15.8 14.0
Group
Debtor costs as a % of revenue (%) 17.1 16.8
Debtor costs as a % of gross trade receivables (%) 16.1 16.0
Provision for impairment as a % of gross receivables (%) 17.6 16.2
* See note 1 for details regarding the restatement as a result of the adoption of IFRS 15.
4. EVENTS AFTER THE REPORTING DATE
No event material to the understanding of these summarised financial statements has occurred
between the end of the financial year and the date of approval.
5. TOTAL TRADING EXPENSES
Restated*
2018 % 2017
Rm change Rm
Expenses by nature
Credit impairment losses
Trade receivables - Retail 372 6.9 348
Loans receivable - Financial Services 185 20.1 154
Total credit impairment losses 557 11.0 502
Amortisation of intangible assets 25 (21.9) 32
Depreciation of property, plant and equipment 34 36.0 26
Operating lease charges for immovable property 3 >100 1
Total operating lease charges 8 - 8
Less: disclosed under cost of Retail sales (5) (28.5) (7)
Marketing costs 252 14.5 220
Staff costs 411 4.0 395
Total staff costs 485 10.0 441
Less: disclosed under cost of Retail sales (38) 44.4 (27)
Less: staff costs capitalised to intangibles (36) 89.4 (19)
Other costs 268 15.9 232
Total other trading expenses 993 9.6 906
1 550 10.1 1 408
* See note 1 for details regarding the restatement as a result of the adoption of IFRS 15.
6. 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:
Restated*
2018 2017
Rm Rm
Profit for the year 528 514
Adjusted for the after-tax effect of:
Impairment of investment in associate 1 4
Share of impairment of property, plant and equipment of associate - 4
Headline earnings 529 522
Weighted average number of ordinary shares in issue (million) 104.2 103.6
Earnings per share (cents)
Basic 506.8 496.4
Headline 507.7 504.1
Basic - diluted 499.8 491.7
Headline - diluted 500.8 499.4
* See note 1 for details regarding the restatement as a result of the adoption of IFRS 15.
7. RECONCILIATION OF CASH GENERATED FROM OPERATIONS
2018 % 2017
Rm change Rm
Profit before taxation 676 2.6 659
Share of loss of associate 1 (88.9) 9
Profit from insurance cells (13) - (13)
Impairment of investment in associate - (100) 5
Depreciation and amortisation 59 1.7 58
Share-based employee share expense 5 (28.6) 7
Exchange (losses)/profits on foreign exchange contracts (5) <(100) 5
Interest paid 85 10.4 77
Interest received (3) (57.1) (7)
Capitalised bond costs - amortised cost adjustment 4 (33.3) 6
Operating cash flows before working capital changes 809 0.4 806
Movements in working capital (335) (25.1) (447)
Increase in inventories (47) 9.3 (43)
Increase in trade receivables - Retail (63) (75.1) (253)
Increase in loans receivable - Financial Services (181) (6.2) (193)
(Increase)/decrease in other receivables (35) <(100) 9
Increase in trade and other payables 26 (3.7) 27
(Decrease)/increase in provisions (35) <(100) 6
474 32.0 359
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 companies, which own
commercial properties utilised mainly within the group, are included in the Property segment.
The Other segment relates mainly to the holding company's stand-alone results, as well as those
of its associates.
The chief operating decision-maker monitors the results of the business segments separately for
the purposes of making decisions about resources to be allocated and of assessing performance.
They assess the performance of Retail and Property segments based upon a measure of operating
profit and Financial Services and Other segments based on a measure of operating profit after
interest received and interest paid.
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. 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 5.
At 31 December the future minimum operating lease commitments amounted to the following:
2018 2017
Rm Rm
Properties
Payable within one year 16 8
Payable between two and five years 51 31
67 39
Suspensive sale agreements
Payable within one year 22 15
Payable between two and five years 41 14
63 29
Future finance charges on suspensive sale agreements (19) (3)
44 26
The present value of suspensive sale agreement payments is as follows:
Payable within one year 15 14
Payable between two and five years 29 13
44 27
Capital commitments for property, plant and equipment and intangible assets:
Approved by the directors 3 14
3 14
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 2018 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.
12. 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 the summarised report and that the financial
information has been correctly extracted from the underlying group annual financial statements.
DIRECTORATE
Non-executive directors
S Portelli* (Chairman), A Chorn*, R Garratt, E Gutierrez-Garcia, R Hain*, C Rapa*, A Ogunsanya (alternate)
* 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
Butterfield Bank (Jersey) Limited
JSE listing details
Share code: HIL
ISIN: MT0000850108
Sponsor
Rand Merchant Bank, a division of FirstRand Bank Limited
Transfer secretaries
Computershare Investor Services Proprietary Limited
18 March 2019
Date: 18/03/2019 08:45:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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