Wrap Text
Unaudited Interim Results For The Six Months Ended 31 March 2019
Pepkor Holdings Limited
(‘Pepkor’ or ‘the company’ or ‘the group’)
(Previously Steinhoff Africa Retail Limited)
(Incorporated in the Republic of South Africa)
Registration number: 2017/221869/06
Share code: PPH
ISIN: ZAE000259479
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 2019
HIGHLIGHTS
7.0% growth in revenue to R35.3bn
25.2% growth in operating profit(1) to R3.4bn
6.9% comparable(2) operating profit growth
39.9% increase in headline earnings per share to 50.7 cents
3.4% comparable(2) headline earnings per share growth to 52.4 cents
164 new stores opened during the period, totalling 5 332 stores
Internal funding of credit books commenced
(1) Before capital items
(2) Comparable results exclude one-off costs. Refer to the ‘Comparability of results’ section for further information.
OVERVIEW
The Pepkor group reported satisfactory results during the six months ended 31 March 2019 (H1FY19) in a challenging retail market.
Consumer spending remains under pressure, having to contend with increased living costs and high levels of unemployment. Uncertainty
prior to the 2019 elections, the implementation of stage four load-shedding and the shift of Easter to April further contributed
to a very challenging retail environment.
Respectable earnings growth on a comparable basis was achieved, notwithstanding lower than expected sales growth. Pepkor’s defensive
market positioning of offering value to customers by providing everyday products at affordable prices and at customers’ convenience,
underpins the group’s performance.
Pepkor grew its market share in the period under review, and the group’s retail store footprint expanded to 5 332 stores, including
164 new store openings during the six-month period.
FINANCIAL PERFORMANCE
The group achieved revenue growth of 7.0% to R35.3 billion and reported operating profit growth of 25.2%, before capital items,
to R3.4 billion during H1FY19.
Pepkor’s statutory results include one-off items that impact its comparison to the previous period. On a comparable basis, operating
profit increased by 6.9% to R3.4 billion and headline earnings per share increased by 3.4% to 52.4 cents. Further information
on how the comparable results were calculated is included in the ‘Comparability of results’ section of this results announcement.
Net finance costs increased by 33.5% to R738 million (29.8% to R718 million excluding one-off costs) as a result of the capital
investment made to fund the two new credit books and as a consequence of lower cash generation.
Pepkor’s effective tax rate for the period is 34.0%. South African income tax is calculated at 28% while tax in other jurisdictions
is calculated at the prevailing rates. Items impacting Pepkor’s effective tax rate relate mainly to irrecoverable foreign withholding
taxes and non-deductible finance costs.
The internal funding of the new credit books commenced during the reporting period. The new JD Group credit book, Connect Financial
Solutions, amounted to R1.0 billion (gross) and the new Capfin credit book amounted to R0.3 billion (gross) at 31 March 2019. The new
credit books are funded by R2.5 billion bridging finance secured during the period. Opportunities to diversify funding sources
are being explored.
Cash generation was negatively impacted by the funding of the new credit books and higher net working capital levels due to lower sales
growth. Higher inventory levels reported at the end of FY18 due to lower sales activity were successfully managed through disciplined
markdowns to manage stock freshness. Higher inventory levels at 31 March 2019 - compared to the prior year - were influenced by lower
than expected sales and the shift of Easter to April, as well as an expanded store base.
Net debt increased to R15.7 billion from R12.6 billion at 30 September 2018. The contractual net debt-to-EBITDA ratio of the group
is 2.04 times with interest cover at 5.65 times.
The acquisition of FGI Holdings from Wands Investments, a subsidiary of Fulcrum, was approved by the Competition Commission
and remains subject to conditions precedent, including Prudential Authority approval and a due diligence investigation.
FGI provides insurance products via its subsidiaries under the Abacus brand to JD Group customers and other group companies.
Steinhoff International Holdings N.V. (Steinhoff) published its 2017 results in May 2019. These financial statements included
a restatement for the reversal of the Steinhoff Share Right Scheme charges. The reversal of all costs pertaining to open share
grants for Pepkor employees was adjusted to retained earnings in the current reporting period.
The group has adopted IFRS 9 Financial Instruments, resulting in additional provisions raised on credit books in terms of the new
impairment model. This resulted in a net impact on opening retained earnings of R68 million in addition to a R50 million provision
raised on the new JD Credit book.
As in the prior reporting period, the board resolved not to declare an interim dividend.
OPERATIONAL PERFORMANCE
Clothing and general merchandise
The clothing and general merchandise segment reported revenue growth of 5.2% to R23.1 billion, contributing 66% of group revenue
for the period under review. Operating profit increased by 6.6% to R3.1 billion.
The challenging conditions within the discount and retail sectors weighed on sales growth. By Pepkor standards, the sales growth
achieved by many of its retail brands was lower than expected. However, the group increased its market share according to the Retail
Liaison Committee (RLC).
Momentum in retail store footprint expansion continued. Retail brands within the segment opened 136 new stores during the period,
resulting in a total of 4 310 stores and equating to retail space growth of 4.8% year-on-year. The progressive return of selling price
inflation supported healthy sales growth within the core Clothing, Footwear and Home (CFH) product departments.
PEP and Ackermans
In aggregate, PEP and Ackermans reported merchandise sales growth of 5.4% and like-for-like growth of 1.6%, underscoring the challenging
consumer environment. Within CFH, selling price inflation of 2.5% was recorded, along with volume growth of 3.5%. Selling price
inflation is expected to continue during the remainder of FY19.
PEP
PEP maintained market share and its position as price leader despite the particularly challenging trading conditions within the discount
market sector. Performance was supported by good growth in Babies and Home departments, with strong growth achieved in Fast Moving Consumer
Goods (FMCG) and Financial Services.
A total of 5.3 million cellular handsets was sold during the period, which was below expectation following selling price increases
in handsets. Corrective action in the form of a selling price reduction supported a recovery towards the end of the reporting period.
Financial Services reported exceptional growth in profitability as PEP’s strategy to expand its value-added services offering continues
to resonate with customers.
PEP’s retail store footprint expanded to 2 265 stores, including 47 new stores opened during the period across its traditional PEP,
PEP Home and PEP Cell retail formats, equating to retail space growth of 3.8% year-on-year.
The PAXI parcel delivery service, which successfully leverages and monetises the PEP retail footprint, celebrated its first full year
of operation. Good growth momentum continues, with 45 000 parcels currently being sent on a monthly basis.
The new Dealz discount variety retail concept rolled out four additional stores and continues to perform well with strong like-for-like
and basket size growth. Plans are in place to open a further six stores during the remainder of FY19.
Ackermans
Ackermans’ strong customer value proposition of providing value to ‘women with kids in their lives’ continued to drive growth
and outperformed the market once again. A total of 31 new stores were opened during the period, expanding the store base to 759 stores
and adding 6.3% retail space year-on-year.
The credit sales mix, facilitated by Pepkor’s Tenacity Financial Services business, was maintained at 17%, with lay-bys contributing
a stable 18% to total sales. Challenges in the new Hammarsdale distribution centre, commissioned towards the end of 2018, negatively
affected product availability in-store for a few months.
Growth in CFH was supported by double-digit growth in the Essentials, Babies and Women’s Wear product categories. The Ackermans Woman
retail format continues to perform well, and an additional three stores were opened during the period, bringing the total store base
to six.
PEP Africa
PEP Africa contributed 3.4% to group revenue during the period and reported like-for-like sales growth of 10.8% in constant currency
terms(1). The devaluation of Angolan and Zambian currencies resulted in a sales decline of 3.4% in reporting currency terms. The business
continues to focus on enhancing processes, systems and efficiencies as it consolidates its base. Operations in Nigeria performed very well
as the dynamics of the local market are better understood. Zimbabwe remains a concern and operations have been intentionally slowed down
while viability is assessed and risk is managed.
(1) For further information on constant currency disclosure, refer to page 5 of this results announcement.
Speciality
The Speciality division reported strong results with exceptional performances by some of the retail brands, reporting sales growth
of 9.4% and like-for-like growth of 4.1%.
The total store footprint across five retail brands was expanded to 939 stores, with 47 store openings.
Footwear businesses Tekkie Town and Shoe City currently face challenging market conditions. Tekkie Town management has been successful
in continuing to grow and expand the business while key projects are underway to enhance its supply chain and stock management ability.
Dunns has maintained its positive performance trajectory, while John Craig and Refinery continue to report double-digit sales
and like-for-like growth.
Furniture, appliances and electronics
JD Group increased revenue by 7.2% to R5.0 billion, supported by the new JD credit book under Connect Financial Solutions.
Performance in this segment was characterised by difficult trading conditions where customer spending was more focused on essentials
than durables and resulted in merchandise sales growth of 1.4% and a decline in like-for-like sales of 1.6%.
Credit sales, now funded internally, are managed conservatively and contributed 18% to sales. This includes a credit sales mix
of 27% for furniture brands and 7% for consumer electronics and appliances brands.
Despite the challenging trading environment, an operating profit of R60 million was reported, reflecting the positive outcome
of management’s focus on efficiency gains and containing the segment’s cost of doing business. This includes an additional provision
of R50 million raised in terms of IFRS 9 on the new loan book.
Progress has been made in the operations and profitability of all brands. Management continues to optimise the retail store footprint
of 900 stores, both in terms of locations and improved trading densities.
Building materials
Segmental revenue increased by 1.5% to R4.0 billion, while operating profit decreased by 66.9% to R42 million.
The Building Company reported sales growth of 1.5% and like-for-like growth of 2.3% during the period with the building materials market
currently experiencing its worst contraction in more than a decade. As a result, the business faced the dual challenge of defending
its market share while margins and profitability were under pressure.
Positive sales growth was driven mainly by the wholesale division, with the general building and specialist retail divisions both reporting
low sales growth.
Significant pressure on margins resulted in reduced profitability for the period and strategic development continues across the business,
including initiatives to improve margins. Good cost control further continues to support profitability.
FinTech
The FinTech segment increased revenue by 32.3% to R3.2 billion, while operating profit increased by 36.7% to R201 million.
The FLASH business continues to report strong growth, with virtual turnover growth exceeding 20%. The number of FLASH traders increased
to 156 000 from 131 000 in the comparative period.
The Capfin business performed well during the period and Pepkor commenced internal funding for the new Capfin loan book.
Capfin saw healthy growth in new loan applications of 36% and credit granting continues to be managed on a conservative basis in terms
of credit scorecards and affordability assessments. The introduction of new digital channels and a new marketing campaign further
supported performance.
OUTLOOK
Pepkor is a group of 49 000 employees whose purpose is to provide value that enriches customers’ lives - making their lives better
and easier. This focus will continue to support the group’s performance during the remainder of the 2019 financial year. Management
remains cautiously optimistic about the retail environment and expects improved consumer confidence following the completion
of South Africa’s elections. The group continues to identify opportunities for growth and expansion and expects to further expand
its store footprint, achieving between 3% and 4% space growth in FY19 on a net basis.
APPRECIATION
Management and the board would like to thank shareholders, customers, employees and suppliers for their continued support and loyalty
to Pepkor and its retail brands.
Jayendra Naidoo Leon Lourens Riaan Hanekom
Chairman Chief executive officer Chief financial officer
27 May 2019
PEPKOR GROUP’S PRO FORMA CONSTANT CURRENCY DISCLOSURE
The Pepkor group discloses unaudited constant currency information to indicate PEP Africa’s performance in terms of sales growth,
excluding the effect of foreign currency fluctuations. To present this information, current period turnover for PEP Africa reported
in currencies other than ZAR is converted from local currency actuals into ZAR at the prior year’s actual average exchange rates.
The table below sets out the percentage change in sales, based on the actual results for the period, in reported currency
and constant currency, for the basket of currencies in which PEP Africa operates.
Reported Constant
Change in sales on prior period (%) currency currency
PEP Africa (3.4%) 15.6%
UNAUDITED SUMMARISED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 31 MARCH 2019
CONDENSED CONSOLIDATED INCOME STATEMENT
Six months Six months Twelve months
ended ended ended
31 Mar 2019 31 Mar 2018 30 Sep 2018
Unaudited Unaudited Audited
Restated(1) % Restated(1)
Notes Rm Rm change Rm
Revenue 35 298 32 998 7.0 64 144
Cost of sales (22 692) (21 245) 6.8 (41 913)
Gross profit 12 606 11 753 7.3 22 231
Operating income 443 594 (25.4) 938
Operating expenses (9 060) (9 084) (0.3) (16 107)
Operating profit before depreciation, amortisation
and capital items 3 989 3 263 22.2 7 062
Depreciation and amortisation (599) (555) 7.9 (1 134)
Operating profit before capital items 3 390 2 708 25.2 5 928
Capital items 2 2 (1) (300.0) (37)
Operating profit 3 392 2 707 25.3 5 891
Finance costs(2) (846) (671) 26.1 (1 434)
Finance income(2) 108 118 (8.5) 242
Profit before taxation 2 654 2 154 23.2 4 699
Taxation (903) (899) 0.4 (1 804)
Profit for the period 1 751 1 255 39.5 2 895
Profit attributable to:
Owners of the parent 1 751 1 249 40.2 2 885
Non-controlling interests - 6 (100.0) 10
Profit for the period 1 751 1 255 39.5 2 895
Basic earnings per share (cents) 4 50.8 36.2 40.2 83.6
Headline earnings per share (cents) 4 50.7 36.2 39.9 84.5
Diluted earnings per share (cents) 4 50.4 36.1 39.7 83.3
Diluted headline earnings per share (cents) 4 50.4 36.1 39.4 84.2
(1) Refer to note 8 for detail of restatements relating to new accounting standards effective for the current financial year as well
as restatements noted in the footnote below.
(2) Net finance charges disclosed in the prior period have been reclassified to indicate finance costs and finance income separately.
SUMMARISED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six months Six months Twelve months
ended ended ended
31 Mar 2019 31 Mar 2018 30 Sep 2018
Unaudited Unaudited Audited
Notes Rm Rm Rm
Profit for the period 1 751 1 255 2 895
Other comprehensive loss
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations (167) 169 98
Net fair value gain/(loss) on cash flow hedges 28 (524) (22)
Net fair value (loss)/gain on cash flow hedges transferred to inventory (26) 59 105
Deferred taxation on cash flow hedges 28 - (55)
Foreign currency translation differences relating to hyperinflation - - 69
Deferred taxation on foreign currency differences relating to hyperinflation - - (27)
Exchange differences from translation of net investment in foreign operations 3 - (621) (538)
Taxation on exchange differences from translation of net investment
in foreign operations - 67 161
Total other comprehensive loss for the period (137) (850) (209)
Total comprehensive income for the period 1 614 405 2 686
Total comprehensive income attributable to:
Owners of the parent 1 614 399 2 676
Non-controlling interests - 6 10
Total comprehensive income for the period 1 614 405 2 686
SUMMARISED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Six months Six months Twelve months
ended ended ended
31 Mar 2019 31 Mar 2018 30 Sep 2018
Unaudited Unaudited Audited
Notes Rm Rm Rm
Balance at the beginning of the period 55 711 52 917 52 917
Share expenses capitalised - 1 -
Changes in reserves
Effect of adopting IFRS 9: Financial instruments (Refer to note 8) (68) - -
Total comprehensive income for the period attributable to owners of the parent 1 614 399 2 676
Dividends paid (959) - -
Shares bought from non-controlling interests (5) - -
Share-based payments 6 (167) 41 159
Reserves acquired on acquisition of business - 2 -
Transfers and other reserve movements 6 203 - (19)
Changes in non-controlling interests
Total comprehensive income for the period attributable
to non-controlling interests - 6 10
Non-controlling interests acquired on acquisition of business - (1) -
Transactions with non-controlling equity holders 5 - (17)
Dividends paid - - (15)
Distributions (2) (6) -
Balance at end of period 56 332 53 359 55 711
Comprising
Ordinary stated capital 64 690 64 690 64 690
Common control reserve (11 755) (11 755) (11 755)
Retained earnings 3 677 1 161 2 750
Share-based payment reserve 6 72 74 239
Hedging reserve 300 (222) 270
Foreign currency translation reserve (713) (691) (546)
Other reserves 55 78 60
Non-controlling interests 6 24 3
56 332 53 359 55 711
SUMMARISED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
31 Mar 2019 31 Mar 2018 30 Sep 2018
Unaudited Unaudited Audited
Restated(1)
Notes Rm Rm Rm
ASSETS
Non-current assets
Goodwill and intangible assets 61 036 60 966 61 049
Property, plant and equipment 5 209 4 720 5 251
Investments and loans 203 120 253
Deferred taxation assets 1 305 1 281 1 365
67 753 67 087 67 918
Current assets
Trade and other receivables(2) 6 887 5 643 5 874
Inventories 13 664 11 554 12 850
Current income taxation assets(2) 377 174 277
Loans due by related parties 229 201 224
Cash and cash equivalents 3 140 2 921 3 835
24 297 20 493 23 060
Total assets 92 050 87 580 90 978
EQUITY AND LIABILITIES
Capital and reserves
Ordinary stated capital 64 690 64 690 64 690
Reserves (8 364) (11 355) (8 982)
Total equity attributable to equity holders of the parent 56 326 53 335 55 708
Non-controlling interests 6 24 3
Total equity 56 332 53 359 55 711
Non-current liabilities
Interest-bearing loans and borrowings 17 011 26 15 518
Loans due to related parties - 11 000 -
Employee benefits 53 130 91
Deferred taxation liabilities 4 112 4 088 4 142
Provisions 473 594 564
Trade and other payables 543 580 545
22 192 16 418 20 860
Current liabilities
Trade and other payables(2, 3) 9 696 10 065 11 595
Loans due to related parties 119 5 112 173
Employee benefits 861 669 847
Provisions(3) 778 708 728
Current income taxation liabilities(2) 649 482 524
Interest-bearing loans and borrowings 21 34 19
Bank overdrafts and short-term facilities 5 1 402 733 521
13 526 17 803 14 407
Total equity and liabilities 92 050 87 580 90 978
Net asset value per ordinary share (cents) 1 632.6 1 545.9 1 614.7
(1) Refer to note 8 for detail of restatements relating to new accounting standards effective for the current financial year as well
as restatements noted in the footnotes below.
(2) Restatement of current income taxation assets and current income taxation liabilities, previously disclosed as part of trade
and other receivables and trade and other payables respectively.
(3) Restatement of Business Venture Investments 1499 RF (Pty) Ltd (BVI) guarantee provision to provisions, previously disclosed
as part of trade and other payables.
SUMMARISED CONSOLIDATED STATEMENT OF CASH FLOWS
Six months Six months Twelve months
ended ended ended
31 Mar 2019 31 Mar 2018 30 Sep 2018
Unaudited Unaudited Audited
Restated(1)
Rm Rm Rm
CASH FLOWS FROM OPERATING ACTIVITIES
Operating profit: 3 392 2 707 5 891
Adjusted for:
Debtors' write-offs and movement in provision 273 150 302
Depreciation and amortisation 599 555 1 134
Non-cash adjustments 397 554 1 316
4 661 3 966 8 643
Working capital changes
Increase in inventories (1 126) (515) (2 161)
Decrease/(Increase) in trade and other receivables 32 (822) (834)
Increase in revolving credit and installment sale receivable movement (1 428) (131) (289)
Decrease in trade and other payables (1 971) (1 897) (47)
Net changes in working capital (4 493) (3 365) (3 331)
Cash generated from operations 168 601 5 312
Net dividends paid (961) (6) (15)
Finance cost paid (856) (672) (1 425)
Finance income received 108 119 242
Taxation paid (800) (429) (1 597)
Net cash (outflow)/inflow from operating activities (2 341) (387) 2 517
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment and intangible assets (586) (715) (1 871)
Proceeds on disposal of property, plant and equipment and intangible assets - 24 113
Acquisition of businesses, net of cash on hand at acquisition - (297) (297)
Amounts paid on long-term investments and loans (1) (11) (143)
Proceeds on disposal of business - - 4
Net cash outflow from investing activities (587) (999) (2 194)
CASH FLOWS FROM FINANCING ACTIVITIES
Share issue expenses - 1 1
Transactions with non-controlling interests - - (29)
Amounts received on bank overdrafts and short-term facilities 880 564 351
Amounts received/(amounts paid) on long-term interest-bearing loans and borrowings 1 498 (43) 15 429
Debt raising fees paid (5) - (110)
Amounts received on short-term interest-bearing loans and borrowings 2 - 8
Amounts received/(amounts paid) on related party payable - 279 (15 870)
Net cash inflow/(outflow) from financing activities 2 375 801 (220)
NET (DECREASE)/increase IN CASH AND CASH EQUIVALENTS (553) (585) 103
Effects of exchange rate translations on cash and cash equivalents (142) (291) (65)
Cash and cash equivalents at beginning of the period 3 835 3 797 3 797
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD 3 140 2 921 3 835
(1) Refer to note 8 for details of restatements of 31 March 2018 cash flows to better reflect the nature thereof.
NOTES TO THE SUMMARISED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 31 MARCH 2019
Statement of compliance
The summarised consolidated interim financial statements are prepared in accordance with the requirements of the JSE Limited Listings
Requirements for summarised financial statements and the requirements of the Companies Act applicable to summarised financial statements.
The Listings Requirements require summarised financial statements to be prepared in accordance with the framework concepts
and the measurement and recognition requirements of International Financial Reporting Standards (IFRS) and the SAICA Financial Reporting
Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council
and to also, as a minimum, contain the information required by IAS 34 Interim Financial Reporting. The accounting policies applied in the
preparation of the consolidated interim financial statements from which the summarised consolidated interim financial statements were
derived are in terms of International Financial Reporting Standards and are consistent with those accounting policies applied in the
preparation of the annual consolidated financial statements for the year ended 30 September 2018, except where the group has adopted
new standards and interpretations effective in the current financial year, as detailed in note 8.
Basis of preparation
The summarised consolidated interim financial statements are prepared in millions of South African rand (Rm) on the historical cost
basis, except for certain assets and liabilities, which are carried at amortised cost, and derivative financial instruments, which
are stated at their fair values (the classification of these assets and liabilities did not change classification subsequent
to the adoption of IFRS 9: Financial Instruments). The preparation of the summarised consolidated interim financial statements
for the six months ended 31 March 2019 was supervised by RG Hanekom CA(SA), the group’s chief financial officer.
Restatement
On 1 October 2018, the group adopted IFRS 9: Financial Instruments and IFRS 15: Revenue from Contracts with Customers, effective
for financial years ending on or after 1 January 2018, which had an effect on the prior period disclosures. The group further
reclassified certain statement of comprehensive income, statement of financial position and statement of cash flows items
for the period ending 31 March 2018 to be consistent with the reclassifications done for the year ended 30 September 2018.
Refer to note 8 for details on these restatements.
Financial statements
These results have not been reviewed or reported on by the group’s auditors. All forward-looking information is the responsibility
of the board of directors and has not been reviewed or reported on by the group’s auditors. The results were approved by the board
of directors on 27 May 2019.
Events subsequent to the reporting period
The board is not aware of any significant events after the reporting date that will have a material effect on the company’s results,
financial performance or financial position as presented in these provisional summarised consolidated financial statements.
Six months Six months Twelve months
ended ended ended
31 Mar 2019 31 Mar 2018 30 Sep 2018
Unaudited Unaudited Audited
Restated(1) % Restated(1)
Rm Rm change Rm
1. SEGMENTAL ANALYSIS
REVENUE
Clothing and general merchandise 23 124 21 991 5.2 42 448
Furniture, appliances and electronics 4 973 4 638 7.2 8 615
Building materials 4 035 3 976 1.5 8 105
FinTech 3 166 2 393 32.3 4 976
35 298 32 998 7.0 64 144
OPERATING PROFIT BEFORE CAPITAL ITEMS
Clothing and general merchandise 3 127 2 934 6.6 6 112
Furniture, appliances and electronics 60 - 100.0 (137)
Building materials 42 127 (66.9) 214
FinTech 201 147 36.7 250
3 430 3 208 6.9 6 439
RECONCILIATION BETWEEN OPERATING PROFIT
Operating profit per segmental analysis 3 430 3 208 6.9 6 439
One-off items (40) (500) 92.0 (511)
Capital items (note 2.1) 2 (1) 300.0 (37)
Operating profit per income statement 3 392 2 707 25.3 5 891
Finance costs (846) (671) (26.1) (1 434)
Finance income 108 118 (8.5) 242
Profit before taxation per income statement 2 654 2 154 23.2 4 699
SEGMENTAL ASSETS 88 478 84 338 4.9 86 666
RECONCILIATION BETWEEN TOTAL ASSETS AND SEGMENTAL ASSETS
Total assets per statement of financial position 92 050 87 580 5.1 90 978
Less: Cash and cash equivalents (3 140) (2 921) (7.5) (3 835)
Less: Long-term investments and loans (203) (120) (69.2) (253)
Less: Loans due by related parties (229) (201) (13.9) (224)
Segmental assets 88 478 84 338 4.9 86 666
Basis of segmental presentation
During the preparation of the 2018 annual consolidated financial statements Pepkor revised its internal management reporting structure
and consequently revised its segmental reporting to better reflect the group’s internal management review structure to the chief
operating decision-maker (CODM). Accordingly, the 31 March 2018 financial period segmental analysis has been restated to reflect
this change.
The segmental information has been prepared in accordance with IFRS 8: Operating Segments (IFRS 8), which defines requirements
for the disclosure of financial information of an entity’s operating segments. IFRS 8 requires operating segments to be identified
on the basis of internal reporting of group components that are regularly reviewed by the CODM to allocate resources to segments
and to assess their performance. The board of directors has been identified as the CODM.
Identification of segments
The identification of segments is consistent with those identified in the annual consolidated financial statements for the year
ended 30 September 2018.
Segmental analysis
Geographical analysis
The revenue, operating profit before capital items and assets are all classified as one geographical region.
Major customers
No single customer contributes 10% or more of the group’s revenue.
One-off items
One-off items relate to the following:
Impairment of loans associated to third party debt 40 60 (33.0) 60
Guarantee to RMB in relation to BVI - 440 (100.0) 451
One-off items 40 500 (92.0) 511
(1) Refer to note 8 for details of restatements relating to new accounting standards effective for the current financial year.
Six months Six months Twelve months
ended ended ended
31 Mar 2019 31 Mar 2018 30 Sep 2018
Unaudited Unaudited Audited
Rm Rm Rm
2. OPERATING PROFIT
2.1 Capital items
Capital items reflect and affect the resources committed in producing
operating/trading performance and are not the performance itself. These items
deal with the platform/capital base of the entity. Capital items are required
to be reported by the Johannesburg Stock Exchange (JSE) as part of the calculation
of headline earnings.
Impairments of property, plant and equipment - - 20
(Profit)/loss on disposal of property, plant and equipment and intangible assets (2) 1 15
Loss on sale and dilution of investments - - 2
(2) 1 37
3. INVESTMENTS IN FOREIGN OPERATIONS
It has been agreed, by mutual consent between the Pepkor African subsidiaries and Pepkor Trading (Pty) Ltd, that there will be no fixed
repayment terms attached to outstanding loans. The loans are now viewed to be capital in nature and no foreign exchange gains and losses
relating to revaluation are recognised.
Six months Six months Twelve months
ended ended ended
31 Mar 2019 31 Mar 2018 30 Sep 2018
Unaudited Unaudited Audited
Million Million Million
4. EARNINGS PER SHARE
4.1 Weighted average number of ordinary shares
Weighted average number of ordinary shares at end of the period for the purpose
of basic earnings per share and headline earnings per share 3 450 3 450 3 450
Effect of dilution due to share right issues in terms of share scheme 23 11 10
Weighted average number of ordinary shares at end of the period for the purpose
of diluted earnings per share and diluted headline earnings per share 3 473 3 461 3 460
Rm Rm Rm
4.2 Earnings and headline earnings
Profit for the period 1 751 1 255 2 895
Attributable to non-controlling interests - (6) (10)
Earnings attributable to ordinary shareholders 1 751 1 249 2 885
Capital items (note 2.1) (2) 1 37
Taxation effect of capital items - - (5)
Headline earnings attributable to ordinary shareholders 1 749 1 250 2 917
4.3 Diluted earnings and diluted headline earnings per share
Share rights issued to employees have been taken into account for dilutive earnings and dilutive headline earnings
per share purposes.
5. FINANCING AND CONTINGENT LIABILITIES
The group entered into bridge facilities to the value of R2.5 billion on 20 March 2019 for a maximum period of 18 months.
The facilities can be used for general corporate and banking purposes, including but not limited to working capital financing
for the build-up of consumer finance credit books in Pepkor. The bridge facility is to be settled by the launch of a bond
facility in an effort to reduce the group’s overall funding costs and diversify its sources of funding as originally anticipated
upon listing of the group in September 2017. The terms and conditions of the facilities are aligned with that of the current term loans
and revolving credit facilities as disclosed in the annual consolidated financial statements for the year ended 30 September 2018.
There were no further changes to the contingent liabilities as disclosed in the annual consolidated financial statements for the year
ended 30 September 2018.
6. REVERSAL OF STEINHOFF SHARE RIGHTS
Steinhoff International Holdings N.V. (Steinhoff) published its 2017 results in May 2019. These financial statements included
a restatement for the reversal of the Steinhoff Share Right Scheme IFRS 2 charges. The restatement did not result in any material
adjustment to the Pepkor financial statements. The group has transferred the cumulative amount related to these grants from
the share-based payment reserve to retained earnings in the current period.
7. RELATED PARTIES
During the period, the group entered into related party transactions in the ordinary course of business, the substance of which
are similar to those disclosed in the group's annual financial statements.
8. RESTATEMENT OF PRIOR YEAR COMPARATIVES
On 1 October 2018 the group adopted the following accounting standards, effective for financial years ending on or after 1 January 2018,
which had an effect on the prior period disclosures.
8.1 IFRS 9: Financial Instruments
IFRS 9 Financial Instruments (replacing IAS 39 Financial Instruments: Recognition and Measurement) addresses the classification,
measurement and derecognition of financial assets and liabilities, introduces new rules for hedge accounting and a new impairment
model for financial assets. The key impact of IFRS 9 for the group is due to the new impairment model for financial assets
as set out below.
Impairment of financial assets under the new impairment model
The new impairment model applies to financial assets classified at amortised cost, debt instruments measured at fair value through
other comprehensive income (FVOCI), contract assets under IFRS 15: Revenue from Contracts with Customers, lease receivables,
loan commitments and certain financial guarantee contracts. At initial recognition, an impairment allowance (or provision
in the case of commitments and guarantees) is required for expected credit losses (ECL) resulting from default events that
are possible within the next 12 months (12-month ECL). In the event of a significant increase in credit risk, an allowance
(or provision) is required for ECL resulting from all possible default events over the expected life of the financial instrument
(lifetime ECL). Financial assets where 12-month ECL is recognised are considered to be ‘stage 1’; financial assets that
are considered to have experienced a significant increase in credit risk are in ‘stage 2’; and financial assets for which there
is objective evidence of impairment are considered to be in default or otherwise credit impaired are in ‘stage 3’. The assessment
of credit risk and the estimation of ECL is unbiased and probability-weighted, and incorporates all available information that
is relevant to the assessment, including information about past events, current conditions and reasonable and supportable forecasts
of economic conditions at the reporting date. In addition, the estimation of ECL takes into account the time value of money.
As a result, the recognition and measurement of impairment is intended to be more forward-looking than under IAS 39
and the resulting impairment charge will tend to be more volatile. It will also tend to result in an increase in the total level
of impairment allowances, since all financial assets will be assessed for at least 12-month ECL and the population of financial
assets to which lifetime ECL applies is likely to be larger than the population for which there is objective evidence of impairment
in accordance with IAS 39.
For financial assets where objective evidence of impairment exists (stage 3), the standard requires interest income to be calculated
on the carrying value of the debtors, after allowance for expected credit losses based on the original effective interest rate.
For trade and other receivables without a significant financing component, the group has adopted the simplified approach
that recognises lifetime ECL regardless of the stage classification. The group applied a provision matrix based on historical
credit loss experience, which was adjusted for forward-looking factors applicable to the trade and other receivables balances
and economic factors.
The group has elected to apply the impact of IFRS 9 retrospectively with an adjustment to opening retained earnings
on 1 October 2018, therefore comparative information for the prior periods has not been restated.
R
Closing retained earnings 30 September 2018 as previously reported 2 750
Increase in impairment allowance for trade and other receivables (94)
Increase in deferred tax relating to impairment allowances 20
Increase in taxation payable relating to impairment allowances 6
Opening retained earnings on 1 October 2018 2 682
The application of IFRS 9 did not have a material impact on the reported earnings or financial position for the interim results
under review.
8.2 IFRS 15: Revenue from Contracts with Customers
IFRS 15 Revenue from Contracts with Customers (replacing IAS 18 Revenue) is based on the principle that revenue is recognised
as the group satisfies performance obligations and when control of a good or service transfers to a customer, rather than the use
of the risks and rewards criteria under IAS 18.
The group has elected to apply the impact of IFRS 15 retrospectively, therefore comparative information for the prior periods
has been restated. The key impact of IFRS 15 for the group is set out below.
Agent vs principal assessment
The group assessed its different revenue streams based on the new guidance under the agent and principle requirements. In certain
instances, revenue previously recognised on a gross basis and included in revenue and cost of sales, is now required to be recognised
on a net basis in other income.
Rebates from suppliers
The group assessed its different rebates received from suppliers. In certain instances, rebates relating to the purchase
of inventory were recognised either as revenue, operating income or net of operating expenses. According to IFRS 15, rebates relating
to the purchase of inventory should be accounted for net of the cost of inventory and unwinded to cost of sales as the goods are sold.
Impact on statement of comprehensive income:
Previously Previously
reported Restated reported Restated
Six months Six months Twelve months Twelve months
ended ended ended ended
31 Mar 2018 IFRS 15 31 Mar 2018 30 Sep 2018 IFRS 15 30 Sep 2018
Unaudited adjustment Unaudited Audited adjustment Audited
Rm Rm Rm Rm Rm Rm
Revenue 33 013 (15) 32 998 64 168 (24) 64 144
Cost of sales (21 281) 36 (21 245) (42 027) 114 (41 913)
Gross profit 11 732 21 11 753 22 141 90 22 231
Operating income 553 41 594 875 63 938
Operating expenses (9 577) (62) (9 639) (17 088) (153) (17 241)
Capital items (1) - (1) (37) - (37)
Operating profit 2 707 - 2 707 5 891 - 5 891
Finance costs (671) - (671) (1 434) - (1 434)
Finance income 118 - 118 242 - 242
Profit before taxation 2 154 - 2 154 4 699 - 4 699
Taxation (899) - (899) (1 804) - (1 804)
Profit for the period 1 255 - 1 255 2 895 - 2 895
Profit attributable to:
Owners of the parent 1 249 - 1 249 2 885 - 2 885
Non-controlling interests 6 - 6 10 - 10
Profit for the period 1 255 - 1 255 2 895 - 2 895
Previously
reported Restated
Six months Six months
ended ended
31 Mar 2018 31 Mar 2018
Unaudited Restatement Unaudited
Rm Rm Rm
Reclassification of prior year comparatives:
8.3 Statement of comprehensive income
Certain statement of comprehensive income figures has been restated
as indicated below:
Operating profit 2 707 - 2 707
Net finance costs (553) 553 -
Finance costs - (671) (671)
Finance income - 118 118
Profit before taxation 2 154 - 2 154
8.4 Statement of financial position
Certain statement of financial position comparative figures has been restated
as indicated below:
Current liabilities
Trade and other payables 10 987 (922) 10 065
Current income taxation liabilities - 482 482
Provisions 268 440 708
11 255 - 11 255
8.5 Statement of cash flows
Certain statement of cash flow comparative figures have been restated
as indicated below:
Cash flow from operating activities
Cash generated from operations 732 (131) 601
Increase in revolving credit and installment sale receivable movement (131) 131 -
Net finance costs (553) 553 -
Finance costs - (671) (671)
Finance income - 118 118
Net cash flows from operating activities 48 - 48
Cash flows from financing activities
Amounts received/(amounts paid) on long-term interest-bearing loans and borrowings 236 (279) (43)
Amounts received on related party payable - 279 279
236 - 236
8.6 Segmental analysis
During the preparation of the 2018 annual consolidated financial statements Pepkor revised its internal management reporting
structure and consequently revised its segmental reporting to better reflect the group’s internal management review structure
to the chief operating decision-maker (CODM). The prior period segmental analysis was thus revised to reflect this and is consistent
with the segmental analysis as reported per the annual consolidated financial statements as at 30 September 2018.
COMPARABILITY OF RESULTS
As reported in Pepkor’s interim results for the six months ended 31 March 2018 (H1FY18) on 29 May 2018, and in trading statements published
on 17 April 2019 and 10 May 2019, H1FY18 results were impacted by one-off costs pertaining to the BVI matter, which entails a provision
for exposure in terms of a corporate financial guarantee of R440 million and associated loans of R60 million. One-off costs in H1FY18
therefore amounted to R500 million, impacting H1FY18 earnings per share metrics by approximately 14.5 cents. This is calculated by applying
the total impact net of tax of R500 million to a weighted average number of shares of 3 450 million.
During H1FY19, accumulated finance costs of R20 million (reflected in finance costs) were incurred in terms of the corporate financial
guarantee, and R40 million (reflected in operating expenses) was raised in terms of credit exposure pertaining to the associated loans.
One-off costs in H1FY19 therefore amount to R60 million, impacting H1FY19 earnings per share metrics by approximately 1.7 cents.
This is calculated by applying the total impact net of tax of R60 million to a weighted average number of shares of 3 450 million.
Resolution of the BVI matter continues to be evaluated in the context of a claim made by BVI for damages against Steinhoff International
Holdings N.V.
The comparable results as set out in this results announcement have been prepared for illustrative purposes only, in order to provide
shareholders with comparable results. The impact of these one-off costs is deemed to be non-recurring in nature, pending the resolution
of the matter. Because of its nature, the historic financial information may not fairly present Pepkor’s financial position, changes
in equity, results of operations or cash flows. The comparable results are presented in accordance with the JSE Listings Requirements
and the Guide on Pro Forma Financial Information issued by SAICA.
The comparable results are the responsibility of the board and were not reviewed or reported on by Pepkor’s auditors.
The table below illustrates the effect of the above:
Results for the six months ended 31 March 2018 (H1FY18)
Statutory Comparable
results results
for the Provision for for the
six months guarantee six months
ended and loan ended
31 Mar 2018 impairment 31 Mar 2018
Rm Rm Rm
Operating profit before capital items 2 708 500 3 208
Capital items (1) - (1)
Operating profit 2 707 500 3 207
Net finance costs (553) - (553)
Profit before taxation 2 154 500 2 654
Taxation (899) - (899)
Profit for the period 1 255 500 1 755
Profit attributable to:
Owners of the parent 1 249 500 1 749
Non-controlling interest 6 - 6
Basic earnings per ordinary share (cents) 36.2 14.5 50.7
Headline earnings per ordinary share (cents) 36.2 14.5 50.7
Weighted average number of ordinary shares in issue (millions) 3 450 3 450 3 450
Results for the six months ended 31 March 2019 (H1FY19)
Statutory Comparable
results results
for the Provision for for the
six months guarantee six months
ended and loan ended
31 Mar 2019 impairment 31 Mar 2019
Rm Rm Rm
Operating profit before capital items 3 390 40 3 430
Capital items 2 - 2
Operating profit after capital items 3 392 40 3 432
Net finance costs (738) 20 (718)
Profit before taxation 2 654 60 2 714
Taxation (903) - (903)
Profit for the period 1 751 60 1 811
Profit attributable to:
Owners of the parent 1 751 60 1 811
Non-controlling interest - - -
Basic earnings per ordinary share (cents) 50.8 1.7 52.5
Headline earnings per ordinary share (cents) 50.7 1.7 52.4
Weighted average number of ordinary shares in issue (millions) 3 450 3 450 3 450
CORPORATE INFORMATION
(‘Pepkor’ or ‘the company’ or ‘the group’)
Executive directors
LM Lourens (Chief executive officer)
RG Hanekom (Chief financial officer)
Non-executive directors
J Naidoo (Chairman)
JB Cilliers*
PJ Dieperink
LJ du Preez
PJ Erasmus (resigned 29 January 2019)
MJ Harris**
W Luhabe** (appointed 1 January 2019)
SH Müller**
F Petersen-Cook**
DM van der Merwe
JD Wiese
* Lead independent ** Independent
Registered address
36 Stellenberg Road
Parow Industria 7493
Postal address
PO Box 6100
Parow East 7501
Telephone 021 929 4800
E-mail info@pepkor.co.za
www.pepkor.co.za
Transfer secretaries
Computershare Investor Services Proprietary Limited
Rosebank Towers
15 Biermann Avenue
Rosebank 2196
Company secretary
Pepkor Proprietary Limited
Auditors
PricewaterhouseCoopers Inc.
Sponsor
PSG Capital Proprietary Limited
Announcement date 29 May 2019
Date: 29/05/2019 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.