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Summarised group financial statements for the year ended 31 December 2017 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 2017 and cash dividend declaration
FINANCIAL HIGHLIGHTS
Retail sales + 16.8% to R1.7 billion
Loan disbursements + 17.5% to R1.5 billion
R1.2 billion group credit extended on digital channels
Cash generated from operations + 29.5% to R358.7 million
Final dividend + 25.2% to 109.0 cents
Headline earnings per share + 22.9% to 509.4 cents
COMMENTARY
HomeChoice International PLC is an investment holding company listed on the JSE Limited primarily
consisting of two trading operations, HomeChoice (Retail) and FinChoice (Financial Services).
The group has operated for more than 30 years in southern Africa and has developed considerable
expertise in both retail and credit management targeted at the mass market LSM 4 - 8 consumers.
As an omni-channel retailer we provide the customer with the convenience to engage with our group
through their preferred channel. Retail engagement is through digital platforms, call centres,
sales agents' networks, catalogues and showrooms. Engagement with our Financial Services business
is via digital platforms with the call centre providing additional support.
The Retail product offering is mainly driven by homeware textiles and related products with a
strongly increasing contribution of branded electronics, home appliances, apparel and footwear.
Personal loans and insurance products comprise the Financial Services offering.
31 Dec 2017 31 Dec 2016 % change
Group
Revenue (Rm) 3 003.2 2 664.2 12.7
Earnings before interest, tax, depreciation
and amortisation (EBITDA) (Rm) 800.6 701.4 14.1
Operating profit (Rm) 751.9 648.1 16.0
Operating profit margin (%) 25.0 24.3
Headline earnings per share (HEPS) (cents) 509.4 414.6 22.9
Cash generated from operations (Rm) 358.7 277.0 29.5
Interim dividend paid (cents) 82.0 71.0 15.5
Final dividend declared/paid (cents) 109.0 87.0 25.2
Retail
Revenue (Rm) 2 337.5 2 082.7 12.2
Retail sales (Rm) 1 749.2 1 497.6 16.8
Gross profit margin (%) 51.2 49.3
EBITDA (Rm) 474.7 420.2 13.0
EBITDA margin (%) 20.3 20.2
Financial Services
Loan disbursements (Rm) 1 467.6 1 249.0 17.5
Revenue (Rm) 665.7 581.5 14.5
EBITDA (Rm) 313.8 260.7 20.4
EBITDA margin (%) 47.1 44.8
TRADING AND FINANCIAL PERFORMANCE
Group revenue increased by 12.7% to R3.0 billion, bolstered by above market growth in Retail sales
of 16.8%, as well as a strong contribution from Financial Services.
More than 20 000 new customers per month were acquired during the year, contributing to 7.0% growth
of the group's active customer base to 796 000. New customers are primarily acquired by the Retail
business, attracted to our curated homewares range. Analytics on the customer base, including
payment performances, enable us to drive effective marketing campaigns and to develop risk and
response scorecards to manage credit risk. Applying this knowledge, Financial Services products
are offered to selected qualifying customers.
The group continues to be negatively impacted by the affordability assessment regulations introduced
by the National Credit Regulator (NCR). The requirement for customers to provide documentary proof
of income has adversely impacted revenue, increased operating costs and required continual investment
in systems.
Group finance charges and initiation fees of R943.1 million were flat with 2016, negatively impacted
by the annualisation of the lower interest-earning Retail credit facility product and the reduction
of the NCR's maximum prescribed interest rates in May 2016.
The group's strategy to diversify its income streams beyond interest income has gained positive
traction in the period. Fees from ancillary services, which comprises insurance and service fees,
increased by 37.6% to R311.0 million.
Group earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 14.1% to
R800.6 million, benefiting from an improvement in gross margins as well as efficiencies in trading
expenses which increased by 14.7%. Improvements in collections, credit management and new fraud
processes have resulted in group debtor costs increases being well controlled, increasing by 5.3%.
Operating profit increased by 16.0% to R751.9 million, with an improvement in operating margin from
24.3% to 25.0%. Headline earnings increased by 24.2% to R527.5 million, with HEPS up 22.9% to
509.4 cents.
Excellent progress was achieved in digital transformation across the group. Credit extended via
digital channels has increased to R1.2 billion, driven by strong digital Retail sales growth of
48.2% and 44.9% growth in digital loan disbursements. Credit extended from digital now accounts
for 32.4% (2016: 27.4%) of total group credit.
RETAIL
Retail revenue increased 12.2% to R2.3 billion. Innovations in the core textiles and hard goods
ranges combined with further expansion of our branded goods offering, delivered strong customer
demand and Retail sales increased by 16.8% to R1.7 billion. With more than 60 external brands now
on offer customers have responded positively to the transformation to "a digital department store".
Our credit facility enables customers to purchase brands on affordable credit, delivered direct
to her home.
Digital, now the second-largest and fastest-growing sales channel, represents 15.4% of total sales
(2016: 12.0%). It is exciting to see our customer engagement on digital channels growing.
The lower interest rate credit facility product, introduced in April 2016 (from the previous
instalment credit product) has made credit more affordable to customers, but has resulted in the
full-year finance charges and initiation fees earned being on par with those achieved in 2016.
Fees from ancillary services were up 38.3% to R129.2 million and is attributable to the increase
in service fees.
The favourable exchange rate during the second half, combined with our effective management of
margin on branded goods, has improved the gross profit margin by 190 basis points from 49.3% to
51.2%. Inventory has increased by 20.1% to R256.8 million to support customer acquisition campaigns
in the first quarter of 2018. Stock turn was in line with the previous year at 2.7 times.
The business continued to invest in people and technology to drive digital transformation and
improve customer experience.
Retail EBITDA increased by 13.0% to R474.7 million, a pleasing result in light of the reduced finance
charges revenue earned.
FINANCIAL SERVICES
Revenue increased by 14.5% to R665.7 million. Finance charges and initiation fees earned, increased
by 7.8% as the 2016 NCR reduction in the interest rate caps have now annualised.
Strong growth in loan disbursements delivered an increase of 17.5% to R1.5 billion. Loans to existing
customers increased from 77.3% to 79.1% of total disbursements over the period, as good customers
qualify for increases in their credit limits. The customer base has steadily increased by 11.2% to
158 000 (2016: 142 000).
Financial Services is a digitally enabled business, with customers preferring to conclude loan
transactions on their mobile phones. Enhanced self-service functionality on the mobi site and a
constant focus on improving the customer experience on this digital platform is shifting customer
engagement online, with 68.7% (2016: 63.5%) of loan transactions carried out on digital channels.
The call centre is increasingly becoming a digital support team.
MobiMoneyTM, a new credit facility product available exclusively on customers' mobile phones,
was launched in the fourth quarter to positive customer response. This innovative digital-only
product will be further developed in 2018 to include value-added products and services enabling
mobi-wallet functionality.
Customers have responded well to the roll-out of the group's suite of funeral insurance products,
providing confidence in our strategy to diversify revenue towards fee-based income from insurance
and value-added services.
During 2017 the business development team focused on establishing lending capability in Botswana
and Namibia. Pilot loan sales to Botswana commenced in February 2018.
EBITDA grew by 20.4% to R313.8 million following strong improvement in debtors' performance,
as well as the growing insurance business.
CREDIT RISK MANAGEMENT
Group debtor costs growth of 5.3% is well below revenue growth of 12.7% and reflects prudent
credit risk management and improved credit performance in both businesses.
Credit performance for the period is summarised below:
31 Dec 2017 31 Dec 2016 % change
Group
Gross trade and loans receivable (Rm) 3 157.7 2 654.6 19.0
Debtor costs as a % of revenue* (%) 16.8 17.9
Retail
Gross trade and loans receivable (Rm) 1 806.1 1 507.3 19.8
Debtor costs as a % of revenue (%) 14.9 15.1
Provision for impairment as a % of gross receivables (%) 17.9 18.9
Non-performing loans (NPLs) (>120 days) (%) 9.9 10.3**
NPL cover (times) 1.8 1.8**
Financial Services
Gross trade and loans receivable (Rm) 1 351.7 1 147.3 17.8
Debtor costs as a % of revenue (%) 23.2 28.0
Provision for impairment as a % of gross receivables (%) 14.0 15.5
Non-performing loans (NPLs) (>120 days) (%) 4.2 4.7
NPL cover (times) 3.3 3.3
* Debtor costs include bad debts written off net of recoveries, as well as movements in provisions.
** Restated.
Retail vintages have shown improvement benefiting from the implementation of new scorecards, use of
additional credit bureau data and investment in fraud prevention tools. Upskilling and training of
the collections teams, combined with improvements in internal and external collections processes,
have reduced debtor costs as a percentage of revenue to 14.9% (2016: 15.1%). Retail non-performing
loans have improved from 10.3% to 9.9%. The improved credit performance has resulted in the provision
for impairment of trade receivables being reduced to 17.9% (2016: 18.9%) whilst still maintaining
a conservative NPL cover at 1.8 times.
Credit performance of Financial Services was strong, with debtor costs as a percentage of revenue
at 23.2% (2016: 28.0%). More stringent credit-vetting criteria, term shortening, an increase in the
reloan proportion of business and enhanced collections strategies have translated into better roll
rates and payment profiles. As a result, bad debts written off during the year (net of recoveries)
were up by only 0.6% despite the 17.8% increase in the gross debtors' book. Non-performing loans
have improved from 4.7% to 4.2% and the provision for impaired loans has been reduced to 14.0%
(2016: 15.5%) of the book, while maintaining the NPL cover at 3.3 times. The Financial Services'
business continues to benefit from lending primarily targeted Retail customers who have demonstrated
ongoing good payment behaviour.
CASH AND CAPITAL MANAGEMENT
Cash generated from operations increased by 29.5% to R358.7 million, driven by good cash collections,
a reduction in loan terms and actively managing cash requirements in working capital. The cash
conversion rate (cash generated from operations expressed as a percentage of EBITDA) increased from
39.5% to 44.8%.
The group has renegotiated its funding facilities and has entered into an R800 million long-term
funding facility, replacing a R350 million facility and R160 million shareholder loan. As at
31 December 2017 the group had drawn down R550 million. The net debt to equity ratio has decreased
from 28.7% at December 2016 to 28.1%, comfortably below the board's upper limit of 40.0%.
The final dividend has been increased by 25.2% to 109.0 cents per share, bringing the total dividend
for the year to 191.0 cents per share (2016: 158.0 cents) with the dividend cover remaining at
2.6 times earnings.
Capital expenditure at R56.3 million reflects continued investment in the group's technology systems
and an initial investment in a Gauteng distribution centre to be opened in 2018.
The financial position of the group remains strong, with net asset value increasing by 16.1% to
2 291 cents per share from December 2016.
EQUITY CAPITAL RAISING
As the group continues to grow, further capital investments will be made in areas of strategic
importance, including new product development, systems and platforms to enhance customer experience
and analytics capabilities, and warehousing and logistics infrastructure. In addition to the
R800 million long-term funding facility already in place, the board is considering undertaking an
equity capital raise to fund capital expansion projects.
In light of the company's concentrated shareholder register, any equity capital raise would also
be intended to introduce new investors into the company which is expected to have the additional
benefits of increasing the company's free float and improving liquidity in its shares. The board has
engaged with the company's major shareholders, GFM Limited and ADP II Holdings 3 Limited, who are
supportive of this initiative and, subject to favourable market conditions, have agreed to sell a
portion of their own shareholdings as part of any equity capital raising, in order to further
promote improved free float and liquidity in the company's shares.
APPOINTMENT OF ALTERNATE DIRECTOR
The board is pleased to announce the appointment of Adefolarin Ogunsanya as an alternate
non-executive director to Eduardo Gutierrez-Garcia with effect from 7 March 2018. We look forward
to the contribution that he will bring to the board.
OUTLOOK
Recent political developments have provided improved consumer and business confidence, as well as
cautious optimism for growth within the South African economy.
We are continuing to see good demand across the group. The group is well positioned to take advantage
of any improvement in economic conditions over the next year.
The group will continue to maintain tight credit policies, with cash collections and cost control
remaining management priorities, while taking advantage of trading opportunities when they arise.
Driving digital engagement with customers continues to be a key strategic focus as the group looks
to expand digital penetration in its target customer market, particularly via the mobile phone.
The Financial Services business will continue to pursue the diversification of income earned from
insurance and value-added products and services.
S Portelli G Lartigue S Maltz
Chairman Chief executive officer Chief executive officer (South Africa)
Qormi, Malta, 7 March 2018
DIVIDEND DECLARATION
Notice is hereby given that the board of directors has declared a final gross cash dividend of
109.0 cents (87.2000 cents net of dividend withholding tax) per ordinary share for the year ended
31 December 2017. The dividend has been declared from income reserves. HIL is registered in the
Republic of Malta and the dividend is a foreign dividend. A dividend withholding tax of 20% will
be applicable to all South African shareholders who are not exempt.
The issued share capital at the declaration date is 104 762 901 ordinary shares.
The salient dates for the dividend will be as follows:
Last day of trade to receive a dividend Tuesday, 3 April 2018
Shares commence trading "ex" dividend Wednesday, 4 April 2018
Record date Friday, 6 April 2018
Payment date Monday, 9 April 2018
Share certificates may not be dematerialised or rematerialised between Wednesday, 4 April 2018 and
Friday, 6 April 2018, both days inclusive.
G Said
Company secretary
Qormi, Malta, 7 March 2018
SUMMARISED GROUP STATEMENT OF FINANCIAL POSITION
Notes 2017 % 2016
Rm change Rm
Assets
Non-current assets
Property, plant and equipment 428.6 0.6 425.9
Intangible assets 85.6 (4.6) 89.7
Investment in associates and other 43.7 24.3
Deferred taxation 0.4 38.2
558.3 (3.4) 578.1
Current assets
Inventories 2 256.8 20.1 213.8
Taxation receivable 4.2 4.7
Trade and other receivables 3 2 660.2 20.1 2 214.7
Trade receivables - Retail 1 482.4 21.3 1 221.7
Loans receivable - Financial Services 1 162.8 19.9 969.5
Other receivables 15.0 (36.2) 23.5
Cash and cash equivalents 130.3 187.2
3 051.5 16.5 2 620.4
Total assets 3 609.8 12.9 3 198.5
Equity and liabilities
Equity attributable to equity holders of the parent
Stated and share capital 1.0 1.0
Share premium 3 002.7 2 998.4
Reorganisation reserve (2 960.6) (2 960.6)
43.1 38.8
Treasury shares (2.7) (2.7)
Other reserves 13.9 6.4
Retained earnings 2 332.2 1 987.6
Total equity 2 386.5 17.6 2 030.1
Non-current liabilities
Interest-bearing liabilities 616.0 6.4 579.1
Deferred taxation 124.6 134.8
Other payables 5.6 4.9
746.2 3.8 718.8
Current liabilities
Interest-bearing liabilities 165.6 >100.0 31.5
Taxation payable 8.4 11.8
Trade and other payables 241.2 12.4 214.5
Provisions 38.0 31.7
Derivative financial instruments 5.1 -
Bank overdraft 18.8 -
Shareholder loan - 160.1
477.1 6.1 449.6
Total liabilities 1 223.3 4.7 1 168.4
Total equity and liabilities 3 609.8 12.9 3 198.5
SUMMARISED GROUP STATEMENT OF COMPREHENSIVE INCOME
Notes 2017 % 2016
Rm change Rm
Revenue 3 003.2 12.7 2 664.2
Retail sales 1 749.1 16.8 1 497.6
Finance charges and initiation fees earned 943.1 940.6
Finance charges earned 647.2 (3.7) 672.1
Initiation fees earned 295.9 10.2 268.5
Fees from ancillary services 311.0 37.6 226.0
Cost of retail sales (853.6) 12.4 (759.3)
Other operating costs (1 409.7) (1 267.8)
Debtor costs 6 (503.6) 5.3 (478.1)
Other trading expenses 6 (906.1) 14.7 (789.7)
Other net gains and losses 0.8 7.5
Other income 11.2 3.5
Operating profit 751.9 16.0 648.1
Interest received 6.5 91.2 3.4
Interest paid (82.8) 27.8 (64.8)
Share of loss of associates (8.8) (1.6)
Profit before taxation 666.8 14.0 585.1
Taxation (147.1) (8.2) (160.3)
Profit and total comprehensive income for the year 519.7 22.3 424.8
Earnings per share (cents)
Basic 7 501.9 21.0 414.8
Diluted 496.7 21.0 410.5
Additional information
Retail gross profit margin (%) 51.2 49.3
The Retail gross profit margin percentage has been calculated as Retail sales less cost of Retail sales,
divided by Retail sales.
SUMMARISED GROUP STATEMENT OF CHANGES IN EQUITY
Equity
attributable
Stated Reorgan- to owners
and share Share Treasury isation Other Retained of the
capital premium shares reserve reserves earnings parent
Rm Rm Rm Rm Rm Rm Rm
Balance at 1 January 2016 1.0 2 987.6 (2.7) (2 960.6) 4.5 1 721.6 1 751.4
Changes in equity
Profit and total comprehensive income
for the year - - - - - 424.8 424.8
Shares issued - 10.8 - - - - 10.8
Dividends paid - - - - - (158.8) (158.8)
Share incentive schemes - - - - 1.9 - 1.9
Total changes - 10.8 - - 1.9 266.0 278.7
Balance at 1 January 2017 1.0 2 998.4 (2.7) (2 960.6) 6.4 1 987.6 2 030.1
Changes in equity
Profit and total comprehensive income
for the year - - - - - 519.7 519.7
Shares issued - 4.3 - - - - 4.3
Dividends paid - - - - - (175.1) (175.1)
Share incentive schemes - - - - 7.5 - 7.5
Total changes - 4.3 - - 7.5 344.6 356.4
Balance at 31 December 2017 1.0 3 002.7 (2.7) (2 960.6) 13.9 2 332.2 2 386.5
SUMMARISED GROUP STATEMENT OF CASH FLOWS
Notes 2017 % 2016
Rm change Rm
Cash flows from operating activities
Operating cash flows before working capital changes 813.5 16.4 698.8
Movements in working capital (454.8) 7.8 (421.8)
Cash generated from operations 8 358.7 29.5 277.0
Interest received 6.5 3.4
Interest paid (78.0) (60.5)
Taxation paid (122.4) (140.6)
Net cash inflow from operating activities 164.8 >100.0 79.3
Cash flows from investing activities
Purchase of property, plant and equipment (28.3) (26.3)
Proceeds on disposal of property, plant and equipment 0.3 0.4
Purchase of intangible assets (28.0) (20.1)
Loans repaid by employees - 0.2
Investment in associates and other (19.8) (6.8)
Net cash outflow from investing activities (75.8) 44.1 (52.6)
Cash flows from financing activities
Proceeds from the issuance of shares 4.3 10.8
Proceeds from interest-bearing liabilities 714.5 369.6
Repayments of interest-bearing liabilities (699.5) (140.4)
Finance-raising costs paid (8.9) (7.2)
Dividends paid (175.1) (158.8)
Net cash (outflow)/inflow from financing activities (164.7) <100.0 74.0
Net (decrease)/increase in cash and cash equivalents
and bank overdrafts (75.7) 100.7
Cash, cash equivalents and bank overdrafts at the
beginning of the year 187.2 86.5
Cash, cash equivalents and bank overdrafts at the
end of the year 111.5 (40.4) 187.2
GROUP SEGMENTAL ANALYSIS
Financial
Total Retail Services Property Other Intragroup
2017 Rm Rm Rm Rm Rm Rm
Segmental revenue 3 058.7 2 337.5 665.7 55.5 - -
Retail sales 1 749.2 1 749.2 - - - -
Finance charges and initiation fees earned 943.1 459.1 484.0 - - -
Fees from ancillary services 366.4 129.2 181.7 55.5 - -
Intersegment revenue (55.5) - - (55.5) - -
Revenue from external customers 3 003.2 2 337.5 665.7 - - -
Total trading expenses (refer to note 6) 1 409.7 1 062.5 360.6 24.0 7.1 (44.5)
EBITDA 800.6 474.7 313.8 32.9 (20.8) -
Depreciation and amortisation (57.5) (53.5) (2.7) (1.3) - -
Interest received 3.6 - 2.9 - 61.3 (60.6)
Interest paid (54.2) - (57.2) - (57.6) 60.6
Segmental operating profit* 692.5 421.2 256.8 31.6 (17.1) -
Interest received 2.9 2.9 - - - -
Interest paid (28.6) (4.0) - (24.6) - -
Profit before taxation 666.8 420.1 256.8 7.0 (17.1) -
Taxation (147.1) (101.0) (46.4) 1.0 (0.7) -
Profit after taxation 519.7 319.1 210.4 8.0 (17.8) -
Segmental assets 3 609.8 2 154.5 1 387.3 341.1 1 014.7 (1 287.8)
Segmental liabilities 1 223.3 505.6 1 065.9 283.0 658.1 (1 289.3)
Operating cash flows before working
capital changes 813.5 478.1 309.4 32.9 (6.9) -
Movements in working capital (454.8) (270.4) (179.6) (3.5) (1.2) (0.1)
Cash generated/(utilised) by operations 358.7 207.7 129.8 29.4 (8.1) (0.1)
Capital expenditure
Property, plant and equipment 28.3 25.9 0.4 2.0 - -
Intangible assets 28.0 20.2 7.8 - - -
Change in Retail sales (%) 16.8 16.8
Change in EBITDA (%) 14.1 13.0 20.4 5.1 94.4
Change in debtor costs (%) 5.3 10.9 (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 (%) 22.6 18.0 38.6 57.0
* Refer to note 9 for further details on segments and segmental results.
Financial
Total Retail Services Property Other Intragroup
2016 Rm Rm Rm Rm Rm Rm
Segmental revenue 2 716.5 2 082.7 581.5 52.3 - -
Retail sales 1 497.6 1 497.6 - - - -
Finance charges and initiation fees earned 940.6 491.7 448.9 - - -
Fees from ancillary services 278.3 93.4 132.6 52.3 - -
Intersegment revenue (52.3) - - (52.3) - -
Revenue from external customers 2 664.2 2 082.7 581.5 - - -
Total trading expenses (refer to note 6) 1 267.8 953.5 325.1 22.3 9.6 (42.7)
EBITDA 701.4 420.2 260.7 31.3 (10.7) (0.1)
Depreciation and amortisation (54.8) (49.5) (3.6) (1.3) (0.4) -
Interest received 1.5 - 0.6 - 36.1 (35.2)
Interest paid (31.5) - (31.7) - (34.2) 34.4
Segmental operating profit* 616.5 370.7 226.0 30.0 (9.3) (0.9)
Interest received 1.9 1.9 - - - -
Interest paid (33.3) (7.5) - (25.8) - -
Profit before taxation 585.1 365.1 226.0 4.2 (9.3) (0.9)
Taxation (160.3) (97.5) (54.1) (4.2) (4.5) -
Profit after taxation 424.8 267.6 171.9 - (13.8) (0.9)
Segmental assets 3 198.5 1 761.9 1 095.5 340.1 589.8 (588.8)
Segmental liabilities 1 168.4 572.3 389.7 279.5 514.7 (587.8)
Operating cash flows before working
capital changes 698.8 421.5 255.8 31.3 (9.2) (0.6)
Movements in working capital (421.8) (265.1) (161.4) 2.5 1.7 0.5
Cash generated/(utilised) by operations 277.0 156.4 94.4 33.8 (7.5) (0.1)
Capital expenditure
Property, plant and equipment 26.3 21.8 0.8 4.4 0.1 (0.8)
Intangible assets 20.1 15.0 0.3 - 4.9 (0.1)
Change in Retail sales (%) 25.1 25.1
Change in EBITDA (%) 11.0 11.3 11.7 3.5 (10.7)
Change in debtor costs (%) 20.3 23.9 14.0
Change in other trading expenses (%) 18.4 11.2 57.9 >100.0 (39.4)
Gross profit margin (%) 49.3 49.3
Segmental results margin (%) 22.7 17.8 38.9 57.4
* Refer to note 9 for further details on segments and segmental results.
NOTES TO THE SUMMARISED GROUP FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
The group annual financial statements for the year ended 31 December 2017 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 summarised consolidated financial statements are prepared in accordance with the requirements
of the JSE Limited (JSE) Listings Requirements for abridged reports. The Listings Requirements
require abridged reports to be prepared in accordance with the framework concepts and the
measurement and recognition requirements of International Financial Reporting Standards (IFRS)
and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and
Financial Pronouncements as issued by the Financial Reporting Standards Council and to also,
as a minimum, contain the information required by IAS 34, Interim Financial Reporting.
The accounting policies applied in the preparation of the group annual financial statements from
which the summarised consolidated financial statements were derived are in terms of IFRS and
are consistent with those accounting policies applied in the preparation of the previous group
annual financial statements, except for the amendment to IAS 7.
No new standards, amendments or interpretations to existing standards, relevant to the group's
operations, became effective for the year ended 31 December 2017 other than the amendment to
IAS 7, Cash flow statements. The impact of this amendment does not have a material impact on
the group.
2. INVENTORIES
2017 2016
Rm Rm
Merchandise for resale 212.5 198.3
Provision for inventory obsolescence (18.0) (22.3)
Goods in transit 62.3 37.8
256.8 213.8
Inventory sold at less than cost during the current year amounted to R39.4 million
(2016: R14.3 million).
3. TRADE AND OTHER RECEIVABLES
2017 % 2016
Rm change Rm
Trade receivables - Retail 1 806.1 19.8 1 507.3
Provision for impairment (323.7) 13.3 (285.6)
1 482.4 21.3 1 221.7
Loans receivable - Financial Services 1 351.7 17.8 1 147.3
Provision for impairment (188.9) 6.3 (177.8)
1 162.8 19.9 969.5
Other receivables 15.0 (36.2) 23.5
Total trade and other receivables 2 660.2 20.1 2 214.7
Trade and loan receivables 3 157.8 19.0 2 654.6
Provision for impairment (512.6) 10.6 (463.4)
Other receivables 15.0 (36.2) 23.5
Movements in the provision for impairment were as follows:
Retail
Opening balance (285.6) 26.0 (226.6)
Movement in provision (38.1) (35.4) (59.0)
Debtor costs charged to profit and loss (349.3) 10.9 (315.0)
Debts written off during the year, net of recoveries 311.2 21.6 256.0
Closing balance (323.7) 13.3 (285.6)
Financial Services
Opening balance (177.8) 13.2 (157.0)
Movement in provision (11.1) (46.6) (20.8)
Debtor costs charged to profit and loss (154.3) (5.4) (163.1)
Debts written off during the year, net of recoveries 143.2 0.6 142.3
Closing balance (188.9) 6.3 (177.8)
Retail
Debtor costs as a % of revenue (%) 14.9 15.1
Debtor costs as a % of gross receivables (%) 19.3 20.9
Provision for impairment as a % of gross receivables (%) 17.9 18.9
Financial Services
Debtor costs as a % of revenue (%) 23.2 28.0
Debtor costs as a % of gross receivables (%) 11.4 14.2
Provision for impairment as a % of gross receivables (%) 14.0 15.5
Group
Debtor costs as a % of revenue (%) 16.8 17.9
Debtor costs as a % of gross trade receivables (%) 15.9 18.0
Provision for impairment as a % of gross receivables (%) 16.2 17.5
4. CONTINGENT LIABILITIES
The group is currently involved in a dispute with SARS with regards to the quantum of a deduction
that has been claimed in prior years. The group's position is supported by tax specialists and
they have concluded that the likelihood of an outflow of economic benefits to settle the obligation
is not probable. The contingent tax liability, which includes interest and penalties, is estimated
to be less than R10.0 million at the reporting date.
5. 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.
6. TOTAL TRADING EXPENSES
2017 % 2016
Rm change Rm
Expenses by nature
Debtor costs
Trade receivables - Retail 349.3 10.9 315.0
Loans receivable - Financial Services 154.3 (5.4) 163.1
Total debtor costs 503.6 5.3 478.1
Amortisation of intangible assets 32.1 (1.2) 32.5
Depreciation of property, plant and equipment 25.4 13.4 22.4
Operating lease charges for immovable property 1.4 7.7 1.3
Total operating lease charges 8.2 >100.0 4.0
Less: disclosed under cost of Retail sales (6.8) >100.0 (2.7)
Marketing costs 220.0 16.5 188.9
Staff costs: short-term employee benefits 394.9 18.9 332.0
Total staff costs 441.2 20.6 365.9
Less: disclosed under cost of Retail sales (27.2) 25.3 (21.7)
Less: staff costs capitalised to intangibles (19.1) 56.6 (12.2)
Other costs 232.3 9.3 212.6
Total other trading expenses 906.1 14.7 789.7
1 409.7 11.2 1 267.8
7. BASIC AND HEADLINE EARNINGS PER SHARE
The calculation of basic and headline earnings per share is based upon profit for the year
attributable to ordinary shareholders divided by the weighted average number of ordinary shares
in issue as follows:
2017 2016
Rm Rm
Profit for the year 519.7 424.8
Adjusted for the after-tax effect of:
Gain on disposal of property, plant and equipment and intangible assets (0.1) (0.2)
Impairment of property, plant and equipment - 0.1
Impairment of investment in associate and other 3.5 -
Share of impairment of property, plant and equipment of associate 4.4 -
Headline earnings 527.5 424.7
Weighted average number of ordinary shares in issue ('000) 103.6 102.4
Earnings per share (cents)
Basic 501.9 414.8
Headline 509.4 414.6
Basic - diluted 496.7 410.5
Headline - diluted 504.1 410.3
8. RECONCILIATION OF CASH GENERATED FROM OPERATIONS
2017 % 2016
Rm change Rm
Profit before taxation 666.8 14.0 585.1
Share of loss of associate 8.8 >100.0 1.6
Profit from insurance cells (13.3) >100.0 (5.8)
Gain on disposal of property, plant and equipment
and intangible assets (0.1) (66.7) (0.3)
Impairment of property, plant and equipment - >(100.0) 0.1
Impairment of investment in associate 4.9 >100.0 -
Depreciation and amortisation 57.5 4.9 54.8
Share-based employee share expense 7.5 >100.0 1.9
Exchange losses on foreign exchange contracts 5.1 >100.0 -
Interest paid 76.6 24.8 61.4
Interest received (6.5) 91.2 (3.4)
Capitalised bond costs - amortised cost adjustment 6.2 82.4 3.4
Operating cash flows before working capital changes 813.5 16.4 698.8
Movements in working capital (454.8) 7.8 (421.8)
Increase in inventories (43.0) (0.9) (43.4)
Increase in trade receivables - Retail (260.7) 8.8 (239.7)
Increase in loans receivable - Financial Services (193.3) 8.0 (179.0)
Decrease/(increase) in other receivables 8.5 >(100.0) (8.8)
Increase in trade and other payables 27.4 (7.7) 29.7
Increase in provisions 6.3 (67.5) 19.4
358.7 29.5 277.0
9. GROUP SEGMENTAL ANALYSIS
The group's operating segments are identified as being Retail, Financial Services, Property and
Other. Operating segments are reported in a manner consistent with the internal reporting
provided to the chief operating decision-maker, being HomeChoice International PLC's executive
directors. The group's reportable segments are unchanged from the previous reporting date.
Retail consists mainly of the group's HomeChoice and FoneChoice operations, whereas Financial
Services represents the group's FinChoice operations. The group's property companies, which own
commercial properties utilised 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.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the statement of financial position approximate fair values.
Trade and other receivables are measured at amortised cost using the effective interest rate
method less any allowance for impairment.
11. COMMITMENTS
Leases are contracted for periods not exceeding five years and contain escalation clauses of
between 8% and 9% and renewal options. The lease expenditure charged to profit and loss during
the year is disclosed in note 6.
At 31 December the future minimum operating lease commitments amounted to the following:
2017 2016
Rm Rm
Properties
Payable within one year 7.7 3.5
Payable between two and five years 31.3 18.0
39.0 21.5
Suspensive sale agreements
Payable within one year 15.5 15.2
Payable between two and five years 13.9 25.7
29.4 40.9
Future finance charges on suspensive sale agreements (2.8) (5.1)
26.6 35.8
The present value of suspensive sale agreement payments is as follows:
Payable within one year 13.6 12.7
Payable between two and five years 13.0 23.1
26.6 35.8
Capital commitments for property, plant and equipment and intangible assets:
Approved by the directors 13.5 47.2
13.5 47.2
12. 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 2017 took place during the period and related party balances are
existing at the reporting date. Related party transactions include key management personnel
compensation and intragroup transactions which have been eliminated on consolidation.
The group entered into a loan agreement with GFM Limited in May 2015. The loan carried interest
at the South African prime interest rate and was fully repaid during the current period.
13. AUDIT OPINION
This summarised report is extracted from audited information, but is not itself audited.
The group annual financial statements were audited by PricewaterhouseCoopers, who expressed an
unmodified opinion thereon. The audited group annual financial statements and the auditor's
report thereon are available for inspection at the company's registered office. The directors
take full responsibility for the preparation of this abridged report and that the financial
information has been correctly extracted from the underlying group annual financial statements.
7 March 2018
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: Deutsche Bank International Limited, Channel Islands
Sponsor: Rand Merchant Bank, a division of FirstRand Bank Limited
Transfer secretaries: Computershare Investor Services Proprietary Limited
Website: www.homechoiceinternational.com
Date: 08/03/2018 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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