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HOMECHOICE INTERNATIONAL PLC - Summarised group financial statements for the year ended 31 December 2018 and cash dividend declaration

Release Date: 18/03/2019 08:45
Code(s): HIL     PDF:  
 
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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


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