STEINHOFF AFRICA RETAIL LIMITED - Unaudited Interim Results For The Six Months Ended 31 March 2018
29 May 2018 9:55
SRR 201805290023A
Unaudited Interim Results For The Six Months Ended 31 March 2018
Steinhoff Africa Retail Limited
Registration number: 2017/221869/06
Share code: SRR
ISIN: ZAE000247995
(‘STAR’ or ‘the company’ or ‘the group’)
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 2018
COMPARABLE* HIGHLIGHTS
- 10.2% increase in revenue to R33.0bn
- 9.0% increase in operating profit** to R3.3bn
- 12.2% increase in headline earnings per share
R18bn raised in completion of refinancing of shareholder funding
* Comparable results - refer to additional information below.
** Before capital items
Statutory results
Six months Six months
ended ended
31 March 2018 31 March 2017 %
H1FY18 H1FY17 change
Revenue (Rm) 33 013 28 490 15.9
Operating profit before capital items (Rm) 2 708 2 788 (2.9)
Headline earnings per share (c) 36.2 71.1 (49.1)
Comparable* results
Six months Six months
ended ended
31 March 2018 31 March 2017 %
H1FY18 H1FY17 change
Revenue (Rm) 33 013 29 953 10.2
Operating profit before capital items (Rm) 3 298 3 026 9.0
Headline earnings per share (c) 52.6 46.9 12.2
* Comparable results - refer to additional information below.
Introduction
The first half of the financial year has proven to be very challenging for STAR from a corporate perspective. It is understandably
difficult for the market to comprehend what the impact of the events at Steinhoff International Holdings N.V. (‘Steinhoff’)
is or can be on STAR.
STAR is a separately listed company and, after the recent refinancing of shareholder funding, is financially independent. The removal
of all cross guarantees pertaining to the Steinhoff shareholder funding has been a major milestone. The company has taken a conservative
approach with a specific focus to identify and limit any future downside risk.
STAR consists of some of the most iconic brands in South African retail that operate independently of the corporate noise that exist.
The majority of the brands in STAR were part of the former Pepkor Holdings group (Pepkor), which has a proud and successful history.
STAR has a decentralised divisional management structure and is fortunate to have very experienced leadership that manages the respective
brands. Their priority has been to create stability and to focus their teams on the execution of their strategies and customer value
propositions - something they have indeed done successfully. Excluding the extraordinary items mentioned below, STAR had a satisfactory
performance for the period under review.
Extraordinary items for the six months ended 31 March 2018
STAR issued a trading statement on 25 May 2018 describing the impact of the Steinhoff events on the STAR interim results. This followed
an audit committee meeting earlier that day that confirmed that a reasonable degree of certainty exists that extraordinary losses will
be incurred, and the quantum thereof.
STAR, through its subsidiaries, has been a guarantor of third-party debt related to a Pepkor management investment company since 2011.
The investment initially consisted of Pepkor shares, but was converted to Steinhoff shares in 2015 following Steinhoff’s acquisition
of Pepkor. Following the finalisation and publication of STAR’s 2017 annual financial statements and the subsequent decline of the Steinhoff
share price, the risk of liability in this regard can no longer be considered to be remote. Therefore, the STAR board has taken the
conservative approach to fully provide for STAR’s exposure in this regard, amounting to R440 million. In addition, a provision for
an impairment of loans associated to the third-party debt, amounting to R60 million, was provided for, thereby sufficiently providing
for STAR’s exposure in this regard.
Given the decline of the Steinhoff share price, the legacy Steinhoff share incentive scheme (‘Steinhoff scheme’) no longer adequately
addresses the need to retain, motivate and reward key senior employees of the group. This resulted in the introduction of a cash
retention scheme at an additional cost of R90 million in the current reporting period.
STAR interim results
The comparability of STAR’s statutory results is limited by the timing of its internal restructure in July 2017, prior to its listing.
The issue of 750 million shares (21.47% of issued share capital) upon listing on 20 September 2017 and acquisitions in both the comparative
and current period materially impact the comparability of the results.
For purposes of clarity we provide comparable results for the six months ended 31 March 2018 (H1FY18) as further detailed below.
Comparable
Pro forma BSG STAR
STAR as per Normalisation six months Pro-forma six months
pre-listing of effective ended BSG ended
statement tax rate 31 March 2017 adjustments 31 March 2017
Additional information (a) (1) (2) (3) H1F17
Six montsh ended 31 March 2017 Rm Rm Rm Rm Rm
Revenue 29 222 - 731 - 29 953
Operating profit before capital items 2 964 - 62 - 3 026
Net finance costs (651) - (19) (16) (685)
Profit before taxation 2 276 - 43 (16) 2 304
Taxation (618) (88) (7) - (713)
Profit for the period 1 658 (88) 37 (16) 1 591
Profit attributable to:
Owners of the parent 1 653 (88) 37 (16) 1 586
Non-controlling interests 5 - - - 5
Profit for the period 1 658 (88) 37 (16) 1 591
Headline earnings per ordinary share (cents) 48.9 (2.6) 1.1 (0.5) 46.9
Basic earnings per ordinary share (cents) (b) 47.9 (2.6) 1.1 (0.5) 46.0
Number of ordinary shares in issue (millions) 3 450 - - - 3 450
Weighted average number of ordinary shares
in issue (millions) 3 450 - - - 3 450
The comparable results as set out in the additional results have been prepared for illustrative purposes only, in order to provide
shareholders with comparable results. Because of its nature, the historic financial information may not fairly present STAR’s financial
position, changes in equity, results of operations or cash flows.
The comparable results are presented in accordance with the JSE Listings Requirements, the Guide on Pro Forma Financial Information
issued by SAICA.
The comparable results are the responsibility of the board and were not reviewed or reported on by STAR’s auditors.
In determining the H1FY17 comparable results, the H1FY17 statutory results were adjusted as follows:
1. The STAR reviewed 31 March 2017 results included tax adjustments of a non-recurring nature that has been normalised by way of using
the average effective tax rate for the 12 months ended 30 September 2017. Tax adjustments include inter alia deferred tax assets raised
on previously unrecognised tax losses and therefore not recurring in nature.
2. The column titled ‘BSG six months ended 31 March 2017’ has been extracted from the Building Supply Group (BSG) management accounts
for the six months ended 31 March 2017. BSG was acquired by STAR and consolidated as part of the STAR unaudited results from
1 October 2017 to 31 March 2018. The management of STAR is satisfied with the quality of the management accounts of BSG applied.
3. The column titled ‘Pro forma BSG adjustments’ refers to the finance costs incurred in funding the acquisition of BSG. The costs
are not expected to be tax deductible as it is not in the production of taxable income.
Save for otherwise stated, all comparable adjustments will have a continuing effect on the financial results of STAR.
Notes:
(a) The column titled ‘Pro forma STAR as per pre-listing statement’ refers to the pro forma adjusted results of STAR included
in annexure 3 of the pre-listing statement prior to the effects of the Shoprite call options.
(b) Rounded
Comparable
Statutory STAR Provision STAR
six months for guarantee Cash six months
ended and loan retention ended
31 March 2018 impairment scheme 31 March 2018
Additional information H1FY18 (1) (2) H1FY18
Six months ended 31 March 2018 Rm Rm Rm Rm
Operating profit before capital items 2 708 500 90 3 298
Capital items (1) - - (1)
Operating profit after capital items 2 707 500 90 3 297
Profit before taxation 2 154 500 90 2 744
Taxation (899) - (25) (924)
Profit for the period 1 255 500 65 1 820
Profit attributable to:
Owners of the parent 1 249 500 65 1 814
Non-controlling interests 6 - - 6
Profit for the period 1 255 500 65 1 820
Headline earnings per ordinary share (cents) 36.2 14.5 1.9 52.6
Basic earnings per ordinary share (cents) (a) 36.2 14.5 1.9 52.6
Number of ordinary shares in issue (millions) 3 450 - - 3 450
Weighted average number of ordinary shares in issue (millions) 3 450 - - 3 450
(a) Rounded
The comparable results as set out in the additional results have been prepared for illustrative purposes only, in order to provide
shareholders with comparable results. Because of its nature, the historic financial information may not fairly present STAR’s financial
position, changes in equity, results of operations or cash flows.
The comparable results are presented in accordance with the JSE Listings Requirements, the Guide on Pro Forma Financial Information
issued by SAICA.
The comparable results are the responsibility of the board and were not reviewed or reported on by STAR’s auditors.
In determining the H1FY18 comparable results trading range as detailed in the trading statement, the H1FY18 statutory results were adjusted
for the following:
1. STAR is party to a guarantee of third-party debt that is underpinned by the Steinhoff International Holdings N.V (Steinhoff) share
price. Since the decline of the Steinhoff share price, the risk of liability in this regard (‘Steinhoff share exposure’) can no longer
be considered remote. Exposure to the company pertaining to the Steinhoff share exposure, equating to R440 million (taxation of RNil)
and the provision for an impairment of loans associated to the third-party amounting to R60 million (taxation of RNil), have been
recognised in the H1FY18 results. This will not have a continuing effect on the financial results as STAR has sufficiently provided
for its exposure in this regard.
2. The long-term cash retention scheme impact of R90 million (taxation of R25 million) was recognised in the H1FY18 results. This adjustment
will have a continuing effect on the financial results of STAR until 2020 by a similar amount, subject to performance.
COMPARABLE STAR RESULTS
On a comparable basis, STAR delivered a good performance in a challenging retail environment characterised by slow economic growth
and consumer spending that remains under severe pressure. Additionally, the challenge of deflation continued to impact sales growth
within the clothing, footwear and homeware (CFH) retailers, which comprise more than 65% of STAR’s revenue. Action plans were implemented
to mitigate the impact of deflation, resulting in a stronger sales performance during the second quarter. It is expected that the impact
of deflation will dissipate gradually in the remainder of this financial year.
STAR’s ability to provide the best price and value offerings in the market translated into revenue growth (on a comparable basis)
of 10.2% to R33.0 billion for the group. STAR added 155 new stores during the period, increasing its footprint to 5 108 stores covering
2.4 million square metres.
Operating profit growth was supported by strong growth in Ackermans and the turnaround of the JD Group. Challenging operating conditions
in Pep Africa and Steinbuild weighed on operating profit growth. STAR reported comparable operating profit growth of 9.0% to R3.3 billion
(H1FY17: R3.0 billion). Overall, STAR’s comparable operating margin was largely maintained at 10.0% (H1FY17: 10.1%).
OPERATIONAL REVIEW BASED ON COMPARABLE RESULTS
Pep and Ackermans
The Pep and Ackermans brands in aggregate reported 8.9% sales growth, supported by the opening of 80 stores on a net basis. Like-for-like
sales growth of 3.5% for the six months was driven by a stronger performance during the second quarter as a result of increased sales
volumes and interventions to mitigate the impact of deflation.
Kidswear, adultwear and homeware reported strong sales growth, with significantly improved margins in FMCG due to private label products,
and cellular as a result of the direct import of handsets.
Gross margins were positively affected, mainly due to the impact of a stronger rand.
The Flash business, which provides virtual solutions in the informal market, continues to grow aggressively and now supports trading
through more than 131 000 trading devices across the country.
Pep Africa
Pep Africa, representing less than 4% of STAR group revenue, reported a disappointing performance for the period under review as low
commodity prices impacted consumer spending in its traditional markets, while volatile exchange rates and a stronger rand affected
the business. Forex losses amounting to R88 million were incurred during the period.
Sales growth of 6.3% in rand terms was achieved, which includes the opening of 15 new stores. Negative like-for-like sales growth
was however reported for the period, while gross margins were negatively impacted by currency volatility and stock clearances.
Macro-economic conditions have impacted significantly on the economies of Angola and Zimbabwe and had a severe impact on their results.
JD Group
The turnaround of the JD Group continues, and results for the period were very positive. All retail brands within the group reported
improved trading compared to the previous period, with total group sales increasing by 11.4% and like-for-like sales growth of 7.3%.
This performance was achieved despite extremely difficult market conditions for durable goods.
Margin improvements were achieved in the furniture brands but remain under pressure in the consumer electronics and appliance brands.
Credit sales are now a much smaller revenue driver compared to historic levels, generating 29% of furniture sales. Significant
investments were made in systems and processes to provide the group with a solid platform for future growth.
Speciality fashion and footwear
The speciality fashion and footwear division performed well as a group, achieving comparable sales growth of 17.3% overall
and 10.1% on a like-for-like basis. The store footprint was expanded to 900 stores during the period, growing by 24 stores.
Good progress continues to be made with the repositioning of the brands.
Tekkie Town showed positive sales growth and introduced credit by in-house provider, Tenacity. The John Craig brand was repositioned
to a predominantly private label brand, Muratti, and has shown excellent sales growth. Supported by the reintroduction of ladieswear,
Refinery has performed very well and has achieved great support and brand traction from the market. Shoe City’s performance was
significantly impacted by deflation and stock imbalances and, as a result, sales growth was below expectation. Dunns’ profitability
was impacted by high markdowns and stock clearances. A new management team was appointed to further progress the turnaround
of this brand.
Building materials and DIY
The building materials industry is under severe pressure as economic development and investment in the country has slowed.
Despite an improved second quarter, revenue declined by 3.6 % (excluding BSG) for the six months. The trend is consistent across
the general and specialised building materials divisions. Trading margins have been well managed and are in line with expectation.
Costs have also been contained.
Following a high degree of corporate activity with the acquisitions of Illiad and BSG over the last two years, the focus has now shifted
to sales initiatives and operational execution. Recent changes in the political landscape has created a more positive economic outlook
and may assist improved industry growth in the medium to longer term.
STATUTORY RESULTS
Summarised consolidated income statement
Six months Six months Twelve months
ended ended ended
31 March 2018 31 March 2017 30 Sept 2017
Unaudited Reviewed % Audited
Notes Rm Rm change Rm
Revenue 33 013 28 490 15.9 57 850
Cost of sales (21 281) (18 283) 16.4 (37 412)
Gross profit 11 732 10 207 14.9 20 438
Other income 553 467 18.4 701
Operating expenses (9 022) (7 403) 21.9 (14 364)
Operating profit before depreciation, amortisation
and capital items 3 263 3 271 (0.2) 6 775
Depreciation and amortisation (555) (483) 14.9 (960)
Operating profit before capital items 2 708 2 788 (2.9) 5 815
Capital items 2 (1) (37) (97.3) (29)
Operating profit 2 2 707 2 751 (1.6) 5 786
Net finance charges (553) (283) 95.4 (620)
Profit before taxation 2 154 2 468 (12.7) 5 166
Taxation 3 (899) (639) 40 (1 599)
Profit for the period 1 255 1 829 (31.4) 3 567
Profit attributable to:
Owners of the parent 1 249 1 824 (31.5) 3 550
Non-controlling interests 6 5 20.0 17
Profit for the period 1 255 1 829 (31.4) 3 567
Basic earnings per share (cents) 4 36.2 69.9 (48.2) 132.6
Headline earnings per share (cents) 4 36.2 71.1 (49.1) 133.6
Diluted earnings per share (cents) 4 36.1 69.9 (48.3) 132.6
Diluted headline earnings per share (cents) 4 36.1 71.1 (49.2) 133.6
Summarised consolidated statement of comprehensive income
Six months Six months Twelve months
ended ended ended
31 March 2018 31 March 2017 30 Sept 2017
Unaudited Restated Restated
Rm Rm Rm
Profit for the period 1 255 1 829 3 567
Other comprehensive income/(loss)
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations 169 (21) (84)
Net fair value (loss)/gain on cash flow hedges and other fair value reserves (524) (39) 768
Deferred taxation on cash flow hedges and fair value reserves 59 38 (74)
Capitalisation of Pep Africa foreign currency (losses)/gains on loan (621) 107 795
Deferred tax on capitalisation of foreign currency movements 67 (33) (104)
Total other comprehensive (loss)/income for the period (850) 52 1 301
Total comprehensive income for the period 405 1 881 4 868
Total comprehensive income attributable to:
Owners of the parent 399 1 876 4 851
Non-controlling interests 6 5 17
Total comprehensive income for the period 405 1 881 4 868
Summarised consolidated statement of changes in equity
Six months Six months Twelve months
ended ended ended
31 March 2018 31 March 2017 30 Sept 2017
Unaudited Restated Restated
Rm Rm Rm
Balance at the beginning of the period 52 917 51 988 52 695
Changes in ordinary stated capital - - -
Shares issued in terms of internal restructure - 3 480 70 177
Common control adjustment - - (10 471)
Shares issued upon listing - - 15 375
Share expenses capitalised 1 - (230)
Capital distribution - - (20 632)
Changes in reserves
Total comprehensive income for the year attributable to owners of the parent 399 1 876 4 851
Dividends paid - 7 (2 013)
Net shares bought from non-controlling interests - - (5)
Share-based payments 41 15 (2)
Reserves acquired on acquisition of business 2 - -
Other reserve movements - (89) 2
Common control adjustment - - (56 826)
Changes in non-controlling interests
Total comprehensive income for the year attributable to non-controlling interests 6 5 17
Non-controlling interests acquired on acquisition of business (1) - -
Distributions and refinancing arrangements (6) (9) (21)
Balance at end of period 53 359 57 273 52 917
Comprising
Ordinary stated capital 64 691 60 552 64 690
Common control reserve (11 755) - (11 755)
Distributable reserves 311 (3 250) (88)
Share-based payment reserve 74 41 33
Other reserves 14 (93) 12
Non-controlling interests 24 23 25
53 359 57 273 52 917
Summarised consolidated statement of financial position
31 March 2018 31 March 2017 30 Sept 2017
Unaudited Reviewed Audited
Rm Rm Rm
ASSETS
Non-current assets
Goodwill and intangible assets 60 966 60 652 60 826
Property, plant and equipment 4 720 3 993 4 613
Investments and loans 120 1 050 170
Deferred taxation assets 1 281 2 333 1 586
67 087 68 028 67 195
Current assets
Inventories 11 554 10 510 10 954
Trade and other receivables 5 817 4 743 4 931
Loans due by Steinhoff and its subsidiaries 201 - 236
Cash and cash equivalents 2 921 2 263 3 797
20 493 17 516 19 918
Total assets 87 580 85 544 87 113
EQUITY AND LIABILITIES
Capital and reserves
Ordinary stated capital 64 691 - 64 690
Reserves (11 357) 57 251 (11 798)
Total equity attributable to equity holders of the parent 53 335 57 251 52 892
Non-controlling interests 24 23 25
Total equity 53 359 57 274 52 917
Non-current liabilities
Interest-bearing loans and borrowings 26 26 16
Loans due to Steinhoff and its subsidiaries 11 000 - 11 000
Employee benefits 130 (28) 112
Deferred taxation liabilities 4 088 3 835 4 050
Provisions 594 854 727
Trade and other payables 580 536 533
16 418 5 223 16 438
Current liabilities
Trade and other payables 10 987 10 075 11 722
Loans due to Steinhoff and its subsidiaries 5 112 11 725 4 868
Employee benefits 669 692 737
Provisions 268 382 331
Interest-bearing loans and borrowings 34 - 11
Bank overdrafts and short-term facilities 733 173 89
17 803 23 047 17 758
Total equity and liabilities 87 580 85 544 87 113
Net asset value per ordinary share (cents) 1 545.9 2 120.4 1 533.1
Summarised consolidated statement of cash flows
Six months Six months Twelve months
ended ended ended
31 March 2018 31 March 2017 30 Sept 2017
Unaudited Reviewed Audited
Notes Rm Rm Rm
CASH FLOWS FROM OPERATING ACTIVITIES
Operating profit: 2 707 2 751 5 786
Adjusted for:
Debtors' costs 150 115 284
Depreciation and amortisation 555 483 960
Non-cash adjustments 554 4 239
3 966 3 353 7 269
Working capital changes
Inventories (515) (1 236) (1 910)
Receivables (822) 126 31
Payables (1 897) (897) 1 074
Changes in working capital (3 234) (2 007) (805)
Cash generated from operations 732 1 346 6 464
Net movement in installment sale and loan receivables (131) (190) (188)
Net dividends paid (6) (3) (1 963)
Net finance charges (553) (283) (670)
Taxation paid (429) (662) (1 396)
Net cash (outflow)/inflow from operating activities (387) 208 2 247
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment and intangible assets (715) (704) (1 667)
Proceeds on disposal of property, plant and equipment and intangible assets 24 56 -
Acquisition of businesses, net of cash on hand at acquisition 5 (297) (429) (429)
Decrease/(increase) in long-term investments and loans (11) (89) 780
Net cash outflow from investing activities (999) (1 165) (1 316)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of ordinary shares issued - - 15 375
Capital distribution - - (15 132)
Share issue expenses 1 - (123)
Transactions with non-controlling interests - (3) (26)
Increase/(decrease) in bank overdrafts and short-term facilities 564 15 (69)
Increase/(decrease) in long-term interest-bearing loans and borrowings 236 (5) (15)
Increase/(decrease) in short-term interest-bearing loans and borrowings - 99 (88)
Increase in related party loans and receivables - 343 293
Net cash inflow from financing activities 801 449 215
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (585) (508) 1 146
Effects of exchange rate translations on cash and cash equivalents (291) - (120)
Cash and cash equivalents at beginning of the period 3 797 2 771 2 771
CASH AND CASH EQUIVALENTS AT END OF PERIOD 2 921 2 263 3 797
Notes to the summarised consolidated financial statements for the six months ended 31 March 2018
Statement of compliance
The summarised consolidated interim financial statements have been prepared and presented in accordance with the framework concepts
and the measurement and recognition requirements of International Financial Reporting Standards (IFRS), the SAICA Financial Reporting
Guides as issued by the Accounting Practices Committee and Financial Reporting Pronouncements as issued by the Financial Reporting
Standards Council, the Listings Requirements of the JSE Limited, the information at a minimum as required by IAS 34: Interim Financial
Reporting and the requirements of the South African Companies Act, No. 71 of 2008. The summarised consolidated interim financial
statements have been prepared using accounting policies that comply with IFRS, which are consistent with those applied in the consolidated
financial statements for the period ended 30 September 2017.
Basis of preparation
The summarised consolidated interim financial statements are prepared in millions of South African rand (Rm) on the historical-cost basis,
except for certain assets and liabilities, which are carried at amortised cost, and derivative financial instruments, which are stated
at their fair values. The preparation of the summarised consolidated interim financial statements for the six months ended 31 March 2018
was supervised by RG Hanekom CA(SA), the group’s chief financial officer.
Restatement
Subsequent to the finalisation and publication of the group’s 2017 audited annual financial statements, an error was identified
in the accounting treatment of unrealised exchange rate differences pertaining to the group’s net foreign investment in the Pep Africa
operations. In terms of IAS 21: The effects of changes in foreign exchange rates, exchange differences pertaining to the translation
of foreign currency monetary items receivable from or payable to foreign operations for which settlement is neither planned nor likely
to occur, should be recognised initially in other comprehensive income. Notwithstanding the fact that the group recognised such exchange
differences in the statement of changes in equity, these items were not included in the statement of other comprehensive income.
Financial statements
These results have not been reviewed or reported on by the group’s auditors. All forward-looking information is the responsibility
of the board of directors and has not been reviewed or reported on by the group’s auditors. The results were approved by the board
of directors on 28 May 2018.
Additional related parties
The forensic investigation underway at the group’s controlling shareholder, Steinhoff International Holdings N.V. (‘Steinhoff’),
includes aspects that may influence the identification of related parties at the STAR group level. This is as a result of possible
significant influence of Steinhoff over the Fulcrum Financial Services SA group companies (‘Fulcrum’). Fulcrum provides consumer
financing to some of STAR’s customers. As a result, the related party disclosure in STAR’s 2017 audited financial statements may need
to be enhanced to include the relationship and transactions with Fulcrum. Any such restatement, pending the outcome of the forensic
investigation, will not impact STAR’s historical financial performance nor financial position and merely includes qualitative disclosure
as required in terms of IAS 24: Related party disclosures.
Accounting policies
The accounting policies utilised in the preparation of the summarised consolidated interim financial information are consistent
with those of the audited consolidated financial statements for the year ended 30 September 2017.
Events subsequent to the reporting period
On 23 May 2018, the refinancing of the Steinhoff shareholder funding (‘shareholder funding’) was completed with the conclusion
of agreements between STAR (and its designated wholly-owned subsidiaries) and various South African financial institutions.
The repayment of the shareholder funding also facilitated the release of STAR and its subsidiaries from all third-party guarantees related
to the financing of the shareholder funding. The company raised a total of ZAR18 billion stand-alone financing facilities, which was well
received by the SA market with the overall demand exceeding the company’s requirements. The additional ZAR2 billion, over and above what
was required to settle the shareholder funding, was raised in line with STAR’s funding needs and growth in operations.
Changes to the board/board committees
The following changes to the board occurred during the reporting period:
AB la Grange - resigned 24 January 2018
MJ Jooste - resigned 5 December 2017
AE Swiegers - resigned 13 February 2018
VP Khanyile - resigned 10 January 2018
LM Lourens - appointed 6 December 2017
LJ du Preez - appointed 24 January 2018
F Petersen-Cook - appointed 14 April 2018
Six months Six months Twelve months
ended ended ended
31 March 2018 31 March 2017 30 Sept 2017
Unaudited Reviewed % Audited
Rm Rm change Rm
1. SEGMENTAL ANALYSIS
REVENUE
Integrated retail: Discount and value 26 688 23 875 11.8 44 130
Integrated retail: Speciality 6 325 4 615 37.1 13 720
Integrated retail: Consumer goods 33 013 28 490 15.9 57 850
OPERATING PROFIT BEFORE CAPITAL ITEMS
Integrated retail: Discount and value 2 907 2 681 8.4 5 585
Integrated retail: Speciality 391 107 265.4 230
Extraordinary items (590) - (100) -
Integrated retail: Consumer goods 2 708 2 788 (2.9) 5 815
RECONCILIATION BETWEEN OPERATING PROFIT PER INCOME STATEMENT
AND OPERATING PROFIT BEFORE CAPITAL ITEMS PER SEGMENTAL ANALYSIS
Operating profit per income statement 2 708 2 788 (2.9) 5 786
Capital items (note 2) (1) (37) (97) 29
Operating profit before capital items per segmental analysis 2 707 2 751 (1.6) 5 815
RECONCILIATION BETWEEN TOTAL ASSETS PER STATEMENT
OF FINANCIAL POSITION AND SEGMENTAL ASSETS
Total assets per statement of financial position 87 580 85 544 2.4 87 113
Less: Cash and cash equivalents (2 921) (2 263) 29.1 (3 797)
Less: Long-term investments and loans (120) (1 050) (88.6) (170)
Less: Loans due by Steinhoff and its subsidiaries (201) - (100) (236)
Segmental assets 84 338 82 231 2.6 82 910
Despite the fact that the brands have different sales channels, the product sourcing, supply chain and treasury systems are largely
integrated, and as a result the presentation of segmental assets are limited to one single segment within the group.
Six months Six months Twelve months
ended ended ended
31 March 2018 31 March 2017 30 Sept 2017
Unaudited Reviewed Audited
Rm Rm Rm
2. OPERATING PROFIT
Capital items
Capital items reflect and affect the resources committed in producing
operating/trading performance and are not the performance itself. These items
deal with the platform/capital base of the entity. Capital items are required
to be reported by the Johannesburg Stock Exchange (JSE) as part of the calculation
of headline earnings.
Impairments - - 7
Loss on disposal of intangible assets - - 27
Loss on disposal of property, plant and equipment 1 37 -
Profit on disposal and dilution of investment - - (5)
1 37 29
Six months Six months Twelve months
ended ended ended
31 March 2018 31 March 2017 30 Sept 2017
Unaudited Reviewed Audited
% % %
3. TAXATION
Reconciliation of rate of taxation
South African standard rate of taxation 28.0 28.0 28.0
Effect of different statutory taxation rates (0.5) 0.0 (0.3)
Withholding taxes 3.1 1.7 2.0
Prior year adjustments 0.8 1.5 2.5
Other adjustments 10.3 (5.3) (1.4)
Effective rate of taxation 41.7 25.9 31.0
Rm Rm Rm
Reconciliation of profit before taxation to adjusted profit before taxation
Profit before taxation 2 154 2 468 5 166
Share of profit of equity accounted companies - - -
Capital items 1 37 29
Adjusted profit before taxation 2 155 2 505 5 195
Reconciliation of taxation to taxation before capital items
Taxation 899 639 1 599
Taxation on capital items - 4 3
Taxation before capital items 899 643 1 602
4. EARNINGS PER SHARE
4.1 Weighted average number of ordinary shares
Issued ordinary shares at beginning of the period 3 450 2 568 2 568
Effect of shares issued during the period - 43 87
Effect of shares issued in terms of private placement - - 23
Weighted average number of ordinary shares 3 450 2 611 2 678
Effect of dilutive potential ordinary shares* 11 - -
Diluted weighted average number of ordinary shares 3 461 2 611 2 678
* Dilutive shares relate to the STAR share scheme grant in March 2018.
4.2 Earnings and headline earnings
Profit for the period 1 255 1 829 3 567
Attributable to non-controlling interests (6) (5) (17)
Earnings attributable to ordinary shareholders 1 249 1 824 3 550
Capital items 1 37 29
Taxation effect of capital items - (4) (3)
Capital items of equity accounted companies (net of taxation) - - -
Headline earnings attributable to ordinary shareholders 1 250 1 857 3 576
5. NET CASH FLOW ON ACQUISITION OF BUSINESSES
On 1 October 2017, Steinhoff Doors and Building Materials acquired 100% of BSG (BSG is the parent company of the MacNeil, Tiletoria
and Brands for Africa groups) for an enterprise value of R645.7 million, subject to a clawback or ‘agterskot’ based on the results
for the 12-month period ending September 2018. The acquisition has been approved by the relevant regulatory authorities. BSG has been
consolidated within STAR from 1 October 2017. At the time of the conclusion of the BSG deal, JD Wiese had an interest in the contract,
as a director of both the seller, Invicta Holdings Limited, and the purchaser, STAR.
On 1 October 2016, a call centre and debt collector company was acquired for R471 million cash. On 1 February 2017, Tekkie Town
was acquired for a purchase price of R 3.4 billion settled through the issue of Steinhoff Africa Retail shares. For Steinhoff N.V.
group purposes the Tekkie Town purchase was settled through a combination of shares and cash (2016: Iliad was purchased for a net cash
consideration of R1.3 billion). 100% shareholding in all entities was acquired.
Total Total Total
March 2018 March 2017 Sept 2017
Unaudited Reviewed Audited
Rm Rm Rm
BSG Tekkie Town and
Call Centre & Debt Collector
Assets
Intangible assets 7 805 805
Property, plant and equipment 89 193 193
Deferred taxation assets 10 25 25
Tax receivable 8 - -
Cash on hand - 42 42
Other reserves (2) - -
Liabilities (157) (237) (237)
Working capital 216 460 460
Existing non-controlling interests 1 - -
Total assets and liabilities acquired 172 1 288 1 288
Goodwill attributable to acquisition 124 2 533 2 533
Total consideration 297 3 821 3 821
Cash on hand at date of acquisition - (42) (42)
Paid through issue of shares - (3 350) (3 350)
Net cash outflow on acquisition of subsidiaries 297 429 429
The goodwill arising on the acquisition of these companies is attributable to the strategic business advantages acquired, principal
retail locations and leases, as well as knowledgeable employees and management strategies that did not meet the criteria for recognition
as other intangible assets on the date of acquisition.
6. Correction of error
Resulting from the error identified as mentioned in the section on ‘Restatement’, certain comparative figures were corrected
in accordance with IAS 8: Accounting policies, changes in accounting estimates and errors. This resulted in a restatement
of the six months ended March 2017 and 12 months ended September 2017 figures, in particular the statement of other comprehensive
income and the statement of changes in equity. The aggregate effect of the restatement on the comparative figures are as follows:
Six months Twelve months
ended ended
31 March 2017 30 Sept 2017
Rm Rm
Impact on statement of other comprehensive income
Other comprehensive (loss)/income before restatement (22) 610
Other comprehensive income after restatement 52 1 301
Effect of restatement 74 691
Impact of statement of changes in equity
Other comprehensive income for the period included in other reserves before restatement 1 824 694
Other comprehensive income for the period included in other reserves after restatement 1 898 1 385
Effect of restatement (74) (691)
Other reserve movements before restatement (15) 693
Other reserve movements after restatement (89) 2
Effect of restatement 74 691
FINANCIAL REVIEW BASED ON STATUTORY RESULTS
Good operational performance was overshadowed by the effects as described in STAR’s pre-listing statement and this set of results.
Caution should be exercised when comparing the statutory six-month unaudited financial results with the six-month comparative period.
In particular, earnings growth on a statutory basis is not representative and should be considered on a comparable basis.
On a statutory basis, STAR achieved revenue growth of 15.9% to R33 billion during the six months ended 31 March 2018. This is, however,
inflated by the acquisition of Tekkie Town, acquired 1 February 2017, and BSG, acquired on 1 October 2017. Excluding the effects
of the Steinhoff-related losses of R590 million, operating profit before capital items on a statutory basis increased by 18.3% from
the prior year. This is inflated by the acquisition of Tekkie Town and BSG. A deflationary operating environment and very challenging
trading conditions in Pep Africa weighed on performance. The 21.9% increase in operating expenses includes the extraordinary losses
of R590 million and higher distribution costs due to increased sales units as a result of deflation. In addition, costs pertaining
to the Tekkie Town and BSG businesses are included in the current period.
Operating margin in the discount and value reporting segment was particularly affected by the effects of deflation resulting
from the stronger rand. The acquisition of Tekkie Town and BSG added scale to the Speciality reporting segment, which contributed
to operating profit margin expansion from 2.3% in the six-month comparative period to 6.1% in the current period.
Tax rate
The effective tax rate of 41.7% includes the impact of the extraordinary items as previously mentioned. The normalised effective
tax rate of 33.8% was affected by higher withholding taxes in Angola and the derecognition of certain deferred tax assets pertaining
to the consumer electronics and appliances brands and Pep Africa.
Working capital
Investment in net working capital increased by R1 343 million from March 2017 to R5 447 million, largely due to the settlement
of creditors being brought forward as a result of the timing of Chinese New Year and Easter this year.
Capital structure
Shareholders are reminded that, as part of the listing process, the balance sheet was restructured and significant debt was introduced
in the form of Steinhoff shareholder funding shortly before listing. STAR successfully refinanced and settled the Steinhoff shareholder
funding on 23 May 2018 after raising R18 billion from local banks. STAR subsidiaries were in turn released from all Steinhoff debt
guarantees relating to the shareholder funding. The new funding terms are in line with the previous terms. Preference shares were
introduced to facilitate the redemption of funding preference shares issued by Steinhoff and the release of STAR and its subsidiaries
from the related guarantee. The calculated interest cover of 7.6 times is expected to reduce in future due to the timing of introduction
of the debt in the calculation of the net interest expense.
Debt structure
Six months Twelve months
ended ended
31 March 2018 30 Sept 2017
Rm Rm
Interest-bearing long-term liabilities 26 16
Loans due to Steinhoff and its subsidiaries - long term 11 000 11 000
Interest-bearing short-term liabilities 34 11
Loans due to Steinhoff and its subsidiaries - short term 5 112 4 868
Bank overdrafts and short-term facilities 733 89
Loans due by Steinhoff and its subsidiaries (201) (236)
Cash and cash equivalents (2 921) (3 797)
Net interest-bearing debt 13 783 11 951
EBITDA* 6 767 6 775
Net finance charges* (890) (620)
EBITDA: interest cover* (times) 7.6 10.9
Net debt: EBITDA* (times) 2.0 1.8
* Rolling 12 months
Cash flow
The cash conversion (cash generated from operations/EBITDA) was 22.4% compared to 41.6% in the comparative period. The general low cash
conversion in the interim results ended March indicates the effects of seasonality in the operations, in addition to the impact of earlier
settlement of certain suppliers within the furniture retail and DIY brands.
The group continued investment in its retail footprint by expanding its total store footprint by 143 stores (excluding 12 BSG stores)
to 5 108 stores.
Outlook
While the competitive retail environment is expected to inhibit real growth for the remainder of the 2018 financial year, STAR’s positive
sales momentum is expected to continue. This is underpinned by STAR’s defensive discount and value product and service offering and the
expectation that the deflationary impact on the CFH retail brands decline as the 2018 summer season nears. Sales growth in CFH is expected
to be supported by strong growth in the Speciality fashion and footwear brands and the continued sales momentum in the Pep and Ackermans
brands.
The JD Group is expected to maintain revenue growth momentum, while growth in the building materials industry is expected to remain
constrained.
The group’s targeted 350 net store openings for the 2018 financial year has been revised downwards to 330 due to slowdown of expansion
in Africa.
On a comparable basis, management expects operating margins for the year to be maintained.
The STAR board resolved that no interim dividend will be declared.
Appreciation
STAR is fortunate to have experienced and dedicated employees in the operating companies and the board is grateful for their loyalty
and continued dedication towards their customers and STAR during a period that has required extraordinary effort. The board would like
to thank its shareholders, customers and suppliers for their continued support.
Jayendra Naidoo Leon Lourens Riaan Hanekom
Chairman Chief executive officer Chief financial officer
28 May 2018
Announcement date: 29 May 2018
Steinhoff Africa Retail Limited (‘STAR’ or ‘the company’ or ‘the group’)
Executive directors: LM Lourens (Chief executive officer), RG Hanekom (Chief financial officer)
Non-executive directors: J Naidoo (Chairman)*, JB Cilliers*, LJ du Preez, SH Müller*, F Peterson-Cook*, HJ Sonn*, DM van der Merwe,
JD Wiese
* Independent
Registered address
28 Sixth Street
Wynberg
Sandton 2090
Postal address
PO Box 6100
Parow East 7501
Telephone: 021 929 4800
Facsimile: 021 929 4829
E-mail: info@star-group.co.za
www.star-group.co.za
Transfer secretaries
Computershare Investor Services Proprietary Limited
Rosebank Towers
15 Biermann Avenue
Rosebank 2196
Company secretary
Steinhoff Secretarial Services Proprietary Limited
Auditors
PricewaterhouseCoopers
Sponsor
PSG Capital Proprietary Limited
Date: 29/05/2018 09:55:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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