| Tue 15 May 2007, 7:00 | | VMK - Verimark - Audited Results for the year ende |
|
VMK
VMK
VMK - Verimark - Audited Results for the year ended 28 February 2007
Verimark Holdings Limited
Registration number 1998/006957/06
Share Code: VMK
ISIN Code: ZAE000068011
AUDITED RESULTS FOR THE YEAR ENDED 28 FEBRUARY 2007
HIGHLIGHTS
- Results in line with trading statement issued on 25 January 2007
- Revenues down 9.9% to R290.3m
- HEPS down 66.2% to 11.64 cents
- New product introductions stepped up
- Focus on improved product mix and more aligned selling expenses
- Final dividend of 5.5 cps; total dividend of 8.5 cps
Michael van Straaten, CEO of Verimark, said:
"These are clearly very disappointing results for our shareholders. We have
identified the problem areas and action has been taken to restore the company
back to its previous growth path. We have introduced many new products in the
past few months and there are more to come. We have looked hard at the selling
expenses to see where savings can be made without compromising future sales. We
have made some management changes. We are confident of an improved performance
this year."
15 May 2007
FINANCIAL REVIEW
After delivering on the promises and projections made in our first year as a
listed company, our second year`s results were very disappointing, albeit in
line with the two trading updates issued during the course of the past year.
The transformation from a private to a listed company was not as smooth as
anticipated and with the benefit of hindsight, it is clear that the listing
process did divert the focus of the small management team away from its core
business of increasing sales and controlling expenses. That focus has now been
restored.
Headline earnings per share decreased by 66% to 11.64 cents from 34.43 cents.
The main reasons for the decrease in profitability were:
Reduction in Sales
* The rate of introduction of new products was slower than anticipated.
Although the rate increased towards the end of the year, it came too late
to counter the reduction in sales growth. The benefits resulting from these
new products will only be realised in the next financial year
* Supply problems were experienced with a key product. This forced us to
change supplier, resulting in stock shortages. With this temporary issue
solved, we expect sales to return to normal levels
Reduction in Gross Profit Margin
* The weakening Rand impacted on the cost of all imported products. Although
the selling prices were adjusted to accommodate the increased costs, the
timing differences negatively impacted on our gross margins. Verimark
hedges its exposure to foreign currency fluctuations through Forward
Exchange Contracts.
* The product mix was less profitable. More focus is being placed on new
products that will allow for improved margins.
Increase in Selling Expenses
* Initially, selling expenses increased in anticipation of continued growth
and later to maintain market share. The projected increase in sales for
the next financial year (primarily due to new products being introduced)
should result in selling expenses being more aligned with past levels. The
company is however fully focused on cutting expenses wherever possible
without compromising future sales
OPERATIONAL REVIEW
A number of critical operational problem areas have been identified and are
being reviewed and addressed. We have dealt with these issues using the 5 "Ps"
of marketing below.
Product
Verimark selects products by applying the following criteria: Uniqueness,
Quality, Demonstratability, Widest Possible Demographic Demand.
Our product range falls into the following categories:
* Household - cookware, kitchenware, cleaning
* Health and Fitness
* Beauty
* DIY and Automotive
* Educational Toys
The process of selecting or "picking" products is not an exact science. The
skill of picking products requires experience and "feel" for the market.
Verimark`s product selection skills, sharpened over the past three decades have
helped to identify products with the highest sales potential ("home runs").
However, as pointed out, the rate of introduction of new products was much
slower than in the past and although the rate increased towards the end of the
year, more "home runs" are needed to get sales growth back to historic levels.
We believe that the new products introduced before Christmas 2006, together with
those currently in the pipeline for the first half of the year should restore
the sales position, principally in the second half of the new financial year.
Some of the new products already introduced include:
* Genesis: Hydrovac (Vacuum Cleaner), Steam Station (Iron), Blender / Juicer,
Dryfast (Clothes Dryer)
* Roto Racer (Toy)
* Maxxus: Cardio Strider (Walker); Cardio Trainer (Treadmill)
* The Bean (Exerciser)
* V-Ssage (Chair Massager and Mat)
* Swivel Mop; Tourmaline (Hair Styler)
Place (Distribution)
1. Retailers
A mix of positive and negative sales growth was experienced across various
retailers. The recently introduced products, in addition to those planned
for "roll out" during the first six months of the new financial year should
normalize sales across our retail partners.
2. Verimark Direct Stores (Company Owned and Franchise)
This division experienced the same challenges as our retailers. Given the
slowdown in product introductions and the direct impact on sales, we did
not pursue the expansion of this distribution channel to its real
potential. As our sales growth recovers, we will continue to consider new
opportunities and locations as we believe that our Verimark Direct store
model still offers exciting growth opportunities.
3. International
As mentioned in last year`s annual report, Verimark`s international
expansion was focused on two areas:
* Distribution of success proven products and TV commercials
* Duplication of the Verimark business model
Due to the same reasons mentioned before, limited sales were generated in this
area but we believe that duplicating the Verimark business model in other parts
of the world continues to offer good potential for growth in the long term.
However, we intend pursuing these opportunities only after Verimark`s trading
and growth have recovered to the levels of the past in South Africa.
Promotion
Verimark`s business model is predominantly based on Direct Response Television
(DRTV), an industry pioneered by Verimark in South Africa 18 years ago. This,
plus print advertising, the internet (via our website) and in-store
demonstrations, are key components of our promotional strategy. No better mass
medium exists than the long form television commercial (60 seconds to 28
minutes) to illustrate and sell unique and innovative products.
Although we have observed an increase in the demand for television airtime in
general, which had a negative impact on the availability of long form airtime,
this trend should reverse as the economy tightens up. A welcome development is
the expected granting of licenses for new TV stations by the Independent
Communications Authority of South Africa offering new channels and platforms.
Price
Suppliers cost increases and the weakening Rand, resulted in some upward selling
price adjustments on a number of products during the year. Price increases have
a reducing impact on sales volumes, but given the fact that our selling prices
were constant or even reduced over the previous three years (due to the relative
strength of the Rand), the impact of these price increases was not as severe as
expected.
Verimark`s pricing strategy has never been to be the cheapest, but rather to
offer the best value for money in terms of quality and features. Also, our
strategy is to align the perceived value (as created in the mind of the consumer
through our marketing efforts) with the retail selling price of each product.
This strategy contributed to making most of our products (brands) the market
leaders in their respective product categories. Our passion for quality is borne
out by the fact that each product carries a satisfaction and product lifespan
guarantee - a differentiating factor increasingly appreciated by the South
African consumer.
People
Certain management changes have been made during the year. Eugene Le Maitre,
former sales director, was replaced by Michael Macdonald. The marketing
responsibility formerly under Michael Macdonald is now the full responsibility
of Michael van Straaten. Du Toit Britz, former Financial Director, left the
company in March and a replacement is expected to be announced shortly.
Meanwhile the finance responsibility is being managed by Caroline McEvoy. We
believe these management changes are positive for the company.
Management is not sparing any effort to return the company to its previous
success record as soon as possible.
The disappointing performance of the company in the year under review has
resulted in a temporary halt to the share incentive scheme. The scheme will
continue as soon as there is a return to Verimark`s previous growth rates and
figures. In the interim, management is incentivised through a performance based
bonus system.
BUSINESS ENVIRONMENT
Although 2006 was in general a good trading year for most businesses operating
in the retail and consumer market, this was not the case for Verimark.
This anomaly substantiates our view that Verimark`s business model is different
from general retail and consumer goods companies. Macro economic cycles have
less of an impact on Verimark`s trading results with innovation and the
marketing strategies being more important.
Looking at the year ahead, most experts believe that consumer spending growth
will persist, but at a reduced rate. We support this view and believe that this
trend will assist Verimark in its current recovery process.
DIVIDEND
The total dividend for the year amounted to 8.5 cents per share, including the
final dividend of 5.5 cents per share.
The total dividend (including STC tax) represented 82% of headline earnings per
share for the year. The dividend is in accordance with the company`s high
dividend payout policy.
The last day to trade "cum" dividend will be Friday 22 June 2007 and the share
will trade "ex" dividend as from Monday, 25 June 2007. The record date for the
dividend will be Friday, 29 June 2007, with the dividend being paid out on
Monday, 2 July 2007.
Share certificates may not be dematerialised or rematerialised between Monday,
25 June 2007 and Friday, 29 June 2007, both days inclusive.
PROSPECTS
Verimark has a long success track record over the previous 30 years with 33%
compound annual growth in earnings over the last ten years (excluding 2007). A
tough year as experienced in our second year as a listed company, is obviously
most disappointing but we`ve learned from this experience and our team is highly
motivated to address the shortcomings and to re-establish the potential of our
business model. Corrective actions and strategies are underway to ensure a
prompt turnaround.
The number of product introductions in the first half of the new year has been
stepped up and with the right selection of new "winning" products, in addition
to our established products, we remain confident that Verimark is set for
recovery this year with much of the improvements expected in the second half of
the year.
Michael van Straaten
Chief Executive Officer
CONDENSED CONSOLIDATED INCOME STATEMENT
Audited year Audited year
ended ended
February 2007 February 2006
R`000 R`000
Revenue 290 258 322 175
Cost of sales (187 750) (192 822)
Gross profit 102 508 129 353
Other operating income 2 147 2 505
Selling expenses (28 801) (23 745)
Distribution expenses (3 611) (3 533)
Other operating expenses (49 486) (47 486)
Operating profit before 22 757 57 094
finance costs
Finance income 572 1 231
Finance costs (967) (911)
Profit before taxation 22 362 57 414
Income tax expense (9 088) (18 720)
Profit for the year 13 274 38 694
Weighted shares in issue 114 272 328 112 848 219
Earnings per share (cents) 11.62 34.29
Diluted earnings per share 11.62 34.29
(cents)
CONDENSED CONSOLIDATED BALANCE SHEET
Audited year Audited year
ended ended
February 2007 February 2006
R`000 R`000
ASSETS
Plant and equipment 3 993 2 346
Intangible assets 14 438 14 350
Loans receivable 698 937
Deferred taxation asset 671 -
Non-current assets 19 800 17 633
Inventory 37 561 27 439
Trade and other receivables 37 001 44 706
Prepayments 1 635 496
Short term portion of loans 239 239
receivable
Prepaid taxation 187 63
Bank and cash balances 242 22 948
Current assets 76 865 95 891
TOTAL ASSETS 96 665 113 524
EQUITY AND LIABILITIES
Share capital 381 381
Share premium 37 621 37 621
Retained earnings 23 303 34 026
Total equity attributable to 61 305 72 028
equity holders of the parent
Interest-bearing liabilities 81 244
Non-current liabilities 81 244
Trade and other payables 19 421 24 074
Provisions 42 -
Short-term portion of non- 6 071 607
current liabilities
Interest-free liabilities 1 10
Taxation - 16 561
Bank overdraft 9 744
Current liabilities 35 279 41 252
TOTAL EQUITY AND LIABILITIES 96 665 113524
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
Audited year Audited year
ended ended
February 2007 February 2006
R`000 R`000
Cash (outflows)/inflows from (33 839) 28 314
operating activities
Cash generated by operations 17 210 50 086
Dividend paid (23 954) (11 342)
Finance income 572 1 055
Finance costs (1 223) (911)
Taxation paid (26 444) (10 574)
Cash outflows from investing (4 141) (18 442)
activities
Acquisition of plant and (3 769) (946)
equipment to maintain
operations
Acquisition of intangible (389) (122)
assets to maintain operations
Proceeds from disposal of 17 28
plant and equipment
Acquisition of subsidiary - (17 402)
Cash (outflows)/inflows from 5 530 (9 260)
financing activities
Proceeds on the issue of - 10 681
ordinary share capital
Decrease/(increase) in loans 239 (409)
receivable
Interest-bearing liabilities - (1 107)
repaid
Interest-bearing liabilities 5 301 -
raised
Interest-free borrowings (14 757) (30 330)
repaid
Interest-free borrowings 14 747 11 905
raised
Net (decrease)/increase in (32 450) 612
cash and cash equivalents
Cash and cash equivalents at 22 948 21 356
beginning of year
Cash and cash equivalents as a - 980
subsidiary on acquisition
Cash and cash equivalents at (9 502) 22 948
end of year
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Share Retained Total
capital premium earnings
R`000 R`000 R`000 R`000
Balance at 1 March - 27 321 6 766 34 087
2005, as previously
stated
- - (93) (93)
Prior year adjustment
- 27 321 6 673 33 994
Restated balance at 1
March 2005
Net proceeds on the 381 10 300 - 10 681
issue of share capital
Total income and 381 37 621 6 673 44 675
expense recognised
directly in equity
Profit for the year, - - 38 714 38 714
as previously stated
Prior year adjustment - - (20) (20)
Total recognised income 381 37621 45 367 83 369
and expenses for period
Dividend declared - - (11 341) (11
341)
Balance at 28 February 381 37 621 34 026 72 0280
2006,restated
Profit for the year - - 13 274 13 274
Total recognised income 381 37621 47 300 85 302
and expenses for period
Dividend declared - - (23 997) (23 997)
Balance at 28 February 381 37 621 23 303 61 305
2007
ACCOUNTING POLICIES
The accounting policies used in the preparation of these results are consistent
with those applied in the previous period and in accordance with International
Financial Reporting Standards ("IFRS") and its interpretation adopted by the
International Accounting Standards Board (IASB), the Listings Requirements of
the JSE Limited and schedule 4 to the Companies Act.
1. IFRS 3: Business Combinations, and the appendix for Reverse Acquisitions,
has been used in order to determine the accounting effects of the reverse
listing.
2. Earnings per share was calculated in accordance with IAS 33: Earnings per
Share, and IFRS 3: Business Combinations. Headline earnings per share was
calculated in accordance with Circular 7/2002 issued by SAICA.
February February
2007 2006
R"000 R"000
Profit per financial statements 13 274 38 694
Adjustments:
Loss on sale of assets 22 157
Headline earnings 13 296 38 851
Headline earnings per share 11.64 34.43
(cents)
3. The total number of weighted shares in issue at 28 February 2007 was 114
272 328 (2006: 112 848 219).
GENERAL
1. The auditors report is available for inspection at the company`s registered
office.
2. Prior year comparatives have been restated, where necessary.
On behalf of the Board
Michael van Straaten Dr J T Motlatsi
Chief Executive Officer Chairman
Johannesburg, 14 May 2007
Verimark Holdings Limited
Incorporated in the Republic of South Africa
Registration number 1998/006957/06
Share code: VMK
ISIN: ZAE000068011
("Verimark" or "the company")
Directors:
M J van Straaten (CEO), Dr J T Motlatsi*, J M Pieterse*
*Non-Executive
Company Secretary:
Premium Corporate Consulting Services (Pty) Ltd
Registered office:
67 CR Swart Drive, Corner CR Swart Drive and Freda Road, Bromhof 48, Randburg,
2154
Postal address:
Verimark Holdings Limited, PO Box 78260, Sandton 2146
Email address: Investors@verimark.co.za
Transfer secretaries:
Computershare Investor Services 2004 (Pty) Limited
Auditors:
KPMG Incorporated
Sponsor:
PSG Capital
www.verimark.co.za
Date: 15/05/2007 07:00:02 Produced by the JSE SENS Department.
