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ELH
ELH
ELH - Ellerine Holdings - Consolidated Audited Results For The Year
Ended 31 August 2007
Ellerine Holdings Limited
Registration number: 1968/013402/06
Share code: ELH & ISIN number: ZAE000022752
CONSOLIDATED AUDITED RESULTS FOR THE YEAR ENDED 31 AUGUST 2007
- R1 BILLION PROFIT AFTER TAX FOR THE FIRST TIME!
- Headline earnings per share up 15%
- Distribution per share up 14%
- Operating profit up 15%
- Gearing at 23%
- Revenue up 9%
- Share buy-back at 5,6%
CONSOLIDATED INCOME STATEMENT
2007 2006
R million R million %
Notes Audited Audited change
Revenue 2 8 280 7 579 9
Sale of merchandise 2 5 255 4 963 6
Cost of merchandise sold (2 906) (2 744) 6
Gross profit 2 349 2 219 6
Other operating revenue 2 2 923 2 523 16
Operating expenses (3 182) (3 074) 4
Advertising (281) (244)
Depreciation and (100) (92)
amortisation
Cost of employment (1 561) (1 534)
Share-based payments (13) (9)
Motor and delivery (218) (220)
Property expenses (488) (440)
Administration and other (521) (535)
expenses
Trading profit 2 090 1 668 25
Debtors costs (631) (396) 59
Operating profit 1 459 1 272 15
Income from associate - 13
Impairment of trademarks (1) -
Insurance investment income 66 61 8
Net finance costs (120) (80) 50
Interest received 49 41
Interest paid (169) (121)
Profit before taxation 1 404 1 266 11
Taxation (395) (372) 6
Profit attributable to 1 009 894 13
ordinary shareholders
Earnings per share 3 Cents Cents
Attributable 856 743 15
Headline 852 742 15
Fully diluted attributable 849 733 16
Fully diluted headline 845 731 16
Distributions per share - 282,5 283,0
paid
Interim 169,6 139,6
Final 112,9 143,4
Distributions per share - 286,9 252,5 14
declared
Interim 169,6 139,6
Final 117,3 112,9
% %
Gross profit 44,7 44,7
Operating margin 17,6 16,8
Tax rate 28,1 29,7
CONSOLIDATED BALANCE SHEET
2007 2006
R million R million
Note Audited Audited
ASSETS
Non-current assets 2 073 2 348
Property, vehicles and 403 379
equipment
Goodwill 767 825
Trademarks 311 312
Deferred taxation 87 199
Insurance financial assets 505 633
Current assets 5 915 5 175
Inventories 598 587
Trade and other receivables 4 5 154 4 458
Taxation 3 1
Funds at call, bank balances 160 129
and cash
Non-current assets classified as - 48
held for sale
TOTAL ASSETS 7 988 7 571
EQUITY AND LIABILITIES
Shareholders` equity and reserves 5 160 4 995
Share capital and premium 1 900 2 214
Other reserves 35 43
Distributable reserves 3 225 2 738
Non-current liabilities 607 696
Deferred taxation 151 239
Interest-bearing borrowings 456 457
Current liabilities 2 221 1 880
Trade and other payables 987 1 013
Current portion of interest- 1 1
bearing borrowings
Taxation 100 132
Provisions 248 288
Bank overdrafts and call loans 885 446
TOTAL EQUITY AND LIABILITIES 7 988 7 571
Net asset value per share - cents 4 487 4 127
Current ratio 2,7 2,8
Gearing (%) 23 16
CONSOLIDATED CASH FLOW STATEMENT
2007 2006
R million R million
Note Audited Audited
CASH FLOWS FROM OPERATING 365 486
ACTIVITIES
Cash generated from operations 766 720
Cash generated from 5 1 413 1 648
operating
activities
Working capital changes (647) (928)
Increase in (11) (52)
inventories
Increase in trade and (586) (927)
other receivables
(Decrease) increase in (50) 51
trade and other
payables
Insurance investment income 66 61
Net finance costs (120) (80)
Taxation paid (347) (215)
CASH FLOWS FROM INVESTING 71 (128)
ACTIVITIES
Purchase of property, (140) (148)
vehicles and equipment
Proceeds on disposal of 22 17
property, vehicles and
equipment
Net decrease in non-current 48 1
assets classified as held
for sale
Decrease in insurance 141 2
financial assets
CASH FLOWS FROM FINANCING (844) (314)
ACTIVITIES
(Payment of) proceeds from (1) 4
interest-bearing borrowings
Distributions paid (332) (342)
Net shares (repurchased) (511) 24
issued
Net (decrease) increase in cash (408) 44
and cash equivalents
Cash and cash equivalents at (317) (361)
beginning of the year
Cash and cash equivalents at end (725) (317)
of the year
Attributable cash flow per share - 310 404
cents
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share
capital and Other
premium reserves
R million R million
Audited Audited
Balance at 1 September 2005 2 195 36
Net profit for the year
Dividends paid
Total
Treasury shares
Issue of shares 19
Treasury shares purchased and held
Share-based payments 2
Exchange differences on (4)
translating foreign operations
Unrealised surpluses arising from 1
hedged instruments
Transfer to insurance contingency 5
reserve
Capital adequacy reserve movement 1
Transfer of revaluation of 2
investment properties to non-
distributable reserves
Balance at 1 September 2006 2 214 43
Net profit for the year
Distributions paid (332)
Total (352)
Treasury shares 20
Issue of shares 18
Treasury shares purchased and held
Share-based payments 1
Exchange differences on (2)
translating foreign operations
Transfer from insurance (10)
contingency reserve
Capital adequacy reserve movement 1
Transfer of revaluation of 2
investment properties to non-
distributable reserves
Balance at 31 August 2007 1 900 35
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Continued)
Distributable
reserves Total
R million R million
Audited Audited
Balance at 1 September 2005 2 189 4 420
Net profit for the year 894 894
Dividends paid (342) (342)
Total (349) (349)
Treasury shares 7 7
Issue of shares 19
Treasury shares purchased and held 5 5
Share-based payments 2
Exchange differences on translating (4)
foreign operations
Unrealised surpluses arising from 1
hedged instruments
Transfer to insurance contingency (5) -
reserve
Capital adequacy reserve movement (1) -
Transfer of revaluation of investment (2) -
properties to non-distributable
reserves
Balance at 1 September 2006 2 738 4 995
Net profit for the year 1 009 1 009
Distributions paid (332)
Total (352)
Treasury shares 20
Issue of shares 18
Treasury shares purchased and held (529) (529)
Share-based payments 1
Exchange differences on translating (2)
foreign operations
Transfer from insurance contingency 10 -
reserve
Capital adequacy reserve movement (1) -
Transfer of revaluation of investment (2) -
properties to non-distributable
reserves
Balance at 31 August 2007 3 225 5 160
NOTES TO THE CONSOLIDATED AUDITED RESULTS
2007 2006
R million R million
Audited Audited
1. BASIS OF PREPARATION AND REPORT OF
INDEPENDENT AUDITORS
These summarised consolidated audited
results have been prepared using
accounting policies compliant with
IAS 34 (Interim Financial Reporting)
and International Financial
Reporting Standards ("IFRS") and are
consistent with those of the previous
year.
The Group`s independent auditors,
Grant Thornton, have audited the
Group`s results. The unqualified
report is available for inspection at
the Company`s reqistered office.
2. REVENUE
Retail Operations 5 681 5 340
Sale of merchandise 5 255 4 963
Delivery charges 248 238
Other services 178 139
Risk Services 1 194 1 072
Net insurance income 1 141 1 020
Gross insurance premium 1 470 1 312
Net reinsurance commission 573 465
Reinsurance premium (902) (757)
Dividends and interest received 53 52
Financial Services 1 356 1 126
Finance charges 1 210 1 043
Short-term loan income 90 83
Origination and service fees 56 -
Interest received 49 41
Total revenue 8 280 7 579
3. EARNINGS PER SHARE
3.1 Reconciliation between profit
attributable to ordinary shareholders
for the year to headline earnings
Profit attributable to ordinary 1 009 894
shareholders
Net (profit) loss on disposal of (4) 1
vehicles and equipment
Adjustment to fair value of (2) (2)
investment properties
Impairment of trademarks 1 -
Headline earnings 1 004 893
3.2 Number of ordinary shares
Outstanding 115 009 641 121 018 826
Shares in issue 124 975 732 123 997 044
Shares held as treasury shares (9 966 091) (2 978 218)
Weighted average 117 891 190 120 305 470
Shares in issue 124 460 915 123 236 770
Shares held as treasury shares (6 569 725) (2 931 300)
Fully diluted weighted average 118 776 497 122 087 297
4. TRADE AND OTHER RECEIVABLES
Net secured debtors 1 018 -
Gross secured debtors 1 075 -
Payable within one year 456 -
Payable thereafter 619 -
Provisions (57) -
Allowance for doubtful debts (3) -
Net provision for unearned (54) -
premiums
Gross provision for unearned (220) -
premiums
Reinsurance portion for 166 -
unearned premiums
Net instalment sale debtors 1 812 2 894
Gross instalment sale debtors 2 497 4 012
Payable within one year 2 049 2 999
Payable thereafter 448 1 013
Provisions (685) (1 118)
Allowance for doubtful debts (332) (371)
Provision for unearned finance (233) (462)
charges and club fees
Net provision for unearned (120) (285)
premiums
Gross provision for unearned (349) (679)
premiums
Reinsurance portion for 229 394
unearned premiums
Net term loan debtors 2 094 1 405
Gross term loan debtors 2 914 1 942
Payable within one year 2 110 1 311
Payable thereafter 804 631
Provisions (820) (537)
Allowance for doubtful debts (218) (132)
Provision for unearned (445) (304)
finance charges and club
fees
Net provision for unearned (157) (101)
premiums
Gross provision for unearned (425) (349)
premiums
Reinsurance portion for 268 248
unearned premiums
Net short-term loans 71 39
Payable within one year 103 88
Provisions (32) (49)
Allowance for doubtful debts (21) (16)
Provision for unearned finance (11) (28)
charges
Net provision for unearned - (5)
premiums
Other 159 120
Total trade and other receivables 5 154 4 458
Trade receivables comprising:
Net trade debtors 4 995 4 338
Gross trade debtors 6 589 6 042
Payable within one year 4 718 4 398
Payable thereafter 1 871 1 644
Provisions (1 594) (1 704)
Allowance for doubtful debts (574) (519)
Provision for unearned finance (689) (794)
charges and club fees
Net provision for unearned (331) (391)
premiums
5. RECONCILIATION OF PROFIT BEFORE
TAX TO CASH GENERATED FROM OPERATING
ACTIVITIES
Profit before taxation 1 404 1 266
Adjustments 9 382
Items not affecting the flow of (45) 363
funds
Depreciation and amortisation 100 92
Other adjustments 5 (13)
(Decrease) increase in (150) 284
provisions
Debtors allowances and (110) 289
provisions
Creditor provisions (40) (5)
Insurance investment income (66) (61)
Net finance costs 120 80
Total cash generated from operating 1 413 1 648
activities
6. COMMITMENTS
Estimated future rental of premises 1 363 1 188
and trading stores, vehicles and
other
Payable within one year 438 393
Payable within two to five years 851 764
Payable thereafter 74 31
Total capital expenditure 160 138
Contracted for 22 14
Not yet contracted for 138 124
Total commitments 1 523 1 326
SEGMENTAL ANALYSIS
R million DIVISIONAL
Retail Risk Financial Total
Opera- Cor- Services Services Group
tions porate
INCOME
STATEMENT
Revenue 2007 5 681 49 1 194 1 356 8 280
2006 5 340 41 1 072 1 126 7 579
% v 6,4 19,5 11,4 20,4 9,2
LY
Credit 2007 3 384 1 184 1 356 5 924
revenue
2006 3 286 1 065 1 126 5 477
% v 3,0 11,2 20,4 8,2
LY
Cash 2007 2 297 49 10 2 356
revenue
2006 2 054 41 7 2 102
% v 11,8 19,5 42,9 12,1
LY
Cash 2007 40,4 100,0 0,8 28,5
revenue %
2006 38,5 100,0 0,7 27,7
v LY 1,9 0,1 0,8
Sale of 2007 5 255 5 255
merchandise
2006 4 963 4 963
% v 5,9 5,9
LY
Operating 2007 493 592 374 1 459
profit
2006 403 459 410 1 272
% v 22,3 29,0 (8,8) 14,7
LY
Operating 2007 8,7 49,6 27,6 17,6
margin %
2006 7,5 42,8 36,4 16,8
v LY 1,2 6,8 (8,8) 0,8
Depreciatio 2007 82 16 2 100
n
2006 77 8 2 87
% v 6,5 100,0 14,9
LY
BALANCE
SHEET
Assets 2007 1 197 1 078 227 5 486 7 988
2006 1 221 1 137 355 4 858 7 571
% v (2,0) (5,2) (36,1) 12,9 5,5
LY
Liabilities 2007 (1 186) (193) (108) (1 341) (2 828)
2006 (1 291) (227) (155) (903) (2 576)
% v (8,1) (15,0) (30,3) 48,5 9,8
LY
Net assets 2007 11 885 119 4 145 5 160
2006 (70) 910 200 3 955 4 995
% v (115,7) (2,7) (40,5) 4,8 3,3
LY
Cost to 2007 106 30 4 140
acquire
assets
2006 107 39 2 148
% v (0,9) (23,1) 100,0 (5,4)
LY
RESOURCES
Number of 2007 1 216 82 1 298
outlets
2006 1 200 70 1 270
% v 1,3 17,1 2,2
LY
Number of 2007 16 087 444 667 17 198
employees
2006 16 349 431 577 17 357
% v (1,6) 3,0 15,6 (0,9)
LY
Retail m2 2007 839 285 5 725 845 010
2006 835 108 4 529 839 637
% v 0,5 26,4 0,6
LY
PRODUCTIVIT
Y RATIOS
Merchandise 2007 92,5 63,5
sales:
revenue 2006 92,9 65,5
v LY (0,4) (2,0)
Revenue per 2007 4 672 16 537 6 379
outlet
(R`000) 2006 4 450 16 086 5 968
% v 5,0 2,8 6,9
LY
Revenue per 2007 353 142 2 032 984 481 451
employee
(Rands) 2006 326 625 1 951 473 436 654
% v 8,1 4,2 10,3
LY
Operating 2007 30 646 560 720 84 835
profit per
employee 2006 24 650 710 574 73 285
(Rands)
% v 24,3 (21,1) 15,8
LY
Revenue per 2007 6 769 236 856 9 799
m2 (Rands)
2006 6 394 248 620 9 027
% v 5,9 (4,7) 8,6
LY
m2 per 2007 690 70 651
outlet
2006 696 65 661
% v (0,9) 7,7 (1,5)
LY
TRADE
RECEIVABLES
Gross 2007 6 589 6 589
receivables
2006 6 042 6 042
% v 9,1 9,1
LY
Debtors 2007 631 631
costs
2006 396 396
% v 59,3 59,3
LY
Debtors 2007 9,6 9,6
cost %
2006 6,6 6,6
v LY 3,0 3,0
Average 2007 15,6 15,6
length of
book in 2006 14,5 14,5
months
v LY 1,1 1,1
Arrears 2007 1 078 1 078
2006 888 888
% v 21,4 21,4
LY
Arrears % 2007 16,4 16,4
2006 14,7 14,7
v LY 1,7 1,7
Collection 2007 6,4 6,4
rate %
2006 6,9 6,9
v LY (0,5) (0,5)
Deposit 2007 22,7 22,7
rate %
2006 20,4 20,4
v LY 2,3 2,3
SEGMENTAL ANALYSIS (continued)
R million GEOGRAPHICAL
Total
RSA Foreign Group
INCOME STATEMENT
Revenue 2007 7 758 522 8 280
2006 7 077 502 7 579
% v LY 9,6 4,0 9,2
Credit revenue 2007 5 521 403 5 924
2006 5 068 409 5 477
% v LY 8,9 (1,5) 8,2
Cash revenue 2007 2 237 119 2 356
2006 2 009 93 2 102
% v LY 11,3 28,0 12,1
Cash revenue % 2007 28,8 22,8 28,5
2006 28,4 18,5 27,7
v LY 0,4 4,3 0,8
Sale of merchandise 2007 4 903 352 5 255
2006 4 601 362 4 963
% v LY 6,6 (2,8) 5,9
Operating profit 2007 1 396 63 1 459
2006 1 192 80 1 272
% v LY 17,1 (21,3) 14,7
Operating margin % 2007 18,0 12,1 17,6
2006 16,8 15,9 16,8
v LY 1,2 (3,8) 0,8
Depreciation 2007 92 8 100
2006 80 7 87
% v LY 15,0 14,3 14,9
BALANCE SHEET
Assets 2007 7 435 553 7 988
2006 7 059 512 7 571
% v LY 5,3 8,0 5,5
Liabilities 2007 (2 569) (259) (2 828)
2006 (2 330) (246) (2 576)
% v LY 10,3 5,3 9,8
Net assets 2007 4 866 294 5 160
2006 4 729 266 4 995
% v LY 2,9 10,5 3,3
Cost to acquire 2007 136 4 140
assets
2006 141 7 148
% v LY (3,5) (42,9) (5,4)
RESOURCES
Number of outlets 2007 1 204 94 1 298
2006 1 155 115 1 270
% v LY 4,2 (18,3) 2,2
Number of employees 2007 15 832 1 366 17 198
2006 15 799 1 558 17 357
% v LY 0,2 (12,3) (0,9)
Retail m2 2007 784 137 60 873 845 010
2006 767 086 72 551 839 637
% v LY 2,2 (16,1) 0,6
PRODUCTIVITY RATIOS
Merchandise sales: 2007 63,2 67,4 63,5
revenue 2006 65,0 72,1 65,5
v LY (1,8) (4,7) (2,0)
Revenue per outlet 2007 6 444 5 553 6 379
(R`000) 2006 6 127 4 365 5 968
% v LY 5,2 27,2 6,9
Revenue per employee 2007 490 020 382 138 481 451
(Rands) 2006 447 940 322 208 436 654
% v LY 9,4 18,6 10,3
Operating profit per 2007 88 176 46 120 84 835
employee (Rands) 2006 75 448 51 348 73 285
% v LY 16,9 (10,2) 15,8
Revenue per m2 2007 9 894 8 575 9 799
(Rands)
2006 9 226 6 919 9 027
% v LY 7,2 23,9 8,6
m2 per outlet 2007 651 648 651
2006 664 631 661
% v LY (2,0) 2,7 (1,5)
TRADE RECEIVABLES
Gross receivables 2007 6 066 523 6 589
2006 5 528 514 6 042
% v LY 9,7 1,8 9,1
Debtors costs 2007 602 29 631
2006 354 42 396
% v LY 70,1 (31,0) 59,3
Debtors cost % 2007 9,9 5,5 9,6
2006 6,4 8,2 6,6
v LY 3,5 (2,7) 3,0
Average length of 2007 15,6 15,9 15,6
book in months 2006 14,5 15,2 14,5
v LY 1,1 0,7 1,1
Arrears 2007 962 116 1 078
2006 772 116 888
% v LY 24,6 21,4
Arrears % 2007 15,9 22,2 16,4
2006 14,0 22,6 14,7
v LY 1,9 (0,4) 1,7
Collection rate % 2007 6,4 6,3 6,4
2006 6,9 6,6 6,9
v LY (0,5) (0,3) (0,5)
Deposit rate % 2007 20,5 24,2 22,7
2006 20,4 21,6 20,4
v LY 0,1 2,6 2,3
COMMENTS
NATURE OF BUSINESS
The Ellerines Group comprises three distinct business segments namely,
Retail Operations, Financial Services and Risk Services. These three
segments are moulded together by the single minded purpose of providing our
customers with the widest choice of competitively priced furniture and
appliance retail packages, marketed through the 1 172 retail outlets across
Southern Africa. In the case of the credit retail packages on offer, the
three segments are inextricably linked in attracting and providing both
retail and financial products to the customer, taking full cognisance of the
customer`s affordability criteria prior to entering into the transaction. In
addition to credit, 41% of merchandise sold by the Retail Operation is for
cash.
MARKET CONDITIONS
Trading in the furniture and appliance retail market over the past year has
been somewhat of a "roller coaster" with constant curves and inclines from
month to month. The 10% increase to 76% in respect of the national household
debt to income ratio, coupled with the 3% increase in interest rates has
progressively placed geared consumers, over the past year, under a lot of
pressure in respect of their ability to service their debt. This is
reflected in the slowdown in both merchandise sales and collections,
particularly noticeable amongst the middle-income consumers.
Since the introduction of the NCA on 1 June 2007, deals rejected and passed
have normalised to expected levels from the initial extremely depressed
volumes.
FINANCIAL HIGHLIGHTS
We are extremely pleased to report that the Group, after its long history of
57 years, has achieved the significant milestone of R1 billion profit after
tax, an increase of 13% over the previous year.
Despite the tough trading conditions revenue increased by 9% to R8,3
billion, with the operating profit at R1,5 billion reflecting an increase of
15% and an improved operating margin at 17,6% (2006 - 16,8%).
The gross profit margin at 44,7% remained unchanged from last year and
operating expenses were well controlled at R3,2 billion, an increase of only
3,5% over the previous year.
Debtors costs at R631 million increased significantly by 59% and includes
both an extraordinary net write off of R238 million of irrecoverable debt, a
large portion of which was already fully provided, as well as a further 11%
increase of R55 million in the impairment provision, which now amounts to
R574 million.
Headline earnings per share at 852 cents increased by a pleasing 15%,
assisted by a further re-purchase of 6,9 million shares during the year
under review which equates to 5,6% of the issued share capital of the
company.
Capital Employed by the Group at R5,8 billion was well managed and increased
by only 1,3% resulting in an improved return on average capital employed of
25,5% (2006 - 23,5%). This, together with the enhanced financial capital
structure of the balance sheet resulted in an improved return on average
Shareholders` Equity of 20% (2006 - 19%), with gearing increased to a
comfortable 23% (2006 - 16%). The financial strength of the Group remains
sound with additional debt capacity of around R600 million.
SEGMENTAL PERFORMANCE
Retail Operations
Group sale of merchandise at R5,3 billion increased by 6% over the previous
year and reflects some of the toughest trading months experienced by the
Group over the past three years. Furthermore, there was a further shift of
over 1% (2006 - 6%) towards cash sales, which is a swing of over 7% in two
years, much of this being financed by bank credit cards. It is noteworthy
that the trading brands servicing the lower income segments of the market,
which managed to achieve growth of 9% in sales for the year, have recorded a
year on year increase of 16% for the period January to August and they are
continuing to trade well. The upper income cash brands recorded an increase
of 8% in sales of merchandise compared to 2006, but the middle income
brands, however, could only manage an increase of 2%. With the middle income
consumer being the most highly geared and given the current high interest
rate environment, it is not surprising that the brands trading in this
market have faced the most difficulties during the year.
Inventories have been well managed and reflect an increase of only 1,9%.
Retail Operations trade out of 1 172 furniture and appliance outlets and 44
Early Bird service depots. During the year 65 outlets were opened and 49
outlets were closed, resulting in a net increase of 16 outlets, 81 retail
outlets were revamped and 13 resited at a total cost of R106 million. With
the constant changing of retail nodes and development of new shopping
centres, the Group real estate department continues to secure the most
suitable retail locations and opportunities for the Group.
A particularly pleasing aspect of Retail Operations has been the improvement
in the productivity ratios. Revenue per employee improved by 8%, mainly in
the Traditional credit chains as a result of the centralisation of debt
collection into Financial Services. Retail density productivity ratios of
revenue per m2 and per outlet, compared to last year, have improved by 6%
and 5% respectively.
Financial Services
Despite the market conditions as stated above, Financial Services income at
R1,4 billion, contributed 16% to revenue, an increase of 2% compared to last
year. Financial Services income comprises finance charges and interest
earned, administration, origination and services fees generated from the
provision of mainly 24 month interest bearing contracts offered to our
retail customers. Interest income generated by Rainbow Loans from their
short term cash loans, targeted at low income consumers, also forms part of
Financial Services.
During the year under review the transition from branch debt collectors in
the Ellerines, Town Talk and FurnCity brands, to the centralised debt
collection offices was completed. All debt collections of arrear accounts,
other than for foreign operations, are now centralised, in three major
centres with over 300 dedicated employees utilising integrated on-line
collection management systems and predictive diallers. The transition has
disrupted normal collection procedures, but meaningful collection and
marketing benefits arising from this change are expected in the year ahead.
With effect from 1 June 2007, to coincide with the introduction of the NCA,
the granting of credit for the entire Group was centralised. Simultaneously,
the Blaze risk management system and 8 risk grades with 3 specific pricing
bands were introduced to enhance the evaluation of customer risk profiles
and probability of recovery.
These initiatives were considered essential within the current regulatory
environment for the future management of the R6,6 billion gross debtor`s
ledger and 1,4 million customer accounts, and to improve collections in the
ever changing world of technology.
The market challenges and regulatory disruptions experienced during the year
resulted in a deterioration in the performance of the debtor`s ledger. Bad
debt write-offs and arrears increased to 8,6% (2006 - 5,5%) and 16,4% (2006
- 14,7%) respectively of the debtor`s ledger, with the impairment provision
for doubtful debts increasing by 11%, while gross debtors increased by 9%.
Notwithstanding the deterioration in the debtor`s ledger, which is in line
with market conditions, the ledger is well provisioned, with total
provisions at R1,6 billion representing 24% (2006 - 28%) of the gross
ledger.
Risk Services
Risk services income, which comprises mainly insurance premiums earned, net
of outward reinsurance, on all risks and credit life policies sold to
customers, generated R1,1 billion premium income and reflects a 12% increase
over the previous year, with an unchanged contribution of 14% to Group
revenue. A further R53 million (2006 - R52 million) in respect of dividend
income and interest received on investments is included in Group revenue.
In line with the Group`s stated intention to increase the level of outward
reinsurance in order to lower the level of risk carried by the Group, the
reinsurance rate of premiums generated by the Traditional Division was
increased from 50% to 70% with effect from 1 June 2007. This coincided with
the trading uncertainty anticipated with the introduction of the NCA and had
a positive impact of R33 million to pre-tax profits. A similar amount of
cash investments held in the insurance companies were released and
distributed back to the holding company by way of dividends.
While customer insurance premium rates have reduced under the NCA, credit
life insurance is now compulsory for the duration of the contract, with the
all risks cover being optional. Nevertheless, it is expected that gross
premium income will show growth in the year ahead, given the enhanced focus
on policies sold and anticipated volume increase in the credit retail
brands.
CORPORATE ACTIVITY
Over the past 30 months the Group has been seeking to expand and enhance its
consumer financial services packages.
To this end various financial institutions both locally and internationally
have been approached, with management having spent a considerable amount of
time investigating both suitable structures and marketable products.
The recent approval by shareholders of the proposed transaction with African
Bank Investments Limited (ABIL), whereby ABIL will acquire the entire
shareholding of Ellerines, will culminate in the preferred structure being
achieved for the future growth in both the Retail Operations and Consumer
Financial Services. The proposed transaction is now subject only to the
approval of the Competition Authorities.
Shareholders will be advised of developments in this regard as they occur.
PROSPECTS
Consumers in the durable goods market are expected to remain under pressure
in the current economic interest rate climate and the ever upward creep of
inflation. As a consequence, management will continue to be vigilant in the
management of the Group`s assets and the business it undertakes in this
environment.
The year ahead is expected to be less disruptive from a regulatory
perspective and the business of trading should go a lot smoother with an
improvement in earnings, particularly towards mid 2008 when the anticipated
government infrastructure spend, increased employment and build-up to 2010
gains momentum.
DIRECTORS
Non-Executive Directors, Peter Pohlmann (Chairman) and James Moore resigned
from the Board on 5 June 2007. The Board wishes to thank them for their
contribution over the past 2 years and wishes them every success in their
future endeavours.
The Board is pleased to announce that with effect from 5 June 2007 Denzil
McGlashan was re-appointed to the Board as Chairman.
DISTRIBUTION TO ORDINARY SHAREHOLDERS
The Board has resolved to declare a final capital reduction out of share
premium in lieu of a cash dividend (the "distribution") to ordinary
shareholders of 117,3 cents per share bringing the total distribution for
the year to 286,9 cents per share (2006 - 252,5 cents per share) which
represents a year on year increase of 14%.
The following dates are applicable:
Last date to trade "cum" the distribution Friday, 30 November 2007
Date trading commences "ex" the distribution Monday, 3 December 2007
Record date Friday, 7 December 2007
Date of payment Monday, 10 December 2007
Share certificates may not be dematerialised between Monday, 3 December 2007
and Friday, 7 December 2007, both dates inclusive.
Shareholders are reminded that the last date to trade Ellerines shares on
the Johannesburg, Namibia and Botswana securities exchanges in order to be
recorded in the register on the record date of the ABIL scheme is Friday, 7
December 2007.
By order of the Board
Denzil McGlashan Peter Squires
Chairman Chief Executive Officer
5 November 2007
Registered office: Gillooly`s View Office Park, Block E, Osborne Lane,
Bedfordview, 2007 Transfer secretaries: Computershare Investor Services
2004 (Pty) Limited, Ground Floor, 70 Marshall Street, Johannesburg. PO Box
61051, Marshalltown, 2107
Auditors: Grant Thornton Sponsors: Nedbank Capital
Non-Executive Directors: DS McGlashan (Chairman), KM Heil*,
M Nkeli*, AH Sangqu*, IB Skosana*
Executive Directors: PJC Squires (Chief Executive Officer),
AFF Moca, RA Rawlings, RBG Sinclair
(*Independent)
Date: 05/11/2007 14:00:01 Produced by the JSE SENS Department.
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