| Fri 16 Feb 2001, 0:00 | | Relyant Retail Ltd - Interim Announcement 2001 |
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RELYANT RETAIL LIMITED
Registration Number 1937/010108/06
INTERIM ANNOUNCEMENT FOR THE SIX MONTHS ENDED 31 DECEMBER 2000
* Acquisition of Renaissance businesses
* strongly positions Relyant as the leading value retailer in furniture,
bedding and appliances
* strengthens the cash generating capabilities of the Group
* Trading profit before depreciation and exceptional items increases by 5%
* Fully diluted headline earnings of 60 cents per share (1999: 63 cents)
* Funding requirements secured
* Tangible net asset value per share of 1 316 cents
GROUP INCOME STATEMENT Six months Six months Year
ended ended ended
31 December 31 December 30 June
2000 1999 2000
unaudited unaudited audited
Notes R000's R000's R000's
Note 6 Note 6
Turnover 1 1 096 778 1 076 818 2 017 533
Cost of sales 590 540 563 851 1 034 864
Trading profit before depreciation
and exceptional items: 132 438 126 259 180 560
Depreciation (13 646) (16 891) (32 402)
Exceptional items 2 (8 476) (8 021) (7 202)
Trading profit before
financing costs 110 316 101 347 140 956
Financing costs on bank borrowings 47 691 47 095 89 358
Additional financing costs
prescribed by AC125 3 5 268 6 360 12 525
Profit before taxation 57 357 47 892 39 073
Taxation - current and deferred 21 340 22 306 18 207
Taxation - STC 2 031 2 198 4 229
Profit after taxation 33 986 23 388 16 637
Preference dividends 3 - - -
Earnings attributable to
ordinary shareholders 33 986 23 388 16 637
Ordinary shares in issue (000's)
- closing 58 459 58 459 58 459
- weighted average 58 459 57 781 58 202
Fully diluted weighted average number of
ordinary shares (000's) 87 381 86 703 87 124
Earnings per share (cents) 58 40 29
Fully diluted headline
earnings per share (cents) 60 63 73
Reconciliation of headline and fully diluted earnings
R000's R000's R000's
Attributable earnings, as above 33 986 23 388 16 637
Adjustments:
Capital items 2 8 476 20 521 24 702
Taxation on adjustments 82 (31) 1 340
Headline earnings 42 544 43 878 42 679
Adjustments:
Preference dividends charged
to net financing costs 5 268 6 360 12 525
STC on preference dividends 2 031 2 031 4 063
Interest on compulsorily
convertible debentures P taxed 2 296 2 296 4 592
Fully diluted headline earnings 52 139 54 565 63 859
GROUP CASH FLOW STATEMENT
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2000 1999 2000
unaudited unaudited audited
Note R000's R000's R000's
Cash generated from trading 132 438 138 759 198 060
Net increase in working capital (112 934) 33 503 43 975
Cash generated from operations 19 504 172 262 242 035
Net financing costs paid (44 220) (70 649) (118 595)
Taxation paid (3 656) (15 752) (18 266)
Cash utilised by
operating activities (28 372) 85 861 105 174
Closure costs paid (35 102) (54 653) (146 290)
Dividends paid - (3 639) (3 639)
Net cash utilised (63 474) 27 569 (44 755)
Cash outflows from
investment activities (34 049) 14 848 75 579
Increase in bank borrowings 108 604 (32 374) (10 711)
Decrease in liability portion
of preference shares 3 (10 980) (9 635) (19 922)
Ordinary shareholder funding - (574) (237)
Cash inflows from
financing activities 97 624 (42 583) (30 870)
Net increase in cash
and cash equivalents 101 (166) (46)
Cash and cash equivalents at
the beginning of the period 232 278 278
Cash and cash equivalents at
the end of the period 333 112 232
STATEMENT OF CHANGES IN ORDINARY SHAREHOLDERS' EQUITY
Share Non-
capital distributable Distributable
and premium reserves reserves
unaudited unaudited unaudited
R000's R000's R000's
Balance at 30 June 1999
(as previously reported) 371 686 35 105 167 313
Prior year adjustment
- Goodwill now capitalised 17 500
- Amortisation of goodwill (5 833)
- Reduction of finance charges earned (17 500)
Balance at 30 June 1999 (restated) 389 186 35 105 143 980
Share capital and premium issued
(net of costs) 4 766
Share election reserve decrease (6 338)
Liability portion of preference
dividends transferred
from retained surplus 9 635 (9 635)
Attributable earnings for the period 23 388
Sundry (567) 230
Balance at 31 December 1999 393 952 37 835 157 963
Liability portion of preference
dividends transferred
from retained surplus 10 287 (10 287)
Realisation of investment revaluation reserve (1 609) 1 609
Attributable loss for the period (8 360)
Sundry 247 (104)
Balance at 30 June 2000 393 952 46 760 140 821
Liability portion of preference
dividends transferred
from retained surplus 10 980 (10 980)
Attributable earnings for the period 33 986
Balance at 31 December 2000 393 952 57 740 163 827
GROUP BALANCE SHEET
31 December 31 December 30 June
2000 1999 2000
unaudited unaudited audited
Notes R000's R000's R000's
Note 6 Note 6
ASSETS
Non-current assets
Goodwill 8 750 26 250 17 500
Property, fixtures, equipment
and vehicles 110 250 122 433 105 429
Loans to share incentive trusts 36 169 31 441 36 169
Insurance companies' investments 69 183 127 435 54 792
Deferred taxation 248 208 153 157 265 264
472 560 460 716 479 154
Current assets
Accounts receivable 4 1 873 750 1 764 497 1 636 132
Microloan receivables 29 936 - 17 239
Taxation 12 251 6 970 14 910
Inventories 325 184 324 137 275 012
Cash on hand 333 112 232
2 241 454 2 095 716 1 943 525
Total assets 2 714 014 2 556 432 2 422 679
EQUITY AND LIABILITIES
Ordinary share capital and premium 393 952 393 952 393 952
Non-distributable reserves 57 740 37 835 46 760
Retained surplus 163 827 157 963 140 821
Ordinary shareholders' equity 615 519 589 750 581 533
Compulsorily convertible
preference shares 500 000 500 000 500 000
Compulsorily convertible debentures 43 597 43 597 43 597
1 159 116 1 133 347 1 125 130
Reallocation of liability
portion of preference shares (115 464) (115 464) (115 464)
Total shareholders' equity 5 1 043 652 1 017 883 1 009 666
Long term liability portion
of preference shares 67 078 88 345 78 058
Current liabilities
Interest bearing bank borrowings 900 731 770 464 792 127
- core retail operations 874 059 770 464 776 363
- microlending operations 26 672 - 15 764
Accounts payable, accruals
and provisions 702 553 679 740 542 828
1 603 284 1 450 204 1 334 955
Total equity and liabilities 2 714 014 2 556 432 2 422 679
Gearing - total 5 81% 70% 73%
Gearing - excluding microlending 79% 70% 71%
Tangible net asset value
per share, fully diluted (cents) 1 316 1 267 1 268
Capital expenditure
Incurred 22 030 19 755 33 721
Committed 6 384 3 859 1 696
Authorised but not contracted 16 773 37 061 45 495
Contingent liabilities
Post-retirement medical aid
liabilities and guarantees 11 360 11 671 11 360
Commitments
Operating lease commitments 580 521 669 789 601 328
Note 1 - Turnover 6 months 6 months Year
ended ended ended
31 December 31 December 30 June
2000 1999 2000
Comprises: R000's R000's R000's
Sales 872 190 855 617 1 538 256
Finance charges earned, as
previously reported 229 588 227 201 490 277
Adjustment to finance
charges earned (note 6) (5 000) (6 000) (11 000)
1 096 778 1 076 818 2 017 533
Note 2 - Exceptional items
Comprise:
Capital items (8 476) (20 521) (24 702)
- Goodwill amortised (8 750) (20 417) (29 167)
- Loss on sale of investments (130) 2 676
- Profit on sale of fixed assets 404 (104) 1 789
Refund of excess contributions
from the Amrel Benefit Fund - 12 500 17 500
(8 476) (8 021) (7 202)
Note 3 - Impact of application of AC125
Income statement for the period
Total preference dividend
paid and accrued 16 248 15 995 32 447
Less: allocated as a repayment
of liability (10 980) (9 635) (19 922)
Less: allocated as net
financing costs (5 268) (6 360) (12 525)
Preference dividend,
per income statement - - -
Note 4 - Accounts receivable
In order to provide immediate certainty for the group's funding requirements,
the Group has ceded the major portion of its accounts receivable book to its
principal bankers, who are fully supportive of the group's strategies and
initiatives to improve cash flow. Furthermore, in conjunction with its bankers,
the Group is currently evaluating securitisation proposals in respect of the
accounts receivable book, with the objective of ensuring that the Group has
ongoing access to committed medium to long term broader-based funding at
reasonable rates.
Note 5 - Definition of gearing
As AC125 has no cash flow impact, the gearing ratio has been calculated by
taking interest bearing bank borrowings and dividing by adjusted total
shareholders' equity (reversing the effects of AC125):
31 December 31 December 30 June
2000 1999 2000
R000's R000's R000's
Total shareholders' equity
per Balance Sheet 1 043 652 1 017 883 1 009 666
Add: Long term liability,
per AC125 67 078 88 345 78 058
Adjusted total shareholders'
equity 1 110 730 1 106 228 1 087 724
Interest bearing bank borrowings 900 731 770 464 792 127
Gearing - total 81% 70% 73%
Note 6 - Changes in accounting policies and prior year adjustments
The changes in the group's accounting policies, outlined below, were necessary
in order to comply with recently revised South African Statements of Generally
Accepted Accounting Practice.
During the period under review, the Group changed its accounting policies in
respect of:
- goodwill, which was previously set-off against share premium and is now
capitalised and amortised over its useful life; and
- the recognition of finance charges earned from the sum of digits method to
the effective interest rate method.
The effects of these changes are as follows:
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2000 1999 2000
R000's R000's R000's
Income statement
Goodwill amortised (8 750) (20 417) (29 167)
Reduction in finance
charges earned (5 000) (6 000) (11 000)
Taxation effect on
finance charges earned 1 500 1 800 3 300
Effect on attributable earnings (12 250) (24 617) (36 867)
31 December 31 December 30 June
2000 1999 2000
R000's R000's R000's
Balance sheet
Restatement of opening shareholders' equity
- Goodwill capitalised 52 500 17 500 52 500
- Goodwill amortised
- cumulative (35 000) (5 833) (5 833)
- Finance charges earned
- cumulative (36 000) (25 000) (25 000)
- Taxation effect on finance
charges earned 10 800 7 500 7 500
Effect on opening shareholders'
equity (7 700) (5 833) 29 167
Effect on attributable earnings,
as above (12 250) (24 617) (36 867)
Effect on closing shareholders'
equity (19 950) (30 450) (7 700)
COMMENTS ON RESULTS
Earnings
Whilst attributable earnings are 45% above last year's restated amount,
headline earnings are marginally below last year, which was a disappointment.
The Group achieved turnover growth for the six months of 2%. The performance of
the Group until the end of October had been encouraging, with headline earnings
at that stage ahead of the prior year. Although the Group improved gross
margins in November and December despite widespread discounting in the
industry, sales in this period were well below our expectations. These two
months had been extremely strong in the prior year. It is clear to management
that the most significant factor influencing this outcome was the Group's
continued application of stringent credit granting criteria, in the face of
aggressive credit offers in the market. Management believes that, in the long
term, the Group's strategy will prove to be justified.
The Group has continued to identify and implement significant cost-saving and
productivity-improvement measures. These efforts form part of a concerted drive
to boost the Group's trading margin and to lay the foundation for improved
future profitability. Accordingly, trading profit before depreciation and
exceptional items increased by 5% to R132 million. As a percentage to turnover,
the trading profit after depreciation represents 10,8% compared with last
year's restated 10,2%.
Credit management
As mentioned earlier, management has continued to apply strict credit policies
and procedures. Total arrears have reduced to 18,3% of the gross book, compared
with 19,5% at 30 June 2000. Whereas at 30 June 2000, 73,4% of total debtors
were classified as "A" grade payers, this has now grown to 77,4%. At the time
of merger, some 30 months ago, only 57,3% of total debtors fell into this
category. Actual collections have consistently been above 90% of potential
levels. Total provisions now represent 21% of the gross book (30 June 2000:
20%). Consequently, the quality of the debtors' book has once again improved.
Over the last nine months, in response to market forces, management decided to
lengthen the average period of new instalment sales by increasing the
proportion of 24 month contracts relative to 21 month contracts. This decision
has contributed to an increase in borrowings.
Cash flow and financial position
During every reporting period since the merger in July 1998, there have been
consistent reductions in working capital. However, the decision to reinvest in
the debtors' book by extending the average length of instalment sale contracts,
together with the growth in the microlending book, has resulted in an increase
in accounts receivable, over last December, of some R138 million. This led to
increased working capital requirements of some R113 million during the period
under review. Despite the effects of the acquisition of Appliance City in March
2000 and the recent launch and expansion of the Three Cities concept, inventory
levels are in line with the prior year as a result of improved inventory
management.
Interest bearing bank debt in the core retail operations rose by R98 million
during the period to some R874 million. Excluding microlending, gearing has
increased to 79%. Certain elements of the group's trading strategy have now
been amended to improve the group's cash flow position. These plans will begin
to make a positive impact towards the middle of the year. As stated in note 4,
the Group's funding requirements have been secured.
Acquisition
The acquisition of the South African furniture and bedding businesses of
Renaissance Retail Group Limited was announced in December 2000. Although this
acquisition is still subject to shareholder approval, the irrevocable support
of 84% of existing shareholders has been received. All other significant
pre-conditions were met by 1 February 2001. Consequently the Group results will
include the results of the Renaissance businesses with effect from this date.
The acquisition accelerates Relyant's thrust into value retailing, which is
primarily focussed on cash customers with higher disposable incomes.
The Renaissance businesses being acquired include the well known brands of
Glick's, Forty Winks, Dial-a-Bed, Mattress Factory and Bruce the Bed King.
These businesses have established themselves as leading value retailers and
distributors of bedding and related products and have developed a strong
presence in the value furniture niche. The directors of Relyant expect that
integration of the acquired businesses into Relyant will form an enlarged cash
value retailing division with annual cash sales in excess of R750 million. This
will provide a major strategic advantage to complement Relyant's existing
national credit businesses. As a result of this acquisition, the cash
generating capabilities of the Group will be significantly strengthened.
Already, prior to the acquisition, 28% of the group's sales are in cash
compared with 18% in the prior year.
This acquisition completes the overall positioning strategy of the Group.
The Board welcomes Paul Glick, widely regarded as the doyen of the South
African value retail furniture industry, as a director of Relyant with effect
from 19 February 2001.
Other developments
Although furniture, bedding and appliance retail remains the core of Relyant's
business, the Group has also focussed on expanding complementary mass market
financial services. Its microlending business, which was established a year
ago, trading as Relyant Loans, has grown from 22 outlets at 30 June 2000 to 67.
It offers personal loans to staff and customers at competitive rates. As a
consequence of extremely strict credit granting criteria, bad debts have been
minimal. The Group's intention is to continue to expand this operation by
increasing the number of in-store outlets by a further 40 in the next six
months, as well as by introducing new loan products. Negotiations with a
potential funding partner are at an early stage.
Relyant has a 10% investment in an e-commerce hub, with its partners being
Comparex Holdings Limited, Unitrans Limited, The Steinhoff Group and certain
other retailers. While it is expected that this initiative will generate
significant medium to long term supply-chain and customer service benefits, at
substantially reduced costs, it is still in its infancy.
Prospects
It is management's belief that the local trading environment will remain
difficult in the short term. However, there are encouraging macro economic
signals which augur well for an improvement in the retail durable market in the
medium term. Consequently, the Board expects that fully diluted headline
earnings per share for the full year should at least be in line with that of
last year.
For and on behalf of the Board
S E Abrahams C F Wells
Chairman Chief Executive Officer
15 February 2001
Non-executive Directors:
S E Abrahams (Chairman), P M Goss, P J C Horne, H M Khoza,
T H Nyasulu, W R Parkhurst, S G Pretorius, T Rosenberg
Executive Directors:
C F Wells (Chief Executive Officer), R B G Sinclair
Registered office:
Relyant House, 131 van Beek Street, Ellis Park, 2094.
Telephone (011) 401-5000
Transfer secretaries:
Computershare Services Limited, First floor, Edura House,
40 Commissioner Street, Johannesburg, 2001.
Telephone (011) 492-1620/9
Auditors:
Deloitte & Touche
Internet site:
http://www.relyant.co.za
SEGMENTAL ANALYSIS
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2000 1999 2000
unaudited unaudited audited
R000's R000's R000's
Turnover
Furniture & appliance retail 1 060 203 1 044 583 1 951 103
Repair services 31 068 32 235 63 588
Microlending finance
charges earned 5 507 - 2 842
Total 1 096 778 1 076 818 2 017 533
Trading profit
Furniture & appliance retail 99 099 105 997 122 224
Repair services 8 723 5 574 16 055
Microlending 3 075 - 1 856
Insurance 13 583 11 867 41 061
Corporate (14 164) (22 091) (40 240)
Total 110 316 101 347 140 956
Capital expenditure
Furniture & appliance retail 19 895 17 128 28 735
Repair services 1 833 2 547 4 687
Microlending 280 - 216
Insurance 22 80 83
Total 22 030 19 755 33 721
Depreciation
Furniture & appliance retail 12 058 15 413 29 388
Repair services 1 509 1 419 2 907
Microlending 36 - 4
Insurance 43 59 103
Total 13 646 16 891 32 402
31 December 31 December 30 June
2000 1999 2000
unaudited unaudited audited
R000's R000's R000's
Total assets
Furniture & appliance retail 2 345 823 2 156 146 2 048 835
Repair services 31 541 23 280 30 072
Microlending 30 626 - 17 586
Insurance 306 024 377 006 326 186
Total 2 714 014 2 556 432 2 422 679
Interest free liabilities
Furniture & appliance retail 686 802 617 122 510 174
Repair services 14 112 12 621 19 171
Microlending 1 011 - 1 174
Insurance 628 49 997 12 309
Total 702 553 679 740 542 828
Net assets
Furniture & appliance retail 1 659 021 1 539 024 1 538 661
Repair services 17 429 10 659 10 901
Microlending 29 615 - 16 412
Insurance 305 396 327 009 313 877
Total 2 011 461 1 876 692 1 879 851
Interest bearing bank borrowings
Furniture & appliance retail 874 059 770 464 776 363
Microlending 26 672 - 15 764
Total 900 731 770 464 792 127
