| Thu 22 Feb 2001, 0:00 | | Profurn - Audited Group Results For The Year Ended |
|
PROFURN LIMITED
(Registration number 1968/015363/06)
("Profurn")
Audited Group Results for the year ended 31 December 2000
GROUP INCOME STATEMENT
For the year ended 31/12/00 31/12/99
R000's R000's
Credit sales 1 672 261 1 099 726
Cash sales 1 316 637 898 620
Total sales 2 988 898 1 998 346
Finance charges earned 552 014 394 736
Other income 674 823 448 977
Turnover 4 215 735 2 842 059
Cost of sales (1 995 445) (1 353 410)
Gross profit 2 220 290 1 488 649
Operating profit 743 305 403 704
Interest (paid) / received (18 113) 17 904
Profit before taxation 725 192 421 608
Taxation - current and deferred (145 946) (46 898)
Exceptional item - SARS settlement
(refer comment 7) (18 448)
Profit after taxation 560 798 374 710
Minority interest (51 166) (25 231)
Net profit 509 632 349 479
Earnings per share - basic (cents) 47,1 33,1
- diluted (cents) 45,7 33,1
Headline earnings per share - basic (cents) 40,7 33,1
- diluted (cents) 39,4 33,1
GROUP BALANCE SHEET
As at 31/12/00 31/12/99
R000's R000's
Assets
Fixed assets and non-current assets 308 557 303 356
Current assets 3 351 452 2 228 433
- Inventories 709 695 502 087
- Debtors 2 641 757 1 634 152
- Cash 92 194
3 660 009 2 531 789
Equity and liabilities
Equity capital and reserves 2 053 022 1 728 827
- Ordinary shareholders' interest 1 932 792 1 641 919
- Outside shareholders' interest 120 230 86 908
Liabilities 1 606 987 802 962
- Deferred taxation 338 910 202 283
- Non interest bearing debt 786 409 591 325
- Long term bank borrowing 322 904 9 354
- Short term bank borrowings 158 764
3 660 009 2 531 789
GROUP CASH FLOW STATEMENT
For the year ended 31/12/00 31/12/99
R000's R000's
Cash flows from operating activities (374 665) 32 829
- Cash generated from trading 692 351 452 271
- Increase in working capital from
existing stores (265 002) (214 461)
- Increase in working capital from new stores (428 300) (203 797)
- Increase in working capital from new
products and services * (373 714) (1 184)
Interest (paid) / received (18 113) 17 904
Taxation and dividends (30 369) (39 902)
Cash flows from investing activities (139 600) (437 531)
Net additions to fixed and other
non-current assets (109 798) (34 581)
Investment in subsidiaries (29 802) (402 950)
Cash flows from financing activities 311 789 254 351
Increase / (decrease) in long-term borrowings 313 299 (8 614)
Net proceeds from issue of ordinary shares (1 510) 262 965
Net decrease in cash and cash equivalents (250 958) (172 349)
Cash and cash equivalent at beginning of year 92 194 264 543
Cash and cash equivalents at end of year (158 764) 92 194
* New products and services relate to the introduction of credit into Hi-Fi
Corporation, the zero interest promotion, the sale of personal computers for
the first time and additional sales generated from built-in kitchen and bedroom
furniture.
STATEMENT OF CHANGES IN EQUITY
Capital Retained Total
earnings
R000's R000's R000's
Balance at 31 December 1998 1 060 944 347 322 1 408 266
Net profit for the year 349 479 349 479
Dividend (63 304) (63 304)
Shares issued 302 857 302 857
Foreign currency translation (AC112) (34 020) (34 020)
Goodwill write off (321 359) (321 359)
Balance at 31 December 1999 1 008 422 633 497 1 641 919
Net profit for the year 509 632 509 632
Dividend (71 609) (71 609)
Shares issued 155 206 155 206
Foreign currency translation (AC112) (41 042) (41 042)
Revaluation 1 354 1 354
Treasury shares (262 668) (262 668)
Balance at 31 December 2000 861 272 1 071 520 1 932 792
HEADLINE EARNINGS
For the year ended 31/12/00 31/12/99
R000's R000's
Net profit 509 632 349 479
Exceptional item - SARS settlement 18 448
Provision adjustments in accordance with AC 130 (88 578)
Taxation on provision adjustments 117
Goodwill amortisation 448
Headline earnings 440 067 349 479
KEY FINANCIAL INFORMATION
31/12/00 31/12/99
R000's R000's
Headline operating profit margin (%) 15,5 14,2
Gross profit margin (%) 33,2 32,3
Net asset value per share (cents) 170,1 150,1
Total shares in issue (000's) 1 136 330 1 094 193
Basic weighted average number of shares in
issue (000's) 1 082 492 1 055 758
Diluted weighted average number of shares in
issue (000's) 1 116 007 1 055 758
Depreciation and amortisation (000's) 60 684 38 772
Instalment sale debtor arrears (%) 13,0 13,7
COMMENTS
1. Turnover
Turnover increased by 48,3% to R4 216m compared to the prior year. Turnover in
existing stores increased by 19,6%. New stores contributed 11,0% or R462m of
turnover. Turnover growth through acquisitions comprised 8,4% of turnover or
R354m.
Cash sales comprised 44% of store sales which is comparable with the prior year
of 45%. The additional turnover in the group was therefore due to an increase
in both cash and credit sales.
Turnover comprises sales of merchandise, finance charges earned and other
income. Stores outside South Africa generated 38,8% of turnover (1999:31,7%).
2. Profitability
Headline operating profit increased by 62,3% to R655m as a result of the
turnover growth and higher headline operating margins of 15,5% compared to
14,2% in the prior year. Gross margins on sales improved from 32,3% to 33,2%,
which contributed to the increased operating profit. Stores outside South
Africa generated 49,9% of headline operating profit (1999:46,9%).
Profit before tax was R725m, which after the deduction of taxation and minority
interests, resulted in a group profit (before the exceptional item) of R528m up
51% on the prior year. Headline earnings per share was 40,7 cents, a 23%
increase on the prior year.
In the prior year the tax charge was reduced as a result of the reduction in
the corporate tax rate in South Africa and the corresponding reduction in the
deferred tax balance. This resulted in a non-recurring benefit in 1999 of
R18,5m.
3. Stores
During the year 92 new stores were opened, 68 stores were revamped or re-sited
and 8 closed, bringing the total number of stores in the group to 619. Trading
commenced in Uganda and Morocco during the year.
Profurn now operates in 17 countries, the stores are located as follows:
406 in South Africa 14 in Lesotho 4 in Ivory Coast
43 in Botswana 13 in Australia 3 in Malawi
31 in Namibia 10 in Kenya 3 in Morocco
28 in Zimbabwe 9 in Swaziland 2 in Tanzania
23 in Zambia 8 in Ghana 2 in Uganda
14 in Mauritius 6 in Mozambique
4. Trading
Retail trading conditions in South Africa remained subdued. The situation was
compounded by a host of new products and services competing for the already
stretched consumer disposable income. These macro economic factors affected all
retailers in South Africa.
In order to counteract these market conditions the group launched numerous new
products and services such as the introduction of credit facilities to Hi-Fi
Corporation customers and the launch of zero interest credit facilities, a
first for South Africa but a norm in many other countries around the world. In
addition, personal computers, peripherals, related software and internet access
were introduced for the first time to the mass market on credit and significant
expansion of built-in kitchens and bedroom furniture as well as fitted carpets
was achieved.
Profurn has also obtained the exclusive licensing rights to the SINGER brand
for the African market. The SINGER brand is a household name and has been
widely accepted by our customers.
5. Instalment sale debtors
Gross instalment sale debtors have increased by 49% to R3 192m during the year.
The increase results directly from the additional credit related turnover
generated in the business and the 92 new stores opened. The number of customer
accounts now stands at 1,15 million up 15% from 1,0 million in the prior year.
In reaction to market forces resulting from the prolonged tough trading
conditions and to remain competitive the group lowered deposits on credit
sales, which now average 12,2% (1999:19,8%) of the sale price and extended
average deal terms from 18 to 22 months. Strict credit granting and bad debt
provisioning policies have been maintained across the group.
Customers that are in arrear represent 13,0% of gross debtors which is an
improvement on the prior year, which was 13,7%.
This arrears percentage is lower than current industry norms.
6. Cash flow
Significant turnover growth in a predominantly credit business combined with
aggressive store expansion results naturally in cash being utilised to fund
working capital and fixed asset expenditure for new stores and store revamps.
The business generated R692m from trading activities, 53% more than last year.
Working capital totaling R1 067m was invested: R428m into new stores. R374m
into new products and services and R265m into growth of existing stores.
The net additions to fixed and other non-current assets were R110m. Taxation,
dividends and interest required cash totaling R48m. New investments in
Australian subsidiaries cost R30m.
7. SARS Electronics industry investigation
Following an investigation by SARS into revenue irregularities relating to
merchandise imported into South Africa by import agents and then on-sold to
retailers including Profurn, agreement in the form of a full and final
settlement was reached in January, which will result in a payment amounting to
R26 million by Profurn to SARS. As a result of this agreement, Profurn can have
no further liability to SARS with regards to revenue irregularities relating to
any imports prior to November 2000. The group ceased using these agents during
last year and imports are now done directly. Such imports only comprised 6,6%
of purchases by the group.
This agreement does not constitute an admission of any wrongdoing on the part
of Profurn or its Board of Directors. The directors of Profurn believed such
agreement necessary in order to return certainty to the stakeholders of the
company and so that management's time remains focused on the day-to-day
business operations and the ongoing planned expansion strategy.
The after tax effect of the settlement amounting to R18,4m has been treated as
an exceptional item and has been excluded from headline earnings.
8. Compliance with international accounting standards
These results have been prepared using accounting policies, which are in
accordance with the standards issued by the International Accounting Standards
Committee and the South African Institute of Chartered Accountants. These
policies are consistent with those applied in the financial statements for the
year ended 31 December 1999 with the exception of:
* The group has adopted IAS 37 (AC130 "Provisions, contingent liabilities and
contingent assets"). A provision should be recognised when an enterprise has a
present obligation as a result of a past event. Profurn has always been very
conservative with regards to provisioning policies and provisions no longer
consistent with this definition have been reversed. The adoption of this
accounting statement has resulted in provisions amounting to R89m within
Profurn being released into operating income during the year. Headline earnings
per share has been adjusted accordingly. The remaining provisions in the
balance sheet are in accordance with international and South African accounting
statements.
* In order to comply with IAS 10 (AC107 "Events after the balance sheet date"),
the group has changed its treatment of dividends proposed, whereby dividends
are recorded in the financial year in which the dividend is declared.
Where appropriate, comparative figures have been restated.
9. IT systems
The group has entered into agreements with certain software vendors principally
UCS and Ixchange to implement a new best of breed 'Java based' retail system
encompassing all aspects of operations in the stores and at head office.
The functionality of the system will provide Profurn with further competitive
advantages. This system will be implemented during the course of 2001 with
completion expected during early 2002, the total cost of implementing and
operating the new system will be approximately R40m over the next two years.
This new system will position the group to take full advantage of the
business-to-business e-commerce initiative launched with Comparex Holdings
Limited and Unitrans Limited during 2000. The Internet hub will facilitate
business-to-business procurement and related logistics functions in the
household goods industry. Profurn has a 10% equity stake in the Internet hub.
10. Prospects
It is planned that a total of 16 stores will be opened during 2001 the majority
being in the African countries.
The store expansion process in South Africa with regards to existing store
formats is largely complete. The focus in these businesses will be on
consolidating overheads and growth with a view to further increasing operating
profit and cash flows.
It is expected that 2 stores as part of a new retail concept, in joint venture
with Courts PLC, will be launched in South Africa during the year.
It is planned that 2 stores will be opened in Egypt and further expansion in
Morocco will take place as part of the partnership with Batam Societh Hela
Electromenager.
The new products and services successfully introduced during 2000 will continue
to be marketed across all trading formats.
11. Funding of future growth
Due to recent volatility in Profurn's share price, a cautionary announcement
was issued on 8 February 2001. This announcement stated that pursuant to an
ongoing analysis of its funding requirements, Profurn intends exploring funding
opportunities to enhance growth. In this regard, Profurn has held discussions
with its bankers and certain of its major institutional shareholders.
In order to achieve this growth and provide the group with satisfactory balance
sheet flexibility in the longer term, Profurn has decided to undertake a
securitisation of its debtors' book once the appropriate legislation is in
place. This programme will result in a corresponding reduction in Profurn's
traditional bank funding and will provide Profurn the ability to finance growth
opportunities that may arise.
Over the short term, Profurn will continue to review its funding alternatives
to provide appropriate flexibility prior to the implementation of a
securitisation programme. Profurn can confirm that it continues to have the
full support of its bankers.
12. Dividend
Due to the strong growth and consequent increase of working capital required by
Profurn over the past year, the Board of Directors of Profurn have resolved not
to declare a dividend for the 2000 financial year. The policy with regards to
dividends will be reviewed at the end of the 2001 financial year.
For and on behalf of the board
G J Walker J Kaplan
Executive Chairman Managing Director 22 February 2001
Directors: G J Walker (Executive Chairman) (British), J Kaplan (Managing
Director), D Abargil (Chief Financial Officer) (Israeli),
F K Anderson*, L Balkind, C S dos Santos*, M S Roberts (Chief Operating
Officer), G B Rubenstein*, M Stewart, P Vallet*
*Non-executive
Transfer Secretaries: Mercantile Registrars Limited, 11 Diagonal Street,
Johannesburg 2001
Registered office: 8th Floor, Profurn House, 66 De Korte Street, Braamfontein
2017
Results on Internet: http://www.profurn.com
Company Secretary: D Bijker e mail: profurn@icon.co.za
Tel: (011) 403 7124 Fax: (011) 403 7147
