| Tue 10 Apr 2001, 0:00 | | Mcretail - Results |
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MCCARTHY RETAIL LIMITED
(Registration number 1991/003245/06)
(Incorporated in the Republic of South Africa)
("McRetail" or "the Group")
Interim Report for the half year ended 31 December 2000
and Restructuring of the McRetail Group
Consolidated Income Statement
....................................Unaudited........... Audited
................................Half year ended....... Year ended
............................Dec 2000.. ....Dec 1999.. .....June 2000
R000s..........R000s... ........R000s
Turnover
..Continuing operations... 4 612 740 4 001 596 ....... 8 079 401
..Divested operations..............-... ....204 465 .... 193 741
.......................... 4 612 740 4 206 061 ........8 273 142
Operating income before
.interest................... 78 017 ...... 100 654 ....... 145 227
..Continuing operations...... 78 017 ....... 97 077.......... 141 430
..Divested operations..............- .........3 577 ......... 3 797
Net operating interest paid...46 442 ........50 556 .......... 65 940
..Continuing operations...... 46 442 ........50 376 ........ 65 078
..Divested operations..............-.. .180 ... .... 862
Convertible debenture
interest. .9 384 . ......11 571 .. ........ 23 143
Income before taxation and
..non-trading items...........22 191 ... ... 38 527 ........... 56 144
..Continuing operations...... 22 191 ....... 35 130 ........ .. 53 209
..Divested operations..............-..........3 397 ..... ..... 2 935
Non-trading items - net
(deficit)/surplu.. ........(607 214).... ...106 .... ....(89 590)
Taxation...................... 1 951 .........4 733 ... ... 1 857
(Loss)/income after
taxation.. .......(586 974)........ 33 900 ..........(35 303)
Associate companies -
share of
..
retained income/(loss)..... .10 997 ......(30 745)..... ...(32 186)
(Loss)/income attributable to
...outside shareholders of
...subsidiaries. ......... ...(551)... ..... 1 497 . ..... . 7 383
Net (loss)/income attributable
..to ordinary
shareholders. . (575 426)..... .. 1 658 .... .....(74 872)
Determination of headline earnings:
Net (loss)/income attributable to
..ordinary shareholders. . (575 426)... ..... 1 658 ..........(74 872)
Net non-trading items after
..taxation
..- net (deficit)/surplus :.(604 904)... 106 ..........(89 590)
Net profit on sale of properties...-..............-....... . 2 736
Net profit on sale of
investments.... ................30 ........26 815 .... .......43 415
Impairment write down
of assets. ..(176 812).......(23 347)..... ....(124 891)
Provision for Lesotho losses.......-..............-........ ...(6 000)
Intangibles written off............-.... ..(3 362).. .........(1 206)
Provision for onerous contracts:
Property leases......... ..(1 110). ..........-............(3 634)
Provision for Relyant put..(429 028)..............-...... ... .......-
Other........ (294)..............-............. .(10)
Non-trading items before
taxation.............. ..(607 214)........... 106 ... ..(89 590)
Taxation ........ ...............-..............-...... ......-
Attributable to outside
shareholders................. 2 310 ............ .-...... ..........-
Headline earnings.......... .29 478.... .. 1 552.............14 718
Consolidated Balance Sheet
......... ...Unaudited......Pro-forma........Audited
................................Dec 2000.. ..Dec 2000......June 2000
..................... ....... ..R000s..... ...R000s..........R000s
ASSETS
Non-current assets.............. 949 709 .......621 419 ..... 1 045 875
Property, plant and equipment... 160 539 ... ...160 539.........155 933
Intangibles....................... 4 826 .........4 826 .... .....5 132
Deferred taxation............... 207 525 ...... 207 525 .... ...205 849
Investments - listed............ 454 589 .......126 299 ........601 415
- unlisted..................... 91 706 ....... 91 706 ..... .. 51 187
Bank balances held by insurance
..companies...................... 30 524 ........30 524 .........26 359
Current assets. .............. 1 516 872 .....1 516 871 ......1 364 888
TOTAL ASSETS.................. 2 466 581 ... .2 138 290.......2 410 763
EQUITY AND LIABILITIES
Capital and (deficit)/reserves. .(3 617)....... 421 348.... ....564 878
Stated capital and (deficit)/
..reserves......................(88 622).. .....227 607... .....482 154
Equity portion of convertible
..debentures..................... 47 189 ... .. 22 232 .... .....47 189
Equity portion of convertible
..preference shares... ..........133 693
Ordinary shareholders'
..(deficit)/funds..... .........(41 433)....... 383 532.... .... 529 343
Outside shareholders' interest. ..37 816 .. .....37 816 .... .... 35 535
Liability portion of convertible
debentures....................... 85 065 ........58 319 ......... 98 758
Liability portion of convertible
..preference shares............. . 16 307 ............
Non-current liabilities...... ... 11 496 ....... 11 496 .... .... 9 704
Unearned insurance premium
..reserve................... ..... 8 344 .........8 344 .... ...7 234
Life assurance funds.............. 3 152 . ......3 152 .......... 2 470
Interest bearing debt........... 879 430 .... . 380 641. ....... 670 028
Long term borrowings............. 79 411 . ..... 79 411 ...... .. 36 938
Short term borrowings .......... 800 019 .......301 230......... 633 090
Current liabilities........... 1 494 207..... 1 250 179.... ...1 067 395
TOTAL EQUITY AND LIABILITIES...2 466 581 .....2 138 290. .... 2 410 763
Consolidated Statement of Changes in Ordinary Shareholders' Funds
..............................Unaudited...... Pro-forma........Audited
........................... ...Dec 2000.. ...Dec 2000......June 2000
... ...R000s...........R000s..........R000s
Ordinary shareholders' funds
..at the beginning of the
..period....................... 529 343 ... ....529 343 ..... 416 308
Movement in stated capital......... 162 ........746 066.. ...... 1 090
Movement in equity portion of
..convertible debentures... ..........-........(24 957).... .....(67)
Movement in equity portion of
..preference shares...................-..... ...133 693 ..............-
Movement in non-distributable
..reserves...................... 29 296 ..........3 270 ........(5 318)
Movement in (accumulated deficit)/
..distributable reserves......(600 234) (1 003 883). ......117 330
Net loss attributable to ordinary
..shareholders................(575 426).. ..(979 075). ......(74 872)
Change in accounting policy for
..deferred tax.......................-............ .-.... ... 191 865
Transfer (to)/from
..non-distributable
..reserves ...................(24 808)........(24 808).......... ... 337
Ordinary shareholders'
..(deficit)/funds
..at the end of the period....(41 433)....... .383 532 ... ... 529 343
Summarised Consolidated Cash Flow Statement
..................... ..Unaudited..................Audited
....................... ....Dec 2000.......Dec 1999...........June 2000
.................. . .. .R000s..... ..R000s..... .....R000s
Cash (utilised by)/generated from
..operating activities..........(43 677)....... 57 354 ... ...... 164 086
Interest paid........ ..........(70 760).......(73 637).... ..(113 608)
Taxation paid... ...............(3 884)........(4 804).... .....(8 462)
Dividend paid to outside
..shareholder of subsidiary..... .(86)... .......(90). ......(107)
Net cash (outflow)/inflow from
..operating activities.........(118 407).. ....(21 177)............. 41 909
Cash (utilised by)/generated from
..investing activities..........(63 684)........15 084 ... ..(16 611)
Net cash (outflow)/inflow
..before financing activities..(182 091)........(6 093)......... .. 25 298
Net increase/(decrease) in
..financing activities...........209 565 ........11 321 ....... ...(25 398)
Increase/(decrease) in
..cash resources................. 27 474 . ......5 228 .... .....(100)
Salient Features....... ..... ..Unaudited.............Audited
......................... .Dec 2000.....Dec 1999.......June 2000
Income Statement
(Loss)/earnings per share (cents)
..Undiluted..... ................ ...(289.5).... ....0.8.. .......(37.8)
..Diluted...............................(220.5) .. ...6.0... ......(19.2)
..Headline - diluted......................15.4.... ......6.0.... .....15.8
..Headline - diluted
..(RAG cost accounted)... ................15.4..... ....20.9........ ...30.8
Ordinary shares in issue (000s)
..Undiluted..... ............. ........198 735.. ...197 824..... ...198 522
..Weighted average... .................198 735.... 197 818... .....198 069
..Diluted..............................256 438.......255 885.... ..255 985
Dividends per share (cents)..................-........ ....-...... .....-
Convertible debentures in
..issue (000s)......................... 41 268 ...... 41 278 ..... .. 41 268
Interest per convertible
..debenture (cents)..... ......... . 55.9....... ..55.9.... 11.9
Interest cover (times).......
..Including convertible
..debenture interest..... ................1.40.... ..1.62............1.60
..Excluding convertible
..debenture interest... ..1.68.... ...1.99.... ......2.20
Depreciation.......................... . 8 044 .......10 825.. .......29 389
Balance Sheet
Interest bearing debt less cash/permanent
...capital (%)
...Including the impact
...of AC125 (%)............ ..>1 000..... ..102.7.... ....109.0
.. Excluding the impact
...of AC125 (%)........... ............>900.... ..87.3.... ......92.8
Net asset value per share (cents)........
..Undiluted.... ........................(20.9)........305.4... ....267.3
..Fully diluted......... ................20.7.........281.7. . ..254.4
Market value of listed
..investments.. ................... 409 665 .... .533 475 .. .... 481 391
Directors valuation of
..unlisted investments................ 91 706 .......51 816 ......... 51 187
Contingent liabilities....... ......... 5 229 ..... . 8 162 .. .. 4 309
Capital expenditure during
..the period..... .................... 15 471 ... 44 810 ........ 51 639
Future capital commitments...... ...... 6 148 .... ..13 237 ..... . 21 619
SEGEMENTAL ANALYSIS - CONTINUING OPERATIONS
McCarthy Motor Holdings
Dec Dec
(R000s) 2000 1999 %
Turnover 4 479 495 3 876 220 15.6%
Operating income/(loss) before
interest 84 754 84 388 0.4%
Interest paid/(received)
.............(including CD interest) 16 8 678 99.8%
Income/(loss) before tax and
.............non-trading items 84 738 75 710 11.9%
Total assets 1 402 088 1 269 313 10.5%
Total liabilities 1 103 686 996 882 10.7%
McCarthy Financial Services
Dec Dec
(R000s) 2000 1999 %
Turnover 28 825 15 363 87.6%
Operating income/(loss) before
interest 15 310 8 081 89.5%
Interest paid/(received)
.............(including CD interest) (1 554) (2 114) -26.5%
Income/(loss) before tax and
.............non-trading items 16 864 10 195 65.4%
Total assets 82 696 54 972 50.4%
Total liabilities 32 892 16 333 101.4%
Bonus Building Supplies
Dec Dec
(R000s) 2000 1999
Turnover 99 217 108 173
Operating income/(loss) before
interest (12 020) 10 901
Interest paid/(received)
.............(including CD interest) 17 239 19 262
Income/(loss) before tax and
.............non-trading items (29 259) (8 361)
Total assets 295 732 305 071
Total liabilities 290 824 278 421
McCarthy On-Line
Dec Dec
(R000s) 2000 1999
Turnover 5 203 1 840
Operating income/(loss) before
interest (2 597) (3 450)
Interest paid/(received)
(including CD interest) (286) 442
Income/(loss) before tax and
non-trading items (2 311) (3 892)
Total assets 14 276 2 148
Total liabilities 15 515 8 134
Corporate services and interest
Dec Dec
(R000s) 2000 1999
Turnover - -
Operating income/(loss) before
interest (7 430) (2 843)
Interest paid/(received)
(including CD interest) 40 411 35 679
Income/(loss) before tax and
non-trading items (47 841) (38 522)
Total assets 671 789 550 736
Total liabilities 952 216 336 928
Total
Dec Dec
(R000s) 2000 1999 %
Turnover 4 612 740 4 001 596 15.3%
Operating income/(loss) before
interest 78 017 97 077 -19.6%
Interest paid/(received)
(including CD interest) 55 826 61 947 9.9%
Income/(loss) before tax and
non-trading items 22 191 35 130 -36.8%
Total assets 2 466 581 2 182 240 13.0%
Total liabilities 2 385 133 1 636 698 45.7%
Restructuring of the McRetail Group
1. Introduction
The McRetail Board of Directors ("the Board") is pleased to announce a
comprehensive capital restructuring plan which, once implemented, will put the
group on a sound financial footing for the future. It entails the disposal of
certain non-core assets, a rights issue which will be underwritten by
McRetail's debt funders amounting to R900m as well as the ring-fencing of the
group's non-core interests ("the restructuring"). From a strategic perspective
the restructuring will enable McRetail to return to its core business of motor
retailing.
2. Rationale
Since 1997, the capital of McRetail has been severely eroded by approximately
R1,6 billion, despite an outstanding performance from its motor and financial
service's divisions. There have been significant bad debt write-offs in
McRetail's furniture, clothing and building supplies interests as a result of
the prolonged recession in the retail consumer sector, especially in respect of
credit sales and collections. In addition, operating profits and cash flows
generated by these non-core businesses have been weak or negative. These
factors have necessitated impairment write-offs against the carrying value of
these operations and, cumulatively, have had a material impact on McRetail's
debt levels.
In addition, there is the uncertainty and risk facing McRetail in respect of
its Relyant Retail Limited ("Relyant") put obligation from FirstRand Bank
Limited, acting through its First National Bank division ("FNB").
In light of the unsustainable gearing levels and the need for ongoing borrowing
facilities, the Board has developed and has agreed with its debt funders, to
the restructuring. A precondition to the debt fundersU willingness to
underwrite the rights issue is the simultaneous early retirement of the Relyant
put obligation. This significantly increased the group's debt burden and places
McRetail into a technically insolvent position.
The restructuring, once implemented, will enable the group to refocus on its
core business and to grow off a sound financial platform. In the Board's view,
this plan is in the interests of McRetailUs customers, suppliers, staff, debt
funders and in the best interests of its existing share and debenture holders.
3. The restructuring
The restructuring will inter alia, include the following:
* the settlement of the ("Relyant") put obligation;
* the sale of the Relyant ordinary and preference shares;
* a rights issue of McRetail ordinary and preference shares to the value of
R900m ("the McRetail rights issue") underwritten by the group's debt funders,
with a corresponding in the Company's share capital;
* an offer to McRetail compulsorily convertible subordinated debenture
("debentures") holders of 5.875 McRetail ordinary shares or R1,95 in cash per
debenture held ("the debenture offer");
* the capitalisation of McRetail's funding loan to Retail Apparel Group Limited
("RAG") by underwriting a rights issue in RAG of R210m ("the RAG rights
issue");
* the sale of Bonus Building Supplies ("Bonus"); and
* the sale of McRetail's interest in RAG over the medium-term
(collectively "the restructuring").
The restructuring is one indivisible transaction, the components of which are
discussed more fully below and the financial effects thereof reflected in the
pro-forma balance sheet presented above.
3.1 Relyant put agreement
In 1998 McRetail granted FNB a put option in respect of 22 727 273 compulsory
convertible fixed rate cumulative preference shares ("the Relyant preference
shares") in the share capital of Relyant ("the put agreement").
The possible impact of the future exercising of the put has resulted in
uncertainty as to the financial viability of McRetail. The Board is of the
opinion that, in the best interests of the long-term viability of the group,
the Relyant put obligation should be settled as part of the restructuring. FNB
and the Board have agreed that in terms of the put agreement, the put will be
settled for a consideration of R551m.
3.2 Sale of Relyant shares
Pursuant to the settlement of the Relyant put obligation, McRetail will hold 22
727 273 Relyant preference shares together with the 17 733 682 Relyant ordinary
shares which it currently holds (jointly "the Relyant shares").
McRetail management provides limited input into the operations of Relyant and
it is a passive investment to the group. The Board has, accordingly, decided to
sell the Relyant shares for R200m to raise cash in order to repay debt.
As Relyant 's ordinary share price does not reflect its intrinsic value,
McRetail's debt funders have agreed to finance a structure which allows
McRetail to immediately receive the proceeds of the sale, but still participate
in some potential future increase in the Relyant ordinary share price above a
certain level, without exposure to any possible downside.
3.3 McRetail rights issue
In addition to the R200m raised through the sale of the Relyant shares, the
Board has decided that an additional R900m of additional capital will be
required to place McRetail in a position where it has a manageable debt level
and will be able to service its residual indebtedness.
R150m will be raised by way of a rights issue of compulsorily convertible
cumulative redeemable preference shares. The remaining capital will be raised
through a rights issue of McRetail ordinary shares. The rights issue will take
place at a price of 40 cents per ordinary share for an anticipated total amount
of R720m. The additional amount of up to R30m is expected to come from the
conversion of debentures into McRetail ordinary shares as dealt with below.
These rights issues will be underwritten by McRetail's debt funders and
consequently, should shareholders not follow their rights this will have a
significant dilution impact on their percentage holding in the company.
3.4 Offer to debenture holders
Due to McRetail 's financial position, payment of the current interest rate of
25% per annum on the debentures is causing a drain on the group's cash
resources, which is a matter of grave concern to the Board.
In order to reduce the interest burden, the Board has resolved to make the
following offer to all debenture holders, whereby they may elect:
%Jto convert their debentures into McRetail ordinary shares at a conversion
price of 40 cents per McRetail ordinary share. The conversion will take place
at an implied value per debenture of R2,35; or
* to agree to the redemption of their debentures by McRetail at a cash offer of
R1,95 per debenture. The funding to achieve this will be provided by McRetail
's debt funders; or
* to retain their status quo and continue to hold their debentures and receive
the current interest stream.
3.5 Proposed RAG rights issue
The Board has resolved that McRetail's remaining funding loan to RAG of R210m
should be capitalised ("the RAG capitalisation") in order to position RAG for
sustainable growth in the future.
Once the RAG capitalisation is effected, some of RAG's debt funders have agreed
to release McRetail from certain obligations, which they received from McRetail
in relation to RAG's indebtedness to them. This will result in the security
holders having no further recourse to McRetail in the event of a RAG default.
Furthermore, McRetail will no longer be responsible for any funding required by
RAG.
Accordingly, RAG will undertake a R210m rights issue, which will be
underwritten by McRetail. In the event that no RAG shareholders follow their
rights, McRetail will increase its ordinary shareholding in RAG to 96%.
Subsequent to the RAG rights issue McRetail will write the carrying value of
this investment down to market value. The pro-forma balance sheet includes a
write-off of R250m for this purpose.
3.6 Bonus
Negotiations are currently taking place to dispose of the shares and the
McRetail loan account in Bonus for a purchase consideration of R25m. Should the
negotiation be concluded on these terms, it will result in a loss on sale of
R185m, which has been provided for in the pro-forma restructured balance sheet.
3.7 Executive share scheme
In a restructuring of this nature the Board recognises the importance of
promoting the loyalty and effectiveness of key management. To this end, a
performance linked share scheme will be put in place to further these
objectives and attract and motivate future key managers.
Full details of the scheme will be set out in the circulars to be sent to
shareholders and debenture holders.
4. Financial effects
4.1 Shareholders
The financial effects of the restructuring on a McRetail shareholder holding
100 McRetail shares are illustrated in the following table:
Before the After the Change
restructuring restructuring (%)
(Rands) (Rands)
Attributable loss
Per 100 shares (1) (289.5) (47.2) 83.7
Headline attributable
Profit per 100 shares (2) 14.8 4.8 (67.9)
Net asset value
Per 100 shares (3) (20.9) 19.1 +100.0
Number of ordinary
Shares in issue (000s) 198 735 2 003 916 -
Notes:
1. The attributable loss per 100 McRetail shares for the 6 months ended 31
December 2000 is compared with the pro-forma attributable loss assuming the
restructuring had been effective from 1 July 2000.
2. The headline attributable profit per 100 McRetail shares for the 6 months
ended 31 December 2000 is compared with the pro-forma headline attributable
profit assuming the restructuring had been effective from 1 July 2000.
3. The net asset value per 100 McRetail shares at 31 December 2000 is compared
with the pro-forma net asset value on the assumption that the transaction was
implemented on 31 December 2000.
4.2 Debenture holders
The financial effects of the restructuring on a McRetail debenture holder
holding 100 debentures are illustrated in the following table:
Before the After Change After Change
restructuring accepting (%) accepting (%)
or after the the cash
retaining conversion offer
the status
quo
Interest
payment per 100
debentures
(cents) 62,5 (1) NIL (2) - 9,8 (3) (84,4)
Market value per
100 debentures
(rands) 180,0 (4) 182,1 (5) 1,2 195,0 (6) 8,3
Notes:
1. There will be no change in the interest payment for those debenture holders
that elect to retain their debentures.
2. The interest payment per 100 debentures for the 6 months ended 31 December
2000 is compared with the pro-forma dividend flow that would have been received
on the McRetail ordinary shares assuming the restructuring had been effective
from 1 July 2000.
3. The interest payment per 100 debentures for the 6 months ended 31 December
2000 is compared with the 195 cents per debenture multiplied by 100 multiplied
by 10,0% multiplied by 6/12, which is assumed to be the pre-tax interest rate a
debenture holder could obtain on the cash balance for a six month period.
4. For the purpose of this illustration, the market value of the debenture is
that at close of business on 5 April 2001.
5. The market value of 100 debentures at the close of business on 5 April 2001
is compared with the market value of 587.5 McRetail ordinary shares at that
date.
6. The market value of 100 debentures at the close of business on 5 April 2001
is compared with 100 times the cash consideration of R1.95 per share.
4.3 Gearing and interest cover
The financial effect of the restructuring on the gearing of the group is
reflected in the pro-forma balance sheet where gearing is reduced from 979.6%
to 60.3% (excluding the impact of AC125). Interest cover including debenture
interest is improved from 1.4 times to more than 4 times.
5. Special arrangements
The following shareholders and debenture holders have provided written
irrevocable undertakings to vote in favour of the restructuring in respect of
their holdings of McRetail shares and/or debentures respectively.
Number of Percentage of
ordinary shares ordinary shares
Shareholder held held
A C Cotterel 36 530 635 18.4
J H Beare 12 939 933 6.5
Innesfallen
Investments (Pty) Ltd 12 543 873 6.3
T Rosenberg 6 741 303 3.4
Total 68 755 744 34.5
Number of Percentage of
debentures debentures
Debenture holder held held
A C Cotterel 6 035 600 14.6
T Rosenberg 5 180 932 12.6
W J Scott 3 500 000 8.5
Prefcor Share Incentive
Trust 829 252 2.0
Total 15 545 784 37.6
Allianz Risk Transfer, which owns 33.2% of McRetail's ordinary shares is
currently still evaluating its position.
6. Conditions precedent
The restructuring is subject to the following conditions precedent:
* the approval of the JSE Securities Exchange South Africa;
* the ordinary shareholders of McRetail agreeing to all special and ordinary
resolutions necessary to implement the restructuring;
* the debenture holders, to the extent required, agreeing to all special and
ordinary resolutions necessary to implement the restructuring;
*obtaining a ruling from the Securities Regulation Panel ("SRP") that the
underwriters of the rights offer will not be required to extend a similar offer
to the shareholders or debenture holders of McRetail pursuant to the
underwriting referred to above, on the basis that sufficient McRetail
shareholders and debenture holders do not follow their rights;
* obtaining a ruling from the SRP that the purchaser of the Relyant shares will
not be required to extend a similar offer to the shareholders and debenture
holders of Relyant pursuant to the sale of these assets;
* the approval of all other relevant statutory authorities; and
* debenture holders holding not less than 40% in number of the debentures
either agreeing to P
* the conversion of their debentures into McRetail ordinary shares; or
* accepting the cash offer of R1,95 per debenture referred to above.
As detailed above, undertakings from 37.6% in number of the debenture holders
have already been received.
7. Documentation required for the restructuring
The relevant documentation setting out the full details of the restructuring
and containing relevant notices of general meetings and resolutions to be
approved to effect the restructuring will be posted to shareholders and
debenture holders in due course.
Review of the Financial Results
for the period ended 31 December 2000
The period under review has been a challenging one for McRetail. McCarthy Motor
Holdings ("MMH") together with McCarthy Financial Services have performed
extremely well. Unfortunately, the clothing, furniture and housing sectors
experienced difficult trading conditions, which adversely affected the results
of McRetail's other divisions and associates.
As RAG was equity accounted until December 1999, it is more meaningful to
review the results as if it had been cost accounted for the entire comparative
period. On this basis, McRetail reported a headline profit of R29,5m for the
six months ended 31 December 2000 against a headline profit of R39,8m for the
comparative period.
Accounting for the Investment in RAG
The group changed its method of accounting for RAG from an equity basis to a
cost basis with effect from 1 January 2000. This was necessitated by the
Board's opinion, at that time, that RAG was no longer able to make payment to
its shareholders without being in contravention of Section 90 of the Companies
Act. This is in line with AC110 (accounting for investments in associates)
which requires that a company discontinue the use of the equity method and
adopt the cost basis of accounting from the date that the associate is
operating under severe long-term restrictions that significantly impairs its
ability to transfer funds to its investor.
These figures translate into fully diluted headline earnings per share of
15,4c, lower than the 20,9c of the prior year. As the group is in a
restructuring phase, no interim dividend has been declared.
Below are the highlights of McRetail's trading performance over the last six
months, commented on by reference to continuing operations:
%JTurnover increased by 15.3%, with all divisions contributing to the growth,
with the exception of Bonus;
%JIncome before tax and non-trading items of R22,2m was however lower than that
of the comparable period of R35,1m, mainly as a result of the losses incurred
by Bonus;
* MMH increased its turnover by 15.6% and income before taxation rose from
R75,7m to R84,7m, which represents a new record for a July to December period.
This 11.9% increase was achieved on top of the outstanding performance of the
prior year and during a period where used vehicle sales softened and the pure
dealer market recorded only a marginal growth in new vehicles. In particular,
the Mercedes Benz, VW/Audi, Peugeot and BMW franchises performed exceptionally
well. However, not all the franchises had a successful six-month period. The
price war in the highly competitive rental car market caused Budget Rent a Car
to incur a loss for the six months and the Toyota franchise 's profitability
was lower than expected due to unfavorable stocking levels and a decline in
retained margins;
* McCarthy Financial Services reported exceptional results with turnover up
87.6% and profit before tax up 65.4%. This was achieved through McCarthy
Finance reporting profits 70% ahead of budget and the increased product
offering from our insurance companies;
* Yamaha Distributors continued to perform at a very satisfactory level and
retained its market share leadership in the motorcycle, ATV and outboard engine
markets. Ongoing exchange rate pressure was largely offset by the growth in
business from neighbouring territories and in musical instrument sales;
* McCarthy On-Line increased its turnover from R1,8m to R5,2m and reduced its
losses before taxation to R2,3m for the period under review in comparison to
the prior period 's loss of R3,9m. All four divisions achieved considerable
growth. The creation of Spar-on-Line has enabled MegaShopper to turn the
corner. Iscor became a 10% partner in ProcureTrade, which is now positioned to
become one of the most advanced B2B hubs in South Africa;
* The group 's electronic new and used vehicle superstore, Call-a-Car,
continued on its growth path and sold a record number of 3077 vehicles during
the period under review;
* Bonus experienced an extremely difficult trading period with turnover
reducing by 8.3%, and reported a loss before taxation of R29,3m. The withdrawal
of the Government payroll deduction facility in July 1999 had a severe effect
on sales. Customers ' disposable incomes continued to be squeezed through the
much publicised move of consumer spending towards cell-phones, the National
Lotto and increased transportation costs. Finance income earned was also
hampered as a result of the lower turnover levels and the significant reduction
in the Usury Act rate.
The non-trading deficit comprises mainly: -
* An impairment write-down of McCarthy On-Line 's investment in Infobank PLC
of R6,6m;
* A further R24m impairment write-down of the investment in RAG as a result of
the drop in the RAG share price to 11 cents;
* An impairment write-down of R144,6m against the investment in Relyant to the
sale price;
* A provision of R429m being raised for the Relyant put obligation.
Share of associated companies retained income is comprised mainly of R10,3m
from Relyant, being slightly higher than the previous six months share of
R6,9m, as restated. In the prior year, R38,3m of RAG losses were equity
accounted while since December 1999 RAG has been accounted for at cost, as
detailed in the June 2000 Annual Financial Statements. Shareholders are
referred to the separate result announcements for Relyant and RAG published on
16 February 2001 and 10 April 2001, respectively.
Financial position
The level of consolidated group debt as reported at December 2000 increased by
R209,4m since June 2000 and by R176,3m since December 1999. Debt for McRetail
is seasonal as MMH needs to stock-up at the end of December to cover the
closure of vehicle manufacturers between December and January. Higher stock
levels are also needed to support trading over the Christmas period. Other than
the usual seasonality fluctuation, contributing significantly to the increase
in debt levels is the fact that MMH 's stock levels were unusually low in
December 1999. Stock levels normalised over the year, which resulted in a
higher utilisation of cash when compared to that of the prior period.
The increase in working capital levels discussed above, are mirrored in the
cash flow statement, which indicates that R43,7m was utilised by operations
during the six months while R57,3m was generated during the previous comparable
period.
The cash flow also highlights that R63,7m was invested in operations, R40,9m of
which was a seasonal increase in the Budget Rent a Car fleet since June 2000.
Prior year adjustments
In accordance with Statements of Generally Accepted Accounting Practice, the
following prior year adjustments have been made:
* An adjustment made in response to that made by our associate, Relyant.
Shareholders are referred to their interim announcement for the details thereof
* The capitalisation of finance leases previously treated as operating leases.
The effect on the results of these adjustments are summarised below:
Six months Six months Year
ended ended ended
31 December 31 December 30 June
R000s 2000 1999 2000
Income Statement
Relyant equity earnings
for the period
adjusted by (3 712) (7 459) (11 171)
Balance sheet
Cumulative effect on
shareholders' funds:
Relyant equity
earnings adjusted
- prior year
adjustment (7 079) (7 079) (7 079)
- restatement
of 2000 (11 171) (7 459) (11 171)
- effect on the
current year (3 712)
Effect on interest
bearing debt at the
end of the period:
Capitalising finance
leases (51 514) (78 925) (60 869)
Prospects
McRetail now begins a new chapter in its history. A sound capital base, the
removal of historical liabilities, strains and linkages and the refocusing by a
motivated and capable management team on opportunities within its core motor,
financial services and on-line businesses, create the foundation for a positive
future for all its stakeholders.
On behalf of the Board
Noel Phillips (Chairman)
Brand Pretorius (CEO)
Durban
10 April 2001
Directors:
N Phillips (Chairman); S G Pretorius (Chief Executive Officer); L Boyd; A C P
Cotterell; P M Goss; R D Greef; PJC Horne; S C McCarthy; T H Nyasulu; W R
Parkhurst; E G Roden; T Rosenberg; CF Wells; AG Williamson.
Registered Office:
McCarthy Centre, 203 North Ridge Road, Durban 4001.
Transfer Secretaries:
Mercantile Registrars Limited, P.O. Box 1053, Johannesburg 2000.
Sponsor and Merchant Bank Legal advisors to the group
to the restructuring
Rand Merchant Bank Deneys Reitz
Corporate Finance Attorneys
A Division of FirstRand Bank Limited
