| Tue 24 Apr 2001, 0:00 | | L.a. Group Limited - Audited Results |
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L.A. GROUP LIMITED
(Previously LA Retail Stores Limited)
(Registration Number 1936/008786/06)
Audited results for the year ended 28 February 2001
- Turnover increased by 18%
- Cash Dividend of 6 cents per ordinary share
- NAV increased by 16%
GROUP INCOME STATEMENT (R '000)
2001 2000
REVENUE 535 154 455 163
OPERATING INCOME BEFORE DEPRECIATION
AND AMORTISATION 67 272 75 476
Depreciation, goodwill and
trademark amortisation 5 187 3 215
OPERATING INCOME BEFORE
NET INTEREST (PAID) RECEIVED 62 085 72 261
Net interest (paid) received (2 483) 2 780
INCOME BEFORE TAXATION 59 602 75 041
Taxation 13 878 18 780
INCOME AFTER TAXATION 45 724 56 261
Goodwill written off 36 407
NET INCOME 45 724 19 854
Preference dividends 25 22
Attributable to outside shareholders 123 18
NET INCOME ATTRIBUTABLE TO
ORDINARY SHAREHOLDERS 45 576 19 850
Transfer to non distributable reserves 824 2 389
Capitalisation award P distribution to
ordinary and "N" ordinary shareholders - 19 205
RETAINED EARNINGS (DEFICIT) 44 752 (1 744)
Number of ordinary and "N" ordinary
shares in issue at year end 72 699 218 68 299 396
at weighted average 70 430 295 72 699 218
fully diluted 70 430 295 73 078 969
Headline earnings per ordinary and
'N' ordinary shares - cents
weighted average 64.31 77.38
fully diluted 64.31 76.98
Earnings per ordinary and
'N' ordinary shares - cents
weighted average 64.71 27.30
fully diluted 64.71 27.16
Distribution per ordinary
and "N" ordinary share P cents - 28.00
Proposed cash dividend per
ordinary and "N" ordinary share - cents 6 -
Net tangible asset value
per share P cents 222 191
Capital expenditure 5 523 4 141
Capital commitments 2 590 3 963
GROUP BALANCE SHEET (R '000)
2001 2000
ASSETS
Non-current assets
Fixed assets 14 820 14 420
Intangible assets 2 329 378
Loan staff share trust 1 047 664
18 196 15 462
Current assets
Inventories 138 898 120 198
Trade and other receivables 115 165 89 249
Deferred taxation 698
Cash and cash equivalents 48 757 56 549
303 518 265 996
Total Assets 321 714 281 458
EQUITY AND LIABILITIES
Equity
Ordinary shareholders' equity 164 027 130 660
Outside shareholders' interest 1 950 1 671
Preference shareholders - 370
165 977 132 701
Non-current liabilities
Non-interest bearing 8 331 33 028
Interest bearing 8 954 8 400
Current liabilities
Non-interest bearing
Vendors for businesses acquired 24 443 35 537
Trade and other payables 71 985 54 775
Taxation 2 584 12 564
Interest bearing
Short term loans 8 367
Bank overdraft 31 073 4 453
155 737 148 757
Total Equity and Liabilities 321 714 281 458
GROUP CASH FLOW STATEMENT (R '000)
2001 2000
OPERATING ACTIVITIES
Operating profit before
interest and taxation 62 085 72 261
Changes in working capital (27 407) (30 315)
Adjustment for non cash flow items 1 888 2 239
Interest received 2 752 4 990
Interest paid (5 235) (2 210)
Dividends paid - Preference (25) (22)
Taxation paid (24 555) (22 475)
Net cash inflow from
operating activities 9 503 24 468
INVESTING ACTIVITIES
Acquisition of fixed assets (5 523) (3 740)
Proceeds from sale of fixed assets 150 279
Investment in subsidiaries (834) (23 227)
Purchase of trademarks (1 900)
Loan to staff trust (383)
Net cash outflow from
investing activities (8 490) (26 688)
FINANCING ACTIVITIES
Share issue expenses (48) (74)
Share buy back (9 021)
Payment to vendors (35 207) (8 333)
Preference shares redeemed (370)
Short term loans 7 828
Net cash outflow from
financing activities (36 818) (8 407)
Net decrease in cash and
cash equivalents (35 805) (10 627)
Cash and cash equivalents
at beginning of year 52 096 62 723
Effect of foreign exchange movements 1 393
Cash and cash equivalents
at end of year 17 684 52 096
STATEMENT OF CHANGES IN ORDINARY SHAREHOLDERS' EQUITY (R'000)
2001 2000
Balance at beginning of period 130 660 103 706
Capitalisation award 19 124 15 873
Share issue expenses (48) (75)
Vendors for businesses acquired 8 334
Distributions declared (19 124) (15 885)
Goodwill write-off (800)
Profit attributable to
ordinary shareholders 45 576 19 850
Foreign currency translation reserve (3 140) (343)
Share buy back (9 021)
164 027 130 660
DEPRECIATION AND AMORTISATION (R'000)
Assets have been depreciated amortised as follows:
2001 2000
Depreciation 5 025 3 215
Trademarks 142
Goodwill 20
5 187 3 215
RECONCILIATION OF EARNINGS TO HEADLINE EARNINGS (R'000)
2001 2000
Net earnings per income statement 45 576 19 850
Goodwill and trademark amortisation 162 36 407
Profit on sale of assets (52)
Gain on payment of vendor
for business acquired (389)
HEADLINE EARNINGS 45 297 56 257
SEGMENTAL INFORMATION
2001 2000
TURNOVER
South African 395 419 386 887
International 139 735 68 276
535 154 455 163
OPERATING PROFIT
Before interest and intercompany charges
South African 55 688 69 640
International 6 397 2 621
62 085 72 261
COMMENTS
The L.A. Group is a leading clothing and apparel company, focusing on branded
distribution and corporate clothing for local and international markets.
The Group's four primary business divisions are:
Branded Distribution
Distributing a wide spectrum of leading footwear and clothing brands,
SkyeProducts has a client base of more than 3 000 independent retail and group
stores. In addition to operating under several licenses, the Branded
Distribution division also owns the Polo brand for South Africa and sub-Saharan
Africa.
South African Corporate Clothing
Carter Harris is the largest supplier of corporate clothing to the retail,
petroleum, leisure and service industries. It also operates a branch in the
United Kingdom.
International Corporate Clothing
Consisting of Corporate Image International (CII) and Allen & Douglas (A&D),
the International Corporate Clothing division is a leading supplier of
corporate clothing and workwear to the transport, financial services and
leisure industries in the United Kingdom and Europe.
Retail
Providers of high fashion and branded clothing to the retail market, this
division consists of a total of 38 L.A. Jean and Oxygen stores countrywide.
TRADING CONDITIONS
The 2000/2001 financial year proved challenging with the change in consumer
spending patterns becoming both more obvious and of longer duration.
It is our opinion that this fundamental spending pattern change is now
entrenched in this country and the flow of consumer spending in traditional
retail markets has been significantly altered and diluted.
In addition, the amount of overall disposable income per family continues to
shrink marginally when compared to inflation linked annual salary and wage
increases.
Results
Against this backdrop, the L.A. Group showed an increase in turnover of 18% and
whilst the South African operations held their own compared to the previous
year, the greater portion of this increase is attributable to the inclusion of
A&D for the full 12-month period, compared to four months in the 1999/2000
year.
Overall, operating profit decreased from R72-million last year to R62-million
for this financial year. A number of factors contributed to this decrease, not
least of which was the ongoing pressure on profit margins that saw both the UK
and South African divisions not achieving the expected operating margin.
The effect of this underperformance in terms of margins was exacerbated by the
large decrease in contribution to Group revenue by the retail division. The UK
operations also did not perform to expectations in terms of anticipated new
contracts, which placed additional pressure on the Group's overall margins.
The trend amongst many debtors to extend the periods of settlement of accounts
has resulted in a build-up of trade and other receivables. Combined with
capital and vendor payments during the year, this has resulted in the Group's
cash resources decreasing by R36-million. These factors resulted in a net
interest charge of R2,48-million as opposed to a net interest received of
R2,7-million last year .
The build-up of inventories on hand is a result of the Group's divisions'
difficulty in achieving budgeted revenue combined with stockpiling during
January and February for the purpose of meeting corporate clothing contracts in
2001/2002.
Headline earnings per share was 64,31c per share, compared to 77,38c for the
previous financial year. The share buy-back programme had a minimal enhancing
effect on earnings as it occurred late in the fourth quarter of the year.
DIVISIONAL OVERVIEW
Branded Distribution
While this Division remains a significant contributor to Group operating income
and revenue, this division did not escape the effects of the negative economic
conditions and here, as with all the other areas of business, profit margins
have come under pressure over the past 12 months.
The loss of value of the rand against most major international currencies and
the ceiling on selling prices further eroded these margins.
The Polo brand has been firmly established with the opening of four highly
recognisable, self-standing stores under license, which have afforded the brand
good levels of visibility. This enhanced visibility is expected to realise
further increases in royalty flow.
South African Corporate Clothing
The South African Corporate Clothing division has performed in line with its
budget for the year, but also experienced tightly squeezed margins. The
division recently moved into new premises, which will afford it greater
efficiency and marketing impact. The costs of the move have been fully absorbed
in this financial year.
During the latter part of the year, the division also secured contracts for the
supply of corporate clothing for Virgin Active and M.A.N. These contracts begin
in the 2001/2002 financial year.
International Corporate Clothing
This financial year was the first in which A&D's contribution was included for
the full 12 months. In addition, 2000/2001 also saw the two UK companies, CII
and A&D, operating as a fully integrated unit for a full year.
However, the period proved somewhat disappointing for the International
Corporate Clothing division as budgets were not attained. This was primarily
due to disappointing growth in operating margins and a lack of new contracts by
A&D.
Retail
The integration of the L.A. Jean and Oxygen stores into one retail division has
been completed. The division showed disappointing results for the year, with
margins under pressure, rentals increasing at a far greater rate than
inflation, and low levels of turnover growth.
In addition, the reluctance by the Group to expand the number of stores under
trying market conditions has meant that infrastructural costs within the retail
division could not be spread out to a greater extent.
The Retail division, therefore, continues to contribute only a minor amount to
overall Group revenue and management is currently investigating ways in which
to realise greater value to the Group through this division.
Corporate changes
During the year, the company underwent a name change from L.A. Retail Stores to
L.A. Group as it was felt that this better reflected the overall nature of our
business.
A number of appointments were made within the L.A. Group during the year. AK
Peer was appointed Executive Chairman, while Showkat Mukadam became Group
Managing Director. Stanley Greenberg replaced Jeffrey Gochin as Managing
Director of Carter Harris and Manie Maritz was appointed Managing Director of
the Retail Division. Fazal Amod was appointed Group Financial Controller and
has also become a Director of Carter Harris.
On the UK front, Nick Pritchard has been appointed Sales Manager of Carter
Harris UK and will be focusing on strengthening the marketing and sales
function in the United Kingdom and Europe.
DIVIDENDS
Ordinary share dividends
Capitalisation shares
The Board policy for the past four years regarding dividends has been to make
capitalisation share awards in lieu of cash dividends in order to finance
expansion of the Group.
In light of the current share price, combined with the recent share buy-back
programme, this policy is no longer appropriate. The Group has, however, vendor
payment commitments over the next six months amounting to some R32-million in
all. After taking into account that most of these commitments are
non-recurring, the Board, mindful of the needs and expectations of
shareholders, has decided to pay a conservative cash dividend, as under.
Cash dividends
Your directors have resolved that a dividend of six cents per share in respect
of the year ended 28 February 2001 be paid to the holders of ordinary and "N"
ordinary shares registered at the close of business on Friday 29 June 2001, and
that payments thereof be effected on or about the 13th July 2001.
Preference share dividends
Preference dividend 128 for the six months ended 31 December, 2000, at a rate
of six cents per share was paid in January 2001.
Prorata dividend 129 for the two months to 28 February 2001 was paid together
with the redemption of the preference shares on 28 February 2001.
Shares in issue
Ordinary shares
Following the announcement of the final results for the year ended 29 February,
2000, the Group made a capitalisation share award in May 2000 resulting in
1,699,703 ordinary shares and 2,700,119 "N" ordinary shares being issued.
Share buy-back
During the year, the Group commenced its share buy-back programme that saw
6,658,722 "N" shares and 676,600 ordinary shares bought back na subsidiary
company at a total cost of R9,021-million. The buy-back initiative was funded
via internal cash resources and the enhancing effect on total earnings per
share for this financial year was minimal as most of the buy-back occurred late
in the fourth quarter of the year.
Preference shares
In accordance with the authority conferred by amendments to the articles of
association and meeting of shareholders, all preference shares were redeemed on
28 February 2001.
Financial Information
Change in accounting policy
The principal accounting policies, as set out in the Group's annual report of
29 February, 2000, have been consistently applied throughout the twelve months
under review, except in the following instances:
Goodwill
In accordance with AC129 (Intangible assets) and AC131 (Business combinations)
the Group has changed its accounting policy with regard to the treatment of
goodwill. The effect is that premiums paid in respect of the purchase
considerations of businesses and shares acquired over the fair value of the net
assets as at date of acquisition are no longer offset against share premium or
earnings, but are capitalised as goodwill. Goodwill is amortised over its
estimated useful life, which is considered to be no more than 10 years.
Trademarks
In accordance with AC129 (Intangible assets) the Group has changed its
accounting policy with regard to the treatment of trademarks and amortised new
trademarks over their estimated useful life, which is considered to be no more
than 10 years.
Dividend proposed
In accordance with AC107 (Events after the balance sheet date) the Group has
changed its accounting policy with regard to the treatment of dividends
proposed after the balance sheet date. It accordingly has not recognised the
dividend proposed as a liability on 28 February 2001.
Cash and cash equivalents
Of this amount, R16,107-million is committed to the payment of the vendors of
the A&D business and R4,920-million is committed in respect of the payment of
short-term loans used to settle the amount due to outside shareholders in the
UK operation.
Current liabilities - Vendor payments
R16,667-million of this amount is due to vendors of Carter Harris, which will
be paid on 30 April, 2001, while the balance of R7,777-million will be paid to
the vendors of A&D on 31 May, 2001.
Earnings per share
The current yearUs earnings and headline earnings per ordinary and RNS ordinary
have been adjusted in respect of the shares bought back during the year.
The earnings and headline earnings per ordinary and "N" ordinary shares for the
year ended 29 February, 2000, have been restated in accordance with AC104,
Earnings per share, to take into account the effect of the capitalisation share
issue made in May 2000.
Strate
All shareholders have been advised of the fact that the Group is scheduled to
transfer to Strate on 21 May, 2001.
Prospects
Conditions in the local and international trading environment remain the
biggest challenge for the next financial period. The Group's overall emphasis
for the period will therefore be on finding new ways to unlock value within the
various divisions while effectively managing overall working capital and
ensuring that market share is retained.
Internationally, the focus is on effective marketing aimed at securing new
contracts and the sourcing of product at prices that will relieve the pressure
on margins, which will enable them to grow market share.
The Directors are satisfied that the business fundamentals are in place to
secure earnings growth in coming months provided that market and economic
conditions, and currency remain stable and not subject to the volatility of the
past year.
Signed on behalf of L.A. Group.
AK Peer
Executive Chairman
S Mukadam
Managing Director
Cape Town
24 April 2001
