Profurn Limited Financial Up Date And Profit Warni
PROFURN LIMITED
Registration number 1968/015363/06 ("Profurn")
Quarter ended 31 March 2001
In reporting for the year ended December 2000, management indicated that the
store expansion program was largely complete and that the primary focus for
2001 would be the consolidation of the business with particular emphasis on the
improvement of cash flows.
Considerable energy has been dedicated to generating cash sales. For the first
quarter 2001, cash sales comprised 53% of merchandise sales, which has
increased considerably compared to the prior year average of 44%. In order to
generate cash sales, management has reduced gross margins on merchandise. The
gross profit margin for the first quarter was 28,3%, lower than that of the
prior year, which averaged 33,2%.
Merchandise sold in response to the promotion of cash sales has assisted in
reducing inventory holdings by 9% since year-end and hence further reducing
working capital investment. The increase in cash sales has also had the effect
of reducing finance charges and other add-on income generated by the business.
Total merchandise sales for the first quarter increased 23,3% compared to the
same period last year. The majority of this increase related to new stores
opened in 2000. Same-store sales growth in existing stores was marginally
positive.
Gross instalment sale debtors have decreased slightly since year-end despite
the sales growth achieved, as a result of the increase in cash sales and an
uncompromising approach to repossessions of overdue accounts. Collections on
debtors' accounts in the first quarter of the year are historically slow. This
trend has been carried into 2001, but has been exaggerated due to difficult
trading conditions that exist in the retail sector. As a result, Profurn has
increased the provisions for bad and doubtful debts to 6,8% from 5,0% at
year-end. The average arrears in the group has increased to 15,0% (2000:13%).
The management initiatives outlined above have reduced borrowings by some R200m
compared to levels anticipated at the beginning of the year. Profurn is
continuing with its strategy of securitising its debtors book, which strategy
is proceeding as expected. As part of the consolidation strategy management
has improved overhead structures, which has resulted in expense savings
compared to budgeted overheads.
Profit warning
The effect of the above will result in the earnings for the 6 months ending
June 2001 being significantly lower than the prior year. The interim results
will be published on or about 2 August 2001. The directors believe that the
strategy of consolidating the business and improving cash flows will place
Profurn in a stronger financial position in the long term.
Johannesburg
10 May 2001
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