| Fri 3 Aug 2001, 0:00 | | Profurn - Interim Results |
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INTERIM RESULTS FOR THE 6 MONTHS ENDED 30 JUNE 2001
INCOME STATEMENT
Unaudited Unaudited Audited
6 months 6 months 12 Months
30/06/2001 30/06/2000 31/12/2000
R'000 R'000 R'000
Cash sales 714 140 489 568 1 316 637
Credit sales 691 568 698 747 1 672 261
Total sales 1 405 708 1 188 315 2 988 898
Finance charges earned 330 342 277 702 552 014
Other income 308 922 255 031 674 823
Turnover 2 044 972 1 721 048 4 215 735
Cost of sales (975 114) (792 302) (1 995 445)
Gross profit 1 069 858 928 746 2 220 290
Operating profit 104 179 206 948 743 305
Interest paid (47 390) (3 079) (18 113)
Profit before taxation 56 789 203 869 725 192
Taxation (1 760) (40 605) (164 394)
Profit from ordinary activities 55 029 163 264 560 798
Minority interest (21 226) (19 784) (51 166)
Net profit 33 803 143 480 509 632
Earnings per share
- Basic (cents) 3.2 13.1 47,1
- Diluted (cents) 3.0 13.1 45,7
Headline earnings per share
- Basic (cents) 3.2 13.1 40,7
- Diluted (cents) 3.0 13.1 39,4
KEY FINANCIAL INFORMATION
Unaudited Unaudited Audited
6 months 6 months 12 Months
30/06/2001 30/06/2000 31/12/2000
R'000 R'000 R'000
Headline operating profit margin (%) 5.1 12.3 15.5
Gross profit margin (%) 30.6 33.3 33.2
Net asset value per share (cents) 165.4 136.4 170.1
Total shares in issue (000's) 1 136 330 1 116 000 1 136 330
Basic weighted average number of 1 073 376 1 098 976 1 082 492
shares in issue (000's)
Diluted weighted average number of 1 136 330 1 098 976 1 116 007
shares in issue (000's)
Depreciation and amortisation (000's) 35 122 26 906 60 684
Instalment sale debtor arrears (%) 14.6 14.2 13.0
BALANCE SHEET
Unaudited Unaudited Audited
30/06/2001 30/06/2000 31/12/2000
R'000 R'000 R'000
ASSETS
Fixed and other non-current assets 284 907 219 561 308 557
Current assets 3 296 559 2 576 674 3 527 771
Inventories 549 820 482 720 709 695
Debtors 2 590 611 1 908 379 2 641 757
Cash 156 128 185 575 176 319
Total assets 3 581 466 2 796 235 3 836 328
EQUITY AND LIABILITIES
Equity capital and reserves 1 926 902 1 628 745 2 053 021
Ordinary shareholders' interest 1 879 111 1 522 053 1 932 792
Outside shareholders' interest 47 791 106 692 120 229
Non-current liabilities 376 803 358 381 425 620
Long-term interest bearing debt 23 979 14 712 20 820
Loan from share incentive scheme 75 496 122 129 73 440
Deferred taxation 277 328 221 540 331 360
Current liabilities 1 277 761 809 109 1 357 687
Interest bearing debt 733 348 292 522 637 167
Trade creditors and other current 544 413 516 587 720 520
liabilities
Total equity and liabilities 3 581 466 2 796 235 3 836 328
CASH FLOW STATEMENT
Unaudited Unaudited Audited
6 months 6 months 12 Months
30/06/200 30/06/2000 31/12/2000
1 R'000 R'000
R'000
Cash flows from operating activities 14 088 (122 914) (355 344)
Cash generated from trading 139 301 233 862 793 873
Increase in debtors (54 350) (270 358) (1 037 920)
Decrease / (increase) in inventories 137 358 19 367 (211 271)
(Decrease) / increase in liabilities (208 221) (105 785) 99 974
Interest paid (47 390) (3 079) (18 113)
Taxation and dividends (19 708) (32 874) (30 369)
Cash flows from investing activities (16 649) (45 632) (139 600)
Net additions to fixed and other non- (16 649) (45 632) (109 798)
current assets
Investment in subsidiaries (29 802)
Cash flows from financing activities 3 139 5 358 9 705
Increase in long-term borrowings 3 159 5 358 11 215
Net proceeds from issue of ordinary (1 510)
shares
Decrease in cash and cash equivalents (66 520) (199 141) (533 721)
Effect of exchange rate changes on (49 852) (19 321)
cash
At beginning of period (460 848) 92 194 92 194
At end of period (577 220) (106 947) (460 848)
STATEMENT OF CHANGES IN EQUITY
Stated Treasury Retained Trans- Total
capital shares earnings lation
adjust-
ment and
reserves
R'000 R'000 R'000 R'000 R'000
Balance at 1 073 206 633 497 (64 784) 1 641 919
1 January 2000
Net profit for the 143 480 143 480
period
Dividend 45 862 (71 609) (25 747)
Share issue 45 884 45 884
Foreign currency (12 470) (12 470)
translation
(AC 112)
Treasury shares (271 013) (271 013)
Balance at 30 June 1 164 952 (271 013) 705 368 (77 254) 1 522 053
2000
Balance at 1 228 412 (262 668) 1 071 520 (104 472) 1 932 792
1 January 2001
Net profit for the 33 803 33 803
period
Foreign currency (87 484) (87 484)
translation
(AC 112)
Balance at 30 June 1 228 412 (262 668) 1 105 323 (191 956) 1 879 111
2001
HEADLINE EARNINGS
Unaudited Unaudited Audited
6 months 6 months 12 Months
30/06/2001 30/06/2000 31/12/2000
R'000 R'000 R'000
Net profit 33 803 143 480 509 632
Exceptional item - SARS 18 448
settlement
Provision adjustment in (88 578)
accordance with AC 130
Taxation on provision 117
adjustments
Goodwill amortisation 224 448
Headline earnings 34 027 143 480 440 067
Consolidation of rapid growth in recent years
First quarter focus on cash sales drive to reduce inventory levels and
improve cash generation
Stringent management of debtors' book
18,8% increase in turnover
All trading divisions profitable, despite
drop in operating margins
FINANCIAL AND OPERATIONAL REVIEW
Period of consolidation
Over the last seven years, Profurn has expanded rapidly and consistently
increased market share through a combination of organic and acquisitive
growth. The business now operates 622 furniture, electronics and appliance
retail stores in 17 countries, across the upper, middle and lower income
groups.
As indicated in the 2000 results, Profurn has now entered a two-year period
of consolidation. Attention will be focused on:
working capital management
generating positive cash flows
improving operational efficiencies.
For the six months ended June 2001, the consolidation strategy has been
actively implemented.
Profurn's long term strategy is to generate sustainable cash returns for
shareholders by now reaping the benefits of the expansion process and the
larger market share created in recent years. In addition, Profurn will
continue to reduce business risk by diversifying its operations both
geographically and across income groups. This will include the ongoing
investment in the group's strong brands in all markets.
Increase in cash sales and reduced inventory
During the first quarter, Profurn aggressively promoted cash sales in order
to reduce inventory levels and improve cash generation.
The effect of these measures in the period under review are as follows:
Cash sales increased by 46% and now comprise 51% of total sales, compared
with 41% in the same period last year.
The increase in cash sales has reduced the proportion of finance charge
income and other revenue generated by the business, which relate only to
credit sales.
Inventory levels have reduced by R160m since 31 December 2000.
The discounting of this stock resulted in the gross profit on sales
decreasing by 2,7% to 30,6% during the period.
The cash sales drive has had the effect of reducing operating profit in the
six months by approximately R65m, or operating margins by 3,1%.
Following these short-term measures, the mix of credit and cash sales was
brought in line with historic trends during the second quarter. This mix is
expected to continue for the remainder of the year.
Rigorous management of debtors' book
Profurn has taken a rigorous approach to the management of the debtors'
book, with particular focus on collection procedures and the repossession
and write off of overdue accounts. During this process, customer accounts
amounting to R58m have been written off, provided for or repossessed above
budgeted levels for the six months. This has accordingly reduced operating
margins by 2,8%.
It is expected that the condition of the debtors book will remain in line
with budgeted expectations for the remainder of the financial year.
Turnover up 18,8%
Turnover for the six months ended June 2001 increased by 18,8% to R2bn
compared with the same period last year. The majority of this increase was
generated from new stores opened towards the end of 2000, which are now
trading for the full period under review. Comparable store sales for the
period were marginally positive at 1,1% ahead of last year.
All trading divisions profitable
Despite the reduction in operating margins, all trading divisions were
profitable in the first six months of the year. A significant improvement
was evident in the second quarter, which produced an operating profit of
R113,1m compared to the first quarter which sustained operating losses of
R9,0m.
Operating profit for the six month period decreased by 50% to R104m.
Operating profit margins reduced from 12,3% to 5,1%.
The effective tax rate has reduced as a result of permanent differences and
the utilisation of assessed losses outside South Africa.
The lower operating profit together with an increase in interest paid to
R47m during the period resulted in a decline of 76% in earnings per share to
3,2 cents for the six months to 30 June 2001, compared with the same period
in 2000.
With the exception of Zimbabwe, all the currencies of other countries in
which Profurn trades remained stable or improved relative to the Rand.
Retail trading conditions during the first quarter of 2001 were the toughest
experienced for many years. This improved during the second quarter but the
market remains subdued. These conditions exacerbated the working capital
consolidation measures implemented during the period.
Instalment sale debtors
Credit sales (including related finance charges and other income) increased
by 8,1% over the same period last year. Despite this increase, debtors'
decreased by R51m since year-end to R2 590m.
A decision was taken to increase average deposits on credit sales during the
period, which now average 13,7% compared to 12,2% last year. Likewise, a
more conservative approach has been adopted reducing average contract terms
to 21 months from 22 months last year.
Instalment debtor arrears at 30 June 2001 were 14,6%. Arrears had increased
to 15% during the first quarter but have subsequently reduced due to
improved collections and conservative bad debt write-off and repossessions
of accounts. Arrears are calculated on all overdue payments. Total
provisions for doubtful debts and unearned finance charges remain at 19%.
Cash flow
The working capital management measures implemented with regards to
inventory and debtors together with the operating profit for the period
resulted in a positive cash flow of R222m. Off-set against this was a
payment to creditors of R208m for merchandise sold over the Christmas
period, resulting in cash of R14m being generated from operating activities.
As part of the consolidation phase, Profurn has also improved creditors'
terms. The effects of this will be evident in the second half of the year.
During the period under review, the cash invested in fixed and other non-
current assets has been limited to R16,6m. Interest and taxation paid
impacted cash flow by R47,4m and R19,7m respectively. The net effect of the
cash flow for the period was an increase in net borrowings of R66,5m.
Information technology
To improve internal controls for the management of working capital and
enhance forecasting capabilities across all areas of the business, Profurn
will be implementing a new best of breed `Java based' retail system. This
will encompass all aspects of operations in the stores and at head office.
Some aspects of the system have already been installed with final completion
expected by June 2002. The cost of implementing the new system will be
approximately R40m over the next two years.
Securitisation and funding strategy
During the year ended 31 December 2000, the management of Profurn took a
conscious decision to utilise debt as a component of the group's capital
structure to enhance returns to shareholders in the long term. This debt was
used to finance increased working capital requirements, as a result of the
group's expansion program.
As indicated in the results announcement dated 22 February 2001, Profurn
decided to securitise a part of its debtors' book in order to provide the
group with a satisfactory funding mechanism and appropriate balance sheet
flexibility in the longer term. The securitisation process is ongoing and is
progressing as expected.
Appointment of Non-executive Chairman and Financial Director and Corporate
Governance
The board of directors has resolved to separate the functions of Chairman
and Chief Executive. With effect from 2 August 2001, Philip Vallet (a non-
executive director) has been appointed Chairman of Profurn. Philip (aged 56)
is the senior partner of Fluxman RabinowitzzRaphaely Weiner Inc, a leading
law practice in Johannesburg. He is active in the field of corporate law and
is also a director of and consultant to a number of public companies. Gavin
Walker will remain Chief Executive.
Profurn has pleasure in announcing the appointment of Mr Kevin Boyers (aged
44) as Chief Financial Officer with effect from 1 November 2001. Kevin is
currently Group Financial Director of LogicalOptions (Proprietary) Limited,
which was formerly part of The Education Investment Corporation Limited
(Educor). He was previously a partner in Grant Thornton Kessel Feinstein,
and in that capacity was the partner in charge of the audit of Profurn from
1995 to 1997.
The Profurn audit committee has instructed its auditors, Grant Thornton
Kessel Feinstein to conduct a thorough review of corporate governance
policies and procedures throughout the group, to evaluate compliance with
the (draft for public comment) King Report on Corporate Governance for South
Africa 2001. Grant Thornton Kessel Feinstein will report back to the audit
committee with their findings and recommendations. Changes will then be
implemented by the board where necessary.
HIV/AIDS awareness
For some years now, Profurn has been actively assessing the impact of the
AIDS pandemic on all its business divisions. Group wide awareness campaigns
for employees will be continued, as will ongoing efforts to adapt the
business to assist in addressing the AIDS related challenges that are ahead.
Accounting policies
These consolidated interim financial statements are prepared in accordance
with AC127 Interim Financial Reporting. The accounting policies used in the
preparation of the interim financial statements are consistent with those
used in the annual financial statements for the year ended 31 December 2000.
DIVISIONAL REVIEW
Stores
Profurn operates in 17 countries from 622 retail stores located as follows:
406 in South Africa 14 in Lesotho 4 in Ivory Coast
43 in Botswana 13 in Australia 4 in Malawi
31 in Namibia 10 in Kenya 4 in Morocco
28 in Zimbabwe 9 in Swaziland 2 in Tanzania
24 in Zambia 8 in Ghana 2 in Uganda
14 in Mauritius 6 in Mozambique
During the six months a new store was opened in each of Morocco, Zambia and
Malawi.
Protea Division (232 stores)
Protea Furnishers is the original retail chain of Profurn and commenced
operations in the 1960's. Since then Barnetts Furnishers was acquired in
1994 and Freedom Furnishers in 1997. All these stores target lower income
groups mainly in rural areas. Over recent years this division has opened 82
stores throughout South Africa and has launched the Protea brand into
Mozambique where there are now 6 stores. The Protea division has a gross
debtors' book of R1 311m with arrear accounts comprising 25,7% of
receivables. Industry wide arrears in credit businesses serving lower income
groups are generally higher than those targeting more affluent customers.
Expansion in the Protea division is complete, the primary focus is to
continually improve the quality of the debtor's book and thereby enhance
cash flows.
Supreme Division (135 stores)
Profurn opened its first store, outside the borders of South Africa, in
Lesotho during 1989. Since then, 134 stores have opened in an additional 10
countries across Southern, Central, East and West Africa. Included in this
expansion was the launch of 11 Hi Fi Electric City stores, which are small
specialist electrical stores located in high traffic urban areas. Supreme's
target market is middle and upper income groups throughout Africa. The
Supreme division has a gross debtors' book of R757m with arrear accounts
comprising 9,5% of receivables.
In certain countries where Supreme has only recently started to trade, the
operations lack critical mass and therefore limited planned store expansion
will continue in these areas. It is anticipated that 3 new stores will be
opened by year-end. However the primary focus of Supreme is to improve
operational efficiencies, logistics management and the repatriation of cash
to South Africa.
Morkels Division (183 stores)
This division includes 147 Morkels Furnishers and 36 Home & Electric stores
targeting middle income and upper groups in predominantly urban areas of
South Africa, Namibia, Botswana and Lesotho. Morkels was acquired by Profurn
in April 1998 at which stage it traded from only 116 stores. Since the
acquisition, 31 additional Morkels stores have been opened and a new
specialist electrical chain Home & Electric has been launched of which there
are now 36 branches.
The Morkels product range has been expanded by the introduction of built-in
kitchens, fitted carpets and personal computers as well as the addition of a
number of innovative financing options in recent years. The Morkels division
is also responsible for financing and managing the credit products offered
in the Hi Fi Corporation stores. The Morkels division has a gross debtors'
book of R1 000m which has arrear accounts comprising 5,8% of receivables.
The strategy of the Morkels division is to consolidate the growth in recent
years and to focus on generating cash. The division is also determined to
maintain the high quality of its debtors' book.
Hi Fi Corporation (26 stores)
Profurn purchased Hi Fi Corporation in March 1999 at which time the chain
had 9 stores. Hi Fi Corporation discounts electronics and small appliances
targeting upper income groups from large warehouse stores in metropolitan
cities. During 2000, credit facilities were introduced to broaden the
consumer target market of the stores. Credit sales now comprise 8,7% of
business. Growth of Hi Fi Corporation (South Africa) is anticipated at two
stores per annum.
During 2000, Profurn expanded the operations of Hi Fi Corporation into
Australia through the acquisition of two small independent retailers. Since
then three Hi Fi Corporation stores have been opened. It is recognised that
the Australian market is very competitive and it will take time to establish
businesses with sufficient brand equity to be widely successful. Profurn is
therefore adopting a cautious approach and will restrict further expansion
until the existing operations have proven track records. To date, a total of
R63,3m has been invested in Australia.
Pelhams Division - Zimbabwe (28 stores)
The Pelhams division operates 28 retail stores throughout Zimbabwe, using
the brand names Pelhams, Bradlows and Furniture Discount Centre. Profurn
acquired 40% of Pelhams in July 1998. Despite the well publicised woes of
Zimbabwe, the Pelhams division has performed admirably, increasing market
share and returns year after year. The Pelhams division has a gross debtors'
book of R73m which has arrear accounts comprising only 2,7% of receivables.
Due to the continuous devaluation of the Zimbabwe Dollar, with effect from
30 June 2001, the board of directors of Profurn has decided to revalue the
business from the official exchange rate used of Z$8 to the Rand to a more
realistic commercial rate of Z$22 to the Rand. This has resulted in a
translation deficit of R64m, which has been accounted for in the statement
of changes in equity in accordance with AC112.
Batam - North Africa (4 stores)
During 2000, Profurn entered into an agreement with Batam Societe Hela
Electromenager, a listed retailer on the Tunisian Stock Exchange to jointly
expand into Morocco and Egypt. To date, four Batam stores have been opened
in Morocco, which are trading satisfactorily. In August, two stores are
planned for Egypt. The total investment in North Africa to date is R17,4m.
In the short term, the strategy in North Africa is to create a solid base of
expertise with a thorough understanding of these markets. Then, once this
infrastructure is in place and the businesses have proven track records, to
proceed with an expansion plan.
Courts - Mauritius and Madagascar (14 stores)
Profurn acquired a 33% share in Courts Mauritius Limited in October 1999.
Courts Mauritius is a subsidiary of Courts Plc, an established furniture,
electronics and appliance retailer with over 300 stores in 20 countries. Due
to the limited market in Mauritius, achieving sales growth has been
difficult. As a result the parties have jointly targeted Madagascar for
expansion. The first store will be opened in the capital Antananarivo in
late August 2001. Courts Mauritius has a gross debtors' book of R108m which
has arrear accounts comprising 5,9% of receivables.
Expansion in Madagascar is planned to proceed at the rate of two stores a
year. The total investment in this operation to date is R7m.
Courts Mega Stores
In September 2001, the first Courts Mega Store will be opened in Fourways,
Johannesburg. The Mega stores are a joint venture with Courts Plc. The
stores will be approximately 7 000 square metres and retail all home
furnishings, electronics and appliances to predominantly middle and upper
income groups. Due to the large product offering, competitive prices, wide
range of credit options, customer service innovations, and accessible
locations it is anticipated that the new Mega Stores will establish a
meaningful share of market over the next few years.
Courts Plc has provided an experienced senior management team for the Mega
stores. The growth of this business will therefore not detract Profurn
management time from the consolidation process in the core business units of
the company. The anticipated investment by Profurn in the Mega stores in
2001 is R26m.
Further Cautionary announcement
Further to the cautionary announcement dated 29 June 2001, shareholders are
advised that Profurn is still involved in discussions, which may have an
effect on the price of the company's shares. Accordingly shareholders are
advised to continue exercising caution when dealing in the company's shares
until a further announcement is made.
For and on behalf of the board
P Vallet G J Walker
Chairman Chief Executive Officer
3 August 2001
Directors: P Vallet* (Chairman), G J Walker (Chief Executive Officer)
(British), J Kaplan (Managing Director), M S Roberts (Chief Operating
Officer), F K Anderson*, L Balkind, C S dos Santos*, M B Hacker* (British),
G B Rubenstein*
* 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
