| Thu 16 Aug 2001, 0:00 | | Relyant Retail Limited - Preliminary Results |
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Relyant Retail Limited
Registration number 1937/010108/06
AUDITED2001 preliminary announcement for the year ended 30 June
2001
Trading profit before depreciation and amortisation increases by
27%
Fully diluted headline earnings of 74 cents per share (2000
restated: 70 cents)
Acquisition delivers better than expected profits
Repositioning of the Group completed
High gearing level being addressed as follows:
Securitisation plans well advanced
Microlending funding and financial services partnership secured
Sale of non-core manufacturing assets concluded
GROUP INCOME STATEMENT Year ended Year ended
30 June 2001 30 June 2000
R000's R000's
Notes Note 6 Note 6
Turnover 1 2 205 886 2 017 535
Cost of sales 1 153 822 1 034 864
Trading profit before
depreciation and
amortisation 224 154 176 469
Depreciation and
amortisation (31 951) (32 402)
Trading profit 192 203 144 067
Financing costs on bank
borrowings 108 020 89 358
Additional financing
Costs prescribed
by AC125 2 9 738 12 525
Exceptional items 3 11 492 7 202
Profit before taxation 62 953 34 982
Taxation - current and
deferred 27 701 16 979
Taxation - STC 4 036 4 229
Profit after taxation 31 216 13 774
Preference dividends 2 - -
Earnings attributable
to ordinary
shareholders 31 216 13 774
Ordinary shares in
issue (000's) - closing 75 165 58 459
D weighted average 65 645 58 202
Fully diluted weighted
average number of
ordinary shares (000's) 94 567 87 124
Earnings per share -
basic (cents) 48 24
Headline earnings per
share - basic (cents) 79 68
Headline earnings per share
- fully diluted (cents) 74 70
Reconciliation of headline
and fully diluted earnings R000's R000's
Attributable earnings, as above 31 216 13 774
Adjustments:
Capital items 3 20 816 24 702
Taxation on adjustments (407) 1 340
Headline earnings 51 625 39 816
Adjustments:
Preference dividends
charged to net
financing costs 9 738 12 525
STC on preference dividends 4 063 4 063
Interest on compulsorily
convertible debentures - taxed 4 592 4 592
Fully diluted headline earnings 70 018 60 996
GROUP CASH FLOW STATEMENT
Year ended Year ended
30 June 2001 30 June 2000
Note R000's R000's
Cash receipts
from customers 2 659 417 2 483 232
Cash generated from trading 233 478 193 969
Net increase in working capital (202 762) 48 066
Cash generated from operations 30 716 242 035
Net financing costs paid (101 312) (118 595)
Taxation paid (1 407) (18 266)
Cash utilised by operating
activities (72 003) 105 174
Closure costs paid (58 350) (146 290)
Dividends paid - (3 639)
Net cash utilised (130 353) (44 755)
Acquisition of businesses (26 412) (14 555)
Other investment activities (26 343) 90 134
Cash outflows from investment
activities (52 755) 75 579
Increase in bank borrowings 206 009 (10 711)
Decrease in liability portion
of preference shares 2 (22 703) (19 922)
Ordinary shareholder funding (61) (237)
Cash inflows from financing
Activities 183 245 (30 870)
Net increase in cash and
cash equivalents 137 (46)
Cash and cash equivalents at
the beginning of the year 232 278
Cash and cash equivalents at
the end of the year 369 232
STATEMENT OF Share Non-
CHANGES IN capital and distributable Distributable
Ordinary premium reserves reserves
SHAREHOLDERS' EQUITY R000's R000's R000's
Balance at 30
June 1999
(as previously
reported) 371 686 35 105 167 313
Prior year adjustments
- Goodwill now
capitalised 17 500
- Amortisation of goodwill (5 833)
- Post-retirement
medical benefits
fully provided for (10 919)
- Reduction of finance
charges earned (15 681)
- Leave pay fully
provided for (17 812)
Balance at 30
June 1999 (restated) 389 186 35 105 117 068
Share capital and
premium
issued (net of costs) 4 766
Share election reserve
decrease (6 338)
Liability portion
of preference dividends
transferred from
retained surplus 19 922 (19 922)
Realisation of investment
revaluation reserve (1 609)
Attributable earnings
for the year 13 774
Sundry (320) 126
Balance at 30
June 2000 393 952 46 760 111 046
Share capital and
premium issued
(net of costs) 36 356
Liability portion
of preference
dividends transferred
from retained surplus 22 703 (22 703)
Insurance statutory
contingency
reserve movement (3 260) 3 260
Realisation of
Investment
revaluation reserve 406
Attributable earnings
for the year 31 216
Balance at
30 June 2001 430 308 66 609 122 819
GROUP BALANCE SHEET 30 June 2001 30 June 2000
R000's R000's
Notes Note 6 Note 6
ASSETS
Non-current assets
Goodwill 45 058 17 500
Trademarks 82 596 -
Fixtures, equipment and vehicles 120 507 105 429
Loans to share incentive trusts 39 063 36 169
Insurance companies' investments 46 571 54 792
Deferred taxation 262 141 273 351
595 936 487 241
Current assets
Accounts receivable 4 1 683 598 1 559 400
Microloan receivables 74 962 16 689
Other debit balances 168 993 79 878
Taxation 5 740 14 910
Inventories 327 901 275 012
Cash on hand 369 232
2 261 563 1 946 121
Total assets 2 857 499 2 433 362
Equity and liabilities
Ordinary share capital
and premium 430 308 393 952
Non-distributable reserves 66 609 46 760
Retained surplus Ordinary 122 819 111 046
shareholders' equity 619 736 551 758
Compulsorily convertible
preference shares 500 000 500 000
Compulsorily convertible
debentures 43 597 43 597
1 163 333 1 095 355
Reallocation of liability
portion of preference shares (115 464) (115 464)
Total shareholders' equity 5 1 047 869 979 891
Long term liability
portion of preference shares 55 355 78 058
Current liabilities
Interest bearing bank borrowings 998 947 792 127
- core retail operations 934 749 776 363
- microlending operations 64 198 15 764
Amount due to vendors 88 868 -
Accounts payable, accruals
and provisions 666 460 583 286
1 754 275 1 375 413
Total equity and liabilities 2 857 499 2 433 362
Gearing - total 5 96% 75%
Gearing - excluding microlending 90% 73%
Gearing - excluding microlending
and acquisition 85% 73%
Tangible net asset value
per share, fully diluted (cents) 995 1 234
Capital expenditure
Incurred 37 967 33 721
Committed 1 535 1 696
Authorised but not contracted 48 080 45 495
Commitments
Operating lease commitments 656 615 601 328
NOTES Year ended Year ended
30 June 2001 30 June 2000
R000's R000's
Note 1 - Turnover
Comprises: Cash sales 625 617 341 758
Credit sales 1 097 803 1 196 498
Finance charges earned 482 466 479 279
2 205 886 2 017 535
Note 2 - Impact of
application of AC125
Income statement for the
yearTotal preference
dividend paid and accrued 32 441 32 447
Less: allocated as a repayment
of liability (22 703) (19 922)
Less: allocated as net
financing costs (9 738) (12 525)
Preference dividend, per
income statement - -
Note 3 D Exceptional items
Comprise: Capital items 20 816 24 702
D Goodwill amortised 19 459 29 167
D Profit on sale of investments (128) (2 676)
D Loss on sale of fixed assets 1 485 (1 789)
Provision no longer required (9 324) -
Refund of excess contributions
from the Amrel Benefit Fund - (17 500)
11 492 7 202
Note 4 - Accounts receivable
As disclosed in the Interim Announcement in February, the Group
has ceded the major portion of its accounts receivable book to
its principal bankers, who are fully supportive of the Group's
strategies and initiatives to reduce gearing. As part of this
process, the Group's plans to securitise the accounts receivable
book are well advanced and it is anticipated that, if successful,
this initiative will be finalised within the next three months.
This will ensure that the Group has ongoing access to committed
medium to long term broader-based funding at reasonable rates.
Note 5 D Definition of gearing
As AC125 has no cash flow impact, the gearing ratio has been
calculated by taking interest bearing bank borrowings and
dividing by adjusted total shareholders' equity (reversing the
effects of AC125):
30 June 2001 30 June 2000
R000's R000's
Total shareholders' equity
per Balance Sheet 1 047 869 979 891
Add: Long term liability,
per AC125 55 355 78 058
Adjusted total shareholders'
equity 1 103 224 1 057 949
Interest bearing bank
borrowings 998 947 792 127
Interest bearing portion of
amount due to vendors 57 912 -
Total borrowings 1 056 859 792 127
Gearing 96% 75%
Note 6 - Changes in
accounting policies
The changes in the Group's accounting policies, outlined below,
were necessary in order to comply with the applicable codified
SouthAfrican Statements of Generally Accepted Accounting
Practice.
During the year under review, the Group changed its accounting
policies in respect of:
- goodwill, which was previously set-off against share premium
and is now capitalised and amortised over its useful life;
- the recognition of finance charges earned from the sum of
digits method to the effective interest rate method;
- post-retirement medical benefits fully provided for; and
- leave pay, previously partially provided for and is now fully
provided for.
The prior year income statement effects of these changes are
therefore as follows:
Year ended
30 June 2000
R000's
Income statement
Goodwill amortised (29 167)
Reduction in finance charges earned (10 998)
Leave pay fully provided for (4 091)
Taxation effect on finance charges
earned and leave pay 4 526
Effect on attributable earnings (39 730)
Balance sheet
The balance sheet impacts of these changes are clearly shown in
the Statement of Changes in Ordinary Shareholders' Equity.
SEGMENTALANALYSIS Year ended Year ended
30 June 2001 30 June 2000
R000's R000's
Turnover
Value retailing 584 627 293 298
Retail chains 1 532 791 1 658 008
Repair services 67 086 63 588
Microlending finance charges earned
21 382 2 641
Total 2 205 886 2 017 535
Trading profit
Value retailing 35 742 6 397
Retail chains 122 336 93 316
Repair services 16 967 15 794
Microlending 11 722 1 655
Insurance 15 875 38 379
Corporate (10 439) (11 474)
Total 192 203 144 067
Capital expenditure
Value retailing 10 563 435
Retail chains 23 011 28 300
Repair services 3 942 4 687
Microlending 321 216
Insurance 130 83
Total 37 967 33 721
Depreciation and amortisation
Value retailing 7 442 1 732
Retail chains 21 276 27 656
Repair services 3 058 2 907
Microlending 83 4
Insurance 92 103
Total 31 951 32 402
30 June 2001 30 June 2000
R000's R000's
Total assets
Value retailing 481 639 224 542
Retail chains 1 958 079 1 835 387
Repair services 35 180 30 072
Microlending 75 472 17 159
Insurance 307 129 326 202
Total 2 857 499 2 433 362
Interest bearing bank borrowings
Value retailing 105 923 79 314
Retail chains 828 826 697 049
Microlending 64 198 15 764
Total 998 947 792 127
Interest free liabilities
Value retailing 204 976 88 394
Retail chains 423 479 462 247
Repair services 11 067 19 171
Microlending 4 763 1 113
Insurance 22 175 12 361
Total 666 460 583 286
COMMENTS ON RESULTS
Earnings
While attributable earnings are 127% above last year's restated
amount, fully diluted headline earnings of R70 million are 15%
above last year. Due to the increased number of shares, this
represents 74 cents per share on a fully diluted basis compared
with 70 cents (restated) in the prior year.
The Group achieved turnover growth for the year of 9%, of which
the new businesses acquired during the year contributed 7%. The
performance of the mass-market credit chains in the Group was
disappointing, with turnover down 8%, partly due to the closure
of 40 non-performing stores. The maintenance of strict credit
granting criteria in a highly competitive and difficult market
has contributed to this decline but management believes that, in
the long term, this strategy will prove to be justified. The
Group has moved boldly during the year to grow its value retail
market segment, which is focused on the upper end of the consumer
market, where sales are mainly for cash. The spending patterns of
these consumers are less prone to adverse economic conditions.
This strategy is expected to significantly improve the Group's
profitability in the medium term.
The Group's cost-saving and productivity-improvement measures
have resulted in trading profit before depreciation and
amortisation increasing by 27% to R224 million. As a percentage
to turnover, trading profit before depreciation and amortisation
now represents 10,2% compared with last year's restated 8,7%.
Further improvements are anticipated next year.
Credit management
The benefits of strict and consistent credit granting, together
with highly focused and professional credit management processes
are evident in the continuing improvement in the quality of the
accounts receivable book. Total arrears have reduced to 16,4% of
the gross book, compared with 19,5% at 30 June 2000. Whereas at
30 June 2000, 73,4% of total debtors were classified as OAO grade
payers, this has now grown to 75,0%. At the time of merger, some
36 months ago, only 57,3% of total debtors fell into this
category. Actual monthly collections have consistently been above
90% of potential levels. After restating the unearned finance
charge provisions, total provisions now represent 19,2% of the
gross book (30 June 2000: 20,0%).
Cash flow and financial position
As a direct result of improved inventory management throughout
the Group, inventory levels are some R10 million below last year,
excluding the effects of the acquisition of the Renaissance
businesses in February 2001. The decision taken by management
last year to reinvest in the debtors' book by extending the
average length of instalment sale contracts has resulted in an
increase in accounts receivable of some R124 million. This,
together with the growth in the microlending book, increased the
Group's working capital requirements by some R203 million for the
year. Cash costs of closures, although reduced by R88 million,
amounted to R58 million. Furthermore, as a result of the
acquisition referred to later in this announcement and capital
expenditure in the Group, mainly attributable to the roll-out of
the Three Cities concept, the Group expended approximately R53
million in investment activities.
Consequently, interest bearing bank debt in the core retail
operations rose by R158 million and by R48 million in the
microlending operations. Excluding microlending, gearing has
increased to 90% (96% including microlending). Although the
Group's funding requirements have been secured, management
considers this level of gearing to be unacceptably high and has
implemented a number of strategies to reduce borrowings.
These include:
- The Group is well advanced in the process of securitisation of
its accounts receivable book. Assuming a successful
implementation, it is anticipated that significant funding will
be generated;
- A revised trading strategy was adopted in February whereby
average contract terms were shortened, no-deposit levels reduced,
average deposit levels increased and the proportion of cash sales
increased. This is starting to have a positive impact on cash
flows;
- Negotiations to secure a funding and financial services
partner for the Group's microlending operations to reduce the
funding strain on the Group have been successful. This will
inject R50 million in cash into the Group immediately, plus
reduce the funding commitments of the Group to a 30% share of
future funding requirements for the growth of the loan book;
- Agreement has been reached subsequent to year-end to dispose
of certain non-core manufacturing assets for approximately R10
million in cash;
- Revising collection and arrears management targets upwards to
ensure continuous improvement in the Group's credit management
and collection performance; and
- Further improvements to stock turns, by optimising the use of
sophisticated inventory management processes that have recently
been implemented.
Acquisition
As announced on 5 March 2001, the furniture and bedding
businesses of Renaissance Retail Group Limited were acquired for
a total consideration of R152 million including costs, to be
settled by the issue of 16,7 million Relyant shares and payment
of R116 million in cash. The initial cash payments, including
costs, of some R26 million were made in March. In terms of the
original agreement, further payment to the vendors of R87 million
was made in July, leaving only R2 million to be paid in August.
This acquisition formed an integral part of the Group's strategy
to grow its value retail market segment and it has proved to be
extremely successful, with profits in the five months since
acquisition exceeding expectations.
The businesses acquired include the well known retail brands of
Glick's, Forty Winks, Dial-a-Bed, Mattress Factory and Bruce the
Bed King.
Other developments
Although the retailing of furniture, bedding and appliances
remains the core of Relyant's business, the Group has also
focused on expanding complementary mass market financial
services. Its microlending business, which was established in
December 1999 trading as Relyant Loans, has grown from 22 outlets
a year ago to 102 at the end of June 2001. It offers personal
loans to staff and customers at market related rates. As a
consequence of extremely strict credit granting criteria, and
benefiting from the credit management infrastructure of the
Group, bad debts have been in line with expectations. Relyant
Loans contributed almost R12 million to the Group's trading
profit. To reduce the funding strain on the Group, to enable a
faster roll-out of the business into Relyant's extensive store
base and to benefit from association with a strong and reputable
financial institution, a funding and financial services partner
has now been secured. The extent of immediate cash injection and
future funding commitments is noted earlier in this announcement.
Further details of this partnership will be announced in the near
future.
Relyant's 10% investment in the e-commerce hub, with its partners
Comparex Holdings Limited, Unitrans Limited, The Steinhoff Group
and certain other retailers is expected to generate significant
medium to long term supply-chain and customer service benefits,
at substantially reduced costs. At this stage, a pilot project in
Welkom has been operating for a few months and the results are
extremely encouraging.
Changes in Board membership
As a result of the restructuring and recapitalisation of McCarthy
Retail Limited ("McCarthys"), the shares in Relyant previously
held by McCarthys will be sold to a consortium of banks. Certain
directors previously appointed to the Relyant Board by McCarthys
have resigned, Brand Pretorius and Roy Parkhurst with immediate
effect and Pat Goss with effect from the forthcoming annual
general meeting. The Board wishes to thank them for their
contribution to the affairs of Relyant during their tenure. In
addition, also as a result of this restructuring, Relyant's CEO,
Chris Wells, has resigned as a director of McCarthys.
Prospects
While management expects that the retail trading environment will
remain difficult, the repositioning of the Group to reduce its
exposure to the vulnerable mass-market consumer, which is now
complete, will realise substantial benefits. In addition, the
recent reductions in interest rates and the relatively stable
rate of inflation should lead to an improvement in the personal
disposable income of mass market customers in the medium term.
Consequently, the Board expects that fully diluted headline
earnings per share for next year should increase.
For and on behalf of the Board
SE Abrahams CF Wells
Chairman Chief Executive Officer
16 August 2001
Non-executive Directors: SE Abrahams (Chairman), P Glick, PM
Goss, PJC Horne, HM Khoza, TH Nyasulu, T Rosenberg
Executive Directors: CFWells (Chief Executive Officer), RBG
Sinclair
Registered office
Relyant House, 131 van Beek Street, Ellis Park, 2094Telephone
(011) 401-5000
Transfer secretaries
Computershare Services Limited, First floor, Edura House
40 Commissioner Street, Johannesburg, 2001Telephone (011) 492-
1620/9
AuditorsDeloitte & Touche
Internet site: www.relyant.co.za
