| Tue 28 Aug 2001, 0:00 | | Pepkor - Profit Announcement For The 12 Months End |
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Pepkor Limited
(Registration number: 1965/007765/06)
Pepkor share code: PEP ISIN code: 000005344
Profit announcement for the 12 months ended 30 June 2001
Introduction
This report on the results for the year to 30 June 2001 (comprising 53
weeks) is the first for a full review period since the comprehensive
restructuring of Pepkor that was approved by shareholders on 31 October
2000.
The main components of this restructuring were the disappearance of Pepkor's
holding company, Pepgro, and the distribution to shareholders of Pepkor's
stake in Shoprite and in the British retail group Brown & Jackson plc.
What remained in Pepkor were the three wholly-owned subsidiaries Pep and
Ackermans in Africa, and the Australian chain Best & Less. The chairman, Dr
C H Wiese, still holds the controlling interest in the new group. All three
the subsidiaries are clothing retail chains focused on the cash discount
market, the traditional market in which Pepkor has operated since its
establishment and which represents its main sphere of expertise.
Business climate
Despite tax relief and reduced interest rates in South Africa and Australia,
other factors such as increased fuel prices, a further decline of their
currencies against the American dollar, the introduction of a 10% goods and
services tax in Australia, increased unemployment and the increase in
HIV/AIDS in Africa contributed to a further decrease in the disposable
income in the retail mass market.
Like other retailers, Pepkor consequently also had to find ways of
increasing earnings despite muted turnover growth. The latter has become a
feature of apparel retailing in general and there is no indication that this
situation will change dramatically in the foreseeable future. In fact,
retail spending as a part of national consumer spending in South Africa
declined from 29,1% in 1999 to 27,4% in 2000 and is expected to be only 25%
in the current year. While general inflation recently stood at 6% to 7%, the
clothing retail trade was faced with deflation of 0,5% in the period under
review.
In response to this downward trend more and more clothing retailers in South
Africa and Australia moved downmarket so that more of them than ever before
are now competing in the mass market. This trend is expected to continue in
South Africa in particular as employment opportunities in the formal sector
fall away. It is estimated that the public sector in South Africa shed 4% of
its employee base in 2000 and the private sector 2%. Consequently the
difference between what is offered in merchandise and shopping experience
offered by the various retailers is becoming blurred and price has become of
overriding importance. The one that is seen as offering the best value is
also the one that gets the most consumer support. Cost control has therefore
become of vital importance in remaining price competitive.
Pepkor finds itself in the fortunate position that its trading companies are
geared in culture, operating systems, marketing and trading formats to
compete effectively on price and value for money.
Operational review
The period under review was characterised by the strong recovery of Pep,
continuing growth by Ackermans and disappointing results by Best & Less,
although these results were considerably better than those achieved by many
of its counterparts in the difficult Australian market.
In evaluating the results of the period under review one must bear in mind
that for nine months the figures for the year to 30 June 2000 still include
the results of Cashbuild and Stuttafords, both of which were only sold at
the end of the previous financial year. Meaningful comparisons between the
two reporting periods are therefore not possible. The exceptional items are
due mainly to the restructuring of Pepkor.
Pep
In the period under review Pep increased turnover by just more than 18%,
while operating profit was boosted by nearly 27% to R149,3 million. The
company performed extremely well in South Africa and in some of the
neighbouring BLNS countries (Botswana, Lesotho, Namibia and Swaziland), but
its results were adversely affected by the poor operating performance of its
Africa division (Ghana, Malawi, Mozambique and Zambia), particularly as a
result of the significant foreign exchange losses suffered in the case of
these countries.
Pep's growth on existing business, excluding cell phone products, was an
excellent 16%, while, according to official industry statistics, the company
increased its market share in South Africa since November 1999 by 20% on a
weighted annual basis.
In the year to 30 June Pep increased its total number of stores by 28 to 1
226. Some of these were opened successfully in metropolitan shopping centres
as a part of Pep's policy to keep pace with urbanisation on the one hand
and, on the other, to establish a stronger presence in shopping centres, as
these are increasingly being visited by its clients.
Ackermans
Ackermans reported a solid increase of 18,3% in turnover and in the process
passed the R1 billion mark for the first time. Despite the extremely fierce
price competition experienced in this sector of the retail market, Ackermans
largely succeeded in maintaining operating profit margins.
Most of the turnover growth was generated by the 28 new stores opened during
the period under review, 11 of which in the second half of the year. The
chain now operates a total of 256 outlets. Among the 28 new stores are two
stand-alone Hang Ten concept stores that were opened on an experimental
basis in view of the excellent reception this trademark enjoys in existing
stores. If successful, the number of Hang Ten stores will be rapidly
increased.
In the period under review heavy emphasis was placed on effective cost
control, managing stock downward and increasing stock turnover, better
utilisation of human resources, and launching new product ranges and
expanding existing ones.
In the five years since 1996 Ackermans increased its share of the local
clothing retail market from 2% to 5%.
Best & Less
Although the chain's turnover showed a modest increase of 3%, operating
profit dropped by almost 87% to R5 million. This is nevertheless seen as an
acceptable result compared with those of some of Best & Less's competitors
in the market.
The chain is expected to do considerably better in the new financial year.
The country's GDP is expected to show an upward trend, while the effect of
the introduction on 1 July 2000 of a goods and services tax of 10% has
already been largely absorbed by the Australian economy. In addition, the
considerable changes introduced in the business are already bearing fruit,
as is evident from the double digit increase in sales figures of existing
stores in the first eight weeks of the new financial year. A new managing
director joined the company in March 2001.
In the period under review the company opened 10 new stores, bringing the
total number of outlets to 108. The new stores are mainly located in Western
Australia and Victoria, where Best & Less was poorly represented in the
past.
Comparative figures
The pro forma comparative figures in the income statement for the year to 30
June 2000 and in the balance sheet at 30 June 2000 represent the group's
figures after adjustments were made for investments distributed to the
company's shareholders in terms of the restructuring, and are based on the
audited annual financial statements.
No pro forma comparative figures for the year to 30 June 2000 are furnished
in the cash flow statement and the statement of changes in shareholders'
funds as the group only came into existence in its present form on 1 July
2000.
Accounting policies
The annual financial statements were prepared mainly on the historical cost
basis in accordance with South African Statements of Generally Accepted
Accounting Practice. In all material respects the accounting policies
conform with those adopted in the previous financial year, with the
exception of the way in which goodwill and dividends are treated.
Since 1 July 2000 goodwill is brought to account in the balance sheet and is
amortised on the straight-line basis over not more than 20 years. The
carrying value of goodwill is reviewed annually and written off for a
permanent decline in value where it is deemed necessary. The pro forma
comparative figures for the year to 30 June 2000 have not been restated.
Goodwill that arose before 1 July 2000 was already written off fully against
reserves. Dividends paid are reflected in the financial year in which they
are declared. The pro forma comparative figures in the balance sheet at 30
June 2000 have been adjusted for the handling of dividends.
Comments on the results
Net interest paid
For the period under review net expenditure of R33 million is reported,
which compares negatively with income of R32 million in the previous year.
This was brought about by the following:
- The cash flow aspects of the unbundling transaction were implemented on 6
November 2000, while the pro forma comparative figures are based on an
effective date of 1 July 2000
- The negative effect of the loss arising from the financing of the share
incentive trusts, and
- Increased working capital requirements during the period under review.
Exceptional items
Composition (R'million):
Net loss on sale and write-off of listed
investments and fixed assets (8)
Provision for loss arising from put
option in respect of shares in
Shoprite Holdings Limited (174)
Provision for losses arising from financing
of share incentive trusts (160)
Liquidation distribution received 89
Total (253)
The put option in respect of the 20,2 million Shoprite Holdings Limited
shares lapsed on 2 July 2001 and consequently the shares were bought at a
purchase price of R287 million.
Tax
In the previous year deferred tax assets were created in respect of
available tax losses, which resulted in a net tax income for that year. As
tax losses have already been accounted for, the income statement therefore
reflects a tax charge as tax losses are utilised. The tax charge in the
period under review is consequently in no way comparable with that of the
previous year.
Prospects
The board is of the opinion that Pepkor can again perform well in the new
financial year. The turnaround in Pep has not yet been completed, and there
is still considerable room for further profit growth. The problems
experienced by this chain with its operations elsewhere in Africa are being
dealt with intensively and we expect considerable improvements, while
further expansions have been discontinued. Ackermans stood up well to the
price pressure in the market and is continually improving its focus and
increasing its consumer appeal. In the case of Best & Less the board is
satisfied that this chain will produce solid profit growth in the new year.
Declaration of dividend
Notice is hereby given that the board has declared a final dividend of 9
cents per ordinary share for the year to 30 June 2001. The dividend is
payable on Tuesday, 25 September 2001.
In terms of the requirements of STRATE Friday, 14 September 2001, is the
last day on which the shares can be traded cum dividend. As from Monday, 17
September 2001, the shares will be traded ex dividend. The record date will
be Friday, 21 September 2001.
The last registration date for the purpose of certified shareholders is
Friday, 21 September 2001. Certified shareholders may not dematerialise
their shares between Friday, 7 September 2001, and Friday, 21 September
2001.
By order of the Board
C H Wiese C Stassen
Chairman Managing director
27 August 2001
36 Stellenberg Road, Parow Industria 7490
Consolidated income statement
Pro forma
12 months 12 months Change
(R'000) to 30/06/01 to 30/06/00 %
Turnover 4 762 412 5 287 095
Continued operations 4 762 412 4 173 076 14
Operations disposed of - 1 114 019
Operating profit 200 899 235 030
Continued operations 200 899 208 219 (4)
Operations disposed of - 26 811
Net interest paid 32 609 (31 675)
Profit before exceptional items 168 290 266 705 (37)
Exceptional items (252 886) (73 281)
Amortisation of goodwill (801) -
(Loss)/profit before taxation (85 397) 193 424
Taxation 46 429 (31 179)
Taxation on normal activities 46 429 (30 105)
Taxation on exceptional items - (1 074)
(Loss)/profit after taxation (131 826) 224 603
Outside shareholders' interest 7 243 18 244
Attributable to normal activities 7 243 17 878
Attributable to exceptional items - 366
Net (loss)/profit (139 069) 206 359
Earnings per share (cents)
- before exceptional items 51,6 125,7 (59)
- after exceptional items (62,7) 93,0
- headline earnings 52,0 126,4 (59)
Dividend (cents per share) 18,0 80,0
Dividend cover - before exceptional
items (times) 2,9 1,6
Number of shares for calculation of
earnings per share ('000) 221 936 221 936
Consolidated balance sheet
Pro forma
(R'000) 30/06/01 30/06/00
Non-current assets 519 421 662 983
Fixed assets 393 357 406 661
Goodwill 18 873 -
Investments 59 840 179 937
Deferred taxation 47 351 76 385
Current assets 1 901 082 1 807 424
Inventories 1 306 166 1 283 776
Accounts receivable 56 585 187 547
Bank balances and cash 538 331 336 101
Total assets 2 420 503 2 470 407
Ordinary shareholders' funds 984 388 1 165 840
Preference share capital 92 -
Outside shareholders' interest 19 839 67 248
Non-current liabilities 67 370 115 737
Long-term loans 12 877 69 021
Deferred taxation 14 460 6 817
Other non-current liabilities 40 033 39 899
Current liabilities 1 348 814 1 121 582
Short-term loans and
bank overdrafts 494 337 382 386
Other current liabilities 854 477 739 196
Total shareholders' funds
and liabilities 2 420 503 2 470 407
Consolidated statement of changes in shareholders' funds
12 months
(R'000) to 30/06/01
Balance at 1 July 2000 1 165 840
Unbundling adjustments 41 085
Exchange rate adjustments 3 087
Net loss for the year (139 069)
Dividends paid (86 555)
Balance at 30 June 2001 984 388
Consolidated cash flow statement
12 months
(R'000) to 30/06/01
Cash flow from operations 213 803
Dividends paid (90 140)
Cash retained from operations 123 663
Investment activities 22 668
Net acquisition of fixed assets (13 427)
Other investment activities 36 095
Net cash flow 146 331
Financing activities 55 899
Proceeds from share issue 92
Net debt raised 55 807
Increase in bank balances and cash 202 230
Segmental analysis
Pro forma
12 months 12 months
(R'000) to 30/06/01 to 30/06/00
Turnover
Pep 2 570 013 2 176 713
Ackermans 1 027 853 868 687
Best & Less 1 164 546 1 127 676
Continued operations 4 762 412 4 173 076
Stuttafords - 292 529
Cashbuild - 821 490
4 762 412 5 287 095
Operating profit
Pep 149 303 117 677
Ackermans 64 287 56 279
Best & Less 5 053 37 700
Financing, head office and
unbundling cost (17 744) (3 437)
Continued operations 200 899 208 219
Stuttafords - 25 956
Cashbuild - 855
200 899 235 030
Geographical spread of
operating profit
South Africa 148 455 135 553
Rest of Africa 47 391 61 777
Australia 5 053 37 700
200 899 235 030
Supplementary information
Pro forma
12 months 12 months
(R'000) to 30/06/01 to 30/06/00
1. Depreciation for the year 90 198 107 367
2. Dividends received included in
net interest paid 8 348 8 418
3. Capital expenditure for the year 122 833 191 858
4. Calculation of headline earnings
Net (loss)/profit (139 069) 206 359
Attributable exceptional items 252 886 72 573
Amortisation of goodwill 801 -
Loss on sale and scrapping of fixed assets
after taxation and outside
shareholders' interest 837 1 547
115 455 280 479
Pro forma
30/06/01 30/06/00
5. Number of shares issued ('000) 221 936 221 936
6. Net asset value per share (cents) 443,5 525,3
7. Investments
Listed investments at cost less
amounts written off 3 720 22 274
Unlisted investments at cost less amounts
written off and directors' valuation 40 697 82 667
Loans 15 423 74 996
59 840 179 937
Listed investments at market value 3 720 37 233
8. Contingent liabilities 156 355 208 469
9. Capital commitments 162 904 180 416
