| Thu 13 Sep 2001, 0:00 | | Retail Apparel Group Limited - Audited Group Resul |
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Retail Apparel Group Limited
Registration number: 1946/021937/06
Share code: RAG; ISIN number 000013744
(Incorporated in the Republic of South Africa)
- Lower expense base established
- Experienced retail management team in place
- Aggressive short term plans proving effective
- Stringent credit policies enforced and enhanced credit procedures
- Merchandise assortments refocused and overstocks marked down
- Strategic vision defined and implementation commenced
- Targeted trading concepts already being well received
- Restructuring and staff rationalisation complete
Audited group results
for the year ended 30 June 2001
Consolidated Income Statement
June June
2001 2000
R000s R000s
Turnover 1 153 361 1 230 771
Operating (loss)/income
before interest and
abnormal items (70 448) 59 428
Abnormal items - 209 927
Net operating interest paid 83 302 84 391
Loss before taxation and
non-trading items (153 750) (234 890)
Non-trading items 98 960 2 100
Loss before taxation (252 710) (236 990)
Taxation 18 471 7 283
Loss after taxation (271 181) (244 273)
Loss attributable to
outside shareholder (1 345) (701)
Loss attributable to ordinary
shareholders (269 836) (243 572)
Determination of headline earnings
Loss attributable to ordinary
shareholders (269 836) (243 572)
98 960 212 027
Non-trading items 98 960 2 100
Abnormal items - 209 927
Headline loss (170 876) (31 545)
Consolidated Balance Sheet
June June
2001 2000
R000s R000s
Non-current assets 84 957 122 617
Current assets 697 106 862 142
Total assets 782 063 984 759
Capital and reserves 299 264 220 805
Outside shareholders' interest 181 1 526
Liability portion of convertible
debentures 65 421 -
Interest bearing debt 219 477 558 940
Current liabilities 197 720 203 488
Total equity and liabilities 782 063 984 759
Consolidated Summarised
Cash Flow Statement
June June
2001 2000
R000s R000s
Net cash (utilised by)/generated
from operating activities (58 911) 8 146
Cash utilised in investing
activities (8 085) (57 595)
Net cash outflow before
financing activities (66 996) (49 449)
Net increase in financing
activities 69 192 26 723
Increase/(decrease) in
cash resources 2 196 (22 726)
Consolidated Statement of Changes in
Ordinary Shareholders' Funds
June June
2001 2000
R000s R000s
Capital and reserves at
beginning of the year 220 805 464 144
Movement in non-distributable
reserves
Foreign translation reserve 3 921 233
Write down of Mozambique investment 250 -
Impairment of freehold property (455) -
Movement in distributable reserve
Net loss for the year (269 836) (243 572)
Group recapitalisation
Rights offer - share capital 2 625 -
Rights offer - share premium 207 375 -
Movement in convertible debentures
Equity portion of convertible
debentures 134 579 -
Capital and reserves at
end of the year 299 264 220 805
Salient Features
June June
2001 2000
Undiluted (134,9) (121,8)
Diluted (18,3) (118,2)
Headline loss (85,4) (15,8)
Headline loss diluted after
restructure (4,2) -
Ordinary shares in issue (000s)
Undiluted 200 000 200 000
Diluted 1 453 164 206 138
Dividends per share (cents) Nil Nil
Interest bearing debt less
cash/permanent capital (%) 90,2 247,4
Net asset value per share (cents)
Undiluted 149,6 110,4
Diluted 20,6 107,1
Diluted after restructure 7,3 -
Depreciation (R000s) 21 849 23 744
Capital expenditure (R000s) 20 543 52 244
Capital commitments (R000s) 22 055 15 746
Book value of unlisted
investments (R000s) - 13 078
Commentary
Introduction
In commenting on the interim results announced on 10 April 2001, RAG
informed shareholders that to ensure its viability, the board and the major
shareholders had identified the need for a comprehensive transformation of
the business. Though the first stages of the transformation have been
pursued vigorously by the new management team during the past six months,
the severity of the problems inherited gave rise to the extremely
disappointing results. Among the numerous contributing factors was the
continued decline in consumer demand due to generally overpriced and, in
some instances, poor quality and inappropriate merchandise for the target
market. Furthermore, cost control, credit disciplines and credit management
were insufficiently emphasised. The results were also negatively impacted by
the excessively high gearing. In addition to these internal factors, the
target customers experienced severe pressure on their disposable income
mainly as a result of the high cost of transportation and excessive personal
debt.
Operational Results
The disappointing results across the various operating chains confirmed the
urgent need for an actionable recovery plan. The group operating loss,
before interest, taxation and non-trading items of R70,4 million was largely
attributable to the high level of bad debt write off, the markdown action
taken to clear unacceptably high levels of inventory and the high expense
base. These issues have now been addressed decisively through a major
reduction in the expense base, stringent credit policies, improved credit
collection mechanisms, a more conservative debtors provisioning policy and
customer focused merchandise management.
The non-trading item of R98,96 million includes the costs incurred in the
business rationalisation programme, the basis of which was highlighted in
the RAG interim report. Management has recognised that closed store debtors
books require a more conservative provisioning policy and a substantial
debtors provision is included in the non-trading items.
Bee Gee/Smart Centre
This business, which trades out of 210 stores in Southern Africa, achieved
sales of
R665 million, a decrease of 6,2% on the previous year. Though the gross
margin remained firm, the operating expenses and bad debt were excessive,
resulting in a loss for the year of R135 million. Extensive markdowns during
the last quarter further compounded the poor results.
Patrick Daniel
Trading out of 31 stores in South and Southern Africa, the business
generated sales of R71,75 million, a decline of 8,1% on the previous year.
The recorded loss of R18 million, was due to excessive bad debt and an
imbalanced merchandise assortment, resulting in punitive markdown action.
The situation was aggravated by trading premises that were too large and in
some instances poorly located.
Guys & Girls
The Guys & Girls brand consists of 42 stores in neighbouring Southern
African countries and provides clothing, footwear and accessories for
younger, fashion conscious customers. The largest representation is in
Botswana, with 82% of the stores. Though sales for the year at R116,85
million were 6,2% up on the previous year, the high operating expenses and
additional markdown costs caused profits to decline by 23,5% to R6,5
million. These problems are being rectified and this business has the
potential to produce good returns.
Discontinued Operations
Arthur Kaplan Jewellers
The group results include the Arthur Kaplan Jewellers division which
increased sales for the year by 10,3% to R118 million but recorded a loss of
R4,3 million. This chain offers a range of exclusive and branded jewellery
and trades out of 40 stores in South Africa and one in Botswana. Following
extensive negotiations, a deal to dispose of 100% of the jewellery division
was concluded in July 2001 and now awaits final shareholders' approval.
Recapitalisation
In February 2001 RAG undertook an initial rights issue underwritten by
McCarthy Retail Limited ("McRetail"), which resulted in R200 million of long
term loans being repaid out of the proceeds from the issue of variable rate,
compulsorily convertible secured debentures.
Subsequent to this rights issue it was announced on 4 April 2001 and in the
interim report, that RAG would undertake a further rights offer, the
proceeds of which would be utilised to repay the long term loans to McRetail
totalling R210 million. The requisite majority of RAG shareholders voted in
favour of all special resolutions required to implement the rights offer of
ordinary shares, at the shareholders' and debentureholders' general meeting
held on 31 August 2001.
As the recapitalisation agreement was entered into before the financial year-
end and undertakings were obtained from the requisite majority shareholders
to vote in favour of the recapitalisation prior to the year-end, it was
accounted for on its effective date of 30 June 2001. The rights offer is
fully underwritten by McRetail.
Prospects
To address the serious problems contributing to the poor results, the new
management team consisting of enthusiastic and highly experienced retailers,
has developed a short term action plan to address all the urgent issues and
create the foundation for a return to profitability. This plan has five key
objectives:
- generating positive cash flow on a sustainable basis;
- improving merchandise - including the reduction in inventory level and
the implementation of a
quality assurance programme;
- fundamental changes to credit policies by improved credit granting
techniques, implementing
immediate steps to ensure a sustained improvement in debtors collections
and adjusting the
provisioning model to achieve greater conservatism;
- cutting costs, including an extensive staff rationalisation process; and
- recapitalising the company (which action has been addressed under the
section titled
"Recapitalisation").
The implementation of these action plans over the last three months has
delivered encouraging results.
To ensure sustainable success, a longer term strategic plan has also been
developed and is already being rolled out. The plan involves:
- clearly defining the target markets.
- restructuring the business around five key customer groups and providing
a focused product
range for each, supported by targeted marketing communication. These
groups will be served by
five delivery channels, namely:
- Smart Lady for the female customer who wants to dress well and is
conscious of quality and
fashion.
- Smart Man for the male customer who is highly conscious of
quality and fashion.
Jenny Cole for the Smart Lady customer who wants quality fashion
merchandise in larger
sizes.
- Patrick Daniel which will be repositioned as a free-standing store
and as a store-within-a-store
offering big brands for less.
- Guys & Girls which will offer quality, branded and basic
casualwear, workwear and footwear to
a younger fashion market.
- restructuring the merchandise ranges to meet the needs of the various
target markets.
- developing and implementing a core value programme.
- the total management of credit policy, including granting,
administration and collections.
- recognition of the staff's key role in RAG's recovery by maintaining
staff morale, facilitating
performance management, development and employment equity initiatives.
Re-establishing and maintaining the financial health of the business remains
the overriding priority.
Changes to the board
During the year under review Sean McCarthy and Robert Maydon joined the
board in a non-executive capacity. Tony Cotterell resigned on 1 June 2001,
and we wish to thank him for his valuable contribution.
We are pleased to announce the appointment of Hixonia Nyasula as a non-
executive director with effect from 1 August 2001.
The board's special thanks go to all RAG staff who have continued to work
with dedication and passion throughout the rationalisation process, and to
our suppliers for their much appreciated loyalty.
For and on behalf of the board
Brand Pretorius Dick Greeff
Chairman Chief Executive Officer
14 September 2001
Non-executive Directors: Brand Pretorius (Chairman), Eugene Roden, Roy
Parkhurst, Hixonia Nyasula, Des Scott, Sean McCarthy, Robert Maydon
Executive Directors: Richard Greeff (Chief Executive Officer), Malcolm
Hyland, Wendy Banks, Kim M ller, Lawrence Twigg
Company Secretary and Registered Office: AW Alison, Retail Apparel Group
Limited, 203 North Ridge Road, Durban 4001
Transfer Secretaries: Mercantile Registrars Limited, PO Box 1053,
Johannesburg 2000 Auditors: Deloitte & Touche
