| Mon 17 Sep 2001, 0:00 | | Mcretail - Audited Results For The Year Ended 30 J |
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McCarthy Retail Limited
(Incorporated in the Republic of South Africa)
(Registration number 1991/003245/06)
("McRetail")
Ordinary shares: JSE code: MCT
ISIN number: ZAE000004354
Debentures: JSE code: MCTD
ISIN number: ZAE000004362
* Group restructure completed
* Motor franchises' headline earnings up 19%
* R1.1 billion capital restructuring
* Financial services profit growth of 50%
* Debt:equity ratio significantly improved
* Group turnover up 18% to R9 billion
Audited results for the year ended 30 June 2001
Consolidated Income Statement
June 01 June 00
R000s R000s
Turnover
Continuing operations 9 336 708 7 893 962
Divested operations* 145 270 379 180
9 481 978 8 273 142
Operating income before interest 170 241 145 227
Continuing operations 188 055 159 465
Divested operations* (17 814) (14 238)
Net operating interest paid 94 473 65 940
Convertible debenture interest 18 769 23 143
Income before taxation and non-trading
items 56 999 56 144
Continuing operations 102 723 89 065
Divested operations* (45 724) (32 921)
Non-trading items : net deficit (1 072 138) (89 590)
Taxation 15 824 1 857
Loss after taxation (1 030 963) (35 303)
Share of net profit/(loss)
of associate companies 10 661 (33 053)
Continuing operations 1 203 1 159
Divested operations# 9 458 (34 212)
Income attributable to outside
shareholders of subsidiaries 647 7 383
Net loss attributable to ordinary
shareholders (1 020 949) (75 739)
Determination of headline earnings:
Net loss attributable to ordinary
shareholders (1 020 949) (75 739)
Non-trading items after taxation :
net deficit 1 068 961 89 590
Restructure losses / write-downs 1 041 357 -
Net surplus on sale of investments (615) (43 415)
Impairment write down of assets 3 157 124 891
Intangibles written off 5 132 1 206
Loss on sale of Infobank shares 9 077 -
Provision for future net rental expenditure
on onerous contracts 4 525 3 634
Net profit on sale of properties (495) (2 736)
Other 10 000 6 010
Non-trading items before taxation : net
deficit 1 072 138 89 590
Taxation - -
Attributable to outside shareholders (3 177) -
Headline earnings 48 012 13 851
Notional interest on share option money - 2 664
Convertible debenture interest 18 769 23 143
Fully diluted headline earnings 66 781 39 658
* Reflects the results to date of disposal of Bonus Building Supplies
("Bonus").
# Reflects the results to date of disposal of Relyant Retail Limited
("Relyant"). The results of Retail Apparel Group Limited ("RAG") have also
been disclosed as a divested operation as it is the intention of the
directors to dispose of this investment in the medium term.
Consolidated Balance Sheet
ASSETS
Non-current assets 606 616 1 039 282
Property, plant and equipment 151 509 155 933
Intangibles - 5 132
Deferred taxation 187 671 205 849
Investments - listed 182 971 594 822
- unlisted 48 469 51 187
Bank balances held by insurance companies 35 996 26 359
Current assets 1 455 913 1 364 888
TOTAL ASSETS 2 062 529 2 404 170
EQUITY AND LIABILITIES
Capital and reserves 405 471 558 285
Ordinary shareholders' funds 211 996 475 561
Equity portion of convertible debentures 22 232 47 189
Equity portion of convertible preference
shares 133 693 -
Outside shareholders' interest 37 550 35 535
Liability portion of convertible debentures 44 626 98 758
Liability portion of convertible
preference shares 16 307 -
Non-current liabilities 15 886 9 704
Unearned insurance premium reserve 9 846 7 234
Life assurance funds 6 040 2 470
Interest bearing debt 305 789 670 028
Long term borrowings 3 199 36 938
Short term borrowings 302 590 633 090
Current liabilities 1 274 450 1 067 395
TOTAL EQUITY AND LIABILITIES 2 062 529 2 404 170
Salient Features
June 01 June 00
R000s R000s
(Loss)/earnings per share (cents)
Undiluted (513.8) (38.2)
Diluted (390.9) (19.5)
Headline diluted 26.1 15.5
Headline diluted - after restructure 2.3 -
Ordinary shares in issue (000s)
Undiluted 198 735 198 522
Weighted average 198 717 198 069
Diluted 255 486 255 985
Diluted - after restructure 2 878 454 -
Dividends per share (cents) Nil Nil
Convertible debentures in issue (000s) 25 722 41 268
Interest bearing debt less cash /
capital and reserves (%) 54.4 110.3
Interest cover (times) 1.5 1.6
Capital expenditure commitments (R000s) 16 135 25 789
Market value of listed investments (R000s) 186 185 481 391
Directors' value of unlisted investments
(R000s) 48 504 51 312
Fully diluted net asset value per share
(cents) 175.2 251.8
Fully diluted net asset value per share
- after restructure (cents) 15.6 -
Consolidated Cash flow statement
Cash generated by operations 207 847 163 237
Increase in working capital (112 631) (6 230)
Cash generated from operating activities 95 216 157 007
Net interest paid (142 074) (113 608)
Taxation paid (6 122) (8 462)
Cash (expended by) / available
from operating activities (52 980) 34 937
Dividends paid (1 803) (107)
Cash (utilised in) / generated
by operating activities (54 783) 34 830
Cash effects of investing activities (119 442) (9 532)
Cash effects of financing activities 787 264 (25 398)
Cash effects of restructure activities (581 812) -
Movement in bank balances 31 227 (100)
Bank balances at beginning of year 54 086 54 186
Bank balances at end of year 85 313 54 086
Conslidated Statement of Changes in Ordinary Shareholder's Funds
Non- (Accumulated
Stated distributable deficit)/
capital reserves reserves Total
R000s R000s R000s R000s
Balance at 1 July 1999
as previously reported 283 152 92 547 (6 647) 369 052
Prior year adjustment of
associate company - (12 805) - (12 805)
Balance as restated 283 152 79 742 (6 647) 356 247
Conversion of convertible
debentures 550 (127) - 423
Share options exercised 540 - - 540
Foreign currency translation
gain - 2 225 - 2 225
Transfer to distributable
reserves - (1 204) 1 204 -
Change in accounting
policy for deferred tax - - 191 865 191 865
Net loss attributable to
ordinary shareholders - - (75 739) (75 739)
Balance at 30 June 2000 284 242 80 636 110 683 475 561
Rights offer - ordinary
shares 720 000 - - 720 000
Conversion of convertible
debentures 25 905 (4 301) - 21 604
Share options exercised 165 - - 165
Gain on redemption of
convertible debentures - - 9 888 9 888
Foreign currency translation
gain - 5 002 - 5 002
Revaluation reserve in
insurance companies - 725 - 725
Transfer from
distributable reserves - 7 128 (7 128) -
Net loss attributable to
ordinary shareholders - - (1 020 949) (1 020 949)
Balance at 30 June 2001 1 030 312 89 190 (907 506) 211 996
Segmental Analysis - Continuing Operations
McCarthy Motor Holdings
Motor Franchises
Rms June 01 June 00 %
Turnover 8 365 6 988 19.7
Income/(loss) before interest
and taxation 150 126 19.0
Income/(loss) before taxation
- headline 145 122 18.9
Total assets 1 366 1 085 25.9
Total liabilities 965 835 15.6
McCarthy Motor Holdings
Other Motor Operations
Rms June 01 June 00
Turnover 598 605
Income/(loss) before interest
and taxation - headline (6) 8
Income/(loss) before taxation
- headline (4) 11
Total assets 82 61
Total liabilities 58 43
McCarthy Motor Holdings
Yamaha Distributors
Rms June 01 June 00 %
Turnover 298 259 15.1
Income/(loss) before interest
and taxation - headline 37 32 15.6
Income/(loss) before taxation
- headline 38 33 15.2
Total assets 99 98 1.0
Total liabilities 44 59 (25.4)
McCarthy Financial Services
Rms June 01 June 00 %
Turnover 64 34 88.2
Income/(loss) before interest
and taxation - headline 34 23 47.8
Income/(loss) before taxation
- headline 36 24 50.0
Total assets 70 43 62.8
Total liabilities 38 19 100.0
McCarthy On-line
Rms June 01 June 00
Turnover 12 8
Income/(loss) before interest
and taxation - headline (6) (9)
Income/(loss) before taxation
- headline (6) (9)
Total assets 5 13
Total liabilities 6 4
Corporate Services and Interest
Rms June 01 June 00
Turnover
Income/(loss) before interest
and taxation - headline (21) (21)
Income/(loss) before taxation
- headline (106) (92)
Total assets 441 807
Total liabilities 546 743
Total
Rms June 01 June 00 %
Turnover 9 337 7 894 18.3
Income/(loss) before interest
and taxation - headline 188 159 18.2
Income/(loss) before taxation
- headline 103 89 15.7
Total assets 2 063 2 107 (2.1)
Total liabilities 1 657 1 703 (2.7)
Commentary
Introduction
During the past financial year the group achieved excellent results from its
motor franchises, Yamaha Distributors, Burchmores and its Financial Services
divisions. Unfortunately, these results were overshadowed by the non-trading
write-offs (R1 041 million) taken in order to conclude the capital
restructuring and the trading losses made by Bonus prior to its disposal
(R46 million).
Fully diluted headline earnings increased by 68% from R40 million in the
prior year to R67 million for the year ended 30 June 2001.
The above profit figure translates into fully diluted headline earnings per
share of 26,1 cents (2000: 15,5 cents). Had the increased number of shares,
as a result of the rights issue, been in issue for the entire year, the
headline earnings per share of 26,1 cents would have diluted to 2,3 cents
per share. The Board has decided that no dividend will be declared.
Restructuring
As advised in the interim report dated 10 April 2001, the Board entered into
a restructuring agreement with the company's providers of bank overdraft and
call loans ("debt funders") on 8 April 2001. The terms of the restructuring
were approved by shareholders and debenture holders at general meetings held
on 31 August 2001.
As the restructuring agreement was entered into before the financial year
end and because undertakings had been obtained from a majority of
shareholders to vote in favour of the restructuring prior to the year end,
it was accounted for on the effective date of 30 June 2001.
The restructuring consisted of the following:-
A rights offer of McRetail ordinary and preference shares to raise R870
million so as to reduce debt. This offer was fully underwritten by
McRetail's debt funders.
A standby offer to McRetail debenture holders of 5.875 McRetail ordinary
shares or 195 cents in cash per debenture.
A condition precedent that 38% of the debentures in issue had to convert
to ordinary shares or elect the cash option in order to reduce McRetail's
interest burden. Effective 30 June 2001, debenture holders who held 10 364
852 debentures elected the cash offer and debenture holders who held 5 180
932 converted on a 1:1 basis into ordinary shares.
The early exercise of the Relyant put option for an amount of R561
million. This put option reflected an agreement entered into in 1998 when
Relyant was created, whereby FNB Corporate, a division of FirstRand Bank
Limited, was given the option to put 22 727 273 Relyant preference shares to
McRetail. A pre-condition to the debt funders' willingness to underwrite the
rights offer in terms of the restructuring was the simultaneous early
exercise by FNB Corporate of this option.
* The disposal by McRetail of 17 733 682 Relyant ordinary shares and 22 727
273 Relyant preference shares for a consideration of R200 million. The
proceeds of this sale were used to reduce debt.
* The disposal of the entire issued share capital of Bonus for R25 million.
The disposal was completed on 12 April 2001 and the sale consideration was
received on 29 June 2001.
* A rights offer of ordinary shares at 8 cents each by RAG to raise R210
million, fully underwritten by McRetail, the proceeds of which were used to
reduce the indebtedness of RAG to McRetail.
* The announcement by McRetail that its intention is to dispose of its
interest in RAG over the medium term so as to return McRetail to its core
motor and related businesses. A comprehensive business transformation
strategy has been implemented at RAG, and shareholders are referred to the
separate RAG results announcement published on 14 September 2001 for full
details thereof.
As a consequence of the restructuring, the following non-trading write-offs
were incurred:-
R000s
* Loss on settlement of the Relyant put 561 601
* Loss on sale of the Relyant shares 15 154
* Loss on disposal of Bonus 151 269
* Write-down of McRetail's investments in RAG 313 333
1 041 357
This capital restructuring has resulted in the following meaningful
benefits:-
* Much improved balance sheet ratios and future interest savings.
* Secure funding facilities going forward.
* The "ringfencing" of the only remaining non-motor related operation,
namely RAG, as McRetail no longer has any funding obligations for it and the
investment has been written-down.
* The ability to focus single-mindedly on the core motor business and allied
financial services.
Financial Results (continuing operations)
Detailed below are the highlights of McRetail's trading performance:-
* Turnover increased by 18% from R8 billion to R9 billion.
* Income before taxation and non-trading items of R103 million was 15%
higher than the R89 million of the prior year.
* McCarthy Motor Holdings motor franchises had a good year increasing
turnover by 20% to R8 billion. Income before taxation increased from R122
million to R145 million. Excellent results were recorded in most franchises
except one where profitability was significantly lower than was achieved
last year, due to unfavourable stocking levels and a decline in margins.
* Other motor operations comprises Budget Rent-a-Car, Burchmore's Car
Auctions and McCarthy Fleet Services:-
* The price war in the highly competitive rental car market had a negative
impact on Budget Rent-a-Car resulting in a loss being reported from the pure
car rental activity. It should however be noted that the motor franchises
made a profit of R20 million by supplying new vehicles to Budget Rent-a-Car
and disposing of their ex-fleet vehicles.
* Burchmore's Car Auctions reported a 33% increase in income before
taxation.
* McCarthy Fleet Services, which is in its start-up phase, reported a small
loss, which was an improvement compared to the prior year. McCarthy Fleet
Services comprises two complementary enterprises. Firstly, the corporate
fleet marketing function supports multi-franchise fleet sales in the motor
franchises. Secondly, the financing arm provides companies with tailored
solutions, in conjunction with a strategic finance partner, on a range of
asset backed finance alternatives including full maintenance leasing. This
arm of McCarthy Fleet Services is expected to deliver significant profits to
McRetail on financing and incremental vehicle sales in the future.
* Yamaha Distributors continued to report growth in earnings, increasing
income before taxation by 15% and maintaining its dominant market share in
the South African market for both motorcycle and marine products, despite
increased competition. The musical instruments and accessories divisions
showed growth, as did the sales of product into other African countries.
This growth more than compensated for the decline in demand for portable
generators.
* McCarthy Financial Services reported excellent results with turnover up
88% and income before taxation up 50%. McCarthy Finance contributed R16
million (2000: R9 million) and the insurance operations R20 million (2000:
R15 million).
* McCarthy On-Line ("MOL") increased its turnover from R8 million to R12
million and reduced its loss before taxation to R6 million compared to the
loss of
R9 million in the prior year. ProcureTrade, the B2B joint venture company,
contributed to the majority of this loss, and an alternate solution for this
operation is currently being investigated. The highly successful e-commerce
superstore Call-a-Car, which is managed by MOL, retailed a record number of
6 859 units.
At the group level, net operating interest paid increased from R66 million
to R95 million for the year ended 30 June 2001 mainly as a result of
increased borrowings required to fund Bonus and RAG.
Taxation of R16 million arose mainly as a result of the utilisation of the
assessed loss brought forward and, as a consequence, this gave rise to a
charge to taxation as the deferred taxation asset was amortised.
Financial Position and Cash Flow
The proportion of interest bearing debt less cash to capital and reserves
improved from 110% to 54% at 30 June 2001. Besides reducing the level of
debt and enabling the Relyant put option to be settled, the rights issue
also gave McRetail the capacity to absorb the level of non-trading losses
incurred in order to effect the restructuring.
Continued focus is being placed on working capital management and expense
levels in order to generate cash and further improve gearing levels.
The decrease in the value of listed investments is as a result of the
disposal of Relyant and the write-down of the RAG investment.
Changes in Board Membership
Following the restructuring and recapitalisation, the following directors
resigned: Tony Cotterell, Hixonia Nyasula, Terry Rosenberg and Chris Wells.
The Board wishes to thank them for their contributions during their tenure.
Graham Damp, Dr. Theunie Lategan and Herman Bosman were appointed as
directors.
Prospects
McRetail's prospects are closely aligned with the future levels of business
activity as well as the strength of consumer spending in South Africa.
Conditions in the international economy, which will be negatively affected
by the terrorist attack on the US last week, will undoubtedly impact on
macro economic prospects and business conditions locally. Business
confidence is already fragile and consumer demand appears to be stagnating.
However, should the international situation stabilise over the medium term,
modest growth in the South African economy can be expected as local economic
and fiscal fundamentals are sound. When moderate growth in both the new and
used vehicle sectors in the South African motor industry occurs, McRetail is
well positioned to achieve meaningful growth in earnings in real terms.
On behalf of the Board
Noel Phillips (Chairman)
Brand Pretorius (CEO)
Durban
17 September 2001
Directors:
N Phillips (Chairman); S G Pretorius (Chief Executive Officer);
H L Bosman; G D Damp; P M Goss; R de V Greeff; P J C Horne;
Dr. M T Lategan; S C McCarthy; W R Parkhurst; E G Roden;
A G W Williamson.
Registered Office:
McCarthy Centre, 203 North Ridge Road, Durban 4001.
Transfer Secretaries:
Mercantile Registrars Limited, P.O. Box 1053, Johannesburg 2000.
