| Mon 25 Feb 2002, 0:00 | | Pepkor Limited - Interim Profit Announcement |
|
Pepkor Limited (Registration number: 1965/007765/06)
36 Stellenberg Road, Parow Industria 7490
JSE share code: PEP ISIN number: ZAE000005344
Interim profit announcement for the six months ended 31 December 2001
Consolidated income statement
(R'000) Unaudited Unaudited 53 weeks
26 weeks to 27 weeks to Change to
31/12/01 31/12/00 % 30/06/01
Turnover 2 981 071 2 503 274 19 4 762 412
Operating profit 183 090 142 114 29 200 097
Net investment
income/(interest paid) 61 402 (42 315) (32 609)
Investment income 24 362 60 581 91 129
Interest paid (70 195) (115 023) (151 415)
Exchange rate gain 107 235 12 127 27 677
Profit before exceptional
items 244 492 99 799 145 167 488
Exceptional items 49 998 (242 076) (252 886)
Amortisation of goodwill (494) - (801)
Profit/(loss) before taxation 293 996 (142 277) (86 199)
Taxation 78 755 34 014 131 46 371
Profit/(loss) after taxation 215 241 (176 291) (132 570)
Outside shareholders' interest 5 156 4 042 28 7 243
Net profit/(loss) 210 085 (180 333) (139 813)
Earnings per share (cents)
- before exceptional items 72,4 27,8 160 50,9
- after exceptional items 94,7 (81,3) (62,7)
- headline earnings 72,6 28,2 157 52,0
Dividend (cents per share) 11,0 9,0 22 18,0
Dividend cover - before
exceptional items (times) 6,6 3,1 2,9
Number of shares for
calculation of earnings
per share ('000) 221 936 221 936 221 936
Consolidated balance sheet
(R'000) Unaudited
31/12/01 30/06/01
Non-current assets 780 212 514 828
Fixed assets 474 243 388 764
Goodwill 18 449 18 873
Investments 268 692 59 840
Deferred taxation 18 828 47 351
Current assets 2 000 827 1 901 082
Inventories 1 301 403 1 306 166
Accounts receivable 50 468 56 585
Bank balances and cash 648 956 538 331
Total assets 2 781 039 2 415 910
Ordinary shareholders' funds 1 211 609 980 087
Preference share capital 92 92
Outside shareholders' interest 21 194 19 839
Non-current liabilities 53 984 67 078
Long-term loans 1 048 12 877
Deferred taxation 12 363 14 168
Other non-current liabilities 40 573 40 033
Current liabilities 1 494 160 1 348 814
Short-term loans and bank overdrafts 516 743 494 337
Other current liabilities 977 417 854 477
Total shareholders' funds and liabilities 2 781 039 2 415 910
Consolidated cash flow statement
(R'000) Unaudited Unaudited
26 weeks to 27 weeks to
31/12/01 31/12/00
Cash flow from operations 589 915 145 619
Dividends paid (19 974) (68 449)
Cash retained from operations 569 941 77 170
Investment activities (469 893) (119 375)
Net acquisition of fixed assets (136 499) (120 173)
Other investment activities (333 394) 798
Net cash flow 100 048 (42 205)
Financing activities 10 577 65 540
Proceeds from share issue - 92
Net debt raised 10 577 65 448
Increase in bank balances and cash 110 625 23 335
Supplementary information
(R'000) Unaudited Unaudited
26 weeks to 27 weeks to
31/12/01 31/12/00
1. Depreciation for the period 50 544 44 534
2. Dividends received included in
investment income 4 456 5 286
3. Capital expenditure for the period 109 027 131 065
4. Calculation of headline earnings
Net profit/(loss) 210 085 (180 333)
Attributable exceptional items (49 998) 242 076
Amortisation of goodwill 494 -
Loss on sale and scrapping of fixed
assets after taxation and outside
shareholders' interest 612 840
161 193 62 583
Unaudited
31/12/01 30/06/01
5. Number of shares in issue ('000) 221 936 221 936
6. Net asset value per share (cents) 545,9 441,6
7. Investments
Listed investments at cost less amounts
written off and market value 253 161 3 720
Unlisted investments at cost less amounts
written off and directors' valuation 6 856 40 697
Loans 8 675 15 423
268 692 59 840
8. Capital commitments 74 214 162 904
9. Contingent liabilities 76 500 156 355
10. Operating lease commitments 1 326 466 1 200 397
Consolidated statement of changes in shareholders' funds
(R'000) Unaudited Unaudited
26 weeks to 27 weeks to
31/12/01 31/12/00
Balance at 1 July 980 087 1 162 283
Unbundling adjustments - 38 628
Exchange rate adjustments 41 411 63 484
Net profit/(loss) for the period 210 085 (180 333)
Dividend paid (19 974) (66 581)
Balance at 31 December 1 211 609 1 017 481
Segmental analysis
(R'000) Unaudited Unaudited
26 weeks to 27 weeks to
31/12/01 31/12/00
Turnover
Pep 1 499 360 1 370 372
Ackermans 609 156 537 470
Best & Less 872 555 595 432
2 981 071 2 503 274
Operating profit
Pep 126 674 103 507
Ackermans 42 219 42 525
Best & Less 22 236 7 441
Financing and head office (8 039) (11 359)
183 090 142 114
Geographical spread of operating profit
South Africa 131 974 136 603
Rest of Africa 28 880 (1 930)
Australia 22 236 7 441
183 090 142 114
Operational review
During the six months Pepkor's results were significantly influenced by
foreign exchange surpluses flowing from the devaluation of the rand against
a variety of currencies, including those of some African countries. It is
important that in the case of certain currencies these gains be regarded as
possibly once-off windfalls which may disappear or be reduced should the
rand strengthen again. In evaluating Pepkor's results these gains should
therefore be viewed in perspective.
Even if the above is borne in mind, Pepkor did exceptionally well,
particularly considering that the period under review covered 26 weeks as
against the 27 of the corresponding period in 2000.
The best results were produced by Pep, the dominant business in the group,
which generated 50% of the turnover of close on R3 billion, but contributed
66% to operating profit. Another important contributory factor was the start
of the recovery process at Best & Less in Australia as a result of which
this chain's contribution to operating profit virtually trebled, albeit from
a low base.
Mr Carel Stassen, managing director of Pepkor since its restructuring in
October 2000, resigned in November 2001 to accept the position of executive
vice-chairman of the British retail undertaking Brown & Jackson plc. Mr
Stassen, who joined the group in 1990, remains a director of Pepkor. Mr
Pieter Erasmus, previously financial director of Pep, was appointed managing
director of Pepkor.
Pep
After two years Pep is back at the level where it is starting again to
produce acceptable profits. The fruits are now being reaped of the major
improvements made during this period in respect of product range and
quality, store image and merchandise distribution. In addition, staff
training and motivation are treated as top priorities.
Clothing remains Pep's core business and is the yardstick by which the
chain's current and future success will be measured. At the same time Pep is
expanding into product areas in which it can unlock the value offered by its
network of more than 1 200 stores in conjunction with its sophisticated
computer and distribution systems. Great success is currently being achieved
with the sale of cellular products, mainly air time, which brings new
clients back into stores on a regular basis. In December Pep expanded its
activities in this field by now offering prepaid Telkom cards as well.
During the period under review particular attention was paid to addressing
operational problems in the chain's Africa Division, which controls 70
stores in Mozambique, Zambia, Malawi and Ghana. All expansion in these
countries was put on hold while these problems were being rectified. In
addition to changes being made at managerial level, product ranges were
narrowed down and distribution systems simplified. Before the end of the
period under review this division was starting to contribute again to
operating profit, with the best results being achieved in Mozambique.
Pep reported an increase of 15,5% on the turnover of existing business. At
the same time it succeeded in reducing inventories by approximately R200
million to R822 million as compared with a year ago. This enabled the
company to report an annualised return on capital employed for the half-year
of 32,7% as against 29,9% in the corresponding period.
Although Pep imports a significant portion of its merchandise, the decline
in the value of the rand will, at least partly and then only temporarily, be
offset by taking advantage of highly competitive prices on overseas markets
due to a global oversupply of production capacity.
Ackermans
Although Ackermans finds itself in a highly competitive sector of the retail
clothing business, the most recent research shows that the chain is
continuing to increase market share. Turnover escalated by 13,3%, while
growth in existing business was just more than 7%. The fact that operating
profit remained virtually unchanged at R42 million is partly due to the
shorter trading period covered by this report.
In the last six months of 2001 nine new Ackermans stores and six new stand-
alone Hang Ten outlets were opened. Of the latter there is now a sufficient
number of outlets for management to evaluate the viability of this concept.
The Hang Ten product range is also being sold very successfully in all
Ackermans stores.
To stimulate consumer interest, Ackermans is also continuing, in addition to
selling its fixed product ranges, to identify bargains on world markets,
which are offered at highly competitive prices in its stores. Income
generated by these special purchases is making an increasing contribution to
total turnover.
In November 2001 Mr Daan Venter, who as managing director in the past three
years spearheaded Ackermans' return to full profitability, accepted the
position of managing director of What Everyone Wants, one of the retail
chains in the British group Brown & Jackson plc. He was replaced at
Ackermans by Mr Pieter Erasmus, who also holds the post of managing director
of Pepkor.
Best & Less
During the period under review Best & Less succeeded in increasing turnover
by 46,5% while virtually trebling operating profit. Men's and ladies' wear
in particular showed sharp increases. However, gross profit margins came
under pressure due to aggressive stock management and large-scale
promotional activities undertaken in November.
The 2001 financial year was one of the most difficult in the history of this
Australian chain. Not only was the clothing market as a whole under
pressure, but there were also complicating factors within the business
itself. A new managing director, Mr Howard Goldberg, took over in March last
year and started to improve the profitability of the business. The success
achieved by him and his team is already starting to be reflected in the
results.
As part of the chain's expansion programme 14 new stores were opened in the
period under review, bringing the total number to 122. One more store is
planned for the rest of the year. Best & Less is also busy improving the
appearance and layout of its stores to augment the shopping experience and
project a more modern image.
Accounting policies
The interim report has been prepared in accordance with AC 127: Interim
financial reporting, and the Fourth Schedule to the South African Companies
Act. The accounting policies are in all material respects consistent with
those adopted in the annual financial statements for the year ended 30 June
2001, except as set out below.
In accordance with the new statement AC 135: Investment property,
depreciation on fixed property is provided for on the straight-line method
over not longer than 50 years. The comparative figures in the income
statements for the 27 weeks to 31 December 2000 and for the 53 weeks to 30
June 2001, as well as in the balance sheet at 30 June 2001, have been
restated accordingly. This change in accounting policy has only a minor
effect, with earnings per share (before exceptional items) for the 27 weeks
to 31 December 2000 dropping from the previously published 27,9 cents to
27,8 cents, while the net asset value per share at 30 June 2001 reduced from
the previous 443,5 cents to 441,6 cents.
Comments on the results
Net investment income
During the period under review net investment income benefited significantly
from increased exchange rate gains owing to the recent marked decline in the
value of the rand. The exchange rate gains resulted from rand-denominated
foreign debt funding the group's foreign interests.
Exceptional items
The profit of R50 million represents writebacks due to share price
increases. These writebacks relate to provisions created during the previous
financial year against loans to share incentive trusts and the put option in
respect of shares in Shoprite Holdings Limited.
Prospects
The full impact of the decline in the value of the rand will only be felt in
the latter half of the financial year as consumers are faced with more and
more increases over a broad front, from fuel and interest rates to medical
care.
On the other hand, debt as a percentage of household income is declining, so
that expenditure on clothing should continue to increase, albeit at a slower
rate than during the period under review. Last week's Budget, which provided
considerable benefits for consumers in Pepkor's market segment, should have
a positive effect on our business. The proven value formula offered by both
Pep and Ackermans should see both these businesses benefit from consumers
for whom value for money is of decisive importance.
Given that both these chains are structured to survive difficult times we do
not expect them to lose their current momentum or that profit margins will
come under too much pressure in the second half of the year. In addition,
the continued improvement in the case of Best & Less will make an increasing
contribution to operating profit.
Declaration of dividend
Notice is hereby given that the Board has declared an interim dividend of 11
cents per ordinary share for the half-year ended 31 December 2001. The
dividend will be payable on Monday, 25 March 2002.
In terms of STRATE requirements, Thursday, 14 March 2002 is the last day on
which the shares can be traded cum dividend. As from Friday, 15 March 2002
the shares will trade ex dividend. The record date is Friday, 22 March 2002.
Share certificates may not be dematerialised or rematerialised between
Friday, 8 March 2002 and Friday, 22 March 2002, both days inclusive.
By order of the Board
CH Wiese PJ Erasmus
Chairman Managing director
