| Tue 26 Feb 2002, 0:00 | | Retail Apparel Group Limited - Interim |
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Retail Apparel Group Limited - Interim Report
(Registration number 1946/021937/06)
Share Code: RAG
ISIN Number: ZAE000013744
INTERIM REPORT
for the half year ended 31 December 2001
* World-class credit tools implemented
* Transformation process on target
* Significant cost reductions
* Improved cash flow
Consolidated Income Statement
Unaudited Audited Unaudited
Dec 01 June 01 Dec 00
R000s R000s R000s
Turnover - continuing operations 492 160 1 035 318 620 285
- discontinued operations* 28 461 118 043 62 321
Total turnover 520 621 1 153 361 682 606
Operating (loss)/income
before interest and non-trading
items - continuing operations (10 746) (66 587) 18 959
- discontinued operations* - (3 861) 5 376
Operating (loss)/income before
interest and non-trading items
- total (10 746) (70 448) 24 335
Net operating interest paid 17 744 83 302 40 574
Loss before taxation and
non-trading items (28 490) (153 750) (16 239)
Non-trading items - 98 960 13 604
Loss before taxation (28 490) (252 710) (29 843)
Taxation 1 425 18 471 23 159
Loss after taxation (29 915) (271 181) (53 002)
Loss attributable to outside
shareholder (159) (1 345) (586)
Loss attributable to ordinary
shareholders (29 756) (269 836) (52 416)
Determination of headline loss
Loss attributable to ordinary
shareholders (29 756) (269 836) (52 416)
Non-trading items - 98 960 13 604
Debenture interest 3 529 4 093 -
Notional interest on share
option monies 127 221 -
Headline loss (26 100) (166 562) (38 812)
*Reflects the results to the date of disposal of Arthur Kaplan Jewellers.
Consolidated Balance Sheet
Unaudited Audited Unaudited
Dec 01 June 01 Dec 00
R000s R000s R000s
Non-current assets 91 625 84 957 105 547
Current assets 577 164 697 106 925 274
Total assets 668 789 782 063 1 030 821
Capital and reserves 277 421 299 264 171 357
Outside shareholders' interest 22 181 940
Liability portion of
convertible debentures 59 472 65 421 -
Interest bearing debt 92 854 219 477 571 599
Current liabilities 239 020 197 720 286 925
Total equity and liabilities 668 789 782 063 1 030 821
Consolidated Summarised Cash Flow Statement
Unaudited Audited Unaudited
Dec 01 June 01 Dec 00
R000s R000s R000s
Net cash generated from/
(utilised by) operating
activities 66 361 (58 912) (16 300)
Cash generated from/(utilised in)
investing activities 29 135 (8 084) (7 270)
Net cash inflow/(outflow)
before financing activities 95 496 (66 996) (23 570)
Net (decrease)/increase in
financing activities (95 496) 66 996 23 570
- - -
Consolidated Statement of Changes in Ordinary Shareholders' Funds
Unaudited Audited Unaudited
Dec 01 June 01 Dec 00
R000s R000s R000s
Capital and reserves at
beginning of the period 299 264 220 805 220 805
Movement in non-distributable reserves
Foreign currency translation reserve 7 913 3 921 2 968
Write down of Mozambique investment - 250 -
Impairment of freehold property - (455) -
Movement in distributable reserve
Net loss for the period (29 756) (269 836) (52 416)
Proceeds from recapitalisation
Rights offer - share capital - 2 625 -
- share premium - 207 375 -
Movement in convertible debentures
Equity portion of convertible
debentures issued - 134 579 -
Capital and reserves at end
of the period 277 421 299 264 171 357
Salient Features
Unaudited Audited Unaudited
Dec 01 June 01 Dec 00
Loss per share (cents)
Undiluted (1,1) (134,9) (26,2)
Diluted (0,7) (18,3) (25,4)
Headline loss undiluted (0,9) (83,2) (19,4)
Headline loss fully diluted
after recapitalisation (0,6) (4,1) n/a
Ordinary shares in issue (000s)
Undiluted 2 825 000 200 000 200 000
Diluted 4 078 164 4 078 164 206 138
Dividends per share (cents) Nil Nil Nil
Interest bearing debt less
cash/permanent capital (%) 54,5 90,2 331,8
Net asset value per share (cents)
Undiluted 9,8 149,6 86,1
Diluted 6,8 7,3 83,6
Depreciation (R000s) 8 113 21 849 11 432
Capital expenditure (R000s) 5 649 20 543 7 437
Capital commitments (R000s) 11 027 22 055 7 563
REVIEW OF RESULTS
Nature of the business
The business attracts customers in the LSM 3 - 6 lifestyle segments who are
discerning and like to dress smartly. The business operates from 260 branded
stores throughout Southern Africa.
1. Operational review
In the annual report, shareholders were advised of the actions put in place
to:
- develop a clear vision for the future, based on a viable business model;
- re-lay the foundation of the business, re-establish the basics and spare
no effort to ensure that its debt overhang does not strangle the company;
and
- implement a focused and sustainable strategy for a well-defined target
market, which is more aligned to the higher LSM categories.
A 20,3% reduction in sales, due to the need to adopt stringent credit
granting policies, an extremely high bad debt level and store closures,
resulted in an unsatisfactory loss, attributable to shareholders, of R29,9
million. The business continued to be affected by the poor quality of the
debtors book - this legacy resulting in a further bad debt write off of R98
million for the six months.
We are continuing to take the necessary measures to improve the quality of
the debtors book through the implementation of the world-class Triad debtors
system. The process commenced in April 2001, and was successfully completed
in February 2002. Good progress is being achieved with the delivery of Pro
Vision, a tool which will assist with the measurement of the debtors
provision. Both systems will allow the business to forecast customer
behaviour and bad debt provisioning in a scientific manner.
However, we are pleased to report progress on the following:
- Significant cost reductions, including a 25% headcount reduction,
contributed positively to the improved results. Expense savings compared to
the prior year, amounted to R45,9 million.
- A substantial improvement in the cash position, as a result of the
inventory reduction, cost reduction initiatives and the effect of the
recapitalisation. Positive cash flow of R95,4 million was generated, against
a negative cash flow of
R23,6 million last year.
- In pursuit of higher LSM categories, stores were re-modelled in
accordance with the new Smart Man/Smart Lady concepts, and produced
acceptable results. 20 stores were refurbished during the period, and 30
unprofitable stores, totalling 11 500 m2 were closed, with a further 6 300
m2 scheduled for closure in the next six months. The next phase of an 18
store roll-out includes 13 stores in Botswana.
- Contemporising ladieswear and the introduction of outsizes proved to be
winners, and this recipe will be followed through in winter. The
introduction of childrenswear in all stores, excluding Guys & Girls, and a
further roll-out of 60 Patrick Daniel shop-within-shop concepts are expected
to have a positive impact on winter sales.
2. Financial results
The financial results, while still reflecting a loss, showed a marked
improvement to the prior year, indicating that the transformation action
plan, developed to create the foundation for a return to profitability, is
sound.
Excluding discontinued operations, turnover decreased by 21%, mainly as a
result of tightened credit granting criteria and the impact of the closed
stores.
The cost-cutting initiatives, while painful, showed beneficial results, with
a 20% reduction in expenses of R45,9 million.
The debtors provisioning criteria and ageing rules were adjusted during the
period on a materially more conservative basis to that previously applied.
The application of these proved to be prudent in the light of the recent
concerns relating to the state of debtors control and provisioning in this
segment of the market.
The marked reduction in financing costs show the effect of the
recapitalisation of the company, allied to an improved cash position, better
working capital management and the success of the cost-cutting initiatives.
The restatement of the group results shown below allows for a better
comparison to the previous six-month reporting period. This involved
removing Arthur Kaplan Jewellers and allocating the effects of the more
conservative debtors provisioning criteria and ageing rules to the prior
period, resulting in an increase of R50 million to the December 2000 debtors
provision.
Unaudited Audited Unaudited
December 01 June 01 December 00
R000s R000s R000s
Turnover - continuing
operations 492 160 1 035 318 620 285
Operating loss before interest
and non-trading items -
continuing operations (10 746) (116 587) (31 041)
Net operating interest paid 17 744 83 302 40 574
Loss before taxation and
non-trading items (28 490) (199 889) (71 615)
Non-trading items - (48 960) (13 604)
Loss before taxation (28 490) (248 849) (85 219)
Taxation 1 425 18 471 23 159
Loss after taxation (29 915) (267 320) (108 378)
The loss after tax, while still reflecting a loss of R29,9 million,
represents a R78 million improvement on the prior year.
Stock levels highlight the effects of improved inventory management, with a
comparative 23% reduction in stock levels.
The cash generated position of R95,5 million was most encouraging, compared
to an outflow of R23,6 million for the prior year.
3. Accounting policies
The accounting policies used in the preparation of these interim financial
statements are consistent with those applied in the annual financial
statements dated 30 June 2001.
The interim report is in compliance with the accounting requirements of
statements of Generally Accepted Accounting Practice except for segmental
reporting as required in terms of AC 127.
Segmental information has not been presented. As set out above progress is
being made in implementing a focused and sustainable strategy for a well-
defined target market. The process is not complete and the information at 31
December 2001 would not be meaningful in a segmental format. Full disclosure
will be made in the annual report.
4. Independent audit review
The financial information set out in the interim report has been reviewed,
but not audited, by the group's auditors, Deloitte & Touche. Their
unqualified review report is available at the regional office of the
company.
5. Prospects
Effective credit management will remain at the forefront of our short-term
endeavours. With the application of powerful new debtors tools and the
continued implementation of the new debtors provision and ageing model, we
are intent on effecting sustained improvements to our credit granting and
collection levels.
In tandem with the above, we will continue with the restructuring of the
business around four clearly defined brands, namely:
* Smart Centre, incorporating Smart Man and Smart Lady;
* Jenny Cole;
* Patrick Daniel; and
* Guys & Girls.
We fully recognise that success in credit granting and collections is key to
the success of this business. We will spare no effort in this regard.
Whilst trading conditions are expected to be tough, we remain committed to,
and focused on achieving the desired transformation of RAG, which should
result in a return to profitability in the medium term.
We are pleased to announce the appointment of Marius Bender as an executive
director with effect from 22 February 2002.
For and on behalf of the board
Brand Pretorius Dick Greeff
Chairman Chief Executive Officer
26 February 2002
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, Marius Bender
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
