| Wed 27 Feb 2002, 0:00 | | Mccarthy Limited - Interim Report For The Half Yea |
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McCarthy Limited
(Incorporated in the Republic of South Africa)
(Formerly McCarthy Retail Limited
(Registration number 1991/003245/06)
("McCarthy" or "the group")
Ordinary shares: JSE code: MCC ISIN: ZAE000034823
Preference shares: JSE code: MCCP ISIN: ZAE000034831
Debentures: JSE code: MCCD ISIN: ZAE000034849
Headline EPS up 61,5%
Income before tax up 37,8%
Motor franchise operating income R82,6m (+20%)
Cash flow positive
Gearing reduced to 37,2%
Interest cover improved to 2.9 times
Interim report for the half year ended 31 December 2001
Consolidated Income Statement
Unaudited Audited
Half year ended Year ended
Dec 2001 Dec 2000 Change June 2001
R000s R000s % R000s
Turnover
Continuing
operations 5 573 934 4 513 523 23.5 9 336 708
Divested
operations * - 99 217 145 270
5 573 934 4 612 740 9 481 978
Operating income
before interest 107 606 78 017 170 241
Continuing
operations 107 606 90 037 19.5 188 055
Divested
operations * - (12 020) (17 814)
Net operating
interest paid 30 622 46 442 34.1 94 473
Preference share
financing cost 1 468 - -
Convertible
debenture interest 4 634 9 384 18 769
Income before
taxation and
non-trading items 70 882 22 191 56 999
Continuing
operations 70 882 51 450 37.8 102 723
Divested
operations * - (29 259) (45 724)
Non-trading
items - net deficit (2 874) (607 214) (1 072 138)
Taxation 14 917 1 951 15 824
Income/(loss)
after taxation 53 091 (586 974) (1 030 963)
Share of net
profit of
associate companies 767 10 997 10 661
Continuing operations 767 699 9.7 1 203
Divested operations # - 10 298 9 458
Income/(loss)
attributable to
outside shareholders
of subsidiaries 3 479 (551) 647
Net income/(loss)
attributable to
ordinary shareholders 50 379 (575 426) (1 020 949)
* Reflects the results to the date of disposal of Bonus Building Supplies.
# Reflects the results to the date of disposal of Relyant Retail Limited.
Determination of headline earnings:
Net income/(loss)
attributable to
ordinary
shareholders 50 379 (575 426) (1 020 949)
Net non-trading
items after taxation
- net deficit: (2 830) (604 904) (1 068 961)
Restructure items (3 000) (429 028) (1 041 357)
Net profit on
sale of properties - - 495
Profit on sale of
investments 126 30 615
Loss on sale of
Infobank shares - - (9 077)
Intangibles written off - - (5 132)
Provision for future
net rental expenditure
on onerous contracts - (1 110) (4 525)
Impairment write-down
of assets - (176 812) (3 157)
Other - (294) (10 000)
Non-trading items
before taxation (2 874) (607 214) (1 072 138)
Taxation - - -
Attributable to
outside shareholders 44 2 310 3 177
Headline earnings 53 209 29 478 80.5 48 012
Notional profit
on share option money 2 785 530 -
Convertible
debenture interest 4 634 9 384 18 769
Preference share
financing cost 1 468 - -
Fully diluted
headline earnings 62 096 39 392 57.6 66 781
Consolidated Balance Sheet
Unaudited Audited
Dec 2001 June 2001
R000s R000s
ASSETS
Non-current assets 591 207 606 616
Property, plant and equipment 159 216 151 509
Deferred taxation 175 328 187 671
Investments
- listed 162 846 182 971
- unlisted 47 548 48 469
Bank balances held by
insurance companies 46 269 35 996
Current assets 1 527 687 1 455 913
TOTAL ASSETS 2 118 894 2 062 529
EQUITY AND LIABILITIES
Capital and reserves 495 634 405 471
Stated capital and reserves 284 661 211 996
Equity portion of
convertible debentures 22 184 22 232
Equity portion of convertible
preference shares 133 693 133 693
Ordinary shareholders' funds 440 538 367 921
Outside shareholders' interest 55 096 37 550
Liability portion of
convertible debentures 37 642 44 626
Liability portion of convertible
preference shares 14 025 16 307
Non-current liabilities 17 316 15 886
Unearned insurance premium reserve 11 364 9 846
Life assurance funds 5 952 6 040
Interest bearing debt 296 677 305 789
Long term borrowings 2 999 3 199
Short term borrowings 293 678 302 590
Current liabilities 1 257 600 1 274 450
TOTAL EQUITY AND LIABILITIES 2 118 894 2 062 529
Consolidated Statement of Changes in Ordinary Shareholders' Funds
Non- (Accumulated
Stated distributable deficit)/
capital reserves reserves Total
R000s R000s R000s R000s
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
Transfer from
distributable
reserves - 11 976 ( 11 976) -
Net income
attributable to
ordinary
shareholders - - 50 379 50 379
Redemption of
convertible
debentures - ( 4 499) - ( 4 499)
Revaluation reserve
in insurance
companies - 592 - 592
Foreign currency
translation gain - 28 874 - 28 874
Share issue
expenses ( 2 681) - - ( 2 681)
Balance at 31
December 2001 1 027 631 126 133 ( 869 103) 284 661
Summarised Consolidated Cash Flow Statement
Unaudited Audited
Dec 2001 Dec 2000 June 2001
R000s R000s R000s
Cash generated from/
(utilised by) operating
activities 64 922 (43 677) 95 216
Financing costs (50 384) (70 760) (142 074)
Taxation paid (1 732) (3 884) (6 122)
Dividend paid to outside
shareholders of subsidiaries (284) (86) (1 803)
Net cash inflow/(outflow)
from operating activities 12 522 (118 407) (54 783)
Cash generated from/
(utilised by) investing
activities 4 574 (63 684) (119 442)
Net cash inflow/(outflow)
before financing
activities 17 096 (182 091) (174 225)
Net (decrease)/increase
in financing activities (9 112) 209 565 787 264
Cash flows from
restructuring activities - - (581 812)
Net increase in
cash resources 7 984 27 474 31 227
Salient Features
Unaudited Unaudited Audited
Dec 2001 Dec 2000 June 2001
Income Statement
Earnings/(loss)
per share (cents)
Undiluted 2.5 (289.5) (513.8)
Diluted 2.0 (220.5) (392.3)
Headline - diluted 2.1 1.3 2.3
Ordinary shares
in issue (000s)
Undiluted 2 003 921 198 735 198 735
Weighted average 2 003 921 198 735 198 717
Diluted 3 002 192 256 438 256 352
Diluted -
after restructure 3 002 192 - 2 878 454
Dividends per
share (cents) - - -
Convertible debentures
in issue (000s) 25 643 41 268 25 722
Interest per convertible
debenture (cents) 62.5 55.9 111.8
Preference shares
in issue (000s) 833 333 - -
Preference dividend
per share (cents) 0.45 - -
Interest cover (times)
Including convertible
debenture interest and
preference share
financing cost 2.9 1.4 1.5
Excluding convertible
debenture interest and
preference share
financing cost 3.5 1.7 1.8
Depreciation and
amortisation of leasehold
properties 9 837 8 044 25 660
Balance Sheet
Interest bearing debt
less cash/permanent capital
Including the impact
of AC125 (%) 41.0 >1000 54.4
Excluding the
impact of AC125 (%) 37.2 >900 47.3
Net asset value
per share (cents)
Undiluted 14.2 (20.9) 185.1
Fully diluted 16.6 20.7 175.2
Fully diluted -
after restructure 16.6 1.8 15.6
Market value of listed
investments (R000s) * 288 826 409 665 186 185
Directors valuation of
unlisted
investments (R000s) 47 318 91 706 48 504
Contingent
liabilities (R000s) 3 230 5 229 4 496
Capital expenditure
during the period (R000s) 17 544 15 471 38 237
Future capital
commitments (R000s) 1 820 6 148 16 135
* Calculated using the share price of the underlying investments as quoted
on the JSE Securities Exchange.
Review of the Results
Introduction
Following the extensive restructuring of the group last year, every effort
was made during the period under review to bolster morale, crystalise
strategic direction and optimise internal efficiencies. We are pleased to
report that significant progress was made and that a solid foundation for
the future progress of the restructured McCarthy group has been laid.
Shareholders were advised in the 2001 annual report that the Board expected
an improvement in earnings resulting from the benefits of the restructure,
in particular:
* Reduced levels of interest bearing debt, resulting in interest savings;
and
* The ability to focus on the core motor business and allied financial
services.
It is gratifying that the results for the half year to 31 December 2001 met
this expectation.
Fully diluted headline earnings increased by 57,6% from R39,4 million in the
comparative six month period to R62,1 million for the six months under
review. These figures translate into fully diluted headline earnings per
share of 2,1 cents (2000 : 1,3 cents).
Financial Results of the Group Operations
The following are the pertinent highlights of the group's trading
performance for the six months ended 31 December 2001:
* Turnover increased by 23,5% from R4,5 billion to R5,6 billion.
* Operating income before interest increased by 19,5% to R107,6 million.
* Income before taxation and non-trading items at R70,9 million was 37,8%
above the comparable period of R51,5 million.
* The motor franchise operations experienced another good trading period
reporting a turnover increase of 25,8% to R5,1 billion and operating income
rose 20,0% to R82,6 million. Excellent results were recorded in most
franchises.
* Other motor operations, comprising Budget Rent-a-Car ("Budget"),
Burchmore's Car Auctions and McCarthy Fleet Services, generated income
before taxation of R3,2 million compared with the loss of R1,0 million for
the prior period. This turnaround was mainly as a result of Budget's
pleasing return to profitability.
* Yamaha Distributors increased turnover by 13,2% to R176,9 million. Income
before taxation fell by 3,2% to R17,6 million as a result of the exchange
rate pressure on margins. The return nevertheless remains sound.
* McCarthy Financial Services, comprising financing, insurance and related
activities, reported a 12,7% reduction in turnover from R28,8 million to
R25,2 million as a result of no longer writing any insurance products for
Bonus Building Supplies ("Bonus") following the disposal of this business.
Without Bonus in the comparative figures, turnover would have increased by
23,2%. The group's share of McCarthy Finance's income before taxation is
R9,7 million (2000: R8,1 million) while the insurance operations contributed
R10,1 million (2000: R8,7 million).
* McCarthy On-Line increased its turnover from R5,2 million to R8,0 million
and reported an income before taxation of R0,4 million compared to the loss
of R2,3 million for the previous period. The current business operations,
namely Eliance and the management contracts for Call-a-Car and Spar On-Line,
are now all profitable.
* The net cost of corporate services before interest has increased by R6,9
million mainly as a result of the creation of a once off R6,0 million
accrual for past employee related obligations.
Net operating interest paid has reduced from R46,4 million to R30,6 million
as a result of the following:
* The disposal of Bonus and the fact that McCarthy is no longer responsible
for funding Retail Apparel Group Limited. Both of these entities were
previously dependant on the group for funding.
* Continued focus throughout all business units on improved asset management
and cost control.
* An overall lower level of borrowings following the recapitalisation.
Convertible debenture interest has decreased as a result of certain
debenture holders electing the early conversion into equity or the cash
offer as part of the recapitalisation. The number of debentures in issue has
decreased from 41,3 million at 31 December 2000 to 25,6 million at 31
December 2001.
The net non-trading deficit of R2,8 million consists largely of an
additional accrual raised for the costs of the restructure.
Taxation of R14,9 million mainly comprises a deferred tax charge of R12,2
million as a result of the utilisation of the accumulated assessed loss.
The favourable impact of all the above, results in a return to positive
attributable income to shareholders of R50,4 million compared to the loss of
R575,4 million of the prior period.
Financial Position and Cash Flow
The benefits flowing from the restructure, together with the progress made
from the continued emphasis on expense levels and asset management, are
evident from the cash flow. Net cash inflow from operating activities for
the six months ended 31 December 2001 was R12,5 million compared with a net
cash outflow of R118,4 million during the previous comparable period.
The level of consolidated group debt has decreased by R9,1 million since 30
June 2001. Gearing has improved, with the ratio of interest bearing debt
less cash to permanent capital moving from 47,3% at 30 June 2001, to 37,2%
at 31 December 2001, while interest cover has improved to 2,9 times from
1,5.
Retail Apparel Group Limited ("RAG")
The group owns 96% of RAG and consequently, shareholders are referred to the
separate interim results announcement released by RAG on 26 February 2002.
As advised in the June 2001 annual report, the group remains committed to
the disposal of RAG over the medium term.
Accounting Policies
The accounting policies used in the preparation of the interim report are
consistent with those applied in the annual financial statements dated 30
June 2001 and complies with South African statements of Generally Accepted
Accounting Practice.
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 registered office of the
company.
Prospects
New vehicle sales benefitted significantly during the last quarter of 2001
from pre-price increase buying. That trend continued into the first quarter
of this calendar year, but is not being sustained. Tougher trading
conditions are expected for the remainder of the financial year. Fortunately
the group is well placed in the used vehicle market, which is expected to
remain relatively buoyant, and this together with annuity income from our
financial services division should cushion the impact of the anticipated
slow down in new vehicle sales.
However, we expect our headline earnings for the full year to show a
material improvement over that reported in the prior year.
On behalf of the Board
Noel Phillips (Chairman) Durban
Brand Pretorius (CEO) 27 February 2002
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.
Segmental Analysis - Continuing Operations
McCarthy Motor Holdings
Motor Franchises
R000s Dec 01 Dec 00 %
Turnover 5 070 731 4 029 597 25.8
Operating income/(loss)
before interest 82 576 68 803 20.0
Interest paid/(received) 7 001 1 247
(including CD interest
and preference
share financing cost)
Income/(loss) before tax
and non trading items 75 575 67 556 11.9
Total assets 1 462 148 1 200 529 21.8
Total liabilities 1 308 209 986 796 32.6
Segmental Analysis - Continuing Operations
McCarthy Motor Holdings
Other Motor Operations Yamaha
R000s Dec 01 Dec 00 Dec 01 Dec 00
Turnover 293 115 293 626 176 929 156 272
Operating income/
(loss) before
interest 2 956 (2 475) 18 077 18 426
Interest paid/
(received) (293) (1 517) 516 286
(including CD
interest and
preference
share
financing cost)
Income/(loss)
before tax and
non trading items 3 249 (958) 17 561 18 140
Total assets 117 442 84 248 111 808 117 311
Total liabilities 31 976 32 592 75 408 84 298
Segmental Analysis - Continuing Operations
McCarthy Financial McCarthy
Services On-line
R000s Dec 01 Dec 00 % Dec 01 Dec 00
Turnover 25 154 28 825 (12.7) 8 005 5 203
Operating
income/(loss)
before interest 17 999 15 310 17.6 350 (2 597)
Interest
paid/(received) (1 812) (1 554) 16.6 (81) (286)
(including CD
interest and
preference
share financing cost)
Income/(loss)
before tax and
non trading items 19 811 16 864 17.5 431 (2 311)
Total assets 98 282 82 696 18.8 6 009 14 276
Total liabilities 35 968 32 892 9.4 2 415 5 515
Segmental Analysis - Continuing Operations
Corporate Services
and Interest Total
R000s Dec 01 Dec 00 Dec 01 Dec 00 %
Turnover - - 5 573 934 4 513 523 23.5
Operating
income/(loss)
before
interest (14 352) (7 430) 107 606 90 037 19.5
Interest
paid/
(received) 31 393 40 411 36 724 38 587 4.8
(including
CD interest
and preference
share financing
cost)
Income/(loss)
before tax
and non
trading
items (45 745) (47 841) 70 882 51 450 37.8
Total assets 323 205 671 789 2 118 894 2 170 849 (2.4)
Total
liabilities 117 617 952 216 1 571 593 2 094 309 (25.0)
