| Mon 11 Mar 2002, 0:00 | | Profurn Limited - Audited Financial Results |
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Share code : PON
ISIN : ZAE000016481
profurn limited
AUDITED financial resultsfor the year ended 31 December 2001
Commentary
- Overview of results
2001 was a difficult year for Profurn. Decisions were made to rationalise
operations and improve cash flow.
In light of prevailing market conditions, the group has adopted a more
conservative basis of accounting than in previous years and in comparison to
current industry norms.
- Consolidation of the business
In line with the company's previously stated strategy, the following
measures were taken to rationalise operations in the group:
- Termination of joint ventures
All joint ventures have been terminated, resulting in Profurn exiting
operations in, Egypt, Morocco and Madagascar.
- Disposal of Australian business
Profurn's businesses in Australia have been sold to the Strathfield Group
for listed Strathfield shares which may be realised from October 2002, and
have been underpinned so that the realisation value will be not less than
R31 million at prevailing exchange rates.
- Closure of unprofitable stores
Pursuant to the rationalisation strategy, 48 stores are intended for closure
during 2002. In addition, retail trading space in 16 stores will be
downsized or rebranded and 48 small warehouses and storerooms will be
closed.
- Courts Megastore
Profurn has purchased the 50% stake in the Courts Megastore in Fourways
Johannesburg that it did
not own.
- Pelhams Limited (Zimbabwe)
Pelhams Zimbabwe will be listed on the Zimbabwe Stock Exchange on 2 April
2002. Profurn's share in the listed entity has been increased to 44% from
40%. In view of the present uncertainty in Zimbabwe, Profurn's investment in
Pelhams has been written off, and the share of attributable profit amounting
to R21 million has not been included in earnings. Until the political and
economic climate in Zimbabwe improves, income from Pelhams will be accounted
for on a cash-received basis.
- Disposal of investment in Courts Mauritius
Agreement was reached during January 2002 for the disposal by Profurn of its
331/3% interest in the share capital of Courts (Mauritius) Limited to Courts
(Overseas) Limited, the controlling shareholder of Courts Mauritius. The
cash consideration payable to Profurn on 28 March 2002 amounts to
approximately
R47,5 million.
Courts Mauritius is a furniture retail company listed on the Mauritius Stock
Exchange. The disposal is consistent with Profurn's strategy to consolidate
its business as alluded to above. The proceeds of the disposal will reduce
interest-bearing debt.
The disposal has decreased Profurn's net asset value as at 31 December 2001
by R70 million. Had the disposal been effective for the year ended 31
December 2001, it would not have had a significant effect on Profurn's
earnings for the year then ended.
- Costs of consolidation
The consolidation process outlined above has resulted in costs and
impairment of assets amounting to R298 million, which is included in the
income statement in exceptional charges. Consolidation costs already
incurred during 2001 have been expensed.
- Information systems
Profurn has commenced implementation of its new computer systems, due to be
completed by June 2002. This system is expected to further improve internal
controls, the management of working capital and forecasting capabilities.
- Stores
Profurn now operates 550 retail stores in 12 countries, a reduction of 69
stores compared to the prior year.
- Cash flow
During 2001 management has taken certain specific measures to improve cash
generation within the business units:
- Cash sales increased by 16,6%
Cash sales now comprise 50,1% of total sales, compared with 44,1% in 2000.
This is in line with the decision to increase the proportion of cash sales
in the group and to enforce stricter policies in granting credit.
- Inventory levels significantly down on previous year
Profurn has taken rigorous steps throughout the business to ensure that
inventory levels are optimised. These measures include stricter controls on
buying and the sale of slow moving stock items.
- Credit terms to customers reduced and deposits increased
To improve cash flows and reduce credit risk, average credit terms granted
to customers have been reduced to 20 months from 22 months. Cash deposit
rates on credit sales have been increased to 14,4% compared to 12,2% in the
prior year.
- Cash flow
In 2001, Profurn generated cash from operations amounting to R42 million,
compared to a utilisation of
R500 million in 2000. However, interest and taxes paid together with capital
expenditure resulted in borrowings increasing by R205 million. At 31
December 2001 total interest bearing borrowings amounted to R1 081 million.
- Debtors' book
- Arrears
Since January 2001 Profurn has focused on debt collection and stricter
credit granting policies. Arrear balances represent 15,5% of debtors,
compared with 14,6% reported in the interim results.
- Increase in bad and doubtful debt provision
Following a review of the bad and doubtful debt provisioning policy, Profurn
has taken a conservative view and increased provisioning levels to 18,7% of
gross debtors, from 4,4% previously. The increase in this provision of R477
million is included in the income statement in exceptional charges. Total
bad and doubtful debt provisions now represent 120% of debtor arrear
balances.
- Provisions for unearned finance charges at 13,7%
Provisions for unearned finance charges are calculated on an effective yield
basis and total 13,7% of gross debtors.
- Breakdown of debtors' books:
Division Total gross Arrear Total
debtors balances provisions
2001 2000 2001 2000 2001 2000
Rm Rm % % % %
Supreme 1 019 806 7,6 4,4 26,1 22,3
Morkels 1 111 918 6,7 4,0 28,4 15,4
Protea 1 467 1 354 27,8 24,6 39,8 15,1
Other 3 333 0,0 11,0 38,6 25,9
Total 3 600 3 411 15,5 13,0 32,4 17,9
Total provisions, including bad and doubtful debt provisions, amount to
32,4% of debtors. Due to a year of relatively flat credit sales, the
debtors' books have matured and this has naturally increased the arrear
balances.
The Protea division, which trades to lower income groups, has been the most
adversely affected by the difficult conditions. Measures were taken from the
beginning of 2001 to significantly tighten credit-granting policies and
considerable resources were engaged in the debtors' follow-up process. Total
provisions raised against this book amount to 39,8%, which management
believe are conservative.
Gross debtors have increased as a result of foreign currency translation
gains amounting to R254 million. Gross debtors included under `other' have
reduced due to the termination of the joint ventures.
- Turnover and profitability
- Turnover increased by 2%
The divisional analysis of turnover from continuing operations is as
follows:
Division % inc / (dec) 2001 Rm 2000 Rm
Hi-Fi Corporation 23 1 026 835
Supreme 10 1 080 984
Morkels 6 937 884
Protea (3) 952 979
Other 11 255
Total 2 4 006 3 937
- Divisional analysis of operating profit before abnormal items
All trading divisions within Profurn were profitable in 2001, despite a drop
in operating margins overall. Profurn's focus on cash sales and reducing
inventory levels in the first half of the year, resulted in gross margins
decreasing from 33,2% to 30,5% representing a reduction in gross profit of
R83 million. Increased focus on repossession and write off of overdue
accounts resulted in debtors losses of R117 million above that of the prior
year. Trading expenses increased by 14%, further reducing operating margins.
Margins also declined following a drop in the interest rate charged to
customers in 2001.
The divisional analysis of operating profit is as follows:
Operating margin Operating profit
Division 2001 2000 2001 2000
% % Rm Rm
Hi-Fi Corporation 8,1 10,8 83 90
Supreme 5,5 15,0 59 148
Morkels 9,0 11,4 84 101
Protea 12,8 17,1 122 167
Other - 27,7 (32) 148
Total 7,3 15,5 316 654
- Interest on borrowings amounted to R131 million compared to R18 million in
2000. Profit before tax and before exceptional charges therefore reduced by
71% to R185 million.
- Headline earnings per share declined by 67% to 12,8 cents
- Prospects
The principal focus for 2002 will be to reduce expenses and focus on credit
granting, collections and cash flow management, thereby streamlining the
business models of each operating division. Once completed, the
consolidation process will ensure that Profurn is well positioned to focus
on its business in sub-Saharan Africa.
- Rights offer of R600 million to redeem short-term debt
Shareholders are referred to the press announcement published simultaneously
that sets out the terms, last date to trade and register for the rights
offer, together with the details of the proposed consolidation and
restructuring of share capital to be undertaken prior to the rights offer.
The rights offer is being undertaken against the background of:
- Negative market sentiment
Prevailing negative market sentiment towards credit-granting retailers as a
result of, inter alia, recent developments in the microlending industry and
profit warnings from other credit-granting retailers;
- Reduction in current facility utilisation
Although interim banking facilities are in place to cover Profurn's
immediate working capital requirements, its bankers have requested a
reduction in usage of the current facility, which cannot be achieved from
operating cash flow in the short term;
- Sale of divisions and securitisation not feasible
Profurn has considered various alternatives for long-term funding, including
the sale of certain divisions and the securitisation of its debtors' book.
Following extensive investigation, the board of directors has concluded that
neither of these options is feasible under current market conditions;
- Underwritten rights offer
In light of the above, Profurn believes an underwritten rights offer to be
the only option available at this time. Accordingly, the board of directors
unanimously supports the rights offer and recommends that shareholders vote
in favour of the resolutions proposed at the general meeting.
- Other matters
- Appointment of non-executive directors
Profurn intends to appoint additional independent non-executive directors in
the near future.
- Dividends
As a result of the consolidation process the board of directors has resolved
not to declare a dividend for the 2001 financial year.
- Exchange gains
Due to the decline in the Rand, Profurn's net foreign currency translation
gains amounted to R139 million. These gains have been accounted for in the
statement of changes in equity in accordance with AC112. No material gains
have been recognised in profit for the year.
- Basis of accounting
The audited financial results have been prepared in accordance with
Statements of Generally Accepted Accounting Practice in South Africa on a
going concern basis, taking cognisance of the rights offer referred to
above.
The accounting policies used are consistent with those used in the previous
year, except as indicated below:
- In accordance with AC132, the group has consolidated all off-balance sheet
financing structures, and restated the figures for 2000 accordingly.
- A deferred tax asset amounting to R75 million has been raised on the
temporary differences between the accounting and tax values of the
trademarks. The effect of this change has been to increase the taxation
charge and reduce net profit in 2001 by R11 million.
For and on behalf of the board
P Vallet G J Walker
Chairman Chief Executive Officer
11 March 2002
Group Income Statement
for the year ended 31 December
R000s 2001 2000
Cash sales 1 534 700 1 316 637
Credit sales 1 525 695 1 672 261
Total sales 3 060 395 2 988 898
Finance charges earned 567 891 552 013
Other income 718 784 674 823
Turnover 4 347 070 4 215 734
Continuing operations 4 006 301 3 937 094
Discontinuing operations 340 769 278 640
Cost of sales (2 127 576) (1 995 445)
Gross profit 2 219 494 2 220 289
Operating expenses (1 903 700) (1 565 562)
Operating profit before
exceptional charges 315 794 654 727
Exceptional charges (840 769) 88 578
Continuing operations (716 971) 88 578
Discontinuing operations (123 798) -
Operating (loss)/profit (524 975) 743 305
Continuing operations (408 701) 737 371
Discontinuing operations (116 274) 5 934
Interest paid (130 684) (18 113)
(Loss)/profit before taxation (655 659) 725 192
Taxation 169 521 (164 394)
(Loss)/profit after taxation (486 138) 560 798
Minority interest - (51 166)
Net (loss)/profit (486 138) 509 632
Continuing operations (373 858) 507 266
Discontinuing operations (112 280) 2 366
HEADLINE EARNINGS
Net (loss)/profit (486 138) 509 632
Exceptional charges 632 086 (70 013)
Bad and doubtful debt provisions 477 513 (88 461)
Termination of joint ventures 123 798
Store and warehouse closures 96 724
Other provisions and impairments 142 734
Taxation effect (208 683) 18 448
Amortisation of goodwill 224 448
Headline earnings 146 172 440 067
Earnings/(loss) per share
Basic (cents) (45,1) 47,1
Fully diluted (cents) (42,6) 45,7
Headline (cents) 12,8 39,4
Weighted average no. of shares
in issue (000's) 1 078 068 1 082 492
Fully diluted weighted ave no. of
shares (000's) 1 141 023 1 116 007
Total no. of shares in issue (000's) 1 151 620 1 136 330
Net asset value per share (cents) 146,6 170,1
Depreciation and amortisation (R000) 76 995 60 684
Instalment sale debtor arrears 15,5% 13,0%
Gross profit margin 30,5% 33,2%
Headline operating profit margin 7,3% 15,5%
Group Balance Sheet
as at 31 December
R000s 2001 2000
Non-current assets 258 748 308 557
Tangible assets 224 512 293 022
Financial assets - investments 34 236 15 535
Current assets 3 225 297 3 746 213
Inventories 593 191 709 695
Trade receivables 2 433 263 2 799 948
Sundry receivables 104 592 60 251
Cash 94 251 176 319
Total assets 3 484 045 4 054 770
Shareholders' equity 1 688 610 2 053 021
Ordinary shareholders' interest 1 688 610 1 932 792
Minority shareholders' interest - 120 229
Non-current liabilities 217 725 804 361
Long-term interest bearing debt 172 239 399 561
Deferred taxation (13 185) 331 360
Loan from share incentive scheme 58 671 73 440
Current liabilities 1 577 710 1 197 388
Trade and other payables 668 658 720 520
Short-term interest bearing debt 909 052 476 868
Total equity and liabilities 3 484 045 4 054 770
Group Cash Flow Statement
for the year ended 31 december
R000s 2001 2000
Cash flows from operating activities
Cash generated from operations 42 050 (500 164)
Interest paid (130 684) (18 113)
Taxes paid (40 352) (4 622)
Net cash used in operating activities (128 986) (522 899)
Cash flows from investing activities
Additions to non-current assets (75 978) (109 798)
Investment in subsidiaries (34 313) (29 802)
Net cash used in investing activities (110 291) (139 600)
Cash flows from financing activities
(Decrease)/increase in long-term borrowings (226 395) 389 956
Share issue expenses (133) (1 510)
Cash dividend paid to shareholders - (25 747)
Net cash used in financing activities (226 528) 362 699
Effect of exchange rate changes on cash
and cash equivalents 26 090 (19 321)
Net decrease in cash and cash equivalents (439 715) (319 121)
Cash and cash equivalents at beginning
of year (300 549) 18 572
Cash in Zimbabwe at beginning of year (74 537) -
Cash and cash equivalents at end of year (814 801) (300 549)
Statement of changes in equity
Stated Treasury Retained
(R'000) capital shares earnings
Balance at 31 December 1999 1 073 206 - 633 497
Net profit for the year 509 632
Foreign currency translation
adjustment and
non-distribution reserve
Dividend - cash (25 747)
Dividend - capitalisation issue 45 862 (45 862)
Revaluation of land
and buildings
Share issue 109 344
Purchase of treasury shares (262 668)
Balance at 31 December 2000 1 228 412 (262 668) 1 071 520
Net loss for the year (486 138)
Movement for the year
Share issue 16 686
Balance at 31 December 2001 1 245 098 (262 668) 585 382
Translation
adjustments
(R'000) and NDR Total
Balance at 31 December 1999 (64 784) 1 641 919
Net profit for the year 509 632
Foreign currency translation
adjustment and
non-distribution reserve (41 042) (41 042)
Dividend - cash (25 747)
Dividend - capitalisation issue -
Revaluation of land and buildings 1 354 1 354
Share issue 109 344
Purchase of treasury shares (262 668)
Balance at 31 December 2000 (104 472) 1 932 792
Net loss for the year (486 138)
Movement for the year 225 270 225 270
Share issue 16 686
Balance at 31 December 2001 120 798 1 688 610
Directors: P Vallet* (Chairman), G J Walker (Chief Executive Officer)
(British), J Kaplan (Managing Director), M S Roberts (Chief Operating
Officer), KWBoyers (Chief Financial Officer), F K Anderson*, L Balkind, C S
Dos Santos*, M B Hacker* (British), G B Rubenstein* *non-executive
transfer secretaries:
Mercantile Registrars Limited 11 Diagonal Street Johannesburg 2001
registered office:
8th floor, Profurn House, 66 De Korte St, Braamfontein 2017
registration number:
1968/015363/06 ISIN: ZAE000016481
Company code: PON
results on internet: http//www.profurn.com
company secretary:
D Bijker
e-mail:
info@profurn.com
telephone: (011) 403 7124
fax: (011) 403 7147
