| Thu 28 Mar 2002, 0:00 | | Relyant Retail Limited - Unaudited Interim Announc |
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Relyant Retail Limited
Registration number 1937/010108/06
Share code: RLY
ISIN number: ZAE000016457
Unaudited Interim Announcement for the six months ended 31 December 2001
Negotiations for major restructure at an advanced stage
Turnover growth curtailed, but gross margins improve
Increase in financing costs offsets 15% growth in EBITDA
Improved cash flow from operations
GROUP INCOME STATEMENT Six months Six months Year
ended ended ended
31 December 31 December 30 June
2001 2000 2001
unaudited unaudited audited
Notes R000's R000's R000's
Turnover 1 1 354 717 1 096 778 2 205 886
Cost of sales 707 239 590 540 1 153 822
Trading profit before
depreciation and
amortisation ("EBITDA") 152 190 132 712 222 797
Depreciation of fixtures,
equipment and vehicles (14 829) (13 646) (28 360)
Amortisation of intangibles (8 226) (8 750) (23 050)
Trading profit 129 135 110 316 171 387
Financing costs on
bank borrowings 68 902 47 691 108 020
Additional financing
costs prescribed by AC125 2 3 736 5 268 9 738
Exceptional items 3 5 500 - (9 324)
Profit before taxation 50 997 57 357 62 953
Taxation - current
and deferred 18 800 21 340 27 701
Taxation - STC 2 031 2 031 4 036
Profit after taxation 30 166 33 986 31 216
Preference dividends 2 - - -
Earnings attributable
to ordinary shareholders 30 166 33 986 31 216
Ordinary shares
in issue (000's)
- closing 4 68 076 52 702 68 076
- weighted average 4 68 076 52 702 59 412
Fully diluted weighted
average number of
ordinary shares (000's) 5 95 970 80 596 87 305
Earnings per share -
basic (cents) 44 64 53
Headline earnings per
share - basic (cents) 51 81 87
Headline earnings per
share - fully diluted (cents) 44 65 80
Reconciliation of
headline and fully
diluted earnings R000's R000's R000's
Attributable earnings,
as above 30 166 33 986 31 216
Adjustments:
Amortisation of goodwill
during the period 3 917 8 750 19 459
Loss on sale of
non-current assets 486 (274) 1 357
Taxation on adjustments (146) 82 (407)
Headline earnings 34 423 42 544 51 625
Adjustments to determine
fully diluted headline earnings:
Preference dividends charged
to net financing costs 3 736 5 268 9 738
STC on preference dividends 2 031 2 031 4 063
Interest on compulsorily
convertible
debentures - taxed 2 296 2 296 4 592
Headline earnings -
fully diluted 42 486 52 139 70 018
GROUP BALANCE SHEET 31 December 31 December 30 June
2001 2000 2001
unaudited unaudited audited
R000's R000's R000's
Notes Note 9 Notes 8, 9 Notes 8, 9
ASSETS
Non-current assets
Goodwill 58 230 8 750 45 058
Trademarks 78 287 - 82 596
Fixtures, equipment
and vehicles 118 263 110 250 120 507
Insurance companies'
investments 45 848 69 183 46 571
Deferred taxation 258 239 256 295 262 141
558 867 444 478 556 873
Current assets
Accounts receivable 1 834 737 1 769 453 1 683 598
Microloan receivables 111 320 29 386 74 962
Other debit balances 58 926 67 405 144 787
Taxation 3 344 12 251 5 740
Inventories 364 664 325 184 327 901
Cash on hand 280 333 369
2 373 271 2 204 012 2 237 357
Total assets 2 932 138 2 648 490 2 794 230
EQUITY AND LIABILITIES
Ordinary share capital
and premium 391 245 357 783 391 245
Non-distributable reserves 79 123 57 740 66 609
Distributable reserves 140 471 134 052 122 819
Ordinary shareholders' equity 610 839 549 575 580 673
Compulsorily convertible
preference shares 500 000 500 000 500 000
Compulsorily convertible
debentures 43 597 43 597 43 597
1 154 436 1 093 172 1 124 270
Reallocation of liability
portion of preference
shares (115 464) (115 464) (115 464)
Total shareholders'
equity 6 1 038 972 977 708 1 008 806
Long term liability
portion of preference
shares 6 42 841 67 078 55 355
Current liabilities
Interest bearing bank
borrowings 6 1 135 442 900 731 998 947
- Core retail operations 928 573 874 059 908 337
- Microlending operations 93 156 26 672 64 198
- Acquisition funding 113 713 - 26 412
Amount due to vendors - - 88 868
Accounts payable,
accruals and
provisions 714 883 702 973 642 254
1 850 325 1 603 704 1 730 069
Total equity and
liabilities 2 932 138 2 648 490 2 794 230
Gearing - total 6 105% 86% 99%
Gearing - excluding
microlending 96% 84% 93%
Gearing - excluding
microlending and
acquisition 89% 84% 88%
Tangible net asset
value per share, fully
diluted (cents) 7 985 1 285 976
Capital expenditure
Incurred 17 039 22 030 37 967
Committed 3 342 6 384 1 535
Authorised but
not contracted 29 704 16 773 48 080
Commitments
Operating lease commitments 578 739 580 521 656 615
GROUP CASH FLOW STATEMENT Six months Six months Year
ended ended ended
31 December 31 December 30 June
2001 2000 2001
unaudited unaudited audited
Notes R000's R000's R000's
Cash receipts
from customers 1 503 772 1 226 418 2 659 417
Cash generated
from trading 152 676 132 438 233 478
Net decrease in
working capital 945 (100 237) (144 489)
Net increase in
microloan advances (36 358) (12 697) (58 273)
Cash generated
from operations 117 263 19 504 30 716
Net financing
costs paid 10 (104 678) (44 220) (101 312)
Taxation paid (6 538) (3 656) (1 407)
Cash generated from
operating activities 6 047 (28 372) (72 003)
Closure costs and
exceptional start-up
costs paid (30 399) (35 102) (58 350)
Net cash utilised (24 352) (63 474) (130 353)
Acquisition of businesses (87 301) - (26 412)
Net capital expenditure (13 140) (18 080) (32 204)
Other investment activities 723 (15 969) 5 861
Cash outflows from
investment activities (99 718) (34 049) (52 755)
Increase in bank borrowings 136 495 108 604 206 009
Decrease in liability
portion of preference
shares 2 (12 514) (10 980) (22 703)
Ordinary shareholder
funding - - (61)
Cash inflows from
financing activities 123 981 97 624 183 245
Net decrease in cash
and cash equivalents (89) 101 137
Cash and cash equivalents
at the beginning of
the period 369 232 232
Cash and cash equivalents
at the end of the period 280 333 369
GROUP STATEMENT OF CHANGES IN
ORDINARY SHAREHOLDERS' EQUITY
Share Non-
capital distrib- Distrib-
and utable utable
premium reserves reserves Total
R000's R000's R000's R000's
Balance at 30 June
2000, as previously
reported 393 952 46 760 111 046 551 758
Prior year
adjustment (refer note 9)
Treasury shares held
by the Relyant Share
Option Trust (31 538) (31 538)
Rights to acquire
Relyant shares held
by the Relyant Share
Purchase Trust (4 631) (4 631)
Balance at 30 June
2000, restated 357 783 46 760 111 046 515 589
Liability portion
of preference
dividends
transferred from
retained surplus 10 980 (10 980) -
Attributable earnings
for the period 33 986 33 986
Balance at
31 December 2000 357 783 57 740 134 052 549 575
Share capital and
premium issued
(net of costs) 36 356 36 356
Additional treasury
shares purchased
by the Relyant Share
Option Trust (2 894) (2 894)
Insurance statutory
contingency reserve
movement (3 260) 3 260 -
Liability portion of
preference dividends
transferred from
retained surplus 11 723 (11 723) -
Realisation of
investment
revaluation reserve 406 406
Attributable loss
for the period (2 770) (2 770)
Balance at
30 June 2001 391 245 66 609 122 819 580 673
Liability portion
of preference
dividends transferred
from retained surplus 12 514 (12 514) -
Attributable earnings
for the period 30 166 30 166
Balance at
31 December 2001 391 245 79 123 140 471 610 839
GROUP SEGMENTAL ANALYSIS Six months Six months Year
ended ended ended
31 December 31 December 30 June
2001 2000 2001
unaudited unaudited audited
R000's R000's R000's
Turnover
Value retailing 425 047 217 222 584 627
Credit chains 847 018 842 981 1 532 791
Microlending finance
charges earned 45 561 5 507 21 382
Repair services 37 091 31 068 67 086
Total 1 354 717 1 096 778 2 205 886
EBITDA
Value retailing 12 938 9 676 42 379
Credit chains 108 708 101 481 142 694
Microlending 17 127 3 111 11 775
Insurance and repair services 19 184 23 858 36 388
Corporate (5 767) (5 414) (10 439)
Total 152 190 132 712 222 797
Gross capital expenditure
Value retailing 7 126 7 078 10 563
Credit chains 8 525 12 817 23 011
Microlending 129 280 321
Insurance and repair services 1 259 1 855 4 072
Total 17 039 22 030 37 967
Depreciation and amortisation
Value retailing 7 446 929 7 442
Credit chains 9 981 11 129 21 276
Microlending 56 36 83
Insurance and repair services 1 655 1 552 3 150
Corporate 3 917 8 750 19 459
Total 23 055 22 396 51 410
31 December 31 December 30 June
2001 2000 2001
unaudited unaudited audited
R000's R000's R000's
Total assets
Value retailing 439 933 271 904 469 468
Credit chains 2 067 952 2 008 780 1 906 981
Microlending 107 511 30 241 75 472
Insurance and repair services 316 742 337 565 342 309
Total 2 932 138 2 648 490 2 794 230
Interest bearing
bank borrowings
Value retailing 81 766 97 042 79 511
Credit chains 846 807 777 017 828 826
Microlending 93 156 26 672 64 198
Corporate - Acquisition funding 113 713 - 26 412
Total 1 135 442 900 731 998 947
Interest free liabilities
Value retailing 201 238 116 071 201 293
Credit chains 500 760 571 151 402 956
Microlending 949 1 011 4 763
Insurance and
repair services 11 936 14 740 33 242
Total 714 883 702 973 642 254
NOTES Six months Six months Year
ended ended ended
31 December 31 December 30 June
2001 2000 2001
unaudited unaudited audited
R000's R000's R000's
Note 1 - Turnover
Comprises:
Cash sales - from recently
acquired Glick's
Furniture and Bedding 201 321 - 164 034
Cash sales - other brands 238 994 244 481 461 583
Credit sales 645 075 627 709 1 097 803
Total sales 1 085 390 872 190 1 723 420
Finance charges earned 269 327 224 588 482 466
1 354 717 1 096 778 2 205 886
Note 2 - Impact of
application of AC125
Income statement for the period
Total preference dividend
paid and accrued 16 250 16 248 32 441
Less: allocated as a
repayment of liability (12 514) (10 980) (22 703)
Less: allocated as net
financing costs (3 736) (5 268) (9 738)
Preference dividend,
per income statement - - -
Note 3 - Exceptional items
Comprise:
Set-up cost of regional
distribution centre 5 500 - -
Provision no longer required - - (9 324)
5 500 - (9 324)
31 December 31 December 30 June
2001 2000 2001
unaudited unaudited audited
Note 4 - Ordinary shares
in issue (000's)
Total ordinary shares
in issue - closing 75 165 58 459 75 165
Treasury shares held by the
Relyant Share Option Trust (7 089) (5 757) (7 089)
Ordinary shares in issue
- closing 68 076 52 702 68 076
Total ordinary shares in
issue - weighted average 75 165 58 459 65 645
Treasury shares held by the
Relyant Share Option Trust (7 089) (5 757) (6 233)
Ordinary shares in issue
- weighted average 68 076 52 702 59 412
Note 5 - Fully diluted shares
- weighted average (000's)
Total fully diluted shares
- weighted average 104 088 87 382 94 567
Treasury shares held by the
Relyant Share Option Trust (7 089) (5 757) (6 233)
Rights to acquire Relyant
shares held by the
Relyant Share Purchase Trust (1 029) (1 029) (1 029)
Fully diluted shares
- weighted average 95 970 80 596 87 305
Note 6 - Definition of
gearing (R000's)
As AC125 has no cash flow impact,
the gearing ratio has been
calculated by taking interest
bearing bank borrowings and
dividing by adjusted total
shareholders' equity (reversing
the effects of AC125):
Total shareholders' equity
per balance sheet 1 038 972 977 708 1 008 806
Add: Long term liability,
per AC125 42 841 67 078 55 355
Adjusted total
shareholders' equity 1 081 813 1 044 786 1 064 161
Interest bearing bank
borrowings 1 135 442 900 731 998 947
Interest bearing portion
of amount due to vendors - - 57 912
Total borrowings 1 135 442 900 731 1 056 859
Gearing 105% 86% 99%
Note 7 - Tangible net asset
value per share (R000's)
This is calculated by dividing
total shareholders' equity,
ignoring the effects of AC125,
less intangible assets, by
the closing number of ordinary
shares, on a fully diluted basis:
Total shareholders' equity
per balance sheet 1 038 972 977 708 1 008 806
Add: Long term liability,
per AC125 42 841 67 078 55 355
Less: Goodwill (58 230) (8 750) (45 058)
Less: Trademarks (78 287) - (82 596)
Adjusted total
shareholders' equity 945 296 1 036 036 936 507
Closing number of ordinary
shares, fully diluted (000's) 95 970 80 596 95 970
Tangible net asset value per
share, fully diluted (cents) 985 1 285 976
Note 8 - Comparative figures
The 31 December 2000 balance sheet has been restated for the prior year
effect of the 30 June 2001 changes in the Group's accounting policies as
disclosed in the 30 June 2001 annual report.
Certain of the 31 December 2000 and 30 June 2001 balance sheet comparatives
have been restated in line with current classifications.
Note 9 - Change in accounting policy and prior year adjustment
During the period, the Group changed its accounting policy in respect of
Relyant shares and future conversion rights to Relyant shares held by the
Relyant Share Option Trust and the Relyant Share Purchase Trust
respectively. The Group's investments in these equity instruments are now
accounted for as treasury shares and are offset against share capital and
premium.
The effects of this change are shown in the Statement of Changes in Ordinary
Shareholders' Equity.
Note 10 - Net financing costs paid
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2001 2000 2001
unaudited unaudited audited
R000's R000's R000's
Financing costs on
bank borrowings 68 902 47 691 108 020
Additional financing
costs prescribed by AC125 3 736 5 268 9 738
Movement in accrued interest 32 040 (8 739) (16 446)
Net financing costs paid 104 678 44 220 101 312
Note 11 - Accounting policies and basis of accounting
The principal accounting policies used, are in all material respects
consistently applied, except for the accounting for Relyant shares and
future conversion rights to Relyant shares held by the Relyant Share Options
Trust and the Relyant Share Purchase Trust, as noted in note 9, and conform
with South African Statements of Generally Accepted Accounting Practice.
COMMENTS
Cautionary - major restructure
Given the prevailing difficult environment, the Board resolved late last
year to reduce the financial risk arising from the high level of gearing,
which has been part of the financial structure of the Group since its
formation. There is no doubt that the gearing constraints under which the
Group has been operating since its inception, and the related heavy
financing cost burden, have had a direct impact on the Group's ability to
compete in an overtraded credit retail market. This has been exacerbated by
the massive restructuring exercise that the Group undertook after merger in
mid-1998, to lay the foundations for a sound business, which has resulted in
cash outflows totalling some R386 million since July 1998.
Furthermore, the strategically sound decision to reposition the Group to
achieve a balance between cash and credit sales as well as to ensure a
significant presence in the middle to upper income market that was given
impetus through the acquisition, in the prior year, of the Glick's Furniture
and Bedding businesses, also added some R114 million to the Group's
borrowings.
The Group's microlending operation, which was started in December 1999 as a
complementary business, operating from kiosks within the mass-market stores
has also absorbed funding of R93 million.
Consequently, as noted in the cautionary announcement dated 20 March 2002,
the Board is at an advanced stage of negotiations regarding a significant
restructuring of the Group. If successfully concluded, these negotiations
will result in the Group being placed in a sound financial and competitive
position for the future.
Trading
During the period, the Group has focused on generating quality turnover at
acceptable prices, despite an extremely competitive environment. As a
result, the gross profit margins on sales have increased to 34,8% compared
with 32,3% for the corresponding period in the prior year.
Cash sales, especially in the Value Retail division, fell well below
expectations. Trading in the newly acquired Glick's Furniture and Bedding
brands, which contributed some R201 million to the Group's sales for the
period, was severely hampered by the rollout of the Group's standard in-
store computer systems. However, the most disappointing performance was that
of The Cities (Furniture City, Appliance City and Sleep City), especially in
November and December, where teething problems in its recently outsourced
regional distribution centre, for merchandise storage and delivery, were the
direct cause of lost sales and increased costs.
Against the background of a difficult retail environment, exacerbated by the
internal disruptions in the Value Retail division mentioned above, the Group
nevertheless achieved an improvement of 14,7% in trading profit before
depreciation and amortisation (EBITDA) to R152 million.
Earnings
Significantly higher financing costs, arising mainly from increased
borrowings as a result of the acquisition funding in respect of Glick's
Furniture and Bedding and the funding absorbed by the microlending
operation, have led to a reduction in profits before exceptional items.
After exceptional items, analysed in note 3, and an additional charge of R10
million for doubtful debts in the period under review (despite further
improvements in the overall profile of the accounts receivable book outlined
below), the Group's attributable earnings of R30 million compare with R34
million in the corresponding period last year. Due to the increased number
of shares in issue, this translates into headline earnings per share of 44
cents, on a fully diluted basis (31 December 2000: 65 cents).
Credit management
Ongoing strict credit granting criteria, enhanced by sophisticated
electronic in-store scorecards that have been in place for more than
eighteen months, restricted the growth in credit sales during the period
under review to only 2,8%. The Group's well-established and conservative
strategy with regard to credit sales has proven to be justified. 78% of
total retail debtors are now classified as "A" grade payers, a further
improvement from six months ago (75%). Total arrears, which are measured on
a gross basis and which traditionally peak in December, have reduced to
17,2% compared with December 2000 (18,3%). As at the end of February 2002,
total arrears have reduced further to 16,0%. These percentages are measured
on a basis consistent with that applied at financial year-end.
Cash flow and financial position
Strict working capital management has enabled the Group to achieve a
marginal reduction in working capital during the period, compared with an
increase in the prior period to December 2000 of more than R100 million. On
a like-for-like basis, excluding the effects of the acquisition, inventory
decreased by some R19 million. In addition, there has been a substantial
reduction in aged inventory. These improvements have been achieved through
intense focus and enhanced use of the Group's merchandise management systems
and processes.
Despite the increased funding of R36 million required for the growth in the
microlending book, as a consequence of the delay in implementing the
partnership that was announced in August 2001 (refer later comments),
positive cash generated from operations of R117 million was achieved. Net
financing costs paid of R105 million, include prior year interest accruals
of R32 million payable during the period (refer note 10). This, together
with the cash outflow of R87 million paid to the vendors of the Glick's
Furniture and Bedding businesses, led to the increased level of borrowings.
Interest bearing bank debt in the core retail operations rose to R929
million, excluding R114 million in respect of acquisition-related funding.
Gearing has increased to 105%.
Securitisation
The necessary amending regulations to enable securitisation in South Africa
were promulgated in December 2001. The Group has recently received an
indicative rating from Fitch, which confirms that the Group would be able to
raise significant funding through securitisation. Depending upon the outcome
of the negotiations referred to in the recent cautionary announcement and a
careful evaluation of the relative costs and benefits of the proposed
structures, the Board will decide whether to proceed with the final ratings
process and the ultimate securitisation.
Microlending
The implementation of a microlending partnership with a major financial
institution, announced in August last year, was delayed primarily due to the
requirement to obtain regulatory and other approvals. In that regard,
approval for the transaction has recently been received from the Competition
Commission. Full details of the transaction, which has now been finalised
and which will result in a cash injection of at least R50 million, will be
included in a circular to be sent to shareholders shortly.
Despite restrictive centrally controlled microloan credit granting criteria,
which has increased the rejection rate on new loan applications to 72% since
September 2001 (previously rejections averaged 58%), the Group has adopted a
conservative provisioning policy. Total provisions, including doubtful
debts, unearned finance charges and other unearned income, now amount to
some 52% of the gross microloan book at 31 December 2001. The microlending
business achieved EBITDA of R17,1 million for the period (31 December 2000:
R3,1 million).
Prospects
The existing environment, with low economic growth and rising interest rates
and inflation, is likely to result in subdued demand for consumer durables
for the balance of the financial year. The Group will, however, continue to
focus on establishing operational excellence throughout its brands,
particularly the underperforming Cities division.
If the negotiations referred to in the recent cautionary announcement are
successfully concluded, there will be a material impact on the Group's cash
flows, balance sheet and future earnings.
For and on behalf of the Board
S E Abrahams C F Wells
Chairman Chief Executive Officer
28 March 2002
Non-executive Directors
S E Abrahams (Chairman), P Glick, P J C Horne, H M Khoza,
T H Nyasulu, T Rosenberg
Executive Directors
C F Wells (Chief Executive Officer), R B G Sinclair
Registered office
Relyant House, 131 Van Beek Street, Ellis Park, 2094.
Telephone (011) 401-5000
Transfer secretaries
Computershare Services Limited, First floor, Edura House
40 Commissioner Street, Johannesburg, 2001. Telephone
(011) 492-1620/9
Auditors
Deloitte & Touche
Internet site
www.relyant.co.za
