| Tue 23 Apr 2002, 0:00 | | Ellerine Holdings Limited - Interim Profit Stateme |
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Ellerine Holdings Limited
Registration number 1968/013402/06
Share code: ELH ISIN number: ZAE000022752
Interim profit statement
for the six months ended 28 February 2002
- Turnover up 6,5%
- Profit up 2,2%
- Net cash flow improvement R58 M
- Net asset value up 15,6%
- Cash generated from operations improvement R87 M
- Net gearing 1,7%
CONSOLIDATED INCOME STATEMENT
6 months to February 12 months to
2002 2001 % August 2001
R'000 R'000 Change R'000
Unaudited Unaudited Audited
Turnover 1 049 844 985 723 6,5 1 944 643
Cost of sales 448 219 421 870 766 388
Gross profit 601 625 563 853 6,7 1 178 255
Operating expenses 452 033 415 646 8,8 880 901
Operating profit 149 592 148 207 0,9 297 354
Net investment income 1 876 1 060 77,0 1 267
Profit before taxation 151 468 149 267 1,5 298 621
Taxation (45 597) (45 685) (0,2) (88 142)
Profit after taxation 105 871 103 582 2,2 210 479
Determination of
headline earnings
Profit after taxation 105 871 103 582 210 479
Net profit on
disposal of assets (2 778) (2 420) (5 978)
Tax effect thereon 833 726 1 793
Headline earnings 103 926 101 888 2,0 206 294
Number of
ordinary shares:
In issue 73 805 200 73 805 200 73 805 200
Fully diluted
weighted average 74 411 492 74 765 517 74 531 736
Earnings per share: Cents Cents Cents
Basic 143,4 140,3 2,2 285,2
Headline 140,8 138,0 2,0 279,5
Fully diluted 142,3 138,6 2,7 282,4
Fully diluted headline 139,7 136,3 2,5 276,8
CONSOLIDATED BALANCE SHEET
February February August
2002 2001 2001
R'000 R'000 R'000
Unaudited Unaudited Audited
Assets
Non-current assets 460 826 500 938 430 111
Property and equipment 144 405 152 569 147 990
Other financial assets 316 421 348 369 282 121
Current assets 1 764 707 1 514 223 1 588 464
Inventories 127 082 127 884 124 039
Trade receivables 2 140 058 1 887 795 1 927 222
Provisions (669 266) (603 440) (606 176)
1 470 792 1 284 355 1 321 046
Term loans 89 741 42 911 74 420
Provisions (43 066) (16 815) (33 593)
46 675 26 096 40 827
Other receivables 19 214 17 996 43 592
Funds on call, bank
balances and cash 100 944 57 892 58 960
Total assets 2 225 533 2 015 161 2 018 575
Equity and Liabilities
Shareholders' equity 1 325 080 1 146 628 1 256 088
Non-current liabilities 353 062 318 091 341 868
Insurance reserves 43 826 31 296 42 992
Deferred taxation 227 236 186 795 216 876
Interest bearing borrowings 82 000 100 000 82 000
Current liabilities 547 391 550 442 420 619
Trade and other payables 189 267 180 580 207 877
Bank overdrafts 358 124 369 862 212 742
Total equity and liabilities 2 225 533 2 015 161 2 018 575
Net asset value per
share - cents 1 795 1 554 1 702
Current ratio 3,2 2,8 3,8
Net interest bearing debt: Equity 1,7% 5,5% (3,7%)
CONSOLIDATED CASH FLOW STATEMENT
February February August
2002 2001 2001
R'000 R'000 R'000
Unaudited Unaudited Audited
Cash generated from
operating activities 223 414 220 615 439 570
Working capital requirements (209 690) (293 560) (381 245)
Cash generated/(absorbed) from
operations 13 724 (72 945) 58 325
Exchange rate difference
on translation of
net foreign assets 18 820 7 184 9 759
Net investment income 1 876 1 060 1 267
Taxation paid (38 569) (14 759) (27 742)
Dividends paid (52 780) (30 777) (30 855)
Cash flows from
operating activities (56 929) (110 237) 10 754
Net financing and
investing activities (12 169) (17 521) (31 572)
Net decrease in cash and
cash equivalents (69 098) (127 758) (20 818)
Cash and cash equivalents at the
beginning of the period 43 339 64 157 64 157
Cash and cash equivalents at
the end of the period (25 759) (63 601) 43 339
STATEMENT OF CHANGES IN EQUITY
Non-
distrib- Distrib- 6 months 6
months Audited
Share Share utable utable February
February August
R'000 capital premium reserves reserves 2002
2001 2001
As previously stated 3 690 40 586 65 429 1 196 640 1 306 345 1 115
846 1 115 846
Deduct: Prior year
Adjustment to opening
balance arising from
the change in accounting
policy in terms of
AC 135 and AC 123 as
follows:
Owner-occupied properties
reduced to cost (41 085) (41 085) (41
085) (41 085)
Depreciation on owner-
occupied properties (9 172) (9 172) (8
134) (8 134)
Ordinary shareholders'
interest at the
beginning of
the period 3 690 40 586 24 344 1 187 468 1 256 088 1
066 627 1 066 627
Net profit for
the period 105 871 105 871
103 582 210 479
Gains arising on exchange
rate difference in the
translation of foreign
assets 15 966 15 966
7 196 9 759
Dividend paid (52 845) (52 845)
(30 777) (30 777)
Balance at
28 February 2002 3 690 40 586 40 310 1 240 494 1 325 080 1
146 628 1 256 088
SEGMENTAL REPORTING
Segmental turnover Furniture Retail Financial Services
February 2002 83% 17%
February 2001 88% 12%
Operating profit
February 2002 80% 20%
February 2001 78% 22%
Geographical Turnover RSA Foreign
February 2002 83% 17%
February 2001 84% 16%
Geographical Operating Profit
February 2002 79% 21%
February 2001 76% 24%
COMMENTS
TRADING ENVIRONMENT
Ellerines remains profitable despite extremely adverse trading conditions in
the durables credit retail sector with margins under pressure due to the
highly competitive environment, including competitors' no deposit sales and
the sector being over-traded. There was also a need to impose more stringent
credit granting criteria in order to improve the quality of sales given the
general retrogression in the payment patterns of consumers over the past few
years. These difficult trading conditions have manifested themselves with a
number of companies in the industry having to re-structure their equity base
and failing to achieve pojected returns.
OPERATIONAL REVIEW
- Credit continues to be the area of highest risk to the Group with trade
receivables by far its largest asset. The tightening up of credit granting
criteria and improved controls commenced in May 2001 including credit bureau
reports on customers. Currently the credit in respect of 400 of the 606
outlets is being granted centrally. It is expected that by the end of May
2002 credit in respect of all outlets will be granted centrally, utilising
external credit bureau verification as well as our recently completed points
scoring module which has been developed in line with the Group's risk
profile.
- Furthermore, the introduction of higher deposit rates from October 2001
resulted in an additional R26 million cash being generated. We once again
reiterate our policy of insisting on full deposits on all credit sales.
- Revenues from term loans were enhanced through the managed growth of
Rainbow Loans. The Group has adopted a very cautious approach to the
expansion of this high risk business. As at February 2002 an amount of R43,4
million had been invested in the business, up marginally from R41,3 million
at August 2001. During the six-month period under review, three additional
outlets were opened, bringing the total number of outlets to 49. The term
loans book of R89,7 million has been conservatively valued, with total
provisions for bad and doubtful debts, unearned finance charges and other
unearned income amounting to 48,3% (2001: 39,2%). Rainbow Loans effectively
contributed pre-tax profit of R8 million (2001: R2 million) for the period
under review.
- Additional financial services have been introduced in the form of funeral
cover and a package of value added benefits through Netcare - 911. Whilst
these innovations only contributed marginally to revenue, they provide
meaningful social benefits, including AIDS counselling, to our large
customer base.
- A further improvement in inventory management resulted in enhanced stock
turns, with stockholdings at R127 million in line with that of the prior
comparative period. This despite a 3% increase in the number of outlets and
inflation of 6%.
- The Group continued to grow its store base with particular emphasis on the
FurnCity chain. The total number of stores operating at February 2002
increased to 606 (2001: 585) as compared to 597 at the year-end. The number
of FurnCity stores increased from 84 at August 2001 to 104 at February 2002
due to both the re-branding of certain existing stores and the opening of
new ones.
- Having successfully piloted the FurnCity chain as a dedicated business
unit with effect from March 2001, it was decided to launch the other three
core chains, namely Ellerines, Town Talk and Oxford Furnishers, as dedicated
business units with effect from 1 March 2002. The benefits emanating from
the establishment of the dedicated business units will result in enhanced
controls and accountability. In addition, a more focused approach and
positioning of each of these chains is expected to provide further trading
benefits over the next number of months. The four business unit directors
have been appointed to the Board of Ellerine Furnishers (Pty) Limited.
RESULTS
Turnover reflects an increase of 6,5% which is considered satisfactory
particularly when seen against the tighter credit granting criteria applied
during the period. Whilst the sale of goods was flat, the additional
turnover was achieved by the increase in revenues through supplementary and
financial services. Gross margins were maintained at 57,3%. However,
operating expenses were up by 8% of which 3% is attributable to the
expansion of the business and 5% to inflation. As a consequence, the
operating margin reduced to 14,2% compared to 15,0% in the previous year.
Despite the lower interest rates which prevailed during the period under
review, net investment income improved from R1,0 million to R1,9 million due
to improved cash flows. Profit after tax of R106,4 million is up by a modest
2,2%.
With regard to the segmented report, the contribution of financial services
to operating income reduced from 22% to 20% due to the timing differences
arising from the additional unearned premium and other reserving
requirements as a result of the significant increase in financial services
turnover.
Gross trade receivables at R2,1 billion are up 13,4% on the previous period.
Of this increase, R27 million is attributable to the conversion of the
Botswana trade receivables at more favourable exchange rates than those
prevailing last year. The real increase is accordingly 12,1%. Furthermore,
the average contract period has once again lengthened and is currently at
23,1 months (2001: 22,6 months). The maximum contract period in the Group is
24 months. The trade receivables provisioning at 31,3% and the parameters
applied are consistent with those at the August 2001 year-end. Debtors
arrears, measured at the close of business on 28 February 2002, at 23,7%
remained unchanged when compared with August 2001.
A most pleasing feature is the R86,6 million improvement in the cash
generated by operations. Net cash borrowings were R25,8 million (2001: R63,6
million) and the Group expects to be in a net cash position of around R50
million by the financial year-end.
The balance sheet remains extremely strong with net gearing of only 1,7%
financing total assets of R2,2 billion. Net asset value per share increased
by 15,6% to 1 795 cents (2001: 1 554 cents).
As is evident from the above, the Group has substantial debt capacity to
fund both its future growth as well as possible acquisitions.
ACCOUNTING POLICIES
The interim report is prepared on the historic cost basis, except for
certain investment properties that are carried at fair value, and complies
with South African Statements of Generally Accepted Accounting Practice.
The accounting policies applied are consistent with those of the previous
period, except for the adoption of the revised accounting statement (AC 135)
on investment properties. In terms of this statement owner-occupied
properties are recorded at cost and depreciated on a straight line basis,
from date of acquisition, over their expected useful economic lives. This
change has the effect of decreasing the reported profit by R519 000 (2001:
R519 000) and the non-distributable reserves by R41 million (2001: R41
million).
Comparative figures have been re-stated to give effect to these changes.
CORPORATE GOVERNANCE
The Group is fully committed to effective corporate governance which it
views as fundamental to achieving business objectives and the fulfilment of
corporate responsibility. As such the Board welcomes the new King II report,
is committed to its implementation and recognises its responsibility to all
stakeholders.
RE-LOCATION OF HEAD OFFICE
With the establishment of the dedicated business units, the Group's Head
Office in Germiston was re-located to Bedfordview during February/March
2002. This re-location is now complete with the total costs incurred
amounting to R1,4 million most of which has been accounted for in the period
under review.
PROSPECTS
The difficult credit environment and over-traded market in the durables
retail industry is expected to continue for the second half of the year.
With the prospect of higher inflation and further increases in interest
rates, growth in the South African economy is likely to be muted for the
remainder of the financial year.
Given this scenario, the Group will do well to match the prior year's
earnings.
BOARD OF DIRECTORS
During the period under review, Mr JP du Plessis retired from the Board. The
Board sincerely appreciates his dedicated service to the Company as Director
Credit Control during his many years of service and wishes him every
happiness in his retirement.
DIVIDEND
The Group's policy is to declare only one dividend per annum. This dividend
will be declared on publication of the year-end results and will be payable
in December 2002.
By order of the Board
Denzil McGlashan Peter Squires
Chairman Chief Executive Officer
24 April 2002
Registered Office: Gillooly's View Office Park, Block E, Osborne Lane,
Bedfordview 2008
Transfer secretaries: Mercantile Registrars Limited, 9th Floor,
11 Diagonal Street, Johannesburg 2001
Auditors: Grant Thornton Kessel Feinstein
DIRECTORS
DS McGlashan* (Chairman), PJC Squires (Chief Executive Officer),
TJ Chalmers*, J Dritz**, HL Mmatli, RA Rawlings, PEI Swartz*,
AR van den Borne
(Non-executive*) (Company Secretary**)
Visit our website: www.ellerines.co.za
