| Mon 12 Aug 2002, 0:00 | | Relyant Retail Limited - Preliminary Results Annou |
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RELYANT RETAIL LIMITED - PRELIMINARY RESULTS ANNOUNCEMENT
Registration Number 1937/010108/06
Share code: RLY ISIN: ZAE000016457
2002 PRELIMINARY RESULTS ANNOUNCEMENT REVIEWED
- Group recapitalised by R792 million injection of equity
- International retailer invests capital and expertise
- Further tightening of credit granting and conservative
valuation of accounts receivable to focus on core
retail profitability
- Gearing reduced from 116% to 47%
- Strong balance sheet with committed five year funding
- Cash sales increased to 44% of total sales
- An additional R100 million of cash generated from operations
GROUP INCOME STATEMENT
Year Year
ended ended
30 June 30 June
2002 2001
Notes R000`s R000`s
Turnover 5 2,480,589 2,205,886
Cost of sales 1,278,146 1,153,822
Trading profit before
depreciation and
amortisation ("EBITDA") 186,075 222,797
Depreciation of fixtures,
equipment and vehicles (28,166) (28,360)
Amortisation of intangibles (15,741) (23,050)
Trading profit 142,168 171,387
Financing costs on
bank borrowings 17 160,001 108,020
Additional financing costs
prescribed by AC125 6,17 10,556 9,738
Loss before exceptional items (28,389) 53,629
Exceptional items 7 613,160 (9,324)
Loss before taxation (641,549) 62,953
Taxation 8 (22,421) 31,737
Loss after taxation (619,128) 31,216
Preference dividends 6 - -
Loss attributable to
ordinary shareholders (619,128) 31,216
Ordinary shares in issue (000`s)
- closing 9 68,076 68,076
- weighted average 9 68,076 59,412
Fully diluted weighted
average number of ordinary
shares (000`s) 10 95,969 87,305
Loss per share - basic (cents) (909) 53
Headline loss per share - basic (cents) (759) 87
Headline loss per share -
fully diluted (cents) (514) 80
Normalised loss per share - basic (cents)
(see below) (29) 63
Normalised earnings per share -
fully diluted (cents) (see below) 13 87
Reconciliation of attributable loss to
headline and fully diluted loss R000`s R000`s
Attributable loss, as above (619,128) 31,216
Adjustments:
Amortisation of goodwill during the year 7,122 19,459
Impairment of goodwill and trademarks 86,727 -
Impairment of investment
in e-commerce hub 4,095 -
Early settlement costs of debt portion
of compulsorily convertible debentures 2,737 -
Loss on sale of non-current assets 2,238 1,357
Taxation on adjustments (671) (407)
Headline loss (516,880) 51,625
Adjustments to determine fully
diluted headline loss:
Preference dividends charged
to net financing costs 10,556 9,738
STC on preference dividends 8,202 4,063
Interest on compulsorily convertible
debentures - taxed 4,592 4,592
Headline loss - fully diluted (493,530) 70,018
Calculation of normalised earnings R000`s R000`s
Loss before exceptional items (28 389) 53 629
Deemed taxation at 30% 8 517 (16 089)
Normalised loss - basic (19 872) 37 540
Adjustments:
Amortisation of goodwill during the year 7 122 19 459
Loss on sale of non-current assets 2 238 1 357
Taxation on adjustments (671) (407)
Normalised headline loss (11 183) 57 949
Adjustments to determine fully
diluted normalised earnings:
Preference dividends charged to net
financing costs 10,556 9,738
STC on preference dividends 8,202 4,063
Interest on compulsorily convertible
debentures - taxed 4,592 4,592
Normalised earnings - fully diluted 12,167 76,342
GROUP BALANCE SHEET
30 June 30 June
2002 2001
Notes R000`s R000`s
ASSETS
Non-current assets
Goodwill 2,954 45,058
Trademarks 39,321 82,596
Fixtures, equipment and vehicles 114,506 120,507
Insurance companies` investments 53,666 46,571
Investment in microloan
joint venture 17,578 -
Deferred taxation 8 308,239 262,141
536,264 556,873
Current assets
Accounts receivable 11 1,281,461 1,758,560
Other debit balances 103,791 144,787
Taxation 12,202 5,740
Inventories 293,349 327,901
Debtor for share issue proceeds 12 774,551 -
Cash on hand 220 369
2,465,574 2,237,357
Total assets 3,001,838 2,794,230
EQUITY AND LIABILITIES
Ordinary share capital and premium 391,245 391,245
Ordinary share capital and
premium to be issued 13 1,269,551 -
Non-distributable reserves 9,382 66,609
Distributable reserves (554,279) 122,819
Ordinary shareholders` equity 1,115,899 580,673
Compulsorily convertible
preference shares 13 - 384,536
Compulsorily convertible
debentures 14 - 43,597
Total shareholders` equity 1,115,899 1,008,806
Long term liability portion
of preference shares - 55,355
Current liabilities
Interest bearing bank borrowings 1,291,259 998,947
Amount due to vendors - 88,868
Accounts payable and accruals 462,317 561,096
Provisions 99,328 81,158
Preference shareholder for dividends 33,035 -
1,885,939 1,730,069
Total equity and liabilities 3,001,838 2,794,230
Gearing - including net share
issue proceeds to be received (%) 15 47 99
Gearing - before
recapitalisation (%) 15 116 99
Tangible net asset value
per share, fully diluted (cents) 16 111 976
GROUP CASH FLOW STATEMENT
Year Year
ended ended
30 June 30 June
2002 2001
Notes R000`s R000`s
Cash receipts from customers 3,007,307 2,659,417
Cash generated from trading 188,313 233,478
Net increase in working capital (56,748) (202,762)
Cash generated from operations 131,565 30,716
Net financing costs paid 17 (199,633) (101,312)
Taxation paid (13,403) (1,407)
Cash utilised by operating activities (81,471) (72,003)
Closure and other exceptional costs paid (51,851) (58,350)
Net cash utilised (133,322) (130,353)
Acquisition of businesses (87,301) (26,412)
Net capital expenditure (24,783) (32,204)
Portion of proceeds on sale of
microloan business 35,000 -
Insurance companies` investments (6,537) 5,861
Cash outflows from investment activities (83,621) (52,755)
Increase in interest bearing
bank borrowings 292,312 206,009
Decrease in liability portion
of preference shares (25,872) (22,703)
Settlement of debt portion of
compulsorily convertible
debentures 14 (46,334) -
Ordinary shareholder funding (3,312) (61)
Cash inflows from financing activities 216,794 183,245
Net decrease in cash and cash equivalents (149) 137
Cash and cash equivalents at the
beginning of the year 369 232
Cash and cash equivalents at
the end of the year 220 369
STATEMENT OF CHANGES IN ORDINARY SHAREHOLDERS` EQUITY
Non-
Share capital distributable Distributable
and 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 2)
- Treasury shares
held by the
Relyant Share
Option Trust (31,538) (31,538)
- Rights to
acquire Relyant
shares held by
the Relyant
Executive Share
Purchase Trust (4,631) (4,631)
Balance at
30 June 2000,
restated 357,783 46,760 111,046 515,589
Share capital and
premium issued
(net of costs) 36,356 36,356
Additional treasury
shares purchased
by Relyant Share
Option Trust
(refer note 2) (2,894) (2,894)
Insurance statutory
contingency reserve
movement (3,260) 3,260 -
Liability portion of
preference dividends
transferred from
retained surplus 22,703 (22,703) -
Realisation of
investment revaluation
reserve 406 406
Attributable earnings
for the year 31,216 31,216
Balance at
30 June 2001,
restated 391,245 66,609 122,819 580,673
Ordinary share
capital and
premium to be
issued 1,269,551 (115,464) 1,154,087
Share capital
and premium to
be issued
(net of costs) 769,551 769,551
Compulsorily
convertible
preference shares
to be converted
into ordinary
shares 500,000 (115,464) 384,536
Liability portion
of preference
dividends
transferred from
retained surplus 55,355 (55,355) -
Insurance statutory
contingency reserve movement 187 (187) -
Realisation of investment
revaluation reserve 267 267
Botswana capital
adequacy reserve movement 2,428 (2,428) -
Attributable loss for the year (619,128) (619,128)
Balance at
30 June 2002 1,660,796 9,382 (554,279) 1,115,899
SEGMENTAL ANALYSIS
Year Year
ended ended
30 June 30 June
2002 2001
R000`s R000`s
Turnover
Value retailing 815,768 584,627
Credit chains 1,497,759 1,532,791
Microlending finance charges earned 90,857 21,382
Repair services 76,205 67,086
Total 2,480,589 2,205,886
EBITDA
Value retailing 17,135 42,379
Credit chains 122,342 142,694
Microlending 29,801 11,775
Insurance and repair services 24,671 36,388
Corporate (7,874) (10,439)
Total 186,075 222,797
Gross Capital Expenditure
Value retailing 13,914 10,563
Credit chains 13,491 23,011
Microlending 257 321
Insurance and repair services 2,352 4,072
Total 30,014 37,967
Depreciation and amortisation
Value retailing 14,620 7,442
Credit chains 18,719 21,276
Microlending 125 83
Insurance and repair services 3,321 3,150
Corporate 7,122 19,459
Total 43,907 51,410
30 June 30 June
2002 2001
R000`s R000`s
Total assets
Value retailing 522,920 469,468
Credit chains 2,178,628 1,906,981
Microlending 8,614 75,472
Insurance and repair services 291,676 342,309
Total 3,001,838 2,794,230
Interest bearing bank borrowings
Value retailing 101,827 79,511
Credit chains 1,049,775 828,826
Microlending 25,944 64,198
Corporate - Acquisition funding 113,713 26,412
Total 1,291,259 998,947
Interest free liabilities
Value retailing 208,930 201,293
Credit chains 313,129 402,956
Microlending 1,259 4,763
Insurance and repair services 38,327 33,242
Corporate - preference
shareholder for dividends 33,035 -
Total 594,680 642,254
Note 1 - 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 Option Trust and
the Relyant Executive Share Purchase Trust, as noted in note 2, and conform with
South African Statements of Generally Accepted Accounting Practice ("GAAP").
Consistent with prior years, for administrative purposes, trading month-ends
close on the seventh of each subsequent month.
Note 2 - Change in accounting policy and prior year adjustment
During the year, 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 Executive 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 3 - Comparative figures
Certain of the 30 June 2001 balance sheet comparatives have been restated in
line with current classifications.
Note 4 - Audit review
The year-end results have been reviewed in terms of Rule 3.23 of the listing
requirements of the JSE Securities Exchange South Africa by the Company`s
auditors, Deloitte & Touche. This unqualified review opinion is available on
request from the Company Secretary. The annual financial statements and related
audit report have not been finalised.
Year Year
ended ended
30 June 30 June
2002 2001
R000`s R000`s
Note 5 - Turnover
Comprises:
Cash sales 866 110 625 617
- Glick`s Furniture and Bedding (i) 383 591 164 034
- Other brands 482 519 461 583
Credit sales 1 091 772 1 097 803
Total sales 1 957 882 1 723 420
Finance charges earned 522 707 482 466
Turnover 2 480 589 2 205 886
(i) Prior year five months only
Note 6 - Impact of application of AC125
Income statement for the year
Total preference dividends paid and accrued 65 911 32 441
Less: allocated as a repayment of liability (55 355) (22 703)
Less: allocated as net financing costs (10 556) (9 738)
Preference dividends, per income statement - -
Note 7 - Exceptional items Year Year
ended ended
30 June 30 June
2002 2001
R000`s R000`s
Comprise:
Restructure provision 583 646
- Provision for total arrears:
- retail debtors 309 227
- closed stores 18 013
- microloan debtors 47 057
Additional provision for closed
stores` debtors 45 199
- Provision against aged,
damaged and obsolete stock 24 403
- Closed stores rental costs and
diminution in value of assets 50 283
- Impairment of goodwill and trademarks 86 727
- Costs relating to early settlement
of debt portion of compulsorily
convertible debentures 2 737
Loss on sale of microloan business 18 715
Set-up and settlement costs of regional
distribution centre contract 6 704
Impairment of investment in e-commerce hub 4 095
Provision no longer required - (9 324)
613 160 (9 324)
Note 8 -Taxation and deferred taxation
Although Relyant incurred a loss before taxation in the current year, the
directors have evaluated the positive impact of the recapitalisation, which will
result in significant financing cost savings in the future. This, together with
the non-recurrence of the exceptional items, should generate substantial
improvements in the Group`s profitability over the next five years. Taking these
factors, as well as certain economic projections into account, the directors
have deemed it appropriate to increase the deferred tax asset, from the levels
reported in the Interim Results, by R50 million in respect of the restructure
provision.
The tax effect of the temporary differences not recognised, amounting to R131,5
million, represents an unrecognised deferred tax asset as at 30 June 2002.
The effective rate reflected in the income statement of only 3,5% is reconciled
to the standard rate of 30% as follows:
Tax at standard rate (R641 549 loss
before tax @ 30%) (192 465) 18 886
Temporary differences not recognised 131 518 -
Permanent differences 31 715 5 404
STC 7 765 4 036
Prior year adjustments and rate changes (1 440) 4 175
Other 486 (764)
Tax credit per Income Statement (22 421) 31 737
30 June 30 June
2002 2001
Note 9 - Ordinary shares in issue (000`s)
Total ordinary shares in issue - closing 75 165 75 165
Treasury shares held by the Relyant
Share Option Trust (7 089) (7 089)
Ordinary shares in issue - closing 68 076 68 076
Total ordinary shares in issue - weighted average 75 165 65 645
Treasury shares held by the Relyant
Share Option Trust (7 089) (6 233)
Ordinary shares in issue - weighted average 68 076 59 412
Note 10 - Fully diluted shares -
weighted average (000`s) 30 June 30 June
2002 2001
Total fully diluted shares - weighted average 104 087 94 567
Treasury shares held by the Relyant
Share Option Trust (7 089) (6 233)
Rights to acquire Relyant shares held by the
Relyant Executive Share Purchase Trust (1 029) (1 029)
Fully diluted shares - weighted average 95 969 87 305
Note 11 - Accounts receivable R000`s R000`s
Gross instalment debtors 1 847 436 2 022 623
Provision for unearned income (231 900) (259 365)
Provision for doubtful debts (330 421) (99 013)
Net instalment debtors 1 285 115 1 664 245
Net microloan debtors - 74 962
Net trade debtors (3 654) 19 353
1 281 461 1 758 560
The Group has ceded its accounts receivable book to its principal bankers for
the existing facilities granted, as well as for the new five year funding
facility that becomes effective when the rights issue proceeds are received.
Note 12 - Debtor for share issue proceeds
This amount relates to the present value of the gross proceeds to be received in
respect of shares to be issued as noted in the circular to shareholders dated 24
June 2002. The cash proceeds in respect of the issue of shares for cash (R51,7
million) were received on 7 August 2002. The rights issue proceeds of R739,8
million, which will be received on 6 September 2002, have been discounted back
to present value as required by GAAP. In terms of GAAP, this discount will be
recognised as finance income in the first two months of the new financial year.
For further details refer note 13 below.
Note 13 - Ordinary share capital and premium to be issued
30 June
2002
R000`s
Comprise:
51 676 000 ordinary shares to be issued
at R1,00 to new investor 51 676
822 044 412 new ordinary shares to be issued
at R0,90 in terms of a fully underwritten rights offer 722 875
- gross proceeds 739 840
- net present value discount (16 965)
Early conversion of 22 727 272 compulsorily
cumulative convertible preference shares 500 000
- equity portion 384 536
- debt portion 115 464
Share issue costs (5 000)
1 269 551
Note 14 - Compulsorily convertible debentures
The settlement of the debt element of the compulsorily convertible debentures
was accelerated at 30 May 2002 by converting the promissory notes attached to
the compulsorily convertible debentures to a loan for a total settlement of
R46,3 million (at an interest rate which is more favourable to Relyant than that
which was applied to the compulsorily convertible debentures).
The acceleration of the settlement of the debt element of the compulsorily
convertible debentures does not extinguish, reduce or otherwise vary the rights
or obligations of any participant in the Compulsorily Convertible Debenture
Scheme ("the Scheme") to Relyant and/or the Relyant Executive Share Purchase
Trust ("the Trust"). The participants in the Scheme have waived all rights under
the existing Scheme and remain obligated until a new scheme, and their
participation therein, has been approved by the reconstituted Board and all
necessary regulatory authorities, including shareholders.
Note 15 -Gearing
30 June 30 June
2002 2001
R000`s R000`s
Total shareholders` equity per balance sheet 1 115 899 1 008 806
Add: Long term liability, per AC125 - 55 355
Adjusted total shareholders` equity 1 115 899 1 064 161
Interest bearing bank borrowings 1 291 259 998 947
Interest bearing portion of amount due to vendors - 57 912
Total borrowings 1 291 259 1 056 859
Less: Proceeds of new share issues
net of costs (769 551) -
Borrowings after including net share issue
proceeds to be received 521 708 1 056 859
Gearing - including net share issue
proceeds to be received 47% 99%
Gearing - before recapitalisation 116% 99%
Note 16 - Tangible net asset value per share
This is calculated by dividing total shareholders` equity, less intangible
assets, by the closing number of ordinary shares, including the shares to be
issued, on a fully diluted basis:
Total shareholders` equity per balance sheet 1 115 899 1 008 806
Add: Long term liability, per AC125 - 55 355
Less: Goodwill (2 954) (45 058)
Less: Trademarks (39 321) (82 596)
Adjusted total shareholders` equity 1 073 624 936 507
Closing number of ordinary shares,
fully diluted (000`s) 969 689 95 970
Tangible net asset value per share,
fully diluted (cents) 111 976
The closing number of ordinary shares includes the shares to be issued in terms
of the recapitalisation referred to in note 13.
Note 17 - Net financing costs paid Year Year
ended ended
30 June 3 0 June
2002 2001
R000`s R000`s
Financing costs on bank borrowings 160 001 108 020
Additional financing costs prescribed by AC125 10 556 9 738
Movement in accrued interest 29 076 (16 446)
Net financing costs paid 199 633 101 312
Note 18 - Capital expenditure Year Year
ended ended
30 June 30 June
2002 2001
R000`s R000`s
Incurred 30 014 37 967
30 June 30 June
2002 2001
R000`s R000`s
Committed 782 1 535
Authorised but not contracted 39 151 48 080
Note 19 - Commitments
Operating lease commitments 519 664 656 615
Note 20 - Contingent commitment
Relyant has a contingent commitment amounting to a maximum of R44,5 million to
fund the participants to the Scheme via the Trust to the extent that the
participants cannot meet their obligation when the conversion rights under the
Scheme convert to 11 439 588 ordinary shares at R4,28 on 1 March 2004. However,
this will have no cash flow or earnings impact for the Group.
Note 21 - Related party transactions
Related parties exist within the Group. However, all purchasing and selling
transactions are concluded at arm`s length. The Group`s insurance subsidiaries
conduct certain business with a director of the insurance subsidiaries, all at
arm`s length. Certain of the Group`s premises are leased from the Glick family,
all at arm`s length.
During the year, the Group sold its microlending business to a joint venture
controlled by FirstRand Bank Limited, a significant debt funder, indirect
shareholder and participant in the underwriting of the rights issue. This
transaction was concluded at arm`s length.
As part of the capital restructure, the following related party transactions,
all concluded on arm`s length terms, occurred or will occur:
- As stated in note 14, the debt portion of the compulsorily convertible
debentures was settled in full on 30 May 2002 by the granting of a loan by
Investec Bank Limited, a shareholder, existing debt funder and participant in
the underwriting of the rights issue;
- the compulsorily convertible preference shares, held by Seawind 13
(Proprietary) Limited, an existing ordinary shareholder, were converted on 2
August 2002;
- the first R306,3 million of the rights issue will be underwritten by the new
investor;
- the balance of the rights issue, amounting to R433,5 million, will be
underwritten by the existing debt funders, being Absa Corporate and Merchant
Bank, FirstRand Bank Limited, Investec Bank Limited and Standard Corporate and
Merchant Bank;
- Investec Bank Limited, acting through its Corporate Finance Division, acted as
the Group`s advisers.
COMMENTS
Recapitalisation
As announced recently, shareholders approved the capital restructuring of
Relyant at a general meeting held on 16 July 2002. A total of R792 million will
be raised through the initial issue of shares for cash of R52 million to a new
foreign investor, POCO International Holdings SA, followed by a rights issue of
R740 million. This recapitalisation will place the Group in a sound financial
position for the future.
Since all the necessary approvals have been received, the directors have
resolved to include the effects of the capital restructuring in these results.
This includes adjusting for the following:
- the discounted net proceeds of approximately R770 million to be received in
respect of shares to be issued have been included in ordinary shareholders`
equity and the present value of the gross proceeds of R775 million have been
shown as a separate receivable;
- the declaration of the remaining preference dividends due until the original
date of the preference share conversion, amounting to R33,0 million and shown
separately as an interest free liability;
- the early conversion of the R500 million preference shares has been included
in ordinary shareholders` equity as shares to be issued;
- the creation of the restructure provision referred to below, under exceptional
items.
Trading
Since the release of the Interim Results at the end of March 2002, trading
conditions in the retail durables market and, more particularly the credit and
microlending markets, deteriorated noticeably. As a result of this, together
with the debilitating effects on staff morale of the uncertainties surrounding
Relyant`s restructure, sales levels fell well below expectations and the Group
incurred a significant loss in the second half of the financial year.
The decline in sales was also influenced by management`s efforts to ensure that
the quality of credit granting was maintained and, in certain brands, made more
stringent, resulting in credit sales during the year shrinking by 0,5%. There
was also a marked increase in the proportion of cash sales in the second half,
which limited the increase in total income. In addition, management`s stated
objective of ensuring better margin business had a negative influence on sales
volumes, but resulted in an increase in the gross profit percentage of sales to
34,7% for the year, compared with last year`s achievement of 33,1%.
As disclosed in the Interim Results, during the first half of the year the Group
established an outsourced regional distribution centre for merchandise storage
and delivery on behalf of The Cities (Furniture City, Appliance City and Sleep
City). Start-up difficulties gave rise to poor customer service and stock
availability problems and, consequently, the contract with the outsource partner
was renegotiated. Since then, there have been marked improvements in all problem
areas. Total estimated additional direct costs incurred over the period under
the initial contract, excluding those costs disclosed as exceptional, amounted
to an estimated R11,8 million, which has been included in EBITDA.
Concerted efforts to reduce expenses limited the fall in EBITDA to 16,5%,
excluding the effects of the exceptional items. Significantly higher financing
costs were incurred during the period under review, arising from increased
borrowings, higher interest rates and the AC125 effects of the declaration of
the full amount of preference dividends. This resulted in a loss for the year of
some R28 million before exceptional items, compared to a profit for the first
six months of R56 million. This translates into normalised earnings of R12
million, on a fully diluted basis (13 cents per share).
Exceptional items
As analysed in note 7, exceptional items include the creation of the restructure
provision that was an integral and indivisible part of the capital restructure
agreement. The other exceptional items, unrelated to the restructure provision,
are detailed in the note. This restructure provision, which has been created in
accordance with GAAP, will enable Relyant to accelerate the repositioning and
rationalisation of the business.
The bulk of the provision relates to the change in the basis of providing for
doubtful debts. Whereas in the past, the Group provided a certain percentage
against the balances of accounts that were in arrears, the new basis sets aside
a full provision for the gross arrears. It is important to note that a new
Statement of GAAP, AC133 dealing with financial instruments, will be applicable
for financial years commencing on or after 1 July 2002. The Board believes that
this statement will require all entities selling on credit to re-assess the
basis of provisioning, which may lead to increases in provisions in those
entities.
The restructure provision also includes the effects of the closure of 29 non-
performing stores at the end of June 2002 and the provision for onerous
contracts in certain remaining non-performing stores in the Group.
In terms of the restructure agreement, the value of intangibles has been re-
evaluated at the financial year-end. The impairment of intangibles relating to
the purchase of the Glick`s Furniture and Bedding businesses in the previous
financial year, has been appropriately evaluated in terms of GAAP.
After exceptional items, the Group incurred an attributable loss of R619
million.
Working capital management
The company`s policy of paying suppliers according to terms was strictly applied
at financial year-end, which resulted in a reduction in trade creditors,
amounting to R76 million compared with last year. Despite this, through
intensive focus, the Group has contained the increase in working capital
requirements during the year to some R57 million. This compares with an increase
in the prior year of more than R200 million. An integral part of this
improvement relates to the achievement of a substantial reduction in aged
inventory, through intense focus and enhanced use of the Group`s merchandise
management systems and processes. As part of the restructure provision, a once-
off amount has now been set aside for certain remaining aged inventory to ensure
its timeous disposal.
Cash flow and financial position
As a result of the improved working capital position, a positive cash flow of
R132 million was generated from operations, compared with R31 million generated
in the prior year.
However, net financing costs actually paid of R200 million, which include prior
year interest accruals of R29 million payable during the year (refer note 17),
were almost R100 million more than last year`s payments and exceeded the cash
generated from operations by R68 million. This, together with closure costs paid
of R52 million and the cash outflow of R87 million paid to the vendors of the
Glick`s Furniture and Bedding businesses led to an increased level of
borrowings.
Consequently, interest bearing bank debt at financial year-end rose to an
unsustainable R1,291 billion, with gearing of 116%, similar to levels that
existed at the end of April 2002, when the directors released the Trading
Update. These levels were unacceptable to debt funders and directors. In the
difficult prevailing environment, the need for a recapitalisation and rescue of
the Group at that time became extremely urgent. After including the effects of
the capital restructuring, however, this gearing reduces to 47%.
Credit management
As part of the restructure provision, a change has been made to the basis for
providing for doubtful debts and, consequently, a full provision has now been
made for the total arrears. In addition, the provision in respect of debtors
related to the stores that have been closed has been increased by a further R45
million. This additional amount has been calculated based on the Group`s actual
bad debt experience with stores closed previously.
Management has also identified accounts throughout the book where payments are
not being made and a portion of the additional provision has been utilised to
write these accounts off immediately. After this additional write-off, the
Group`s total arrears, which are measured on a gross basis, and are now fully
provided, reduced to R255 million, or 13,9% of the gross book. Subsequent to
these actions, 80,0% of total retail debtors are now classified as "A" grade
payers (June 2001 75,0%; May 2002 74,8%).
Change in directorate
During the year a number of directors resigned from the Board. These included
the previous Chairman, Sam Abrahams, to whom the Board is especially grateful
for the proactive and constructive role he played in this Group`s development
over the past four years. Also, to Pat Goss (who resigned at last year`s annual
general meeting), Terry Rosenberg and Paul Glick, the Board wishes to express
its appreciation for the positive contribution they made to the affairs of
Relyant.
The directors welcome the appointment of Peter Pohlmann and James Moore, of POCO
International Holdings SA, and Theunie Lategan and Martin Leigh of FirstRand
Bank Limited.
Prospects
The environment for retail durables remains extremely difficult. The
inflationary pressures resulting from the decline in the value of the Rand have
had a negative impact on product prices and the already overburdened consumer.
However, indications of significant industry consolidation, which is long
overdue, should bring benefits in the medium term. Irrespective of these
external factors, in the short term, the directors are committed to improving
the operating performance of the Group.
Internally, the removal of uncertainty, the renewed focus on trading,
significant savings in net financing costs and the constructive input of our new
shareholders should result in an improved trading performance. Furthermore, the
capital restructuring will place the Group in a strong position to benefit from
any improvement in trading conditions.
For and on behalf of the Board
CF Wells JM Moore
Chief Executive Officer Director
12 August 2002
Non-executive Directors:
PJB Pohlmann (Chairman)*, PJC Horne, HM Khoza, MT Lategan, MC Leigh,
JM Moore, TH Nyasulu
Executive Directors:
CF Wells (Chief Executive Officer), RBG Sinclair
* German
- British
Registered office
Relyant House, 131 van Beek Street
Ellis Park
2094
Telephone (011) 401-5000
Transfer secretaries
Computershare Investor Services Limited
Second Floor, Edura House
41 Fox Street, Johannesburg, 2001
Telephone (011) 492-1620/9
Auditors
Deloitte & Touche
Internet site
www.relyant.co.za
Date: 12/08/2002 08:05:07 AM Produced by the JSE SENS Department
