| Mon 2 Sep 2002, 0:00 | | Mccarthy Limited - Audited Results For The Year En |
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McCarthy Limited - Audited results for the year ended 30 June 2002
McCarthy Limited
(Incorporated in the Republic of South Africa)
(Formerly McCarthy Limited)
Registration number 1991/003245/06
("McCarthy" or "the group")
Ordinary shares:
JSE code MCC ISIN: ZAE 000034823
Preference shares:
JSE code MCCP ISIN: ZAE 000034831
Debentures:
JSE code MCCD ISIN: ZAE 000034849
- Headline EPS up 134.8%
- Motor Franchises operating income up 53.3%
- Financial Services operating income up 26.5%
- Operating cash flow R166 million positive
- Gearing reduced to 14.2%
- Interest cover improved to 3.1 times
Audited results for the year ended 30 June 2002
Consolidated Income Statement
June 02 June 01
R000s R000s
Revenue 11 518 516 9 481 978
Continuing operations 11 518 516 9 336 708
Divested operations * 0 145 270
Cost of sales 9 859 614 8 013 722
Continuing operations 9 859 614 7 962 204
Divested operations * 0 51 518
Gross profit 1 658 902 1 468 256
Continuing operations 1 658 902 1 374 504
Divested operations * 0 93 752
Operating expenses 1 343 167 1 297 595
Continuing operations 1 343 167 1 186 029
Divested operations * 0 111 566
Operating income/(loss) before interest 315 735 170 661
Continuing operations 315 735 188 475
Divested operations * 0 (17 814)
Net operating interest paid 90 663 94 473
Preference share financing cost 2 935 0
Convertible debenture interest 9 268 18 769
Income/(loss) before taxation and non- 212 869 57 419
trading items
Continuing operations 212 869 103 143
Divested operations * 0 (45 724)
Non-trading items : net deficit (55 109) (1 072 138)
Taxation 55 101 15 824
Income/(loss) after taxation 102 659 (1 030 543)
Share of net income of associate 1 183 10 661
companies
Continuing operations 1 183 1 203
Divested operations # 0 9 458
Income attributable to outside
shareholders of subsidiaries 7 384 546
Net income/(loss) attributable to 96 458 (1 020 428)
ordinary shareholders
Determination of headline earnings:
Net income/(loss) attributable to 96 458 (1 020 428)
ordinary shareholders
Preference share financing cost 2 935 0
Convertible debenture interest 9 268 18 769
Tax saving from convertible debenture (9 463) 0
interest
Diluted earnings 99 198 (1 001 659)
Net non-trading items: net deficit (55 153) (1 068 961)
Losses incurred on restructure (3 000) (1 051 357)
Profit/(loss) on sale of investments and 1 596 (7 967)
properties
Impairment write down of assets (46 926) (3 157)
Provision for future net rental
expenditure on onerous
contracts (6 779) (4 525)
Intangibles written off 0 (5 132)
Non-trading items: net deficit (55 109) (1 072 138)
Attributable to outside shareholders (44) 3 177
Fully diluted headline earnings 154 351 67 302
Consolidated Balance Sheet
ASSETS
Non-current assets 558 962 627 398
Property, plant and equipment 157 599 150 251
Deferred taxation 144 263 187 671
Investments - listed 142 311 182 971
- unlisted 48 723 48 469
Bank balances held by insurance companies 38 401 35 996
Insurance companies` technical assets 27 665 22 040
Current assets 1 887 362 1 455 913
TOTAL ASSETS 2 446 324 2 083 311
EQUITY AND LIABILITIES
Capital and reserves 531 348 404 213
Ordinary shareholders` funds 321 189 211 157
Equity portion of convertible debentures 22 184 22 232
Equity portion of convertible preference 133 693 133 693
shares
Outside shareholders` interest 54 282 37 131
Liability portion of convertible 26 506 44 626
debentures
Liability portion of convertible 11 742 16 307
preference shares
Life assurance funds 6 325 6 040
Borrowings 149 974 305 789
Long term 3 000 3 199
Short term 146 974 302 590
Current liabilities 1 720 429 1 306 336
TOTAL EQUITY AND LIABILITIES 2 446 324 2 083 311
Salient Features
Earnings/(loss) per share (cents)
Undiluted 4.8 (513.5)
Diluted 3.5 (392.1)
Headline diluted 5.4 2.3
Ordinary shares in issue (000s)
Undiluted 2 003 921 2 003 921
Weighted average 2 003 921 2 003 898
Diluted 2 873 742 2 878 454
Dividends per share (cents) Nil Nil
Convertible debentures in issue (000s) 25 644 25 722
Preference shares in issue (000s) 833 333 833 333
Borrowings less cash/permanent capital (%) 14.2 54.5
Interest cover (times) 3.1 1.5
Capital expenditure commitments (R000s) 29 775 16 135
Market value of listed investments (R000s) 142 311 186 185
Directors` value of unlisted investments 48 723 48 504
(R000s)
Net asset value per share - fully diluted 18.4 15.6
(cents)
* Includes the results to date of disposal of Bonus Building Supplies.
# Includes the results to date of disposal of Relyant Retail Limited.
Consolidated Cash flow statements
June 02 June 01
R000s R000s
Cash generated by operations 377 662 208 572
Increase in working capital (81 185) (113 356)
Cash generated from operating activities 296 477 95 216
Net interest paid (122 695) (142 074)
Taxation paid (7 415) (6 122)
Cash available from/(expended by) 166 367 (52 980)
operating activities
Dividends paid (8 056) (1 803)
Cash generated by/(utilised in) operating 158 311 (54 783)
activities
Cash flows from investing activities (13 423) (119 442)
Cash effects of financing activities (155 815) 787 264
Cash effects of restructure activities 0 (581 812)
Movement in bank balances (10 927) 31 227
Bank balances at beginning of year 85 313 54 086
Bank balances at end of year 74 386 85 313
Consolidated Statement of Changes in Ordinary Shareholder`s Funds
Non- Reserves/
Stated distributable (accumulated
capital reserves deficit) Total
R000s R000s R000s R000s
Balance at 30 284 242 80 636 110 683 475 561
June 2000
Effect of change
in accounting
policy 0 0 (558) (558)
Restated balance 284 242 80 636 110 125 475 003
Conversion of
convertible
debentures 25 905 (4 301) 0 21 604
Share options 165 0 0 165
exercised
Rights offer 720 000 0 0 720 000
Foreign currency 0 4 925 0 4 925
translation gain
Transfer from 0 7 853 (7 853) 0
distributable
reserves
Gain on
redemption of
convertible 0 0 9 888 9 888
debentures
Net loss
attributable to
ordinary 0 0 (1 020 428) (1 020 428)
shareholders
Balance at 30 1 030 312 89 113 (908 268) 211 157
June 2001
Share issue (2 681) 0 0 (2 681)
expenses written
off
Redemption of
convertible
debentures 0 (4 499) 0 (4 499)
Foreign currency 0 20 754 0 20 754
translation gain
Transfer from 0 24 734 (24 734) 0
distributable
reserves
Net income
attributable to
ordinary 0 0 96 458 96 458
shareholders
Balance at 30 1 027 631 130 102 (836 544) 321 189
June 2002
Segmental Analysis - Continuing Operations
McCarthy Motor Holdings ("MMH")
Motor Franchises Other Wholesale
Motor Operations Distribution
Rms June June % June June June June %
02 01 02 01 02 01
Revenue 10 511 8 365 25.7 18.5
584 598 353 298
Income/ 230 150 53.3 26 (6) 41 37 10.8
(loss)
before
interest and
taxation
Income/
(loss)
before
taxation
and non- 227 145 56.6 6 (4) 42 38 10.5
trading
items
Total 1 1 364 23.9 82 99 19.2
assets 690 263 118
Total 1 965 28.5 58 75 44 70.5
liabilities 240 236
McCarthy Financial McCarthy
Services On-Line
Rms June 02 June 01 % June 02 June 01
Revenue 54 64 (15.6) 17 12
Income/(loss) 43 34 26.5 1 (6)
before
interest and
taxation
Income/(loss)
before
taxation
and non- 47 36 30.6 1 (6)
trading items
Total assets 107 92 16.3 2 5
Total 64 60 6.7 2 6
liabilities
Corporate Services Total
Rms June June June 02 June 01 %
02 01
Revenue 11 519 9 337 23.4
Income/(loss) (25) (21) 316 188 67.5
before
interest and
taxation
Income/(loss)
before
taxation
and non- (110) (106) 213 103 106.4
trading items
Total assets 266 441 2 446 2 083 17.4
Total 546 1 915 1 679 14.1
liabilities 298
REVIEW OF THE RESULTS
INTRODUCTION
The Board is pleased to report that the benefits of the group`s restructure,
together with a strong trading performance, have contributed to the group
reporting excellent results for the year ended 30 June 2002.
Fully diluted headline earnings increased 129.3% from R67.3 million in the prior
year to R154.4 million for the year under review. This translates into fully
diluted headline earnings per share of 5.4 cents compared to 2.3 cents reported
in the prior year.
HIGHLIGHTS OF THE GROUP`S OPERATING PERFORMANCE
The following are the pertinent highlights, commented on with reference to
continuing operations:
- Revenue increased by 23.4% from R9.3 billion to R11.5 billion. All divisions
contributed to this growth, with the exception of Burchmore`s and McLife.
Burchmore`s revenue decreased marginally as a result of a reduction in the
number of available auction units, while McLife`s reduction resulted from no
longer underwriting insurance products for Bonus Building Supplies, following
the disposal of that business last year.
- Operating income before interest increased by 67.5% to R315.7 million.
- Income before taxation and non-trading items of R212.9 million was 106.4%
above the R103.1 million of the prior year.
- The motor franchise operations experienced an excellent trading year,
reporting a 25.7% increase in revenue to R10.5 billion and an increase in
operating income of 53.3% from R150.4 million to R229.9 million. These
outstanding results were recorded in most franchises. New vehicle retail sales
increased by 6.9% to 31 326 units and used retail vehicles by 5.2% to 31 808
units. This translated into a national dealer market share of 12.7% in new
vehicles, and 10.7% in used vehicles.
Outstanding financial results were achieved in the used vehicle area of our
business. The departmental contribution derived from used vehicle trading
increased by 38.3% from R111.2 million last year, to R153.8 million during the
period under review. McCarthy Call-a-Car again contributed materially to these
results, retailing 6 616 units during the year. The used vehicle profit
improvement is as a direct result of the increased emphasis on used vehicle
sales across the group, following a strategic decision to grow this part of our
business.
- Yamaha Distributors continued to perform at a very satisfactory level
reporting a 10.8% increase in operating income. Although margins have reduced as
a result of exchange rate pressure, the return on investment remains sound.
- Other motor operations comprise the financial results of Budget Rent-a-Car,
McCarthy Fleet Services and Burchmore`s. These operations reported income before
taxation of R6.4 million compared to a loss of R4 million in the prior year.
This turnaround is mainly as a result of Budget reporting income before taxation
of R5.3 million compared to a loss from rental activity of R8.8 million last
year. This has been achieved by focusing on improved fleet utilisation, expense
reductions and increased average daily rental rates. Burchmore`s reported an
operating profit of R4.5 million, slightly below last year due to bank
repossessions falling to the lowest level in more than a decade. McCarthy Fleet
Services operated at a net cost of R4.6 million. This division renders a fleet
marketing service to the MMH network and the profit made on incremental units
sold, is recorded at the motor dealer level.
- McCarthy Financial Services, comprising financial and insurance activities,
reported a 15.6% reduction in revenue due to McLife`s revenue declining for the
reason noted above. Adjusting for the loss of the Bonus Building Supplies`
business, revenue would have increased by 32.2%. Operating income increased
26.5% from R34.3 million to R42.6 million. The insurance operations contributed
R21.3 million (2001: R18.6 million) and the group`s share of McCarthy Finance`s
income increased to R21.3 million (2001: R15.7 million).
- McCarthy On-Line increased its revenue from R12.2 million to R17.2 million and
reported a turnaround in operating income from a loss of R6 million to a profit
of R0.8 million for the current year. All its business units are now profitable.
Net operating interest paid reduced from R94.5 million to R90.7 million.
Included in interest for the first time this year is an amount of R28.9 million
paid to vehicle lease creditors. Adjusting for the impact of this, interest on a
comparable basis with the prior year would have decreased by 34.7% as a result
of the following:
- An overall lower level of borrowings as a result of the recapitalisation of
the group and the strong cash generation arising from the improved trading; and
- Focus throughout the group on cash flow, asset management and cost control.
As a consequence, interest cover improved to a healthy 3.1 times compared to 1.5
times in the prior year.
Preference shares issued as part of the group restructure, gave rise to the
payment of preference share dividends for the first time. The convertible
debenture interest decreased as a result of a reduction in the number of
debentures redeemed or converted in terms of the group restructure: 41.3 million
debentures were in issue prior to the restructure compared with 25.6 million
currently in issue.
The net non-trading deficit of R55.1 million consists mainly of a R46.9 million
impairment write down, emanating from the revaluation of the group`s investment
in Retail Apparel Group Limited ("RAG") as well as write-offs from the expected
unrecoverable amounts owing by RAG. The impact of RAG on the group is discussed
in more detail below.
Taxation mainly comprises a deferred tax charge of R43.4 million arising from
the utilisation of the deferred tax asset raised on the accumulated assessed
loss.
The favourable impact of the above results culminated in a return to positive
income attributable to shareholders of R96.5 million, compared to the loss of
R1.02 billion of the prior year.
FINANCIAL POSITION AND CASH FLOW
The continued strong focus on expense levels and asset management, assisted by
the good trading performance, was evidenced in the cash flow. The group
generated R158.3 million cash from operating activities, compared with a
utilisation of R54.8 million in the prior year.
The level of borrowings decreased by R155.8 million from R305.8 million at 30
June 2001 to R150.0 million at 30 June 2002. This reduction in debt, together
with a return to profitability, and the consequent increase in ordinary
shareholders` funds, resulted in a significant reduction in the group`s gearing
from 54.5% to 14.2%.
INVESTMENT IN RAG
McCarthy owns 96% of RAG`s ordinary shares and 99% of its convertible
debentures. As advised in the cautionary announcement, published on 28 May 2002,
RAG`s wholly-owned subsidiary Retail Apparel (Pty) Ltd has been placed into
provisional liquidation. Simultaneously, RAG`s listing was suspended on the JSE
Securities Exchange SA.
McCarthy has both a secured and an unsecured claim against the RAG group. It is
unlikely that any liquidation proceeds will be received on the unsecured claim
and, as such, this has been fully provided for in the current year. Legal
opinion has confirmed that the security held by McCarthy is valid and
enforceable. Consequently, the carrying value of the investment in RAG has been
valued at R106.0 million, being the estimated dividend expected to be received
from the proceeds of RAG`s liquidated secured assets.
ACCOUNTING POLICIES
During the year, the group adopted AC135 (investment properties) and AC133
(financial instruments: recognition and measurement) resulting in a prior year
adjustment and a restatement of the comparative period`s results. Except for the
above, the accounting policies used in the preparation of the year-end results
are consistent with those applied in the annual financial statements dated 30
June 2001 and comply with South African statements of Generally Accepted
Accounting Practice.
INDEPENDENT AUDIT
The financial information set out in this report has been audited by the group`s
auditors, Deloitte & Touche. Their unqualified audit report is available at the
registered office of the company.
CHANGE TO THE BOARD
R de V Greeff resigned effective 31 May 2002.
PROSPECTS
Macro-economic conditions, and in particular business confidence and interest
rates, impact our trading environment. The other major factor to consider is the
anticipated value of the Rand. There is no doubt that both the new and used
vehicle markets have become increasingly more price sensitive following the
average increase in new vehicle selling prices of some 17% for the calendar year
to-date. Against the backdrop of these factors we are projecting a decline in
the new vehicle market of some 5% for our financial year ahead.
A specific negative factor which will impact materially on our business is the
shrinking of both our DaimlerChrysler and BMW networks, following recent changes
to their dealer network strategies. On the other hand, the anticipated growth in
unit sales by our Toyota, Peugeot, Volvo and Land Rover franchises should
cushion the impact to a degree. It is also our objective to explore further
growth opportunities in the used vehicle and financial services areas.
Additional motor related investment possibilities are under investigation, but
it is unlikely that any of these potential opportunities will contribute
significantly to earnings over the short term.
Considering the above factors, the group will be challenged to maintain the
previous year`s record earnings.
On behalf of the Board
Noel Phillips (Chairman)
Brand Pretorius (CEO)
Durban
2 September 2002
Directors:
N Phillips (Chairman); S G Pretorius (Chief Executive Officer);
H L Bosman; G D Damp; P M Goss; 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:
Computershare Investor Services Limited,
P.O. Box 1053, Johannesburg 2000.
Date: 02/09/2002 12:00:00 PM Produced by the JSE SENS Department
