| Mon 21 Oct 2002, 17:19 | | Ellerine Holdings Limited - Consolidated Audited R |
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Ellerine Holdings Limited - Consolidated Audited Results for the year ended 31 August 2002
Ellerine Holdings Limited
Registration number 1968/013402/06
Share code: ELH ISIN number: ZAE000022752
Consolidated Audited Results for the year ended 31 August 2002
- Turnover exceeds R2 billion for the first time
- Operating margin maintained at above 15%
- Profit before tax of R308 M - up 3%
- Cash generated from operations up by R146 M
- Cash flow per share - 236 cents
- Net asset value per share up by 14% to 1 940 cents
CONSOLIDATED INCOME STATEMENT
2002 2001 %
R`000 R`000 Change
Turnover 2 025 946 1 944 643 4,2
Cost of sales 791 177 766 388
Gross profit 1 234 769 1 178 255 4,8
Operating expenses 928 176 880 901 5,4
Operating profit 306 593 297 354 3,1
Net investment income 7 197 1 267 468,0
Profit before taxation and
abnormal item 313 790 298 621 5,1
Impairment of properties (6 237)
Adjustment to fair value of
investment properties 777
Profit before taxation 308 330 298 621 3,3
Taxation (97 662) (88 142) 10,8
Profit after taxation 210 668 210 479 0,1
Determination of headline earnings
Profit after taxation 210 668 210 479
Impairment of properties 6 237
Adjustment to fair value of
investment properties (777)
Net profit on disposal of assets (6 158) (5 978)
Tax effect thereon 1 847 1 793
Headline earnings 211 817 206 294 2,7
Number of ordinary shares:
In issue 73 805 200 73 805 200
Fully diluted weighted average 74 232 823 74 531 736
Earnings per share: Cents Cents
Basic 285,4 285,2 0,1
Fully diluted 283,8 282,4 0,5
Headline 287,0 279,5 2,7
Fully diluted headline 285,3 276,8 3,1
CONSOLIDATED BALANCE SHEET
2002 2001
R`000 R`000
Assets
Non-current assets 415 703 430 062
Property and equipment 133 679 147 941
Other financial assets 282 024 282 121
Current assets 1 761 040 1 588 464
Inventories 117 542 124 039
Trade receivables 2 116 284 1 927 222
Provisions (685 876) (606 176)
1 430 408 1 321 046
Term loans 85 962 74 420
Provisions (46 077) (33 593)
39 885 40 827
Other receivables 47 148 43 592
Funds on call, bank balances
and cash 126 057 58 960
Total assets 2 176 743 2 018 526
Equity and Liabilities
Shareholders` equity 1 431 750 1 256 039
Non-current liabilities 360 477 341 868
Insurance reserves 43 347 42 992
Deferred taxation 233 597 216 876
Interest bearing borrowings 83 533 82 000
Current liabilities 384 516 420 619
Trade and other payables 205 961 207 877
Bank overdrafts 178 555 212 742
Total equity and liabilities 2 176 743 2 018 526
Net asset value per share - cents 1 940 1 702
Current ratio 4,6 3,8
Net interest bearing debt: Equity -10,2% -3,7%
CONSOLIDATED CASH FLOW STATEMENT
2002 2001
R`000 R`000
Cash generated from operating activities 429 761 439 570
Working capital requirements (225 114) (381 245)
Cash generated from operations 204 647 58 325
Exchange rate difference on translation
of net foreign assets 17 888 9 759
Net investment income 7 380 1 267
Taxation paid (55 135) (27 742)
Dividend paid (52 821) (30 855)
Cash flows from operating activities 121 959 10 754
Net financing and investing activities (20 772) (31 572)
Net increase/(decrease) in cash and
cash equivalents 101 187 (20 818)
Cash and cash equivalents at the
beginning of the year 43 339 64 157
Cash and cash equivalents at the
end of the year 144 526 43 339
Cash flow per share (cents) 236,4 56,4
STATEMENT OF CHANGES IN EQUITY
Non-
distrib- Distrib-
Share Share utable utable
R`000 capital premium reserves reserves Total
As previously
stated 3 690 40 586 65 429 1 196 640 1 306 345
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 (41 134) (41 134)
Depreciation on
owner-occupied
properties (9 172) (9 172)
Balance at
31 August 2001 3 690 40 586 24 295 1 187 468 1 256 039
Net profit after
tax for the year 210 668 210 668
Gains arising on
exchange rate
difference in the
translation of net
foreign entities 17 888 17 888
Transfer of
revaluation of
investment properties
to non-distributable
reserves 777 (777) -
Dividend paid (52 845) (52 845)
Balance at
31 August 2002 3 690 40 586 42 960 1 344 514 1 431 750
SEGMENTAL REPORTING
2002 2001
Segmental Turnover
Furniture Retail 79% 81%
Financial Services 21% 19%
Geographical Turnover
RSA 83% 85%
Foreign 17% 15%
Segmental Operating Profit
Trading 72% 76%
Property income 7% 7%
Financial services 21% 17%
Geographical Operating Profit
RSA 70% 78%
Foreign* 30% 22%
*Increase in foreign operating profit is due to the realignment of insurance
arrangements.
COMMENTS
TRADING ENVIRONMENT
Trading conditions in the credit retail furniture environment have remained
depressed over the past year. The disappointing results posted by a number of
competitors bear testimony to the difficult trading conditions in the sector.
However, despite this, Ellerines is once again able to deliver on sales, margins
and cash. With consumers already burdened with significant debt, more stringent
credit granting criteria were applied during the year, including increased
deposits taken upfront.
RESULTS
The modest increase in turnover of 4,2% is pleasing when viewed in the context
of the trading strategy adopted by the Group, which was focused on improving
both cash flows and the condition of the debtors ledger. To this end, the
deposit rate increased from 11,6% to 14,1%. A significant number of sales, which
did not meet the more stringent credit granting criteria, were rejected through
the centralised credit granting mechanisms.
The operating margin was sustained at 15,1% (2001: 15,3%), resulting in
operating profit of R306,6 million, which was up by 3,1% despite an abnormal net
cost of R5,5 million in respect of property value adjustments. Operating
expenses were well controlled with the increase contained to 5,4%.
Pre-tax profit, before the abnormal item adjustment, of R313,8 million (2001:
R298,6 million) increased by 5,1% and a pre-tax return on sales of 15,5% (2001:
15,3%) was earned.
A pleasing aspect of the results was the significant improvement in cash flows,
which resulted in net investment income increasing to R7,2 million (2001: R1,3
million).
Taxation was up by 10,8% due in part to the changes in the treatment of
dividends received from the Group`s Botswana subsidiary together with a prior
year adjustment which reduced the 2001 taxation charge.
Headline earnings of R211,8 million (2001: R206,3 million) improved by 2,7%.
A feature of the results was the success achieved in decreasing the working
capital requirement by R156 million, which resulted in a net cash position of
R144,5 million (2001: R43,4 million). The improvement in cash generated was
achieved despite the fact that many customers are still encountering
difficulties in paying a full instalment on a regular basis. The debtors book,
net of provisions, grew by 8,2% to R1,43 billion (2001: R1,32 billion).
Provisions against the debtors book increased by 13,1% to R685,9 million (2001:
R606,2 million).
The value of certain investment properties, including the Group`s former
Corporate Office in Germiston, which was vacated in March 2002, have been
written down to fair value.
The balance sheet remains strong with total assets of R2,18 billion (2001: R2,0
billion). Net asset value per share rose by 13,9% to
1 940 cents (2001: 1 702 cents).
OPERATIONAL REVIEW
- In line with the Group`s strategic plans and given the pleasing performance of
the FurnCity chain, which has operated as a separate business unit for some
time, the three core chains namely Ellerines, Town Talk and Oxford Furnishers
were launched as dedicated business units with effect from 1 March 2002. The
Group is beginning to see the benefits of this restructuring, which should
impact positively on revenues in the year ahead. It has not been possible to
produce meaningful segmented disclosures for the different brands given that the
new structure only came into operation mid year and a number of stores were
rebranded during the year. In future more detailed segmented disclosure will be
provided.
- It was reported in April 2002 that the process of granting credit centrally,
which had commenced in May 2001, had been extended to 400 outlets. Since May
2002 credit in respect of all outlets has been granted centrally with the
benefits of credit bureau verification and the application of points scoring
modules. There is little doubt that this will improve the quality of the debtors
book going forward. In the short term the move has, however, curtailed turnover
with credit application rejection rates running at between 15% and 18%.
- Gross debtors of R2,1 billion (2001: R1,9 billion) have increased by 9,8%. The
average contract period lengthened again to 23,2 months (2001: 22,6 months) at
the year-end. Debtors arrears, measured at the close of business on 31 August
2002 at 25,4%, deteriorated slightly when compared with the prior year (2001:
24,6%). Collection rates did, however, improve over the second half of the
financial year. This trend is expected to continue in the year ahead.
- Inventory was well controlled with stockholding down by 5,2% to R117,5
million, representing 87 days (2001: 91 days) of stock on hand. This was
achieved despite a 1,5% increase in the number of outlets and an average
inflation rate for the year of around 6%.
- During the year 19 unprofitable outlets were closed and, with 28 new outlets
opening, the overall number of outlets increased marginally from 597 to 606. In
future, outlets will be evaluated based on their economic viability and the
strategy of rationalising unprofitable outlets will continue. There has also
been a drive to reduce the cost of occupation as leases come up for renewal.
This is being achieved by downsizing premises where appropriate and
renegotiating lease terms based on the softer retail property market.
- The repositioning and opening of additional outlets under the FurnCity brand,
which caters to the middle and upper middle class market, has continued. The
number of FurnCity outlets increased from 84 to 109. This brand now constitutes
18% of the Group`s outlets (2001: 14%).
- Given the difficulties experienced in the Rainbow Loans term loans business,
the Group continues to adopt a cautious approach to this activity. As at the
year-end, the amount invested in this business was down to R34,4 million (2001:
R41,3 million). The term loan book of R85,9 million has been conservatively
valued with total provisions for bad and doubtful debts, unearned finance
charges and other unearned income at 53,6% (2001: 44,9%). The Rainbow Loans
operations effectively contributed pre-tax profit of R16,1 million to the Group
for the year.
Accounting Policies
The accounts have been prepared on the historic cost basis, except for certain
investment properties that are carried at fair value and comply with South
African Statements of Generally Accepted Accounting Practice.
The accounting policies applied are consistent with those in 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 the date of
acquisition, over their expected useful economic lives. This change has the
effect of decreasing the reported profit by R1,01 million (2001: R1,04 million)
and the non-distributable reserves by R41,1 million in respect of a prior year
adjustment to the opening balance arising from the change in accounting policy.
Comparative figures have been restated to give effect to these changes.
Prospects
Although trading conditions in the credit retail furniture market are expected
to continue to be difficult in the year ahead, the Group should benefit from the
rationalisation which is taking place in the industry, particularly in the
segment of the market where the Group is dominant. The benefits arising from the
creation of the separate business units should also flow through in the year
ahead, with improved trading efficiencies. Enhanced collections are expected to
continue given the more stringent credit granting criteria which have been in
place over the past year. Whilst the higher interest rate environment may dampen
demand, it will benefit the bottom line due to the Group`s positive cash
position and the higher interest rates that the Group is able to charge on
credit agreement transactions.
Given the above, real growth in both turnover and earnings is expected for the
year ahead.
Board of Directors
The Directors are delighted to welcome Ms PN Gumede who was appointed to the
Board as a Non-executive Director on 6 August 2002.
APPOINTMENT OF SPONSOR
Nedcor Investment Bank was appointed sponsor to the Group with effect from 25
June 2002.
DECLARATION OF DIVIDEND
The Board of Directors has resolved to declare an annual dividend, being
dividend number 65 of 73,0 cents per share (2001: 71,6 cents per share) to
ordinary shareholders. This represents a dividend cover of four times, in line
with the previous year.
In compliance with the requirements of STRATE, the following dates are
applicable:
Last day to trade "cum" the dividend Friday, 6 December 2002
Date trading commences "ex" the dividend Monday, 9 December 2002
Record date Friday, 13 December 2002
Date of payment on Tuesday, 17 December 2002
Share certificates may not be dematerialised or rematerialised between Monday, 9
December 2002 and Friday, 13 December 2002, both dates inclusive.
AUDIT REPORT
The Group`s independent auditors, Grant Thornton Kessel Feinstein, have audited
the Group`s results. Their unqualified report is available for inspection at the
Company`s registered office.
ANNUAL REPORT/ANNUAL GENERAL MEETING
The Annual Report and Financial Statements for the year ended 31 August 2002 and
Notice of the Annual General Meeting, which will be held on Tuesday, 10 December
2002, will be posted to shareholders on or about Friday, 15 November 2002.
By order of the Board
Denzil McGlashan Peter Squires
Chairman Chief Executive Officer
21 October 2002
Registered Office: Block E, Gillooly`s View Office Park,
Osborne Lane, Bedfordview 2007
Transfer secretaries: Computershare Investor Services
Limited, 70 Marshall Street,
Johannesburg 2001
Auditors: Grant Thornton Kessel Feinstein
Directors
DS McGlashan* (Chairman), PJC Squires (Chief Executive Officer),
TJ Chalmers*, J Dritz**, Ms PN Gumede*, HL Mmatli, RA Rawlings, PEI
Swartz*, AR van den Borne
(Non-executive*) (Company Secretary**)
Visit our website: www.ellerines.co.za
Date: 21/10/2002 05:00:00 PM Produced by the JSE SENS Department
