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L.A. GROUP LIMITED - REVIEWED GROUP RESULTS FOR THE YEAR ENDED FEBRUARY 28, 2003
L.A. GROUP LIMITED
(Registration Number 1936/008786/06)
REVIEWED GROUP results for the year ended February 28, 2003
Operating Income from Operations up 9%
Dividend up 10%
Net Asset Value per Share up 11%
GROUP INCOME STATEMENT (R"000)
Continuing Discontinuing
Operations Operations Total
2003 2002 2003 2002 2003 2002
TURNOVER 611 022 575 596 39 288 63 701 650 310 639 297
Operating
income
before
depreciation
and
amortisation 73 648 77 170 (6 718) (15 310) 66 930 61 860
Depreciation,
goodwill and
trademark
amortisation 6 340 4 173 132 2 009 6 472 6 182
Operating income
(loss) before
abnormal items
and net
interest 67 308 72 997 (6 850) (17 319) 60 458 55 678
(Loss) profit
on foreign
exchange (17 246) 14 732 (2 625) - (19 871) 14 732
OPERATING INCOME
BEFORE NET
INTEREST 50 062 87 729 (9 475) (17 319) 40 587 70 410
Net interest
paid (8 716) (4 147) (2 984) (1 884) (11 700) (6 031)
Operating
profit (loss)
before
taxation 41 346 83 582 (12 459) (19 203) 28 887 64 379
Taxation 11 482 25 862 (2 345) (7 500) 9 137 18 362
Income (loss)
after
taxation 29 864 57 720 (10 114) (11 703) 19 750 46 017
(Loss) income
attributable to
outside
shareholders (867) 173 - - (867) 173
Net income
(loss) attributable
to ordinary
shareholders 30 731 57 547 (10 114) (11 703) 20 617 45 844
Number of ordinary
and "N" ordinary
shares in issue 62 001 701 72 633 818
At weighted average 60 285 578 65 423 846
Diluted 61 898 901 66 450 951
Headline earnings
per ordinary
and "N"
ordinary shares
cents
At weighted
average 50.88 87.75 (16.77) (14.92) 34.11 72.83
Diluted 49.56 86.39 (16.34) (14.69) 33.22 71.70
Earnings per
ordinary and
"N" ordinary
shares cents
At weighted
average 50.98 87.96 (16.78) (17.89) 34.20 70.07
Diluted 49.65 86.60 (16.34) (17.61) 33.31 68.99
Proposed
dividend per
ordinary and
"N" ordinary
share - cents 11.00 10.00
Net tangible
asset value
per share
- cents 404.34 362.13
Depreciation 6 242 5 952
Capital expenditure 11 413 3 018
Future capital
expenditure authorised 13 811 6 500
RECONCILIATION OF EARNINGS TO HEADLINE EARNINGS (R"000)
2003 2002
Net income per group income statement 20 617 45 844
Goodwill and trademark amortisation 230 230
Loss on disposal of interest in subsidiary 251
(Profit) loss on sale of property,
plant and equipment (286) 1 904
Gain on payment to vendor for
business acquired (583)
Headline earnings 20 561 47 646
GROUP BALANCE SHEET (R"000)
Feb 28 Feb 28
2003 2002
ASSETS
Non-current assets
Property, plant and equipment 12 559 9 987
Intangible assets 1 678 1 908
Loan staff share trust 1 047
Deferred taxation 35 086 32 107
49 323 45 049
Current assets
Inventories 177 983 169 838
Trade and other receivables 152 067 148 819
Taxation 1 198 626
Cash and cash equivalents 18 683 39 173
349 931 358 456
Total Assets 399 254 403 505
EQUITY AND LIABILITIES
Equity
Ordinary shareholders" equity 222 983 238 609
Outside shareholders" interest 2 156 3 253
225 139 241 862
Non-current liabilities
Non-interest bearing 380 650
Interest bearing 5 208 5 600
Deferred taxation - 4 527
5 588 10 777
Current liabilities
Non-interest bearing
Vendors for businesses acquired - 12 223
Trade and other payables 72 168 68 927
Owing on forward exchange contracts 11 766
Taxation 10 214 9 642
Interest bearing
Vendors for businesses acquired 2 800 2 800
Short term loans 15 372 9 575
Bank overdraft 56 207 47 699
168 527 150 866
Total Equity and Liabilities 399 254 403 505
GROUP CASH FLOW STATEMENT (R"000)
2003 2002
OPERATING ACTIVITIES
Operating profit before
interest and taxation 40 587 70 410
Adjustment for non-cash flow items 6 251 12 458
Cash generated by operations 46 838 82 868
Movement in working capital (8 152) (47 366)
Interest received 1 387 2 947
Interest paid (13 087) (8 978)
Dividends paid (6 537) (4 362)
Taxation paid (12 997) (16 724)
Net cash inflow from
operating activities 7 452 8 385
INVESTING ACTIVITIES
Acquisitions of fixed assets (11 413) (3 018)
Proceeds from sale of fixed assets 1 179 1 983
Reduction in staff share trust loan 1 063
Net cash outflow from
investing activities (9 171) (1 035)
FINANCING ACTIVITIES
Share buy back (17 038) (59)
Increase in borrowings 5 135 (2 215)
Payment to vendors (12 223) (24 444)
Net cash outflow from
financing activities (24 126) (26 718)
Net decrease in cash and
cash equivalents (25 845) (19 368)
Cash and cash equivalents at
beginning of year (8 526) (2 602)
Effect of foreign exchange movements (3 153) 13 444
Cash and cash equivalents
at end of year (37 524) (8 526)
SEGMENTAL ANALYSIS (R"000)
Revenue Result Net assets
2003 % (Liabilities) %
Retail 3 044 - (6 551) (16) 82 -
Corporate clothing 300 603 47 (7 630) (19) 147 960 66
Branded distribution 346 663 53 41 970 103 105 216 47
Corporate royalties
and unallocated
corporate expenses 12 798 32 (28 119) (13)
Total 650 310 100 40 587 100 225 139 100
2002
Retail 63 701 10 (17 865) (25) 3 658 1
Corporate clothing 269 840 42 19 856 28 157 951 66
Branded
distribution 305 756 48 43 275 61 84 779 35
Corporate royalties
and unallocated
corporate expenses 25 144 36 (4 526) (2)
Total 639 297 100 70 410 100 241 862 100
GEOGRAPHIC ANALYSIS (R"000)
Revenue Result Net assets
2003 % % (Liabilities) %
Southern Africa 419 192 64 48 943 121 152 264 68
International 231 118 36 (8 356) (21) 72 875 32
Total 650 310 100 40 587 100 225 139 100
2002
Southern Africa 433 423 68 62 584 89 154 779 64
International 205 874 32 7 826 11 87 083 36
Total 639 297 100 70 410 100 241 862 100
STATEMENT OF CHANGES IN ORDINARY SHAREHOLDERS EQUITY (R"000)
Share capital Non-distri- Distri-
and butable butable
premium reserves reserves Total
Balance at
March 1, 2001 54 171 (270) 137 971 191 872
Share buy-backs (59) (59)
Earnings
attributable
to shareholders 45 844 45 844
Dividends paid (4 362) (4 362)
Foreign currency
translation reserve,
less current and
deferred taxation 5 314 5 314
Balance at
February 28, 2002 54 112 5 044 179 453 238 609
Share buy-backs (17 038) (17 038)
Earnings
attributable
to shareholders 20 617 20 617
Dividends paid (6 537) (6 537)
Foreign currency
translation reserve,
and reversal of
current and
deferred taxation (12 668) (12 668)
Balance at
February 28,
2003 37 074 (7 624) 193 533 222 983
INTRODUCTION
The LA Group Limited ("The Group") is one of the country"s leading apparel and
footwear wholesale distribution companies. Its main focus is the supply of
corporate clothing for both the local and international markets and the
wholesale distribution of branded clothing, footwear and accessories.
OVERVIEW OF RESULTS
Although the core business of the Group has performed in line with expectations,
the rapid strengthening of the Rand against the US Dollar (more than 30% since
August 31 last year) and the disappointing performance of the UK Corporate
Clothing division has adversely affected results. The dramatic strengthening in
the local currency, combined with the downward valuation in accordance with
current accounting requirements of Forward Exchange Contracts acquired to
protect the group against currency depreciation, impacted on the company"s
overall performance.
Group turnover was up by 2% to R650.3-million (2002: R639.3-million). The
Branded Distribution division increased its turnover by 13% to R347-million,
while Corporate Clothing division in total increased its turnover by 11% to
R300.6-million.
Operating profit before interest and foreign exchange losses for the year ended
February 28, 2003 was 8.6% higher at R60.4-million (2002: R55.7-million). The
impact of foreign exchange losses to the value of almost R20-million, compared
to a forex gain of R14.7-million in the previous year, together with a higher
net interest charge, resulted in a drop in operating profit to R28.9-million
(2002: R64.4-million). Net interest paid increased from R6-million to R11.7-
million due to higher capital requirements.
Headline earnings per share on total operations were 34.11 cents
(2002: 72.83 cents) for the reasons highlighted above. Operating results before
the effect of forex adjustments for 2002 and 2003 would have been almost
consistent with headline earnings for both years at approximately 57 cents.
Headline earnings on continuing operations after the effect of forex adjustments
were 50.88 cents (2002: 87.75 cents).
CONTINUING OPERATIONS
Turnover was up by 6% from R575.6-million to R611-million while operating profit
before interest and foreign exchange losses was 7.8% lower at R67.3-million
(2002: R73-million). This is mainly attributable to the operating loss incurred
in the United Kingdom operation amounting to R9.5-million compared to a
operating profit in 2002 of R7.3-million. R12-million of the foreign currency
losses out of the total of approximately R17.2-million resulted from the
revaluation of Forward Exchange Contracts as mentioned above and R2-million
relates to translation losses of Carter Harris"s UK branch assets. The balance
comprises actual forex losses incurred.
Branded distribution division
The Branded Distribution division, comprising Skye Products and Polo, continues
to be the biggest contributor to Group turnover and earnings delivering a 13%
increase in turnover to R347-million (2002: R305.7-million). Although Skye
Products maintained its operating margin and market share, foreign exchange
losses impacted heavily on its operating profit before tax.
The Polo licensing arrangement continues to contribute to Group profit on an
increasing basis and its recent conclusion of further licensees of new clothing
lines and the expansion into sub-Saharan Africa have proven to be successful.
The first Polo retail store to operate under license outside South Africa opened
its doors in Kampala, Uganda and is trading well.
Corporate clothing
Although Corporate Clothing SA - Carter Harris increased its turnover, its
margins came under pressure as the company was reluctant to pass the higher
input costs onto its customers. In addition, the higher market discount on the
sale of Duty Credit Certificates ("DCC"s") impacted negatively on the company"s
operating profit.
Operating losses from the UK operations turned out to be far bigger than
anticipated and Allen & Douglas declared a loss of R9.5-million. The combined
effect of the reduction in turnover, with a small reduction in gross margin, and
a 5% increase in expenses, resulted in this loss. Immediate action has been
taken to stem the ongoing losses including changes to executive management.
DISCONTINUED OPERATIONS
R3-million of the R39.3-million turnover relates to the remainder of the
discontinued LA Jean business reported on last year, with the balance of this
amount comprising the US corporate clothing joint venture, which was sold on
February 28, 2003. The decision to close down the US corporate clothing joint
venture was mainly as a result of external factors beyond the normal trading
environment impacting on the joint venture. This included the fluctuating
discount on sales of DCC"s and the strengthening R/$ exchange rate. The Group
therefore made a decision to remain focused on local operations and customers
where ongoing relationships have been developed. Of the R10.1-million operating
loss, R5.3-million is attributable to the LA Jean business and the balance of
R4.8-million relates to the US corporate clothing venture.
BALANCE SHEET
The Group"s balance sheet remains strong as in previous financial periods. This
is reflected in the net asset value per share of 404.34 cents compared to 362.13
cents as at February 28, 2002.
Cash Flow
The net cash outflow can be ascribed to the discharge of the retail division"s
liabilities, the share buy-back, the improvements to the United Kingdom
warehousing facilities and all group computer systems as well as payments to
vendors of businesses acquired. The bank borrowings are well within group
financial resources.
Contingent liabilities
The lease commitment on two LA Jean stores will terminate during the coming year
at a maximum cost of R131 000.
The damages claim of R93.1-million by Platinum Holdings (Pty) Ltd in respect of
the disputed agreement relating to the sale of the LA Jean Stores and reported
upon last year continues. The directors remain confident that the claim will be
successfully defended.
FUTURE VENDOR PAYMENT
In terms of the acquisition of the Polo brand there is an incentive payable to
the vendor. At February 28, 2003 this amount is estimated at R4.25-million based
on estimated royalty income to June 30, 2003. Fifty percent is payable on June
30, 2003, with the balance payable in equal instalments on June 30, 2004 and
2005.
DIVIDEND PAID
A cash dividend of 10 cents per share in respect of the year ended February 28,
2002 was paid to the holders of ordinary and "N" ordinary shares registered on
July 26, 2002. In accordance with the Group"s accounting policy, this payment is
reflected in the results for the period in which it is paid.
SHARE BUY BACKS
319 683 ordinary shares and 447 684 "N" ordinary shares were bought back for a
total value of R1 304 524 from the LA Retail Stores Limited Share Trust at a
price of 170 cents under a specific resolution passed at the last annual general
meeting.
During the past year, 1 720 483 ordinary and 8 144 267 "N" ordinary shares were
bought back for a total value of R15 734 180 at an average price of 158 cents.
These shares were acquired under the board"s general authority and cancelled.
The effect of these share buy backs on earnings for the year has been minimal as
they took place towards the end of the financial year.
The Group has authority to buy back further shares and will continue to review
whether such actions are appropriate.
NUMBER OF SHARES FOR THE CALCULATION OF EARNINGS AND NET ASSET VALUE PER SHARE
The current year"s calculations of earnings, headline earnings and diluted
earnings and net asset value per share have been adjusted in respect of the 7
269 922 shares held by the wholly owned subsidiary, SA Global Investment
Alliance (Pty) Ltd.
ACCOUNTING POLICIES
The principal accounting policies set out in the previous annual report, have
been applied consistently throughout the year. The company has adopted AC133
Financial Instruments; recognition and measurement, which has had no material
effect on the company"s results. These results have been prepared in accordance
with South African statements of Generally Accepted Accounting Practice. The
results have been reviewed by the auditors Grant Thornton Kessel Feinstein and
their unqualified review opinion is available for inspection at the registered
offices.
POST BALANCE SHEET EVENTS
A contract has been entered into to acquire additional premises in Johannesburg
for Skye Products as a result of its continued growth.
With effect from March 1, 2003 the outside shareholders interest in Allen &
Douglas has been acquired.
PROSPECTS
Trading started off slowly for most of the operating companies, but conditions
are expected to improve as the overall retail environment becomes more positive.
The impact of the expected lower interest rates, increased government spending
and tax relief to consumers, is expected to boost business and consumer
confidence, particularly in the second half of the financial year. Polo"s new
management is expected to continue with its solid growth in its niche market.
Carter Harris continues to roll-out new contracts which is expected to increase
turnover in the coming year, while Allen & Douglas has already secured GBP 10-
million and a number of existing contracts have been renewed on a long-term
basis. It is also expected that the new management team would make a positive
impact on the turnaround of this business.
DECLARATION OF FINAL DIVIDEND
Notice is hereby given that a final dividend of 11 cents per ordinary and "N"
ordinary share has been declared in respect of the financial year ended February
28, 2003. This dividend is payable to shareholders recorded in the books of the
Company at the close of business on Friday, July 11, 2003.
The salient dates for the final dividend are as follows:
Last day to trade (cum dividend) Friday, July 4, 2003
First day of trading (ex dividend) Monday, July 7, 2003
Record date Friday, July 11, 2003
Payment date Monday, July 14, 2003
Share certificates may not be dematerialised or re-materialised between Monday,
July 7, 2003 and Friday, July 11, 2003, both dates inclusive. On Monday, July
14, 2003, the dividends will be electronically transferred to the bank accounts
of all certificated shareholders where this facility is available. Where
electronic fund transfer is not available or desired, cheques dated Monday, July
14, 2003 will be posted on that date. Shareholders, who have dematerialised
their share certificates, will have their accounts at their CSDP or broker
credited on Monday, July 14, 2003.
Signed on behalf of L.A. Group Ltd
AK Peer
Executive Chairman
SA Mukadam
Group Managing Director
May 8, 2003
Registered office
Colinton House, The Oval, Oakdale Road, Newlands 7700
(PO Box 3500, Cape Town, 8000)
Transfer secretaries
Computershare Investor Services (SA) Pty Ltd.
Registration No: 1998/010439/07) 2nd Floor, Edura, 41 Fox Street, Johannesburg
2001, (PO Box 61051, Marshalltown 2107)
Directors
AK Peer (Executive Chairman), SA Mukadam( Group Managing Director), K Chetty, F
Peer*, RV Orlin, C Qunta*, TP Taylor*, I Vukic* *Non-Executive
Company Secretary
AM Bissett
Sponsor
Sasfin Bank Ltd
Website: www.lagroup.co.za
Share Code: LAR ISIN Code: ZAE 000028676
Share Code: LAN ISIN Code: ZAE 000028684
