| Wed 27 Aug 2003, 16:49 | | Pepkor Limited - Results for the year ended 30 Jun |
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Pepkor Limited - Results for the year ended 30 June 2003
Pepkor Limited (Registration number: 1965/007765/06)
36 Stellenberg Road, Parow Industria 7490
JSE share code: PEP ISIN: ZAE000005344
www.pepkor.co.za
Results for the year ended 30 June 2003
OPERATIONAL REVIEW
In a favourable year for local clothing retail as a whole, Pepkor achieved
excellent operational results for the year to 30 June 2003. There were various
contributing factors: Macro-economic developments in South Africa, such as the
strengthening of the rand, stabilised prices and stimulated consumer confidence,
while the 2003 Budget benefited consumers across the spectrum. In Australia,
however, trading conditions were still very tight in a highly competitive market
and the chain"s good results were attributable mainly to further operational
efficiencies.
As for many other businesses, the strengthening of the rand was a double-edged
sword for Pepkor. On the one hand the profit margins of the group"s South
African subsidiaries were supported by lower input costs. On the other hand
the stronger rand resulted in considerable unrealised exchange rate losses in
the past financial year in respect of the group"s foreign assets. However,
these exchange rate losses have no effect on the group"s core activities and
can, if the rand weakens, again be turned into a profit.
Pep
Pep, the core business of the group and its main profit contributor, had one of
the best years in its history. Operating profit increased 37,3% to R302
million despite an exchange rate loss of R89 million (as against an exchange
rate profit of R74 million in 2002).
By far the largest part of Pep"s profit is still generated by its operations in
South Africa and the BLNS countries. Results in its African Division are
encouraging after intensive reorganisation.
The sharply rising curve in Pep"s profitability is largely due to steps taken by
management in the past five years. These steps covered the entire spectrum of
operations, from a complete culture change, investment in training and
marketing, improved buying in terms of price, style and quality, and more
efficient stock control and management to more attractive shops and the large-
scale reorganisation of store locations. As part of this process 170 stores were
relocated to better sites.
Pep is continuing to establish new stores in urban shopping centres focused on
its target market and to increase the trading space of its stores. At the same
time the potential of its rural stores is being exploited anew.
Ackermans
Ackermans also experienced the best year in its existence. During the year the
company opened 25 new Ackermans stores and closed down five while increasing the
number of Hang Ten outlets from 10 to 18. The chain now has 302 stores in
operation in Southern Africa, as against 274 a year ago. Most of the new stores
are located in the northern areas of South Africa.
Some of the main factors contributing to the 24,9% growth in turnover were the
sharp increase in the sales of baby and toddler clothing in particular, as well
as school clothing and opportunistic purchases. The new focus on textiles also
produced good results, and this sector is seen as an important growth area for
the future. In view of the success achieved with the Hang Ten store concept, a
further 15 outlets will be opened in the new financial year.
Best & Less
In the past financial year Best & Less achieved its best financial results since
Pepkor acquired the business in 1998. Operating profit increased almost 29% to
R69,5 million despite the fact that competition by international groups led to
extremely tight trading conditions and that inflation was virtually nil in the
Australian clothing industry.
In the period under review management continued to rationalise ranges and to
conclude strategic alliances with suppliers so as to offer products at the best
possible prices. As planned, eight new stores were opened during the year, two
of which of the smaller format developed for the Australian rural areas, while
two stores were closed. In terms of its new-store programme eight outlets will
be opened before the end of December.
ACQUISITION OF FASHAF
In the course of the year Pepkor acquired most of the assets of Fashion Africa
Limited (Fashaf), which consists mainly of the retail chains Dunns and Millers
Shoes, which together operate more than 200 stores in Southern Africa offering
mainly footwear and clothing to younger, fashion-conscious consumers in the
lower-income groups.
Fashaf operates from its head office in Johannesburg as an independent business
and with the retention of its existing trademarks under the overall management
control of Pep. Mr Daan Venter, formerly head of Ackermans, was appointed
managing director of Fashaf. The company"s results have been consolidated with
those of Pep as from 1 April 2003 and had only a marginal effect on group
results.
After year-end Pepkor also concluded an agreement for the acquisition of 49% of
the British retailer Your More Store and of the Polish retailer B&J Poland. The
transaction is subject to certain regulatory approvals.
ACCOUNTING POLICIES
The annual financial statements were prepared mainly on the historical cost
basis in accordance with South African Statements of Generally Accepted
Accounting Practice. The accounting policies are in all material respects in
accordance with those adopted during the previous financial year, with the
exception of the following:
Statement AC 133: Financial Instruments - Recognition and Measurement was
applied with effect from 1 July 2002 and resulted in the following changes:
Derivatives, in the form of foreign exchange contracts, are recognised at their
net fair value
Other investments are classified as available for sale and in terms of the
existing policy shown at fair value
Unrealised profits and losses resulting from changes in the fair value of
derivatives are accounted for in the income statement in the period in which
they arise, while changes in the value of other investments are set off directly
against reserves.
In terms of the transitional arrangements of AC 133 figures in respect of
previous years are not restated, but the change in value as a result of the
remeasurement of derivatives on 1 July 2002 is set off directly against
reserves. On 1 July 2002 reserves were reduced by R5 million, while other
current liabilities and deferred tax assets were increased by R7 million and R2
million, respectively.
The group"s auditors, PricewaterhouseCoopers Inc., reviewed the group results.
Their unqualified review report is available on request from the company
secretary.
COMMENTS ON THE RESULTS
Finance exchange rate difference
Rand-denominated debt is used abroad to fund the group"s foreign interests. The
strengthening in the value of the rand during the period under review resulted
in an unrealised exchange rate loss of R109 million, as compared with an
unrealised exchange rate profit of R175 million in the previous financial year,
in which the value of the rand depreciated appreciably.
Exceptional items
A liquidation distribution of R91 million received in 2001 subject to the
finalisation of a liquidation process was repaid to the liquidator in view of an
ongoing dispute regarding the finalisation of the liquidation. The cost of
closing down Pep"s operations in Ghana came to R13 million, while writebacks of
provisions against loans to share incentive trusts amounted to R3 million.
Repurchase of shares
On 25 October 2002 7,6 million shares in Pepkor Ltd were purchased from share
incentive trusts at 500 cents per share in terms of a resolution approved at the
company"s annual general meeting. Further net purchases of 0,5 million shares
were made at prices ranging from 460 to 500 cents per share. These shares are
held as treasury shares.
CAUTIONARY ANNOUNCEMENT
On 12 August Pepkor announced that it is engaged in negotiations which, if
successful, could affect the price at which the company"s shares trade, and
shareholders are advised to continue to act with caution in trading the
company"s shares until a further announcement is made.
PROSPECTS
Although consumer confidence remains positive and Budget concessions are
benefiting Pepkor"s local target market, the board does not expect turnover and
operating profit to continue growing at the same rate in the new financial year.
Decreasing inflation in South Africa and a deflationary climate in the
Australian retail trade will require of the operating companies to sell
considerably more items in a highly competitive market in order to reach
turnover targets. However, growth will continue to be generated by refining
operating systems, by effective cost management and aggressive price bargaining.
DECLARATION OF DIVIDEND
Notice is hereby given that the board has declared a final dividend of 21 cents
per ordinary share for the year to 30 June 2003. The dividend is payable on
Monday, 29 September 2003.
In terms of the requirements of STRATE Thursday, 18 September 2003, will be the
last day on which shares can be traded cum dividend. As from Friday, 19
September 2003, shares will be traded ex dividend. The record date is Friday,
26 September 2003.
As from Friday, 19 September 2003, to Friday, 26 September 2003, both dates
inclusive, share certificates may not be dematerialised or rematerialised.
By order of the board
CH Wiese PJ Erasmus
Chairman Managing director
Cape Town
28 August 2003
Group income statement Reviewed Audited
12 months 12 months
to to Change
30/06/03 30/06/02 %
Revenue 7 045 121 6 066 438 +16
Operating profit 480 733 335 989 +43
Net(interest paid)/investment
income (216 069) 91 764
Investment income 38 836 35 016
Interest paid (145 476) (117 855)
Exchange rate difference (109 429) 174 603
Profit before exceptional items 264 664 427 753 -38
Exceptional items (101 319) 71 933
Amortisation of goodwill (6 678) (2 221)
Profit before taxation 156 667 497 465 -69
Taxation 140 973 143 395 -2
Taxation on normal activities 140 973 142 960
Taxation on exceptional items - 435
Profit after taxation 15 694 354 070 -96
Minority interest 8 471 10 092
Net profit 7 223 343 978 -98
Earnings per share (cents)
- before exceptional items 53,6 123,8 -57
- before exceptional items
(excluding finance exchange
rate difference) 104,4 69,7 +50
- after exceptional items 3,4 155,0 -98
- headline earnings 54,0 124,7 -57
Dividend (cents per share) 34,0 24,0 +42
Dividend cover - before
finance exchange rate difference
times) 3,1 2,9
Number of shares for
calculation of earnings
per share ("000) 215 129 221 936
Group statement of changes in shareholders" funds
Reviewed Audited
12 months to 12 months to
(R"000) 30/06/03 30/06/02
Balance at 1 July 1 291 415 980 087
Adjustment at 1 July in terms
of AC 133 in respect of
derivatives (4 666) -
Acquisition of treasury shares (50 178) -
Proceeds on disposal of
treasury shares 11 348 -
Decrease in value of listed
investments (41 843) -
Exchange rate adjustments (20 414) 11 737
Net profit for the year 7 223 343 978
Dividends paid (56 306) (44 387)
Balance at 30 June 1 136 579 1 291 415
Group balance sheet
Reviewed Audited
(R"000) 30/06/03 30/06/02
Non-current assets 1 038 498 955 226
Property, plant and equipment 560 134 486 503
Goodwill 89 938 96 600
Investments 313 060 323 339
Deferred taxation 75 366 48 784
Current assets 2 173 053 2 017 192
Inventories 1 541 552 1 244 174
Accounts receivable 92 117 94 643
Cash and cash equivalents 539 384 678 375
Total assets 3 211 551 2 972 418
Ordinary shareholders" funds 1 136 579 1 291 415
Preference share capital 92 92
Minority interest 30 445 23 420
Non-current liabilities 180 469 63 002
Long-term loans 293 1 202
Deferred taxation 115 857 17 189
Other non-current liabilities 64 319 44 611
Current liabilities 1 863 966 1 594 489
Short-term loans and bank
overdrafts 575 289 514 376
Other current liabilities 1 288 677 1 080 113
Total equity and liabilities 3 211 551 2 972 418
Group cash flow statement
Reviewed Audited
12 months to 12 months to
(R"000) 30/06/03 30/06/02
Cash flow from operations 224 850 746 652
Dividends paid (8 978) (46 122)
Cash retained from operations 65 872 700 530
Investment activities (334 901) (568 850)
Net acquisition of property,
plant and equipment (199 607) (183 425)
Other investment activities (135 294) (385 425)
Net cash flow (169 029) 131 680
Financing activities (87 363) (20 122)
Proceeds from share issue of
subsidiary 9 730 -
Net acquisition of treasury
shares (38 830) -
Interest-bearing debt repaid (58 263) (20 122)
Net movement in cash and
cash equivalents ( 256 392) 111 558
Supplementary information
Reviewed Audited
12 months to 12 months to
(R"000) 30/06/03 30/06/02
1. Depreciation for the year 123 246 110 163
Dividends received
included in investment
income 9 858 8 212
Capital expenditure for
the year 210 107 191 742
Calculation of headline
earnings
Net profit 7 223 343 978
Attributable exceptional
items 101 319 (71 498)
Amortisation of goodwill 6 678 2 221
Loss on sale and scrapping
of fixed assets after
taxation and outside
shareholders" interest 890 2 110
116 110 276 811
30/06/03 30/06/02
Number of shares issued
("000) 213 869 221 936
Net asset value per share
(cents) 531,4 581,9
7. Investments
Listed investments at
market value 272 036 292 217
Unlisted investments at
directors" valuation 487 7 444
Loans 40 537 23 678
313 060 323 339
8. Contingent liabilities 25 000 79 179
9. Capital commitments 325 363 59 337
10. Operating lease commitments 1 474 528 1 435 090
Segmental analysis
Reviewed Audited
12 months to 12 months to
(R"000) 30/06/03 30/06/02
Revenue
Pep 3 693 213 3 055 396
Ackermans 1 475 115 1 180 820
Best & Less 1 876 793 1 830 222
7 045 121 6 066 438
Operating profit
Pep 302 260 220 139
Ackermans 122 596 75 177
Best & Less 69 457 53 980
Financing, investments
and head office (13 580) (13 307)
480 733 335 989
Geographical spread of
operating profit
South Africa 363 701 239 657
Rest of Africa 47 575 42 352
Australia 69 457 53 980
480 733 335 989
Date: 27/08/2003 04:14:10 PM
Produced by the JSE SENS Department
