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RELYANT RETAIL LIMITED - REVIEWED 2003 PRELIMINARY RESULTS ANNOUNCEMENT AND
FURTHER CAUTIONARY ANNOUNCEMENT
Relyant Retail Limited
Registration number 1937/010108/06
Share code: RLY ISIN number: ZAE000016457
REVIEWED 2003 PRELIMINARY RESULTS ANNOUNCEMENT AND FURTHER CAUTIONARY
ANNOUNCEMENT
Cash sales rise to 47% of total sales, from 44% a year ago
EBITDA from continuing operations increased by 25,7% to R178 million
Cash generated by operating activities of R159 million
Gearing down to 39%, from 116% a year ago
GROUP INCOME STATEMENT Year ended Year ended
30 June 2003 30 June 2002
Notes R000"s R000"s
Turnover 3 2 298 950 2 480 589
Continuing 2 298 950 2 389 732
Discontinued 90 857
Cost of sales (1 247 964) (1 278 146)
Trading profit before
depreciation and amortisation 178 442 171 770
("EBITDA")
Continuing 178 442 141 969
Discontinued 29 801
Depreciation of fixtures,
equipment and vehicles (25 024) (28 166)
Amortisation of intangibles (7 308) (15 741)
Trading profit 146 110 127 863
Continuing 146 110 98 187
Discontinued 29 676
Net financing costs (81 655) (170 557)
Interest received 1 745 25
Financing costs on bank (83 400) (160 026)
borrowings
Additional financing costs
prescribed by AC125 (10 556)
Profit before exceptional items 64 455 (42 694)
Exceptional gain 4 29 224 (613 160)
Profit before taxation 93 679 (655 854)
Taxation (25 419) 22 421
Profit after taxation 68 260 (633 433)
Share of joint venture loss -
discontinued 5 (8 908)
Earnings attributable to
ordinary shareholders 59 352 (633 433)
-
Ordinary shares in issue (000"s)
- closing 6 959 278 68 076
- weighted average 6 811 853 68 076
Fully diluted weighted average
number of ordinary shares 7 822 264 95 969
(000"s)
Earnings per share - basic 7 (930)
(cents)
Headline earnings per share -
basic (cents) 8 (786)
Headline earnings per share -
fully diluted (cents) 8 (533)
Reconciliation of attributable
earnings to headline and fully
diluted earnings R000"s R000"s
Attributable earnings, as 59 352 (633 433)
above
Adjustments:
Amortisation of goodwill
during the 2 160 7 122
Year
Impairment of goodwill and 86 727
trademarks
Early settlement costs of
debt
Portion of compulsorily
convertible debentures 2 737
Loss on sale of non-current 586 2 238
assets
Taxation on adjustments (176) (671)
Headline earnings 61 922 (535 280)
Adjustments to determine
fully
Diluted headline earnings:
Preference dividends charged
to net 10 556
financing costs
STC on preference dividends 8 202
Interest on compulsorily
convertible 4 592
debentures - taxed
Headline earnings - fully 61 922 (511 930)
diluted
R000"s
Headline earnings - fully
diluted (507 835)
(as previously reported)
Restated in terms of SAICA,
Circular
7/2002 - Headline Earnings:
Impairment of investment in
e-commerce hub (4 095)
Headline earnings - fully
diluted (511 930)
(as reflected above)
GROUP CASH FLOW STATEMENT Year ended Year ended
30 June 30 June
2003 2002
Note R000"s R000"s
Cash receipts from customers 2 883 413 3 007 307
Continuing 2 883 413 2 922 232
Discontinued 85 075
Cash generated from trading 180 839 174 008
Net decrease in working capital 80 361 (42 443)
Cash generated from operations 261 200 131 565
Net financing costs paid 12 (93 431) (199 633)
Taxation paid (8 541) (13 403)
Cash generated by operating 159 228 (81 471)
activities
Closure and other exceptional
costs paid (49 245) (51 851)
Preference dividends paid (33 035)
Net cash generated 76 948 (133 322)
Acquisition of business (13 669) (87 301)
Net capital expenditure (14 485) (24 783)
Net portion of proceeds on sale
of microloan business 13 829 35 000
Insurance companies" investments (7 234) (6 537)
Cash outflows from investment
activities (21 559) (83 621)
Net cash inflow before financing
activities 55 389 (216 943)
Ordinary shareholder funding 785 636 (3 312)
Repayment of current interest
bearing bank borrowings (785 636) 292 312
Repayment of non-current interest
bearing bank borrowings (55 429)
Decrease in liability portion of
preference shares (25 872)
Settlement of debt portion of
compulsorily convertible (46 334)
debentures
Cash outflows from financing (55 429) 216 794
activities
Net decrease in cash and cash
equivalents (40) (149)
Cash and cash equivalents at the
beginning of the year 220 369
Cash and cash equivalents at the
end of the year 180 220
GROUP STATEMENT OF Ordinary
CHANGES IN share
ORDINARY
SHAREHOLDERS" Share capital Non- Distribut
EQUITY capital and premium Distri- able
reserves/
and to be issued butable (Accumula
premium reserves ted Total
loss)
R000"s R000"s R000"s R000"s R000"s
Balance at 30 June
2001, as 391 245 66 609 122 819 580 673
previously
reported
Prior year
adjustment (refer
note 2)
- Restatement of
foreign operations
to
foreign entities 3 964 (3 964) -
Balance at 30 June
2001, restated 391 245 70 573 118 855 580 673
Ordinary share
capital and 1 269 551 (115 464) 1 154 087
premium to be
issued
Liability portion
of preference
dividends
transferred from
retained surplus 55 355 (55 355) -
Insurance
statutory
contingency 187 (187) -
reserve movement
Realisation of
investment 267 267
revaluation
reserve
Botswana capital
adequacy reserve 2 428 (2 428) -
movement
Gain on
translation of 14 305 14 305
foreign entity
Attributable loss
for the year (633 433) (633 433)
Balance at 30 June
2002, restated 391 245 1 269 551 27 651 (572 548) 1 115 899
Opening
adjustment:
(adoption of
AC133)
- Fair value of
derivative (1 254) (1 254)
instruments
391 245 1 269 551 27 651 (573 802) 1 114 645
Net present value
discount on rights
issue proceeds 16 965 (16 965) -
Share issue (4 192) (4 192)
expenses
Ordinary share
capital and 1 269 551 (1 269 551) -
premium issued
Insurance
statutory
contingency (555) 555 -
reserve movement
Realisation of
investment (382) (382)
revaluation
reserve
Loss on
translation of (9 525) (9 525)
foreign entity
Attributable
earnings for the 59 352 59 352
year
Balance at 30 June 1 673 569 - 17 189 (530 860) 1 159 898
2003
Share capital and premium as stated above is net of the cost of Treasury shares
amounting to R39, 1 million.
GROUP BALANCE SHEET 30 June 30 June
2003 2002
Note R000"s R000"s
s
ASSETS
Non-current assets
Goodwill 12 328 2 954
Trademarks 34 173 39 321
Fixtures, equipment and vehicles 105 779 114 506
Insurance companies" investments 8 60 075 53 666
Investment in microloan joint 5 - 17 578
venture
Deferred taxation 290 009 308 239
502 364 536 264
Current assets
Accounts receivable 9 1 383 1 281
643 461
Other debit balances 61 376 103 791
Taxation 5 740 12 202
Inventories 310 994 293 349
Debtor for share issue proceeds 774 551
Cash on hand 180 220
1 761 2 465
933 574
Total assets 2 264 3 001
297 838
EQUITY AND LIABILITIES
Ordinary share capital and premium 1 673 391 245
569
Ordinary share capital and premium
to be issued 1 269
551
Non-distributable reserves 17 189 27 651
Accumulated loss (530 (572
860) 548)
Ordinary shareholders" equity 1 159 1 115
898 899
Non-current liabilities
Interest bearing bank borrowings 450 194
Current liabilities
Interest bearing bank borrowings 1 291
259
Accounts payable and accruals 576 722 462 317
Provisions 77 483 99 328
Preference shareholder for 33 035
dividends
654 205 1 885
939
Total equity and liabilities 2 264 3 001
297 838
Gearing (%) 10 39 116
Tangible net asset value per share,
fully diluted (cents) 11 115 111
GROUP SEGMENTAL ANALYSIS Year ended Year ended
30 June 30 June
2003 2002
R000"s R000"s
Turnover
Value retailing 775 279 815 768
Credit chains 1 455 136 1 497 759
Microlending finance charges earned 90 857
(discontinued)
Repair services 68 535 76 205
Total 2 298 950 2 480 589
EBITDA
Value retailing 12 949 17 136
Credit chains 178 112 122 341
Microlending (discontinued) 29 801
Insurance and repair services 11 995 24 671
Corporate (24 614) (22 179)
Total 178 442 171 770
Gross capital expenditure
Value retailing 8 270 13 914
Credit chains 16 612 13 491
Microlending (discontinued) 257
Insurance and repair services 1 278 2 352
Total 26 160 30 014
Depreciation and amortisation
Value retailing 12 340 14 620
Credit chains 13 886 18 719
Microlending (discontinued) 125
Insurance and repair services 3 067 3 321
Corporate 3 039 7 122
Total 32 332 43 907
30 June 30 June
2003 2002
R000"s R000"s
Total assets
Value retailing 315 432 522 920
Credit chains 1 691 816 2 178 628
Microlending (discontinued) 8 614
Insurance and repair services 257 049 291 676
Total 2 264 297 3 001 838
Interest bearing bank borrowings
Value retailing 61 279 101 827
Credit chains 388 915 1 049 775
Microlending (discontinued) 25 944
Corporate - Acquisition funding 113 713
Total 450 194 1 291 259
Interest free liabilities
Value retailing 202 042 208 930
Credit chains 409 005 313 129
Microlending (discontinued) 1 259
Insurance and repair services 43 158 38 327
Corporate - preference shareholder for 33 035
dividends
Total 654 205 594 680
NOTES
Note 1 - Accounting policies and basis of accounting
The principal accounting policies and basis of accounting used, are in all
material respects consistently applied, except for the adoption of AC133,
"Financial Instruments: Recognition and Measurement" and accounting for the
Group"s foreign subsidiaries as foreign entities as opposed to foreign
operations as noted in note 2. These policies 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 - Changes in accounting policy, accounting basis and prior year
adjustment
AC133
During the year, the Group changed its accounting basis relating to financial
instruments in accordance with AC133, "Financial Instruments: Recognition and
Measurement". The Group now reflects its provision for doubtful debts as the
difference between the nominal value of accounts receivable and the present
value of the expected future cash flows discounted at the effective rate
implicit to each contract. Previously, a provision was raised for total gross
arrears. This change had the effect of increasing the current year"s profit
before tax by R29,2 million. This adjustment has been treated as a change in
estimate, as required by paragraph 172 - 10 of the implementation guidance as
issued by the IAS 39 Implementation Guidance Committee. This amount has been
reflected as an exceptional gain. Refer note 4.
Furthermore, the Group now reflects the fair value of derivative instruments,
which include foreign exchange contracts and interest rate swaps, on the balance
sheet with all movements being recognised through the income statement.
Reclassification of foreign entities
The Group has reassessed its previous classification of its foreign subsidiaries
as foreign operations. As the foreign subsidiaries operate as independent
entities with the majority of their transactions conducted in the local
currency, the directors consider that classifying these subsidiaries as foreign
entities more appropriately reflects the substance of the underlying
transactions in these entities. Prior year results have been restated
accordingly. This change had no effect on total shareholders" equity, but
increased the current year"s profit before tax by R9,5 million. With respect to
the prior year, profit before tax was reduced by R14,3 million.
The effects of these changes are shown in the Statement of Changes in Ordinary
Shareholders" Equity.
Year ended Year ended
30 June 30 June
2003 2002
R000"s R000"s
Note 3 - Turnover
Comprises:
Cash sales 905 084 866 110
Credit sales 1 000 962 1 091 772
Total sales 1 906 046 1 957 882
Finance charges earned - continuing 392 904 431 850
Finance charges earned - discontinued 90 857
2 298 950 2 480 589
Year ended Year ended
30 June 30 June
2003 2002
R000"s R000"s
Note 4 - Exceptional gain
Comprises:
Adoption of AC133 - reduction in opening
provision for doubtful debts 29 224
Set-up and settlement costs of regional
distribution centre contract (6 704)
Loss on sale of microloan business (18 715)
Impairment of investment in e-commerce hub (4 095)
Restructure provision (583 646)
29 224 (613 160)
The adoption of AC133 during the year under review resulted in a reassessment of
the Group"s opening provision for doubtful debts, which reduced the Group"s
opening provision for doubtful debts by R29,2 million.
Note 5 - Share of joint venture loss - discontinued
With effect from 6 July 2002, the bulk of the microloan business of the Group
was disposed of to a joint venture FNB Relyant Loans (Proprietary) Limited ("FNB
Relyant Loans"). The Group has a 30% shareholding in FNB Relyant Loans. As a
result of the disposal, the results of the microloan business retained have been
reflected as a discontinued operation for the prior year.
Furthermore, during the current year a strategic review of FNB Relyant Loans
revealed that due to stricter credit granting the business volumes of FNB
Relyant Loans were not sufficient to sustain the business and as a result a
decision was made to discontinue FNB Relyant Loans with effect from December
2002.
The R8,9 million, which includes estimated closure costs, represents the Group"s
30% share of FNB Relyant Loans results for the year ended 30 June 2003.
30 June 30 June
2003 2002
000"s 000"s
Note 6 - Ordinary shares in issue
Total ordinary shares in issue - closing 966 367 75 165
Treasury shares held by the Relyant Share (7 089) (7 089)
Option Trust
Ordinary shares in issue - closing 959 278 68 076
Total ordinary shares in issue - weighted 818 942 75 165
average
Treasury shares held by the Relyant Share (7 089) (7 089)
Option Trust
Ordinary shares in issue - weighted average 811 853 68 076
Note 7 - Fully diluted shares - weighted
average
Total fully diluted shares - weighted 830 382 104 087
average
Treasury shares held by the Relyant Share (7 089) (7 089)
Option Trust
Rights to acquire Relyant shares held by the
Relyant Executive Share Purchase Trust (1 029) (1 029)
Fully diluted shares - weighted average 822 264 95 969
R000"s R000"s
Note 8 - Insurance companies" investments
Comprises:
Listed shares 27 179 7 340
Money market instruments 32 896 46 326
60 075 53 666
Note 9 - Accounts receivable
Gross instalment debtors 1 935 157 1 847 436
Provision for unearned income (272 812) (231 900)
Provision for doubtful debts (275 582) (330 421)
Net instalment debtors 1 386 763 1 285 115
Net trade debtors (3 120) (3 654)
1 383 643 1 281 461
The Group has ceded its accounts receivable book to its principal
bankers as security for the syndicated term loan facilities granted.
Note 10 - Gearing
Ordinary shareholders" equity per balance 1 159 898 1 115 899
sheet
Interest bearing bank borrowings 450 194 1 291 259
Less: Proceeds of new share issues, net of (769 551)
costs
Borrowings - after recapitalisation 450 194 521 708
Gearing 39% 116%
Gearing - after recapitalisation 47%
This calculation of gearing does not take into account the cash on deposit held
by the Group"s insurance companies, amounting to R32,9 million at 30 June 2003.
Note 11 - Tangible net asset value per share, fully diluted
This is calculated by dividing ordinary shareholders" equity, less intangible
assets, by the closing number of ordinary shares, on a fully diluted basis:
30 June 30 June
2003 2002
R000"s R000"s
Ordinary shareholders" equity per balance 1 159 898 1 115 899
sheet
Less: Goodwill (12 328) (2 954)
Less: Trademarks (34 173) (39 321)
Adjusted total shareholders" equity 1 113 397 1 073 624
Closing number of ordinary shares, fully 969 689 969 689
diluted (000"s)
Tangible net asset value per share, fully 115 111
diluted (cents)
Year ended Year ended
30 June 30 June
2003 2002
R000"s R000"s
Note 12 - Net financing costs paid
Net financing costs per income statement (81 655) (170 557)
Movement in accrued interest 5 189 (29 076)
Net present value discount on rights issue (16 965)
proceeds
Net financing costs paid (93 431) (199 633)
Note 13 - Capital expenditure
Incurred 26 160 30 014
30 June 30 June
2003 2002
R000"s R000"s
Committed 593 782
Authorised but not contracted 33 046 39 151
Note 14 - Commitments
Operating lease commitments 503 882 519 664
Note 15 - 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 insurance and re-insurance business with a director of the
insurance subsidiaries, all at arm"s length. In addition to fees paid to the
director during the year of R398 000 (2002: R308 000), the day-to-day operations
and management of the insurance subsidiaries were outsourced to a company partly
owned by the director"s insurance consulting practice.
During the year, the Group acquired the assets and liabilities of Grahams World
of Furniture (Proprietary) Limited (two stores), of which a minority shareholder
is now employed by the Group as a senior executive. This transaction was
concluded at arm"s length.
Note 16 - Audit review
The year-end results have been reviewed in terms of Rule 3.23 of the listings
requirements of the JSE Securities Exchange South Africa by the company"s
auditors, Deloitte & Touche. Their unqualified review opinion is available on
request from the Company Secretary. The annual financial statements and related
audit report have not been finalised.
COMMENTS
Trading
Trading conditions in the retail durables market remain difficult and highly
competitive. The Group"s credit sales for the year, which reduced by 8,3%, were
negatively impacted by the interest rate increases in the first half of the
year, continued focus on strict credit granting and the fact that the Group"s
credit chains operated with an average of 13 500 fewer retail square metres
(representing a reduction of almost 6%) than the prior year. On the other hand,
partly driven by customers switching away from credit as a result of the high
cost of debt, total cash sales increased by 4,5% over last year.
The difficult trading conditions also resulted in a decrease in the gross profit
percentage to sales of 34,5% for the year, compared with last year"s achievement
of 34,7%.
Finance charges from continuing operations were severely impacted by the decline
in credit sales and the high level of cash sales. The Group achieved better "hit
rates" on its other income streams being insurance sales and delivery charges.
Overheads were strictly controlled and reduced in relation to last year.
Earnings
Although turnover from continuing operations decreased by 3,8%, EBITDA from
continuing operations increased by 25,7% due to management"s successful efforts
to improve the overheads to total income ratio throughout the Group. The trading
profit margin from continuing operations improved from 4,1% to 6,4% in the
current year.
The significant decrease of R89 million in net financing costs, mainly as a
result of the recapitalisation at the end of the prior year, coupled with the
substantial improvement in trading profit resulted in an increase of R107
million in the Group"s profit before exceptional items to R64 million.
Exceptional gain
The adoption of AC133 during the year under review resulted in a reduction of
the Group"s opening provision for doubtful debts of R29,2 million, which has
been disclosed as an exceptional gain.
After the exceptional gain and the Group"s share of the joint venture"s loss,
the Group achieved attributable earnings of R59 million (2002: R633 million
attributable loss), which translates into headline earnings per share of 8
cents, on a fully diluted basis.
Dividend
No dividend has been declared.
Credit management
While the focus on credit management remains a priority, the impact of the
strain on consumers is evident in that total arrears, which are measured on a
gross basis, have increased to 14,9% compared with last year"s 13,9%. For
comparative purposes, after taking into account the R29,2 million reduction in
the opening provision for doubtful debts, total provisions against the gross
instalment debtors book now represent 28,3% (June 2002: 28,9%).
Cash flow and financial position
Through added focus and proactive management, the Group reduced its working
capital in the current year by R80,4 million. This compares with an increase in
working capital in the prior year of R42 million. Cash generated by operating
activities amounted to R159 million (2002: utilisation of R81 million).
Interest bearing bank borrowings at 30 June 2003 amounted to R450 million
compared to last year"s R1 291 million. Gearing has decreased from 116% at 30
June 2002 to 39% at 30 June 2003.
Directorate
As announced in our Interim Report Chris Wells, the previous Chief Executive
Officer, resigned from the Board with effect from 27 March 2003. Alan
Schlesinger was appointed as an executive director, in the position of Chief
Executive Officer with effect from 31 March 2003.
Due to other commitments Martin Leigh resigned as a non-executive director with
effect from 29 May 2003.
Strategic investment opportunities
Subsequent to last year"s restructuring and recapitalisation of the Group, the
Board undertook a strategic review. This review has identified a window of
opportunity where the Group could materially enhance its long-term growth
prospects in a changing and increasingly competitive market. These additional
opportunities will, however, require significant investment. While the Group has
a robust balance sheet and sufficient funding to meet its normal capital
expenditure and working capital requirements, the Board wishes to maintain a
strong balance and an ethos of financial prudence. Therefore, the Board would
only commit the Group to take advantage of these long-term opportunities if
additional shareholder funding were made available to it.
Further cautionary announcement
The shareholders of Relyant are referred to the cautionary announcements dated
27 March 2003, 8 May 2003, 19 June 2003 and 31 July 2003 respectively, and are
hereby advised that the company is still in negotiations, which if successfully
concluded, may have a material effect on the price at which Relyant shares trade
on the JSE Securities Exchange South Africa.
Accordingly, shareholders are advised to exercise caution when dealing in their
shares until a further announcement is made.
Prospects
Although the retail environment remains difficult, the Board expects that the
recent reduction in inflation and interest rates will form the foundation of a
gradual recovery in consumer spending on household durables. Against this
background, the directors remain committed to further improve the operating
performance of the Group.
For and on behalf of the Board
PJB Pohlmann AM Schlesinger
Chairman Chief Executive Officer
8 September 2003
Non-executive Directors:
PJB Pohlmann (Chairman)(1), HM Khoza, MT Lategan, JM Moore(2)
Executive Directors:
AM Schlesinger (Chief Executive Officer), RBG Sinclair
(1) German (2) British
Registered office
Relyant House, 131 van Beek Street
Ellis Park 2094
Telephone (011) 401-5000
Transfer secretaries
Computershare Limited, Investor Services Division
70 Marshall Street, Johannesburg, 2001
Telephone (011) 492-1620/9
Auditors
Deloitte & Touche
Internet site
www.relyant.co.za
Sponsor
Investec Bank Limited
Date: 08/09/2003 04:00:53 PM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
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