| Tue 21 Oct 2003, 11:33 | | CONSOLIDATED AUDITED RESULTS FOR THE YEAR ENDED |
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ELLERINE HOLDINGS LIMITED - CONSOLIDATED AUDITED RESULTS FOR THE YEAR ENDED
31 AUGUST 2003
ELLERINE HOLDINGS LIMITED
Registration number 1968/013402/06
Share code: ELH
ISIN number: ZAE000022752
CONSOLIDATED AUDITED RESULTS FOR THE YEAR ENDED 31 AUGUST 2003
* Wetherlys successfully acquired by Ellerines
* Earnings per share +18,3
* Ellerines adjudged No 1 Furniture Brand
* Operating margin 15,8%
* Turnover +7,8%
* Return on equity 16,3%
* Profit after tax +16,1%
* Cash generated +23%
Consolidated Income Statement
2003 2002 %
R"000 R"000 Change
Turnover 2 183 984 2 025 946 7,8
Cost of sales 879 700 791 177
Gross profit 1 304 284 1 234 769 5,6
Operating expenses 780 080 730 376 6,8
Debtors costs 180 193 199 371 (9,6)
Operating profit before
foreign
exchange adjustment 344 011 305 022 12,8
Foreign exchange translation
(loss)/gain (505) 4 743
Operating profit after foreign
exchange adjustment 343 506 309 765 10,9
Net investment income 14 062 7 197 95,4
Profit before taxation and
abnormal items 357 568 316 962 12,8
Impairment of owner occupied
properties (1 294) (6 237)
Profit on disposal of owner
occupied properties 996
Adjustment to fair value of
investment properties (543) 777
Income from associate 312
Profit before taxation 357 039 311 502 14,6
Taxation (109 809) (98 560) 11,4
Profit attributable to
ordinary shareholders 247 230 212 942 16,1
Determination of headline
earnings
Profit attributable to
ordinary 247 230 212 942
shareholders
Impairment of owner occupied
properties 1 294 6 237
Profit on disposal of owner
occupied properties (996)
Adjustment to fair value of
investment properties 543 (777)
Net profit on disposal of (3 905) (6 158)
assets
Tax effect thereon 1 172 1 847
Headline earnings 245 338 214 091 14,6
Number of ordinary shares:
Weighted average 72 163 592 73 517 823
In issue 73 805 200 73 805 200
Treasury (1 641 (287 377)
608)
Fully diluted weighted average 73 241 671 73 945 447
Earnings per share: Cents Cents
Attributable 342,6 289,6 18,3
Headline 340,0 291,2 16,7
Fully diluted basic 337,6 288,0 17,2
Fully diluted headline 335,0 289,5 15,7
Gross profit (%) 59,7 60,9
Operating margin (%) 15,8 15,1
Tax rate (%) 30,7 31,1
Consolidated Balance Sheet
2003 2002
R"000 R"000
Assets
Non-current assets 455 129 415 703
Property and equipment 137 681 133 679
Investment in associate 23 562
Investments at bankers 293 886 282 024
Current assets 1 846 805 1 744 183
Inventories 130 838 117 542
Trade receivables 2 319 343 2 116 284
Provisions (779 240) (702 733)
1 540 103 1 413 551
Term loans 67 456 85 962
Provisions (36 516) (46 077)
30 940 39 885
Other receivables 49 329 47 148
Funds on call, bank balances and cash 95 595 126 057
Total assets 2 301 934 2 159 886
Equity and Liabilities
Shareholders" equity 1 574 973 1 450 779
Non-current liabilities 287 069 324 812
Deferred taxation 204 237 241 279
Interest bearing borrowings 82 832 83 533
Current liabilities 439 892 384 295
Taxation 59 306 35 779
Trade and other payables 179 559 169 961
Bank overdrafts 201 027 178 555
Total equity and liabilities 2 301 934 2 159 886
Net asset value per share (cents) 2 224 1 973
Current ratio 4,2 4,5
Net interest bearing debt: equity (%) (6,7) (10,2)
Consolidated Cash Flow Statement
2003 2002
R"000 R"000
Cash generated from operating activities 441 656 432 341
Working capital changes (189 870) (227 511)
Cash generated from operations 251 786 204 830
Exchange rate difference on translation
of net foreign assets (17 161) 17 888
Net investment income 14 062 7 197
Taxation paid (123 324) (55 135)
Dividend paid (53 065) (52 821)
Cash flows from operating activities 72 298 121 959
Investment in associate (23 250)
Purchase of property and equipment (45 607) (33 730)
Proceeds on disposal of property
and equipment 8 998 10 798
Cash flows from investing activities (59 859) (22 932)
Acquisition of treasury shares (52 810)
(Decrease)/increase in interest
bearing borrowings (701) 2 160
Cash flows from financing activities (53 511) 2 160
Net (decrease)/increase in cash and
cash equivalents (41 072) 101 187
Cash and cash equivalents at the
beginning of the year 144 526 43 339
Cash and cash equivalents at
the end of the year 103 454 144 526
Attributable cash flow per share (cents) 173,7 237,7
Statement of Changes in Equity
Non-
Contin- distrib- Distrib-
Share Share gency utable utable
R"000 capital premium reserve reserves reserves Total
Balance at 31 3 690 40 586 24 295 1 187 468 1 256 039
August 2001
Change in
accounting (15) 23 318 (3 518) 19 785
policies
Balance at 31
August 2001, as 3 675 40 586 23 318 24 295 1 183 950 1 275 824
restated
Exchange rate
differences
arising on
translation
of foreign 17 888 17 888
entities
Treasury shares
purchased and 1 (3 588) (3 587)
held
Net profit for 212 942 212 942
the year
Transfer to
insurance 3 172 (3 172)
contingency
reserve
Transfer of
revaluation of
investment
properties
to non-
distributable 777 (777)
reserves
Dividend (52 288) (52 288)
- As previously (52 845) (52 845)
reported
- Treasury 557 557
shares
Balance at 31 3 676 40 586 26 490 42 960 1 337 067 1 450 779
August 2002
Exchange rate
differences
arising on
translation
of foreign (17 161) (17 161)
entities
Treasury shares
purchased and (135) - (52 654) (52 789)
held
Net profit for 247 230 247 230
the year
Transfer to
insurance 4 196 (4 196)
contingency
reserve
Transfer of
realised profits
on disposal of 996 (996)
owner occupied
properties
Transfer of
revaluation of
investment
properties
to non-
distributable (543) 543
reserves
Dividend (53 086) (53 086)
- Total (53 878) (53 878)
- Treasury 792 792
shares
Balance at 31 3 541 40 586 30 686 26 252 1 473 908 1 574 973
August 2003
Commentary:
We are delighted with the results achieved for the past year which is the
culmination of various strategic initiatives implemented by the Group. These
include the establishment of separate dedicated business units for each of the
brands and for the stores operating in foreign countries, the more stringent
credit granting criteria introduced through the centralisation of credit
granting and the emphasis placed on the management and collection of the debtors
book. We are also very excited at the successful conclusion of the Wetherlys
acquisition which will enhance both the future profitability and growth
potential of the Group.
INCOME STATEMENT
Turnover
The 4,8% increase in the value of goods sold at the half-year stage improved to
a pleasing 7,2% for the full year.
Finance charges written increased significantly as a result of the increased
volumes, as well as the higher interest rates which prevailed for most of the
year. This has resulted in the unearned provision for finance charges increasing
by R53 million, with earned finance charges reflecting an increase of only 4,8%
for the year. Given that the finance charge rates have reduced by 5% since June
2003 and are most likely to reduce further, a large portion of the unearned
provision will flow back to profits during the year to August 2004.
Financial services at R475 million, a major contributor to Group turnover,
improved by 13% over last year and has shown significant growth over the past
three years.
Gross Margin
Gross profit at R1,3 billion increased by 5,6% for the year, with a margin of
59,7% (2002: 60,9%) achieved. The margin showed an improvement of 1,2% in the
second six months when compared to the interim results at February 2003, despite
the launch of the new FurnCity superstores and the re-branding of some 90
stores, negatively affecting margins in the second six months.
Expenses
Operating expenses at R780 million increased by 6,8% for the year. This result
was particularly pleasing given that direct operating expenses increased by only
5,2% as a result of tight cost controls. The remaining increase was attributable
to premiums payable on funeral benefits for customers, introduced for the first
time in the current year.
Operating Profit
The operating profit at R344 million increased by 12,8% before foreign exchange
adjustments. Subsequent to the interim results we were able to obtain the
required exchange control approval to capitalise the loan account in Zambia.
This resulted in the reversal of the R6 million unrealised loss on exchange on
the loan account which was reflected in the interim results.
Net Investment Income
The net investment income increased from R7 million to R14 million. This is a
very satisfying result given the increased trading volumes and investments made
during the year. Improved treasury management and higher interest rates
contributed to this result.
Profit After Tax
The profit after tax at R247 million reflects a gratifying increase of 16,1%
over last year and has resulted in the attributable earnings per share at 342,6
cents increasing by 18,3%, after accounting for treasury shares arising from the
share buy back which commenced in April 2003 and the consolidation of the Share
Trust. In relation to the accounting treatment of the Share Trust shareholding,
shareholders are referred to the accounting policies note below.
BALANCE SHEET
Return on Average Shareholders" Equity
The earnings of R247 million generated a return on average shareholders" equity
of 16,3% (2002: 15,7%). Shareholders" equity of R1,57 billion as at 31 August
2003 supported an ungeared balance sheet.
Trade Debtors Ledger
Net trading debtors at R1,5 billion have increased by 8,9% and are well
provisioned at 33,6% (2002: 33,2%). The debtors ledger generated a record R1,96
billion cash during the year, an improvement of 9,3% over the previous year. A
pleasing aspect has been the improvement seen in the debtors ledger since
centralising the credit granting. Apart from much improved results arising from
the increased focus on collection and deposit rates, arrears have shown a 1%
improvement to 24,6%. This augurs well for the future.
Term Loans Debtors Ledger
The Rainbow Loans debtors ledger, given the high risk profile of this business,
is well provisioned at 54%. Arrears in this business have also reduced.
Taxation
The increased amount owing to revenue at the year-end resulted from the
finalisation of a routine tax investigation and resultant re-interpretation of
the calculation of the section 24 allowance. This resulted in additional tax
payable, previously deferred, of R24 million.
Price to Book Ratio
With the closing share price on 31 August 2003 of R27,00 and a net asset value
of R22,24, the price to book ratio of 121% has shown a significant improvement
when compared to last year when the share was trading at a 27% discount to net
asset value.
Cash Flow
The Group continued to generate positive cash flows. Whilst net cash reserves
reduced by R31 million, from R144,5 million to R103,5 million, this was after
investing R76,1 million as follows:
* Share buy back R43,6 million
* Investment in CICL Investment Holdings R23,3 million
* Financing the purchase of shares for the Share Trust (net)
R9,2 million
R76,1 million
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 with respect to the treatment of transfers to the insurance
contingency reserve. In terms of the guideline for accounting for short term
insurance, transfers to this reserve have now been treated as an appropriation
of distributable reserves and no deferred taxation asset has been created in
respect of the taxation benefits arising from transfers to the reserve. In prior
years these transfers were treated as a charge against profits and the
associated deferred taxation asset was raised.
The Group also changed its accounting policy with respect to the Share Incentive
Trust. The change was effected in order to provide more appropriate
presentation. The Group now consolidates the share incentive trust and the
shares owned by the trust are accounted for as treasury shares. This change has
no effect on the net profit of the Group.
Comparative figures have been restated to give effect to these changes.
OPERATIONAL REVIEW
The streamlining of the operating structure has now been bedded down with the
Ellerines and Town Talk brands targeting the traditional market. The FurnCity
brand focuses on consumers in the middle income group. The stores in Botswana,
Lesotho, Namibia and Zambia now comprise the dedicated foreign business unit.
This consolidation has significantly improved the effective management of those
operations.
The Ellerines brand was recently adjudged the top furniture brand for 2003 by
the Sunday Times and Markinor, with the Town Talk brand in position number five.
Despite the opening of 22 new outlets during the year under review, the number
of outlets from which the Group trades reduced from 606 to 594 as a result of
the closure of a number of non-profitable outlets. The costs incurred in the
closure of these outlets have been accounted for in the trading results for the
Group. A further 17 outlets were resited and 7 enlarged as part of our policy
of upgrading satellite stores to full stores.
The process of evaluating outlets based on their economic viability and of
rationalising non-profitable outlets is continuing. There is also downward
pressure on the costs of occupation which is being achieved through the
downsizing of premises where appropriate and negotiating leases at rentals which
reflect the softer retail property market.
The expansion of the FurnCity chain continues, with the number of stores having
increased from 109 to 137 including 4 FurnCity Superstores situated in Pretoria,
Bloemfontein, Rustenburg and Gaborone. Additional FurnCity Superstores are due
to open in Port Elizabeth and Pinetown later in the year.
The Rainbow Loans business unit has performed well over the past year. As at
the year-end, the amount invested in the business has reduced to R17,3 million
(2002: R34,4 million) due to strong cash flows, stringent expense management and
the judicious lending strategy. The Rainbow Loans operations contributed pre tax
profit of R17,8 million to the Group.
SHARE BUY BACK
During April and May 2003 the company completed a share buy back of 2 214 200
shares representing 3% of the issued share capital of the company at a cost of
R43,6 million, at an average price of R19,71 per share. These shares are held as
treasury shares.
INVESTMENTS
Wetherlys
Post the balance sheet date, the Wetherlys acquisition has been successfully
concluded. Payment of the purchase consideration of R507,2 million will be
effected on Monday, 27 October 2003.
Wetherlys is an excellent business focused on the top end of the South African
furniture market as a cash retailer, committed to the quality of its products
and excellence in the service it provides. The business consists of 11 Wetherlys
and 5 Osiers outlets. Osiers, which specialises in cane furniture, household
linen and giftware has been expanded over the past few years. The Wetherlys
business unit, including Osiers, will add value to the Group through
diversifying the overall business risk. Substantial benefits should be derived
from further exciting expansion opportunities both locally and offshore.
Wetherlys top management have signed service agreements with the company and
will be re-investing an amount of R66,1 million through the subscription for
shares in Ellerines in order to align their interests with those of the Group.
An excellent working relationship has developed between the Ellerines and
Wetherlys management which augurs well for the future.
CICL Investment Holdings (Pty) Limited ("CICL")
An amount of R23,25 million was invested to acquire a 37,5% equity stake in CICL
with effect from April 2003. CICL operates in the short and long term insurance
markets through its wholly owned subsidiaries Constantia Insurance Company
Limited and Constantia Life & Health Assurance Company Limited as well as
various related businesses. The results of CICL have been equity accounted with
effect from April 2003 and the Group"s share thereof amounted to R0,3 million.
It is expected that the Group will show a superior return and sustained growth
from this investment going forward.
PROSPECTS
There has been an improvement in the overall trading environment with the
increase in disposable income in our target market through reduced tax rates,
the reduction in the rate of inflation and the lower interest rate environment.
We expect overall growth rates to increase in the months ahead particularly
given the fact that a substantially lower number of our customers are being
retrenched as compared to the situation at the same time last year. The Group is
also benefiting from the rationalisation which has taken place in the industry,
particularly in the segment in which we have our largest number of outlets.
The inclusion of the Wetherlys" results with effect from November 2003 will
enhance Group profitability and although the Group will have a degree of
gearing, the costs associated therewith will be lower than anticipated due to
the reduced interest rate environment.
Given these factors and despite the adverse effects which the lower interest
rates will have on finance charges generated on credit sales, Group earnings,
for the year to August 2004, should show a meaningful increase.
DECLARATION OF DIVIDEND
The Board of Directors has resolved to declare an annual dividend, being
dividend number 66 of 84,0 cents per share (2002: 73,0 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, 5 December 2003
Date trading commences ex the dividend Monday, 8 December 2003
Record date Friday, 12 December 2003
Date of payment on Monday, 15 December 2003
Share certificates may not be dematerialised or re-materialised between Monday,
8 December 2003 and Friday, 12 December 2003, both dates inclusive.
REVIEW OF INDEPENDENT AUDITORS
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.
BOARD OF DIRECTORS
The Directors are pleased to announce the appointment of Mr B D van der Merwe to
the Board and Mr J A Smith as his alternative, both of whom are currently
Executive Directors of Wetherlys.
ANNUAL REPORT/ANNUAL GENERAL MEETING
The Annual Report and Financial Statements for the year ended 31 August 2003 and
Notice of the Annual General Meeting, which will be held on Wednesday,
10 December 2003, will be posted to shareholders on or about Tuesday,
18 November 2003.
By order of the Board
Denzil McGlashan Peter Squires
Chairman Chief Executive Officer
21 October 2003
Registered Office:
Block E, Gillooly"s View Office Park,
Osborne Lane, Bedfordview 2008
Transfer secretaries:
Computershare Limited,
70 Marshall Street,
Johannesburg 2001
Auditors:
Grant Thornton Kessel Feinstein
Sponsor:
Nedbank Corporate
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, BD van der Merwe/JA Smith (alternate)
(Non-executive*)
(Company Secretary**)
Visit our website: www.ellerines.co.za
(New Investor Relations Module now included)
Date: 21/10/2003 11:30:15 AM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
