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LA Group Limited - Unaudited Results For The Six Months Ended 31 August 05
Further Cautionary Announcement
LA GROUP LIMITED
Registration No: 1936/008786/06
Share code: LAR ISIN: ZAE000028676
"N" Share code: LAN ISIN: ZAE000028684
UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST 05 FURTHER CAUTIONARY
ANNOUNCEMENT
HEADLINE EARNINGS PER SHARE UP 25%
NET ASSET VALUE PER SHARE UP 17%
OPERATING PROFIT BEFORE TAX UP 19%
GROUP INCOME STATEMENT
Six months to Six months to 12 months to
31 Aug 2005 31 Aug 2004 28 Feb 2005
% Restated Restated
change Unaudited Unaudited Audited
R"000 R"000 R"000
REVENUE 334 963 328 037 734 841
OPERATING PROFIT
BEFORE
DEPRECIATION,
GOODWILL AND
TRADEMARK
AMORTISATION 38 183 30 659 81 276
Depreciation 2 888 3 042 6 451
Goodwill and
trademark
amortisation 317 660
OPERATING PROFIT
BEFORE NET
INTEREST 35 295 27 617 74 165
Net interest
paid 4 483 1 797 6 063
PROFIT BEFORE
TAXATION 30 812 25 820 68 102
Taxation 14 992 9 017 27 818
NET PROFIT
ATTRIBUTABLE TO
ORDINARY
SHAREHOLDERS 15 820 16 803 40 284
Number of
ordinary
and "N"
ordinary shares
In issue 46 649 505 62 001 701 52 909 416
Treasury shares
included above 6 003 922 7 000 172 7 000 172
At weighted
average 40 147 458 54 841 914 50 592 493
At weighted
average -
diluted 41 720 879 56 415 335 52 305 459
Headline
earnings
per ordinary
and `N"
ordinary shares
- cents
At weighted
average 25 39.47 31.63 80.82
Diluted 24 38.19 30.75 78.17
Earnings per
ordinary and
`N" ordinary
shares - cents
At weighted
average 29 39.40 30.64 79.66
Diluted 28 38.13 29.78 77.05
Net asset value
per share 17 565.23 483.49 559.39
ADDITIONAL
INFORMATION
Property, plant
and equipment
Depreciation 2 888 2 725 6 451
Capital
expenditure 6 385 3 473 17 543
Intangibles
Amortisation 317 660
Capital
commitments 11 800 14 533 14 800
Exchange rates
(Rand/Pound)
Average 11.7294 11.7447 11.1380
Spot 11.5685 12.0452 11.1005
GROUP BALANCE SHEET
At At At
31 Aug 2005 31 Aug 2004 28 Feb 2005
Restated
Unaudited Unaudited Audited
R"000 R"000 R"000
ASSETS
Non-current assets
Property, plant and equipment 32 239 17 775 28 446
Investment 40 259
Intangible assets 4 762 5 113 4 762
Deferred taxation 23 937 29 301 24 928
101 197 52 189 58 136
Current assets
Inventories 175 459 145 617 143 718
Trade and other receivables 189 426 175 166 133 718
Taxation prepaid 2 952 383 3 049
Deposits on
property acquisitions 761 1 473 761
Cash and cash equivalents 37 854 35 327 61 849
406 452 357 966 343 095
Total assets 507 649 410 155 401 231
EQUITY AND LIABILITIES
Equity
Shareholders" equity 226 117 251 106 244 271
Non-current liabilities
Non-interest bearing 116 241 222
Interest bearing 45 923 3 884 10 304
46 039 4 125 10 526
Current liabilities
Non-interest bearing
Trade and other payables 120 536 91 676 68 907
Taxation 13 274 12 906 8 652
Interest bearing
Current portion of
non-current liabilities 7 897 1 733 4 882
Short-term loans 24 940 8 469 22 012
Bank overdraft 68 846 40 140 41 981
235 493 154 924 146 434
Total Equity and Liabilities 507 649 410 155 401 231
GROUP CASH FLOW STATEMENT
Six months to Six months to 12 months to
31 Aug 2005 31 Aug 2004 28 Feb 2005
Unaudited Unaudited Audited
R"000 R"000 R"000
OPERATING ACTIVITIES
Operating income before
interest and taxation 35 295 27 617 74 165
Adjustment for
non-cash flow items 2 862 3 042 7 189
Cash generated by
operations 38 157 30 659 81 354
Movements in working
capital (35 820) (13 197) 7 381
Interest received 479 1 613 1 151
Interest paid (4 962) (3 410) (7 214)
Dividends paid - ordinary (8 328) (8 231) (8 231)
Taxation paid (9 232) (989) (22 680)
Net cash (outflow) inflow
from operating activities (19 706) 6 445 51 761
INVESTING ACTIVITIES
Acquisitions of
property, plant and
equipment (6 385) (3 473) (17 543)
Proceeds from sale of
property, plant and
equipment 26 446
Investment in associate (40 259)
Deposits on
property acquisitions (376)
Net cash outflow from
investing activities (46 618) (3 473) (17 473)
FINANCING ACTIVITIES
Share buyback (28 240) (25 873)
Increase (decrease)
in long-term borrowings 35 513 (63) 6 338
Movement in
short-term portion loans 3 015
Increase (decrease)
in short-term borrowings 2 928 (4 257) 12 436
Proceeds of share
options exercised 729 194 194
Net cash inflow/(outflow)
from financing activities 13 945 (4 126) (6 905)
Net (decrease)/increase
in cash and cash
equivalents (52 379) (1 154) 27 383
Cash and cash equivalents
at beginning of period 19 868 (2 660) (2 660)
Effect of foreign
exchange movements 1 519 (999) (4 855)
Cash and cash equivalents
at end of period (30 992) (4 813) 19 868
NOTE:
Cash and cash equivalents comprise bank overdrafts less bank and cash balances.
SEGMENTAL ANALYSIS
Revenue % Results %
R"000 R"000
Six months ended 31 August 2005
Corporate clothing 88 144 26 (4 597) (13)
Branded distribution 243 272 73 30 837 87
Retail 3 547 1 (40) (0)
Property (359) (1)
Corporate royalties
and unallocated
corporate expenses 9 454 27
Total 334 963 100 35 295 100
Six months ended
31 August 2004 (unaudited)
Corporate clothing 113 758 35 (3 447) (12)
Branded distribution 214 279 65 26 429 95
Property
Corporate royalties
and unallocated
corporate expenses 4 635 17
Total 328 037 100 27 617 100
12 months ended
28 February 2005 (audited)
Corporate clothing 218 709 30 (7 116) (10)
Branded distribution 516 132 70 71 944 97
Property 452 1
Corporate royalties
and unallocated
corporate expenses 8 885 12
Total 734 841 100 74 165 100
Net assets %
(liabilities)
R"000
Six months ended 31 August 2005
Corporate clothing 73 498 32
Branded distribution 117 389 52
Retail (11) (0)
Property 1 647 1
Corporate royalties
and unallocated
corporate expenses 33 594 15
Total 226 117 100
Six months ended
31 August 2004 (unaudited)
Corporate clothing 87 781 35
Branded distribution 138 166 55
Property 2 019 1
Corporate royalties
and unallocated
corporate expenses 23 140 9
Total 251 106 100
12 months ended
28 February 2005 (audited)
Corporate clothing 76 379 31
Branded distribution 145 588 60
Property 706 0
Corporate royalties
and unallocated
corporate expenses 21 598 9
Total 244 271 100
GEOGRAPHICAL ANALYSIS
Revenue % Results %
R"000 R"000
Six months ended 31 August 2005
South Africa 282 004 84 37 822 107
International 52 959 16 (2 527) (7)
Total 334 963 100 35 295 100
Six months ended
31 August 2004 (unaudited)
South Africa 246 445 75 23 002 83
International 81 592 25 4 615 17
Total 328 037 100 27 617 100
12 months ended
28 February 2005 (audited)
South Africa 579 135 79 70 742 95
International 155 706 21 3 423 5
Total 734 841 100 74 165 100
Net assets %
R"000
Six months ended 31 August 2005
South Africa 182 909 81
International 43 208 19
Total 226 117 100
Six months ended
31 August 2004 (unaudited)
South Africa 187 945 75
International 63 161 25
Total 251 106 100
12 months ended
28 February 2005 (audited)
South Africa 199 748 76
International 44 523 24
Total 244 271 100
STATEMENT OF CHANGES IN SHAREHOLDERS" EQUITY
Six months to Six months to 12 months to
31 Aug 2005 31 Aug 2004 28 Feb 2005
Restated
Unaudited Unaudited Audited
R"000 R"000 R"000
Balance at beginning of
period 244 271 243 250 243 250
Cost of share buybacks (28 240) (25 873)
Proceeds of share options
exercised 729 194 329
Earnings attributable to
shareholders 15 820 16 803 40 284
As previously reported 40 302
IFRS adjustment for
share-based payment (18)
Dividends paid (8 328) (8 231) (8 231)
Foreign currency
translation reserve 1 848 (910) (5 506)
Share-based payments
reserve 17 18
226 117 251 106 244 271
RECONCILIATION OF EARNINGS TO HEADLINE EARNINGS
Six months to Six months to 12 months to
31 Aug 2005 31 Aug 2004 28 Feb 2005
Unaudited Unaudited Restated
R"000 R"000 R"000
Net earnings per income
statement 15 820 16 803 40 284
Goodwill and trademark
amortisation 317 660
Profits on sale of
property, plant and
equipment 26 (75)
HEADLINE EARNINGS 15 846 17 120 40 869
COMMENTARY
INTRODUCTION
The L.A. Group Limited ("the Group") is a leading entrepreneurial black
economic empowerment holding company. The Group currently focuses on the
wholesale distribution of apparel and footwear with two main divisions. While
the one division supplies corporate clothing to both the local and
international markets, the other focuses on the wholesale distribution of
branded clothing, footwear and accessories. The company also owns the Polo
trademark for sub-Saharan Africa, which it licenses to various parties and from
which it earns a royalty income, as well as the national Polo retail stores.
OVERVIEW OF RESULTS
GROUP INCOME STATEMENT
Turnover increased slightly to R334.96 million (2004: R328.04 million), with
the Branded Distribution division remaining the biggest contributor to Group
turnover with a R243.3 million contribution (2004:R214.3 million). On the back
of a buoyant retail market the Branded Distribution division performed well,
resulting in operating profit before interest of R35.3 million (2004: R27.6
million), with the group operating margin at 10,5%. With regard to
International Corporate Clothing, this division recorded an operating loss of
R2.5 million (2004: profit of R4.6 million), while the local Corporate Clothing
division reduced its operating loss from R8.1 million in 2004 to R2 million.
The loss in the international division was the result of certain new contracts
not rolling out timeously.
Net interest paid increased as a result of increased working capital and
investments. The overall taxation charge was higher as the amount includes a
once-off Secondary Tax on Companies of R3.6 million for shares bought back in
March 2005.
Although the net profit attributable to ordinary shareholders is slightly lower
compared to the same period in 2004, headline earnings per share were 25%
higher at 39,47 cents (2004: 31,6 cents). Net asset value per share was 17% up
to 565,23 cents (2004:483,49 cents). These increases have benefited from lower
shares in issue compared to the previous period due to share buybacks in
September 2004 and March 2005.
BALANCE SHEET
The total assets of the Group have increased by about 27% to R508 million. An
investment of R40.3 million represents the LA Group"s 20,3% stake in Gateway.
This investment was substantially funded with a loan which is reflected in the
increase in interest-bearing debt from R10.3 million (28 February 2005) to
R45.9 million. Gateway provides international connectivity services to
telecommunications carriers and corporate businesses on the African continent.
The company"s services include international and national voice, data,
electronic, commerce and value added services, such as roaming and network
management. The investment has performed in line with expectations. For the
year ended 28 February 2006, it is expected that income on this investment will
be equity accounted.
The increase in inventories to R175.5 million (28 February 2005: R143.7
million) as well as in trade and other receivables to R189.4 million (28
February 2005: R133.7 million) are mainly as a result of the anticipated
increase in business over the festive period for the Branded Distribution
division. The increase has been funded by an increase in trade payables to
R120.54 million (R68.9 million) and bank overdraft of R68.8 million (R41.98
million). It is expected that the overdraft and trade payables will reduce to
normal levels by the end of February 2006.
DIVIDENDS
A cash dividend of 20 cents per share in respect of the year ended 28 February
2005 was paid to the holders of ordinary and `N" ordinary shares registered on
10 June 2005. In accordance with the Group"s accounting policy, this payment is
only reflected in the period during which it is paid. No interim dividend has
been declared as company policy is to declare one dividend per annum.
CAPITAL COMMITMENTS
The capital commitments for the next six months comprise the following:
Property R9.2 million
Equipment R2.6 million
The transfer of the Carter Harris building is confirmed to occur by
February 2006.
ACQUISITION OF POLO RETAIL STORES
On 1 July 2005 the Group strategically purchased the four Polo retail stores
located in Sandton, Cavendish, Menlyn and Rosebank. The opportunity to purchase
these four stores was necessary as it enables the Group to manage and showcase
the brand"s presence more effectively.
SHARE BUYBACK
During March 2005, 641 296 L.A. Group ordinary shares and 5 618 615 L.A. Group
`N" ordinary shares were purchased for an amount of R28.2 million, in
accordance with the approval of shareholders.
CONTINGENT LIABILITIES
The damages claim by Platinum Holding (Pty) Ltd instituted four years ago on
the disputed agreement has been postponed to August 2006. The board of
directors remain confident of the outcome on this matter.
The Group has made formal representation with regard to the trademarks and STC
tax disputes with SARS. The amount of tax on the trademark dispute is R24
million for the tax years from 1999 to 2005. If SARS is successful, the
deferred tax asset will have to be reversed and charged back to the income
statement to the extent of R11 million. The amount of tax on the STC dispute is
R1.95 million. The board of directors remains optimistic that these disputes
will be resolved.
PROSPECTS
Against the backdrop of the growing economy and increased consumer demand, the
Branded Division is expected to continue with an increase in both turnover and
profit contribution. The Corporate Clothing divisions are expected to improve
on the previous year"s performance.
On this basis, the Group remains confident of achieving double digit growth in
earnings. The prospects are based on the assumption of no dramatic changes to
the local or global economic landscape.
ACCOUNTING POLICIES
The unaudited results of the Group for the six months ended 31 August 2005 have
been prepared in accordance with the Group"s accounting policies. These comply
with international Financial Reporting Standards (IFRS) and were adopted with
effect from 1 March 2005. The Group is reporting under IFRS for the first time
for the year ending 28 February 2006. Comparative figures for the six months to
31 August 2004 and the year ended 28 February 2005 have accordingly been
restated where necessary.
This interim report complies with International Accounting Standard 34 -
Interim Financial Reporting.
In terms of IFRS 1 - First time adoption of International Financial Reporting
Standards, the Group has elected to take advantage of the following exemptions:
- At 1 March 2004 the amount of the accumulated Foreign Currency Translation
Reserve has been transferred to Retained Income.
- Options, granted to employees prior to 7 November 2002 which have not yet
vested, have not been accounted for in terms of IFRS2 - Share-based payments.
- Property, plant and equipment have been measured at fair value as at 1 March
2004 which value is deemed to be cost.
In terms of IFRS3 - Business Combinations, with effect from 1 March 2005
goodwill is no longer amortised, but is reviewed for impairment.
As a result of the changes in accounting policies the following adjustment has
been effected:
- Share-based payments in terms of IFRS2 are recognised as an expense in the
income statement with a corresponding credit to a share-based payment reserve
in equity.
The effects on the income statements are summarized below.
6 months ended Year ended
31 Aug 2004 28 Feb 2005
R"000 R"000
Net income as previously reported 16 803 40 302
Share-based payments - (18)
Net income restated 16 803 40 284
FURTHER CAUTIONARY ANNOUNCEMENT
Shareholders are referred to the cautionary announcement dated 23 September
2005 and are advised that the negotiations referred to therein are continuing.
Accordingly, shareholders are advised to continue to exercise caution when
dealing in the company"s securities until a further announcement is made.
Signed on behalf of the Group
AK Peer SA Mukadam
Executive Chairman Group Managing Director
Cape Town
31 October 2005
Directors: AK Peer (Executive Chairman), SA Mukadam (Group Managing Director),
F Peer*, K Chetty, TP Taylor**, KD Penkin**, T Oliphant**
*Non-Executive ** Independent Non-Executive
LA GROUP LIMITED
Registration No: 1936/008786/06
Registered office: The Oval, Colinton House, Oakdale Road, Newlands 7700
(PO Box 3500, Cape Town 8000)
Share code: LAR ISIN: ZAE000028676
"N" Share code: LAN ISIN: ZAE000028684
Transfer Secretaries
Computershare Investor Services 2004 (Pty) Ltd.
Registration No: 2004/003647/07, 70 Marshall Street, Johannesburg 2001,
(PO Box 61051, Marshalltown 2107)
Company Secretary: I Bloom
Sponsor: Sasfin Corporate Finance, a Division of Sasfin Bank Limited
Website: www.lagroup.co.za
POLO
SKYE
ALLEN DOUGLAS
CARTER HARRIS
Date: 31/10/2005 12:00:27 PM Produced by the JSE SENS Department
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