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ELH
ELH
Ellerine - Interim Results For The 6 Months Ended 28 February 2006
Ellerine Holdings Limited
(Registration number: 1968/013402/06)
Share code: ELH
ISIN NUMBER: ZAE000022752
INTERIM PROFIT STATEMENT FOR THE SIX MONTHS ENDED 28 FEBRUARY 2006
* REVENUE UP 138,9%
* OPERATING PROFIT UP 139,4%
* OPERATING MARGIN 18,2%
* ATTRIBUTABLE PROFIT UP 105,7%
* HEADLINE EARNINGS PER SHARE UP 52,7%
* GEARING DOWN TO 28,3%
* NET ASSET VALUE PER SHARE UP 43,6%
* MERGER SYNERGIES AT R33M
CONSOLIDATED INCOME STATEMENT
6 months to February 12 months to
2006 2005 August 2005
R"000 R"000 R"000
Restated and % Restated and
Notes Unaudited unaudited Change unaudited
Continuing
operations
Revenue 6 3 997 346 1 673 322 138,9 4 227 957
Sale of
merchandise 6 2 671 326 1 116 382 139,3 2 763 210
Cost of
merchandise sold (1 526 244) (583 050) 161,8 (1 519 036)
Gross profit 1 145 082 533 332 114,7 1 244 174
Other operating
revenue 6 1 278 103 530 246 141,0 1 387 052
Operating
expenses (1 479 602) (655 354) 125,8 (1 762 756)
Share-based
payments (4 527) (2 511) 80,3 (4 575)
Debtors" costs (210 022) (101 124) 107,7 (141 649)
Operating profit 729 034 304 589 139,4 722 246
Income from
associate 5 104 4 442 14,9 7 080
Insurance
investment
income 7 29 737 18 226 63,2 49 613
Net finance
costs 8 (37 344) (24 141) 54,7 (56 313)
Impairment of
goodwill - (7 885) (16 831)
Profit on disposal
of owner occupied
properties - 46 727 53 793
Profit before
taxation 726 531 341 958 112,5 759 588
Taxation (210 245) (88 409) 137,8 (199 070)
Profit attributable
to ordinary
shareholders -
continuing
operations 516 286 253 549 103,6 560 518
Loss attributable
to ordinary
shareholders -
discontinued
operations (1 719) (3 395) (13 609)
Profit attributable
to ordinary
shareholders 4 514 567 250 154 105,7 546 909
Earnings per
share - continuing
operations 9 Cents Cents Cents
Attributable 430,6 335,8 28,2 626,3
Headline 430,4 285,7 50,6 590,8
Fully diluted
attributable 424,1 325,5 30,3 613,3
Fully diluted
headline 423,9 277,0 53,0 578,6
Earnings per share
- total
operations 9
Attributable 429,1 331,3 29,5 611,1
Headline 429,4 281,2 52,7 575,6
Fully diluted
attributable 422,6 321,2 31,6 598,4
Fully diluted
headline 422,9 272,6 55,1 563,7
% % %
Gross profit 42,9 47,8 45,0
Operating margin 18,2 18,2 17,1
Tax rate 29,1 26,2 26,5
CONSOLIDATED BALANCE SHEET
February February August
2006 2005 2005
R"000 R"000 R"000
Restated and Restated and
Notes Unaudited unaudited unaudited
ASSETS
Non-current assets 2 435 943 1 054 395 2 434 500
Property, vehicles
and equipment 360 811 259 038 334 243
Goodwill 805 617 266 083 805 617
Trademarks 312 122 - 316 503
Investment in
associates 39 148 31 089 35 644
Deferred taxation 186 811 - 316 570
Insurance financial
assets 10 731 434 498 185 625 923
Current assets 5 504 317 2 489 396 4 617 234
Inventories 557 741 265 482 534 398
Trade and other
receivables 11 4 552 293 2 127 329 3 821 242
Taxation 445 - 1 701
Funds at call, bank
balances and cash 393 838 96 585 259 893
TOTAL ASSETS 7 940 260 3 543 791 7 051 734
EQUITY AND LIABILITIES
Shareholders" equity
and reserves 4 763 269 2 103 178 4 419 619
Share capital and
premium 2 195 117 140 703 2 195 095
Insurance contingency
reserve 48 480 40 208 43 272
Foreign currency
translation reserve (37 607) (597) (29 545)
Non-distributable reserves 23 830 81 793 22 276
Distributable reserves 2 533 449 1 841 071 2 188 521
Non-current liabilities 686 527 472 981 742 444
Deferred taxation 235 552 218 992 290 219
Interest bearing
borrowings 450 975 253 989 452 225
Current liabilities 2 490 464 967 632 1 889 671
Trade and other payables 873 029 234 307 951 396
Current portion of
interest bearing
borrowings 1 078 1 994 1 700
Taxation 62 008 37 540 40 606
Provisions 263 607 30 333 274 737
Bank overdrafts and
call loans 1 290 742 663 458 621 232
TOTAL EQUITY AND
LIABILITIES 7 940 260 3 543 791 7 051 734
Net asset value per
share - cents 3 964 2 760 3 691
Current ratio 2,2 2,6 2,4
Interest bearing
debt: Equity (%) 28,3 39,1 18,4
CONSOLIDATED CASH FLOW STATEMENT
6 months to February 12 months to
2006 2005 August 2005
R"000 R"000 R"000
Restated and Restated and
Note Unaudited unaudited unaudited
CASH FLOWS FROM
OPERATING ACTIVITIES (376 274) (84 084) 300 741
Cash (absorbed by)
generated from
operations 12 (75 964) 60 586 541 585
Exchange rate
differences on
translation of
foreign entities (8 062) (968) (29 916)
Unrealised surpluses
arising from hedged
instruments 449 - 354
Insurance investment
income 29 737 18 226 49 613
Net finance costs (37 344) (24 141) (57 052)
Dividends paid (172 595) (79 961) (79 986)
Taxation paid (112 495) (57 826) (123 857)
CASH FLOWS FROM
INVESTING ACTIVITIES (166 226) (154 347) (145 280)
Purchase of property,
vehicles and equipment (76 835) (36 939) (100 584)
Proceeds on disposal of
property, vehicles and
equipment 8 214 6 251 105 672
Increase in insurance
financial assets (99 205) (125 000) (140 064)
Acquisition of Relyant
Retail Limited - - (8 088)
Acquisition of
Wetherlys - - (1 641)
Net decrease (increase)
in investment in
associate 1 600 1 341 (575)
CASH FLOW FROM
FINANCING ACTIVITIES 6 935 16 674 227 850
(Decrease) increase in
interest bearing
borrowings (1 250) (1 807) 196 429
Net proceeds from
issue of shares 8 185 18 481 31 421
Net (decrease) increase
in cash and cash
equivalents (535 565) (221 757) 383 311
Cash and cash
equivalents on
acquisition of Relyant - - (399 534)
Cash and cash
equivalents at
beginning of the
period (361 339) (345 116) (345 116)
Cash and cash
equivalents at end
of the period (896 904) (566 873) (361 339)
Attributable cash flow
per share - cents (169,9) (5,5) 425,4
STATEMENT OF CHANGES IN EQUITY
Insurance
con-
Share Share tingency
capital premium reserve
Note R"000 R"000 R"000
Balance at
1 September 2004,
as previously reported 5 3 748 134 794 36 440
IFRS restatements
Balance at
1 September 2004,
as restated 5 3 748 134 794 36 440
Exchange rate
differences arising on
translation of
foreign entities
Treasury shares sold 54
Issue of shares 8 2 099
Net profit for the
period, as restated
Share-based payments
Transfer to insurance
contingency reserve 3 768
Transfer of realised
profits on disposal of
owner occupied properties
to non-distributable
reserves
Dividend paid
- Total
- Treasury shares
Balance at 1 March 2005,
as restated 5 3 810 136 893 40 208
Exchange rate
differences arising on
translation of foreign
entities
Unrealised surpluses
arising from hedged
instruments
Treasury shares
purchased and held (24)
Issue of shares 2 216 2 052 200
Net profit for the
period, as restated
Share-based payments
Transfer to insurance
contingency reserve 3 064
Capital adequacy reserve
movement
Transfer of realised
profits on disposal of
owner occupied properties
to distributable
reserves
Transfer of realised
profits on disposal of
investment properties
to distributable
reserves
Transfer of revaluation
of investment properties
to non-distributable
reserves
Dividend paid -
treasury shares
Balance at
1 September 2005,
as restated 5 6 002 2 189 093 43 272
Exchange rate
differences arising on
translation of foreign
entities
Unrealised surpluses
arising from hedged
instruments
Treasury shares sold 22
Net profit for the period
Share-based payments
Transfer to insurance
contingency reserve 5 208
Capital adequacy reserve
movement
Dividend paid
- Total
- Treasury shares
Balance at
28 February 2006 6 024 2 189 093 48 480
STATEMENT OF CHANGES IN EQUITY
Foreign Non-
currency distri- Distri-
translation butable butable
reserve reserves reserves Total
R"000 R"000 R"000 R"000
Balance at
1 September 2004,
as previously reported 371 26 892 1 700 099 1 902 344
IFRS restatements 5 663 4 992 10 655
Balance at
1 September 2004,
as restated 371 32 555 1 705 091 1 912 999
Exchange rate
differences arising on
translation of foreign
entities (968) (968)
Treasury shares sold 16 320 16 374
Issue of shares 2 107
Net profit for the
period, as restated 250 154 250 154
Share-based payments 2 511 2 511
Transfer to insurance
contingency reserve (3 768) -
Transfer of realised
profits on disposal of
owner occupied
properties to
non-distributable
reserves 46 727 (46 727) -
Dividend paid (79 999) (79 999)
- Total (82 324) (82 324)
- Treasury shares 2 325 2 325
Balance at
1 March 2005,
as restated (597) 81 793 1 841 071 2 103 178
Exchange rate
differences arising
on translation of
foreign entities (28 948) (28 948)
Unrealised surpluses
arising from hedged
instruments 354 354
Treasury shares
purchased and held (8 149) (8 173)
Issue of shares 2 054 416
Net profit for the
period, as restated 296 755 296 755
Share-based payments 2 064 2 064
Transfer to insurance
contingency reserve (3 064) -
Capital adequacy
reserve movement 39 (39) -
Transfer of realised
profits on disposal of
owner occupied
properties to
distributable reserves (58 858) 58 858 -
Transfer of realised
profits on disposal
of investment properties
to distributable
reserves (3 397) 3 397 -
Transfer of revaluation
of investment properties
to non-distributable
reserves 281 (281) -
Dividend paid -
treasury shares (27) (27)
Balance at
1 September 2005,
as restated (29 545) 22 276 2 188 521 4 419 619
Exchange rate
differences arising on
translation of
foreign entities (8 062) (8 062)
Unrealised surpluses
arising from hedged
instruments 449 449
Treasury shares sold 8 163 8 185
Net profit for the
period 514 567 514 567
Share-based payments 1 106 1 106
Transfer to insurance
contingency reserve (5 208) -
Capital adequacy
reserve movement (1) 1 -
Dividend paid (172 595) (172 595)
- Total (176 220) (176 220)
- Treasury shares 3 625 3 625
Balance at
28 February 2006 (37 607) 23 830 2 533 449 4 763 269
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1 BASIS OF PREPARATION
The Group is, for the first time, reporting its financial results in accordance
with International Financial Reporting Standards ("IFRS"). The date of
transition to IFRS is 1 September 2004. These summarised consolidated interim
financial statements have therefore been prepared using accounting policies
compliant with IFRS and in accordance with IAS 34 (Interim financial reporting)
and the South African Companies Act 1973 (as amended).
It should be noted that as IFRS are implemented internationally, evolving
practices with regard to the interpretation and application of standards under
IFRS could impact future reported results and disclosure.
2 EFFECT OF FIRST TIME ADOPTION OF IFRS
In terms of IFRS 1 (First time adoption of international financial reporting
standards), the Group has restated its opening balance sheet at 1 September
2004, the consolidated balance sheet as at 28 February 2005 and 31 August 2005
and the consolidated income statement for the periods then ended. There has been
no adjustment to the cash flows previously reported as a result of adoption of
IFRS.
IFRS 1 allows a number of exemptions on adoption of IFRS. The Group has only
elected to utilise the exemptions relating to the retrospective application of:
- IFRS 3 (Business combinations) - the Group has not applied IFRS 3 to business
combinations before 1 September 2004 (transition date), and
- IFRS 2 (Share-based payment) - the Group has not applied IFRS 2 to share
options granted prior to 7 November 2002.
3 CHANGES IN ACCOUNTING POLICY AND ADJUSTMENTS ON ADOPTION OF IFRS
During the current period, the following changes to accounting policies were
made and the comparatives have been adjusted accordingly:
Revenue: The classification of the following income statement items have been
amended after consideration of IAS 1 (Presentation of financial statements),
IFRS 4 (Insurance contracts) and IAS 18 (Revenue):
- Insurance premiums reinsured and reinsurance commissions received, which were
previously reported under cost of sales and operating expenses respectively,
have been reported under "Other operating revenue" which forms part of gross
revenue.
- Interest and dividends received have been disclosed as part of total revenue.
- The income statement format has been amended to separately reflect merchandise
sales, cost of merchandise sold and other operating revenue.
Cash and cash equivalents: Cash and cash equivalents exclude insurance
investments at bankers.
Operating leases: The interim results for the 6 months ended 28 February 2005
have been restated to take account of IAS 17 (Leases) and SAICA Circular 7/2005
(Straight-lining of operating leases). As this change was already made at 31
August 2005 no adjustment was required to the results for the year then ended.
Property, vehicles and equipment: In terms of IAS 16 (Property, plant and
equipment) the Group has reassessed the residual values and useful lives of its
property, vehicles and equipment. This has resulted in a restatement of the:
- carrying value of assets at the date of transition (1 September 2004),
- the related depreciation charges and profit or loss on disposal for the 6
months ended 28 February 2005 and the year ended 31 August 2005, and
- the comparative headline earnings (as a result of the changes to the profit or
loss on disposal).
Inventories and trade payables: IAS 2 (Inventories) requires trade discounts,
rebates and other similar items to be deducted in determining the cost of
purchase and IAS 39 (Financial instruments) requires trade payables to be
measured at fair value on initial recognition. The cost of purchase of
inventories and the related trade payables have therefore been restated for
settlement discounts and rebates received. The amounts previously offset against
operating expenses in the income statement have been recognised in cost of
merchandise sold.
Share-based payments: In terms of IFRS 2 these payments have been recognised as
an expense in the income statement over the vesting period with a corresponding
entry to equity in the case of equity settled share-based payments and to
liabilities in the case of cash settled share-based payments. Fully diluted
weighted average number of shares was adjusted accordingly.
4 IFRS IMPACT ON PROFIT ATTRIBUTABLE TO ORDINARY SHAREHOLDERS
6 Months to 12 months to
February August
2005 2005
R"000 R"000
As previously reported 256 300 563 878
Straight-lining of operating leases -
IAS 17 and SAICA Circular 7/2005 (112) -
Property, vehicles and equipment - IAS 16 (1 070) (693)
Depreciation 978 3 216
Net profit on disposal of vehicles and
equipment (2 048) (3 909)
Inventories - IAS 2 (1 879) (18 504)
Trade and other payables - IAS 39 (574) 6 803
Share-based payments - IFRS 2 (2 511) (4 575)
As reported under IFRS 250 154 546 909
5 IFRS IMPACT ON SHAREHOLDERS" EQUITY AND RESERVES
August February August
2004 2005 2005
R"000 R"000 R"000
As previously reported 1 902 344 2 110 187 4 421 358
Straight-lining of operating
leases - IAS 17 and SAICA
Circular 7/2005 - (14 141) -
Property, vehicles and
equipment - IAS 16 20 019 18 949 19 326
Inventories - IAS 2 (15 746) (17 625) (34 250)
Trade and other payables -
IAS 39 6 382 5 808 13 185
As reported under IFRS 1 912 999 2 103 178 4 419 619
12 months to
6 Months to February August
2006 2005 2005
R"000 R"000 R"000
6 REVENUE
Sale of merchandise 2 671 326 1 116 382 2 763 210
Other operating revenue 1 278 103 530 246 1 387 052
Finance charges 501 245 234 799 620 083
Financial services 587 854 241 288 612 287
Net insurance income 549 918 214 364 553 103
Gross insurance income 982 855 319 093 892 064
Reinsurance premium (432 937) (104 729) (338 961)
Short-term loan income 37 936 26 924 59 184
Rendering of services 189 004 54 159 154 682
Dividends and interest received 47 917 26 694 77 695
Total revenue 3 997 346 1 673 322 4 227 957
7 INSURANCE INVESTMENT INCOME
Interest received 19 871 15 235 35 389
Dividends received 3 560 2 991 6 231
Realised profits 1 240 - 3 959
Unrealised profits 5 066 - 4 034
Total insurance investment
income 29 737 18 226 49 613
8 NET FINANCE COSTS
Interest received 24 486 8 468 36 075
Interest paid (61 830) (32 609) (92 388)
Total net finance costs (37 344) (24 141) (56 313)
9 RECONCILIATION BETWEEN PROFIT
ATTRIBUTABLE TO ORDINARY
SHAREHOLDERS TO HEADLINE EARNINGS
9.1 Profit attributable to ordinary
shareholders 514 567 250 154 546 909
Impairment of goodwill - 7 885 16 831
Profit on disposal of owner
occupied properties - (46 727) (53 793)
Adjustment to fair value of
investment properties - - (124)
Net loss (profit) on disposal of
vehicles and equipment 283 (363) (3 105)
Tax effect of adjustments 70 1 410 8 433
Headline earnings 514 920 212 359 515 151
9.2 Effect of discontinued
operations
Profit attributable to ordinary
shareholders 514 567 250 154 546 909
Effect of discontinued
operations - losses 1 719 3 395 13 609
Profit attributable to ordinary
shareholders - continuing
operations 516 286 253 549 560 518
Headline earnings 514 920 212 359 515 151
Effect of discontinued
operations - losses 1 187 3 395 13 609
Headline earnings - continuing
operations 516 107 215 754 528 760
9.3 Number of ordinary shares
Weighted average 119 907 734 75 506 998 89 498 069
- Shares in issue 122 887 075 78 404 200 92 496 695
- Shares held as treasury
shares (2 979 341) (2 897 202) (2 998 626)
Fully diluted weighted average 121 748 465 77 891 229 91 391 018
10 INSURANCE FINANCIAL ASSETS
Unlisted preference shares at
valuation 85 000 85 000 85 000
Listed shares - equity
instruments 35 797 - 31 763
Money market instruments 19 385 - 15 701
Investments at bankers 591 252 413 185 493 459
Total insurance financial
assets 731 434 498 185 625 923
11 TRADE AND OTHER RECEIVABLES
Instalment sale debtors 3 168 410 1 985 397 2 985 118
4 373 287 2 928 043 4 126 656
Payable within one year 3 235 173 2 243 556 3 184 896
Payable thereafter 1 138 114 684 487 941 760
Provisions (1 204 877) (942 646) (1 141 538)
Allowance for doubtful debts (383 261) (305 267) (366 875)
Provision for unearned
finance charges and club fees (510 987) (341 723) (457 097)
Net provision for unearned
insurance premiums (310 629) (295 656) (317 566)
Gross provision for unearned
insurance premiums (606 848) (424 484) (669 681)
Reinsurance portion for
unearned insurance premiums 296 219 128 828 352 115
Term loan debtors 1 220 689 - 680 836
1 722 569 - 918 041
Payable within one year 1 088 200 - 672 264
Payable thereafter 634 369 - 245 777
Provisions (501 880) - (237 205)
Allowance for doubtful debts (115 052) - (77 172)
Provision for unearned
finance charges and club fees (284 447) - (137 394)
Net provision for unearned
insurance premiums (102 381) - (22 639)
Gross provision for unearned
insurance premiums (305 635) - (168 912)
Reinsurance portion for
unearned insurance premiums 203 254 - 146 273
Short-term loans 37 759 29 870 29 135
Payable within one year 81 045 65 830 65 907
Provisions (43 286) (35 960) (36 772)
Allowance for doubtful debts (11 953) (10 145) (10 384)
Provision for unearned
finance charges (25 640) (21 022) (21 556)
Net provision for unearned
insurance premiums (5 693) (4 793) (4 832)
Other 125 435 112 062 126 153
Total trade and other
receivables 4 552 293 2 127 329 3 821 242
12 CASH (ABSORBED BY)
GENERATED FROM OPERATIONS
Cash generated from operating
activities 1 094 229 395 747 730 579
Working capital changes (1 170 193) (335 161) (188 994)
- (Increase) decrease in
inventories (23 343) (41 099) 1 111
- Increase in trade and other
receivables (1 065 579) (323 041) (236 209)
- (Decrease) increase in trade
and other payables (81 271) 28 979 46 104
Total cash (absorbed by)
generated from operations (75 964) 60 586 541 585
13 COMMITMENTS
Operating leases
- Estimated future rental of
premises & trading stores,
vehicles and other 1 033 380 534 792 1 134 498
- Payable within one year 357 362 177 916 383 968
- Payable within two to five
years 651 526 343 839 721 807
- Payable thereafter 24 492 13 037 28 723
Capital expenditure 83 828 43 617 156 044
- Contracted for 16 244 441 9 495
- Not yet contracted for 67 584 43 176 146 549
Total commitments 1 117 208 578 409 1 290 542
SEGMENTAL ANALYSIS
R"000 DIVISIONAL
Traditional Universal Total
Retailing Retailing Credit
INCOME STATEMENT:
Revenue 2006 1 355 422 1 278 168 2 633 590
2005 1 181 033 1 181 033
% v LY 14,8 123,0
Credit revenue 2006 1 211 702 969 526 2 181 228
2005 1 074 066 1 074 066
% v LY 12,8 103,1
Cash revenue 2006 143 720 308 642 452 362
2005 106 967 106 967
% v LY 34,4 322,9
Cash revenue % 2006 10,6 24,1 17,2
2005 9,1 9,1
v LY 1,5 8,1
Sale of merchandise 2006 1 029 940 982 836 2 012 776
2005 892 075 892 075
% v LY 15,5 125,6
Operating profit (loss) 2006 399 205 249 394 648 599
2005 314 070 314 070
% v LY 27,1 106,5
Operating margin % 2006 29,5 19,5 24,6
2005 26,6 26,6
v LY 2,9 (2,0)
Depreciation 2006 24 788 7 837 32 625
2005 18 111 18 111
% v LY 36,9 80,1
BALANCE SHEET:
Assets 2006 2 802 288 2 040 687 4 842 975
2005 2 306 678 2 306 678
% v LY 21,5 110,0
Liabilities 2006 (249 461) (274 070) (523 531)
2005 (180 627) (180 627)
% v LY 38,1 189,8
Net assets 2006 2 552 827 1 766 617 4 319 444
2005 2 126 051 2 126 051
% v LY 20,1 103,2
Cost to acquire assets 2006 30 009 23 257 53 266
2005 23 702 23 702
% v LY 26,6 124,7
RESOURCES:
Number of stores 2006 617 432 1 049
2005 602 602
% v LY 2,5 74,3
Number of employees 2006 8 222 5 463 13 685
2005 7 842 7 842
% v LY 4,8 74,5
Retail m2 2006 382 362 305 768 688 130
2005 380 005 380 005
% v LY 0,6 81,1
PRODUCTIVITY RATIOS:
Sale of merchandise: 2006 76,0 76,9 76,4
Revenue 2005 75,5 75,5
v LY 0,5 0,9
Revenue per store 2006 2 197 2 959 2 511
2005 1 962 1 962
% v LY 12,0 28,0
Revenue per employee
(Rands) 2006 164 853 233 968 192 444
2005 150 604 150 604
% v LY 9,5 27,8
Operating profit per 2006 48 553 45 651 47 395
employee (Rands) 2005 40 050 40 050
% v LY 21,2 18,3
Revenue per m2 (Rands) 2006 3 545 4 180 3 827
2005 3 108 3 108
% v LY 14,1 23,1
m2 per outlet 2006 620 708 656
2005 631 631
% v LY (1,7) 4,0
TRADE RECEIVABLES:
Gross receivables 2006 3 448 467 2 330 953 5 779 420
2005 2 909 580 2 909 580
% v LY 18,5 98,6
Debtors costs 2006 127 737 73 741 201 478
2005 96 004 96 004
% v LY 33,1 109,9
Debtors cost % 2006 3,7 3,2 3,5
2005 3,3 3,3
v LY 0,4 0,2
Average length of book 2006 15,4 13,3 14,6
in months 2005 14,7 14,7
v LY 0,7 (0,1)
Arrears 2006 533 813 224 752 758 565
2005 529 962 529 962
% v LY 0,7 43,1
Arrears % 2006 15,5 9,6 13,1
2005 18,2 18,2
v LY (2,7) (5,1)
Collection rate % 2006 5,9 7,4 6,5
2005 6,0 6,0
v LY (0,1) 0,5
Deposit rate % 2006 13,4 20,3 16,2
2005 17,9 17,9
v LY (4,5) (1,7)
Value Total
Wetherlys Retailing Cash
INCOME STATEMENT:
Revenue 2006 246 392 447 243 693 635
2005 224 307 224 307
% v LY 9,8 209,2
Credit revenue 2006 136 782 136 782
2005
% v LY
Cash revenue 2006 246 392 310 461 556 853
2005 224 307 224 307
% v LY 9,8 148,3
Cash revenue % 2006 100,0 69,4 80,3
2005 100,0 100,0
v LY (19,7)
Sale of merchandise 2006 243 906 414 644 658 550
2005 224 307 224 307
% v LY 8,7 193,6
Operating profit (loss) 2006 36 073 31 852 67 925
2005 24 055 24 055
% v LY 50,0 182,4
Operating margin % 2006 14,6 7,1 9,8
2005 10,7 10,7
v LY 3,9 (0,9)
Depreciation 2006 4 456 2 504 6 960
2005 3 853 3 853
% v LY 15,7 80,6
BALANCE SHEET:
Assets 2006 175 206 334 321 509 527
2005 188 963 188 963
% v LY (7,3) 169,6
Liabilities 2006 (52 995) (124 013) (177 008)
2005 (56 234) (56 234)
% v LY (5,8) 214,8
Net assets 2006 122 211 210 308 332 519
2005 132 729 132 729
% v LY (7,9) 150,5
Cost to acquire assets 2006 5 785 6 066 11 851
2005 5 781 5 781
% v LY 0,1 105,0
RESOURCES:
Number of stores 2006 24 67 91
2005 22 22
% v LY 9,1 313,6
Number of employees 2006 1 065 816 1 881
2005 1 075 1 075
% v LY (0,9) 75,0
Retail m2 2006 49 942 73 089 123 031
2005 45 900 45 900
% v LY 8,8 168,0
PRODUCTIVITY RATIOS:
Sale of merchandise: 2006 99,0 92,7 94,9
Revenue 2005 100,0 100,0
v LY (1,0) (5,1)
Revenue per store 2006 10 266 6 675 7 622
2005 10 196 10 196
% v LY 0,7 (25,2)
Revenue per employee
(Rands) 2006 231 354 548 092 368 759
2005 208 658 208 658
% v LY 10,9 76,7
Operating profit per 2006 33 871 39 034 36 111
employee (Rands) 2005 22 377 22 377
% v LY 51,4 61,4
Revenue per m2 (Rands) 2006 4 934 6 119 5 638
2005 4 887 4 887
% v LY 1,0 15,4
m2 per outlet 2006 2 081 1 091 1 352
2005 2 086 2 086
% v LY (0,2) (35,2)
TRADE RECEIVABLES:
Gross receivables 2006 3 762 273 286 277 048
2005 18 463 18 463
% v LY (79,6) 1 400,6
Debtors costs 2006 1 639 5 028 6 667
2005 865 865
% v LY 89,5 670,8
Debtors cost % 2006 1,8 2,4
2005 4,7
v LY (2,3)
Average length of book 2006 12,2 12,2
in months 2005
v LY
Arrears 2006 14 598 14 598
2005
% v LY
Arrears % 2006 5,3 5,3
2005
v LY
Collection rate % 2006 8,0 8,0
2005
v LY
Deposit rate % 2006 19,6 19,6
2005
v LY
Early Financial
Bird Properties Services Corporate
INCOME STATEMENT:
Revenue 2006 34 350 611 285 24 486
2005 259 514 8 468
% v LY 135,5
Credit revenue 2006 587 854
2005 241 288
% v LY 143,6
Cash revenue 2006 34 350 23 431 24 486
2005 18 226 8 468
% v LY
Cash revenue % 2006 100,0
2005
v LY
Sale of merchandise 2006
2005
% v LY
Operating profit
(loss) 2006 2 189 6 251 124 212 (120 142)
2005 6 729 34 888 (75 153)
% v LY (7,1) 256,0 59,9
Operating margin % 2006 6,4 20,3
2005 13,4
v LY 6,9
Depreciation 2006 1 446 121 754 (136)
2005 120 481 3 550
% v LY 0,8 56,8
BALANCE SHEET:
Assets 2006 16 510 44 307 931 594 1 594 222
2005 104 734 594 929 333 290
% v LY (57,7) 56,6 378,3
Liabilities 2006 (7 572) (25 624) (148 347) (2 293 769)
2005 (30 050) (40 242) (1 113 806)
% v LY (14,7) 268,6 105,9
Net assets 2006 8 938 18 683 783 247 (699 547)
2005 74 684 554 687 (780 516)
% v LY (75,0) 41,2 (10,4)
Cost to acquire
assets 2006 1 548 7 1 048 9 115
2005 682 6 459
% v LY 53,7 41,1
RESOURCES:
Number of stores 2006 44 65
2005 54
% v LY 20,4
Number of employees 2006 432 217 742
2005 174 242
% v LY 24,7 206,6
Retail m2 2006 5 778 4 665
2005 3 283
% v LY 42,1
PRODUCTIVITY RATIOS:
Sale of merchandise 2006
2005
v LY
Revenue per store 2006 781
2005
% v LY
Revenue per employee
(Rands) 2006 79 514
2005
% v LY
Operating profit per2006 5 067
employee (Rands) 2005
% v LY
Revenue per m2
(Rands) 2006 5 945
2005
% v LY
m2 per outlet 2006 131
2005
% v LY
TRADE RECEIVABLES:
Gross receivables 2006 120 433
2005 65 830
% v LY 82,9
Debtors costs 2006 8 565 (6 688)
2005 4 255
% v LY 101,3
Debtors cost % 2006 7,1
2005 6,5
v LY 0,6
Average length of 2006
book in months 2005
v LY
Arrears 2006
2005
% v LY
Arrears % 2006
2005
v LY
Collection rate % 2006
2005
v LY
Deposit rate % 2006
2005
v LY
Continuing Discontinued
Operations Operations Total
Group Group
INCOME STATEMENT:
Revenue 2006 3 997 346 4 248 4 001 594
2005 1 673 322 4 759 1 678 081
% v LY 138,9 (10,7) 138,5
Credit revenue 2006 2 905 864 2 905 864
2005 1 315 354 1 315 354
% v LY 120,9 120,9
Cash revenue 2006 1 091 482 4 248 1 095 730
2005 357 968 4 759 362 727
% v LY 204,9 (10,7) 202,1
Cash revenue % 2006 27,3 100,0 27,4
2005 21,4 100,0 21,6
v LY 5,9 5,8
Sale of merchandise 2006 2 671 326 4 248 2 675 574
2005 1 116 382 4 759 1 121 141
% v LY 139,3 (10,7) 138,6
Operating profit (loss) 2006 729 034 (1 720) 727 314
2005 304 589 (3 397) 301 192
% v LY 139,4 (49,4) 141,5
Operating margin % 2006 18,2 (40,5) 18,2
2005 18,2 (71,4) 17,9
v LY 30,9 0,3
Depreciation 2006 41 770 66 41 836
2005 26 115 171 26 286
% v LY 59,9 (61,4) 59,2
BALANCE SHEET:
Assets 2006 7 939 135 1 125 7 940 260
2005 3 528 594 15 197 3 543 791
% v LY 125,0 (92,6) 124,1
Liabilities 2006 (3 175 851) (1 140) (3 176 991)
2005 (1 420 959) (19 654) (1 440 613)
% v LY 123,5 (94,2) 120,5
Net assets 2006 4 763 284 (15) 4 763 269
2005 2 107 635 (4 457) 2 103 178
% v LY 126,0 (99,7) 126,5
Cost to acquire assets 2006 76 835 76 835
2005 36 624 315 36 939
% v LY 109,8 108,0
RESOURCES:
Number of stores 2006 1 249 1 249
2005 678 2 680
% v LY 84,2 83,7
Number of employees 2006 16 957 16 957
2005 9 333 25 9 358
% v LY 81,7 81,2
Retail m2 2006 821 604 821 604
2005 429 188 1 800 430 988
% v LY 91,4 90,6
PRODUCTIVITY RATIOS:
Sale of merchandise: 2006 66,8 100,0 66,9
Revenue 2005 66,7 100,0 66,8
v LY 0,1 0,1
Revenue per store 2006 3 200 3 204
2005 2 468 2 380 2 468
% v LY 29,7 29,8
Revenue per employee
(Rands) 2006 235 734 235 985
2005 179 291 190 360 179 320
% v LY 31,5 31,6
Operating profit per 2006 42 993 42 892
employee (Rands) 2005 32 636 (135 880) 32 186
% v LY 31,7 33,3
Revenue per m2 (Rands) 2006 4 865 4 870
2005 3 899 2 644 3 894
% v LY 24,8 25,1
m2 per outlet 2006 658 658
2005 633 900 634
% v LY 3,9 3,8
TRADE RECEIVABLES:
Gross receivables 2006 6 176 901 6 176 901
2005 2 993 873 2 993 873
% v LY 106,3 106,3
Debtors costs 2006 210 022 30 210 052
2005 101 124 101 124
% v LY 107,7 107,7
Debtors cost % 2006 3,4 3,4
2005 3,4 3,4
v LY
Average length of book 2006 14,5 14,5
in months 2005 14,7 14,7
v LY (0,2) (0,2)
Arrears 2006 773 163 773 163
2005 529 962 529 962
% v LY 45,9 45,9
Arrears % 2006 12,5 12,5
2005 17,7 17,7
v LY (5,2) (5,2)
Collection rate % 2006 7,2 7,2
2005 6,0 6,0
v LY 1,2 1,2
Deposit rate % 2006 16,3 16,3
2005 17,9 17,9
v LY (1,6) (1,6)
GEOGRAPHICAL
Total
RSA Foreign Group
INCOME STATEMENT:
Revenue 2006 3 737 940 263 654 4 001 594
2005 1 498 285 179 796 1 678 081
% v LY 149,5 46,6 138,5
Credit revenue 2006 2 697 103 208 761 2 905 864
2005 1 161 311 154 043 1 315 354
% v LY 132,2 35,5 120,9
Cash revenue 2006 1 040 837 54 893 1 095 730
2005 336 974 25 753 362 727
% v LY 208,9 113,2 202,1
Cash revenue % 2006 27,8 20,8 27,4
2005 22,5 14,3 21,6
v LY 5,3 6,5 5,8
Sale of merchandise 2006 2 523 029 152 545 2 675 574
2005 988 030 133 111 1 121 141
% v LY 155,4 14,6 138,6
Operating profit (loss) 2006 676 039 51 275 727 314
2005 270 053 31 139 301 192
% v LY 150,3 64,7 141,5
Operating margin % 2006 18,1 19,4 18,2
2005 18,0 17,3 17,9
v LY 0,1 2,1 0,3
Depreciation 2006 37 731 4 105 41 836
2005 22 435 3 851 26 286
% v LY 68,2 6,6 59,2
BALANCE SHEET:
Assets 2006 7 396 034 544 226 7 940 260
2005 3 161 651 382 140 3 543 791
% v LY 133,9 42,4 124,1
Liabilities 2006 (3 093 905) (83 086) (3 176 991)
2005 (1 362 144) (78 469) (1 440 613)
% v LY 127,1 5,9 120,5
Net assets 2006 4 302 129 461 140 4 763 269
2005 1 799 507 303 671 2 103 178
% v LY 139,1 51,9 126,5
Cost to acquire assets 2006 70 961 5 874 76 835
2005 31 341 5 598 36 939
% v LY 126,4 4,9 108,0
RESOURCES:
Number of stores 2006 1 126 123 1 249
2005 592 88 680
% v LY 90,2 39,8 83,7
Number of employees 2006 15 294 1 663 16 957
2005 8 149 1 209 9 358
% v LY 87,7 37,6 81,2
Retail m2 2006 742 906 78 698 821 604
2005 360 717 70 271 430 988
% v LY 106,0 12,0 90,6
PRODUCTIVITY RATIOS:
Sale of merchandise: 2006 67,5 57,9 66,9
Revenue 2005 65,9 74,0 66,8
v LY 1,6 (16,1) 0,1
Revenue per store 2006 3 320 2 144 3 204
2005 2 531 2 043 2 468
% v LY 31,2 4,9 29,8
Revenue per employee
(Rands) 2006 244 406 158 541 235 985
2005 183 861 148 715 179 320
% v LY 32,9 6,6 31,6
Operating profit per 2006 44 203 30 833 42 892
employee (Rands) 2005 33 139 25 756 32 186
% v LY 33,4 19,7 33,3
Revenue per m2 (Rands) 2006 5 032 3 350 4 870
2005 4 154 2 559 3 894
% v LY 21,1 30,9 25,1
m2 per outlet 2006 660 640 658
2005 609 799 634
% v LY 8,4 (19,9) 3,8
TRADE RECEIVABLES:
Gross receivables 2006 5 639 106 537 795 6 176 901
2005 2 576 528 417 345 2 993 873
% v LY 118,9 28,9 106,3
Debtors costs 2006 199 818 10 234 210 052
2005 89 923 11 201 101 124
% v LY 122,2 (8,6) 107,7
Debtors cost % 2006 3,5 1,9 3,4
2005 3,5 2,7 3,4
v LY (0,8)
Average length of book 2006 14,3 16,0 14,5
in months 2005 14,6 14,7 14,7
v LY (0,3) 1,3 (0,2)
Arrears 2006 664 402 108 761 773 163
2005 455 873 74 089 529 962
% v LY 45,7 46,8 45,9
Arrears % 2006 11,8 20,2 12,5
2005 17,7 17,8 17,7
v LY (5,9) 2,4 (5,2)
Collection rate % 2006 6,6 6,1 7,2
2005 6,0 5,9 6,0
v LY 0,6 0,2 1,2
Deposit rate % 2006 18,9 21,6 16,3
2005 17,8 21,1 17,9
v LY 1,1 0,5 (1,6)
COMMENTS
FURNITURE RETAIL TRADING ENVIRONMENT
Furniture retail trading conditions in South Africa continued to favour both the
consumer and the retailer during the period under review. The resilience of the
economy, coupled with the strength of the Rand and base metal prices, resulted
in both a low inflation and interest rate environment.
Given that the consumer has enjoyed the continued benefits of increased
disposable income and low furniture and appliance retail prices, it is
particularly pleasing to note the responsible manner in which our customers, who
have purchased from us on credit, have conducted their accounts with us. The
definitive upward structural shift in the behavioural patterns enjoyed by
consumers, particularly within our lower and middle income target markets, have
been profound.
Neighbouring countries to South Africa have not been as fortunate and trading
conditions experienced by those nations have been difficult for both the
consumer and the retailer. Further north, Zambia is experiencing very much
improved consumer and economic conditions, with their currency having
appreciated considerably against most foreign currencies, including the US
Dollar and the South African Rand.
GROUP FINANCIAL REVIEW
Having acquired Relyant Retail Limited in May 2005, the results of Relyant are
included in the interim report for the first time.
The overall performance of the Group has been excellent for the period under
review, with the combined Group having taken full advantage of its favourable
standing in the furniture and appliance retail market in southern Africa.
Group revenue at R4 billion reflects a significant increase of 139% over the
previous period. This marks the realisation of the goals set by the directors in
2001 to grow the Group"s retail outlets to above 1000 and ensure that the Group
is well represented across all consumer markets, with a good mix of cash and
credit business, while at the same time ensuring that financial services
continue to grow and make a significant contribution to both Group revenue and
earnings. According to a recent Markinor survey, the combined Group has grown
market share by 2%.
With the merging of the two Groups, combined marketing initiatives have been
expedited with the introduction of club, imported product and loan business in
the Traditional Divisions and a more operationally focused executive team in the
Universal and Value Retail Divisions. These initiatives and highly focused
divisional units have made a meaningful contribution to Group revenue.
All components of revenue have increased significantly, with cash sales
comprising 27% of total revenue and 41% of merchandise sales. Financial
services" contribution at 15,3% to total revenue is in line with February 2005,
with gross insurance income increasing its share of revenue from 19,1% achieved
at February 2005 to 24,6%.
Merchandise gross profit at R1,1 billion increased by 115% over the previous
period and gross profit margins for the period at 42,9% are 2,1% below that
achieved at August 2005, with the inclusion of Relyant for the first time for a
full six-month period. This is as a result of the merchandise gross profit
margins in the Value Retail Cash Division being below that achieved by the
Credit Divisions. On a like-for-like basis, merchandise gross profit margins
have been maintained and in some cases improved, when compared to the previous
period.
Operating expenses at R1,48 billion have been well controlled and represent
55,4% of merchandise sold, compared to 58,7% in February 2005 and 63,8% at year
end August 2005. Synergistic merger expense benefits are constantly being
identified and implemented.
Debtors costs at R210 million represent 3,4% of the gross debtors book of R6,2
billion, which is in line with the previous period, despite the gross debtors
book having increased by R3,1 billion since the previous period and R1,0 billion
since August 2005. The sophisticated credit granting procedures, incorporating
the dual matrix philosophy of combining application and behavioural scorecards
of potential customers, backed up by leading technology, utilised by the three
collection call centres applying internationally renowned Triad software and
predictive dialers, continue to contribute substantially to the success achieved
in the management of the debtors book at a corporate level.
The resultant operating margin of 18,2% is in line with the previous period and
compares favourably to the 17,1% achieved at August 2005.
As a result of the increased borrowings of R400 million taken on at the time of
the merger in May 2005, as well as the reduction of the dividend cover from four
times to three times and a significant increase in trading volumes during the
peak season over December, the Group"s net interest costs at R17,5 million have
increased when compared to R8,9 million at February 2005. Net interest costs at
2,4% (2005: 2,9%) of operating profit, remain well covered.
Earnings at R515 million are 106% up on the previous period and represent 94% of
earnings for the full year to August 2005. Earnings per share at 429,1 cents are
up 29,5% on the previous period, which included a R46,7 million non-recurring
profit on the sale of properties. Headline earnings at 429,4 cents per share
have increased by 52,7%. The earnings per share calculations include the 42,9
million shares issued to Relyant shareholders in May 2005, giving a total of
122,8 million shares in issue compared to the total of previous period of 78,4
million shares, an increase of 56,7% in new shares issued.
Total assets of the Group at R7,9 billion are up 12,6% when compared to year end
August 2005. This is mainly due to the increase in the debtors book as a result
of the peak trading season falling within the period under review. The
annualised return on total assets at 18,4% (February 2005: 17,2%) is above the
Group target of 16%.
Net inventories at R558 million (2005: R265 million) represent an improved 5,5
times stock turn based on the annualised cost of sales of merchandise, compared
to 4,4 for the previous period. The direct import component of inventories for
the Group is 12%. Inventories in the Group have been well managed and logistical
improvements continue to be made in conjunction with our suppliers and internal
resources.
The furniture retail gross, unencumbered, debtors book at R6,1 billion,
comprises credit agreement and loan debtors. The performance of the book has
improved since August 2005 with arrears on the Universal and Value Retail book
at 9,2%, amongst the lowest in the industry. The Traditional Division has
improved arrears to 15,5% compared to 18,2% in the previous period. The
continued responsible paying patterns of our customers and the sophisticated
credit granting, collection and control procedures have resulted in the improved
debtors book. The debtors book is well provisioned at 28%, an increase of 0,7%
since year end August 2005.
With the expansion of Rainbow Loans during the period under review, the short-
term debtors book at R81 million has increased by 22,9% compared to previous
period. The ledger is well provisioned at 53,4%, given the nature of the
business risk of the enterprise.
At R39,64 the net asset value per share of the Group has increased by 43,6%
compared to the previous period and results in a price to book ratio of 2,15
times, which is an improvement when compared to 1,99 times at February 2005 and
1,65 at August 2005.
The increase in trading activity, reduction in dividend cover and the
introduction of no-deposit loan business in the Traditional Credit Division have
had the impact of absorbing cash during the period under review. This has
resulted in negative cash flow from operating activities of R376 million and a
negative cash flow per share of 169,9 cents, compared to a negative cash flow
per share of 5,5 cents for the comparative period last year. With net borrowings
of R1,3 billion and an equity base of R4,8 billion, the Group is in a geared
position of 28,3%, compared to previous period at 39,1% and 18,4% at year-end
August 2005.
OPERATIONAL SEGMENTAL REVIEW
Traditional - Credit Retail Division
The Traditional - Credit Retail Division targets the lower to middle income
segments of the furniture and appliances consumer market, with Ellerines, Town
Talk and FurnCity as the major brands. A separate dedicated Business Unit
operates under the same brand names in the foreign neighbouring states of South
Africa, as well as Zambia.
Retail trading activity in the lower to middle income segments of the market in
South Africa has continued to be buoyant during the period under review, with
the foreign operations however, experiencing negative growth except for Zambia.
Total revenue for the division at R1,36 billion (2005: R1,18 billion) is 14,8%
up on the previous period and constitutes 33,9% (2005:70,6%) of Group revenue,
trading out of 617 outlets (2005: 602).
The RSA credit retail chains performed particularly well in terms of trading
activity with total revenue at R1,21 billion (2005: R1,02 billion) and 18,5%
(2005: 16,6%) above the previous period. The sale of merchandise at R925
million(2005: R780 million) is 18,6% (2005: 21,9%) above the previous period.
The merchandise volumes recorded were above expectations and ahead of the
industry competition, with an average increase of around 20% over the past two
years.
With the introduction during September 2005 of no-deposit term-loan agreement
sales in the Traditional Credit Division for South African outlets, gross
finance charges written increased by 46,7% to R339 million. The finance charge
rate applied to term-loan deals is higher than that charged under a credit
agreement sale, with term-loan deals comprising approximately 30% of total
revenue. As a consequence, the unearned finance charges increased substantially,
resulting in net finance charges earned of R230 million, an increase of only
16,1% over the previous period.
As a result of a synergistic marketing initiative, the existing customer club
offering in the Universal Division was introduced from December 2005 in the
Traditional Division. Gross revenue of R21 million was generated from this
source, of which R20 million was unearned, as the club fee is earned over the
contract period.
The total operating profit at R399 million (2005: R314 million) increased by
27,1% resulting in an operating margin of 29,5% (2005: 26,6%) which reflects a
significant improvement, as a result of the increased volumes and related
finance charges earned, as well as an improvement in the operating expense to
income ratio.
The gross trade receivables at R3,4 billion (2005: R2,9 billion) have increased
by 18,5% (2005: 14,0%), which is in line with the increase in revenue and the
strategy to introduce no-deposit term-loan sales from September 2005. The gross
term-loan debtors book amounts to R527 million. The improvement in the condition
of the debtors book continued during the period under review with arrears at
15,5% (2005: 18,2%). The monthly collection rate at 5,9% (2005: 6,0%) is below
the previous period as a result of the introduction of no-deposit sales, but is
within the expected rate of collection. Given the growth in the debtors book,
the doubtful debt provision at R280 million (2005: R305 million) is 10,5% of the
net debtors book, after taking to account unearned debtors provisions, compared
to August 2005 at 11,4%. This reduction of 0,9% is indicative of the improvement
in the quality of the debtors book.
Inventory management has improved, with inventory levels 10,3% above the
comparable period last year, which is considerably below the increase in
merchandise sales.
The Traditional Foreign Business Unit reflects a disappointing decrease in
revenue of 10,1% (2005: increase of 3%) at R140 million (2005: R156 million),
with the exception of Zambia, where performance was well above expectations. The
results from Namibia, Lesotho and particularly Botswana continue to trade below
the previous period last year. The Foreign Business Unit contributes 3,5% to
Group revenue.
Notwithstanding the reduced trading activity in the Foreign Business Unit, the
operating margin improved by 10,0% to 27,1% and operating profitability at R38
million improved by 40%. This is as a result of strict expense control, reduced
net debtors costs and a flow back of unearned finance charges as a result of
reduced revenue.
Wetherlys - Cash Decorating Division
The Wetherlys Division, with revenue at R246,4 million (2005: R224,3 million),
comprising 6% of Group revenue, reflects an increase of 9,8%, with the Wetherlys
brand increasing by 7,0% and the Osiers brand increasing by 19,0%. The current
period under review includes two additional Wetherlys outlets.
The revenue in the Osiers boutique branded outlets was particularly pleasing,
given the new image and merchandise range on offer, while the Wetherlys outlets
found trading particularly competitive in the upper end of the market. Lower
exports and local purchases by foreign investors and tourists, given the
strengthening of the Rand, once again had a negative impact on the trading
activity of Wetherlys. The buoyant trading conditions experienced in the lower
to middle consumer markets, were not evident in the high end consumer market.
With the continued marketing of the contemporary range in Wetherlys, it is
anticipated that improvements will be achieved in this brand in the second half
of the year.
The operating margins in the main trading divisions of both Wetherlys and Osiers
at 14,6% (2005: 10,7%) have improved considerably for the period under review,
with trading gross margins having increased by 2,6% as a result of improved
merchandise purchasing initiatives and the extension of the range of internally
manufactured products. The target operating margin of around 16% should once
again be achieved by year-end.
Roodefurn Manufacturing has made a significant improvement in operating profit
over the previous period, with a meaningful contribution to the Divisional
operating profit of 15%. Certain lines for the greater Group are to be
manufactured by Roodefurn and will be introduced during the second half of the
year.
Inventory management has improved locally, with total inventory levels 7,8%
below the comparable period last year, which includes the effect of the disposal
of the Spanish operations during October 2005.
Universal - Credit Retail Division
The Universal - Credit Retail Division targets the middle to upper income
segments of the furniture and appliances consumer market, with Beares, Geen &
Richards and Lubners as the major brands. A separate dedicated Business Unit
operates under the brand name of Savells/Fairdeal and targets the entry level
lower end of the market.
Total revenue for the division at R1,28 billion constitutes 31,9% of Group
revenue, trading out of 432 outlets.
Merchandise sales of brands in the middle income segment of the market, reflects
an increase of 13% on a like-for-like basis compared to last year, while the
brands targeting the lower end of the market are trading at levels of 21% above
the same period last year. Cash revenue comprises 31,4% of merchandise sales and
24,1% of total revenue, which mix remains similar to that reported at August
2005.
It is particularly pleasing to report the improvement in the operating margin to
19,5% (August 2005: 16,3%) which reflects the operating and merchandising
efficiencies introduced into the Division since acquisition. The reduction in
the expense to income ratio has also contributed to this improvement.
The gross trade receivables at R2,3 billion have increased by 16,3% compared to
the same period last year, which is in line with gross increased revenue levels.
The Universal Division has applied the no-deposit term-loan sales philosophy for
the past number of years, with the gross term-loan debtors book currently
amounting to R1,19 billion. The improvement in the condition of the total
debtors book continued during the period under review with arrears at 9,6%
(August 2005: 10,3%). The monthly collection rate at 7,4% (August 2005: 7,5%)
has remained at above industry averages. Given the growth in the debtors book,
the doubtful debt provision at R215 million (August 2005: R186 million) remains
at 9,7% of the net debtors book, after taking into account unearned debtors
provisions, in line with August 2005.
Inventory management has improved, with inventory levels 11,9% above the
comparable period last year, and below the increase in merchandise sales.
Value Retail - Cash Division
The Value Retail - Cash Division targets the middle to upper income segments of
the furniture, appliances and bedding consumer market, with Furniture City, Dial
a-Bed and Mattress Factory as the major brands.
Total revenue for the division of R447 million constitutes 11,2% of Group
revenue, trading out of 67 outlets.
Merchandise cash sales comprise 69,4% (August 2005: 73,6%) of total Value Retail
revenue, an engineered shift by management towards credit revenue in the
Furniture City brand. Dial-a-Bed and Mattress Factory remain at 100% cash sales
and market their brands as bedding discounters.
Operating profit at R31,9 million was achieved, with an improvement in the
operating margin to 7,1% (August 2005: 5,9%) reflects, in particular, the shift
towards credit sales in Furniture City and the gradual improvement in the
operating and merchandising efficiencies introduced into the Division since
acquisition. The improvement arises from increased volumes with an improvement
in the gross margins of 2,1% and a meaningful improvement of 10,7% in the
expense to income ratio of the division.
The gross trade receivables attributable to the Furniture City brand at R273
million (August 2005: R215 million) reflect excellent credit control performance
with a collection rate of 8,0% and an arrears content of 5,3%.
Inventory management has improved considerably, with inventory levels 4,8% below
the comparable period last year.
Financial Services
The Group owns three insurance companies, two of which offer short-term customer
protection insurance and the other funeral cover to our customers. The insurance
operations, together with the unsecured loan activities through Rainbow Loans,
are reported under Financial Services. Collectively they generate revenues of
R611 million, being 15,3% to Group revenue in line with August 2005.
Net insurance revenue written in the Group amounted to R550 million which is
13,8% of total Group revenue and compares favourably to the 12,8% at February
2005. The increase results from the improved take-up by customers of insurance
products on offer and the higher sales volumes generated in the credit
divisions. As a consequence the unearned premiums at February 2006 amount to
R418 million (August 2005: R345 million), a 21,1% increase of R73 million since
August 2005.
The current financial services operation and the format of products offered to
customers remain a high priority within the Group. A number of strategic
alternatives are presently under review and shareholders will be advised at year
end August 2006 of the progress being made in this regard. Caution is being
exercised by management, given the pending implementation of The National Credit
Act with effect from 1 April 2007.
Revenue earned for Rainbow Loans improved by 25,6% when compared to the previous
period and currently operates out of 65 (2005: 54) outlets. High quality returns
were once again produced by Rainbow Loans and the quality of the debtors book of
R81 million (2005: R66 million) has been maintained, with arrears improving by
1,2%. The debtors book remains well provisioned.
Service Division
The value added niche services of Early Bird, which provides aerial
installations and repair services for TV, audio and sound equipment, were
introduced to the greater Group during the last quarter of 2005, with re-
organisation plans implemented during the same period. This has had the effect
of improving the operating procedures and will enhance future profitability of
the Business Unit. While like-for-like revenue has only increased by 2,1% and
profitability remained unchanged, the value added service to our customers is
considered important.
RELYANT MERGER UPDATE
It is pleasing to report that the operational and corporate integration process
is complete, while at the same time the extraction of synergistic benefits is
progressing well and is on track.
Operational executive management structures were introduced shortly after the
merger and those involved have demonstrated a high degree of focus and
commitment within their area of responsibility during the period under review,
with the overall trading results of the Divisions having improved considerably.
The corporate functions have been consolidated into Bedfordview, with the
operational divisions occupying the Durban and Doornfontein premises.
All corporate departments have been aligned, focused and integrated, except for
the Human Resource function which is still in progress, however considerable
headway has been made in this regard.
Synergistic benefits extracted as a result of the merger have been numerous and
in most cases having made a meaningful contribution to the profitability and
efficiency of the Group. For the six-month period under review we are pleased to
report that around R33 million has been quantified as synergistic benefits to
the Group. The major contribution has come from merchandise and marketing
management initiatives.
The stated target of the contribution to pre-tax profit of R45 million for the
year to August 2006 will be achieved, with the remaining benefits of R100
million accruing over the next two years.
THE NATIONAL CREDIT ACT
Given the enactment of The National Credit Bill and the recent publication of
the regulations, as well as the planned implementation date set for 1 April
2007, the Group is now able to identify challenges and opportunities which the
legislation will bring about.
As regards the intention of the Act to grant responsible credit, the Group has
been compliant for many years, however changes to information technology and
systems will have to be implemented to ensure compliance with the new
legislation.
An overall assessment of the effects of the Act on conducting business in the
future whereby most charges (including interest, insurance and service charges)
which were previously raised upfront but will in future have to be raised
monthly, has been undertaken.This indicates that the Group"s revenue stream will
largely be neutral, however, there may be certain timing effects in accounting
for the revenue during the initial introductory period of the new Act. These
will to an extent be offset by the release of unearned finance charges and
insurance provisions which will no longer be required from April 2007 as these
charges will thereafter be raised on a monthly basis.
Given the time line for the introduction of the Act and the applicable
regulations, management is confident that the technical interpretation and
design of operating procedures will be implemented effectively.
PROSPECTS
The buoyant trading conditions in the furniture retail market are expected to
continue for the remainder of the year to August 2006.
With the inclusion of the Relyant financial results for the full twelve month
period to August 2006 the earnings will be well ahead of the previous year.
DECLARATION OF DIVIDEND
The Board has resolved to declare an interim dividend, being dividend number 69
of 139,6 cents per share to ordinary shareholders. This represents a dividend
cover of three times headline earnings.
The following dates are applicable:
Last date to trade cum the dividend Friday, 2 June 2006
Date trading commences ex the dividend Monday, 5 June 2006
Record date Friday, 9 June 2006
Date of payment Monday, 12 June 2006
Share certificates may not be dematerialised between Monday, 5 June 2006 and
Friday, 9 June 2006, both dates inclusive.
DIRECTORS
With effect from 31 May 2006 Jeff Dritz, an Executive Director until 31 January
2006 and Excom member of the Group, has elected to take retirement. Jeff"s
contribution to the corporate affairs and financial services of the Group over
the past 34 years has been enormous and his counsel will be missed. The Board
wishes both Jeff and his wife Hillary a healthy and well earned retirement.
The Board is pleased to announce that Bruce Sinclair, previously an Alternate
Director to Jeff Dritz, has been appointed to the Board as an Executive
Director, with effect from 31 January 2006.
By order of the Board
Peter Pohlmann Peter Squires
Chairman Chief Executive Officer 8 May 2006
Registered office: Gillooly"s View Office Park, Block E, Osborne Lane,
Bedfordview 2007
Transfer secretaries: Computershare Investor Services 2004 (Pty) Limited
70 Marshall Street, Johannesburg. PO Box 61051, Marshalltown 2107
Auditors: Grant Thornton Sponsors: Nedbank Capital
Non-executive Directors: PJB Pohlmann+ (Non-executive chairman),
DS McGlashan (Non-executive deputy chairman), TJ Chalmers,
JM Moore*, S Zungu, HM Khoza
Executive Directors: PJC Squires (Chief executive officer),
RA Rawlings, RBG Sinclair
+German *British
Date: 08/05/2006 02:01:38 PM Produced by the JSE SENS Department
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