| Tue 9 May 2006, 8:58 | | Results |
|
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
