| Thu 25 May 2006, 8:00 | | Mr Price Group Limited - Audited Group Results For |
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MPC
MPC
Mr Price Group Limited - Audited Group Results For The Year Ended 31 March 2006
Mr Price Group Limited
Incorporated in the Republic of South Africa
Registration number 1933/004418/06
ISIN: ZAE000026951
JSE share code: MPC
AUDITED GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2006
Highlights
- CORE HEADLINE EARNINGS PER SHARE UP 46%
- DISTRIBUTIONS PER SHARE INCREASED BY 35%
- CONTINUING OPERATIONS
- REVENUE UP 24% TO R5 BILLION
- OPERATING PROFIT UP 53% TO R534 MILLION
Commentary
Results
There has been strong growth in consumer spending in South Africa over the past
few years in an environment of stable interest rates and lower taxation. Cash
retailers, in particular, are now benefiting fully from the trading conditions
which initially favoured credit-oriented chains. The Mr Price group, having
launched its expansion strategy four years ago, has been well positioned to meet
this growing demand. The four retail chains, Mr Price, Mr Price Home, Miladys
and Sheet Street, all performed well during the year under review. This
performance helped compensate for the loss of the contribution from the non-core
Hub and Galaxy chains, which were sold during the year.
Retail sales from continuing operations grew by 24% to R5,0 billion for the 53
weeks ended March 2006. Sales for the comparable 52 week period were 22% higher
with comparable sales growing by 14,8% and weighted average trading space by
11,8%. Operating margins increased in all retail chains with the group growing
its operating margin for the 52 weeks to 10,2%, a target which had originally
been set for the 2007 financial year. Operating profit from continuing
activities was 53% higher at R534 million.
Comparison of the results for the current financial year with the previous
financial year has been made more difficult by two matters, namely:
- the sale of the Hub and Galaxy chains whose results are reflected under
discontinued operations; and
- the adjusted accounting treatment of the contributions to export partnerships
in compliance with International Financial Reporting Standards (`IFRS"), which
has required the restatement of base earnings in the 2005 financial year.
In order to assist a meaningful comparison, details of the earnings attributable
to core operations, which exclude the effect of the abovementioned matters, have
been provided.
Headline earnings per share rose by 49% to 161,7 cents off the restated base of
108,8 cents. After adjusting for the impact of the sale of the two chains and
the accounting treatment referred to above, core headline earnings per share
increased by 46% from 104,4 cents in the previous financial year to 152,2 cents
for the year under review.
The total distribution of 81 cents per share, based on a cover of two times,
represents an increase of 35% on last year"s 60 cents. The compound growth in
the distribution to shareholders over the past five years has been 46%. In lieu
of a final dividend, the group will make a distribution by way of a reduction of
its share premium account, subject to the approval of shareholders, as detailed
in the accompanying declaration.
Trading (52 weeks on 52 weeks)
The apparel chains (Mr Price and Miladys) grew sales by 18% with retail selling
price inflation of 5,2% and increased operating profits by 41%. Sales of the
home chains (Mr Price Home and Sheet Street) were 31% higher with retail selling
price inflation of 22,2% attributable to the growing contribution of furniture
and other changes in merchandise mix, and operating profits were 72% higher. The
number of stores operated by the continuing operations increased from 710 to
761.
The Mr Price chain grew sales by 17% to R2,6 billion with weighted average
trading space growing by 9%. Comparable sales were 14,6% higher with retail
selling price inflation of 5,5%. Improvements in merchandise assortments and
delivery coupled with excellent fashion interpretations resulted in a strong
profit performance and this has continued into the new financial year.
Miladys sales were 21% higher at R0,76 billion, with a growth in weighted
average trading space of 6% and comparable sales growth of 14,8%. Over the last
two years, Miladys has experienced 7% retail selling price deflation, and a 52%
growth in units. The store revamp programme has proved extremely successful with
renovated stores recording a marked improvement in sales levels and branch
profitability.
Mr Price Home grew sales by 28% to R1,1 billion with weighted average trading
space increasing by 24% during the year. With retail selling price inflation of
17,6% (caused by the growing contribution of furniture), comparable sales were
14,8% higher. The ultra stores (>2 500 square metres) which opened recently and
which carry larger assortments of furniture, have proven to be very successful.
Sheet Street increased sales by 37% to R0,46 billion with weighted average
trading space increasing by 13%. Comparable sales were 16,7% higher with retail
selling price inflation of 36,1%, resulting from the discontinuance of certain
low priced hard goods departments.
Finance
The balance sheet remains strong with cash resources of R625 million. As
reported previously, the sale of the Hub and Galaxy chains generated positive
cash flows of R188 million. These resources and future cash flows will allow the
group to continue its expansion programme and more than R1 billion is planned to
be invested in new stores, expansions, revamps and new concepts over the next
five years.
The test of credit in Mr Price, Mr Price Home and Sheet Street throughout
KwaZulu-Natal and the Eastern Cape, and more recently the Western Cape, has been
positive and in line with expectations. The take up of the offer and the impact
on the average basket size indicates not only a strong demand for credit but
also supports the role of credit in driving additional sales. A national rollout
has now commenced and it is expected that this will be completed within the
first half of the new financial year. Notwithstanding the launch of credit in
the former cash operations, cash sales as a percentage of total sales was 89%
and the group will remain a predominantly cash retailer. Credit is tightly
controlled in the group with net bad debt at 1,1% of credit sales and 2,6% of
the debtors book.
Prospects
Prospects for the coming year are positive and another year of earnings growth
is anticipated. The group remains committed to its 2010 targets of revenue of
R10 billion at an operating margin in excess of 10%.
For and on behalf of the board
S B Cohen - Joint non-executive chairman
L J Chiappini - Joint non-executive chairman
A E McArthur - Chief executive officer
DECLARATION OF CASH DISTRIBUTION
The directors have proposed a cash distribution to shareholders of 56,7 cents
per ordinary share and unlisted B ordinary share, in lieu of a final dividend
for the year ended 31 March 2006, by way of a reduction of the share premium
account (`the distribution"). The distribution is subject to shareholder
approval at a general meeting of the company to be held on Thursday 15 June
2006.
The following dates are applicable:
Last date to trade "cum" the distribution Friday 23 June 2006
Shares trade "ex" distribution Monday 26 June 2006
Record date Friday 30 June 2006
Payment to shareholders on Monday 3 July 2006
Shareholders may not dematerialise or rematerialise their share certificates
between Monday 26 June 2006 and Friday 30 June 2006, both days inclusive.
On behalf of the board Durban
C S Yuill - Secretary 25 May 2006
TRANSFER SECRETARIES
Computershare Investor Services 2004 (Pty) Ltd.,
70 Marshall Street, Johannesburg, 2001.
P O Box 61051, Marshalltown, 2107.
Telephone: (011) 370 5000.
SPONSOR
Rand Merchant Bank (a division of FirstRand Bank Limited),
1 Merchant Place, Cnr Fredman Drive and Rivonia Road, Sandton, 2196.
P O Box 786273, Sandton, 2146.
DIRECTORS
L J Chiappini* (Joint chairman), S B Cohen* (Joint chairman), A E McArthur+
(Chief executive officer), M M Blair+, S A Ellis+, K Getz*, C Hultzer*, M R
Johnston*, Prof. L J Ring* (USA), W J Swain*, S van Niekerk+, C S Yuill+
*Non-executive director +Executive director
Consolidated Income Statement
2006 2005
March March
53 weeks 52 weeks %
R"000 (Restated) change
Revenue 5 284 842 4 636 380 14
Continuing operations 5 048 643 4 058 055 24
Discontinued operations 170 850 525 503 (67)
Finance income 65 349 52 822 24
Continuing operations
Retail sales 5 007 591 4 023 414 24
Other income 41 052 34 641 19
Total revenue 5 048 643 4 058 055 24
Costs and expenses 4 514 578 3 708 607 22
Cost of sales 2 980 810 2 434 682 22
Selling expenses 1 159 329 953 207 22
Administrative and other
operating expenses 374 439 320 718 17
Profit from operating
activities 534 065 349 448 53
Net finance income 31 087 7 745
Profit after net finance income 565 152 357 193 58
Net amortised cost adjustment of
contributions to export partnerships 15 201 (21 689)
Profit before taxation 580 353 335 504 73
Taxation 193 489 107 160 81
Net profit from continuing operations 386 864 228 344 69
Discontinued operations
Profit from operating activities 8 350 44 848
Profit arising from discontinuance 1 376 647
Net finance (costs)/income (98) 849
Profit before taxation 9 628 46 344 (79)
Taxation 4 022 13 387
Net profit from discontinued operations 5 606 32 957 (83)
Total group
Net profit attributable to shareholders 392 470 261 301 50
Weighted average number of ordinary
and unlisted B ordinary shares in issue
(net of shares held by staff share trust)
(000) 245 697 241 470 2
Earnings per ordinary and unlisted B
ordinary share (cents)
- basic 159,7 108,2 48
- headline 161,7 108,8 49
- core headline 152,2 104,4 46
- diluted basic 152,8 104,0 47
- diluted headline 154,7 104,7 48
- diluted core headline 145,5 100,4 45
Distributions per share (cents) 81,0 60,0 35
Distribution cover (times) 2,0 1,8 11
Consolidated Balance Sheet
2006 2005
March March
R"000 (Restated)
Assets
Non-current assets 570 810 446 723
Property, plant and equipment 344 007 277 987
Intangible assets 6 137 7 581
Long-term receivables and prepayments 216 096 155 758
Deferred taxation assets 4 570 5 397
Current assets 1 456 029 1 394 505
Inventories 535 467 568 393
Trade and other receivables 296 039 332 981
Cash and cash equivalents 624 523 493 131
Total assets 2 026 839 1 841 228
Equity and liabilities
Equity attributable to shareholders 1 025 647 770 951
Non-current liabilities 280 340 322 998
Lease obligations and loan 101 673 98 486
Deferred taxation liabilities 171 554 214 107
Post retirement medical benefits 7 113 10 405
Current liabilities 720 852 747 279
Trade and other payables and provisions 550 904 639 741
Current portion of long-term liabilities 16 347 30 908
Taxation 153 601 76 630
Total equity and liabilities 2 026 839 1 841 228
Consolidated Cash Flow Statement
2006 2005
March March
53 weeks 52 weeks
R"000 (Restated)
Cash flows from operating activities
Operating profit before working capital changes 606 135 446 065
Working capital changes (132 027) 107 664
Net interest received 65 427 52 644
Restraints of trade (48 333) -
Taxation paid (162 284) (78 608)
Net cash inflows from operating activities 328 918 527 765
Continuing operations 319 356 496 860
Discontinued operations 9 562 30 905
Cash flows from investing activities
Net advances in respect of long-term receivables (59 154) (73 611)
Acquisition of subsidiary (4 800) -
Disposals of discontinued operations 187 670 4 480
Additions to intangible assets (3 799) (2 890)
Replacement of property, plant and equipment (106 708) (44 344)
Additions to property, plant and equipment (61 056) (49 268)
Proceeds on disposal of property, plant and
equipment 145 347
Net cash outflows from investing activities (47 702) (165 286)
Continuing operations (231 455) (160 644)
Discontinued operations 183 753 (4 642)
Cash flows from financing activities
(continuing operations)
Proceeds from issue of share capital 30 856 17 888
Proceeds from disposal of investments by
staff share trust 726 836
Decrease in lease obligations and loan (6 550) (126 460)
Distributions to shareholders (171 509) (97 227)
Net cash outflows from financing
activities (146 477) (204 963)
Net increase in cash and cash equivalents 134 739 157 516
Cash and cash equivalents at beginning of
the year 493 131 334 389
Exchange (losses)/gains (3 347) 1 226
Cash and cash equivalents at end of the year 624 523 493 131
Statement of Changes in Equity
2006 2005
March March
R"000 Notes (Restated)
Total equity attributable to shareholders
at 1 April (previously stated) 1 135 154 925 214
Lease restatement and transition to IFRS (367 609) (339 631)
- Leases 2.1 (79 649) (74 998)
- Foreign exchange 2.2 (1 432) (1 548)
- Inventories 2.3 (3 928) (3 538)
- Imputed interest 2.4 (1 964) (1 762)
- Share-based payments 2.5 (4 337) (1 146)
- Contributions to export partnerships 2.6 (269 122) (249 233)
- Deferred receivables 2.7 (7 177) (7 406)
Recognition of share-based payments 4 337 1 146
Currency translation adjustments (931) (878)
Total equity attributable to shareholders
at 1 April (restated) 770 951 585 851
Net profit for the year (restated) 392 470 261 301
Net profit for the year (previously stated) 289 279
Lease restatement and transition to IFRS
- Leases 2.1 (4 651)
- Foreign exchange 2.2 116
- Inventories 2.3 (390)
- Imputed interest 2.4 (202)
- Share-based payments 2.5 (3 191)
- Contributions to export partnerships 2.6 (19 889)
- Deferred receivables 2.7 229
Shares issued 30 856 17 888
Recognition of share-based payments 6 776 3 191
Distributions to shareholders (171 509) (97 227)
Currency translation adjustments (3 897) (53)
Total equity attributable to shareholders
at 31 March 1 025 647 770 951
Segmental Reporting
Business segments
The group"s retail activities are organised into two divisions for operational
and management purposes.
2006 2005
March March %
53 weeks 52 weeks
R"000 (Restated) change
Revenue from continuing and
discontinued operations
Continuing operations 5 048 643 4 058 055 24
Apparel 3 431 000 2 847 547 20
Home 1 615 855 1 205 663 34
Central services 16 611 13 696
Eliminations (14 823) (8 851)
Discontinued operations 170 850 525 503 (67)
Total 5 219 493 4 583 558 14
Profit from operating activities of
continuing and discontinued operations
Continuing operations 534 065 349 448 53
Apparel 442 031 312 896 41
Home 143 569 83 311 72
Central services (53 960) (33 815)
Other (155) (14 973)
Eliminations 2 580 2 029
Discontinued operations 8 350 44 848 (81)
Total 542 415 394 296 38
Supplementary Information
2006 2005
March March
(Restated)
Number of ordinary and unlisted B ordinary
Shares in issue (net of shares held by staff
share trust) (000) 248 756 243 005
Net asset value per share (cents) 412 317
R"000
Reconciliation of headline and core headline earnings
Net attributable profit 392 470 261 301
Profit from discontinuance (1 376) (647)
Loss on disposal and scrapping of property, plant
and equipment in continuing operations 3 187 3 115
Taxation adjustment 3 098 (934)
Headline earnings 397 379 262 835
Net amortised cost adjustment of contributions
to export partnerships (15 201) 21 689
Net attributable profit from operating activities
of discontinued operations (8 252) (32 310)
Core headline earnings 373 926 252 214
Depreciation and amortisation for the year 87 266 83 954
Capital expenditure
- expended during the year 171 563 96 502
- authorised or committed at year end 181 485 140 603
Borrowing powers are limited to R1 538 million and unutilised borrowing
facilities amount to R448 million.
Contingent liabilities
In giving effect to the disposal of the discontinued operations, the group has
provided support to the purchasers:
as security for operating lease obligations. The maximum theoretical
exposure in this regard has been quantified at R225 million but it is
estimated that, in the event that the guarantees are called upon, the
practical potential liability to the group would be reduced, through
sub-leasing and conversion to own use, to approximately R47 million.
to guarantee the performance of trade debtors sold to the purchasers of
Galaxy for a period of three years, subject to a maximum of R27
million. The debtors are ceded back to the company in the event of
the guarantee being called upon.
Other guarantees extended by the group amount to R87 million (2005: R60
million).
Notes:
1. The results have been audited by Ernst & Young. A copy of their unqualified
audit report is available for inspection at the company"s registered office.
2. The results are prepared in accordance with IFRS. The impact of the first
time adoption of IFRS and circulars issued by the South African Institute of
Chartered Accountants ("SAICA") resulted in the following amendments:
2.1 Circular 7/2005 issued by SAICA requires that operating lease expenses be
recognised on a straight line basis over the lease term. Previously, lease
expenses were recognised in accordance with the payment terms of the lease
agreements. This change in accounting policy has had a retrospective
application.
A lease in respect of buildings, previously recognised as an operating lease,
was deemed to be a finance lease on the adoption of IAS 17 Leases. This lease
has been reclassified with retrospective effect.
2.2 On the adoption of IAS 21 The Effects of Changes in Foreign Exchange Rates,
the group has selected functional currencies in respect of non South African
subsidiaries. This has resulted in foreign exchange translation differences
being taken to a separate component of equity instead of the previous disclosure
in the income statement. This policy has been applied with retrospective effect
from the opening transitional balance sheet date of 1 April 2004, in terms of
the exemption permitted under the standard. Furthermore, the standard requires
that all balance sheet items be translated at spot rate at balance sheet dates.
Previously, only items defined as monetary items were translated at spot rate.
In accordance with the new standard, inventories and property, plant and
equipment owned by subsidiaries are now translated at spot rate, whereas they
had previously been accounted for at the historic rate.
2.3 IAS 2 Inventories requires that the carrying value of inventories include
all costs of purchase, costs of conversion, and other costs incurred in bringing
inventories to their present location and condition. Accordingly, the valuation
of inventories now includes primary carriage costs to stores, which were
previously not included.
Furthermore, in accordance with the recommendation by SAICA regarding the
treatment of settlement discounts, the valuation of inventories and measurement
of cost of sales have been adjusted by the settlement discounts received from
suppliers in respect of merchandise purchases, with retrospective effect.
2.4 The adoption of IAS 39 Financial Instruments: Recognition and Measurement
has resulted in imputed interest on interest free debtors being recognised.
Accordingly, a portion of credit sales revenue has been deemed to be interest
recognised on a time apportionment basis. Previously, the entire transaction was
recognised as a sale with no interest implication. This policy has been applied
with retrospective effect.
2.5 IFRS 2 Share-based Payments requires that equity-settled share-based
payments transactions be measured at fair value and the cost be recognised as an
expense in the income statement over the vesting period. Prior to the adoption
of IFRS 2, the group did not recognise the financial effect of these share-based
payments. In accordance with the transitional provisions of IFRS 2, the standard
has been applied retrospectively to all share options granted to associates
after
7 November 2002 that were unvested as of 1 April 2004. The share options are
valued using a binomial valuation model and are expensed in the income
statement, with a corresponding amount being taken to a separate equity reserve.
2.6 As referred to in the announcement of the results for the six months to 30
September 2005, the group has sought external advice to ensure that the
accounting treatment of its participation in export partnerships was in
compliance with IAS 39. Following on an evaluation of the advice received, the
policy has been changed in respect of the discount rate applied to the
contributions made in order to arrive at an amortised cost value. The discount
rate adopted represents a combination of the risk free rate and a risk premium
established at the date that each contribution was made to the partnerships,
whereas this was previously calculated using an effective interest rate. The
amortised cost adjustments reflected in the statement of changes in equity will
be recovered through the income statement over the repayment period to
ultimately reflect the full amount due.
2.7 Deferred receivables were previously measured at amortised cost at
inception using the original effective interest rate. In accordance with IAS 39
these have now been measured at fair value using a market rate at inception.
This report and the supporting presentation are available on our website:
www.mrpricegroup.com
Date: 25/05/2006 08:00:54 AM Produced by the JSE SENS Department
