2006 Ellerine Holdings Limited Annual Report

Transcription

Proof 4 23 November 06
2006
Ellerine Holdings Limited Annual Report
Mission Statement
Our mission is to capitalise on the proven
entrepreneurial spirit of our people to provide the very
best in home lifestyle products and financing solutions
coupled with service excellence.
Corporate Vision
To maximise community well-being and returns to all
stakeholders by continuously strengthening our position
as the preferred supplier of lifestyle products and home
furnishings across all markets through our 13 distinctive
retail brands and our extensive southern African
footprint.
Strategic Intent
To provide and deliver home lifestyle products across the
entire market spectrum that genuinely meet or exceed
our customers’ aspirations while continuously seeking to
capitalise on strategic opportunities for market growth to
maximise wealth creation for all our stakeholders.
Corporate Profile
The Group operates in the retail furniture and appliance sector trading out of 1 156 outlets
as follows:
TRADITIONAL CREDIT RETAIL DIVISION
Ellerines/Town Talk/FurnCity and Foreign catering to the lower to middle markets
UNIVERSAL CREDIT RETAIL DIVISION
Beares/Geen & Richards/Lubners catering to the middle to upper markets plus Savells
Fairdeal which caters to the lower market
VALUE RETAIL DIVISION
Dial-a-Bed/Mattress Factory/Furniture City catering to the middle to upper markets
DECORATING DIVISION
Wetherlys/Osiers/Roodefurn Manufacturing catering to the upper market
GROUP
The Group’s corporate division includes its financial services operations through its short
term insurance and its long term assurance companies which provide products to the
retail credit operations. This is supplemented by Rainbow Loans which provides small
loans to the lower end market consumers. Early Bird Services provides repair services to
customers throughout the Group. Head Office consists mainly of service divisions providing
essential services to the Group such as Accounting, Internal Auditing, IT, Human Resources,
Merchandise procurement and Marketing, Property, Secretarial and Legal, as well as Staff
Training and Development.
The merger with the Relyant Retail Limited Group in 2005 provided the Group with access
to the key middle market through brands such as Beares, Dial-a-Bed, Furniture City, Geen
& Richards, Lubners and Mattress Factory. The Group’s cash flows have been significantly
bolstered due to the substantial component of cash sales produced through the decorating
division, the value retail division and the universal credit retail division.
The strategic coverage and penetration by the Group’s diverse divisions of both the rural and
urban areas across six countries in southern Africa namely South Africa, Botswana, Lesotho,
Namibia, Swaziland and Zambia has positioned the Group to take full advantage of further
growth opportunities across all LSM groupings both in the credit and cash retail markets.
The Group remains committed to achieving a standard of excellence in all its operations.
A
Ellerine deploys distinctive consumer brands, which
target particular customers and life styles, which enable
customers to create beautiful homes for their families
Commitment to stakeholders
SHAREHOLDERS
To provide shareholders with above average returns and real growth on their investment.
EMPLOYEES
To treat all employees with fairness, equality and respect so as to provide an environment in
which they will have the opportunity to develop to their full potential and thus provide a better
lifestyle for both themselves and their families.
SUPPLIERS
To sustain the good relationships the Group has built up with its numerous suppliers based on
fair benefit to both parties which ensures the supply of quality merchandise and services at
competitive prices.
CUSTOMERS
Credit Retail divisions – Traditional & Universal
To provide customers with a range of household products and superior service to meet their
needs in a professional and caring way. To make available a range of payment options tailored
to meet their financial circumstances in order to facilitate the financing of the high-ticket items
which the Group sells.
Value Retail division
To provide a range of quality home/lifestyle merchandise which meets the expectations of this
target market at competitive prices with a range of innovative flexible payment options.
Decorating division
To keep abreast, both locally and internationally, with developments in the upper end of
the market and to retain its position as a trendsetter providing high quality products with
excellent customer service appropriate to the market it serves through its Wetherlys decorating
warehouses, Osiers cane and linen outlets and Roodefurn manufacturing operations.
Financial services
To offer a range of value added insurance products to customers, through its insurance
companies, Relyant Insurance Company, Relyant Life Assurance Company and Customer
Protection Insurance Company. Rainbow Loans strives to provide an efficient, professional and
ethical service to its clients with the aim of being recognised as a preferred supplier of short
term loans. Home loans have also been added to the suite of consumer finance products offered
to clients in the retail divisions.
Services
Early Bird is committed to providing an efficient repair service for a wide range of home
appliances and to becoming the service provider of choice to its target market.
COMMUNITY
To support communities and projects across the Group’s target markets through various initiatives
aimed at alleviating hardship and creating opportunities for improved living standards.
GOVERNMENT
To conduct ourselves as a responsible corporate citizen complying with all legislation and
obligations placed on the Group by Government.
B
Group Operational Structure
CEO Peter Squires
>>
>>
>>
>>
>>
Bruce Sinclair
>>
COO Marc Moca
Arnold
van den
Borne
Traditional
Credit Retail
Division
Universal
Credit Retail
Division
Value
Retail
Division
Decorating
Division
Financial
Services
Division
Insurance
Operations
Relyant Insurance
Company
>>
Roodefurn
Manufacturing
Business Unit
Early Bird
Business
Unit
>>
>>
>>
Mattress
Factory
Business Unit
Rainbow
Loans
Business Unit
>>>
>>
Osiers
Business
Unit
Dial-a-Bed
Business
Unit
>>
Wetherlys
Business
Unit
>>
>>
Furniture City
Business
Unit
>>
Lubners
Business
Unit
>>
Geen &
Richards
Business Unit
>>
>>
FurnCity
Business
Unit
Beares
Business
Unit
>>
>>
Ellerines 2
Business
Unit
>>
>>
Ellerines 1
Business
Unit
Services
Division
Relyant Life
Assurance Company
>>
>>
>>
Town Talk
Business
Unit
Customer Protection
Insurance Company
Savells
/ Fairdeal
Business Unit
>>
Foreign
Business Unit
Ellerines &
FurnCity
C
Financial highlights
2006
2005
%
R’000
R’000
change
Revenue
7 575 158
4 227 957
79,2
Profit before interest and taxation
1 348 128
815 901
65,2
ABRIDGED INCOME STATEMENT
Continuing operations
Net finance costs
(79 508)
Profit before taxation
(56 313)
41,2
759 588
67,0
(372 164)
(199 070)
87,0
896 456
560 518
1 268 620
Taxation
Profit attributable to ordinary shareholders - continuing operations
Loss attributable to ordinary shareholders - discontinued operations
(2 139)
(13 609)
Profit attributable to ordinary shareholders
894 317
546 909
63,5
Headline earnings - total operations
892 569
515 152
73,3
485 831
380 727
27,6
743,4
611,1
21,6
CASH FLOW
Cash flows from operating activities – total operations
PERFORMANCE PER SHARE (CENTS)
Total operations
Attributable
Headline
741,9
575,6
28,9
Fully diluted attributable
732,5
598,4
22,4
Fully diluted headline
731,1
563,7
29,7
Attributable cash flow
403,8
425,4
(5,1)
Dividends declared
76,1
252,5
143,4
Interim
139,6
–
Final
112,9
143,4
4 127
3 682
Net asset value per share
Financial
objective
FINANCIAL RATIOS
Operating margin (%)
> 18,0
16,8
17,1
Return on average shareholders’ equity (%) *
> 20,0
19,0
22,0
Return on average total assets (%) *
> 16,0
17,4
14,0
Return on average funds employed (%) *
> 20,0
23,5
25,0
2,9
4,0
8 308
7 496
Dividend cover (times)
JSE SECURITIES EXCHANGE RATIOS
Market capitalisation (R millions)
Closing price earnings ratio (times)
9,01
9,98
Share price to net asset value
1,62
1,66
* The 2005 ratios have been annualised for the effect of Relyant’s results, which were consolidated for the four months ended 31 August 2005.
D
12,1
Ellerine Holdings Limited Annual Report 2006
1
Financial Performance
Contents
Introductory Booklet
8 000
1 400
7 000
1 200
IFC
6 000
1 000
5 000
800
4 000
600
1 000
0
03
04
05
Operating margin at
Headline earnings per share up
Distribution per share up
Gearing down to
C
Group Operational Structure
Financial Performance
200
2
Ellerine Brand LSM Positioning
4
Chairman’s statement
6
Chief executive officer’s (CEO’s) review
02
03
04
05
06
A RECORDING BREAKING YEAR
Operating profit up
Commitment to Stakeholders
1
Operating profit – R’million
Revenue up
B
Financial highlights
06
Group revenue – R’million
Corporate Profile
D
0
02
A
400
3 000
2 000
Mission, Vision & Strategic intent
79,2%
76,3%
16,8%
28,9%
76,1%
15,5%
16
Board of Directors
18
Corporate Governance
30
Social Responsibility
34
Traditional Credit Retail Division
39
Universal Credit Retail Division
44
Value Retail Division
48
Decorating Division
49
Services Division
50
Corporate Division
63
Statement of value added
and distributed
64
Six Year Review
67
Annual Financial Statements
800
4 500
700
4 000
131
Share Performance
3 500
132
Notice of annual general meeting
3 000
137
General Information
138
Administration
139
Form of Proxy
600
500
2 500
400
2 000
300
1 500
200
1 000
100
500
0
0
02
03
04
05
06
Headline earnings per share – cents
02
03
04
05
06
Net asset value per share – cents
2
Ellerine Brand LSM Positioning
CREDIT RETAIL BRANDS
Number of households: 10,969 million
Average monthly household income: R5 084
754 (6,9%)
R19 974
809 (7,4%)
R12 647
660 (6,0%)
R9 304
888 (8,1%)
R6 880
1,600m (14,6%)
R4 400
1,483m (13,5%)
R2 674
1,603m (14,6%)
R1 924
Source: AMPS 2004
Created by Ellerines Group Marketing: Last update 1 December 2005
Divisional Brand Segmentation – Number of stores
continuing operations
Ellerines
2006
2005
309
309
Town Talk
150
142
FurnCity
162
155
TRADITIONAL CREDIT RETAIL DIVISION
621
606
Lubners
92
85
Beares
147
145
Savells Fairdeal
145
138
Geen & Richards
58
47
442
415
UNIVERSAL CREDIT RETAIL DIVISION
Furniture City
24
23
Dial-a-Bed
19
19
Mattress Factory
25
20
VALUE RETAIL DIVISION
68
62
Wetherlys
14
12
Osiers
11
9
DECORATING DIVISION
25
21
FURNITURE RETAIL
1 156
1 104
Services – Early Bird
44
44
Financial Services – Rainbow Loans
TOTAL STORES
70
59
1 270
1 207
+
LSM
LSM
LSM
LSM
LSM
LSM
LSM
3
CASH RETAIL BRANDS
Population size: 30,903 million
Spending power: R669,2 billion
10
10
9
8
7
6
5
4
1,857m (6,0%)
R180,8bn (27,0%)
2,085m (6,7%)
R122,8bn (18,4%)
1,758m (5,7%)
R73,7bn (11,0%)
2,412m (7,8%)
R73,3bn (11,0%)
4,453m (14,4%)
R84,4bn (12,6%)
4,175m (13,5%)
R47,6bn (7,1%)
4,602m (14,9%)
R37,0bn (5,5%)
Geographical spread
m2
Furniture
m2 per outlet
Outlets
2006
2005
2006
2005
2006
2005
RSA
703 706
668 819
693
698
1 016
958
Botswana
25 223
27 904
587
558
43
50
Lesotho
10 971
11 351
645
668
17
17
Namibia
24 754
22 528
651
549
38
41
Swaziland
7 189
6 825
654
620
11
11
Zambia
4 414
4 414
736
736
6
6
776 257
741 841
686
685
1 131
1 083
Sub Totals
Early Bird
RSA
7 829
5 778
178
131
44
44
Rainbow Loans
RSA
4 529
3 663
65
62
70
59
Wetherlys
RSA
36 985
33 341
2 642
2 778
14
12
Osiers
RSA
14 037
12 330
1 276
1 370
11
9
63 380
55 112
456
444
139
124
839 637
796 953
661
660
1 270
1 207
Sub Totals
TOTALS
4
Chairman’s statement
Last year I described the performance of our newly merged Group as magnificent when we
achieved record operating profits of R722 million. I am very proud to be able to report to my
fellow shareholders that, this year, our Group has passed another corporate milestone. I am
delighted that operating profits surged past the one billion rand mark to R1,27 billion.
STRATEGY
It remains our Group’s strategy to deploy distinctive consumer brands, which target particular
customers and life styles, retailing furniture, homewares, electrical products and financial services
which enable our customers to create beautiful homes for their families. We believe that with our
portfolio of brands, we are uniquely positioned to cover and serve the entire market and to follow
its rapid development and growth. We aim to have both profitable retail and profitable financial
services businesses. This year both markets have changed significantly. I believe that our shortterm performance has demonstrated our ability to anticipate accurately and respond tactically
within our defined strategy. I am sure that the pace of these changes will only accelerate and that
both our retail and financial services businesses will need increasing scale to remain successful in
the longer term. It is the Group’s strategic intention to grow both aspects of our business.
RESULTS
In 2006 revenue increased by R3,3 billion to R7,6 billion. While the merger with Relyant
contributed materially to this year-on-year increase, all our businesses achieved very satisfactory
organic growth.
Profits after tax of R894 million were 63,5% ahead of last year despite an increase in our effective
tax rate from 26,2% to 29,3% this year. Taking into account the new shares issued at the time of
the Relyant merger, headline earnings per share grew strongly by 28,9% to 741,9 cents per share.
The expected financial benefits of the merger are being delivered.
Our operating cash flows are strong, improving from last year’s R512 million to this year’s
R716 million. We continue to sensibly invest in our store portfolio and infrastructure with capital
expenditure increasing by 43,7% to R148 million. With the expansion in our credit operations,
net trade receivables grew 16,6% to R4,5 billion. The Group’s long standing commitment to
maintaining its ethos of responsible lending is being underpinned by our continued investment
in excellent credit granting and debt collection systems.
As a result of our strong cash flow, tight control of working capital and sensible capital
expenditure, after substantially increased dividend payments, gearing dropped from 18,4% to
15,5% in the year.
After tax return on average shareholders’ equity is a satisfactory 19%. Our target is to achieve
a 20% return.
CUSTOMERS, STAFF AND SUPPLIERS
People make or break retailing and financial services. To be successful we have to give our
customers increasingly better value, always better service and ever better products. If we don’t,
our competitors will. We now have over two million customers, many of whom come back to us
time and time again and we are proud to have served several generations of the same families.
I would like to thank each and every one of our customers for the support and I look forward to
serving them again and again in the future.
In the Group we employ 17 357 staff in 1 226 stores across 13 brands, with three insurance
companies, backed up by three central credit granting hubs, central support services and 44 after
sales branches. We have invested in a comprehensive training and development programme to
empower our staff to both help them achieve our business objectives and for them to attain
their personal goals. On behalf of the Board I would like to express our heartfelt thanks for all
our people’s efforts in 2006. The fantastic achievements of the very best were recognised at our
annual awards ceremony. Congratulations to all of the finalists and winners.
I believe that partnership with our suppliers, to quickly bring new products to market, give
even better value and improved service, is fundamental to our success and theirs. The supplier
relationships that we have developed are important to us and I would like to take this opportunity
to thank them for their support and dedication. Last year I encouraged our suppliers to seize the
“I am
5
delighted that operating profits surged past the one billion
rand mark to R1,27 billion.
”
Peter Pohlmann
opportunities that the enlarged Group presented. Many have enthusiastically risen to this challenge. I know that next year will bring us all
renewed challenges and I firmly believe that we need to accelerate the pace of development with our suppliers. I am confident that they will
again rise to the challenge.
BOARD CHANGES
A number of changes have taken place in the Board since my last report to you.
Jeff Dritz retired as an executive director in January. Jeff has been at Ellerines for 34 years, 17 of them as a member of the Board. For his
loyalty, valuable advice and dedication to the Group, many thanks. On behalf of the Board I would like to wish him and his family many happy
years to enjoy his retirement.
In August this year one of our non executive directors, Sandile Zungu, resigned to concentrate on his other executive responsibilities and
business activities. I would like to thank Sandile for his contribution to our Group in the two eventful years since he joined us.
With the expansion of the Group and our determination to grow our retail and financial services operations, two new executive director roles
have been created on the Board. Both positions report directly to the CEO.
Firstly, in January Bruce Sinclair joined the Board with executive responsibility for the control and development of our financial services. Bruce
heads up our credit granting, debt collection and insurance operations.
Secondly, in a Group of our size and depth we decided that the time was now right to create the executive Board position of Chief Operating
Officer. Marc Moca was appointed to this role in August and is responsible for the day-to-day management of our retail operations.
I believe that Bruce and Marc bring valuable experience and expertise to the Board and I would recommend that my fellow shareholders
support their appointment when they become eligible for election at the annual general meeting.
In October this year Humphrey Khoza was killed in a tragic car accident. Humphrey has been a director of Relyant from 1999 and joined the
Ellerines Board as a non executive director, at the time of the merger. His quiet council and sound judgement will be sadly missed on our Board.
On behalf of all of us, I would like to express our profound sympathy to his wife and family for their tragic loss.
Finally, our longest serving non executive director, Tom Chalmers, has decided to retire from the Board at the next annual general meeting.
I’d like to thank Tom for his passion, dedication and invaluable contribution to Ellerines over so many years and wish him a long and happy
retirement.
FUTURE PROSPECTS
The second phase of the integration between the Relyant and Ellerines businesses will be completed this financial year and I am confident
that the expected benefits will be delivered. The detailed implications and implementation of the National Credit Act continues to consume a
considerable amount of time and effort. Though both our retail and financial services businesses operate in increasingly competitive markets,
there are good opportunities for organic growth. We are financially strong, have an experienced and dedicated team and a clear strategy. With
these elements in place, I am confident that your Group will continue to prosper.
Peter Pohlmann Chairman
6
CEO’s review
The enlarged Group has had an outstanding year during which a number of the operational
and strategic objectives as appear more fully below were achieved.
Demand for durables was extremely strong particularly up to the end of April 2006. Whilst
growth in the demand has tapered off since then, demand has nevertheless stabilised at
higher levels.
The Relyant integration process is virtually complete save for the multiple IT platforms on
which the Group operates and the alignment of certain working conditions and remuneration
levels, although substantial progress has already been made in these areas.
The Executive team has been strengthened through the appointment of a Chief Operating
Officer in Marc Moca as well as the appointment of a Group Human Resources Director in
Charles Myburgh.
In balancing back against the various strategic goals which were set for 2006:
> The refocusing and realignment of the trading model in the Cash Retail Division has
been finalised resulting in a substantial increase in the operating profit of this division
R149,0 million (2005: R76,5 million), an increase of 94,7%.
> Greater focus was placed on the importation of merchandise and accessories to
achieve both exclusivity as well as price competitiveness. The imported component of
merchandise increased to 29,7% of merchandise purchases.
> The migration of the debtors management for the Traditional Credit Retail Division onto
the Triad Management System is well underway with the FurnCity brand having gone
live in July 2006 and the Town Talk brand in September 2006. It is anticipated that the
complete transition including the flagship Ellerines business unit with its 265 stores
operating in the RSA at August 2006 should be live on Triad by the end of March 2007.
> Substantial progress has been made in stabilising the “IT 4 U” store operating system
which was introduced into the Group in mid 2005. It is intended that this state of
the art operating system will be rolled out to the brands in the Universal Retail Credit
Division as part of the IT integration process. This has, however, been delayed due to the
numerous changes required to the system in order to comply with the provisions of the
National Credit Act which comes into operation on 1 June 2007.
> Regarding the various other IT platforms on which the Group operates, it is likely to
be an 18 to 24 month process to achieve uniformity in regard to all these operating
platforms. Certain of these such as the salary system and the real estate system are
already operating on uniform platforms.
> Further progress was made with the rationalisation of the various Head Office
departments such as Accounting and Creditors. This process can, however, only be
finalised once these departments are operating off a single IT system.
> The investigations commissioned into logistics for business units in the Traditional
Division which include certain centralised warehousing have resulted in a pilot scheme
initiated for stores operating in the Johannesburg Metropolitan and Reef areas which
could well provide the model going forward.
7
My sincere thanks and gratitude to all our employees in the different
“divisions
for their loyalty and commitment to the Group as well as the
willingness and flexibility demonstrated by them in adjusting to and meeting
the demands of the enlarged Group to enable it to achieve its objectives.
”
Peter Squires
> The Head Office relocation has been completed with all the Service and Corporate Departments now operating out of Bedfordview and the
Business Divisions operating from the former Relyant Head Office in Ellis Park. The Beares, Geen & Richards and Savells Fairdeal business
units continue to operate out of the Durban office.
> The rationalisation of the insurance companies was put on hold given certain technical difficulties which arose. It is anticipated that this
will be progressed in the fourth quarter of the new financial year. The rationalisation of the catastrophic elements of the Group’s risks has
already been put in place with external insurers.
TRADING ENVIRONMENT
Trading conditions for the year under review can be divided into two distinct periods. For the eight months ending April 2006, there was a
substantial increase in demand for furniture and appliances supported by strong macro economic factors which included increased employment
through real growth in the economy, lower tax rates and the low interest rate environment. This resulted in an increase in disposable income.
Trading was further boosted by highly competitive prices which were made possible through the relatively strong Rand.
From May 2006 a slowing down in the demand for these goods was evident and whilst demand still remains relatively high, the growth
experienced to April 2006 levelled off in the period from May 2006, particularly in the brands targeting consumers in the lower end of the
market. The position was aggravated further by the targeting of consumers by many credit grantors ahead of the introduction of the National
Credit Act.
FINANCIAL RESULTS
The Group produced excellent results with revenue at R7,6 billion and pre-tax profits of R1,27 billion. The results of the Relyant Group,
acquired with effect from May 2005 are included for the full twelve months compared to the previous financial year where their results were
only included for the four months to 31 August 2005.
Revenue reflects an increase of 79,2% over the previous year with merchandise sales accounting for 65,5%. Cash sales at 42,3% of these
merchandise sales were up by 6,1% compared to the previous year on a comparable basis. Retail trading space increased by 5,4% which is in
line with the 5,2% increase in the number of trading outlets.
Consumer financial services which is a significant contributor to revenue comprising insurance premiums and short-term loan income at
R1,15 billion contributed 15,2% to total revenue (2005: 15,6%).
The gross margin on merchandise sales at 44,7% (2005: 47,0%) declined by 2,3% as a result of the inclusion of the lower margin Value Retail
Division for the full year together with margin pressure in the second half of the year in certain Credit business units. Operating expenses at
R3,1 billion have been well contained and represent 61,9% (2005: 65,9%) of merchandise sales.
8
CEO’s review (continued)
Debtors costs, before the movement in the IAS 39 impairment provision, at R331,7 million
increased by 6,8% on a like-for-like basis and represents 5,5% of the gross debtors book
of R6,0 billion, which, on a like-for-like basis, has reduced by 0,6% compared with the
previous year. The impairment provision increased by R64,8 million in the current year in
line with the Group’s decision to increase credit sales and take on more risk, compared to a
reduction in the provision as reported at August 2005. This represents an increase of 14,3%
in the total impairment provision, which is below the increase of 18,2% in gross debtors and
the increase of 17,1% in arrears. As a consequence, total debtors costs at R396,5 million
(2005 – R141,6 million), which include the Relyant debtors costs for the full year, have
increased to 6,6% of the debtors book of R6,0 billion compared to 4,1% on a like-for-like
basis last year.
Credit continues to be well managed through centralised credit granting incorporating the
dual matrix philosophy of combining application and behavioural score cards. As at the date
of this report, two of the Traditional Division business units viz FurnCity and Town Talk have
been incorporated into the call centres for follow-up of delinquent accounts through the
internationally acknowledged Triad software package which has been customised to meet
the group’s needs. The flagship Ellerines business unit is due to come onto this system in
early 2007 which should have a positive effect on the performance of the debtors ledger in
the Traditional Division.
The operating margin at 16,8% (2005: 17,1%) is marginally down on the prior year mainly
due to the inclusion of the full year of the Value Retail Division which operates at a much
lower operating margin than the Credit Divisions as well as the impact of the increase in the
debtors impairment provision.
Net interest costs of R79,5 million (2005: R56,3 million) at 6,2% (2005: 7,8%) of operating
profit remain well covered. The increase in these costs is due to the increase in borrowings
of R399 million taken on at the time of Relyant merger in May 2005 as well as a reduction
in the dividend cover from four times to three times.
Headline earnings per share at 741,9 cents increased by 28,9%.
With the expansion of Rainbow Loans during the year under review, the short-term debtors book
at R87,7 million (2005: R65,9 million) has increased by 33,0% compared to the previous year as
a result of the opening of 11 new outlets. This ledger is well provisioned at 55,2% (2005: 55,8%),
given the nature of the business risk of the enterprise, with arrears at 25,1% (2005: 25,7%).
The net asset value per share at R41,27 increased by 12,1% compared to the previous year.
Despite the increase in trading activity and the introduction of no deposit loan business
in the Traditional Credit Division which resulted in this division absorbing cash during the
year under review, the cash-flow generated form operating activities increased by 27,6%
or R105,1 million to R486 million. With net borrowings of R774 million and an equity base
of R5,0 billion, Group gearing is at 15,5% compared to 18,4% as at August 2005. In its first full year of operations, the return on average
shareholder’s equity at 19,0% and return on average funds employed at 23,5% reflect a strong operating performance.
In order to simplify administrative procedures and to facilitate the IT integration strategy of the Group going forward, it was necessary to
convert to a single month end cut-off date of the 7th of each month which is in line with the practice in the Relyant Group and industry
norms. As a consequence, those operations which constituted the Ellerine Group prior to the Relyant merger i.e. the Traditional and Decorating
Divisions together with the associated Financial Services including Rainbow Loans closed the year end on 7 September 2006 as opposed to
31 August 2006. The additional 5,5 days trading and accrual of related costs in those operations was not material to the Group’s results.
NATIONAL CREDIT ACT
As indicated in our comments on the interim results, with the introduction of the new Act, Group revenue streams should largely be neutral,
however, there may be certain timing effects in accounting for 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 June 2007 as
these charges will be raised on a monthly basis.
The IT changes necessary for the implementation of the provisions of the new Act are well advanced.
OPERATIONAL SEGMENTAL REVIEW
The Group’s operations are structured into various divisions, details of which appear in the Group Operational Structure which appears on
page C and on pages 34 to 62 of this report. With effect from August 2006, Marc Moca was appointed Chief Operating Officer for the Group.
Marc comes with an excellent track record in that having run the successful Beares chain, following the Relyant acquisition, he was given
the responsibility of heading up the Value Retail Division where he excelled in turning around the performance of the various business units
in that division.
This division comprises the Ellerines, Town Talk and FurnCity brands trading out of 553 stores throughout South Africa as well as some 68 stores
which trade under the Ellerines and FurnCity brands in the adjoining southern African countries namely Namibia, Botswana, Swaziland,
Lesotho as well as Zambia. Revenue for the year at R2,5 billion (2005: R2,2 billion), increased by 15,1%. Sale of merchandise was up by 13,3%
year on year. A pleasing feature of the division was the improvement in results achieved in certain of the foreign countries namely Lesotho
and Zambia. Following the rationalisation of stores in both Namibia and Botswana, which given the trading environments in those countries
had become overtraded, there is evidence of improved profitability from the operations in these countries as well.
The operating margin for the division at 25,6% (2005: 24,7%) is pleasing. The follow-up of certain delinquent accounts in stores in the FurnCity
brand was moved to the collection hubs with effect from July 2006 and stores in the Town Talk brand with effect from September 2006.
By the end of March 2007, the credit control follow up on certain delinquent accounts for all stores in this division will be handled via the
collection hubs using the sophisticated Triad system.
With operating profit of R640 million (2005: R536 million), up by 19,5%, this division contributed 50,3% to the Group’s operating profit.
This division comprises Beares, Geen & Richards, Lubners and Savells/Fairdeal trading out of 403 stores throughout South Africa. A further
39 stores trade under the Beares and Savells/ Fairdeal brands in Namibia, Botswana and Swaziland.
Revenue for the year at R2,4 billion (2005: R633 million) increased by 281,5%. Sale of merchandise was up by 283,7% year on year.
9
10
The past year saw an increase in the number of stores across all brands in this division and
the implementation of various strategies to focus on improved trading efficiencies which
has resulted in the substantial increase in revenue and profitability.
The operating margin for the division at 18,0% (2005: 16,3%) is most pleasing, particularly
given the very broad target market served by the brands in this division, i.e. LSM4 to LSM10.
With operating profits of R435 million (2005: R103 million), up by 321,4%, this division
contributed 34,2% to the Group’s operating profit.
This division comprises Furniture City, Dial-a-Bed and Mattress Factory trading out of 68 stores
(2005: 62 stores) with the growth coming from Mattress Factory which opened 5 new stores
and Furniture City which opened 1 new store.
Whilst Dial-a-Bed and Furniture City concentrate on the middle to upper end of the market,
Mattress Factory is focused on the lower to middle market consumer and can attribute its
significant growth over the past year to an increase in credit sales with all credit granted
and payments followed up through the central credit hub.
Each of these business units made significant progress during the past year as follows:
> Furniture City:
A number of stores were revamped in the new generation format and the business
model was refined resulting in a huge increase in profitability and an improvement in
the margin from 4,7% to 7,5%. Further growth of this chain will be pursued in the year
ahead.
> Dial-a-Bed:
The operating margin is at 10,4%.
Dial-a-Bed carries the widest range of internationally recognised bedding brands
with backup service in line with the brand’s well advertised logo “Phone today, sleep
tonight”.
Having consolidated the business model, the brand will be expanded in the year ahead.
> Mattress Factory:
The target market of the brand was expanded over the year through the opening of
additional outlets targeting the lower end of the market. The expansion of this brand
coupled with changes to the trading model saw the operating margin increase to 7,4%
(2005: 4,2%) with a major increase in profitability. Further expansion of this brand
which currently only trades in the Gauteng, Limpopo and North West Provinces is
planned for the year ahead.
Decorating Division
This division which targets the upper end of the market comprises 14 Wetherlys and 11 Osiers retail outlets as well as Roodefurn Manufacturing
that operates out of its two factories which are now fully operational.
The past year has seen a coming together of the Wetherlys entrepreneurial flair with the disciplines and good Corporate Governance aspects
of the Group.
Despite the emergence of a number of new entrants into this division’s target market which to an extent curtailed the increase in the
sale of goods to just 8,4%, the division was able to increase its operating profit substantially. This was achieved through a combination of
streamlining overheads and the more effective use of the two Roodefurn factories, thus increasing the vertical integration and the overall
operating margin which increased to 15,1% (2005: 13,3%).
During the year, additional Wetherlys outlets were opened in East London and Tygervalley. The Osiers, boutique type concept of smaller stores
in shopping centres was also expanded by the opening of a new store in Tygervalley and at Fourways. These boutique type stores in shopping
centres/value centres are proving most successful and the rolling out of this concept will be accelerated in the year ahead. The new year will
also see the introduction of new and expanded ranges which will contribute to a further increase in both revenue and profitability. These
initiatives will be supported by an updated version of the Wetherlys buyer guide and the introduction of a new linen guide, gift guide and an
outdoor living guide.
Part of the vision is to grow the division’s distribution network which it currently enjoys in Spain, Portugal, Ireland, Namibia, Botswana and
Florida USA. To this end, the Wetherlys and Osiers trademarks have been registered in the EU.
With operating profits of R76,8 million (2005: R62,1 million), up by 23,5%, this division contributed 6% to the Group’s operating profit.
Financial Services Division
This division comprises Relyant Insurance, Relyant Life, Customer Protection Insurance Company and Rainbow Loans.
> Consumer Credit:
These activities relate to the finance charges earned on credit transactions and to the unsecured personal loans granted through Rainbow
Loans as well as the sourcing of home loans through an association with a bond origination company.
> Insurances:
Insurance activities include short-term insurance solutions provided by Relyant Insurance Company and Customer Protection Insurance
Company as well as long-term assurance provided to the greater Group via Relyant Life Assurance Company.
The proposed rationalisation of the short-term insurance activities whereby Relyant Insurance Company Limited, (“Relyant Insurance”),
which has an unrestricted licence was to underwrite these activities for the entire Group was put on hold due to various technical and
regulatory issues. It is expected that this rationalisation process will commence during the latter part of the new financial year.
The administration of the various insurance businesses has been outsourced to Transqua Administrators so as to ensure that these
businesses are operated in accordance with legislative requirements and by trained insurance staff who are focused on insurance
activities.
11
12
This division has been earmarked for strategic growth through the extension of various
financial service products to the Group’s wider consumer base and not simply limiting
these to insurance products which are integral to the sale of merchandise on credit.
Following extensive discussions and investigations, the Group’s view is that the
extension of financial products to the broader customer base would best be served by a
partnership approach rather than an in-house solution. Discussions in this regard have
progressed to an advanced stage.
Service Division
In Early Bird Services, the Group has access to a dedicated service provider for aerial
installations, repair and service of audio and visual equipment and home appliances.
During the past year, the division saw a substantial increase in profitability brought about
through more focused marketing, the additional business generated through the stores in
the Tradition Credit Retail Division, and an improvement in the number of service contracts
sold with video, sound equipment and home appliances.
The division was also able to reduce its operating costs by trimming its head office staff
through natural attrition and the transfer of certain staff to other divisions as well as
improved overall efficiencies both at head office and at branch level.
These operations produced an operating profit of R4,8 million. Although this constitutes
less than 1% of the Group’s operating profit, the Service Division nevertheless provides the
Group with a trading edge in having a dedicated service provider and the opportunity of
marketing additional add-on products.
The past year has seen a coming together of the various strategies for this division.
CORPORATE
A key area of focus during the past year was the implementation of the steps necessary to
rationalise the various Group functions resulting from the Relyant acquisition as well as the
range of decisions which had to be taken regarding the implementation of the provisions of
the National Credit Act which will come into effect from 1 June 2007.
The Executive Committee “EXCOM” was expanded from August 2006 through the addition of
Marc Moca, upon his appointment as Chief Operating Officer.
The Board has recognised the strategic importance of BBBEE to the Group. This aspect will
receive the full attention of the Board in the year ahead.
13
HUMAN RESOURCES
The Group currently has 17 357 employees, (August 2005: 16 248), spread across the following divisions:
Traditional Credit Retailing
8 274
Universal Credit Retailing
5 607
Decorating Division
1 174
Value Retailing
892
Early Bird Services
402
Financial Services
234
Corporate
774
Total employees
17 357
The increase of 1 109 employees should be seen against the increase in the number of outlets including Rainbow Loans, up from
1 207 to 1 270.
During the past year, further progress was made with the alignment of working conditions and rewards for the various categories of employees.
It must, however, be accepted that this is a process which will take some time to achieve. Given the diversity of the various businesses within
the Group, certain working conditions and reward structures will have to remain diverse to ensure the ongoing viability of certain of these
businesses.
With effect from 1 July 2006, Charles Myburgh was appointed Group Human Resources Director with his key objective to ensure that best
practice in Human Resources is implemented and aligned with the key strategies and objectives of the Group. This will ensure that the Group
human capital is productive, competent and fairly remunerated so as to both enable the Group as well as the individuals to achieve their full
potential.
The Group continues to maintain a responsible and productive relationship with the various Trade Unions which enjoy representation within
the Group. To this end, the Group was successful in concluding a two-year wage agreement with SACCAWU, the Trade Union which has the
largest representation within the Group. A similar agreement was concluded with the appropriate Trade Union for employees in Lesotho and
at present negotiations with representative Trade Unions in both Swaziland and Zambia are at an advanced stage.
Divisional Employment Equity Forums with representation from the designated business units, labour and management have been set up and
are meeting at least bi-annually.
HIV/Aids assistance programmes are in operation within the Group at no cost to affected employees. These are totally outsourced, participation
is voluntary and totally confidential. These programmes have proved highly successful in both benefiting employees and minimising the
negative impact to the Group.
As part of the Head Office reorganisation, an expanded training facility has been established at the Ellis Park Office where most of the business
units are housed. Training programmes have been expanded in line with the Group’s commitment to the development of its employees, across
all divisions, so as to enable them to reach their full potential.
The Group continues to train external learners which has resulted in a pool from which the Group can fill vacancies having the benefit and
insight of the potential of these prospective employees.
In general, the integration process has gone extremely well at all levels and employees have bonded in order to form a cohesive group which
has both the skills and determination to take the Group forward.
14
STRATEGY 2007
The following strategies will receive the focus of the Executive in the year ahead:
> The necessary changes to the business models and operations in order to comply with
the provisions of the National Credit Act with the objective of maintaining revenue
streams and margins.
> Exploring additional avenues for the expansion of Financial Services in order to generate
additional income streams leveraging off the Group’s customer base, now in excess of
two million.
> Expansion of the Group’s operating base through the opening of additional outlets with
particular emphasis on new shopping centres and value centres where trading results
have been most encouraging. Non-profitable stores will be rationalised/closed. However,
a net increase in the number of trading outlets will once again be achieved in the year
ahead.
> Accelerating the store re-vamp programme of the business units in the Universal Credit
Retail Division where certain of the older stores are in need of upgrading.
> Evaluating the results of the pilot central distribution centre for the Traditional Credit
Retail Division and setting up additional central distribution centres, should the results
of the pilot scheme introduced in the Johannesburg Metropolitan and Reef areas justify
this.
> Making further progress in aligning working conditions and remuneration scales for the
different Business Units within the Group to the extent that this is feasible given the
diverse trading operations of the Group.
> Rationalising the Group’s IT functions in the various areas of its operation with the
object of minimising the number of different IT systems/platforms serving the Group
both at an operational and corporate level.
> The realisation of further synergistic benefits from the Relyant acquisition in order to
boost overall Group profitability.
PROSPECTS
Whilst the increase in demand for furniture and appliances, particularly in the lower end
of the market has tapered off since May 2006 it is nevertheless expected that double-digit
revenue growth for the year ahead will be achieved. Given that further synergetic benefits
should be achieved it is expected that a further improvement in earnings will be achieved
for the year to August 2007.
BOARD OF DIRECTORS
The Board continues to adhere to high standards of Corporate Governance. The various
Board structures and committees appear on pages 19 to 24 of this report.
During the past year, the following changes occurred in the composition of the Board:
> Jeff Dritz took early retirement with effect from 31 May 2006 and stood down from the Board as from 31 January 2006. We take this
opportunity of thanking Jeff for his contribution to the Group during his 34 years of service and to the Board in the 17 years during which
he served as a Board member.
> Sandile Zungu resigned from the Board on 15 August 2006 due to other commitments. We thank him for his contribution during the two
year period he served on the Board.
> Echoing the sentiments of the Chairman, it is with sadness that we record the untimely passing away of our fellow director Humphrey
Khoza who was tragically killed in a car accident. Our deepest sympathies to his family.
> Bruce Sinclair, former Financial Director of Relyant was appointed to the Board as an Executive Director on 31 January 2006. He was
previously an alternate Director to Jeff Dritz.
> Marc Moca, upon his appointment as Chief Operating Officer was appointed to the Board with effect from 24 August 2006.
Given the vast experience in the retail furniture industry of both Marc and Bruce, I am confident that they will make a meaningful contribution
both to the Group as well as to the Board in the future.
ACKNOWLEDGEMENTS
The substantial achievement of the objectives set for the past year as well as the realisation of the potential of the merger with Relyant is due
to the efforts and support of the various stakeholders in the Group to whom I express my sincere thanks and gratitude:
> To all our employees in the different divisions for their loyalty and commitment to the Group as well as the willingness and flexibility
demonstrated by them in adjusting to and meeting the demands of the enlarged Group to enable it to achieve its objectives.
> To my extended Executive and Management team for their support and commitment in successfully implementing the necessary strategies
and changes and for their leadership and direction without which it would not have been possible to achieve these results.
> To the Group’s customer base which now exceeds two million for their continued support and loyalty to the business units of choice.
> To the greater community who have continued to support our Group and with whom we have in the past and will continue to identify
ourselves through various social responsibility programmes and in terms of our Group’s commitment to achieve the aims of a just and
equitable South Africa with an improvement in the living standards of all citizens.
> To our suppliers for the flexibility shown by them in re-negotiating various trading terms and for their support and commitment in
providing the volume of goods required, particularly during the peak trading season.
> To both the Chairman and Deputy Chairman as well as all the non executive Directors for the advice, support and guidance provided to
both myself as well as the Executive team during what has been both a challenging and most satisfying year.
> To our shareholders for demonstrating their confidence in management and for their support of the Group which has enabled us to both
substantially increase earnings and at the same time diversify risk. I look forward to our ongoing interaction in the future.
Peter Squires Chief Executive Officer
15
16
Board of Directors
Executive Directors
During the year under review Jeff Dritz retired after 34 years of service to the Company. The Board
wishes Jeff much health, happiness and a well deserved rest during his retirement. Sandile Zungu also
left the Board so that he could dedicate more time to his own company. The Board thanks Sandile for
his valued input during his tenure as a Board member. Also during the year under review, and in the true
spirit of integration, the Board welcomed Bruce Sinclair and Marc Moca, who hail from the Relyant side
of the business. Bruce joins the Board in his capacity as Director, Financial Services Division and Marc
joins the Board in his capacity as Chief Operating Officer.
The Board of directors comprises four executive directors and four non executive directors.
Each of the executive directors has clearly defined areas of responsibility and accountability. Given the
extensive experience in areas in which the Group operates, the executive directors have the necessary
skills and experience to both direct the Group and provide support to ensure that the Group performs
efficiently in all its operations.
The non executive directors bring with them a wealth of experience and diverse disciplines to the Board.
As such, they are able to contribute to the effectiveness of the Board and at the same time ensure that
high standards of corporate governance are adhered to.
Within the Board structure there is a clear division of responsibilities to ensure that there is a balance of
power and that no one Board member has unfettered powers of decision-making.
Peter Squires. (59) Chief Executive Officer
Peter joined the Group in 1979.
Appointed to the Board in 1995 and as Chief Executive Officer with effect from September 2000. Whilst
he is responsible for all aspects of the Group his major strengths relate to the operational side of the
business and he is still very much involved in this aspect. With the appointment of Marc Moca as Chief
Operating Officer, the operational executives are now fully accountable to him on all aspects of the
business. Peter Squires will now fulfil a more strategic role within the Group.
Reg Rawlings. (57) CA(SA), MBA
Reg joined the Group in 1996.
Appointed to the Board in the same year. He has over 24 years experience in financial management and
information technology in the retail environment.
As financial director for the merged Group, his responsibilities include all financial aspects of the
business. He also plays a key role in corporate planning. Due to his enhanced responsibilities with the
merged Group, his information technology responsibilities have been passed onto Allan Dickson who has
a dedicated portfolio covering all aspects of information technology for the merged Group.
Bruce Sinclair. (51) BAcc, CA(SA)
Bruce has been the financial director of Relyant Retail Limited (“Relyant”) since its inception in 1998
having previously been the financial director of Amrel since 1990. As such, he was involved in a wide
range of responsibilities for Relyant pre the merger. Bruce played a key role in the various strategies and
plans to implement the merger in order to derive the synergistic benefits, given his intimate knowledge
of Relyant. His main focus will be the financial services portfolio which is to be expanded in the future.
Marc Moca. (55)
Marc started with Amrel (Amalgamated Retail) in 1970, in the Lubners brand as a sales consultant. He
was quickly promoted to manager in 1972 and to regional controller in 1974. In 1980 he was promoted
to marketing director of Geen & Richards and to operations director of Geen & Richards in 1981. In
1990 Marc was promoted to managing director of McNamees & Co (McNamees, Fairdeal and Blaikies)
which position he held until 1995. After rationalisation of brands by Amrel in 1995, Marc moved back to
Johannesburg to merge Triangle with Fairdeal Furnishers.
In 1998 the Beare Group/Amrel merger took place which formed the new Relyant Group. Marc was
appointed as managing director of Beares. In 2005 Ellerines bought Relyant and Marc was appointed as
chief executive Value Retail comprising Furniture City, Dial-a-Bed and Mattress Factory. In August 2006
Marc was promoted to COO of the Ellerine Group and appointed to the Board.
Marc has a wealth of experience in the furniture retail industry with 35 years of service to the Group and
is intimately acquainted with every aspect of the operational side of the business.
Executive directors (from left)
Peter Squires, Marc Moca, Reg Rawlings and Bruce Sinclair
Non executive directors (from left)
Tom Chalmers, Denzil McGlashan (standing), Peter Pohlmann and James Moore
Non-Executive Directors
Peter Pohlmann. (63) Chairman - German
Peter has 21 years experience as a retail entrepreneur and has in-depth retail and business
experience gained across various sectors of the European homeware industry. He has created what
has become one of Germany’s most successful private retail groups, POCO-Einrichtungsmarkte. He
is chairman of POCO in Germany, chairman of Poco International Holdings SA and was previously
non executive chairman of Relyant Retail Limited. He was appointed to the Board of Ellerine
Holdings Limited in May 2005.
Denzil McGlashan. (61) Deputy chairman - FCIS, ACMA, MIMM
Denzil was appointed to the Board in 1987– Business Consultant
Denzil was appointed as non executive chairman in February 2001 having previously been an
executive director of Malbak Limited. He stood down from this position in May 2005 as part of
the Board re-structure resulting from the Relyant merger, at which time he was appointed deputy
chairman of the merged Group. Denzil brings to the Board a wealth of experience in the area of
corporate and strategic planning and played a key role in the Relyant merger. He currently serves
on numerous Board committees to which he adds value through both his experience, attention to
detail and his deep understanding of the issues given his long association with the Group.
Tom Chalmers. (66) BCom
Tom was appointed to the Board in 1987 – director of companies
Tom was previously responsible for the Ellerine portfolio as part of his responsibilities as director
of Malbak Limited and has a unique understanding of the business having been closely associated
with it for some 19 years. He is also chairman of the Remuneration Committee.
James Moore. (47) British - BSc, FIEE, C.Eng
James graduated from the University of Glasgow with a Bsc. degree in electronics and computer
science, whereafter he joined Unilever. For over 16 years he has been a director of companies in the
lighting, domestic electrical, appliances, furniture and textile industries operating in Europe, USA
and the Far East. Directorships have included both private companies in the UK and Europe and
five years as the CEO of a UK listed company. He is co-founder and a director of POCO International
Holdings SA. He joined the Board of Relyant Retail Limited in 2002 and was appointed to the Board
of Ellerine Holdings Limited in May 2005.
The late Humphrey Khoza. (59)
Until his untimely death in October 2006 Humphrey was a
businessman, former head of Uthingo Management (Pty)
Limited and non executive director of various public and
private companies. He was appointed to the Relyant Board
in 1998 and was appointed to the Board of Ellerine Holdings
Limited in May 2005.
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18
Corporate Governance
INTRODUCTION
Good corporate governance is an integral part of Ellerine Holdings Limited operations. Accordingly, the Ellerines Group (“Ellerines” or the
“Group”) is fully committed to the principles of the Code of Corporate Practices and Conduct set out in the King Report on Corporate
Governance (the “Code”) as well as the Listings Requirements of the JSE Limited (the “Listings Requirements”). The purpose of the Code is to
promote the highest level of corporate governance in South Africa. In supporting the Code, the directors recognise the need to conduct the
Group with integrity and in accordance with generally accepted corporate practices.
KEY GOVERNANCE DEVELOPMENTS
During the year under review, the following developments were key to Ellerines’ corporate governance processes:
> Ongoing compliance with the Code and the Listings Requirements.
> The implementation of a code of ethics throughout the Group’s South African operations, which sets out minimum standards of ethical
behaviour for all employees of the Company.
> Substantially increasing the resources of the internal audit department.
> The implementation of a formal external auditor evaluation, which takes place annually against various criteria and standards.
> Engagement with and assistance of our sponsors regarding Ellerine’s director training and development.
> Ongoing awareness and cognisance of international/emerging governance trends. These are considered for implementation at Ellerines
only where appropriate.
> Keeping abreast of all relevant legislation and regulations as well as major developments that could impact on the Group and its
operations.
COMPLIANCE WITH THE CODE
The Listings Requirements require that JSE listed companies report on the extent to which they comply with the principles incorporated in
the Code. The directors are of the opinion that Ellerines complies with, and has applied, the requirements of the Code and complied with the
provisions set out in the Listings Requirements for the year under review.
Application of the Code and approach to corporate governance
All entities in the Group are required to subscribe to the spirit and principles of the Code. In addition, the Code is applied to all operating
entities of the nature and size identified in the Code. Whereas the Ellerine’s Board reviews overall Group compliance with the Code and is the
focal point of the Group’s corporate governance system, the heads of the various divisions and business units of various divisions within the
Group are responsible for ensuring compliance. In addition, the following is undertaken:
> a full and effective review by the Risk Committee of all aspects relating to ongoing corporate governance during the year, the inclusion of
statements in this regard in the annual report; and
> a review of current and emerging trends in corporate governance and the Group’s governance systems and benchmarking the Group’s
governance systems against local and international best practice.
In its governance approach, the Board believes that, while compliance with the formal standards of governance practice is important, greater
emphasis is placed on ensuring effectiveness of governance practice, with greater emphasis being placed on ensuring compliance with the
substance of governance over form. The Board also seeks to ensure that good governance is practised at all levels in the Group and is an
integral part of Ellerines’ corporate culture.
BOARD OF DIRECTORS AND BOARD COMMITTEES
Board composition
Ellerines is governed by a unitary Board of directors, assisted by the following Group sub-committees:
> Executive committee
> Remuneration committee
> Audit committee
> Risk committee
> Employment Equity/Health and Safety committee
> Tax affairs committee (a sub-committee of the audit committee)
> Nominations committee
Each sub-committee acts within agreed terms of reference and the Chairman of each sub-committee reports to the Board at its scheduled
meetings. Where appropriate, the minutes of the sub-committee are tabled at Board meetings. The chairman of the Ellerines Board is a
non executive director. The roles of Chairman and Chief Executive Officer are separated, with a clear division of responsibility to ensure a
clear distinction of duties and responsibilities between them. The Chairman has no executive functions. The role of all directors is to bring
independent judgement and experience to the Board’s decision-making. Directors are advised that they may take independent advice, at the
cost of the company, in the proper execution of their duties as directors. They have direct and unfettered access to the external auditors,
professional advisers and the advice of the Company Secretary.
Details on the categorisation of the directors appear on pages 16 and 17 of this annual report. There are eight directors, of whom four are
executive and four are non-executive of which one is an independent director.
Board appointments and succession planning
Non-executive directors on the Ellerines Board are appointed for specific terms and re-appointment is not automatic. The Board as a whole,
within its powers, selects and appoints directors, including the Chief Executive Officer and Non Executive Directors, on the recommendation
of the Nominations Committee. The Nominations Committee considers non-executive director succession planning and makes appropriate
recommendations to the Board. This encompasses an evaluation of the skills, knowledge and experience required to add value to the Group. All
appointments are made in terms of a formal and transparent procedure and are subject to confirmation by the shareholders at the annual general
meeting. Prior to appointment, potential Board appointees are subject to a “fit and proper” test, as required by the JSE. As a Group, Ellerines
believes that the Board’s constitution, in terms of both the number and expertise, is sufficient and appropriate to meet the Group’s needs.
Independence
The Board applies the Listings Requirements guidelines when considering a director’s independence. Although Denzil McGlashan is an adviser
to the Board on certain matters, the Board considers him to be independent and capable of rendering an unbiased opinion. He has, nevertheless,
been classified, in accordance with the Listings Requirements, as not being independent.
Board performance assessment
The Board annually assesses the contribution of each director up for re-election, using an individual director evaluation process that is
conducted by the Group Deputy Chairman. The Board as a whole considers the outcomes of the above processes. This culminates in a
determination by the Board as to whether the Board will endorse a retiring director for re-election. Where a director’s performance is not
considered satisfactory, the Board will not endorse the re-election.
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20
Corporate Governance (continued)
Individual director performances are assessed against the following criteria:
> time, availability and commitment to performing the function of an Ellerines director;
> strategic thought and specific skills, knowledge and experience brought to the Board;
> the director’s views on key issues and challenges facing Ellerines;
> the director’s views on his/her own performance as a Board member;
> any training needs; and
> other areas or roles where the director’s specific skills could be utilised.
One third of the directors are subject, by rotation, to retirement and re-election at the annual general meeting in terms of the Company’s
articles of association. In addition, all directors are subject to election by shareholders at the first annual general meeting after their initial
appointment. The Board’s recommendations with regard to the directors up for re-election at the forthcoming annual general meeting are
contained in this annual report on page 132.
Interests in contracts and conflict of interest
During the year ended 31 August 2006, none of the directors had a significant interest in contracts or arrangements entered into by the
Group or its subsidiaries. Directors are required to inform the Board timeously of conflicts or potential conflicts of interest that they may
have in relation to particular items of business and are obliged to recuse themselves from discussions or decisions in relation to such matters.
Directors are also required to disclose their shareholdings in other companies as well as their other directorships at least annually and to
inform the Board when any changes occur.
Share dealings by directors
In terms of the Group’s “closed period” policy, directors, officers, participants in the share incentive scheme and staff who may have access to
price sensitive information are precluded from dealing in Ellerines shares from the date of the Groups interim and final results until they are
released to the public. Details of directors’ dealings in Ellerine shares are disclosed to the JSE through the Securities Exchange News Service
(SENS) in compliance with the JSE Listings requirements.
Advice
Directors have unlimited access to the Group Secretary, who acts as an adviser to the Board and its committees on issues including compliance
with rules and procedures, statutory regulations and the Code. The name and address of the Group Secretary may be found on page 71 of the
annual report. Furthermore, any director may, in appropriate circumstances and at the expense of the Group, obtain independent professional
advice. The directors are also entitled, with the prior knowledge of the Chief Executive Officer, to have access to senior management and to
all relevant Group information.
Insurance
Adequate directors’ and officers’ insurance cover has been taken out by the Group. No claims under the relevant policy were lodged during
the year under review.
Board committees
A number of Board-appointed committees have been established to assist the Board in discharging its responsibilities. The membership and
principal functions of these committees are set out below. Pages 28 and 29 reflects a list of the various committee members as well as their
attendance at the relevant committee meetings.
Executive Committee (Excom)
Members
P Squires (chairman), R Rawlings, B Sinclair, M Moca, A van den Borne.
Composition and meeting procedures
Excom is chaired by the CEO and has regular input from executive invitees from IT, Human Resources, Marketing, Merchandising, Credit
Control, Real Estate and Special Projects. Meetings are normally held 11 times a year. The Committee is responsible for strategy and operations
of the Group within the parameters defined by the Board. Where necessary decisions or recommendations of Excom are referred to the Board
for final approval, whilst in other instances Excom’s authority will be delegated to a subcommittee.
Group Remuneration Committee (GRC)
Members
T Chalmers (chairman), D McGlashan, J Moore.
The GRC is chaired by an independent director and comprises solely of non executive directors of Ellerines. The Group Chief Executive Officer,
who is the executive responsible for people management attends the meetings by invitation but does not participate in the committee’s
deliberations. Meetings are held three times a year.
Role, purpose and principal functions
Consideration and recommendation to the Board on matters such as succession planning, general staff policies, remuneration and benefits,
performance bonuses, executive remuneration, directors’ remuneration and fees, service contracts, the share purchase and option schemes
and Group retirement funds. In considering executive directors’ emoluments, share and option allocations and other benefits, the committee
is cognisant of responsibility, individual performance and Ellerines retention strategies. To this end, the committee relies on external market
surveys and industry reward levels as benchmarks. Remuneration packages are structured in such a way that short- and long-term incentives
are linked to the achievement of business objectives and the delivery of shareholder value.
Non-executive directors receive fees for their contribution to the Boards and committees on which they serve. The GRC recommends proposed
fees for approval by the Ellerines Board, after due consideration of comparable fee structures and market practices.
Retention agreements – executive directors
Certain executive directors, including the CEO have entered into retention agreements with the Company in order to secure their services,
given the scarcity of specialised skills in South Africa and the initial challenges posed by the merged Group.
During the reporting period, the retention agreements entered into from 1 May 2005, for a period of three years, were still in effect for the
following directors:
> P J C Squires – CEO
> R A Rawlings – CFO
> R B G Sinclair – Director Financial Services Division
Similar contracts were also entered into with certain key executives in the Group.
21
22
Group Audit Committee (GAC)
Members
D McGlashan (chairman), J Moore, P Squires.
Other than Mr Squires, who is an executive director, the chairman and members of the GAC are non executive directors. Meetings are held at
least four times a year and are attended by the external auditors, the Group internal audit executive and, on invitation, members of executive
management, including those involved in risk management and control and finance. All of the members of the committee are financially
literate. Page 29 reflects a list of committee members as well as their attendance at committee meetings. Once a year time is reserved for
separate in camera discussions with committee members only, the committee together with management (excluding the external auditors)
and the committee together with the external auditors (excluding management). In camera discussions provide an opportunity for committee
members, management and the external auditors to communicate privately and candidly. The internal and external auditors have unrestricted
access to members of the GAC, which ensures that their independence is in no way impaired.
The GAC assists the Board with regard to reporting financial information, selecting and properly applying accounting policies, monitoring the
Group’s internal control systems and various compliance-related matters. Specific responsibilities include:
> reviewing and/or approving internal audit, compliance and forensic services policies, plans, reports and findings;
> ensuring compliance with applicable legislation and regulations;
> dealing with matters relating to financial and internal control, accounting policies, reporting and disclosure;
> reviewing and recommending to the Board interim and annual financial statements and profit and dividend announcements;
> recommending to the Board the appointment and dismissal of the external auditors and fees payable to the external auditors;
> evaluating the performance of the external auditors;
> approving and ensuring compliance with the Group’s policy on non-audit services;
> reviewing/approving external audit plans, findings and reports; and
> collaborating with and reviewing issues for consideration as identified by the Group Risk Committee.
The Group’s policy on non-audit services, which is annually reviewed by the GAC, sets out in detail what services may or may not be provided
to Ellerines by the external auditors. The policy is largely based on a review of current and emerging trends in corporate governance and the
Group’s governance systems. The Group’s governance systems are benchmarked against local and international best practice, such as the
Sarbanes-Oxley Act.
During the year under review, Ellerines implemented a formal external auditor evaluation process. This evaluation will occur annually and
includes various criteria and standards such as audit planning, technical abilities, audit process/outputs and quality control, business insight,
independence and general factors (such as black economic empowerment credentials). The GAC makes efforts to keep abreast of current and
emerging trends in accounting standards which have become a major challenge, particularly with the introduction of International Financial
Reporting Standards (IFRS).
The Board, through a comprehensive evaluation (based on the recommendations of the Code, the Group audit policy and generally accepted
accounting and auditing practices), annually reviews the performance of the GAC to evaluate how effectively it has discharged its duties as
per its terms of reference.
Group Risk Committee
Members
The late H Khoza (chairman), D McGlashan, P Squires, J Dritz (to 31/05/2006), B Sinclair.
The Group Risk Committee was chaired by an independent director and consisted of a further three directors, two of whom are executive
directors. Members of executive management attend by invitation. The committee meets at least twice a year. Page 29 reflects a list of the
committee members as well as their attendance at committee meetings.
To review and recommend risk management policies, procedures and profiles pertaining to the Group. The committee’s principal responsibilities
are:
> reviewing and recommending to the Board for approval the enterprise-wide risk management policy;
> reviewing and recommending to the Board for approval the Group’s risk appetite and tolerance;
> dealing with the risk-reward profiles (including financial, operational, and strategic) and, where necessary, recommending improvement
strategies;
> reviewing and recommending improvements regarding outstanding actions on risk management plans at Group and business unit level;
> evaluating risks identified in those strategic plans of the Group that require Group Board approval to determine their impact on the Group’s
risk-reward profile;
> evaluating the risk profile and risk management plans drafted for major projects, acquisitions, new ventures and new products or services
to determine the impact on the Group’s risk-reward profile;
> making the necessary enquiries to ensure that all risks to which the Group is exposed are identified and managed in a well-defined
controlled environment; and
> collaborating with and reviewing issues for consideration as identified by the GAC.
Group Employment Equity, Occupational Health and Safety Committee
Members
P Pohlmann (chairman), the late H Khoza, S Zungu (to 15/08/2006), D McGlashan, J Dritz (to 31/05/2006).
The Group Employment Equity, Occupational Health and Safety Committee is chaired by the Group Chairman and consisted of a further four
directors, only one of whom is an executive director. Members of executive management attend by invitation. Meetings are held twice a year.
Page 29 shows a list of committee members as well as their attendance at committee meetings.
The role of the Employment Equity Committee is to formulate, review, evaluate and implement the Group’s employment equity strategy and
to measure achievement against targets. The Employment Equity Plans for various divisions have been developed, updated and submitted
to the relevant authorities. There is ongoing communication of the strategy and plan as well as monitoring of its implementation and the
achievement of goals.
Health and safety issues are also addressed by the committee to ensure compliance with the relevant Acts and to manage and where possible
minimise the risks to which employees are exposed to such health and safety risks in the performance of their duties.
23
24
Group Tax Affairs Committee
Members
D McGlashan (chairman), R Rawlings, B Sinclair, P Squires.
The Group Tax Affairs Committee, a sub-committee of the audit committee is chaired by a non executive director and consists of three other
executive directors. Members of executive management attend by invitation. The committee meets at least twice a year. Page 29 reflects a list
of the committee members as well as their attendance at committee meetings.
The Tax Affairs Committee ensures that the Group complies with all its tax obligations in a responsible manner. It ensures that queries are
appropriately and timeously dealt with. Together with external consultants, where appropriate, this committee advises the Board on the
Group’s tax planning.
Group Nominations Committee
Members
T Chalmers (chairman), D McGlashan, J Moore, P Squires (by invitation).
The Nominations Committee supports and advises the Board in ensuring that the Board comprises individuals who are best able to discharge
the responsibilities of directors, having regard to the highest standards of governance. This committee makes recommendations to the Board
on the appointment of executive and non executive directors and the composition of the Board generally. The nomination committee meets
ad hoc, when required.
RISK MANAGEMENT
Risk-taking, in an appropriate manner, is an integral part of business. Success relies on optimising the trade-off between risk and reward. In
the course of conducting its business, the Ellerines Group is exposed to a variety of risks, including credit, market, operational, strategic and
reputational risk. The long-term sustained growth, continued success and reputation of the Group are critically dependent on the quality
of risk management. Risk management is one of the Group’s core capabilities and management is committed to applying international best
practice and standards.
The Group’s risk philosophy is underpinned by its objective of shareholder value creation through sustainable profitable growth, in a manner
that is consistent with shareholders’ expectations of the Group’s risk-bearing capacity and its risk appetite. The Group’s objective in this regard is
to ensure that a quality risk management culture is sustained throughout its operations. The culture is built on the following main elements:
> Adherence to the value system of the Group;
> An integrated holistic risk management approach to achieve optimal business decision-making;
> Pro-active risk management;
> A risk awareness culture via management and the business units;
> Disciplined and effective risk management processes and controls, and adherence to risk management standards and limits; and
> Compliance with the relevant statutory, regulatory and supervisory requirements. The management of risk is fundamental to the Group’s
business and allows management to operate more effectively in an environment characterised by uncertainty and risk.
The Group risk management approach is that all risks must be identified and managed, and that the returns must be commensurate with the
risks taken, relative to Ellerine’s risk appetite. Risk management in the Group is guided by several principles, the most important being:
> Integrity and reliability of the financial and operational information that is used internally and for public reporting;
> Safeguarding and maintenance of assets;
> Detection and minimisation of fraud, potential liability, loss and material misstatement;
> Compliance with applicable laws, regulations and policies;
> Efficient and effective operations;
> The assignment of appropriate responsibility and accountability;
> The adoption of a framework for integrated risk management;
> Comprehensive risk assessment and measurement; and independent review.
Responsibility and accountability
Excellence in risk management is based on a culture in which management makes risk identification, risk management and the establishment
and maintenance of an efficient control environment, an integral part of its regular activities. Overall risk management policies, risk appetite
and tolerances are set on a comprehensive, organisation-wide basis by senior management, and reviewed with and (where appropriate)
approved by the Board of Directors. These policies, appetites and tolerances are clearly communicated throughout the Group and apply to all
business units in the various divisions and wholly owned subsidiaries.
Board and executive management responsibility
The Board is responsible for approving the Ellerines Group’s risk appetite annually. This risk appetite is translated into risk limits per business
unit and per risk type. Adherence to these limits is monitored and culminates in a risk profile for the Group.
The Board of Directors is responsible for the Group’s systems of financial and operational internal control. To fulfill this responsibility, the
executive directors ensure that management maintains accounting records and has developed and continues to maintain systems of internal
control that are appropriate. Control measures that have been put in place to identify and monitor the risk referred to above.
Internally controls are founded on the basis that directors and employees are required to maintain the highest ethical standards. Ellerines
organisational structure incorporates suitable segregation of authority, duties and reporting lines and promotes effective communication
of information. Defined control activities include documented policies and procedures as well as budgeting and forecasting disciplines with
comparison of actual results against these budgets and forecasts. The directors have satisfied themselves that these systems and procedures
are implemented, maintained and monitored by appropriately trained personnel.
The effectiveness of the systems of internal control in operations is monitored continually through reviews and reports from senior executives
and divisional managers, the internal and the external auditors. Furthermore, management has various control self-assessment processes in
place to supplement the existing structures for evaluating the systems of internal control.
For the year under review none of the above reviews indicated that the systems of internal control were not appropriate or satisfactory.
Furthermore no material loss, exposure or misstatement arising from a material breakdown in the functioning of the systems has been
reported to the directors.
Risk assessment
During the course of its meetings during the year, the Risk Committee identified certain risks as being either significant or having potential
to impact on the Group.
25
26
HIV/AIDS
Ellerines business will be impacted by a declining customer base and staff complement. The prevalence of HIV/Aids for the year under review
is estimated at less than 1% of permanent staff. The AIDS Intervention programme which was launched in mid 2003 continues to provide
employees and their spouses, who suspect that they may be HIV positive, with the opportunity to be tested and, if appropriate, to be supplied
with immune boosters and professional counselling. Since the inception of the HIV/Aids Programme, voluntary counselling and testing has
been offered in various areas of the business. Where appropriate i.e. where employees have a CD count of less than 200, the company assists
the employee to register with the State anti-retroviral programme. The impact of AIDS on the customer base is indeterminable, however, death
claims processed through the customer protection insurance policies showed a levelling off of the number of death claims for the first time
in a number of years.
National Credit Act
A National Credit Act steering committee has been established to oversee the implementation of the National Credit Act and Regulations as
and when they are enacted. An IT steering committee has also been established to ensure that the Group complies with all aspects of the Act
with minimal impact on the customer. In fact, with the implementation of the Act, certain changes are being made to the interface with the
customer that will facilitate better communication with the customer. It is fully expected that when the remaining sections of the Act are
enacted on 1 June 2007, the Group will be fully compliant with the Act. In addition to this, a number of working groups have been intimately
involved with the National Credit Regulator and the Department of Trade and Industry on such ancillary issues as debt counselling. The Group
is currently participating via the various industry associations, such as the Furniture Traders Association, the Consumer Credit Association and
the South African Insurance Association, to assist in finding a solution to debt counselling that will benefit both industry and the consumer.
Information Technology
Under the guidance of the Group IT Director, Allan Dickson, major focus has been placed on bedding down the successfully implemented
branch operating system to the more than 500 stores in the traditional division. Much of the department’s effort in the past financial year
has also been directed at achieving synergies emanating from the merger of the Ellerines and Relyant businesses. Greater rigour in the
management of projects has allowed both companies to “cherry-pick” and introduce the best systems/product features of the other.
Credit management
With a combined gross debtors ledger in excess of R6 billion the Group is mindful of the impact of deterioration in payment patterns. Various
measures are used to monitor the debtors’ ledger monthly which measures include activation percentages, collection rates, arrears and
recency versus delinquency.
The credit management team has been bolstered by the addition of a new level of management that have particular expertise in the field of
credit management. Also, regular interaction is maintained with international experts in credit management. This maintains a high focus on
managing and controlling what is the largest single Group asset so as to minimise the risk and to enable the Group to react expeditiously to
counter any negative trends.
Extent of Broad-based Black Economic Empowerment (BBBEE)
Ellerines is committed to the principles and objectives of BBBEE and it remains a high priority of the Board. The detailed indicators which are
expected to be included in the new draft BBBEE Codes of Good Practice are still awaited. The Deputy Chairman and independent director,
Sandile Zungu (until his resignation in August 2006), have been developing the implementation of an appropriate BBBEE strategy, whilst
awaiting clarity on the new BBBEE codes prior to progressing this issue.
27
Ellerines has made progress in its implementation of BBBEE and some of the highlights of this progress are:
BBBEE Element
Estimated status
Senior and middle management control by previously disadvantaged individual (“PDIs”)
53,31%
Employment Equity - % of total employees that are PDI’s
91,64%
Human Resources Development – Rand value spent on training PDI employees
R3,3 million
Corporate Social Development approximate spend for 2007
R6,6 million
The Board intends embarking on a more assertive BBBEE implementation process once there is clarity on the new Codes.
Safety, Health and the Environment
The directors acknowledge their responsibility to all Ellerines employees and the public for compliance with occupational safety and
environmental health standards. The Employment Equity Committee ensures that the requirements of the Occupational Health and Safety
Act (OHASA) are complied with.
The retail industry, of which Ellerines is part, exerts a relatively low direct impact on the environment. The activities that the Group is involved
in to improve its environmental performance are initiatives such as environmental policies and management systems identifying the following
direct and indirect environmental impacts:
Direct
Indirect
> Water consumption
> Methods used in the manufacture of products/merchandise
> Energy consumption
> Transport contractors regarding their fuel consumption and
other environmental impacts
> Waste disposal
> Fuel consumption of own vehicles
> Developers/landlords regarding their environmental impact
> Selection of products having regard to the materials and
> Third party service providers regarding their environmental
substances used in the manufacture thereof
impact
> Packaging material
The following are examples of Ellerines responses to the above impacts:
> Ellerines leases extensive trading and office space. Landlords are requested to ensure that environmental impact assessments are
undertaken, where appropriate, and to ensure compliance with OHASA. They are also required to ensure local authority compliance and
that staff health and waste disposal facilities are provided and that other regulatory requirements are met.
> Across the Group various professional waste disposal companies are charged with reselling, recycling or disposing of Ellerines waste, which
relates mainly to consumables such as stationery and packaging.
> On a regular basis, senior executives of Ellerines check that suppliers are not involved in exploitative behaviour such as using child labour.
> Where Ellerines vehicles are leased, monthly reports per vehicle allow line managers to regularly check on fuel consumption and to
take corrective action where required. Alternatively strict budgets are applied to kilometres travelled by all company vehicles. This has a
beneficial effect on the environment by limiting emissions from these vehicles.
> With the creation of centralised delivery hubs, the efficiencies achieved in reducing the number of vehicles and consequently the number
of kilometres travelled has positively impacted on Ellerines environmental impact.
> The transportation of merchandise to the Group’s various distribution centres and stores and, in respect of certain brands, distribution
to customers, is done by contracted specialists who focus on the optimisation of fuel consumption, by ensuring their vehicles operate
efficiently and that they limit their travelling by maximising the load delivered per kilometre travelled.
28
MEETING ATTENDANCE
Board of Directors
13 Sep
3 Nov
31 Jan
4 May
28 June
24 Aug
2005
2005
2006
2006
2006
2006
Pohlmann
✔
✔
✔
✔
✔
✔
McGlashan
✔
✔
✔
✔
✔
✔
Chalmers
✔
✔
✔
✔
✔
AP
Dritz (retired 31/1/06)
✔
✔
–
–
–
–
Moore
✔
✔
✔
✔
✔
✔
Rawlings
✔
✔
✔
✔
✔
✔
Squires
✔
✔
✔
✔
AP
✔
Sinclair
✔
✔
✔
✔
✔
✔
Zungu (resigned 15/8/06)
✔
✔
✔
AP
AP
–
Khoza
✔
✔
✔
AP
AP
AP
Moca (appointed 24/08/2006)
–
–
–
–
BI
✔
AP = Apologies, BI = By Invitation
Executive Committee
29 Sep
23 Nov
9 Feb
27 Mar
21 June
17 July
31 July
31 Aug
2005
2005
2006
2006
2006
2006
2006
2006
Squires
✔
✔
✔
✔
✔
AP
AP
✔
Dritz (Retired 31/1/06)
✔
✔
✔
✔
–
–
–
–
Rawlings
✔
✔
✔
✔
✔
✔
✔
✔
Moca (appointed 24/8/06)
–
–
–
–
✔
✔
✔
✔
Van den Borne
✔
✔
✔
✔
✔
✔
✔
✔
Sinclair
✔
✔
✔
✔
✔
✔
✔
✔
2 Nov
3 May
29 June
Group Remuneration Committee
2005
2006
2006
Chalmers
✔
✔
✔
McGlashan
✔
✔
✔
Moore
✔
✔
✔
Squires
BI
BI
–
Dritz
BI
BI
–
Rawlings
BI
–
–
Sinclair
BI
BI
BI
29
Group Audit Committee
McGlashan
Moore
Squires
Sinclair
Rawlings
Dritz
1 Nov
24 Nov
3 May
27 June
2005
✔
✔
✔
BI
BI
BI
2005
✔
✔
✔
BI
BI
BI
2006
✔
✔
✔
BI
BI
—
2006
✔
✔
AP
BI
BI
—
25 Aug
1 Feb
2005
✔
✔
✔
✔
✔
BI
2006
✔
✔
✔
✔
✔
BI
14 Sep
1 Feb
2005
✔
✔
AP
✔
✔
BI
2006
✔
✔
✔
✔
✔
BI
15 Nov
30 May
2005
✔
✔
✔
✔
✔
2006
✔
AP
✔
✔
—
Group Risk Committee
Khoza (Chairman)
McGlashan
Squires
Dritz
Sinclair
Rawlings
Group Employment Equity, Occupational Health and Safety Committee
Pohlmann (Chairman)
McGlashan
Zungu
Dritz (retired 31/1/2006)
Khoza
Squires
Group Tax Affairs Committee
McGlashan
Squires
Rawlings
Sinclair
Dritz
30
Social responsibility
The focus of the Ellerines corporate social investment programme centres around the
development of individuals and communities through education, training and self
sufficiency. In this regard Ellerines focuses on education and training, skills development
and instilling a culture of self sustainability. Projects are chosen on the basis that they are
sustainable or enculcate the development of skills.
The Group remains committed to the broader community which it serves and to its
employees through its extensive social responsibility projects which include the following:
AIDS
The Group has a policy of non-discrimination against employees who may be HIV positive.
Various programmes are run in the different divisions which effectively provide the
following:
> The opportunity for employees to be tested at their initiative so as to become aware of
their status;
> Counselling in the event of them being HIV positive;
> Access to anti retrovirals either through private clinics or via the State operated
programme should their CD counts be below the prescribed levels which would qualify
them for this therapy;
> In certain of the divisions, immune boosters, which are a combination of vitamins
are provided in order to improve the health and thus the quality of life of affected
employees.
These services are provided at no cost to employees and are outsourced ensuring total
confidentiality. The Group is only provided with statistical data so as to monitor the
participation in the various programmes and to manage the situation.
Full benefits are extended under the various retirement funds to employees who may be HIV
positive so that they or their dependants are not left to their own devices but receive the full
risk benefit package of disability and death benefits in appropriate circumstances.
The rate of mortality for the Group’s workforce will again be under 1% including mortality
through Aids related illness which accounts for approximately 50% of these deaths or 0,5%
of the workforce. Whilst the Group is very mindful of its responsibilities in regard to HIV
positive employees and the situation is managed with compassion and understanding, it is
not envisaged that the effects of the pandemic will cause major disruption to the Group’s
operations. There will, however, be an ongoing cost in managing affected employees so as
to prolong their ability to be gainfully employed.
SKILLS TRAINING AND DEVELOPMENT CENTRE
The Skills Training and Development Centre which was established during 2003 in the Group’s old
head office premises in Germiston continues to operate extremely well. The various skills training
programmes which include literacy, computer skills, cooking, sewing and marketing courses are
filled to capacity as is the childcare operation which is also conducted at this facility.
The past year has seen further progress in the production of clothing, the profits from which are
used to offset the running costs of the Centre, thus reducing the dependency of the Centre on the
subsidies from the Group. These subsidies amount to approximately R296 000 per annum.
AIDS CARE/EDUCATION CENTRE – KATHLEHONG
This project, consisting of a Childcare and Education Centre primarily targets aids orphans in
Kathlehong.
The project was undertaken in conjunction with Unsung Heroes and MECHASA which is the social
development arm of the Methodist Church of South Africa.
To date, an amount of approximately R1,4 million has been spent on this Centre which includes the
purchase and refurbishment of the building housing the Centre. This will provide the opportunity of
supplementing the Centre with a training/production facility which in time, it is hoped, will assist in
generating income for the sustainability of the Centre.
The Group was instrumental in obtaining a donation of a vehicle from the Atkins Foundation which
is used to facilitate the transportation of the children to and from the Centre.
This has been a very heartwarming project and it is fitting that it should be carried out in Kathlehong
where the Group has its roots, with the first Ellerine shop having been opened in nearby Germiston
some 56 years ago.
ELLERINE TRUST FUND
This Fund has now been formally registered as a non-profit organisation.
A wide range of donations are made annually by the Trust to institutions and organisations providing
social benefits to the less fortunate in the broader community served by the Group.
BURSARIES
Bursaries for tertiary education are provided to children of employees in the traditional retail
division. In the past, the value of bursaries granted was in the region of R1 million. The possibility
of extending these across the greater Group is looked at as part of the human resources integration
project.
31
32
Social responsibility (continued)
Some of the beneficiaries of the various projects undertaken by the Group are:
Brand Knew – Education for underprivileged children.
Operation Bear – To raise awareness to the number of child rape and sexual abuse.
Avril Elizabeth Home.
Cotlands Children Home.
Donated mattresses to Cotlands, Sonskyn Children.
Wits Dial-a-Bed Sleep Laboratory - Fund the existing sleep laboratory in the School of
Physiology in the Faculty of Health Sciences of the University.
SA Guide Dogs.
Radio 702 Xmas Wish list.
Aids – Aids Orphans, aids awareness.
Aids Awareness.
Water for Life.
Ubuntu Trust – Church based charitable Institution.
In-house Clinic – Aids testing & Counselling.
Geluck Farm School – Education of previously disadvantaged children.
Silver Oakes School – Education of previously disadvantaged children.
Mercy Ship – Furniture donated to missionaries who perform humanitarian relief operations
in Africa.
Workforce Health Care – “Ellerines” staff and spouses HIV/Aids intervention programme.
Bana be Metsi School – Prefsure Botswana donation to underprivileged school.
Ellerines Community Development Centre.
– Community training which include sewing, cooking literacy, computers skills, marketing
courses as well as child care.
– Salaries of staff.
Khanyisile Community Centre (Unsung Heroes) – Aids Care/Education Centre Kathlehong.
Education Grants – Assist employees’ children with study material, school fees, school
uniforms.
Cape University of Technology – Internship for students at brand level. (Trainee Managers).
Bursaries – Assist employees’ children with post-Matric studies.
Various donations by Ellerines Trust.
The amount spent on these and other beneficiaries amounted to approximately R5 million
during 2006.
Looking at the year ahead, Ellerines is in the process of establishing the Ellerines Community
Clinic at its old head office premises in Germiston. The estimated cost of setting up the clinic
and running it for that year is an estimated R1,2 million.
Ellerines estimates that its expenditure on community investment programmes for the year
ahead will be approximately R6,6 million.
33
34
OPERATING DIVISIONS
Mark Moca (55)
Chief Operating Officer
This division, which consists of the historical Ellerine business, has been run by Mark Carter
since March 2004. The division operates both in South Africa as well as adjoining southern
African countries.
The Traditional Retail Credit Division consists of five business units being the Ellerines 1 and
Ellerines II, Town Talk, FurnCity as well as the Foreign business unit.
This division has shown sustained growth with sale of goods up by 13,3% for the year to
August 2006.
Various Customer Relationship Management initiatives have been implemented during the
year under review and this together with the new branch operating system which went live
during mid July 2005 has led to greater efficiencies and more effective penetration of the
division’s target market.
The Ellerines brand has once again, for the fourth year in a row, been voted by the Sunday
>>
Times/Markinor ratings, as the Top Brand in the retail furniture industry. It has maintained
Mark Carter (38)
Chief Executive
its reputation in both rural and metropolitan areas as a brand that can be trusted to provide
excellent levels of service and good value for money via quality merchandise.
Senior executives
The loyalty to the brand remains high, as evidenced by the reserve rates, this has been
Eric Maseko (55) Sales
Gullis Gouws (44) Credit
Ronel De Kock (39) Marketing
Mark De Villiers (35) Merchandise
Hennie Espach (38) Human Resources
enhanced by the implementation of the “Customer For Life” concept. Going forward
“Customer Relationship Management” will remain a key focus area and, building on this, the
division is currently in the process of implementing “Customer Experience Management”,
ensuring that customer service levels in-store exceed customer expectations.
With the Relyant merger, a number of changes were effected at business unit level, all of
which have now been successfully bedded down. With a young enthusiastic team in place,
this business unit is poised to deliver acceptable levels of growth in the year ahead. This will
ensure that the division remains a major contributor to overall Group profitability.
Eric Maseko (55) Sales
Marius Smith (42) Ellerines 1 –
Business Unit Director
35
Pieter Jansen (52) Ellerines 2 –
Business Unit Director
>>
>>
Senior executives
Senior executives
Dorron Wilsnagh (42) Operations
Ron Mylie (39) Credit
Jerry Mpisekhaya (38) Sales
Alvin Purto (57) Merchandise
Cathy van Heerden (36) Marketing
Louise Grobler (25) Human Resources
Willie Cronje (31) Operations
Wally Pelser (52) Credit
Lilian Makwebo (41) Sales
Alvin Purto (57) Merchandise
Cathy van Heerden (36) Marketing
Genene Venter (26) Human Resources
Ellerines I and II
The Ellerines Brand caters for the LSM 5 to 7 groups but is also penetrating the higher and
lower LSM groups, due to the strength of the brand, as well as high levels of customer
loyalty to the brand. The Ellerines brand has a proud 56 year history and continues to
produce excellent results with an operating margin of 29,1%.
There are 265 Ellerines stores trading in South Africa. Having started off the financial year
with a relatively new team within the business unit, it is very pleasing to note that they have
settled in quickly.
The brand’s competitive edge remains its bedding and bedroom merchandise ranges which
are complemented by a wide range of furniture, appliances and hi-tech goods.
Jerry Mpisekhaya (38) Sales
36
Traditional Credit Retail Division (continued)
Town Talk Furnishers
This is the second of the Group’s entry-level brands targeting the lower to middle market
Eugene Beukes (43) Business Unit Director
LSM 5 to 7 group. There are 150 Town Talk stores trading in South Africa.
Effective 1 September 2006, Eugene Beukes who previously headed up the successful
>>
Ellerines 1 business unit, and thereafter assisted in setting up policies and procedures as
Senior executives
Operations Director at Wetherlys, has been appointed as business unit director for the Town
Talk Business Unit.
Peter Hartwig (41) Operations
Shakes Mohale (48) Sales
During the past year, the store design and image of the brand was upgraded. The stores
Flip Ferreira (50) Credit
were given a fresh new open, younger look in order to provide greater appeal for its target
Hannes Jansen van Vuuren (49) Merchandise
market. This, together with other initiatives enabled the brand to gain further recognition
Desiree Van Niekerk (28) Marketing
culminating in the recent Sunday Times/Markinor Survey rating the Town Talk brand the 4th
Jacqui Engelbrecht (31) Human Resources
strongest brand in the retail furniture industry.
The brand is well established both in rural and metropolitan areas having been trading
for some 37 years. The brand’s competitive edge is that of a provider of value for money
merchandise and appliances on easy terms with a particular appeal for the young aspirant
entrants into the market. The main focus is on audio and television which is supplemented
by a wide range of household furnishings and other appliances to meet the needs of its
customers. The brand enjoys a high level of customer loyalty.
The results achieved by the brand are in line with those of the flagship Ellerine brand with
an operating margin of 27%.
Shakes Mohale (48) Sales
37
FurnCity
This brand targets the more aspirational middle income market and attracts the LSM 5 to
Jason Peter (36) Business Unit Director
8 consumers.
as at August 2006, of which 140 are located in South Africa and the remainder are situated
in the adjoining southern African states. A further six stores will be opened by November
2006. This will take the FurnCity brand to a total of 156 stores throughout southern Africa.
During November an additional super store will be opening in the Cape region, which will
bring the tally for super stores to 10.
>>
The expansion strategy has grown the brand from 84 outlets in August 2001 to 150 outlets
Senior executives
Derek Cockrell (46) Operations
Godfrey Brown (33) Sales
Pieter Koen (40) Credit
Ghaalieb Jappie (34) Merchandise
FurnCity’s competitive edge is focused on lounge merchandise and bedding, however, the
Athena Remoundas (33) Marketing
last year has seen an increase in hi-tech sales. The brand is committed to meeting the
Nicolle Hugo (29) Human Resources
aspirations of its consumers which include value, style and quality.
The brand offers a convenient shopping experience in a warm environment displaying the
full range of merchandise and price available to customers.
Through a more focused approach on operations, FurnCity has managed to achieve certain
goals set in the previous year. The year ahead will focus on people (our biggest asset),
merchandise and marketing to ensure a greater brand awareness and customer service.
The operating margin increased to 22%. The focus in the year ahead will be on growing
volumes whilst increasing margins in order to improve overall returns.
Godfrey Brown (33) Sales
38
Traditional Credit Retail Division (continued)
Foreign business unit – Ellerines & FurnCity
Since the strategic decision taken by the Group in March 2003 to focus the operations in
Marius Kok (37) Business Unit Director
Botswana, Lesotho, Namibia and Zambia to increase market penetration, Marius Kok and his
>>
team, have managed the risks despite the challenges presented by these countries.
The Foreign business unit has managed to re-align strategies and the operational focus
Senior executives
to address country specific marketing and merchandise needs. A strategic decision was
Justice Banda (40) Sales
Johan Ludik (35) Credit
Dianne Swanepoel (47) Marketing
Ramona Singh (25) Human Resources
also taken to align the merchandise with the South African brands to enable better pricing
structures. This decision should stand the business unit in good stead in the new financial
year.
The merger between Ellerine Holdings and Relyant Retail Limited necessitated some
rationalisation, to focus on synergistic benefits, which will reduce costs and add value in
future. The store split is as follows:
TRADING NAME
TOTAL NO
COUNTRY
ELLERINES
FURNCITY
OF STORES
Botswana
14
4
18
Lesotho
12
5
17
Namibia
19
8
27
Zambia
-
6
6
45
23
68
Total
The branch IT operating systems will be rolled out in the foreign business unit during
March 2007, and this will add value, specifically with data management for marketing
campaigns, which will result in improved efficiencies. The Foreign business unit is looking
forward to the implementation of this system as this will have a positive impact on
profitability.
The operating margin of this business unit is 16,8% due in the main to the efforts and focus
of the Foreign business unit and their ability to respond to the unique challenges.
Justice Banda (40) Sales
39
This division consists of four brands namely, Beares, Geen & Richards, Lubners and Savells
Fairdeal. The market spread across the brands is good catering for lower, middle and upper
market segments allowing flexibility in respect of merchandise and marketing initiatives.
Pye Van Heerden (48) Chief Executive –
The division currently trades out of some 442 stores throughout South Africa, Namibia,
service and meet customer expectation.
An analysis conducted at the time of the merger resulted in various strategic business
goals being implemented to improve overall trading efficiencies and this has certainly paid
dividends. The year under review has produced some very good results, where our positioning
in the market has allowed us to take full advantage of a positive trading environment,
capitalising on consumer demands especially in the middle to upper LSM groups.
Customer service continues to be a major focus point as management strive to continue
improving the service levels to meet with the ever-increasing consumer demands and
expectations. This division has a dedicated, stable management team which is committed
and results driven, and therefore will continue to show acceptable growth in the new
financial year.
The Universal brands have come off an exceptionally strong trading year with revenue of
R2,4 billion.
Beares was recognised as the 8th strongest brand in the retail furniture industry in the
Sunday Times/Markinor Brand Awareness Survey this year.
>>
Botswana and Swaziland. Strategic expansion continues unabated ensuring the ability to
Senior executives
Johan Schalkwyk (45) Marketing
Johan Liebenberg (34) Merchandise
Karen van der Merwe (39) Human Resources
40
Universal Credit Retail Division (continued)
Lubners
Lubners is a household name in South Africa and reached a milestone this financial year by
Keith Rawlins (47) Business Unit Director
turning 100 years old in October 2005. The Lubners team has many years experience in the
>>
furniture retail trade and firmly believe and live by their pay-off line – “WOW, LUBNERS ARE
THE GREATEST”. The team is ably led by Keith Rawlins who moved from the Ellerines stable in
May of last year, and previously was the Business Unit Director for FurnCity. He has 23 years
service to the Group.
Lubners attracts consumers across the entire middle market segment from LSM 5 to 8.
Lubners at the last report indicated that it was embarking on an aggressive expansion/
revamp programme. During this past financial year, the brand has completely revamped its
store layout to a modern, exciting layout, making shopping a more pleasurable experience
for the consumer. The brand has grown from 85 stores a year ago to its current 92 stores,
a growth of seven stores. In this same period, three stores have been resited and 17 stores
have been revamped, taking the number of stores completed in the new concept to 29 stores
this year alone. The expansion and revamp programme is envisaged to continue in the new
financial year.
Lubners’ competitive edge is in the lounge and bedding categories with appliances
constituting a major portion of its sales mix. The brand, however, offers a full range of
merchandise, at competitive prices, to an aspirational market.
Despite competitive market conditions and pressure on margins the brand has shown an
operating margin of 15,2% over the reporting period.
Lubners has enhanced its current standing and is poised to become a market leader in the
middle market credit retail sector.
Senior executives
Rob Van Bemmel (46) Finance
Anthony Jardim (45) Merchandise
Manuel Da Costa (55) Merchandise
Hilton Cook (49) Marketing
Michelle Morris (32) Human Resources
41
Beares
Beares began trading back in the 1930s and boasts a 76 year history as one of South Africa’s
Tony Von Blerk (46) Business Unit Director
most popular and well recognised brands amongst its other retail furniture peers.
>>
The need to differentiate the brand has long been a priority and remains as such. This has
become even more important in the light of the very competitive trading conditions and
Senior executives
aggressive opposition that it faces in the middle market LSM grouping.
Keith Hendry (52) Finance
Stuart Wynn (48) Merchandise
Lesley Lindique (57) Merchandise
Andrea Bell (33) Marketing
Cheryl Brauns (48) Human Resources
The key objectives of the brand in the coming year are to further improve the brand’s
profitability by increasing volumes with the main focus on the credit customer base thereby
increasing term sales through a product called “Ready Finance” which is tailor-made
finance and service options at affordable prices, and lastly to improve stock management
by adopting a more scientific approach and through better planning.
Beares which targets the middle to upper income groups in LSM 5 to 9 has embarked on a
“CARE” strategy which takes into consideration a Pre, In and Post care approach in meeting
customer needs.
In terms of differentiation, Beares will continually strive to exceed customer satisfaction
expectations by offering quality and value to meet customer’s aspirations and become their
preferred retailer of household furniture and appliances.
Beares has 147 stores spread across South Africa as well as Namibia and Botswana.
The merchandise range was further enhanced, particularly in the sound and vision category.
Bedding and lounge sales also saw significant improvements. Revenue for the year
amounted to R800 million.
Tony Von Blerk who did an outstanding job in turning the Savells Fairdeal brand around was
promoted to head up the flagship Beares middle market brand. Tony has already made his
mark in moving the brand forward.
Beares has good growth prospects looking ahead and is well placed to produce and even
improve upon the good results it produced in the period to August 2006.
42
Universal Credit Retail Division (continued)
Savells Fairdeal
Savells Fairdeal launched a new look concept in November 2005 to keep up with the evolving
Andre Schoultz (39) Business Unit Director
retail market and trends. This new look and feel has seen the stores transform to vibrant
>>
colour schemes and new customer service areas creating an appealing place for customers
to view and select their furniture. The expansion programme added nine new stores. Savells
Fairdeal trades out of 145 stores in South Africa, Swaziland and Botswana.
Positioned in LSM 4 to 6, Savells Fairdeal prides itself on a high level of personalised service
and support which it provides its customers when making their purchases. The relative
quality and modern design features of the product range are important to the brand’s
customers who are provided with a pleasant shopping environment.
While the demand for modern products such as home theatre systems and microwaves has
seen steady growth, due to the increase in the availability of electricity in rural areas, the
brand’s competitive edge remains in bedding and bedroom furniture.
The brand prides itself on the level of service and support that it provides to its customers,
and enjoys strong customer loyalty in return.
This brand has enjoyed phenomenal growth year on year. It accordingly comes as no surprise
that the Savells brand was, for the first time, adjudged one of the top 10 Furniture Retailers
in The Sunday Times/Markinor Top Brands Survey 2005.
The brand is headed up by Andre Schoultz and, together with a well motivated and
experienced management team and staff who are committed to achieving the brand’s goals,
this brand is poised for another exciting trading year which should yield excellent results
and a further improvement in the operating margin of 21,6%.
Senior executives
Erich Stark (54) Finance
Iain Anderson (60) Merchandise
Kevin McKey (51) Merchandise
Marian Lubbe (46) Human Resources
43
Geen & Richards
Geen & Richards started trading back in 1909 and serves the aspirant upper end of the
Shaun Stobart (47) Business Unit Director
furniture market (LSM 7 to 10).
>>
The brand has become synonymous with products of distinction, hence the positioning
“Your Distinctive Choice”. This is reinforced by excellent customer service in line with the
Senior executives
brand vision: “Proud Customers … Passionate Staff”.
Christopher Woodgate (45) Finance
Preggie Naidoo (33) Merchandise
Sharon Ecob (47) Marketing
Gwen Pitout (27) Human Resources
The brand has shown fantastic sales growth for the fourth consecutive year and has
also outperformed the industry growth levels. This has been achieved through a focused
approach of ensuring product differentiation. Bedroom furniture, leather lounge suites and
dining room suites have shown the greatest growth with approximately 40% of the product
mix imported as exclusive lines to Geen & Richards.
The re-branding and integration of the Glick’s brand into Geen & Richards stores was
successfully completed during the year. The integration of the two brands has been well
accepted by customers, resulting in exceptional year on year sales growth.
The brand now has 58 stores and is represented nationally other than in the Western and
Northern Cape. Efforts are underway to grow the brand by at least another six stores over
the 2007 financial year.
Shaun Stobart, who has 25 years of furniture retail experience was promoted from within
Ellerines to replace Mark Turner, who resigned in March 2006. The current management
team is confident that Geen & Richards will continue to achieve an above average operating
margin for its sector of the market.
44
Delvin Vermaak, previously the Business Unit Director of Furniture City, has been promoted
to head this division. He replaces Marc Moca who has been appointed as Chief Operating
Officer for the Group. This brand consists of the historically, predominantly cash businesses,
Delvin Vermaak (48) Chief Executive –
namely, Furniture City, Dial-a-Bed and Mattress Factory, which were merged into the greater
Although all three brands achieved budgeted profits for the financial year, which is most
encouraging, they have the potential to perform even better.
These brands, which are very different to the credit retail traditional and universal brands,
are dynamic young brands and well positioned for the future. Operational, marketing, and
merchandising disciplines have been put in place and the challenge now is to harness the
creativity which exists in the brands, to keep the brands ahead of their competitors with the
emphasis on improved profitability.
Three key areas the division is currently working on to enhance profitability are:
> At Furniture City, the tweaking of the business model to increase volumes and improve
returns from this brand with the emphasis on increasing the credit component of this
business unit.
> The rolling out of credit into the Mattress Factory stores. This will mean positioning
the brand a little differently, so that it will be the first “credit bedding specialist factory
outlet”, targeting the lower LSM market.
> In spite of strong attention from its competitors the management team managed to
adjust the brand’s marketing mix thus making it very difficult for their competition to
sustain benefit off the back of this well known brand. The new management team has
developed well and provide a solid platform for growing these brands even further.
A good base for future performance has been established, and all three brands are focused
on continuous improvement. Management are confident that these brands will continue to
grow their share of their respective markets.
>>
Ellerine Holdings Group as the Value Retail Division.
Senior executives
Basil Bloch (54) Merchandise
Heidi Iori (44) Marketing
Charles Louw (41) Human Resources
45
Furniture City
Senior executives
Furniture City’s positioning statement is: “A fashionable/contemporary brand offering
Ronell Prinsloo (46) Finance
Tertia Schalkwyk (39) Human Resources
Cheryl Steyn (35) Marketing
Louise Hauptfleisch (46) Merchandise
William Robertson (47) Merchandise
Heather Nolting (56) Merchandise
Stephanie Zeeman (47) Merchandise
Errol André (53) Operations
Tertia Schalkwyk (38) Human Resources
flexibility that is surprisingly affordable.”
This brand, operates out of 24 stores and targeted at the more educated, sophisticated
and aspirational LSM 7 to 10 consumer, is well positioned between the mass credit chains
situated on the high street and the cash dominated, more exclusive but also more expensive
independent stores. The brand’s consumers are astute value seekers of contemporary
merchandise that enable a degree of affordable individuality.
Significant capital expenditure in this last financial year has allowed Furniture City to roll
out its new generation stores that offer greatly improved sight lines; enabling consumers to
see more of the store’s vast range from any one vantage point. In-store layouts produced by
well-trained in-store decorators continue to facilitate the consumer’s choice amongst a vast
array of aspirational furniture, accessories, home entertainment and appliance products. The
new Furniture City logo also reflects the energy and freshness that the brand’s consumers
have injected into their lifestyles.
The brand has continued its transformation, having refined its business model and has
achieved strong growth in this last financial year. The brand has endured a challenging fouryear turnaround period of successive improvement and it is now a meaningful contributor
to the Group’s results.
The performance of the Leather Lounge, Bedding, Case Goods and Home Entertainment
merchandise categories contributed significantly towards the brand’s results in this last
financial year and the brand continues to seek greater merchandise differentiation through
a balanced local versus import procurement programme. Opportunities for growth remain,
particularly through the refinement of the brand’s marketing strategy to capture a greater
share of the aspirational middle mass market with capacity for greater credit consumption.
Furniture City has also planned to open three new stores in 2007, which will take the store
base to 27 and it will continue to seek sites consistent with its market positioning.
46
Value Retail Division (continued)
Mattress Factory
Mattress Factory is a very young and exciting bedding brand, having recently changed its
Pieter Knoetze (58) Business Unit Director
corporate identity to better reflect its name. Customers can now experience the factory direct
>>
feel from Mattress Factory’s new in-store presentation, which gives the visual impression of
an industrial, factory direct look and feel in the brand’s new yellow and black livery. Mattress
Factory signage now stands out amidst the retail clutter and the new corporate identity will
be rolled out to the remaining stores in 2007.
The brand has gone from strength to strength in its 13-year history, having grown
aggressively in the last four years. Independent bedding retailers seek to situate themselves
close to Mattress Factory outlets in order to feed off the brand’s aggressive advertising
campaigns. It remains one of the top bedding retailers from which to purchase. Although
Gauteng dominant, it does have stores in Polokwane, Giyani, Tzaneen, Witbank and
Rustenburg; with a total of 25 stores.
Mattress Factory continues to stock trusted, well known bedding brand names, as well as
junior and senior bedroom furniture to complement its sleep offering. It draws its business
from a wide LSM spread, LSM 5 to 9, attracting value seekers from across a broad income
spectrum. Mattress Factory now also offers credit over 24 months with no deposit and this
is an important strategic initiative to further grow the brand. Given the right locations, the
brand has the capacity to expand by five stores per year, creating a greater barrier to entry
for other bedding retailers.
Senior executives
Marius Nieuwoudt (45) Finance
Tony van Schalkwyk (46) Operations
Rob van Dongen (39) Marketing
George Georgiou (45) Merchandise
Amanda van Niekerk (26) Human Resources
47
Dial-a-Bed
Since inception in 1996 as the first specialist bedding concept in South Africa, the brand has
Barry Pieterse (45) Business Unit Director
grown to be the most recognised specialist bedding retailer comprising of 19 stores, three
>>
distribution centres and three regional warehouses employing some 200 staff nationally.
The brand pioneered a unique way of selling beds over the phone with the value proposition
Senior executives
of total convenience, ultimate service and professional advice. The marketing strategy is
John Henderson (33) Operations
Miems Coetzer (51) Marketing
Valerie Shan (55) Merchandising
Marius Nieuwoudt (45) Finance
Amanda van Niekerk (26) Human Resources
aggressive and targets the LSM 7 to 10 with credit forming a negligible component of its
sales.
Dial-a-Bed carries the widest range of internationally recognised bedding brands, offering
its customers the best choice across the price ranges.
“Phone Today, Sleep Tonight” and the 24-hour “0860 31 32 33” number are well branded
and form an integral part of the brand’s service delivery promise, together with the
professionalism of the sales consultants. Dial-a-Bed’s funding of and close involvement
with the “Wits Dial-a-Bed Sleep Laboratory” further enhances sales consultants’ ability to
advise customers in their selection of the most suitable bed.
The brand is embarking on a growth strategy, having consolidated the business during the
past year. Dial-a-Bed has been voted as “The best place to buy a bed” for the last three
consecutive years by the readers of The Star, Daily News and Pretoria News.
This is a powerful brand with a dynamic team, performance culture and a strong customer
focus.
48
Decorating Division
Wetherlys is a well-established brand and is an acknowledged trendsetter in the design of
innovative quality furniture and accessories targeting the top end of the market.
The secret of success of Wetherlys has been a unique balance between a combination of imported
Mark Hartwig (38) Chief Executive
Decorating Division
and locally manufactured products with the emphasis on exclusivity. The exclusive nature of
ranges which are manufactured both through the Roodefurn Manufacturing operations as well
as through the sourcing of exclusive products via selected local manufacturers. The business
model provides the discerning customer with the opportunity of having goods manufactured
to their own specification with a wide range of fabrics and finishes to choose from.
The ambience, look and feel of the decorating warehouses, Wetherlys and Osiers, is comparable
to decorating standards at an international level. The merchandise offerings in the latter part
of the past year have increased with the introduction of numerous new ranges and identified
product lines. Wetherlys currently offers over 60 000 different items of merchandise. The
Wetherlys past strategy of destination stores is still strong and viable. The identification of
more centrally located, smaller stores in smaller centres offering clientele the same exposure to
the decorating warehouse look and feel, has been successfully achieved.
Part of the Wetherlys management vision is to grow its distribution clientele that is currently enjoyed
in Spain, Portugal, Ireland, Namibia, Botswana and Florida (USA) and has further opportunities of
promoting the Wetherlys brand through exclusive distribution agreements abroad.
The Wetherlys buyers have extensively travelled to obtain new ideas, keeping the creative flair
and ability to introduce new trends to South Africa earlier than in the past. This has resulted in
a number of new ranges being introduced, including, authentic antiques, the Chateau range, a
Classical Contemporary cross over range, a developing range of slip cover sofas, eight new linen
ranges and a continuing growth in the popular contemporary product range. The introduction
of Wetherlys Outdoor Living being an exclusive mix of upmarket outdoor furniture is seen as an
important growth area for the division.
The Wetherlys buyers guide which is well renowned and utilised by many decorators and
home enthusiasts to decorate their homes will be available in February 2007. Further, with the
introduction of the new linen guide, gift guide, outdoor living guide and the summer living
guide, Wetherlys has reached new heights in its marketing presentation of product mix and
product offerings to the public in its niched market. With the opportunity of launching a new
look and various ranges, a highly competitive loyalty card was launched within our extensive
decorating clientele which has been well received by the decorating fraternity and this will
continue to remain a focus of management to continuously build a reliable and interactive
relationship with the decorators.
New Wetherlys stores have been opened in East London, Tygervalley and a new store in
Rustenburg is scheduled to open in November 2006. In addition the expansion of the Osiers
boutique concept of smaller stores has resulted in new Osiers stores being opened in Tygervalley,
Fourways and a new store in Pretoria scheduled for opening in December 2006. Management
is confident that further expansion in selected prime areas in South Africa will contribute to
greater market share for 2007. The current store complement is Wetherlys 14 and Osiers 11.
>>
the product has been achieved through carefully selected imports as well as exclusive furniture
Senior executives
Martin Bryant (46)
James Smith (46)
Finance
Merchandise and
Marketing
Craig Rheeder (47) Manufacturing
Nigel Heath (30)
Business Unit
directors Osiers
Juan Pretorius (40) Business director
Wetherlys
Cecilia Hattingh (35) Human Resources
49
Services Division
Early Bird Services was established in 1975 to service the then new TV market and has since
developed into the largest repair company in South Africa with 44 branches nationally
John Murray (58) Business Unit Director
repairing all large domestic household appliances. It not only has a large client base of its
and repair of satellite and aerial systems but also does warranty and extended warranty
work for the enlarged Ellerine Holdings Group and for various insurance companies.
The brand caters to a wide range of consumer markets in South Africa from LSM 4 to 10 and
benefits from the Early Bird name and the “roadrunner” logo being widely known and easily
recognisable. Early Bird has branches located in easily accessible retail precincts which are
supported by an agent network servicing the more remote areas.
Technical and administration back up is provided by a staff of over 399 employees, and a
fleet of almost 200 vehicles. For the second year running, Early Bird was voted the “Best
TV/Appliance Repairer” by the The Star newspaper in Gauteng. This is in addition to winning
a similar accolade in KwaZulu-Natal.
The merger of Ellerines and Relyant has resulted in a number of synergistic benefits for
Early Bird by enabling Early Bird to improve productivity due to the additional work flowing
from the enlarged customer base, which in turn has resulted in a significant improvement
in pre-tax profit. Some staff rationalisation also occurred at head office, which moved to
new premises in January 2006, and this combined with ongoing expense controls also
contributed to the improved bottom line.
Early Bird intends to remain and grow to become a meaningful profit contributor to the
Group, whilst providing brands within the Group with a competitive edge through the high
service levels provided to them.
>>
own to which it provides various maintenance and repair services, including the installation
Senior executives
Carlos Simoes (47) Operations
Peter Wright (57) Sales/Property
Nicol Carolus (41) Finance
50
Corporate Division
The corporate division consists of the various head office service departments which include
the following:
>
>
>
>
>
>
Accounts
Creditors
Credit Control
Human Resources
Internal Audit
IT
>
>
>
>
>
>
Logistics
Merchandise and Marketing
Property
Secretarial and Legal
Insurance
Special projects
SPECIAL PROJECTS
Kevin Knight, who joined the Group from the Relyant side of the business, has been tasked
with heading up the Special Projects Division, reporting directly to the CEO.
Kevin has 23 years of experience in the industry, and has held various senior management positions
in group finance, corporate services and operations. It is the blend of experience and business
acumen that places Kevin in an ideal position to carry out a variety of multi disciplinary projects.
The majority of the projects undertaken by this division thus far have been related to the
integration of Ellerines and Relyant and have contributed to the synergisitc savings.
Current projects include:
> Rationalisation of the numerous retirement funds and medical aids
> Designing of appropriate share incentive and bonus schemes
> Involvement in the integration and rationalisation of the payroll systems
> Assisting in the consolidation of foreign operations
> Various financial services initiatives
FINANCIAL SERVICES
This division has been earmarked as a strategic growth area with the extension of financial
services products to the Group’s wide consumer base, using the Group’s extensive store
footprint throughout southern Africa. While certain of these financial services products are
integral to the sale of merchandise on credit, additional complementary products have been
identified which will be marketed independently of the merchandise offerings.
Extensive discussions have taken place over the past year, with potential partners in many
areas of financial services. The Group’s view is that the extension of financial services to our
customers requires a partnership approach, whereby the Group can benefit from the proven
relevant expertise and established systems of third parties, rather than acquiring such skills
or systems in-house. It is preferable that the Group links up with a single partner that can
provide a wide range of financial services expertise and systems, rather than deal with a
multitude of partners. Discussions have reached an advanced stage and an announcement
in this regard should be made shortly.
The division includes consumer finance and insurance activities, as well as risk management,
secretarial and legal services to the Group. With the retirement of Jeff Dritz in January 2006,
responsibility for this division, which is based at the Group’s head office in Bedfordview, has
been assumed by Bruce Sinclair.
Kevin Knight (48) B.Compt
Director Special Projects
51
CONSUMER FINANCE ACTIVITIES
These include:
> Furniture credit – the details of which are set out under the credit control report.
Bruce Sinclair (51) B.Acc. CA(SA)
Group Director
Financial Services
> Small unsecured personal loans – the details of which are set out under the Rainbow
>>
Loans report.
> Home loans – through partnering with a bond origination company, the Group has
been able to offer customers access to the formal home loan market, at best rates.
Senior executives
Each approved bond results in a special discounted furniture credit facility, provided
Lucien Caron (43)
and managed by our normal furniture credit management structures. By passing the
commission that the Group receives from the bond originator on to our customers, it
enables customers to purchase furniture and appliances for their new homes, effectively
at discounted rates. This initiative was launched during the year under review and the
response from customers has been encouraging. However, the lack of available housing
for the mass market consumer, as well as the strict credit granting criteria applied by the
banks, has limited the number of successful transactions.
CUSTOMER INSURANCE ACTIVITIES
These include:
> Short term insurance – Relyant Insurance Company and Customer Protection Insurance
Company
> Long term assurance – Relyant Life Assurance Company
> 40% equity holding in CICL Investment Holdings (“CICL”) – this investment was sold
on 1 September 2006. While the Group’s original intention of investing in CICL was to
expand its insurance offerings through the various insurance licences owned by CICL, the
merger with Relyant, which brought 100% ownership of a full short term licence and a
life licence, meant that continued investment in CICL was unnecessary.
Since Relyant Insurance Company Limited (“Relyant Insurance”) has an unrestricted licence,
enabling it to underwrite all short term insurance risks, including for third parties, it was
the Group’s stated intention to rationalise the Group’s short term insurance activities
by consolidating the business underwritten by Customer Protection Insurance Company
Limited (“Customer Protection”) into Relyant Insurance. While it was anticipated that the
necessary technical and regulatory issues, in order to achieve this rationalisation, could be
addressed without any problems, certain important income tax rulings could not be obtained.
This means that the Group will continue with both short term insurance companies until
further notice. Prefsure (Botswana) Limited (“Prefsure Botswana”), a fully licensed short
term insurance company in Botswana which is owned by Relyant Insurance, also enables
the Group to underwrite the short term risks of its entire Botswana operations.
The Group’s investment in Relyant Life Assurance Company Limited (“Relyant Life”), a
long term insurer, enables underwriting of funeral policies and other products sold to the
customers of the entire Group, as well as certain third parties.
BA.LLB. H.Dip.Co.Law
Group Secretary
Craig Brighten (39)
ACIS
Corporate Executive
Mothibe Ramothibe (44) B. Juris
Group Compliance
Officer
Madeleen Humphries (38) BA. LLB
Group Manager
– Legal Matters
Sivi Maharaj (53)
BA. LLB
Group Manager –
Legal Matters
Rob Furmidge (40)
General Manager
– Supportive
Services
52
Corporate Division (continued)
Although the insurance operations form an integral part of the furniture credit business, the
unrestricted licences create numerous opportunities whereby policies which are not linked to
specific credit sales can be marketed to the customer base of the merged Group, as well as to
certain third parties. Management of this division focuses on ensuring that the covers offered
to customers are relevant, thereby optimising the number of policies sold. This, together with
close management of the claims, ensures that these operations continue to make a significant
contribution to the Group’s results. The challenges of the National Credit Act, which will
require amendment to the insurance policies sold to our customers after 1 June 2007, are
being addressed by management with the assistance of expert insurance advisers.
A year ago, the administration of the insurance businesses was outsourced to Transqua
Administrators, a wholly owned subsidiary of CICL. This arrangement ensures that the Group’s
insurance operations are administered by well trained insurance staff, as well as benefiting from
sophisticated insurance systems. Transqua also provides access to an insurance advice call centre
that employs properly qualified staff, thereby enhancing FAIS compliance throughout the Group.
All the above companies comply with the requirements of the applicable Short Term
Insurance and Long Term Assurance Acts and with the FAIS requirements.
RISK MANAGEMENT, SECRETARIAL AND LEGAL SERVICES
The functions of the department include the design, in conjunction with our brokers, of
an acceptable risk model as well as the placing of the various risks between the Group’s
in-house insurance companies and the external insurers.
In an ever increasing environment of compliance and good corporate governance, the Group
has appointed Mothibe Ramothibe as Group Compliance Officer. Mothibe is an accredited
compliance officer in relation to FAIS and has vast experience in the field of compliance.
The secretarial and legal departments are headed by Bruce Sinclair who is supported by
Lucien Caron as Group Secretary. Craig Brighten fulfills this role for the Relyant Group, and
his functions have been extended to various aspects of financial services, insurance and
associated matters. A range of legal services on all contractual and litigious matters arising
from the day to day operations of the Group are handled by this department. The Legal
department has been bolstered by the addition of Sivi Maharaj from the Relyant side of the
business. Sivi has also been tasked with administering the Group’s trademark portfolio.
The department is also responsible for the ongoing liaison with bankers both in terms of
arranging appropriate facilities to meet the needs of the Group as well as the administration
of the numerous accounts operated by the Group. Group policy has always been to deal
with all the major banking institutions in order to ensure the independence of the Group
and the fact that no single institution will, at any time, have an exposure to the Group which
may justify that institution being treated differently to any of the remaining major banks.
This policy, whilst administratively intensive, has proved to be beneficial to all parties and
will be continued into the future.
53
RAINBOW LOANS
The Rainbow Loans business unit was established on 1 June 1999 and has now
Hennie Ludik (59) Business Unit Director
established itself as a significant contributor to Financial Services earnings.
>>
As at August 2006 the unit operated out of 70 outlets – 40 are located within the Group’s
furniture stores and 30 are independent from stores (free standing). Management have
Senior executive
embarked on an aggressive growth plan which will see the number of outlets increased
Llewellyn Krause (33) Operations
to 80 by August 2007. The new outlets will be located in regional type shopping centres
in areas in which Rainbow Loans operates, namely, Gauteng, Limpopo, North West,
Mpumalanga, Free State, Northern Cape and the Kwa-Zulu Natal Midlands.
Rainbow Loans is a niche business focused at the lower end of the LSM pyramid,
LSM 1 – 4 Rainbow Loans is registered and complies fully with the Micro Finance
Regulatory Council regulations. Rainbow Loans has applied to the National Credit
Regulator to be registered as a credit provider in terms of the National Credit Act and
will fully comply with this Act once the remaining sections of the Act are implemented
in June 2007.
This division has a limited offering whereby initial loans through outlets are limited to
R2 000 per borrower. Once borrowers have proved themselves, this offering may be
increased to R4 000 with the maximum payment period of nine months. Loans to staff
members are offered up to a maximum of R5 000, however, at slightly lower interest
rates and for periods ranging up to 18 months.
54
INTERNAL AUDIT
The internal audit function of Ellerines Holdings, Ellerines Audit Services (EAS) is an
independent, objective assurance and consulting activity, established within the Group by
the Audit Committee and the Board. EAS assists Ellerines accomplish its objectives by
bringing a systematic, disciplined approach to evaluate and improve the effectiveness of
risk management, control and governance processes.
EAS provides the aforementioned with assurance regarding the adequacy and effectiveness
of systems of internal control and, where appropriate, the quality of performance of its
business operations as evaluated against agreed performance standards.
EAS is responsible for reporting and facilitating appropriate action plans on the activities
of all operating divisions within the Group as well as shared services at corporate level.
Significant findings are reported directly to the GAC and EAS has unrestricted access to the
GAC Chairman, the CEO and the Group’s external auditors.
The Internal Audit Charter is updated and amended annually where required, to keep pace
with international best practice and local regulatory requirements. Audit activities are
conducted in accordance with the standards and practice guidelines of the Institute of
Internal Audit. To this end, internal quality assurance reviews are regularly performed.
EAS comprises 44 members including a highly capable forensic audit section whose chief
activities include the prevention and detection of fraud as well as assistance to management
with investigations and prosecution of white collar criminals. EAS is committed to the
advancement in both experience and knowledge of its members regarding global best
practices relative to both the internal audit profession as well as business process. The
majority of members hold degrees and diplomas in related fields including recognition
through the Institute of Internal Audit as Certified and General Internal Auditors or Internal
Audit Technicians. The forensic audit section also has membership with the Association of
Certified Fraud Examiners.
The GAC’s responsibilities regarding the internal audit function include:
> reviewing reports and recommendations of EAS activities;
> determining the adequacy and overall effectiveness of the Group’s internal audit function
including the scope and extent of audit coverage;
> confirming the appropriate action has been taken, where required;
> annually evaluating the role, independence and effectiveness of EAS in the overall context
of the Group’s risk management process and ensure that it is adequately resourced and
has appropriate standing in the Group;
> reviewing reports and activities of the forensic audit section; and
> reviewing co-ordination between the internal audit function and the external auditors.
>>
the Board of Directors to add value and improve operations as a service to management,
Craig de Villiers (47) B.Tech, Bus
Group Internal Audit
Senior executives
Jacques van Niekerk (44) NDip. Met
Rene van Wyk (36) NDip. Govfin, CIS
55
Reg Rawlings (57) CA(SA) MBA
Group Financial Director
FINANCE AND ACCOUNTING
The finance and accounting team has once again, given the recent Relyant acquisition, been
extremely pre-occupied with the finalisation of the Relyant purchase price allocation in
terms of IFRS 3 as well as combining the results and standardising the accounting policies
of the new enlarged Group. The treasury function has been simplified and will continue to
remain a high focus within the finance portfolio.
The demands on the finance department at present and into the future, given that the
Group has now adopted the new IFRS reporting standards are immense. The journey into
IFRS will continue to be a high focus, with certain senior financial executives having been
charged with the implementation responsibility, assisted by the technical department of our
external auditors.
The integration of the Ellerines and Relyant finance and accounting departments is
substantially complete. Simplification and the combining of responsibilities in the
department have been achieved. The corporate finance and accounting departments are
now housed at our head office in Bedfordview.
The new enlarged corporate finance and accounting department are responsible for the
Group’s accounting policies and procedures, budgetary control, creditors, treasury, financial
and management accounting functions. The objective will be to provide both operations
and the Board with meaningful figures, together with interpretations and trends so that
appropriate actions can be implemented to improve profitability and returns.
Whilst operational Financial Executives report to the responsible Business Unit Director
in the first instance, they are accountable for their performance to the Group Financial
Executive. The structure lends itself to both the development of the Business Unit Director
and the Financial Executive, as well as avoiding a concentration of knowledge of the Group
resting amongst a few individuals. It also paves the way to succession planning.
The corporate finance and accounting division is headed up by Willem Anderson as the
Group Financial Executive, ably assisted by Tom Hovelmeier, Duan Brink and Serniel Le Roux
and a very experienced team of competent accountants. The ultimate responsibility rests
with Reg Rawlings to oversee all functions of the new enlarged financial and accounting
portfolio.
Willem Anderson (43) B.Com Hons; CA(SA)
Group Financial Executive
56
INFORMATION TECHNOLOGY
This department is responsible for providing the IT infrastructure and support for the Group’s
operations. The mission of the IT Department is to add value to the Group through its people,
practices and technology.
Much of the department’s effort in the past financial year has been directed at achieving
synergies emanating from the merger of the Ellerines and Relyant businesses. Greater rigour
in the management of projects has allowed both companies to “cherry-pick” and introduce the
best systems/product features of the other. Amongst the projects successfully introduced with
ensuing business benefits were:
> The introduction of Loan Agreements and Club facilities into Ellerines.
> The installation of two Ellerines business units onto the Relyant Triad and Central Credit Office
(CCO’s) collection processes.
Several technical infrastructure projects were necessary to underpin these initiatives, for example,
the introduction of Predictive Diallers into three CCO’s and facilitate the relocation and bedding
down of organisational structures.
Some progress has been made in standardising and rationalising data, application systems and
operational processes. The first phase of a common Remuneration and Leave system has been
successfully implemented and the Property systems will be merged in the short term.
The rationalisation of the core retail systems (which will lead to significant economies of scale)
has been delayed by the need to meet the requirements of the National Credit Act. Solutions are
being architected to limit the amount of system changes which will become redundant when the
core systems are eventually standardised.
A substantial Business Intelligence initiative is underway to bridge the core retail systems and
provide tools to convert transaction data into actionable information.
The IT needs of the Decorating Division are being more closely aligned to obtain synergies and
leverage from the investments made by the greater Group. Implementation of an integrated
“services business” system has commenced within Early Bird which will improve customer
service and operational efficiency of this business unit. A Data communications network is being
implemented into those parts of the Group still dependent upon dial-up communication. These
are the first steps towards a converged voice and data network.
Few business decisions do not have a knock-on impact on IT. The loosely defined, informal practices
that worked separately for Ellerines and Relyant are inappropriate for the complexity and volume
of demand being placed on the merged IT function. The simplification of the IT environments
through standardisation of processes, systems and infrastructure is critical to ensuring ongoing
stability of operations; cost-effective service delivery and provide a foundation for future growth.
Considerable focus is being placed on developing the capacities and capabilities to bring together
the IT organisations, operations and platforms. A highly competent team blending experience
and energy is developing within IT to meet these challenges.
>>
Providing stable operational support for the Ellerines business has been the IT Department’s top
priority. The new retail furniture system rolled out to the 531 Ellerines South African stores in July
2005 represented a significant business change and proved challenging during the second half
of 2005. Focused efforts by this department’s staff ensured stability ahead of the peak trading
period in 2005. A conservative approach has been taken in rolling out this system to the nonSouth African stores which will only take place in early 2007.
Allan Dickson (60) B.Econ
Group Information Technology Director
Senior executives
Dennis Mauer (50) Information Technology
Director – Ellerines
Stefan Terblanche (39) General Manager,
Special Projects
Stephanie Van De Werken (37) Information
Technology
Executive
57
Robbie Butler (57) Group Director – Real Estate
>>
PROPERTY
The Property Departments of Ellerines and Relyant have now been consolidated under Robbie
Butler who has assumed full responsibility with effect from 1 September 2005. The functions
of this department include the negotiation, administration of leases and related aspects,
the project management of alterations/improvements to premises including shopfitting,
flooring and signage installation. The department is also responsible for the management
and administration of the Group-owned properties which, in the main, consist of the three
properties acquired as part of the Wetherlys acquisition. Other properties include the Group’s
old head office building in Germiston and a retail building in Keetmanshoop Namibia.
There are also nine strategically located properties housing some 15 stores which are owned
by Customer Protection Insurance Company Limited (“CPI”) but which are managed by the
Property Department given that they have the appropriate expertise to do so. The total
market value of Group properties as at August 2006 was in the region of R168 million. There
is, however, no intention of expanding the portfolio given the superior returns which can be
generated through trading. During the past year, 57 stores were opened, 23 stores relocated,
13 stores enlarged 10 stores rebranded and 17 amalgamated.
In addition, 10 Rainbow Loans outlets were opened and one was resited.
As from June 2006, the Property Department has taken over the Real Estate function of the
Decorating division and a number of exciting prospects have been identified in conjunction
with Wetherlys management for the coming year. As a result of the merger, this department
has also been creating a common IT platform for the Group’s property administration. The
successful integration of the two IT platforms is almost complete.
Through the well-established relationships which both the Ellerines and Relyant property
executives have built up with property owners and developers over an extended period,
the Property Department is well placed to add even further value through negotiating
for consolidated space in new developments (as evidenced by the number of new stores
secured for 2006/2007) and re-evaluation of key sites so as to ensure that the maximum
return is generated. The department will continue to control and manage rentals in line with
affordability models and control store upgrade costs.
Senior executives
Paul Voges (63) Director Real Estate –
Ellerines (Credit Retail
Traditional/Rainbow Loans)
Winton Ungerer (53) B.Proc. Group Real
Estate Executive –
Administration
Rory MacDonald (37) NDip. Personell
Management
General Manager –
Real Estate –
Operations (Credit Retail
Universal)
Robert Daniels (36) Group Store/Planning
Manager
NDip. Architecture
58
HUMAN RESOURCES
The main objective of the department is to be a strategic business partner in enhancing
business performance through ensuring that the human capital of the Group is productive,
competent, fairly remunerated and functions within a best practice environment.
The Group appointed a new Group Human Resources Director, Charles Myburgh, effective
1 July 2006 to ensure best practice human resources services and solutions which are
aligned to the Group’s strategic objectives. The department’s functional reporting line has
been changed to ensure alignment, better service delivery and enhanced efficiencies in
terms of the respective operating divisions and business units.
>>
Employee development programmes, recruitment strategies and training and development
Charles Myburgh (36) Advance diploma in
Labour Law
B-Tech degree in
Human Resource
Management
National diploma in
Personnel Management
Group Director –
Human Resources
processes provide the Group with stable leadership, culminating in staff stability and high
competency levels which enhance the Group’s performance.
The Group successfully integrated the Relyant and Ellerines staff especially in so far as
employee working conditions and relations are concerned. During the current year the
Group embarked on a salary benchmarking survey to ensure that all employees are being
paid market related and equitable remuneration. During a time when the labour market
clearly showed signs of volatility, the Group managed to continue to enjoy a constructive
working relationship with representative trade unions resulting in the successful conclusion
of a two-year wage agreement with SACCAWU, the Group’s largest trade union. A two-year
wage agreement was also successfully concluded with the Lesotho trade union which
represents our non-management employees in Lesotho. The final touches are being put to
wage negotiations with the represented trade unions in Swaziland and Zambia.
Divisional Employment Equity Forums with representation from designated groups, labour
and management have been established to meet at least twice per year to ensure focus
and meaningful progress on each division’s Employment Equity goals and targets. A
sub-committee of the Group’s main board, chaired by the Group’s Chairman, meet twice
per year to review the Group’s progress and provide direction regarding employment equity
while ensuring sustainable competitiveness.
Senior executives
Dave Cromhout (50) Master certificate in
Human Resource
Management
Group Executive –
Human Resources
Administration
Sandy Robbins (34) BA Industrial Psychology
Group Executive – HR
Operational Services
Deon Strydom (41) MSc in training (Univ.
of Leicester)
B-tech degree
in Human Resource
Management
National diploma in
Personnel Management
Group Executive – Training
and Development
Francois Nel (33) Honours in Labour Law
and Employment Relations
Acting Group Executive –
Employee Relations
59
MERCHANDISING, MARKETING & LOGISTICS
Arnold van den Borne is responsible for both the strategic direction and the overall
management of the merchandise, marketing and logistics functions for the Group.
The responsibilities of the departments which he oversees include the procurement of
merchandise and generation of marketing initiatives.
Arnold Van Den Borne (51) Group Executive
Director – Marketing,
Merchandise &
Logistics
The primary responsibility of the Merchandise Department is procuring product ranges in
line with the specific market sectors for the different brands according to each brand’s
competitive edge merchandise category. The focus is placed on developing hero-products
that deliver high sales volume. Strategic alliances are formed with suppliers, ensuring
an ongoing supply chain and sound relationships based on fair value for both parties.
This relationship, based on loyalty to our suppliers, secures continuity and availability of
merchandise and facilitates the ongoing growth in turnover levels. An integral part of this
is ensuring that optimal margins are maintained through competitive sourcing in terms
of the best products at the best prices, making full use of the economies of scale given
the quantities which the Group is able to purchase. There has also been a notable increase
in the import of merchandise to provide diversification in the product line and access to
up-to-date products thus providing a competitive edge over the opposition in terms of
pricing, style, and perceived value to the customers. Stringent stock management and
planning systems have been established to ensure maximum return on working capital
through the maximising of stock turns.
The logistics component has been an area of intense focus on all aspects which include the
distribution centres/warehouses, delivery to customers and the supply chains integration
into the stock planning processes. These processes, including cost synergy exercises, are in
place and are constantly being developed as an ongoing initiative to improve efficiencies
and develop profit opportunities throughout the Group. As part of the logistical operations
function, the Transport Department ensures all facets of the transport fleet which has in
excess of 2 700 vehicles, are monitored and directed. The procurement of vehicles, the
provision of statistical data on the fleet and the provision of technical services all form part
of ongoing integrated logistical processes undertaken to meet the operational requirements
of the Group.
The integration process following the Ellerine and Relyant merger regarding marketing,
merchandise and logistics has been finalised with high focus placed on the streamlining
of processes. A system to implement the best practice synergies in the most cost efficient
manner have been introduced throughout the organisation, ensuring all procurement for
the greater Group, far in excess of R3 billion, is constantly monitored to provide further
profit opportunities. With the integration of these functions throughout the Group now
completed, the Group is on target to achieve the anticipated synergistic benefits.
Graham MacDonald (50) Group Merchandise
Director
60
MARKETING
Joseph Gunther is responsible for the implementation of the strategic direction of all
Joseph Gunther (42) Group Marketing Director
marketing functions and the tactical strategies of the entire Group. Joseph is responsible
for the local and foreign divisions of the 13 brands and oversees and controls the market
image and corporate identity of each brand as well as all advertising material produced by
the in-house studio, with more than 170 different leaflets and catalogues being printed per
Brand relationship score 2006 – percent
annum.
From the Marketing Department’s side, it has been a fantastic year for our Group. Once again
Ellerines
Ellerines ranked number 1 in the Furniture Store category of the Sunday Times/Markinor Top
Lewis
Brands of 2006, with Town Talk at number 4.
Since the merger, a centralised corporate marketing office has been introduced, to handle all
retail and corporate marketing. This has proved highly successful and the benefits are already
being realised. The Marketing Department has grown into quite a diversified “organisation”
and currently consists of the following sub-departments: Group Research & Information,
Joshua Doore
Town Talk
Russells
Morkels
Bradlows
InHouse Club, Inhouse Advertising Studio, Corporate Marketing, Divisional Marketing,
Beares
Cellular and Call Centres. Despite the department’s centralisation, it is truly reassuring that
Barnetts
there still exists a distinct divisional classification of Universal, Traditional, Decorating and
OK Bazaars
Value Retail – ensuring a focused approach towards obtaining the individual goals of each
brand.
Since the merger two brands underwent a make-over and the new Furniture City and
Mattress Factory logos and corporate identities are already making quite an impression.
Aligning our brands with the correct target markets has never been as important as it is
today. As a result extensive cross-overs have taken place and there is confidence that our
focus is much more precise than ever before.
Throughout the merger and beyond, marketing have remained focused on its strategic
role, while simultaneously giving tactical direction to the various brands. Regarding direct
marketing, the much praised Triad Strategy has been yielding some interesting results.
While still in its inception stages, the process has started to roll out precision marketing to
the greater Group, and there are high hopes of its future success as a marketing tool.
This department has incorporated various forms of new initiatives to help smooth business
processes including in-depth research, GIS Mapping and Gap Analysis – all focused on
improving our understanding of our customers and the strategies needed to successfully
reaching them. Marketing continue to innovate and expand and keep up to date with the
latest research technology available both locally and globally.
0
2
4
6
8
10 12 14 16 18 20
The way forward
As a group we are fervently intent on applying precision marketing throughout all sectors
of the organisation. Continued growth of our market share is, as always, a high priority. To
ensure we reach this goal, three top drivers were identified at our September marketing
conference. They are: Customer centricity, Legislation and Differentiation.
Under Customer Centralisation we have acknowledged the need for more personal
interaction with customers, leading to a culture of service excellence. This culture change is
integral if we are to continue to be market leaders in this field.
With the introduction of the new legislation (National Credit Act, Customer Protection Bill
and Privacy Bill), customers will have more rights and the power of choice. In order to face
this challenge, we will need to be proactive and lead in a creative way. A change in approach
is needed if we are to remain successful.
Customer Service Strategy
With the help of consultants, the marketing department have developed a Customer Service
Strategy for telephony based customer interaction. The focus of the strategy is to build a
central call centre in a stepped approach that will (over a period of two years) have the
capability of handling all telephony based customer service interactions for all brands and
business units in the Group. This operation will be able to handle complaints, resolve queries
and requests as well as conduct marketing and telesales campaigns. It will also be used to
conduct surveys and courtesy calls. The development of a centralised call centre will not
only bring about enormous savings to the business, it will increase efficiencies and will close
a critical gap in the circle of excellent customer service. The business will have a central hub
of full control and integrated end to end customer service.
61
62
CREDIT CONTROL
Danie Colyn heads up the Credit Department for the merged Group and is assisted by the very
able and experienced Len Waldeck who is responsible for the Relyant Credit operations.
with the implementation of a new, more customer centric, speedier credit processing solution
targeted at middle to high income consumers. This solution, “Ready Finance”, has the ability
to instantaneously calculate the credit risk as well as estimate the income and affordability
at point of sale resulting in consumers having appropriate credit access within minutes. The
benefits for Furniture City were two-fold. They were able to give retail customers a more
convenient buying experience while allowing staff to rapidly establish an accurate credit
limit for the customer, whilst maximising “up selling” opportunities during the busiest time
of the year. As a result of the success of this enhancement, “Ready Finance”, was released to
all the other Credit chains from September 2006.
The Credit Control Department have also realised the importance of continually reviewing
its acquisition strategy for first time buyers and repeat customers to ensure that it aligns
itself with the market in the quest to have risk best practices prevailing.
Credit Management
During June 2006 FurnCity accounts were incorporated onto Triad which allowed for greater
upliftment in the collection rates, and reduction of delinquency and overall arrears of the
debtors book. The Town Talk accounts were incorporated during August 2006 and the last
brand, Ellerines will follow during January 2007. With the addition of Call Centers/Predictive
Diallers into our collections environment, the entire Group’s collections will be handled from
the three operations (CCOs) and will allow for a 300 percent increase in staff productivity.
Global best practices prevail with the implementation of Credit Bureau Scores as part of the
5th generation delinquent strategies. The re-alignment of our Behaviour Scorecard and the
fact that a Collections Health check has been commissioned will ensure that this department
keeps in line with the projected targets set for managing a healthier portfolio.
The year a head
Will see the Credit Control Department working to become compliant with the National
Credit Act before the deadline of June 2007. It is expected that there will be an increase
in cost control for the year ahead as a result of the changes required to be compliant. The
Group welcomes this consumer protection as it will result in responsible credit granting
practices.
The Group’s credit granting is done centrally allowing it the opportunity of capitalising on
internal processes to create customer satisfaction. The Credit Risk Management Department
headed up by Liane Marais will continue reviewing and improving all our scoring models,
dual matrices and risk based pricing options to ensure continued compliance with best
practice. In this process, this department will, in conjunction with the Marketing Team
further enhance our credit marketing capabilities
>>
During November 2005 the scorecard technology for the Furniture City chain, was enhanced
Danie Colyn (40) Group Credit Control
Director
Senior executives
Liane Marais (39) Group Risk Executive
Tom Roux (58) Group Credit Executive
63
Statement of value added and distributed
For the year ended 31 August 2006
“Value added” is the value the Group has created by purchasing and
reselling products and services. This statement shows how it has been
distributed.
2006
R’000
2005
%
R’000
%
Total operations
Revenue
Taxes collected on behalf of the government (1)
Paid to suppliers for merchandise and services
Value added by operating activities
Value absorbed by investing activities
Net finance costs
Income from associate
Total wealth created
7 579 406
4 306 024
447 389
291 596
(4 668 798)
(2 504 786)
3 357 997
2 092 834
(66 051)
(49 233)
(79 508)
(56 313)
13 457
7 080
3 291 946
2 043 601
Distributed as follows:
Remuneration to employees
1 541 881
47
990 978
48
Return to providers of capital
– dividends on share capital
342 247
10
80 026
4
Taxes to government (1)
832 768
26
469 440
23
Reinvested in the Group to retain and develop operations
575 050
17
503 157
25
Depreciation and amortisation
92 592
63 341
Deferred taxation
(66 098)
(43 614)
Net earnings retained
548 556
483 430
Total wealth distributed
3 291 946
100
2 043 601
Note (1)
Taxes paid to central and local government
Withholding and secondary tax on companies
Current taxation
14 163
963
291 903
153 747
306 066
154 710
447 389
291 596
Value added and general sales taxes collected
262 121
176 872
Employees’ tax collected
185 268
114 724
79 313
23 134
832 768
469 440
Taxes collected on behalf of the government
Other local government levies, licences and duties
100
64
Six year review
2006
2005
2004 ^ †
2003 †
2002 †
2001 †
R’000
R’000
R’000
R’000
R’000
R’000
Revenue
7 575 158
4 227 957
2 832 903
2 183 984
2 025 946
1 944 643
Operating profit
1 273 151
722 246
507 880
343 506
309 765
297 895
13 457
7 080
4 426
312
–
–
CONSOLIDATED INCOME STATEMENT
Profit (loss) on disposal of owner occupied properties
–
53 793
9 466
(841)
(5 460)
–
Impairment and amortisation of goodwill
–
(16 831)
(23 767)
–
–
–
Insurance investment income
61 520
49 613
–
–
–
–
(79 508)
(56 313)
(17 191)
14 062
7 197
1 267
1 268 620
759 588
480 814
357 039
311 502
299 162
Taxation
(372 164)
(199 070)
(154 223)
(109 809)
(98 560)
(88 304)
Profit attributable to ordinary shareholders - continuing
operations
896 456
560 518
326 591
247 230
212 942
210 858
Loss attributable to ordinary shareholders - discontinued
operations
(2 139)
(13 609)
–
–
–
–
894 317
546 909
326 591
247 230
212 942
210 858
Net finance (costs) income
CONSOLIDATED CASH FLOW STATEMENT
Cash generated from trading
Working capital changes
Cash generated from operations
Net finance (costs) income
Taxation paid
1 643 458
701 016
608 143
424 495
450 229
449 329
(926 967)
(188 994)
(232 670)
(189 870)
(228 068)
(381 245)
716 491
512 022
375 473
234 625
222 161
68 084
61 520
49 613
–
–
–
–
(79 508)
(57 052)
(17 191)
14 062
7 197
1 267
(212 672)
(123 856)
(183 471)
(123 324)
(55 135)
(27 742)
Cash flows from operating activities
485 831
380 727
174 811
125 363
174 223
41 609
Cash flows from investing activities
(127 054)
(145 282)
(640 266)
(74 232)
(26 296)
(37 444)
Cash flows from financing activities
(312 918)
147 864
173 192
(106 576)
(50 104)
(48 855)
45 859
383 309
(292 263)
(55 445)
97 823
(44 690)
Increase (decrease) in cash and cash equivalents
–
(399 534)
50 555
–
–
–
Net cash and cash equivalents at beginning of year
Cash and cash equivalents on acquisitions
(361 339)
(345 114)
(103 406)
(47 961)
(145 784)
(101 094)
Net cash and cash equivalents at end of year
(315 480)
(361 339)
(345 114)
(103 406)
(47 961)
(145 784)
123 997 044
122 887 075
78 404 200
73 805 200
73 805 200
73 805 200
Weighted average
120 305 470
89 498 069
73 953 151
72 163 592
73 517 823
73 805 200
Fully diluted weighted average
122 087 297
91 391 018
76 420 394
73 241 671
73 945 447
74 531 736
16,8
17,1
17,9
15,7
15,3
15,3
Shares:
Actual in issue
Operating performance:
Attributable earnings per share (cents) - total operations
743,4
611,1
441,6
342,6
289,6
285,7
Headline earnings per share (cents) - total operations
741,9
575,6
457,3
340,0
291,2
280,0
Attributable cash flow per share (cents) - total operations
403,8
425,4
236,4
173,7
237,0
56,4
^ Restated for straight-lining of operating leases. No other comparatives have been restated.
† Not adjusted for the effects of IFRS.
65
2006
2005
2004 ^ †
2003 †
2002 †
2001 †
R’000
R’000
R’000
R’000
R’000
R’000
CONSOLIDATED BALANCE SHEET
Shareholders’ equity
Deferred taxation
Interest bearing debt – long term
Interest bearing debt – short term
4 994 792
238 673
457 271
446 313
4 419 619
290 219
452 225
622 932
1 902 344
206 045
255 796
507 766
1 574 973
204 237
82 832
201 794
1 450 689
241 369
83 533
179 182
1 275 734
223 750
82 000
212 742
TOTAL FUNDING
6 137 049
5 784 995
2 871 951
2 063 836
1 954 773
1 794 226
Represented by:
Investments: Insurance financial assets
Investments: Associate
Property, vehicles and equipment
Goodwill
Trademarks
Deferred taxation
Non-current assets classified as held for sale
Current assets – inventories, receivables and taxation
Current assets – funds on call, bank balances and cash
633 559
–
378 687
824 362
312 000
199 199
47 500
5 045 880
129 920
625 923
35 644
334 243
805 617
316 503
316 570
–
4 357 341
259 893
392 062
27 988
261 494
264 736
–
–
–
2 058 526
141 119
293 886
23 562
137 681
–
–
–
–
1 751 210
95 595
282 024
–
133 679
–
–
–
–
1 618 126
126 057
282 121
–
147 941
–
–
–
–
1 513 081
58 960
Total assets
Non-interest bearing obligations
7 571 107
1 434 058
7 051 734
1 266 739
3 145 925
273 974
2 301 934
238 098
2 159 886
205 113
2 002 103
207 877
TOTAL NET ASSETS EMPLOYED
6 137 049
5 784 995
2 871 951
2 063 836
1 954 773
1 794 226
17 357
1 270
1 200
70
16 415
1 221
1 162
59
9 133
664
612
52
7 787
642
594
48
7 639
655
606
49
7 923
645
597
48
Number of employees – total operations
Total number of outlets – total operations
Number of retail outlets
Number of financial services outlets
DEFINITIONS
Operating profit
Profit before taxation adjusted for, income from associate, net
finance (costs) income, insurance investment income, impairments
and profits and losses on disposal of owner occupied properties.
Operating margin
Operating profit as a percentage of revenue.
Attributable earnings per share
Profit attributable to ordinary shareholders, divided by the weighted
average number of ordinary shares in issue during the year.
Headline earnings per share
Profit attributable to ordinary shareholders, after adjusting for certain
items of a capital nature, divided by the weighted average number of
ordinary shares in issue during the year.
Dividend cover
Headline earnings per share divided by dividends per share. For the
purpose of this definition, the dividend cover is calculated using the
final dividend declared in respect of the financial year under review
and not the dividend reflected in the statement of changes in equity.
Operating profit, plus depreciation and other non-cash items,
adjusted for changes in working capital.
Attributable cash flow per share
Cash flows from operating activities divided by the weighted average
number of shares in issue during the year.
Return on average total assets
Operating profit, as a percentage of the average total assets.
Return on average funds employed
Operating profit, as a percentage of average net assets adjusted for
short-term interest bearing debt.
Return on average shareholders’ equity
Profit attributable to ordinary shareholders, as a percentage of the
average shareholders’ equity.
Gearing
Interest bearing debt less funds on call, bank balances and cash, as a
percentage of shareholders’ equity.
Current ratio
Current assets divided by current liabilities.
Shareholders’ equity divided by total number of ordinary shares
outstanding less treasury shares.
66
Six year review (continued)
RATIOS
Financial performance:
Return on average total assets (%)
Return on average funds employed (%)
Return on average shareholders’ equity (%)
Gearing (%)
Growth in gross instalment and term loan debtors
book (%)
Instalment and term loan debtors provisioning as %
of gross book
Current ratio (times)
Net asset value per share (cents)
Productivity:
Revenue per employee
Operating profit per employee
Revenue per outlet
Operating profit per outlet
Growth: (%)
Revenue
Operating profit
Headline earnings per share
Shareholder statistics:
Closing share price at year end (cents)
FTSE/JSE Africa Index Series – General Retailers (cents)
Share price to net asset value (times)
Number of beneficial shareholders *
Market capitalisation (R millions)
Yield on closing share price:
Earnings yield (%)
Dividend yield (%)
Dividends declared per share (cents)
Interim
Final
Dividend cover
SHARE PERFORMANCE
Number of share transactions
Number of shares traded – (in millions)
Value of shares traded – (R millions)
Volume of shares traded as % of issued shares
Market price of shares:
High (cents)
Low (cents)
#
#
#
#
#
#
#
Average six
year compound
growth
27,9
30,3
19,9
18,8
2006
2005
2004 ^ †
2003 †
2002 †
2001 †
R’000
R’000
R’000
R’000
R’000
R’000
17,4
23,5
19,0
15,5
14,0
25,0
22,0
18,4
18,6
24,0
18,8
32,7
15,4
18,9
16,3
12,0
14,9
18,5
15,6
9,4
15,9
20,2
17,9
18,5
18,0
95,8
11,1
9,6
9,8
18,2
27,8
2,8
4 127
27,3
2,4
3 682
33,1
2,8
2 538
33,6
4,2
2 224
34,0
4,5
1 973
32,5
3,7
1 729
436
73
5 965
1 002
397
58
5 331
783
310
56
4 266
765
280
44
3 402
535
265
41
3 093
473
245
38
3 015
462
79,2
76,3
28,9
12,1
49,2
42,2
25,9
45,1
29,7
47,9
34,5
14,1
7,8
10,9
16,8
12,7
4,2
4,0
4,0
14,1
12,4
14,5
12,3
17,9
6 700
23 521
1,62
2 822
8 308
6 100
22 163
1,66
3 116
7 496
3 689
13 344
1,45
2 107
2 892
2 700
9 584
1,21
1 518
1 993
1 435
6 439
0,73
1 698
1 059
2 300
6 682
1,33
770
1 698
11,1
3,8
252,5
10,0
2,4
143,4
12,0
2,8
105,0
12,7
3,1
84,0
20,2
5,1
73,0
12,4
3,1
71,6
139,6
112,9
–
143,4
–
105,0
–
84,0
–
73,0
–
71,6
2,9
4,0
4,4
4,0
4,0
3,9
30 605
108,7
7 885,7
87,7
14 799
66,9
3 440,3
54,4
7 122
37,7
1 205,7
48,1
2 697
30,8
626,2
41,7
3 095
28,3
499,0
38,4
4 312
32,7
637,1
44,3
9 449
5 680
6 310
3 585
3 850
2 460
2 810
1 365
2 320
1 400
2 600
1 650
* During the financial years 2001 and prior, each nominee company shareholder was considered to be a single shareholder. The benefits of a STRATE register identifying underlying beneficial shareholders was only available
from 2002.
# In respect of 2005 these ratios, revenue, operating profit and earnings have been annualised for the effect of Relyant’s results having only been consolidated for the four months ended 31 August 2005.
^ Restated for straight-lining of operating leases. No other comparatives have been restated.
† Not adjusted for the effects of IFRS.
67
Annual Financial Statements
for the year ended 31 August 2006
Contents
Directors’ responsibility for and approval of the annual financial statements
Page 68
Certificate by Company Secretary
Page 68
Report of the independent auditors
Page 69
Statutory report of the directors
Page 70
Principal accounting policies
Page 73
Consolidated balance sheet
Page 82
Consolidated income statement
Page 83
Consolidated cash flow statement
Page 84
Consolidated statement of changes in equity
Page 85
Notes to the consolidated annual financial statements
Page 86
Company balance sheet
Page 120
Company income statement
Page 120
Company cash flow statement
Page 121
Company statement of changes in equity
Page 121
Notes to the Company annual financial statements
Page 122
Investment in subsidiaries
Page 124
Segmental analysis
Page 126
Analysis of shareholders
Page 130
68
Directors’ responsibility for and approval
of the annual financial statements
The annual financial statements, set out on pages 71 to 130,
Nothing has come to the attention of the directors to indicate
and other financial information set out in this annual report
that any material breakdown in the functioning of these controls,
were prepared by management in conformity with International
procedures and systems has occurred during the year under
Financial Reporting Standards and fairly present the state of
review.
affairs of the Group. They have been approved by the Board
of Directors and have been signed on their behalf by the
After conducting appropriate procedures, the directors are
undermentioned directors.
satisfied that the Group will be a going concern for the
foreseeable future and have continued to adopt the going concern
The manner of presentation of the annual financial statements,
basis in preparing the annual financial statements.
the selection of accounting policies and the integrity of the
financial information are the responsibility of the Board of
Although the Board of Directors is primarily responsible for the
Directors.
financial affairs of the Group, they are supported by the Group’s
external auditors. The external auditors are responsible for
To fulfil its responsibilities, the Board of Directors has developed
independently reviewing and reporting on the Group’s annual
and continues to maintain a system of internal controls. These
financial statements.
controls are based on established written policies and procedures,
are implemented by trained, skilled personnel with an appropriate
The Audit Committee is comprised of two non executive and one
segregation of duties and are closely monitored by both the Board
executive director and meets regularly with the external auditors.
of Directors and the internal auditors.
The external auditors have free access to this committee.
We believe the controls in use are adequate to provide reasonable
The annual financial statements have been examined by the
assurance that assets are safeguarded from loss or unauthorised
Group’s external auditors and their report is presented on
use and that the financial records may be relied on for preparing
page 69. The auditors are appointed each year based on the
the financial statements and maintaining accountability for assets
recommendation by the Audit Committee.
and liabilities.
P J B Pohlmann
Chairman
P J C Squires
Chief Executive Officer
6 November 2006
Certificate by Company Secretary
In my capacity as Company Secretary, I hereby certify that the Company has lodged with the Registrar of Companies all returns required of a
public company in terms of the Companies Act of South Africa and that all such returns are true, correct and up to date.
R B G Sinclair
Company Secretary
6 November 2006
Report of the independent auditors
To the members of
Ellerine Holdings Limited
We have audited the Company and Group annual financial statements set out on pages 70 to 130 for the year ended 31 August 2006.
These financial statements are the responsibility of the Company’s directors. Our responsibility is to express an opinion on these
financial statements based on our audit.
Scope
We conducted our audit in accordance with International Standards on Auditing. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the annual financial statements are free of material misstatement. An audit
includes:
– examining, on a test basis, evidence supporting the amounts and disclosures in the annual financial statements,
– assessing the accounting policies used and significant estimates made by management; and
– evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
Audit opinion
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company and of the
Group at 31 August 2006 and the results of their operations and cash flows for the year then ended in accordance with International
Financial Reporting Standards, and in the manner required by the Companies Act of South Africa.
Grant Thornton
Chartered Accountants (SA)
Registered Auditors
South African member of Grant Thornton International
Johannesburg
6 November 2006
69
70
Statutory report of the directors
NATURE OF BUSINESS
GROUP FINANCIAL RESULTS
Your Company is a holding company listed on the JSE Limited
A summary is as follows:
as well as the securities exchanges in Namibia and Botswana.
The Group operates in the credit and cash retail furniture and
2005
R’000
R’000
1 273 151
722 246
13 457
7 080
appliance sector, trading out of 1 156 furniture outlets. Brand
Operating profit
names include Ellerines, Town Talk, FurnCity, Wetherlys, Osiers,
Dial-a-Bed, Mattress Factory, Furniture City, Beares, Geen &
Profit on disposal of owner
Richards, Lubners and Savells/Fairdeal. Financial Services
2006
occupied properties
–
53 793
revenues are generated through the provision of insurance
Impairment of goodwill
–
(16 831)
products by the Group’s insurance subsidiaries and micro loans
through 70 Rainbow Loans outlets. In addition, the Group’s
Net finance costs
service division, Early Bird, offers TV and household appliance
repairs throughout the country from its 44 depots. The Group
Taxation
penetrates the rural and urban areas across six countries in
Profit attributable to ordinary
southern Africa, namely South Africa, Botswana, Lesotho,
shareholders - continuing
Namibia, Swaziland and Zambia. Roodefurn manufactures
operations
certain furniture for the Group. In addition, the Group operates
a property division.
61 520
49 613
(79 508)
(56 313)
1 268 620
(372 164)
(199 070)
896 456
560 518
Loss attributable to ordinary
shareholders - discontinued
operations
The results and state of affairs of the Group are reflected in the
attached annual financial statements and commentary thereon
759 588
(2 139)
(13 609)
shareholders
894 317
546 909
is provided in the Chief Executive Officer’s review.
The discontinued operations relate to Wetherlys Spain and the
DISPOSAL AND POST BALANCE SHEET EVENT
Glick’s brand, which were discontinued in the prior year. The
Post year end the Group disposed of its 40,0% equity stake in
results of these discontinued operations are set out in note 38.
CICL Investment Holdings (Proprietary) Limited (“CICL”) for a
consideration of R47,5 million. CICL operates in the short term
SEGMENTAL RESULTS
and long term insurance markets as well as in various related
The segmental results of the Group appear on pages 126 to
businesses. The disposal was subject to the approval of the
129 of this annual report.
Competition Commission and the Financial Services Board.
These approvals were obtained after year end.
SHARE CAPITAL
During the year 1 110 000 shares were issued to the Ellerine
Employees Share Trust to enable the trust to discharge its
obligation to deliver shares to participants in terms of the
deferred delivery share option scheme, on 9 May 2006 for a
consideration of 1723 cents per share.
71
UNISSUED SHARES
Executive directors:
Members will be asked to place 1 500 000 shares (representing
P J C Squires (Chief executive officer)
1,2% of the issued share capital) of the Company under the
A F F Moca
control of the directors in order to meet the Group’s obligation
R A Rawlings
in terms of the Ellerine Employees Share Trust, subject to the
R B G Sinclair
regulations of the JSE Limited. A resolution for this purpose
† Independent
is included in the notice of the forthcoming annual general
** German
meeting.
* British
DIVIDENDS
In terms of the articles of association, T J Chalmers,
The dividends declared and paid to members during the
P J C Squires, R B G Sinclair and A F F Moca retire at the
year are set out in the attached statement of changes in
forthcoming annual general meeting, but, being eligible, except
equity. A final dividend of 143,4 cents per share was paid on
for T J Chalmers, offer themselves for re-election.
19 December 2005 and an interim dividend of 139,6 cents per
share was paid on 12 June 2006.
Details of the various Board committees are set out on
pages 19 to 24.
A final distribution of 112,9 cents per share by way of a capital
distribution out of share premium was declared on 6 November
COMPANY SECRETARY
2006 and will be accounted for in the 2007 financial year.
J Dritz was replaced by R B G Sinclair as Company Secretary on
Shareholders will be asked to consider and, if deemed fit, to
4 May 2006.
approve the capital distribution at the annual general meeting.
Business and postal address:
Gillooly’s View Office Park, Block E, Osborne Lane,
DIRECTORS
Bedfordview, 2007
H M Khoza, a non executive director, passed away tragically
P O Box 122, Bedfordview, 2008
on 27 October 2006. J Dritz, an executive director until
31 January 2006, elected to take retirement with effect
DIRECTORS’ INTERESTS
from 31 May 2006. R B G Sinclair, previously an alternate
At year end, the directors’ beneficial direct and indirect
director to J Dritz, was appointed to the Board as an executive
interests in the Company’s issued shares were as follows:
2006
director, with effect from 31 January 2006. With effect from
Direct
15 August 2006, non executive director S Zungu resigned from
2005
Indirect
Direct
Indirect
the Board. A F F Moca was appointed to the Board as chief
P J B Pohlmann
– 22 681 000
– 17 560 052
operating officer on 24 August 2006. The composition of the
D S McGlashan
–
67 000
–
Board of Directors at the date of this report is as follows:
P J C Squires
8 700
–
96 200
–
T J Chalmers
–
–
–
–
–
–
–
–
–
–
–
–
Non executive directors:
P J B Pohlmann **(Non executive chairman)
80 000
The late
H M Khoza
D S McGlashan (Non executive deputy chairman)
A F F Moca
T J Chalmers†
J M Moore
–
2 520 111
–
1 951 117
J M Moore *
R A Rawlings
31 600
–
21 600
–
R B G Sinclair
–
–
–
–
Total
40 300 25 268 111
117 800 19 591 169
72
Statutory report of the directors (continued)
There have been no material changes in the directors’ interests
SPECIAL RESOLUTIONS
in shares between 31 August 2006 and the date of this report.
Special resolutions were passed by some of the Relyant
subsidiaries to effect name changes.
No director has a material interest in any contract of
significance with the Company or any of its subsidiaries that
ELLERINE HOLDINGS SHARE INCENTIVE TRUST
could have given rise to a conflict of interest.
Details of the deferred delivery share option scheme is set out
in note 11.5.2. As at 31 August 2006, 5 795 950 shares had
SUBSIDIARY COMPANIES
been delivered in terms of this scheme and 1 701 675 shares
Details of your Company’s investments in subsidiaries are set
are still due for delivery.
out on pages 124 and 125 of the annual financial statements.
The interest of your Company in the aggregate profits and
INTERNATIONAL FINANCIAL REPORTING STANDARDS
losses after taxation of the subsidiary companies is as follows:
(“IFRS”)
The Group adopted IFRS during the current financial year. Refer
2006
2005
R’000
R’000
Profits
890 865
551 959
Losses
8 425
14 602
note 39 for further information.
73
Principal accounting policies
The annual financial statements are prepared on the going concern
account the potential effect of a debtor going bad.
basis in accordance with the historic cost convention, except for
The drop off rate is based on the Group’s historical
investment properties and certain financial instruments, which
bad debt experience. Debtors who have not paid for
are carried at fair value, and in accordance with International
a specific period are provided for in full.
Financial Reporting Standards (IFRS) and the requirements of the
South African Companies Act 1973 (as amended). The previous
1.2
Impairment testing
years’ annual financial statements were prepared in accordance
The recoverable amounts of cash-generating units
with South African Statements of Generally Accepted Accounting
and individual assets have been determined based
Practice (SA GAAP). This is the first year that the annual financial
on the higher of value-in-use calculations and
statements are being prepared in accordance with IFRS. An
fair values. These calculations require the use of
explanation of how the transition to IFRS has affected the annual
estimates and assumptions.
financial statements is provided in note 39.
1.3
Contingent provisions on business combinations
The accounting policies adopted are consistent with those of
Contingencies recognised on the acquisition of
the previous year except that the Group has adopted IFRS.
Relyant required estimates based on managements’
assessment of the potential exposure and the
probability thereof.
For administrative purposes and in line with the IT integration
strategy, the trading month-end closes on the seventh of
each month. In the current financial year the Traditional,
1.4
Share based payments
Decorating and Rainbow Loans divisions closed their year end
The Group used the Black-Scholes pricing model to
on 7 September 2006 as opposed to 31 August 2006.
determine the value of the options granted at issue
date.
The annual financial statements are presented in South African
Rand, rounded to the nearest thousand, unless otherwise stated.
1.5
Insurance liabilities
Insurance contract accounting requires estimates
1. JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
In preparing the annual financial statements, management
and judgements and is covered in accounting policy
note 23.
is required to make estimates and assumptions that
affect the amounts represented in the annual financial
2. BASIS OF CONSOLIDATION
statements and related disclosures. Use of available
The consolidated annual financial statements incorporate
information and the application of judgement is inherent
those of the Company and all its subsidiaries. Results of
in the formation of estimates. Actual results in the future
subsidiaries acquired during the year are included from the
could differ from these estimates which may be material to
effective dates of acquisition, when control is transferred
the financial statements. Significant judgements include:
to the Group. Results of subsidiaries disposed of are
included up to the effective dates of disposal, when control
1.1
Allowance for doubtful debts
no longer exists. Business combinations are accounted for
A discounted cash flow model using the contractual
in accordance with the purchase method. Inter-company
interest rate and the expected future collections
transactions and balances are eliminated on consolidation.
from debtors are applied. Debtors that are subject to
the allowance for doubtful debts calculation consist
On acquisition, the Group recognises the subsidiary’s
of those accounts that are considered to be in
identifiable assets, liabilities and contingent liabilities at
arrear. Future cash flows are based on the payment
fair value, except for assets classified as held-for-sale,
pattern of each individual debtor. A drop off rate
which are recognised at fair value less costs to sell.
is applied to these future cash flows to bring to
74
Principal accounting policies (continued)
2. BASIS OF CONSOLIDATION (continued)
– Owner occupied properties: 20 to 80 years
The Ellerine Holdings Share Incentive Trust and Relyant
– Land: Indefinite
Share Option Trust are consolidated into the Group annual
The gain or loss arising from the derecognition of an item
financial statements. The shares in the Company owned
of property, vehicles and equipment is included in the
by the trusts are treated as treasury shares, held at cost
income statement, when the item is derecognised.
and presented in equity. Dividends received on treasury
shares are eliminated on consolidation. Treasury shares
4. GOODWILL
are deducted from shares in issue in the calculation of
Goodwill is the excess of the cost of an acquisition over
earnings per share.
the interest in the fair value of the identifiable assets and
liabilities acquired at acquisition date. Goodwill is carried
Investments in subsidiaries are stated at cost less
at cost less any accumulated impairment losses. Goodwill
accumulated impairment losses in the holding Company’s
is further written down to the extent that the balances
annual financial statements.
will in all probability no longer be recovered from expected
future economic benefits.
3. PROPERTY, VEHICLES AND EQUIPMENT
The cost of an item of property, vehicles and equipment
The Group tests goodwill for impairment on an annual
is recognised as an asset when it is probable that future
basis, or more frequently if there is an indication that the
economic benefits associated with the item will flow to the
carrying value may be impaired.
Group and the cost of the item can be measured reliably.
At the acquisition date, goodwill acquired is allocated
Owner-occupied properties, vehicles and equipment are
to cash generating units and impairment is assessed in
stated at cost less accumulated depreciation and any
relation to these units.
accumulated impairment losses. The useful lives and residual
values are assessed at each balance sheet date, and adjusted
5. TRADEMARKS
if appropriate. Investment properties are stated at fair value
Acquired trademarks are capitalised and assessed at the
as determined by the directors and are not depreciated.
individual asset level as having either a finite or indefinite
Surpluses or shortfalls on revaluation of investment
life. Trademarks are carried at cost less any accumulated
properties are recognised in the income statement.
amortisation and any impairment losses. Where a trademark
has a finite life, it is amortised on a straight line basis over
Assets held under suspensive sale agreements are
its estimated useful life. The amortisation period is 5 to 15
capitalised. At the commencement of the suspensive sale
years. Amortisation periods for trademarks with a finite
agreements the assets are reflected at the lower of fair
life are reviewed annually or earlier where an indicator
value and the present value of minimum lease payments.
of impairment exists. Trademarks having indefinite lives
The related liability is recognised at an equivalent amount.
are not amortised, as there is no limit to the period over
Finance charges are accounted for over the period of the
which the asset is expected to generate net cash inflows
transactions on the effective interest rate method.
for the Group. Trademarks with indefinite lives are reviewed
annually to ensure that the carrying value does not exceed
Depreciation is provided on all owner occupied properties,
the recoverable amount, regardless of whether an indicator
vehicles and equipment to write down their cost, less
of impairment is present and, whether or not the trademark
estimated residual value, by equal instalments over their
continues to have an indefinite life. Useful lives are also
estimated economic useful lives as follows:
examined on an annual basis and adjustments, where
– Computers and software: 2 to 3 years
applicable, are made on a prospective basis.
– Vehicles: 5 years
– Equipment: 6 years
No valuation is made of internally developed and maintained
– Furniture, fixtures and fittings: 6 years
trademarks or brand names. Expenditure incurred to maintain
– Improvements to leased premises: Lease period
these brands is charged to the income statement as incurred.
6. FINANCIAL INSTRUMENTS
6.1
75
6.2.3 Trade and other receivables
Initial recognition and measurement
Trade and other receivables originated by the
The Group classifies financial instruments, or
Group are stated at amortised cost, using the
their component parts, on initial recognition as
effective interest rate method, less any write
a financial asset, a financial liability or an equity
down for impairment or uncollectibility.
instrument in accordance with the substance of the
contractual arrangement.
6.2.4 Cash and cash equivalents
Cash and cash equivalents comprise cash on
Financial instruments are recognised on the Group’s
hand net of overdrafts and demand deposits that
balance sheet when the Group becomes party to the
are readily convertible to a known amount of
contractual provisions of the instrument.
cash and are subject to an insignificant risk of
change in value. These are recorded at fair value.
On initial recognition, financial instruments are
recognised at fair value.
6.2.5 Financial liabilities
Financial liabilities, other than derivatives,
6.2
Subsequent measurement
are recognised at amortised cost, being the
6.2.1 Investments
original debt value less principal payments
Investments are measured at fair value. Fair
and amortisation.
value represents the current market value
where a regulated market exists, otherwise
6.2.6 Trade and other payables
fair value is determined by the directors. The
Trade and other payables are subsequently
directors’ valuation is calculated on a basis
measured at amortised cost, using the
of return or net asset value, as is deemed
effective interest rate method.
appropriate. Realised and unrealised profit
and losses on these financial assets are
6.2.7 Loans between companies within the Group
recognised in the income statement in the
Loans between companies within the Group
year in which they occur.
are subsequently measured at amortised cost
using the effective interest rate method, less
6.2.2 Derivative instruments
any impairment loss.
Derivative instruments are measured at fair
value. The hedges are either:
On loans receivable an impairment loss is
– fair value hedges, which hedge exposure to
recognised in the income statement of the
changes in the fair value of a recognised
Company when there is objective evidence
asset or liability; or
that it is impaired. Impairment losses are
– cash flow hedges, which hedge exposure to
eliminated on consolidation.
variability in cash flows.
6.2.8 Derecognition of financial instruments
In the case of fair value hedges, any mark-to-
Financial instruments are derecognised when
market gain or loss of hedge instruments is
the Group no longer controls the contractual
recognised immediately in the income statement.
rights on the instrument.
Gains and losses on effective cash flow hedging
instruments in respect of firm commitments or
7. INVESTMENT IN ASSOCIATE
forecasted transactions are recognised directly
An associate is an enterprise in which the Group has
in equity. Any ineffective portion of a cash flow
significant influence and which is neither a subsidiary
hedge is recognised in the income statement.
nor a joint venture. In the Company’s annual financial
statements, investments in associates are carried at cost
less accumulated impairment losses.
76
7. INVESTMENT IN ASSOCIATE (continued)
In the Group’s annual financial statements, investments
Contingent assets and contingent liabilities not arising
from business combinations are not recognised.
in associates are accounted for under the equity method,
adjusted for impairment losses.
11. TAXATION
11.1 Current tax assets and liabilities
8. NON-CURRENT ASSETS HELD FOR SALE
Current tax for current and prior periods is, to
Non-current assets are classified as held for sale if
the extent unpaid, recognised as a liability. If the
their carrying amount will be recovered through a sale
amount already paid in respect of current and prior
transaction rather than through continuing use. This
periods exceeds the amount due for those periods,
condition is regarded as met only when the sale is highly
the excess is recognised as an asset.
probable and the asset is available for immediate sale in
its present condition. Non-current assets held for sale are
Current tax liabilities and assets for the current and
measured at the lower of its carrying amount and fair
prior periods are measured at the amount expected
value less costs to sell.
to be paid to or recovered from the tax authorities,
using the tax rates that have been enacted or
9. INVENTORIES
substantively enacted by the balance sheet date.
Inventories are stated at the lower of cost and estimated
net realisable value. Cost is generally determined on
11.2 Deferred tax assets and liabilities
the first-in first-out basis and it includes transport and
A deferred tax liability is recognised for all taxable
handling costs. The cost of manufactured products includes
temporary differences, except to the extent that the
direct expenditure and production overheads based on the
deferred tax liability arises from:
normal level of activity.
– the initial recognition of goodwill; or
– the initial recognition of an asset or liability in a
Specific provisions are made for slow moving, obsolete and
transaction which:
redundant inventories.
– is not a business combination; and
– at the time of the transaction, affects neither
10. PROVISIONS AND CONTINGENCIES
accounting profit nor taxable profit.
Provisions are recognised when:
– the Group has a present obligation as a result of a past
event,
– it is probable that an outflow of resources embodying
A deferred tax asset is recognised for all deductible
temporary differences to the extent that it is
probable that taxable profit will be available against
economic benefits will be required to settle the
which the deductible temporary difference can be
obligation; and
utilised, unless the deferred tax asset arises from
– a reliable estimate can be made of the obligation.
the initial recognition of an asset or liability in a
transaction that:
The amount of a provision is the present value of the
– is not a business combination; and
expected expenditure required to settle the obligation.
– at the time of the transaction, affects neither
accounting profit nor taxable profit or tax loss.
In respect of onerous contracts, the present obligation under
the contract is recognised and measured as a provision.
A deferred tax asset is recognised for the carry
forward of unused tax losses to the extent that it is
Contingent liabilities recognised in business combinations
probable that future taxable profit will be available
are subsequently measured at the higher of:
against which the unused tax losses can be utilised.
– the amount that would be recognised as a provision; or
– the amount initially recognised less cumulative
amortisation.
11. TAXATION (continued)
11.2 Deferred tax assets and liabilities (continued)
77
12.3 Net insurance income
Net insurance income comprises gross insurance
Deferred tax assets and liabilities are measured
income less reinsurance premiums and is recognised
at the tax rates that are expected to apply to the
on the basis set out in accounting policy note 23.
period when the asset is realised or the liability is
settled, based on tax rates that have been enacted
or substantively enacted by the balance sheet date.
12.4 Short-term loan income
Short-term loan income consist of finance charges
earned on short-term loans which are recognised on
11.3 Tax expenses
the effective yield on the asset.
Current and deferred taxes are recognised as income
or expense and included in the income statement for
12.5 Rendering of services
the period, except to the extent that the tax arises
Rendering of services consist of delivery charges and
from:
other income. Delivery charges are recognised at the
– a transaction or event which is recognised, in the
date goods are delivered to customers.
same or a different period, directly in equity; or
– a business combination.
12.6 Dividends and interest received
Dividends are recognised, in the income statement,
12. REVENUE
12.1 Sale of merchandise
when the Group’s right to receive payment has been
established.
Sale of merchandise is measured at the fair value
of the consideration received or receivable and
Interest received is recognised on a time proportion
represents the amounts receivable for goods and
basis that takes into account the effective yield on
services provided in the normal course of business,
the asset.
net of discounts and value added tax.
13. COST OF MERCHANDISE SOLD
Revenue from the sale of goods is recognised when
When inventories are sold, the carrying amount of those
all the following conditions have been satisfied:
inventories is recognised as an expense in the period in
– the Group has transferred to the buyer the
which the related revenue is recognised. The amount of
significant risks and rewards of ownership of the
any write-down of inventories to net realisable value and
goods,
all losses of inventories are recognised as an expense in
– the Group retains neither continuing managerial
the period the write-down or loss occurs.
involvement to the degree usually associated with
ownership nor effective control over the goods
sold,
14. TRANSLATION OF FOREIGN CURRENCIES
14.1 Foreign currency transactions
– the amount of revenue can be measured reliably,
A foreign currency transaction is recorded, on initial
– it is probable that the economic benefits
recognition in Rands, by applying to the foreign
associated with the transaction will flow to the
currency amount the spot exchange rate between
Group; and
the functional currency and the foreign currency at
– the costs incurred or to be incurred in respect of
the date of the transaction.
the transaction can be measured reliably.
At each balance sheet date, foreign currency
12.2 Finance charges
Finance charges on instalment sale and term
loan debtors are recognised as revenue on a time
proportion basis that takes into account the
effective yield on the asset.
monetary items are translated using the closing rate.
78
14. TRANSLATION OF FOREIGN CURRENCIES (continued)
services that increase their entitlement or, in the
14.1 Foreign currency transactions (continued)
case of non-accumulating leave, when the leave
Exchange differences arising on the settlement of
occurs.
monetary items or on translating monetary items
at rates different from those at which they were
The expected cost of profit sharing and bonus
translated on initial recognition during the period
payments is recognised as an expense when there
or in previous annual financial statements are
is a legal or constructive obligation to make such
recognised in the income statement in the period in
payments as a result of past performance.
which they arise.
15.2 Defined contribution plans
Cash flows arising from transactions in a foreign
Contributions to defined contribution plans in
currency are recorded in Rands by applying to the
respect of service in a particular year are recognised
foreign currency amount the exchange rate between
as an expense in that year.
the Rand and the foreign currency at the date of the
cash flow.
Payments made to state plan retirement benefit
schemes are dealt with as defined contribution plans
14.2 Net investment in a foreign operation
where the Group’s obligation under the schemes is
The results and financial position of a foreign
equivalent to that arising in a defined contribution
operation are translated into the functional currency
retirement benefit plan.
being Rand using the following procedures:
– assets and liabilities for each balance sheet
15.3 Defined benefit plans
presented are translated at the closing rate at the
Gains or losses on the curtailment or settlement of
date of that balance sheet,
defined benefit plans are recognised when it can
– income and expenses are translated at the average
exchange rates for the year; and
be demonstrated that the Group is committed to
curtailment or settlement.
– all resulting exchange differences are recognised
as a separate component of equity.
15.4 Medical-current service costs
The current service cost is recognised as an expense
Exchange differences arising on a monetary item
in the year and matched to the benefit received
that forms part of a net investment in a foreign
during the working life of the employee.
operation are recognised initially in the translation
reserve and recognised in the income statement on
disposal of the investment.
16. OPERATING LEASES
Operating lease payments are recognised as an expense
on a straight-line basis over the lease term. The difference
15. EMPLOYEE BENEFITS
15.1 Short-term employee benefits
The cost of short-term employee benefits, (those
between the amounts recognised as an expense and the
contractual payments are recognised as an operating lease
liability. This liability is not discounted.
payable within one year after the service is
rendered, such as paid leave, sick leave, bonuses,
17. SEGMENTAL INFORMATION
and non-monetary benefits such as medical care),
The principal segments of the Group have been identified
are recognised in the period in which the service is
on a primary basis by distinction between the nature of the
rendered and are not discounted.
trading activities and on a secondary basis by significant
geographical region. The primary basis is representative
The expected cost of compensated leave is
of the internal structure for management purposes.
recognised as an expense as the employees render
The secondary basis, namely geographical, classifies all
operations based on geographical locations of trading.
18. BORROWING COSTS
All borrowing costs are dealt with in the income statement
in the period in which they are incurred.
79
– first, to reduce the carrying amount of any goodwill
allocated to the cash-generating unit; and
– then, to the other assets of the unit, pro-rata on the
basis of the carrying amount of each asset in the unit.
19. IMPAIRMENT
The Group assesses at each balance sheet date whether
20. DISCONTINUED OPERATIONS
there is any indication that an asset may be impaired.
Discontinued operations is a significant distinguishable
If any such indication exists, the Group estimates the
component of the Group’s business that is abandoned
recoverable amount of the asset.
or terminated pursuant to a single formal plan, and
which represents a separate major line of business or a
Irrespective of whether there is any indication of
geographical area of operation.
impairment, the Group also:
– tests trademarks with an indefinite life for impairment
The profit or loss on abandonment of a discontinued
annually by comparing its carrying amount with its
operation is determined from the formalised
recoverable amount,
discontinuance date.
– tests goodwill acquired in a business combination for
impairment annually or more frequently if there is an
indication that the carrying value may be impaired.
21. SHARE CAPITAL AND EQUITY
If the Group re-purchases its own equity instruments,
those instruments (“treasury shares”) are deducted
If there is any indication that an asset may be impaired,
from equity. No gain or loss is recognised in the income
the recoverable amount is estimated for the individual
statement on the purchase, sale, issue or cancellation of
asset. If it is not possible to estimate the recoverable
the Group’s own equity instruments. Considerations paid or
amount of the individual asset, the recoverable amount
received are recognised directly in equity.
of the cash-generating unit to which the asset belongs is
determined.
22. SHARE-BASED PAYMENTS
Goods or services received or acquired in a share-based
The recoverable amount of an asset or a cash-generating
payment transaction are recognised when the goods or
unit is the higher of its fair value less costs to sell or its
services are received. A corresponding increase in equity
value in use.
is recognised if the goods or services were received in
an equity-settled share-based payment transaction or a
If the recoverable amount of an asset is less than its
liability if the goods or services were acquired in a cash-
carrying amount, the carrying amount of the asset is
settled share-based payment transaction.
reduced to its recoverable amount. The reduction is treated
as an impairment loss.
For equity-settled share-based payment transactions,
the goods or services received are measured, and the
An impairment loss is recognised immediately in the
corresponding increase in equity, is recognised at the fair
income statement.
value of the goods or services received, unless the fair
value cannot be estimated reliably.
An impairment loss is recognised for cash-generating
units if the recoverable amount of the unit is less than
If the fair value of the goods or services received cannot
the carrying amount of the unit. The impairment loss is
be estimated reliably, their value and the corresponding
allocated to reduce the carrying amount of the assets of
increase in equity are measured by reference to the fair
the unit in the following order:
value of the equity instruments granted.
80
22. SHARE-BASED PAYMENTS (continued)
during the financial year together with the
For cash-settled share-based payment transactions, the
movement in the provision for outstanding claims.
goods or services acquired and the liability incurred are
Outstanding claims do not include any provision for
measured at the fair value of the liability. Until the liability
possible future claims where the claims arise under
is settled, the fair value of the liability is re-measured
contracts not in existence at the balance sheet date.
at each reporting date and at the date of settlement,
with any changes in fair value recognised in the income
The provision for outstanding claims comprises the
statement for the period.
Group’s estimate of the undiscounted ultimate cost
of settling all claims incurred but unpaid at the
If the share-based payments granted do not vest until
balance sheet date whether reported or not. Related
the counterparty completes a specified period of service,
anticipated reinsurance recoveries are disclosed
the Group accounts for those services on a straight-
separately as assets. These estimated reinsurance
line basis over the vesting period. If the share-based
and other recoveries are assessed in a manner
payments vest immediately the services received are
similar to the assessment of claims outstanding.
recognised in full.
Whilst the directors consider that the gross
23. INSURANCE OPERATIONS
23.1 Classification of insurance contracts
provisions for claims and the related reinsurance
recoveries are fairly stated on the basis of the
The Group issues insurance contracts under which
information currently available to them, the
the Group accepts significant insurance risk from
ultimate liability will vary as a result of subsequent
another party (the policyholder) by agreeing to
information and events and may result in significant
compensate the policyholder or other beneficiary if a
adjustments to the amounts provided. Adjustments
specified uncertain future event (the insured event)
to the amount of claims provisions established
adversely affects the policyholder.
in prior years are reflected in the period in which
the adjustments are made. The methods used to
The insurance contracts that the Group underwrites
value these provisions, and the estimates made, are
are classified and described in note 35.8.
reviewed regularly.
23.2 Recognition and measurement of insurance
Unexpired risk provision
contracts
Provision, where necessary, is made for unexpired
Premiums
risks where the expected value of claims and
Premiums written relate to business incepted
expenses attributable to the unexpired periods of
during the year. Unearned premiums represent
policies in force at the balance sheet date exceeds
the proportion of premiums written in the year
the unearned premiums provision in relation to such
that relate to unexpired terms of policies in force
policies.
at the balance sheet date, calculated on a time
proportionate basis.
Reinsurance
The Group cedes reinsurance in the normal course
Intermediary commissions
of business for the purpose of limiting its net
Commissions paid to intermediaries are expensed in
loss potential. Reinsurance arrangements do not
the period in which they are incurred.
relieve the Group from its direct obligations to
its policyholders. Amounts recoverable under
Claims incurred
reinsurance contracts are assessed for impairment at
Claims incurred are included under administration
each balance sheet date. Such assets are deemed
and other expenses and consist of claims paid
23. INSURANCE OPERATIONS (continued)
23.2 Recognition and measurement of insurance
81
24. STATEMENTS AND INTERPRETATIONS NOT EFFECTIVE
At the date of approval of these annual financial
contracts (continued)
statements, certain new accounting standards,
impaired if there is objective evidence, as a result of
amendments and interpretations to existing standards had
an event that occurred after its initial recognition,
been published that are mandatory for accounting periods
that the Group may not recover all amounts due
beginning on or after 1 January 2006 which the Group
and that there is a reliably measurable impact on
has elected not to adopt early. The following standards
the amounts that the Group will receive from the
and interpretations may have an impact on the Group’s
reinsurer. Impairment losses are recognised in the
operations when they become effective:
income statement.
– Amendment to IAS 1: Presentation of Financial
Statements – Capital disclosures,
Only contracts that give rise to a significant transfer
of insurance risk are accounted for as reinsurance.
Amounts recoverable under such contracts are
recognised in the same year as the related claim.
– Amendment to IAS 21: The effects of changes in foreign
exchange rates: Net investment in foreign operations,
– Amendment to IAS 39: Financial instruments
– Recognition and measurement: Cash flow hedge
accounting of forecast intragroup transactions,
The benefits to which the Group is entitled under
– Amendment to IFRS 4: Insurance contracts and IAS 39:
its reinsurance contracts held are recognised as
Financial instruments – recognition and measurement:
reinsurance assets. These assets consist of short-
financial guarantee contracts,
term balances due from reinsurers as well as longer-
– IFRS 7: Financial Instruments - Disclosures,
term receivables that are dependent on the expected
– IFRIC 11 – IFRS 2: Group and Treasury Share
claims and benefits arising under the related
reinsured insurance contracts. Amounts recoverable
from or due to reinsurers are measured consistently
with the amounts associated with the reinsured
insurance contracts and in accordance with the
terms of each reinsurance contract. Reinsurance
liabilities are primarily premiums payable for
reinsurance contracts and are recognised as an
expense when due.
Outward reinsurance premiums are recognised
as an expense in accordance with the pattern of
reinsurance service received.
Statutory contingency reserve
Provision is made for the full amount of the
contingency reserve in terms of the Short Term
Insurance Act, 1998 calculated at 10% of the net
written premiums. Transfers to and from this reserve
are taken directly to and from retained income.
Transactions; and
– IFRIC 4: Determining whether an arrangement contains
a lease.
82
Consolidated balance sheet
As at 31 August 2006
Notes
2006
2005
R’000
R’000
ASSETS
Non-current assets
2 347 807
2 434 500
1
378 687
334 243
Goodwill
2
824 362
805 617
Trademarks
3
312 000
316 503
Investment in associate
5
–
35 644
Deferred taxation
6
199 199
316 570
Insurance financial assets
7
633 559
625 923
Current assets
5 175 800
4 617 234
Inventories
8
587 844
534 397
Trade and other receivables
9
4 457 162
3 821 242
Taxation
Funds at call, bank balances and cash
10
TOTAL ASSETS
874
1 702
129 920
259 893
47 500
–
7 571 107
7 051 734
4 994 792
4 419 619
EQUITY AND LIABILITIES
Shareholders’ equity and reserves
Share capital and premium
11
2 214 214
2 195 095
Insurance contingency reserve
12
49 272
43 272
(33 426)
(29 545)
27 655
22 276
2 737 077
2 188 521
Foreign currency translation reserve
Non-distributable reserves
13
Distributable reserves
Non-current liabilities
Deferred taxation
Interest bearing borrowings
695 944
742 444
6
238 673
290 219
14
457 271
452 225
1 880 371
1 889 671
1 012 765
951 396
Current liabilities
Trade and other payables
15
Current portion of interest bearing borrowings
14
Taxation
Provisions
Bank overdrafts and call loans
TOTAL EQUITY AND LIABILITIES
16
913
1 700
133 445
40 606
287 848
274 737
445 400
621 232
7 571 107
7 051 734
83
Consolidated income statement
2006
2005
Notes
R’000
R’000
Revenue
17
7 575 158
4 227 957
Sale of merchandise
17
4 959 408
2 764 927
(2 740 706)
(1 464 684)
2 218 702
1 300 243
2 522 557
1 385 335
Cost of merchandise sold
Gross profit
Other operating revenue
17
Debtors costs
Operating expenses
Advertising
Cost of employment
(396 530)
(141 649)
(3 071 578)
(1 821 683)
(243 614)
(122 065)
(92 526)
(62 881)
(1 540 821)
(986 442)
Motor and delivery
(219 816)
(133 797)
Property expenses
(440 714)
(252 133)
Administration and other expenses
(534 087)
(264 365)
Operating profit
18
Profit on disposal of owner occupied properties
21
Net finance costs
Interest received
53 793
–
(16 831)
61 520
49 613
(79 508)
(56 313)
1 268 620
22
Profit attributable to ordinary shareholders – continuing operations
Loss attributable to ordinary shareholders – discontinued operations
7 080
–
(120 659)
38
722 246
13 457
41 151
Interest paid
Taxation
1 273 151
36 075
(92 388)
759 588
(372 164)
(199 070)
896 456
560 518
(2 139)
894 317
(13 609)
546 909
84
Consolidated cash flow statement
Notes
CASH FLOWS FROM OPERATING ACTIVITIES
25
Cash receipts from customers
Cash paid to suppliers and employees
Net finance costs
Taxation paid
26
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, vehicles and equipment
27
Proceeds on disposal of property, vehicles and equipment
28
2006
2005
R’000
R’000
485 831
380 727
716 491
512 022
6 843 926
4 125 596
(6 127 435)
(3 613 574)
61 520
49 613
(79 508)
(57 052)
(212 672)
(123 856)
(127 054)
(145 282)
(147 767)
(102 834)
17 271
107 921
Net decrease (increase) in investment in associate
1 600
(576)
Decrease (increase) in insurance financial assets
1 842
(140 064)
–
(8 088)
–
(1 641)
Acquisition of Relyant Retail Limited
29
Acquisition of Wetherlys
CASH FLOW FROM FINANCING ACTIVITIES
(312 918)
Proceeds from interest bearing borrowings
Dividends paid
5 046
30
Net proceeds from issue of shares
Net increase in cash and cash equivalents
Cash and cash equivalents on acquisition of Relyant Retail Limited
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
31
147 864
196 429
(342 247)
(79 986)
24 283
31 421
45 859
383 309
–
(399 534)
(361 339)
(345 114)
(315 480)
(361 339)
85
Consolidated statement of changes in equity
Note
Balance at 1 September 2004,
as previously reported
Foreign
currency
translation
reserve
Non–
distributable
reserves
Distributable
reserves
Total
Share
capital
Share
premium
Insurance
contingency
reserve
R’000
R’000
R’000
R’000
R’000
R’000
R’000
3 748
134 794
36 440
371
26 892
1 700 099
1 902 344
5 663
4 992
10 655
32 555
IFRS restatements
as restated
1 705 091
1 912 999
Net profit for the year, as restated
546 909
546 909
Dividends paid
(80 026)
(80 026)
(82 324)
(82 324)
Total
3 748
134 794
36 440
371
24
Treasury shares
2 298
Issue of shares
2 224
Treasury shares sold
2 054 299
30
8 171
Share-based payments
4 575
Exchange differences on translating
foreign operations
8 201
4 575
(29 916)
Unrealised surpluses arising from hedged
instruments
(29 916)
354
Transfer to insurance contingency reserve
2 298
2 056 523
6 832
354
(6 832)
–
39
(39)
–
Transfer of realised profits on disposal of
owner occupied properties to
distributable reserves
(12 131)
12 131
–
Transfer of realised profits on disposal
of investment properties to distributable
reserves
(3 397)
3 397
–
281
(281)
–
22 276
2 188 521
4 419 619
Capital adequacy reserve movement
Transfer of revaluation of investment
properties to non-distributable reserves
as restated
6 002
2 189 093
43 272
(29 545)
Net profit for the year
894 317
894 317
Dividends paid
(342 247)
(342 247)
(349 402)
(349 402)
Total
24
Treasury shares
7 155
Issue of shares
56
Treasury shares purchased and held
(7)
19 070
5 162
2 251
Exchange differences on translating
foreign operations
Unrealised surpluses arising from hedged
instruments
5 155
2 251
(3 881)
(3 881)
452
Transfer to insurance contingency reserve
7 155
19 126
6 000
452
(6 000)
–
Capital adequacy reserve movement
641
(641)
–
Transfer of realised profits on disposal
of investment properties to distributable
reserves
(44)
44
–
Transfer of revaluation of investment
properties to non-distributable reserves
Balance at 31 August 2006
6 051
2 208 163
49 272
(33 426)
2 079
(2 079)
–
27 655
2 737 077
4 994 792
86
Notes to the consolidated annual financial statements
Investment Owner occupied
1.
properties
properties
Vehicles
Equipment
Total
R’000
R’000
R’000
R’000
R’000
3 660
96 298
114 817
573 675
788 450
–
509
26 212
121 046
147 767
(26 330)
(30 729)
(57 203)
PROPERTY, VEHICLES AND EQUIPMENT
Cost or valuation - 2006
Balance at beginning of year
Additions
Disposals
(144)
–
Revaluations
2 079
–
–
–
2 079
Balance at end of year
5 595
96 807
114 699
663 992
881 093
(3 050)
(47 949)
(403 063)
(454 207)
(1 234)
(13 435)
(73 420)
(88 089)
14 491
25 399
39 890
(4 284)
(46 893)
(451 084)
(502 406)
5 450
92 523
67 806
212 908
378 687
Accumulated depreciation and
impairment - 2006
(145)
Depreciation
–
Disposals
–
Net carrying value - 2006
(145)
–
Cost or valuation - 2005
11 382
132 895
89 219
291 154
524 650
Additions
–
242
34 145
68 447
102 834
Disposals
(8 003)
(36 839)
(20 663)
(18 807)
(84 312)
281
–
–
–
281
Acquisition of business
–
–
12 116
232 881
244 997
3 660
96 298
114 817
573 675
788 450
–
(11 328)
(44 834)
(178 909)
(235 071)
Depreciation
–
(159)
(8 865)
(51 648)
(60 672)
Disposals
–
8 437
13 452
14 418
36 307
Revaluations
Accumulated depreciation and
impairment - 2005
Impairment losses recognised
(145)
–
–
–
(145)
–
–
(7 702)
(186 924)
(194 626)
(145)
(3 050)
(47 949)
(403 063)
(454 207)
3 515
93 248
66 868
170 612
334 243
Net carrying value - 2005
Owner occupied properties and computer equipment with a value of R53,0 million (2005: R47,1 million) and R1,3 million
(2005: R2,4 million) respectively is pledged as security (note 14).
Investment properties were fair valued by the directors at 31 August 2006 on the basis of capitalised net rentals. The historical
cost of fair valued properties amounts to R1,1 million (2005: R1,1 million). The discount rates used were based on current market
conditions. The fair value of owner occupied properties amounted to R167,7 million (2005: R144,1 million).
A register of properties is available to shareholders for inspection at the registered office of the Company.
Properties, vehicles and equipment have an estimated replacement cost and insurance value of R1,1 billion.
2.
87
2006
2005
R’000
R’000
248 861
248 861
265 692
264 736
–
956
GOODWILL
Wetherlys
Cost
Acquisition
Accumulated impairment
Relyant
Universal Credit Retail division - cost
Opening balance
Acquisition
Adjustment
Value Retail division - cost
(16 831)
(16 831)
575 501
556 756
331 012
352 024
352 024
–
–
352 024
(21 012)
–
123 106
81 932
81 932
–
Acquisition
–
81 932
Adjustment
41 174
–
7 775
7 144
Opening balance
Services division - cost
Opening balance
7 144
–
Acquisition
–
7 144
Adjustment
631
–
113 608
115 656
115 656
–
–
115 656
Financial Services division - cost
Opening balance
Acquisition
Adjustment
Net carrying value
(2 048)
824 362
–
805 617
Goodwill represents the excess of the purchase consideration over the acquirer’s interest in the net fair value of the identifiable
assets, liabilities and contingent liabilities at the date of acquisition purchased as part of a business combination.
Adjustments were made during the current year to the cost of goodwill as the fair values of certain assets, liabilities and
contingent liabilities could only be determined provisionally at the time of the acquisition of Relyant in 2005. Refer note 29.
Goodwill is tested for impairment annually in accordance with the Group’s accounting policies (refer note 4). There were no
indications of impairment in the current year.
88
Notes to the consolidated annual financial statements (continued)
3.
2006
2005
R’000
R’000
Cost (*)
319 172
319 172
Universal Credit Retail division
275 191
275 191
273 971
227 546
1 220
47 645
39 006
39 006
39 006
–
–
39 006
Services division
4 975
4 975
Indefinite lives
4 975
–
–
4 975
TRADEMARKS
Indefinite lives
Finite lives
Indefinite lives
Finite lives
Finite lives
Accumulated amortisation
(7 172)
(2 669)
Universal Credit Retail division
(3 634)
(1 330)
(1 330)
–
Amortisation
(2 304)
(1 330)
(3 137)
(1 187)
(1 187)
–
Amortisation
(1 950)
(1 187)
(401)
(152)
(152)
–
Amortisation
(249)
(152)
Services division
Net carrying value
312 000
316 503
Trademarks represent registered rights to the exclusive use of certain trademarks and brand names and have been stated at the
fair value determined by external trademark valuation specialists during the prior year.
Trademarks with an indefinite life are considered to be indefinite based on the following factors:
– There is a high product life cycle for the trademark,
– There is a high level of maintenance expenditure required to obtain the future economic benefits; and
– The Group has the intention and ability to reach the required maintenance expenditure.
Trademarks are tested for impairment annually in accordance with the Group’s accounting policies (refer to note 4). There were no
indications of impairment in the current year.
In terms of IAS 38 no value has been placed on internally generated trademarks in the Ellerines and Wetherlys business.
* Acquisition through business combination during 2005.
4.
IMPAIRMENT TESTING OF GOODWILL AND TRADEMARKS WITH AN INDEFINITE LIFE
Trademarks and goodwill acquired through the acquisition of Relyant have been allocated
to the various divisions, representing cash generating units, as set out in notes 2 and 3, and
have been tested for impairment accordingly. The Wetherlys cash generating unit has been
tested separately.
The recoverable amount of the underlying cash generating units has been determined based
on a value-in-use calculation using the cash flow projections for the forthcoming financial
year, as per the financial budgets approved by the directors, adjusted for expected annual
growth thereafter. The average growth rate for the following 8 years (2005: 8 years) used
for the Wetherlys cash generating unit and for the Relyant brands was 12% (2005: 11%).
Thereafter, a perpetuity growth rate of 5% (2005: 5%) was used for Wetherlys and
7% (2005: 7%) for Relyant. The after-tax discount rate applied to the cash flow projections
was 12,5% (2005: 9,5%) for Wetherlys and 12,0% (2005: 10,0%) for the Relyant brands.
In determining the cash flow projections for the forthcoming financial year, sales, gross
margins and costs were based on historical performance and adjusted for projected synergies
arising from the merger with Relyant and the expected number of new stores in each
underlying brand. Account has also been taken of the additional growth that is expected in
2010 as a result of the Soccer World Cup. Management believes that any reasonable possible
change in the key assumptions would not cause the carrying amounts of the cash generating
units to exceed the recoverable amounts.
These calculations indicated that there was no impairment in the carrying value of the
goodwill or trademarks.
89
90
5.
2006
2005
R’000
R’000
23 250
23 250
1 917
1 917
Share of equity accounted profits
25 275
11 818
Dividends received
(2 942)
(1 341)
47 500
35 644
INVESTMENT IN ASSOCIATE
CICL Investment Holdings (Proprietary) Limited (“CICL”)
Investment at net asset value at acquisition
Additional 2,5% purchased
Reclassified to non-current assets held for sale
Total investment in associate
(47 500)
–
–
35 644
–
8 866
Goodwill
–
11 134
Ellerine Holdings Limited held 80 of the issued shares, representing a 40,0% shareholding
in CICL. CICL was disposed of subsequent to the year end and is classified as a non-current
asset held for sale. CICL was equity accounted for up until 31 August 2006.
The aggregate assets and liabilities and results of the associate are:
Investments
–
39 756
Current assets
–
234 919
Total assets
–
294 675
Deferred tax
–
2 850
Outside shareholders
–
3 678
Long term liabilities and life fund
–
10 562
Current liabilities
–
196 137
Total liabilities
–
213 227
Earned premiums
–
218 733
–
17 700
6.
91
2006
2005
R’000
R’000
26 351
(216 487)
(66 098)
(43 614)
NET DEFERRED TAXATION (LIABILITY) ASSET
Income statement (note 22 and note 38)
Adjustments made in respect of acquisition of business
273
–
–
286 452
(39 474)
26 351
(262 262)
(329 174)
Comprising:
Instalment sale debtors allowances
Accelerated capital allowances
25 251
24 636
111 739
106 968
Tax losses
15 534
123 057
Provisions
89 457
110 934
(19 193)
(10 070)
(39 474)
26 351
199 199
316 570
(238 673)
(290 219)
(39 474)
26 351
86 000
85 000
Doubtful debt allowances
Other
Disclosed as follows:
Deferred taxation asset
Deferred taxation liability
Total net deferred taxation (liability) asset
7.
INSURANCE FINANCIAL ASSETS
At valuation:
Unlisted preference shares
United Towers (Proprietary) Limited (*)
–
85 000
KWJ Investments (Proprietary) Limited (#)
21 500
–
AEL Investment Holdings (Proprietary) Limited (#)
21 500
–
Sechold Finance Services (Proprietary) Limited (#)
21 500
–
Investpref Limited (#)
Listed shares - equity instruments (†)
Money market instruments
21 500
–
38 140
31 763
510
15 701
Investments at bankers
508 909
493 459
Total insurance financial assets
633 559
625 923
581 763
528 703
556
380
*Unlisted preference shares at valuation comprise redeemable cumulative preference shares which are
underwritten by ABSA Bank Limited.
#Unlisted preference shares at valuation comprise redeemable cumulative preference shares which are
underwritten by Investec Private Bank Limited.
†A register of investments is available for inspection at the Company’s registered office.
8.
INVENTORIES
Merchandise and finished goods
Work in progress
Raw materials and consumables
Total inventories
5 525
5 314
587 844
534 397
92
9.
2006
2005
R’000
R’000
Net instalment sale debtors
2 893 997
2 985 344
Gross instalment sale debtors
4 012 073
4 126 656
Payable within one year
2 999 386
3 186 762
Payable thereafter
1 012 687
939 894
TRADE AND OTHER RECEIVABLES
Provisions
(1 118 076)
(1 141 312)
(370 407)
(366 252)
Provision for unearned finance charges and club fees
(462 935)
(457 494)
Net provision for unearned premiums
(284 734)
(317 566)
(678 726)
(669 681)
393 992
352 115
Net term loan debtors
1 404 365
680 836
Gross term loan debtors
1 941 647
918 041
1 311 127
672 264
630 520
245 777
Gross provision for unearned premiums
Reinsurance portion for unearned premiums
Payable thereafter
Provisions
(537 282)
(237 205)
(131 914)
(77 172)
(304 351)
(137 394)
(101 017)
(22 639)
(349 161)
(168 912)
248 144
146 273
39 240
29 135
Gross provision for unearned premiums
Reinsurance portion for unearned premiums
Net short-term loans
Provisions
87 680
65 907
(48 440)
(36 772)
(16 274)
(10 384)
Provision for unearned finance charges
(27 517)
(21 556)
(4 649)
(4 832)
Other
119 560
125 927
4 457 162
3 821 242
Net trade debtors
4 337 602
3 695 315
Gross trade debtors
6 041 400
5 110 604
4 398 193
3 924 933
Payable thereafter
1 643 207
1 185 671
Total trade and other receivables
Trade receivables comprise:
Provisions
(1 703 798)
(1 415 289)
(518 595)
(453 808)
(794 803)
(616 444)
(390 400)
(345 037)
Amounts due from instalment sale and term loan debtors after 1 year are reflected as current assets, as they form part of the
normal operating cycle. The credit terms of trade receivables range from 6 to 36 months.
93
10. NON-CURRENT ASSETS CLASSIFIED AS HELD FOR SALE
CICL Investment Holdings (Proprietary) Limited, previously classified as an associate, was disposed of subsequent to year end. As
at 31 August 2006, the disposal was pending approval from the Competition Commission and the FSB. Subsequent to the year
end, the Competition Commission and the FSB have given their approval and the associate was disposed of for a value of
R47,5 million. The proceeds on the disposal were received in cash on 16 October 2006.
2006
2005
R’000
R’000
11. SHARE CAPITAL AND PREMIUM
11.1 Authorised share capital
200 000 000 ordinary shares of 5 cents each
11.2 Number of shares in issue
Number of shares at beginning of year
Issue for purchase of Relyant Retail Limited
Issue for non executive directors
Issue for employee share trusts
Net movement of treasury shares
Number of shares at end of year
120 039 873
(31)
74 960 623
42 856 875
–
150 000
1 110 000
1 476 000
(131 016)
596 375
121 018 826
120 039 873
123 997 044
122 887 075
Comprising:
Total shares in issue
Treasury shares held by Ellerine Properties
Treasury shares held by share trusts
(2 214 200)
(2 214 200)
(764 018)
(633 002)
121 018 826
120 039 873
6 002
3 748
–
2 142
–
8
56
74
Net movement of treasury shares
(7)
11.3 Issued shares
30
6 051
6 002
6 200
6 144
Comprising:
Total shares in issue
Treasury shares held by Ellerine Properties
Treasury shares held by share trusts
(111)
(111)
(38)
(31)
6 051
6 002
2 189 093
134 794
–
2 031 844
–
2 783
19 070
25 505
11.4 Share premium
Share issue expenses
–
(5 833)
2 208 163
2 189 093
Total share capital and premium
2 214 214
2 195 095
1 347 741 ordinary shares are under the control of the directors to allot and issue in order to meet the Group’s obligation
in terms of the Ellerine Employees Share Trust in terms of a resolution of the members passed at the last annual general
meeting. This authority remains in force until the next annual general meeting, subject to the regulations of the JSE Limited.
94
11. SHARE CAPITAL AND PREMIUM (continued)
11.5.1Share option schemes
The Group operates two share option schemes, an equity-settled share-based payment scheme and a cash-settled
share-based payment scheme (refer notes 11.5.2 and 11.5.3). The exercise price of these options is determined based on the
average share price thirty days preceding the date of offer. Details of the directors’ participation in these schemes are set
out in note 20.
The following table illustrates the total number and weighted average exercise prices of share options held by eligible
participants including executive directors in the equity-settled and cash-settled share-based payment schemes:
2006
2005
Weighted
Weighted
average
average
Number of
exercise
Number of
exercise
share options
price - R
share options
price - R
3 091 550
18,28
5 486 175
17,78
Options granted
1 392 500
48,01
25 000
46,65
Options delivered
(1 318 625)
17,23
(2 072 375)
16,28
Options forfeited
(168 250)
35,62
(347 250)
24,36
31,58
3 091 550
18,28
Weighted average market price per share
2 997 175
71,51
50,70
95
11.5.2Equity-settled share-based payment scheme
The Group operates a deferred delivery staff share option scheme in the Ellerine Holdings Share Incentive Trust. In terms of
this scheme, options have been granted to certain employees, including executive directors, to subscribe for ordinary shares.
Delivery of these shares takes place in tranches of 25% per annum commencing two years after the date of the offers.
Employees have seven years after the grant date to excercise the option, after which the share option will be forfeited.
Shares
First 25%
Exercise
Number of
Shares
Shares
due for
of shares
price of
shares
forfeited
delivered
delivery
available on
option - R
2 180 000
605 000
1 575 000
-
October 00
10,40
20 000
–
20 000
-
March 01
18,00
September 99
370 000
102 500
267 500
-
September 01
21,15
November 00
1 062 500
203 250
845 375
13 875
November 02
15,30
April 01
10 000
–
7 500
2 500
April 03
16,75
May 01
1 032 500
180 625
773 875
78 000
May 03
17,40
30 000
–
22 500
7 500
September 03
18,60
Date offer made
October 98
March 99
September 01
November 01
100 000
–
75 000
25 000
November 03
20,40
January 02
443 000
140 000
215 500
87 500
January 04
15,25
February 02
82 000
41 000
33 500
7 500
February 04
15,20
1 570 000
162 500
1 027 000
380 500
May 04
14,95
200 000
–
100 000
100 000
August 04
14,35
1 665 000
155 000
765 700
744 300
May 05
19,00
May 02
August 02
May 03
July 03
40 000
15 000
15 000
10 000
July 05
23,60
430 000
182 500
47 500
200 000
October 05
26,85
December 03
20 000
20 000
–
-
December 05
30,85
May 04
70 000
50 000
5 000
15 000
May 06
30,70
November 04
30 000
–
–
30 000
November 06
46,65
9 355 000
1 857 375
5 795 950
1 701 675
October 03
11.5.3Cash-settled share-based payment scheme
The Group also operates a cash-settled share-based payment scheme. In terms of this scheme, options have been granted
to certain employees, including certain executive directors, entitling employees to receive an amount which is determined
based on the performance of the Group’s share price. The cash settlement takes place in tranches of 25% per annum
commencing two years after the date of the offers. The options must be exercised on the exercise date.
Date offer made
November 05
Options
First 25%
Number of
Options
Options
due for
of options
Price of
options
forfeited
delivered
delivery
available on
option - R
1 376 500
92 000
–
1 284 500
November 07
47,85
January 06
6 000
–
–
6 000
January 08
59,50
February 06
5 000
–
–
5 000
February 08
81,00
1 387 500
92 000
–
1 295 500
96
2006
2005
R’000
R’000
Weighted risk-free interest rate
9,08%
9,44%
Weighted expected dividend yield
3,20%
3,76%
2 to 6 years
3 to 6 years
11.5.4Valuation of share options
The fair value of options granted is estimated using the Black-Scholes option pricing
model. The following assumptions were used in valuing the options:
Expected life
Forfeiture rate
Weighted expected volatility
5%
5%
26,60%
33,80%
49 272
43 272
12. INSURANCE CONTINGENCY RESERVE
In terms of the Short Term Insurance Act, the Group’s insurance subsidiaries are required to
hold contingency reserves equivalent to 10% of their net premiums written during the year.
13. NON-DISTRIBUTABLE RESERVES
Capital adequacy reserve
Capital surpluses arising on the sale of investment in an associated company
Pre-incorporation profits
Transfer from share premium
Unrealised surpluses arising on hedged instruments
Unrealised surpluses arising on revaluation of investment properties
Total non-distributable reserves
680
39
1 116
1 116
358
358
12 489
10 238
7 548
7 548
806
354
4 658
2 623
27 655
22 276
1 974
3 697
16 210
18 097
In terms of the articles of association, the directors may, before declaring or recommending
any dividends, set aside out of the amounts available for dividends such sum as they deem
proper as a reserve or an addition thereto.
14. INTEREST BEARING BORROWINGS
Loans at amortised cost
14.1 Instalment sale agreements
Secured in terms of instalment sale agreements over computer equipment having a
book value of R1,3 million (2005: R2,4 million). The average effective rate of interest
is prime less 1% per annum and the liabilities are repayable in monthly instalments
of R75 712 (2005: R136 423) inclusive of finance charges.
14.2 Secured debentures
The debentures, which have a nominal value of R28 million and bear interest
at a fixed rate of 15,16% per annum, are repayable in 2011. They are secured by
a first mortgage bond over property with a carrying value of R53,0 million
(2005: R41,7 million), a guarantee by Ellerine Holdings Limited and a cession of
all rentals on the property. The lender has subscribed for additional shares in the
underlying subsidiary for a consideration of R28 million. The shares and the purchase
consideration are to be delivered in 2011. As Ellerine Holdings Limited has acquired
the right to these shares, the net present value of the deferred proceeds on the issue
of the shares of R11,8 million has been offset against the amount due to the lender.
97
2006
2005
R’000
R’000
150 000
150 000
200 000
200 000
14. INTEREST BEARING BORROWINGS (continued)
14.3 ABSA Bank Limited (*)
The loan bears interest at a fixed rate of 15,18% and is repayable in full on
31 March 2010.
An interest rate swap agreement has been entered into which effectively adjusts the
interest rate to prime less 3,5% in respect of the loan.
14.4 ABSA Bank Limited (*)
The loan bears interest at a fixed rate of 13,84% and is repayable in full on
9 July 2010.
An interest rate swap agreement has been entered into which effectively adjusts the
interest rate to prime less 3,0% in respect of the loan.
14.5 Loan
The loan is unsecured, bears interest at rates linked to the prime overdraft rate and
was repaid on 6 September 2006.
82 000
14.6 Loan (*)
The loan bears interest at rates linked to the prime overdraft rate and is repayable on
5 March 2012.
14.7 Other
Total interest bearing borrowings
90 000
–
–
131
458 184
453 925
Capital amounts payable within one year reflected under current liabilities:
Instalment sale agreements
Total non-current interest bearing borrowings
(913)
(1 700)
457 271
452 225
531 361
453 603
27 745
8 997
6 963
–
469
469
446 227
488 327
1 012 765
951 396
* These loans are secured by a surety issued by Ellerine Holdings Limited and are subject to covenants
that if contravened could change the terms of the agreements. These covenants include maintaining
the following ratios: minimum shareholders funds to total assets, interest cover and a limitation on
total interest bearing borrowings to shareholders funds.
15. TRADE AND OTHER PAYABLES
Trade creditors
Outstanding claims
Shareholders for dividend
Other creditors
Total trade and other payables
98
2006
2005
R’000
R’000
Insurance provisions (note 40)
61 207
39 031
39 031
25 508
–
14 403
22 176
6 120
–
(7 000)
16. PROVISIONS
Acquisition of Relyant
Additional provisions
Utilised during the year
Contingent liabilities and provisions raised on the acquisition of Relyant
Balance at beginning of year*
Acquisition of Relyant* (note 29)
Other
212 945
204 940
204 940
–
39 908
207 877
(31 903)
(2 937)
–
16 730
16 730
–
Acquisition of Relyant (note 29)
(5 867)
Post-retirement medical benefits (note 36)
–
(10 863)
8 696
8 258
(224)
13 696
14 036
14 036
2 100
Acquisition of Relyant
–
12 034
–
328
Total provisions
(340)
(426)
287 848
274 737
Sale of merchandise
4 959 408
2 764 927
2 522 557
1 385 335
Finance charges
1 043 549
620 083
Financial services
1 102 624
612 287
Net insurance income
1 019 984
553 103
1 776 981
892 064
* This represents the values that have been allocated to the various contingent liabilities and provisions
that existed at the date of acquisition of Relyant Retail Limited and comprise primarily onerous leases,
direct and indirect taxes and pension fund obligations.
17. REVENUE
Gross insurance income
Reinsurance premium
(756 997)
(338 961)
Short-term loan income
82 640
59 184
376 384
152 965
93 193
77 695
7 575 158
4 227 957
Rendering of services
Dividends and interest received
Total revenue
99
2006
2005
R’000
R’000
469 465
173 320
999
3 943
18. OPERATING PROFIT – CONTINUING OPERATIONS
Operating profit is stated after accounting for the following:
Income
Net reinsurance commission
Profit on disposal of vehicles and equipment
Adjustment to fair value of investment properties
2 079
281
18 552
13 647
7 054
1 516
Amortisation of trademarks
4 503
2 669
Auditors’ remuneration
5 141
2 866
5 010
2 726
4 403
2 436
607
290
70
45
Rental income
Foreign exchange gain
Expenses
Audit fees
Current year
Adjustment for prior years
Expenses
61
95
Depreciation
Fees for other services
88 023
60 212
Equipment
73 354
51 188
Owner occupied properties
Vehicles
Managerial, administrative, outsourcing and secretarial fees
Foreign exchange loss
Increase (decrease) in trade debtors allowances and provisions
Unearned finance charges and club fees
Unearned insurance premiums
Loss on disposal and scrapping of vehicles and equipment
1 234
159
13 435
8 865
38 034
18 374
118
6 947
288 509
(36 488)
64 787
(89 759)
178 359
12 361
45 363
40 910
509
839
417 609
231 072
Premises
354 688
197 741
Vehicles
46 874
26 776
Operating lease charges
Equipment
Cost of employment
Salaries, commission, incentives and other
Retirement benefit costs
Claims incurred, net of reinsurance
The number of employees at the year end was 17 357 (2005: 16 248)
16 047
6 555
1 540 821
986 442
1 444 099
933 859
87 508
48 008
9 214
4 575
234 531
172 000
10 0
Retirement
Months
19. DIRECTORS’ EMOLUMENTS
19.1 Remuneration
2006
Non executive directors
P J B Pohlmann
D S McGlashan
T J Chalmers
The late H M Khoza
J M Moore
S Zungu
Total
Executive directors
P J C Squires*
J Dritz
R A Rawlings*
R B G Sinclair*
Total
Total directors’
remuneration - 2006
Consulting
and
and sub-
medical
Fringe
Perform-
commit-
Remu-
ance
other
remu-
Fees
tees
neration
butions
fees
bonus
benefits
Total
nerated
R’000
R’000
R’000
R’000
R’000
R’000
R’000
R’000
200
150
71
71
71
71
634
71
642
71
106
70
43
1 003
–
–
–
–
6
271
798
142
177
141
114
1 643
–
174
90
120
110
494
1 150
–
2 329
1 098
1 482
1 158
6 067
732
581
2 463
2 420
2 209
1 476
579
6 684
330
167
214
114
825
6 403
3 564
4 024
2 542
16 533
634
1 003
6 067
494
2 463
6 684
831
18 176
12
9
12
12
contri- Retention
and
6
*Future retention contract commitments totalling approximately R13,5 million are payable to these and certain other management in increasing
annual instalments to April 2008.
2005
P J B Pohlmann
D S McGlashan
T J Chalmers
P N Gumede
The late H M Khoza
J M Moore
P E I Swartz
S Zungu
Total
Executive directors
P J C Squires
J Dritz
R A Rawlings
R B G Sinclair
J A Smith
(Alternate to
B D van der Merwe)
A R van den Borne
B D van der Merwe
Total
Total directors’
remuneration - 2005
67
182
67
50
24
24
60
59
533
23
603
68
–
–
–
–
70
90
855
135
50
59
47
83
76
1 395
12
12
12
4
1 979
1 312
1 312
353
360
247
247
33
450
309
169
1 168
1 432
1 387
216
435
287
175
37
4 392
3 278
3 430
808
6
9
6
107
103
107
1 204
261
1 200
1 189
5 403
71
237
77
1 319
719
2 603
777
16 007
1 204
1 189
5 403
1 389
17 402
35
23
23
17
792
70
–
10
10
541
802
583
6 882
533
802
6 882
101
2006
2005
R’000
R’000
D S McGlashan
–
1 787
T J Chalmers
–
1 787
P E I Swartz
–
1 787
–
5 361
P J C Squires
10 498
12 062
J Dritz
12 932
7 852
6 438
6 441
–
5 281
29 868
31 636
29 868
36 997
P J B Pohlmann
271
90
D S McGlashan
798
2 642
T J Chalmers
142
1 922
P N Gumede
–
50
The late H M Khoza
177
59
J M Moore
141
47
–
1 870
19. DIRECTORS’ EMOLUMENTS (continued)
19.2 Share option gains
Executive directors
R A Rawlings
A R van den Borne
Total directors’ share option gains
19.3 Total directors’ emoluments
P E I Swartz
S Zungu
114
76
1 643
6 756
P J C Squires
16 901
16 454
J Dritz
16 496
11 130
R A Rawlings
10 462
9 871
R B G Sinclair
2 542
808
J A Smith (Alternate to B D van der Merwe)
–
719
A R van den Borne
–
7 884
Total
Executive directors
–
777
Total
B D van der Merwe
46 401
47 643
Total directors’ emoluments
48 044
54 399
102
20. DIRECTORS’ SHARE OPTIONS
Date offer made:
Nov 00
May 01
May 02
Aug 02
May 03
Nov 05
First 25% of shares available on:
Nov 02
May 03
May 04
Aug 04
May 05
Nov 07
Price of option:
R15,30
R17,40
R14,95
R14,35
R19,00
R47,85
100 000
150 000
387 500
Total
20.1 Options held at beginning of year
P J C Squires
12 500
50 000
75 000
J Dritz
10 000
25 000
60 000
82 500
177 500
R A Rawlings
10 000
25 000
60 000
82 500
177 500
Total options held at beginning of year
32 500
100 000
195 000
100 000
315 000
–
742 500
A F F Moca
30 000
30 000
R B G Sinclair
30 000
30 000
60 000
60 000
20.2 Options awarded during the year*
Total options awarded during the year
–
–
–
–
–
P J C Squires
12 500
50 000
37 500
50 000
150 000
J Dritz
10 000
25 000
60 000
82 500
177 500
R A Rawlings
10 000
25 000
30 000
27 500
92 500
Total options exercised during the year
32 500
100 000
127 500
P J C Squires
R60,30
R86,61
R91,58
R92,02
J Dritz
R59,50
R92,77
R91,83
R91,65
R A Rawlings
R59,50
R85,74
R91,81
R91,04
20.3 Options exercised during the year
–
160 000
–
420 000
20.4 Exercise price of options exercised
during the year
20.5 Options held at end of year
P J C Squires
37 500
100 000
100 000
A F F Moca
30 000
R A Rawlings
30 000
55 000
R B G Sinclair
Total options held at end of year
237 500
–
–
67 500
100 000
155 000
* Cash-settled share-based payment options. All other options are equity-settled share-based payment options.
30 000
85 000
30 000
30 000
60 000
382 500
21. INSURANCE INVESTMENT INCOME
Interest received
Dividends received
Realised profit on disposal of investments
Unrealised revaluation of investments
Total insurance investment income
22. TAXATION
Current
South African
Current year
Prior year
Foreign
Current year
Prior year
Deferred
South African
Current year
Prior year
Foreign
Current year
Prior year
Total taxation
Reconciliation of tax rate
South African standard tax rate
Decrease in tax rate
Exempt income
Capital gains tax differential
Adjustments in respect of prior years
Other
Increase in tax rate
Adjustments in respect of prior years
Other
Effective tax rate
Tax losses
Estimated tax losses available for set off against future taxable income
Utilised to raise deferred taxation asset
Unutilised tax losses
10 3
2006
2005
R’000
R’000
44 489
7 553
3 131
6 347
61 520
35 389
6 231
3 959
4 034
49 613
14 163
291 903
271 529
267 316
4 213
20 374
20 458
(84)
963
153 747
133 675
124 768
8 907
20 072
20 072
–
66 098
55 469
57 607
(2 138)
10 629
10 761
(132)
44 360
50 161
73 160
(22 999)
(5 801)
(5 801)
–
372 164
199 070
29,00
(1,38)
(0,16)
–
(0,03)
(1,19)
1,72
1,12
0,18
0,42
29,00
(5,24)
(0,84)
(2,17)
(1,98)
(0,25)
2,45
0,13
0,12
2,20
29,34
26,21
124 231
(71 149)
53 082
538 433
(494 797)
43 636
The unutilised tax losses give rise to a potential further deferred taxation asset amounting to some R15,9 million, however, the
directors believe that after considering the time horizon in which the recoverability of the asset is probable, it is not appropriate
to raise the additional potential deferred taxation asset. Excluded from the estimated tax losses available for set off against future
taxable income above is an amount of R200,4 million which arises as a result of a dispute with the SARS. The dispute relates to
an administrative error by the SARS, whereby a Relyant subsidiary’s 1999 assessment was issued before the 1998 assessment. As
a consequence, neither the 1999, nor subsequent assessments, reflected the 1998 brought forward assessed loss. SARS is claiming
prescription. In the case of an amicable positive outcome the deferred tax asset recognised on acquisition of Relyant will increase
by R58,1 million and goodwill will reduce accordingly.
10 4
2006
2005
R’000
R’000
894 317
546 909
42
(3 104)
–
(53 793)
23. EARNINGS PER SHARE
23.1 Reconciliation between profit attributable to ordinary shareholders for the year
to headline earnings – total operations
Net loss (profit) on disposal of vehicles and equipment
Profit on disposal of owner occupied properties
Tax effect of adjustments
Headline earnings – total operations
(2 079)
–
(124)
16 831
289
8 433
892 569
515 152
894 317
546 909
23.2 Effect of discontinued operations
Profit attributable to ordinary shareholders – total operations
2 139
13 609
Profit attributable to ordinary shareholders - continuing operations
Effect of discontinued operations (note 38)
896 456
560 518
Headline earnings – total operations
892 569
515 152
1 761
13 341
894 330
528 493
Weighted average
120 305 470
89 498 069
Shares in issue
123 236 770
92 496 695
Effect of discontinued operations
Headline earnings - continuing operations
23.3 Number of ordinary shares
Shares held as treasury shares
Fully diluted weighted average
(2 931 300)
122 087 297
(2 998 626)
91 391 018
23.4 Earnings per share (cents) - total operations
Attributable
743,4
611,1
Headline
741,9
575,6
732,5
598,4
731,1
563,7
Attributable
745,1
626,3
Headline
743,4
590,5
734,3
613,3
732,5
578,3
Attributable
1,7
15,2
Headline
1,5
14,9
1,8
14,9
1,4
14,6
23.5 Earnings per share (cents) - continuing operations
23.6 Loss per share (cents) - discontinued operations
23.7 Dilution in attributable earnings per share
The dilution of 10,9 cents (2005: 12,7 cents) in the attributable earnings per share arises as a result of the share options
granted to employees and directors in terms of the equity-settled share-based payment scheme (refer note 11.5.2).
10 5
2006
2005
R’000
R’000
24. DIVIDENDS PAID
Interim
176 220
–
Final
173 182
82 324
Total dividends paid
349 402
82 324
1 266 481
745 233
376 977
(44 217)
358 990
(51 654)
88 089
60 672
Amortisation of trademarks
4 503
2 669
(2 079)
A final dividend of 105,0 cents was declared on 15 October 2004 and paid in the 2005
financial year. A final dividend of 143,4 cents was declared on 7 November 2005 and
an interim dividend of 139,6 cents was declared on 8 May 2006 and paid in the 2006
financial year.
25. RECONCILIATION OF PROFIT TO CASH GENERATED FROM OPERATIONS
Total operations
Adjustments
Items not affecting the flow of funds
Depreciation of property, vehicles and equipment
Net loss (profit) on disposal of property, vehicles and equipment
Net realised and unrealised profit on insurance financial assets
Exchange rate differences on translation of foreign entities
Unrealised surpluses arising from hedged instruments
42
(9 478)
–
(3 881)
(136)
(59 916)
(7 993)
16 831
(29 916)
452
354
Straight-lining portion of operating leases
2 710
655
9 214
4 575
(13 457)
(7 080)
Increase (decrease) in provisions
282 875
(32 369)
288 509
(36 488)
Debtors allowances and provisions
Creditor provisions
Net finance costs
Cash generated from operating activities
(Increase) decrease in inventories
(5 634)
4 119
(61 520)
(49 613)
79 507
57 050
1 643 458
701 016
(926 967)
(188 994)
(53 447)
1 111
(924 429)
(236 209)
Increase in trade and other payables
50 909
46 104
Total cash generated from operations
716 491
512 022
Increase in trade and other receivables
10 6
2006
2005
R’000
R’000
26. TAXATION PAID
Taxation owing at beginning of year
Income statement (note 22 and note 38)
Deferred tax portion
Adjustments made on acquisition of business
Taxation owing at end of year
Total taxation paid
(38 904)
(16 726)
(372 164)
(198 324)
66 098
49 813
(273)
–
–
2 477
132 571
38 904
(212 672)
(123 856)
27. PURCHASE OF PROPERTY, VEHICLES AND EQUIPMENT
Additions
Properties
Vehicles and equipment
(509)
(242)
(23 219)
(28 359)
(23 728)
(28 601)
Replacements
Vehicles and equipment
(124 039)
(74 233)
Total purchase of property, vehicles and equipment
(147 767)
(102 834)
28. PROCEEDS ON DISPOSAL OF PROPERTY, VEHICLES AND EQUIPMENT
Book value of property, vehicles and equipment disposed of
Net (loss) profit on disposal of property, vehicles and equipment – total operations
Total proceeds on disposal of property, vehicles and equipment
17 313
(42)
48 005
59 916
17 271
107 921
–
319 172
29. ACQUISITION OF RELYANT RETAIL LIMITED
With effect from 7 May 2005 Ellerine Holdings Limited acquired 100% of the shares of
Relyant Retail Limited.
The purchase consideration of R2,04 billion has been allocated to the underlying fair
values of the identifiable assets, liabilities and contingent liabilities as follows. The current
year goodwill increase is as a result of adjustments to the provisional fair values of the
identifiable assets, liabilities and contingent liabilities established in the prior year.
Trademarks
–
50 371
Financial assets – Listed shares and money market instruments
–
40 225
–
64 456
Inventories
Financial assets – Investments at bankers
509
311 120
910
1 736 581
Taxation
Deferred taxation
Bank balances and cash
–
2 477
273
286 452
–
10 737
–
(410 271)
13 604
(682 991)
Contingent liabilities and provisions
(34 041)
(243 010)
Net asset value
(18 745)
1 485 319
Goodwill
18 745
556 756
Purchase consideration
–
2 042 075
Settled by issue of ordinary shares
–
(2 033 987)
Purchase consideration - paid in cash
–
8 088
107
2006
2005
R’000
R’000
30. DIVIDENDS PAID
Dividends owing at beginning of year
Declared for year
Dividends owing at end of year
(469)
(429)
(342 247)
(80 026)
469
469
(342 247)
(79 986)
129 920
259 893
(445 400)
(621 232)
Total cash and cash equivalents at end of year
(315 480)
(361 339)
31. CASH AND CASH EQUIVALENTS AT END OF YEAR
32. CONTINGENT LIABILITIES
32.1 The Company has issued unlimited guarantees in favour of the Group’s bankers in
respect of finance facilities granted to subsidiary companies. At year end the facilities
utilised amounted to R445 million (2005: R621 million).
32.2 In addition the Company has issued guarantees in respect of the subsidiary
companies’ interest bearing borrowings as set out in note 14.
32.3 Distribution by certain foreign subsidiaries will give rise to withholding taxes of
R23,1 million (2005: R20,6 million). No provision is required until dividends are declared.
33. BORROWING POWERS
Permitted borrowings in terms of articles of association
Net Group borrowings at year end
4 993 306
4 419 226
368 184
371 925
34. COMMITMENTS
Operating leases
Estimated future rental of premises and trading stores
1 150 942
1 035 971
369 200
336 830
Payable within two to five years
751 267
670 418
30 475
28 723
20 039
72 525
Payable thereafter
Estimated future rental of vehicles
Estimated future rental of equipment and services
Total operating leases
Total capital expenditure*
Contracted for
Not yet contracted for
Total commitments
* Capital expenditure will be financed out of existing facilities.
11 055
34 072
8 984
38 453
17 191
26 002
12 415
13 066
4 776
12 936
1 188 172
1 134 498
137 991
157 450
13 899
10 901
124 092
146 549
1 326 163
1 291 948
10 8
35. FINANCIAL RISK MANAGEMENT
35.1 Financial risk
The Group is exposed to financial risk through its financial assets, financial liabilities, reinsurance assets and insurance
liabilities. The most important components of financial risk are interest rate risk, market price risk, foreign currency
exposure, underwriting risk, insurance risk managment, credit risk management and liquidity risk.
These risks arise from open positions in interest rates, currency and equity products, all of which are exposed to general
and specific market movements.
35.2 Foreign currency exposure
The Group adopts a prudent approach to forward cover. In this regard, at 31 August 2006, all forward exchange contracts
related to specific items appearing in the balance sheet and all significant foreign trade exposures were fully covered. The
writing of option contracts is prohibited, thus currency options are only purchased as a cost effective alternative to forward
exchange contracts. Details of outstanding forward exchange contracts at 31 August 2006 are presented below. The
amounts represent the Rand equivalent of commitments to purchase foreign currencies and all these commitments mature
within one year.
2006
Foreign
currency
US Dollars
Rands at
2005
Rands at
Foreign
fair value contract rate
currency
Rands at
Rands at
fair value contract rate
R’000
R’000
R’000
R’000
R’000
R’000
8 907
65 774
63 085
6 336
40 864
45 892
The mark-to-market profit of R2,7 million (2005: loss of R5,0 million) has been recognised in the income statement. The
net uncovered transaction exposure at 31 August 2006 amounted to Nil (2005: Nil).
The net assets employed in foreign entities denominated in currencies other than those having parity with the Rand do not
exceed 3% (2005: 2%) of the net assets employed in the Group.
35.3 Credit risk management
Potential concentrations of credit risk consist principally of cash investments and trade receivables.
Credit risk with respect to trade and other receivables is dispersed due to the large widespread customer base. The Group
performs credit evaluations of its customers and applies stringent criteria in granting credit. At 31 August 2006, the Group
did not consider that any significant concentration of credit risk existed which had not been adequately provided for.
The Group maintains cash and cash equivalents and short-term investments with various financial institutions. The Group’s
policy is designed to limit exposure to any one financial institution.
10 9
2006
2005
R’000
R’000
1 793 940
1 956 495
35. FINANCIAL RISK MANAGEMENT (continued)
35.4 Liquidity risk
The Group has adequate available banking facilities.
Banking facilities
Facilities utilised
Unutilised banking facilities
(903 584)
(1 075 157)
890 356
881 338
35.5 Interest rate risk
The Group finances its operations through a mixture of retained reserves and borrowings. At year end the Group had three
fixed interest rate loans of R28 million, R150 million and R200 million which bear interest at rates of approximately 14,5%.
Borrowings of R525 million bear interest at rates linked to the prime overdraft rate.
The Company has entered into two interest rate swap agreements for the purpose of converting the fixed interest rate on
the R150 million loan to prime less 3,5% and the R200 million loan to prime less 3,0%.
35.6 Market price risk
Market price risk is the risk that the value of a financial asset will fluctuate as a result of changes in market prices or
changes in market interest rates. Investments in marketable securities are valued at fair value and are therefore susceptible
to market fluctuations. The fair value of all financial assets approximates the carrying value in the balance sheet. Risk is
also managed by diversification and investing in reputable companies and institutions.
Investment decisions are delegated by the Board to an Investment Committee which has ultimate responsibility for the
investment portfolio’s risk profile and the related investment decisions.
35.7 Underwriting risk
Underwriting risk is the risk that the actual claims will exceed the expected claims and the premium income received.
Insurance events are random and the actual number and amount of claims will vary from estimates. The Group manages
these risks through its product development and underwriting process and the implementation of an appropriate
reinsurance strategy.
Underwriting results of each risk class are monitored on a regular basis and corrective measures are actioned where
applicable.
Half yearly actuarial valuations are also performed for the long term business in order to assist in the timely identification
of experience variances.
110
35. FINANCIAL RISK MANAGEMENT (continued)
35.8 Insurance risk management
Exposure to insurance risk
The Group underwrites risks that natural persons and other entities wish to transfer to an insurer. Such risks include
the perils around physical loss, theft, damage, death, funeral, disability and loss of employment that may give rise to an
insurable event. As such the Group is exposed to uncertainty surrounding the timing and severity of claims under insurance
contracts. The principal risk is that the frequency and/or severity of claims are greater than expected. Insurance events are,
by their nature, random and the actual number and size of events during any one year may vary from those estimated and
experienced in prior periods.
The product features of insurance contracts that have an effect on the amount, timing and uncertainty of future cash flows
arising from insurance contracts in the Group are set out below:
– Death and disability – provides indemnity or disability to the insured
– Funeral – provides funeral insurance
– Physical loss – provides indemnity for losses sustained through accidental loss or other similar acts
– Theft – provides indemnity for losses sustained through theft or other similar acts
– Damage – provides indemnity for damages to items insured
– Loss of employment – provides indemnity for losses in relation to employment
As part of its product offering the Group underwrites schemes, which are intermediary branded products available
to individuals. Often a third party has been provided with a mandate to underwrite risks on behalf of the Group. The
underwriting mandates are clearly defined.
Limiting exposure to insurance risk
The Group limits its exposure to insurance risk through an underwriting strategy and limits, adopting appropriate risk
assessment techniques and the reinsurance of risks that exceed its risk appetite. Each of these risk management aspects is
dealt with below in more detail:
Concentration of insurance risk
The Group’s largest portfolio of insurance risks consists of the customer protection insurance it underwrites for the Group’s
retail customers.
Reinsurance risk
The Group has entered into proportional reinsurance agreements to spread the insurance risk and minimise the effect of
underwriting losses, which agreements are with Constantia Insurance Company Limited, a related party, which company
has a Global Credit Rating Co rating of A-. The reinsurer agrees to reimburse the Group when a claim is paid under a risk
that is reinsured. The Group, however, remains liable to its policyholders regardless of whether the reinsurer honours its
obligations in terms of the reinsurance agreement.
Claims development
The development of claims liabilities provides a measure of the ability to estimate the ultimate value of claims. The Group
does not underwrite long-tail risks and consequently the uncertainty about the amount and timing of claim payments is
limited. Regular estimates of claims are performed in reviewing the adequacy of the claims provisions and corrective action
is taken where necessary. Claims development is reviewed by management on a regular basis.
36. RETIREMENT BENEFITS
Pensions
The Group contributes to defined contribution, pension and provident funds. These funds are registered under the Pension Funds
Act, 1956. The schemes are funded by both member and Company contributions, which are charged to the income statement as
they are incurred. During the year the Group contributed R88 million (2005: R48 million) to the schemes.
The defined contribution schemes are exempt from regular actuarial valuations as no actuarial shortfall is anticipated. The defined
benefit schemes require an actuarial valuation as part of their surplus apportionment exercise in terms of the Pension Fund
Amendment Act of 2001 and every three years thereafter.
A statutory actuarial valuation of the defined benefit scheme was performed as at 1 April 2005. The valuation indicated that the
scheme had a surplus of R12,3 million. This surplus will undergo an apportionment exercise and therefore no part of the surplus
has been raised as an asset because of the uncertainty as to the entitlement to the surplus.
The funds cover the eligible employees other than those employees who opt to be or are required by legislation to be members
of various industry funds. Employees may choose which fund they wish to belong to. All eligible employees are members of the
funds.
Post retirement medical benefits
Firstly, the Group operates its own medical aid society which is at present fully funded. Only 3% (2005: 4%) of the Group’s
employees are members of the society. These employees are entitled to remain members of the society after retirement provided
they continue to pay their full monthly contributions. The Group is not obliged to make any post retirement contributions but
is obliged to fund any shortfall in the funding of the society which may arise. A provision has been set aside for the purpose
of meeting any potential excess commitments. In addition, the Group subscribes to a third party medical aid society and the
Group provides certain post retirement benefits by subsidising a portion of the medical aid contributions of retired members. The
liability in respect of post retirement medical benefits which has been fully provided for and included in provisions, amounts to
R13,7 million (2005: R14,0 million).
111
11 2
2006
2005
R’000
R’000
37. RELATED PARTIES
37.1 Transactions with related entities
A portion of the business of Customer Protection Insurance Company Limited, Relyant
Insurance Company Limited and Relyant Life Insurance Limited is reinsured through
subsidiaries of CICL Investment Holdings (Proprietary) Limited. In addition, the day-today operations and management of the insurance subsidiaries and certain consulting is
outsourced to subsidiary companies of CICL Investment Holdings (Proprietary) Limited.
The details of the transactions entered into during the year are as follows:
Constantia Life & Health Assurance Company Limited
Funeral claims recovered
Funeral insurance premiums paid
(21 645)
(28 270)
14 976
20 124
751 078
355 988
(706 841)
(320 169)
Constantia Insurance Company Limited
Premiums reinsured
Claims and commission recovered
Shavian Management Consultants (Proprietary) Limited
Consultancy fees
–
223
6 766
1 648
7 319
7 159
601
1 238
Transqua Administrative Services (Proprietary) Limited
Outsourced fees
37.2 Key management personnel remuneration
Key management personnel are those persons having authority and responsibility for
planning, directing and controlling the activities of the Group, directly or indirectly,
including any director (whether executive or otherwise) of that entity. The members
of the Executive Committee are considered to be key management personnel. No key
management had a material interest in any contract of significance with any parties of
the Group during the year under review.
Remuneration
Retirement and medical contributions
Retention fees
3 081
1 189
Performance bonus
7 945
5 403
Fringe and other benefits
1 049
1 398
Share option gains
34 459
31 636
Total key management personnel remuneration
54 454
48 023
11 3
38. DISCONTINUED OPERATIONS
Prior to the acquisition of Relyant, the Board of Relyant had decided to discontinue trading under the Glick’s brand. The
appropriate impairment and provisions were therefore raised on acquisition of Relyant. The trading losses for the period of
discontinuance were classified as a discontinued operation in 2005.
During the second half of the 2005 financial year, a decision was made to cease the Wetherlys’ operations in Spain. By the
2005 year end this decision had been communicated and two stores had been closed. The last store was closed and the
discontinuance was completed during the last quarter of 2005. The results of the Spanish operations, which were previously
shown under Wetherlys, have been reflected as a discontinued operation in the segmental analysis.
The details of the discontinued operations are as follows:
Wetherlys
Wetherlys
Spain
Glick’s
Spain
Total
2006
2005
2005
2005
Revenue
4 248
64 448
13 619
78 067
Expenses
(6 387)
(67 023)
(25 399)
(92 422)
Loss before taxation
(2 139)
(2 575)
(11 780)
(14 355)
746
–
746
(1 829)
(11 780)
(13 609)
–
2 921
9 093
12 014
182
4 607
2 048
6 655
Cash flow from operating activities
1 058
6 555
(350)
6 205
Cash flow from investing activities
192
510
(51)
459
(7 065)
1 280
(5 785)
Taxation
Loss after taxation
Assets
Liabilities
Cash flow from financing activities
–
(2 139)
(5 088)
11 4
39. ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS
For the year ended 31 August 2005 the Group prepared its financial statements under South African Statements of Generally
Accepted Accounting Practice (SA GAAP). The Group adopted International Financial Reporting Standards (IFRS) during the
current year. As the Group publishes comparative information for one year in its annual report, the date of transition to IFRS is
1 September 2004, which represents the start of the earliest period of comparative information presented. The opening balance
sheet as at 1 September 2004, and the comparatives have been restated to comply with IFRS. There have been no adjustments to
the cash flows previously reported as a result of adoption of IFRS. This restatement complies with the requirements of IFRS 1
(First Time Adoption of International Financial Reporting Standards).
39.1 Effect of first time adoption of IFRS
Although 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.
39.2 Changes in accounting policies and adjustments on adoption of IFRS
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.
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 values of assets at the date of transition (1 September 2004),
– the related depreciation charges and profits or losses on disposal for 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 trade discounts, rebates and other similar items received. The amounts previously offset against operating
expenses in the income statement have been recognised in cost of merchandise sold.
Share options: In terms of IFRS 2 (Share-based payment) share-based 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.
11 5
39. ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (continued)
39.3 Impact of conversion
SA GAAP
IAS 16
IAS 2
IAS 39
IFRS 2
IFRS
R’000
R’000
R’000
R’000
R’000
R’000
927 403
28 087
–
–
–
955 490
261 494
28 087
Goodwill
264 736
264 736
27 988
27 988
373 185
373 185
Restated balance sheet as at
1 September 2004
ASSETS
Non-current assets
Current assets
Inventories
TOTAL ASSETS
2 218 522
–
246 562
289 581
(22 178)
–
–
(22 178)
2 196 344
224 384
1 811 964
1 811 964
159 996
159 996
3 145 925
28 087
(22 178)
–
–
3 151 834
1 902 344
20 019
(15 747)
6 383
–
1 912 999
138 542
138 542
36 440
36 440
371
371
26 892
5 663
32 555
1 700 099
20 019
(15 747)
6 383
(5 663)
1 705 091
461 841
8 068
(6 431)
2 606
–
466 084
Deferred taxation
206 045
8 068
(6 431)
2 606
255 796
Current liabilities
Current portion of interest bearing
borrowings
781 740
210 288
255 796
–
–
229 640
(8 989)
–
(8 989)
772 751
220 651
2 654
2 654
Taxation
16 726
16 726
Provisions
27 608
27 608
505 112
505 112
3 145 925
28 087
(22 178)
–
–
3 151 834
11 6
39.3 Impact of conversion (continued)
Restated balance sheet as at
SA GAAP
IAS 16
IAS 2
IAS 39
IFRS 2
IFRS
R’000
R’000
R’000
R’000
R’000
R’000
2 402 611
27 132
7 008
(2 251)
–
2 434 500
307 111
27 132
Goodwill
805 617
805 617
Trademarks
316 503
316 503
35 644
35 644
31 August 2005
ASSETS
Non-current assets
Deferred taxation
311 813
625 923
Current assets
Inventories
Taxation
TOTAL ASSETS
4 665 473
334 243
7 008
(2 251)
316 570
625 923
–
582 636
(48 239)
–
–
(48 239)
4 617 234
534 397
3 821 242
3 821 242
1 702
1 702
259 893
259 893
7 068 084
27 132
(41 231)
(2 251)
–
7 051 734
4 421 359
19 324
(34 251)
13 187
–
4 419 619
2 195 095
2 195 095
43 272
43 272
(29 545)
(29 545)
10 238
22 276
2 200 499
19 324
(34 251)
13 187
(10 238)
2 188 521
738 482
7 808
(6 980)
3 134
–
742 444
Deferred taxation
286 257
7 808
(6 980)
3 134
452 225
Current liabilities
Current portion of interest bearing
borrowings
12 038
1 908 243
290 219
452 225
–
–
969 968
(18 572)
–
(18 572)
1 889 671
951 396
1 700
1 700
Taxation
40 606
40 606
Provisions
274 737
274 737
621 232
621 232
7 068 084
27 132
(41 231)
(2 251)
–
7 051 734
11 7
39.3 Impact of conversion (continued)
Restated income statement for the
year ended
31 August 2005
SA GAAP
IAS 16
IAS 2
IAS 39
IFRS 2
IFRS
R’000
R’000
R’000
R’000
R’000
R’000
Revenue
4 227 957
4 227 957
Sale of merchandise
2 764 927
2 764 927
Cost of merchandise sold
(1 448 206)
–
(26 061)
9 583
(26 061)
9 583
–
(1 464 684)
Gross profit
1 316 721
1 385 335
1 385 335
(141 649)
(141 649)
Debtors costs
Operating expenses
Advertising
(1 816 153)
(955)
–
–
1 300 243
(4 575)
(122 065)
(67 416)
(1 821 683)
(122 065)
4 535
(62 881)
Cost of employment
(981 867)
Motor and delivery
(133 797)
(133 797)
Property expenses
(252 133)
(252 133)
Administration and other expenses
(258 875)
Operating profit
744 254
(4 575)
(5 490)
(955)
(986 442)
(264 365)
(26 061)
9 583
(4 575)
722 246
7 080
7 080
53 793
53 793
(16 831)
(16 831)
49 613
49 613
Net finance costs
(56 313)
Profit on disposal of owner occupied
properties
Interest received
Interest paid
–
–
–
–
(56 313)
36 075
36 075
(92 388)
(92 388)
781 596
(955)
(26 061)
9 583
Taxation
(204 108)
260
7 557
(2 779)
577 488
(695)
(18 504)
6 804
(4 575)
759 588
(199 070)
shareholders – continuing
operations
(4 575)
560 518
Loss attributable to ordinary
shareholders – discontinued
operations
(13 609)
(13 609)
shareholders
563 879
(695)
(18 504)
6 804
(4 575)
546 909
11 8
2006
2005
R’000
R’000
6 699
4 816
Transfer from income statement
12 521
1 883
Balance at end of year (note 16)
19 220
6 699
2 131
1 202
729 972
559 405
642 136
498 388
Outstanding claims
23 078
17 186
Claims incurred but not yet reported (IBNR)
64 758
43 831
1 187 973
944 569
1 032 536
843 425
50 823
26 183
104 614
74 961
458 001
385 164
Unearned premiums (note 9)
390 400
345 037
Outstanding claims (note 15)
27 745
8 997
Claims incurred but not yet reported (IBNR) (note 16)
39 856
31 130
Customer Protection Insurance Company Limited
58%
65%
Relyant Insurance Company Limited
60%
64%
40. INSURANCE LIABILITIES
40.1 Long-term insurance
Policyholder liabilities
The policyholder liabilities have been included in provisions (note 16).
Movements in the policyholder liabilities during the year are summarised as follows:
Long term insurance outstanding claims (note 16)
40.2 Short-term insurance
Technical assets - reinsurers’ share of technical provisions
Unearned premiums
Technical provisions
Unearned premiums
Outstanding claims
Claims incurred but not yet reported (IBNR)
Net technical assets
Solvency margin
The solvency margin at year end for the short-term insurance subsidiaries was as follows:
40. INSURANCE LIABILITIES (continued)
40.3 Insurance contract provisions
40.3.1 Process used to determine significant assumptions
Underwriting insurance risks incorporate unpredictability and the Group recognises that it is impossible to predict
future claims payable under existing insurance contracts with absolute certainty. To this end, the Group has over
time, developed a methodology that is aimed at establishing insurance provisions that have a reasonable likelihood
of being adequate to settle all its insurance obligations.
40.3.2 Claim provisions
The Group’s outstanding claims provisions include notified claims as well as incurred but not yet reported claims
and due to the short-tail nature of the business it is not considered necessary to discount any of the claims
provisions.
The IBNR provision comprises the Group’s estimate of the undiscounted cost of settling all claims incurred but not
reported at the balance sheet date.
The provision for the notified claims and IBNR are initially estimated at a gross level. A separate calculation is then
carried out to determine the estimated reinsurance recoveries.
The policyholder liabilities in Relyant Life Assurance Limited are determined by the statutory actuary.
40.3.3 Premium provisions on short-term insurance
The Group raises provisions for unearned premiums on a basis that reflects the underlying risk profile of its
insurance contracts. An unearned premium provision is created at the commencement of each insurance contract
and is then released as the risk under the contract expires. The majority of the Group’s short-term insurance
contracts have an even risk profile and therefore the unearned premium provisions are released evenly over the
period of insurance. The provisions for unearned premiums are first determined on a gross level and thereafter the
reinsurance impact is recognised.
40.3.4 Assumptions short-term insurance
The assumptions that have the greatest effect on the measurement of insurance contract provisions are the IBNR
percentages. The percentages are applied to net written premiums. The larger the IBNR percentages applied the
longer the expected period between the date of loss and the claims reporting date. The IBNR percentages used in
the current year was 7%.
11 9
120
Company balance sheet
Notes
2006
2005
R’000
R’000
ASSETS
Non-current assets
Investment in subsidiaries (page 124)
1
TOTAL ASSETS
2 459 965
2 362 931
2 459 965
2 337 764
–
25 167
25 167
–
2 485 132
2 362 931
2
Current liabilities
2 483 477
2 361 855
2 214 363
2 195 237
13 820
13 820
255 294
152 798
1 655
1 076
Shareholders for dividend
469
469
108
445
1 078
121
–
41
2 485 132
2 362 931
Taxation
Company income statement
Revenue
2006
2005
Notes
R’000
R’000
3
456 893
19 691
4 420
1 182
453 438
16 341
–
(21 667)
Operating profit
Dividends received from subsidiaries and associates
Fair value adjustment and write-off of investment in subsidiary
Interest paid
(5)
Profit (loss) before taxation
Taxation
Profit (loss) after taxation
457 853
4
(5 955)
451 898
–
(4 144)
(295)
(4 439)
1 21
Company cash flow statement
Notes
CASH FLOWS FROM OPERATING ACTIVITIES
5
Investment income
Net finance costs
2006
2005
R’000
R’000
103 116
(63 449)
4 083
793
453 438
16 341
(5)
–
Dividends paid
6
(349 402)
(82 284)
Taxation (paid) refunded
7
(4 998)
1 701
(122 201)
40 918
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in investment in associate
–
(Increase) decrease in investment in subsidiaries
8
(1 917)
(122 201)
42 835
19 126
22 536
CASH FLOW FROM FINANCING ACTIVITIES
Net proceeds from issue of shares
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
41
5
(41)
(46)
–
(41)
Company statement of changes in equity
Balance at 1 September 2005
Share
capital
Share
premium
Non–
distributable
reserves
Distributable
reserves
Total
R’000
R’000
R’000
R’000
R’000
3 920
134 794
13 820
239 561
392 095
(4 439)
(4 439)
(82 324)
(82 324)
Net loss for the year
Dividends paid
Issue of shares
2 224
2 054 299
Balance at 1 September 2005
6 144
2 189 093
2 056 523
13 820
Dividends paid
Issue of shares
Balance at 31 August 2006
56
19 070
6 200
2 208 163
152 798
2 361 855
451 898
451 898
(349 402)
(349 402)
19 126
13 820
255 294
2 483 477
122
Notes to the Company annual financial statements
1.
2006
2005
R’000
R’000
Investment at net asset value at acquisition
–
23 250
Additional 2,5% purchased
–
1 917
Total investment in associate
–
25 167
6 110
6 110
4 531
4 531
11
11
452
452
1 116
1 116
162
162
7 548
7 548
13 820
13 820
3 455
3 350
Dividends and interest received
453 438
16 341
Total revenue
456 893
19 691
Current normal
1 528
295
Withholding taxes
4 427
–
Total taxation
5 955
295
%
%
29,00
(29,00)
Decrease in tax rate
(28,72)
(120,37)
Exempt income
(28,72)
(114,37)
INVESTMENT IN ASSOCIATE
CICL Investment Holdings (Proprietary) Limited:
2.
NON-DISTRIBUTABLE RESERVES
Capital surpluses
Acquisition of loans to subsidiaries
Pre-incorporated profits
Rationalisation of subsidiary
Sale of investment in an associated company
Unrealised surpluses arising on revaluation of investment properties
Transfer from share premium
Total non-distributable reserves
3.
REVENUE
Rendering of services
4.
TAXATION
Reconciliation of tax rate
South African standard tax rate
Other
–
(6,00)
1,02
156,49
0,97
–
Other
0,05
156,49
1,30
7,12
Increase in tax rate
Effective tax rate
5.
123
2006
2005
R’000
R’000
457 853
(4 144)
(453 433)
5 326
RECONCILIATION OF PROFIT TO CASH GENERATED FROM OPERATIONS
Profit (loss) before taxation
Adjustments
Fair value adjustment – investment in subsidiary
Dividends received from subsidiaries and associate
Interest paid
Cash generated from operating activities
–
(453 438)
21 667
(16 341)
5
–
4 420
1 182
Decrease in trade and other payables
Total cash generated from operations
6.
Declared for year
Dividends owing at end of year
793
(469)
(429)
(349 402)
(82 324)
469
469
(349 402)
(82 284)
(121)
1 875
(5 955)
(295)
1 078
121
TAXATION (PAID) REFUNDED
Taxation (owing) in advance at beginning of year
Per income statement
Taxation owing at end of year
Total taxation (paid) refunded
8.
4 083
(389)
DIVIDENDS PAID
Dividends owing at beginning of year
7.
(337)
(4 998)
1 701
(INCREASE) DECREASE IN INVESTMENT IN SUBSIDIARIES
Increase in investments in subsidiaries
Net (increase) decrease in subsidiary companies’ amounts owing
–
(122 201)
(2 012 008)
42 524
Fair value adjustment
–
(21 668)
Acquisition of Relyant settled by the issue of shares
–
2 033 987
Total (increase) decrease in investment in subsidiaries
(122 201)
42 835
124
Investment in subsidiaries
Name of subsidiary
Nature of business
DIRECTLY OWNED, INCORPORATED IN SOUTH AFRICA
Benoni Furnishers
Name protection
company
Customer Protection Insurance
Short term insurance
Company Limited
Ellerine Furnishers
Retail furnishers
Ellerine Properties
Property
Ellerine Properties (Flagstaff)
Property
Ellerine Properties (Giyani)
Property
Ellerine Properties (Idutywa)
Property
Ellerine Retail Limited
Investment
Ellerine Services
Investment
Fransconia Investments
Dormant
FurnCity
Name protection
company
Hedgeley Investments
Property
Hedgeley Investments (e)
Property
Jako Furnishers
Name protection
company
Rheingold Furnishers
Name protection
company
Royal Furnishers
Name protection
company
Name protection
company
Town Talk Furnishers (Bushbuckridge) Retail furnishers
(Bushbuckridge) (d)
Volks Furnishers
Name protection
company
Wetherlys Investment Holdings
Investment
Limited
OWNED THROUGH SUBSIDIARY
Amalgamated Furnishers
(Bophuthatswana)
Customer Protection Insurance
Company Limited (Namibia)
Ellerine Credit Finance
Ellerine Furnishers (Namibia)
Ellerine Management Services
Ellerine Personal Finance
Ellerine TM
Ellerines Development (Butterworth)
Ellerines Development (Engcobo)
Ellerines Development (Umtata)
Furnguard Limited (g)
Furnguard Limited (d)
Number
of shares
Shares at cost
(less amounts written off)
2006
2005
R
R
Indebtedness to
(by) holding Company
2006
2005
R’000
R’000
100
200
200
–
–
100 000
800 000
100
4 000
1
38 000
966 367 625
1 000 000
100
10 000 000
1
1
4 000
1
3 800
2 042 075 043
580 000
1 524 171
10 000 000
1
1
4 000
1
3 800
2 042 075 043
580 000
1 524 171
–
239 216
(25 225)
(1 261)
(261)
(572)
275 351
(53 110)
(2 518)
–
360 172
(197 171)
(1 264)
(55)
(565)
200 719
(95 947)
(2 518)
1
100
1
100
9 902 433
1
100
9 902 433
–
23 328
–
–
26 709
–
2
2
2
–
–
1 000
2 000
2 000
–
(2)
2
2
2
–
–
2
2 000
2
70 100
2
70 100
–
(6 661)
–
(6 661)
6 000
6 000 000
6 000 000
–
–
200
200
200
–
–
200 000 000
–
–
–
–
1 171 640
–
–
–
–
200
10
20
100
100
199
4 000
4 000
4 000
300 000
14 700 000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(18 011)
–
(4 052)
–
–
–
(745)
(945)
(1 165)
–
–
(5 275)
–
15 012
–
–
–
(747)
(865)
(1 168)
–
–
Dormant
Finance
Retail furnishers
Management
Finance
Trademark
Property
Property
Property
Dormant
Dormant
Name of subsidiary
Nature of business
Geen & Richards (Swaziland)
HPD Company Limited
McNamee and Company Limited (g)
McNamee and Company Limited (d)
Peninsula Furnishers Limited (g)
Prefsure (Botswana) Limited
Relyant Insurance Company
(Lesotho) (g)
Relyant Insurance Company Limited
Relyant Life Assurance Company
Limited
Relyant Retail (Botswana)
Relyant Retail (Lesotho)
Relyant Retail (Namibia)
Relyant Retail (Swaziland)
Relyant Trading
Triangle Furnishers (Venda)
Wetherlys Spain SL
Retail furnishers
Dormant
Dormant
Dormant
Dormant
Dormant
125
Number
of shares
Shares at cost
(less amounts written off)
2006
2005
R
R
Indebtedness to
(by) holding Company
2006
2005
R’000
R’000
100
3 600
686 588
70 536
4 000
3 089 126
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1 000 000
100 000
–
–
–
–
–
–
–
–
5 000 007
503 000
1 000
2
100
105
1
24
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
DIRECTLY OWNED, INCORPORATED OUTSIDE THE REPUBLIC OF
SOUTH AFRICA
Incorporated in Botswana
Ellerine Furnishers (Botswana)
Retail furnishers
Ellerine Properties (Botswana)
Property
2
2
2
2
2
2
3 266
(6)
(3 621)
(1 538)
Incorporated in Lesotho
Ellerine Furnishers (Lesotho)
FurnCity (Lesotho)
Town Talk Furnishers (Lesotho)
Retail furnishers
Retail furnishers
Retail furnishers
2
2
2
2
2
2
2
2
2
(14 988)
(7 159)
(9 605)
16 899
(9 650)
(13 834)
Incorporated in Swaziland
Ellerines Estates (Swaziland)
Ellerines Furnishers (Swazi)
Property
Retail furnishers
2
2
2
2
2
2
(4 913)
(18 448)
(11 272)
(27 198)
100
–
–
–
–
102 000 000
16 004 135
16 004 135
2 283
11 438
2 086 166 206
2 086 166 206
373 799
251 598
Long term insurance
Retail furnishers
Dormant
Retail furnishers
Retail furnishers
Retail furnishers
Dormant
Retail furnishers
Incorporated in the United Kingdom
Wetherlys UK
Investment
Incorporated in Zambia
Ellerine Furnishers Zambia Limited
Total investment in subsidiaries
Retail furnishers
All above subsidiaries:
a) are (Proprietary) Limited companies except where otherwise indicated
b) are wholly owned
c) all shares are ordinary except as stated in (d)
d) preference shares
e) Hedgeley Investments has a commitment to issue a further 100 shares to an external party in 2011 for a consideration of R28 million. Ellerine Holdings has
acquired the right to these shares.
f) the loans are unsecured and certain of these loans bear interest while others are interest free. There are no fixed terms of repayment.
g) in process of being deregistered.
126
Segmental analysis
DIVISIONAL
Traditional
Retailing
Universal
Retailing
Total
Credit
Wetherlys
Value
Retailing
Total
Cash
Early
Bird
2006
2005
% v LY
2 498 602
2 171 064
15,1
2 414 883
633 006
281,5
4 913 485
2 804 070
75,2
508 716
468 362
8,6
888 168
245 133
262,3
1 396 884
713 495
95,8
69 650
21 352
226,2
2006
2005
% v LY
2 274 222
2 026 037
12,2
1 797 412
481 310
273,4
4 071 634
2 507 347
62,4
257 381
64 753
297,5
257 381
64 753
297,5
2006
2005
% v LY
224 380
145 027
54,7
617 471
151 696
307,0
841 851
296 723
183,7
508 716
468 362
8,6
630 787
180 380
249,7
1 139 503
648 742
75,6
2006
2005
v LY
9,0
6,7
2,3
25,6
24,0
1,6
17,1
10,6
6,5
100,0
100,0
71,0
73,6
(2,6)
2006
2005
% v LY
1 811 597
1 598 778
13,3
1 825 405
475 723
283,7
3 637 002
2 074 501
75,3
502 339
463 283
8,4
820 067
227 143
261,0
1 322 406
690 426
91,5
2006
2005
% v LY
640 076
535 795
19,5
434 801
103 176
321,4
1 074 877
638 971
68,2
76 753
62 142
23,5
72 222
14 383
402,1
148 975
76 525
94,7
4 826
921
424,0
2006
2005
v LY
25,6
24,7
0,9
18,0
16,3
1,7
15,1
13,3
1,8
8,1
5,9
2,2
10,7
10,7
6,9
4,3
2,6
2006
2005
% v LY
43 398
41 340
5,0
17 612
4 154
324,0
61 010
45 494
34,1
8 585
7 610
12,8
5 654
1 250
352,3
14 239
8 860
60,7
3 055
844
262,0
2006
2005
% v LY
2 644 538
2 364 734
11,8
2 032 018
1 822 165
11,5
4 676 556
4 186 899
11,7
197 976
186 802
6,0
349 306
299 577
16,6
547 282
486 379
12,5
16 836
16 291
3,3
2006
2005
% v LY
(207 015)
(197 252)
4,9
(326 542)
(320 885)
1,8
(54 842)
(106 164)
(48,3)
(139 369)
(123 358)
13,0
(194 211)
(229 522)
(15,4)
(9 067)
(8 372)
8,3
2006
2005
% v LY
2 437 523
2 167 482
12,5
1 705 476
1 501 280
13,6
4 142 999
3 668 762
12,9
143 134
80 638
77,5
209 937
176 219
19,1
353 071
256 857
37,5
7 769
7 919
(1,9)
2006
2005
% v LY
27 455
29 387
(6,6)
48 073
13 193
264,4
75 528
42 580
77,4
10 944
10 031
9,1
17 318
3 962
337,1
28 262
13 993
102,0
2 557
2 015
26,9
2006
2005
% v LY
621
606
2,5
442
415
6,5
1 063
1 021
4,1
25
21
19,0
68
62
9,7
93
83
12,0
44
44
2006
2005
% v LY
8 274
8 044
2,9
5 607
5 016
11,8
13 881
13 060
6,3
1 174
1 106
6,1
892
785
13,6
2 066
1 891
9,3
402
399
0,8
2006
2005
% v LY
385 112
379 245
1,5
318 539
291 890
9,1
703 651
671 135
4,8
51 022
45 671
11,7
72 606
70 706
2,7
123 628
116 377
6,2
7 829
5 778
35,5
R’000
INCOME STATEMENT
Revenue
Credit revenue
Cash revenue
69 650
21 352
226,2
Cash revenue %
81,6
90,9
(9,3)
100,0
100,0
Sale of merchandise
Operating profit (loss)
Operating margin %
21,9
22,8
(0,9)
Depreciation
BALANCE SHEET
Assets
Liabilities
(533 557)
(518 137)
3,0
Net assets
Cost to acquire assets
RESOURCES
Number of stores
Number of employees
Retail m2
127
GEOGRAPHICAL
Properties
Financial
Services
Corporate
Continuing
Operations
Group
1 154 665
657 473
75,6
40 474
31 567
28,2
7 575 158
4 227 957
79,2
1 147 896
655 091
75,2
12 555
18 228
(31,1)
Discontinued
Operations
Group
Total
Group
RSA
Foreign
Total
Group
4 248
78 067
(94,6)
7 579 406
4 306 024
76,0
7 077 572
3 900 389
81,5
501 834
405 635
23,7
7 579 406
4 306 024
76,0
5 476 911
3 227 191
69,7
5 067 896
2 890 450
75,3
409 015
336 741
21,5
5 476 911
3 227 191
69,7
5 476 911
3 227 191
69,7
6 769
2 382
184,2
40 474
31 567
28,2
2 098 247
1 000 766
109,7
4 248
78 067
(94,6)
2 102 495
1 078 833
94,9
2 009 676
1 009 939
99,0
92 819
68 894
34,7
2 102 495
1 078 833
94,9
0,6
0,4
0,2
100,0
100,0
27,7
23,7
4,0
100,0
100,0
27,7
25,1
2,6
28,4
25,9
2,5
18,5
17,0
1,5
27,7
25,1
2,6
4 959 408
2 764 927
79,4
4 248
76 270
(94,4)
4 963 656
2 841 197
74,7
4 601 361
2 552 869
80,2
362 295
288 328
25,7
4 963 656
2 841 197
74,7
1 273 151
722 246
76,3
(2 140)
(13 618)
(84,3)
1 271 011
708 628
79,4
1 191 023
651 169
82,9
79 988
57 459
39,2
1 271 011
708 628
79,4
(50,4)
(17,4)
(33,0)
16,8
16,5
0,3
16,8
16,7
0,1
15,9
14,2
1,7
16,8
16,5
0,3
277 284
107 832
157,1
(245 366)
(120 231)
104,1
24,0
16,4
7,6
16,8
17,1
(0,3)
241
240
0,4
1 446
1 384
4,5
8 032
3 390
136,9
88 023
60 212
46,2
66
460
(85,7)
88 089
60 672
45,2
80 777
52 553
53,7
7 312
8 119
(9,9)
88 089
60 672
45,2
24 171
24 209
(0,2)
826 625
823 640
0,4
1 479 637
1 502 302
(1,5)
7 571 107
7 039 720
7,5
12 014
7 571 107
7 051 734
7,4
7 059 329
6 533 101
8,1
511 778
518 633
(1,3)
7 571 107
7 051 734
7,4
(17 939)
(20 261)
(11,5)
(152 626)
(108 066)
41,2
(1 668 733)
(1 741 102)
(4,2)
(2 576 133)
(2 625 460)
(1,9)
(182)
(6 655)
(97,3)
(2 576 315)
(2 632 115)
(2,1)
(2 341 936)
(2 342 495)
(234 379)
(289 620)
(19,1)
(2 576 315)
(2 632 115)
(2,1)
6 232
3 948
57,9
673 999
715 574
(5,8)
(189 096)
(238 800)
(20,8)
4 994 974
4 414 260
13,2
(182)
5 359
(103,4)
4 994 792
4 419 619
13,0
4 717 393
4 190 606
12,6
277 399
229 013
21,1
4 994 792
4 419 619
13,0
500
2 492
(79,9)
1 857
3 820
(51,4)
39 063
37 534
4,1
147 767
102 434
44,3
400
147 767
102 834
43,7
140 655
95 868
46,7
7 112
6 966
2,1
147 767
102 834
43,7
1 270
1 207
5,2
14
1 270
1 221
4,0
1 155
1 096
5,4
115
125
(8,0)
1 270
1 221
4,0
17 357
16 248
6,8
167
17 357
16 415
5,7
15 799
14 743
7,2
1 558
1 672
(6,8)
17 357
16 415
5,7
839 637
796 953
5,4
14 200
839 637
811 153
3,5
767 086
731 822
4,8
72 551
79 331
(8,5)
839 637
811 153
3,5
70
59
18,6
234
198
18,2
4 529
3 663
23,6
774
700
10,6
128
Segmental analysis (continued)
DIVISIONAL
Traditional
Retailing
Universal
Retailing
Total
Credit
Wetherlys
Value
Retailing
2006
2005
v LY
72,5
73,6
(1,1)
75,6
75,2
0,4
74,0
74,0
98,7
98,9
(0,2)
92,3
92,7
(0,4)
2006
2005
% v LY
4 024
3 583
12,3
5 464
4 576
19,4
4 622
3 986
16,0
20 349
22 303
(8,8)
13 061
11 861
10,1
15 020
14 503
3,6
1 583
1 456
8,7
2006
2005
% v LY
301 982
269 899
11,9
430 691
378 592
13,8
353 972
311 645
13,6
433 319
423 474
2,3
995 704
936 814
6,3
676 130
636 574
6,2
173 259
160 541
7,9
2006
2005
% v LY
77 360
66 608
16,1
77 546
61 708
25,7
77 435
64 726
19,6
65 377
56 186
16,4
80 966
54 967
47,3
72 108
55 680
29,5
12 005
6 925
73,4
2006
2005
% v LY
6 488
5 725
13,3
7 581
6 506
16,5
6 983
6 064
15,2
9 971
10 255
(2,8)
12 233
10 401
17,6
11 299
10 344
9,2
8 896
11 086
(19,8)
2006
2005
% v LY
620
626
(1,0)
721
703
2,6
662
657
0,8
2 041
2 175
(6,2)
1 068
1 140
(6,3)
2006
2005
% v LY
3 311 021
2 835 779
16,8
2 314 902
1 951 213
18,6
5 625 923
4 786 992
17,5
3 172
3 358
(5,5)
284 819
214 885
32,5
287 991
218 243
32,0
2006
2005
% v LY
243 678
117 160
108,0
132 500
17 120
673,9
376 178
134 280
180,1
2 199
3 158
(30,4)
9 230
1 219
657,2
11 429
4 377
161,1
2006
2005
v LY
7,4
4,1
3,3
5,7
2,6
3,1
6,7
3,5
3,2
69,3
94,0
(24,7)
3,2
1,7
1,5
4,0
3,1
0,9
2006
2005
% v LY
16,4
16,5
(0,1)
15,5
12,2
3,3
16,0
14,7
1,3
13,4
11,4
2,0
13,4
11,4
2,0
2006
2005
% v LY
604 277
525 966
14,9
243 147
201 760
20,5
847 424
727 726
16,4
17 171
12 699
35,2
17 171
12 699
35,2
2006
2005
v LY
18,3
18,5
(0,2)
10,5
10,3
0,2
15,1
15,2
(0,1)
6,0
5,9
0,1
6,0
5,8
0,2
2006
2005
v LY
6,1
6,1
7,6
7,5
0,1
6,7
6,7
8,0
8,0
8,0
8,0
2006
2005
v LY
20,0
18,0
2,0
20,9
18,0
2,9
20,4
18,0
2,4
19,7
20,0
(0,3)
19,7
20,0
(0,3)
R’000
Total
Cash
Early
Bird
PRODUCTIVITY RATIOS
Merchandise sales:
revenue
94,7
96,8
(2,1)
Revenue per store (*)
Revenue per employee
(Rands) (*)
Operating profit per
employee (Rands) (*)
Revenue per m2
(Rands) (*)
m2 per outlet
1 329
1 402
(5,2)
TRADE RECEIVABLES
Gross trade receivables
Debtors costs
Debtors cost % (*)
Average length of book
in months
Arrears
Arrears %
Collection rate %
Deposit rate %
* Ratios in respect of the Relyant brands for 2005 have been annualised.
178
131
35,9
129
GEOGRAPHICAL
Properties
Financial
Services
Corporate
127 486
105 369
21,0
(37)
22 166
10 617
108,8
Continuing
Operations
Group
Discontinued
Operations
Group
65,5
65,4
0,1
100,0
97,7
2,3
5 965
5 151
15,8
14 783
436 432
382 631
14,1
Total
Group
RSA
Foreign
65,0
65,5
(0,5)
72,2
71,1
1,1
5 968
5 261
13,4
6 128
5 376
14,0
4 364
4 257
2,5
5 968
5 261
13,4
1 239 299
436 677
391 347
11,6
447 976
399 633
12,1
322 101
318 281
1,2
436 677
391 347
11,6
73 351
56 851
29,0
(103 509)
73 228
55 220
32,6
75 386
56 823
32,7
51 340
41 082
25,0
73 228
55 220
32,6
9 022
7 801
15,7
14 575
9 027
7 920
14,0
9 227
8 051
14,6
6 917
6 708
3,1
9 027
7 920
14,0
661
660
0,2
1 014
664
668
(0,6)
631
635
(0,6)
6 041 400
5 110 604
18,2
5 527 014
4 569 709
20,9
514 386
540 895
(4,9)
6 041 400
5 110 604
18,2
396 623
141 755
179,8
354 113
125 330
182,5
42 510
16 425
158,8
396 623
141 755
179,8
6 041 400
5 110 604
18,2
(13 243)
(7 588)
74,5
Total
Group
396 530
141 649
179,9
93
106
(12,3)
65,5
66,0
(0,5)
661
664
(0,5)
65,5
66,0
(0,5)
661
664
(0,5)
17,4
10,1
7,3
6,6
3,5
3,1
6,6
3,5
3,1
6,4
3,4
3,0
8,3
4,6
3,7
6,6
3,5
3,1
21,3
15,5
5,8
16,0
14,6
1,4
16,0
14,6
1,4
16,0
14,7
1,3
16,3
15,9
0,4
16,0
14,6
1,4
24 433
18 847
29,6
889 028
759 272
17,1
889 028
759 272
17,1
772 780
655 019
18,0
116 248
104 253
11,5
889 028
759 272
17,1
19,2
17,9
1,3
14,7
14,9
(0,2)
14,7
14,9
(0,2)
14,0
14,3
(0,3)
22,6
19,3
3,3
14,7
14,9
(0,2)
14,9
13,9
1,0
6,9
6,9
6,9
6,9
6,8
6,9
(0,1)
6,6
6,2
0,4
6,9
6,9
20,4
18,1
2,3
20,4
18,1
2,3
20,4
18,1
2,3
21,6
19,4
2,2
20,4
18,1
2,3
130
Analysis of shareholders
Register date: 25 August 2006
Issued Share Capital: 123 997 044 shares
Number of
shareholders
%
Number of
shares
%
1 695
60,00
615 209
0,50
1 001 - 10 000 shares
666
23,58
2 127 393
1,72
10 001 - 100 000 shares
308
10,90
10 610 455
8,56
100 001 - 1 000 000 shares
132
4,67
37 350 783
30,12
24
0,85
73 293 204
59,10
2 825
100,00
123 997 044
100,00
122
4,32
19 643 860
15,84
39
1,38
36 421
0,03
SHAREHOLDER SPREAD
1 - 1 000 shares
1 000 001 shares and over
DISTRIBUTION OF SHAREHOLDERS
Banks
Close Corporations
Endowment Funds
Individuals
Insurance Companies
34
1,20
369 506
0,30
1 642
58,12
2 003 110
1,62
49
1,73
13 984 862
11,28
Investment Companies
13
0,46
993 386
0,80
Medical Aid Schemes
14
0,50
203 161
0,16
Mutual Funds
142
5,03
21 742 360
17,53
Nominees and Trusts
329
11,65
1 760 262
1,42
Other Corporations
58
2,05
174 937
0,14
Pension Funds
271
9,59
33 848 132
27,30
Private Companies
100
3,54
28 725 857
23,17
Public Companies
Share Trust
11
0,39
78 630
0,06
1
0,04
432 560
0,35
2 825
100,00
123 997 044
100,00
PUBLIC/NON-PUBLIC SHAREHOLDERS
Non-public shareholders
5
0,18
27 888 171
22,49
Directors of the Company
2
0,06
40 300
0,03
Own holdings
1
0,04
2 214 200
1,79
Strategic holdings (more than 10%)
1
0,04
25 201 111
20,32
Share Trust
1
0,04
432 560
0,35
2 820
99,82
96 108 873
77,51
2 825
100,00
123 997 044
100,00
Poco International Holdings SA
25 201 111
20,32
Public Investment Corporation
12 559 655
10,13
Sanlam
8 507 774
6,86
Fidelity
6 464 462
5,21
Public Shareholders
BENEFICIAL SHAREHOLDERS HOLDING 5% OR MORE
1 31
Share performance
Month ended
Ruling
cents
per share
Year high
cents
per share
Year low
cents
per share
General
Retailers
Index
Volume
traded
000
Value
traded
R’000
Number
of trades
6 100
6 310
3 585
22 163
66 962
3 440 259
14 799
Year to August 2005
Average
price
cents
per share
Average index (12 months)
and share price
18 789
September 2005
6 311
6 400
6 070
23 235
October 2005
5 850
6 390
5 680
November 2005
5 950
6 375
5 800
December 2005
6 201
6 450
January 2006
7 700
February 2006
5 070
9 151
575 182
1 426
21 908
2 612
155 392
1 248
5 921
22 416
5 009
305 903
2 036
6 085
5 880
24 944
3 250
198 341
1 183
6 178
7 800
6 200
27 459
6 507
466 379
2 071
7 037
8 515
9 025
7 625
28 031
19 910
1 368 578
2 861
8 260
March 2006
8 500
8 880
7 800
29 219
7 596
628 279
2 821
8 281
April 2006
9 242
9 300
8 450
29 668
10 170
907 522
2 860
8 933
May 2006
8 202
9 449
8 090
26 344
13 401
1 184 360
4 352
8 794
June 2006
6 550
8 455
5 950
22 708
13 561
947 774
4 764
7 265
July 2006
6 600
7 000
6 050
22 521
9 518
619 181
2 487
6 570
August 2006
6 700
7 199
6 240
23 521
7 969
528 809
2 496
6 629
108 654
7 885 700
30 605
62%
129%
107%
Totals
Year on year % change
10%
14%
74%
Average index (12 months)
and share price
% change – average
6 243
24 965
7 151
33%
41%
Ellerines versus general retailers index 7 years
400
350
300
250
200
150
100
50
0
Sep
Jan May Sep
1999 2000 2000 2000
Jan
2001
May
2001
Sep
2001
Jan
2002
May
2002
Sep
Jan May Sep
Jan May Sep
Jan May Sep
Jan May Sep
2002 2003 2003 2003 2004 2004 2004 2005 2005 2005 2006 2006 2006
——— General retailers ——— Ellerines
132
Notice of annual general meeting
Notice is hereby given that the thirty eighth annual general meeting (“annual general meeting”) of the Company will be held in the
boardroom at the company’s head office, Block E, Gillooly’s View Office Park, Osborne Lane, Bedfordview, at 10:h00 on 12 January 2007,
for the following purposes:
1. To receive, consider and adopt the annual financial statements of the Company for the financial year ended 31 August 2006.
2. To re-appoint Grant Thornton as independent auditors of the Company for the ensuing financial year.
3. To re-elect the following directors of the Company:
Mr P J C Squires; and
Mr R B G Sinclair,
who retire by rotation in terms of the Company’s Articles of Association and who being eligible offer themselves for re-election.
Mr T J Chalmers, who also retires by rotation will not be standing for re-election.
A brief curriculum vitae in respect of each director standing for re-election appears on page 16 of the annual report of which this
notice of annual general meeting forms part.
4. To re-elect the following director of the Company:
Mr M Moca;
who was appointed as director of the Company during the financial year ended 31 August 2006 and who, in terms of the Company’s
Articles of Association, retires at this annual general meeting but, being eligible, offers himself for re-election.
A brief curriculum vitae in respect of the director standing for re-election appears on page 16 of the annual report.
As special business, to consider and, if deemed fit, to pass, with or without modification, the following special and ordinary
resolutions:
5. Special resolution number 1: General authority to repurchase shares
“RESOLVED that the directors of the Company be and are hereby authorised, as a general authority in terms of section 85(2) of the
Companies Act, 1973 (“Companies Act”), in their discretion to procure that the Company or subsidiaries of the Company acquire
securities issued by the Company, subject to compliance with the requirements of the JSE Limited (“the JSE”) Listings Requirements,
the Companies Act and the Articles of Association of the Company, provided that:
• the number of securities acquired in any one financial year shall not exceed 10% of the Company’s issued share capital of that
class at the date on which this resolution is passed;
• the acquisition must be effected through the order book operated by the JSE trading system and done without any prior
understanding or arrangement between the Company and the counter party;
• this authority shall lapse on the earlier of the date of the next annual general meeting of the Company or 15 months after the
date on which this resolution is passed;
• the price paid per security may not be greater than 10% above the weighted average of the market value of the securities of that
class for the five business days immediately preceding the date on which an acquisition is made;
• after the acquisition the Company will still comply with paragraphs 3.37 to 3.41 of the JSE Listings Requirements concerning
shareholder spread requirements;
• the Company or the Group will not acquire securities during a prohibited period as defined in paragraph 3.67 of the JSE Listings
Requirements; and
• the Company may only appoint one agent to effect any acquisition on its behalf.
The reason for this special resolution is to authorise the directors, if they deem it appropriate in the interests of the Company, to
procure that the Company or subsidiaries of the Company acquire ordinary shares issued by the Company, subject to the restrictions
contained in the above resolution.
Should the opportunity arise and should the directors deem it to be advantageous to the Company to acquire such shares, it is deemed
appropriate that the directors be authorised to procure that the Company or subsidiaries of the Company acquire the Company’s shares.
The effect of this special resolution will be to authorise the directors of the Company to procure that the Company or subsidiaries of
the company acquire shares issued by the Company.
The directors, after considering the effect of an acquisition of up to 10% of the Company’s issued ordinary shares, are of the opinion
that if such acquisition is implemented:
• the Company and the Group will be able to pay their debts in the ordinary course of business for a period of 12 months after the
date of this notice of annual general meeting;
• the assets of the Company and the Group, fairly valued in accordance with Generally Accepted Accounting Practice, will exceed
the liabilities of the Company and the Group for a period of 12 months after the date of this notice of annual general meeting;
• the ordinary capital and reserves of the Company and the Group will be adequate for the purposes of the business of the Company
and the Group for a period of 12 months after the date of this notice of annual general meeting; and
• the working capital of the Company and the Group will be adequate for a period of 12 months after the date of this notice of
annual general meeting.
• When the Company and/or subsidiaries of the Company has cumulatively repurchased 3% of the initial number of the relevant
class of securities, and for each 3% in aggregate of the initial number of that class acquired thereafter, an announcement will
be made.
133
134
Notice of annual general meeting (continued)
• The Company may not enter the market to proceed with the acquisition until the Company’s sponsor has confirmed the adequacy
of the Company’s working capital for the purposes of undertaking an acquisition of shares issued by the Company in writing to
the JSE.
Please refer to the annual report for the other disclosures required in terms of section 11.26 of the JSE Listings Requirements:
• directors (page 71);
• major shareholders (page 130);
• directors’ interests in securities (page 71); and
• share capital of the Company (page 93)
There have been no material changes in the affairs or financial position of Ellerines’ and its subsidiaries since 31 August 2006.
In terms of section 11.26 of the JSE Listings Requirements, the directors, whose names are given on page 71 of the annual report, are
not aware of any legal or arbitration proceedings, including proceedings that are pending or threatened, that may have or have had
in the recent past, being at least the previous 12 months, a material effect on Ellerines’ financial position.
The directors whose names appear on page 71 of the annual report collectively and individually accept full responsibility for the
accuracy of the information given and certify that to the best of their knowledge and belief there are no facts that have been omitted
which would make any statement false or misleading and that all reasonable enquiries to ascertain such facts have been made and
that this resolution and additional disclosure in terms of section 11.26 of the JSE Listings Requirements pertaining thereto contains
all information required by law and the JSE Listings Requirements.
6. Ordinary resolution number 1: Control of authorised but unissued shares
“RESOLVED that 1 500 000 ordinary shares in the Company (representing 1,2% of the issued share capital of the Company) not
allotted nor issued as at 31 August 2006 be and are hereby placed under the control of the directors to allot and issue these shares in
order to meet Ellerines’ obligation in terms of the Ellerine Employees Share Trust, at such prices and upon such terms and conditions
as they deem fit, subject to the provisions of the Companies Act, the Articles of Association of the Company and the JSE Listings
Requirements, where applicable.”
7. Ordinary resolution number 2: Distribution to shareholders out of share premium
“Resolved that the board of directors of Ellerines’ be and they are hereby authorised by way of general authority to make a payment to
Ellerines’ shareholders as and when they in their opinion deem fit, subject to the Companies Act and specifically to the provisions of
section 90 of the Companies Act, the Company’s Articles of Association, the JSE Listings Requirements, and the following limitations,
namely that-
• this authority is valid until the Company’s next annual general meeting, provided that it shall not extend beyond 15 (fifteen)
months from the date that this authority is given;
• the payment is made pro rata to all share holders;
• the payment shall not exceed 20% of the company’s issued share capital, including reserves but excluding minority interests, and
revaluations of assets and intangible assets that are not supported by a valuation by an independent professional expert acceptable
to the JSE prepared within the last six months, in any one financial year, measured as at the beginning of such financial year.
The Company’s board, having considered the impact that the distribution out of share premium will have on the Company, is of the
opinion that for a period of 12 months from the date of passing of ordinary resolution 2:
• the Company and the Group will be able to pay their debts in the ordinary course of business;
• recognised and measured in accordance with the accounting policies used in the latest audited annual group financial statements,
the assets of the Company and the Group will exceed the liabilities of the Company and its subsidiaries;
• the ordinary capital and reserves of the Company and the Group will be adequate for the purposes of the business of the Company
and the Group;
• the available working capital of the Company and the Group will be adequate for the purposes of the business of the Company
and the Group; and
• the Company’s sponsor has complied with its responsibilities contained in Schedule 25 of the JSE Listings Requirements.
Rationale for the authority
The board of directors of Ellerines’ intend to use the authority, if appropriate, to make a cash payment to shareholders out of share
premium should there be excess cash reserves on hand in the Group.
Other disclosure required in terms of the Listings Requirements is set out under Special Resolution Number 1.
Voting and proxies
A shareholder entitled to attend and vote at the annual general meeting is entitled to appoint a proxy or proxies to attend, speak and
vote in his/her stead. A proxy need not be a shareholder of the Company. For the convenience of registered shareholders of the Company,
a form of proxy is enclosed herewith.
The attached form of proxy is only to be completed by those shareholders who are:
holding Ellerines’ ordinary shares in certificated form; or
are recorded on the electronic sub-register in “own name” dematerialised form.
135
136
Notice of annual general meeting (continued)
Shareholders who have dematerialised their shares through a Central Securities Depository Participant (“CSDP”) or broker and wish to
attend the annual general meeting, must instruct their CSDP or broker to provide them with a Letter of Representation, or they must
provide the CSDP or broker with their voting instructions in terms of the relevant custody agreement/mandate entered into between
them and their CSDP or broker.
Forms of proxy must be lodged with the transfer secretaries of the company at the address given below, by no later than 10:00 on
10 January 2007. Any shareholder who completes and lodges a form of proxy will nevertheless be entitled to attend and vote in person
at the annual general meeting.
By order of the Board
R B G Sinclair
Company Secretary
30 November 2006
Registered office
Transfer secretaries
Computershare Investor Services 2004 (Pty) Limited
Block E
Ground Floor, 70 Marshall Street
Gillooly’s View Office Park
Johannesburg
Osborne Lane
2001
Bedfordview
PO Box 61051
2007
Marshalltown
PO Box 122
2107
Bedfordview
2008
137
General information
FINANCIAL OBJECTIVES
In order to optimise the Group’s overall financial objective of enhancing shareholder wealth by achieving real earnings and dividend
growth, significant emphasis is placed on the management of the following underlying objectives:
Objective
Achievement
2006
2005
> 18,0
16,8
17,1
Return on average shareholders’ equity (%) *
> 20,0
19,0
22,0
Return on average total assets (%) *
> 16,0
17,4
14,0
Return on average funds employed (%) *
> 20,0
23,5
25,0
Gearing (%)
< 35,0
15,5
18,4
* The 2005 ratios have been annualised for the effect of Relyant’s results, which were consolidated for the four months ended 31 August 2005.
SHAREHOLDERS’ CALENDAR
Financial year end
31 August 2006
Annual general meeting
12 January 2007
Preliminary profit announcement published
6 November 2006
Annual financial statements published
30 November 2006
Final distribution declared#
6 November 2006
Interim profit announcement
To be published mid May 2007
Interim dividend
Payable in June 2007
# Salient dates and times pertaining to the capital distribution will be announced following the annual general meeting.
138
Administration
Registered office
Block E
Osborne Lane
Bedfordview, 2007
PO Box 122
Bedfordview, 2008
Tel: +27 (0)11 607 1000
Johannesburg, 2001
PO Box 61051
Marshalltown, 2107
Website address
www.ellerines.co.za
Auditors
Grant Thornton
Attorneys
Cliffe Dekker Inc.
Principal bankers
First National Bank
ABSA Bank
Standard Bank
JSE Limited Sponsor
Nedbank Capital - a division of Nedbank Limited
Registration number
1968/013402/06
Share code
ELH
ISIN number
ZAE000022752
139
Form of proxy
(Registration number 1968/013402/06)
(Incorporated in the Republic of South Africa)
Share code: ELH ISIN Code: ZAE000022752
(“Ellerines” or “the Company”)
For use at the annual general meeting of the holders of ordinary shares in the Company (“Ellerines shareholders”) to be held at the
registered office of Ellerines, Block E, Gillooly’s View Office Park, Osborne Lane, Bedfordview, at 10:00 on 12 January 2007 (“the annual
general meeting”).
Ellerines shareholders who have dematerialised their Ellerines shares through a CSDP or broker must not complete this form of proxy
and must provide their CSDP or broker with their voting instructions, except for Ellerines shareholders who have elected own name
registration in the sub-register through a CSDP or broker, which shareholders must complete this form of proxy and lodge it with the
transfer secretaries.
Holders of dematerialised Ellerines shares wishing to attend the annual general meeting must inform their CSDP or broker of such
intention and request their CSDP/broker to issue them with the relevant authorisation to attend.
I/We
of (address)
being the registered holder/s of ordinary shares in the capital of the Company, hereby appoint (See note 1):
1.
or, failing him/her
2.
or, failing him/her
3. the chairman of the annual general meeting
as my/our proxy to act for me/us at the annual general meeting for the purposes of considering and, if deemed fit, passing, with or
without modification, the resolutions to be proposed thereat and at each adjournment thereof and to vote for and/or against the
resolutions and/or abstain from voting in respect of the ordinary shares registered in my/our name/s in accordance with the instructions/
notes on the reverse side hereof.
In favour
1.
Against
Abstain
Receive, consider and adopt the annual financial statements for the year ended
31 August 2006
2.
Re-appointment of Grant Thornton
3.
Re-election of directors
3.1 Mr P J C Squires
3.2 Mr R B G Sinclair
4.
Confirmation of appointment of directors
4.1 Mr A F F Moca
5.
Special resolution number 1 General authority to repurchase shares
6.
Ordinary resolution number 1 Control of authorised but unissued shares
7.
Ordinary resolution number 2 Distribution to shareholders out of share premium
A member entitled to attend and vote at the annual general meeting may appoint one or more proxies to attend, vote, speak and act in
his stead. A proxy need not be a member of the Company.
Signed at
Signature
assisted by me (where applicable)
(State capacity and full name)
Please use block letters.
Please read the notes on the reverse side hereof.
on
2007
140
Notes
1. This form of proxy must only be used by certificated ordinary shareholders or dematerialised ordinary shareholders who hold
dematerialised ordinary shares with “own name” registrations.
2. Dematerialised ordinary shareholders are reminded that the onus is on them to communicate with their CSDP or broker.
3. An Ellerines shareholder may insert the name of a proxy or the names of two alternative proxies of his/her choice in the spaces
provided, with or without deleting “the chairman of the general meeting”, but any such deletion must be initialled by the
Ellerines shareholder concerned.
If two or more proxies attend the meeting, then that person attending the meeting whose name appears first on the proxy
form, and whose name is not deleted, shall be regarded as the validly appointed proxy.
4. The authority of a person signing a proxy in a representative capacity must be attached to the proxy unless that authority has
already been recorded by the Company’s transfer secretaries or waived by the chairman of the annual general meeting.
5. In order to be effective, proxy forms must reach the registered office of the Company or the Company’s transfer secretaries at
least 48 hours before the time appointed for holding the meeting (excluding Saturdays, Sundays and public holidays).
6. Any alteration or correction made to this form of proxy must be initialed by the signatory/(ies).
7. If this proxy form is returned without any indication as to how the proxy should vote, the proxy will be entitled to vote or
abstain from voting as he thinks fit.
8. The delivery of the duly completed proxy form shall not preclude any member or his duly authorised representative from
attending the meeting, speaking and voting instead of such duly appointed proxy.
9. A minor must be assisted by his/her parent or guardian unless the relevant documents establishing his/her legal capacity are
produced or have been registered by the Company.
10. Where there are joint holders of any shares:
• any one holder may sign this form of proxy; and
• the vote(s) of the senior shareholders (for that purpose seniority will be determined by the order in which the names of
shareholders appear in the Company’s register of members) who tenders a vote (whether in person or by proxy) will be
accepted to the exclusion of the vote(s) of the other joint shareholder(s).
Registered office
Block E
Johannesburg
Osborne Lane
2001
Bedfordview
PO Box 61051
2008
Marshalltown
PO Box 122
2107
Bedfordview
2008

2006 Ellerine Holdings Limited Annual Report

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