Wrap Text
Condensed consolidated preliminary financial results for the year ended 30 June 2018
REX TRUEFORM GROUP LIMITED
(Formerly Rex Trueform Clothing Company Limited)
(Incorporated in the Republic of South Africa - Registration number: 1937/009839/06)
JSE SHARE CODES: RTO - RTN - RTOP
ISIN: ZAE000250387 - ZAE000250395 - ZAE000250403
("the company" or "Rex")
CONDENSED CONSOLIDATED PRELIMINARY FINANCIAL RESULTS
for the year ended 30 June 2018
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at As at
30 June 30 June
2018 2017
Reviewed Audited
R'000 R'000
ASSETS
Non-current assets 156 090 159 628
Property, plant and equipment 60 721 57 150
Investment property 68 741 71 032
Intangible assets 22 980 24 773
Other investments 829 524
Deferred tax asset 2 819 6 149
Current assets 192 409 169 120
Inventories 92 132 77 842
Trade and other receivables 27 475 28 292
Forward exchange contracts 746 38
Income tax receivable 163 1 301
Accrued operating lease asset 2 859 3 558
Cash and cash equivalents 69 034 58 089
Total assets 348 499 328 748
EQUITY AND LIABILITIES
Capital and reserves 272 507 259 464
Share capital 1 777 1 777
Share premium 25 836 25 836
Treasury shares (117) (117)
Share-based payment reserve (214) (214)
Other reserves 2 086 1 846
Retained earnings 243 139 230 336
Non-current liabilities 19 589 19 731
Post-retirement liability 574 650
Accrued operating lease liability 14 235 15 967
Deferred tax liability 4 780 3 114
Current liabilities 56 403 49 553
Trade and other payables 51 538 46 959
Accrued operating lease liability 4 849 2 570
Income tax payable 16 24
Total equity and liabilities 348 499 328 748
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended Year ended
30 June 30 June
2018 2017
% Reviewed Audited
change R'000 R'000
Revenue 10.8 608 540 549 046
Turnover 11.1 587 632 528 759
Cost of sales (267 730) (237 200)
Gross profit 9.7 319 902 291 559
Other income 2.6 16 241 15 826
Other operating costs 5.0 (322 061) (306 630)
Operating profit 1 765.2 14 082 755
Dividend income 45 21
Finance income 4 622 4 440
Finance costs (53) (133)
Profit before tax 267.8 18 696 5 083
Income tax expense (5 876) (1 908)
Profit for the period 303.8 12 820 3 175
Other comprehensive income
Items that will not be reclassified to profit or loss
Actuarial gain on post-retirement defined benefit plan - 964
Items that are or may be subsequently reclassified to profit or loss
Fair value adjustment on available-for-sale financial assets 240 (52)
Total comprehensive income for the period (net of taxation) 13 060 4 087
Profit attributable to:
Ordinary and "N" ordinary shareholders 12 803 3 158
Preference shareholders 17 17
Profit for the period 12 820 3 175
Total comprehensive income attributable to:
Ordinary and "N" ordinary shareholders 13 043 4 070
Preference shareholders 17 17
Total comprehensive income for the period 13 060 4 087
Reconciliation of headline earnings
Profit attributable to ordinary and "N" ordinary shareholders 12 803 3 158
Adjusted for:
Loss from disposal of property, plant and equipment (net of taxation) 21 421
Headline earnings 12 824 3 579
Basic earnings per ordinary share (cents) 305.9 62.1 15.3
Headline earnings per ordinary share (cents) 257.5 62.2 17.4
Diluted earnings per ordinary share (cents) 305.9 62.1 15.3
Diluted headline earnings per ordinary share (cents) 257.5 62.2 17.4
Weighted average number of equity shares on which
earnings per share is based (000's) 20 621 20 584
Weighted average number of equity shares on which diluted
earnings per share is based (000's) 20 621 20 589
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended Year ended
30 June 30 June
2018 2017
Reviewed Audited
R'000 R'000
Share capital 1 777 1 777
Share premium 25 836 25 836
Treasury shares (117) (117)
Share-based payment and other reserves 1 872 1 632
Opening balance 1 632 1 502
Actuarial gain on post-retirement defined benefit plans - 964
Delivery of treasury shares - (782)
Fair value adjustment on available-for-sale instruments 240 (52)
Retained earnings 243 139 230 336
Opening balance 230 336 232 736
Profit for the year 12 820 3 175
Preference dividends paid (17) (17)
Ordinary dividends paid - (5 558)
Total capital and reserves 272 507 259 464
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended Year ended
30 June 30 June
2018 2017
Reviewed Audited
R'000 R'000
Cash flows from operating activities
Operating profit before working capital changes 40 712 27 197
Working capital changes (8 195) (17 014)
Interest received 4 622 4 440
Interest paid (53) (133)
Dividends paid (17) (5 575)
Dividends received 45 21
Income tax paid 184 (832)
Net cash inflows from operating activities 37 298 8 104
Cash flows from investing activities
Additions to property, plant, equipment and investment property (24 445) (25 555)
Additions to intangible assets (1 908) (3 410)
Proceeds from disposal of property, plant, equipment and investment property - 199
Acquisition of business - (2 939)
Net cash outflows from investing activities (26 353) (31 705)
Cash flows from financing activities
Proceeds from delivery of employee share options - 234
Net cash inflows from financing activities - 234
Net increase/(decrease) in cash and cash equivalents 10 945 (23 367)
Cash and cash equivalents at the beginning of the year 58 089 81 456
Cash and cash equivalents at the end of the year 69 034 58 089
GROUP SEGMENTAL REPORTING
Year ended Year ended
30 June 30 June
2018 2017
Reviewed Audited
R'000 R'000
Revenue
Total external retail revenue 588 173 529 555
Retail segment revenue 592 185 533 329
Intersegment revenue earned (4 012) (3 774)
Total external property revenue 15 700 15 030
Property segment revenue 21 381 20 359
Intersegment revenue earned (5 681) (5 329)
Dividends received 45 21
Interest income 4 622 4 440
Total group revenue 608 540 549 046
Segment operating profit/(loss)
Retail segment profit/(loss) 8 171 (1 923)
Property segment profit 9 984 7 951
Group services operating loss (4 073) (5 273)
Total group operating profit 14 082 755
Depreciation and amortisation
Retail 22 791 21 742
Property 4 046 3 720
Total group depreciation and amortisation 26 837 25 462
Segment assets
Retail 213 844 216 059
Property 78 475 80 797
Group services* 56 180 31 892
Total group assets 348 499 328 748
Segment liabilities
Retail 67 805 61 737
Property 7 019 5 884
Group services* 1 168 1 663
Total group liabilities 75 992 69 284
Capital expenditure
Retail 22 734 23 904
Property 3 619 5 061
Total group capital expenditure 26 353 28 965
* Group services include corporate costs.
OTHER INFORMATION
Year ended Year ended
30 June 30 June
2018 2017
Reviewed Audited
Capital commitments
Authorised - not contracted for (R'000) 12 102 21 553
Authorised - contracted for (R'000) 5 723 7 632
Gross profit margin (%) 54.4 55.1
Operating profit margin (%) 2.4 0.1
Retail segment operating profit/(loss) margin (%) 1.4 (0.4)
NOTES
1 Review of the independent auditor
These condensed consolidated preliminary financial statements of Rex Trueform Group Limited for the
year ended 30 June 2018 have been reviewed by KPMG Inc., who expressed an unmodified review conclusion
thereon. The auditor's report does not necessarily report on all of the information contained in
these financial results. Shareholders are therefore advised that in order to obtain a full
understanding of the nature of the auditor's engagement they should obtain a copy of the auditor's
report together with the accompanying financial statements from the issuer's registered office.
2 Basis of preparation
The condensed consolidated preliminary financial statements are prepared in accordance with the
requirements of the JSE Listings Requirements for preliminary reports and the requirements of the
Companies Act of South Africa. The Listings Requirements require preliminary reports to be prepared
in accordance with the framework concepts and the measurement and recognition requirements of
International Financial Reporting Standards ("IFRS") and the SAICA Financial Reporting Guides as
issued by the Accounting Practices Committee and Financial Pronouncements as issued by the
Financial Reporting Standards Council and to also, as a minimum, contain the information required
by IAS 34: Interim Financial Reporting. The accounting policies applied in the preparation of the
condensed consolidated preliminary financial statements are in terms of IFRS and are consistent
with those applied in the previous consolidated annual financial statements. Comparative figures
are regrouped or restated where necessary in accordance with current year classifications.
This report was prepared under the supervision of the financial director, D Franklin CA (SA).
3 Dividends
A dividend on the 6% cumulative preference shares for the six months ended 30 June 2018 in the
amount of 6 cents per share was declared by the board of directors on 15 June 2018 and was paid
on 9 July 2018. The directors have not proposed a dividend in respect of the ordinary and
"N" ordinary shares.
4 Notes to the financial statements
4.1 Acquisition of business
The group acquired the Queenspark Namibian franchise business, previously operated by a
third party, during the prior financial year for a cash consideration of R2 939 000.
The rationale for the acquisition was to implement an expansion strategy in Namibia.
The assets acquired are listed below and represent their value. No liabilities were acquired.
R'000
Intangible asset 1 100
Property, plant and equipment 500
Inventory 1 339
2 939
4.2 Financial instruments
Financial instruments included in trade and other receivables, trade and other payables and
forward exchange contract assets/liabilities are short term in nature, settled within
12 months, and the carrying value substantially approximates the fair value.
5 Standards and interpretations issued but not yet effective
A number of new standards, amendments to standards and interpretations are effective for annual
periods beginning on or after 1 July 2018, and have not been applied in preparing these financial
statements. Those which may be relevant to the group are set out below. The group does not plan
to adopt these standards early. These will be adopted in the period that they become mandatory.
Effective for the financial year commencing 1 July 2018
IFRS 15: Revenue from Contracts with Customers
IFRS 9: Financial Instruments
Effective for the financial year commencing 1 July 2019
IFRS 16: Leases
IFRS 15: Revenue
IFRS 15, published in May 2014, introduces a new revenue recognition model for contracts with
customers. It replaces IAS 11, IAS 18, IFRIC 13, IFRIC 15, IFRIC 18 and SIC-31. IFRS 15 includes
extensive new disclosure requirements. The standard is effective for the financial year ending
June 2019.
Sales of goods
For the sale of goods, revenue is currently recognised when the goods are purchased, which is
taken to be the point in time at which the customer accepts the goods and the related risks and
rewards of ownership transfer. Revenue is recognised at this point provided that the revenue and
costs can be measured reliably, the recovery of the consideration is probable and there is no
continuing management involvement with the goods. The value of returned goods is considered
immaterial.
Effectively under IFRS 15 revenue will be recognised when a customer obtains control of the goods.
Under IFRS 15 revenue will be recognised for these contracts to the extent that it is probable
that a significant reversal in the amount of cumulative revenue recognised will not occur.
The group does not have a loyalty programme. Lay-byes and gift cards only generate turnover when
a customer takes possession of the goods. In all cases this will only occur when the full purchase
price has been received. The group provides a small amount of goods to certain online retailers
on consignment basis. Revenue in this case is only recognised when the product is sold to the end
customer.
Based on its current and ongoing assessment, management is of the opinion that the requirements
of IFRS 15 will not have a material impact on the financial statements, as currently the revenue
recognition is in line with the IFRS principles.
Transition
However small the impact of the new standard, the group plans to adopt IFRS 15 using the cumulative
effect method, with the effect of initially applying this standard recognised at the date of
initial application (i.e. 1 July 2018). As a result, the group will not apply the requirements
of IFRS 15 to the comparative period presented.
Disclosure
The group has assessed the impact of the new disclosure requirements on its financial statements
and management believes that current disclosures of accounting policies, significant judgement
and estimates and related notes will not change materially as a result of the implementation of
the new standard. No significant changes are expected to systems and processes.
The audit committee will be reviewing and monitoring the group's transition to the new accounting
standards and to ensure proactively promoted compliance to the newly effective accounting standards.
IFRS 9: Financial Instruments
On 24 July 2014 the IASB issued the final IFRS 9: Financial Instruments Standards, which replaces
earlier versions of IFRS 9 as well as IAS 39: Financial Instruments - Recognition and Measurement.
Classification - financial assets
IFRS 9 contains a new classification and measurement approach for financial assets that reflects the
business model in which the assets are managed and their cash flow characteristics. The three
principal classification categories for financial assets are: measured at amortised cost, fair value
through profit or loss ("FVTPL") and fair value through other comprehensive income ("FVOCI").
The standard eliminates the existing IAS 39 categories of held to maturity, loans and receivables
and available for sale.
Based on its assessment, the group does not believe that the new classification requirements will
have a material impact on its accounting for financial assets.
Measurement - Financial assets
IFRS 9 replaces the "incurred loss" model in IAS 39 with a forward-looking "expected credit loss"
("ECL") model. This will require considerable judgement as to how changes in economic factors
affect ECLs, which is required to be determined on a probability-weighted basis. Under IFRS 9
loss allowances will be measured on the lifetime ECLs basis. These are ECLs that result from all
possible default events over the expected life of a financial instrument. The group is in the
process of refining its impairment model under IFRS 9.
The new impairment model will apply to financial assets measured at amortised cost or FVOCI,
except for investments in equity instruments.
The group's trade receivables arise solely from online sales through two contracted online
platforms and which amount to a very small portion of revenue. The trade receivable book
(comprising the two online platforms) is monitored on a monthly basis for any trends. The group
has not experienced any bad or doubtful debt with its current receivable book and is not expecting
any to arise in the future. Therefore, regardless of the judgement that will be required referred
to above, based on its ongoing assessment, the group believes that impairment losses (if any) are
not likely to increase in terms of the scope of the IFRS 9 impairment model.
Classification - financial liabilities
IFRS 9 largely retains the existing requirements in IAS 39 for the classification of financial
liabilities. However, under IAS 39 all fair value changes of liabilities designated as at FVTPL
are recognised in profit or loss, whereas under IFRS 9 these fair value changes are generally
presented as follows:
- the amount of change in the fair value that is attributable to changes in the credit risk of
the liability is presented in OCI; and
- the remaining amount of change in the fair value is presented in profit or loss.
The group has not designated any financial liabilities at FVTPL and it has no current intention
to do so.
Disclosure
IFRS 9 will require extensive new disclosures, in particular with regard to credit risk and ECLs.
The group's assessment included an analysis to identify data gaps against current processes and
the group is in the process of implementing the system and controls changes that it believes will
be necessary to capture the required data.
Transition
Changes in accounting policies resulting from the adoption of IFRS 9 will generally be applied
retrospectively, except as described below.
- The group will take advantage of the exemption allowing it not to restate comparative
information for prior periods with respect to classification and measurement (including impairment)
changes. Differences in the carrying amounts of financial assets and financial liabilities
resulting from the adoption of IFRS 9 will generally be recognised in retained earnings and
reserves as at 1 July 2018.
- The following assessments have to be made on the basis of the facts and circumstances that
exist at the date of initial application (1 July 2018):
- the determination of the business model within which a financial asset is held;
- the designation and revocation of previous designations of certain financial assets as
measured at FVTPL; and
- the designation of certain investments in equity instruments not held for trading as at FVOCI.
The impact assessment on systems and processes is currently under way and management is evaluating
whether any changes to systems and processes are warranted.
IFRS 16: Leases
IFRS 16 replaces the existing lease standard, IAS 17 Leases, and related interpretations. The standard
will be adopted for the first time by the group for the financial year ending 30 June 2020.
The group's property segment will not be significantly impacted as lessor accounting will remain
largely unchanged.
The standard will significantly impact the group's retail segment in which there are currently
seventy store operating leases. Based on the new standard the group will no longer be required
to straight-line operating lease payments, as a result, occupancy costs will decrease. The new
standard will require the recognition of a right of use asset and a corresponding lease liability
resulting in increased depreciation and finance costs. Key metrics in the statement of financial
position and statement of comprehensive income will be affected. Optional exemptions for short-term
leases and leases of low-value items will lessen the impact of the standard.
The group continues to assess the potential impact of the new standard on its consolidated
financial statements, including the assessment of the practical application of the principles contained
in the new standard. The actual impact of applying IFRS 16 on the financial statements in the period of
initial application will depend on, inter alia, future economic conditions including the group's
borrowing rate at 1 July 2019, the criteria that meet the definition of a lease, the composition of
the store lease portfolio and the group's assessment of its intent to exercise lease renewal options.
Once the new standard is adopted, the group will either apply the standard on a full or modified,
with practical expedients allowed per IFRS 16, retrospective basis.
6 Events subsequent to the reporting date
No events material to the understanding of the condensed consolidated preliminary financial
statements have occurred between the financial year-end and the date hereof.
COMMENTARY
Group profile
Rex Trueform Group Limited ("Rex") is invested in the property and retail segments. Its interest in
retail is through its South African subsidiary, Queenspark Proprietary Limited ("Queenspark"),
which operates fashion retail stores across South Africa and Namibia. Rex's interest in property
includes direct property ownership and indirect property investment through a wholly-owned subsidiary,
Queenspark Distribution Centre Proprietary Limited. During the period under review Rex changed its
name to Rex Trueform Group Limited to better reflect the diverse nature of its business.
Group results
The group's performance during the 2018 financial year improved significantly compared to the prior
financial year notwithstanding the weak economic environment. Revenue, mainly driven by the retail
segment, increased by 10.8% to R608.5 million (2017: R549.0 million). The gross profit generated
from the retail segment increased by 9.7% to R319.9 million (2017: R291.6 million). Other group
income, including rental and royalty income, increased by 2.6% and was negatively impacted by the
reduction of third party royalty income. Trading expenses were contained and increased by 5.0%.
The above resulted in the operating profit increasing by 1 765.2% to R14.1 million (2017: R0.8 million).
Profit after tax increased by 303.8% to R12.8 million (2017: R3.2 million) resulting in the earnings
per share increasing by 305.9% to 62.1 cents per share (2017: 15.3 cents per share).
Retail (Queenspark)
The Queenspark strategy includes the introduction of new brands to complement the existing ranges.
A number of new brands, together with new product categories, were introduced during the period
under review in an endeavour to provide an improved offering to customers. This new strategy,
although in its infancy, is progressing well. In line with its longer-term strategy Queenspark
opened ten new stores and closed one store during the financial year, bringing its total number of
stores to 70, excluding one franchise store in Kenya and two online sales platforms.
Retail comparable period
As a result of the implementation of its strategy, the Retail segment turnover increased by 11.1%
to R587.6 million (2017: R528.8 million). Its gross margin decreased marginally to 54.4% (2017: 55.1%)
partly due to more aggressive markdowns. Retail operating costs, which included additional store costs,
increased by 6.2%. The above resulted in a retail operating profit of R8.2 million compared to an
operating loss of R1.9 million in the prior financial year.
Property
The Rex Trueform Office Park complex is the main income-generating operation within the group's
property segment. The operating profit of this segment increased by 25.6% to R10.0 million
(2017: R8.0 million). This improvement in operating profit was largely due to the containment of
operating costs.
Group services
Group services costs decreased by 22.8% to R4.1 million (2017: R5.3 million) in line with the
strategy to reduce the cost base of the group.
Prospects
Retail (Queenspark)
Queenspark is making progress on its strategic initiatives to build new channels of growth and
increase brand awareness. The introduction of third party brands has been well received by the
customer and our new house brands continue to grow and complement our existing ranges. Customer
relationship management has been, and continues to be, a major focus, and we are beginning to reap
the rewards of enhanced customer knowledge and understanding. The introduction of lay-by as a form
of payment has been well received and continues to gain traction. We will continue to open new stores
that are considered feasible, with a view to expanding our footprint both in South Africa and Namibia.
The first seven weeks of the new financial year have exceeded management's expectations and whilst we
are fully aware that we are trading in difficult economic times, we remain confident in our future and
in our ability to deliver sustainable growth and value creation for shareholders.
Property
Rex has the intention to develop two further properties in the medium term, both situated in the
Cape Town area, and is continuing to consider development options in this regard. One of the
undeveloped properties is classified as a heritage site which will limit development opportunities
and has caused a delay in the development process.
MA Golding CEA Radowsky
(Chairman) (Chief Executive Officer)
Cape Town
7 September 2018
Directors: MA Golding+ (Chairman), CEA Radowsky (Chief Executive Officer), D Franklin (Financial Director),
HB Roberts*, PM Naylor*, LK Sebatane*, MR Molosiwa*
+ Non-executive * Independent non-executive
ML Krawitz retired as chairman and as a non-executive director of the company, and RV Orlin and
HJ Borkum retired as independent non-executive directors of the company, with effect from
30 September 2017. MA Golding was elected as the chairman of the board of directors of the company
with effect from 30 September 2017. HB Roberts, LK Sebatane and MR Molosiwa were elected by
shareholders as directors of the company at the annual general meeting of the company held on
17 November 2017. DS Johnson resigned as the financial director of the company with effect from
31 March 2018, at which point a vacancy arose on the board. On 25 May 2018 D Franklin was appointed
as financial director of the company by the board in order to fill such vacancy.
Registered office: 263 Victoria Road, Salt River, Cape Town, 7925
Company secretary: AT Snitcher
Transfer secretaries: Computershare Investor Services Proprietary Limited,
Rosebank Towers, 15 Biermann Avenue, Rosebank, 2196
Sponsor: Java Capital
Date: 07/09/2018 03:55:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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