By James Wells
BRISBANE: Betta Stores Limited (BSL) says its full year financial results released this afternoon confirm that its strategic direction to concentrate on franchising has been successful for the company.
A statement issued this afternoon by BSL chief executive officer, Guy Houghton said the company’s core franchise operations had performed well in the year ended 30 June 2006 despite tough competition in the industry and a poor retail trading environment.
The company’s Betta Electrical, Betta Electrical Superstore and Chandlers franchises generated revenue of $69.9 million, down a marginal 0.7 per cent from a year ago. Earnings before interest and tax however increased significantly to $6.5 million, a rise of 68.5 per cent.
“The positive performance of the core franchise business was more significant given market conditions which included increased competition, weakened consumer sentiment and greater consumer expectations,” said Houghton.
Abnormal costs incurred in selling or closing loss-making businesses (including the company-owned stores) and the poor performance of BSL’s central accounting operations weighed on the overall result, producing a loss of $6.0 million versus a profit (before International Financial Reporting Standards (IFRS) adjustments) of $0.6 million a year ago. Included in this year’s result were provisions totalling $6.5 million covering items including losses on non-core asset sales, onerous contracts, prior period accounting errors and the major impact of aligning with IFRS.
Total group revenue rose 43.8 per cent to $359.7 million predominantly due to the increase in central accounting volumes.
In February 2006 the Board approved a change to the overall strategic direction of the group targeting the core business of franchising. This strategy, which is now well progressed, is aimed at boosting the performance of the group and its franchisees. It includes the introduction of new franchisees, working with existing franchisees to upgrade their businesses to superstore status, refurbishments of smaller stores to achieve a “Best in Town” offer and a greater focus on store compliance.
Working capital was managed down to $4.6 million through careful management, releasing funds to enable total borrowings to be reduced from $47.5 million to $29.3 million during the financial year.
BSL anticipates the use of funds received from the ongoing sale of non-core assets to further reduce these borrowings. To date BSL has sold three stores in Brisbane and a further three in Melbourne. Negotiations are well progressed for the sale of the remaining stores. In April the company sold its interest-free debtor book to GE Capital Finance Pty Ltd for $8.5 million. These funds were used to retire debt.
Net assets were $4.9 million up $0.1 million from the half year.
Houghton said that inconsistencies in accounting data that delayed the release of the half year report were identified and corrected.
"Opening balances for affected assets, liabilities and reserves have been restated and the group has taken steps to ensure these errors do not re-occur," the statement said.
He also said the strong performance of the core franchise business reinforced the Board’s decision during the financial year to focus on this area of the overall business.
"With the completion of the retailing sale program expected by the end of the year, which will free up the group’s resources, the Board and management are confident that the outlook for the group in 2007 and beyond is very positive.".