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Verimark resumes dividend

Cape Town - Specialist retailer Verimark [JSE:VNK] has capped a long awaited turnaround with a surprise 6 cents per share dividend, after reporting the best six-month trading period in its history.

The market reacted positively to the news, with Verimark shares surging over 40% to 108c in thin Monday morning trade.

Results for the year to end-February released on Monday showed Verimark posting after-tax profits to R13.6m (last year a loss of R3.7m) off a big 38% jump in turnover to R347.5m.

Basic earnings came in at 12.4c/share.

More impressive was that cash inflows from operating activities came in at a reassuring R38.5m - a major swing from a year ago when the company reported cash outflows from operating activities of R5.8m.

The performance justifies efforts by certain shareholders, most notably Brait, to fend off a proposed delisting of Verimark last year. The Van Straaten family, the controlling shareholders of Verimark, made an unsuccessful attempt to buy out minorities at 50c/share.

With R13.7m cash on hand, the 6c/share payout (amounting to about R6.8m) is easily accommodated by Verimark's reinforced balance sheet.

Giving further clarification of the dividend, Verimark explained that the payout policy had been changed from 80% of headline earnings to 50% of attributable profit. 

Best show in 33-year history

Commenting on the performance CEO Mike van Straaten noted that not only had Verimark returned to profitability during this past financial year, but the last six months of the trading year saw the company deliver its best financial performance in its 33-year history.

Trading margins were an impressive 40% - a marked improvement on last year's 34.5% despite the big jump in the revenue line.

He explained that margin was enhanced by the conversion of franchise stores to company-owned stores and the strong rand during the trading period (remembering that much of Verimark's product line is imported).

Provided the rand did not depreciate quickly against major currencies, Van Straaten believed the trading margin was sustainable.

He said the company was cautiously optimistic that the new management team was now ready to continue Verimark's successful track record over the previous three decades.

He pointed out that trading in the first and second halves of the financial year were distinctly different. "In the first half of the financial year the downward trend of the previous three years continued. However, trading in the second half of the financial year resulted in a pre-tax profit of R31.2m – showing the strength of the turnaround in sales."

Van Straaten said the main driver of the company's improved profitability was the surge in product sales - especially over the last six months of the year.

He disclosed that sales in that period increased by 47% compared to the previous period in 2009.

The sales growth came on the back of the further introduction of new products and improved space utilisation at retail outlets, as well as the conversion of certain franchise outlets into corporate stores.

Looking ahead, Van Straaten said the increased level of sales in the last half of the previous financial year had continued into the new financial year.

"This surge in sales has resulted in additional space being committed to Verimark by some of the major retail chains."

 
- Fin24.com 
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