| Thu 23 Aug 2007, 16:48 | | TRU / TRW - Truworths - Audited Group Results for |
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TRU
TRU
TRU / TRW - Truworths - Audited Group Results for the 52 weeks ended
24 June 2007 and dividend declaration
Truworths International Limited
(Registration number 1944/017491/06)
JSE Limited code: TRU
NSX code: TRW
ISIN: ZAE000028296
Audited Group Results for the 52 weeks ended 24 June 2007
- Merchandise Sales Up 27%
- Headline Earnings Per Share Up 33%
- Operating Profit Up 30%
- Total Dividend Up 35%
COMMENTARY
Truworths International Limited is an investment holding and management company
listed on the JSE Limited and the Namibian Stock Exchange. Its trading
subsidiaries, Truworths, Young Designers Emporium (`YDE`) and Uzzi, are engaged
in the retailing of fashion apparel and related merchandise. Truworths
International Limited and its subsidiaries (`the Group`) operate primarily in
southern Africa.
GROUP RESULTS
The Group experienced excellent trading across all areas of the business and
continued to build on its enduring record of superior earnings growth.
Group sale of merchandise, which includes retail and franchise sales, increased
to R4 858 million. This reflected a 27% increase (25% excluding Uzzi which was
acquired during the period) relative to the corresponding period in 2006.
Headline and basic earnings per share of 248.6 cents equate to a 33% increase
compared to the prior period`s 186.4 cents, in line with the Group`s trading
statement released on SENS on 20 July 2007. Fully diluted headline and basic
earnings per share of 242.5 cents were 34% higher than the 181 cents achieved
in 2006. The return on equity increased to 50% (2006: 44%) and the net asset
value per share increased by 26% to 555 cents. A final dividend of 60 cents a
share has been declared. Total dividends in respect of the period amount to 120
cents, 35% more than those declared in respect of the 2006 period.
Dividend cover remains at 2.1 times headline earnings per share.
Sales growth included comparable store sales growth of 17% with product
inflation of approximately 3.9%. Trading space increased by 12% through the
opening of 16 Truworths emporiums, 23 Identity stores, 2 YDE stores and 5 Uzzi
stores.
Divisional sales growth was as follows:
Sales % change on
Rm prior period
Truworths 3 047 21
Truworths Man 895 24
Daniel Hechter 561 31
Identity 502 39
Uzzi 82 n/a
Group retail sales 5 087 26
Franchise sales 23 44
5 110
IFRS adjustment+ (252) 11
Sale of merchandise 4 858 27
YDE agency sales 201 21
+ Notional interest, staff discount and agency sales.
The gross margin improved to 55% against 54% in the comparable period,
primarily as a consequence of lower markdowns and continued tight management of
inventory levels.
Given the Group`s strong balance sheet, high margins and its unique market
positioning, management implemented a strategy over the past three years to
significantly expand the account base while following established and proven
credit granting criteria which are considered conservative by industry
standards. This strategy involved material investment in credit management
technology, risk management skills and account acquisition costs. Concurrently
store and space expansion opportunities for the various retail formats were
pursued in a buoyant market. The strategy has worked extremely well in that
profits have grown significantly, while margins, volumes and market share have
increased. The growth in volumes has resulted in increases in occupancy, staff
and performance-related incentives and distribution costs. All key productivity
measures improved, including trading densities, sales and profitability per
employee, return on equity and return on invested capital.
The outcomes were as anticipated by management and the strategy has served to
position the Group for an environment which is likely to be more difficult in
the 2008 period.
Operating profit increased by 30% to R1 617 million, with the operating margin
improving from 32.6% to 33.3%.
While continuing to apply strict criteria for credit granting, the Group has
managed to achieve solid growth in new customer accounts and in the active
account base which now comprises approximately 1.7 million accounts. Group
credit sales represented 73% of total Group retail sales while active Truworths
account holders able to purchase were 85% at period end versus 87% in 2006.
Management`s strategy of growing credit in Identity and YDE, increasing the
account base and growing debtors` balances has been successful and has
generated additional profit to the Group. The increases in the Group`s net bad
debt and doubtful debt ratios, which are shown below, are in line with
management`s expectations and compare favourably with industry norms. The Group
has maintained its high qualifying payment percentage (high by industry
standards) and the quality of the debtors` book remains at the better end of
industry norms. The additional interest income earned during the period has
more than offset the increased net bad debt. The allowance for doubtful debts
has been increased to 7.9% of the debtors` book in anticipation of increasing
net bad debt which is likely to follow the significant increase in new accounts
that has been achieved over the last few years.
Key debtor statistics 2007 2006 2005
Net bad debt writeoff as a % to credit sales % 3.6 2.7 2.3
Net bad debt writeoff as a % of debtors` book % 6.6 5.1 4.6
Doubtful debt allowance as a % of debtors` book% 7.9 5.9 5.9
The National Credit Act (NCA), which came into force on 1 June 2007, has
created an additional administrative overlay in relation to the granting of
credit and added to the complexity of systems and processes. It is, however,
too early to determine the impact on the Group`s business.
CASH AND FINANCIAL POSITION
The Group remains in a cash positive position, with cash and cash equivalents
amounting to R216 million at period end. During the period the Group utilised
cash to fund share buybacks and acquisitions, and to expand trading space.
Cash flow per share increased from 114 cents to 187 cents primarily due to the
acceleration in provisional tax payments in the previous period not being
repeated.
SHARE REPURCHASES
During the period 4.5 million shares were repurchased at a total cost of R167
million at an average price of R37.39 per share, and 36.2 million shares,
previously purchased for R274 million, were cancelled. Since the inception of
the buyback strategy 60.7 million shares have been repurchased at a cost of
R896 million and at an average price of R14.76 per share. A total of 43.4
million shares have now been cancelled, while the Group retains a balance of
17.3 million treasury shares.
IMPORT QUOTAS
Trade and Industry ministry imposed quotas in respect of the import of certain
clothing and textiles from China with effect from 1 January 2007, with the
intention of enabling the local manufacturing industry to regain market share.
Given that the Group sources a significant portion of its apparel locally and
was successful through concerted efforts in procuring sufficient merchandise
from alternative sources, quotas had minimal impact on the Group`s turnover and
inventory.
UZZI ACQUISITION
During the period the Group acquired a majority interest in Uzzi, which now
operates 30 stores in the upper-end male fashion market. Trading results to
date have exceeded management`s expectations. The integration of Uzzi into the
Group`s systems and support infrastructures was completed in the second quarter
of calendar year 2007. The Group is likely to exercise its option to increase
its shareholding in Uzzi from 51% to 100% during the 2008 period.
OUTLOOK
Group sale of merchandise for the first eight weeks of the current financial
period is ahead of budget and reflects 18% growth on the prior period. Four
successive interest rate increases totalling 200 basis points during the
period, possible further increases in coming months, together with the still to
be determined impact of the NCA, have resulted in us adopting a more cautious
approach to our sales budgets and cost controls in the coming year.
It is nevertheless still our plan to deliver satisfactory earnings growth,
albeit at a lower rate of growth than 2007. We will, during this period,
upgrade and strengthen our infrastructure in order to capitalize on
opportunities for future growth over the next five years.
H Saven MS Mark
Chairman Chief Executive Officer
23 August 2007
FINAL DIVIDEND
The directors have resolved to declare a final dividend in respect of the
period ended 24 June 2007 in the amount of 60.0 (2006: 45.0) cents per share to
holders of the company`s shares reflected in the company`s register on the
record date, being Friday, 14 September 2007.
The last day to trade in the company`s shares cum dividend is Friday, 7
September 2007. Trading in the company`s shares ex dividend will commence on
Monday, 10 September 2007. The dividend will be paid in South African Rand on
Monday, 17 September 2007.
Consequently no dematerialisation or rematerialisation of the company`s shares
may take place over the period from Monday, 10 September 2007 to Friday, 14
September 2007, both days inclusive.
In accordance with the company`s articles of association, the directors have
determined that dividends amounting to less than 1 000 cents due to any one
holder of the company`s shares held in certificated form will not be paid,
unless otherwise requested in writing, but aggregated with other such amounts
and donated to a charity to be nominated by the directors.
Truworths International Limited: (Registration number 1944/017491/06)
JSE Limited code: TRU NSX code: TRW ISIN: ZAE000028296
Registered office: No. 1 Mostert Street, Cape Town, 8001. PO Box 600, Cape
Town, 8000, South Africa
Lead sponsor in South Africa: Barnard Jacobs Mellet Corporate Finance (Pty)
Limited.
Joint sponsor in South Africa: Standard Bank of South Africa Limited.
Sponsor in Namibia: Old Mutual Investment Services (Namibia) (Pty) Limited
Transfer secretaries: Computershare Investor Services 2004 (Pty) Limited, 70
Marshall Street, Johannesburg 2001. PO Box 61051, Marshalltown 2107, South
Africa or Transfer Secretaries (Pty) Limited, Shop 12, Kaiserkrone Centre,
Post Street Mall, Windhoek. PO Box 2401, Windhoek, Namibia
Auditors: Ernst & Young Inc.
Company secretary: C Durham
Directors: H Saven (Chairman)#, MS Mark (CEO)*, RG Dow#, CT Ndlovu#,
SM Ngebulana#, AE Parfett#, AJ Taylor*, MA Thompson# and WM van der Merwe*
*Executive #Non-executive Independent
GROUP BALANCE SHEETS at 24 June
2007 2006
Rm Rm
ASSETS
Non-current assets 755 574
Property, plant and equipment 455 379
Goodwill 72 52
Intangible assets 55 21
Financial assets 155 122
Deferred tax 18 -
Current assets 2 582 2 060
Inventories 353 290
Trade and other receivables 1 962 1 519
Financial assets 13 -
Prepayments 38 32
Cash and cash equivalents 216 219
Total assets 3 337 2 634
EQUITY AND LIABILITIES
Capital and reserves
Share capital and premium 36 14
Treasury shares (421) (528)
Non-distributable reserve 23 12
Retained earnings 2 756 2 410
Attributable to equity holders of the parent 2 394 1 908
Minority interest 10 -
Total equity 2 404 1 908
Non-current liabilities 97 87
Deferred tax - 11
Post-retirement medical benefit obligation 25 23
Cash-settled compensation liability 23 7
Straight-line operating lease obligation 49 46
Current liabilities 836 639
Trade and other payables 606 460
Minority interest loan 30 -
Provisions 44 32
Tax payable 156 147
Total liabilities 933 726
Total equity and liabilities 3 337 2 634
Number of shares in issue (adjusted for
treasury shares) (millions) 433.5 433.9
Net asset value per share (cents) 555 440
GROUP INCOME STATEMENTS
2007 2006
% Rm Rm
Note change 52 weeks 52 weeks
Revenue 3 26 5 326 4 213
Sale of merchandise 27 4 858 3 816
Cost of sales (2 166) (1 765)
Gross profit 31 2 692 2 051
Net trading expenses 29 (1 420) (1 097)
Other income 95 81
Depreciation and
amortisation (82) (74)
Employment costs (557) (442)
Occupancy costs (333) (272)
Other operating costs (543) (390)
Trading profit 33 1 272 954
Dividends received - 2
Interest received 345 288
Profit before tax 30 1 617 1 244
Tax expense (527) (420)
Profit for the period 32 1 090 824
Attributable to:
Equity holders of the parent 31 1 080 823
Minority interest 10 1
1 090 824
Cents per share:
Dividends 120 89
Final - Payable September 60 45
Interim - Paid March 60 44
Basic and headline earnings (cents) 248.6 186.4
Fully diluted basic and
headline earnings (cents) 242.5 181.0
Weighted average number of
shares in issue (millions) 434.5 441.6
Key ratios
Gross margin (%) 55 54
Net trading expenses to
sale of merchandise (%) 29 29
Trading margin (%) 26 25
Operating margin (%) 33.3 32.6
GROUP CASH FLOW STATEMENTS
2007 2006
Rm Rm
52 weeks 52 weeks
CASH FLOWS FROM OPERATING ACTIVITIES
Cash flow from trading 1 389 1 048
Dividends received - 2
Cash earnings before interest, tax,
depreciation and amortisation 1 389 1 050
Working capital movements (372) (274)
Cash generated from operations 1 017 776
Interest received 345 288
Tax paid (549) (563)
Cash inflow from operations 813 501
Dividends paid (456) (362)
Net cash from operating activities 357 139
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and
equipment to maintain operations (31) (21)
Acquisition of property, plant and
equipment to expand operations (117) (79)
Acquisition of computer software (8) (7)
Proceeds on disposal of property, plant
and equipment - 1
Acquisition of minority interest in subsidiary - (26)
Acquisition of net investment in subsidiary (29) -
Minority shareholder`s loan repaid (4) -
Loans advanced (3) (56)
Loans repaid 4 37
Acquisition of derivative financial instruments (22) (23)
Proceeds on disposal of derivative
financial instruments 4 -
Settlement of cash-settled compensation liability (4) -
Proceeds on disposal of preference shares - 30
Net cash used in investing activities (210) (144)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds on shares issued 22 17
Shares repurchased by subsidiaries (167) (198)
Cost incurred in cancelling shares (3) -
Shares repurchased and cancelled - (200)
Funding of post-retirement benefit obligation (2) (1)
Net cash used in financing activities (150) (382)
Net decrease in cash and cash equivalents (3) (387)
Cash and cash equivalents at the
beginning of the period 219 606
Cash and cash equivalents at the end of
the period 216 219
Key ratios
Cash flow per share (cents) 187 114
Cash equivalent earnings per share (cents) 268 202
Cash realisation rate (%) 70 56
GROUP STATEMENTS OF CHANGES IN EQUITY
24 Jun 25 Jun
2007 2006
Rm Rm
Balance at the beginning of the period 1 908 1 836
Profit for the period 1 080 823
Effective portion of cash flow hedge 9 (3)
Deferred tax on cash flow hedge (2) -
Dividends (456) (360)
Acquisition of minority interest in subsidiary - (12)
Premium on shares issued 22 17
Shares repurchased and cancelled (4) (200)
Shares repurchased (167) (198)
Share option expense 4 6
Dividends paid to minorities - (2)
Profit attributable to minorities 10 1
Balance at the end of the period 2 404 1 908
Comprising:
Share capital and premium 36 14
Treasury shares (421) (528)
Non-distributable reserve 23 12
Retained earnings 2 756 2 410
Attributable to equity holders of the parent 2 394 1 908
Minority interest 10
Total equity 2 404 1 908
NOTES
1 BASIS OF PREPARATION
The information in this announcement has been extracted from the Group`s 2007
audited annual financial statements, which have been prepared in compliance
with International Financial Reporting Standards (`IFRS`) and the South African
Companies Act of 1973.
The Group`s 2007 annual financial statements have been audited by the Group`s
external auditors, Ernst & Young Inc., whose unqualified audit opinion is
available for inspection at the company`s registered office.
The annual financial statements have been prepared in accordance with the going
concern and historical cost bases, except where otherwise indicated in the
Group`s accounting policies. The accounting policies have been applied
consistently throughout the Group and with those applied in the prior period,
except as mentioned in note 2. The presentation and functional currency of the
financial statements is the South African Rand (ZAR) and all amounts are
rounded to the nearest million.
2 ACCOUNTING POLICIES
The Group has adopted the following new and amended IFRS and interpretations
during the period, and such adoption has not had any material effect on the
financial statements of the Group, although in some instances it has given rise
to additional disclosures.
- IAS 1/IAS 19 (AC 166), `Amendment - Actuarial Gains/Losses, Group
Plans/Disclosure`
- IAS 39 (AC 133), `Amendment - The Fair Value Option`
- IAS 39 (AC 133); IFRS 4 (AC 141), `Amendment - Financial Guarantee
Contracts`
- IFRIC 4 (AC 437), `Determining whether an Arrangement contains a Lease`
- IFRIC 8 (AC 441), `Scope of IFRS 2`
- IFRIC 9 (AC 442), `Reassessment of Embedded Derivatives`
The Group has changed its accounting policy in respect of IAS 27, `Consolidated
and Separate Financial Statements` and has chosen to account for shares in
subsidiaries at fair value, in accordance with IAS 39, `Financial Instruments:
Recognition and Measurement`. The Group previously accounted for shares in
subsidiaries at cost. The change in accounting policy has not had any material
effect on the financial statements of the Group.
The Group has reclassified the following items during the period, and these
reclassifications have had no effect on the profit for the prior period:
- provision for incentive-based employment costs previously disclosed
- under other payables, are now disclosed separately;
- goodwill, previously disclosed under intangible assets, is now disclosed
separately;
- other income, previously disclosed under other operating costs, is now
disclosed separately; and
- commission and fraud protection fees are now classified as revenue.
The Group has adopted IFRIC 11 (AC 444), `Group and Treasury Share
Transactions` which is effective for annual periods beginning on or after 1
March 2007, earlier than required, and this adoption has had no impact on the
Group`s financial statements.
Various other IFRS amendments and IFRIC interpretations that have been issued
and are effective have not been adopted by the Group as they are not applicable
to its activities.
2007 2006
Rm Rm %
52 weeks 52 weeks change
3 REVENUE
Sale of merchandise 4 858 3 816 27
Retail sales 4 835 3 800
Franchise sales 23 16
Interest received 345 288
Investment interest 27 31
Trade receivable interest 318 257
Fees earned 95 81
Commission 75 68
Royalties 2 1
Other 18 12
Display fees 21 17
Lease rental income 7 9
Dividends received - 2
5 326 4 213 26
4 BUSINESS COMBINATION
Acquisition of Uzzi (Pty) Limited
On 3 July 2006, the Group acquired 51% of the share capital and of the
shareholder`s loan claim against Uzzi (Pty) Limited (`Uzzi`), a newly formed
company. On this date this company acquired from Uzzi Clothing (Cape) (Pty)
Limited, the Uzzi business which specialises in the retail of upper-end men`s
fashion clothing, as a going concern.
The fair values and the carrying amounts of the identifiable assets and
liabilities of the Uzzi business, at and immediately before acquisition date
respectively, were as follows:
Fair Carrying
value amount
Rm Rm
Property, plant and equipment 3 3
Inventories 7 7
Trade and other receivables 1 1
Cash and cash equivalents 8 8
Trade and other payables (2) (2)
TOTAL 17 17
Trademark 34
Total fair value 51
Cost of the business combination (71)
Goodwill arising on acquisition 20
Uzzi (Pty) Limited financed the cost of the business combination, including
transaction costs of R2 million, with loans from the shareholders, equal to
their respective share in the fair values of the identifiable assets and
liabilities acquired.
The goodwill arising on acquisition is attributable to the Uzzi business`
superior store locations, long-term manufacturer and supplier relationships,
good profitability and cash flow generation, and loyal customer base. These
intangible assets were not separately recognised as it was not possible to
measure their fair values reliably.
Uzzi has achieved the following results since acquisition:
Rm
Revenue 84
Profit before tax 27
There is no material difference in the profit since acquisition, and the profit
had the acquisition taken place at the beginning of the financial period.
Two of the estimated fair values reflected in the 2006 annual financial
statements have been amended during the period. The trademark is now reflected
at R34 million (2006: R20 million) following the valuation thereof by
independent trademark experts and cash and cash equivalents have increased to
R8 million (2006: R2 million) as a result of additional profits in the Uzzi
business prior to the acquisition date.
5 SEGMENT REPORTING
The primary segments of the Group have been identified as the Truworths, Uzzi
and YDE business units with reference to the Group`s internal management
structure. This basis is representative of management`s review processes and
the Group`s financial reporting structures. The source and nature of business
risks and returns are segmented on the same basis. The Group`s main
geographical regions consist of southern Africa, and outside southern Africa,
based on the location of the Group`s customers. Southern Africa comprises South
Africa, Namibia, Swaziland, Botswana and Lesotho.
5.1 Primary segments
2007
Rm Truworths YDE Uzzi Corporate* Total
Segment revenue** 5 150 66 82 28 5 326
Segment result 1 539 28 25 (320) 1 272
Profit/(loss) for the period 1 066 22 19 (17) 1 090
Segment assets*** 4 795 53 67 (1 578) 3 337
Segment liabilities 733 40 67 93 933
2006
Rm
Segment revenue** 4 127 54 - 32 4 213
Segment result 1 194 20 - (260) 954
Profit/(loss) for the period 842 14 - (32) 824
Segment assets*** 3 461 47 - (874) 2 634
Segment liabilities 566 15 - 145 726
5.2 Geographical segments
2007
Rm Southern Africa Other Total
Segment revenue** 5 315 11 5 326
Segment assets*** 3 337 - 3 337
Capital expenditure 210 - 210
2006
Rm
Segment revenue** 4 206 7 4 213
Segment assets*** 2 634 - 2 634
Capital expenditure 120 - 120
* `Corporate` represents unallocated segments and consolidation entries.
** Segment revenue includes trade receivables interest.
*** Segment assets include trade and other receivables.
6 CAPITAL COMMITMENTS
2007 2006
Capital expenditure authorised but not contracted:
Rm Rm
Store development 154 119
Head office refurbishments 12 20
Warehousing facilities 59 3
Computer infrastructure 45 30
270 172
7 EVENTS SUBSEQUENT TO PERIOD-END
No event, material to the understanding of the financial statements, has
occurred between the end of the financial period and date of approval.
TRUWORTHS MAN
DANIEL HECHTER
LTD
Inwear
ELEMENTS TRUWORTHS
TRUWORTHS
JEWELLERY
YDE
IDENTITY
UZZI
These results are available on www.truworths.co.za
together with the investor presentation and webcast thereof
Date: 23/08/2007 16:48:53 Produced by the JSE SENS Department.
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