| Fri 18 May 2001, 0:00 | | Edgars Consolidated Stores Limited - Results |
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SALIENT FEATURES
Edcon retail sales rise 6,6%
Reallocation and rationalisation of space and store brands continue
Headline earnings in line with expectations at interim stage - down 34%
Final dividend 64 cents per share compared with 97 cents last year
Gearing ratio remains low at 0,25
Net asset value per share exceeds R40
The board proposes a limited share buy-back
COMMENT
The retail environment
A significant shift in spending patterns, coupled with a decline in consumer
confidence - particularly amongst lower income customers - impacted
negatively on clothing sales during the year under review. Higher fuel and
transport costs, the proliferation of gambling establishments, the novelty
of the state lottery and disproportionate spending on cellphone
communication, depleted already strained discretionary incomes.
Consequently, clothing, footwear and textile sales are estimated by the
Retailers' Liaison Committee to have increased by less than 5% in the year
to March 2001, compared with the 10% rise reported for the same period last
year. Of importance too, in an overtraded market, is the reality that most
clothing retailers have had to lower their margins in an attempt to maintain
their share of their customers' dwindling clothing spend. The entire sector,
as a result, experienced marginal deflation in prices over the period.
Group results
In the interim announcement in November 2000, the board advised that it
expected the results for the full year to be similar to the 6,5% sales
increase and 33% earnings decrease reported at the halfway mark. In spite
of particularly difficult trading conditions over the past six months, this
projection has been delivered and group sales rose by 6,6%, while with the
continuation of lower gross margins, earnings declined by 34%, after
increasing by an impressive 164% last year.
At the individual chain level, Edgars - with 36 fewer stores and 8% less
trading space - grew sales by 6%. The turnaround programme has continued
apace in Edgars. Service levels have improved, merchandise ranges were
further enhanced and an increasing number of middle to upper income families
now recognise Edgars as the destination for value-priced clothing, footwear,
textiles and accessories, as well as for bona fide brands and appropriate
fashion. Following the introduction of cellular products into Edgars, Edcon
group sales of cellphones and airtime rose by 31% to now represent 9% of
group sales in South Africa.
United Retail had a disappointing second half. Although clothing sales rose
strongly by 9% for the full year, cellular sales declined by 14%. In
response to customer demands and in order to align prices at Sales House and
Cuthberts with those offered by competitors in the discount channel, margins
had to be lowered. This, together with the cost of rationalising the
property portfolio and absorbing 22 stores from Edgars, impacted negatively
on the division's trading profit. United Retail comprising Jet, Sales
House, Cuthberts and Smiley's Wearhouse, continues to strive, through
extremely competitive pricing and convenient locations, to be the leader in
providing the average South African with the most desired quality fashion,
normally only available to the more affluent sections of the consumer
market.
The results from Edgars Zimbabwe were remarkable, given the concerning
deterioration in the socio-political and economic environment and
contributed 17% to group attributable earnings. During the year all
dividends due from this investment have been received.
After increasing by R68 million in the first half, the year-on-year increase
in the cost of credit for the second half was limited to R11 million.
Although the total cost of R94 million was in line with original budgets,
the increase in this cost over the previous year can be ascribed chiefly to
the legislated decline in interest rates, chargeable in terms of the Usury
Act, on customer accounts. Based on an average rate of 30% last year and 25%
for the full year under review, gross interest revenue from customers fell
by R103 million. Bad debt on Edcon's in-house book declined marginally to an
acceptable 3,8% of credit transactions.
In terms of the group's long-standing policy of covering dividends 2,6
times, a final dividend of 64 cents per ordinary share has been declared
bringing the total dividend for the full year to 100 cents.
Financial position
Despite lower trading profitability, the decision was taken to self fund all
new debtor accounts, and the net financing required for the year was R95
million. Gearing closed at 0,25, well below the group's self-imposed
constraint of 0,50. Particularly noteworthy, in the area of working capital
management, has been the minimal growth in inventories. This bears
testimony to meaningful improvements in merchandise planning and
efficiencies in the enhanced supply chain.
Total accounts receivable and prepayments, including debtors owned by
Nedbank, declined; as the Nedbank book - closed to new accounts - decreased
by R340 million over the year. The doubtful debt provision, calculated on a
basis consistent with that used last year, remained at 6,6% of debtors and
is considered by management to be adequate in the light of the steady
improvement in the quality of the book.
Share buy-back
The investor community has been predictably harsh on the retail sector and
the Edcon share has not been immune to this. At year end, Edcon's share at
2 105 cents was trading at a 48% discount to its net asset value of 4 064
cents, more than discounting the current poor macro retail environment.
Consequently, the opportunity to turn this situation to good account has
convinced the board to request shareholders to give approval, at the Annual
General Meeting in July, for a limited share buy-back. Details, with the
required special resolutions, will be included in the Annual Report to be
mailed to shareholders in June.
Prospects
Stringent monetary and fiscal policies in the recent past have ensured that
economic fundamentals in South Africa remain sound. However, with the
export-led growth of the previous year, following an anticipated downturn in
economic activity in our major trading partners, further growth in 2001 will
primarily be dependent upon improved domestic demand.
A lower taxation burden for consumers and the additional government
expenditure announced in the national budget, will lift disposable incomes
in the coming months. This, together with a recent welcome upturn in
consumer confidence, should bolster slightly what is expected to be another
difficult year for clothing retailers.
Despite this background, sales for the year ahead are expected to rise at a
rate marginally above that of general inflation and group budgets anticipate
satisfactory earnings growth, especially as Edcon's turnaround initiatives
gain further momentum.
For and on behalf of the board
W S MacFarlane S M Ross
CHAIRMAN CHIEF EXECUTIVE OFFICER
FINAL CASH DIVIDEND
Notice is hereby given that the final ordinary dividend (No.109) of 64 cents
per share in respect of the year ended 31 March 2001 has been declared
payable to the holders of ordinary shares registered in the books of the
company at the close of business on Friday, 1 June 2001. The dividend is
declared payable in the currency of the Republic of South Africa and
dividend cheques will be posted on or about 29 June 2001.
On behalf of the board
Johannesburg
D J VIVIERS 17 May 2001
Group Secretary
INCOME STATEMENT
2001 2000
March March
52 weeks 52 weeks Change
Rm Rm %
(audited) (audited)
Retail sales 6 844,8 6 423,6 7
Cost of sales 4 498,3 4 100,7
Gross profit 2 346,5 2 322,9
Expenses 2 026,2 1 892,3
Trading profit 320,3 430,6 (26)
Net financing costs 76,8 77,4
Profit before taxation 243,5 353,2
Taxation 75,3 108,3
Profit after taxation 168,2 244,9
Attributable to outside 18,1 18,4
shareholders
Earnings attributable to ordinary 150,1 226,5 (34)
shareholders
Divisional analysis
Retail sales Edgars 3 899,9 3 675,8
United Retail 2 657,5 2 535,3
Zimbabwe 287,4 212,5
Total retail sales 6 844,8 6 423,6
Trading profit Edgars 228,7 223,8
United Retail 110,5 175,5
Zimbabwe 62,3 46,9
Credit and Financial (93,7) (14,9)
Services
Other 12,5 (0,7)
Group trading profit 320,3 430,6
Reconciliation of headline
earnings
Group attributable earnings 150,1 226,5
Plus : loss on disposal of 3,6 7,5
fixed assets and trademarks
net of taxation
Headline earnings 153,7 234,0
Weighted average number of 57 445 57 376
ordinary
shares in issue (000)
Earnings per ordinary share
(cents)
attributable earnings basis 261 395 (34)
headline earnings basis 268 408 (34)
cash equivalent basis 712 780 (9)
Dividends per ordinary share
(cents)
interim 36 55
final 64 97
Total 100 152
This report has been prepared in accordance with the group's published and
consistently applied accounting policies except for the change in the
treatment of dividends with the adoption of AC 107 (revised) and IAS 10.
Dividends to shareholders are now accounted for on the date of declaration.
As a result retained earnings have been restated in the comparatives.
CASH FLOW STATEMENT
2001 2000
March March52
52 weeks weeks
Rm Rm
(audited) (audited)
Cash retained from operating activities
Trading profit 320,3 430,6
Depreciation 207,4 218,0
Other non-cash items 4,7 7,3
Working capital requirements (249,2) (334,9)
Cash generated from operating activities 283,2 321,0
Interest received 14,7 11,2
Financing costs paid (91,5) (88,6)
Taxation paid (101,1) (36,2)
Cash inflow from operations 105,3 207,4
Dividends paid (79,9) (60,6)
Net cash retained 25,4 146,8
Cash utilised in investment activities (120,4) (137,5)
Cash effects of financing activities
Increase in shareholder funding 2,1 0,6
Increase in interest bearing debt 189,5 27,8
Net cash inflow from financing activities 191,6 28,4
Increase in cash and cash equivalents 96,6 37,7
Cash and cash equivalents at the beginning 118,5 81,4
of the year
Currency adjustments 4,5 (0,6)
Cash and cash equivalents at the end of the
year 219,6 118,5
CASH VALUE ADDED STATEMENT
2001 2000
March March
52 weeks 52 weeks
Rm Rm
(audited) (audited)
Cash generated
Cash derived from customers 6 645,3 6 145,6
Cash payments outside the group to
suppliers of
materials, merchandise, facilities and (4 998,0 ) (4 497,6)
services
Cash value added 1 647,3 1 648,0
Cash utilised to:
Remunerate employees for their services 963,5 943,3
Pay direct taxes to the state 101,1 36,2
Provide lenders with a return on monies 91,5 88,6
borrowed
Provide lessors with a return for the 385,9 372,5
use of their premises
Provide shareholders with cash dividends 79,9 60,6
Cash disbursed among stakeholders 1 621,9 1 501,2
Net cash retained 25,4 146,8
BALANCE SHEET
2001 2000
March March
Rm Rm
(audited) (audited)
ASSETS
Non-current assets
Operating assets 735,0 851,5
Trademarks 4,0 8,2
Other 48,0 19,2
Total non-current assets 787,0 878,9
Current assets
Inventories 1 214,6 1 204,7
Accounts receivable and prepayments 2 188,4 1 902,9
Cash and cash equivalents 219,6 118,5
Total current assets 3 622,6 3 226,1
Total assets 4 409,6 4 105,0
EQUITY AND LIABILITIES
Capital and reserves
Ordinary shareholders' equity 2 334,5 2 253,0
Minority interest 51,9 42,4
Total shareholders' funds 2 386,4 2 295,4
Interest bearing debt 820,9 627,8
Total capital employed 3 207,3 2 923,2
Interest free liabilities
Accounts payable 1 038,3 1 062,5
Deferred taxation 164,0 119,3
Total interest free liabilities 1 202,3 1 181,8
Total equity and liabilities 4 409,6 4 105,0
Gearing ratios
Net interest bearing debt/total 0,25 0,22
shareholders' funds
Total liabilities/total shareholders' 0,85 0,79
funds
Future capital expenditure Rm Rm
Contracted 5,7 38,1
Authorised but not contracted 173,5 219,1
Net equity per ordinary share (cents) 4 064 3 927
STATEMENTS OF CHANGES IN ORDINARY SHAREHOLDERS' EQUITY
Share Non- Retained
capital distributab surplus Total
and le
premium reserves
Rm Rm Rm Rm
Restated balance at 31 March 2000 591,2 37,5 1 624,3 2 253,0
Earnings attributable to ordinary 150,1 150,1
shareholders
Ordinary dividends paid (76,3) (76,3)
Foreign currency translation 6,3 6,3
reserve
Increase in reserve relating to 1,1 1,1
lifo adjustment
Derivative valuation adjustment (3,0 ) (3,0 )
Executive share incentive scheme 2,0 2,0
issues
Reversal of deferred taxation 1,3 1,3
Balance at 31 March 2001 53,2 41,9 1 699,4 2 334,5
DIRECTORS
Non-executive directors
WS MacFarlane (Chairman)
AJ Aaron
WF de la H Beck
TN Eboka
ZB Ebrahim
JDMG Koolen+
MI Wyman*
* UK
+ Netherlands
Executive directors
SM Ross** (Chief Executive)
MR Bower
JA Day
GR Evans
Dr U Ferndale
KC van Aardt
**USA
Group Secretary
DJ Viviers
Transfer secretaries
Mercantile Registrars Limited
11 Diagonal Street, Johannesburg 2001
PO Box 1053, Johannesburg 2000
Fax : (011) 370-5271
Telephone : (011) 370-5000
Registered office
Edgars Consolidated Stores Limited
Registration No. 1946/022751/06
Incorporated in the Republic of South Africa
Edgardale, Press Avenue, Crown Mines, Johannesburg 2092
PO Box 100, Crown Mines 2025
Fax : (011) 837-5019
Telephone :(011) 495-6000
Auditors
Ernst & Young
Sponsors
Cazenove South Africa (Pty) Ltd
First Floor, Moorgate
Dunkeld Park
6 North Road, Dunkeld West
P O Box 412468
Craighall
2024
These results can be viewed on the internet at: http://www.edcon.co.za
