| Thu 15 Nov 2001, 0:00 | | Edgars Consolidated Stores Limited - Interim Repor |
|
INTERIM REPORT
SIX MONTHS TO SEPTEMBER 2001
SALIENT FEATURES
COMPARABLE STORE SALES
Rise by 5%
PRIMARY TURNAROUND INITIATIVES COMPLETE
ATTRIBUTABLE EARNINGS
Increase by 14%
INTERIM DIVIDEND
Maintained at 36 cents per share
NET ASSET VALUE PER SHARE EXCEEDS R4O
GEARING RATIO
Reduced further to 0,21
COMMENT
The retail environment
As anticipated, domestic economic activity has remained sluggish. It has
been another difficult six months and clothing, footwear and textile (CFT)
sales are estimated by the Retailers' Liaison Committee to have increased by
only 3%, of which price rises in the sector accounted for just under 2%. The
proliferation of outlets offering cellular products, to an already saturated
handset market - which declined by approximately 30%, impacted negatively on
the success and profitability of existing cellphone retailers.
Group results
The group's property rationalisation programme continued apace and, in spite
of new store openings, retail space was reduced by 4,3% over the past year.
As a result, comparable store sales grew by almost 5% in the six months
under review. The analysis of group sales shows a modest growth of 4,3% in
CFT departments, but highlights a significant 34% decline in cellular
product sales. This performance from the group's core business certainly
surpassed that of the market as a whole while the group's moving annual
share of the CFT market rose marginally during the period.
The benefits of the turnaround strategies are finally materialising, and
reduced costs of credit and selling compensated for the slight deterioration
in gross profit, resulting from additional merchandise clearance costs on
the consolidation of United facias. Accordingly, trading profit rose by 15%
while earnings, excluding Edgars Zimbabwe, improved by 14% on a comparable
basis. More important, however, is the improvement in cash flow per share of
134%, which underpins the quality of these earnings.
At the individual chain level, Edgars, with 24 fewer facias and 4% less
space, increased its CFT turnover by 4% but its cellular sales fell by
almost 17%. A 25% improvement in operating profit confirms that its
restructuring is now substantially complete, and as a predominantly mall
based department store, it is well positioned to serve the fashion needs of
middle to upper income families. The trading profit generated by United
Retail was disappointing as its 5% improvement in apparel sales, out of 5%
less space, was insufficient to absorb the impact of a 43% decline in
cellular revenues. Every Sales House outlet has now been converted into a
multibrand store and the majority of Cuthberts branches have been
incorporated into Jet/Sales House operations. With the bulk of its
repositioning complete, United is now appropriately structured as a discount
operation, offering competitively priced, quality fashion to South Africa's
mass formal market. The recent Markinor survey awarded Edcon the top three
positions in the clothing sector for its retail brands. This confirms that
Edgars, Sales House and Jet all enjoy top of the mind awareness amongst the
consuming public.
The quality of the debtors books continued to improve during the period
under review with almost 80% of debtors now current compared with 75% at the
same time last year. The containment of the net cost of credit was pleasing
as was the progress made by Edcon's financial services division.
Edgars Zimbabwe traded particularly well for the first six months of its
financial year with reported sales and earnings increasing by 55% and 74%
respectively in Zimbabwe dollar terms. Regrettably, the macro economic,
social and political environment in Zimbabwe has deteriorated dramatically,
resulting in a total collapse in its currency and an inability to meet
foreign liabilities and external dividend payments. The board has therefore
resolved to deconsolidate Edgars Zimbabwe from its financial statements and
to account for dividends on a cash receipt basis. The prior year
comparatives have been restated to reflect this. The group's net investment
in Edgars Zimbabwe has been included in other non current assets at
R13,6 million.
In spite of excluding all earnings from Edgars Zimbabwe, the board has
resolved to maintain the interim dividend at last year's level of 36 cents
per share, representing a dividend cover of 2,5 times.
Financial position
Improved merchandise management, resulting in a noteworthy 12% decline in
closing inventories, compared with September last year, and negligible
growth in accounts receivable, boosted cash generated from operating
activities. This, coupled with a restrained capital expenditure programme,
facilitated the repayment of R135 million in interest bearing debt and a
further reduction in the gearing ratio to 0,21 - meaningfully below the
group's self imposed constraint of 0,50.
Directorate
A special welcome is given to Mr. P.L. Wilmot on his appointment to the
board. He retired as Chairman of the board of Deloitte & Touche in August
1999 and is currently deputy Chairman of the Standards Advisory Council of
the International Accounting Standards Board.
STRATE
Dematerialisation of Edcon shares took place during October and the
company's share certificates were no longer good for delivery for
transactions after 22 October 2001. Shareholders who have not submitted
their share certificates are therefore encouraged to dematerialise their
scrip at their earliest convenience.
Prospects
Consumer spending prospects for the festive season - key to a retailer's
success - remain uncertain as South Africa's short term economic outlook
weakens, given the general worsening of global economic activity. In
addition, a measure of Edcon's success in the short term will be its ability
to digest the steep decline in cellular sales, by boosting CFT sales.
Fortunately, however, the impact of the restructuring programme of the last
few years is starting to have a beneficial effect, and on balance, even if
sales growth is limited, a moderate improvement on last year's headline
earnings of 214 cents per share, could be expected.
For and on behalf of the board
W S MacFarlane S M Ross
Chairman Chief Executive Officer
INCOME STATEMENT
2001 2000 2001
26 weeks 26 weeks 52 weeks
September September March
Rm Rm Rm
(excluding (restated (restated
Zimbabwe) excl. excl.
Zimbabwe) Zimbabwe)
Revenue - retail sales 3 087,0 3 074,3 6 557,4
Cost of sales 2 036,2 2 003,1 4 316,6
Gross profit 1 050,8 1 071,2 2 240,8
Depreciation 96,0 107,4 203,8
Occupancy costs 197,2 186,3 369,4
Employment costs 410,1 447,4 926,9
Other operating costs 224,0 223,1 482,7
Trading profit 123,5 107,0 258,0
Net financing costs 44,9 40,3 85,8
Profit before taxation 78,6 66,7 172,2
Taxation 26,3 20,9 51,3
120,9
Earnings attributable to ordinary 52,3 45,8
shareholders
Segmental analysis
Retail sales
Clothing, Footwear and Textiles
Edgars 1 846,7 1 778,5 3 722,1
United Retail 1 038,2 988,2 2 223,4
2 884,9 2 766,7 5 945,5
Cellular products Edgars 84,9 101,9 230,2
United Retail 117,2 205,7 381,7
202,1 307,6 611,9
Total retail sales 3 087,0 3 074,3 6 557,4
Trading profit Edgars 109,9 88,2 228,5
United Retail 36,5 59,2 110,7
Credit and Financial Services
(28,4) (45,8) (93,7)
Other 5,5 5,4 12,5
Group trading profit 123,5 107,0 258,0
September September
2001 2000
Retail space (000m2) Edgars 395 115 410 807
United Retail 300 593 316 509
695 708 727 316
No. of Facias Edgars 183 207
United Retail 456 427
639 634
2001 2000 2001
26 weeks 26 weeks 52 weeks
September September March
Rm Rm Rm
(excluding (restated (restated
Zimbabwe) excl. excl.
Zimbabwe) Zimbabwe)
Weighted average number of
ordinary shares in issue (000) 57 198 57 445 57 445
Earnings per ordinary share
(cents)
attributable earnings basis 91 80 211
headline earnings basis 91 83 214
Dividends per ordinary share 36 36 100
(cents)
This unaudited interim report has been prepared in accordance with the
accounting policies outlined in the audited 2001 annual report and is in
compliance with AC127: Interim Financial Reporting. As there are currently
severe restrictions on the repatriation of dividends from Zimbabwe, the
results of Edgars Stores Limited Zimbabwe have not been consolidated in the
six months under review. To facilitate meaningful analysis, all comparative
figures based on the audited annual financial statements as at 31 March
2001, have been restated by excluding Edgars Zimbabwe. Dividends from
Edgars Zimbabwe will be brought to account on a cash receipt basis. The
impact of this decision on key disclosures, if applied retrospectively to
figures reported last year, is as follows:
September 2000 March 2001
Restated As Restate As
reported d reported
Retail sales (Rm) 3 074,3 3 188,1 6 557,4 6 844,8
Earnings attributable to 45,8 54,5 120,9 150,1
ordinary shareholders (Rm)
Net assets (Rm) 2 905,1 2 945,3 3 124,5 3 207,3
Headline earnings per share 83 98 214 268
(cents)
Gearing 0,25 0,24 0,28 0,25
CASH FLOW STATEMENT
2001 2000 2001
26 weeks 26 weeks 52 weeks
Septembe September March
r Rm Rm
Rm (restated (restated
(excludi excl. excl.
ng Zimbabwe Zimbabwe)
Zimbabwe
)
Cash retained from operating
activities
Trading profit 123,5 107,0 258,0
Depreciation 96,0 107,4 203,8
Other non-cash items 0,6 2,9 2,9
Reduction/(increase) in working
capital requirements 97,9 (23,8) (229,4)
Cash generated from operating 318,0 193,5 235,3
activities
Net financing costs paid (44,9) (40,3) (85,8)
Taxation paid (13,9) (42,3) (95,5)
Cash inflow from operations 259,2 110,9 54,0
Dividends paid (36,8) (55,7) (76,3)
Net cash retained 222,4 55,2 (22,3)
Cash utilised in investment (92,3) (109,2)
activities (78,3)
144,1 (37,1) (131,5)
Cash effects of financing
activities
(Decrease)/increase in shareholder (12,0) 2,0 2,0
funding
(Decrease)/increase in interest (135,2) 37,3 208,6
bearing debt
Net cash (outflow)/inflow from
financing activities (147,2) 39,3 210,6
(Decrease)/increase in cash and
cash equivalents (3,1) 2,2 79,1
Cash and cash equivalents at the
beginning of the period 180,5 99,3 99,3
Currency adjustments 7,9 - 2,1
Cash and cash equivalents at the
end of the period 185,3 101,5 180,5
Cash flow per share (cents) 449 192 92
7
3
BALANCE SHEET
2001 2000 2001
September March
Rm September Rm
(excluding Rm (restated
Zimbabwe) (restated excl.
excl. Zimbabwe)
Zimbabwe)
ASSETS
Non-current assets
Operating assets 733,2 819,7 711,7
Trademarks 1,8 5,9 3,8
Other 60,0 44,3 74,4
Total non-current assets 795,0 789,9
869,9
Current assets
Inventories 1 129,7 1 289,3 1 175,8
Accounts receivable and 2 072,7 1 994,7 2 066,6
prepayments
Cash and cash equivalents 185,3 101,5 180,5
Total current assets 3 387,7 3 385,5 3 422,9
Total assets 4 182,7 4 255,4 4 212,8
EQUITY AND LIABILITIES
Capital and reserves
Ordinary shareholders' equity 2 308,6 2 250,1 2 305,3
Minority interest 0,4 0,4
0,3
Total shareholders' equity 2 309,0 2 250,4 2 305,7
Interest bearing debt 676,5 654,7 818,8
2 985,5 2 905,1 3 124,5
Interest free liabilities
Current 1 041,2 1 240,3 934,1
Deferred taxation 156,0 110,0 154,2
Total interest free liabilities 1 197,2 1 350,3 1 088,3
Total equity and liabilities 4 182,7 4 255,4 4 212,8
Gearing ratios
Net interest bearing debt/
total shareholders' funds 0,21 0,25 0,28
Total liabilities/total 0,81 0,89 0,83
shareholders' funds
Future capital expenditure Rm Rm Rm
Contracted 2,0 70,7 5,7
Authorised but not contracted 80,4 54,3 163,1
Net equity per ordinary share 4 019 3 917 4 013
(cents)
STATEMENT OF CHANGES IN ORDINARY SHAREHOLDERS' EQUITY
2001 2000 2001
September September March
Rm Rm Rm
(excludin (restated (restated
g excl. excl.
Zimbabwe) Zimbabwe) Zimbabwe)
Ordinary shareholders' equity at
the beginning of the year
2 305,3 2 253,0 2 253,0
Share capital issued
Executive share incentive scheme - 2,0 2,0
Share buy back (12,0) - -
Movements in distributable reserves
Earnings attributable to ordinary 52,3 45,8 120,9
shareholders
Ordinary dividends (36,8) (55,7) (76,3)
Reversal of deferred taxation - - 1,3
Movements in non-distributable
reserves
Foreign currency translation 8,4 1,9 6,3
reserve
Other (6,9) 3,1 (1,9)
Ordinary shareholders' equity at
the end of the period
2 308,6 2 250,1 2 305,3
DIRECTORS
Non-executive directors
WS MacFarlane (Chairman)
AJ Aaron
ZB Ebrahim
TN Eboka
JDMG Koolen*
PL Wilmot
*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.1946/022751/6
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) Limited
First Floor, Moorgate
Dunkeld Park
6 North Road, Dunkeld West
PO Box 412468
Craighall
2024
Telephone (011) 280 7900
These results can be viewed on the Internet at http://www.edcon.co.za
INTERIM CASH DIVIDEND
Notice is hereby given that the interim ordinary dividend (No.110) of 36
cents per share in respect of the 26 weeks ended 30 September 2001 has been
declared payable to the holders of ordinary shares appearing in the records
of the company at the close of business on Friday, 28 December 2001. The
dividend is declared payable in the currency of the Republic of South Africa
and in compliance with the requirements of STRATE, the following dates are
applicable:
Last day to trade cum the dividend Wednesday, 19 December 2001
Date trading commences ex the dividend Thursday, 20 December 2001
Record date Friday, 28 December 2001
Date of payment Monday, 31 December 2001
Certificated shareholders may not dematerialise their share certificates
between Wednesday, 12 December 2001 and Friday, 28 December 2001, both dates
inclusive.
On behalf of the board
D.J. Viviers Johannesburg
Group Secretary 15 November 2001
