| Thu 16 May 2002, 0:00 | | Edgars Consolidated Stores Limited - Financial Rep |
|
EDGARS CONSOLIDATED STORES LIMITED
(Registration No: 1946/022751/06)
(Incorporated in the Republic of South Africa)
Share code : ECO
ISIN Code : ZAE000018388
SALIENT FEATURES
Comparable store sales rise by 7%
Headline earnings per share increases by 42%
Final dividend 81 cents per share compares with 64 cents last year
Reduction in working capital of R186 million
Gearing ratio reduces from 0,28 to 0,16
Debtors book to be securitised
COMMENT
The retail environment
The past year has been one of economic uncertainty and upheaval for nations
across the globe. South Africa has been no exception, with the most
significant event being the collapse of the Rand in the last quarter of
2001. The full implications for inflation, of the decline in the currency,
have yet to be felt throughout the economy, but they will certainly be
profound for all consumers.
Domestic economic activity remained sluggish, although sales of Clothing,
Footwear and Textiles (CFT) picked up somewhat in the Christmas season and
in the first quarter of 2002. National CFT sales are estimated by the
Retailers` Liaison Committee to have increased by 6% in the year to March
2002, while statistics indicate that clothing and footwear selling prices
declined by 1% in that period.
Group results
It has been a rewarding year for Edcon. The three year programme to
revitalise the entire organisation has been completed and the stage has now
been reached where the key elements for sustainable growth in the years
ahead are firmly in place.
Retail sales growth of just over 2%, or 7% on a comparable store basis, must
be viewed against the background of lower CFT prices and the 5% reduction in
the group`s retail space. A detailed analysis of sales revenue actually
reflects CFT growth of almost 6%, but a steep fall in cellphone sales of
30%.
More importantly, the Group`s progress is reflected in the 42% increase in
headline earnings per share. This achievement has been made possible by an
improvement in gross profit margin of 93 basis points, a limited increase in
store costs, generally well controlled overheads, a 41% reduction in the net
cost of credit and 26% lower net financing costs. Against this, there were
high increases in information technology expenses and closure costs in the
manufacturing division.
At the individual chain level, Edgars - with 4% less trading space - grew
CFT sales by a pleasing 6%, and improved its gross profit conversion rate.
Virtually no growth in store expenses and a reduction in other overheads
facilitated a 30% rise in trading profit. Productivity measures in
merchandise, space and staff all reflect meaningful improvements. Closing
stocks and prior season carry overs were well below those of last year,
while fresh winter inputs are achieving projected sell-off rates.
In United Retail - the group`s discount channel, incorporating Jet, Sales
House, Cuthberts and Smiley`s Wearhouse - extensive real estate changes had
a negative impact on sales and profitability. Nevertheless, in spite of
trading through 7% less space, United reported CFT sales growth of 5%, but
its cellular sales declined sharply by 36%, as a consequence, inter alia, of
the decision to discontinue selling airtime on credit. United`s gross
profit margin has in fact strengthened and this, coupled with a decline in
overheads, facilitated the 4% growth in trading profit.
The quality of the debtors` books continues to improve and, prior to billing
in March this year, 85% of customers were current and able to purchase,
compared with 82% at the same time last year. Lower bad debt compensated
for a fall in finance charge income while pleasing progress from Edcon`s
financial services division accounted for the significant decline in the net
cost of credit.
A disappointing result from some of the group`s manufacturing operations,
including a clean-out exercise, and the costs of closing several of their
operations, are included in the R28 million loss from manufacturing and
other operations.
Dire economic circumstances in Zimbabwe remain most concerning. In spite of
a particularly good performance from Edgars Zimbabwe, its results have not
been consolidated this year, as there is simply no foreign currency
available in Zimbabwe to extract and, therefore, to account for any benefits
by way of dividend payments. In order to facilitate meaningful comparison,
last year`s figures have been restated to exclude Edgars Zimbabwe.
In terms of the Group`s long-standing policy of covering dividends 2,6
times, a final dividend of 81 cents per ordinary share has been declared,
bringing total dividends for the year up to 117 cents, as compared with 100
cents in the previous year.
Cash flows and financial position
Improved merchandise management, resulting in a noteworthy 16% decline in
year end inventories, coupled with enhanced debtor collections and higher
interest free funding, facilitated the R186 million reduction in working
capital requirements. This, together with cash flows from trading of
R530 million, allowed the group to repay interest bearing debt of
R239 million as well as to fund the cost of repurchasing 10% of the issued
share capital for R142 million. The 31% improvement in the overall wealth
created by the Group through cash value added of some R2 billion, is
particularly encouraging, as is the 10% increase in cash equivalent earnings
per share to 727 cents. These earnings were all realised in cash, as
reflected by the cash flow per share of 1 080 cents - up dramatically from
92 cents last year. Closing gearing at only 0,16 was well below the
previous year`s 0,28. Furthermore, the accounts receivable owned and
financed off balance sheet by Nedcor, were reduced by R141 million to
R1,3 billion.
Securitisation
Edcon has conventionally been characterised as a retailer. However, with a
debtors` book under management of over R3 billion, it is also a significant
credit provider. For many years the Group has endeavoured to unlock value by
separating these two distinct activities. Further to comments made in both
the 2000 and 2001 Annual Financial Statements, the Group has made
significant progress towards the achievement of the long term strategy of
securitising a significant portion of its receivables. Accordingly, the
Board has approved a securitisation transaction which is expected to take
place during July.
A credit rating of Edcon, as a corporate, as well as a detailed analysis of
the account receivable assets expected to be securitised, is being performed
by an international rating agency. Preliminary feedback indicates an
overall rating for Edcon, post the securitisation, within the key investment
grade category, while the senior notes, which represent the majority of the
paper to be issued by the securitisation vehicle, are expected to be awarded
an Aaa rating.
The transaction is expected to be income enhancing for Edcon while at the
same time limiting the Group`s credit and interest rate risk. Cash
generated from the disposal of the securitised assets will be used to repay
debt, both on and off balance sheet, and to fund future expansion
opportunities. Further details of the transaction will be provided in the
Annual Report.
Prospects
Despite recent buoyancy in National clothing sales, it is unlikely that the
reduction in personal taxes announced in the Budget will compensate for the
full inflationary impact of the devaluation in the currency, higher interest
rates and rising fuel costs. Discretionary disposable income is, therefore,
expected to remain under severe pressure throughout the coming year and, in
consequence, clothing purchases will be constrained. As it is now likely
that inflation in the sector will reach double digits for the first time in
many years, national unit sales of clothing may well decline in the year
ahead.
Against this background, a modest increase in Edcon sales in nominal terms
can be expected, but the current positive momentum of the turnaround
programme throughout the Group`s businesses should still facilitate a
meaningful rise in earnings per share for the year ahead.
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.111) of 81 cents
per share in respect of the 52 weeks ended 30 March 2002 has been declared
payable to the holders of ordinary shares appearing in the records of the
company at the close of business on Friday, 5 July, 2002. The dividend is
declared payable in the currency of the Republic of South Africa and, in
compliance with the requirements of the STRATE, the following dates are
applicable:
Last day to trade cum the dividend Friday, 28 June 2002
Date trading commences ex the dividend Monday, 1 July 2002
Record date Friday, 5 July 2002
Date of payment Monday 8 July 2002
Certificated shareholders may not dematerialise their share certificates
between Monday, 24 June 2002 and Friday 5 July 2002, both dates inclusive.
On behalf of the board Johannesburg
D J VIVIERS 16 May 2002
Group Secretary
INCOME STATEMENT
52 weeks 52 weeks Chan
to March to March ge
2002 2001 %
(audited (restate
) d excl.
Rm Zimbabwe
) Rm
Retail sales revenue 6 709,8 6 557,4 2
Cost of sales 4 264,1 4 227,9
Gross profit 2 445,7 2 329,5 5
Store costs 1 381,1 1 367,7 1
Cost of credit 55,2 93,7 (41)
Other net operating costs 680,8 610,1 12
Trading profit 328,6 258,0 27
Net financing costs 63,5 85,8 (26)
Profit before taxation 265,1 172,2
Taxation 93,4 51,3
Earnings attributable to ordinary
shareholders 171,7 120,9 42
Segmental analysis
Retail sales revenue
Clothing, Footwear and Textiles
Edgars 3 939,4 3 722,1 6
United Retail 2 339,0 2 223,4 5
6 278,4 5 945,5 6
Cellular products
Edgars 185,8 230,2 (19)
United Retail 245,6 381,7 (36)
431,4 611,9 (30)
Total 6 709,8 6 557,4 2
INCOME STATEMENT /continued
52 weeks 52 weeks Change
to March to March %
2002 2001
(audited) (restated
Rm excl.
Zimbabwe)
Rm
Trading profit Edgars 296,4 228,5 30
United Retail 115,5 110,7 4
Credit and Financial Services (55,2) (93,7) (41)
Manufacturing and other (28,1) 12,5
Total 328,6 258,0
Retail space (m2) Edgars 391 566 406 296 (4)
United Retail 289 495 311 705 (7)
681 061 718 001 (5)
Number of facias Edgars 166 199
United Retail 557 425
723 624
Weighted average number of ordinary 56 667 57 445
Shares in issue, excluding treasury
shares (000)
Earnings per ordinary share (cents)
Attributable earnings basis 303 211 44
Headline earnings basis 304 214 42
Cash equivalent basis 727 650 12
Dividends per ordinary share (cents)
Interim 36 36
Final 81 64
Total 117 100
CASH FLOW STATEMENT
52 weeks 52 weeks
to March to March
2002 2001
(audited) (restated
Rm excl.
Zimbabwe)
Rm
Cash retained from operating activities
Trading profit (excl. dividends 325,1 256,9
received)
Depreciation and amortisation 198,7 203,8
Dividends received 3,5 1,1
Other non-cash items 2,7 2,9
Cash "EBITDA" 530,0 464,7
Reduction in working capital 185,7 (229,4)
requirements
Cash generated from operating activities 715,7 235,3
Interest received 8,8 6,8
Financing costs paid (72,3) (92,6)
Taxation paid (40,0) (95,5)
Cash inflow from operations 612,2 54,0
Dividends paid (57,2) (76,3)
Net cash retained 555,0 (22,3)
Cash utilised in investment activities (159,8) (109,2)
Cash effects of financing activities
Decrease in shareholder funding (141,5) 2,0
Decrease in interest bearing debt (238,7) 208,6
Net cash outflow from financing (380,2) 210,6
activities
Increase in cash and cash equivalents 15,0 79,1
Cash and cash equivalents at the 180,5 99,3
beginning of the year
Currency adjustments 20,0 2,1
Cash and cash equivalents at the end of 215,5 180,5
the year
Cash flow per share (cents) 1 080 92
CASH VALUE ADDED STATEMENT
52 weeks 52 weeks Chang
to March to e
2002 March %
(audited) 2001
Rm (restated
excl.
Zimbabwe)
Rm
Cash generated
Cash derived from customers 6 727,2 6 391,5
Cash payments outside the group to
suppliers of materials, merchandise, (4 706,2) (4 853,1)
facilities and services
Wealth created through cash value added 2 021,0 1 538,4 31
Cash utilised to:
Remunerate employees for their services 890,5 926,9
Pay direct taxes to the state 40,0 95,5
Provide lenders with a return on monies 72,3 92,6
borrowed
Provide lessors with a return for the 406,0 369,4
use of their premises
Provide shareholders with cash 57,2 76,3
dividends
Cash disbursed among stakeholders 1 466,0 1 560,7
Net cash retained 555,0 (22,3)
BALANCE SHEET
At March At March
2002 2001
(audited) (restated
excl.
Rm Zimbabwe)
Rm
ASSETS
Non-current assets
Operating assets 825,8 711,7
Trademarks - 3,8
Other 89,9 74,4
Total non-current assets 915,7 789,9
Current assets
Inventories 993,2 1 175,8
Trade accounts receivable 1 757,8 1 789,7
Other accounts receivable and prepayments 269,0 276,9
Cash and cash equivalents 215,5 180,5
Total current assets 3 235,5 3 422,9
Total assets 4 151,2 4 212,8
EQUITY AND LIABILITIES
Capital and reserves
Ordinary shareholders` equity 2 296,8 2 305,3
Minority interest 0,6 0,4
Total shareholders` funds 2 297,4 2 305,7
Interest bearing debt 575,0 818,8
Total capital employed 2 872,4 3 124,5
Interest free liabilities
Accounts payable 1 104,3 934,1
Deferred taxation 174,5 154,2
Total interest free liabilities 1 278,8 1 088,3
Total equity and liabilities 4 151,2 4 212,8
Gearing ratios
Net interest bearing debt/total 0,16 0,28
shareholders` funds
Total liabilities/total shareholders` 0,81 0,83
funds
Future capital expenditure Rm Rm
Contracted 6,5 5,7
Authorised but not contracted 151,0 163,1
Net equity per ordinary share (cents) 4 431 4 013
STATEMENT OF CHANGES IN ORDINARY SHAREHOLDERS` EQUITY
Share Non- Retain
capital distrib ed Total
and utable surplu
premium reserve s
s
Rm Rm Rm Rm
Restated balance at 31 March 2001
593,2 41,9 1 2
670,2 305,3
Earnings attributable to ordinary 171,7 171,7
shareholders
Ordinary dividends paid (57,2) (57,2)
Transfer from non distributable to (2,0) 2,0 -
distributable reserves
Foreign currency translation reserve 7,8 7,8
Revaluation of fixed assets net of 6,7 6,7
deferred tax
Decrease in reserve relating to lifo (0,3) (0,3)
adjustment
Derivative valuation adjustment 4,3 4,3
Share buy back (141,5) (141,5
)
451,7 58,4
Balance at 30 March 2002
1 2
786,7 296,8
This report has been prepared in accordance with the group`s published and
consistently applied accounting policies, which comply with South African
Statements of Generally Accepted Accounting Practice and International
Accounting Standards. As mentioned in the interim report there are currently
severe restrictions on the repatriation of dividends from Zimbabwe,
consequently, the results of Edgars Stores Limited Zimbabwe have not been
consolidated in the year under review. In order to facilitate meaningful
analysis, all comparative figures, based on the audited 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:
March 2001
Restated As reported
(excl (incl
Zimbabwe) Zimbabwe)
Retail sales (Rm) 6 557,4 6 844,8
Earnings attributable to ordinary
shareholders (Rm) 120,9 150,1
Net assets (Rm) 3 124,5 3 207,3
Headline earnings per share (cents) 214
Gearing 0,28 0,25
DIRECTORS
Independent non-executive directors
WS MacFarlane (Chairman)
AJ Aaron
TN Eboka
ZB Ebrahim
JDMG Koolen *
PL Wilmot
* Netherlands
Executive directors
SM Ross** (Chief Executive)
MR Bower
Dr U Ferndale
JL Spotts**
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
Wanderers Office Park,
52 Corlett Drive, Illovo 2196
Sponsors
Cazenove South Africa (Proprietary) Limited
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
Date: 16/05/2002 03:56:00 PM Produced by the SENS Department
