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Truworths International Limited - Audited Group Results For The Period Ended 30
Release Date: 21/08/2003 16:54:32 Code(s): TRU
Truworths International Limited - Audited Group Results for the period ended 30
June 2003
TRUWORTHS INTERNATIONAL LIMITED
(Registration no. 1944/017491/06)
("the company")
JSE Code : TRU
NSX Code : TRW
ISIN Code : ZAE000028296
AUDITED GROUP RESULTS for the period ended 30 June 2003
- SALES UP 16.2% TO R2.3 BILLION
- ANNUAL DIVIDENDS UP 54.5%
- HEADLINE EARNINGS PER SHARE UP 35.0%
- FURTHER INCREASE IN OPERATING MARGINS
INCOME STATEMENTS
Audited Audited
52 weeks 53 weeks
2003 2002 %
Note Rm Rm change
Revenue 3 2 460.7 2 084.2
Sale of merchandise 2 306.0 1 984.0 16.2
Cost of sales (1 140.5) (949.2)
Gross profit 1 165.5 1 034.8
Expenses 4 (759.3) (672.1)
Trading profit 406.2 362.7 12.0
Dividends received 2.2 5.8
Interest received 142.4 84.2
Profit before finance costs,exceptional items and taxation
550.8 452.7
Finance costs (0.5) (0.2)
Profit before exceptional items and taxation 550.3 452.5
21.6
Exceptional items 5 (1.3) 5.3
Profit before taxation 549.0 457.8
Taxation (158.1) (163.0)
Net profit attributable to ordinary shareholders 390.9
294.8 32.6
Dividends declared per share for the period (cents) 34.0
22.0 54.5
Headline earnings per share (cents) 6 85.7 63.5
35.0
Basic earnings per share (cents) 85.5 64.5
32.6
Fully diluted headline earnings per share (cents) 84.1 62.0
35.6
Fully diluted basic earnings per share (cents) 83.9 63.0
33.2
Weighted average number of shares in issue (millions) 457.4
457.1
BALANCE SHEETS
ASSETS
Non-current assets 410.3 459.0
Property, fixtures, vehicles, plant, equipment and software 277.9
282.7
Investments and loans 132.4 176.3
Current assets 1 430.7 961.3
Inventories 169.2 155.5
Trade and other receivables 796.2 658.1
Prepayments 20.4 18.1
Cash and cash equivalents 444.9 129.6
Total assets 1 841.0 1 420.3
EQUITY AND LIABILITIES
Capital and reserves
Share capital 0.1 0.1
Share premium 153.2 125.4
Retained profit 1 262.7 998.9
1 416.0 1 124.4
Shares repurchased (80.2) (66.8)
Total shareholders" equity 1 335.8 1 057.6
Non-current liabilities 121.3 135.8
Deferred taxation 86.0 107.2
Retirement benefit obligation 35.3 28.6
Current liabilities 383.9 226.9
Trade and other payables 269.9 169.3
Provisions 6.0 6.0
Taxation 108.0 51.6
Total equity and liabilities 1 841.0 1 420.3
Number of shares in issue (adjusted for treasury
shares) (millions) 460.6 453.9
Net asset value per share (cents) 290.0 233.0 24.5
CASH FLOW STATEMENTS
Cash flow from operating activities
Cash flow from trading 479.1 428.2
Dividends received 2.2 5.8
Cash EBITDA 481.3 434.0
Working capital movements (53.1) (179.1)
Cash generated from operations 428.2 254.9
Finance costs (0.5) (0.2)
Interest received 142.4 84.2
Taxation paid (123.0) (191.5)
Cash inflow from operations 447.1 147.4
Dividends paid (118.7) (76.2)
Net cash retained 328.4 71.2
Cash flow from investing activities
Investment to maintain operations (20.7) (21.4)
Investment to expand operations (42.1) (186.5)
Proceeds on disposal of property, fixtures, vehicles,plant, equipment and
software 0.9 1.5
Investments and loans 33.7 (5.0)
Net cash outflow from investing activities (28.2) (211.4)
Cash flow from financing activities
Proceeds on share issue 27.9 20.3
Odd lot shares repurchased and cancelled (0.1) -
Shares repurchased by subsidiary (13.4) (66.8)
Net cash inflow/(outflow) from financing activities 14.4
(46.5)
Net increase/(decrease) incash and cash equivalents 314.6
(186.7)
Net cash inflow from discontinued operations 0.7 5.3
Cash and cash equivalents for the period 315.3
(181.4)
Cash and cash equivalents at the beginning of the period
129.6 311.0
Cash and cash equivalents at the end of the period 444.9 129.6
Cash flow per share (cents) 97.7 32.2
Cash equivalent earnings per share (cents) 97.2 75.4
Cash realisation rate (%) 100.5 42.7
STATEMENTS OF CHANGES IN TOTAL
SHAREHOLDERS" EQUITY
Share
capital & Retained Shares
premium profit repurchased Total
Note Rm Rm Rm Rm
Total shareholders" equity at 30 June 2002 125.5 998.9 (66.8)
1 057.6
AC133: Financial instruments adjustment 7 - (8.2) -
(8.2)
Restated total shareholders" equity at 30 June 2002 125.5
990.7 (66.8) 1 049.4
Net profit attributable to ordinary shareholders - 390.9 -
390.9
Dividends - (118.9) - (118.9)
Shares issued 28.1 - - 28.1
Odd lot shares repurchased and cancelled (0.1) - -
(0.1)
Share issue expenses written off (0.2) - -
(0.2)
Shares repurchased - - (13.4) (13.4)
Total shareholders" equity at 30 June 2003 153.3 1 262.7 (80.2)
1 335.8
NOTES
Audited Audited
52 weeks 53 weeks
2003 2002
Rm Rm
1. Basis of preparation
This announcement has been extracted from the group"s June 2003 audited annual
financial statements, which have been prepared in accordance with South African
Statements of Generally Accepted Accounting Practice.
2. Accounting policies
The accounting policies adopted in the preparation of the group"s annual
financial statements are consistent in all material respects with those applied
in the previous period, except for the adoption during the current financial
period of accounting statement AC133: Financial Instruments: Recognition and
Measurement.
3. Revenue
Sale of merchandise 2 306.0 1 984.0
Dividends received 2.2 5.8
Interest received 142.4 84.2
Investments 36.3 15.8
Trade receivables 106.1 68.4
Lease rental income received 7.2 8.3
Warehousing and management fees received 2.9 1.9
2 460.7 2 084.2
4. Expenses
Depreciation 66.8 57.6
Employment costs 304.1 270.9
Occupancy costs 176.9 158.9
Other operating costs 211.5 184.7
759.3 672.1
5. Exceptional items
Distributions from discontinued operations 0.7 5.3
Impairment of Zimbabwe listed investment (2.0) -
(1.3) 5.3
6. Headline earnings
Headline earnings have been calculated in terms of SAICA Circular 7/2002 as
follows:
Net profit attributable to ordinary shareholders 390.9 294.8
Exceptional items 1.3 (5.3)
Net (surplus)/deficit on asset realisation after taxation
(0.1) 0.8
Headline earnings 392.1 290.3
7. AC133: Financial instruments adjustment
During the period, the group changed its accounting policy in respect of its
financial instruments to comply with South African Statement of GAAP - AC133:
Financial Instruments: Recognition and Measurement. The adoption of this policy
has had no prior period effect on headline earnings and headline earnings per
share. The change results in an adjustment to the balance of retained profit at
the beginning of the period. The adjustment arises as a result of the difference
in valuation methods in respect of the group"s export partnership participation.
This participation was previously valued at cost and has subsequently been
valued at amortised cost using the effective interest rate method.
Opening retained profit as previously reported 998.9 -
AC133: Financial instruments adjustment - export partnership participation
(8.2) -
Restated opening retained profit 990.7 -
Apart from the above, the adoption of this statement has had no other material
impact on the valuation of other financial instruments.
8. Contingent liabilities
Export partnership participation
The South African Revenue Service (SARS) is continuing its investigation into
the taxation treatment by certain other companies participating in export
partnerships with financial periods ending after 1 March 1996. Trencor Limited
has materially warranted certain important aspects of the partners"
participation, including any exposure that might arise in the event that SARS
were to raise assessments in respect of this participation.
Deferred taxation liability in respect of group"s export partnership
participation with financial periods ending after
1 March 1996 (excluding interest and penalties) 82.6 88.3
9. Capital commitments
Capital expenditure authorised by the directors but not contracted for:
Computer equipment and software 20.3 25.7
Fixtures, plant and equipment 49.5 38.8
69.8 64.5
DIVIDEND
The directors have resolved to declare a dividend in respect of the six months
ended 30 June 2003 in the amount of 21.0 (2002: 13.0) cents per share to holders
of the company"s shares reflected in the company"s register on the record date,
being Friday 12 September 2003.
The last day to trade in the company"s shares cum dividend is Friday 5 September
2003. Trading in the company"s shares ex dividend will commence on Monday 8
September 2003. The dividend will be paid in South African Rand on Monday 15
September 2003.
Consequently no dematerialisation or rematerialisation of the company"s shares
may take place over the period from Monday 8 September 2003 to Friday 12
September 2003, 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 registered charity to be nominated by the directors.
By order of the board
C Durham
Company Secretary
Cape Town
21 August 2003
Truworths International Limited is a JSE Securities Exchange South Africa listed
investment holding company with trading subsidiaries engaged either directly or
through franchises in the retailing of fashion apparel and related merchandise.
The group operates primarily in southern Africa.
Financial performance
Truworths International Limited continued to create wealth for its shareholders
in the period ended June 2003 with all performance indicators either in line
with or ahead of predefined objectives.
The buoyant retail trading in the second half of the prior financial period
persisted until around October 2002 when, as predicted, there was a slowdown in
most merchandise categories as a result of declining product inflation and
softening consumer demand. The slower sales growth came against the background
of a strong trading base established over past periods, and the effect of an
additional week in the prior period. This slowdown continued into the first and
second quarters of 2003.
Sales of merchandise, including sales to franchise operations, showed good
growth of 16.2% to R2.3 billion from R1.9 billion in 2002. The growth in the
prior period was 24.4%. If the sales of the 53rd week in the prior period were
to be excluded, then comparable sales growth for the current period would have
been 18.7%. Comparable 26-week sales in the second half of the current period
showed growth of 14.1%, against a 23.4% increase in the first half.
Growth in sales of merchandise, including like for like sales growth of 14.5%,
was well ahead of the estimated average of 11% for the clothing, footwear and
textiles sector. Internal inflation in the group, which averaged 13% for the
period, decreased from the mid-teens in the first half to a single digit by the
last quarter.
Sales to franchise operations increased 26.0% to R22 million. This reflects the
opening of four new franchise stores in Africa and one in the Middle East.
The opening of ten Identity stores, one Daniel Hechter store, two Truworths Man
stores, and two Truworths stores, against the closure of one LTD store, one
Inwear store, and one Identity store resulted in a 4.9% increase in trading
space.
Trading margins benefited from higher levels of retail activity, improved
productivity in terms of sales per square metre and per full-time employee, and
a continued focus on costs.
These factors, together with a significant increase in interest received,
resulted in an increase in operating margins to 23.9% (2002: 22.8%). Profits
before finance costs, exceptional items and taxation rose 21.7% to R550.8
million.
The effective taxation rate decreased from 35.6% to 28.8% mainly as a result of
the favourable adjustment to the taxation charge arising from the refund of the
transfer pricing taxation paid in the prior period.
Net profit attributable to ordinary shareholders advanced by 32.6% to R390.9
million. This translated into earnings per share of 85.5 cents and headline
earnings per share of 85.7 cents, improvements of 32.6% and 35.0% respectively.
Excluding the effects of the transfer pricing taxation benefit, earnings per
share of 81.4 cents and headline earnings per share of 81.6 cents would have
been posted, reflecting gains of 26.2% and 28.5% respectively.
Improved earnings resulted in return on average shareholders" equity increasing
to 32.7%, and a 24.5% increase in net asset value per share to 290.0 cents.
A final dividend of 21 cents has been declared. This, together with the interim
dividend of 13 cents, represents a 54.5% increase over the prior period.
Dividend cover has been revised to 2.5 times earnings.
Operations
Continued emphasis on inventory management and loss control resulted in improved
buying margins and lower shrinkage. Although markdowns continued to be well
within acceptable norms, these were higher than the prior period during which
robust trading resulted in lower levels of inventory. The higher markdowns
together with the increased contribution to sales by the lower margin Identity
and Elements concepts resulted in a dilution in gross margins.
Indicative of improved asset utilisation was the 10.5% increase in sales density
and the 14.2% rise in sales per employee. Stock turn increased from 6.1 times to
6.7 times.
The debtors" book grew by 22%, ahead of the increase in credit sales. Net bad
debt as a percentage of credit sales was up from 2.2% in the prior period to
2.5%. The doubtful debt provision as a percentage of gross debtors reflects an
increase on the prior period. Management is satisfied that it has adequately
provided for any potential deterioration in the book.
Cash position
The high quality of earnings translated into a meaningful improvement in
attributable cash flow to 97.7 cents per share. This represents a realisation
rate of 100.5% on the cash equivalent earnings per share of 97.2 cents. Cash
EBITDA showed further improvement from R434.0 million in the prior period to
R481.3 million.
After meeting financing costs, taxation and dividends, net cash for investing
and financing activities was R328.4 million. Capital expenditure remained
tightly managed and within budget at R62.8 million. After investment activities,
cash available for financing activities amounted to R300.2 million. This enabled
the group to fund further share repurchases of R13.4 million, by its subsidiary,
Truworths Limited.
Transfer pricing taxation
As stated in the interim report, the company"s objections to additional taxation
assessments received in the prior period, relating to transfer pricing
adjustments in respect of the 1996 to 1999 periods, have been allowed in full.
An amount of R18.7 million, comprising normal taxation, secondary taxation on
companies and interest, was refunded and credited against the group"s taxation
expense.
Exceptional items
Distributions from discontinued operations
There was a further distribution of R0.7 million from the discontinued
Australian subsidiary, Sportsgirl. This has been recorded as an exceptional
item. A final distribution is expected by March 2004.
Impairment of Zimbabwe listed investment
Due to the volatility of the rate of exchange and the continued severe long-term
restrictions on the repatriation of funds from Zimbabwe, it is deemed prudent to
impair this investment.
General share repurchase
As a way of managing excess capital and returning cash to shareholders, the
group has an on-going share repurchase strategy in terms of which shares are
acquired in the market when management considers there to be a weakness in the
price. In line with guidelines approved by the board, 2 155 214 shares were
repurchased during the period for R13.4 million. The repurchase did not have a
material effect on either headline earnings or net asset value per share.
Prospects
The group is well positioned to take advantage of economic growth and further
interest rate cuts. Sales growth for the first seven weeks of the 2004 financial
period was 14.4%. Management considers this to be satisfactory when compared to
the strong sales growth of 23.4% achieved in the first half of the 2003
financial period.
The emphasis for the 2004 financial period will be on refurbishing existing
stores and the introduction of new generation stores.
The strong balance sheet positions the group to take advantage of any attractive
acquisition opportunities.
Audit opinion
The external auditors" unqualified audit opinion on the June 2003 annual
financial statements is available for inspection at the company"s registered
office.
Approval
These audited group results were approved by the directors on 21 August 2003,
and are signed on their behalf by:
MS Mark
Chairman and chief executive officer
Truworths International Limited: (Registration number 1944/017491/06)
JSE code: TRU
ISIN: ZAE000028296
Registered office: No. 1 Mostert Street, Cape Town 8001. PO Box 600, Cape Town
8000, South Africa
Sponsor: HSBC Investment Services (Africa) (Pty) Ltd
Auditors: Ernst & Young
Transfer secretaries: Computershare Limited, 70 Marshall Street, Marshalltown,
Johannesburg 2001. PO Box 7184, Johannesburg 2000, South Africa or Transfer
Secretaries (Pty) Limited, Shop 12, Kaiserkrone Centre, Post Street Mall,
Windhoek, PO Box 2401, Windhoek Namibia
Company secretary: C Durham
Directors: MS Mark (Chairman and CEO)*, RG Dow, BD Lapin, CT Ndlovu, AE Parfett,
H Saven,
AJ Taylor* and WM van der Merwe* *Executive Non-executive Independent
These results are available on our website at www.truworths.co.za
