| Wed 12 Nov 2003, 10:11 | | RESULTS FOR THE SIX MONTHS TO SEPTEMBER 2003 |
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EDGARS CONSOLIDATED STORES LIMITED - UNAUDITED INTERIM RESULTS FOR THE SIX
MONTHS TO SEPTEMBER 2003
EDGARS CONSOLIDATED STORES LIMITED
(Reg. No. 1946/022751/06)
(Incorporated in the Republic of South Africa)
Share Code : ECO
ISIN Code : ZAE000018396
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS TO SEPTEMBER 2003
SALIENT FEATURES:
- RETAIL SALES GROWTH OF 32%
- HEADLINE EARNINGS PER SHARE UP 73% At a record 501 cents
- DIVIDEND PER SHARE UP 101% 247 cents per share compared with 123 cents last
year
- STRONG FINANCIAL POSITION 33% growth in Cash "EBITDA"
COMMENT
THE RETAIL ENVIRONMENT
South Africa"s economy has been impacted by two significant factors: sluggish
global economies and the rapid appreciation of the Rand. Both issues have played
a role in the slow growth in Gross Domestic Product and have also hindered the
country"s growth prospects.
Nevertheless, the predicted slow-down in the retail sector did not materialise.
Consumer demand has remained robust, as a consequence of the sharp fall in
inflation during the year and the anticipation of interest rate cuts. The
healthy financial position of customers, supported by a growth in real wages and
further tax cuts announced by the Minister of Finance, also boosted spending.
Based on S.A. Reserve Bank data, real growth in semi-durable goods was 4% in the
current year, while inflation in this sector dropped to an average of 5%. More
specifically, statistics provided by the Retailers" Liaison Committee (RLC)
reflect that national clothing, footwear and textile sales have risen by 7% in
nominal terms in the past six months, while inflation in the sector is estimated
to have been only 4%.
GROUP RESULTS
The strong sales growth which Edcon achieved last year was maintained in the
current period and another record earnings performance continues to highlight
the sustainability of the Group"s strategy.
In a trading update issued in July 2003, the Board advised that sales for the
first three months had increased by 30% and confirmed that shareowners can
expect "another rise in earnings at a rate well above that of total sales
growth". This has been achieved for the first half with sales rising 32% and
attributable earnings by 40%. Combined with the lower number of shares in issue,
as a result of last year"s share buyback programme, headline earnings per share
grew by 73%, to a record 501 cents. This follows the strong growth of 219%
achieved for the comparable six month period last year.
Of the 32% sales increase, 17% can be attributed to growth at Edgars and United,
and 15% to CNA and Super Mart. Particularly pleasing is that the organic growth
was achieved with 2% less retail space. In light of the RLC statistics, the 19%
comparable sales growth underscores that Edcon has gained further market share
from its competitors.
Efficient supply chain processes and improved merchandise procurement
contributed towards the enhancement in the Group"s gross profit margin from
38,3% last year to 38,6%. This was achieved despite the inclusion of the lower
margin CNA and Super Mart businesses.
The Edgars chain increased its retail turnover by 13%, although operating
through 2% less retail space. The chain"s positive momentum gained pace over the
period, especially during the last two months. Improvements in trading density
and enhanced staff productivity contributed towards the growth in trading
profits of 16%. Menswear had a particularly successful period, driven by the
introduction of Charter Club and enhanced stock flow management. Footwear,
cosmetics and kids" apparel also recorded double digit increases in sales and
made significant contributions to the chain. Merchandise management remains a
priority and Edgars increased its stock turn from 4,4 times last year to 5,0
times.
United Retail, incorporating Jet, Sales House, Cuthberts and Smiley"s Wearhouse
recorded remarkable results for the period with a 194% rise in trading profit.
The chain achieved retail turnover growth of 23%, with 1% less retail space. It
is clear from the RLC statistics that United is gaining significant market share
from its competitors. Superior performances across a broad range of merchandise
categories contributed to the chain"s success, with turnover growths in excess
of 20% for footwear, menswear and childrenswear. The efficiency of the supply
chain process and merchandise management is highlighted by the maintenance of
stock levels only 4% above last year and a further improvement in the stock turn
from 4,5 times last year to 6,4 times.
The challenges in the CNA chain for the period included integrating its
distribution and IT systems with Edcon, restructuring and training the staff
complement and overhauling the store operational environment. The CNA business
is now operating successfully on all Edcon"s systems and platforms with
appropriate management team and staff structures in place. Sales for the period
were in line with Edcon"s targets set at the time of the acquisition. The Group
incurred a once-off charge for system integration costs of R27 million. The
positive impact of Edcon"s ownership is now being realised and, from August,
strong sales growths on the prior year were reported. As previously announced,
the Group concluded the purchase of 35 This Day stores for approximately R19
million with effect from 3 November 2003, bringing the total number to 184 CNA
stores in this sector. It should be noted that, unlike Edgars and United
Retail, January is the second largest revenue month after December, with an
attendant impact on CNA"s secondhalf trading profit.
Super Mart"s store expansion strategy is on track and 4 stores were opened
during the period, while a further 4 are planned for the 6 months ahead. A
project to integrate Super Mart onto Edcon"s systems, distribution and support
infrastructures has commenced and is expected to be completed by year end.
The new acquisitions account for 21% of the total 30% increase in store costs.
Management"s focus on productivity and cost disciplines limited store expense
growth to 9% within the existing chains. Costs for the new businesses,
including chain management expenses, system integration costs and goodwill
amortisation contributed to the rise in other operating costs. In addition,
provision has been made for higher staff incentives linked to the Group"s
improved profitability. The manufacturing division, which has a large export
component, incurred losses totalling R18,8 million, mostly as a direct result of
the strengthening Rand and competition from cheaper imported goods.
The Group"s Credit and Financial Services businesses continued to exceed
expectations. The income from these divisions rose by an impressive 129% to R59
million. Collections from customers remained robust and the quality of the
debtors" book improved further. As a consequence, 87% of the accounts under
administration are current, up from 86% in the previous year, and the annualised
net bad debt write off to debtors" balances remained at a creditable 7,5% (prior
year 7,5%). Cash sales now account for 40% of total sales, up from last year"s
34% mainly due to the acquisition of the CNA and Super Mart cash chains. An
additional R10 million has been recognised from better than anticipated
collections on the debtors" book purchased from the Retail Apparel Group (RAG).
This has, however, been excluded from headline earnings. The remaining debtors
on the RAG book are provided for in full. The Financial Services division, with
its innovative customer insurance offerings, continued to record substantial
growth.
Net financing costs benefited from the lower utilisation of borrowings,
following the securitisation of debtors. The Group was not unscathed by the
strong Rand and incurred foreign exchange losses of R7 million (included in net
financing costs) as the stronger Rand was applied in the translation of foreign
denominated assets. The effective tax rate reduced from 35,0% to 33,2%, as the
prior year included a Secondary Tax on Companies charge resulting from the
repurchase of shares.
DIVIDEND
In the 2003 year-end results announcement, the Directors advised that future
dividends would be covered twice (previously 2,6 times), by attributable
earnings. In terms of this policy the Board has declared a record interim
dividend of 247 cents per share, reflecting a 101% increase on last year"s
interim dividend.
CASH FLOWS AND FINANCIAL POSITION
Cash "EBITDA" was strong, more than facilitating the rapid growth in Edcon"s
business and further meaningful investments in accounts receivable and inventory
restocking in new acquisitions. In terms of the securitisation agreement with
OntheCards, only customers in existence prior to November 1999 were sold and the
rise in accounts receivable is a reflection of the growth in new customers which
are all funded by Edcon. The Group"s conservative policy relating to doubtful
debts remains unchanged and adequate provision has been made for the impact of
historically high interest rates. In addition, significantly larger tax payments
were made, following increased profitability last year. Despite these factors,
the cash inflow from operations of R131 million was more than adequate to fund
the Group"s new dividend policy. Store refurbishments within Edgars and United,
the CNA integration and Super Mart"s store expansion were all comfortably funded
from existing resources.
Edcon still remains in an extremely strong financial position, as evidenced by
the positive cash and cash equivalents balance, net of interest bearing debt, of
R47 million at the end of the period under review. Future flexibility is
ensured by the absence of any gearing at present and the existence of R884
million in unutilised borrowings facilities.
CORPORATE GOVERNANCE
The Group, at all levels, subscribes to the values of good corporate governance
and is committed to applying the principles of the second King Report and
complying with the JSE Securities Exchange South Africa requirements. It will
also ensure that business continues to be conducted with discipline, integrity,
transparency and social responsibility.
PROSPECTS
The recent significant reduction in interest rates and the stronger financial
position of consumers should be positive for retailers in South Africa. These
factors, coupled with the strength of the Edcon product offering, give the Board
reason to be optimistic about the prospects for the coming festive season. The
momentum in Edgars and United Retail is expected to continue and this will be
augmented by the ongoing improvement in operational efficiencies throughout the
Group, including the recent acquisitions. As a result, the Board is targeting
growth in headline earnings per share for the full year at least in line with
that reported in these interim results.
For and on behalf of the board
W S MacFarlane S M Ross
Chairman Chief Executive Officer
INCOME STATEMENTS
2003 2002 Change 2003
26 weeks 26 weeks % 52 weeks
September September March
Rm Rm Rm
(unaudited) (unaudited) (audited)
Revenue - retail sales 4 592,2 3 478,3 32 8 313,7
Cost of sales 2 821,3 2 147,7 5 107,0
Gross profit 1 770,9 1 330,6 3 206,7
Store costs 874,1 674,3 1 595,9
Other operating costs 587,2 397,3 1 047,6
Retail trading profit 309,6 259,0 563,2
Credit and financial
services profit 59,0 25,8 51,7
Operating profit before
financing costs 368,6 284,8 29 614,9
Net financing costs 25,3 32,7 44,2
Profit before taxation 343,3 252,1 36 570,7
Taxation 114,0 88,3 223,2
Earnings attributable to
ordinary shareowners 229,3 163,8 40 347,5
Number of ordinary shares
(000)
in issue 46 530 50 710 45 956
weighted average 46 296 51 158 50 331
Earnings per ordinary
share (cents)
attributable earnings
basis 495 320 55 691
headline earnings basis 501 290 73 753
cash equivalent basis 757 466 62 1 012
Diluted earnings per
ordinary share (cents)
(note 3)
attributable earnings
basis 452 305 48 647
headline earnings basis 457 276 66 705
Dividends per ordinary
share (cents) 247 123 101 308
Reconciliation of headline
earnings
Group attributable 229,3 163,8 347,5
earnings
Add: Loss on disposal of
fixed assets net of
taxation 1,3 7,9 12,1
Less:Discount on
acquisition of RAG
receivables net of
taxation (6,9) (23,4) (19,2)
Add:Goodwill amortisation 8,1 - 38,4
Headline earnings 231,8 148,3 378,8
Segmental analysis
Retail sales
Edgars 2 542,7 2 246,3 13 4 817,5
United Retail 1 517,4 1 232,0 23 2 924,2
CNA 345,2 - 389,5
Super Mart 186,9 - 182,5
4 592,2 3 478,3 32 8 313,7
Retail trading profit
Edgars 241,6 208,9 16 411,6
United Retail 132,1 44,9 194 182,8
CNA (9,1) - (2,4)
Super Mart (1,0) - 10,2
Manufacturing (18,8) 1,9 (7,7)
Goodwill amortisation (8,1) 3,3 (31,3)
System integration costs (27,1) - -
309,6 259,0 20 563,2
Retail space (m2)
Edgars 374 391 382 127 (2) 374 824
United Retail 281 342 285 598 (1) 280 088
CNA 76 874 - 80 609
Super Mart 49 692 - 39 822
782 299 667 725 17 775 343
No. of stores
Edgars 151 150 149
United Retail 270 279 277
CNA 149 - 151
Super Mart 15 - 12
585 429 589
NOTES:
Note 1
The interim financial statements have been prepared in accordance with South
African Statements of Generally Accepted Accounting Practice, International
Financial Reporting Standards and the listing requirements of the JSE
Securities Exchange South Africa. The accounting policies adopted are
consistent with those of the previous year. The external auditors have not
reviewed the financial results for the half-year ended 27 September 2003.
Note 2
In terms of the JSE Securities Exchange South Africa listing
requirements the prospect statement in the commentary is considered to be a
profit forecast and required examination by the external auditors.
The external auditors, Ernst & Young, have reported that the profit
forecast has been properly compiled on the basis of reasonable assumptions
and is consistent with Group accounting policies. The full report is
available for inspection at the Registered Office of the company.
Note 3
Dilution on possible exercise of share options.
CASH FLOW STATEMENTS
2003 2002 2003
26 weeks 26 weeks 52 weeks
September September March
Rm Rm Rm
(unaudited) (unaudite (audited)
d)
Cash retained from operating
activities
Operating profit (excl. 364,5 282,4 609,2
dividends received)
Depreciation , amortisation and 117,3 98,3 304,5
impairment
Dividends received 4,1 2,4 5,7
Other non-cash items (8,8) (23,6) (12,9)
Cash "EBITDA" 477,1 359,5 906,5
Investment in working capital (110,3) 183,7 (32,0)
Inventories (101,2) 53,8 (39,4)
Accounts receivable and (350,2) (162,1) (431,0)
prepayments
Accounts payable 341,1 292,0 438,4
Cash generated from operating 366,8 543,2 874,5
activities
Net financing costs paid (25,3) (32,7) (44,2)
Taxation paid (210,7) (32,1) (103,2)
Cash inflow from operations 130,8 478,4 727,1
Dividends paid (85,0) (42,0) (104,1)
Net cash retained 45,8 436,4 623,0
Cash utilised in investment
activities
Investment in property, plant and
equipment (137,6) (29,5) (113,7)
Acquisitions - (256,1) (503,4)
Net proceeds of securitisation - 798,3 798,3
Other (24,3) (5,6) 4,8
Net cash utilised (161,9) 507,1 186.0
Cash effects of financing
activities
Increase in shareowner funding 51,6 (44,6) (324,0)
Decrease in interest bearing debt (94,4) (365,8) (393,4)
Net cash outflow from financing (42,8)
activities (410,4) (717,4)
Decrease in cash and cash (158,9) 533,1
equivalents 91,6
Cash and cash equivalents at the 298,0 215,5
beginning of the period 215,5
Acquisitions during the year - - 6,2
Currency adjustments (3,0) 1,0 (15,3)
Cash and cash equivalents at the 136,1 749,6 298,0
end of the period
Attributable cash flow per share 282 935 1 445
(cents)
BALANCE SHEETS
2003 2002 2003
September September March
Rm Rm Rm
(unaudited) (unaudite (audited)
d)
ASSETS
Non-current assets
Properties, fixtures, equipment
and vehicles 715,3 760,0 689,2
Goodwill 95,4 (16,0) 103,6
Investments 400,0 413,9 400,0
Other 114,8 81,6 80,6
Total non-current assets 1 325,5 1 239,5 1 273,4
Current assets
Inventories 1 285,4 938,7 1 186,6
Accounts receivable and 1 879,6 1 268,1 1 515,6
prepayments
Cash and cash equivalents 136,1 749,6 298,0
Total current assets 3 301,1 2 956,4 3 000,2
Total assets 4 626,6 4 195,9 4 273,6
EQUITY AND LIABILITIES
Capital and reserves
Ordinary shareowners" equity 2 379,6 2 379,3 2 187,8
Minority interest 0,6 0,3 0,6
Total shareowners" equity 2 380,2 2 379,6 2 188,4
Interest bearing debt 89,0 204,7 183,4
Total capital employed 2 469,2 2 584,3 2 371,8
Interest free liabilities
Current 2 119,2 1 431,2 1 859,5
Deferred taxation 38,2 180,4 42,3
Total interest free liabilities 2 157,4 1 611,6 1 901,8
Total equity and liabilities 4 626,6 4 195,9 4 273,6
Gearing ratios
Net interest bearing debt/ (0,02) (0,23) (0,05)
total shareowners" funds
Total liabilities/
total shareowners" funds 0,94 0,76 0,95
Future capital expenditure Rm Rm Rm
Contracted 73,9 18,3 67,9
Authorised but not contracted 217,0 107,0 297,9
Net equity per ordinary share
(cents) 5 115 4 692 4 761
STATEMENTS OF CHANGES IN ORDINARY SHAREOWNERS" EQUITY
2003 2002 2003
September September March
Rm Rm Rm
(unaudited (unaudited (audited
) ) )
Ordinary shareowners" equity at the
beginning of the year 2 187,8 2 296,8 2 296,8
Share capital
Share buy back - (44,6) (324,0)
Treasury shares sold 51,6 - -
Movements in distributable reserves
Earnings attributable to ordinary
shareowners 229,3 163,8 347,5
Ordinary dividends (85,0) (42,0) (104,1)
Movements in non-distributable reserves
Foreign currency translation reserve
(4,1) 1,0 (32,2)
Other - 4,3 3,8
Ordinary shareowners" equity at the end
of the period 2 379,6 2 379,3 2 187,8
DIRECTORS
Non-executive directors
WS MacFarlane (Chairman)
AJ Aaron
TN Eboka
ZB Ebrahim
JDMG Koolen #
PL Wilmot
# Netherlands
Executive directors
SM Ross** (Chief Executive)
SR Binnie*
AVA Boshoff
MR Bower
Dr U Ferndale
JL Spotts**
**USA
* UK
Group Secretary
JA Day
Transfer secretaries
Computershare Investor Services Limited
70 Marshall Street, Johannesburg 2001
PO Box 61051, Marshalltown, 2107
Fax : (011) 370-5487
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.114) of 247 cents
per share in respect of the 26 weeks ended 27 September 2003 has been declared
payable to the holders of ordinary shares appearing in the records of the
company at the close of business on Wednesday, 24 December 2003. 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, 17 December 2003
Date trading commences ex the dividend Thursday, 18 December 2003
Record date Wednesday,24 December 2003
Date of payment Monday, 29 December 2003
Share certificates may not be dematerialised or rematerialised during the period
Thursday, 18 December 2003 and Wednesday, 24 December 2003, both dates
inclusive.
On behalf of the board
JA Day
Group Secretary
Johannesburg
11 November 2003
Date: 12/11/2003 07:55:16 AM Produced by the JSE SENS Department
