| Wed 12 May 2004, 9:08 | | FINANCIAL REPORT FOR THE YEAR ENDED |
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EDGARS CONSOLIDATED STORES LIMITED - AUDITED FINANCIAL REPORT FOR THE YEAR ENDED
MARCH 2004
Edgars Consolidated Stores Limited
"Edcon"
(Reg. No. 1946/022751/06)
(Incorporated in the Republic of South Africa)
JSE Share Code: ECO
ISIN Code: ZAE000018388
AUDITED FINANCIAL REPORT FOR THE YEAR ENDED MARCH 2004
SALIENT FEATURES
Retail sales growth of 27%
R2,5 billion wealth created for all stakeholders
Profit before tax up 82% to over R1 billion
Headline earnings per share doubled at 1 597 cents
Record final dividend of 521 cents (up 182%)
THE RETAIL ENVIRONMENT
During the past year, the South African economy was characterised by a
deterioration in the overall GDP growth rate, as the strong Rand impacted
negatively on production sectors, including manufacturing, mining and
agriculture. In contrast, conditions for retailers improved considerably. The
550 basis point reduction in the prime interest rate and a sharp deceleration in
inflation enhanced the purchasing power of consumers. Further personal tax cuts
boosted household finances and consumer confidence amongst high and middle-
income earners rose significantly.
Against this background, retail sales of semi-durable goods remained buoyant.
South African Reserve Bank data confirms that real growth in semi-durable goods
was 8% in the current year. Retailers" Liaison Committee (RLC) statistics
reveal that national clothing, footwear and textile (CFT) sales have increased
by 11,5% in nominal terms in the year under review, with no inflation in the
sector.
GROUP RESULTS
The Board is delighted to report another year of record sales and earnings
performance, culminating in a return on shareowners" equity of 28% and an
increase of 149% in total dividends. Edcon continues to cement its position as
the leading CFT retailer in South Africa and the sustainability of the Group"s
strategy is reinforced by these exceptional results.
Once more, Edcon achieved triple digit growth in headline earnings per share.
At 1 597 cents, the 103% increase on last year follows a 153% rise attained in
the previous financial year. Sales increased by a remarkable 27%, of which 19%
can be ascribed to the existing businesses of Edgars and Jet and 8% being the
full 12 month effect of the CNA and Super Mart acquisitions in October of the
previous year. It is even more encouraging to note that this growth was
achieved with only 2% additional average retail space.
Another accomplishment has been the improvement in gross profit margin of 40
basis points to 39,0% brought about by the Group"s strength in merchandise
procurement and efficient supply chain processes. This was achieved despite the
inclusion of CNA, which worked through distressed inventory, and the nature of
Super Mart, being a general merchandise discount business.
At the individual chain level, Edgars, with 1% less average trading space and
its selling price inflation at 4%, still grew sales by a strong 16%. The chain
achieved unprecedented success across all key performance indicators. The most
significant sales gains were in the jewellery, footwear, activewear, kidswear
and menswear businesses, but all major merchandise groups recorded increases.
Particularly pleasing was the acceleration of sales momentum in the second half
of the year. Enhanced trading densities, due to improved replenishment
processes, and benefits of disciplined expense management, contributed towards
the growth in trading profit of 43%. Stockturn increased from 4,8 to 5,2 times
as the chain continued to benefit from the Retek merchandise system and
effective inventory control.
The 127% rise in trading profit for the Jet chain, incorporating Jet, Sales
House, Cuthberts and Legit, was a truly remarkable performance for the Group"s
discount channel. The chain achieved a sales growth of 23%, all the more
commendable considering the decrease of 1% in average retail space and its
deflation in prices of 1%. This, combined with focused inventory management and
controlled store expenses, ensured the success of the chain. RLC statistics
indicate that Jet gained market share across most CFT merchandise categories.
The star performers included menswear, intimatewear, footwear, kidswear and
ladieswear. Another significant achievement has been the ability to report such
large sales growths from average stock holdings some 3% below those of last
year. Consequently, Jet improved its stockturn from 5,8 times last year to a
world class 7,2 times.
The CNA chain is operating efficiently on all Edcon"s systems and platforms,
with an appropriate management team and staff structure now in place. The
process of redeveloping the merchandise offering and overhauling the store
operational environment is well advanced. Sales for the period were in line
with the Group"s targets and, as predicted at half year, the business had a
profitable second half, thus generating a small trading profit in its first full
year under Edcon management. The results include a once-off charge of R27
million for system integration costs. Particularly pleasing has been the
performance of books and interactive merchandise, as customers took advantage of
the enhanced product offering. With stockturns at only 2,7 times, there is
still scope for significant improvements in the year ahead.
A decision was made to accelerate the buy-out of the former Super Mart owners
and a final amount of R42 million was paid in December 2003. This allowed the
Jet executive team, with its extensive experience in multi store management and
Retek knowledge, to take over the complete control of the day-to-day operational
management of this general merchandise discount cash retailer chain.
Integration of the chain onto Edcon"s systems has proceeded according to plan,
going live on 1 April 2004. An overall profit of R9 million was delivered,
following a R1 million half year loss, while stockturn increased to 4,6 times
from 3,7 last year. The Group is pleased with the progress being made and is
confident of further advances in the new year.
Total cellular phone and contract sales, which are now managed centrally by the
Group, recorded a 40% rise to R802 million.
The fortunes of the Manufacturing division have also improved significantly.
After reporting a loss of R19 million at the interim stage, due to onerous
contracts in the light of the strong Rand, a small profit was made in the second
half of the year. Exports are now more appropriately priced relative to
currency, while volumes delivered to local customers increased satisfactorily in
the last six months.
Increases in store expenses continue to be extremely well contained and,
combined with productivity improvements, have been limited to 9% in the existing
chains, with the new acquisitions accounting for the balance of the increase.
Costs of the new businesses, including chain management expenses, system
integration costs and goodwill amortisation, accounted for the rise in other
operating costs.
The quality of the debtors" book improved yet further and 88% of customers are
now current and able to purchase - a result regarded as exceptional by world
standards. The performance of the book was a major factor in the excellent
results of the Credit and Financial Services businesses, which lifted their
earnings by 165% to R137 million. An additional R22 million has been realised
from better than anticipated collections on the debtors" book purchased from the
Retail Apparel Group (but excluded from headline earnings). Another major
success factor in the division has been the accelerating pace of development in
the Financial Services division with its innovative customer insurance
offerings. Cash sales now account for 38% of total sales, assisted by the
addition of the CNA and Super Mart cash chains.
As a consequence of interest costs associated with the rise in debtors and
investment activities, the net financing costs increased to R51 million.
However, this includes a R20 million foreign exchange loss due to the stronger
Rand being applied to the translation of assets in foreign jurisdictions. The
effective tax rate decreased from 39,5% to 34,4%, as the prior year figures
included a secondary tax on companies charge resulting from the repurchase of
shares.
CASH FLOWS AND FINANCIAL POSITION
The significant rise in profitability is reflected in the increase in cash
"EBITDA". Efficient working capital management remains a priority for Edcon.
In terms of the securitisation agreement with OntheCards, only customers on our
books prior to November 1999 were sold, and the increased investment in accounts
receivable is an indication of the growth in new accounts, all of which have
been funded by Edcon. Total debtors now managed by the credit division amount
to R4,7 billion, an increase of 25% over the prior year, but in line with
expectations. The growth in credit sales of 23% (R1,2 billion), a shift to
interest bearing accounts, which have a longer term, and the rise in the
penetration of financial service products account for the increase.
Attributable cash flow per share, excluding the effect of the investment in the
proposed securitisation of trade accounts receivable, referred to under post
balance sheet events, rose by 5% to 2 433 cents per share.
The larger tax and dividend payments, a direct consequence of the higher
earnings, reduced the net cash retained from operating activities to R10 million
for the year. In line with our longer term financing plans, the further
securitisation transaction will boost cash flow in the new year.
Focus on improving the store environment for customers has necessitated an
extensive store refurbishment programme within Edgars and Jet. Investing
activities also include costs of the CNA integration and the Super Mart
accelerated buy-out.
During the past year, a total of R2,5 billion of additional wealth, in cash
value added terms, was created for the South African economy, some 50% of which
has been utilised for employee remuneration. Edcon, with a closing gearing
ratio of 6%, remains in an extremely strong financial position to continue to
provide a contribution of this magnitude into the future. Flexibility is
enhanced by the existence of R662 million in unutilised borrowing facilities.
POST BALANCE SHEET EVENTS
As announced in March 2004, Edcon acquired the business of Boardmans for
approximately R80 million. Boardmans became a division of Edcon with effect
from 1 April 2004. Their product range complements Edcon"s current homewares
offering and the Group believes its strengths in merchandising and logistics
management can improve Boardmans" recent disappointing performance.
In terms of an option granted during the first debtors securitisation negotiated
in 2002, the Group has resolved to securitise a further R1 billion of its
receivables book during June 2004. The transaction will be income enhancing for
Edcon as it lowers the Group"s funding costs, reinforced by Moody"s positive re-
rating of the OntheCards B class notes, which occurred earlier this year. Cash
generated from the disposal of the securitised assets will be used to repay debt
and to fund future internal and external expansion opportunities. Further
details of the transaction will be issued later in a separate circular to
investors.
ACCOUNTING POLICIES AND COMPARATIVES
In accordance with the recommendation issued by the JSE Securities Exchange
South Africa (JSE), the Group"s Staff Share Trust has been consolidated in the
Group results.
In order to achieve compliance with AC103, changes in accounting policy, the
prior year results have been restated. The headline earnings per share and the
diluted headline earnings per share for last year, as a direct consequence, have
increased from 753 to 786 cents per share, and from 705 to 719 cents per share
respectively.
DIVIDEND
In terms of the Group"s policy of covering dividends twice by attributable
earnings, the Board has declared a record final dividend of 521 cents per share,
reflecting 182% growth on last year"s final dividend. Total dividends of 768
cents per share are, therefore, 149% higher than the previous year.
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 requirements. It continues to ensure that business is
conducted with discipline, integrity, transparency and social responsibility.
PROSPECTS
Relatively low interest and inflation rates are forecast for the months ahead.
This should be positive for retailers, but will be offset by the slow growth in
GDP, high unemployment and Rand strength. Nevertheless, the Edcon Board is
confident, based on the current momentum in the industry, that the Group"s CFT
sales will continue to grow in real terms in the year ahead, albeit at a slower
pace than in the past year. Furthermore, sales for the coming year will be
boosted by the first time inclusion of Boardmans, by the scheduled inclusion of
a 53rd trading week and by an estimated 5% increase in average retail space
through new store openings.
Economies of scale, the additional contribution from new space, and further
improvements in the recently acquired businesses will enhance overall
productivity. Accordingly, headline earnings per share for the coming year are
expected to increase at a somewhat faster rate than sales growth.
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.115) of 521 cents
per share in respect of the 52 weeks ended 27 March 2004 has been declared
payable to the holders of ordinary shares appearing in the records of the
company at the close of business on Friday, 2 July 2004. 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 Friday, 25 June 2004
Date trading commences ex the dividend Monday, 28 June 2004
Record date Friday, 2 July 2004
Date of payment Monday, 5 July 2004
Certificated shareholders may not dematerialise or rematerialise their share
certificates between Monday, 28 June 2004 and Friday, 2 July 2004, both dates
inclusive.
On behalf of the Board
E A BAGLEY
Group Secretary
Johannesburg
11 May 2004
INCOME STATEMENTS
52 weeks 52 weeks
to March to
2004 March Change
(audited 2003 %
) (audited
&
Rm restated
)
Rm
Revenue - retail sales 10 530,0 8 313,7 27
Cost of sales 6 423,3 5 107,0
Gross profit 4 106,7 3 206,7
Store costs 1 914,4 1 595,9
Other operating costs 1 247,6 1 053,3
Trading profit 944,7 557,5 69
Credit and financial services profit 136,8 51,7
Operating profit before financing costs 1 081,5 609,2
Net financing costs 50,7 44,2
Profit before taxation 1 030,8 565,0 82
Taxation 354,6 223,2
Earnings attributable to ordinary 676,2 341,8 98
shareowners
Number of ordinary shares (000)
in issue 44 934 43 339
weighted average 44 026 47 461
Earnings per ordinary share (cents)
attributable earnings basis 1 536 720 113
headline earnings basis 1 597 786 103
cash equivalent basis 2 246 1 061 112
Diluted earnings per ordinary share
(cents) (note 2)
attributable earnings basis 1 315 660 99
headline earnings basis 1 367 719 90
Dividends per ordinary share (cents)
interim (paid) 247 123 101
final (proposed) 521 185 182
total 768 308 149
cover (times) 2,0 2,3
Return on shareowners" equity (%) 28,3 15,7
NOTES:
Note 1
The accounting policies adopted for the purpose of this report comply
with South African Statements of Generally Accepted Accounting Practice
and International Financial Reporting Standards, and are consistent with
those of the previous year except the policy relating to the treatment
of the Edgars Stores Limited Staff Share Trust (the "Staff Share
Trust"). To comply with the requirements of the JSE Securities Exchange
South Africa, the Group results include the effects of consolidating the
Staff Share Trust. The 2003 comparatives have been appropriately
restated.
Note 2
Dilution on possible exercise of share options.
Note 3
These statements have been audited by Ernst & Young and the audit
certificate is available for inspection at the company"s registered
office.
INCOME STATEMENTS /continued
52 weeks to 52 weeks to
March 2004 March 2003
(audited) (audited & Change
restated) %
Rm Rm
Reconciliation of headline earnings
Group attributable earnings 676,2 341,8
Plus: Loss on disposal of fixtures, 1,4 17,3
equipment and vehicles
Less: Recognition of discount on
acquisition of RAG
receivables and assets (22,0) (29,6)
Plus:CNA and Super Mart acquisition write-
offs (incl. amortisation) 45,5 38,4
Taxation 2,0 5,2
Headline earnings 703,1 373,1
Segmental analysis
Retail sales
Edgars 5 595,8 4 817,5 16
Jet 3 599,9 2 924,2 23
CNA 874,3 389,5 124
Super Mart 460,0 182,5 152
10 530,0 8 313,7 27
Trading profit
Edgars 603,8 421,4 43
Jet 395,3 174,4 127
CNA 1,4 (2,4)
Super Mart 8,5 10,2 (17)
Manufacturing (17,3) (7,7) (125)
Amortisation of goodwill and
intangibles (47,0) (38,4)
944,7 557,5 69
Average retail space (000m2)
Edgars 379 383 (1)
Jet 283 286 (1)
CNA 82 81 1
Super Mart 50 30 67
794 780 2
Closing retail space (000m2)
Edgars 386 375 3
Jet 287 280 3
CNA 88 80 10
Super Mart 57 40 43
818 775 6
Number of stores
Edgars 155 151
Jet 283 279
CNA 186 151
Super Mart 17 12
641 593
CASH FLOW STATEMENTS
52 weeks to 52 weeks to
March 2004 March 2003
(audited) (audited &
restated)
Rm Rm
Cash retained from operating activities
Operating profit 1 081,5 609,2
Depreciation, amortisation and impairment 269,4 304,5
Other non-cash items 0,2 (12,9)
Cash "EBITDA" 1 351,1 900,8
Investment in working capital (676,7) (38,2)
Inventories (31,0) (39,4)
Trade accounts receivable* (870,1) (383,2)
Other debtors (67,6) (54,0)
Accounts payable 292,0 438,4
Cash generated from operating activities 674,4 862,6
Net financing costs paid (50,7) (44,2)
Taxation paid (422,5) (103,2)
Cash inflow from operations 201,2 715,2
Dividends paid (190,8) (98,4)
Net cash retained 10,4 616,8
Cash utilised in investment activities
Investment in fixtures, equipment and (271,0) (113,8)
vehicles
Acquisitions (66,1) (503,4)
Net proceeds of securitisation - 798,3
Net cash invested (337,1) 181,1
Cash effects of financing activities
Increase in shareowner funding 43,4 (312,9)
Increase in interest bearing debt 183,1 (393,4)
Net cash inflow from financing activities 226,5 (706,3)
Decrease in cash and cash equivalents (100,2) 91,6
Cash and cash equivalents at the beginning of
the year 298,0 215,5
Acquisitions during the year - 6,2
Currency adjustments (2,7) (15,3)
Cash and cash equivalents at the end of the
year 195,1 298,0
Attributable cash flow per ordinary share
(cents)* 2 433 2 314
Cash realisation rate (%) 108 218
* This includes trade accounts receivable, which are available for
securitisation. The increase of R870 million has, accordingly, been
regarded as an investing activity for the calculation of attributable cash
flow per ordinary share.
CASH VALUE ADDED STATEMENTS
52 weeks to 52 weeks to
March 2004 March 2003
(audited) (audited & Change
restated) %
Rm Rm
Cash generated
Cash derived from customers 9 665,4 8 765,7
Cash payments outside the group to
suppliers of materials, merchandise,
facilities and services (7 150,6) (6 376,0)
Wealth created through cash value added 2 514,8 2 389,7 5
Cash utilised to:
Remunerate employees for their services 1 279,3 1 017,0
Pay direct taxes to the state 422,5 103,2
Provide lenders with a return on monies
borrowed 66,1 83,0
Provide lessors with a return for the use
of their premises 545,7 471,3
Provide shareowners with cash dividends 190,8 98,4
Cash disbursed among stakeholders 2 504,4 1 772,9 41
Net cash retained 10,4 616,8
BALANCE SHEETS
March 2004 March 2003
(audited) (audited &
Rm restated)
Rm
ASSETS
Non-current assets
Properties, fixtures, equipment and vehicles 738,2 689,2
Goodwill and trademarks 54,1 103,6
Investments 400,0 400,0
Total non-current assets 1 192,3 1 192,8
Current assets
Inventories 1 231,0 1 186,6
Accounts receivable and prepayments 2 477,5 1 539,6
Cash and cash equivalents 195,1 298,0
Total current assets 3 903,6 3 024,2
Total assets 5 095,9 4 217,0
EQUITY AND LIABILITIES
Capital and reserves
Ordinary shareowners" equity 2 649,8 2 131,2
Preference share capital 0,3 0,3
Minority interests - 0,3
Total shareowners" funds 2 650,1 2 131,8
Interest bearing debt 366,5 183,4
Total capital employed 3 016,6 2 315,2
Interest free liabilities
Current payables 1 992,9 1 859,5
Deferred taxation 86,4 42,3
Total interest free liabilities 2 079,3 1 901,8
Total equity and liabilities 5 095,9 4 217,0
Gearing ratios
Net interest bearing debt/total shareowners"
funds 0,06 (0,05)
Total liabilities/total shareowners" funds 0,92 0,98
Future capital expenditure Rm Rm
Contracted 36,5 67,9
Authorised but not contracted 575,3 297,9
Net equity per ordinary share (cents) 5 897 4 918
STATEMENT OF CHANGES IN ORDINARY SHAREOWNERS" EQUITY
Share Non- Retaine
capital distributabl d Total
and e surplus
premium reserves
Rm Rm Rm Rm
Ordinary shareowners" equity at
29 March 2003 (Restated) 71,1 28,9 2 031,2 2
131,2
Net movement in treasury shares 38,0 38,0
Earnings attributable to 676,2 676,2
ordinary shareowners
Ordinary dividends paid (190,8) (190,8
)
Foreign currency translation
reserve (3,9) (3,9)
Decrease in tax reserve relating
to lifo adjustment (0,9) (0,9)
Balance at 27 March 2004 109,1 24,1
2 516,6 2
649,8
DIRECTORS
Non-executive directors:
WS MacFarlane (Chairman)
AJ Aaron
TN Eboka
ZB Ebrahim
JDMG Koolen#
PL Wilmot
SDM Zungu (appointed 23 March 2004)
# Netherlands
Executive directors:
SM Ross** (Chief Executive)
SR Binnie*
AvA Boshoff
MR Bower
Dr U Ferndale
JL Spotts**
**USA
* UK
Group Secretary:
EA Bagley (appointed 5 January 2004)
Transfer secretaries:
Computershare Limited
70 Marshall Street,
Johannesburg 2001
PO Box 61051,
Marshalltown 2107
Fax: +2711 370-5487
Telephone: +2711 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: +2711 837-5019
Telephone: +2711 495-6000
Auditors:
Ernst & Young
Wanderers Office Park,
52 Corlett Drive,
Illovo 2196
PO Box 2322,
Johannesburg 2000
Telephone: +2711 772-3000
Sponsors:
Cazenove South Africa (Proprietary) Limited
First Floor,
Moorgate
Dunkeld Park
6 North Road,
Dunkeld West 2196
PO Box 412468,
Craighall 2024
Telephone: +2711 280-7900
These results can be viewed on the internet at: http://www.edcon.co.za
Date: 12/05/2004 08:27:27 AM Produced by the JSE SENS Department
