| Wed 10 Nov 2004, 8:53 | | EDGARS CONSOLIDATED STORES LIMITED - UNAUDITED INT |
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EDGARS CONSOLIDATED STORES LIMITED - UNAUDITED INTERIM RESULTS AND TRADING
STATEMENT FOR THE SIX MONTHS TO SEPTEMBER 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
UNAUDITED INTERIM RESULTS AND TRADING STATEMENT FOR THE SIX MONTHS TO SEPTEMBER
2004
SALIENT FEATURES
Retail sales growth of 31%
Headline earnings per share up 88% to a record 968 cents
Dividend per share doubles to a record 494 cents
Strong financial position gearing at 3%
THE RETAIL ENVIRONMENT
Consumer confidence surged to all-time highs during the first half of this
financial year. Boosted by financial, economic and political stability,
conditions for retailers improved substantially. Real wage growth, relatively
low interest rates and a further escalation in property prices all served to
place more money in the pockets of consumers. In contrast, the strong Rand, its
negative impact on employment in the export sectors of the economy, and the
sharp increase in fuel prices, have tempered somewhat this positive environment.
The impetus gained from these favourable trading conditions contributed towards
the buoyant sales in the clothing, footwear and textile (CFT) sector.
Statistics provided by the Retailers` Liaison Committee reveal that national CFT
sales have climbed by 19% in the past six months, compared with the
corresponding period last year. Deflation in the sector is estimated to have
been 4,5% over this period.
GROUP RESULTS
Following the triple digit earnings growth achieved in each of the past two
years, the Board is delighted to announce a further set of exceptional results,
culminating in a doubling of the interim dividend declared for the six months
under review. In a trading statement issued during July 2004, the Board advised
that headline earnings per share were forecast to rise by between 60% and 80%.
In fact, the Group recorded headline earnings per share of 968 cents, up 88%.
Edcon`s sales increased by 31%, 6 percentage points of which can be attributed
to the non-comparable additional trading week included in the six-month period
and 2 percentage points to Boardmans, the acquisition of which became effective
in April 2004. The remaining gain was achieved with only 6% extra average
retail space, indicating a noteworthy 17% increase in comparable store growth.
More importantly, the Group`s progress is reflected in a doubling of
attributable earnings. This includes R52 million of earnings relating to the
extra trading week, which accounts for 22% of the increase in headline earnings
per share. The benefits of Edcon`s purchasing power arising from greater
volumes and efficient supply chain processes contributed toward a 140 basis
point improvement in the gross profit margin to reach the Group`s over-time
target of 40,0%.
As detailed in the 2004 Annual Report, the retail businesses have been
amalgamated under two broad divisions based on the target markets they serve.
The Department Stores Division, including Edgars, CNA and Boardmans, focuses on
middle and upper income consumers, while the Discount Division, incorporating
Jet and Super Mart, aims at lower income customers.
The Department Stores Division reaped the benefits of a focused merchandise
strategy, improved efficiency levels and disciplined expense management,
increasing trading profit by an impressive 79%. The Edgars chain grew its
turnover by an excellent 29% with selling price inflation at only 1% and
additional average trading space of 3%. All merchandise groups saw increases
over the prior year, but particularly pleasing was the performance of
ladieswear, menswear and infantswear. The focus on core product and well
balanced pricing strategies were critical success factors. Tight inventory
controls allowed the chain to raise its stockturn from 5,0 last September to 5,6
times. The chain procured more sourcing options and obtained lower input costs
through a higher volume order strategy, resulting in an improvement in gross
profit margin from 40,4% to 42,6%.
Sales for the CNA chain rose by 20% despite deflation of 7%. The purchase of
ThisDay stores in November 2003 added 13% to the average trading space. Strong
sales growth was achieved in newsstand, books and interactive as the business
benefited from improved merchandise assortments. The remaining product
categories are still in the process of being improved and balanced by store.
Aggressive markdowns to clear slow moving stock, mix of product sold and more
competitive pricing produced a 31,1% gross profit margin. Stockturn has
improved to 2,9 times.
Boardmans has been successfully integrated into Edcon`s systems, distribution
and support infrastructures. The chain achieved sales of R98 million and a
gross profit margin of 38,8%, in line with Edcon`s targets.
The Discount Division advanced its trading profit by an outstanding 125%.
Another wonderful performance for the Jet chain is confirmed by its 37% increase
in sales. This was achieved in spite of deflation of 10% and a rise of only 4%
in average retail space. All product categories contributed to this success and
it is clear that shoppers are responding well to Jet`s rationalised assortments
and competitive price points. Gross profit margin improved by 220 basis points
to 39,4%, enhanced by efficient replenishment processes and improved input
margins. In addition, stockturn rose from 6,5 times last year to 8,1 times.
Sales in Super Mart declined by 12%, with deflation running at 9%. Sales and
margins have, in the short term, unavoidably been impacted by the planned
introduction of the Group`s merchandise systems and by aggressive markdowns to
clear aged, discontinued and damaged merchandise. The focus has been to reduce
the number of stock items, with the intention of placing volume behind core
lines and providing customers with competitive prices. Encouragingly, stockturn
has already improved from 4,1 to 4,7 times.
Total cellular phone and contract sales, which are managed centrally by the
Group, climbed 45% to R501 million. The improvement by the Manufacturing
Division extended into the current year. Despite the strength of the Rand,
losses reduced to R1 million from R19 million in the previous year, as the
division realised the benefit of the drive to increase volumes with local
customers and of tightly managed expenses.
Group management`s focus on productivity and cost containment is underscored by
the reduction in store costs as a percentage of sales from 19,0% to 18,0%.
Further investments in systems infrastructure to maintain Edcon`s competitive
advantage, and expenditure on employer of choice and staff training initiatives,
accounted for the rise in other operating costs.
Although significantly lower chargeable interest rates had a negative impact on
earnings, the Group`s Credit and Financial Services Division still recorded
impressive growth, and total profit from financing rose by 58% to R86 million.
The efficiency of Edcon`s collections procedures and strong instalment payments
from customers impacted positively on the quality of the debtors` book.
Notwithstanding a large expansion in credit active customers, with the account
base growing by approximately 230 000 over the past 6 months, 87% of the
accounts receivable are current and able to purchase, the same level as the
previous year. The wider penetration of insurance products amongst the customer
base continues to drive the expansion of the Financial Services business.
During June 2004, in terms of the securitisation structure, Edcon sold a further
portion of debtors to OntheCards Investments Limited. The net proceeds of R934
million were utilised to repay debt and fund new opportunities. This will
result in a significant reduction in the cost to Edcon of funding its debtors,
as reflected in the lowering of net financing costs to R8 million from R25
million last year.
CASH FLOWS AND FINANCIAL POSITION
Cash `EBITDA` remained strong (up 77%) on the back of the substantial earnings
generated by the business. The growth in new accounts, amplified by the
successful take up on pre-approved mailings, was funded by Edcon (only customers
on our books prior to October 2002 were securitised), primarily by the proceeds
from the securitisation. Non-comparable timing differences resulted in a R510
million net outflow of funds, predominantly to pay merchandise suppliers and
salaries, which were paid in October last year. This occurred as a direct
consequence of the inclusion of the additional trading week.
Efficient working capital remains a priority for Edcon and is evidenced by the
substantial rise in attributable cash flow per share from 308 cents to 1 363
cents. Investments in the period included the cost of fixtures for the extensive
store expansion strategy announced at the end of last year as well as R79
million relating to the Boardmans acquisition.
Edcon`s financial position remains exceptionally strong, with net interest
bearing debt at R78 million, representing gearing of 3%. Flexibility is further
enhanced by the existence of R1 090 million in unutilised borrowing facilities.
ACCOUNTING POLICIES AND COMPARATIVES
The interim financial statements have been prepared in accordance with South
African Statements of Generally Accepted Accounting Practice, International
Financial Reporting Standards and the Listings Requirements of the JSE
Securities Exchange South Africa (JSE). The accounting policies are consistent
with those of the previous year except that the Group has adopted IFRS 2 `Share-
Based Payment` and IFRS 3 `Business Combinations`. The impact of the changes is
detailed in note 1 to the Income Statement.
In order to achieve compliance with IAS 8, `Accounting Policies, Change in
Accounting Estimates and Errors`, the prior year results have been restated.
The headline earnings per share and the diluted headline earnings per share for
the comparable period last year, as a consequence, have increased from 501 to
516 cents per share and from 457 to 468 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 interim dividend of 494 cents,
reflecting a 100% growth on last year`s interim dividend.
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 in a socially responsible
manner.
PROSPECTS
Consumer confidence, boosted by real wage increases and low interest rates, is
expected to sustain the current momentum in retail spending. This, coupled with
the continuing success of the Edcon product offering, operational efficiencies
and strong collections, gives the Board reason to be optimistic about the
prospects for the coming festive season. Accordingly, based on current
estimates, headline earnings per share for the year to March 2005 will be
approximately 60% higher than those reported last year. Seven percentage points
of this increase can be ascribed to the inclusion of the scheduled non-
comparable additional trading week.
In accordance with the JSE Listings Requirements 3.4 (b) (vi) (2) attention is
drawn to the fact that, as the estimate forms part of this trading statement, it
has not been reviewed or reported on by the Group`s external auditors.
For and on behalf of the Board
WS MacFarlane
Chairman
SM Ross
Chief Executive Officer
INTERIM DIVIDEND
Notice is hereby given that the interim ordinary dividend (No.116) of 494 cents
per share in respect of the 27 weeks ended 2 October 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, 7 January 2005. 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 dividend Friday, 31 December 2004
Date trading commences ex dividend Monday, 3 January 2005
Record date Friday, 7 January 2005
Date of payment Monday, 10 January 2005
Certificated shareholders may not dematerialise or rematerialise their share
certificates between Monday, 3 January 2005 and Friday, 7 January 2005, both
dates inclusive.
On behalf of the Board
EA Bagley
Group Secretary
Johannesburg
10 November 2004
INCOME STATEMENTS
2004 2003 Chan 2004
27 weeks 26 weeks ge 52 weeks
September September % March
Rm Rm Rm
(restated (restated
(unaudite & &
d) unaudited audited)
)
Revenue - retail sales 6 029,8 4 592,2 31 10 530,0
Cost of sales 3 616,6 2 821,3 6 423,3
Gross profit 2 413,2 1 770,9 36 4 106,7
Store costs 1 085,2 874,1 1 914,4
Other operating costs 729,2 613,4 1 300,4
Trading profit 598,8 283,4 111 891,9
Credit and financial services 93,6
profit (note 3) 79,6 185,8
Operating profit before financing 692,4 363,0 1 077,7
costs
Net financing costs (note 3) 7,7 25,3 50,7
Profit before taxation 684,7 337,7 103 1 027,0
Taxation 235,5 114,0 354,6
Earnings attributable to ordinary 449,2 101
shareowners 223,7 672,4
Number of ordinary shares (000)
in issue 46 608 43 948 44 934
weighted average 46 117 43 791 44 026
Earnings per ordinary share
(cents)
attributable earnings basis 974 511 91 1 527
headline earnings basis 968 516 88 1 588
cash equivalent basis 1 312 791 66 2 246
Diluted earnings per ordinary
share (cents) (note 2)
attributable earnings basis 874 463 89 1 307
headline earnings basis 868 468 85 1 359
Dividends per ordinary share 494 247 100 768
(cents)
Note 1
IFRS 2 `Share-Based Payment`
The Group has taken advantage of the transitional provisions of IFRS 2 in
respect of share options and has applied IFRS 2, only to share options
granted to staff after 7 November 2002. The effect of the revised policy is
to decrease current half year profits by R4,3 million (2003: R1,5 million)
due to an increase in the employee benefits expense with a corresponding
increase in equity. All comparatives have been appropriately restated.
IFRS 3 `Business Combinations`, IAS 36 `Impairment of Assets`
The adoption of IFRS 3 has resulted in the Group ceasing annual goodwill
amortisation. From 1 April 2004, the remaining balance will be tested
annually for impairment in terms of IAS 36. Goodwill amortised in 2003 half
year results was R7,6 million (full year: R28,6 million).
The 2003 interim results have been restated to include the effects of
consolidating the Edgars Stores Limited Staff Share Trust.
Note 2
Dilution on possible exercise of share options.
2004 2003 Chan 2004
27 weeks 26 weeks ge 52 weeks
September September % March
Rm Rm Rm
(unaudite (restated (restated
d) & &
unaudited audited)
)
Note 3
Cost of credit (11,1) (12,1) (5,8)
Financial services profit (1) 104,7 91,7 191,6
Credit and financial services
profit 93,6 79,6 185,8
Notional financing costs allocated
on own debtors (2) (116,0) (123,0) (238,6)
Total cost of credit (22,4) (43,4) (52,8)
Net financing costs (7,7) (25,3) (50,7)
Notional financing receipts
allocated (2) 116,0 123,0 238,6
Group net financing receipts 108,3 97,7 187,9
Total profit from financing 85,9 54,3 58 135,1
(1) Comparatives have been
restated to include cellphone
insurance revenue previously
allocated to retail Divisions.
(2) Being a market related charge
on the balance sheet assets within
the credit area.
Reconciliation of headline
earnings
Group attributable earnings 449,2 223,7 672,4
Less: Profit on disposal of
fixtures, equipment and vehicles (0,2) 1,3 1,4
Less: Recognition of discount on (4,0) (9,9) (22,0)
acquisition of RAG receivables
and assets
Plus: CNA and Super Mart - 8,1 45,5
acquisition write-offs
(incl. amortisation)
Taxation effect 1,2 3,0 2,0
Headline earnings 446,2 226,2 699,3
SEGMENTAL ANALYSIS
Retail sales
Department Stores Division
Edgars 3 279,5 2 542,7 29 5 595,8
CAN 414,5 345,2 20 874,3
Boardmans 98,3 - -
3 792,3 2 887,9 31 6 470,1
Discount Division
Jet 2 072,7 1 517,4 37 3 599,9
Super Mart/Jet Mart 164,8 186,9 (12) 460,0
2 237,5 1 704,3 31 4 059,9
6 029,8 4 592,2 31 10 530,0
2004 2003 2004
27 weeks 26 weeks 52 weeks
September September March
Rm Rm Rm
(restated Chan (restated
(unaudite & ge % &
d) unaudited audited)
)
Average retail space (000mSquared)
Edgars
Department Stores Division
Edgars 388 375 3 379
CNA 89 78 14 82
Boardmans 25 - -
502 453 11 461
Discount Division
Jet 292 281 4 283
Super Mart/Jet Mart 60 46 30 50
352 327 8 333
854 780 9 794
Number of stores
Department Stores Division
Edgars 163 151 155
CNA 192 149 186
Boardmans 25 - -
380 300 341
Discount Division
Jet 296 270 283
Super Mart/Jet Mart 20 15 17
316 285 300
696 585 641
Gross profit
Department Stores Division
Edgars 1 396,1 1 028,0 36 2 298,5
CNA 128,9 129,0 - 328,5
Boardmans 38,1 - -
1 563,1 1 157,0 35 2 627,0
Discount Division
Jet 816,2 565,2 44 1 369,2
Super Mart/Jet Mart 33,9 48,7 (30) 110,5
850,1 613,9 38 1 479,7
2 413,2 1 770,9 36 4 106,7
2004 2003 Chan 2004
27 weeks 26 weeks ge % 52 weeks
September September March
Rm Rm Rm
(restated (restated
(unaudite & &
d) unaudited audited)
)
Trading profit
Department Stores Division 379,1 211,8 79 589,6
Discount Division 221,2 98,5 125 366,6
Manufacturing (1,0) (18,8) 95 (17,3)
Amortisation of goodwill and (0,5) (8,1) (47,0)
intangibles
598,8 283,4 111 891,9
CASH FLOW STATEMENTS
2004 2003 2004
27 weeks 26 weeks 52 weeks
September September March
Rm Rm Rm
(unaudited) (restated (restated
& &
unaudited audited)
)
Cash retained from operating
activities
Operating profit 692,4 363,0 1 077,7
Depreciation, amortisation and 137,0 117,3 269,4
impairment
Other non-cash items 7,0 (7,3) 4,0
Cash `EBITDA` 836,4 473,0 1 351,1
Decrease in working capital 40,7 (102,3) (676,7)
Inventories (122,9) (101,2) (31,0)
Trade accounts receivable (712,5) (228,6) (870,1)
Net proceeds of securitisation 933,7 - -
Other debtors 13,2 (113,6) (67,6)
Accounts payable * (70,8) 341,1 292,0
Cash generated from operating 877,1 370,7 674,4
activities
Net financing costs paid (7,7) (25,3) (50,7)
Taxation paid (240,8) (210,7) (422,5)
Cash inflow from operations 628,6 134,7 201,2
Dividends paid (239,2) (80,9) (190,8)
Net cash retained 389,4 53,8 10,4
Cash utilised in investment activities
Investment in fixtures, equipment and (199,0) (137,6) (271,0)
vehicles
Acquisitions (78,6) - (66,1)
Net cash utilised (277,6) (137,6) (337,1)
Cash effects of financing activities
Decrease in shareowner funding (21,4) 19,3 43,4
Decrease in interest bearing debt (1,5) (94,4) 183,1
Net cash outflow from financing (22,9) (75,1) 226,5
activities
Increase in cash and cash equivalents 88,9 (158,9) (100,2)
Cash and cash equivalents at the 195,1 298,0 298,0
beginning of the period
Currency adjustments 3,1 (3,0) (2,7)
Cash and cash equivalents at the end 287,1 136,1 195,1
of the period
Attributable cash flow per ordinary 1 363 308 457
share (cents)
* Reflects 7 creditor payment runs versus 6 last year as a direct
consequence of the inclusion of the extra trading week.
BALANCE SHEETS
2004 2003 2004
September September March
Rm Rm Rm
(unaudite (restated & (restated
d) unaudited) &
audited)
ASSETS
Non-current assets
Properties, fixtures, equipment and 809,0 715,3 738,2
vehicles
Goodwill and trademarks 79,6 95,4 54,1
Investments 575,7 400,0 400,0
Total non-current assets 1 464,3 1 210,7 1 192,3
Current assets
Inventories 1 399,3 1 285,4 1 231,0
Accounts receivable and prepayments 2 070,6 1 905,5 2 477,5
Cash and cash equivalents 287,1 136,1 195,1
Total current assets 3 757,0 3 327,0 3 903,6
Total assets 5 221,3 4 537,7 5 095,9
EQUITY AND LIABILITIES
Capital and reserves
Ordinary shareowners` equity 2 843,2 2 290,7 2 649,8
Preference share capital 0,3 0,3 0,3
Minority interests - 0,3 -
Total shareowners` funds 2 843,5 2 291,3 2 650,1
Interest bearing debt 365,0 89,0 366,5
Total capital employed 3 208,5 2 380,3 3 016,6
Interest free liabilities
Current payables 1 914,4 2 119,2 1 992,9
Deferred taxation 98,4 38,2 86,4
Total interest free liabilities 2 012,8 2 157,4 2 079,3
Total equity and liabilities 5 221,3 4 537,7 5 095,9
Gearing ratios
Net interest bearing debt/total
shareowners` funds 0,03 (0,02) 0,06
Total liabilities/total shareowners`
funds 0,84 0,98 0,92
Future capital expenditure
Contracted 247,6 73,9 36,5
Authorised but not contracted 106,4 217,0 575,3
Unutilised borrowing facilities 1 090,0 883,7 661,7
Net equity per ordinary share (cents) 6 100 5 212 5 897
STATEMENTS OF CHANGES IN ORDINARY SHAREOWNERS` EQUITY
2004 2003 2004
September September March
Rm Rm Rm
(unaudite (restated & (restated
d) unaudited) &
audited)
Ordinary shareowners` equity at the
beginning of the period 2 649,8 2 131,2 2 131,2
Net movement in treasury shares (21,4) 19,3 43,4
Earnings attributable to ordinary
shareowners 449,2 23,7 672,4
Ordinary dividends paid (239,2) (80,9) (190,8)
Other 4,8 (2,6) (6,4)
Balance at 2 October 2004 2 843,2 2 290,7 2 649,8
KEY INDICATORS IN US DOLLAR TERMS
2004 2003 Chang 2004
27 weeks 26 weeks e 52 weeks
September September % March
US$m US$m US$m
(unaudite (restated (restated
d) & &
unaudited) unaudited
)
Revenue - retail sales 928 604 54 1 467
Headline earnings attributable to 69 30 130 97
ordinary shareowners
Net equity per ordinary share 946 731 29 898
(cents)
Headline earnings per share 149 68 119 221
(cents)
Dividends declared (cents) 77 33 133 115
Closing rate 6,45 7,13 6,57
Average rate 6,50 7,60 7,18
DIRECTORS
NON-EXECUTIVE DIRECTORS
WS MacFarlane (Chairman)
AJ Aaron
TN Eboka
ZB Ebrahim
JDMG Koolen#
PL Wilmot
SDM Zungu
# Netherlands
EXECUTIVE DIRECTORS
SM Ross** (Chief Executive)
SR Binnie*
AvA Boshoff
MR Bower
Dr U Ferndale
JL Spotts**
**USA * UK
GROUP SECRETARY
EA Bagley
TRANSFER SECRETARIES
Computershare Investor Services 2004 (Proprietary) Limited
70 Marshall Street, Johannesburg 2001
PO Box 61051, Marshalltown 2107
Fax: +27 11 370-5487
Telephone: +27 11 370-5000
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: +27 11 837-5019
Telephone: +27 11 495-6000
AUDITORS
Ernst & Young
Wanderers Office Park,
52 Corlett Drive, Illovo 2196
PO Box 2322, Johannesburg 2000
Telephone: +27 11 772-3000
SPONSORS
Cazenove South Africa (Proprietary) Limited
First Floor, Moorgate
Dunkeld Park
6 North Road, Dunkeld West
PO Box 412468, Craighall, 2024
Telephone: +27 11 280-7900
