| Thu 24 Feb 2005, 16:51 | | Interim Report |
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Truworths International Limited - Interim Report For The 26-Week Period Ended 31
December 2004
TRUWORTHS INTERNATIONAL LIMITED
(Registration number 1944/017491/06)
Share code: TRU
ISIN: ZAE000028296
INTERIM REPORT for the 26-week period ended 31 December 2004
# INTERIM DIVIDEND UP 52%
# HEADLINE EARNINGS PER SHARE UP 34%
# OPERATING PROFIT UP 32%
# HEADLINE EARNINGS UP 31%
# MERCHANDISE SALES UP 22%
Truworths International Limited is a JSE Securities Exchange South Africa
listed investment holding company with trading subsidiaries engaged either
directly or through franchises and agencies in the retailing of fashion apparel
and related merchandise. The group operates primarily in southern Africa.
THE RETAIL ENVIRONMENT
Against the backdrop of one of the longest economic upswings for many years,
growth in sales of clothing and footwear gained further momentum in the period
under review.
The robust consumer spending, buoyed by real growth in incomes, lower interest
rates and high levels of confidence, continued. Contrasting with a bumper
year-end trading period were concerns over inflationary pressure from
increasing credit demand, supply constraints from the rapid economic growth and
the impact of declining export competitiveness because of rand strength.
GROUP RESULTS
The group`s results, which exceeded plans, are particularly encouraging when
considered against the base established over the past 10 years. Headline
earnings per share for the 26 weeks to 31 December 2004 increased from 52.5
cents to 70.5 cents - a 34% increase, within the forecast indicated in the
January trading statement. The interim dividend has increased by 52% to 32
cents per share.
The 22% increase in merchandise sales for the period was achieved with 8% more
retail space (weighted for the period). Comparable store sales growth was 17%
and product inflation in the group for the period averaged 5%. All merchandise
groups exceeded expectations, with encouraging performances from Truworths Man,
Daniel Hechter, and Identity, as shown below:
Sales Rm % change on prior period
Truworths 1 080 19
Truworths Man 297 22
Daniel Hechter 172 28
Identity 119 42
1 668 22
Franchise 9 (3)
Total 1 677 22
Young Designers` Emporium (YDE) which has been successfully integrated into
Truworths` systems and support infrastructures, achieved sales of R76 million
and a profit after taxation comfortably in line with valuation targets set when
the business was acquired in December 2003.
The group`s overall performance reflected the advantages of a focused
merchandise strategy, improved efficiency levels and disciplined expense
management. Trading profit increased by 41%, gross margin improved by more than
1% and operating costs as a percentage of sales reduced to 30% from 32%.
Greater sales promotion costs, expenditure on higher performance bonuses and
the inclusion of YDE operation costs, accounted for the rise in operating
costs. Tight inventory controls allowed the group to improve stock turn.
In the period under review, during which credit facilities were introduced at
Identity and YDE, the group`s debtor book increased by 23% to R1 153 million,
on a credit sales growth of 24% compared to December 2003. Despite the
expansion of the account base to over 900 000 customers, in excess of 91% of
debtors are current and able to purchase. The group`s conservative credit
granting policies were maintained. Credit sales as a percentage of total retail
sales remained similar to prior periods at 73%.
The state of the debtor book was further improved, with a lower percentage of
arrear accounts and better collections. The group continued to write off
debtors in accordance with a strict ageing policy. A doubtful debt provision
has been calculated on a basis consistent with that of the prior period.
CASH FLOWS AND FINANCIAL POSITION
Immediately following the reporting period, an amount of R381 million (2003:
R207 million) was paid in respect of provisional tax and creditors` payments.
The group`s financial position remains strong, as shown by the growth in cash
and cash equivalents to R715 million. This was despite larger working capital
requirements, capital expenditure amounting to R55 million, and higher dividend
payments during the period of R121 million arising from the decision to reduce
the dividend cover at June 2004. Tax payments in the period amounted to R43
million.
Cash earnings before interest, tax, depreciation and amortisation (`EBITDA`) at
R445 million reflected an increase of 39% over the prior period. Attributable
cash flow increased from 57 cents per share to 97 cents per share.
In striving to make optimum use of its cash resources, over and above
initiatives such as material reductions in dividend cover and share repurchases
by a subsidiary in favourable market conditions, the group continues to
evaluate acquisition opportunities with a view to funding these using cash. As
previously advised, the group`s strategy is to target retail opportunities that
have a synergistic fit with Truworths and which can be easily integrated into
Truworths` systems, management structures and supply chain processes.
POST BALANCE SHEET EVENT
On 7 January 2005, the group approved a settlement agreement with the South
African Revenue Service in relation to the taxation of its participation in
container export partnerships in prior periods. Details of this agreement,
which is regarded as satisfactory by the board given that it will have
no material adverse impact on the group`s future earnings and removes the risk
of any further taxation exposure in relation to the partnerships, are contained
in the contingent liability note below.
DIVIDEND
The Board has declared an interim dividend of 32 cents per share; this is 52%
more than last year `s interim dividend. In line with the group`s continuing
initiatives to make optimum use of cash resources, dividend cover has been
revised to 2.2 times headline earnings from 2.3 times at June 2004.
OUTLOOK
Although concerns have been expressed in some quarters about an overheating
economy, consumers continue to have a confident outlook, with sales for the
first eight weeks since 31 December 2004 comfortably ahead of budget. Given the
market share gains in the first half, a continuing acceptance of the group`s
fashion leadership, and the further expansion of trading space, management is
positive about the trading prospects for the remainder of the second half of
the financial period. It is anticipated that there will be continued growth in
headline earnings for the full 52-week period. The headline earnings per share
achieved during the 2004 financial period were 110 cents.
APPROVAL
This interim report was approved by the directors on 24 February 2005, and is
signed on their behalf by:
H Saven MS Mark
Chairman Chief Executive Officer
BALANCE SHEETS
Unaudited Audited
at 31 Dec at 30 June
2004 2003 2004
Rm Rm Rm
ASSETS
Non-current assets 475.2 424.9 449.1
Property, fixtures, vehicles, plant,
equipment and software 295.4 274.1 275.8
Goodwill 36.4 - 38.4
Investments 100.7 108.6 105.1
Loans 42.7 42.2 29.8
Current assets 2 097.2 1 689.3 1 638.6
Inventories 240.1 210.3 198.0
Trade and other receivables 1 141.0 920.9 963.2
Prepayments 1.6 1.3 23.0
Cash and cash equivalents 714.5 556.8 454.4
Total assets 2 572.4 2 114.2 2 087.7
EQUITY AND LIABILITIES
Share capital 0.1 0.1 0.1
Share premium 189.4 171.9 177.4
Retained earnings 1 778.7 1 420.5 1 586.1
1 968.2 1 592.5 1 763.6
Treasury shares (275.6) (112.0) (275.3)
Shareholders` equity 1 692.6 1 480.5 1 488.3
Minority interest 13.1 - 12.1
Total shareholders` equity 1 705.7 1 480.5 1 500.4
Non-current liabilities 97.6 116.0 94.2
Deferred tax 76.3 78.0 76.3
Retirement benefit obligation 21.3 38.0 17.9
Current liabilities 769.1 517.7 493.1
Trade and other payables 491.0 381.1 336.6
Short-term provisions 0.4 2.6 0.4
Current tax payable 277.7 134.0 156.1
Total liabilities 866.7 633.7 587.3
Total equity and liabilities 2 572.4 2 114.2 2 087.7
Number of shares in issue
(adjusted for treasury shares)
(millions) 449.2 461.3 446.4
Net asset value per share
(cents) 379.7 320.9 336.1
INCOME STATEMENTS
Unaudited Audited
26 weeks 52 weeks
Note to 31 Dec to 30 June
2004 2003 Change 2004
Rm Rm % Rm
Revenue 3 1 787.1 1 459.1 22 2 903.9
Sale of merchandise 1 677.0 1 376.1 22 2 718.7
Cost of sales (777.9) (654.8) (1 287.3)
Gross profit 899.1 721.3 25 1 431.4
Expenses 4 (498.6) (437.0) 14 (833.8)
Trading profit 400.5 284.3 41 597.6
Dividends received 1.0 1.7 2.7
Interest received 77.4 75.6 145.7
Profit before finance costs,
exceptional items and tax 478.9 361.6 32 746.0
Finance costs - (0.2) (0.2)
Profit before exceptional
items and tax 478.9 361.4 33 745.8
Exceptional items - 13.4 15.4
Profit before tax 478.9 374.8 28 761.2
Income tax expense (164.4) (120.2) (243.5)
Profit after tax 314.5 254.6 24 517.7
Minority interest (1.0) - (0.5)
Net profit attributable to
shareholders 313.5 254.6 23 517.2
Cents per share:
Dividends declared for the
period 32.0 21.0 52 48.0
Headline earnings 7 70.5 52.5 34 110.0
Basic earnings 70.2 55.4 27 113.0
Fully diluted headline earnings 68.5 51.2 34 107.4
Fully diluted basic earnings 68.2 54.1 26 110.4
Weighted average number of
shares in issue
(millions) 446.8 459.4 457.8
CASH FLOW STATEMENTS
Unaudited Audited
26 weeks 52 weeks
to 31 Dec to 30 June
2004 2003 Change 2004
Rm Rm % Rm
CASH FLOWS FROM OPERATING
ACTIVITIES
Cash flow from trading 444.3 318.5 671.6
Dividends received 1.0 1.7 2.7
Cash EBITDA 445.3 320.2 39 674.3
Working capital movements (46.0) (32.6) (139.6)
Cash generated from operations 399.3 287.6 534.7
Finance costs - (0.2) (0.2)
Interest received 77.4 75.6 144.4
Tax paid (42.8) (102.2) (205.2)
Cash inflow from operations 433.9 260.8 473.7
Dividends paid (120.5) (96.8) (193.6)
Net cash from operating
activities 313.4 164.0 91 280.1
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of property, fixtures,
vehicles, plant,
equipment and software to
maintain and
expand operations (54.7) (31.1) (61.2)
Proceeds on disposal of
property, fixtures,
vehicles, plant, equipment and
software 0.5 0.5 0.9
Cash flow on business acquired
net of cash - - (25.6)
Loans advanced (18.6) (20.3) (8.3)
Loans repaid 3.7 - 0.4
Decrease in investments 4.4 0.9 5.5
Net cash used in investing
activities (64.7) (50.0) (88.3)
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds on share issue 11.7 18.7 24.5
Shares repurchased (0.3) (30.8) (194.6)
Sale of shares held by share
trust - (0.2) 0.3
Contribution paid in respect of
retirement
benefit obligation - - (22.8)
Net cash from/(used in)
financing activities 11.4 (12.3) (192.6)
Net increase/(decrease) in cash
and cash
equivalents 260.1 101.7 (0.8)
Net cash inflow from
discontinued operations - 10.0 10.1
Cash and cash equivalents for
the period 260.1 111.7 9.3
Cash and cash equivalents at the
beginning of the period 454.4 445.1 445.1
Cash and cash equivalents at the
end
of the period 714.5 556.8 454.4
Cash flow per share (cents) 97.1 56.8 103.5
Cash equivalent earnings per
share (cents) 80.0 61.1 125.9
STATEMENTS OF CHANGES IN TOTAL EQUITY
Share capital Retained Treasury Minority Total
and premium earnings share interest equity
Rm Rm Rm Rm Rm
Balance at 30 June 2004 177.5 1 586.1 (275.3) 12.1 1 500.4
Profit for the period - 313.5 - 1.0 314.5
Dividends - (120.6) - - (120.6)
Shares issued 11.7 - - - 11.7
Sale of shares held by
share trust 0.3 (0.3) - - -
Shares repurchased - - (0.3) - (0.3)
Balance at 31 December
2004 189.5 1 778.7 (275.6) 13.1 1 705.7
Balance at 30 June 2003 153.3 1 262.7 (81.0) - 1 335.0
Profit for the period - 254.6 - - 254.6
Dividends - (96.8) - - (96.8)
Shares issued 18.8 - - - 18.8
Share issue expenses
written off (0.1) - - - (0.1)
Sale of shares held by
share trust - - (0.2) - (0.2)
Shares repurchased - - (30.8) - (30.8)
Balance at 31 December
2003 172.0 1 420.5 (112.0) - 1 480.5
NOTES
1. Basis of preparation
This report complies with the requirements of AC127, the South African
Statement of Generally Accepted Accounting Practice governing interim financial
reporting, as well as with part IV of Schedule 4 of the South African Companies
Act and paragraph 8.58 of the Listings Requirements of the JSE Securities
Exchange South Africa. The information presented in this report has neither
been audited nor reviewed by the external auditors.
2. Accounting policies
This report has been prepared on the historical cost basis and in accordance
with the accounting policies which were applied in the preparation of the
group`s annual financial statements for the period ended 30 June 2004.
Unaudited Audited
26 weeks 52 weeks
to 31 Dec to 30 June
2004 2003 Change 2004
Rm Rm % Rm
3. Revenue
Sale of merchandise 1 677.0 1 376.1 22 2 718.7
Commission received 17.0 - 17.3
Display fees received 6.8 - 6.6
Dividends received 1.0 1.7 2.7
Interest received 77.4 75.6 145.7
Lease rental income received 5.0 3.4 8.3
Royalties received 0.8 0.8 1.6
Warehousing and management fees
received 2.1 1.5 3.0
1 787.1 1 459.1 22 2 903.9
4 Expenses
Depreciation and amortisation of
goodwill 36.9 34.5 7 71.1
Occupancy costs 117.2 97.9 20 208.2
Employment costs 201.6 181.6 11 348.9
Other operating costs 142.9 123.0 16 205.6
498.6 437.0 14 833.8
5 Interest received
Investments 22.3 20.7 38.0
Trade receivables 55.1 54.9 107.7
77.4 75.6 2 145.7
6 Exceptional items
Distributions from discontinued
operations - 10.0 10.1
Part release of provision:
discontinued
operations - 3.4 5.3
- 13.4 15.4
7 Headline earnings
Headline earnings have been
calculated in
terms of SAICA Circular 7/2002
as follows:
Profit for the period
attributable to equity
holders of the parent 313.5 254.6 23 517.2
Amortisation of goodwill 1.5 - 1.7
Exceptional items - (13.4) (15.4)
Net surplus on asset realisation
after
taxation (0.2) (0.1) -
Headline earnings 314.8 241.1 31 503.5
8 Segment reporting
Segmental information is not
disclosed as
the group is regarded as having
only a
single material southern African
retailing
segment.
9 Future capital expenditure
Capital expenditure authorised
but not
contracted:
Computer equipment and software 15.8 15.5 26.2
Fixtures, fittings, plant and
equipment 31.9 23.8 77.2
47.7 39.3 103.4
10 Leases
The group rents all its trading premises in terms of operating leases, whereas
other operating assets including the head office building and distribution
centre are owned.
Leases on trading premises are contracted for periods of between three and
fifteen years, with renewal options for a further three or five years. Some of
these leases provide for minimum annual rental payments together with
additional amounts determined on the basis of sale of merchandise.
At 31 December 2004, the future
minimum property operating lease
commitments due were as follows: 924.1 916.6 857.9
Within one year 194.3 168.4 174.3
Between one and five years 572.1 543.5 526.2
Between five and ten years 146.1 170.2 141.9
Between ten and fifteen years 11.6 34.5 15.5
11 Seasonality
There is no material seasonal variation in trading between the first and second
periods of the full financial period.
12 Comparative figures
Comparative figures in respect of royalties received have been restated in
revenue.
13 Contingent liability
Recorded under Investments is the group`s participation in partnerships which
exported dry containers in prior periods. The South African Revenue Service
(`SARS`) has been conducting an investigation into the taxation treatment by
certain other companies participating in these partnerships with financial
periods ending after 1 March 1996.Trencor Limited has materially warranted
certain important aspects relating to the partners` participation, including
their anticipated cash flows in the event that SARS were to raise assessments
for taxation on a basis different to that anticipated.
The group`s deferred tax liability at the end of the period in respect of its
participation in the partnerships under investigation was R73.2 million (2003:
R79.9 million), excluding interest and penalties.
Subsequent to the period end, the group approved a settlement arrangement in
terms of which SARS agreed to terminate its investigation and waive all claims
for interest and penalties, provided the partners agreed to accelerate the
recognition and payment of portion of the taxation attributable to their
participation in the partnerships in question. In terms of the settlement, the
group will be required to make a taxation payment of approximately R36 million
by 30 June 2005. As provision had been made at the onset of partnership
participation through the deferred taxation liability, recognition and payment
of this taxation will have no material impact on the group`s income statement.
14 Events subsequent to the period end
Other than the developments referred to in the contingent liability note above,
no event material to the understanding of this interim report has occurred
between the end of the period and the date of approval of this report.
INTERIM DIVIDEND
The directors have resolved to declare a dividend in respect of the six months
ended 31 December 2004 in the amount of 32.0 (2003: 21.0) cents per share to
holders of the company`s shares reflected in the company`s register on the
record date, being Friday 18 March 2005.
The last day to trade in the company`s shares cum dividend is Friday 11 March
2005. Trading in the company`s shares ex dividend will commence on Monday 14
March 2005.
The dividend will be paid in South African Rand on Tuesday 22 March 2005.
Consequently no dematerialisation or rematerialisation of the company`s shares
may take place over the period from Monday 14 March 2005 to Friday 18 March
2005, 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 charity to be nominated by the directors.
By order of the board
C Durham Cape Town
Company Secretary 24 February 2005
Truworths International Limited: (Registration number 1944/017491/06)
Share code: TRU ISIN: ZAE000028296
Registered office: No. 1 Mostert Street, Cape Town 8001.
PO Box 600, Cape Town 8000, South Africa
Lead sponsor: Barnard Jacobs Mellet Corporate Finance (Pty) Ltd.
Joint sponsor: Standard Bank of South Africa Limited
Auditors: Ernst & Young
Transfer secretaries: Computershare Investor Services 2004 (Pty) Ltd,
70 Marshall Street, Johannesburg 2001, PO Box 61051, Marshalltown 2107,
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: H Saven (Chairman)**#, MS Mark (CEO)*, RG Dow**#, CT Ndlovu**#,
A E Parfett**#, AJ Taylor*, MA Thompson**# and WM van der Merwe*
*Executive **Non-executive #Independent
These results are available on our website at www.truworths.co.za
Truworths
Truworths Man
Daniel Hechter
Identity
InWear International
Ltd Woman
Truworths Elements
Truworths Jewellery
YDE
