| Wed 18 May 2005, 8:15 | | Edcon - Audited financial report for the year ende |
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Edcon - Audited financial report for the year ended 2 April 2005
EDGARS CONSOLIDATED STORES LIMITED
`EDCON`
(Registration No: 1946/022751/06)
Incorporated in the Republic of South Africa
Share Code: ECO
ISIN number: ZAE000018388
AUDITED FINANCIAL REPORT FOR THE YEAR ENDED 2 APRIL 2005
SALIENT FEATURES
Retail sales growth of 29%
Headline earnings per share up 68%
Attributable earnings up 83% to over R1 billion
Total dividends of 1 345 cents (75% increase)
Cash `EBITDA`growth of 57%
Cash wealth created up 64% to over R4 billion
THE RETAIL ENVIRONMENT
During the past year, consumer spending in South Africa remained especially
buoyant. Continued low interest rates, real wage growth and cumulative cuts in
personal taxation have enhanced the financial position of customers.
Furthermore, the disposable income of black consumers is increasing through the
continuing normalisation of society and retailers have benefited from this.
Sharp increases in property and share prices have also boosted consumers`
confidence levels. These positive factors have been partly offset by spiralling
fuel prices and the slow pace of job creation, as the effects of the stronger
Rand reduced margins in the export sector of the economy.
Against this background, clothing, footwear and textile (CFT) sales remained
robust. Statistics provided by the Retailers` Liaison Committee (RLC) indicate
that nominal CFT sales rose by 19% in the year to March 2005, while deflation in
the sector is estimated to have been 4%.
GROUP RESULTS
It has been another sensational year for Edcon. The Group has produced
substantial improvements in its key measurement criteria and has exceeded all
internal targets to deliver over R4 billion of new wealth into the South African
economy. This compares to R2,5 billion generated in the previous year, and
represents a truly remarkable performance.
The Group achieved headline earnings per share of 2 661 cents, up 68%. This
follows the exceptional growth of 102% and 154% attained in the two previous
financial years, and exceeds the anticipated increase of approximately 60%
disclosed in a trading statement issued during January 2005, demonstrating the
sustainable momentum of the Group`s business model. Profit before tax rose by
R824 million following growth of R462 million last year.
Attributable earnings grew by 83%, including R52 million of earnings relating to
the inclusion of a non-comparable additional trading week, which accounted for
7% of the increase in headline earnings per share. The return on shareowners`
equity for the year reached 40,3% - well ahead of the over-time goal of 25%.
Edcon continues to gain market share as sales climbed by an outstanding 29%,
three percentage points of which related to the extra trading week and two
percentage points to Boardmans. It is pleasing to note that the remaining
increase was realised with only 7% additional average retail space.
Efficient supply chain management and focused merchandise procurement, as the
Group took advantage of its bulk purchasing power, triggered an 80 basis point
rise in the gross profit margin to 39,8% - in line with the Group`s long-term
objective of 40%. Operating margin reached 13,6%, exceeding the over-time
target of 12%. A Group stockturn of 5,8 times, up from 5,2 times, ensured
customers could select from new product on a regular basis. This is
substantially in line with Edcon`s long-term stockturn goal of 6 times.
In the Department Stores Division - incorporating Edgars, CNA and Boardmans -
productivity enhancements in merchandise, space and staff management,
facilitated an impressive 68% increase in trading profit. This enabled the
Division to produce a trading profit to sales ratio of 12%; in line with its
long-term objective. At the individual chain level, Edgars grew its turnover by
an exceptional 26%. This was accomplished with no price inflation and a rise of
only 6% in average retail space. A focus on appropriate and core product,
combined with well-balanced pricing strategies, ensured that all merchandise
categories achieved growth over last year, with ladieswear, menswear and
infantswear delivering especially good results. The gross profit margin
increased by 120 basis points to 42,3%, which can be attributed to lower input
costs, resulting from increased volumes purchased, and the securement of
additional sourcing options. In addition, stockturn rose to 5,5 times from 5,2
times last year.
CNA increased its sales by 16%, with price deflation of 3%. The chain added 10%
to the average trading space, eight percentage points of which relate to the
purchase of ThisDay stores, which occurred during November 2003. It is
encouraging to note that comparable sales growths accelerated in the last
quarter of the financial year. Newsstand and books registered strong progress
as a result of a focused merchandise strategy and more efficient inventory
management, improving overall stockturn to 3,4 times. Aggressive markdowns to
clear slow moving stock, the mix of product sold and more competitive pricing
constrained the gross profit margin to 32,5%.
Boardmans has concentrated on rebalancing and improving product assortments.
Their integration onto Edcon`s systems, distribution and support infrastructures
was completed successfully in June 2004. The chain has performed in line with
Edcon`s targets and achieved sales of R241 million and a gross profit margin of
38,6% in its first year as part of the Edcon Group.
Once again, the Discount Division - incorporating Jet and Jet Mart (previously
Super Mart) - reported outstanding results with a 78% increase in trading profit
and a trading profit to sales ratio of 12,4%, surpassing its goal of 11%. The
Jet chain continued to grow aggressively and its sales rose by an impressive
34%. This is all the more remarkable considering that the chain`s deflation in
prices was 18% and only 5% additional average retail space was commissioned.
Jet`s strategy of offering customers affordable quality ranges, coupled with
ever-improving productivity measures, played a large part in its success and all
major product categories gained market share. Efficient replenishment processes
and better input margins ensured that the gross profit margin improved from
38,0% to 39,3%. Confirmation of Jet`s ability to improve the return on its
merchandise investment is reflected in the increase in stockturn from 7,2 times
last year to 8,6 times.
Although total sales in Jet Mart were flat, with deflation running at 3%, the
chain is starting to realise the benefits of the strategy implemented by
management and the turnover growth for the second half of the financial year
reached 7%. Gross profit margin of 24,1%, while consistent with last year, was
unavoidably impacted by aggressive markdowns to clear old stock and
inappropriate merchandise. Encouragingly, stockturn has already improved from
4,6 to 4,9 times.
The cellular business, which is managed centrally by the Group, recorded an
impressive 45% rise in sales to R1 164 million.
Following the turnaround in the second half of last year, Edcon`s Manufacturing
Division continued to produce satisfactory results in a difficult operating
climate. This is reflected in the marginal loss of R4 million, compared with
the R17 million loss incurred last year. The reliance on export business has
diminished and costs have been streamlined.
The strength of the Group`s Credit and Financial Services Division is evidenced
by the excellent 55% advance in net profit from financing to R209 million from
R135 million in the previous year. This was attained in spite of the
significantly lower interest rates chargeable throughout the year. The financial
services business itself, with its innovative customer insurance offerings,
continued to record substantial growth.
During June 2004, Edcon sold a further tranche of debtors to OntheCards
Investments Limited (OtC). The net proceeds of R939 million were utilised to
repay debt and to fund new operational opportunities. As a consequence, Edcon
reduced the cost of funding its debtors, as reflected in the lowering of net
financing costs to R4 million from R51 million last year.
CASH FLOWS AND FINANCIAL POSITION
The quality of Edcon`s earnings is confirmed by the significant increase in cash
`EBITDA` to R2 117 million - a rise of 57%. The growth in trade accounts
receivable is a reflection of the growth of 19% in the account base over the
past year and 88% of the book is current. Credit sales account for 63% of total
sales, similar to last year`s 62%. Edcon has maintained its conservative policy
relating to doubtful debts and has adequately provided for any potential
deterioration in the book. Inventory levels have increased within the
parameters of projected sales and reflect significant stockturn improvements in
all chains.
Cash inflow from operations, with the R939 million securitisation proceeds,
rocketed to R1 399 million from R201 million last year, comfortably absorbing
the extensive store expansion plan as well as R79 million relating to the
Boardmans acquisition.
Edcon`s closing financial position remains exceptionally strong with a positive
cash and cash equivalent balance, net of interest bearing debt, of R291 million
at year-end. Further flexibility is provided by the total absence of gearing at
the year-end and the existence of R1 335 million in unutilised borrowing
facilities.
POST BALANCE SHEET EVENTS
In terms of the Group`s ongoing securitisation programme introduced in 2002, OtC
will refinance notes of R1,9 billion arising from the first tranche on their
maturity in June 2005. Furthermore, the Board has also resolved to securitise a
further approximately R800 million of new receivables during August 2005. The
programme continues to lower the Group`s funding costs and also provides
liquidity to fund future internal and external expansion opportunities.
ACCOUNTING POLICIES AND COMPARATIVES
The 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. 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 these changes is detailed in note 2 to
the Income Statement and the prior year results have been restated in compliance
with IAS 8. The headline earnings per share and the diluted headline earnings
per share for last year, as a consequence, have reduced from 1 597 cents to 1
588 cents per share and from 1 367 to 1 359 cents per share respectively.
DIVIDEND
In terms of the Group`s policy of covering dividends twice by attributable
earnings, the Board has declared a final dividend of 851 cents per share,
reflecting a 63% growth on last year`s final dividend. Total dividends of 1 345
cents per share are 75% higher than the previous year.
PROSPECTS
Profound structural changes have occurred in the South African economy. The
benefits of rising GDP, stable and relatively low interest and inflation rates
and improved disposable incomes, should fuel the country`s economic development
on a more sustainable basis. These benefits will continue to support retail
sales and moderate their cyclical volatility in the years ahead.
The Edcon Board remains confident, based on the current momentum in the
industry, that CFT sales will continue to grow in real terms in the forthcoming
year, albeit at a slower pace than in the past year. Edcon sales will also be
boosted by the opening of an estimated additional 10% average retail space. It
should, however, be noted that the new financial year contains one less trading
week, which contributed 2% of sales and 4% of earnings last year.
Productivity will be enhanced further through economies of scale from the
inclusion of new stores and a continued focus on operational efficiencies.
Consequently, shareowners should expect another meaningful rise in earnings,
above that of the sales growth.
For and on behalf of the Board
W S MacFarlane - CHAIRMAN,
S M Ross - CHIEF EXECUTIVE OFFICER
FINAL DIVIDEND
Notice is hereby given that the final ordinary dividend (No.117) of 851 cents
per share, in respect of the 53 weeks ended 2 April 2005, has been declared
payable to the holders of ordinary shares appearing in the records of the
company at the close of business on Friday, 1 July 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, 24 June 2005
Date trading commences ex dividend Monday, 27 June 2005
Record date Friday, 1 July 2005
Date of payment Monday, 4 July 2005
Shareholders may not dematerialise or rematerialise their share certificates
between Monday, 27 June 2005 and Friday, 1 July 2005, both dates inclusive.
On behalf of the Board
E A Bagley, Group Secretary
Johannesburg
17 May 2005
INCOME STATEMENTS
2005 2004
53 weeks 52 weeks
to 2 April to 27 March
(audited) (restated &
audited) Change
Rm Rm %
Revenue - retail sales 13 590 10 530 29
Cost of sales 8 180 6 423
Gross profit 5 410 4 107 32
Store costs 2 329 1 914
Other operating costs 1 439 1 301
Trading profit 1 642 892 84
Credit and financial services profit
(note 3) 213 186
Operating profit before financing
costs 1 855 1 078
Net financing costs (note 3) 4 51
Profit before taxation 1 851 1 027 80
Taxation 618 355
Earnings attributable to ordinary
shareowners 1 233 672 83
Number of ordinary shares (000)
in issue 46 918 44 934
weighted average 46 188 44 026
Earnings per ordinary share (cents)
attributable earnings basis 2 670 1 527 75
headline earnings basis 2 661 1 588 68
cash equivalent basis 3 131 2 246 39
Diluted earnings per ordinary share
(cents)
attributable earnings basis 2 413 1 307 85
headline earnings basis 2 405 1 359 77
Dividends per ordinary share (cents)
interim paid 494 247 100
final proposed 851 521 63
Total 1 345 768 75
Cover (times) 2,0 2,0
Return on shareowners` equity (%) 40,3 28,1
Note 1
These statements have been audited by Ernst & Young and the audit
certificate is available for inspection at the company`s registered
office.
Note 2
IFRS 2 `Share-based Payment`
The Group has adopted 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 this policy is to decrease
profit before taxation by R11 million (2004: R4 million). All comparatives
have been restated appropriately.
IFRS 3 `Business Combinations`, IAS 36 `Impairment of Assets`
The adoption of IFRS 3 has resulted in the Group ceasing annual goodwill
amortisation. Goodwill amortised in 2004 was R29 million. From 1 April
2004, the remaining balance is required to be tested annually for
impairment in terms of IAS 36 and no adjustment was necessary in the
current year.
Note 3
Cost of credit (50) (6)
Financial services profit(1) 263 192
Credit and financial services profit 213 186
Notional financing costs allocated
on own debtors(2) (238) (239)
Total cost of credit (25) (53)
Net financing costs (4) (51)
Notional financing receipts
allocated(2) 238 239
Group net financing receipts 234 188
Net profit from financing 209 135 55
(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 1 233 672
Less: Profit on disposal of
fixtures, equipment and vehicles (2) 1
Less: Recognition of discount on
acquisition of RAG receivables and
assets (4) (22)
Plus: CNA and Super Mart
acquisitions and write-offs (incl.
amortisation) - 46
Taxation effect 2 2
Headline earnings 1 229 699
SEGMENTAL ANALYSIS
Retail sales
Department Stores Division
Edgars 7 055 5 596 26
CNA 1 012 874 16
Boardmans 241
8 308 6 470 28
Discount Division
Jet 4 825 3 600 34
Jet Mart 457 460 -
5 282 4 060 30
13 590 10 530 29
Average retail space (000m2)
Department Stores Division
Edgars 401 379 6
CNA 90 82 10
Boardmans 29
520 461 13
Discount Division
Jet 297 283 5
Jet Mart 63 50 26
360 333 8
880 794 11
Number of stores
Department Stores Division
Edgars 171 155
CNA 191 186
Boardmans 28
390 341
Discount Division
Jet 320 283
Jet Mart 24 17
344 300
734 641
Gross profit
Department Stores Division
Edgars 2 982 2 299 30
CNA 329 328 -
Boardmans 93
3 404 2 627 30
Discount Division
Jet 1 896 1 369 38
Jet Mart 110 111 -
2 006 1 480 36
5 410 4 107 32
Trading profit
Department Stores Division 994 590 68
Discount Division 653 366 78
Manufacturing (4) (17) 76
Amortisation of goodwill and
intangibles (1) (47)
1 642 892 84
CASH FLOW STATEMENTS
2005 2004
53 weeks 52 weeks
to 2 April to 27 March
(audited) (restated &
audited)
Rm Rm
Cash retained from operating
activities
Operating profit 1 855 1 078
Depreciation, amortisation and
impairment 251 269
Other non-cash items 11 4
Cash `EBITDA` 2 117 1 351
Increase in working capital (201) (677)
Inventories (458) (31)
Trade accounts receivable (1 673) (870)
Net proceeds of securitisation 939
Other debtors 110 (68)
Accounts payable 881 292
Cash generated from operating
activities 1 916 674
Net financing costs paid (4) (51)
Taxation paid (513) (422)
Cash inflow from operations 1 399 201
Dividends paid (470) (191)
Net cash retained 929 10
Cash utilised in investment
activities
Investment in fixtures, equipment
and vehicles (380) (271)
Acquisitions (79) (66)
Net cash utilised (459) (337)
Cash effects of financing activities
Decrease in shareowner funding (7) 44
Decrease in interest bearing debt
(247) 183
Net cash outflow from financing
activities (254) 227
Increase in cash and cash
equivalents 216 (100)
Cash and cash equivalents at the
beginning of the period 195 298
Currency adjustments - (3)
Cash and cash equivalents at the end
of the period 411 195
Attributable cash inflow from
operations (cents per ordinary 3 029 457
share)
Cash realisation rate (%) 97 20
BALANCE SHEETS
2005 2004
2 April 27 March
(audited) (restated &
audited)
Rm Rm
ASSETS
Non-current assets
Properties, fixtures, equipment and
vehicles 920 738
Goodwill and trademarks 79 54
Investments 570 400
Total non-current assets 1 569 1 192
Current assets
Inventories 1 734 1 231
Accounts receivable and prepayments 2 935 2 478
Cash and cash equivalents 411 195
Total current assets 5 080 3 904
Total assets 6 649 5 096
EQUITY AND LIABILITIES
Capital and reserves
Total shareowners` funds 3 466 2 650
Interest bearing debt 120 367
Total capital employed 3 586 3 017
Interest free liabilities
Current payables 3 031 1 993
Deferred taxation 32 86
Total interest free liabilities 3 063 2 079
Total equity and liabilities 6 649 5 096
Gearing ratios
Net interest bearing debt/total
shareowners` funds (0,08) 0,06
Total liabilities/total shareowners`
funds 0,92 0,92
Future capital expenditure
Contracted 163 36
Authorised but not contracted 468 575
Unutilised borrowing facilities 1 335 662
Net equity per ordinary share 7 387 5 897
(cents)
STATEMENTS OF CHANGES IN ORDINARY SHAREOWNERS` EQUITY
2005 2004
to 2 April to 27 March
(audited) (restated &
audited)
Rm Rm
Ordinary shareowners` equity at the
beginning of the period 2 650 2 132
Compulsorily convertible debentures
converted on 31 March 2004 38
Ordinary share capital issued on 1 16
December 2004
Net movement in treasury shares (61) 44
Revaluation of land and buildings 50
Earnings attributable to ordinary 1 233 672
shareowners
Ordinary dividends paid (470) (191)
Other - including cost of share- 10 (7)
based payment
Balance at the end of the period 3 466 2 650
CASH VALUE ADDED STATEMENTS
2005 2004
53 weeks 52 weeks
to 2 April to 27 March
(audited) (restated &
audited) Change
Rm Rm %
Cash generated
Cash derived from customers 12 976 9 665
Cash payments outside the Group to
suppliers of materials, merchandise,
facilities and services (8 848) (7 151)
Wealth created through cash value
added 4 128 2 514 64
Cash utilised to:
Remunerate employees for their
services 1 527 1 279
Pay direct taxes to the state 513 422
Provide lenders with a return on
monies borrowed 27 66
Provide lessors with a return for
the use of their premises 662 546
Provide shareowners with cash
dividends 470 191
Cash disbursed among stakeholders 3 199 2 504 28
Net cash retained 929 10
KEY INDICATORS IN US DOLLAR TERMS
2005 2004
53 weeks 52 weeks
to 2 April to 27 March
(unaudited) (restated & Change
unaudited) %
Revenue - retail sales (US$m) 2 167 1 467 48
Headline earnings attributable to
ordinary shareowners (US$m) 196 97 102
Net equity per ordinary share (US
cents) 1 171 898 30
Headline earnings per share (US 424 221 92
cents)
Dividends per ordinary share (US
cents)
interim (paid) 84 37 127
final (proposed) 135 85 59
Closing rate 6,31 6,57
Average rate 6,27 7,18
Note:
Dividends paid are at actual rates on the date of payment. The final
dividend proposed is at the closing rate.
CORPORATE INFORMATION
NON-EXECUTIVE DIRECTORS
W S MacFarlane (Chairman), A J Aaron, Z B Ebrahim, J D M G Koolen#,
K D Moroka, P L Wilmot, S D M Zungu
#Netherlands
EXECUTIVE DIRECTORS
S M Ross** (Chief Executive), S R Binnie*, A v A Boshoff, M R Bower,
Dr U Ferndale, J L Spotts**
**USA *UK
GROUP SECRETARY
E A Bagley
TRANSFER SECRETARIES
Ultra Registrars (Proprietary) Limited.
5th Floor, 11 Diagonal Street
Johannesburg, 2001.
P O Box 4844, Johannesburg, 2000.
Telephone: +27 11 834-2266.
Fax: +27 11 834-4398.
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.
P O Box 100, Crown Mines, 2025. Telephone: +27 11 495-6000.
Fax: +27 11 837-5019.
AUDITORS
Ernst & Young, Wanderers Office Park, 52 Corlett Drive, Illovo, 2196.
P O Box 2322, Johannesburg, 2000.
Telephone: +27 11 772-3000.
SPONSORS
JP Morgan Equities Limited.
1 Fricker Road, cnr Hurlingham Road, Illovo, 2196.
Private Bag x9936, Sandton, 2146.
Telephone: +27 11 507-0300.
Fax: +27 11 507-0502 / 0503.
Irwin, Jacobs, Greene (Proprietary) Limited.
11th Floor, Sanlam Centre, Independence Avenue, Windhoek, Namibia.
P O Box 186, Windhoek, Namibia.
Telephone: +26 461 238-899.
Fax: +26 461 238-936.
ISIN number: ZAE000018388
Share code: ECO
These results can be viewed on the Internet at:
http://www.edcon.co.za
