| Wed 16 Nov 2005, 8:00 | | RESULTS FOR THE SIX MONTHS TO 1 OCTOBER 2005 |
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Edcon - Unaudited interim results for the six months to 1 October 2005
Edgars Consolidated Stores Limited
"Edcon"
(Reg. No. 1946/022751/06)
(Incorporated in the Republic of South Africa)
ISIN Code: ZAE000068649
SHARE CODE
JSE: ECO
NSX: ECN
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS TO 1 OCTOBER 2005
SALIENT FEATURESRetail sales growth of 22%
(comparable 26 week period up 27%)
Diluted headline earnings per share up 28%
(comparable 26 week period up 40%)
Dividend per share up 27%
Strong financial position with no gearing
(cash EBITDA up 23%)
THE RETAIL ENVIRONMENT
Economic activity in South Africa accelerated during the six months under
review, fuelled primarily by sustained high levels of consumer spending and
confidence. Supported by low interest rates and real wage increases, this
optimistic sentiment created ideal trading conditions for retailers. Customer
spending was boosted further by increasing property prices, a rise in employment
and the growing number of welfare grants. However, the escalating fuel price
has started to dampen consumers" optimism to some extent.
Against this background, sales in the clothing, footwear and textile (CFT)
sector remained buoyant. Statistics provided by the Retailers" Liaison
Committee (RLC) reflect that national CFT sales increased by 17% in nominal
terms in the past six months, while deflation in the sector is estimated to have
been 3%.
GROUP RESULTS
Edcon"s success of the past few years continued into the current period. The
Group, according to the RLC statistics, has lifted its share of the formal CFT
market from 29,5% to 31,0%, demonstrating the sustainability of its strategy.
The Board is pleased to report interim diluted headline earnings per share of
109 cents, up 28%. This follows the excellent growth of 85% and 77% attained in
the corresponding periods of the past two years. More impressively, the current
period"s profits were achieved with one less trading week than last year. Based
on like-for-like trading weeks, diluted headline earnings per share rose by 40%.
Both increases are after the anticipated 5% dilutionary impact, on current
earnings, of the recently announced staff empowerment transaction.
Edcon"s sales grew by 22%, while the comparable 26 week period sales were an
even more impressive 27% above last year. One percentage point of this growth
relates to Topic, acquired in June 2005. The Group"s gross profit margin
reduced from 40,0% to 38,1%, as a consequence of a higher relative contribution
from discount businesses and additional markdowns necessitated by the
unseasonally warm winter. Operating margin for the six months climbed to 11,3%,
from 10,6% last year, reflecting improved operational efficiencies. Group
stockturn improved from 5,7 to 5,9 times.
The Department Stores Division - incorporating Edgars and CNA - boosted trading
profits by an excellent 32%, demonstrating the effectiveness of controlled cost
management and better staff and space productivity. The Edgars chain increased
its retail turnover by 15% (like-for-like weeks was 20%), with inflation at only
2%. The most significant sales gains were in the menswear, footwear and home
living businesses (including Boardmans), with all major merchandise groups
recording improvements. Edgars achieved a stockturn of 5,4 times against last
year"s 5,6 times. Gross profit margin at 41,1% was lower than last year"s 42,5%
due to higher than expected markdowns and better sales growth in lower margin
categories.
Sales in the CNA chain rose by an encouraging 21% (like-for-like weeks was 26%),
reaping the benefits of Edcon"s merchandise system and focusing on appropriate
core items and customer service. Turnover growth in excess of 20% for
interactive, cellphones and audio were major drivers of the success. More
efficient inventory management allowed the chain to improve its stockturn from
2,9 last year to 3,5 times. Gross profit margin remained at 31%, due to a
higher contribution from the lower margin interactive and cellphones businesses.
However, the Group anticipates that margins will improve over time.
In the Discount Division - incorporating Jet and Jet Mart - efficient supply
chain processes and disciplined cost control facilitated a strong 30% rise in
trading profit. The Jet chain continued to gain market share and retail sales
increased by 25% (like-for-like weeks was 31%), following the 37% improvement
during the same period last year. Volumes improved significantly as average
selling prices decreased by 28%. Consequently, as expected, the gross profit
margin fell and at 36,9%, was below last year"s exceptional 39,4%. Superior
performance across a broad range of merchandise categories contributed to the
chain"s success, with sales of ladieswear, infantswear and girlswear being over
25% above a year ago. Another notable achievement has been the 102% rise in
sales in Legit stores. Chain stockturn strengthened further to reach 8,6 times
from 8,1 times last year.
Sales in the Jet Mart chain gained momentum and rose by 68% (like-for-like weeks
was 76%) while stockturn progressed from 4,7 times last year to 5,2 times.
Customers have responded positively to the improved merchandise assortments.
Gross profit margin was 24,5% and the Group is confident of further advances in
the future.
Total cellular phone and airtime sales climbed 52% to R763 million.
The profit from the Group"s Credit and Financial Services Division rose by 24%
to R117 million. Cost of credit reached R54 million due to the anticipated rise
in the moving annual net bad debt write-off to debtors from 7%, reported for the
year to March 2005, to 7,8%. As expected, the rapid growth in the account base
over the past 18 months has and will continue to be reflected in higher bad debt
within our targeted ceiling of 8%. This is more than compensated for by the
incremental margin earned from the new accounts. Collections from customers
remained robust and a healthy 86% (last year 87%) of the accounts under
administration are current and able to purchase. The wider penetration of
insurance products amongst the customer base facilitated the growth in taxed
profits from our insurance joint venture.
CASH FLOWS AND FINANCIAL POSITION
The increase in profitability manifested itself in a significant 23% increase in
cash "EBITDA". Through further pre-approved mailings and the addition of 115
000 new credit customers from the Topic acquisition, Edcon grew its number of
active credit customers by approximately 320 000 over the past six months to 3,8
million accounts. Credit sales remained at 63% of total sales. Edcon has
maintained its conservative policy relating to doubtful debts and has provided
adequately for any potential deterioration in the book. Total accounts
receivable managed by the credit business topped R6,9 billion, 34% more than at
the same time last year.
During August 2005, Edcon sold a further portion of debtors to the
securitisation company - OntheCards Investments Limited. The net proceeds
received of R682 million were utilised to repay debt. Closing inventory rose by
29% and is consistent with the comparable period sales growth.
The store development programme, which started last year, extended into the
current period. In the six months ended September 2005, Edcon has added a net
137 additional stores, mainly as a result of the Topic integration, new mall
developments in urban areas and penetration of Jet"s footprint into new regional
locations. A store is revamped or opened only if it generates a return in
excess of our 25% return on shareowners" equity hurdle rate and a positive
payback within three years. Investments in the period included the cost of
fixturing for new stores and refurbishments, further system enhancements as well
as a net R33 million relating to the Topic acquisition.
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
R275 million. In addition, R1 390 million in unutilised borrowing facilities
adds further flexibility to fund future expansion opportunities.
POSSIBLE INVESTMENT OPPORTUNITY
During August 2005 Edcon expressed interest in possible investment opportunities
in Myer Stores in Australia. This interest continues.
STAFF EMPOWERMENT TRANSACTION
As announced in June 2005, Edcon has implemented a staff empowerment transaction
in terms of which 10,6% of the Group"s equity was placed under the control of
the beneficiaries of an empowerment trust. Bi-annual empowerment payments,
directly linked to the earnings performance of Edcon, and to its dividend
declarations, will be distributed to the beneficiaries from inception. The
present value of the costs of the transaction are estimated to be approximately
R455 million and the impact will be spread over the six years of the programme.
The financial results for the current period include a R32 million after-tax
charge to the income statement, largely in respect of the first empowerment
payment in January 2006. As anticipated, the impact of the transaction was to
reduce earnings per share by 5%.
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 JSE Limited. The
accounting policies are consistent with those of the previous year except that
the Group has implemented SAICA Circular 7/2005, `Leases" in respect of
operating leases which include fixed rental increases. The Group has also
reassessed its accounting treatment of the joint venture with Hollard for
financial services products and is now accounting for the arrangement as a
jointly controlled entity. Edcon"s accounting policy is to recognise interests
in jointly controlled entities using the equity accounting method.
The impact of these changes is detailed in the notes to the financial statements
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 the
comparative period last year, as a consequence, have reduced from 97 to 95 cents
per share and from 87 to 85 cents per share respectively.
All "per share" comparatives have been recalculated to reflect the 10 for 1
subdivision of shares approved at the general meeting in July 2005.
DIVIDEND
In terms of the Group"s policy of covering dividends twice by attributable
earnings, the Board has declared an interim dividend of 62 cents, reflecting 27%
growth on last year"s interim dividend.
PROSPECTS
In the past 24 months, retailers in South Africa have traded in a particularly
buoyant market. Although the growth in consumer spending cannot be expected to
continue at current levels, a number of factors contributing to the boom remain
intact. Debt servicing costs for consumers are still low and the short-term
outlook for interest and inflation rates is relatively stable. Government is
committed to infrastructural expenditure and prospects for job creation are
encouraging. Consumer income will be augmented by real wage growth and the roll
out of social grants. These positive factors, however, will be dampened
somewhat by the higher fuel price.
Consequently, the Board remains confident that sales will continue to grow at a
satisfactory rate for the remainder of the current financial year, albeit at a
slower pace than in the first six months. Nevertheless, in spite of lower gross
margin percentages than last year, the Group will again benefit from operational
leverage and should deliver another meaningful rise in attributable earnings,
along the lines of the growth in sales, for the year as a whole.
For and on behalf of the Board
WS MacFarlane - Chairman, S M Ross - Chief Executive Officer
INTERIM DIVIDEND
Notice is hereby given that the interim ordinary dividend (No.118) of 62 cents
per share in respect of the 26 weeks ended 1 October 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, 6 January 2006. 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 Thursday, 29 December 2005
Date trading commences ex dividend Friday, 30 December 2005
Record date Friday, 6 January 2006
Date of payment Monday, 9 January 2006
Shareholders may not dematerialise or rematerialise their shares between Friday,
30 December 2005 and Friday, 6 January 2006, both dates inclusive.
On behalf of the Board
EA Bagley - Group Secretary
Johannesburg
16 November 2005
INCOME STATEMENTS
2005 2004 Change 2005
26 weeks to 27 weeks to % 53 weeks to
1 October 2 October 2 April
Rm Rm Rm
(restated & (restated &
(unaudited) unaudited) audited)
Revenue - retail sales 7 350 6 030 22 13 590
Cost of sales 4 548 3 617 8 180
Gross profit 2 802 2 413 16 5 410
Store costs 1 268 1 095 2 346
Other operating costs 754 729 1 439
Trading profit 780 589 32 1 625
Cost of credit 54 11 51
Equity accounted earnings of 108 64
joint venture 163
Operating profit before 834 642 1 737
financing costs
Net financing costs 21 8 4
Profit before taxation 813 634 1 733
Taxation 218 192 517
Earnings attributable to 595 442 35
ordinary shareowners 1 216
Number of ordinary shares (000)
in issue 484 348 466 080 469 185
weighted average 480 883 461 170 461 877
diluted weighted average 514 022 513 765 514 184
Earnings per ordinary share
(cents)
attributable earnings basis 124 96 29 263
headline earnings basis 117 95 23 262
cash equivalent basis 143 125 14 309
Diluted earnings per ordinary
share (cents)
attributable earnings basis 116 86 35 236
headline earnings basis 109 85 28 236
Dividends declared per ordinary 62 49 27 135
share (cents)
Reconciliation of headline
earnings
Group attributable earnings 595 442 1 216
Less:Profit on disposal of
fixtures, equipment and - - (2)
vehicles
Less: Discount on acquisition
of Topic (33)
Less:Recognition of discount on
acquisition of RAG
receivables and assets (4) (4)
Taxation effect - 1 2
Headline earnings 562 439 1 212
SEGMENTAL/CHAIN ANALYSIS
Retail sales
Department Stores Division
Edgars (incl. Boardmans) 3 890 3 378 15 7 296
CNA 501 414 21 1 012
4 391 3 792 16 8 308
Discount Division
Jet 2 596 2 073 25 4 825
Jet Mart 277 165 68 457
2 873 2 238 28 5 282
Topic 86
7 350 6 030 22 13 590
Average retail space (000m2)
Edgars
Department Stores Division
Edgars (incl. Boardmans) 455 413 10 430
CNA 89 89 90
544 502 8 520
Discount Division
Jet 311 292 7 297
Jet Mart 71 60 18 63
382 352 9 360
Topic 20
946 854 11 880
Number of stores
Department Stores Division
Edgars (incl. Boardmans) 205 188 199
CNA 190 192 191
395 380 390
Discount Division
Jet 344 296 320
Jet Mart 25 20 24
369 316 344
Topic 107
871 696 734
Gross profit
Department Stores Division
Edgars (incl. Boardmans) 1 597 1 434 11 3 075
CNA 156 129 21 329
1 753 1 563 12 3 404
Discount Division
Jet 958 816 17 1 896
Jet Mart 68 34 100 110
1 026 850 21 2 006
Topic 23
2 802 2 413 16 5 410
Trading profit
Department Stores Division 492 373 32 984
Discount Division 282 217 30 646
Topic (23)
Manufacturing (3) (1) (4)
Amortisation of intangibles (1) - (1)
Discount on acquisition of
Topic 33
780 589 32 1 625
Analysis of credit and
financial services profit
Equity accounted earnings of
joint venture after taxation 108 64 163
Taxation of joint venture 63 41 100
earnings
Equity accounted earnings of
joint venture before taxation 171 105 263
Cost of credit as per the
income statement (54) (11) (51)
Credit and financial services 117 94 24 212
profit
CASH FLOW STATEMENTS
2005 2004 2005
26 weeks to 27 weeks to 53 weeks to
1 October 2 October 2 April
Rm Rm Rm
(restated & (restated &
(unaudited) unaudited) audited)
Cash retained from operating
activities
Operating profit 834 642 1 737
Depreciation and amortisation 112 137 251
Other non-cash items 1 (11) 16
Cash "EBITDA" 947 768 2 004
Decrease in working capital 74 69 (189)
Inventories (40) (123) (458)
Trade accounts receivable (734) (712) (1 673)
Net proceeds of securitisation 682 934 939
Other debtors (31) 41 122
Accounts payable 197 (71) 881
Cash generated from operating
activities 1 021 837 1 815
Net financing costs paid (21) (8) (4)
Taxation paid (389) (200) (412)
Cash inflow from operations 611 629 1 399
Dividends paid (409) (239) (470)
Net cash retained 202 390 929
Cash utilised in investment
activities
Investment in fixtures, equipment
and vehicles (232) (199) (380)
Acquisitions (33) (79) (79)
Net cash utilised (265) (278) (459)
Cash effects of financing activities
Increase in shareowner funding 49 (21) (7)
Decrease in interest bearing debt (55) (1) (247)
Net cash outflow from financing
activities (6) (22) (254)
Decrease in cash and cash
equivalents (69) 90 216
Cash and cash equivalents at the
beginning of the period 411 195 195
Currency adjustments (2) 2 -
Cash and cash equivalents at the end
of the period 340 287 411
Attributable cash inflow from
operations (cents per ordinary
share) 127 136 303
BALANCE SHEET
2005 2004 2005
1 October 2 October 2 April
Rm Rm Rm
(restated & (restated &
(unaudited) unaudited) audited)
ASSETS
Non-current assets
Properties, fixtures, equipment and
vehicles 1 041 809 920
Goodwill and trademarks 78 79 79
Investments 723 614 592
Deferred tax 116 32 96
Total non-current assets 1 958 1 534 1 687
Current assets
Inventories 1 809 1 399 1 734
Accounts receivable and prepayments
2 963 2 033 2 913
Cash and cash equivalents 340 287 411
Total current assets 5 112 3 719 5 058
Total assets 7 070 5 253 6 745
EQUITY AND LIABILITIES
Capital and reserves
Total shareowners" funds 3 385 2 539 3 152
Interest bearing debt 65 365 120
Total capital employed 3 450 2 904 3 272
Interest free liabilities
Current payables 3 620 2 349 3 473
Total equity and liabilities 7 070 5 253 6 745
Gearing ratios
Net interest bearing debt/total
shareowners" funds (0,08) 0,03 (0,09)
Total liabilities/total shareowners"
funds 1,09 1,07 1,14
Future capital expenditure
Contracted 481 248 163
Authorised but not contracted 262 106 468
Unutilised borrowing facilities 1 390 1 090 1 335
Net equity per ordinary share
(cents) 699 545 672
STATEMENTS OF CHANGES IN ORDINARY SHAREOWNERS" EQUITY
2005 2004 2005
1 October 2 October 2 April
Rm Rm Rm
(unaudited) (restated (restated &
& audited)
unaudited)
Ordinary shareowners" equity at the 3 152 2 650 2 650
beginning of the period
Restatement - operating lease (298) (298)
adjustment, Circular 7/2005
Ordinary share capital issued 37 16
Net movement in treasury shares 12 (21) (23)
Revaluation of land and buildings 50
Earnings attributable to ordinary 595 442 1 216
shareowners
Ordinary dividends paid (409) (239) (470)
Other (2) 5 11
Balance at the end of the period 3 385 2 539 3 152
NOTES TO THE INTERIM FINANCIAL RESULTS
1. SAICA Circular 7/2005, `Leases"
The Circular provides additional guidance to IAS 17 (AC 105), `Leases" and,
addresses fixed rental increases in relation to operating leases. Lease expenses
are now recognised on the straight-line method irrespective of cash flows.
Previously, lease expenses were recognised on the basis of cash flows in the
lease agreement. The effect is a decrease in current half-year attributable
profit of R8 million (2004: R7 million). Furthermore, the opening retained
earnings at March 2004 has been reduced by R298 million, after providing for a
deferred tax asset of R127 million, to reflect the cumulative impact at that
date.
2. Joint Ventures
The relationship with our partners in the Hollard joint venture has been
clarified to represent a jointly controlled entity which should be accounted for
using the equity method.
This has no impact on the attributable profit of the Group. However, the
Group"s share of the joint venture profit is now disclosed on the face of the
income statement net of applicable taxes and the investment of R23 million
(2004: R38 million) in the joint venture is joint venture is included as an
investment on the balance sheet. The taxation of the Group in the current half-
year reduced by R63 million (2004: R41 million) as a result of the
reclassification of the joint venture.
KEY INDICATORS IN US DOLLAR TERMS
2005 2004 Change 2005
26 weeks to 27 weeks to % 53 weeks to
1 October 2 October 2 April
(restated & (restated &
(unaudited) unaudited) unaudited)
Revenue - retail sales (US$m) 1 134 928 22 2 167
Headline earnings attributable
to ordinary shareowners (US$m) 87 68 28 193
Net equity per ordinary share
(US cents) 110 84 31 106
Diluted headline earnings per
share (US cents) 17 13 31 38
Dividends per ordinary share (US
cents)
Interim (proposed/paid) 10 8 25 8
Final (paid) 12
Closing rate 6,35 6,45 6,31
Average rate 6,48 6,50 6,27
Note: Dividends paid are at
actual rates on the date of
payment. The interim dividend
proposed is at the closing rate.
CORPORATE INFORMATION
NON-EXECUTIVE DIRECTORS
WS MacFarlane (Chairman), AJ Aaron, ZB Ebrahim, JDMG Koolen #, KD Moroka, 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
Ultra Registrars (Proprietary) Limited. 5th Floor, 11 Diagonal Street,
Johannesburg, 2001.
PO 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.
PO 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.
PO Box 2322, Johannesburg, 2000.
Telephone : +27 11 772-3000. Fax : +27 11 772-4000.
SPONSORS
Merrill Lynch South Africa (Proprietary) Limited.
138 West Street, Sandown, Sandton, 2146.
PO Box 651987, Benmore, 2010.
Telephone : +27 11 305-5555. Fax : +27 11 305-5610.
Irwin, Jacobs, Greene (Proprietary) Limited.
11th Floor, Sanlam Centre, Independence Avenue, Windhoek, Namibia.
PO Box 186, Windhoek, Namibia.
Telephone : +26 461 238-899. Fax : +26 461 238-936.
ISIN NUMBER
ZAE000068649
SHARE CODE
JSE: ECO
NSX: ECN
These results can be viewed on the internet at: http://www.edcon.co.za
Date: 16/11/2005 08:00:19 AM Produced by the JSE SENS Department
