| Wed 22 Feb 2006, 14:00 | | Truworths International Limited - Interim Group Re |
|
TRU
TRU
Truworths International Limited - Interim Group Results for the 26 weeks ended
31 December 2005
Truworths International Limited
(Registration number 1944/017491/06)
JSE Limited code: TRU
NSX code: TRU
ISIN: ZAE000028296
Interim Group Results for the 26 weeks ended 31 December 2005
MERCHANDISE SALES UP 23%
INTERIM DIVIDEND UP 38%
HEADLINE EARNINGS PER SHARE UP 33%
OPERATING PROFIT UP 31%
BALANCE SHEETS
31 Dec 31 Dec 30 Jun
2005 2004 2005
Restated Restated
Rm Rm Rm
ASSETS
Non-current assets 611.9 545.1 525.6
Property, plant and equipment 377.7 346.2 354.0
Intangible assets 67.3 43.5 50.9
Investments 102.4 112.7 91.8
Loans 64.0 42.7 28.7
Deferred tax 0.5 - 0.2
Current assets 2 364.1 2 106.6 2 109.1
Inventories 319.9 273.3 259.8
Trade and other receivables 1 400.6 1 117.2 1 195.7
Prepayments 6.9 1.6 21.7
Cash and cash equivalents 636.7 714.5 631.9
Total assets 2 976.0 2 651.7 2 634.7
EQUITY AND LIABILITIES
Share capital 0.1 0.1 0.1
Share premium 204.7 189.1 197.1
Share-based payment reserve 10.1 3.6 7.3
Translation reserve (2.6) (0.7) (1.9)
Retained earnings 2 217.3 1 774.2 1 968.9
2 429.6 1 966.3 2 171.5
Treasury shares (480.5) (275.6) (330.2)
Equity attributable to equity
holders of the parent 1 949.1 1 690.7 1 841.3
Minority interest - 13.1 13.2
Total equity 1 949.1 1 703.8 1 854.5
Non-current liabilities 84.6 142.9 97.3
Deferred tax 16.6 75.0 33.2
Post-retirement medical
benefit obligation 24.8 21.3 20.9
Operating lease obligation 43.2 46.6 43.2
Current liabilities 942.3 805.0 682.9
Trade and other payables 587.1 526.9 416.9
Short-term provisions 0.1 0.4 0.2
Current tax payable 355.1 277.7 265.8
Total liabilities 1 026.9 947.9 780.2
Total equity and liabilities 2 976.0 2 651.7 2 634.7
Number of shares in issue
(adjusted for treasury shares) 441.3 449.2 447.5
Net asset value per share (cents) 441.7 376.4 411.5
INCOME STATEMENTS
26 weeks 26 weeks 52 weeks
to 31 Dec to 31 Dec to 30 Jun
2005 2004 2005
Restated Change Restated
Note Rm Rm % Rm
Revenue 3 2 167.9 1 770.4 22 3 489.9
Sale of merchandise 2 002.8 1 627.9 23 3 194.4
Cost of sales (958.2) (769.1) (1 524.0)
Gross profit 1 044.6 858.8 22 1 670.4
Expenses (557.8) (495.9) 12 (926.4)
Depreciation
and amortisation (34.7) (32.1) (66.0)
Employment costs (223.6) (201.0) (383.4)
Occupancy costs (140.3) (117.2) (231.9)
Other operating costs (159.2) (145.6) (245.1)
Trading profit 486.8 362.9 34 744.0
Dividends received 1.5 1.0 2.0
Share of associate profit 2.5 2.5 5.0
Interest received 131.1 109.8 230.9
Profit before
finance costs,
exceptional
items and tax 621.9 476.2 31 981.9
Finance costs (3.6) - -
Profit before exceptional
items and tax 618.3 476.2 30 981.9
Exceptional items 0.3 - -
Profit before tax 618.6 476.2 981.9
Income tax expense (203.6) (162.3) (327.7)
Profit for the period 415.0 313.9 32 654.2
Attributable to:
Equity holders
of the parent 414.1 312.9 651.5
Minority interest 0.9 1.0 2.7
Profit attributable to
shareholders 415.0 313.9 654.2
Cents per share:
Dividends declared
for the period 44.0 32.0 38 69.0
Headline earnings 4 93.0 70.0 33 145.6
Basic earnings 93.0 70.0 33 145.6
Fully diluted
headline earnings 90.4 68.0 33 141.6
Fully diluted
basic earnings 90.4 68.0 33 141.6
Weighted average
number of shares in
issue (millions) 445.1 446.8 447.6
CASH FLOW STATEMENTS
26 weeks 26 weeks 52 weeks
to 31 Dec to 31 Dec to 30 Jun
2005 2004 2005
Restated Change Restated
Rm Rm % Rm
CASH FLOWS FROM
OPERATING ACTIVITIES
Cash flow from trading 534.9 405.6 819.8
Dividends received 1.5 1.0 2.0
Cash EBITDA 536.4 406.6 32 821.8
Working capital movements (82.7) (39.8) (234.1)
Cash generated from
operations 453.7 366.8 587.7
Finance costs (3.6) - -
Interest received 130.7 109.2 229.3
Tax paid (131.2) (42.8) (262.0)
Cash inflow from operations 449.6 433.2 555.0
Dividends paid (165.6) (120.5) (265.9)
Net cash from
operating activities 284.0 312.7 (9) 289.1
CASH FLOWS FROM
INVESTING ACTIVITIES
Purchase of property,
plant and equipment
to maintain and
expand operations (61.9) (54.7) (102.4)
Proceeds on disposal
of property, plant and
equipment 0.7 0.5 0.8
Loans advanced (42.2) (18.6) (0.2)
Loans repaid 2.8 3.7 1.4
(Increase)/decrease
in investments (36.3) 5.1 24.7
Net cash used in
investing activities (136.9) (64.0) (75.7)
CASH FLOWS FROM
FINANCING ACTIVITIES
Proceeds on share issue 7.6 11.7 19.7
Shares repurchased
by subsidiaries (150.2) (0.3) (54.9)
Retirement benefit
obligation payment - - (0.7)
Net cash (used in)/from
financing activities (142.6) 11.4 (35.9)
Net increase in cash
and cash equivalents 4.5 260.1 177.5
Net cash inflow from
discontinued operations 0.3 - -
Cash and cash equivalents
for the period 4.8 260.1 177.5
Cash and cash equivalents
at the beginning of the
period 631.9 454.4 454.4
Cash and cash equivalents
at the end of the period 636.7 714.5 631.9
Cash flow per share (cents) 101.0 97.0 124.0
Cash equivalent earnings
per share (cents) 99.5 78.5 151.7
Cash realisation rate (%) 101.5 123.5 81.7
CONDENSED STATEMENTS OF CHANGES IN TOTAL EQUITY
31 Dec 30 Jun 31 Dec 1 July
2005 2005 2004 2004
Restated Restated Restated
Rm Rm Rm Rm
Balance beginning of
period/*end of period 1 854.5 1 498.1 1 498.1 1 467.3*
Profit for the period 415.0 654.2 313.9
Profit for the period
as previously reported 650.7 314.5
IFRS adjustments: 3.5 (0.6) 30.8
- Inventories (0.5) (0.5) (1.3)
- Property, plant
and equipment 6.6 2.9 34.8
- Investments
in associates 5.0 2.5 10.2
- Notional interest (2.2) (3.8) (12.9)
- Share-based payments (5.4) (1.7) -
Dividends (167.6) (266.1) (120.6)
Shares issued
net of expenses 7.6 19.7 11.7
Shares repurchased (150.3) (54.9) (0.3)
Translation of
foreign entities (0.7) (1.9) (0.7)
Share-based payment
reserve movements 2.8 5.4 1.7
Minority interest
movements (12.2) - -
Balance end of period 1 949.1 1 854.5 1 703.8 1 498.1
Comprising:
Share capital
and premium 204.8 197.2 189.2 177.5
Share-based
payment reserve 10.1 7.3 3.6 1.9
Translation reserve (2.6) (1.9) (0.7) -
Retained earnings 2 217.3 1 968.9 1 774.2 1 581.9
Treasury shares (480.5) (330.2) (275.6) (275.3)
Minority interest - 13.2 13.1 12.1
1 949.1 1 854.5 1 703.8 1 498.1
NOTES
1 BASIS OF PREPARATION
The group"s interim financial statements were prepared in accordance with
International Financial Reporting Standards ("IFRS") with effect from 1 July
2005. The opening balance sheets of 1 July 2004 and 1 July 2005, as well as
the comparative income statement for the period ended 30 June 2005 were
restated where appropriate having considered the transitional arrangements
provided by IFRS 1 - First-time adoption of International Financial Reporting
Standards.
The interim financial statements are prepared on the historical cost basis
except for financial instruments carried at fair value, and in accordance with
IAS 34 - Interim Financial Reporting Standards. The information presented in
this report has neither been audited nor reviewed by the external auditors.
2 ACCOUNTING POLICIES
The accounting policies applied in the preparation of these results are
consistent with those applied in the preparation of the group"s annual
financial statements for the period ended 30 June 2005, except for the
policies adopted to comply with IFRS as listed below.
2.1 First-time adoption of International Financial Reporting Standards (IFRS 1)
The group has elected the following exemptions:
Business combinations
The group elected not to restate business combinations that were recognised
before 1 July 2004.
Cumulative translation differences
The group elected to set cumulative translation differences to zero on
transition.
Property, plant and equipment
The group elected to use the fair value as deemed cost on transition only for
the head-office building.
Share-based payments
The group elected to fair value share options granted after 7 November 2002
that were not vested at 1 January 2005.
2.2 Adjustments as a result of the adoption of IFRS and interpretation of GAAP
The impact of changing from SA GAAP to IFRS is precised below. The value of
the adjustments is disclosed in the condensed statements of changes in total
equity.
Inventories (IAS 2)
IAS 2 requires that the carrying value of inventories include all costs of
purchase and other costs incurred in bringing inventories to their present
location and condition. Accordingly, the valuation of inventories now includes
a portion of warehouse and distribution costs. This policy has been applied
with retrospective effect. Furthermore, in accordance with the proposal by
SAICA regarding the treatment of settlement discounts, the valuation of
inventories and measurement of cost of sales have been adjusted by the
relevant discounts received, with retrospective effect.
Property, plant and equipment (IAS 16)
IAS 16 requires that the residual values and useful lives must be assessed on
an annual basis. This was taken into consideration when re-calculating the
depreciation charge.
Investments in associates (IAS 28)
IAS 28 does not permit an investor that continues to have significant
influence over an associate not to apply the equity method when the associate
is operating under severe long-term restrictions that significantly impair its
ability to transfer funds to the investor. Accordingly the investment in the
Zimbabwean associate has been equity accounted for from date of transition.
Intangible assets (IAS 38)
IAS 38 requires that computer software be classified as intangible assets.
Accordingly computer software has been reclassified.
Financial instruments: Recognition and measurement (IAS 39)
IAS 39 requires that notional interest be recognised on interest-free debtors.
Accordingly, a portion of the credit sales revenue has been deemed to be
interest income recognised on a time apportionment basis. This policy has been
applied with retrospective effect.
Share-based payments (IFRS 2)
IFRS 2 requires that equity settled share-based payments are measured at fair
value, and the cost recognised in the income statement over the vesting
period. Share options granted to employees after 7 November 2002 and vesting
after 1 January 2005, are valued using a binomial valuation model, and
expensed to the income statement, with corresponding credit to equity.
Future developments under IFRS reporting
The group"s interim financial statements have been prepared on the basis of
the group"s expectation that the standards and interpretations will be
applicable at 30 June 2006, being the first full set of annual financial
statements to be prepared under IFRS. Changes to information in this report
may arise due to the following:
- Further standards and interpretations could be issued, that will be
applicable for the 2006 period.
- As practice develops, interpretations could be different.
- Tax legislation and related interpretations could change.
- Confirmation that the accounting treatment of the export partnership
participation is in compliance with IAS 39.
26 weeks 26 weeks 52 weeks
to 31 Dec to 31 Dec to 30 Jun
2005 2004 2005
Restated Change Restated
Rm Rm % Rm
3 REVENUE
Sale of merchandise 2 002.8 1 627.9 23 3 194.4
Retail sales 2 046.6 1 667.7 3 269.4
Franchise sales 9.6 9.3 16.6
Accounting reclassification (53.4) (49.1) (91.6)
Commission received 19.3 17.0 33.1
Display fees received 8.0 6.8 14.4
Dividends received 1.5 1.0 2.0
Interest received 131.1 109.8 230.9
Investment interest received 19.6 22.3 39.7
Trade receivable
interest received 111.5 87.5 191.2
Lease rental income received 4.3 5.0 9.2
Royalties received 0.9 0.8 1.4
Warehousing and management
fees received - 2.1 4.5
2 167.9 1 770.4 22 3 489.9
4 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 414.1 312.9 32 651.5
Exceptional items (0.3) - -
Net surplus/(loss)
on asset realisation
after taxation 0.1 (0.2) -
Headline earnings 413.9 312.7 32 651.5
5 SEGMENT REPORTING
Segmental information is
not disclosed as the
group is regarded as
having only a single
material southern African
retailing segment.
6 FUTURE CAPITAL EXPENDITURE
Capital expenditure authorised
but not contracted:
Plant and equipment 48.5 47.7 107.6
7 SEASONALITY
There is no material seasonal variation in trading between the first and
second periods of the full financial period.
INTERIM DIVIDEND
The directors have resolved to declare a dividend in respect of the six months
ended 31 December 2005 in the amount of 44.0 (2004: 32.0) cents per share to
holders of the company"s shares reflected in the company"s register on the
record date, being Friday 17 March 2006.
The last day to trade in the company"s shares cum dividend is Friday 10 March
2006. Trading in the company"s shares ex dividend will commence on Monday 13
March 2006. The dividend will be paid in South African Rand on Monday 20 March
2006.
Consequently no dematerialisation or rematerialisation of the company"s shares
may take place over the period from Monday 13 March 2006 to Friday 17 March
2006, 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 22 February 2006
COMMENTARY
THE RETAIL ENVIRONMENT
The retail sector enjoyed another period of vibrant trading. The South African
economy remained stable, with more consumers benefiting from low inflation,
favourable interest rates, a strong currency, increased employment and
personal income tax concessions. The growing middle class contributed to the
improvement in domestic demand for consumer goods, with sales of clothing,
footwear, cosmetics and jewellery gaining further momentum in the period under
review.
GROUP RESULTS
The group"s formula of continual reinvention of its core business again proved
to be a successful foundation for growth. Merchandise sales (before accounting
reclassifications) of R2 056 million for the 26 weeks were 23% more than the
R1 677 million achieved in the 2004 period. Headline earnings per share for
the period were 93 cents, an increase of 33% over the 2004 period, in line
with the estimation contained in the January trading statement that they would
be 28% to 34% higher than those reported for the interim stage in 2004. The
interim dividend was increased to 44 cents per share.
Sales growth included comparable store sales growth of 15% with product
inflation of approxiamately 3%. Trading space increased by 6% since June 2005
through the opening of six Truworths and eight Identity stores.
All divisions exceeded expectations, with improvements in sale of merchandise
flowing from the larger trading areas at Truworths and Identity, where the
emporium and store formats have been successfully refined. Divisional sales
growth was as follows:
Sales % Change on
Rm prior period
Truworths 1 280 19
Truworths Man 375 26
Daniel Hechter 218 27
Identity 173 45
Retail sales 2 046 23
Franchise sales 10 11
2 056 23
Accounting reclassification (53) -
Sale of merchandise 2 003 23
Young Designers" Emporium ("YDE") achieved agency sales of R86 million, an
improvement of 13%.
The group"s performance reflects the focus on empowering people to deliver,
developing new initiatives and formats, improving efficiencies through careful
control of expenses and increased productivity, increasing trading space and
continuing to build brand integrity. The operating margin grew to 31%, with
gains in market share and productivity in terms of sales per square metre and
per full-time employee. Operating profit improved by 31% to R622 million.
Expenses as a percentage of sales reduced to 28% from 30%. The gross margin
was 52%.
The growth achieved in new customer accounts and in the active account base in
2005 was again seen in the first half of the new financial period when strict
criteria for credit granting continued to be applied. The account base across
Truworths, Identity and YDE now amounts to approximately 1.5 million
customers. Credit sales represents 74% of total retail sales. The number of
accounts able to purchase was maintained at 87% for Truworths customers.
The quality of the debtors" book remains high, with similar levels of
delinquency and net bad debt compared to the prior period.
CASH FLOWS AND FINANCIAL POSITION
The group remained in a solid cash position, with cash and cash equivalents
amounting to R637 million at period end. Attributable cash flow per share
increased from 97 cents to 101 cents.
Subsequent to the reporting period, an amount of R485 million (2004: R381
million) was paid in respect of provisional tax and accounts payable.
During the period the group utilised cash on share buybacks and significant
expansion of trading space. Potential acquisitions that will fit strategically
into existing operations continue to be evaluated.
SHARE REPURCHASE
Since the inception of the buyback strategy 47 million shares have been
repurchased at a cost of R480 million at an average price of R10.17 per share.
During this reporting period 7.6 million shares were repurchased at an average
price of R19.85 for a total of R150 million. Repurchased shares are held as
treasury shares and represented 9.7% of issued shares at the end of the
period.
INTERNATIONAL FINANCIAL REPORTING STANDARDS
The group has amended its accounting policies to comply with IFRS, this
affected inventories; property, plant and equipment; investment in associates;
intangible assets; financial instruments and share-based payments. Details of
the changes are listed in note 2 and in the condensed statement of changes in
total equity. The effect on headline earnings per share in the prior period is
a decrease to 70.0 cents.
DIVIDEND
The Board has declared an interim dividend of 44 cents per share, an increase
of 38% on the prior period. Dividend cover remains at 2.1 times headline
earnings.
ACQUISITION
In November 2005 the group purchased the shares owned by the minorities of YDE
and now owns 100% of the entity. In addition, the group has concluded an
agreement to purchase a majority interest in the niche fashion retailing chain
UZZI which operates 24 stores in the better end male fashion market. The
agreement is inter alia conditional upon satisfactory findings during a due
diligence investigation and the approval of the competition commission. This
acquisition will be financed from the group"s cash resources.
OUTLOOK
Sales for the first eight weeks since 31 December 2005 are comfortably ahead of
budget. With the further expansion of trading space, market share gains and
continued focus on fashionability of merchandise, management is confident that
trading for the remainder of the financial period will yield further positive
sales growth.
APPROVAL
This interim report was approved by the directors on 22 February 2006, and is
signed on their behalf by:
H Saven MS Mark
Chairman Chief Executive Officer
Truworths International Limited: (Registration number 1944/017491/06)
JSE Limited code: TRU NSX code: TRW ISIN: ZAE000028296
Registered office: No. 1 Mostert Street, Cape Town 8001. PO Box 600, Cape Town
8000, South Africa
Lead sponsor in South Africa: Barnard Jacobs Mellet Corporate Finance (Pty)
Limited.
Joint sponsor in South Africa: Standard Bank of South Africa Limited.
Sponsor in Namibia: Old Mutual Investment Services (Namibia) (Pty) Limited
Auditors: Ernst & Young
Transfer secretaries: Computershare Investor Services 2004 (Pty) Limited, 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,
AE Parfett, AJ Taylor*, MA Thompson and WM van der Merwe*
*Executive Non-executive Independent
TRUWORTHS
TRUWORTHS MAN
DANIEL HECHTER PARIS
LTD
INWEAR
TRUWORTHS ELEMENTS
TRUWORTHS JEWELLERY
YDE
IDENTITY
These results are available on www.truworths.co.za
Date: 22/02/2006 02:00:21 PM Produced by the JSE SENS Department
