| Wed 17 May 2006, 8:00 | | Edgars Consolidated Stores Limited - Audited Finan |
|
ECO
ECO
Edgars Consolidated Stores Limited - Audited Financial Report For The Year
Ended 1 April 2006
EDGARS CONSOLIDATED STORES LIMITED
(Reg. No. 1946/022751/06)
(Incorporated in the Republic of South Africa)
ISIN Code : ZAE000068649
Share Codes
JSE : ECO
NSX : ECN
"Edcon"
AUDITED FINANCIAL REPORT FOR THE YEAR ENDED 1 APRIL 2006
SALIENT FEATURES
- Retail sales growth of 20%
- Diluted headline earnings per share up 22%
- Attributable earnings up 24% to over R1,5 billion
- Total dividends increased by 20% to 162 cents
- Cash "EBITDA" growth of 18%
THE RETAIL ENVIRONMENT
The key factors that bolstered the South African economy over the past
couple of years remained in place during the financial year under review.
Customers continued to benefit from low interest rates, rising employment
and real wage increases, with consumer confidence reaching an all-time high
in early 2006, boosted by the larger than expected tax cuts announced in the
national budget. However, the rising fuel prices and the difficulties
experienced by export sectors of the economy have curbed some of this
enthusiasm.
This favourable trading environment contributed to sustained robust sales in
the clothing, footwear and textile (CFT) sector. Statistics provided by the
Retailers" Liaison Committee (RLC) indicate that national CFT sales have
risen by 15% in the year to March 2006, while deflation in the sector is
estimated to have been 4%.
GROUP RESULTS
The Board is pleased to report another year of strong financial performance,
generating R4,7 billion of new wealth for the South African economy and
producing a return on shareowners" equity of 42%. Edcon, based on RLC
statistics, has lifted its share of the formal CFT market from 30,7% to
31,4%, once again underscoring the success of its long-term strategies. The
Group achieved diluted headline earnings per share of 287 cents, up 22%.
Attributable earnings rose by a strong 24%, this despite the current year
containing one less trading week than last year (4% impact) and the
dilutionary impact of the staff empowerment transaction (estimated 5%).
Excluding the effect of these two factors, comparable diluted headline
earnings per share increased by 32%.
The Group"s sales advanced by 20%, with the comparable weeks" sales being
22% above last year. All chains recorded strong growth. This performance
was accomplished with overall selling price deflation of 5% and an
additional 11% average retail space. New stores contributed 7% to sales
growth and these stores are expected to reach full operational efficiency
within twelve months of their opening.
Edcon"s gross profit margin declined from 39,8% to 38,6% due to the rising
contribution from the lower margin merchandise in the Discount Division and
cellular products. In addition, the unseasonally warm 2005 winter
necessitated greater markdowns. Ongoing operational efficiency enhancements
enabled the Group to advance stockturn from 5,8 to 6,1 times and improve its
operating margin to 12,9%.
In the Department Stores Division - incorporating Edgars and CNA - prudent
cost management and improvements in staff and space productivity facilitated
an excellent 32% rise in trading profit. Sales in the Edgars chain grew by
18% (like-for-like weeks 20%), with inflation of 1%. The chain"s positive
momentum accelerated over the year, with second half sales growth exceeding
that of the first six months. All major departments reported sales
increases in excess of 15%, with menswear and footwear being the most
impressive. Substantial progress has been made in the home living business,
with the chain benefiting from the successful integration of Boardmans.
Gross profit margin at 41,5% was lower than last year"s 42,1%, following
higher sales growth in low margin cellular products. Edgars attained a
stockturn of 5,7 times compared with last year"s 5,3 times.
CNA"s sales rose by 23% (comparable weeks 25%). Focus on its core business,
improved customer service, competitive pricing and the benefits of Edcon"s
merchandise system contributed to this success. The most significant sales
gains were in stationery, interactive and cellphones. Although stockturn
improved from 3,4 times last year to 3,8 times, management believes there is
still scope for further advances. Similarly, the gross profit margin, which
remained at 32,5%, due to faster growth in the lower margin interactive and
cellphone businesses, will improve in the year ahead as books" contribution
to total chain sales grows.
Jet Mart has been fully integrated into the Discount Division. The
proportion of CFT sold in Jet Mart is now 29%. Hardline merchandise is
currently being rolled out to a number of Jet stores. As a consequence, the
buying, planning and operations of Jet and Jet Mart have been merged and
their financial results consolidated.
The Discount Division reported a 21% rise in turnover (like-for-like weeks
24%) despite deflation of 16%. As anticipated, gross profit margin has
reduced from last year"s 38,0%, to 36,1%. Trading profit, which rose 12%,
was adversely impacted in the second half by opening costs for new stores
and the associated expansion of chain management capabilities. Progress in
ladieswear, infantswear and girlswear boosted the chain"s performance.
However, menswear and schoolwear were hampered by some stock imbalances and
assortment problems. These issues will have been rectified by June and
represent an opportunity in the months ahead. Stockturn for the Discount
Division at 7,6 times, compared with 8,1 times last year, was impacted by
the rapid new store rollout during the latter part of the year.
Total Group cellular phone and airtime sales grew by 49% to R1 738 million.
Edcon"s Manufacturing Division recorded a loss of R1 million, an improvement
on the R4 million loss incurred last year, through effective cost
management.
The Credit and Financial Services Division performed in line with forecast
and profit increased by 19% to R252 million. Cost of credit rose to R158
million, due mainly, to the annual net bad debt write-off to debtors
reaching 8,3%. The rise in bad debts was inevitable as a consequence of the
sharp rise in new accounts over the past two years and the maturing that has
to occur. In line with our strategy, accounts that are current and able to
purchase have fallen to our target of 85% from last year"s 88%. Cash sales
accounted for 37% of total sales, which was consistent with last year. A
major success for the division has been the growth in insurance products, as
evidenced by the 56% jump in taxed contribution from our insurance joint
venture with the Hollard Group.
Excluding the costs of the staff empowerment transaction, total expenses
increased by 11%. This is attributable primarily to the additional direct
expenses for the new stores opened during the year and the associated
corporate cost of managing the enlarged Group. Edcon"s growth strategy has
necessitated further investment in systems, supply chain and human
resources. Other operating costs included R38 million to computerise new
Topic stores and R27 million in respect of the extensive investigation and
exhaustive due diligence exercise for an unsuccessful acquisition attempt of
Myer in Australia.
The effective tax rate has reduced as the Group benefited from higher STC
credits associated with dividends declared by the insurance joint venture.
CASH FLOWS AND FINANCIAL POSITION
Cash "EBITDA" continued to be strong (up 18%), facilitating the growth of
Edcon"s business and supporting further investments in accounts receivable
and new stores.
The Group increased the account base by approximately 585 000 over the past
year (including 115 000 new credit customers from the Topic acquisition) to
close with 4,1 million accounts. Total debtors managed by the Credit
Division are now R7,9 billion, an increase of 26% over the prior year, but
in line with expectations. Edcon has maintained its conservative policy
relating to doubtful debts and has provided adequately for write-off
requirements. During August 2005, Edcon sold a further tranche of debtors
to the securitisation company - OntheCards Investments Limited. The net
proceeds received of R682 million were utilised to repay debt.
Encouragingly, closing inventory was down 4%, highlighting the efficiency of
the Group"s merchandise management systems. Consistent with prior years,
adequate provision has been made for slow-moving inventory and shrinkage.
During the year, Edcon added a net 175 additional stores, (including 123
stores integrated as part of the Topic acquisition) at a total cost of R382
million. New Discount stores have been opened in regional locations across
South Africa and new mall developments have allowed Edgars to extend its
footprint in urban areas. A store is revamped or opened only if it is
forecast to generate an internal rate of return in excess of our 25% return
on shareowners" equity hurdle rate and a payback within three years. Also
included in investment activities is R156 million relating to information
technology and a net R33 million for the Topic acquisition.
The strength of Edcon"s financial position is evident in the positive cash
and cash equivalents balance, net of interest-bearing debt, of R173 million
at year-end. Further substantial flexibility is provided by this negative
gearing and the existence of nearly R1,3 billion of unutilised borrowing
facilities.
ACCOUNTING POLICIES AND COMPARATIVES
The abridged financial statements continue to be 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
on `Leases" in respect of the straight-line method of recognising operating
leases which include fixed escalation clauses. The Group has also
reassessed its accounting treatment of the joint venture with the Hollard
Group for financial services products and is now accounting for the
arrangement as a jointly controlled entity, 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 last year, as a consequence, have reduced from 266 to 262
cents per share and from 240 to 236 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 approximately twice by
attributable earnings, the Board has declared a final dividend of 100 cents
per share, reflecting 18% growth on last year"s final dividend. Total
dividends of 162 cents per share are 20% higher than the previous year.
PROSPECTS
The sustained high levels of consumer confidence, benefiting from low
interest and inflation rates as well as from the further tax cuts announced
in the recent national budget, together with accelerating job creation, will
have a positive impact on consumer spending in the year ahead. Government"s
commitment to an extensive infrastructural development programme and to
achieving long-term GDP growth targets is also a very positive factor.
While credit utilisation, reflected by consumer debt to income statistics,
has moved upwards, debt servicing costs remain at historically low levels.
Taking all the foregoing factors into consideration, ongoing expansion in
the economy should continue to support retail sales growth, albeit at a
slower pace than that experienced in the past three years.
Against this background, and given current trends in the industry, the Board
is confident about the prospects for the forthcoming year, although sales
growth may not be at quite the high levels that have characterised our
recent history. Sales will, however, be augmented by the addition of a
further 11% new trading space across all formats and the realisation of the
full potential of the space added last year. Accordingly, shareowners can
expect another meaningful rise in earnings, ahead of the sales growth, for
the year to March 2007.
For and on behalf of the Board
W S MacFarlane
Chairman
S M Ross
Group Chief Executive Officer
FINAL DIVIDEND
Notice is hereby given that the final ordinary dividend (No.119) of 100
cents per share, in respect of the 52 weeks ended 1 April 2006, has been
declared payable to the holders of ordinary shares appearing in the records
of the company at the close of business on Friday, 30 June 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 Friday, 23 June 2006
Date trading commences ex Monday, 26 June 2006
dividend
Record date Friday, 30 June 2006
Date of payment Monday, 3 July 2006
Shareholders may not dematerialise or rematerialise their shares between
Monday, 26 June 2006 and Friday, 30 June 2006, both dates inclusive.
On behalf of the Board
EA Bagley, Group Secretary
Johannesburg
16 May 2006
ABRIDGED INCOME STATEMENTS
2006 2005
52 weeks 53 weeks
to 1 to
April 2 April
(audited) (restated
&
audited) Change
Rm %
Rm
Revenue - retail sales 16 316 13 590 20
Cost of sales 10 015 8 180
Gross profit 6 301 5 410 16
Store costs 2 724 2 346
Other operating costs 1 575 1 439
Trading profit 2 002 1 625 23
Cost of credit 158 51
Equity accounted earnings of joint
venture 254 163
Operating profit before financing
costs 2 098 1 737
Net financing costs 24 4
Profit before taxation 2 074 1 733 20
Taxation 566 517
Earnings attributable to ordinary
shareowners 1 508 1 216 24
Number of ordinary shares (000)
in issue 489 825 469 185
weighted average 482 491 461 877
diluted weighted average 515 391 514 184
Earnings per ordinary share (cents)
attributable earnings basis 313 263 19
headline earnings basis 307 262 17
cash equivalent basis 375 310 21
Diluted earnings per ordinary share
(cents)
attributable earnings basis 293 236 24
headline earnings basis 287 236 22
Dividends per ordinary share (cents)
interim paid 62 50 24
final proposed 100 85 18
Total 162 135 20
Cover (times) 1,9 2,0
Return on shareowners" equity (%) 42,0 44,2
Reconciliation of headline earnings
Group attributable earnings 1 508 1 216
Add: Loss on disposal of fixtures, 5
equipment and vehicles (2)
Less:Discount on acquisition of Topic (33)
Less: Recognition of discount on
acquisition of RAG receivables
and assets (4)
Taxation effect (1) 2
Headline earnings 1 479 1 212 22
SEGMENTAL / CHAIN ANALYSIS
Retail sales
Edgars (incl. Boardmans) 8 575 7 296 18
CNA 1 242 1 012 23
Department Stores Division 9 817 8 308 18
Discount Division 6 411 5 282 21
Topic (prior to conversion) 88
16 316 13 590 20
Average retail space (000m?)
Edgars (incl. Boardmans) 473 430 10
CNA 90 90
Department Stores Division 563 520 8
Discount Division 400 360 11
Topic (prior to conversion) 14
977 880 11
Number of stores
Edgars (incl. Boardmans) 240 199
CNA 192 191
Department Stores Division 432 390
Discount Division 471 344
Topic (stores being converted) 6
909 734
Gross profit
Edgars (incl. Boardmans) 3 563 3 075 16
CNA 404 329 23
Department Stores Division 3 967 3 404 17
Discount Division 2 314 2 006 15
Topic (prior to conversion) 20
6 301 5 410 16
Trading profit
Department Stores Division 1 299 984 32
Discount Division 721 646 12
Topic (16)
Manufacturing (1) (4)
Amortisation of intangibles (1) (1)
2 002 1 625 23
Analysis of credit and financial
services profit
Equity accounted earnings of joint 163
venture after taxation 254
Taxation of joint venture earnings 156 100
Equity accounted earnings of joint 410 263
venture before taxation
Cost of credit as per the income (158) (51)
statement
Credit and financial services profit 252 212
19
ABRIDGED CASH FLOW STATEMENTS
2006 2005
52 weeks 53 weeks
to 1 April to 2
(audited) April
(restated
&
audited)
Rm Rm
Cash retained from operating
activities
Operating profit 2 098 1 737
Depreciation and amortisation 235 251
Other non-cash items 31 16
Cash "EBITDA" 2 364 2 004
Increase in working capital (547) (189)
Inventories 103 (458)
Trade accounts receivable (1 567) (1 673)
Net proceeds of securitisation 682 939
Other debtors (26) 122
Accounts payable 261 881
Cash generated from operating 1 817 1 815
activities
Net financing costs paid (24) (4)
Taxation paid (592) (412)
Cash inflow from operations 1 201 1 399
Dividends paid (712) (470)
Net cash retained 489 929
Cash utilised in investment activities
Investment in fixtures, equipment and
vehicles (640) (380)
Acquisitions (33) (79)
Net cash utilised (673) (459)
Cash effects of financing activities
Increase in shareowner funding 69 (7)
Increase in interest bearing debt 56 (247)
Net cash inflow from financing 125 (254)
activities
Decrease in cash and cash equivalents (59) 216
Cash and cash equivalents at the 411 195
beginning of the period
Currency adjustments (3) -
Cash and cash equivalents at the end
of the period 349 411
ABRIDGED BALANCE SHEETS
2006 2005
1 April 2 April
(audited) (restated &
audited)
Rm
Rm
ASSETS
Non-current assets
Properties, fixtures, equipment and
vehicles 1 320 920
Goodwill and trademarks 78 79
Other financial assets 700 570
Investment in joint venture 12 22
Deferred tax 84 96
Total non-current assets 2 194 1 687
Current assets
Inventories 1 666 1 734
Trade, other receivables and 3 786 2 913
prepayments
Cash and cash equivalents 349 411
Total current assets 5 801 5 058
Total assets 7 995 6 745
EQUITY AND LIABILITIES
Capital and reserves
Total shareowners" funds 4 030 3 152
Interest bearing debt 176 120
Total capital employed 4 206 3 272
Interest free liabilities
Trade and other payables 3 603 3 232
Current taxation 186 241
Total interest free liabilities 3 789 3 473
Total equity and liabilities 7 995 6 745
Gearing ratios
Net interest bearing debt/total
shareowners" funds (0,04) (0,09)
Total liabilities/total shareowners"
funds 0,98 1,14
Future capital expenditure
Contracted 247 163
Authorised but not contracted 473 468
Unutilised borrowing facilities 1 279 1 335
Net equity per ordinary share (cents) 823 672
ABRIDGED STATEMENTS OF CHANGES IN ORDINARY SHAREOWNERS" EQUITY
2006 2005
to to
1 April 2 April
(audited) (restated &
audited)
Rm
Rm
Ordinary shareowners" equity at the
beginning of the period 3 152 2 650
Restatement - operating lease
adjustment, Circular 7/2005 - (298)
Ordinary share capital issued 38 16
Net movement in treasury shares 31 (23)
Revaluation of land and buildings 50
Earnings attributable to ordinary
shareowners 1 508 1 216
Ordinary dividends paid (712) (470)
Other 13 11
Balance at the end of the period 4 030 3 152
ABRIDGED CASH VALUE ADDED STATEMENTS
2006 2005
52 weeks 53 weeks
to 1 to 2
April April
(audited) (audited) Change
Rm Rm %
Cash generated
Cash derived from customers 15 340 12 976
Cash payments outside the Group to
suppliers of materials,
merchandise, facilities and
services (10 678) (8 848)
Wealth created through cash value
added 4 662 4 128 13
Cash utilised to:
Remunerate employees for their
services 1 909 1 527
Pay direct taxes to the state 748 513
Provide lenders with a return on
monies borrowed 39 27
Provide lessors with a return for
the use of their premises 765 662
Provide shareowners with cash
dividends 712 470
Cash disbursed among stakeholders 4 173 3 199 30
Net cash retained 489 929
NOTES TO THE FINANCIAL RESULTS
1. These abridged financial statements have been audited by Ernst &
Young and the audit report is available for inspection at the Company"s
registered office.
2. SAICA Circular 7/2005, `Leases"
The circular provides additional guidance to IAS 17 (AC 105) `Leases",
and addresses operating leases with fixed escalation clauses. 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 as determined by the lease agreement. The effect is a
decrease in current year attributable profit of R2 million (2005:
R17million). 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.
3. Joint Ventures
The relationship with our partners in the Hollard joint venture has
been clarified to represent a jointly controlled entity which is now
accounted for using the equity method.
This has had no impact on the attributable profit of the Group. The
Group"s share of the joint venture profit has been disclosed on the
face of the income statement net of applicable taxes and the investment
of R12 million (2005: R22 million) is shown separately on the balance
sheet. The taxation of the Group in the prior year reduced by R100
million as a result of the reclassification of the joint venture.
KEY INDICATORS IN US DOLLAR TERMS
2006 2005
52 weeks 53 weeks
to 1 April to 2 April
(restated
(unaudited) & Change
unaudited) %
Revenue - retail sales (US$m) 2 541 2 167 17
Headline earnings attributable to
ordinary shareowners (US$m) 230 193 19
Net equity per ordinary share (US 133 106 25
cents)
Diluted headline earnings per share
(US cents) 45 38 18
Dividends per ordinary share (US
cents)
Interim (paid) 10 8 25
Final (proposed) 16 12 33
Closing rate 6,21 6,31
Average rate 6,42 6,27
Note:
Dividends paid are at actual rates on the date of payment. The final
dividend proposed is at the closing rate.
NON-EXECUTIVE DIRECTORS
WS MacFarlane (Chairman), AJ Aaron, ZB Ebrahim, JDMG Koolen#,
HSP Mashaba, 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, 2196
PO Box 651987, Benmore, 2010
Telephone: +27 11 305-5555
Fax: +27 11 305-5600
Irwin, Jacobs, Greene (Proprietary) Limited
24 Orben Street, 2005 Extension to the KPMG House, Ground Floor,
Klein Windhoek, Namibia
PO Box 186, Windhoek, Namibia
Telephone: +26 461 378-800
Fax: +26 461 378-844
ISIN number: ZAE 000068649
Share codes: JSE: ECO, NSX:ECN
For information on Edcon"s electronic online proxy voting facility
visit:
http://www.edcon.co.za (click on the investorportal icon
and register free of charge for the service) or,
http://www.investorportal.co.za (click on the Edcon icon
and register free of charge for the service).
These results can be viewed on the internet at: http://www.edcon.co.za
Date: 17/05/2006 08:00:18 AM Produced by the JSE SENS Department
