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Truworths International Limited Interim Report for the 26 weeks ended 31
December 2002
Truworths International Limited:
(Registration number 1944/017491/06)
JSE code: TRU
ISIN: ZAE000028296
TRUWORTHS INTERNATIONAL LIMITED INTERIM REPORT
for the 26 weeks ended 31 December 2002 MERCHANDISE SALES UP 23.5%
OPERATING PROFITS UP 37.3%
HEPS INCREASE 37.5%
INTERIM DIVIDEND UP 44.4%
GROUP BALANCE SHEET
Unaudited Audited
at 31 Dec at 30 Jun
2002 2001 2002
Rm Rm Rm
ASSETS
Non-current assets 445.6 448.7 459.0
Property, fixtures, vehicles, plant,
equipment and software 280.5 278.9 282.7
Investments 118.1 136.0 126.4
Loans 47.0 33.8 49.9
Current assets 1 307.3 992.8 961.3
Inventories 161.1 137.3 155.5
Trade and other receivables 779.8 621.7 658.1
Prepayments 0.8 26.2 18.1
Cash and cash equivalents 365.6 207.6 129.6
Total assets 1 752.9 1 441.5 1 420.3
EQUITY AND LIABILITIES
Capital and reserves
Share capital 0.1 0.1 0.1
Share premium 142.6 105.1 125.4
Retained profit 1 112.5 878.9 998.9
1 255.2 984.1 1 124.4
Shares repurchased (66.8) (29.6) (66.8)
Outside shareholders` interest 3.1 - -
Total shareholders` equity 1 191.5 954.5 1 057.6
Non-current liabilities 139.2 153.4 135.8
Deferred taxation 107.3 123.9 107.2
Retirement benefit obligation 31.9 29.5 28.6
Current liabilities 422.2 333.6 226.9
Trade and other payables 334.6 264.8 169.3
Provisions 6.0 7.1 6.0
Taxation 81.6 61.7 51.6
Total equity and liabilities 1 752.9 1 441.5 1 420.3
Number of shares in issue (adjusted for
treasury shares) (millions) 459.7 455.4 453.9
Net asset value per share (cents) 259.2 209.6 233.0
GROUP CASH FLOW STATEMENT
Unaudited Audited
26 weeks 53 weeks
ended 31 Dec ended 30 Jun
2002 2001 2002
Rm Rm Rm
Cash flow from operating activities
Cash flow from trading 244.0 185.8 424.6
Dividends received 0.6 3.5 5.8
Cash EBITDA 244.6 189.3 430.4
Working capital movements 55.4 (32.4) (175.5)
Cash generated from operations 300.0 156.9 254.9
Finance costs - - (0.2)
Interest received 61.6 39.5 84.2
Taxation paid (60.8) (66.1) (191.5)
Cash generated by operations 300.8 130.3 147.4
Dividends paid (59.0) (34.6) (76.2)
Net cash retained 241.8 95.7 71.2
Cash flow from investing activities
Investment to maintain and expand operations (27.2) (172.5 (207.9)
Proceeds on disposal of property, fixtures,
vehicles, plant, equipment and software 0.4 1.2 1.5
Loans 2.9 0.5 (15.2)
Investments 0.1 1.0 10.2
Net cash outflow from investing activities (23.8) (169.8) (211.4)
Cash flow from financing activities
Proceeds on share issue 17.3 - 20.3
Odd lot shares repurchased and cancelled (0.1) - -
Shares repurchased - (29.6) (66.8)
Net cash inflow/(outflow) from financing
activities 17.2 (29.6) (46.5)
Net increase/(decrease) in cash and cash
equivalents 235.2 (103.7) (186.7)
Net cash inflow from discontinued operations 0.8 0.3 5.3
Cash and cash equivalents for the period 236.0 (103.4) (181.4)
Cash and cash equivalents at beginning of
the period 129.6 311.0 311.0
Cash and cash equivalents at end of
the period 365.6 207.6 129.6
Cash flow per share (cents) 66.1 28.3 32.2
Cash equivalent earnings per share (cents) 47.5 35.9 74.6
GROUP INCOME STATEMENT
Unaudited Audited
26 weeks 53 weeks
ended 31 Dec ended 30 Jun
2002 2001 Change 2002
Note Rm Rm % Rm
Revenue 3 1 257.1 1 010.9 24.4 2 074.0
Turnover 1 194.9 967.9 23.5 1 984.0
Cost of sales (600.9) (481.9) (949.2)
Gross profit 594.0 486.0 1 034.8
Expenses 4 (385.4) (331.7) 16.2 (672.1)
Trading profit 208.6 154.3 35.2 362.7
Dividends received 0.6 3.5 5.8
Interest received 61.6 39.5 84.2
Operating profit before
finance costs, exceptional
item and taxation 270.8 197.3 37.3 452.7
Finance costs - - (0.2)
Operating profit before
exceptional item and taxation 270.8 197.3 452.5
Exceptional item 5 0.8 0.3 5.3
Profit before taxation 271.6 197.6 37.4 457.8
Taxation (90.8) (64.4) (163.0)
Normal taxation (83.5) (60.7) (135.9)
Secondary taxation on
companies (7.3) (3.7) (8.4)
Transfer pricing taxation - - (18.7)
Net profit attributable to
shareholders 180.8 133.2 35.7 294.8
Dividend declared per share (cents) 13.0 9.0 44.4 22.0
Headline earnings per share (cents) 39.6 28.8 37.5 63.5
Attributable earnings per
share (cents) 39.7 28.9 37.4 64.5
Diluted headline earnings
per share (cents) 38.6 28.2 36.9 62.0
Diluted earnings per share (cents) 38.8 28.2 37.6 63.0
Weighted average number
of shares in issue (millions) 454.9 461.1 457.1
GROUP STATEMENT OF CHANGES
IN EQUITY
Share
capital & Retained Shares
premium profit repurchased
Note Rm Rm Rm
Ordinary shareholders` equity at
1 July 2002 125.5 998.9 (66.8)
Financial instruments adjustment 7 - (8.2) -
Restated ordinary shareholders`
equity at 1 July 2002 125.5 990.7 (66.8)
Net profit attributable to
shareholders - 180.8 -
Minorities interest: Woolmos
Properties Share Block Limited - - -
Dividend paid - (59.0) -
Shares issued 17.4 - -
Odd lot shares repurchased and
cancelled (0.1) - -
Share issue expenses written off (0.1) - -
Total shareholders` equity at
31 December 2002 142.7 1 112.5 (66.8)
Outsider
shareholders`
interest Total
Rm Rm
Ordinary shareholders` equity at 1 July 2002 - 1 057.6
Financial instruments adjustment - (8.2)
Restated ordinary shareholders` equity
at 1 July 2002 - 1 049.4
Net profit attributable to shareholders - 180.8
Minorities interest: Woolmos Properties
Share Block Limited 3.1 3.1
Dividend paid - (59.0)
Shares issued - 17.4
Odd lot shares repurchased and cancelled - (0.1)
Share issue expenses written off - (0.1)
Total shareholders` equity at 31 December 2002 3.1 1 191.5
NOTES
1. Basis of preparation
This report complies with the requirements of AC 127, 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 8.56 of the Listings Requirements of the JSE Securities
Exchange South Africa.
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 year ended 30 June 2002 except for
the adoption of AC 133, Financial Instruments : Recognition and Measurement. The
effects of this adoption are set out in note 7.
Unaudited Audited
26 weeks 53 weeks
ended 31 Dec ended 30 Jun
2002 2001 Change 2002
Rm Rm % Rm
3. Revenue
Sale of merchandise 1 194.9 967.9 23.5 1 984.0
Dividends received 0.6 3.5 5.8
Interest received 61.6 39.5 84.2
1 257.1 1 010.9 24.4 2 074.0
4. Expenses
Depreciation 32.2 27.4 17.5 57.6
Occupancy costs 85.0 78.0 9.0 158.9
Employment costs 156.8 140.5 11.6 270.9
Other operating costs 100.7 91.9 9.6 185.3
374.7 337.8 10.9 672.7
Foreign exchange losses/(profits) 10.7 (6.1) (0.6)
385.4 331.7 16.2 672.1
5. Exceptional item
Distributions from discontinued
operations 0.8 0.3 5.3
6. Headline earnings
Headline earnings have been calculated in terms of SAICA Circular 7/2002, which
replaces AC 306, Headline Earnings, as follows:
Net profit attributable to
shareholders 180.8 133.2 35.7 294.8
Exceptional item arising from
discontinued operations (0.8) (0.3) (5.3)
Net (surplus)/deficit on asset
realisation after taxation - (0.1) 0.8
Headline earnings 180.0 132.8 35.5 290.3
7. Financial instruments adjustment
During the period, the group changed its accounting policy in respect of its
financial instruments to comply with South African Statement of GAAP - AC 133,
Financial Instruments:
Recognition and Measurement.
The adoption of this policy has had no prior year effect on headline earnings
and headline earnings per share. The change results in an adjustment to
the balance of retained profit at the beginning of the period. The adjustment
arises as a result of the difference in valuation methods in respect of the
group`s participation in export partnerships. This participation was previously
valued at cost and has subsequently been valued at amortised cost.
- Opening retained profit as
- previously reported 998.9
- Financial instrument adjustment -
Participation in export partnerships (8.2)
- Restated opening retained profit 990.7
Apart from the above,the adoption
of the statement has had no other
material impact on other financial
instruments disclosed in the interim
report.
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 by the directors but not contracted:
Computer equipment and software 14.2 19.6 25.7
Fixtures, plant and equipment 18.5 17.7 38.8
32.7 37.3 64.5
10. Leases
The group leases the majority of its land and buildings under operating leases,
wheareas other operating assets are generally owned. Leases on stores are
contracted for periods of between 3 and 15 years, with renewal options for a
further 3 or 5 years. The lease agreements for a number of stores provide for a
minimum annual rental payment and additional payments determined on the basis of
turnover.
At 31 December 2002 the future minimum property operating lease commitments
were: 1 007.0 1 014.9 979.4
Due as follows:
Within one year 151.8 134.3 140.5
Between one and five years 535.5 498.7 501.7
Between five and ten years 259.1 318.9 279.5
Between ten and fifteen years 60.6 63.0 57.7
11. Seasonality
There is no material seasonal variation in trading between this period and the
second half of the financial year.
12. Comparative figures
Certain comparative figures have been regrouped and restated.
13. Contingent liability
Participation in export partnerships The group participates in container export
partnerships managed by a subsidiary of Trencor Limited. The South African
Revenue Service (SARS) is investigating the tax treatment by certain other
companies participating in such partnerships with financial years
ending after 1 March 1996. Trencor Limited has materially warranted certain
important aspects of the partners` participation, including any exposure
that might arise in the event that SARS were to raise assessments in respect of
this participation.
Deferred taxation liability in respect of the group`s participation in export
partnerships with financial years ending after 1 March 1996 (excluding interest
and penalties) 88.3 92.5 88.3
INTERIM DIVIDEND
The directors have resolved to declare a dividend in respect of the six months
ended 31 December 2002 in the amount of 13.0 (2001: 9.0) cents per share to
holders of the company`s shares reflected in the company`s register on the
record date, Thursday, 20 March 2003.
The last day to trade in the company`s shares cum dividend is Thursday, 13 March
2003. Trading in the company`s shares ex dividend will commence on Friday, 14
March 2003 and the dividend will be paid in South African rand on Monday, 24
March 2003.
Consequently no dematerialisation or rematerialisation of the company`s shares
may take place over the period from Friday, 14 March to Thursday, 20 March 2003,
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 registered charity to be nominated by the directors.
Retail environment
The South African economy showed exceptional resilience during the 26-week
period under review. Positive economic growth and the effects of a relaxation in
personal income taxation buoyed consumer sentiment and spending, even though
higher domestic inflation and significant increases in local interest rates
prevailed, as the effects of a weaker Rand permeated the economy.
Group results
The group`s trading and sales remained buoyant during the 26 weeks to 31
December 2002, following a successful 2002 financial year. Higher interest rates
and double digit inflation did not impact performance. Merchandise sales,
including franchise sales, increased to R1 194.9 million, a 23,5% improvement
relative to the corresponding period in 2001 when sales grew 17,6%. All
merchandise departments exceeded expectations, with particularly encouraging
performances from Truworths Man, Daniel Hechter, LTD, Identity and Elements.
Sales growth including like for like sales growth of 19,8%, was well ahead of
the estimated average of 13.2% for the clothing, footwear and textiles sector.
Internal inflation in the group for the 26-week period averaged in the mid-
teens.
Trading space increased by 4,1% over the comparable figure in 2001. This
reflects the opening of 2 Truworths stores together with the roll out of 9 new
Identity stores as well as other format and store expansions.
The buoyant trading activity, productivity gains in terms of sales per square
metre and per full-time employee, higher interest received, and a continued
focus on operating costs resulted in an improvement in operating margins from
20,4% to 22,7%. Operating profits before finance costs, taxation and exceptional
items increased by 37,3% to
R270.8 million (2001: R197.3 million).
Net profit attributable to shareholders rose by 35,7% from R133.2 million to
R180.8 million. Headline earnings improved by 35,5% to R180.0 million (2001:
R132.8 million) and headline earnings per share increased by 37,5% from 28.8
cents to 39,6 cents.
The small decline in the gross margin resulted mainly from the higher
contribution to sales by the lower margin Identity and cosmetics concepts.
Expenses, inclusive of foreign exchange losses, for the period increased by
16,2%. However, if this effect, which arises from the strengthening of the Rand,
was to be excluded, expenses would reflect an increase of 10,9%.
Credit services
For the period under the review, the group`s debtor book increased by 24,9% to
R753.9 million, whereas credit sales growth was lower at 21,6%. Improvements in
the state of the debtor book are reflected in a lower percentage of arrear
accounts and a further reduction in net bad debts as a percentage of credit
sales when compared to the previous year. The group continued to write off trade
receivables in accordance with a strict ageing policy. A doubtful debt
provision, calculated on a consistent basis at 5.6% of gross trade receivables,
has been maintained notwithstanding the lower incidence of bad debts. Management
has ensured that it has sufficient provision, if the credit market were to
deteriorate as a result of the continued high interest rates. Credit sales
represented 72% of total sales compared to 73% last year, reflecting the impact
of the continuing application of the group`s conservative credit granting
policies.
Cash flows and financial position
The significant increase in attributable cash flow per share to 66.1 cents from
28.3 cents is further testimony of the quality of group earnings. Greater
profitability, tight inventory management, increased creditor funding and
improved collections contributed to a substantial increase in cash generated
from operations. The ability to generate healthy cash flows is reflected in the
increase in cash and cash equivalents of R236.0 million to R365.6 million, since
June 2002.
Transfer pricing taxation
The SA Revenue Service ("SARS") has advised that the company`s objections to
additional tax assessments received in the 2002 financial year, relating to
transfer pricing adjustments in respect of the 1996 to 1999 years, have been
allowed in full. As a result management expects that an amount of R18.7m,
comprising normal tax, secondary tax on companies and interest, will be
refunded. The amount is to be credited against the group`s tax expense in the
second half of the 2003 financial year.
Outlook
Sales growth over the first eight weeks since 31 December 2002 has been similar
to that for the period under review. Management, however, believes it may be
difficult to sustain this high level of growth given the challenging sales base
established in previous years, the continuing inflationary pressures and still
high interest rates.
Approval
This interim report was approved by the directors on 27 February 2003, and is
signed on their behalf by:
MS Mark
Chairman and Chief executive officer
Registered office: SRG House, 1 Mostert Street, Cape Town 8001. PO Box 600, Cape
Town 8000, South Africa
Sponsor: HSBC Investment Services (Africa) (Pty) Ltd
Auditors: Ernst & Young
Transfer secretaries: Computershare Investor Services Limited, 70 Marshall
Street, Johannesburg 2001. PO Box 61051, Johannesburg 2000, 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: MS Mark (Chairman and CEO)*, RG Dow+#, BD Lapin+#, CT Ndlovu+#, AE
Parfett+, H Saven+#, LA Tager+#, AJ Taylor*, W van der Merwe*
*Executive +Non-executive #Independent
These results are available on our website at www.truworths.co.za
Date: 27/02/2003 03:43:02 PM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
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