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Truworths - Audited Group Results for the 52 weeks ending 25 June 2006
Truworths International Limited
(Registration number: 1944/017491/06)
JSE code: TRU; NSX code: TRW; ISIN: ZAE000028296;
("Truworths") or ("the Group")
Audited Group Results for the 52 weeks ending 25 June 2006
* Merchandise sales up 23%
* Headline earnings per share up 29%
* Total dividend up 29%
* Operating profit up 27%
* Operating margin 33%
* Return on equity 44%
BALANCE SHEETS
2006 2005
Rm Rm
Restated
ASSETS
Non-current assets 574 499
Property, plant and equipment 379 347
Intangible assets 73 59
Financial assets 122 93
Current assets 2 060 2 119
Financial assets - 30
Inventories 290 260
Trade and other receivables 1 519 1 201
Prepayments 32 22
Cash and cash equivalents 219 606
Total assets 2 634 2 618
EQUITY AND LIABILITIES
Capital and reserves
Share capital and premium 14 197
Treasury shares (528) (330)
Equity-settled compensation 15 9
reserve
Cash flow hedging reserve (3) -
Retained earnings 2 410 1 947
Attributable to equity holders 1 908 1 823
of the parent
Minority interest - 13
Total equity 1 908 1 836
Non-current liabilities 87 99
Deferred tax 11 35
Post-retirement medical benefit 23 21
obligation
Cash-settled compensation 7 -
liability
Straight-line operating lease 46 43
obligation
Current liabilities 639 683
Trade and other payables 492 417
Tax payable 147 266
Total liabilities 726 782
Total equity and liabilities 2 634 2 618
Number of shares in issue
(adjusted for treasury shares) (millions) 433.9 447.5
Net asset value per share (cents) 440 407
INCOME STATEMENTS
2006 2005
Rm Rm
Restated
Note 52 weeks 52 weeks
Revenue 4 4 191 3 425
Sale of merchandise 3 816 3 115
Cost of sales (1 765) (1 443)
Gross profit 2 051 1 672
Trading expenses (1 097) (927)
Depreciation and amortisation (74) (65)
Employment costs (442) (384)
Occupancy costs (272) (232)
Other operating costs (309) (246)
Trading profit 954 745
Dividends received 2 2
Interest received 288 232
Profit before tax 1 244 979
Tax expense (420) (328)
Profit for the period 824 651
Attributable to:
Equity holders of the parent 823 648
Minority interest 1 3
824 651
Cents per share:
Dividends paid 89 69
Final - Payable September 45 37
Interim - Paid March 44 32
Headline earnings per share 186.4 144.8
Basic earnings per share 186.4 144.8
Fully diluted headline earnings 181.0 140.8
per share
Fully diluted basic earnings per 181.0 140.8
share
Weighted average number of shares (millions) 441.6 447.6
in issue
CASH FLOW STATEMENTS
2006 2005
Rm Rm
Restated
52 weeks 52 weeks
CASH FLOWS FROM OPERATING ACTIVITIES
Cash flow from trading 1 048 818
Dividends received 2 2
Cash earnings before interest, tax,
depreciation and amortisation
1 050 820
Working capital movements (274) (233)
Cash generated from operations 776 587
Interest received 288 232
Tax paid (563) (261)
Cash inflow from operations 501 558
Dividends paid (362) (266)
Net cash from operating activities 139 292
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant, equipment (107) (102)
and intangibles
Proceeds on disposal of property, plant and 1 1
equipment
Acquisition of minority interest in (26) -
subsidiary
Loans advanced (56) (20)
Loans repaid 37 44
Acquisition of held-for-trading financial (23) -
asset
Proceeds on disposal of preference shares 30 -
Net cash used in investing activities (144) (77)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds on shares issued 17 20
Shares repurchased by subsidiaries (198) (55)
Shares repurchased and cancelled (200) -
Funding of post-retirement benefit (1) (1)
obligation
Net cash used in financing activities (382) (36)
Net (decrease)/increase in cash and cash (387) 179
equivalents
Cash and cash equivalents at the beginning 606 427
of the period
Cash and cash equivalents at the end of the 219 606
period
Cash flow per share (cents) 114 125
Cash equivalent earnings per share (cents) 202 152
Cash realisation rate (%) 56 82
STATEMENTS OF CHANGES IN EQUITY
2006 2005
Rm Rm
Restated
Balance at the beginning of the period 1 836 1 480
Profit for the period 823 648
Dividends paid (360) (264)
Shares issued 17 20
Shares repurchased (198) (55)
Shares repurchased and cancelled (200) -
Equity-settled compensation reserve 6 6
movements
Cash flow hedging reserve (3) -
Dividends paid to minorities (2) (2)
Profit attributable to minorities 1 3
Acquisition of minority interest in (12) -
subsidiary
Balance at the end of the period 1 908 1 836
Comprising:
Share capital and premium 14 197
Equity-settled compensation reserve 15 9
Cash flow hedging reserve (3) -
Retained earnings 2 410 1 947
Treasury shares (528) (330)
Attributable to equity holders of the parent 1 908 1 823
Minority interest - 13
Total equity 1 908 1 836
Notes
Basis of preparation
The information in this announcement has been extracted from the Group"s 2006
audited annual financial statements, which have been prepared in compliance with
International Financial Reporting Standards (`IFRS"). The Group has adopted IFRS
for the first time in the 2006 financial period, with the transition date in
respect of such adoption being 28 June 2004. The Group had previously complied
with South African Statements of Generally Accepted Accounting Practice (`SA
GAAP"). The opening balance sheet at 28 June 2004 as well as the comparative
figures have been restated accordingly.
The Group"s 2006 annual financial statements were audited by the Group"s
external auditors, Ernst & Young, whose unqualified audit opinion is available
for inspection at the company"s registered office.
2 Accounting policies
These financial statements have been prepared in accordance with the going
concern and historical cost basis except for held-for-trading financial assets
which are measured at fair value. The accounting policies are applied
consistently throughout the Group.
3 Comparative figures
Comparative figures have been restated as a result of the adoption of IFRS and
certain interpretation changes relating to the application of SA GAAP.
Transitional arrangements: IFRS 1: First time Adoption of International
Financial Reporting Standards generally requires full retrospective application
of IFRS. However, IFRS 1 provides for issuers of financial statements to elect
certain optional and mandatory exemptions from full retrospective application,
and the Group has elected as follows:
Property, plant and equipment: The Group elected to measure the head-office
building at its fair value on the transition date and use such fair value as the
deemed cost.
Share-based payments: The Group elected to apply IFRS 2: Share-based payments,
to such payments granted after 7 November 2002 that had not yet vested at 1
January 2005.
Business combinations: The Group elected not to retrospectively apply IFRS 3:
Business Combinations, to business combinations that occurred before 28 June
2004. On that date, the carrying amount of goodwill equated to the amortised
amount.
The effects of the adoption of IFRS and interpretation changes on equity are
detailed below:
2005 2004
Rm Rm
Total equity under SA GAAP as previously reported 1 817 1 467
IFRS adoption:
Property, plant and equipment 43 35
Notional interest (12) (10)
Non-current loans receivable (11) (11)
Interpretation changes:
Discounts (1) (1)
Total equity restated under IFRS 1 836 1 480
The adoption of IFRS and interpretation changes had no significant net impact on
the profit and cash flow as reported for the 2005 financial period, therefore no
reconciliations are presented.
IFRS adoption:
Property, plant and equipment
In terms of IFRS 1, the Group elected to use the fair value as deemed cost on
transition date for its head-office building. IAS 16: Property, plant and
equipment, requires that the residual values and useful lives of property, plant
and equipment be reassessed at each balance sheet date. The impact of these
reassessments has been applied retrospectively.
Notional interest
The adoption of IAS 39: Financial Instruments - Recognition and Measurement,
resulted in the recognition of notional interest on interest free debtors.
Accordingly, a portion of credit sales revenue has been deemed to be interest
recognised on a time apportionment basis using the effective interest rate
implicit in the sales transaction. Previously the entire transaction was
recognised as a sale with no interest implication. This policy has been applied
with retrospective effect.
Non-current loans receivable
Secured loans to share incentive scheme participants were previously measured at
amortised cost at inception using the original effective interest rate. In
accordance with
IAS 39, these have now been measured at fair value using the market rate at
inception.
Share-based payments
IFRS 2 requires that equity-settled share-based payments are measured at fair
value on grant date, with the expense recognised in the income statement over
the vesting period. Prior to the adoption of IFRS 2, the Group did not recognise
the financial effect of these share-based payments. As the recognition of these
share-based payments affects retained earnings and a separate component of
equity, there is no effect on equity. The cumulative impact on opening retained
income at 27 June 2005 was R9 million (28 June 2004: R3 million).
Interpretation changes:
Discounts
In accordance with SAICA Circular 9/2006 regarding the treatment of settlement
discounts and cash discounts, the valuation of inventories and trade accounts
receivable and payable, as well as the measurement of cost of sales and the sale
of merchandise have been adjusted retrospectively by the settlement discounts
received from suppliers in respect of merchandise purchases, and discounts
granted to employees in respect of the sale of merchandise.
Other
Certain agency sales were previously recorded at their face value with the
corresponding cost in cost of sales. These have been eliminated and the net
revenue is now recorded. This had no effect on profit.
2006 2005
4 Revenue
Rm Rm
Restated %
52 weeks 52 weeks change
Sale of merchandise 3 816 3 115 23
Retail sales 3 800 3 098
Franchise sales 16 17
Interest received 288 232
Investment interest 31 40
Trade receivables interest 257 192
Fees earned 76 67
Commission 58 47
Display fees 17 14
Royalties 1 1
Warehousing and management fees - 5
Lease rental income 9 9
Dividends received 2 2
4 191 3 425 22
Credit: cash sales mix 74:26 74:26
5 Segment reporting
Segmental information is not
disclosed as the Group is
regarded as having only a
single
material southern African
retailing segment.
6 Capital commitments
Capital expenditure authorised
but not contracted:
Plant and equipment 172 107
FINAL DIVIDEND
The directors have resolved to declare a final dividend in respect of the period
ended 25 June 2006 in the amount of 45 (2005: 37) cents per share to holders of
the company"s shares reflected in the company"s register on the record date,
being Friday 15 September 2006.
The last day to trade in the company"s shares cum dividend is Friday 8 September
2006. Trading in the company"s shares ex dividend will commence on Monday 11
September 2006. The dividend will be paid in South African Rand on Monday 18
September 2006.
Consequently no dematerialisation or rematerialisation of the company"s shares
may take place over the period from Monday 11 September 2006 to Friday 15
September 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 24 August 2006
COMMENTARY
Truworths International Limited is an investment holding company listed on the
JSE Limited.
Its trading subsidiaries are engaged either directly or through franchises and
agencies, in retailing of fashion apparel and related merchandise. The Group
operates primarily in southern Africa.
THE RETAIL ENVIRONMENT
The 2006 financial period was another good period for the Group, on the back of
healthy economic fundamentals, including robust consumer confidence and a strong
demand for consumer goods driven by increased disposable incomes.
GROUP RESULTS
Truworths" formula of continual reinvention of its core business proved to be a
successful foundation for growth as in the past. The Group results have for the
first time been prepared in accordance with International Financial Reporting
Standards (`IFRS") and this, together with certain accounting reclassifications,
has necessitated a restatement of the 2005 results to ensure comparability. Sale
of merchandise of R3 816 million for the period was 23% more than the restated
R3 115 million achieved in 2005.
Headline earnings per share of 186.4 cents equate to a 29% increase compared to
the prior period"s restated 144.8 cents, in line with the estimation contained
in the Group"s recent trading statement. Fully diluted headline earnings per
share of 181.0 cents were 29% higher than the restated 140.8 cents achieved in
2005. The return on average shareholders" equity increased to 44% and the net
asset value per share increased by 8% to 440 cents. A final dividend of 45 cents
a share has been declared. Total dividends in respect of the period amount to 89
cents, 29% more than those declared in respect of the 2005 period. Dividend
cover remains at 2.1 times headline earnings.
Sales growth included comparable store sales growth of 16% with product
inflation of approximately 1%. Trading space increased by 11% through the
opening of 13 Truworths and 19 Identity stores.
Divisional sales growth was as follows:
Sales %
Rm change
Truworths 2 519 19
Truworths Man 720 25
Daniel Hechter 427 27
Identity 362 47
Retail sales 4 028 23
Franchise sales 16 (6)
4 044 23
Accounting reclassifications (228)
Sale of merchandise 3 816 23
All merchandise departments performed ahead of budget expectations and Young
Designers" Emporium (`YDE") achieved agency sales of R166 million, an
improvement of 11%.
The Group"s performance reflects the focus on incentivising people to deliver,
developing new initiatives and formats, improving efficiencies through
appropriately targeted spending and increased productivity, increasing trading
space and ongoing development of brand integrity.
The operating margin grew to 33%, with gains in market share and productivity in
terms of sales per square metre and per full-time employee. Operating profit
improved by 27% to
R1 244 million. Expenses as a percentage of sales reduced to 29% from 30%. The
gross margin was 54%, in line with that for 2005.
The Group continued to apply strict criteria for credit granting and yet managed
to achieve solid growth in new customer accounts and in the active account base,
which now approximates
1,3 million customers. Credit sales represent 74% of total retail sales, in line
with the prior period. The number of accounts able to purchase was maintained at
87%.
The quality of the debtors" book remains high and compares well with sector
benchmarks, notwithstanding marginally deteriorating delinquency and net bad
debt. These indicators are in line with management expectations and have been
adequately provided for.
CASH FLOWS AND FINANCIAL POSITION
The Group remains in a solid cash position, with cash and cash equivalents
amounting to R219 million at period end. During the period the Group utilised
cash to fund share buybacks and acquisitions, and to expand trading space. Cash
flow per share decreased from 125 cents to 114 cents primarily due to
accelerated tax payments.
SHARE REPURCHASES
Since the inception of the buyback strategy 56 million shares have been
repurchased at a cost of R728 million at an average price of R12.95. During this
reporting period 9.3 million shares were repurchased for a total of R198 million
and are held as treasury shares whilst 7.2 million shares were repurchased at a
cost of R200 million and cancelled.
INTERNATIONAL FINANCIAL REPORTING STANDARDS
The amendments to the Group"s accounting policies to comply with IFRS, has
affected revenue; inventories; property, plant and equipment; intangible assets;
financial instruments and share-based payments. Details of the changes are
listed in note 3.
ACQUISITIONS
In November 2005 the Group purchased the minorities" interests in YDE and now
owns 100%. Subsequent to the period end, the remaining conditions relating to
the acquisition of a majority interest in Uzzi were fulfilled. This business
operates 25 stores in the better-end male fashion market, and its acquisition
has been financed from the Group"s cash resources.
BILATERAL TRADE AGREEMENT WITH CHINA
The previously announced bilateral agreement to limit clothing and related
imports from China has been noted by management. To date details of this
agreement have yet to be made public, but the Group observes that the
authorities have embarked on this course of action without consulting major
clothing retailers. The impact on product inflation could be significant and the
agreement may have unintended consequences, especially for consumers, if the
implications of restricted imports are not carefully considered. However, the
Group is positioning itself to deal with the attendant uncertainties, given that
it imports about a third of its garments. Management has the ability to procure
product from alternative sources albeit at higher prices.
OUTLOOK
Group sale of merchandise for the first eight weeks of the new financial period
is comfortably ahead of budget and reflects in excess of 20% growth on the prior
period. With the further expansion of trading space, market share gains and
continued emphasis on the fashionability of merchandise, management is confident
that trading for the period will yield positive growth.
Notwithstanding the possible effects of changes to the retail environment
resulting from possible further increases in interest rates, rising inflation
and higher levels of consumer debt, management"s primary goal will be to
continue to procure the right merchandise at the right price to attract the
growing market of fashion conscious consumers.
H Saven M S Mark
Chairman Chief Executive Officer
Registered office:
No 1 Mostert Street, Cape Town 8001. P O Box 600, Cape Town 8000, South Africa
Lead sponsor in South Africa:
Barnard Jacobs Mellet Corporate Finance (Pty) Limited.
Joint sponsor:
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, P.O. 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)+, M S Mark (Chief Executive Officer)*, R G Dow+, C
T Ndlovu+, A E Parfett+, A J Taylor*, M A Thompson+ and W M van der Merwe*
*Executive, +Non-executive and independent
Date: 24/08/2006 03:16:16 PM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
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