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TRU - Truworths International - Preliminary Report On The Audited Group
Results For The 53 Weeks Ended 29 June 2008 and dividend declaration
Truworths International Limited
(Registration number 1944/017491/06)
JSE Limited code: TRU
NSX code: TRW
ISIN: ZAE000028296
PRELIMINARY REPORT ON THE AUDITED GROUP RESULTS for the 53 weeks ended
29 June 2008
- HEADLINE EARNINGS PER SHARE UP 19% (52 weeks up 15%)
- FULLY DILUTED HEADLINE EARNINGS PER SHARE UP 19% (52 weeks up 15%)
- OPERATING PROFIT UP 16% (52 weeks up 12%)
- OPERATING MARGIN MAINTAINED AT 33%
- MERCHANDISE SALES UP 16% (52 weeks up 14%)
- FINAL DIVIDEND UP 20%
COMMENTARY
Truworths International Limited is an investment holding, trading and
management company listed on the JSE and the Namibian Stock Exchanges. Its
trading subsidiaries are engaged in the retailing of fashion apparel and related
merchandise. Truworths International Limited and its subsidiaries ("the Group")
operate primarily in southern Africa.
GROUP RESULTS
In a challenging trading environment over 53 weeks, group sale of merchandise
increased by 16% to R5 651 million (14% excluding week 53).
Trading conditions became increasingly difficult during the period following
five interest rate hikes totalling 250 basis points and a rise in the cost of
living mainly as a result of spiralling food price inflation and an increasing
fuel price.
Headline and basic earnings per share of 295.6 cents equate to a 19% increase
(15% excluding week 53) compared to the prior period`s 248.6 cents. This is in
line with the forecast in the Group`s trading statement released on SENS
on 25 July 2008. Fully diluted headline and basic earnings per share of 289.6
cents were 19% higher (15% excluding week 53) than the 242.5 cents achieved in
2007. A final cash dividend of 72 cents a share has been declared. Total
dividends for the period amount to 144 cents, 20% more than the prior period.
Dividend cover remains at 2.1 times headline earnings per share.
Sales growth includes comparable store sales growth of 8% (6% excluding week
53), with product inflation of approximately 6%. Trading space increased by 9%
relative to the position at 24 June 2007 following the opening of 17 Truworths,
13 Identity, 10 Uzzi and 2 YDE stores and the closure of 7 Truworths stores. At
the end of the period the Group had 452 stores.
The Group continued to grow market share. Based on figures from the retail
liaison committee (RLC) for June 2008, the Group increased its ladieswear RLC
market share to 21% (2007: 20%) and menswear RLC market share to 18% (2007:16%).
% change % change
2008 (including (excluding
53 weeks week 53) on week 53) on
Sale of merchandise growth Rm prior period prior period
Truworths 3 368 11 9
Truworths Man 981 10 7
Daniel Hechter 718 28 26
Identity 685 36 33
Uzzi 111 35 32
Group retail sales 5 863 15 13
Franchise sales 34 48 43
IFRS adjustments (246)
Sale of merchandise 5 651 16 14
YDE agency sales 241 20 18
Operating profit increased 16% to R1 880 million, with operating margin being
maintained at 33%. The gross margin of 55% remained at a similar level to the
prior period. Expenses grew by 21%, primarily as a result of increased trade
receivable costs and investment in new stores.
There has been a focus on ensuring the quality of earnings during the period.
The success of this strategy is evidenced by an improved cash realisation rate
from 70% to 96% with cash inflows from operating activities improving from
R357 million in the prior period to R725 million in the reporting period.
CREDIT MANAGEMENT
The Group continued to apply its normal credit granting criteria during the
period and the active account base grew by 6% to approximately 1.8 million
accounts (20% four year compound growth), with a 60% rejection rate on new
account applications. The debtors` book grew by 12% during the period. Group
credit sales represented 70% of total Group retail sales while 84% of active
account holders were able to purchase at period-end (2007: 85%).
Net bad debt as a percentage of the debtors` book grew to 11.3%. The material
increases in the Group`s net bad debts and doubtful debt allowances resulted
from the strong growth of new accounts over the last few years, as well as the
general economic conditions currently affecting the majority of credit-active
consumers. The additional interest income earned on the debtors` book during the
period offset the increased net bad debts and associated costs. The Group
continued to apply a qualifying payment percentage of 90% necessary for
customers to avoid delinquency and management remains satisfied with the quality
of the debtors` book.
CASH AND FINANCIAL POSITION
The Group remains in a positive cash position with cash and cash equivalents of
R533 million at period-end. During the period the Group generated R725 million
from operating activities and utilised cash to fund share buy-backs and the Uzzi
acquisition and to expand trading space.
SHARE REPURCHASES
During the period 7.3 million shares were repurchased at an average price of
R24.96 per share and a total cost of R183 million. Since the inception of the
share buy-back programme, 68.1 million shares have been repurchased at an
average cost of R15.86 per share and a total cost of R1.1 billion. 43.4 million
of these shares (at an average cost of R10.95 per share and a total cost of
R475 million) have been cancelled. At the end of the period the balance of
24.7 million shares (5.4% of total shares in issue) were held as treasury
shares.
UZZI MINORITY ACQUISITION
As previously advised to shareholders, the Group exercised its option on 1
January 2008 to acquire the 49% minority shareholding in Uzzi and now holds
100%. Shortly before period-end, the Uzzi business was transferred from this
stand-alone subsidiary and now functions as a division of Truworths Limited,
thus enabling cross-shopping and realising cost savings. Credit was introduced
to Uzzi customers in October 2007. At the end of the period Uzzi operated 35
stand-alone stores in the upper-end male fashion market. Trading results to date
have exceeded management`s expectations.
OUTLOOK
Group sale of merchandise for the first seven weeks of the current financial
period reflects growth of 14% on the prior comparable period, partly driven by
sales of marked-down winter merchandise. The retail environment will continue in
the short-term to be impacted by high interest rates, high inflation and high
levels of consumer debt. Nevertheless, the board is committed to investing in
the longer term growth of the business and anticipates that trading activity in
the 2009 period is likely to yield satisfactory earnings growth.
H Saven MS Mark
Chairman Chief Executive Officer
20 August 2008
FINAL DIVIDEND
The directors have resolved to declare a final cash dividend from retained
earnings in respect of the period ended 29 June 2008 in the amount of 72 cents
(2007: 60.0 cents) per share to holders of the company`s shares reflected in
the company`s register on the record date, being Friday, 12 September 2008.
The last day to trade in the company`s shares cum dividend is Friday, 5
September 2008. Trading in the company`s shares ex dividend will commence on
Monday, 8 September 2008. The dividend will be paid in South African Rand on
Monday, 15 September 2008.
Consequently no dematerialisation or rematerialisation of the company`s shares
may take place over the period from Monday, 8 September 2008 to Friday, 12
September 2008, 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
Company Secretary
Cape Town
20 August 2008
GROUP BALANCE SHEETS
at 29 June at 24 June
2008 2007
Rm Rm
ASSETS
Non-current assets 848 755
Property, plant and equipment 527 455
Goodwill 90 72
Intangible assets 53 55
Derivative financial instruments 16 45
Loans and receivables 99 110
Deferred tax 63 18
Current assets 3 055 2 582
Inventories 397 353
Trade and other receivables 2 077 1 962
Derivative financial instruments 5 13
Prepayments 43 38
Cash and cash equivalents 533 216
Total assets 3 903 3 337
EQUITY AND LIABILITIES
Capital and reserves
Share capital and premium 50 36
Treasury shares (604) (421)
Non-distributable reserves 17 23
Retained earnings 3 457 2 756
Attributable to equity holders of the parent 2 920 2 394
Minority interest - 10
Total equity 2 920 2 404
Non-current liabilities 85 97
Post-retirement medical benefit obligation 28 25
Cash-settled compensation liability 7 23
Straight-line operating lease obligation 50 49
Current liabilities 898 836
Trade and other payables 658 606
Minority interest loans - 30
Provisions 43 44
Tax payable 197 156
Total liabilities 983 933
Total equity and liabilities 3 903 3 337
Number of shares in issue
(net of treasury shares) (millions) 428.3 433.5
Net asset value per share (cents) 682 555
GROUP INCOME STATEMENTS
53 weeks 52 weeks
to 29 June to 24 June
% 2008 2007
Note change Rm Rm
Revenue 3 19 6 322 5 326
Sale of merchandise 16 5 651 4 858
Cost of sales (2 568) (2 166)
Gross profit 15 3 083 2 692
Other income 19 146 123
Trading expenses 21 (1 874) (1 543)
Depreciation and amortisation (96) (82)
Employment costs (600) (539)
Occupancy costs (415) (361)
Trade receivable costs (464) (280)
Other operating costs (299) (281)
Trading profit 7 1 355 1 272
Interest received 525 345
Profit before tax 16 1 880 1 617
Tax expense (596) (527)
Profit for the period 18 1 284 1 090
Attributable to:
Equity holders of the parent 18 1 277 1 080
Minority interest 7 10
1 284 1 090
Cents per share:
Dividends 20 144 120
final - payable September 72 60
interim - paid March 72 60
Basic and headline earnings 19 295.6 248.6
Fully diluted basic and
headline earnings 19 289.6 242.5
Weighted average number
of shares in issue(millions) 432.0 434.5
Key ratios
Gross margin (%) 55 55
Trading expenses to sale
of merchandise (%) 33 32
Trading margin (%) 24 26
Operating margin (%) 33 33
GROUP CASH FLOW STATEMENTS
53 weeks 52 weeks
to 29 June to 24 June
2008 2007
Rm Rm
CASH FLOWS FROM OPERATING ACTIVITIES
Cash flow from trading and cash EBITDA* 1 474 1 389
Working capital movements (104) (372)
Cash generated from operations 1 370 1 017
Interest received 525 345
Tax paid (595) (549)
Cash inflow from operations 1 300 813
Dividends paid (575) (456)
Net cash from operating activities 725 357
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of plant and equipment to maintain
operations (32) (31)
Acquisition of property, plant and equipment
to expand operations (129) (117)
Acquisition of computer software (5) (8)
Net investment in subsidiary (35) (29)
Minority shareholder loans acquired (30) (4)
Loans advanced - (3)
Loans repaid 10 4
Acquisition of derivative financial instruments (18) (22)
Proceeds on disposal of derivative financial
instruments 9 4
Settlement of cash-settled compensation liability (9) (4)
Net cash used in investing activities (239) (210)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds on shares issued 14 22
Shares repurchased by subsidiaries (183) (167)
Cost incurred in cancelling shares - (3)
Funding of post-retirement benefit obligation - (2)
Net cash used in financing activities (169) (150)
Net increase/(decrease) in cash and cash
equivalents 317 (3)
Cash and cash equivalents at the beginning
of the period 216 219
Cash and cash equivalents at the end of the period 533 216
Key ratios
Cash flow per share (cents) 300.9 187.1
Cash equivalent earnings per share (cents) 313.9 268.4
Cash realisation rate (%) 96 70
*Earnings before interest, tax, depreciation and amortisation
GROUP STATEMENTS OF CHANGES IN EQUITY
29 June 24 June
2008 2007
Rm Rm
Total equity at the beginning of the period 2 404 1 908
Total recognised income and expense for the period 1 272 1 097
Profit for the period 1 284 1 090
Effective portion of cash flow hedge (17) 9
Deferred tax on cash flow hedge 5 (2)
Dividends (576) (456)
Acquisition of minority interest in subsidiary (17) -
Premium on shares issued 14 22
Shares repurchased and cancelled - (4)
Shares repurchased (183) (167)
Share option expense 6 4
Total equity at the end of the period 2 920 2 404
Comprising:
Share capital and premium 50 36
Treasury shares (604) (421)
Non-distributable reserves 17 23
Retained earnings 3 457 2 756
Attributable to equity holders of the parent 2 920 2 394
Minority interest - 10
Total equity 2 920 2 404
SELECTED EXPLANATORY NOTES
1 BASIS OF PREPARATION
The information in this preliminary report has been extracted from the Group`s
2008 audited annual financial statements, which have been prepared in
compliance with International Financial Reporting Standards ("IFRS") and the
South African Companies Act of 1973. This preliminary report has been prepared
in accordance with IFRS and IAS 34: Interim Financial Reporting.
The Group`s 2008 annual financial statements have been audited by the Group`s
external auditors, Ernst & Young Inc., and their unqualified audit opinions on
such financial statements and on this preliminary report are available for
inspection at the company`s registered office.
The annual financial statements have been prepared in accordance with the going
concern and historical cost bases, except where otherwise indicated in the
Group`s accounting policies. The accounting policies have been applied
consistently throughout the Group and with those applied in the prior period,
except as mentioned in note 2. The presentation and functional currency of the
financial statements is the South African Rand (ZAR) and all amounts are
rounded to the nearest million.
2 ACCOUNTING POLICIES
The Group has adopted the following new and amended IFRS and International
Financial Reporting Interpretations Committee ("IFRIC") interpretations during
the period, and such adoption has not had any material effect on the financial
statements of the Group, although in some instances it has given rise to
additional disclosures.
- IFRS 7: Financial Instruments: Disclosures
- IAS 1: Amendment - Capital Disclosures
- IFRS 8: Operating Segments
- IFRIC 10: Interim Financial Reporting and Impairment
The Group has adopted IFRS 8 earlier than required by the standard. Its
adoption did not have any effect on the financial statement performance or
position of the Group. It did, however, give rise to additional disclosures and
a revision to the relevant accounting policies.
Various other IFRS, amendments and IFRIC interpretations that have been issued
and are effective have not been adopted by the Group as they are not applicable
to its activities.
2008 2007 %
Rm Rm change
3 REVENUE
Sale of merchandise 5 651 4 858 16
Retail sales 5 617 4 835
Franchise sales 34 23
Interest received 525 345 52
Investment interest 37 27
Trade receivables interest 488 318
Other income 146 123 19
Commission 86 75
Royalties 2 2
Lease rental income 8 7
Display fees 26 21
Other 24 18
6 322 5 326 19
4 BUSINESS COMBINATION
On 1 January 2008, the Group exercised its option to acquire the remaining 49%
minority shareholding in Uzzi (Pty) Limited and now holds 100% of the company`s
issued share capital.
Total consideration paid 65
Less: loan accounts held by minority
shareholders acquired (30)
Net amount paid 35
Net asset value (17)
Goodwill arising on acquisition of 49% 18
Total goodwill arising on the acquisition of 100% 38
The goodwill is attributable to the Uzzi business` superior store locations,
long-term manufacturer and supplier relationships, good profitability and cash
flow generation, and loyal customer base. On the original acquisition these
intangible assets were not separately recognised as it was not possible to
measure their fair values reliably.
On 2 June 2008, the Uzzi business was transferred as a going concern from Uzzi
(Pty) Limited to Truworths Limited and is now managed as a department.
5 SEGMENT REPORTING
The Group`s reportable segments have been identified as the Truworths and YDE
business units.
Truworths is a retailer in fashion apparel providing a local blend of clothing
and other fashion products to women, men and children. YDE retails, on an
agency basis, the clothing and other related products of emerging South African
designers.
Management monitors the operating results of the business segments separately
for the purpose of making decisions about resources to be allocated and of
assessing performance. Segment performance is evaluated based on sales and
operating profit or loss.
Primary segments
2008 Truworths YDE Corporate# Group
Rm Rm Rm Rm
Total revenue* 6 239 84 (1) 6 322
Third party 6 238 82 2 6 322
Inter-segment 1 2 (3) -
Depreciation and amortisation 93 3 - 96
Interest received 521 2 2 525
Profit for the period 1 255 28 1 1 284
Profit before tax 1 839 39 2 1 880
Tax expense (584) (11) (1) (596)
Segment assets** 5 760 89 (1 946) 3 903
Segment liabilities 989 28 (34) 983
Capital expenditure 163 3 18 184
Gross margin (%) 55 - - 55
Trading margin (%) 23 43 - 24
Operating margin (%) 33 46 - 33
Inventory turn (times) 6.5 - - 6.5
Credit:cash sales mix (%) 70:30 21:79 - 70:30
2007
Total third party revenue* 5 232 66 28 5 326
Depreciation and amortisation 80 2 - 82
Interest received 341 3 1 345
Profit/(loss) for the period 1 085 22 (17) 1 090
Profit/(loss) before tax 1 603 31 (17) 1 617
Tax expense (518) (9) - (527)
Segment assets** 4 862 53 (1 578) 3 337
Segment liabilities 800 40 93 933
Capital expenditure 202 8 - 210
Gross margin (%) 55 - - 55
Trading margin (%) 26 41 - 26
Operating margin (%) 33 45 - 33
Inventory turn (times) 6.1 - - 6.1
Credit:cash sales mix (%) 73:27 20:80 - 73:27
* Segment revenue includes interest on trade receivables and management fees
** Segment assets include trade and other receivables
# "Corporate" represents unallocated segments and consolidation entries.
Third party revenue 2008 2007
Rm % Rm %
South Africa 6 156 97.4 5 204 97.7
Namibia 95 1.5 68 1.3
Swaziland 37 0.6 31 0.6
Franchise sales 34 0.5 23 0.4
Botswana 15 0.2 10 0.2
Middle East 8 0.1 7 0.1
Rest of Africa 11 0.2 6 0.1
Total third party revenue 6 322 100 5 326 100
2008 2007
Rm Rm
Non-current assets^
South Africa 664 577
Namibia 5 4
Swaziland 1 1
Total non-current assets 670 582
^ Non-current assets comprise property, plant and equipment, goodwill and
intangible assets.
6 CAPITAL COMMITMENTS 2008 2007
Rm Rm
Capital expenditure authorised but not contracted:
Store development 145 154
Head office refurbishments 13 12
Warehousing facilities 69 59
Computer infrastructure 31 45
258 270
Capital expenditure authorised and contracted:
Land 11 -
7 EVENTS SUBSEQUENT TO PERIOD-END
No event, material to the understanding of the preliminary report, has
occurred between the end of the financial period and date of approval.
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
Sponsor in South Africa: Barnard Jacobs Mellet Corporate Finance (Pty)
Limited.
Sponsor in Namibia: Old Mutual Investment Services (Namibia) (Pty) Limited
Auditors: Ernst & Young Inc.
Transfer secretaries: Computershare Investor Services (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
#, SM
Ngebulana
#, AE Parfett
#, AJ Taylor*, MA Thompson
# and WM van der Merwe*
* Executive
Non - executive #Independent
Date: 20/08/2008 14:56:47 Supplied by www.sharenet.co.za
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