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TRU - Truworths International - Preliminary report on the audited group results

Release Date: 19/08/2010 14:07
Code(s): TRU
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TRU - Truworths International - Preliminary report on the audited group results for the 52 weeks ended 27 June 2010 TRUWORTHS INTERNATIONAL (Incorporated in the Republic of South Africa) (Registration number 1944/017491/06) JSE Code: TRU NSX Code: TRW ISIN: ZAE000028296 PRELIMINARY REPORT ON THE AUDITED GROUP RESULTS FOR THE 52 WEEKS ENDED 27 JUNE 2010 SALE OF MERCHANDISE UP 11% TRADING PROFIT UP 20% HEADLINE EARNINGS PER SHARE UP 12% OPERATING MARGIN AT 34% FINAL DIVIDEND UP 18% NET ASSET VALUE PER SHARE UP 23% GROUP PROFILE Truworths International Limited is an investment holding and management company listed on the JSE Limited and the Namibian Stock Exchange. Its trading subsidiaries, Truworths Limited and Young Designers Emporium (Pty) Limited, are engaged in the retailing of fashion apparel and related merchandise. Truworths International Limited and its subsidiaries (the Group) operate primarily in South Africa. FINANCIAL PERFORMANCE The Group delivered a satisfactory performance for the 52-week period ending 27 June 2010 (the period), despite global economic challenges which impacted on the domestic trading environment. Group sale of merchandise increased by 11% to R6 937 million relative to the 52-week period ended 28 June 2009 (the prior period). Comparable store retail sales grew 4% (2009: 5%) and product inflation averaged approximately 4% (2009: 10%). Trading space increased by 6% over the prior period-end following the opening of ten Truworths, thirteen Identity, ten Uzzi and two YDE stores and the closure of seven stores. At the end of the period the Group had 523 stores (2009: 495). The Group continued to record market share gains. Based on figures from the retail liaison committee (RLC) for June 2010, the Group increased its ladieswear RLC market share of clothing to 21.9% (2009: 20.9%) and menswear RLC market share to 21.9% (2009: 20.8%). Divisional sales Jun 2010 Jun 2009 52 weeks 52 weeks
Rm Rm % change Truworths ladieswear 2 727 2 506 9 Truworths menswear 1 372 1 220 12 Identity 966 821 18 Daniel Hechter 871 790 10 Elements 385 367 5 Inwear 355 335 6 LTD 247 204 21 Other* 195 198 (2) Retail sales 7 118 6 441 11 Franchise sales 30 38 (21) Accounting reclassifications (211) (232) (9) Sale of merchandise 6 937 6 247 11 YDE agency sales 238 246 (3) * Includes cellular, Truworths Jewellery and Truworths Living The gross margin of 55.3% is slightly higher than the prior period. The operating margin was maintained at 34.0% with operating profit increasing 12% to R2 360 million. The low expense growth of 6% was attributable to an 11% decrease in trade receivable costs. Headline earnings per share (HEPS) were 377.9 cents, which is an increase of 12% over the prior period`s 337.6 cents. This is in line with the forecast range in the Group`s trading statement released on SENS on 16 July 2010. Fully diluted HEPS of 370.4 cents were 12% higher (2009: 331.7 cents). A final cash dividend of 98 cents per share has been declared. Total dividends in respect of the period amount to 200 cents, 17% more than the prior period. Dividend cover is 1.9 times headline earnings per share. CREDIT MANAGEMENT The debtors` book continued to improve in accordance with management`s expectations. The doubtful debt allowance and net bad debts as percentages of gross trade receivables improved to 10.7% (2009: 11.9%) and 9.8% (2009: 11.9%) respectively. The Group maintained a qualifying payment percentage of 90% for customers to avoid delinquency. During the period the Group continued to apply its strict credit-granting criteria, resulting in an active account base growth of 6% to over 1.9 million accounts with a 67% (2009: 61%) rejection rate on new applications. Gross trade receivables grew by 11% from the prior period-end to R2.8 billion. Credit sales comprised 70% (2009: 69%) of retail sales, with 85% (2009: 84%) of active account holders able to purchase at the end of the period. FINANCIAL POSITION The Group statements of financial position continued to strengthen, with net asset value per share increasing by 23% to 1 027.7 cents. The return on equity at 40%, return on assets at 44% and asset turnover at 1.3 times, were within management`s targeted range as outlined in the 2009 annual report. The Group`s cash position reflects cash and cash equivalents of R1 318 million at the end of the period (2009: R767 million). During the period the Group generated R1 567 million from operating activities and utilised cash primarily for dividend payments (R785 million), store development (R101 million), distribution and warehousing facilities (R67 million) and computer infrastructure and technology (R36 million). The Group repurchased 808 000 shares at an average price of R41.85 per share for a total of R34 million. Capital expenditure of R210 million has been committed for the 2011 financial period. OUTLOOK Retail sales for the first seven weeks of the 2011 financial period reflect growth of 12.6% on the corresponding period in 2010. Higher real wage increases, lower inflation and lower interest rates are positive for consumers. As reported by the National Credit Regulator personal debt levels in the South African economy remain high, although the improved quality of the Group`s debtors` book augurs well for the 2011 financial period. Greater economic stability, albeit in a soft business environment, is nevertheless more encouraging than the difficult conditions experienced in the past few years. Trading conditions are expected to remain challenging, but management will continue to focus on its business philosophy which has served it well over so many years. In essence the supply of internationally inspired, high quality fashionable clothing to youthful South Africans will continue to be the driver of our strategy for the period ahead. The Group remains committed to investing appropriately for longer-term growth, with trading space planned to increase by approximately 6% on June 2010. H Saven MS Mark Chairman Chief Executive Officer 19 August 2010 FINAL DIVIDEND The directors have resolved to declare a final cash dividend from retained earnings in respect of the period ended 27 June 2010 in the amount of 98 cents (2009: 83 cents) per share to holders of the company`s shares reflected in the company`s register on the record date, being Friday, 10 September 2010. The last day to trade in the company`s shares cum dividend is Friday, 3 September 2010. Trading in the company`s shares ex dividend will commence on Monday, 6 September 2010. The dividend will be paid in South African Rand on Monday, 13 September 2010. Consequently no dematerialisation or rematerialisation of the company`s shares may take place over the period from Monday, 6 September 2010 to Friday, 10 September 2010, 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 19 August 2010 GROUP STATEMENTS OF FINANCIAL POSITION at 27 Jun at 28 Jun 2010 2009 Audited Audited
Rm Rm ASSETS Non-current assets 997 927 Property, plant and equipment 694 618 Goodwill 90 90 Intangible assets 65 48 Derivative financial assets 20 25 Available-for-sale asset 1 1 Loans and receivables 94 97 Deferred tax 33 48 Current assets 4 412 3 579 Inventories 450 463 Trade and other receivables 2 561 2 281 Derivative financial assets 35 23 Prepayments 48 45 Cash and cash equivalents 1 318 767 Total assets 5 409 4 506 EQUITY AND LIABILITIES Equity Share capital and premium 79 65 Treasury shares (797) (763) Retained earnings 5 026 4 208 Non-distributable reserves 63 41 Total equity 4 371 3 551 Non-current liabilities 97 94 Post-retirement medical benefit obligation 36 32 Cash-settled compensation obligation 12 14 Straight-line operating lease obligation 49 48 Current liabilities 941 861 Trade and other payables 762 705 Derivative financial liability - 18 Provisions 59 49 Tax payable 120 89 Total liabilities 1 038 955 Total equity and liabilities 5 409 4 506 Number of shares in issue (net of treasury shares) (millions) 425.3 424.9 Net asset value per share (cents) 1 027.7 835.7 Key ratios Return on equity (%) 40 44 Return on capital (%) 60 65 GROUP STATEMENTS OF COMPREHENSIVE INCOME 52 weeks 52 weeks to 27 Jun to 28 Jun 2010 2009 Audited % Audited
Note Rm change Rm Revenue 3 7 659 9 7 014 Sale of merchandise 6 937 11 6 247 Cost of sales (3 098) (2 817) Gross profit 3 839 12 3 430 Other income 162 153 Trading expenses (2 201) 6 (2 083) Depreciation and amortisation (121) (109) Employment costs (759) (672) Occupancy costs (582) (496) Trade receivable costs (385) (432) Other operating costs (354) (374) Trading profit 1 800 20 1 500 Interest received 560 614 Profit before tax 2 360 12 2 114 Tax expense (756) (680) Profit for the period, fully attributable to owners of the parent 1 604 12 1 434 Other comprehensive income Movement in effective portion of cash flow hedge 2 14 Deferred tax on movement in effective portion of cash flow hedge (1) (4) Revaluation of available-for-sale asset - 1 Other comprehensive income for the period, net of tax 1 11 Total comprehensive income for the period, fully attributable to owners of the parent 1 605 11 1 445 Basic earnings per share (cents) 377.7 12 337.2 Headline earnings per share (cents) 377.9 12 337.6 Fully diluted basic earnings per share (cents) 370.2 12 331.3 Fully diluted headline earnings per share (cents) 370.4 12 331.7 Weighted average number of shares (millions) 424.7 425.3 Key ratios Gross margin (%) 55.3 54.9 Trading expenses to sale of merchandise (%) 31.7 33.3 Trading margin (%) 25.9 24.0 Operating margin (%) 34.0 33.8 GROUP STATEMENTS OF CASH FLOWS 52 weeks 52 weeks to 27 Jun to 28 Jun
2010 2009 Audited Audited Rm Rm CASH FLOWS FROM OPERATING ACTIVITIES Cash flow from trading and cash EBITDA* 1 934 1 661 Working capital movements (216) (246) Cash generated from operations 1 718 1 415 Interest received 560 614 Tax paid (711) (777) Cash inflow from operations 1 567 1 252 Dividends paid (785) (683) Net cash from operating activities 782 569 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of plant and equipment to maintain operations (34) (31) Acquisition of property, plant and equipment to expand operations (158) (164) Acquisition of computer software (24) (3) Proceeds on disposal of plant and equipment 1 1 Loans advanced - (1) Loans repaid 4 7 Net cash used in investing activities (211) (191) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds on shares issued 14 15 Shares repurchased by subsidiaries (34) (159) Net cash used in financing activities (20) (144) Net increase in cash and cash equivalents 551 234 Cash and cash equivalents at the beginning of the period 767 533 CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 1 318 767 Key ratios Cash flow per share (cents) 369.0 294.4 Cash equivalent earnings per share (cents) 412.3 377.6 Cash realisation rate (%) 89 78 * Earnings before interest, tax, depreciation and amortisation GROUP STATEMENTS OF CHANGES IN EQUITY 27 Jun 28 Jun 2010 2009 Audited Audited Rm Rm
Total equity at the beginning of the period 3 551 2 920 Total comprehensive income for the period 1 605 1 445 Profit for the period 1 604 1 434 Other comprehensive income for the period 1 11 Dividends (786) (683) Premium on shares issued 14 15 Shares repurchased (34) (159) Share-based payment 21 13 Total equity at the end of the period 4 371 3 551 Comprising: Share capital and premium 79 65 Treasury shares (797) (763) Retained earnings 5 026 4 208 Non-distributable reserves 63 41 Total equity 4 371 3 551 Cents per share: Dividends 200 171 Final - payable September 98 83 Interim - paid March 102 88 SELECTED EXPLANATORY NOTES 1 BASIS OF PREPARATION The information in this preliminary report has been extracted from the Group`s 2010 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 2010 annual financial statements and this preliminary report have been audited by the Group`s external auditors, Ernst & Young Inc., and their unqualified audit opinion on such financial statements and on this preliminary report are available for inspection at the company`s registered office. The Group`s 2010 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 uniformly throughout the Group and are consistent with those applied in the prior period, except as mentioned in note 2. The presentation currency of the financial statements is the South African Rand (R) and all amounts are rounded to the nearest million. 2 ACCOUNTING POLICIES The accounting policies and methods of computation applied in the preparation of this report are consistent with those applied in the preparation of the Group`s annual financial statements for the period ended 28 June 2009, except for the following: During the period, the Group adopted the following new and amended IFRS to the extent that they are applicable to its activities: - IFRS 2, Share-based Payment: Vesting Conditions and Cancellations - IFRS 2, Share-based Payment: Group Cash-settled Share-based Payment Transactions (adopted earlier than required) - IFRS 3, Business Combinations (revised) and IAS 27, Consolidated and Separate Financial Statements (amended) including consequential amendments to IFRS 7, IAS 21, IAS 28, IAS 31 and IAS 39 - IFRS 7, Financial Instruments: Disclosures - Improving Disclosures about Financial Instruments - IAS 39, Financial Instruments: Recognition and Measurement - Eligible Hedged Items - Annual improvements to IFRS (May 2008 and April 2009) (some improvements have been adopted earlier than required) Where the adoption of the standard, interpretation or improvement has an impact on the accounting policies, financial position or performance of the Group, this is described below: IFRS 3, Business Combinations (revised) and IAS 27, Consolidated and Separate Financial Statements (amended) The changes to IFRS 3 (revised) and IAS 27 (amended) will affect future acquisitions or loss of control of subsidiaries and transactions with non-controlling interests. The change in accounting policy has been adopted and will be applied prospectively and has had no impact on the financial position or performance of the Group in the current or the prior period. IFRS 7, Financial Instruments: Disclosures - Improving Disclosures about Financial Instruments The amendments to the standard are intended to improve fair value measurement and liquidity risk disclosures in financial statements. The amendments were applied prospectively and had no significant impact on the Group`s disclosures. Annual improvements to IFRS In May 2008 and April 2009 the IASB issued an omnibus of amendments to its standards, primarily with a view to removing inconsistencies and clarifying wording. In some instances, the adoption of these amendments resulted in minor changes to accounting policies but did not have any impact on the financial position or performance of the Group. IFRS, amendments and International Financial Reporting Interpretations Committee (IFRIC) interpretations not applicable to Group activities Various other new and amended IFRS 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. 3 REVENUE 52 weeks 52 weeks to 27 Jun to 28 Jun
2010 2009 Audited Audited % Rm Rm change Sale of merchandise 6 937 6 247 11 Retail sales 7 118 6 441 Accounting reclassifications (211) (232) Franchise sales 30 38 Interest received 560 614 (9) Trade receivables interest 491 549 Investment interest 69 65 Other income 162 153 6 Commission 78 82 Display fees 34 29 Financial services income 31 23 Lease rental income 10 10 Royalties 3 3 Other 6 6 Total 7 659 7 014 9 4 RECONCILIATION OF PROFIT FOR THE PERIOD TO HEADLINE EARNINGS Profit for the period, fully attributable to owners of the parent 1 604 1 434 Adjusted for: Loss on disposal of fixed assets 1 2 Headline earnings 1 605 1 436 12 5 SEGMENT REPORTING The Group`s reportable segments have been identified as the Truworths and YDE business units. The Truworths business unit comprises all the retailing activities conducted by the Group, through which the Group retails fashion apparel comprising clothing, footwear and other fashion products to women, men and children, other than by the YDE business unit. The YDE business unit comprises the agency activities through which the Group retails clothing, footwear and related products on behalf 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 reported on an IFRS basis and evaluated based on sales and operating profit or loss. Truworths YDE Corporate# Group 2010 Rm Rm Rm Rm Total third party revenue* 7 568 89 2 7 659 Depreciation and amortisation 118 3 - 121 Interest received 558 1 1 560 Profit for the period 1 578 24 2 1 604 Profit before tax 2 325 33 2 2 360 Tax expense (747) (9) - (756) Segment assets 7 410 139 (2 140) 5 409 Segment liabilities 1 143 26 (131) 1 038 Capital expenditure 211 5 - 216 Gross margin (%) 55.3 - - 55.3 Trading margin (%) 25.4 37.2 - 25.9 Operating margin (%) 33.5 38.2 - 34.0 Inventory turn (times) 6.9 - - 6.9 Credit:cash sales mix (%) 70:30 23:77 - 70:30 2009 Total revenue* 6 923 88 3 7 014 Third party 6 923 87 4 7 014 Inter-segment - 1 (1) - Depreciation and amortisation 106 3 - 109 Interest received 608 2 4 614 Profit for the period 1 404 27 3 1 434 Profit before tax 2 073 38 3 2 114 Tax expense (669) (11) - (680) Segment assets 6 495 101 (2 090) 4 506 Segment liabilities 1 022 12 (79) 955 Capital expenditure 196 2 - 198 Gross margin (%) 54.9 - - 54.9 Trading margin (%) 23.4 41.3 - 24.0 Operating margin (%) 33.2 43.6 - 33.8 Inventory turn (times) 6.1 - - 6.1 Credit:cash sales mix (%) 69:31 21:79 - 69:31 * Total third party revenue includes sale of merchandise, other income, interest received and management fees. There was no inter-segment revenue in the current period. # `Corporate` represents unallocated segments and consolidation entries. 2010 2010 2009 2009 Third party revenue Rm % Rm % South Africa 7 447 97.2 6 808 97.1 Namibia 127 1.7 121 1.7 Swaziland 55 0.7 47 0.7 Franchise sales 30 0.4 38 0.5 Botswana 15 0.2 15 0.2 Rest of Africa 14 0.2 16 0.2 Middle East 1 0.0 7 0.1 Total third party revenue 7 659 100 7 014 100 6 CAPITAL COMMITMENTS 2010 2009 Rm Rm Capital expenditure authorised but not contracted: Store development 150 150 Computer infrastructure 38 27 Distribution facilities 14 126 Motor vehicles 6 - Head office refurbishment 2 2 Total 210 305 The capital commitments will be financed by cash generated from operations and available cash resources, and are expected to be incurred in the 2011 reporting period. 7 EVENTS AFTER THE END OF THE REPORTING PERIOD No event, material to the understanding of this preliminary report, has occurred between the end of the reporting period and the 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#, MA Thompson# and AJ Taylor * Executive Non-executive # Independent RESULTS ARE AVAILABLE ONLINE AT WWW.TRUWORTHS.CO.ZA Date: 19/08/2010 14:07:03 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.

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