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TRU - Truworths International Limited - Unaudited group interim results for the

Release Date: 21/02/2011 12:50
Code(s): TRU
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TRU - Truworths International Limited - Unaudited group interim results for the 26 weeks ended 26 December 2010 TRUWORTHS INTERNATIONAL LIMITED (Registration number 1944/017491/06) JSE Limited code: TRU NSX code: TRW ISIN: ZAE000028296 UNAUDITED GROUP INTERIM RESULTS For the 26 weeks ended 26 December 2010 Sale of merchandise UP 15% Gross margin at 57% Operating profit UP 20% Operating margin at 36% Fully diluted headline earnings per share UP 19% Dividend per share UP 25% COMMENTARY GROUP PROFILE Truworths International Limited is an investment holding and management company listed on the JSE 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 in sub-Saharan Africa. FINANCIAL PERFORMANCE Group sale of merchandise increased by 15% to R4 232 million relative to the 26- week period ended 27 December 2009 (the prior period). Comparable store retail sales grew 11% (2009: 3%) and product inflation averaged approximately 1% (2009: 10%). Trading space has increased by 4% to 538 stores since 27 December 2009, following the opening of 7 Truworths, 5 Truworths Man, 10 Identity and 6 Uzzi stores and the closure of 1 Identity and 2 Uzzi stores. The Group continued to record clothing market share gains. Based on data from the retail liaison committee (RLC) for December 2010, the Group increased its ladieswear RLC market share to 22.2% (2009: 21.7%) and menswear RLC market share to 21.7% (2009: 21.4%). Divisional sales 26 Dec 27 Dec % change 2010 2009 on prior
Rm Rm period Truworths ladieswear 1 615 1 415 14 Truworths menswear 865 736 18 Identity 595 519 15 Daniel Hechter 542 478 13 Elements 223 207 8 Inwear 204 183 11 LTD 187 143 31 Other* 124 97 28 Retail sales 4 355 3 778 15 Franchise sales 19 18 6 Accounting reclassifications (142) (107) 33 Sale of merchandise 4 232 3 689 15 YDE agency sales 133 123 8 * includes cellular, Truworths Jewellery and Truworths Living The gross and operating margins increased to 56.6% (2009: 55.8%) and 35.9% (2009: 34.3%) respectively, with operating profit increasing 20% to R1 519 million. Expense growth of 12% was attributable to the net effect of the expansion in trading space and a 3% decrease in trade receivable costs. Trade receivable interest increased 9% on the prior period as a result of growth in gross trade receivables, but was off-set by the improvement in the quality of the debtors` book and decrease in interest rates. Inventory turn at the end of the period was 6.6 times compared to 6.1 times at the prior period-end. Headline earnings per share (HEPS) were 242.7 cents, an increase of 19% over the prior period`s 203.3 cents. This is in line with the forecast range in the Group`s trading statement released on SENS on 14 January 2011. Fully diluted HEPS of 238.0 cents were 19% higher (2009: 199.4 cents). An interim cash dividend of 128 cents per share, 25% more than the prior period, has been declared based on a dividend cover of 1.9 times HEPS. CREDIT MANAGEMENT The debtors` book continued to perform satisfactorily as anticipated by management. The doubtful debt allowance and net bad debts to gross trade receivables improved to 10.1% (2009: 11.3%) and 7.5% (2009: 11.3%) 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, with a 65% (2009: 65%) rejection rate on new applications resulting in an active account base growth of 9% to 2.1 million accounts. Gross trade receivables grew by 16% from the prior period- end to R3.3 billion. Credit sales comprised 70% (2009: 69%) of retail sales, with 89% (2009: 88%) of active account holders able to purchase at the period- end. FINANCIAL POSITION The Group`s financial position continued to strengthen, with net asset value per share increasing by 24% to 1 182.2 cents. The annualised return on equity at 44%, return on assets at 47% and asset turnover at 1.3 times, is marginally lower than in the prior period as a consequence of increased cash levels. Group cash and cash equivalents totalled R1 790 million at the period-end (2009: R1 072 million). During the period the Group generated R1 006 million from operations and utilised cash primarily for dividend payments (R420 million), store development (R66 million), computer infrastructure and technology (R17 million), and distribution and warehousing facilities (R8 million). Capital expenditure of R210 million has been committed for the 2011 financial period. DIRECTORATE Chief Executive Officer`s Contract The board is pleased to announce that it has concluded an agreement with the Chief Executive Officer, Michael Mark, to extend his service contract until 30 June 2013. He has been Chief Executive Officer of the Group since 1991. Salient features of this contract, the material terms of which are substantially in line with those of the existing contract, will be disclosed in the Group`s 2011 annual report. Appointment of Chief Financial Officer The board is pleased to announce the appointment of Mark Sardi as Chief Financial Officer and an executive director of the Group with effect from 21 February 2011. Mark (41), a chartered accountant, was previously head of investment banking at a leading banking group and has undergone an extended induction since joining the Group as Chief Financial Officer Designate in July 2010. He will assume operational responsibility for the Group`s finance, company secretarial, legal, project, operational risk and internal audit departments. OUTLOOK Whilst the results for the first half of the financial year reflect the cumulative benefits of low interest rates, low inflation and higher real wage increases, management is cautious to assume that a sustained recovery in South African consumer spending is evident. Clothing inflation from higher cotton prices and China supply constraints are likely to be challenges for the Group for at least the remainder of the financial year. Relative to the prior corresponding period, retail sales for the first eight weeks of the second half of the 2011 financial year increased by 9.8%. However, markdowns applied over this trading period were at lower levels than the prior corresponding period. Annual growth in trading space is planned to increase by approximately 6% by June 2011. Management continues to focus on driving sales growth in this environment through innovative merchandising strategies; further enhancing the quality of the debtors` book through prudent credit risk management and containing expense growth. The Group`s strong financial position will enable management to consider share buy-backs and potential investment and acquisition opportunities that are complementary to the current merchandise offering. H Saven MS Mark Chairman Chief Executive Officer 21 February 2011 INTERIM DIVIDEND The directors have resolved to declare an interim cash dividend from retained earnings in respect of the 26-week period ended 26 December 2010 in the amount of 128 cents (2009: 102 cents) per share to holders of the company`s shares reflected in the company`s register on the record date, being Friday, 18 March 2011. The last day to trade in the company`s shares cum dividend is Friday, 11 March 2011. Trading in the company`s shares ex dividend will commence on Monday, 14 March 2011. The dividend will be paid in South African Rand on Tuesday, 22 March 2011. Consequently no dematerialisation or rematerialisation of the company`s shares may take place over the period from Monday, 14 March 2011 to Friday, 18 March 2011, 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 21 February 2011 GROUP STATEMENTS OF FINANCIAL POSITION at 26 Dec at 27 Dec at 27 Jun
2010 2009 2010 Unaudited Unaudited Audited Rm Rm Rm ASSETS Non-current assets 1 099 1 005 997 Property, plant and equipment 715 700 694 Goodwill 90 90 90 Intangible assets 71 45 65 Derivative financial assets 46 23 20 Available-for-sale asset 1 1 1 Loans and receivables 140 95 94 Deferred tax 36 51 33 Current assets 5 409 4 185 4 412 Inventories 555 532 450 Trade and other receivables 3 006 2 555 2 561 Derivative financial assets 40 20 35 Prepayments 18 6 48 Cash and cash equivalents 1 790 1 072 1 318 Total assets 6 508 5 190 5 409 EQUITY AND LIABILITIES Equity Share capital and premium 151 70 79 Treasury shares (797) (796) (797) Retained earnings 5 638 4 719 5 026 Non-distributable reserves 76 54 63 Total equity 5 068 4 047 4 371 Non-current liabilities 101 96 97 Post-retirement medical benefit obligation 39 34 36 Cash-settled compensation obligation 13 14 12 Straight-line operating lease obligation 49 48 49 Current liabilities 1 339 1 047 941 Trade and other payables 1 148 926 762 Derivative financial liability 13 5 - Provisions 67 40 59 Tax payable 111 76 120 Total liabilities 1 440 1 143 1 038 Total equity and liabilities 6 508 5 190 5 409 Number of shares in issue (net of treasury shares) (million) 428.7 424.6 425.3 Net asset value per share (cents) 1 182.2 953.1 1 027.7 Key ratios Return on equity (%) 44 45 40 Return on capital (%) 64 67 60 Return on assets (%) 47 49 44 Inventory turn (times) 6.6 6.1 6.9 Asset turnover (times) 1.3 1.4 1.3 GROUP STATEMENTS OF COMPREHENSIVE INCOME 26 weeks 26 weeks to 26 Dec to 27 Dec 2010 2009 Unaudited Unaudited
Note Rm Rm Revenue 3 4 629 4 036 Sale of merchandise 4 232 3 689 Cost of sales (1 835) (1 631) Gross profit 2 397 2 058 Other income 92 80 Trading expenses (1 275) (1 138) Depreciation and amortisation (68) (59) Employment costs (445) (383) Occupancy costs (327) (283) Trade receivable costs (222) (228) Other operating costs (213) (185) Trading profit 1 214 1 000 Interest received 305 267 Profit before tax 1 519 1 267 Tax expense (487) (403) Profit for the period, fully attributable to owners of the parent 1 032 864 Other comprehensive income for the period, net of tax (1) 1 Movement in effective portion of cash flow hedge (1) 1 Deferred tax on movement in effective portion of cash flow hedge - - Total comprehensive income for the period, fully attributable to owners of the parent 1 031 865 Basic earnings per share (cents) 242.7 203.3 Headline earnings per share (cents) 242.7 203.3 Fully diluted basic earnings per share (cents) 238.0 199.4 Fully diluted headline earnings per share (cents) 238.0 199.4 Weighted average number of shares (million) 425.3 424.9 Key ratios Gross margin (%) 56.6 55.8 Trading expenses to sale of merchandise (%) 30.1 30.8 Trading margin (%) 28.7 27.1 Operating margin (%) 35.9 34.3 52 weeks to 27 Jun 2010 % Audited
change Rm Revenue 15 7 659 Sale of merchandise 15 6 937 Cost of sales (3 098) Gross profit 16 3 839 Other income 162 Trading expenses 12 (2 201) Depreciation and amortisation ( 121) Employment costs (759) Occupancy costs (582) Trade receivable costs (385) Other operating costs (354) Trading profit 21 1 800 Interest received 14 560 Profit before tax 20 2 360 Tax expense (756) Profit for the period, fully attributable to owners of the parent 19 1 604 Other comprehensive income for the period, net of tax 1 Movement in effective portion of cash flow hedge 2 Deferred tax on movement in effective portion of cash flow hedge (1) Total comprehensive income for the period, fully attributable to owners of the parent 19 1 605 Basic earnings per share (cents) 19 377.7 Headline earnings per share (cents) 19 377.9 Fully diluted basic earnings per share (cents) 19 370.2 Fully diluted headline earnings per share (cents) 19 370.4 Weighted average number of shares (million) 424.7 Key ratios Gross margin (%) 55.3 Trading expenses to sale of merchandise (%) 31.7 Trading margin (%) 25.9 Operating margin (%) 34.0 GROUP STATEMENTS OF CASH FLOWS 26 weeks 26 weeks 52 weeks to 26 Dec to 27 Dec to 27 Jun 2010 2009 2010 Unaudited Unaudited Audited
Rm Rm Rm CASH FLOWS FROM OPERATING ACTIVITIES Cash flow from trading and cash EBITDA* 1 332 1 062 1 934 Working capital movements (132) (87) (216) Cash generated from operations 1 200 975 1 718 Interest received 305 267 560 Tax paid (499) (419) (711) Cash inflow from operations 1 006 823 1 567 Dividends paid (420) (353) (785) Net cash from operating activities 586 470 782 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of plant and equipment to maintain operations (17) (28) (34) Acquisition of property, plant and equipment to expand operations (70) (110) (158) Acquisition of computer software (8) - (24) Proceeds on disposal of plant and equipment - - 1 Acquisition of derivative financial instruments (31) - - Loans advanced (60) - - Loans repaid - 1 4 Net cash used in investing activities (186) (137) (211) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds on shares issued 72 5 14 Shares repurchased by subsidiaries - (33) (34) Net cash from/(used in) financing activities 72 (28) (20) Net increase in cash and cash equivalents 472 305 551 Cash and cash equivalents at the beginning of the period 1 318 767 767 Cash and cash equivalents at the end of the period 1 790 1 072 1 318 Key ratios Cash flow per share (cents) 236.5 193.7 369.0 Cash equivalent earnings per share (cents) 269.7 217.3 412.3 Cash realisation rate (%) 88 89 89 * Earnings before interest received, tax, depreciation and amortisation GROUP STATEMENTS OF CHANGES IN EQUITY 26 Dec 27 Dec 2010 2009 Unaudited Unaudited Rm Rm
Total equity at the beginning of the period 4 371 3 551 Total comprehensive income for the period 1 031 865 Dividends (420) (353) Premium on shares issued 72 5 Shares repurchased - (33) Share-based payment 14 12 Total equity at the end of the period 5 068 4 047 Comprising: Share capital and premium 151 70 Treasury shares (797) (796) Retained earnings 5 638 4 719 Non-distributable reserves 76 54 Total equity 5 068 4 047 Cents per share: Dividends declared in respect of the period 128 102 SELECTED EXPLANATORY NOTES 1 BASIS OF PREPARATION The Group`s interim report has been prepared in accordance with International Financial Reporting Standards (IFRS), and the presentation and disclosure requirements of IAS 34: Interim Financial Reporting, the South African Companies Act (61 of 1973, as amended) and, where applicable, AC 500 Standards as issued by the Accounting Practices Board or its successor and the Listings Requirements of the JSE. The information contained in the interim report has neither been audited nor reviewed by the Group`s external auditors. 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 27 June 2010, except for the following: During the period, the Group adopted the following amended IFRS to the extent that they are applicable to its activities: - IAS 24: Related Party Disclosures (Revised) - Annual improvements to IFRS (May 2010) The adoption of the revised standard and improvements has had the following consequences for the accounting policies, financial position or performance of the Group: IAS 24: Related Party Disclosures (Revised) The revised standard clarifies the definition of a related party in order to simplify the identification of such parties and to eliminate inconsistencies in the application of the standard. Although the revised standard is only effective for annual periods beginning on or after 1 January 2011, the Group has elected to adopt the entire standard in the current period. As required, the revised standard has been applied retrospectively. In some instances, the adoption of the revised standard has resulted in minor additional disclosures, but has not had any impact on the financial position or performance of the Group. Annual improvements to IFRS (May 2010) In May 2010, the International Accounting Standards Board issued an omnibus of amendments to its standards, affecting six standards and one interpretation. The Group has adopted those amendments that are effective for annual periods beginning on or after 1 July 2010. In some instances, the adoption of these amendments has resulted in minor changes to accounting policies, but has not had any impact on the financial position or performance of the Group. Various other new and amended IFRS and International Financial Reporting Interpretations Committee (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 26 weeks 26 weeks 52 weeks to 26 Dec to 27 Dec to 27 Jun
2010 2009 2010 Unaudited Unaudited % Audited Rm Rm change Rm Sale of merchandise 4 232 3 689 15 6 937 Retail sales 4 355 3 778 7 118 Accounting reclassifications (142) (107) (211) Franchise sales 19 18 30 Interest received 305 267 14 560 Trade receivables interest 259 237 491 Investment interest 46 30 69 Other income 92 80 15 162 Commission 47 38 78 Display fees 19 16 34 Financial services income 15 16 31 Lease rental income 6 5 10 Other 3 3 3 Royalties 2 2 6 Total 4 629 4 036 15 7 659 4 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 with reference to retail sales and operating profit or loss. Truworths YDE Corporate# Group 2010 Rm Rm Rm Rm Total third party revenue* 4 589 49 (9) 4 629 Depreciation and amortisation 66 2 - 68 Interest received 305 - - 305 Profit for the period 1 031 14 (13) 1 032 Profit before tax 1 512 20 (13) 1 519 Tax expense (481) (6) - (487) Capital expenditure 93 2 - 95 Other segment information Gross margin (%) 57 - - 57 Trading margin (%) 28 40 - 29 Operating margin (%) 36 41 - 36 Inventory turn (times) 6.6 - - 6.6 Credit:cash sales mix (%) 70:30 23:77 - 70:30 2009 Total third party revenue* 3 991 45 - 4 036 Depreciation and amortisation 58 1 - 59 Interest received 266 1 - 267 Profit for the period 849 13 2 864 Profit before tax 1 247 18 2 1 267 Tax expense (398) (5) - (403) Capital expenditure 133 5 - 138 Other segment information Gross margin (%) 56 - - 56 Trading margin (%) 27 39 - 27 Operating margin (%) 34 41 - 34 Inventory turn (times) 6.1 - - 6.1 Credit:cash sales mix (%) 69:31 23:77 - 69:31 * Total third party revenue includes, where applicable, sale of merchandise, interest received, commission, display fees, financial services income and royalties. No inter-segment revenue has been recognised in the current or prior period. # `Corporate` represents unallocated segments and consolidation entries. 2010 2010 2009 2009 Third party revenue Rm % Rm % South Africa 4 504 97.3 3 923 97.2 Namibia 74 1.6 67 1.7 Swaziland 32 0.7 28 0.7 Franchise sales 19 0.4 18 0.4 Rest of Africa 11 0.2 9 0.2 Botswana 8 0.2 8 0.2 Middle East - - 1 - Total third party revenue 4 629 100 4 036 100 5 CAPITAL COMMITMENTS 26 Dec 27 Dec 27 Jun 2010 2009 2010
Rm Rm Rm Capital expenditure authorised but not contracted: Store development 84 78 150 Computer infrastructure 21 73 38 Distribution facilities 6 14 14 Motor vehicles 3 - 6 Head office refurbishment 1 2 2 Total 115 167 210 The capital commitments will be financed by cash generated from operations and available cash resources, and are expected to be incurred in the remainder of the 2011 reporting period. 6 EVENTS AFTER THE END OF THE REPORTING PERIOD No event, material to the understanding of this interim report, has occurred between the end of the interim period and the date of approval. 7 SEASONALITY Historically there has been no material seasonal variation in trading between the first and second halves of the financial period. 8 RELATED PARTY TRANSACTIONS Related party transactions similar to those disclosed in the Group`s annual financial statements for the period ended 27 June 2010 took place during the period. 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)*, MJ Sardi (CFO)*, 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: 21/02/2011 12:50:01 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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