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TRW - Truworths International Ltd - Truworths International Abridged Preliminary

Release Date: 18/08/2011 13:58
Code(s): TRU
Wrap Text

TRW - Truworths International Ltd - Truworths International Abridged Preliminary report on the Audited Group Results for the 52 weeks ended 26 June 2011 TRUWORTHS INTERNATIONAL LTD (Registration number 1944/017491/06) JSE Limited code: TRU NSX code: TRW ISIN: ZAE000028296 ABRIDGED PRELIMINARY REPORT ON THE AUDITED GROUP RESULTS for the 52 weeks ended 26 June 2011 Sale of merchandise UP 13% Gross margin at 57% Trading profit UP 24% Operating margin at 36% Headline earnings per share UP 21% Annual dividend per share UP 31% GROUP PROFILE Truworths International Ltd is an investment holding and management company listed on the JSE and the Namibian Stock Exchange. Its principal trading subsidiaries, Truworths Ltd and Young Designers Emporium (Pty) Ltd, are engaged in the retailing of fashion apparel and related merchandise. Truworths International Ltd and its subsidiaries (the Group) operate primarily in southern Africa. FINANCIAL PERFORMANCE Group retail sales increased by 13.5% to R8.1 billion relative to the 52-week period ended 27 June 2010 (the prior period). Comparable store retail sales increased 8.9% (2010: 3.6%) and product inflation averaged 4% (2010: 4%). Trading space increased by 5.4% relative to the prior period-end following the opening of 12 Truworths, 12 Identity and 3 Uzzi stores and the closure of 7 stores. At the end of the period the Group had 543 stores (2010: 523). The Group continued to record market share gains. Based on figures from the retail liaison committee (RLC) for June 2011, the Group increased its ladieswear RLC market share of clothing to 22.3% (2010: 21.9%) and menswear RLC market share to 22.1% (2010: 21.9%). Jun 2011 Jun 2010 52 weeks 52 weeks % Divisional sales Rm Rm change Truworths ladieswear 3 068 2 727 13 Truworths menswear 1 581 1 372 15 Identity 1 127 966 17 Daniel Hechter 972 871 12 Elements 403 385 5 Inwear 386 355 9 LTD 312 247 26 Other* 231 195 18 Retail sales 8 080 7 118 14 Franchise sales 35 30 17 Accounting reclassifications (257) (211) 22 Sale of merchandise 7 858 6 937 13 YDE agency sales 250 238 5 * includes cellular, Truworths Jewellery and Truworths Living divisions Lower markdowns for the period contributed to the gross margin reaching 56.7%, above the targeted range of 54% to 55%. The operating margin of 36.4% was higher than the targeted range of 32% to 34% primarily as a result of low expense growth, mainly due to a 1% increase in trade receivable costs. Inventory levels increased 18% on the prior period-end resulting in inventory turn decreasing to 6.4 times (2010: 6.9 times), nevertheless within the targeted range of 6.0 to 6.5 times. Headline earnings per share (HEPS) were 456.0 cents, an increase of 21% over the prior period`s 377.9 cents. This performance is in line with the forecast range in the Group`s trading statement released on SENS on 15 July 2011. Diluted HEPS of 447.5 cents were 21% higher (2010: 370.4 cents). A final cash dividend of 134 cents per share has been declared, based on a dividend cover of 1.7 times (2010: 1.9 times). Total dividends declared in respect of the period amount to 262 cents, 31% more than the prior period. CREDIT MANAGEMENT The debtors` book continued to improve in accordance with management`s expectations. The doubtful debt allowance and net bad debt as percentages of gross trade receivables improved to 10.1% (2010: 10.7%) and 6.8% (2010: 9.8%) respectively. By period-end the active account base had grown by 11% to approximately 2.2 million accounts with the acceptance rate on new applications increasing to 38% from 33%. Gross trade receivables grew by 18% to R3.3 billion from the prior period-end. The growth in the debtors` book is attributable to Group credit sales growing 16% over the prior period (14% and 38% higher in Truworths and Identity respectively) and a shift in Truworths` credit sales from shorter dated interest-free to longer-term interest-bearing payment plans. Credit sales comprised 71% (2010: 70%) of retail sales, with 86% (2010: 85%) of active account holders able to purchase at the period-end. FINANCIAL POSITION The Group`s statement of financial position continued to strengthen, with net asset value per share increasing by 16% to 1 191.8 cents. The return on equity at 41% and return on assets at 46% were higher than management`s targeted range of 35% to 40% and 40% to 45% respectively. Asset turnover at 1.3 times was within management`s targeted range of 1.2 to 1.5 times and remained unchanged from the prior period. CAPITAL MANAGEMENT The Group produced a net increase in cash and cash equivalents at period-end of R171 million (2010: R551 million). During the period the Group generated R1.7 billion in cash from operating activities which was used primarily for dividend payments (R968 million), share buy-backs (R394 million), investment in store development (R120 million), distribution and warehousing facilities (R30 million), and computer infrastructure and technology (R31 million). The Group had cash and cash equivalents of R1.5 billion at the period-end (2010: R1.3 billion). The Group repurchased 5.8 million shares at an average price of R68.14 per share for a total of R394 million during the period. Since the inception of the share buy-back programme in 2002, 80 million shares have been repurchased at a total cost of R1.7 billion at an average price of R20.84. Since the period-end a further 1.2 million shares were repurchased at R69.03 per share until the date of this announcement for the consideration of R84 million. The Group continued to evaluate potential acquisitions and implemented its capital management strategy through a combination of capital expenditure, share buy-backs and reducing dividend cover. Capital expenditure of R218 million has been committed for the 2012 financial period. KING III The 2011 reporting period will be the first time that the Group will issue an integrated annual report. An integrated annual report is a King III recommendation and represents a fundamental shift in corporate reporting practice. King III defines integrated reporting as "a holistic and integrated representation of the company`s performance in terms of both its finance and its sustainability". The purpose of an integrated annual report is to communicate to stakeholders the strategy, performance and activities of the organisation in a manner that allows them to assess the ability of the organisation to create and sustain value. The report should allow the users of the report to determine whether the organisation`s governing structure has applied its collective mind in identifying the environmental, social, economic and financial issues that impact on the organisation, and to assess the extent to which these issues have been incorporated into the organisation`s strategy. Explanatory information on how the Group has applied other King III principles, in relation to IT governance, assurance on internal controls, assessment of the finance function, stakeholder engagement and shareholder consideration of remuneration policy is incorporated in the integrated annual report and the annual financial statements, which are scheduled to be available during the last week of September 2011. OUTLOOK Against a background of uncertain economic growth, retail trading conditions are expected to continue to be challenging in the months ahead as consumers face increasing living costs owing to rising utility, food and transport prices. Inflationary pressures may lead to an increase in interest rates during the 2012 financial period. As the majority of the Group`s credit customers have limited exposure to asset-based finance, higher interest rates are not expected to have a material impact on the trade receivables book. However, increasing interest rates could place further pressure on household disposable income. Retail sales for the first seven weeks of the 2012 financial period increased by 10.4% over the corresponding period in 2011. Product inflation is anticipated to be at high single-digit levels in the 2012 financial period and annual growth in trading space is planned at approximately 6%. The Group will continue to actively manage its capital base to generate competitive returns to shareholders, while evaluating potential investment and acquisition opportunities to complement the current merchandise offering. H Saven MS Mark Chairman Chief Executive Officer 18 August 2011 FINAL DIVIDEND The directors have resolved to reduce the dividend cover from 1.9 times to 1.7 times resulting in a final cash dividend from retained earnings in respect of the period ended 26 June 2011 in the amount of 134 cents (2010: 98 cents) per share to holders of the company`s shares reflected in the company`s register on the record date, being Friday, 9 September 2011. The last day to trade in the company`s shares cum dividend is Friday, 2 September 2011. Trading in the company`s shares ex dividend will commence on Monday, 5 September 2011. The dividend will be paid in South African Rand on Monday, 12 September 2011. Consequently no dematerialisation or rematerialisation of the company`s shares may take place over the period from Monday, 5 September 2011 to Friday, 9 September 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 18 August 2011 GROUP STATEMENTS OF FINANCIAL POSITION at 26 June at 27 June 2011 2010 Audited Audited Rm Rm
ASSETS Non-current assets 1 093 997 Property, plant and equipment 724 694 Goodwill 90 90 Intangible assets 77 65 Derivative financial assets 21 20 Available-for-sale asset 1 1 Loans and receivables 141 94 Deferred tax 39 33 Current assets 5 131 4 412 Inventories 530 450 Trade and other receivables 3 033 2 561 Derivative financial assets 28 35 Prepayments 51 48 Cash and cash equivalents 1 489 1 318 Total assets 6 224 5 409 EQUITY AND LIABILITIES Equity Share capital and premium 159 79 Treasury shares (1 191) (797) Retained earnings 6 001 5 026 Non-distributable reserves 77 63 Total equity 5 046 4 371 Non-current liabilities 84 97 Post-retirement medical benefit obligation 41 36 Cash-settled compensation obligation 1 12 Straight-line operating lease obligation 42 49 Current liabilities 1 094 941 Trade and other payables 875 762 Derivative financial liability 1 - Provisions 73 59 Tax payable 145 120 Total liabilities 1 178 1 038 Total equity and liabilities 6 224 5 409 Number of shares in issue (net of treasury shares) (millions) 423.4 425.3 Net asset value per share (cents) 1 191.8 1 027.7 Key ratios Return on equity (%) 41 40 Return on capital (%) 61 60 Return on assets (%) 46 44 Inventory turn (times) 6.4 6.9 Asset turnover (times) 1.3 1.3 GROUP STATEMENTS OF COMPREHENSIVE INCOME 52 weeks 52 weeks to 26 June to 27 June 2011 2010 Audited % Audited
Note Rm change Rm Revenue 3 8 684 13 7 659 Sale of merchandise 7 858 13 6 937 Cost of sales (3 403) (3 098) Gross profit 4 455 16 3 839 Other income 189 162 Trading expenses (2 421) 10 (2 201) Depreciation and amortisation (129) (121) Employment costs (828) (759) Occupancy costs (652) (582) Trade receivable costs (390) (385) Other operating costs (422) (354) Trading profit 2 223 24 1 800 Interest received 637 560 Profit before tax 2 860 21 2 360 Tax expense (917) (756) Profit for the period, fully attributable to owners of the parent 1 943 21 1 604 Other comprehensive (loss)/income Movement in effective portion of cash flow hedge (12) 2 Deferred tax on movement in effective portion of cash flow hedge 3 (1) Other comprehensive (loss)/income for the period, net of tax (9) 1 Total comprehensive income for the period, fully attributable to owners of the parent 1 934 20 1 605 Basic earnings per share (cents) 455.8 21 377.7 Headline earnings per share (cents) 456.0 21 377.9 Fully diluted basic earnings per share (cents) 447.3 21 370.2 Fully diluted headline earnings per share (cents) 447.5 21 370.4 Weighted average number of shares (millions) 426.3 424.7 Key ratios Gross margin (%) 56.7 55.3 Trading expenses to sale of merchandise (%) 30.8 31.7 Trading margin (%) 28.3 25.9 Operating margin (%) 36.4 34.0 GROUP STATEMENTS OF CASH FLOWS 52 weeks 52 weeks to 26 June to 27 June 2011 2010
Audited Audited Rm Rm CASH FLOWS FROM OPERATING ACTIVITIES Cash flow from trading and cash EBITDA* 2 411 1 934 Working capital movements (425) (216) Cash generated from operations 1 986 1 718 Interest received 637 560 Tax paid (895) (711) Cash inflow from operations 1 728 1 567 Dividends paid (968) (785) Net cash from operating activities 760 782 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of plant and equipment to maintain operations (30) (34) Acquisition of property, plant and equipment to expand operations (139) (158) Acquisition of computer software (17) (24) Proceeds on disposal of plant and equipment - 1 Acquisition of cash-settled call options (31) - Loans advanced (63) - Loans repaid 5 4 Net cash used in investing activities (275) (211) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds on shares issued 80 14 Shares repurchased by subsidiaries (394) (34) Net cash used in financing activities (314) (20) Net increase in cash and cash equivalents 171 551 Cash and cash equivalents at the beginning of the period 1 318 767 CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 1 489 1 318 Key ratios Cash flow per share (cents) 405.3 369.0 Cash equivalent earnings per share (cents) 498.9 412.3 Cash realisation rate (%) 81 89 * Earnings before interest received, tax, depreciation and amortisation GROUP STATEMENTS OF CHANGES IN EQUITY 26 June 27 June 2011 2010 Audited Audited Rm Rm
Total equity at the beginning of the period 4 371 3 551 Total comprehensive income for the period 1 934 1 605 Profit for the period 1 943 1 604 Other comprehensive (loss)/income for the period (9) 1 Dividends paid (968) (786) Premium on shares issued 80 14 Shares repurchased (394) (34) Share-based payment 23 21 Total equity at the end of the period 5 046 4 371 Comprising: Share capital and premium 159 79 Treasury shares (1 191) (797) Retained earnings 6 001 5 026 Non-distributable reserves 77 63 Total equity 5 046 4 371 Cents per share: Dividends 262 200 Final - payable/paid September 134 98 Interim - paid March 128 102 SELECTED EXPLANATORY NOTES 1 BASIS OF PREPARATION The information in this preliminary report has been extracted from the Group`s 2011 annual financial statements, which have been prepared in compliance with International Financial Reporting Standards (IFRS), the AC 500 Standards as issued by the Accounting Practices Board, or its successor and the South African Companies Act (71 of 2008, as amended). This preliminary report has been prepared in accordance with IAS 34: Interim Financial Reporting. The Group`s 2011 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 is available for inspection at the company`s registered office. The Group`s 2011 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 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 revisions to certain 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 revisions 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. 52 weeks 52 weeks to 26 June to 27 June
2011 2010 Audited % Audited Rm change Rm 3 REVENUE Sale of merchandise 7 858 13 6 937 Retail sales 8 080 7 118 Accounting reclassifications (257) (211) Franchise sales 35 30 Interest received 637 14 560 Trade receivables interest 543 491 Investment interest 94 69 Other income 189 17 162 Commission 88 78 Display fees 39 34 Financial services income 38 31 Lease rental income 12 10 Other 9 6 Royalties 3 3 Total 8 684 13 7 659 4 RECONCILIATION OF PROFIT FOR THE PERIOD TO HEADLINE EARNINGS: Profit for the period, fully attributable to owners of the parent 1 943 1 604 Adjusted for: Loss on disposal of fixed assets 1 1 Headline earnings 1 944 21 1 605 5 SEGMENT REPORTING The Group`s reportable segments have been identified as the Truworths and Young Designers Emporium (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 revenue and profit before tax. Con-
solidation Truworths YDE entries Group Rm Rm Rm Rm 2011 Total revenue 8 604 95 (15) 8 684 Third party 8 584 95 5 8 684 Inter-segment 20 - (20) - Depreciation and amortisation 126 3 - 129 Interest received 632 1 4 637 Profit for the period 1 925 27 (9) 1 943 Profit before tax 2 832 37 (9) 2 860 Tax expense (907) (10) - (917) Segment assets 8 449 163 (2 388) 6 224 Segment liabilities 1 231 23 (76) 1 178 Capital expenditure 179 7 - 186 Gross margin (%) 56.7 - - 56.7 Trading margin (%) 28.0 38.6 - 28.3 Operating margin (%) 36.0 39.5 - 36.4 Inventory turn (times) 6.4 - - 6.4 Credit:cash sales mix (%) 71:29 24:76 - 71:29 2010 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 Contri- Contri- bution bution 2011 to revenue 2010 to revenue
Rm % Rm % Third party revenue South Africa 8 448 97.3 7 447 97.2 Namibia 142 1.6 127 1.7 Swaziland 59 0.7 55 0.7 Franchise sales 35 0.4 30 0.4 Botswana 15 0.2 15 0.2 Rest of Africa 20 0.2 14 0.2 Middle East - - 1 - Total third party revenue 8 684 100 7 659 100 2011 2010 Rm Rm
6 CAPITAL COMMITMENTS Capital expenditure authorised but not contracted: Store development 154 150 Computer infrastructure 40 38 Distribution facilities 20 14 Head office refurbishments 3 2 Motor vehicles 1 6 Total capital commitments 218 210 The capital commitments will be financed by cash generated from operations and available cash resources and are expected to be incurred in the 2012 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 of the report. Truworths International Ltd: 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: One Capital Sponsor in Namibia: Old Mutual Investment Services (Namibia) (Pty) Ltd Auditors: Ernst & Young Inc. Transfer secretaries: Computershare Investor Services (Pty) Ltd, 70 Marshall Street, Johannesburg 2001. PO Box 61051, Marshalltown 2107, South Africa, or Transfer Secretaries (Pty) Ltd, Shop 8, 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 Cape Town 18 August 2011 Date: 18/08/2011 13:58:01 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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