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TRU - Truworths International Limited - Unaudited group Interim Results for the
26 weeks ended 25 December 2011
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 25 December 2011
Sale of merchandise UP 11%
Gross margin at 56.9%
Trading profit UP 15%
Operating margin at 36.8%
Headline earnings per share UP 14%
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,
either directly or through agencies and franchises, in the retailing of fashion
apparel and related merchandise. Truworths International Ltd and its
subsidiaries (the Group) operate primarily in southern Africa.
TRADING AND FINANCIAL PERFORMANCE
Group retail sales increased by 10.7% to R4.8 billion for the 26-week period
ended 25 December 2011 (the period) compared to the prior 26-week period ended
26 December 2010. Comparable store retail sales grew by 6.2% (2010: 10.6%) while
product inflation averaged 8% (2010: 1%) for the period. Group sale of
merchandise, which comprises Group retail sales plus franchise sales less
accounting reclassifications, grew 10.8% to R4.7 billion (2010: R4.2 billion).
Trading space increased by 4.5% over the prior period-end following the opening
of net 1 Truworths, 10 Identity and 3 Uzzi stores. At the end of the period the
Group had 552 stores (2010: 538), including 21 stores in the rest of Africa
(2010: 17) following the opening of 2 stores in Botswana and 2 stores in
Mauritius.
The Group continued to record market share gains. Based on figures from the
retail liaison committee (RLC) for December 2011, the Group increased its
ladieswear RLC market share of clothing to 22.6% (2010: 22.2%), while menswear
market share grew to 22.0% (2010: 21.7%).
%
25 Dec 26 Dec change
2011 2010 on prior
Divisional sales Rm Rm period
Truworths ladieswear 1 741 1 615 8
Truworths menswear 935 865 8
Identity 743 595 25
Daniel Hechter 593 542 9
Elements 240 223 8
Inwear 216 204 6
LTD 214 187 14
Other* 138 124 11
Retail sales 4 820 4 355 11
Franchise sales 19 19 -
Accounting reclassifications (150) (142) 6
Sale of merchandise 4 689 4 232 11
YDE agency sales 149 133 12
* includes cellular, Truworths Jewellery and Truworths Living divisions
Lower inventory markdowns at the period-end contributed to the gross margin
increasing to 56.9% (2010: 56.6%) while the operating margin grew to 36.8%
(2010: 35.9%). Both of these margins are at an all time high for the Group.
Trading profit increased 15% to R1.4 billion (2010: R1.2 billion) as trading
expenses increased 8% to R1.4 billion (2010: R1.3 billion). Trading expenses as
a percentage of the sale of merchandise decreased to 29.5% (2010: 30.1%).
Interest received increased 10% to R334 million (2010: R305 million). Operating
profit increased 14% to R1.7 billion (2010: R1.5 billion).
Inventory levels were higher at period-end as the Group imported merchandise
earlier for the upcoming season to avoid potential supply disruptions resulting
from the Chinese New Year holiday period commencing in January 2012, two weeks
earlier than the prior period. This resulted in the inventory turn decreasing to
6.2 times (2010: 6.6 times).
Headline earnings per share (HEPS) were 277.6 cents, an increase of 14% over the
prior period`s 242.7 cents. This performance is in line with the earnings range
in the Group`s trading statement released on SENS on 18 January 2012. Diluted
HEPS of 272.3 cents were 14% higher (2010: 238.0 cents).
The Group`s financial position continued to strengthen, with net asset value per
share increasing by 12% to 1 326.2 cents (2010: 1 182.2 cents).
The annualised returns on equity and assets were 45% (2010: 44%) and 49% (2010:
47%) respectively. Asset turnover at 1.3 times remained unchanged from the prior
period.
CREDIT MANAGEMENT
Gross trade receivables grew by 17% to R3.9 billion, with the Group`s active
account base growing by 14% to approximately 2.4 million accounts.
The growth in the trade receivables book is attributable to Group credit sales
growing 15% over the prior period (11% and 57% higher respectively in Truworths
and Identity) and a continuing shift from shorter-term interest-free to longer-
term interest-bearing payment plans. The Group`s acceptance rate on new account
applications increased to 39% from 35% with the Identity acceptance rate
increasing from 28% to 35%. Account origination and management strategies in
Identity were designed on parameters similar to those of Truworths and are
expected to deliver incremental profitability. At period-end 88% (2010: 89%) of
the Group`s active account holders were able to purchase.
The doubtful debt allowance as a percentage of gross trade receivables remained
unchanged at 10.1% (2010: 10.1%) and net bad debt as a percentage of gross trade
receivables increased to 8.0% (2010: 7.5%). The combination of the above
resulted in trade receivable costs increasing 28% to R284 million (2010: R222
million). The trade receivables book continued to perform in line with
management`s expectations.
CAPITAL MANAGEMENT
The Group continues to manage its capital through a combination of capital
expenditure to sustain the organic growth of the business, share buy-backs and
dividends.
During the period the Group generated R1.0 billion in cash from operating
activities and this funded dividend payments (R565 million), share buy-backs
(R83 million), store development (R69 million) and computer infrastructure and
technology (R12 million). Since the June 2011 financial year-end cash and cash
equivalents have increased by R304 million (2010: R472 million) to R1.8 billion
at the period-end (2010: R1.8 billion).
The Group repurchased 1.2 million shares at an average price of R69.03 per share
for a total of R83 million during the period. Since the inception of the share
buy-back programme in 2002, 81 million shares have been repurchased at a total
cost of R1.7 billion at an average price of R21.51.
Capital expenditure of R132 million has been committed for the remainder of the
2012 financial period.
DIVIDEND
Having considered the transitional arrangements relating to the phasing out of
Secondary Tax on Companies (STC) and its replacement with Dividends Tax, the
board has decided to defer the declaration of an interim dividend until after 1
April 2012, but as soon as practicable thereafter. It is anticipated that the
Group`s full year dividend cover will be adjusted accordingly.
OUTLOOK
Management remains committed to the Group`s business philosophy which has guided
operating activities ably over many years. The supply of internationally
inspired, high quality fashionable clothing to youthful South Africans continues
to drive the Group`s strategy and will remain the focus for the period ahead.
Retail sales for the first eight weeks of the second half of the 2012 financial
period increased by 11.1% over the corresponding period in 2011 compared to 9.8%
for the first eight weeks of the second half of the 2011 financial period.
Generally subdued economic growth is expected for the remainder of the 2012
financial period. Product inflation is anticipated to remain between 6% and 8%
for the balance of the 2012 financial period. Annual growth in trading space is
planned at approximately 6%, with 13 stores expected to open in South Africa and
6 in the rest of Africa in the second half of the 2012 financial period.
The Group continues to seek opportunities to utilise cash resources to generate
competitive returns for shareholders.
H Saven MS Mark
Chairman Chief Executive Officer
CONDENSED GROUP STATEMENTS OF FINANCIAL POSITION
at 25 Dec at 26 Dec at 26 June
2011 2010 2011
Unaudited Unaudited Audited
Rm Rm Rm
ASSETS
Non-current assets 1 115 1 099 1 093
Property, plant and equipment 733 715 724
Goodwill 90 90 90
Intangible assets 77 71 77
Derivative financial assets 24 46 21
Available-for-sale asset 1 1 1
Loans and receivables 148 140 141
Deferred tax 42 36 39
Current assets 6 009 5 409 5 131
Inventories 666 555 530
Trade and other receivables 3 514 3 006 3 033
Derivative financial assets 34 40 28
Prepayments 2 18 51
Cash and cash equivalents 1 793 1 790 1 489
Total assets 7 124 6 508 6 224
EQUITY AND LIABILITIES
Total equity 5 610 5 068 5 046
Share capital and premium 183 151 159
Treasury shares (1 274) (797) (1 191)
Retained earnings 6 608 5 638 6 001
Non-distributable reserves 93 76 77
Non-current liabilities 91 101 84
Post-retirement medical benefit
obligation 44 39 41
Cash-settled compensation obligation 5 13 1
Straight-line operating lease obligation 42 49 42
Current liabilities 1 423 1 339 1 094
Trade and other payables 1 221 1 148 875
Derivative financial liability - 13 1
Provisions 57 67 73
Tax payable 145 111 145
Total liabilities 1 514 1 440 1 178
Total equity and liabilities 7 124 6 508 6 224
Number of shares in issue
(net of treasury shares) (millions) 423.0 428.7 423.4
Net asset value per share (cents) 1 326.2 1 182.2 1 191.8
Key ratios*
Return on equity (%) 45 44 41
Return on capital (%) 66 64 61
Return on assets (%) 49 47 46
Inventory turn (times) 6.2 6.6 6.4
Asset turnover (times) 1.3 1.3 1.3
* Ratios for December have been annualised
CONDENSED GROUP STATEMENTS OF COMPREHENSIVE INCOME
26 weeks 26 weeks 52 weeks
to 25 Dec to 26 Dec to 26 June
2011 2010 2011
Unaudited Unaudited % Audited
Note Rm Rm change Rm
Revenue 3 5 130 4 629 11 8 684
Sale of merchandise 4 689 4 232 11 7 858
Cost of sales (2 021) (1 835) (3 403)
Gross profit 2 668 2 397 11 4 455
Other income 107 92 189
Trading expenses (1 383) (1 275) 8 (2 421)
Depreciation and
amortisation (68) (68) (129)
Employment costs (449) (445) (828)
Occupancy costs (369) (327) (652)
Trade receivable costs (284) (222) (390)
Other operating costs (213) (213) (422)
Trading profit 1 392 1 214 15 2 223
Interest received 334 305 637
Profit before tax 1 726 1 519 14 2 860
Tax expense (553) (487) (917)
Profit for the period,
fully attributable
to owners of the parent 1 173 1 032 14 1 943
Other comprehensive
income/(loss) for the
period, net of tax 2 ( 1) (9)
Movement in effective
portion of cash flow hedge 3 (1) (12)
Deferred tax on movement
in effective portion of
cash flow hedge (1) - 3
Total comprehensive
income for the period,
fully attributable to
owners of the parent 1 175 1 031 14 1 934
Basic earnings per
share (cents) 277.6 242.7 14 455.8
Headline earnings
per share (cents) 277.6 242.7 14 456.0
Fully diluted basic
earnings per share (cents) 272.3 238.0 14 447.3
Fully diluted
headline earnings
per share (cents) 272.3 238.0 14 447.5
Weighted average
number of shares (millions) 422.5 425.3 426.3
Key ratios
Gross margin (%) 56.9 56.6 56.7
Trading expenses to
sale of merchandise (%) 29.5 30.1 30.8
Trading margin (%) 29.7 28.7 28.3
Operating margin (%) 36.8 35.9 36.4
CONDENSED GROUP STATEMENTS OF CASH FLOWS
26 weeks 26 weeks 52 weeks
to 25 Dec to 26 Dec to 26 June
2011 2010 2011
Unaudited Unaudited Audited
Rm Rm Rm
CASH FLOWS FROM OPERATING ACTIVITIES
Cash flow from trading and cash EBITDA* 1 483 1 332 2 411
Working capital movements (236) (132) (425)
Cash generated from operations 1 247 1 200 1 986
Interest received 334 305 637
Tax paid (557) (499) (895)
Cash inflow from operations 1 024 1 006 1 728
Dividends paid (565) (420) (968)
Net cash from operating activities 459 586 760
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of plant and equipment to
maintain operations (17) (17) (30)
Acquisition of property, plant and
equipment to expand operations (66) (70) (139)
Acquisition of computer software (3) (8) (17)
Loans advanced (10) (60) (63)
Loans repaid - - 5
Acquisition of cash-settled call options - (31) (31)
Net cash used in investing activities (96) (186) (275)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds on shares issued 24 72 80
Shares repurchased by subsidiaries (83) - (394)
Net cash (used in)/from financing activities (59) 72 (314)
Net increase in cash and cash equivalents 304 472 171
Cash and cash equivalents at the
beginning of the period 1 489 1 318 1 318
CASH AND CASH EQUIVALENTS AT THE
END OF THE PERIOD 1 793 1 790 1 489
Key ratios
Cash flow per share (cents) 242.4 236.5 405.3
Cash equivalent earnings per share (cents) 296.6 269.7 498.9
Cash realisation rate (%) 82 88 81
* Earnings before interest received, tax, depreciation and amortisation
CONDENSED GROUP STATEMENTS OF CHANGES IN EQUITY
25 Dec 26 Dec
2011 2010
Unaudited Unaudited
Rm Rm
Total equity at the beginning of the period 5 046 4 371
Total comprehensive income for the period 1 175 1 031
Profit for the period 1 173 1 032
Other comprehensive income/(loss) for the period 2 (1)
Dividends (566) (420)
Premium on shares issued 24 72
Shares repurchased (83) -
Share-based payment 14 14
Total equity at the end of the period 5 610 5 068
Comprising:
Share capital and premium 183 151
Treasury shares (1 274) (797)
Retained earnings 6 608 5 638
Non-distributable reserves 93 76
Total equity 5 610 5 068
Cents per share:
Dividends declared in respect of the period - 128
SELECTED EXPLANATORY NOTES
1 BASIS OF PREPARATION
The Group`s interim report has been prepared in compliance with
International Financial Reporting Standards (IFRS), the AC 500 Standards as
issued by the Accounting Practices Board, or its successor, IAS 34: Interim
Financial Reporting, the South African Companies Act (71 of 2008, as
amended) and the Listings Requirements of the JSE.
The interim condensed Group financial statements do not include all the
information and disclosures required in the annual financial statements,
and should be read in conjunction with the Group`s annual financial
statements as at 26 June 2011.
The information contained in the interim report has neither been audited
nor reviewed by the Group`s external auditors. These condensed financial
statements have been prepared under the supervision of MJV Sardi CA(SA),
the Chief Financial Officer of the Group.
2 ACCOUNTING POLICIES
The accounting policies and methods of computation applied in the
preparation of the interim condensed Group financial statements are
consistent with those applied in the preparation of the Group`s annual
financial statements for the period ended 26 June 2011, except for the
adoption of the improvements to IFRS issued in May 2010.
Improvements to IFRS (issued May 2010)
In May 2010, the International Accounting Standards Board issued an omnibus
of amendments to its standards, affecting six standards and one
interpretation. During the prior reporting period, the Group adopted those
amendments that became effective for annual periods beginning on or after 1
July 2010. The remaining amendments that are effective for periods
beginning on or after 1 January 2011 have been adopted by the Group in the
current reporting period, to the extent that they are applicable to its
activities.
In some instances, the adoption of these amendments has resulted in minor
revisions to accounting policies and disclosures, but has not had any impact on
the financial position or performance of the Group.
26 weeks 26 weeks 52 weeks
to 25 Dec to 26 Dec to 26 June
2011 2010 2011
Unaudited Unaudited % Audited
Rm Rm change Rm
3 REVENUE
Sale of merchandise 4 689 4 232 11 7 858
Retail sales 4 820 4 355 8 080
Accounting reclassifications (150) (142) (257)
Franchise sales 19 19 35
Other income 107 92 16 189
Commission 54 47 88
Display fees 21 19 39
Financial services income 21 15 38
Lease rental income 6 6 12
Other 3 3 9
Royalties 2 2 3
Interest received 334 305 10 637
Trade receivables interest 290 259 543
Investment interest 44 46 94
Total revenue 5 130 4 629 11 8 684
4 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 third party revenue 5 083 55 (8) 5 130
Third party 5 072 55 3 5 130
Inter-segment 11 - (11) -
Depreciation and
amortisation 66 2 - 68
Interest received 331 3 - 334
Profit for the period 1 157 16 - 1 173
Profit before tax 1 704 22 - 1 726
Tax expense (547) (6) - (553)
Capital expenditure 78 8 - 86
Gross margin (%) 56.9 - - 56.9
Trading margin (%) 29.3 40.8 - 29.7
Operating margin (%) 36.3 41.5 - 36.8
Inventory turn (times) 6.2 - - 6.2
Credit:cash sales mix (%) 73:27 24:76 - 73:27
2010
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
Gross margin (%) 56.6 - - 56.6
Trading margin (%) 28.5 40.1 - 28.7
Operating margin (%) 35.7 40.9 - 35.9
Inventory turn (times) 6.6 - - 6.6
Credit:cash sales mix (%) 70:30 23:77 - 70:30
Contribution Contribution
2011 to revenue 2010 to revenue
Third party revenue Rm % Rm %
South Africa 4 991 97.3 4 504 97.3
Namibia 83 1.6 74 1.6
Swaziland 29 0.6 32 0.7
Botswana 5 0.1 - -
Mauritius 3 0.1 - -
Franchise sales 19 0.3 19 0.4
Total third party revenue 5 130 100 4 629 100
25 Dec 26 Dec 26 June
2011 2010 2011
Unaudited Unaudited Audited
Rm Rm Rm
5 CAPITAL COMMITMENTS
Capital expenditure authorised but
not contracted:
Store development 85 84 154
Computer infrastructure 28 21 40
Distribution facilities 17 6 20
Head office refurbishment 2 1 3
Motor vehicles - 3 1
Total capital commitments 132 115 218
The capital commitments will be financed from cash generated from
operations and available cash resources and are expected to be incurred in
the remainder of the 2012 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 26 June 2011 took place during
the period.
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, AJ Taylor and RJA Sparks
* Executive Non-executive Independent
RESULTS ARE AVAILABLE ONLINE AT WWW.TRUWORTHS.CO.ZA
23 February 2012
Date: 23/02/2012 14:25:01 Supplied by www.sharenet.co.za
Produced by the JSE SENS Department.
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