Wrap Text
Edcon Holdings Limited results for the three-month period ended 29 June 2013
Edcon Holdings Limited
Incorporated in the Republic of South Africa
Registration number 2006/036903/06
Company code: BIEDC1
ISIN: ZAG000085168
EDCON HOLDINGS LIMITED (“EDCON”)
SUMMARY OF GROUP TRADING RESULTS FOR THE THREE-MONTH
PERIOD ENDED 29 JUNE 2013
SUMMARY OF FINANCIAL AND OTHER DATA
The following Summary of Financial and Other Data should be read in
conjunction with the Consolidated Financial Statements and related notes
thereto in the second half of this notice. Following the unwind of
OntheCards Investments II Proprietary Limited (“OtC”) on 31 October 2012
and the sale of the trade receivables under our private label store card
programme to Absa Bank Limited (“Absa”), a subsidiary of Barclays Africa
Limited, on 1 November 2012, we believe that the presentation of our
financial information excluding the impact of consolidating OtC is no
longer relevant to analyse our performance. The relevant sections relating
to the impact of consolidating OtC in the prior year numbers are available
on our website.
The unaudited historical financial data in the Summary of Financial and
Other Data and the Consolidated Financial Statements of Edcon Holdings
Limited and its subsidiaries (the “Group”) attached hereto, relates to the
three-month period ended 30 June 2012 and the three-month period ended 29
June 2013. Unless the context requires otherwise, references in this
notice to “first quarter 2013” and “first quarter 2014” shall mean the 13-
week period ended 30 June 2012 and the 13-week period ended 29 June 2013,
respectively and (ii) “fiscal 2013” and “fiscal 2014” shall mean the 52-
week period ended 30 March 2013 and the 52-week period ending 29 March
2014, respectively.
Throughout these reports Edgars refers to the Edgars division, which
comprises Edgars, Red Square, Boardmans, Edgars Active, Edgars Shoe
Gallery and our Mono-branded stores while Discount refers to the Discount
division, which comprises Jet, Jet Mart and Legit as well as Discom prior
to the conversion of the Discom stores into Edgars Active and Legit
stores.
The statements in this section regarding industry outlook, our expectation
regarding our future performance, liquidity and capital resources and
other non-historical statements in this discussion are forward looking
statements. These forward looking statements are subject to numerous risks
and uncertainties. Our actual results may differ materially from these
contained in or implied by any forward looking statements.
2
Management discussion and analysis of financial consolidated condition
Highlights
Pertaining to the first quarter 2014 compared to first quarter 2013:
- Improved profitability
- Gross profit up 5.9% to R2.4 billion
- Gross profit margin increased by 1.0 percentage point
(1)
- Retail trading profit increased 11.0% to R342 million
- Pro forma adjusted EBITDA up 6.0% to R721 million
- Delivery against strategic plan
- Increase in average space of 4.2%
- Edgars refurbishment strategy progressing well
- Further exclusive brands secured and starting to rollout
- Over 10 million loyalty customers in 17 months
- Benefits of sourcing changes starting to show
- Operational performance
- Retail sales up 3.2% to R6.2 billion
- Cash sales growth of 12.1%
- Revenue from operations outside South Africa now contributes 9.9%
to total retail sales
(1) Trading profit adjusted for all income and expenses relating to the credit and financial services business and
non-recurring items
Introduction
Edcon has continued to execute its strategic change agenda to position the
Group for future growth, while remaining attentive to the pressures the
consumer is under. During the first quarter 2014 retail sales increased
3.2% to R6,205 million, while better merchandising and cost savings
initiatives improved profitability increasing pro forma adjusted EBITDA by
6.0% to R721 million. Strong cash sales across the group, supported by the
loyalty programme, indicate that our customers are responding well to our
proposition.
In the Edgars division, the implementation of the second phase of the 72-
store refurbishment programme is well under way. The heavy build element
of this programme negatively affects results, but initial numbers from the
first 16 stores completed during June are promising and the work is still
on track to be substantially completed before the beginning of the
Christmas trading period. The Discount division has continued its sound
performance as the strategic initiatives introduced over the last year,
such as better sourcing and improved product selection as well as the
store optimisation initiative, assisted in substantially increasing
operating profit.
3
Within a broader South African environment, unsecured lending growth has
continued to slow and pressure on the consumer has increased, resulting in
a lower growth in total retail sales. However, information from Statistics
South Africa continues to support a more positive view on apparel sales
growth as it has consistently exceeded total retail sales growth.
4
Trading review
Key operational data
(unaudited) (unaudited)
Retail sales growth (%) Gross profit margin (%)
Q1:FY13 Q1:FY1 Q1:FY13 Q1:FY1 Q1:FY1 Q1:FY14 pts
Actual 4 LFL(1) 4 3 Actual change(2
Actual LFL(1) Actual )
Edgars 1.9 1.2 (2.5) (3.0) 41.1 42.0 0.9
Discount 1.8 4.7 5.1 1.7 34.0 35.7 1.7
CNA 1.9 4.5 3.8 3.6 33.9 32.1 (1.8)
Edgars Zimbabwe 42.2 25.3 42.2 27.1 51.6 49.1 (2.5)
(0.3
Total
1.8 3.2 0.9 ) 37.9 38.9 1.0
Q1:FY1
Q1:FY13 %
4
Actual change
Actual
Total number of 1 1
9.6
stores 187 301
Average retail 1 1
4.2
space (‘000 sqm) 400 459
Customer credit
3 3 (2.3
accounts
854 765 )
(‘000s)(3)
(1) Like-for-like sales (same store sales)
(2) Q1:FY14 % change on Q1:FY13
(3) Excludes Edgars Zimbabwe customer credit accounts 1Q:FY14 of 136 374 and 1Q:FY13 of 130 031
Edgars
The Edgars division grew retail sales 1.2% for the first quarter 2014 when
compared to the first quarter 2013. Same store sales decreased 3.0% for
the quarter and decreased 1.5% over the 26-weeks ended 29 June 2013. The
growth in retail sales was primarily due to an increase in average space
and cash sales growth of 13.6%. The disruption caused by the refurbishment
and a decline of 6.2% in credit sales continued to stifle growth.
Cosmetics, footwear and brands performed well in the quarter, while the
efforts of the new buying teams in private label are only expected to
reflect later in the year. Net average space increased 5.9% when compared
to the first quarter 2013 due largely to the opening of three new Edgars
stores and thirteen Edgars Active stores. During the period two more
Edgars Shoe Gallery stores opened, as well as one Topshop store. There
were three closures (Edgars, Temptations and Boardmans) bringing the total
number of stores in the Edgars division to 408. Gross margin improved to
42.0% for the first quarter 2014 from 41.1% for the first quarter 2013 due
to improved buying margins and a reduction in the extent of mark down
activity.
The objective of the Edgars transformation programme is to deliver a
refreshed, consistent and compelling shopping experience. The programme
5
consists of three key elements; a refurbishment phase, a store
optimisation programme and a people support initiative. The refurbishment
phase includes enhancements to visual marketing, standardized store
layouts, improved space allocation and some remerchandising of the
presentation of product. Following the refurbishment phase, processes from
receiving to replenishment are to be optimised on similar principles to
those implemented successfully in the Discount division to enhance daily
store functionality and improve the customer experience. These changes are
supported by a plan to ensure we have the right people, appropriately
trained, managing the stores and serving customers. Average sales growth
from the first 16-stores whose refurbishment was fully completed is up 250
– 500 bps when compared to the 19-weeks before the refurbishment started.
The 72-store refurbishment programme consists of 63 stores that do not
require expansion as part of the refurbishment and 9 stores that do. We
expect the total cost of the refurbishment to be approximately R527
million, including R210 million for the 9 expansion stores. At 29 June
2013, 18 stores had been completed at a total cost of R115 million,
including 1 expansion store. A further 12 stores were completed by 10
August 2013, with cumulative costs for the project of R177 million, giving
confidence that all stores, excluding one expansion store, will be
completed before the Christmas trading period.
As part of the change, new exclusive international brands are being rolled
out to stores, mainly through the shop-in-shop concept but also through a
limited number of mono-branded stores. In addition to its existing brand
portfolio, Edcon has secured franchise rights to T.M. Lewin, Dune London,
Tom Tailor, Lucky Brand, and Lipsy. On 7 August 2013 Edcon received
Competition Commission approval, without any conditions, for the
acquisition of a controlling stake in the companies retailing, under
license, Accessorize, La Senza, and Inglot in South Africa, including 42
standalone stores and kiosks. No changes to the day to day management and
staff of the acquired group are planned as a result of the acquisition.
Birgitt Gebauer has been appointed as Chief Executive: Edgars department
stores, effective 1 September 2013. Birgitt has over 28 years of retail
and textile experience bringing a wealth of merchandise and product
expertise.
Discount
The Discount division’s sales increased 4.7% and same store sales were
1.7% higher for the first quarter 2014 compared to the first quarter 2013.
The growth in retail sales was supported by stronger cash sales, up 13.0%,
as credit sales were 4.1% lower. The Discount division strategic
6
initiatives are more advanced in their implementation and the divisional
performance remains robust on a six monthly basis, with same store sales
5.5% higher over the 26-weeks ended 29 June 2013. Ladieswear and menswear
in Jet continued to grow strongly and Legit increased sales 12.2% in the
first quarter 2014. Childrenswear remains an opportunity for improvement.
During the quarter Discount division opened eight new Jet stores (three
closures), two new Jet Marts (one closure) and six more Legit stores. Net
average space increased 2.7% when compared to the first quarter 2013. The
total number of stores in the Discount division is 658. The rate of
expansion is expected to increase in the rest of the current financial
year. Changes in product mix and improved results from sourcing
initiatives resulted in an increase in the gross profit margin from 34.0%
in the first quarter of 2013 to 35.7% in the first quarter of 2014.
CNA
CNA sales increased 4.5% and same store sales were 3.6% higher for the
first quarter 2014 compared to the first quarter 2013. This is primarily
due to the increase in higher value, but lower margin, electronic
merchandise as the business continued to enhance its product mix. The
total number of CNA stores remained at 195 with the average space
decreasing marginally. Gross margin decreased by 1.8% points from 33.9%
for the first quarter 2013 to 32.1% in the first quarter 2014 due to the
merchandise mix change.
African expansion and inclusion of Zimbabwe
Edcon owns 39% of Edgars Zimbabwe Limited (“Edgars Zimbabwe”), a
Zimbabwean listed public company which is independently managed. IFRS 10,
Consolidated Financial Statements, was issued in May 2011 and became
effective for financial periods beginning on or after 1 January 2013. In
the implementation of IFRS 10 Edgars Zimbabwe was re-assessed, and the
results of Edgars Zimbabwe have been consolidated as from 31 March 2012.
The expansion outside of South Africa, mainly through the Jet, Jet Mart
and Edgars Active formats, continues to perform well. Edcon expects to
expand its footprint at a measured rate and recently secured store space
in Ghana. The sales from countries other than South Africa grew 20.7% in
the first quarter 2014 compared to the first quarter 2013 due in part to
new stores in Mozambique and increased focus on merchandise. These sales
contributed 9.9% (8.2% excluding Zimbabwe) of retail sales for the first
quarter 2014, up from 8.4% (7.0% excluding Zimbabwe) in the prior
comparative period. This remains an exciting opportunity going forward.
7
Credit and financial services
Edcon continues to offer store card credit and to be responsible for all
customer facing interfaces. Following the first closing of the sale of the
trade receivables book on 1 November 2012, however, the ultimate credit
decision for provision of credit rests with Absa, which now owns and funds
the book. This has enabled Edcon to focus on its core retail business and
unlocked additional cash flow while Absa provides significantly enhanced
credit analysis tools and has access to a more efficient funding
structure. Due to the weak credit environment, Edcon ended the first
quarter 2014 with 89 thousand fewer customers able to access credit than
the first quarter 2013. On a twelve month rolling basis, credit sales
decreased from 51.3% in the prior comparative period to 50.1% of total
retail sales.
Good progress was made in enabling more of the South African trade
accounts receivables book to be sold than originally anticipated. Of the
R803 million in assets classified as held-for-sale,
R126 million was sold on 30 June 2013. This leaves only the foreign trade
accounts receivables book, which is anticipated to be sold by the end of
the 2014 financial year. Only R23 million of the South African trade
accounts receivables book remains unsold and included in trade receivables
Income from the insurance joint operation continued to perform well
increasing 16.0% over the prior comparative quarter to R174 million for
the first quarter 2014. The pace of insurance growth was impacted by the
lower number of credit customers as a store credit facility is a
prerequisite for a policy.
8
Financial review
Summary financial information
First quarter (unaudited)
2013 (re-
presented & %
Rm restated(4)) 2014 change
Total revenues(1) 6 320 6 615 4.7
Retail sales 6 013 6 205 3.2
Gross profit 2 278 2 412 5.9
Gross profit margin (%) 37.9 38.9 1pnt
Retail trading profit(2) 308 342 11.0
Pro forma adjusted EBITDA(3) 680 721 6.0
Capital expenditure 197 371 88.3
Net debt including cash and derivatives 25 897 19 553 (24.5)
LTM pro forma adjusted EBITDA (reported) 3 065 2 939 (4.1)
Permanent adjustments(5) - 226 -
LTM pro forma adjusted EBITDA (inc. cost
savings) 3 065 3 165 3.3
Net debt/LTM pro forma adjusted EBITDA (inc.
cost savings) (6) 5.5x 6.2x (0.7x)
(1) Excludes discontinued operations
(2) Trading profit excluding any income and expenses related to credit and financial service and non-recurring items
(3) See notes on pro forma adjusted EBITDA below
(4) Re-presented to take into account the discontinued operation actually sold to Absa and restated for the
retrospective consolidation of Edgars Zimbabwe
(5) Full year impact of permanent cost savings not included in Q1: FY14 LTM pro forma adjusted EBITDA: Corporate and
operational overhead reductions of R85m and renegotiation of contracts of R141m
(6) Pro forma debt is R16,769 at Q1:FY13
Revenues
Total revenues increased 4.7% due to increased space and good growth in
income from the insurance joint operation with Hollard. Same store sales
were down 0.3% in the first quarter 2014 as a result of disruption caused
by the refurbishment initiatives in the Edgars’ division and credit sales
reducing by 4.9%.
Retail gross profit
Gross profit was 5.9% higher due to a 100 basis point increase in the
gross profit margin. Margins in both the Edgars and Discount divisions
improved but were lower in the CNA division.
Retail trading profit
Retail trading profit increased 11.0% due mainly to slower growth in other
operating costs consisting mainly of head office costs. Retail trading
profit excludes all income and expenses relating to credit and financial
9
services, including store card administration income and costs, and non-
recurring income and costs.
10
Pro forma adjusted EBITDA
Pro forma adjusted EBITDA excludes clearly identified non-recurring costs,
further adjusted to give effect to the transaction with Absa as if such
transaction had occurred from the beginning of each of the periods. The
following table reconciles trading profit to adjusted EBITDA and Pro forma
adjusted EBITDA:
First quarter
(unaudited)
%
chang
Rm 2013 2014 e
Trading profit 558 396
Depreciation and amortisation 272 268
Net asset write off(1) 14 -
Profit/(loss) from discontinued operations(2) 95 (15)
Non-recurring (income)/costs(3) (87) 66
Adjusted EBITDA 852 715
Net income from previous card programme(4) (229) 4
Net income from new card programme(5) 57 2
Pro forma adjusted EBITDA(5) 680 721 6.0
(1) Relates to assets written off in connection with store conversions, net of related proceeds.
(2) The results of discontinued operations are included before tax.
(3) Relates to one off strategic initiatives in Q1:FY13 of R56m, income on termination of the Mastercard agreement
in Q1:FY13 of R143m, costs associated with the sale of the trade receivables book in Q1:FY14 of R41m and costs
associated with corporate and operational overhead reductions in Q1:FY14 of R25m
(4) Pro forma income “lost” to Absa for the portion of the book sold includ ing finance charges revenue, bad debts
and provisions.
(5) Pro forma fee earned by Edcon under the new arrangement with Absa.
Costs
First quarter
(unaudited)
%
chang
Rm 2013 2014 e
Store costs 1 207 1 295 7.3
Other operating costs(1) 908 935 3.0
Store card credit administration costs(2) 137
Non-recurring (income)/costs(3) (87) 66
(1) Other operating costs as per consolidated financial statements, before costs in notes (2) and (3) below.
(2) Relates to costs associated with the administration of the store credit card funded by Absa or Edcon and not in
discontinued operations.
(3) Relates to one off strategic initiatives in Q1:FY13 of R56m, income on termination of the Mastercard agreement
in Q1:FY13 of R143m, costs associated with the sale of the trade receivables book in Q1:FY14 of R41m and costs
associated with corporate and operational overhead reductions in Q1:FY14 of R25m.
Total store costs increased by R88 million, or 7.3%, from R1,207 million
in the first quarter 2013 to R1,295 million in the first quarter 2014,
mainly due to higher rental and manpower costs that increased 7.6% and
7.2% respectively and constituted 62% of total costs. Store costs were
particularly well contained in the Discount division, increasing only 3.3%
due to the success of the optimisation programme, while store costs in the
Edgars division increased 9.6% as optimisation efforts are only
11
anticipated to have an impact in the second half of fiscal year 2014, once
the heavy-build refurbishment is behind us.
Other operating costs, excluding non-recurring and non-comparable costs
associated with administrating the trade accounts receivable book,
increased by R27 million, or 3.0%, from R908 million in the first quarter
2013 to R935 million in the first quarter 2014. Income from Absa for
administering the book of R67 million is included in other income.
Depreciation and amortisation
The amortisation charge for the first quarter 2014 decreased by R9
million, or 10.3% to R78 million as a result of certain intangible assets
now being fully amortised. The intangible assets were raised following the
acquisition by Bain in 2007. The depreciation charge increased by 2.7% to
R190 million when compared to the prior comparative period.
Net financing costs
First quarter
(unaudited)
%
2013 chang
Rm 2014 e
Interest received 11 6
Financing costs (783) (619)
(20.6
Net financing costs
(772) (613) )
Net financing costs decreased by R159 million, or 20.6%, from R772 million
in the first quarter 2013 to R613 million in the first quarter 2014. This
decrease is primarily as a result of an improved net debt position
following the sale of the trade accounts receivable assets to Absa on
1 November 2012 and 30 April 2013.
Foreign exchange management
The impact of the weakening rand on buying margins over the quarter was
mitigated by the season’s purchases having been substantially hedged.
Purchases for the second half of the year are hedged at higher rates, the
impact of which will be managed, to the extent possible, through mix and
pricing adjustments. Edcon applies a strategy of hedging all committed
orders between 80% and 100% of the foreign denominated cost price, the
impact of which appears above the trading profit line.
First quarter
(unaudited)
Rm 2014 %
12
2013 chang
e
Derivative gains(1) 1 323
Foreign exchange losses (189) (999)
Net movement (188) (676) 260
(1) Includes R269 million of deferred option premium.
Edcon manages its foreign exchange risk on liabilities on an ongoing
basis. At the end of the first quarter 2014, 82% of the total gross debt
is hedged by virtue of it being denominated in ZAR or through a mix of
cross currency swaps and options and 18%, or €302 million of the floating
rate senior notes maturing in 2015, is unhedged. The unhedged notes
resulted in a foreign exchange loss in the first quarter 2014 of
approximately R327 million based on a 9.2% depreciation of the ZAR against
the EUR (from EUR:R11.78 to EUR:R12.86). However, the net movement
increases to R676 million, substantially due to the R269 million incurred
on the new currency option contracts entered into in April 2013 and to a
lesser extent due to the foreign exchange losses on the final settlement
of the 2014 notes.
Cash flow
Operating cash inflow before changes in working capital decreased by R366
million from R1,064 million in the first quarter 2013 to R698 million in
the first quarter 2014 as non-recurring costs and a weaker performance
from credit and financial services negatively impacted cashflows.
Working capital increased by R497 million in the first quarter 2014,
compared to an increase of R355 million in the first quarter 2013
attributable to:
(i) a decrease in total trade receivables of R518 million in the first
quarter 2014 compared to an increase of R76 million in the first
quarter 2013, R461 million of which related to the sale of the trade
receivables on 30 April 2013;
(ii) an increase in other receivables and prepayments of R2 million in
the first quarter 2014 compared to a decrease of R51 million in the
first quarter 2013;
(iii) an increase in inventory of R94 million in the first quarter 2014
compared to a decrease of R61 million in the first quarter 2013
mainly due to new display fixtures requiring more stock of our
products; and
(iv) an increase in trade and other payables of R75 million in the first
quarter 2014 compared to an increase of R319 million in the first
quarter 2013, as trade payables were used less effectively than we
anticipated in the first quarter 2014.
13
Consequently, operating activities generated cash of R1,195 million, lower
than the R1,419 million in the prior comparative period. Net cashflow from
operating activities generated R991 million of cash compared to R783
million in the first quarter of 2013, mainly due to a R429 million
reduction in net financing costs mainly as a result of the sale of the
trade receivables book.
Capital expenditure
First quarter
(unaudited)
%
chang
Rm 2013 2014 e
Edgars 68 172 152.9
Expansion
23 54 134.8
Refurbishment 45 118 162.2
Discount 43 77 79.1
Expansion 7 36 414.3
Refurbishment 36 41 13.9
(53.8
CNA
13 6 )
(100.
Edgars Zimbabwe
1 - 0)
(51.5
IT
68 33 )
Other corporate capex 5 27 440.0
198 315 59.1
Capital expenditure increased by R117 million, or 59.1%, to R315 million
in the first quarter 2014, from R198 million in the first quarter 2013,
although R125 million remains in sundry accounts payable. In the first
quarter 2014 thirty-eight new stores were opened (excluding one
conversion) which, combined with store refurbishments, resulted in
investments in stores of R255 million, compared to the first quarter 2013
where we opened forty-three new stores (including twenty conversions)
resulting in an investment in store fixtures of R124 million. Edcon
invested R33 million in information systems infrastructure in the first
quarter 2014 compared to R68 million in the first quarter 2013 as store
capex remained a priority.
The company expects to spend R1,175 million on capital expenditure in
fiscal year 2014.
Net debt, liquidity and capital resources
14
The primary source of short-term liquidity is cash on hand and the
revolving credit facility. The amount of cash on hand and the outstanding
balance on the revolving credit facility are influenced by a number of
factors, including retail sales, working capital levels, supplier payment
terms, timing of payment for capital expenditure projects, and tax payment
requirements. Working capital requirements fluctuate during each month,
depending on when suppliers are paid and when sales are generated, and
throughout the year depending on the seasonal build-up of net working
capital. Edcon funds peaks in the working capital cycle with cash flows
from operations and drawings under our revolving credit facility.
On 20 May 2013, Edcon completed the repurchase of its senior secured
floating rate notes at the face value of €387 million. The repurchase was
funded from the proceeds drawn from the rand denominated senior secured
term loan also finalised in the quarter, as well as net proceeds derived
on termination of the derivative contracts that were hedging the exchange
rate risk on the notes repurchased. Following the update to the hedging
strategy that took place prior to the repurchase of the notes, 82% of
gross debt (at closing rates) and 100% of the interest rate and currency
risk of all future interest payments on the foreign notes are hedged to
between 15 March 2014 and
15 March 2015.
At 29 June 2013 total net debt including cash and derivatives of R19,553
million consisted of (i) the carrying value of floating rate notes of
R4,820 million, (ii) the carrying value of fixed rate notes of R10,038
million, (iii) super senior secured notes of R1,010 million, (iv) senior
secured term loan of R3,986 million, (v) borrowings under the revolving
credit facility of R510 million, (vi) finance lease liability of R304
million, (vii) deferred option premium of R583 million, (viii) Edgars
Zimbabwe term loan of R136 million, (ix) Edgars Zimbabwe short-term loan
R40 million less (x) net derivative assets of R1,394 million, and (xi)
cash and cash equivalents of R480 million.
At 29 June 2013, the total limit under the super senior revolving credit
facility was R3,967 million, R250 million of which matures on 31 December
2013 with the balance of R3,717 million maturing on 31 December 2016
having been extended during the quarter without any material changes to
the other terms of the facility. The maximum utilisation of the revolving
credit facility during the first quarter 2014 was R2,140 million.
Edcon believes that operating cash flows, amounts available under the
super senior revolving credit facility and proceeds from the sale of our
accounts and trade receivables to Absa will be sufficient to fund debt
15
service obligations and operations, including capital expenditure and
contractual commitments, through to 29 March 2014.
Events after the reporting period
On 30 June 2013, all conditions required for the third closing of the
South African trade accounts receivable were satisfied and a further R126
million of the South African private label store card portfolio was sold
to Absa.
16
Consolidated Financial Statements
Edcon Holdings Limited (“Edcon”)
17
Consolidated Statement of Financial Position
(unaudited)
Restated Restated
2013 2013 2012
29 June 30 March 30 June
Rm Rm Rm
ASSETS
Non-current assets
Properties, fixtures, equipment and vehicles 2 745 2 606 2 530
Intangible assets 16 622 16 697 17 394
Employee benefit asset 129 172 154
Derivative financial instruments 734 292 819
Deferred tax 11 33 1 163
Total non-current assets 20 241 19 800 22 060
Current assets
Inventories 3 852 3 738 3 180
Trade receivables 215 373 143
Other receivables and prepayments 458 468 396
Derivative financial instruments 800 815 2
Cash and cash equivalents 480 710 1 115
5 805 6 104 4 836
Assets classified as held-for-sale 803 1 160 10 091
Total current assets 6 608 7 264 14 927
Total assets 26 849 27 064 36 987
EQUITY AND LIABILITIES
Share capital and premium 2 153 2 153 2 153
Other reserves 76 (61) (733)
Retained loss (12 584) (11 870) (7 072)
Shareholder’s loan – equity 8 290 8 290 8 290
Equity attributable to shareholders (2 065) (1 488) 2 638
Non-controlling interests 74 72 59
Total equity (1 991) (1 416) 2 697
Non-current liabilities – shareholder’s loan
Shareholder’s loan 822 801 665
Total equity and shareholder’s loan (1 169) (615) 3 362
Non-current liabilities – third parties
Interest-bearing debt 19 990 19 259 23 985
Deferred option premium 274 269
Finance lease liability 270 273 303
Lease equalisation 446 432 406
Derivative financial instruments - - 52
Employee benefit liability 187 184 184
Deferred taxation 345 617
Deferred revenue 86 86
21 598 21 120 24 930
Total non-current liabilities 22 420 21 921 25 595
Current liabilities
Interest-bearing debt 550 1 516 2 371
Deferred option premium 309 36
Finance lease liability 34 40 37
Current taxation 34 10 266
Deferred revenue 108 106 152
Derivative financial instruments 140 79 1 085
Trade and other payables 5 245 4 772 4 784
Total current liabilities 6 420 6 559 8 695
Total equity and liabilities 26 849 27 064 36 987
Total managed capital per IAS 1 19 675 20 473 30 058
18
Consolidated Statement of Comprehensive Income (unaudited)
Re-presented
& restated
2013 2012
13 weeks to 13 weeks to
29 June 30 June
Note Rm Rm
Continuing operations
Total revenues 3 6 615 6 320
Revenue - retail sales 6 205 6 013
Cost of sales (3 793) (3 735)
Gross profit 2 412 2 278
Other income 243 158
Store costs (1 295) (1 207)
Other operating costs (1 138) (821)
Income from joint operations 174 150
Trading profit 396 558
Derivative gains 323 1
Foreign exchange losses (999) (189)
(Loss)/profit before net financing costs (280) 370
Finance income 6 11
(Loss)/profit before financing costs (274) 381
Financing costs (619) (783)
Loss before taxation from continuing operations (893) (402)
Taxation 192 121
LOSS FOR THE PERIOD FROM CONTINUING OPERATIONS (701) (281)
Discontinued operations
(Loss)/profit after tax for the period from 4 (11) 68
discontinued operations
LOSS FOR THE PERIOD (712) (213)
Other comprehensive income after tax:
Exchange differences on translating foreign 24 3
operations
Gain/(loss) on cash flow hedges 113 (41)
Other comprehensive income for the period after tax 137 (38)
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD (575) (251)
(Loss)/profit attributable to:
Owners of the parent (714) (214)
Non-controlling interests 2 1
(712) (213)
Total comprehensive income attributable to:
Owners of the parent (577) (252)
Non-controlling interests 2 1
19
(575) (251)
Consolidated Statement of Changes in Equity (unaudited)
Foreign
currenc Non-
Share y Cash control
capital transla flow Revalu- Retaine Shareho l-ing
and -tion hedging ation d -lder’s interes Total
premium reserve reserve surplus loss loan ts equity
Rm Rm Rm Rm Rm Rm Rm Rm
Balance at 31
March 2012 2 153 (40) (661) 6 (6 858) 8 290 58 2 948
(Loss)/profit
for
the period (214) 1 (213)
Other
comprehensive
income for
the period 3 (41) (38)
Total
comprehensive
income 3 (41) (214) 1 (251)
Balance at 30
June 2012 2 153 (37) (702) 6 (7 072) 8 290 59 2 697
Balance at 30
March 2013 2 153 (30) (37) 6 (11 870) 8 290 72 (1 416)
(Loss)/profit
for
the period (714) 2 (712)
Other
comprehensive
income for
the period 24 113 137
Total
comprehensive
income 24 113 (714) 2 (575)
Balance at 29
June 2013 2 153 (6) 76 6 (12 584) 8 290 74 (1 991)
20
Consolidated Statement of Cash Flows (unaudited)
Re-presented &
restated
2013 2012
13 weeks to 13 weeks to
29 June 30 June
Rm Rm
Cash retained from operating activities
Loss before taxation from continuing operations (893) (402)
(Loss)/profit before taxation from discontinued
operations (15) 95
Finance income (6) (11)
Finance costs 619 783
Derivative gains (323) (1)
Deferred revenue 2 72
Foreign exchange losses 999 189
Amortisation of intangible assets 78 87
Depreciation 190 185
Net loss on disposal of properties, fixtures, equipment
and vehicles - 14
Other non-cash items 47 53
Operating cash inflow before changes in working capital 698 1 064
Working capital movement 497 355
Inventories (94) 61
Trade accounts receivable 57 (76)
Proceeds from sale of trade accounts receivable 461
Other receivables and prepayments (2) 51
Trade and other payables 75 319
Cash inflow from operating activities 1 195 1 419
Finance income received 6 11
Financing costs paid (209) (643)
Taxation paid (1) (4)
Net cash inflow from operating activities 991 783
Cash utilised in investing activities
Investment in fixtures, equipment and vehicles (246) (198)
Other investing activities (2)
Net cash outflow from investing activities (248) (198)
Cash effects of financing activities
Settlement of derivatives 654
Decrease in interest-bearing debt (1 622) (534)
Decrease in finance lease liability (10) (12)
Net cash outflow from financing activities (978) (546)
(Decrease)/increase in cash and cash equivalents (235) 39
Cash and cash equivalents at the beginning of the period 710 1 074
Currency adjustments 5 2
21
Cash and cash equivalents at the end of the period 480 1 115
Condensed notes to the Consolidated Financial Statements
(unaudited)
1. Basis of preparation
Basis of accounting
Edcon Holdings Limited’s Consolidated Financial Statements (“Financial
Statements”) are prepared in accordance with International Financial Reporting
Standards (“IFRS”) and stated in Rands (“R”).
These Financial Statements are presented in accordance with IAS 34 Interim
Financial Reporting. Accordingly, note disclosures normally included in the
annual financial statements have been condensed or omitted.
These Financial Statements have not been audited or reviewed by an auditor. In
the opinion of management, all adjustments necessary for a fair presentation of
the financial position, results of operations and cash flows for the interim
periods have been made.
In preparing these Financial Statements, the same accounting principles and
methods of computation are applied as in the Audited Group Consolidated
Financial Statements of Edcon Holdings Limited on 30 March 2013 and for the
period then ended except those relating to new and amended standards and
interpretations.
These Financial Statements should be read in conjunction with the audited
Consolidated Financial Statements as at and for the period ended 30 March 2013
as included in the 2013 Audited Consolidated Annual Financial Statements of
Edcon Holdings Limited.
Comparability
New and amended standards and interpretations
The accounting policies adopted are consistent with those of the previous
financial period, except for the following new and amended IFRS standards and
IFRIC interpretations effective as of 31 March 2013.
- IFRS 10, Consolidated financial statements
- IFRS 10, Consolidated financial statements – amendment effective 1 January
2014
- IFRS 11, Joint arrangements
- IFRS 12, Disclosure of interests in other entities
- IFRS 10, 11 and 12, Transition guidance (Amendments to IFRS 10, 11 and 12)
- IFRS 13, Fair value measurement
- IAS 1, Presentation of items of other comprehensive income (amendment to
IAS 1)
- IAS 27, Separate financial statements
- IAS 28, Investments in associates and joint ventures
- IFRS 7, Disclosures – offsetting financial assets and financial liabilities
(amendments to IFRS 7).
- Improvements to IFRS’s (May 2012)
The implementation of the May 2012 improvements and IFRS 13, Fair Value
Measurement has resulted in additional disclosures in these Financial
Statements. These are included under note 5 relating to the valuation techniques
for financial instruments and disclosures of market values relating to non-
current interest-bearing debt.
22
The implementation of IFRS 10, Consolidated Financial Statements and the related
amendments listed above has resulted in a restatement of these Financial
Statements as discussed below.
Restatements
IFRS 10, Consolidated Financial Statements
IFRS 10, Consolidated Financial Statements, was issued in May 2011 and became
effective for financial periods beginning on or after 1 January 2013. In the
implementation of IFRS 10, Edgars Zimbabwe Limited was re-assessed, and the
results of Edgars Zimbabwe Limited have been consolidated as from 31 March 2012.
Condensed notes to the Consolidated Financial Statements (unaudited)
continued
1. Basis of preparation (continued)
Comparability (continued)
Restatements (continued)
IFRS 10, Consolidated Financial Statements (continued)
As a result of this, on the Consolidated Statement of Financial Position, trade
receivables at 29 June 2013 comprise mainly of trade receivables from Edgars
Zimbabwe Limited of R192 million (30 March 2013: R192 million and 30 June 2012:
R143 million) which are not classified as held-for-sale. Non-controlling
interests of R74 million at 29 June 2013 (30 March 2013: R72 million and 30 June
2012: R59 million) have been included in total equity. There have been no other
material affects for each financial statement line item.
IFRS 11, Joint Arrangements
This standard was issued in May 2011 and became effective for financial periods
beginning on or after 1 January 2013. In accordance with this standard a joint
arrangement is accounted for as either a:
- Joint operation – by showing the investor’s interest/relative interest in
the assets, liabilities, revenues and expenses of the joint arrangement; or
- Joint venture – by applying the equity accounting method. Proportionate
consolidation is no longer permitted.
As a result of applying the principles of the standard, the Group no longer
recognises income from joint ventures as previously reported but rather income
from joint operations on the Consolidated Statement of Comprehensive Income. The
Consolidated Statement of Financial Position no longer discloses a line item for
equity accounted investment in joint venture. Rather, the Group has recognised
its assets, revenue and expenses relating to the interest in the joint
operation.
The transition provisions of IFRS 11 require that the standard is applied
retrospectively in accordance with IAS 8, Accounting Policies, Changes in
Accounting Estimates and Errors. In line with these transitional provisions, the
restatement on the Consolidated Statement of Financial Position has been applied
retrospectively. There have been no other material affects for each financial
statement line item.
Re-presentation
The comparative numbers in these Financial Statements have been re-presented to
take into account the discontinued operation for the trade accounts receivable
sold to Absa Limited (“Absa”) on 1 November 2012 in the third quarter of the
prior financial period, the additional sale in the first quarter of the current
23
financial period and the trade accounts receivable classified as held-for-sale
at 29 June 2013 on the Consolidated Statement of Financial Position.
Reclassification
On the Consolidated Statement of Comprehensive income for the 13-week period to
30 June 2012, a reclassification of R143 million was made from other income to
other operating costs for comparative presentation to the Audited Annual
Consolidated Financial Statements of Edcon Holdings Limited at 30 March 2013.
24
Condensed notes to the Consolidated Financial Statements (unaudited)
continued
1. Basis of preparation (continued)
Significant movements on the Consolidated Statement of Financial
Position
Assets classified as held-for-sale
Trade accounts receivable of R461 million were sold to Absa on 30 April 2013 and
assets classified as held-for sale have as a result decreased from R1 160
million at 30 March 2013 to R803 million at 29 June 2013 (note 4).
Interest-bearing debt
Non-current interest-bearing debt
The senior secured floating rate notes €387 million were redeemed on 20 May 2013
with the proceeds of the R4 120 million senior secured term loan.
Current interest-bearing debt
The current interest-bearing debt decreased by R966 million from R1 516 million
at 30 March 2013 to R550 million at 29 June 2013 mainly due to proceeds received
from the sale of the South African trade accounts receivable on 30 April 2013.
Derivative financial instruments and deferred option premium
The Group’s net derivative financial instruments at 29 June 2013 were an asset
of R1 394 million compared to an asset of R1 028 million at 30 March 2013. To
increase the extent of hedge cover on the Euro denominated senior secured fixed
rate notes, a series of derivative contracts were entered into in April 2013:
- Cross currency swaps were entered into which, (i) protect against interest
rate variability in future interest cash flows on liabilities, (ii) protect
against variability in future interest cash flows that are subject to
fluctuations based on foreign exchange rates, and (iii) hedge the repayment
of €230 million in principal and interest on the notes to 15 March 2015.
The hedges create an effective annual average fixed interest rate of 15.55%
over the period of cover. The cross currency swaps have been designated as
a cash flow hedge.
- A cross currency swap was entered into which protects against variability
in future interest cash flows that are subject to fluctuations based on
foreign exchange rates. The notional value of the hedge is €70 million and
provides cover on the coupon of the notes up to 15 March 2015. The hedge
creates an effective annual average fixed interest rate of 10.2% over the
period of cover. The cross currency swap has been designated as a cash flow
hedge.
- Foreign currency call options were entered into which hedge the repayment
of €237 million in principal on the notes to 12 March 2015. The premiums
payable on the foreign currency call options of R317 million have been
deferred to 13 March 2015. These options have not been designated as cash
flow hedges.
On 17 May 2013, Edcon Limited terminated cross currency swaps as a consequence
of the repurchase of the senior secured floating rate notes with a nominal value
of €387 million and received proceeds of R654 million which were applied to the
redemption of the senior secured floating rate notes.
Going concern
The Consolidated Statement of Financial Position at 29 June 2013 reports share
capital and premium of R2 153 million in equity attributable to shareholders and
a shareholder’s loan recognised in equity of R8 290 million offset by an
accumulated retained loss of R12 584 million and a net credit of R76 million in
other reserves, resulting in negative equity attributable to shareholders at 29
June 2013 of R2 065 million. After considering non-controlling interests of R74
25
million, total equity of the Group is a deficit of R1 991 million. The
shareholder’s loan of R9 112 million has been subordinated to the claims of all
the creditors of the Group and the total negative equity and shareholder’s loan
is R1 169 million.
Notwithstanding the fact that the Group’s liabilities exceed its assets in
accordance with IFRS, the Consolidated Financial Statements have been prepared
on the going-concern basis as the Group’s assets at fair value exceed the
liabilities. The directors have every reason to believe that the Group has
adequate resources to continue in operation for the foreseeable future and is
considered both solvent and liquid.
26
Condensed notes to the Consolidated Financial Statements (unaudited)
continued
Re-presented
& restated
2013 2012
29 June 30 June
Rm Rm
2. SEGMENTAL RESULTS
2.1 Revenues
Edgars 3 198 3 152
CNA 445 426
Discount 2 584 2 472
Edgars Zimbabwe 120 94
Manufacturing 23 16
Credit and Financial Services 239 159
Group Services 6 1
6 615 6 320
2.2 Retail sales
Edgars 3 119 3 083
CNA 445 426
Discount 2 527 2 413
Edgars Zimbabwe 114 91
6 205 6 013
2.3 Number of stores
Edgars 408 341
CNA 195 195
Discount 658 615
Edgars Zimbabwe 40 36
1 301 1 187
Operating (loss)/profit from continuing
2.4 operations
Edgars 483 595
CNA - 13
Discount 337 304
Edgars Zimbabwe 7 7
Manufacturing (3) 5
Credit and Financial Services 229 162
Group Services1 (1 333) (716)
(280) 370
1
Included in the allocation to the Group Services segment is corporate overheads,
derivative gain or loss, foreign exchange gain or loss and amortisation of intangible
assets and additional depreciation as a result of the private equity transaction in 2007
and transitional projects related expenditure.
27
Condensed notes to the Consolidated Financial Statements (unaudited)
continued
Re-presented
& restated
2013 2012
29 June 30 June
Rm Rm
3. REVENUES
Retail sales 6 205 6 013
Club fees 136 128
Finance charges on trade receivables 17 13
Revenue from joint operations 161 139
Finance income 6 11
Administration fee 67
Manufacturing sales to third parties 23 16
6 615 6 320
4. DISCONTINUED OPERATIONS
On 6 June 2012, the Group announced the intended sale of its private label store
card to Absa as well as the implementation of a long-term strategic agreement.
On 30 April 2013, all conditions required for the second closing of the South
African trade accounts receivable were satisfied and a further R461 million of
the South African private label store card portfolio was sold to Absa.
A portion of the remaining card portfolio in South Africa was sold on 30 June
2013 and disclosed in note 6. The card portfolio in Lesotho, Namibia, Botswana
and Swaziland is still expected to be sold as soon as Absa has completed
compliance screening processes in respect of these accounts and the relevant
regulatory approvals are obtained. These trade receivables have been classified
as held-for-sale on the Consolidated Statement of Financial Position.
The results of the discontinued operation are as follows:
Re-presented
2013 2012
29 June 30 June
Rm Rm
Total revenues 38 539
Income from credit 38 539
Expenses from credit (53) (444)
Trading (loss)/profit before taxation (15) 95
Taxation 4 (27)
(Loss)/profit for the period (11) 68
28
Condensed notes to the Consolidated Financial Statements (unaudited)
continued
5. FINANCIAL INSTRUMENTS
The Group uses a three-level hierarchy to prioritise the inputs used in measuring
fair value. Level 1 has the highest priority and level 3 has the lowest. Fair
value is principally applied to financial assets and financial liabilities. These
are measured at fair value on a recurring basis as of 29 June 2013, aggregated by
the level in the fair value hierarchy within which these measurements fall.
The following table presents the Group’s assets and liabilities that are measured
at fair value at the period end:
Total –
level 2
Rm
29 June 2013
Financial assets
Cross currency swaps 653
Foreign currency call options 858
Foreign currency forward contracts 23
Total financial assets 1 534
Financial liabilities
Interest rate swaps 55
Cross currency swaps 85
Total financial liabilities 140
30 March 2013
Financial assets
Cross currency swaps 813
Foreign currency call options 292
Foreign currency forward contracts 2
Total financial assets 1 107
Financial liabilities
Interest rate swaps 68
Foreign currency forward contracts 11
Total financial liabilities 79
30 June 2012
Financial assets
Cross currency swaps 821
Total financial assets 821
Financial liabilities
Cross currency swaps 1 011
Interest rate swaps 87
Foreign currency forward contracts 39
Total financial liabilities 1 137
The above are classified as level 2 inputs. No financial instruments at 29 June 2013, 30
March 2013 and 30 June 2012 have been classified as either level 1 or level 3 inputs in
the hierarchy. The fair value under level 2 is based on observable inputs such as quoted
prices for similar financial assets or financial liabilities, or other inputs that are
observable or can be corroborated by observable market data for substantially the full
term of the financial assets or financial liabilities.
29
30
Condensed notes to the Consolidated Financial Statements (unaudited)
continued
5. FINANCIAL INSTRUMENTS (continued)
All financial instruments have been recognised in the Consolidated Statement of
Financial Position and there is no material difference between their fair values
and carrying values, except for the notes issued.
The following methods and assumptions were used by the Group in establishing
fair values:
Liquid resources, trade accounts receivable and loans: the carrying amounts
reported in the statement of financial position approximate fair values due to
the short period to maturity of these instruments.
Short-term interest-bearing debt: the fair values of the Group’s loans are
estimated using discounted cash flow analyses applying the RSA yield curve. The
carrying amount of short-term borrowings approximates their fair value, due to
the short period to maturity of these instruments.
Notes issued: the notes issued are fair valued based on the exchange rate ruling
at the reporting date. The market values at 29 June 2013 was R13 890 million (30
March 2012 R18 066 million and 30 June 2012 R18 400 million) and have been
determined based on the closing prices of the relevant stock exchange.
Derivative financial instruments: foreign currency forward exchange contracts
are entered into to cover import orders, and fair values are determined using
foreign exchange market rates at 29 June 2013. Foreign currency forward
contracts, foreign currency call options, cross currency swaps and interest rate
swaps are entered into to hedge interest rate and foreign exchange rate exposure
of interest-bearing debt and fair values are determined using market related
rates at 29 June 2013.
6. EVENTS AFTER THE REPORTING DATE
On 30 June 2013, all conditions required for the third closing of the South
African trade accounts receivable were satisfied and a further R126 million
of the South African private label store card portfolio was sold to Absa.
31
Corporate Information
Edcon Holdings Limited Trustee, Transfer Agent and Principal
Incorporated in the Republic of South Paying Agent
Africa The Bank of New York Mellon Limited
Registration number 2006/036903/06 1 Canada Square
London E14 5AL
Non-executive directors United Kingdom
DM Poler* (Chairman), EB Berk*, MS
Levin*, ZB Ebrahim?, MMV Valentiny**, DH Listing Agent & Irish Paying Agent
Brown****, TF Mosololi****, LL von The Bank of New York Mellon (Ireland)
Zeuner**** Limited
Hanover Building,
Executive directors Windmill Lane, Dublin 2,
J Schreiber *** (Managing Director and
Republic of Ireland
Chief Executive Officer), MR Bower, Dr U
Telephone: + 353 1 900 6991
Ferndale
JSE Debt Sponsor
*USA ** BELGIUM ***GERMANY
Rand Merchant Bank (a division of
**** Independent non-executive director FirstRand Bank Limited)
1 Merchant Place
Group Secretary
Cnr Fredman & Rivonia Road
CM Vikisi Sandton
Republic of South Africa
Registered office
Telephone: +27 11 282-8118
Edgardale, Press Avenue
Crown Mines, Johannesburg, 2092
Telephone: +27 11 495-6000
Fax: +27 11 837-5019
Website: www.edcon.co.za
Postal address
PO Box 100, Crown Mines, 2025
Auditors
Ernst & Young Inc.
Wanderers Office Park
52 Corlett Drive, Illovo, 2196
Private Bag X14, Northlands, 2116
Telephone: +27 11 772-3000
Fax: +27 11 772-4000
32
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