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TRUWORTHS INTERNATIONAL LIMITED - Preliminary report on the audited Group annual results for the 53 weeks ended 2 July 2017

Release Date: 17/08/2017 16:23
Code(s): TRU     PDF:  
Wrap Text
Preliminary report on the audited Group annual results for the 53 weeks ended 2 July 2017

TRUWORTHS INTERNATIONAL LTD
REGISTRATION NUMBER: 1944/017491/06
JSE CODE: TRU
NSX CODE: TRW
ISIN: ZAE000028296


PRELIMINARY REPORT ON THE AUDITED GROUP ANNUAL RESULTS 
FOR THE 53 WEEKS ENDED 2 JULY 2017 


KEY FEATURES                                               Group,              Group,
                                                 including Office    excluding Office
Sale of merchandise                      up 8.5% to R18.1 billion           unchanged
Gross margin                                                52.6%               55.2%
Operating margin                                            23.3%               29.2%
Headline and diluted headline earnings per share       marginally 
                                                        down 0.8%          
Pro forma 52-week diluted headline earnings per share#    down 6%          
Net asset value per share                                   up 8%          
Cash generated from operations                              up 8% 
                                                  to R3.0 billion          
Annual dividend per share                               452 cents          
                    
                    
# Refer to note 12 for the pro forma statement of comprehensive income.


GROUP PROFILE
Truworths International Ltd (the company) is an investment holding and management company 
listed on the JSE and the Namibian Stock Exchange. Its principal trading entities, 
Truworths Ltd and Office Holdings Ltd, are engaged either directly or through subsidiaries, 
concessions, agencies or franchises, in the cash and account retailing of fashion clothing, 
footwear and related merchandise. The company and its subsidiaries (the Group) operate 
primarily in South Africa and the United Kingdom, and have an emerging presence in 
Germany, the Republic of Ireland and certain sub-Saharan African countries.

TRADING AND FINANCIAL PERFORMANCE 
Group retail sales for the 53-week period ended 2 July 2017 (the period) increased by 
8.6% (6.1% on a pro forma 52-week basis*) to R18.5 billion compared to the prior 
52-week period ended 26 June 2016 (the prior period), with cash sales growth of 15.7% 
and account sales growth of 2.4%. The prior period results include the non-comparable 
31 weeks' sales of the Group's UK business, Office. Account sales comprised 50% 
(2016: 53%) of retail sales for the period. 

Retail sales for the Group, excluding Office, increased by 1.0% (decreased by 1.5% on 
a pro forma 52-week basis*) to R13.4 billion relative to the prior period's 
R13.3 billion, with cash sales contracting by 2.1% and account sales growing by 2.4%. 
Account sales comprised 70% (2016: 69%) of retail sales. 

Office recorded retail sales for the current period of £294 million (R5.1 billion) 
(£289 million [R5.0 billion] on a pro forma 52-week basis*).

Group sale of merchandise, which comprises Group retail sales, together with wholesale 
and franchise sales and delivery fee income, less accounting adjustments, grew 8.5% 
(5.9% on a pro forma 52-week basis*) to R18.1 billion (2016: R16.7 billion). 

Since the prior period-end a net 8 stores were opened across all brands resulting in 
an overall increase in trading space of 1.5% (Truworths 1.6% increase and Office 0.4% 
decrease). At the end of the period the Group had 937 stores (including 38 concession 
outlets) (2016: 929 including 44 concession outlets). 

* Refer to note 12 for the pro forma statement of comprehensive income.

Divisional sales
                                                                            Change on
                                                                         prior period
                                              2 July 2017  26 June 2016         53 on
                                                 53 weeks      52 weeks      52 weeks
                                                       Rm            Rm             %
Office*                                             5 081         3 751            35
Truworths ladieswear                                4 672         4 794            (3)
Truworths menswear                                  2 813         2 713             4
Identity                                            2 129         2 186            (3)
Truworths designer emporium‡                        1 696         1 680             1
Truworths kids emporium#                              896           816            10
Other^                                              1 185         1 075            10
Group retail sales                                 18 472        17 015             9
Delivery fee income                                    53            34            56
Wholesale sales                                        50             -           N/A
Franchise sales                                         8             9          (11)
Accounting adjustments                               (518)         (404)           28
Sale of merchandise                                18 065        16 654             8
YDE agency sales                                      278           292            (5)
                                                  
*  Office sales for the prior period represents the 31 weeks since acquisition and were 
   translated at a significantly higher average exchange rate (R/£ 22.15) compared to 
   the current period's 53-week sales (R/£ 17.27).
‡  Daniel Hechter, LTD and Earthaddict.
#  LTD Kids, Earthchild and Naartjie.
^  Cellular, Truworths Jewellery and Cosmetics divisions.

The Group's gross margin was 52.6% (2016: 52.9%). Office, which operates at a lower 
gross margin, is now consolidated for the full period, compared to only 31 weeks in 
the prior period. Excluding Office, the Group's gross margin remained stable at 
55.2% (2016: 55.3%).

Trading expenses increased 13.6% to R7.1 billion (2016: R6.2 billion) and constituted 
39.2% (2016: 37.5%) of sale of merchandise. The increase is principally due to the 
financial results of Office only being included for 31 weeks in the prior period. 
Excluding the once-off Office transaction-related costs in the prior period as well as 
the Office expenses and foreign exchange gains and losses in both periods, trading 
expenses increased 6.2% and reflect the positive impact of management's cost-saving 
initiatives. The increase is mainly as a result of increases in occupancy costs 
(7.6%; 5.0% excluding non-comparable stores), other operating expenses (7.4%) and 
trade receivable costs (10.5%). Employment costs increased 0.8%. Refer to Account 
Management below for further details on trade receivable costs. 

Interest received increased 14.8% to R1.5 billion (2016: R1.3 billion), mainly due to 
increases totalling 125 basis points in the South African repo rate since the 
commencement of the prior period. Operating profit increased 1.3% to R4.2 billion while 
the operating margin decreased to 23.3% from 24.9% owing to the increase in trading 
expenses. Excluding Office, the operating margin decreased to 29.2% (2016: 30.7%).

Interest-bearing borrowings were raised in Truworths five months into the prior period 
to fund operating expenditure, and therefore Group finance costs have increased to 
R295 million (2016: R208 million). 

Headline earnings per share (HEPS) and diluted HEPS declined marginally by 0.8% to 
662.0 cents and 660.9 cents respectively. Relative to the prior period's adjusted 
diluted HEPS# of 688.2 cents, diluted HEPS decreased 4.0%. Excluding the 53rd week's 
performance from the period, the pro forma diluted HEPS* for the 52-week period decreased 
by 6.0% to 626.0 cents.

# Diluted HEPS adjusted to exclude the impact of the once-off Office transaction-related 
  costs in the prior period.
* Refer to note 12 for the pro forma statement of comprehensive income.

A final cash dividend of 182 cents per share has been declared (2016: 182 cents per 
share), maintaining the annual dividend at 452 cents per share.

FINANCIAL POSITION 
The Group's financial position remains strong, with net asset value per share increasing 
by 8.3% to 2 200.7 cents (2016: 2 031.8 cents) since the prior period-end.

Goodwill and intangible assets decreased 14.0% and 16.4% respectively, mainly due to 
the weakening of the Pound Sterling. 

Inventories decreased by 20.2% to R1.9 billion at the end of the period. Gross inventory 
decreased 18.2% and inventory turn improved to 4.5 times (2016: 3.3 times). The inventory 
of Office reduced from £57 million at the prior period-end to £47 million due to the 
strategic focus on optimising the Office stock holding. Excluding the inventory of Office, 
gross inventory decreased 5.1% and inventory turn increased to 5.2 times (2016: 4.7 times).

Interest-bearing borrowings at the period-end decreased to R3.8 billion from 
R4.4 billion at the prior period-end as a consequence of scheduled loan repayments, 
the settlement of the Office short-term funding, as well as a more favourable 
Pound Sterling translation rate.

Included in non-current liabilities is a liability of R400 million (2016: R562 million) 
in relation to put options granted to the non-controlling management shareholders in 
Office, while derivative financial assets of R11 million (2016: R15 million) represent 
the call options of the Group over the shares in question.

Trade and other payables decreased 24.9% to R1.6 billion (2016: R2.2 billion) because 
creditor payments for June 2017 were made before the period-end compared to June 2016 
when payments were made after the period-end.

CAPITAL MANAGEMENT 
During the period the Group generated R3.0 billion in cash from operations and this 
funded cash dividend payments of R1.5 billion, capital expenditure of R467 million, 
share buy-backs of R101 million and loan repayments of R324 million. At the end of 
the period the Group had cash and cash equivalents of R2.1 billion, an increase of 
29.1% on the prior period-end. 

The Group's net debt to equity ratio at the end of the period was 18.3% (2016: 32.6%) 
and 0.4 times EBITDA (2016: 0.6 times). 

The net debt to equity ratio at the period-end is below the Group's medium-term 
targeted net debt to equity ratio of 25%. 

ACCOUNT MANAGEMENT 
Gross trade receivables in respect of the debtors book (Truworths, Identity and YDE) 
were unchanged at R5.8 billion compared to the prior period-end. Overdue accounts as 
a percentage of the total debtors book and the percentage of active account holders 
able to purchase at the period-end were unchanged at 14% and 82% respectively. 

The doubtful debt allowance as a percentage of gross trade receivables increased 
to 12.7% from 12.3% at June 2016. Net bad debt as a percentage of gross trade 
receivables increased to 15.0% (2016: 12.4%) as a result of no growth in the book and 
increased bad debts resulting from high sales growth in the prior period. The increase 
in net bad debts was partially off-set by the relatively lower increase in the monetary 
value of the doubtful debt allowance, resulting in trade receivable costs increasing 
by 10.7% to R1 209 million (2016: R1 092 million).

The new account acceptance rate increased to 26% (2016: 24%), while the Group's active 
account base declined by 4.4% to 2.5 million accounts. This is as a result of the 
onerous administrative burden introduced by the credit affordability assessment 
regulations which came into force in South Africa in September 2015, requiring 
customers to produce documentation verifying their income. 

As previously reported, the Group implemented various account granting strategies in 
an attempt to mitigate the impact of these regulations and also initiated legal action, 
together with two other major JSE-listed retailers, in June 2016 against the National 
Credit Regulator and the Minister of Trade and Industry to have these regulations 
reviewed. The court case was heard during August 2017 with judgment pending.

OUTLOOK
South Africa: Truworths
Management expects the South African trading environment to remain challenging during 
the 2018 financial period due to political uncertainty and the recessionary economic 
environment putting increased pressure on the disposable income of consumers. 
However, encouraging signs of prospective world economic growth over the next 12 to 
18 months auger well for Truworths.

Despite these challenges, management expects Truworths' performance to reflect signs 
of improvement during the 2018 financial period, given the relatively low base set 
in 2017, the low to negative product inflation outlook, stability in the debtors book, 
exciting new ranges, ongoing cost containment efforts and higher trading 
space growth.

The continued impact of the affordability regulations remains a concern as it 
unreasonably restricts Truworths' ability to open new accounts and to grow account sales. 
It also has the unintended consequence of denying access to accounts to many otherwise 
creditworthy customers. However, Truworths has innovatively reacted to the challenge 
and has over the past few months arrested the decline in the total number of active 
accounts that resulted from the regulations. It is anticipated that during the forthcoming 
period Truworths' active account base will slowly increase over the prior period. 

Truworths' retail sales for the first six weeks of the 2018 financial period are 8.8% down 
compared to the first six weeks of the 2017 financial period. However, because of the 
53rd week in the 2017 financial period, the first six weeks of the 2018 financial period 
are not comparable to the first six weeks of the 2017 financial period, both in terms of 
dates as well as timing of the end-of-season sale. Compared to the directly corresponding 
six-week period of the 2017 financial period, retail sales for the first six weeks of the 
2018 financial period are 2.0% up.

United Kingdom: Office
The trading environment in the UK is expected to remain uncertain, with low economic 
growth prospects. 

The integration of the Office business into the Group has progressed very well and will 
continue during the 2018 financial period. 

Office's retail sales for the first six weeks of the 2018 financial period are 1.0% down 
compared to the first six weeks of the 2017 financial period. However, because of the 
53rd week in the 2017 financial period, the first six weeks of the 2018 financial period 
are not comparable to the first six weeks of the 2017 financial period, in terms of dates. 
Compared to the directly corresponding six-week period of the 2017 financial period, retail 
sales for the first six weeks of the 2018 financial period are 0.2% up.

However, during the prior period excess stock was significantly marked down and therefore 
the gross margin has improved by 2.8 percentage points relative to the directly corresponding 
prior six-week period.

Group: Capital expenditure, product inflation and trading space
Capital expenditure of R636 million (Truworths R493 million and Office R143 million) 
has been committed for the 2018 financial period. 

Product inflation for Truworths is expected to be low to negative and for Office approximately 
3% to 4% in the 2018 financial period. Trading space is expected to grow by approximately 5% 
(Truworths 5% and Office 2%).


H Saven           MS Mark
Chairman          Chief Executive Officer


FINAL DIVIDEND
The directors of the company have resolved to declare a gross cash dividend from retained 
earnings in respect of the 53-week period ended 2 July 2017 in the amount of 182 
South African cents (2016: 182 South African cents) per ordinary share to shareholders 
reflected in the company's register on the record date, being Friday, 15 September 2017. 

The last day to trade in the company's shares cum dividend is Tuesday, 12 September 2017. 
Consequently no dematerialisation or rematerialisation of the company's shares may take 
place over the period from Wednesday, 13 September 2017 to Friday, 15 September 2017, 
both days inclusive. Trading in the company's shares ex dividend will commence on 
Wednesday, 13 September 2017. The dividend is scheduled to be paid in South African Rand 
(ZAR) on Monday, 18 September 2017. 

Dividends will be paid net of dividends tax (currently 20%), to be withheld and paid 
to the South African Revenue Service. Such tax must be withheld unless beneficial owners 
of the dividend have provided the necessary documentary proof to the relevant regulated 
intermediary (being a broker, CSD participant, nominee company or the company's transfer 
secretaries, Computershare Investor Services (Pty) Ltd, PO Box 61051, Marshalltown, 2107, 
South Africa) that they are exempt therefrom, or entitled to a reduced rate, as a result 
of a double taxation agreement between South Africa and the country of tax domicile of 
such owner. 

The withholding tax, if applicable at the rate of 20%, will result in a net cash dividend 
per share of 145.6 South African cents. The company has 442 059 551 ordinary shares in 
issue on 17 August 2017.

In accordance with the company's memorandum of incorporation the dividend will only be 
paid by electronic funds transfer, and no cheque payments will be made. Accordingly, 
shareholders who have not yet provided their bank account details should do so to the 
company's transfer secretaries. 

The directors have determined that gross dividends amounting to less than 2 000 
South African cents, due to any one shareholder of the company's shares held in 
certificated form, will not be paid, unless otherwise requested in writing, but the 
net amount thereof will be aggregated with other such net amounts and donated to a 
charity to be nominated by the directors.

By order of the board


C Durham
Company Secretary

Cape Town
17 August 2017

One Capital
JSE Sponsor

Merchantec Capital Namibia
NSX Sponsor


SUMMARISED GROUP STATEMENTS OF FINANCIAL POSITION
                                                     Note      At 2 Jul     At 26 Jun
                                                                   2017          2016
                                                                Audited       Audited
                                                                     Rm            Rm
ASSETS                                        
Non-current assets                                                6 559         7 413 
Property, plant and equipment                                     1 637         1 622 
Goodwill                                                6         1 552         1 805 
Intangible assets                                       7         3 037         3 631 
Derivative financial assets                                          11            15 
Available-for-sale assets                                            29            32 
Loans and receivables                                                64            78 
Deferred tax                                                        229           230 
                                        
Current assets                                                    9 580         9 648 
Inventories                                                       1 916         2 401 
Trade and other receivables                                       5 256         5 281 
Prepayments                                                         338           374 
Cash and cash equivalents                                         2 055         1 592 
Tax receivable                                                       15             -
Total assets                                                     16 139        17 061 
                                        
EQUITY AND LIABILITIES                                        
Total equity                                                      9 450         8 625 
Share capital and premium                               8           706           706 
Treasury shares                                                    (939)         (882)
Retained earnings                                                10 212         8 903 
Non-distributable reserves                                         (529)         (102)
                                        
Non-current liabilities                                           4 709         5 481 
Interest-bearing borrowings                                       3 641         4 042 
Deferred tax                                                        454           576 
Put option liability                                                400           562 
Post-retirement medical benefit obligation                           53            57 
Leave pay obligation                                                  4             5 
Straight-line operating lease obligation                            157           181 
Contingent consideration obligation                                   -            58 
                                        
Current liabilities                                               1 980         2 955 
Trade and other payables                                          1 634         2 177 
Interest-bearing borrowings                                         144           366 
Provisions                                                          111           150 
Contingent consideration obligation                                  62            42 
Derivative financial liability                                        6            25 
Tax payable                                                          23           195                              
Total liabilities                                                 6 689         8 436 
Total equity and liabilities                                     16 139        17 061 
                                        
Number of shares in issue (net of treasury shares) (millions)     429.4         424.5 
Net asset value per share                             (cents)   2 200.7       2 031.8 
                                        
Key ratios                                        
Return on equity                                          (%)        31            35 
Return on capital                                         (%)        46            51 
Return on assets                                          (%)        26            24 
Inventory turn                                        (times)       4.5           3.3 
Asset turnover                                        (times)       1.1           1.0 
Net debt to equity                                        (%)      18.3          32.6 
Net debt to EBITDA                                    (times)       0.4           0.6


SUMMARISED GROUP STATEMENTS OF COMPREHENSIVE INCOME
                                       Note      53 weeks                    52 weeks
                                                 to 2 Jul                   to 26 Jun
                                                     2017                        2016
                                                  Audited             %       Audited*
                                                       Rm        change            Rm
Revenue                                   4        19 858             9        18 231 
                                                  
Sale of merchandise                       4        18 065             8        16 654 
Cost of sales                                      (8 562)                     (7 837)
Gross profit                                        9 503             8         8 817 
Other income                              4           291                         274 
Trading expenses                                   (7 086)           14        (6 240)
Depreciation and amortisation                        (389)                       (345)
Employment costs                                   (2 094)                     (1 916)
Occupancy costs                                    (2 155)                     (1 822)
Trade receivable costs                             (1 209)                     (1 092)
Other operating costs                              (1 239)                     (1 065)
Trading profit                                      2 708            (5)        2 851 
Interest received                         4         1 478            15         1 288 
Dividends received                        4            24                          15 
Operating profit                                    4 210             1         4 154 
Finance costs                                        (295)                       (208)
Profit before tax                                   3 915                       3 946 
Tax expense                                        (1 049)                     (1 129)
Profit for the period                               2 866             2         2 817 
                                                  
Attributable to:                                                  
Equity holders of the company                       2 827                       2 804 
Holders of the non-controlling interest                39                          13 
Profit for the period                               2 866                       2 817 
                                                  
Other comprehensive losses to be 
reclassified to profit or loss in 
subsequent periods                                   (652)                       (216)
Fair value adjustment on available-
for-sale financial instruments                         (3)                          8 
Movement in effective cash flow hedge                   -                         (54)
Movement in foreign currency 
translation reserve                                  (649)                       (170)
                                                  
Other comprehensive income not to be 
reclassified to profit or loss in 
subsequent periods                                      9                           7 
Re-measurement gains on defined 
benefit plans                                           9                           7 
Other comprehensive losses for 
the period, net of tax                               (643)                       (209)
                                                  
Attributable to:                                                  
Equity holders of the company                        (569)                       (191)
Holders of the non-controlling interest               (74)                        (18)
Other comprehensive losses for the 
period, net of tax                                   (643)                       (209)
Total comprehensive income for 
the period                                          2 223                       2 608
                                                  
Attributable to:                                                  
Equity holders of the company                       2 258                       2 613 
Holders of the non-controlling interest               (35)                         (5)
Total comprehensive income for 
the period                                          2 223                       2 608 
                                                  
Basic earnings per share (cents)                    659.9            (1)        667.1 
Headline earnings per share (cents)       5         662.0            (1)        667.6 
Diluted basic earnings per share (cents)            658.8            (1)        665.4 
Diluted headline earnings per share 
(cents)                                   5         660.9            (1)        665.9 
Weighted average number of shares 
(millions)                                          428.4                       420.3 
Diluted weighted average number of 
shares (millions)                                   429.1                       421.4 
                                                  
Key ratios                                                  
Gross margin (%)                                     52.6                        52.9 
Trading expenses to sale of merchandise (%)          39.2                        37.5 
Trading margin (%)                                   15.0                        17.1 
Operating margin (%)                                 23.3                        24.9

* Includes the results of Office for 31 weeks.


SUMMARISED GROUP STATEMENTS OF CHANGES IN EQUITY
                                                                          Holders
                          Share                          Non-   Equity     of the
                        capital                    distribut-  holders   non-con-
                            and  Treasury  Retained      able   of the   trolling    Total 
                        premium    shares  earnings  reserves  company   interest   equity
                             Rm        Rm        Rm        Rm       Rm         Rm       Rm
2017                                                                  
Balance at the beginning 
of the period               706      (882)    8 903      (102)   8 625          -    8 625 
Total comprehensive income 
for the period                -         -     2 836      (578)   2 258        (35)   2 223 
Profit for the period         -         -     2 827         -    2 827         39    2 866 
Other comprehensive income/
(losses) for the period       -         -         9      (578)    (569)       (74)    (643)
Cash dividends                -         -    (1 527)        -   (1 527)         -   (1 527)
Shares repurchased            -      (101)        -         -     (101)         -     (101)
Premium on shares vested 
in terms of the restricted 
share scheme                  -        29         -       (29)       -          -        - 
Utilisation of treasury 
shares in respect of the 
exercise of options in 
terms of the 1998 share 
option scheme                 -        15         -        (7)       8          -        8 
Share-based payments          -         -         -        61       61          -       61 
Acquisition of non-
controlling interest          -         -         -         -        -         (1)      (1)
Movement in put option 
liability                     -         -         -       126      126         36      162 
Balance at 2 July 2017      706      (939)   10 212      (529)   9 450          -    9 450 
                                                                                          
2016                                                                                          
Balance at the beginning 
of the period               551      (770)    7 533       190    7 504          -    7 504 
Total comprehensive income 
for the period                -         -     2 811      (198)   2 613         (5)   2 608 
Profit for the period         -         -     2 804         -    2 804         13    2 817 
Other comprehensive income/
(losses) for the period       -         -         7      (198)    (191)       (18)    (209)
Cash dividends                -         -    (1 441)        -   (1 441)         -   (1 441)
Premium on shares issued 
in terms of the 1998 share 
option scheme                32         -         -         -       32          -       32 
Premium on shares issued 
in terms of the restricted 
share scheme                123      (123)        -         -        -          -        - 
Premium on shares vested 
in terms of the restricted 
share scheme                  -        11         -       (11)       -          -        - 
Share-based payments          -         -         -        52       52          -       52 
Acquisition of subsidiary     -         -         -         -        -        432      432 
Recognition of put option 
liability                     -         -         -      (135)    (135)      (427)    (562)
Balance at 26 June 2016     706      (882)    8 903      (102)   8 625          -    8 625 

                                                                                          
Dividends (cents per share)                                        2017          2016
Cash final - payable/paid September                                 182           182
Cash interim - paid March                                           270           270
Total                                                               452           452


SUMMARISED GROUP STATEMENTS OF CASH FLOWS
                                                               53 weeks      52 weeks
                                                               to 2 Jul     to 26 Jun
                                                                   2017          2016
                                                                Audited       Audited
                                                                     Rm            Rm
CASH FLOWS FROM OPERATING ACTIVITIES                                        
Cash flow from trading and cash EBITDA*                           3 189         3 273 
Working capital movements                                          (151)         (468)
Cash generated from operations                                    3 038         2 805 
Interest received                                                 1 473         1 288 
Dividends received                                                   24            15 
Finance costs                                                      (292)         (177)
Tax paid                                                         (1 256)       (1 092)
Cash inflow from operations                                       2 987         2 839 
Cash dividends paid                                              (1 527)       (1 441)
Net cash from operating activities                                1 460         1 398 
                                        
CASH FLOWS FROM INVESTING ACTIVITIES                                        
Acquisition of property, plant and equipment to 
expand operations                                                  (341)         (441)
Acquisition of plant and equipment to maintain operations           (90)         (110)
Acquisition of computer software                                    (37)          (48)
Proceeds on disposal of plant and equipment                           -            22 
Proceeds on disposal of shares                                        8             - 
Net acquisition of business                                           -        (2 559)
Premiums paid to insurance cell                                     (12)          (10)
Amounts received from insurance cell                                  3             6 
Loans and receivables repaid                                         14             4 
Payment of contingent consideration obligation                      (42)            - 
Net cash used in investing activities                              (497)       (3 136)
                                        
CASH FLOWS FROM FINANCING ACTIVITIES                                        
Proceeds on shares issued                                             -            32 
Shares repurchased by subsidiaries                                 (101)            - 
Loans repaid                                                       (324)       (2 613)
Loans received                                                        -         4 485 
Contributions to post-retirement medical benefit plan asset          (3)           (1)
Net cash (used in)/from financing activities                       (428)        1 903 
                                        
Net increase in cash and cash equivalents                           535           165 
Cash and cash equivalents at the beginning of the period          1 592         1 462 
Net foreign exchange difference                                     (72)          (35)
CASH AND CASH EQUIVALENTS AT THE REPORTING DATE                   2 055         1 592 
                                        
Key ratios                                         
Cash flow per share (cents)                                       697.2         675.5 
Cash equivalent earnings per share (cents)                        766.3         759.0 
Cash realisation rate (%)                                            91            89 
                                        
* Earnings before interest received, finance costs, tax, depreciation and amortisation.

SELECTED EXPLANATORY NOTES
1   STATEMENT OF COMPLIANCE
    The information in these summarised financial statements has been extracted from 
    the Group's 2017 annual financial statements. The summarised financial statements 
    have been prepared in compliance with International Financial Reporting Standards 
    (IFRS), the SAICA Financial Reporting Guides as issued by the Accounting Practices 
    Committee, Financial Reporting Pronouncements as issued by the Financial Reporting 
    Standards Council, IAS 34: Interim Financial Reporting, the South African Companies 
    Act (71 of 2008, as amended) and the Listings Requirements of the JSE. Any forward-
    looking statement in this announcement has not been reviewed or reported on by the 
    company's external auditor.

    The preliminary report and these summary financial statements have been prepared 
    under the supervision of Mr DB Pfaff CA(SA), the Chief Financial Officer of the Group.

    These summary consolidated financial statements for the year ended 2 July 2017 have 
    been audited by Ernst & Young Inc., who expressed an unmodified opinion thereon. 
    The auditor also expressed an unmodified opinion on the consolidated annual financial 
    statements from which these summary consolidated financial statements were derived.

    A copy of the auditor's report on the summary consolidated financial statements and 
    of the auditor's report on the consolidated annual financial statements are available 
    for inspection at the company's registered office, together with the financial 
    statements identified in the respective auditor's reports.

    The audit report on the summarised annual financial statements does not necessarily 
    report on all of the information contained in this preliminary report. Shareholders 
    are therefore advised that in order to obtain a full understanding of the nature of 
    the auditor's engagement they should obtain a copy of the auditor's report on the 
    summarised financial statements.

2   BASIS OF PREPARATION
    The annual financial statements for the period ended 2 July 2017 have been prepared 
    in accordance with the going concern and historical cost bases, unless otherwise 
    indicated. The accounting policies are applied consistently throughout the Group. 
    The presentation and functional currency used in the preparation of the Group and 
    company financial statements is the South African Rand (ZAR or Rand) and all amounts 
    are rounded to the nearest million, unless otherwise indicated.

3   ACCOUNTING POLICIES AND METHODS OF COMPUTATION
    3.1  The accounting policies and methods of computation applied in the preparation 
         of the Group's 2017 annual financial statements are in terms of IFRS and 
         consistent with those applied in the preparation of the Group's annual financial 
         statements for the period ended 26 June 2016.

         IFRS, amendments and International Financial Reporting Interpretations Committee 
         (IFRIC) interpretations not applicable to Group activities
         Various new and amended IFRS and IFRIC interpretations have been issued and 
         are effective, however, they are not applicable to the Group's activities.

    3.2  Basis of consolidation of financial results
         The Group consolidated annual financial statements comprise the annual financial 
         statements of the company and its subsidiaries and are prepared using uniform 
         accounting policies for like transactions and other events in similar 
         circumstances.

                                                 53 weeks                    52 weeks
                                                 to 2 Jul                   to 26 Jun
                                                     2017                        2016
                                                  Audited             %       Audited
                                                       Rm        change            Rm
4   REVENUE                                                  
    Sale of merchandise                            18 065             8        16 654 
    Retail sales                                   18 472                      17 015 
    Accounting adjustments*                          (518)                       (404)
    Delivery fee income                                53                          34 
    Wholesale sales                                    50                           -
    Franchise sales                                     8                           9 
    Interest received                               1 478            15         1 288 
    Trade receivables interest                      1 366                       1 205 
    Investment interest                               112                          83 
    Other income                                      291             6           274 
    Commission                                        137                         123 
    Display fees                                       63                          63 
    Financial services income                          54                          63 
    Lease rental income                                27                          15 
    Other                                               6                           4 
    Insurance recoveries                                2                           3 
    Royalties                                           2                           3 
    Dividends received from insurance 
    business arrangements                              24                          15 
    Total revenue                                  19 858             9        18 231 
                                                            
    * Accounting adjustments made in terms of IFRS and generally accepted accounting 
      practice relating to promotional vouchers, staff discounts on merchandise 
      purchased, cellular retail sales, notional interest on non-interest-bearing 
      trade receivables and the sales returns provision.

                                                               53 weeks      52 weeks
                                                               to 2 Jul     to 26 Jun
                                                                   2017          2016
                                                                Audited       Audited
                                                                     Rm            Rm
5   RECONCILIATION OF PROFIT FOR THE PERIOD 
    TO HEADLINE EARNINGS                                        
    Profit for the period, attributable to equity 
    holders of the company                                        2 827         2 804 
    Adjusted for:                                        
    Impairment of fixed and financial assets                          9             -
    Loss on disposal of property, plant and equipment                 -             2 
    Headline earnings                                             2 836         2 806 
                                                  
6   GOODWILL                                        
    Balance at the beginning of the period                        1 805           346 
    Goodwill arising on acquisition of Office                         -         1 520 
    Movement in exchange rate through other 
    comprehensive income                                           (253)          (61)
    Balance at the reporting date                                 1 552         1 805
                                                  
    Goodwill acquired through business combinations is allocated to the Truworths Ltd 
    and Office Retail Group Ltd cash-generating units and tested for impairment annually.
                                                  
7   INTANGIBLE ASSETS                                        
    Balance at the beginning of the period                        3 631           217 
    Additions                                                        37            48 
    Additions arising on acquisition of Office                        -         3 539 
    Disposals                                                         -             -
    Cost                                                             (6)           (3)
    Accumulated amortisation                                          6             3 
    Amortisation                                                    (41)          (33)
    Movement in exchange rate through other 
    comprehensive income                                           (590)         (140)
    Balance at the reporting date                                 3 037         3 631 
                                                  
                                                  
    The trademarks have been allocated to the Truworths Ltd and Office Retail Group Ltd 
    cash-generating units, are considered to have an indefinite useful life and are 
    tested for impairment annually.                                         

                                                               53 weeks      52 weeks
                                                               to 2 Jul     to 26 Jun
                                                                   2017          2016
                                                                Audited       Audited
                                                                  R'000         R'000
8   SHARE CAPITAL                                        
    Ordinary share capital                                        
    Authorised                                        
    650 000 000 (2016: 650 000 000) ordinary shares 
    of 0.015 cent each                                               98            98
                                                  
    Issued and fully paid                                        
    442 059 551 (2016: 436 182 828) ordinary shares 
    of 0.015 cent each                                               66            65
                                                  
    The company has one class of ordinary shares which carry no rights to fixed income. 

    The holders of ordinary shares are entitled to receive dividends as declared from 
    time to time and are entitled to one vote per share at meetings of the company's 
    shareholders.
                                                  
                                                              Number of     Number of
                                                                 shares        shares
                                                                  000's         000's
    Reconciliation of movement in issued shares                                        
    Balance at the beginning of the period                      436 183       429 328 
    Shares issued during the period                                   -         2 195 
    Capitalisation award                                          5 876         4 660 
    Balance at the reporting date                               442 059       436 183 
    Treasury shares held by subsidiaries                        (12 649)      (11 729)
    Number of shares in issue (net of treasury shares)          429 410       424 454 
                                                  
    Treasury shares as a % of the issued shares at 
    the reporting date                                              2.9           2.7
                                                  
    Shares issued during the period pursuant to the capitalisation award were allotted 
    for an aggregate nominal value of R881 (2016: R699) with a corresponding reduction 
    in share premium. The shares issued during the prior period were allotted for an 
    aggregate nominal value of R1 028 and an aggregate premium of R155 319 085.

9   SEGMENT REPORTING
    The Group's reportable segments have been identified as the Truworths and Office 
    business units. The Truworths business unit comprises all the retailing activities 
    conducted by the Group in Africa through which the Group retails fashion apparel 
    comprising clothing, footwear and other fashion products, including by the YDE 
    business unit which comprises the agency activities through which the Group 
    retails clothing, footwear and related products on behalf of emerging South African 
    designers. The Office business unit comprises the footwear retail activities 
    conducted by the Group through stores, concession outlets and an e-commerce channel 
    in the United Kingdom, Germany and the Republic of Ireland.

    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.

                                                               Consoli-
                                                                 dation
                                  Truworths         Office      entries         Group
                                         Rm            Rm            Rm            Rm
    2017                                                                      
    Total third party revenue        14 699         5 163            (4)       19 858
    Third party                      14 695         5 163             -        19 858
    Inter-segment                         4             -            (4)            -
    Depreciation and amortisation       277           112             -           389
    Employment costs                  1 438           656             -         2 094
    Occupancy costs                   1 361           794             -         2 155
    Trade receivable costs            1 207             2             -         1 209
    Other operating costs               875           368            (4)        1 239
    Interest received                 1 477             1             -         1 478
    Finance costs                       253            42             -           295
                                                                                
    Profit for the period             2 514           352             -         2 866
    Profit before tax                 3 510           405             -         3 915
    Tax expense                        (996)          (53)            -        (1 049)
                                                                                
    Segment assets                   13 633         5 966        (3 460)*      16 139
    Segment liabilities               3 852         2 837             -         6 689
                                                                                
    Capital expenditure                 407            60             -           467
                                                                                
    Other segmental information
    Gross margin           (%)         55.2          46.0             -          52.6
    Trading margin         (%)         17.5           8.6             -          15.0
    Operating margin       (%)         29.2           8.7             -          23.3
    Inventory turn     (times)          5.2           3.5             -           4.5
    Account:cash sales mix (%)        70:30         0:100             -         50:50
                                                                                
    2016**                                                                      
    Total third party revenue        14 561         3 773          (103)       18 231
    Third party                      14 458         3 773             -        18 231
    Inter-segment                       103             -          (103)            -
    Depreciation and amortisation       259            86             -           345
    Employment costs                  1 426           490             -         1 916
    Occupancy costs                   1 265           557             -         1 822
    Trade receivable costs            1 092             -             -         1 092
    Other operating costs               794           374          (103)        1 065
    Interest received                 1 287             1             -         1 288
    Finance costs                       171            37             -           208
                                                                                
    Profit for the period             2 698           119             -         2 817
    Profit before tax                 3 789           157             -         3 946
    Tax expense                      (1 091)          (38)            -        (1 129)
                                                                                
    Segment assets                   13 308         7 213        (3 460)*      17 061
    Segment liabilities               4 509         3 927             -         8 436
                                                                                
    Capital expenditure                 559            37             -           596
                                                                                
    Other segmental information
    Gross margin           (%)         55.3          45.0             -          52.9
    Trading margin         (%)         20.6           5.1             -          17.1
    Operating margin       (%)         30.7           5.2             -          24.9
    Inventory turn     (times)          4.7           1.8             -           3.3
    Account:cash sales mix (%)        69:31         0:100             -         53:47
                                                                                
    *   Elimination of investment in Office.
    **  Includes the results of Office for 31 weeks.

                                               2017                        2016     
                                             Contribution                Contribution 
                                               to revenue                  to revenue 
                                         Rm             %            Rm             %
    Third party revenue                                                             
    South Africa                     14 158          71.3        13 894          76.2 
    United Kingdom                    4 618          23.3         3 428          18.8 
    Germany                             272           1.4           187           1.0 
    Namibia                             228           1.1           251           1.4 
    Republic of Ireland                 185           0.9           132           0.7 
    Swaziland                            99           0.5            93           0.5 
    Botswana                             98           0.5           102           0.6 
    Zambia                               32           0.2            33           0.2 
    Rest of Europe                       31           0.2            13           0.1 
    United States                        28           0.1             4             -* 
    Ghana                                22           0.1            25           0.1 
    Mauritius                            21           0.1            19           0.1 
    Lesotho                              20           0.1            20           0.1 
    Kenya                                17           0.1            16           0.2 
    Middle East and Asia                 17           0.1             5             -* 
    Australia                            12           0.1             3             -* 
    Nigeria                               -             -             6             -* 
    Total third party revenue        19 858           100        18 231           100 
                                                                      
    * Zero due to rounding.

                                                                  2 Jul        26 Jun
                                                                   2017          2016
                                                                Audited       Audited
                                                                     Rm            Rm
10  CAPITAL COMMITMENTS                                        
    Capital expenditure authorised but not contracted:                                        
    Store renovation and development                                431           332
    Computer software and infrastructure                            132            80
    Buildings                                                        39            28
    Head office refurbishment                                        23             7
    Motor vehicles                                                    5             3
    Distribution facilities                                           6            97
    Total                                                           636           547
                                                  
    The capital commitments will be financed through cash generated from operations, 
    available cash resources and financing facilities and are expected to be incurred 
    in the 2018 reporting period.

11  EVENTS AFTER THE REPORTING DATE
    No event, material to the understanding of these summarised financial statements, 
    has occurred between the reporting date and the date of approval.

12  IMPACT OF THE 53rd WEEK ON 2017 YEAR-END FINANCIAL REPORTING
    In line with the practice generally prevailing in the South African retail industry, 
    the Group manages its internal accounting and retail operations in accordance with 
    a retail calendar, which treats each financial year as an exact 52-week period. 
    This treatment effectively results in the "loss" of a day (or two in a leap year) 
    per calendar year. These days are brought to account every four to seven years by 
    including a 53rd week in the financial reporting calendar. The Group's earnings are 
    higher as a result of trading during this week.

    Although the Group has reported financial results for 53 weeks to 2 July 2017, 
    it is useful and good governance to also report pro forma information for a 
    52-week period, so as to facilitate comparisons against the prior and next years' 
    52-week period results. These pro forma adjustments are not expected to have a 
    continuing effect as they will only occur in every 53-week year.

    The preparation of the unaudited pro forma 52-weeks financial information is the 
    responsibility of the directors. The table below illustrates the unaudited pro forma 
    summarised statement of comprehensive income for the 52-week period ended 
    25 June 2017 (the pro forma 52-weeks information). 

    The unaudited pro forma 52-weeks information for the period ended 25 June 2017 has 
    been prepared for illustrative purposes only, to indicate how such information 
    compares to the actual audited results of the Group for the prior 52-week period 
    ended 26 June 2016 and because of its nature, it may not fairly present the Group's 
    financial position, changes in equity, results of operations or cash flows.

    The estimated financial impact of the 53rd week is shown below.

    Statements of comprehensive income
                            53 weeks               52 weeks  Change on  Change on    52 weeks
                            to 2 Jul 53rd week    to 25 Jun      prior      prior   to 26 Jun
                                2017   Adjust-         2017     period     period        2016
                             Audited     ments    Pro forma   53 weeks   52 weeks     Audited*
                                  Rm        Rm           Rm          %          %          Rm
    Sale of merchandise       18 065      (428)      17 637          8          6      16 654 
    Retail sales 
    (refer below)             18 472      (427)      18 045          9          6      17 015 
    Accounting adjustments/
    other sales                 (407)       (1)        (408)        13         13        (361)
    Cost of sales             (8 562)      200       (8 362)         9          7      (7 837)
    Gross profit               9 503      (228)       9 275          8          5       8 817 
    Other income                 291         -          291          6          6         274 
    Trading expenses          (7 086)       15       (7 071)        14         13      (6 240)
    Depreciation and 
    amortisation                (389)        -         (389)        13         13        (345)
    Employment costs          (2 094)        8       (2 086)         9          9      (1 916)
    Occupancy costs           (2 155)        4       (2 151)        18         18      (1 822)
    Trade receivable costs    (1 209)        -       (1 209)        11         11      (1 092)
    Other operating costs     (1 239)        3       (1 236)        16         16      (1 065)
    Trading profit             2 708      (213)       2 495         (5)       (12)      2 851 
    Interest received          1 478        (2)       1 476         15         15       1 288 
    Dividends received            24         -           24         60         60          15 
    Operating profit           4 210      (215)       3 995          1         (4)      4 154 
    Finance costs               (295)        5         (290)        42         39        (208)
    Profit before tax          3 915      (210)       3 705         (1)        (6)      3 946 
    Tax expense               (1 049)       57         (992)        (7)       (12)     (1 129)
    Profit for the period      2 866      (153)       2 713          2         (4)      2 817 
                                                                                
    Attributable to:
    Equity holders of 
    the company                2 827      (150)       2 677          1         (5)      2 804 
    Holders of the non-
    controlling interest          39        (3)          36        200        177          13 
    Profit for the period      2 866      (153)       2 713          2         (4)      2 817 
                                                                                
    Basic earnings per 
    share (cents)              659.9      35.0        624.9         (1)        (6)      667.1 
    Headline earnings per 
    share (cents)              662.0      35.0        627.0         (1)        (6)      667.6 
    Adjusted headline earnings 
    per share (cents)          662.0      35.0        627.0         (4)        (9)      690.0** 
    Diluted basic earnings 
    per share (cents)          658.8      34.9        623.9         (1)        (6)      665.4 
    Diluted headline earnings 
    per share (cents)          660.9      34.9        626.0         (1)        (6)      665.9 
    Adjusted diluted headline 
    earnings per share (cents) 660.9      34.9        626.0         (4)        (9)      688.2** 
                                                                                
    Key ratios
    Gross margin (%)            52.6                   52.6                              52.9 
    Expenses as % of sale 
    of merchandise (%)          39.2                   40.1                              37.5 
    Trading margin (%)          15.0                   14.1                              17.1 
    Operating margin (%)        23.3                   22.7                              24.9 
                                                                                
    Retail sales
    Truworths (Rm)            13 391      (330)      13 061          1         (2)     13 264 
    Office (£m)                  294        (5)         289         74         71         169
    Office (Rm)                5 081       (97)       4 984         35         33       3 751

    *  Includes the results of Office for 31 weeks.
    ** Adjusted for the once-off Office transaction-related costs.
                                                                                
    Notes:                                                                                
    1  The accounting policies adopted by the Group in the 2017 audited annual financial 
       statements, which have been prepared in accordance with IFRS, have been used in 
       preparing the unaudited pro forma 52-weeks information. 
    2  The "53 weeks to 2 July 2017" column is the audited results for the 53-week 
       period ended 2 July 2017. 
    3  The amounts in the "53rd week adjustments" column relate to sale of merchandise, 
       the related cost of sales (calculated with reference to the gross profit margin 
       for the 53-week period), weekly payroll expense, concession rent, direct 
       e-commerce costs, interest received, finance costs and tax expense (calculated 
       with reference to the actual tax rate for the 53-week period) for the one-week 
       period from 26 June 2017 to 2 July 2017, together with the resultant gross profit, 
       trading profit, operating profit, profit before tax and profit for the said one-week 
       period.
    4  The relevant amounts for the one-week period from 26 June 2017 to 2 July 2017 
       have been extracted from the Group's accounting records, with the exception of 
       interest received and finance costs which have been recalculated based on the 
       daily balances and prevailing interest rates.
    5  The "53rd week adjustments" column, in the opinion of the directors, fairly 
       reflects the results for the one-week period from 26 June 2017 to 2 July 2017. 
    6  The calculation of earnings per share and headline earnings per share for the 
       pro forma 52-week period is based on the weighted average number of shares in 
       issue over the period. 
    7  The Group's external auditor has issued an assurance report on the pro forma 
       52-weeks information. A copy of their report is available at the Group's 
       registered office.


ADMINISTRATION
Truworths International Ltd
Registration number 1944/017491/06
Tax reference number 9875/145/71/7
JSE code: TRU
NSX code: TRW
ISIN: ZAE000028296

Company secretary
Chris Durham, FCIS, PG Dip. Adv. Co Law (UCT)

Registered office
No. 1 Mostert Street, Cape Town, 8001, South Africa

Postal address
PO Box 600, Cape Town, 8000, South Africa

Contact details
Tel: +27 (21) 460 7911   Telefax: +27 (21) 460 7132
www.truworths.co.za
www.office.co.uk

Principal bankers
The Standard Bank of South Africa Ltd
Lloyds Bank plc

Auditor
Ernst & Young Inc. 

Attorneys
Bernadt Vukic Potash and Getz
Edward Nathan Sonnenbergs
Spoor & Fisher
Webber Wentzel
Bowman Gilfillan
Shoosmiths 

Sponsor in South Africa
One Capital Sponsor Services (Pty) Ltd

Sponsor in Namibia
Merchantec Capital Namibia (Pty) Ltd

Transfer secretaries
In South Africa
Computershare Investor Services (Pty) Ltd
Rosebank Towers, 15 Biermann Avenue, Rosebank, 2196, South Africa
PO Box 61051, Marshalltown, 2107, South Africa
Tel: +27 (11) 370 5000  Telefax: +27 (11) 688 5248
www.computershare.com

In Namibia
Transfer Secretaries (Pty) Ltd
Robert Mugabe Avenue No. 4
Windhoek, Namibia
PO Box 2401, Windhoek, Namibia
Tel: +264 (61) 22 7647   Telefax: +264 (61) 24 8531 

Investor relations
David Pfaff (CFO)
Tel: +27 (21) 460 7956
Graeme Lillie (Tier 1 Investor Relations)
Tel: +27 (21) 702 3102

Directors
H Saven (Chairman)§‡, MS Mark (CEO)*, DB Pfaff (CFO)*, DN Dare*, 
RG Dow§‡, CT Ndlovu§‡, RJA Sparks§‡, AJ Taylor§‡ and MA Thompson§‡
* Executive   § Non-executive   ‡ Independent


Date: 17/08/2017 04:23:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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