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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