REVIEWED PRELIMINARY CONDENSED RESULTS
for the year ended 31 march 2009
Commentary
GROUP OVERVIEW
In our last annual report we anticipated that this year would be difficult as consumers had to contend with high interest rates, high inflation and high levels of consumer debt. This proved to be correct.
In the context of the economic climate which prevailed during the year, we are pleased with this result, particularly the second half. Whilst the first half of the year produced turnover growth of 2,9% and a reduction in headline earnings of 2,7%, the second half saw a significant improvement with turnover growth of 7,8% and an increase in headline earnings of 6,1%.
For the year as a whole retail turnover increased by 5,5% to R8,1 billion. Gross margins for the period were up by 0,4% on the previous year. This was primarily due to lower markdowns flowing from Christmas trading which was above expectation. Diluted headline earnings per share increased by 2,8% to 553,0 cents, while headline earnings per share increased by 2,3% to 559,5 cents. The group’s operating margin increased from 24,8% to 25,0%.
A final dividend of 170,0 cents per share has been declared. Accordingly dividends declared in respect of the full year amount to 288,0 cents per share, the same level as last year.
In line with our strategy of investing for the longer term, the group continued to grow trading space in the second half by opening a further 85 stores. 154 stores were therefore opened for the full year, whilst 8 stores were closed. At the year-end the group was trading out of 1 539 stores, with an increase in trading area of 13,9% compared to the previous year.
TRADING DIVISIONS
Trading in the first half was challenging with turnover growth of 2,9%, but the second half has shown an improvement with turnover growth of 7,8%, resulting in growth of 5,5% for the year as a whole. Retail turnover and growths in the various trading divisions were as follows:
| Retail turnover | |||
| Number of stores | Rm | % change | |
| @home | 72 | 508,1 | 10,9 |
| exact! | 198 | 743,5 | 5,1 |
| Foschini | 432 | 3 103,5 | 1,1 |
| Jewellery division | 350 | 1 126,0 | 3,2 |
| Markham | 223 | 1 311,7 | 10,1 |
| Sports division | 264 | 1 296,8 | 12,6 |
| Total | 1 539 | 8 089,6 | 5,5 |
| Whilst total same store turnover for the first half reduced by 2,5%, the second half produced positive growth of 3,0% resulting in same store turnover for the year being flat. | |||
Product inflation averaged approximately 8% for the period.
Cash sales as a percentage of total sales increased from 36,4% to 38,2%.
Our @home division continued with its expansion, opening 11 stores and now has 72 stores, 7 of which are the larger @homelivingspace stores. Whilst turnover growth in the first half was 6,1%, the second half saw an improvement to 15%, aggregating to 10,9% for the year as a whole which is satisfactory in this competitive sector. Same store turnover for the year reduced by 1,3%, with the second half growing by 1,9%. What is particularly pleasing is that same store turnover in the last quarter grew by 3%.
exact! which offers stylish and affordable fashion for the modern South African family, grew its store base during the year from 182 to 198, growing turnover for the year by 5,1% and achieving same store turnover growth of 1,9%.
The Foschini division comprising Foschini, donna-claire, fashíonexpress and Luella performed much better in the second half of the year with turnover growth of 6,3% and same store turnover growth of 2,5% compared with -4,2% and -8,8% respectively for the first half. The repositioning and turnaround of the Foschini brand is now well under way and we expect the performance of this business to continue improving. This division increased its store base by 32 stores to 432 stores.
The Jewellery division comprising American Swiss, Sterns and Matrix performed above expectation in the current climate with turnover growth of 3,2%, with a reduction in same store turnover of 1,4%. This division remains the dominant player in the mass middle market jewellery sector and continued to grow its market share this year. This division increased its store base by 22 stores to 350 stores.
The Markham division traded well with turnover growth of 10,1% and same store turnover growth of 4,0%. This division continues to benefit from the brand repositioning towards a younger and more fashionable customer that was undertaken in the past few years. Its store base increased by 22 stores to 223 stores.
The Sports division, trading as Totalsports, sportscene and DueSouth continues to trade well with turnover growth of 12,6% and same store turnover growth of 5,3%, maintaining its position as a market leader. This division is actively focused on leveraging World Cup 2010, where we are the partner of choice for several of the major brands. This division increased its store base by 43 stores to 264 stores.
FG Financial Services – our retail debtors’ book, which amounts to R2,7 billion, increased by 12,3% during the year. Because of our conservative approach to new account openings prior to the National Credit Act (NCA), the performance of our debtors’ book continues to be satisfactory with net bad debts as a percentage of closing debtors’ book increasing marginally to 8,7% from 8,3%. During this year we commenced with our offer to customers of a 12-month account as an alternative to the existing 6-month option. This has achieved positive results and since its introduction, approximately 90% of new customers have opted for the 12-month account which should positively impact our interest revenue as well as ongoing retail revenue.
RCS GROUP
The RCS Group provides a range of broader financial services to both customers of the group, as well as to customers of retailers outside the group. This group consists of two separate business units namely transactional finance and fixed term finance. The transactional finance business comprises the RCS general-purpose card and other private label card programmes. The fixed term finance business comprises RCS Personal loans. The RCS Group, which experienced a challenging first half with net bad debt costs and provisions increasing significantly in line with current market trends, had a far better performance in the second half of the year resulting in profitability for the full year being down 24,9% as opposed to 43,5% in the first half. Profit before tax for the full year reduced from R269,6 million to R202,5 million. The quality of new business written in the second half has improved and better results are expected next year. Whilst the RCS Group has significant growth potential for the future, this growth is dependent upon the availability of funding and this is currently being addressed.
Our group’s shareholding in this division is 55% with the balance being held by the Standard Bank of South Africa Limited.
PROSPECTS
In line with our strategy of investing for long-term growth, we will continue to open new stores in certain of our formats that are under-represented and we anticipate opening in excess of 120 new stores in the year ahead which will increase trading space by approximately 11%.
In addition, our group supply chain initiative which commenced just over a year ago will result, over a period of time, in reduced product lead times, increased stock turns and stronger supplier relationships, ensuring our ability to be first to market with key products.
Retail turnover for the first eight weeks of the new financial year has been encouraging as the improving trend demonstrated in the second half of last year has continued. The trading environment remains challenging however, and the South African economy faces a number of risks which could impact negatively upon our business. Accordingly, costs and inventory management will remain significant focus areas.
Despite the current difficult trading climate, all our trading divisions remain in good shape and are well placed to maximise any upturn in our economy.
PREFERENCE DIVIDEND ANNOUNCEMENT
Dividend No. 145 of 3,25% (6,5 cents per share) in respect of the six months ending 30 September 2009 has been declared, payable on Monday, 28 September 2009 to holders of 6,5% preference shares recorded in the books of the company at the close of business on Friday, 25 September 2009.
The last day to trade (“cum” the dividend) in order to participate in the dividend will be Thursday, 17 September 2009. Foschini Limited preference shares will commence trading “ex” the dividend from the commencement of business on Friday, 18 September 2009 and the record date, as indicated, will be Friday, 25 September 2009.
Preference shareholders should take note that share certificates may not be dematerialised or rematerialised during the period Friday, 18 September 2009 to Friday, 25 September 2009, both dates inclusive.
FINAL ORDINARY DIVIDEND ANNOUNCEMENT
The directors have declared a final ordinary dividend of 170,0 cents per ordinary share payable on Monday, 13 July 2009 to ordinary shareholders recorded in the books of the company at the close of business on Friday, 10 July 2009.
The last day to trade (“cum” the dividend) in order to participate in the dividend will be Friday, 3 July 2009. Foschini Limited ordinary shares will commence trading “ex” the dividend from the commencement of business on Monday, 6 July 2009 and the record date, as indicated, will be Friday, 10 July 2009.
Ordinary shareholders should take note that share certificates may not be dematerialised or rematerialised during the period Monday, 6 July 2009 to Friday, 10 July 2009, both dates inclusive.
Certificated ordinary shareholders are reminded that all entitlements to dividends with a value less than R5,00 per certificated shareholder will be aggregated and the proceeds donated to a registered charity of the directors’ choice, in terms of the articles of association of the company.
| Signed on behalf of the Board. | |
| D M Nurek | A D Murray |
| Chairman | CEO |
| Cape Town | |
| 28 May 2009 | |
| Executive directors: | A D Murray, R Stein, P S Meiring |
| Non-executive directors: | D M Nurek (Chairman), Prof F Abrahams, S E Abrahams, W V Cuba, K N Dhlomo, M Lewis, D M Polak, N V Simamane |
| Company Secretary: | D Sheard |
| Registered office: | Stanley Lewis Centre, 340 Voortrekker Road, Parow East 7500 |
| Registration number: | 1937/009504/06 |
| Share codes: | FOS – FOSP |
| ISIN: | ZAE000031019 – ZAE000031027 |
| Transfer secretaries: | Computershare Investor Services (Proprietary)
Limited, Ground Floor, 70 Marshall Street, Johannesburg 2001 |
| Sponsor: | UBS South Africa (Proprietary) Limited |