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Edcon quarterly trading update delivers significant

24 November 2010

Adjusted EBITDA up 27.6% to R490 million for the quarter ended 3 October 2010

- Retail sales increased by 13.8% to R5,034 million
- Robust cash generation with operating cash inflow increasing by 28.9% 

Edcon delivered a marked improvement in the second quarter ended 3 October 2010,with adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) of R490 million, a 27.6% increase from the comparable period of the previous year.

Focus on market share growth in all chains with specific attention to apparel, footwear and home, concurrent with improved analysis of the stock and markdown management have fuelled the performance. Improved connection with specific consumer segments with targeted marketing to support the product offers coupled with an improved quality of debtors has underpinned the growth. Store operating expenses continue to be tightly controlled through better staff scheduling and improved stock loss results. These programmes have delivered a progressive and visible improvement in operating performance and retail sales for the quarter increased by 13.8% to R5,034 million. More importantly, same store sales – stores open for the full period in the current year and in the prior year – have recovered even further, growing 13.3% on the prior year. Gross profit margin was 36.1% for the quarter, the same as the comparable period last year.

“The first half of this financial year has seen an improvement in the South African macroeconomic environment although we see challenges arising from job losses and high consumer debt levels continuing in South Africa for the short-term,” says Steve Ross, CEO of Edcon Group. ”Against this background, the momentum reported by us has continued into the current quarter.

”At 3 October 2010, Edcon’s net debt position was approximately R1.6 billion lower than the same time last year. The strong cash generation impetus continued with a 28.9% increase in operating cash flow.

The quality of the credit book continues to improve and collection activity remains strong. Annualised bad debts as a percentage of debtors fell even further from 12.9% last year end to the current 11.8% and collection activity remains strong. As a consequence, net profit from the credit and financial services increased to R108 million, from R49 million in the same period last year. Credit sales contributed 48% of total retail sales, compared to 49% last year.

During this quarter, R1.4 billion was raised by OtC II in the South African securitisation market. The funds were used to refinance existing notes and the success of the transaction bears testament to the credit quality of Edcon.

“The steps we have taken to improve operating performance have positioned us to take advantage of the improving economic environment. We are cautiously optimistic about the prospects for the rest of the financial year,” concludes Ross.


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