Edcon delivers comparable growth in attributable earnings
17 May 2006
Edcon generated attributable earnings of over R1,5 billion for the year to 1 April 2006.
This translates into earnings growth, on a comparable basis, in excess of 30%. This strong growth was achieved notwithstanding the high earnings base that has been established by the company over the past few years. Edcon created an unprecedented R4,7 billion of wealth for all stakeholders.
Our business, supported by world class systems and operating procedures, new stores, innovative financial services products and the happiest employees in retail, gained market share once again over this period, demonstrating that our performance, although buoyed by the favourable economic environment, was ahead of the overall market," said CEO Steve Ross.
"Last year, we increased our active account base by around 585 000 customers, breaking through the 4 million mark for the first time. Our debtors' book remains well managed with 85,2% of our customers current and able to buy. We opened 175 new stores, increasing our average trading space for the year by 11%. The number of items handled by our distribution centres increased by 22% to 275 million units, which our logistics and supply chain systems accommodated at a cost increase of only 17%."
Financial Highlights of the year include:
Diluted headline earnings per share of 287 cents, up 22% (32% without the impact of one less trading week and the 5% dilutionary effect of the staff empowerment transaction)
Dividends up by 20% to 162 cents per share
Sales growth of 20% with average selling price deflation of 5%
The gross profit margin declining to 38,6% from 39,8% as a result of the impact of higher growth in sales of lower margin products and cellphones
Operating margin increasing to 12,9% reflecting the benefit of operational efficiencies
Attributable earnings growing by 24%
Stock-turn increasing to 6,1 times from 5,8 times
Cash EBITDA growing by 18% to R2,4 billion.
During the year under review, Edcon advanced its transformation strategy by introducing a shareholding programme for staff. Designed to benefit almost 17 000 permanent and permanent part-time employees, the Staff Empowerment Trust controls 10,6% of the enlarged share capital. These shares carry full voting rights. The beneficiaries of the Trust receive a bi-annual empowerment bonus, equivalent to Edcon's dividend payment. Over 93% of the beneficiaries of the Trust are black.
The Department Stores Division grew sales by 18%, with the Edgars chain growing by 18% and CNA by 23%. The division reported a 32% rise in trading profit. Edgars improved its stockturn to 5,7 times from the prior year's 5,3 times. CNA's stockturn improved to 3,8 times from 3,4 times.
The Discount Division grew turnover by 21%, despite selling price deflation of 16%. The division's trading profit rose by 12%. Stockturn was a high 7,6 times for the year.
Profit for the Credit and Financial Services Division increased by 19% to R252 million. A highlight for the division has been the growth in insurance products. A further tranche of debtors were sold to the securitisation vehicle, On the Cards, in August 2005, netting proceeds of R682 million.
"The launch of our co-branded Mastercard with Standard Bank has been an unprecedented success, with close to 450 000 cards in issue, exceeding our most optimistic predictions," noted Mark Bower, Chief Executive of Group Services.
Edcon retains a strong cash position with negative gearing. The company has R173 million of net cash and cash-equivalents as well as a R1,3 billion in unutilised borrowing facilities.
Ross said, "The sustained high levels of consumer confidence, benefiting from low interest and inflation rates as well as from the further tax cuts announced in the recent national budget, together with accelerating job creation, will have a positive impact on consumer spending in the year ahead. Government's commitment to an extensive infrastructural development programme and to achieving long-term GDP growth targets is also a very positive factor."
He continued, "Against this background, and given current trends in the industry, the Board is confident about the prospects for the forthcoming year. Sales will be augmented by the addition of a further 11% new trading space across all formats and the realisation of the full potential of the space added last year. Accordingly, shareowners can expect another meaningful rise in earnings, ahead of the sales growth, for the year to March 2007."