Edgars Stores Limited releases its 2015 interim financial results for the period ended 11 July 2015. Below are excerpts from the results and Chairman's commentary.
Group CEO of Edgars Stores Limited, Linda Masterson
Chairman's statement
Fast declining economic fundamentals, combined with low disposable incomes and heightening job insecurity have undermined consumer confidence and demand. The strengthening United States Dollar vis a vis the Rand has brought to the fore the need to focus on cost containment. Retailers had to resort to various promotions to stimulate consumer spending. Despite a negative sales growth of 1%, Profit after Tax grew to $1.2million, 13% ahead of the same period in 2014.
Retail Operations
The Edgars Chain was not spared from the effects of the declining economy and the high base of 2014 when the 12 months to pay offering boosted turnover. As expected from the test carried out in 2014, there was some loss of market share to Jet, as some cash strapped customers favoured the value offerings of the discount chain. Sales decreased by 11.2% from 2014 (4.6% on 2013) and profitability decreased to 8% of sales (2014: 17%).
The Jet Chain’s contribution to Group turnover increased to 27.1% (2014: 18.8%), with an increase of 43% over 2014. This was achieved through the granting of credit facilities to customers throughout the chain. Until mid-April 2015, Jet was offering credit only in test stores that were mostly in outlying centers. The success of this chain was built on credit and the benefits of scale.
Credit Management
The growth in debtors continues to be well managed. As anticipated, there has been a slight deterioration in the quality of the book and we have taken defensive measures to safeguard against further avoidable deterioration. Total trade debtors were $29.8million net of provisions for doubtful debt of 6% (2014: 2%) which provision was increased as a conservative reaction to the deteriorating trading environment. 10% of the debtors book related to Jet customers. While an increase in bad debt was anticipated, the quality of the book remains excellent with average gross handovers at 0.5% (2014: 0.4%) of lagged debtors and 2.7% of lagged credit sales. Bad debt recoveries averaged 28.7% (2014: 32.6%) of handovers, leaving net bad debt at 0.4% of lagged debtors and 1.9% of lagged credit sales.
Manufacturing
Factory sales decreased by 3% and profitability reduced to $61 000 from the $264 000 achieved last year. The unit has embarked on a productivity improvement exercise and a modest export program is being developed.
Financing and cash flow
Gross borrowings grew on the expanded debtors book and were $23.2million at the half year (2014: $16.7million). We anticipate that gearing will be maintained at the current level of around 1:1 throughout the year. Net of interest bearing debtors gearing remained at zero.
Capital expenditure
Spend to date was in respect of:
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Information technology $1 146 020
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Factory plant and equipment $ 24 373
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Other equipment $ 271 601
Our IT upgrade project is now anticipated to take longer than initially planned. Significant cost savings will be realised after implementation as a result of increased efficiency and availability of information for improved decision making.
Outlook
Increased productivity and deep cost cutting initiatives have been formulated and are currently being implemented. Focus is on streamlining business processes and improving efficiencies.
Dividend
In the current context, your company has not declared a dividend.
Appreciation
I am grateful to board colleagues, management and staff for their dedication, our customers for their loyalty and our landlords, bankers and suppliers for their continued support.
TN Sibanda
Chairman
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