ANNUAL REPORT 2000
Focused on the Customer
ANNUAL REPORT 2000
Focused on the Customer
Contents
1
Group Financial Highlights
4
Group Review
7
Corporate Board
8
Edcon Top Structure
10
Chairman’s Statement
12
Chief Executives’ Report
32
Segmental Analysis
34
Corporate Governance Report
38
Group Annual Financial Statements
38
Report of the Independent Auditors
39
Income Statements
40
Cash Flow Statements
41
Cash Value Added Statements
42
Balance Sheets
43
Statements of changes in Ordinary
Shareholders’ Equity
44
Inflation Statements
45
Notes to the Inflation Statements
46
Notes to the Financial Statements
74
Interests in Subsidiaries
75
Shareholders’ Information
76
Notice to members
77
Offices
2000 1999 Change
52 weeks 52 weeks %
GROUP SUMMARY Rm Rm
Revenue – retail sales 6 423,6 5 849,8 10
Earnings attributable to ordinary shareholders 226,5 85,8 164
Attributable cash equivalent earnings 447,3 292,8 53
Cash flow from operations 207,4 195,6 6
Cash value added 1 648,0 1 709,8 (4)
Total assets 4 105,0 3 779,6 9
Market capitalisation 4 056,5 1 824,5 122
ORDINARY SHARE PERFORMANCE
(CENTS PER SHARE)
Earnings
Attributable earnings basis 394,8 150,6 162
Headline earnings basis 407,9 147,6 176
Cash equivalent basis 779,7 514,0 52
Cash flow 375,4 349,7 7
Dividends 152,0 58,0 162
Net equity 3 830,4 3 593,6 7
Market price 7 070 3 180 122
FINANCIAL STATISTICS
Trading profit as % of retail sales 6,7 3,9
Return on ordinary shareholders’ equity (%) 10,6 4,2
Liquidity ratios
Gearing ratio 0,23 0,25
Total liabilities/shareholders’ funds 0,83 0,81
PROSPECTS
The key drivers of retail sales are personal disposable incomes and consumer confidence. Better growth in the economy, the
lower inflation and interest rate environment, and recently reduced personal taxes, will boost disposable incomes in the year
ahead. But confidence, while improving, remains fragile. This is particularly true among lower income customers, who are
still burdened by relatively high, but falling, indebtedness and uncertainty surrounding employment in the formal sector.
Against this background, Edcon has budgeted to maintain its sales growth at a level similar to that achieved in the past year,
while earnings are expected to rise at a somewhat higher rate.
Group Financial
Highlights
Page 1
Edcon 2000
Edgars Consolidated Stores Limited originated from one small clothing store opened
in Johannesburg in 1929. It was listed on the Johannesburg Stock Exchange in 1946.
It operates through 671 stores in southern Africa.
Our business mission is to serve our customers through
retail outlets with courtesy, offering quality clothing,
footwear, textiles and accessories at great prices.
Each trading brand has a specific mission to provide
customers in its market segment with service that exceeds
expectations, prices that represent clear value against
the competition and an assortment of product and credit
facilities that respond to the needs of the
community served, for fashion, quality and affordability.
Our civic mission is to help promote positive change in
the quality of life for all citizens in our trading areas.
Our primary focus is support for education.
Our mission as an employer is to treat our employees as
family; to provide them with the tools, training and
opportunity to develop themselves and provide for
their families.
Mission
Page 2
Edcon 2000
Group
Values
Page 3
Edcon 2000
CUSTOMER FIRST
RESPECT
LEADING
INNOVATION
LEARNING
TEAMWORK
WINNING
DISCIPLINE
Code of
Conduct
The group will act in a manner that will earn it the reputation of:
●
having scrupulous ethics – openness, honesty, credibility and integrity
●
being non-sectional and non-political
●
being socially responsible
●
being consistent in honouring its legal and moral obligations
With regard to its people, the group subscribes to a competency based
human resource approach in pursuit of:
●
a highly trained and competent staff
●
a performance and customer focused culture
●
equitable employment practices
●
sound employee relations
A company
that cares
for its . . .
customers,
employees and
community
Group income statements (Rm)
Revenue – retail sales 8,9 6 423,6 5 849,8 5 641,7 5 616,7 5 097,0 4 203,6
Cost of sales 4 100,7 3 834,1 3 583,4 3 510,6 3 163,9 2 593,3
Gross profit 2 322,9 2 015,7 2 058,3 2 106,1 1 933,1 1 610,3
Expenses 1 892,3 1 787,2 1 641,1 1 558,8 1 354,2 1 092,6
Trading profit* (3,6) 430,6 228,5 417,2 547,3 578,9 517,7
Net financing costs 77,4 121,4 56,8 51,8 72,9 60,5
Profit before taxation 353,2 107,1 360,4 495,5 506,0 457,2
Taxation 108,3 38,9 122,5 170,5 180,8 181,8
Equity accounted retained earnings — ——6,1 14,9 9,0
Attributable to outside shareholders (18,4) 17,6 (7,4) (10,2) (2,9) (0,1)
Earnings attributable to ordinary shareholders (4,4) 226,5 85,8 230,5 320,9 337,2 284,3
Group cash flow (Rm)
Cash generated from trading 1,7 655,9 422,0 587,3 692,3 687,7 601,9
Working capital requirements (334,9) (22,6) (417,4) (96,7) (61,9) (201,6)
Cash generated from operating activities 321,0 399,4 169,9 595,6 625,8 400,3
Net financing costs paid (77,4) (121,4) (56,9) (51,8) (72,9) (60,5)
Taxation paid (36,2) (82,4) (149,7) (187,0) (175,1) (146,1)
Cash inflow from operations 207,4 195,6 (36,7) 356,8 377,8 193,7
Dividends paid (60,6) (21,8) (13,8) (16,1) (7,4) (66,6)
Net cash retained 146,8 173,8 (50,5) 340,7 370,4 127,1
Net cash invested (4,5) (137,5) (223,2) (308,8) (270,4) (235,5) (173,1)
Net financing repaid 9,3 (49,4) (359,3) 70,3 134,9 (46,0)
Increase in shareholder funding 0,6 13,0 10,2 7,1 5,7 3,0
Increase in interest bearing debt 27,8 52,3 351,9 (53,7) (148,8) 49,2
Net cash inflow from financing activities 28,4 65,3 362,1 (46,6) (143,1) 52,2
Increase in cash and cash equivalents 37,7 15,9 2,8 23,7 (8,2) 6,2
Group balance sheets (Rm)
Assets
Non-current assets 878,9 899,9 846,7 731,2 604,2 446,0
Current assets 3 226,1 2 879,7 2 875,2 2 428,7 2 347,2 2 074,8
Total assets 10,2 4 105,0 3 779,6 3 721,9 3 159,9 2 951,4 2 520,8
Equity and liabilities
Ordinary shareholders’ equity 14,1 2 197,3 2 061,9 2 002,5 1 800,6 1 484,3 1 136,8
Minority interest 42,4 31,6 53,1 74,9 34,5 1,2
Interest bearing debt 7,7 627,8 596,9 554,5 228,1 285,7 433,4
12,8 2 867,5 2 690,4 2 610,1 2 103,6 1 804,5 1 571,4
Interest free liabilities 1 237,5 1 089,2 1 111,8 1 056,3 1 146,9 949,4
Total equity and liabilities 10,2 4 105,0 3 779,6 3 721,9 3 159,9 2 951,4 2 520,8
(Definitions are given in note 2 to the annual financial statements)
* Includes dividend income
Five year
Year compound 2000 1999 1998 1997 1996 1995
Number of weeks growth % 52 52 52 53 52 52
p.a.
Page 4
Edcon 2000
Group
Review
Ordinary share performance (cents per share)
Earnings
attributable earnings basis (6,4) 394,8 150,6 418,2 597,8 642,4 550,3
headline earnings basis (5,7) 407,9 147,6 416,8 592,4 636,3 546,2
cash equivalent basis 2,1 779,7 514,0 753,3 868,3 850,5 701,2
Attributable cash flow 375,4 349,7 (91,4) 644,2 696,4 375,0
Dividends (6,3) 152,0 58,0 247,0 247,0 247,0 210,0
Net equity 11,8 3 829,8 3 593,6 3 593,1 3 322,4 2 804,7 2 191,2
Net equity excluding trademarks 11,8 3 815,4 3 563,9 3 550,9 3 274,8 2 748,1 2 188,6
Returns
Return on ordinary shareholders’
equity (%) 25,0 Av. 14,4 10,6 4,2 12,1 19,5 25,7 28,6
Return on capital employed (%) 21,0 Av. 14,1 11,0 5,7 11,8 18,9 22,9 22,8
Productivity
Cash value added (Rm) 5,5 1 648,0 1 709,8 1 462,1 1 780,1 1 665,0 1 261,8
Cash value added per retailing
employee (R000) 9,2 140,6 136,0 103,8 121,7 115,9 90,6
Net asset turn (times) 2,2 2,2 2,2 2,8 2,8 2,7
Net assets per retailing employee (R000) 244,6 214,0 185,4 143,9 125,6 112,8
Trading profit to revenue (%) 10,0 6,7 3,9 7,4 9,7 11,3 12,3
Retail sales per square metre (Rand) 4,1 8 002 7 143 7 115 7 655 7 799 6 542
Retail sales per retail employee (R000) 12,3 547,9 465,4 400,7 384,1 354,7 306,1
Revenue growth (%) 9,8 3,7 0,5 10,2 21,3 15,9
Effective tax rate (%) 30,6 36,3 34,0 34,4 35,9 39,9
Solvency and liquidity
Financing cost cover (times) 5,0 Av. 6,7 5,6 1,9 7,4 10,6 7,9 8,6
Dividend cover (times) 2,6 Av. 2,4 2,6 2,6 1,7 2,4 2,6 2,6
Cash realisation rate 0,48 0,68 (1,12) 0,74 0,82 0,53
Gearing ratio 0,5 Av. 0,20 0,23 0,25 0,24 0,09 0,17 0,37
Total liabilities/shareholders’ funds Av. 0,81 0,83 0,81 0,81 0,68 0,94 1,22
Interest free liabilities/total assets 0,30 0,29 0,30 0,33 0,39 0,38
Current ratio 2,1 2,2 2,7 2,2 2,1 2,2
Johannesburg Stock Exchange performance
Traded prices (cents per share)
last sale in year 7 070 3 180 8 520 12 000 16 500 12 750
high 8 400 8 900 13 650 16 500 17 000 15 100
low 3 000 1 600 6 400 9 800 11 500 11 300
weighted average price per share traded 5 636 3 065 10 296 11 803 12 019 13 759
Price earnings ratio 17,9 21,1 20,4 20,1 25,7 23,2
Edcon share price index (1994: 100) 62 28 75 105 145 112
JSE actuaries’ retail index (1994: 100) 118 115 153 125 143 119
Year end market price/net equity per share 1,85 0,85 2,37 3,61 5,88 5,82
Number of shares in issue (000) 57 376 57 376 55 732 54 196 52 921 51 876
Volume of shares traded (000) 34 750 27 281 8 039 3 048 1 144 637
Number of transactions 18 129 9 955 2 772 1 512 795 626
Volume traded as % of number in issue 60,6 47,5 14,4 5,6 2,1 1,2
Value of shares traded (Rm) 1 958,7 836,2 827,7 359,7 137,5 87,6
Market capitalisation (Rm) 4 056,5 1 824,5 4 748,4 6 503,6 8 732,0 6 614,2
Number of shareholders 2 512 12 649 446 511 519 505
Earnings yield (%) 5,6 4,7 4,9 5,0 3,9 4,3
Dividend yield (%) 2,2 1,8 2,9 2,1 1,5 1,6
(Definitions are given in note 2 to the annual financial statements)
Over time Five year
Year financial compound 2000 1999 1998 1997 1996 1995
Number of weeks objectives/ growth % 52 52 52 53 52 52
constraints p.a.
Page 5
Edcon 2000
0
3 000
6 000
9 000
12 000
15 000
18 000
2000
1999
1998
1997
1996
1995
cents
Edcon high/low share price
Edcon closing share price
JSE actuaries’ retail index
equivalent closing price
Share performance
Market price
Net equity per share
Market price and
net equity per share
0
3 000
6 000
9 000
12 000
15 000
18 000
2000
1999
1998
1997
1996
1995
cents
0
1 000
2 000
3 000
4 000
5 000
6 000
7 000
2000
1999
1998
1997
1996
1995
Rm
Revenue
Total assets
Revenue and total assets
Page 6
Edcon 2000
3 000
4 000
5 000
6 000
7 000
8 000
9 000
2000
1999
1998
1997
1996
1995
R/m
2
Trading density
Indexed trading density
Trading density and
indexed trading density
(Indexed on CFT inflation)
-200
0
200
400
600
800
1 000
2000
1999
1998
1997
1996
1995
cents
Cash equivalent earnings
Cash flow
Cash equivalent earnings
and cash flow per share
0
100
200
300
400
500
600
700
2000
1999
1998
1997
1996
1995
cents
Earnings
Dividends
Earnings per share
and dividends per share
2 000
3 000
4 000
5 000
6 000
7 000
2000
1999
1998
1997
1996
1995
Rm
Revenue
Indexed revenue
Revenue and indexed revenue
(Indexed on CFT inflation)
Divisional analysis (Rm)
(See accounting policy note 1.12)
Revenue – retail sales
Edgars 3 675,8 3 612,9 3 534,2 3 518,7 3 365,2 2 750,4
Sales House 887,9 851,4 822,3 861,4 824,8 715,4
Jet 1 295,7 867,8 714,0 711,7 669,6 578,9
Shoecorp 241,3 239,6 222,5 228,5 202,6 158,9
Zimbabwe† 212,5 180,0 243,6 217,2
Smiley’s Wearhouse 110,4 98,1 105,1 79,2 34,8
Group 8,9 6 423,6 5 849,8 5 641,7 5 616,7 5 097,0 4 203,6
Trading profit
Edgars 243,4 162,6 277,9 380,8 436,6 363,1
Sales House 62,0 58,9 79,1 104,0 118,2 103,4
Jet 82,9 21,8 (18,9) (13,1) 0,6 26,0
Shoecorp 4,0 4,2 (3,1) (10,5) (6,8) (2,8)
Zimbabwe 46,9 31,2 45,0 52,9
Smiley’s Wearhouse 3,4 (5,4) 0,6 4,0 3,2
Manufacturing (12,0) (19,4) 9,6 7,5 17,6 6,7
Group services and consolidation
adjustments — (25,4) 27,0 21,7 9,5 21,3
Group (3,6) 430,6 228,5 417,2 547,3 578,9 517,7
Net assets
Edgars 1 019,8 1 000,7 1 051,5 828,5 767,0 663,8
Sales House 259,8 244,7 230,2 178,0 170,0 151,1
Jet 276,8 212,6 223,3 188,5 197,4 131,8
Shoecorp 67,8 65,7 69,3 72,2 79,5 57,0
Zimbabwe 85,0 71,2 129,2 87,7 23,8 12,9
Smiley’s Wearhouse 20,1 8,9 2,3 3,7 3,7
Manufacturing 135,8 142,2 190,2 161,2 139,9 40,6
Group services 1 002,4 944,4 714,1 583,8 423,2 514,2
Group 12,8 2 867,5 2 690,4 2 610,1 2 103,6 1 804,5 1 571,4
Other statistical data (year end)
Number of employees
retailing 11 725 12 570 14 079 14 622 14 370 13 933
manufacturing 2 776 2 685 2 770 3 020 2 004 1 558
Total 14 501 15 255 16 849 17 642 16 374 15 491
Number of stores 671 703 702 660 545 520
Gross trading area (000 m
2
) 788 820 811 776 676 643
Number of customer accounts (000) 3 446 3 725 3 598 3 643 3 695 3 335
(Definitions are given in note 2 of the annual financial statements)
† Consolidated from April 1 1996 (previously equity accounted)
Five year
Year compound 2000 1999 1998 1997 1996 1995
Number of weeks growth % 52 52 52 53 52 52
p.a.
S M Ross
◆†‡#
(48)
BA (USA)
Group Chief
Executive.
Joined the company and appointed
to the Board in 1998.
Chairman of the Customer Service
Committee.
M R Bower (45)
BCom, BCompt Hons,
CA(SA)
Chief Executive
Group Services and Acting
Group Financial Director.
Joined the company and appointed
to the Board in 1990.
J A Day (53)
ACIS
Group Director,
Information Technology
and Strategic Planning.
Joined the company in 1974.
Appointed to the Board in 2000.
G R Evans (47)
Chief Executive Jet,
Sales House and
Smiley’s Wearhouse.
Joined the company in 1981.
Appointed to the Board in 1999.
Dr U Ferndale
†
(35)
BA Hons, MA, Dlitt et Phil
(Human Resource Management)
Group Human
Resources Director.
Joined the company and appointed
to the Board in 1999.
R C Maydon
#
(56)
Chief Executive
Edgars Operations
and Planning.
Joined the company in 1976.
Appointed to the Board in 1999.
*UK
‡USA
◆Member of Audit Committee
†Member of Remuneration Committee
#Member of the Customer Service Committee
Corporate
Board
EXECUTIVE DIRECTORS
W S MacFarlane
◆†
(64)
CA(SA), FCA
Director of
companies. Past
Group Deputy Chairman of The
South African Breweries Limited.
Appointed to the Board in 1982
and, after retiring from the Board in
1998, re-appointed as Chairman in
1999. Chairman of the Audit and
Remuneration Committees.
A J Aaron
◆
(67)
BCom, LLB
A senior partner of a
Johannesburg firm of
attorneys and a
director of companies.
Appointed to the Board in 1978.
W F de la H Beck
◆†
(77)
BCom, CA(SA)
Director of
companies.
Appointed to the Board in 1978.
Z B Ebrahim
†
(40)
BA, HDE (UCT)
Director of
companies.
Appointed to the
Board in 1999.
T N Mosery-Eboka
#
(41)
BS Textile Engineering (USA),
BS Applied Mathematics
(USA), MBA (USA)
Director of companies.
Appointed to the Board in 1999.
M I Wyman
*
(53)
CA(SA)
Group Corporate
Finance and
Development
Director of the South African
Breweries plc, director of companies
within the SAB Group.
Appointed to the Board in 1998.
NON-EXECUTIVE DIRECTORS
Page 7
Edcon 2000
G Davies
Edgars: Merchandise
(Speciality)
(55; joined 1980)
R C Maydon
Chief Executive: Edgars
Operations and Planning
(56; joined 1976)
V Shera
Edgars: Merchandise
(Apparel)
(33; joined 1991)
J Spotts
Group Marketing
Executive
(37; joined 1999)
BS, CPA
G R Evans
Chief Executive: Sales
House; Jet; Smiley’s
Wearhouse
(47; joined 1981)
Page 8
Edcon 2000
S M Ross
Group Chief Executive Officer:
Edcon
(48; joined 1998)
BA
A Gardiner
Operations
(39; joined 1983)
A V A Boshoff
Operations
(48; joined 1988)
BA Hons
P Raymond
Planning (Apparel)
(43; joined 1987)
M J Deall
Planning
(46; joined 1979)
C Scott
Planning (Speciality)
(53; joined 1978)
BCom
P Mullen
Merchandise
(53; joined 1986)
F C Spies
Planning (Apparel)
(42; joined 1981)
BA
R A W Roberts
Merchandise
(56; joined 1969)
NON-EXECUTIVE
J P Mkushi
Chairman
(50; joined 1991)
BSc, MSc
D M Zamchiya
Deputy Chairman
(59; joined 1990)
LLB, LLM
M R Bower
Director
(45; joined 1990)
BCom, BCompt Hons, CA(SA)
H D Ferguson
Director
(58; joined 1976)
FCMA
P Mullen
Director
(53; joined 1986)
R Mlotshwa
Group Managing Director
(50; joined 1981)
BA
S D Guest
Director: Edgars
(51; joined 1969)
L Masterson
Group Financial Director
(44; joined 1988)
FCIS
S Ndlovu
Group Personnel Director
(48; joined 1990)
BA Hons
Z Vella
Director: Express Chain
(42; joined 1999)
BA Hons Accountancy and
Economics
EXECUTIVE
EDCON TOP STRUCTURE
Edgars Zimbabwe Board
Page 9
Edcon 2000
M R Bower
Chief Executive: Group Services
(45; joined 1990)
BCom, BCompt Hons, CA(SA)
B A Beedle
Chief Executive:
Shoecorp Shoe Stores
(47; joined 1999)
BCom(Acc)
C C D Evans
Chief Executive:
Manufacturing
(49; joined 1976)
J A Day
Group Information Technology
& Strategic Planning Director
(53; joined 1974)
ACIS
Dr U Ferndale
Group Human Resources Director
(35; joined 1999)
BA Hons, M.A., Dlitt et Phil
A L Kallner
Merchandise
(51; joined 1999)
J A Hodnett
Managing Director:
Studio Clothing
(49; joined 1993)
M J Lewin
Property Development
(45; joined 1989)
BCom, BAgMan
M C Bekker
Operations
(40; joined 1999)
K Duveen
Managing Director:
H D Lee
(55; joined 1992)
S J Aldridge
Finance: Edgars; Group
Finance
(47; joined 1981)
CA(SA)
V L Velthuis
Group Internal Auditor
(38; joined 1989)
BCom, BAcc, CA(SA), BA
D J Viviers
Group Secretary and
Legal Advisor
(52; joined 1997)
BA, Proc
R J Leathers
Group Credit
(40; joined 1982)
BCom
M J Pienaar
Commercial
(37; joined 1998)
BSc, LLB
D J Eager
Director: Central
Services Manufacturing,
Laure Fashions &
Reactor Clothing
(53; joined 1982)
FCA
PM Searle
Finance: Credit;
Distribution; Marketing;
Sales House;
Shoecorp Shoe Stores;
Jet; Smiley’s Wearhouse
(59; joined 1967)
CA(SA)
F Gortana
Store Planning
(59; joined 1964)
MISA
R Mlotshwa
Group Managing Director (Zimbabwe)
(50; joined 1981)
BA
J F Swart
Group Supply Chain Executive
(53; joined 1969)
BAdmin
M R Bower
Acting Group Financial Director
(45; joined 1990)
BCom, BCompt Hons, CA(SA)
RESULTS
In this my first year as
Chairman, I am
delighted to report
that the Edcon Group
has delivered much
improved results in
the face of difficult
trading conditions.
There can now be
little doubt that
the turnaround
programme has been
a resounding success
and there is most
certainly a new mood
abroad throughout the
Group. After years of
falling market share
and declining
profitability, Edcon
sales growth – at 10%
for the past twelve
months – comfortably
exceeded the 7%
reported by the
Retailers’ Liaison
Committee
for the market, excluding the
performance of the Edcon Group.
The previous deterioration in
operating margins has also been
reversed, with this ratio improving
significantly from just below 4%
last year to almost 7%. As a result,
headline earnings per share rose by
an impressive 176% to 408 cents.
Tight cash management continued
to receive particular attention and
net borrowings were again reduced,
with gearing closing at only 23% of
shareholders’ funds. The investor
community has clearly
acknowledged the transformation
that is under way, with the share
price on the Johannesburg Stock
Exchange rising from a low of
1 600 cents last February to above
7 000 cents by March 2000.
THE ECONOMY
These results are especially
gratifying when it is recognised
that they were achieved during
a year of consolidation and
disappointing growth for the
economy as a whole. Stringent, but
Chairman’s
Statement
Page 10
Edcon 2000
“THE TURNAROUND HAS BEEN
A RESOUNDING SUCCESS”
necessary, fiscal and monetary
policies further reduced the rate of
inflation, protected the currency for
the greater part of the year and
facilitated a steady decline in interest
rates, but the limited growth in
Gross Domestic Product and the
consequently high unemployment
levels, were nevertheless, concerning.
I remain confident, however, that a
firm foundation has been laid for
meaningful economic growth.
However, responsible demands
from labour, higher productivity
and political and social stability in
the region as a whole are absolute
prerequisites, if vital foreign
investment is to be attracted and
South Africa’s full potential achieved.
DIVIDEND
In terms of the Group’s long-
standing policy of covering
dividends 2,6 times, a final dividend
of 97 cents per ordinary share has
been declared, bringing total
dividends for the year up to
152 cents, as compared with
58 cents in the previous year.
PROSPECTS
The key drivers of retail sales are
personal disposable incomes and
consumer confidence. Better growth
in the economy, the lower inflation
and interest rate environment, and
recently reduced personal taxes, will
boost disposable incomes in the
year ahead. But confidence, while
improving, remains fragile. This is
particularly true among lower
income customers, who are still
burdened by relatively high, but
falling, indebtedness and
uncertainty surrounding
employment in the formal sector.
Against this background, Edcon has
budgeted to maintain its sales
growth at a level similar to that
achieved in the past year, while
earnings are expected to rise at a
somewhat higher rate.
APPRECIATION
It is my pleasure to welcome non-
executive directors, Zora Ebrahim
and Tina Mosery-Eboka, to the
Board. Their varied experience has
already added a new and different
dimension to Board deliberations.
John Day (group executive,
information technology and
strategic planning), Graham Evans
(chief executive: Jet, Sales House
and Smiley’s Wearhouse),
Dr Urin Ferndale (group human
resources executive) and Robert
Maydon (chief executive: Edgars
operations and planning), were also
invited to join the Board during the
year, in recognition of the
importance of their executive roles.
We bid farewell to
Wolf Cesman, following his
resignation from Liberty Life and to
Darryl Cousins who has resigned
after twenty-six years of service
to the Group. I thank them both for
their contribution.
My past year with Edcon has
been an inspiring and stimulating
experience. The sheer quantum and
pace of change, under the skilled
leadership of Steve Ross, has been
impressive. His vast experience in
fashion retailing, his dedication to
customer service disciplines, his
drive and enthusiasm, have
permeated every corner of the
business. But a successful
turnaround always reflects a team
effort and the experience at Edcon
is no exception. My congratulations
and thanks to the directors, the
executive management and the
greater Edcon family for your
determination and unflinching
efforts in what is a highly
competitive market. Edcon is
reclaiming its position as a pre-
eminent fashion retailer and I look
forward to being associated with its
future successes.
W S MacFarlane
Chairman
Page 11
Edcon 2000
Selwyn MacFarlane
We stated in our report
last year that the primary
goals of the Edcon Group
were profitable market
share recovery and
regained status as store
of choice for Clothing,
Footwear, Textiles and
Accessories in the areas
we trade. Progress has
been made on both
initiatives. Market share
for the group increased
as sales grew 10% and,
importantly, gross profit
rose at a faster rate of
15%. The key impetus
for enhanced
performance is improved
service. Each of the
chains in the year past
has deployed a new
strategy that evolved
from extensive consumer
research undertaken over
the past year. The
research was started with
Monitor Company to
define Edcon’s target
audience, understand its
customer needs and propose a chain
strategy which best serves these
needs. The research was completed
by July of 1999 and by October
management had formulated
positionings for Edgars, Sales House
and Jet. The narrative will define
these positionings. The improved
levels of service are a function of
significant improvements in the
price, taste, and size in stock, of the
merchandise ranges. These
advances have facilitated the
building of a personal relationship
with the customer. Transaction
times have been reduced, inquiries
and complaints have reduced, and
customer satisfaction, as measured
by “mystery shoppers”, has been
increased.
This has been a year of effort
and transformation. A review of the
executive masthead reflects
significant change as we continue to
refine our company and hone
competitive efficiency, while
Chief Executives’
Report
Page 12
Edcon 2000
“THIS HAS BEEN A YEAR OF EFFORT
AND TRANSFORMATION”
maximising customer
responsiveness. The role of
energetic and enlightened human
resource management has made a
substantial contribution to
improved staff morale. The benefits
of consolidating back office services
are apparent in the year on year
comparisons of the cost of services
provided. The focus of marketing
on “in store” messages and less
reliance on expensive media and
price reduction propositions, has
allowed Edcon to grow business by
nearly 10% while spending 34%
less on marketing and 21% less in
cost reductions. At Edgars, we have
broken its reliance on regular
advertised discounting, by offering
more products at better prices than
ever before, without degrading
quality. Improved efficiencies are
reflected in the significant increase,
to record levels, in sales per
employee and sales per square
metre. The sum of these changes
and the many more, detailed in the
pages ahead, illustrate that our
trajectory as a company is changing.
Edcon has regained much lost
ground and we are building
momentum to gain more.
FINANCIAL RESULTS,
INVESTMENTS AND
FUNDING
Assisted by the rationalisation and
transformation processes trading
profit rose by 88%. Numerous
enhancements, many of which are
detailed within this report,
contributed to this impressive
turnaround and the operating
margin rose strongly from 3,9% last
year to 6,7%. Lower average
interest rates (14,7% this year vs
17,5% last) and reduced average
borrowings contributed to the 36%
fall in net financing costs. After
accounting for taxation and
minority interests, earnings
attributable to ordinary
shareholders rose by 164%,
attributable earnings per share
increased similarly to 395 cents
and headline earnings by
176% to 408 cents per share.
Importantly cash equivalent
earnings per share at
780 cents rose by an
impressive 52%, and
48% of this was realised
in the cash flow per share of
375 cents.
The marked improvement in
trading profit from R228 million last
year to R429 million boosted cash
generated from operations to
R656 million (last year R422 million).
Working capital management
remained a priority and after
investing R302 million in debtors
and a net R33 million into financing
stock increases, cash generated from
operating activities was R321 million.
R174 million was required for
interest, taxation and dividend
payments leaving net cash retained
and available for investment of
R147 million.
0
500
1 000
1 500
2 000
2 500
2000
1999
1998
1997
1996
1995
Rm
Interest bearing debt
Shareholders’ funds
Interest bearing debt
and shareholders funds
Page 13
Edcon 2000
Mark Bower Steve Ross
Last year’s annual
report indicated that capital
expenditure of R174 million had
been approved for the year under
review. The proposed spend was
critically evaluated and, in the
event, only R140 million was
actually incurred. In addition
R7 million was authorised for the
acquisition of the remaining 49%
minority interest in Meltz Success
(Proprietary) Limited and the non-
group 33% in Smiley’s Wearhouse
(Proprietary) Limited.
After crediting the proceeds
on disposals, investment activity
utilised R138 million and
consequently net borrowings were
reduced by R9 million. Closing
gearing was decreased from last
year’s 0,25 to 0,23 and remained
well under the Group’s self-
imposed constraint of 0,50. Interest
cover, which fell below 2 last year,
bounced back to 5,6 times –
comfortably above the Group’s
over-time objective of 5.
The liability capacity model,
applied in the inflation statements
on page 44, reflects unused liability
capacity of R852 million, while total
liabilities as a percentage of
shareholders’ funds closed at 0,83.
In terms of Group policy,
R75 million was transferred this
year from prepayments to fixed
assets on the commissioning of
enterprise wide software packages.
In addition R27 million has been
expended during the year on the
Chief Executives’
Report
(continued)
Page 14
Edcon 2000
“HEADLINE EARNINGS ROSE BY 176%
TO 408 CENTS PER SHARE”
merchandise systems development
programme and debited to
prepayments. These costs will
be cleared to fixed assets and
amortised over five years once
the software is operative in the
business.
Asset utilisation improved
with net assets increasing by only
7% compared with the reported
sales growth of 10%. Reduced
capital expenditure is reflected
in the 2% decline in net fixed
assets. The 11% increase in closing
inventories was in line with sales
growths and stock turn remained
constant at 3,65 times.
Management is satisfied that
closing stocks were current and
at saleable prices which will
generate a normal gross margin.
As indicated under the credit
section on page 27, new twelve
month accounts were funded
internally by Edcon – capping the
level of funding by Nedbank – from
November 1999. Consequently the
19% rise in accounts receivable
exceeded the rate of growth in
sales. The Group continued to
write off arrear debtors on a basis
consistent with past practice.
These results also covered
a doubtful debt provision,
calculated on formulae that have
proved over many years to be
adequate and prudent.
The Group’s treasury
continued to manage its interest
exposure and, at year end,
30% of borrowings were
fixed for more than a year,
while short term hedge
instruments pegged interest rates
on another R29 million for four
months.
Following the unbundling of
SAB’s interests in Edcon in February
1999, our 12 649 shareholders at
March last year were given the
option in June 1999 to either sell or
round up to 100 shares any small
or odd lots held. This exercise was
most successful and the
shareholders’ register has been
reduced to 2 512 members at
March this year.
Following the
approval by shareholders
on 3 June 1999 of a
name change from
Edgars Stores
Limited to Edgars
Consolidated
Stores Limited,
“Edcon”,
new share
certificates
were issued in
exchange for old. At the same time
the Group’s new logo and identity
were launched.
Integral to the centralisation
of the accounting functions has
been the introduction of the
concept of Economic Value Added
throughout the business. Segment
results, determined after charging
a weighted cost of capital, will be
published next year once
comparatives generated this year
become available.
Page 15
Edcon 2000
EDGARS
The approved strategy and
positioning for Edgars in the years
ahead is to be the pre-eminent
customer service provider for
middle and upper middle income
families of southern Africa. An
important dimension of service is to
ensure that an assortment of
product is in stock by size and
colour and represents clear value to
the targeted consumer for price and
quality. Edgars will continue to be
the largest national distributor of
bona fide national and international
brands. Supplementing these brands
are dominant value offerings of core
essential sportswear and
commodity products. The fashion
offered will be appropriate to the
market served. Other key aspects of
service include, speed of transaction,
staff attitude, trading hours,
collateral services, and fair and
efficient return policies. Measures
have been set for each and are being
monitored by supervisors and
“mystery shoppers”.
Sales did not materialise as
the chain had forecast. Turnover
growth was only 1,7% above last
year, well short of expectations.
Nonetheless, the other important
ratios indicate that significant
improvement has been made. Gross
margins advanced slightly, despite
the application of new value
focused pricing formulae. The gross
profit rate after advertising
improved by over 300 basis points.
Markdowns were reduced by over
20%. Stocks were well managed.
The chain has improved its “in
stock” condition, moving service
levels on core items from 73% to
91%. The balance of cash sales
continues to grow and, with the
launch of the Purple Cash Card in
October 1999, the chain has
managed to build a database of over
half a million customers. Edgars
focused on improving trading
density and, while overall growth
was meagre, there have been good
contributions from the mall based
stores, offset by trading declines in
the city centre stores. Sandton, the
number three volume Edgars store,
was re-vamped and officially
re-opened in November 1999.
The store has been consistently
doubling the Retailer’s Liaison
Committee density averages and
year on year growth has exceeded
30% every month since
modernisation. The lessons learned
at Sandton with respect to store
lay-out, marketing and service
training are now being applied
to subsequent re-vamps and
new stores. The deterioration of
central business district sales at
Edgars has been troubling for more
than three years. In this past year, a
change of assortment and a
reduction of space and staffing have
slowed the impact of lost sales.
There is still adequate traffic to
support business and Edgars intends
to stabilise these stores in the year
ahead.
Chief Executives’
Report
(continued)
Page 16
Edcon 2000
“EDGARS AIMS TO BE THE PRE-EMINENT
CUSTOMER SERVICE PROVIDER FOR
MIDDLE AND UPPER MIDDLE
INCOME FAMILIES”
The gross
profit rate
improved by over . .
300
basis points
Page 17
Edcon 2000
Budgets for the coming year
have been prepared on the basis of
sales growths of just under 10%.
A significant improvement
in profitability is, however, expected
from improved efficiencies, both
within stores and at head office.
SALES HOUSE
The Sales House mission
is to be the leading CFTA
retailer in southern Africa
offering a choice of
trusted brands for the
classic taste, of durable
quality, at affordable
prices, on credit.
It targets the responsible
middle market family
through stores that are
receptive, easy to shop
and caring.
In order to
position this viable trading formula for
solid future growth, Sales House has
been through a period of soul-
searching, re-structure and
consolidation. The benefits of this
corrective action are not immediately
apparent in the moderate rise of 4,3%
in rand sales, as a unit increase of 8%
in clothing was clouded by planned
reductions in the average unit price of
goods sold. At the gross profit level,
profits were in line with last year but,
through improved efficiencies, the
operating margin rose slightly from
6,9% to 7,0%. The increased market
penetration, from a unit perspective,
has been achieved as a
result of clearly
defining, through data
driven research, the
chain’s target market
and then aligning
trading strategies to the
needs of the identified
price-sensitive middle
market family unit.
This was
followed by an
adjustment to the
pricing strategy of the
Sales House brand,
so as to represent
a value proposition, by offering more
assortments of the most wanted items,
in depth and at affordable prices.
Coupled to this was a marketing
and communication programme that
conveyed the changed strategy to
current and potential customers.
The new management team then
focused on the opportunities available
to the Sales House brand and
communicated the changed strategies
to the chain’s highly committed staff,
thus gaining their full and enthusiastic
support for the turnaround.
The merger of the Sales House
and Jet management teams has created
opportunities to re-engineer staff
structures and to improve the processes
of buying and selling. Consequently,
efficiencies, vitally necessary to support
the value positioning of the brand,
were achieved.
Initiatives to optimise the now
combined real estate portfolios have
also proved most successful. Multi-
brand stores, where Jet and Sales
House trade in a single location, have
increased space productivity. In
addition, certain stores have been
reduced in size, where appropriate, and
closed or converted into Jet operations,
where market segmentation indicates
that customers will be better served by
a different format.
Specific points at which this
particular customer base expects
service were identified as part of the
Monitor research project. Changes
from a customer service perspective
have been effected within stores to
address these expectations. In addition,
Chief Executives’
Report
(continued)
Page 18
Edcon 2000
“SALES HOUSE OFFERS A CHOICE OF
TRUSTED BRANDS FOR THE CLASSIC TASTE,
OF DURABLE QUALITY AT AFFORDABLE
PRICES, ON CREDIT”
Page 19
Edcon 2000
Cellular
telephones
contributed to . . .
profitability
merchandise ranges now constitute
a logical, disciplined and fully
representative response to this target
market’s needs.
Products allied to normal
clothing and footwear ranges,
including cellular telephones,
accessories, air time and eye care
products, have contributed
profitably to the results. Sales House
Club benefits have also been
updated to be more relevant and
attractive to the identified target
market. Financial services have also
been included to form an integral
part of the offering to customers.
These are poised to expand rapidly
with the introduction of African
Bank micro loan kiosks, initially into
twenty Sales House stores, followed
by the launching of other products
identified as pertinent to this market
segment.
The plan for the year ahead is
robust but flexible and will be
updated as trading conditions
demand. The management team has
defined a number of additional
profitable opportunity areas for
Sales House. Following store
transfers to Jet in April, Sales House
will trade with 12 less stores.
Nevertheless, identified projects,
and benefits expected from re-
focusing the chain and its
merchandise ranges, should ensure
that Sales House delivers double
digit sales growth, with a
concomitant improvement in
profitability in the year ahead.
JET
Jet’s mission is to
be the leading
discount CFTA
retailer in southern
Africa offering a choice of
house branded commercial
fashion, of durable quality, at
exceptional prices, sold in
volume to the mass lower
middle market family, through
stores that are functional, easy
to shop, exciting and that offer
credit.
The Jet brand has established
and cemented a trading formula
that has gained the acceptance of a
broad spectrum of South African
consumers and the results have
been quite simply exceptional. After
reporting a sales growth of over
20% last year, the chain powered
ahead to add a further 49% to sales
in the current year. With gross
profit increasing in line with sales,
operating profit rose to an
impressive R83 million or 6,4% of
sales. This enviable position
has been achieved by
clearly understanding the
chain’s target market
and appreciating the
needs of an increasingly
price sensitive, discerning
customer. The chain’s
strategy includes the
identification, and offering
in volume, of quality,
commercial fashion
merchandise at
exceptional prices.
Stores are carefully
designed to be
functional and easy to
shop.
During the year, customers
with other Edcon brand credit cards
were invited to use these cards
in Jet. This gave Jet access to the
Chief Executives’
Report
(continued)
Page 20
Edcon 2000
“JET OFFERS A CHOICE OF HOUSE
BRANDED COMMERCIAL FASHION, OF
DURABLE QUALITY, AT EXCEPTIONAL
PRICES, SOLD IN VOLUME TO THE MASS
LOWER MIDDLE MARKET FAMILY”
Page 21
Edcon 2000
Jet
powered
ahead to . . .
add
49% to sales
Group’s credit
base of
3,5 million
customers and
contributed
meaningfully
to the
dramatic
turnaround in activity, sales
and profitability.
The discount positioning of
the brand dictates that all aspects
of the business must be highly
efficient, including stock turns,
space productivity, staff efficiencies,
expense ratios, capital expenditure
per m
2
, head office structures and
many more. Jet has re-engineered
staff structures and operational
processes to achieve efficiencies and
provide the chain with sustainable
strategic advantage.
Stores have been reduced in
trading size where necessary and
one new store was opened.
As indicated in the Sales House
report, Jet and Sales House now
trade side by side in 7 shared
locations. The success of these
locations proves that the two
brands
complement
one another
and obvious
synergies
boost
profitability
significantly.
In addition to two
conversions, Jet will trade next year
through at least another 12
premises which were previously
occupied by Sales House and this
will add impetus to their results in
the coming year. Interaction points
with customers have been
examined and standards that exceed
expected levels of service have been
instilled into our staff. All these
efforts have combined to create a
service-centred approach to dealing
with customers.
Jet has achieved market
dominance in various categories
of merchandise, due to continuous
efforts to offer large volumes
of wanted commercial product of
durable quality at exceptional
prices. All marketing
communications and in-store
signage have focused on the target
customer and on merchandise
offerings at remarkable prices. This
has differentiated Jet from its
competitors and has engendered
goodwill, and works towards
keeping customers for life.
Jet has also offered products
allied to its core ranges. These
included cellular telephones,
accessories and air time all of which
proved to be highly sought after
commodities in Jet’s target market.
The rapidly expanding Jet Club
provides wanted financial and other
services to its loyal clientele. If the
micro loan offering from African
Bank proves successful in Sales
House, it will be logical to extend
the service to Jet customers.
Jet will continue to trade
aggressively in the year ahead.
In addition to the 12 stores to be
converted from Sales House, if sites
become available, at least 15
additional stores will be opened.
Jet is therefore poised for another
year of impressive growth at both
the sales and gross profit level.
Costs of expansion and credit
Chief Executives’
Report
(continued)
Page 22
Edcon 2000
“AN INCREASING PERCENTAGE OF
MANUFACTURING OUTPUT IS BEING
SOLD TO OVERSEAS MARKETS”
will, however, slow down the
rate of growth in trading profit
somewhat.
SHOECORP
Shoecorp trades through 101
Cuthberts and 39 ABC stores.
Cuthberts provides the broad
middle market with good value,
commercial fashion footwear for all
members of the family. ABC aims
to satisfy aspirational, more affluent
customers seeking high quality, up-
market brands and fashionable
designs.
The past year at Shoecorp
was one of change. A new
management team has taken
aggressive steps to position the
ABC and Cuthbert chains with
more relevance to their target
consumers. The introduction of
house labels at Cuthberts at
exceptional opening price points
and exclusive import labels at ABC
have relieved the need for frequent
“price break” markdowns. Aged and
unproductive inventory has been
purged and initial results at our mall
stores have been promising. The
challenge remains to make the rural
small stores more efficient. With a
view to improving profitability, the
Cuthberts brand will also be sited in
Jet stores where excess space exists.
The first pilot project will be in Jet
Ermelo.
Reported sales growths for
the year were disappointing at just
under 1% and profits were well
below budgeted levels. However,
with the changes to management,
structures and merchandise
offerings effected over the past
year, the chain has budgeted, off a
low base, for meaningful sales
and profit growth in the year ahead.
MANUFACTURING
The manufacturing division is
a diversified manufacturer
and supplier of predominantly
men’s and ladies’ outerwear,
sourcing products from its own
manufacturing facilities as well as
locally and internationally. An
increasing percentage of output is
being sold to overseas markets. It
incorporates VOC and Meltz
Success.
VOC
This division operates through:
Celrose Clothing which
produces men’s and boyswear on a
quick response, large volume basis
in modern automated facilities in
Tongaat, KwaZulu-Natal. Their
export sales doubled and now
represent almost 30% of the
division’s total sales.
Studio Clothing a design facility
which relies exclusively on cut,
make and trim (CMT) facilities for
its production.
HD Lee a jeanswear
manufacturer which operates through
three factories in Lesotho and several
washing plants, also making use of
CMT facilities when necessary.
Two CMT factories, namely
Lauré Fashions – a specialist jacket
manufacturer in Cape Town, and
Reactor Clothing, a CMT factory
in Tongaat.
Sales growths from VOC
were a modest 4%, but profits were
well below those reported last year.
This was due solely to a
disappointing performance from the
Lee operation. Corrective action is
being taken to re-focus this business
on its core competency of
manufacturing denim jeans and
improved results are expected for
VOC as a whole in the year ahead.
MELTZ
A controlling interest in Meltz
Success (Proprietary)
Limited was purchased
some five years ago to
secure for the Group
a vitally needed
international
and local
merchandise
sourcing facility.
As indicated in
last year’s
report, the
company
Page 23
Edcon 2000
performed particularly poorly and
generated unacceptable losses in the
recent past. As a result, the decision
was taken in 1998 to dispose of its
branded businesses and concentrate
on sourcing unbranded core goods
for Edcon. This process continued
in the year under review and the
last major brand, Calvin Klein, was
transferred to Busby Limited. In
addition, Edcon finally purchased
the minority shareholders’ shares in
Meltz and transferred its operations
to Edgardale. The company will
now serve the purpose for which it
was originally purchased, and
buyers and planners working for
Edcon Sourcing (previously Meltz
Success) will procure merchandise
centrally on a commission basis for
the benefit of the greater Edcon
Group. Losses for the year remained
unacceptably high, but were
necessary to clear
remaining stocks,
transfer operations and
collect outstanding
receivables.
SMILEY’S
WEARHOUSE
Smiley’s is a highly focused fashion
discount retailer serving a niche
market with predominantly
ladieswear at remarkable prices.
Edcon previously owned only 33%
of this operation through its
investment in Meltz. Following the
acquisition of Meltz shares
enumerated above, Edcon acquired
the remaining shares in Smiley’s
Wearhouse (Proprietary) Limited
from its founder Tony Smily.
As a wholly owned
subsidiary, under the watchful eye
of the Jet team, profitability at
Smiley’s will improve significantly.
The Jet/Sales House operations
team has already taken
responsibility for all Smiley’s stores
and buying efficiencies and
merchandise improvements are
expected.
ZIMBABWE
At the time of writing this report
the situation in Zimbabwe is
extremely worrying. The economy
is struggling with inflation and
interest rates at well over 50% and
only limited foreign exchange is
available for vital imports, including
fuel and electricity. Ahead of a
promised general election, the
country is also politically and
socially unstable. Against the
background of these uncertainties,
the Board has resolved to defer any
strategic decisions relating to its
Zimbabwe operations until after the
elections. Once the outcome is
known and the Zimbabwean and
international reactions have been
assessed, management will be in a
position to formulate its strategic
intent relating to its operations in
Zimbabwe and to comment on
whether the current accounting
treatment of consolidating its
results is appropriate in future.
The current net interest in Edgars
Zimbabwe is recorded in the Group
accounts at R41 million. This includes
their second interim dividend of the
Chief Executives’
Report
(continued)
Page 24
Edcon 2000
“2000 IS THE YEAR OF
THE EMPLOYEE”
equivalent of R3,3 million payable on
12 November 1999 which remains
unpaid. Bankers have indicated that
payment cannot be expected until
the foreign exchange proceeds from
tobacco auctions are realised. The
collectability of dividends will also
be reviewed after the elections.
Edgars Zimbabwe is an
independent operation listed on the
Zimbabwe Stock Exchange. Edcon
currently owns 56% of its issued
share capital. It trades through
77 retail stores as Edgars, Express
and CNA and via a manufacturing
division, Carousel. Edgars
Zimbabwe is the pre-eminent
retailer of clothing, footwear,
textiles and accessories in their
market.
Ironically, Edgars Zimbabwe
reported superlative results for the
twelve months to December 1999.
Sales in Zimbabwe dollar terms
grew by 74%, well ahead of
inflation, while attributable
earnings rose by a remarkable
159%. In rand terms sales and
earnings grew by 18% and 88%
respectively. Express continued to
be the vanguard of this growth by
offering customers startling value
on key core merchandise items.
Edgars, however, remained the
mainstay of the business. Prospects
for this operation can best be
summarised by quoting from Edgars
Zimbabwe’s recent year end
preliminary announcement to
shareholders: “The problems facing
the country today are countless,
urgent and indeed very serious.
The hope is that after the elections
the country will see the leaders
attending to the needs of Zimbabwe
in a fresh and positive manner,
aimed at finding lasting solutions”.
HUMAN RESOURCES
In line with Group policy, the
human resource departments of
each chain were centralised, under
the leadership of Dr Urin Ferndale.
Not only have efficiencies
improved, but consistency of policy
and procedures has been achieved
across the whole Edcon family.
A competency based approach to
human resource management
has been communicated to,
and accepted by all staff.
Competency and delivery
against pre-determined goals
will drive promotions, pay
increases, incentive
payouts, share
allocations, training,
succession planning,
and, in irretrievable
cases, dismissal.
The importance
to Edcon of our
people is underscored
by the decision to
name 2000 as “the year
of the employee” within
the Group. Edcon is
committed to the
requirements of the
Employment Equity Act
and all other labour
related legislation. To this
end, a compliance audit completed
this year, indicated that Edcon
generally meets legislated
requirements and that most of its
policies and procedures are in line
with best practice. Employment
Equity initiatives are a business
imperative and a comprehensive
Employment Equity strategy and
plan has been formulated by a
committee with representatives
from management, designated
groups and the two unions.
This committee is confident
that the plan called for in terms of
the Employment Equity Act,
including annual targets for staff
numbers by race, will be submitted
by June 2000 and communicated to
the whole business shortly. As
a point of reference against which
to measure future progress, 25% of
Edcon’s Board and 29%, (last
year 24%) of Edcon
management are currently
Black. These percentages
are expected to continue
to increase significantly
over time as agreed
targets are aggressively
pursued. It is also
meaningful to note
that the percentage of
Black staff in Edcon’s South
African operations has
increased from 71% to 77%
over the past year. The
proportion of female staff
has remained constant over
the year with 53% of
management and 72% of the
Page 25
Edcon 2000
total staff being female.
Mindful of the
need to improve
communication
between labour and
management and to re-
build relationships
following the
devastating strike in
1998, a national
management-labour
forum was established.
Meeting monthly under the
chairmanship of the human
resources director, this forum
ensures that labour’s opinions,
aspirations, needs and grievances
are heard by policy formulators and
that communication between
management and labour is effective
and timely. This forum encourages
empowerment through
participation and opens vital
communication channels.
Communication is difficult when
employees are dispersed in almost
seven hundred stores. Consequently,
Edcon has published a monthly
in-house newsletter “Edcon Vibe”.
Furthermore, video recordings of
company status
briefings from
the Chief
Executive have
been distributed
to all stores. An
in-store radio
station, through
which training
and other
communication
materials can be
disseminated, has also been
introduced.
Products of this national
forum include a two year wage
settlement, with effective annual
increases of 8,1% and several
agreements which facilitate greater
flexibility with regard to staff
deployment and working hours.
As a result, a comprehensive
employee scheduling system, which
will impact positively on
productivity and improve service
levels, has been commissioned in
stores.
Edcon has embarked on a
process to align its training courses
with the competencies required for
specific jobs. The focus for the
coming year will be to ensure that
internal courses are accredited and
recognised by tertiary institutions.
Edcon has played a significant role
in the development of the
Wholesale and Retail Sectoral
Authority and the standard
generating body for the retail sector.
Edcon’s commitment to the
development of its staff is
confirmed by the R9 million spent
on training for employees.
Edcon’s remuneration
philosophy is designed to attract
high calibre talent and to motivate
staff for superior performance. To
this end, all bargaining unit staff
will join a new cash bonus incentive
scheme, while over 3 000 staff will
participate in the new extended
share option scheme. Both are
performance based. Bonus
payments and share allocations will
depend on individual outputs
measured against pre-determined
goals, assessed in terms of
comprehensive appraisals. The
extension of share options to many
more staff became possible after
Chief Executives’
Report
(continued)
Page 26
Edcon 2000
“CONSUMER DEBT LEVELS HAVE FALLEN
SOMEWHAT OVER THE PAST YEAR”
shareholders, at a meeting on
3 June 1999, increased the pool of
shares available for allocation to
staff to 20% of the issued share
capital. The number of options
allocated, based on individuals
salaries and their performance, will
only be determined in the coming
months when all appraisals are
complete. This new scheme
envisages an annual allocation, with
candidates only being able to take
delivery of the shares three to five
years after allocation. On this
“rolling” basis, respective staff
should always have undelivered
shares which should improve
employee retention and enhance
motivation.
The staff complement fell
during the year under review with
the total number of staff decreasing
from 15 255 last year to 14 501 by
March 2000. Labour turnover of
only 21% and 5 869 staff with more
than five years service, would
indicate that employees are
reasonably satisfied with Edcon as
an employer. Staff numbers are
expected to decline further with
over 600 employees accepting a
voluntary retrenchment package in
April 2000 ahead of further
reductions in excess trading space.
With a view to formally measuring
levels of enthusiasm and the
perceived corporate culture, a
comprehensive culture survey was
conducted amongst the whole
Edcon family in April this year.
When the results become available,
they will serve as a barometer
against which to measure future
human resource initiatives.
Employees continued to enjoy
the benefits and savings
opportunities provided by the
various provident and pension funds
administered by the Group. Full
details of these funds are included in
note 4 to the financial statements.
Following the promulgation
of the new Medical Aid Act, it was
necessary for the Group to amend
the structures and benefits of the
Edcon Medical Aid. With effect
from 1 April 2000, staff have been
asked to select, from an extensive
menu of options, the level of
medical cover they require. Clearly
the cover provided and level of
savings accounts will depend
entirely on the monthly
contributions made by individuals,
as the company contribution will be
a fixed percentage of the cost of
core benefits selected. The final
amount of any unfunded liability
for pensioners medical aid costs
depends on the number
of pensioners
and near
pensioners
who elect to
remain on the
medical aid and
the financing of this
liability is contingent upon the
quantum of funds that can be made
available from the closed Edcon
Pension Fund. Based on estimates,
the potential liability for pensioners
which requires funding, as indicated
in note 4 to the financial
statements, is approximately
R50 million. Legislation pertaining
to the utilisation of pension fund
surpluses is also currently unclear,
however the fund’s actuaries are
engaged in formulating an equitable
initiative to ease the burden of
medical aid for pensioners.
CREDIT
Consumer debt levels have fallen
somewhat over the past year.
Coupled with this, the public has
enjoyed a modicum of relief from
the reduction in interest rates, with
maximum rates on credit cards, as
prescribed by government in terms
of the Usury Act, declining from a
peak in 1998 of 36% to the current
rate of 25%. Payment of the full
requested monthly instalment,
however, remains a problem for
many lower income customers and
impossible for the ever increasing
pool of unemployed. As a result,
bad debt on the longer term, higher
risk interest bearing
accounts
deteriorated
and debt
collection
costs increased
significantly. The
shorter term
accounts performed
in line with expectations.
In terms of a long-standing
agreement, Nedcor Bank Limited
continued to finance, on a non-
Page 27
Edcon 2000
recourse
basis,
the long
term
(twelve
months and
over) interest
bearing accounts for Edgars, Sales
House and Shoecorp, while Edcon
financed and carried the bad debt
on the six month interest free
accounts, together
with the majority of customer
balances in Jet. Late last year, the
debtors financed by Nedbank
reached a self-imposed ceiling
limit and Edcon itself agreed to
finance all new twelve month
accounts opened subsequently.
These have been established in
terms of recently developed
scorecards. It is Edcon’s intention to
build a credit history on this new
twelve month book, to have it
formally credit rated and, in time,
securitised.
Bad debt, net of recoveries,
carried by Edcon, remained at last
year’s level of 1,6% of total Group
sales. Moving annual percentage
of net bad debt
to credit sales,
on Edcon
debtor
accounts only,
was 4,3%.
The previously
announced consolidation of the
Group’s credit operations and the
closure of thirteen collection and
credit offices was completed during
this year. The three major credit
operations in Johannesburg, Durban
and Cape Town are now equipped
with state of the art predictive
dialling and call centre facilities.
These should improve collection
performance and customer service.
The introduction of Credit Vision
debtors software in February last
year, proved more complex and
problematic than anticipated.
However, having resolved initial
teething difficulties, the credit
division has plans to capitalise on
this powerful and highly
sophisticated software.
Three variables determine the
success of the credit division.
Namely, administration/debt
collection costs, net bad debt, and
the differential between credit card
lending rates and the Group’s cost
of capital. Many of the now
centralised costs were previously
carried within the chains so direct
comparisons with last year are not
possible, but it is relevant to note
that the R17 million increase in bad
and doubtful debts this year was
financed totally by a R58 million
rise in late payment and other
finance charges earned.
There is now little doubt that
initial credit granting and
subsequent collection policies are
key determinants of future bad
debt. Mindful of this, Edcon again
tightened credit granting criteria
and made extensive use of credit
bureau behavioural scores. As a
result, rejection rates on credit
applications have increased to levels
above 70%. TRIAD, a powerful
debtors management tool, is being
implemented currently to manage
credit collection effort and this,
coupled with the improvement in
the quality of new accounts, should
reduce bad debt over time.
Chief Executives’
Report
(continued)
Page 28
Edcon 2000
“500 000 EDGARS PURPLE
CASH CARDS HAVE BEEN ISSUED”
Many customers, caught in
the trap of recent high interest rates,
are now averse to credit and have
resorted to purchasing for cash or
on bank credit cards only. This is
evident in the net reduction in the
number of active account holders
from 3 725 000 last year to
3 446 000. To attract this cash
paying clientele, the Edgars Purple
Cash Card, with volume discount
incentives, was introduced to the
market in October 1999. To date
over 500 000 have been issued and
sales on these cards have risen to
almost 6% of Edgars sales. The
segmented marketing opportunities
to these new customers is most
exciting.
Financial services, offered to
Edcon’s extensive customer base,
are undoubtedly a growth
opportunity. Current products,
medical rescue plans, are an integral
part of the chains’ Club benefits.
Cellular phone insurance and
spectacle cover are gaining in
popularity and the activities of the
now centralised financial services
function will increase substantially
with the introduction of African
Bank micro loan kiosks in selected
stores. In addition, the planned
launch of a credit life policy to all
Edcon customers, insuring the full
balance on their account in the
event of death, disability and
retrenchment, for a nominal
percentage of the outstanding
balance, will provide another
meaningful service to customers
and will boost Group profitability.
INFORMATION
TECHNOLOGY AND
STRATEGIC PLANNING
A great part of the past year has
been spent on consolidating the
Group’s outsource arrangements
with Andersen Consulting and
PQ Outsource and establishing the
basis for an effective working
relationship. This has included the
re-structuring of the Group’s own
IT management to improve focus
on Group strategic initiatives,
business priorities, service delivery
and systems implementation. Key
achievements during the year have
included the stabilisation of the IT
environment following the recent
introduction of new packaged
software solutions throughout the
business. This ensured that full
support was provided to the retail
chains over the crucial
Christmas trading
period. Much work
was done to
ensure a
smooth
passage to the
Year 2000, and
although this was
over-hyped in
retrospect, a
seamless transition
was achieved. In addition to
the capital costs of the enterprise –
wide software developments, a
total of R23 million was spent and
expensed on the Year 2000
initiatives. R9 million was incurred
in the year under review and the
balance in previous periods.
At year end, the amount
included under fixed assets in
respect of unamortised
commissioned software amounted
to R117 million, while the
capitalised costs in respect of
systems still to be operationalised
were R95 million. This represents
an extremely valuable investment.
Looking forward, key
imperatives include the
implementation of the Retek
merchandise management system,
into ABC and Cuthberts during
May 2000 and into Sales House and
Jet before the end of the financial
year. Edgars will follow later in
2001. Other major projects,
including electronic commerce and
upgrades to the human resources
and store systems, are in their early
stages of planning. Technical issues
around data integrity,
capacity
planning and
security,
remain
pivotal to
the ongoing
support of the
business.
The strategic
planning division
provided support to
the customer
segmentation project as well as to
improving store, customer and
Page 29
Edcon 2000
merchandise
information,
provided via the
Group’s extensive
data warehouse
facilities. Ongoing
refinement and
improvement in
both these areas
will continue in the year ahead.
In addition, strategic
planning will assist in longer term
strategic initiatives designed to
create shareholder value. The first
of these covers electronic commerce
(business to business and business
to consumer), with others to follow
in due course. A specific structure is
being established to support these
projects, covering a series of
particularly exciting internet
opportunities which will enhance
customer service substantially.
SUPPLY CHAIN
In terms of the Group’s enterprise-
wide systems strategy, the Retek
distribution management systems
have been implemented in the
distribution centres in Johannesburg
and Durban. Full supply chain
benefits will, however, only be
achieved once the Retek
merchandise system as well as
the Retek data warehouse
are operative.
Nevertheless, over the past
year, business processes across the
supply chain have been critically
reviewed and refined wherever
appropriate. Accountabilities are
now clearly defined and outputs are
measured against pre-determined,
well communicated targets.
These initiatives have resulted in
a meaningful reduction in the time
from order placement to receipt of
merchandise on the selling floor,
and in a welcome reduction in
supply chain costs. Ongoing process
improvement initiatives, through
optimising outputs from
recent investments in systems
and facilities, will underpin the
next level of productivity and
efficiency enhancements.
STORE DEVELOPMENT
As indicated in last year’s annual
report, the store capital
expenditure plan for the year was
R102 million. In fact only
R48 million was spent as the Group
concentrated on improving space
utilisation, through the reduction of
store sizes and sub-letting
of inefficient square meterage,
with consequent rental saving of
R6 million per year. As a result,
following 33 closures and 17 store
reductions, net retail space fell from
820 000 m
2
to 788 000 m
2
and retail
sales per square metre rose 12% to
R8 002 per m
2
. During the year,
12 new stores were opened with
the only major new development in
South Africa being Benoni
Lakeside Mall.
The introduction of
multibrand stores, where Jet and
Sales House share an existing
Chief Executives’
Report
(continued)
Page 30
Edcon 2000
“INTERNET OPPORTUNITIES WILL
ENHANCE CUSTOMER SERVICE”
premise, proved highly successful
and, by year end, seven of this
concept had been established.
Similarly, where segmentation
analysis confirms that the Jet
concept will serve the customer base
better than Sales House, stores have
been converted to the Jet brand.
The store development
department was responsible for the
modernisation of 33 948 m
2
of
space during the year. The largest
and most rewarding project was
undoubtedly the completion of the
revitalisation of the Sandton store.
The world class store design,
fixtures and fittings, appropriate
merchandise department placement
and extension of services offered,
have impressed both local and
international customers. From an
architectural and store design
perspective, it is in a class of its own
and highly relevant and appropriate
for the most affluent shopping
centre in the country.
The budget for store capital
expenditure for the year ahead is
R84 million, with the most
significant refurbishment
programme being in Edgars
Menlyn. New stores for Edgars,
Jet, Cuthberts and Smiley’s will
open in Century City (Cape Town).
With the continued deterioration
in trading prospects in central
business districts, the property
development department will
concentrate on the reduction and
sub-letting of current excess space
in these areas. Jet and Sales House
will expand the concept of
multibrand stores to more locations.
Consequently total retail space is
expected to remain unchanged in
the year ahead.
PROSPECTS
The budget for the coming year is
challenging but achievable. There is
little doubt that the transformation
is gaining momentum and
customers are becoming
increasingly aware of the changes at
Edcon’s stores, both in service levels
offered and their everyday value
propositions.
Given the lower interest
environment, and with an
improvement in disposable incomes
following substantial personal tax
reductions, we are confident that
the sales growths reported in the
current year can be repeated in the
year ahead. Better space utilisation,
enhanced staff productivity and
more commercial merchandise
assortments should ensure that
earnings rise somewhat more
rapidly than sales.
APPRECIATION
It is rewarding and exciting to see
the changes the Edcon family
has managed and embraced in
the last year. Everyone likes to play
on the winning team and, as we gain
momentum and recover market
share profitably, the team’s sense
of winning and the importance of
individual contribution grows.
The collective efforts of the sales,
distribution, back office and
credit collection staff to improve
customer perception has been the
platform for positive change.
The entire Jet organisation deserves
special commendation for
reinventing themselves as a high
powered, dynamic, profitable
retailer. The urgent and
comprehensive change that
Dr Ferndale and the HR team has
produced in the last year is
remarkable and critical to our
ongoing success.
Selwyn MacFarlane has
provided sound guidance, clever
insight and invaluable support as
we make our way to recovery.
We are delighted to have the
counsel of Tina Mosery-Eboka and
Zohra Ebrahim who joined our
Board as non-executive directors
this past year.
In a difficult retail environment
it is our good fortune to have an
executive committee of talented,
earnest and passionate people as
colleagues.
S M Ross
Chief Executive Officer
M R Bower
Chief Executive – Group Services
Page 31
Edcon 2000
South Africa
Zimbabwe
Other (Note 6)
Segmental
Analysis
(audited)
(Note 1)
Page 32
Edcon 2000
SHOECORP
GROUP
SHOES
PER GEOGRAPHIC
REGION
Manufacturing
Division
3 676 3 613 2
888 851 4
1 296 868 49
241 240 —
213 180 18
110 98 12
6 424 5 850 10
5 991 5 478 9
213 180 18
220 192 15
244 163 50
62 59 5
83 22 277
4 4
47 31 52
3 (5) 160
(12) (20) 40
— (25)
431 229 88
353 173 104
47 31 52
31 25 24
77 78 (1)
22 21 5
17 18 (6)
7 8 (13)
4 6 (33)
2 1 100
9 729
80 58 38
218 197 11
211 187 13
4 6 (33)
3 4 (25)
40 88 (55)
10 17 (41)
14 5 180
1 4 (75)
4 6 (33)
1 —
2 8 (75)
68 90 (24)
140 218 (36)
136 212 (36)
4 6 (33)
— —
316 377
79 97
61 66
24 32
19 21
8 8
24 31
348 268
879 900
846 863
19 21
14 16
678 632
164 126
188 142
42 37
45 19
24 20
58 80
6 27
1 205 1 083
1 122 1 035
45 19
38 29
90 74
23 45
38 29
5 3
91 54
1 —
58 69
1 716 1 522
2 022 1 796
1 879 1 717
91 54
52 25
2000 1999 % 2000 1999 % 2000 1999 % 2000 1999 % 2000 19992000 1999 2000 1999
Revenue –
Retail
sales
(Rm)
Notes
1. Prepared in accordance with accounting policy note 1.12
2. Excludes proceeds on disposal of properties, fixtures, equipment and vehicles and movements in loans (note 10.7 and 10.8)
3. Assets transferred to Group Services from 1 April 1999 – comparatives not adjusted
4. Incorporating credit division, other corporate divisions and consolidation adjustments
Trading
profit
(Rm)
Depreciation
(Rm)
Capital
expenditure
(Note 2)
(Rm)
Non-current
assets
(Note 3)
(Rm)
Inventories
(Rm)
Other
current
assets
(Rm)
GROUP
SERVICES
(Note 4)
Page 33
Edcon 2000
64 82
7 24
9 21
3 6
70 24
13 19
5 38
1 067 875
1 238 1 089
1 159 1 055
70 24
9 10
1 020 1 001 2
260 245 6
277 216 28
68 66 3
85 70 21
20 9 122
136 142 (4)
1 002 941 6
2 868 2 690 7
2 688 2 560 5
85 70 21
95 60 58
5 603 6 577 (15)
994 1 096 (9)
783 889 (12)
496 527 (6)
1 693 1 567 8
274 315 (13)
2 077 2 112 (2)
2 581 2 172 19
14 501 15 255 (5)
12 509 13 479 (7)
1 693 1 567 8
299 209 43
656 549 19
893 776 15
1 655 976 70
486 455 7
214 223 (4)
403 311 29
548 465 18
574 434 32
214 223 (4)
769 919 (16)
435 444 (2)
117 128 (9)
137 145 (6)
29 30 (3)
55 57 (4)
15 16 (6)
788 820 (4)
712 742 (4)
55 57 (4)
21 21
8 430 8 143 4
7 268 6 594 10
9 178 5 896 56
8 076 7 801 4
3 975 3 159 26
7 313 6 130 19
8 002 7 143 12
1 730 1 857 (7)
765 806 (5)
564 649 (13)
179 211 (15)
208 202 3
3 446 3 725 (7)
3 139 3 342 (6)
208 202 3
99 181 (45)
199 218 (9)
109 118 (8)
98 97 1
140 144 (3)
77 72 7
48 54 (11)
671 703 (5)
573 609 (6)
77 72 7
21 22 (5)
2000 1999 2000 1999 % 2000 1999 % 2000 1999 % 2000 1999 % 2000 1999 % 2000 1999 % 2000 1999 %
Notes
5. Includes bank financed accounts (000):Edgars – 512 (1999: 522) Sales House – 267 (1999: 240)
Jet – 143 (1999: 235) Shoecorp – 53 (1999: 111)
6. Comprising Botswana, Lesotho, Swaziland and Namibia
Interest
free
liabilities
(Rm)
Net
assets
(Rm)
Number
of
employees
Retail
sales/retail
employee
(R000)
Trading
area
(000 m
2
)
Retail
sales/m
2
(moving average)
(R)
Number of
accounts
(Note 5)
(000)
Number
of
stores
Corporate
Governance Report
Page 34
Edcon 2000
Corporate governance incorporates
the adoption and monitoring of sound
effective systems of internal control,
the assessment and management of
business risks and the definition and
implementation of appropriate
business procedures. Responsibilities
are fixed, directed and controlled for
the purpose of administering and
safeguarding shareholders’ interests
and Group assets. The Directors of
Edcon deem corporate governance to
be vitally important and are
unreservedly committed to applying
the principles necessary to ensure that
good governance is practised. For this
they accept full responsibility. These
principles include integrity,
transparency and accountability of the
Directors to all stakeholders. In
pursuit of these ideals, the intention is
to exceed “minimum requirements”
with due consideration to
international trends and codes.
Corporate governance within the
Edcon Group is managed and
monitored by a unitary Board of
Directors and several sub-committees
of the main Board. The Board is of the
opinion that the Group currently
complies with the principles
incorporated in the Code of Corporate
Practices and Conduct, as set out in
the King Report.
Board of Directors
Its primary responsibilities include
discussing and reviewing the strategic
direction of Edcon and monitoring
investment decisions, considering
significant financial matters, and
reviewing the performance of
executive management against
business plans, budgets and industry
standards. In addition, specific
attention is given to ensuring that a
comprehensive system of policies and
procedures is operative and compliance
with corporate governance principles
is reviewed regularly. The Board is
chaired by non-executive Director,
W S MacFarlane, and consists of six
executive and six non-executive
Directors. The names and credentials
of the Directors in office on
31 March 2000 are detailed on page 7.
The Board remains responsible to the
shareholders in the exercise of its
duties.
Non-executive Directors
contribute an independent view to
matters under consideration and add
to the breadth and depth of
experience of the Board. This group
enjoys significant influence at
meetings. The roles of Chairman and
Chief Executive are separate, with
responsibilities divided between
them. The Chairman has no executive
functions. All Directors have the
appropriate knowledge and
experience necessary to effect their
duties with each actively involved in
the Group’s affairs. Generally,
Directors have no fixed term of
appointment but retire by rotation
every three years, and, if available, are
considered for re-appointment at the
annual general meeting. Exceptions
to this are the current Chief
Executive, who has a five year
employment contract, and the Chief
Executive – Group Services, who has
signed a three year contract with the
company. In terms of the articles of
association, Messrs. A J Aaron,
W F de la H Beck and M I Wyman
retire by rotation at the annual general
meeting and, being eligible, offer
themselves for re-election.
Shareholders will also be asked to
confirm the appointments, as non-
executive Directors, of Mesdames
T N Mosery-Eboka and Z B Ebrahim,
together with the appointments, as
executive Directors, of Messrs
J A Day, G R Evans, Dr U Ferndale
and R C Maydon, who were
appointed by the Board during the
year. Non-executive Directors receive
no benefits from Edcon other than
their directors’ fees. All Board
members are required to disclose their
shareholdings in Edcon, other
directorships and any potential
conflict of interest. They are then
required to excuse themselves from
any discussions and decisions on
matters in which they have a
conflicting interest.
Board meetings are held at least
quarterly, with additional meetings
called where circumstances
necessitate. Effective chairmanship
and a formal agenda, raising issues
that require attention, ensure that
proceedings are conducted efficiently
and all appropriate matters addressed.
All relevant information is supplied to
Directors timeously. Meetings are not
dominated by one person or group of
persons, rather the interests of all
stakeholders remain at the core of all
decisions. Members have unlimited
access to the company secretary, who
acts as an advisor to the Board and its
sub-committees on issues including
compliance with Group rules and
procedures, statutory regulations and
best corporate practices. Furthermore,
the advice of independent
professionals may be obtained by any
Board member in appropriate
circumstances, at the expense of the
Company. The name and address of
the secretary are on page 77.
Board sub-committees
Specific responsibilities have been
delegated to Board committees with
defined terms of reference from
approved charters. The current Board
committees are:
Audit committee
The audit committee identifies and
continuously evaluates exposure to
significant risks, reviews the
appropriateness and adequacy of the
systems of internal financial and
operational control, reviews
accounting policies and financial
information issued to the public,
provides effective communication
between directors, management and
internal and external auditors, and
recommends the appointment of the
external auditors. The committee has
three non-executive members and
their details are provided on page 7.
During the year the Board
adopted an audit committee charter
which provides clear terms of
reference to the audit committee.
In drafting this charter, full
consideration was given to current
international trends and developments
pertaining to audit committees.
Committee members have unlimited
access to all information, documents
and explanations required in the
discharge of their duties. This
authority has been extended to the
internal and external auditors. The
activities of the committee are
reviewed by the members via an
annual control self-assessment
exercise. Furthermore the main Board
is provided with regular reports on
the committee’s activities.
The committee, chaired by
W S MacFarlane, meets at least three
times per year. Meetings are attended
by invitees, including the financial
director, external auditor, internal
auditor and company secretary.
The charter also requires that sessions
be held with no management present,
to ensure that matters are considered
without undue influence. The internal
and external auditors have unlimited
access to the Chairman.
Page 35
Edcon 2000
Remuneration committee
The purpose of the remuneration
committee is to approve a broad
remuneration strategy for the Group
and to ensure that Directors and
senior executives reporting to the
Chief Executive are adequately
remunerated for their contribution
to Edcon’s operating and financial
performance, in terms of base pay
and short and long term incentives.
In fulfilling its duties, consideration
is given to industry and local
benchmarks and international trends.
At all times, due attention is paid to
succession plans and the retention of
key executives. In order to promote
an identity of interests with
shareholders, share incentives are
considered to be an integral and vital
element of middle and senior
management’s incentive pay. The
committee members are detailed on
page 37. The Directors’ emoluments
are fully disclosed in note 4 to the
financial statements.
Customer service committee
The purpose for which this
committee has just recently been
established is to promote a customer
service ethic throughout the Group
and to provide an independent
assessment of customer service
against specified service objectives,
by setting criteria and measuring
delivery against these standards.
The committee will meet for the
first time in August 2000. It will
be responsible for maintaining
a comprehensive understanding of the
levels of customer service expected in
each chain, against which it will
consider the results of various
initiatives including “mystery
shopper” reports. It will make
recommendations for corrective
action by evaluating the performance
of each chain. Meetings will be held
twice per annum under the
chairmanship of the Chief Executive.
Clear terms of reference have been
documented in a charter approved by
the main Board. The committee will
consist of three members of which at
least one will be non-executive.
Other group committees
Employment equity committee
The role of the employment equity
committee is to formulate and
implement the employment equity
strategy and measure achievements.
This involves developing an
appropriate plan, communication of
the strategy and plan and monitoring
the implementation thereof.
A constitution has been adopted
which guides activities. The
committee comprised of elected and
appointed members, holds monthly
meetings with representatives from
management and labour and is
chaired by the Chief Executive.
Accountability and audit
Internal control
The Board of Directors is responsible
for the Group’s systems of internal
control. Responsibility for the
adequacy, extent and operation of
these systems is delegated to the
executive Directors. To fulfil this
responsibility management maintains
accounting records and has developed
and continues to maintain appropriate
systems of internal control.
The Directors report that the
Group’s internal controls and systems
are designed to provide reasonable,
and not absolute, assurance as to the
integrity and reliability of the
financial statements, to safeguard,
verify and maintain accountability of
its assets and to detect and minimise
fraud, potential liability, loss and
material misstatement, while
complying with applicable laws and
regulations.
The systems of internal control
are based on established
organisational structures together
with written policies and procedures,
including budgeting and forecasting
disciplines and the comparison of
actual results against these budgets
and forecasts. The Directors have
satisfied themselves that these
systems and procedures are
implemented, maintained and
monitored by appropriately trained
personnel with suitable segregation of
authority, duties and reporting lines
and by comprehensive use of
advanced computer hardware and
software technologies. Employees are
required to maintain the highest
ethical standards in ensuring that
business practices are conducted in a
manner, which in all reasonable
circumstances, is above reproach. The
effectiveness of the systems of
internal control in operation is
monitored continually through
reviews and reports from:
●
senior executives and divisional
managers;
●
the head of group internal audit;
●
external auditors.
Furthermore management has a
control self-assessment process to
supplement the existing structures of
evaluating the systems of internal
control. The process which includes
the signing of a representation letter
by the Chief Executive of each chain,
is designed to assess, maintain and
improve controls on an ongoing basis.
None of the above reviews
indicated that the systems of internal
control were not appropriate or
satisfactory. Furthermore, no material
loss, exposure or misstatement arising
from a material breakdown in the
functioning of the systems have been
reported to the Directors in respect of
the year under review.
Internal audit
The internal audit function is an
independent appraisal function which
examines and evaluates the Group’s
activities and the appropriateness,
adequacy and efficacy of the systems
of internal control and resultant
business risks. In terms of the audit
committee charter, the head of
internal audit has the responsibility of
reporting to the audit committee and
has unrestricted access to its
chairperson. Its objective is to assist
members of executive management in
the effective discharge of their
responsibilities. The scope of the
internal audit function includes
reviews of the reliability and integrity
of financial and operating
information, the systems of internal
control, the means of safeguarding
assets, the efficient management of
the Group’s resources, and the
effective conduct of its operations.
Audit plans are based on an
assessment of risk areas and every
assignment is followed by a detailed
report to management including
recommendations on aspects
requiring improvement. Significant
findings are reported to the audit
committee. The internal audit work
plan is presented in advance to the
audit committee.
In addition, internal audit
provides pivotal input to the semi-
annual risk assessment monitor in
terms of which key group risks are
identified, assessed and management
plans formulated to reduce exposure
Corporate
Governance Report
(continued)
Page 36
Edcon 2000
to these risks. This risk assessment
monitor is tabled semi-annually at the
audit committee and the main Board
for consideration.
During the current financial year,
a fraud hot line was established and
Edcon staff are able, anonymously,
to report suspected irregularities.
The project is administered by both
the external and internal auditors.
Results confirm that this is an
effective tool for the prevention
and detection of fraud.
External audit
The external auditors provide an
independent assessment of systems of
internal financial control and express
an independent opinion on the annual
financial statements. The external
auditors complement the work of the
internal audit department and review
all internal audit reports on a regular
basis. The external audit function offers
reasonable, but not absolute assurance
on the accuracy of financial disclosures.
Risk management
The objective of risk management is
to identify, assess, manage and
monitor the risks to which the business
is exposed. Risk management is a
Board responsibility. The most
significant risks currently faced by the
Group are the skills shortage, risks
associated with buying fashion goods,
Aids, information technology, credit
granting risks, crime and the
deteriorating economic and political
situation in Zimbabwe. The
management of each of the top ten
risks is assigned to a senior executive.
Operational and financial risks
are managed through detailed systems
of operating and financial controls
which are reviewed and monitored
continuously.
Exposure to currency and interest
rate risk is managed by a focused
treasury department. Details of the
process of management and the
current levels of exposure are
contained in note 28 to the financial
statements.
Merchandise stock losses are
managed and limited by adhering
strictly to operating and financial
controls, dedicated independent
security associates and the use of
sophisticated video and other
technologies.
Losses from defaulting debtors
are limited by stringent credit
application criteria and clearly defined
credit and collection policies. These
are reviewed regularly in the light of
prevailing economic conditions and
bad debt statistics.
With assistance from expert
insurance consultants, risks are
assessed and insurance cover
purchased for all risks above pre-
determined self insured limits. Levels
of cover are re-assessed annually in
the light of claims experiences and
changes within and outside the Group.
Disaster recovery plans for the
provision of ongoing information
technology services in the event of a
disaster are documented and updated,
and tested at reasonable intervals.
Where necessary business resumption
plans have and will be developed on
an on-going basis.
Relationships and reporting
Employee participation
Our human resources are now full
partners in the business with a
common vision to “achieve business
success through people”. This year
has been declared the “year of the
employee”. A concerted drive to
encourage employee participation at
all levels has permeated the business.
Employee participation is effected
through employee fora, the
conclusion of mutually beneficial
agreements between labour and the
company, an increased focus on
training, employee participation as
trustees on the medical aid and
retirement funds, regular
communication with employees
through newsletters, the internal radio
station in stores, and videos. During
the year under review, a compliance
audit was conducted and the
necessary action taken to ensure that
the Group complies with all new
labour legislation.
Employment equity
Edcon has a clearly defined
employment equity strategy and the
comprehensive employment equity
plan agreed to with all relevant
stakeholders at the equity committee,
has been completed for submission in
June 2000. This and other specific
affirmative action programmes aim at
liberating the full potential of
previously disadvantaged personnel,
while at the same time meeting all
legislated requirements. The
employment equity committee
manages this process. Details of the
Group’s progress in this and other
employee related areas are included
in the chief executives’ report on
page 12.
Public and shareholders
Communication to the public and
shareholders embodies the principles
of balanced reporting,
understandability, openness and
substance over form. Positive and
negative aspects of both financial and
non-financial information are
provided. It is the policy of the
company to meet regularly with
institutional shareholders and
investment analysts and to provide
presentations to both local and
international investors and analysts
bi-annually after the release of
company results.
Going concern
The annual financial statements set
out on pages 39 to 74 have been
prepared on the going concern basis
since the Directors have every reason
to believe that the company and
Group have adequate resources in
place to continue in operation for the
foreseeable future.
Code of conduct
Edcon has a formal code of conduct
that has been explicitly adopted by
the Board of Directors. A copy is
presented to all staff on joining the
Edcon family. The code is consistent
with the principles of integrity,
honesty, ethical behaviour and
compliance with all laws and
regulations. Employees are expected
to act in terms of the code at all times
and failure to do so results in
disciplinary action. Employees of
outsourced functions are also required
to comply with the principles of
the code.
Staff with access to confidential
financial information are prohibited
from disclosing this to outsiders and
from trading in Edcon shares during
the period after the year end and half
year end, until the final or interim
results are published.
All Edcon employees are required
to adhere to a comprehensive internet
and electronic mail policy. This
disallows any activities that may
bring the Group into disrepute.
Firm action has been taken against
Page 37
Edcon 2000
employees who fail to honour this
policy.
Environmental and occupational
health and safety
The Directors acknowledge their
responsibility to all Edcon employees
and the public for compliance with
occupational safety and
environmental health standards.
During the year under review, internal
audit conducted an assessment of
compliance with the Occupational
Health and Safety Act, and where
non-compliance was identified,
corrective action has been taken. Such
audits are conducted on a regular
basis.
Corporate social activities
Edcon contributes to the social
upliftment of the communities in
which it operates. Edcon’s
programmes, predominantly through
the Edgars and Sales House Clubs,
focus on contributions towards
education and training through
payments to nominated schools,
technikons and universities. In
addition, bursaries are awarded to
Club members and their children to
attend training and educational
institution courses. Deserving health
and welfare requests are also included
in the social investment programme.
Directors’ responsibilities for
financial reporting
The annual financial statements for
the year ended 31 March 2000
incorporate the results for the fifty-
two weeks ended 1 April 2000 (1999:
fifty-two weeks ended 3 April 1999).
The directors are ultimately
responsible for the preparation of the
annual financial statements and
related financial information that
fairly present the state of affairs and
the results of the company and of the
Group. The external auditors are
responsible for independently
auditing and reporting on these
annual financial statements in
conformity with statements of South
African Auditing Standards.
The annual financial statements
set out in this report have been
prepared by management in
accordance with statements of
generally accepted accounting
practice, international accounting
standards and in the manner required
by the Companies Act. They
incorporate full and reasonable
disclosure and are based on
appropriate accounting policies which
have been consistently applied and
which are supported by reasonable
and prudent judgements and
estimates.
No event, material to the
understanding of this report, has
occurred between the financial year
end and the date of this report.
In the context of their audit,
carried out for the purposes of
expressing an opinion on the fair
presentation of the annual financial
statements, the auditors have
concurred with the disclosures of the
Directors on going concern and
corporate governance.
These annual financial
statements have been approved by the
Board of Directors and are signed on
their behalf by
W S MacFarlane
Chairman
S M Ross
Chief Executive
Certificate by company secretary
In my capacity as Company Secretary,
I hereby confirm, in terms of the
Companies Act, 1973, that for the
year ended 31 March 2000, the
company has lodged with the
Registrar of Companies all such
returns as are required of a public
company in terms of this Act and that
all such returns are true, correct and
up to date.
D J Viviers
Secretary and Legal Advisor
18 May 2000
Members of Board sub-committees as at 31 March 2000 were as follows:
Audit committee W S MacFarlane (Chairperson)*
S M Ross
A J Aaron*
W F de la H Beck*
Remuneration committee W S MacFarlane (Chairperson)*
S M Ross
W F de la H Beck*
Z B Ebrahim*
Dr U Ferndale
Customer service committee S M Ross (Chairperson)
T N Mosery-Eboka*
R C Maydon
Other committees:
Employment equity committee S M Ross (Chairperson)
G R Evans
Dr U Ferndale
R C Maydon
Employee representatives
SACCAWU representatives
FEDCRAW representatives
* Non-executive director
INDEX
PAGE
Report of the Independent Auditors 38
Income Statements 39
Cash Flow Statements 40
Cash Value Added Statements 41
Balance Sheets 42
INDEX
PAGE
Statements of Changes in Ordinary
Shareholders’ Equity 43
Inflation Statements 44
Notes to the Inflation Statements 45
Notes to the Financial Statements 46
Interests in Subsidiaries 74
Group Annual
Financial Statements
To the members of
EDGARS CONSOLIDATED STORES
LIMITED
We have audited the annual financial statements set out on
pages 39 to 43 and 46 to 74 for the year ended 31 March
2000. These financial statements are the responsibility
of the company’s directors. Our responsibility is to express
an opinion on these financial statements based on our audit.
Scope
We conducted our audit in accordance with statements of
South African Auditing Standards. Those standards
require that we plan and perform the audit to obtain
reasonable assurance that the financial statements are free
of material misstatement. An audit includes:
●
examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements;
●
assessing the accounting principles used and significant
estimates made by management; and
●
evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for
our opinion.
Audit opinion
In our opinion, the financial statements fairly present, in
all material respects, the financial position of the
company and the group at 31 March 2000, and the results
of their operations and cash flows for the year then ended
in accordance with South African statements of generally
accepted accounting practice, international accounting
standards and in the manner required by the Companies
Act in South Africa.
We have also examined the inflation statements set out
on pages 44 and 45.
In our opinion these statements have been properly
prepared on the bases set out in the notes thereto.
Ernst & Young
Chartered Accountants (SA)
Johannesburg
18 May 2000
Report of the
Independent Auditors
The financial statements are expressed in South African rand (R).
The approximate rand cost of a unit of the following currencies at 31 March was
2000 1999
US dollar 6,56 6,20
Sterling 10,47 9,98
Deutsche mark 3,21 3,42
Swiss franc 3,95 4,18
Italian lire (100) 3,09 2,90
French franc 0,96 0,98
Zimbabwe dollar 0,15 0,16
Botswana pula 1,37 1,35
Euro 6,28 6,68
Currency of
Financial Statements
Page 38
Edcon 2000
5 145,5 5 697,7 Revenue – retail sales 6 423,6 5 849,8
3 431,9 3 747,1 Cost of sales 4 100,7 3 834,1
1 713,6 1 950,6 Gross profit 2 322,9 2 015,7
Expenses
444,5 394,6 general and administration 585,4 550,9
1 132,7 1 207,9 sales and distribution 1 308,2 1 236,3
136,4 348,1 Trading profit 3 429,3 228,5
18,8 77,3 Dividend income 5 1,3 —
15,9 9,0 Interest received 6 11,2 4,9
171,1 434,4 441,8 233,4
114,7 90,7 Financing costs 6 88,6 126,3
56,4 343,7 Profit before taxation 353,2 107,1
14,0 74,8 Taxation 7 108,3 38,9
42,4 268,9 Profit after taxation 244,9 68,2
Attributable to outside shareholders
of indirect subsidiaries (3,2) 6,1
of direct subsidiaries (15,2) 11,5
42,4 268,9 Earnings attributable to ordinary shareholders 226,5 85,8
Earnings per ordinary share (cents) 9
attributable earnings basis 394,8 150,6
headline earnings basis 407,9 147,6
Dividends per ordinary share (cents) 8 152,0 58,0
Company Group
1999 2000 2000 1999
Rm Rm Note Rm Rm
Income
Statements
Page 39
Edcon 2000
Cash retained from operating activities
136,4 348,1 Trading profit 429,3 228,5
207,9 160,6 Non-cash items 10.1 225,3 193,5
13,2 71,7 Dividends received 10.2 1,3 —
16,7 (334,6) Working capital requirements 10.3 (334,9) (22,6)
374,2 245,8 Cash generated from operating activities 321,0 399,4
15,9 9,0 Interest received 11,2 4,9
(114,7) (90,7) Financing costs paid 10.4 (88,6) (126,3)
(51,7) (5,3) Taxation paid 10.5 (36,2) (82,4)
223,7 158,8 Cash inflow from operations 207,4 195,6
(21,8) (56,3) Dividends paid 10.6 (60,6) (21,8)
201,9 102,5 Net cash retained 146,8 173,8
Cash utilised in investment activities
(162,2) (83,8) Investment to maintain operations 10.7 (90,2) (182,8)
(59,3) (37,3) Investment to expand operations 10.8 (40,7) (40,4)
(50,0) (7,0) Net investment in subsidiaries 10.9 (6,6) —
(271,5) (128,1) Net cash invested (137,5) (223,2)
Cash effects of financing activities
(0,2) — Increase/(decrease) in shareholder funding 10.10 0,6 13,0
80,1 40,4 Increase in interest bearing debt 10.11 27,8 52,3
79,9 40,4 Net cash inflow from financing activities 28,4 65,3
10,3 14,8 Increase in cash and cash equivalents 10.12 37,7 15,9
Cash and cash equivalents at the
34,4 44,7 beginning of the year 81,4 61,5
Currency adjustments (0,6) 4,0
44,7 59,5 Cash and cash equivalents at the end of the year 118,5 81,4
Attributable cash flow per ordinary share (cents) 9 375,4 349,7
Attributable cash equivalent earnings
per ordinary share (cents) 9 779,7 514,0
Cash realisation rate (%) 2.5 48 68
Company Group
1999 2000 2000 1999
Rm Rm Note Rm Rm
Cash Flow
Statements
Page 40
Edcon 2000
Cash value added is the wealth, expressed in cash terms,
that the group has created by purchasing, manufacturing,
processing and marketing its products and services.
The statement below shows how this cash wealth created
has been disbursed among the group’s stakeholders.
Cash generated
Cash derived from customers 6 145,6 5 748,4
Cash payments outside the group to suppliers of
materials, merchandise, facilities and services (4 497,6) (4 038,6)
Cash value added 1 648,0 1 709,8 (4)
Cash utilised to
Remunerate employees for their services 943,3 953,1 (1)
Pay direct taxes to the state
South Africa 11,8 60,1 (80)
Elsewhere 24,4 22,3 9
Provide lenders with a return on monies borrowed 88,6 126,3 (30)
Provide lessors with a return for the use of their premises 372,5 352,4 6
Provide shareholders with cash dividends 60,6 21,8 178
Cash disbursed among stakeholders 1 501,2 1 536,0 (2)
Net cash retained 146,8 173,8
Reconciliation with cash generation
Cash value added (above) 1 648,0 1 709,8
Less: Remunerate employees for their services (943,3) (953,1)
Provide lessors with a return for the use
of their premises (372,5) (352,4)
Interest received (11,2) (4,9)
Cash generated from operating activities
(per cash flow statement) 321,0 399,4
State taxes summary
Direct taxes (as above) 36,2 82,4
Net value added tax 140,4 195,5
Employee tax 128,7 128,3
Regional services council levies 12,1 10,8
Municipal assessment rates and services 83,8 76,8
Channelled through the group 401,2 493,8
Paid in
South Africa 322,9 453,3
Elsewhere 78,3 40,5
401,2 493,8
Group
2000 1999 Change
Rm Rm %
Page 41
Edcon 2000
Cash Value
Added Statements
2000
1999
4,0%
24,8%
5,9%
2,4%
62,9%
1,4%
22,9%
8,2%
5,4%
62,1%
Employees
Shareholders
Lessors
Lenders
State
ASSETS
Non-current assets
724,3 752,1 Properties, fixtures, equipment and vehicles 11 851,5 860,6
13,1 9,0 Trademarks 12 8,2 17,1
175,0 256,4 Investments 13 0,8 0,8
18,9 15,9 Loans 14 18,4 21,4
931,3 1 033,4 Total non-current assets 878,9 899,9
Current assets
895,6 1 038,8 Inventories 15 1 204,7 1 083,2
1 512,6 1 728,6 Accounts receivable and prepayments 16 1 902,9 1 681,6
32,9 — Taxation receivable — 33,5
44,7 59,5 Cash and cash equivalents 17 118,5 81,4
2 485, 8 2 826,9 Total current assets 3 226,1 2 879,7
3 417,1 3 860,3 Total assets 4 105,0 3 779,6
EQUITY AND LIABILITIES
Capital and reserves
591,2 591,2 Share capital and premium 18 591,2 591,2
9,3 5,6 Non-distributable reserves 19 37,5 43,2
1 189,6 1 372,8 Retained surplus 20 1 568,6 1 427,5
1 790,1 1 969,6 Ordinary shareholders’ equity 2 197,3 2 061,9
0,3 0,3 Preference share capital 18 0,3 0,3
Minority interest 42,1 31,3
1 790,4 1 969,9 Total shareholders’ equity 2 239,7 2 093,5
Interest bearing debt
219,3 198,4 Long and medium term 21 199,1 221,0
365,9 430,9 Short term 22 428,7 375,9
585,2 629,3 Total interest bearing debt 627,8 596,9
2 375,6 2 599,2 2 867,5 2 690,4
Interest free liabilities
816,2 922,5 Accounts payable 23 1 005,7 917,9
— 30,6 Current taxation 56,8 16,5
112,2 119,3 Deferred taxation 24 119,3 130,1
24,7 55,7 Shareholders for dividends 8 55,7 24,7
88,4 133,0 Owing to subsidiaries 13
1 041,5 1 261,1 Total interest free liabilities 1 237,5 1 089,2
3 417,1 3 860,3 Total equity and liabilities 4 105,0 3 779,6
Net equity per ordinary share (cents) 2.16 3 829,8 3 593,6
Company Group
1999 2000 2000 1999
Rm Rm Note Rm Rm
Page 42
Edcon 2000
Balance
Sheets
Ordinary shareholders’ equity at the
1 772,8 1 790,1 beginning of the year 2 061,9 2 002,5
Share capital issued
86,9 — Capitalisation share awards — 86,9
86,9 — — 86,9
Movements in distributable reserves
42,4 268,9 Earnings attributable to ordinary shareholders 226,5 85,8
— 1,4 Transfer from non-distributable reserves 1,8 0,2
(33,3) (87,2) Ordinary dividends (87,2) (33,3)
9,1 183,1 141,1 52,7
Movements in non-distributable reserves
Foreign currency translation reserve (1,7) (10,2)
(80,3) — Share election reserve — (80,3)
2,1 — Revaluation surplus — 13,3
(0,5) 0,5 Deferred taxation on revaluation surplus 0,5 (3,2)
Lifo inventory reserve — 0,4
(2,7) Derivative valuation adjustment (2,7)
— (1,4) Transfer to income statement (1,8) (0,2)
(78,7) (3,6) (5,7) (80,2)
1 790,1 1 969,6 Ordinary shareholders’ equity at the end of the year 2 197,3 2 061,9
Company Group
1999 2000 2000 1999
Rm Rm Note Rm Rm
Page 43
Edcon 2000
Statements of changes
in ordinary shareholders’ equity
Cash flow analysis
Trading profit 429,3 228,5
Non-cash items 225,3 193,5
Dividends received 1,3 —
Net financing costs paid (77,4) (121,4)
Taxation paid (36,2) (82,4)
Cash generated for maintenance and expansion
of operations and dividend payments 542,3 218,2
Cash required to maintain working capacity, in
monetary terms, in an inflationary environment (120,6) (208,1)
Inventories 6 (11,9) (10,7)
Accounts receivable 6 (18,5) (14,6)
Fixed assets 7 (90,2) (182,8)
(Decrease)/increase in liability capacity from maintenance activities 8 (46,4) 12,8
(167,0) (195,3)
Discretionary cash flow 375,3 22,9
Dividends paid (60,6) (21,8)
Cash available for expansion activities 314,7 1,1
Expansion activities (442,7) (9,5)
Inventories 6 (111,9) 100,7
Accounts receivable 6 (283,5) (69,8)
Fixed assets 7 (40,7) (40,4)
Net acquisition of subsidiaries (6,6) —
Increase/(decrease) in liability capacity from expansion activities (net) 8 279,4 (9,5)
(163,3) (19,0)
Discretionary cash available 151,4 (17,9)
Gearing capacity availability 9
Unutilised capacity available at the beginning of the year 801,0 782,6
Discretionary cash available (as above) 151,4 (17,9)
Additional shareholder funding 0,6 (0,2)
Non-income statement move in outside shareholders (3,8) (4,1)
Discretionary cash flow increased/(decreased) by
Non-cash shareholder adjustments (3,2) (4,5)
Decrease in deferred taxation 10,8 (15,2)
Increase in taxation liability (73,8) 64,9
Increase in shareholders for dividends (31,0) (4,6)
Unutilised capacity available at the end of the year 28.5* 852,0 801,0
The inflation statements should be read in conjunction with the notes to the inflation statements
*Refers to notes to the financial statements
Group
2000 1999
Note Rm Rm
Page 44
Edcon 2000
Inflation
Statements
Notes to the
Inflation Statements
1. Management has concluded
that, for working capital
intensive operations, the
calculation of current cost
earnings incorporating a current
cost depreciation adjustment, as
envisaged in guideline AC 201
(Disclosure of effect of changing
prices on financial results), is
misleading as it reflects an
increase in the cost of trading in
refurbished or modern current
generation stores, without
measuring the enhanced
turnovers and profits which are
always generated from such
units. Furthermore,
management is of the opinion
that trading (operating) capacity
is maintained currently through
regular maintenance and repair
costs which are charged against
current income.
2. To reflect the depreciated
current replacement cost of
retail fixed assets without a
commensurate adjustment
reflected in turnover is a
distortion and is also misleading.
Accordingly these values should
not be disclosed as such in a
current value balance sheet. As a
result, a comprehensive current
value balance sheet has not been
prepared. However, replacement
values of assets for insurance
purposes have been disclosed in
note 11 to the annual financial
statements to highlight the
significant increase in fixturing
costs over time.
3. With a view to isolating the
impact of inflation on trading
activities, management
measures performance in real
terms at both the sales and
trading levels. To index
performance, the consumer
price (CPI) and clothing,
footwear and textile (CFT)
inflation indices are extracted
from information published by
the Department of Central
Statistical Services. The CPI
reflects the change in general
prices while the CFT index
indicates price changes
specifically in the clothing,
footwear and household textiles
market. The CPI increase was
3,8% (1999: 8,6%) while the
CFT index increase was 1,1%
(1999: 0,9%).
4. The CFT index is appropriate to
deflate the results and monetary
asset values in the group.
2000 1999
Real growth
in Edcon
Revenue % 8,7 2,8
Trading profit % 86,8 (46,1)
5. Aspects of cash flow and the
growth which can be sustained
from this cash flow, are key
determinants of future potential.
To facilitate an appreciation of
the group’s cash generating
capacity over time, cash flow
statements for the past six years
have been presented in the
group review. In addition, cash
generated from trading and the
investment thereof, required to
maintain operations and to
expand activities, is analysed for
the current and prior year in the
cash flow analysis.
6. The cash required to maintain
working capital, in real
monetary terms, in an
inflationary environment is
calculated by applying the CFT
index to the opening elements
of working capital. Working
capital expansion activity is that
portion of the increase after
excluding the maintenance
portion calculated. Where the
total working capital increase is
less than the maintenance
portion required in real
monetary terms, then the
difference is regarded as
negative expansion activity.
7. Fixed asset additions have been
analysed between expenditure
required to maintain existing
earning capacity and that incurred
to create additional trading
space and earning capacity.
8. New investments have the
capacity to sustain liabilities
(either interest bearing or
interest free). Management with
bankers critically reviewed the
nature and security of each asset
category and has concluded
prudently that each asset invest-
ment can sustain liabilities in
the proportions set out in
note 28.5.
On this basis, liabilities are
available to finance a portion of
the new investments and
accordingly the demand against
internally generated cash is
reduced. The liabilities
sustainable by investments
required to maintain working
capacity have been reduced by
the decrease in liability capacity
arising from depreciation, net of
the profit on disposal of fixed
assets. Where circumstances of
negative expansion activity
arise, a similar liability capacity
adjustment is applied to the
result.
9. The unutilised capacity available
reflects the additional liabilities
which the year end asset base
could support on the prudently
determined basis outlined in 8
above. The consistent unutilised
capacity confirms that the
group’s cash flow from
operations was adequate to
fund the maintenance of
working capacity, in real
monetary terms, in a period of
rising prices and to allow for
expansion activities without
incurring liabilities in excess of
the carrying capacity of the
individual asset investments.
Furthermore, the increase in
unutilised capacity confirms that
dividend payments were
comfortably within the liability
capacity of the asset base.
Page 45
Edcon 2000
1. ACCOUNTING POLICIES AND BASES OF PREPARATION
The financial statements are prepared in accordance with the historical cost convention, as modified by the revaluation of general
purpose land and buildings, and incorporate the following principal accounting policies which conform with statements of generally
accepted accounting practice in South Africa. They also comply with standards issued by the International Accounting Standards
Committee. These policies are consistent in all material respects with those applied in the previous year.
1.1 Basis of consolidation
The group annual financial statements consolidate the financial statements of the company and all significant subsidiaries.
Non-consolidated subsidiaries are dormant and are in the process of being de-registered.
The results of any subsidiaries acquired or disposed of during the year are included from the dates effective control was acquired
and up to the dates effective control ceased.
The assets and liabilities of companies acquired are assessed and included in the balance sheet at their estimated fair values to the
group as at the date of acquisition.
The carrying value of subsidiaries is compared with their attributable net asset value or, where listed, with their market value.
Declines in value are not recognised if it is anticipated that these are temporary in nature.
All intragroup transactions and balances are eliminated on consolidation. Unearned profits that arise on an arm’s length basis
between independent corporate entities in the normal course of their business are not eliminated.
1.2 Goodwill
Goodwill, being the excess of the purchase consideration of shares in subsidiary companies over the attributable fair value of their
net identifiable assets at date of acquisition, is capitalised and amortised on a straight line basis over the lesser of its effective
economic life and twenty years. Negative goodwill, being the excess of the attributable fair value of the identifiable assets over
the purchase consideration is recognised in income on a systematic basis over the useful life of these assets.
1.3 Inventories
Retail trading inventories are valued using the retail method. Cost is reduced, in the case of marked down items, to values at which
normal gross margins can be realised. This valuation approximates the lower of weighted average cost and net realisable value.
In the case of own manufactured inventories, cost includes the total cost of manufacture, based on normal production facility
capacity, and excludes financing costs.
Work in progress is valued at actual cost, including direct material costs, labour costs and manufacturing overheads.
Factory raw materials and consumable stores are valued at average cost, less provision for slow moving items.
1.4 Long term liabilities
Where long term facilities have been arranged, borrowings in terms of such facilities, despite fluctuations in the short term, are
regarded as long term liabilities.
1.5 Foreign currency translations
1.5.1 Foreign entities
All foreign subsidiaries are classified as foreign entities for the purposes of foreign currency translation.
The assets and liabilities of foreign subsidiaries are translated into South African rand at rates of exchange ruling at the date of
consolidation. Income, expenditure and cash flow items are translated using weighted average rates of exchange during the
relevant accounting period. Differences arising on translation are reflected in a foreign currency translation reserve.
1.5.2 Foreign currency transactions and balances
Transactions in foreign currencies are converted to South African rand at the rate of exchange ruling at the date of the transaction.
Assets and liabilities in foreign currencies are stated in South African rand using rates of exchange ruling at the financial year end.
Resulting surpluses and deficits are included in financing costs and are separately identified.
1.6 Financial instruments
1.6.1 Derivative instruments
With effect from 1 January 2000, the company adopted IAS 39, Financial Instruments: Recognition and Measurement which resulted in
a debit of R2,7million to non-distributable reserves.
The group uses derivative financial instruments including interest rate swaps, forward rate agreements, interest rate caps and forward
exchange contracts to hedge its exposure to interest rate and foreign currency fluctuations. It is the policy of the company not to
trade in derivative financial instruments for speculative purposes. Further details regarding financial risk management are set out
in note 28.
In terms of hedge accounting, hedges are either (a) fair value hedges, which hedge the exposure to changes in the fair value of a
recognised asset or liability or (b) cash flow hedges, which hedge exposure to variability in cash flows.
In the case of fair value hedges, any gains or losses on marking to market the hedging instrument, are recognised immediately in
profit before taxation for the period.
Notes to the
Financial Statements
Page 46
Edcon 2000
1. ACCOUNTING POLICIES AND BASES OF PREPARATION (continued)
1.6 Financial instruments (continued)
1.6.1 Derivative instruments (continued)
Gains and losses on effective cash flow hedging instruments, are recognised directly in equity. Any ineffective portion of a cash
flow hedge is recognised in profit before taxation for the period.
When the hedged firm commitment or forecast transaction is recognised as an asset or a liability, the cumulative associated gains
or losses reflected in equity are included in the initial measurement of the asset or liability. For other cash flow hedges, the
cumulative gains or losses reflected in equity are included in profit before taxation in the period in which the hedged firm
commitment or forecast transaction affects income before taxation.
Gains and losses from forward exchange contracts, options and currency swaps used to hedge potential exchange rate exposures
are offset against losses and gains on the specific transactions being hedged.
Interest differentials under swap arrangements, forward rate agreements and interest rate caps used to manage interest rate
exposures are recognised by adjustments to financing costs.
1.6.2 Trade and other receivables
Trade and other receivables are stated at cost less a provision for doubtful debts.
1.6.3 Cash and cash equivalents
Cash and cash equivalents are measured at fair value.
1.6.4 Financial liabilities
Financial liabilities are recognised at their original debt value less principal payments and amortisations except for derivatives
which are measured at fair value.
Discounts arising from the difference between the net proceeds of debt instruments issued and the amounts repayable at maturity
are charged to net financing costs over the life of the instruments.
1.7 Leases
Leases are classified as finance leases where substantially all the risks and rewards associated with ownership of an asset are
transferred from the lessor to the group as lessee.
Assets subject to finance leases are capitalised at their cash cost equivalent with the related lease obligation recognised at the
same value. Capitalised leased assets are depreciated to their estimated residual values over their estimated useful lives. Residual
values are determined from anticipated future cash flows. These are not discounted to their present value. Finance lease payments
are allocated, using the effective interest rate method, between the lease finance cost, which is included in financing costs, and the
capital repayment, which reduces the liability to the lessor.
Operating leases are those leases which do not fall within the scope of the above definition. Operating lease rentals are charged
against trading profit as they become due.
1.8 Properties, fixtures, equipment and vehicles
1.8.1 Properties
General purpose land and buildings are revalued every three years, by recognised professional valuers, to net realisable open
market value using the alternative or existing use basis as appropriate. Depreciation is provided on manufacturing land and
buildings over the remaining estimated useful life in those circumstances where the estimated residual value is less than the
carrying value. All other land and buildings are classified as investment properties and are not depreciated.
Expenditure relating to leased premises is capitalised and depreciated to expected residual value over the remaining period of the lease.
1.8.2 Fixtures, equipment and vehicles
Fixtures, equipment and vehicles are recorded at historic cost and depreciated to their expected residual values over the following
estimated useful lives
Fixtures and fittings 8 years
Computer equipment 5 years
Machinery 10 years
Vehicles 5 years
In determining the estimated residual value, expected future cash flows have not been discounted to their present value.
1.9 Taxation
Deferred taxation is provided at legislated future rates using the balance sheet liability method. Full provision is made for all temporary
differences between the taxation base of an asset or liability and its balance sheet carrying amount.
No deferred tax liability is recognised in those circumstances where the initial recognition of an asset or liability has no impact on
accounting profit or taxable income.
Assets are raised in respect of the deferred taxation on assessed losses where it is probable that future taxable profits will be
available against which the deferred taxation asset can be realised in the foreseeable future.
Secondary Taxation on Companies is provided in respect of expected dividend payments net of dividends received or receivable
and is recognised as a taxation charge for the year.
Where applicable, non-resident shareholders’ taxation is provided in respect of foreign dividends receivable.
Page 47
Edcon 2000
1. ACCOUNTING POLICIES AND BASES OF PREPARATION (continued)
1.10 Trademarks and brand names
Where payments are made for the acquisition of trademarks or brand names, the amounts are capitalised and amortised over their
anticipated useful lives, currently estimated to be between seven and ten years. No valuation is made of internally developed and
maintained trademarks or brand names. Expenditure incurred to maintain brand names is charged in full against trading profit.
1.11 Software costs
Packaged software and the direct costs associated with the development and installation thereof are capitalised. Software is
depreciated in full on a systematic straight line basis over five years from the date of being commissioned in the business.
All conversion and testing costs incurred before 2000 and relating to year 2000 compliance were written off as incurred.
1.12 Segmental information
The principal segments of the group have been identified on a primary basis by chain and manufacturing operation and on a
secondary basis by significant geographical region. The basis is representative of the internal structure for management purposes.
The source and nature of business risks and returns are segmented on the same basis.
Segment sales reflect sales to third parties including arm’s length inter-segment sales recorded at fair value. The segment result is
presented as segment trading profit without allocation of finance costs and taxation. Corporate expenses are allocated on an
appropriate basis after giving due consideration to the nature of such expenses incurred. Segment gross assets include those assets
that can be specifically identified with a particular segment. Neither trade accounts receivable, which are housed in the centralised
credit division, nor corporate liabilities which are held at the centre, are allocated to segments.
1.13 Share capitalisation awards and cash dividends
The full cash equivalent of capitalisation share awards, and cash dividends paid by the company, are recorded and disclosed as
dividends declared in the income statement. The dividend liability is that amount reasonably estimated to be paid in cash. The
difference between total dividends declared and this estimate is transferred to a non-distributable share election reserve pending
the outcome of the final share awards. Upon allotment of shares the election amounts are transferred to the share capital and
share premium account and cash dividend election amounts are paid.
1.14 Income recognition
Income from all sales of merchandise through retail outlets is brought to account when the risk in the merchandise passes to the
customer. Income from manufacturing and other operations is recognised when the sale transactions giving rise to such income
are concluded. Interest earned on arrear account balances is accrued on a time proportion basis recognising the effective yield on
the underlying assets. Dividends are recognised when the right to receive payment is established.
1.15 Retirement benefits
Current contributions to the group’s defined benefit and defined contribution funds are charged against income when incurred.
Improved benefits in defined benefit funds are only granted if they can be financed from the actuarial surplus. Contribution rates
to defined benefit plans are adjusted for any unfavourable experience adjustments. Favourable experience adjustments are
retained within the funds.
The costs arising in respect of post-retirement medical aid benefits are charged against income as incurred. The present value of
future medical aid subsidies for past service is actuarially determined annually on the basis of current practice. The amount so
determined is disclosed in note 4.
2. DEFINITIONS
2.1 Capital employed
Shareholders’ funds including outside shareholders’ interests in subsidiaries and interest bearing debt.
2.2 Cash and cash equivalents
Comprise cash on hand and demand deposits together with any highly liquid investments readily convertible to known amounts
of cash and not subject to significant risk of changes in value.
2.3 Attributable cash flow per ordinary share
Attributable cash flow from operations after adjusting for minority interests and preference dividends paid divided by the weighted
average number of ordinary shares in issue during the year.
2.4 Cash generated from trading
Trading profit adjusted for all non-cash items which have been charged or credited therein.
2.5 Cash realisation rate
Percentage of the potential cash earnings realised and is derived by dividing attributable cash flow per ordinary share by cash
equivalent earnings per ordinary share.
2.6 Cost of sales
Includes the historical cost of inventory, distribution costs incurred in bringing the inventory to the retail locations, markdowns,
stock losses and promotional costs.
2.7 Current ratio
Current assets divided by current liabilities. Current liabilities include short term borrowings and interest free liabilities other than
deferred taxation.
Notes to the
Financial Statements
(continued)
Page 48
Edcon 2000
2. DEFINITIONS (continued)
2.8 Dividend cover
Earnings per ordinary share divided by dividends per ordinary share.
2.9 Dividend yield
Dividends per ordinary share divided by the closing share price on the Johannesburg Stock Exchange.
2.10 Earnings per ordinary share
2.10.1 Attributable earnings basis
Earnings attributable to ordinary shareholders divided by the weighted average number of ordinary shares in issue during the year.
2.10.2 Cash equivalent basis
Earnings attributable to ordinary shareholders adjusted for non-cash items in attributable earnings and equity accounted retained
earnings, divided by the weighted average number of ordinary shares in issue during the year.
2.10.3 Diluted earnings basis
Earnings attributable to ordinary shareholders adjusted for the effects of any changes in income or expense that would result from
the conversion of the dilutive potential ordinary shares, divided by the weighted average number of ordinary shares in issue
during the year increased by the weighted average number of additional ordinary shares that would have been outstanding
assuming the conversion of all dilutive potential ordinary shares.
2.10.4 Headline earnings basis
Earnings attributable to ordinary shareholders, adjusted for profits and losses on capital items recognising the taxation and minority
impacts of these adjustments, divided by the weighted average number of ordinary shares in issue during the year. This calculation
is in accordance with the South African accounting issues task force opinion AC 306 “Headline Earnings”.
2.11 Earnings yield
Earnings per ordinary share divided by the closing share price on the Johannesburg Stock Exchange.
2.12 Financing cost cover
Trading profit divided by net financing costs.
2.13 Gearing ratio
Interest bearing debt, reduced by cash and cash equivalents, divided by shareholders’ funds.
2.14 Net assets
The sum of fixed and current assets less all interest free liabilities.
2.15 Net asset turn
Revenue divided by closing net assets.
2.16 Net equity per ordinary share
Ordinary shareholders’ equity divided by the number of ordinary shares in issue at the year end.
2.17 Price earnings ratio
The closing share price on the Johannesburg Stock Exchange divided by earnings per ordinary share.
2.18 Shareholders’ compound annual rate of return
Calculated by recognising the market price of an Edcon share five years ago as a cash outflow, recognising the annual dividend per
share streams since that date and closing share price at the end of five years as inflows, and determining the internal rate of return
inherent in these cash flow streams.
2.19 Revenue – retail sales
Represent sales of merchandise through retail outlets and exclude value added and general sales tax, fees, rental income and
intragroup transactions.
2.20 Return on capital employed
Profit after taxation, plus equity accounted retained earnings, plus interest paid taxed at the standard rate, as a percentage of
average capital employed.
2.21 Return on ordinary shareholders’ equity
Earnings attributable to ordinary shareholders as a percentage of average ordinary shareholders’ equity.
2.22 Weighted average number of ordinary shares in issue
The number of ordinary shares in issue at the beginning of the year, increased by shares issued during the year, weighted on a
time basis for the period during which they have participated in the income of the group. In the case of shares issued pursuant to
a share capitalisation award in lieu of dividends, the participation of such shares is deemed to be from the date of issue.
2.23 Weighted average price paid per share traded
The total value of shares traded each year divided by the total volume of shares traded for the year on the Johannesburg Stock
Exchange.
Page 49
Edcon 2000
3. TRADING PROFIT
This is stated after taking account of the following items
3.1 Amortisation of trademarks
Normal operations 5 601 4 798 4 018 2 029
Re-assessment of carrying value 3 293 —
8 894 4 798 4 018 2 029
3.2 Auditors’ remuneration
Audit fees 3 043 2 613 2 153 1 744
Fees for consulting and other services 384 189 300 164
Expenses 61 54 55 54
Prior year under-provision 136 184 46 181
3 624 3 040 2 554 2 143
3.3 Depreciation of properties, fixtures, equipment
and vehicles
Land and buildings 7 7
Leasehold improvements 10 434 9 922 9 525 8 795
Fixtures and fittings 91 600 88 338 83 183 76 284
Computer equipment 98 455 81 162 92 308 74 397
Machinery and vehicles 8 296 11 852 5 280 8 740
Capitalised leased assets 326 335 74 38
209 118 191 616 190 370 168 254
3.4 Fees payable
Managerial, technical, administrative and secretarial
fees paid outside the group 122 715 59 013 121 796 57 940
3.5 Operating lease expenses
Properties
Minimum lease payments 360 359 340 139 316 223 287 563
Turnover clause payments 12 119 12 217 16 744 18 475
Sublease rental income (12 084) (10 055) (11 623) (9 230)
Furniture, equipment and vehicles 43 179 44 514 39 281 40 052
403 573 386 815 360 625 336 860
3.6 Net loss/(profit) on disposal of properties, fixtures,
equipment and vehicles 7 486 (2 637) 7 325 (3 462)
3.7 (Decrease)/increase in provision for losses in subsidiaries (41 054) 41 054
Group Company
2000 1999 2000 1999
R000 R000 R000 R000
Notes to the
Financial Statements
(continued)
Page 50
Edcon 2000
4. DIRECTORS AND EMPLOYEES
4.1 Employees
The group employed 14 501 (1999: 15 255) permanent employees
of which 11 725 (1999: 12 570) were employed in retailing and
2 776 (1999: 2 685) in the manufacturing divisions.
The proportion of staff of colour increased from 71% last year
to 77%. 72% of the complement is female.
Currently 40% (1999: 56%) of permanent employees have more
than five years’ service with the group.
The aggregate remuneration and associated cost of permanent
and casual employees including directors was
Salaries and wages 829 202 839 027 687 335 691 562
Profit sharing 2 014 1 275 2 014 1 275
Retirement benefit costs 76 746 79 619 68 085 70 510
Medical aid contributions 35 303 33 169 32 382 30 256
943 265 953 090 789 816 793 603
Total costs of training 6 468 (1999: 10 094) staff members
amounted to R9 million (1999: R9 million) which equates to
1% of employment costs.
Retirement funds
Separate funds, independent of the group, provide retirement and other benefits for all employees on the permanent staff and their
dependants. For the full year there were three defined contribution funds of significance namely, Edcon Provident Fund, SACCAWU
National Provident Fund and FEDCRAW Provident Fund. A defined contribution fund is available to employees in Namibia.
In addition two defined benefit funds exist namely Edcon Pension Fund and the much smaller Edgars Zimbabwe Pension Fund.
An interim valuation of the Edcon Pension Fund was carried out by an independent firm of consulting actuaries on 31 August 1998
using the attained age method of valuation. The actuarial value of liabilities for all pensioners and members, including a stabilisation
reserve, was determined at R316 million. The market value of assets was R500 million. The fund was accordingly fully funded. The
actuarial valuation was based on the principal assumptions that the fund will earn 15% per annum after taxation, that salary
increases will be 12,5% per annum plus merit increases and using a post-retirement interest rate of 4,5% per annum. The surplus has
not been brought to account as the legal entitlement of the company is dependent on a number of factors including pending
legislation. Current pension benefits are in the process of being reviewed to ease the burden of medical costs for pensioners and
reduce the potential unfunded future medical aid’s subsidy noted under the medical aid funds note.
Contributions to the group’s significant funds are at a rate of 16,18% of pensionable emoluments and where funds are contributory,
members pay a maximum of 7,5%. The employer’s portion is charged against profits.
All funds are subject to the Pension Funds Acts of the various countries and where required by law actuarial valuations are conducted
every three years. The valuation for the Edcon Pension Fund as at 31 December 1999 is currently being finalised. The next valuation
for the Zimbabwe fund will be undertaken on 31 January 2001. The last valuation of the Zimbabwe fund confirmed that it was
financially sound. If deficits are identified in any of the defined benefit funds, they will be funded by way of increased future
contributions. The market value of investments of the various Edcon funds as at 31 March 2000 was R1 253,0 million
(1999: R1 133,5 million).
Group Company
2000 1999 2000 1999
R000 R000 R000 R000
Page 51
Edcon 2000
4. DIRECTORS AND EMPLOYEES (continued)
4.1 Employees (continued)
Retirement funds (continued)
Membership of and employer contributions to each of the funds
at 31 March were
Pensioners Members Contributions
R000
2000
Edcon Pension Fund 1 777 286 1 387
Edgars Zimbabwe Pension Fund 276 1 809 1 540
Edcon Provident Fund — 7 601 60 249
Edgars Namibia Retirement Fund 14 223 635
SACCAWU National Provident Fund — 1 774 5 201
FEDCRAW Provident Fund — 599 3 145
2 067 12 292 72 157
1999
Edcon Pension Fund 1 789 364 1 762
Edgars Zimbabwe Pension Fund 260 1 615 1 064
Edcon Provident Fund — 7 108 60 836
Edgars Namibia Retirement Fund 8 206 724
SACCAWU National Provident Fund — 1 910 5 196
FEDCRAW Provident Fund — 642 3 357
2 057 11 845 72 939
Medical aid funds
The company and its subsidiaries operate defined benefit medical aid schemes for the benefit of permanent employees. These costs
are charged against income as incurred and amounted to R35 303 000 (1999: R33 169 000). Membership of the group’s medical aid
scheme is voluntary for lower income earners. Total membership currently stands at 5 293 principal members in South Africa.
In terms of employment contracts and the rules of the schemes certain post-retirement medical benefits are provided to past employees
by subsidising a portion of the medical aid contributions of members, after retirement. On the basis of current practice, which is
reviewed annually, the actuarially determined present value, at March 2000, in respect of such future subsidies for past service is
R50 million (1999: R18 million). (See pension fund note for funding of this liability.)
Company
2000 1999
R000 R000
4.2 Directors’ emoluments
Non-executive directors
Fees 195 36
Executive directors
Fees 95 21
Remuneration 5 960 5 027
Share option gains 2 514 —
Retirement, medical, accident and death benefits 422 503
Other benefits 221 215
Total emoluments for the year 9 212 5 766
Pensions for past managerial services 965 2 422
10 372 8 224
Executive directors: number in office during year 7 6
: aggregate months paid 49 50
Notes to the
Financial Statements
(continued)
Page 52
Edcon 2000
5. INCOME FROM SUBSIDIARIES
Administration fees (included in trading profit) 15 321 15 127
Dividend income 1 277 — 77 325 18 779
Interest received 5 215 12 942
1 277 — 97 861 46 848
6. FINANCING COSTS AND INTEREST RECEIVED
6.1 Financing costs
Interest paid to former holding company and fellow
subsidiaries — 38 126 — 38 126
Interest paid to independent third parties 88 233 85 761 88 862 76 565
Interest paid to subsidiaries 188 —
Interest paid on lease liabilities 45 56 — —
Foreign currency losses 338 2 360 1 702 —
88 616 126 303 90 752 114 691
6.2 Interest received
Interest received from independent third parties 11 243 4 868 3 752 2 992
Interest received from subsidiaries 5 215 12 942
11 243 4 868 8 967 15 934
7. TAXATION
7.1 Taxation charge
Current taxation – this year 102 375 22 941 62 667 —
– prior years (2 152) (4 122) — (3 930)
Secondary taxation on companies – this year 4 933 3 064 4 933 3 064
– prior years (3 064) (2 500) (3 064) (2 500)
Withholding taxes – this year 9 449 2 342 4 312 —
Total current taxation 111 541 21 725 68 848 (3 366)
Deferred taxation – this year (3 838) 27 496 6 368 28 634
– prior years 1 020 3 848 (387) 3 715
– notional (note 24) 8 424
– rate adjustment (402) (14 581) — (14 942)
Total deferred taxation (3 212) 17 187 5 981 17 407
108 329 38 912 74 829 14 041
Comprising
South African normal taxation 66 090 17 837 68 648 13 477
Secondary taxation on companies 1 869 564 1 869 564
Withholding taxes 9 449 2 342 4 312 —
Foreign taxes 30 921 18 169
108 329 38 912 74 829 14 041
Group Company
2000 1999 2000 1999
R000 R000 R000 R000
Page 53
Edcon 2000
7. TAXATION (continued)
7.2 Reconciliation of rate of taxation % % % %
Standard rate – South Africa 30,0 35,0 30,0 35,0
Adjusted for
Deferred tax rate change (0,1) (14,0) — (15,4)
Dividend income (0,1) — (7,7) (6,8)
Exempt income/disallowable expenditure 0,4 1,7 0,7 1,4
Foreign tax rate variations 1,2 1,7
Prior years (1,2) (2,6) (1,2) (2,8)
Secondary taxation on companies 1,3 2,9 1,6 3,2
Tax losses created — 15,2
Tax losses utilised (3,6) (5,8)
Withholding tax on dividends received 2,7 2,2 1,5 —
Effective tax rate 30,6 36,3 24,9 14,6
7.3 Tax losses
Estimated tax losses available for set off
against future taxable income 90 643 121 867 — 33 756
Less amount attributable to temporary differences 74 276 43 010 — 33 756
Estimated tax losses available to reduce future tax charge 16 367 78 857 — —
8. DIVIDENDS 2000 1999
Cents Cents
Ordinary shares
Interim paid
20 December 1999 55,0 15,0 31 557 8 608 31 557 8 608
Final payable
30 June 2000 97,0 43,0 55 655 24 672 55 655 24 672
Total ordinary dividends 152,0 58,0 87 212 33 280 87 212 33 280
6% preference shares
For the year 18 18 18 18
Total dividends 87 230 33 298 87 230 33 298
Comprising
Dividends paid 31 570 8 621 31 570 8 621
Dividends payable 55 660 24 677 55 660 24 677
87 230 33 298 87 230 33 298
Group Company
2000 1999 2000 1999
R000 R000 R000 R000
Notes to the
Financial Statements
(continued)
Page 54
Edcon 2000
9. EARNINGS AND CASH FLOW
PER ORDINARY SHARE
The weighted average number of shares used in calculating
the earnings per ordinary share statistics is 57 376 200
(1999: 56 965 223).
9.1 Attributable earnings basis 2000 1999
Calculated on attributable earnings of R226 546 000 Cents Cents
(1999: R85 796 000). 394,8 150,6
The potential dilution in earnings per ordinary share arising from
the conversion of the compulsorily convertible debentures and
the possible exercise of 1 639 200 share options issued in terms
of the approved executive share incentive scheme is immaterial.
This is based on the assumptions that conversion or exercise
occurred at the commencement of the current year and that
related interest savings were realised.
9.2 Headline earnings basis
Calculated on headline earnings of R234 020 000
(1999: R84 117 000). 407,9 147,6
This basis is a measure of the trading performance and excludes
profits and losses of a capital nature. It is derived as follows
Earnings attributable to ordinary shareholders 226 546 85 796
Adjusted for
Loss/(profit) on disposal of fixed assets 7 486 (2 637)
Trademark amortisation relating to re-assessment of carrying value 3 293 —
Taxation adjustment on above (3 305) 958
Headline earnings 234 020 84 117
9.3 Attributable cash equivalent earnings basis
Calculated on attributable cash equivalent earnings of
R447 349 000 (1999: R292 819 000). 779,7 514,0
This basis recognises the potential of the earnings stream
to generate cash and is consequently an indicator of the
underlying quality of earnings. It is derived as follows
Earnings attributable to ordinary shareholders 226 546 85 796
Adjusted for
Non-cash items (note 10.1) 225 372 193 551
Deferred taxation (note 7.1) (3 212) 17 187
Cash equivalent earnings 448 706 296 534
Adjusted for minority share of non-cash items
Depreciation (1 114) (2 145)
Net loss on disposal of fixed assets (61) (775)
Deferred taxation — 73
Amortisation of trademarks (182) (868)
Attributable cash equivalent earnings 447 349 292 819
Group
2000 1999
R000 R000
Page 55
Edcon 2000
9. EARNINGS AND CASH FLOW
PER ORDINARY SHARE 2000 1999
(continued) Cents Cents
9.4 Attributable cash flow basis
Calculated on attributable cash inflow
of R215 408 000 (1999: R199 199 000). 375,4 349,7
This basis focuses on the cash stream
actually achieved in the year under
review. It is derived as follows
Cash flow from operations 207 493 195 524
Adjusted for
Minority interests 7 933 3 693
Preference dividends paid (18) (18)
Attributable cash flow 215 408 199 199
10. CASH FLOW
10.1 Non-cash items
Depreciation (note 3.3) 209 118 191 616 190 370 168 254
Amortisation of trademarks (note 3.1) 8 894 4 798 4 018 2 029
Net loss/(profit) on disposal of fixed assets (note 3.6) 7 486 (2 637) 7 325 (3 462)
(Decrease)/increase in provision for losses in subsidiaries (note 3.7) (41 054) 41 054
Other (142) (226)
225 356 193 551 160 659 207 875
10.2 Dividends received
Dividends receivable at the beginning of the year — — 5 593 —
Dividends received (note 5) 1 277 — 77 325 18 779
Dividends receivable at end of year — — (11 121) (5 593)
1 277 — 71 797 13 186
10.3 Working capital requirements
Increase in inventories (123 808) 90 034 (101 801) 20 854
Increase in accounts receivable (302 022) (108 654) (290 218) (170 272)
Increase in accounts payable 90 945 (4 074) 97 807 64 764
Decrease in amount owing (by)/to subsidiaries (40 373) 101 379
(334 885) (22 694) (334 585) 16 725
10.4 Financing costs paid
Interest paid (88 278) (124 321) (89 050) (112 709)
Foreign currency losses (338) (1 982) (1 702) (1 982)
(88 616) (126 303) (90 752) (114 691)
10.5 Taxation paid
Taxation liability at the beginning of the year (16 572) (47 913) — (22 073)
Taxation receivable at the beginning of the year 33 527 285 32 945 —
Currency translation 1 590 3 949
Current taxation provided (note 7) (111 541) (21 725) (68 848) 3 366
Taxation liability at the end of the year 56 776 16 572 30 630 —
Taxation receivable at the end of the year — (33 527) — (32 945)
(36 220) (82 359) (5 273) (51 652)
Group Company
2000 1999 2000 1999
R000 R000 R000 R000
Notes to the
Financial Statements
(continued)
Page 56
Edcon 2000
10. CASH FLOW (continued)
10.6 Dividends paid
By the company
Shareholders for dividends at the beginning of the year (24 677) (20 069) (24 677) (20 069)
Dividends declared (note 8) (87 230) (33 298) (87 230) (33 298)
Capitalisation share award acceptance ratio adjustment — 6 889 — 6 889
Shareholders for dividends at the end of the year 55 660 24 677 55 660 24 677
(56 247) (21 801) (56 247) (21 801)
By subsidiaries
Paid by subsidiaries (4 365) —
(60 612) (21 801) (56 247) (21 801)
10.7 Investment to maintain operations
Replacement of properties, fixtures, equipment and vehicles (96 429) (191 616) (89 088) (168 254)
Proceeds on disposal of properties, fixtures,
equipment and vehicles 6 232 8 816 5 336 6 036
(90 197) (182 800) (83 752) (162 218)
10.8 Investment to expand operations
Additions to owned and leased premises (13 935) (11 821) (11 572) (10 669)
Additions to properties, fixtures, equipment and vehicles (29 618) (14 147) (28 687) (32 802)
Decrease/(increase) in loans 2 890 (14 459) 2 994 (15 988)
(40 663) (40 427) (37 265) (59 459)
10.9 Net investment in subsidiaries
Outside shareholders’ interest (6 571) — (6 981) —
Preference shares acquired — (50 000)
(6 571) — (6 981) (50 000)
10.10 Increase in shareholder funding
Ordinary share issues 4 (251) 4 (251)
Shares in subsidiaries purchased by outside shareholders 688 64
Preference shares in subsidiaries purchased by outside shareholders — 13 207
692 13 020 4 (251)
10.11 Increase in interest bearing debt
Long and medium term
Raised — 199 839 — 198 520
Repaid (17 553) (562 794) (16 800) (509 337)
Net increase in short term 42 398 405 307 53 670 390 914
Derivative valuation adjustment 3 590 — 3 590 —
Currency adjustments (556) 9 921
27 879 52 273 40 460 80 097
Group Company
2000 1999 2000 1999
R000 R000 R000 R000
Page 57
Edcon 2000
10. CASH FLOW (continued)
10.12 Increase in cash and cash equivalents
Cash on hand 9 426 14 933 12 121 10 317
Cash and cash equivalents transferred from subsidiary 2 658 —
Cash on deposit 27 667 5 005
Currency adjustments 625 (4 067)
37 718 15 871 14 779 10 317
11. PROPERTIES, FIXTURES, EQUIPMENT
AND VEHICLES
Revalued historic cost
Land and buildings
Historic cost 13 591 14 698 428 1 391
Revaluation surplus 27 828 29 607 3 282 4 719
Leasehold improvements 135 915 127 200 129 554 115 226
Fixtures and fittings 872 810 836 098 817 902 734 129
Computer equipment and software 752 189 608 163 725 129 567 058
Machinery and vehicles 94 487 104 077 66 939 74 739
Capitalised leased assets 9 752 13 669 16 089 16 100
1 906 572 1 733 512 1 759 323 1 513 362
Accumulated depreciation
Buildings
On historic cost 87 80
Leasehold improvements 54 920 45 050 52 415 41 702
Fixtures and fittings 485 745 400 475 458 487 349 891
Computer equipment and software 449 674 356 786 433 062 331 819
Machinery and vehicles 54 958 57 499 47 188 49 662
Capitalised leased assets 9 699 13 063 16 059 16 025
1 055 083 872 953 1 007 211 789 099
Net carrying value 851 489 860 559 752 112 724 263
Comprising
Land and buildings 41 332 44 225 3 710 6 110
Leasehold improvements 80 995 82 150 77 139 73 524
Fixtures and fittings 387 065 435 623 359 415 384 238
Computer equipment and software 302 515 251 377 292 067 235 239
Machinery and vehicles 39 529 46 578 19 751 25 077
Capitalised leased assets 53 606 30 75
851 489 860 559 752 112 724 263
Group Company
2000 1999 2000 1999
R000 R000 R000 R000
Notes to the
Financial Statements
(continued)
Page 58
Edcon 2000
11. PROPERTIES, FIXTURES, EQUIPMENT
AND VEHICLES (continued)
Movements for the year
Capital expenditure
Land and buildings 6 —
Leasehold improvements 13 935 11 821 11 572 10 669
Fixtures and fittings 44 611 86 997 41 454 79 574
Computer equipment 78 367 111 316 74 655 104 025
Machinery and vehicles 3 063 8 003 1 639 2 336
Capitalised leased assets — 114 27 —
139 982 218 251 129 347 196 604
Other
Currency adjustments (1 249) (11 402)
Revaluation surplus — 13 391 — 2 073
Software capitalised 75 033 24 192 75 033 24 192
Assets transferred on group rationalisation 26 500 —
213 766 244 432 230 880 222 869
Disposals
Land and buildings 2 995 688 2 400 —
Leasehold improvements 4 555 449 4 477 192
Fixtures and fittings 664 2 557 395 1 300
Computer equipment 3 619 596 3 700 335
Machinery and vehicles 1 658 1 526 1 689 743
Capitalised leased assets 227 364 — 3
13 718 6 180 12 661 2 573
Depreciation (note 3.3) 209 118 191 616 190 370 168 254
Land and buildings were revalued at 1 April 1998 to open market value based on the open market net rentals for each property.
If these assets had not been revalued the carrying amount of all assets at 31 March 2000 would have been R823,7 million.
Deferred taxation has been raised out of the revaluation surplus. The independent valuation was carried out by David W Grey
(Registered Valuer). It is the group’s policy to carry out such valuations every three years. No other categories of assets are revalued.
A register of the group’s land and buildings is available for inspection at the company’s registered office. A copy will be posted,
upon request, by the secretary to any member of the public.
At 31 March 2000 the properties, fixtures, equipment and vehicles have an estimated replacement cost and insured value of
R2 818,0 million (1999: R2 381,4 million) which excludes input value added tax where appropriate.
At 31 March 2000 the group had no idle fixed assets.
The gross cost of fully depreciated fixtures, equipment and vehicles at 31 March 2000 amounted to R125,0 million (1999: R170,0 million).
Group Company
2000 1999 2000 1999
R000 R000 R000 R000
Page 59
Edcon 2000
12. TRADEMARKS
Trademarks represent registered rights to the exclusive use of
certain trademarks and brand names.
Balance at the beginning of the year 17 149 23 507 13 091 —
Current year movements
Expenditure — 267 — 15 120
Disposals 2 893 — —
Amortisation 8 894 4 798 4 018 2 029
Currency adjustment (14) (934)
Balance at the end of the year 8 239 17 149 9 073 13 091
Comprising
Cost 24 017 24 100 15 120 15 120
Accumulated amortisation 15 778 6 951 6 047 2 029
8 239 17 149 9 073 13 091
13. INVESTMENTS
(Annexure 1; page 74)
13.1 Subsidiaries not consolidated
Shares at cost 834 834 518 518
Long term loans 316 316
Carrying amount 834 834 834 834
Directors’ valuation of shares 834 834
13.2 Consolidated subsidiaries
Shares at cost 55 539 53 810
Indebtedness 200 043 161 485
255 582 215 295
Total interests in subsidiaries 256 416 216 129
Provision for losses in subsidiaries — 41 054
Total interests in subsidiaries less provision for losses 256 416 175 075
No special resolutions, the nature of which would be of
significance to members in their appreciation of the state
of affairs of the group, were passed by any subsidiary
during the period covered by this report.
13.3 Owing to subsidiaries 132 996 88 391
13.4 Aggregate profits/losses of subsidiaries
Profits 109 325 53 833
Losses 533 52 310
108 792 1 523
Group Company
2000 1999 2000 1999
R000 R000 R000 R000
Notes to the
Financial Statements
(continued)
Page 60
Edcon 2000
14. LOANS
Executive share trust 13 948 16 943 13 948 16 943
Secured staff loans 301 555 301 547
Unsecured staff loans 4 116 3 946 1 688 1 441
18 365 21 444 15 937 18 931
The loan to the executive share trust is interest free, will be repaid
when shares held by the trust are sold and is secured by shares in
Edgars Consolidated Stores Limited. Other loans earn market
related interest rates and have various repayment terms.
15. INVENTORIES
Merchandise 1 116 818 1 007 147 1 032 921 892 521
Raw materials 36 496 26 862 — 3 125
Work in progress 44 614 48 784
Consumable stores 6 771 362 5 947 —
1 204 699 1 083 155 1 038 868 895 646
Estimated replacement cost 1 204 699 1 083 155
16. ACCOUNTS RECEIVABLE AND PREPAYMENTS
Trade accounts receivable 1 752 533 1 474 582 1 640 053 1 348 062
Provision for doubtful debts (116 106) (105 464) (110 824) (98 039)
Software 94 849 142 748 94 849 142 748
Value added tax receivable — 4 061 — 11 170
Other accounts receivable and debit balances,
including payments in advance 171 507 165 569 104 547 108 620
1 902 783 1 681 496 1 728 625 1 512 561
17. CASH AND CASH EQUIVALENTS
Cash on hand 63 738 54 312 59 503 44 724
Cash on deposit 54 765 27 098
118 503 81 410 59 503 44 724
Group Company
2000 1999 2000 1999
R000 R000 R000 R000
Page 61
Edcon 2000
18. SHARE CAPITAL AND PREMIUM
18.1 Authorised
72 000 000 (1999: 61 500 000) ordinary shares of 10 cents 7 200 6 150 7 200 6 150
150 000 6% redeemable preference shares of R2 300 300 300 300
7 500 6 450 7 500 6 450
18.2 Issued ordinary shares and premium
Balance at the beginning of the year 57 376 125
(1999: 55 732 122) ordinary shares 591 222 504 330 591 222 504 330
Executive share incentive scheme issues
75 (1999: 1 195) ordinary shares 4 38 4 38
Arising in respect of capitalisation share awards
(1999: 1 642 808) ordinary shares — 87 143 — 87 143
Share issue expenses — (289) — (289)
Balance at the end of the year 57 376 200
(1999: 57 376 125) ordinary shares 591 226 591 222 591 226 591 222
Comprising
Share capital 5 738 5 737 5 738 5 737
Share premium 585 488 585 485 585 488 585 485
591 226 591 222 591 226 591 222
In terms of a shareholders’ resolution on 14 July 1999 the
directors have unconditional authority until the next annual
general meeting to issue 279 800 ordinary shares and the
remaining unissued shares to the staff share scheme.
18.3 Issued preference share capital
150 000 6% redeemable preference shares of R2 300 300 300 300
Group Company
2000 1999 2000 1999
R000 R000 R000 R000
Notes to the
Financial Statements
(continued)
Page 62
Edcon 2000
18. SHARE CAPITAL AND PREMIUM (continued)
18.4 Executive share incentive scheme
In terms of a shareholders’ resolution on 3 June 1999 the directors
are authorised to issue shares not exceeding 20% of the total
issued ordinary share capital of the company on a fully diluted
basis for the purposes of the approved executive share incentive
scheme. Movements in the number of share options held by
eligible participants are as follows 2000 1999
Number Number
of shares of shares
At 31 March 1999 4 221 011 1 224 793
Options granted 234 000 4 699 011
Options exercised (172 800) (1 195)
Options forfeited (499 011) (1 701 598)
At 31 March 2000 3 783 200 4 221 011
Details of share options exercised during the period R R
Average subscription price per share 30,48 32,00
Average issue market price per share 69,80 88,00
Number Subscription
The options outstanding at 31 March 2000 become of shares price
unconditional during the following periods. R
22 July 2000 and 22 July 2009 60 000 46,70
4 August 1999 and 4 August 2008 125 700 29,50
4 August 2000 and 4 August 2008 568 000 29,50
4 August 2001 and 4 August 2008 489 500 29,50
1 September 1999 and 1 September 2008 450 000 20,61
4 February 2002 and 4 February 2004 1 824 000 20,47
8 March 2002 and 8 March 2009 150 000 27,30
10 March 2000 and 10 March 2009 15 000 26,00
11 March 2002 and 11 March 2009 30 000 29,00
5 May 2002 and 5 May 2009 3 000 30,20
5 November 2002 and 5 November 2009 50 000 63,00
2 December 2002 and 2 December 2009 5 000 71,00
19 January 2003 and 19 January 2010 13 000 69,00
3 783 200
Should the option holder resign from the group prior to the commencement
dates as indicated above, the shares for options will not be issued, payment
will therefore not be required, and the options will be forfeited.
Page 63
Edcon 2000
18. SHARE CAPITAL AND PREMIUM (continued)
18.4 Executive share incentive scheme (continued)
Share options granted to executive directors are as follows 2000 1999
Number Number
of shares of shares
At 31 March 1999 1 045 011 275 077
Directors appointed during the year 462 000 —
Options granted 80 000 920 000
Options exercised (50 000) —
Options forfeited (132 011) (150 066)
At 31 March 2000 1 405 000 1 045 011
Details of share options exercised during the period R R
Average subscription price per share 20,61 —
Average issue market price per share 70,88 —
Number Subscription
The options outstanding at 31 March 2000 become of shares price
unconditional during the following periods. R
4 August 2000 and 4 August 2008 30 000 29,50
1 September 1999 and 1 September 2008 450 000 20,61
4 August 2001 and 4 August 2008 56 000 29,50
4 August 2000 and 4 August 2008 185 000 29,50
11 February 2002 and 11 February 2004 424 000 20,47
10 March 2000 and 10 March 2009 150 000 27,30
11 March 2002 and 11 March 2009 30 000 29,00
22 July 2000 and 22 July 2009 60 000 46,70
5 November 2002 and 5 November 2009 20 000 63,00
1 405 000
It is company policy that employees who have access to price sensitive
information should not deal in shares or exercise share options of the
company for the periods from half year end and year end to twenty-four
hours after publication of the half year and year end results.
Notes to the
Financial Statements
(continued)
Page 64
Edcon 2000
19. NON-DISTRIBUTABLE RESERVES
Comprising
Equity accounted reserves of Edgars Stores Limited (Zimbabwe)
prior to consolidation 37 484 37 484
Derivative valuation adjustment (2 672) — (2 672) —
Fixed asset revaluation reserve 19 489 20 735 2 298 3 303
Foreign currency translation reserve (27 185) (25 490)
Post-acquisition profits of subsidiaries set off against
pre-acquisition losses 1 045 1 045
Share premium 6 041 6 041 6 041 6 041
Tax reserve relating to lifo adjustment in foreign subsidiaries 3 347 3 339
37 549 43 154 5 667 9 344
20. RETAINED SURPLUS
Comprising
Company 1 372 763 1 189 620
Consolidated subsidiaries 195 853 237 880
1 568 616 1 427 500
Distributions by certain foreign subsidiaries will give rise to
withholding taxes. No provision is raised until dividends are
declared as these reserves are considered to be permanent capital.
21. LONG AND MEDIUM TERM INTEREST
BEARING DEBT
Secured loan in respect of assets with a net book value of
R128 432 753 (1999: R151 356 894) held under a suspensive sale
agreement bearing interest payable six monthly in arrears at a
linked variable rate presently of 7,22% (1999: 12,95%), redeemable
in bi-annual instalments to 30 June 2003 147 450 160 358 147 450 160 358
2 144 000 unsecured compulsorily convertible debentures of
10 cents each issued at a premium of R17,70. Interest is payable
six monthly in arrears on 3l March and 30 September of each year
at a rate of 12,34%. These debentures will automatically convert
into Edgars Consolidated Stores Limited ordinary shares of 10 cents
each on 3l March 2004. The company at its discretion may at the
request of the holder convert at an earlier date, but not before
31 March 2002 38 163 38 163 38 163 38 163
Unsecured loan bearing interest payable six monthly in arrears at
a linked variable rate presently of 9,4% (1999: 12,2%) redeemable
in bi-annual instalments to 30 June 2005 34 065 37 957 34 065 37 957
Unsecured loan bearing interest payable monthly in arrears at a
linked variable rate presently of 12,5% (1999: 20%) repayable in
monthly instalments to May 2002 1 423 2 176
221 101 238 654 219 678 236 478
Current portion repayable within one year transferred to
short term interest bearing debt 21 962 17 715 21 326 17 163
199 139 220 939 198 352 219 315
Group Company
2000 1999 2000 1999
R000 R000 R000 R000
Page 65
Edcon 2000
21. LONG AND MEDIUM TERM INTEREST
BEARING DEBT (continued)
Summary of interest bearing debt redemption
by financial year
Repayable in 2000 17 715 17 163
2001 21 962 20 063 21 326 19 763
2002 23 901 22 893 23 199 22 293
2003 25 027 26 165 24 942 25 441
2004 139 270 102 018 139 270 102 018
Thereafter 10 941 49 800 10 941 49 800
221 101 238 654 219 678 236 478
Current portion redeemable within one year
transferred to short term interest bearing debt 21 962 17 715 21 326 17 163
199 139 220 939 198 352 219 315
22. SHORT TERM INTEREST BEARING DEBT
Current portion of long and medium term interest bearing debt 21 962 17 715 21 326 17 163
Unsecured bank overdrafts/balances, acceptances and call funds 406 694 358 228 409 554 348 704
428 656 375 943 430 880 365 867
23. ACCOUNTS PAYABLE
Trade accounts payable 907 696 884 302 828 247 786 487
Value added taxation payable 8 374 — 4 965 —
Sundry accounts payable and accrued expenses 89 644 33 606 89 323 29 732
1 005 714 917 908 922 535 816 219
24. DEFERRED TAXATION
Balance at the beginning of the year 130 068 114 963 112 155 94 258
Income statement (note 7.1) (3 212) 17 187 5 981 17 407
Movement related to acquisition of outside shareholders’
interests in subsidiaries (6 364) —
Movement related to assets transferred from subsidiary 1 641 —
Foreign currency translation (566) (4 906)
Revaluation reserve (534) 3 248 (431) 490
Tax reserve relating to lifo adjustment in foreign subsidiaries
(note 19) (8) (424)
Balance at the end of the year 119 384 130 068 119 346 112 155
Comprising
Fixed asset and other net temporary differences 91 974 82 765 76 116 61 601
Lifo inventory reserve — 2 421 — 2 304
Net temporary differences on accounts receivable 48 196 44 882 43 230 48 250
140 170 130 068 119 346 112 155
Assessed losses (20 786) —
119 384 130 068 119 346 112 155
Group Company
2000 1999 2000 1999
R000 R000 R000 R000
Notes to the
Financial Statements
(continued)
Page 66
Edcon 2000
25. FUTURE CAPITAL EXPENDITURE
Contracted
Properties, fixtures, equipment and vehicles 38 068 9 758 37 463 8 674
Authorised by the directors but not yet contracted
Properties, fixtures, equipment and vehicles 219 120 164 379 210 908 149 861
257 188 174 137 248 371 158 535
All the expenditure will be incurred during the next financial year
and is to be financed from net cash retained from operations and
existing banking facilities.
26. LEASES
The group leases the majority of its land, buildings and vehicles
under operating leases whereas other operating assets are generally
owned. The lease agreements of certain of the group’s store
premises provide for a minimum annual rental payment and
additional payments determined on the basis of turnover.
At 31 March 2000 the future minimum property operating
lease commitments are
Expiry as follows
Within one year 302 803 335 083
Between two and five years 1 140 924 1 280 827
In more than five years 803 607 1 118 419
27. CONTINGENT LIABILITIES
Guarantees on behalf of subsidiaries for facilities to the extent that
they were used and in respect of staff loans and certain pensions 475 911 4 916 11 842
Litigation, current or pending, is not considered likely to have
a material adverse effect on the group.
28. FINANCIAL RISK MANAGEMENT
28.1 Treasury risk management
Senior executives meet on a regular basis to analyse currency and interest rate exposures and re-evaluate treasury management strategies
against revised economic forecasts. Compliance with group policies and exposure limits is reviewed at quarterly meetings of the board.
Group Company
2000 1999 2000 1999
R000 R000 R000 R000
Page 67
Edcon 2000
28. FINANCIAL RISK MANAGEMENT (continued)
28.2 Foreign currency management
Material forward exchange and currency option contracts at 31 March are summarised below. The writing of option contracts
is prohibited, thus currency options are only purchased as a cost effective alternative to forward exchange contracts. The amounts
represent the net rand equivalents of commitments, to purchase and sell foreign currencies and all of these commitments mature
within one year. Accordingly, the average rates shown include the cost of forward cover for periods of up to twelve months.
All contracts are regarded as cash flow hedges and any valuation adjustment at year end is taken to a non-distributable reserve.
2000 1999
Rand Average Rand Average
equivalent rate equivalent rate
R000 R000
Foreign currency against rand
hedged forward orders
US dollar 38 980 6,55 20 651 6,46
Deutsche mark ——917 3,67
Italian lire 2 574 299,17 1 436 278,57
The company, and certain of its subsidiaries, in terms of approved
policy limits, manage short term foreign currency exposures
relating to trade imports, exports and interest flows on foreign
borrowings. Net uncovered rand transaction exposures at
31 March 2000 amounted to R0,4 million (1999: R2,2 million).
The group policy is to limit this aggregate exposure to R10 million.
All other significant foreign trade positions in the group were fully
covered at 31 March 2000.
28.3 Interest rate management
As part of the process of managing the group’s fixed and floating rate borrowings mix, the interest rate characteristics of new borrowings
and the refinancing of existing borrowings are positioned according to expected movements in interest rates. The interest rate repricing
profile at 31 March is summarised as follows
Floating 1 – 67 – 12 Beyond Total
2000 rate months months 12 months borrowings
Borrowings (R000) 208 118 234 065 — 185 612 627 795
% of total borrowings 33,2% 37,3% — 29,5% 100,0%
1999
Borrowings (R000) 160 358 398 361 — 38 163 596 882
% of total borrowings 26,9% 66,7% — 6,4% 100,0%
In order to hedge specific exposures in the interest rate repricing profile of existing borrowings and anticipated peak additional borrowings,
the company and certain of its subsidiaries make use of interest rate derivatives, only as approved in terms of group policy limits. These
derivatives are regarded as cash flow hedges and the valuation adjustment at year end is taken to a non-distributable reserve.
Notes to the
Financial Statements
(continued)
Page 68
Edcon 2000
28. FINANCIAL RISK MANAGEMENT (continued)
28.4 Credit risk management
Potential concentrations of credit risk consist principally of trade accounts receivable and short term cash investments. The group only
deposits short term cash surpluses with major banks of high quality credit standing. Trade accounts receivable comprise a large,
widespread customer base and group companies perform ongoing credit evaluations of the financial condition of their customers
and, where appropriate, credit guarantee insurance cover is purchased. The granting of credit is controlled by application and
behavioural scoring models, and the assumptions therein are reviewed and updated on an ongoing basis. At 31 March 2000, the group
did not consider there to be any significant concentration of credit risk which had not been insured or adequately provided for.
28.5 Liquidity risk Group
The group has minimised risk of illiquidity as shown by its substantial banking facilities and 2000 1999
reserve borrowing capacity. R000 R000
Unutilised banking facilities
Total banking and loan facilities 1 452 901 1 238 359
Actual interest bearing debt (notes 21 and 22) 627 795 596 882
Unutilised banking facilities 825 106 641 477
Reserve capacity
The aggregate amount of the group’s year end interest bearing debt is limited to an amount
determined in terms of the company’s articles of association. This amount is calculated as
75% of shareholders’ funds.
Maximum permissible year end interest bearing debt 1 648 043 1 546 407
Actual interest bearing debt (notes 21 and 22) 627 795 596 882
1 020 248 949 525
Cash and cash equivalents (note 17) 118 503 81 410
Unutilised borrowing capacity 1 138 751 1 030 935
Sustainable liabilities
The unutilised liability capacity is based on the estimated capacity of each asset investment
to sustain liabilities. Refer notes 8 and 9 of the inflation statement.
Liability capacity
Loans and investments 50% 9 600 11 139
Fixed assets 50% 429 864 438 854
Inventories 75% 903 524 812 366
Accounts receivable 66% 1 255 837 1 109 787
Cash, cash equivalents and taxation receivable 100% 118 503 114 937
2 717 328 2 487 083
Liabilities (1 237 534) (1 089 153)
Permissible year end interest bearing debt 1 479 794 1 397 930
Actual interest bearing debt (notes 21 and 22) (627 795) (596 882)
Unutilised liability capacity 851 999 801 048
Page 69
Edcon 2000
28. FINANCIAL RISK MANAGEMENT (continued)
28.6 Fair value of financial instruments
The estimated net fair values have been determined as at
31 March 2000, using available market information and appropriate
valuation methodologies, and are not necessarily indicative of the
amounts that the group could realise in the normal 2000 2000 1999 1999
course of business. Carrying Fair values Carrying Fair values
amounts amounts
R000 R000 R000 R000
Assets
Liquid resources 118 503 118 503 81 410 81 410
Accounts receivable 1 807 934 1 807 934 1 681 496 1 681 496
Investments and loans 19 199 19 199 22 278 22 278
Liabilities
Interest bearing debt 627 795 627 795 596 882 591 157
The following methods and assumptions were used by the group in establishing fair values
Liquid resources, trade accounts receivable, investments and loans: the carrying amounts reported in the balance sheet
approximate fair values.
Borrowings: the fair values of the group’s loans are estimated using discounted cash flow analyses applying the RSA yield curve.
The carrying amount of short term borrowings approximates their fair value.
Forward instruments: forward exchange contracts are entered into mainly to cover import orders, and fair values are determined
using foreign exchange market rates at 31 March 2000. Forward rate agreements are entered into mainly to hedge interest rate
exposure and fair values are determined using money market derivative rates at 31 March 2000.
Notes to the
Financial Statements
(continued)
Page 70
Edcon 2000
29. INTERESTS OF DIRECTORS AND MANAGERS
IN SHARE CAPITAL AND CONTRACTS
The interests, direct and indirect, of the directors and managers in office at the date of this report, and their families, aggregated as to
beneficial interest and non-beneficial interest, are as follows
Ordinary shares
Non-
Beneficial beneficial
At 31 March 1999 21 887 11 003
At 31 March 2000 and 18 May 2000 14 557 11 003
Comprising
Non-executive directors 9 260 11 003
Executive directors 2 000
Executives 3 297
14 557 11 003
Disclosures by the directors indicate that at 31 March 2000 and at the date of this report, their interests and those of their families
did not, in aggregate, exceed 5% in respect of either the share capital or voting control of the company.
Each director of the company has certified that he was not interested in any contract of significance to the company or any of its
subsidiaries which could have given rise to a related conflict of interest during the year.
A register detailing directors’ and managers’ interests in the company is available for inspection at the company’s registered office.
A copy will be posted, upon request, by the secretary to any member of the public.
Page 71
Edcon 2000
30. RELATED PARTY TRANSACTIONS
Related party relationships exist between the group. All purchasing and selling transactions are concluded at arm’s length.
31. SOCIAL INVESTMENT AND ENVIRONMENTAL PROTECTION
Social investment has become an established part of operational life throughout southern Africa. Edcon’s programmes continue to
focus predominantly on education and training, but also included health and welfare. The Edgars and Sales House Clubs again
impacted positively on national education. Edgars Club paid R0,4 million in skills development grants and Sales House awarded
bursaries amounting to R5 million. The Sales House Club also paid R0,5 million in education grants to primary schools. In addition
the Edgars Foundation donated R0,2 million to various charitable institutions.
The group risk management committee continued to monitor Edcon’s possible impact on the environment, particularly in its
manufacturing factories. No reports of pollution from these or our retail operations were received during the year.
32. KEY INDICATORS IN US DOLLAR TERMS
2000 1999
US$m US$m
Revenue – retail sales* 1 007 1 041
Earnings attributable to ordinary shareholders* 36 15
Total assets 626 610
Market capitalisation 618 295
*Converted at average rate of R6,38 (1999: R5,62)
Notes to the
Financial Statements
(continued)
Page 72
Edcon 2000
33. REPORT OF THE DIRECTORS
A separate report is not considered appropriate as details of the performance of the various operations of the group are contained in
the Chief Executive Officers’ report and the group financial review. Other required disclosures are contained in either these reviews
or the annual financial statements, together with the notes thereto.
At the General Meeting of members held on 3 June 1999 the following special resolutions were passed with effect from 11 June 1999:
● to change the name of the company from Edgars Stores Limited to Edgars Consolidated Stores Limited to reflect the nature of the
Edgars group which incorporates a number of different retail chains;
● to consolidate and subdivide the authorised and issued share capital of the company to provide a mechanism to facilitate, in
an equitable manner, the reduction in the number of shareholders holding less than 100 shares in the company;
● to increase the authorised ordinary share capital of the company from 61 500 000 ordinary shares of 10 cents each to
72 000 000 ordinary shares of 10 cents each, by the creation of 10 500 000 new ordinary shares of 10 cents each, which new
ordinary shares shall rank pari passu in all respects with the existing ordinary shares in the authorised share capital of the
company, to create the shares necessary to implement the increase in the number of shares to be made available to the
Edgars Share Incentive Scheme.
Page 73
Edcon 2000
Nature of Issued ordinary % interest Book value of Amounts owing
business capital in capital shares by subsidiaries
(note 13.2)
2000 1999 2000 1999 2000 1999 2000 1999
Incorporated in South Africa R R % % R R R R
African Accent (Pty) Ltd R 100 100 100 100 100 100
Cannon Clothing (Pty) Ltd D 100 100 100 100
Celrose Clothing (Pty) Ltd D 100 000 100 000 100 100
Cuthberts (Bophuthatswana) (1990) (Pty) Ltd R 100 000 100 000 100 100
Dale Retail Service (Pty) Ltd G 36 000 36 000 100 100 293 843 —
Decisions Home Shopping Ltd D 200 000 200 000 100 100 200 000 200 000
E-Corporate Travel Solution (Pty) Ltd T 100 — 50 —
Edgars Investment Holding Company Ltd G 141 076 141 076 100 100 141 076 141 076
Edgars Retail Trading (Pty) Ltd R 600 600 100 100 600 600
Edgars Stores (Management) Ltd*** G — 4 000 — 100 — 4 000
Ellesse SA (Pty) Ltd D 100 100 100 100
Goose Bay Trading (Pty) Ltd D 1 1 100 100 1 1
H.D. Lee Company (Pty) Ltd M 50 000 50 000 100 100
Jet Stores (Pty) Ltd R 4 504 4 504 100 100 4 504 4 504
Lauré Fashions (Pty) Ltd M 1 000 1 000 100 100 7 880 708 4 237 816
Meltz Success (Pty) Ltd M 1 000 1 000 **100 51 256 369 — 43 226 540 36 696 286
Meltz Success (Pty) Ltd – preference shares M 50 000 000 8 947 000
M S Litho (Pty) Ltd D 100 100 100 100
National Security Company Ltd G 2 000 2 000 100 100 1 800 1 800
Peoples Stores (Bophuthatswana) (Pty) Ltd R 250 000 250 000 100 100 250 000 250 000
Peoples Stores (Ciskei) (Pty) Ltd*** D — 100 — 100 — 100
Peoples Stores (Management)
(Transkei) (Pty) Ltd*** G — 100 — 100 — 100
Peoples Stores (Transkei) (Pty) Ltd D 290 000 290 000 100 100 290 000 290 000
Peoples Stores (Venda) (Pty) Ltd*** D — 1 — 100 — 1
Peoples Stores (Walvis Bay) (Pty) Ltd*** D — 250 000 — 100 — 250 000
R22 Properties (Pty) Ltd P 1 1 100 100 1 1
Reactor Clothing (Pty) Ltd M 100 100 85 70 381 972
Sales House (Pty) Ltd R 100 100 100 100 100 100
Shoecorp Shoe Stores (Pty) Ltd R 33 752 33 752 100 100 — — — 85 144 044
Smiley’s Wearhouse (Pty) Ltd R 120 120 100 #34 1 726 762 — 23 415 825 —
Studio Clothing (Pty) Ltd D 100 100 100 100
United Purchasing Company Ltd D 6 000 6 000 100 100 6 000 6 000
UPC Retail Services (Pty) Ltd G 6 000 6 000 100 100 6 000 6 000
V.O.C. Investment Ltd M 950 000 950 000 100 100 950 000 950 000 31 843 334 25 522 062
W.M. Cuthbert & Company Ltd P 12 200 12 200 100 100
Incorporated in Botswana P P
Jet Supermarkets Botswana (Pty) Ltd R 300 000 300 000 100 100 2 549 979
Incorporated in Lesotho M M
Easy Rider Clothing (Pty) Ltd M 1 000 1 000 85 85
Edgars Stores (Lesotho) (Pty) Ltd R 200 000 200 000 100 100 200 000 200 000 995 021 2 806 091
Jet Supermarkets (Lesotho) (Pty) Ltd D 100 100 100 100 100 100
Lee Manufacturing (Lesotho) (Pty) Ltd M 4 000 4 000 100 100 3 436 909 1 865 404
Sales House (Lesotho) (Pty) Ltd D 1 000 1 000 100 100 1 000 1 000
Incorporated in Namibia N$ N$
Edgars Stores (Namibia) Ltd R 1 050 000 1 050 000 100 100 53 304 340 1 349 579
Incorporated in Swaziland E E
Edgars Stores (Swaziland) Ltd R 1 500 000 1 500 000 100 100 1 500 000 1 500 000 35 258 312 —
Jet Supermarkets (Swaziland) (Pty) Ltd D 100 100 100 100 100 100
Incorporated in Zimbabwe Z$ Z$
Edgars Stores Limited† R 46 146 000 46 146 000 56 57
Incorporated in Guernsey £ £
Bellfield Limited G 41 41 100 100 75 75 211 253 211 253
Berwick Holdings Limited G 2 2 100 100 3 692 3 692 176 842 720 842
Interest in subsidiaries 55 538 280 12 756 350 200 042 927 161 485 328
* Nature of business R: Retailing M: Manufacturing G: Group Services D: Dormant P: Property Holding T: Travel
# 1999 Effective interest. 100% interest with effect from 31 March 2000
† December financial year end. Details as at 31 December 1999
** With effect from 18 January 2000
*** Deregistered during the year
Interests in
Subsidiaries
Page 74
Edcon 2000
Annexure 1
Financial calendar
Financial year end 31 March
Annual general meeting July
Reports
Interim report November
Preliminary announcement of annual results May
Annual report June
Dividends payable
Ordinary shares – interim and final December and June
6% preference shares December and June
Analysis of holdings of ordinary shares at 31 March 2000
Number of members Number of shares
Size of holding Individuals Other % of total Individuals Other % of total
1– 500 1 932 197 84,75 274 517 37 347 0,54
501– 2 500 188 66 10,11 189 988 72 333 0,46
2 501– 5 000 22 22 1,75 76 867 77 546 0,27
5 001– 50 000 18 38 2,25 170 133 598 714 1,34
50 001–100 000 2 8 0,39 138 544 571 911 1,24
Over 100 000 — 19 0,75 — 55 168 300 96,15
Total 2 162 350 100,00 850 049 56 526 151 100,00
Number of Shares % of
members held total
Directors 3 11 260 0,02
Pension funds 15 601 247 1,05
Nominee companies 150 42 508 024 74,08
Insurance companies and other corporate bodies 149 13 383 320 23,33
Investment and trust companies 33 22 300 0,04
Individuals 2 162 850 049 1,48
Total 2 512 57 376 200 100,00
Shareholders with a holding of greater than 5% of issued ordinary shares
SABSA Holdings (Pty) Limited 11 199 413 19,52
Liberty Life Association of Africa Limited 7 834 782 13,66
Gensec Limited 6 877 680 11,99
Old Mutual (SA) Limited 6 713 416 11,70
Rand Merchant Bank Limited 5 307 054 9,25
Coronation (SA) Limited 4 780 690 8,33
Shareholders’
Information
Page 75
Edcon 2000
Notice is hereby given that the fifty-fourth annual general
meeting of the members of Edgars Consolidated Stores
Limited will be held at the registered office of the
company, Edgardale, Press Avenue, Crown Mines,
Johannesburg, on Wednesday, 19 July 2000 at 09h00 for
the following purposes:
1. to receive and adopt the financial statements for the
year ended 31 March 2000.
2. to elect directors in place of those retiring in
accordance with the provisions of the company’s
articles of association.
3. to consider, and if deemed fit, to pass with or without
modification the following ordinary resolution:
3.1 “that 279 800 unissued ordinary shares in the capital
of the company be and they are hereby placed at the
disposal and under the control of the directors who
may, subject to the provisions of the Companies Act,
1973, issue such shares to such persons on such terms
and conditions and with such rights attached thereto
as the directors may determine.” This resolution
renews the general authority to issue shares given by
members to the directors on 14 July 1999.
A member entitled to attend and vote at this meeting may
appoint a proxy or proxies to attend and speak and on a
poll to vote in his stead. Such proxy need not be a
member of the company. Proxy forms, available from the
transfer secretaries, should reach the registered office of
the company at least 48 hours before the meeting.
By order of the board
D J Viviers
Group Secretary
PO Box 100
Crown Mines
2025
18 May 2000
Notice
to members
Page 76
Edcon 2000
EDGARS CONSOLIDATED STORES LIMITED
(formerly Edgars Stores Limited)
Incorporated in the Republic of South Africa
Registration number 05/22751/06
GROUP SECRETARY
D J Viviers
REGISTERED OFFICE
Edgardale, Press Avenue
Crown Mines, Johannesburg 2092
Telephone (011) 495-6000
Fax (011) 837-5019
POSTAL ADDRESS
PO Box 100, Crown Mines 2025
TRANSFER SECRETARIES
Mercantile Registrars Limited
11 Diagonal Street, Johannesburg 2001
PO Box 1053, Johannesburg 2000
Telephone (011) 370-5000
Fax (011) 370-5271
AUDITORS
Ernst & Young
Ernst & Young House
4 Pritchard Street, Johannesburg 2001
PO Box 2322, Johannesburg 2000
Telephone (011) 498-1000
Offices
Page 77
Edcon 2000
Co-ordination: Group Finance and Group Public Affairs
Reproduction: Typesetting and Repro Services
Design and Production: Bastion Graphics
Printing: Ultra Litho
