Comment

GROUP OVERVIEW

Following on the very substantial compounded growth in headline earnings per share of 63,7% over the last four years, our group has this year once again achieved another year of very good performance.

The group is reporting this financial year for the first time under International Financial Reporting Standards (IFRS). The changes made to our accounting policies resulting from the adoption of IFRS are reflected in a separate section of this announcement.

The lower interest rate environment and buoyant economy experienced in the first half of the financial year continued into the second half. Turnover for the first time exceeded the R6 billion mark for the 53 weeks, which is an increase of 21,8% compared to the 52 weeks in the previous year. This is extremely pleasing, having been achieved on an increased trading area of 7,1%, most of which came on stream towards the end of the financial year. Comparable turnover growth for the 52 weeks was 19,1%. Gross margins for the period were marginally down by 0,8% on the previous year, primarily as a result of a change in the sales mix. Headline earnings per ordinary share increased by 28,8% to 463,0c from 359,6c, whilst the group’s operating margin increased to 24,3% from 22,8%. Comparable headline earnings per share increased by 25,4%. Cash generated by operations for the year amounted to R530,5 million.

The dividend cover has been reduced to 2,1 from 2,2 times attributable headline earnings per share. Accordingly the final dividend has increased by 37,3% to 140c per share. Dividends distributed in respect of the full year of 220c have increased by 34,1%.

Due to the group’s strong performance over the past few years, resulting in substantially higher trading volumes and an increase in units, two much-needed new distribution centres were commissioned during the year at a cost of R90 million.

In terms of the group’s agreement with the Standard Bank of South Africa (SBSA), referred to below, Standard Bank has acquired a further 10% in RCS Investment Holdings with effect from 1 April 2006, increasing its holding in that company to 35%. Subsequent to the year-end, the group has received cash proceeds of R220 million in respect of the purchase price of this additional 10%, as well as SBSA’s pro-rata contribution to loan funding.

During the year under review the group opened 81 new stores across all divisions, whilst 30 stores were closed. At the end of the year the group was trading out of 1 267 stores with a trading area of 353 833 square metres, an increase of 7,1% compared to the previous year.

TRADING DIVISIONS

The buoyant trading conditions experienced in the first half of the financial year continued into the second half. All our divisions performed well, once again substantially above our product inflation rate of approximately 3%.

Sales and sales growths in the various divisions were as follows:

 No. of storesSales Rm% Change
@home41326,3 33,2
Exact!170592,4 23,6
Foschini Stores3562 660,6 19,2
Markham2081 054,7 21,4
Jewellery Division308893,4 20,0
Sports Division184 904,7 27,5
Total1 267 6 432,1 21,8

Total comparable same store sales for the year grew by 14,9% with apparel growing 12,4%, cosmetics 24,0%, cell phones 32,6%, jewellery 14,9% and homewares 5,7%.

The Foschini division traded above budget with comparable same store growth of 11,2%. The new Luella stores launched during November, offering a range of ladies footwear, handbags and accessories, aimed at the middle to upper market, traded positively and will be further expanded.

The Markham division, which under-performed our other clothing divisions in the first half of last year, continues with its greatly improved trading with comparable same store growth at 19,4%. Its new store design concept that has been very well received by the marketplace, continues to be expanded countrywide. Its RJL brand – its unisex fashion chain is competing head-on with our Sportscene and Foschini junior divisions and although profitable, will be phased out during the next financial year. Its real estate will be converted, in the main, into Luella stores which have a much greater roll-out potential and trade at a higher gross margin.

The jewellery division, comprising American Swiss Jewellers, Sterns and Matrix continues to be a leader in the retail jewellery market in southern Africa. Total sales growth of 20,0% achieved by this division is extremely pleasing. Comparable same store growth was 15,7%.

Exact! continues to go from strength to strength. Sales densities continue to improve and a very strong sales growth of 23,6% was achieved with comparable same store growth of 19,7%.

The sports division, trading as Sportscene, Totalsports and DueSouth, continues to outperform its market with growth in turnover of 27,5% and comparable same store growth of 15,7%.

Our @home division continued with substantial growth, increasing its store base to 41 during the year and achieving turnover of R326,3 million. Comparable same store growth of only 5,7% is primarily due to its own cannibalisation as it rolls out additional stores. Its first two lifestyle stores, branded as @homelivingspace which opened in October and November 2005 have been extremely well received in the marketplace.

Foschini retail credit – Our retail debtors book which amounts to R2,1 billion increased by 21,3% during the year, while credit turnover grew by 20,7%. Cash sales as a percentage of total sales increased from 30,2% to 30,8%. Whilst there have been continued improvements in our debtors book, reflected in a reduction in net bad debts and improved collections, there are signs that these performance indicators have plateaued, albeit at extremely good levels.

FINANCIAL SERVICES

Our financial services division comprises RCS Personal Finance, our group’s personal loans business, and RCS Cards, which offers credit to customers of merchants outside of the group. This division continued with its good performance, growing its profit before tax by 30,4% which currently represents 17,0% of our group’s profit before tax. It is anticipated that this will grow in the years ahead to around 20%. As a result of the transaction with SBSA, our group’s shareholding in this division is 65% as from 1 April 2006.

RCS INVESTMENT HOLDINGS (RCSIH) AGREEMENT WITH THE STANDARD BANK OF SOUTH AFRICA
 LIMITED (SBSA)

As we announced on SENS on 29 August 2005, SBSA acquired an initial 25% of RCSIH with options to acquire an additional 20% in the future, half of which was exercised on 1 April 2006. The agreement was subject to the fulfilment of certain conditions that have subsequently been met. This transaction was approved by the South African Competition Authority on 30 November 2005.

PROSPECTS

We anticipate opening in excess of 80 new stores across all divisions in the year ahead. The continued low inflation and lower interest rate environment, together with the favourable economy continue to benefit consumer confidence. Turnover for the first seven weeks of the new financial year has remained strong across all divisions and is well above budget. In the absence of unforeseen circumstances, though mindful of recent turbulence in financial markets, we remain confident about trading in the year ahead and expect to be able to produce another year of good growth.

PREFERENCE DIVIDEND ANNOUNCEMENT

Dividend no. 139 of 3,25% (6,5 cents per share) in respect of the six months ending 30 September 2006 has been declared, payable on Monday, 2 October 2006 to holders of 6,5% preference shares recorded in the books of the company at the close of business on Friday, 29 September 2006.

The last day to trade (“cum” the dividend) in order to participate in the dividend will be Thursday, 21 September 2006. Foschini Ltd preference shares will commence trading “ex” the dividend from the commencement of business on Friday, 22 September 2006 and the record date, as indicated, will be Friday, 29 September 2006.

Preference shareholders should take note that share certificates may not be dematerialised or rematerialised during the period Friday, 22 September 2006 to Friday, 29 September 2006, both dates inclusive.

FINAL ORDINARY DIVIDEND ANNOUNCEMENT

The directors have declared a final ordinary dividend of 140,0 cents per ordinary share payable on Monday, 17 July 2006 to ordinary shareholders recorded in the books of the company at the close of business on Friday, 14 July 2006.

The last day to trade (“cum” the dividend) in order to participate in the dividend will be Friday, 7 July 2006. Foschini Ltd ordinary shares will commence trading “ex” the dividend from the commencement of business on Monday, 10 July 2006 and the record date, as indicated, will be Friday, 14 July 2006.

Ordinary shareholders should take note that share certificates may not be dematerialised or rematerialised during the period Monday, 10 July 2006 to Friday, 14 July 2006, both dates inclusive.

Certificated ordinary shareholders are reminded that all entitlements to dividends with a value less than R5,00 per certificated shareholder will be aggregated and the proceeds donated to a registered charity of the directors’ choice, in terms of the articles of association of the company.

COMPLIANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

In order to comply with IFRS the group has adopted the following accounting policies. All comparative information has been adjusted accordingly.

  • The group elected to utilise the following exemption in terms of IFRS – First-time adoption. The fair value of buildings at the transition date was adopted as the deemed cost and the applicable depreciation adjusted accordingly. In order to determine depreciation, the useful lives and residual values of properties will be reviewed on an annual basis.
     
  • Share options (share-based payments) granted to employees after 7 November 2002 are valued using a binomial valuation model and this value is charged to the income statement over the expected life of the option. The liability raised at the transition date amounted to R9 million.
     
  • Goodwill is no longer amortised and is now stated at its carrying value as at 1 April 2004. This carrying value is reviewed annually for impairment.

These financial statements have been prepared on the standards that were applicable on 31 March 2006, being the first time that the group has prepared financial statements under IFRS.

Signed on behalf of the Board

E Osrin (Chairman)D M Polak (Managing Director)

Cape Town
25 May 2006


Executive directors: D M Polak, R Stein
Non-executive directors: E Osrin (Chairman), D M Nurek (Deputy Chairman), Prof F Abrahams, S E Abrahams,
L F Bergman (Austrian), W V Cuba, N H Goodwin, M Lewis

Registered office: Stanley Lewis Centre, 340 Voortrekker Road. Parow East, 7500
Registration number: 1937/009504/06
Share codes: FOS – FOSP • ISIN codes: ZAE000031019 – ZAE000031027

Transfer secretaries: Computershare Investor Services 2004 (Pty) Limited Ground Floor,
70 Marshall Street, Johannesburg, 2001
Sponsor: UBS South Africa (Pty) Ltd