11 of 2021



                                                              Newsletter No. 11 / 01 April 2021                          

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Levi’s drives awareness around importance of clean drinking water

With the spotlight on World Water Day this March, Levi Strauss & Co is drawing attention to the environmental challenge of water pollution and how the company is actively trying to be part of the solution.

The fashion brand makes sole use of black and grey water in its manufacturing processes and prevents further pollution to South Africa’s water systems.

The World Economic Forum rates water issues as the top financial risk to the global economy, affecting both people and the planet. Two billion people live in high water stress areas, where the water demand is higher than what is available. Four billion people experience severe water scarcity worldwide.

Approximately nineteen million South Africans depend on the Vaal River System for drinking water. The country’s most significant river system is currently polluted by sewage, refuse, alien plants and manufacturing chemical pollutants, threatening the health of the environment as well as citizens.

In South Africa, the treatment of wastewater generated in rural and peri-urban areas is non-existent or scarce. Chemicals used in the manufacturing process of textiles either don’t decompose or decompose very slowly, adding to pollution of groundwater and the ecosystem’s degradation.

“Dam levels in South Africa are currently high. However, the safety of our drinking water is concerning. A healthy water supply contributes to a strong economy and reduces poverty,” says Candace Gilowey, head of marketing at Levi Strauss & Co. in South Africa. “At Levi’s, we aim to do more to remove hazardous chemicals from the apparel supply chain,” she adds.
Recycle and reuse
The company’s ‘Recycle and Reuse Standard’ aims to support improved water treatment. This guideline applies to all finishing facilities in compliance with the Global Effluent Requirement (GER) to recycle or reuse effluent water as a full or partial replacement of freshwater in the facility.

The Recycle and Reuse standard states that facilities must adhere to the Zero Discharge of Hazardous Chemicals (ZDCH) wastewater guidelines and recycle over 20% of the manufacturing water, leaving drinking water unaffected.

WaterLess finishing techniquesLevi Strauss & Co. has also introduced 20 WaterLess finishing techniques worldwide that can save up to 96% of the water used in their apparel’s finishing processes. Eighty percent of the company’s key factories will become WaterLess by 2025. So far, the company reports having saved more than 3 billion litres and recycled more than 1.5 billion litres of water through the WaterLess innovations.

To raise awareness of the importance of clean and sustainable drinking water and celebrate the success of implementing its clean water-saving techniques, Levi’s is giving South African consumers clean drinking water in eco-friendly cartons.

Shoppers can collect these at the following Levi’s stores: Canal Walk; Cavendish; Clearwater; Eastgate; Gateway; Mall of Africa; Menlyn; Sandton; Tyger Valley and the V&A Waterfront.  Bizcommumity

China pulls H&M Stores from maps as Xinjiang row grows

By Vlad Savov

Swedish clothing company outlets do not appear on Apple Maps and Baidu Maps searches in China.

Hennes & Mauritz (H&M) outlets appeared not to show up on Apple Maps and Baidu Maps searches in China on Friday after the fashion retailer found itself at the centre of an escalating spat over human rights in the contentious region of Xinjiang.

Users in Beijing reported that any searches for H&M in either Apple Maps on the iPhone or Baidu Maps returned no results. Competing retailers, such as Uniqlo outlets, continued showing as usual. A similar search in Google Maps showed more than a dozen H&M locations in the capital or its vicinity, though that service is only accessible to locals via the use of a virtual private network that skirts a state ban on products from the Alphabet unit.

Apple sources its mapping data in China from AutoNavi Software Co — owned by Alibaba Group — while Baidu collects its own. Representatives from Apple, Alibaba, Baidu and H&M did not immediately respond to requests for comment.

The disappearance of H&M’s physical stores from online maps comes after the retailer was removed from Alibaba’s e-commerce platform earlier this week as the controversy escalated.

The company had been blasted by China’s Communist Youth League and the People’s Liberation Army on Wednesday after social-media users dug out an undated statement about accusations of forced labour in the region’s cotton-picking industry. The statement appears to have since been removed from H&M’s website on Friday.  Bloomberg

Tribunal approves Mr Price acquisition of Otto Brothers Distributors 
with conditions to promote local procurement

The Tribunal has conditionally approved the merger whereby Mr Price Group Limited (“Mr Price”) will acquire the retail apparel business operated by Otto Brothers Distributors (Pty) Ltd (“Otto Brothers”) and its subsidiaries, trading as Power Fashion.

The Tribunal has concluded that the transaction is unlikely to substantially prevent or lessen competition in any market in South Africa. However, conditions have been imposed on the merger to promote local procurement within the Mr Price Group post-merger. This follows concerns raised by the Minister of the Department of Trade, Industry and Competition (“DTIC”) in relation to local procurement. As such, the merged entity must ensure that:

  • Power Fashion maintains or improves its current level of locally procured goods and services; and
  • Power Fashion participates in the DTIC’s Retail, Clothing, Textile, Footwear and Leather (R-CTFL) Masterplan initiative along with the rest of the Mr Price Group. This DTIC initiative seeks to, among others, increase the share of local retail sales of locally manufactured clothing and footwear to 65% by 2030.

Merger parties

Mr Price is a national clothing retailer offering fashion and sport clothing, footwear, accessories, homeware and mobile products under various brands. Mr Price targets a wide range of customers and is well known for its fashion-value offering. It also has an established financial services division which offers credit, insurance products, cellular offerings and value-added services. Mr Price also operates in other African countries including Botswana, eSwatini, Ghana, Lesotho, Kenya, Namibia and Zambia.

The target business is Power Fashion, which is a national clothing retailer that services low to middle income households. It offers affordable clothing, cosmetics, mobile handsets, airtime, basic household items, electricity and other products. Power Fashion stores are typically located in ‘high street’ and community-centered malls and commuter nodes.

Mr Price – update on acquisition

Shareholders are referred to the group’s SENS announcement on 26 November 2020 which communicated the conclusion of an agreement to acquire high performing value retailer, Power Fashion, which currently has 173 stores across Southern Africa.

Power Fashion is a value-focused and cash-based retailer, servicing low to middle income households. It offers merchandise for the whole family, retailing largely apparel merchandise, which is fashionable, but not fashion forward. It focuses on the deep value segment of the market and its price positioning is strongly aligned to its target customer base.

All suspensive conditions, including approval by the South African and eSwatini competition authorities, have been fulfilled and the acquisition is effective on 1 April 2021.

Investment Case
The group’s strategic research undertaken last year identified opportunities for growth in South Africa, both organic and acquisitive. The price-value market in the apparel segment in which Power Fashion operates, was one such segment with attractive growth potential.

Mr Price Group has frequently communicated to shareholders its strict investment criteria for an acquisition, which has guided it as it has considered several opportunities in the last year. In Power Fashion, the group will acquire a business that meets each of these closely researched criteria:
– Value focused business that predominantly trades in cash and is aligned to the group’s core capabilities
– Fits within the group’s capital allocation strategy and is bolt-on in nature (the size of the transaction is currently 3%- 4% of market capitalisation)
– High performing business with a strong track record, eliminating the need for any turnaround strategy and avoiding the associated management distraction and integration costs
– An existing business of attractive scale which is available at a reasonable valuation. Immediately earnings accretive and not dependant on synergies
– Opportunity for significant future growth in footprint and categories
– Strong management and skilled team to maintain focus and ensure continuity

Continued operations
The existing Power Fashion management team and employees will transfer to the Mr Price Group on the effective date. As previously indicated, Power Fashion’s majority shareholder and CEO, Noel Otto, will retire on the effective date but will consult to the newly appointed Power Fashion managing director for a period to provide continuity.

Mr Price Group will incorporate Power Fashion’s financial performance in its financial reporting at its FY2022 trading update in August 2021.

Rex True interim results December 2020

Revenue from continuing operations for the interim period decreased by 36.2% to R249.1 million (2019: R390.6 million), gross profit dropped 40.9% to R111.6 million (2019: R188.8 million), operating profit was 69.8% lower at R11.6 million (2019: R38.3 million) and profit attributable to equity holders of the parent contracted to R1 million (2019: R17.1 million). Headline earnings per ordinary share from continuing operations fell 85.2% to 12.7 cents per share (2019: 85.6 cents per share).

A dividend on the 6% cumulative preference shares for the six months ended 31 December 2020 in the amount of 6 cents per share was declared by the board of directors on 22 December 2020 and was paid on 18 January 2021. The directors have not proposed a dividend in respect of the ordinary and ‘N’ ordinary shares

Company prospects
The retail business segment is focused on the challenges and opportunities that lie ahead in the post COVID-19 lockdown trading environment. Ecommerce has emerged as a vital sales channel in the retail sector. Queenspark launched its own ecommerce platform in June 2020 and this will be a key part of the retail strategy moving forward. Existing and new brands will be continually assessed with the intention of providing customers with a portfolio which caters for their changing needs during this time. Cash preservation and liquidity continue to be a top priority. Cost reduction and operating efficiencies will be key focus areas going forward, the most important of which includes reducing occupancy costs to acceptable levels.

The groups’ property assets will undoubtedly be impacted by changes in tenant’s space requirements necessitated by social distancing and the advent of remote working. The tenant base proved to be resilient during the period of the lockdown. With respect to undeveloped properties, the group will continue to seek opportunities that will yield a satisfactory return on any capital employed taking into consideration the large capital requirements and the long term nature of any property development.

The group’s water assets are performing and are successful working examples of private-public partnerships within the water and sanitation sector. South Africa is classified as a water-stressed country and can not afford a water crisis. It is therefore of utmost importance that water security is ensured across the country. SAWW, with its skills and experience, is ready to play a key role in meeting this objective in the sector.

Notwithstanding the current trading conditions and many uncertainties which lie ahead, the group will strive to achieve reasonable targets within current operations. We will also continue to utilise our entrepreneurial flexibility to seek opportunities in other sectors of the economy and by doing so further diversify our portfolio of investments.

References to future financial performance has not been reviewed or reported on by the group’s external auditors and does not constitute an earnings forecast.

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Did you know……..

. “Three out of five fast fashion items end up in a landfill” (Clean Clothes Campaign, 2019)

Recycling is, unsurprisingly, a massive problem in the fast fashion industry. We rarely think about where our clothes go when we don’t need them anymore. Fixing your clothes instead of throwing them away can make an incredible contribution to the reduction in global pollution.

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