21 of 2021


Newsletter No 21 / 11 June 2021

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Podcast: Will we ever cotton on

As Ebrahim Patel ploughs on, recasting South African industry in his own image, good news stories on the ground are hard to find and one of the minister of trade, industry and competition’s frequently used weapons in his drive to promote localisation and import substitution, the Industrial Development Corporation, reported losses of R3.8bn last year.

That’s a big number and testament to the quality of companies that its political masters (Patel) is driving it to invest in. In this edition of Podcasts from the Edge Peter Bruce talks to Nick Steen, a rock-hard former CEO with long, bittersweet experience in the local textiles industry that Patel is determined to protect. Do we have a future in textiles? Steen says we do, but not the way Patel imagines it…


Zimbabwe, Zambia pursue joint venture manufacturing sector projects.

Zimbabwe and Zambia are working on setting up industrial joint ventures riding on the recent signing of a memorandum of understanding (MoU) aimed at facilitating close collaboration between the two countries towards rejuvenating the manufacturing sector, including textiles, agriculture and agro-processing, petrochemicals, and forest-based industries.

Zimbabwe’s industry and commerce minister Sekai Nzenza told regional ministers at the 4th Common Market for Eastern and Southern Africa (COMESA) Committee of Ministers of Industry last week that the joint venture efforts would assist the two sides to unlock higher economic potential in line with regional industrialisation goals.

“So far, the governments of Zambia and Zimbabwe have signed a Memorandum of Understanding to form a Joint Industrialization Cooperation Programme, which will facilitate deeper collaboration by setting up joint ventures,” she said.

“Priority sectors include agriculture and agro-processing, mining and mineral beneficiation, petrochemicals, fertilizers and pharmaceuticals, capital goods industries, textiles, forest and timber-based industries, building materials and knowledge economy, among others,” she was quoted as saying by newspapers in Zimbabwe.

She said both the countries are well positioned to develop and facilitate regional value chains based on their comparative advantages. For instance, cotton from Zimbabwe could be ginned at Mulungushi Textiles in Kabwe, Zambia.

The 4th ministerial committee meeting deliberated on key regional integration issues and closed with adoption of the draft implementation strategy for the domestication of the COMESA Local Content Policy Framework.

The regional industry framework is anchored on management of special economic zones and industrial parks and seeks to enhance industrial production during and after the COVID-19 pandemic in an inclusive and sustainable way.

TFG Posts R600m Headline Earnings as turnover surges in 2nd half, buoyed by Online sales, Australia and Jet

TFG’s turnover rebounded strongly in the 2nd half of its financial year to 31 March 2021, with growth of 63% compared to the first half of the year, which was heavily impacted by government enforced lockdowns and store closures in all its territories.

TFG’s total online sales grew by 33% during the year with the strongest online growth coming from South Africa, which grew by 132%. TFG continued to invest ahead of local competitors in its South African online and technology capabilities and recently announced the launch of TFG Labs, its new E-commerce Tech Hub, led by the former joint founders and CEO’s of Superbalist, Claude Hunan and Luke Jedeikin. TFG’s online growth was underpinned by its market leading social media reach of 13.9m followers, the range of products and styles it sells across its 29 different brands and a 67% increase in its online conversion rates in South Africa as it rolled out new improvements to its websites and shopping Apps.

TFG’s Australian business largely shrugged off the impact of store closures which heavily impacted the first half of the year and sporadically impacted 2nd half sales as well, to post a record high EBITDA profit of A$155m, which was 12% ahead of the previous financial year.

TFG Africa’s turnover for the full year grew by 1.6%, despite having been subjected to some of the harshest lockdown restrictions in the world during the first half of the year. This growth was delivered through a strong recovery over the second half of the year, record online sales and the inclusion of Jet during the second half of the year, which contributed R2.2bn in additional turnover. Jet was successfully transitioned onto more than 70 TFG IT systems in less than 6 months and is trading well ahead of expectation. TFG’s acquisition of Jet secured the jobs of more than 5600 Jet employees who were facing retrenchment at the time. Even without the inclusion of Jet, TFG South Africa continued to take market share in a number of categories, most notably in the core men’s and ladies apparel segments, which saw it gain 20bps over the period.

The better than expected recovery in sales during the second half of the year, combined with tight working capital and cost control resulted in TFG reporting a Headline Earnings profit of R600m. The Group also generated cash of R9.4b from operations and its free cash flow increased by 70.5% to R3.8bn. Sales for the 10 weeks after the year end continued to show positive momentum with TFG Africa turnover growth of 32.2% and TFG Australia turnover growth of 36.5%. TFG London’s stores only started to re-open from 12 April 2021 and are trading slightly ahead of expected levels. TFG intends to resume dividend payments during the new financial year as a result of its strong recovery and balance sheet position.

  • Group retail turnover only down 6,7% for the year and largely due to COVID lockdowns and the UK closures to R33,0 billion, but a strong recovery in H2 FY2021 with Group turnover growth of 11,2% compared to H2 FY2020;
  • Group online turnover now contributes 12,0% to Group retail turnover with strong growth for TFG Africa and TFG Australia at 132,4% (ZAR) and 58,3% (AUD) respectively
  • Gross margin contracted to 45,5% (March 2020: 52,7%) mainly as a result of dealing with seasonal inventory where clearances were impacted by the various lockdowns
  • Strong cash generation from operations of R9,4 billion (March 2020: R8,3 billion)
  • Reduction in net debt from R8,4 billion (March 2020 pre-IFRS 16) to R1,3 billion (March 2021 pre-IFRS 16)
  • R2,7 billion after tax non-cash impairment of the carrying values of TFG London’s goodwill and intangible assets on the back of the impact the COVID-19 pandemic has had on the trading environment;
  • Acquisition of the Jet business for a purchase consideration of R385,3 million which resulted in the recognition of a bargain purchase gain of R709,0 million.

Please read the full SENS announcement here: https://irhosted.profiledata.co.za/thefoschinigroup/2017_feeds/SensPopUp.aspx?id=387419

An unprecedented year with COVID-19 but pivotal in TFG’s strategic transformation

While all three of TFG’s main territories continued to be impacted by COVID-19, TFG Africa and TFG Australia traded exceptionally strong in Q4 FY2021 with turnover growths in excess of 30%. 

TFG’s UK territory was the hardest hit, with no stores operating during Q4 FY2021 due to non-retail lockdown measures. In total, the UK lost approximately 50% of its available store trading hours during the past financial year. Following the review of the carrying value of the investment in the fourth quarter and the increased accounting WACC rates attributable to the UK/Europe segment, it was prudent to impair approximately 56% of the non-cash carrying values of TFG London’s goodwill and intangible assets. TFG London has resumed trading, with retail turnover showing good signs of recovery and TFG management are confident that TFG London will return to at least break even in the current financial year. TFG London was awarded third fastest growing brand portfolio in the world by Deloitte’s “Global Powers of Luxury Goods 2020” report, thus the demand for its products is expected to remain strong as the COVID measures are relaxed as more people get vaccinated and return to work and /events resume on the same scale as pre COVID levels.

“Despite these challenges, TFG, in line with its strategic intent, continues to invest for the long-term and to strengthen our digital and local supply chain and manufacturing capabilities. Now that the UK has reopened for business, most of our brands are currently trading above expectations as consumers start to return to stores.” said TFG CEO, Anthony Thunström.

Strong operational performance 

What was particularly encouraging was the strong recovery in H2 FY2021 with Group turnover growth of 11,2% compared to H2 FY2020.

The Group generated cash from operations of R9,4 billion for the twelve months ended 31 March 2021 which was up 14% on the prior year. This was achieved through the continued demand of its products with sales for some brands growing double digit on the previous year.  TFG grew cash sales ahead of its peers and gained market share (notwithstanding a cautious approach to credit) – this speaks to the strength of the various brands and strong value proposition of merchandise.

TFG’s Men and Women categories grew market share by 20bps for FY2021 (compared to FY2020) ​ with the biggest growth of 175bps occurring in December.

(Source: RLC)

TFG saw its Value sector market share grow through their Jet acquisition.

Loyal customers are showing their support on social media platforms as well- TFG’s brands have a combined following of 13.9m up 11% over the previous year.

Together with the R3,95billion successful rights offer, the cash generated has supported the reduction in net debt from R8,4 billion (pre-IFRS 16) at the end of March 2020 to R1,3 billion (pre-IFRS 16) at the end of March 2021.

Gross margins were down 7% for the year largely due to the additional/conservative provisioning the group took and the deliberate actions to clear stock / respond to a market filled with heavy promotional activity. This has set the Group up with clean /fresh inventory into 2022 fin year, with most regions stock less than 26 weeks old in excess of 70% of the stock balance. Post year end the group is seeing the benefits of this through the increased margins as its sales largely at full selling price.

Working capital was optimised through deliberate controls around purchases and the reduction of the debtor’s book by R1.1bn, resulting the release of cR3,0 billion of working capital, with its inventory balances reducing by R100,0 million since 31 March 2020 and inventory days reducing by 15 days to 169 days, notwithstanding the acquisition of Jet during the financial year.

Trading expenses were down 8%, the group benefiting from government support and the results of its continued Back office optimisation drive through digitisation which have reset the cost base going forward.

The transformational acquisition and integration of Jet was successfully completed within timelines and budget, adding   over 5000 staff and 425 commercially viable stores and in Botswana, the Kingdom of Eswatini, Lesotho and Namibia to the groups already significant / large store portfolio. The performance of these stores since acquisition have been ahead of expectations and profitable.

Local Manufacturing & job creation remain a key strategic focus

TFG continues to lead with its QR manufacturing strategies and through the acquisitions of some local manufacturing assets, continues to have an immense knock on effect on the communities those employees support.

Over the past 5 years, TFG has worked with the South African government, the DTIC in particular, to strategically create a diversified local supply chain. This investment has reduced its reliance on China and other international suppliers and positively influenced local job creation and upskilling. Five years ago, 70-80% of all merchandise came from the East, today locally manufactured textiles have grown to a meaningful 37% with the intent of significantly increasing this.

The unit growth of locally produced products increased by 60% on the previous year. 

TFG acquired the manufacturing assets of, inter alia, House of Monatic which will add to the focus on local production and saving jobs.

TFG’s Quick Response Manufacturing innovation uses best .of class manufacturing technology to create shorter lead times and is a strategic advantage for the Group. Lead times have been reduced from 150-180 days to an average of 52 days.

 Our digital future – A fully integrated omnichannel retailer

TFG has always invested ahead of the cycle and Online turnover in TFG Africa and TFG Australia exceeded expectations with strong growth of 132,4% (ZAR) in TFG Africa (for the period 1 May 2020 to 31 March 2021) and 58,1% (AUD) in TFG Australia (for the full financial year). However, in the UK, online performance continues to be negatively impacted by weaker department store online channels. For the twelve months ended 31 March 2021, online turnover overall grew by 33% and contributed 12,0% to total Group turnover, up from an 8,4% contribution in the comparative twelve-month period.

TFG’s medium term target for online contribution is an ambitious 20%-30%

TFG’s digital strategy will see the Group revolutionise the omnichannel experience and transform into Africa’s leading high-tech omnichannel retailer. “We are laying the foundations to become the largest, most reliable and most profitable e-commerce destination on the continent; via a simplified, customer-centric approach, aimed at maximising group scale, minimising duplication and cost, and leveraging our incredible assets. A few things differentiate us from our pureplay & bricks competitors: Our catalogue of in-house and 3rd party brands, local manufacturing with quick response capability, our vast store network putting us closer to customers and our credit and value-added services capability with strong customer retention rates. We have built customer relationships that span decades via the work of our talented store teams, who provide a world-class shopping experience. We won’t lose this – the future of retail is Omni”, shared newly appointed Co-Chief Omni Officer Claude Hanan.

To deliver this world-class shopping experience, TFG is investing in expertise and technical capabilities. This strategic focus has included creating a new customer capability function and the appointment of a Chief Customer Officer, ensuring the customer remains front and centre. 

Further to this, the Group has appointed seasoned entrepreneurs as Co-Chief Omni Officers to deliver on its digital transformation strategy. They have announced the launch of TFGLabs – a division within TFG operating at the speed of a start-up. TFGLabs is already attracting the continent’s best tech talent to develop solutions that will delight customers and redefine the shopping experience, reshaping the omni-channel capabilities of the Group. 

This will afford significant growth opportunities and result in the search for strong talent to take up the many new positions that this growth will open up. 


“Macroeconomic conditions in all territories in which we operate are likely to remain constrained and changing customer needs will continue to disrupt traditional business models and accelerate digitalisation. 

The impact of lockdown measures has further caused a structural shift in how we conduct business and how our customers interact with us. This will determine how we operate and engage with our customers in the future, where we invest and what, strategically, we prioritise. 

However, the past year has also demonstrated that TFG remains resilient under challenging and unprecedented circumstances. We remain committed to the prioritisation of our strategic investments in digital transformation and localised quick response manufacturing as well as other organic growth opportunities.

We are well-positioned to benefit from the expected recovery in the UK, which will be aided to a large extent by the extensive vaccine roll-out.  As a global retailer we will leverage our scale to win in omnichannel retailing and to secure the best talent. TFG has a proven track record of executing on and integrating strategic acquisitions. We are investing not only in our business models to ensure that we are future-fit but also in the future of South Africa through our commitment to investing in both the local retail and manufacturing infrastructure as well as in skills development and job creation”, concluded Thunström.


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