Newsletter No. 31 / 21 August 2020
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Take a look | PEP’s new logo looks completely different
PEP has a new logo, which is an almost complete departure from its previous branding.
The new logo adopts a different shade of blue, and features a yellow half-circle.
According to the company, the half-circle is known as the “PEP tab”.
“Inspired by a tab in the digital world which gives access to more content, the TAB will be used to showcase “the much more” on offer at PEP…more of the lowest prices, more everyday convenience, more stores, more smiles, more trusted quality, more amazing products and services,” a spokesperson said.
The 55-year old company is Africa’s largest single brand clothing retailer, and its new branding will be rolled out across its more than 2,350 stores. The company says it will take “several years” to complete the rebranding.
“This is much more than just a logo change, it’s a bold statement of our confidence in the future of PEP and of the country,” says CEO Jaap Hamman.
“We’ve been talking to our remarkable customers, looking at our market, improving our positioning of lowest prices and significantly evolving the way we do things. We’re now in a position to confidently communicate the changes PEP has made, over many years, in a relevant and contemporary way.”
The company says the changes will be implemented in “a phased and responsible manner through the re-allocation of existing budgets”.
Pepkor, owner of PEP along with Ackermans, reported that sales for the nine months to end-June was down 1.5% to R52 billion. The embattled Steinhoff holds a majority stake in its owner Pepkor.
In recent years, Game, Absa and Cell C also announced logo changes. Business Insider SA
The cotton sector: A myriad of challenges, a world of opportunities
By Cobus de Bruyn
Eight months into the Covid-19 pandemic, we’re well aware of the devastating impact it has had on the global economy and millions of livelihoods. What’s still emerging is the impact the pandemic and associated lockdowns have had on many sectors – possibly for years to come.
One of these sectors is cotton, which, until March 2020, was considered a success story in South African agriculture. Established in June 2014, the Sustainable Cotton Cluster (SCC) was funded by an initial grant of R200m from the Department of Trade and Industry (dti).
The SCC connects the entire cotton value chain under one umbrella: farmers, gins, yarn manufacturers, weavers and knitters, dyers, finishing plants and retailers. In the six years it’s been in operation, cotton production and processing has increased 800% and almost 50,000 jobs have been created or maintained in the cotton sector.
Then came the lockdown and harvesting and processing could continue, but exports were suspended, striking the first blow to the sector. Since then, export restrictions have been lifted, but global demand for cotton is decreasing and so are global prices. With around 80% of locally produced cotton being exported, this has significant implications for the sector.
At the same time, severe financial strain on retailers is adding pressure. One of the main purposes of the SCC is to increase consumption of cotton by local retailers, aiming to increase local procurement from the pre-Covid average of 45% to 63% by 2030.
Edcon, the Mr Price Group and Woolworths have committed to significantly increased orders. Of these retailers Edcon is the largest, with an annual order of 2,200 tonnes for locally produced cotton lint. With Edcon having gone into business rescue in June, sizable orders have been cancelled. Fortunately, bids by Foschini Group and Retailability for 450 Edgars and Jet stores have been accepted, but orders will now need to be renegotiated with the new owners, with no guarantee that they will continue or remain at the same volume.
Years ago there were 23 spinners in South Africa. However, due to cheap imports most spinners closed down and cotton is now ginned in South Africa, then exported for spinning and weaving. This means we have lost the capacity to create fabric and clothes locally.
The impact of this is that the cotton takes longer to move through the value chain, farmers must wait longer to be paid and prices are determined by the export market. While our current exchange rate does benefit the export of cotton, the concern is that the cotton cluster is not functioning adequately, so retailers are being forced to import more, which is harming the local sector. In addition, the Covid-19 lockdown export restrictions affected fibre exports, and international contracts may be jeopardised because of the decline in global economic activity and growth – a further setback for the sector.
What’s at stake?
According to Cotton SA, the potential of the cotton value chain is substantial: If South Africa can increase its local beneficiation of cotton to a level where it can substitute imports by 50% on four basic retail items – T-shirts, towels, chinos and underwear – it could create more than 75,000 jobs in the industry, and inject nearly R10 billion into the economy. Cotton is grown in some of South Africa’s most impoverished provinces – Limpopo, the Northern Cape, the North West, KwaZulu-Natal and Mpumalanga.
Supporting and growing the sector therefore makes sense from a job creation and poverty eradication perspective, especially considering that small-scale farmers harvest by hand. And as pressure on water supply intensifies, cotton is being considered as a high-yield alternative crop to maize, particularly in the North West.
In addition to the initial dti grant of R200m, private investment of more than R500m has been made to beef up harvesting and processing capacity. Further indirect investment of more than R200m was made by the rest of the role players in the value chain to upgrade business management systems and hire more people. Some of these investments were used for new infrastructure and technologies, such as the upgrade of the Loskop Cotton Gin in Marble Hall and the new gin in Koedoeskop, close to Thabazimbi.
The Mr Price Group became involved in financing the development of smallholder farmers, and farmers have invested millions in equipment and harvesters. The stakes are high for the more than 1,000 emerging cotton farmers too, who account for 3,365 hectares under harvest and employ between 4,500 and 7,500 people.
What needs to be done?
In the spirit of the cluster, working together is key and all stakeholders need to rise to the challenge. Much still needs to happen before the Foschini Group and Retailability deals with the Edcon Group’s business rescue practitioners cross the line, but they are moving in the right direction. New owners must now be encouraged to join the cotton cluster and more of the major South African retail groups, as well as other role players, need to come on board and support the sector.
In our opinion, a major boost would come from government and the private sector, driving a ‘Buy Local’ campaign. Currently local production falls short of South Africa’s cotton lint consumption of around 315,000 tonnes per year, and we still import 95% of our cotton, mostly from Zambia and Zimbabwe. Yet we export 80% of our own cotton. However, local consumption cannot increase until there is new fixed investment in the textile sector and growth in local raw materials increases. It is now more appropriate than ever to create a ‘buying local’ culture.
It’s no longer cheaper to import cotton because of the rand losing its value against the dollar, so it makes more business sense for retailers to support the local sector. And globally there’s a Covid-induced move towards favouring local, and countries are looking inwards to meet their needs.
It’s a virtuous circle: improving the infrastructure and capacity of spinners and weavers will keep the entire value chain within our borders, keeping costs and delivery times down, while supporting the local sector and creating jobs. A buying local culture will boost demand for locally produced cotton and having more retail groups placing orders for local cotton lint will serve as security for financing, enabling easier financing for smaller and emerging role players.
In the short term, Nedbank supports the value chain during Covid-19 through relevant government support packages. We understand the value chain of the cotton sector very well and offer tailormade solutions to the sector. And because we take a bigger-picture view, we’re able to provide the right funding solutions, taking the value of the cotton into account as security. Nedbank, for example, supports Cotton SA in partnership with International Social and Environmental Accreditation and Labelling (ISEAL), which is the global membership organisation for credible sustainability standards, to set Better Cotton Initiative (BCI) sustainability standards in the sector.
BCI exists to make global cotton production better for the people who produce it, better for the environment in which it grows, and better for the future of these sectors. In addition, Nedbank also supports transformation in the agricultural sector and participates in several transformational projects, for example with the Taung cotton, wheat and maize project in the North West.
Ultimately, the lesson here is that income and market diversification is key to mitigating risks. While considerable effort has already been made, massive growth in the local market is needed to diversify South African cotton into new markets. With potential in both local and global markets, it’s certainly worth joining hands to overcome the challenges the Covid-19 pandemic has imposed on the sector. Bizcommunity
A new method for simulating models of yarns and fabrics
An ongoing problem, modelling woven and knitted fabrics today still remains a complex challenge that requires sophisticated computer simulation. The issue at stake? Demonstrating how a fabric drapes or moves when worn or the stiffness and stretch of the individual yarn.
With this in mind, an international team of researchers from the Institute of Science and Technology Austria (IST) and the Indian Institute of Technology Delhi (IITD) has developed a method for specifically animating yarn-level cloth effects, precisely and realistically modelling the very composition of the material, including its ability to stretch and bend. “Our technique allows us to capture the resistance of multiple deformations at the same time,” explain the researchers. In short, homogenised computational modelling that perfectly imitates the very appearance of knitted and woven materials and that is set to be presented at SIGGRAPH 2020, the event for avant-garde research and ideas organised virtually and digitally this year.
Multiple future applications
“With this, we were able to automatically reproduce characteristic behaviours of different fabrics, including subtle phenomena like the interaction between stretching and curling in knitted patterns, which have not been captured in previous cloth models,” they commented. In the future, this method could be expanded to animate other complex multi-physics materials like layered quilts, layered elastic material, skin tissue and deployable shells. The team’s method opens up exciting avenues for future studies by applying it to the homogenisation of layered or composite materials, estimating the material properties of new materials constructed from simpler components, or inverse design problems in the manufacture of knitted fabrics. Watch this space. Promostyl
TFG – no change statement and AGM notice
Shareholders of TFG are advised that the Integrated Annual Report and the Consolidated Annual Financial Statements for the year ended 31 March 2020 have been published on the Company’s website (www.tfglimited.co.za), today, 14 August 2020. Electronic copies are available on request from the company secretary at email@example.com.
The Integrated Annual Report and Consolidated Annual Financial Statements contain no material modifications to the reviewed provisional condensed consolidated financial statements that were published on SENS on 18 June 2020. The Consolidated Annual Financial Statements were audited by Deloitte & Touche, and their unqualified audit report is available for inspection at the Company’s registered office.
Notice of annual general meeting
The notice of annual general meeting, together with the summary consolidated financial statements for the year ended 31 March 2020, is available on the Company’s website (www.tfglimited.co.za) and is being distributed to those shareholders who have not elected to receive electronic communications.
The record date for purposes of determining which shareholders are entitled to participate in and vote at the annual general meeting is Friday, 11 September 2020. The last date to trade in order to be eligible to vote is Tuesday, 8 September 2020
TFG – further update on acquisition
Shareholders of TFG (“Shareholders”) are referred to the Company’s SENS announcement on 13 July 2020 (“Initial Announcement”) in which shareholders were advised of the key terms on which TFG had submitted a conditional offer (“Conditional Offer”) to acquire certain commercially viable stores and selected assets of JET (“Proposed Transaction”).
TFG announced that it has successfully negotiated and concluded a sale of assets agreement (“Agreement”) with Edcon Ltd. (“Edcon”) and its Business Rescue Practitioners on 14 August 2020 and on principally the same terms as those set out in the Conditional Offer. Implementation of the Proposed Transaction is subject, inter alia, to the remaining conditions precedent in paragraph 2 below. The Agreement applies in respect of the South African assets which form the majority of the assets contemplated in the Proposed Transaction. Similar sale of asset agreements in respect of the JET stores and assets located within the Republic of Botswana, the Republic of Namibia, the Kingdom of Lesotho and the Kingdom of eSwatini (“ROA Stores”), are expected to be finalised and executed shortly.
Conditions precedent to closing
Based on the positive progress to date, the parties believe that the remaining conditions precedent could be fulfilled by the end of September 2020.
Woolies – trading statement
Further to WHL’s trading update which was published on the Stock Exchange News Service (‘SENS’) on 24 July 2020, we wish to provide guidance on the Group’s expected results for the 52 weeks ended 28 June 2020.
The prior year had 53 trading weeks, and therefore to facilitate comparison against the 52-week current year, financial information for the prior year has been presented below on a 52-week basis, constituting pro forma information in terms of the JSE Ltd. Listings Requirements.
Shareholders are advised that earnings per share (‘EPS’), headline earnings per share (‘HEPS’) and adjusted diluted HEPS for the year ended 28 June 2020 (‘current year’) are affected by the adoption of IFRS 16 on a modified retrospective approach, with no restatement of the reported comparative 52-week pro forma prior year results (‘pro forma prior year’), and the 53 week reporting period for the year ended 30 June 2019 (‘prior year’).
As outlined in the recent trading update, COVID-19 had a significant impact on the performance of the Group in the second half of the financial year, and is expected to continue to do so for at least the remainder of the calendar year, given the fluid and challenging environment. This necessitated an assessment of the carrying values of assets, including the right-of-use assets relating to our store fleet arising from the implementation of IFRS 16. Consequently, the carrying value of certain store assets has been impaired, which in turn will negatively impact reported EPS. This impact is adjusted in calculating HEPS and adjusted diluted HEPS for the current year.
In addition, due to the economic and trading uncertainty caused by COVID-19, and the resulting impact this may have on reliably forecasting the timing of future taxable earnings, the Group has elected not to recognise deferred tax assets arising from assessed losses in relation to certain Group entities. This will result in an increased Group effective tax rate, thereby further impacting EPS and HEPS. The impact thereof has been adjusted in calculating the adjusted diluted HEPS ranges referred to below.
Including the impact of IFRS 16 in the current year, EPS, HEPS and adjusted diluted HEPS for the current year over the prior year (as reported under IAS 17) are expected to be within the ranges reflected in the table below:
June 2020 expected range (%)
June 2020 expected range (cents)
The information contained in this announcement, including estimated financial information and pro forma financial information relating to the prior year, has not been reviewed or reported on by the Group’s external auditors.
The Group’s year-end financial results for the 52 weeks ended 28 June 2020 will be released on SENS on or about 17 September 2020.
Truworths – updated trading statement
Investors are referred to the trading statement and the trading update published on SENS by Truworths International Limited (the ‘Group’) on 25 May 2020 and 15 July 2020, respectively.
As announced, the COVID-19 pandemic has materially affected the Group’s Truworths business in South Africa and its Office business in the United Kingdom. The consequential impact of the difficult trading environment on the profitability and liquidity of Office has necessitated a re-assessment by management of the carrying value of the Office segment’s trademarks and right-of-use assets relating to store leases. This has resulted in non-cash impairment charges amounting to £118 million (R2.5 billion, based on the period-end exchange rate) and £13 million (R283 million, based on the period-end exchange rate) being raised against the Office trademarks and right-of-use assets, respectively.
The Group’s headline earnings per share (‘HEPS’) (which exclude the impairment of the Office assets by definition) and earnings per share (‘EPS’) for the period are estimated to decrease as follows:
Estimated 52 weeks to 28 June 2020 (cents) & 52 weeks to 30 June 2019 (cents) & decrease on prior period (%)
The 2020 year-end financial reporting process has been challenging as the Group has had to manage the impact of COVID-19 on the auditing processes. There have also been a number of significant accounting issues to contend with, including the business consequences of COVID-19, the first time adoption of IFRS 16 and the impairment of the Office assets. The Group’s final audited results for the 52-week period ended 28 June 2020 will be announced simultaneously with the publication of the audited annual financial statements on or about 3 September 2020.
Did you know……..
Before the 20th century, and until as late as 1940 boys wore dresses until they were 5 or 6 years old. After that, they’d graduate to shorts, then to long pants, and over the next decades that transition happened earlier and earlier (and boys stopped wearing dresses at all). It makes sense—dresses are easier to put on babies and toddlers than pants, and it’s easier to change a diaper on a child in a dress too.
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