Newsletter No 34/9 September 2022
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South African clothing sector workers to get 7% wage hike from Sep 1
Clothing sector workers in South Africa have secured a 7 per cent wage hike from September 2022. The Southern African Clothing and Textile Workers’ Union (SACTWU), which is affiliated to the Congress of South African Trade Unions (COSATU), settled its wage dispute after three rounds of wage negotiations and two dispute meetings. Around 50,000 clothing workers in South Africa will benefit from this wage increase settlement.
The wage negotiations were conducted under the auspices of the National Bargaining Council for the Clothing Manufacturing Industry, according to a press release by the SACTWU. The new collective agreement was adopted at a constitutional meeting of the clothing bargaining council on August 31, 2022.
Along with the wage hike, the two-year agreement provides for the following improvements to the terms and conditions of employment. A further wage increase of Consumer Price Index (CPI) plus 1 per cent in Year 2, effective from September 1, 2023 would be carried out. Moreover, a 0.25 per cent increase in employer provident fund prescribed contribution rates with effect from February 1, 2023 for non-metro areas as well as a further 0.25 per cent increase in employer provident fund prescribed contribution rates, effective from February 1, 2024 will be passed.
The agreement also prescribed that non-metro workers be paid for public holidays which fall on a Saturday. Consultation with the union was made compulsory prior to the introduction of short time in those geographic areas where no such provision is currently prescribed in the industry main agreement.
For the year 2 wage increase, the CPI of June 2023 as determined by Statistics South Africa (STATS SA) will be used. In year 2, if the CPI plus 1 per cent increase is less than the rand value of this year’s wage increase, the wage increase will be the rand value of this year’s increase. If it is more, the parties will renegotiate.
The usual wage increase implementation date for the clothing industry is September 1 each year.
The new wage collective agreement was concluded with employers represented by the Apparel and Textile Association of South Africa (ATASA), the South African Apparel Association (SAAA), and the South African Clothing Manufacturers’ Association (SACMA), added the release.
The new substantive agreement for the clothing sector will be submitted to South Africa’s department of employment and labour, with a request for the relevant minister to gazette its extension and applicability to all clothing companies nationally. F2F
TFG-Tapestry deal: A boon for SA manufacturing, job creation
The Competition Commission has given the green light for fashion and lifestyle retailer TFG to acquire Tapestry Home Brands. TFG says the deal will allow it to apply its successful localisation strategy to furniture manufacturing, with significant job-creation and supply chain multipliers for the country.
The local Tapestry group includes popular made-to-order furniture retailer Coricraft, branded bedding retailer Dial-a-Bed, value bedding retailer The Bed Store and home textile retailer Volpes.
Growing production capacity
With the acquisition concluded, TFG is already exploring opportunities to further expand Tapestry’s manufacturing capabilities in furniture, bedding and home textiles to supply TFG’s homeware brands, particularly @Home, with a view to substituting products that are currently imported with locally-made goods.
“In all three of the Tapestry factories, we plan to further support their own manufacturing demand as well as increasing production to cater for the ongoing growth of TFG’s existing homeware businesses. With some modest capital expenditure investments into these manufacturing facilities, we will significantly expand their capacity to cater for this increased demand,” said TFG CEO Anthony Thunström.
“As with the local manufacture of apparel, we expect to realise similar commercial benefits from local production of homeware such as sofas, linen and beds, including improved cash flow and reduced inventory holding requirements, while avoiding global supply chain disruptions and elevated freight costs. We will build on Tapestry’s established vertically integrated, direct-to-consumer business model as we unlock synergies with the TFG businesses,” Thunström said.
Dozens of new furniture, homeware stores planned
TFG has also committed in its agreement with the Competition Commission to open a minimum of 35 new stores within three years under the four Tapestry brands – Coricraft, Dial-a-Bed, The Bed Store and Volpes.
“We expect to comfortably overshoot this target as we bring TFG’s scale and resources to bear on growing the Tapestry businesses, and we have already identified the need for an additional 17 stores for Volpes alone,” said Shani Naidoo, TFG group director for the Homeware Division.
“As an example of the kind of impact TFG has on businesses it has acquired, we have grown employment at Cotton Traders, the manufacturing arm of the Granny Goose business, by 20% within less than a year since we bought that company and half of its production is now going into TFG stores. The factory is running at full capacity and we are planning a R20m investment in expanding the factory,” Naidoo said.
Supporting reindustrialisation
Thunström commented: “By expanding the same vertical integration model which has been so successful in our apparel business to our Home Division, TFG is well set following the Tapestry acquisition to reindustrialise the homeware manufacturing sector in South Africa and grow local skills and employment. TFG already sources 73% of apparel locally and our intention is to bring more furniture production into South Africa as well.
“Current plans for expanding our local clothing manufacturing capability and building out our store footprint entail the creation of at least 10,000 new employment opportunities up to 2026, before considering our growth plans for the Tapestry brands,” said Thunström.
TFG expects to double its own local, quick-response clothing production from 15 million units in FY22 to 31 million units by FY26. This is on top of the locally manufactured apparel that the group already sources.
“At the same time we are supporting reindustrialisation, skills development and employment creation through our participation in the government’s Master Plan for Retail Clothing, Textile, Footwear and Leather.
Boosting job creation, employee wages
Thunström added that TFG will also lift wages for more than 10,000 of its customer-facing employees to 7% above the sectoral determined minimum. “This is a significant step in our investment behind fair and responsible pay and one that the group will continue to improve over time. It also forms part of a broader package of initiatives aimed at improving employee pay and benefits.”
TFG’s merchandise and supply chain MD, Graham Choice said that on the apparel front, TFG has committed to developing a number of manufacturing business units (MBUs) in the current year, consisting of adding jobs within its own factories as well as within strategic suppliers who largely produce exclusively for TFG.
“For each one million units of quick response apparel, we need two more MBUs, each with approximately 200 employees, producing an average of 4,200 units a day for 247 days a year. Ultimately, we need the equivalent of 30 MBUs to achieve the FY26 local manufacture target of 31 million units.
“This will generate more than 1,820 new employment opportunities in our own factories and another 4,190 in those of our strategic suppliers, for a total of more than 6 000 new employment opportunities in clothing manufacture alone,” said Choice.
He added that TFG’s commitment to supporting the government’s Retail Clothing, Textile, Footwear and Leather Master Plan had allowed the group to lobby for the lifting of the 22% duty on woven fabrics. “We hope knits and yarn will follow and enable more onshoring of this production and increased global competitiveness,” said Choice.
Expanding physical retail footprint
TFG’s growth plans in manufacturing are mirrored by an equally aggressive expansion in its store footprint.
Work is already underway to build out 342 stores, representing more than 92,000m2 of new retail space. With R600m in capex already committed to this work, TFG may spend as much as R1bn depending on continuing site identification, with an expected bump in revenue of about R3.8bn.
With an average of six employees per outlet, the store expansion initiative can be expected to generate more than 2,100 new employment opportunities.
As well as introducing a new minimum wage for customer-facing employees that is 7% above the legislated requirement, TFG has improved staff discounts for the majority of staff from 20% to 33%, addressing the value and accessibility of this benefit for all employees, and provided greater flexibility in retirement fund contributions to improve take-home pay when most needed. Bizcommunity
TFG – trading update
– Group retail turnover growth of 21,6% was delivered despite continued pressure on consumers;
– TFG Africa generated retail turnover growth of 14,7% compared to the same period in FY2022, underpinned by 17,3% retail turnover growth in Clothing and 15,7% retail turnover growth in Homeware;
– The womenswear and menswear categories in TFG Africa continue to make strong market share gains according to the RLC data. Womenswear like-for-like retail turnover and full price retail turnover grew 21,5% and 37,5% respectively for the 23 weeks;
– Like-for-like retail turnover growth in TFG Africa of 8,7%;
– Cash retail turnover growth for TFG Africa of 13,6% for the period contributed 70,0% to total TFG Africa retail turnover;
– Exceptional retail turnover growth of 42,3% in TFG Australia (AUD);
– Robust TFG London performance with a pleasing 23,5% retail turnover growth (GBP);
– Group online retail turnover growth of 5,1% for the period, contributing 9,2% to total Group retail turnover; and
– The Tapestry Home Brands (“Tapestry”) acquisition was implemented with an effective date of 1 August 2022 but has not yet been incorporated into these results.
Operating context
The Group continued its strong start to the 2023 financial year. In South Africa, comparative performance was impacted by increased levels of load shedding in the current year (leading to more lost trading hours) and by social unrest experienced in the prior year. Consumer inflation reached a 13 year high of 7.8% in July 2022 which put further pressure on consumer spending. In the UK, inflation continued to accelerate to the highest levels experienced since the early 1980s and breached double digit levels in July 2022. While solid growth is expected in Australia as the country recovers from strict COVID-19 lockdowns, increasing fuel and housing costs are driving up consumer prices at record rates.
Eskom load shedding
TFG Africa lost a further 80,000 trading hours during the first 23 weeks of FY2023 due to continued load shedding across all provinces in South Africa. This represents a 59,0% increase in lost trading hours on the same period in the previous financial year.
TFG Africa performance update
TFG Africa’s retail turnover grew by 14,7% during the first 23 weeks of FY2023 compared to the same period in the previous financial year. All merchandise categories grew retail turnover during the period including Cellphones, despite continued supply challenges. Retail turnover growth was achieved despite the economic challenges mentioned above, while the Group’s strong localised, quick response clothing supply chain and sourcing model continued to shield the business from international supply chain disruptions.
TFG Africa’s like-for-like retail turnover performance has been very strong with growth of 8,7% for the first 23 weeks of FY2023.
Cash retail turnover for the first 23 weeks of FY2023 grew by 13,6% compared to the same period in FY2022 and contributed 70,0% to TFG Africa’s retail turnover. Credit retail turnover was 17,0% up on the same period in FY2022 with acceptance rates down 2,9% to 21,1% due to prevailing economic conditions.
Online retail turnover for the first 23 weeks of FY2023 grew by 19,8% compared to the same period in FY2022 and now contributes 3,2% to total TFG Africa turnover (FY2022: 3,1%).
TFG London performance update
TFG London performance was moderated by growing consumer pressure and rising levels of inflation. Increased people mobility and a growing demand for our key categories have supported sales in the region. The first 23 weeks of FY2023 delivered retail turnover growth of 23,5% (GBP)compared to the same period in the previous financial year.
Store retail turnover growth was 39,6% on the same period in FY2022. Online retail turnover from TFG London’s own sites were down 0,2% (GBP) in the period, while retail turnover via third party online channels grew by 7,6% (GBP), both off a high base in the prior year. Online retail turnover contributed 37,0%(GBP) for the period (FY2022: 44,2%) to TFG London’s total retail turnover.
TFG Australia performance update
TFG Australia continued to accelerate its performance with retail turnover growth of 42,3% (AUD) in the first 23 weeks of FY2023. This growth is indicative of strong demand for our products.
Online retail turnover growth for the period declined by 7,7% (AUD)compared to the same period in FY2022 as the channel mix normalised post the prior year lockdown. Online retail turnover contributed 6,7% (AUD)to total TFG Australia retail turnover for the period (FY2022: 7,0%).
Group performance update
Overall, the Group delivered a very strong performance during the first 23 weeks of FY2023 with retail turnover growth of 21,6% compared to the same period in FY2022.
Online retail turnover performance continues to normalise with growth of 5,1% for the first 23 weeks of FY2023 compared to the same period in FY2022. The contribution of online retail turnover to total retail turnover for the period was 9,2% (FY2022: 10,6%) as customers return to physical stores and become less dependent on online shopping.
Outlook
The Group continues to invest in its key strategic initiatives to further strengthen its differentiated business model. It has made progress on its key strategic objectives and its speciality brand business portfolio which remains very well positioned for further organic and inorganic growth. A specific focus will be the integration of the Tapestry business to extract the maximum value from our investment.
Truworths final results 3 July 2022
Revenue for the year went up 10.3% to R19.3 billion (2021: R17.5 billion) whilst trading profit shot up 59.5% to R3.6 billion (2021: R2.3 billion). Profit for the period attributable to equity holders of the company grew to R3.1 billion (2021: R2 billion). In addition, headline earnings per share grew 49.9% to 779.8 cents per share (2021: 520.3 cents per share).
Final dividend
The directors of the company have resolved to declare a gross cash dividend from retained earnings in respect of the 53-week period ended 3 July 2022 in the amount of 205 South African cents (2021: 118 South African cents) per ordinary share to shareholders reflected in the company’s register on the record date, being Friday, 23 September 2022.
Company outlook
South Africa: Truworths
The trading environment is expected to remain constrained in the year ahead as consumers battle escalating fuel, electricity and food prices, together with steadily rising interest rates. These factors contributed to a sharp decline in consumer confidence in the second quarter of calendar year 2022. Ongoing electricity load shedding and the weak labour market will continue to weigh on the prospects for the retail sector.
In this constrained consumer-spending environment Truworths plans to sustain growth by increasing market share in key categories, utilising credit and the strength of its book, launching new and expanded retail store concepts and brands, focusing on supply chain and speed to market, and continuing to invest in technology including the omni-channel experience. The current health of the accounts portfolio highlights both the resilience of the customer base and the demand for Truworths’ quality, aspirational fashion.
Truworths’ retail sales for the first eight weeks of the 2023 reporting period increased by 12.8% compared to the corresponding prior eight weeks (weeks two to nine of the 2022 financial period, which align in terms of dates), during which trading was severely impacted by the civil unrest in KwaZulu-Natal and Gauteng. Excluding sales of the stores directly affected by the civil unrest for weeks two to eight from the first eight weeks of the 2023 reporting period as well as the prior corresponding period, retail sales increased by 9.1%.
Trading space is planned to increase by approximately 2% for the 2023 reporting period.
UK: Office
Office aims to build on the post-COVID-19 lockdown recovery and sustain the recent turnaround in performance, supported by improved stock management, stabilisation of the store portfolio and strengthening brand relationships through the chain’s positioning as a full price retailer.
The UK retail sector is facing headwinds from the deteriorating consumer-spending environment as the annual inflation rate reached a four-decade high level in June 2022, driven by rapidly rising fuel and energy costs. Inflationary pressures are expected to intensify in the months ahead, compounded by rising interest rates and an anticipated slowing of the economy.
Office’s retail sales for the first eight weeks of the 2023 reporting period increased by 11.0% in Sterling terms compared to the corresponding prior eight week period (weeks two to nine of the 2022 financial period, which align in terms of dates).
Trading space is planned to decrease by approximately 4% for the 2023 reporting period.
Group: Capital expenditure
Capital expenditure of R817 million (Truworths R740 million and Office GBP3.9 million) has been committed for the 2023 reporting period. Of the Truworths capital expenditure, R431 million relates to the development of a new distribution facility, which is scheduled to be completed in the next three years.
Massmart – joint firm intention announcement
Massmart and Walmart entered into an implementation agreement (“Implementation Agreement”) on 31 August 2022. Walmart indicated its firm intention to make an offer on the terms and conditions set out in this announcement (“Offer”) The Offer will be made to Ordinary Shareholders other than the Excluded Shareholders (“Eligible Shareholders”) Walmart will acquire the Ordinary Shares of the Eligible Shareholders for the Scheme Consideration (as defined in paragraph below).
Scheme Consideration
*If the Scheme becomes operative, the Scheme Participants will receive an amount of R62 per Ordinary Share, payable in cash (“Scheme Consideration”), subject to the principles regarding settlement of fractional entitlements as regulated in the JSE Listings Requirements (“JSE Listings Requirements”).
*The Scheme Consideration represents a premium of 53.0% to the closing share price, a premium of 68.7% to the 30-day volume weighted average price and a premium of 62.4% to the 90-day volume weighted average price calculated as at close of market on 26 August 2022, the last trading day prior to the Cautionary Announcement.
Withdrawal of cautionary announcement
Ordinary Shareholders are advised that as a result of the publication of this firm intention announcement, the Cautionary Announcement is accordingly withdrawn and Ordinary Shareholders are no longer required to exercise caution when dealing in Massmart’s securities.
Most designers represented at one fashion show
Eighty-nine different fashion designers from around the world were represented in Paris Fashion Week, 1999. The event as a whole, which averages 11 catwalk shows per day, outstrips all other international fashion showings and attracts the biggest following. Christian Dior, Vivienne Westwood and Yves Saint Laurent are just a few of the names to regularly top the exclusive fashion line-up each year.
