43 of 2021

                                                                                                                                   Newsletter No 43 / 12 November 2021                           

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Local manufacture of army’s new uniforms will create jobs

By Liezl Human

The decision to manufacture new uniforms for the South African National Defence Force (Sandf) entirely in South Africa will create much-needed jobs in the textile and clothing industry, says the Textile Federation.

The new uniforms will be made locally in line with government regulations designed to bolster the clothing industry. At first, the special fabric needed for the uniforms was imported, but now local manufacturers are being taught how to make it.

The Textile Federation (Texfed) has welcomed the decision by the Sandf to source these new uniforms locally. Brian Brink, executive director at Texfed told GroundUp that the project would help grow the local textile and clothing industry and create “desperately needed employment opportunities”.

The Council for Scientific and Industrial Research (CSIR), which has been leading the new design of the uniforms, says it is talking to local textile manufacturers to supply the material for the uniforms, scheduled for launch at the end of this year.
The Preferential Procurement Policy Framework Act (PPPFA) stipulates that goods ordered by state institutions must contain a minimum of local content. The policy was first introduced in 2011 in a bid to protect South African industry and jobs.

The Department of Trade and Industry designates the minimum level for each industry or sector, and in the case of clothing and textiles this is 100%.

Simon Eppel, researcher at the Southern African Clothing and Textile Workers Union (Sactwu), said this ensures that local job opportunities are created and preserved.

This is especially the case with state institutions, who have a responsibility to meet these minimum thresholds when procuring large orders, such as the Sandf uniforms.

Sandf spokesperson Brigadier General Mafi Mgobozi confirmed that the new uniforms would be manufactured locally. He said during the design stage the woven fabric had to be sourced from abroad since “no capability exists locally to provide the required material”.

But the CSIR, in an attempt to “empower local industry”, had been working with local manufacturers to supply the material or the final order, Mgobozi said.

The CSIR’s manager of the Landwards Impact Area, Tleyane Sono said, “We support our local industries and always look for material and components locally before going abroad”. He said the CSIR was researching the best options for the materials and the materials would still have to be tested.
Department of Trade and Industry spokesperson Bongani Lukhele said the department had written to the Sandf to “bring to its attention the need to comply with the localisation policy in its procurement processes”.

Problems with uniforms and boots were first raised by Sandf soldiers more than three years ago in 2018 after a deployment in the Democratic Republic of the Congo (DRC). Three years later, in response to a question, then-Minister of Defence and Military Veterans said trials for the new model uniforms had started in June this year and the full provision was scheduled from December. New boots for soldiers had been supplied since the beginning of July.   Ground Up

Barbie gets SA street cred as designer Gert-Johan Coetzee dresses the iconic doll

By Kgaugelo Masweneng

One of SA’s most renowned designers, Gert-Johan Coetzee, will collaborate with one of the world’s most iconic fashion dolls, Barbie.

The “Barbie Loves Gert” collection comprises 31 looks and celebrates the uniqueness of South Africans. All genders, sizes and cultures are represented in the work by Coetzee, and the models who walk in the show reflect Coetzee’s commitment to diversity.

The collaboration was announced on Wednesday evening.

“I wanted Barbie to experience SA to its fullest by integrating an array of South African cultural elements into the collection. Striking pink from the Pedi culture is complemented by geometric patterns inspired by the Zulu culture.

“South African beadwork in black and white, I took inspiration from the Xhosa culture, I wanted this collection to encapsulate a truly South African experience,” said Coetzee.

The clothing collection includes both couture and ready-to-wear items. The 15 ready-to-wear items from the collection will be available on Coetzee’s website for purchase and couture items can be made to order.

“As the most diverse fashion doll in the market with more than 170 diverse looks, shapes and sizes, Barbie continues to show the impact of the representation and we are absolutely honoured and inspired to be working with South African designer Gert-Johan Coetzee whose work embodies these values”, said Scott Hobson, country manager of Mattel SA.

The collaboration was led with Blue Horizon Licensing, Mattel’s official brand licensing partner in SA and a key partner in producing this collaboration.

As part of the Barbie Loves Gert collection, Coetzee describes his finale piece as a “one-of-a-kind gown”. Even in doll size, he said, “it’s absolute haute couture”.

More than 3,000 genuine rhinestone crystals and pearls were manually applied to the fabric to create the replica for Barbie. The dress is made of more than 40m of bright pink tulle ruches and the entire construction took more than 50 meticulous hours to create.

“Barbie has collaborated with designers many times but I really wanted the African interpretation to stand out. When people look at the collaboration from around the world they must really feel inspired by the diversity of Africa, the richness of our culture and the beauty of our men and women,” said Coetzee.   TimesLive

TFG surges out of COVID to post headline
earnings above pre-pandemic levels of R1,3 billion at half-year

Group CEO Anthony Thunström

TFG has delivered a strong performance during the six months ended 30 September 2021, recovering from the unprecedented trading conditions caused by the COVID-19 pandemic in the prior year. On the back of this, Group CEO Anthony Thunström announced a return to paying dividends with an interim dividend declared of 170,0 cents per share.

The Group’s retail turnover grew by 51,8% to R19 billion, which was 12,2% above pre-pandemic levels, supported by continued market share gains, expansion of its footprint and brand portfolio and further growth in online retail turnover. The Group’s total revenue, including financial services, was R20,4 billion.

Aside from the strong top-line performance the retailer was able to increase its gross profit banked by 64,0%, posting R9,3 billion for the period.

This strong trade translated into growth of 572,2% in headline earnings per share to 393,4 cents per share, compared to a loss of 83,3 cents per share for the same period last year.

In delivering the results the company pointed to the continued growth in its online turnover – which increased by 12,5% off an already high prior period base, and now contributes 10,7% to total Group retail turnover.

Cost control and cost base reduction continued during the current period, with tangible savings from ongoing business optimisation projects and the Group’s store rental rationalisation strategy. TFG delivered a trading expense-to-turnover ratio of 43,7% which is significantly down even when compared to pre-COVID levels where trading expenses to turnover were 45,4%. The cost savings of around R400 million have allowed TFG to invest in growth opportunities, such as JET, quick response, local manufacturing expansions, and e-commerce investments without deterioration in their trading expense-to-turnover metric.

As part of the results presentation, the company provided an update on their partnership with TymeBank having just launched the first of 600 planned in-stores kiosks offering various financial services and digital offerings.

Salient features

Group revenue up 47,1% to R20,4 billion

Group retail turnover up 51,8% to R19,0 billion

Robust online retail turnover growth of 12,5% on the high base of the prior period, contributing 10,7% to total Group retail turnover

Strong cash retail turnover growth of 56,8%, contributing 79,1% to total Group retail turnover

Continued market share gains in Mens and Womens categories according to the Retail Liaison Committee (increase in market share of 4,8% for H1 FY2022 compared to H1 FY2021)

Gross profit up 64,0% to R9,3 billion

Operating profit before acquisition costs and gain on bargain purchase up 563,8% to R1,9 billion

Headline earnings up 641,2% to R1,3 billion

Basic earnings per share up 116,3% to 319,5 cents per share (Sept 2020: 147,7 cents per share^)

Headline earnings per share up 572,2% to 393,4 cents per share (Sept 2020: headline loss per share of 83,3 cents per share^)

Strong cash generation from operations of R3,9 billion with a net increase in cash and cash equivalents of R0,9 billion

Further reduction in net debt from R1,3 billion (March 2021 pre-IFRS 16)* to R0,8 billion (Sept 2021 pre-IFRS 16)*

Resumption of dividends with an interim dividend declared of 170,0 cents per share (Sept 2020: no interim dividend declared)

* Pro forma information used to calculate net debt pre-IFRS 16

The earnings per ordinary share figures above have been restated from what was previously reported in order to reflect the impact of the bonus element arising from the rights issue. As required by IAS 33, the basic and diluted weighted average number of shares for the prior corresponding period have been adjusted retrospectively to account for the bonus element arising from the rights issue

Please read the full SENS announcement here:

https://irhosted.profiledata.co.za/thefoschinigroup/2017_feeds/SensPopUp.aspx?id=401529

Thunström went on to highlight the accelerated investment in the Group’s transition to being the leading omni-retailer in South Africa, along with the continued build-out of the Group’s local sourcing and manufacturing capabilities.

Transforming into a high-tech omnichannel retailer

Coupled with the opening of 125 new physical stores in the period, bringing the Group’s total to over 3000 stores in Africa, TFG continued to make deep investments into TFG Labs, the Group’s new technology powerhouse. With the bold ambition to be the largest, most reliable and most profitable e-commerce destination on the continent by 2026, the company explained that it had already hired 96 engineers and technology specialists and plans to double this by year end.

The Group has also recently completed the talent acquisition of the Flat Circle team, a specialist mobile app development agency based in Cape Town, further illustrating the importance that TFG is placing on securing SA’s best tech talent.

Competitive advantage through local manufacturing investments

Already known for its local manufacturing capabilities, the first half of the financial year saw TFG make a number of high-profile acquisitions that included the House of Monatic, TCI, Radeen

Fashions and Playtex. The Group’s most recent acquisition was of the leading local bedding, duvet and pillows brand Granny Goose and the associated manufacturer, Cotton Traders.

The retailer’s import replacement strategy results in the creation of more local jobs and upskilling. According to the National Bargaining Council for the Clothing Industry, Prestige Clothing (Pty), part of TFG Group, is the largest local apparel manufacturer in South Africa, employing 2 650 permanent employees, with TFG’s Prestige planning to employ an additional 5 000 workers by 2026. TFG has already invested R340 million since FY19 to build local manufacturing capability, and R575 million is planned for further investment over the next three to five years, with TFG Africa now sourcing upwards of 72% of its apparel onshore.

Through the Group’s Quick-Response model, the retailer is able to demonstrate compelling commercial benefits through increased margins realised, reduction in inventory days and greater speed to market.

Rebuilding and Recovery

Whilst external factors impacted TFG’s three territories during the current period, reducing their available trading hours, all three segments recovered and grew strongly compared to the prior period.

In South Africa, trading conditions during the current period were impacted by the civil unrest in July 2021, load shedding and continued record-high unemployment, affecting consumer confidence and spend.

TFG had 198 South African stores looted and damaged by the civil unrest experienced in KZN and parts of the Gauteng province. The Group reopened 145 of these stores by the end of September 2021, with 22 stores reopening by December 2021. The remainder of the stores will only reopen from 2022 onwards due to the extensive structural damage caused. The Group estimates that in excess of R400 million retail turnover was lost for the current period as a result of the civil unrest.

In relation to damages and asset losses, the Group’s estimated claim from SASRIA is R613 million, of which R200 million was received during the period and a further R260 million subsequent to the period end.

In TFG Australia, further lockdowns and restrictions impacted the business during the current period. Performance was strong in Q1 FY2022, but during Q2 FY2022, an estimated 43,5% trade days were lost as State Governments attempted to curb the spread of the COVID-19 Delta variant. In total, TFG Australia lost approximately 25% of its trading hours for the current period. At the end of September 2021, the two significant Australian states, New South Wales and Victoria, as well as New Zealand, were still in lockdown. Both Australian states have a roadmap to reopen non-essential retail with restrictions once a 70-80% vaccination target has been reached. For New South Wales, stores reopened on 11 October 2021, while for Victoria, stores reopened from 29 October 2021 and are already trading significantly above plan

The remaining lockdown restrictions in England were relaxed from 19 July 2021. Demand for TFG London products has continued to exceed expectations, with turnover growth of 50%, indicating that consumer confidence and footfall in the UK retail market are recovering.

Outlook

Whilst trading conditions and consumer confidence are likely to remain under pressure, TFG continues to demonstrate its resilience and agility and is well-positioned to benefit from the continued post-COVID recovery in all territories in which it operates.

“We remain committed to the prioritisation of our strategic investments in technology, local sourcing, new stores and brands. We are confident in the strength of our balance sheet, which enables us to capitalise on organic and inorganic growth opportunities. We will continue to focus on expense control and working capital management.

As always, the second half of the Group’s financial year is heavily dependent on Black Friday and Christmas trade, which will largely determine performance for the full year.” concluded Thunström.

Truworths – business update

Trading conditions in the Group’s main markets, South Africa and the United Kingdom, continue to be impacted by the COVID-19 pandemic, which together with international supply chain disruptions, have resulted in stock shortages in certain product ranges. In South Africa trading has been impacted further by the civil unrest in parts of the country between 9 and 17 July 2021, having a particularly negative impact on sales performance from mid-July to the end of August. A material number of stores were damaged, destroyed or closed pre- emptively during this period. Ongoing electricity supply issues in South Africa continued throughout the period, also affecting many of the Group’s stores.

In the United Kingdom trading conditions have benefited from the recent relaxation of lockdown restrictions although retail footfall continues to be impacted materially by low levels of tourism and hybrid home/office working arrangements.

Against this challenging background, and a period of Rand strengthening which served to counter good retail sales growth achieved in the United Kingdom, Group retail sales for the first quarter (28 June 2021 to 26 September 2021) of the 2022 financial period (‘the current period’) decreased by 1.2% to R3.9 billion, compared to the first quarter (29 June 2020 to 27 September 2020) of the 2021 financial period (‘the prior period’ or ‘2021’). In the current period, account sales comprised 49% (2021: 49%) of Group retail sales, with account and cash sales decreasing by 0.8% and 1.7%, respectively, relative to the prior period.

Truworths Africa

Retail sales for Truworths Africa (being the Group, excluding the United Kingdom-based Office segment and comprising mainly of the Truworths businesses in South Africa) increased by 0.2% to R2.9 billion relative to the prior period. Comparable store retail sales, which amongst others adjust for the impact of stores damaged and unable to trade as a result of the civil unrest, increased by 2.1%. While low stock levels in the current period were negative for sales, markdowns were lower relative to the prior period thereby supporting the gross profit margin.

Online sales continued to show good growth in the current period increasing by 45% and contributing 3.0% to the segment’s total retail sales. The Identity e-commerce site was launched during the current period on a new commerce cloud platform and the existing Truworths e-commerce sites were migrated to the new platform on 2 November 2021. The new platform provides significantly enhanced functionality and performance and will support future e-commerce sales growth in the segment.

In Truworths Africa, account sales comprised 68% of retail sales (2021: 69%). Trading space decreased by 0.7% relative to the prior period and is expected to remain largely unchanged for the full 2022 financial period. Product deflation averaged 2.2% for the current period (2021: 0.5% inflation).

Truworths Africa’s gross trade receivables at the end of the current period were unchanged relative to the prior period at R5.1 billion. The number of active accounts increased by 1.5%. The debtors book continues to show improvement and is in a healthy position as reflected in the percentage of active account holders able to purchase and overdue balances as a percentage of gross trade receivables, both of which improved and were at 83% (2021: 81%) and 14% (2021: 17%), respectively.

Office

Retail sales for the Group’s United Kingdom-based Office segment increased in Sterling terms by 3.1% to £52.7 million relative to the prior period’s £51.1 million. In Rand terms however, retail sales for Office decreased by 4.9% to R1.1 billion due to a stronger Rand to Sterling exchange rate in the current period. In line with expectations, Office’s e-commerce sales in Sterling decreased by 13.1% in the current period to 45.5% of total retail sales as consumers returned to stores following the relaxation of lockdown restrictions in July 2021.
Office’s store sales were, as expected, affected by the planned trading space decrease of 23.2% compared to the prior period. Such space is expected to decrease by approximately 12% for the full 2022 financial period as the business continues to exit unprofitable stores as leases expire or lease breaks become available.

Update on civil unrest

The civil unrest and rioting in July 2021 resulted in 57 of the Group’s South African stores being impacted directly and severely by looting and destruction of property. By the end of August 2021, 51 of the 57 affected stores were reopened while the remaining six stores remain closed as they were located in fire damaged shopping centres. One of these stores is scheduled to be reopened in early December 2021.

The Group has submitted insurance claims of R69 million and is pleased to announce that an initial payment of R40 million was received in October 2021. Further claims are still being finalised and will be submitted as soon as possible. At this stage management anticipates all claims to be honoured.

Outlook

The trading environment is expected to remain challenging in light of the COVID-19 pandemic, ongoing electricity loadshedding in South Africa, and international supply chain challenges. The Group is pleased to announce that inventory levels have improved recently and that it is in an improved stock position for the upcoming peak trading season. The Group will continue to utilise its extensive experience to manage the risk of fashion through its proven merchandise design and buying processes, to manage its inventory optimally and to manage the risk of the book through the consistent application of its account risk management strategies to grow and ensure the on-going health of the portfolio.

Shareholders are advised that this business update does not constitute an earnings forecast, that the financial information provided herein is the responsibility of the directors, and that such information has neither been reviewed nor reported on by the Group’s external auditors. The Group’s interim results for the 26-week period ending 26 December 2021 are scheduled to be released on or about Thursday, 17 February 2022.

SARS welcomes the MTBPs revenue announcement

The South African Revenue Service (SARS) welcomes the unflinching commitment made by the Minister of Finance, Mr Enoch Godongwana, to fiscal sustainability, enabling long-term growth by narrowing  the budget deficit and stabilising debt, when he presented the Medium Term Budget Policy Statement (MTBPS) in Parliament today.

The Minister added that a fast-growing economy would allow for greater revenue collection, making it possible for a more comprehensive response to the challenges the country faces.

Incoming domestic and global economic indicators point to improving economic prospects after momentum slowed in recent months. This is amidst persistent supply chain disruptions and continued resurgences of COVID-19.  According to the October World Economic Outlook (WEO) report from the International Monetary Policy (IMF), the global economy is projected to grow by 5.9% in 2021 and 4.9% in 2022, 0.1 percentage point lower for 2021 than in the July forecast.

Domestically, South Africa’s GDP grew by 1.2% in the second quarter of 2021, up from the (revised) figure of 1.0% in the first quarter. It is anticipated that economic performance will pick up in the outer years as the economy is gradually opening up, production levels are strengthening, and trade and consumption demands are improving. National Treasury has revised South Africa’s expected nominal GDP growth for 2021/22 upwards to 10.9%, compared to 8.8% in the February Budget 2021. This represents a significant improvement from a contraction of -2.1% in 2020/21.

In the FY2021/22 tax revenues are expected to grow year on year at 18.9% from the earlier projected growth of 9.2%. This represents tax revenues that are growing a faster rate than the economy, SARS continues to focus on its administrative efficiencies and taxpayer compliance improvement in order to ensure heightened tax revenue collection.

Revenue collections have been trending well above the estimate set out in the February 2021 Budget. This is mainly attributable to the improved economy, endowment effects from previous compliance activities as well as improved collection efforts by SARS. Consequently, the Minister has increased the revenue estimate from R1 365.1 billion to R1 485.4 billion – an increase of R120.3 billion in anticipation of better than expected revenue collections.

Amongst other factors, this revision of the estimate can be ascribed to the improved revenue collected for the year to date period. As at 30 September 2021, SARS collected R720.1 billion, with a year-to-date surplus of R79.1 billion (12.3%) against the February 2021 Budget Estimate. Year-on-year growth over the prior year was recorded at R201.5 billion (38.9%).

All major tax types except for Import Duties and Specific Excise recorded a year-to-date surplus against the estimate. In contribution to the surplus, the major tax types performed as follows against the February 2021 Budget Estimate: PIT Net (6.3%), CIT Net (51.8%) and Net VAT (0.1%). SARS allowed COVID-19 related deferrals on Specific Excise leading to the underperformance during this period, furthermore imports slightly receded leading to customs duties underperformance.

SARS collected R87.0 billion from identifiable compliance activities during the first half of this year. Of this amount, R53.5 billion was collected in cash revenue whilst R33.5 billion was secured through fraud prevention and other leakage protection. This work will intensify as SARS continues to optimise its processes and deepen its effectiveness in order to meet the revised revenue estimate.

The revenue performance at half year reflects an economy that is recovering almost to pre-COVID-19 times. However, there are downside emerging risks that need to be managed for the remainder of the year, including: 1) energy security i.e. load-shedding, 2) resurgence of subsequent waves of COVID-19 domestically and globally, 3) drastic adverse changes in global demand of Ore and PGMs (including exchange rate and commodity price considerations) and 4) supply chain disruption.

SARS will continue on its rebuilding journey towards a SMART, Modern SARS with unquestionable integrity, trusted & admired. Through optimisation of its processes to ensure effective and efficient revenue collection. We are investing substantial resources to modernise our systems thereby augmenting our capability, through leveraging enabling technologies, data analytics and artificial intelligence as well as the use of machine learning algorithms. We believe that these initiatives will help detect and address non-compliance. SARS remains committed to its strategic intent of voluntary compliance.

It is expected that the rate of growth in revenues will outstrip the rate of growth in the economy going into the next 18 months. Therefore, leading to the tax-to-GDP of 24.1% for the year 2021/22.

SARS has facilitated more than R2.6 trillion trade with our trading partners in the past year. As a result, to improve trade facilitation, greater focus and concomitant funding will be crucial going forward in helping us to renew and refurbish ailing infrastructure at our border posts as well as investing in our ICT infrastructure to modernise the Customs landscape towards SMART borders.

SARS Commissioner Edward Kieswetter said: “We remain cautiously optimistic that we will meet the new revenue estimate. SARS is committed to fulfilling its mandate, which is collecting all revenue that is due in order to build a capable state that serves South Africa. This aligns to the Higher Purpose that SARS serves.”

“Executing the SARS mandate would not be possible without the continued compliance of taxpayers, traders, intermediaries and other valued stakeholders, who fulfil their legal obligations and do the right thing. I wish to thank them for complying. Increasingly concerning there are taxpayers and traders who continue to be intentionally and wilfully non-compliant. I call on all these taxpayers, traders and intermediaries to obey the law and meet their legal obligations in order to help build our country which has suffered the shocks of the COVID-19 pandemic and the associated adverse global economic conditions” concluded the Commissioner.

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