46 of 2020

                                                              Newsletter No. 46 / 4 December 2020                            

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The fashion and clothing industry will overcome the myriad challenges caused by the Coved-19 pandemic

Dr Precious Moloi-Motsepe is founder and executive chair of African Fashion International.

This year we helplessly watched Covid-19 bring the global economy to its knees. Governments around the world responded by implementing lockdowns to contain the rapid spread of the deadly pandemic to their populations. Unfortunately, these measures — intended to save lives — suffocated economies.

By the end of 2020, the world’s economy is expected to have shrunk 7.5%, the deepest contraction since the World War 2, which ended in 1945.

Closer to home, the pandemic has thrown our 26-year old democracy its biggest challenge since the end of apartheid in 1994. We have lost nearly 21,000 South Africans to the pandemic, our economy has slipped into a recession and is expected to contract 7.3% in 2020.

To add salt to the wound, the unemployment rate has also crept up to 30.8% following large-scale layoffs during the hard lockdown.

Like many other industries that were hit hard by the Covid-19 lockdown, the fashion industry — in which I have invested my energies and resources over the past several years — was not spared the ravages wrought by the pandemic.

During the hard lockdown, introduced for the first time on March 27, fashion retailers had to shut their stores to comply with Covid-19 regulations. This closure led to job losses in the industry and forced businesses to restructure their operations to survive. Many fashion designers who run small businesses in the clothing sector were also caught in the Covid-19 storm as their businesses took a knock.

While the blow has been severe, the industry is not taking it lying down. It has had to adapt and find innovative ways to sustain itself through the pandemic, which poses health and financial threats simultaneously.

The biggest shift in how the fashion industry operates has been its pivot towards digital platforms and e-commerce. This shift was in full display at this year’s African Fashion International (AFI) Joburg Fashion Week, which went completely digital for the first time since its inception and produced a fashion film.

The event was beamed online to audiences around the world, where everyone got a front-row view of the designers showcasing their Spring/Summer 2021 collections.

Hosting the show digitally not only reduced our carbon footprint but  gave the viewers an opportunity to order and purchase their favourite garments while the show was being broadcasted.

The evolution that is currently taking place in the fashion industry is positioning the sector to contribute positively to our country’s post Covid economic recovery plan, which is being championed by President Cyril Ramaphosa.

We are likely to witness an increase in investment in local manufacturing, a development that will give employment in the industry a major shot in the arm, not forgetting the expansion of supply chains, which will also benefit small businesses.

The investment in local manufacturing will further support the shift towards local procurement and localisation, whereby there has been an attempt by SA to reduce its reliance on Asian imports, which at one point made up about 80% of clothes sold on our stores.

At the height of the pandemic it was encouraging to see local manufacturers moving fast to take advantage of the opportunities presented by the disease. Many clothing and textile factories reorganised themselves to produce face masks and other personal protective clothing that protects people from contracting Covid-19.

The industry is also looking forward to the implementation of the R110bn in investment pledges announced last week at the annual investment conference. It is no secret that the SA economy is in desperate need of investment if it is to grow faster and create sustainable jobs.

If we manage to steer the economy out of the recession, the fashion industry will benefit immensely from robust economic growth that fast-tracks the emergence of consumers with high disposable incomes as well as from the return of tourism. A stronger economy will generate more sales for the fashion industry and boost production.

There are pledges that were announced at the investment conference that will rub on positively on the fashion sector. These pledges highlight the industry’s interconnectedness with other sectors of the economy.

For example, the R100m pledge made by Provenance to develop a film studio and innovation hub in KwaZulu-Natal will boost local fashion.

What we see in Nigeria with Nollywood is that the growth of that country’s fashion industry is closely linked with growth in the entertainment industry. The two industries feed off each other. There is an opportunity for SA to showcase the beauty of its fashion when telling its stories through films and music videos.

In the data sector, the huge investment pledges that were made will boost the fashion sector as it evolves and move towards e-commerce and digital platforms. Telkom, Google, Teraco and Dimension Data pledged a combined investment of R15.5bn to improve connectivity and expand access to data services.

I strongly believe the fashion and clothing industry will overcome the myriad challenges caused by the Covid-19 pandemic. If anything, the pandemic has encouraged the industry to evolve and is poised for growth that will benefit investors, workers, suppliers, and many other stakeholders.

The AFI is committed to becoming part of our country’s economic revival plan. We will continue investing in the fashion and clothing sector in order to develop commercial markets for African designers.  SA Manufacturing

Busby emerges from business rescue rebranded as FrontierCo

The New House of Busby received approval from 91% of its creditors in support of its business rescue plan, scripted and executed by Hans Klopper and Dawie van der Merwe of BDO Business Restructuring. The company will now be rebranded to FrontierCo and its head office has relocated from Germiston to George in the Southern Cape.

New House of Busby was placed under voluntary business rescue on 29 July this year. Post commencement funding for the transaction was made available by the company’s shareholders, lenders and creditors of the company who remain supportive of the company’s continued operations.

The company holds the exclusive distribution rights to a number of international brands including Guess Inc, Aldo, Call It Spring, Delsey and Kipling. It also is a joint venture partner with Madden International in Steve Madden South Africa Pty Ltd.

Busby was a once iconic South African company that suffered financial damage after many years of mismanagement. Its precarious financial status was further compromised by the economic devastation dealt by the Covid-19 pandemic.

“In order to enable a fresh start and shed the negative corporate connotations with the Busby name we have elected to rebrand to FrontierCo,” said CEO Bernard Mostert.

Partnership with Cavico, AJVH Holdings

Mostert added, “The company’s successful business rescue was the result of the quick execution by Hans and Dawie and their zealous focus to ensure that the business will not be stuck in the business rescue process during its upcoming peak trading period in November and December.

“We are grateful for the many parties who considered and pledged their support for the future strategy of the group. Foremost among these were our licensors and our landlords, as well as lenders to the company. It was good to see all these parties work in concert to ensure success. Going forward the company will be a partnership between Cavico, AJVH Holdings and management.”

“In the process, we were able to save 800 jobs in the company, continue to support our local suppliers and enable our licensors not to lose their footprint and market share in South Africa.”

He continued, “Furthermore it would not have been possible for us to address a number of questionable contracts entered into by the company over many years if we did not have the legal mechanism of the business rescue process available to us,” said Mostert.

FrontierCo/Busby’s head office and distribution centres have been relocated to George on the Garden Route where it will share services with Mr Tekkie, the footwear chain launched by AJVH chairman and former South African Entrepreneur of the Year Braam van Huyssteen and his long-time executive team.

“We are grateful that we can bring this multi-faceted business to our community in George. At this stage, we do not envisage that we will merge Busby and Mr Tekkie. We will, however, share certain generic retail services and disciplines between the two companies,” said Mostert.

“As a part of the implementation of the business rescue plan, we first have to complete the legal restructuring of FrontierCo’s individual business units. This will be done by CAFriedlander, who act as legal advisors to the company, and PKF George, AJVH’s long-time group auditors,” Mostert concluded.  Bizcommunity

Mr Price – acquisition of Power Fashion

Mr Price announced that on 20 November 2020 it concluded an agreement to acquire high performing value retailer, Power Fashion, which currently has 170 stores across Southern Africa. Its differentiated business model gives the group access to a wider customer base and the opportunity to significantly scale further.

Power Fashion
Power Fashion was founded in the 1950’s and is a high growth, family owned apparel retailer based in Durban, South Africa. It is value-focused and cash-based, servicing low to middle income households. It offers merchandise for the whole family, retailing largely apparel merchandise but also offering cellular products, basic household items, value cosmetics, electricity and other opportunistic products.

Power Fashion merchandise 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. Stores are typically high street and community centred malls rather than regional and super regional locations.

Investment case
The group’s strategic research has helped identify clear opportunities for growth, both organic and acquisitive. It 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 approximately 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
– Low risk as opposed to acquiring an unknown territory with additional foreign exchange risk
– Strong management and skilled team to prevent distraction and ensure continuity

Implementation
The targeted effective date of the transaction will be April 2021 to align with the start of the group’s new financial year (FY22). However, this is subject to the fulfilment of both regulatory and commercial suspensive conditions, as are usual for such transactions. These conditions include competition authority approval in South Africa and Eswatini. The transaction will be settled in cash.

The existing management team and all Power Fashion employees will transfer to Mr Price, and a new managing director will be appointed in due course. Noel Otto will retire on the effective date but will conclude a consulting agreement for a period post the effective date to provide continuity.

Mr Price interim results September 2020

Revenue for the interim period decreased by 14.4% to R9.204 billion (2019: R10.757 billion), profit from operating activities decreased by 32% to R1.148 billion (2019: R1.688 billion), profit attributable to equity holders of parent decreased to R753 million (2019: R1.148 billion), while headline earnings per share from continuing operations came to 335.4 cents per share (2019: 443.5 cents per share).

Dividend
Notice is hereby given that an interim gross cash dividend of 210.1 cents per share was declared for the 26 weeks ended 26 September 2020, a 32.5% decline against the prior year.

Outlook
The group continues to cautiously manage the ongoing challenges relating to COVID-19. The threat of the pandemic is by no means over and uncertainty regarding stricter lockdown levels remains. The group will continue to respond with agility to the trading environment while remaining vigilant of its associates’ and customers’ safety. The group’s sales grew by double digits in the first six weeks of H2 FY21. However, sales growth was flat in the week prior to Black Friday week, indicating the extreme volatility in consumer purchasing behaviour. The group is expecting a challenging Black Friday week, due partly to COVID-19 store restrictions which will limit footfall in stores, as well as to the strong performance in the prior year. The group does however anticipate continued high online growth as customers switch channels. Management are cautious about the trading environment for the remainder of H2, due to high levels of uncertainty relating to volatile consumer spending patterns and a potential shift in shopping trends prior to Christmas. The South African government and private sector relief mechanisms are coming to an end, placing increased strain on household disposable income. Additionally, reduced private sector bonuses and a shift in school holidays (less days falling before Christmas than the prior year) could affect this key trading month. The resilience of the group’s business model and its agile supply chain gives management comfort that it can balance the pursuit of additional market share while maintaining good fiscal discipline. The group continues to keep its associates and family members who have been affected by COVID-19 in its thoughts. It acknowledges the incredible commitment of all its associates and particular mention must be made of those on the frontline, for their efforts in managing trade in very difficult circumstances. It has been a trying time, however, the group is in a strong position to deliver growth and further shareholder return.

Mr Price – resignation of director

In compliance with the JSE Limited Listings Requirements, the following information is disclosed: Brenda Niehaus has resigned from the Group as independent non-executive director and member of the Risk and IT committee with effect from 31 December 2020. Brenda was appointed to the Board in February 2018 and member of the Risk and IT committee in March 2018. Her expansive IT knowledge and experience has been key in providing insights and guidance on information and technology best practice. The Board and management express sincere thanks to Brenda for her valued contribution to the Group, and wish her well with her farming operations.

Woolies – results of 2020 annual general meeting

Shareholders are advised that at the Annual General Meeting (“AGM”) of the Company held today, Wednesday, 25 November 2020, all the ordinary and special resolutions were passed by the requisite majority votes, except for Ordinary Resolution 6, which is a non-binding advisory vote relating to the endorsement of the Remuneration Implementation Report.

Truworths – resignation of CFO

Truworths International Ltd. (the ‘Group’) announced in terms of paragraph 3.59 of the JSE Listings Requirements that the Group’s Chief Financial Officer David Pfaff has advised of his resignation with effect from 28 February 2021 in order to pursue other career opportunities.

The Group advises that a further announcement will be made in due course regarding the plans for Pfaff’s replacement

        Did you know……..

“Clothing production is the third biggest manufacturing industry after the automotive and technology industries. Textile production contributes more to climate change than international aviation and shipping combined” (House of Common Environmental Audit Committee, 2019)

The main goal of fast fashion giants is all about lowering production costs. This is precisely why they neglect the sustainability aspect of production, starting from using non-biodegradable fabrics that are fully processed with chemicals, to throwing production waste into water streams, lakes and oceans.