Newsletter 1 of 2020

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Newsletter No. 1                                                                                                  24 January 2020

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Illicit trade – a threat to our people and sovereignty

PRETORIA, Wednesday 22 January 2020 – The South African Revenue Service (SARS) will celebrate International Customs Day (ICD) this weekend by honouring the men and women in its Customs division. Whilst the core focus of Customs offices is to manage ports of entries and facilitate travellers and traders, sadly there is a proliferation of illicit and criminal activity that requires Customs to remain vigilant in combatting this scourge.

It is estimated that illicit trade results in losses to the fiscus of billions of rands every year.

SARS Commissioner, Edward Kieswetter, has committed the organisation to work closely with other government agencies to stamp out the illicit trade in clothing and textiles, leather and footwear, precious metals and scrap metal, second hand vehicles, fuel and cigarettes because of its disastrous consequences for our economy and our people. He said:  “The losses in tax revenue and the negative impact on our domestic economy affects industries, erodes employment opportunities and generally denies the most vulnerable in society the social and economic well-being they deserve”.

SARS has found that importers or exporters in these sectors specifically are using various ways to avoid paying the import or export duties, as well as Value-Added Tax (VAT), that apply to the goods, which in turn impacts on the amount of revenue that SARS is able to collect for the growth and development of our country.

Another negative impact of illicit trade is the erosion of productive capacity in the country as goods are imported rather than produced locally. This in turn leads to job losses which aggravate already high levels of poverty and inequality.

That is why the Clothing and Textile industry, in particular, is a key focus area for SARS. Under-declaration of Customs value in this sector has increased from R5.2 billion in 2014 to R8.52 billion in 2018, with the under-declared Customs value in 2017 and 2018 representing 34% and 35% of the declared Customs value respectively. Some of the cases of non-compliance that Customs has come across recently in this area include declaring complete garments at values as low as 0.02 US cents, excess cargo (in one case, more than 80% of a container was not declared), fictitious importers’ addresses and misclassification of goods.

SARS forms part of an inter-agency working group with the DTI and Treasury, focusing amongst others on the Clothing Textile Leather and Footwear Industry. The working group is already seeing a number of successes since it was established last year. Within the first month of the project, Customs issued 20 letters of intent to seize goods from traders who were found to be non-compliant in terms of value, quantity, classification, licensing and registration. The potential loss to the fiscus of these intended seizures amount to about R20 million.

The Deputy Minister of Finance, who will attend the ICD event, on Friday has pledged his full support for the important work of SARS in this regard.

A media statement with more information will be released on Friday following an event to be held by SARS to celebrate International Customs Day

For more information, please contact sarsmedia@sars.gov.za

Tribunal approves RCS credit lender’s acquisition of Edcon book debt 

The Tribunal has approved two large merger transactions through which RCS Cards (Pty) Ltd – an unsecured credit lending provider – will acquire a portion of Edcon Limited’s book debt owned by Edcon (first transaction) and book debt owned by ABSA Bank Limited (second transaction).

Edcon CEO, Grant Pattison, submitted to the Tribunal that Edcon customers/card holders will not be impacted by the transactions and that the terms and conditions of their accounts will not be changed. RCS will honour the terms and conditions: “This transaction is about how the credit machinery works in the background,” he said during the hearing.

RCS – the acquiring firm

RCS Cards is incorporated in South Africa and is ultimately controlled by BNP Paribus Société Anonyme. RCS does not control any firm in South Africa.

The RCS Group provides consumer finance services, focusing on unsecured credit including retail credit card facilities and insurance products in South Africa. The RCS Group is structured into two main business lines, these being transaction finance (card products) and fixed term finance (loans).

The first transaction

RCS will acquire the Edcon Book Debt from Edcon. Edcon’s Book Debt refers to all claims and entitlements for the use of an Edcon branded store card by individuals who qualify for and have been issued a with an Edcon store card; or claims recorded in the revolving credit facility agreements concluded between Edcon and the principal debtor.

Post transaction, RCS will wholly own and control the Edcon Book Debt.

The second transaction

RCS will also acquire Edcon Limited’s cardholders book debt owned by ABSA Bank Ltd (ABSA). Post-transaction, RCS will own and control the ABSA Book Debt.

The ABSA Book Debt refers to all claims and entitlements for the use of an Edcon branded store card by individuals who qualify for and have been issued a with an Edcon store card or claims recorded in the revolving credit facility agreements concluded between Edcon and the principal debtor. The ABSA Book Debt comprises active Edcon store card accounts and gross receivables.

Views of third parties

The Competition Commission contacted various competitors and retailers who did not raise any concerns regarding the proposed transaction, save for one competing retailer who had asked for their identity to remain confidential.

The retailer was concerned that post-merger, RCS would become the largest store credit provider in South Africa and a dominant player in the store card credit market. It believed as a result of such dominance, RCS would be able to offer customer incentives and effectively gain a monopoly in the store credit card market.

The Commission, in its assessment, found that the concerns were without merit and concluded that the proposed transactions would not result in a substantial lessening or prevention of competition.

Woolworths CEO resigns, Levi Strauss exec to replace him. 

Ian Moir

Woolworths’ CEO has resigned and Roy Bagattini, president of Levi Strauss’ American operations, will replace him, the company announced.

South African-born Bagattini would officially join the company from February 17, 2020.

Current CEO Ian Moir will step down as group CEO and executive director on February 16. In August last year the retailer said that on the request of the board, Moir would move to Australia to oversee the turnaround at its department-store chain David Jones.

Under Moir, Woolworths has been forced to write off billions of rands after the company’s disastrous acquisition of David Jones.

At the time, the group said Moir was to work as acting CEO for David Jones while continuing with group responsibilities.

Woolworths’ headline earnings for the financial year ended June 30, 2019 were down almost 5%, mainly on the impact of David Jones operations.

In its latest notice on succession within the company, Woolworths said Moir would continue as acting CEO of David Jones, while working closely with Bagattini to ensure a smooth transition.

Moir has been at the helm of Woolworths for the past nine years. He was first appointed to the board in January 2010 and then named CEO in November of that year. Prior to becoming group CEO, Moir was the CEO of another Woolworths business, Country Road.

Bagattini, a South African, was responsible for leading the company’s largest commercial operations and a significant network of retail stores across the US, Canada, Mexico, Brazil and Latin America.

“Roy [Bagattini] also played an instrumental role in the development and acceleration of the e-commerce and omni-channel capabilities of Levi Strauss,” a Woolworths statement read.

He also boasts with experience in working in international markets for over 19 years, having been the president of Levi Strauss’ operations in Asia pacific, the Middle east and Africa between 2013 and 2016.

Prior to joining Levi Strauss, Bagattini was president of the Asia and Africa operations of brewing company, the Carlsberg Group. He also previously held executive roles at SABMiller – both domestically and internationally.

“In addition to leading numerous merger and acquisition projects during the course of his career, he has also spearheaded the turnaround of several companies and successfully driven their growth and expansion,” the notice read.

Commenting on his appointment, Bagattini said it is a “privilege and opportunity” to lead Woolworths at an ïmportant stage in its history”. “I am excited about the tremendous potential of the Group and am looking forward to working with our talented and passionate people to elevate our brands, build deeper connections with our customers and, in doing so, realise this potential across all our businesses,” Bagattini said.  Fin24

Truworths – trading update

Cape Town, W Cape, SA (January 15, 2020) – Retail sales of Truworths International Ltd. (the Group’) for the 26-week period ended 29 December 2019 (the current period’) increased by 1.2% to R10.6 billion relative to the R10.5 billion reported for the 26-week period ended 30 December 2018 (the prior period’).
Account sales comprised 52% (2018: 51%) of Group retail sales for the current period, with account sales increasing by 4.3% and cash sales decreasing by 1.9%, relative to the prior period.
Retail sales for Truworths Africa (being the Group, excluding the UK-based Office segment and comprising mainly of the Truworths businesses in South Africa) increased by 2.7% to R7.8 billion relative to the prior period’s R7.6 billion, with account sales increasing by 4.3% and cash sales decreasing by 1.2%. Account sales comprised 71% of these retail sales (2018: 70%). Trading space increased by 1% relative to the prior period and is expected to increase by approximately 1% for the 2020 financial year. Product inflation averaged 1.1% for the current period, while like-for-like store retail sales increased by 1%.
Gross trade receivables in respect of the Truworths Africa debtors book (relating to the Truworths, Identity and YDE businesses) were at R6.8 billion (2018: R6.4 billion), while the number of active accounts increased by 3.5% to 2.8 million. Active account holders able to purchase and overdue balances to gross trade receivables were at 85% (2018: 86%) and 10% (2018: 10%) respectively.
Retail sales for the Group’s UK-based Office segment decreased in Sterling terms by 3.3% to P151 million relative to the prior period’s P157 million. In Rand terms, retail sales for Office decreased by 2.6% to R2.8 billion. Online sales contributed approximately 34% of retail sales for the current period. Trading space for the Office segment decreased by 7.4% relative to the prior period and is expected to decrease by approximately 6% for the 2020 financial year.
The Group continued to experience challenging trading conditions in both its main markets. Low economic growth, high unemployment, load shedding, modest increases in negotiated wages and higher average fuel and utility prices contributed to low consumer confidence and constrained spending in South Africa, while Brexit uncertainty combined with continued pressure on store-based retailing continues to negatively impact the UK economy.
Shareholders are advised that this trading 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 ended 29 December 2019 are scheduled for release on or about Wednesday, 19 February 2020.  S&V

TFG – trading update

Cape Town, W Cape, SA (January 17, 2020) – TFG enjoyed a solid November/December trading period, which included a record high Black Friday for the Group and which is increasingly measured against the high base that has been created over the past several prior comparative periods. Subsequent trade continues to be in line with management expectation. The Group’s consolidated turnover grew 5,9% for the nine months to 28 December 2019 when compared to the same period in the previous financial year with performances in line with expectations in all regions, apart from TFG Australia, which continued to exceed expectation.
TFG Africa showed resilience across all merchandise categories and despite the high base of the past several years, produced turnover growth of 5.9%. This included a new record high Black Friday performance, which helped to offset the negative impact of the load-shedding experienced in South Africa during December. Same store turnover grew by 4.1%. Cash turnover grew pleasingly by 11.2% whilst credit turnover declined by -1,0% as a result of the Group’s prudent approach to credit in the current constrained economic environment.
TFG London’s turnover declined 1.1% against the backdrop of a very subdued and disrupted environment, characterized by large store format closures and the accelerated restructuring of the department store model by owners and lenders, as well as continued footfall declines on the high street amidst Brexit uncertainty and generally poor retail sales being reported for the festive season period. TFG London’s turnover, excluding concession turnover from House of Fraser (an independently owned UK department store placed under administration in August 2018), grew by 1,8%^ which is positive given these circumstances and the fact that this result was achieved without the sacrifice of margin.
TFG Australia’s turnover grew 11.4% off an already high base. Excluding the G- Star RAW franchise stores disposed of in December 2018, TFG Australia’s turnover grew by 15,3%^, with a record high Black Friday performance in November. Shareholders are advised that this trading update has not been reviewed or reported on by the Company’s external auditors.
Pro forma information: Pro forma management account information for TFG Australia and TFG London were used in this announcement for illustrative purposes only to provide an indicative turnover growth for these business segments. In TFG Australia, turnover for the period 1 April to 5 December 2018 relating to the G-Star RAW franchise stores were removed as if the disposal of these stores took place effective 31 March 2018.
In TFG London, all turnover transacted through House of Fraser were removed to illustrate the impact of House of Fraser going into administration during August 2018. This pro forma information, because of its nature, may not be a fair reflection of the Group’s results of operations, financial position, changes in equity or cash flows. There are no events subsequent to the reporting date which require adjustment to the pro forma information.  S&V

Mr Price – trading update

Durban, KZN, SA (January 17, 2020) – During the third quarter (29 September 2019 to 28 December 2019) of the financial year ending 28 March 2020, the Group recorded growth in retail sales and other income (RSOI) of 3.5% to R7.4bn over the corresponding period in the prior year.
Corporate-owned and franchise stores generated total retail sales of R7.0bn, an increase of 3.3%. In October, the group gained market share despite retail sales growth being muted at 0.3%. Trade was affected by a shift in school holidays into September and the Rugby World Cup. Markdown activity was required to manage stock levels going into peak season, negatively impacting gross margin % in the month.
The group continued to gain market share in November (the latest period for which RLC data is available), an increasingly key trading month because of Black Friday. This has changed consumer spending habits prior to Christmas. Business activity in key weeks in December was materially affected by stage six rolling power blackouts and prolonged periods of torrential rain in the inland areas, partially diluting the anticipated impact of the extra week of school holidays.
The combined retail sales growth of these two months was 4.7%, with gross margin % in line with the same period last year. In May 2019, the group communicated that improvements in Mr Price Apparel’s high summer performance was expected due to internal initiatives undertaken. The division has reported enhanced retail sales growth from -1.2% in H1 FY2020 to 3.2% in Q3 FY2020. The division’s sales increased by 4.6% over the combined November and December period, with an improved gross margin %. The division launched its first beauty range, Scarlet Hill, in an initial 40 stores, with results exceeding expectations.
The Home businesses have felt the effect of lower growth in household expenditure, particularly on discretionary items. Despite this, both divisions continue to find opportunities to deliver superior value to their customers. South African retail sales grew 3.9% to R6.4bn. Store sales were up 3.7% and online sales up 17.4%. Non-South African corporate owned stores sales decreased by 1.1% to R500m. Excluding Australia, Poland and Nigeria (markets either discontinued or with limited stock flow) sales increased 2.5%.
Trading space increased 2.0% on a weighted average basis and 2.6% on a closing basis. Cash sales were up 4.1%, constituting 85.2% of total sales. Credit sales grew 0.2%. Other income grew by 6.5% to R438m supported by double digit growth in mobile and cellular. The in-store cellular kiosks are now in 259 stores.
The group is very focused on effective inventory management and stock growth at the end of the period was within the targeted low single digit range. Consumers continue to be constrained, highlighted by the BER Consumer Confidence Index remaining negative at -7 index points in Q4 2019. The group sees this as an opportunity to continue gaining market share and building on the improved performance in Q3, by offering quality merchandise at everyday low prices. In line with the strategic intent to entrench market positioning and to be viewed by consumers as the people’s value champion, retail prices were maintained at last year’s levels, as evidenced by RSP inflation at 0.0%. This had the desired impact of increasing unit growth by 3.6% and importantly by 5.3% in Mr Price Apparel, the group’s largest division.
For the period 29 December 2019 to 15 January 2020, not included in the analysis above, group retail sales momentum continued to build positively at an improved gross margin % compared to the same period last year. The figures and information contained herein do not constitute an earnings forecast and have not been reviewed and reported on by the company’s external auditors.   S&V

Did you know……..

1939 Fashion: What did people wear?

For women, suits became more feminine in 1939. Whether they were pleated, straight or flared, they came with tightly fitted jackets and blouses. British Prime Minister Chamberlain’s famous umbrella and hat became a motif in accessories and prints.

Snoods were quite popular in 1939. Hair styles in general were more Edwardian (worn up front) with the back hanging in curls. The first permanent waves appear in 1939.

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