Newsletter 26 of 2019

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           Newsletter No. 26                                                     12 July 2019

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Local cotton lint buying driving clothing and textile industry’s revitalisation

By Marleny Arnoldi

Clothing retailer Edcon has increased its order for cotton lint to 2 200 t for the next year as part of its commitment to the clothing and textile industry through the Sustainable Cotton Cluster (SCC).

Edcon first bought 600 t of cotton lint in mid-2016 when it signed a cotton lint commitment with the South African Sustainable Textile Apparel Cluster (Sastac).

The retailer group increased its demand to 1 600 t and then to 1 757 t in mid-2018.

The cotton lint commitment has enabled cotton ginners to pay farmers when they deliver cotton; cotton ginners to accommodate terms required by spinners and the rest of the value chain; cotton farmers and ginners to use their assets as securtity, for finance; and cotton farmers and ginners to align themselves with lint demand.

Edcon’s Jet and Edgars subsidiaries use cotton lint to manufacture men’s chinos and t-shirts, as well as towels.

Edcon has since become one of three retailers, including Woolworths and Mr Price, to form part of SCC.

SCC brings together the entire cotton value chain, including the public sector, organised labour, consumer organisations, service providers and dedicated cluster management. The cotton value chain includes farmers, ginners, spinners, fabric manufacturers, fabric processors, clothing manufacturers and retailers.

SCC ensures the entire cotton value chain is kept in South Africa, from the farmer to the retailer.

SCC functions as a programme of industry association Cotton South Africa (Cotton SA) and was established alongside Sastac in 2014 to serve cotton-specific interventions.

Sastac was established with R200-million funding support from the Department of Trade and Industry to revive South Africa’s clothing and textile industry.

The funding supported a five-year plan from 2015 to 2019 to accelerate growth and development of the cotton industry. The plan helped the industry to create between 7 000 and 8 000 jobs so far, and has assisted in forming 600 new small, medium-sized and microenterprises.

Cotton SA CEO Hennie Bruwer explained during a cotton farm visit in Limpopo, attended by Engineering News Online, that the clothing and textile industry in 2013 produced a record low 5 000 t of cotton lint, leading to South Africa importing 95% of its cotton.

He noted that that was sad considering that the country’s clothing and textile industry had been the second-largest employer in the country during the 1980s – second only to the gold mining industry.

The clothing industry had, since 2013, increased output to producing around 50 000 t/y of cotton lint, with the help of about 1 600 black emerging farmers growing cotton on 6 000 ha of clothing- and textile-focused farms.

However, production still falls short of meeting South Africa’s cotton lint consumption of around 315 000 t/y.

The industry is targeting output of 60 000 t/y of cotton lint by 2020.

Ginnery Loskop Cotton CEO Joseph Kemp said that there was more than 65 000 ha of land around the Marble Hall area in Limpopo that was ideal for cotton farming.

However, emerging farmers struggle to secure financing. He noted that if more private sector companies such as Edcon were to sign orders for cotton lint, then that could serve as security for financing.

Meanwhile, Edcon committed to continuously increasing its use of local materials to manufacture clothing and further support the SCC.

Edcon CEO Mike Elliot pointed out that Edcon had increased its use of local materials to 53% over the last few years.

Bruwer noted that the industry needed more investment in harvesting, spinning and weaving technologies.

If South Africa increased its local beneficiation of cotton to a level where it can do import substitution of 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.   Engineering News

Truworths falls 6% on JSE after restructure call

By Dineo Faku

Truworths fell more than 6 percent on the JSE after it told investors that it had approached lenders to embark on steps to restructure the R801 million debt of its UK-based Office shoe brand, whose operational performance has continued to deteriorate.

The UK’s Sky News broke the story that Truworths had asked advisers to draw up a company voluntary arrangement (CVA) that could see the closure of some of its roughly 100 UK stores.

The stock closed 5.03 percent lower at R68.85 with a day low of R67.82 as the company confirmed media reports that it had engaged Alvarez & Marsal and Deloitte to advise them on debt restructuring options for Office.

Truworths, whose brand names include Daniel Hechter, Ginger Mary, Glamour, and LTD, said £45m (R803.6m) of debt was due to be repaid with a significant portion of the debt to be settled through a lump sum payment at maturity in December 2020.

“In light of the depressed retail trading environment currently being experienced in the UK, Office has entered into discussions with the relevant lenders regarding potential debt restructuring options,” the company said. “The fragile retail economy in the UK is expected to remain under extreme pressure amid rising concerns over the faltering negotiations ahead of the end-March Brexit deadline.”

Office accounts for 27percent of Truworths revenue and 10 percent to profit, whereas the South African division contributed 73 percent to revenue and almost 90percent to profit.

Damon Buss, an equity analyst at Electus Fund Managers, said Office had been a poor performer since it was acquired by Truworths in December 2015.

“The footwear market is very competitive, especially in the UK. Footwear is not Truworths’ core skill set and, unfortunately, the timing was very poor as the rand/British pound exchange rate was greater than R20 to the pound,” said Buss.

“If Truworths goes down this route, it will have impaired a significant portion of the £135m goodwill which is ascribed to Office on its balance sheet. However, it will enable it to exit loss-making stores much faster than the current option of seeing out the leases,” Buss said.

Truworths acquired 88.9percent of Office for R5.5 billion in December 2015, joining local retailers, including Woolworths and Famous Brands, which expanded their footprints abroad.

Office has been a weak performer over the past 18 months, exacerbated by department stores in the UK rationalising space and Brexit uncertainty.

“This has resulted in new management with footwear experience being appointed by Truworths during the first half of 2019,” said Buss.

Kokkie Kooyman, a director, and portfolio manager at Denker Capital, said South African companies have had a tendency to go offshore when South Africa faced economic headwinds and then it hit them when the economies they tried to diversify into went into a recession.

“The UK is going through a hard time and it will be interesting to see whether the company will be able to sell its book to lenders and whether they simply sell the bad book or do an ongoing joint venture,”said Kooyman.

The Brexit uncertainty and weak consumer sentiment have weighed heavily on households in a faltering UK economy.

The UK retail environment has been harsh with retail footfall decreasing by 2.6 percent, and growth in sales was mainly driven by online, which now accounted for roughly 20 percent of all sales.

About 1123 stores had disappeared from Britain’s top 500 high streets in the first six months of 2018, according to the accountancy firm PricewaterhouseCoopers.

The report said about 14 shops were closing every day in the UK high streets. Office closed seven stores and opened a store in the half-year to December. Retailer News

Kenyan EPZ firms want power, labour cost cuts

Firms in Kenyan export processing zones (EPZ) want lower labour and electricity costs and slashed work permit fees for expatriates to boost earnings from the US Africa Growth and Opportunity Act (AGOA). EPZs are held back by their inability to attract investors who prefer neighbouring nations, Kenya Export Manufacturers Association (KEMA) vice chairman Thomas Puthoor said.

Kenya’s competitors like Ethiopia and Madagascar have attracted more investors after lowering electricity costs and expatriate permit fees, he said.

KEMA also complained of high wages in Kenya that Puthoor rated at an average minimum of Sh22,000 compared to Ethiopia and Madagascar at Sh6,000 and Sh8,000 respectively, according to a report in a Kenyan newspaper.

Most workers in EPZs work for apparel enterprises, with recent Kenya National Bureau of Statistics (KNBS) data indicating that 22 clothes firms employ 46,248 Kenyans.

Mr Puthoor, who is also Simba Apparel EPZ managing director, said despite having more than 6,000 items trading under AGOA, Kenya is only exporting apparels, horticulture and processed food, which is an under-investment in the sector.

He also asked the government to reorganise the market for citizens to buy the locally manufactured clothes.

Though the ‘Buy Kenya, Build Kenya’ concept started well, its promotion has ceased in the past one year, and yet more than 20 per cent of our produce were set aside for the local market. Clothes manufactured in the country are of better quality compared to imported second-hand clothes, he added. F2F

Sanjoo Dyeing & Printing Mills to invest $15m in Zambia

Sanjoo Dyeing and Printing Mills Pvt Ltd is planning to invest $15 million in Zambia to set up a textile facility. The project may take a year to be operational and will reduce the cost of linen in the African country, apart from creating 400 jobs, company director Vishal Budhia said when Zambian high commissioner Judith Kapijimpanga visited his unit in Surat.

Budhia plans to lead a delegation of textile industrialists to Zambia, according to a report in a Zambidna news portal that quoted a statement from the Zambian Mission in India.

Kapijimpanga said investing in Zambia had many benefits as an investor could export to the Southern African Development Community (SADC) and the Common Market for Eastern and Southern Africa (COMESA) regions as well as to the United States through the African Growth and Opportunity Act (AGOA).

The total investment from India to Zambia now stands at $8 billion, she said. Three Indian companies—Prasad Seeds, Vagmi Cottons and OM Rollers and Smelters—have started operations in Zambia in the first half of 2019 with a combined investment worth over $100 million, she added. F2F

Did you know……..

Top New York Fashion Week designers share their pre-show MOs — and how they get into their creative groove.

Designer LaQuan Smith

“The inspiration for all of my shows is rooted in female empowerment and the strength of femininity,”

Who’s sitting in your dream front row (dead or alive)?
My dream front row would probably include Grace Jones, Eartha Kitt, Anna Nicole Smith, David Bowie and Tina Turner.

Before the first models hit the runway, as a group, we like to say a quick prayer, giving thanks to where we were and where we are now.

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