Newsletter No. 33 30 August 2019
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Wool sector on edge over Chinese ban due to foot-and-mouth
By Prinesha Naidoo
SA’s wool industry is on tenterhooks as exporters seek clarity on a Chinese ban on imports of the fibre following an outbreak of foot-and-mouth disease earlier this year in the world’s second-biggest producer.
At issue is whether China has fully reversed rules governing shipments of cloven-hoofed animal products, even though SA’s agriculture department declared the country free of the highly contagious disease in April, according to Deon Saayman, the GM for industry body Cape Wools SA.
Uncertainty over whether the lifting of the ban includes wool from previously disease-hit areas prompted Cape Wools to cancel its opening sale of the new season, the first time the weekly auctions have been halted in years, Saayman said by phone from Port Elizabeth where the auctions are held.
China accounts for about two-thirds of the country’s wool exports, while the industry generates about R5bn in sales per season, Saayman said. “If it goes on like this it will have a dire effect on the whole value chain — the buyers, the brokers, and the farmers. It could have serious consequences.”
Chinese authorities initially banned SA wool exports in February, weeks after the foot-and-mouth disease was reported in northern Limpopo. Three months later, they allowed shipments, provided the wool complied with World Organisation for Animal Health regulations, clearing the export of about R266m of the fibre from the previous season, Saayman said.
Clarence Friskin, chair of the SA Wool and Mohair Buyers Association, said the confusion was straining members’ finances. “The bottom line is buyers have spent all this money on wool that they haven’t been able to ship yet,” Friskin said. “They just don’t have the finances to continue buying until some of this wool is moved and clarity is obtained.”
The department of agriculture, forestry, and fisheries has engaged with Chinese authorities and is expected to provide clarity this week, Saayman said. A spokesman for the department didn’t respond to a text message seeking comment. Business Live
Truworths reports steady performance
Truworths International reported lower earnings for the year to June 2019 as Truworths posted a steady performance in the weak domestic retail market while the profitability of the Office chain was severely impacted by the depressed United Kingdom (UK) trading conditions.
Group retail sales increased by 3.7 percent to R18.6 billion, with account sales contributing 51 percent of the Group’s total sales. Truworths Africa, which comprises mainly the Truworths business in South Africa, reported stronger second half results and increased sales for the year by 3.1 percent to R13.5 billion. Sales for Office declined by 0.9 percent to £279 million but grew in Rand terms.
Truworths Africa’s gross margin was stable at 55.5 percent while the Office gross margin declined from 44.4 percent to 42.3 percent, resulting in the group’s gross margin decreasing to 51.6 percent.
The tough trading environment in the UK has resulted in a non-cash impairment charge of £97 million being raised against the Office intangible assets.
The Group’s operating profit, excluding the Office impairment in the current period, as well as the impact of foreign exchange gains and losses in the current and prior periods, decreased by 10.3 percent to R3.5 billion with the operating margin declining from 22.3 percent to 19.4 percent.
Group diluted headline earnings per share declined by 8.5 percent to 560.7 cents, with earnings in Truworths Africa down 2.5 percent and Office 60.0% lower. The annual dividend was reduced by 9 percent to 384 cents per share, based on a maintained dividend cover of 1.5 times.
The Group generated cash from operations of R2.7 billion which funded dividend payments of R1.8 billion, capital expenditure of R465 million, share buy-backs of R266 million and loan repayments of R422 million. Group net debt decreased from R968 million to R663 million, with the net debt to equity ratio at the end of the year at 7.2 percent, down from 9.3 percent a year ago.
Chief executive officer Michael Mark said trading conditions locally have been impacted by low economic growth, high unemployment, and higher average fuel and utility prices which have contributed to low consumer confidence and constrained spending.
In the UK, uncertainty over Brexit and muted consumer confidence, together with the pressure on store-based retailing as consumer spending shifts to online shopping, continue to negatively impact the economy and the retail sector in particular.
“Early in July, we advised our shareholders that Office has engaged advisers and entered into discussions with lenders regarding potential debt restructuring options. These negotiations are progressing constructively and we believe they will be concluded satisfactorily,” said Mark.
During the year the group closed a net 24 stores across all brands, bringing the retail footprint to 945 stores. Truworths Africa opened 23 stores and closed 30, while Office closed 17 stores, including 16 concession stores across House of Fraser and Topshop/Topman.
Online sales have increased to 9.6 percent of the Group’s retail sales. The Truworths e-commerce platform launched in 2018 was profitable in its first year and is already generating the turnover equivalent to a medium to large-sized Truworths store. Online and digital sales in Office grew by 10% and account for 34% of that chain’s retail sales.
Truworths has an expanding presence in the kidswear market through its multiple exclusive kidswear brands. The Truworths kids emporium, which houses the LTD Kids, Earthchild and Naartjie brands, was the strongest performing division and increased sales by 19 percent.
The quality of the Truworths Africa debtors book remains healthy despite increasing consumer stress. Active accounts across the Truworths, Identity and YDE debtors book increased by 2.6 percent to 2.7 million and the total value of the book grew to R5.9 billion. The doubtful debt allowance has increased marginally from 19.0 percent to 19.2 percent since the start of the year when the new accounting standard IFRS 9 was adopted.
Discussing the outlook for the South African business, Mark said consumer spending is expected to remain under pressure in the short-term owing to the effects of the prolonged economic downturn and renewed demands on disposable income.
“However, Truworths’ stronger retail sales growth in the second half of the financial year is promising. We expect sales momentum to be driven by our expanding e-commerce offering, the recently introduced layby payment option and customer response to our new store concepts, including ID Kids and Context.
Mark said trading conditions and consumer confidence in the UK remain under intense pressure ahead of the end-October Brexit deadline, and it is expected that the retail sector will remain constrained in the medium term.
“Over the past few months, the Office management team has implemented several turnaround initiatives relating to merchandise buying and planning, cost control, capital expenditure, and brands and marketing. Inventory management remains a significant focus to arrest the decline in the gross profit margin and release working capital,” he added.
Trading space in Truworths is planned to increase by 0.7 percent in the 2020 financial year, with Office trading space expected to decrease by 0.2 percent.
Mark said management in Office “is critically evaluating the real estate portfolio with a view to closing loss-making stores as leases come to an end”. Retailer News
FEDISA – Sandton, Johannesburg – 2020 Launch
FEDISA, proudly announces the January 2020 launch of the brand new FEDISA – Sandton, Johannesburg fashion campus currently under construction at 50 Wierda Road West in Sandton.
FEDISA is an industry leader in fashion education with an unrivalled reputation for excellence over the last 15 years and currently offers a 3 – Year Diploma in Fashion Merchandising, Marketing & Media (Retail), a 3 – Year BA: Fashion degree (Design) and the 1 – Year BA Honours: Fashion degree (Management).
The new fashion campus is situated just a short walk from the Sandton Gautrain station and Sandton City Mall and also offers ample on-campus parking. FEDISA welcomes fashion students from across Gauteng, South Africa, Africa and the World.
Join them onsite in Sandton at FEDISA at 10am on Saturday 5 October 2019 for a full info session and tour of the new campus. All enquiries to firstname.lastname@example.org
Unparalleled range of home and textiles for Southern African traders and dealers to feature at China Homelife 2019
The China Homelife Trade Fair will again bring hundreds of suppliers and manufacturers of home, textile, fabric and accessories to South Africa. From the 23rd to 25th at the Johannesburg Expo Centre, Nasrec alongside China Machinex, visitors to this year’s programme will have access to the widest range of Chinese products in one location.
The range of products is unrivalled, offering a unique opportunity not only for products sourcing, but also for establishing relationships with approved suppliers.
Offerings under the home, textiles, luggage and fashion accessories categories include high end products such quality duck and goose downing, as well as genuine leather furniture and fashion accessories. More affordable options such as synthetic leather, silk, polyester, acrylic, rayon and nylon to name a few; are all available in a broad range of finishes and colours.
Apart from manufacturing the products, many of the companies that feature at the expo are also involved in research and development. One of the exhibitors, Hangzhou Caishi Textile, which manufactures and supplies products to more than 50 countries including the European Union, the United States, Mexico, Brazil, Chile, India and South Africa – is a leading innovator in leather products; while shoe manufacturer Desay Group uses hi-tech to produce quality goods which it exports to North America, Europe, Australia, Russia among other countries.
There are also a number of manufacturers of homeware such as bedding, napery, and kitchen accessories as well as bedroom, living room and patio furniture; offering stockists the opportunity to buy directly from their factories at unmatchable prices.
Information on the wide range of products that will be on show as well as supplier details, are available on the China Homelife and China Machinex website. Potential buyers are encouraged to make use of the pre-event meeting booking system in order to make the most of the event.
The China Homelife Trade Fair South Africa has become an annual expo that provides an opportunity for Southern African buyers to source from the world’s largest textiles and fabrics industry; without traveling outside the region.
Entrance is free – pre register via www.chinahomelife.co.za. Doors open 10am daily.
Did you know……..
1932 Fashion: What did people wear?
With the growing vogue in slinky silks popularized via Hollywood, undergarments change dramatically in 1932. Though still embroidered and generally in one piece, there is a notable absence of seams, since they show through tight fitting clothing.
Women turn to corsets in stunning fashion and a new interest emerges in the “uplift,” provided by darts and hidden circular stitching. Artificial silks and zippers make clothing less expensive, which is very important in an American society that had a 24% unemployment rate.
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