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COVID-19 and Trading Update
THE FOSCHINI GROUP LIMITED
Reg. No.: 1937/009504/06
Code: TFG
ISIN: ZAE000148466
(“TFG” and “Group”)
COVID-19 and Trading Update
COVID-19 Update
The Board of Directors and management of TFG have been monitoring and
proactively responding to the COVID-19 outbreak since the World Health
Organisation (WHO) declared it a global emergency on 30 January 2020. We
acknowledge the severity of the situation and continue to focus on mitigating
the risks and impact of the pandemic on all our businesses and our
stakeholders.
We continue to prioritize the safety and wellbeing of our employees, customers
and suppliers. Our business continuity crisis team, consisting of senior
leadership, was constituted to monitor and immediately respond to the
continuously changing environment and a number of measures have been
implemented since early February, across all our jurisdictions, to safeguard
our stakeholders. We continue to be guided by the guidelines provided by the
WHO, the National Institute for Communicable Diseases (NICD), the Department of
Health and other Government Ministries in each of our territories.
The impact of COVID-19 is being felt in all our operations globally. We
initially experienced a significant decline in demand for our products and
services as our customers responded to the calls for social distancing and more
recently because of lockdowns and store closures in most of our countries of
operation. This initial decline in demand has now started to reverse as our
stores have partially re-opened in our various territories.
In South Africa, as a result of the initial lockdown announced by President
Ramaphosa, all TFG’s operations (stores, e-commerce, head office, distribution
centres and manufacturing facilities) were closed from 27 March 2020 to 30
April 2020. Our Maitland manufacturing facility in Cape Town recommenced
operations during the week of 27 April 2020 in a phased manner in order to
start manufacturing protective face masks for our staff. Clothing production
will recommence over the next few days. The rest of our operations (including
stores and e-commerce) opened on 1 May 2020 in a phased and risk-adjusted
manner in order to support the provision of permitted goods and services under
Level 4 of the lockdown.
In the UK, Government-enforced lockdowns have been in place since 23 March
2020. Although a partial easing was introduced for certain sectors from 11 May
2020, this did not include fashion retail and hence TFG London’s operations
have been closed since 23 March 2020, except for e-commerce activity, which it
is pleasing to note has continued to strengthen over the past weeks. TFG London
has successfully accessed UK Government funding to support furloughed staff, as
well as in relation to business rates and other property reliefs. TFG London’s
operations in other countries have similarly been impacted by lockdowns and
store closures.
TFG Australia closed all of its stores on 27 March 2020 in response to
Government restrictions and regulations on social distancing. During the period
of store closures, the business has continued to trade online and the
performance has been above expectation. As a result of the success the
Australian restrictions have had in flattening the infection curve, on 8 May
2020, the Australian Government announced a 3 stage process to relax
restrictions. TFG Australia has prepared its stores to re-open with COVID-19
Policies and Procedures in place. Store openings have now commenced and it is
anticipated that all TFG Australia stores will be re-opened by the end of May
2020.
Group Turnover in April 2020 was significantly lower than April 2019. For
reference, the Group achieved turnover of R3.2bn for the first five weeks of
FY2020.
Supply Chain Risk Management
We have been managing the impact of COVID-19 on our supply chain since early
February 2020. In respect of TFG Africa we have, over the past 5 years,
strategically diversified our supply chain to reduce reliance on China and
other international suppliers where it made sense to do so. Together with South
African Government support, we have expanded manufacturing facilities locally,
creating world-class manufacturing in our strategic hubs of the Western Cape
and KwaZulu-Natal. We already manufacture in excess of 11.5 million units per
annum in our own manufacturing facilities and will continue to expand our local
production.
As the news of the pandemic and its impact on China broke, our initial focus
was on mitigating the risk of disruption to the flow of goods from China (which
accounts for c.37% of TFG Africa’s orders). We worked with our own factories
and regional suppliers and were able to largely limit the impact of COVID-19
disruptions on our supply chain. Focusing on our strategy to increase the
contribution of our own locally manufactured product means that we are well
positioned to respond to global supply chain disruptions. More recently, many
of our Chinese suppliers have restarted production and exporting goods.
Similarly, in respect of TFG London and TFG Australia, we have largely been
able to mitigate the impact of COVID-19 on our supply chains.
TRADING UPDATE
March 2020 Trading Update
In respect of TFG Africa, we achieved strong sales growth during the beginning
of March, pre-lockdown, despite the heavy promotional activity in the market,
with double digit turnover growth in the first week of March and same store
turnover growth of 9.9%. We also continued to enjoy solid double-digit cash
turnover growth. The impact of COVID-19 however, was significant in the second
half of the month. In respect of TFG London and TFG Australia, the impact of
COVID-19 was already felt from the 1st and 2nd weeks of March respectively.
The impact on turnover in March 2020 was as follows:
• TFG Africa: For the period between 1 March 2020 and 14 March 2020,
turnover grew 8.1%; and for the period between 15 March 2020 and 28
March 2020, turnover decreased by 34.2%.
• TFG London: The COVID-19 impact was felt earlier for TFG London and
for the period between 1 March 2020 and 14 March 2020, turnover
decreased by 22.9% (£); and for the period between 15 March 2020 and
28 March 2020, turnover decreased by 94.7% (£).
• TFG Australia: For the period between 2 March 2020 and 15 March 2020,
turnover grew 7.7% (A$); and for the period between 16 March 2020 and
29 March 2020, turnover decreased by 57.6% (A$).
Twelve month Trading Update to 31 March 2020
The Group’s consolidated turnover grew 3.6% for the twelve months to 31 March
2020 when compared to the same period in the previous financial year.
The turnover growth in each of our business segments was as follows:
Business Currency Total turnover Comparable Contribution
segment growth turnover growth to Group
turnover
TFG Africa R 3,3% 1,5% 63,8%
TFG London £ (4,5%) N/A* 20,7%
TFG Australia A$ 9,6% 2,8% 15,5%
Group R 3,6% N/A* 100,0%
* TFG London trades, inter alia, through department store concessions. As
concessions by nature change floor space on a continuous basis, a
comparable turnover number is not calculated.
Within TFG Africa, turnover growth in the respective categories was as follows:
Merchandise Total turnover Comparable Contribution
category growth turnover to TFG Africa
growth turnover
Clothing 3,9% 1,9% 72,4%
Homeware 5,2% 2,8% 7,3%
Cosmetics (1,5%) (2,3%) 4,8%
Jewellery 0,2% (0,1%) 6,8%
Cellphones 1,6% 1,0% 8,7%
Total 3,3% 1,5% 100,0%
Strategic initiatives to deal with Covid-19
We continue to focus on the following areas in order to minimize the financial
impact of COVID-19 on the business:
• Executing on our clearly established business continuity plan.
• Investigating and, where appropriate, utilizing Government support
initiatives in each of our countries of operation.
• Constantly engaging with all our stakeholders in order to effectively
manage the impact of COVID-19. These include customers, employees,
shareholders, suppliers, vendors, landlords, lenders, trade unions and
Government Ministries in each of our territories.
• Proactively engaging with landlords in each of our territories in
order to try to reach agreement on ‘fair’ rentals both during and post
the periods during which we have not been able to trade. Although
these discussions will take some time to fully resolve due to the
number of leases involved, we have been pleased with the initial
responses to date. It is clear that landlords and retailers will have
to find common ground to bring rentals into line with current and
future consumer demand for their mutual benefit.
• Monitoring and managing cash flow and liquidity to maintain and
enhance the strength of our balance sheet. We have now substantively
concluded constructive discussions with all of our lenders, who remain
very supportive. We are well advanced in securing additional committed
facilities of R2.5 billion, over and above our existing funding lines,
as well as the waiving of covenant testing in September 2020 and the
resetting of covenants for March 2021.
• Managing the health of our debtors’ book by providing account holders
with a range of payment options that can be accessed from the safety
of their homes. As a responsible credit provider, TFG has also offered
its customers a range of support measures during these difficult times
in order to help support longer term economic recovery. Recent
collections have been above expectation as customers have rapidly
adopted the electronic and other alternative payment channels made
available to them. Collections from 1 May, the date from which
customers could again make account payments in our stores, have been
strong.
• Working with our merchandise suppliers to either cancel or delay
merchandise orders in order to respond to the shift in customer demand
and to prevent the build-up of inventory. The flexibility of our local
manufacturing capacity will continue to be an advantage over this
period of uncertainty. Current inventory levels are within management
expectations and winter stock in South Africa has been sold from 1 May
2020 under Level 4 of the lockdown.
• Placing new projects and developments on hold has reduced forecast
capital expenditure by c.R1 billion. We will however continue to
prioritize investments to grow our successful e-commerce platforms and
digital transformation initiatives.
• Continuing and fast-tracking, where practical, our business
optimization initiatives in order to remove non-essential costs from
the business.
• Implementing zero salary increases for the new financial year. We have
however committed to pay full salaries and benefits in South Africa in
April and May 2020 and have applied to access Government COVID-19
relief funding where available. Board fees and salaries have also been
temporarily reduced.
• Formulating recovery plans for all our locations post the lockdown
period, including how to keep our employees, customers and other
stakeholders safe with strict social distancing protocols in place
within the supply chain, our stores and in all our head office
buildings.
The measures outlined above will contribute to our ability to generate and
secure cash resources and liquidity in the current uncertain environment.
The impact of the lockdowns and store closures in all three of our
jurisdictions and the ongoing uncertainty will have a significant impact on our
business in FY2021. We continue to monitor the impact carefully and scenario
planning is critical to our forward planning. However, given this prevailing
uncertainty, it is difficult to predict with accuracy what the extent of this
impact will be.
Stakeholders are advised that our FY2020 financial year end falls within the
lockdown period and as a result, the processes required to finalise the Group’s
financial results have been delayed. The Group will release its annual
financial results for the year ended 31 March 2020 on Thursday, 18 June 2020.
The Covid-19 pandemic is dynamic and continues to have a massive impact on the
way we work and how our customers shop. Our focus is to adapt our business as
efficiently as possible to deal with the pandemic with the ultimate aim of
delivering long term shareholder value to our stakeholders. We will continue to
update stakeholders in an efficient manner as the situation develops.
The information on which this statement is based has not been reviewed or
reported on by the Group’s external auditors.
Cape Town
15 May 2020
Sponsor:
UBS South Africa Proprietary Limited
Date: 15-05-2020 02:00:00
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