To view the PDF file, sign up for a MySharenet subscription.

THE FOSCHINI GROUP LIMITED - Condensed consolidated financial statements for the year ended 31 March 2020 and notice of EGM

Release Date: 18/06/2020 08:00
Code(s): TFG TFGP     PDF:  
Wrap Text
Condensed consolidated financial statements for the year ended 31 March 2020 and notice of EGM

The Foschini Group Limited
Registration number: 1937/009504/06
Share codes: TFG-TFGP
ISIN codes: ZAE000148466 – ZAE000148516

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN OR INTO, THE UNITED STATES
OF AMERICA, JAPAN, CANADA, AUSTRALIA OR ANY OTHER JURISDICTION IN VIOLATION
OF THE RELEVANT LAWS OF SUCH JURISDICTION.

SHORT-FORM ANNOUNCEMENT
Condensed consolidated financial statements for the year ended 31 March 2020
and notice of extraordinary general meeting

SALIENT FEATURES

  •   Group revenue up 3,6% to R38,5 billion
  •   Group retail turnover up 3,6% to R35,3 billion
  •   Group online turnover now contributes 8,4% to Group retail turnover
      with strong growth for TFG Africa and TFG Australia at 47,9% (ZAR) and
      30,6% (A$) respectively
  •   Gross margin intact at 52,7% (March 2019: 53,6%)
  •   Trading expense margin improved to 44,8% from 45,3% in the prior year
  •   Headline earnings per share down 1,1% to 1 174,4 cents per share
  •   Basic earnings per share down 7,6% to 1 056,2 cents per share
  •   Operating profit before finance costs down 4,1% to R4,7 billion
  •   Free cash flow of R2,3 billion generated, equal to 92,2% of net profit
      after tax
  •   No final dividend has been declared (March 2019: 450,0 cents per share)


This short-form announcement is the responsibility of the company's
directors. It is a summary of the information in the Group's reviewed
provisional condensed consolidated financial statements for the full year
ended 31 March 2020 and does not contain complete information. The full
results announcement is accessible via the JSE link at
https://senspdf.jse.co.za/documents/2020/JSE/isse/TFG/FY2020.pdf and on the
Company’s website at https://tfglimited.co.za/investor-
information/financial-reports-and-presentations/.

Copies of the full announcement may also be requested by contacting the
Company Secretary (company_secretary@tfg.co.za) and are available for
inspection at the Company’s registered office at no charge, weekdays during
office hours.

This announcement has not been reviewed or reported on by the Group’s
external auditors. The Group’s auditors, Deloitte & Touche, have reviewed
the full announcement and expressed an unmodified conclusion thereon.

Commentary

Decisive action to respond to COVID-19 – react, protect and restore

The Group delivered a solid resilient performance for the financial year, in
a constrained global economic environment where our consumers continue to
experience significant economic pressure. As mentioned in our trading
update, released on SENS on 15 May 2020, the impact of the global COVID-19
pandemic was felt across all our operations since the beginning of March,
with a significant impact on turnover in the second half of March due to the
introduction of stringent lockdown measures.

In TFG Africa, c.80% of the stores re-opened from 1 May 2020, with all
stores adhering to strict COVID-19 safety protocols. Performance was strong
in May and TFG Africa achieved turnover growth of 0,6%, notwithstanding the
fact that 447 jewellery stores were still closed during the month due to the
prevailing lockdown restrictions. As from 1 June 2020 all stores have now
re-opened.

In TFG Australia, the re-opening of outlets commenced in the beginning of
May, with all outlets re-opened by the end of May. In TFG London outlets re-
opened in a phased manner from 15 June 2020.

Across all three territories, strong online trading continues.

We expect that material uncertainty, trading disruption and risk will
continue in all three of our major territories – South Africa, the United
Kingdom and Australia. In responding to the crisis we have reacted in a
swift and decisive manner and have taken a number of preemptive measures, as
outlined previously in our trading update, so as to protect our staff,
customers and business. Additionally, we have reduced non-essential
expenditure, managed our working capital appropriately and enhanced our
banking facilities.

Financial performance

After a strong 11-month performance to February 2020, retail turnover for
the 12 months to March 2020 grew by 3,6% to R35,3 billion, with cash sales
increasing by 5,9% and credit sales decreasing by 2,5%. The contribution of
cash sales to Group turnover for the year ended March 2020 increased to 74%
(March 2019: 72%), in line with the Group’s strategy to curtail credit sales
in the prevailing economic environment.

Gross margin for the Group contracted marginally to 52,7% from 53,6% in the
prior year, with weak trade in March the main contributor to the movement.

The Group continued to improve expense control through targeted initiatives,
including the successful delivery of some of the streams of its previously
announced back office business optimisation program. This enabled the
Group’s trading expense margin to reduce to 44,8% from 45,3% at the previous
year-end.

Earnings per share and headline earnings per share decreased by 7,6% and
1,1% respectively.

Financial position

The Group generated free cash flow for the year of R2,3 billion, the
equivalent of 92,2% of net profit after tax (March 2019: 85% of net profit
after tax). This continued improvement in free cash flow conversion reflects
largely TFG’s ongoing focus on working capital management.
Capital expenditure of R1,1 billion was incurred, with 69% spent on
expansionary capex. TFG was already well invested in key strategic
initiatives going into COVID-19 and although capital expenditure is being
curtailed in FY2021, we will continue to prioritise investments which
contribute to our successful e-commerce platforms and digital transformation
initiatives that enhance customer experience and reduce the cost of doing
business; and increase our own local, quick response manufacturing capacity.

As mentioned in our SENS announcement on 15 May 2020, TFG has secured
additional committed facilities (now at R3,3 billion) over and above its
existing funding lines, as well as the waiving of covenant testing in
September 2020 and the resetting of covenants for March 2021. At 31 March
2020, TFG met its banking covenants for all facilities.

Notwithstanding the above measures, we believe significant uncertainty and
risk will continue in our core markets. The Supervisory Board and management
believe it is prudent and necessary to reduce our financial indebtedness
now. This will allow TFG to strengthen its relative position through the
recovery and insulate the balance sheet against potential future shocks
while at the same time positioning itself for future growth and
opportunities.

Proposed fully underwritten renounceable rights offer

For the reasons stated in the preceding paragraph TFG intends seeking
shareholder approval to implement a fully underwritten, renounceable rights
offer (“Proposed Rights Offer”) to raise targeted gross proceeds of up to
R3.95 billion.

The size of the Proposed Rights Offer has been informed by an extensive
scenario planning exercise and the intention is to use the net proceeds to:
   • reduce debt and insulate the balance sheet, ahead of what is expected
     to be a sustained period of economic uncertainty;
   • pursue TFG’s organic growth strategy and further leverage TFG’s
     existing brands to gain market share;
   • continue to invest in the retail platform and TFG’s digital
     transformation journey, particularly in its e-commerce offering, and
   • ensure the Group has the ability to take advantage of market
     opportunities in line with its current strategy and which meet its
     investment criteria.

TFG has entered into a standby underwriting agreement with a syndicate of
banks (“Syndicate”) comprising three of our largest lenders, pursuant to
which the Syndicate has agreed, subject to customary terms and conditions,
to fully underwrite the Proposed Rights Offer.

TFG has also held constructive engagements with its major shareholders in
relation to the Proposed Rights Offer and has received indications of
support for the resolutions required to implement the Proposed Rights Offer.

Notice of extraordinary general meeting

Shareholders are referred to the results presentation and circular convening
an extraordinary general meeting of the shareholders to vote on the
resolutions required to implement the Proposed Rights Offer published today
on TFG’s website. The extraordinary shareholders meeting will be held on 16
July 2020 at 08:30 and will be conducted entirely by electronic
communication as detailed in the circular.

The record date for purposes of determining which shareholders are entitled
to participate in and vote at the extraordinary general meeting is Friday,
10 July 2020. The last date to trade in order to be eligible to vote is
Tuesday 7 July 2020.

Segmental performance

Across the Group’s three business segments (TFG Africa, TFG London and TFG
Australia), turnover performance was strong relative to market conditions
and peer groups. TFG Africa achieved turnover growth of 3,3% and comparable
turnover growth of 1,5% (ZAR), while TFG Australia performed above
expectation with turnover growth of 9,6% and comparable turnover growth of
2,8% (A$). TFG London’s turnover decreased by 4,5% (£), a performance that
was expected in tough market conditions.

Within TFG Africa, turnover growth in the various merchandise categories was
as follows:

Merchandise        Total          Comparable     Contribution
category           turnover       turnover       to TFG
                   growth         growth         Africa
                                                 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 TFG Africa           3,3%           1,5%          100,0%

E-commerce growth in TFG Africa and TFG Australia continued to grow ahead of
our expectations at 47,9% (ZAR) and 30,6% (A$) respectively. Online
turnover in TFG London decreased by 13,6% (£), due mainly to the poor
performance of 3rd party, partner websites. Online turnover for the Group
now contributes 8,4% to total turnover.

In both TFG Africa and TFG London, continued focus on limiting expense
growth yielded positive results, with TFG Africa’s trading expenses
increasing by only 1,9% (ZAR) while TFG London’s trading expenses decreased
by 5,5% (£) as a result of cost saving initiatives undertaken. TFG
Australia’s trading expenses increased by 9,4% (A$), in line with business
expansion and store openings. As part of our COVID-19 mitigating actions,
business optimisation projects in TFG Africa have been fast-tracked where
practical to do so, in order to reduce the cost of doing business.

Accounting standards

The Group adopted IFRS 16 Leases for the first time for its financial
reporting year ended 31 March 2020. The amendments to the standard have
been applied retrospectively, subject to transitional provisions, with
comparative information in these reviewed provisional condensed consolidated
results restated accordingly. Further information about the impact of this
change in accounting policy is provided in note 15 of these financial
results. The primary effect of the application of the new standard at
transition date (31 March 2018) has been to capitalize store leases of
approximately R6,9 billion and to record a lease liability of R7,8 billion.

Store portfolio

At 31 March 2020, the Group traded out of 4 083 outlets across 32 countries.
During the year, 228 outlets were opened and 230 outlets closed, with outlet
movement in the respective business segments as follows:

Outlets                     TFG Africa    TFG          TFG       Group
                                         London     Australia
Opening balance at               2 631        971          483    4 085
April
New outlets                         93        67           68       228
Closed outlets                   (147)      (66)         (17)     (230)
Closing balance at               2 577       972          534     4 083
March

The Group continued its focus on space rationalisation and the renegotiation
of rentals. In TFG London the shift to turnover-based rentals and shorter
lease terms continued.

In TFG Africa, double-digit negative rent reversions were achieved for the
year with average escalations below 6%. Both TFG Australia and TFG London
also achieved negative rent reversions for the year. As part of the Group’s
mitigating actions for COVID-19, there have been ongoing discussions with
landlords to reach agreement on fair rentals.

Credit

A conservative credit appetite and restricted approval criteria remain in
place as a response to the Group’s assessment of the negative economic
climate and the current COVID-19 pandemic. This has resulted in credit
turnover growth contracting by 2,5% year-on-year for the full financial
year. The retail net debtors’ book of R7,8 billion increased by 4,3% since
March 2019. The allowance for impairment as percentage of debtors’ book
increased to 20,4% (2019: 19,9%) due to a provision for the impact of COVID-
19 on expected credit losses.

Supervisory Board updates

As was announced on SENS previously, the following appointments were made to
the Supervisory Board during the year.
- With effect from 1 October 2019, Alexander Douglas Murray, the former CEO
   of the Group, was appointed as a non-executive director.
- With effect from 22 January 2020, Colin Coleman, a former CEO of Goldman
   Sachs for sub-Saharan Africa, was appointed as an independent non-
   executive director.

These appointments are proposed to be ratified at the extraordinary general
meeting of the shareholders to be held on Thursday, 16 July 2020. The
Supervisory Board welcomes Doug and Colin and looks forward to their
contribution.
Outlook

Whilst we continue to deal with the economic and health impact of COVID-19
on the countries within which we operate, the outlook for trading conditions
continues to remain materially uncertain across all three of the Group’s
business segments. Notwithstanding that all three business segments are
engaged with the recovery from COVID-19, the impact of the pandemic on our
2021 financial year is expected to be significant across all territories,
the extent of which is difficult to predict with accuracy. Any re-
introduction of significant lockdowns and store closures across our three
business segments would have a further material and negative impact on our
business and results of operations in our 2021 financial year.

The Group will however continue to focus on ‘self-help’ measures and these,
together with the Proposed Rights Offer, will ensure that TFG is well
positioned for future growth, and to capitalise on the re-opening of the
economies across all our territories.

The focus on sustainable business optimisation, digital transformation and
local manufacturing will continue.

We are confident that our resilient business model and strategic investments
will stand us in good stead for the future.

The Supervisory Board would like to take this opportunity to thank the
management teams of each of the business units for leading the Group through
the pandemic and the challenging economic environment.

A live webcast of the results presentation will be broadcast at 09:00 am
(SAST) on 18 June 2020. A registration link for the webcast is available on
the Company’s website:    www.tfglimited.co.za. The year-end results
presentation will be made available on the Company’s website prior to the
commencement of the webcast.

Final ordinary dividend announcement

In light of the current subdued economic environment and the heightened
levels of uncertainty posed by COVID-19, the Supervisory Board has decided
that it would be prudent not to declare a final dividend at this year-end
(March 2019: 450,0 cents per share). Dividends will be resumed when
appropriate to do so.

Preference dividend announcement

Dividend no. 167 of 3,25% (6,5 cents per share) (gross) in respect of the
six months ending 30 September 2020 has been declared from income reserves,
payable on Monday, 21 September 2020 to holders of 6,5% preference shares
recorded in the books of the company at the close of business on Friday, 18
September 2020. The last day to trade (“cum” the dividend) in order to
participate in the dividend will be Tuesday, 15 September 2020. The Foschini
Group Limited preference shares will commence trading “ex” the dividend from
the commencement of business on Wednesday, 16 September 2020 and the record
date, as indicated, will be Friday, 18 September 2020.

Preference shareholders should take note that share certificates may not be
dematerialised or rematerialised during the period Wednesday, 16 September
2020 to Friday, 18 September 2020, both dates inclusive.

In terms of paragraph 11.17 of the JSE Listings Requirements, the following
additional information is disclosed:
1) Local dividend tax rate is 20%;
2) The withholding tax, if applicable at the rate of 20%, will result in a
net cash dividend per share of 5,20000 cents;
3) The issued preference share capital of The Foschini Group Limited is 200
000 shares at 18 June 2020; and
4) The Foschini Group Limited’s tax reference number is 9925/133/71/3P.

Signed on behalf of the Supervisory Board.

M Lewis                         A E Thunström
Chairman                        Chief Executive Officer

Cape Town
18 June 2020

This announcement does not constitute an offer or form part of any offer or
invitation to purchase, subscribe for, sell or issue, or a solicitation of
any offer to purchase, subscribe for, sell or issue, any of the Company’s
securities (whether pursuant to this announcement or otherwise) in South
Africa, including an offer to the public or section of the public in South
Africa.

The announcement constitutes factual, objective information about the
Company and nothing contained herein should be construed as constituting any
form of investments advice or recommendation, guidance or proposal of a
financial nature as contemplated in the Financial Advisory and Intermediary
Services Act, 2002 (as amended) (the “FAIS Act”) in respect of the Company
or   any  transaction   in   relation  thereto.  The   Company  and/or   its
representatives and advisors are not (and are not required to be) Financial
Services Providers as contemplated in the FAIS Act in South Africa and the
contents of this announcement must not be construed as constituting the
canvassing for, or marketing or advertising of, financial services by the
Company and/or its representatives and advisors in South Africa. To the
extent that any of the Company’s representatives and/or advisors, including
the banks underwriting any transaction (together, the “Syndicate”), are
registered Financial Services Providers, none of them purport to provide,
market or advertise financial services to any person in respect of the
Company and this announcement does not constitute financial advice, or
financial services, provided by the aforesaid to any person who is in
possession of this announcement.

Further, the content of this announcement should not be construed as
business, legal or tax advice. It is not intended to provide the basis of
any credit or other evaluation and should not be considered as a
recommendation by the Company or any of the Syndicate members that any
recipient of this announcement should acquire any of the Company’s
securities. Neither the Company nor any of the Syndicate members is making
any representation to any prospective investor regarding the legality of an
investment in the Company by such prospective investor under the laws and
regulations applicable to such prospective investor. Prospective investors
should consult their own professional adviser before making any investment
decision with regard to the Company and in making an investment decision,
prospective investors must rely on their own analysis, enquiry and
examination of the Company, including the merits and risks therein.

Each member of the Syndicate is acting exclusively for the Company and no
one else and, as a result, none of them will regard any other person
(whether or not a recipient of this announcement) as their respective
clients in relation to the matters contemplated herein and will not be
responsible to anyone other than the Company for providing the protections
afforded to their clients or for giving advice in relation to any
transaction or arrangement referred to herein.

Accordingly and having regard to the above, the Company and the Syndicate
members disclaim, to the fullest extent permitted by applicable law, all and
any liability, whether arising in tort or contract or that they might
otherwise be found to have in respect of this announcement and/or any
statement contained herein.

This announcement is not an offer of securities for sale in the United
States or in any jurisdiction in which such offer of securities for sale
would be unlawful prior to registration or qualification under the
securities laws of any such jurisdiction.    Securities may not be offered,
sold, resold, delivered or distributed, directly or indirectly, in or into
the United States unless they are registered or are exempt from registration
under the U.S. Securities Act of 1933, as amended. The Company does not
intend to register any offering in the United States or to conduct a public
offering in the United States. Copies of this announcement are not being,
and should not be, distributed in or sent, directly or indirectly, into the
United States or in or into any other jurisdiction which would constitute a
violation of the relevant laws of, or require registration thereof in, such
jurisdiction.

It may be unlawful to distribute this announcement in certain jurisdictions.
This announcement is not for distribution in Canada, Japan or Australia.
The information in this announcement does not constitute an offer of
securities for sale in Canada, Japan or Australia.

This announcement is for distribution only to persons who (a) have
professional experience in matters relating to investments falling within
Article 19(5) of the UK Financial Services and Markets Act 2000 (Financial
Promotion) Order 2005 (as amended, the “Order”); (b) are persons falling
within Article 49(2)(a) to (d) (“high net worth companies, unincorporated
associations, etc.”) of the Order; (c) are outside the United Kingdom; or
(d) are persons to whom an invitation or inducement to engage in investment
activity (within the meaning of section 21 of the Financial Services and
Markets Act 2000) in connection with the issue or sale of any securities may
otherwise lawfully be communicated or caused to be communicated (all such
persons together being referred to as “relevant persons”). This announcement
is directed only at relevant persons and must not be acted on or relied on
by persons who are not relevant persons. Any investment or investment
activity to which this announcement relates is available only to relevant
persons and will be engaged in only with relevant persons.

This announcement is only addressed to and directed at persons in Member
States of the European Economic Area (“EEA”) and in the United Kingdom who
are “Qualified Investors” within the meaning of Article 2(e) of the
Prospectus Regulation. The securities referred to herein are only available
to, and any invitation, offer or agreement to subscribe, purchase or
otherwise acquire such securities will be engaged in only with Qualified
Investors. This announcement must not be acted on or relied on in any Member
State of the EEA or in the United Kingdom by persons who are not Qualified
Investors. For the purposes of this paragraph the expression “Prospectus
Regulation” means Regulation (EU) 2017/1129 (as amended or superseded).

Each member of the Syndicate is acting on behalf of the TFG and no one else
in connection with the Proposed Rights Offer. They will not regard any other
person as their client in relation to the Proposed Rights Offer and will not
be responsible to anyone other than TFG for providing the protections
afforded to their respective clients nor for providing advice in relation to
the Proposed Rights Offer, the contents of this announcement or any
transaction, arrangement or other matter referred to herein. Neither of the
Syndicate members, nor any of their respective directors, officers,
employees, advisers, agents, alliance partners or any other entity or person
accepts any responsibility or liability whatsoever for, or makes any
representation, warranty or undertaking, express or implied, as to the
truth, accuracy, completeness or fairness of the information or opinion in
this announcement (or whether any information has been omitted from this
announcement) or any other information relating to TFG, its subsidiaries or
associated companies, whether written, oral or in a visual or electronic
form, and howsoever transmitted or made available or for any loss howsoever
arising from any use of this announcement or its contents or otherwise
arising in connection therewith. Accordingly, the members of the Syndicate
disclaim, to the fullest extent permitted by applicable law, all and any
liability, whether arising in tort, delict or contract or that they might
otherwise be found to have in respect of this announcement and/or any such
statement.

Solely for the purposes of the MiFID II Product Governance Requirements and
disclaiming all and any liability, whether arising in tort, contract or
otherwise, which any “manufacturer” (for the purposes of the MiFID II
Product Governance Requirements) may otherwise have with respect thereto,
the securities have been subject to a product approval process, which has
determined that the Shares are: (i) compatible with an end target market of
investors who meet the criteria of professional clients and eligible
counterparties only, each as defined in MiFID II; and (ii) eligible for
distribution through all distribution channels as are permitted by MiFID II
(the “Target Market Assessment”). Notwithstanding the Target Market
Assessment, distributors should note that: the price of the securities may
decline and investors could lose all or part of their investment; the
securities offer no guaranteed income and no capital protection; and an
investment in the securities is compatible only with investors who do not
need a guaranteed income or capital protection, who (either alone or in
conjunction with an appropriate financial or other adviser) are capable of
evaluating the merits and risks of such an investment and who have
sufficient resources to be able to bear any losses that may result
therefrom. The Target Market Assessment is without prejudice to the
requirements of any contractual, legal or regulatory selling restrictions in
relation to the securities. For the avoidance of doubt, the Target Market
Assessment does not constitute: (a) an assessment of suitability or
appropriateness for the purposes of MiFID II; or (b) a recommendation to any
investor or group of investors to invest in, or purchase, or take any other
action whatsoever with respect to the Shares. Each distributor is
responsible for undertaking its own target market assessment in respect of
the securities and determining appropriate distribution channels. No key
information document required by Regulation (EU) No. 1286/2014, as amended
(the “PRIIPs Regulation”) for offering or selling the securities or
otherwise making them available to retail investors in the EEA or in the
United Kingdom has been prepared or will be prepared and therefore offering
or selling the securities or otherwise making them available to any retail
investor in the EEA or in the United Kingdom may be unlawful under the
PRIIPs Regulation.

Non-executive Directors:
M Lewis (Chairman), Prof. F Abrahams, S E Abrahams, C Coleman, G H Davin, D
Friedland, B L M Makgabo-Fiskerstrand, A D Murray, E Oblowitz, N V Simamane,
R Stein

Executive Directors:
A E Thunström, B Ntuli

Company Secretary:
D van Rooyen

Registered office:
Stanley Lewis Centre, 340 Voortrekker Road, Parow East, 7500, South Africa

Transfer secretaries:
Computershare Investor Services Proprietary Limited
Rosebank Towers, 15 Biermann Avenue, Rosebank, Johannesburg, 2196, South
Africa

Sponsor:
UBS South Africa Proprietary Limited

Visit our website at http://www.tfglimited.co.za

Date: 18-06-2020 08:00:00
Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
 the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, 
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
 information disseminated through SENS.

Share This Story