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COVID-19 and Trading update and update on the potential acquisition of certain commercially viable assets of Jet
THE FOSCHINI GROUP LIMITED
Reg. No.: 1937/009504/06
Code: TFG
ISIN: ZAE000148466
(“TFG” and “Group” or “the Company”)
COVID-19 and Trading update for the three months ended 27 June 2020 and update
on the potential acquisition of certain commercially viable assets of Jet
As previously announced on SENS on 15 May 2020 and 18 June 2020, the impact of
the global COVID-19 pandemic has been felt across all of our operations since
the beginning of March 2020. It had a significant effect on our businesses and
on retail turnover for the three months ended 27 June 2020. Scenario planning
continues to be critical to our forward planning.
Trading update for the three months ended 27 June 2020
The Group’s consolidated retail turnover declined 43.0% for the three months
ended 27 June 2020 when compared to the same period in the previous financial
year, with significant trading disruptions caused by Government-enforced
lockdowns and regulations on social distancing in all three of our major
operating territories – South Africa, the United Kingdom and Australia. The
global economic environment remains constrained and consumers continue to
experience significant economic pressure.
TFG Africa
TFG Africa’s retail turnover declined 38.4% for the three months ended 27 June
2020 when compared to the same period in the previous financial year,
predominantly as a result of all TFG Africa’s South African operations being
closed from 27 March 2020 to 30 April 2020. 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 retail turnover growth of
0.6% compared to the same period in the previous financial year,
notwithstanding the fact that 447 jewellery stores were still closed during the
month due to the prevailing lockdown restrictions. Excluding the jewellery
stores, retail turnover growth in May was up 7.9%^ compared to the previous
financial year. All TFG Africa stores re-opened from 1 June 2020 with trading
more subdued in the month of June (retail turnover declined 13.8% compared to
the same period in the previous financial year) with lower levels of footfall
observed in the regional shopping centres.
^ Pro forma management account numbers used to calculate an indicative retail
turnover growth.
Within TFG Africa, the retail turnover decline when compared to the same period
in the previous financial year in the respective merchandise categories was as
follows:
Merchandise Total retail turnover decline / growth* Contribution to
category TFG Africa retail
April May June 1 April – 3 May – turnover
27 June 27 June (1 April – 27
June)
Clothing (92,7%) (0,2%) (21,8%) (41,4%) (12,0%) 69,8%
Homeware (91,9%) 2,6% 22,3% (25,0%) 13,0% 8,8%
Cosmetics (92,0%) (23,4%) (32,0%) (51,5%) (27,7%) 3,6%
Jewellery (98,5%) (89,9%) (16,3%) (70,3%) (53,8%) 2,9%
Cellphones (83,7%) 88,6% 39,2% 5,1% 63,0% 14,9%
Total (92,1%) 0,6% (13,8%) (38,4%) (7,1%) 100,0%
* Given the number of store closures at various periods during the three
months ended 27 June 2020, providing a comparable retail turnover number
for the period is not considered to be meaningful.
For the three months ended 27 June 2020, cash retail turnover declined 31.8%
when compared to the same period in the previous financial year. E-commerce
retail turnover growth for the period was significantly stronger than expected
at 109.8% compared to the same period in the previous financial year,
contributing 5.0% to total retail turnover for the period.
TFG Africa credit
A conservative credit appetite and restricted approval criteria remain in
place. Credit retail turnover contracted by 47.1% for the three months ended 27
June 2020 compared to the same period in the previous financial year.
As previously announced on SENS on 15 May 2020, cash collections in respect of
our debtors’ book were strong in the month of May, the month from which
customers could again make account payments in our stores and as a result of
customers continuing to adopt the electronic and other alternative payment
channels made available to them.
For the 3 months ended 27 June 2020, cash collections were above expectation
but still down on the same period in the previous financial year.
TFG London
TFG London’s pound sterling-denominated retail turnover declined 68.5% for the
three months ended 27 June 2020 when compared to the same period in the
previous financial year, against the backdrop of a disrupted environment,
characterised by Government-enforced lockdowns that temporarily prevented all
physical store and concession sales in almost all of TFG London’s UK, European
and Rest of the World operations. The store and concession estate gradually re-
opened during May and June (in the UK from 15 June 2020), albeit with
significantly lower than usual levels of footfall across all markets,
particularly in central London and commuter locations which rely on public
transport, as well as on office and tourist trade, both of which are yet to
return. TFG London’s own branded websites traded up 2.4% in the quarter
compared to the same period in the previous financial year, supported by strong
sales of casual clothing. 3rd party online channels were however weaker,
driving an overall reduction in total e-commerce pound sterling denominated
retail turnover of 21.2% for the period when compared to the same period in the
previous financial year.
TFG Australia
TFG Australia’s Australian dollar-denominated retail turnover declined 42.4%
for the three months ended 27 June 2020 when compared to the same period in the
previous financial year. All stores were closed on 27 March 2020 in response to
Government restrictions and regulations on social distancing and the re-opening
of outlets commenced in April, with all outlets re-opened by the end of May.
Trade has been impacted by individual States having different levels of
restrictions based on the number of active COVID-19 cases and recently, the
Victorian Government announced a lockdown (in parts of the State) due to
indications of a second wave of infections, although stores are expected to
remain open on minimum rosters. E-commerce retail turnover growth for the three
months ended 27 June 2020 was strong in Australian dollar terms at 74.0% when
compared to the same period in the previous financial year.
The retail turnover decline during the three months ended 27 June 2020 when
compared to the same period in the previous financial year in each of our
business divisions was as follows:
Business division Currency Total retail Contribution to
turnover decline Group retail
turnover
TFG Africa* R (38,4%) 66,9%
TFG London# £ (68,5%) 15,4%
TFG Australia* A$ (42,4%) 17,7%
Group* R (43,0%) 100,0%
* Given the number of store closures at various periods during the three
months ended 27 June 2020, providing a comparable retail turnover number
for the period is not considered to be meaningful.
# TFG London trades, inter alia, through department store concessions. As
concessions by nature change floor space on a continuous basis, a
comparable retail turnover number is not calculated.
Pro forma information
Pro forma management account information for TFG Africa was used in this
announcement for illustrative purposes only to provide an indicative retail
turnover growth for this business division.
Retail turnover for the month of May relating to the TFG Africa jewellery
stores was removed to illustrate the impact of the TFG Africa jewellery stores
that were not able to trade in May 2020.
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.
The pro forma management account retail turnover numbers used were:
Year ending Year ended March % change
March 2021 2020
R’m R’m
TFG Africa retail turnover for
the month of May** 1 568,2 1 559,6 0,6%
Less TFG Africa jewellery retail
turnover for the month of May** (13,4) (118,3) (88,7%)
Comparable TFG Africa 1 554,8 1 441,3 7,9%
** The adjustment is based on management accounts. The Group is satisfied with
the quality of these management accounts which are unaudited.
The directors are responsible for compiling the pro forma financial information
in accordance with the JSE Limited Listings Requirements and in compliance with
the SAICA Guide on Pro Forma Financial Information. The underlying information
used in the preparation of the pro forma financial information has been
prepared using the accounting policies in place for the year ended 31 March
2020 in respect of May 2019 retail turnover figures and accounting policies in
place for the year ending 31 March 2021 in respect of May 2020 retail turnover
figures.
Strategic initiatives in dealing with COVID-19 Update
The COVID-19 pandemic remains dynamic and continues to evolve at different
stages throughout the jurisdictions within which we operate. We are adapting
our business as effectively as possible to deal with the dynamic environment
within which we operate, with the aim of creating long term value for our
staff, customers and shareholders. As previously announced, we have accessed
Government funding, where available to us, in each of our territories of
operation. We also continue to prioritize cost savings initiatives across all
our operations and our business optimization initiatives in TFG Africa.
Submission of conditional offer to acquire selected JET stores and related
assets
On 10 July 2020, TFG submitted a conditional offer to acquire certain
commercially viable stores and selected assets of JET, a division of Edcon
Limited (“Edcon”) for a cash purchase consideration of R480 million (“Proposed
Transaction”). Edcon is currently in business rescue in terms of the Companies
Act. Edcon’s business rescue practitioners have accepted the terms of TFG’s
conditional offer. TFG has been granted exclusivity to negotiate and finalise
the terms and conclude the Proposed Transaction.
JET is a leading Southern African retailer (by brand recognition and market
share) and would provide TFG with a strategically important expansion into the
value segment of the Southern African retail apparel market. The Proposed
Transaction enables TFG to acquire selected parts of the JET business, a unique
opportunity which previously was not possible and is expected to give TFG
significant scale at an attractive price. The transaction construct provides
TFG with structural risk mitigants, as detailed below, and establishes a value
retail pillar for the TFG business that would be costly and difficult to
replicate organically. The Proposed Transaction will also include the transfer
of selected key executives and staff of JET to ensure sufficient management
capacity and continuity to deliver on the current turnaround plan for JET and
discussions are well advanced in terms of a proposed transition plan.
TFG’s conditional offer envisages:
• the acquisition of the JET brand;
• the assumption of a minimum of 371 commercially viable JET stores
(“Commercially Viable Stores”). Included in the Commercially Viable
Stores, is a distribution centre located in Durban, South Africa and
certain stores in Botswana, Lesotho, Namibia and Eswatini;
• the acquisition of the associated property, plant and equipment for the
Commercially Viable Stores and the Durban distribution centre;
• the acquisition of the rights in and to the JET Club; and
• all existing stock holdings with a minimum stock value of no less than
R800 million (“Minimum Stock Value”). In the event that value of the
stock on hand is less than the Minimum Stock Value at the closing date,
TFG will proportionately adjust the purchase consideration by the
percentage by which the actual stock value is less than the Minimum
Stock Value.
As part of the conditional offer, TFG will assume the operational commitments
associated with the Commercially Viable Stores only, such as employee and lease
commitments, albeit on a renegotiated basis. Certain head office staff and
functions will also be assumed. TFG is finalising its assessment of the capital
requirements of the business and currently does not believe this would result
in a significant change in the capital requirements for the overall TFG Group.
TFG are actively engaging with the business rescue practitioners and other key
stakeholders in order to progress to a binding offer on an accelerated basis.
The Proposed Transaction is subject to customary conditions precedent for a
transaction of this nature, including amongst others, the renegotiation of
store leases, requisite transitional services arrangements being agreed, TFG
Board approval and the approval by the relevant regulatory authorities.
TFG does not anticipate that the Proposed Transaction will be a categorised
transaction in terms of the Listings Requirements of the JSE Limited.
TFG will keep shareholders informed of developments relating to the Proposed
Transaction.
Update on the proposed Rights Offer
Further to the SENS announcement issued by the Company on 18 June 2020 in
relation to, amongst other things, the proposed fully underwritten renounceable
rights offer by the Company ("Rights Offer") and the convening of an
extraordinary general meeting of TFG shareholders to be held on 16 July 2020 to
approve matters relating to implementation of the Rights Offer ("EGM"),
shareholders are advised that the Company is in the process of finalising the
circular to shareholders in relation to the Rights Offer ("Circular") and has
today submitted the Circular to the JSE for formal approval. Subject to certain
conditions, including the adoption of the resolutions by the requisite majority
of TFG shareholders at the EGM, the Company expects to be in position to
proceed with Rights Offer and publication of the Circular as soon as
practicable following the EGM.
Annual general meeting
Shareholders are referred to the market notice issued by the Financial Services
Conduct Authority (“FSCA”) and communicated by the JSE on 3 April 2020,
granting an extension of financial reporting periods and are advised that the
Company will be utilising the two-month extension period afforded to issuers in
that notice.
The Company’s financial year-end was 31 March 2020. Accordingly, in the normal
course, the Company would have been required to distribute its audited annual
financial statements together with the notice of annual general meeting (“AGM”)
to shareholders by no later than 31 July 2020.
Management is in the process of finalising these documents and will publish
them, along with the integrated annual report by no later than 31 August 2020
and shareholders will be notified via SENS.
Shareholders are advised that this trading update has not been reviewed or
reported on by the Company’s external auditors.
Important information
This announcement does not constitute or form a part of any offer or
solicitation or advertisement to purchase and/or subscribe for any securities
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 any other jurisdiction) or to
conduct a public offering in the United States (or any other jurisdiction).
Cape Town
13 July 2020
Sponsor:
UBS South Africa Proprietary Limited
Date: 13-07-2020 08:00:00
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