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THE FOSCHINI GROUP LIMITED - Unaudited interim condensed consolidated results for the half-year ended 30 September 2019 and dividend declaration

Release Date: 07/11/2019 13:30
Code(s): TFG TFGP     PDF:  
 
Wrap Text
Unaudited interim condensed consolidated results for the half-year ended 30 September 2019 and dividend declaration

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

SHORT-FORM ANNOUNCEMENT
Unaudited interim condensed consolidated results for the half-year ended 30
September 2019 and dividend declaration

SALIENT FEATURES

Group revenue up 6,3% to R18,6 billion
Group retail turnover up 6,5% to R17,0 billion
Gross margin maintained at 53,2% (Sept 2018: 53,6%)
Operating profit before finance costs up 5,6% to R2,3 billion
Basic earnings per share up 5,4% to 533,4 cents
Headline earnings per share up 3,0% to 526,7 cents
Free cash flow in excess of R1,1 billion generated, equal to 91,4% of net
profit after tax
Interim dividend declared of 335,0 cents per share, an increase of 1,5%


This short-form announcement is the responsibility of the company's
directors. It is a summary of the information in the Group's unaudited
interim condensed consolidated results for the half-year ended 30 September
2019 and does not contain complete information. The full results
announcement is accessible via the JSE link at
https://senspdf.jse.co.za/documents/2019/JSE/isse/TFG/H12019.pdf and on the
Company’s website at http://www.tfglimited.co.za

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.

COMMENTARY

STRONG PERFORMANCE IN A DIFFICULT TRADING ENVIRONMENT
TFG’s performance for the 6 months to 30 September 2019 was achieved in a
trading environment characterised by challenging conditions, increased
pressure on consumers, retail industry disruption and low economic growth
across all three of its major territories, South Africa, United Kingdom and
Australia. Nevertheless, the Group outperformed the market in each of its
three major territories and generated free cash flow in excess of R1,1
billion.

The Group delivered turnover growth of 6,5% and growth in earnings per share
and headline earnings per share of 5,4% and 3,0% respectively. Cash turnover
grew by 9,3% (TFG Africa: 12,0%) while credit turnover, by design, decreased
by 0,5%. Cash turnover now contributes 73,5% to Group turnover.

TFG Africa’s turnover grew by 6,4%, with comparable store turnover growth of
4,6%. TFG London achieved a turnover growth of 0,1% (£) in a particularly
tough environment where Brexit-related uncertainty continues along with the
ongoing negative impact of constrained trade through House of Fraser.
Excluding concession turnover from House of Fraser, TFG London’s turnover
grew by 3,6%*. TFG Australia continued to report strong performance with
turnover growth of 11,1% (A$) and comparable store turnover growth of 6,1%
(A$). Turnover growth for TFG Australia, excluding the G-Star franchise
stores disposed of in December 2018, was 15,9% (A$)*. The comparable store
turnover growths are a notable achievement and are driven by an emphasis on
merchandising and quality service.

Online turnover grew by 4,3% across the Group and now contributes 8,8% to
Group turnover. Online turnover growth in the three business segments were
as follows:

                                                     Online turnover
                                                     contribution to
                                                         business
Business                           Online turnover       segment
segment              Currency          growth            turnover
TFG Africa               R              52,0%              1,5%
TFG London               £              -5,5%             32,2%
TFG Australia           A$              37,1%              5,5%

Excluding online turnover from House of Fraser, TFG London’s online turnover
grew by 0,3%*.

* Pro forma management account numbers used to calculate an indicative
turnover growth.

The Group’s gross margin for the period was maintained at 53,2% (Sept 2018:
53,6%). Margins in the respective business segments were 47,4% (TFG Africa),
61,7% (TFG London) and 64,8% (TFG Australia).

A consistent focus on back office optimisation limited expense growth to
4,5%. Growth in the respective segments were 4,4% (TFG Africa, ZAR), -2,3%
(TFG London, £) and 10,0% (TFG Australia, A$), driven off a rapid expansion
of the Australian store footprint and investment in digital capabilities. As
a result, the Group’s EBIT margin was largely maintained at 13,7% (Sept
2018: 13,9%).

Headline earnings for the period increased by 3,1% with headline earnings
per share increasing by 3,0%.

An interim dividend of 335,0 cents per share was declared, a growth of 1,5%
on the prior period.

Merchandise category turnover
Positive turnover growth was achieved in all business segments and across
most merchandise categories, except for cosmetics.

Turnover growth in the various merchandise categories were as follows:

               %        %            %          %     % turnover     %
            turnover turnover   comparable   turnover   growth   comparable
             growth   growth       store      growth     (TFG      store
            (Group)    (TFG      turnover      (TFG   Australia)  turnover
              ZAR    Africa)      growth     London)      A$       growth
                          ZAR      (TFG         £                    (TFG
                                    Africa)                         Australia)
                                     ZAR                               A$
Clothing      6,7%      6,8%         4,8%      0,1%      10,5%      6,1%
Cellphones    7,8%      7,8%         7,2%
Homeware &    7,9%      7,9%         4,5%
furniture
Jewellery     6,4%      4,3%        3,6%                 n/a^
Cosmetics    -1,2%     -1,2%        -1,7%
              6,5%      6,4%        4,6%       0,1%     11,1%       6,1%

^ American Swiss Australia only started trading in October 2018.

Product price deflation in TFG Africa averaged approximately -0,4%.

New accounting standard – IFRS 16
The Group adopted IFRS 16 “Leases” for the first time for its financial
reporting year ending 31 March 2020. The amendments to the standard have
been applied retrospectively, subject to transitional provisions, with
comparative information in these unaudited interim 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 capitalise store leases of approximately R6,9
billion and to record a lease liability of R7,8 billion.

Store movement
As at the end of September 2019, the Group’s footprint was 4 066 outlets
across 33 countries.    The Group opened 108 outlets during the past six
months while 127 outlets were closed. Focus on space rationalisation in TFG
Africa continued with net space increasing only 0,3% since the year-end.
Space growth in TFG Australia was 3,5% since the year-end, as the business
pursued its store expansion plans.

The store movement in the respective business segments were as follows:

Outlets                                            TFG
               TFG Africa         TFG London    Australia     Group
Opening           2 631               971          483        4 085
balance
New                36                35           37           108
Closed            (85)              (34)          (8)         (127)
Closing           2 582              972          512         4 066
balance

Negative rent reversions of 15% were achieved in TFG Africa for the last 12-
month period with average escalations below 6%.     In TFG Australia, double
digit negative rent reversions were achieved. In the UK, the shift to
turnover-based rentals and shorter lease terms continues.

Capital management
The Group generated free cash flow of R1,1 billion for the six months ended
September 2019, the equivalent of 91,4% of net profit after tax.        The
improvement in free cash flow of 16,7%, compared to the corresponding six
months ended September 2018, is in line with the Group’s focus on working
capital optimisation.

The debt to equity ratio at end September 2019 was 60,0% (Sept 2018: 65,1%)
excluding the impact of IFRS 16, and 120,1% (Sept 2018: 127,5%) including
the impact of the adoption of IFRS 16. See note 15 to these financial
results.

Credit
Prudent credit risk policies and restricted approval rates, in response to
the Group’s assessment of the subdued economic climate and pending
implementation of the Debt Intervention Bill, resulted in credit turnover
growth contracting by 0,5% year-on-year for the first half of this financial
year. Increased demand for credit in the prior financial year contributed to
the growth of 7,3% in the gross debtors’ book during the first half of the
current financial period. The retail net debtors’ book of R7,5 billion
increased by 6,0% since September 2018. Net bad debt as a percentage of the
debtors’ book at September 2019 of 11,7% increased from 10,7% at March 2019
and 10,2% at September 2018 but remains within management’s expectation.

Board updates
As was announced on SENS, Doug Murray, the former CEO of the Group, was
appointed as a non-executive director with effect from 1 October 2019. The
Supervisory Board welcomes Doug and looks forward to his contribution.

Outlook
The general retail outlook in the UK and Australia remains relatively
subdued. However, the retail outlook for South Africa is particularly
challenging given the close to zero growth environment, chronically high
structural unemployment and the continuing speculation of a possible credit
downgrade and what that may imply for the consumer.

Despite these challenges, TFG will continue focus on its well-defined
strategy and believes that its considerable efforts in respect of digital
transformation and business optimisation will positively position the Group
for the future.

As always, the second half of the Group’s financial year is heavily
dependent on Black Friday, Cyber Monday and Christmas trade, which will
largely determine performance for the full year. In South Africa, trading
conditions have continued to tighten over recent months and, coming off a
high base in the previous period, the Group is cautious in respect of its
expectations for the remainder of the financial year.

Pro forma information
Pro forma management account information for TFG London and TFG Australia
were used in this announcement for illustrative purposes only to provide an
indicative turnover growth for these business segments.

In TFG London, all turnover transacted through House of Fraser was removed
to illustrate the impact of House of Fraser (an independently owned
department store) going into administration during August 2018.

In TFG Australia, turnover for the period 1 April to 30 September 2018
relating to the G-Star franchise stores was removed as if the disposal of
these stores took place effective 31 March 2018.

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 turnover numbers used were as follows:

                                6 months
                               ended Sept   6 months ended
                                  2019         Sept 2018

                                  £m               £m        % change

 TFG London turnover for the
 period 1 April to 30
 September                       200,7          200,4         0,1%

 Less turnover through House
 of Fraser (1 April to 30
 September) #                    10,7           16,9         -37,1%^

 Comparable TFG London
 turnover                        190,0          183,5         3,6%^



                                6 months
                               ended Sept   6 months ended
                                  2019         Sept 2018

                                  £m               £m        % change

 TFG London online turnover
 for the period 1 April to
 30 September                    64,5           68,3         -5,5%^

 Less online turnover
 through House of Fraser (1
 April to 30 September) #         0,9           4,9          -81,8%^

 Comparable TFG London
 online turnover                 63,6           63,4          0,3%



                                6 months
                               ended Sept   6 months ended
                                  2019         Sept 2018

                                  A$m              A$m       % change
 TFG Australia turnover for
 the period 1 April to 30
 September                       265,4         239,0         11,1%^

 Less turnover from G-Star
 RAW franchise stores (1
 April to 30 September) #          -            10,0            -

 Comparable TFG Australia
 turnover                        265,4         229,0          15,9%


^ Difference due to rounding.
# The adjustment is based on management accounts which are unaudited. The
Group is satisfied with the quality of these management accounts.

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 ending 31 March 2020.

Interim ordinary dividend announcement
The directors have declared a gross interim ordinary dividend of 335,0 cents
per ordinary share from income reserves, for the period ended 30 September
2019, payable on Monday, 6 January 2020 to ordinary shareholders recorded in
the books of the company at the close of business on Friday, 3 January 2020.
The last day to trade (“cum” the dividend) in order to participate in the
dividend will be Monday, 30 December 2019. The Foschini Group Limited
ordinary shares will commence trading “ex” the dividend from the
commencement of business on Tuesday, 31 December 2019 and the record date,
as indicated, will be Friday, 3 January 2020.

Ordinary shareholders should take note that share certificates may not be
dematerialised or rematerialised during the period Tuesday, 31 December 2019
to Friday, 3 January 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 268,00000 cents;
   3) The issued ordinary share capital of The Foschini Group Limited is 236
      756 814 shares at 7 November 2019; and
   4) The Foschini Group Limited’s tax reference number is 9925/133/71/3P.

Preference dividend announcement
Dividend no. 166 of 3,25% (6,5 cents per share) (gross) in respect of the
six months ending 31 March 2020 has been declared from income reserves,
payable on Monday, 16 March 2020 to holders of 6,5% preference shares
recorded in the books of the company at the close of business on Friday, 13
March 2020. The last day to trade (“cum” the dividend) in order to
participate in the dividend will be Tuesday, 10 March 2020. The Foschini
Group Limited preference shares will commence trading “ex” the dividend from
the commencement of business on Wednesday, 11 March 2020 and the record
date, as indicated, will be Friday, 13 March 2020.

Preference shareholders should take note that share certificates may not be
dematerialised or rematerialised during the period Wednesday, 11 March 2020
to Friday, 13 March 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 7 November 2019; and
   4) The Foschini Group Limited’s tax reference number is 9925/133/71/3P.


Signed on behalf of the Board.


M Lewis                                  A E Thunström
Chairman                                 Chief Executive Officer


Cape Town
7 November 2019

Non-executive Directors:
M Lewis (Chairman), Prof. F Abrahams, S E Abrahams, 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: 07/11/2019 01:30:00
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