CFO Bongiwe Ntuli: Scenario planning continues to be critical to TFG's forward planning

Bongiwe says TFG is fortunate that Covid-19 found the group with a strong balance sheet.

The impact of Covid-19 has been felt across all of The Foschini Group’s (TFG) operations since the beginning of March 2020.

“We were fortunate that Covid-19 found us with a strong balance sheet, strong free cash flow generation (above 92 percent) and on a business optimisation drive to improve profitability further, however it had a significant effect on our businesses and on retail turnover, especially in April where the country was in a complete lockdown,” TFG CFO Bongiwe Ntuli says. “So, April was all about scenario planning, tight cash flow management and shoring up our liquidity working with our banks as we didn’t know how long the lockdowns would last. Despite all of this we still paid all our employees in full during the lockdown period.”
 
For the three months ended June 2020, the group’s consolidated retail turnover declined 43 percent 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 our major operating territories – South Africa, the United Kingdom and Australia”. 

TFG Africa trading statement

TFG Africa’s retail turnover declined 38.4 percent as a result of South African operations being closed from 27 March 2020 to 30 April 2020. 

80 percent of the stores reopened from 1 May, 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 percent, 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 percent. 

All TFG Africa stores reopened from 1 June 2020 with trading subdued as liquor sales and all retail were open. 

E-commerce retail turnover growth for the period was significantly stronger than expected at 109.8 percent, contributing 5 percent to total retail turnover for the period. We will continue to invest on ecommerce platforms as we see this as a strategic imperative going forward. 

“A conservative credit appetite and restricted approval criteria remain in place,” Bongiwe says. Credit retail turnover contracted by 47.1 percent intentionally. We haven’t had to entice customers with credit to buy our product.

Strategic initiatives in dealing with Covid-19

Bongiwe says that the Covid-19 pandemic remains dynamic and continues to evolve at different stages throughout the jurisdictions within which TFG operates. “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.” 

TFG has accessed government funding, where available, in each of its territories of operations. “We also continue to prioritise cost savings initiatives across all our operations and our business optimisation initiatives in TFG Africa,” she adds.

Acquisitions

On 10 July 2020, TFG submitted a conditional offer to acquire certain commercially viable stores and selected assets of Jet, a division of Edcon, for a cash purchase consideration of R480 million. The transaction is a unique opportunity in that it also has a huge social impact and will potentially save 5,000 to 6,000 jobs.

Jet has carved out a niche as a fashion retailer focused on selling affordable clothing, shoes, accessories, beauty, home-ware and cellular products. Founded in 1976, Jet competes with Pep, Ackermans and Mr Price. 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 provided the group with structural risk mitigation and established a value retail pillar for the TFG business that would be costly and difficult to replicate organically.
 
“It 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 the retailer,” Bongiwe says.
 
She adds that Jet’s scalable business model with scope for further market share and growth ensures its sustainability as an established South African brand. “There is alignment between TFG’s product and value offerings with the current brand and value offering of Jet.”

The transaction is subject to customary conditions precedent for a transaction of this nature, including among others, the renegotiation of store leases, requisite transitional services arrangements being agreed, TFG board approval and the approval by the relevant regulatory authorities.