I am pleased to present my first report as the Chief Financial Officer of TFG. The group produced pleasing results across the different geographies in which we now operate and across the diverse areas our overall business now spans.

In order to put our performance for the year into context, I would like to remind you that the following events need to be taken into account:

  • The acquisition of Phase Eight in January 2015: The 2015 comparative numbers included two months of trading of Phase Eight, being February and March 2015. The 2016 financial year includes 12 months of trading.
  • The acquisition of Whistles in March 2016 (further information will be provided elsewhere in my report): As the acquisition was at the end of our financial year, these results do not include any trading related to Whistles for this financial year. However, Whistles’ at-acquisition balance sheet has been consolidated as at 31 March 2016.
  • In addition to Whistles, we launched SODA Bloc, our tweens brand, and acquired the franchise rights for Colette and Next during the year. We also rebranded Fashion Express to The FIX.
  • The Sports division (Sportscene, Totalsports and Duesouth) launched their online selling during the year.


Retail turnover  21 107,5  16 085,9
Operating profit before finance charges and once-off acquisition costs – continuing operations  3 596,1  2 807,1
Profit before tax – continuing operations  3 021,2  2 286,6
Profit attributable to equity holders of The Foschini Group Limited  2 155,6  1 858,0
Adjusted headline earnings*  2 185,2  1 881,9
* Headline earnings from continuing operations, excluding once-off acquisition costs.

While we are satisfied with the achievement of our results for the year, it should be noted that the group continued to simultaneously invest back into the business and the brands we trade through to ensure that the group can continue to produce strong results in the future. The current year’s results were produced on the back of the following key drivers:

  • Turnover growth: We had good turnover growth in South Africa, the rest of Africa and in our international operations through Phase Eight.
  • Continued focus on costs: We continue to focus on cost control at all levels through the group, and costs are reviewed and, where required, challenged on an ongoing basis.
  • Continued reinvestment: Our results achieved during the current year reflect the cumulative effect of the ongoing reinvestment in the business the group made over both the current and past years. During the current year alone, R2,7 billion was reinvested back into the business.

Reinvesting back into our group has, over the last few years, enabled us to deliver a continued, strong performance as illustrated below:

Further details on these key drivers and other current year material financial statement items now follow.

Retail turnover and gross margin

Retail turnover growth was pleasing at 31,2% (excluding Phase Eight: 11,6%), with total retail turnover of R21,1 billion and strong cash sales growth of 18,4%. The group’s overall gross margin improved from 47,3% to 49,7%, mainly as a result of the higher Phase Eight clothing margin. The margin in all other product categories remained consistent with the prior year.

Interest income

Interest income from our debtors’ book increased by 12,9%. The majority of this increase was driven by the four interest rate increases that occurred during the financial year. Our debtors’ book increased by 8%, with 89% of our customers choosing interest-bearing accounts, which extend beyond six months.

Other revenue

Other revenue increased by 1,4% to R1,1 billion. The slowdown in the opening of new credit accounts due to the recently introduced Affordability Regulations limited our ability to market our customer value-added products to our credit customer base, resulting in lower growth in these revenue streams. The group is developing and testing a number of new initiatives in the customer value-added product area to address the impact of the slowdown in new accounts.


% change
% change
Depreciation and amortisation (464,7) (347,1) (428,1) (412,7) 8,5 (15,9)
Employee costs (3 210,8) (2 595,5) (2 325,2) (2 248,5) 38,1 15,4
Occupancy costs (2 043,2) (1 758,7) (1 585,0) (1 548,0) 28,9 13,6
Other net operating costs (2 870,8) (2 012,0) (1 890,8) (1 769,0) 51,8 13,7
Comparable (1 819,2) (1 769,0) 2,8
Non-comparable (192,8)
Trading expenses before net bad debt (8 589,5) (6 713,3) (6 229,1) (5 978,2) 37,9 12,3
Net bad debt (947,7) (947,7) (1 023,6) (1 023,6) (7,4) (7,4)
Total trading expenses (9 537,2) (7 661,0) (7 252,7) (7 001,8) 31,5 9,4

The continued focus on expenses and cost control resulted in our expenses increasing by 9,4% for the year, excluding Phase Eight.

Depreciation and amortisation, excluding Phase Eight, decreased with 15,9%. During the year, as required by IAS 16, the group reassessed the useful lives of its property, plant and equipment and determined that certain asset categories had generally longer useful lives than was being used for depreciation purposes. Based on this reassessment, management revised certain useful lives of shopfitting assets from five years to seven years in accordance with IAS 8, effective 1 April 2015, to better reflect the reality of our capital expenditure cycle.

Employee costs grew by 15,4%, excluding Phase Eight. The increase is due to annual staff increases, which approximated 7,5% in the current financial year, new store staff required for the stores opened during the year and additional head office staff needed to support a number of strategic initiatives including e-commerce, analytics and African expansion.

Store occupancy costs, excluding Phase Eight, increased by 13,6% during the year. Rental escalations averaged 7% in the current financial year, with the balance of the increase relating to new stores. During the year, 209 stores were opened while 27 stores were closed.

Other net operating costs increased by 13,7% for the year. Our like-for-like cost growth was approximately 3%, with the balance made up of non-comparative items. These relate to investments to support our future growth in areas such as:

  • our Rewards programme;
  • brand-specific marketing to support the repositioning of a number of our brands;
  • the accelerated use of our international merchandise consultants to ensure that our offerings remain relevant and appealing to our customer base; and
  • the roll-out of our new account cards (further details on these cards are provided in our credit report).

Utilities grew in excess of inflation and continued crime-related losses are a particular concern to the group.

Following our continuing investment in credit analytics and other capabilities, net bad debt reduced by 7,4% compared to an increase of 9,4% in the previous year. Net bad debt as a percentage of our closing debtors’ book reduced to 13,4% from 13,6% at the previous year end, and from 14,0% at our interim period, well within management’s expectations. More details on our net bad debt and provisioning are provided in our credit review.

Finance costs

Finance costs grew by 93,8%, excluding Phase Eight. The four interest rate increases during the year negatively impacted our average cost of borrowing. This, coupled with the increased level of term funding, which the group views as prudent given the current economic cycle, resulted in higher finance charges for the year.

Once-off acquisition costs

A total of R65,9 million was expensed in the current year in respect of the Whistles acquisition and R292,4 million was incurred in respect of the Phase Eight acquisition in the prior financial year. While these costs are required to and were expensed in order to aid comparability of the group’s underlying operations, a measure of headline earnings from continuing operations excluding these once-off costs was reflected.


Headline earnings increased from R1 594,2 to R2 119,3 million, reflecting the full year trading of Phase Eight and the once-off impact of the Whistles and Phase Eight acquisitions. Adjusted headline earnings increased from R1 881,9 to R2 185,2 million. Headline earnings per share from continuing operations, excluding the once-off acquisition costs incurred in relation to the acquisition of Whistles during the current year and Phase Eight during the prior year, increased by 17,6% to 1 055,8 cents per share from 897,9 cents per share in the previous year.


The final distribution in the form of scrip with a cash dividend alternative of 385,0 cents per share was declared, representing an increase of 18,5%. Accordingly, the distribution in respect of the full year amounts to 691,0 cents per share, an increase of 17,5%, reflecting the growth in the underlying continuing operations.


Our statement of financial position is summarised below:

Non-current assets 8 448,9 6 925,3
Current assets 13 646,2 11 608,1
Total assets 22 095,1 18 533,4
Total shareholders’ interest 9 896,7 8 130,9
Non-controlling interest 4,0 2,7
Non-current liabilities 5 973,8 4 491,4
Current liabilities 6 220,6 5 908,4
Total equity and liabilities 22 095,1 18 533,4

The key items on our balance sheet are as follows:

Property, plant and equipment

Property, plant and equipment increased by 21,3% to R2 335,7 million. The increase is largely due to:

  • the increase in new stores in line with our expansion strategy, which included significant new store openings in the Mall of Africa and Mall of the South;
  • ongoing investment in our IT retail and financial services systems;
  • investment in additional capacity through the expansion of our Caledon factory; and
  • the inclusion of the take-on balances of property, plant and equipment related to the Whistles acquisition.

During the year, there was a reclassification of property, plant and equipment to goodwill and intangible assets. The group previously accounted for software under property, plant and equipment. In order to provide a more detailed disclosure, software previously disclosed under property, plant and equipment with a net book value of R271,8 million (2015) and R226,5 million (2014) was reclassified to goodwill and intangible assets. The reclassification had no effect on basic or headline earnings per share, nor on diluted basic or diluted headline earnings per share.

Trade receivables – retail

The group’s net retail trade receivables increased by 8,0% to R6 695,0 million. Growth in our book was higher than growth in our credit turnover due to a slight lengthening of the book (three days) and the impact of the interest rate increases during the year. Our book continues to be well managed and adequately provisioned, with net bad debt write-off as a percentage of debtors’ book at 13,2%, down from 13,6% at the previous year end.

Further details on our trade receivables are provided in our credit review.


Excluding Phase Eight and Whistles, our inventory increased by 25,9% this year. This was as a result of the opening of new stores, merchandise inflation that averaged between 8% – 9%, a number of new brands that were launched and investment in our faster-growing and repositioned brands. Although this growth is at a high level, we have no concern over either the quality of our stock or the levels of markdown.

Interest-bearing debt

Interest-bearing debt 8 165,7 7 042,5
Less: Cash (888,8) (800,4)
Net borrowings TFG including international subsidiaries* 7 276,9 6 242,1
Less: International subsidiaries* net borrowings (non-recourse) (1 770,1) (1 639,2)
TFG borrowings excluding international subsidiaries* 5 506,8 4 602,9
* International subsidiaries: Phase Eight and Whistles.

Our net borrowings at year end increased by approximately R1 billion to R5,5 billion primarily due to investment in our working capital, which supported the group’s growth during the year, capital expenditure in relation to new stores and IT systems, and the acquisition of new brands and franchise rights. This represents a recourse debt to equity ratio of 55,6%, with total gearing including our international subsidiaries at 73,5%.


The group’s equity attributable to ordinary shareholders increased to R9 896,7 billion during the year, translating into a tangible net asset value of 2 063,5 cents per share.

At the year end, our return on equity ratio was 23,9% and our recourse debt to equity ratio, as stated in the previous paragraph, was 55,6%. As has been stated post the acquisition of Phase Eight, it remains our intention to bring this recourse debt to equity ratio from its current level closer to our medium-term target of 40%.

Accordingly, one further and final scrip distribution with a cash dividend alternative was declared.

Going forward, given our growth and expansion prospects, the group intends to increase its dividend cover to approximately 1,6 times.


The key components of our cash flow during the year were as follows:

 Rm March 2016
Net borrowings at beginning of the year (6 242,1)
Cash EBITDA 3 640,5
Increase in creditors 116,8
Other net investing activities 22,9
Cash generated 3 780,2
Taxation paid (921,8)
Funds reinvested in the business for growth (2 679,6)
  Receivables increase (534,2)
  Inventory increase (1 092,0)
  Capital expenditure (901,0)
  Acquisition of Whistles and Colette, net of cash (152,4)
Net cash flows from share incentive scheme transactions (175,5)
Cash utilised (3 776,9)
Forex (movement on revaluation of Phase Eight debt) (290,3)
(6 529,1)
Dividends paid (747,8)
Net borrowings at the end of the year (7 276,9)

We generated R3,6 billion worth of cash EBITDA in the current financial year, which is 27,8% higher than the R2,8 billion generated in the prior year. As referred to above, a total of R2,7 billion was reinvested back into the business for growth. This includes R0,5 billion invested to fund the growth in our book, which is key to our credit turnover, R1 billion invested in inventory to support the areas of our business where growth has accelerated, and R0,9 billion invested in capex to support future expansion. A total of R152,4 million was spent on the Whistles and Colette acquisitions, net of cash acquired.


As referred to above, the group acquired 100% of Whistles Holdings Limited, which trades as Whistles. The acquisition was funded through cash resources and was at an enterprise value of GBP8,8 million (R191,1 million), with an equity value of GBP4,6 million (R100,8 million) after taking net debt into account. The acquisition was converted using a ZAR:GBP exchange rate of R21,78 being the ruling rate on the transaction date.

No goodwill has arisen from the acquisition and the Whistles brand, which is valued at GBP1,7 million (R35,9 million), was recognised as an intangible asset at acquisition. As indicated before, once-off acquisition costs of R65,9 million related to the acquisition were expensed in the current year. No profit or loss attributable to Whistles was included in the group’s results in the current financial year as the acquisition was at the end of our financial year.


Further information on our financial targets are provided in our strategy and performance review.

Anthony Thunström

Chief Financial Officer

29 June 2016