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TFG is one of the foremost independent chain-store groups in South Africa. The Group has 22 retail brands that trade in clothing, jewellery, accessories, sporting and outdoor apparel/equipment, cellular goods and services and homeware to the middle/upper-middle income market throughout over 3 000 stores.
Turnover: R 21.100bnTrading Profit: R 3596.100bnTrading Margin: 17,043.13%
Stores: 3,125Trading Space: 735,367m2
Listed: YesEBITDA: R 4060.800bnHEPS: 1055.80 cents
 
TFG

INTRODUCTION

The company which commenced trading in 1924, has been listed on the JSE Limited since 1 January 1941 and is regarded as one of the foremost independent chain store groups in South Africa. The company’s success is strongly driven by its desire to provide the right merchandise to the respective target markets of all its trading divisions and its skill in achieving this objective has resulted in a successful strong track record.  

STRATEGY

Our 4 Strategic Drivers

We are committed to achieving our 2021 targets:

PROFIT

Our Brands will optimise their supply chain capability, including their suppliers, buying processes and quick response. We will optimise the flow of goods from source to customer to enhance the customer experience.

GROWTH

We will be the leading lifestyle retailer in Africa whilst growing our international footprint.
We will deliver an integrated, secure omnichannel customer experience across our various brands

CUSTOMER

We will offer our customers a range of compelling rewards. Alternative credit products will be investigated that will appeal to our changing customer base.

We will deliver superior customer experiences across our retail brands.

LEADERSHIP

We are committed to embedding a performance-based culture that will ensure that we attract and retain the best talent in the industry.
 

SUSTAINABILITY

The sustainability strategy is being implemented across the following five strategic focus areas:

Supply chain: With a focus on supporting development of the local clothing, footwear, and textile industry, and on reducing the environmental impacts associated with transport and distribution.

People: With a focus on increasing sustainability awareness amongst employees, enhancing talent and diversity through skills development, and establishing and monitoring effective HR metrics aligned to sustainability and transformation.

Optimisation: With a focus on reducing the environmental footprint of our stores and head offices, and reducing packaging from source to customer.

Socio-economic development: With a focus on promoting job creation and enhancing employability in the communities in which TFG operates.

Governance: Ensuring that relevant key performance indicators (KPIs) are in place for each of these pillars of the sustainability dashboard, which are being regularly measured.
 

CEO REPORT

The group produced a good result for the year, coming in above management’s expectation. This is particularly pleasing against the background of the current macroeconomic environment in which we operate. This performance comes on the back of several years of solid results with compounded HEPS growth of 14,5% over the past five years, excluding the acquisition costs that were incurred in the Phase Eight and Whistles acquisitions. The key features of our performance during the year were the following:

• Group turnover up 31,2% to R21,1 billion (excluding Phase Eight: 11,6%)
• Strong cash sales growth of 18,4% in our African operations
• Total cash sales including Phase Eight now represents 57,2% of total turnover
• Headline earnings per share from continuing operations (excluding once-off acquisition costs) up 17,6% to 1 055,8 cents
• A final distribution of 385,0 cents per share, which represents an increase of 18,5%
• A total distribution of 691,0 cents per share, a 17,5% increase compared to last year Although the credit cycle remains tough, we achieved credit sales growth of 5,9% compared to growth of 4,3% in the previous year.

VALUE ADDED DURING THE YEAR

We declared two scrip distributions in the past financial year, both with a cash dividend alternative. The final distribution was 385,0 cents per share, an increase of 18,5%. Total distribution for the year amounted to 691,0 cents per share, an increase of 17,5% for the year. This distribution reflects the growth in the underlying continuing operations of the group. At the year end, our share price was trading at R141,44, reflecting a historic price earnings ratio of 13,58 and a dividend yield of 4,9% (based on the year-end share price).

STRATEGIC DEVELOPMENTS DURING THE YEAR

The 2016 financial year was a busy year for the group, especially in terms of our growth strategy. Our ongoing store expansion resulted in space growth of 6,6% in Africa for the year through the opening of 209 stores across South Africa and the rest of Africa. A further net 98 Phase Eight outlets were added during the year. In addition to this we also:

• launched SODA Bloc, our tweens brand;
• acquired the franchise rights for Colette;
• acquired the franchise rights for Next;
• commenced the rebranding of Fashion Express to The FIX; and
• acquired Whistles, a UK fashion brand.

All of these developments will strengthen and benefit the group and create value for our shareholders through:

• leveraging our retail experience;
• providing the right merchandise to our respective target markets;
• positioning the group more defensively through the retail cycles by broadening our customer base across the various LSM categories;
• driving a more equitable cash vs credit turnover contribution (our international subsidiaries are cash only retailers); and
• providing some risk mitigation in that international earnings from outside of South Africa act as a natural Rand hedge.

We also continued our e-commerce roll-out with a further three brands launching their online selling, being Totalsports, Duesouth and sportscene. This has proved to be successful with results ahead of expectation.

Further key developments during the year with regard to the other strategic objectives were the following:

Customer

• Launch and acquisition of additional brands, which will appeal to our customer base
• Further roll-out of e-commerce to provide extended brand offering to our customers.
• Leverage data analytics to ensure more desirable rewards offers and, in doing so, achieve gains in our Rewards customer base across our cash and credit customers
• Roll-out of card verification value (CVV) cards that offers greater security benefits to customers while also reducing fraud risk Leadership
• Significant investment in senior talent development programmes, with a number of key senior executives attending international development programmes during 2016
• Continued investment in training for our employees, with 116 043 training interventions during the year at a total cost of R124,9 million
• Addition of individual performance criteria as a key metric in respect of performance incentives to further embed and drive a performance-based culture Profit
• Continued store roll-out, focus on same store growth, new brand introduction, coupled with appropriate investment in our Rewards programme are initiatives aimed at driving top-line growth – particularly in an environment where GDP growth is low and interest rates are in a rising cycle
• Strict margin management is the lifeblood of our business and particularly important in an environment of volatile exchange rates – Our focus on local manufacturing assists in reducing the impact of imported inflation and remains a priority – Efforts include the construction of a new factory in Caledon which, combined with our facility in Maitland, will significantly increase our in-house manufacturing capability once complete
• While investment to drive future growth is a necessity, strict cost control remains a key focus.

WHISTLES ACQUISITION

We acquired, through Phase Eight, 100% of the shareholding of Whistles Holdings Limited at the end of our financial year. Whistles is a leading British contemporary fashion brand for men and women and was established in London in 1974. They currently operate through 121 outlets in the UK and internationally both through stand-alone stores as well as concessions in department stores such as Harrods and Bloomingdales, and have an online presence. The acquisition was opportunistic, but supported by the following rationale:

• Their strong brand equity
• Their unique product proposition
• Clear growth opportunities
• Obvious synergies with Phase Eight During the 2017 financial year, the focus will be on realising synergies and economies of scale and on leveraging the existing Phase Eight management and business model to maximise returns. We believe that, through Whistles, we will further increase our international footprint by utilising the Phase Eight platform and we expect to extract efficiencies by replicating the Phase Eight business model, which is both capital light and low risk.

BRAND PERFORMANCE

Our Sports division, in particular sportscene, and our Exact division performed extremely well during the year. At the other end of the spectrum Fashion Express had a difficult year. With the transition of the Fashion Express brand into The FIX (now a brand aimed at a younger fashion-value customer), we foresee good growth for this division in ensuing years.

Homeware had a reasonable year with good furniture growth. However, the homeware category proved more difficult towards the end of the year against a backdrop of significant discounting within the industry.

Menswear, headed up by Markham, had a good year, with particularly strong growth in Fabiani and G-Star Raw.

Jewellery performed well in this competitive market segment.

The Foschini division trades in the most difficult area of fashion retail and we are pleased with the significant progress that was made in repositioning the brand and its product offering. While this is not fully reflected in their 2016 performance, we are confident that the brand is on the correct path and will produce good results on the back of this strategy in the short to medium term.

Cellphones had a difficult year mainly due to sporadic supply of desired handsets while cosmetics yet again had a solid result on the back of several similar performances in recent years. Internationally, the performance of Phase Eight met our expectations and all our strategic targets that were set for the year were achieved.

SUSTAINABILITY

During the year we initiated a strategic shift towards shared value, which emphasises the link to the growth and profit drivers of the business strategy. Our shared value strategy prioritises local supply chain development, which enables us to focus on the creation of shared value – in both financial and social terms – within our core supply chain operations. The local supply chain focus is supported by four strategic enablers that contribute to the societal value delivered by our operations, namely employee empowerment, resource efficiency, socioeconomic development and governance, ethics and accountability.
Our sustainability reporting framework highlights our drive to create shared value for our stakeholders, with a sustained focus on addressing and reporting on the material environmental, social and governance (ESG) issues associated with our operations. Further information on our strategy, progress against our strategic enablers and our future approach can be found in our sustainability overview report, which is available on our website.

PEOPLE

Our performance this year would not have been possible without our more than 22 800 employees. Their talent and commitment to our group remain a key strength and a key differentiator.

To this end, we continued to invest in the development of our staff and spent the equivalent of 3,9% of our total payroll cost on training this year.

Employment equity and transformation remain a key focus in our group, with 92,25% of our South African staff, as at March 2016, being from designated groups.

We are also pleased to report that TFG was ranked third in the 2015 Business Report Top 100 Most Empowered Companies survey within the retail sector.

PROSPECTS

The global economic environment remains uncertain with the outcome of the British referendum and concerns around the Chinese economy.

In South Africa, the current political uncertainty, coupled with muted growth prospects and the expected higher inflation and interest rates point to a potentially challenging year ahead. However, our strategic objectives are clear and we continue to remain focused on these strategies and investment to support future growth. We believe that continued commitment to our strategy will support our effort to achieve a reasonable result for the coming year in a difficult trading environment. We plan to open in excess of 150 new stores in sub-Saharan Africa in the year ahead, which will increase our trading space by approximately 6%. Internationally, we plan to open in excess of 50 Phase Eight and 20 Whistles outlets. Our omnichannel roll-out will also continue with the launch of Foschini cosmetics, @home furniture, Markham and Fabiani.

APPRECIATION

I would like to thank our Chairman, Michael Lewis, for his invaluable input and contribution during his first year as Chairman of the group, and I look forward to working with him in the future. I would also like to thank my colleagues on the supervisory board for their guidance and direction, and my colleagues on the operating board for their input and support during this past year. To our employees, thank you for your contribution to our group this year. Without you, our performance and success would not have been possible. Lastly, to our customers, shareholders and stakeholders, thank you for your support of our group this year. I trust your loyalty will continue to be rewarded. Doug Murray Chief Executive Officer 29 June 2016
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CHAIRMAN'S REPORT

The financial year under review has witnessed significant developments in our group. There was continued and substantial investment in South Africa and Africa, new brands were added, further progress in respect to the integration of Phase Eight was made, and Whistles, a contemporary fashion brand based in the UK, was acquired. In addition, our omnichannel continued its successful roll-out.

INTEGRATED REPORTING

We seek to continually improve our integrated reporting and, with this in mind, made some refinements to the structure of this year’s report. Our integrated report presents a holistic view of the group, its operations and the broader societal matters that impact our business. We strive to communicate through our report all the factors that materially affect our ability to create value for all our stakeholders over time.

We believe we provided sufficient context in our report to enable our stakeholders to understand the key socioeconomic, governance and environmental trends that may affect the group and to appreciate, from a balanced perspective, the impact of our operations on the resources and relationships we rely on in order to create value for our stakeholders.

In reading the report, I would like to draw your attention to the fact that, while the geographical spread of our operations is far broader than in previous years, the commentary in this report remains focused on the African (and in particular South African) operating environment as this continues to be the most significant geographical region for the group. Furthermore, certain products and services such as credit and customer value-added products are not available internationally. Certain key performance indicators such as Broadbased Black Economic Empowerment (BBBEE) targets and sustainability initiatives like local supply chain development are also unique to our South African operating environment. To assist the reader, we will make use of the following icon to identify report content that pertains only to our African operations. This has also been included in the navigational icons on the previous page.

ECONOMY AND OPERATING ENVIRONMENT

The economic environment during the past financial year proved most challenging. The global economic outlook remained uncertain, dominated by many factors including the outcome of the British referendum and concerns about the Chinese economy, with their impact on global growth, commodity prices and currencies.

The domestic economy likewise faced headwinds. The outlook for consumer spending remains weak as consumers face rising inflation, interest rate hikes and high unemployment rates. As a result, consumer confidence is at low levels. Of further concern is the political uncertainty in South Africa and the related volatility of the Rand. The outlook for the South African economy weakened with the Bureau for Economic Research (BER) projecting gross domestic product (GDP) growth for the 2016 calendar year of 0,4%. In addition, the expectation is that inflation will remain outside the 4% – 6% target range for some time.

PERFORMANCE OVERVIEW OF THE YEAR

The economic conditions referred to above provided a challenging trading environment during the past year. Despite this, our group performed well and produced a strong result with growth in adjusted headline earnings per share from continuing operations of 17,6%. Our turnover grew by 31,2% to R21,1 billion, which included turnover growth of 11,6% from our African operations.

The board is pleased with the performance of the group during the year and the progress that was made with our various strategic initiatives.

VALUE CREATION

While value creation relates to all our stakeholder groupings, our shareholders are the primary group at which this report is aimed. We achieved shareholder value creation through the following:

• Ongoing focus on key strategic objectives, which enabled the group to produce earnings growth well in excess of that suggested by the current economic climate (5-year CAGR in HEPS of 14,5% against GDP growth in the same period of 2,1%), through:

– our growth strategy that encompasses both organic growth and acquisitions that supported a healthy top-line growth and was assisted by investment in our customer Rewards programme in South Africa;
– strict margin management and focus on local manufacturing that ensured the effect of exchange rate volatility on margin was curbed; and
– a focus on cost control, while not forsaking investment required to support future expansion.

• Key strategic decisions over the last few years, which fundamentally shifted the business from being purely South African based (albeit with an expanding African footprint) with an independent financial services business (in the form of the RCS Group) to a more focused retail business with a far broader geographical spread. In so doing:
– the understanding of our business by investors as a purely retail business rather than a combination of retail and financial services improved;
– the business diversified in terms of geographical spread, market segment (Phase Eight appeals to the upper market segment) and cash sales contribution; and
– the group, through the Phase Eight business, created a platform for further international expansion, a good example of which is the recent bolt on acquisition of Whistles. The board believes that the strategic initiatives undertaken over the last two years position the group well to deliver increased shareholder value over the medium to long term.

GOVERNANCE AND LEADERSHIP

TFG remains committed to high standards of corporate governance, with accountability and transparency being key guiding principles in all decision-making. As is outlined more fully in the corporate governance report, management and the board continue to be guided by the principles contained in the King III code and the Listings Requirements of the Johannesburg Stock Exchange (JSE). Our detailed compliance with the King III principles is available on our website and we remain abreast of developments in relation to the draft King IV.

In addition to its usual oversight of governance, the board placed particular focus this year on the integration of Phase Eight. While good progress was made, this will continue to receive focus next year as the Whistles operations are fully integrated.

As announced on SENS, we appointed Graham Davin as an independent non-executive director effective from 5 November 2015. Graham has extensive international financial and broad business experience. We believe this experience will be particularly useful given the expanded geographical footprint of our business. We welcome him to the board and look forward to his contribution.

I would also like to take this opportunity to thank Dee Sheard, our previous Company Secretary, for her contribution to our group and the key role she played over many years. As was announced on SENS, Dee resigned as Company Secretary with effect from 22 May 2016 and Darwin van Rooyen has been appointed in this role from 23 May 2016.

PROSPECTS

It gives me great pleasure to note that this year marks the 75th year of TFG trading on the JSE. The business has weathered many storms in its history and despite the muted growth prospects for the South African economy in the year ahead, the board is firmly of the view that the group is well-poised for success in the future, with clear strategies in place under the direction of sound leadership.

APPRECIATION

On behalf of the board I would like to thank:

• Doug Murray for his outstanding leadership of the group during the year;
• the senior executive team members for their skilled and professional management;
• all our employees for their excellent performance, commitment and hard work during the year; • our customers for their continued loyal support;
• our shareholders for their support and confidence in the future of the group;
• our suppliers, advisors and business associates for their contribution to the growth of the business; and
• my fellow directors for their insight, guidance and valuable input. Michael Lewis Chairman 29 June 2016
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SUMMARY

TFG operates through the following retail divisions:

@home
@homelivingspace
American Swiss
Charles & Keith
Colette
Donna
Duesouth
Exact
Fabiani
The FIX
Foschini
G-Star Raw
hi
Markham
Mat & May
Next
Phase Eight
SODA Bloc
sportscene
Sterns
Totalsports
Whistles
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Our banners / stores

@home

@home

@home offers a comprehensive range of premium fashion homeware needed to equip and decorate a stylish modern home. - @home online
Homeware
89 Stores
@homelivingspace

@homelivingspace

@homelivingspace offers a comprehensive range of contemporary homeware and furniture for lounge, dining, bedroom, office and outdoor
Homeware
26 Stores
American Swiss

American Swiss

American Swiss offers luxury jewellery, watches and accessories and is renowned for its inspirational, exciting and indulgent retail experience.
Clothing & Apparel
238 Stores
Charles & Keith

Charles & Keith

Charles & Keith offers international footwear, handbags and accessories and is renowned for its unique fashion-forward collection for the urban trend-setter.
Clothing & Apparel
13 Stores
Colette

Colette

Colette has become the essential destination for accessories and is renowned for jewellery and statement bags that embrace the pace of fast fashion.
Clothing & Apparel
6 Stores
Donna

Donna

Donna offers smart-casual clothing, accessories, lingerie, footwear, cellular and cosmetics that is dedicated to fuller-figure women and is renowned for its plus size expertise.
Clothing & Apparel
100 Stores
Duesouth

Duesouth

Duesouth offers apparel, footwear, equipment and technology to the informed, urban adventurer who shares a passion for the freedom of the outdoors
Clothing & Apparel
54 Stores
Exact

Exact

Exact offers great value everyday essentials and is renowned for its trend appropriate range of quality, well-priced contemporary fashion for the whole family
Clothing & Apparel
274 Stores
Fabiani

Fabiani

Fabiani offers high-quality fabric and exceptionally cut suits and is renowned for its combination of style, quality, passion and the unexpected pop.
Clothing & Apparel
22 Stores
Foschini

Foschini

Foschini offers good value smart, casual, denim, leisurewear, accessories, lingerie, footwear, cellular, cosmetics, fine jewellery, and kids wear and is renowned for its fashionable and contemporary clothing in a modern environment.
Clothing & Apparel
287 Stores
G-Star RAW

G-Star RAW

G-star RAW offers authentic denim wear and is renowned for its fusion of high-level craftsmanship with street-level edge.

10 Stores
hi

hi

hi offers a range of connected lifestyle products and is renowned for its must-have mobile technology hardware and related accessories including cellular phones, notebooks, tablets, headphones, accessories, data, prepaid and contract airtime
Appliances & Electronics
4 Stores
Markham

Markham

Markham offers on-trend smart and casual wear, including footwear, accessories, cellphones and fragrances and is renowned for its cool, youthful, fresh, vibrant and fun environment.
Clothing & Apparel
323 Stores
Mat & May

Mat & May

Mat & May offers lifestyle accessories including leather bags, wallets, sunglasses and cellphones for the urban, fashion-savvy consumer.
Clothing & Apparel
26 Stores
Next

Next

Next offers exquisitely designed and premium quality apparel and accessories for children, inspired by the latest trends.
Clothing & Apparel
2 Stores
Phase Eight

Phase Eight

Phase Eight offers stylish and contemporary daywear, bridal, occasion wear, evening wear, holiday wear and accessories and is renowned for its high quality fabric used for an impeccable cut and fit.
Clothing & Apparel
542 Stores
SODA Bloc

SODA Bloc

SODA Bloc offers denim, tees, dresses, skirts, shorts, gadgets and stationery, shoes and accessories to kit out tweens and is renowned for its coolest fashion fits for their generation.
Clothing & Apparel
15 Stores
sportscene

sportscene

sportscene offers sports-inspired footwear, apparel and accessories and is renowned for its blend of street-credible sports brands.
Sports Equipment, Clothing & Apparel
256 Stores
Sterns

Sterns

Sterns offers contemporary and classic bridal and gift jewellery and is renowned for its exceptional quality, craftsmanship and design.
Clothing & Apparel
184 Stores
The Fix

The Fix

The FIX offers on-trend fashion, footwear and accessories and is renowned for its hot products at great prices.
Clothing & Apparel
234 Stores
Totalsports

Totalsports

Totalsports offers a broad range of apparel, footwear and equipment that focuses on football, running, fitness and rugby.
Sports Equipment, Clothing & Apparel
299 Stores
Whistles

Whistles

Whistles offers contemporary fashion and is renowned for its quality and luxury detail.
Clothing & Apparel
125 Stores

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