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Turnover: R 34.101bnTrading Profit: R 18.280bnTrading Margin: 53.61%
Stores: 2,400Employees: 27,800
Listed: YesHEPS: 1.19 cents
 
TFG

INTRODUCTION

TFG is a diverse group with a successful portfolio of 28 leading fashion retail brands across various lifestyle and merchandise categories. We are one of the foremost independent chain-store groups in South Africa. The company established in 1924 and listed on the Johannesburg Stock Exchange (JSE) in the general retailers sector since 1941. TFG has recently been included in the JSE Top 40, an index of the 40 largest companies listed on the JSE.

Our retail brands offer clothing, jewellery, cellphones, accessories, cosmetics, sporting and outdoor apparel and equipment, and homeware and furniture from value to upper market segments. The majority of our turnover is in the form of cash sales to customers, with the balance being from our own in-house credit offering. Currently, credit is offered to our customers in South Africa as well as in Namibia, Botswana, Lesotho and Swaziland/Eswatini. In addition to retail turnover, revenue is also generated from interest received on customers’ store cards and through various customer value-added products, available to our TFG Africa customers.

TFG’s footprint comprises 4 034 outlets in 32 countries spanning five continents with more than 27 800 employees. In addition, 20 of our brands offer goods for sale through our e-commerce channels. South Africa and Namibia are TFG Africa’s most significant markets, with the United Kingdom, including Ireland, being the most significant market for TFG London. TFG Australia is focused on Australia and New Zealand.

Our product offering is sourced both locally and offshore, with strong in-house design teams across all business segments. In TFG Africa, our manufacturing capabilities, which coordinates production through our own factories and various independent cut, make and trim (CMT) factories, provide the Group with significant quick response capabilities, which is a key differentiator for the Group.
 

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.

 

CHAIRMAN'S REPORT

I am pleased to present the 2018 Integrated annual report,and gratified to be able to report to shareholders another year of growth at TFG.

GOVERNANCE

TFG remains committed to the highest standards of corporate governance, with accountability and transparency being key guiding principles in all business activities conducted. The Group has a zero tolerance approach to unethical behaviour and given the potential for poor governance to result in negative outcomes, we continue to apply appropriate levels of thinking to governance execution, thereby enhancing value for all stakeholders.

Given this zero-tolerance approach, the concerns raised during the past financial year regarding the audit firm KPMG forced the Group to end KPMG’s engagement as the Group’s auditors and Deloitte & Touche were subsequently appointed as auditors on 9 October 2017. TFG fully supports the governance outcomes and principles contained in King IV™ and the Listings Requirements of the JSE. During the year the Group reviewed its governance practices, structures, and processes against the practices recommended by King IV™. An application register, demonstrating how TFG is applying our specific governance structures, processes and practices in order to achieve the 16 King IV™ principles and the desired governance outcomes is available on our website.

TRANSFORMATION
TFG recognises its responsibility in terms of South Africa’s transformation process. The Supervisory Board’s Social and Ethics Committee ensures that the Group has an appropriate transformation strategy, aligned with the Broad-Based Black Economic Empowerment Act (B-BBEE) and associated codes of good practice. The Group focuses particularly on its investment in training, as a means of promoting diversity. While TFG looks at B-BBEE scoring and recognises its importance, the Group believes that what is achieved in the medium to longer term is more important than short-term targets. The focus is therefore on investing for the longer term to develop appropriate skills at every level of employment within the Group.

ECONOMY AND OPERATING ENVIRONMENT

The 2018 financial year was again marked by economic and political uncertainty across most of the territories in which TFG trades. In South Africa, political developments impacted the economy for most of the year while the economic conditions in the United Kingdom affected consumer spending and investment. Stronger growth performance in some of the advanced economies, particularly the United States, leads to monetary tightening which is having an impact on emerging markets. Geopolitical risks are also adding to the uncertainty.

Against this backdrop, the Supervisory Board is pleased with the Group’s results, both domestically and
internationally. Looking ahead, the outlook for South Africa has improved with the inauguration of President Ramaphosa in mid-February 2018. The Group is gratified and relieved that the ANC has made the decision to embrace the country’s future in a different way to the previous administration. Through Business Leadership South Africa (BLSA), we will, however, be watching and are willing to assist to ensure that good words become good deeds.

While the domestic and global economic conditions have informed the Group’s view on the level of debt with which it is comfortable, as a business we will continue to invest for the future, especially in digital transformation. The Supervisory Board believes that this will position the Group well for its next phase of growth and development.

REVIEW OF THE YEAR

As indicated above, the Supervisory Board is pleased with the Group’s performance during the year in difficult trading conditions. Key highlights include:

• a growth of 9,6% in headline earnings excluding acquisition costs;
• a growth of 3,4% in headline earnings per share, excluding acquisition costs;
• gross margin of 52,5%, up from 49,7% at March 2017; and
• an increase of 44,8% in free cash flow.

In terms of the Group’s strategic objectives, good progress was made on all four strategic pillars. Key activities during the year include:

• the establishment of a TFG Australia platform through the acquisition of RAG;
• the successful launch of a R2,5 billion accelerated bookbuild in July 2017, resulting in the issue of
17,2 million shares; and
• the acquisition of Hobbs, facilitated by the TFG
London platform that the Group has established.

LEADERSHIP SUCCESSION

As was announced on SENS on 12 March 2018, Doug Murray will step down as Chief Executive Officer
(CEO) of the Group on 3 September 2018 after 33 years’ service, 11 of which were as CEO. Doug’s tenure as CEO was transformational for the Group. During this time, TFG grew:

• turnover from R7,2 billion in 2007 to R28,6 billion in 2018 – a compound annual growth rate of 13,4%;
• outlets from 1 332 in four countries to 4 034 in 32 countries; and
• brands from 14 in 2007 to 28 in 2018.

This growth in the Group led to a share price increase for TFG from R52,00 in September 2007 to R223,75 on 29 March 2018, with the Group’s market capitalisation at end March 2018 being R52,9 billion. This success was achieved through hard work, innovation and collaboration from Doug and his leadership team, both in terms of strategy and execution. Doug’s success is not only measured in numbers, but it is
also evident in his contribution to the Group’s culture and people development – key strengths of and differentiators for TFG.

Given his wealth of knowledge and experience, the Board has decided to appoint Doug as a consultant to the end of September 2019 and as a non-executive director from 1 October 2019. The Supervisory Board expresses its immense gratitude for the significant contribution made by Doug during his tenure and looks forward to his continued involvement with the Group. My association with Doug as a non-executive director and later as Chairman, has been productive and pleasurable. Doug’s place in the magnificent TFG story is both acknowledged and secure. He has been a transformational CEO. I extend my personal good wishes and thanks to him and look forward to continued collaboration as the Group moves into its next phase of development.

As indicated, Anthony Thunström, currently Chief Financial Officer (CFO), became the CEO Designate on 12 March 2018 and will assume the position of CEO on 3 September 2018. Anthony, who has been with TFG since February 2015, is uniquely positioned to lead the Group into its next phase of development and, together with the support of the Operating Board, will ensure that the strategic objectives of TFG continue to be met. The process to recruit a new CFO is currently well advanced.

PROSPECTS

While signs of improved levels of confidence are evident in South Africa, the Group still anticipates a difficult economic year ahead. Measures introduced by government to deal with budget deficits, which include a VAT increase of 1%, will impact the consumer while the upcoming elections in 2019 also create uncertainty. In the United Kingdom, the unpredictability of the outcome of the Brexit negotiations also continues to impact consumers.

The Supervisory Board, however, believes that the Group’s commitment to its strategic pillars of Customer,
Leadership, Profit, and Growth, together with its diversification and the additional focus on an investment
in digital transformation, will continue to support TFG’s future resilience and success.

APPRECIATION

I would like to thank:
• Doug Murray, for his exceptional leadership of the Group during the year and over his long and impactful
career at TFG;
• my colleagues on the Supervisory Board for their valuable input, insight, and guidance throughout the year;
• the respective Chairpersons of the Board Committees for their dedicated effort and leadership, guidance and direction;
• senior management teams and all of the almost 28 000 men and women who have given so much
of themselves in a very difficult and uncertain year;
• our valued customers for their continued loyal support;
• our shareholders for their support and confidence in the future of the Group; and
• our suppliers, advisors and business associates for their contribution to the growth of the business.

Michael Lewis
Chairman

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SUMMARY

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