THE FOSCHINI Group (TFG) has recognised a R2.7 billion non-cash impairment in its UK business because of worsened risk after regulations to stop the spread of Covid-19 resulted in the business losing half of its trading hours.
TFG, the owner of retail outlets including the recently acquired Jet stores, Foschini and Markham, swung to an annual loss of R719.2 million in the year to the end of March, from an operating profit of R4.7bn a year earlier.
The non-cash impairment at TFG London followed the reassessment of the carrying values of goodwill and intangible assets, as the business was hard hit by the Covid-19 pandemic.
TFG said that it had decided it would be prudent not to declare a final dividend at this year-end and said it would resume dividends in the 2022 financial year.
“Given the better-than-expected recent trade performance across the group, as well as the group’s strong statement of financial position, the supervisory board anticipates resuming dividend payments during the 2022 financial year, with a higher planned dividend cover of two times with reference to headline earnings per share.
“This remains subject to potential acquisition/organic growth opportunities,” said TFG.
The group said the heightened level of uncertainties in the trading environment and the impact on future projected cash flows negatively impacted the discount rates applied in assessing the carrying values at TFG London.
“The pandemic has not only directly impacted trading over the last financial year, but it has also had significant long-term ramifications on TFG London’s department store partners, reducing TFG London’s projected future cash flows,” said TFG.
Retail turnover from TFG London fell 49.1 percent as a result of mandatory store closures.
“In total, the UK lost approximately 50 percent of its available store trading hours during the past financial year.
“The Phase Eight and Hobbs brands were particularly hard hit by the pandemic, as these brands predominantly serve the occasion wear and formal work-wear segments.
“These segments experienced reduced customer demand, as socialising and in-office attendance remained largely prohibited,” said TFG.
Group retail turnover fell 6.7 percent to R33bn.
Despite problems at its UK business, the acquisition of 425 Jet stores in South Africa, Botswana, eSwatini, Lesotho and Namibia during the second half of the year contributed R2.2bn in additional turnover.
TFG said the Covid-19 pandemic had squeezed the appetite for credit in its TFG Africa business, where it recorded a 41.9 percent decline in the demand for new accounts.
Credit sales fell 23.6 percent yearon-year and contributed 30.7 percent towards TFG Africa’s retail turnover from 40.9 percent a year earlier.
The group said the 14.9 percent approval rate mirrored its new conservative account strategy.
“Demand did, however, improve by 50.1 percent in the second half of the financial year compared to the first half, as marketing activities resumed and the level of government intervention to curb the spread of the Covid-19 pandemic was less severe,” said TFG.
According to Euromonitor International, with the advent of Covid-19 last year, large apparel and footwear retail groups such as TFG started decreasing the stock sourced from international or imported sources and moved to sourcing products from local manufacturers, which was said to attract consumers at such a difficult time.
Promotional activity was likely to have to be used to drive sales.
“This will lead to declining margins for retailers, which, along with strong competition and economic problems, is likely to cause difficulties across the retail space, resulting in store closures to cut overhead costs.
“Meanwhile, in a country with high and increasing unemployment and high debt, credit-based sales are unlikely to be sustainable,” it said.
TFG’s shares closed 2.44 percent higher at R138.58 on the JSE yesterday.
dineo.faku@inl.co.za
BUSINESS REPORT