Half Year 2016\2017 Foschini Group Ltd Earnings Presentation

TFG.J - Foschini Group Ltd
Half Year 2016\2017 Foschini Group Ltd Earnings Presentation
Nov 10, 2016 / 03:00PM GMT 

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Corporate Participants
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   *  Doug Murray
      Foschini Group Ltd - CEO
   *  Anthony Thunstrom
      Foschini Group Ltd - CFO
   *  Jane Fisher
      Foschini Group Ltd - MD Financial Services

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Presentation
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Unidentified Company Representative   [1]
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 Please can I ask you all to settle down? My name is [Donna Iraxomi], I'm the (inaudible) board member of the IAS. The Foschini Group has been a member and a proud member of the IAS and sponsors for many, many years and we'd like to thank them for their wonderful hospitality here at the Table Bay Hotel. And I'd now like to introduce you to Doug Murray who'll take over and do the presentation.

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 Doug Murray,  Foschini Group Ltd - CEO   [2]
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 Thank you Donna. Good afternoon or good evening everybody and welcome to the interim results of TFG. As you can see, we've got a very thoughtful Markham customer facing you at the moment. I don't think he's seen the results yet. Right.

 It's a fairly normal agenda between myself, Anthony, and Jane. I think you've seen this before, it's all in your booklets. There's a couple of slides that we have changed the sequence of, but it's no different information, you'll just see there's a bit of movement on the slides from what we present here to what's actually in the book.

 So I'm going to kick off with economy and retail environment, and I don't need to look here because I can see it right in front of me. So anybody looking for any jewellery, you like that, you can go and shop, that is [Terrence]. That was the sales pitch for today. Right.

 Global economy, what can I -- what can we say? I mean, outlook remains subdued, I think subdued should actually be more, less than -- it's not really subdued, it's just we just don't know what it holds for us actually. There's lot of uncertainty is the bottom line. We have Brexit, it's the impact on UK and Europe obviously, lot of uncertainty in both those locations.

 We have the US elections and the economy. Now the elections are behind us at long last and wasn't quite what we were expecting and we have Donald Trump as the President. I think as one British commentator tweeted is the typical America, he says we do Brexit, they just have to go bigger. So I don't know, but I think it just adds more uncertainty. I think if Clinton had been there, it was going to be little bit more certain.

 And the Chinese economy still -- as we said last time, it's still very uncertain in terms of what's happening there and what information we get out of the Chinese economy. Specific to the UK economy of course we have the Brexit uncertainties which are very localized to the UK and I think even today there's a lot of unknowns that exist there.

 The retail numbers as you would have seen from any retailer that's come out of -- that supported on the UK are incredibly weak and generally negative. Later on we're going to show you some figures which actually are the exact opposite of that.

 Within the domestic economy in South Africa, the outlook for consumer spending remains very muted. We have a number of problem areas, the affordability regulations, specifically the proof of income for credit retailers, which has led to reduced credit lending; unemployment which remains stubbornly high and looks as though it's increasing; and of course through that we have very low consumer confidence.

 There is quite a significant impact now from political uncertainty, policy uncertainty, and of course the high levels of corruption that are now being exposed throughout the South African economy really is of deep concern, I think not only to us as a Group, to our staff, to our customers, and I think many, many South Africans. The threats of a ratings downgrade is still there. We should hear that in the next few weeks about that.

 The rand is stronger, but it remains incredibly volatile. We don't know what will happen should we get a ratings downgrade, but one would have to assume that the rand will weaken. The inflation outlook, we tend to run at the higher end of the inflation target range, 6.1% at the moment and I think it's forecast to remain at that sort of level certainly into the early part 2017 and GDP growth is really weak, I think it's at about 0.3% is the latest forecast for this year and 1.1% is the forecast for next year, really quite weak.

 So it's not a great story and it's pretty much what we were talking to in May when we reported our year-end results, so not much has really changed there to be honest. This is just a slide that really depicts everything I've just said. You can see the GDP growth looking very soft, inflation at the top line of the target range, the interest rates have remained static at least this financial year for us since April. Business confidence still below that very critical 50% line and you can see the exchange rate which has strengthened, but it is incredibly volatile. This is a Phase Eight outfit by the way, just as you don't get confused between Foschini or any of our other brands.

 In terms of an overview of the TFG Group, you've seen this slide before, it's -- I think it's a good slide to just give a good view as to the absolute diversification of the Group. We have 22 brands, you can see that we cover many LSM groups from the value end of the market to the upper end of the market. We have broad merchandise categories across clothing, jewellery, homewears, cell phones and cosmetics.

 We also operate across 34 countries with Phase Eight and with Whistles. So in one picture you see that this group is very broad and we believe that this is part of the secret of what we think is our success. During this year, you will see that we have re-branded DonnaClaire, the larger size business to Donna, and I've got a couple of slides just to try and give you a feel of what that looks like. And we've also taken Fashion Express which we spoke about at the year-end results and that's being transitioned into another brand called The FIX.

 I've also got a couple of slides on that and just to give some view as to the difference between where the brand was and where it's going. And of course we leverage all these brands off our existing infrastructure, IT systems, et cetera. Right.

 In terms of the Donna branding, we have DonnaClaire, this is the old branding as you would know it, Claire has now disappeared and she has run off into the sunset with one of the Markhams brothers when we got rid of the one brother and Markhams became Markham, so the two of them are very happy somewhere I hope.

 But you can see the difference, a much cleaner look that we have with Donna, the new Donna which will be rolled out over the next few months, and the business as a brand has been trading incredibly well this year, strong double-digit top line growth.

 In terms of the FIX re-branding of the Fashion Express brand, you can see there, you would recall those that have seen those stores, that's how they used to look, really only driven by price and not really end at a very broad customer base. The FIX is a lot more focused, it's at a much younger consumer, it's about fashion and it's about price. And you can see over time these stores will be transformed into this type of looking store and product offering.

 The Group's footprint, we now trade across in excess of 3,200 outlets in 34 countries and to make the presentation a lot easier instead of saying including and excluding, we're now going to refer to it in two groups. We have the TFG Africa, which will be South Africa; and the rest of Africa or TFG International, which at this stage is Phase Eight and Whistles. So in Africa, in eight countries; TFG International is in 26 countries, and over the next couple of slides and it's in your booklet, I'm not going to spend much time on this quite frankly, this really gives you by brand where the number of stores that we have out in South Africa or the rest of Africa and internationally where we have stores and whether they are concessions or whether they are standalone stores. That's just the number of outlets from an international point of view. It's in your booklets, I'm not going to spend too much time going through all of that. It's just a very colorful slide.

 Right. Review of the period; now, if any of you are sleeping now, could you please wake up? This is product from The FIX actually, the new re-branded Fashion Express. In terms of what's happened in this period, Phase Eight we now have six months of trading for this year and they have six months that were in the previous years. First time we've had this interim comparable period for Phase Eight and Whistles, this is the first time we're reporting on Whistles first six-month period, so there's obviously no comparatives for them in the previous period.

 Also during this period we launched three more brands on -- into e-commerce and that was Foschini Cosmetics, it was Markham, and Fabiani. And just in terms of the interest rate environment, just to make the point that there's been no interest rate increases in this trading period, these six months, but we had four increases which amounted to 125 basis points in the last financial year.

 Very busy slide this, it talks to turnover, and you will see that we try here to talk about the total TFG Group and TFG Africa is split out. So this will be everybody, and this is specifically TFG Africa, one that you've been more used to seeing.

 The total Group turnover was 16.9% up, the Africa operation 9.5% turnover growth, and the same-store growth for Africa 2.1%. We think they're very positive numbers and probably well ahead of anybody else in the market.

 The only negative area on same-store sales was across homeware furniture and cosmetics. On those two areas, those two merchandise categories have been very heavily discounted in the marketplace probably from around end of November-December last year, so we are about to become comparable with a lot of very heavy discounting on those categories very shortly.

 Very encouraging for us of course is the cash sales number, the 19% for Africa. 19% growth cash sales for this period is very strong and as I've always said, strong cash sales have to be a reflection of how acceptable your product is to the consumer. Credit sales, as everybody would know and expect, growing at 1.4% driven by the affordability regulations, we're just not able to open anywhere near as many accounts, and within the affordability regulations it's really specifically all to do with proof of income.

 But despite that, and again this is where I think the strength of the Group is, we've got good balance between cash and credit. And as you can see, if we include international which obviously the whole of international is on a cash basis, the cash sale growth of 29.5%, we've now got 61% cash and Africa essentially is 50-50, which is what we've been striving to get to for some time now.

 This is also a very good slide in terms of explaining the diversification of the Group. It takes you through the various categories, cosmetics, homeware, cell phones, jewellery, and then you've got that big clothing and footwear number of 75%, but you have to look at that in the light of the fact that part of that is our sports division, so 18.5%, it's in really its own category in a way.

 22% is in international. We have about 24% -- just over 24% would be what we call fashion and that's obviously the Markham, G-Star, Fabiani, Foschini, and 10.4% is the value end which would be Exact and The FIX.

 So it really does give you a sense of where we have diversified the business, and we're not anywhere near as dependent on any one of these categories that we used to be in the past. And again we think it's clearly one of the advantages that we have as a retailer at this point in time.

 If we look at what's happened because of our international expansion, a year ago we were -- our turnover contribution was 83% coming from Africa, 17% international. For this period now, we're on 78% and 22% is now international. And if you look at the cash credit from a Group point of view, cash was 55% a year ago, it's now moved up to 61% which is quite a healthy position for us to be in.

 It's not that we don't like credit, it's just that it's a much better balance for the Group. We're not as dependent on credit as a result.

 Again now looking at the turnover, this gives a sense of the trend of turnover that we've achieved over the last three reporting periods. If you start here, that was the first half last year, April to September 2015, our cash growth was 15.8%, that was in our base, and we have credit growth of 6.8%, this was just before the affordability regulations came in. The second half you could see that we had very strong cash sale growth, but you start to see the credit sales dropping off, 5.1%, and that gave us 12.3% growth in the second half. And then you recall for the full year we were 11.6% up and for the full year it was 18% cash sale growth and 5.9%.

 And then you see here for this first half 19% cash sale growth and 1.4% credit. But what we have here is a very solid trend of top line turnover in what is without doubt one of the most difficult periods of retailing in South Africa. And it's been like this for a number of years now, it just happens to be I think the hardest it's ever been at the moment.

 So what are the key pointers of our results, the key numbers? Anthony and Jane will go into a lot more detail behind each of these, but the turnover number is at ZAR11.4 billion, which is a - that's Group growth 16.9%. The margin is 49.6%, that's Group margin, Anthony will break that down into Africa and international and Group. The net bad debt, closing debt is booked, the ratio that you've been used to getting for many years is at 14%, and you'll see that there's green arrows everywhere here, so the top three are all going in the right direction.

 The net bad debt to book is about level with this time last year. Jane will go into detail on that and explain that. Debt equity -- recourse debt equity has come down to 53.2% and the total debt equity for the Group has also come down to 67.6%, and again, Anthony will go into more detail on that.

 And this has resulted in these numbers here. Our headline earnings are up 8.1%. Our HEPS is -- or the cents number is ZAR0.4968. The growth is 5.7%. Now obviously the difference between the 8.1% and the 5.7% is the number of shares that are in issue now, that's just a dilution effect of that.

 Our dividend that we've declared is ZAR0.320, which is an increase of 4.6%, which is just marginally off the 5.7%, and it's in line with our process of taking the cover through to 1.6% over a period of time, which we spoke to you in May about. And again just to make this point that the interim headline earnings are above ZAR1 billion for the first time in the Group's history.

 So that's the key numbers, bit of an overview of what's been going on in this period. And I'm going to hand over to Anthony who will now take you through some of the -- in more details some of the financial numbers.

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 Anthony Thunstrom,  Foschini Group Ltd - CFO   [3]
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 Thanks Doug. Good afternoon everyone. Taking a look at -- to start with our key income statement matrix, Doug's mentioned our growth in turnover for TFG Africa of 9.5% and growth for the Group, which obviously includes Phase Eight and Whistles, of 16.9%.

 The 16.9% obviously boosted by the inclusion of Whistles for the first time. We bidded that acquisition down a day or two before out last year-end. My finance team still hasn't forgiven me over the timing, but very strong impact coming through there. Equally Phase Eight, Phase Eight has had very strong earnings growth in pounds, turnover up 11.5%.

 I think anybody who follows UK retail will know that 11.5% is fundamentally different to pretty much any other retail results coming out of the UK and even the 9.5% I think in light of recent trading updates within the sector is a very strong performance. Doug mentioned the diversification of the Group across different commodities and merchandise categories. I think it really does show in those turnover numbers.

 Looking at the gross margin from a Group point of view we moved from 49.1% to 49.6%. UK retailers generally have -- or international retailers generally have a higher gross margin, they have to have that to cover their high operation costs, so again reflect of partly of the inclusion of Whistles for six months, but actually also an increase in the gross margin of Phase Eight which has continued post-Brexit which I think is also very gratifying to see.

 Our total trading expenses if we take a look at that 19%, little bit misleading because of the inclusion of Whistles again. I think the real number here is at 9.7%. The 9.7%, I just need to state, I'll give you more information on it later and show you the break-up, but that 9.7% is significantly boosted by the effect of the change in depreciation used for (inaudible) as we had to make last year in terms of IFRS. Now I'll show you later on that our depreciation charge is actually up nearly 28% this year and that's because that depreciation change effectively low at the base in the prior year.

 If you normalize that, that 9.7% would have been 8.9%. I think in this environment where a lot of our costs are in fact fixed to get a total trading expense growth of 8.9% versus a turnover growth of 9.5% was something we had to work really hard to get to.

 Net bad debt in rands down 4.2%. That was a positive growth from the previous period. So again, I think in a tough economic climate where we are seeing general distress around lending, that's a phenomenal achievement. It hasn't happened by accident; Jane will speak a lot around the investments that we made in collections and in credit analytics and how that has actually delivered that result.

 Our operating margin ended at 15.1% for the Group. I mentioned a second ago the international retailers have higher gross margins, lower net operating margins, that's really because of the salary and rental costs that they carry. So that is largely reflective of the inclusion of Whistles.

 Also bearing in mind when we bought Whistles at the end of March last year, it was making an EBITDA loss. We have already stated that that has turned to an EBITDA profit in the current year, but certainly it's going to take a couple of years to get back to where we really wanted to get to.

 The South African operating margin at 16.5% is really as a consequence of our gross margin at a TFG Africa level having declined from 46.1%. This is a really important point. We've basically maintained our gross margin levels for all of our merchandise categories with the exception of clothing. The only impact in clothing is the turnaround of Fashion Express into The FIX.

 If you take a look at all the other trading divisions, they are pretty much in line with where they were a year ago. The other impact there has been we've had an absolutely fantastic year with cellular sales. Cellular sales are up 20.3% year on year. They trade at a much lower gross margin to all of our other categories, so that just on a mix basis does pull down the gross margin.

 If our gross margin -- I did the calculation yesterday, if our gross margin had actually got back to the 46.1%, which is where it should be taking out those other two factors, net operating margin in South Africa would have been pretty much exactly back to 17.2%. So really just explaining where that movement comes from.

 Just looking back over the past four years, I think what the slide really just aims to demonstrate is that we managed to, I think relatively consistently, grow earnings and what Doug has correctly said has been a really tough retail environment certainly in South Africa over that entire period, and definitely in the UK and internationally over the last two years in particular. The green blocks there really just demonstrate how we've managed to grow dividends and reward our shareholders, I think on a basis fairly consistent with that growth in underlying earnings.

 Just a little bit more flavor about our total revenue growth. I've already spoken to the 9.5% and the 16.9% in turnover. Interest income, and that's largely on the book, although I'll provide a break down of that in a second, up 17.8%. That's awesome book growth, although somewhat muted, but really is a result of the repo rate increases that Doug spoke about earlier, 125 basis points that came into last year.

 The other revenue comprises of the income that we get from our publishing, our insurance, and our mobile airtime businesses. Those businesses correlate directly to the number of new accounts that we are able to open in a given period of time because that's where most of the sales take place.

 Those accounts are significantly down on this period last year as a result of the affordability regulations and the proof of income in particular. There's a lot of work that's going on in that space to produce this kind of number. If we were doing absolutely nothing about it, it would be down a lot further, but Jane will talk to that in her presentation.

 Gross profits, I think I've already covered, I probably got a little bit ahead of myself there, but again just to emphasize, this is a turnaround of Fashion Express into The FIX and the product mix with much stronger cellular sales, as I said up 20.3%.

 The break down of interest income, as I said the majority of that comes from the book, up 18%. The book grew about 4.1% September to September, and the balance of that impact is really the increase in the interest rates.

 This is a very busy slide and this is the one I promised in terms of trying to provide a bit more flavor around the expense growth. That Group change there as I said is really distorted by Whistles. Taking a look at Africa that 27.7% depreciation increase, that was what I was referring to in terms of the base effect of the change of the useful life that we had to make last year.

 Employee costs and occupancy costs really driven by two similar factors, underlying inflation, so in terms of employees' salary increases and promotions, which averaged about 7.5%. In terms of occupancy costs, we have escalations in all of our rentals. Those have softened a bit over the last two years, but are still sitting on average at about 7% and then the balance of that cost growth up to the 13.8% and the 11.4% new store openings.

 Just to stress, the occupancy costs are up more than we would have expected on an average year to now at the half-year and that was really because we had to accelerate some big store openings with Mall of Africa and Mall of the South. We opened 27 stores, most of which were large format.

 They're all doing -- I think trading really well, and if we look at that on an annualized basis for the full-year, that 13.8% is projected to come back in line with the normal growth that we would see in an average year.

 The net debt I've already spoken about, but Jane will provide more detail on it and our total trading expenses as were shown on the previous slide came out at 9.7%, again 8.9% if you strip out the depreciation adjustment.

 So I spoke about the positive impact of the repo rate increases on our interest income. There is obviously a flipside to that. We pay the equivalent on our borrowings. That's had a major impact in terms of our financing costs. Now over and above the actual rate increases, December last year when our finance minister was dismissed overnight, there was a major liquidity crunch in the South African market. At that point in time, we had quite a lot of our borrowings and short-term funding, it was very effective and efficient and cheap from an interest rate perspective.

 That political uncertainty hasn't really disappeared over the last six months. We took a strategic decision in December really to move a lot of that overnight and short-term money into longer term money. Absolutely the right thing to do. Our balance sheet I think is in a very, very strong position now. But having said that, it does come at a cost. It's almost a bit of an insurance policy, but I think one that we're happy to pay the premium on. Just that political uncertainty has also kept interest rate spreads quite high.

 Before I move on to the balance sheet, again just to give a sense of -- from a segmental point of view where this income and revenue is now being generated and just how much it's changed since September last year. From a revenue perspective, we've gone from 15% -- or just over 15% international to just under 20%. If we then take a look at what that means from a profit before tax perspective, we've gone from 10.8% to 15% contribution out of international, quite a significant move in a 12-month period.

 Before I get into stock, maybe just some opening comments on the balance sheet. We've had a huge, huge emphasis on the balance sheet, on inventory levels, on working capital in general, and on cash conversion. I've already had a couple comments when I walked in today from people who had looked at our results and wanted to know what we'd actually done about this.

 Starting with stock, we've had a -- or with inventory, we've had a major focus on actually getting those levels appropriate with the business and where it is at the moment. As you can see, basically flat on March last year at a Group level. If you take a look at TFG Africa, up 4.1%, well below inflation and well below the expansion that we'd actually had in terms of store rollout.

 Somebody asked me earlier this afternoon how does that compare to September 2015 as opposed to March. If you strip out Whistles, if you strip out the new stores, and you strip out inflation, our inventory levels are actually lower than they were at that point. So I think that is certainly heading in the right direction and an area that we'll continue to focus on. The book pretty much flat from March through to September. Really the impact of the affordability regulations, Jane will talk a lot more about that in a moment.

 Another really important slide; Doug mentioned the reduction in gearing. How has that been achieved? Really two major factors. If you take a look at the reduction in international borrowings, those have reduced from just under ZAR1.8 billion to ZAR1.435 billion. Two things impacted that. One is we benefited without a question from the weakening pound versus the rand, that's at a ZAR266 million swing on that, but fundamentally, even in pound terms, the pound borrowings in the UK are down. They were sitting at GBP84 million previously, they are down to GBP80 million, and that's really because of Phase Eight being highly cash-generative.

 The TFG Africa borrowings also reduced ZAR5.5 billion to ZAR5.3 billion. The net result of all of that is, as Doug said, are recourse debt having reduced 55.6% to 53.2% and our overall gearing from 73.5% to 67.6%. It's still our intention to bring that down further. We've got a medium-term target of the low 40%s, and based on our projections we are certainly heading in that direction.

 This slide really then talks about cash generation. That area we're really focused on. The most important number here clearly is the cash EBITDA as a starting point. That's up 6.7% to ZAR1.757 billion, the highest it's ever been. What did we do with that money? Well, we had to pay tax of ZAR353 million. We reinvested just over ZAR700 million back into the business, ZAR118 million into receivables.

 That's mainly sundries, so that's not the book. As I said the book was pretty much flat. Inventory was up ZAR118 million. Now that's before adjusting for the exchange rate on the UK stock. As I said in the previous slide, once you make that adjustment, it's flat. And then we continue to invest in the business particularly in terms of stores, although I'll show that breakdown on the next slide, and we spend ZAR435 million on capital expenditure.

 We had to -- well, had to, we had the pleasure of paying ZAR272 million in dividends to all of our shareholders and just to balance the books, there's ZAR266 million ForEx movement on the foreign borrowings that I spoke about. And that really gets us back into our net borrowings at the end of the period which reduced back to ZAR6.7 billion.

 Just in terms of that CapEx that I mentioned, as has been the case for a long time, and as I think you'd expect as a retailer, most of our CapEx goes into new stores. We opened 83 outlets within Africa over the six-month period. We continued to invest in IT. We really think that our IT systems give us a competitive advantage across so many areas of our business.

 International division CapEx actually relatively muted bearing in mind that that now includes Whistles which also has a store rollout, both within the UK and internationally, and then the other CapEx sitting at ZAR59 million, that really relates to the investment in our Caledon factory.

 I think if you've been to any of our previous presentations or if you know the Group, you'll understand that our existing prestige factory in Maitland gives us a massive quick response advantage in the South African market. We're about to move into our new factory in Caledon. We'll be up and running by April next year, and over the next two years that will effectively allow us to pretty much double our South African production and output.

 So in less than 10 minutes, that is really the income statement balance sheet and the key financial metrics that I think tell the story around the earnings. Jane?

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 Jane Fisher,  Foschini Group Ltd - MD Financial Services   [4]
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 Thank you. Thanks Anthony. I think this is a great visual. I mean it's a real kickass. And to be honest, the results that I'm going to show you for financial services, we've done exactly that against a very difficult backdrop.

 Let's have a look at the backdrop and the industry which we work in. I mean TransUnion consumer index. The graph there shows you the index, and of course you remember where the index is above 50%, that means consumers' health is getting better, anything below that, you're in negative territory.

 The index is made up of three main factors. The first factor of course is what's happening with default information. So your home loans, your car loans, your credit cards, your store cards, et cetera. The second factor of course is household cash flow, is that getting better or worse. And the third factor is debt servicing costs. You put those together, it creates the index [literally] quarterly.

 Now default information, you would assume from the consumer report that was released by the regulator is showing that default information for home loans and secured lending is getting slightly worse, but unsecured is getting better. And of course the market in which we operate in is unsecured lending.

 Retailers are typically first line of credit. So we don't have a large exposure to consumers who have those secured lending products. Household cash flow of course is still under pressure. So what you see is although the index is getting slightly better and in fact the quarter three data that was released yesterday, which I'm not sure if it's being publicly made available yet, showed a even further increase. So now we're up to the 49% mark. So things are definitely getting better for the consumers and I would say particularly for those in the unsecured market or those in the cash market.

 Interest rates of course have increased 125 basis points over the last 18 months. Going forward, we don't expect those interest rate hikes to continue. So I think we've reached a pinnacle and have probably plateaued, and that can only help household cash flow going forwards. So I think the economy and the industry is going to remain tough. But from our perspective, I don't think it's going to get worse in the market that we operate in.

 Now, if we have a look at our portfolio, specifically credit, you'll see that our interest income is increased by 18%. There are two factors why you get an increase in interest income, either your book has grown or you've had interest rate increases. We've had both of course. Affordability regulations, as Doug and Anthony spoke about, have impacted the growth of our new accounts.

 So of course when you have a slowdown in the growth of new accounts, that's naturally going to impact your credit sales, which is going to impact your book. So our book has grown at 4.1% for the year, our gross book, and then of course we've had those interest rate increases on top of that as well.

 Our net bad debt though has decreased by 4.2%, which is a great result. This time last year, I stood here and told you what a great result it was I only had an increase of 4.5%. So the fact that I can now stand here and say I've got a negative, it is even better. What's the net bad debt made up of? Of course you'll know it's your write-offs, it's your recoveries, it's your provision movements in there.

 It's your entire net bad debt charge that goes through that P&L line. Now we've seen a further slowdown in the growth of write-offs. This time last year, we were on 14.8%, so I had grown my write-offs by 14.8%. Right now as we stand for our half-year, that's slowed down to 13.7%. Every half year that I come to you, I'm showing you that I'm improving that number constantly.

 Our recoveries yields have increased from 28.4% to 29%. I thought 28.4% growth was fantastic. We've done a lot of things in recoveries, (inaudible), debt sales, et cetera, to get that kind of number. And I didn't think we were going to be able to repeat that number. But we have and we've bettered it.

 So, so far I've got more money, I've got more incoming, I've got a lower bad debt, and guess what, I've done it cheaper as well. My credit costs are down by 10%. So how have I got the credit costs down? Well, of course, labor's in there. Now I've spoken to you before about workforce management which talks about the number of agents that you need at the right time for customer convenience. And that's the key.

 You've got to have the right agents when the customers want to speak to you, not when you want to have the agents there. So that when the customers ring you, they get through to you at the right time. So in our collections for example, we have reduced our costs there by over 12%, but the volumes in collections have only decreased by 7%. In customer services where our stores and our consumers ring in to us, we significantly improved our [SLAs] and our abandoned race, so our customers can get through the first time.

 And this is all whilst investing in things like, for example, affordability regulations. That has added costs. Now I've got to have a validations team. I've got to process all the proof of income documentation. That increased our costs. But I've also invested in our Group analytics because that's where you pay dividends. The analytical capability that we've been investing in over the last two, three years is really helping us to understand which accounts we should be writing and who is going to do what.

 If you can predict what your customers are going to do when and what, that is worth its weight in gold, and that is paying off for us as a strategy and we will continue to do that. So overall, our EBIT is ZAR256.8 million, which is a growth of a ZAR173 million.

 So if we have a look at the actual book, like I said affordability regulations have impacted us, so our approved and activated accounts in this half-year are down round about 33%. And you'll be able to see that from the consumer reports that's similar to our competitors. So that of course has impacted the number of active accounts that we've got on our book. And that's down by 8.2%.

 Now, although I've only -- although my book has reduced in terms of number of active accounts, there is still ZAR9.4 billion worth of unutilized credits available on that book. Our average balance is around the ZAR3,000 mark, and our average open to buy is ZAR3,000, just over, I think it's ZAR3,400. I got a nod from the finance guy at the back, so that figures right. So our customers are not overextended. There is still room for them to grow. We don't need to do any affordability regulations with them. That's the credit that's there available for them right now.

 So our credit turnover growth is 1.4% for the half-year, are still positive. And in the current climate, I think that's pretty good. Going forward, however, we now come for these new regulations, so we should start to see more positive numbers going forwards particularly for the second half of the year.

 What's interesting now is lay-by growth. I've never spoken to your about lay-bys before because we've never needed to. Lay-bys typically are our seasonal products, people coming for the festive period, take out the lay-bys, and it's normally quite a small deal in our world.

 But we have seen real growth in those lay-bys since the affordability regulation. So those customers that can't access credit, but still want our products are using the lay-bys to access our products here. So we've seen that growth 45.8%. Now lay-bys are still relatively small in the whole scheme of things, they account for about 8% of my credit turnover which is about 4% of the Group overall. But it is interesting to see how the consumer behavior has changed to the lay-bys in certain instances.

 Our net debtors' book of course is our gross book less our provisions and that has grown by 5.2%.

 The only important page which I know the analysts and you guys in the room like, of course this talks about what is the underlying quality of my book and what's going to happen? So I've told you that collections has improved and my write-offs improved, so you'd expect to see the percent to purchase has improved and it has.

 So more people are in a position to be able to buy now. But the surprise might be, well, why has the percent of overdue values increased if you've had that? That's purely a portfolio mix. New accounts typically have much lower default rates in the first 12 months of their life. They just haven't had enough time to default yet. So when you're booking less new accounts, it artificially increases the percent of overdue values for the overall portfolio, but is absolutely no indication of any changes in the underlying portfolio, is purely a portfolio mix and nothing else.

 We've also introduced a new statistic without taking away anything. So the old statistic which we renamed net bad debt write-off, we just used to call it net bad debt statistic, that was the one that Doug showed you earlier on, is 14%. But that was only one-half of the equation really and truthfully. So I've introduced a new statistic net bad debt as a percent of debtors' book which is more in line with the industry standards and that is the P&L net bad debt.

 So you guys when you want to actually try and calculate this figure, now you can, whereas previously you struggled to be able to get to that 14% and you'd ask me a lot of questions, what's your calculation, how have you got there? So now what you do is you take ZAR485.6 million, you annualize it, and you divide it by my gross debtors' book and that will get you to the 12.1%. Okay? I've shown it retrospectively as well and you can see how it's improved over time. Okay.

 So hopefully you'll find that statistic a lot more useful about what is actually going on. Now net bad debt of course reflects the current state of our portfolio. If I'm telling you that write-offs are improving and recoveries are improving and (inaudible) improving and provision is reflection of the future. So if I just currently had all of that and I still expect my write-offs to continue to improve and I expect my recoveries and fraud to improve, but in theory you should see my provision statistic improve and it has.

 Now it's a reflection of where we think things are going. We think things are getting better and history is proving that things are getting better and we extrapolate that out and we get a better provision.

 That's a genuine improvement. So my disclaimer which I always stand up here and tell you, no changes in write-off policy, no changes in re-ages, in fact re-ages are decreasing as our collections get better, we're actually re-aging less accounts.

 Value-added products; of course value-added products sell into the credit portfolio. When we're now opening as many new accounts, this division is naturally hit by that drop. However, they are still profitable. They're still making ZAR204 million in this half-year.

 They still continue to innovate, so in this half-year they've launched three new products, and once one has seen growth through a bundled product, they combined airtime and cell phones together, and they're selling it through the call center.

 So what are our key challenges, what are we going to do about it? Challenge number one, affordability regulations is impacting our new account growth. We have instituted legal proceedings against the [DTI] and the NCR with two of the retailers and these legal proceedings are well under way at this moment in time.

 But challenge number two says, well, let's deal with today's reality. The affordability regulations are here right now. It is hurting our new account growth and our credit sales growth. So what are we going to do about it? We've been testing and reviewing a number of ideas and one of the things that we have been testing is the use of a third-party origination model to help us with new account opening and that's working.

 So that's something we're looking to rollout further to help grow our new accounts. I also said that I've got ZAR9.4 billion of unutilized credit. So what are the activation or the incentives that I could offer our consumers that would make you want to use my credits as apposed to anybody else's credit, because of course analysis have shown that when somebody uses my store card credit, they would typically buy more with TFG, so I will trap more of your spend which can only be a good thing for us.

 Thirdly of course the value-added products, you know they have that dependency on the credit-base, so how do they remove that dependency? Well, we have got a cash rewards database of over 6 million customers. They've now developed technology to be able to sell into that database and that is going live this month. They've also done a deal with Checkers where they'll sell magazines, three magazines in store that you can buy now cash, so you don't have to have a subscription like you currently do, you'll be able to buy standalone magazines.

 And of course they'll continue to innovate what new products, and I believe there's a fitness magazine being launched this month as well. But the economic conditions challenge them before. Things are still tough out there. So we need to remain cautious. We've always been cautious with our credit lending, nothing is going to change there. We're going to be -- we are a responsible credit provider and will continue to be responsible, all of which all the while keeping our fees as low as possible. Thank you.

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 Doug Murray,  Foschini Group Ltd - CEO   [5]
------------------------------
 Thanks Jane. I'm going to deal with growth now. Everybody always wants to know where the growth in the Group is coming from. We're splitting this into Africa and international.

 The overall space growth in Africa in this period has been 5.3%. If we look at the rest of Africa, just to remind everybody, all the stores that we have in the rest of Africa are all corporate stores, we have no joint ventures, we have no franchise stores there. We have 185 outlets across 7 countries and we've opened 9 over this particular period.

 The turnover growth for the period is 17.7% and the same-store growth is 6%. This is a continuing trend that you've seen in I think almost every reporting period for I think a number of years now. The turnover growth in the rest of Africa have been stronger than in South Africa.

 We have opened our first store in Kenya, a Sterns store, The Junction Mall, and we're planning to open a further three stores in Kenya around April of next year. And our target in five years time, in financial year 2022, we are targeting approximately 250 stores to 300 stores. Now, those of you with a good memory will probably reflect on the fact that that number was between 300 stores and 350 stores last time we reported, and the reason for that is that we have got more cautious on the rollout into Africa.

 I think many of the African countries are having difficult economic times at the moment and it's our view that we will approach this a lot more cautiously. Still -- we still see a growth in the long term. We've always said it's 5 to 10 years, and that is still in our plan. So we still see growth there, but we're just peering it back slightly as we look forward.

 In South Africa over this period of time we've opened 74 outlets. If you look at international, everybody is always wanting to get information on what's happening with our international business, was always great concern when we acquired Phase Eight, and I think that we are in a position now where we are showing numbers which supported us as having been strategically I think the right acquisition for the Group.

 They are continuing with both UK and international rollout of outlets which could be stores or concessions. They had 40 new outlets over this period. This included moving to two new territories with Macau and into Spain, and during that time they've had 13 closures. Now, that's part of the model.

 Lot of the concessions, remember what was said, the capital item very low risk, we can go into department stores, we have about a six-month notice period, it's just fixturing and stock. If we don't like it, then we can move out, we can move into other department stores in those locations. And that's why we will always expect to see quite aggressive closure numbers in the strategy.

 In terms of their performance for the period, and I want to be talking now in hard currency, the revenue growth for Phase Eight of the period, well, the numbers are GBP97 million for the period against GBP87 million for the same period last year. And if you're going to calculate, that's about 11.5% growth, way ahead I think of any other retailer in the UK, remembering of course this is about 80% UK and 20% international. And the operational EBITDA has gone up from GBP13.5 million to GBP15 million, which is again just over 11% increase in hard currency in this business. We now trade out of 569 outlets in 25 countries.

 In terms of where we look at this in strategy going forward, they've got a very clear strategy. We've spoken about that before, and they will continue with that. It is very successful.

 Whistles as you know is a business that we acquired, Anthony has mentioned this, at the end of March, six months ago, seven months ago. They have rolled out six outlets during this period into one new country in Spain and they have closed one store during this period. Their performance, their revenue is GBP31 million. We don't have a number for last year, this is our first year or first period of reporting their numbers.

 And the operational EBITDA is plus GBP1.2 million, and I'm making that point because as you know when we acquired this business it was in a loss-making situation, the loss -- the EBITDA loss was just in excess of GBP2 million for last year and we always saw the opportunity to turn it around.

 After six months, we've already got into a positive EBITDA position and we firmly believe that that will continue for the rest of this year. Obviously the operating margin isn't where we want it, but something that's going to come over time. But we are very happy with the first six month's performance here. They now trade out of 126 outlets in 6 countries. And of course strategy and outlook for them is fairly straightforward. We've got a very clearly defined set of strategic objectives for this business and we're just going to focus on that over the next couple of years.

 This is probably something new to you today, for a number of you. We have acquired 15 existing profitable G-Star standalone stores in Australia. The effective date that we will take them over is going to be early in 2017. There's a number of conditions precedent that have to be met normally around -- just around a couple of leases. We will work in partnership with the G-Star office in Sydney in Australia, absolutely identical to the way we operate here in South Africa, they have an office here, it's very successful.

 And as I say, all these stores are in a profit position at the moment. We will in fact do the buy from South Africa, it's southern hemisphere, it's not going to be a problem. And we believe there's an opportunity to at least double the number of these stores in Australia in the short to medium-term.

 What it does do of course is give us a very nice size, as well entry into the Australian market for us to learn and understand a lot more about retail in Australia. We do of course have Phase Eight trading in a number of David Jones stores there already, so we have got some experience. But this will give us more hands-on experience about trading in Australia.

 What it also does for us is create scale because we will be -- now be able to get unique product for both Australia and South Africa. We do what we call the SMUs, the special make-ups that will help us in many respects in terms of where we'll be able to source that, the pricing of that product, and of course this is the southern hemisphere and often what we were buying was coming out of the northern hemisphere collection. So this has many added benefits to us, both here in South Africa and also in Australia.

 Right, moving on to the final slide, just giving a outlook view and guidance for the rest of this year, well, I mean most certainly it's going to remain very uncertain for global and local markets. Cash sales, we see no reason why we shouldn't continue at the good levels that we've produced in the first six months. Credit sales environment is going to remain still very challenging.

 As Jane said, we will be guessing more growth in the credit through the opening of new accounts because we've now gone comparable with introduction of the regulations last year. But the actual quantum is still very, very small. And of course we will await the outcome of our legal action against the NCR and DTI. That may well go well into next year.

 Our margins we expect to maintain, and product inflation, we anticipate that to be 8% to 9%, and could well even be lower than that. And I think that's a reflection very much of a lot of the work that we've been doing on our supply chain.

 As far as space growth goes, we're looking for about another 100 outlets over the second half with about 90 of them in Africa and the balance international. We obviously will have a lot of focus on the key strategic objectives which we've taken you through in the past and will particularly focus on cost control which we always do. But I think the one that you'd be very -- or the ones that you'd be very pleased to hear is that the working capital management and capital optimization which Anthony has been speaking about has got very high focus in the Group, we've seen already some good results, and that's going to be a major focus area for us for some time to come now.

 In terms of the second half, of course everybody wants to know how has it -- how has trade been since the end of the first-half period, since the end of September. And for the first five weeks of the second-half total group turnover is up 13.3% and interestingly relative to what one is hearing in the markets and other trading updates, for the first five weeks within Africa, we're up 12.2%, and within that, our same-store growth is at 6%, ahead of 6%, just over 6%.

 The 13.3% by the way may look strange against the 16.9%, but remember the 16.9% internationally brings in the average exchange rate for the period from April through September, and this is the last five weeks, and of course the exchange rate is a lot different. The one is at around ZAR20 and this one is about ZAR16.50, and that would explain the 13.3%.

 So that's the first-half results. And I think we'll just open the floor to questions.

==============================
Questions and Answers
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Unidentified Audience Member   [1]
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 Can you talk a little bit about Phase Eight and just where that growth is coming from in? I know that you had some mix success with new lines and different sizes that you tried there. Is this growth -- from a geographic point of view where are you gaining in that business?

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 Doug Murray,  Foschini Group Ltd - CEO   [2]
------------------------------
 All right, it's quite widespread. I mean, the bricks-and-mortar store very difficult, but the offset to that is the online selling has done incredibly well. We've also, with our concessions in the UK, with John Lewis stores for example, they had strategy I mentioned in May where they wanted to bring younger fashion brands to the front of the store.

 Some of the other brands were given [poor] locations or (inaudible) as they call it. Phase Eight was one of those. Phase Eight continued to trade reasonably well. The other brands were not performing. They've, over the last few months, brought a lot of our brands, a lot of the Phase Eight (inaudible) back to better locations, slightly larger locations, and they've grown, definitely for autumn-winter I can give you the number, the 21% up in John Lewis with like-for-likes up just in stores because you can't do by space.

 So it's not really a like-for-like, but it's way into double-digits. So they're getting very strong growth in that -- from that point of view in the department stores in the UK. And the other thing that has been very strong for them over the past six months has been the online selling through the department store channels. There have been pretty more styles on those channels and that's been very successful as well.

 International has had good -- very good growth as well. So it's in the UK and is international. I guess it's still a battle for everybody, it's just in bricks-and-mortar. But again, that's not their model.

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Unidentified Audience Member   [3]
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 Your cash sales growth continues to do exceptionally well, the base is higher now. Your competitor in the market -- one of your competitors has printed a negative number. Can you just give us a bit of guidance as to why your cash sales are doing so well and why you feel that they're going to continue to do well given that the base is higher? Yes, thanks.

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 Doug Murray,  Foschini Group Ltd - CEO   [4]
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 Not sure my colleague (inaudible) in Cape Town is going to like this. Look, cash sales have been strong in the Group, double-digit since mid-2010. And we've always said that that's a reflection of the consumer who has cash in the pocket, they can go to any retailer they want. It's got to be a reflection of product acceptance.

 One of the other things that we had done of course is build a portfolio where some of the brands had a higher cash component to necessarily a credit component such as Fabiani and G-Star, Totalsports, Duesouth et cetera. So that obviously has helped over that period of time. But this is coming on the back of consistently high double-digit -- strong double-digit cash sale growth.

 We introduced our reward scheme for cash customers -- Jane, two-and-a-half-years ago? About two-and-a-half years ago. We have in excess of 6 million customers who have signed up for that scheme. So it's not -- it's totally comp, it's been there for -- say for some period of time. We're continually refining and trying to make that better. So that obviously does assist in that regard. But at the end of the day we have to say that the cash sales have to be driven by the fact that the product has a very high acceptance rate with the consumer.

 Obviously with the affordability regulations, proof of income issues which we really think are a complete waste of time, that can force customers into cash sales, but that's the same for all credit retailers. So any of our competitors are in the exact same position there. But we've got no reason to believe that the cash sales would suddenly drop off.

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Unidentified Audience Member   [5]
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 The space growth that you have relative to peers, again you're the most aggressive in the market, are you comfortable with that given the constrained environment that we find ourselves in?

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 Doug Murray,  Foschini Group Ltd - CEO   [6]
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 I'm not sure if we are the most aggressive. Actually I think the space growth is 5.3%. I'm not too sure if that -- I think it's aligned or we might even be slightly behind, but we're absolutely comfortable. Remembering across -- just take the international out, we've got 20 brands which operate within the African operation.

 Many of those brands are nowhere near maturity. And we're quite aggressive in how we play with the numbers there. For instance in the last six weeks we've actually changed 29 of what were Fashion Express stores. The product that's going into The FIX stores is not just appropriate in some of the rural locations. They're being converted to Foschini stores.

 So we're continually -- that's not giving us space growth, but we're continually looking at the portfolio in our state. And we look at what space is necessary for each of the different brands. And as I say, some of them are nowhere near maturity, and so at that level of growth we're absolutely comfortable.

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Unidentified Audience Member   [7]
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 Could you give us a sense of what the same-store sales are at Phase Eight overall, is my first question?

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 Doug Murray,  Foschini Group Ltd - CEO   [8]
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 We can't do that because they have so many changes of (inaudible) within the concessions that is almost totally meaningless figure. We've said that in the past.

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Unidentified Audience Member   [9]
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 Okay. So then could you give us a sense of total space growth at Phase Eight? I'm just trying to --

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 Doug Murray,  Foschini Group Ltd - CEO   [10]
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 Yes. No --

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Unidentified Audience Member   [11]
------------------------------
 -- it's a very impressive sales number, right? No doubt about that. At this point I've got no idea if you've grown your space at 12% or -- so it's very hard to understand what's actually going on there.

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 Doug Murray,  Foschini Group Ltd - CEO   [12]
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 I can really only talk about the number of outlets. I think it's 40 outlets that have gone in -- those outlets are predominantly concessions, the small space, it can be anything from 25 square meters to maybe 60 square meters. We don't have the actual numbers in that regard because as soon as you've got a number from one department store, then they move it, just as I said about John Lewis stores, they've been moving (inaudible) around. You go to smaller, you go to larger. It's almost an impossible figure to actually get a handle on.

 Oh, yes, the other thing is we introduced a system called [One Stock] where we -- this is now with the stores, this we introduced a year ago where the availability of stock on the online for the Phase Eight online site wasn't just what they had in the [DC], it was what they had available in all their stores. So they were selling online from stores and that obviously skewed all the numbers.

 Some of them were doing it better than the other stores and then they decided to reduce that down to I think 25 stores. So now only 25 stores are actually doing the online. So again even the numbers out of the stores are very skewed. So we don't get too hung up on -- just because the numbers would be very misleading.

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Unidentified Audience Member   [13]
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 Okay, thank you. You mentioned that there is focus at the moment on working capital management and I think you're specifically talking about your stock levels, and that that is going to be a particular area of focus in the second half of the year. It would be helpful if you could provide a bit of color there. What -- in terms of your stock levels perhaps if you could help us understand why the stock turns are a little bit low relative to competitors?

 I mean obviously there is a mix issue which we understand, but it's always been fairly hard to identify the specific issues. And then just to follow on, what are some of the particular initiatives that you're following there and do you have any targets for where you hope to get to in terms of your stock levels?

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 Doug Murray,  Foschini Group Ltd - CEO   [14]
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 Do you want to take it?

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 Anthony Thunstrom,  Foschini Group Ltd - CFO   [15]
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 No, [Steven], it's I guess all very good questions, trying to compare TFG's overall stock turn to a theoretical competitor down the road is meaningless. Jewellery, sports et cetera, have got very different stock turns. That's it. I think we -- at the moment what we're doing is we're drilling down into the individual categories. We are setting targets per brand, per trading division, per merchandise category.

 We want to see improvement across pretty much all of them. This is a balancing act. I mean we've had -- in the history of the Group we have had times where we've driven stock turn to unbelievable levels. Couple of years ago we had exact up to 7 times stock turn, massively negative impact on turnover. Simplistically there was no stock to sell. Great stock turn.

 Where are we at the moment? We are sitting with each trading division setting those targets with them. Every trading division will have a different target and will also have different levers to pull in terms of how to achieve those targets. Big difference in terms of whether you're importing from China, whether it's local manufacture, tradeoffs around supplier discounts for settlement versus lead times and trade terms et cetera. So that's really I guess where we are at the moment.

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Unidentified Audience Member   [16]
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 A quick question please. I presume your Phase Eight GP margin has benefited from the fact that you had hedged quite a bit of your input cost. Is that true, and if so when is that benefit likely to end and how should we then think about the GP margin in Phase Eight given the weaker pound?

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 Doug Murray,  Foschini Group Ltd - CEO   [17]
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 All right, it's a good question. We did hedge as you have rightly assumed. The GP we think we're going to be able to manage at around the similar sort of level. There is a small degree of inflation in the pricing already, doesn't seem to be hitting with any customer or consumer resistance. And as we go forward, they don't believe that that's going to be a problem either from a pricing point of view or from a margin point of view. That's where we are at the moment.

 Of course as trade deals may or may not get finalized over the next two or three years, it will always be difficult to see what happens there. But as we sit at the moment, we are comfortable.

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Unidentified Audience Member   [18]
------------------------------
 You mentioned for your Whistles acquisition that you've turned around the EBITDA from a negative to a positive. So what were the issues that you had within the specific company and are you targeting any specific margins going forward?

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 Doug Murray,  Foschini Group Ltd - CEO   [19]
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 Well, we -- with Whistles we believe we can get it running on almost an identical model to Phase Eight. So if you take the margins that we have both at an operating level and at a GP level within Phase Eight, we see no reason why we won't get results there eventually. There was just a lot of what I would call operating inefficiencies that existed in that business.

 We could see that straight away, and we are really just replicating the same model that we have in Phase Eight and we're bringing that into Whistles. Obviously takes time, but we are very comfortable that having gone from a business that was running at a loss in a very tough environment to build a switch at (inaudible) you get into EBITDA profit within a six-month period, I think we're doing something right and we are very -- again very comfortable that we will see that increase.

 It won't happen in one year, it will probably take us three or four years to get there, but we are very confident that we'll get to very similar margins that we have in Phase Eight.

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Unidentified Audience Member   [20]
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 Okay. Thank you.

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 Anthony Thunstrom,  Foschini Group Ltd - CFO   [21]
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 There are lots of questions coming through. Yes, should we do a couple of those?

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 Doug Murray,  Foschini Group Ltd - CEO   [22]
------------------------------
 Sure.

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 Anthony Thunstrom,  Foschini Group Ltd - CFO   [23]
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 Okay. Jane, the first one is for you. The question reads that the last results presentation Jane talked about having increased the account maximums for best paying customers ahead of the affordability legislation and this would be a competitive advantage. I don't recall that.

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 Jane Fisher,  Foschini Group Ltd - MD Financial Services   [24]
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 No, I don't recall that either. I think one of our competitors did that, but we didn't do that.

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 Doug Murray,  Foschini Group Ltd - CEO   [25]
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 Confusing the presentations.

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 Anthony Thunstrom,  Foschini Group Ltd - CFO   [26]
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 Okay, moving on, there seems to be a disconnect between top line growth and earnings growth, why is this out of line? I guess we're trying to give a flavor of that in the expenses slide, I guess a very short version is as by and large a bricks-and-mortar retailer, the fixed cost-base is very high, rentals and salaries at the best of times are going to be increasing by in this environment round about 7%.

 The only way in the short term that those costs would pull back dramatically would be if we stopped opening new stores. That's a strategic choice we could make. It's a lever. I guess if things got really tough we could do that.

 I think our philosophy is really to invest throughout the cycle and I think that's really why we've got to scale best at the moment. I don't know, Doug, if there's anything to add to that

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 Doug Murray,  Foschini Group Ltd - CEO   [27]
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 Yes, and there was also the small margin --

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 Anthony Thunstrom,  Foschini Group Ltd - CFO   [28]
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 Yes, the margin impact, so again going back to the results, so there was another question on that as well which ties back to it, what happened to the gross margin in South Africa? I think I did try and address that in the presentation, but [Pearson] might not have been listening, but in essence that came down to cell phone mix which is up 20%.

 There was another question around why were cell phones so strong? The reality is our ability to sell cell phones is directly tied to the supply. The supply of cell phones in South Africa from the network is already the best. We really struggle to get the right handsets, the right price-points last year. We've just had a much better year this year. Part of that is also being we've switched away from sourcing from the networks and being beholden to them and we're doing a lot of direct sourcing ourselves.

 Just going back to the gross margin question then, the reality there is that take the Fashion Express-FIX turnaround out of our gross margin, take that cell phone mix out of it, the gross margin would have been back to last year's gross margin if the other category is consistent to this point in time and if that were the case, we would have had a significantly better operating margin. I think that probably would've been (multiple speakers) --

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 Doug Murray,  Foschini Group Ltd - CEO   [29]
------------------------------
 Would have been very similar to the turnover level?

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 Anthony Thunstrom,  Foschini Group Ltd - CFO   [30]
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 Yes. Jane, another one for you. Please could you talk more about the third-party credit originator that you mentioned?

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 Jane Fisher,  Foschini Group Ltd - MD Financial Services   [31]
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 Okay. Well, we haven't yet signed the deal with the third party, so I can't disclose who the deal may be with, but I can talk about the concept. So the idea is we've been trying some tests with a third party who physically does the whole end-to-end. So they talk to the customers, the outbound in the malls or in the shops, they physically go and collect the proof of income documents at the same time. And we're finding that this is working very good because this company specializes in how to collect that proof of income documentation.

 They are also [EFFICA], so they're fully trained up in financial products, so we would be aligned to a extremely reputable third-party provider who understands -- and in fact they will drive out and collect some of these documents. And I just don't have that kind of network availability to be able to collect those kinds of documents. So that's something that we -- is very exciting and we're looking at how do we take that forwards.

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 Anthony Thunstrom,  Foschini Group Ltd - CFO   [32]
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 Super. Thanks Jane. Another question here which I think has been partly covered in the presentation, but it's probably just worth re-answering it for everyone. Could you provide some detail on inflation for the South African business for past six months and the outlook? I think it was covered in the slides effectively 9% on average for the last six months. Now, within that massive variation, furniture and footwear, Adidas (inaudible) would have been 20%, 20%-plus. Other parts of the business would have been very low single-digits. That's how you come back to that 9% average.

 Looking forward we think 8% to 9%. I think what's probably most important there though is the gap between us and the rest of the market. There have been quite a few updates coming out recently. The rest of the market in South Africa seems to be setting at about 15% or 16%. That gap I think allows us to really maintain the gross margin in the business and protect it, and equally I guess to be able to offer customers value which is always important, but probably more important now than I guess any other time.

 Let me find another question here. Jane, are you expecting active account growth on the H1 base?

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 Doug Murray,  Foschini Group Ltd - CEO   [33]
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 Back to (inaudible) --

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 Anthony Thunstrom,  Foschini Group Ltd - CFO   [34]
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 I think you answered that.

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 Doug Murray,  Foschini Group Ltd - CEO   [35]
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 -- will grow by March.

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 Jane Fisher,  Foschini Group Ltd - MD Financial Services   [36]
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 Well, I'm trying to work out if he really mean H1 or they mean year-end. But --

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 Anthony Thunstrom,  Foschini Group Ltd - CFO   [37]
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 I think to year-end seems to be the question.

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 Jane Fisher,  Foschini Group Ltd - MD Financial Services   [38]
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 To year-end.

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 Doug Murray,  Foschini Group Ltd - CEO   [39]
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 So still be down on previous year --

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 Anthony Thunstrom,  Foschini Group Ltd - CFO   [40]
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 Yes.

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 Doug Murray,  Foschini Group Ltd - CEO   [41]
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 -- but it might be ahead of the half 1 number.

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 Jane Fisher,  Foschini Group Ltd - MD Financial Services   [42]
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 So our active -- our account growth, if I purely look at the first six weeks -- first five weeks since the affordability regulations were up right now in terms of pure growth like-for-like we are up. And that's to be expected. So the second half should show active account growth.

 Of course now what I've got to do is put it with the combination of the first half of the year to try to workout where my year-end is going to end. Right now it's still very early to say where that's all going to end as we stand right at this moment in time. The second half should be much better.

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 Anthony Thunstrom,  Foschini Group Ltd - CFO   [43]
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 Thanks Jane. Doug, one probably best for you. I'm trying to get a sense of how much of your product is exposed to foreign retailers (inaudible) turn around?

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 Doug Murray,  Foschini Group Ltd - CEO   [44]
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 All right. I think in the -- from the foreign retailers' point of view I guess the most competitive area of retail in South Africa and probably around the world is women's wear because most of the foreign competitors are coming in are women's wear retailers. If you remember the one slide where I said that our fashion holding business exposure is about 24%, within that you have Fabiani, you have G-Star, you have Donna, none of those are really being threatened by international retailers.

 So it's mainly I guess just the Foschini business. I would say it's probably the most threat from the international retail. So it's a small part of our -- it's a smaller part of our business. That's one of the things that we've been talking about for several years now is that that used to be where we were very vulnerable because it's such a large part of the business, and of course it's much smaller part of the business now, and so I think from that point of view it's -- look, you're always going to have international competition, but I think the threat to us is more limited.

 With regards to Edcon, I think that obviously they've been pulled away from the brink of liquidation. It's not so easy to turn around a big business, believe me, it takes a lot of time. I think that they are talking about doing the right things, they're going back into their own brands, going to be disposing off the international brands over time. That doesn't happen overnight. They're going to have to take a lot of pain while they go through that, and to get your own supply chain, your sourcing, we've been working very, very hard on that for last eight or nine years. It doesn't just happen in 12 months.

 They've got to get that expertise back and it's not easy to find. So it will take some time for them to do that. And I think one of the other key components for them is that they don't have their own book, and that's still sitting with the bank, and don't underestimate how tough it is in that regard. And having a second book which deals with the rejected bank customers is going to be a problem because you don't -- Jane will tell you, you need a balance in your book, you have to have good customers and then you have to have your higher-risk customers to have a balanced retail lending book.

 It's going to be very hard for them to do that. So yes, I think that they've pulled the business back from the brink, but it's going to be very hard. The biggest threat I guess is that they have to discount a lot of the brands that they're going to have to get out of. They've got to try and get rid of space that's all at the front of the malls which they had all the international brands in, that won't happen overnight, so they're going to have that legacy driving them back for some time as well. So we'll wait and see how that pans out, but it's not -- it's one thing to talk about it, it's another to execute it, but I think it's going to take some time.

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 Anthony Thunstrom,  Foschini Group Ltd - CFO   [45]
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 Doug, lots of other questions that I think we've covered by and large with Phase Eight and Whistles, possibly the only other one which again we partly covered in the presentation and I think most of us would know the answer to this, but does TFG have plans to invest in online shopping technology for the Group?

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 Doug Murray,  Foschini Group Ltd - CEO   [46]
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 Well, certainly we --

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 Anthony Thunstrom,  Foschini Group Ltd - CFO   [47]
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 We answered that, but I -- yes.

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 Doug Murray,  Foschini Group Ltd - CEO   [48]
------------------------------
 We have. We've got a full platform that allows us to rollout over time every single one of our brands and it's international best of class, so we have no problem with that. Are you waving goodbye, Natasha, or would you like to ask a question?

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Unidentified Audience Member   [49]
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 Just on the double-digit growth for the first five weeks, anything you can help us with, is it more of the same exact in sport doing very well or any changes in terms of the components of that?

------------------------------
 Doug Murray,  Foschini Group Ltd - CEO   [50]
------------------------------
 Not really. I would say that the mix between where we're seeing that turnover coming from is just -- it's picked up across the -- all the brands. So -- but the relationship between the performance by brand is very similar, it's just a higher level of business that we're getting and strong cash -- continuing strong cash sales and slightly stronger credit sales. I think credit sales of about 5% or 6% in that time, that's probably the only difference.

------------------------------
Unidentified Audience Member   [51]
------------------------------
 Maybe can you just quickly chat with us about the innovation and sport in terms of new product and I mean obviously just continuously rejuvenating that business, ongoing accelerating innovation, what's your read on it?

------------------------------
 Doug Murray,  Foschini Group Ltd - CEO   [52]
------------------------------
 I think that we -- we're coming off a strong base with sports. We continue to build rollout stores with quite strong same-store sales growth. We have a very good relationship with all the brands in sportscene for example, we've developed a very strong range of our own brand which gives us a higher margin, and the percentage of business that's coming from that is growing monthly, six-monthly, and annually, and that's helping drive both -- I guess balance margin because you're always under pressure with the international brands with the margin.

 So having more of our own brand in -- with a higher margin, it allows us to keep competitive from a pricing point of view. So we see no stopping in that regard with -- so Totalsports and sportscene still very strong, we are on Duesouth, the only thing that's happening in Duesouth is that we're reducing some of the slower stock turn sort of pure camping equipment and bringing more leisure outdoor where that's happening at the moment, so it's a bit fixturing change that's taking place in Duesouth as well. So we are very confident that the sports division will continue to grow. We've still got plenty of space growth there as well for those brands.

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Unidentified Audience Member   [53]
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 Are you looking to do any further acquisitions in your international market? That's the first question. And secondly, seeing that the international business is growing, can you just talk to us about the management of the international business and debt-wise are you looking to raise any debt internationally?

------------------------------
 Doug Murray,  Foschini Group Ltd - CEO   [54]
------------------------------
 All right. The first question -- well, let me talk about the Management. I mean, the management of Phase Eight is -- that was one of the reasons that we've bought into the business. They were very stable, they've been there for some period of time. They produced good results. There are locked in incentive-wise in terms of the own share options through to I think it's 2021.

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 Anthony Thunstrom,  Foschini Group Ltd - CFO   [55]
------------------------------
 One.

------------------------------
 Doug Murray,  Foschini Group Ltd - CEO   [56]
------------------------------
 So we have a very good relationship with them, we work well with them, and on Whistles we know the management team there very well and they've -- just Jane Shepherdson decided to leave Whistles, but the rest of the team is there, and they're working very well with the Phase Eight management team. So we've got very, very stable and we're very -- management and we're very comfortable with the team that are running the international division.

 With regard to further acquisitions, I think we get asked this all the time. We are always presented with interesting opportunities. We continue to look at any opportunity that we think is appropriate for the Group. It could be locally, it could be international.

 So -- and I guess if that was the case, it would depend on the size of -- if it was an acquisition that we thought was appropriate, it would depend on the size, whether we'd be raising any capital. At the moment we are not, but we are as I've said I think for the last five years, we're continually presented with opportunities from an acquisition point of view. So I think the third one, I've sort of covered that in terms of the raising capital, at the moment we're not going to do that, but who knows what the next six months or 12 months shows. It really depends what opportunities come along.

 All right. My former chairman is not wanting to heckle me in any way. Anyway, [Elliot], nice to see you here. If that's all guys, if you'd like to -- well, normally everybody wants to come and ask us a 100 questions here and there's drinks and some snacks outside. Thank you.




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