Full Year 2016 Foschini Group Ltd Earnings Presentation

May 25, 2017 AM EDT
Thomson Reuters StreetEvents Event Transcript
E D I T E D   V E R S I O N

TFG.J - Foschini Group Ltd
Full Year 2016 Foschini Group Ltd Earnings Presentation
May 25, 2017 / 03:00PM GMT 

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Corporate Participants
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   *  Doug Murray
      The Foschini Group Limited - CEO
   *  Anthony Thunstrom
      The Foschini Group Limited - CFO
   *  Jane Fisher
      The Foschini Group Limited - Group Director, Financial Services

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Conference Call Participants
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   *  Stephen Carrott
      JPMorgan - Analyst
   *  Abe Gordon
      - Private Investor

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Presentation
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 Doug Murray,  The Foschini Group Limited - CEO   [1]
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 All right, well we eventually worked out what it takes to get a full room of people for our presentation. You just have to spend ZAR3 billion and everybody is here. It's very obvious. Anyway, welcome this afternoon, everybody, to our results presentation. We will of course deal with the acquisition of RAG within this presentation. So we've got a lot to get through, so I'm just going to start.

 For those that don't know us, that's us up there -- I think it's just to remind us who we are. It's a fairly normal agenda dealing with the economy, retail environment, business overview. Anthony will deal with the financial review. Jane is going to pick up on the financial services. I will then go through a number of slides on the RAG acquisition, which I'm sure you are going to be wanting to hear about and then we will finish off with where we have been this year on growth and the outlook.

 I think there's nothing surprising that you would see on this slide. It's fairly self-explanatory. The 6.1% we know from yesterday is now I think 5.3%. The interest rate, as we just heard about an hour ago, is going to remain -- the repo rate is remaining unchanged and that's the same as it was a year ago. And GDP for last year was pretty pedestrian at 0.3% on the back of 1.3% the previous year.

 Clearly, a very obvious statement that the political uncertainty and corruption in South Africa and the South African economy is of deep concern to everybody including ourselves and we obviously have the credit rating still under threat. We don't know what Moody's are going to do and when they are going to come out with an announcement.

 Consumer spending is clearly under pressure. It's been impacted for us by the very difficult credit conditions with the affordability regulations, high unemployment and low consumer confidence. The rand remains volatile but, within that, if you go through our financial year you will see that the rand has strengthened throughout the year actually and has ended up being I guess a little bit of a drag on our international earnings this year. But within that there's a huge amount of volatility. And as we saw at the end of March, and with the cabinet reshuffle, you can have the rand going out 10% just in a matter of days.

 So when we look at the outlook for the SA economy: on consumer spending growth is forecast at 1.1%, that's probably optimistic; interest rate is expected to remain flat, I think that's a fair comment; the inflation outlook is probably still at the upper end of the range, even if it is 5.3% at the moment or as announced yesterday; and you can see the GDP growth has been revised downwards yet again, it is at 0.6%, so 0.3% last year, 0.6% this year, not great. So we have a tough economy. We have been talking about that for the last couple of years and it doesn't look as though it's going to change.

 If you look at the UK, it's different but the same in a way. They have got inflation coming in. They've had a big move from 0.5% [to] 2.3%. The interest rate has dropped down to try and stimulate the economy. And GDP at 1.8%, ahead of our economy but not great. Again they have quite a lot of political and economic uncertainty surrounding Brexit and the negotiations that will take place there.

 They are in a rising inflation environment. The interest rate outlook is probably uncertain there. I mean if inflation keeps going up there then they are going to be under pressure to raise rates again. And the pound is certainly weak and volatile compared to its pre-Brexit levels.

 This is the slide you've seen on many occasions, but I think it's very important just to reemphasize the business structure. This is before the RAG; the RAG isn't entered in here. It's 22 brands. We cover the three markets from value to upper market. We do cover all these merchandise categories.

 We have diversification and, on top of that through cash and credit, the geography now is we have got over 3,300 stores in 34 countries. We have online as well as off-line. We have a very strong online business in the UK. It's over 30% of the business there and growing. And obviously we have a strong portfolio of brands. It just talks to the diversification strategy that we have spoken to you about for many years now and we continue with that.

 Just looking at the year in terms of structure, Phase Eight now is fully comparable. It's been -- it's in for 12 months this year and the prior year. We did acquire a very small business called Damsel in a Dress in January which will essentially fall under Phase Eight as a sub brand. It was -- so there's not much in the way of trading numbers that are included in this year.

 Whistles we do have a full 12 months trading in this year. We had nothing in for last year. They were in the balance sheet though last year. We had [stuck] in the numbers from last year but not any trading numbers.

 And G-Star Australia, we just put it there because at the interim results you may recall that we were talking about that business more than likely coming in before the end of the year. We essentially acquired 14 stores. It happened on April 3, so there's absolutely no numbers in these results for this financial year.

 During the year we launched online selling of Foschini cosmetics, the Markham brand and Fabiani. And in terms of interest rate environment, there has been no changes this year. But of course we had four in the previous year, so there is a compounding effect that took place through this year, which obviously affects us in terms of interest income that we earn on the credit side and the interest income that we -- or the interest that we have to pay on the debt side. And that's a balancing act that runs between Anthony and Jane. On the international side it's just the interest rate dropped down in August from the 0.5% to 0.25%.

 So if we look at the various merchandise categories, that's the 11.6% total group number that we were talking to, the 8% for Africa and 2.8% in terms of same-store growth. Just to give a sense of what it would have been in constant currency, had we applied the same exchange rate for this year to the International business as we had for the whole of last year, then that number there, the 11.6%, would actually have been 14.3%.

 In clothing we've had a strong performance I think in a tough market with 13.3% for the group, 8.6% in Africa, and strong same-store growth sales relative to the rest of the market.

 Jewelry is still a tough retail area, continues to be tough, but we've got positive growth there which is more than can be said I think for a lot of other retailers and it is a tough area.

 Cellphones have been very strong and both homeware and furniture and cosmetics, both those categories have been impacted by quite significant heavy discounting in the market over this past year.

 Again, just to reemphasize the diversification strategy of the group, you can see here the different commodities that we run and the percentage contribution to the group. And even within clothing, which is 74%-75% of the business, it is quite well diversified from our value businesses which would be Exact or The FIX.

 Then you have the international division with essentially Phase Eight and Whistles in there, our sports division and then all the other fashion areas such as Markham, Foschini, Donna, G-Star, Fabiani. So again, it's really just to emphasize the diversification across the group and the category split is broadly in line with the contributions we had last year.

 If we look at the geographic contribution where now approximately 80% is coming out of Africa and 20% out of International, it's 19.7%. The dropdown here is really just the conversion of the rand; in fact what I said about the rand strengthening throughout the course of the year. If we use constant currency the contribution would have been 21.6%.

 And obviously with other acquisitions that I spoke about -- Damsel in a Dress, quite small; G-Star in Australia, quite small; but RAG obviously quite large, this acquisition we announced today -- you are probably going to find that that figure for next year goes over 30%. So it will be 70%/30%.

 Looking at cash and credit and the group cash number grew 18.5%. And again, yet another year of good double-digit cash growth in Africa, 14.1%. We are now looking at over 60% for the group is cash and in Africa over 50% is now cash for the first time ever. So we're obviously quite happy in terms of where we were trying to get that number. And of course credit sales, as we have been saying for the last 18 months, are obviously under pressure because of the affordability regulations and they are a fairly pedestrian 2.3%.

 In our terms, I guess if one looks at the rest of the market and what's coming out every day with other retail results; it's actually really quite an encouraging number. So I don't want to underplay it, but it looks as though it's actually really quite a good number.

 If we split that into the first half/second half, you can see here how we had 9.5% growth first half, 6.8% second half and that gave us the 8%. I think the interesting thing here is that in the second half you could see last year we grew cash sales 20.6%. So that was a base of cash sales and we've come through with 10.3% growth in the second half. It is a slowdown, but I think we are up against a massive base.

 And if we were looking at the end of December we were saying that, no, November and December had been pretty good for us, you would have seen the trading updates. What we didn't expect to happen was that we were going to have an extremely slow January and February and I think that applied to the entire marketplace. I think anecdotally everybody has been speaking about that. We were hit by that as well.

 It would clearly appear as though whilst we reduced, the rest of the market really suffered. And then of course in March we had the move of Easter out of March this year into April, so March was always going to be a tougher month. And so, I think that's why we had more of a slowdown in the second half. I will obviously talk about the past seven weeks right at the end, but I will give you a quick preview -- it is stronger than that and it is stronger than that in the African trading numbers.

 So here are the key numbers. The headline earnings number is up 10.1%; if we take constant currency that would've been 11.7% headline earnings growth. If we exclude the acquisition costs, which were Whistles costs which were in last year, so we take that out it's 6.8%. And at constant currency that would be 8.3%.

 The HEPS number in cents is just under 1100, 1099.2 and that's led to a HEPS growth excluding acquisition cost of 4.1% and at constant currency 5.7%. And the difference between the two obviously just being the number of shares in issue the end of last year to the end of this year -- or through the average weighted number from last year to this year. The final dividend is 400 cents and the growth in our total distribution for the year in dividends is 4.2%.

 We at one point were saying we are reasonably happy with these results. We think they are on consensus. We have seen some analysts have got us with a result below that. We've got some that are slightly above, but we think it's around about consensus from what we can judge.

 Having seen a number of the recent trading updates and what's come out in the news today, I actually in my terms would upgrade this result to actually pretty outstanding in the South African market, but we set ourselves quite high standards and we would prefer to be in double-digit growth.

 And just a few other ratios here that will be picked up by both Jane and Anthony later. We have got the net bad debt to closing debtors' book has nicely come down from 12.3% to 11.3%. We will get more color and flavor on that from Jane later. And the debt/equity recourse has dropped back as well to 53.6%. Anthony will talk about that. And in total terms down from 73% to 65%.

 So that's the basically the introduction, the overview of where we are for the year and I'm going to hand over to Anthony who will give a little bit more detail behind the financial numbers.

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 Anthony Thunstrom,  The Foschini Group Limited - CFO   [2]
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 Thanks, Doug. I think as Doug said, from our perspective certainly this has been a pretty satisfactory year financially. I think before I go into the detail on the slides that follow just thought I'd share maybe three themes from a financial perspective that I think I'm particularly pleased to be able to report back on.

 The first is that we, I think, feel that we are definitely in a position where we've met our commitment on cost control, and here I'm talking about merchandise and non-merchandise. You will see when we go through some of the detail of the slides through a real focus and commitment to that. We've pulled back a number of categories of expense within the business to well below inflation.

 Our other net operating costs, just by way of example, this year grew 3%; last year that was close to 14%. Our same-store operating costs were limited to 5.6% this year, below inflation; that's obviously not easy to achieve. And then on a merchandise perspective our overall product inflation for the year has averaged down to about 7.2% and that obviously includes some very high inflation categories like branded sportswear, Nike, Adidas, Puma, and furniture.

 So I think there's a theme here around cost control. Clearly that's something that we will continue to focus on going forward. I think that's just the economic reality.

 The second area that we've had a really big focus on over the last 12 months has been around capital optimization both in terms of the overall balance sheet but particularly in respect of working capital. It's very pleasing to be able to report that we have slightly more than doubled our free cash flow generation for the year, and I will take you through some of that detail. But that I think is really a milestone and, again, something that we want to improve going forward.

 And then as Doug alluded to on the last slide, we've managed to reduce group gearing both from a South African recourse perspective but equally a total TFG group perspective. And at the same time I think we've also strengthened our balance sheet in terms of its actual structure by switching and implementing a -- or switching to and implementing a more longer-term funding strategy, which I think in the current environment is absolutely the right approach and it gives us a balance sheet that we're very comfortable with.

 So that's just setting the scene in terms of actual detail. I think Doug has really covered retail turnover, up 8% for TFG Africa, 11.6% for the group. Just to remind everybody that 11.6% now includes Whistles which is non-comp for a full year. So that certainly benefited that number; at the same time the exchange rate certainly hasn't benefited us. And as Doug said, in constant currency that's sitting at just over 14%.

 Gross margin is something that as a group we try our very best to keep constant. We are comfortable with the levels that we trade at. I think what's really pleasing is that at a group level we've kept our gross margin totally unchanged, 49.7%. If you take a look at TFG Africa, we have had a slight erosion there, 46.9% down to 46.4%.

 The predominant reason for that though has been, as we said at the half year and that continued for the full year, has been the out-performance of our cellular phone sales. So those are up roughly 15% this year and they obviously trade at a much lower margin than the rest of our commodities. So you get the benefit of the added turnover, that's nearly ZAR2 billion worth of sales now, but it does erode your gross margin to a degree.

 I mentioned expenses, that 7.9% I think we are happy with overall. There are some anomalies in that which I will explain in a moment. Jane and her team have done a fantastic I think effort to actually reduce net bad debt by 5.4%. And you will remember that that is on the back of an actual rand's reduction in net bad debt expense last year as well. And I think to do that in the current environment where consumers are obviously under a lot of pressure really is a tremendous achievement.

 The operating margin, if we look at that from a TFG Africa perspective, the 18.2% to 17.9%, that's largely just the drop-down of the effect on the gross margin, the out-performance of cellular phone sales, and then the group operating margin moving to 16.2%. That's obviously the follow-through of the cellular -- the lower margin on the cellular phone sales, but equally the inclusion of Whistles.

 And I think as we all know, UK businesses do run at a -- matter of fact most international retail businesses run at a lower operating margin than South Africa because they have got higher rentals and higher salary costs. The net effect of that of course is that brings us back to our 4.1% HEPS growth.

 Just taking a look back over the last five years in terms of results, 10.9% compounded HEPS growth. I think the part that is probably more relevant to everybody in this room though is that, if you just follow the trend of those green blocks, we've managed I think to continue to reward shareholders very much in line with that growth in earnings and certainly our intention going forward.

 Looking at revenue and a little bit more detail, I think just -- I wanted to highlight the contribution of the international revenue out of the UK up 45% in sterling. Even if you convert that at a weaker exchange rate, that to rands up nearly 29%. Again, I think if anybody follows the UK markets, that again is I think a particularly proud achievement.

 Interest income is well up 13.2% for TFG Africa. Yes, we do fund Jane's book, but if she produces 13.2% we are more than happy to do that. So I think that's an outstanding contribution. The other revenue, which is really our publishing insurance and one2one income, our mobile airtime income, that's very tightly aligned to our ability to open new accounts. With new accounts being under pressure with the affordability regulations, frankly any growth in that area at the moment is actually quite pleasing. But we will go into that in more detail in a moment.

 I think I've probably covered most of this, just other than to say that from a gross margin perspective we obviously look at gross margin per category. Those gross margins -- all the categories have been pretty much unchanged. The only area that did move was clothing and that was very slightly.

 And again, I spoke about this at the half year; that's really in relation to the re-launch and repositioning of what was Fashion Express into The FIX. We've had to clear a lot of that old stock out. The way the business is performing now is very pleasing but it has had an impact on the current year. We expected that to happen. But nonetheless it's in those numbers.

 I said I was going to talk in some detail about expenses. It is a busy slide, so I'm going to try and -- and you've obviously got time to go through this in detail -- but I'm going to try and just pick some highlights here.

 Firstly, the group numbers here are fairly difficult to follow, and again that's because of the inclusion of Whistles for the full year that wasn't in there last year. And if you strip those out they become a lot more comparable. You will see that in the segmental information.

 Concentrating really on the TFG Africa expenses for the moment, I mentioned in my introduction that I think we are particularly proud of that 3% limit on growth and other operating costs. And I think the obvious question is how have we done that. We've set up a group central procurement function. All of our major contracts now go out to tender on a regular basis. There is a centralized review that ties back into our budgeting process. Frankly, I just think we have got a tighter rein on it because we've put some effort into that space.

 If I take a look at probably the other outstanding highlight that I mentioned in my introduction, that's really this branch level comp expense growth being limited to 5.6%. It's something that we have a huge amount of focus on at every trading division. And that's really I think the result of 12 months of hard work in that area.

 Looking at individual expense items and some of the buckets we've got here, obviously that depreciation number, 26%, does stand out and looks higher. You may recall if you were here last year that we had to change the estimated useful lives of our store furniture and fittings to comply with IFRS. The net result of that is you reduce your base of depreciation in the prior year, your current year depreciation has to build on that and that really kicks out the higher number.

 If you strip out the impact of the IFRS change, that actually would have worked out at 9.7%. Then over time that normalizes. So over a three- or four-year period it gets back to parity. Employee costs were up 9.3% within the group inflation and promotions basically come to about 7.5%. In terms of increases the balance relates largely to new store staff, very few hires at a head office level this year and, again, part of I think the commitment to cost control.

 I've mentioned the net bad debt down 5.4%, really bringing us back to total trading expenses growing by 7.9%. That number last year was just under 10%, so I think quite happy with that, but again something we will work on going forward.

 I spoke about the fact that we've made a lot of effort to move to a longer-term more structured balance sheet. We definitely got benefit in terms of the stability of our balance sheet; however, it does come at a cost. Most of the increase there, probably 70% of the increase there in interest really relates to switching out to longer-term funding.

 We've now got -- the majority of our funding is medium- to long-term. Previously a lot of that would have been sitting in the short-term bucket. That comes at a higher cost. And then given a lot of the political upheaval and the downgrades that have come into the system, we've ended up seeing higher spreads on interest rates compared to a previous year. And we are equally up against the compound effect now of the repo rates that took place in the prior year as well.

 I mentioned inventory is a major focus area; that grew 7.7%. I think we were hoping it was going to grow by an even slightly smaller amount than that. Doug mentioned that January and February were particularly tough trading months for the industry as a whole. That [we] certainly slowed rates of sale price as well, so it certainly didn't help the number, it would have been lower than that. And equally in March we had Easter move through into April, which I think further added to that.

 Needless to say, it is a -- it's a number that we are not unhappy with. We believe we actually very conservatively provisioned throughout our business. There is no stock issue that causes us any lack of sleep whatsoever. And as I mentioned earlier on, our product inflation for the year averaged out to 7.2%. Certainly everybody else who has come to market in the last six months has probably been on average 5% to 6% above that. And I think if you look at what has underpinned our turnover growth, certainly one of the things that continues to help.

 Just for completeness on the balance sheet, our book grew 4.6%, just a tiny amount, over ZAR7 billion. Jane will deal with that in her presentation. And in terms of borrowings and the impact that that has had on our gearing, if we just take a look at our total interest bearing debt, that's come down quite nicely. And the level of cash in the business has stayed pretty much where it was from last year. The net result of that is our net borrowings are down by a similar amount.

 Our international borrowings have reduced quite significantly. Two reasons for that. Our UK businesses are very cash generative and they are paying down the debt that they have on their balance sheet. Equally one of the benefits that you get with a weaker exchange rate is when you convert your UK debt into rands it's obviously a smaller amount as well. So quite pleased with that.

 The net result of all of that is our recourse or South African debt that we stand behind -- debt-to-equity ratio has come down from 55.6% to 53.6%, again a number we are not uncomfortable with. Over time we still want to pull that back further. And then at a total consolidated level, reduced from 73% to 65%, again reflecting the revaluation of the foreign debt.

 I also mentioned cash flow conversion. I think that, again, this is a somewhat busy slide; it's one we haven't shown in the past, but I think it does reflect our focus on the area. I think if we just look at the profit lines it almost doesn't matter which one you choose -- EBITDA, operating profit before depreciation and tax -- they have all shown significant improvement in line I guess just with our trading results for the year which is the starting point to this.

 Despite having invested significantly in new stores and in RT across the business, which we do every single year, we have managed to have a very, very tight rein on CapEx. We have actually pulled that back slightly. And then I think the real area where we have shown progress is here on working capital.

 The majority of that savings really come out of growing our stock levels more slowly than we have in the past. I referenced that back to the 7.7% overall inventory growth on the previous slides, something that we'd like to do even better on in the future. But the net effect of that is, as I said, a doubling of our free cash flow compared to last year.

 Just in terms of CapEx, just to give you a sense of where we spent that money, stores marginally up, I think that's up 2.6%; RT down significantly, that's down 26%. And that's not to say that we are not continuing to invest in systems. It's just really making sure that we do get bang for buck and it is somewhat cyclical. You get peaks and troughs in different years. But a very, very tight focus on making sure that we need every single system that we commit to and that we get a benefit from the spend.

 On the international division, that is up a bit. But again that includes Whistles now. So Whistles' CapEx wouldn't have been in that number in the previous year. And then this other of ZAR81 million -- our biggest proportion of that is ZAR53 million which was spent on our new factories -- or new factory in Caledon.

 We have just completed the factory in December, it was ahead of schedule. We commenced trial manufacturing in January, again slightly ahead of schedule. Our official launch is at the end of this month on May 31 and we look forward to hopefully seeing many of you out there in due course.

 It really is a state-of-the-art facility. It is in our view the most up-to-date and advanced clothing manufacturing factory in South Africa and on the continent. It has the absolute latest technology, latest machinery. We have gone around to the best suppliers around the world and brought that back here. What it really does is it enhances our ability to produce more clothing on a quick response basis.

 At the moment that's predominantly ladies. It's in some of our brands more than others. This gives us an ability to significantly enhance that. If we play this forward to 2020, which is really where our planning sits at the moment from a manufacturing perspective, this allows us to produce up to 2.5 million more units a year through our own factories and we will end up employing close to 500 more people in Caledon.

 If anybody has been out to Caledon I think there's quite a good news story to that. There really isn't much employment there. This is pretty much the industry in Caledon and nice to be able to do something that's beneficial there and beneficial for us.

 Just finally, I guess given where Cape Town sits in terms of a water crisis, there is a real commitment here to I think make sure this factory is as green as it possibly can be. You will see here that the entire roof of the factory is solar panels. They produce a third of the power requirements to run that plant.

 We recycle and re-harvest water at the plant. And all of the machinery that I mentioned that's brand-new and state-of-the-art, including the air-conditioning, is super low energy efficient in usage. And that is really where that money was spent. Jane, over to you.

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 Jane Fisher,  The Foschini Group Limited - Group Director, Financial Services   [3]
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 Thanks, Anthony. If you look at the consumer credit index, which of course measures the state of the South African consumer health across all of credit providers, that's the banks, the retailers, and other credit providers, the last data point that we have is for quarter four, 2016 and you can see that the index is around 50%. It's not getting better but it's not getting any worse right now.

 The latest data should be out we think next week. Obviously the question is where is the index going to go? Now the index is made up of household cash flow. It's made up of debt servicing costs. It's made up of default rates that are for the industry as a whole. I suspect that the quarter one data for 2017 will be probably flat because I don't think we've seen any major changes in default rates or cash flow, etc.

 Now we were hoping that the economy was going to start getting better; some of the leading indicators were saying that right before the cabinet reshuffle in March. We were even thinking that maybe the repo rates might be decreased going forward this year. I think with all the political uncertainty right now, that's not going to happen.

 Now a cut in the repo rates of course would have helped household cash flow, but given that's not going to happen now I think cash flow is going to stay under strain for some time to go forwards. So what does that mean for TFG? Well, it means I need to keep my conservative prudent credit risk policies in place. I feel a little bit like a stuck record; I said that to you this time last year. But until some of these indices change and start getting better, we've got to remain conservative.

 So how have we done? Well, for a start our [EBITDA] numbers are up 78% year on year, which is a fantastic result given that we had a great set of results at this time last year as well.

 Our interest income is up 12.8%, now you will see that our gross book is only up 2.9%, so how have we got such an interest income? The main reason is that the repo rates during the prior financial year increased by 125 basis points. So you have a compounding impact of the interest rates, you have a growth in your gross book. Times the two together and you get the 12.8%.

 Net bad debt has decreased by 5.4%. Of course the net bad debt statistic that we show here is your write-offs, your recoveries, your debt sales and any provision movement in there. Now we have had a slowdown in write-off again for the second year running. It's down -- well actually it's the third year running -- 11.4% down to 10.2%. And I think this financial year we are in right now we will see that slow down even more going forwards.

 We've had a good recoveries result, 18.7%. That was off the back of a high for last year of 36%. We put a lot of investment into our recoveries. We put new systems in place. We put new strategies in place. We hired new analytical people there. That can't continue at those kind of rates. So I suspect in this financial year that will be a lot flatter.

 Now the provision of course is how much money do you need for the future to cover your future losses? Well, given that my collections is better, my recoveries is good, it naturally says, well, I don't need as much provision going forwards. And hence we've got a better provisions result all of which adds up to a decrease by 5.4%.

 So then the next question you say, well, has it cost you more to deliver these results? No. We have actually spent less money and we've decreased our cost by 2.9%. But we still invested in the right areas. So how have we done that? Well, there has been two major cost savings.

 I spoke to last year about Workforce Manager. We have rolled that out across all of our call centers, which are the biggest costs for the credit division such as customer services, collections, fraud, new accounts, validations, etc. By having Workforce Manager you can schedule the right number of agents at exactly the right time to hit the SLAs that you want to hit. And having that kind of workforce means we can be flexible when we need to be.

 We have also moved a lot of our statements to electronic statements. When the post office went on strike a year or two ago, that hit us quite badly in terms of our delinquency rates. Our consumers need to know how much they need to pay. So if we can't tell them via these printed statements, we had to find another way. By moving onto electronic statements that also gave us a big saving.

 Now we used some of those savings and we invested some of that money in a validations team. So of course with the new affordability regulations we had to create a validations team to check all those proof of income documents. So we had to put money into that.

 And we have also invested into our group analytics team and the group analytics team is not a credit specific initiative, that's for the entire group. And I will tell you more about group analytics a little bit later on.

 So you combine all those together and that gives you a good result. So we made ZAR572 million. Now going forwards, I suspect that figure will remain flat with some growth. There is not going to be these massive jumps going forward in terms of my EBIT going forward. I am not a bank. I am here -- the credit is an enabler for the retail division and I am here to help give them good credit sales in a responsible sustained manner.

 Our number of active accounts decreased 5.4%. Last year we were 4.4% negative. Of course the affordability regulations made it much more difficult for us to open new accounts. We still lose a number of applications that we accept because the customer cannot bring in those proof of income documents. For this financial year we have approved roughly 16.5% less than we did last year.

 We put certain measures in place to try and improve our new account opening and we suspect that this figure will get better this year. It will still be negative, but it won't be 5.4% negative. So we will start getting back some of that momentum that we lost in our account base.

 Great turnover growth, ended at 2.3%. The first half was 1.4% as we were dealing with affordability regulations. As we got better with how to deal with it, we ended the second half much better at 3.3%. What's interesting is if you look at Africa, the rest of Africa, Namibia, Botswana, Swaziland and Lesotho, where you don't have affordability regulations, credit there is still growing at 15.4%. Now that only contributes about 5% of my overall credit turnover and it is still small, but it's interesting to see how credit is growing elsewhere.

 So the net debtor's book, which of course is my gross book less my provision, slowed down to 4.6%. I had lower new account growth; I had better payment behavior, better payment behavior means I've got a reducing book and that gave me 4.6% for the year.

 So if I had better collections results, then you should see it in overdue values and percent to purchase and you do. So the percentage of overdue values has improved from 14% to 13.9% and the percent of customers that can purchase has increased from 81% to 81.8%. That is the highest figure we have ever had, 81.8% of our consumers are now in a position to buy.

 You might say well why is that figure not lower? But that's because of the construct of our book. Right now we have got a bigger proportion of customers who have been with us for longer because we don't have as much new customers. And those older customers of course typically have bigger balances. If you had to look purely at say our 36-month on books or more tranche, they are actually performing better. So each vintage for each customer is actually performing better year on year.

 Our net bad debt write-off as a percentage of our credit transactions has gone out slightly to 8.2% and net bad debt write-off to debtors' book to 13.9%. I am still growing my write-off at a faster rate than I am growing my book, so my gross write-off is still at 10.2%; and of course my gross book is at 2.9%.

 So these figures will go out slightly, that is to be expected, but it's not a reflection of the quality. The figure that you should look at is net bad debt percent to debtors' book where net bad debt includes my provision as well, because that's really saying what is the overall quality of your book. And you can see here that that has improved significantly.

 And here we can see that the provision, which says how much do I need for the future, has also improved significantly. Yet again we have not changed our write-off policies, we have not changed our provisioning policies. The amount of debt that I re-age is significantly down yet again year on year. These are genuine figures and they are a reflection of the quality of our book through prudent credit risk measures.

 The value added products; when you are opening less new accounts of course there are less accounts to sell to for the publishing and the insurance and the one2one portfolios. But the publishing is still the biggest publishing house in South Africa. They have launched new magazines during the course of this financial year, they launched FitLife and they have done a JV with Bona. And we are now selling these magazines in some of the selected retail stores out there. They have 15 magazines in circulation.

 Insurance also launched two new products. They launched TFG Retrenchment Plan and Fraud Alert and they also have 15. And one2one you can see is quite a growth here. It's off quite a soft base and that's as they improve their supplier service delivery and we think there is more opportunity here. So all in all combined in a very tough environment they still managed to show growth of 1.5%.

 Regulation -- I don't normally talk to you about I have never showed you a slide on regulation before or legislation, but we are increasingly spending more and more of our time on legislation. So what's happening here?

 Well, affordability regulations, you will know that there is legal proceedings with our sales in two of the retailers against the dti and the NCR regarding affordability. That matter is set down to be heard in the high court on August 7. It's likely to last two or three days we suspect.

 The Human Rights Commission of South Africa have asked to join as an amicus curiae and they are also a part of the legal proceedings. We are not expecting to hear any verdict out of this, and we haven't built in any figures into our budget for this year on the back of this. So we will see where that one goes.

 You will know as well though there is a portfolio committee bill to be drafted on the proposed debt forgiveness [reals]. That has been in the media recently. You will know that Parliament are talking about should we have a forgiveness program whether it's for trench workers, whether it's for low income consumers being able to access debt review.

 All very noble ideas and it has been tried in other countries. But of course somebody has to be able to pay for this debt forgiveness. We have commented on this at Parliament. When the bill is drafted we will be asked for comment and of course we will give comment to make sure that our thoughts are heard on this.

 And the NCR have also asked to have their powers extended. So, right now if the NCR wants to come and investigate me as a credit provider, they have to have probable cause to come and investigate. And if they come and investigate and they think that I am not compliant, then they have to refer it to a court and the court has to decide whether I am compliant or not.

 We are very happy with that process. That is how I believe it should work. Of course they want to reverse that. They want to be able to come in and investigate without probable cause and implement fines as they see fit. We again, if we are given an opportunity, will comment on that.

 And then the National Credit Act. TFG operates a substantial diversified publishing and insurance business. On the basis of numerous internal and external legal, because we always veer on the side of conservatism when it comes to compliance, we believe that we are fully compliant with every aspect of the NCR with regards to our credit, publishing and insurance portfolios.

 So what are we going to focus on? So I've cleaned up my book, my book is now clean. We have invested in people, we have invested in structure, we have invested in technology. We now need to make this year about the customer.

 What is it the customer wants? What is that credit product they want? What are the features of that credit product they want? How do we make the account opening as easy as possible? How do we make the experience as good as possible? Who do we need to partner with?

 Which third-party business partners should we work with to help open up new accounts? And also how do we develop the systems to be able to offer our publishing and insurance products to our cash database? Now that (technical difficulty) already well underway all of those ideas, but we want to make this next year all about the consumer.

 Group analytics, which I said is more than just credit. Now group analytics has been set up to say: How do we use the data to help the brands? If we are able to track and I think we can check about 77% of all of our transactions in stores to a consumer and we know who they are through our cash and credit rewards database. How do we use the power of that data?

 So how do we help inform them for example? You need to expand your product offering in this particular range for these particular stores in this particular area where you are underrepresented or overrepresented. We are even talking about how do you allocate merchandise down to a store level using that kind of data.

 How do you talk to your customer, what kind of communications? And how do you make sure that all of your communications are relevant? Consumers don't mind if you talk to them lots as long as you talk to them about relevant information. Of course what we have to make sure is that we have a single view of customers. All of our data at any touch point is in one central place that we can use and we can work on.

 And of course you will know that IFRS 9, the accounting standards are changing with regards to our provision methodology. So the provision methodology will change from an incurred loss to an expected loss. Naturally that will increase the provision slightly. We don't believe that's material to the group at this stage. Thank you. I am going to hand across to Doug.

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 Doug Murray,  The Foschini Group Limited - CEO   [4]
------------------------------
 Thanks, Jane. Right, I'm going to move on to the RAG acquisition. We have got a couple of visuals here. This is yd. and this is Connor, and that's not the names of the individuals, that is the two brands I'm talking about here.

 You would all have seen this morning our announcement that we have acquired this business. We entered into an agreement to acquire the entire share capital of the Retail Apparel Group. We are acquired those shares from the private equity group Navis Capital from the founder of the business, Stephen Leibowitz, he has been nonoperational in the business for at least two or three years, and certain members of the management.

 The management team of RAG have all entered into new employment contracts with us to ensure operational continuity going forward and these contracts include appropriate short-term and long-term incentives.

 What is the strategic rationale behind acquiring this business? Well, first of all, their product and their value positioning are very well aligned to our current multi-brand offering. It clearly further broadens our international expansion into our chosen geographies. They have very established store and online channels which provide a very strong platform for expansion of our brands also into Australasia. And of course enhanced geographic diversification for our group will provide earnings and a currency hedge while entrenching our position in Australia.

 But why RAG? We have adopted exactly the same thinking and criteria with this business as we did with Phase Eight and we will quite frankly with any business that we look at. They have an exceptionally strong management team with extensive retail experience. They are a leading specialty menswear player in the Australian market.

 And just in terms of -- we have been asked what is the percentage of the market? We've tried to get some information on that. It's about 6.8% of the menswear market and it is the largest of these specialty retailers, I think [Lowe's] come next. We are mainly very value driven. Cotton On is 4.8% their menswear, so it's almost 50% bigger than Cotton On in menswear.

 And there's another one which I think is under pressure. I can't remember the name of it; you might have it there, Anthony. Roger David, thank you. We hear that that business is under a lot of strain at the moment.

 You will have seen that they have had really consistent growth in both top-line and in earnings. That has always been a key criteria for us. It was with Phase Eight and it is with this business. You can see the numbers here both on the revenue side, this is Australian dollars. It is in the booklets that you've got there, so it probably would be more easy to look at that. And this is on the EBITDA side as well.

 The numbers I've just quoted there are only up to financial year 2016 actual. It excludes what would be June 2017 to the end of next month. We are pretty confident that the number will probably be somewhat higher than that number. It effectively pushes this over a four-year period to in excess of 13%. So these guys know what they are doing. This is a successful business. You can say what you like about Australian retail, but there are good businesses out there.

 It is a scalable business model. There is a lot of scope for further expansion and market share growth with this business. We expect strong growth in this business, double digit growth going forward with continued rollouts and optimization of their operating brands.

 Where we say it's differentiated, low risk product strategy, it's menswear. Now we understand menswear very well. We've got a massive menswear division. We know that in menswear you run at a markdown level that's probably in a good year 7%, in a bad year maybe 10% or in a tough year 10%.

 Ladies fashion is probably in a good year 13% and it can go over 20% in a bad year. It is much lower risk; there is a much higher percentage of replenishment stock, core stock that goes into menswear. That is what we mean by being a low risk -- a lower risk product strategy.

 They have good digital marketing and online channels. Their sourcing is strong. They have got a good distribution network. And of course, looking at this and looking at menswear, the overlap between this business, these brands and what we have in menswear with Markham -- I am never a great believer in this in ladies wear, but certainly in this particular case on menswear we think that there is a potential for sourcing synergies. And as soon as we get the completion over and done with we will certainly be getting the two merchandise teams together.

 It is of course -- it does of course have a very strong alignment with our multi-brand business and with a particular focus on menswear and to a lesser degree, very small but growing, ladies athleisure business.

 These are the five brands. We have -- it was established in 1987. We have Tarocash, yd., Connor, Johnny Bigg and Rockwear. Tarocash probably is targeting or is targeting an 18- to 40-year-old male in the midmarket in Australia. Mid-market in Australia I think is quite a bit different to mid-market in South Africa is the bulk of the market in Australia. And remembering a state like New South Wales has a higher GDP than the entire South African country. So there is plenty of disposable income in that country.

 The one thing about Tarocash though is if you go in there and you get shirts it will probably be off a regular fit, whereas yd. slightly more fashionable, appeals to a younger consumer 18 to 27, and you will probably find that it's slim fit product that you will find in that particular business.

 Connor is a value brand, it's been the fastest growing brand in their stable over the last two or three years. They have been incredibly successful. And just to give a sense of pricing, if you are looking at an average price in Tarocash you would probably be talking about AUD50 whereas here you would be talking about ZAR30 or ZAR31. So quite a significant difference in the value offering.

 Johnny Bigg is relatively new. They cater obviously for the tall large gentlemen. They go up to size 8XL. I don't know if you have ever seen 8XL; believe you me it is big. It has been incredibly successful, way beyond I think their expectations. There has been, strangely enough, significant interest in this brand out of the US as well. But it is still very much in its infancy.

 And Rockwear is a brand that they acquired a couple of years ago and with just a few number of stores. It had not been doing well and in fact it's basically getting to a breakeven point at the moment. So that is one of the reasons why you will see the margin is a little bit flatter and not growing at the same rate of turnover.

 This is obviously as it is turning around, which it is, this will obviously add to the bottom line as well and to the margin expansion. But it is only 25 stores at the moment. And it's value athleisure. If you think lululemon and you think Lorna Jane, which are -- Lorna Jane is an Australian athleisure brand it's probably about 30% cheaper than Lorna Jane.

 This is just some visuals off the different brands. They have 400 stores in total and it is exactly 400 at the moment. There is Tarocash has 114 stores, Connor 137, Johnny Bigg 26 stores, yd. 98 and Rockwear 25 stores. Just some visuals of the actual product itself. This is Tarocash; Connor; Johnny Bigg, that isn't 8XL but it's big; yd.; and Rockwear.

 Now interestingly, as this is an aside, when we were over there just finalizing this deal Anthony and the team were running along here every morning. And they never told me about it, I was stuck in the gym, but now I know why they were running along there every morning.

 In terms of the actual acquisition consideration, the price is capped at the lower of seven times their normalized EBITDA up to a maximum of AUD302.5 million calculated on a debt free cash free basis. To be honest, we believe the June 17 result will probably exceed the 43.2 that was forecast, which in effect will probably end up with the multiple being under 7.

 We are going to be paying this obviously in cash on completion, which will be the later of June 26, which is our trading year-end. And on the fulfillment or waiver of all the conditions precedent, and I will come to those just now. We don't see any problem in that. On completion we will pay 95% and then there will be a 5% final payment once the audited accounts are finalized. And that will be for -- adjusted for net working capital requirements and net debt.

 Source of funds, we will be using a combination of our own funds and a short-term bridge facility provided by RMB, and that will give our business, TFG Australia, the required funding to complete the purchase. It is the intention that the bridge facility will be refinanced with longer-term funding at an appropriate time.

 And the question that everybody is asking, we will be going to the market to get general authority or a general meeting to get authority from shareholders to issue shares. We will then decide what we are going to do. We -- and the timing of that we will then decide. We're in no hurry to do anything about that.

 It may well be that we do something with shares. We may do it with shares and debt or we may not do anything with shares at the end of the day. So we are keeping our options open on this and we want to retain quite a lot of flexibility. And just to let you know that the purchase price has been fully hedged at this stage, so we have no risk on the currency going forward.

 In terms of the CPs, the South African reserve Bank approval is essentially finalized. We were given that some weeks ago verbally. It's now we have to put in the paperwork. We expect that to take just a number of days to get approved. The Australian foreign investment review Board approval, you again can only submit that once we have got to the stage we are now where we have announced the acquisition. We have just been through that with the G-Star acquisition of 14 stores over there. It will take about 30 days.

 And then of course probably the one that we will take the longest time is just with the landlords. We need about 75% of the landlords to give us consent to the change of ownership within RAG. We are not foreseeing that as any sort of problem, it is just the time to get around all the landlords. They will start working on that essentially from Monday morning and we are hoping that that is complete by the end of July. Maybe it will be a little bit earlier, maybe a little bit later. That is our best view on that at the moment.

 Before I go on, let me just really set the scene because we are going to get a lot of questions, I'm quite sure, on this. Yes, we know Australia is a difficult retail environment, so we don't need to go through the do-you-know-it's-a-difficult-retail-environment. We know that businesses are going into administration there. Yes, we do know that.

 We know that Top Shop have just gone into administration. I think it's a prime example of a business that's northern hemisphere coming in contracyclical in terms of season. They battled in terms of pricing, they battled in terms of the actual product offering. What we have here is a business which has got home grown management on the ground. They know their product, it's monolithic. They have got no international brands in there. So I think that gives them a massive point of difference. They have got a great track record.

 So they have been producing the results through all this drama that is going on in Australia. It's not just Australia. Look at South Africa. So trading is difficult here. You will in the last 24 hours have seen results from Johannesburg, you will have seen a trading update from an AGM. Those are bringing the whole market down. We are getting unfortunately tarred with that brush at the moment.

 We believe we have acquired an absolutely outstanding quality retail asset at a very good multiple. This is the time to buy good assets. The valuations of retailers all over the world are down for obvious reasons, tough market. So we have got a business at a multiple of 7, probably will end up under that. We think that is an outstanding purchase. Good business, great management. They have ticked all the boxes that we would look for in an acquisition. So we are very happy with RAG, but we will take questions when I have finished.

 So just to finish on the presentation talking about growth for the year, in Africa the space growth we had this past year was 4.4%, a bit lower than we would have anticipated and I will come to that just now. In the rest of Africa we now have 183 outlets across seven countries. We opened nine during the year. We closed two. The turnover was 9.9%, 3.4% same-store growth, and we are still looking at that sort of number over a period of time.

 We have clearly softened the rollout there, which I think is smart where you have got a difficult trading environment with the commodity cycle in these countries. When that changes we are structured to be able to speed that up if it's appropriate.

 Within South Africa we opened 197 outlets during this year. We closed 77 outlets during the year and both these numbers include 37 former Fashion Express stores that we closed and converted into other brands within the group. And I think that points back to what Anthony was talking about in terms of being a lot more aggressive in how we utilize capital.

 We have been a lot more aggressive in closing stores within this year and hence the space growth being lower than we would normally have expected. That was a thing that in a way we were doing it but we never saw exactly what the impact would be on the space growth we would have expected it to be between 5% and 6%. But we are very happy that we are adopting this aggressive strategy on closing underperforming stores.

 If we look at international, we have got 125 new outlets have opened in the year. It's three new countries. There is 49 closures during the year, that's to be expected. That the model in terms of the concession business. And I would hope that this gives some support and credibility to what we do when we acquire international businesses.

 The revenue in international is up 45%. That does include Whistles which is non-comp. But the operational EBITDA is up to GBP30 million from GBP26 million. We have got a growth of 15.1% in our offshore business operational EBITDA in hard currency. Now those that are pulling out your calculators and working out GBP30 million on GBP26 million, you are going to come to a number that's just under [15.4%]. The reason for that is that that has just been rounded marginally as has the actual number is 15.1%.

 We now trade out of 739 outlets in 26 countries. Obviously looking forward they are just going to continue focusing on the strategic objectives and the model which has proved to have been very successful for them. We are going to continue with the business plans and -- that have been set out for -- clearly defined and set out for the turnaround strategy in Whistles.

 That's a business that last year when we acquired it had just had a significant loss in excess of GBP2 million. We have turned it totally around and it's probably around GBP2 million this year the number and we will expect to double that for next year at least. And of course the other major focus will be the full integration of RAG into the group.

 Damsel in a Dress is quite a small business. It was opportunistically acquired. It was acquired for GBP2 million. They trade only through a website and 34 concessions within John Lewis. It's basically going to be a sub brand of Phase Eight. We will look at -- we are in fact launching the new range which is designed by the Phase Eight team, goes into the stores at end of June, July.

 We will look at putting it into other concessions throughout the UK and we will look at upgrading the online site to ensure we have strong sales there. So it's just opportunistic and, again, that in time we would even look at taking that into international concessions.

 G-Star RAW in Australia, we acquired 14 profitable stores and that is effective date of April 3 and, as I said, that hasn't come into any of these numbers. Now having the platform in Australia we will be putting the operations of that under the RAG team once we get everything settled which will obviously help.

 The purchasing of product will still take place here in South Africa because a major benefit, you may recall, is that we have scale in the southern hemisphere for this brand now and we are able to do SMUs, the special makeups, which deal with the seasonality problems that I was talking about earlier.

 All right, this is the last slide in terms of outlook for this coming year. Clearly there's a significant uncertainty in both the global and local markets. If we look at credit sales, and I think Jane has spoken about that, but we will have stronger credit sale growth, there is no doubt about that. That's just to do with the annualization of the credit regulations.

 But we really don't want that to actually mask the underlying impact that the affordability regulations have had on the long-term credit prospects of the group. And we obviously await the outcome of the legal case with NCR and dti that Jane was talking about.

 We expect good cash sales growth to continue. We have had seven years of phenomenal cash sale growth and we certainly don't expect it to keep running in the mid- to high-double-digits. In fact we probably believe that high-single-digits and maybe just into double-digits would be more than acceptable to be quite honest.

 The gross margin we expect to be maintained across each category. Probably with a bit of upside in clothing as we start to transition the FIX business, which took a big hit last year and affected clothing margin marginally. And of course the only other change in that would be the mix of product like we had this year with cellphones.

 From a space point of view, about 260 outlets across the group, 150 in Africa and 110 internationally. We will continue the focus on our key strategic initiatives with particular focus on customer experiences, cost control, working capital management and capital optimization, which Anthony has been driving and talking about.

 From an international point of view obviously quite a major focus on the integration of RAG. And we will continue to look for further expansion opportunities. Again, let me say it with the same criteria that we have applied to RAG we applied to Phase Eight. So we will look at that. They are few and far Between, But we are not shy to take advantage of them.

 In terms of the first seven weeks of this financial year the turnover growth, which again I'm going to talk in constant currency because it's really the only meaningful way to look at it, it's in line with our expectations. It's in the upper-single-digits both in international and in TFG Africa. And I did make mention of that earlier when I said that we were running ahead certainly in TFG Africa of what the second half was and actually ahead of what the full year was.

 So that's what we have got to tell you today. It crosses over both the results and the acquisition and I think we will open the floor to questions at this point in time. So would anybody like to kick off and I will deal with it if it's something that I've got knowledge on. If it's something that's credit then it will go to Jane. So we will be ready for whatever you would like to ask.

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Questions and Answers
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 Stephen Carrott,  JPMorgan - Analyst   [1]
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 Hi, it's Stephen from JPMorgan. The data that you are raising to fund the RAG acquisition is that South African or Australian debt?

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 Doug Murray,  The Foschini Group Limited - CEO   [2]
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 It South African. We do have some debt in the business already over there and we would just -- it's about AUD40 million. The banks have already been very quick and easy in terms of change of control consent. But no, it will be South African debt.

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 Stephen Carrott,  JPMorgan - Analyst   [3]
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 Just as a follow-up question, the decision on an equity capital raise, would you expect to have that done and dusted within the next six months?

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 Doug Murray,  The Foschini Group Limited - CEO   [4]
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 Possibly. We don't know. We really want to keep as much flexibility as possible on this. So we are not committing to anything. We are -- one thing we will do shortly is look for a general meeting to get authority on issuing new shares. And then once we get that we will see where trading is, we will see what our options are, we will see where the group gearing is and then we will make a decision.

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 Stephen Carrott,  JPMorgan - Analyst   [5]
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 Thank you. Since I've got the mic I'm just going to go for one more. It looks like your African sales growth for the first three months of the year was --

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 Doug Murray,  The Foschini Group Limited - CEO   [6]
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 Sluggish.

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 Stephen Carrott,  JPMorgan - Analyst   [7]
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 -- very low-single-digits let's say. And then, it looks like there's been a reasonable uptick in April and May. In April and May obviously there's an Easter move effect, there is an annualization of the leap year impact, etc., etc. But do you feel there's been perhaps some underlying improvement over the last two months say or do you think it's pretty much -- we should go back to expecting low- to mid-single-digit growth over the next few months? Very hard to tell but what are you saying to the market at the moment?

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 Doug Murray,  The Foschini Group Limited - CEO   [8]
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 I will grab my crystal ball and give you our view. January/February for us was probably a little bit of a hangover of quite a strong November and December. We really did have a very strong November/December. January/February did come as a bit of a surprise to us. And you are quite right, it was low-single-digits, it wasn't great. I think it was still well ahead of the rest of the market quite frankly (technical difficulty) March is all about the Easter move into April and of course we benefited in April. We had double-digit growth in April.

 It's hard to tell, Stephen. We think that the number is mid- to upper-single-digits. That is where we are at the moment on our thinking. That is where we are. It's seven weeks into the new year. It is very tough out there. What we are picking up does seem to suggest that the rest of the market has also battled through April and May. That seems to be what we are hearing. So we are again maybe a little bit out of kilter. We are planning around that sort of growth. But again, I'm the first to admit it's a tough market out there.

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 Stephen Carrott,  JPMorgan - Analyst   [9]
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 I appreciate your views. Thank you.

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Unidentified Analyst   [10]
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 Doug, the number of store closures were material last year. Obviously there was the effect of The FIX that didn't suit all of the places. But can you may be just comment; surely you should know by now underperforming stores, will this again be material numbers in store closures? And also maybe just in Phase Eight, is that a normal sort of closure of concessions that we should expect going forward?

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 Doug Murray,  The Foschini Group Limited - CEO   [11]
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 I think the Phase Eight is quick to answer yes because that is the nature of that business. We have always said it's a low-risk capital light we can go in and out. We trial new territories all the time, so that will be the case.

 In fact in Phase Eight part of that is actually Studio Eight, the larger sizes, they are finding they are having great success online and less on the actual bricks and mortar. So that's going to become more and more of a bricks-and-mortar business. So we would expect that sort of closure -- a good number of closures in Phase Eight.

 With regards to our closures, a lot of that has got to do with when rentals and renewals come up, whether we either can negotiate to the appropriate rental, which sometimes could be well down on where it has been. And if we are not able to do that, we are taking quite a hard view which says well, then we are going to close.

 So we are adopting a slightly different and have adopted quite a firmer attitude on that in this past year and that we will get even firmer going forward. So a lot of that will be dependent on those stores that we consider marginal and are coming up for rental renewal, what sort of deals we get. If we don't get the right deals then we are going to walk. It's as simple as that. So it's very hard to predict but that is going to be our mindset. So we will have a number of closures again this year.

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Unidentified Analyst   [12]
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 Could you just comment on the be like-for-like sales you are seeing in the UK?

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 Doug Murray,  The Foschini Group Limited - CEO   [13]
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 Like for like is always a problem for us in the UK because of the online. We have always said that at every reporting session that we've had. Because of the concessions, the concessions get moved around, they get different footprints and it's a most impossible to -- what I can tell you is that the stores are down, but then we also put in the very low negative like-for-like in stores.

 But when you put the online in then it becomes positive, because all you are doing is taking a sale of away from a store into an online environment. So we put the two together. So we really battle to actually understand what a like-for-like -- a true like-for-like number is. In the concessions it's impossible.

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Unidentified Analyst   [14]
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 And then second question on RAG, it looks like they tried to come to market in July last year and list for [AUD400 million]. Why did that not go through? And just the price if you could maybe comment on that please.

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 Doug Murray,  The Foschini Group Limited - CEO   [15]
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 Well, I just think that quite frankly the market around the world for retail listings is -- there's just very little appetite. And for us it creates an opportunity. So we were able to pick up this asset at what we think is a fantastic multiple. Whether they would have been able to get it away, remember they don't want to take the risk. If they are not sure they are going to get it away then they won't do it. So it's just opened the door for us to acquire it at a very good price. I think it's more market sentiment around retail than anything else -- not specific to RAG.

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Unidentified Analyst   [16]
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 Just getting back to RAG, how is management incentivized today and how long of a locked in signed up for?

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 Doug Murray,  The Foschini Group Limited - CEO   [17]
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 All right. They are all on the top nine people there are on a two-year no notice six-month notice beyond that and then up to 12-month restraint period beyond that which will be under our control whether we want to invoke that or not. So that is the time period.

 And our own assessment is I don't think any of those people want to go anywhere. They have been there for a long time and they are very motivated to continue in this business. They all have market-related salaries. We have checked that out. We have had people over there with [REM] specialists.

 They have a short-term incentive program for the top people which is almost aligned to our own short-term incentive program. It operates for them but in terms of the numbers it's significant. It is totally performance driven, it is based on performance. And they have a long-term incentive in terms of a shadow share option scheme.

 And again, there are performance metrics in there. In fact the initial target that has to be hit there is over the three years because it runs in three-year tranches just as we do with our share option schemes. And they have to have a 6% CAGR on the earnings number and they only get to maximum payout, which is very normal and aligned to where we would be in our numbers. They have to have 12% CAGR on earnings over three years. So they are pretty locked in and they are well incentivized.

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 Abe Gordon,  - Private Investor   [18]
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 Abe Gordon, private. Doug, that's great. Such -- and witness this growth momentum in times like these, and your acquisition of RAG, so congratulations to management. But the slide that really interests me is Caledon manufacturing.

 In times like these and with manufacturing not expanding in this country, what is your intention there? Are you going to be exporting to RAG? Are you going to be servicing? What percentage of your buying for example, that sort of thing?

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 Doug Murray,  The Foschini Group Limited - CEO   [19]
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 All right, we have for some time -- I think first of all, remember we have got the brand-new factory in [Maitland] as well, which is also a state-of-the-art facility. We do -- and is predominantly for ladies wear at the moment. We are looking at introducing some menswear manufacturing. They do some T-shirts at the moment for Sportscene with the Redbat brand, but it's predominantly ladies wear. And it's really there to assist us with quick response.

 As I say about 40% of the units that they put through there are on a quick response basis and this will deal mainly with -- the reason of having Caledon is actually for TFG Africa. Going forward if we start to do more menswear product then possibly that could go across to RAG. But that's not the thinking at the moment. This is to cater purely for our own requirements within TFG Africa, predominantly ladies wear and predominantly driven by quick response.

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Unidentified Analyst   [20]
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 (Inaudible - microphone inaccessible).

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 Doug Murray,  The Foschini Group Limited - CEO   [21]
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 Probably similar actually, but the advantage is the quick response. That is what we want here. That's what we want here. It is not driven by price advantage, it's driven by speed to market. Is there anything else that you --?

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Unidentified Analyst   [22]
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 (Inaudible - microphone inaccessible).

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 Doug Murray,  The Foschini Group Limited - CEO   [23]
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 Anything else on Caledonia, sorry?

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Unidentified Analyst   [24]
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 No, that covers it. But if I can give your voice a rest, Doug. Jane, as you see, what you say in previous discussions always comes back at you. You previously spoke about the possibility of using third parties to help open accounts. Is there any progress on that?

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 Jane Fisher,  The Foschini Group Limited - Group Director, Financial Services   [25]
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 Yes, so right now we lose about 15% of all the applications that we approve. So once they have been approved we lose about 15% because we can't get the proof of income documentation. Which is quite a big number and that has quite a big impact. So we have just signed up with a Company called CloudGate and we are going to go head to head with CloudGate to see can they do a better job than us at collecting proof of income documentation.

 We have done -- we think we have done a lot when we've improved that statistic significantly, but it's always great to go out there and to see can somebody else do it in a different way or better than us. So we have signed up with them to help us on that.

 We are also currently in the middle of signing a contract right now, and I can't tell you the name of this, but it will be signed and up and running by July 1. And then that will be an organization that is currently working with a number of credit providers and they are out there in the market soliciting credit applications and we will also work with them. And they will help provide leads and applications.

 And they will collect proof of income documentation upfront as part of the application because that's where we are really getting in trouble is when the consumer are looking to take up credit they don't always have that proof of income documentation with them. You don't walk into a shop with all your bank statements ready.

 So we are also partnering up with this third-party to say, come on, come and help us and they have done it for some of the banks. We will be the first retailer that signs up with them. That will be July 1. And then we are always looking at other with other vendors are offering, what other people are doing and we will continue to keep looking at other partnerships.

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 Doug Murray,  The Foschini Group Limited - CEO   [26]
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 These are web questions that are coming in.

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 Anthony Thunstrom,  The Foschini Group Limited - CFO   [27]
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 Yes, web questions.

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 Doug Murray,  The Foschini Group Limited - CEO   [28]
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 I don't know if anybody from the floor has still got questions.

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 Anthony Thunstrom,  The Foschini Group Limited - CFO   [29]
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 I will do one more and then let's see if you want to go back to the floor. This is I guess, Dou, one probably for myself. It looks like there has been great progress on costs this year, but given the economic headwinds is there further room on costs?

 I guess the reality is we by and large have a lot of fixed costs in the business if you look at our store portfolio and certainly in terms of rentals and in terms of headcount. However, I think you did see on the earlier slides, and Doug spoke to it a moment ago, about us being a lot more focused and I guess a bit more aggressive on the tail end of stores.

 We now meet on a monthly basis to evaluate that list and we look first to see if there is anything we can do to mitigate a marginal store whether it is moving a brand, renegotiating rentals or any other factors that we can influence. I guess our answer is if we can't then we do push back really hard around a renewal period and look to exit.

 I think on the other costs I spoke about bringing in of group procurement function, we've seen some progress in the current year and some benefit from that. I do think it's really in its infancy and I think that going forward you would hopefully see some benefit coming out of that.

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 Doug Murray,  The Foschini Group Limited - CEO   [30]
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 All right. We are obviously here at the end for questions as I know everybody likes to rush forward and ask their own questions. Are there any other questions from the floor at the moment? Yes, Stephen.

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 Stephen Carrott,  JPMorgan - Analyst   [31]
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 Yes, last one. It looks like you've done a great job with your inventory. Could you just discuss actually what you've done, how did you actually achieve that and what are your plans going forward? It's not clear to me exactly what you've done to achieve that result. Thank you.

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 Anthony Thunstrom,  The Foschini Group Limited - CFO   [32]
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 It's probably going to sound slightly oversimplistic, but the reality is I think we've just simply pushed attention and focus on to inventory at a trading division level. And so practically what does that mean? It means we have produced a whole lot of reporting that measures inventory, stock turn, clearance rates from multiple different angles and we now get every single brand here to present that to Doug and myself on a monthly basis.

 It's become a KPI quite frankly within the individual businesses. We've got a huge variety of different commodities across the group that all have significantly different stock [trends] and things you can't set a one-size-fits-all target for them. But what we essentially are doing is looking for improvement from everybody. So it almost doesn't matter where you are.

 There is obviously a balancing act. You don't want to do that too quickly. You can damage turnover and damage the business if you get to aggressive, we have seen that in the past. But there is -- I guess it's just an incremental tightening up. We have introduced a BI tool that all of our heads of business and our Board now have access to that gives them that granularity around inventory.

 And yes, as I said, I think you get results in areas that become a key focus area. And certainly, just looking historically, it's not that we haven't understood the importance of stock turn, it is just that I think in a business that's been growing at really an exponential rate it hasn't been the most important thing. And I think a tougher market, it's becoming increasingly important and that's why the focus.

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 Doug Murray,  The Foschini Group Limited - CEO   [33]
------------------------------
 All right. Then I think -- I believe there are -- I would assume there are drinks and snacks outside. Yes, I am getting a nod. So there's drinks and snacks outside and anybody there that would ask us questions, of course we are available. Thank you.




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