S&V Weekly Newsletter Vol.6 No.05, February 3, 2020

This Newsletter is sponsored by SAFLIA

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Retail so far this year

"December was good, but January was horrific - 20% down on last year and our worst month in 18 years. We have a good customer base, a lot of whom work for the government, but I think they over-extended themselves. First it was Black Friday - which was good for us - then lots of parties and functions in December, but by last month there was nothing left. I'm optimistic February will improve and that from March we'll be back to normal." - Mukesh Lakha, member, Republik, Johannesburg, Gauteng, SA. Independent, 2 stores and online, men's outfitter.

"I was worried that the season would bomb, but it didn't. It wasn't as good as last year, but it was still okay. This year has been erratic so far - we have a good day, then we have a bad day." - David Boulanger, proprietor, Little Leather Shop, Shelly Beach, KZN, SA. Independent, 1 store, leather crafter and retailer.

"Our December was very similar to the previous one - maybe even 1% or 2% higher. And when the schools go back, we get international tourists, so January hasn't been bad. We're very seasonal, and in winter it gets very quiet." - Morné Pienaar, member, Memories, Knysna, W Cape, SA. Independent, 1 store, footwear and leather goods.

New MD for Bata SA

Pinetown, KZN, SA – Bata SA last week officially announced the appointment of Michael Wyatt as MD. A former Tomy Takkies brand manager here, he was transferred to Bata Australia in 2014, then to Singapore in 2016, and then to the Czech Republic - where Bata was founded - in 2018, climbing the ranks of the Bata Shoe Organisation.
       An interview with him will appear in the February edition of the S&V Footwear & Leather Goods monthly magazine, out on Wednesday.

Stock Exchange News Service (SENS)

Woolworths - trading update

Cape Town, W Cape, SA (January 27, 2020) – Group sales for the 26 weeks ended 29 December 2019 ( current period') increased by 3.8% compared to the 26 weeks ended 23 December 2018 ( prior period') and by 4.6% in constant currency terms. As previously reported, the 2019 financial year had a 53 week year, which resulted in a shift in trading weeks in 2020 compared to the prior financial year. This shift resulted in the Christmas week, including Boxing Day which is a significant trading day in Australia, falling into the first half of the current year compared to the second half of the prior year. In South Africa, the constrained economic environment, exacerbated by the disruption to trade caused by power outages and unseasonal weather in parts of the country, contributed to slower December trade.
       Woolworths Fashion, Beauty and Home ( FBH') sales and comparable store sales both grew by 2.2% and by 0.9% after adjusting for the shift in trading weeks. Price movement in Fashion categories was 4.0% and overall net space growth across FBH was 1.2%. Woolworths Food sales increased by 8.1%, and by 7.8% after adjusting for the shift in trading weeks, with comparable store sales 5.4% higher and price movement of 5.1%. The business has maintained positive volume growth for the period and continues to grow market share. Net space growth was 4.0%.
       The Woolworths Financial Services book reflected positive year-on-year growth of 8.3% as at the end of December 2019. The annualised impairment rate for the six months ended 31 December 2019 was 3.3% (six months ended 31 December 2018: 3.2%). In Australia, David Jones sales for the period increased by 4.9% and were 0.5% lower after adjusting for the shift of the Christmas week. The disruption from the Elizabeth Street store refurbishment, due for completion in March 2020, has reduced, compared to the second half of last year, as additional floors have opened for trade. Comparable store sales (which include online) were 0.4% lower after adjusting for the trading week shift. Online sales grew by 61.8% and now comprise 10.4% of total sales. Net space increased by 1.2%.
       Country Road Group sales declined by 2.5%, and increased by 3.3% excluding the sales impact of the Myer exit. Comparable store sales (which include online) grew by 0.1% after adjusting for the shift in trading weeks. Online sales in Australasia grew by 6.2% and now represents 21.4% of total Australasia sales. As the contribution from online sales increases, the reduction of unproductive space remains a priority in David Jones and the Country Road Group. Net space in the Country Road Group reduced by 8.1%, which includes the space exited in Myer.
       This voluntary trading statement is issued in terms of Section 3.4 (b) of the JSE Listings Requirements. Shareholders are advised that earnings per share ( EPS'), headline earnings per share ( HEPS') and adjusted diluted HEPS for the current period are impacted by the adoption of IFRS 16. EPS and HEPS are unlikely to differ by 20% or more than the previous corresponding period. The Group will be reporting on IFRS 16 for the first time in the interim financial results of the 2020 financial year on a modified retrospective approach, with no restatement of the reported comparative prior period results.
       Excluding the impact of IFRS 16, in both the current and prior periods, EPS, HEPS and adjusted diluted HEPS are expected to be within the ranges reflected in the table below:
December 2019 expected range (%)
EPS: -7.5% to -12.5%
HEPS: -7.5% to -12.5%
Adjusted diluted HEPS: -9.0% to -14.0%
December 2019 expected range (cents)
EPS: 172.8 to 182.7
HEPS:175.4 to 185.4
Adjusted diluted HEPS: 174.5 to 184.6
Including the impact of IFRS 16 in the current period, EPS, HEPS and adjusted diluted HEPS are expected to be within the ranges reflected in the table below:
December 2019 expected range (%)
EPS : -15.0% to -20.0%
HEPS : -15.0% to -20.0%
Adjusted diluted HEPS: -17.5% to -22.5%
December 2019 expected range(cents)
EPS: 158.0 to 167.9
HEPS:160.3 to 170.3
Adjusted diluted HEPS: 157.2 to 167.4
Constant currency information
The constant currency information contained in this announcement has been presented to illustrate the impact of changes in the Group's major foreign currency, the Australian dollar. In determining the constant currency turnover and concession sales growth rate, turnover and concession sales denominated in Australian dollars for the current period have been adjusted by application of the aggregated monthly average Australian dollar exchange rate for the prior period. The foreign currency fluctuations of our rest of Africa operations are not considered material, and have therefore not been applied in determining the constant currency turnover and concession sales growth rate. The aggregated monthly average Australian dollar exchange rate is R10.05 for the current period and R10.26 for the prior period. The constant currency information, which is the responsibility of the Group's directors, has been prepared for illustrative purposes only and may not fairly present the Group's financial position, changes in equity, cash flows or results of operations.
       The information contained in this announcement, including voluntary estimated financial information and constant currency information, has not been reviewed or reported on by the Group's external auditors. The Group's interim financial results for the 26 weeks ended 29 December 2019 will be released on the Stock Exchange News Service on or about 20 February 2020.

Stock Exchange News Service (SENS)

Pepkor - Moody's credit rating

Cape Town, W Cape, SA (January 27, 2020) – Shareholders are advised that the rating agency Moody's Investors Service ("Moody's") has assigned a first-time A3.za National Scale Rating.
       Moody's states, "The A3.za ratings assigned to Pepkor reflects its moderate leverage and the resilience of its business profile stemming from its leading position as South Africa's largest non-grocery retailer."
       Pepkor is considering opportunities in the capital bond market with the objectives of diversifying its sources of funding and reducing financing cost. This supports the Group's target to reduce its leverage in the medium term to 1x net debt-to-EBITDA.

Stock Exchange News Service (SENS)

Massmart - Sales update, trading statement

Johannesburg, Gauteng, SA (January 30, 2020) – For the 52 week period ending 29 December 2019, the Massmart Group recorded total sales growth of 3.0%, which resulted in total sales of R93.7 billion. Comparable store sales increased by 1.5%, while internal sales inflation amounted to 2.5%.
       Sales from our SA stores increased by 2.7%, with comparable stores sales increasing by 1.3%. Total sales from our rest of Africa stores measured in Rands increased by 6.4%, which, when measured in constant currencies* increased by 5.5%. On a comparable store basis, our rest of Africa store sales in increased by 2.9% in Rands and 2.1% in constant currencies*.
       The second half of 2019 was characterised by tough trading conditions. Economic growth contracted in Q3 2019, whilst Q4 2019 offered little relief. Sales growth for H2 2019 was 0.9% (down from 5.5% in H1 2019) with comparable stores sales contracting by 0.3%.
       In addition to the material impact of trading disruptions and customer inconvenience caused by aggressive load-shedding in early December, consumers continued to prioritise spending on non-durables over spending on durable goods. During the course of H2 2019, food sales increased by 3.3%, liquor sales increased by 0.4% while general merchandise sales, our biggest and largest margin category, decreased by 2.6%. Home improvement sales increased by 1.9%.
       The Group delivered a very strong Black Friday sales performance resulting in savings to our customers in excess of R300 million. Unfortunately this strong performance did not carry-over into the festive period. Sales growth in Q4 2019 was 0.5% as compared to the same period in 2018.
       Massdiscounters total sales for the 52 weeks of R19.8 billion was 0.3% up on last year, most notably impacted by lower consumer spending on durable goods. Comparable stores sales contracted by 2.1%. Encouragingly, Game SA saw foot traffic increase by 4% year-on-year.
       Masswarehouse recorded total sales of R29.4 billion, which was 2.0% up on last year, with comparable stores sales contracting by 0.3%. While general merchandise sales remained flat on last year, liquor sales grew by 3.5% with food sales growing by 2.5%.
       Massbuild total sales of R14.2 billion grew by 3.4% as Massbuild continues to maintain its market leading performance in DIY, home maintenance and building supplies. Comparable store sales increased by 1.4%. The significant slowdown in the construction sector negatively impacted Massbuild, with commercial/ yard sales decreasing by 0.5% compared to last year. This was however more than offset by retail sales growing by 5.3%, as the consumer's focus shifted to prioritise smaller home improvement and DIY type projects as opposed to major renovations and builds.
       Masscash total sales of R30.3 billion grew by 5.6%, especially supported by strong wholesale sales growth of 8.6%. Comparable store sales have shown a similar increase. Retail sales are flat on last year, testament of a very competitive market environment.

Trading statement for the 52 week period ended 29 December 2019
As noted in previous announcements this year, for statutory reporting purposes Massmart has adopted IFRS 16 using the modified retrospective approach', which does not require that the comparative period be restated.
       As referred to in the above sales update, sales growth has continued to be under pressure, especially over the course of H2 2019. Sales pressure was most evident in general merchandise, our biggest category by value and highest contributor to margin. Consequently, the increase in aged stock in this category resulted in additional stock ageing provisions especially at Massdiscounters, while it also negatively impacted our normal and rebate margins. In addition to volume pressures, the higher contribution from food sales and the increase in promotional mix specifically in Game in response to sales pressure, further negatively impacted on gross margin.
       Increased focus on expense management and cost savings initiatives in H2 2019 resulted in a slowdown in operating expense growth from 12% in H1 2019 to 6.5% in H2 2019 with full year operating expense growth of 9.4%. Expense growth however still outpaced sales growth.
       Consequently, trading profit, for the full year, before the impact of IFRS 16, is expected to be 73.0% to 83.0% lower than the prior year trading profit of R2 068.9 million. Including the impact of IFRS 16, trading profit is expected to be 40% to 50% lower than the prior year trading profit of R2 068.9 million.
       Driven by the overall lower profitability, the reversal of certain deferred tax assets in the rest of Africa and locally as well as the limitation of raising further assets relating to current year tax losses in certain operations, the effective tax rate is expected to be negatively impacted.
       The lower operating performance, albeit somewhat offset by improved working capital management and lower capital expenditure, resulted in an increase in net borrowings compared to last year. This increase resulted in an increase of approximately 11% in the cost of borrowings.
       Shareholders are referred to the Sens announcement on 13 January 2020 regarding the potential closure of 34 Dion Wired and Masscash stores. The continued loss making nature of these stores were identified as a trigger for testing for potential impairment at the end of the 2019 financial year, resulting in the impairment of certain of the fixtures and fittings, inventory and right-of-use lease assets of these stores. The value of this impairment will be confirmed with the release of our preliminary results for the 52 weeks ending 29 December 2019 and is expected to be in the region of R200 - R250 million, before tax.
       Consequently shareholders are advised that Massmart expects, with reasonable certainty, the following financial results:
Excluding the impact of adopting IFRS 16:
Expected Pro-forma Dec 2019; Reported Dec 2018 and Expected % change
Rm Headline (loss)/ earnings (Rm) - (746.4) to (836.6); 901.2; (183%) to (193%)
HEPS (cents) - (342.9) to (384.5); 416.5; (182%) to (192%)
Net (loss)/ earnings (Rm) - (862.6) to (951.4); 888.6; (197%) to (207%)
Basic EPS (cents) - (396.2) to (437.3); 410.6; (197%) to (207%)

Including the impact of adopting IFRS 16:
Expected Dec 2019; Reported Dec 2018 and Expected % change
Rm Headline (loss)/ earnings (Rm) - (1 136.6) to (1 226.7); 901.2; (226%) to (236%)
HEPS (cents) - (522.1) to (563.7); 416.5; (225%) to (235%)
Net (loss)/ earnings (Rm) - (1 296.8) to (1 385.6); 888.6; (246%) to (256%)
Basic EPS (cents) - (595.7) to (636.7); 410.6; (245%) to (255%)

Massmart's financial results for the 52 weeks to December 2019 will be released on the Stock Exchange News Service of the JSE Ltd. on 27 February 2020.
Investor day presentation
Stakeholders are herewith advised that today Massmart is hosting members of the investment community for a business update. The briefing will include a presentation by CEO, Mr Mitchell Slape and members of the Executive. A presentation, which will form the basis of this briefing, is available on the Company's website https://www.massmart.co.za/

Reorganisation of Massmarts's operating model
Following a review of Massmart's Retail and Wholesale routes to market, and the associated rationalisation of the Group, Massmart announces a re-organisation of its current operating model. The following changes are effective from 1 February 2020:

Re-organisation of four divisions into two business units
The four divisions, namely: Masscash (incorporating the Jumbo; Cambridge Food; Rhino Cash Liquorland; Jumbo Shield and Saverite brands); Masswarehouse (incorporating the Makro and Fruitspot brands); Massbuild (incorporating the Builders Warehouse; Builders Express; Builders Trade Depot and Builders Superstore brands) and Massdiscounters (incorporating the Game and Dion-Wired brands) shall, effective 1 February 2020, be reconstituted into two business units. These being Massmart Wholesale and Massmart Retail.
* Massmart Retail will comprise of the Builders, Game, Dion-Wired and Cambridge Food trading brands. Mr Llewellyn Walters, the current Builders Chief Executive, is appointed as the Chief Executive of Massmart Retail. * Massmart Wholesale will comprise of the Makro, Shield and the Group's Wholesale Cash delivering bespoke retail and wholesale customer focus, driving market agility and effective execution, leveraging Group-wide procurement scale and harmonising Group-wide functional practice in line with best retail practises.
* The constant currency information included in this sales update and trading statement has been presented to illustrate the Group's underlying ex-SA business performance, in terms of sales growth, excluding the effect of foreign currency fluctuations. In determining the application of constant currency, sales for the prior comparable financial reporting period have been adjusted to take into account the average daily exchange rate for the current period.

They Said It

"I'm going to have a knee op today. I can't remember what time and I can't find the number, so I'm going through all my recent calls." - Footwear agent John Francis on Friday, explaining why he'd phoned and asked who he was speaking to. He could probably do with some sympathy messages - we all get a bit confused when facing a very sharp knife.

"Must it be normal language, or can I swear a bit?" - Mukesh Lakha, of Republik men's outfitters, on trading in January.

"I'm a bachelor at the moment, and I can't believe how many things there are to do in the morning." - Malome Leather Technologies' Sam Wells, whose wife Chrissie is visiting their daughter in George. The list includes 2 cats and a dog. "It's like having 3 mothers-in-law needing attention,"" he complained.

The 2020 S&V Directory - Order now

The 2020 edition of the S&V Directory is in production and will be available in January. The online version is available immediately at R450 for 12 months' access.

2020 Trade Fairs Another essential service from S&V

Please note that we have updated most 2020 trade fairs and conferences on our website, linked to their websites: http://www.svmag.co.za/events

Exchange rates

Source: http://www.x-rates.com/calculator/

ABSA Agri Trends: Hides & skins prices

2020/01/24 Hides: The current average hide price is R1.35/kg, this is 4.6% lower than last week’s price of R1.42/kg. The current price is 4.6% lower than prices were a month ago and is 55.0% lower than prices were a year ago. The local market remains under pressure with prices ranging from next to nothing to R2/kg depending on quality. - Conce Moraba, agricultural economist, Absa group.

03/02/1963: Vusumzi Mabuto, NULAW, Port Elizabeth.
03/02/1965: Grant Daniel, retired, formerly Mendelson Frost, Johannesburg.
04/02/1947: David Buckingham, retired, formerly Royal Adhesives, Pinetown.
06/02/1964: Wouter Joubert, TFG Apparel Supply Co, Cape Town.
06/02/1971: Carel Pretorius, Pep, Cape Town.
08/02/1949: Jeff Isaacson, agent, Durban.
08/02/1955: Mukesh Merchant, Merchant’s Outfitters, Port Elizabeth.
08/02/1972: Kiran Pattundeen, Palm Footwear, Durban.
07/02/1957: Arun Prag, Prag Shoes and Leatherworks, Somerset West.
08/02/19??: Miles O’Brien, retired, formerly Jordan Shoes, Cape Town.
08/02/1975: Hugh Hansen, CL Hansen Agencies, Durban.
09/02/1971: Anthony Lopez, Lopez Leathers, Cape Town.
09/02/1973: Steven Govender, ?, formerly Spunlok Laminators, Pinetown.
09/02/1989: Tahir Jeewa, Traford Footwear, Durban.

In Memoriam this week

03/02/1977: Ismail Adam Moosajee (b. 28/08/1927), Seltex, Johannesburg.
08/02/2016: Vishal Rishidaw, Smiley’s Footwear, Durban.
09/02/2006: Hubertus ‘Hub’ Bijsterveld (b. 11/12/1932), Bata Zimbabwe and other Bata companies, Gweru.

Have you let us know about your birthday, or the birthdays of your colleagues? Our readers love this section, so please become part of it. This also applies to the In Memoriam section. Help us remember former colleagues.

Have a look at these links

We invite businesses to send us links to websites, Facebook pages and the like which they feel would be of interest to others. The links below are from our database:
Budget Stores, Lusaka, Zambia. Mini-chain, department store.
Buja Fashion, Bujumbura, Burundi. Independent, boutique.

Classified Adverts

Corvari Footwear
Sales Reps wanted for Gauteng

Looking for a sales representative to cover the Gauteng area for our Natural Steps brand. Knowledge of ladies’ footwear is essential. Please send a detailed CV to Caroline at admin@corvari.co.za.

FACTORY MANAGER

A position exists for a factory manager for a small footwear factory in Pietermaritzburg. The salary will be negotiable on a cost to company basis. The applicant must have a sound knowledge of footwear manufacture and be able to control a labour force of 120 operators.
Please forward CV to: application1945@gmail.com

Sales Rep seeks position

Robbie Thorne, with 30 years' sales experience in the footwear industry, seeks a sales position. Equally at home with components and finished footwear. Whatever your product, I will do it justice. Please call 072 633 2258.

Contact us

News & Classifieds: Tony Dickson, +27 (0)31 209 7505, tony@svmag.co.za

Next newsletter: February 10, 2020.

SAFLIA enquiries: Tel 0800SAFLIA * Email info@saflia.co.za * Website http://www.saflia.co.za

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