CoMMENTARY

GROUP OVERVIEW

Improved consumer spending which became evident to us last year, and more particularly in the second half of last year, has continued into the first half of this financial year. This, together with the strategic initiatives undertaken by our group, has produced a pleasing result for the first half of this year.

Notwithstanding the inflated turnover figures in last year’s base as a result of the 2010 FIFA World CupTM, retail turnover increased by 18,5% to R5,4 billion whilst profit before tax increased by 24,9%. Headline earnings per share increased by 25,6% to 341,9 cents, whilst diluted headline earnings per share increased by 24,1% to 333,3 cents.

In line with our strategy of driving top-line growth, buying efficiencies achieved during the period were passed on to our customers resulting in the gross margin being marginally up on the previous period. These efficiencies were achieved as a result of our supply chain initiatives.

The group’s operating margin for the period increased to 22,9% from 22,0%.

At 31 March 2011 the dividend cover was changed from 2 times to 1,8 times and consistent with that the interim dividend has increased by 37,7% to 190,0 cents per share.

Supporting our strategy of investing for the longer term, the group continued to grow trading space in certain of our formats and 71 stores were opened during the period, an increase in trading area of 3,6% during the period. Space growth for the full financial year is expected to be around 7%.

MERCHANDISE CATEGORIES

Total sales have grown by 18,5% over the previous period with growths in the various merchandise categories as follows:

– Clothing 19,9%
– Jewellery 7,4%
– Cosmetics 11,1%
– Homewares 15,5%
– Cellphones 29,4%


All merchandise categories continue to perform well, and we have gained market share in all categories, particularly our largest product category, clothing. Jewellery, being a more discretionary commodity, has traded satisfactorily taking into account the substantial increase in the gold price.

TRADING DIVISIONS

Retail turnover and growths in the various trading divisions were as follows:

  Number Retail turnover  
  of stores Rm % change
@home 84 350,3 15,5
Exact 210 533,6 25,3
Foschini division 500 2 067,1 18,4
Jewellery division 389 592,4 10,3
Markham 256 920,2 22,7
TFG Sports 350 964,7 17,8
Total 1 789 5 428,3 18,5


Same store turnover grew by 12,1%, whilst product inflation averaged approximately 5% for the period. Credit sales as a percentage of total sales increased to 63,1% from 61,8%.

@home increased its store base by one store and is now trading out of 84 stores, 13 of which are the larger @homelivingspace stores. Turnover grew by 15,5% to R350,3 million. With the rate of new store openings having declined, greater focus is being placed on merchandise efficiencies. Same store turnover growth was 11,6%.

Exact increased its store base by two stores during the period to 210 stores. The focus on clothing price points has continued to be very successful. Clothing turnover increased by 27,4%, with clothing same store turnover growth of 23,4%. Cellphone turnover increased by 14,5%. Total same store turnover increased by 21,4%.

The Foschini division comprising Foschini, Donna-Claire, Fashion Express and Luella increased its store base by 16 stores to 500 stores during the period, with turnover of R2 067,1 million. Clothing turnover grew by 20,6%, with clothing same store turnover growth of 14,4%. Cosmetics same store turnover grew by 6,4%. Same store turnover of cellphones increased by 12,7%, whilst total same store turnover increased by 12,5%.

The jewellery division comprising American Swiss Jewellers, Sterns and Matrix increased its store base during the period by eight stores, to 389 stores, with turnover of R592,4 million. Trading was satisfactory with jewellery merchandise turnover increasing by 7,8% and cellphone turnover increasing by 24,6%. Jewellery same store turnover grew by 1,8% and total same store turnover increased by 4,5%.

The Markham division increased its store base by nine stores during the period to 256 stores. Clothing turnover growth for the period was 22,3%, whilst cellphone turnover increased by 25,0%. Clothing same store turnover for the period grew by 16,5%, whilst cellphone same store turnover increased by 18,9%. Total same store turnover increased by 16,9%.

TFG Sports division, trading as Totalsports, Sportscene and Duesouth, grew its clothing turnover by 13,7%, notwithstanding the 2010 FIFA World Cup™ inflated base. It increased its store base by 26 stores to 350 stores. Same store turnover grew by 7,3%. Excluding the World Cup months of May and June, same store clothing turnover growth was 15,9%. During the period this division introduced cellphones into its product offering.

TFG Financial Services’ retail debtors’ book, which amounts to R4,2 billion, increased by 8,7% since the year-end, reflecting the impact of good account growth, increased credit sales and the increase in the number of 12-month accounts. With the increase in new active accounts, there is an inherently greater risk of bad debt than from established accounts. Bad debt as a percentage of closing debtors’ book was 9,3%.

RCS GROUP

The RCS Group is an operationally independent consumer finance business that provides a broad range of financial services under its own brand in South Africa, Namibia and Botswana. It is structured into two operating business units, namely transactional finance and fixed term finance. The transactional finance business comprises the RCS general-purpose card and other private label card programmes, whilst the fixed term finance business comprises RCS personal loans.

Despite interest margin compression arising from the interest-capping formula under the National Credit Act, the RCS Group performed well during the period with net profit before tax increasing by 24,7% to R151,9 million. Net bad debt further improved with a reduction of 25,5% compared to the previous period. Its debtors’ book of R3,1 billion increased by 8,5% during the period.

Its domestic medium-term note (DMTN) programme continues to be successfully implemented with over R1,5 billion of funding being raised in a mixture of long- and short-term paper. The RCS Group now has surplus funding of approximately R1 billion which is available to support its future growth.

Our group’s shareholding in RCS Group is 55% with the balance being held by The Standard Bank of South Africa Limited.

NEW BRANDS

During the period our group entered into a franchise agreement with an exciting footwear and accessory international brand, Charles & Keith. Charles & Keith is a fashion-forward ladies footwear and accessories brand that has international presence with over 200 stores in 28 countries. Our first store which opened in Canal Walk, Cape Town, in August 2011 has performed better than viability and further stores will be rolled out in the future.

Effective from 1 October 2011, our group has acquired the luxury menswear brand, Fabiani, which will give our group an entry into the high-end customer segment where we currently do not operate. Fabiani currently trades out of seven outlets and has great potential for expansion.

AFRICA EXPANSION

The group currently trades out of 70 stores outside of South Africa, with 56 in Namibia, six in Botswana, four in Zambia and four in Swaziland. In the next three years a further 57 stores are planned to be opened in the countries where we already operate, as well as Lesotho, Mozambique and Nigeria.

PROSPECTS

For the first five weeks of the second half retail turnover has continued to be encouraging, though some caution is warranted given the very difficult and fragile global financial environment, as well as the very strong comparative base. However, we remain confident that we can again deliver a favourable result for the second half of this year. The second half of the year is heavily dependent on Christmas trading, which will largely determine the performance of the group in the second half. We expect to open a further 69 stores in the second half.

PREFERENCE DIVIDEND ANNOUNCEMENT

Dividend No.150 of 3,25% (6,5 cents per share) in respect of the six months ending 31 March 2012 has been declared, payable on Monday, 26 March 2012 to holders of 6,5% preference shares recorded in the books of the company at the close of business on Friday, 23 March 2012.

The last day to trade (“cum” the dividend) in order to participate in the dividend will be Thursday, 15 March 2012. The Foschini Group Limited preference shares will commence trading “ex” the dividend from the commencement of business on Friday, 16 March 2012 and the record date, as indicated, will be Friday, 23 March 2012.

Preference shareholders should take note that share certificates may not be dematerialised or rematerialised during the period Friday, 16 March 2012 to Friday, 23 March 2012, both dates inclusive.

INTERIM ORDINARY DIVIDEND ANNOUNCEMENT

The directors have declared an interim ordinary dividend of 190,0 cents per ordinary share, for the period ending
30 September 2011, payable on Monday, 9 January 2012 to ordinary shareholders recorded in the books of the company at the close of business on Friday, 6 January 2012.

The last day to trade (“cum” the dividend) in order to participate in the dividend will be Thursday, 29 December 2011. The Foschini Group Limited ordinary shares will commence trading “ex” the dividend from the commencement of business on
Friday, 30 December 2011 and the record date, as indicated, will be Friday, 6 January 2012.

Ordinary shareholders should take note that share certificates may not be dematerialised or rematerialised during the period Friday, 30 December 2011 to Friday, 6 January 2012, both dates inclusive.

Certificated ordinary shareholders are reminded that all entitlements to dividends with a value less than R5,00 per certificated shareholder will be aggregated and the proceeds donated to a registered charity of the directors’ choice, in terms of the articles of association of the company.

Signed on behalf of the Board.

D M Nurek
Chairman

Cape Town
3 November 2011

 A D Murray
CEO

CORPORATE INFORMATION

Executive directors:

A D Murray, R Stein, P S Meiring
Non-executive directors: D M Nurek (Chairman), Prof F Abrahams, S E Abrahams, W V Cuba, K N Dhlomo, M Lewis,
E Oblowitz, D M Polak, N V Simamane
Company Secretary: D Sheard
Registered office: Stanley Lewis Centre, 340 Voortrekker Road, Parow East 7500
Registration number: 1937/009504/06
Share codes: TFG – TFGP
ISIN: ZAE000148466 – ZAE000148516
Transfer secretaries: Computershare Investor Services (Proprietary) Limited, Ground Floor, 70 Marshall Street,
Johannesburg 2001
Sponsor: UBS South Africa (Proprietary) Limited