OFFICER’S report

Anthony thunstrÖm

The Group achieved growth in retail turnover of 21,4%, together with growth in headline earnings of 9,6% for the year, despite generally depressed consumer confidence and challenging economic conditions both locally and internationally. This earnings growth, together with an ongoing focus on capital optimisation, resulted in a 44,8% growth in free cash flow, on the back of a 100% growth in the previous year’s free cash flow.

Notwithstanding the rigorous control exercised over like-for-like expense growth and capex, the Group continued to invest in both new and upgraded stores as well as in strategic IT and data analytics projects to position the Group for future growth.

These results were underpinned by the following key elements:

Income statement



The Group achieved solid turnover growth for the year with performance across all territories ahead of respective peer group turnover growth. TFG London achieved turnover growth of 23,5% (GBP), including Hobbs, and turnover growth of 4,2% (GBP), excluding Hobbs. TFG Africa achieved turnover growth of 6,3% (ZAR) with comparable store turnover growth of 2,2%. The balance of the growth in turnover was achieved through TFG Australia.

Group cash turnover growth of 31,9% was achieved for the year with growth of 7,3% (ZAR) in TFG Africa. This growth achieved in TFG Africa is pleasing, considering the high base in the prior year of 14,1% turnover growth. The balance of Group cash turnover growth was achieved through TFG London, driven mostly by online channels, and TFG Australia.

Group credit turnover growth at 5,3% was driven in part by the growth in the active account base. This growth was in line with expectation as the negative impact of the Affordability Regulations is now in the base.

Key facts on turnover:


1. The segmental contribution to turnover above includes each segment’s e-commerce turnover.


1. TFG London and TFG Australia have cash turnover only.
2. Financial year ended March 2018 is TFG Australia’s first year of inclusion in the Group, therefore turnover growth is not applicable for this business segment in the Group context.
3. TFG London’s turnover growth for the financial year ended March 2018 includes non-comparable Hobbs’ turnover (acquired November 2017).
4. TFG London’s turnover growth for the financial year ended March 2017 includes non-comparable Whistles’ turnover (acquired March 2016).

Gross margin for the Group improved to 52,5% at March 2018, up from 49,7% in the previous year. This improvement was driven in part by the gross margin expansion in TFG Africa to 47,8% from 46,4% in the previous year. It is pleasing to report that this expansion was achieved across all merchandise categories, with the exception of cosmetics, during a period characterised by unusually high levels of discounting in the market. The strong performance of our clothing category within Africa is particularly gratifying. Product price deflation for the year in TFG Africa averaged 3,5% across all merchandise categories, with price deflation of 3,8% in clothing.

This improvement was achieved in part due to the continued expansion of our quick response manufacturing through our Caledon and Maitland factories. Quick response product generally results in lower markdown, as was evident in our apparel divisions this year.

Further information on the progress made with quick response manufacturing as a strategic initiative, is provided in the strategy overview.

TFG London’s gross margin at 61,9% was slightly down on last year. This movement was as a result of the difficult trading conditions experienced in the United Kingdom during the year, as well as the shift in consumer spend from offline to online sales, which traditionally results in a lower gross margin due to additional promotion and logistics costs.

TFG Australia’s gross margin was 65,5%.


While expense control is always of great importance to the Group, it is even more critical during periods when turnover levels are muted as a consequence of tough economic conditions. The Group contained total like-for-like expense growth in TFG Africa to 5,1% with like-for-like store expense growth in TFG Africa at only 4,2%.

Occupancy costs, a significant component of our overall operating costs, has been a key focus area within TFG Africa, and it is gratifying to report that normal lease escalations now average 5,8%, down from a 7,2% average escalation in the previous year. The rent reversion average was -2,5% for the year, compared to +4% in the previous year.


The Group concluded two further substantial acquisitions during the year, being RAG and Hobbs (refer to note 11 of the summary consolidated financial statements for further details). It is pleasing to report that both RAG and Hobbs were earnings accretive for their first year, a positive development considering that neither were included for the full year.

The Group’s international segments, TFG London and TFG Australia, now contribute 17% to Group EBITDA and there are further opportunities to increase this contribution in the future.

In December 2017, the Group accelerated the put/call arrangement to acquire the remaining c.15% shareholding owned by management in TFG Brands (London) Limited. The transaction was effective 15 December 2017.

Further information on the performance of the Group’s three business segments, TFG Africa, TFG London and TFG Australia, is provided in the segmental performance review.

Statement of financial position


The past financial year saw a number of corporate activities with the buyout of TFG London’s minorities, two further acquisitions and a capital raise. Given these activities, it is pleasing that the Group ended the year with reduced gearing levels with total debt to equity ratio at 61,4%, down from 65,3% at March 2017.

The R2,5 billion capital raise, by way of a successful accelerated bookbuild launched on 31 July 2017, resulted in the issue of 17 241 380 ordinary shares at R145 per share. This was a premium of 0,9% to the 30-day VWAP of R143,68 as at the close of trade on 31 July 2017.


The Group’s focus on working capital management continued this year with pleasing results.

TFG Africa’s trade receivables were up 8,2% at the end of March supported by credit turnover growth of 5,3%, and growth in net bad debt of -6,5%. Active accounts increased by 1,1%.

Group inventory was up 22,9% with TFG Africa inventory only increasing by 3,3%, well below turnover growth.

The growth in other receivables and trade and other payables of 10,0% and 31,1% (Group) and 3,7% and 9,2% (TFG Africa) respectively related mostly to the timing of payments.

free cash

Free cash flow has been a key strategic focus in recent years, with positive results for the Group. Following a 100% increase in free cash flow in the previous year, there was an additional increase of 44,8% this year, to R1,9 billion. This converts to 77,2% of the Group’s net profit for the year, a significant improvement on the Group’s conversion average of approximately 40% over the previous ten years.

The Group’s increased focus on capital optimisation, including the focused capital allocation to outlets, supported this improvement in free cash flow. In total, 281 outlets were opened during the year (TFG Africa: 146, TFG London: 91, TFG Australia: 44) while an increased number of 177 outlets (TFG Africa: 83, TFG London: 83, TFG Australia: 11) were closed during the year as a result of the specific focus placed on underperforming outlets as part of this capital allocation model. Within TFG Africa in particular, capital expenditure on outlets decreased from R438,9 million in the 2017 financial year to R389,7 million this year. This is in part due to the decrease in number of stores opened (146 versus 206 in the prior year) as well as the tight control exercised over build rates, which were held flat for the year.

TFG London’s capex decreased despite the non-comparable inclusion of Hobbs. Due to the shift in consumer spend from offline to online channels experienced in the United Kingdom, fewer new outlets were opened during the year.

While capital expenditure has been tightly controlled, the Group continued to invest in IT and technology solutions, with a strong focus on return on investment. This IT investment will increase over the short term as the Group strategically invests in digital transformation to position the Group for future growth and success.

Value created during the year

The performance of the Group during the year resulted in a growth in headline earnings of 9,6% to R2,5 billion and a growth in headline earnings per share of 3,4% to 1 136,5 cents per share. In line with this growth in earnings, our shareholders were rewarded with a total dividend declared for the year of 745,0 cents per share, an increase of 3,5%. The dividend comprised of an interim dividend of 325,0 cents per share (a 1,6% increase) and a final dividend of 420,0 cents per share (a 5,0% increase).

The strong performance of the Group in the past year, in difficult trading environments, comes on the back of several years of solid performance and is a result of the success already achieved through TFG’s diversification strategies:

* Numbers relate to a 10-year compound annual growth rate.
^ Headline earnings per share excluding acquisition costs.

Focus areas for 2019

While significant progress has been made in respect of key financial drivers including cost optimisation, procurement, working capital management, capital allocation and cash flow generation, there are clearly identified opportunities for further improvement in a number of these areas.

The Group will, over the next few years, be investing significantly in our digital transformation strategy, to ensure that the Group is well positioned to offer our customers new interactions and retail experiences and remain relevant in a rapidly evolving sector. Over and above the allocation of senior executive and management effort, this will result in a shift of capex allocation, in order to accelerate the implementation of these digital strategies.

Anthony Thunström

Chief Financial Officer

29 June 2018