Fashioning an opportunity
the operating margin (excluding
Phase Eight) dipping to 17.7% (FY14:
17.9%). Including Phase Eight it was
lower at 17.5% but we expect this
to increase to about 18% in the
medium term as synergies become
entrenched. Headline earnings from
continuing operations (excluding
once-off acquisition costs) rose 9.7%
to 897.9c/share.
Management declared a scrip
dividend (with a cash alternative) of
588c/share which is an increase of
9.7%. The scrip dividend is a move
by management to reduce the high
net debt-to-equity ratio of 77%
down to 40% in the medium term.
The Foschini Group
makes the best of a
bad market.
Foschini has responded well to the
credit market storm that inflicted
pain on most credit retailers in
the past two years. It disposed of
RCS – its consumer finance division
providing credit cards, personal
loans and insurance products to the
mass middle market – and replaced
it with an offshore upmarket cash
apparel retailer, Phase Eight.
Central Bank’s quantitative
easing programme.
Sales turnover grew 13.6% (10.8%
excluding Phase Eight) to R16.1bn
from continuing operations, where
product inflation averaged 7%.
Cash sales accelerated 19.6% and
credit sales, which improved in the
second half of the year, managed
meagre 4.3% growth. Operating
profit climbed 10.7% to R2.8bn with
The consumer market is still
cloudy though there are signs of
recovery. Transunion national credit
numbers reflect the most marked
improvement in more than two
years but a parallel survey shows
consumer confidence is at its
lowest point in more than a decade.
Foschini’s debtors’ costs as a
percentage of debtors deteriorated
marginally in FY15 to 13.5% from
12.4% the previous year, but is
still far better than FY13’s 28.5%,
which was in the thick of the credit
crunch. However it is still higher
than the 9%-10% range prior to the
credit crunch.
It is impressive that debtors’
turnover has gradually improved
over the past five years, although
the growing cash sales component
may be partly responsible for
Foschini now generates 46.9%
of sales in cash, up from 42.2%.
Interestingly, its gross profit margin
including Phase Eight shot up to
47.3% (FY:46.5%) compared with
46.7% excluding it. It is plausible to
expect this margin improvement
to trickle down to the bottom line
once Phase Eight has properly
bedded down. In addition, Phase
Eight provides a natural rand hedge,
geographical diversification and
also offers a leveraged platform on
which the group can introduce its
Foschini product range in Europe
and Asia. The annualised revenue
contribution from Phase Eight is
12%, but this is set to increase
in light of the rand’s continued
weakness and as Europe starts
to benefit from the European
ISSUE 6 – SEPTEMBER 2015
23