Edcon clears the first hurdle

discount fashion retailer Jet plays in the same arena as the likes of Ackermans and Pep.

Nevertheless its slow reorganisation is beginning to yield results, Pattison said, and CNA, for example, had increased stationary sales by between 10% and 15% on the previous year despite an 18% decline in space. Edgars, meanwhile, had made more profit in the past four months than it did in the previous year.

Jet — a large division that included the Jet Mart offering, which sold food, appliances and crockery — was still being restructured to return to the straightforward Jet format.

“We are busy still restructuring [and] changing the shape of that business so I am hoping from April onwards it will turn,” he said in the interview.

The deal releases Edcon from the R8-billion debt it was saddled with after it was delisted in a highly leveraged private equity transaction by Bain Capital.

Years of paying off interest has meant that Edcon had steadily reduced its headcount to the point that it was understaffed, said Pattison. This had meant that, because it had reduced the size and number of its stores, the group had been able to relocate staff to surrounding ones, increasing the number of staff per store but keeping the headcount relatively stable.

“I take my hat off to Grant Pattison; he’s got a herculean task,” says Fairtree Capital portfolio manager Jean-pierre Verster.

The number of stakeholders involved is an indication of how important it is to ensure an “orderly and managed” reorganisation of the company, Verster says.

But he is not convinced that Edgars will exist in its current format in three years’ time.

“I’ll be very surprised, for example, if CNA exists with the group,” he says, by way of example. But Jet is the most likely to survive in some shape or form in the coming years.

But, Verster says, should Edcon’s turnaround fail and its “breathing room becomes constricted again”, it could well become a target for competitors, who will simply wait to pick up a distressed asset.

According to the South African Clothing and Textile Workers’ Union, Edcon buys the largest amount of locally manufactured clothing and textiles (about 44%), so it has bought local manufacturers some additional breathing time too.

“Research has shown that South Africans do care about the production of their goods and will buy locally produced goods,” says Govender, adding that, outside of the investment community, few South Africans know about Edcon’s extensive South African supply chain. It could give the company a competitive edge but it has yet to be tested.

Of all the Edcon brands, Edgars, in its department store format, has “the steepest road to climb”, says Govender, because of the sheer number of high-quality competitors.

The new entrants have increased competition significantly and, in the face of this, local brands have had to revitalise their operations to stand out and compete, as seen with the likes of Mr Price and Foschini, he says.

“I don’t believe that Edgars has what it takes in its current form to compete from a fashion perspective, and it is a slippery slope to try and compete from a price perspective, so serious challenges remain ahead,” he says.

Painfully small growth

South Africa’s gross domestic product grew by 0.8% last year, slightly higher than projected but still lower than the 1.4% recorded in 2017.

Statistics South Africa says, despite the technical recession in the first and second quarters of 2018, positive growth in the third (2.6%) and fourth (1.4%) quarters “was just enough to push overall growth for the year into overall positive territory”.

Both the treasury and the Reserve Bank estimated the economy would grow by 0.7%.

The biggest contributor to the rise was the finance, real estate and business services sector, which was up by 1.8%, followed by general government services, which was up by 1.3%. Agriculture, mining and construction came in at the bottom, all showing declines. Agriculture was the lowest, contracting by 4.8%.

Lack of confidence

The South African Chamber of Commerce and Industry’s (Sacci’s) business confidence index declined to 93.4 in February, 1.7 points lower than in the previous month and

5.5 points lower than in the same period last year. It is also the lowest business confidence rating since September 2018.

“Domestically, the South African economy faces serious challenges. These challenges are now deeply entrenched and need to be handled with urgency and care,” Sacci said

The index measures the extent of business activity and is strongly linked to economic growth.

Sacci warned that the upcoming elections could lead to further political uncertainty, “resulting in a tentative business climate in the weeks ahead”.

Women shut out

Only 14% of board members in

Africa are women, according to a recent Women Matter Africa report released by Mckinsey & Company, even though gender diversity on boards has been linked to innovation and better financial performance.

The report found that the net income of African companies (before income tax and interest have been deducted) was a fifth higher than the industry average when at least 25% of the board was made up of women.

Michelle Olckers, the co-chief executive officer of auditors and consultants Mazars South Africa, said one of the main reasons for gender disparity on African boards was because of historical, cultural and social norms.

“In Africa, decision-makers are traditionally men and therefore it is very difficult for men to accept women at that level. A lot of men were brought up seeing women as homemakers and, even though this is gradually changing, the women who have made it to senior levels are still a minority and therefore easily overlooked, and their voices not always heard,” she said.

France targets tech giants

France aims to raise about €500-million a year from a 3% tax on global tech companies, including Amazon, Google and Facebook.

Finance Minister Bruno Le Maire presented a Bill in a Cabinet meeting on Wednesday before it went to the French Parliament.

An Associated Press report said about 30 companies, most of which are in the United States, and others in China and Europe, will be affected. This follows a similar proposition to tax the global tech giants made by the European Union but it did not garner unanimous support from member states.