PowerPoint Presentation · 2019-11-21 · GROUP ANNUAL RESULTS . 2 AGENDA 1. REVIEW OF THE PERIOD 2. FINANCIAL REVIEW 3. TRUWORTHS ACCOUNTS 4. STRATEGIC FOCUS AREAS 5. OUTLOOK 6

1

FOR THE 52 WEEKS ENDED 30 JUNE 2019

2019 GROUP ANNUAL RESULTS

2

AGENDA

1. REVIEW OF THE PERIOD

2. FINANCIAL REVIEW

3. TRUWORTHS ACCOUNTS

4. STRATEGIC FOCUS AREAS

5. OUTLOOK

6. QUESTIONS

REVIEW OF THE PERIOD

4

SOUTH AFRICA TRADING ENVIRONMENT

Difficult trading environment.

GDP growth remained subdued throughout 2018/2019 – South African economy contracted by

3.2% in Q1 of calendar 2019, the biggest quarterly fall since Q1 2009.

Higher fuel and energy prices and volatile Rand.

Unemployment increased in Q2 of calendar 2019 to 29.0%, a 15-year high.

Consumer spending remains constrained.

Consumer confidence improved marginally in Q2 of calendar 2019, but remains lower than 12

months ago.

Business confidence at lowest level in two years.

Loadshedding in November/December 2018 and February/March 2019 impacted negatively on

trading.

5

UNITED KINGDOM TRADING ENVIRONMENT

Consumer confidence has been negative since announcement of Brexit in 2016.

Extremely tough retail environment.

March 2019 Brexit deadline postponed to end October 2019, uncertainty continues.

High street under pressure as growth in sales mainly contributed by online; textile, clothing

and footwear online sales grew 16.8% year-on-year for June 2019.

Continuing decline in retail footfall.

Nearly 1 000 stores affected by 27 retail failures for calendar 2019 to July, many more

impacted by rising number of CVAs.

UK GDP contracted by 0.2% in Q2 of calendar 2019 after 0.5% growth previous quarter and the

lowest since last quarter 2012.

UK unemployment rate lowest since Q4 of calendar 1974.

FINANCIAL REVIEW – GROUP

7

GROUP TRADING OVERVIEW

Non-cash impairment of Office intangibles – £97 million (R1.7 billion).

Improved retail sales growth (3.7%), second half momentum is encouraging.

Gross margin down to 51.6%, led by Office full price versus markdown mix; Truworths

unchanged at 55.5%.

Trading expenses remain well controlled.

Robust balance sheet, 6%* growth in net asset value per share.

Continued strong cash generation – net debt to equity at 7.2% (R663 million).

Healthy cash realisation rate of 93%.

Negotiations with Office lenders ongoing, expected to be concluded satisfactorily.

Bought back 3.75 million shares at total cost of R266 million.

Headline earnings per share down 7%*.

Dividend cover maintained at 1.5 times.

* On a comparable basis, i.e. excluding the Office impairment.

8

GROUP INTEGRATED REPORTING

The Group continues to strive for excellence in integrated reporting.

South African companies are renowned for their high quality of integrated reporting.

In a study by Oxford University Business School in March 2019, South Africa was ranked

first (scoring 2.85 out of 3) for quality of integrated reporting.

Five integrated reports from each of the following countries were assessed: Brazil, France,

Germany, Italy, Japan, The Netherlands, South Africa, South Korea, United Kingdom, and

the United States.

Truworths International’s 2018 integrated report won the JSE Top 40 category in the

JSE/CSSA Integrated Reporting Awards 2018.

The 2018 integrated report was also rated 10th overall (of the JSE top 100 companies)

in the EY Excellence in Integrated Reporting Awards.

Truworths International has been rated in the top 10 for 12 consecutive years, the

only company besides Sasol to be rated in the top 10 for more than ten years.

9

Jun 2019

Including

impairment

Jun 2019

Comparable*

Jun 2019

Targets

Gross margin (%) 51.6 51.6 51 – 55

Operating margin (%) 9.1 19.4 19 – 24

Return on equity (%) 9 23 23 – 28

Return on assets (%) 12 23 20 – 25

Inventory turn (times) 4.2 4.2 3.5 – 4.5

Asset turnover (times) 1.4 1.2 0.9 – 1.3

GROUP PERFORMANCE AGAINST TARGETS

* On a comparable basis, i.e. excluding the Office impairment and reclassification of interest in terms of IFRS 9 in the current period, as well as foreign exchange gains and losses in both periods.

10

Jun 2019

Including

impairment

Jun 2019

Comparable*

Jun 2018

Change on

prior period

%

Change on

comparable

prior period*

%

Sale of merchandise (Rm) 18 094 18 094 17 547 3 3

Gross margin (%) 51.6 51.6 52.4

Trading profit (Rm) 492 2 245 2 518 (80) (10)

Trading margin (%) 2.7 12.4 14.4

Operating profit (Rm) 1 653 3 512 3 946 (58) (10)

Operating margin (%) 9.1 19.4 22.5

Diluted HEPS (cents) 560.7 567.2 612.7 (8) (7)

Dividend per share (DPS) (cents) 384 384 420 (9) (9)

Cash generated from operations (Rm) 2 664 2 664 3 137 (15) (15)

Net asset value per share (cents) 2 156 2 569 2 421 (11) 6

GROUP FINANCIAL PERFORMANCE


11

GROUP DPS AND DILUTED HEPS

Compound growth rates:

DPS:

5-year 0%

3-year -5%


Diluted HEPS:

5-year 0%

3-year -6%

405

452 452

420

384

592

666

621 613

561

-

100

200

300

400

500

600

700

Jun 2015 Jun 2016 Jun 2017 Jun 2018 Jun 2019

DPS Diluted HEPS

(cents) Office UK acquired

Dec 2015

12

GROUP RETURN ON EQUITY (ROE) AND RETURN ON CAPITAL (ROC)

Average:

ROE:

5-year 30%*

3-year 27%*

Average:

ROC:

5-year 44%*

3-year 40%*

(%)

35 35

31

27

23*

49 51

46

40

33*

-

10

20

30

40

50

60


ROE ROC


Office UK acquired

Dec 2015

13

GROUP RETURN ON ASSETS AND ASSET TURNOVER

Average:

Return on assets:

5-year 27%*

3-year 25%*

Average:

Asset turnover:

5-year 1.1 times*

3-year 1.1 times*

Return on assets

(%)

Asset turnover

(times)

38 24 26 25 23*

1.2

1.0

1.1 1.1

1.2*

0.5

0.8

1.1

1.4

1.7

-

5

10

15

20

25

30

35

40


Return on assets Asset turnover


Office UK acquired

Dec 2015

14

GROUP STATEMENTS OF FINANCIAL POSITION

Jun 2019

Including

impairment

Rm

Jun 2019

Comparable*

Rm

Jun 2018

Rm

Change on

prior period

%

Change on

comparable

prior period*

%

Property plant and equipment 1 780 1 780 1 726 3 3

Goodwill 346 1 611 1 629 (79) (1)

Intangible assets 2 616 3 171 3 227 (19) (2)

Other non-current assets 443 443 322 38 38

Cash and cash equivalents 777 777 982 (21) (21)

Trade and other receivables 4 934 4 934 5 110 (3) (3)

Inventories 2 108 2 108 2 072 2 2

Other current assets 352 352 423 (17) (17)

Total assets 13 356 15 176 15 491 (14) (2)

Total equity 9 175 10 929 10 369 (12) 6

Non-current liabilities 1 763 1 857 2 363 (25) (21)

Current liabilities 2 418 2 390 2 759 (12) (13)

Total equity and liabilities 13 356 15 176 15 491 (14) (2)


15

* Increase in Office’s net debt to equity ratio mainly due to the impairment of intangible assets.

Net debt

Jun 2019

Net debt

to equity

Jun 2019

%

Net debt

Jun 2018

Net debt

to equity

Jun 2018

%

Group Rm 663 7.2 968 9.3

Truworths Rm 245 2.8 605 5.9

Office £m 23.5 19.5* 20.1 10.2

GROUP CAPITAL MANAGEMENT

After share buy

backs of R266 million

16

Dividends

Final dividend of 135 cents per share (Jun 2018: 159 cents per share).

Total dividend per share of 384 cents per share (Jun 2018: 420 cents per share).

Financial position

Financial position remains strong with net asset value per share up 6%* to 2 569 cents.

Spent R266 million on repurchasing 3.75 million shares during the period.

Since the inception of the general share buy-back programme in 2002, 99.5 million

shares have been repurchased at a total cost of R3.2 billion at an average price of R33

per share.


GROUP CAPITAL MANAGEMENT (CONTINUED)

17

GROUP TRADING SPACE

Jun 2019

‘000 m2

Jun 2018

‘000 m2

Change on

prior period

%

Truworths 388 381 2

Office 15 16 (5)

Total 403 397 2

18

GROUP ONLINE PRESENCE

Strong year-on-year growth in followers on Facebook (>20%) and Instagram (>50%).

Truworths has nearly 4 million Facebook followers.

Majority of Truworths’ Facebook and Instagram followers are under the age of 34.

Identity’s Facebook followers increased nearly 20% over the last year.

Office London’s following on Facebook and Instagram increased by nearly 80% and 120%.

The truworths.co.za e-commerce website continues to register strong growth

• truworths.co.za is generating the turnover of a medium to

large-sized Truworths store.

• Website profitable from day 1.

• Brands available online include:

c 10% of

Group retail sales

Office online sales grew 10%.

Online sales comprising 34% of retail sales.

offspring.co.uk website has grown significantly with the expansion of product availability and growth in awareness, driven by effective use of social media and digital marketing.

“Click & collect” service expanded, comprising nearly 20% of orders, giving online customers access to stock already in store rather than just warehouse stock.

User journey enhanced including a more seamless checkout process.

New payment gateway offers new ways to pay including Apple Pay and Google Pay and a number of additional international currencies.

Customer database has over six million customers.

officelondon.co.za link to Office UK site launching this quarter, reinforcing strong brand association between OFFICE London in SA and Office in the UK.

19

GROUP CASH FLOW ANALYSIS (Rm)

2 930 (266)

1 152 8 (77) (968)

(92) 2 687 (1 766)

(373)

(266)

24 306 (422)

(116)

( 500)

-

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

4 500

CashEBITDA

Workingcapital

movements

Interestreceived

Dividendsreceived

Financecosts

Tax paid Capexmaintenance

Freecash flow

Dividendspaid

Capexexpansion

Sharesrepurchased

Other Net cashincreasebefore

borrowingsrepaid

Borrowingsrepaid

Net cashdecrease forthe period

20

80

89 91

109

93

-

20

40

60

80

100

120


Group cash realisation rate

(%)

GROUP CASH REALISATION RATE

Average:

Cash realisation rate:

5-year 92%

3-year 98%*

21

GROUP NEW ACCOUNTING STANDARDS

IFRS 9 and IFRS 15 adopted with effect from the start of the period.

IFRS 9 Financial Instruments

Significant impact on doubtful debt allowance, increasing from 12.3% to 19.0% on transition

date (through retained earnings).

Doubtful debt allowance now based on expected credit loss model taking into account forward-

looking information.

Interest in respect of stage 3 debtors is recognised against trade receivable costs.

IFRS 15 Revenue from Contracts with Customers

Impact limited to accounting for sales returns (net impact on income statement is nil).

IFRS 16 Leases

New standard effective from 2020 financial year.

In process of finalising system changes and reviewing affected agreements and policies.

FINANCIAL REVIEW – TRUWORTHS

23

TRUWORTHS TRADING OVERVIEW

Retail sales increased 3%, gaining momentum in H2 (growing at 4%).

Gross profit margin unchanged at 55.5%.

Trading expenses remain well controlled, growing at 3%.

Profit before tax decreased 3%.

Continued strong cash generation – net debt R245 million after share buy backs of

R266 million.

Cash realisation rate of 97%.

Inventory turn unchanged at 4.8 times.

Active account growth of 3% – book remains healthy and performing in line with management

expectations.

Lay-bys and e-commerce sales contributing positively.

24

TRUWORTHS FINANCIAL PERFORMANCE

Jun

2019

Jun

2018

Change on

prior period

%

Sale of merchandise (Rm) 12 863 12 617 2

Gross margin (%) 55.5 55.5

Trading profit (Rm) 2 235 2 240 -

Trading margin (%) 17.4 17.8

Operating profit* (Rm) 3 392 3 667 (7)

Operating margin (%) 26.4 29.1

Profit before tax (Rm) 3 338 3 445 (3)

* Impacted by restructuring of funding arrangements in June 2018, as a result of which both investment interest received and finance costs decreased.

Excluding foreign

exchange losses in 2019

and gains in 2018, profit

before tax decreased 1%

25 25

TRUWORTHS RETAIL SALES GROWTH ANALYSIS

Retail sales

Rm

Retail sales

growth

%

LFL store

growth

%

Product

Inflation

%

Unit growth:

Comp stores

%

Unit growth:

Non-comp

stores

%

Jun 2019 13 517 3 1 0 1 2

Jun 2018* 13 115 1 (3) (1) (2) 4

Jun 2017# 13 061 (2) (5) 12 (17) 3

Jun 2016 13 264 14 7 9 (2) 7

Jun 2015 11 644 8 1 6 (5) 7

* Compared to weeks 2 to 53 of the 2017 financial period. # Jun 2017 retail sales weeks 1 to 52.

26

TRUWORTHS MERCHANDISE INFLATION TREND

(4.0)

(2.0)

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

2012

Summer

2013

Winter

2013

Summer

2014

Winter

2014

Summer

2015

Winter

2015

Summer

2016

Winter

2016

Summer

2017

Winter

2017

Summer

2018

Winter

2018

Summer

2019

Winter

2019

Summer

Inflation

(%)

27

TRUWORTHS DIVISIONAL RETAIL SALES

Jun 2019

Rm

Jun 2018

Rm

Change on

prior period

%

Truworths ladieswear 3 757 3 753 -

Truworths designer emporium* 1 396 1 383 1

Truworths ladieswear emporium 5 153 5 136 -

Truworths menswear# 3 675 3 663 -

Truworths kids emporium~ 1 097 925 19

Other† 1 443 1 309 10

Truworths emporium 11 368 11 033 3

Identity 2 149 2 082 3

Truworths retail sales 13 517 13 115 3

YDE agency sales 248 254 (2)

* Daniel Hechter Ladies, Ginger Mary, Glamour, LTD Ladies and Earthaddict. # Truworths Man, Uzzi, Daniel Hechter Mens and LTD Mens.

~ LTD Kids, Earthchild and Naartjie. † Cellular, Truworths Jewellery, Cosmetics, Office London (South Africa) and Loads of Living divisions.

28

Jun 2019

‘000 m2

Jun 2018

‘000 m2

Truworths 294 290

Identity 72 70

Other* 15 14

Total excluding YDE 381 374

YDE 7 7

Total 388 381

% change on prior period 1.6

TRUWORTHS TRADING SPACE

* Other comprises Uzzi, Loads of Living, Earthchild/Earthaddict, Naartjie, Office London, Naartjie/Earthchild and Kids Emporium.

29

TRUWORTHS TRADING SPACE (CONTINUED)

Continued focus on optimising space utilisation, consolidating space where

possible.

Leases are typically 5 years with option to extend for a further one or two 5-year

periods, providing flexibility in a changing retail landscape.

Successful rental negotiations during the period – occupancy costs up 2%.

Rental reversions, lower escalations or combination of both.

Lower average rental escalations.

Some stores on turnover-only rental.

30

TRUWORTHS NUMBER OF STORES AND DEPARTMENTS

Jun 2019 Jun 2018

Stores

Departments

within stores Total Stores

Departments

within stores Total

Truworths 350 - 350 346 - 346

Identity 258 - 258 255 - 255

Uzzi 44 247 291 48 233 281

Truworths Man 35 322 357 37 311 348

Earthchild/Earthaddict 34 135 169 41 90 131

Naartjie 21 60 81 26 49 75

YDE 20 - 20 21 - 21

Office London 15 - 15 13 - 13

Loads of Living 13 1 14 13 - 13

Naartjie/Earthchild 6 - 6 4 - 4

Kids emporium 4 - 4 2 - 2

Daniel Hechter 3 361 364 3 327 330

Ginger Mary 2 293 295 2 291 293

LTD 1 271 272 2 223 225

Total 806 813

31

TRUWORTHS CHANGE IN NUMBER OF STORES

Jun 2018

Stores

New

stores

Closed

stores

Jun 2019

Stores

Truworths 346 7 (3) 350

Identity 255 6 (3) 258

Uzzi 48 2 (6) 44

Truworths Man 37 1 (3) 35

Earthchild and Earthaddict 41 1 (8) 34

Naartjie 26 - (5) 21

YDE 21 - (1) 20

Office London 13 2 - 15

Loads of Living 13 - - 13

Naartjie and Earthchild 4 2 - 6

Kids Emporium (standalone) 2 2 - 4

Daniel Hechter 3 - - 3

Ginger Mary 2 - - 2

LTD 2 - (1) 1

Total 813 23 (30) 806

32

TRUWORTHS REST OF AFRICA CORPORATE STORES

Retail sales

Jun 2019

Rm

Retail sales

Jun 2018

Rm

Change on

prior period

%

Retail sales

Jun 2019

LC'm

Retail sales

Jun 2018

LC'm

Change on

prior period

%

Number of

stores

Jun 2019

Number of

stores

Jun 2018

Namibia 183 204 (10) 183 204 (10) 18 18

Botswana 106 100 6 79 78 1 8 8

Eswatini~ 100 94 6 100 94 6 5 5

Mauritius 23 21 10 55 55 - 2 2

Lesotho 23 23 - 23 23 - 2 2

Zambia^ 19 29 (34) 15 22 (32) 2 3

Kenya 9 9 - 66 73 (10) 2 2

Ghana# - 8 (100) - 3 (100) - -

Total 463 488 (5) 39 40

^ Closed 4 stores in May 2018 and a further 1 store in March 2019. # The Ghana stores ceased trading on 3 December 2017. ~ Formerly known as Swaziland.

33

TRUWORTHS SALES DENSITIES TREND


Sales density:

5-year 1%

3-year -2%

R per m2

30 462

32 979

34 849 35 656

34 586 34 857

37 350 36 317

35 256 35 682

10 000

15 000

20 000

25 000

30 000

35 000

40 000

Jun 2010 Jun 2011 Jun 2012 Jun 2013 Jun 2014 Jun 2015 Jun 2016 Jun 2017 Jun 2018 Jun 2019

Sales density trend

34

TRUWORTHS GROSS PROFIT TREND


Gross profit:

5-year 4%

3-year 0%

Average:

Gross margin:

5-year 55.3%

3-year 55.4%

6.2 7.1 7.1 7.0 7.1

55.2 55.3 55.2 55.5 55.5

-

10

20

30

40

50

60

70

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0


Gross profit Gross margin

Gross profit

(Rbn)

Gross margin

(%)

35

TRUWORTHS TRADING EXPENSES

Jun 2019

Rm

Jun 2018

Rm

Change on

prior period

%

Depreciation and amortisation 322 289 11

Employment costs 1 569 1 474 6

Occupancy costs 1 491 1 462 2

Trade receivable costs 1 037 1 099 (6)

Other operating costs 800 720 11

Trading expenses 5 219 5 044 3*

* Trading expenses grew 2% on the prior period excluding foreign exchange loss of R39 million in 2019 and foreign exchange gain of R29 million in 2018.

36

TRUWORTHS ANALYSIS OF TRADING EXPENSES

Depreciation and amortisation

Capital expenditure of R420 million (Jun 2018: R419 million) in the period.

Excluding non-comparable stores, depreciation and amortisation increased 2%.

Employment costs

Excluding non-comparable store costs and incentives, employment costs increased 4%.

Occupancy costs

A net 7 stores closed during the period.

Trading space increased 1.6% on the prior period.

11% INCREASE

6% INCREASE

2% INCREASE

37

TRUWORTHS ANALYSIS OF TRADING EXPENSES (CONTINUED)

Trade receivable costs

Excluding IFRS 9 stage 3 interest reclassification, trade receivable costs increased 4%.

Gross bad debts decreased 4%, recoveries increased 6% and debt sold decreased 31%, resulting in net bad debts decreasing 6% relative to the prior period.

The doubtful debt allowance increased from 19.0% (on an IFRS 9 basis, IAS 39: 12.3%) at Jun 2018 to 19.2% of gross trade receivables while the gross debtors book grew 4% since Jun 2018.

Collection costs unchanged relative to the prior period and other trade receivable costs decreased 3%.

Total cost of accounts of R1 211 million (Jun 2018: R1 278 million) exceeds total income from accounts (including notional interest) of R1 185 million (Jun 2018: R1 349 million), resulting in a deficit of R26 million (Jun 2018: surplus of R71 million).

Other operating costs

Excluding foreign exchange gains and losses from both periods (Jun 2019: R39 million loss, Jun 2018: R29 million gain) other operating costs increased 2%.

11% INCREASE

4%*

INCREASE

* Including the IFRS 9 stage 3 interest reclassification, trade receivable costs decreased 6%.

38

TRUWORTHS OPERATING PROFIT PERFORMANCE


Operating profit:

5-year 1%*

3-year -4%*

Average:

EBITDA margin:

5-year 31%*

3-year 31%*

Average:

Operating margin:

5-year 29%*

3-year 28%*

3.4 4.0 3.8 3.6 3.5*

32 33

31 31 30*

31 31

29 29

27*

-

5

10

15

20

25

30

35

40

45

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Jun 2015 Jun 2016 Jun 2017 Jun 2018 Jun 2019*

Operating profit EBITDA margin Operating margin

Operating profit

(Rbn)

Margins

(%) *Jun 2019 not comparable to prior years due to restructure of SA funding arrangements in Jun 2018.

The numbers in the graph below have been adjusted to exclude the impact of the funding restructure.

The reported numbers are operating profit R3.4bn, EBITDA margin 29%, and operating margin 26%.

39

TRUWORTHS CAPITAL EXPENDITURE

Actual

Jun 2019

Rm

Actual

Jun 2018

Rm

Change on

prior period

%

Committed

Jun 2020

Rm

Store renovations and development 252 320 (21) 291

Computer infrastructure and software 48 59 (19) 88

Land, buildings and refurbishment 113 31 265 151

Motor vehicles 4 4 - 4

Distribution facilities 3 5 (40) 3

Total 420 419 - 537

40

TRUWORTHS CASH FLOW ANALYSIS

2 758 (157)

1 149 8 (54) (917)

(80) 2 707 (1 766)

(340)

(266)

24 359 (302)

57

-

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

Cash

EBITDA

Working

capital

movements

Interest

received

Dividends

received

Finance

costs

Tax paid Capex

maintenance

Free

cash flow

Dividends

paid

Capex

expansion

Shares

repurchased

Other Net cash

increase

before

borrowings

repaid

Borrowings

repaid

Net cash

increase for

the period

(Rm)

41

TRUWORTHS CASH REALISATION RATE

Average:

Cash realisation rate:

5-year 91%

3-year 97%

80 83 84

110

97

-

20

40

60

80

100

120


Truworths cash realisation rate

(%)

FINANCIAL REVIEW - OFFICE

43

“It’s worth bearing in mind that just about everything happening in Britain today seemed implausible just a few years ago. This situation is, as the pundits say, “fluid” and “dynamic”. About the only thing that can be predicted with confidence is that come November, Brexiteers will either be celebrating their victory, or mourning their destruction.”

John Rapley, Political Economist at University of Cambridge Sunday Times, 11 August 2019

OFFICE OVERVIEW

44

Retail sales decreased by 1% to £279 million.

Second half retail sales grew at 2% compared to a decrease of 3% in the first half, due to increased

markdown activity.

Decrease in gross margin to 42.3% (Jun 2018: 44.4%) primarily due to a shift in the full price versus

markdown mix.

Online retail sales increased 10% to £94 million (Jun 2018: £86 million), comprising 34%

(Jun 2018: 31%) of retail sales.

Store sales down 6%.

Trading expenses remain well controlled, growing at 2% (excluding the impairment).

Inventory turn unchanged from prior year at 3.2 times.

Net debt to equity increased to 20% (Jun 2018: 10%) following impairment of Office intangibles (11%

before impact of impairment).

OFFICE TRADING OVERVIEW

45

OFFICE FINANCIAL PERFORMANCE

Jun

2019

Including

Impairment

Jun

2019

Comparable*

Jun

2018

Change on

comparable

prior period*

%

Sale of merchandise (£m) 285.5 285.5 286.0 -

Gross margin (%) 42.3 42.3 44.4

Trading expenses (£m) 215.9 113.9 111.2 2

EBITDA (£m) (89.8) 12.2 21.8 (44)

Operating (loss)/profit (£m) (94.7) 7.3 16.1 (55)

Operating margin (%) (33.2) 2.6 5.6

* On a comparable basis, i.e. excluding the Office impairment in the current period.

46

OFFICE RETAIL SALES AND STORES BY COUNTRY

Retail sales

Jun 2019

£m

Retail sales

Jun 2018

£m

Change on

prior period

%

Number of

stores

Jun 2019

Number of

stores

Jun 2018

United Kingdom 254.3 256.7 (1) 124 138

Germany 12.7 13.5 (6) 8 8

Republic of Ireland 11.3 10.3 10 7 7

United States of America 0.3 0.5 (39) - 3

Total 278.6 281.0 (1) 139* 156*

* Including 24 concession stores (Jun 2018: 40 concession stores)

47

OFFICE TRADING EXPENSES

Jun 2019

£m

Jun 2018

£m

Change on

prior period

%

Depreciation and amortisation 4.8 5.6 (14)

Employment costs 35.3 37.0 (5)

Occupancy costs 48.4 45.1 7

Trade receivable costs 0.6 -*

Other operating costs 24.8 23.5 6

Trading expenses, before impairment 113.9 111.2 2

Impairment of intangibles 102.0 -

Total trading expenses 215.9 111.2 94

* Zero due to rounding

48

Depreciation and amortisation

Capital expenditure of £2.5 million (Jun 2018: £3.6 million) in the period.

Decrease due to assets becoming fully depreciated and lower capex spend during the period.

Employment costs

Store wages and salaries decreased £1 million due to lower headcount and hours paid, and lower commission due to lower sales.

Excluding once-off costs, employment costs decreased 4%.

OFFICE ANALYSIS OF TRADING EXPENSES

14% DECREASE

5% DECREASE

49

OFFICE ANALYSIS OF TRADING EXPENSES (CONTINUED)

Occupancy costs

Onerous lease provision increased £1.9 million.

Excluding once-off costs, occupancy costs increased 2%.

Trade and other receivables

Trade receivable costs amounted to £0.6 million due to House of Fraser entering administration.

Other operating costs

Excluding once-off costs, other operating costs increased 5%.

E-commerce costs increased £1.8 million as a result of increased marketing spend and increased distribution costs, which are directly linked to sales.

7% INCREASE

6% INCREASE

50

OFFICE CAPITAL EXPENDITURE

Actual

Jun 2019

£’000

Actual

Jun 2018

£’000

Change on

prior period

%

Committed

Jun 2020

£’000

Store renovations and development 790 2 338 (66) 993

Computer infrastructure and software 1 666 1 197 39 1 383

Distribution facilities 26 84 (69) 60

Head office refurbishment 10 2 400 22

Total 2 492 3 621 (31) 2 458

51

OFFICE UPDATE ON DEBT RESTRUCTURING

Office entered into debt restructuring negotiations with lenders in June 2019.

Office and lenders appointed advisors Alvarez & Marsal (A&M) and Deloitte

respectively.

An amount of c £42.5 million is owed to UK lenders, and Office has cash balances

currently of c £28-32 million (net debt levels are currently c £10-15 million).

Given current levels of profitability, cash generation, solvency and liquidity, no major

business restructuring is appropriate.

Management confident that lender negotiations will be concluded satisfactorily.

Truworths International as ultimate shareholder remains committed to the business,

and its board believes that Office’s fortunes will improve as the turnaround strategies

are successfully executed.

52

OFFICE CEO UPDATE FOCUS & PRIORITIES – STRATEGIC OPPORTUNITIES

PARTNERSHIPS OFFSPRING OXFORD STREET

Positioning

Strength of messaging – Win in

London and with Her

Activations –Physical, digital and

social. Online growth (10%) will

continue

New offerings and differentiated

ranges

Strong growth @+32%

Unique community position

Strengthening digital content

Increased brand positioning and

allocations

Selfridges partnership

New model trial store

Significant improvement

Agile and flexible elevated

format

Brand positivity – the physical

window to the Office brand

Test and learn

SEE TURNAROUND WORKSTREAMS

‘OPERATIONAL’

TRUWORTHS ACCOUNTS

54

SOUTH AFRICAN CREDIT ENVIRONMENT TRANSUNION SA CONSUMER CREDIT INDEX

The TransUnion SA Consumer Credit Index (CCI) increased marginally to 49 in 2019 Q2 from 48 in 2019 Q1.

The increase in the TU CCI signals the end to a declining trend for the past three consecutives quarters. Nevertheless, the index has now been below 50 since 2018 Q3, indicating consumer stress. This is corroborated by low consumer confidence and weak retail sales growth.

Overall, TransUnion consumer credit behaviour data shows stabilising consumer stress.

Accounts in early default (3 months in arrears) increased by 1% year-on-year in 2019 Q2. This is an improvement on the 6% in 2019 Q1.

Household cash flow fell marginally by 0.5% during 2019 Q2.

Household debt service costs did not change materially during 2019 Q2.

Household distressed borrowing (revolving credit utilisation) appears to be muted, falling 1% year-on-year. However, utilisation rates above 50% is the norm.

52 Q2 2018

48 Q1 2019

49 Q2 2019

Source: TransUnion

The index measures

consumer credit

health where 50.0 is

the break-even level

between improvement

and deterioration.

TransUnion Defaults &

Distressed Borrowing

50%

Household

Cashflow

35%

Debt Servicing

Costs

15%

DATA WEIGHTING IN THE TRANSUNION CCI

55

TRUWORTHS ACCOUNTS OVERVIEW

Strong demand for Truworths merchandise evidenced by record new account application volumes of 2.8 million.

Majority of applicants are under 30 years old.

Strict credit granting criteria maintained.

Sales growth from new accounts has been sustained with two years of double digit growth.

Truworths credit book quality has improved year-on-year, widening the gap to the retail benchmarks (Principa Credit

Compass).

Lay-bys are an attractive purchase option for customers who do not qualify for credit and a good incubator for future

account customers.

E-commerce is not only adding sales but enhances our credit account appeal to the online shopper.

Loyalty programme continues to attract and retain customers via tailored customer offers.

Shoppable accounts increased significantly on prior year.

Performance improvements driven by a combination of advanced predictive analytics that leverage our single-view of

the customer into omni-channel customer engagement.

56

TRUWORTHS ACCOUNTS TOTAL GOOD(0-1)/TOTAL BAD (2+) BALANCE RATIO

Source: Principa

Excludes Edcon

Au

g-17

Sep

-17

Oct-1

7

No

v-17

De

c-17

Jan-1

8

Feb

-18

Mar-1

8

Ap

r-18

May-1

8

Jun

-18

Jul-1

8

Au

g-18

Sep

-18

Oct-1

8

No

v-18

De

c-18

Jan-1

9

Feb

-19

Mar-1

9

Ap

r-19

May-1

9

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

Ye

ar-o

n-Y

ear

Ch

ange

Y-on-Y % Change Industry Excl. Truworths Y-on-Y % Change Truworths GROUP

Total Good (0-1)/Total Bad (2+) balance ratio for Truworths has improved by 7% year-on-year ,

while industry deteriorated by 13% compared to the same period in the prior year

Source: Principa

Dete

riora

ting

Im

pro

vin

g

57

-10%

-5%

0%

5%

10%

15%

20%

Au

g-17

Sep

-17

Oct-1

7

No

v-17

De

c-17

Jan-1

8

Feb

-18

Mar-1

8

Ap

r-18

May-1

8

Jun

-18

Jul-1

8

Au

g-18

Sep

-18

Oct-1

8

No

v-18

De

c-18

Jan-1

9

Feb

-19

Mar-1

9

Ap

r-19

May-1

9

4+

Cyc

le B

alan

ces

Quarter

Y-on-Y % Change Industry Excl. Truworths Y-on-Y % Change Truworths GROUP

TRUWORTHS ACCOUNTS TOTAL 4+ CYCLE BALANCES

Truworths Total 4+ balances improved by 4% compared to prior year while industry deteriorated by 16%

Source: Principa (Excludes Edcon)

Imp

rov

ing

D

ete

riora

ting

58

TRUWORTHS ACCOUNTS NEW APPLICATIONS VS RISK APPROVED VS OPENED

-

0.5

1.0

1.5

2.0

2.5

3.0

20

08/2

00

9

20

09/2

01

0

20

10/2

01

1

20

11/2

01

2

20

12/2

01

3

20

13/2

01

4

20

14/2

01

5

20

15/2

01

6

20

16/2

01

7

20

17/2

01

8

20

18/2

01

9

0%

10%

20%

30%

40%

50%

60%

No of Applications Risk Approval % Opened %

(%) High standard of credit granting criteria

maintained and improved

No. of account

applications

(millions)

59

0

100

200

300

400

500

600

700

800

2009/2010 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 2016/2017 2017/2018 2018/2019

Application Date

TRUWORTHS ACCOUNTS NEW ACCOUNTS OPENED

No. of new

accounts opened

(‘000) Record number of new accounts opened

60

TRUWORTHS ACCOUNTS NEW ACCOUNT APPLICATIONS BY AGE GROUP

18 – 24 years

25%

25 – 29 years

24%

30 – 34 years

19%

35 – 39 years

13%

40 – 49 years

13%

50+ years

6%

Almost half of all

applicants are under 30

61

Account sales growth year-on-year

Months

on book

Jun 2016

%

Jun 2017

%

Jun 2018

%

Jun 2019

%

1 to 12 months 11 (24) 21 14

13 to 24 months 15 6 (24) 13

25 to 36 months (3) 9 3 (23)

37 months + 14 4 1 3

TRUWORTHS ACCOUNTS ACCOUNT SALES GROWTHS

Affordability legislation impact on sales growth moving into the older account groups impacting the overall sales growth.

Affordability

legislation

impact on

sales growth.

Positive

future sales

growth.

62

TRUWORTHS ACCOUNTS SHOPPABLE ACCOUNTS

Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

2018 - Shoppable 2019 - Shoppable

No. of

accounts

Shoppable accounts continued to improve in line

with increase in active customer base

63

TRUWORTHS ACCOUNTS STATISTICS

Jun

2019

Jun

2018

Number of active accounts (000's) 2 658 2 591

Change in number of active accounts (%) 3 2

Gross trade receivables (before doubtful debt allowance) (Rm) 5 898 5 663

Change in gross trade receivables (before doubtful debt

allowance) (%) 4 (3)

Account sales as a % of retail sales (%) 70 69

Qualifying payment (%) 90 90

Accounts opened to applications ratio (%) 22 25

64

TRUWORTHS ACCOUNTS STATISTICS (CONTINUED)

Jun

2019

Jun

2018

Active account holders able to purchase at period-end (i.e.

not in arrears) (%) 83 84

Overdue accounts as a % of gross trade receivables (%) 13 14

Net bad debt as a % of account sales (%) 8.3 9.2

Net bad debt as a % of gross trade receivables (%) 13.3 14.7

Doubtful debt allowance as a % of gross trade receivables* (%) 19.2 19.0*

Trade receivable interest as a % of gross trade receivables# (%) 18.8 22.7

* The June 2018 provision was 12.3% under IAS 39. The transition date increase in the provision was processed through retained earnings.

# Impacted by the IFRS 9 stage 3 interest reclassification. Excluding the reclassification, 20.6%

65

TRUWORTHS ACCOUNTS REGULATORY UPDATE

National Credit Amendment Act

Debt relief legislation signed into law on 13 August, announced by Parliament yesterday.

Regulations will need to be drafted and circulated.

Stakeholders will have an opportunity to comment on regulations.

Comes into effect on date to be set by the President on proclamation in the Government Gazette

Eligible to customers earning less than R7 500 per month, have unsecured debt of less than R50 000 and have been found to be critically indebted by the National Credit Regulator.

These accounts have in all likelihood already been written off or largely provided for.

In addition the doubtful debt allowance under IFRS 9 includes a provision for debt relief based on forward-looking considerations.

Studies will have to be undertaken about what the long term implications are for consumer behaviour.

NCRF is considering the legislation with its advisors.

STRATEGIC FOCUS AREAS

67

GROUP STRATEGIC FOCUS AREAS

Group focus areas

• Truworths and Office continue to collaborate

• Investigate strategic acquisitions

• Board transformation

Truworths focus areas

• Leadership and succession

• New store concepts

• Merchandise and supply chain

• Digital

Office focus areas

• Turnaround strategy

• Marketing, customer

engagement and loyalty

• Expansion and growth of e-

commerce

• Supply chain

68

GROUP BOARD TRANSFORMATION

Committed to transformation of the Truworths International Ltd board.

Medium-term target of 30% female representation on the board.

Cindy Hess appointed as independent non-executive director with effect from 1 May 2019.

Cross-industry experience predominantly in the FMCG sector.

Experience in the fields of risk management, restructuring and corporate finance.

Sarah Proudfoot appointed as executive director with effect from 23 May 2019.

21 years experience with the Group.

Appointed Director of Truworths Ltd Ladieswear Merchandise in 2016.

Experience in merchandise design, merchandise buying, planning, store design and marketing; strengthening the board's capabilities in all fashion retail functions.

Following these appointments, female representation on the board now 31%, in line with the Group’s medium-term target.

69

TRUWORTHS STRATEGIC FOCUS AREAS LEADERSHIP AND SUCCESSION

Succession is an important area of focus.

New divisional directors appointed with effect from 1 March 2019.

Cathy Kirkman appointed as Divisional Director: Merchandise Planning.


Myles Apsey appointed as Divisional Director: Merchandise Planning.


Peter Shackleton appointed as Divisional Director: Marketing & Merchandise.


Zamira Mowzer appointed as Divisional Director: Internal Audit, Governance and Risk.


70

TRUWORTHS STRATEGIC FOCUS AREAS NEW STORE CONCEPTS

Context

One of a kind EXPERIENTIAL concept store by TRUWORTHS.

Upmarket brand offering a collection of fashion, beauty and homeware.

Modern retail experience for the discerning female customer.

Aimed at capturing market share in the better-end segment by offering our higher LSM

customer a range of products with unique appeal.

Can be rolled out into better-end malls or more exclusive smaller retail environments.

First store successfully opened in April 2019 in the V&A Waterfront, Cape Town.

Fourways (Johannesburg) opening August 2019. Brooklyn (Pretoria), Loch Logan

(Bloemfontein) and Sandton (Johannesburg) to follow.

71

TRUWORTHS STRATEGIC FOCUS AREAS NEW STORE CONCEPTS (CONTINUED)

ID Kids

Successfully piloted ID Kids range in 26 Identity stores in summer 2018, rolling out to a

large number of stores for summer 2019.

Range is focused on the 2-8 year old age group and covers both girls and boys

collections.

Utilise the extensive in-house kidswear experience.

Look and feel aligned with the DNA of Identity and is “cool and fun”.

New Office London concept

Larger format footwear, apparel and accessories store.

Forward-thinking retail space, clean and clinical yet feels soothing and inviting for a new

take on futuristic design.

First store launching in Fourways Mall, Johannesburg.

72

TRUWORTHS STRATEGIC FOCUS AREAS NEW STORE CONCEPTS (CONTINUED)

New emporium concept

Launched refreshed emporium store concept in a number of large stores. Examples

include Gateway, Eastgate, Westville Pavilion, East Rand Mall and Westgate.

New store design elements

Introduced several new designs to ensure stores remain visually appealing and relevant,

including Loads of Living, Identity, YDE and Uzzi.

73

TRUWORTHS STRATEGIC FOCUS AREAS MERCHANDISE AND SUPPLY CHAIN

Product life-cycle management (PLM) system

Implementation of first phase successfully completed in April 2019.

Consolidation of fabric purchasing across departments

Drive improved margins and value offering through volume consolidation and bulk

negotiations.

Merchandise management system

Supply strategy review

New distribution center

74

TRUWORTHS STRATEGIC FOCUS AREAS DIGITAL

Integrated brand marketing

E-commerce

Data-driven decision making

75

Office turnaround strategy managed through three workstreams:

Trading alignment – focuses on merchandise performance and stock to reduce markdowns by

managing stock position.

Short-term essentials – aimed at prioritising Office’s operational and capital expenditure.

Marketing and brand alignment – focuses on the marketing/communication strategies, branding and

brand relationships.

Closure of poor performing stores remains a priority, while enhancing the e-commerce

offering to grow sales in a consumer environment trending towards online shopping –

footwear is highly conducive to online retailing.

OFFICE TURNAROUND STRATEGY

76

OFFICE STRATEGY – OUR VISION

We will focus on the basics to drive a more profitable business for all stakeholders: Look after our people, invest in our customers, harness our brand relationships and improve our product process

“ “ BACK TO BASICS TURNAROUND GROW

Morale

Costs

Capex

Trade

Inventory

Brand

People

Customers

Product

Stores

Space

Service

Digital

Offspring

Assortments

Supply chain

Our strategic priorities:

77

OFFICE STRATEGIC FOCUS AREAS

Marketing, customer engagement and loyalty

Customer research and analysis exercise in progress.

E-receipts

Expansion and growth of e-commerce

Ongoing enhancement of customer experience and transactional touch points

continues, supporting the popularity of this channel in the UK.

New payment gateway.

Same-day/nominated-day delivery and “click & collect” enhancements are progressing

well.

Supply chain

In-depth review of current warehousing and distribution model expected to improve

efficiency and reduce costs.

OUTLOOK

79

TRUWORTHS OUTLOOK

Consumer spending expected to remain under pressure in the short term – prolonged economic downturn and renewed demands on disposable income.

Labour market continues to weaken with unemployment at a 15-year high level.

Consumer confidence stabilised following the country’s national elections in May 2019 and the improvement in the power supply in recent months.

Consumer inflation remains steady.

Promulgation of debt relief act.

Stronger retail sales growth trend in the second half of the financial period is promising.

Sales momentum expected to be driven by:

Health of the account portfolio

Expanding e-commerce offering

Lay-by payment option

Customer response to new store concepts, including ID Kids and Context

Medium-term prospects will be supported by the health of the account portfolio, continued investment for growth, robust cash flows and strong balance sheet.

Retail sales for the first 6 weeks of the 2020 financial period increased relative to the corresponding

period in 2019, with lower markdowns. New Early Summer product started well – improved on last year. 1%

increase

80

OFFICE OUTLOOK

Trading conditions and consumer confidence remain under intense pressure ahead of the end-October 2019 Brexit deadline.

Retail sector will remain constrained in the medium term.

Turnaround initiatives implemented by management progressing according to plan.

Ongoing focus on inventory management to arrest gross profit margin decline and release working capital.

Real estate portfolio evaluation with a view to closing loss-making stores as leases come to an end.

Based on in-depth assessment by advisers, a major financial restructuring of Office is not being considered given its current profitability, liquidity and cash balances.

Retail sales for the first 6 weeks of the of the 2020 financial period increased in Sterling relative to the

corresponding period in 2019.

3% increase

QUESTIONS

DISCLAIMER

This announcement contains certain forward-looking

statements with respect to the financial condition and results of

operations of Truworths International Limited and its group

companies which by their nature involve risk and uncertainty

because they relate to events and depend on circumstances

that may occur in the future. Factors that could cause actual

results to differ materially from those in the forward-looking

statements include, but are not limited to: global and national

economic conditions; growth in trading space; interest rates;

credit and the associated risks of lending; merchandise

clearance rates; inventory levels and stock turn; gross and

operating margins achieved; and competitive and regulatory

factors. The Group does not undertake to publicly update or

revise any of these forward-looking statements, whether to

reflect new information or future events or otherwise.

APPENDICES

84

85

Documents

PowerPoint Presentation · 2019-11-21 · GROUP ANNUAL RESULTS . 2 AGENDA 1. REVIEW OF THE PERIOD 2. FINANCIAL REVIEW 3. TRUWORTHS ACCOUNTS 4. STRATEGIC FOCUS AREAS 5. OUTLOOK 6