Some things in life are better viewed on a big screen

Please open this report on a tablet in landscape mode or a bigger screen

Performance against objectives and targets in 2017
OBJECTIVES AND PLANS FOR 2017 PERFORMANCE AGAINST OBJECTIVES
Ongoing focus on managing the risk of fashion.
  • Continued focus on tried and tested conceptualisation, planning and procurement processes to reduce fashion risk.
  • Tailoring understanding of international trends to the unique South African market.
Adapt ranges to counter the impact of currency devaluation on merchandise pricing.
  • Focus on consolidating fabric purchases to offer better value by achieving better prices while maintaining quality.
Ongoing implementation of the product life cycle management system.
  • System will be implemented in the 2018 financial period.
Ongoing development of the new merchandise management system.
  • Project delayed until the 2018 financial period owing to other priorities, including new warehouse management system, launch of e-commerce and Office integration.
Further development of offshore sourcing processes.
  • Continued focus on early product development in specific merchandise categories with a longer lead time due to greater complexity.
Development of an e-commerce platform and offering.
  • Scheduled for launch in first half of 2018 financial period.
Continue the integration of Office into Truworths’ retail processes, where appropriate.
  • Implemented planning tool to assist with sales planning as well as inventory and markdown management.
  • Applied inventory management experience to set targets for inventory levels and turn, which has resulted in better inventory turns and improved sales.
TARGETS FOR 2017 PERFORMANCE AGAINST TARGETS
Group gross margin
51% – 55%
Gross margin at 52.6%
Truworths gross margin
54% – 57%
Gross margin at 55.2%
Challenges encountered in 2017
  • Managing the impact of high product inflation on imported merchandise caused by the devaluation of the Rand.
  • Managing stock levels in an environment of lower-than-expected sales.
  • Countering extensive and continuous product discounting by competitors.
Key risks and mitigation strategies for 2018
DESCRIPTION OF RISK RISK MITIGATION
Truworths aims to provide quality fashion to customers each season at appropriate margins. This covers buying processes, fashion monitoring, supplier relationships and ensuring Truworths has skilled buying and planning resources.
  • Apply proven forecasting and design processes and key executive interventions throughout the merchandise life cycle aimed at managing and mitigating the risk of fashion.
  • Manage suppliers to ensure risk is spread across the supply chain.
  • Blend the local and international supply base to take advantage of both quick response and fast fashion.
  • Maintain gross margin within target range.
  • Execute retention strategies for merchandise buyers and planners.
  • Achieve better prices in order to offer better value by consolidating fabric sourcing across brands while maintaining product quality.
Increased international competition.
  • Monitor impact of the international brands targeting the Truworths mass middle-market customer.
  • Constant brand and product innovation, with Office London and e-commerce platform launch in 2018 financial period.
Marked increase in counterfeit merchandise could impact on sales.
  • Monitor counterfeit product in the market and attempt to identify origin.
  • External service providers contracted to uncover source of counterfeit product.
  • Engage with SA Revenue Service to assist them in identifying counterfeit product.
  • Initiate legal action against producers of counterfeit product.
Exchange rate volatility on imported merchandise creates challenges in managing retail selling prices.
  • Forward exchange contracts are used to cover all merchandise imports so price points can be determined at the time of placing orders.
  • Continue to seek opportunities for local supply to reduce reliance on imports including continued investment in Truworths Manufacturing.
  • Improve procurement processes, consolidate fabric sourcing and adjust product ranges to limit product inflation.
  • Acquisition of Office has diversified the Group’s currency risk which can provide a hedge against the volatile Rand.
Medium-term opportunity
  • Implement a new merchandise management system to support implementation of best practices, provide greater flexibility for merchandise initiatives and improve integration.
Objectives and plans for 2018
  • Ongoing focus on managing the risk of fashion.
  • Continued consolidation of fabric sourcing and manufacturing to improve value offering for customers.
  • Leverage the benefits of fabric and supplier consolidation to improve speed to market.
  • Offer merchandise promotions linked to loyalty programme.
  • Refocus brand positioning and differentiation between brands offered in the emporium stores.
Targets for 2018

Group gross margin
51% – 55%

Truworths gross margin
54% – 57%

Performance against objectives and targets in 2017
OBJECTIVES AND PLANS FOR 2017 PERFORMANCE AGAINST OBJECTIVES
Capital expenditure of R97 million planned for distribution expansion and development, mainly on the initial phase of the new distribution centre.
  • Construction of the third distribution centre delayed owing to delays with local authority planning approvals.
  • Owing to lower-than-expected sales and a reduction in unit volume, distribution capacity was not under pressure.
Leverage benefits of new warehouse management system.
  • The new system provides more accurate data on the stock position across the distribution centres and improved reporting on warehouse productivity.
Integrate enhanced e-commerce offering into the supply chain.
  • Planning completed ahead of the scheduled launch of the e-commerce platform in the first half of the 2018 financial period.
TARGETS FOR 2017 PERFORMANCE AGAINST TARGETS
Inventory turn
  • Group: 3.0 times – 4.0 times
  • Truworths: 4.5 times – 5.5 times
  • Group: 4.5 times
  • Truworths: 5.2 times
Improve distribution centre productivity by 1% – 3%. Efficiency levels unchanged owing to the challenges experienced during the implementation of the new warehouse management system and processes, as well as a reduction in unit volumes.
Challenge encountered in 2017
  • The implementation of the new warehouse management system in the distribution centres caused delays in stock reaching stores in the early stages of the financial period.
Key risks and mitigation strategies for 2018
DESCRIPTION OF RISK RISK MITIGATION
Organic and acquisitive growth in the business could result in the need to expand distribution and warehousing capacity.
  • E-commerce orders to be picked from a selection of large emporium stores which will avoid further pressure on distribution centre resources.
  • Ongoing monitoring of distribution centre capacity.
Suppliers not operating to contracted standards of ethical behaviour could result in reputational damage and interruption of supply.
  • Truworths code of conduct for suppliers incorporated in all supplier agreements.
  • Manufacturers are required to comply with ethical standards, labour, health and safety, and environmental legislation.
Dependency on the warehouse management system and throughput.
  • Warehouse management system stable.
  • Up-skilled business resources at the distribution centre to support the Truworths IT team.
  • Focus on process re-engineering to ensure the main distribution centre is able to cope during major peaks.
  • Agreements in place with third party warehousing facilities that can store imported goods to mitigate pressure that could result from high volume deliveries, allowing us to manage the flow of these goods into our distribution centres.
Medium-term opportunity
  • Continue to invest in and grow the Truworths Manufacturing division to enhance local supply capabilities.
Objectives and plans for 2018
  • Careful selection and management of strategic stock fabric that can be utilised for in-season trading to reduce lead times.
  • Consolidating certain product types across the supply chain in order to leverage price benefits, thereby providing continuity and enhanced productivity for suppliers.
  • Implement e-commerce offering across all brands in South Africa.
  • Improve productivity and throughput time in distribution centres from improved controls and performance measures.
Targets for 2018

Group inventory turn
3.5 – 4.5 times

Truworths inventory turn
4.5 – 5.5 times

The Group has changed its terminology from ‘credit’ to ‘account’ when discussing ‘non-cash and non-credit card’ customers. Management has to adopt a more generic description of the financial product offering that now incorporates a loyalty programme, in order to distinguish the offering from bank credit used by customers in the form of debit and credit cards.

Performance against objectives and targets in 2017
OBJECTIVES AND PLANS FOR 2017 PERFORMANCE AGAINST OBJECTIVES
Develop predictive models and strategies across the account portfolio to respond to the changing economic and trading environment.
  • New models developed and implemented.
  • Existing models rebuilt and implemented.
  • New strategies developed and implemented.
  • Strategy performance post-implementation is in line with expectations.
Continue to invest in technology to unlock the value in the vast customer data available internally and externally.
  • Improved big-data solutions evaluated and proof-of-concepts in progress.
  • Next generation business intelligence tools evaluated.
Commence development of new collections software.
  • Extensive business requirements analysis completed.
  • Project will move into development phase during the 2018 financial period.
Further improve processes and systems to collect affordability assessment documentation.
  • Marginal improvements have been made, but the reluctance and inability of customers to share this information remains the biggest obstacle.
Launch a loyalty programme for both account and cash customers to offer personalised promotions and offers that increase purchase frequency and basket size.
  • Truworths (TruRoyalty) and Identity (iDream) loyalty programmes launched in second half of the financial period.
  • Over 2 million non-account loyalty members.
Relaunch e-commerce with enhanced functionality, order fulfilment, communication and payment capabilities to facilitate omni-channel retailing.
  • Truworths e-commerce platform to be launched in first half of the 2018 financial period, including updated website and online store.
  • Extensive catalogue of Truworths, Identity, kidswear and Office London ranges to be available online.
TARGETS FOR 2017 PERFORMANCE AGAINST TARGETS
Maintain number of active customer accounts.
  • Active account base declined by 4% to 2.5 million owing to impact of the affordability assessment regulations.
  • Truworths increased market share of active accounts.
  • Year-on-year growth in new accounts opened in second half of financial period.
Maintain the doubtful debt allowance at existing levels of around 12.5%.
  • Doubtful debt allowance increased to 12.7% (2016: 12.3%).
Improve frequency of purchase and basket size from cash and account customers.
  • Frequency of shopping unchanged.
  • Average basket value of active account customers increased by 9%.
  • Average basket value of cash customers increased by 8%.
Challenges encountered in 2017
  • Managing the impact of income verification requirement of the National Credit Regulator’s affordability assessment regulations on account sales.
  • Growing account sales and the active account base as disposable income declined in a deteriorating economic environment.
Key risks and mitigation strategies for 2018
DESCRIPTION OF RISK RISK MITIGATION
Inability to effectively manage account risk could result in increased bad debt, slower collections, limited new account growth and a reduction in the number of customers able to buy on account.
  • Apply account granting processes consistently, using advanced analytics, scorecards and models.
  • Review account management, collections and acquisition strategies regularly and refine to leverage new data and predictive models.
  • Implement and maintain best-of-breed account management tools that accurately execute account policies, processes and strategies.
National Credit Regulator’s income verification requirements contained in the affordability assessment regulations are materially impacting account granting and, consequently, sales.
  • Continue to improve profitability of account strategies by using better scorecards, more data and enhanced decision processes.
  • Ongoing improvements in head office and in-store processes.
  • Instituted legal proceedings together with two other JSE-listed retailers against National Credit Regulator and the Minister of Trade and Industry to challenge certain aspects of the regulations. Court case heard in August 2017 with judgment pending.
Medium-term opportunities
  • Offer integrated omni-channel retailing with a clear store versus online strategy.
  • Increase the number of active account holders.
Objectives and plans for 2018
  • Grow new account sales while maintaining new account quality standards.
  • Improve sales from existing customers through account limit management and customer reactivation.
  • Improve collections through more effective use of call centre technology.
  • Reduce cost of customer engagement through more efficient targeting and communication.
  • Continue to review loyalty programmes based on customer experience.
  • Launch online store.
Targets for 2018

Increase the number of new accounts opened year-on-year

Maintain the doubtful debt allowance at 12.7%

Grow the number of loyalty members to above 6 million

Performance against objectives and targets in 2017
OBJECTIVES AND PLANS FOR 2017 PERFORMANCE AGAINST OBJECTIVES
Trading space expected to grow by approximately 3%.
  • Trading space growth of 1.6%.
  • Net 11 stores opened.
  • 781 stores at period-end (2016: 770).
R332 million committed to store development.
  • R335 million (2016: R296 million) invested in store development.
Evaluate store opportunities in the rest of Africa.
  • 47 stores in the rest of Africa.
  • No new stores opened in the rest of Africa during the period due to economic environment .
  • Continuous evaluation of store performance in the rest of Africa.
Continued expansion of Truworths Kids emporiums.
  • Truworths Kids Emporium footprint expanded to 32 (within larger emporium stores).
TARGETS FOR 2017 PERFORMANCE AGAINST TARGETS
Store electricity carbon emissions of 170 kg per m² (South Africa only).
  • Carbon emissions of 177 kg per m² (South Africa only).
Roll out 28 Truworths Kids emporiums.
  • Opened 18 Truworths Kids emporiums (within larger emporium stores).
Challenge encountered in 2017
  • In certain existing locations in good-performing malls Truworths is overtrading and unable to secure additional space.
Key risks and mitigation strategies for 2018
DESCRIPTION OF RISK RISK MITIGATION
Consolidation of landlords and an increased demand for space, as a result of the increased presence of international retailers, impacting price and availability of retail space, particularly in larger malls.
  • Consolidating existing space and improving efficiencies by introducing new brands into various store formats.
  • Renovating key stores.
  • Early discussions with landlords to secure prime space at competitive rates.
  • New malls present opportunity in prime positions.
Failure to successfully launch the e-commerce platform could impact sales growth.
  • Best-in-class e-commerce platform to be launched.
  • Extensive pilot project undertaken to minimise risk of failure upon implementation.
Medium-term opportunities
  • Consolidate trading space to improve operating efficiency and trading densities by renovating key stores and reprofiling stores by adding new brands.
  • Develop digital channels to increase customer engagement and grow online sales, leveraging the benefits of the recently launched loyalty programme.
  • Ongoing roll-out of the emporium format.
  • Continued cautious expansion in the rest of Africa.
Objectives and plans for 2018
  • Trading space expected to grow by approximately 4%.
  • R353 million committed to store development.
  • Launch Office London in SA.
  • Launch new e-commerce platform.
  • Continued expansion of Truworths Kids Emporium footprint.
Targets for 2018

Store electricity carbon emissions of 174 kg per m² (South Africa only)

Trading space growth of 4%