2024

INTEGRATED REPORT

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TRUWORTHS

ACCOUNT
MANAGEMENT

Truworths continued to experience a strong demand for new accounts during the period, with 5.3 million account applications highlighting consumer appeal of Truworths' premium-quality, aspirational fashion merchandise.

A record number of approximately 900 000 new accounts were opened and active accounts grew by 2.5% to 2.9 million. The percentage of account applications which resulted in opened accounts increased to 17% from 15% in the prior period.

Truworths operates its account portfolio statistically, based on consistent application of credit risk criteria. All new accounts are scored using both internal and external scorecards and affordability criteria is applied in line with the requirements of the National Credit Act. Existing account customers are scored monthly to determine changes in risk profile, payment probability, propensity to spend, response likelihood, brand of preference and other predictive behavioural aspects to enable Truworths to better manage the portfolio. Decision optimisation is applied across the portfolio.

Risk scorecards self-regulate as they react to the payment behaviour of the customer. This means that during periods of heightened credit stress new account and credit limit approval rates will automatically tighten in reaction to deteriorating predictive scorecards.

Champion-challenger methodologies are applied and Truworths has multiple strategies running in parallel, with identified performance-based outcomes. A credit risk committee meets regularly to determine the percentage of the portfolio to be run on each strategy.

Gross trade receivables on the Truworths debtors' book, comprising the Truworths, Identity and YDE books, increased by 5.7% to R6.9 billion (2023: R6.6 billion).

Active gross trade receivables decreased by 2.1% to R6.4 billion (2023: R6.6 billion). This excludes the charge-off portfolio.

Account sales decreased by 2.5% and contributed 70% (2023: 70%) of retail sales in Truworths. Lay-by sales decreased by 6.2%. Active account holders able to purchase were at 79% (2023: 80%) at the period‑end. Overdue balances to the active debtors' book increased to 17% from 16% in the prior period.

The expected credit loss (ECL) allowance decreased from 20.6% in 2023 to 20.3% of active trade receivables for the reporting period.

Total trade receivable costs increased by 3.6% to R1.3 billion. Net bad debt and related costs decreased 14.6% to R1.0 billion (2023: R1.2 billion).

South Africa's credit market has been particularly challenging as the pressure of high borrowing costs and sustained cost-of-living increases impacted consumers' ability to service debt and meet their payment obligations. The SA Reserve Bank's benchmark repo rate remained unchanged at 8.25% throughout the financial period.

The TransUnion Consumer Credit Index, an indicator of the credit health of consumers in South Africa, measured 47 points for the first quarter and 46 points for the second quarter of calendar year 2024. While this indicates that the credit environment continues to deteriorate, the rate of decline has slowed from June 2023 when the index reached an all-time low of 39 points.

ACCOUNTS ENABLING MERCHANDISE SALES

Truworths uses credit to initiate an ongoing relationship with its customers in the mainstream middle-income consumer market. Truworths' strategy is to use credit as a tool to facilitate sales to enable South Africans to buy its high-quality fashion merchandise.

Many consumers in the middle-income market have limited access to traditional bank credit, such as overdraft facilities and credit cards, and are therefore reliant on store accounts to buy fashion merchandise. For some customers, their first credit exposure is with Truworths and they utilise the credit to not only purchase merchandise but also to start building a credit track record and profile. The Truworths account cost is low, with an annual account service fee of R59, and no initiation, club or magazine fees are payable. Financial services income constitutes only 0.9% (2023: 0.8%) of the sale of merchandise in Truworths.

Account facilities are offered to customers across all Truworths merchandise brands in South Africa, Namibia, Botswana and eSwatini.

Payment options include offering customers terms of six, nine and 12 months to settle their accounts. Many customers are offered a six-month interest-free payment plan that only attracts interest if the customer is in arrears on their account. Customers are billed monthly and are required to pay the minimum 90% qualifying payment of the amount due to remain current.

Customers who do not qualify for an account can use the lay-by (set aside) payment facility, enabling them to select merchandise and pay it off over three months. This gives non-account customers access to Truworths' merchandise that they would have not been able to purchase for cash.

REHABILITATION OF DELINQUENT ACCOUNTS

During the reporting period, the Group reviewed and amended certain of its credit risk management strategies, including the criteria for the write-off of delinquent accounts. Based on the expectation of a more positive economic outlook, the Group considers account rehabilitation to be a key strategy for stage three delinquent accounts that show some probability of payment, and has moved these accounts into a separate charged-off portfolio. These customers can reapply for a credit facility with the Group, provided they have been rehabilitated and meet the Group's strict credit risk and affordability criteria.

ACCOUNT MANAGEMENT IN 2024

New technology and processes continued to be implemented to enhance Truworths' ability to deliver an omni-channel experience to customers.

AI is applied in the new account conversion process while machine learning is used across the business. A suite of 59 predictive models is used to encode consistent, performance-based decisions in all aspects of the customer and credit lifecycle. Decision optimisation is used across most areas of the portfolio, with actions taken to maximise profit at a customer level.

Several credit scorecards were developed or refined to improve predictive power in account management. Further investment in new analytics technology has improved scorecard development time and new model-building techniques are being evaluated.

Chatbot software provides automated access to information and allows for self-service instead of dealing with a live agent, resulting in a large reduction in inbound call centre volumes.

Digital engagement with customers across account acquisition, account management and collections is increasing significantly, in particular via mobile phones, as online transacting gains momentum. Accounts can be opened on mobile devices while the majority of account payments on the e-commerce site are via mobile phones. New digital payment channels and payment gateways have increased the number of customers making account payments using channels other than physical stores.

All customer communication has been transitioned to digital channels. The functionality of the e-commerce platform was enhanced to enable further customer self-service. Customers can now move from the account application stage to shopping online within minutes, with most decisions being data-driven without human intervention.

GROWING CUSTOMER LOYALTY

The TruRoyalty (Truworths) and iDream (Identity) customer loyalty programmes are aimed at attracting and retaining customers, while increasing both the basket size and frequency of shopping of account and cash customers. Loyalty members spend on average more than cash customers.

The combined membership of the loyalty programmes has increased during the reporting period by 2.1 million to 20.9 million members, including 4.5 million account customers and 16.4 million non-account customers.

All account customers and account applicants become loyalty programme members. Lay-by customers also qualify for membership of the loyalty programme and receive customer communication to encourage repeat purchases while also being potential future account customers. Cash customers can join the loyalty programme at no cost.

Loyalty members are offered a suite of benefits, including loyalty-only merchandise promotions across brands, additional discounts on sale product, vouchers and competitions.

2024

INTEGRATED REPORT