2024

INTEGRATED REPORT

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Chief Financial Officer's report

Focusing on the financial sustainability of the business

In constrained retail trading conditions, the Group's businesses in South Africa and the United Kingdom experienced differing fortunes in the 52 weeks to 30 June 2024.

NET DEBT reduced by R544 million

Truworths was impacted by the ongoing weak consumer spending environment, high interest rates, a late winter as well as significant local and international supply chain headwinds. Office delivered a resilient performance and sustained its recent growth momentum despite the pressure on household spending in the UK.

In this environment, the Group continued to generate robust cash flows and further strengthened its financial position. This is reflected in the 23.2% increase in the net asset value per share to 2 553 cents (2023: 2 073 cents). Cash generated from operations increased by R885 million or 23.2% to R4.7 billion. The Group returned R2.2 billion to shareholders in dividends while R770 million was applied to capital investment.

Net debt was reduced by R544 million to R306 million, with the net debt to equity ratio at 3.2% relative to 11.1% in the prior period.

Headline earnings per share (HEPS) decreased by 6.3% to 818 cents (2023: 873 cents), with diluted HEPS declining by 6.5% to 806 cents (2023: 861 cents). On a pro forma basis, HEPS increased by 1.0% with diluted HEPS increasing by 0.9%.

The annual cash dividend decreased by 6.4% to 529 cents per share (2023: 565 cents per share), comprising an interim dividend of 332 cents and final dividend of 197 cents, with the dividend cover being maintained at 1.5 times.

The Group again achieved all six of its board-approved financial targets.

GROUP FINANCIAL AND OPERATING TARGETS

Financial targets are published to provide guidance to shareholders on the Group's financial performance objectives. Targets and performance are benchmarked against JSE-listed apparel retailers and leading global fashion retailers. The targets are reviewed annually by the board, based on actual performance and the medium-term outlook.

Pro forma
2024
Medium-   
term   
targets#
Target
achieved or
exceeded
Local   
benchmark@
Global  
benchmark^
Gross margin (%) 52.3 49 – 53    43.7    51.6  
Operating margin (%) 22.0 18 – 23    12.8    11.9  
Return on equity (%) 36 31 – 36    18    20  
Return on assets (%) 24 22 – 27    15    12  
Inventory turn (times) 4.3 3.5 – 4.5    2.8    3.5  
Asset turnover (times) 1.1 0.9 – 1.3    1.1    1.1  
# Medium-term targets as published in the Group's 2023 Integrated Report.
@ The local benchmark is based on the average ratios for comparable JSE-listed apparel retailers, being Mr Price Group (year ended 30 March 2024) and TFG (year ended 31 March 2024).
^ The global benchmark is based on the average ratios for listed global fashion retailers (with a 70% weighting), being H&M (year ended 30 November 2023), Inditex (owner of the Zara fashion chain) (year ended 31 January 2024) and Lojas Renner (year ended 31 December 2023) and listed sportswear retailers (with a 30% weighting), being Frasers Group PLC (year ended 28 April 2024) and JD Sports Fashion PLC (year ended 3 February 2024).

OUR RESPONSE TO ISSUES IMPACTING FINANCIAL PERFORMANCE

SUSTAINED PRESSURE ON CONSUMER SPENDING IN SOUTH AFRICA

Consumer disposable income continued to be eroded by sustained pressure from electricity, food and cost-of-living increases while borrowing costs were maintained at elevated levels for longer than expected.

TRUWORTHS' RESPONSE

  • Focused on elevating and differentiating product ranges across all brands to offer an even more appealing and enticing proposition to customers.
  • Identified opportunities to grow market share in categories where Truworths is under-represented.
  • Continued to enhance online functionality to drive e-commerce sales.
  • Introduced new store formats and concepts to drive sales growth, in particular the new Truworths Emporium Re-imagined store concept.
  • Refined, retail concepts launched in recent years and introduced product range extensions in new brands.
  • Grew the active account base as well as the loyalty programme membership base.
  • Improved the predictive power of credit scorecards to improve decision making.
  • Maintained focus on cost containment to mitigate the impact of constrained consumer spending.
  • Negotiated store rentals on acceptable terms, with rental reversions where possible.

GLOBAL AND LOCAL SHIPPING CHALLENGES IMPACTING SUPPLY CHAINS

Global shipping challenges resulted in the late delivery of imported merchandise for several months, adversely impacting stock deliveries and sales, including over the peak festive season trading period. Local manufacture was also impacted by the shipping crisis due to the reliance on imported fabric. These supply chain challenges were compounded by the congestion at local ports due to infrastructure failure.

TRUWORTHS' RESPONSE

  • Developed a decisive mitigation plan, including forming a shipping task team to monitor the import programme.
  • Utilised alternative ports and shipping routes to increase speed of delivery.
  • Extended merchandise order lead times for certain product categories to allow for delayed deliveries.
  • Increased local production using fabric stocks held by the business.
  • Supported local strategic CMTs to protect the manufacturing base.

LATE ONSET OF WINTER IN SOUTH AFRICA

Unseasonably warm weather and the late onset of the 2024 winter season constrained demand for warm winter products, impacting on retail sales in the last quarter of the financial period.

TRUWORTHS' RESPONSE

  • Optimal stock levels were monitored and responded to weekly, to take account of the unseasonably warm weather in winter.
  • In-season promotional activity was aligned to seasonal targets.
  • All outstanding orders were reviewed to assess if the merchandise was still required, based on the seasonal projected sales.
  • Reduced local supply orders where practical to do so.

CONSTRAINED RETAIL SALES IN UK DUE TO PRESSURE ON HOUSEHOLD INCOME

Household income in the UK remained under pressure due to high living costs and interest rates being at the highest level in 16 years.

OFFICE'S RESPONSE

  • Focused on offering the most appealing and differentiated branded and own-brand footwear ranges.
  • Improved the merchandise management and stock level process by aligning with Truworths' proven methodology.
  • Applied the new store design concept in the eight stores opened in the period.
  • Modernised and extended trading space in three flagship stores to drive sales.
  • Expanded the brand portfolio with the inclusion of several new branded footwear partners.
  • Ensured better product access and larger stock allocations through quality of brand relationships.
  • Invested in new customer relationship management solution to improve customer retention.
  • Improved customer experience online by introducing express 'click & collect' facility.
  • Continued to remodel the warehousing and distribution function to reduce costs and enhance productivity.
  • Maintained strong focus on cost containment.

ANALYSIS OF FINANCIAL CAPITAL

The analysis of performance in this report aims to demonstrate how the Group's financial capital has been increased, preserved or eroded through the Group's operating and investing activities in the period, and how the effective management of this capital is expected to contribute to value creation for shareholders in the medium and long term.

PRO FORMA INFORMATION

The Group is again providing pro forma information, which excludes the effects of the following adjustments, to enable shareholders to make meaningful comparisons between the performance for the current and prior reporting periods.

Pro forma information is indicated by an asterisk (*) throughout this report.

The Group's earnings for the period benefitted as a result of the following:

  • The partial reversal of previously recognised impairments on the Office UK trademarks to the value of R1 019 million (£43 million, before tax). The partial reversal of this trademark impairment reflects the sustained recovery and ongoing improvement in the performance of Office since the COVID-19 period;
  • Insurance recoveries received of R20 million (£0.8 million) relating to a burglary at the Office distribution centre during the prior period; and
  • A reduction in other operating costs of R123 million resulting from the first-time consolidation of the Group's charitable trusts.

Earnings for the prior period ended 2 July 2023 were enhanced by the following:

  • The settlement of a long-standing indirect tax matter with the South African Revenue Service, resulting in a previous adverse assessment issued in the 2022 financial period being reduced by R109 million (including the reversal of interest charged of R37 million), the release of accruals that had been accumulated since the 2008 financial period in respect of this matter amounting to R145 million, and the recognition of interest of R6 million on the overpayment of tax; and
  • Insurance recoveries received of R85 million as a result of losses and damages suffered during the civil unrest in South Africa in July 2021.

In addition, foreign exchange gains and losses have been excluded from both periods. The current period includes a foreign exchange loss of R73 million compared to a foreign exchange gain of R19 million in the prior period.

GROUP FINANCIAL PERFORMANCE

STATEMENTS OF COMPREHENSIVE INCOME

Sale of merchandise

Group retail sales increased by 3.6% to R21.4 billion from R20.6 billion in the prior period. Account sales comprised 48% (2023: 51%) of retail sales for the period. Cash sales increased by 10.0% while account sales decreased by 2.5%.

Group sale of merchandise, which comprises Group retail sales, together with wholesale sales and delivery fee income, less accounting adjustments, increased by 3.9% to R20.7 billion.

Divisional sales 52 weeks
to
30 June
2024
Rm
52 weeks
to 2 July
2023
Rm
Change 
on prior 
period 
Truworths Africa 14 530 15 006 (3.2)
  Truworths ladieswear 5 140 5 383 (4.5)
  Truworths menswear 3 619 3 734 (3.1)
  Identity 2 289 2 420 (5.4)
  Truworths kids emporium# 1 430 1 522 (6.0)
  Other@ 2 052 1 947 5.4 
Office UK 6 848 5 621 21.8 
Group retail sales 21 378 20 627 3.6 
YDE agency sales 216 233 (7.3)
Truworths Man, Uzzi, Daniel Hechter Men's, Fuel and LTD Men.
# LTD Kids, Earthchild and Naartjie.
@ Cosmetics, Cellular, Truworths Jewellery, Office London (South Africa), Loads of Living and Sync.

Group trading space increased by 1.2% (0.9% in Truworths and 11.4% in Office). At the end of the period, the Group had 888 stores, including 11 concession outlets (2023: 876 stores, including 11 concession outlets).

Gross margin

The Group's gross margin decreased marginally to 52.3% (2023: 52.5%), but remained within the medium-term target range. Truworths' gross margin reduced to 54.9% (2023: 55.4%), mainly due to higher levels of sales promotion activity over the winter season. The gross margin in Office improved to 47.0% (2023: 45.2%), primarily due to distribution efficiencies.

Trading expenses

Trading expenses increased by 5.1% to R8.2 billion and constituted 39.5% (2023: 39.1%) of sale of merchandise. Trading expenses in Truworths increased by 1.9% and were well controlled despite pressure on utility costs due to above-inflationary increases. The 7.4% increase in Office's trading expenses were mainly due to higher depreciation charges and employment costs.

An analysis of trading expenses is included in the Truworths and Office sections in this report.

Interest income

Interest income increased 21.4% to R1.4 billion (2023: R1.1 billion) due to higher interest rates and the increased cash balances in Office.

Trading profit

Group trading profit, which excludes interest income, increased 16.6% to R4.2 billion (2023: R3.6 billion) while the trading margin increased to 20.4% from 18.2%.

Profit before finance costs and tax

Group profit before finance costs and tax increased 17.9% (increase of 3.0%*) to R5.6 billion (2023: R4.8 billion). The operating margin increased to 27.3% (22.0%*) from 24.0%.

Finance costs

Finance costs were 25.9% higher at R476 million (2023: R378 million) due to higher borrowing levels at higher interest rates to fund working capital requirements in Truworths as well as increased IFRS 16 finance costs for new and renewed leases.

Earnings

Earnings per share (EPS) increased by 17.8% to 1 046.9 cents (2023: 888.5 cents). Headline earnings per share (HEPS) decreased by 6.3% to 817.9 cents (2023: 873.3 cents) and diluted HEPS decreased by 6.5% to 805.8 cents (2023: 861.4 cents).

The variance between the change in EPS and HEPS for the current period relative to the prior period relates mainly to the reversal in the current period of previously recognised Office trademark impairments. This impairment reversal is included in earnings but excluded from headline earnings.

On a pro forma basis, EPS, HEPS and DHEPS increased by 2.1%, 1.0% and 0.9%, respectively.

STATEMENTS OF FINANCIAL POSITION

Net asset value

The Group's financial position strengthened with the net asset value per share increasing 23.2% to 2 553 cents (2023: 2 073 cents).

Property, plant and equipment

The increase of 22.4% to R2.5 billion (2023: R2.1 billion) in property, plant and equipment (PPE) was mainly due to capital expenditure on the new Truworths distribution centre (DC) with progressive operational implementation from November 2024 and planned to be fully operational by March 2025.

Right-of-use assets

Right-of-use assets increased by 6.5% to R3.5 billion (2023: R3.3 billion) due to new leases being concluded, including the lease in respect of the 50% share of the Truworths DC owned by the joint operator, King Air Industria, lease renewals and modifications in terms of IFRS 16, and the reversal of previously recognised right-of-use asset impairments.

Intangible assets

Intangible assets increased to R1.5 billion (2023: R590 million) following the partial reversal of impairments on the Office trademarks to the value of R1 019 million (£43 million).

Assets held at fair value

Non-current assets held at fair value increased mainly due to the consolidation of the Group's charitable trusts for the first time in the current period. Current assets held at fair value comprise highly liquid, low-volatility net asset value money market investments, mainly in respect of Office.

Inventory

Inventories increased by 3.0% to R2.3 billion (2023: R2.2 billion) and the inventory turn increased to 4.3 times (2023: 4.2 times). Truworths' gross finished goods inventory increased 11.4% and the inventory turn decreased to 4.0 times (2023: 4.5 times). In Office, gross inventory decreased by 10.5% to £38.9 million (2023: £43.4 million) and inventory turn (measured in Sterling) increased to 4.8 times (2023: 4.2 times).

TRUWORTHS AND OFFICE BUSINESS SEGMENTS

Management measures the operating results of the Truworths and Office business segments separately for the purpose of resource allocation and performance assessment. Segmental performance is reported on an IFRS basis and evaluated with reference to revenue, gross margin, operating margin, EBITDA and profit after tax.

  Truworths 
Rm 
Office 
Rm 
Consolidation    
entries    
Rm    
Group
Rm
 
2024
Total revenue   15 490  7 012  (66)   22 436  
Third party   15 428  7 008  –     22 436  
Inter-segment   62  (66)    
Trading expenses   6 175  2 055  (62)   8 168  
Depreciation and amortisation   1 170  305  –     1 475  
Employment costs   2 019  699  –     2 718  
Occupancy costs   668  404  –     1 072  
Trade receivable costs   1 310  –  –     1 310  
Net bad debt and expected credit losses raised   1 168  –  –     1 168  
Other trade receivable costs   142  –  –     142  
Other operating costs   1 008  647  (62)   1 593  
Interest income   1 319  69  –     1 388  
Finance costs   425  51  –     476  
Profit for the period   2 045  1 855  –     3 900  
Profit before tax   2 739  2 416  –     5 155  
Tax expense   (694) (561) –     (1 255)  
EBITDA   4 334  2 772  –     7 106  
Segment assets   24 489  5 081  (10 918)* 18 652  
Segment liabilities   7 131  2 050  (35)* 9 146  
Capital expenditure   632  181  –     813  
Key ratios
Gross margin (%)   54.9  47.0  –     52.3  
Trading margin (%)   13.3  34.6  –     20.4  
Operating margin (%)   23.1  35.5  –     27.3  
Inventory turn (times)   4.0  4.8  –     4.3  
Account : cash sales mix (%)   70:30  0:100  –     48:52  
* Elimination of investment in Office as well as inter-segment assets and liabilities.
Truworths 
Rm 
Office 
Rm 
Consolidation    
entries    
Rm    
Group 
Rm 
2023 
Total revenue  16 112  5 907  (27)    21 992 
Third party  16 088  5 904  –     21 992 
Inter-segment  24  (27)    – 
Trading expenses  6 057  1 738  (23)    7 772 
Depreciation and amortisation  1 139  220  –     1 359 
Employment costs  1 915  590  (16)    2 489 
Occupancy costs  604  357  –     961 
Trade receivable costs  1 265  18  –     1 283 
Net bad debt and expected credit losses raised  959  –  –     959 
Other trade receivable costs  306  18  –     324 
Other operating costs  1 134  553  (7)    1 680 
Interest income  1 130  14  (1)    1 143 
Finance costs  350  29  (1)    378 
Profit for the period  2 478  810  –     3 288 
Profit before tax  3 374  1 023  –     4 397 
Tax expense  (896) (213) –     (1 109)
EBITDA  4 863  1 272  (1)    6 134 
Segment assets  18 739  3 243  (5 849)*  16 133 
Segment liabilities  6 544  1 948  (13)*  8 479 
Capital expenditure  651  94  –     745 
Key ratios 
Gross margin  (%) 55.4  45.2  –     52.5 
Trading margin  (%) 18.1  18.3  –     18.2 
Operating margin  (%) 26.2  18.5  –     24.0 
Inventory turn  (times) 4.5  3.8  –     4.2 
Account : cash sales mix  (%) 70:30  0:100  –     51:49 
* Elimination of investment in Office as well as inter-segment assets and liabilities.

TRUWORTHS

This analysis covers the performance of the Truworths business segment which operates in South Africa and the rest of Africa, and includes YDE.

STATEMENTS OF COMPREHENSIVE INCOME

Sale of merchandise

Retail sales in Truworths declined by 3.2% to R14.5 billion (2023: R15.0 billion). Account sales decreased by 2.5% and comprised 70% of retail sales. Cash sales decreased by 4.7%.

Like-for-like store retail sales decreased by 6.1% (2023: increased 4.4%) with retail selling price inflation averaging 6.4% (2023: 12.6%).

Retail trading space increased by 0.9% as Truworths opened 20 stores and closed 13.

E-commerce delivered a strong sales performance as online retail in South Africa gathers momentum, increasing by 34% and contributing 4.9% of Truworths retail sales (2023: 3.5%).

The South African operations accounted for 96.5% (2023: 96.6%) of Truworths' retail sales, with the 33 (2023: 31) stores in the rest of Africa contributing the balance.

Trading densities decreased by 4% to R37 648 per m² from the record level of R39 359 per m² in 2023.

Gross margin

The gross margin decreased from 55.4% to 54.9%, owing mainly to higher levels of sales promotion activity in the 2024 winter season.

Trading expenses

June
2024
Rm
June
2023
Rm
Change 
on prior 
period 
Depreciation and amortisation 1 170 1 139
Employment costs 2 019 1 915
Occupancy cost 668 604 11 
Trade receivable costs 1 310 1 265
Other operating costs 1 008 1 134 (11)
Trading expenses 6 175 6 057

Trading expenses increased by 2% to R6.2 billion (2023: R6.1 billion). Trading expenses to sale of merchandise increased to 45.0% from 42.6% in the prior period.

  • Depreciation and amortisation increased by 3%. Depreciation of the right-of-use assets increased by 6% due to an increase in the number of leases accounted for under IFRS 16, including new leases, lease renewals and the lease related to the 50% share of the new Truworths DC. Depreciation in respect of PPE and software decreased by 12% due to assets becoming fully depreciated in the current period.
  • Employment costs increased by 5% due to annual salary increases.
  • Occupancy costs, which comprise rentals not accounted for in terms of IFRS 16 as well as other occupancy costs, increased by 11%. Other occupancy costs, comprising mainly utilities and security, increased by 19%. Rentals paid (ie on a cash basis and not necessarily accounted for under occupancy costs) increased by 3%.
  • Trade receivable costs increased by 4%. Net bad debt and related costs, excluding the movement in the expected credit loss (ECL) allowance, decreased R189 million. Net bad debt (after debt sold) decreased by 16% (R155 million), due to enhancements to the Group's existing charge-off hold-back criteria, as well as the creation of an on-balance sheet charged-off portfolio. The movement in the ECL allowance resulted in an increase of R234 million in provision cost compared to the prior period. The ECL allowance on the active trade receivables portfolio decreased from 20.6% to 20.3% of the active gross trade receivables. The charged-off trade receivables portfolio totalled R0.5 billion, with the ECL allowance on this portfolio at 78.5%. Refer to Account management for detail on changes to the trade receivables portfolio. The net cost (after taking into account interest) of the book totalled R42 million for the current period relative to R226 million in the prior period.
  • Other operating costs decreased by 11% mostly due to the one-off income statement effect of the consolidation of the Truworths charitable trusts and lower account acquisition costs.

Interest income

Interest income increased by 17% to R1 319 million (2023: R1 130 million) owing to the growth of the trade receivables portfolio and high interest rates that prevailed throughout the period.

Finance costs

Finance costs increased by R75 million to R425 million (2023: R350 million) mainly due to higher borrowing levels at higher interest rates to fund working capital requirements, as well as increased IFRS 16 finance costs for new and renewed leases.

Trading profit

Trading profit decreased by 29% (decreased 21%*) to R1 820 million (2023: R2 578 million). The trading margin reduced from 18.1% (15.6%*) to 13.3% (12.8%*) mainly due to the lower gross profit.

Profit before finance costs and tax

Profit before finance costs and tax decreased by 15% (decreased 8%*) to R3.2 billion (2023: R3.7 billion), with the operating margin declining to 23.1% (22.5%*) from 26.2% (23.7%*).

OFFICE

This analysis covers the financial performance of the Office business segment, which operates primarily in the UK, with a small presence in the Republic of Ireland.

STATEMENTS OF COMPREHENSIVE INCOME

Sale of merchandise

Sale of merchandise increased by 10.9% to £294 million (2023: £265 million) while retail sales increased by 10.8% to £290 million (2023: £262 million). Trading space increased by 11.4% (2023: decrease of 12.6%) following the opening of eight stores and closure of three.

E-commerce retail sales increased by 13.8% to £134 million and accounted for 46% of total retail sales (2023: 45%).

Retail sales
June 2024
52 weeks
£m
Retail sales 
June 2023
52 weeks
£m
Change on 
prior period 
Number  
of stores*
June 2024  
Number  
of stores*
June 2023  
 
United Kingdom 276.8 246.8 12  79   74  
Republic of Ireland 13.6 11.3 20  7   7  
Germany 4.0 (100) –   –  
Total 290.1 262.1 11  86   81  
* Including 11 concession stores (June 2023: 11 concession stores).

Gross margin

The gross margin strengthened to 47.0% (2023: 45.2%) owing mainly to improved distribution efficiencies.

Trading expenses

June
2024
£m
June
2023
£m
Change
on prior
period
%
Depreciation and amortisation 12.9 10.3 25
Employment costs 29.7 27.5 8
Occupancy cost 17.1 16.6 3
Other operating costs 27.4 26.7 3
Trading expenses 87.1 81.1 7
  • Depreciation and amortisation increased by 25%. Depreciation of PPE increased 65% due to higher capital expenditure on store development. Depreciation on right-of-use assets increased by 26% due to the reversal of right-of-use asset impairments of £3.7 million in December 2022, £0.3 million in June 2023 and £4.1 million in December 2023. Depreciation of software decreased by 16% due to assets becoming fully depreciated.
  • Employment costs increased 8% mainly due to higher operational demand (attributable to growth in store numbers) and UK national minimum wage increases effective April 2024.
  • Occupancy costs increased by 3%. Costs were impacted mainly by the £1.0 million increase in electricity costs, an increase of £1.1 million in turnover rental, lower business rates and prior period lease termination costs in Germany. Excluding once-off items, occupancy costs increased by 6% due to higher turnover rentals.
  • Other operating costs increased by 3%, mainly driven by online marketing costs to promote e-commerce sales and consequential online store delivery costs due to increased e-commerce sales.

Profit before finance costs and tax

Profit before finance costs and tax increased by 113% (increased 25%*) to £104.6 million (2023: £49.1 million), with the operating margin strengthening from 18.5% to 35.5% (20.9%*).

GROUP CAPITAL MANAGEMENT

Capital allocation

The Group's capital structure is actively managed to enhance financial returns to shareholders and generate competitive capital ratios. Management's approach to capital allocation is aligned with the Group's strategy and Business Philosophy, with its focus on long-term value creation for shareholders.

The components of the capital allocation strategy, in order of priority, are as follows:

Investing to sustain the organic growth of the business

Reinvesting in the business through maintenance and expansion capital expenditure, mainly in-store development, distribution facilities and information technology.

Returning funds to shareholders through dividends

Dividend cover is determined annually by the board. The dividend cover has been at the current level of 1.5 times headline earnings per share since the 2014 financial period.

Returning excess capital to shareholders through share buy-backs at levels that are earnings accretive

Since the inception of the share buy-back programme in 2002, 155 million shares have been repurchased at a total cost of R6 billion at an average price of R38.72 per share, 141% below the period-end closing price of R93.28. Since January 2020, 51.9 million shares have been repurchased (12% of shares in issue, net of treasury shares) for R2.5 billion at an average price of R47.88 per share.

Seeking opportunities for bolt-on acquisitions of fashion‑related businesses in SA and the UK

Recent bolt-on acquisitions that have been successfully integrated into the Group's operations include the Barrie Cline design department (2021) and Bonwit design centre (2022).

Seeking opportunities for larger and potentially diversifying acquisitions

The acquisition of the Office fashion footwear chain in the UK in 2015 diversified the Group's product offering, sales, earnings and country risk profile.

Capital efficiency is measured by the return on equity and return on capital which were 36% (2023: 44%) and 53% (2023: 64%), respectively.

Real wealth continued to be created for shareholders with a return on invested capital of 25% (2023: 28%).

Capital management in 2024

The Group generated R4.7 billion (2023: R3.8 billion) in cash from operations during the period and this mainly funded the following:

  • Dividend payments of R2 204 million (2023: R1 989 million)
  • Capital expenditure R770 million (2023: R717 million)

The Group utilised a further R99 million of the green loan facility secured in December 2022 for the construction of the new Truworths DC, bringing the total green loan amount to R268 million. No further drawdowns will be made against this loan facility.

Group net debt (excluding IFRS 16 lease liabilities) decreased from R850 million at the prior period-end to R306 million at the current period-end. The Group's net debt to equity ratio was 3.2% (2023: 11.1%) and net debt to EBITDA was 0.0 times (2023: 0.1 times).

The cash realisation rate, which is a measure of how profits are converted into cash, was 99% (2023: 74%).

Truworths

Truworths generated R3.1 billion (2023: R2.9 billion) in cash from operations. This was used to pay dividends of R2 204 million (2023: R1 989 million) to Truworths International which was in turn declared and paid to shareholders of the company.

Capital expenditure of R632 million for the period (2023: R651 million) includes R352 million for the new DC, R236 million for the development and renovation of stores and R41 million for information technology.

Truworths' net debt increased by R257 million to R2 133 million at the current period-end. Truworths' net debt to equity ratio was 21.5% (2023: 18.4%) and net debt to EBITDA 0.5 times (2023: 0.4 times).

The cash realisation rate improved to 100% (2023: 73%).

Office

Office generated cash from operations of £67.7 million (2023: £45.0 million). This was partially used to fund capital investment of £7.9 million on store development and renovations (£6.5 million), information technology (£1.1 million) and distribution facilities (£0.3 million).

Office is debt free and held net cash (including money market fund investments) of £79.3 million at the current period-end, an increase of £36.5 million over the prior year. Office's net cash to equity ratio was 60.3% (2023: 79.1%) and net cash to pro forma EBITDA was 1.1 times (2023: 0.7 times).

The cash realisation rate increased to 96% (2023: 79%).

ACCOUNT MANAGEMENT

Following a review of the Group's credit risk management strategies during the period, and in anticipation of an improving economic outlook in SA, management has identified account rehabilitation as a key strategy for stage three delinquent accounts that show a high probability of payment.

The Group has previously followed a practice of concurrently charging off (for credit management purposes) and writing off (derecognise) accounts that were 210 days in arrears, had not made a qualifying payment in the most recent monthly billing cycle, and did not meet the Group's behavioural risk scorecard hold-back criteria.

The following changes were implemented during the period. The existing hold-back criteria were amended to ensure that accounts with a strong likelihood of payment are not charged off or written off prematurely. This has resulted in an increase in accounts in stage three delinquency, with a consequential decrease in gross bad debt and an increase in the ECL allowance. This also led to an increase in overdue balances and a decrease in the percentage of active account holders able to purchase.

The Group has also separated the point at which accounts are charged off and written off. Accounts that no longer meet the Group's criteria to remain in the active book will either be charged off and remain on balance sheet in a separate portfolio, if they meet certain behavioural risk criteria, or will be written off if there is no reasonable expectation of recovery.

All accounts in this portfolio are classified as stage three trade receivables and customers are not able to shop on their accounts. This has resulted in a decrease in gross bad debt, a decrease in post write-off recoveries and an increase in the ECL allowance.

Accounts from this portfolio that pay their balance can reapply for credit and if they meet the Group's strict credit lending criteria, will be given an account and be able to shop again.

Following these changes, the Group's trade receivables are now reported as two separate portfolios, namely the active trade receivables portfolio and the charged-off trade receivables portfolio. At the period-end, the charged-off trade receivables portfolio totalled R0.5 billion and the ECL allowance of this portfolio was 78.5%.

These changes have not had a material impact on the Group's earnings in the current period.

GROUP INFORMATION TECHNOLOGY

Capital expenditure of R66 million (2023: R66 million) was invested in leading edge information technology (IT) systems in the reporting period to support the retail operations and supply chain. The Group has committed R99 million for Truworths and Office IT capital expenditure for the 2025 reporting period.

Major IT projects: Truworths

Completed in the 2024 financial period:

  • New point-of-sale solution installed in more than half of the Truworths store portfolio.
  • Transferred all YDE systems from the third-party provider platform onto the Truworths integrated system.
  • Configured the warehouse management applications in preparation for the move to the new Truworths distribution facility.
  • Added functionality to online systems to improve the user experience.
  • Completed the roll-out of the latest technology across the enterprise network to support future networking requirements and transferred the enterprise telephony onto this new network.
  • Enabled customer self-service capability using chatbot functionality.
  • Integrated the systems of the Barrie Cline and Bonwit design centres and implemented additional systems to better manage the design centre.
  • Implemented digital tools for improved field operations.
  • Implemented systems for better management of sourcing documentation.
  • Enhanced business intelligence capabilities.
  • Continued improvement and delivery of cybersecurity strategies.

Planned for completion in 2025 financial period:

  • Complete the implementation of the point-of-sale solution across all stores in South Africa and in the rest of Africa.
  • Commission and transfer all merchandise distribution systems to the new distribution facility, with improved inventory allocation and replenishment algorithms and capabilities.
  • Implement the next phase of the Group's financial planning and forecasting solution.
  • Enhance cybersecurity systems and mitigate cyber risks.
  • Upgrade campaign management to state-of-the-art solution.

Major IT projects: Office

Completed in 2024 financial period:

  • Commenced the project for the implementation of a new ERP merchandise management system, with significant progress made on the design phase of the solution.
  • Completed the implementation of the new wide area network with added resilience and bandwidth to enable trade and significantly reduce networking costs.
  • Implemented new unified VOIP (voice over internet protocol) system to improve internal communications.
  • Implemented express 'click & collect' facility for e-commerce orders to improve customer convenience and choice.
  • Implemented online web chat solution to improve the customer experience and reduce costs by driving efficiencies.

Planned for completion in the 2025 financial period:

  • Progress development of the new ERP merchandise management system for implementation in the 2026 financial period.
  • Implement new workforce management and digital forecasting and scheduling tool to replace legacy system and reduce staff costs.
  • Implement new network security infrastructure (firewalls) to enhance digital security and meet the increased capacity demands of new technologies.
  • Ongoing development of in-store technology to drive sales.

GROUP FINANCIAL PLANS FOR 2025

Capital expenditure of R820 million (Truworths R591 million and Office £10.0 million) has been committed for the 2025 financial period and will be applied mainly as follows:

  • R410 million for the development of new stores and the expansion and refurbishment of existing stores.
  • R99 million for computer infrastructure and software.
  • R300 million for distribution facilities, including the final capital expenditure on the new Truworths DC.

Trading space is planned to increase by approximately 2%, comprising an increase of 1% in Truworths and 11% in Office.

GROUP MEDIUM-TERM FINANCIAL TARGETS

The Group has reviewed its medium-term financial and operating targets. Key factors considered in this review are:

  • the normalisation of the Group's equity and total asset value due to intangible and right-of-use asset impairment reversals;
  • the growing cash balance in Office, which the board has decided to retain for strategic purposes;
  • the dissipating benefit of the share buy-backs between January 2020 and June 2022; and
  • the performance of the Group relative to our selected local and international benchmarks. In each instance, the lower-end of the Group's revised medium-term target ranges for return on equity and return on assets exceed the higher of the respective local and international benchmark by at least 2 percentage points.

These revised targets have been approved by the board.

Revised
medium‑term
targets
Previous
medium‑term
targets
Gross margin (%) 49 – 53 49 – 53
Operating margin (%) 18 – 23 18 – 23
Return on equity (%) 22 – 27 31 – 36
Return on assets (%) 18 – 23 22 – 27
Inventory turn (times) 3.5 – 4.5 3.5 – 4.5
Asset turnover (times) 0.9 – 1.3 0.9 – 1.3

EXTERNAL AUDITOR TRANSITION

The Group transitioned from Ernst & Young, who had been the auditor for Truworths and the Group since 1975, and from PricewaterhouseCoopers, who were the auditors for Office UK, to Deloitte & Touche (Deloitte) across the Group for the current reporting period. The audit transition went well and Deloitte issued an unmodified audit opinion for the period.

APPRECIATION

Thank you to our local and international shareholders as well as the broader investor community for your interest and engagement with management over the past year. We also acknowledge the support of our lending institutions. I also thank my fellow directors, executive colleagues, employees and the Group's professional service providers for your support and commitment. Thank you to my Group finance team who continue to be recognised for achieving best practice standards in financial reporting. Our 2023 Integrated Report was ranked 7th in the Ernst & Young Excellence in Integrated Reporting Awards. This is the 17th consecutive year that the Group has been placed in the top 10, the only company on the JSE to have achieved this distinction.

Emanuel Cristaudo
Chief Financial Officer and
Joint Deputy Chief Executive Officer

2024

INTEGRATED REPORT