Truworths International Limited · JSE:TRU
Truworths International — FY2015 Earnings Presentation
65 slides from Truworths International's earnings presentation, September 2015
Slide 1: Group Annual Results for the 52 weeks ended June 2015
GROUP ANNUAL RESULTS for the 52 weeks ended June 2015
Slide 2: Agenda
Agenda • Business overview • Strategic distinction • Review of the financial period • Credit management • Strategic focus areas • Outlook • Questions 2
Slide 3: Business overview
Business overview
Slide 4: Impact of credit on Truworths in the current economic climate
Impact of credit on Truworths in the current economic climate • Truworths targets mass middle income consumers - the market currently under the most financial pressure. • But the credit environment is steadily improving after one of the longest credit contractions in many years. • Truworths credit c
Slide 5: Improving credit environment
Improving credit environment Industry: • Credit market is improving. • National credit regulator shows slightly improving book quality across the industry with the credit industry total book sizes growing but new credit granting flat to reducing. • TransUnion’s Consumer Credit Index indicates a very
Slide 6: Customer Income
Customer Income South African Population Monthly Income Year-on-year growth 2012 2013 2014 Less than R10 000 (1.5%) (1.4%) (1.2%) R10 000 to R25 000 12.3% 4.6% 6.4% R25 000 plus (1.4%) 23.2% 5.5% *South African Advertising Research Foundation AMPS research Current Truworths Group (Customers South Af
Slide 7: Industry: TransUnion SA Consumer Credit Index
Industry: TransUnion SA Consumer Credit Index (Source: TransUnion SA Consumer Credit Index) This index measures consumer credit health where 50 is the break-even level between improvement and deterioration. • The clear break above 50 indicates consumer credit health improved in 2015 at its fastest p
Slide 8: Industry: Good/Bad balance ratio
Industry: Good/Bad balance ratio (Source: Principa) Year-on-year movement Retailer Total Good (0-1)/Total Bad (2+) balance ratio Good = Current or missed one payment, Bad = Consumer overdue for 2+ payments % 0.25 Improvement slows from Nov 2010 to Dec 2011 0.2 Improvement from early 0.15 2015 0.1 0.
Slide 9: Growth in national credit granted
Growth in national credit granted (Source: National credit regulator statistics, Credit Bureau Monitor, first quarter 2015 statistics) % 80 Slowdown in growth from 2011 Q3 to 2013 Q1 60 Growth in credit granted increased from 2015 Q1 40 20 - (20) (40) 2008-Q4 2009-Q1 2009-Q2 2009-Q3 2009-Q4 2010-Q1
Slide 10: Industry: Credit facilities book quality
Industry: Credit facilities book quality (Source: National credit regulator statistics, Credit Bureau Monitor, first quarter 2015 statistics) % Credit facilities: Credit and store cards, bank overdraft 90 82.0 81.2 81.6 82.5 80.0 80.1 78.2 80 76.4 Credit facilities 70 book is improving, more custome
Slide 11: Industry: Unsecured credit book quality
Industry: Unsecured credit book quality (Source: National credit regulator statistics, Credit Bureau Monitor, first quarter 2015 statistics) % Unsecured facilities: Micro-lending and personal loans 90 78.2 80 76.2 73.9 72.6 73.4 74.0 70.1 71.1 70 Unsecured credit book is 60 improving, more customers
Slide 12: Improving credit metrics
Improving credit metrics • Credit metrics in the Truworths book have improved and are now in line with targeted norms and improving faster than the Industry. • Truworths continues to gain share of the balance. • Credit granting criteria in the Identity book has been tightened as the book has deterio
Slide 13: Industry compared to the Group's book
Industry compared to the Group’s book (Source: Principa Credit Compass) Total Good (0-1) Total Bad (2+) Balance Ratio % 40 30 20 10 Truworths Industry - Identity ( 10) ( 20) ( 30) Industry year on year Truworths year on year Identity year on year Industry, Truworths and Identity improving 13
Slide 14: % 4+ Cycle balances (Retail clothing industry benchmark)
% 4+ Cycle balances (Retail clothing industry benchmark) (Source: Principa Credit Compass) % This shows the percentage of the book balance that is badly (4+) delinquent. 4+ accounts are 90 days or more behind in payments. Industry is 16 getting worse 14 12 Truworths is improving 10 8 6 4 2 - Aug 201
Slide 15: Share of balance (Clothing retailers)
Share of balance (Clothing retailers) (Source: Total Bureau Solution (TBS)) % 35 Balance is a better indication of sales, as retailers have different Truworths share of balance with its’ instalment calculations customers is growing 30 Truworths 25 Retailer 1 20 Retailer 2 Retailer 3 15 10 Retailer 4
Slide 16: Impact of the credit environment
Impact of the credit environment . June June June June June 2015 2014 2013 2012 2011 % % % % % Retail sales growth 7 7 13 10 14 Like-for-like sales growth 1 1 8 6 9 Cash sales growth 6 11 16 5 9 Credit sales growth 8 5 9 16 16 Credit sales growth to customers with more than 24 month old accounts 9 9
Slide 17: Credit sales growth 1st half compared to 2nd half
Credit sales growth 1st half compared to 2nd half Credit sales growth: Credit sales growth: Credit sales growth: all accounts 24 months and older less than 24 months Full period Full period 1st half 2nd half Full period 1st half 2nd half % % % % % % % June 2015 8 9 9 9 4 (4) 8 June 2014 5 12 12 12 (
Slide 18: Trading for the first 7 weeks of 2016
Trading for the 1st 7 weeks of 2016 June June 1st 7 weeks 2015 2015 of 2016 2nd half 1st half Credit sales growth 17% 11% 5% Cash sales growth 11% 8% 5% Group retail sales growth (excl. Earthchild and Naartjie) 15% 10% 5% Gross profit growth 18% 11% 3% Retail sales for the first 7 weeks of the 2016
Slide 19: Strategic distinction
Strategic distinction
Slide 20: Strategic distinction – Our DNA
Strategic distinction – Our DNA Our learnings; Our Strategic Distinction is an awareness of what makes us different and unique – our own DNA Truworths’ Purpose is to serve the youthful, fashionable South African to enable them to feel confident . We do so with: – Aspirational brands all owned by Tru
Slide 21: Truworths' Purpose
Truworths’ Purpose “The youthful, fashionable South African wants to look attractive and successful and feel enthused with confidence. To this end, Truworths entices them into the most exciting and visually appealing real and virtual retail environments where they can shop effortlessly for an innova
Slide 22: Truworths business overview/uniqueness
Truworths business overview/uniqueness • Current strategy sustainable and unique for mass mainstream customers in South Africa. • Excellent real estate with prime locations in the top malls. • Aspirational and desirable ‘owned’ brands. • Best of breed systems and processes. • Truworths credit custom
Slide 23: Our uniqueness: 'One of a kind'
Our uniqueness: ‘One of a kind’ BEST OF ONE OF A BEST OF BREED KIND BREED Department TRUWORTHS Specialty Stores • Many Brands all owned (International Stores Image) and Master • Master Brand • Many ‘International’ Brand (Truworths) owned (Store) Brands and Master Brand TRUWORTHS is • Reasonable Vari
Slide 24: Review of the financial period
Review of the financial period
Slide 25: Review of financial performance
Review of financial performance • Sale of merchandise growth much stronger in the second half. • Increased markdowns and therefore reduced gross margin for the full year. • Improved performance on the debtors’ book and slower growth in trade receivable costs. • Continuing signs of improving credit m
Slide 26: Financial targets
Financial targets June 2016 June 2015 June 2015 June 2014 Targets Actual Targets Actual Gross margin (%) 54 - 57 55.2 54 - 57 55.9 Operating margin (%) 32 - 36 30.5 32 - 36 32.1 Return on equity (%) 37 - 42 35 37 - 42 37 Return on assets (%) 41 - 46 38 41 - 46 42 Inventory turn (times) 5.5 - 6.0 4.7
Slide 27: Financial performance
Financial performance June 2015 June 2015 June 2015 Full year 2nd half 1st half Retail sales growth on prior period (excl. Earthchild and Naartjie) 7% 10% 5% Retail sales growth on prior period (incl. Earthchild and Naartjie) 8% 12% 5% Gross margin 55.2% 55.1% 55.3% Headline earnings per share growt
Slide 28: Divisional retail sales
Divisional retail sales Full period growth (incl. Full period Earthchild growth (excl. and Earthchild 2nd half 1st half June 2015 June 2014 Naartjie) and Naartjie) growth growth Rm Rm % % % % Truworths ladieswear 4 387 4 258 3 3 5 1 Truworths menswear 2 386 2 168 10 10 13 8 Truworths designer empori
Slide 29: Load Shedding Index
Load Shedding Index Estimated monthly retail sales lost due to load shedding % 2 1 - Nov 2014 Dec 2014 Jan 2015 Feb 2015 Mar 2015 Apr 2015 May 2015 Jun 2015 Jul 2015 • Approximately R125 million lost in retail sales from November 2014 to July 2015. • Average % retail sales lost is 1.4% from November
Slide 30: Retail sales growth analysis
Retail sales growth analysis Retail sales Retail sales LFL store Product Unit Rm growth growth inflation growth June 2015* 11 539 7% 1% 6% 1% 1st half* 6 232 5% (1%) 6% (1%) 2nd half* 5 307 10% 4% 5% 5% June 2014 10 762 7% 1% 9% (2%) June 2013 10 074 13% 8% 2% 1% June 2012 8 921 10% 6% 8% 2% June 20
Slide 31: Group number of stores
Group number of stores Dept’s June 2015 Stand- within Total alone stores stores Truworths 334 - 334 Identity 230 - 230 Uzzi 52 174 226 Earthchild and Earthaddict* 41 - 41 Truworths Man 34 319 353 Naartjie* 28 - 28 YDE 21 - 21 Daniel Hechter 3 352 355 LTD 2 146 148 Ginger Mary 2 262 264 Total 747 * 6
Slide 32: Trading space
Trading space Trading m2 000 June 2015 June 2014 Truworths 268 253 Identity 65 60 Uzzi 4 4 Earthaddict and Earthchild 3 - Naartjie 2 - Total (excl YDE) 342 317 YDE 7 7 Total 349 324 Growth on prior period 7.7% 10.3% Growth excl. Earthchild and Naartjie 6.1% 32
Slide 33: Rest of Africa corporate stores
Rest of Africa corporate stores Retail sales Retail sales No. of No. of June 2015 June 2014 Growth on stores stores Rm Rm prior period June 2015 June 2014 Namibia 219 196 12% 16 12 Botswana 75 63 19% 8 8 Swaziland 71 68 4% 5 5 Zambia 24 20 20% 5 3 Ghana 22 17 29% 4 2 Lesotho 15 12 25% 2 2 Mauritius
Slide 34: Sales densities trend
Sales densities trend Compound growth rates: R per m2 Sales density 38 000 Jun 10 year 5%, Jun 5 year 3% 35 656 36 000 * 34 849 34 586 34 857 34 000 32 979 32 000 30 462 29 965 30 000 29 307 28 802 28 000 26 000 24 719 24 000 22 000 20 000 Jun 2006 Jun 2007 Jun 2008 Jun 2009 Jun 2010 Jun 2011 Jun 20
Slide 35: Analysis of trading expenses
Analysis of trading expenses Growth on June 2015 June 2014 prior Rm Rm period Depreciation and amortisation 221 184 20% Employment costs 1 186 1 024 16% Occupancy costs 1 102 954 16% Trade receivable costs 960 916 5% Other operating costs 647 590 10% Trading expenses 4 116 3 668 12% 35
Slide 36: Analysis of trading expenses (continued)
Analysis of trading expenses (continued) Trading expenses increased 12% compared to the prior period as follows: • Depreciation and amortisation (20% growth): – Capital expenditure of R 380 million in the period mainly due to store expansion. • Employment costs (16% growth): – Excluding non-comparab
Slide 37: Analysis of trading expenses (continued)
Analysis of trading expenses (continued) • Trade receivable costs (5% growth): – The doubtful debt allowance remained unchanged at 12.5% of gross trade receivables. – Net bad debt increased by 7% (excluding debt sold 8% increase). – The interest income earned (including notional interest) on the deb
Slide 38: HEPS, DPS and dividend cover
HEPS, DPS and dividend cover Compound growth rates: Compound growth rates: HEPS: DPS: June 10 year 15%, 5 year 9% June 10 year 19%, 5 year 15% Dividend HEPS / DPS cover (cents) (times) 700 2.0 1.7 1.8 600 1.6 1.6 1.5 1.6 1.5 500 1.4 1.2 400 1.0 300 0.8 200 0.6 0.4 100 0.2 262 456 326 527 362 571 385
Slide 39: Statements of financial position
Statements of financial position Growth on prior June 2015 June 2014 period Rm Rm % Non-current assets 1 876 1 360 38 Cash and cash equivalents 1 462 1 588 (8) Trade and other receivables 4 637 4 182 11 Inventories 1 074 863 24 Other current assets 108 83 30 Total assets 9 157 8 076 13 Total equity
Slide 40: Increase in inventory
Increase in inventory June 2015 June 2014 Growth on Rm Rm prior period Inventory 968 838 15.5% Add: fabric and work-in-progress (manufacturing) 39 25 56.0% 1 007 863 16.7% Add: Earthchild and Naartjie 67 - 100.0% Total inventory 1 074 863 24.4% • Excluding the inventory of Earthchild and Naartjie, s
Slide 41: Cash flows for the period
Cash flows for the period 3 500 3 3 000 1063 1 099 2 500 476 61 2 000 1 500 2 654 1 698 1 000 2 084 500 319 - 134 270 270 65 4 ( 500) Cash flows Working Interest Other Tax paid CAPEX to Free cash Dividends CAPEX to Investment Financing Other Net cash EBITDA capital received maintain flows paid expan
Slide 42: Capital expenditure
Capital expenditure Growth June 2016 June 2015 June 2014 on Committed Actual Actual prior Rm Rm Rm period Store development 322 280 232 21% Distribution facilities, land and 333 28 5 n/a buildings Computer infrastructure 34 27 26 4% Head office refurbishment 21 6 6 - Motor vehicles 5 4 6 (33%) Fixed
Slide 43: Capital management
Capital management • Share buy-backs: – During the current period the Group did not repurchase any shares. – Since inception of the share buy-back programme in 2002, 95 million shares (R2.9 billion) have been repurchased at an average cost of R30.85. – The balance of 10.4 million shares (2.4% of tot
Slide 44: Credit management
Credit management |
Slide 45: Key trade receivable statistics
Key trade receivable statistics June June 2015 2014 Number of active accounts (000’s) 2 672 2 586 Growth in active accounts 3% 1% Gross trade receivables (before doubtful debt allowance) (Rm) 5 229 4 720 Growth in gross trade receivables (before doubtful debt allowance) 11% 12% Credit sales as a % o
Slide 46: Key trade receivable statistics (continued)
Key trade receivable statistics (continued) June June 2015 2014 Active account holders able to purchase at period-end 83% 83% Overdue values as a % of gross trade receivables 14% 14% Net bad debt as a % of credit sales 7.9% 8.0% Net bad debt as a % of gross trade receivables 12.5% 12.9% Doubtful deb
Slide 47: Active accounts vs. acceptance rate
Active accounts vs. acceptance rate Acceptance No. of active Rate accounts % '000 70 3 000 2 672 65 60 2 500 55 50 2 000 45 40 1 500 35 30% 30 1 000 25 20 500 Jun 2006 Jun 2007 Jun 2008 Jun 2009 Jun 2010 Jun 2011 Jun 2012 Jun 2013 Jun 2014 Jun 2015 Acceptance rate Number of active accounts (000's) 4
Slide 48: New account applications
New account applications Number of applicants ‘000 2 000 1 800 1 600 1 400 1 200 1 000 800 600 400 200 954 1 225 1 374 1 527 1 664 1 803 - Jun 2010 Jun 2011 Jun 2012 Jun 2013 Jun 2014 Jun 2015 Number of applicants (000's) 48
Slide 49: Trade receivable costs vs. interest received
Trade receivable costs vs. interest received 2015: Surplus on Rm trade receivable interest over costs 2013 to 2014: 1 200 Deficit on trade 2006 to 2012: Surplus on trade receivable receivable interest over costs interest over costs 969 960 1 000 916 828 800 724 739 630 600 549 543 533 488 491 464 43
Slide 50: Active account holders able to purchase
Active account holders able to purchase % 100 13 15 17 16 15 14 16 17 17 90 18 80 70 60 50 87 85 83 84 85 86 84 83 83 40 82 30 20 10 - Jun 2006 Jun 2007 Jun 2008 Jun 2009 Jun 2010 Jun 2011 Jun 2012 Jun 2013 Jun 2014 Jun 2015 Shoppable Delinquent 50
Slide 51: Ageing of debtors book
Ageing of debtors book % 100 7 8 11 10 8 8 9 11 11 11 90 80 70 60 50 85 83 83 84 83 40 80 80 80 80 80 30 20 10 - Jun 2006 Jun 2007 Jun 2008 Jun 2009 Jun 2010 Jun 2011 Jun 2012 Jun 2013 Jun 2014 Jun 2015 < 30 days 30 - 59 days 60 - 89 days 90 > days 51
Slide 52: Interest bearing plans as a % of the total book
Interest bearing plans as a % of the total book % 90 80 75.5 76.8 72.5 69.2 70 67.3 60 50 40 30 20 10 - Jun 2011 Jun 2012 Jun 2013 Jun 2014 Jun 2015 52
Slide 53: Group book quality index
Group book quality index As the quality of the book improves, so the line trends lower 0 53
Slide 54: Strategic focus areas
Strategic focus areas
Slide 55: Strategic focus areas
Strategic focus areas • Kidswear expansion • African expansion • Omni-channel strategy incorporating E-commerce • Loyalty programme • Supply chain 55
Slide 56: Kidswear expansion
Kidswear expansion • Purchased Earthchild and Naartjie during the period, with full integration being complete by early 2016. • Kids emporiums have been developed which is unique in SA retail (includes LTD kids). • 1st Kids emporiums will open in October 2015 (Rustenburg and Zevenwacht) with further
Slide 57: African expansion
African expansion • Currently 44 stores outside of South Africa. • Plan to expand the store base to 120 by 2020. • Large portfolio of owned brands enables Truworths to accommodate local tastes and preferences of each country. • Focus for the 2016 financial period will be to open additional stores in
Slide 58: Omni-channel strategy incorporating e-Commerce
Omni-channel strategy incorporating e-Commerce • Omni-channel retail has been identified as an area of strategic focus. • The ability for the customer to shop when, how and on what platform they choose, is a core focus of this project. • Working on full omni-channel capability, including non- accoun
Slide 59: Loyalty programme
Loyalty programme • Truworths has an on-going structured relationship with its customers through the credit offering – From this a unique understanding exists on customer behaviour and preferences. • Launch during the second half of the 2016 financial period. • The aim is to create a fashion-focusse
Slide 60: Supply chain: Distribution centres
Supply chain: Distribution centres • Continue to achieve efficiency improvements of between 5% and 8% year on year. • Plans to significantly enlarge the current distribution centres’ capacity. • Acquired land adjacent to the main distribution centre and plans to commence the development of a third d
Slide 61: Outlook
Outlook
Slide 62: Outlook
Outlook • Retail sales (excluding Earthchild and Naartjie) for the first seven weeks of the 2016 financial period reflect an encouraging increase of 15% over the corresponding seven weeks in the prior period. • This increase has been underpinned by very good sales growth on current season merchandis
Slide 63: Questions
Questions
Slide 64: Disclaimer
Disclaimer
Slide 65: Disclaimer
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 circum
Truworths International — FY2015 Earnings Presentation on 6ix