Truworths International Limited · JSE:TRU
Truworths International — H1 FY2022 Earnings Presentation
61 slides from Truworths International's earnings presentation, February 2022
Slide 1: Group Interim Results
GROUP INTERIM RESULTS FOR THE 26 WEEKS ENDED DECEMBER 2021
Slide 2: Our Story of Resilience
OUR STORY OF RESILIENCE • In the last three years we intentionally engaged in a defensive strategy, due to the severe macroeconomic headwinds facing the world economies • Our strategic goals were multi-faceted: 1. Protect our balance sheet 2. Continue to pay dividends as normal 3. Return excess cash
Slide 3: Our Story of Resilience
OUR STORY OF RESILIENCE We remained true to our Business Philosophy, and improved all key performance metrics through this difficult period • Highlights include: Generated R4.7 billion of cash in FY2021 and FY2022 YTD Continued to pay dividends, including through the very tough COVID-19 period –
Slide 4: Our Story of Resilience
OUR STORY OF RESILIENCE Launched two new brands and a number of upgraded or new concepts including Fuel, Primark, Identity megastore, Kids Emporium, Loads for Kids Made significant inroads into our supply chain operation by acquiring and integrating Barrie Cline and by starting a process of inte
Slide 5: Our Business Philosophy
OUR BUSINESS PHILOSOPHY r TRUWORTHS Youthful fashionable South Africans want to look attractive and feel ‘successful and confident. Truworths entices them into exciting and visually appealing aspirational real and virtual retail emporiums, which are staffed OUR by passionate and knowledgeable team m
Slide 6: We Are Positive About the Future
WE ARE POSITIVE ABOUT THE FUTURE • We have emerged from these macroeconomic challenges stronger than before and well positioned for the future • Portfolio of market-leading aspirational fashion clothing and footwear brands almost all exclusive to Truworths targeting youthful, fashionable South Afric
Slide 7: Agenda
1. FINANCIAL REVIEW 2. ACCOUNT MANAGEMENT 3. STRATEGIC INITIATIVES i. ASPIRATIONAL FASHION ii. SUPPLY CHAIN iii. CUSTOMERS iv. RETAIL PRESENCE v. OFFICE 4. ENVIRONMENTAL, SOCIAL AND GOVERNANCE 5. OUTLOOK 6. QUESTIONS 7
Slide 8: Financial Review Group
01 FINANCIAL REVIEW GROUP 8
Slide 9: Key Financial Highlights
KEY FINANCIAL HIGHLIGHTS GROUP Change on prior period Dec 2021 Dec 2020 % Sale of merchandise (Rm) 9 596 9 365 2 Gross margin (%) 53.6 51.5 Operating profit (Rm) 2 539 1 916 33 Operating margin (%) 26.5 20.5 Profit before tax (Rm) 2 434 1 777 37 Diluted HEPS (DHEPS) (cents) 443.8 337.3 32 Dividend p
Slide 10: Financial Performance
FINANCIAL PERFORMANCE GROUP RETURN ON ASSETS AND DPS AND DILUTED HEPS RETURN ON EQUITY (ROE) ASSET TURNOVER Return on assets Asset turnover (cents) (%) (%) (times) 40 1.7 500 ROE 444 450 35 1.5 60 55 400 379 1.3 1.3 361 364 30 337 50 1.2 1.3 350 300 40 25 1.1 300 40 1.1 261 35 249 249 33 250 232 31
Slide 11: Historic Financial Performance
HISTORIC FINANCIAL PERFORMANCE GROUP Group achieved its highest ever trading and operating profit Incl. Office Pre-Office acquisition (1 month) Post-Office acquisition Pre-IFRS 16 Post IFRS 16 Dec 2012 Dec 2013 Dec 2014 Dec 2015 Dec 2016 Dec 2017 Dec 2018 Dec 2019 Dec 2020 Dec 2021 GROUP Rm Rm Rm Rm
Slide 12: Statement of Financial Position
STATEMENT OF FINANCIAL POSITION GROUP Change on Dec 2021 Dec 2020 prior period Rm Rm % Property, plant and equipment 1 683 1 737 (3) Right-of-use assets 2 305 2 243 3 Intangible assets 570 546 4 Goodwill 294 294 - Inventories 1 624 1 863 (13) Trade and other receivables 5 056 4 633 9 Cash and cash e
Slide 13: Capital Management
CAPITAL MANAGEMENT GROUP Dec 2021 Dec 2020 Net cash Net cash Net cash to equity % Net cash to equity % Group Rm 1 614 24.0 1 644 23.9 Truworths Rm 1 138 13.7 1 606 20.6 Office £m 22.9 476.3 1.9 n/a Share buy-backs Dividends • 14.5 million shares bought back over the period for • Interim dividend cov
Slide 14: Cash Flows
•Net cash at period-end CASH FLOWS R1.6 billion GROUP (Rm)) 3 500 Operating cash flows Capital allocation 5 (105) 3 000 351 (60) (26) 11 (532) 2 500 (127) 11 (475) 2 000 1 500 2 935 (780) 2 759 2 287 156 1 000 1 188 500 0 Cash EBITDA Working Interest Dividend Interest paid Tax paid Capex Free cash L
Slide 15: Cash Realisation Rate
CASH REALISATION RATE GROUP Consistently strong cash realisation (%) 140 133 130 126 123 120 100 100 80 60 40 20 - Dec 2017 Dec 2018 Dec 2019 Dec 2020 Dec 2021 Group Cash Realisation Rate 15
Slide 16: Financial Review Truworths
01 FINANCIAL REVIEW TRUWORTHS 16
Slide 17: Overview of the Period
OVERVIEW OF THE PERIOD TRUWORTHS RETAIL SALES • Trading expenses continued to be well R7 395m 1% up controlled GROSS MARGIN • Net bad debt decreased 56.4% 2020: 54.7% 40% TRADING PROFIT • Improvement in doubtful R1 721m 21% up debt allowance to 20.7% of TRADING MARGIN gross trade receivables 24.4% 2
Slide 18: Retail Sales Growth
RETAIL SALES GROWTH TRUWORTHS Product Unit growth: Retail sales LFL store (deflation)/ Unit growth: Non-comp Retail sales growth growth inflation Comp stores stores Rm % % % % % Dec-21 7 395 1 2 (2) 4 (1) Dec-20 7 295 (7) (8) - (8) 1 Dec-19 7 823 3 1 1 - 2 Dec-18 7 620 2 - (2) 2 2 18
Slide 19: Merchandise Inflation Trend
MERCHANDISE INFLATION TREND TRUWORTHS (%) 20 15 10 5 - (5) (10) 2012 2013 2013 2014 2014 2015 2015 2016 2016 2017 2017 2018 2018 2019 2019 2020 2020 2021 2021 2022 Summer Winter Summer Winter Summer Winter Summer Winter Summer Winter Summer Winter Summer Winter Summer Winter Summer Winter Summer Win
Slide 20: Divisional Retail Sales
DIVISIONAL RETAIL SALES TRUWORTHS Change on Dec 2021 Dec 2020 prior period Rm Rm % Truworths ladieswear 2 462 2 501 (2) Truworths menswear* 1 897 1 897 - Truworths kids emporium~ 960 875 10 Other# 837 833 - Truworths emporium 6 156 6 106 1 Identity 1 239 1 189 4 Truworths retail sales 7 395 7 295 1
Slide 21: Trading Space & Number of Stores
TRADING SPACE & NUMBER OF STORES TRUWORTHS TRADING SPACE NUMBER OF STORES Dec 2021 Dec 2020 Stores Stores ‘000 m2 ‘000 m2 Dec 2020 New stores Closed stores Dec 2021 Truworths 297 297 Truworths 348 5 (7) 346 Identity 67 70 Identity 256 5 (9) 252 Uzzi 4 4 Uzzi 41 1 (4) 38 Loads of Living 3 3 Truworths
Slide 22: Sales Densities Trend
SALES DENSITIES TREND TRUWORTHS R per m2 45 000 40 000 39 179 38 489 37 881 37 144 36 717 36 418 36 214 35 924 35 230 35 000 33 371 30 000 25 000 20 000 15 000 10 000 Dec 2012 Dec 2013 Dec 2014 Dec 2015 Dec 2016 Dec 2017 Dec 2018 Dec 2019 Dec 2020 Dec 2021 22
Slide 23: Gross Profit Trend
GROSS PROFIT TREND TRUWORTHS Gross profit Gross margin (Rbn) (%) 5.5 70 5.0 56.4 56.2 60 55.5 55.6 54.7 4.5 4.0 50 3.5 40 3.0 2.5 30 2.0 1.5 20 1.0 10 0.5 4.0 4.0 4.2 3.8 4.0 - - Dec 2017 Dec 2018 Dec 2019 Dec 2020 Dec 2021 Gross profit Gross margin 23
Slide 24: Analysis of Trading Expenses
ANALYSIS OF TRADING EXPENSES TRUWORTHS Change on Dec 2021 Dec 2020 prior period Rm Rm % Depreciation and amortisation 492 513 (4) Employment costs 875 782 12 Occupancy costs 291 246 18 Trade receivable costs 454 482 (6) Other operating costs 458 488 (6) Trading expenses 2 570 2 511 2 24
Slide 25: Analysis of Trading Expenses (continued)
ANALYSIS OF TRADING EXPENSES TRUWORTHS (CONTINUED) Depreciation and amortisation • PPE and software: Excluding non-comparable stores depreciation decreased 7%. 4% • Right-of-use assets: Depreciation decreased 6% due to a reduction in the number of leases accounted for DECREASE under IFRS 16 (see Occ
Slide 26: Analysis of Trading Expenses (continued)
ANALYSIS OF TRADING EXPENSES TRUWORTHS (CONTINUED) Trade receivable costs • Net bad debt decreased 40%, mainly due to lower gross bad debts. • Doubtful debt allowance decreased from 23.4% at June 2021 to 20.7% of gross trade receivables while gross trade receivables increased 10% since June 2021, re
Slide 27: Operating Profit Performance
OPERATING PROFIT PERFORMANCE TRUWORTHS Operating profit Margins (Rbn)) IFRS 16 (%) 3.5 40 37 37 36 34 35 3.0 32 30 2.5 30 30 29 28 25 26 2.0 20 1.5 15 1.0 10 0.5 5 2.1 2.1 2.1 1.8 2.1 - - Dec 2017 Dec 2018 Dec 2019 Dec 2020 Dec 2021 Operating profit EBITDA margin Operating margin 27
Slide 28: Capital Expenditure
CAPITAL EXPENDITURE TRUWORTHS Actual Actual Committed Change on Dec 2021 Dec 2020 Jun 2022 prior period Rm Rm Rm % Store renovations and 110 104 240 6 development Computer infrastructure 31 28 78 11 and software Land, buildings and 1 13 108 (92) refurbishment Distribution facilities - - 54 - Motor v
Slide 29: Cash Flows
•Net cash at period-end CASH FLOWS R1.1 billion TRUWORTHS – OPERATING CASH FLOWS (Rm)) 3 000 2 500 5 (89) 351 (60) (26) (102) (295) 2 000 (116) 11 1 500 2 307 2 228 1 000 1 907 500 - Cash EBITDA Working capital Interest Dividend Interest paid Tax paid Capex Free cash flow Lease liabilities Capex Oth
Slide 30: Financial Review Office
01 FINANCIAL REVIEW OFFICE 30
Slide 31: Overview of the Period
OVERVIEW OF THE PERIOD OFFICE RETAIL SALES • Gross profit margin £123.5m 8% up improved due to GROSS MARGIN ongoing stock level 45.7% 2020: 42.3% optimisation ONLINE SALES • Trading expenses 47% 2020: 59% well controlled, still OPERATING MARGIN assisted by property rates holiday 18.1% 2020: 4.4% OPE
Slide 32: Geographic Sales and Number of Stores
GEOGRAPHIC SALES AND NUMBER OF STORES OFFICE Retail sales Retail sales Change on Number of Number of Dec-21 Dec-20 prior period stores* stores* £m £m % Dec-21 Dec-20 United Kingdom 115.0 104.9 10 80 98 Republic of Ireland 4.9 4.2 17 7 7 Germany 3.6 5.1 (29) 7 8 Total 123.5 114.2 8 94 113 * Including
Slide 33: Analysis of Trading Expenses
ANALYSIS OF TRADING EXPENSES OFFICE Change on Dec 2021 Dec 2020 prior period £m £m % Depreciation and amortisation 3.0 5.9 (49) Employment costs 11.7 11.7 - Occupancy costs 5.0 4.9 2 Other operating costs 15.3 21.5 (29) Trading expenses 35.0 44.0 (20) 33
Slide 34: Analysis of Trading Expenses (continued)
ANALYSIS OF TRADING EXPENSES OFFICE (CONTINUED) Depreciation and amortisation • PPE and software – Decrease due to assets becoming fully depreciated and lower capital expenditure. 49% • Right-of-use assets – Decrease mainly due to right-of-use asset impairments of £10.9 million recognised in DECREAS
Slide 35: Capital Expenditure
CAPITAL EXPENDITURE OFFICE Actual Actual Committed Change on Dec 2021 Dec 2020 Jun 2022 prior period £’000 £’000 £’000 % Computer infrastructure 548 433 2 250 27 and software Store renovations and 1 70 689 (99) development Total 549 503 2 939 9 35
Slide 36: Cash Flows
•Net cash at period-end CASH FLOWS £22.9 million OFFICE – OPERATING CASH FLOWS (£m)) 35 (0.9) 0.1 30 6.1 25 (12.6) 20 (0.5) 15 31.4 26.1 10 18.3 5 - Cash Working Interest Tax Free Lease liabilities Capex Cash EBITDA capital paid received cash flow (rent paid) expansion generated movements 36
Slide 37: Account Management
02 ACCOUNT MANAGEMENT 37
Slide 38: SA Consumer Credit Index – 2021Q4
SA CONSUMER CREDIT INDEX – 2021Q4 The index measures consumer credit health where 50 is the break-even level between improvement and deterioration. The TransUnion SA Consumer Credit Index (CCI) declined to 54 in 70 Q4 2021 from a revised 59 in Q3 2021 (Interim 61). 65 Improving Credit Health 60 The
Slide 39: Account Management
ACCOUNT MANAGEMENT OVERVIEW • Credit book in a healthy state with all key metrics indicating it is well positioned to support sales growth • Shoppable %, roll rates, delinquency distribution and collections to due % all at very good levels translating into a reduction in the gross bad debt to book a
Slide 40: Total Good/Total Bad Balance Ratio
ACCOUNT MANAGEMENT TOTAL GOOD(0-1)/TOTAL BAD(2+) BALANCE RATIO Truworths Good (0-1)/Bad (2+) balance in line with pre-pandemic levels. 50% Improving Year-on-Year Change Good/Bad Ratio 30% 10% Deteriorating -10% -30% -50% Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19 Se
Slide 41: Total 4+ Cycle Balances
ACCOUNT MANAGEMENT TOTAL 4+ CYCLE BALANCES Truworths Total 4+ balances settle to pre-pandemic levels. Deteriorating Improving Nov-17 Feb-18 May-18 Aug-18 Nov-18 Feb-19 May-19 Aug-19 Nov-19 Feb-20 May-20 Aug-20 Nov-20 Feb-21 May-21 Aug-21 Nov-21 Industry Excl. Truworths Truworths GROUP Source: Princi
Slide 42: New Accounts: Application Risk Approved vs Opened
ACCOUNT MANAGEMENT NEW ACCOUNTS: APPLICATION RISK APPROVED VS OPENED Applications and Risk Approved vs. Opened Percentage Group summary of year-on-year performance 3 000 40% 2 500 No of Applications ‘000 30% 2 000 1 500 20% 1 000 10% 500 - 0% Jul - Dec Jul - Dec Jul - Dec Jul - Dec Jul - Dec Jul - D
Slide 43: Trade Receivable Statistics
ACCOUNT MANAGEMENT TRADE RECEIVABLE STATISTICS Dec-21 Dec-20 Number of active accounts (000's) 2 629 2 608 Change in number of active accounts (%) 1 (6) Gross trade receivables (before doubtful debt allowance) (Rm) 5 927 5 835 Change in gross trade receivables (before doubtful debt allowance) (%) 2
Slide 44: Strategic Initiatives
03 STRATEGIC INITIATIVES 44
Slide 45: Aspirational Fashion
ASPIRATIONAL FASHION Deliver additional turnover, profits and increase market share by identifying opportunities to grow in key product categories where we are under-represented • Uniquely positioned as the aspirational better-end fashion retailer • Benefiting from increased demand for formal and gl
Slide 46: Supply Chain
SUPPLY CHAIN • Vertical integration / local manufacturing • Improve flexibility and agility across the supply chain • New distribution centre • Design and build state-of-the-art new distribution centre (DC), consolidating current operations to reduce overhead costs, add distribution functionality an
Slide 47: Customers
CUSTOMERS • Credit products and services • Enhance the credit offering to customers to grow the active account base, and drive increased basket size and frequency of shopping • Omni-channel • Develop a world-class omni-channel offering for our customers, delivering an excellent customer experience t
Slide 48: Retail Presence: New Store Concepts
RETAIL PRESENCE NEW STORE CONCEPTS Introduce upgraded retail concepts where we have identified significant opportunities for growth • Successfully launched larger format Identity megastores and Kids Emporiums • Aspirational look and feel and layout for new Truworths Emporium Store of the Future • Ro
Slide 49: Office: Turnaround and Collaboration
OFFICE TURNAROUND AND COLLABORATION Restoring profitability in Office and ensuring the long-term sustainability of the business through a focused turn-around strategy drawing from Office’s strategic positioning with the world’s leading footwear brands • Significant progress in turnaround strategy –
Slide 50: Environmental, Social and Governance
04 ENVIRONMENTAL, SOCIAL AND GOVERNANCE 50
Slide 51: Environmental
ENVIRONMENTAL • Environmental impact is a growing focus area for the business • Objective is to meet our needs without comprising future generations • Achieved a B in the December 2021 CDP results (December 2020: C in 2020), our best result to date • Several initiatives underway, including • Distrib
Slide 52: Social
SOCIAL • Supporting our people • We endeavour to create an environment that values diversity and ensures equal opportunity while respecting human rights • Our key focus areas are: • Ensuring employees live by the Truworths Values • Maintaining the investment in training and development despite chall
Slide 53: Governance
GOVERNANCE Our Business Philosophy is the cornerstone of our governance framework • We always make decisions in the best interest of our shareholders • Included in global FTSE4Good Index with ESG ranking of 3.8 out of 5, with governance ranking 5 out of 5 • Continued progress in gender and racial di
Slide 54: Outlook
05 OUTLOOK 54
Slide 55: Outlook: Truworths
OUTLOOK TRUWORTHS • Further lifting of restrictions as the country passed the peak of the Omicron- fuelled fourth wave of the COVID-19 pandemic has contributed to normalising of the economy • While COVID-19 uncertainty is expected to continue well into the future, the risk of further waves of infect
Slide 56: Outlook: Office
OUTLOOK OFFICE • Office expected to continue to benefit from its strategic positioning with the world’s leading footwear brands, and its strong and expanding online presence supported by its network of 94 stores • Office’s retail sales for the first seven weeks of the second half of the 2022 reporti
Slide 57: Questions
08 QUESTIONS 57
Slide 58: 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
Slide 59: Appendices
APPENDICES 59
Slide 60: Condensed Group Statements of Financial Position
CONDENSED GROUP STATEMENTS OF FINANCIAL POSITION at 26 Dec at 27 Dec at 27 Jun 2021 2020 2021 Unaudited Unaudited Audited Note Rm Rm Rm ASSETS Non-current assets 5349 5314 5305 Property, plant and equipment 1683 1737 1707 Right-of-use assets 2305 2243 2196 Intangible assets 570 546 551 Goodwill 294
Slide 61: Condensed Group Statements of Comprehensive Income
CONDENSED GROUP STATEMENTS OF COMPREHENSIVE INCOME 26 weeks 26 weeks 52 weeks to 26 Dec to 27 Dec to 27 Jun 2021 2020 2021 Unaudited Unaudited % Audited Note Rm Rm__ change Rm Revenue 4 10275 9 890 3.9 17.534 Sale of merchandise 4 9596 9365 25 16 400 Cost of sales (4.457) (4545) (8.042) Gross profit
Truworths International — H1 FY2022 Earnings Presentation on 6ix