Truworths International Limited · JSE:TRU
Truworths International — FY2014 Earnings Presentation
64 slides from Truworths International's earnings presentation, 2014
Slide 1: Annual Group Results for the 52 weeks ended 29 June 2014
ANNUAL GROUP RESULTS for the 52 weeks ended 29 June 2014
Slide 2: Presentation outline
Presentation outline • Business overview • Review of the financial period • Credit management • Capital management • Strategy • Outlook • Questions 2
Slide 3: Business overview
Business overview a a ee ee
Slide 4: Business overview
Business overview • General economic environment – Pressure on consumers – High levels of unemployment – Industrial action – Consumer credit contraction – Increased basic living costs • The focus of the last year has been to maintain quality earnings and good cash flow. • Our historical strong balan
Slide 5: Our Business Philosophy
Our Business Philosophy The Truworths business philosophy is core to the success of our business. It drives our business model and strategy. The Group’s track record of sustained growth can largely be attributed to the continued application of this business philosophy. By harnessing the energy and p
Slide 6: Our Purpose
Our 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 innovative and
Slide 7: Our Purpose
Our 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 innovative and
Slide 8: Our Values
Our Values We strive to achieve the highest standards of business ethics and integrity and we drive this through our values. Our values have been developed in conjunction with our employees and have been refined over time to ensure they remain relevant. We aspire to live by our values and to entrenc
Slide 9: Our Vision
Our Vision Our vision recognizes the different needs and requirements of the three key stakeholders in our business: our customers, our shareholders and our employees. VISION FOR OUR CUSTOMERS ‘Truworths will be the first place I go when I want quality fashion that makes me look attractive and succe
Slide 10: Strategic distinction – Our DNA
Strategic distinction – Our DNA Dealing with our rapidly changing environment For Truworths its about “Strategic Distinction” no longer only focus on “Competitive Advantage” (i.e. not primarily focused on competition and externally focused) but awareness of what makes us different and unique – our o
Slide 11: Business overview
Business overview Retailer of high quality, aspirational brands to the youthful, fashionable South African • Strong margin business at globally competitive levels • Highly cash generative - CFR on operating assets 38% • Sustained earnings and dividend growth • High proportion of sales on credit (ove
Slide 12: Review of the financial period
Review of the financial period
Slide 13: Review of the financial period
Review of the financial period Pressure on Consumers in a tough environment • Increased markdowns and reduced gross margin • Results impacted negatively by R83 million foreign exchange movement vs LY • Restrictions in the granting of credit limited growth in new account and therefore sales but will
Slide 14: Financial performance
Financial performance Sale of merchandise up 7% Gross margin at 55.9% Operating margin at 32.1% Headline earnings per share (HEPS) up 1.1% Diluted headline earnings per share up 1.5% Cash generated from operations R 2.5 billion Cash flow per share up 16.8% Annual dividend per share (DPS) of 385 cent
Slide 15: Impact of credit environment
Impact of credit environment 2011 2012 2013 2014 (%) (%) (%) (%) Retail sales growth 14 10 11 7 Cash sales growth 9 5 16 11 Credit sales growth 16 16 9 5 Credit sales growth to customers with more than 24 14 10 13 12 month old accounts Credit sales growth to customers with less than 24 month old acc
Slide 16: Financial targets
Financial targets Jun 2013 Jun 2014 Jun 2014 Actual Target Actual Gross margin (%) 56.6 54 - 57 55.9 Operating margin (%) 34.5 33 - 36 32.1 Return on equity (%) 39 38 - 42 37 Return on assets (%) 46 44 - 48 42 Inventory turn (times) 5.4 5.5 - 6.5 5.3 Asset turnover (times) 1.3 1.2 - 1.5 1.3 16
Slide 17: Eight year performance
Eight year performance 2007 2008 2009 2010 2011 2012 2013 2014 % % % % % % % % change change change change change change change change Sale of 27 16 11 11 13 10 11 7 merchandise Gross profit 31 15 11 12 16 10 10 6 Trade receivable 79 66 (7) (11) 1 37 39 24 costs Trading profit 33 7 11 20 24 6 4 (5)
Slide 18: Retail sales growth analysis
Retail sales growth analysis Unit growth: Retail Retail sales LFL store Product comparable Unit growth: sales growth growth inflation stores new stores Rm % % % % % Jun 2014 10 762 7 1 9 (8) 6 Jun 2013 10 074 13 8 2 6 5 Jun 2012 8 921 10 6 8 (2) 4 Jun 2011 8 080 14 9 4 5 5 Jun 2010 7 118 11 4 4 - 7
Slide 19: Divisional retail sales
Divisional retail sales 52 weeks 52 weeks change on Jun 2013 Jun 2014 prior period Rm Rm Truworths ladieswear 3 661 3 895 6% Truworths menswear 1 987 2 198 11% Identity 1 586 1 721 9% Daniel Hechter 1 206 1 202 - Elements 480 510 6% LTD 405 470 16% Inwear 451 450 - Other* 298 316 6% Retail sales 10
Slide 20: Rest of Africa
Rest of Africa Retail sales Retail sales Growth on No. of No. of Jun 2013 Jun 2014 prior period stores stores Retail sales Rm Rm June 2013 June 2014 from the rest of Africa Namibia 166 196 18% 12 12 contributed Swaziland 51 68 33% 5 5 3.8% to Group retail sales Botswana 49 63 29% 8 8 (2013: 3.3%) Za
Slide 21: Group stores
Group stores Departments Jun Departments Jun 2013 Total Total within stores 2014 within stores Truworths 298 - 298 315 - 315 Identity 195 - 195 212 - 212 Uzzi 55 117 172 56 138 194 Truworths Man 32 270 302 33 288 321 YDE 18 - 18 20 - 20 Daniel Hechter 4 309 313 3 325 328 LTD 2 104 106 2 129 131 Tota
Slide 22: Trading space
Trading space Jun 2013 Jun 2014 000 m2 000 m2 Truworths 230 253 Identity 54 60 Uzzi 4 4 Total (excl YDE) 288 317 YDE 6 7 Total 294 324 Growth (%) 8.1 10.3 22
Slide 23: Sales densities trend
Sales densities trend Compound growth rates: R per m2 40 000 Sales density 10 year 5%, 5 year 3% 35 656 34 849 34 586 35 000 32 979 30 462 29 965 29 307 30 000 28 802 24 719 25 000 22 335 20 000 15 000 10 000 Jun 2005 Jun 2006 Jun 2007 Jun 2008 Jun 2009 Jun 2010 Jun 2011 Jun 2012 Jun 2013 Jun 2014 2
Slide 24: Sale of merchandise and profit after tax
Sale of merchandise and profit after tax Compound growth rates: Compound growth rates: Sale of Profit after merchandise Profit after tax: Sale of merchandise: tax (Rbn) (Rbn) 10 year 17%, 5 year 11% 10 year 14%, 5 year 11% 3.0 12.0 2.4 2.4 2.5 10.0 2.2 1.9 2.0 8.0 1.6 1.4 1.5 1.3 6.0 1.1 1.0 0.8 4.0
Slide 25: Gross profit trend
Gross profit trend Compound growth rates: Average: Gross profit: Gross margin: Gross profit 10 year 15.1%, 5 year 11.2% 10 year 55.3%, 5 year 56.2% Gross margin (Rbn) (%) 7 70 6 55.4 55.3 56.7 56.7 56.6 55.9 60 53.7 53.7 54.6 54.9 5 50 4 40 3 30 2 20 1 10 1.7 2.1 2.7 3.1 3.4 3.8 4.5 5.0 5.5 5.8 - -
Slide 26: Analysis of trading expenses
Analysis of trading expenses Jun 2013 Jun 2014 Change on Rm Rm prior period Depreciation and amortisation 160 184 15% Employment costs 986 1 024 4% Occupancy costs 843 954 13% Trade receivable costs 739 916 24% Other operating costs 474 590 24% Trading expenses 3 202 3 668 15% Excluding trade receiv
Slide 27: Analysis of trading expenses (continued)
Analysis of trading expenses (continued) Trading expenses increased 15% compared to the prior period as follows: • Depreciation and amortisation (15% growth): – Capital expenditure of R 289 million in the period. – Due to growth in stores in 2013 and 2014, shop fittings depreciation has increased. •
Slide 28: Analysis of trading expenses (continued)
Analysis of trading expenses (continued) • Trade receivable costs (24% growth): – The doubtful debt allowance increased to 12.5% of gross trade receivables (Jun 2013: 12.0%). – The interest income earned (including notional interest) of R 828 million (Jun 2013: R 724 million) on the debtors’ book du
Slide 29: Operating profit performance
Operating profit performance Compound growth rates: Average: Average: Operating profit Operating profit: EBITDA Margin: Operating Margin: Margins (Rbn) 10 year 16%, 5 year 10% 10 year 36%, 5 year 36% 10 year 34%, 5 year 35% (%) 4.0 38 38 40 36 36 36 35 35 35 34 34 3.5 35 36 36 35 34 34 3.0 33 33 33
Slide 30: HEPS, DPS and dividend cover
HEPS, DPS and dividend cover Compound growth rates: Compound growth rates: Dividend HEPS / DPS HEPS: DPS: cover (cents) 10 year 18%, 5 year 11% 10 year 23%, 5 year 18% (times) 700 2.5 2.10 2.09 2.07 600 2.05 1.97 1.89 2.0 1.74 500 1.62 1.58 1.50 1.5 400 300 1.0 200 0.5 100 69 145 89 186 120 249 144
Slide 31: Statements of financial position
Statements of financial position Jun 2013 Jun 2014 change on Rm Rm prior period Non-current assets 1 280 1 360 6% Cash and cash equivalents 1 325 1 588 20% Trade and other receivables 3 766 4 182 11% Inventories 787 863 10% Other current assets 113 83 (27%) Total assets 7 271 8 076 11% Total equity
Slide 32: Inventory turn - merchandising
Inventory turn - merchandising Inventory turn average: 10 year 5.2 times, 5 year 5.2 times Times 6.0 5.8 5.6 5.4 5.2 5.0 4.8 4.6 4.4 4.2 4.9 5.3 5.6 5.3 5.1 5.4 5.3 5.1 5.2 5.0 4.0 Jun 2005 Jun 2006 Jun 2007 Jun 2008 Jun 2009 Jun 2010 Jun 2011 Jun 2012 Jun 2013 Jun 2014 32
Slide 33: Return on equity and return on capital
Return on equity (ROE) and return on capital (ROC) Average: Average: ROE: ROC: % 10 year 42.2%, 5 year 39.4% 10 year 62.2%, 5 year 57.2% 80 75 71 70 66 65 60 61 59 58 60 55 52 50 50 48 44 44 40 41 40 39 39 40 37 30 20 10 - Jun 2005 Jun 2006 Jun 2007 Jun 2008 Jun 2009 Jun 2010 Jun 2011 Jun 2012 Jun 2
Slide 34: Return on assets and asset turnover
Return on assets and asset turnover Average: Average: Return on assets Return on assets: Asset turnover: Asset turnover (%) 10 year 45.1%, 5 year 44.8% 10 year 1.4 times, 5 year 1.3 times (times) 60 2.0 1.9 50 47 48 48 47 46 46 46 1.8 44 42 1.7 40 37 1.6 1.5 1.5 1.5 30 1.5 1.4 1.4 1.3 1.3 1.3 1.3 1.
Slide 35: ROIC and WACC
Return on invested capital (ROIC) and weighted average cost of capital (WACC) Average: Average: ROIC: WACC: % 10 year 26.8%, 5 year 25.8% 10 year 13.4%, 5 year 13.2% 35 31 30 28 28 27 27 27 26 26 25 25 23 20 16 15 13 13 14 13 13 13 13 13 13 10 5 - Jun 2005 Jun 2006 Jun 2007 Jun 2008 Jun 2009 Jun 201
Slide 36: Cash flows for the period
Cash flows for the period Rm 4 000 (984) 32 3 500 917 3 000 (105) (54) 2 500 2 000 (1 566) 1 500 2 682 2 488 (235) (490) 1 000 66 500 263 - Cash EBITDA Working Interest Dividends Tax paid Capex Free Dividends Capex Share buy Other Net capital received received maintenance cash paid expand - backs ca
Slide 37: Cash realisation rate
Cash realisation rate % 96 9 6 100 89 90 86 82 81 78 80 70 68 70 56 60 50 40 30 Jun 2005 Jun 2006 Jun 2007 Jun 2008 Jun 2009 Jun 2010 Jun 2011 Jun 2012 Jun 2013 Jun 2014 37
Slide 38: Cash flow return on operating assets
Cash flow return on operating assets % 50 43 45 3 8 40 34 35 34 35 33 35 30 29 30 27 25 25 20 15 10 5 - Jun 2004 Jun 2005 Jun 2006 Jun 2007 Jun 2008* Jun 2009 Jun 2010 Jun 2011 Jun 2012* Jun 2013 Jun 2014 * 53 weeks 38
Slide 39: Credit management
Credit management
Slide 40: Credit management overview
Credit management overview • Continued pressure on the South African consumer • Further pullback of credit extension in the unsecured lending market • Truworths adjusted strategies from the 2nd half of calendar 2012 including more restrictive new account opening criteria • Lower acceptance rates imp
Slide 41: National credit being granted
National credit being granted (Source: National credit regulator statistic, Credit Bureau Monitor, first quarter 2014 statistics) % 80 60 40 20 - -20 -40 2008-Q4 2009-Q1 2009-Q2 2009-Q3 2009-Q4 2010-Q1 2010-Q2 2010-Q3 2010-Q4 2011-Q1 2011-Q2 2011-Q3 2011-Q4 2012-Q1 2012-Q2 2012-Q3 2012-Q4 2013-Q1 20
Slide 42: TransUnion SA Consumer Credit Index 2014
TransUnion SA Consumer Credit Index 2014 TransUnion SA Consumer Credit Index 70 65 Improving 60 Credit Health 55 50 45 40 Deteriorating 35 Credit Health 30 2007 2008 2009 2010 2011 2012 2013 2014 42
Slide 43: Industry: Good/Bad Balance Ratio
% -30% -20% -10% 0% 10% 20% 30% 40% 2008-02 2008-05 2008-08 2008-11 (Source: Principa Principa)) 2009-02 2009-05 2009-08 2009-11 2010-02 2010-05 2010-08 2010-11 TW Yr on Yr. Movement % 2011-02 2011-05 2011-08 2011-11 Good (0,1) / Bad 2+ Odds 2012-02 2012-05 Industy Yr/Yr movement (%) 2012-08 2012-11
Slide 44: Weekly Rand collected to due – % change vs LY
Weekly Rand collected to due – % change vs LY 4-week moving average 44
Slide 45: Credit sales as a percentage of retail sales
Credit sales as a percentage of retail sales Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Truworths (%) 79 78 79 77 74 74 75 76 74 73 Identity (%) 11 32 33 34 37 40 47 55 58 58 Group (%) 74 74 73 70 69 70 71 73 72 71 45
Slide 46: Key trade receivable statistics
Key trade receivable statistics Jun Jun 2013 2014 Number of active accounts (000's) 2 554 2 586 Growth in active accounts (%) 6 1 Qualifying payment (%) 90 90 Applicants granted credit (%) 31 26 Active account holders able to purchase at period-end (%) 82 83 Overdue values as a % of gross trade rece
Slide 47: Key trade receivable statistics (continued)
Key trade receivable statistics (continued) Jun Jun 2013 2014 Gross trade receivables (before doubtful debt allowance) (Rm) 4 221 4 720 Growth in gross trade receivables (before doubtful debt allowance) (%) 11 12 Credit sales as a % of retail sales (%) 72 71 Net bad debt as a % of credit sales (%) 6
Slide 48: Doubtful debt provision process
Doubtful debt provision process • ‘Provisioning’ looks into the FUTURE. Bad Debt is HISTORICAL. • So we use ‘Principa’ Mathematical Model to predict the future. (Markov) • The same provisioning model has been applied consistently for many years - i.e. using ‘Markov’. • Scientifically statistically c
Slide 49: Active accounts vs. acceptance rate
Active accounts vs. acceptance rate No. of active Acceptance Rate accounts (%) ('000) 70 3 000 65 2 586 60 2 500 55 50 2 000 45 40 1 500 35 30 26% 1 000 25 20 500 Jun 2005 Jun 2006 Jun 2007 Jun 2008 Jun 2009 Jun 2010 Jun 2011 Jun 2012 Jun 2013 Jun 2014 Acceptance rate Number of active accounts (000'
Slide 50: Increase in new account applications
Increase in new account applications Over 1 million applicants in 2014 35% 29% 28% 30% 25% 20% 15% 12% 11% 9% 10% 5% - Jun 2010 Jun 2011 Jun 2012 Jun 2013 Jun 2014 50
Slide 51: Active account holders able to purchase
Active account holders able to purchase % 100 13 13 15 17 16 15 14 16 1 7 90 18 80 70 60 50 87 87 85 83 84 85 86 84 8 3 40 82 30 20 10 - Jun 2005 Jun 2006 Jun 2007 Jun 2008 Jun 2009 Jun 2010 Jun 2011 Jun 2012 Jun 2013 Jun 2014 Shoppable Delinquent 51
Slide 52: Interest bearing book
Interest bearing book % 90 81.2 79.4 80 76.0 74.2 72.1 70 60 50 40 30 20 Jun 2010 Jun 2011 Jun 2012 Jun 2013 Jun 2014 52
Slide 53: Capital management
Capital management
Slide 54: Capital management
Capital management • Dividends – Annual dividend per share of 385 cents increased 6.4%. – Dividend payments of R 1 566 million during the period which relate to the final dividend declared for June 2013 and the interim dividend for December 2014. • Share buy-backs: – 6.2 million shares repurchased a
Slide 55: Share buy-backs
Share buy- buy-backs Rm 800 691 700 600 490 500 394 400 300 200 100 83 34 - 2010 2011 2012 2013 2014 55
Slide 56: Capital expenditure
Capital expenditure Actual Actual Planned spend for spend for spend for Jun 2013 Jun 2014 Jun 2015 Rm Rm Rm Store development 215 232 356 Computer infrastructure 42 40 65 Distribution facilities 4 5 17 Head office refurbishment 5 6 7 Motor vehicles 4 6 3 Total 270 289 448 56
Slide 57: Strategy
Strategy
Slide 58: Growth and expansion
Growth and expansion • Increase spread of price points across all ranges and brands with <5% inflation target 2015 • Realign fashion statement (Product/Window/Display) • New concept: Holistic ‘One Handwriting’ Integrated Stores • Rapid expansion of Identity, Uzzi and kidswear • Further expansion int
Slide 59: Scenario Truworths 2020
Scenario Truworths 2020 • Truworths INTERNATIONAL – 120+ African stores outside South Africa – Focused Ginger Mary international expansion – Asia Retail Initiative • At least one “Concept/Niche Fashion related” acquisition – Chain store rollout • About 3,5 m account customers • About 4,0 m additiona
Slide 60: Outlook
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Slide 61: Short Term Outlook
Short Term Outlook • Trading and credit environment expected to remain challenging for the next year with gradual improvement in H2. • Management continue to implement strategies to deal with changing consumer trends and restrictive credit environment • Strategies include offering a wider range of p
Slide 62: Questions
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Slide 63: Disclaimer
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Slide 64: Disclaimer
Disclaimer The presentation 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 circums
Truworths International — FY2014 Earnings Presentation on 6ix