Truworths International Limited · JSE:TRU
Truworths International — H1 2016 Earnings Presentation
68 slides from Truworths International's earnings presentation, 2016
Slide 1: Group Interim Results for the 26 weeks ended 27 December 2015
GROUP INTERIM RESULTS for the 26 weeks ended 27 December 2015
Slide 2: Agenda
Agenda • Review of the period • Financial review • Group • Truworths • Office Retail Group • Credit management • Strategic focus areas • Outlook 2
Slide 3: Review of the period
Review of the period
Slide 4: Review of the period
Review of the period • Building a strong international retail base − Commenced international expansion, outside Africa, with the acquisition of Office Retail Group in the UK. − Diversified earnings and customer base, access to northern hemisphere markets, increased cash sales ratio. • Strong perform
Slide 5: Office at a glance
Office at a glance • Leading fashion footwear retailer in UK, Republic of Ireland and Germany with sales of c. £271 million in FY2015 (ended January). • Strong in-house brands and excellent relationships with third-party brands. • Targets 16 to 25 year olds at mid-level price range. • 162 stores and
Slide 6: Office's outstanding track record of top line growth
Office’s outstanding track record of top line growth ‘Office London’ opens as European a concession in the expansion begins shopping mecca Hyper with Germany Expansion into Double-digit CAGR in top Ireland line since 2011 First standalone Office store opens on the — Plans in place to fashionable K
Slide 7: Unique Office product offering: sports to formal, for men, women and kids
Unique Office product offering: sports to formal, for men, women and kids Third-party brands In-house brands Select exclusives Breadth and depth of product range Nike Toms Adidas UGG Australia Mango Sunset Skull Print Stan Smith Petra Short Boots Converse Timberland Havaianas Solillas Shearling Insi
Slide 8: Cross benefits between Truworths and Office
Cross benefits between Truworths and Office • Truworths will benefit from Office’s knowledge and expertise in footwear fashion. Initial experimentation with some ‘Office inspired’ styles looks promising. • Opportunity to introduce Office products and brands into South Africa and other African market
Slide 9: Improved Truworths merchandise offering
Improved Truworths merchandise offering • Focused on our DNA and well established merchandise strategy. – Youthful focus, but not too edgy or ‘fringe fashion’. – Aligned with international fashion, but with the South African customer in mind. – Put detail and quality fabric back into our garments (s
Slide 10: Stabilising credit metrics
Stabilising credit metrics • Credit market is stabilising. • Credit metrics in the Truworths book have improved and are within targeted norms and are still improving against the industry. • Truworths continues to gain market share. • Doubtful debt allowance reduced to 12.8% at December 2015 from 13%
Slide 11: Financial review: Group
Financial review Group
Slide 12: Group Financial performance
Group Financial performance Change on Change on prior prior Incl. Office period Excl. Office period Dec 2015* % Dec 2015 % Dec 2014 Sale of merchandise (Rm) 8 272 37 7 195 19 6 050 Gross margin (%) 54.2 55.3 55.3 Operating margin (%) 29.3 32.0 31.8 Diluted HEPS (cents) 404 21 388 17 333 Dividend per
Slide 13: Group HEPS and DPS
Group HEPS and DPS Compound growth rates: Compound growth rates: HEPS: DPS: HEPS / DPS Dec: 5-year 11%, 3-year 7% Dec: 5-year 16%, 3 year 10% (cents) 450 434 400 350 300 250 200 150 100 50 169 278 204 331 216 336 236 335 270 405 - Dec 2011 Dec 2012 Dec 2013 Dec 2014 Dec 2015 DPS (cents) HEPS (cents)
Slide 14: Group Adjusted HEPS
Group Adjusted HEPS Change on Dec 2015 Dec 2014 prior period Cents Cents % HEPS 405.0 334.5 21 Once-off Office acquisition costs 28.9 - Adjusted HEPS 433.9 334.5 30 14
Slide 15: Group Statements of financial position
Group Statements of financial position Incl. Office Excl. Office Incl. Office Excl. Office - change on - change on Dec 2015 Dec 2015 Dec 2014 prior period prior period Rm Rm* Rm % %* Non-current assets 7 108 5 448 1 427 398 282 Cash and cash equivalents 2 495 1 660 2 423 3 (31) Trade and other recei
Slide 16: Capital management
Capital management • Gearing – Gearing to fund operational requirements after acquisition of Office. Net debt to equity: » Group: 25% » Truworths: 11% (weighted interest rate JIBAR + 2.11%) » Office: 33% (interest rate LIBOR + 2.15%) – Targeted Group net debt to equity ratio of 45% - 50% at June 201
Slide 17: Return on equity (ROE) and return on capital (ROC)
Return on equity (ROE) and return on capital (ROC) (Prior to consolidating the results and financial position of Office) Average: Average: ROE: ROC: % Dec: 5-year 42%, 3-year 41% Dec: 5-year 60%, 3-year 57% 70 66 62 59 58 60 55 50 45 44 42 41 40 40 30 20 10 - Dec 2011* Dec 2012* Dec 2013* Dec 2014*
Slide 18: Return on assets and asset turnover
Return on assets and asset turnover (Prior to consolidating the results and financial position of Office and excluding the Group’s investment in Office) Return on assets Asset turnover Average: Average: (%) (times) Return on assets: Asset turnover: Dec: 5-year 43%, 3-year 41% Dec: 5-year 1.3 times,
Slide 19: Group Cash flows
Group Cash flows Rm 4 000 3 500 3 000 5 1 856 (112) - (51) 2 500 604 (2 495) (713) 2 000 146 (211) 1 500 2 510 1 000 26 1 918 500 973 - EBITDA Working Interest Dividends Tax paid Finance costs Capex Free cash Dividends Capex Net increase Net Other Net cash capital received received maintenance flow
Slide 20: Financial review: Truworths
Financial review Truworths
Slide 21: Truworths Financial overview
Truworths Financial overview • Strong growth in sale of merchandise. • Stable gross profit margin. • Trade receivable costs improved as a percentage of credit sales. • Strong cash generation. • Continued investment for growth in stores, systems and the debtors book. 21
Slide 22: Truworths Financial performance
Truworths Financial performance Change on prior period Dec 2015 % Dec 2014 Sale of merchandise (Rm) 7 195 19 6 050 Gross margin (%) 55.3 55.3 Trading profit (Rm) 1 694 20 1 412 Trading margin (%) 23.5 23.3 Operating profit (Rm) 2 303 20 1 923 Operating margin (%) 32.0 31.8 22
Slide 23: Truworths Three-year performance
Truworths Three-year performance Dec 2015 Dec 2014 Dec 2013 Jun 2015 change on change on change on change prior prior prior on prior period period period period % % % % Sale of merchandise 19 5 7 8 Gross profit 19 3 6 7 Trade receivable costs 15 9 40 5 Trading profit 20 (5) (4) (1) Operating profit
Slide 24: Truworths Retail sales growth analysis
Truworths Retail sales growth analysis Unit Unit Retail growth: growth: Retail sales LFL store Product Comp Non-comp sales growth growth Inflation stores stores Rm % % % % % Dec 2015 7 393 19 10 9 1 9 Dec 2014 6 232 5 (1) 6 (7) 6 Dec 2013 5 927 7 1 7 (6) 6 Dec 2012 5 533 15 10 3 7 5 Dec 2011 4 820 1
Slide 25: Truworths Improving credit performance
Truworths Improving credit performance Dec 2015 Dec 2015 (Incl. EC and (Excl. EC and Naartjie) Naartjie) Dec 2014 Dec 2013 Dec 2012 % % % % % Retail sales growth 19 15 5 7 15 Cash sales growth 25 16 5 11 19 Credit sales growth 16 15 5 8 14 Credit sales growth to customers with 14 8 14 14 more than 2
Slide 26: Truworths Divisional retail sales
Truworths Divisional retail sales Change on prior Change on prior period (Incl. period (Excl. Earthchild and Earthchild and Dec 2015 Dec 2014 Naartjie) Naartjie) Rm Rm % % Truworths ladieswear 2 611 2 306 13 13 Truworths menswear 1 499 1 304 15 15 Truworths designer emporium* 938 785 19 15 Truworths
Slide 27: Truworths Trading space
Truworths Trading space Trading m2 ‘000 Dec 2015 Dec 2014 Truworths 274 262 Identity 67 63 Uzzi 4 4 Earthchild and Earthaddict 3 - Naartjie 3 - Total excluding YDE 351 329 YDE 7 7 Total 358 336 Growth on prior period 6.5% 6.9% Growth excl. Earthchild and Naartjie 4.8% 27
Slide 28: Truworths Number of stores
Truworths Number of stores Dec Departments Dec Departments 2015 within stores Total 2014 within stores Total Truworths 342 - 342 327 - 327 Identity 241 - 241 223 - 223 Uzzi 52 193 245 52 156 208 Earthchild and Earthaddict 44 33 77 - - - Truworths Man 35 325 360 32 304 336 Naartjie 29 8 37 - - - YDE
Slide 29: Truworths Rest of Africa corporate stores
Truworths Rest of Africa corporate stores Retail Retail Change sales sales on prior Number of Number of Dec 2015 Dec 2014 period stores stores Rm Rm % Dec 2015 Dec 2014 Namibia 125 111 13 17 14 Botswana 51 37 38 8 8 Swaziland 45 35 29 5 5 Zambia 17 13 31 5 3 Ghana 13 11 18 4 4 Lesotho 10 7 43 2 2 Ma
Slide 30: Truworths Sales densities trend
Truworths Sales densities trend Compound growth rates: R per m2 Sales density: 45 000 Dec: 5-year 3%, 3-year 1% 7% growth on prior period 39 179 40 000 37 881 37 144 36 717 35 097 33 996 35 000 31 096 30 793 30 359 30 000 25 000 20 000 15 000 10 000 Dec 2007 Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2
Slide 31: Truworths Gross profit trend
Truworths Gross profit trend Compound growth rates: Average: Gross profit Gross margin (Rbn) Gross profit: Gross margin: (%) Dec: 5-year 11%, 3-year 9% Dec: 5-year 56.2%, 3-year 55.6% 5.5 70 5.0 56.9 57.1 56.3 55.3 60 55.3 4.5 4.0 50 3.5 40 3.0 2.5 30 2.0 1.5 20 1.0 10 0.5 2.7 3.1 3.2 3.3 4.0 - - De
Slide 32: Truworths Analysis of trading expenses
Truworths Analysis of trading expenses Change on Dec 2015 Dec 2014 prior period Rm Rm % Depreciation and amortisation 127 99 28 Employment costs 735 566 30 Occupancy costs 625 530 18 Trade receivable costs 663 578 15 Other operating costs 382 295 29 Trading expenses 2 532 2 068 22 32
Slide 33: Truworths Analysis of trading expenses (continued)
Truworths Analysis of trading expenses (continued) • Depreciation and amortisation (28% growth): – Capital expenditure of R 256 million mainly due to store expansion, computer infrastructure and software purchases. Excluding non- comparable stores, depreciation increased 7%. • Employment costs (30%
Slide 34: Truworths Analysis of trading expenses (continued)
Truworths Analysis of trading expenses (continued) • Trade receivable costs (15% growth): – Doubtful debt allowance reduced to 12.8% of gross trade receivables (Dec 2014: 13.0%, Jun 2015: 12.5%). – Net bad debt as a percentage of gross trade receivables decreased to 12.1% (Dec 2014: 13.3%, Jun 2015:
Slide 35: Truworths Operating profit performance
Truworths Operating profit performance Compound growth rates: Average: Average: Operating Operating profit: EBITDA margin: Operating margin: profit Margins Dec: 5-year 9%, 3-year 7% Dec: 5-year 36%, 3-year 34% Dec: 5-year 34%, 3-year 33% (Rbn) (%) 3.5 38 38 40 35 33 34 3.0 37 35 36 34 32 32 30 2.5 2
Slide 36: Truworths Inventory analysis
Truworths Inventory analysis Growth on Dec 2015 Dec 2014 prior period Rm Rm % Finished goods 1 251 1 084 15 Goods in transit 72 31 132 Add: fabric and work-in-progress 30 23 30 (manufacturing) Total, excl. Earthchild and Naartjie 1 353 1 138 19 Earthchild and Naartjie 73 - 100 Total inventory 1 426
Slide 37: Truworths Capital expenditure
Truworths Capital expenditure Actual Actual Planned Actual spend for spend for spend for spend for Dec 2015 Dec 2014 Jun 2016 Jun 2015 Rm Rm Rm Rm Store renovations and 183 150 322 280 development Computer infrastructure 49 24 86 80 and software Head office refurbishment 14 5 21 6 Motor vehicles 1 3
Slide 38: Financial review: Office
Financial review Office
Slide 39: Office Summary of acquisition
Office Summary of acquisition • Acquired 88.9% stake in Office for R 5.6 billion (£ 256 million) – on a 100% basis. • Experienced, high quality management team owns remaining 11.1%. • Truworths has the option to buy management’s shares over a 3 to 5 year period after the acquisition. • c. R 3.5 bill
Slide 40: Office Review of the financial period
Office Review of the financial period Dec 2015 (Excl. once- off deal costs) Dec 2015 Dec 2015 £ £ R Sale of merchandise (m) 48.0 48.0 1 077 Gross margin (%) 47.3 47.3 47.3 Trading expenses (m) 11.7 17.5 392 Operating profit (m) 11.2 5.4 120 Operating margin (%) 23.3 11.2 11.2 Earnings attributable t
Slide 41: Office Other financial information
Office Other financial information Sales by country Retail sales Number of Dec 2015 stores £m Dec 2015 United Kingdom 45.4 151 Germany 1.4 6 Republic of Ireland 1.4 5 Total 48.2 162 Stock turn 2.4 times (annualised) 41
Slide 42: Credit management: Truworths
Credit management Truworths
Slide 43: Credit risk management
Credit risk management • Strong in-house analytics team, complemented by local and international outsource analytics partners. • Over 50 predictive models used to manage credit portfolio – scorecards, decision trees, logistic and linear regressions, profile models and action-effect sensitivity model
Slide 44: Affordability
Affordability • National credit regulator published regulations on the assessment mechanisms and procedures to be followed when opening new accounts and increasing credit limits. • Compliance with the regulations was dependent on 3 key factors: store assessment and collection of physical documentati
Slide 45: Insurance and other charges
Insurance and other charges • Truworths offers credit in order to enable our regular customers to purchase our brands - “Credit as an enabler”. • Truworths does not focus on maximising revenues from additional credit products such as insurance and other service fees; the focus is enabling customers
Slide 46: Industry: TransUnion SA Consumer Credit Index
Industry: TransUnion SA Consumer Credit Index (Source: TransUnion SA Consumer Credit Index) • The index measures consumer credit health where 50.0 is the break-even level between improvement and deterioration. • In 2014 Q4 the index edged over 50.0 (breakeven) for the first time since 2012 Q2 • The
Slide 47: Year-on-year change 4+ Cycle balances
Year-on-year change 4+ Cycle balances (Source: Principa Credit Compass) % Truworths maintains a positive trend 50 against the industry which is showing a slight deterioration 40 30 20 10 0 -10 -20 -30 2010-05 2015-05 2008-02 2008-05 2008-08 2008-11 2009-02 2009-05 2009-08 2009-11 2010-02 2010-08 201
Slide 48: Clothing Retail Share of Wallet (All Credit)
Clothing Retail Share of Wallet (All Credit) (Source: Total Bureau Solution) % Clothing retail gaining 29 market share 28 27 26 25 24 23 22 Jun-13 Jul-13 Mar-13 Jan-14 Mar-14 Jun-14 Jul-14 Jan-15 Mar-15 Jun-15 Jul-15 Dec-13 Aug-13 Nov-13 Feb-14 Nov-14 Dec-14 Feb-15 Nov-15 Apr-13 Sep-13 Aug-14 Sep-14
Slide 49: Originating accounts limit by credit segment
Originating accounts limit by credit segment (Source: Principa Credit Compass) Credit aware 6000 Credit aware average limit assigned Originating Accounts Limit by Credit Truworths and Identity offer the 5000 4000 lowest limits to credit aware Segment customers 3000 2000 The average limit assigne
Slide 50: Key trade receivable statistics
Key trade receivable statistics Dec Dec 2015 2014 Number of active accounts (000's) 2 789 2 646 Growth in active accounts (%) 5 2 Gross trade receivables (before doubtful debt allowance) (Rm) 6 081 5 285 Growth in gross trade receivables (before doubtful debt allowance) (%) 15 8 Credit sales as a %
Slide 51: Key trade receivable statistics (continued)
Key trade receivable statistics (continued) Dec Dec 2015 2014 Active account holders able to purchase at period-end (%) 86 86 Overdue values as a % of gross trade receivables (%) 10 10 Net bad debt as a % of credit sales* (%) 7.2 8.1 Net bad debt as a % of gross trade receivables* (%) 12.1 13.3 Doub
Slide 52: Trade receivable costs vs. interest received
Trade receivable costs vs. interest received Rm 700 663 600 578 531 542 500 459 400 379 384 342 290 284 300 271 259 242 237 228 224 224 222 200 100 - Dec 2007 Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 Dec 2013 Dec 2014 Dec 2015 Trade receivable interest (Rm) Trade receivable costs (Rm) 52
Slide 53: Active accounts vs. acceptance rate
Active accounts vs. acceptance rate Acceptance No. of active rate (%) accounts ('000) 50 2789 3 000 2 615 2 646 2 582 2 403 45 2 500 41 41 2 100 1 926 40 Impacted by new 2 000 affordability 39 regulations 35 1 775 1 823 1 500 35 35 35 30 32 1 000 29 25 500 26 20 - Dec 2007 Dec 2008 Dec 2009 Dec 2010
Slide 54: Active account holders able to purchase
Active account holders able to purchase % 100 13 14 13 11 12 13 14 14 15 90 80 70 60 50 87 86 87 89 88 87 86 86 85 40 30 20 10 - Dec 2007 Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 Dec 2013 Dec 2014 Dec 2015 Shoppable (%) Delinquent (%) 54
Slide 55: Interest-bearing book
Interest-bearing book % 90 80 75.8 75.9 73.5 69.4 70 67.4 60 50 40 30 20 Dec 2011 Dec 2012 Dec 2013 Dec 2014 Dec 2015 55
Slide 56: Strategic focus areas
Strategic focus areas
Slide 57: Strategic focus areas
Strategic focus areas • Office growth plans • Kidswear expansion • E-commerce • Supply chain • Loyalty programme 57
Slide 58: Office growth plans and benefits
Office growth plans and benefits • Committed to growing Office in its core market and in Germany. • Currently 74 of the top 150 UK retail destinations do not have standalone Office stores. Office believes at least 20 of these may be low hanging fruit. • Open 10 - 15 stores in Germany in next 2 - 3 y
Slide 59: Kidswear expansion
Kidswear expansion • Full integration of Earthchild and Naartjie completed late 2015. • Kids emporiums (including LTD Kids, Earthchild and Naartjie) unique in SA retail. All three are aspirational upmarket brands, yet with different profiles. • First kids emporiums opened in October 2015 (Constantia
Slide 60: E-commerce
E-commerce • The Truworths website generates sales equivalent to a small store. • The existing Naartjie, Earthchild and Earthaddict websites are currently fully functional and run successfully. • An e-commerce project is underway which will dramatically improve all aspects of Truworths’ e-commerce b
Slide 61: Supply chain
Supply chain • Continue to achieve efficiency improvements of about 5% p.a. in the distribution centres. • Naartjie, Earthchild and Earthaddict integrated into Truworths’ distribution network and processes. • Project underway to significantly enlarge the current distribution centres to accommodate b
Slide 62: Loyalty programme
Loyalty programme • Truworths has an ongoing structured relationship with the majority of our customers through our credit offering. • From this relationship Truworths has a unique and deep understanding of our customer behaviour and preferences. • Truworths plans to introduce a new loyalty rewards
Slide 63: Outlook
Outlook
Slide 64: Outlook
Outlook • Truworths – The credit environment has stabilised despite the current tough economic environment. – Confident that the winter merchandise ranges will appeal to customers as much as the previous summer range did. – Product inflation anticipated to average between 8% and 10% in 2016 period b
Slide 65: Outlook (continued)
Outlook (continued) • Office – Office provides an excellent opportunity to expand the Group’s operations into the northern hemisphere. – Retail sales for the first six weeks of H2 2016 up 18% and 17% on a like-for- like basis (with some margin reduction), thereby significantly outperforming the UK m
Slide 66: Outlook (continued)
Outlook (continued) Group Group Jun 2016 Jun 2016 Targets Targets New Previous Gross margin (%) 52 – 55 54 – 57 Operating margin (%) 22 – 26 32 – 36 Return on equity (%) 34 – 39 37 – 42 Return on assets (%) 24 – 29 41 – 46 Inventory turn (times) 3.0 – 4.0 5.5 – 6.0 Asset turnover (times) 1.1 – 1.4 1
Slide 67: Questions
Questions
Slide 68: 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
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