Truworths International Limited (TRU) Earnings Call Transcript & Summary

Good afternoon, everybody. Thank you for joining us in these very unusual times. I'm going to go through the presentation in the normal way. And I'll just go through the slides in a sort of sequential way. However, I must say there's more information on the slides than I'm going to talk to, and that's because you can afterwards go through the information in more detail, and we wanted you to see more information. So it's going to work on that basis. I have a number of my colleagues live with me. And if necessary, I may redirect some of the questions to them. So I'll get right into it. Firstly, the key features for the period. We've made some important steps in our next stage of our succession plan, which we've implemented. Of course, it's a process we're going through, as you all know, and which we have been going through for a while. It's an important phase, though, because you'll see that there's a new group of management who are becoming directors and who are taking over responsibility as we move through the process. The second big feature was we generated ZAR 1.9 billion cash in the 6-month period, and we bought back 12.3 million shares to date. I think it is about 10.1 million during the period and another 2 million or so, which we prearranged for the close period. Truworths, if you summarize quickly and overall how do we see it over the 6-month period, Truworths' debtors book is almost at pre-COVID-19 level health, which is actually a surprise to us. It's gone better than we had expected. And given the fact that Truworths Africa does more than 70% of its revenue to customers who have credit on Truworths' credit store card, that's, of course, a very great news for us. And together with that goes the reality that the shoppable, the sort of healthy accounts, the guys that are on running arrears, are heading towards pre-COVID levels. The account applications for new account, now I stress this is not the new accounts, it's the people who apply for new accounts, has now for 2 years in a row being at a record level. Interesting how it was last year as well as this year, we've had 2 amazing years on applications. And then we are planning to launch some exciting new concept. I have told all of you about that before in private meetings, and we did it in August, but I'm going to give you an update because it's happening very soon and before I see you again at the next presentation. When it comes to Office, Office generated GBP 13.7 million cash, which, of course, given the circumstances we find quite extraordinary, we made some important inroads in the closure of poor performing stores. But as you know, that's still a challenge of ours is many more we wish we could close and we plan to in the next couple of years. And continued lockdowns in the U.K. has resulted in some challenges, and I suppose that's obvious. And it resulted in a further impairment of the right-of-use assets. And there has been very good progress in Office in reducing stock levels. But I must stress that I don't think that, that's going to continue because we've now got stock to the correct level. And as I've said, I mentioned the 12.3 million share buyback, we've paid an average of about ZAR 35 per share for the shares we bought back. So we now look at our business philosophy, which I often talk to you about, I just want to go through it again. And I'll try to summarize it in a simple way. And it goes like this: We believe our business is positioned for the future. We obsess with that issue, which is really the long-term sustainability of Truworths precedes everything else. It's our primary focus, our primary responsibility. And really, it's quite simple. Our business is orientated towards on the basis -- on the basic side of it: consistent performance; long-term sustainable business model; of course, committed employees; higher margins; strong cash generation; the world-class systems; and the peak and the pinnacle of it all is aspirational brands. Now I have quite included in this our business philosophy, which you can read in your own time. I don't plan to go through it all with you because I have done it before, firstly. And secondly, it's the kind of thing you need to read through. When we do our induction program and when we talk about this, we can spend 2 days on a strat session debating this philosophy, where it's going wrong, where it's going right, what is the strategy to get us back on track, et cetera, et cetera. So I'm putting it in there for you to see. But let me say this to you, that every decision we make in our business, whether it's about succession, whether it's about -- whether we should buy a value chain or not, whether it is about high or low margins, all of those decisions are made in conglomerate, not by me on my own, in conglomerate, by my directors, my colleagues, my subordinates and by the main Board, always in terms of this business philosophy. That's what drives us. That's what you, as shareholders, are buying into when you make the choice to invest in our company. If it doesn't dwell with how you feel, we understand and we respect that, but you have to understand and respect, this is how we run the business. This is our philosophy. It's underlying belief, and it drives all of our decisions, which always, as I say, long term, and that means if you look at it in a simple way, we always remain true to our DNA. If we are forced to make a choice, and we, of course, don't want to make that choice between a long-term business sustainable decision or a short-term return, we will prefer the long-term decision. Of course, one trusts you have both, but we try always to focus on the long term. So we believe that fashion retail is a marathon and not a sprint. That's driving force behind a business. And we consistently deliver on the purpose. We don't sell clothes. We don't think we sell clothing to customers. We sell them so much more. We sell an experience, an environment. We sell a relationship. We sell aspiration. We sell the idea of customers being able to dress and feel successful, et cetera, et cetera. So there's a lot about what we do in Truworths that drives every single aspect of what we do and keeps us focused. And then we are very, very focused on leadership and sharing and leadership in our business. So when I talk to you soon about store accounts and labor -- which is quite interesting because we've got all channels now. We've got digital, of course, everyone has it. We've got real estate around the whole of South Africa. There won't be a shopping node in South Africa that you won't find a Truworths store. And then Office in the U.K. is very well positioned around the U.K. And then we also have lay-bys for those customers who don't want to buy for cash, and they haven't got enough money or they can't afford or do not want to shop on credit but would prefer to lay away or lay by in our store, we do that. And that's also a very important part of our business. So we offer all channels to customers. And then, of course, we offer loyalty programs to customers. Those who are credit customers, of course, they're part of the loyalty program, but we also offer a loyalty program to anyone who wants to be a loyalty member, and I'll tell you more about that later. And then as I said to you, Truworths is an experiential retailer. We offer an experience of shopping. That is e-commerce. It's digital. It's store. It's telephone. It's call center. It's lay-by. It's an omnichannel experience. When we talk about credit, which to some of you is controversial, let me try and explain to you how we see it. We think that credit is much more than just being a bank and lending people money. Credit is an enabler of our revenue generation. It is the initiator of our relationship with our customer. It's an interesting thing because we have knowledge of behavior of now of 12 million people. We know so much about them. We know what they buy, when they buy. We know how much credit they've got, how much credit they owe in the marketplace, not just to us. We know how they shop, where they shop, how regularly they shop, if they are in arrears or if they have a high or low propensity to buy or sell. We have an incredible knowledge of our customers through our credit book. And then very often, you would be surprised to know credit with Truworths is the first time that customer ever has a credit record. Now you can imagine that has a long-term implication for the customer. It means he gets experiencing credit, experiencing paying off, experiencing all the obligations that go with credit. And that will in one day mean he may buy a home or rent an apartment or whatever. Those are, you would call them, the sort of hygiene factors, the basic. But what we sell to the customer, of course, through credit and what they want and why they want our credit, is to maintain our position to offer exclusivity, unique fashion, better quality, aspiration, the best and best known brands in South Africa, a wonderful store experience, digital shopping and everything that goes with it. So our relationship with credit is completely intertwined. We cannot sort of say tomorrow, well, I'll tell you what, why don't we become a cash business? It doesn't work like that. Our business is a credit business, which is the relational business with our customers on a long-term basis. So getting into the first big issue is succession. This is the new Truworths Africa Board. Sarah Proudfoot, who's been with us now for 20 years and has played a strategic role in many parts of our business, has been on the Maiden Board for a couple of years and who has run all the merchandise credit -- sorry, the merchandise and marketing for quite some time, but she didn't run the menswear [indiscernible]. Recently, she has just been made Deputy Managing Director. She's on her own journey. She's on a journey of exploration, personal development, personal growth, and obviously, we have very high expectations of her. And she will go through a process that we and she are collaboratively working on together to prepare her for more things as and when she's able and capable of doing it. And then she's got a really good Board around her, and you'll see there's tons of experience there. The average tenure of these people in our business is 22 years. And the Board used to be simply Sarah, me, Gavin and Sean. But now we've expanded it. And these are the other people on our Board. There's Sean, who's just turning 60 soon. He is a director in charge of planning, logistics in many other parts of the business. He plays a key role in our business. He's been with us 32 years. Myles is 46, 17 years. He's got a big job. Sharon Malander, Gavin. I won't go through each of them. Won't tell you all of their background and their jobs, you could read about it. Peter Shackleton, Zamira, Gary Barnard and Francois. That is the team of people that runs Truworths, and they are the ones that have actually been running Truworths, but they've now been elevated. And in addition to that, we also promoted 7, what we call, divisional directors to that level of divisional directors, which is one level below the directors. These are also people who have been with us for a long time, and came new executives. Similarly, we don't have many people at that level, executive and above, that had been working for our business for less than 10 years. The average age is 53 of the people at the most senior level in our business. Similarly, if we look at Office as we prepare Office for succession, we have another woman as the top person, and that's Kerry van der Merwe. Kerry is 44. She's worked for the Truworths Group for 17 years, but for the last 5 had been in Office in CFO position, COO, and last year or 2 as Managing Director. And then Ghassan who's been with Office most of his life. He's a real sneaker expert. Chris has also been with Office for a long time. Kevin, who runs the digital side. And Louis, who's ex-Truworths, has been with Office for 3 years, he runs the IT side. We're very proud that in both instances, we are -- in seeing women in charge of the company and with great progression potentially into the future. If we look at the strategic focus of Truworths and what we are really particularly focusing on the moment. I've told you before about these new brands that we said we're going to launch during 2021, and those are Identity expansion. I'll tell you more about that. Fuel, which is a new brand, I did tell you about it, but you didn't know the name last time. Primark, I did tell you about it, but you didn't know the name last time. A kids superstore in our Loads in our Truworths store, and I'll tell you something about that. And then the one I won't talk much about it at all is Hey Betty in Truworths. That is a very exciting new concept. We've had Hey Betty for a long time, but we are doing some quite innovative things there. But it's too small to make a big thing about it. At the moment, it's going to be a couple of stores at first, and then we'll grow it in the future. We have an enhancing program for our digital omnichannel strategy. And of course, I always say, add the lay-by experience to it because they go hand-in-hand. I mean lay-by in South Africa is a very important shopping experience, especially at big times of the year such as Christmas and in high winter. And then -- so we are continuously working on our digital experience. It's becoming incredibly important to make the customer feel that wherever they are, whether they're shopping in store and they're doing so digitally, whether they are shopping from home or whether they are physically shopping in the store and paying in store, it doesn't matter to us. In all ways, the experience is uniform. We want them to be one vision of the customer, one experience, and we want to see them as one customer. Remembering that 70% of them, 70% of them have credit cards of Truworths. And so when we interact with them, which is medium we use, from call center to store to e-commerce, we want them to be one picture, and we want to know everything about them at the same time. And then we are very busy with our supply chain. I know I've told you before about the purchase of Barrie Cline, which was our largest local ladies orientated design center. We also have our largest men's orientated design center in-house called Truworths Manufacturing. And our largest supplier is our own in-house sourcing division that imports for us. So our 3 biggest suppliers are now all in-house, although we do still use a large number of CMT local manufacturers for quick response and fast fashion, which is about 45% of our business and, of course, is very useful. And then we're very busy with our real estate at the moment. We are getting a real good rent reversions of about 18%, which, of course, we feel entitled to given the toughness in the marketplace. And we are also able to consolidate space because our leases are very well structured over a 5-year period. None of them are longer than 5 years. And then as they come up for renewal, 20% of them on average a year, we are able to consolidate space and move things around to suit our demand and our needs. And then Truworths is obsessed with governance and social responsibility. And I think you're aware of that, and I'll talk a bit about that. First, let me go into Identity. Identity is a very success brand. We started it from scratch for more than 20 years ago. It's cheaper than Truworths. It's not a value business, but it's about 30% or 35% lower priced than Truworths, more casual and younger. So young fashion business. Their average sales for this year will exceed ZAR 2 billion. So it's a digital business. It's over -- in over 100 -- 250 stores, and the average store size is about 280 square meters. We are going to launch a new Identity superstore, megastore, largest store, whatever you want to call it, concept, 550, 600 square meters in 10 stores during this year. The business is doing nicely, and we think it's got potential. And then we haven't got Identity on the digital commerce platform. The whole of Truworths is, but not Identity. That's because we've been upgrading our digital experience into a cloud version. And we -- during the next 3 or 4 months, Identity goes digitally as well. This is a kind of a feel and the theme behind the Identity, what we call in megastore, the 500, 600 square meter store. The second part of that in that slide Identity is Identity Kids. Now Identity Kids was launched just in 2019. We're now 1 year and 2 months past that point. And it's the 2 to 8 group -- ages group that we launched is already in 84 stores, and it's doing extraordinarily well. We plan to expand the Identity Kids into 170 stores by the end of 2021. And of course, it will be launched, the Identity Kids, obviously, into these large stores as well. There's a few photographs of some of the kids, themes and product that we sell winter and summer in Identity Kids. The next new very exciting concept is called Fuel. Fuel is a young, progressive, edgy speedway casual brand. It's going to be very exciting. It's very deep and narrow the range, and the logo is extremely strong and distinct. It's visible on all garments. It's going to have us very, very active and dynamic social media presence. And it's going to be a cool, young, energetic street brand. We are launching in the trial phase, as we call it, 20 stores at about 100 square meters each in the next few months. And that's how we always do it. We start with small stores. If and when they work well, obviously, we expand the number of stores and we make them better. In some instances, quite often, we've been able to locate Fuel in physical blocks of space that we own in our group where we felt that the store could be made smaller and we could put Fuel into it with a completely separate entrance, separate window, separate everything, but we could use this space more productively. So that's been also very productive experience. And then this is going to be even more than our 45% average local production because it's going to be a strong local orientated brand. And that's what it looks like. And that's the kind of theming image of it. That's a picture of the store. So more photographs of the store. This is all part of the presentation. So I apologize for going through it quickly, but it's just to give you a sense of it. The next third area is us entering into the value space. Yes. Much to your glee, some of you, we are entering the value space. But perhaps some of you will be disappointed. It won't be at a lower margin. We -- as I've told you, we are an aspirational business, and we prefer higher margin. That is our philosophy. So that's what we do. This business is our own Primark, which is a brand we own in South Africa. It's going to be young, fashionable, commercial and aspirational. But yes, it is in the value space. We have our own way of doing that, which we will do in our own unique way. It's good quality, not anywhere near Identity and Truworths, but it's still acceptable quality at great value and highly, highly competitive prices, and yet we have found our own way to maintain reasonable margins. And that's going to be an independent stand-alone business. We are launching 15 stores in the next 3 or 4 months. Again, it's a trial phase. We will only make the store small, of about 100 square meters each. And similarly to Fuel, we have managed to locate them sometimes into space that we had spare in one or other of our businesses. So the rental, of course, is a very productive issue. And we'll see how those 2 concepts do. This is a sort of feel of the Primark brand. And there's some of the prices and some of the comments. And then this is a kind of a sense of what inspired us to do the store. Obviously, they're still small, so that's just the theme. And these are initial drawings. It hasn't been finalized yet because we're only launching the stores in April. The next strategic focus has been a kids superstore in our Truworths Emporium. Kids is doing remarkably well. It's a really good part of our business. We've got LTD, and we've got Naartjie, Earthchild. Those stores do well. We're launching some new themes. LTD Newborn, kidswear jewelry, Kids swimwear. We're making a nice kids superstore format. They're going to be in about 10 or 15 stores during 2021. Two of them have already been built and operating, and they look like this. We will start introducing in that kids superstore a business called Loads for KiDS. Now you know we own Loads of Living, so Loads for KiDS is kids lemon. That's going to go into the kids store. But of course, we'll also put it in the Loads store because it makes sense. And Loads for KiDS will also be on the e-commerce site. At first, it's going into 50 stores for Loads for KiDS, and then we'll see how it goes. If it goes well, we'll, of course, expand it. There's some theme photographs that I can show you. And then our next big one, of course, is our omnichannel experience and especially our digital one. And then, of course, as many other retailers have experienced, we had phenomenal growth in the last period of 153%. But again, it's from a small base, and it's only 2.2% at this stage of the sales of the product that is available online. We don't yet have Identity, cellular, a few other things on it, but we'll put that all in the next few months. And it's delivering very high margins in e-commerce in line with our business. And actually, it's really cost-efficient the way we're doing it. We're going to use the latest technique. So our visual experience is as good as we can imagine, and we work together with Office very collaboratively, and they are experts at this. We've got these new initiatives. I've mentioned them already. And there's an enormous amount of in-store, customer-facing digital work going on at the moment. I'm not going to talk through the governance slide because I think we are known for our governance. We have been ranked in the top 10 in the Ernst & Young Excellence in Integrated Report Award for the 13th consecutive year. Only 2 companies are in that, esteemed group as in Sasol. So we're very proud of that, and that talks to our transparency. We're working strongly on environmental and social matters, and we are making good progress there. When it comes to Office, Office turnaround strategy is focused on 2 issues. The team there has been [indiscernible]. One, it's obvious, and by far, the biggest issue. It overwhelms everything. That's the Office store footprint. We are making some inroads. We wish we could do so faster because there are 30, 40-or-so stores that we have, which we don't need, would make an enormous difference to the sustainability. And as I've said, long-term sustainability is always what we think about first, ahead of market share, ahead of everything else. Well, long-term sustainability of Office is strongly influenced by our 40-or-so stores that we don't really need, and where we're paying too much rental. And of course, we will continue to build probably one of the most powerful omnichannel digital businesses, certainly in the U.K., probably in the world. The Office experience digitally of the sneaker business in Office and Offspring is recognized, all the big brands, as a remarkable experience. And I suggest, if you want to go through it yourselves, you can access to the Offspring and office U.K. shoe experience, and you'll find it very interesting. It's well in excess of 50% of total business now. And then the other big strategy is to reinvigorate the MTO. That's the made to order, the own shoes, the ones that have got our own brand in Office. That has been declining for 5 years and unnecessarily. So it's a higher-margin business, much higher than the sneaker business. And so the brands themselves want us to be good at that. They want us to attract the young female fashionable customer into Office with a range of sneakers and brands in our own MTO range. And so we are doing a lot of work there, and that essentially means that the Truworths team under Sarah and the buying team is playing a much more influential role in working together with the Office buyers on the MTO range, and we are hoping to make great inroads in the next 12 months. Financially, I know most of you are extremely competent reading the numbers, so I'm not going to dwell on those. But as you know, it's been a tough period. Our sales were down 9% in the group, and that followed all the way through throughout dividends per share, also dropping by 7% and our cash generated from operations dropped by 12%. If you look at some of the graphics, you'll see that our return on equity and return on capital have grown significantly. That, of course, was influenced by the impairment. And then our return on assets and asset turnover also grow significantly. But at least partially, it is also as a result of exceptionally good debtors and stock turn, which we are managing to achieve in Truworths, the debtors and stock and then Office's stock. As usual, our group is in a very strong liquidity position. We have cash and net cash equivalents on hand, less interest-bearing debt of about ZAR 1.6 billion or so. Notice, by the way, the 13% decline in stock levels, and that's both in Office and in Truworths, which is a key part of our cash-generative ability together with our better management. And then that speaks to our share buyback, and we've retained our dividend policy. The share buyback, as I said, we spent ZAR 352 million in this period, another couple of million, I think ZAR 80 million, which is the post period. So we bought back 12.3 million shares. And that's part of our lives. We will continue to buy into the shares, but we'll buy more aggressively into weakness when the sentiment goes against us because we've got the cash to do it, and we are completely committed and believe in our business philosophy and our company. That shows a little bit more about our cash-generative ability. The net cash increase for the period of ZAR 700 million. You should add back the ZAR 352 million that we spent on share purchase, and then we repaid borrowings of ZAR 900 million. So we are essentially debt-free. And that is our cash realization rate. It has been 100% or above since 2016. If we focus only on Fuels, well then, you can see there that we had a -- sales down 7%, yes. Our gross margin declined a little bit, which is unusual for us. Our gross margin, normally is around 55.5% or so, dropped to 54.7%. That's basically because we had quite a tough November. Black Friday was weaker than we hoped. December wasn't bad, but it wasn't good enough to make up for November. And so we couldn't manage the stock in the way we normally are able to. And then the January sale wasn't as good as we normally are experiencing. So in order to clean up our stock, which is a biblical necessity in our business, we always do it, we needed to take more markdowns. So that dropped our margin to 54.7%. But for those of you who prefer lower-margin businesses, I can assure you, we are aiming to get that product back to 55.5% because that is our strategy. And then the rest, I think, is self-explanatory. The inventory term is 5x. The active accounts has now decreased to 6%. It was worse before post COVID. In fact, it's improving monthly. That shows some of the data you've already been spoken to. You could see our operating profit, our EBITDA margin and operating margin, although declining a bit, they all are in -- high by international standards. And that shows the toughness of the COVID experience and, in fact, the tough economy over the last 5 years where units have not been growing. They grew in December '18 by 2%. In December '19, they didn't grow, and they shrunk this year. So that is a challenge. When it comes to product prices, Truworths, without dropping quality, without tempering in any way with our aspirational branding and experience, we have found ways to manage our inflation in our product. Since 2017, we've hardly had any inflation in our product. That comes through cleverer and more systematic buying and various tactics we've done to do that. And that shows -- if you look at this slide, it shows you that, basically, the departments all had a tough time due to COVID over the last 6 months, except Kids. Even though it had a tough time, it still grew by 6%, which is phenomenal in that time. And then YDE battles. YDE, of course, would battle. If you think about it, it sells glamor, smart product. So that's its main raise on debtors. So of course, it battled. It's part of Truworths' battles for the same reason. We have a lot of glamor product, smarter product, shoes, bags, clothing and all that. Of course, we channel it and we modify it and we change it, but that has had an impact on our business. I've told you quite a lot about the real estate. In Truworths, we managed to close 26 stores in the last 6 months, and yet our space hasn't changed much. And that's because of what I spoke about before, which is really consolidation. When it comes to out of Africa -- out of South Africa, should I say, there's not much change there. It's kind of [indiscernible] if you look at it. Some countries did well. There's a partially because of currency. But Africa is still small in our business. It's ZAR 250 million. I'm not expecting major significant upside there, but we're very happy with the current store portfolio. It does nicely as well, and it makes good profits. We're very pleased with our expense control. I think you're used to that from us. We manage our expenses very tightly. The new IFRS regulations, 9 and 16, have been properly applied and they are included in our numbers. Our occupancy costs, I've mentioned the fact that occupancy costs remains rent reversions of 18% [indiscernible]. Trade receivable has been a big number in our lives this year, and it's been a big change this year because net bad debt did increase a lot as we told you it would in June because of COVID, but not as much as we thought. That's, I think, the big lesson. And then our provision, which we -- which our systems drove at the end of June, turns out we didn't need as much as the provision said we would need. So the bad debt is lower. And the provision now has dropped to 24%. I stress again, for those of you who are not familiar with our methodology, that is driven by systems written by international experts. And of course, at year-end, those numbers are audited because they're critical in our lives. So that is a very accurate reflection of our view at a point in time. And then there were some big changes in the foreign exchange mark-to-market at period end. Our capital expenditure was significantly lower than expected in store innovation, but that's just a timing thing, we'll catch up soon. And those are the Truworths cash flows. And they're very similar to the group for various reasons because Truworths is such a big part of the group. Looking at Office. Office sales dropped by 25%, and you can imagine with all the lockdown why that happened. Online sales contribution was 59% and from last year's 34%. So at least part, that's because the stores are closed. But it's also because there's a revolution going on with online sales, digital in the U.K. Our trading profit was still GBP 5 million, although it was 60% down. And our EBITDA was GBP 11 million, but it was 50% down. Our profits were GBP 3 million. The business generated, however, GBP 13.7 million cash. So if you look at EBITDA in Office, excluding the impact of right-of-use assets of GBP 8 million with the impairment, the EBITDA decreased by 22% from GBP 24 million to GBP 19 million. The current period performance was supported by a number of factors, which was the release of the stock provision of GBP 1.9 million, but that's obvious why we would do that. That's because our stock is so much cleaner, we've dropped our stock. I think it is about over GBP 50 million to about GBP 35 million over the last 19 months. And so the provision is being released because this [indiscernible] is aging stock there. And then there's lower employment costs because of the furlough scheme. And there's also been the U.K. rates holiday relief, and that is GBP 4.5 million. So all of that made a big difference. Office now has 113 stores from the 132 because 25 have been closed. And as I said, if we wanted to rightsize it, it would be at least 30, 40 more stores that we would close. Office, however, other than that, has managed its many expenses really well, and you can go through the detail in your own time. And relating to capital expenditures, similarly, Office, we've been very careful with capital expenditure. However, we are increasing our investment in computer, infrastructure and software during the coming financial year or the current one we're in. That, of course, shows the Office, the cash-generative history and its experience in this year. And it again mentions the GBP 13.7 million I've spoken to you about. Looking at the credit side of our business, it's been better than expected. That's the overall picture. It's worked its way through the portfolio, the impact of the lockdown. And so by February, it will all be through because that's how it works on our system about 8-9 months later. What's interesting, of course, it's not just us, the TransUnion South African Consumer Credit Index has increased to 58, which, as I understand, it is the best it's been in 10 years, meaning that the credit markets in South Africa as measured by TransUnion is at a very, very healthy level, which, of course, we're very pleased about. Our credit metrics are generally much improved. The provisions are trending downwards. Our skip payment, which we did for the duration of -- for lock down our stores. We said to customers always shop in stores and they pay in stores, we said we'll skip payment. We were very careful how we did that and we allowed to skip payment and how we sort of dealt with it. And it's been more profitable than the control group where we didn't skip payment. In our good-to-bad ratio and all of the other benchmarks against the competitive landscape, our book is looking very good. And in our loyalty base, this is our credit customers plus our noncredit customers who have actually transacted with us intentionally as loyalty members. In other words, they have identified themselves as loyalty members, and they've signed up to a loyalty program. It now stands at 13 million customers, 12.8 million. So you can imagine the benefit of that. And then our good -- our lay-by performance has done well. And so everything is going quite nicely on the book side. This shows the TransUnion index. And there it says, it's the highest index reading in 10 years. And that's primarily because it's steep rate cuts from earlier in the year, recovering incomes and jobs as the economy opened up. And I think there's a lot of people who managed to keep their jobs in South Africa despite the economic problems. That shows you the account payment, where, in April, we had the lockdown and you saw how people used other channels other than our stores. They had no choice, the stores were closed. And yet, it straight soon afterwards and from then on has gone back to normal. The trend didn't change. And this credit book quality simply shows that our raw book quality is better than last year. In other words, it's improved in -- since May '20 when it roughly was as big May, June. It's got better each month. This slide refers to the number of applicants to opened new accounts with us between July and December. This does not mean they were successful, it means they wanted to open. And as you can see in the last 2 years, it's been at a peak of just under 2 million customers. It used to hover around 1.5 million, 1 million, 1.2 million, and the last 2 years has been phenomenal. Unfortunately, of course, many of them don't qualify. There -- only 1 in 4 gets risk approved, meaning when we score them on our score cards and systems, only 1 in 4 qualify. And then again, unfortunately, many of them don't actually take the next step and come in and open and transact. So the number of accounts that we have applicants for is -- influences the final number of opened, but it's a long journey. But you might be interested to know that almost half of the new account applicants, that 2 million, is under 30 years old. And in fact, 1/4 of them are under 24, 24 and below. There's another way we measure the health of the book, which is what you call the good-to-bad balance ratio. You obviously want more good and not bad. And you can see there that we are looking quite good since May. And you know why, that was when the lockdown -- the full lockdown in South Africa ended. And it's improving better than the industry at this stage. It's another way of looking at that. And when we look at our data and our statistics, we are pleased to say that active account holders who are allowed to shop because they're not in arrear is back to a 85% level. It dropped to the lowest point in the end of June in this upper 70s. All the other stuff we do on bad debt, we use the same criteria, the same customers, the same everything else. I've already spoken to you about the loyalty membership. And so when we look at the outlook, looking at Truworths. Despite the macro challenges, which we all know a lot about, both in South Africa and the world, Truworths remains highly stable and stable -- sustainable for the long term, which is what our business philosophy says we are called to do, with robust cash flow and a very strong balance sheet. And our retail sales did decrease over the past period by 7%. But we do expect, if you look into the future -- we are fighting a month in April where there was no sales and May and June with tough months as well as July and August as people slowly start to try and get back to normal, although they're not at that point by any means. Especially in South Africa, we still don't have a vaccine program going. So of course, South Africa still has its challenges, but the base is lower from now. And when it comes to Office, really, it's all about the real estate. We've made great progress on stock management. We've closed some stores, which has been a good thing. We've more or less completed our head office redundancy program. The costs and capital expenditure, well under control. We've got a big initiative, as I mentioned, in the MTO own brand. And so that should be positive. And again, they're also facing a lower base, and their vaccine program, as you all know, is far more advanced. So thank you, everybody, for that. I will now try and address some questions with the support of my colleagues. Just be a minute while we get the questions. Apologies for that. Let me go through the questions.

Can you quantify the benefits to profits in H1 from government support rent relief in the U.K. and at the group level? I've tried my best to do that in the presentation. I'm prepared to ask Reon if he's got anything to add that I have left out. But I suspect that's not the case. And of course, we can't give you more information and I've just given you. But Reon, would you like to add anything to that?

Michael, thank you. I think you've covered it well in the presentation. The business rates relief was about GBP 4.5 million, and the further benefits was at GBP 3.9 million in the period.

Thank you, Reon. The next question I've got is, can you give an update on the likely move in provisions for bad debt for the full year? Well, that's the million-dollar question. If carries on in the next 6 months as it has the last few months, then the 24% provision as predicted by our systems in June -- of course, we do it every month. We run the Markov model and we relook at it each month. But if it carries on like it is, I expect it to improve. So it will. But really, I'm not in a position to say because so much depends on circumstances, economy, lockdown or not, how we go with the vaccine when we start rolling it out here, the mental state of people, all that stuff. So I'm hoping, yes, that the provision will get lower and that our bad debt will be -- continue to improve. What will the opening price points be for Primark? And how much of a customer overlap with Identity do you anticipate? Will this not lead to cannibalization? I think that, by the way, is an excellent question because whoever is writing that question, I mean, I do know who it is, but I won't say, but thank you for that excellent question. Just to summarize again, we've got Truworths as the premium aspirational side, but still catering from a mainstream South African customer, but aspirational, we feel we're almost on our own nowadays. We're really proud of that. Then Identity, 30% cheaper but sort of mid-price. And then now we're trying this Primark in the value space. Sarah, would you like to answer that question?

Thank you, yes. I think the target market that we're obviously appealing to for the Primark brand is intentionally obviously cheaper, but also the fashion direction is slightly different. We're aiming for a narrower range where we can really drive quick response and pricing benefits into that brand. So the handwriting of that range will be different, and we are hoping that there won't be any significant cannibalization of Identity.

Thank you, Sarah. The next question is, what proportion of Office sales is MTO and what are the margins? And where do you think they can grow MTO as a percentage of sales? Look -- sorry, I don't know why, but my video went off there. So where do I think, where do I hope is different. What proportion of sales is MTO? It's very low. I don't even know in my head what the number is. I think it's about 4% or 5%, 6% or something. But it used to be much higher. I think it was around 20% or so. Margins much higher. I'm not going to tell you the margin because that's something we don't disclose. But the margin is significantly higher in our own brand versus the sneaker brands. So the mixture of both is wonderful. If we can get it even up to 15% over the next 2 years, it makes a meaningful difference to your models and, of course, to our business. So thank you for that question. I'm going to ask my team to refresh these questions, but I'll refer to some others now. Why is the gross profit margin affected by any inventory provisions during the period? I'm going to try and answer that myself, and I'll ask Reon to support me if he needs to and/or David. Yes, in Office, we've disclosed that the stock dropped so much that the aged stock was able to be -- the provision was able to be released. But the interesting thing, the percentage of provision to stock is actually a little higher than it was before because we didn't release the same proportion of provisions. So there's an element of conservatism put in there. When it comes to Truworths, the inventory provision in Truworths works a bit like this. We provide for fabric that's not used. That's 100%. When it comes to finished good product, we are absolutely 100% clear on what our terminal stock value has got to be at a point in time 1 or 2 months after the period end. And then when we do that, when we are clear on that, then we ensure our provision is adequate to accommodate that. So yes, it's always -- our provision always affects our stock every time we value our stock at the end of the period. But nothing unusual happened in Truworths this year. The provision was a little higher because January sale wasn't as good, which, of course, then did affect the gross margin. Essentially, the January sale, if it does better, the provision is slightly lower than the rest. Reon, do you want to add anything there or David for that matter?

No, Michael, I think that's [indiscernible].