Truworths International Limited (TRU) Earnings Call Transcript & Summary

Good afternoon, everybody. Welcome to the Truworths International results presentation. It is going to follow the newly established format of virtual presentation, as you know, it's a bit weird because if I had imagined in August 2020, that in August '21, we'd still be sitting here in a virtual world, I would never have predicted that. So here we sit, hoping that August 2022, we can get back to some semblance of normality. But anyway, I suppose we've all got experienced and used to this new way of working. I want to introduce my colleagues to you who are also on this presentation, and who will be assisting me. There are a number of them. Firstly, there is Sarah Proudfoot, who's our Deputy Managing Director. And then there's Emanuel or Manny as we call him, Cristaudo, who's our newly appointed -- "new" because he worked for Truworths for a long time until about 7 years ago. Manny is our CFO. And then there's Reon Smit, who's our Divisional Director of Finance. So together, we will, somehow, deal with your questions and the presentation. Once I mention the questions though, let me say to you, if you want to send questions during the presentation, you are welcome to do so with pleasure. And in fact, it would be quite convenient, if you will. However, of course, I'll only address those at the end of the presentation. I will try my best to complete the presentation together with my colleagues in about 35 or 40 minutes if we can, and I hope we are able to. And then allow for about 20 minutes for interaction with you. But if that's unsuccessful or you don't have enough interaction then you're very welcome to send e-mails to our desk, and we will respond to you as speedily as we can with any clarification questions you may have. The presentation is already on the web, so you can follow at your will and you can look at it in your own time. So I'm going to go quite quickly if you don't mind through the numbers because I'm very aware of the fact that all of you are analysts and you understand the numbers very well. We'll just focus on clarification. The macro environment, you all know well in South Africa, the unemployment problems, electricity supply. I don't have to go into it. It hasn't been the most, let's say, relaxing, enjoyable, economic and macro environment in our history and the same in the U.K. That's the current historical environment. We have a different perspective, perhaps, if you look into the future. When you look at this presentation and everything we do, and I understand that I repeat this pretty often when I present to you and when we talk about it, we do that because we want to remind you that we are continuously looking at our business philosophy. I mean it is so embedded in our way of working and thinking that even if you see it every 6 months, and then we remind you of it, believe me, we look at it every day and act it and think it. And it's important for you to bear that in mind when you are considering your investment in our business. We run it very, very clearly based on this business philosophy. We debate it all the time and it is inherent in our thinking and our behavior, and it preempts and carries more weight than more or less anything else that we think of or do and it is fully and perfectly supported by top management. And in that sense, I'm talking about executives throughout the business as well as in office as well as the main board. We discuss it very, very frequently at the main board. I'll just remind you again what it says, it says, we are always guided by our business philosophy, whatever the circumstances. And we are always focused on the long term in our business. We never think short term. Of course, we react to environment and to circumstances. We do see ourselves facing uncertain series of events that keep on coming our way, whether they are COVID, riots, currency fluctuation, you name it, they happen all the time. That's not the point. The point is that we always follow our business philosophy and deal with what comes our way with the thinking behind our business philosophy. We've made some modifications to it. And the first 1 is, we have emphasized something that is inherent in our thinking any way, and that is we run an aspirational business, aspirational retail, which is bricks-and-mortar and virtual, meaning e-commerce and digital emporiums. We see our business as aspirational. We try and make everything aspirational. Even our new small experimental chain store in the value space, we are using aspiration as our driving mantra behind it. And then our values, I'm not going to go into that other than innovation and passion are the core value of our business when we recruit, when we motivate, when we reward and we think about that all the time. And then we have a vision. Our vision says if we are fulfilling our purpose and if we are living our values, which we often battle to do because it's not easy, we keep on having to reflect on our purpose and our value. Then we conclude, if we were doing it properly, our vision is what our customers, our staff and our shareholders will say about us. And if they don't say that, then we have to go back and reflect on what are we doing wrong in our purpose and our values. For our shareholders, we say that we would like them to say we are long-term investors and not short-term investors in Truworths because we trust in the capacity of the team and management to execute innovative strategies to deal with the circumstances as and when they arise and which deliver significant value over time. Again, long-term building blocks is our philosophy. So when COVID hit us, it is another event. I admit it's one of the most extreme we've had. Although you have to bear in mind in South Africa we have faced years and years of isolation, apartheid currency fluctuations. So whilst COVID was very unusual, and it's never happened before, please God it will ever happen again, it wasn't the only major catastrophic event or major challenge we've faced in our history. So of course, as usual, when it hit, we had to form a view what are we going to do. Every business in the country would have done the same thing. We could respond by changing our strategy and developing new tactics, which we were under a lot of pressure to do by some shareholders and by others, or we could do what we always tend to do is to focus and reexamine our business philosophy and say, well, given what our business philosophy says about how we think and [ say ], are there any opportunities in the situation? And then, of course, you have to always, when you're in retailing, you've got to respond by minute by day, modify our tactics to deal with whatever we faced with from every minute of the day change and COVID was a big one. But they've always aligned into our business philosophy. And so during COVID, we managed through, and it was all done intentionally and by design, we managed to optimize our balance sheet. We intentionally, of course, impaired the assets. When I say intentionally, I mean, you don't have a choice if the value is the value, but we took a conservative perspective on the future of the assets, especially Office because of the risks perceived in that business at the time and some smaller ones elsewhere. We saw the sentiment went against all companies, but particularly ours. So given the amazing cash flow and strong balance sheet we have, we thought it's a great opportunity to accelerate our share buyback program. So we were aggressive right from the beginning. We went quite aggressively thinking about new marketing channels, launching new brands. Sarah will tell you about that later on. We applied consistent credit management strategies. We did not panic or take -- or overreact or think "God why are we in credit, what a terrible thing to be ". In fact, we -- our philosophy says we're proud and happy that we are in credit. We think that is one of our biggest strengths despite what some think. We -- to us, we are absolutely convinced and Manny will talk a lot about that later. Manny is an expert in credit. Then we open -- we decided to open new accounts and grow market share. We knew others might take a different view and we thought that's an opportunity. We didn't particularly go more aggressively, but we certainly didn't change our tactic. And in fact, in some months, we were opening 75% of new accounts available in the marketplace. We were -- we really had a windfall during that short period when others took a different view. We renegotiated store leases where we could, as everyone else is doing, and that really means the market rate of leases declined and so if you had a lease coming up for renewal, there was an opportunity to renegotiate that. And landlords were accommodating. They also were realistic. They also have their challenges. Innovate with new concepts throughout the business, improve our digital offering, and we'll see more about that. And our normal obsession, which is besides manage expenses and cash tightly, manage debt [ quite tightly ]. And of course, most critically, manage our stock so we don't get into trouble. We did all of those things. And in fact, every one of those things worked particularly well during this period. So the agenda is, first, I'll go through the financial accounts of the group. Very speedily return on equity. And in fact, all the performance metrics exceeded our -- within the range or in fact, exceeded the upper point of the range, to some degree, assisted by the impairment and the reduction in the value of our equity and assets, but reflecting great productivity in the inventory turn, in the asset turnover generally. But all the metrics are particularly good. And the gross margins right in the middle there, Truworths' gross margin declined slightly. I'll tell you about that in a minute. Group gross margin, operating margin, 18.5%, diluted HEPS up 26%. You know all the numbers because you saw them yesterday, so I won't go into that very much. Looking at pre and post-COVID, you can see that the practical illustration of our return on equity, return on capital. Return on capital at 50% is admittedly influenced by the impairment. But nevertheless, the highest point ever and a return on assets which is one of our primary measures in our business is very good. And of course, our asset turn of 1.3 is just about the highest ever. Looking again, our cash position is very strong. Essentially, last year, we were, kind of, square. This year, we've got plenty of cash resources, inventory 13% down in the group and trade and other receivables, only 6% up, very strong balance sheet. You all know that. We bought back 19 million shares at 4.3% of our total shares issued. We spent ZAR 768 million at an average share price of ZAR 39.87, which, of course, was a great windfall for us. Since the inception of the share buyback program, we spent ZAR 4 billion at an average share price of ZAR 35.52. So we were really quite pleased to be able to buy back so many shares not much higher than the average that we paid since 2002. So that was quite a win for -- remembering that we felt very confident about the business during that time. So we saw it as a great opportunity. Cash flow, cash generation was fantastic. We all know that again. The cash generation of business was ZAR 2.4 billion. We then used it to -- ZAR 1 billion in dividends. We bought back the shares as I've said, ZAR 768 million. We repaid borrowings of ZAR 1.7 billion. And the net result of all that is, at the end of the period, we still have ZAR 577 million in the bank. Of course, we will carry on our share buyback program and buy stronger into weakness, which we always seize an opportunity because we have such incredible faith in the business and the business philosophy. Having a quick look at Truworths. Again, I know you've seen all these numbers. Trading profit, up 37%; operating profit, up 7%. The difference, of course, is the interest received decreased by 33% due to lower interest rates and reduction in the debtors book. Debtors book, of course, given that Truworths Africa is almost 70% on credit, you can imagine how influenced we are by the strength and quality of their debtors book and interest is one of the influencing factors. Our trading margin was up by 13%, operating margin, up 23%. If you look at the divisions across the border it was roughly equal, ladies slightly lower than men's, not too bad, 2% up; men's, 4% up. Kids did nicely, 14% up. All the other things that we do, cosmetics and the Office London, cell phones, all that kind of stuff, they're up 11%. Identity, up 7%. YDE, which is a [ glamor-smart ] business, obviously, in COVID suffered. In fact, 18% down is a surprise. It's actually much better than we would have expected. And you can imagine now that things are recovering, YDE seem much better. And by the way, this is our glamor and smarter product. Looking at the stores, 1% down in the trading space. We closed 27 stores. We opened 26 stores. There is a lot going on with the stores. There's a lot of remodeling, moving brands into the stores and into the real estate. So not only are you seeing a reduction in real estate space, but you're also seeing an improved productivity in the space that we've got. And you're starting to see the benefit of that in the sales density, which has climbed to a nicer figure after the drop last year. We expect that to continue to grow over the next few years. Our gross margin did decline. And it's a low point, I mean, 54.1% compared to our norm is low. The reason for that is during the year, we -- and we're obsessed with stock management, as I told you. So we don't wait until the end of the season to suddenly mark everything down. We mark down and we take promotional activity. We cancel, we do whatever we need to to continue to manage our stock. And so there was more markdown activity during the year than normal. I envisage that in the next 12 months, that should reverse back to norm. I say that because I've already seen in the first 2 months of this financial year that our markdown activity is lower than the year before because our stock is cleaner. Our trade receivable costs were the star of the show. As you might recall, there was a lot of negative sentiment, and our own scorecards conservatively predicted a bad result due to COVID. It turned out much better. And so our systems are predicting an improving health. And in fact, our book is really performing well at the moment and looking healthier and healthier. Manny will talk a lot to you about that in a few minutes. Our book is looking particularly good. And you can imagine there is always that lag between health of book and sales that follow. And at the moment, our book is looking particularly healthy, and we're quite pleased. In fact, the value of the book is influenced by the delinquency being high. And then the asset delinquency gets written off. You will find that our book -- healthy book starts to grow very well. So we're very pleased with our book, and that augurs well for the future. I'm not going to go much into this. You can see Reon and his team have taken up the unusual factors, and they've given you a better picture of what has happened to our expenses. If you look at occupancy costs, there is a number at the bottom of the slide, showing that if you exclude non-comparables, then occupancy costs increased by 2%. Remember, we have a 5-year normal lease period. So that means 20% or so of our leases are coming up for renewal each year. That means 80% are not. They all have inflation clauses in them and escalation clauses. So you will always get 80% of your lease portfolio growing by a couple of percent, 4, 5 or 6, whatever it is. And the new leases, we can renegotiate depending on [ market ] forces at the time. Trade receivable costs, I don't need to go much more into that. Net bad debt increased by 8%. The big change was the doubtful debt provision, which is looking so healthy into the future. And we do this thing when we look at what the cost of credit is, interest and salaries of the staff and all that stuff and the revenue being interest generation. Of course, most of the revenue we make is on the sale of product at a higher-margin of 55% after markdown. So you can imagine, we prefer to sell goods even if we carry the bad debt, it makes a big difference, and it is all the difference. And -- but we still like to see how much we are investing or losing in the debit and credit. And this year, we were down by ZAR 79 million, and others, the cost of the credit was ZAR 900 million and the revenue from the notional interest ZAR 823 million. Some years we've broken square, made a bit of money. More often than not we've lost about $100 million, $150 million. So this one wasn't a bad one. Last year was unusually higher at $600 million. Operating profit shows you the trend over time, and the EBITDA margin mainly impacted by COVID and IFRS 16. You can see the numbers are still high by anybody's standard. 31% EBITDA margin; operating margin, 23% are high by most world standards -- most retail standards. The store innovation took a bit of a backseat, unfortunately, due to COVID. We had to slow down. It was difficult to do some renovations. But next year, we'll catch up, and we expect to spend about ZAR 240 million next year. We haven't got anything in there for our new warehouse. We're still contemplating a new DC. If we do that, these numbers will change a bit. We'll probably spend ZAR 60 million to ZAR 70 million in the first year, if it happens to be this year, and a couple hundred million next 3 years or so, each year. But this is pretty much normal. Cash flow of Truworths. I won't go into the detail, but it's very cash generative, ZAR 2 billion cash. And after buying back shares and borrowings repayment, we still had net cash at the period end of ZAR 480 million. So I think you all know that. Office really performed so well. We -- I mean, when you think about the U.K., how difficult it was in the U.K., I mean, they had a really tough time in the U.K. So much was closed, so many lockdown, so many problems. Besides Brexit went into the background, it seemed to be irrelevant almost with all the COVID problems they had. And yet, I mean, there was a lot of government support, which really made a difference, as you'll see, and the business came up really nicely. I mean, we were so pleased, impressed and surprised by how well it did. Retail sales are down. Of course, they're down. A lot of stores were closed. When I say closed, closed for COVID and we closed stores. But we were reaching and sometimes beating targets. On-line sales, 63% world standard for a retailer from 44% the year before. It will probably settle around 50% in future. Trading profit moved from minus ZAR 10 million to plus ZAR 9 million. A lot of that was influenced by all the support from government. And profit before tax, ZAR 40 million negative, up to ZAR 5.8 million positive. So Office benefited from government, but bear in mind, yes, it benefited, but it was facing an avalanche of challenges and problems. So it benefited because it was government support, but it still did remarkably well. And interestingly, gross margin, 41.5% up from 37.8% -- 38.7%. So it's really -- I can turn the corner. The EBITDA, you will see there. We've tried to make a profit bridge because it's a bit confusing looking at the Office numbers because of so many changes that happened between and after and during the last year. It's been a really strange year. And you'll see -- so there's the minus 10% and it ends at the end June '21 with a plus 9%. That shows you the changes. Gross profit loss was because of lower sales and I told you why we had lower sales. Of course, we need -- we would lower depreciation during -- because of the impairment on the prior year, lower impairment costs, government support, and we also had a redundancy program. There was a Rights Holiday, et cetera, et cetera. That explains it all. And then net result of it -- sorry, let me first say, geographic sales, mainly U.K. is the -- most of our sales in the U.K. There's some in Germany. And Ireland. But as you can see, that's relatively small. I'm just wanting to see there's a cash business at present. I don't think we have yet. Then there is a slide that we don't seem to have here, which shows that we grew our profits in office by a few percent. In other words, we took like-for-like, you can work it out from the change or below that I showed you here. Let me, I'm jumping around, but if you look at the bridge, our profit growth in Office between the 2 years, if you try and take all of it up, it was about 8% or 9% or 10%. And under those circumstances of Office, we think that's really good. Cash flow, Office really generated great cash flow, paid back loans and have a net cash at the end of the period of GBP 4.9 million. I'm going to hand over to Manny now, who will take you through the account management slides.

Hi, good afternoon. I've been here for 2 months, been back after 7 years of absence. And I must say it's amazing to be back. It's such a professionally run business. But [ so ], I'm just going to run through some slides on the book, which, of course, is a very, very important part of our sales growth and of Truworths with close on 70% of the sales on the book. But we'll start off with this slide. So this is essentially from TransUnion, one of the credit bureaus that we have in the country. I think many of you might have seen this before, but it shows the macro picture in terms of credit extension in South Africa. And anything above the 50 point mark on the graph is improving credit health and anything below that is deteriorating credit health. And essentially, they calculate that by using the 3 different factors. They look at distressed borrowing and defaults, they look at household cash flow and they look at debt servicing cost, and there's a weighting factor applied to them. But what's pleasing to see now for a while is that we're above the 50 mark, which is improving credit health. And what I think is also very interesting is that, if you look at the Q2 results at the moment and you compare those to 2019 -- sorry, to 2009, 2010, very similar levels. And in 2009 and 2010, we had a really good run with the credit book and of credit sales. This also looks at -- it can be counterintuitive in a way because you feel that there's a number of people that are distressed in terms of their financial position in South Africa. But I think when one thinks about it, with the reduced credit extension, with very low interest rates, which assist with car payments and with household and bond payments, there are many South Africans that if you hadn't been financially affected by COVID through either, you lost a job or you're supporting a family member that might have lost a job, you're actually, in a weird way, in a better position financially now than you were prior to COVID. And that's really because of the lower interest rates. You can't go out to restaurants as much as you could before, couldn't -- you can't travel as much and so on. So this is a very good sign for us. It's a leading indicator of what's going to come. So as Michael mentioned, we're guided by our business philosophy. We applied our tried and tested strategies. We pulled back slightly in terms of affordability. So we just adjusted risks slightly, but it's likely we would have done that anyway if we'd seen the portfolio behave as it did. And so we had very strong improvement in market share. We had very strong performance, I should say, and we gained market share with new accounts, with active accounts and with credit sales. We had a record number of new account applications, and so up 10% from last year, but actually up 38% from 2019. So certainly, there's a lot that -- there's many, many consumers in this country who look to Truworths as an aspirational brand and who want to open an account. 3.7 million account applications in a year is a lot of applications. It's well over 300,000 a month. If you look at the actual good/bad odds, so this is the way we measure it. So if it goes up, it's improving. If it goes down, it's deteriorating. It's the number of goods to the number of bads. So we have a normal cyclical downturn just after April, that happens every year. It's just a factor of our book. But if you look at this, our good/bad odds are far better than they were last -- this time last year. And they are very similar to 2019 and they are better than 2018 and 2017. So really good/bad odd performance and returning to historical norms. We also look at 4-plus account balances. And if you look at this, there's -- we compare ourselves to the industry. So that hump that you see around about June '20, September '20 is when we got worse. And if you look at the industry, they took the pain a little later than us, perhaps had slightly different debt forgiveness policies in place. So maybe payment holidays were further extended than what we did. But it's really good to see that we are back in line with historical norms. And in fact, our total 4-plus balances are very similar to 2019 and 2018, and they actually -- they're better than 2020 and 2017. So really good performance on the 4-plus cycle balances. This is a slide that we always publish. So you'll see book -- the number of accounts -- active accounts is pretty much the same as it was last year. Trade receivables is slightly down. What's important here is that the qualifying payment, we kept at 90%, and that's one of the highest in the industry. What's also very key is that the number of accounts that can purchase at period end, 82% versus 77%. So the book is really getting ready to take advantage of sales going forward. And then the overdue percentage of gross trade receivables is sitting at 15% versus last year's 20%. So the book was essentially constrained in the pandemic -- at the beginning of the pandemic. But it's really looking healthy at the moment, it's set up for growth, and we've seen a book that looks similar to this in the past, where it's -- we've had very good sales in subsequent years. This shows you -- I was mentioning the number of applications. So you can see that growth. That's the pink graph over there. Risk approved is down slightly and open percentage is down slightly. So we're opening 15% of who comes to us. It's partly to do with the -- a slightly more -- a slight pullback, I suppose, in our risk profiling, essentially in our affordability calculations, but it's also to do with channel mix. We've opened up a number of different and new channels to attract new accounts. This slide here is always interesting for me. So it really shows the youth of the applicant that comes to Truworths. So one out of every 4 essentially is under 24 years old, and almost 50% are under 30 years old. So certainly, a youthful younger brand that attracts a demographic that is young. To say 26% under 24, there's some really, really young customers that are trying to come to us and open an account. Of course, not all of them can. And so we have other options for them, and we can go through this. I think there's a slide on a couple of the other options that we can go through, talk about a little later. I'd like to hand over to Sarah now, please, and she'll talk about aspirational positioning.

Thank you. Good afternoon, everybody. So linking onto the business philosophy theme that Michael has raised from the very beginning, it's been critical for us over this period to really maintain a clear focus on our position as the aspirational better-end mainstream retailer in South Africa. And we've tried to reinforce and build on this across all customer touch points from stores and through the digital and omni-channel experience. We've also noticed the shift in the market towards lower-priced and more casual product. And we believe that this really opens up an opportunity for us in terms of the differentiation of the Truworths mix. So as many of you will know, our product covers many, many lifestyles across men's, ladies and kids wear. And all of the brands within our emporiums are exclusive to Truworths, which is a very unique mix, we believe, in the world. So over this period, in addition to our existing portfolios, we like to always refresh and look for new opportunities. So we've been able to launch 3 new product brands and product types over this period. The first one being Fuel. Fuel is a young masculine fashion brand. It's got a street-wear edge. It's targeted at a young cool guy, younger than our current men's brands, and it's got an urban and slightly more aggressive esthetic. Then there's Loads for Kids. This offering bridges between our Loads of Living home-wear concept and the strength of our Kids brands, Earthchild, Naartjie and LTD Kids. And we've created a range of kids wear bedding and decor accessories, which we will house in both the kids emporiums and in our Loads of Living stores, which we think brings in a nice youthful element. And then the last one, Primark, which is our new value orientated brand, and that launched towards the end of April, so towards the end of the quarter and is in -- still in experimental phase, but we're very happy with the way that brand is progressing, and it's something that we will look to focus on in the future. And now I'd like to take you quickly through some visuals. We'll go through very quickly. But this gives you a glance at what we're talking about, the Loads of Kids. We see bedding and accessories, all designed in-house, in line with our existing aspirational kids brands. And then moving on to Fuel. This gives you a great feeling of the brand and its identity. And then moving on to the next one, just a sense of the store environment that we've created, very energetic, youthful, but interestingly, still, we believe, aspirational and in line with the Truworths offering as a whole. Then Primark. These are images from our summer campaign, very young. We've tried, again, to maintain an aspirational look and feel for this brand despite the fact that the price points are materially lower than our existing brands. These are the stores. You see price call-outs being more important than you might notice in a normal Truworths store environment. So it definitely has a different look and feel, but we're very happy, as I said, with the way this brand is progressing. And then just a little bit around our store strategy, which is an important part of our differentiation. And we really believe that the Truworths emporium concept. In other words, the bringing together of all our brands into a single space, gives us great opportunity to tell a story, to provide to our customers' lifestyle requirements and to really provide a very unique and interesting retail journey, both in the bricks-and-mortar environment and online. So we constantly update our designs for our stores. And in fact, we're working on a very new emporium concept, which we will launch probably towards the end of the next financial period. Truworths stores. Importantly, we always only take best retail positions right in the center of the mall in the fashion courts, and we really find ourselves represented in the top malls across South Africa and also now with Office in the best high streets in the U.K. In this period, we've been focusing on improving profitability by combining new brands into our existing footprint, and this has helped to improve returns, which has been important. And then just moving on, again, to some visuals. So this is the ID superstore, one of our new concepts. This will be launching in the first half of the new financial period. That's a ladies emporium, a men's emporium. And again, a much more aspirational look and feel and a much upgraded Identity concept. And clicking through to the younger customer, the importance of things like Instagramable spaces really brings the omni-channel experience to life and links to the launch of the Identity website, which went live 2 weeks ago. Then moving on, this is the kids megastore concept, a very young and energetic environment that brings together our 3 aspirational brands, LTD Kids, Naartjie and Earthchild. And then in terms of configuring our stores differently, we've taken an opportunity to bring our Loads of Living concepts into the Truworths emporium. And we believe that this has, again, elevated, aspirational feeling of our stores for the customer, and, obviously, very efficient from a space utilization perspective. And a little touch on Office. So Office, when we bought it, we loved it because its positioning was very similar in the U.K. to the Truworths positioning in South Africa. So really, the fashion savvy London goal where we bring her the latest shoes and sneakers from the world's most renowned brands. This combination of MTO, as we call it, or the fashion own designed range and the amazing brand offering, gives Office a unique positioning with the female customer that is very sought after by the brands across the market. And then Offspring, just to touch on that quickly, is the brand within the Office portfolio. It's our high-end fashion sneaker brand, where we get the option to provide amazing, limited edition, most desirable and wanted sneakers to true sneaker-heads. And that Offspring, what we call, community is a one of a kind Instagram community, which the brands, the big brands particularly love because the level of customer engagement that we get on that platform is particularly unique and it's something that we're trying to learn from and implement across the South African brands. And then just to touch on a new concept here for a flagship store design that will be built early in the second half of the next period in London. We haven't decided exactly where, but this gives you an impression of what it's going to look like, really cutting edge, strong brand collaboration and very strong visual merchandising, which enables us to tell a story. We talk about it creating the ultimate shoe wardrobe for her and for him. And now I'm going to hand over to Manny, who's going to take us through e-commerce.

Thanks, Sarah. So e-commerce really -- had really strong performance of e-commerce in the group. I mean, online sales is now 16% of the group, when last year it was 13%, so it's growing at [ 30% ] on the prior period. What's interesting is we have these e-commerce -- dedicated e-commerce teams that work in Truworths and in Office in the U.K., of course, and they collaborate with each other. And so we drive best practice and improvement in that way. And we've got some really good systems in place. The new Office and Offspring websites are recently launched. As Sarah mentioned, we launched the Identity website just a couple of weeks ago. We've put that on a new cloud-based platform, which -- with enhanced functionality. So essentially, that platform is much faster, it's more flexible, and it helps us with, for example, merchandise promotions we can offer vouchers now on that platform and so on. Truworths will be going on there soon. Truworths grew 120% to 127% to ZAR 260 million. So e-commerce is now larger than the top 2 stores combined, and it was 2.5% of sales, up from 1.1%. Very profitable. It's mostly customers collect from store. The sales margin is slightly behind the total business. It looks like the markdown sales really go well online. It helps us to clear the marked down merchandise. And the net margin is comparable to a highly profitable stores. That's greater than 20%. It was really profitable from day 1. As you can imagine, most sessions and transactions are on mobile phone, and 82% of orders were bought on the Truworths account. We've got this -- over 2/3 are click and collect. So essentially, they go into store, delivery is at no charge. They go into store to collect. And then when they're in store, they normally buy additional merchandise, too. Office grew online sales to GBP 121 million. So it's 63% from the 44%. The actual website that we have, the office.co.uk website and offspring are 90% of online sales, 10% really come from affiliates such as Selfridges and Asos. We've got -- essentially, most of the mobile sales on the mobile app increased, and there's a number of enhancements. We're doing a buy-now-pay-later enhancement, for example, on the site and lots of product and launch improvements, good image optimization, lots of additional video content and so on. So there's a lot of activity there on the office side. If you look at Truworths, we have this loyalty program. It's now 13.9 million members, phenomenal, if one can think about that. And in a [ poppy ] world where one can no longer, with other customers' permission, send them digital communication, this is a tremendous asset that we have. We measure Net Promoter Scores. They've all improved. We've had really good lay-by take up. So that's an alternative to credit for non-account customers. If they can't qualify for credit, we've got the lay-by opportunity. And we're looking at -- and we're looking at a couple of other payment options, which are under development. Office, optimizing the location opportunities. So essentially to help in terms of the merchandise pickup. We're looking at same-day delivery and express click and collect and then vastly improved returns process with multiple drop off points. Okay. So I think, Michael, if you can go to the next slide, if you don't mind? Supply chain, I'll hand you back to Sarah.

Thank you. So just to touch on supply chain, it's quite a hot topic at the moment. As we're all aware, there's quite a lot of instability in global shipping and delays still being caused by COVID globally and in many countries of origin. So really maintaining flexibility and agility in this space is key. So we're finding that a wide spread of suppliers across countries of origin has been very useful at this time. Our in-house sourcing department is very large supplier to Truworths, and that gives us a lot of control over countries of origin, and we're trying to use those dynamically and importantly, reevaluating our lead times on a, sort of, almost daily basis at the moment to ensure that we are on top of the latest situation with shipping. And then importantly, alongside that of course, building local capacity, which enables us to drive quick response and fast fashion and have a very dynamic approach to fabric sourcing and stock management, which, of course, supports the quick response and fast fashion model that is so important. Then you're aware, we acquired Barrie Cline, which was our largest ladies design center in April of 2021, and this has completed our portfolio, enabling us to have a large ladies, men's and kids wear in-house design center, which is producing wonderful efficiencies and benefits of economies of scale as one can imagine. In the last year, we have also been on a drive to get much more strategically involved with the key CMT factories, cut, make and trim factories, in South Africa who actually manufacture our product. And we're finding that that is also being very useful in terms of ensuring sustainability and growth within that part of the supply chain, particularly during the challenges that COVID has brought to our country. And then importantly, the government has brought in the fabric rebates on woven fabrics a few months ago, and we feel that this will assist us in growing local production and make local prices more competitive on woven product, which is something we've been motivating for quite some time. I'll hand back to Michael.

So Office turnaround, which is obviously a big topic of conversation, and I'm, sort of, looking through these questions, some of you are asking questions about it. The philosophy of Offices now, can we keep the gross margin at this elevated level? In our opinion, yes, of course, it all depends on the markdowns. I mean the going in margin is pretty static. The variable is markdown. Now we have got control of the stock like never before, that is -- augers well for our ability to manage the margin. So I would estimate and expect that our margin into the future should be where it is and slightly grow each year as we get more and more MTO, which is the own brand higher-margin product to -- as part of the mix. The -- continue optimizing the store footprint. The biggest single issue with Office was the growth, the massive growth in e-commerce at the expense of real estate and the long leases in Offices, the major challenge of Office, and we closed 31 stores, and we continue to close the nonprofitable stores. Of course, when we do the landlords are quite flexible because they also operate as anyone else does in terms of market rates and market forces. So we sometimes are ending up staying in the stores we had planned to close, but at reduced terms or better terms. Continue to grow that amazing omnichannel business of Office. Yes, one of the questions is, do we think one day it will be 100% e-commerce? No. The answer is, we are an omni business, in other words, bricks-and-mortar and omni -- e-commerce. I'm sure it will carry on there. I mean, just out of interest, in order for Office to be a successful business, it will always need brick-and-mortar, but cleverly located brick-and-mortar, primarily in London, and in the big centers. And anyway, e-commerce click-and-collect is better when there are physical bricks-and-mortar stores. So the Office will always have real estate. But hopefully, over the next 5 years, real estate will continuously improve in terms of positioning, but especially in terms of commerciality from a rental point of view. And Sarah has already told you about the new store, which we are quite excited about. We already have a new store in Oxford Street, which has been going for about 1.5 years just before COVID. Doing nicely, a lovely store. The brands love it, very positive. This new one will go even further. And I know we have great support from the largest brands like Nike who are very supportive of our strategy. Enhancing our MTO range. The brands want us to have a good MTO range. It brings that London girl into our store. So yes, we keep on working at it. It is improving. It's got a long way to go. There is a lot of work to do. Truworths and the office team worked collaboratively there. As I say, there's a lot of work to go, but Office, I think, is looking really good into the future, MTO should grow. The business, in our opinion, is positioned now for growth. An amazing relationship with the key brands. It really is quite remarkable. The improved gross margin and [indiscernible], we think, will improve. Many tried and tested Truworths best practices now adopted in Office. And our plans for merchandise planning, warehouse and distribution systems are well underway. And then we have a new Managing Director. I'll tell you about it in a few minutes, Jon Richens, who is a very, very experienced retailer and very aligned with Truworths. We're very happy to have him on board. The corporate social involvement is so critical to every business in the world right now. I can't spend much time on that unfortunately, although it is pretty [indiscernible]. We all -- we [ brand ] all of our projects Truworths involved. We focus on health, education, social development and empowering of women. Those are our philosophical beliefs and our focus. We have investments in a number of charitable trusts, which fund our CSI initiatives. Currently, the value of the trust investment is ZAR 220 million. We ensure that this trust is sustainable by controlling it. We've done many, many hospital projects. I think we've done about 15 large hospitals in poor areas around the country. This is what they look like afterwards. We really put a lot of effort into the, sort of, poor end of the country hospitals. And I think we've made a massive difference over an 11-year period because we do more or less one major hospital a year. This is an eye clinic in Baragwanath -- actually in Lenasia near Johannesburg, where we have collaborated with Orbis. And we -- it's state-of-the-art IA hospital in the services [indiscernible]. There's other things like Reach For A Dream. I don't want to spend too much time on this. We really want to give you the message that we spend enormous effort and time in supporting underprivileged people in and around South Africa. It's a critical part of our lives and in the U.K., and we're going to do more and more of that over the next 5 years. It's a fundamental belief of ours. I'm sorry, I'm rushing through this because we're just short of time, there's a lot of work on the -- this one here, the ecosystem. We have a wonderful project with Earthchild called Eco Warrior, where we teach the kids the benefits of nature and looking after your own vegetable garden and so on. We support underprivileged kids and underprivileged people generally. Governance in Truworths. It is paramount and, perhaps, I would like to feel it's one of our most critical issues in our philosophy. Our succession strategy is well underway. You've seen Sarah who's now the deputy MD; Manny, who -- such a pleasure having him back. He brings exuberance, laugh and humor to our business like I've never experienced before. The 3 of us, with the very able assistance of another 9, and in fact, 15 directors and divisional directors, we work so well and closely together because there's such imminent succession and Sarah and Manny are so closely aligned with me, we basically do everything together. We make all decisions together. We communicate together. Hopefully, you've seen we even tried to do the presentation together. So the succession process, I think, is going remarkably well, and our Board monitors it all the time and having regular meetings with each of us individually and together, and I know they're very happy with the succession process. Jon Richens, I've already mentioned, Jon fits in, it's almost like he's been part of our family forever. We love having Jon on board. He's a great guy. He's called designated Office MD and he's going to -- he's officially actually now our MD. The Board changes, we have to keep in touch with the times. So [indiscernible] has been appointed to the Board and the Audit Committee. The Audit Committee now comprises Roddy Sparks, [ Rob Dow ] and Cindy Hess. Rob, who's been with us for many years. Rob Dow is still on the board, thank God. He's the most amazing contributor he has extraordinary financial knowledge and skills and experience, but he's come off the Audit Committee from a governance point of view. So it's sort of a new Audit Committee with Roddy chairing it, he's has been around for a few years, quite a few years. Hans Hawinkels has been with our Board, I think also 4 to 5 years. He is now Head of the Remuneration Committee. And Rob is still on that, but is no longer the chair of it. And Thabo Mosololi, who's a wonderful man, who's got lots of experiences, he's also an accountant has now been appointed to the Board. So there's quite a lot of changes to our Board. Succession strategy in Truworths is not just about me and Sarah and Manny and Jon. Of course, it goes to the next and levels all the way down. And there's a number of directors who you know about. We told you about their appointments. They've all been with us a long time and under them also, we have an unusual depth of management. And interesting enough, many of them are in their 40s, young 50s, and they've been there 15, 20 years. So we have incredible depth of management. From a governance point of view, I've said that [indiscernible] business philosophy. We always try and make the best decisions and -- decisions that are in best interest of shareholders. Obviously, shareholders are not one. They're different. Every shareholder has a different perception and a different belief and a different view. So we treat shareholders as a block. In other words, we think of shareholders as an entity. We don't observe or follow each and every shareholders' passions and interest because they are many times disconnected. But the overall perspective of our business is, how do we satisfy our shareholders. And bearing in mind, we focus on long-term growth and long-term returns. We believe in treating all shareholders equally and with respect. And we don't distinguish between the large and the small shareholders. Sometimes you have to consult with the large shareholders, that's a governance requirements. But in terms of how much we see them or not. We don't say, well, you're a big shareholder, we'll see you more and give you more information. We are not allowed to, but anyway, we don't want to do that. We've been included in the global FTSE, good Index with ESG ranking of 3.8 out of 5, and our governance ranking is 5 out 5. We continue to make progress in gender and racial diversity on our Board. Our female representation is now 36%. Our medium-term target was [ 30% ], so we actually already exceeded that it will carry on. And our black representation is now 29%. We've more or less hit our medium-term target. I'm sure that will grow. We've been ranked now in the top 10 of the EY Excellence in Integrated Reporting awards. They've only been running for 14 years. Every single year, we've been in the top 10, and only Sasol and us have been in that. So we're very proud of that. We're committed to a sustainable and responsible environmental practices. We have a whole committee and team of people working on it. We totally support the sustainable development goals developed by the United Nations. We are concerned with recycling, packaging recycling, paper recycling and climate change and carbon emission. We measure it. We observe it. We do everything, we think we can. Electricity reduction, targets have been met in all of our stores and our head office, and our water consumption has reduced. When it comes to outlook, let me say this to you, the civil unrest and looting we've reported on, we really did well. I mean, our guys -- our store guys were absolutely fantastic. I know we opened most stores before any of our competitors. So they really got together and did a great job. We pretty much ensured -- you can't tell exactly what [indiscernible], but we ensured in various ways, and we are confident that we are almost fully insured. We think the environments are looking much more positive, both in South Africa and in Office. I mean everyone's getting on top of the vaccine program, which is fantastic. Even in South Africa as well, it's going much better. The GDP outlook in the U.K. is looking good. The consumer credit health is looking fantastic. I've told you, and Manny went to a bit of detail to go through our book. We really think that the Truworths book is looking fantastic. If you look at the bucket of our book, the bad part of our book is declining. And the good part of our book is increasing in mix and that augurs well for the future. There's a lag. It can take 9 months to a year. But when 70% of the sales is on credit and your book is becoming healthier, that really is a good sign. Truworths retail sales for the first 9 weeks of this financial new period decreased by 5%. But you have to -- I always take them as please always look July, August, January, February. Those are markdown periods. You can grow enormously with massive markdown or the opposite. In our case, we had a far reduced markdown activity. There was some consumer problems, consumer spending with the stricter lockdown regulation that was applied in South Africa. The similar risk did affect us, you know about that. If you take out the problems in those 57 stores, then our retail sales actually only decreased by 0.8%. But if you take out and look at the 160 stores that we voluntarily decided to close, then we would have increased sales by 2.2%, and that's with the markdown activity being reduced. So we're not at all disappointed in the start of the new financial year, in fact, quite the opposite. And no much -- not much space plan being change for the year. When it comes to Office, the focus of the stock management, definitely, that will keep gross margin elevated. We will keep closing loss-making stores. Sarah has told you about remodeling of high-profile stores and e-commerce, Manny spoke about. We are investing now in IT systems. They need them badly in Office. And John and his team are very greatly worried about expense control. They're very good at it. There is still pressure in the high [ streets ] in the U.K. The vaccine program has been really well rolled out. So again, both in Truworths and Office, we're feeling quite positive for the year ahead, I must say. So I'm now going to turn to questions. And I think I'm going to try and find a way to close this presentation or the guys will do that for us.

I'm reading the questions here, and I'm just going to update it from my system. So there's a lot of questions. I'm afraid it's 2 O'clock. and I think some of you are going to drop off. What Manny will time do with Sarah and I, is we will try and answer some of these questions by e-mail because many of you have given your names. But I'll try and go through the ones that have been raised, but that we haven't answered in the presentation for those who want to stay connected. I think I've dealt with the office thing as best I can. Do you think that the -- what has been the impact of the online apparel businesses on Truworths sales? Is this worrying? Sarah you want to talk or Manny? They're asking, really, there's a lot of online stuff going on in South Africa by these competitors who are only online apparel guys. Are we afraid of it and what's our view on it, Manny or Sarah?

I can take it.

Okay, you take it Sarah.

No, I think we're aware of it, obviously, and it's something that we monitor. However, it's not something that we believe -- we don't believe we're losing market share to pure players at the moment. I think if you look at the contribution of e-commerce in South Africa as a whole at this point, it's still very, very small relative to the Northern Hemisphere. And I think with a large extent of our bricks-and-mortar offering, by far the majority of the South African customers are still enjoying shopping in bricks-and-mortar environments. And then our own e-commerce to stack up to grow based on customer demand. We've got Identity now on e-commerce. So I think it's something we're monitoring. And we'll continue to do so, obviously, but I don't think it's a particular concern at this point in time.

Can I just add to that, Michael. I mean, I think the combination of bricks-and-mortar and click-and-collect is fantastic. I mean you've seen 2/3 of our customers who actually shop on-line and go to store. And I think the pure online retailers who don't have the bricks and mortar, don't have that opportunity.

Thank you, Manny and Sarah. The next question I've got here is, you mentioned increased market share. I mentioned it in the extensive credit -- in the credit market. We definitely will increase the market share. We have records kept by an independent source that all the retailers participate in. And yet this question goes on to say that it doesn't make sense, what I'm saying because Truworths ladies sales are lower than 2 years ago. And so are men's, so are Identity's, so are kids. Kids Is up 15%. So doesn't it make sense to concentrate on Identity at the lower ended market and kids? I think that question is missing the point a bit, to be honest with you. Firstly, we subscribe to this organization called RLC, Retail Liaison Committee, all the retailers do. We get category market share growth and participation. Our market share in men's and ladies and kids hasn't shrunk actually. Well, as you say, kids are doing well. And the ladies roughly equal to what it was before so the whole market has shrunk. Of course, it has. We've been in COVID after all. So that's what it is. We're not market share obsessed at Truworths. I've said to you before, we do look at market share. Of course, no one wants to lose market share. In fact, there's a project at the moment, looking at where -- which, at a very granular level, categories we have lost market share. We understand why and then we're dealing with it. So we don't need more market share, but it's not our primary focus because often market share is obtained by retailers who are discounted, and they're using discounting methods to gain market share. And yes, do we focus on Identity, Primark, kids? Of course, we do. But we don't do it at the expense -- I mean it's not like we're short of cash or resources or suppliers. So we concentrate on all of them. We don't constrain one in order to feed the other. I mean all of them grow to their potential. Identity is not, in any way, constrained because you're trying to grow Truworths. We grow them all. We concentrate on Identity. We concentrate on kids. We concentrate on Truworths ladies and Truworths men. Our obsession is long-term building blocks and the time comes for each. There's a question about return on capital versus what we used to report the gap between those 2, and this says the gaps closed. I think that's a good question. I think you'll find the gap is in our favor now. But I do think, [ Reon ], it's a good idea Manny for future to start reporting on that again. I can't say we've got a graph that we've looked at as we used to in the days. The difference between the two over 5 or 6 years. But I think it's a good again, and we will look at it and start presenting it again. I think you'll find that the returns are much better this year and this coming year. The outlook for the provisions and bad debt, and Manny years gone through. It's really looking good, the book. I mean it's -- we thought it would get better, but it's been so much better. And as I said, the mix has gone from a -- quality is getting bigger and bad quality is -- good quality bigger, bad quality lower. So the book is starting to look good, but you have to accept there's a lag. Rent reversions, we don't talk about rent reversions. Rent reversions, I mean, landlords are our partners. We don't want to have a bad relationship or take advantage of landlords. So we negotiate with them and they have to reflect market rate at any point in time. We expect to pay market rate. And so the negotiation is a very similar one, and it depends entirely on every mall -- on every circumstance and every mall on the position and on the market rate in that mall. So we don't want to talk about rent reversions or not. Obviously, right now, the sentiment is in the favor of a company like Truworths because we have certain leases coming [indiscernible] each year and the market rate is lower. So that will carry on. But as I've already spoken about the rest of it, the current state of play with Primark, is Primark appealing? I'm not going to go into the legal side of that. That is a legal process. We love the Primark business. We are supporting it. We think how South African Primark is a great brand, and we think it's got lots of opportunity in the future. How much is MTO sales in office? And do margins [indiscernible]? Yes, MTO margins are much better than brands, but that's -- if you don't have markdowns. So if you -- the markdown can make it equal. So we still have work to do. We want to grow MTP. We are growing it. At this point in time, I'm not prepared to reveal the percentage. It used to be in the 20s. I think it dropped to as low as 6% or 7%. We're trying to work its way up back to 15% or 16%. It will take time. How many people employed in collection department? We don't disclose it, but a lot of them are. And what is the cost of the collection effort? [ I've already ] published that because you saw the cost versus revenue. And can you comment on any disruption to supply chain? Yes, the ports stuff and the supply chain -- Sarah, do you want to just quickly talk about the disruption to ports and supply chain? That's really a very good question.

Yes. Thank you. So obviously, we recently had the hacking of the local ports IT systems, which did cause quite a lot of disruption. Fortunately, it was for a short period of time. So we got through that. But sort of on -- as I mentioned earlier in my presentation, the global shipping lines have been experiencing tremendous amounts of delays, and we have had vessels sailing past Cape Town and also delays between China and Europe and London. So it is a particular problem at the moment. But fortunately, because we've managed our lead times as best as we can and the spread of our countries of origin with a large balance of local production for -- in the Truworths group, it's enabling us to, we hope, to get through this pretty well, but it is a challenge at the moment. And obviously, elements of it are outside of one's control.

There are some questions -- there are quite a few about the book, and they're sort of a bit technical. So I'm not going to ask Manny or Reon to answer them now. But they like one says, the referred receivable cost decreased by ZAR 850 million with ZAR 400 million related to the provision. But what about the other ZAR 400 million? And the other -- quite a few questions on credit. I'm going to ask you, if you don't mind, the shareholders that want answers, which are of a technical nature to the financial accounts, to make contact with Manny and Reon by my PA, [ Kathy ]. You all know her and Sonia. And just write us your questions and then, to the extent that we make is publicly available, we'll certainly respond in detail to you. Similar to that question, the weighted average cost of capital versus return on capital employed? We'll answer that. There's a question here also. I see a few questions on Fuel and Primark, et cetera, and the new store formats. They're trying to quantify in the models, I'm talking to Sarah and Manny and Reon, and work out how big that is. I'm afraid we -- unfortunately we don't quantify those things and we don't disclose it at that granular level. And secondly, I keep on saying we are a building blocks long-term business. So all of these things are going according to plan. So the color I'll give you is, we opened, I think, 11 stores of the Primark. I'm not sure how many would have been in Fuel. I think 15 or 16. I'm not sure exactly. Sarah you can correct me.

12 at the moment.

But a few are opening every month. And [indiscernible] they're small we're only 100 square meters each or something, 120. So they can't do massive sales because we're experimenting and we're trialing, but they are reaching our merchandise plans and we're happy with them. They look good. They gain well, but it's a trial. It's a work in progress. So it's not going to make an enormous difference in the short term. It will over time, as we do with all the things, our new formats and so on and the same with Office. So I think that's all. I'm very acutely aware that it's already 10 past 2. I thank you all for your attendance. As I said, please don't hesitate to make contact for Sonia or Kathy and send your questions to them. We will do our very best to respond as quickly as we can. We will see shareholders from time to time if there appears to be a misunderstanding of the basic fact and if we think it's necessary to, but we'll always respond to E-mails when you send them to us as much as we legally can. So with that, I might ask Manny and Sarah, if you'd like to make a final comment, and then I'll bid you farewell. So Manny first and then Sarah.

Yes. So thank you, Michael. I mean, I think just to reiterate, it's great to be back because it's such an amazing business. Very happy to be here and thanks.

Yes. From my side, I'm just excited about the future. We've had so many headwinds around the world, but we are confident about our business and excited about the way forward.

Thank you, everybody and thanks for watching.