Truworths International Limited (TRU) Earnings Call Transcript & Summary

Good afternoon, everybody. Thank you for joining us at our Half Year Results announcement. With me today are my colleagues, Sarah Proudfoot and Manny Cristaudo. They are our Deputy Joint CEOs, but then also Reon Smit is here. Reon is our Financial Director. The way we're going to do this is we're going to try and go through the presentation. If I can do it, I'm going to try and do it in 35 minutes. So we're going to skip through quite a number of things that we don't think are relevant for presenting it formally to you because you can read it afterwards. It will be published on our website within a few hours of the presentation. So you'll be able to go into much more details, and you can look at it then. Please also bear in mind most of you or all of you know we have Investor Relations email address. You can send those questions to us and is pleasure, and then we try as much as we can and the speedy as we can as a panel, there's about 5 or 6 of us on the panel. We try and answer the questions within a couple of hours if we possibly can. [Operator Instructions] We won't be referring to the Investor Relations e-mail address during this presentation. Thank you very much. When it comes to questions, I'm going to refer a lot of them to my colleagues, but I'm going to go through the presentation myself as much as I'm able and as speedily as I can. So we've started in an unusual way with the most topical conversation, obviously, which is trade receivables, credit and that's in Truworths. And most of you who sat in, in our presentations before, are familiar with this particular slide, which really sufficed to summarize our trade receivable and book in as neat as possible format. We've got a couple of slides all about trade receivables, and I'm starting with those because they clearly are the most topical and concerning to shareholders. And we've divided -- if you look at those arrows in the middle, the first arrows, which is 3 or 4 of the lines relates to the size of the book. The second, that 5 rows relates to our policies and if or whether they've changed and I'll explain this. And the final 6 or so relate to the performance. So if I take you through it very quickly, the book grew significantly by 19%, and that was because of a particularly good Christmas and Black Friday in November, December. It's the period really did well, and those sales that we achieved during that couple of months period, obviously, that flows through to the book at the end of December. So the end of December book of 19% growth, whereas the year before, it was only 1% growth is caused by that. And the number of active accounts also grew by 6%. That's real growth. Our policy didn't change, but our actual sales as a percentage of total sales, account sales grew because credit looks slightly better than cash. The qualifying payments are the same. The number of open accounts and risk approval accounts improved. That's not because we opened the tax or did anything by lessening the onerous nature of creates risk profile. It's simply because we found techniques and tools at a very low granular level, which enabled us to improve the statistic by opening and allowing people to open accounts at the same level of risk. So we did not modify our risk or do anything risky in that form. And then the performance of the book relates to the bottom square. And the active account holders are able to purchase only -- and remember, when we say able to purchase it means they are not in arrears. It's only dropped from 85% to 84%. Averages therefore has grown a little bit, 10% to 11%, slightly worse. Net bad debt did grow from 7.7% to 8.1%. And net bad debt as a percentage of the receivables as opposed to sales grew by 13.1% to 13.4%. Provision stayed the same at 20.7%. That's the markup model that we use has become pretty much an industry standard to predict the risk in the book and the probability risk going forward. So that didn't change in the risk of the book. The trade receivable interest went up for obvious reasons. We've got more people in the book and interest rates went down. So when you summarize the way we see this, of course, your interpretation may be different, but the way we see it is that primarily the health of the book deteriorated slightly, a mild deterioration completely what we would have expected. But the provision going forward has not changed. It's still at the 20.7%. Therefore, the major cause for the increase in the bad debt relates to the physical size of the book, not the risk of those debtors because that hasn't changed much the 20.7% is the same. But because the size of the book has gone up significantly and then that same 20.7% applied to a higher number that results in a higher provision Rand, well, impacted it a little bit in this graph. So trade receivables grew by the 19%, you can see there. And the big shocking number that I'm sure analysts got a fight about was the 76%. So we are trying to unpack it. And essentially, it's saying that the net bad debts and related costs grew by 16%. Net bad debt before election and related costs grew by 22%. There was a couple of adjustments. I won't go into them. But the big one, of course, is the change in the expected credit loss allowance, the provision, basically, whereas last year, actually, we unwound the provision by the ZAR 31 million. And this year, we had add ZAR 232 million, very much because of the size of the book growing. And as I said, because of that provision being 20.7%, the ZAR 261 million is primarily or almost exclusively because of the growth in the size of the book. I'll tell you a little bit more about that in a few minutes. Reon and his team have tried to unpack this in a typical hopefully, accounting way that makes it simpler for you guys to understand and read and harder for me. But anyway, it essentially is saying the same thing. It's unpacking the trade receivable costs at the beginning and the trade receivable costs at the end, and it's showing again that adjustment of ZAR 232 million up once in the provision and compared to the minus ZAR 31 million of the previous year, we added 2 together to get ZAR 263 million, which is the extent of the increase in provision. Primarily all I could even say exclusively because of the size of the book growth and not risk. On the other hand, there is income increase because of the increased interest rates. So that's how we see it. And just to spend a little bit more time on this very, very topical credit issue. So we've got the credit since 1950. And I mean I'm going to spill it out again. I'm sorry if I'm saying like I repeat myself, but it is the essence of what we do. So in these kind of presentations, it's the right place to talk about. We offer credit because it gives us ability to access the useful fashionable consumers across the South African marketplace with more expensive, more premium product but with credits. And we, therefore, feel we have to run and own the credit ourselves so we can manage and control the risk. We use Champion/Challenger strategies on our 51 scorecards continuously and customers are scored in a number of different manners and with behavioral scorecards and a number of different behavioral on a monthly basis, always ongoing. And we have also internals for behavioral scorecards. The credit strategies are then adjusted based on the performance of each and every individual account, what they buy, what the risk profile is, how much they buy and so on. I believe there's a couple of hundred characteristics that drive that. So therefore, since the book self-regulates because as customers become more risky or less, the risk for adjust in terms of always myriad of scorecards and then we apply our principles to them. Well, the last paragraph is to us the most important. Post festive season (end December) the half your book is normally higher than the June year-end and that's for obvious reasons. We had a very good November-December period. So the book was higher at the end of December. If -- and I admit it's a big if -- I don't know, I can't tell you. If the risk remains similar at around 20.7% by June, and the book size reduces by June '23, which it always has done for the 20, 30 years I've been involved in it. The Rand provision added into the debt cost will reduce accordingly by June. So I'm not giving you forecast. I'm giving you an experience from history. Once again, please excuse me for those who feel I've heard this before, I feel it's important and my colleagues agree to just reinforce it each time. We believe if suburb business is there, I could believe, they could try and offer on-trend fashion, on-trend meaning the right fashion at the right time interpreted for South Africa and the South African contexts obviously, office is also used in the U.K. by a very sophisticated in-house fashion studio of a couple of hundred people. We offer higher quality fabrics and in better construction. And so sometimes, we are more expensive than our competitors. We cover all lifestyles. In ladies, men and kids. We try and cater for all South African customers, not the wealthy, not only or not poor -- we try and cook up for all South African customers who choose and want to shop for us. And so our solution to that is that we need to sell on credits. And we want to control the credits, because it's so integrally part of our business that we feel if we do not control that predictive, we outsource it then we are losing control of the risk, and we need to work with the risk that we do take in our credit book with the opportunity of selling more goods at the margin of our retail price product. And that's how we operate the business, and that's why we continue to self in-house control network. And we do that through -- our model is an interesting one where Sarah, Reon and I were showing some -- referring people, our stores recently and they were commenting experts, by the way, and very experienced in international retail, but never having visited South Africa before. They found our concept really unusual and they deliver complementary about it. And I do think that our concept is quite unusual because we've got really a big store in the Truworths side anyway, which is our main driver, a large Truworths store. We call it an emporium sometimes is as big as 4,000 square meters. It has a lot of brands in them, and there is ladieswear brands, there's menswear brands, there's kids brands. Each and every brand has a lifestyle and a character and a DNA to it. We spend hours and hours and days and days and weeks and weeks defining what each and every brand stands for and the buying teams who are differentiated and separated and they stand very, very well what each brand is meant to do to offer this amalgam of brands in an emporium to our many customers who come and shop at us. And that uniqueness is what we think is the difference between us and our competitors. And let me just make the point. We earn all these brands every single brand in our business, with a couple of minor exceptions, we actually own ourselves. We started them ourselves. We incubated them ourselves. We stayed with them through good and bad times, and the outcome has always been very positive for us. So all-in-all, we run our business that way. So in summary, what I'm trying to tell you is that we are much more than a fashion business. We don't sell fashion in the way we see it. We, through our fashion offering and our image and our brands and our e-commerce and our social media and our behavior of our stores and the look of our stores and the way we made and the way we communicate, we actually offer our customers aspiration. That's what we feel we are trying to offer them through our merchandise and through all the many things we do, we sort of obsessed with it. We always talk about are you offering him or the child aspiration to all South Africans with our own unique DNA? All those brands, all the stores, everything else about us, and we enable them to fulfill their feelings and need for aspiration if they can afford it, through the use of credits. If they can't afford it because we have legal and various model as well as financial reasons for making sure they can afford it. And otherwise, we offer them lay-aways -- the United States where you seeing it reported lay-aways, where they buy the product, but it stays in our store until they come and collect it after 3 or 4 months. And they have to pay it off or we even find other ways to do it. We sometimes say, yes, you can take it away, but you have to pay a big deposit, 50%. That again depends on their risk. So we tried very hard to deal with the aspiration of many -- most -- for all South Africans who want to shop at us with this method of offering them alternatives. So the group had seen through with their office were strong metrics. Sales were good. The gross margin was pretty consistent. Hedges were good and a lot of that driven by the very successful share buyback program since 2020, where we bought back a lot of shares. And we focused on these matters that we listed over here. And I will go through them as we go through our talk for the rest of today. But Office primarily had made massive rate inroads on the real estate portfolio. So yes, I know we have made it clear that the base of Office is fighting against lockdown and semi-lockdown in the U.K. and so it has got an advantage, which goes away from April. But some of the other advantages of the subsidies from government have already fallen away. But in the business, unrelated to what I've just said, there's a lot of very great work paying on that, and it's across the board. So we do believe that will perpetuate and continue. And in Truworths, we're making some really big inroads as well, and we will explain them to you. This is our business philosophy. We always put it in a margin and we talk about it. Just to remind you that to us this is our Bible. This is what we focus on. The key performance drivers in Truworths were a positive front foot approach. We went into a much more positive frame of mind post-COVID. And we tried to focus on product categories. Remember there are hundreds of product categories. We can talk about men's socks, that's a product category. We try to focus on product categories where we believe and know factually, we are underrepresented. There's a massive project Sarah and her merchandise team are perpetually focused on how to sort of improve our representation of those categories where we believe we are under representative. In the credit side, we've improved our predictive capabilities. And you're seeing some of the results coming through with our metrics being a little bit better because that's at the finest, most intricate level being able to slice and dice the customer behavior in such a way they can then give and take away credit from less or more risky customers. So there's a lot going on there. And we have also, as I've sort of alluded to, we have induced all pilot alternative credit products all the time because it's not just credit. We're trying to say, how do we provide you with a tool to shop at this that makes financial sense to us but also works for you. Then we are very strong, quick to markets, fast fashion, quick response. For that, you need to be local. 50% of our product or roughly 50% is South African based of our manufacturing pro, we're talking about Truworths now. And recently, in the last couple of years, we've been -- we've always had a design center of our own that we bought our 2 largest design center suppliers in the last couple of years. Last one then we lost less than a year ago, which is Bonwit and the other one is Barrie Cline. And what's quite exciting -- remember, for those of you who don't know, a design center is a creative team of designers who design a detail level. They sort of design patterns and they design detail of garments. They are separate from the buying teams that they work in collaboration with. But what they also do once have designed it, they work closely with the manufacturing side, then they buy the trims and the fabrics and they hand it out to local production factories also in [indiscernible]. Now what's interesting is these design centers that are old one or established one or the Truworths ones, plus Bonwit, plus Barrie Cline are now all located in our head office building in the center of Capetown. So you can just imagine there's a whole lot of semester, almost like a factory environment in our building, where the buyers in one hand, the designers on the other hand, and the sample set on making the governments and designing them together. We've always wanted to achieve it and now we've got there. So it's very exciting. That was a major strategic initiative and then our new brands and Sync and Fuel actually doing quite well. We're pleasantly surprised that they are doing better than our -- what we consider to be optimistic expectations. Office London, which is Office back in South Africa, we call it Office London, is doing nicely. It's got about 20 stores now. They're doing really well. It's a particularly large one at the V&A Waterfront in Cape Town, for those of you wanted and look at it, and that brilliant position does extremely well. It also sells branded clothing. So it's a whole new concept for residents. Surprisingly it's better than we expected and we were already positive. Then we've got a new ID megastore, which is identity, long-established business, a nice business, but now it's sort of a mini truss, it's becoming a bit of a department store, a fashion department store with separate entrances, men's, lady, kids, lingerie. And we have found in 10 or so we've done so far. I don't know exactly. It's also a strategic initiative. We found that the sales per square meter of those megastores are equal to the sales of per square meter and all the non-megastore, but they're much bigger. It's a real positive thing. Then we've got context, which is really a lot of glamor product, our LTD brand with [indiscernible] brand, and it's got a glamor sophisticated high-end feeling. We've got some stand-alones, but they're also going into the Truworths store to add a dimension of elegance and sophistication. Those are doing really nicely. And then there's this new business of ID Kids. I think the kids has become a last -- really big business over the last 4 or 5 years. Fuel, which is a new men's wear business. We told you about it over the last year, doing really nicely; and Sync, which is a value business, which we adopted our own brand, which we adopted because we [indiscernible] terms with the previous owner of the other brands. We now have Sync and Sync has had a really nice summer. And we're getting particularly excited about it, a small business and they are small, but they've got lots and relates to carry them into the future. Office continues to focus on the whole thing of that. Office is the brand, relationships and they're becoming amazing. That brand relationship has always been good with the Office business, female, fashion kind of customer and then the offspring business, which is the sneak obsessed community. They are really in a great space. Those 2 brands, with the brands they are suppliers. And that completes -- the team are always looking for the latest in-demand brands, whether it's Asia or whether it's stock at Martin or whether it's [indiscernible] or whether it's a new Nike or a new Adidas or they spend their lives doing that. They've made such good progress on the real estate portfolio. They close some of the German stores that were not doing so well, not all of them, but they've closed or renegotiated poor leases in a lot of cases. So there are still some problematic leases, but I must say they've been great. How they've dealt with the problems and challenges we have with real estate and making great headway. Also the business is doing better. So some of the stores that were sort of making losses are now not making losses in a way, they're actually looking a bit better even though the rent may still be too high. And then we've started a great program to -- we have start to remodeling the stores, the ones that need it in the big store. There's one that's going on as we talk in Carnaby Street, it's our biggest Office, not off spring, our biggest Office store in terms of sales, and that's 50% finished, 50%, 60%. And then we just opened on Wednesday Kings Road, which is one of our stores, but we opened it in January, I'll show you some pictures. New stores are opening in months ahead in Battersea. There's an Office. So that's going to be very exciting. There's a massive head Office of one of the big well-known international brands businesses there, a couple of thousand people writing that same vicinities, and so they are all potential customers. And then in Kings Cross, which is also in London, there is a brilliant store opening offspring. It's going to be the first offspring store outside Selfridges, which is our biggest offspring store. And our Kings Cross with the support of the major brands, we're having a wondering new store, all of these in the next couple of months. And we'll continue get rid of post-stores or changing the leases. We've consolidated the Office, our warehousing into one facility. And the omnichannel, which is, as you know, in the 40% or so of the total business. That's a massive thing in offspring. They're getting an Office. It's getting better and better. They keep on refining it, and we and they, Truworths and Office people work very collaboratively so we mutually support one another. There's ongoing global uncertainty, I'm not going to -- you know that as well as us in South Africa and the U.K., you can see we've tried to summarize them on this chart. There are some positives in both countries. I mean, but perhaps the big process are quite worrying. When we go into the group financial review, again, I'm not going to spend any time on this because you all know, I'm going to focus, however, on the inventory where gross finished goods inventory was up 22% actually because there is -- that excludes fabric. And remember, we just bought that onward business and very clients. So now we are having to invest in fabric, which we didn't use to investing. That's why you're seeing the number of inventory, the rand percentage, the rand number and the percentage higher in the financial accounts. But if you exclude the fabric, which we monitor very carefully, we won't invest in Fabric and we aren't going to use it in the next 12 months or so. The stock is up by 22% end of December. There was an unusually low base last year. So the 22% is completely in line with our requirements because last year was big supply chain disruption, disruption of turbine wind. I'm not going to tell you anything else about that. The financial performance, I know you guys know it very well. So I won't spend time there. The diluted EPS and dividends per share all at the highest they've ever been. Return on equity is pretty much the highest, I think it's ever been at 56% as the term has slipped. It's not, actually, I see, it went up a little bit. So that's okay. But the return on assets dropped from 26% to 35%. So that's all very good metrics by international standard. The actual profit of the group is ZAR 2.6 billion and ZAR 0.494 per share is the highest HEPS [indiscernible] per share is the highest group has ever done in its history. We are grateful to Office for the real rate grade in that. This is our balance sheet. The big ones, inventory. I've spoken about that 30%, if you leave out the new fabric, which is non-comparable because we didn't have it before is now 30%, and the book grew by 17%. As I said to you, the true bad debt the way we sort of analyzed it, if you exclude the growth of the book, grew by that 22%, 16 depends which number you use. And we -- because of the way the half year fell, we paid creditors and we paid tax and then back to tax we paid creditors in the end of December instead of January. We have bought back 12% of the shares of the company since January '20. Again, most of you know that. There's a bit of information about the funding of our balance sheet and we've declared ZAR 0.320 dividend. We try and stick as close as we can to the 1.5x cover. And what we missed out in December because you don't quite get the exact 1.5x, we sort of fix by June. So that's the dividend policy. Cash flow. Business is highly cash generative. Still generated almost ZAR 500 million for the half year. That's despite quite a large increase in working capital that we just discussed. And we have paid out dividends -- a small amount of dividends that which was paid in January -- or sorry, in March. Truworths. He are some Truworths numbers. You know them. The trading profit did fall. This shows it a little bit better here. We do see that 76%. I mean the main number is that trade receivable cost of 76% that I have tried to impact. The reality is, though, that it is a number. I mean it is true to say that a couple of ZAR 240 million or ZAR 250 million was because of the growth of the book and not because of risk, but it still is a cost to the income statement, and therefore, that did affect us badly. And hopefully, at least some of it is not a little bit all unwind by June, and we were pleased with the sales growth. Retail sales growth in the ladies was particularly good. True, the former West market areas did well, but some of the casual wear is also good. Kids not quite as well. Kids not bad at all and then those other areas, which are -- it's interesting to note how they're now over ZAR 1 billion and the kids and other areas of each ZAR 1 billion, which is now the size of men's wear. We sort of have managed to expand our category offering quite nicely, and that intended pretty well at 12% growth. Trading space, not much happening in extra space, and that's intentional. A lot of things happening within the space are perpetually remodeling, taking brands out, putting brands in, there's a lot of work that happens there, but we are trying and finding it easily relatively speaking, to do it in the existing space. The density, therefore, has gone up. I think the highest ever that's 40,000 per square meter. Inflation. Yes, well, no surprises there. We've tried so hard since 2017 to have no inflation. And unfortunately, now with the plummeting rand, our inflation is over 13%. Hopefully starting to show a few signs of declining. Gross margin. Good, all on track. Stock levels, by the way, all on track at the end of February, the summer stock carryover will be fine as it normally is. I don't feel I have to go much through the trading expenses. I don't want to keep it repeating about the trade receivable. That's the real large one that caused some consternation. The rest is -- we described in more detail on these spreadsheets that follow on these slides that follow, we sort of unpack it a bit. I mean, for example, occupancy costs -- if you exclude non-comparable occupancy costs increased by 7%. And if you exclude long-term level stores, we didn't pay, it actually increased by 4%. But you will read it in your own time on the website. There is that story again about the trade receivable cost. And the blue highlight is the one I want to emphasize that we did increase ZAR 232 million. The allowance was influenced significantly by the growth in the book, and we expect some of that to unwind by June. I'm not going to go through that again. And we've repeated these slides, duplicates, but that's simply because for your convenience, when you go through the back, so you don't have to go back and forth. When you look at Truworths, you can see it here as well. I brought it to the front of the presentations, because I know it's such a topical and concerning issue to analysts and shareholders. So I wanted to believe they are front, but we left it in its traditional space. when it comes to profit before finance costs, EBITDA margin, operating margin, they're all very good standards. In all cases, this is influenced a lot by the debtors write-off costs. Capital expenditure, nothing unusual, but you're noticing the distribution facility, the ZAR 139 million and another ZAR 647 million emitted. And that's all about in the end, we will end up spending about ZAR 1 billion on the new distribution center, which will be ready and to trade in about just under 2.5 years. And the main reason we've done that is because capacity requirements in the sense that strategically, we want to increase the proportion of stock that we hold back and only then partially to stores and then replenish quickly in to those stores as they sell the product, we don't have enough capacity for that. This new facility will really make a difference. And we know from testing it over years, there's between 2% and 3% and sometimes even a 4% improvement in sales as a result. This shows you the Truworths' cash flow, which, as I said before, is very positive. You can unpack it yourselves. Office, a wonderful period. Growth in profit of 39%, profit before tax, 45%, both in sales, 13% all in pounds and a great year. Admittedly, it benefited from the lower base because of the sometimes closed stores during COVID. Although I have to tell you, when these stores were closed during COVID, we did really well on e-commerce in Office. We mustn't forget that it's 40-something percent, it got to 60% sometimes. So yes, and sometimes even '17, '18 when all the stores were closed. So -- but there were government benefits, they will close stores and they will not in this last period, and it does change in April. But again, we're feeling quite positive. Admittedly, we won't have this phenomenal sales growth, but we still are feeling that, that business is really coming and looking really good. And here, you can see that there is a declining number of stores by 2 in Germany and a couple more, I think, in the next few months. I'm not going to go through the expenses, because you can read it in your own time. And you can see we try and explained it in the graph and the slide for the table. We are starting to see capital expenditure on store innovation, in Office and it's came down really well. The new stores are looking fantastic and in system, computer infrastructure. That's -- we're putting quite a lot of effort there. And Office was incredibly cash generative. I mean you can see we generated GBP 12 million in the 6-month period. It paid us back GBP 7 million. So it's become a great cash center business. Account management. Well, I've really dealt with that right up front. So I'm not going to spend much time here. But safe to say that the TransUnion index, which, as most of you know, when it's below 50 means is that, there's a kind of decline in the health in the industry on credits because of the economy and above 50 is positive. 58 is in quarter 4 2021. That's all about COVID. I wouldn't worry about that. Sometimes it goes about 50, 52, 53, and we love that because it means the economies are healthier and credit is healthier. The last 2 quarters, it has gone below from 50, 49 and in quarter 4, 48, which means there is a slight decline in the overall health of the credit community in South Africa. And then good to bad credits book. It's kind of looking okay. I think much the trend, if you look at that -- we don't show you all the numbers because for competitive reasons, but that graphical illustration shows you that over since 2018 when we look at 2022, the ratios haven't changed enormously in the book. They do go up and down in the cycle way. And then 4 past cycle is, these guys are close to gain. But again, the premium in the cycle is pretty much similar to history. That's all about the quality of the book. And I have told you that we have a slight increase in the risk approved accounts. Again, that was not a risk approved because we opened up the capsule, change our risk profile, simply it is because of technology and strategy. This is also a intricated slide. I'm going to skip it. Going back to the strategic initiatives, we're all about aspirational fashion. So I've told you about the world-class design capability in our head Office. We have improved market share. Our goal last term, we have improved market share in some of these categories we've been focusing on from a front foot point of view, because it's been more positive. There is more and more refinement in the new brands. Office return sales has been growing fantastically. And in Office, we focus on the brand relationships. Supply chain. I think I've told you everything you need to know about that on these. And that slide is a picture of what the distribution center near the Cape Town International Airport will look like when it's finished. Customers, there's a number of omnichannel initiatives there. A lot of them, we're just showing you a few here that we are focusing on for your interest. But there's a whole strategic drive going on with quite a big team in Office and in South Africa, where we work together to try and improve our omnichannel analytics capability and productivity when it comes to how much we spend for the benefit we get. Retail presence. Truworths Kid Emporium is a new concept that we've grown it with our kids brands. Often stand-alone, otherwise attached to the major Truworths Emporium, the Identity megastore I told you about and the Context business I've told you about. Then there is Sync and Fuel and in Office, they are doing a good job in renegotiating the leases. There's a picture of what I mentioned the context that one has got the sort of glamor, smarter, more elegant product in it. And you can imagine this -- firstly, as a stand-alone, but then sometimes in the midst of our emporium lady store. It added a sophisticated dimension to the store, and it's very appealing. This is the Identity megastore in Greenacres. It's just a feeling for it. It's becoming more and more departmental as 2 years ago, and it's a bigger physical store and this is a feeling of the major 3 brands, LTD Kids, Earthchild, and Naartjie Child Kids brands that we bought maximum here in our Kids Emporium store. This is the new significantly sized Office London in South Africa, [indiscernible] It's double the size, it's branded trading ones are really successful store for those of you who can look at it. But this now is based on the one I've just shown you, which is the Office London in South Africa store, the Truworths design team with the Office team in collaboration, we use the South African store as a test store and then we are rolling out in the U.K. This is the Battersea Power Station store that I mentioned earlier. This is an artist this is what it will look like in the future, which is in 2, 3 months. This is Carnaby Street. Now Carnaby Street is already of complete because the downstairs, which you see there in the middle there, this is the ground floor, but you walk down this glass steps to the basement that is already complete. We're now busy with upstairs that will be finished in 2, 3 weeks' time, and it's really great. We've managed to increase the size of the store, downstairs through incorporation of stock rooms and key trading space. So it's a lovely store, and that's going to be fantastic. Kings Road is similarly, it is a very old store and this store opened on Wednesday. As it is also out of interest managed to make the store a bit bigger quite over 20% extra space by incorporating stock room into the trading space because Office also stuff, they don't need as big stockrooms. And this is the new Stratford store, which is going to be opening. That's an artist depiction of that. Load shedding a big topic. You all know 82% of the Truworths' sales now are covered by backup power, whether it's a generator or inverter, rather 18% can trade because they're small or they're manual or [indiscernible] or whatever. So 100% of tourists can trade. The 82% is going to be 83% by the end of this month. And then we just sometimes we're putting more lithium batteries to make it longer and we do whatever we need to do. And energy is a subject is now a strategic subject that is now being dealt with as part of our risk and our risk assessment by our main board. So energy generally broader than operational energy as being a critical strategic issue in our business. Environment and social governance is a big thing in our lives. It all centers on our business philosophy and how we look after the environment that we incorporate environment care in the social initiatives, into our business philosophy. So it's not just an adductor. It's not a separate silo. It's actually part of our own thinking way -- and we do a lot of things there. The result of them is that we have maintained a B rating and the climate change review. From the social side, we've done, I think, a lot of good work. And from the government side, we've made some really good progress. We are now -- we turn to governance, were ranked on the FTSE 4 Good Index. We ranked 5 out of 5 and from the government's point of view. And I think in that category, we were of the highest that you can be in that category compared to other trade over retailers. Sarah and Manny were appointed Deputy Joint CEOs during the year and as part of our succession process for them to take over from me when I retire. Some of the non-executives have retired, the others who have retired, the others who haven't are in the process over the next year or 2 years handing over to other younger and new ones. And as usual, we were successful again in being in the top 10 of the Ernst & Young Excellence in Integration Reporting Award for the 15th consecutive year. And in fact, since 2003, we've been classified as excellent in the category. And we are the only company in South Africa. I don't mean the only retail. We're the only company, a listed company in South Africa that can make that plan. And we have now pointed to [indiscernible] interest from financial year '24. When it comes to the outlook, challenging economic environment, sales did increase by 13.9%, but primarily that's of course Office had a great period. Load shedding sanitarian in South Africa, very busy with all the things I've told you about sales only increased by 5.7% in the first 7 weeks and we'll see what happens over the next couple of months. As I said, we are presentable. We are enthusiastic. And in Office, a kind of fantastic 7 weeks, and we do expect that from April, things will slow down because the base is completely comparable, but we certainly are still very positively excited about Office. I hope I've put that across. They are all working on space decrease, but that's because they're bad stores. That's not for me, there is in fact, they are opening a few new stores when we strategically need to be. And so with that, I close the presentation, and I will refer to questions.

I just have to -- so we see to do that. So I won't mention your names for your own privacy reasons, but the first question is, please comment on the debtors book collection, which looks like deteriorated versus H1 '22. Is there a migration by some customers to the 12-month facility? Or is it rather a reflection of slower payment by consumers? And Manny, would you please answer that -- you or Reon? I'm unable to decide.

Okay. Thank you, Michael. So we have seen a slight slowdown in the collections. I think it's to do with the macroeconomic environment. And -- but it's not out of the ordinary. We expected it. It's an environmental issue. We haven't seen an increase in the longer interest-bearing plans. So we haven't seen a move from 6 months to 12 months. So that hasn't changed. Collections is a little tougher than it was last this time last year, but we are okay with it at the moment.

Thanks, Manny. The next question is the H1 '23 period in stock level expects lowest stock trends across both Truworths Africa and Office, which are the key reasons -- what are the key reasons behind this? And what do we think about the future? What's going to happen to stock here, inventory situation to look like versus your medium-term targets? So the answer to that, I'll give it. The first part of the answer then perhaps Reon or Manny wants to participate with me or even say, I mean I know you all have to do on it. But I think you must bear in mind that Stock trends, there was the previous year where we were sort of short of stock in October, November, December because of the supply chain disruption problems. So we actually ended unusually which we don't normally do at the end of December or in that year with too -- we actually had a problem because we had too little stock. So that's why the stock trend looks like it's deteriorated. But generally, you can pretty much assume, and I hope I'm right because I think giving predictions because they got to go wrong, but my belief is that over the next 6 months and thereafter, our traditional performance on stock trend should not do anything but be what it normally has been. I don't think there will be a problem. I don't know if Manny or Reon, let's say, wants to comment.

I think it just gone back to normality. I think, last years you mentioned it was higher than normal and it was to do with the lowest stock levels.

The next question is what is the outlook for bad debt growth and provisions for bed debt for the remainder of the year? I've tried to -- let me just say this, I can't get into speculate -- I can't try to speculate because, you know, in this economic world that we're living in, these things are very difficult to estimate and predict. But the one positive thing is the risk score of 20.7% in the provision that remained static this December versus last December, that is a positive sign. I do think, however, given the TransUnion report and all the stuff we know there is a worsening of the health of the consumer generally -- we've traditionally been able to manage that. I have told you that the book is likely to decline by June simply because we won't have that December, and November peak in it. So the book always declines by a couple of hundred million. I don't know by ZAR 600 million, it will decline, which will unwind the provision if the risk stays the same budget. We, by the way, they're at 20.7%. We don't -- we present it to you every 6 months. We do it every month, and we're perpetually looking at that provision as a measurable risk, besides the [indiscernible]. So I don't know, I'm -- I'd rather say what -- I hope the 20.7% stays very similar by June. And I anticipate that the book hopefully will do what it always has done, which is to decline by June. And I'm hoping that the bad debt will be static and stable from now on, but I can't be sure because I can't talk about the future. Gross margin performance in South Africa in light of an elevated year-end stock position. Is this a buildup ahead of a seasonal change? Or is there some concern for gross margin? No, this shouldn't -- the stock level at the end of February will be completely in line. So we have that January, February and then again, July, August, you have that markdown season. And it's going according to plan and our terminal stock target at the end of February. And as usual, will be reached, I can pretty much guarantee that. So no, it should not affect our gross margin. But I mean, you can't tell again, if there is a suddenly a collapse in the economy in South Africa and all the U.K., especially in South Africa, then sure, we might end up with too much stock, and we would have a problem. But that has not been our experience in the past. We found a way starting to manage our way through the many, many, many challenges that come our way. Underlying expense control and outlook for Office growth without the traded costs in South Africa. Manny, do you want to talk to that? The real question is, okay, leave about the debtor cost, but how are you feeling about costs controlling the company in the next 6 months and forward.

Okay. I can answer that. So I mean, we have a saying in our business where we frugal in good times and frugal in bad times. And so our cost containment track history is very good. We focus on it permanently on all the time. We go through re-budget processes regularly. We've actually just been -- we went through one recently, we normally go through 1.5 year normally, and we have done that. So I think the expenses will be controlled. So there are some non-comparatives. So for example, we had the rates relieved last year, which we haven't got now. There's some utility costs that are going up above normal that we didn't have last year, and there's inflation, of course. But we focus on it all the time, and we are quite comfortable that we can contain the costs to a reasonable level.

Thanks, Manny. And the next question is, the U.K. business is performing well, but are margin sustainable at current levels. They're sort of saying is that going to go to collapse? Look, again, it's so hard to predict the future. But I will tell you that we really are feeling positive about that business. Remember, we're working at -- there's a very strong cost control culture now, which the team has and we work very closely with them in that respect and this lease savings that happen over time. We're careful with costs in Office and Truworth. So unless something goes wrong, I can't see why the margins are not sustainable. I mean truth is the largest credit close of the retailer, even though it's the smallest among the list of retailers, roughly what is the true share of closing credit market? We don't disclose that. I mean, actually, it's interesting because we know that as do our competitors. We all subscribe to the RLC, the Retailers' Liaison Committee, where we see category percentage of market share. The ladies I'll tell you, I don't mind it. They can -- some of the ladies can be up to 20% or so. Men slightly lower. Kids much lower. So yes, I mean all the categories are different. That's what Sarah in life looking at it saying, well, how can I recover or capture market share by improving my merchandise, but staying within the D&A. What was the average credit book loan tenure and loan amount in this year compared to last year? Reon, do you want to try to answer that?

Michael, I think it's been very static, and we've provided the statistics in our -- the credit slides, so one can calculate that out.

Thank you. Next question is an interesting one. It's such an interesting question. It says, there's a lot of virgin acquisition activity in the payroll space lately. In terms of capital allocation, how do we feel about share buybacks versus expanding our own business organically or through acquisitions? And what is the average price we bought back our shares? So let me start with the easiest one. I think they're just ZAR 48 in the last -- since 2020 or thereabouts. We bought back the shares and we plan -- we were feeling positive. So we use the cash. Share buyback, basically, what we do with share buyback is we don't store cash. So if we feel we've got excess cash, looking forward into the next 12 months or 18 months, then we buy back shares. We don't do the special dividends. We've had many discussions with shareholders. It's always a debate. So we pay 1.5x cover, roughly dividend and then we buy back shares if we feel we've got spare cash. We don't feel that much at the moment because we've got this ZAR 1 billion DC that we're spending money on over a 2-, 3-year period. So there's not a lot of cash left or excess cash. Organic or acquisition -- external acquisition, we are an organic brand in which we're incubating business that gives birth and then lives with them until they're old. And we don't give up on our brands. So we are an organic, fundament. But we bought plenty of businesses over there, we bought Office. We bought Naartjie, we bought Earthchild and Earthaddict. We bought [indiscernible], we bought Uzzi. We bought YDE. When we think that we can get our hands around it, when we think we can manage it, when we think it's linked and aligned with our business philosophy, when we think we can coop, then whether it's international or local, we for sure look at it and will venture for if we see this. I mean -- and there are things we look at all the time. Right now, we're looking at, but that's almost normal. So yes, we would do acquisitions if they fit our criteria, but it's not our strategy to go seeking acquisitions to compensate for inadequate growth in our existing business. There, we believe organic growth is fundamentally our jobs. And acquisitions are reasons to either accelerate that growth or add a dimension that we don't have. We bought loads of living. We were not in the sort of homeware business, and we thought we wanted to be -- the business was available, so we bought it. So we do that kind of opportunistic thing as well. Our net bad debt as a percentage of receivables currently 13.4%, which is below the levels of the past 19 to 14, 18 to [indiscernible] What do you think can happen going forward? I don't want to answer that because it's such a hard question to answer. I mean we -- own risk sort of methodology, and we sit in the thing called state of the book once every 6, 7 weeks, many chairs it, and there's a whole thing that goes on there. We have Investor Day, [indiscernible] And we sit with the risk team, and we spend our lives trying to manage and contain the risk whilst being able to deliver greater revenue. I mean, basically, that's what we do. And we spend our lives trying to do that. So we should, over time, over the long term, given that there will be short-term cycles, we should, over time, be able to improve our level of profitability for sure and contain our bad debt. Remembering, by the way, that we could increase our bad debt. That's a fact we can see it from all our sort of models. And we could increase the bad debt to 14, 15 and I don't even have it 16 and our profit would go up but we don't want it to go higher than these numbers. And we try and contain it to 13, 14 because it doesn't feel right to start getting it that even higher than that. What is the cost of load sharing and how do stores -- when they're using backup power, in malls with backpower, do they trade worse or better than without backup power? The -- you see the way it is done. 82% of our sales, we are covered. The other 18% -- the reason we don't have inverters in them is because we don't need them. It's not because we -- we just don't need it so there's no reason to have that. Otherwise, we would. So I can say to you 100% stores trade as normal, whether or not they've got it. There are some disruptions. The real, real problem though is that load shedding is costing the economy. The government of the Reserve Bank said that GDP will have worsened by 2% as a result. That is our real problem. And then they are correct, some malls, we may have an inverter, but the more hasn't got to generate it, and it goes dark. Fortunately, there are less and less of those, and the landlords don't want that to happen for obvious reasons. So that part of it is getting dealt with. It's more the bigger picture of how is this affecting the economy. And we are so integrated into the economy, so large in the sense that we accommodate so many customers that clearly, that has a massive impact on us. Did Truworths ever considered with products that are going down, the quick response manufacturing route that has been so successful as our competitor? So I think that's sort of a misunderstanding of how we work. But I tried to cover that earlier on. We're now talking about our in-house design center and 50% of our products local in Capetown, and Durban. So of course, we have a good response. But Sarah, do you want to talk about that a bit, you've got more expertise.

Yes, absolutely. Thanks, Michael. I think there is a misunderstanding potentially in this question because we do have a big focus on quick response. And funny enough, it's something that's been quite inherent in our model for many, many years. Almost before quick response was something that retailers really spoke about a lot. And I think you can see from our investment in growing our internal design center that the generation, past generation and response to new fashion trends and generation of new styles, which we can then feed into stores and respond to rapidly is a very important part of what we do every day. We do balance countries of origin because of our broad mix of product. And obviously, there are different opportunities for quick response and some countries are just more difficult from a quick response perspective because of the sheer distance. But given that 50% of our production is locally based in South Africa, that gives you a good indication of the power of full quick response and fast fashion that we do have within our business.

Thank you, Sarah. I'm trying to read through these questions because we are at 2 o'clock, and I know some of you will want to end it. So for those of you who do end it and leave now, please feel free. We have Investor Relations e-mail address. It's well known to, I think, all of you. If you can't find it, it's on our website. Please send us e-mails. We genuinely -- our IR panel, Investor Relations panel does look at it seriously, properly. They get copied on it, and we try to collaborate to send a response as quickly as we can. We will, meanwhile, carry on answering your questions. If you feel the inadequately answered or you want new questions to be asked, please don't hesitate to e-mail us. You will get an answer. This question is all about the Office gross margin. One of them exceeds South Africa. Do we have medium-term targets for that region? Reon, do you want to talk to that?

Yes. Thank you, Michael. We haven't disclosed any separate targets for Truworths and Office gross profits. But we have, of course, as in the past, disclosed medium-term targets for the group. I'm not quite sure where it was understood that the Office gross margin was higher than the Truworths one. I mean, we have...

I think they might be talking about EBIT margin or it doesn't have to be gross.

Yes. And we have disclosed our medium-term targets in our integrated report, which covers our HEPS and all our profit metrics, gross profit margin and so on.

Thank you, Reon. The next question is what is the outlook for price inflation for the year? I'll answer that quick. You saw it's looking at 13%, 13.5%, a bit lower. I don't think that's going to change material we bought. I went to a range already. It's all done invested. So, it's...

And that's correct. Yes. We obviously winter is largely wrapped up, not completely on the local front, but it won't -- the fabric is bedded down. So there's not likely to be a significant shift there at all.

And then the next one says is what the other income growth of over 100% of Office. I don't know if Reon or Manny wants to answer that or if you need to think about it, can't because it's not on the top of my head.

I can answer that, Michael. We mentioned that there was a reversal of impairments in the Office business. It was a net GBP 3.5 million impairment reversal. But because of accounting where we need to account for it, the impairment caution sits in other operating costs and the reversal portion sits in another income.

Thank you. The next question is about credit again. It says -- how do -- do we -- what's our appetite to grow the credit book because it's not a peak relative to history? We've got the cash and we can afford to do it. As long as it meets our credit criteria, the way I described it earlier on. We'll lend money to customers to shop it. That is our business model. But of course, it has to meet our criteria. So the appetite -- we see it as a positive thing when we can grow the book provided that's at the right half. I mean that's obviously the issue, but there is unlimited appetite. I'd rather put the money into that and stop, that turns quickly then push the boundaries of making an acquisition that we are a little bit not so sure about as an example. I would even rather do that than buying back shares because I think you expected us. I think you say to us your job is to generate return on equity, return on asset, return on invested capital, more than we can get elsewhere. And in order to do that, we have to keep on growing the business. And we do that by growing the book at the risk profile we feel is safe. And what is -- I don't think there's an long -- why did we lower inventory provision at the end of H1, H2? Reon, can you answer that?

Michael, I think if you look at our inventory provisioning, I mean, we do follow a very consistent methodology over many years, which is aimed at achieving our set targets to clear our stock and using that same methodology that we've applied, we account to what that stock provision is. I think one must remember that there's a high level of fabric and work in progress in our stock this year as well. So -- and that sits with a different provisioning level. So one would have to strip that out to compare to prior periods, but we're comfortable with our provisioning level.

Thanks, Reon. The next question is the remaining onerous leases in Office, what could we add to profitability to get out of that? Yes, that's a moving target because some of the onerous leases and that we thought we'd want to get out of when they came to renegotiation. They were not onerous anymore. The land owners wanted to keep us there and we came to commercial terms, plus the stores are doing better. They're trading so much better, so the viabilities work. But there are still some stores that will carry on for 2028 even that have onerous leases, fewer and a few of them, but there are some -- and I can't give you that answer specifically because there are so many variables. Please confirm -- please can I confirm when Michael Mark may retire and will there then be 2 CEOs? So it's really as simple as this. When I decide to retire or the Board wants me to retire, then we will announce it instantly in sense because it is a material event. Therefore, you could assume that decision has not been made because we haven't announced it. I can't predict when will happen because there's a number of factors that are involved. So I actually don't know myself. But I am 70, let's not forget that. I think I'm incredibly young 70. Putting your leg, some people don't say that. But I mean, I feel energetic and Sarah and Manny and I and Reon and our team working pretty closely together. So in one day, there will be a very seamless transition. Whether it's a joint -- or 1 of the 2 of them or even someone else becomes the CEO. That will be decided ultimately by the Board. These things are. They're not decided by me and I would never speculate on that. That's as honest as I can be. And why were sales only 5.7% in South Africa after -- from January, 7 weeks? And what was inflation? Well, I'm trying to think what would the inflation be because remembering that will be the -- it will be the sum of goods. There was inflation there, but then a lot of it's markdown. So I'm not sure that's relevant, but there wouldn't have been unit growth. That's for sure. And 5.7% doesn't mean that January and the first 7 weeks were slower than it had been before. I can't predict what's going to happen into the future. There was no specific reason that I could claim close to 5.7%. I don't want to speculate about why. I don't know. Has there been a lot of promotional activity post period against selling price inflation matched up at 13% of what they saw in the interim? They're trying to get a sense again of what volumes did. I think volumes will have post year-end, they might have increased because we marked down stuff. And I don't know really. I mean I think the first 7 weeks are not predictive of the 6-month period of January to June because that is the sales season, January and February, the first 7 weeks. Then you get into winter in South Africa and summer in the U.K. So I don't think you can take the first 7 weeks and say, well, that's a prediction of what's going to happen. I know one is tempted to do that. But so many things I claim that for 6, 7 weeks. Suffice it to say we've got the right level of stock of carryover post season. We've got the right level of pending of new stock and sales and we are feeling still cautious but optimistic. There's a lot of questions about that. They're asking what -- this 5.7% what's the split between cash and credit. I'm not going to speculate on that. I'm not prepared to disclose that at this stage. But there's no massive change, believe me, that doesn't change suddenly. The apparel retail sector in South Africa seems understock. Can you comment on the questions and health of the inventory in the retail sector? Of course, I can't do that. I don't know that I would classify it as understocked. I don't know how you can tell. I don't know what our competitors' stock levels are on their age stock or not. It's so hard to tell. I myself don't know. I think we got over stock and they are on that. You'd have to ask them and see I think that people are in South Africa retailers are very aware of managing stock access a lot. And therefore, I do think most retailers manage their stock really carefully and well. And now the next one is what's going to happen with Office? Is that going to grow as a contributor to the group in the future? Well, I don't -- in a strange way, I don't know if I hope so or not, I suppose I hope they both grow. And the other thing is the pound range. So is it going to grow because of currency? Or is it going to grow faster than Truworths? All I can tell you is we are really very optimistic about Office. It's looking fantastic. But we are just as optimistic about Truworths. It has got a lot of challenges in Truworths, in the economy, but so is the U.K. And so the best stock and safety is we're optimistic about both. I don't know if Office is going to grow. I'm hoping they both grow really well. I don't think there are any more questions that I can't see here. So with that, I am going to end. I'm going to ask Sarah, if she wants to say anything else in conclusion and then Manny.

No. I think thank you very much for joining us today. It is -- we are hoping that the months ahead will go really positively with the economy. Who knows. But as Michael said, we're feeling optimistic about our product offering and our strategy. So I suppose time will tell. Thank you.

And Manny, would you like to say anything?

Yes, just also thank you for joining us. I hope the insights into the credit space has actually helped. We really see it as a cycle. So this is part of the cycle. And in any way, COVID -- coming out of COVID, the book looked particularly good because it cleaned the book out quite nicely. And so I think a lot of the KPIs that you're seeing now are really back to normality. So we're not stressed out about the book. Of course, we -- collections would have been nice if collections are a little better, but it's -- we always want collections to be better. And the best collections tool, as we've said before, is actually merchandise. If you have great merchandise, you collect well. So we're feeling positive about that. And generally, we are feeling positive and cautiously optimistic about the business, both businesses here and in the U.K. But thanks for joining us. I hope you got some insights.

So I just conclude. Thank you very much, and thanks to my colleagues, Manny, Sarah, Reon, for supporting this. An enormous amount goes into preparing presentation, even last minute where we see a reaction to a share price comments from the analysts and the intermediary reports. We try our best to sort of modify our presentation at the last minute. And the main person bears the brunt of that is Reon and his team. So thank you to them. And as I said before and just before I conclude, please write to us on Investor Relations e-mail address, and we will respond as soon as possible. Thank you, and goodbye.