Truworths International Limited (TRU) Earnings Call Transcript & Summary

Good afternoon, everybody. Welcome to our Truworths International Half Year Results presentation. With me, I've got my colleagues, Manny Cristaudo and Sarah Proudfoot, the Joint Deputy CEO; and Reon Smit, who is the Director in charge of Finance. We'll go through our normal presentation in the normal format that most of you are used to. And I'll try and do it as quickly as I can, so that we have time for questions. I'm going to try and finish at 2:00, if we can. Just on 1 at the moment. There's much more content in the presentation that I'm going to talk to you, but you're going to be able to see it online after the presentation, and you'll get more information from that. If there's questions, as usual, I will say to you send questions to on the web, firstly, on to the chat group so we can respond during the question time. But also you can always e-mail our Investor Relations e-mail address, and we respond, as you all know, about within 24 hours. So normal format. Summarized principles, which are the long-term ones, which really never changed. We always apply a business philosophy, and we're trying to keep our business focus. We've got really two businesses. If you think about it, we've got Truworths Africa, and we've got Office in the U.K. We intentionally don't want to diversify too far away from those two core businesses because it gives us the ability to focus, concentrate and do what we need to do to keep the businesses in health estate. You know we've got a long-term track record of managing costs and margins, and we've done that again in this half year, a very robust balance sheet. We've built our new DC, it's nearly finished. It will be ready to operate in January '25, so it's this last year. And I think we've spent about ZAR 700 million or so over the last 2.5 years. It will cost us ZAR 1 billion by the end. So we financed that in our own cash flow. And our net cash flow -- our net debt at the moment is only ZAR 124 million. Net asset value per share went up 19% because of retained earnings growth. Now got a much more diversified earnings and customer base because of the growth of Office in the U.K. We've got this emerging market, which has all the challenges and opportunities that one has in an emerging market country like South Africa. And then we can match it now in a nice balanced way with hard currency in a developed economy, such as the U.K. through Office. So we feel the balance is much better and is improving all the time. We've got a nice mix of aspirational better-end fashion that is what Truworths' clothing. Together with Office, and Truworths also has a significant investment in footwear. So both businesses are footwear and clothing and all the brands in both businesses are aspirational. And our business has become a truly omnichannel business because Office is so strong in the omnichannel space with well over 40% of the sales on e-commerce. And Truworths is growing. It's still only 4% but growing significantly every year that e-commerce is becoming much more talked about in our business. And of course, now we've got a counter way to the declining South African currency in the U.K. pound. So this is just -- this pie chart or the series of pie charts shows you the mix. And if you want to go and look back 1 year and 2 years, you'll be able to see how it's changed. But from a profit contribution point of view, Truworths Africa is 67%, 2/3, but Office is now 1/3 of our group purpose , which is really quite exciting. And we're hoping that it over time will grow, even though we, of course, want Truworths profits to grow as well. We just think Office is likely to continue to grow faster for the next couple of years. Sales is slightly lower at 31% and our group is now cash 48%. It's roughly 50-50 because Office is so significant -- is a big part of the business and its total cash. Truworths is 70-30. And omnichannel, e-commerce is 18% because of Office is 47%. When we were preparing this presentation, we often talk to the analysts, talk about the concept of my job and our job is luck, spaceship with asteroids coming in our way. So we sort of had a look at South Africa and the world actually over the last couple of years, and we've decided to summarize it as we've been talking a lot about it lately. In 2020 we had COVID then in '21 in July, we had civil unrest in KwaZulu-Natal, which was a massive problem and it impacted 58 of our stores, and we closed another 100 at that time for a couple of weeks. Then there was the South African rand massive depreciation since March '23. It's really been a problem with the currency declining. There's flooding in KwaZulu-Natal. KwaZulu-Natal seems to have this crisis every now and then, in April '22, it was a big problem again in quite a big business operating sector with us. Then there's been load shedding since September '22. That's been aggressive in Africa and South Africa, we had a few months, which were a bit better and then lately, it got quite bad again. We've had Port strike in Durban in October '22, disruptive taxi strikes where things were really not going well in August '23 for anywhere in the Cape. Then we've had in since October last year, port congestion in South Africa, which is a big problem and we've got this -- the Middle East war exposing shipping delays since October, November, December, and it has affected us in January and February. I'll tell you more about that. So there's a lot coming our way. But notice, we say perseverance and adversity because we're actually quite proud of the fact that we sort of see all these challenges. And we had many years in South Africa during the apartheid era we faced tons of challenges. And I'm not saying only 2 of us, the whole of South Africa. And yet we are proud of how we throughout that, all these adverse times and occasions, we retain our philosophy is sticking to what we say is our business philosophy. We keep our balance sheet strong. We stick to this principle of high margin and aspiration despite quite a lot of, let's say, challenges to that by some of our community. I'm talking about the shareholders, and we stick to it. And the result of all of these things coming our way. These asteroids, if you want to call them that, is that we ended up with a really good business, staying in good nick, good condition and good position going forward. That's how we see it. We are cautiously optimistic about South Africa and about our business in Truworths for a few reasons. I've said we have a highly regarded market-leading aspirational brands in our Truworths stores, mostly owned by us, strong retail credit capability. 70% of our sales are on our own store card. We manage our own in-house credit. We don't want to be beholden to banks to decide our destiny. So we finance our book ourselves, and we have great expertise in term of doing so. There's a strong demand for our credit offering. I mean we've probably got about 3 million active account customers because that was money. That's how we define active. There's another 20 million royalty customers that means these people who've either previously shopped at us or occasionally shopped at us or they wish to, in one way or another, all of them retain an ongoing relationship with us. So there's 20 million. And you can imagine we use that base of accounts to our customers to -- we know a lot about them. We know we can score them on the scorecards. We know who they are, where they shop, et cetera. So we use that as a means to open new accounts frequently. And then what is interesting in the last 2 years, we've had 5 million account applications per year. Now obviously, we don't open all those accounts because many of them are not creditworthy. But in a country that's got 50 million, 60 million people about 25% of them are too young to have any form of, the schoolgirls and kids. So we've got about 20 million perhaps potential shoppers who knows adult enough and have got jobs. And we get 5 million applications per year to open accounts with us. And I'll tell you more over 40% of them are in their 20s and below. We are -- we think we are -- why we are feeling cautiously optimistic. We're doing quite a lot of things internally in Truworths with our merchandise, which we're quite excited about. It's sort of rediscovering opportunities. And I'm not going to go much into that because it's intellectual capital and strategic, but we are finding quite a number of opportunities. But then, on top of it all, the credit environment does seem to be slowly stabilizing. I mean the TransUnion Credit index, which many of you are familiar with, when it's under 50 is declining and worsening in the credit environment, but it was at 47, which compared to the 39 a couple of months ago shows that although it's still declining, the relative decline is only minor. So we are hoping next time the TransUnion index is published, it will be over 50. And we actually are expecting that, which is why we feel more positive. And I think those of you who are familiar with our business model, when credit is healthy in the country, even reasonably healthy with an economy that's just growing greater than 0.6%, 1.5%, 2%, our business tends to do really well. And then our in-house design capability. We have a sample set of a couple of hundred people in our head office now who make samples with fabrics, looks like a factory in all ways for our buyers, who are in the same building. So it's quite an amazing operation, we got buyers and creative business in our head office together with the sample set and the manufacturing side where we hand out the product because we buy our own fabric and our own trims. So we're completely vertically integrated internally now. In a way, we never -- we always wished we would be able to be and now we are, by having bought Barrie Cline and Bonwit over the last couple of years, and they integrated in our head office now. Of course, looking at Office U.K. wonderful turnaround since COVID. It's really been -- we like to say that COVID era turn the business over. To talk about that I have -- with many of you in the past. But Office is a strategic partner of the worlds most desired brands. Office and Offspring, both cater to the fashion end of the market, of the sneakers and shoe brands. We have some small value of our in-house brands. But what's good about Office, of course, it's the ladies fashion sneaker business. It's really a lady's fashion business, shoe business that sells a lot of sneakers, which is the appeal to the brands where most of the competitors are more masculine and sports stores. And then, of course, you've got Offspring, which is the epitome of sneaker heads, men or ladies. So we've got these two niches, which are not mainstream, but they are highly appealing to the brands and to our customers. And sneakers have and branded shoes and boots have done well in challenging economic environments. And because our Office business has done so well compared to its competitors and its environment, it's sort of standing up now as a business to do business with the brands. So we've got a ton of support now from the brands. And the business, as you've seen, is much more profitable. The new modernized stores are performing really well, well above expectations. We've got three new stores and 7 modernized stores planned for the second half. And there's at least 15 opportunities right the second, which we're busy with, at the moment, which reevaluating them and they'll come on stream in the next 12 to 18 months. And the way we see it, there's about 3 years of pretty predictable, good quality runway with modernization and new stores in the U.K., which is very exciting for us. So it's almost like the U.K.'s low-hanging fruit, which is a strange thing to say, but that's -- as it's turning out to be the truth. And then inventory and cost management in Office is now completely aligned with Truworths. I mean, MD and his capable directors in the U.K. work absolutely fantastically with the Truworths people and the reverse. We have a synergy that helps both businesses in both ways, and it couldn't be better. Group results. So if you look at the very right column, we've tracked, and we excluded the unusual items such as Forex versus IFRS 16 impairment reversals and the big insurance claim from the riots. So our diluted EPS was 7% growth. If you look at our history to the left bar graphs, you'll see there's a continuous trend of increased dividends per share and diluted EPS growth over the last 2019. Return on equity has dropped over the last 3 years. It's now a very healthy 48%, I might say. So nothing to be ashamed about but it's dropping because of the retained earnings growth. So there is an argument, and I see one of our shareholders who we know well, has really asked a question about share buybacks. I will try to answer that in a minute. But basically, we are under geared, and our balance sheet is strong. So return on equity is declining despite investment in office real estate. And then return on assets, also a healthy 33% return on total assets. It is impacted by the new DC, where we've invested couple of hundred million so far these last couple of years. And the growth in the right-of-use assets as we complete new and existing leases, and we extend them and reverse impairments and in the significant cash balance in Office is all making the return on assets decline, and that's all part of a strong balance sheet, and we are aware of it. And of course, capital utilization is an issue that we always think about. Inventories in total, 2% down on last year. Debt is 1% up. So our working capital is an incredibly well managed. Just so I can deal with it right up front. Truworths stock at the end of December was roughly equal to last year. And at the end of January, similarly roughly equal to last year, but we would have wanted it to have a couple of hundred million more. So even though we were equal to last year, we were short of stock of new goods delivered in January, particularly. And then again in February because of the port issues, a couple of hundred million short. So although stock is nice and clean, which is great, we did suffer a couple of percent in sales for sure in the month of January and February. That problem gets dealt with, we believe, during the month of March but well. So I'm hoping, I won't promise, but I'm hoping that all the shipping problems from the Middle East seems to be about a 2, 2.5-week lag in our stock float. There are some cancellations, which we wouldn't have wanted. But whatever it is, we're thinking during the month of March, things come much better. So by the end of March for the peak winter season in Africa, things should be much better. In Office, it's a simpler story, in Office there were 15% less stock at the end of December than the year before. Intentionally so, Office's stock level is great. It's a nice looking. Just we have Truworths, and of course, made a big difference to sales in January as much as markdown ultimately. I'm always telling you to be careful about interpretation of the first 6, 7 weeks of each half year because January and February, July and August, we got to worry about the fact that there's a dislocation depending on the stock excess on how you -- aggressive your own markdown. In Office's case, we had four lists to markdown in January. So sales were down on last year. February when normalized, but sales are up in double digits, low double digits. So Office is looking very positive. And then, of course, you can see we've got no debt. We've got debt in Truworths, and we've got cash in Office, they offset each other roughly. Since January 2019, '20, we bought that 52 million shares, 12% of the company. We spent ZAR 2.5 billion, ZAR 0.48 per share, probably the best investment we've ever made, if you think about it in that way. We're one of the best, Office is the best. But then leave that aside, there is a question, as I said about why we aren't buying back shares. We could have bought back shares. We've sort of taken a view. We're building the DC, we're investing in real estate, a lot in Office, we were in overdraft or let's say, net borrowings. So we just decided for the year we were not going to buy back shares. I'm sure if we can't use the capital internally and no major acquisitions come our way. Our share buyback program will start again in the next few months. We've got funding facilities of ZAR 3.5 billion left, and we canceled the ZAR 20 million RCF because in the U.K., we just don't need it to put so much cash there. And so our balance sheet is very good, and we are very aware of the opportunity to buy back shares if we can't use them. Cash flow. Group cash flow is as good as ever. I saw a report, which was incorrect or one of the analysts who said cash flow was worse and then on the numbers are confused for some reason but we generated ZAR 1.7 billion in the group. Paid dividend ZAR 935 million, net cash ZAR 800 million. The cash realization rate is 93%. In the prior period, it dropped to 56% was related to trade receivable growth, high inventory levels and the timing of monthly payments. So you almost got to ignore that December '22. The 93% is closer to our norm. Why? It's not as high as the 100%, 120% in excess that's mainly because of the book. So we have a net realization rate of 93%, which we're quite happy with. Looking at Truworths, the financial performance. You do know these numbers. We've already published them but I'll focus on the right there, the gross margin improved by 0.6%. You know we focus on that a lot. Our EBITDA margin also pretty the same as last year. 32% very respectable. Trading margin dropped because the sales growth was so low, unfortunately, expenses growth is higher than sales. It's still a healthy 17.4% and operating margin because of interest and other factors. Operating margin was actually slightly up at a very healthy 25.5%. That's Truworths, we're talking about Truworths Africa now, not Truworths anymore. Truworths income statement, you'll look at this in your own time. But the problem, of course, is the top line sales growth was poor. And net interest and dividend income made the trading profits of negative 9% change to profit before finance costs of plus 1%. The problem is really top line because expenses are under very good condition, and I'll show you in a bit later. But it was across the board the tough times. I mean, ladies was not but the man was tough, kids was tough. And the other -- these other things we're doing, Office London in South Africa, which is doing nicely, Loads of Living, Sync the new brand, Truworths Jewelry, Cosmetics, Cellular, all of those actually did quite nicely. But I mean, our core business did better in the 6-month period. And you can see identity the same and YDE still small. I told you we're feeling more optimistic cautiously so because the credit environment that definitely seems to be stabilizing. If that turns out to be true, and it continues, although it's a slow process, it doesn't happen suddenly, and we do think that the winter period, having recovered from the shortage of new goods, should be a bit better, we're hoping. And then next year from July '24 onwards, we are expecting a much better year with a lower base, some rent initiatives internally and better credits. So the stores and trading space, not much changed there. In Truworths, the density is not bad. Admittedly, there's an inflation factor that should be taken into account here, but certainly a ZAR 9,000 limit is not bad in South Africa compared to many of our competitors. Inflation kicked up enormously because of the crash of the rand in 2023, but it's dropped down to 5.7% at the moment, and it's becoming more normalized again. Great gross margin, good stock management, not excessive markdowns. Where we battled the battles with the top line margin growing, we had depreciation 4%, not much we can do about that. We have to write off our assets, we'll keep on refurbishing in Truworths stores. We watch that carefully, but we do, do it. Employment costs went up by 8% and trade receivables by 9%. Those were the two real factors. Occupancy cost, we can't do much about. So depreciation, you see the note there, we can't do much about that. Employment costs, if you excluded the incentives and other noncomparable costs, share schemes and so on, the increase in employment cost was 6%, but we have to manage that [ target ]. We understand that in tough times, that's a little too high, and we have to bring that back. Occupancy costs actually increased by 2% if you take up all the extraneous factors. And the true growth that we would say is accurate, summarizing everything is about 5%. Trade receivables is a big one that grew by 9%. And again, I've seen a report today that I think is confused. Remember how the provision works. The provision works, it's a forward-looking tool called Markov that is commonly used by all the retailers or most of them as far as we're aware. And the provision tool tells us that our future bad debt or the future debt risk has improved slightly, which is why the provision has dropped from 20% to 19%. But the bad debt went up significantly in the period 54% that's because the provision last year and at the end of June was high. It's the provision was same that last year's December, we had very good sales and there was a consequent bad debt flow through over the next 6 to 9 months or even year to a year, which is a consequence. So bad debt is historical write off, provision is future. So we are expecting future bad debt to stabilize now that the bad bulk of the bad debt has been written off. This is a review of the credits generally. Sorry, I've noted cost. Just move this out of the way from us so I can see the screen properly. So there's a gross pay debt increasing, which reflects the gross of the written-off accounts in the credit environment. We have -- in the prior period, we had really good sales growth of 16% and the book grew by 19% and the credit risk worsened in the economy. You saw the 37% or 39% TransUnion index I mentioned from a few months back, in that environment we took quite a beating in the bad debt side. But the ECL allowance as a percentage of gross trade receivable has not improved slightly, and it's due to the fact that we have written off so much of the unhealthy accounts, which is why, again, our book is looking healthier now than it has for quite a while. So this profit before finance costs and tax, you can see our EBITDA compared to that, both very healthy numbers and pretty clear pattern. Our CapEx, we spent quite a lot less this year on store renovations and development. It's just our agenda. It wasn't intentional. Just we did some big stores and they're taking longer, and it should go back to the average of ZAR 200 million this year. Computer infrastructure, as you see, and then the new DC, we've spent so far about ZAR 800 million, ZAR 780 million, and there's about another ZAR 250 million to go. That's all been part of our cash flow. Truworths Africa still very cash generative, generated ZAR 952 million. And most of the dividend of the group was paid from Truworths Africa. So that's why there's really little cash left over. But the business generated almost ZAR 1 billion, and that's after spending about ZAR 200 million on the new DC in the year. So you could say it generated about 11 -- ZAR 1.1 billion, but then admittedly, we spent less on store refurbishments. So that evens out at about ZAR 1 billion cash generation. Looking at Office U.K. this is a lovely story. If you look at the percentages on the right. Gross margin has gone from 46.6% to 47.4%. That compares -- we just put it in for comparison purposes. Truworths Africa gross margin. This is after markdown in both cases, 56.6%. So Truworths does start off with its higher margin of about 10% higher than Office. But then it comes to EBITDA and Office has grown to 27% EBITDA, which is really great and Truworths is 32%. So great high-margin businesses. Trading margin, Truworths is now lower than Office's trading margin, which is interesting after the credit side has been taken off and all the rest of it and Office's is well-run frugal business, it does -- we use -- work together with Truworths a lot. So that helps quite a lot. But either way its trading margin is really healthy as is its operating margin, which is now almost caught up to Truworths. It's operating margin 23.5% and Truworths is 26%. So we've got these two amazing businesses, one in the U.K., one in South Africa, both high margin, both operating really well and efficiently. Income statement U.K., 19% profit growth, 21% after -- before income tax. So Office is really looking good most stores in the United Kingdom and Ireland, we closed the German stores. They were all losing money. So our stores are really -- I don't think there are any stores using money as far as I can remember now. So Office is really looking good. And there's quite a lot of new stores as I've said in the [ Offspring ] because there are new opportunities and remodernization. Modernizations in our language means a beautiful new store, which happens to usually find interest space, trading space. So you add those two things together, new store, great brand, amazing location, lovely design and a bit of extra trading space. It's a nice formula. Sales density in Office is through the roof. I mean look at that, it's fantastic. Gross profit level improvement since December '21 and much better than December '19, which is the previous highest. But we have to watch expenses in Office. They are increasing; depreciation, employment costs, particularly depreciation is going to continue because we do all these stores. So that is going to cost money, and we are investing in computer systems, we have to do that. So we've been careful, and we watched return on investment per project very carefully, and they're all very productive. But still that you can expect the depreciation to continue to grow. Employment costs have grown by 15% that is mainly because of increased hours, we're growing stores. So there's more stores, and we're trading better. And the U.K. national minimum wage has went up quite a lot. So the ability to manage the employment costs in Office is a challenge for us, and we are aware of it. We don't want to depend only on the fact that the sales growth is going to be good. So the management team here is aware that improvement cost is effective. They have to consider carefully. And then other operating costs are predominantly driven by e-commerce and delivery costs. So that's quite hard to change because most of that is productive in space. Not all in all, profit before finance, cost and tax in Office looks fantastic, as you can see from these numbers. In capital expenditure, store renovation is GBP 1.7 million and computer software in GBP 591,000. Those two are going to continue to grow in future years and that we need the cash in other words. But net result is the cash flow Office, they generated GBP 32 million. So it was a very, very successful year. Looking at the account management in Truworths, 3 million active account customers who are debted to us. And so this is 3 million who are indebted to us. But the customers are able to shop, means they are indebted to us, but they're not in arrears, is up by 3.4%. So I'm trying to give you a picture why we feel cautiously optimistic. We've got 3.4% customers more able to shop as a number besides the active accounts. The growth in accounts is very good, and the credit environment is looking better, and we're doing some internal initiatives on our merchandise in Truworths that are exciting. Those are the reasons we feel cautiously optimistic over the next 12 months and 18 months in Truworths. As I said, we've got 20 million loyalty customers, and we've spoken about the bad debt. We've spoken about the 5 million credit account customers who applied for credit. And so there is picture of Truworths credit. And if you look at some of the statistics, the ones to note are the number of active accounts has grown by 5%, but 3.5% is shoppable, they can -- they're more allowed to shop. Opened accounts as a percentage of applications has grown from 14% to 18%. That does not mean we've opened up the taps. It means, we've got better and more refined at sifting out -- they're good from less good credits who we want to give credit to. So more percentage of accounts were applied were open this year, 25% risk improved versus 20% last year and the conversion rate is slightly up. So even that's getting better, but that's because of technology and intellectual capital stuff that's going on internally. The bad debt is worse other than the provision, and the forward-looking one is the provision. Again, looking forward, it looks like it could be better. I'm not going to spend time on this. But as you see, TransUnion index has gone back to 47% from quarter 4 in 2022, 48%. Quarter 2 was a disaster, the 39%. So the macro environment did look very bad. It's starting to show signs of improvement. And if you look at the 4-plus cycle balances, these are ones that are likely to be written off. The industry, excluding Truworths is sort of being slightly worse. Truworths on its own is improving, as you can see. And this is the number of accounts that are approved. You can see I already have mentioned it's on to 18% and risk approved 25%, but you can see how it's improved since December '21. Strategically, some of the things we're focusing on, review merchandise opportunities. I've been sort of alluding to it. I'm not going to tell you much more, but we're doing a lot of internal work on our brand and reposition our product and our merchandise, which is making us quite optimistic about Summer '24, which is October to December -- since September to December this coming year. We're rolling out what we call a differentiation and elevation strategy across our brands, refine our product offering in Fuel, our new brand and Sync, both are doing nicely, really good. They're looking exciting. We want to grow the ladies, men's, kids ranges in Office U.K. owned brands. We're busy with a lot of product extensions there. So that's also quite interesting and exciting. And the relationship with the suppliers in the U.K. is fantastic, but continue to build it. And then there's increasing involvement in the lifestyle, life cycle stock management process in Truworths by Office. Supply chain, you know about a new DC we're building and the investment in local design in our head office, I referred to you before, and the local manufacturing [indiscernible] own our own factory now near Cape Town, and we're quite involved in the local side, and it's becoming more and more exciting. There will always be a 50-50, we think 50 local 50 imported because there's product that you need to import and that's what the customer demands and that's what we can give. But we've got the balance right. And we're very happy with how we're running the local supply chain now. I mentioned our integrated design department. And our Office U.K. warehouse is being revolved and reorganized. So there's a lot of work going on as well. This is a new DC. You see driving from the airport in Cape Town, that's been built. It's not running yet. So they're still putting in the cranes and all the infrastructure. It will be up and running and built by December this year. Customers Truworths Africa, our online sales grew 41%. CRM capability is improving over time. Our online sales was 24%, but it is by far bigger than our biggest store now. And if it carries on going to 40%, we expect it to 40% to 50%, it's going to hit 10% in a couple of years. So we didn't expect it to do that in South Africa, given the fact that we've got hundreds of stores in every location you can imagine, and people in South Africa like to shop in stores. Nevertheless, the e-commerce side is picking up a lot. Office U.K. online offering is going to be enhanced with new customer-facing applications in Office and Offspring. And we're replacing that in Office, and we are launching a new one in Offspring. There's a lot of other work that's going on, I don't want to spend too much time on credit using AI. Retail presence, our new formats, Truworths ID Megastore and Kids Emporium are doing really nicely and the Re-Imagined Truworths is also doing well. We've only got two proper Re-Imagined stores Truworths, and they are both doing extremely well. So if that, it's early days, but if that carries on and we roll out more of those and they do well, that is another positive factor. That is slower because it takes time to roll out in Truworths. Further rollout of Sync and Fuel brands in South Africa for sure. And Office U.K. rapid expansion in the modernization of stores and extra space in existing stores plus new stores. And they're listed there. Here's a picture of our new [indiscernible] store and Truworths Re-Imagined. It's doing extremely well. There's also another one with the Waterfront. Both of them are doing very well, Waterfront in Cape Town. This is the new office frontage in the U.K. This is what the stores look like, Southampton, Tottenham Court Road and Reading. This is what a typical store looks like. This is Office Leeds in Briggate, it's [ upstairs ]. And then this is Southampton. So it's a single floor operation, beautiful stores, the customers are loving it, Newcastle. A lot of work goes on environmentally in Truworths. I'm not going to spend time on that. You can read it in your own time we spend. We're very focused on a team environment where we spend, maintained our B rating in the CDP Climate Change Review. Our new DC has received an EDGE Advanced Green Building certification, which we're very proud of. We focus on health, education, social development and empowerment of women in our social endeavors. Our trust -- charitable trusts for social endeavors now exceed ZAR 260 million that's what's available. And our BBBEE scorecard keeps on improving. We're now reach level 5. So we're very proud of that. Governance. I think even our detractors would be likely say our governance is very good. We've got succession for long-term, long-term nonexecs. We've appointed a couple of new nonexecs recently. Our JSE sustainable disclosure guidance is now well received. Deloitte have now been appointed and have taken over auditors for the group and once again, as you already know, we were in the top 10 of EY Excellence in Integrated Reporting for 16 consecutive years, we've been in the top 10, and we are the only listed company in the JSE to do that. We looked at the United Nations Sustainable Development Goals, and we are focusing on these seven, as part of our sustainability endeavors. Looking at the outlook, Truworths Africa, yes, global shipping, port congestion did impact deliveries of new goods, especially affected us in January and February, should get better from March, especially late March. U.K., I told you already January was a healthy thing because we had so little poor stock carryover. So promotion activity, much less, but really doing better in February. Net result Truworths was minus 0.5% in the first 7 weeks, Office was plus 1.3% [ rand ]. The average is 3.8% up. Trading space is projected 1% up in Truworths, 12% in Office. So I've summarized, we're cautiously optimistic about South Africa in the medium term, and we are -- we've told you -- I've told you about initiatives. The global shipping is a problem. I mean, it's not going to go away, but I think we sort of caught up now and there is a lag of 2 to 3 weeks, but at the point you catch up the lag becomes less important. And Office U.K., I think you really know there's a lot of stuff going on there. It seems to all be positive. And so we are much more positive about Office than one would have expected us to be at that point in time. So with that, I'm ending the presentation, and I'm going to refresh my questions and see if there are any questions.

Well, there's a lot. So the first one, capital allocation, share buyback, I think I've answered. The impact of the ongoing port congestion and the global Red Sea Office product. This one is quite a good one, what is the impact on Office? Well, it's a similar thing, the port impact on Office has a similar impact to Truworths, but I'm not aware of as much a crisis as we've had in Truworths. There has been some delay, but at this stage, it doesn't seem to be as serious. Sarah, would you like to comment? Do you know anything different or Manny, on that with Office U.K. I'm not [indiscernible] about interior, I'm talking more of the brands.

I don't think there's indications at this stage of a big impact on the branded product. I think there's different countries of origin. So not -- we're not seeing any evidence of that being significant at this stage as far as I'm aware.

Then it's the Office they ask Karl, should we think about office operating margins given the normalization of sales growth up against high-cost growth especially employment costs. So I do think we -- now that Office has got going into like a productive phase, sales growth probably will be less -- a little bit more contained I would think, even though we've got all these new store opportunities. So these are to tell. But I mean, we kind of have unbridled growth forever. So I suppose that will be contained. And the management team is going to have to contain employment costs, which is the main one. But I can't see why we can't maintain our margins at roughly the level that they are if not slightly improving in Office. I really can't see that. And we do not believe that we expect management in the U.K. to deliver on the current margins. So I already explained why Office slowed drastically in the first 7 weeks of this month, I told you about January and February. How much was space growth in Office adds to revenue growth. I'm not going to tell you that. I'm rather going to say to you that our modernized stores and new stores all have amazing return on investment capabilities. And in fact, when you look at our viabilities, which we do for every modernization for every new store, we are exceeding the sales that we put into our viabilities. So viabilities were appealing when our sales are beating those. So I'm not going to tell you what it adds, but I am telling you that the new stores are viable and the more we can do the better and refurbishing our stores. How much stock is arriving later out of season and what impact? There was some stock that arrived post-December that we would have rather had in the end of November, early December. So some of that we put into stores in January because it was appropriate. A small amount of it we decided to keep for some at '24. It's not a lot. I think it's ZAR 20 million or so, but it's appropriate because it's stock we know will be okay for summer '24. So unfortunately, we would have lost sales because some of that stock that we got in January, we should have got in November to sell through December. And I would say there's a kind of a 2-, 3-week sort of lag thing that has happened that is causing us to have new delayed stock. And that did impact us in January, February. As I've said, it's going to be less so in March, April or May. There's other questions about the seasonality of stock in the U.K. Does winter season not impact U.K. residence the same as summer? So yes, of course, it does. You remember we have sneakers. So the deal is Nike or New Balance, all of those guys are on cloud. But then you also have got the brands like you've got Timberland, you got UGG and you've got Dr. Martens and the sort of fashion branded shoes. So these are sort of a compensation winter or summer. Of course, you don't want to get UGG, which will sort of tend to be more winter. In summer, you don't want to get Havaianas and Birkenstock in winter. But those brands are interesting. They're not fools. So you're finding that the winter brands like UGG trying to create some products that can sell in summer. And the summer brands like Birkenstock are trying to do some winter product. So, yes, we have to get the right stock in the right time. We don't want boots in summer. And the U.K. is the same. People are people. They're not going to walk around in heavy winter product in the height of summer in the reverse. But we can manage that in both Office and in South Africa. We have good ways of managing our stock. Another Office and Truworths think alike, there's no problem with it. We just manage our stock very carefully and very thoroughly in both cases. Space growth in Office looks aggressive. How much is new store and how much is current, I'm not going to tell you that, but I've told you a number of times now that all of the new stores and all of the remodernized stores if you saw those numbers, you'd say, do more then. It's obvious to do them. The returns are fantastic. So 12%, I hope it's more, and our shareholders, you should also. Office store closed in German and new space opening coming when was a German store close? And when will the new space growth occur in [indiscernible]. I don't know, Manny do you know when the overlap -- when did the German like-for-like sort of end? I think it's soon, I don't think it's ended yet. Do you -- do either of you know?

[indiscernible] Manny. Michael, I do know those German stores closed in the second half of the 2023 financial year. So we are sort of coming out of that period and becoming more comparable now again.

So second half, meaning January to June?

Yes.

April also it's completely like-for-like. Yes, there's this question, which is a good one about why we're building up cash in the U.K. and not repatriating and paying off the overdraft in South Africa? That is a point, and we might do that. I suppose -- remember, the cash has bought up quickly in the Office's not -- so we may do that. But I mean, it's a midpoint. Firstly, Office needs money for its new stores but they are generating cash, that's not short of cash. There could be acquisition opportunities in there, okay? And if we can find something and we are looking that matches the customer of Office, that is maybe a different product category, clothing, for example, and we can use it on the back end, that would be an opportunity, and we're alert to that. And then just as it turns out, if we would have brought back all the cash, I mean no one would suggest we do that. But if we would have, because of the decline in the rand, we actually would have been worse or so, although you save interest, the decline of the rand as it turns out historically, has been in favor of leaving the cash in the U.K. But that wasn't why we did it. We did it because the expansion and the needs in the U.K. and the potential acquisition opportunities, which we are hoping for in the U.K. mean that the cash's pace lift there. But if that doesn't come to fruition, we will certainly bring some of the cash back. They're saying Sarah, this one is for you. You keep on talking okay, I'm paraphrasing, they say it more politely than I have. But we keep on talking about reinvigorating the Truworths brand, but your sales growth continues to be weak. Why are you confident it will improve? Is it just because of credit? They're trying to say, what else are you going to do internally to make the merchandise better? So Sarah, you want to be careful, for obvious reasons, but I think you must do your best.

I will do my best. So no, the answer is that we are not just depending on the credit. We do genuinely believe when we review our opportunities and relook at the various different brands in our business. We do find quite a number of opportunities that we still feel are untapped. And that's obviously over and above the new brands that we have of Sync and Fuel, which will grow in the normal way, but are still relatively small in the context of the business. But we also have a very well-established buying process, and there are certain elements of that, that we are relooking and we believe that, that will have a very positive impact on our ability to differentiate and elevate all merchandise.

Thanks, Sarah. They want some color on Shein, Temu and Amazon in South Africa. So sure that's always such a hard question to answer. I mean, competition is competition. And as long as they all play by the rules, and we're all on level playing fields being appropriate import duties and other requirements legally of operating in South Africa. Competition is competition, it affects everyone. I wouldn't think that they are more likely to effect Truworths as much as some of our competitors. But there's a pie, it's not growing that much and South African economy is tough. It's not looking great at the moment, growing middle class, low aspirations. So that will change in time as it always does. But for the moment, it's not looking good. And now you've got big online Asian competitors who buy extraordinary cheap prices. Fortunately, as I keep on saying, Truworths positions itself to aspirational brands of high quality that are loved and admired by South Africans. That protects us to some degree. I can't offer more than that. Amazon, they compete with Takealot and all the other online companies, who have their own online business. The thing that protects us has always got to be our business philosophy, our brands, our quality, our positioning and our aspiration. Manny, this questions is for you it says, what sort of gross book growth can you achieve if rates drop by 100 basis points this next year? So that's quite a hard question to answer. So, I give it to you.

Thanks, Michael. I mean you can't really say. I mean, the book growth is largely dependent on the merchandise that's available. So you get the merchandise right and the customers buy. So I know that historically, when rates have come down, we've tended to perform a little better. So one would expect that we would perform a bit better, but it's really largely driven by the merchandise.

Thanks Manny. And then other question on this -- this is more about M&A because I alluded to, we've got the cash in the U.K. It's turned out that it's been better than it's been there. That wasn't our intention. But it was because of the store growth opportunities, but also perhaps an acquisition. So they're asking what kind of acquisition or what's your restrictions. So I think you can never tell we have looked not longer at opportunities in Australia, but we decided to -- we just decided that we would prefer Northern hemisphere. We like the fact that we're working in the U.K. We seem to be finding our feet there. We can control it. We can get our hands around it. We there frequently, got a fantastic team of management and staff capability there, a warehouse and infrastructure, e-commerce, intellectual capital. So U.K. appeals to us because we tend to like to be focused and get our hands around things so that when they go wrong, which things do from time to time, we feel we can come and deal with them. So I would think that a great appeal to us would primarily be in the U.K. I can't exclude Europe or United States, but it will probably be U.K. And in the U.K. yes, it could be other shoe businesses, but it doesn't have to be because if there's a customer affinity and a relationship with the customers and shoppers offers which is millions now, and that also by another category of product like fashion clothing that we would relate to, that would also be appealing to us for all the obvious reasons. So we are kind of focused on our M&A objectives, even though we get offered many quite broad opportunities frequently in countries all over the world, it's -- our preference is what I've just said. I don't see any other questions here. I'll refresh again, I think that's all. Manny you also have access to this [indiscernible]. Are there any questions that you think we should answer that I might have missed? They're all shaking their heads. This is an all-time record then because it's 3 minutes to 2. And if we're not going to get any other, I'll refresh one more time in case I missed something, [indiscernible] to that. No, nothing has been added as far as I can see, and everyone is shaking their head. So I would say to you, thank you very much for joining us. We're going to end now. I will once again reiterate that if you want to send us any questions, you can do it. I'm just [indiscernible] here so I don't give you the wrong information. We've got an e-mail address called investorrelations, one word, no spaces, [email protected]. So if you want to write to us, you can do that. And we've got a panel. It's the four of us, but there's another four or so executives in Truworths who are on that panel, and we really -- our goal is to answer it within the same day, but if at most 24 hours. And then we still, of course, see people who still want to see us. But frequently, we are able to satisfy your queries very quickly. So thank you for joining us, and we look forward to seeing some of you in the next week or so -- next week and others in the next conferences. Goodbye to all.