Review of 2020
Performance was severely impacted by the COVID‑19 pandemic which resulted in lower revenue, reduced account collections, higher debtors provisioning and impairments
Decisive response from management to mitigate the impact of COVID-19, including conserving cash, reducing expenditure, minimising disruption on account collections and managing inventory levels and the order book
Group remained strongly cash generative with a robust balance sheet and, despite the impact of the pandemic, declared a final cash dividend to shareholders
Lockdown trading restrictions in the Group’s two main markets contributed to retail sales declining by 9.2% as South African stores closed for 5 weeks and UK stores for 12 weeks
Office’s profitability impacted by increasingly tough trading conditions in the UK and effects of COVID‑19 lockdown, resulting in a further impairment of intangible assets
In light of difficult trading conditions, considered all options for Office and decided to continue funding the business through an additional intra-group facility of £6.5 million
The Group’s 2019 Integrated Report was ranked 8th in the Ernst & Young (EY) 2020 Excellence in Integrated Reporting Awards. This is the 13th consecutive year that the Group attained a top-10 ranking in the EY reporting awards
The Group again qualified for inclusion in the FTSE4Good ESG Index, recognising its leading environmental, social and governance practices
Group financial performance
Gross margin lower at 50.8% (2019: 51.6%)
Doubtful debt allowance to gross trade receivables 30.2% (2019: 19.2%)
Operating margin -0.7% (2019: 9.0%)
Adjusted operating margin 15.0%* (2019: 19.0%)
Operating profit down 107%
Adjusted operating profit down 28%*
Diluted headline earnings per share down 28%
Office intangible assets impairment of £118 million (2019: £102 million)
Cash generated from operations R4.5 billion (2019: R4.2 billion)
Return on assets -1% (2019: 10%)
Adjusted return on assets 13%* (2019: 19%)
Net cash to equity 0.7% (2019: net debt to equity 7.9%)
Cash realisation rate 136% (2019: 93%)
Annual dividend per share down 27% to 280 cents (2019: 384 cents)
* Adjusted to exclude goodwill and intangible asset impairments
Outlook for 2021
Consumer spending is expected to remain under pressure in the medium term owing to the prolonged economic downturn and the negative impact of COVID-19, with rising unemployment being a further threat.
Lower consumer inflation, low interest rates and government aid packages may provide some relief for cash-strapped consumers.
Higher credit losses are likely due to the economic slowdown and weakening labour market in the wake of COVID-19. However, the allowance for doubtful debts raised in the 2020 financial year should significantly off-set the impact of these expected losses.
Truworths aims to restore sales growth by extending merchandise ranges, launching new store and digital concepts, expanding its e-commerce offering, streamlining and increasingly integrating its supply chain and attracting increasing numbers of non-account customers through its lay-by payment option.
Retail trading conditions in the UK will remain constrained in the medium term due to the effects of the COVID-19 pandemic, the Brexit transition and the migration to digital retail.
Increasing COVID-19 infection rates in the UK have resulted in the government imposing new restrictions, including a renewed call for citizens to work from home, which will further impact on retail foot traffic and could negatively impact revenue and profitability.
Office’s growing e-commerce business is well positioned to benefit from the increasing shift to online shopping that has been accelerated during the COVID-19 pandemic.
Following the refinancing of the business, the restructuring and turnaround programme is being intensified to secure the long-term viability of Office.
Rationalise the physical store portfolio through the planned closure of 28 under-performing or loss-making stores in the coming period. This will be accomplished on lease expiry or by exercising break clauses in future periods.
Despite the current challenges Office remains a strong brand and a key strategic partner to the world’s leading fashion footwear brands.