INTEGRATED REPORT 2023

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CREATING SUSTAINABLE VALUE

VALUE-CREATING BUSINESS MODEL

THE BUSINESS MODEL IS UNDERPINNED BY THE BUSINESS PHILOSOPHY AND DISTINGUISHES THE GROUP FROM ITS INDUSTRY PEERS, WITH ITS UNIQUE DNA PROVIDING A SUSTAINABLE COMPETITIVE ADVANTAGE. THE GROUP’S PURPOSE, AS DEFINED IN THE BUSINESS PHILOSOPHY, IS TO PROVIDE EXCLUSIVE AND ASPIRATIONAL APPAREL TO YOUTHFUL FASHIONABLE CONSUMERS USING PREDOMINANTLY COMPANY-OWNED BRANDS IN TRUWORTHS AND THIRD-PARTY BRANDS IN OFFICE.

The successful execution of this business model will create value for the Group’s primary stakeholders, as defined in the Vision for shareholders, customers and employees, as well as our other stakeholders including suppliers, financiers, landlords and the regulators in the countries in which the business operates.

As a fashion retailer, the Group’s business model is to procure merchandise through an efficient local and international supply chain and to sell it to consumers for cash or on account through its network of retail stores and e-commerce platforms.

ASPIRATIONAL FASHION

Business activity

  • Predict and interpret latest trends in fashion apparel, footwear and homeware
  • Design, develop and source own-branded exclusive fashion merchandise from both local and international suppliers
  • Collaborate with third-party brands on trends and most wanted exclusive styles (Office)
  • Consistently update and refresh established brands and create new and enticing range extensions

Business activity outputs and outcomes

  • Unique and aspirational good quality own-brands that provide differentiation
  • Adventurous blends of colour, fabric and fashion styling create enticement
  • Broad curated ranges of latest ‘in-demand’ fashion footwear comprising exclusive third-party product lines combined with own-brand styles (Office)

ACCOUNT MANAGEMENT

Business activity

  • Offer accounts and lay-bys in South Africa and selected other African countries to enable retail sales
  • Continuously refine existing and develop new credit products and strategies
  • Account granting and approval functions centralised at Truworths head office
  • Collections and customer engagement through stores and call centres
  • Increase basket size and frequency of purchases through loyalty programmes for account customers and loyalty members
  • Leverage customer loyalty through targeted marketing

Business activity outputs and outcomes

  • Grow sales through responsible credit granting
  • Balanced cash and account sales mix
  • Account portfolio managed within acceptable risk levels
  • Enhanced customer loyalty through understanding and reacting to customer information and purchase behaviour

Refer to Account management for more detail

SUPPLY CHAIN

Business activity

  • Operate a centralised distribution model (Truworths in Cape Town, South Africa and Office in Kilmarnock, Scotland)
  • Receive imported and locally manufactured merchandise from suppliers at distribution centres for onward distribution to stores and e-commerce customers
  • Distribute merchandise via third-party transport and distribution networks
  • Fulfil e-commerce orders from stores and distribution centres, leveraging the distribution and logistics networks
  • Dynamic interaction with local and foreign suppliers that are aligned with business requirements and profile
  • Persistent focus on dynamic planning systems and processes

Business activity outputs and outcomes

  • Optimal inventory levels to satisfy customer demand and contain markdowns
  • Efficient supply chain which meets targeted inventory turn levels

Refer to Truworths Supply chain and Office Supply chain for more detail

RETAIL PRESENCE

Business activity

  • Offer a portfolio of exclusive and aspirational ladies’, men’s and kidswear fashion apparel, accessories and footwear including third-party exclusive styles, and homeware
  • Stock, display and sell merchandise in stores (operating from leased premises) and online, as well as to wholesale partners and from concession outlets (Office only)
  • Emporium store concept showcases multiple brands in one store (Truworths)
  • Design new and refine existing store concepts to ensure an enticing retail environment
  • Optimise trading space to promote sales and enhance productivity and returns metrics
  • Complement store sales with e-commerce merchandise offering to service online customers and provide convenient delivery and collection options

Business activity outputs and outcomes

  • Enticing store and online shopping environments
  • Well-trained staff who treat customers with respect and serve them well
  • Encourage brand cross-shopping

Refer to Truworths Retail presence and Office Retail presence for more detail

THE CAPITALS OF VALUE CREATION

INPUTS INTO THE GROUP’S BUSINESS ACTIVITIES COMPRISE THE FINANCIAL, MANUFACTURED, INTELLECTUAL AND HUMAN CAPITALS AVAILABLE TO AND UTILISED BY THE GROUP AS WELL AS THE SOCIAL AND RELATIONSHIP CAPITAL EVIDENT IN THE IMPORTANT RELATIONSHIPS AND PARTNERSHIPS WITH STAKEHOLDERS. THROUGH ITS SUPPLY CHAIN, WHICH OUTSOURCES THE MANUFACTURING AND TRANSPORTATION PROCESSES TO SUPPLIERS, THE GROUP INDIRECTLY CONSUMES NATURAL CAPITAL IN THE FORM OF RAW MATERIALS SUCH AS COTTON, WOOL AND LEATHER, AS WELL AS WATER AND CARBON-DEPLETING ENERGY SOURCES. THE GROUP’S OPERATIONS, TO A LESSER EXTENT, UTILISE WATER AND CARBON-DEPLETING ENERGY SOURCES IN ITS HEAD OFFICES, DISTRIBUTION CENTRES AND STORES, AND THE BUSINESS TRAVELLING UNDERTAKEN BY ITS EMPLOYEES. INPUTS PROVIDED BELOW ARE MEASURED AT THE END OF THE 2023 REPORTING PERIOD.

FINANCIAL
CAPITAL


INPUTS

INPUTS

Financial capital relates to the funding received from the providers of capital and the financial resources available to the Group.

  • Equity of R7.7 billion (2022: R6.1 billion)
  • Net debt of R850 million (2022: R564 million)


CONSTRAINTS

CONSTRAINTS

The Group does not face any financial capital constraints and has access to borrowing facilities of R3.6 billion in South Africa (R2.3 billion utilised) and £20 million in the UK (unutilised). Should it become necessary, the Group could raise additional financial capital through an issue of shares or by utilising its robust balance sheet to raise additional loan funding.

Refer to Chief Financial Officer’s report for more detail

MANUFACTURED
CAPITAL

INPUTS

Manufactured capital is the physical infrastructure used in the distribution and selling of merchandise, including the distribution centres, leased retail stores and the information technology systems (including websites) throughout the business.

  • 876 (2022: 877) stores
  • Three (2022: three) main distribution centres
  • Seven (2022: seven)
    e-commerce sites

CONSTRAINTS

Constraints include distribution centre capacity during peak periods, local manufacturing capacity and financial viability in the local supply base and additional retail space in key locations where the Group's existing stores are overtraded

Refer to Material issues, risks and opportunities for more detail

INTELLECTUAL
CAPITAL

INPUTS

Intellectual capital focuses on knowledge in the organisation, systems, processes, trademarks, intellectual property and brands.

  • More than 40
    own-brands across Truworths and Office
  • Sophisticated merchandise, distribution and account management systems and processes
  • Policies, procedures and manuals

CONSTRAINTS

Ageing merchandise and warehouse management systems in Office are preventing further efficiencies from being unlocked.

Refer to Material issues, risks and opportunities for more detail

HUMAN
CAPITAL

INPUTS

Human capital relates mainly to employees’ skills, capabilities, development and experience.

  • 12 126 (2022: 11 355) employees
  • Values-driven corporate culture
  • Market-leading merchant trainee programme
  • Extensive skills training and management development

CONSTRAINTS

Scarcity of specialist skills and portability of skills which are in demand in other countries. Experienced some constraints in Office in relation to suitable candidates for available positions not being employed quickly enough.

Refer to Truworths Human Capital and Office Human Capital for more detail .

SOCIAL AND
RELATIONSHIP CAPITAL

INPUTS

Social and relationship capital deals broadly with stakeholder relationships and engagement, corporate reputation and values.

  • 2.8 million (2022: 2.6 million) active account customers
  • 18.9 million (2022: 16.4 million) loyalty programme customers
  • More than 500 merchandise suppliers across the Group
  • Three trusts fund the corporate social investment (CSI) programme with investments to the value of R239 million (2022: R226 million)

CONSTRAINTS

South African consumers under pressure with reduced disposable income as they contend with higher electricity, food, borrowing and general costs of living, negatively affecting account payments and credit scores. These factors constrain both account acquisition growth and account purchase behaviour.

Refer to Material issues, risks and opportunities for more detail

NATURAL
CAPITAL

INPUTS

Natural capital relates to environmental resources directly or indirectly utilised by the Group.

  • Natural materials used in the manufacturing of merchandise and packaging materials
  • Consumption of fossil fuels in the supply chain
  • Electricity and water consumed in operations

CONSTRAINTS

Load shedding in South Africa results constraints in electricity supply.

Refer to Material issues, risks and opportunities for more detail

IMPACT OF BUSINESS ACTIVITIES ON CAPITALS

The outcomes of the Group’s operational and financial performance have created value for stakeholders, supported by the Group’s Business Philosophy.
The Group continued to generate robust cash flows, increased earnings to record levels and maintained its dividend payout ratio.

FINANCIAL
CAPITAL


OUTCOMES

OUTCOMES

Financial capital has been increased owing to stronger retail sales growth, increased interest income due to higher credit sales and interest rates, offset by reduced margins, higher trading expenses and finance costs. The Group returned R2.0 billion of financial capital to shareholders through dividends and share buy-backs.

MANUFACTURED
CAPITAL

OUTCOMES

Manufactured capital was increased through the 1.1% increase in trading space across the Group and the investment in the construction of the new Truworths distribution centre.

INTELLECTUAL
CAPITAL

OUTCOMES

Intellectual capital deployed by the Group has increased, mainly through the enhancement of account management systems and processes, the ongoing refinement of newly launched brands, and the investment in new retail concepts.

HUMAN
CAPITAL

OUTCOMES

Human capital deployed by the Group has increased, as evidenced by the growth in the number of employees and through the Group’s continued commitment to training and development.

SOCIAL AND
RELATIONSHIP CAPITAL

OUTCOMES

Social and relationship capital deployed by the Group has increased, as evidenced by the Group’s strong stakeholder relationships, the growth in the account and loyalty customer base and the improvement in the Group’s B-BBEE rating.

NATURAL
CAPITAL

OUTCOMES

The rate of depletion of natural capital has increased in line with the growth in business activity, however the depletion is at levels which the Group believes are acceptable.

EXTERNAL FACTORS IMPACTING VALUE CREATION

Several factors that are partially or wholly outside the control of the Group could have a significant impact on value creation, preservation or erosion. The external factors influencing the Group’s financial performance and our response to these factors are addressed in the relevant sections throughout the Integrated Report.

The impact of our business activities on the capitals is outlined below

Key

Improvement since prior period
Deterioration since prior period

KEY OUTCOMES

STAKEHOLDERS AND SDGs IMPACTED

REFERENCES

FINANCIAL
CAPITAL

Continued access to financial capital through investor and financial market confidence

Key outcomes 2023 2022
Return on invested capital (ROIC): Weighted average cost of capital (WACC) (times) 2.0 2.5
Net debt to equity (%) 11.1 9.2
Diluted headline earnings per share up 12% (cents) 861.4 770.8
Period-end share price (cents) 5 660 4 886
Annual dividend per share up 12% (cents) 565 505
Dividend yield (based on weighted average share price) (%) 10.2 9.0
All medium-term financial targets met or exceeded (refer to Chief Financial Officer’s report for further detail)

MANUFACTURED
CAPITAL

KEY OUTCOMES

Ongoing investment in the Group’s stores, distribution capability and e-commerce platforms to promote and sustain growth

Key outcomes 2023 2022
Capital expenditure (Rm) 717 340
Growth/(decline) in trading space (%) 1.1 (0.3)
Net number of stores closed 1 14
Underperforming stores closed 27 29
Office trading space decreased (%) 12.6 4.4
Increased e-commerce contribution to retail sales (%) 15 13
Consolidated distribution centres in Office to enhance productivity and profitability

STAKEHOLDERS AND SDGs IMPACTED


INTELLECTUAL
CAPITAL

KEY OUTCOMES

Expanding our market-leading brand portfolio and developing new and streamlining existing business processes and systems

Key outcomes
Ongoing enhancements to order fulfilment processes for online shopping have improved the customer experience, reduced delivery lead times and lowered costs for Truworths
Ongoing focus on systems integration and process enhancements to improve efficiencies within the combined in-house design centre
New software enables a wider range of data, features and predictive models to be used in the customer decision strategy

STAKEHOLDERS AND SDGs IMPACTED


HUMAN
CAPITAL

KEY OUTCOMES

Employment creation, employee development through skills training and workplace experience, and the promotion of fair labour practices

Key outcomes 2023 2022
Salaries and benefits paid to employees increased (Rbn) 2.5 2.3
Number of employees increased 12 126 11 355
Maintained black employee representation in South Africa (%) 94 94
Strong, stable female representation:
   Truworths (%) 75 74
   Office (%) 62 60
Trained more people across the Group 11 527 10 555
Significant overall investment in skills development (Rm) 122 117
Lower skills development spend per employee (R’000) 10.1 10.3
Below the medium-term target of 30% black representation on the Truworths International board (%) 25 23
Maintained the medium-term target of 30% female representation on the Truworths International board (%) 33 31
No external referrals of unfair discrimination

STAKEHOLDERS AND SDGs IMPACTED


SOCIAL AND
RELATIONSHIP
CAPITAL

KEY OUTCOMES

Maintained positive relationships with stakeholders and invested in the wellbeing of the communities we operate in through our various corporate social investment (CSI) initiatives

Key outcomes 2023 2022
Truworths active account customer base increased 5.7% (m) 2.8 2.6
Truworths loyalty programme customer base increased (m) 18.9 16.4
Net promoter score improved
   Truworths 55 53
   Office 78 65
Increased CSI distributions (Rm) 4.9 4.6
Higher merchandise donations to socioeconomic and enterprise development beneficiaries (Rm) 41 31
Improved broad-based black economic empowerment (B-BBEE) scorecard compliance (Level) 5 6
Growing social media following – Facebook and Instagram
   Truworths (m) 7.4 6.8
   Office (m) 1.2 1.2
Significant corporate tax payments (R) 1 068 909

STAKEHOLDERS AND SDGs IMPACTED



NATURAL
CAPITAL

KEY OUTCOMES

Depletion of environmental resources through our supply chain (indirect) and own business operations (direct)

Key outcomes 2023 2022
South African store electricity carbon emissions decreased (Wh per m2) 15.0 15.9
Increase in recycled plastic hangers (tonnes) 84.6 79.3
Increase in paper consumption (tonnes) 324 296
Increase in recycled cardboard cartons due to focus on re-use (tonnes) 745 632

STAKEHOLDERS AND SDGs IMPACTED



ACTIONS TO ENHANCE OR MITIGATE OUTCOMES IN 2023

KEY TRADE-OFFS

REFERENCES

FINANCIAL
CAPITAL

Ongoing active management of the Group’s financial capital base through:

  • Returned R2 billion to shareholders through dividend payments and share buy-backs.
  • Reinvestment of R717 million in capital infrastructure.
  • Utilised revolving credit facility available to the Group (Truworths R1.2 billion).
  • Utilised bank overdraft facilities (Truworths R935 million).

Financial capital is applied to sustain and grow our business, typically with positive impacts on manufactured, human, intellectual, and social and relationship capitals, and negative impacts on natural capital.

MANUFACTURED
CAPITAL

ACTIONS TO ENHANCE OR MITIGATE OUTCOMES IN 2023

  • Capital expenditure of R676 million on stores, distribution centres and buildings.
  • Continued consolidation of space and improving efficiencies through introducing new brands into existing stores and closing marginal/loss-making stores.
  • New Truworths distribution centre (DC) under construction. Green loan secured to fund development of new DC.
  • New Office stores opened in the UK (first new stores in three years).
  • R40 million spent on backup power solutions for SA stores to mitigate impact of load shedding.
  • Stores covering 87% of SA sales equipped with alternative power sources.

KEY TRADE-OFFS

Ongoing investment in the Group's store and distribution infrastructures requires significant upfront capital investment and has a negative environmental impact in general. The Group strives to minimise its environmental impact by building energy‑efficient stores, and the new distribution centre will be a green-certified building. Furthermore, our commitment to investing for growth will contribute positively to financial capital in the medium to long term.

INTELLECTUAL
CAPITAL

ACTIONS TO ENHANCE OR MITIGATE OUTCOMES IN 2023

  • Ongoing testing of new brand and store concepts.
  • Regular review of account management, collections and acquisition strategies.
  • Impact of business process alignment enhanced through further systems alignment between Truworths and Office.
  • Acquired ladieswear apparel design centre Bonwit and integrated into in-house design division.
  • Integrated Barrie Cline and Bonwit operations onto a standard systems platform.
  • Upgraded order fulfilment as well as payment gateway for
    e-commerce platform.
  • Online customer verification enabled for opening new accounts virtually.
  • Continuous improvement of cybersecurity strategies.

KEY TRADE-OFFS

Ongoing investment in business processes and new systems is growing our intellectual capital, and indirectly benefitting our human and social and relationship capitals, but negatively impacting financial capital in the short term.

HUMAN
CAPITAL

ACTIONS TO ENHANCE OR MITIGATE OUTCOMES IN 2023

  • Focused on developing internal talent to demonstrate commitment to sustainable transformation in South Africa.
  • Refreshed our Values and expanded thereon with the addition of “Contribution-focused” and “Embrace the power of inclusive teams”
  • Commenced diversity, equity and inclusivity training to promote an inclusive working environment for all employees.

KEY TRADE-OFFS

  • Increasing the number of permanent and flexible employment positions mainly through acquisitions has impacted positively on our human capital but, in the current challenging trading environment, negatively impacted on our financial capital. It is believed that our financial capital will benefit from this in the longer term.
  • Our commitment to the training and development of our employees reduces our financial capital but leads to increased human and intellectual capitals. This will ensure that our employees are equipped to provide our customers with superior quality, aspirational fashion merchandise, and provide world-class customer service that will ultimately increase the value created for our shareholders.

SOCIAL AND
RELATIONSHIP
CAPITAL

ACTIONS TO ENHANCE OR MITIGATE OUTCOMES IN 2023

  • Entered into new CSI initiatives and partnerships to achieve a broader spread of investment across identified focus areas.
  • Performed a review of the CSI trusts’ investments to enhance returns with a view to increase CSI distributions and ensure the trusts remain financially sound into the future.
  • Continued focus on and regular communication with suppliers about B-BBEE compliance and progress.
  • Continued to donate merchandise to Taking Care of Business which strengthens the relationship and reduces waste.
  • Appointed a service provider to enhance the Office ESG strategy and align it with the Group.
  • Improve ESG reporting and in turn awareness through the adoption of the JSE Sustainability Disclosures Guidance.
  • Engaged regulators on key matters, including National Credit Regulator, Department of Employment and Labour, Department of Trade, Industry and Competition and revenue authorities.

KEY TRADE-OFFS

  • Through our commitment to socioeconomic, supplier and enterprise development, we are trading financial capital in the short term to boost social and relationship capital through the upliftment of communities and the development of our local supply chain.
  • The tough consumer environment is impacting negatively on the credit score of new applicants, resulting in a reduction in the number of
    risk-approved applications. In order to grow the active account base the Group is required to increase marketing spend and invest in the development of new credit products and strategies.
  • In the current tough economic climate our focus on containing costs through the negotiation of prices with suppliers and landlords, and by limiting the use of external service providers where work can be performed inhouse, arguably weighs on our social and relationship capital in an effort to limit the reduction of our financial capital. This will however increase our human and intellectual capitals as in-house skills grow and develop.

NATURAL
CAPITAL

ACTIONS TO ENHANCE OR MITIGATE OUTCOMES IN 2023

  • All SA stores renovated during the period fitted with energy efficient lighting as well as electricity meters.
  • Replaced all head office lighting with highly efficient LED lighting.
  • Partnered with organisations that recycle or re-use damaged goods or convert fabrics into garments for resale.
  • All suppliers required to commit to good environmental practices.
  • Materials associated with merchandise are recycled or re-used where possible, while the business continues to seek ways to limit packaging on merchandise.
  • Measures implemented to decrease carbon emissions in supply chain.
  • Electricity reduction targets set.
  • Renewable energy is being introduced where possible.
  • Continued effort to reduce water consumption at all facilities and stores.
  • All plastic bags made from at least 50% recycled materials.

KEY TRADE-OFFS

  • We consume natural resources and fossil fuels in the production, packaging and transportation of our merchandise, which impacts negatively on natural capital in order to increase financial capital, and indirectly all the other capitals of value creation.
  • Various environmental initiatives (installation of energy meters to track energy consumption, renewable energy at owned locations, LED lighting, water savings initiatives, reducing and reusing packaging, plastics, paper and landfill) are aimed at reducing our impact on natural capital, often at a cost to financial capital, at least in the short term.
INTEGRATED REPORT 2023