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Truworths earnings up on UK acquisition

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Cape Town – Truworths International on Thursday reported 21% growth in diluted headline earnings per share (Heps) to 403.8 cents for the six months to December 2015, driven by a recovery in the Truworths business and by the acquisition of UK fashion footwear chain Office Retail Group in December.
The group’s diluted Heps, excluding the impact of UK fashion footwear retailer Office, increased by 16% through robust sales growth, strong margins and improving credit performance.
Adjusted Heps, being Heps adjusted to exclude once-off transaction costs relating to the Office acquisition, increased by 30% to 433.9 cents.
The board is proposing to declare an award in the form of the issue of fully paid capitalisation shares in the company - a scrip dividend. As an alternative to receiving the scrip dividend, the board is proposing a cash dividend of 270 cents per share, compared to the 236c per share in 2015.
The acquisition of an 88.9% stake in Office for R5.6bn marked the group’s entry into the UK retail market. Management believes the business has strong growth prospects.
CEO Michael Mark, said Office is well positioned in the fashion footwear market, with potential to expand into new stores in the UK and Germany in the short to medium term, and into other European countries in the longer term. Office also operates a successful e-commerce business which accounts for approximately 20% of total retail sales.
“The acquisition of Office will allow us to further expand internationally, extend our product offering, benefit from currency diversification and balance revenue streams from cash and credit sales,” he said.
Group retail sales for the six months increased by 36% to R8.5bn, with credit sales accounting for 60% of sales. Excluding the recently acquired Office, Earthchild and Naartjie businesses, group retail sales increased by 15%.
The group opened a net 46 stores across all brands in the first half and the acquisitions expanded the retail footprint by 224 stores, including 52 concessions operated by Office. At the end of December 2015 the group had 932 stores and concessions across South Africa (721), rest of Africa (49), UK (151), Germany (6) and the Republic of Ireland (5).
The first kidswear emporiums were launched in October 2015, comprising the newly acquired Earthchild and Naartjie brands, and the LTD brand. The group plans to open 150 kidswear stores over the next five years.
Group operating profit increased 26% to R2.4bn and the operating margin declined to 29.3%. Excluding the Office acquisition, the operating margin improved by 20 basis points to 32.0%.
Mark said the credit market is stabilising and metrics in the Truworths debtors’ book continue to improve. The group’s debtors’ book grew by 15% to R6.1bn.
The active account base expanded by 5% to 2.8 million accounts, despite the new account acceptance rate declining to 29% from 31% in the prior period. The doubtful debt allowance has been reduced from 13% to 12.8% of the debtors’ book and net bad debt improved from 13.3% to 12.1% as a result of stronger collections.
On the outlook for the remainder of the financial year, Mark said the trading environment in South Africa is expected to remain challenging as consumers come under further pressure from rising inflation, slow economic growth and interest rate increases.

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