R E V I E W O F T H E P E R I O D

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3 1 R E V I E W O F T H E P E R I O D 3

4 SOUTH AFRICA TRADING ENVIRONMENT Difficult trading environment. GDP growth remained subdued throughout 2017/2018 with negative growth in Q1 of calendar Rising fuel and energy prices, VAT rate increase and weaker Rand. Take-home pay for SA consumers has dropped significantly. Consumer confidence has declined after initial boost at the start of the calendar year following appointment of new president. Unemployment increased in Q2 of calendar 2018 to 27.2%. Uncertainty regarding land reform impacting on business and investor confidence. Sources: Stats SA, BankServAfrica 4

5 UNITED KINGDOM TRADING ENVIRONMENT Extremely tough retail environment. GDP growth slowed in Q to 1.2% (weakest since 2012). Retailers hit by soaring business rates and low consumer confidence. Customers impacted by Brexit-fuelled inflation. Number of retailers issuing profit warnings has doubled and the number of companies filing for Company Voluntary Arrangements (CVA) has increased substantially. Continued inflationary pressure with CPI growth of 2.4% has squeezed household income. Brexit-related uncertainty remains, although fiscal policy has been relaxed. Source: UK Office for National Statistics 5

6 2 F I N A N C I A L R E V I E W I. G R O U P 6

7 GROUP EXECUTIVE LEADERSHIP David Pfaff appointed Group Chief Operating Officer (COO) Appointment to newly created COO position effective immediately. Recognises David s expanded responsibilities, which now include retail store operations in addition to his existing portfolio of credit risk, credit operations, information systems and finance. He continues as Group Chief Financial Officer and head of the Group s finance function. David has been with the Group since March David Pfaff (53) BCom, CA (SA), Dip Soc (Oxon) COO and CFO 7

8 GROUP OVERVIEW Year-on-year performance impacted by 53 rd week in the prior period. Top-line growth affected by challenging economic environment in SA and UK. Trading expenses well controlled, reducing by 2% on the prior period. Dividend cover maintained at 1.5 times. Strong balance sheet with improved net debt to equity ratio. South African debt restructured. Cash realisation rate of 109%. Net asset value per share growing at 10% to cents. Opened 13 Office London stores in South Africa. Acquired homeware chain, Loads of Living, with 13 stores. Launched sophisticated e-commerce site in South Africa. 8

9 GROUP PERFORMANCE AGAINST TARGETS Jun 2018 Actual 52 weeks Jun 2018 Target 52 weeks Gross margin 52.4% 51% 55% Operating margin 22.5% 20% 25% Return on equity 27% 26% 31% Return on assets 25% 22% 27% Inventory turn 4.0 times times Asset turnover 1.1 times times 9

10 GROUP FINANCIAL PERFORMANCE Jun weeks Jun weeks * Change on prior period 52 on 52 weeks Jun weeks Change on prior period 52 on 53 weeks Sale of merchandise (Rm) (0.2%) (2.9%) Gross margin 52.4% 52.6% 52.6% Operating margin 22.5% 22.6% 23.3% Diluted HEPS (cents) (1.3%) (7.3%) Dividend per share (DPS) (cents) (7.1%) Net asset value per share (cents) % * Pro forma comparable week period. 10

11 GROUP DILUTED HEPS AND DPS (52 WEEKS) (cents) 700 Compound growth rates: Diluted HEPS: Jun: 5-year 1.8%, 3-year 1.2% Compound growth rates: DPS: Jun: 5-year 3.0%, 3 year 1.2% Jun 2014 Jun 2015 Jun 2016 Jun 2017* Jun 2018 DPS Diluted HEPS *Pro forma comparable week period ( weeks: 661 cents per share). 11

12 GROUP RETURN ON EQUITY (ROE) AND RETURN ON CAPITAL (ROC) (%) Average: ROE: Jun: 5-year 33.0%, 3-year 31.0% Average: ROC: Jun: 5-year 47.6%, 3-year 45.7% Office UK acquired Jun 2014 Jun 2015 Jun 2016 Jun 2017 Jun 2018 ROE ROC 12

13 GROUP RETURN ON TOTAL ASSETS AND ASSET TURNOVER Return on assets (%) Average: Return on assets: Jun: 5-year 31.0%, 3-year 25.0% Average: Asset turnover: Jun: 5-year 1.1 times, 3-year 1.1 times Asset turnover (times) Office UK acquired Jun 2014 Jun 2015 Jun 2016 Jun 2017 Jun Return on assets Asset turnover 13

14 GROUP ROIC vs WACC 30 (%) Average: ROIC: Jun: 5-year 19.8%, 3-year 16.7% Average: WACC: Jun: 5-year 13.6%, 3-year 13.3% Office UK acquired Jun 2014 Jun 2015 Jun 2016 Jun 2017 Jun 2018 ROIC WACC 14

15 GROUP STATEMENTS OF FINANCIAL POSITION Jun 2018 Rm Jun 2017 Rm Change on prior period % Property, plant and equipment Goodwill Intangible assets Other non-current assets (3) Cash and cash equivalents (52) Trade and other receivables (3) Inventories Other current assets Total assets (4) Total equity Non-current liabilities (50) Current liabilities Total equity and liabilities (4) 15

16 GROUP CAPITAL MANAGEMENT FINANCIAL POSITION Financial position remains strong with NAV per share up 10% to cents. DIVIDENDS Final dividend of 159 cents per share (2017: 182 cents per share). Total dividend per share of 420 cents per share (2017: 452 cents per share). GEARING Net debt to equity ratio: Group: Reduced to 9.3% R968 million net debt (June 2017: 18.3% R1.7 billion net debt). Truworths: Reduced to 5.9% R605 million net debt (2017:11.9%, R1.2 billion net debt). Office: Reduced to 10.2% 20.1 million net debt (2017: 18.2%, 33.5 million net debt). 16

17 GROUP SA DEBT FUNDING RESTRUCTURE Jun 2018 Jun 2017 Facility Base rate Total Rm Utilised Rm Base rate margin (ppts) Total Rm Utilised Rm Base rate margin (ppts) Term loans 3-month JIBAR to Revolving credit 3-month JIBAR Overdraft Committed Prime Overdraft Uncommitted Prime Total gross debt

18 GROUP DIVERSIFICATION TRUWORTHS OFFICE GROUP Rest of Africa 4% Rest of Europe 9% UK and Europe 27% RETAIL SALES R m R4 848 m R m Rest of Africa 3% South Africa 96% United Kingdom 91% South Africa 70% CASH: ACCOUNT SALES Cash 31% Cash 50% R m R4 848 m R m Account 69% Cash 100% Account 50% 18

19 GROUP DIVERSIFICATION TRUWORTHS Footwear 11% OFFICE Footwear 100% GROUP Footwear 35% PRODUCT MIX R m R4 848 m R m Clothing and accessories 89% Clothing and accessories 65% Rest of Africa 5% Rest of Europe 12% UK and Europe 16% Rest of Africa 4% STORE LOCATIONS 813 stores 156 stores 969 stores South Africa 95% United Kingdom 88% South Africa 80% 19

20 GROUP CASH FLOWS (Rm) Cash realisation rate of 109% (244) (855) (86) (1 925) (399) (161) (123) (1 000) (2 179) (1 402) (2 000) EBITDA* Working capital movement Interest received Dividends received Finance costs Tax paid Capex maintenance Free cash flow Dividends Capex expand Net shares scheme buy-backs Other Cash flow before financing Net borrowings repaid Net cash decrease *Earnings before interest, tax, depreciation and amortisation. 20

21 GROUP CASH REALISATION RATE (%) Jun 2014 Jun 2015 Jun 2016 Jun 2017 Jun 2018 Cash realisation rate 21

22 2 F I N A N C I A L R E V I E W I I. T R U W O R T H S 22

23 TRUWORTHS EXECUTIVE LEADERSHIP Michael Mark (65) BCom, MBA, ACMA Chief Executive Officer David Pfaff (53) BCom, CA (SA), Dip Soc (Oxon) COO and CFO Doug Dare (57) BBus Sc Executive Director: Buying and Merchandising Sean Furlong (57) Diploma in Marketing Management Director: Planning and Logistics Sarah Proudfoot (50) National Diploma in Clothing Design Director: Merchandise Ladieswear 23

24 TRUWORTHS EXECUTIVE LEADERSHIP (CONTINUED) David Pfaff (53) BCom, CA (SA), Dip Soc (Oxon) COO and CFO Store Retail Operations Risk and Analytics Information Systems Credit Operations Legal Internal Audit Company Secretarial Finance 24

25 TRUWORTHS EXECUTIVE LEADERSHIP (CONTINUED) Doug Dare (57) BBus Sc Executive Director: Buying and Merchandising Menswear Kids Homeware Marketing Menswear Quality Assurance Truworths Manufacturing International Sourcing 25

26 TRUWORTHS EXECUTIVE LEADERSHIP (CONTINUED) Sean Furlong (57) Diploma in Marketing Management Director: Planning and Logistics Project Office Merchandise Planning Distribution and Logistics 26

27 TRUWORTHS EXECUTIVE LEADERSHIP (CONTINUED) Sarah Proudfoot (50) National Diploma in Clothing Design Director: Merchandise Ladiesware Truworths Ladieswear Identity Ladieswear Ladieswear Fashion Studio Marketing Ladieswear 27

28 TRUWORTHS FINANCIAL REVIEW Retail sales up 1% relative to the comparable prior period. Gross margin improved to 55.5% from 55.2%. Expense containment, down 2% (2017: up 9%). Trading profit up 9% * relative to the comparable prior period. Strong cash generation and reduction in debt due to funding restructure. Truworths account metrics improving. Documentary requirements rescinded after High Court ruling in favour of credit retailers. Acquired Loads of Living. Opened 13 'Office London' SA stores. Launched sophisticated new e-commerce site. Successfully trialled lay-bys. * Up 3% excluding foreign exchange gains and losses in current and prior period. 28

29 TRUWORTHS FINANCIAL PERFORMANCE Jun weeks Jun weeks Change on prior period 52 on 52 weeks Jun weeks Change on prior period 52 on 53 weeks Sale of merchandise (Rm) % (2.2%) Gross margin 55.5% 55.2% 55.2% Trading profit (Rm) % * (1.0%) Trading margin 17.8% 16.4% 17.5% Operating profit (Rm) % (2.6%) Operating margin 29.1% 28.4% 29.2% * Up 3% excluding foreign exchange gains and losses in current and prior period. 29

30 TRUWORTHS PERFORMANCE IMPACTED BY TIMING OF END-OF-SEASON SALE In the 2017 financial period the end-of-season sale commenced in the last (53 rd ) week, which was not the case in the 2018 financial period. Adjusted for the estimated sales that could have been generated in the 52 nd week of the 2018 period had the end-of-season sale commenced in that week, the following growths would have been reported: Adjusted results Reported results Profit after tax: weeks vs weeks 5.8% 4.1% Profit after tax weeks vs weeks (0.4%) (1.9%) Note: This is pro forma information prepared for illustrative purposes only, has not been subject to any independent auditor review and is the responsibility of management. 30

31 TRUWORTHS RETAIL SALES GROWTH ANALYSIS Retail sales Rm Retail sales growth % LFL store growth % Product inflation % Unit growth: Comp stores % Unit growth: Non-comp stores % Jun weeks * (3) (1) (2) 4 Jun weeks # (2) (5) 12 (17) 3 Jun weeks (2) 7 Jun weeks (5) 7 Jun weeks (8) 6 *Compared to weeks 2 to 53 of the 2017 financial period. # Jun 2017 retail sales weeks 1 to

32 TRUWORTHS MERCHANDISE INFLATION TREND Inflation (%) (2) 2012 Summer 2013 Winter 2013 Summer 2014 Winter 2014 Summer 2015 Winter 2015 Summer 2016 Winter 2016 Summer 2017 Winter 2017 Summer 2018 Winter 2018 Summer 32

33 TRUWORTHS DIVISIONAL RETAIL SALES Note: Truworths divisional retail sales based on new internal department structure. Change on prior period 52 on 52 weeks Change on prior period 52 on 53 weeks % Jun weeks Rm Jun weeks Rm % Jun weeks Rm Truworths ladieswear (3) (6) Truworths designer emporium (1) (4) Truworths ladieswear emporium (2) (5) Truworths menswear (3) Truworths kids emporium Other Truworths emporium (2) Identity (2) Truworths retail sales (2) YDE agency sales (6) 278 (9) 33

34 TRUWORTHS TRADING SPACE Jun m 2 Jun m 2 Truworths Identity Uzzi 4 4 Earthchild and Earthaddict 3 3 Naartjie 2 2 Office London 1 - Total excluding YDE and Loads of Living 2.2% YDE 7 7 Loads of Living 4 - Total % 1.6% Excluding Loads of Living, trading space grew by 2.2%. Growth on prior period 34

35 TRUWORTHS NUMBER OF RETAIL LOCATIONS Stores Jun 18 Departments within stores Total locations Stores Jun 17 Departments within stores Total locations Truworths Identity Uzzi Earthaddict Earthchild Truworths Man Naartjie YDE Loads of Living Office London Daniel Hechter LTD Ginger Mary

36 TRUWORTHS CHANGE IN NUMBER OF STORES Jun 2017 New brands Stores closed New stores opened Jun 2018 Truworths (5) Identity (5) Uzzi 52 - (4) - 48 Earthchild and Earthaddict 43 - (2) - 41 Truworths Man Naartjie 27 - (1) - 26 YDE 21 - (1) 1 21 Loads of Living Office London Naartjie and Earthchild Daniel Hechter LTD Ginger Mary Kids Emporium Total (18) Net 6 stores opened in

37 TRUWORTHS REST OF AFRICA CORPORATE STORES Retail sales Jun weeks Rm Retail sales Jun weeks Rm Change on prior period 52 on 52 weeks % Retail sales Jun weeks Local currency millions Retail sales Jun weeks Local currency millions Change on prior period 52 on 52 weeks Local currency % Number of stores Jun 2018 Number of stores Jun 2017 Namibia (4) (4) Botswana Swaziland Zambia (6) Lesotho Mauritius Kenya Ghana * 8 21 (62) 3 7 (57) - 4 Total (2) * The Ghana stores ceased trading on 3 December

38 TRUWORTHS SALES DENSITIES TREND R per m Compound growth rates: Sales density: Jun: 5-year (0.2%), 3-year 0.4% * 35, Jun 2009 Jun 2010 Jun 2011 Jun 2012 Jun 2013 Jun 2014 Jun 2015 Jun 2016 Jun 2017 Jun 2018 * Based on week sales. 38

39 TRUWORTHS GROSS PROFIT TREND Gross profit (Rbn) 8 Compound growth rates: Gross profit: Jun: 5-year 5%, 3-year 4% Average: Gross margin: Jun: 5-year 55.4%, 3-year 55.3% Gross margin (%) Jun 2014 Jun 2015 Jun 2016 Jun 2017 Jun 2018 Gross profit Gross margin

40 TRUWORTHS ANALYSIS OF TRADING EXPENSES Jun 18 Rm Jun 17 Rm Change on prior period % Depreciation and amortisation Employment costs Occupancy costs Trade receivable costs (9) Other operating costs (18) * Trading expenses (2) * 4% decrease excluding forex gains in 2018 (R29 million) and forex losses in 2017 (R93 million). 40

41 TRUWORTHS ANALYSIS OF TRADING EXPENSES (CONTINUED) Depreciation and amortisation Excluding non-comparable stores, depreciation and amortisation unchanged. 4% growth Employment costs Excluding non-comparable stores and other non-comparable costs, employment costs increased by 1% (June 2017: 5%). 3% growth Occupancy costs A net 32 stores were added during 2018 as trading space grew by 3.3% (space growth excluding Loads of Living 2.2%). Comparable store rentals increased by 5%. 7% growth 41

42 TRUWORTHS ANALYSIS OF TRADING EXPENSES (CONTINUED) Trade receivable costs Doubtful debt allowance decreased to 12.3% from 12.7% in Gross bad debt decreased by 2% compared to the prior period and recoveries increased by 13%. Interest income of R1.29 billion earned on the debtors book during the period, down from R 1.37 billion due to interest rate reductions and a decline in the book. Net cost of the book showed surplus of R71 million (2017: R41 million surplus). Other operating costs Excluding foreign exchange, other operating costs decreased by 4%. Decrease attributable to ongoing cost containment efforts. Foreign exchange gains of R29 million (2017: R93 million losses). 9% decrease 42

43 TRUWORTHS OPERATING PROFIT PERFORMANCE Operating profit (Rbn) Compound growth rates: Operating profit: Jun: 5-year 1.1%, 3-year 1.9% Average: EBITDA margin: Jun: 5-year 32.2%, 3-year 31.7% Average: Operating margin: Jun: 5-year 30.4%, 3-year 29.7% Margins (%) Jun 2014 Jun 2015 Jun 2016 Jun 2017 Jun 2018 Operating profit EBITDA margin Operating margin 5-43

44 TRUWORTHS CAPITAL EXPENDITURE Jun 2019 Committed Rm Jun 2018 Actual Rm Jun 2017 Actual Rm Change on prior period % Store renovations and development (4) Computer infrastructure and software Land, buildings and refurbishments * Distribution facilities Motor vehicles Total * Increase 2019 due to refurbishment of additional offices and parking. 44

45 TRUWORTHS CASH FLOW ANALYSIS (Rm) (223) (797) (77) (1 925) (342) (161) (122) (1 000) (1 800) (1 257) (2 000) EBITDA* Working capital movement Interest received Dividends received Finance costs Tax paid Capex maintenance Free cash flow Dividends Capex expand Net share scheme buy-backs Other Cash flow before financing Net borrowings repaid Net cash increase *Earnings before interest, tax, depreciation and amortisation. 45

46 TRUWORTHS CASH REALISATION RATE (%) Jun 2014 Jun 2015 Jun 2016 Jun 2017 Jun 2018 Cash realisation rate 46

47 2 F I N A N C I A L R E V I E W I I I. O F F I C E 47

48 OFFICE LEADERSHIP Michael Mark (65) BCom, MBA, ACMA Chairman Brian McCluskey (56) CA Chief Executive Officer David Pfaff (53) BCom, CA (SA), Dip Soc (Oxon) Director Kerry van der Merwe (42) BAccSci (Hons), CA (SA) Finance Director Rob W orthington (53) BSc (Hons) Psychology Multi Channel Director Jonathan Kutner (45) BA (Hons) Politics and Government Merchandising Director Ghassan Hodeib (46) Buying Director 48

49 OFFICE FINANCIAL REVIEW Retail sales decreased by 2.5% on a comparable basis. Decrease in gross margin from 46.0% to 44.4%, led by: A greater proportion of sales on mark-down merchandise as opposed to full price. A reduction in the margin of Made to Order (MTO) product (primarily in the first half of the year). A shift in sports brand product sales mix towards lower margin sports brands. E-commerce sales contribute 31% of retail sales (2017: 28%). Inventory turn of 3.2 times, with improvement in age profile of stock. Trading expenses down 1% (2017: down 3%). Cash generated from operations at 22.0 million. Interest-bearing borrowings reduced from 69.3 million to 48.8 million due to scheduled and additional loan repayments. Finance costs reduced from 2.4 million to 1.6 million. Net debt to equity reduced to 10% at June 2018 (2017: 18%). 49

50 OFFICE FINANCIAL PERFORMANCE Jun weeks Jun weeks Change on prior period 52 on 52 weeks Jun weeks Change on prior period 52 on 53 weeks Sale of merchandise ( m) (2%) 299 (4%) Gross margin 44.4% 46.0% 46.0% EBITDA ( m) (28%) 32.3 (33%) Operating profit ( m) (32%) 25.9 (38%) Operating margin 5.6% 8.1% 8.7% 50

51 OFFICE RETAIL SALES BY COUNTRY Retail sales Jun weeks m Retail sales Jun weeks m Retail sales Jun weeks m Number of stores Jun 2018 Number of stores 2017 United Kingdom Germany Republic of Ireland United States Total * 156 * * Includes 40 concession stores (2017: 38) 51

52 OFFICE TRADING EXPENSES Jun 2018 m Jun 2017 m Change on prior period % Depreciation and amortisation (14) Employment costs (3) Occupancy costs (2) Other operating costs Trading expenses (1) 52

53 OFFICE ANALYSIS OF TRADING EXPENSES Depreciation and amortisation Lower capital expenditure over the last two financial years. 14% decrease Employment costs Lower sales commissions and bonuses and reduction of store hours. 3% decrease Occupancy costs Lower stand-alone store rent resulting from four stand-alone store closures. Lower onerous lease charge in current period. Other operating costs Excluding non-comparable once-off items in the current and prior periods, other operating costs increased by 5% ( 1.0 million). E-commerce related promotion and fulfilment expenses increased by 5% ( 0.8 million) as a result of a 5% increase in e-commerce sales. 2% decrease 9% increase 53

54 OFFICE CASH FLOW ANALYSIS ( 000) (1 232) Cash generated from operating activities since acquisition of 67.5 million (3 234) (465) (3 157) (62) (5 000) (20 929) (6 989) (10 000) EBITDA* Working capital movement Interest received Finance costs Tax paid Capex maintenance Free cash flow Capex expand Other Cash before financing Net borrowings repaid Net decrease for the period *Earnings before interest, tax, depreciation and amortisation. 54

55 3 A C C O U N T M A N A G E M E N T T R U W O R T H S 55

56 TRUWORTHS ACCOUNTS OVERVIEW South African credit environment has improved. Demand for Truworths accounts is increasing with over 2 million applications in 2018 financial period. Over 50% of applications customers under the age of 30. Percentage of applications opened improved to 25%. Consistent account assessment risk criteria applied. Sales from new accounts show strong growth. Good growth in shoppable accounts. A sustained period of improved collections has resulted in the book having the highest percentage current accounts since Reduction in bad debts. Provision percentage to balance has improved on prior period. 56

57 TRANSUNION SA CONSUMER CREDIT INDEX Consumer credit index at highest 65 level since The TransUnion SA Consumer Credit Index (CCI) rose yet again in Q to 56 from 55 (preliminary 54) Improving credit health can no longer be considered marginal or temporary, with the index moving well into the 50s, suggesting notable improvement. Is this corroborated by other consumer-relevant data? Broadly, yes. Retail and wholesale volumes improved in Q according to Stats SA, as did business and consumer confidence according to BER and SACCI The number of consumer accounts measured increased from 53.8 to 54 million, reinforcing a turnaround from a declining trend. New accounts in default (3 months in arrears) fell 8.3% y/y in Q1, the largest recorded decline in 3-month arrear accounts since Household cash flow improved 2.2% y/y. 53 Q Q Q Household debt service costs (South African Reserve Bank data) continued declining as the prime lending rate declined by 25 basis points during the quarter. Source: TransUnion Distressed borrowing (credit cards and store cards) revolving credit utilisation increased during the quarter. 57

58 TRUWORTHS ACCOUNTS NEW ACCOUNT APPLICATIONS ( 000) Demand for Truworths accounts/product is strong as evidenced by volume 2,500 of new account applications exceeding 2 million for the first time. 2,000 1,500 1, ,222 1,306 1,520 1,659 1,790 1,993 1,740 2, No. of applications 58

59 TRUWORTHS ACCOUNTS NEW ACCOUNT APPLICATIONS Truworths appeals to the young market as ± 50% of (%) account applicants are under 30 and ± 25% are under to to to to to Age distribution % 59

60 TRUWORTHS ACCOUNTS RISK APPROVAL CRITERIA 45 (%) Strict account risk approval criteria maintained Risk approved 60

61 TRUWORTHS ACCOUNTS NEW ACCOUNT OPENINGS No. of accounts After court ruling account openings have improved average number of accounts opened per month increased by 9,000. Court ruling Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

62 TRUWORTHS ACCOUNTS ACCOUNT SALES GROWTHS Months on book 2012 % 2013 % Accounts sales growth year-on-year 2014 % 2015 % 2016 % 2017 % 2018 % 1 12 months 27 (4) (8) (24) months (2) (7) 15 6 (24) Positive for future months (3) (3) months

63 TRUWORTHS ACCOUNTS SHOPPABLE ACCOUNTS No. of accounts Jun 2018: 74k more able to shop Jul 2017: 74k fewer able to shop Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Shoppable Shoppable 63

64 TRUWORTHS ACCOUNTS % OF BOOK BALANCE 4+ CYCLES DELINQUENT 18% 5% improvement in the percent of accounts 4+ cycles delinquent LY 14% TY13% 16% 14% 12% 10% 8% 6% 4% 2% 0% Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17 Aug-17 Nov-17 Feb-18 May-18 Industry Excl. Truworths Truworths GROUP Source: Principa 64

65 TRUWORTHS ACCOUNTS COLLECTIONS Sustained period of improved collections across all delinquency levels. Improved roll-rates indicative of improvement in quality of the portfolio. Consequential reduction in provision percentage to balance. Reduction in charge-off. Improvement in recoveries. 65

66 TRUWORTHS ACCOUNTS STATISTICS Jun 2018 Jun 2017 Number of active accounts (000's) Change in number of active accounts (%) 2 (4) Gross trade receivables (before doubtful debt allowance) Change in gross trade receivables (before doubtful debt allowance) (Rm) (%) (3) - Account sales as a % of retail sales (%) Qualifying payment (%) Accounts opened to applications ratio (%)

67 TRUWORTHS ACCOUNTS STATISTICS (CONTINUED) Active account holders able to purchase at period-end (i.e. not in arrears) Overdue accounts as a % of gross trade receivables Jun 2018 Jun 2017 (%) (%) Net bad debt as a % of account sales (%) Net bad debt as a % of gross trade receivables Doubtful debt allowance as a % of gross trade receivables Trade receivable interest as a % of gross trade receivables (%) (%) (%)

68 TRUWORTHS ACCOUNTS INCOME VS. COSTS (Rm) Jun 2009 Jun 2010 Jun 2011 Jun 2012 Jun 2013 Jun 2014 Jun 2015 Jun 2016 Jun 2017 Jun 2018 Income Costs 68

69 TRUWORTHS ACCOUNTS REGULATIONS AND ACCOUNTING STANDARDS National Credit Amendment Bill Bill proposes, inter alia, debt relief for over-indebted consumers who earn less than R7 500 per month and have unsecured debt of less than R These consumers will be able to apply to the National Credit Regulator(NCR) for debt intervention and follow a process to have their applications assessed first by the NCR and secondly the recommendations of the NCR assessed by the National Consumer Tribunal as to whether the debt should be re-arranged or be granted debt intervention. The bill has met broad opposition and Truworths is using all available avenues to respond and comment on both via the National Clothing Retail Federation of South Africa and individually. Due to uncertainty on how the bill will be implemented it is premature to comment on its potential impact. Doubtful debt allowance IFRS 9 Doubtful debt allowance under IFRS 9 likely to increase due to recognition of life-time expected losses. This adjustment does not affect our credit strategy design process as these always considered the life-time provision. The increase in the allowance on transition in FY19 will be adjusted through retained earnings. 69

70 4 S T R A T E G I C F O C U S A R E A S 70

71 STRATEGIC FOCUS AREAS THE FUTURE OF RETAIL Truworths believe, as highlighted by leading apparel retail studies that: The predicted death of bricks and mortar retail stores at the hands of e-commerce has been exaggerated. Studies have shown that omnichannel shoppers (online and in-store) are the most valuable customers. Opening a new store today involves more focus on overall customer engagement and experience. Stores are no longer venues for merchandise selling, but are rather the locus of consumer engagement, across all channels. Sophisticated retailers have systems that assign orders for fulfilment to the warehouse or to stores based on a variety of analytical factors. Extracts from: The Apparel Top 50 for 2018: Brick and Mortar and Digital Closing the Gap. 71

72 STRATEGIC FOCUS AREAS THE FUTURE OF RETAIL The role of the store has changed significantly. Roughly 90 % of shopping is still done in a physical store and store is now just one stop along a customer s journey through online sites and social media. The physical store has moved from a place of purchase to a place of brand experience. Artificial intelligence is becoming the core engine to drive change faster. E-commerce has obviously placed new pressures and expense on apparel companies, up and down the supply chain. (In areas of logistics, fulfilment and returns). Increasingly, apparel companies are addressing the returns problem on the front end with sizing algorithms, and on the back-end with better processes and technology. Extracts from: The Apparel Top 50 for 2018: Brick and Mortar and Digital Closing the Gap. 72

73 STRATEGIC FOCUS AREAS THE FUTURE OF RETAIL Selected comments by former CEO of J. Crew Millard 'Mickey' Drexler re his views on bricks and mortar retail: Drexler defended the legitimacy of physical retail for bringing products to life. Drugstores and retailers focused on commodities are headed for major disruption. Firmly believes physical stores have their place in the world. I m always looking for the unique and the surprise, and things out there that are exciting. You can t do that without a store. It s a canvas to paint on. A store does bring to life the product. It brings to life a story. I think they have a place to stay. Extracts from talk by Mickey Drexler (ex CEO of J. Crew) at Retail Radicals forum at Columbia University. 73

74 STRATEGIC FOCUS AREAS Group focus areas Truworths and Office continue to collaborate Investigate strategic acquisitions Truworths focus areas Expand e-commerce New store concept Introduce lay-bys Supply chain Office focus areas Office DNA New store formats Marketing, customer engagement and loyalty Expansion and growth of e-commerce 74

75 STRATEGIC FOCUS AREAS TRUWORTHS E-COMMERCE New Truworths website launched February Profitable from day 1. Turnover equivalent of a mid-sized store. Office London live September Cosmetics and fragrances live before peak-trade. Fashion Finder will be launched in early 2019 to deliver a broader omni-channel experience. Loads of Living to be live before year ended June Identity next financial period. 75

76 STRATEGIC FOCUS AREAS TRUWORTHS STORES New store concept: Context : An EXPERIENTIAL concept store by TRUWORTHS Flexible space of thoughtfully chosen sophisticated designer ladies fashion, fragrance and cosmetic beauty brands as well as homeware. Curate our product offering and the manner in which we present it. Two free standing stores planned to open in the 3 rd /4 th quarter of the 2019 financial year. 76

77 STRATEGIC FOCUS AREAS TRUWORTHS LAY-BYS Customer selected merchandise is set aside until the customer has fully paid off the item over 3 months. This gives non-account customers, who are unable to pay up-front, access to Truworths merchandise. Pilot has been running since October Encouraging results, with sales lifts of approximately 2%. Roll-out to all stores to be completed before festive trade

78 STRATEGIC FOCUS AREAS TRUWORTHS SUPPLY CHAIN A large portion of the range is imported due to either price or manufacturing capabilities that cannot be produced viably in South Africa. Both fabric and actual styling is in this case committed from 19 weeks prior to delivery. Local production is continuing to grow. Only commit to fabric and production capacity from 19 weeks prior to delivery. Finalisation of the actual style is usually done 8+ weeks prior to delivery. The Quick Response initiative is continuing to grow. Fabric and production capacities are committed to 19 weeks prior to delivery. Tests are performed early in the season and future styling is adapted to quickly get into best sellers. Finalisation of colour and styling is done 4+ weeks prior to delivery. Another focus is our Fast Fashion initiative. Commit to strategic fabric and production capacity 19 weeks prior to delivery. Final styling, based on latest trends, is then committed to as low as 4 but usually about 8-10 weeks prior to delivery. Seasonal replenishment styles Replenishment style is ordered and delivered within 3 or 4 weeks. 78

79 STRATEGIC FOCUS AREAS TRUWORTHS Service Obsessed Approach to Customer Service obsessed brand ambassadors across all shopping mediums, an exceptional shopping experience, brand loyalty. Data-driven decision-making Intelligent use of customer data enhance customer-centricity. Integrated brand marketing Consistent brand image for the emporium and constituent brands. Expansion of new brands Loads of Living and Office London. Refine Loads of Living product offering and test new store concept. Continue the roll-out of Office London stores. 79

80 STRATEGIC FOCUS AREAS OFFICE OTHER AREAS Business Philosophy and DNA Rolled out across the business and now incorporated into annual staff assessments. New store design Store design concept further refined after initial roll out to Arndale Manchester, Oxford and Bracknell. 'Store of the future' concept is currently being developed with initial roll out planned for January Product and planning methodology and systems 80

81 5 O U T L O O K 81

82 GROUP TARGETS 2019 Jun 2019 Target 52 weeks Jun 2018 Actual 52 weeks Gross margin 51% 55% 52.4% Operating margin 19% 24% 22.5% Return on equity 23% 28% 27% Return on assets 20% 25% 25% Inventory turn times 4.0 times Asset turnover times 1.1 times 82

83 TRUWORTHS OUTLOOK Continued pressure on consumers low GDP growth, high unemployment and rising cost of living. Political uncertainty, consumer confidence and EM pressure remain obstacles for growth. Focused on strategic initiatives to mitigate pressures in the external environment. Lay-bys, e-commerce, roll-out of Loads of Living, new store concepts and products expected to contribute. Improved debtors metrics a positive indicator for future sales. Inflationary outlook low at 0% for July to December 2018 (Summer 2018). Space growth for 2019 and 2020 at 2.5% and 1.5% respectively. Net new stores of 10 as 2019 will see the closure of 24 under-performing stores. Retail sales for the first 6 weeks of the 2019 financial period. 11% * increase * Not directly comparable to the first 6 weeks of the prior period due to the shift in the start of the end-of-season sale. 83

84 OFFICE OUTLOOK Brexit negotiations uncertainty will continue to negatively impact the trading environment. Stable inflation, better employment growth and wage inflation positive for UK household disposable income. Improved ranges and product mix expected to address margin decline. Excellently positioned for growing online and mobile retail. Improved in-store experience aimed at attracting in-store customers. Marketing, customer engagement and loyalty initiatives to attract and retain customers and to improve experience. Retail sales for the first 6 weeks of the 2019 financial period. 3% increase 84

85 6 Q U E S T I O N S 85

86 DISCLAIMER This presentation contains certain forward-looking statements with respect to the financial condition and results of operations of Truworths International Limited and its group companies, which by their nature involve risk and uncertainty because they relate to events and depend on circumstances that may occur in the future. Factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to: global and national economic conditions; growth in trading space; interest rates; credit and the associated risks of lending; merchandise clearance rates; inventory levels and stock turn; gross and operating margins achieved; and competitive and regulatory factors. The Group does not undertake to publicly update or revise any of these forwardlooking statements, whether to reflect new information or future events or otherwise. 86