Truworths pulls out of SSB as interest income boosts half year results



“Without an affordable scheme, you have no turnover”.

CLOTHING retailer has effectively stopped all payments through the Salary Services Bureau (SSB) except for customers in outlying areas as part of efforts to limit exposure as government continues to face challenges in settling civil service wages.

Chief executive Themba Ndebele told analysts that the group had taken a position last year after remittances owed to them had grown to US$614  000 from 3 600 accounts. Operations director Stan Takaendesa however said that money has since been paid. “The recovery was quite satisfactory. We however took another position in December where customers who had not paid for four months were put back on the SSB and this resulted in 393 account garnishes amounting to $122 000.”

At present 668 are back on the system made up of those in outlying branches such as Bindura and Karoi where it is easier to collect through SSB than for the group trying to locate them. Ndebele noted that collecting individually was however much easier as it freed up the cash flows while it also saved the group 5% commission charged by SSB.

Overall, the debtors’ book had grown with more customers opting for the 12 month scheme which now represents 28.6% of the book compared to 7.5% in the prior year end. Finance director Tinashe Chidovi said as a result of the 12-month book, gross debtors went up 23% but the six months book is down 5%. “The 12-month scheme enabled us to push sales and increase the cash flow,” he said with Ndebele adding that the on the six-month book they were on $680 000 cash but the introduction of 12-month scheme had seen the position grow to $2.8 million.

“Without an affordable scheme, you have no turnover. For us the biggest enabler of sales has been the longer term credit scheme. The trick is to mobilise funding that is affordable. You need to make sure you don’t lose money by having bad debtors although generally consumers are credit aware and afraid of default,” said Ndebele noting that in South Africa, 80% of the clients were on 12-month payment terms. He also said only existing customers were converted to the 12-month scheme.

Trade receivable costs increased 415.9% mainly due to a growth in the doubtful debt allowance to 6.3% of gross receivables while the doubtful debt increased by 102% to $635 013 from the prior year’s allowance. A total $80 832 was written off as uncollectable from $40 992 last year. The group said focus going forward will be on the management of trade receivables so as to maximise cash flows and ensure improvement and enhancement

Retail sales in the interim period were at $11.02 million from $10.76 million in the comparable period last year. Gross profit was down to $5.12 million from $5.2 million while trading expenses of $5.15 million (1H15: $5.21 million) – mainly made up employment and occupancy costs – saw trading profit come in $27 532 which was 0.2% of turnover. The trading margin was at 0.2%.

GP margins were down to 46.3% from 48.5% but only because of the increased sales participation from the homeware range which generally carries a lower gross margin than apparel. There was an increase in promotional activity and discounts to 6.1% and 7.3 turnover. Ndebele also said that the group had improved its pricing points which had seen some prices of international brands declining and volumes improving as a result.

Cash EBITDA improved 43.9% to $1.46 million. The EBITDA margin improved to 12.6% from 8.6%.

Ndebele said the six month period had been a tale of two quarters with the first quarter registering a 21% growth in sales while the second quarter saw a decline of 9.3%.  The biggest effect was felt in December when it was announced that civil servants salaries would be delayed. “Using the comparable year ago period, December contribution was 32.5% of H1 but in the period there was a drop to 23.5% and that’s about $1 million dollars below last year. The business is driven by consumers and consumers with money at that.” Civil servants make up 45% of Topics’ book and 15% at Truworths.  However on a like for like basis, the first half trading was 6.6% higher than the prior year.

The group reported pre-tax of $444 046 which was a significant increase from $71 958 recorded last year mainly due to the increase in net interest received of $398 351.

On individual store performance, Truworths sales were down 1.5% to $3.77 million, Number 1 dropped 8.2% to $1.25 million while Topics saw an increase of 7.8% to $5.99 million following the introduction of the homeware range. On a like for like basis, Truworths was up 1.9%, Topics 12.6% while Number 1 showed a decline of 4.3%.

In terms of the sales make-up, the in-store credit card funded by CABS now contributes 33.4% of the credit sales up from 17.9% last year, cash sales are on 19.2% down from 22.3%. The average spend at Truworths was at $167.02 down from $210.78 and Topics at $128.85 from $163.58. The average credit limit had gone up 12.2% to $646.48 at Truworths and 11% at Topics to $485.39. The number of active accounts was at 86 270 from 79 960 at F15 with 78.8% having made a purchase at the end of the period.

Inventories had gone up 19.9% to $8.54 million because of the homeware range. “We started off with 1 543units but this grew to 11 400 units.  Ndebele defended the foray into homeware saying it was difficult to find a single dimension retailer anywhere in the world. He also added that the move had paid off as Topics had recorded positive growth because of that. Capex had been restricted to IT, machinery in the factory and generators to maintain operations while any store refurbs will have to be well thought out particularly in light of the shift in Harare city centre. FinX

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