Good day, everybody. Welcome to the Truworths Group annual results for the period ended 30 June 2024. With me on our link is Sarah Proudfoot and Mannie Cristaudo , both of whom you know as our Joint Deputy CEOs. And then, Reon Smit , who's our Director of Finance, is also connected. So when we get to the question time, I will ask them to answer some of the questions. The presentation has been structured in a way that we normally do, and we've tried to address some of the queries that we received yesterday in the presentation itself, but we'll see how it goes. So we always put in our business philosophy. I'm not gonna go through it with you.
It's sort of a reminder that we put it in each and every time, and it's just to remind you all that this is exactly how we run the business, and it is exactly what you are invested in. Our purpose, why we feel we exist in Truworths and in Office, our vision that we have for our customers, in Truworths and Office. We have our value system, which are the circles in the middle, and then we also have a vision for our employees and a vision for our shareholders. We basically say that if we're doing everything right, then our shareholders will say certain things, and our employees and our customers will say certain things.
Of course, when they don't say what we want them to say, we create strategies to try and fix the problem, and we run our business basically on that philosophy. Just to highlight some of the positives, but some of the challenges. The business, as usual, was very strongly cash generative, with realization rates of 99% for the period. We did return ZAR 2.2 billion in dividends for the year. We've still got a robust balance sheet with very low debts, I think at ZAR 300 million at the end of the period, and that's after investing a further ZAR 352 million in our new DC in Cape Town. So far, we've spent over the last two or three years, really, ZAR 750 million.
There'll be about another ZAR 100 million, no, about ZAR 250 million to come. Our gross margin and our operating margins are still world-class. We took a bit of strain in the second half, as you know, but, they, they're well ahead of local peers. We're significantly ahead of local peers, and our operating margins and our returns are well ahead of international peers. We keep our focus on margins, cost containment, and although there was a decline in the Truworths margin, especially in the second half, driven, well, driven exclusively by the poor sales in Truworths during the winter period, the net result for the year in Truworths, as well as group, was what we think an acceptable margin under the circumstances. We achieved all our medium-term financial targets. We rolled out fresh, refreshed values at Group.
Those circles I showed you in the slide before has some slight changes to it that relates to our, our perception of inclusivity and how important inclusivity has become in the world and, of course, in our business. And so we have created a value along those lines, and we've sequenced it in the way we think is best suited to our organization. So you might wanna go and have a look afterwards at the value system, which, as I say, is the circles in the middle. We once again improved our scores on Broad-Based Black Economic Empowerment . We now have achieved or maintained a level five rating, even though we improved our points. We did adopt the JSE Sustainability Disclosure Guidance in our ESG reports.
Once again, our integrated report of last year, 2023, was ranked seventh in the top 10 in the EY 2024 Excellence in Integrated Reporting Awards. We're very proud of the fact that we have been included in the top 10 for all the 17 consecutive years that the award has existed, and in excellent for the past 22 years, and we know we are the only company in the JSE that can proudly say that. In Truworths, the highlights are our new distribution center. The construction is complete. In fact, the inside of it is more or less complete. All the conveyors and all the equipment is working, and we are testing at the moment. Some product is going through it already, so it's a phased go live plan from November to March 2025.
March 2025, it'll be fully functional. You'll see throughout the theme of this presentation, there's quite a lot of benefits that are direct and then indirect from the DC. We made progress in reinforcing each of our brands' unique DNAs, because this year, which was a challenging one for Truworths, we decided to adopt an opportunity in adversity philosophy... where's the silver lining? We took a view that, yes, we've had a tough winter, and when we were in the midst of a tough winter, for the reasons I'll give you, let's take advantage. Where's the silver lining?
We put a lot of effort into reinvigorating, redefining, classifying, and ensuring that our brands within our Emporium stores are perfectly aligned so that we can get the best merchandise possible offering we could have, which is why we're quite enthusiastic about our summer and next year. Barrie Cline and Bonwit, the design centers are now fully integrated in our Truworths Africa design division in our head office in Cape Town, which has made an enormous difference in our ability to react to what's a factory, essentially, of some sort in our head office with all of our buyers, and they can interact and very speedily react to their local manufacturers in terms of trends and whatever is selling, fast fashion, et cetera. We've also launched a completely new...
We've told you about it before, but now we launched fully a reimagined Truworths Emporium store concept. We did the first few in Cape Town, in Canal Walk, the Waterfront and Constantia, because we want to do, test, experiment, and change them as we did. Interesting how well all three of those new stores have done, and so we are going to roll them out. We won't have too many in the country because they are, sort of one of a kind. We won't have about probably five to 10, at a time. But of course, when you do a new concept like this, it has an impact as you roll out all of the new stores, because although they don't quite take on the exact look, they are influenced by it.
We had strong e-commerce growth once again of 34%, and it's now contributing 5% to our total sales. Our new brand, Fuel, which is a menswear street brand, continues to grow and shows really good promise. It's quite exciting. Our active accounts, people who owe us money, and shoppable accounts, people who not only owe us money, they are paying us such that they're not in any way arrears. Both are. There's been healthy growth in both of them, so we feel nicely set up for the future. In Office, sustained improvement in the EBITDA gross margin, trading and operating margins, financial performance. They have had some historical benefits because of rates from a government point of view and so on. So perhaps the margin is probably peaked at the moment, or it's possible.
But when I say peaked, it might come off a bit over time, depending on costs and so on. But we are absolutely convinced that the net margin and operating margins are all very much intact. Highly cash-generative business that generated nearly GBP 70 million this year. There were eight new stores opening in Office, and three stores were expanded. So we had 11 real estate changes in a chain of 18. Now we've had 20, I think it is, over the last two and a half years. So we are moving quite speedily with the new stores because they all do so well. There's been further enhancements on our online platform. We have invested quite heavily in a new merchandise management system in Office. This was really quite old and archaic, and the new one is state-of-the-art.
It's not yet up and running. It's a project that the team in Office working together with the Truworths team are implementing at the moment. We have introduced some new, which we're always doing, new third-party brands in Office, and that's the name of the business. Keeps on, the nature of the business, we keep on trying new ones, and some of them are working really well. And there also is a lot of work going on in the warehouse in Kilmarnock, which is in Scotland, and the distribution facility there to improve it and make it more efficient. Overall, in context, the macro environment did result in a pressure on disposable income and lower consumer confidence in South Africa and the U.K.
Household consumption expenditure levels remained under pressure, especially in South Africa during the first half of 2024, with growth in real terms turning negative for the first time in three years during the first quarter of calendar year 2024, at -0.4%. Interest rates peaked at 11.75%. There was port congestion, but the real issue was global supply chain disruption, shortage of containers, and difficulty of getting product in time, and fabric as well, even from the local manufacturing side of it. You couldn't get fabric in time. Product came late. So it was a difficult period, and that really affected us quite badly in January, February, March, when merchandise did come, and then, of course, on top of it, we had a really late onset of winter.
It really got cold in South Africa. The latest in my experience, sometime in June. You know, winter's always a short period. It's always a short season in South Africa. You sort of expect it to get cold late March, maybe April, last until end of May. June already, you can't easily. June is never a particularly good month. Then you've got July and August, when a lot of people go on sale. So it's a very short season, but this year it was the shortest ever, and so that meant our stocks got a bit over, higher than we would have liked, and so we had more promotional activity in Truworths at the end of season, but our stock is as normal, as clean as it is always, at this stage. There is stress with consumers.
South African consumers are under stress. Investment, we modernized current stores and we're expanding our store portfolio in Truworths. Five Emporium reimagined stores, three Identity mega stores, nine Kids Emporiums , and five Context stores were done in the year, and eight new stores and three redesigned stores in Office, I've already said. DC, I've mentioned the systems. The backup power solutions have been installed in South Africa. It's working fine, but of course, there's very little load shedding, if any, at the moment, so fortunately, it seems to have passed. I don't know if it's how long it's gonna be, but it looks good, and there is upgrading going on with our website, but also in Office U.K. Looking at the financial numbers, I've said it at the beginning, we reached all of our medium-term targets.
In some cases, at the upper end, return on equity was around 36%, which was the upper end return on assets, close to the upper end, and they were all very acceptable. As you can see, in each case, we significantly are better than the local benchmark, other than asset turnover, which is pretty much equal to the local benchmark. Bearing in mind, of course, that we finance our own book. We, we don't take it off balance sheet. We, our debt book is on balance sheet. And then, of course, you look at us compared to the international benchmark, once again, we come out very well, slightly lower in gross margin, but in all other respects, significantly good margins and good metrics. This was a complicated year because there's quite a lot of non-comparable issues.
One of the biggest of which was the Office U.K. trademark impairment reversal. Office has been such a success following COVID that we were required to reverse some of the impairment. There were also some U.K. insurance recoveries that we received, and then we and our auditors agreed that we needed to consolidate our group charitable trusts. And there were some net foreign exchange issues that took place. All of those made this and last year non-comparable, so we decided this year to show a clean set of properly comparable numbers, which you'll see on the right there, which is the change on pro forma period on the prior period on a pro forma basis.
In that way, sales were up 4%, headline earnings up 2%, and diluted EPS up 1%. So it was a tough year, and of course, especially for Truworths. If you look at it over time, the diluted EPS, you can see there, it's still at an acceptably high level, but lower than last year for sure, and return on equity and return on capital has declined in the last two years, and we believe it's normalized, in inverted commas, due to the impairment reversal and the unwinding of the share buyback program since COVID. And then if you look on the right, the return on assets and asset turnover, which is a key measure for our internal productivity of management performance, that is acceptable by international norms.
But again, the impairment reversal and some of our CapEx expenditure and our strong but yet conservative balance sheet makes it difficult to keep on growing those returns, even though they are above international and local peers. We measure our return on invested capital versus our WACC, and once again, we do exceed it significantly, but you can see the downward trend since 2022 onwards. We are really back to June 2021, and of course, our management goal is to retain it at this level. Balance sheet, very strong. We got more or less the same amount of cash, sort of ZAR 300 million compared to our liabilities. Strong balance sheet. Inventories are only up 3%. Trade receivables down 2%. So everything's actually under good control. The problem, of course, in the year was top-line sales in Truworths.
We look at the share buyback program. We didn't, we haven't for the last two years made share buybacks because we've been funding the distribution center from our resources. But if you look back since January 2020, we bought back 12% of our shares. We took advantage of the COVID distress period and the cash we had, and we bought back ZAR 2.5 billion worth of shares, just under ZAR 50. That's been a really good investment. Obviously, our share price has doubled that since then, and so, essentially, wealth of shareholders has increased by that ZAR 2.5 billion. And we've been... Over the years, we've consistently bought back shares, as you can see there.
I would imagine in the next year or two, we will start share buyback again if we don't come across a meaningful acquisition. Group cash flow was very positive, and net debt at the end of the period is just ZAR 300 million . Looking at Truworths Africa, that was the struggling part of our business. It really is simply the top line. I mean, the sales dropped by 3%, and everything follows from that. It's difficult once you're dropping sales to maintain stock levels and at acceptable levels so that it results in promotional activity, especially in the period January to June 2024, where markdowns were higher at the end of the season, for the reasons I've said, which meant our gross margin dropped, our profits and all of those things were much tougher.
But there were the pro forma matters I have spoken about, and they are on the screen for you to have a look at in more detail. So net result of Truworths, very good metrics, but those are ratios. The actual income statement, profit result is disappointing because our sales were poor, especially in the winter season, for the reasons I've given. And the net result, pro forma-wise, Truworths Africa was profit before finance cost and tax dropped by 8%. And on the right you will see, again, a better explanation of the movement that is causing the pro forma definition. I'll skip the reported one. It was across the board, the sales decline. There was no mix change. In a sense, that didn't impact the margin at all. It was across the board.
The sales were difficult in Truworths across the board, in ladies and men's and kids, in cosmetics, in fragrances, Identity, widely. It was a general economic challenge. We do quite well, as you see in the other category, one of the largest of which is cellular, cosmetics. Office London is really large, Sync and Loads of Living all in there. That is now a ZAR 2 billion number, and that did better, but there is more non-comparable stuff in there. Net results, seven new stores opened. Some were closed, some are open, but seven new, and this density in Truworths is not bad. I mean, it's. If you look at it over the two years, it has grown, but not by enough, and it has dropped in the last year, and again, it's all part of the fact, the same issue.
We had a top line challenge in Truworths, especially in the last six months. Inflation is coming right, so we're looking forward to a much lower inflation. So summer is starting to look promising for a number of reasons, one of which is inflation in our product is lower. I've explained why our gross margin has declined from 2022, 56.7, which was an unusual high, to what we like to be around 55.5, and we're 5 basis points below that this time. For the year, it's not bad. It's been worse before, but we don't... You know, our goal would be to have a margin of 55.5% in Truworths, and I have no doubt we'll reclaim that in the foreseeable future. Trading expenses, well controlled.
Occupancy costs have gone up a bit, but a lot of that's to do with rates and electricity and so on. Non-comparable store costs did increase by 18% because of electricity, higher rates, diesel, generator charges, and so on. Rental paid only increased by 3%. The risks, what you would expect, and it's all normal. Trade receivable costs, the net, bad debt and related costs decreased by ZAR 190 million. The movement in the ECL increased by ZAR 234 million. I think we might talk about that later, but essentially we've identified a portion of the book through our scorecards and some new scorecards that mean that there are some customers that we historically would have written off, that we now will still provide against, but they have much a greater chance of rehabilitation.
We are working on that section of the book differently from now on, and that is. It doesn't change the numbers fundamentally because the provision increases while the bad debt decreases, but it has benefits for the business in the medium- term as we rehabilitate customers who then also pay us when they were not going to if we wrote them off. Other operating costs dropped by 11%. That's part of that classification issue I spoke to you about earlier on. This is, again, the EBITDA margin, operating margin, down in the last two years, but still very, very attractive numbers in the 30s and 20s. This is our capital expenditure. Basically, it's pretty normal. There's nothing much.
The timing of the renovation and development of stores, ZAR 236 million versus ZAR 300 million, that's just a timing issue. It's not that we intentionally try to save CapEx because of the DC or anything. It's just simply because it's timing when you're doing the stores and so on, and next year it'll go back, where we'll spend more again. The DC's probably got another ZAR 250 million to spend, and then it's up and running, and we've invested all we're going to. Truworths cash flow was still good. It generated free cash flow of ZAR 1.3 billion, and then the dividends were ZAR 2.2 billion.
Net debt at the end of period was ZAR 2.1 billion and ZAR 1.8 billion at the beginning, so it did go up a bit, bearing in mind the new DCs in there, and primarily dividends for the group are paid out of Truworths cash flow. Office, excellent numbers, 11% sales growth. In a tough climate, I mean, everybody, all of you know that the U.K. is tough. It's not an easy climate, but Office has developed this niche. It's got the new stores, the way we're expanding and growing the stores, the relationship with the suppliers, the uniqueness of the brand, it's all coming together really nicely. Stock management is really extremely good.
So all in all, wonderful results of 24%-25% up on last year, which made an enormous difference to the group, and that, of course, resulted in the reversal of the impairment, a partial reversal of the trademark impairment of GBP 43 million. We've also indicated there where there's a pro forma non-like-for-like issue. So here on the numbers, the way to look at it, not reported, to look on the very right, profit before finance costs and tax Office increased by about 25%. And you see the pro forma non-like-for-like items on the right. I'm gonna skip the reported. It comes to stores, Office has expanded now. They've got five more stores, and there's more in we're opening at the moment.
But that's of course besides the expansion of existing stores or expansion of the trading space in existing stores, and we have finished closing the German loss-making stores now. The density in Office is very good. It also dropped on last year, interestingly. I'm not quite sure what the reason for that is. It's related, I'm sure, to when we opened the new stores compared to the year before, but the sales density in Office is a very high number. It shows an incredibly good gross margin trends since 2020. And again, we are controlling expenses there. You must expect the depreciation to continue to grow because we are investing significantly in new stores and in computer systems.
Employment costs, as you open new stores, as they trade so well, the employment costs, which some of which are a lot of which are flexible, they will go up. But we control expenses well in Office now, and so we, these are necessary increases, and there's more detail shown there. The trading profit and the trading margin, it has reached a really high level. As I said to you at the beginning, there are some benefits that we've had in a broad way in the U.K. that will disappear and have started to disappear.
So I expect that margin and the trading margins in Office will slowly decline a little bit, but not much, and we should be able to maintain them at a comfortably above 20% EBITDA margin for the foreseeable future. There you see store innovation and development going on, and there is even more committed for June 2025, for the next financial year, and there's computer software infrastructure investment. So we are having to invest in the business. By the way, when we do it, each and every investment, whether it's an IT system or a new store or a remodel store, we look at IRR, IRR, and we make sure that our returns are greater than our WACC, and we look at each investment individually and separately. And of course, I've spoken about the cash flow.
Office is very cash derivative, cash realization rate of 96%, in Truworths, it was over 100%; the group is 99%. Account management, this is an interesting one because as tough as it's been, and it really has been tough, and the credit environment is following the economy. It's a tough economy, tough credit. It really does feel now that we are starting very slowly to get into a more positive mindset. There are 2.9 million active customers, and I mentioned before that the shoppable number of customers is as good as it's been. The expected credit loss allowance did decrease slightly, and the total trade receivable cost, net of interest, has reduced by 80% because of the interest income on the book.
The historical risk in the credit environment, as exhibited by the TransUnion index, which, as you know, I'll show a bit more later on, but when it's below 50, it means it's getting worse. It's been in stress now for the ninth consecutive quarter. It just reinforces once again how difficult it's been in the credit environment. On the other hand, that's the economy as well, but on the other hand, it's 47 now, so 47, 46. It's below 50. It is slightly getting worse, but that's a lot better than when it was 39 and when it was getting much worse and much quicker. There is still, therefore, pressure on disposable income, but we had 5.3 million new account applications in the last year and over 5 million and a similar amount the year before.
So there's tons of people applying and wanting credit from us. So we feel we are now quite well- positioned for growth. This shows the credit market generally. Look at the mortgage and credit facility, just how there has been a deterioration generally in credit in South Africa. This also talks about credit granted, and you can see, especially in mortgages, the massive drop in mortgages granted, but all credits has declined, including credit facility and unsecured. That's all to do with high interest rates, struggling economy. This is the TransUnion index I spoke about. 39, which is 11 below 50, probably the lowest I've seen it in quarter two 2023. Then it was 47 in quarter one and 46 now. So it's sort of stabilized at this slowly deteriorating, tough environment.
I am hoping next time round, in six months when you look at it, we are gonna see for the first time a better environment where we can hopefully touch the 50 mark. Our statistics, though, are pretty good. Our accounts opened as a percentage of applications is now 17%, better than the 15%. Of course, many customers cannot afford it. Risk approved also improved, so open versus risk approved. Risk approved means we approved them. 24, one in four, we approved that applied, but only 17 then actually come and open the account, although we still work on it and some of them come later. That's improving because we're getting better at scorecards, and we'll find out at separating the risk of the customers. So that looks quite good.
Net bad debt has dropped to 8% and the receivable interest is up to 18%. This is the applications. Remember, these are not new accounts. These are people who wish to open accounts, so we're giving you an indication of the kind of customers that are trying to open accounts with us, and almost half of them are under 29. About 20%, 25%. O ne in four are 18- 24, and then about 20% are 25- 29. Young South Africans are wanting to shop at South Africa , but only one in four are risk approved because they can't afford it. The strategy in Truworths is a wider merchandise offering of core replenishment styles. That's becoming a bigger and bigger opportunity. A lot of that is local and turn on and quick response.
Bearing in mind now, we've got in-house design, which can react quickly and design quickly. We've got local manufacturing of about 45%-50%, which is on our doorstep and pretty much exclusive to us. Then we've got the new DC that can more or less properly allocate all of our merchandise. We should now be in a much better position to take advantage of core replenishment, quick response, in-demand fashion product all the way through. We think over the next two to three years, that should come through in our numbers in an encouraging way. We still will keep on growing and developing new brands like Office and Sync. Should I say, well, Office, yes, because we did open Office London in South Africa, and that's doing very well.
But I was meaning Fuel, which is going great, and Sync, which is the value brand. Small and steady as she goes. It's got potential over the next five, 10 years to become a decent business and quite a big one, I think. Our MTO contribution in Office U.K. is now... The contribution hasn't grown yet, but the margins are much better. The sales rate of the product is better. So I'm much more positive about the next three years of the MTO, our own brand range in Office U.K. Our supply chain, I've spoken a lot about it, so I don't really want to spend much more talking about that at the moment, 'cause we're short of time, and we can, of course, talk to you afterwards.
I'll really mention all the things on this that's shown here, and this mixes together the Truworths information and the Office information, because we are working on both companies really vigorously at the moment. We are really saying, "Where is the opportunity in these tough times?" We basically go for it. We're being quite aggressive with our thinking and our expansionary mindset, and even with our sales planning. This is our new warehouse up and it's ready to roll. It's a beautiful facility right near the airport, Cape Town International Airport. There's much going on with our omni-channel in the U.K. and in South Africa. You see that the South Africa e-commerce Office is much higher at 40-something%, but you know, in South Africa, it's now Truworths has grown to 5%.
Steady, good growth year in, year out. Office is now developing a mobile app for Office and Offspring, so that's gonna be very exciting. There are clear benefits to that that are proven. Credit, we have implemented some further scorecard decision optimization technology that has allowed us to treat applications and new credits to existing customers. And the way, as I said earlier on, the way we manage the in-book, the people who are not paying us that we would have written off in the past, and some of them we are now able to try and rehabilitate. We can predict which ones are more likely to rehabilitate and pay us, and so we're working on that in a different way. So retail presence, I've spoken a lot about the stores. I'm not gonna go through that anymore.
Here's this new Canal Walk in Cape Town. It's our, our first large store, and as I said, there are gonna be at least three or four others in the next two years, maybe more, that are at this level or better... but then it will affect the other 20, 30, or 40 that we do a year in other ways, and that's what it looks like. It's a beautiful store. When anyone is visiting Cape Town to go to Canal Walk, it's quite a store to look at, and something amazing, Constantia as well. There's the Office new frontage, and this is three different examples, but this is what the Office stores are starting to look like, and there is one of our great ones, Westfield Stratford. I mean, we're opening them every few weeks. There's a new one opening.
They always seem to do much better than our minimum expectation. In order to justify the investment, we expect the sales and the return, and it's they consistently beat those numbers. There's an enormous amount of work going on by our ESG team. We decided to support the United Nations Sustainable Development Goals, and we chose seven of the 13 that we identified with that seemed to have the most relevance to us: no poverty, good health and wellbeing, quality education, gender equality, decent work and economic growth, responsible consumption, and climate action. And there's been really good progress in each of these. The poverty, you can read this in your own time, but we have done an enormous amount on the poverty side.
We're spending a lot of money and donating garments that we previously might have sold in the secondary market, and we are trying to work with small and medium-sized Black-owned businesses. We also are very involved in healthcare in South Africa, in the poorest of poor communities. We invest significant amount of money in hospitals, in wards where the people are really poor, and we upgrade. An important ward could be the emergency ward, it could be the maternity ward, it could be one of the wards that we think is relevant to our business, and we've upgraded 24 national public healthcare facilities since 2010. We're very proud of those facilities, and for example, we've just done the pediatric ward at Grey's Hospital in KwaZulu-Natal. It's a...
It has a massive catchment area of hundreds of thousands of very poor people, and we've upgraded the pediatric ward to be world-class. And then there's a Reach For A Dream Foundation, where we have Dream Rooms that we build for critically ill pediatric patients. We've been doing that for quite a while. There are four of them now, and we keep on increasing the number of our employees who are covered by a private healthcare plan. 67% now, and we are trying to increase that. And then quality education, you can read this in your own time, but there's an enormous amount of work we're doing there, and it's good quality work that make ourselves and our staff very proud, and I hope it makes our shareholders proud as well. Gender...
We're a female fashion business. We do sell menswear, we do sell kids, but we see ourselves as a female fashion group, Truworths and Office. And so gender equality and the empowerment of women and girls is critical. And we know that that's a worldwide concern and a worldwide issue. 74% of our employees in South Africa are female. We have zero tolerance to any form of gender-based violence, and we go out of our way to support independent agencies that support gender-based violence avoidance. We support the 16 Days of Activism , and we have provided lots of support for charities that support gender-based violence survivors.
When it comes to economic growth and productive employment, 45% of our product is produced locally, much of it in Cape Town and Durban. We are signatories to the Master Plan, the government's Master Plan. We fund generators and other things for our local cut, make and trim factories in and around Cape Town and Durban. They are ones that tend to be exclusive to us, and we support them, and then finally, we do a lot of work, plastic hangers, recycled 99 tons of plastic, and cardboard boxes, stationery, plastic bags in the store, use recycled material. So we are really putting our foot forward now to energy consumption and sustainability. This is more about energy and water. I've mentioned we were once again ranked in the top 10.
Our ESG and transformation is a major priority of ours at the moment. We continuously work on succession for long-serving non-exec Directors, and then, you know, succession of the CEO role and the two Deputy Joint CEOs and the next 20 executives, some of whom are Directors, some are divisional Directors. That is well- cared for and carefully examined, thought through by ourselves as a management team, by the nomination committee, and we have very good plans in place to deal with that throughout the business. We adopted the JSE Sustainability Disclosure Index. And yes, we are proud to say we had a successful, although delayed, audit transition from our previous auditors, EY, to our new auditors, Deloitte. Which, so the transition was successful. I won't say it was without challenge.
It was challenging sometimes, and it did delay us, but, the end result was fantastic, and we're very happy with the new auditors. Outlook. So for the first nine weeks, and it carried on 10, Truworths was up 2.5%. Now, yeah, you could say 2.5%'s not that great, but it's a lot better than the -6% of the six months in winter and the -3% for the year. Office was up 11% in sterling, and that's the same as it was for the last year. Office is doing great, lots of runway. Trading space should be up by only about 1% in Truworths, but that does not talk to the reconfiguration of quite a lot of the space in Truworths as we remodel and refresh stores.
So every time we do it, we might not be expanding, but we make the stores much more productive and efficient by bringing in wanted product and reducing the space for, yeah, less in-demand product. And then there's planned to be 11% increase in space in Office. So times are still tough. I mean, you know, most of you know the economies in the U.K. and South Africa better than I do, but you all know the economy is tough in South Africa and the U.K. But it does look like South Africa, with the new government, national unity, with the anticipated reduction in interest rates, moderating inflation, slightly growing, GDP, this Two-Pot Retirement System , there's quite a lot of positive news on the horizon for the first time in a long time. So we're actually feeling quite positive.
I'm not saying in the next six months, I don't know, but certainly for the next couple of years, we expect things to start improving from the tough times that South Africa's had in the last five to 10 years. As I say, we're well-positioned. We think our merchandise is clean, we think our merchandise is great, our warehouse is operating, got lots of ideas and plans, everyone's motivated, and as I said, we've got shoppable accounts as good as it's ever been. That means they're not in arrears. Load shedding is under control. Isn't that great? Office, more of the same. Gonna grow, expand the way you know it, and barring surprises, I would be very disappointed if Office did not continue on its positive trajectory that it has shown in the past. Thank you.
I'm gonna look for the questions now, and I'm gonna update my screen. Then I'm probably going to hand many of them to my colleagues, and there's a lot of questions. Wow! Okay, so because I see there's so many, and maybe we won't get through all of them, let me say to you that we have our investor relations email address. We have five or six people on the panel look at every query you write, and we respond as a team, and we try and do it in 24 hours. I know we don't always make it, but we really do try. Press and all the rest of it, and it's very well used. We get at least 50- 100 emails every few weeks, something like that.
So, so please feel free to interact with us that way. The first one is: In Note 11.1.1 , expected credit losses allowance of the IFRS, please could you explain the line item of ZAR 449 million allowance raised for the charge of trade receivables? Is this some type of debt factoring? I do believe I've explained that, but maybe, Reon, you or Mannie wants to just quickly spend two minutes in explaining what I already have tried to explain.
Okay. Thank you, Michael, and Reon can come in if he wants. Thanks, Brian. There's actually two questions in that. I'll answer the second one first, and that's around debt factoring. There's no debt factoring at all. So that's the first one answered. The second one is simply a movement of the provision from this active portfolio into this rehabilitation portfolio that Michael alluded to earlier. So as the accounts move from the one to the other, the provision moves with them.
Thanks, Mannie. And if there are any more questions, you guys can write to us, and we'll try our best to respond. Could you please talk to the state of stock position going into spring/summer? Will you have higher... have to clear more stock because it didn't sell well because of winter? No, that's the whole point, so we've got, like, a rigid thing. We are a margin-oriented business, but even more importantly, we're a clean stock business. So that means that at the end of a season, say, end of August or end of February, because you need two months of markdown activity to clear the stock, we always make sure we get to our terminal stock level, and we do that by marking down or whatever we need to do, we get to our terminal stock level in value.
And so, no, our stock level is as clean as it always is, so there won't be a follow-through degradation because our stock is clean. Stock turn in Truworths this year is more of a function of port congestion, trade slump season . How do I think about it? The Two-Pot interest rate cuts, et cetera. I think I've tried to explain that. Yeah, we had a terrible winter. It was primarily because of delayed merchandise that came, fabric and merchandise from, because all the shipping container problems, but also because the winter was appalling. It was like sweltering hot in South Africa all the way till June. So, yes, but we cleaned the stock and we cleared the stock. And, who knows about climate change? I don't know.
But, certainly that is unlikely to happen again, it was a bit of a freak. "Online sales and position in market in this area, do you believe the group has done enough to effectively take on competitors, especially to one of our competitors?" They haven't mentioned the name. "How does the fact that Truworths has 70% sales linked to in-store credit impact online sales? Does group have any commentary, unfair competition from the likes of Temu and SHEIN, which not seem to be dealt with by government, SARS , et cetera?" Okay, so there's quite a lot going on there, but very good questions. So firstly, yes, we... You know, our e-commerce is going great.
I mean, it's, I think if you look at our competitors, they aren't much more than 5% of our total, and we, we're very happy with it. The 70% on credit doesn't affect it because you can shop online on credit. And you know, online favors markdown merchandise. It favors scarcity, so it favors things like markdown, where you wanna get it quickly and you might not find your size, so you can do it. And it favors a thing like Office London, where there's only 20 stores, but you've got customers around the whole country, so they can shop online. So online works great for us, and I think our credit helps us, doesn't hinder us.
SHEIN and Temu, you know, now we're talking about politics and about bigger picture issues that I don't wanna comment too much about, other than to tell you that the National Clothing Retail Federation, which Truworths and all of our competitors belong to, the big ones all belong to it, are aware that there must be level playing fields and that everyone must pay fair duty and be subject to the same rules, restrictions, and benefits. So we work on that, and we have not found government resistant. Quite the opposite, they seem very keen and willing to have level playing fields, and we cooperate and work as close as we can with them. But the issues are complex, and I don't want to go into it more than that. "Is the current top-line performance in Office U.K. sustainable?
What are the risks? Competition. What gets the consumer into an Office store versus a JD? What gets you into the Office store? I haven't got time to tell it to you quickly here, but it's the fact that Office, as opposed to Offspring, Office is a ladies' fashion shoe store that sells sneakers. It's not a sports active store, it's a fashion store. So it's got UGG, it's got Dr. Martens, it's got our own MTO and high-fashion shoes, but it's got also the big brands. But then when it's got them, it's got the fashion element of them. So it's very different from the massive, big sports chains. And then Offspring is even different again. Offspring, male and female, is sneakerheads. They are obsessed with the latest, top of the pinnacle, sneakers.
And because we are niched in that way, Office fashion ladies primarily, and Offspring sneakers and sneakerheads, the brands spoil us by giving the best they've got to offer in those categories, so that we can exhibit for them what they're trying to show, and it suits us. So that's what's different. Sarah, this one I think is for you. "Stock inventory purchases and availability leading..." Let me just read it properly, "leading into the end of the year, considering consumer liquidity." So she's sort of- the question, the way I'm understanding it, it's, and it's, of course, it is the typical million-dollar question: Is all these good things that I mentioned in the South African economy and the positive things in Truworths looking good for us? And Sarah, in the merchandise side, what are you doing about it?
I'm sorry I'm translating, but that's how I'm seeing the question. Sarah, will you answer that?
Yeah, absolutely. Thanks, Michael. Yeah, it is the million-dollar question, and of course, one wishes for some kind of a crystal ball. But I think obviously we've known about things like the Two-Pot System coming into play, and there's been much talk of the reduction in interest rates, which should assist generally with the economy. So we've sort of planned accordingly. And I think a lot of the focus that we've been putting into the merchandise side has a lot been on reactivity. And Michael mentioned earlier the power of the internal design center and our network of factories, which is increasingly giving us quick response capabilities. And I think that will assist us quite a lot heading into the back end of the year with the ability to turn on bestselling product on short lead times.
But we are confident about our stock levels at this point in time. We are well-stocked, we are happy with the mix of the ranges, and we don't foresee, unless there's any unforeseen changes to shipping issues or anything like that, that's unforeseen, we feel confident that we've got a good mix of product heading into festive, and we should be able to capitalize on the opportunities that may exist in shifts within the economy.
Thank you, Sarah. The next one I'm gonna answer because I love it. It's, and I hope you don't mind, but Yash, I'm going to say your name because I normally don't, but I like the question so much. "Should GDP trend to 2.5%, where can we expect top line and margins to trend towards in the South African business?" So Yash, I'm saying to you, we are gonna have a party with you if that happens. Truworths thrives in an economy that is growing at above 2%.
It's so good for Truworths if the economy is 2%, 2.5%, 3%, because then things really start to move for the mass middle income, middle class South African, who is our customer, who's under such stress at the moment with debt and interest rates and all the rest of it. If that goes right, you can see they want to shop with us because they keep their accounts clean as much as they can. They pay, they're new customers, the applications are massive. It's just the economy and the fact that the people are struggling. And so if it grows at 2.5%, that will be very good for us, I would expect. The next one is, "Apologies if this is a poor question," I'm sure it's not.
Did the reversal of the impairment in Office go through the income statement at the HEPS level?" Reon, would you mind explaining this?
Yes, sure. Thank you, Michael. It does go through the income statement, but it is excluded from HEPS.
Thank you, Reon. "What is the outlook for provisions and bad debt as a percentage of debtors book in next year? Will they both come down again?" Mannie.
Thanks, Michael. Well, I guess that's the million-dollar question, because if the economy improves and if the customers find our merchandise appealing enough to purchase and to pay. And we've always said that the best way of getting somebody to pay their account is to have good quality merchandise. So if that all happens, then it could come down. But, I mean, one can never predict the future.
There's a question here about this reversal of the trademarks , another one, and it says, "Was this driven by your own internal reassessment of the future cash flows, given how well it's traded? And was this something that came up with the transition to new auditors?" Well, I'll tell you how I can answer that. It's come up every single year in the last five years, old and new auditors. But of course, by ourselves, because, I mean, there's a methodology to it, it's not guesswork. And Reon and his finance team do numerous models and examine the necessity for it, and they assess it. And then, of course, the auditors have their own views.
But my understanding, not being that close to it, was that this audit, our management team and the auditors were ad idem on the quantum of the reversal and the need for it, and it was no surprise, you, the, because it's sort of obvious why. "How comfortable are you with inventory levels in South Africa?" I've told you, we are very comfortable. We always... You can pretty much trust that in Truworths, and also in Office, by the way, by August and by February, you know, there's two months after the season, we will have a tendency to be at the right stock level. Then the next one I find interesting: "Which U.K. town locations outside the larger malls are you opening new stores? Why have these suddenly become attractive following years of store closure?
Are you expecting a resumption in growth in Truworths, and the margin guidance in the U.K., is that the reversal of a one-off gain or there are other pressures?" Margin guidance in the U.K. I'm not quite sure what that means. Mannie, do you understand, or Reon, that part, that question? The part, not so much about the stores, that I'll answer, but the margin guidance in the U.K., is that just the reversal of one-off gains or are there some other pressures? Do you understand that question?
Michael, I'm not 100% sure of that question because. I mean, we've given the margins and the pro forma component of them, and we are hoping that we can maintain those margins or within the range of the margins that we've achieved in the past.
Okay, thanks. And if this person, of course I know who it is, if you want more clarification or want to just explain exactly what you mean, write to our investor relations email address, we'll respond to you. When it comes to why suddenly we're opening these stores, because, you know, when things go well, things go well. We are finding opportunities because we are doing well, and they're not small towns, but they're important places. You know, they are opening in. Some of them are in stores or cities that we previously closed stores, and now we're reopening them because there are opportunities. Others are just discovering new opportunities. So, you know, that whole thing, opportunity in adversity. So the guys are doing well, and they are discovering new opportunities.
No one is being reckless, because when they open or they want to open, I'm personally involved. The Managing Director of Office, of course, who's an expert at this, is involved, as is his whole team. So are Mannie and our team. And we look at the stores very carefully, and there's estimates done on profitability, sales, return on investment, and they are only done when we all have physically, I personally would have even seen the store, obviously the team there will have, and the numbers make sense. "How should transition issues alleviate? What would be the quantum of the inventory?" So there isn't an issue with that. I think I'm going to my last question now. Oh, why can't the same Office success in the U.K. be replicated in Truworths South Africa? Excellent question.
It can be, but the thing is, Truworths Office London, it's called in South Africa, has I think it's 21 stores. It does a couple of hundred million rand sales, and it is very profitable. It's a great business. But we are still a minnow when you compare us to some of the big guys in South Africa. Whereas in the U.K., we've got that niche and we, although we're much smaller than the big guys, we really dominate our niche. In South Africa, we're still small, so that means the brands have to support us, and we have to... You know, we're dependent on their support. And some of them are great and very supportive. Some are less so because of our size. That restricts our ability to expand stores. But the ones we've got are fantastic, and the e-commerce side is very good.
What's different in the South African stores versus the U.K., we even offer branded clothing in our Office London stores. So yeah, that's also great business. There's one last thing I do wanna say. Sarah, I'm gonna ask you to answer this one, this discounting. It says: "How do you see the competitive landscape and discounting in South Africa?" You know, there's a thing where they're saying, "Is everyone going on sale?" And all that kind of stuff. I don't know if you would like to answer that. That will be our last question, and then I'll conclude.
Yeah. Thanks, Michael. I think the extent to which our competitors may be discounting is not something one can comment on, other than anecdotally, which we'd rather not say. But I think certainly from our side, we don't see additional... As Michael said, we're happy with our stock levels. And I think everybody has had a tough winter season that would've impacted everybody to greater or lesser degrees. But hopefully, going into summer now, things normalize, and I would imagine that there will likely be a very normal level of discounting in the market.
Thank you, Sarah. There is one last question at the end here that I do feel I wanna have to take the liberty of answering. What cost of equity is used in the calculation of WACC? And is the board concerned that because our cost of equity is higher because we have so little debt, compared to asset-light competitors, will that hurt Truworths' ability to compete? That's an excellent question. So far, it doesn't feel like it has. I mean, It's difficult. You know, I don't know if we disclose what the cost of equity is in the calculation. I don't think we do, but so I'm not gonna answer that in case we don't disclose it.
But I have not found any reason that the cost of equity is holding us back in anything we do. I don't feel it as a... Our business philosophy and our strategy is absolutely clear. Our business model is clear, and the fact that, the cost of equity driving the, excuse me, the returns that are required, will be a little bit more onerous. When you look at the gap between our return on investment capital and our WACC, there's such a big gap that I don't feel that we are at the cusp of, holding ourselves back. That's my view anyway. I'm very happy... I know this person who's written the question, and we are very happy to have a debate with you about that intellectually at any point.
But I mean, we are four minutes past 2:00 P.M., and, we said it would finish at 2:00 P.M. , so I do apologize for running early, over. Thank you for attending and for listening to us and having the patience to do so. If you have questions, I've said it a few times now, please write to us. We will respond. That's the first port of call, 'cause that's almost immediate, and if necessary, we'll have a follow-up interaction with you if you feel it's still necessary thereafter. Thank you so much for joining us, and goodbye.