Good day, everybody. Nice to be with all of you. Excuse the fact that I've got quite a bad cold, so I might sound coldish. With me virtually is Sarah Proudfoot and Mannie Cristaudo, our two joint deputy CEOs, and Reon Smith, the Divisional Financial Director. I'm going to go through the presentation pretty quickly because I'm banking on the reality that you guys have all studied it and will do so. You've studied the numbers and you'll be able to see the presentation online. You won't need me to go through all the detail now. We're going to go through as quickly as we can, try and get it done in a half an hour to 35 minutes so that there's at least 25 minutes for questions. Then Mannie, Sarah, and Reon will help me through the questions.
We're talking about the half-year results till the end of December. The first slide relates to our business philosophy. We always put this in the presentation to remind you that we follow this very, very diligently, and it's a real document to us. I'm going to give you some examples of how we use it in a second. I suppose the key elements of it that I want to emphasize now is the fact that on our Truworths purpose, we talk about how Truworths entices customers into our visually appealing, aspirational—that word is key—real and virtual environments. We talk about a tasteful fashion—that's what we offer the customer—of superb quality and intrinsic value. The word intrinsic value is key here. I'll tell you why in a minute.
And then the next one is at the bottom right, you see the vision for shareholders, which is we want them to say if we're doing everything right. In other words, if we're living by our values and we are fulfilling our purpose in Truworths and in Office, then we are hoping shareholders will say we are long-term investors, not short-term investors. And because the shareholders trust our capacity to execute innovative strategies so we can deliver value over time. I'll talk to that in a second so you'll understand how we use it in real life. In fact, the next slide goes into that. So what have we done?
One of the things was when we bought Office six, seven years ago, it was very much because we had taken a view that diversification globally is critical for the long term—I will stress that word long term of our business philosophy again—for the long term viability of our business. It is a big business. It is pretty much in every single shopping node of importance in South Africa. Room for geographical expansion within South Africa is limited. Maybe there are new line extensions and new concepts, which we do do. Still, given the high base of physical locations around the country, it felt very important to diversify internationally for that concept of long-term shareholder investment and focus. Then we looked at Africa. You know, we have some stores in and around South Africa, not quite in South Africa, but they are small.
We did find over the many years that we couldn't imagine that being an adequate protection for our need to diversify. That is why we diversified into the U.K. It is also why it's such a pleasure for us to be able to say that it's worked so well and that it has turned out to be a great hedge for our business because it's now growing soon to 40% of group profits. You'll see that our focus on global in terms of our capital utilization and our hoped-for expansion, both in Office itself, because there's lots of opportunity there, but also perhaps with an acquisition in the U.K., which could over time move into Europe, would be an emphasis for us. I'm sort of showing you how we tie our business philosophy into our strategy.
Our strategy in order to deliver on our business philosophy was diversification, and it is working. The second thing we know is that if we are going to diversify internationally and also survive the obvious tough times that we envisaged in South Africa years back and still do, South Africa has a tough economy. Everyone knows that. The GDP growth has been negligible for years. Everyone's talking about hoped-for 2% in the next year or two. I mean, one never knows with what's going on internationally, politically, economically at the moment, if that's even going to happen. Of course, again, there's risks by being completely focused and dependent on South Africa.
That is why having a strong balance sheet with cash available, especially if we want to make acquisitions and ideally abroad, and especially in the U.K. and possibly extending to Europe, that would be a key element of our capital utilization in the future. On that end, we understand that having a strong cash position needs consistent dividends to make shareholders feel that our stock is at very least reliable from a dividend flow point of view. With the lower share price over the last few weeks, months, the dividend yield is exceptionally good. We have a broad portfolio of market-leading and again, that word aspirational fashion clothing brands that are loved in South Africa. Obviously in the U.K., there are all the big sneaker and fashion brands in the stores.
Office is strategically positioned with probably as good as one of the world's top leading international footwear brands through its unique offering and its strong customer and brand loyalty. Just as an example, one of, I'm not going to say whom, but one of the biggest suppliers worldwide, or one of the biggest brands, just had a conference in a, and I don't want to say which country because it gives the game away, but in an international place, not in the U.K. We were the only U.K. retailer invited to that. We have a healthy credit portfolio in Truworths Africa with more than 2.8 million active customers, but over three million customers have shopped in credit in Truworths Africa in the last 12 months. I remember that's about 70% of our business. The other 30% is cash.
The average cash customer buys less per basket by quite a significant amount, which probably means about five million customers shopped in our stores in the last 12 months. There is a very high demand for credit stores. Despite the toughness of the economy and the strain of the South African economy and the strain that the consumers are under, the demand seems to be unabated for credit. Of course, they have to be creditworthy. That is a challenge. I am going to go back to the business philosophy. Because we have taken a long-term view and we are not short-term orientated, over about a year ago, we decided that if things are going to improve in late 2025, but more likely 2026 and 2027, then we must, as we always do, make sure our stock is clean. That we always do.
Always make sure end of the season stock is as clean as it needs to be. From a book point of view, we took a view that we must pull in our credits, be a little bit tougher on our credits, especially the more risky areas of credit, so that in anticipation of hopefully better times, our book is as clean and as healthy as our merchandise. That has been working well because it has taken quite a while and it has constricted our sales a bit. The reality is it is profitable constriction. If the economy does pick up to the hopeful 2%, one and a half in the next year or two, Truworths tends to do much better, as all of our shareholders know, in the space of a slightly better economy because we are more expensive with our aspirational product.
We have, we focus on the best retail locations in Office and in South Africa. We will not take a store unless it is in the A-plus position. We would rather wait and be patient, even if it takes five years. Both our online capabilities in South Africa and the U.K. are world-class. You all know that the Office one is 40% of total sales is online nowadays. Never mind good or bad times. We always manage the business frugally with frugal expenses control, frugal cost control, even in good times, because you never know what is coming next. Over the last couple of years, we have been positioning ourselves. Sarah will talk to it later. I am sure there are going to be questions about it. There has been an enormous focus on our existing brands, DNA, my brand.
You know, you know the big brands, Uzi, Daniel Hechter, of course, Truworths, Truworths Man. You know, we have about 50 operating brands in our stores. We have been focusing enormously on those brands, making sure that they are elevated, they are differentiated, and they are aspirational. We are particularly focused on the value proposition. Given the poor economy, the tough economic situation of most of our customers, we still need to differentiate ourselves. We still need to make sure that our product is elevated compared to our competitors. On the other hand, we have to get the value proposition right in South Africa to take account of the tough economy.
There has been an enormous amount of work going on in our merchandise departments with getting the balance between the value, but also with the DNA focus and the elevation focus, all intact. Sarah maybe will talk to that in a few minutes or when we get to question times. We also have launched new brands. We already have Identity, which is a cheaper brand than Truworths, and now Sync, which is even further discount in the value space. We are working on that because we still want to remain within the confines of our business philosophy. Even in a business like Sync, we would want to have an elevation and aspirational element to it. The suppliers, perhaps the fabric and some of the quality, will not be anywhere near the Truworths standard.
There is work going on in that space as well, besides what I said about Truworths. Of course, if we are going to get cleverer about our existing brand's DNA and the value aspect of the aspiration, those are two, they are, they could be conflicting points. One has to bring them together. In other words, they are still aspirational. We are still high quality. We still meet the customer's expectation, but the value proposition gets more appealing for customers who are in trouble. We developed and spent well over ZAR 1 billion, well over ZAR 1 billion on our new distribution center, which is now in a startup phase. It is working, but not fully functional yet.
That led back down the supply chain together with our design centers that are now in us, to enable the merchandise departments to offer a much greater range of replenishment and part allocation products, which is firstly high quality, but secondly, because of the volumes it drives over time, will drive better prices. There is a sort of link between the new distribution center, the DNA focus of the product, and the business philosophy, which says you have got to meet your customer's needs, which says value, even though they want a better product in these difficult times. Of course, we have got to think long term because that is our philosophy.
All of these things come together in terms of the strategy that we implemented in order to fulfill what we say we're trying to fulfill in our business philosophy or our constitution, if you want to call it that. We have initiated various other collection capability and payment channels, really letting the customer pay us however they want, whether it's, there's no choice, there's no limitation how they want to pay and shop with us. We have enhanced our point of sale system at the, into the, into a very upmarket new graded one. In the Office business, we've spent GBP 12 million. When you think of capital allocation, the returns on the Office marginal investment is significantly higher than Truworths because of the scale and size. We're putting enormous effort into and money into the Office expansion. Expansion is new stores.
There were 11, but remodeled stores, there were 10. It is like a 50-50. That is all to do with new stores, better trading space, better exposure in the U.K. In Office, as you know, 40% sales at least in e-commerce means investment in e-commerce is a critical aspect of the business. Office is now pretty much totally aligned with Truworths in its retail methodologies, processes, and even becoming more so on its systems. At least some of, if not the majority of, its success has been due to that. There is lots going on with technology and warehouse development in the U.K. as well. Getting into the financial results, as I say, I am going to go very quickly through because you are all familiar with it and you will be able to look at this afterwards.
A big drop in our margin to, unfortunately, one of the lowest it's been for a long time. Now think about why that happens. When you think about how we run the business, I've told every analyst that I've seen for the last five years the same story. We have two budgets in sales terms. One is the sales, which is expense orientated, remembering the strategy frugality, good or bad times. We have a low sales budget so that if, for example, we budget sales at 4% because we think expenses are going to go up by 3.8%, then we can slightly increase profits. That's the sort of way we do sales budgets. When we plan the merchandise sales, we are much more optimistic and aggressive. They're not aligned. The financial sales budget and the merchandise sales budget aren't aligned.
Sometimes it goes wrong. We're good at managing our stock in season, but when we do as badly as Truworths has done in the last six months and as difficult as it has been with as optimistic a sales forecast, despite our desire to manage it in season, which we did do, we still end up with too much stock at the end of season. That requires, because again, remembering I said at the beginning, we want to have a clean merchandise range at the end of February each year, end of August each year, and we want to have a clean debtors book. From a merchandise point of view, that means it required extra promotional activity in late after Black Friday, which is December and January and February. We still get to our clearance targets.
Our terminal stock's perfect, but it cost us this year. Expenses were very well contained in the group, but the net result was still disappointing in profits. When I look at the group, sorry, I'm skipping a bit there. The return on assets, return on equity, that has been declining, but still to a very acceptable level of a return on equity of 36%. Return on assets down to 27%. The return on equity, we kind of feel that now there's been such a growth in retained earnings and we reversed impairments, which caused the drop since 2022. We kind of feel now we're at a level playing field.
There will still be increase in retained earnings each year, but we feel we can still retain and ensure return on equity is sort of normalized at around the mid-30s and we plan and hope to retain that percentage. Similarly, return on assets, there has been a decline because of the new stores in the DC in Truworths. There has also been some other stuff with the charitable trust. Again, we think that we can keep return on assets at well above the late 20s. Similarly, stock turn and asset turn has to be above 1.1, 1.2. If you look at our group balance sheet, property, plant and equipment up by 20%. Some of that at least is the DC and the new distribution center in South Africa, as well as the stores in Office. Inventory is up 13%.
That's a lot to do with the expansion in Office. When it comes to share buybacks, there's been some questions about if now that our cash flow is looking so much better, what are we going to do about share buybacks? The reality is we will probably retain the cash and probably in the U.K., there are target businesses we would love to buy in South Africa and we continuously look at them and think about them and focus on them, but they're currently not available for whatever reason. In the U.K., we would really find it appealing to make an acquisition in the U.K. that aligns with Office. The cash at the moment will remain in Office, but also for the expansion in Office is a lot going on there.
If at the end of each quarter, when we meet with the board, we decide that because in the next six months there's not likely to be an acquisition and we've got adequate capital for our store expansion, then yes, we will probably start a share buyback program again. As you know, we spent since 2020, so it's the fifth year now, ZAR 2.5 billion, and we at a share price of ZAR 48, and we've spent ZAR 6 billion since 2002. Dividends have been consistent. The group's generated tons of cash in the last period. There were, admittedly, we did pay creditors a day after the year in the way the dates fell, but we still would have generated ZAR 600 million or so cash after that. That's despite paying for the DC, a big part of it or an annual part of it.
Truworths battled. Truworths sales were down 1%, trading profit down 17%, but it's primarily because sales were not good and gross margin dropped. Those are the two reasons. Expenses were very well controlled, but because of the denominator effect, the implications for trading profits and profit before tax are significant. Hopefully, we're going to reverse that in the next six months or partially anyway. Looking at the Truworths Africa balance sheet and income statement, profit before tax dropped by 15%. Divisional sales across the board.
What I'm saying to you, just to give impetus to the argument that we really faced a tough economic situation in South Africa with our existing Truworths Africa business, whether it was menswear, ladies' wear, whether it was kids, whether it's other, which includes Office, jewelry, Sync, Identity, even YDE, all of the businesses battled in the six-month period, which we thought was going to be better than it was. We knew that the anticipation of the Two-Pot System and the sort of speed of recovery of the South African economy could be exaggerated in the marketplace and it might take longer. Of course, we anticipate and plan for that, but nevertheless, it was across the board tough in this half year. In Truworths Africa, we closed 15 stores, but we opened 23.
The trading density, bear in mind, there is inflation, has been dropping since December 2022, but the sales per meter is still at least very acceptable by South African standards. Merchandise inflation, if you ignore some of our sort of vendor product, inflations in the last six months was about 2%. If you ignore it, it's actually closer to 1%. I think the next six months, in others to June, will also be about 1%. That shows you how the margin suffered because of what I said earlier on, the gross margin because of the promotional activity. Training expenses very well controlled, that frugality coming through and helping us a lot there. Depreciation went up by 2% in South Africa, occupancy cost by 1%. Rental pays actually went up by 4%, but there's an IFRS 16 issue which makes which compensates a bit.
If you exclude foreign exchange losses and you make it luck for luck, then other operating costs increased by 1%. Trade receivable costs, Mannie can talk later on about the ECL allowance and the charge of book, that new way of looking at it. Essentially, we decreased our ECL allowance by 91, but we increased our ECL allowance when it comes to costs relative to prior period by ZAR 92 million. They sort of compensated each other. Mannie can talk to that a bit later on. You know about the profit in Truworths has declined. The distribution facilities, we spent ZAR 150 million in 2024. There is another ZAR 100 million or maybe a little bit more committed for 2025, which will mean essentially that we will have spent close to ZAR 1 billion and we will be finished the DC by June, finished paying for it.
It is operating, by the way, but it's still in test mode. Office, brilliant numbers, growth by over 11%, EBITDA 10%, the EBITDA margin 27%. Office has been outstanding investment, generating tons of cash, doing really well. We also show an adjusted figure so you can see the net IFRS 16 impairment reversal and the impact of that. Whichever way you look at it, the numbers of Office are really appealing. We will try and answer some of the questions about the future with Office during question and answer time. There is the Office income statement where profit before tax essentially grew by 21% on an adjusted prior period. Office mainly is in the U.K. and Ireland.
If you look at the sales growth in Office U.K. compared to the national statistics in the U.K. of retail sales, you can see that pretty much for since July 2022, Office outperforms the market and especially has done so since June 2024. Office closed four stores, opened six. Gross profit in Office has gone from 42, which was already a good gross profit in a percentage in the sneaker and branded business, to 48 now. A lot of that is to do with stock management. Office training expenses have been well managed at 7% growth. There is a lot of depreciation and that is for obvious reasons, the stores, employment costs because there is an issue with minimum wages in the U.K. going forward and in the past. We also are expanding stores. Sales are up. All of that causes extra employment costs.
Occupancy costs are really under good control. Office expenses are well managed. Depreciation, we've explained there why it's gone up so much. Employment costs, I've explained there. The operating costs, but online marketing. This shows the Office U.K. EBITDA margin, operating margin, profit before tax. It's a lovely graph to look at. We obviously hope it carries on. A note here, the store renovation and development, GBP 2.7 million, the year before GBP 1.7 million. Go back three, four years, it was almost zero. Next year, or this year we're in, it looks like GBP 4.7 million. We are really being much more aggressive on real estate in the U.K. We are spending money on the computers, infrastructure and software, and some money on the distribution center.
When it comes to South Africa and the credit or account management, the TransUnion Consumer Index was above 50%, which is a positive thing. You all know that above 50% means it's healthier than it was. Below 50%, it's less healthy. It is the first time it's been that since around about 2021, which is a good sign. I'm not sure to what extent the two-pot helped that. I am really hoping that when the next time this comes out in the next quarter, it's still above 50%. If this was caused by the two-pot, it might not be so. You know there is hope that the economy is improving and expectations are hopefully better about the future in South Africa, despite the international risks that have recently emerged.
We've tried to highlight those points in the TransUnion report that are particularly interesting to us, which says the rate of new defaults has cooled significantly relative to highs before, but they are still rising, single-digit territory. It means we are kind of not out of the woods, they are still rising, but it's definitely improved. Distressed borrowing, it's the first time the indicator has fallen since 2021, I said it early on, because the balance sheets of our customers are looking better. You all know that with better economic growth and a better book, which ours is really looking like, if those things all happen in the next 12 months to two years, that will be a very good thing. We do think Truworths reacts very well to a better economy and suffers more in a tough economy.
We try and mitigate that, but that is our reality. Also, CCI data does suggest that household cash flow has started to improve and that household debt serviceability, the debt service costs, have been stabilized as the SARB, the Reserve Bank, has reduced interest rates. Again, you know it's all about what happens internationally. Hopefully, nothing dramatic happens badly because of geopolitics and international factors. We are hedged with Office. If they do not happen and the rand does not suddenly go negative, which we are hoping it will not, and the economy does improve so that the credit market and health improves, that all augurs well for Truworths in the next 12-18 or 24 months. Credit sales, 0.9% reduction.
Bear in mind we did pull back on credits in the idea of cleaning up the book in anticipation for a healthy economy in the future. New account applications were up at 2%, but there was a lower conversion, which again, that's part of being a bit more tough and stringent on new credits. Total accounts were down by 0.8%. Active account holders who are able to purchase, in other words, they're not in arrears, remained at the 83% of the total. Loyalty membership is now over 19 million. That means people, the 19 million, basically the difference between that and the three million is that these are all people over the years who've applied for credits. We don't give them credit, but we retain them on book and continue to market to them. That works.
It keeps the cash sales up, the labor is up, the three-month payment plan up, and all the things we can try and do to work with the customers who do not have credit but wish they did. Collections did improve. The ECL allowance, the active book is now 20.9 versus 19.7. It's higher partially due to the decline in the active book size, the denominator effect. There is lots going on with our predictive models as usual. This graph is particularly interesting. We are not giving you the scores because it is intellectual capital. The point is what this is showing is that the high-risk balances over the last three years are reducing and the low-risk balances are increasing. That is a strategy. That is what I mentioned right at the beginning of this idea of cleaning up the book in anticipation of better times.
Nevertheless, things are still tough. The approval rate versus open rate is still a big gap. This is an odd thing that customers apply and lots of them do not get approved. Only 23% get approved, but then only 15% actually go and open. Obviously, that is a gap we try and deal with all the time. It all speaks to tough economic situation. What is interesting, and it always is, is that 42% of our new account applications are under 30. In fact, 24% are under 24. We young people want to shop at Truworths and they want to get credit from Truworths. This one is a bit more stats about the credit, but it says the risk approved declined a bit. I have told you why a few times now.
The overdue accounts and those ratios are pretty much in line with the past, but the change in number of active accounts and gross receivables is down. That's because sales are down and because we are restricting credit a little bit. Aspirational fashion, looking at our strategy going forward, wider in Truworths Africa, a wider merchandise offering of core replenishment styles. That talks to that strategy to align ourselves with current economic circumstances in terms of the value offering and yet retaining our aspirational fuel of our merchandise. There is a big project and exercise underway currently in the merchandise areas. It has been running like that for about three, four months to try and broaden the merchandise offering.
That, of course, plays into the new DC where we are now much more able and will especially be from about May, June onwards to deal with significantly greater portions of our merchandise in replenishment product, which we were always constrained with in the past. Most of that is on part allocation as well. There is a new brand expansion, the Fuel and Sync. Fuel's going very well. It is in Truworths. A lot of it. Sync is a new business. There is, I do not know how many stores. I think it is 20 something. That is one that is going to be a long-term brand in the value space. We are trying to create a new type of value offering, which is aspirational and yet value. It will take time.
We are positive about it and quite excited because it's bringing in a new way of replenishing and ordering merchandise from new types of suppliers, from new countries that Truworths has not traditionally dealt with. Interestingly, that will have a spinoff to both Identity and Truworths. In Office, you know about the store expansion and modernization. MTO has started to do much better and that's higher margin product. That's taken long. Again, it's a marathon, not a sprint, but it is improving. Associated merchandise, we are doing much more than we used to. The new DC is complete and ready and it's in a phase to go live. That will be complete by around May, that it's completely go live. I've mentioned about the part allocation. There's much work going on.
Again, it's all in this theme of aspirational value, business philosophy. The local design and manufacturing in-house division is working beautifully now. The offshore vendor base is expanding. In the U.K., we are working on the DC. We're doing some upgrading there. This is our new ZAR 1 billion Truworths distribution center near the international airport in Cape Town. You'll see that we have the shuttles. There you have the conveyors. There you have the storage. Comes to customers on Omnichannel, strong growth in online sales, both businesses, Office and Truworths. Office a bit less because they've had less markdown activity. You probably all know this already, that e-commerce works better with markdown and with scarcity. In the Office case, scarcity causes the high percentage of sales, but the markdown has been less because it's been better managed.
E-commerce is battling compared to store growth, which is fine. Store growth is excellent. Omnichannel CRM cost reduction in Office and South Africa. Mobile apps, both in South Africa and the U.K., are high priority, especially in the U.K. Office and Offspring mobile apps are being upgraded and they are going live in the next few weeks. Credits, more of what I was saying, improved data models, improved conversion. We are aggressively looking at how artificial intelligence can help us synthesize our book to achieve our objectives, which is long-term customer health, selling to customers who can afford it and that want our aspirational fashion, but finding a way to appeal to and attract and give the right credit to the right customers.
Retail presence, so there's new concepts in Truworths, Identity, Context, Loaded Living, Office, U.K., and in South Africa Office and in our standalone kits. A lot of work going on with our stores. In Truworths, there's the reimagined concept we call it, which is state of the art. There's only five stores opened and six modernized during the period in the reimagined concept. There are one or two that will do that are even more extreme in terms of the upmarket nature of them in the top malls of South Africa. We won't roll many of those out, but the reimagined concept is working well. Those stores are doing better than the non-reimagined ones.
Of course, we have to make sure every restore, reimagined, remodeled store, or if it's not reimagined, it's just a typical Truworths store remodeling, it has to exceed our weighted average cost of capital in terms of the marginal returns. We are quite strict with that. And Office, you know about lots going on with Office. This is a picture of some of the new reimagined stores. This one, Ilanga Mall. This is Irene in Gauteng Mall, The Grove. This is the new Identity Mega Store in Gateway, doing nicely. This is in the U.K., Office, Milton Keynes, all these new stores. The returns are way above our weighted average cost of capital, and they've all been significantly much better than they used to be in the old store context.
I'm not going to talk a lot about the environmental and sustainable program because you can look at it yourself, but we follow the following seven United Nations Sustainable Development Goals. We focus on these seven. There are many more, but these are the ones we feel are most relevant to us. We've got quite a large fund for charitable work and for sustainability work, both inside our business and external. Inside, of course, carbon disclosure, climate change, et cetera, and external charitable support. There's big funds for that. In governance terms, we've appointed a new independent non-exec director from 1st of October. We are looking, we continuously refresh our main board, and we're still busy doing that, and we'll continue to do that. We try and keep the experienced non-execs involved in our business because of the knowledge experience of the business.
I know there's a debate then as to the independents, but we feel their contribution is significant. There are a lot of new non-execs we're bringing to learn from and replace them over time. Of course, there's the same discussion about my own succession and that of Sarah, Mannie, and the executives throughout the business. A lot of work goes into that, and we think we've made good progress there. Our B-BBEE Score has grown, improved significantly. I think we're on level four now, and we used to be level eight, not even a few years ago. New auditors in place. It was a difficult transition as these things really are, but now it's running smoothly. Once again, we ranked in the top 10 of the EY Excellence in Integrated Reporting Awards.
It's been the 17th consecutive year, and we are by far the only JSE listed company to achieve this acknowledgement because we've been ranked in the excellent category before they had a top 10 and in the top 10 since 2003, every single year. Outlook, sales were up by 6.3% group, 4.6% in Truworths, 13.5% in Office. I do caution, it was not driven specifically by a markdown or anything in this to the seven-week period, but still at least the sale time when all of our competitors are on sale and we're on sale. We are not yet sure in South Africa what the winter will be like. We're now end of February. It starts getting colder in South Africa from March, April, May, and then you finish the season very short in South Africa, June.
In the U.K., it's the other way around, as you know. Again, they're also full of not just Office, I mean the whole of U.K. There's promotional activity the first two months. We'll have to see what happens in the next four months for the year and thereafter. Growth in trading space up by 1%. Office use case significantly more. I don't want to go into this. Truworths Africa, you know the story. I've sort of spoken to it all throughout the presentation. Similarly, I've spoken about Office, but you can read it in your own time. I'm going to now end the presentation and revert to questions. I'm going to refresh Sarah and Mannie, and we also have the questions on their screens. The first one is, I won't say the name of what it is.
What was the internal inflation in H1 and what do you see inflation for the full year in South Africa? About 1% for the past and future. Is that right, Sarah?
Yeah, that's right.
Okay. What drove the recovery in revenue growth in South Africa the first seven weeks? The second half, was it promotion driven? What is the outlook for gross margin in the second half? I have really just mentioned that, I don't know. I mean, the first, you've got to know January, February, I say to the analysts all the time, July, August, you can't tell well. You've got your own promotional activity, but then you've got competitive. Also, July, August is transitional time. It's freezing cold in South Africa. January, February, although we call it winter one, it's actually boiling hot. You can't really tell properly for the first seven weeks.
Yes, it was more positive and we're pleased about that. Gross margin, it's all going to be about whether or not sales are reasonable. I mean, in the next couple of months, reasonable, let's just say better than it's been the last six months in Truworths and Office hopefully retains its growth plans. The gross margin, we managed to stock well, it should improve again. Will you open credit taps going forward? I think I've told you we sort of cleaned up the book and it's really looking good. That means you don't have to open up the credit taps because what happens in practice is the scores are better because the book is healthier. Therefore, the customers, as they get better, they are entitled to more credit based on their scorecards.
We won't open it up in the literal sense, but it will improve because of what we are saying about the economy if it's that. Are you doing share buybacks? I've answered that. The new potential benefits of the new DC in the Western Cape, I think I'm going to quickly give Sarah a few seconds just to talk about that in terms of the work she's doing on replenishment, the value equation, and yet aspiration and how the DC fits into that.
Yeah, thanks, Michael. The DC, obviously one of the key reasons why we felt the DC was such a critical investment for us for the future was the fact that it gave increased replenishment opportunities, many more volumes of replenishment lines, and of course, being able to part allocate the merchandise.
Obviously, coming off the back of a more difficult trading season, the merchant teams have been really looking at detail of where there are opportunities for us to improve our ranges. We have been looking at a different way of product tiering within each of our brands, which plays into more volume product that then utilizes the replenishment and part allocation capabilities of the DC. We are hoping that this is going to really assist with driving sales. Obviously, the DC is still in a go live test phase. The full potential of this will only really emerge going through the year ahead. We are not sure exactly when, but it is definitely an opportunity. Michael, you are on mute. Mr. Mark, you are on mute. People do.
Apologize. Sorry, my CV has gone mad here.
The next question is interesting because it talks about the markdown, but I've told you that there won't be more, well, there was more markdown. That's why the margin is lower, but the stock will be clean. So there isn't really an issue with that. The stock levels are fine and will be fine by the end of March. It's already fine. Office U.K. continues to be a star performer. Please explain how it is possible to achieve operating margins more than double that of your competitors. It reminds me of the question when I first listed, God knows how long ago, 30 something years ago, in 1998. The analyst said to me then, and I don't think they've ever stopped saying it, your margin is too high. How do you manage it? In Office, it's the same thing.
The margin is high because we manage stock well, we manage expenses frugally, and we are extremely concerned with capital expenditure and working capital management. We do that well. The formula, when it works, works well. I do not know if it is what the others do. Remembering, because of the way we work, Office works extremely closely with Truworths. Although they are in different continents, the sharing of infrastructure of Truworths predominantly is significant in Office. It leans a lot on the Truworths infrastructure. If you think about it, it is a diversification. It is sort of a head office and there are extra expenses in Office because of where it is and how it works and the brands and the product. Nevertheless, there are also a lot of similarities and sharing of expenses.
Cost savings from the new DC being reinvested in past to use to safeguard improved gross margins. I think we are trying, I don't think we're trying to improve gross margin. We want it to be stabilized to the standard that it was. We would like to see the one that's just dropped now as a blip and not a long-term trend. I don't think the DC is necessarily going to improve gross margins as much as improve sales. I've tried to explain the true South African underperformance in the clothing market by talking about the sales of attractive products, aspirational products in tough times. I'm trying to see here. The next question is possible acquisitions in the U.K. in line with Office, which has been a strong performer, but we're also looking in South Africa. Could you elaborate a bit on this?
What would you be looking at specifically locally? I also wanted to clarify that you'd want to do more share buybacks if you can't find suitable acquisitions. Yes, that's what I said. Look, locally, there are businesses that are aligned with the purpose and our business philosophy in South Africa, but they've got to be for sale and they've got to be ones that are at a price that is attractive to us. At the moment, there's nothing in the short term that we are imagining is going to happen, even though there are targets we would be keen to become involved in. We're not looking to diversify outside our purpose. We are a fashion business and we want to remain that way. In the U.K., you can imagine it's focused on sneakers and shoes.
Obviously in the U.K., if we could get into a clothing business that was a good brand that had the same customers that buy our sneakers, the back part of the operation would be a very appealing thing for us. Again, there are targets, but nothing imminent. Yes, you are correct. If we carry on generating cash and nothing imminent happens and we have enough money to pay for the CapEx in Office particularly and the requirements of Truworths, then sure, we would do share buybacks and be more aggressive in a low share price like we were before. The next question I am going to give to Mannie, it is about the, when I spoke about South Africa Consumer Credit Index, which is improving that whole thing about TransUnion.
Does this mean your credit approval rates should be going up over the next few quarters? Mannie, can I let you handle that?
Yes, thank you, Michael. Yeah, I think as consumers' credit health improves in South Africa, naturally we would tend to open more accounts if we targeted those account holders. If credit health improves, I would think that our approval rates in credit would go up.
Thanks, Mannie. The next question is that one that I have spoken about, but it's about the credit sales are 70%. It says peers have shown increased appetite to grow credit sales. TransUnion says things are improving, as we've just heard. Yet our credit sales have been tepid. Why is this? Why have you not been more aggressive growing credit sales to support revenue growth? That's a good question. It's a strategic thing.
It's like, do we, how far do we want to go? We took a decision, right or wrong, I'm not sure. We feel it's correct that if we look at the long term and we ensure that we get ready for what we hope will be an upturn, the best position would be to have the healthiest possible book and take out the relative risk that we have taken, that we've been prepared to take in the past. We have sort of reduced our credit risk, have tightened in anticipation of having a clean book, hoping the credit environment improves.
That does mean that if in the next two years that TransUnion Index is above 50%, if I translate it as literally as that, and the economy grows, let's say 1-1.5-2%, it does mean that our credit books should perform particularly well over the next two years. Is there anything else I can refer here to other people? Sarah, do you want to, or Mannie, or Reon, do you want to, you've also got access to these questions. Are there any you're looking at that or not repeat that you think you would like to answer? There's one while you're looking, so you two can concentrate, the three of you, just try and find them. I see there's one here. Why? Where do you think Office could succeed if you opt to expand into Europe?
That is a very difficult question because the truth is that in Office per se, and I'm leaving out Ireland, expanding into Europe means the brands would have to support us in that endeavor. At the moment, we are low exposed and we only had some stores in Germany which were closed. I don't think there's easy access into Europe with Office. If we had an acquisition of a U.K. business in clothing, let's say, that was allied to Office, and it was possible to expand that into Europe, maybe into department stores or whatever, that is an opportunity. That's how I think it might happen. Sarah, Reon, Mannie, do you want to comment on any questions?
Michael, there was one here about the risks to the new DC of Go Live and really what is it, a systems risk or something else? We have been testing the new DC since, I would say, late November all the way through to now. We have started to go live quite slowly. We initially just did shoes initially and we have some merchandise going through it. The existing DC remains operational. Should something happen to this new DC, we switch back to the original. We will have a backup DC going forward, which is great. We have never had that before. We are quite cautious in our approach to bringing on new merchandise that gets distributed via the new DC. We are ramping up slowly week by week.
At some stage in the near future, I think we'll have 100% on. The old DC stays operational.
The next one, there's a question about kids that perform particularly badly. I think that is an issue. We had a bad run in some parts of our kids. It's not the Emporium, by the way. It's just the kids' departments. Some of them are the kids' specific Emporium. Some are in kids' Emporiums within Truworths and some are standalone kids, mainly kids' Emporiums. Sarah can talk to that in a second. There were some product problems which she can talk to in some areas which I know they're dealing with. Sarah, I'll let you talk to it.
Thanks, Michael. Yeah, we were obviously disappointed by the performance of the kids' area.
This has been an area of such growth for Truworths over a number of years. We've spent a lot of time reviewing any issues that we might have had because there definitely were some product issues in certain brands. I think here we feel there's opportunity for the price tiering and product tiering that I spoke to earlier with looking at really improving some of the value for money offering within the kids. The range is incredibly broad when you add the brands together within the Emporium. We think within that there's an opportunity for us to focus on maintaining excellent quality, but by focusing a little bit on driving some volume of key best-selling products, we can improve the value offering and the entry price points in the kids' Emporium, which we think is going to make a difference, we hope.
Thank you.
Just to add to that, there's a question about the last quarter of summer, or October, November, December, particularly November, December. What you know, why did we do so badly in that quarter? It was a tough quarter. At least part of it, quite an important one, is the kids because it's so big over that period of time, especially late November, December. A portion of that is that. The rest is many of the other reasons I've spoken about. There was another question here that I thought was interesting that I, there's a big one, Mannie. I don't know if you or Reon want to talk to this. The credit, it talks about the credit markets, the cash sales under indexing credit sales in South Africa over the past period in trade and despite the clearance activity.
Do you want to try and talk to that?
I can do that. Michael and Rion can chip in. Is this the question around the 70% sales in credit and in relation to other retailers opening up? Has that affected?
No, this person says, this person says, can we speak to cash sales under indexing credit sales in South Africa over the past, over the post period in trade? I do not even know if that is true. I am not sure about, and this despite the clearance activity. I mean, Rion, or you or Mannie, I do not know. I am not sure if we can answer that question because I am not in, it sounds news to me.
No, Michael, I mean, I can give it a bash, I guess.
I mean, when you do, we have the ability to communicate with our account holders and of course our loyalty base, but there are many cash customers that we don't communicate to because we don't have the details. When there's promotional activity, you communicate, of course, to your credit base and you communicate to the loyalty customers that you feel are likely to shop, but there's a big chunk of people you don't communicate to. That can cause an under indexing in cash sales relative to credit sales.
Thanks, Mannie. It is just past two, so I am going to end, but there's one more question I want to answer. How much is MTO of Office sales currently? MTO is our own brand in Office.
Remember, I think, Sarah, you can correct me, but in fact, I do not necessarily want to even disclose it, but years ago it was much higher when we bought the business. Over the years, it declined to a very low percentage. I do not think we have disclosed what it is. Reon would know better. They are shaking their heads saying we did not. Let me just say this. It is a low percentage. It is under 10%, but it is increasing. It is a marathon, not a sprint, which is, as you know, our underlying philosophy of everything we do in our business. I do believe over the next five years, it will continue because it has in the last 12 to 18 months steadily been improving from a low base. I do believe it will continue to grow.
Sarah is very involved in it with the teams there. They're an excellent team, the MTO team. I do believe cautiously and steadily, it will continue to improve, but I'm not disclosing the percentage. I'm going to end off now because it's two minutes past two, and we said we'd end by two. Again, you all know the investor relations. Reon, just tell me the email address. I always forget.
Yes, it is investorrelations@truworths.co.za.
If you want to send us an email, we'll try and answer within 12 to 24 hours at most, sometimes quicker than that. If you have any questions we haven't adequately answered, please send those questions to us and we'll respond quickly. If there's still a need, we will meet you virtually or physically in person. Thank you everybody for attending our half year result presentation.
Hopefully we'll have more positive things to talk about in August, September. Our belief is it's a marathon or a sprint. Stick to our business philosophy, yet have strategies that are innovative and hell of a flexible to take into account current and future circumstances. Thank you very much. I thank my colleagues, Mannie, Sarah, and Reon.