Truworths forced to write down R2.8bn
Investment in UK’s Office is unravelling
TRUWORTHS International yesterday flagged that its R5.5 billion investment in UK-based Office was unravelling, with the retailer forced to write down R2.8bn in the footwear business.
The group said it would take a non-cash write-down of £118 million (R2.7 billion) and £13m respectively in the value of trademarks and rightof-use assets relating to store leases at Office.
Truworths – whose brands include LTD, Naartjie and Inwear – said the Covid-19 pandemic had materially affected its business in South Africa and its Office business in the UK.
“The consequential impact of the difficult trading environment on the profitability and liquidity of Office has necessitated a re-assessment by the management of the carrying value of the Office segment’s trademarks and right-of-use assets relating to store leases,” said Truworths.
The group acquired Office in 2015 for $385 million. However, Covid-19, negative consumer sentiment and headwinds from Brexit in the UK have seen Office withering in value.
Truworths said the Covid-19 pandemic had affected sales in South Africa, as well as in its stores in the UK, Ireland and Germany.
It said it experienced a 33 percent fall in earnings for the year to the end of June due to the Covid-19 pandemic.
The group said headline earnings per share were now projected to fall between 28 and 33 percent, to between R3.88 and R4.17, compared with R5.80 a year earlier.
It said its earnings per share were also likely to tumble between 188 and 198 percent to a loss of between R1.27 and R1.42, compared with R1.45 last year.
Truworths had been juggling difficult trading conditions during the Covid-19 pandemic in the UK and in South Africa, where the economic outlook was bleak.
In July, Truworths told investors it planned to restructure Office. “The group is in the process of negotiating further funding for Office, as well as implementing various restructuring initiatives, including a staff redundancy process and store lease negotiations, to secure the long-term viability of Office,” said Truworths.
The company said in July that, during the UK lockdown from March 24 to June 14 retail sales were £33m, representing a decrease of 47.4 percent compared with a year earlier.
Truworths said the Covid-19 restrictions hit its Africa division hard.
“The economic crisis caused by the severe negative impact of the ongoing Covid-19 pandemic has resulted in diminished revenue, reduced collections and an increase in the doubtful debt provision in respect of the Truworths Africa debtors’ book,” Truworths said in July.
In May, the group said it was unlikely that a final dividend for the period would be declared, given the group’s projected financial performance and position in the short to medium term.
It added that it had extended the term of its borrowing facilities and was taking measures to mitigate the impact of the pandemic by curbing expenditure and preserving cash.
Lulama Qongqo, an investment analyst at Mergence Investment Managers, said yesterday that the Office write-down was expected.
“We all knew it was coming, and that’s why the market has mainly looked through that – the only unknown was the amount,” said Qongqo, adding that financially Truworths was a well-run business.
“I don’t think they are able to come up with a competitive advantage in sneakers, because the category is vastly different from their core business model. So I struggle to see a world where they could make it profitable, and I believe that they know it too,” said Qongqo.
Truworths rose 8.33 percent on the JSE yesterday to close at R32.78.