Business / Companies
Truworths improves net bad debt collection system
05 Mar 2013 at 10:51hrs | Views
Truworths CEO Themba Ndebele
Truworths is projecting single digit growth in sales this year while collection of receivables has improved vastly after the company beefed up the debt collection team, group CEO Themba Ndebele told an analyst briefing yesterday.
He mentioned that the firm increased staff numbers in their collection department to improve recoveries and security department to manage shrinkage.
"You will see that the impact of increasing staff in the collections department has been relatively bigger bad debt recovery compared to the previous year.
"At my last briefing I did explain to you the expensive nature of collecting debts through the legal system... and for you to employ somebody to do that would cost you the same but looking at a bigger number of debtors and that's why we increased the number of collection staff," said Ndebele.
The group's net bad debt write-off as a percentage of credit sales for the period under review was 0.1% compared with 2.5% in the prior period "because of improved recovering."
The group's sales increased by 10.9% to $13.87 million as a result of the improvement in merchandise.
"The improvement in merchandise enables people to buy and that mainly contributed to the increase in revenue," said Finance Director Tinashe Chidovi.
Trading expenses increased 8.1% but excluding depreciation, trading expenses went up by 6.6%. Depreciation and amortisation went up 44.3% driven by capital expenditure of $482 455.
On occupancy costs Ndebele noted that it went up 16.1% with the firm's basic rentals going "up 20% over the first half last year and that includes the four new Number 1 Stores but on the like for like basis the rentals went up 14.1%."
These are largely anticipated to come down.
Employment costs grew 24.7% because of a 22.2% rise in basic pay, payment of bonuses and increase in staff numbers due to the opening of new stores as well as the additional staff in credit collections and security departments.
Gross margins improved by 130 bps to 52.5% because of improved margin buying and decreased shrinkage which offset the increased marked down costs.
Trading margins rose to 10.8% from 8.7% prior year because of the decrease in operating costs, higher gross profit margin and decreased trade receivable costs the sum of which was more than the increase in staff and occupancy costs as well as depreciation.
Truworths, Topics and Number 1 all recorded value increases of 11.4%, 5.6% and 28.8% respectively with the profit for the period up at $1.060million from $698 000 posted in the prior period.
Ndebele said group sales participation in cash sales went up to 25% because of strong revenue growth in Number 1 stores from 24% achieved in the same period in 2012 whilst credit sales went down to 75% from 76%. Number 1 stores benefited from sales growth in the upgraded store, introduction of lay-byes and to a lesser extend trading down which affected the middle income group which shops in Topics. He also noted that people in that group (and indeed most people in the country) tend to be over-borrowed and the slowdown in credit would impact consumer spending negatively going forward.
Commenting on tariffs, Chidovi indicated that the protocol where "things (fabric) come in duty free under a Sadc certificate actually now says not only should the products have been made in the Sadc region, the yarn must have been processed within the Sadc region."
Chidovi noted that this is a challenge faced by the firm because they import most of their synthetic fabrics mainly from the Far East and have to pay duty for it which limits people to the cotton fabric that is manufactured locally.
Making a comparison of sales densities with South Africa, Ndebele noted that as a percentage of South Africa, Zimbabwe is at 30.6% as at 6 January 2013 up from 26.1% as at 8 January 2012.
He further highlighted that the difference is that South Africa is "on 12 months credit scheme and we are on 6 months credit scheme. Should liquidity conditions improve in Zimbabwe then we will move forward in improving..."
100% of Zimbabwe credit sales are on 6 months payment plan whilst 74% of South Africa credit sales are on 12 months payment plan.
Ndebele indicated that the firm came up with payment plans that enable customers to pay their accounts.
"If you look at somebody who has got an instalment of $35 and they miss one instalment the following month they've got to pay $70 on a net income of $300 and that is a big ask.
"So what we have actually done is we have tried to come up with payment plan for our customer and the benefit of that is the interest income that comes through (5% on the amount outstanding) …it keeps people active in paying their accounts," he noted.
Net borrowings at the beginning of the period were at $7.087 million from $5.645 million and cash generated was up to $2.413 million from $1.651 million thanks to a reduction in inventory and improving collections.
Merchandise sales for the 8 weeks in the second half of F13 are 12% up on prior period after January and February achieved 19% and 7% respectively.
He mentioned that the firm increased staff numbers in their collection department to improve recoveries and security department to manage shrinkage.
"You will see that the impact of increasing staff in the collections department has been relatively bigger bad debt recovery compared to the previous year.
"At my last briefing I did explain to you the expensive nature of collecting debts through the legal system... and for you to employ somebody to do that would cost you the same but looking at a bigger number of debtors and that's why we increased the number of collection staff," said Ndebele.
The group's net bad debt write-off as a percentage of credit sales for the period under review was 0.1% compared with 2.5% in the prior period "because of improved recovering."
The group's sales increased by 10.9% to $13.87 million as a result of the improvement in merchandise.
"The improvement in merchandise enables people to buy and that mainly contributed to the increase in revenue," said Finance Director Tinashe Chidovi.
Trading expenses increased 8.1% but excluding depreciation, trading expenses went up by 6.6%. Depreciation and amortisation went up 44.3% driven by capital expenditure of $482 455.
On occupancy costs Ndebele noted that it went up 16.1% with the firm's basic rentals going "up 20% over the first half last year and that includes the four new Number 1 Stores but on the like for like basis the rentals went up 14.1%."
These are largely anticipated to come down.
Employment costs grew 24.7% because of a 22.2% rise in basic pay, payment of bonuses and increase in staff numbers due to the opening of new stores as well as the additional staff in credit collections and security departments.
Gross margins improved by 130 bps to 52.5% because of improved margin buying and decreased shrinkage which offset the increased marked down costs.
Trading margins rose to 10.8% from 8.7% prior year because of the decrease in operating costs, higher gross profit margin and decreased trade receivable costs the sum of which was more than the increase in staff and occupancy costs as well as depreciation.
Truworths, Topics and Number 1 all recorded value increases of 11.4%, 5.6% and 28.8% respectively with the profit for the period up at $1.060million from $698 000 posted in the prior period.
Ndebele said group sales participation in cash sales went up to 25% because of strong revenue growth in Number 1 stores from 24% achieved in the same period in 2012 whilst credit sales went down to 75% from 76%. Number 1 stores benefited from sales growth in the upgraded store, introduction of lay-byes and to a lesser extend trading down which affected the middle income group which shops in Topics. He also noted that people in that group (and indeed most people in the country) tend to be over-borrowed and the slowdown in credit would impact consumer spending negatively going forward.
Commenting on tariffs, Chidovi indicated that the protocol where "things (fabric) come in duty free under a Sadc certificate actually now says not only should the products have been made in the Sadc region, the yarn must have been processed within the Sadc region."
Chidovi noted that this is a challenge faced by the firm because they import most of their synthetic fabrics mainly from the Far East and have to pay duty for it which limits people to the cotton fabric that is manufactured locally.
He further highlighted that the difference is that South Africa is "on 12 months credit scheme and we are on 6 months credit scheme. Should liquidity conditions improve in Zimbabwe then we will move forward in improving..."
100% of Zimbabwe credit sales are on 6 months payment plan whilst 74% of South Africa credit sales are on 12 months payment plan.
Ndebele indicated that the firm came up with payment plans that enable customers to pay their accounts.
"If you look at somebody who has got an instalment of $35 and they miss one instalment the following month they've got to pay $70 on a net income of $300 and that is a big ask.
"So what we have actually done is we have tried to come up with payment plan for our customer and the benefit of that is the interest income that comes through (5% on the amount outstanding) …it keeps people active in paying their accounts," he noted.
Net borrowings at the beginning of the period were at $7.087 million from $5.645 million and cash generated was up to $2.413 million from $1.651 million thanks to a reduction in inventory and improving collections.
Merchandise sales for the 8 weeks in the second half of F13 are 12% up on prior period after January and February achieved 19% and 7% respectively.
Source - zfn
