Dis-Chem Pharmacies Limited (DCP) Earnings Call Transcript & Summary

Good morning, and welcome to our interim financial results for the 6 months ended 31st of August 2026. Before I describe the highlights of the half, I just wanted to say to my leadership team, you are simply world-class. I'm extremely fortunate to have the team that I have supporting me. I have facilitated a significant amount of change in my tenure as CEO and in turn, a significant amount of pressure, a repositioning of the brand, an audacious purpose to be South Africa's health authority, an internal reorganization to ensure clear lines of accountability and ways of working with [ Biggy Labs ] that enable data-led strategy execution. This all amiss an internal culture being built by all of us aligned with the purpose that we chased down. During this time, you have held an obsession around how strategy meets our customer. We have built and executed on large strategic projects and carried the pressure of the changes in all that we do. I thank you for your energy, the manner in which you motivate me and one another, the absolute obsession you have with our purpose and simply the relentless effort that you put in day after day, week after week. I say again, you are simply a world-class team and incredibly fun humans to work with. To our [ greenhearted ] army, we remain the heartbeat of our brand. The energy that is driving better health for all and the friendly capable faces that continue to deliver the health care services very much needed by South Africans. When I walk in our stores, you remind me, you remind us of the responsibility that we hold as leadership and you hold me accountable, you hold us accountable to the promises we make both internally and externally. To our partners, thank you for allowing us to build more sustainable relationships to look beyond the short term and create real long-term alignment. Thank you for believing in our direction and partnering with us in delivering on our purpose. Thank you for your support on [ Bet ] Rewards, a true proof point in how real stakeholder relationship building can be something that truly fits into the concept of doing good whilst doing well. Nothing captures that more than the additional ZAR 1.5 billion we have unlocked through a program we have designed and co-funded. Then finally, to our Board, we appreciate the support and the longer-term understanding of our strategy as we facilitate these changes in what remains an incredibly challenging and competitive trading environment. We now move on to group highlights. The biggest highlight has obviously been the landing of Bet Rewards as a program. It's delivered revenue growth, increased our market shares. And as we mentioned, not compromising total income margin. Through the program, we've returned a significant amount of value to South African consumers in what is a very value-conscious environment, that number being north of ZAR 1.5 billion. And most recently, we won [ Best Freelaunch ] loyalty program. In terms of property and again, aligned with our strategic ambitions over the medium and longer term, we opened 14 new stores. We have currently 5 Store of the Future trading environments. Importantly, Store of the Future as a format becomes a format that we unlock across all new space, and we won Best Retail store design at the South African Council of Shopping Centers Awards. Total income growth of 9% was ahead of group revenue growth at 8%. Retail total income growth of 11.1% ahead of retail revenue growth of 8.2%, demonstrates our ability to control and manage total income margin through effective promotions and the way that Better Rewards were structured and supporting what is a sustainable reward and health funding initiative through Better Rewards. Retail total margin income as a result of that improved from 30.8% to 31.7% Labs nears the envisioned steady state with incremental costs slowing. Julia will discuss it. But if you look at this half compared to the prior half, we had a smaller investment in [ XPi ] Labs with a significant investment in the second half, which was more -- which was closer to the steady state, which means a very different earnings distribution in the prior year. We do anticipate a more linear distribution of earnings and therefore, a stronger second half. Our net working capital position improved from 24.4 days to 18.8 days. We had a slight increase in stock days as a function of buying in ahead of the gazetted SEP price increase. If we think about wholesale market share expansion, once again, we've performed incredibly well, and Chris will touch on it through the presentation. But revenue from TLC franchise stores grew by 9.3%, which drove external wholesale revenue growth of 7% Revenue from independent customers increased by 5%. We now service close to 90% of the entirety of the independent market. And ultimately, we see TLC as an important part of our combined brand network as we think about an invested health care ecosystem. Health-funded product sales and earnings are above expectations. We're starting to see very, very good traction in medical insurance and gap products as anticipated, proof point that the ecosystem play really, really works and strong policy growth and continued improvements in bidirectional metrics of health and life funded products. As we think about bidirectional metrics, anything that's within the insurance landscape that talks to nontaken ups or lapses are being influenced by our ability to design benefit products and our ability to control the ecosystem. And then finally, in the digital space, we launched the first release of our new app to 22,000 users. Since the establishment of [ XPi Labs ], which housed our digital ambitions, ZAR 240 million has been invested in replatforming to ensure omnichannel relevance and to ensure omnichannel relevance as we think about the importance of creating consistency of service delivery in the digital space between our physical footprint and our digital estate. I'm now going to hand over to Julia to take us through the financial results.

Thank you, Roy. Good morning, everyone. In the current period, we have continued to invest in our ecosystem for the future growth of delivering integrated health care and can see the impact of the launch of our Better Rewards program in the prior period. The main aspects from a statement of comprehensive income perspective are revenue growth of 8% and total income growth of 9% Expenditure grew by 13.1% of a lower ex Big Labs space in the prior period, resulting in operating profit declining by 10.5%. Four other points to note in the statement of comprehensive income is finance costs, profit from associates and joint ventures, tax and noncontrolling interest. Net finance costs increased by 11.2% from the prior comparable period. Excluding finance costs from IFRS 16, net financing costs increased by 13.3%. This increase is due to the additional bank loan taken out in the current period as well as the use of the overdraft facility. The increase in the profit from associates and joint ventures is due to the performance of [ Kela and Genio ] that has been offset partially by the loss in Dis-Chem Life. The effective tax rate has remained fairly consistent from the rate at 28th of February 2026. Noncontrolling interests increased due to the strong performance of minority interest stores and oncology. In the statement of financial position, there is an increase in property, plant and equipment due to the 14 new retail stores opened in the 6-month period, 31 new stores from August 2025 and investment in computer hardware required for the rollout of the new pharmacy system, which will take place in the 2028 financial period. Intangible assets increased due to the additional software build, including the enhancements on the app and broader e-commerce offerings as well as goodwill from the additional 50% acquisition of Health Window. The inventory holding has increased due to the additional new stores as well as a buy-in for the SEP price increase. Inventory days has remained fairly consistent from February 2026 with an increase of only half a day. Trade and other receivables have increased with the growth in the wholesale debtors book on the back of external sales growth of 7% Bank loans have increased with the additional ZAR 500 million bank loan taken out as well as the additional RCF facility. Trade and other payables have increased due to the increase in inventory as well as the extension of certain payment terms. Revenue has been broken down between the wholesale and retail segments. Retail revenue has grown by 8.2% to ZAR 19.6 billion with like-for-like revenue growing by 3.4%. This growth was influenced by the opening of 31 new retail pharmacy stores since the prior comparative period, strong growth in both pharmacy, health categories as well as the launch of Better Rewards resulting in market gains. [ Better Rewards ] has given back 1.5 billion in discounts to customers since its launch in October 2025. External wholesale revenue growth has been well supported by the growing TRC franchise model at 9.3% and the continuing support of independence at 5%. The TRC franchises have grown from 258 at August 2025 to $294 million. Total income for the group has increased by 9%, with the total income margin improving from 31.1% to 31.4%. And Retail total income grew by 11.1%, with total income margin increasing from 30.8% to 31.7%. The margin has been protected by sustainable bill rewards funding mechanisms, increased trade terms and more effective promotional sales. Wholesale margin declined from 8% to 7.3% due to the low SEP increase in the current period. Moving on to retail operating expenditure. Retail expenditures invested by 13.8% from the prior period. Excluding the additional costs relating to [ expertly Labs ] in the current period, retail expenditure increased by 11.9%. There has been a 15.3% increase in depreciation, mainly as a result of the IFRS 16 depreciation additions to computer software and hardware as well as fixtures and fittings for new stores and renovations. Occupancy costs have increased by 13.5%, predominantly due to the increase in electricity charges. Employee costs are still the largest expense within the Retail segment and increased by 12.8% and and when excluding the investment in Expert Labs by 10.5%. Like-for-like retail employment costs continues to be well managed at 4.9%. Other operating costs increased by 15.2%. This increase is mainly due to an increase in IT-related costs, advertising expenses and investment in strategic platforms. Wholesale expenditure growth during the current period is 8.9% and erased by 81.6% due to the reassessment of the residual values of buildings in the prior period, resulting in a reduced depreciation expense. Employment cost growth is predominantly due to the additional staff in the [ Long Meta ] warehouse as well as the annual increases and additional night shift in the Cape Town warehouse. Operating profit for the group declined by 10.5% from the prior period due to the timing of the investment in [ x big labs ] in the prior period compared to the current period. In the prior financial period, the investment in [ ex bed Labs ] mainly occurred in the second half of the year, resulting in the first half of the year, contributing 64% of the full year's profit after tax compared to only 36% in the second half. In the current period, the investment is spread evenly across the year, thereby delivering a more linear distribution of earnings across the first and second half of the year. and headline earnings per share for the period is ZAR 641 and $0.43 per share, which is a decrease of 13.3% and 12.8%, respectively, from the prior period. We now move to the working capital in the statement of financial position. Debtor days is being well managed and is increased by 1 day, predominantly due to the increase in the wholesale debtors book. Inventory days have increased from February 2026 by half a day due to the buy-in for the SEP increase as well as the inventory held for the additional 14 stores. Overall, net working capital days improved by 4 days when compared to August 2025 due to the improvement in creditors days. The waterfall graph depicts our cash movement in the current period with an increase of ZAR 828 million since February 2026. Cash inflows have come from normal trading and working capital movements. Cash payments have been made for taxation, finance costs, dividends declared as well as for lease payments, CapEx and loan repayments. Included in investing activities is also the ZAR 125 million relating to the purchase of the remaining 50% interest in [ Health window ], the pharmacy adherence company. Expansion CapEx is mainly driven through the opening of our new stores, costing ZAR 120 million and investment in information technology enhancements across both retail and wholesale. In the second half of the year, we expect to spend an additional ZAR 137 million on new stores and ZAR 124 million for digital initiatives. I'll now hand over to Rui to take you through the retail trading performance.

Thank you, Julia. We'll now discuss our retail trading performance for the first half. In terms of core category market shares, our category market shares have grown across all our core categories. Importantly, we've continued to show industry-leading dispensary revenue growth of 10.4% against the total market growth, excluding Dis-Chem value of 5.1%, driving further dispensary market share gains. . It is reflected that we don't show a market share in dispensary, and that's a function of there not being a single credible source of market share metrics in South Africa. A year ago, we had ambitions around starting our own data business. And as such, we have not shared our dispensed out data with IQVIA and as a function of that, that has been forecasted and under read in the market. which has overinflated market shares of any participants on IQVIA. As I said, we do know that we have industry-leading dispensary revenue growth ahead of the market, excluding ourselves, and we further increased our market share in dispensary. Those market shares have been driven by growth from a revenue perspective from GLP-1s as well as the pharmacy boost that has been attached to our better rewards program. We've also continued to gain market shares across all of our retail categories, supported by the introduction of better award programs. As we've positioned ourselves as a destination -- a health care destination. I think importantly, our biggest market share growth have come in health care and medical and dispensary. Our largest market share gains have been in elastic retail categories, which talks to the value-conscious nature of a consumer and the effectiveness of the scalability and stackability of the better rewards program. If we move to core category performance, again, strongest revenue increases across dispensary and health care, as we continue to position ourselves as a health care destination. So dispensary growing at 10.14%. And now closing in on 40% contribution of total revenue growth. Healthcare and Medical growing at 9.5% and almost 1/4 of revenue contribution. As I mentioned previously, dispensary revenue growth influenced by GLP-1 price points and better rewards Pharmacy boost. We saw value and volume gains in Personal Care, Beauty and Baby Care, driven by an increase in frequency of existing shoppers reactivate shoppers and new shoppers since the launch of the Better Rewards program, and I will touch on that in later slides. And I think more importantly, our retail total income margin has been protected. We've secured brand and partner participation. for FY '28 as funding agreements are in place. So let's look at better rewards 1 year later. If you recall, Better Rewards started on the first of October in the prior year. Overall, they reported 52 weeks up until the 27th of September as read by Nielsen. We have, as Discoms front shop volume growth of 5.5% against the total market volume of 0.1%. And -- this obviously reads all the large retailers in South Africa across all of the core categories that we participate in. If we look at this through a consumer lens, 1.5 billion has been passed back to consumers in the form of instant discounts. Of course, this is on top of general promotional activity, which would have larger that number. but 1.5% represents the impact that the program relaunch has had on the wallets of South African consumers. 14.8% is the average level of better wards discount that every single consumer is experiencing. -- that $14.8 million talks to the high level of penetration of the boost that currently exist in the program being the Capitec boost and the pharmacy boost as well as the high level of discount experienced by cover customers. If we look at the value for stakeholders, including the Dis-Chem brand, I think importantly, as we think about the evolution of the basket and the data-led selection of the basket, we have an ever-strengthening front shop offering for consumers. Currently, 200 brands are better award partners, up from 14 launch. And to date, 45% of all Franco revenue is covered by better award brands. In terms of the customer base, we have continued to grow the active Better Rewards customer base. The concept of active being very important. Active means that the better rewards customer was in our environment, shopping our brands and shopping our products. That has increased by 27% to 8.2 million members. We got 980,000 new members, predominantly as a result of the strong association and partnership with Capitec and we reactivated 760,000 members who we had previously lost and not been active in our space. again, talking to the value creation in the Better Rewards program. In terms of contribution, 86.1% of sales are now from Betewards members giving us data insights into shopping patterns of members. We've had a 3.7% increase in customer baskets which has been unexpected and interesting considering the deflation we've created against the base as a function of the heavily invested discount. So essentially, what you see there is volume driving a bigger basket size. And more importantly, in a loyal shopping base of north of 5 million people, we've seen an additional 2 trips over the 12-month period. So 2 additional baskets with slightly higher basket growth which ultimately is driving our volume growth of 5.5% ahead of the market growth of 0.1% over the reported period. In terms of our partners and stakeholders from a better wars perspective, better reward suppliers or better rewards partners have seen 21% higher volume growth than non-better award brands. So really talking to how we've integrated the program in the way that we think about the design of our stores in a way that we've marketed in the way that we've integrated into promotional activities. And as a result, we've managed to protect and grow our total income retail margin, which currently sits at 31.7%. And and the sustainability of the program has been baked in as a function of secured and sustainable funding with brands and partners. I think ultimately, and culminating One year, we won best relaunched loyalty program at the eighth Annual South African loyalty awards in September 2026 which is really a testament to the work that's gone into reimagining this program and delivering and executing on it as well as we have. If we move on to Store of the Future, another incredibly strategic initiative for ourselves, and we look at that within the context of our growing store footprint, we've added 14 new stores in the first half taking total retail pharmacy stores to 328 stores. We anticipate another 16 stores being delivered before the end of the financial year, 5 of which have already been delivered since the half year number. We've also taken the Store of the Future format as a function of those incremental store deliveries to 5. So 5 stores now trade store of the future formats and all new stores will receive the store of the future format. I think the design principle that went into the store of the future has always driven expectations around economic uplift. If you think about the initial engagement and the initial project around store of the future, it was really to design a space around the purpose of our brand, the discipline of categorization in store always through a return metric. And what we've started to see initial trading densities exceeding 25% of the comparable early-stage trading densities of the original format stores. Of course, it's still very early stages, but very encouraging as we do believe that, that increase of 25% is a combination of faster maturation and the ability to generate higher trading densities out of that format. The Store of the Future format was reimagined if we just concentrate on the elements that are delivering that higher format or the higher trading density, firstly, all traffic runs through a health hub. So the telemetry that we're getting on people engaging with ourselves all the way from management to ticket abandonment has been very interesting and is shaping up how we think about health care delivery in the iterations of store of the formats that we deliver over the future. We continue to see repeatable pharmacy and clinic efficiencies across different store sizes. I think that's important telemetry on both the 2 stores that have traded for long enough to give us insights [indiscernible] have shown that the operational processes that have been invested in store of the future are arriving at results that are very similar in both. I think both clinic experiences and pharmacy experiences are servicing the customer better and faster. And if you think about the cost associated with each of those services, it allows us to reduce, for example, in the pharmacy space, the cost to serve script, which is our largest retail cost in our income statement. The focus on front shop categorization has also added and supported the increased initial trading densities. We've been very disciplined about how we allocate space to categories that we want to champion participate in play strongly and then very disciplined around taking categories that don't suit the ambition and purpose of the group out of the space. Better Rewards has been completely integrated into the store design it's been integrated through a health funding mechanism as just -- as opposed to just being an ancillary reward program. And I think what we're starting to see is excellent customer insights into experiential retailing, which is improving customer sentiment of the 2 stores. And like with Better awards, I think the recognition that we achieved at the South African Council of Shopping Center Awards, where we won the best retail store design is proof point and momentum building in the way that we think about Store of the Future and how we move that forward. considering our space ambitions. If we just track the numbers from a property expansion strategy perspective, I think we've doubled the annual store opening rate since FY '24. That has really been driven by a structured property methodology moving away from being reactive in terms of opportunity to proactive. Very excited about the investment that we're making in the real estate vertical, which I'll touch on a little bit later with the operational reorganization. And then importantly, now that we have telemetry on the economics of Store of the Future, what we are doing, which is led by big labs is we are being very focused about prioritizing independency of the normal revamp cycle what stores we want to revamp, which ultimately are driven by earnings and revenue uplift with many of these revamps initially certainly being pulled forward ahead of the traditional revamped cycle. If you look at FY '28, we have a strong commitment of already 20 stores and 17 under negotiation. And if you look at the pipeline, which continues to grow, 87 stores being negotiated, assessed beyond FY '28. And as I mentioned previously, we still have 14 -- we have opened 14 stores and intended to deliver 16 stores in the second half of the year, of which some have already been opened. In terms of ex bigly labs as an update, I think Julia touches on the cost implications of Exegi Labs and the upfront investment that we've made in the unit. I think as a reminder, bigly Labs was intended to change the way that we retail. It's forced us as an organization to be data led in the way that we think about our strategic ambitions in the way that we make decisions. And it really became not only an innovation hub, but an incubation for some of the areas of the business that had been underinvested in the past. That's certainly the way that we surfaced or created the trials that are described on the left-hand side, some of the investment that we've made is now effectively being collapsed into the ways of working with the traditional execution engine. So from an integrated digital perspective, we've obviously established our digital foundations I'll talk a little bit about the fact that we've launched the first release of our new app to a controlled sample of 22,000 customers. The second release is expected in the last quarter of FY '27 to broaden to a broader audience. And I think the important thing there is, as we think about digital, it's not just app-based. It's really the entirety of the digital estate, and we're starting to see the consistency of the digital experience in app be very similar to the digital experience in our physical spaces. Our integrated health enablement Traub, Effectively, we're using technological muscle to signify to signify and significantly enhance our health journeys. That's very important for lead generation as we deliver on medical insurance leads, gap leads, life leads. I think once someone has invested in the product, the stickiness is so much better than just a traditional customer, and we are using data that's coming out of the integrated and health enablement tribe to drive those journeys and create what is an efficient use of data to generate leads and ultimately a different way to commercialize our database the customer life cycle value, that's ultimately where better award sits. So anything better awards from evolution to program enhancements to partnerships, even the evolution of the beer reward basket to remain very relevant to the South African consumer from a data-led perspective is sitting there and continues to be focused on and evolved. And then the concept of -- now that we've got the promotional base invested in the concept of personalized journeys, the concept of personalized deals coming out of customer life cycle value. Commercial Decision Intelligence, obviously, a data-driven trading unit that supports our categories they've played a huge role in driving categorization in store, which I spoke about previously in terms of increasing the trading densities. So everything from promo analytics to assortment optimization is coming out of that and integrating with our normal category teams. Wholesale innovation, Chris talks about and expands on what we're doing in the TLC space in terms of creating a value proposition and then enterprise acceleration, which is really looking at how do we improve kind of -- or drive cost consciousness in our stores, the biggest project there being the reduction in the cost to service script, again, very much influenced and empowered and amplified by what we're doing in Store of the Future. These will continue. But ultimately, bigly labs as we think about it, really focused on 3 areas: intelligent customer experience, strategic growth platforms and ultimately productive modern organization. So everything from AI integration into how we work through a customer lens is being driven by the Unit 3 [ Bigley ] labs. If we move to Slide 24, this describes where we are in the restructuring process. The restructuring process was embarked to ensure that we were designed and organized in a way to move fast and move effectively I think we inherited a structure that was appropriate for retailing at a specific time, but needed to be adapted specifically in terms of ways of working with Xbiglylabs to enable clear lines of accountability and decision-making and faster and more effective execution. -- specifically when you think about the data-led innovation that is coming out of ExpigliLabs. The restructuring process is 60% complete, and we anticipate that the completion of it will be by December 26. What we are seeing is we are seeing the right resources being placed in the right roles, reporting to the right leadership with the ability of decentralized decision-making happening. For myself, my direct reports have become -- have moved from 24 to 14, which unlocks our ability to work more effectively as a leadership team. And ultimately, as much as there were many hours put into this restructuring process, I'm very excited about the organizational structure that is supportive of both the incorporation of Bigi labs, but also directly supportive of the ambitions that we have as a group to chase down and just effectively allowing us to move a lot faster and a lot more effectively. I'm now going to hand over to Chris to take us through our wholesale trading performance.

Thanks, Rui. Good morning, everyone. Thanks for the opportunity to present. Firstly, I would like to thank Gord for his grace and his band of blessing upon our business. Without him, none of this would be possible. I want to thank and congratulate my whole team on their dedication and continued focus on driving sales, exceeding customer expectations on service and controlling costs. This morning, I will take you through some of the details surrounding the top line revenue numbers achieved by CJ distribution during the first 6 months of the 2027 financial year. [indiscernible] will be focusing on the main business models, driving the revenue growth that we are seeing. As mentioned by Julia earlier, also revenue has increased by 9.6% and to ZAR 1.3 billion for the first 6 months. Our operating profit has decreased from 1.7% to 1.1% due to a lower SAP increase and the impact of the rising fuel price. External revenue achieved a growth of 7%. The number will be further elaborated on in the following wholesale revenue slide. If we turn to Slide 26. the table illustrates wholesale customer growth by channel with corresponding revenue growth. If we turn our focus to the left-hand side of the table, we can see that Dischem pharmacies their store growth has gone from 302 to 328 stores. Revenue growth from ZAR 13.5 billion to ZAR 14.9 billion. which equates to a 10.3% growth in revenue from Diskin pharmacies. Support from Dischem stores declined slightly from 88.8%, down to 88.0%. If we look at the middle, the TLC. TLC store growth from 258 to 294 stores, which equates to a 14% growth in franchisee numbers. Revenue from TLC franchisees grew from ZAR 1.45 billion to ZAR 1.59 billion, which equates to a 9.3% growth in revenue. Support from TLC franchisees declined slightly from 82% to 80%. On the right-hand side, independent stores, independent store growth from 1,350 and to 1,396 stores, which equates to a 3.4% growth in independent customers. Revenue growth from independent customers grew from ZAR 1.75 billion to ZAR 1.84 billion. which equates to a 5% growth in revenue from independent customers. Support from independent customers grew from 28.0% to 28.4%. The Dis-Chem support is stable at just around 88%. And -- we are also happy to see the support from TLC customers stabilizing at around 80%. Support numbers this high are comparable to the Dis-Chem support numbers despite the fact that the DOC stores are independently owned stores. It was pleasing to see the TLC revenue growth at 9.3%, which once again proves the value of the model. Our independent customer count grew by 3.4% and and our revenue growth in this customer group was at 5%. If we turn to Slide 27, the Local Choice retail performance. As can be seen, the group's retail revenue has increased to ZAR 2.84 billion for the first 6 months of the 2027 financial year. This is a 13.5% growth in the group's retail revenue. The TLC customer revenue growth is partly driven by front shop support and ranging that we, as a supply chain offers them. We currently have 300 TLC franchise stores. If we turn to Slide 28, we focus on [ ex Begley ] Labs involvement. The wholesale tribe within Expect Labs supports us in driving a new set of capabilities with specific focus on the Local Choice pharmacy franchise group. Outcomes we're working on together includes increasing the loyalty base of customers and improving their reward value, improve profitability of the franchisees and consistent growth of a strong TLC network that is anchored in community health. We intend doing this collectively with ex bigly labs by building a customer engine using analytics to create visible value and reward loyal customer behavior, equipping the owners with operating playbooks and bespoke problem solutioning. -- capitalizing the network growth with data-led site identification, owner selection and funding through a dedicated growth team. This supports the franchisees in executing their entrepreneurial spirit by being able to open and own more stores. If we now turn to Slide 29. This is what X Begle will be focusing on for the next 6 months. Firstly, building TLC's internal capability setting the foundation for pharmacies, providing strategic advice, turning what works into shared playbooks and giving new pharmacies a structured path to success. Lastly, delivering the strategic initiatives, for example, a simple loyalty proposition that rewards Everyday Health. The expected value and impact of this will be capacity to grow the network at pace. -- utilizing group scale where it adds the most value, owners and frontline staff gains time and spends more of their time on customers and care, new stores reaching their full potential sooner more reasons for customers to choose TLC and deeper, longer-term relationships, both through care. Thank you very much for your time, and I will now be handing back to Rui. .

Thank you, Chris. If we go through our group outlook, a lot of this has been covered through the presentation. I think importantly, we've seen strong post-period trade with group revenue up 7.9% for the 7 weeks ending 19 October. Retail revenue was up 7.2%. But I think importantly, the market was very, very soft in September. And as per Nielsen, IQ, September showed up the strongest market share gains across the prevailing 7 months. With our volume growth up at 4.9% against the total market growth that had declined 2.6%, again, emphasizing what we believe is an appropriately structured bed rewards program that's really creating value for our. Consumers. Importantly, with the stabilization of better awards, further investment in promotional activity will only be driven by predictive and adaptive offers, executed through [ XPG ] Labs, as I described the customer life cycle value tribe. And then beyond that, I think importantly, these are the strategic focus areas for us. The continued identification and acceleration of new store openings, done again through a very data-led data-led lens, 30 retail store pharmacies planned for FY '27. We spoke about the execution to date with a very, very strong pipeline. [ Xbiglylabs ] using data-led commercial decisioning capability prioritizing full Store of the Future revamps based on revenue and earnings uplift opportunity with many of these revamps being pulled forward ahead of the traditional revamped cycle and allowing us to engage with landlords in how we surface these and bring these to life. We're very excited about the launch of our new app with best-in-class cat logging, pricing performance and order management to really realize our omnichannel retailing ambitions, but more importantly, extending that into health care with pharmacy and clinic digitalization. As I've described previously, we want the experience of a customer, a patient or a policyholder to be the same in the digital world as it is in the physical world. and we want them to allow us to when to enter the digital physical world at their discretion and not be compromised in the health care delivery or the retail delivery of what we intend to do. We'll focus on the conclusion of the organizational restructure, which will ultimately empower fast and effective ways of working. And I think with an appropriately shaped organizational structure, with a very clear purpose with a reward engine that has now been settled. We appreciate the need to restore our operating margin, which is currently at 4.4%, and we're in a position -- in a good position to do that. We focus on cost discipline. It's 1 of the guiding principles of the group. And importantly, we ensure that -- or we will ensure that retail cost growth is below retail total income growth. It is an incredibly important focus area for management and will remain as such and then ultimately to rebuild the return on equity over the medium term. In the last 12 months and specifically in the last 6 months, we've embarked on a lot of change. We've delivered a lot of strategic initiatives that are now touching the consumers and ultimately landing in the market. We do appreciate as a management team that we have to be robust in our execution, and we look forward to that -- it's very encouraging. There's an incredible energy in the group at the moment. And as much as the consumer is very value constrained and the environment becomes highly competitive. We do believe that we're well placed specifically around our health care ambitions together with some of our strategic initiatives to continue to make inroads into market share gains and deliver strong earnings. And ultimately, as I said, restore operating margins and rebuild our return on equity. I would like to thank you for listening to the presentation, and we will take any questions that you may have.

Good morning, everyone. Thank you for taking the time to dial in and for your interest in Dis-Chem interim results. We have received several questions, which I have grouped into key topics. We will work through these questions through the themes in turn with management team responding to the question under each topic. With that, let's get started. Retail revenue growth has slowed steadily from 8.8% in the first 11 weeks to approximately 7.8% in the last 15 weeks. 7.2% post period, how are you thinking about revenue growth through the second half

I think there's a combination of factors when the market has slowed. A good indication of that would have been our relative volume growth against the market. So 5.4% against 0.1% in the reported period. and then the market being down 2.5% or 2.6% across September. So there's definitely a slowness in the market. The other element that's playing out here is the extension of price deflation -- so price deflation contributes more -- the more penetration of better award products. Obviously, we now anniversary that and price inflation allows -- or comes back into the number. So I guess is really dependent on how soft the market is if we think about the evolution of the retail revenue number for the second half. We do know that we are going to get some sort of relief from a price inflation perspective on 45% to 45% of the front shop, which are the better rewards brands. and we'll also get a little bit of relief because of the SEP price increase that's coming through dispensary. .

Can you explain why retail employment costs bigly grew by 10.5%. And how should we think about the second half and then over the medium term? .

So ultimately, the relationship between total income growth and retail employment cost growth is what creates operating leverage or positive operating leverage in our environment and something we're very focused on as management. The 10.5% would have been a function of the new stores opening and the timing of the opening of the new stores as well as some training-related expenses with store of the future rollouts. And then a small centralization of head office costs that we continue to invest in as we change the ways of working between execution engine that is Dis-Chem and [ pegilabs ].

How do you get the operating margin back from 4.4% to 5.3% level? What's the time line and which levers matter the most?

So I think the initial step change will be in the second part of the year as we try to describe the earnings distribution, obviously, placed pressure on the operating margin in the first 6 months. We anticipate a recovery -- a natural recovery just because of the earnings -- the cost base in the second half of the year versus how are we trading in the second half of the year. And then beyond that, it's just the the management of that relationship between total income growth and cost growth. There are many initiatives that have been front loaded that are being driven through [ Exegi ] labs all the way from better awards and better word evolution to store of the future. there's a specific EBIT uplift that we anticipate over the medium term that comes from expect labs and that way of working or that change in way of working is ultimately how we improve the margin to get back to the 5.3% and beyond.

kWhile you are driving great top line and market share gains, your costs are growing faster, leading to HIPs declines. Please explain how you will bring cost growth down in the future while still being able to drive healthy top line to get positive tools.

I mean I suppose the short-term answer to that is the earnings distribution piece that I mentioned. The longer term answer is that the ways of working, so the change in the ways of working that require to be to be made to stay relevant to operate and compete in South African retail have been completely invested in. So if you think about kind of a margin J-curve on operating margin curve, we would be at the bottom of that. We've established expect labs. We've changed the ways of working data-led decisioning is effectively integrated into the organization. In the second half of the year will obviously show relief and we'll improve margins. And then beyond, it will be the relationship that we manage between cost growth and total income growth.

What sort of deflation did you experience in the first half and post period trade?

So we saw deflation of around 6%, which is effectively the invested discount on better awards against the natural price inflation of those products on 45% of the basket. And then we saw genuine price inflation on the non-beer world brands. So it's a combination of those 2 that created what was muted price inflation in front shop and the majority of front-shop turnover growth was volume. .

We're going over to the better rewards questions. Better awards made up a larger share of retail revenue in the first half than in the previous half, but retail income margin expansion slowed. Could you share some more on what held the margin back?

I would expect that, that question comes from the $31.7 million against percent in the 11 weeks. Obviously, the 3.7% is the highest reported retail margin that we've got, and it shows the evolution of the total retail income margin. If the question is in relation to the 32 million versus the 3.7 million that's just a function of timing. We reported an 11-week number compared to a 6 monthly number. So it's just a function of timing. . But certainly, total income and retail margins have improved steadily over the last 12 months. Now that Qlik has launched a very similar rewards program design, immediate discount, stackability, et cetera, do you still have better relative pricing or customer value? And do you expect that given this pricing reaction from Flex that your volume growth, market share gains may slow? It will be interesting to see how it plays out. I mean there are some design principles that haven't been replicated in the way that they've surfaced their program. From our perspective, the only thing that we can do is we can track overlapping brands, so brands that are on both programs and whether there have been volume implications on our end, which they haven't. Their program is still new. I think the market is still understanding the program and ours is evolving. So it will be interesting to see how it plays out. But certainly, from our perspective, the investment that we've made in better rewards as a promotional mechanism as our health funding solution is now settled. -- and we've rebased the top line growth.

You say that 45% of front shop sales is with better rewards partners and volumes with these partners are up 21%. Does this imply that there was a significant volume drop from non-partner product lines?

It doesn't imply a significant volume drop. -- non-partner lines would have been relatively flat from a volume perspective. .

I understand better awards and the work expertly Labs is doing to improve data promotion efficiency, and it's leading to market share games at the moment. But how will this lead to a sustainable competitive advantage for Dis-Chem in the long run? Why can't click just follow? .

I think anyone can follow. I think the benefit is in, I suppose, the effort required to change our ways of working. I mean, to move an organization of our size of any size equivalent to ours into a different way to operate that's data led the integration of the type of resources that sit within bigly into kind of the traditional resources that execute on the resale side is a complex thing. It just doesn't happen overnight. It's just not about cost investment. It needs to be supported by culture change. It needs to be supported by ways of working, and that takes time. So of course, anyone can copy it. What I will say is it's very much not easy to do.

Regarding the Store of the Future rollout, how many conversions are you planning for this year and the following year? And how much will this cost?

So from a cost per square meter, we're pretty confident that we can deliver it at the same run rate that we are delivering it previously. Of course, Melrose and Irene was -- were more expensive per square meter, but we had never value engineered that process as yet, which we are in the process of doing and we have done. Irene, for example, was a lot lower cost per square meter than narrows Arch ready. And in terms of the property expansion strategy. So there are no revamps prior to the end of the year. We've opened 3 of the intended 14 for the second half. That are store of the future. We have 11 left that will all be store of the future format. We have 20 committed sites in negotiation with '17, which again, will be new space, all store of the future. And then we have a revamped cycle that we are being effectively prioritized. The number of revamps will be dependent on the ability for us to do that. But what we are doing is we are significantly investing in revamp opportunities ahead of the revamped cycle. So if there's enough revenue and EBIT uplift associated with the Store of the Future revamp, we will pull that revamp opportunity forward. holding the discipline of return against capital deployed. The intention would be to try and do 30 million. But of course, that is very much at the mercy of each of those instances in the context associated with the revamp and the discussions that we're currently having with landlords.

Is the Store of the Future rollout, partly a reflection of how difficult it is to get the store economics right in the original stores? What are the biggest challenges to getting the like-for-like economics right in the existing stores?