Lewis Group Limited (LEW) Earnings Call Transcript & Summary

A very good afternoon to all our shareholders, stakeholders and all other interested parties. Welcome to our interim results presentation. Joining me this afternoon is Jacques Bestbier, our CFO, and I'm also joined by Graeme Lillie from Tier 1 Investment Relations. On the agenda, we'll start off by reviewing our performance for the first half of the year, followed by our debtor analysis. We'll then move on to our financial results followed by our targets and outlook. And as per usual, at the end of the presentation, there will be time to deal with your questions. Please send those questions through, during or straight after the presentation, and Graeme will then gladly read those for the audience. Ladies and gentlemen, we can start off by looking at the highlights of what we believe is a balanced set of results achieved through a strong trading and financial performance. And all of this took place against the backdrop of a very weak trading environment. Revenue increased by 13.6%, merchandise sales up 8.5%, GP margin expanded to 40.9%, an encouraging increase of 54.1% in operating profits with a margin expansion from 14.2%, to 20.2%. The debtors book increased by 16.9%. And when one look at the satisfactory paid it's good to highlight the fact that this is actually a record achievement, a all time high of 81.6%. Earnings per share, up 53% to ZAR 5.44, HEPS up 49.1%. And then once again, our Board showed confidence in the group's future prospects, this time around the interim dividend has been increased by 50% from ZAR 2.00 to ZAR 3.00 per share. Six months ago, when we spoke at our results presentation, we basically named a number of macro and national factors that we saw as factors that will influence this trading period. And I don't plan to actually go into all of these again today. I think as things stand, we know that all of these factors actually materialize and are still with us today, these same factors will also make the next 6 months a little bit more challenging than what it should be. I want to spend a little bit of time by focusing on what we experienced in terms of shipping, freight challenges during this period. We'd like to start off by mentioning that shipping rates were very excessive. In certain instances, retailers have to pay as much as $10,000 to get a 40-foot container out of China into South Africa. But there were also instances where he was standing with the money in hand and absolutely no space were, in fact, available on ships. Those are really [ trying ] 6 months. But for the Lewis Group, there's also some good news. We've managed and we've set the so-called ship through these troubled waters quite well. We still managed to expand gross profit margins for this period. But more importantly, as things stand today, we've got store rooms that are fully stocked. As a matter of fact, when we get to our stockholding numbers, you will note that we also have additional store rooms that are fully stocked, and we are really well prepared for the Black Friday and festive trading periods. High unemployment rates during quarter 2, employment rates as high as 33.5%, slight decline in quarter 3 to 32.1%. But still above last year's unemployment numbers. And then unfortunately, we need a little cash available in the economy, and that basically held true for 5 months of this reporting period. And I'll talk a little bit more about our achievements in terms of cash sale expansion that took place during September and October. We'll get to that later on in the presentation. So ladies and gentlemen, despite the strong headwinds, our very resilient business model was once again well executed by a very focused and experienced team, and this resulted in strong credit sales growth, improved quality of the debtors book. We've seen and we benefited from expanding margins, substantial growth in profits, delighted to share some improved returns with the market today. Our store expansion program remained on track, and we've also managed to stabilize the performance of UFO during this period. Group's merchandise sales increased by 8.5%. Net book once again grew by 16.9%. Other revenue benefited significantly from strong credit sales that not only occurred to give a strong credit sales growth that not only occurred during this period, but also during the two preceding periods and other revenue -- the growth in other revenue stabilized at 20.4%. Gross profit margin, spoken about, nice increase to 40.9%. We look at the performance of our current trading divisions. So our traditional brands increased sales by 9.6%. It's worthwhile noting that all of our traditional brands, those being lowest based and base performed well during this period. This resulted in a credit sales growth for the group of 16.9%. I've already mentioned that cash sales remained under pressure during this period, declined by 6.7%. As the [ two-part ] system came into play during the month of September, we saw an uptick in cash sales. I can show you that cash sales for the group increased by 3.7% for the month of September. And cash sales gained nice momentum because of discounting campaigns that positioned us well to benefit from the [ two-part ] system. Cash sales for the month of October increased by just more than 15% for the group. UFO on a comparable store, the basis increased sales by 3.3%. We've also included the contribution of our broader merchandise categories for your benefit, furniture, 57.8%, Appliances contributed at 28.1% of the mix and more discretionary area of electronics settled on 14.1%. I can just mention that this is roughly in line was a split that we reported [indiscernible]. Operating costs. And I must also mention that operating cost is comparing against a low base. All of these operating expenses were well managed during this period and increased by 8.8%. The balance sheet remained well capitalized and strong. And we also continued with our successful share repurchase program. I'll give you more details on this later on in the presentation. For now, just good to once again note that we've repurchased very close to 48% of shares since we listed the group in 2004. Our annual store opening target of 20 stores will be easily exceeded. We look at the fact sheet at this point in time, 15 new stores were opened during this half. We've also taken the opportunity to make a small acquisition. It's a small but very strategic acquisition. We acquired 13 stores that trade under the Real Beds brand in South Africa. This is a specialized bedding chain, started trading for our benefit from July. Following the set of results in November, we acquired a further 4 stores. All 4 of those are in Botswana, and they started trading for our benefits from the 1st of November. 138 stores, our total store base are located outside of South Africa. That represents 15% of the store base, and these stores contributed 16% of revenue. Then give you an update on our store -- small format Lewis store outlet. At this point in time, 53% of all our Lewis stores are, in fact, trading out of the smaller format. And then finally, we continue to refurbish stores, and we did so in 118 locations. In total, we traded out of 897 stores at the end of September. Happy to share with you that store #900 was, in fact, opened in October. Our social media strategy continues to gain momentum. Over the last year, we increased our Facebook following 540,000 followers. I can also mention that the group now enjoy more than 3.3 million Facebook followers. And more importantly, 10% of the group sales during this reporting period was, in fact, or resulted from our social media strategy. Move on to dividends. So yes, on the 4th of October this year, we basically celebrated our 20th year as being a listed retailer on the JSE. And we're very proud to say that the group has never suspended a dividend payment during the 20-year period. For this round, we are in a position where we can increase the interim dividend by 50%. It's also worthwhile noting that the dividend payout ratio has consistently been maintained at over 55%. And over the past 5 financial years, the average dividend yield settled at 10.3%. Then as part of our active capital management strategy, we've also embarked on a share buyback program all the way back in 2017, 2018. But on this slide, we highlight the fact that the average return to shareholders over the last 5 years was, in fact, a very high 19%. Different view of our progress basically speaks to the rate at which we've repurchased shares. You will note that a slowdown has occurred during half 1, during this reporting period. And this is mainly due to a lack of share trading liquidity. So for very many years, we told the market that there's a heavy discount available. We even made the point that on occasion, it's a big discount. It's a Black Friday special. But I guess the one thing that we did not mention at that point in time is that stock is, in fact, limited and we might reach a point where we reached a point of really being limited. And I think if we look at the liquidity of the share during this period, it's now a testament of exactly that. This is, in fact, a very successful program. On this slide, we basically go back. We have a look at the entire period that now spans over 6.5 years. During this period, we bought back almost 37 million shares at an average price of just below ZAR 36. The discount to NAV during this buyback period ranged between 36% and 67.5%. I think it's fair to say that this current program can be described as extremely value accretive to shareholders. Through this strategy, we also placed the business in a position to actually arise the growth in the equity base. As a matter of fact, during this period, the equity base actually reduced slightly. Ladies and gentlemen, so I think for a lot of us, this is one of the favorite slides in this presentation. I think this basically speaks to a lot of hard work that is actually starting to show some results at this point in time. In the era that I grew up, one of my favorite shows on TV and those of you that have got grey hair or that are bald will actually remember this was a show called the [indiscernible]. Yes, even the guys here in the room, they are bald and grey, they are in agreement. The -- their [ call ] seems to be okay. Yes. So when I think back and when I look at this slide, the words of the famous Annabel Smith comes to mind. Now you will help the youngsters out and tell them that Annabel always said, "I love it when a plan comes together." Now today, I must pause and I must say that for the Lewis management team, the plan hasn't actually come together as yet. We basically see the progress that we have made thus far as green shoots. And when we refer to this plan, we basically refer to some strategic changes that has been made and some growth plans that have been implemented over the last couple of years. And we merely see this, and I think it's fair to call it a rerating that occurred in the share price. We merely see this as one step in the right direction. And although we are really, really grateful for the recognition, I guess this is recognition for improved results and improved returns, we believe that there's a lot of hard work that must and that still can be done to make sure that this is just the start of bigger things. So the share price more than doubled over the last 12 months. And as part of our review of our capital allocation strategy and taking the increase of the share price into account and obviously, the corresponding reduction in the discount levels to NAV, the decision has now been taken to pause the share repurchase program. We are going to hit the pause button, and I must make that very clear. We are not hitting the stop button. So what is going to happen? What will the strategy be with capital allocation going forward? We believe that it's right to continue to invest in store expansion, and I'll talk a little bit more about our specific plans when we get to the outlook section. And then ultimately, to invest in the growth of the debtors book where we know we can unlock significant returns for our shareholders. A very important program for now paused, not stopped. Ladies and gentlemen, then move on to our section that deals with the performance of our debtors book. I would like to start off by talking about the fact that the underlying quality of the debtors book is really good. It's actually the best that it has ever been. And obviously, all of this is supported by a very strong collection performance during this period with collection rates of 79.5% achieved, very close to the levels that we achieved for the full year last year. We collected more than ZAR 400 million more during the 6-month period, and that speaks to an increase of 16% in collections. Our arrears percentage also reduced and improved from 26.6% to 25.3% and debtor costs for the period increased by 15.3%, and that must be viewed against the background of a debtors book that increased by 16.9%. Also worthwhile noting that the bad debts written off figure increased by 14.7%, once again, way below the increase in the size of the book. And debtor cost as a percentage down from 7% last year to 6.9%, and we will deal with our expectations for this number when we get to the end of the presentation. Very solid performance, record high satisfactory paying customers, 81.6% to 79.9% a year ago. Also important to note that in the nonperforming account bucket, good improvement from 7.6% of customers a year ago to 5.9%. Increasing number of customers of just around 10%, 62,000 customers, but more importantly, an additional 60,000 customers that now find themselves as satisfactory paying customers. And as we always say, this speaks to the sustainability of our business and the fact that we've got more good paying customers to actually do repeat credit business with in the future. Then I want to draw your attention to the impairment provision percentage. A year ago, we were on 36%. That increased to 37.1% So to put that into context, at the end of the last reporting period, we reported an impairment provision of 37.5%. So the 36% at half year increased to 37.5%. Just to refresh your memory, in terms of IFRS 9, we are required to also look at any potential future changes that might occur in the economic environment. One must weigh these changes and then provide it accordingly. It was basically because of this requirement and because of all the high level of potential future uncertainty that provisions increased last year from the 36% to 37.5% level and 31.7% is now obviously the outflow of all of these calculations that were performed. Just once again to spend a moment on our satisfactory paid performance. We mentioned the fact that this is a record high level, but it's also interesting to see that we started this journey in half 1 of 2021 at a satisfactory paying point of 69.5%, and it moved up quite significantly between '21 and '22 and then continued this upward trend to the record high level of 81.6%. Income statement, we've spoken about the nice increase in revenue of 13.6%. We touched on the merchandise sales growth of 8.5% and some strong support coming through in this set of results from all of our other revenue streams, showing an increase of 20.4%. What can one expect going forward? And obviously, as we roll things forward, other revenue in future should start moving or the increase in other revenue in future should start moving closer to book growth. Then under our operating costs, it's important to note that operating costs, excluding insurance services expenses increased by 8.8%. And to put the increase in insurance services expenses into perspective, it's important to mention that insurance revenue for the period increased by 19.1%. Operating profits, up by almost ZAR 170 million or 54.1% and attributable earnings up 45%. And then have a look at our segmental analysis, Solid performance by our traditional trading brands with the operating margin expanding from 16.2% to 22.1%. I mentioned that the performance of UFO has been stabilized. I want to focus your attention on the operating profit line. A year ago, we reported a loss -- operating loss that is of ZAR 10 million during this period, a profit of ZAR 2 million. On the balance sheet, it's important to highlight the fact that we are well stocked for the peak trading period. As a matter of fact, there's [ ZAR 170-odd million ] additional stock ready to be sold during this period. The other talking point on the balance sheet without a doubt is borrowings. Borrowings increased from ZAR 862 million to ZAR 1.5 billion. And let's unpack that. So during this half, the net increase in borrowings came to ZAR 710 million. You just cast your eye to the left, you'll see that we've made a total investment of ZAR 940 million during this period in growing the debtors book and in terms of buying merchandise to prepare ourselves for peak trading. So I think that, that really, really put things into perspective. So then also important to look at our interest cover ratio. Our interest cover ratio is at a very healthy level of 8.5%. And I think it's also important to note that although the borrowings ratio increased from 13% to 26%, our interest cover ratio remained stable with last year's position. Also good to look at the 3.5-year view. So net borrowings increased over this period by ZAR 1.7 billion. If I can just focus your attention on our investment in the book that more than accounts for the actual increase in net borrowings. You will note that we've invested almost ZAR 2 billion in the growth of the book. And on top of that, we've also returned ZAR 842 million to shareholders through our buyback program. It's important to make the point that management is comfortable with the current levels of borrowings. And when we get to the target and outlook section, I'll talk a little bit more about how we see the rest of this year and how we compare against our year-end CD. So I mentioned the fact that the movement in the share price slide the favorite for some. I think the other half of the audience, the half the diff will say that this is a favorite because at last, we are really seeing some good solid progress. So ladies and gentlemen, we've spoken about earnings per share and HEPS. I want to start off by talking about ROE. Our medium-term target for ROE was well communicated to the market over the past number of years, and it's well known to be a 15% target. We've made significant strategic changes some time ago, and those changes actually needed time to get to a point that it can be described as closer to maturity. But those changes are now starting to bear fruit. And as you can see, we've seen a meaningful expansion in ROE from 8.4% to 12%. Management believes that the 15% target that we've set and communicated can most probably be achieved by not later than March 2027. So today, we are being more specific in terms of where that actual line is. And we believe that within the next 2.5 years or maybe even earlier, we can actually get to that target and to what we see as a first milestone in our journey. Return on capital employed, nicely up from 7.7% to 11.2% and return on assets up from 9.1% to 12.5%. We'll touch on gearing outlook section again and on borrowings as well. And just to once again highlight the fact that there is a full ZAR 1.00 increase in the interim dividend that's coming the way of our shareholders. I'm now going to spend time to see how we performed compared to the targets that we shared with the market 6 months ago. Gross profits in the middle of our target range, and we do not expect to lose ground in half 2. Things go according to plan, there might be a little bit more upside that will be flowing through in the second half of the year. We've spoken about the low-cost base that we are competing again, also made mention of the fact that insurance service expenses are actually included in this calculation and that our insurance revenue are actually growing at a faster rate than expenses. Currently, we are out of our -- just outside the upper end of our target range. And we believe that we'll also settle this financial year for the reasons that I've mentioned, still slightly outside of that target range. The record high satisfactory paid position of 81.6% is also well above the upper end of our target range. I mentioned that this is the best performance ever. We still bargain on receiving good collections during the second half. And for that reason, we are happy to commit to also do a little bit better than the target range when we get to our final checkpoint. So debtor costs at this point in time at 6.9%. What we can share with the market is that we expect to close the financial year towards the middle of our target range, and that will be a good improvement on last year's achievement as well. Operating margin, well above the upper end of our target range. Once again, we feel positive about our prospects for the second half of this year. And for that reason, we do not believe that we will give up any of the gains in half 2, and there might once again even be a little bit of upside coming through in the second half. Borrowings, we've got a ceiling [indiscernible] of 25%. I must pause to just once again remind everybody that, that 25% ceiling is, in fact, the year-end ceiling. And as things stand today, management is very confident that we will close this financial year well below the ceiling of 25%. Gearing, below our ceiling, and we also don't expect to breach the gearing ceiling at year-end. Ladies and gentlemen, at this point in time, I think we all know that the general sentiment in South Africa is very different to what it was 6 months ago when we had our last presentation. Consumer sentiment is definitely improving. It's driven by the factors that we all know lower inflation, and we all received good news yesterday. Inflation now is as low as 2.8%. We are also now in a declining interest rate cycle. There's a relief coming through in fuel. I think just as importantly, almost no inflation on the fuel and also on the food front. So that basically serves us well. We've also seen the suspension of load shedding. And then yes, the formation of GNU also very positive. And I must say that the early signs are also positive. There must be a word of caution from our side. Consumers still remain under pressure. If you look at the current debt-to-income ratios, those are still high. And we believe that the consumer will basically embark on a journey and that this expected recovery will be a slow, but the slow and steady one. And first and foremost, one need to see some meaningful GDP expansion that will obviously lead to job creation. And that in itself will be the real trigger to say we are now out of the woods. But while we wait for all of these good things to happen, the Lewis Group is very well positioned to continue to extend credit into the market. We will continue to use our credit extension as a tool to continue to gain market share. We are really encouraged by the solid performance of our book to continue to do just that. Now as bright and bold as the Lewis brand, we are celebrating our Lewis brand's 90th birthday this year, ladies and gentlemen. The Lewis brand name gives the entire group a solid foundation to build on. Whether you go and market specifically for the Lewis brand, whether you go and market additional products to any of the other brands and you just add the name supported by Lewis, it immediately installs a sense of trust with the reader. So yes, we are currently trading out of 504 Lewis branded outlets. And that, in fact, makes the Lewis brand the largest furniture retail brand in Southern Africa. And we will continue to use this to our benefit. We will continue to use the high levels of brand recognition, trust and loyalty to take the entire group forward into the future. It's also interesting, one looks at the Lewis brand, you just look at the sign writing on the back of the truck on that picture to the left, see that it's still the same today. You might think that the Lewis brand is only good to attract your Opas and your Omas, the [indiscernible], the grandfathers and mothers. And that perception is absolutely wrong, ladies and I can proudly share with you that the Lewis brand today enjoys no fewer than 1.2 million followers on Facebook. And I think most of us know what the profile of the Facebook user means. We've been highly successful, especially over the last 18 months to attract a lot of younger customers into our fold, and that speaks to the fact that the Lewis brand itself has got a lot of runway and that this might only be the first of many more 90-year celebrations to come. We will continue to invest in our long-term growth strategies. Store expansion is top of mind for the group, shared our current progress in this financial year. We will once again be exceeding the targets that we've set for ourselves at the beginning of the year. And all of this will continue to lead to further investments in the growth of the debtors book. I just mentioned that during the economic down cycle, we did not slow down, continued to open stores. And through this action, we've strategically positioned ourselves really well for the next economic upturn. We then need to spend a moment to talk about our Real Beds acquisition. You can see that we are now referring to a new segment that will be called our Specialty segment. Under this segment, we will be including the likes of UFO, the newly acquired Real Beds, obviously, our start-up business, Bedzone, just mentioned that all of these brands will not be compromised in terms of losing their identity just from a management and control and focus perspective, it makes perfect sense to actually combine these brands and have one person that's responsible for the oversight from a head office perspective. So let's talk about Real Beds. I already mentioned that this is a small acquisition, but a very strategic one. At this point in time, Real Beds is a cash-only retailer that sells to a wide range of customers in LSM 4 to 10. And the target market is mainly driven by store location. It's a deep discounting business model at this point in time, and it's all about the value offering that the brand brings to consumers. Bedzone, currently 14, we're opening the 15th store shortly. This is our premium bedding brand [indiscernible] for the more aspirational customer. It's perfectly suited to go and open in shopping centers, all shopping centers, inclusive of high-end shopping centers as well. So when we talk about the bedding business at this point in time, it's 32 stores, strong expansion plans. These expansion plans will start coming into play during our next financial year, more or less 6 months' time. And we plan to expand the current store base from a current store base, that's 32 stores at this point to a store base of around about 150 stores within the next 3 to 4 years. In the area of [indiscernible], the Lewis Group enjoys a lot of merchandising expertise, obviously, a sizable order book. We want to utilize this to create -- we want to utilize this as a competitive advantage to really create a strong bedding for our business. Yes. And then no presentation at this time of the year will be complete if we don't talk about Black Friday, festive trade, exciting time for everybody in the Lewis Group. We are well prepared to benefit from Black Friday and Christmas trade through very high levels of stock availability, new ranges in our brands that were just introduced during the last 4 to 6 weeks. And we also have very strong marketing campaigns that we will roll out across several broadcast, print and digital channels during this period. And on top of all of this, very importantly, we've got a very experienced management team that is ready and prepared to make things happen. In summary, ladies and gentlemen, we entered half 2 with strong tailwinds, came into this half with strong sales and collection performance in half 1. The sales and the collection performance was repeated and in certain instances, even a little bit stronger during the first trading month of this half being October. And this gives us a lot of confidence that we are on the front foot to actually go and do just as well or maybe even slightly better during half 2. And with that, like to open the floor for questions.

Thanks, Johan. We have a couple of questions from Charles Boles from Titanium Capital. Charles says, congrats on the results for the period and the steady performance over the past few years. Please could you provide some insight into your thinking the Real Beds acquisition? Is this still an attractive market? Is the bedding market not getting overstrated?

Charles, good afternoon to you. And first and foremost, yes, thank you very much for the recognition. Charles, you're absolutely right in saying that the [ bedding ] market is overtraded. There's a lot of independents that also play in that market. We strongly believe that because of the fact that we already own a substantial space in that market, as a matter of fact, in our current business at this point in time, when I exclude specialist beddings contribution, [indiscernible] is already the second biggest merchandise department in our business. So that puts us in a position where we are enjoying the benefits of having a very, very big order book. And we also have got very special relationships with a lot of suppliers out there. And all of this gives us confidence to actually go out and to go and expand even further and to go and gain market share from other players in this market. I can share with you that the Bedzone business that we've launched in Gauteng, and that's just more than 2 years ago now. Those stores that we've opened are performing in line with our expectation. That also encourages gave us encouragement to actually take the strategy further. Yes, it's not going to be easy, but we see this as an opportunity to go and basically strengthen our foothold in the market.

Thanks, Johan. Second question from Charles. Lewis used to collect debtors at store level. Is this still the case? And what percentage of debtors are collected by debit order now?

Charles, yes. So we changed our collection strategy, and we basically strengthened our strategy by adding debit orders as part of our collection strategy. We embarked on this journey about 3.5 years ago now. As things stand today, 55% of our customers in South Africa are, in fact, paying their accounts by utilizing debit orders. This also freed up a lot of spare capacity in our stores. And obviously, this now enables us to also do a better job in terms of focusing on defaulting customers still out of the stores, so if a customer defaults on his debit order, we still have people in bricks and mortar that can assist. And the rest of the debtors book also gets more attention. And I think all of that and this change in the strategy can clearly be seen in the actual performance of our debtors book. Like we mentioned earlier, not too long ago, less than 70% of our customers were classified as satisfactory payers, and we are now north of that.

Final question from Charles relates to insurance service expenses. He asked whether the increase in this cost is largely due to claims or has the claims percentage changed significantly?

Yes. So I'm going to start with our claims experience, and then I'm going to deal with the first part of the question. So if we look at our claims experience during this period, we have seen quite a significant increase in claims. When I say quite significant, a 30% increase in claims during this period. To put that into perspective in rand terms, that's an increase of roughly ZAR 30 million. And the major driver in this increase was loss of employment claims and the mines play -- retrenchment on mines played quite a significant role in this increase.

Yes. Thank you, Johan. Charles, yes. And the insurance service expenses are driven partly by the claims experience, but also in large by the insurance revenue growth. So it basically follows the revenue growth and so does claims. The other part of your question about claims ratio, we've actually seen a stabilizing trend in the last 2 years on claims ratios, and that is actually an improvement on the last 2 to 3 years. There's been a sharp increase after COVID, but we're back to levels equal to and lower than the time before COVID.

Thanks, Jacques. Then a question from [indiscernible] Capital. He says congratulations to the Lewis team for a great set of results. On the impairment provisioning for H1 2025, can you elaborate on why there has been an increase as a percentage of total even when satisfactory paid accounts have gone up, specifically on the satisfactory paid segment?

Yes, it's a very good question, and thank you for that. I think the answer lies in the fact that we basically raised provisions at the end of the last reporting period. And if we could just go back there at that point in time, our total impairment coverage was 37.5%, and that has now reduced back to 37.1%. So the increase that we saw last year from half 1 to full year from 36% to 37.5% was solely driven by what I explained earlier, the requirement in IFRS 9 to basically go and have a look at the broader economic environment and we do expect some dark clouds on the horizon, additional provisions needs to be raised at that point in time. That basically gave rise to that 1.5 percentage point increase that occurred during last year.

Thanks, Johan. A question from Matthew [indiscernible]. When do you anticipate the cash generated from the book to more than offset your level of investment in further building the book so that overall group cash flows can start degearing the balance sheet again?

Thank you, Graeme. Yes, our -- look, I think, again, you must see it against the backdrop that we are now 3.5 years into strong credit sales growth. So we can see the book as a mature book. And our projections and our modeling actually shows that we will have a stabilizing trend in the next 6 to 18 months on borrowings, and we expect from that point to move downwards. Obviously, the one big variable there is credit sales growth. But we are -- like I said, we've had strong growth now for 3.5 years, and we're expecting to see more normalized growth on the credit sales front going forward.

Thanks, Johan. Then we've got two questions from [indiscernible] at Anchor Capital. I want to ensure I'm interpreting your guidance correctly. It seems that in your FY '25 full year and medium-term guidance, you expect to put through materially more debtor costs as a percentage of debtors at gross carrying value than in H1 '25. This will put pressure on your full year FY '25 and medium-term operating margin relative to your H1 '25 operating margin.

Yes. So I think I would like to basically ask everybody to go back to Slide 28. So if we look at Slide 28 in the middle of our block there, we basically refer to debtor cost as a percentage. So there, we've reported a 6.9% that compares to last year's 7%. The guidance that we are giving today is that we actually expect to close this period at a better cost percentage that is in the middle of that target range being 15%.

Thanks, Johan. And another point of clarification from Steph. When you say a similar H2 '25 to H1 '25, is this in percentage year-on-year terms or in absolute terms?

Yes. I think we will be very disappointed if we need to give up any of the gains. We all know that half 2 is normally a stronger trading period in terms of sales achievements. But when we refer to a stronger -- to a possibly stronger second half, we are specifically referring to the sort of operating margins that we have achieved in half 1. The comment that I've made is we'll be very disappointed if we actually lose ground in terms of our achievement in half 1, and that spoke to a margin of -- operating margin of 20.2%.

Thanks, Johan. Then there's a question from [ Carlos De Jesus ] from Prima Research. Congratulations on the good performance. Could you please give an indication of what percentage of sales are from repeat customers?

Carlos, yes, thank you very much. So in the traditional part of our business, we've got a very good handle on those stats. Obviously, for the cash businesses, it's a little bit more difficult. So on the traditional side, we typically do between 45% and 48% of our business with repeat customers. And that also drives the excitement when we spoke about the increase in number of customers in the satisfactory paying bucket. We made the point that we've got 60,000 additional customers. And obviously, over time, those customers will be available to market to as possible repeat customers.

Thanks, Johan. No further questions coming from the webcast.

Ladies and gentlemen, so with that, just to say thank you very much for your attendance today. And if there's any of you that would like to book a meeting with management, you are more than welcome to make contact with Graeme, and we'll set that up. Thank you very much. Have a good afternoon.