Pepkor Holdings Limited (PPH) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. My name is Wendy Luhabe, the independent nonexecutive Chairman of Pepkor Holdings Limited. I would like to welcome you to today's announcement of the interim results of the group for the 6 months ended March 2021. While it is not the norm for the Chairman to address the company's results presentation, this is the first set of results published by Pepkor since my appointment as Chairman on the 1st of December 2020, and I wanted to share our excitement on 2 important matters. Firstly, as a Board, we're extremely proud of the excellent performance which the group achieved during the period under review, resulting in earnings growth of more than 50%. Our management teams and employees have exceeded our expectations in their execution of Pepkor's resilient strategy and exercising discipline and operational agility. Pepkor's brand equity as a discount and value retail business is proving to be a huge advantage. The second matter relates to the composition of the Pepkor Board, as I mentioned at Pepkor's Annual General Meeting on the 10th of March 2021, the Board initiated a process to strengthen its composition, diversity and independence following a number of resignations and retirements. We are pleased to advise shareholders that the process has been completed successfully, and 5 independent nonexecutive directors have been appointed effective the 1st of June 2021. These appointments are Paula Disberry, Hester Hickey, Ian Kirk, Zola Malinga and Isaac Mophatlane. We are confident that our new Board members will enhance and expand the existing skills on the Board as well as strengthen its independence and diversity. The Board looks forward to the value they will add and gaining from their considerable business experience and knowledge. We would like to thank you for your attendance and for your interest in the Pepkor Group. I will now hand over to our CEO, Leon Lourens; and CFO, Riaan Hanekom, who will present the results for the 6 months ended March 2021. Stay safe and in good health.

Good afternoon, ladies and gentlemen, and welcome to our interim results for the 6 months ended 31 March 2021. Great to have you with us. A special welcome to all the analysts. I know that today was a very busy day for retail analysts. So thank you for giving your time to us this afternoon. We're going to deal today, as very much as in the previous presentations that we've made, we'll deal with the 6 months in review, look at the financial performance. Riaan will do that. I will deal with the segmental performance, and then we'll have a quick look at the future and what lies in store for us going forward. Firstly, just as usual, we show our purpose, vision and values. The purpose is especially very relevant at this point in time with all the uncertainty, with the economy being down, with unemployment being high. The fact that we strive to make a positive difference in the lives of our customers really mean a lot to them. And that is very integral to what we do on a day-to-day basis. So the focus remains there. And the more we can make their lives better and easier, the better for them and especially in these circumstances. Looking at the operating environment, and this is what we normally call the weather report, rising unemployment. It's something, unfortunately, that is very high at the moment, higher than it's ever been, the 32.5%. That is a great concern, not only for us as a business, but also for retail as a whole and for our country. Rising costs are with us. Inflation rates have gone up. There was a 1% inflation increase just announced during the last month. And then we've got the volatility in things like the COVID restrictions, which does cause its own issues and challenges, load sharing, academic years that are interrupted, et cetera. The government grant is an important one for us. And if you look at that, about 8%, and I often get asked the question, how big is the special COVID relief grant that has been granted by government. And that's about 8% of the total grants that have been paid over the last year, and that might reduce going forward. The good news, in terms of our own business and looking forward, is that if you compare the grants that will be paid in the current year 2021 and you compare it to 2019, there's about a ZAR 20 billion increase in the total amount of grants being paid out. There was a spike in grants in 2020. I think we're basically at the end of that. But the good news is that there's still an increase on a normalized basis in the grants paid. And a lot of those grants obviously go into our customer base. Looking at the results, and I'm sure most of you have seen this by now. You can see the 8.1% growth in revenue, up to 36.5% or ZAR 36.5 billion, something that we're exceptionally happy with. If you reduce or if you take out the reduction in the credit books and the revenue that we lost through that, then the actual growth in revenue would be about 9.9%. And that's something, obviously, as I said, that we're very pleased with and very proud of. If you look at these results, it's important to remember that we have a normalized comparative period. So the comparative period would be October 2019 up to March 2020. So it was largely unaffected by COVID. There were 1 or 2 days, but I mean, that went up and down depending on the retailer, 1 or 2 days that were influenced, but essentially, these numbers compare to a normalized period. That translated into 18.5% growth in operating profit to ZAR 4.6 billion. Again, something that we're very proud of. The -- that was assisted by a reduction in debtors' cost, which also helped us. In terms of cash sales, we improved or we had a growth of 10.7%, reduction in credit sales by 3.7%, as I mentioned earlier. But fortunately, the cash was in the market. And as you can see from that result, very pleased. As far as expenses are concerned, only a 4.3% increase. So the focus that we put on expenses has really worked out for us. And Riaan will expand later on the areas where we did exceptionally well in that. That all led to ZAR 5 billion worth of cash being generated, which is -- which we are very pleased with. That again led to a reduction in the net debt levels that we have. We reduced it from ZAR 14.1 billion, down to -- or ZAR 6.1 billion, that's ZAR 8 billion reduction. Again, so that's really strengthened our balance sheet and obviously gives us a lot of more freedom and flexibility going forward. And then the important result for you guys is the HEPS, which is up by more than 50% on last year, which I think is really a very special and satisfying result for us. In terms of new stores, despite the environment, despite the circumstances, still more than 100 stores that we opened during the 6 months. Some of those stores were still obviously in the pipeline from the previous financial year that went into this financial year. But as we will talk later, you'll see that our expansion plans for the future and especially in the strong brands that are PEP and Ackermans remain intact and that we are quite positive about the opportunities that there are in the property market going forward. Just from a market share positioning, I think that's quite important to look at, at this point in time. You will see that during the COVID period, and that's only for the COVID period, that's March 2020 to March 2021, we gained 296, that's almost 300 basis points, which I think is quite comfortably the largest in the market. Again, something that we're very pleased with. If you extrapolate that further back and you look at the RLC figures from 2017 to December 2017, you'll see that over the period up to now, we've -- Pepkor is today 16.2% larger than it was in December 2017, while the rest of the market is 3.1% smaller than they were in 2017. So I think if you look at that numbers, you will see that overall, and over the period of time, we've performed exceptionally well. I'm now going to hand over to Riaan, who will deal with the financial performance.

Good afternoon, everyone. So I'm going to touch on again some of the key highlights and key indicators that Leon just mentioned and just talk around it or talk about it. So from a top line perspective, revenue, as Leon mentioned, 8.1%, very pleased in the current environment. The good news to everybody is also that almost all our operating entities showed very nice positive growth during this period. As Leon mentioned, with the exception really of our 3 credit books, Tenacity, Capfin and Connect, which because of the reduction in interest rates and the drop in credit granting meant that they grew negative. As we mentioned, overall, the growth for the group if exclude those 3 books was up 9.9%. From a gross profit perspective, we did see a drop of 90 basis points. Again, that's due to the fact that I just mentioned, the drop in the credit granting meant that we received a lot less fees, initiation fees, et cetera, also the drop in interest rate also had an impact on that number. However, as I mentioned later on from a gross profit perspective on merchandise, we did see an increase or an improvement on that margin. We did encounter a little bit of the drop overall in gross profit. OpEx, as we mentioned, if we exclude the impact of debtors' costs, debtors' cost did show a significant reduction during this period. But if you exclude that, OpEx was still very much, very tightly controlled. And we only saw a growth of 4.3%, which is very much in line with inflation at the moment. This, as I said, taking into account also the drop in debtors' cost, means that our operating profit grew by close to 20% at 18.5%. If we then continue further on to the HEPS number, that was very much influenced by the significant reduction we've had over the last year in finance costs, declining by close to 33%. If you look at specifically bank debt, that dropped by over 50% and also a much improved effective tax rate meant that our headline earnings per share was up by just over 50%. As we mentioned, normally, this is not a very good period for us from a cash generation perspective because of the end of September year-end and where we build up for Easter weekend from a stock perspective. So historically, in this first 6 months, we've had a below par cash generation period. However, this year, we saw exactly the opposite, generating 75% of our EBIT are being converted into cash. And that meant we could have a ZAR 5 billion cash generated from operations during this period. This obviously all helped to reduce our debt overall. It was a significant drop, as we mentioned, by ZAR 8 billion from the period last year dropping from the ZAR 14 billion to the ZAR 6.1 billion. Just again, maybe to highlight a couple of key activities or events that happened during this last period and also just from a comparability of results. I think Leon also mentioned it just to confirm again, we were very much unaffected in the last -- in the 6 months period, only really the last 2 days from a trading calendar perspective was affected last year by the hard lockdown that we saw in April and in May last year. So very much comparing apples with apples. Again, last year versus the first year that we introduced IFRS 16. So we didn't have quite comparable numbers on an IFRS 16 basis. This year is the first year that we are full comparable numbers, including IFRS 16 in this 6 months and last year in the same 6 months period. Just to confirm again, lastly in the numbers, we still had Zimbabwe as a discontinued operation. Obviously, we finally sold that business in September last year. So that's not included in any of the numbers this year. The Building Company, the final sale of The Building Company is still in the final stages. So it's still shown as a discontinued operation. However, The Building Company did perform exceptionally well as well during this period. And hence the reason why there was a further impairment process on that number because of the difference between the net asset value and the sale price that we obviously received for the sale of The Building Company. And then John Craig was finally closed in September. 79 stores were sold to Studio 88, the rest we closed down. That was concluded in February month, as I mentioned. But just to take note of, according to the definition of IFRS 5, this was not a material transaction. So it's not regarded from accounting perspective as a discontinued operation. Those numbers are included in the clothing and general merchandise segment. If we then look at a bit more detail around the revenue growth, as I mentioned earlier, very fortunate that all our segments and all the operating companies barring the books really showed a positive growth and a positive contribution to revenue. If we look at specifically at the Clothing and General Merchandise segment, the 3 areas that I mentioned in segment that didn't perform that well, is really firstly Tenacity because of the books declining. The second area is really around Africa. On a comparable basis, they did show growth, but because of the strengthening of the rand on actual rates, they showed a decline of more than 12%. And in the third area, as I mentioned, with the closure of John Craig, not being open for the full period, they obviously also showed a negative growth for the period. So if you exclude those 3 entities from the 8.1, that number actually goes up to 9.7 for the Clothing and General Merchandise. On the JD side, also very good performance really across all the operating entities, but the star performance really being the Electronics segment, with both Incredible Connection and Hi-Fi Corporation showing fantastic growth numbers during this period. And then lastly, on the FinTech side. This was again the impact of Capfin, as we mentioned earlier, same situation with the reduction in credit granting, the drop in interest rate. However, on the positive side, FLASH still grew by double digits from a revenue perspective during this period, ending up in the 36.5. As Leon also mentioned, very pleased for us that from a cash perspective, we could still grow by 10.7%. Although from a credit perspective, there was negative growth of 3.8% because of the reduction in all the books and negative inbound credit. However, what is important to note, that over the last 4 years, we've shown a very consistent 8% revenue growth, and that's really for us very important that we could deliver consistent results year in and year out. So as I mentioned, from a gross profit perspective, 90 basis points drop compared to the same period last year. However, as I also mentioned, you've got to remember, last year, we were still building 2 of the books, specifically Capfin and to a more larger extent, Connect, which meant that we received more fees and revenue from those books last year, which impacted higher gross profit number. We also in that number last year still had the collection fees that we received from Century Capital, which enhanced that gross profit even further in the previous year. If you take out just the collection fees for last year, that number actually drops to 35.9% compared to this year. However, as I said, on the positive side, on a merchandise gross profit sales on -- we did see an improvement of 30 basis points due to the very good sales and the lower markdowns during this period. Just quick -- one quick note on other income, a small reduction during this period. That's mainly due to money transfers where we definitely saw the lower level of cash available in the market. People did not have as much disposable incomes, so fewer money transfers. That makes up the biggest portion of that drop in other income. However, as you see, bill payments still making up the bigger portion of all our income, the growth continues around DStv payments and other bill payments that we have at the moment. Operating expenses. As we mentioned earlier, very tightly controlled, the 4.3% including debtors' cost. Salary cost did increase by 4.6% during this period. That was also driven at higher percentage due to the additional incentives and bonuses that we paid during this period because of the very good performance. Depreciation overall you'll see as down by 1.3, but if you take out the impact of IFRS 16, you'll actually see a growth of 10%, and that's mainly due to the large investment we've made in the last year on IT cost really driving that higher percentage growth. If you look then at the percentage from a statutory perspective, last year, it was 25.1, now down to 24.6. That includes IFRS 16. If you use -- if you exclude the impact of IFRS 16 and use old pro forma methodology, that number was last year 26.7 down to 26.3. At year-end, that number was 27.3 due to really the impact of COVID last year. So for us, the most important deliverable is actually to get back and drop that cost of doing business to pre-COVID levels, which you clearly see we've achieved by being back to 26.3. One of the main contributors in that was the fact that we're still able, on renewals, to see a reduction in rental costs. And overall, for this period, we are at 2.4% reduction in rental costs. So this obviously plays out in your EBIT number and your operating growth number. So again, very strong performance from Clothing and General Merchandise segment, growing by 15.7%. As I mentioned earlier, in that number, still the loss due to the closure of John Craig, which obviously we closed down and sold during February, as I mentioned. So that if you exclude that, that number is even higher than that. The JD Group or the Furniture segment still performed very well, as I said, mostly driven -- although the book had a negative growth on profit, we -- again, the pure retail side had a very positive growth and profit growth during this period. Again, mostly coming from IC and Hi-Fi Corporation. And then as I mentioned, on the FinTech side, here, we really saw a fantastic growth in profit from Capfin. As I mentioned, at the end of last year, we've spent extensive time on consolidating that business into Tenacity, taking out a lot of cost out of the business, spending less on marketing and with the lower bad debt rate as a result of that, that we saw a huge growth in profit for Capfin. So if you look at that segment overall, the profit split is now 50-50 between FLASH and the Capfin, although FLASH also still showed above double-digit profit growth during this period, ending up with the ZAR 4.6 billion in profit. Finance cost, one of the big reductions and biggest impacts during this period. As I said, including IFRS 16, so a reduction of 32.6. If you look at specifically the amount paid to external parties, to banks, et cetera, that number dropped from close to ZAR 700 million last year down to ZAR 326 million, so above 50% reduction, mainly due, as I said, to reduction in debt and close to 270 basis points in interest rates compared to the same period last year. Also very happy to report that we've seen a reduction in our effective tax rate, getting closer to more normalized levels obviously that should end up closer to 31% -- to just over 31%. However, what we see in this period, we settled the preference shares, all of them that always had an impact of close to 2% -- above 2% on the effective tax rate. We've also -- we're going to continue always seeing the folding taxes impact. That's what we're going to see going forward as well, hence the reason why we'll always be closer to the 31%. Last year, we had a significant amount of unrecognized tax losses. Fortunately, this year, most of that's been resolved. And then obviously, due to the impairment of The Building Company, that unfortunately had a negative impact on the overall effective tax rate. So if you just look at our inventory levels, a lot of questions at the end of last year, what is a sustainable inventory level. As we indicated at that stage, the 10.8 we entered last year, financial year was definitely too low. We're below optimal levels of inventory. That situation has improved now. We're back to 11.7, which is closer to our optimal level. We're still down on the same period last year. But that's mostly due to last year we went through a significant period reducing all our old stock and cleaning that out of the system. So at the moment, we are generally very clean from an inventory perspective, although we've still decided to keep very conservative provisioning levels in that if there's anything that's going to happen in the next couple of months from a trading perspective. So if you look at the books in totality, again, as we've communicated previously, we've got the 3 different books in the group. The Tenacity book, which again is a sales enabler. Number of accounts, 1.5 million, almost exactly the same number we had at March last year. And just to take note, again, 15% of the sales in Ackermans and Pepkor Speciality is through the Ackermans card. On the Connect side, there, we saw a huge reduction from 17% of sales now down to 9%. The positive news is on the JD side is at least the revenue and within that, the sales grew from a cash component by 25%. But overall, the reduction in number of accounts last year were close to 200,000 accounts, now down to 176,000. And then on the Capfin side, really where we saw the huge reduction in number of accounts, cutting back really on credit granting and being very strict on new applications. Again, that's down to 214,000, last year it's about 350,000. But again, just to confirm that's not a sales enabler, it's a stand-alone business. Overall, however, credit contribution in the group dropped from the 8% last year same period, down to 7%, mainly influenced by JD as I previously mentioned. So on the overall split of the books, if you look at that, how that plays out, you'll see that only on the Tenacity side we've had a small growth compared to the end of the year. So at year-end with ZAR 3 billion, that's up to ZAR 3.2 billion, and that's mainly because we allowed a bit more credit granting during the December period. On the Connect side, still a reduction, still very strict credit granting. Similarly, on the Capfin side, still just maintaining our current position. And both on Connect and Capfin, we're only really granting credit to very low-risk bands and keeping a very tight control around it. How did that play out in our nonperforming loans percentage and provision levels? I think the good news is, in all of them, we've seen a sharp reduction in nonperforming loans compared to year-end where we are now. That's obviously played in your provision levels. And all of them, we could decrease slightly with Capfin being the biggest impacted by that. And Capfin at the moment sitting at a 7% nonperforming loan, I mean that's the lowest level we've seen for many, many years in Capfin and still covering our provisions in COVID, although nonperforming loans has covered several times by the nonperforming loans percentage. So still, we're very happy that our provisioning levels are still very conservative. We could have reduced it slightly more, but we're very happy that we really want to maintain these levels of provision at the moment. So how does this play out in the income statement? We've obviously have seen an increase of about 37% in our bad debts for the period. However, we need to take into account last year, as I mentioned earlier, we were still building the Capfin book into a greater extent the Connect book. So there was very little bad debts in last year's numbers for those 2 books. We've obviously got that in. We've always -- also taken a conscious decision during January and February of this year to clean out some of the bad debts in Tenacity. So hence, the reason for that 37%. The provisions, however, as you would have noticed on the previous slide, there was a slight reduction on all of them which means there's a positive impact of ZAR 161 million on that number, giving you the overall number of ZAR 428 million, which is close to 50% down on the same period last year. So from a cash flow perspective and cash generation how does that play out? Net working change in working capital, really ZAR 1.7 billion or ZAR 1.8 billion increase mostly driven by the increase in inventory that I showed you earlier of above ZAR 1 billion. On the change in working capital from the credit books, there was, as you would have seen, the increase on the Tenacity book of slightly more than ZAR 200 million, but that number certainly driven by the write-offs of bad debts, as I previously mentioned, giving you the ZAR 5 billion in cash generated from operations. But as I also mentioned earlier, the 75% cash conversion, which for us, normally during the 6 months period, is an exceptional performance. Balance sheet strengthening. We've talked about this a lot at the last results presentation, but again, just very good to confirm that the number reduced even further from a net debt at year-end at ZAR 7.1 billion, now down to the ZAR 6.1 billion and last year to ZAR 14.1 billion, which means from a net debt-to-EBITDA perspective, we're now at 0.8x. A year ago, we were close to 2x and significantly below our covenant of 3x net debt-to-EBITDA. So quite a bit of headroom between our current covenant level and the actual net debt-to-EBITDA of 0.8x. From a debt repayment profile, our first repayment was in May next year. Again, you would have obviously noticed, we raised additional bonds at the end of April of ZAR 2.2 billion, ZAR 2 billion of that will be utilized to repay that ZAR 2 billion due in May '22 and the other ZAR 200 million will be offset against the repayment in financial year '23. Also just to take note of, we've already started discussions with the banks to refinance ZAR 2.5 billion of that ZAR 8.3 billion that's due for repayment in May 2023. And that will be done at rates very close to what we've achieved from a bond raising perspective, and that should be completed within the next month or 2. So it means that there will be about ZAR 5.5 billion left of repayment due for September '23. That will obviously either repay from funds raised from operations, also from the proceeds from the sale of The Building Company, otherwise, we will obviously continue looking at raising bonds to repay that again. So speaking about the bond issue. Specifically, as I mentioned, at the 30th of April, we were in a very successful bond issue of ZAR 2.2 billion, 2.75 oversubscribed, so way above our expectations. The rates that we also got, if you look at the margins, has exceeded our price guidance by quite a few basis points. So a very successful raising. I mean, they helped also by the fact that our credit rating improved and Moody's improved our credit rating at the end of last year. So a very successful bond issue. Very happy with the rates that we achieved. Just from a capital expenditure perspective, obviously, at the end of last year, we made a conscious decision because of the uncertainty in the economy and what the future would like to cut back on a number of store openings and focus more on IT spend. You can see that normally, we spend 50% to 60% on new stores or store investments. That was down to 34%. What we've also now started is the building of the PEP Hammarsdale DC that was previously not planned for us to do that, as we initially wanted to go with an outside party due to the funding and development. We've, however, decided with the current state of our balance sheet that we will develop the PEP Hammarsdale DC ourselves, hence, the 22% investment in that, which is just above ZAR 70 million we've invested so far this year. We will still, for the rest of the year, spend between ZAR 250 million and ZAR 300 million on the Hammarsdale DC. We've also made a decision to increase the percentage spend on stores. So we'll definitely open more stores this financial year than we originally planned specifically from a PEP, Ackermans, and to a lesser extent, from a Speciality perspective. It will mean that normally, we spend on CapEx close to above 2% of revenue, closer to 2.2%. This year, obviously, with the cutback, we're only spending 6 -- 1.6% so far. However, with the additional investment in stores, as I mentioned, and the fact that we're going to invest quite a bit in the distribution, the PEP Hammarsdale DC, that number towards year-end will be closer to 2.4%, 2.5%. So speaking about capital allocation, what is our priorities. As I mentioned, we're still focusing on growth and expansion. That's still our top priority. As I mentioned, hence the reason why we're investing a new DC and still opening stores. We will also now continue to look at other opportunities from an acquisition perspective. As we communicated last year, we will still look at share buybacks during this period if the share price at the right level. And although the free float is still small at this stage, if there is an opportunity that's starting to place some shares towards the latter part of this year or early next year, we will definitely look at that opportunity of acquiring some of those shares. And then just to confirm again, from a dividend policy perspective, we did suspend the dividend last year because of the uncertainty and to protect cash flow. Our dividend policy, however, is still 3x earnings. And based on current indications, we will pay a dividend at the end of this financial year. So just maybe just to look forward and what can you expect for the rest of this financial year. Just again to highlight, as I presented in last year's year-end results during a hard lockdown period of 5 weeks, we lost ZAR 5 billion in revenue. As you would have noticed, obviously, when we opened all the stores again in May and June, we picked up quite a large percentage of those -- of that revenue and sales that we lost in April. So our current estimate is, if you look at that first quarter or the third quarter of last year, the first quarter, the second half, our estimate is that we actually lost closer to ZAR 3 billion on a net revenue basis in that quarter specifically. Cost savings. Again, if you remember, last year, we didn't pay full rentals during April and May, and we had some benefit from tours for that period that some of our staff could not work. So as I guided previously, this year, overall, we expected a 4% to 5% expense growth. As you would have seen, our growth in the first 6 months was 4.3%. Taking that into account, the expense growth for the full year were probably closer to 5% to 6% for the full year. Conservative credit granting, We're going to continue with that. It's not that we're going to open all the books. Although we have seen a bit more applications in Capfin and Connect towards the latter part of April and early May. So we have decided to very slowly do a bit more credit granting in Connect and Capfin. So there will still probably be a bit of a growth in those books towards the end of this year. But then we're still not doing -- well, we're only doing that still really to the very low risk levels and not really opening the book. And on that point, why we expect the provision levels really to remain at the same level that you see it now, except maybe for the exception of Connect, where there'll probably be a slight drop in provision levels towards the end of this financial year. And then last, just to confirm, again, Leon mentioned it in his presentation. At the end of last year, that one of the internal goals that we really set ourselves is that we want to again return from an EBIT level on a pro forma basis back to the 2019 profitability levels. I am happy to report that based on the results for the first 6 months and what we've seen in April and May, we are still on track to achieve that. We're actually on track to exceed that and deliver even higher results. But there is still uncertainty during the month of July and August, but taking into account based on what we know at the moment, we should exceed that. So on that point, I'm going to hand back to Leon to take you through the rest.

Yes. Let's look at the how the different segments performed and maybe just a little bit of an elaboration on each one of them. The first segment, which is the biggest one, is Clothing and General Merchandise. We always look at PEP and Ackermans together initially. I'll go into the individual businesses now. But if you look at that 8.8% sales growth, I think this is the main engine of the Pepkor business, makes up about 60% of the revenue and the 8.8% really outstanding performance for the period. Like-for-like sales growth, almost 7%, as you can see there. We're still expanding. We opened 65 PEP and Ackermans stores in the first 6 months. That number will increase substantially during the second 6 months, and I'm forecasting that we'll probably open in the region. Now I'm talking only PEP and Ackermans stores now in the region of about 120 new stores in the second 6 months of this financial year. Space growth, you can see there, that number should go up if we deliver on what I just mentioned as a forecast for this segment of the business. I always get the question about the CFH inflation. And you can see there, 5.6% inflation -- product inflation on inflow. And looking forward, we're looking at about a 7% to 8% for the next season. The 5.6% applies to summer '20. That's the season that this period deals with. And as I said, a little bit higher for the next period. I also mentioned that the previous occasion or previous results announcement that we were planning to set up and establish our own sourcing office in Shanghai and China. As you know, we've had a sourcing office there since 2006. We shared it with Pepkor Europe, who incidentally listed yesterday. And we decided about a year ago that we will start our own office again. In other words, break away from the current Pepkor Europe facility. We're taking over basically the same staff that are currently working on our accounts, and it's especially PEP and Ackermans that deal with the sourcing office. So 49 of the people that currently work on our account coming over to our office. We will be finished with the transitioning by about -- well, we will be finished by end of September this year. And no business interruption at all. And we've worked very well with our partners there to make sure that the transition is as smooth as possible. If we look at PEP as an individual business, there you can see 2,400 stores now, 46 new stores in the first half of the year. They've got quite an aggressive expansion plan during the second 6 months. And lots of opportunities coming up for them for the future, both in the traditional PEP stores as well as Home and then also some sales stores. Very important and especially in the current environment, and I'm sure you would have noticed that a lot of the other retailers are trying to come into the discount and value market, very important for PEP who form the pricing strategy is so important that they watch their competitiveness as far as price is concerned. You'll see their best price leadership. And best price leadership refers to -- on how -- what percentage of the items in the PEP will be the same price or lower price than anywhere else in the market. And they still have 96% there, which is really extraordinary in any terms in the world. So they're watching that very carefully now. The price gap between themselves and a group of opposition businesses, 28%, which is slightly higher than it had been in the past. So they strengthened their position as the lowest-priced business in the market. On the pricing gap, because that is a group, we're also very aware of the fact that there could be individual businesses that come and challenge us on price. And therefore, there is a very comprehensive study done on a monthly basis to make sure that this business in terms of price remains as competitive as it's always been. Always giving price back or price benefits back. So all the efficiencies that they gain, they give back to their customers, helping the affordability of a lot of people in South Africa and in that way also providing a service to an extent to a lot of people. As far as PAXI is concerned, a very exciting project. We spoke about it in the past. And just to give you an update on that, there's 1.7 million parcels in this first 6 months of the financial year. That means, at this point in time, we're operating at about 9,000 -- just over 9,000 parcels per day, which is way above what we expected to achieve by this time. We were hoping to achieve 10,000 parcels per day, but that's somewhere into the future, and we're already at 9,000 and that number increasing almost on a monthly basis. So a very popular product used by different people, different businesses, et cetera, and especially small business entrepreneurs using this service to distribute their products out to their consumer base. In terms of cellular phones, 54% of the phones that we sold, of the units that we sold, are smartphones, which shows you another shift in the market. And this shift has been coming for some time, and this is just an increase and again, shows you that our customer is developing in terms of the types of devices that they use. And if you look at that number in value, it's probably closer to about 70% of what we sell on our smartphones. And that's positive in all sort of respects. The home stores, as you would have seen from results all around, the home industry has done well for obvious reasons, more people stay at home, more people work from home, et cetera, et cetera. And also in PEP, very positive performance by the Home business, PEP Home. And you can see there, 26% growth there. Also on the store expansion side, quite an aggressive opening program for PEP Homes in the future. And it's actually nice to see that there's always -- there's almost a cult following for the PEP Home as a brand and the exciting products that they have at the prices that they have it that you can get on social media. Just a little bit of a milestone for PEP was the fact that they achieved ZAR 1 billion worth of sales on FMCG products. Now FMCG products in their world would be confectionery, personal hygiene product, household cleaning products, et cetera. But ZAR 1 billion in the first 6 months, so that's about a ZAR 2 billion business on an annual basis now. We go to Ackermans. Ackermans now up to 875 stores, 19 new stores in the first 6 months. So a little bit of a pullback there, but we're very positive to open over 40 of Ackermans stores in the second 6 months. This brand is still doing fantastically well. It's now 9 years that they've really outperformed the market on an annual basis and really have grown this business exponentially over that period of time. The women's store project that they have launched a year or so ago has been -- 2 years ago, I think it was, has proven to be very successful, 28 stores now. All those stores are profitable. And that's also contributed towards Ackermans having a growth of 16% in womenswear, which is exceptional for this period. So Ackermans is going from strength to strength, and this new project also working fantastically well, and I see good expansion potential there for the future. The credit mix has come down slightly from 18% to 17%, which is not a concern to us at all. There was still growth in the number, but the percentage had come down because the sales just increased in total, just increased a little bit more. As far as the -- the laybys are concerned, layby is still a very popular way of buying for the Ackermans customer, still that was up to 16%, which is a really high number. And it just shows you that there's different people shopping with different needs from Ackermans and really, really doing well. Ackermans has also developed into a business where cellular phones and cellular products has become very, very successful. You can see there, 46% or -- 46% growth in cellular products, which has been very good. And it has very little overlap with what PEP sells. So PEP very strong, as you know, in cellular. Ackermans also both achieving great growth numbers. But selling different types of product with the average price between PEP and Ackermans on cellular phones, a big difference. Still the undisputed leader in baby and children's wear and it's remarkable how this business is just going from strength to strength in that and every year just manages to grow on a very high base. PEP Africa. PEP Africa, I've said it the previous time, still in a consolidation phase. The good thing about the PEP African business is how they've grown in constant currencies. In other words, that's how they trade in the countries that they trade. So you can see there on a like-for-like basis, a 13.1% increase in their sales on a constant currency basis, as I mentioned, which is actually exceptional if you take into account the economies and the battle of the economies in these African countries. If you -- unfortunately, when you convert the sales that they have in the constant currencies and you convert it into rands, then you see a decline in sales of 12.1%. So what's happening, and Riaan also alluded to it, is that in these countries, the currencies are actually devaluing. On the other hand, the rand has been strengthening. And because of that, when you bring the money back into South Africa, you've got a 12.1% decline. But from an operational point of view, they're operating strongly. The stockholding situation is better than it's ever been or has been for a very long time. So while you're still operating and doing well in constant currencies, at least you keep the engine running and oiled and you get throughput of stock. And that's always very important, as you know, for a retail business. They've closed some stores, 17 stores net closure. Included in that is the stores in Uganda that I told you the previous time that we closed Uganda as a country. But still 286 stores. So about 2% of the total business in PEP Cores are not huge, but still considerable if you take into account 286 stores, time so many people that work there, and that's how many jobs we provide, and that's something that's for us very important. The team in PEP Africa has really worked hard to reduce the cost base. And to make the business model more robust going into the future, you can see there costs or expenses reducing by 23% since the last year, and I think that was remarkable. And I think generally losing very little efficiency and also leveraging from some of the strengths in the group to achieve that. From an EBIT contribution perspective, it was a bit of a dying minute try, but they still produced the profit this year, thanks to IFRS 16, but that's fantastic. This business, despite all the challenges that Africa provides and has provided over the years as with the exception, I think, of 1 year, has always provided a profit to the group. So consolidation phase in Africa, I always say, you must know when to speed up and you must know when to slow down. So at the moment, we're not speeding up. And -- but these economies will improve through their cycles. And then we can invest there a little bit again. Pepkor Speciality, really an exciting results that we see here. Sales growth of 11.3, like-for-like, 13.5. That's very positive for this market, which is more value than it is discount for us. This business, not small anymore. We actually closed stores, but we still had over 840 stores, which is very positive. One of the market share numbers that I would like to mention is the market share that we have in -- or grown in branded footwear. Our branded footwear would be mostly Tekkie Town. And you can see there the 331 basis points increase in market share by Tekkie Town. So that business really -- it's had its challenges, as you all know, but we've really sort of stabilized the business. And now on a growth phase with very exciting prospects going forward for the Tekkie Town business. From an e-commerce perspective, people sometimes think that we don't have e-commerce. We do, actually. So all the Speciality brands are now live in -- on e-commerce. And we're seeing those numbers growing slowly, but surely as we develop the e-commerce model for these brands going into the future. And then as was mentioned, we lost 111 stores here through the disposal of John Craig. So just if you -- we take just very briefly the individual brands in the Speciality division. Firstly, Tekkie Town, as I mentioned, great growth, really surprised us positively during COVID or after the COVID lockdown. And yes, a good base for the future, and we're very excited about what's happening there and the potential of the future. Refinery, a brand that showed consistent growth since we opened it. I mentioned in the past, only in its second year of existence that made a profit. And since then, it's still grown from strength to strength. So very positive as well. Shoe City has had its challenges. It's a bit different from the other brands in terms of the location strategy. So very challenged there in terms of the shopping centers that they're based in, challenge because they sell more formal than informal shoes and challenge because a big part of their sales is also school shoes. So they've been -- that's the only brand that's really had some big challenges. But besides the Shoe City brand, all the other brands have performed well. Dunns has done exceptionally well. If you can remember last when I spoke here, it was the first time in something like 12 years that they achieved a profit. And that number is really -- is now growing very fast. So Dunns has been performing very well. The new management team that's really done well over the last 2 or 3 years. Code is a small business, but very exciting And then SPCC is mostly -- so the small businesses, we look at growth for the future. We're establishing them. We'll be giving them the support to grow the foundation or the basis of the business well, and that will hopefully provide us with good growth potential in future. When we get to furniture, appliances and electronics, this is still a success story. I always -- and it's important that we remind ourselves where this business has come from 5, 6, 7 years ago, really in dire straits. And today, a business that we can truly be proud of. The team that operate there has done a fantastic job in turning it around into a good and profitable business. Obviously, last year was a tough one for them because of COVID. This year, we're seeing the real potential and the real growth of the business coming through. You can see the sales growth there, and we all know about this sector that has grown very well during and after COVID -- or not after COVID, but during this COVID period and after lockdown. And 18.1% like-for-like sales growth, I think, is really exceptional. Incredible Connection and Hi-Fi Corporation, which is appliances, electronics and appliances growing fantastically well with people working from home much more. Obviously, the need for products such as computers, laptops, printers, routers, you name it, I mean, has increased obviously exponentially and our business has profited from that. From a retail space perspective, you can see there that there has been a reduction in that. So 17 stores that we've closed over the last 6 months. And that's just looking at unprofitable stores. And in this business, there will be some of those. We're getting to a point now where we basically have sort of eliminated most of the unprofitable stores. And obviously, again, setting the foundation for the future on a much more positive note than it was years ago. What makes their numbers more remarkable here is the fact that the credit mix that they have has decreased from 17% to 9%. So we've taken a very conservative approach on credit because of the uncertainties in the economy, because of the pressure that we expect our customers will come under. Some might say it's a bit too conservative, but I mean, that's the decision that we made. And slowly, but surely, as we get more certainty in the economy and certainty in the environment, we'll start opening the taps slowly towards the future. But the quality of earnings, very good in this business. And that was a conscious decision that I think was the right one under the circumstances. And as we grow that, we create potential for sales growth in the future. Again, when we talk about e-commerce and online, the center of excellence in our business is Incredible Connection and Hi-Fi Corporation, where 8% of the business in the first 6 months was on e-commerce. So really doing well. And one of the leaders in South Africa, I believe, in trading on e-commerce. Because of that and because that we have that expertise and experience and knowledge of online and e-commerce, we also decided that in this business, we will try a new sort of marketplace or create the marketplace where we will not only sell the products from the JD Group, but also from the whole Pepkor Group as well as other third-party vendors and by opening every shop. So that opening was announced earlier in the year. We only really started managing or started out trading on that platform in March. It was a bit of a soft launch, so we're keeping it very slow, so that we make sure that we -- that our fulfillment is good. So every shop developing into a marketplace of the future is something that we're also very excited about and playing a very important part in our sort of -- in our foray into the online environment and e-commerce environment in the future. Very positive about this. We'll learn a lot of lessons in the process, I'm sure. But it is definitely an environment of the future, and we've got a great team at the JD Group to implement our plans and strategies for the future over there. FinTech, always a very exciting business to talk about. You would have seen the flash growth over the years, something that we're very happy with. The team there doing a fantastic job. We now have 196,000 traders that operate on the FLASH platform. That's the biggest informal retail footprint in the whole of Africa, which is a very special thing if you really think about it. Those traders are people that have their own little spaza shops or food shops and use the platform to sell other products like especially airtime, electricity, bill payments, et cetera, on that platform. But the good news about the traders is not only that the traders increase, the number of traders, but also the average turnover per device or per trader has increased by 20%. So we are really making great progress in enabling these traders, but also giving them products to sell. And through that, we've enabled them to increase the money that they personally make from it. So a lot of this business is about community, taking these products that we sell through this platform out into the informal market, into the communities. Not only by providing the trader to make money, but also giving convenience to consumers who don't have the money to drive out to a store to go and buy these products. So it's really a 24/7 business where people have access close to their homes to all these products. And the number of products have increased. So where initially the business was only dependent on airtime and electricity, it is a lot more than that now. And you can look at -- we put up a list of all the logos of just some of the third-parties products that you can buy through this platform. And you can see it's a long list. And you can buy Uber, you can buy Discovery Health products, you can buy -- I mean there's just so many of them that -- there are too many to mention. But the guys have gone further at FLASH and they've now developed -- or they've digitized cash by selling 1ForYou vouchers. And what that does is it enables someone that doesn't have a credit card to buy these products on this platform. And that's been a great -- I think that's a great initiative. And it really -- once again, this business is about enabling people. And again, it enables people without credit cards to have access to that -- those products by buying 1ForYou vouchers and then converting the vouchers into the -- or paying with the voucher sale for those products. So great progress in that business and very exciting going forward as well. Capfin. Capfin, we've been conservative. Riaan mentioned it and he showed you the numbers earlier on. The conservative in credit granting, again, we play -- we've taken a more sort of a prudent approach than many in the -- during the COVID period, making sure the quality of our earnings are really good. However, our collections have been good. We've really done well there. So you saw the numbers again in the -- that Riaan showed, we've gone -- moved more towards 6- and 12-month loans. We had a portion of 24 months loans, about 10% of our loans were 24 months. That's reducing. So the terms of the loans getting shorter. And as you can see there, much more predictable. You can pick up trends very early on. So a much more conservative book that we're managing at the moment if you compare it to where we were 2 to 3 years ago. Also we -- the team there, they decided to consolidate some of the costs between the Tenacity business, where we do in-store credit in this business. And you can see that they, in the process, reduced cost by 26%, which is phenomenal, and that's been done and achieved within the last year or so. So very good in that, and that's why our profitability of this division -- or this business has also increased. You can see the number of accounts have come down by 36% as we work towards a more conservative approach and making sure that the accounts that we do have are healthy. And as you saw from the nonperforming loan numbers that Riaan showed, that's played out in the way that we expected it or wanted it to. Building materials. This business, again, I've said it before, I mean, it's gone through a big transition over the last 2 to 3 years. The management team there doing a fantastic job. We've consolidated the business. We've rationalized. We've taken out some of the noncore businesses, small businesses within the group. And a lot of these strategic processes that they've worked through over the last 2 or 3 years are now starting to play out in their results, obviously helped by a little bit of a tailwind by the current circumstances in the country. But you can see there, it's been a long time since the business produced sales results like they have, 11.7% like-for-like sales growth, which is really very good for this business. Operating profit growth 59%, and that's probably -- could be higher by the end of the year. So really doing well there. They've improved their margins. A lot of the margin improvement comes from better efficiencies. They also have been able to centralize a lot of the buying functions, which has played out in the margin. So really doing good work on the insides of the business and to improve it for the future. So again, a business that's got good potential going forward. As far as the transaction uptake is concerned, we're waiting for Competition Commission to finalize a proposal to the Competition Tribunal and then that transaction will be final. So we've waited for a while. Hopefully, we'll get an answer pretty soon. Looking forward, I mean, looking at the current retail environment, we tried to -- we looked at the models that are used all over the world, and we try to sort of summarize it into 4 sections or 4 main movements in the market. The first is economization. We picked this up not in only in South Africa, but the world over where people are moving more towards affordability, discount and value, et cetera. We're fortunate in our business that that's where we've always been. We know that there's a lot of businesses trying to come into our market, but we've got the advantage that we've always been there. We don't have to become used to this new environment. It's our strength. It's our DNA and we must just make sure that going forward, we protect this environment and this positioning in the market with everything that we have. So we are moving in the right trend or with the trends in the world when it comes to discount and value. The second thing that we're picking up, again, it's a worldwide trend, is localization. People don't want to go to the shopping centers that are far from home. They prefer to go closer to home where it's hopefully for them safer, spending less time there. And shopping, obviously, closer to home and working from home has caused the new sort of way of thinking about shopping centers, et cetera. So again, in our case, PEP very much in line with that trend. If you look at the number of stores that we open, we're really taking our businesses closer to our customers. PEP and Ackermans, for example, have the great advantage of having very flexible business models. So you can -- both in PEP and Ackermans, you can have a store of 200 square meters and a store of 2,000 square meters and both can be equally successful and equally efficient and equally profitable. And having that advantage, I always want to say, competitive advantage really makes it easy for us to take our stores closer to our customers. The third trend that we pick up is casualization. I think that speaks for itself. People working from home more doesn't have to be so formal, doesn't they have to wear so much formal clothing. And again, that's where Pepkor and its brands provides those everyday basic items that our customers really need during these -- in this environment. And the trend towards that has been very strong, again, not only in South Africa but worldwide. And then the last one, and if I can say this word properly then I do well, digitalization. I've done well there. That's taking technology and using technology going into the informal market and really making it easier and accessible for our customers to trade and to buy and to do their business online. We've -- in our business, we've now sort of formalized a fintech forum, where we look specifically at how we can leverage from the assets in the group. We can leverage those assets so that it benefits the group as a whole at the top. As far as e-commerce is concerned, as mentioned earlier, most of the businesses in PEP are now online and you can shop online with the exception at this point in time of Ackermans and PEP. Ackermans should be online by September, October of this year. PEP will be the last one in line, but they will go on to it probably in the next year or so. But again, we're moving with the trends, and it won't be so big initially in our business or in some of our brands, but we are preparing ourselves for the, let's call it, online acceptance revolution that we all know will happen. We're just not sure when. From a performance point of view, after March, and I'm sure you will all be interested in this. April was a pretty tough month for us. Now these numbers are like-for-like sales growth by 2021 to 2019. As you all know, there were no sales in 2020, not in April anyway. So we're using 2019 as the base for these sales comparisons. And you can see that for April, for instance, of this year, for PEP and Ackermans combined, you can see a 3.2% increase in sales compared to 2019. Not as high as we would have thought or expected, but often, April is a difficult month because it's Easter that plays a role. There are several public holidays that play a role, payment dates play a role, et cetera. You can see the number there, and I think one should actually look at these 2 months together, April and May. Obviously, a much improved number during May, and this number is up to last Saturday, and that number at 23%. So combined, looking at a 13% growth for the 2 months. Speciality, a better performance. Important to remember, if you compare the Speciality performance to the PEP and Ackermans performance. PEP and Ackermans is the base that they are starting to compete now against now is exceptionally high if you compare it just to last year, and that's where May comes in. May, this number is also to 2019, but just as a matter of fact, the number that PEP and Ackermans numbers that they will have as a base, much higher than most other retailers. In Speciality, 8.6% in April, a very good number and almost 25% for May so far. And you can see there the numbers in the JD Group. So very pleasing to see that the good sales momentum is continuing. Still very positive going forward. There is some uncertainty in the market. But for the moment, we don't really see that in the numbers as such. A little bit of an outlook going forward. The economy is still uncertain. I think, unfortunately, I don't think that the impact of COVID has been felt in totality. I think some of the effects of -- that it has and had on our economy are still to play out. And that's why there is still some uncertainty about the future. But in this uncertain environment, we're still planning to do well, and we're buying to do well. So we'll stop when the economy does slow down or we do -- when we do see specific indicators that we should slow down. But we don't see those yet, and we'll continue, hopefully, performing at the same levels that we've had over the last year or 1.5 years. From a cost management perspective, there, we're on the conservative side again. So yes, we are still positive about the sales, but just to make sure that this uncertainty doesn't surprise us badly, cost management will be prudent and conservative there going forward or remain to be. As far as capital allocation is concerned, we mentioned 6 months ago that we're very prudent there. A lot of the capital allocation had gone to the big businesses, the strong ones with a robust business models like PEP and Ackermans. We're slowly starting to look at growing the other businesses again. The good news -- the good thing about the COVID period for the other businesses is that it gave them a time to sort of stabilize their businesses, strengthen their businesses and certainly provide a good platform for future growth. So we'll slowly start capitalizing those businesses again. The discount and value positioning that we have, I still believe that irrespective of what happens in the economy is very -- is the best place to be in. It's been proven for the last 18 months. And I think it's good for us to be there. What we must make sure is that we provide good discount and good value to our customers to make their lives better and easier all the time and to make sure that even if the economy is tough, even if there is uncertainty that we provide them with good and affordable products that make their lives better. Our balance sheet is much stronger than it was. That's for us as a business, that's a huge positive. Riaan spoke about it. But again, it just places you in a different mindset. It makes decision-making, in some respects, much easier and really great to be in this more sort of robust flexible environment or position compared to where we were a year or 2 ago. On that point, obviously, we've got to look for growth opportunities going forward. Besides the new initiatives that we have in our businesses, we also look at are there potential acquisitions, are there potential ways of increasing market share in areas where our market shares may not be so dominant as it is in some of the other positions. So we're constantly looking for growth opportunities to see how we can build the business and grow the business not only now in the short term, but in 5 to 10 years from now. And then again, Riaan mentioned it, when we spoke about this 6 months ago, we got a few sniggers, where people thought we -- it's a bit of a bad dream. But getting to the 2019 profitability levels at this point in time seems to be a reality. And let's see how it goes over the next 6 months, but we're really confident that we can handsomely exceed the numbers that we achieved then if unless something drastic happens. So that's the sort of outlook going forward. To summarize, again, I think we're really pleased with the results in our business. It's really good to see all the businesses performing well. It's really good to see all of them contributing. It's really good to see that other businesses are starting to take over some of the burden that -- almost burden that PEP and Ackermans are carrying. I think we've got a good foundation in all our businesses for growth in the future. And yes, whatever the challenges are, you never have certainty, but whatever the challenges are for the future, I think we are well positioned to deal with them because of our market positioning, because of the trust relationship that we've built up with our customer base over many, many years. And yes, I'm very confident about Pepkor going forward. So those are our results. I hope it was informative for you. We are not -- because of the platform, et cetera, we're not taking questions today, but for the next 3.5 days, we sit with most of the retail analysts in South Africa and abroad that are interested. And we'll talk through the detail. And obviously, I mean, any questions are welcome, and we'll deal with them on a more sort of individual basis than trying to deal with them here. I hope you found that, as I said earlier, informative. Thank you very much, and good afternoon.