Pepkor Holdings Limited (PPH) Earnings Call Transcript & Summary

Good morning, and welcome to the Pepkor results presentation for the 6 months ended in March. As per usual, we'll be 3 of us presenting today. I'll do an overview of the results. Riaan will look at the financial performance, and then Sean will discuss the business performance. Before, I make some comments on the outlook and also take some questions at the end of the presentation. Starting with our customers' reality today, mostly in the clothing sector. We can see very high unemployment in South Africa, even high under our women customers. There's still some disruption in the payment of social grants and we have a large proportion of social grant customers. Customers are telling us that they have to pay a bigger portion of their monthly income to food and into transport. And then, of course, the big elephant in the room in South Africa is load shedding, that's also disrupting our ability to trade. And for our customers, in many instances, it means that they earn lower incomes and with the disruption in getting to malls and different shops going down at different times. The spending patterns are also disrupted. So that's the reality for our customers in today's world. We have to respond to that by making sure that the goods that we sell remains affordable. A lot of these goods are essential needs for our customers. So in PEP, we have to target best prices, and we're happy that we're still achieving a 95% best price leadership because of the probably lower sales that we're able to achieve. We have to also target cost reductions so that we can actually deliver these goods to our customers cheaper and a little bit about that later. Pepkor's market share still exceeds the pre-COVID levels. There's a bit of noise in it, but while we're happy to say that in the last quarter, a few months, we've recovered market share -- or made market share gains, continued in home in PEP, but also in babies and ladies. Ackermans had some market share gains in school and lingerie and also in our electronics and appliances in the JD Group, we managed to grow our market share. We still providing connectivity to our customers. And as I said before, 7 out of 10 prepaid handsets or cell phones in South Africa are sold by the group. So our strategy remains the same. We have to great -- sell great products. to our customers, products that they want and they need. We do it over a wide variety of market segments in terms of our different store formats. We make sure for accessibility that our stores are close to our customers. In the physical space, we also have digital channels, and we also have exposure to the informal market or the informal traders by our flash network and we make sure that our customers have got different options to pay from credit to lay buy, and obviously, cash, which remains a big part of our business. Price as always, as a discount, a very important for us. and we achieved those lowest prices by getting scale. And as I said, the same scale gives us the ability to do the cost of doing business at a lower rate than some of our competitors. And of course, we still try and interact as much and make a positive difference in our customers' lives. Some of the questions that we sometimes get is what do we do about the energy. We're not just storing energy, where we try and keep our stores going PEP at about 100% of our store base are off the grid, so to speak, but we also now embarked on major initiatives to put some generation capacity mostly on our distribution center sites, and there you will see some of the initiatives that's been launched in the last 6 months. And that enables our operations, but also, as we've seen in our PEP clothing factory, people can work for longer, the shifts don't get disrupted, absenteeism come down, and people are able to earn a better wage with all that production going on. So just back to the results, which Riaan will unpack for us, and Sean will enlighten more in the operational reviews. We still managed to grow revenue. Pepkor grew to 4.3%. We maintained our cost growth at 3.6% normalized growth, but the result was 11.7% decline in headline earnings and on a normalized basis of 8.6%. It's a bit of noise in the numbers, which Riaan will explain to you. We still managed to open 168 stores in the 6 months, and we're very close to the 6,000 stores now. And we're still expanding our informal market footprint. Very good news coming out of Brazil and Avenida where our investment base is performing above expectations. And as I said to the market last time, we keep on this time to look at our portfolio and make sure we optimize all the capital that's allocated and correctly spent. So Riaan will now take you through the financial performance and over to Riaan.

Thanks, Pieter. So as Pieter said, I'll be taking you through the financial key performance indicators for the 6 months under review. So to start off with some key performance indicators for the period. As Pieter mentioned, revenue did grow by 4.3%. Needless to say that it is below our expectations, and I'll unpack it a bit more and further in later slides on the main reasons why that's below what we expected. However, just to mention two main factors impacting that number of 4.3%, one being Avenida, which was not in for the full period last year. We acquired Avenida in February of last year. And the second one being, again, Flash, as we explained to you in the previous period, Flash because of the change in product mix still shows a negative revenue growth, and that again had an impact on that 4.3% making it a lower number than whatever we had been under normal circumstances. So from a gross profit perspective, that, fortunately, we were able to maintain at 35.3% compared to the same period last year. As I mentioned to you at the end of last year, we did actually expect that number to come down because of the anticipated markdowns that we needed to process to clear some of the stock during this period. However, fortunately, what has happened with the increase in interest rates and with us growing the books, specifically Tenacity book did generate more interest and fees, which did assist that gross profit to increase for the period. However, that was offset, as I said, by the lower retail margin driven by the markdowns process, specifically more so Ackermans, but also to a lesser extent in PEP. Expense growth, Pieter did touch on it. Guys were obviously still under these difficult circumstances to ensure that expenses only grew by 3.6%. That if you exclude the growth in debtors cost, which is a much higher percentage because of the growth in the books and also depreciation. However, I think under circumstances to achieve that 3.6% with a topline at around about the same level or slightly just below that was really a very good performance under difficult circumstances. And it is something that we will, obviously, even focus on going into the next 6 months of the year. So that meant specifically because of that higher debtor costs that I mentioned, which is up by 63%, which I'll show a bit later, meant that the operating profit then dropped by 9.8% to ZAR 5.1 billion. If we then take that a level lower, taking finance cost and tax into account, the HEPS declined by 11.7%, again, mostly driven by higher finance costs because of the higher interest rates, but also with our net debt going up. As I mentioned, that we did get the benefit of a lower effective tax rate. We did counteract a little bit, but still not enough for it not to drop to 11.7%. So normalized, as we said, 8.6%, and I show the reasons for the normalized growth of 8.6%. Cash saw good cash generation of ZAR 3.6 billion. As I've always explained in the past, the first 6 months is a very difficult period for us from a cash generation perspective because at the end of September, usually [ still ] building up for Christmas. We're at the end of March, depending on where Chinese New Year falls or where Easter weekend falls always a very difficult period. So cash generation was below our normal standards for the period, but still a very good number. Similar to that, return on net assets also dropped from our normal benchmark of above 30% to just below the 30%, again, mostly driven by the investment in inventory and also by the book growth, but still a very good number compared to most of our peers. And then during this period, with the increasing interest rates, we're at least fortunate to refinance quite a big component of the book. The one specifically was the ZAR 1.2 billion that we did in this 6 months at substantially better rates than what we previously had through the issue of our bond program. So we then move on to some of the more specific. As I said, the statutory HEPS growth was a decline of 11.7% down to the ZAR 0.808, two items impacted it. Last year, if you all remember, we had sustained global recovery, where we received ZAR 429 million, which is a ones-off item. This year, we've got the anomaly with the exit of the DC and Isipingo, where we had an option for a 10-year period. We're not going to exercise the full option but only 2 years because we're moving to the new Hammarsdale DC meant that there was a credit release in January of this year, ZAR 392 million. So then if you take those 2 numbers into account, your normalized HEPS for this year, ZAR 0.73 or a drop of 8.6% compared to the similar number last year. So one of the factors that again impacted our results for this period was still insurance money that we received. We still almost at the end of the receiving the outstanding money on the flood insurance. If you remember correctly, last year, we already accounted ZAR 396 million of it, which we received in the previous financial year. For this period, we accounted for ZAR 250 million, which we moved, most of that received during this period. We do anticipate the full number that we will collect from the insurance on the floods to be close to ZAR 780 million. That's why we anticipate there will still be another ZAR 130 million at least that will come through in the second half of this year, and we accounted from then. Hopefully, at that stage, we will then be out of all the insurance money from either a flood perspective or the social unrest that happened 2 years ago. Just a breakdown of the ZAR 250 million, you see the impact on the income statement. So ZAR 57 million went into cost of sales means our GP is higher by 0.1%. BI, business interruption, ZAR 150 million, it's in other income. And then we still had a small CapEx recovery of ZAR 43 million, which, obviously, falls under capital items on the income statement. So then if you move on to the revenue drivers and revenue growth for the 6-month period, as I mentioned earlier, overall, up by 4.3% to ZAR 43.8 billion. As I mentioned, Avenida, not included for the full period. If you exclude that up by 1.1%. Flash growing negative on revenue by close to 12%. So again, if you eliminate just 12% from Flash on the 4.3% means that overall the group would have grown by 5.8% had that not happened. Individual segments, clothing and general merchandise, still performing the best, mostly, as I said, also impacted by Avenida, which is not in for the full period last year but showed very good results for this period. Also good growth, and specifically in the Speciality division also saw growth coming through, unfortunately, that number in the clothing and general is offset by the underperformance of Ackermans. Otherwise, 8% would have been higher. Still good steady performance from the Furniture segment, although specifically on the furniture side, it performed below expectations, where electronic sides were still more in line, the tech side was more in line with our expectation. The building company or the building segment did very well under very difficult circumstances, specifically during this period compared to that specific market segment, the fact that they could still maintain their top line was a phenomenal performance for them. And then as I mentioned earlier, the FinTech segment is down by 7.8%, mainly driven by the performance of Flash, the change in product mix, which is down by 12%. Capitec, obviously or Capfin still showed good growth for the period. If you look at the segmental impact, how did that play out? We have seen -- because of that growth in Avenida in addition of that, the Clothing and General Merchandise segments now go up to 68%. We used to be 65%. Just for noting, we do anticipate on a full year basis that Avenida will make up about 4% of total contribution. And then on the FinTech side, that obviously dropped down to 9% because of the underperformance of Flash. Just something to take note of. Obviously, with the customer under pressure, as Pieter has already explained, means most of them haven't got enough cash to pay immediately for the product. They have to look at other forms of tender to be able to pay for the product, either through a lay buy or through the card, means that our cash sales for the period grew by 2.6% but credit sales overall grew by 36.7% However, remember, that's also impacted by Avenida, which has got a higher contribution than what we have in the rest of the retail brands. Avenida accounted 43% of the sales on credit, where Ackermans have now increased from 16% to 18% and PEP is grown to 3% of the sales is on credit. So if you exclude Avenida, the credit sales was 23% for the period. Overall, our cash contribution as our [indiscernible], it was closer to 93%, and now down to 91%. Just quickly back to the gross profit. As I mentioned, very fortunate that it was maintained at exactly the same level quickly, again, as I said earlier, mostly driven by the group in our financial services products, specifically the books and Tenacity being one with the high interest rate, more accounts being opened, more fees being charged. Also the fact that the Flash -- the mix, as I explained earlier, changed, so that's a bigger the GP percentage in Flash is now higher. That meant there was an increase in our GP. However, all of that was again offset by the additional markdowns that we had to process during the period, specifically more so in Ackermans to clear some of the excess stock that we had in the system during this period. So just quickly on other income. As I mentioned earlier, again, there's ZAR 150 million in this period's number from insurance, the flood insurance number compared to last year's ZAR 132 million which was still for the social unrest BI numbers. If we exclude that, other income declined by 2.9%. If you include insurance, it increased by 1.1%. If you specifically exclude insurance component and look at the rest of the other income, you'll see commissions still make up the majority and net commission received on bill payments, money transfer, DSD payments, et cetera, where we have seen an increase in bill payments, but unfortunately, a decline in money transfers and also some rebates that we receive from suppliers. Hence, the overall decrease of 2.9% on other income. . Move on to cost of doing business. as I always explained in the past, we're obviously very serious about maintaining our cost of doing business and keep it the lowest in the market. So hence also around these very difficult circumstances I explained earlier. If you exclude the growth in debtors costs and depreciation, OpEx still only grew by 3.5%. It does, however, meant because your expenses still grew faster than your topline revenue that our cost of doing business did increase from 24.3% to 25.6%. I think I have again to -- just to take into account that Avenida was also not in for the full period last year. So then if you exclude Avenida further, but you add back the ones-off credit we received from the ZAR 392 million under DC lease modification, that number then actually changes to 3.6%, still a very good number. And specifically, one of our biggest expense items, salary cost, we were able to only grow at 6.9%, take into account we opened 168 new stores. So overall, still only a salary increase of 6.9%, excluding Avenida for the period. Overall, on the lease modification point, as I raised earlier, again, we've had quite a jump in this period. As you would have seen, and that is due to that ones-off item, as explained earlier, the ZAR 392 million which is because of the move from the PEP Isipingo DC that's the PEP Hammarsdale DC. We haven't taken up the full period. It is a reversal. We are obviously running these two DCs now concurrent. For new, DC will be hopefully fully commissioned in September of this year. We will obviously wind down the operation in old DC until the handover happens. But that, as you know, would have had a big impact on the overall lease modification. If you eliminate that, it did come down from ZAR 279 million to ZAR 254 million, which is in line of what we communicated previously. We do anticipate this lease modification credit to come even down going forward over the next couple of years as the rental reductions that we get on renewals reduce. And also as we get to a point where we fully optimize the store portfolio because we have seen quite a bit of gain specifically in Speciality. And in JD over the last years because of the move from nonprofitable stores more to profitable stores where we then get a significant reduction on those numbers. Just overall, if you look at the old method of accounting, IFRS 17, overall rental base, exclude Avenida, including those new stores, only increased, again, by 6.2% which is below inflation, and that's because of the good work that's been done on the past on rental renewals that we're able to keep that number a very low overall growth number. So that will translate into your segmental operating profit, again, similar picture, now 9.8%, I said earlier, if we eliminated two ones-off items, down by ZAR 9.9 billion to ZAR 4.7 billion. If you look at the split per segment, here, unfortunately, the clothing and general merchandise down by 12.4%, mainly driven by the underperformance in Ackermans, we got summer also to extending winter, was slightly offset by the very good performance in Avenida and Speciality, but not nearly enough to counteract that performance by Ackermans. Similarly on the furniture side, because of the drop in underperformance on the furniture side sales that meant that the cost containment was not enough to compensate for the low sales growth. So we saw a negative growth in operating profit, building company, the building segment similar. They did at least show a positive growth on top line, but expenses still grew faster than the topline. So it means a negative growth in operating profit. The positive side is on the Flash side, we still saw a profit growth of above 20%. As I mentioned, the topline was not great, but it does mean that we're now selling a more profitable product, which meant why the overall growth in profit in Flash still grew by more than 20% and Capfin just maintained its profit from last year showing overall 11.5%. Segmental. So here, we see exactly the opposite from the revenue. Clothing and General Merchandise declined from 85 to 81, and the FinTech has increased to 9%. Overall, unfortunately, our operating profit is down to 10.8% where historically, it used to be closer to 12%, which is also our benchmark. Finance cost, as explained earlier -- so the finance cost on IFRS 16, you'll see over the last couple of years, very consistent since we introduced it in 2020. We implemented in 2020 at the same level, finance costs on bank cost unfortunately has gone up quite a bit because of the increasing interest rates. Also remember, Avenida was only acquired in March last year where the payment only happened in March last year. So there was no impact on the finance cost for the 6 months last year. This year, we saw the full impact. And then our overall net debt has also increased over the period, which I will unpack a bit later. So that meant that non -- or the banking side increased by 78% and overall by 31%. As I mentioned, lower effective tax rate, two reasons for that: Firstly, there was a deferred tax on the electronics side of the JD Group that we recognized during this period. Secondly, we reached the settlement with SARS late in March on certain items dating back a couple of years. That has a fortunate benefit to us that we could release a component of our provision, consistent in bringing the effective tax rate down to 20%. We also anticipate the effective tax rate will be 20% for the full year because we still need to assess the full impact of that settlement on our provision levels. As I mentioned earlier, higher working capital and specifically high inventory levels, but also the growth in the books, specifically more so you see there on the inventory levels for PEP and Ackermans increased in this period compared to the rest of the group which mirrors the same level. That's specifically on the Ackermans side more to do with the underperformance to a lesser extent on the PEP side as well. We also saw an increase in inventory levels for Avenida but that's in line with expense expectations because we knew when we acquired them, the inventory levels was lower than optimal. We brought it back to the right level. So we're not concerned about it. It's not really at the optimal level. For Ackermans, as we were seeing in the first half, there was markdowns process to clear some of the old stock. That will continue in the second half of the year to make sure that we clear the excess stock out of the system. There will also be markdowns of PEP but that will be to a lower level because again, PEP has got to buy a replenishment component, more nonseasonal product. So your markdowns isn't really not that extreme because you can sell the product throughout the year. So it will clear through the normal sales process. Overall, on the credit books, as I mentioned earlier, quite a bit of growth in credit, specifically in Tenacity growing from ZAR 3.2 billion to ZAR 4 billion, less extend growth in Connect and Capfin as well. All we still did that under the same credit granting criteria. So you would have seen there is not a significant movement in any of the provision levels. Nonperforming loans is also still in line with expectations. So from an overall book health perspective, feel comfortable. The only area where we had a slightly higher growth in nonperforming loans was on the Capfin side, but we did anticipate that we've also subsequent to cut off, pull back a little bit on the credit granting in Capfin. But we are confident that our provisions in all those areas still more than adequate to cover it for the full year because we did over provide slightly at the end of last year in anticipation of the high interest rates and the pressure on consumers. Avenida, we've had a slight increase in the provision, and that's because we've seen a growth in the credit contribution again from 41 to 43. So we just decided to be prudent and increase the provision for Avenida. So overall, as I mentioned debtors costs are quite a big impact on the results for the period, up by 62.3%, up to ZAR 820 million. If you break that down, you'll see the bad debt basically written off last year compared to this period slightly up on last year, and that's just more driven by Capfin, we had to write off more, as you would have seen from the previous slide on the higher nonperforming loans. But the pure movement in provision is purely because of the growth in the books. And according to IFRS 9, you have to provide more upfront. You'll see on the right-hand side, the credit book growth of 13%, but the provisions was up by 16% and higher than that. So overall, I think just to confirm again, it's not that we've changed our credit granting criteria. We've just seen that our customer is under pressure. They need different forms of payment, tender types. So we've had an increase in demand for credit overall within the group, hence the reason to grow specifically in Tenacity. So just to back to cash generation, I said earlier, it is below what we normally would expect, mainly driven by the increase in working capital requirements. So the inventory levels have increased, showed you, not fully compensated by the growth in creditors. So creditors grew negatively for the period. but also the growth in credit book meant is ZAR 1.7 billion that was invested in the credit book. So cash conversion purely for the 6 months is 44% compared to last year's 53%. So as I said earlier, first 6 months of the year is never a good period for us from a cash generation perspective. But our estimate is on a 12-month basis, we still generated cash conversion of 71%, which is more in line with our normal targeted levels. . Increase in net debt due to those factors already mentioned with higher inventory, higher growth in the books meant that our debt levels went up, so it's up to ZAR 11.6 billion. From a net debt-to-EBITDA perspective, we're above our internal bench or target of 1x net debt-to-EBITDA is up to 1.3 but that's also driven by the drop in EBITDA, not only by the increase in debt. We're, however, confident that we should get back to normalized levels by the end of this year. As I mentioned earlier, we did -- also did some refinancing, raising ZAR 1.2 billion in bonds at significantly lower rates than what we previously had on those specific debt. And you have also seen we're now in the fortunate situation, our debt profile -- repayment profile is very much spread over the next 4 to 5 years. So no specific concern around repayment of debt at that specific period. CapEx, we do continue to invest in CapEx. We have now, as I mentioned earlier, reached the completion of the PEP Hammarsdale DC building. So the last amount has been spent there to be fully commissioned in September and October. However, on the CapEx around the rest of investment that went up from ZAR 0.7 billion to ZAR 1 billion. There is ZAR 100 million in that ZAR 1 billion also relating to F&F for the PEP Hammarsdale DC so a real movement really from ZAR 0.7 billion to ZAR 0.9 billion. And again, as always in the past, the majority of our CapEx goes into new stores or refurbishment of stores. That trend has continued. That will also continue in the second half of the year because we still feel we have the best return there. We have, however, also started to invest more in IT making sure we can focus more on customer information, specifically going forward. So overall CapEx investment, 2.2% of revenue excluded DC, that will increase slightly in the second half of the year. So just to summarize, what is our investment and capital allocation philosophy Firstly, we'll still look primarily at organic growth. That's where we still want to invest CapEx. Yes, it is difficult times and we'll make sure that we still hit our hurdle rates when we open new stores, so there might be slightly drop in number of new stores because of not hitting the hurdle rates, but we will still continue to open new stores. We're continuously looking at opportunities in the clothing and general merchandise for M&A, more so specifically around adult wear opportunities. And then on the FinTech side as well, specifically in the informal market and financial services, we are also in investigating opportunities there for potential acquisitions. . Share purchase. Again, just to reconfirm our philosophy on share repurchase. It's primarily to make sure we don't dilute investors on our share option scheme for executives, and we continue to buy in line with that. We did buy ZAR 415 million for the 6-month period. And after the end of March, the share price going down to ZAR 15 and ZAR 16 levels. We did buy another ZAR 66 million at those levels. So to confirm, as always in the past, we don't pay any interim dividend during this period. Our earnings cover, as we confirmed at the end of last year on the dividends cover, is still at 3x earnings. We felt at that stage, it was absolutely the right decision, taking the high increase in interest rates. The impact of load shedding, the way the economy is that we'd rather not increase our dividend cover, keep it at the same level to see how it will work through period and that proved to be the right decision, being able to service our debt at the moment. And for the foreseeable future, we still see that being our strategy. So that's everything from my side. I'm now going to hand over to Sean to take you through the business unit performance.

Thanks, Riaan. Good morning, everybody. As Riaan and Pieter mentioned, I'll take you through a review of each of the operational units and try to add a bit of color and flavor to the numbers that you've seen. Just as a refresher, the way we think about our business is really in three clusters, those clusters being traditional retail, which is where all of the bricks-and-mortar retail brands and [indiscernible] sit, financial services and telco, which is where our insurance, financial services and informal market business, Flash sits and then our efficiency and leverage component, which is all of our central services sit where we try and leverage scale and efficiencies across the group. So if we talk about traditional retail to start, and Riaan shared some of the revenue numbers. I will fill in more from a sales perspective. Top line sales for the group at 4.8%, which is relatively healthy. However, if you back out the sales of Avenida, we end up at 1.9% total sales. And the most medicable callout is clearly the negative 2.2% like-for-like, indicating a very tough 6 months trading. What you will notice from the slide is that the South African businesses are the ones that are under the most pressure, and particularly the big units that trade in the discount and value segment. So PEP at just over 0.5% like-for-like; Ackermans is at minus 8.3% like-for-like; and JD Group at minus 3.7% like-for-like. So those big business units really under pressure in the South African economy. The speciality business, more positive, nearly 7% total sales growth driven mainly by store openings and showing positive like-for-like of 2.4%. So a slightly healthier picture because we trade in a slightly different segment of the market there. What you'll see is that the non-South African business has traded much better. So PEP Africa with a very credible 5.6% like-for-like and the Avenida business in Brazil at 8.5% like-for-like. So clearly indicative of the tough trading conditions in South Africa. . If we move to some of the detail behind each individual brand, so starting off with PEP, the encouraging thing about the PEP numbers is that the 4.8% topline sales growth was driven by both an increase in the number of transactions as well as an increase in the sales per customer. That increase in SPC was driven by retail selling plus inflation. However, what was encouraging is that they still maintain the best price leadership position of 95%. What does that mean? That means in 95% of the cases, when they measure their prices against competitor like-for-like product, they are cheaper or at the same price. So least managed to maintain their price positioning. What that fed through, and Pieter mentioned that earlier, was some gains in the very critical segments of baby, ladieswear and home and the homeware is something that we've seen over a number of months. Bear in mind, this is the last 3 months moving average that I'm talking about. Continued progress in PEP, as you would expect in store openings, 56 new stores opened during the period. and specific focus on the home format. And you can see that in the top line sales growth of 19% in the PEP Home format. So continued great performance from that team. What you will find quite interesting is that the credit mix has increased to 3%. That was less than 1% last year, and that's come about by virtue of 2 things: One, increased effort on actually acquiring customers onto the PEP credit base through acquisitions by canvases in stores; and secondly, a considered driver of interoperability of the Ackermans store card across the other formats. And you see that in the increase to the 3% credit mix in PEP. You'll also see that PEP continues to dominate the handset market, so 4.1 million cell phones sold during the period with a 50-50 split between smartphones and feature phones. PAXI, which is the parcel delivery business, we've spoken about before, incredible growth of 16% there, delivering more than 2.3 million parcels in the 6 months. And what we are seeing is a growing number of small entrepreneurs and small businesses that are using the PAXI network as part of their -- or their fulfillment of their business. And we believe there's an ongoing or future opportunity with a B2B strategy there, and we'll be exploring that. The last point to note in PEP and both Riaan and Pieter spoke about capital allocation. We are continually looking at where we are allocating capital. The PEP business, as you know, has been experimenting with a new format called Dealz for the last number of years. Dealz was a discount variety format with a combination of FMCG product and general merchandise product. The difficulty with that format is it relies heavily on a customer who has a high degree of discretionary spend. It relies on your ability to build a large basket and it relies on high trading densities. And with where our customer is right now, the team were just not able to make that format work. So we made the decision to close all 17 stores and exit that format. That has been done. And we move forward to find new ideas. So that's the PEP business. On to Ackermans, so the very disappointing 8.3% negative like-for-like. We saw was a function of both a drop in the number of transactions and in the average SPC. So we saw less customers and those customers that were there were shopping or buying less. That was slightly offset by some RSP inflation, but again, that was challenged by virtue of the markdowns that Riaan spoke about. It was encouraging, though to see some market share gains. So they had a very good back-to-school period and showed gains in school wear as well as in the lingerie segment. Continued rollout of stores, so 51 stores opened, of which 8 were womenswear stores, so they're Ackermans women's format and 19 of those were Ackerman's Connect or the stand-alone cellular format. And what you'll see from the slide is we now have more than 50 stores in both the Ackermans women's and the Ackermans Connect format, which means we've got critical mass and really the mandate to the team now is to focus on really refining the proposition to the point that we're happy that we can roll out at speed. The other thing you'll notice is credit mix of 18%. The actual growth of credit sales was 10.2%, which when you reflect against the negative top line growth in Ackermans shows how well credit performed. That's 200 basis points up. So contribution this time last year was 16%. So up to 18%. And again, that was driven by a number of new accounts, 237,000 accounts opened, again, driven by increased number of canvases in-store and the drive on interoperability of the card. Riaan alluded to this a little bit earlier, but in terms of the underlying reasons for the underperformance summer in the Q1 update, we flagged that there were challenges in the product mix, both from a price perspective, a fashionability perspective. and from an overinvestment in packs -- in multipacks. We were unable to address any of that during summer. We have long lead times in the Ackermans business, and so to make changes in the merchandise is quite difficult. And unfortunately, some of those calls that were made for summer were made for the early parts of winter as well. So some of those problems have flowed through into the early parts of winter, and we had challenging sales in Q2. What we have been able to do is put some tactical activity in both in terms of addressing price points as well as the unbundling of packs. And certainly, in the month of May, we've seen some quite good results of that and the customer responding well to those activities. We are very confident that summer '23 all of those underlying issues have been addressed, and we should see a far better performance. The other thing I'd call out in Ackermans is two quite significant leadership changes. So firstly, we've decided to appoint and have appointed a CEO of the Ackermans women's format. Up until now, the Ackermans women's format was run by the overall management team of Ackermans, and wasn't really differentiated from the core Ackermans women's offer. We believe to give that format a proper go, it needs a dedicated team with a dedicated CEO and that appointment has been made. And the second significant leadership change is the appointment of a new overall CEO for the Ackermans business, who comes with a very high pedigree and experience both as a experienced retailer and as a senior leader in very reputable retail businesses. And that change has been made, and they are in situ as we speak. . So moving on to the Speciality division. And again, a reminder, the division is kind of made up of 3 different types of businesses. The first are what we would call our mature businesses. And in that category, both Dunns and Shoe City showed very strong like-for-like performance. Tekkie Town continued with the challenges we called out in Q1, where Tier 1 franchises and the availability of Tier 1 franchise product proved to be problematic, continued negative growth in the very significant canvas category and increased discounting overall on Tier 1 brands across the market. The team worked hard to try and offset some of those pressures and continued to roll out the introduction of apparel into the Tekkie Town format. And both from a sales and customer response perspective, we've seen that adding to the proposition and certainly offsetting a lot of the negative growth in the footwear categories. In our semi mature business, that's really refinery very strong like-for-likes there, continued rollout of new stores. We're now well over 100 shops in this format, and we see a lot of open runway ahead to open significantly more refinery stores. So a success story there. And then the 2 nascent brands being CODE and S.P.C.C. Continued development, both from a propositional perspective and a store footprint. And in terms of CODE, we've actually rolled that brand into Tekkie Town as well. as a store-in-store option, and that will give the brand much more traction and much more visibility across the marketplace much quickly, much more quickly. So all of that really rolled up to very nice gains in market share in nearly all of the brands in the division as well as growth and market share gains in all of the categories within that division and some very pleasing online sales growth of nearly 40%, primarily in the Tekkie Town business as well as the CODE and S.P.C.C side. So Speciality, a slightly healthier story to tell from a South African retail perspective. Moving on to PEP Africa. You'll recall quite strong like-for-likes of 5.6% I mentioned earlier. That was really driven by both volume and customer growth in most of our markets. And what was very encouraging is to see the 8.3% like-for-like sales growth in the two primary markets of Zambia and Mozambique. As a matter of interest, those two markets make up 60% of our sales. So strong performance in the primary markets. The team has made a huge step forward in terms of the ongoing repatriation of profits from those countries despite quite significant liquidity challenges. So a good response to those challenges from the team. Again, getting back to capital allocation. So we've been, over the last 6 months reviewing every country that we operate in Africa with the Africa team and we made the decision to exit the Nigeria business. That's 44 stores. The reason for that is Nigeria is just proving to be an incredibly complex market. It has a different customer set, different seasonality, requires a different assortment mix, complexities and imports and supply chain. And so we made the decision to exit, and that will be complete by the end of this calendar year 2023. On to Avenida. The Brazil business, and again, as I shared with you, very credible like-for-like performance of 8.5%. What you will see is that the sales volume growth at 15.8% was ahead of the circa 13% value growth. That was due to the investment in known or key value items. So we introduced discounted price points in a lot of key categories. and that drove a massive volume uplift. Pleasing also to see that trading density continues to improve, both in existing stores and particularly in the new stores, so nearly 11% improvement in trading density year-on-year. And as far as new stores go, we opened 6 new stores in the 6 months. We have a budget of 10 for the year. We are likely to exceed that exponentially. So we think we'll open more than 20 stores during the course of this financial year, which is encouraging, both from the perspective of the availability of sites and of the capability and capacity of the team to actually execute on store openings. And the second thing to call out in terms of store openings is the closure of the 5 Giovanna stores. So what you may recall is when we acquired the business, it came with 110 Avenida stores and then 20 stand-alone footwear stores called Giovanna. It was our feeling that it's better to roll 1 format across the territory rather than try and roll 2. So we made the decision to close those 20 Giovannas and that will be complete by the end of this financial year. The other thing to call out is the removal of cellular from the business. There were circa 70 stores that had cellular phones in them. The cellular market in Brazil is very challenging. It's low margin on the handsets. There's no real ongoing revenue opportunity as there is in South Africa, and most cell phones are sold on a 10- or 12-month zero interest basis by retailers. So we feel we can get a far better return on space and therefore, have removed cellular from 70 of those stores. The other thing to call out is from a sourcing perspective, the first product that we bought out of the PEP range and where we leveraged both private label and Disney contract merchandise landed in late March, and we've seen exceptional sell-offs on that product. So it's raised our confidence in terms of our ability to leverage our PEP South Africa business in Avenida. So those are the CFH business. Moving on to JD. As Riaan mentioned, quite challenging sales in this area of negative 3.7% like-for-like. And that really is a function of a highly restricted customer when it comes to discretionary items and spending in discretionary categories. I think you see that mirrored in a lot of our competitors' trading updates. As Riaan mentioned, the home segment under the most pressure in terms of negative -- negative like-for-likes, the tech business holding there or thereabouts in terms of last year's sales levels. And as Pieter mentioned, we saw some very nice gains in the categories of computing appliances and audio. A lot of that is actually driven by the team's focus on private label and the continual development of own label product which is both sales and margin accretive. Continued store rollouts, the 22 stores rolled out during the course of the year or the 6 months. Interesting enough, one of those stores was a stand-alone cellular store under the Incredible Connection brand. It's important to note that proposition is very different to the group's other cell formats, which is the PEP cell and the incredible -- sorry, the Ackermans Connect. The incredible Connect is really about higher price point premium Tier 1 brands and handsets, accessories and goes after a postpaid contract market rather than the prepaid market that we focus on. In terms of credit, credit sales contribution up by about 110 basis points to 20% in home and 11% overall for the business. And in terms of online, online now making up 10% of sales in the tech division. What's interesting to note is the team took a decision to discontinue investment in the every shop marketplace platform and to switch all of their focus into HiFi Corporation and their website and digital platform, they saw no reduction in sales whatsoever. Customers were very happy to migrate on to the HiFi Corporation website and platform and this brought very nice efficiencies in terms of marketing costs by not having to fund the dual platforms. And then finally, the building company, as both Riaan and Pieter mentioned an incredibly tough environment to be trading in terms of the segment of the market. And I think it's highly commendable that the group got fairly close to flat like-for-likes for the 6 months. The issues in the market are very visible to us through our wholesale business. So we actually sell to a number of our large competitors and large independents in the group. And what we see in the wholesale division for the first 6 months is some of those competitors are down by as much as 30% over the period. So clearly very constrained. Load shedding has a far bigger impact in this segment than it does in our other retail formats. It impacts our ability to trade, particularly in the general building materials area where you're running big yards and cutting edge facilities, you just can't operate while load shedding is on. And obviously, from a customer perspective, most of our customers are small trades people or small builders who do not have the ability and the alternative power source to work when they stage 6 load shedding. So a very, very difficult environment to -- for Steve and the team in this business. Having said that, they opened 4 new stores during the period and one of those stores is the first convenience format, so it's a smaller box BUCO play, it's targeted much more at the higher margin DIY market and the initial sales indications are very positive behind that and linked to that strategy was much more work done in range development both in the element of private label as well as looking at new categories very much focused around the DIY market. So all things being said, a very credible performance from the building company. . On to the financial services and telecom area. First business unit is Flash, which is our informal market business. Now Flash has 3 core revenue streams or 3 core divisions. The first is the trader business and essentially, what Flash does is, it enable that trader to sell value-added services to their customers. to take cash and payments into their ecosystem and to pay their suppliers. There's 167,000 traders on book. But what's more important to note is that the turnover per device is up 10%. And really, the business of Flash is less about the quantity of traders you have and more about the quality of the trader and the turnover you do through the trader. The level of activity in the informal economy is highly visible by virtue of the fact that we did nearly ZAR 16 billion brands worth of cash that was digitized in the 6 months and we saw a 26% increase in supplier payments made through the pay with Flash facility. So strong performance from the trader division. The second division or area is the cellular division, which is primarily about the distribution of some cards in the informal market. There we saw a 9% increase In activations year-on-year to our base, which bodes well in terms of future ongoing revenue income streams. And then the final area of the Flash business is the aggregation business essentially where they bulk buy value-added services and on-sell those to B2B customers. And we saw a very significant increase there of 51% in aggregation turnover. So all in all, a very healthy performance from the Flash business. In terms of Capfin, Riaan's covered a lot of this, 15% growth in terms of loan disbursements up to nearly 290,000 loans. You'll see that the product mix has remained relatively consistent. So 75% of the loans that we grant are in the 6-month category. And you'll see that stores are still a very important component of our distribution channel. So 46% of the loans activated came through our store network, proving the ability to use our store footprint to generate other revenue streams. Riaan also demonstrated there was a very conservative approach, both to the credit granting and the provisioning policies and collections and NPL are still within healthy levels. In terms of looking forward a little bit, we believe that there's an opportunity to leverage our Abacus insurance business that sits within the JD stable and to look at pushing credit life products into the Capfin stable and to overlay of those on top of some of the loans that we are granting, and that could create quite healthy revenue streams for us going forward. And then last but not least, the Tenacity business. Again, Riaan alluded to this. So we have 1.8 million active accounts now driven by 345,000 new accounts that were opened in the 6 months. That came by significant investment in canvases in stores. And as I've mentioned, the drive on interoperability, which I'll refer to shortly. Our conservative credit granting approach is highly visible in the fact that the average credit limit granted is less than ZAR 3,000, and our customers in good standing is stable at around 85% of the active customer set. So all in all, very healthy. And from an interoperability perspective, we continue to drive that. You saw the benefit to PEP 3% of sales there. And what we've seen is essentially credit utilization in our existing base, up about 200 basis points and more than 1/4 of our customers are now cross shopping across more than one brand within the group. So that's the detail of the operating companies. I'll now hand you back to Pieter to give you a forward outlook. Thank you.

Thanks, Sean. I'm going to just close off with a couple of slides on how we see the outlook for the rest of the financial year and how we've been performing since the set of results. We have not seen an improvement in the customers' environment. There is -- maybe even deteriorating environment. Our own trading has improved quite a bit in May as a result of sort of more internal initiatives that's bearing fruit. Inflation, as you know, is going higher still. And in a way, we -- that is actually helping our elevated inventory levels, which is sort of becoming more expensive to replace. Usually, it would be the other way around. And then every 4 years, retailers -- those who are on a retail calendar has got an extra week. We will record another week sales without actually incurring the costs in PEP and Ackermans, and that will certainly impact our results and Riaan has spoken about that. So we'll continue to manage what's under our control. We can't control the macro environment, and our key focus will remain trying to entrench our position in our key product categories, recover, as I said, the things that's under our control. We're going to keep on expanding our ladieswear offering, especially with the Ackermans Woman proposition. We continue looking at our portfolio, making sure it's all efficient and the capital remains efficiently allocated. As Sean mentioned about our informal market trade, that's one part of the economy in South Africa, certainly, that seems to be holding up well and robust. So we're going to increase our presence there and develop our products further. Cellular and Financial services remain a core capability for the group. We do over 1.7 billion transactions outside of our stores per annum as mentioned before. And very pleasing is the fact that we are learning to operate in different markets in Brazil, and that whole investment is -- it's still quite small in the group, but certainly, the capabilities that we are building up there is bearing fruit. And then as always, we're sort of going to target a bit of austerity. If we don't get the sales, we have to be more efficient with our costs and keep on leveraging our scale. So that is it from us. We will now take some questions. Thank you.

Good afternoon, everyone. So I've got a couple of questions here. I'm going to run through, and hopefully, I can answer them. So the first question we received was Avenida. What is the contribution of Avenida to the overall group revenue in the first half of the year? So as I indicated in the presentation, it's about 4%. We do also anticipate that will more or less be the same for the full year. Do take into account that normally for Avenida, the first half is slightly stronger than the second half. But overall, we, at the moment, until we're growing further, it will be about 4% of group revenue. Second question, we received Flash revenue. Just again explain the change in product mix. And then also when do we think this will turn? So again, as we explained last year, what happened in Flashes, they used to sell airtime vouchers either from, as an example, Vodacom, MTN or electricity vouchers and they used to sell it, obviously, that specific network. So we used to account for the full value of the voucher. What happened now about 18 months ago, a bit more than 1.5 years ago, we started selling easy airtime, easy airtime, we sell specific vouchers. It's not linked to a specific network. The customer can decide what do they want to convert it to either Vodacom, MTN Telcom or electricity voucher so only when they converted to a specific voucher or network voucher, do we account then only for the commission. So that's a difference. We used to account for the full value of the sale. Now we only account for the commission. As I also indicated last year, this will now analyze at the beginning of this financial year. So we're already starting to see in March that it's now on the -- working on the same basis last year. So we do anticipate in the second half of the year that, that negative growth that we saw in the first half will also still be negative, but it will be a lower negative amount as we start to see the change now and working on the same base of last year. Then it is also a question is, what is the contribution? So just to confirm again, 80% to 90% of the sales in the FinTech segment is for Flash and 10% on Capfin. And on profit side, about 60% of the profit comes from Flash and 40% from Capfin. Next question is on the insurance money that we received. Why don't we account for it as an abnormal item and add it back? So as we've always done with all the money -- all the majority of the money that we received previously from the social unrest and now also from the flood, you'll see money that we've received for business interruption. So it's purely a replacement of the profits that we've lost. So we don't regard it sort of abnormal, we see this just a replacement as a new bottom line. We would have lost profit. We now added back to get the profit, hopefully, back to the level it would have been had the floods and the social unrest not happened. Then there was a question around operating profit percentage. Where do we see it long term? What's the impact of Ackermans on that? . So as I commented, normally, we would see it running at about 12%. Now that including IFRS 16, we did now drop down to the 10.8%. Yes, the majority of that is to do with the drop in profit from an Ackermans' perspective. So we do anticipate that, again, next year once Ackermans is back to normal performance levels that we will get back to a 12% operating profit for the group. And needless to say, the clothing and general merchandise, obviously, runs at a higher operating profit percentage. Then the last question was around inventory levels. Do we see it coming or returning to more optimal levels by year-end? What is the impact on working capital? . So yes, we do anticipate it dropping from 11.7%. However, do take into account, as I mentioned in the presentation, we have got more stores opened in last year where inflation is running at a much higher percentage than what we used to have -- sorry, that was just quickly load shedding, than what we used to have in the past. By taking into account, as I commented, that a lot of the inventory we have in PEP is nonseasonal replenishment when Ackermans side, it's slightly higher seasonal component. So hence the reason why we expect more markdowns in Ackermans to get it to a normalized level. and a lower number on the PEP side, but we do anticipate growing at a lower percentage than what you saw in the first half for the full year. On working capital, that will obviously assist us where we are getting a better working capital. Do, however, take into account the second part of the reason why working capital requirement is higher than what it was last year is because of the growth in the books. We do anticipate that the Tenacity book will still grow in the second half of the year, probably not to the same extent as in the first half, but that will still have an impact on working capital. However, overall, we do anticipate that our net debt level will come down to a more normalized level at the year-end compared to where we were for the 6 months. . Those are questions. I'll now hand over to Sean to cover some of the other questions.

Thanks, Riaan. Hello again, everybody. A few questions from an operational perspective. The first question was some detail around how Tekkie Town is performing? I think as we mentioned in the slide, Tekkie Town had a fairly tough H1, mainly compounded by increased level of discounting and availability issues with Tier 1 brands and some pressures around the canvas category, which continued to underperform. What we did see is the team managed to offset some of this performance through the introduction of apparel into more stores and encouraging both April and May have seen an improvement in performance in Tekkie Town. Second question was around the level of markdowns in Ackermans and whether there was additional summer stock that would need to be markdown. At a headline level, markdowns were about double what we would normally expect to spend and what the prior year had shown. And those markdowns are both from a tactical price correction perspective and performance markdowns. There will be some -- or a small amount of summer carryover stock that will probably need to be actioned at the beginning of next summer. But if we look at where the currency is headed at the moment, I think from a costing rate perspective, automatically, there will be markdowns on that product anyway. Question around PEP Home and a comparison between the PEP Home performance and the JD performance. You can't really compare them. PEP Home's product range is really around home deck around living essentials and soft furnishings and the average price point is quite low. JD, on the other hand, is big ticket items in furniture and large and small appliances. And so you can't really compare the 2 in terms of market segment. Third question was a question about Ackermans Women's and whether we're going to relook the rollout of the Ackermans Women's format? I think as we mentioned, we're at 54 stores. We believe that's enough critical mass to now focus on getting the proposition right. As I mentioned, there's a dedicated leadership team that's now being placed into that business, and they will focus on improving the proposition before we aggressively roll that format out. There was also a question around some of the Ackermans initiatives or the initiatives behind resolving the performance. Again, I'll just highlight what we covered in the presentation, and that was the teams learned the lessons about fashionability. They've learned lessons about price point and engaged in both tactical markdowns and fixing those price points going forward. And we've made the relevant leadership changes in that business that we think will help the team galvanize and improve performance. Then another question about Ackermans was, how much of the Ackermans underperformance relates to own goals or missteps versus a highly competitive environment and an increasingly competitive environment? The reality is, I think the Ackermans performance has three components: One, as Pieter has mentioned, a consumer that's under severe pressure; two, a more competitive marketplace with improved competitors; and three, our own missteps or poor course on product. The reality is if you have a more competitive environment and a consumer under pressure, a misstep in your own range is going to hurt you far worse. So the reality is it's a bit of everything, but we believe the primary reason is still internally orientated and it relates to all of the reasons that we've given around Ackermans' underperformance. And then the final question was really asking for more granular detail around the performance of CGM and at a like-for-like level and inflation versus volume? Q1, as we reported, CGM was negative 1.5% like-for-like. You'll see in the long form that H1 has deteriorated to 2% like-for-like on CGM, and that mirrors the PEP and Ackermans businesses. Both businesses saw volume decline, offset by RSP inflation. And the shape of Q2 versus Q1, Q2 is primarily influenced by back-to-school in January. That was good for both businesses as we expected. And the reality is that February was there or thereabouts, March was the month that saw a dramatic decline in like-for-likes, and we see that across the market. So both PEP and Ackermans in the last 3 weeks of March feeling more pain than they had in the initial parts of the year. So those are my questions. I'll hand you back to Pieter.

Thank you, Sean. We have -- I've got time for one more question, and we'll close off for today. So just thanks for your participation. The question I'm going to deal with is just a question about what is our target for credit sales? We don't really have a target, but we do recognize that our customers need some form of credit, especially in a tough environment to pay for their kid school uniforms or something a bigger purchase. We are very deliberate about not writing bad credit. 85% of our customers are in good standing, and we have introduced interoperability in our business this year, which is a new feature for our customers where they can use existing credit facility at the different brands in the group and that has helped, especially PEP to increase some of the credit sales. So we don't have a specific target, but we're very aware of what our customers' needs and one of these payment mechanisms are credit along with lay buy, and traditional cash retailer. We feel that credit customer is a good customer. We have more information about them, but clearly, we don't want to put them in a difficult place by giving them credit they can't afford. . So that I'll end off with. Thank you very much for your participation and see you again. Thanks.