Pick n Pay Stores Limited (PIK) Earnings Call Transcript & Summary

Good morning, everybody. Welcome to the Pick n Pay Interim results presentation this morning. Thank you very much for joining us. And I'm sorry, we can't do it in face. But due to the challenges of COVID, we're once again doing it remotely. And hopefully, you're getting a great signal, and we'll be able to give us a feedback that you need for this presentation. We'll be conducting it in our new normal format. I will be talking first, followed by our CFO, Lerena Olivier; and then our CEO, Richard Brasher. Thereafter, we will take any questions that you have for us. And I think the way we're going to do questions has been communicated with you. This set of results is one of our most unusual in our history. Unlike other retailers, for us, these 6 months fell almost entirely within the lockdown period. They, therefore, represent an accurate picture of the full impact of the lockdown on Pick n Pay. To start with a must pay tribute to all who've worked so hard with us during the past 6 months, the Pick n Pay staff rose to the challenge, making sure our stores were open, our shelves were stocked and our customers were safe. The whole supply chain was under serious pressure, and we worked very closely with our suppliers throughout to meet our customers' needs. Our operations team put every possible safeguard in place in our stores. Today, every single store is given a full COVID-19 clean every night to make sure our stores are the safest they can be. Our online team worked almost without rest to grow our footprint and delivery slots to keep pace with demand, which they did with huge success. Our customers responded extremely well to the measures we put in place to keep them safe. And our staff, customers and other corporate owners showed their generosity in contributing over ZAR 80 million to our Feed the Nation program, which, as of today, has provided over 21 million meals to the most vulnerable in South Africans right across our country. Unfortunately, we mourn those member of our team, customers and others who succumbed to COVID virus. And our sympathies are with their families. The period such as this gives us call -- pause for reflection. The 6 months has been extraordinary for us in other very important ways and been quoted a lot recently, but Churchill in 1940 said that you never want to waste a serious crisis, and we didn't. We learned a lot how to trade successfully in astonishing demanding circumstances, both here and in other markets where we trade. But as importantly, we learned a great deal about ourselves. I have not, in many years, perhaps decades, seen our team work so closely and efficiently. Our executive met as a team every morning during lockdown and tracked every detail of our trading environment and how we were responding to it. We answered every challenge with determination and with energy, and we learned how to do things differently. And ultimately, we learned how to do things better for our customers. We came to understand how certain tasks we had thought were important. We're actually adding no value. But new solutions and deadlines could be met head-on with vigor and in innovation. We backed each other up on every task. We reported back with startling efficiency. And we did all of this while staying true to our values. We made a difference to the lives of South Africans by leveraging our stores and resources to help those most in need. We also learned a great deal about our customers and how they're changing shopping habits and behavior altered during lockdown. A good example provided both an opportunity and a challenge. Our customers reflected their safety concerns by moving to closed packaging. While we could respond immediately to this preference, it does, of course, raise important questions about the use of plastic and the nature of packaging. Our customers also changed when and where they shopped, preferring larger baskets, larger pack sizes, fewer visits and stores closer to home. This had implications for our operations team who responded incredibly well to meet the trend. More broadly, we learned about how supply chains need to work more closely together. South Africa quickly realized that the food service and grocery retail supply chains don't naturally work together, which is why in lock down, retail often run out of goods and the foodservice supply chain had excess they couldn't sell. Much of the surplus, some of which was for export, went to waste with much ending up in landfill. We've also learned about new ways of working, having spent 6 months working from home, and I know I can feel it myself, the lesson seems to be for many businesses that is no longer working from 8 until 5. It is now about measurable output, however many hours a day you put in and when you work. And as if to signal our transformation into a more digital world, the banks will no longer issue checks. And with effect from December, no more checkbooks will be issued. This will do much to reduce fraud, even though a number of customers may be inconvenience in the short term. And as an aside, our company secretary tells us that we have a number of shareholders who still receive checks, some of whom we don't know where they are, and we urge them to please be in contact with us so that we can give them -- so we can change their payment dates or else they're not going to get paid their dividends. And on that note, Lerena is going to have some good news for us about the resumption of our dividend a little bit later on. All in all, we've seen through this crisis. I'm delighted at the performance of our team and good things lie ahead. When I spoke at our full year results in May, I announced that, in line with the Competition Commission's grocery retail market inquiry report, Pick n Pay would not seek to enforce any exclusivity agreement against the small or specialty retailer in any center in which we operate. While we did not agree with every part of the Commission's report, we are happy to take any opportunity to encourage the success of new and small businesses and hasten the pace of transformation in this country. I'm pleased to say that we've now gone further and have concluded a consent agreement with the Competition Commission, which will, after a suitable transitional period, see us relinquish all our rights to exclusivity and shopping centers by the end of December 2026. We do not agree with the Commission that exclusive leases inhibit competition. But exclusivity is a diminishing feature of the market, and it is right to bring an end to the debate on the subject so that we can all focus on the work that will need to be done. We all need to stimulate enterprise and create jobs. And after the devastation that's been wreaked by COVID-19, it is even more critical. And we have worked constructively with the Competition Commission to resolve these issues. I'd like to close by talking a bit about collaboration and food security. In early October, President Ramaphosa made a call at the UN Summit on biodiversity for sustainable climate-friendly agricultural methods to achieve food security. We welcome his call. While this is a good start, our government should implement his ideas through appropriate policy interventions. The importance of food security has been underlined by COVID when the country has now, more than ever, been able to need to rely on the resilience and diversity of its domestic agricultural production. The task now is to ensure that our agriculture remains sustainable and secure in the face of climate change and other environmental challenges. Significant progress on the goals of food security, environmental sustainability and better access to food for everyone in society can be achieved. If government and the private sector work together, they can reduce food waste at all levels of the supply chain. One of the areas where partnership is vital on reducing food waste is tackling -- sorry, one of the areas where partnership is vital is on reducing food waste. Tackling food waste is a global challenge, but it has added urgency in Africa where so many people still go hungry. It is estimated that in South Africa, 14 million people go to bed hungry every night. Pick n Pay late last year became one of 10 of the world's largest food retailers who are partnering with 20 of our major suppliers and food manufacturers to sign the Global 10x20x30 Consumer Goods Forum initiative in the fight to half food waste by 2030. Also this month, food manufacturers and retail members of the Consumer Goods Council of South Africa launched the South African food loss and waste voluntary agreement with the support of the South African government. This agreement commits the signatories to reducing food waste to achieve the United Nations Sustainable Development Goal #12 to half global food waste by 2030. Reducing food waste has always been a priority for us. South Africa cannot afford 30% of its food to be wasted, when 20% of its population is food and secure. At Pick n Pay, we are becoming more accurate in our planning, and we continue to make progress to steadily reduce the amount of food, which goes to landfill. The public and private sector have an obligation to work together to ensure food security for all. We will also work to enable the various markets we operate in to commit to reducing food waste. As I said at our AGM, we will only get through this crisis if we work together, if we work together more than ever before. To do this, we must feel we are in it together and that the decisions and sacrifices we make are for the right reasons. I talked about the prohibition on the sale of liquor and tobacco and the widespread public belief that it was not justified. The prohibition on tobacco sales has since been removed, although the damage done in terms of shifting trade to the illicit unregulated sector will take years to put right. The liquor ban has also been relaxed, but it remains unlawful for a customer to buy alcohol from a shop on a Saturday or Sunday to consume in the privacy of his or her home. This makes no sense when that same customer is perfectly free to go to a tavern, club or bar on a Friday, Saturday or Sunday and consume alcohol on the premises. And we've seen the impact of that this past week in the media. Ministers have never explained this discrepancy. And so it has never been understood by the public. The reason this is so important is because we need the COVID-19 restrictions to be understood and supported more today than ever before. Just this morning, you can see how the COVID is spreading in a second wave across the world. The virus has not gone away, and we cannot relax our guard while the risk of resurgence remains very real. We will pay our part in ensuring that our staff and customers observe the hygiene and other rules inside and outside our stores for as long as this is needed. By the same token, government has a duty to ensure that their rules are justifiable and proportionate. That is why they need to remove the remaining restrictions on the sale of liquor. Our Chief Executive, Richard Brasher, announced that he would be retiring at the end of next financial year or sooner if a replacement could be found. We've been working hard on this, but do not yet have an announcement on his succession. I must say COVID has severely complicated this process. Before I close, I'd just like to voice a special thanks to you, Richard and your team, and particularly to David North and his team for the huge amount of work that they've done around COVID over the last couple of months. Them and our entire operations team have done a sterling job to making sure that we are all safe, our customers are safe, that we stay open and that we continue to keep feeding the people of South Africa. Thanks to all of you, once again, who are on the webcast this morning. And I'd now like to hand over to our CFO, Lerena Olivier. Thank you.

Thank you, Gareth. Good morning, everybody. What an extraordinary 6 months it has been. When we last stood here before you, we have just gone through a full preparation of our full year results for FY '20, and we presented it to you all under level 5 of lockdown. Today, we stand here. And as Gareth has mentioned, we are here to deliver our interim results for FY '21, almost entirely under the extraordinary trade restrictions of COVID-19. I am, however, proud to stand here to report that we have delivered a resilient earning performance over the period. Both our sales and our earnings were impacted by the trading restrictions, specifically over the higher-margin earning categories in our business, such as clothing and liquor. Store closures and social distancing impacted the ways that our customers would have preferred to shop with us. And we incurred additional COVID-19 costs of approximately ZAR 115 million over the period. Despite this, we pressed forward with our project future initiative. And a result of that, this result also includes an additional ZAR 100 million relating to the voluntary severance program that we have concluded during the period. However, our core food and grocery performance has remained strong. It has been anchored by a custom performance that was particularly target to assist our customers during these difficult times. We ensured that cost and efficiency across our supply chain as well as increased cost, OpEx and CapEx discipline across the period, all helped to underpin the strong result. We have also ensured that our strong cash and liquidity management over the period strengthened the overall result. I am happy to report that our comparable earnings per share, excluding the impact of hyperinflation impacts in Zimbabwe is down 56.3% for the year. If we peel back the ZAR 100 million voluntary severance cost, that metric has declined by 38.6% during the period. Our sales growth of 2.6% clearly reflects the substantial impact of the COVID-19 restrictions. We contained our gross profit margin impact of COVID-19, specifically the higher-margin project categories such as liquor and tobacco's impact, through effective buying and supply chain management. Our trading expenses, excluding the VSP one-off cost, is up just 3.6%. That is notwithstanding the additional ZAR 150 million COVID costs we also incurred. Our effective cash and liquidity management over the period, also supported by some repo rate cuts up to 300 basis points, has ensured that our net interest paid is down just under 17%. Therefore, our comparable profit before tax for the period declined by 53.4%. And again, if we peel back the one-off VSP costs, which we expect to neutralize in the second half of the year, that decline is 35.4%. We have again contained our selling price inflation to 3.4%, well below our CPI Food of 4.3%. Our internal selling price remains consistently well below the general food index through our better buying, efficiency across our entire supply chain and cost discipline. And I specifically want to lift out our stronger waste management. Due to the project future initiatives, we have been able to contain waste in the business with a decline of 10% during this difficult period. We had a trading performance that was strong in our core food and grocery business. It's important to note that up to 20% of our trade was restricted up until Level 5, with 15% in lower levels. As a result, our liquor and tobacco declined by 47.5% during the period and are clothing by 4.2%. We, therefore, have presented a metric of our core food and grocery trade, excluding the impact of these restricted categories of clothing, liquor and tobacco. And our South African core food and grocery turnover is then up 9.9% and 7.6% on a like-for-like basis. This has delivered strong real volume growth of 4.2% over the period. Furthermore, in spite of the restrictions in the construction industry during the lockdown, we have also been able to open 42 new stores during the period. And as a result, our net new stores contributed 1.6% of growth of the overall group turnover growth, almost half, an achievement that our property teams can be proud of. As I've mentioned, we have successfully mitigated the pressures on our gross profit margin as our higher-margin categories were not able to trade. At the same time, we have continued to deliver the sustained improvement in this line. Our gross profit margin was impacted downwards by 0.8% due to clothing and liquor not being able to sell during these periods. However, we have mitigated this with benefits in our supply chain across both Pick n Pay, and that added -- both Pick n Pay and Boxer, and that added 0.6% to our gross profit margin, half from Pick n Pay and half from Boxer. Pick n Pay's focus on improving what is already there has added 0.3% to our gross profit margin during the period. And Boxer's focus on ensuring that we increase centralized supply and optimize the scale benefits has added a further 0.3%. That has delivered our gross profit margin of 19.6%, down only 0.2% from the 19.8% last year. As on all our other lines, other income also reflects the impact of COVID-19. Our franchise fee income is slightly down on last year. Our franchisees has been remarkably resilient. They are exceptional traders, and they are community-focused. These small neighborhood stores were very well placed to serve our customers during these times. That said, that was also impacted by the restricted trade, and this line reflects that. Furthermore, we have given some modest support to our franchisees, specifically in the emerging market environment where it was required, to ensure that we still drive volume through our chain in this area. Our commissions and other income is up 3.3%. Our third-party bill payments and prepaid electricity, up 4.5%. Customers also chose new channels to buy these products, and the commissions line was also impacted by trade restriction in the ticketing and the entertainment environment. Our trading expenses grew 4.8% for the period. Like-for-like, up only 3.2%. As I've mentioned, these lines do include approximately ZAR 150 million related to COVID-19 costs. We paid safety and hygiene costs of ZAR 80 million to ensure the safety of our customers, our staff and our suppliers. Staff appreciation bonuses of ZAR 50 million were paid to our frontline colleagues. Security and other costs of ZAR 20 million was as a result of increased security during this time and other regulatory requirements that we had to implement. Our employee costs include a further ZAR 100 million once-off cost for VSP. If this is excluded, the employee costs are down 0.6% for the half year. This was delivered through very strong cost control and mitigated by some reductions in trading hours. If I exclude both the ZAR 150 million COVID costs and the ZAR 100 million VSPs, our trading expenses is up just 1.8% for the half, a commendable achievement. Project Future is delivering significant cost discipline. It is assisting us to mitigate the increases that are still in our environment in areas such as security, insurance, rates and electricity and other regulatory increases. We will remain vigilant to ensure that we address these cost pressures in the second half of our year. Our Rest of Africa division remains profitable. The division again recorded a profit under very difficult trading circumstances, specifically in Zimbabwe and in Zambia. This was further exacerbated by the pressures of COVID-19. And for all our countries outside our borders, the trade restrictions and border restrictions put further pressure on supply in country. Our segmental revenue for the period of ZAR 2 billion is down 10.3% or 7.3% in constant currency terms. We've delivered a segmental profit of ZAR 29 million, up 6.9% of last year. This result reflects exceptional cost discipline across the continent. We had a strong result in Zimbabwe, which I will discuss in the next slide. And the result in Zambia was severely impacted by a further quarter devaluation of 30% over the period against the dollar. And this was further exacerbated by the impacts of COVID-19 in country. Our operational team on the ground is resilient. They have got strong plans in place, and their focus is to stabilize the results. And with the ZAR 29 million profit delivered this half in line with that of last year, they have already achieved it in the first half of the year. The local team in Zimbabwe has again delivered a strong local performance. Their commitment has resulted in strong trade and earnings under very challenging economic conditions. Hyperinflation remains in the country. They have, however, achieved sustained market share growth, anchored by outstanding customer offer and on-shelf availability in country, notwithstanding the pressures of cross-border supply and currency liquidity in country. I'm very happy to report that the trade debt owing to South Africa has now been fully repaid, and the result of that is a significant reduction in the ForEx losses that Zimbabwe operation has been incurring. The fair value of the investment is now recorded at ZAR 62.4 million compared to the ZAR 50.4 million we had at the end of February. We believe that the investment reflects the strengthening underperformance in the currency that now will not be reflected in the ForEx losses in the P&L in future as well as the strong market share growth in the result. Our tax rate for the period has increased from 28% last year to 34.6% this year. This is in line with the effective tax rate increase as we've had at the full year FY '20 result. In line with the increases during that period, this increase is also as a result of the reduction on our share option liabilities as a result of the increase in our equity market pressures as well as the pressures on liquidity in country, and therefore, ForEx losses and pressures on Africa's result. We believe that the tax rate is likely to remain around the 30% level for the foreseeable future. As I've mentioned at the beginning of the presentation, this result ran from March to August, almost entirely under COVID. And as a result, our earnings metrics all inevitably reflects the pressures as a result of these trading periods. On this page, we've set out all the related metrics that is required by IFRS as well as the comparable metrics that strips out the noncash impact of hyperinflation accounting on our results. There's a detailed recon in the appendix in order for everybody to have clarity as to what the differences are, but the number that we focus on as a group is comparable headline earnings per share, excluding the one-off impact of the VSP costs as this will be annualized in the second half of the year. Comparable headline earnings per share of 37.12%, including the VSP costs, is down 56.3% for the year and excluding at ZAR 0.522, is down ZAR 0.386 (sic) [ 38.6% ]. We have generated ZAR 2.4 billion worth of free cash flow during the period, largely supported by working capital inflows of ZAR 1.8 billion. That working capital inflow of ZAR 1.8 billion compares to an inflow of ZAR 1.5 billion last year. It is important to note that it is impacted significantly by calendar cutoff benefits. However, the underlying working capital performance is a very strong and robust one. We have a resilient franchise book, which is down just under 6% for the year, supported by strength in our debt management as well as our very successful conversion program. There has been exception levels of inventory management during the period, mitigating the impacts of COVID-19. We do have higher levels of inventory in the business at ZAR 7 billion, up 18% from last year. And the average inventory days was also higher by approximately 3 days across the period. This was largely driven by the fact that we could not trade our clothing and liquor, with the restrictions in liquor over weekend still remaining. We also have had to do target investment buyings to ensure that we've got the necessary essential goods on shelf for the customer, especially looking at special payment dates. The increase in the inventory also reflects the growth in the business. New stores, 79 over the 12-month period, added 5% to inventory growth and increased centralization in Boxer added another 5%, with the benefit of that increase already reflected in the gross profit margin increase of 0.3%, as I've discussed previously. All of that said, we know that this is an area that we need to focus on. We have made good progress in the half. Through our range optimization program, we have reduced up to 70% of our slow-moving lines. But the team knows that there's more work to be done, and this will remain a focus area. We also focused on our CapEx for the period, ensuring that we only spend on critical optimizing ROI expenses -- expenditure. We spent ZAR 590 million during the period, approximately ZAR 170 million less than last year. 75% of that spend is on customer-facing initiatives, continuously improving our overall estate. More detail on the overall CapEx breakdown is supplied in our Appendix. Our forecast for the year is about ZAR 1.5 billion compared to the ZAR 1.7 billion last year, supporting a very strong new store opening program. The heading of this slide is low debt and stable liquidity. I'm extremely satisfied to be able to say this in these unstable times. You would recall that the Board, as Gareth has also mentioned, prudently decided to defer the full year dividend in FY '20 during April when we did our results announcement as we were dead set in Level 5 of lockdown. That was done to preserve cash in very uncertain times. The team immediately took the task to hand to ensure that we've got strong liquidity and cash availability during this period. Through careful cash and liquidity management, the delay in noncritical OpEx and CapEx spend and the strong working capital management that I've discussed, we have been able to mitigate all the cash and liquidity pressures we've experienced during this half year. The prudent deferral of the dividend was definitely required in the first months of this half. But if we do look at our like-for-like cash position, excluding the impact of calendar cutoff and the dividend deferral, we are now back to the same levels of funding that we were at the end of February prior to COVID-19. We are, therefore, in a very strong position to look towards the dividend declaration. We have also taken advantage of the low interest rate environment to term out some of our short-term commitments into 6- and 12-month funding. The group has no long-term funding outside the 12-month line. We have got no structured debt, and all our facilities is ZAR-denominated. As we stand, we have got ZAR 4.3 billion worth of unutilized facilities currently available. Our prudent approach to cash management has enabled the Board to not only declare the full year dividend for FY '20, but also ensure that the dividend cadence returns with the declaration of the interim dividend of FY '21. Our strong balance sheet has underpinned the dividend declaration. The group has maintained 1.3x cover of comparable headline earnings per share for the full year. And as a result, the full year dividend of FY '20 of ZAR 1.7106 (sic) [ ZAR 1.7306 ] as well as the interim dividend for FY '21 at ZAR 0.1874 has been declared. And dividend payment mid-December will therefore be made to shareholders of ZAR 1.918. In summary, this is a solid result under severely disrupted trading conditions. The underlying strength of our performance is evident from the shape of our result. We have delivered strong trade in core food and grocery across both Pick n Pay and Boxer. Firstly, our sustained underlying improvement in gross profit margin is commendable. We've been able to mitigate the impact of the pressure successfully and maintain our historical improvements through this half. Our resolute discipline over OpEx and CapEx spend has supported this result. The Rest of Africa division remains profitable, and we have solid plans in place against a very pressured outlook. Our strong liquidity and gearing has enabled us to declare not only our interim dividend, but the full year dividend that we have deferred previously. I cannot be more proud of what we have delivered. And I would like to extend my thanks and acknowledgment to every individual in the Pick n Pay group for their contribution. This has been a remarkable team effort. I'd like to hand over to Richard Brasher now to take us through the operational overview as well as the outlook going forward. Thank you.

Good morning, ladies and gentlemen. Thanks, Lerena. Thanks, Gareth. Very comprehensive. I've just got a couple of points to make after all of that. But it's been -- what's the right word? I mean, there's been all sorts of work, isn't it, in the last 7 months. It's -- in the last time we met, we were talking about our results pre-COVID. Now we're talking to you about our results in the heart of COVID and, God willing, we'll be talking to you about our next results about life after COVID. It's been unprecedented. No handbook, no rule book, no real clarity of exactly what should be done where, and therefore, people have had to respond and be agile. And unusually, I would like to just acknowledge the entire grocery industry, our competitors who we fight with every day and compete against. But I think that the industry has done us proud actually. I think we have kept the nation fed. I think that we have kept the lorries rolling. I think all of our frontline staff have gone to work so that others could stay at home during the peak of the pandemic. And I couldn't -- actually, I think the word of the pandemic for me is pride. I think that we can all look back with tremendous pride on the work that's been done. And that includes suppliers, farmers, supply chain, truck drivers and the lot. All of those people, who I think became the sort of fourth emergency service as well as obviously, the doctors, nurses and the first responders. It's been very strange, strange in terms of the fact that it's very difficult to lead when you can't be certain. But I think that what people have tended to show is good courage, brave decisions and a degree of agility that I wasn't sure that large organizations were still capable of. I'll just remind you when I first came to Cape Town, he said, "You can get all the seasons in 1 day." And I think during COVID, we've all experienced the all -- all of our emotions in any given day of the week. We've had new words, social distancing apart from me the fridge. We've had disaster, quarantine, our numbers, second wave, curfew, lockdown, prohibitions. I'm glad I actually managed to get this suit on. Actually, I was quite pleased. And I've asked for this just to be raised a little bit so that I don't have to show you the full benefits of my physique. But it's been tough. And then we've had words like fear, frustration, sadness, hardship, hunger, anger, confusion. But I think on the brighter side, I think what we've seen both in our business and probably in other operations around the country is resilience; determination; courage; innovation is still alive and well; speed, an unusual one. Sometimes things don't happen quickly here. But in COVID, things have to happen quickly. So we certainly found a new word there: Ingenuity, creativity, and generosity, and community and teamwork. So that's my second word, teamwork. I've seen more teamwork in the last 7 months than I've seen in the last 7 years. Necessity is the mother of all invention. So I would just quickly like to thank all of my team as the Chairman, and Lerena has just done. And thank all of our customers for their tolerance and their patience working with us. In other countries, people said, put your mask on and then there's a fight. We've not seen that in this country, not in our stores. When people are politely asked to comply with the rules, they do. Occasionally, we forget because we're sociable animals that we actually get a bit closer to people, but it's usually by a mistake rather than deliberate. So I have been encouraged by the way in which people have been dealing with this pandemic, with all of those strange emotions happening almost every day. But we've kept ourselves busy, that's for sure. We stayed open. We stayed working. We stayed safe, and we stocked our stores every day since the start of the pandemic. Our core retail sales, as you've seen, have remained strong. So anything we were allowed to sell, I think we sold well. And anything that we couldn't sell, we abide by the law. We're a lawful business. We pay our taxes. We power dues. We paid everybody on time. And I'm very proud of the fact that we continued with our processes during the full period that we are reporting on. We innovated dramatically and significantly online with the surge in demand. And despite some of the early challenges in lockdown where nothing was happening, apart from us opening our stores, we did manage to open 42 new stores in the course of the first half. As you've heard, exceptional cost control has been essential for us to actually mitigate against the challenges. And as you've also heard from the Chairman, and I want a special mention to Suzanne Ackerman, who led our Feed the Nation campaign, to actually show that people trust us. I mean a lot of the money that we spend is what we produce internally in our company. A lot - all the effort that we put in is from people in the company, but people who wanted to do good trusted us to do it for them because we've got reach, we've got the energy, we've got determination, and that's how we reached out into the nation into places that many people have never been not in good times, let alone in bad times, and with our partners and our supporters and other charitable businesses gave us their money with the certainty that it would get to the right place at the right time, and nothing was taken from it on the way. So again, I'm very proud of that particular aspect of our first six. No, I won't over dwell this because Lerena's done a good job. And it sort of -- I never want to sound like if you took away all the bad bits, it was really good. But in fairness, the impact of COVID is quite different from the way in which governments have reacted to COVID. And I'm not making a point particularly about this country, it will be true in any nation in the world. Politicians placed into very big pressure to make decisions, and I'm not here to say which ones are right or wrong. The actual impact of COVID itself, the virus, is a lot less, huge in terms of personal cost, an emotional cost. But actually, the restrictions that you've seen in our results in the first half are as a result of restrictions of what we could sell, not on our ability to sell. So I am very proud of what we were able to sell. And strangely, I've been doing this -- some would say too long. I've been doing it 35 years. And although the Chairman mentioned that my departure has been delayed, so you have to put up with me for a little longer. You know I will play to the whistle, and you know that I'll play with every ounce of energy that I've got. But strangely, minus 35 PBT. I never thought in my career, I'd stand up in front people and say, actually, that's not bad. And for me, that's a complement. Okay is usually what you get or probably could do better. But 35, I'll take it. I think it's a good performance, and I hopefully reassure you that we've got a better one on this yet. Now you don't want to really be reminded over the last 7 months, but it is just worthwhile just quickly wondering through this. Obviously, we had that early spike where -- this is a picture of our -- on relative sales increase. You saw the -- everyone filled up the pantries with rice and oil and sugar and the garages with toilet tissue. Then we went into -- obviously, you couldn't get another roll in the cupboard. So actually, it was locked down, and everybody was scared. And so everything dropped off. And in fairness, restrictions were placed on what you could sell. We then started to see the opening up. We started to see opening up in our clothing business. We had the confusion about which pants we were wearing in the morning, whether my summer pants and my winter pants, but the reality is, is that we were grateful because we could sell more. And obviously, that has increasingly unlocked. There's been the long debate, and I'm not going to enter into it on liquor and tobacco, apart from the fact that honest tax-paying legitimate businesses should never be disadvantaged at the benefits of criminals. That's all I'll say. And if it was to ensure that nobody drank too much or nobody smoke too much, which I'm sure was the intention, that wasn't the reality. All it meant was is that the professional companies that are legitimate did what they were told, and the rest of them did what they liked. Anyway, as we see, you can walk through this in the restrictions in sit-down, in restaurants relaxed. The hospitality business, which has been crushed in fairness by COVID around the world, hopefully, one day, will recover to its former greats. But you can see that, obviously, all of these things have an ebb and flow in how we serve the community and sales. You saw that liquor is opened up now up until Monday through Friday, and it's been referenced before. And we hope, one day, to be able to sell it the weekend as well. But what you can see -- and it's not a trading update, but you can see the inexorable rise in terms of our underlying performance, which shows that when we cancel something, we sell it well. We did, I think, maintain public confidence. People continue to come to our stores. I think that Adrian Naude and all the operators and American Boxer and the team, Chris Theron, did a remarkable job in keeping people safe, protecting our colleagues and our customers. We kept stocked. We've minimized the impact of the pandemic, both on our customers and our staff and our partners. And to this day, we sanitize and fog every single store every single night. And we won't stop until the pandemic is done. So people can always be reassured just because the pandemic is sort of taking a break, and it's just going down a little bit. We always know that there's potentially another wave, and we don't want to make sure that we've taken our eye off the ball. So if you look at some of the changes, huge severe pressure on household incomes, and therefore, price and value is never more crucial. And customers are prepared to change their shopping behavior, depending on whether you're the right price or the wrong price. And a particular tribute here must go to our Boxer business. They are the disruptive force in the market, and I love watching them play. Fewer trips, bigger baskets. So if you're loyal, you want to go and do one shop and make it a bigger shop. And that's enabled us to use our data in terms of personalizing offers, personalizing coupons. And that's why Smart Shopper is still the most -- is the biggest and most popular loyalty card in the country. Many people have switched to, obviously, home consumption and obviously the changes, and we've all become bakers and snackers. Baking is probably more wholesome than snacking. But the reality is that this has also given us an opportunity to continue to develop our own brand business, and I'll say a bit more about the surge in demand online and our approaches to that. ZAR 500 million investment on everyday essentials to help keep our internal inflation below that in CPI is good response. And it's something that we knew was going to be required because pandemic or no pandemic, a recession, we came into this on a recession. So we knew that it was going to be a tough year. Smart Shopper has come to the fall, and I'll say a few moments on that. But what I'm really pleased is we've seen increased levels of customer satisfaction. Our fan scores during the heat -- the peak of the pandemic have never been higher. So I think customers' appreciation of the work that our staff do at the front end and at the front line was remarkable. And we've seen strong improvements in what they think about our value, and we've seen good market share growth in edibles, perishable and fresh and positive growth even in areas like GMD after the restrictions were lifted. Our customers love Smart Shopper. It's been around for 10 years, it's not the new kid on the block. But they love it. They voted it 8 years on the trough. I don't know what happened to the first 2 years, but for the last 8 years, they voted it the most popular loyalty program. We've got 7 million active customers. We must have issued the best part of 12 million to 15 million cards over its lifetime. And here's the interesting thing, 10 years on, this 6 has achieved the highest level of participation in our business. We're not bored of it. Our customers aren't bored of it. We're getting better at it. We're loving it more. They're loving what we're doing. We delivered the opportunity to save ZAR 2.5 billion to Smart Shoppers through Smart price combo deals, personalized discounts. And we issued nearly 2 billion points. So anyone that says that our card is pointless, 2 billion points. That's money in people's pocket. And what I have noticed on all the coupons is people are really searching, reaching out for value on things that they actually want. And we have seen participations and penetrations and redemption levels go inexorably up. And I think we're going to see even more of that in the second half. I mean 8 years ago, I said that we were going to get bigger in home brand. And here we are, 8 years on, 1/4 of our business now has got our name on the packet or a name that we own. And I think that's a tribute. We've continued in that journey, another 550 new lines are redesigned products. We've seen a dramatic increase in Boxer own brand. They're up -- they increased their participation by 3% just in the first half, and they're 22% of their turnover now. And when you look at some of the participations -- and this is not a challenge to brands, I love brands. I think brands are great, grew up as a marketer, but they have to be good brands. It can't just be a name. It can't just be Richie's brand. It has to be something that really means to think. And I look at some of their category participations in Boxer now achieving over 50% of the turnover. Now very few things have really thrived in COVID but innovation has, and we're seeing that in technology around the world and the change in people's behavior. We saw that the online sales obviously grew exponentially, it went up to a point that you breach your capacity. But we managed to increase our capacity. But even then, we couldn't meet that sort of surge of demand fully. And I don't think anyone else could, not here, not domestically, not internationally. But it has changed people. They are more prepared to actually think about technology, think about convenience, think about safety. And I don't think that will change even post-COVID, and therefore, this is very important. So today, we do announce that we're acquiring a partner who's working with us for the last 1.5 years, which is the BOTTLES Company. It's going to join the Pick n Pay Company and help drive our online business even harder than we've been driving it already. We are still singly the largest online grocer in the country, and that means the continent for whatever that's worth. But what it does mean is we've now got 2 depots that can deliver a full demand service to our customers. We can do Click n Collect at our stores. And now with the on-demand app, which we've been working in partnership with them, will be fully embedded into our online operations. So I'm very excited about that, and I welcome the team to the Pick n Pay Company. A special shout-out also to our franchisees, come at the moment, come with the franchisees. They are, without doubt, the most determined traders, innovators and challenges of us and me, which is right, is that they -- 150 franchise stores went online. I remember getting a phone call saying, Mr. Brasher, could you comment about your drive-thru online business? And I was short for words on that, which is not often. And I said, I'll have to go and look into it. So I found the online team and I said, have you got a drive-thru? No, no drive-thru. Good because I thought I had known about it. Anyway, we did have a drive-thru. It was one of our franchisees. What a remarkable business. And whether it's been through Mr. Delivery or Uber Eats or just a fax, a telephone, a carrier pigeon, they've managed to find ways of delivering to their customers. And I can't exactly give you the number, but it's significant. And that -- I think that says everything about what local retail is all about and why I'm a big fan of franchise. And although there seems to be some sort of competition about who's got the [ appiest ] app and who's the most popular, I would just like, for the record, to say the BOTTLES has got the higher score with the most number of people who voted for it by about 3:1. Just for the record, I don't know much about these things, but I do like to go and check when someone has challenged us. And in the spirit of innovation, I also want to announce today that we intend to launch Pick n Pay Mobile and [ Boxercom ] in the not-too-distant future. There is no doubt, we all know this that data is the oxygen of individuals and communities now. I don't think young people actually talk -- I mean maybe their mails won't work eventually. But they can -- they wouldn't actually make a phone call, what was that all about? And then it was what's happened then -- but the reality is data now is the crucial elixir of life. I think it's important because it's helped people be connected during the course of this pandemic, friends and family. It's important for entertainment, and it's important for education. And therefore, like all things that customers really want, it's our job at Pick n Pay Group with between Boxer and Pick n Pay that we deliver more data for less. And that's our intention is that we're going to -- shortly, we'll announce our partners and how we're going to do this. But in effect, if you join Pick n Pay Mobile or you bought -- you join [ Boxercom ] and you shop in our stores, you're going to get more data for less. And on occasions, you're going to get it for free. So I think that's going to be something fun to look forward to in the coming months. Briefly on clothing, I'm conscious of time, we've made good progress despite the confusion about which pants I was wearing. And as we've come out of lockdown, Hazel Pillay and the team have done a great job. We've managed to switch some of our production to local production. So we managed to do 2 good things at the same time, shorter order lead times, better control of our stock and also much needed work in the economy. And our local production is up 30% year-on-year. We plan for it to be significantly more. We've shown good market share growth, especially in women's wear and kids' wear. And we have launched an online business in clothing a few months ago. It's going quite nicely, and people are buying twice as much online than they would buy in a single purchase in our stores. For the record, we've got 400 -- 250 clothing stores stand-alone, but we actually sell clothing out of 400 stores. So we are rapidly becoming a reasonable player in this market, and we have big ambitions. And my wife is a better follower of fashion than me. Although it's a tribute to Kenzo, the famous Designer, sadly, he passed away, a Japanese designer. But this is my favorite tie for anyone who is interested in it. But I think that we've now launched a mentorship scheme with Gavin Rajah, which I think is really exciting to nurture local talent and local designers. So I don't have to go to Japan to buy a tie. I didn't actually go to Japan to buy the tie, by the way, not that profligate. Pressing on quickly, flexible and winning estate. We found in this period that we had -- we could look really closely at the balance between Boxer and Pick n Pay, company-owned and franchise, the different formats that we run. We opened 26 owned stores, 14 franchise stores. And even in the difficult circumstances in Zimbabwe, we opened 2 further stores. And what we started to do is make more decisive action about the most appropriate format for the most appropriate brand. And that has resulted in us converting some of our stores, either from franchise to corporate; corporate to franchise; and actually for the first time, from Pick n Pay to Boxer. And I think you can see more of that from us as we make sure that we have a very flexible and agile property program run by Izak Joubert, so that we actually make the very best out of these opportunities. I need to congratulate our supply chain team. We didn't get to shut depot, which seemed likely, but I think the work that they did on hygiene and controls, I think that the management, especially Hennie Kruger, who's our operations manager there, has done a remarkable job, a remarkable job. And with all those restrictions and the changes to make sure we've got the right stock in the right place and the right lorry at the right time has been remarkable. Boxer have done a great job as well and have even managed during that period to start the opening of a new depot in Polokwane, which actually had its first deliveries, I think, last week. We've achieved a wage agreement on all sites with our partners over 2 years. So we're really excited about what we can do when we can sell everything all of the time and get after the festive period in the coming weeks. Boxer is, without doubt, the fastest-growing limited range discounter, not just in South Africa, but in Africa. And I'm very proud of what they do. They've got industry-leading sales growth. They deliver exceptional value. They're first to the ball, they're first of the line out every time, and I couldn't be more proud of the work they're doing. They've gained market share, especially in some of the core commodities, and they've expanded their reach into more areas of fresh and other categories. Nearly all of our Boxer stores are up to snuff now in terms of the new format. We've got 350 stores with a plan for a lot more. And the completion can happen now, now that we are opening our depot. So that's all very good. And that takes Boxer to nearly 50% of total centralization, but probably the best part of 80% on the grocery offer. Now we touched on this before, so I'm not going to labor it, but it is a tremendous achievement. And there are so many partners. I couldn't name all of them, but I know that someone who's close to all of your hearts, Siya Kolisi and Bryan Habana, have been very material in helping with the work and through their foundations and our support; and Andrew Mills, who actually is the marketing Director of our Boxer business. Everyone keeps on telling me that I've got to watch Chasing the Sun. I have watched it. It's a remarkable program. England still lost. But it was a reminder of the spirit that actually is capable in this country, and I think it's something that I've seen actually in this process of people of reaching out. And especially the franchisees, they're remarkable at this area as well. Before you sigh, I'm not going through the charts, but it wouldn't be complete if I didn't put it up there. You always have to have a plan. We've got one. It's a good one, and it's getting stronger, and we've implemented more of it in the first half than I think than we did in the last 18 months. Nearly there, concluding. Project Future is a plan to win customers in a changing world and by God, has it changed. And I just want to make a point. Reducing cost is not just an end in itself. People sometimes say, "Oh, are you going to save yourself rich, are you? Or you'll just cut, cut, cut?" No, we have to become always more efficient, always more effective so that we can give lower prices and better value. And let's be honest, everybody needs that even more and sadly, going to need even more as this recession takes over the pandemic. I think we have become leaner, fitter, faster and more competitive in the process. And on our initial target to reduce cost by ZAR 1 billion over 2 years, I think, is modest. And I'll make a couple of comments on that. But of course, we also need to be more agile. The winners of the future will combine knowledge, flexibility and speed and therefore, this has been a real crash course the last 6 months. And I think that the team are well up for it. I think we've done a lot of exciting things. Our technology actually is cutting-edge compared to many people around the world, let alone in this country. And therefore, Project Future isn't so much something to be feared, it's something to be embraced because it's actually in the future, not in the past. And sometimes, hanging on to the past can restrict your ability to be successful going forward. Now this looks like an ugly chart and I'm told because it is, not because it's ugly, because it actually gives us -- gives more information than they're usually reminded to do. But I know I've been having a lot of discussions with shareholders and analysts that we should give out a bit more. So here we go. So here's some of the achievements. We are on track to deliver at least ZAR 600 million of our ZAR 1 billion target this year. We did complete a voluntary severance program and office review, and that's all completed and that has reduced the number of roles in the business. But I would also remind you, over the last 7 years, we've actually employed 20,000 more people because we've expanded our reach both in Boxer and in Pick n Pay. New store disciplines have reduced our fresh waste by 20%, through good technology in-demand planning and also great operational control in the stores. With tighter working capital management despite the challenges of COVID, and I think that will come right in the second half when we get a clearer cadence on what we can and can't sell, and strict controls on property cost escalator. We reorganized our business a year ago into Core, Value and Select divisions, and that's really starting to pay dividends. And that's making sure that we tailor our business more effectively to the communities that we serve rather than have a one-size-fits-all that goes around the country. The underlying values of the company are the same everywhere, but the way in which we turn up and deliver for customers has to be tailored to their requirements. And the remarkable transition from full-on offices to remote working, certainly the future of work is going to be different. We're going to work effectively. We're going to work wiser. We're going to work more efficiently. And hopefully, on occasion, people can also be happier, especially if they were coming to Cape Town from the northern suburbs. So there's like 4 hours back. So we feel that there's much more to do. And therefore, in final conclusion, despite the restrictions, and I think that we've had a strong half year, and I believe we're going to have a stronger second half. If the first half was more about sort of defend, save and protect, the second half is going to be a little bit more attack and be determined in the trading environment. Our half 2 priorities are very simple. We have to stay continually vigilant on COVID-19. This sucker's is not done yet and we're seeing that around the world. Well, it doesn't mean that we will have a second wave but we at least have to brace ourselves for the possibility, so we will be prepared. Tight cost disciplines are essential now to maximize support for customers, and they're going to need even more of that. I think growing our Boxer and Pick n Pay value and core businesses are crucial because that's where the largest area of the market is and will grow the most. And we will land Project Future. In fairness, I'm certain that we will, a more modern streamlined and cost-effective business that's fit for the future. And as you've seen, we are accelerating our online and services to create a flexible business and more flexible ways for customers to shop with us. So that's it. That was our first half. It was emotional, rewarding, challenging, terrifying, but ultimately, I think, successful. And I'd just like to thank everyone for their patience and support over the course of the last 7 months. And I'm very excited about seeing the end of this virus, seeing the return to a new world that takes the lessons that we've learned in these tough times, but actually gives us our flexibility, our lives and our humanity back in ways other than purely charitable giving and doing good deeds and good work for -- to make good business. So thanks very much. That's all from us. I think we're going to open it up to questions now. And good luck and stay safe.

Thanks, Richard. We have a question from Jiten Bechoo with Avior. A little bit of insight on how we're doing in terms of market share in the lower income segment. And how many Boxer and Pick n Pay value stores we're looking to open in the next half?

Well, I think that we're doing well. In fact, I'm on the certain that we're doing well in the value section of society. [ Of course they have value. ] Less affluent society, which is the biggest section in this country, Boxer is growing market share. Our value stores actually performed very well in the first half with stronger growth. In fact, as we were supported by the government investment in the SASSA grant payments, so we have to be mindful that we don't sort of overplay our own genius. I think that although COVID had a big impact on everybody in society, the impact, from a commercial point of view, as much of the money was channeled towards the social grant payment. So we've all benefited from that. In terms of the number of stores opening in the second half, Boxer has got a very significant opening program with a few conversions from Pick n Pay into Boxer. And I think the overall number, you might help me with that.

45.

45 is...

Across the landscape.

Across the group.

Another question from Jiten. Where can Boxer centralization get to, notwithstanding the limitation of fresh centralization?

Well, I guess that's the reality. I mean, I think that we're nearly there on our grocery. I mean, remember, they're a simple business because they carry a couple of thousand grocery items and therefore, long meadow depot for Pick n Pay is a very different animal to a Boxer depot. But the one that we're opening up in Polokwane gives us plenty of capacity there and allows us to further reach into that region and area. And I think we clearly have partners who deliver our fruit and veg and deliver our meat operation and some of our perishables, which are not. So this -- the Boxer distribution model is not a multi-temperature depot site. It's a grocery site. And -- but that's really important because it has to be the most efficient on a very tight group of lines. But I think they've made remarkable progress, to be honest. And there's more to be done in some of those other areas. But in terms of grocery, I think we're nearly there.

And a slightly different question from Jiten in terms of Project Future. How much of the ZAR 1 billion cost savings have we achieved already and from where will the balance most like to come?

Well, I just gave him the number. Maybe ask the question before we knew the number. Everywhere, if I'm honest. I think what's really interesting about a business, especially a grocery business, is that you can always do more. And when you open your mind to the possibility, and that's what I've seen from the team who've done a remarkable job, is opening their minds to the possibility that we can run things differently. COVID forced us to, but now we're into the mood of doing things differently. We've got a long list of things on our books, which will easily take us part our first ambition of Project Future, which we announced back in January of this year, which seems like a lifetime ago.

A question from Sa'ad Chothia at Nedbank CIB. How much of the ZAR 150 million COVID costs are likely to be repeated in H2 and FY '22?

The COVID cost is ongoing in the business. However, we have been working on ensuring that we do incur them as efficiently and as effectively as possible. We do have a new base, but we're working towards the mitigation. So depending on how the reality of COVID plays out as well as government restrictions around that, it is not that clear as to what the level would be. What we can do is commit to ensure that we mitigate them as soon -- as much as we possibly can.

A question from David Fraser of Peregrine Capital. Can we clarify our comment that the lack of liquor sales was GM dilutive, gross margin value dilutive?

Can we clarify, sorry?

Can we clarify our comment that the lack of liquor sales was gross margin dilutive? And then he says, please correct me if I'm wrong, but my understanding is that the liquor category has a lower gross margin percentage than the core food business.

Well, parts of it do and parts of it don't. The underlying profitability of our Liquor business is an enhancing part of our business. So without breaking it down and giving him a full P&L, you can be confident that what I'm telling him actually is the truth. Some of it a bit like tobacco. Tobacco is sort of low key, high value, low margin, but it's very useful for things like supply chain. So you can't look at it just as a binary thing as what was your gross margin and what proportion did you get, because you have to look at the P&L of the individual category. So that -- hopefully, that helps with that question.

A question from Jessica Bates at STANLIB. If the working capital timing tailwind is material, can we give a sense of what the free cash flow would look like if we normalized for some of the timing benefits?

I think it's important to understand that the balance sheet is a moment in time and that, therefore, there is regular cut-off impacts in our environment. I think what we do need to focus on is the fact that we have been able to bring our net funding position on a like-for-like basis back to what it was at the end of February, fully mitigating the impacts. As far as a forecast is concerned, again, given the uncertainty of trading conditions at this stage, it is very difficult to do. But the team has got levers to pull in order to ensure future benefits that could mitigate any further impacts in the second half.

Two questions from Thapelo Mokonyane from Investec. The tax rate around 30%, is that what we believe to be true? And should we expect a similar underlying gross margin improvement of around 60 basis points in the second half?

Richard, I'll take the tax rate, if you want to take the one about profit. Yes, the remaining pressures, as a result of hyperinflation accounting and the currency pressure specifically in the Rest of Africa, will remain putting pressure on our tax rate. And for the foreseeable future, we see a tax rate ahead of 30%.

Was there a supplementary for that? You're looking at me.

I am. It was the question on the gross margin. Thapelo is wanting to know, should we expect a similar underlying gross margin improvement of around 60 in the second half?

Who knows? Who knows? Look, the reality is it depends on what we can sell, how much of it we can sell because, obviously, it all comes out in the mix, as you've pointed out in the previous question. We want to be competitive. We want to drive our turnover, but we need a P&L that can add up at the end so that all stakeholders feel rewarded by the experience. I think that -- I think last year, on the GP, it went up quite a lot because of structural things that had changed, Boxer's centralization of distribution and improvements that we've made in the way in which we were running the business. And we think -- I think back then, we said that probably as much as 0.6% or 0.7% was baked into the base. And I think we've demonstrated that to be true, notwithstanding the impact of COVID. I think if the market will allow us, I think I'm unlikely to want to put it all into GP and tranche that shoots straight to the bottom right-hand corner. I'd rather invest it. But that's -- this is like Formula 1. You want to go around the track as fast as you can, but you don't want to go off it. So I think we're going to have to feel our way through the second half because we've got this tough recession coming. We've got tough competition out there who won't want to let us have it for nothing. And I wouldn't be writing in a 0.6% GP increase, but I'm not talking about writing one down, either.

A question from Paul Steegers at Bank of America. What is our outlook for internal price inflation for the full year? And are there any category inflationary pressures on the go currently?

It's always hard to tell. I mean, if the reality of exchange rates and world commodities means that it's not always within the gift of South Africa to determine the price of rice because South Africa doesn't actually produce a lot of rice. And therefore, the harsh reality, despite whatever government say you meant to do, the product will go around the world to the place in which the people who produced it thought they got the best value. And therefore, it is very hard to predict. I think that we have, as an industry, continually managed to control inflation, I think, now for 4 years. I mean forget -- correct me -- might stand corrected, but I think that this is one of the longest periods of stability of inflation in basic food commodities in this country for the last 4 or 5 years. I mean, I don't know, but it certainly feels that way. I mean, remember, a couple of years ago, we had nothing, and then 1 year, it was negative. So I don't think -- I don't feel like it's sort of -- it's on a slingshot and it's suddenly going to go straight through the stratosphere, but it's hard to tell at the moment with so many uncertainties out there. But we're comfortable where we are, and we think that we can control what we're doing, but I can't control world markets or the exchange rate.

A question from Stephen Carrott at JPMorgan. As we move past the lockdown, might it be reasonable to expect that H2 would show a positive year-on-year earnings growth?

We live in hope. I think, we -- look, I think the work that we did in the first half means that our second half we're going to be stronger because the reality is that we've done enough. We haven't done everything. We're going to do more. But I think that we're well placed.

A question from Funeka Maseko from Renaissance Capital. Please, could you provide a more recent update on the inventory buildup, especially related to nonessential categories? Given that most of the post results period has been under less restrictive lockdown, how quickly can we expect the stock to revert to a more normalized level?

It's getting there, to be honest. I mean, look, if you've got liquor stores, and as everyone keeps telling us, the bottle isn't that always that cheap. If you've got liquor stores full of liquor, you've got a depot full of liquor, and you've got no sales, then you've got a lot of stock. And when you open it up, it obviously -- stock actually starts to flow, cash flow starts to improve. Same on tobacco. Same on GMD. Same on clothing. The reality is I think that our ability to manage working capital in the second half, all other things being equal, is for us. That's within our capability to do. What we can't mitigate for is what happened in the first half, where someone switched off 20% of our turnover fairly immediately, and we were still sitting on the stock. So I think that, that's flowing through now. I think that our working capital will be in good shape in the second half.

Another question from Paul Steegers at Bank of America. Although we don't separately list our online business, could we give an indication, is it profitable? Does it work for us?

Well, I go back to 1990-something, and lots of people claim lots of things about online grocery. But even if you are the most highest tech company in the world, I'm not sure whether Amazon is making money out of online grocery through Whole Foods, I think that at best, I've seen it that people can say that they've made a bit more money because they made a bit of money, but it's not traditionally been a place to go looking for profit. But it is part of the future of the industry. So we have to learn, which is why we've been in a modest way, and we're accelerating our interest in it as other retailers are around the world. So is it possible to be profitable? Yes, but not even from pure plays. I mean, forgive me, but none of the pure plays make any money, but people like the equity upside on the stock. They didn't pay dividends by and large, either. So we just have to be sensible in what we're doing. I think that there's an opportunity for us to grow. I think in the past, most online grocery operators have lost money because basically, you do all the work and the customer stays at home. And therefore, people's ability to pay for all the work that you do is restrained, especially if competitors decide to say, "Well, I'm going to do free delivery," because then you're definitely stuffed. But I think that we've got a good plan. And I think that if we don't make money this year, we won't be far off.

Another question from Jiten at Avior. Could labor rescheduling and consequent wage reduction have mostly offset the direct COVID-19 costs?

Could what, sorry?

Could labor rescheduling and consequent wage reductions have mostly offset the direct COVID-19 costs?

It's too hard to separate these ins and outs. I mean, these things are happening real time. So you could end up with the peak of the pandemic, you might end up with 15% absenteeism in a store. You've got the changes in trading hours, and they've been tightened and then relaxed. All I do know is that Adrian Naude, who runs all our retail operations, and his senior team and all of the people in the store have just done a remarkable job. How I could separate out that this bit was because of this and this bit was because of that, I just think that what we've done is a great job in mitigating it and we'll have to see. We're not incurable romantics. We're not assuming that everything was someone else's fault and nothing that we did was bad and everything everyone else did was bad. But we feel that there'll be things that you -- we had benefits, if there is such a thing as a benefit from COVID, because of certain restrictions meant that we didn't invest in levels that we've invested in the past. So we have to be very measured about it. But I think what we look at is we look very closely at our income statement so that we can see exactly what we can afford to do to give the services required. And maybe at the next meeting when we conclude our full year results, maybe we can answer that question a bit more clearly. We have to get through COVID first and know which did really what to what.

Jeremy Gorven from Stonehage Fleming. Can we discuss the consumer disposable income shift in favor of Pick n Pay's core business? Growth has been more than 9.9% in South Africa while the economy has declined sharply.

Sorry, I missed the first part of that. I think I -- I must be going deaf.

It says, could we discuss the consumer disposable income shift in favor of Pick n Pay's core business?

Okay. Yes. Well, look, when the restaurants are shut and everyone's at home and quite a lot of society wasn't even going out to work and you're eating 3 square a day, it's not unusual for you to actually consume more in the home. And if you consume it more in the home and you only want to go to 1 or 2 locations so that you could stay safe, that inevitably helps the modern retail in the way it's been set up and because we've got an efficient and effective supply chain. So people ask me, did they substitute from a bottle of beer to a cream cake? I have no idea what goes on in people's heads. All I know is that when we opened up the liquor business, the liquor started to sell again and we were still selling cream cakes. People aren't going on holiday. People aren't buying new cars. People aren't changing their fridges. People aren't moving house. So there's lots of things that customers are doing in this time period, which probably means that actually, you don't have to spend too much more on your grocery shop to have an enjoyable time compared to some of the other things that they thought was part of their enjoyment, which used to cost a lot more. So I think what they've liked about it is we've stayed in stock of everything that was essential and we've made sure that our promotions are really keen and our communication is really clear. But I'd struggle to define it in more detail than that.

Nick Webster from HSBC says the real volume growth of 4.2%, can we give any color as to the relative growth performances of Boxer and Pick n Pay?

No. Well, one's a lot more than the other. You can pick which one you think it is.

Another question from Jiten at Avior. Do we intend to fine-tune and expand our wholesale strategy for Pick n Pay?

Well, we always look at -- we've got a small but healthy wholesale business. I think the wholesale industry is changing in South Africa. I think we always have looked at it closely. We're aware of what's happened around the world. Adrian Naude runs it as part of the retail operation, and I know he's a fan. So I don't -- I wouldn't want to make a big announcement that we're suddenly going to go and sort of buy Massmart's wholesale business. But we -- it's an important business, and we look at it. We look at it partly to help things like our franchise operations and our partners and also to help in terms of the financiality of how we buy. And it's important, but not so significant. So I think it's a question mark for us for the future.

A question from [ Norfolk Winder ] from Resco Asset Management. Given commentary on value being the highest growth category, can we speak to market share dynamics in the core pre-compare food retail business, excluding Boxer?

Look, the problem -- as we disclose a little bit more, which I think we have today, and we've tried to make it as clear, it doesn't mean that therefore, we'll then continue to keep disclosing and disclosing until you can work out what my inside leg measurements are and my hat size. Because the truth is, that's confidential information to us. All I can tell you is that the opportunity in the LSM, 4 to 7 is a crucial area of the economy. And I've shown in previous presentations that there's a great growth opportunity. We've been refining our model so that we can grow faster using Boxer, but also by defining our stores into core and value and select. We can also grow those stores because we can take a lot of the lessons that we're learning and historically, we may be not given enough attention to. So give SASSA grant payments. I don't think that we were probably in stock of the right stuff at the right time. Now we are. And it's remarkable how that helps. I think that because the government wisely spread these SASSA grants over a period, it means that you can cope. Because obviously, in the old days, is everybody came on the same day. It was pandemonium. You couldn't even get into the shop to fill the shop. The customers were queuing up for the SASSA grant payments. And therefore, nothing more powerful than a good idea that's come -- time has come, i.e., spread it out and I think people are enjoying that, and I think it helps us as retailers do a better job. So I'm very confident about that sector. I'm very focused on it. But I can't -- I'm not prepared to segmentally report down to sort of what's the Pick n Pay market share in Polokwane last week.

Question from Nick [ Criefer ] from Signal AM -- Asset Management. Can you walk me through the cash flows from Zimbabwe? Do we own U.S. dollars? And what exchange rates are used to convert these dollars to rands? What can you do with that one?

We have an associate in Zimbabwe. And as at the end of this half, that associate no longer has any debt denominated in anything other than Zimbabwe dollars. So that exposure has completely been eliminated, and they've completely repaid the debt that they owed us in South Africa. The exchange rate we use for the translation is a conservative one. The interbank rate is currently at the end of our half round about 83 to the U.S. dollar, and we've used one more conservatively looking at variance indexes that are at play at 110. I hope that answers the question, but happy to take it more offline if there's more technicalities.

No. Don't.

And the last question from Jiten, because he did send quite a few.

Jiten, you've been busy.

I have excluded, by the way, the multiple congratulations that have come through online. I've excluded those. So I'll say them now, but there have been a lot of compliments about the performance. But a question from Jiten. Can we give any insight as to what level of our franchise base we'll be targeting for conversion to corporate-owned stores and over what time frame?

No, we don't work like that. We don't set a target. We find an environment where -- in fairness, sometimes we'll take a corporate store and we convert it into franchise. And sometimes, depending on the franchisee, that they may have felt that they needed to be doing something else, and then we choose which brand they will be most effective in. So there is no target. I think if I stay here for 100 years, people will still be asking me whether I like franchise or not. I do. I said so right from the start. And there's no targets. It just so happens that some of the stores -- we understand more about the profitability of each individual asset, and therefore, we can make a very good business decision. And that's fully aided by people like Adrian, who actually has worked with the Boxer team, who's worked in Pick n Pay. He runs the stores. And in fairness, the teamwork that I was talking to before is, if the guy can put points on the board, give it to him, don't die with it. So we've broken down some of the historical sort of restrictions about regions. And therefore, we've created these broader groups, value, core and select. And we've broken down the barriers between hypers and supermarkets and express stores and franchise and corporate because, to be honest, they were built in an era where we competed amongst ourselves. Now we're competing in the marketplace. So we're one team on it.

I'm going to end this question session with a -- to keep you on your toes with a little bit of a left field question. What does it cost to build the average Pick n Pay store and can you discuss the recent trends in these costs?

We don't have an average. We have individual stores, and they can be done for relatively little. And then if you want to build one on a nickel, get your checkbook out. Oh, you can't. Sorry. Check's still out. I don't know, what are we allowed to get out now? An EFT? Look, the truth is that -- it's how long is a piece of string? I think what we have seen over time is, obviously, the cost of doing business with -- has gone up rather than down. So whether it's municipality rates, electricity costs, water costs and rentals, despite the comments from the Competition Commission, the reality is that, that's always been a tide that was coming in. With the weakness of our currency, some of the things that we need to put in stores ends up coming from somewhere else, so they cost a bit more. And therefore, our continual effort is to make sure that we try and reverse the tide. And I think that the property team have done a remarkable job. Obviously, I do know what all the numbers are, but I'm not at liberty to present them in public like this.

That's the end of the question time. Thank you.

Okay. We're all done? Is that...

Thank you.

That was it, was it? Good. All right. Excellent. So I hope Jiten got what he was after. He's obviously been storing that one up for 6 months. So we'll love you and leave you. Stay safe. Thank you for supporting or challenging us. Either which way, we accept it. And thank you to my team for, I think, has been a solid 6, and we're looking forward to making Christmas a little happier for everybody than may be the last 6 months have been. So thanks very much.