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

Good morning. Welcome to our end-of-year results for the Pick n Pay Group. This has been an unprecedented and challenging year for everybody. We all had in March 2020 to adapt instantly to a new digitized and constantly changing situation and ways of working. Pick n Pay has always been a positive force in South Africa, and our role has never been more important than over this past year. Our responsibility has been to keep customers and staff safe and to fulfill our responsibility as an essential service in feeding the nation. I'm enormously proud of the work our team has done in meeting these challenges. They have all risen to the occasion and earned the confidence and trust of all Pick n Pay's customers. We thank them for their loyalty and for their understanding. We also thank our suppliers for helping us to maintain an uninterrupted service for our customers. But most of all, we thank our staff for the unerring commitment and hard work. And we think fondly of those members of staff who unfortunately, haven't survived the pandemic. And we think of them and their families and all the other people in South Africa at this very sad time. I have been consistent throughout the last 10 years in drawing attention to food security. This past year, it has become front and center of everything we've had to look at, with the concerns about how much COVID would disrupt our various supply chains. It was pleasing to see how well the South African food chain held up over the past year. And I believe this had much to do with our emphasis on local supply and the ongoing investment in our suppliers into the domestic supply chain. With so many more people going hungry during the pandemic despite increasing government grants, I'm pleased that our Feed the Nation campaign has helped so many communities and organizations in great need. We have raised over ZAR 136 million from our resources, donors and our customers for the most vulnerable in our country. This has enabled us to distribute more than 28 million meals for impoverished South Africans. The Feed the Nation campaign was so successful and grew at such scale that in June last year, it was registered as an NPO called the Feed the Nation Foundation. The Feed the Nation Foundation in Pick n Pay has been at work again this week, providing support for the tragic fires in Cape Town and at the Charlotte Maxeke Hospital in Johannesburg. And it's amazing that this week alone, over ZAR 200,000 has been raised for these various causes. This has been a remarkable effort, and I'd like to call out Suzanne and her team for the incredible job that they have done. Government needs to further address the hunger and poverty facing South Africa post the pandemic and needs to readjust the issues around job creation and the various programs to reduce poverty in this country. We are doing our bit to try and alleviate and we call on the government and other businesses to do the same. Like many leaders, I'm concerned about the speed of vaccine rollout in the country. The longer it takes, the longer South Africa remains unprotected from this terrible virus and the greater the risk of a third wave and the possibility of new, more dangerous virus mutations taking hold. We have offered to do whatever we can to assist in the efficient distribution of the vaccine when it becomes available. Government needs to communicate clearly and frequently to keep citizens informed and trusting of this process. As an aside, I believe that the lost sin taxes that the government lost over this period could have funded all or part of the vaccine rollout. Transparency applies equally to all other decisions such as frequent restrictions on the sale of alcohol that we've seen for about 209 days over the past year. A recent example was the alcohol ban over Easter only at off-premises retail stores while allowing larger groups of people to gather. Quite how allowing people to drink at bars and restaurants and taverns was somehow safer than having a glass of wine at home was never made clear. We hope that decision makers start looking more closely at available and reliable data to make more informed, evidence-based policy decisions and then communicate this openly and clearly in order to earn the confidence of South Africans. And the government should avoid making political decisions, particularly during the state of disaster. On a positive note, the founder of Pick n Pay, my father, Raymond Ackerman, turned 90 in March. It was an exceptional celebration and gave the group an opportunity to reinforce our culture and our values. We marked the occasion with the family, all our staff and, of course, gave our customers good reason to celebrate, too. When we finally put this pandemic behind us, the challenges of climate change, environmental degradation, waste, poverty, water scarcity to name, better fuel, still all be with us. My passion lies in ensuring that we have a strong focus within the Pick n Pay Group in environmental, social and governance issues, what is currently called ESG. These have always been integral to Pick n Pay's core values. A strong focus on ESG does not require a trade-off against core business priorities. Clear action plans on environmental and social priorities strengthen the operational resilience of the business and by reducing cost has also strengthened our competitiveness. Pick n Pay has always believed that doing good is good business. As an example, I'd just like to draw attention particularly to electricity, which is a big focus at the moment. We have saved over ZAR 2 billion in electricity costs over the past decades just by doing the job better and more intelligently. I will expand more on ESG and what our commitments and targets are at our AGM. And I will also comment on compliance and listing requirements when we do our annual financial statements -- Chairman's report as we think these are issues that need to be elaborated on in South Africa. Today is a significant occasion as we say goodbye to Richard Brasher. Our company has been transformed in Richard's 8 years as CEO. Richard, you have stabilized the business, changed its trajectory and have put us on a path to sustainable long-term growth. Thank you for your enormous contribution and for the teamwork. Thank you for your total commitment in each of the more than 3,000 days you have led our company, and I'd like to thank you from each of our nearly 90,000 team members, that's 90,000 team members. Thank you for the way you have led the business with your integrity and putting people first. Fittingly, your final year has been the best. Just when the company needed strong leadership, you have calmly and skillfully steered the company, our customers and our people through unprecedented challenges. So thank you all you have done. The whole Pick n Pay family wishes you, Helen and Jack the very best in the next chapter of your family story. Welcome, Pieter. As one chapter closes another opens, and I'm delighted to welcome our new CEO, Pieter Boone. We conducted an extensive local and global search for Richard's successor. And Pieter was the outstanding candidate. He has great global experience of leading retail businesses in tough developing markets. He understands the importance of running lean operations, so to give more to our customers. And he has a strong record of growth and innovation even in the most challenging of circumstances. He believes in leading through people and building winning teams. Pieter has been quietly listening, learning and getting to work over the past few months. He loves South Africa and shares our belief in her potential. And most critically, he is passionate about Pick n Pay. He shares our confidence that we are on the right path and the right growth path and have a great physical and digital platform on which to build in the coming years. A warm South African welcome to you, Pieter. Thank you to all of you again for joining us. We're very happy with the results. Lerena will be going through the details in a few minutes; and Richard will be giving his commentary thereafter. But this is one of the best results we have had in many, many years, and I would like to commend once again, our team for putting together the results, but also more importantly, for delivering it in these most trying of circumstances. I'd now like to hand over to Pieter Boone, our new CEO, who's got a few words he'd like to say to us. Thank you, Pieter, and welcome.

Thank you, Gareth. Thank you, Gareth. Thank you for your kind words. Ladies and gentlemen, dear colleagues, good morning. I'm delighted in meeting you all, those here in the room and those via the recorder, unfortunately, still virtually today, but hopefully soon in person. Yes, I'm excited about joining Pick n Pay, and I would like to thank Gareth, the Board of Directors and the family Ackerman for putting the trust and confidence in me in order to lead this esteemed company. I've worked over the last 25 years in different parts of the world is what I call my personal journey. Mid-20s leaving your comfort zone, what I call, your home country, your home city, Utrecht, in order to start your professional career in Asia, spending 14 years in Asia from there on, made a trip to the other side of the globe. Latin America, 4.5 years, then the never dull moment is what I always call Russia with all its highs and lows and then back to Europe. I particularly like leading businesses in emerging markets. And yes, emerging markets do have their challenges, but the opportunities are even greater. I'm very optimistic about the opportunity for South Africa and for the Pick n Pay Group within and beyond South Africa. I'm passionate about the values of the company. Pick n Pay is clearly the loved brand with a great heritage. And, Raymond, complements to you, the way you built this business by putting the customer at the center and the community in its heart. And the company has remained true through these values for over 50 years. And I can tell you that's quite remarkable. No, it's unique. This business, with the right set of values, has more opportunities to reach and help customers in order to have a better life in their communities. And our goal is to grow in line with the aspiration of the South African people, to help people meet their aspirations for a better life, for themselves as well as for their children. By pursuing this goal, I would like to thank you, Richard, for a strong platform you have created over the last 8 years; a loved brand within the South African market; a stable, professionally well-run company, my complements; a business where our people are at the center of what we do; and a business which provides an excellent platform for future growth; and, as what is stated on my previous slide, a business with strong and positive values. My goal together with the team is to build on this strong platform, providing where we have stability, where we have a winning plan and identifying opportunities for future sustainable growth. And I've laid that out in 5 cornerstones. First of all, making Pick n Pay the first choice for our customers. This across our value, core and select segments by range, layout, merchandising, communication, promotion as well as the role of private label. Further accelerating our Boxer business, a jewel within the group and the best discounter within the continent. Building on our omnichannel proposition and I think clearly, the pandemic has learned us one thing, is that the past year clearly -- has shown clearly that the grocery retailer of the future must be an omnichannel retailer. Strong in the digital world as it is in its physical footprint. Fourth cornerstone is finding the route to sustainable growth within the Rest of Africa, this through a successful format that is serving the many and not only the few. And last but not least, it's winning with our people. People are the biggest asset that we have within our organization. I truly believe in leading through people, providing them the comfort and the opportunity in order to explore opportunities in the communities that we serve. And I would like to give the trust to the thousands of our associates, our franchise partners, labor partners, communities and the wider group of stakeholders. And I'm sincerely looking forward in order to further have exchange on views, how we can improve our commercial value proposition in order to serve our customers. But today is not my day. The spotlight should be on Lerena and Richard to communicate the results and the achievements of last year. And those are extraordinary, as explained already by Gareth, an unprecedented year, whereby the company and the team has shown its strength, resilience in order to navigate through a period of uncertainty. I take off my hat to all the 90,000 associates in relation to the accomplishments of the last financial year. I look forward to setting out my plan more in detail within the months to come, and I'm looking forward in order to have and provide you with an update after that. Thank you very much. Lerena, floor is yours.

Thank you, Pieter. Good morning, everybody. It's been 6 months since I've had the privilege to virtually stand in front of you. And when I did that last, I was really proud of what we achieved in extremely challenging circumstances. Today, however, it gives me great pleasure to present results that as -- is, as Pieter has said, an outstanding performance in extraordinary times. This result has entirely been delivered under the COVID-19 pandemic. Trading restrictions over our higher-margin categories was in place for 209 days of our trading calendar for this period. And this has added additional costs of ZAR 200 million to our operational expenses. But at the same time, we look forward. Project Future, the program that the group lost -- launched at the end of last year to ensure that we create the necessary efficiencies and improve our operating model was very successful during this period, driving cost savings and efficiency gains in our support offices and supply chain. This also added once-off compensation cost of ZAR 200 million recorded in this financial result. Against this backdrop, we delivered a resilient result with market-leading core food and grocery performance, a highly effective supply chain, increasing supply in our Boxer division as well, increased OpEx and CapEx discipline and strong cash and liquidity management throughout the period. Our sales growth of 4.3% or 5% in South Africa was delivered under the COVID-19 trading restrictions. We delivered gross profit margin expansion up to 19.8% for the period in spite of the impact of the higher-margin trade categories that was restricted during the period. Our other income is in line with last year, also reflecting the move for customers from in-store to online and our ticketing and travel business in that environment. Our trading expenses, up 8.1% for the period. However, excluding the ZAR 200 million relating to COVID and the ZAR 200 million once-off costs relating to our Project Future initiatives, that was up only 5.9% for the period. Our effective cash and liquidity management has also assisted us with net interest being down 51% year-on-year. The basis cuts in the repo rate also assisted, however, the strong working capital and CapEx management for the group resulted in an improved interest charge for the year. As a result, Our comparable PBT, excluding the noncash impacts of hyperinflation was ZAR 1.6 billion for the period, down 16.5% from last year. If we strip off the once-off compensation costs, that amount is ZAR 1.8 billion, down 6% year-on-year. This result was underpinned by the strong growth in our core food and groceries. We lost close to ZAR 4 billion worth of sales during the period due to the operational disruptions and the restrictions on trade. If we exclude our clothing and our liquor and tobacco, our core food and grocery offer is up 10% for the year. On a like-for-like basis, 8.4%. This illustrates our strong underlying momentum. We've accelerated the growth in this core offer from 9.9% in the first half of the year to 10.1% in the second half. Our decline in liquor and tobacco sales of 31% for the period reflects the fact that it was restricted for most of the financial year. Our clothing sales is up 1.3%, with clothing fully restricted in Level 5 and some restrictions still applicable to us in Level 4. However, this category is also illustrating very strong momentum, with sales in the second half delivered at a 6.7%. How did we achieve this? By creating better value for customers specifically where and when they needed it. COVID-19 shopping trends still persist. Our customers are still shopping less, with our customer count down 22%, but with bigger baskets, with baskets up 36% for the period. We are focused on the customer offer. We have delivered low prices and stronger promotions. We have tailored our ranges across the Pick n Pay value core and select segmentation as well as in Boxer. We've ensured high levels of on-shelf availability up to 95% notwithstanding the disruptions in supply as a result of the pandemic. And we have ensured that we have a broad online reach, which we also expanded during the period. We have restricted our selling price inflation to 3.8%, well below the 4.8% CPI food inflation. Our sustained price investment in the customer was supported by our ongoing better buying, our strong supply chain efficiency and exceptional cost discipline as well as a significant reduction in our shrinkage and waste in the business. While we have definitely focused on what the customer needed in these unprecedented times, we also needed to make sure that we look towards the future. The disruption, specifically in the construction industry in South Africa due to the COVID-19 restrictions, could have significantly impacted on our store opening pipeline. The group took decisive action to protect this specifically through our conversion program through the period. We have invested in 112 new stores across all formats, and that includes 28 boxes and 21 Pick n Pay supermarkets, which was supported by a conversion program of 34 franchise stores to both owned and Boxer stores in the business. These stores added 2.3% due to our turnover growth during the period, in line with historical trends despite the trade restrictions on the construction industry. Our performance for the year has also been underpinned by our strong franchise partners. We opened 43 new franchise stores during the year. We are now -- have an estate of 761 stores, and we plan to open another 40 during the year to come. The flexibility of our estate across ownership models and brands really stood us in good stead during this year and has ensured that we have also got a very strong opening pipeline for the future. Our capital investment program is focused on strategic investment to drive optimized returns. We spent ZAR 1.6 billion of capital during the period, with half of that going to our new stores and with the same level of expenditure on this pipeline planned for the new financial year. Our expansion in FY '21 was across the entire estate as well as the acquisition of on-demand grocery business to ensure that we extend our online presence in the market. For the next financial year, we are planning to open 130 stores across the entire estate. Our capital will also be focused on further investment in our centralized supply, optimizing and expanding the current effective model that we have. And we will also be focusing on digitization, a very important growth driver for the group. We will ensure ongoing investment in modern and flexible systems, business efficiency and customer innovation as well as further expanding our large online contribution to the group. Through our focus on the customer offer and improved efficiency and productivity, we have been able to deliver gross profit margin improvement of 0.1% to 19.8% during the period despite the COVID-19 pressures. The trading restrictions reduced our gross profit margin by 0.3% as these were largely over our higher-margin categories. But efficiency and productivity gains across both Boxer and Pick n Pay added a 0.9% of the margin, mitigate the impact of COVID-19 and giving us the opportunity to invest in the customer offer a full 0.5% in gross profit margin. That investment, we believe, has driven our strong core food and grocery performance, especially towards the latter part of the second half of the financial year. Our Pick n Pay supply chain is now centralized at 80%. And the focus is to ensure optimization of that infrastructure. We will be focusing on the cost of our infrastructure and the fleet, further improving the productivity, resource efficiency, using less water, less electricity and further reducing waste. Systems automization and integration is also an important part of our future plans for our supply chain. Boxer is now centralized at 55%, with a focus on improving that chain as well as expanding it in the new financial year. We will be increasing high levels of the centralized supply, ensure that we get lower costs through economies of scale and optimize the supplier income as we move more volume through that chain. Our trading expenses reflect a year of disruption. Our trading expenses is up 8.1% for the period, 5.7% on a like-for-like basis. This includes the COVID-19 additional operating costs ZAR 150 million for safety and hygiene, ZAR 50 million for staff appreciation bonuses and ZAR 20 million relating to security and other costs that we have incurred to ensure that our customers and our staff is safe. We've included the ZAR 200 million of once-off compensation costs relating to Project Future, ZAR 100 million relating to the voluntary savings program we discussed with you in the first half as well as an additional ZAR 100 million in the second half, relating to further processes in our support offices and supply chains. Excluding these expenses, trading expenses is up 5.6% or 3.1% on a like-for-like basis. There has been other expense line items that has also impacted the year-on-year increase in trading expenses, specifically weighted towards the second half of the financial year. In employee costs, there is share-based payment reversal costs in the prior year relating to executive share schemes that did not vest as well as an increase in performance bonuses in the current year, recognizing the extraordinary year that we have been in, with no performance bonuses in our base. Normalized employee costs, as detailed in the appendix, is up 3.3% or 0.9% on a like-for-like basis. Our merchandising and administration costs also reflects a strength in advertising program as we are focused to ensure that customers understand our offer and our promotions. Our card commissions is up 10% for the year as customers move to contactless payments in light of the pandemic. And further, merchandising and administration also includes unrealized IFRS 16 losses relating to the revaluation of dollar-based rentals in our African business. The team has now largely renegotiated most of those assets, and we don't foresee this exposure into the future. I am proud of the underlying strong OpEx control across the store operations and supply chain divisions for this year. And I'm really looking forward for that to realize into the new financial year and the value it will unlock for the group as a whole. Our Rest of Africa division remains profitable. Segmental revenue of ZAR 4.3 billion is down 2.5% in constant currency terms. The difficult trading conditions in the countries where we trade outside South Africa persists. Currency, local currency weaknesses, high levels of inflation as well as trade restrictions and stock shortages in country due to logistic restrictions has all played a role in making it very difficult to trade successfully. However, the team has mitigated this to a certain extent through exceptional cost discipline and working capital management. As a result, we have recorded a segmental profit of ZAR 148 million in this division, up 64.4% on last year, supported by a strong performance in our Zimbabwe business, which has now fully repaid all foreign trade debt owing outside that country. We continue to support our teams in this division. We have limited balance sheet exposure in non-RSA, and we believe that we are very well placed to benefit from any economic recovery in the jurisdictions we trade outside the South African borders. This slide is the one that I am the most proud to present today. The true success, I believe, of a grocery retailer is in the cash generation of its P&L. We've generated cash from operations of ZAR 2.9 billion through the period. Our cash from working capital is an inflow of ZAR 700 million. This was supported by calendar cutoff, however, exceptional inventory management has offset the investment that we required in our strategic A and B lines to ensure on-shelf availability during the pandemic era. We have included an analysis of inventory in the appendix in order for you to see how our good work on our range optimization has allowed us to fund the additional inventory that is required to ensure that we have sustained the on-shelf availability at 95%. Our franchise debtors book remains resilient, really strong through a very difficult trading period. And we have also spent CapEx of ZAR 1.6 billion on strategic investments, as I've detailed earlier. We have paid ZAR 900 million to our shareholders in an uninterrupted dividend cycle. And taking all of these items into account, on a like-for-like basis, excluding the benefit of the calendar cutoff, we still improved our funding position by ZAR 0.5 billion for the year. Our balance sheet reflects low debt and stable liquidity. The COVID-19-related liquidity pressures has been fully mitigated by operational discipline, our careful cash and liquidity management. A focus on only critical OpEx and CapEx spend and strong working capital management has resulted in the improvements that you've seen during the period. We have also restructured our longer-term borrowings, including 6- to 12-month funding facility, further shoring up our liquidity and taking the benefit of the reduced interest rate environment. As a result, this has underpinned a dividend declaration in line with an uninterrupted dividend cycle. This was made possible by the resilient FY '21 earnings performance, strong cash management and high levels of liquidity, as I've just detailed. We have maintained our dividend cover at 1.3x of comparable headline earnings per share. And as a result, the Board has declared a dividend of ZAR 1.61 per share as the final dividend for this financial period. That brings the full dividend to ZAR 1.7974 per share down 16.7%, in line with the growth in comparable headline earnings per share. In summary, our responsive and resilient operations has ensured that we could stay open and we could stay fully stocked. We did what we needed to do successfully to protect our customers and our staff during these difficult times. This result has delivered a market-leading sales performance in our core food and grocery offer. Our effective operations across the entire group has delivered sustained gross profit margin expansion. Our cost discipline has been exceptional. We have aimed for ZAR 600 million worth of project future benefits during this period, and we have achieved that. And we have a strong line of sight to hit our ZAR 1 billion in the next financial year. Our positive net funding position has allowed the payments of all dividends and has resulted in ZAR 500 million more than last year. All of these items together, I believe, has given us a very strong platform for the future. And I'm looking forward to working with Pieter and the team for the growth that this will bring this group for the new financial year and thereafter. I now hand over to Richard Brasher to take you through the operational review for the last time. It has been a privilege and an honor, Richard, to share some of this amazing journey with you for the last couple of financial periods. I hand you over to Richard.

It's always the last, isn't it? The last this, the last that. It's a very strange feeling, but thank you very much, Lerena. Yes, good morning, ladies and gentlemen. Unfortunately, not together again, but as you can hear from the smattering of claps, we have got appropriately socially-distanced colleagues come to share my final hoorah. So if you're hearing it in your living room or your study or your workplace, it's not that we're not that funny anymore. It's just the fact that there's not that many people allowed in the room. But it's great that Raymond Ackerman can be here as well, especially for me and clearly my family. Thanks, Gareth. Thanks, Chairman, that was very kind. And welcome, Pieter, and thank you for your kind words as well. And importantly, Lerena, thank you for helping guide us through this extraordinary year, extraordinary year. It's been -- it's had all of the emotions. I'm not going to go through all of them, but you know what I mean. And here we are a year on, and we'd hope to be further on. But I hope -- thank you for all of the team and the finance team, especially because this has been -- we thought IFRS 16 was complicated, but we had never banked on COVID. This has really been an interesting challenge. Obviously, an important day for me. My last day as CEO today. Pieter Boone will take over the reins immediately after I step down from this podium. And I'm confident that he will do an excellent job, and he's already demonstrating in the short time he's been with us physically, although he's been with us sort of virtually for many months now, that he will take this great business on to even greater heights. It's my 16th presentation, not that I'm counting, and the last presentation you'll hear from me, which you probably think is probably not too bad actually. And I have tried to polish some of my humor. So I'll probably be less humorous today because in fairness, it's not been the funniest year of our lives, let's be honest. And in that, I was reminded of how the youth feel because, obviously, my son is now a grown man. He's at Varsity in his first year. And he got locked down fairly immediately. I think he had 5 weeks of freedom and then he got locked down. And guess what, he got locked down with his dad at home. So thank you for your patience, my son. I do love you. And I wish you more freedom in the future. Although I'm now coming home again. It's 35 years a retailer, and I'm not going to make this my -- either my CV or my sort of swan song. But this has probably been the most demanding in terms of things that's been thrown at retailers around the world, but probably my best. So I'm pleased, as you've seen from Lerena going through fairly clearly why we think the performance of our business has been exceptional and that the underlying quality of earnings is materially improved. And I would like to say that I think it's probably our best performance for a decade and certainly in the leadership of Gareth Ackerman. And we can't hope to compete, Raymond, with your performances prior to that, but we gave it our best shot. So let's go through. Now those of you who followed us for a while know that I'm a bit of a stickler for a plan. These were the stages: stabilize the business, change trajectory and lead to long-term sustainable growth. And I'm both proud and confident that we've achieved each of these stages, and we're now in Stage 3. And I think if I look at the work that we've done during the course of this year, to solidify that, I think it's become even clearer that our future is bright. It's long term, and it actually meets the requirements and values of the company that was so clearly put forward by my colleague, Pieter Boone. So I feel that my work now is done. We had a good journey together. We've talked about these 6 engines every time I stood up. There is real merit in consistency of planning, consistency of approach. And when it comes really tough, that's when you double down on the plan. That's when you find out whether your plan is any good. Because if you change it every time it gets tough, no one actually knows where they're going. And as we know, if you don't know where you're going, any road will get you there. We've made progress during the course of the last 8 years, but actually equally in the last 8 months on all of these elements, and I'm really proud of that hard work and endeavor. I think we have been moderately successful. We can always do more. We can always hope for more. And Pieter, I think there's definitely more in the tank. But we nearly doubled our turnover. I had hoped to reach ZAR 100 billion, but it's just shy. Profit before tax is up 3 times. Comparable HEPS is up. Return on capital employed is up despite us actually doubling our estate. So we opened 1,000 stores. But the one I'm most proud of, to be honest, and it is worth stating, is I think companies have to do two things. I think they have to be mean on cost. They have to be fairly determined in terms of reducing everything so we can be generous to customers in low prices. But that's entirely consistent with expanding a business and therefore, employing more people. So I'm really proud that despite all of the challenges that I've pushed the business to face into, we have improved the employment in this country by 15,000 people between the Pick n Pay and Boxer brands. I don't think there's any stone that was left unturned, and this was just a sort of a collage of the efforts we put into changing our product offer, our value for money, our own brand, our clothing business, which I'll talk to briefly, significantly changing our Boxer business, of which we're hugely proud and congratulations to them on their result. We think we've run better stores, not perfect stores. Retail is one of those strange things. It's not a hard thing to sort of visualize. It's just a really hard thing to do well every day. And we try every day to do well. Some days, we get it better than others. And when we fail, we know that we've got tomorrow to get it better again. Supply chain has been completely transformed and the community. And all in all, I think that the team and all of our colleagues should be rightly proud of a business that's been transformed. And I think that we've now secured our long-term future. If we look specifically to this year, people really have stepped up. I mean, all -- what I've said to the teams in the past is, I just want your best, it will be enough. I think that people found a new best this year. In the worst of times, we ended up with some exceptional performances. And right the way across the business. It didn't matter by format, by brand. And I want to make a particular comment to our franchise partners. I didn't grow up working with franchise operations in my previous career. And I found it fascinating, enjoyable and I've learned a lot. I think that during the pandemic where personalization was really important, where people were nervous, they were scared and we needed to comfort them, the reality is, is that they stepped up and did some remarkable things. I mean, it was once commented to me, someone asked me, "So how's the drive-through online business going?" I said, "Okay, yes, okay. I didn't actually know we had one." But an enterprising franchisee had managed to put one in and people were busily going through that rather than McDonald's. Because in fairness, unfortunately, it was shut. So the reality is I really want to thank franchisees if you're watching today. And if you're not, I'll thank you at another time. And it's been -- I've learned a lot, and it's been a great journey over the last 8 years. We've heard from our Chairman about mourning our losses. It's been a terrible year in terms of colleagues, friends and family, and we -- our condolences to everyone who's been impacted by this. What I am pleased about is we said right at the beginning, we'll stay safe, open, full and working. And I think we've stuck to the mantra and stuck to the -- we continue to be focused. This thing is not done yet. And therefore, we continue to be alert and we will continue with that adage. I would actually quite like to say one other thing. I'd like to thank the whole process of feeding a country. We're not as glamorous as an app, and we're not a high-tech business. We are very technically capable in our business, but we run shops. And we put products on shelf, customers come and pick them up. Obviously, with our online business, we can do that for you at home. But I think if you look at our farming community, which I think is one of the great assets of this country and should never be underestimated and should always be supported and helped, especially even the wine farmers who I think have been treated pretty shoddily, frankly, in the last year. The manufacturing operations, especially the people producing toilet paper and tinned vegetables. I don't know who's still got all this stuff, to be honest because they kind of used it by now. But -- and the haulers who move it around. We're not a glamorous organization. We're not a glamorous industry. But I think we proved absolutely this year that we actually are essential. So congratulations to all of those people and our competitors. I think they also did a good job. And I think there have been occasions during the course of this year where cooperation and support without bringing on a Competition Commission inquiry. I think we've all done a good job. And I think, therefore, we have kept the nation fed. That's the one. So as I said, I think we've had a pretty good year, strong underlying performance. We have reset some of our property operations that you heard from Lerena. And I think you'll hear a lot more from Pieter in terms of our determination to accelerate digital transformation within our company. And I would again repeat that I think if you look through the impact of COVID, the underlying quality of earnings have never been stronger. Just a few stats, but I'll be brief because I think we've comprehensively covered the results, and you've got this in your packs anyway. You can see that our half 2 was stronger than half 1, which was pleasing. And in our core grocery operation in South Africa, we did breach the 10% mark, which is a great achievement by everybody. And it does mean that despite the restrictions that we can actually do a great job. And without the restrictions, we can do an even better job. And we saw some of those restrictions lapsing in the second half, and we enjoyed that, and we hope that they will continue to be relaxed. People say we took market share, we lost market share. I'm not going to comment on whether we've gained or lost market share, but I do think we outperformed the market. And these are the results that we've all been presenting in public, audited results by our competition and ourselves. And I'm not going to crow about it, but I did -- it was a pleasing thing to show that in the second half of this year, I think that we've beaten most and we've got -- we were roughly the same as our friends down the road, with their growth on food being 10.9%, ours being 10.8%. But on the rest of them, I think we showed them a clear set of heels. Again, on this point about quality of earnings, even if you take out the basics of COVID-19 costs and compensation costs for the voluntary severance package we had during the course of the year, it shows that our underlying profit margin was maintained at 2.1%. And that's without us putting anything in there to do with the substantial margin impact of the trading restrictions that we had during the course of the year, which amounted to ZAR 4 billion. If you look below that then and if you look at our underlying volume growth, which was referenced by Lerena, I think you are looking at a company that is in rude health. We did a lot to ensure that we continue to change our trajectory and to make sure that our future plan is in place. You've seen some of these numbers, the 3.8% in terms of price inflation. We invested 0.5% of margin in giving people better value. We expanded our own brand to 25%. So 1/4 of everything we sell is Pick n Pay and Boxer brand, and we added additional 1,500. I'm pleased that despite the challenges on liquor and clothing, we managed to grow market share. On Smart Shopper, and maybe we needed a little bit of a prod to bring out our best game with the competition deciding 9 years later to have a card. What we have found is that actually, it's made it even stronger for us, 10 years old and getting stronger. We were voted #1, again, 8.5 million of active customers. And one thing I would register is people use the sort of sexy titles like big data and data lake. But in layman's terms, we have very, very good information on a very large section of the population in this country. It's obviously proprietary, it's obviously protected. We never see the person's name and their data in the same place at the same time. So people can be confident that the only use of this data is to personalize things for our customers and to give them better value. Seeing that with personalized vouchers, we've seen a 300% increase in redemptions, which demonstrates our ability to target customers is getting better and customers' need for value has never been higher. And we've got record participations. 75% of everything that we sell through our tills, goes through our card. So this is universally adopted, both in the less affluent part of the market as well as the affluent part of the market, and we see it as a great asset. Lerena touched on Project Future. And I think some people, when we mentioned it at our last year's full year result that we were doing it, they said, "Oh, yes, big number, big talk. Let's watch their feet." Well, to be honest, we've done it. We've actually delivered ZAR 600 million savings in the year that we're in through modernizing our workforce, roles and structures, amazing control of shrink waste, strict control of property costs and escalations, with Izak Joubert and his team and as you heard from Lerena, improved management of working capital. We don't think it stops there. We think that it's a 2-year program, 3-year program, 4-year program. And therefore, the investment in technology is important to ensure that we can become ever more efficient and reinvest that in lower prices for our customers. A few moments on leaner operations. You've heard expense control was contained to like-for-like 3.1%. We improved the productivity in all of our distribution centers. Hennie Kruger and his team have done an amazing job. We've had great on-shelf availabilities despite some of the disruptions, and we are reaching full centralization in our Pick n Pay business, and we're well on our way now in our Boxer business, having added a new depot in Polokwane, just before Christmas. The improvement in transport model by 5% is very important. When you consider that transport is 50% of supply chain costs. Now I'm proud of what the Boxer team have done, Eugene and Marek and the team, Iain Bromage and Andrew Mills and many others are -- should never do this. I keep mentioning names, and then I've gone and missed one out. And they'll carry that with them for years. Anyway, everybody -- sorry, [ Chip ] -- no, I'll stop doing it now. But they've done an amazing job. They've transformed the company. So whatever people think I might have been involved in, they've transformed this company. It is, I think, a real shining light in our universe, in the Pick n Pay group. We shifted it to a limited range, smaller stores, operational excellence. We've more than doubled the estate. We opened 44 stores this year, which is the most stores that they've opened in a year in their history, and we plan to beat that next year. It is the fastest-growing retailer in the country. It is, I think, one of the best limited-range discounters that I've seen around the world. And although their participation on brand is up 4% in '23, I think it's going to be higher still. So well done to the Boxer team. And because you all like to talk about clothing a lot, I do as well, actually. I think they do a great job. I'd just like to comment that despite some of the restrictions and whether we were wearing our summer pants or our winter pants earlier in the pandemic, it was unclear, but the reality is in the second half of the year, they grew by over 6%. They grew market share. They've done a great job. They protected the margin, the markdowns and all the things that go with being shut and keeping on all of your staff. We have it in 400 clothing stores, both stand-alone and in our existing supermarkets, 36 additional ones. I'm pleased that we're supporting local manufacturer more, and I would still ask for there to be more support from government to enable that. And to show that we are forward looking, we are -- we have launched Pick n Pay Online, and it's going very well, and we've had 1 million visits to our website so far. So in terms of long-term sustainable growth, there's sort of 3 areas that I'd just highlight, and you've heard some of that, obviously, from Lerena and Pieter, which -- I didn't put that one up. This one. Yes. So accelerating digital transformation, you're going to hear a lot more about. Building scale in Africa. I know some people are nervous about Africa, but Africa is forever. It's the rest of my career, Pieter's career and anyone else's career in the room, but we still see it as an important opportunity to grow. And we do feel that we're well positioned in both our formats and brands to have growth in all segments of the South African and international market. On Africa, 163 stores. We're profitable. Our profits are up year-on-year. We employ 10,000 people, which here in Pick n Pay, is a really important part of what we do. We still think it's an important opportunity for the right offer, the right format at the right time. I personally feel that the future of retail for us in the Rest of Africa is more to do with tighter ranges, lower cost, smaller stores, close to where people live, more limited range discounting, given that the economics of servicing a large population need to be kept down so that we can give them the lowest price as possible. And they also think slow and steady wins the race. We never bet the farm in the beginning. So the reality is we never had to walk away, but we are planning to continue, in a very measured way, to explore the opportunities that are presented by countries within this amazing continent. On to digital transformation. I'm very happy and pleased that the team have come forward and say, we would like to have picknpay.com as the overarching banner for our digital services in terms of online shopping. I think that it enables us to put underneath there sort of the 3 elements, whether it's on-demand, express delivery on a bike to a scheduled delivery in a lorry to Click N Collect. We'll do the work, you come and pick it up from us. I think that they've had a remarkable year having to really ramp up the capacity. So we tripled the number of customers served during lockdown. We've seen significant growth in the on-demand service. The Click N Collect, especially through our franchise business has been exceptional. And as you know, we bought the Bottles on-demand app and we've integrated those into our business. And we're really excited by both the talents that we've acquired and the capability that, that gives us. If you look at the other areas of digitization, there's 2 others. One is service-based retailing in terms of financial services, ticketing and other areas. Obviously, that's an important part of our ambition. There's a significant profit opportunity for the company, and it also gives people more reasons to want to shop in our stores. TymeBank, which we partnered with, we've got 3 million customers now, the majority of which were signed up in a Pick n Pay store. They also use the currency, our Smart Shopper currency as their loyalty scheme, the same with the MVNO that we launched recently. And you can see the sort of biblical proportions now of contactless payments. And we were the first company in South Africa to put contactless payment capability into all of our tills in the country. The bit that's behind the scenes, the sort of back in the kitchens where we do the cooking, the digital technology is just amazingly capable of improving our efficiency. So whether it's in loyalty, buying, demand planning, being quicker on decision-makings, let the computers to do some of the work, these new sexy titles like artificial intelligence, machine learning. But basically, it's how do we squeeze. It's a bit like Formula 1. It's the telemetry. You still need the driver, hopefully, for the future because that gives us all a job. But there's some other clever people who actually say, too hard on the brakes, save your tires or whatever. I don't fully understand the F1 thing. But it sounds very technical, but I do know a lot about retail. And 0.2% on your margin is the difference between hero and zero. We've in-housed a lot of the capability of analytics. And we intend to make far more investments in this area in the years ahead. And that's been even more dramatic in terms of remote working and the flexibility we've shown in the offices. We will move to effectively cloud-based computing from the traditional models that have been seen in the past. And all of those things end up giving us a big opportunity to invest further in what really matters, and that's the prices in the shop. So almost one final chart, this is my parting gift to you. The numbers are a little bit of a thumb-suck, so don't sort of send me a message saying, I think it's 0.2% different. It's around about ZAR 600 billion is the grocery market in South Africa, in terms of what I would call modern retail. And if you look at the way in which that's broken down, you can see that a very large proportion of the market is in areas which are less affluent. So although there's a lot of talk about the pizza wars of [ Constantia ], which we also intend to win, by the way, it actually has to look at it in the context of the broader community. And if you look at the numbers that are indicated in those squares, which is the current market share, we believe we've probably got somewhere in the region of about 15% of that ZAR 600 billion market. But you can see that our market share in more affluent and middle is a lot higher than it's been in the less affluent market. I think the changes we've made by splitting our business into value, core and select, the changes we've made by transforming our Boxer business gives us a real opportunity to grow our share across the business, but particularly in that area. And that is the area, sadly, in the country, which will grow the fastest until we actually get more economic growth into the economy. But you can see, as I've just tried to scale it in terms of 1% market share gain, what it's worth, whether you've got it at the top or lower down. And you can see that we have only 10% and it's ZAR 5 billion for every percent. And that's what gives me confidence that the future opportunities in our business have only just started to become clear to us. And therefore, I'm sure that Pieter and the team will be pushing hard to accelerate the growth across all the market areas, but specifically in that key market area that will be dominated by people like Boxer and Pick n Pay value. I think this obviously has been talked about, and I think it's something that we've been proud of. And I think it does show that one of the reasons I came here was to prove that the good guys could still win. And I think this and watching the firefighters over the last couple of days, it's very humbling. However hard we think we work, however hard this year has been, I mean, I watched these guys. They put on those fire-resistant, retardant suits in 30 degrees heat and run up the bloody hill. I mean, if I ran up the hill, even without the suit on, I'd be absolutely useless. I couldn't put anything out. I couldn't blow a candle out. And those chopper pilots who are flying around the mountain in gale-force winds, carrying a few tons of water dangling of a -- I mean, that is remarkable. So I gave myself a good talking to. I said, stop feeling sorry for yourself, lads. Some people are out there doing something really brave on behalf of everyone else. So before you end up seeing a grown man cry, so that's it. That's it, folks. That's my last rodeo. Thank you, Raymond, for giving me the opportunity, putting your trust in me. It's been a tough environment, but it's kept me and the team busy this last year. I'm happy that the business, I think, is stronger than when I joined. And that isn't because of me, it's because of the team, but I'm happy to share in the reflective glory. I'd like to thank you, Gareth, Chairman, for your support, the Ackerman family and indeed, the Board for their unstinting support. I mean, they do torture us now and again, but to be honest, at least they'd come around to our way of thinking in the end. I'd like to thank the thousands of colleagues that have walked every step of the way with me. And importantly, I'd like to wish you, Pieter, the greatest of success. I think the future is bright. I think that it's -- retail is a tough business, but I think that we've got a great opportunity to capitalize on some of the heavy lifting we've done in the last year. I think much of what we did in the last year wasn't specifically to try to benefit these results, I think it was specifically designed to give us a longer-term structural advantage. And I think you'll see that coming in the years ahead. And I'm proud to have played a small part in the history of the company. And anyway, to finish on something slightly lighter, I did read somewhere that happiness comes from fixing things and solving problems. So that means that I've had a very happy 8.5 years at Pick n Pay, working in South Africa. It's not for the faint hearted. I thought I was mad when I came and then I realized I actually was mad, but I have really enjoyed it. And I will be staying in South Africa, so that confirms that I must be mad. And that's it really, happiness. And the good news is, Pieter, there's more happiness to come. So that's it. Thank you very much. And I think we're going to go to a few questions, and then I'm going to leave the building. Thank you.

Thanks, Richard. The first question comes from Paul Steegers of Bank of America. Pick n Pay has invested 50 basis points in gross margin in lower prices in the '21 financial year. How much is likely to be invested in price in the current year?

Well, I've got to be careful I don't sort of tee up Pieter on his first hour as CEO. Look, we intend to continue. That's what Project Future is. It's not a one-off. It's something that we plan to find more ways of doing things for less, so we can sell things for less. And therefore, we do anticipate in our budgets for next year -- or this year, sorry, to actually continue to make an investment in pricing and promotions.

I think we did actually say in the presentation but [indiscernible] from [ Tumble Wealth ] wants to know our own brand or private label participation.

Yes, 25%. 23% in Boxer, but traveling upwards very fast.

A question from Thapelo Mokonyane from Investec. The ZAR 200 million incurred because of COVID, does this fully offset cost savings? And so would it be cost neutral? Or will the cost savings be higher than ZAR 200 million?

No, the cost savings materially higher than ZAR 200 million. I just exampled 2 significant costs. One was the cost of our voluntary severance program that we ran during the course of the year. And the other 1 was the impact of COVID costs, part of which was a once-off bonus for our staff at the beginning of the pandemic and others was in things like our stores being closed. And so those are just 2 numbers I picked up, just so that people could look through the results, not to try and pretend it's better than I think it is because I think it's good enough, but more to show people that the opportunity that we think is still for us in the year to come is -- I'm trying to help people be clearer on it.

A question from Jiten Bechoo from Avior. Do we think that Boxer experienced a sales windfall during the lockdown when consumers are forced to shop closer to home? And could these gains recede as people return to their routines?

Well, I don't think anyone got a windfall in this difficult year, to be honest. So I wouldn't use the expression. I think there's no doubt that the government giving people who've got a lot less some more had an impact on all of our performances, Pick n Pay and Boxer. And obviously, given Boxer's primary focus, I suspect that, that was a tide that lifted all boats rightly so. And I think it was one of the examples of something good rather than some of the things that I was slightly more questioning on. We don't really know, but when we look at the ebb and flow, people would have said that maybe our growth would have slowed in the second half because the market reopened a bit more, people started going back to work, hospitality opened up. But it didn't seem to transpire that way. So I think we'll have to watch and see. I mean last year was very volatile. Next year, this coming year won't be quite as volatile, however volatile it is. But I think that there's enough good things that we've done to help us give the growth without relying on whether there was any kind of windfall that came out of COVID. I mean, clearly, in the early days when everyone was shut and we were the only people open, then that won't happen again. So you're going to see that play out in the first couple of months of the financial year, from people buying in heavily, to people eating what they bought and obviously not really going out of their homes in the early stage, even to exercise. It really was a harsh lockdown. But we've got Iain Bromage, who's an outstanding commercial director with a mind like a computer, so he doesn't need one. He's that good. And he studies it with his team, and he tells me he's got this one. Is that right, Iain?

Another question about Boxer this time from Funeka Maseko from RenCap. What is the medium-term target for Boxer centralization? And should we anticipate any further gross margin enhancement as a result from improvements in centralization of Boxer?

There's some to go. I'll give you another statistic. Over 90% of Boxer stores are delivered centrally for some of their goods, but not all of them. So 55% is the amount of goods that's currently centralized in terms of the overall turnover of Boxer. But actually 90% of stores are receiving a delivery with something that came from a centralized depot. So we have a plan for another 1 major depot, but that's more -- as much for capacity as it is for centralization. And I think Boxer obviously, will end up with further elements of centralization, but only if they allow us to sell things for less in our stores. That's the key to it. It's not a self-fulfilling prophecy because we decided we're going to do it anyway.

We have a private investor by the name of James who would like us to look very carefully at Cambridge and Rhino for acquisition.

Yes. Well, he's right. We should. Yes. But I think that Massmart did suggest that they were considering those assets to be noncore to them. And as you can see from the smile on my face, that those kind of assets are core to us. Doesn't mean that we'll pay any price for anything because we're building the business nicely, organically. But if the opportunity came along and the price was right, then we'll, I'm sure, be in conversation.

He did also say that you have done an awesome job and that Pieter has big shoes to fill. Thought I'd share that bit, too.

Yes. But have you seen how tall he is? I don't think he's going to get his foot in that shoe for sure. So I think we could be safe in the fact that he has no shoes to fill. He's got his own, and they're very full.

Another question from Thapelo Mokonyane from Investec. How should we think about the dividend cover or payout? And is it based on comparable HEPS or reported?

That sounds like one for you, Lerena.

Thank you, Richard.

I'm not the CEO anymore. I don't have to do that. And I've got the founders sat in front of me as well. So...

I think we are very proud to be a retailer in this current context with an uninterrupted dividend payment cycle. And the dividend this year is again at 1.3x our comparable HEPS. We do believe that, that is an appropriate metric for us as it excludes all the noncash entries relating to hyperinflation accounting. So I hope that gives the clarity.

A question from Mikhail Butkov from Goldman Sachs. The degree of efficiency and productivity savings in F '21 was impressive. Can we give any indication how much more could be saved in F '22? And how it will be balanced between margins and investment into prices?

I won't say, "Well, you better ask Pieter." That would be unfair after an hour. But look, you have to -- you can have a plan and you know I like a plan. But you also have to be able to adjust depending on how things are going. So how the economy is going, how the -- how we're trading. And then we can judge whether or not it's appropriate for us to push harder to invest. In terms of the opportunities, I think that they're quite significant still. If you look at -- we want to grow employment, but we need to do it by growing our business. We can't just grow employment in our existing business because then the price -- prices will have to go up and the margins have to go up. But we do feel that there's lots of opportunities. I mean, interestingly, cloud computing, when properly executed, can give you quite a significant reduction in your operating costs. And no one gets hurt in that process. I mean, maybe there are companies who are doing that who we wouldn't require their services. But I do still see there's quite an opportunity because it's a bit like a buyer. If you wake up in the morning and you say, I bought the best I can ever buy, you better retire, to be honest, because you can always buy better. And I think on operational savings, and -- you have to find the right balance between the humanity of the business because we're a people business, 90,000 people and the requirements of the commercial market to give our customers lower prices or better value. That could be higher quality for the same price as much as it's lower price for the same thing. So I think that the -- you can look forward to that. I think that, that is definitely, I know, on the team's agenda and Pieter's agenda. But it would be wrong of me, it would be irresponsible for me to give you a balance of something I've never given anyone else in the last 8 years on Pieter's behalf.

A question from Paul Steegers from Bank of America. What was the benefit from calendar cutoff for the -- on working capital in F '21? I think we may have given that answer, too.

ZAR 600 million.

Okay. And then a question from -- another question from Thapelo Mokonyane, Investec. How much of the GP margin expansion can be attributed to mix impacts to underperformance of high-margin categories? And do you expect to sustain that performance into the first half?

Well, I thought it was -- I was quite impressed that we put the gross margin up by 0.1%. I'm always reluctant to do that. It was quite a complicated recipe, to be honest, with what was being stopped, what was being started, what customers were choosing not to buy. But what -- if you look at the metrics, is that we didn't get that much upside in terms of margin mix because of what was locked down. So for example, tobacco has got a low margin, liquor and clothing have obviously got higher margins. So what was being locked down in the main was a detriment to margin rather than not. It is quite a complicated thing because obviously, within there, you've also got the savings that we make by improving the efficiency of our supply chain and also you've got in there the benefits of having lower shrink and lower waste. So I still think that there is opportunity, but I think it will then be for the management team, if they've managed to harvest some money, as to whether they play it out in the margin line or they play it out in the price and therefore, the underlying volume line.

Another question from Mikhail Butkov from Goldman. Will the reversal of share-based payments have any impact on the first half results?

Is he...

Sorry, that's the way he asked it.

Yes, I'm just trying to picture -- are you talking about share-based payments in terms of historical bonuses that have been paid out?

I imagine that's what he's referring to.

I think the base effect of share-based payments relates to the prior financial year FY '20 and therefore, no impact on FY '22.

A question from [ Philip Gee or V ] at Indus, sorry. You presented approximate market shares and suggested an 11% share in less affluent markets. How much is this from Boxer?

Yes. Well, I guess if we segmentally reported Boxer, then I could give you the answer, but we don't. But I think the important thing to note is the fact that we're expanding quickly on both sides. We're expanding on both the value side and we're expanding on Boxer. And therefore, between the 2 of them, I believe that there's a big opportunity for us to increase that 10% share. But we haven't -- I can see it, but I'm afraid you can't today, sorry to disappoint. If I only disappoint you on that factor, then we're all right.

I think that's about all. Thank you, Richard.

Okay. Well, that's all folks. Thanks very much. It's been an amazing journey. Thank you, Raymond. You are allowed to say we're back because we are. But we're going somewhere else now. So wherever we've got back to, we're going to chart some new waters. So thanks very much for everyone in the room. Thanks for you for watching. That's it, the end of the series. Cheerio.