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

Good morning, and welcome to the Pick n Pay Interim Results Presentation. This is the first opportunity to report back on how we are progressing with our new Ekuseni strategy. It is also the first time we're separating out our Boxer business in our turnover reporting. I know this is a welcome development, and we outlined our Ekuseni strategy to you in May. As Pieter will show, we've made huge progress since then. We have modernized our customer value proposition, creating a new brand in Pick n Pay QualiSave. Early results on these stores and our newly revamped premium Pick n Pay stores are really encouraging. We have redoubled our efforts to expand our successful Boxer business. And we've made huge strides in the online grocery through asap! and now with Pick n Pay on Mr D. I've also been delighted by the incredible amount of work that has gone into revising Pick n Pay's environmental goals. We've published our detailed ESG report in July. It's a clear demonstration of our commitment. It shows how we are acting and not greenwashing. I urge the markets to focus on real delivery. Some of our key environmental goals included achieving net zero emissions by 2050, and using only climate friendly refrigeration by 2040. In addition, minimizing waste and food waste is an absolute obsession in our stores. We aim to divert 75% of all general waste from landfill by 2025, and we are already at 55%. At a time of unprecedented load-shedding, we will have 10 company owned sites with solar by the end of the year. We will continue to work with our landlords to add additional alternative power sources for us, and in particular for the small tenants who are not being adequately served in a number of cases. We will also have a total installed capacity of more than 10 megawatts at our new Eastport Distribution Center. This is just a start. And I look forward to reporting on much more progress in future updates. Food inflation is a real concern in South Africa. We feel it, but more importantly, our customers feel it. We fight it on behalf of customers through a relentless focus on reducing our costs. Our founder, Raymond Ackerman, set the Pick n Pay value of consumer sovereignty, understanding the principle that all customers love low prices. The reality is, so many really need them. Our duty to all our customers is to provide the lowest possible prices in all our stores. This is a driving principle behind Ekuseni. I am proud how our team has mitigated the inflationary impact on our customers over this period. Our Ekuseni strategy is testament to that commitment to our customers and to other stakeholders. Our ranges of private and confined label are strongly supported of the strategy and are increasingly a major contributor to ourselves. Our ongoing focus of Project Future continues apace. We have set out to save ZAR 3 billion over the next 3 years. As Lerena will show, we have made good progress to date. It would be remiss of me if I didn't make some reference to the macro-economic environment. Our country's infrastructure is in a parlous state. Our electricity and rail systems are at risk of collapse. Our ports are now rated some of the least efficient in the world. Crime, violence, and corruption are with us every day. Sometimes it's exhausting to be a South African, but we're not powerless to turn the situation around. In fact, a much more positive trajectory is possible if we just get a few basics right. It's not good enough for us in the private sector to simply bemoan where we are or to say that our voice is not heard by government. We need to redouble our own work and find new ways to ensure that government takes its share of responsibility. So this is what we are doing. We are creating jobs. Later Pieter will deal with how we are growing our store footprint in this financial year. This is the right way to grow an economy and the only way that will ensure that the country is on a pathway to prosperity. We are investing. The Pick n Pay group will spend about ZAR 4 billion in capital expenditure this financial year alone. Much of this will be in expanding our infrastructure with a large investment in our distribution centers. Ekuseni, we'll see even more invested in our economy as we grow. ZAR 10 billion over 4 years is a serious commitment to the future of South Africa and to our business. We are feeding the nation in a high inflation environment. This is even more critical. It is unforgivable that we just have so many South Africans going hungry every day. Our Feed the Nation does incredible work. Nearly 2.5 million meals have been distributed in the last year alone. And we are FoodForward's largest retail partner. Last year we donated 841 tons of food to FoodForward South Africa. This fed more than 875,000 people every single day. We're also getting involved. The Consumer Goods Council of which I'm a Co-chair has established a foundation to assist public-private sector partnerships. These will add capacity to municipal authorities facing service delivery challenges. The most important of these are water and sewerage reticulation, road networks and electricity. This benefits us as well as the community involved. Infrastructure challenges are making it really difficult for us to operate. Some companies in South Africa have relocated their operations to better run municipal areas. This is understandable, but exacerbates rather than fixes the problem. It is critical that we get involved in service delivery in areas where we otherwise see little will or competence to fix the problem. Business can make positive difference, but we can't wait for help because it can't come and it isn't coming. By being active and setting the right example, we can speak with a louder and more confident voice in calling on Government to take its responsibility and insist by incentivizing business to make infrastructure upgrades through rates or tax rebates. Tax levels in South Africa are high. There is big room to incentivize business to invest in the common good. But please don't double tax us. Let me close on a positive note. Through the unrest, the pandemic inflation, and an unprecedented load-shedding, we learn new about the resilience of South Africans. We also learn a new about the resilience of our business, Pick n Pay, and the determination of all our Pick n Pay people. Today you'll hear an encouraging result. Much work remains to be done, but we are very confident that we have momentum and are on the right track to continue to build Pick n Pay, to build our franchisees and to build Boxer and to contribute to the building of South Africa and the 6 other countries we operate in. I want to finally thank Pieter and his leadership team for the hard work and dedication that has gone into the year to date. And I would especially like to thank all our staff for their incredible work. I will now invite our CFO, Lerena Olivier to present the interim results. Thank you.

Thank you, Gareth. Good morning, everyone. Thank you for joining us online this morning. In the first half, the group delivered a positive performance under our Ekuseni strategic plan against the backdrop of externally driven cost pressures. I can however report strong turnover at a group level of ZAR 51 billion up 11.5% and 7.4% on a like-for-like basis. Even when normalizing for base disruptions due to the civil unrest and COVID-19 liquor restrictions last year, group turnover increased an encouraging 8.2%. Our gross profit margin of 19.4% was down from the normalized space, excluding the civil disruptions of 20%. This reflects our significant price investment to support customers in very trying times, as well as the impact of higher fuel costs in our supply chain. Other income, excluding insurance recoveries increased 16.7%, a solid recovery from the trade disruptions in the base period. Our trading expenses increased by 10.6%, driven by significant cost pressures in this half, severe load-shedding, particularly in July and August, as well as a significant increase in insurance and security costs since the July riots last year. All of this has put pressure on our cost lines. In total, we've delivered a pro forma PBT of ZAR 588 million, up 22% on a highly disruptive base. Pleasingly this includes an increase of 17.1% in our South African PBT. Our pro forma numbers exclude ZAR 145 million of insurance recoveries relating to last year, but received during this half. The ZAR 145 million, as you will recall, was accounted for as part of our FY '22 full year pro forma profits. The group has delivered a pro forma HEPS of ZAR 0.89 per share, up 25.3% in line with PBT growth. Pro forma headline earnings per share is the group's primary measure in determining its dividend payout ratio. We have maintained a full year dividend cover of 1.3x and have declared an interim dividend of ZAR 0.45 per share, up ZAR 0.253 in line with the pro forma HEPS for the half. As Gareth has mentioned, we have segmented our turnover from our South Africa business for the first time, publishing the sales performance of Pick n Pay and Boxer separately. This is something that many of you have been requesting for some time. Segmenting our turnover in this way enables me for the first time to show how our South African sales growth was driven by the excellent performance of our Boxer business. Boxer has delivered market leading sales growth of 27.2%, 14.2% on a like-for-like basis. The Boxer performance, representing 30% of the total South African sales was achieved not only through a strong store opening program, but also through very pleasing underlying double digit like-for-like sales growth. The combined sales of our Pick n Pay and QualiSave banners grew at a respectable 5.4%, 4.5% on a like-for-like basis. A number of Pick n Pay stores were converted to Boxer over the last 12 months. And this had some impact on the reported sales growth in both of these divisions. Notwithstanding this, we recognize that we have more work to do in Pick n Pay as we set out in our Ekuseni strategic plan. As Pieter will explain in more detail, we are making progress. Sales from Pick n Pay stores converted to our new customer value proposition or CVP, have been highly encouraging. They provide confidence for future growth. However the CVP rollout only began in the last quarter of the first half. So the number of conversions was not yet at a scale to impact this result. Overall the group delivered a positive South Africa sales performance, up 11.2%, 7% on a like-for-like basis. We are committed to delivering lower prices to our customers. We again contained our internal selling price inflation of 7.2%, below CPI food inflation of 8.2%. In achieving this, we had to battle through a highly inflationary environment, particularly on commodity products. It's important to note, our Boxer business which as I have said accounts for 30% of the sales of our South African operation, is particularly affected due to its higher sales participation in commodities. Strategic buy-ins are important in an inflationary environment. Our goal is to buy on a rising market and give the benefit of the resulting lower prices to our customers. We have used it successfully in the period to mitigate against rising selling price inflation. In analyzing our gross profit margin, we again need to take into account the impact of the trading disruptions in the base period and cost pressures in this result period. Gross profit margin for the first half of 19.4% represents a contraction of 0.6 percentage points against the normalized base of 20%. The key factors here are; firstly, unrecovered higher fuel costs in our supply chain, which reduce gross profit margin by 0.4 percentage points. Then 1.2 percentage points of price investment across both Pick n Pay and Boxer. This investment was anticipated in our Ekuseni plan to support customers at a difficult time and specifically to improve the competitiveness of our offer. However I am pleased to report that a full 1% of this margin investment was recovered through better buying and additional supply chain efficiencies. These were realized through Project Future. There will be more to come in Project Future, ensuring that our price investment is sustainable over time. Underlying other income, excluding insurance recoveries, grew 16.7% year on year. Our franchise fees increased by 4.5% with franchise conversions mitigating the impact of trade disruptions in the base. Our commissions and other income were up 20.7%. This was achieved in part through strong growth in value added services. And this, again, was driven by our cash withdrawals at tills, money transfers, travel and event ticketing and the sale of lotto vouchers. As I said in my induction, this half year result was delivered against the backdrop of externally driven cost pressures. The most significant of these were and are high diesel cost to mitigate heavy load-shedding, above inflation increases in areas such as fuel, rates, utility, and electricity. Security and insurance costs, which have significantly increased since the July riots last year, as well as an increase of 150 basis points in the repo rate until the end of August. As a result, the group has spent an additional ZAR 110 million on energy costs, net of electricity savings during this result period. The group's trading expenses increased by 10.6%, not only as a result of external cost pressures, but also planned investment in delivering on our Ekuseni strategy. These planned investments included the accelerated rollout of our Boxer and clothing stores. The rebranding and launch of QualiSave, the Pick n Pay CVP upgrades 41 stores during the first half, and an increase in advertising as we increased our share of voice in the market, particularly that of Pick n Pay. We have, as I've said, made good progress in our first half year of Project Future Phase 2. We delivered ZAR 315 million during this half, across both gross profit and trading expense lines. This has enabled both Pick n Pay and Boxer South Africa to contain like-for-like cost growth at or below like-for-like sales growth, a very strong achievement indeed. The key achievements of Project Future for this half were the signing of a store labor multitasking agreement with the benefits to follow in future periods through increased productivity, lower costs and improved customer service. We've made progress in better buying. We've got greater supply chain efficiency as we optimize what is now a fully centralized network in Pick n Pay. We have maintained strong cost discipline, with like-for-like expense growth contained at 6.4% compared to like-for-like sales growth of 7.4% on a group level. And we've also made progress with our support office consolidation plans with benefits to realize in FY '24 onwards. I now move on to our business outside South Africa. Our goal for our Rest of Africa division are one of sustained and steady growth across all the markets in which we trade. We have delivered strong positive like-for-like unit growth in key markets despite strong headwinds from inflation across all the markets. Sales in the Rest of Africa of ZAR 2.4 billion, were up 17.9% for the half, supported by a strengthening of the Zambian kwacha. In constant currency, Rest of Africa sales were up 8.3%. The division delivered a segmental profit of ZAR 131.9 million, up 44%, excluding the non-cash impact of hyperinflation, supported by a strong performance in Zimbabwe. I'm glad to report that we again were able to repatriate dividends from Zimbabwe in this reporting period. I would now like to give you an update on our working capital management. It has been a challenging period. The group's inventory increased by 22.6%, reflecting 3 factors. In a volatile environment, we have prioritized security and continuity of supply. This has meant holding more stock. We have, as I already said, deliberately bought stock strategically in a rising market, particularly commodities. And thirdly, we again need to take into account supply disruption in the base period as a result of the riots, which artificially reduced stock holding in the base. It is worth mentioning that inventory increased only 7.5% over the last 6 months until the end of August. Range optimization is a key feature of our new CVP in Pick n Pay. This will deliver inventory benefits over the medium term. But given the limited number of conversions to the new CVP to date, it is too early to see the benefit in this result. Our trade and other receivables declined by 12%, again, against a highly disruptive base. The important point to note here is that franchise debt on a normalized basis remain well controlled. Our trading of the payables were down 1.1% on last year due to buy-ins outside the normal working capital cycle, as I've discussed, as well as an increase in our supplier invoice financing reported within our net debt. As I explained at our full last year result, the group has rationalized its supplier payment days with strong working capital benefits in the mid-month, not reflected at the balance sheet cutoff date. As a result, our suppliers are increasingly utilizing our cost-effective supplier financing platform, decreasing our reported trade payables with an equal and opposite increase in our reported borrowings. Working capital benefits will be unlocked as strategic stock holdings unwind and range optimization benefits are realized. We have made progress in delivering our Ekuseni investment plan, spending ZAR 1.5 billion, a planned increase of 50% on the ZAR 1 billion of last year. The group invested in 79 new stores across all formats, including 20 Boxer and 20 for clothing stores as we continue to focus on deploying capital to where the returns are the highest. We have also increased our refurbishment schedule in support of our CVP rollout and QualiSave rebranding. Capital investment for the full year FY '23 is expected to be between ZAR 4 billion and ZAR 4.5 billion, in line with our plans. The group generated cash flow of ZAR 1.2 billion from operations for the period with free cash flow generated of ZAR 100 million, reflecting the accelerated CapEx investment over the period. Without this acceleration, the free cash flow generation would have remained at strong historical levels. The net cash outflow of ZAR 1.2 billion reflects the items I've highlighted previously, our increased inventory to mitigate against rising selling price inflation and more specifically, our critical increased capital investment in line with our Ekuseni growth initiatives. Our net funding cost increased by ZAR 25.4 million, reflecting the high interest rates over the period, as well as the increased capital expenditure and higher inventory as a result of the buy-ins. As an overall result, our net gearing therefore increased to ZAR 1.4 billion. Net debt to EBITDA at 0.4x on a rolling 12-month basis is well within the group's targeted range. Our H1 funding requirements were managed through short-term ZAR denominated debt with future date rebalancing that will include medium and long-term debt as Ekuseni gears up over the coming years. In summary, we delivered positive group turnover growth in the period with a market-leading performance from our Boxer business. Sales from Ekuseni CVP stores are highly encouraging for future Pick n Pay growth, but we're not there yet at a scale to impact this result. We have achieved effective cost control and are building momentum on our Project Future modernization and efficiency program despite inflationary pressures. We have delivered a positive headline earnings per share performance, albeit of a soft base, resulting in an interim dividend of ZAR 0.45 per share. This was an encouraging performance with good momentum for the future. However I have talked about the strong external headwinds that every business in South Africa is facing, including high inflation and heavy load-shedding. These are not yet behind us, and conditions in H2 will continue to be challenging. We are a united team, working very hard to delivering our Ekuseni goals. We will also work with determination to mitigate the impact of external pressures. However it is unlikely that we will succeed in fully insulating the impact on factors like load-shedding on our full year result. I now hand over to Pieter to take you through his assessment of the results and his update on our progress in delivering on our Ekuseni strategic plan. Thank you.

Thank you, Lerena, for taking us through the detail of the interim results. This has been a half that kept us on our toes, a half where we launched and began to execute our Ekuseni strategic plan and a half where we faced significant external challenges, including high inflation and increased load-shedding. Through the determination and resilience of our teams, we can stand before you today and bring you a positive interim result. We achieved a group sales growth of 11.5% with a strong like-for-like component of 7.4%. If we focus on South Africa alone, the numbers are just as encouraging with 11.2% sales growth and the like-for-like component of 7%. These are good numbers. And I'm especially pleased to deliver them in what is an investment year for the group. We have been revamping our stores to reflect our new customer value proposition for Pick n Pay and our new banner Pick n Pay QualiSave. We have completed 41 full revamps since May, and we have 130 full revamps planned for this financial year. We have also transformed 93 stores to our new Pick n Pay QualiSave banner. That's a massive undertaking and an incredible amount of work is ongoing across the entire estate. There is a degree of disruption associated with revamps of this scale, but later, I will show you that the results are worth it. In May, we made the commitment to disclose Boxer sales growth separately from Pick n Pay. Today I'm proud to highlight a Boxer like-for-like growth rate of 14.2% for the first half. This is phenomenal, market-leading achievement. As I said before, Boxer is a gem, a growth engine in our business. The result this half was underpinned by our price investment and strong trade campaigns. In May I also committed to being more transparent and to bring you more regular updates on our performance. We gave you an update of our turnover for the first 18 weeks in the year at the AGM in July. The trading momentum we saw then continued through the rest of the half. Our growth was solid in the first quarter, and we had a very strong quarter sales growth of 14.2%. Yes, this was off a disruptive base of last year due to the impact of the July civil unrest. Nevertheless even accounting for that impact, our sales growth was encouraging. We have strong trading momentum across the group. Boxer sales growth was a clear driver of the group turnover growth. We have another steady growth contribution from our stores in the Rest of Africa. We are continuing to see decent trade in September with a growth of 8.4%. As you know, this year we launched our new strategic plan, which we aim to deliver fully by the end of financial year '26. We have called our strategic plan Ekuseni, which means the morning. For retailers like us, the morning is one of the most critical times in the day. It's when we open up and prepare our shops for customers. We do this literally in our stores every day and are doing it as a group throughout our plan; investing, revising, resetting, executing for our customers. We want to become the best retailer in the country. We believe we will achieve this by building on our values and putting the customer first at all times. The first Ekuseni pillar is winning with the Pick n Pay customer. The only way to measure this is to ask them. So our key metric is a target growth rate of our Net Promoter Score, also called NPS. We ask customers whether they would recommend us to friends, family and colleagues, and we have a score for every store. Our goal is to achieve 20% growth in our NPS in Pick n Pay and Pick n Pay QualiSave stores. I've already shown you the power of Boxer. We aim to double our Boxer store sales by accelerating new space growth and by maintaining strong like-for-like growth. We aim to build a market-leading online business. This means developing and growing a strong omnichannel proposition. We aim to fund our ambition by finding ZAR 3 billion in savings through Project Future, a company-wide modernization and efficiency plan. All of these ambitions rely on the hard work and dedication of our people. Our early success has given us energy and importantly, proof points that I hope you can get excited about too. So I'll give you a quick summary of where we are, and then we dive into some detail. We are rapidly executing Ekuseni plan across the business. In Pick n Pay Retail, we have stronger sales growth and better overall performance in our Ekuseni revamped stores than in the rest of the estate. Importantly customers are telling us that they like these stores. Boxer is maintaining strong market-leading sales and is on track to expand the storage state significantly this year. We have strong growth in asap! and we have launched an excellent customized Pick n Pay experience on the Mr D app. We are working hard to find and realize the cost savings that we will need to fund our ambition. And also here, we have made good progress. We are consolidating our support office and building the capabilities we need to be able to deliver our goals. As I mentioned, we launched a new brand, Pick n Pay QualiSave on the 15th of August. It's extremely hard to launch a new brand successfully, but I think the team has done a fantastic job. As you will know, from a strategy presentation in May, QualiSave is more than a change to the name on the door. These stores will provide a new customer value proposition, high-quality product at low prices, servicing -- serving our customers with relevant range. The new brand enables us to better target our promotional activities. This makes our proposition easier to execute in stores and easier to communicate to customers. We have done 93 full QualiSave conversions, and we are rapidly rolling out and aligning the customer value proposition in these stores. The initial performance of these stores has reinforced our conviction that this is the right decision. We are reenergizing Pick n Pay by focusing on the target customer segment. We know that customers want fantastic quality and relevant range. And with more focus, we are beginning to deliver that. We are quickly rolling out revised customer value proposition in the Pick n Pay stores too. The images we have shown here can't fully capture the distinctions between our brands. The best way to understand our group proposition for supermarkets is to see and to feel it. As you will know, the group is positioned to deliver 3 distinct value propositions in our supermarkets. That is Pick n Pay, Pick n Pay QualiSave and Boxer. Pick n Pay is centered around providing high-quality products at great value. We want each store to be brilliant experience for customers. We are now providing 18,000 products on average, which is smaller than in the past, but still retains room for a deeper range in relevant categories. We want customers to experience our powerful fresh produce, amazing bakeries, and wonderful specialty sections. Pick n Pay stores will be the home of our crafted collection and many new innovative products to come. Pick n Pay QualiSave is about elevating the essentials and providing great quality at low prices. We are focused on delivering an average of 8,000 products in our QualiSave stores. This simplifies our offer whilst enabling a wider range relevant categories. These are welcoming stores where we aim to win customers by providing strong fresh produce, great promotions and excellent service. QualiSave is where lower prices look better. Our Boxer brand focuses on servicing -- serving around 3,000 products at the best prices in the market. The range is limited, but this has allowed us to be targeted, efficient and deliberate. Our proposition is simple, never pay more than a Boxer price. These are vibrant, friendly stores where discerning customers get the best deals through combos and multi-buys. We want our Boxer stores to be a central part of the communities that they serve. Our brands will effectively cover the market. We have aligned Pick-a-Pay, Pick n Pay QualiSave and Boxer to give the group a focused and robust basis for future growth. I've illustrated our overall proposition, but I would like to take a moment to highlight what we are doing specifically in Pick n Pay retail. We have split the brand to give more focus to the relevant customer segments. We launched 10 pilot stores with the new CVP MA, 6 QualiSave and 4 Pick n Pay. When we started to see the results, we moved quickly to add another 36 stores over the first half. These Pick n Pay and QualiSave revamped stores have had an average weekly sales growth of 50% since launch. The NPS of these stores has grown by 16% since launch. We have seen strong growth in key categories like beverages, bakery, and snacks in Pick n Pay and similar strong growth dynamics in commodities, butchery and bakery in QualiSave. Our bakeries are important to our overall proposition. So especially encouraged that this is one of the best-performing categories. When we launched the Ekuseni, we said that we will measure success by customer response. I've spoken to you about one customer metric, NPS, but another is simply the change in number of customers visiting these stores. And I'm happy to report that this is up. Our revamped stores have seen an average increase of 20% in customer transactions. Customers in these stores are buying bigger basket than last year and bigger baskets than in our other stores. More customers are coming to these stores to enjoy our revised ranges and great deals in what we call traffic categories. And customers are also shopping the categories that we have set as differentiators or what we call the power categories. I think these are strong proof points and demonstrating that we are on the right track. Our price perception has been in the past uneven. This is why consistent price investment has been an important part of our strategy for Pick n Pay retail. Over the past 18 months, we have aimed to win the trust of our customers by ensuring that our pricing is highly competitive and consistent. Customers have noticed the difference. And we have seen a pleasing improvement in price perception. Our price investments are reflected in an internal inflation of 7.2% compared to CPI food inflation of 8.2%. This despite a very high-cost inflation in commodity products in excess of 20% for some commodities. The separation of Pick n Pay retail store estate into Pick n Pay and Pick n Pay QualiSave gives us more opportunity to target our price investments and promote more effectively. Boxer continues to enjoy market-leading sales growth, trading in the largest and fastest-growing segment of the market. We have a strong discount model executed by an excellent team under the leadership of Marek Masojada. We have seen a robust sales growth in excess of 20% in key categories, including cold drinks, canned vegetables and household cleaners. We have a strong own and confined label penetration in Boxer, accounting for as much as 40% of sales in some categories. I've outlined our plan for the significant expansion of the Boxer store estate over the next few years. This year, we already have opened 26 stores, and we will add an additional 35 stores in the second half. We are focused on delivering a larger Boxer store estate without losing the core of what make boxer work; simplicity, efficiency, vibrant and well-executed stores and a deep understanding of our customers. Our Clothing business is a key engine of growth for the group. We achieved sales growth of 14.8% in the first half. We have seen cumulative market share gains over the last few years, and our amazing essentials offer provides customers with high-quality clothing at affordable price points. We have gained market shares in all categories in which we trade. I've been impressed by our ability to maintain share gains in categories in which we are strong, such as women's wear. And accelerate market share gains in other categories where there is an opportunity, like for example, kid's wear. We have an efficient, focused clothing model, and we are rapidly expanding by adding a further 39 stores in the second half. This combined with the 28 stores that we have already opened in the first half gives us the largest number of new clothing stores in 1 financial year. The Clothing team continued to do great work on local sourcing with 40% of our units sold manufactured in South Africa. Roughly 50% comes from the SADC region, which is important for our overall carbon footprint. And 32% of our volumes sold are manufactured with sustainability as a key attribute. Omnichannel retail is a competitive space worldwide. The market is still in its infancy in South Africa, but we expect a significant growth over the next few years. Demand for online grocery continues to grow post-pandemic. As I said before, customers are not shopping more. They're shopping in new and different ways. And it is essential to compete strongly in this space. We are well positioned for growth in online sales over the next few years. We have seen already a significant sales growth in our online sales with 82% sales growth in the first half and provide a sales CAGR of 64% over the 3 years. In the first half, asap! alone grew more than 200% year-on-year as we made advancements and improvements that allowed us to improve our customer experience and the reliability of the service. Scheduled delivery remains an opportunity in South Africa. We are working to accelerate our value proposition here in FY '24. You will hear more about this over the next 12 months. We have now launched Pick n Pay on the Mr D app. This is a customized Pick n Pay experience on the app and it is superb. We are bringing the best of a Pick n Pay grocery experience and our in-store picking expertise and combining that with the amazing app development and logistical capabilities of the Takealot Group. This proposition is available right now. We're already picking from over 270 stores across the country, and we will add more by December. The initial feedback of this offer has been brilliant, and we will begin ramping up our marketing over the next few weeks. The significant Mr D customer base offers a ready market with 10x the weekly active users as asap! and nearly 10x as many delivery bikes available on the road. I'm proud of the work that the Pick n Pay and Takealot teams did to make this a reality. And I'm excited by the potential of this combined proposition. This is a very important year for the group. We are delivering on our Ekuseni strategic plan. By focusing on the customer, we are strengthening our business by, first of all, rejuvenating Pick n Pay by refining our CVP into 2 differentiated banners, including the launch of Pick n Pay QualiSave and we are rolling out new CVP in more and more stores. Secondly, doubling down on the growth of our high-performance, high potential formats, Boxer and Pick n Pay Clothing. Thirdly, building a market-leading online business, launching a brand new and highly scalable Pick n Pay Grocery Service on the Mr D app. And fourthly, improving efficiency by launching Project Future Phase 2, a 3-year modernization and saving program. We are on track with this plan. Lerena has explained that this is an investment year as we implement the plan and support our customers with lower prices. Lerena has highlighted rightly also the external challenges that we will continue to face in the second half. But I want to finish by pointing to the momentum that we are achieving as a group and that the very exciting results we are seeing as we roll out Ekuseni ploy. The proof points are clear. We are on the right path. I'm thankful to our teams and our franchise partners and our suppliers. This half has required us to work harder than ever and to embrace a significant amount of change. I'm proud of the resilience and the determination of everyone across the group. We are at the beginning of a multiyear journey and are embarking on the next stage in high spirits. I would like to thank you. We will now take some questions.

First question for you, Pieter, from Ya'eesh Patel of Standard Bank. Could you please indicate the base for the post period end trade of plus 8.4%.

Thank you for the question. First of all, what we have committed to is to be a little bit more transparent and proactive when it comes to sharing updates towards the market. September trade is only a snapshot, you have to take into account. The base, of course, is a substantially less disruptive base, as you might think. If you look at the riots of last year, the majority of the disruption we encountered in July and in August, and if you look at the publication of last year, only 49 stores were closed during the month of September. On top of that, I think if you have listened well to my presentation is the revamped stores are continuing to trade extremely well with a double-digit sales growth. And the more stores we bring online that will help us to support our sales outlook for the remaining part of the year. And I think we are well equipped for our year-end festivity trading.

Question from [ Chris Gilmore ], again, for you, Pieter. Approximately how many SKUs are sold through a typical Boxer, a typical QualiSave and a typical Pick n Pay store?

In my presentation, you have seen is with Boxer, a limited discount model, we trade of around and about 3,000 active lines in our stores. QualiSave stores is 8,000 SKUs and an average Pick n Pay Store is having 18,000 active lines.

And then Lerena, a question from Paul Steegers of Nedbank. Can you quantify your caution on the second half of FY '23 outlook, what level of price investment, cost pressures, et cetera, do you see and do you believe you can grow second half HEPS year-on-year?

Thanks for that question, Paul. A very important one. This year, looking forward, as I've highlighted, will be one of a number of challenges. There is specific external cost pressures that we know, it will in all likelihood continue. And secondly, we have continuously signaled that FY '23 will be an investment year for us as a group and that there will only be meaningful earnings growth into FY '24 onwards. I think a few additional factors to consider, firstly, just a reminder that the H1 result was of a soft base and not reflective of the full year growth that the group could possibly aim for. Secondly, also, we have had a ZAR 65 million insurance receivable in our last year base that has swung into H2 in the current year, and that will also create some pressure for the second half. So yes, we are cautious for H2, but we are determined to try and mitigate as much as we possibly can.

I would like to reinforce one thing to the audience is, ever since we launched Ekuseni to the market in May this year, we have said this is a multiyear plan. And as Lerena has stated this, FY '23 is an investment year. Meaningful earnings improvement you can expect as of FY '24 onwards. I think if you look at our presentations, the proof points of our Ekuseni strategy plan are playing out quite well. If you look at -- ever since we have started executing our plan, and that's only since the second part of May. So we are less than 4 months operational when it comes to the execution of our Ekuseni plan.

I'm going to link 2 questions, Lerena, Funeka Maseko of JPMorgan. With the heightened capital investment in the near term, is there any prospect of revising the dividend policy? Please comment on the target likely capital structure over the investment period. And then a question from Peter Cromberge of Mergermarket. Could you please elaborate on plans to introduce medium and long-term debt onto the balance sheet?

Funeka, I'll address the question around dividend policy first, and then I think I can talk to capital and funding structure as a second point. As we've guided for this year, we've retained our dividend cover at 1.3x our headline earnings per share, and that is our intention for the foreseeable future. As far as capital or debt structure is concerned, traditionally, the group has funded itself through short and medium term, maximum 12-month funding. As we embark on our Ekuseni plan, with it being a multiyear strategy, we are working towards a more structured long-term funding structures. Firstly, we're investing in our Eastport DC, which is a ZAR 1.2 billion from our side, our stake in that strategic asset. And that will be funded through long-term funding at very cost-effective rates. And secondly, the team is working on a funding structure to look at matching the investment periods and the funding across the time period of Ekuseni. A few things to note. We have got a very strong balance sheet and there is extremely cost-effective solutions in the market for us. There is a lot of appetite. We have got a very strong standing in the financial marketplace, and we will ensure that any debt levels remain within a very respectable net debt to EBITDA ratio, and we endeavor to keep you updated on that as we progress.

Pieter, another question from Ya'eesh. With Boxer sales guided to double -- to FY '26, how should we think about potential sales participation of Boxer by FY '26?

First of all, we're committed to the market to disclose segmented reporting. That is something we have done for the first time with the disclosure of our half year results. So Boxer sales participation is 30%. We have outlined our strategy going forward by doubling down and adding an additional 200 stores in the next 3 years to come. So you can expect that this is going to continue to increase, especially given the fact that Boxer is operating in the fastest and the largest market.

And then a couple of questions, Pieter. One from Dino Constantinou of Investec. Could you perhaps unpack the store labor multi-skilling agreement reached? How do you expect this to impact operations? And there are a couple of questions on multitasking, but I think Dino has captured it.

I think a very good question. First of all, I'm extremely pleased that we together with the Union Representatives, after an extremely long period, I think it is over 15 years that we have been able to reach an agreement on flexible hours and multitasking. I think that's a big opportunity for the efficiency and productivity improvements for our staff, all with the objective in order to serve customers better and more efficient. So a staff member will be able to perform more duties during one shift and that's a big unlock in order to ensure, first of all, that our staff is there when the customers are there. And secondly, that the staff are at those areas where we need to support our customers. So it's a major unlock. And we signed the agreement at the end of August, and we are in full training and implementation mode as we speak. And we foresee to bear the fruits from that in the remaining part of the period going forward.

And then another question from Ya'eesh, Lerena. What would sales growth have been in the Pick n Pay Brand, excluding clothing for the first half of this financial year?

Our underlying growth of our Pick n Pay business remains strong. Our Clothing business is a small, but growing and important part. And we are very confident in the potential that specifically the CVP rollout has given us for future growth for the Pick n Pay business. We know there is more to do, but the proof points Pieter has highlighted such as 15% up in our pilot stores, a significant positive for us looking forward.