Pick n Pay Stores Limited ($PIK)

8:30 it is. Good morning, and welcome to everybody here present today inside the auditorium and then all of those joining us online. Good morning, and welcome to this presentation of our FY '26 full year results. It's my pleasure to do the introduction today and to just bring you up to speed a little bit with where we are. And I know that there's obviously been lots of coverage in the media and another trading update that was issued on Friday. But I suppose some of the real major callouts for us is that the journey that we're on is that we are pleased with the steady pace of recovery that we're showing in the organization and specifically in our top line sales growth. And we recognize that there is still an enormous amount of work to be done. And it's amazing driving in here today, if you just have a look outside the building and you have a look at how Pick n Pay is showing up as a business today, with all of its new branding, its positioning and really getting the essence of the company back into what we do every day that this company certainly does have a heartbeat today, and it does have a pulse. And we recognize that we still got a lot of work to do, but we have done a lot in the last 2 years. And for that, I thank my entire management team and leadership team in the company as well as every single solitary person that works for this business. Our people are lovely in Pick n Pay. They are absolutely great. And I always say if you're having a tough day in the office and things are looking really hard, just go and visit a store and then you work out quickly why you actually do it. Our people are awesome. So a lot of the initiatives that we've got in place in the company are starting to show traction. And despite the fact that there are obviously a lot of macro issues that we have to wake up to and deal with every single day, we can control the controllables, and that's what we deal with every single day. So without any further ado, I'd like to call on Lerena to please come up and present the numbers. Thank you, Lerena.

Thank you, Sean. Good morning, everybody. Thank you very, very much joining us either here in the auditorium or online. As Sean has indicated, it's been another milestone year for Pick n Pay. We have worked hard on all the critical initiatives to support our turnover plan, and Boxer has continued to grow at pace. Before I start unpacking the FY '26 results, some housekeeping matters, a reminder that the prior financial year was a 53-week financial calendar and the impact on the prior year group profitability was minimal. We have presented like-for-like 52 on 52-week turnover numbers where appropriate, but the base of this presentation is 52 on 53 weeks unless the numbers indicate differently. The group recorded turnover of ZAR 120 billion, up 3.4% on a 52-week basis. Boxer supported that number with a market-leading 12.3%. The Pick n Pay segment turnover declined by 1.6%, reflecting the conclusion of our successful store reset program. We delivered a profit before tax and capital items of ZAR 360 million. That is an increase of ZAR 537 million of the loss of ZAR 237 million we recorded last year. The main driver for this increase in profitability was our net funding interest year-on-year positive swing of ZAR 681 million. This offset the increase in our trading loss of ZAR 74 million for the year. Our profitability improvement on a headline earnings level is significantly lower as it reflects the increase of the NCI, the noncontrolling interest in Boxer of 34.4%, which is now annualized. We have a full year of NCI in this year versus 3 months in the base. We have made strong progress on multiple fronts. We closed off the group's balance sheet with cash of ZAR 3.1 billion, ZAR 2.4 billion of which belongs to the Pick n Pay segment. We're making ongoing progress on our strategic priority to improve our like-for-like sales growth in our company-owned and franchise stores. The Pick n Pay Supermarkets owned stores grew 3.9% for the year versus 3.3% for the previous financial year. Our franchise issues is up 0.9% compared to a decline of 0.1% last year. This improved momentum is notwithstanding the very soft November trade that we experienced as we have previously reported. Our like-for-like sales momentum has returned in December throughout the end of the FY '26 financial year and has continued at levels slightly above into the new year. We have delivered like-for-like volume growth in the Pick n Pay segment of 0.9%. Our internal selling price inflation was at 1.9%, well below CPI of 4.4%, again, illustrating our commitment to deliver to our customers better value at lower prices. Our omnichannel sales driven by both ASAP and Mr. D was up 33%. We are achieving strong growth of a very strong base, and we are now serving customers out of more than 620 stores of 2,500 bikes. The Pick n Pay clothing turnover in stand-alone stores increased by 5.3% with like-for-like at 0.7%. The H1 momentum of 12% slowed in H2 to minus 0.9%, mostly as a result of a soft clothing market in general. Our clothing stand-alone stores 3-year like-for-like average growth is at 3.5%, very strong when compared to the market as a large. Our clothing team opened 22 stores this year with the total estate now standing at 437 stores. The Pick n Pay segment itself delivered turnover of ZAR 74 billion. That is only slightly behind that of last year. That is notwithstanding the closure of 98 owned and franchised stores over the last 2 years. The turnover that we actually have achieved on a like-for-like basis is absolutely reflective of the team's commitment to improve operational excellence and customer experience. The Pick n Pay business is not materially smaller year-on-year, and we are really looking forward to return to a growth business in FY '27 as the store closures are now largely in the base. The group's trading profit of ZAR 1.7 billion decreased from the ZAR 1.8 billion last year. We have a similar decline in our trading profit after lease costs, our main key metric where we measure the business, and our objective is to get the trading profit after leases back to a breakeven number. We've had exceptional improvement in the Boxer trading profit of circa ZAR 300 million, notwithstanding the increase in the listing costs. This was offset by the increase in the Pick n Pay trading loss of circa ZAR 400 million. The Boxer team has already presented their results to the market, so I'm only going to briefly touch on that in this presentation. Sean and I and the team's focus is on Pick n Pay's turnaround, and that's what we will focus on today. Our Boxer business, as I've mentioned, grew turnover by 12.3% on a 52-week basis. They delivered an increase in trading profit of 17%. Their trading margin improved by 30 basis points to 5.7%. Well done to the team on an excellent set of results. Their full results detail and financial statements is available on their website. The Pick n Pay key metrics reflect steady progress across all our strategic initiatives. despite the pressure on our profitability year-on-year. Each of these initiatives are focused to get the business back to a breakeven number. The main driver, as I've mentioned, of the segment's earnings improvement all up of ZAR 400 million is our interest benefit of ZAR 681 million year-on-year as a result of the recapitalization in the previous financial year. Offset by this is the decline in the Pick n Pay trading profit itself, which I will unpack in the following slides. Our trading loss increased to ZAR 953 million from ZAR 549 million last year. That is a trading loss margin increase of 60 basis points. The like-for-like expenses was up 6.7% compared to our like-for-like sales of 3.1%. This is the main strain on our year-over-year profitability, notwithstanding the progress we've made on our strategic initiatives. Our gross profit margin is up 40 basis points, and this was not sufficient to offset the 100 bps increase in our trading profit margin. Both of these items, I'll unpack on the following slides. Our other income is down 2.4%, reflecting our reduced property portfolio and our franchise closures and conversions. Our successful store estate reset has now removed 61 unprofitable owned stores from the estate. And we have loss avoidances in this year's result of close on ZAR 110 million because of the store reset program. Also included in the numbers that is important to note out is ZAR 260 million of IFRS 16 lease profits relating to the store closures and ZAR 235 million of once-off restructuring costs relating to store closures and other strategic initiatives. Our diesel costs in our FY '26 results is an estimate of ZAR 625 million, 0.8% of our turnover. We've made great progress, but there is much more to do. We have improved our like-for-like sales growth. We have delivered on our gross profit margin. We are focused on investing in the right places to support our plan. The improvement in trading expenses will come, specifically through the Future Fit Structure initiatives that Sean will unpack more in his presentation. As I've indicated, our GP margin is up 40 basis points with a 30 basis point underlying improvement. The underlying improvement was supported by improved category management and mix, specifically towards fresh and our general merchandise items, and we have had a notable reduction in our waste as our operational excellence improved in store and across our supply chain. We also have continuous improvement in our buying and our supply chain efficiencies. Notwithstanding this improvement in margin, we have still delivered more range to our customers at better prices. We remain price competitive. We have also invested in our franchise model. We have reduced the sales margin on the articles we sell to our franchisees to support the profitability of this very important part of our business. The 40 basis points improvement over this period, given the investments that's been made and the customer experience that's been proved, I believe, is a very strong performance. Our all up trading expenses is up only 1.1%, reflecting the store closures that we have done through our store estate reset. On a like-for-like basis, however, as I've mentioned, it is up 6.7%. The increase in our like-for-like expenses is driven by above inflation wage increases as well as investments in store execution and training. We have done selective hiring to get the right skills into our stores. We've improved our training, and that is ongoing. And we have made a strong investment in our brand. As I know these that are present in the auditorium would have witnessed the progress that we are making in this regard. We are focusing our spend on what is required to rebuild the Pick n Pay business. As I've mentioned, we are acutely aware of the requirement to get our like-for-like expenses below our like-for-like sales growth. This is a key focus area for us and the current consultations with our labor partners is a critical enabler in this process. We have net positive finance swing of just under ZAR 700 million as a result of our debt paydown last year, and this is the majority of the driver of the year-on-year increase in profitability. Our net lease interest in terms of IFRS 16 is in line with last year, also reflecting the store closures in the store reset. The group headline earnings loss of ZAR 386 million has improved by 5.4% for the year. This reflects the improvement in the Boxer trading profit after leases of ZAR 259 million and the decline in Pick n Pay's trading profit after leases of ZAR 343 million and then, of course, supported by the net funding interest benefit. This is also impacted by the inclusion of the 34.4% Boxer NCI annualization year-on-year. The Pick n Pay working capital did not require any liquidity utilization during the period, notwithstanding the investment in the improved ranges. The tight inventory management is reflected in the decline in inventory year-on-year of 2% if acquisitions is excluded. This is despite the fact that we had a weaker November trading period, we still did not have any inventory overhangs at the end of the period. There has been continued focus on working capital management across the group in both Pick n Pay and Boxer, and we believe there is more benefits to come from the Future Fit initiatives, specifically in the Pick n Pay segment. I'm very happy with the progress in this area. Pick n Pay ended with ZAR 2.5 billion cash on hand. We utilized ZAR 2 billion from free cash flow during the period. That is an improvement of the utilization of ZAR 2.6 billion last year. However, it is more than our original guidance for this year of ZAR 1.6 billion. The reason for the shortfall on the guidance is the operational performance was less than originally anticipated, largely driven by the disappointing peak trade period with recovery subsequent. And despite this worse-than-expected operational result, our working capital management remained strong, as I've indicated on the previous slide. The group invested ZAR 1.9 billion, up from the ZAR 1.5 billion last year. This increase is driven by Pick n Pay. The Pick n Pay investment is ZAR 0.8 billion, up ZAR 300 million on last year. Our spend remained measured as we did utilize ZAR 2 billion of free cash flow for the period. Our focus is on revamping key stores where we can optimize our ROI, critical repairs and maintenance and some franchise acquisitions. OpEx investment in our people and our brand and our partners remain our critical focus. The success of Pick n Pay's turnaround is not based on spending capital at all costs. However, we do want to make sure that we invest on the front foot ahead of the plan to support the business becoming a growth business. And as a result, we have increased the guidance for the Pick n Pay spend to ZAR 1.4 billion, up from the ZAR 1.8 billion in FY '26 for the next financial year. At the year-end, we ended with cash reserves of ZAR 3.1 billion, ZAR 2.4 billion for Pick n Pay. Boxer remains highly cash generative, adding ZAR 0.9 billion to our cash reserves during the period, and the team repaid the final outstanding debt of ZAR 200 million post financial year-end. The business is now totally debt-free. Post balance sheet date, Pick n Pay reduced its shareholding in Boxer from 65.5% to 53.1% in a highly successful capital raise. We remain the controlling shareholder of the Boxer business. We raised ZAR 4.7 billion through this process, now having circa ZAR 7 billion on the balance sheet to fund the future growth of Pick n Pay and its turnaround plan. Our balance sheet is strong. Our focus remains on growing Boxer and ensuring that we turn around Pick n Pay. I will now hand over to Sean to take you through the initiatives that we are following to do so.

Thanks, Lerena. So if we see where we are currently on this journey that we're on, it really is extraordinary how time does fly. And it's just a little over 2 years ago that I had to stand in this auditorium for the first time and start to give you some initial feelings and indications of where I believe Pick n Pay found itself and where we were going and the journey that lay ahead of us and to make the prediction that this was indeed going to be a multiyear process in terms of getting the organization back to where we need to get it to. And one of the major callouts from Lerena in her numbers that are there now is not to underestimate the effect of the closure of stores in the group because on the one hand, you are saving, obviously, the loss that you're making in those stores, but those stores still contribute to the center. And our simple reality in this company is that we are still in a negative jaw situation that the rate of our expense increase is well controlled as it is by Dallas and all of the operators in the business that until such time as we get that the right way around, we're not going to be able to get those jaws back open again as soon as we would like to get them. And that is really what gets our focus and attention every single day when we do come to work. So we are encouraged that despite the fact that we've been shrinking the company, for lack of a better term, while our opposition has been growing at a prodigious pace, opening huge numbers of stores. We've managed to achieve what we've achieved. And that's why the like-for-like sales growth for me is an extraordinary measure of what has actually happened in this company where we've come from a massively negative delta to where we find ourselves at the moment. And that's on the back of a lot of hard work that's been done by the team. Our franchise business continues to gain traction. And we know it is common cause that there's lots of conjecture about the whole world of franchise at the moment, and we can see some of the major franchise operators are under extraordinary pressure as well in this marketplace. And I think it stands to good understanding that as margins have been impacted, and it's happening across all industries. It doesn't matter what industry in today, margins are getting compacted today. And the same thing has happened in the split between the franchisee and the franchisor in terms of the margin compaction that's taking place. And a lot of the talk about this huge growth in the wholesale sector as opposed to the retail sector is that what you're seeing happen quite a lot today is a lot of distribution from the major manufacturers that would traditionally have gone through either ourselves or the other major franchise operators is, in fact, now going into the wholesale sector and then finding its way back into the retail sector again. So we're finding even in our own franchise network that they are buying out of us and into wholesalers where they can find on large job lots, greater prices for themselves, and this is a phenomenon that has been growing within the franchise sector. And we have spent an enormous amount of time rebuilding our relationships with our franchisees, and I'm pleased to say that it's better than it's ever been. And in fact, we're seeing that our percentage of purchases is, in fact, now going back the other way again as we've dealt with the margin issues. If we have a look at the issue of inflation, and again, one must take into account in this backdrop here that we've had to deal with deflation in major, major categories in our business. So when you have a look at our like-for-like sales growth and you take into account the deflation that we've had to deal with, it's also been a reality for us. And you can see that it's even more profound in the Boxer world. We're obviously at the bottom end of the marketplace where you've seen most of the deflation in the major categories that we've had to deal with this. And again, to Marek and his team, it's just extraordinary the way that they have stepped through this and dealt with it. So great accolade to them as well on that regard. For us in Pick n Pay, and you will see in our beautiful new fleet of vehicles when you came in this morning out front, the fresh food people. We are clearly, clearly reestablishing ourselves again as the fresh food people in Pick n Pay. It used to be where we were in the old days and people say, well, what is the difference going to be in Pick n Pay? Well, I can tell you that the absolute front door of this company, again, as we are stepping forward and building this up all of the time is in our fresh offer and getting ourselves back to being the fresh food people again. And there I say fresh food that people can actually afford, but we'll leave that there. We can let that hang in the air. But that's where we will be driving our business back again because it's vital for us. And our fresh growth has been absolutely phenomenal. So to Peter, Arnold and his team, they're well done. If we have a look at ASAP and the progress that we're making in ASAP as well, again, strong, solid growth and some wonderful evolutions there. And to Hale, we've now got clothing online on ASAP as well and great, great growth in this sector of the business as well. Smart Shopper, we can just have a look at the branding. And I mean, wherever you have a look around in Pick n Pay, we've really now got ourselves back to a strong corporate identity again, strong carry through. You will see our beautiful new bags back in the shops again with the blue stripes on the bags again and just getting that solid, solid differentiation back for ourselves. And a huge amount of work has been done in both the Smart Shopper card and benefits and loyalty rewards, and you're going to see that there will be a huge amount of emphasis put on this and as well as the retail media and data monetization, which is work that Vince and his team are continuing a pace with. And our rate of recovery, if we actually have a look at our retail media and data modernization -- monetization, you will see that the rate at which we are collecting there is basically equal with the industry when we have a look at it. So we are not behind in any way, shape or form in that regard. Supply chain. We concluded our negotiations this year with DP World, and we have now reconfigured our total supply chain network. and that is all dealt with. And that beautiful big building that we have up in Eastport, that massive distribution center that was really way, way, way in excess of our requirements is now being fantastically fully utilized by DP World, and we are paying for the portion that we use. So we've managed to get that dealt with and squared away as well. Our store labor model review. This is obviously currently a very, very important part of the journey that we're on. And I have no doubt that when we get to question time that there will be more than enough questions in this regard. But it is our sincere hope and belief that we can step through this in as orderly way as possible and get this major cost block dealt with for us in the company. It is one of the things that in this auditorium that was very first thrown at me by the investor community and the analysts of saying, Sean, until you deal with the labor cost block that you have in Pick n Pay, where you are paying way in excess of what the industry is paying, you're going to battle to turn Pick n Pay around, and it is one of the last major hurdles that we have to deal with, but we'll cross it. We'll deal with it. Clothing. We know that the clothing industry, by and large, has had quite a tough year in the last year. You can see in the results across all, and you'd be foolish to believe that we would be immune from that. So we didn't have the greatest year in clothing this year, in line with the rest of the industry, but we must take into account that, that is on the back of many, many years of phenomenal growth in Pick n Pay Clothing. I'm pleased to say that Pick n Pay Clothing is again solidly on track. You can see some of the beautiful collections outside there again, and Hal and her team are solidly back on the front foot again. Our partnerships with FNB eBucks has continued to yield wonderful benefits for us and extraordinary growth for us in that regard as has our relationship with Absa. Our SpringBox partnership is also a really, really, really fantastic initiative for us. And we've got some amazing stuff coming up now because we've got 5 months of incredible rugby coming up now. And this obviously then starts to build up going into the World Cup next year. And you know Rugby has become such a force for unity in this country. If you look at school wear rugby today and you look at ladies Rugby today and you look at the way that Rugby is just uniting and bringing communities together, it really is phenomenal. And our sponsorship of the Springbox has been a huge, huge statement in the public space that Pick n Pay is going nowhere that we're here to stay. Our beloved Chairman always taught us that doing good is good business. And despite the fact that we have been under a little bit of pressure in the last couple of years, which you may have noticed, we have not taken our foot off the gas at all in terms of our corporate social investment programs. And it's amazing even now with a bit of stress that we have inside the company at the moment with these 189 notice that's been served, every single day, I still get in our CSI group, the most extraordinary work that our people are doing across South Africa in community. And Pick n Pay has always been about community, and we've continued to drive home. We've continued to drive hard on this. Boxer can say no more. Obviously, we are still in control of Boxer with a 53% position in Boxer. And to a degree, it has been a bit sad for us that we, a, had to list it in the beginning. So -- but it was what we had to do in order to survive. And yes, it's just Marek and the team continue to grow and continue to find lots of opportunity despite the fact that, that marketplace is under a lot of pressure. And we must just think if you just think of the effect of diesel prices and what's happened to disposable income and people salaries and wages, when you're spending 20%, 25% of your money to get to work in taxi, that market is also going to be under pressure. But Marek and them always find a way of dealing with these exigencies. So I suppose as I get to the closing piece now before we get to the important questions and answers, and we have a look at where we were, 2 years ago, standing up here, we had to put up a business plan, and we had to share with you what it is that we were going to do to fix Pick n Pay because I think that many people at that stage and the conjecture at that stage was basically is Pick n Pay even going to survive where it finds itself at the moment. And we said that we needed to put down a clear business plan that we could start to step through and deal with. And we can see how we've started to close out these various blocks that are there. And the one that we are now focusing on is the future fit structure, and that goes in 2 parts. So we have, for the last 2 years, we've had salary freeze here in the support offices across the company. We've also done an exercise there of having a look at what the future fit means and not just doing a headcount saying, I need to get x percentage out. No. It was a case of saying what do we need functionally and operationally for this business for the future because that's what you need to do. So we unfortunately had to say goodbye to some people in the company in that regard, whereby tasks were reallocated and made more efficient. And as I say, a salary freeze as well. And what we did at the same time was that we left our operational structures in place, understanding that despite the fact that we were having discussions that we were going to have to get to deal with this at some point in time. You can't do everything on the same day. If we'd undertaken all of these blocks that sit here, all 6 projects with the same ferocity at the same time, we would have snapped this company like a tweak. You have to sequence these things in life. and you have to work out that sometimes you're doing things that are on the positive side and other times, you're doing things that are on the negative side. So you're living in this world of parallel universes perpetually. So we will step through this now and get this dealt with and continue to then bring to bear all of these 6 initiatives that we've put in place. So the outlook for us going forward from here is that after the dip that we had in November, which everybody had, by the way, the October, November, and then we had to put out our little trading update in February, early in this year. I'm pleased to say that our like-for-likes have really shown strong growth again and have continued to trend in the right direction, but we're not naive. The market is going to come under pressure. The effect of all of this inflation starting to come in is going to bring some additional pressures on to our consumer base. Our trading margin, we continue to improve our trading margin, which is a key area of focus for us. And that's not about just putting prices up at all. It's about being more efficient in what we do and about continually managing our business on a day-to-day basis. So if we have a look at where we are now, we look forward to the year that lies ahead of us, and we look forward to making more progress on the journey that we're on. So our business plan that we have, and if I had to go back 2 years and I ask myself the question, what would we have done differently 2 years ago, I can quite honestly stand here and look you straight in the eyes and tell you very little, very, very, very little. We are in the situation now where as a business to walk in here today and have ZAR 7-odd billion, ZAR 7.2 billion on the balance sheet. Where is Nicholas. Mr. Nick, where are you? There you are. A least you got a job now you can work out where you put the capital as opposed to what you were doing 2 years ago. And I mean, I say this in all honesty. I mean, a lot of the conjecture 2, 2.5 years ago was seriously, how does Pick n Pay actually get out of this? And I had the unfortunate role at that stage to start doing a little bit of future casting and starting to look a little bit forward into the future. And you will remember when I said that sadly, we would most probably have to burn somewhere between ZAR 6 billion and ZAR 10 billion of the Boxer value that have been created on the back of the ZAR 180 million we paid for Boxer, that the ZAR 40 billion of value that have been created that we would have to burn maybe somewhere between ZAR 6 billion and ZAR 10 billion in turning Pick n Pay around and getting it back to its rightful place. Now that number in and of itself, I don't think is going to be any different to what was forecast then. It may take a year longer. And from an investor perspective, that's a meaningful situation, very, very meaningful situation. But I think one really needs to ask the question, where will Pick n Pay be in 2030, in 2035, in 2040, try going to go and shop in Stutterfords, try going to go and shop in Edgars. I mean, Edgars today is basically a health and beauty counter in major shopping malls to all intents and purposes. The rest has disappeared. And we mustn't for one second, think that organizations are immune to these things just because they have a history, just because they had a context. In Zim, where we have our beautiful Pick n Pay and Pick n Pay in Zimbabwe, and Gareth and I were there right from the beginning when we made acquisition of TM in Zimbabwe. If we think back then, OK Bazaars was a 10-tonne gorilla in Zim, and they were part of Delta Corporation, along with the brewery, along with everything else, and they were there strong leader. And you will see last week in Er that they've had to suspend all payroll and OK Bazaars, all payroll and wages suspended with immediate effect and OK Bazaars sadly is busy, going to disappear there. It's going to be gone. So we mustn't think that there is an immunity to all of this. And that is why I say the important thing for me, it's not what happens why I'm here, okay? For me, it's important what happens after I'm gone, okay? That this company has a management team in place and a leadership team in place in this company that can operate this company daily, every single day, every hour of the day, 365 days of the year. And to get that in place, it takes time. You heard me before quote Roger Scrutin that English conservative philosophy, we very aptly said, great things are easily destroyed, but not so easily built. And our sad home truth and we're honest with ourselves, is that we did a lot of destruction in this company from within. And unless you're prepared to front up to the facts in life, you don't get there. You don't get there. And that is in the similar way that we're currently approaching our engagements and our consultations that we're having with our beautiful labor force in Pick n Pay at the moment. And it's hard because for a protracted period of time, a lot of well-intended concessions were given to our people. We've always had a generosity of this company of wanting to look after our people, of wanting to be the best payers in the industry, of wanting to do all of these good things. But our reality is that at the rate that it has got to, it is no longer sustainable for the company. So we will deal with this. I sent a note out today to all of our colleagues in the company. And it was just reflected at the end of the note, and I said for 59 years, we're going to our 60th year next year. And I said for 59 years, Raymond and Wendy have done everything for everybody in this company. They have done everything for our customers that shop in our stores. They've done everything for the society in South Africa. They've played their role in the evolution of our beautiful country. Now is the time for us in Pick n Pay to ask a simple question, not what Pick n Pay can do for us, but what we can do for Pick n Pay. And the same goes for every single person in this company. Now is our time to give back a bit and say with gratitude, we've educated our children. We have our homes, we have all of these things. So we will deal with this that we'll deal with this issue that lies ahead of us, and we'll get through this, and then we look forward to a really wonderful year ahead. So in closing, my agony [indiscernible], Lerena, when I returned to Pick n Pay, Lerena was obviously here as CFO in the company. And as I say, turned into my [indiscernible]. But Lerena, today is your last presentation for the results for financial year-end because we have Tina Rookledge here today, who is taking over from Lerena, and welcome, Tina. And at the AGM, that official process will take place. So it's not as if you're leaving the building today. But in August, that will happen that you will hand over to Tina and then will be with us until March next year. But Lerena, I just want to thank you for the extraordinary, extraordinary great negative thinker that you've been. I've always said your CFO needs to be your great negative thinker because when you're a little bit nuts like I am, you need somebody who has sort of got a little bit of a hand on the handbrake. But Lerena really has been amazing. When you think that a scan 2 years ago, we were sitting here with all of this monstrous ZAR 11 billion of debt, balance sheet upside down, everything the wrong way around. And to step in, in 1 year to deal with that very complex lender situation that we had to do a rights offer and get that away and then do the IPO, Boxer all in 1 year and then deal with everything else, truly remarkable Gil. So you will leave a mark on the company. But it's not your farewell yet. You've still got work to do. But thank you very much. So without any further ado, we'll get to Q&A, if there are any questions.

Three related questions, actually, one from Jacques , private investor, Paul Steers from Nedbank and Michael Jacks from Bank of America. In very simple terms, could you tell us about the Section 189 and what it's designed to achieve? Then what measures are you taking to sustain the improvements made in in-store customer experience through 189? And then please, could you give us an update on the trade union discussions?

That's about 7 questions in one. So we'll deal with it. When you are in quite strained discussions in life and changing processes that really do affect people. You've got to be very, very careful how you step through these. And the best way to do it is to remain calm and be guided by the facts. That old story in life, don't ever let the facts get in the way of a good story, okay? One just needs to deal with the facts. And if we look at where we were, we've been having discussions with our labor leadership and our shop steward infrastructure in the company since my return. In fact, I think that was the 4th or the 5th of December 2023 when I went to my first plenary session, and I called out already at that stage that this was an issue that we were going to have to deal with. So we've been discussing this for the last 2.5 years. And we ultimately found ourselves in a situation where we were making little or no progress in this regard. And the only option really open to us at the end of the day was to commence a 189 process. Now to everybody, 189 automatically equates to retrenchment. But what it does is it triggers a consultation period whereby the parties get together. And here, we have the CCMA as our shepherd in this regard to see that we can actually now engage in meaningful discussions that get to an outcome because it's point as just having a discussion on a repeated basis and you never make any conclusion in the discussion. So this is a consultative process that we are now in, and I'm pleased to say that we are in discussions, both with our labor movement within the company. And these discussions will be ongoing. And it is not our intention to cut headcount. It's not our intention for anybody to lose jobs. That's not what this is about. But it's ensuring that Pick n Pay as a company survives because without a good company, you can't do good things. And this is part of making the company good again. So we will step through these discussions. And hopefully, we can come to some reasonable conclusion before we get to day 60. So we must be under absolutely no misapprehension here that the pressure is on. The pressure is on. So we don't take this lightly, and it's not something we did lightly. So that process is ongoing. Here's the amazing thing. Our people in this company are extraordinary, extraordinary. And we have spent a lot of time around the stores in the businesses and people coming up and saying, Sean, I'm third generation working for Pick n Pay. I want my children to work for Pick n Pay one day. And it comes back to my earlier observation to you that for us in this company, it's about where are we in 5, 10, 15, 20 years' time and still making sure that this is the best retail business in South Africa. We're not going to be the biggest. That race is done. We don't want to be the biggest. We want to be the best again, the best at everything. We want to be the best employer. We want to have the best offer for our consumers. And that is the mission that we're on. So in terms of how we continue to look after customers in this regard, I think what's going to happen, in fact, I don't think I know already that our people in this company are actually reflecting and saying to themselves, wow, I am actually lucky to work for the company that I love and the company that loves me. And you know you don't have a real relationship in life if you can't put it to the test. So I think that we will come out of this stronger. I think that we will come out of this with a renewed vigor for what we actually do and a renewed appreciation for what our mission in life is.

Question from Michael B at Priccidium. Mobile SIM card -- sorry, why haven't you given all your smart shoppers a free Pick n Pay mobile SIM card so that they can claim their gigs for groceries. It would make Pick n Pay Mobile the biggest MVNO network in the country and would generate William an additional revenue. What's holding you back?

Vince? There's a mission for you, Son. Okay. You can live now on it. Okay. Vince, can you please give a reflection? I mean it's a very valid point. So...

It's a great opportunity for us. We are actively exploring it as we speak.

Okay. There you are.

Question from Paul Steers at Nedbank. Was there any cutoff date impact in working capital and net cash of ZAR 3.1 billion?

No, Paul, this year-on-year comparison is clean.

A question from Citi. What are the determining factors that support pushing out of the breakeven year? And then...

I think the major determining factor is that just getting the jaws the right way around and getting our expenses more in line with what they need to be and obviously, a significant portion of that because here again, here's another simple true fact. The bulk of our labor expenditure is in the stores and the operations. And that is why this recalibration is so important to the company that we need to do now of resetting the terms and conditions that are there. So that's going to be a big step in terms of getting that the right way around. And then we have to continue to drive our top line sales growth. We need to now start getting back into another couple of percentage on the top line in sales growth and then continue making the improvement in margins in the company. There's just not one lever to pull. That's the complexity of running an organization like this. People think retail is a fairly simple business. It isn't. There are so many dimensions in a business as this. It really is like a complicated Swiss watch. Every C touches another one and works. So that is the major issue. It's just continuing to get our expense base down to the level that it should be at. And as I've said, the labor reset is the last major one in that regard and then continuing to just build on all of the efforts that are going into the organization. You can just look up here at all of this stuff. It's all incremental. Lerena, you can.

No, I agree, Sean. I think it's -- the reality is that it's a multifaceted plan with various items that need to be sequenced in the correct way. If you just think about our store resets program, there's so many parties involved. And therefore, as we are executing, we are rephasing where required. So there isn't a lag. There isn't a slowdown. It is literally just as the plan unfolds over the multiyears, we're getting clearer and clearer as to how that sequencing should work and how we can unlock the value that we need.

Is there any legal restriction required or shareholder approval on unbundling the Boxer stake to shareholders should the Board decide to do so?

Where we currently stand is we're very, very comfortable with our shareholding in Boxer at 53%, and we've got an extremely strong balance sheet to support the turnaround plan. And our first objective is to make sure that we get the Pick n Pay segment to cash flow breakeven, then we will look to the future.

Question from Ya'eesh Patel from SBG. 12 months ago, guidance was provided. Therefore, what is the Pick n Pay cash burn expected to be over FY '27? Based on the new guided phasing, how should we think about it when Pick n Pay arrives at cash breakeven given the 12-month delay in profit breakeven?

We're foreseeing that the cash flow burn for the coming year is probably in line with the current year. A few things to take into account. We've guided that there is an increase in the CapEx spend. So that would include that. But of course, as the questions on the labor restructure comes, the timing and how that actually plays out could have an impact. And of course, we have the reality of current increases in diesel prices. I've indicated that the diesel cost in our results for FY '26 is ZAR 625 million. Our current increase is about ZAR 28 million a month. So the reality is that there is various factors that will play out, and we will do that as and when it evolves.

Then 2 questions on franchise. David Fraser from Peregrine and Ya'eesh Patel from SBG. From David, we see debtors provision moving up this year. I presume this relates to the franchise network. Please, could you give us some indication regarding the financial stability of this network and the potential for further distress in franchise going forward? And then from Yes, would acquiring a bulk of the franchisee portfolio be considered in order to offset challenges seen within the broader SA Food retail franchise market?

I can talk to the debtors provision, Sean, and I can hand over to you for the strategic questioning. The increase in the debtors provisioning for this year does relate to some once-off costs relating to our store reset program. It's included in the ZAR 235 million that I've lifted out. What is important is that we believe that the appropriate level of our debtors provisioning, which is about 4%, 4.5% is the number that we will have going forward.

And I think just to add to that as well, I mean, in the franchise market, to Yash's question, I think that certainly, there is pressure, especially in the smaller franchise stores that are there, that there is no doubt, but we step through that with them, and we help them out in that regard. Strategically, franchise is still a key part of our business. It's almost half our business in total. So it is a very, very important part of our business. We have -- where we have certain large franchise stores in the major metropolitan areas where families have come to an end. Some of the kids are superstitious. They think of a full day's work may affect their lifestyle. So the parents end up wanting to sell the store and the kids can just take their money and go to the beach. So there have been instances where we have bought some franchise stores back in these areas. And it's turned out to be a good investment for us as a company because you obviously make the margin on both ends. One of the realities is that we've kind of turned on its head this notion that corporate can't run retail stores, only franchisees can run retail stores. Our truth is that our corporate business is, in fact, growing faster than our franchise business at the moment, which just shows the amount of energy and effort that Dallas and the whole team have put back into Pick n Pay again of getting back on the front foot. So we don't have a plan to buy our sways and chunks of our franchise stores back at all. But as they do present, if the opportunity is a good one, we will avail ourselves of it.

Question from Ken from Investec. What is Pick n Pay's propensity to increase internal inflation over the coming year given the fuel price increases? And how long can you absorb these costs before passing it on to customers?

Obviously, the first thing with inflation is it's very hard in the beginning to actually absorb. There's obviously like a lead and a lag. So to be able to recover immediately in the short term is quite tricky because you obviously are living in a very, very competitive space. but there will no doubt be an increase to the rate to the inflation. And I think sort of in the back half of the year, you may see some beneficiation come through in terms of aiding and a betting top line sales numbers and all of the like. But what it is going to do is that it conversely then also places additional pressure on the consumer in terms of their spending basket. So it's a bit of a double-edged sword. It's a bit of a double-edged sword. You should ask us about interest rates going up. We're quite happy about that at the moment for a change.

Two media questions, SABC and Reuters. SABC, if the Section 189 plan works out, how do you see this changing or impacting your future numbers? Reuters. On the consultation, how many jobs will be impacted and/or identified?

I can answer both of those simply. First of all, we don't intend impacting any jobs at all. That's absolutely not the goal of the exercise. We're not talking exact numbers in terms of what the beneficiation is going to be other than to say that it's obviously substantial, given that bulk of our labor expenditure is, in fact, spent within that number of people in the company.

Michael de Nobrega from Avior Capital Markets. There are a number of them with about 10 questions each time trying to get through them. This one, with diesel and logistics costs rising, are suppliers becoming more aggressive on price increases again? If diesel prices remain at current levels, what level of internal inflation are you expecting in FY '27? And how much flexibility do you have to absorb this, which I think you answered already.

Yes. Obviously, diesel cost is a major issue for us. I mean we spend about ZAR 600 million a year in Pick n Pay alone in that regard. The truth is today, if you look at the manufacturers and the effect of diesel on them, it's almost greater on us today than it is on them because we've assumed the distribution function today. The retailers today are actually doing all of the distribution out of the store networks. They do one drop into a warehouse. So in that regard, it's almost a bigger challenge for us than it is for the suppliers. But we can already see the effects of the inflation starting to come through. Now you can see across all of the agricultural community, what's happening to them, the cost of urea, fertilizers, all of these things are going up astronomically. So there's going to be a serious push in inflation in this country. And the issue around recovering that at a retail level is it's a fine balance. But again, for us, it's not the first radio we've seen this movie before.

A question from Michael Jacks at Bank of America. Will there be any capital gains tax payable on the recent disposal of Boxer shares? And if not, what is your remaining tax loss balance?

We've got a deferred tax asset on the balance sheet of ZAR 3 billion. And as we've indicated in the SENS announcement, there will be minimal tax paid in the Pick n Pay segment in the years to come.

Then a question from Austin Makhubela from Excelsia. Do you have any estimates as to what the FY '27 cash burn might be? With breakeven of the Pick n Pay segment being pushed back another year, what does that mean from a continuity standpoint or Sean will stay another year?

I think I've already answered the cash burn, Sean. So over to you.

Well, I mean, as I've said to you, the total amount that we were looking to burn in the beginning of -- we gave an indication of ZAR 6 billion to ZAR 10 billion, and I think it's still going to be of that order by the time we get there. It would be our intention to get there sooner than later, will certainly be our intention. But there are there are so many other moving parts that impact upon our ability to have full control over our environment. So we've got to step through all of the exigencies that do get thrown our way, and we will deal with it. We'll deal with it.

Another question from Austin from Excelsia. Could you please expand on the levers used to manage trading margin?

The levers used to manage trading margins. There are many levers that one can use to manage trading margins. Obviously, your shrink and waste is a very, very real element of that. Our stock control, you can see that in terms of stock in the company, and we're putting a lot of emphasis at the moment in terms of how we are managing stock levels and getting ourselves more efficient in that regard as well. So it's not just about simply putting up the price. It's about making sure that you actually hold on to a lot of the margin that you make and that you don't lose it in the running of the business. There's many, many points of leakage.

Maybe just to add, I mean, we have just improved the gross profit margin by 40 basis points through progress on those actions. And we do absolutely believe that there is more in terms of the Future Fit initiatives to get us to a breakeven trading margin net-net, we need to improve our expense ratio and improve our gross profit margin.

And your mix. There's mix. If you can run, for example, your fresh business, if you can run your fresh business well, there's obviously enhanced margin to be made there. If you don't run it well, you can end up really losing a lot of margin there as well. But it's also in the mix. It's also in the mix of goods that you sell.

A question from Nick Wilson at News24. Sean, you mentioned the pressure is on when it comes to agreeing terms with labor. What are the implications if you can't?

What are the implications if we can't...

You can't reach agreement, yes.

If you can't what?

Reach agreement with labor on 189.

We'll reach agreement. The 189 is a process. The 189 says that when we get to day 60, that there is a process that happens whereby notices are then given of retrenchment, and there will be an alternate offer of employment at different terms and conditions, which you will be free to take up. But we sincerely believe that with sensible dialogue that we will be able to get there inside the 60 days.

Question from Patel. Any change to the CEO's contract as exploration was previously guided to align with breakeven in FY '28?

No. I'm due to finish in May 28. And I'm not sure whether -- Gareth, have you got any intentions? No. There's been no discussions around that at all. The important thing for me as part of my succession, and I've said it just now, the important thing for me is reinstating into Pick n Pay, an operational management structure that can run Pick n Pay day in and day out. The conductor will acquire Master is not the most important person in that regard. It's what's created in the organization on a day-to-day operational basis. That's the important piece.

Question from Warwick Bam at RMB Morgan Stanley. Do you feel that the store estate reset is now complete? Should we expect stable store count or store growth in FY '27?

Definitely store growth in FY '27. It's largely complete. We will -- we're a retailer. There will always be stores that we open and close as we progress in our growth phase, but we are returning to growth in FY '27.

I think to add, I mean, I can add another layer to that as well. If you just took it to his logical conclusion at the end and he said, well, if we couldn't address the wage situation that we have or the recalibration of the labor, there may well be more stores that would, in fact, have to close. In fact, we had a situation a little while ago looking at a store where it presented as an opportunity. And we had to walk away from it because by the time we layered our cost of operations onto it, it didn't make any sense. And we'd have to impair it straight away. Lerena, we'd have to impair it straight away because of our materiality threshold that we have in the company. So it is a real issue. And that is why we have to deal with it. That is why we have to deal with it. And we have to have the courage to look at each other in the eye to talk straight, to talk in a human way, to talk in a humane way, in an empathetic way and to deal with this because this is actually about saving jobs. This is not about getting rid of jobs. This is actually about saving jobs this process. And that's why this engagement is so important for us.

Two related questions from Nick at Signal and Jean-Pierre from Protium. How do the operating margins on the corporate stores compared to the margin made on sales to franchisees? Are margins on corporate stores above 4%? And then can a franchise model still work in today's competitive environment?

I think certainly, a franchise model can still work today in today's competitive environment, but there has been a compaction in the margin. So that requires a bit of recalibration both in the franchisee and the franchisor as to how we deal with that. And that's why we are really working in our relationship with our franchisees and getting a far better understanding of what it is that we need to do together.

Question from Maseko from Old Mutual. You have raised ZAR 4.7 billion from selling down a stake in Boxer. This has a cost in that and effect of 12% of Boxer profits will no longer be consolidated. What specifically will you be spending the proceeds on? And how will you ensure that the returns on that capital invested will exceed the Boxer profits? Is the focus on refurbishment ramp-up, franchise acquisitions, please specify?

I mean we've guided that the Pick n Pay segment will be increasing its CapEx spend to ZAR 1.4 billion this coming year. It is an increase in our revamp schedule, some possible conversions, et cetera, but we will still do that extremely measured and prudently to ensure that we optimize our ROIs.

Question from Johan B. Any rough guidance for CapEx spending in FY '28 and FY '29?

Not at this stage, but we will update when we have more clarity.

Lerena as her way, not much.

Question from Nick from Sam again. What are shrinkage costs as a percentage of turnover?

Inside leg measurement as well, Sean?

I can tell you now our shrinkage levels are -- and we don't disclose this outside the company. So when it comes to disclosure, there are certain things that we keep to ourselves. And -- but I can tell you that our shrink is unbelievably well under control, in fact, phenomenally so. I was visiting with some of my U.K. retail counterparts a little while ago, and I was actually horrified when I was looking at their shrink numbers off the charts compared to ours. It was like quite a shock for me.

I'm going to ask one more question and then close them off because we're out of time. A question from Tando Naga at Matrix Fund Managers. It talks about location of stores, similar in principle to the location logic used by Pick n Pay ASAP to allocate customers to nearby stores. Could you identify practical redeployment opportunities that reduce commute burden and operating costs while maybe lowering the number of jobs lost?

If you can work on what the question is in that, Lerena, you can answer it.

I think we absolutely have the necessary in our ASAP and Mr. D environment to optimize the delivery scheduling, et cetera, if that was the question.

Yes, it was about adding a redeployment optimization work stream that maps affected employees home locations against nearby stores.

We have that in place.

Okay. Nothing from within the room? Yes, Mr. Watkins. There we are.

Shane Watkins Capital. Sean, congratulations on your impact here. It's hard to imagine what things would have looked like absent your reappointment. I want to understand the gross margin question because if I look at gross margins in Boxer, almost 21%, I mean, extraordinarily high gross margins. But the product mix in Boxer would make me think that naturally that would be a structurally lower gross margin, less fresh, less general merchandise and so on. And so Boxer's margins are 4% higher than yours, and it should actually be the other way around. What can -- what is the issue with gross margin in Pick n Pay? And where is the improvement that we can see? Because you've just said it's not an issue of shrinkage. You think with fresh and with general merchandise, your margin should be higher. So what can you -- where is the uplift that we can expect in gross margins? And where do you think gross margins should settle in a steady-state Pick n Pay?

Maybe before I hand over to Sean, just maybe some clarity. So the Pick n Pay segment gross margin that you are seeing is a blended one. So it is a wholesale and a retail margin. So therefore, it combined is lower than the Boxer or a pure retail play. And our retail stores margin is higher than our Boxer business.

Yes. So -- and just to come back to that point, Shane, if you have a look at -- when you compare like if you take Shoprite, SPAR, Pick n Pay, you actually can't compare them because the Shoprite Group as a whole, franchise is virtually 0 in their business. So I mean, that is a pure corporate model. You've got SPAR that is a pure wholesale model. And then you've got us that's a blended model in the middle. And that's why you get this distortion that kicks out. So at a pure corporate margin level, it's above, significantly above that. But as I say, I think that for us, the potential to grow our margin above where we are currently is in the mix of goods that we sell. I think that in fresh, our real Achilles heel in Fresh and Pick n Pay has been in fresh. I mean we've just lost -- we just lost that business. We handled it on a plate to other people. And our ability to start getting that back now is extraordinary and wonderful opportunities. So when we look at our fresh growth at the moment, it's absolutely phenomenal. The area of the business where we have opportunity and we need to step into is into eggs and non-Eedgs where we have -- South Africa, we must reflect on one thing in this beautiful country of ours. I mean we have retail operators in this country that are as good as anything in the world, as good as anything in the world. And I've said it before, if you look at Peter and the business there, I mean, Shoprite Checkers, absolutely world-class, world, world-class. Clicks, world-class operation. I mean you go around the world and show me better operations than that. Dis-Chem, world-class operators. So in the area of eggs and non-Eedgs, a lot of competition there as well, but fresh for us is going to be the major area where we're going to be hanging our hook, hanging our coat. But having said that, there's work that we need to do on categories. I mean, when we had that, what is that -- what is that word? There was -- they had this program here that when they had the CVP stores and all of the Pick n Pay red and blue and QualiSave and all of that, where they actively took categories and decided that there were no longer focus categories. So we took pet, for example. And pet was no longer a focus category. Health and beauty, no longer a focus category. Baby, no longer a focus category. So these are significant important categories in the business that was just given up for lack of a better term. And we're starting to put a lot more emphasis back into those areas again as Dallas and them are busy redoing the stores and refurbishing and cleaning up again, you'll see all of that emphasis starting to come back. So we've got to grow all of the categories of merchandise. So it's not a case of us just going at fresh like the coppons and just saying we're just only going to take on food lowers or we're only going to take on Woolworths. We've got to do everything, but fresh is going to be the front door of the store.

Can I ask a different margin question then? I mean trading margin, I seem to recall from your days in sort of around the mid-2000s, you were targeting a trading margin of sort of 2.5%, 3%. I mean the business is different now. But what kind of trading margin could we expect you to be earning once the business is fixed? What's the long-term trading margin that the business can achieve?

We should -- there is no reason why this company cannot get back past that. I mean if you look at where the trading margins are now in Shoprite Checkers, this business should be able to get back to 3%, 4%. But there are things that need to happen on that journey, Shane, because when you have a look at some of the store infrastructure that we have, where we've got a good number of stores that are way too big no longer fit for purpose in size. And where you've got -- you take a store with a total GLA of, say, 4,000 square meters, but you're only utilizing 55% or 60% for trading because the rest is backup stock rooms and all of these things. Now those stores and boxes were designed for the old direct store delivery model 30 and 40 years ago. You don't need that space in the back. And one of the challenges that you have today in South Africa is that the local governments and municipalities are on this whole rates kick that they now subsidize their running costs in the municipalities and the like with rates. And I mean you end up paying these exorbitant rates. So not only are you paying rental on area that you're not using, you're paying all of these rates on top of it. Then you've got to provide security, lighting, all of that stuff that goes with it. So I think to get back into those sort of levels of margin, a lot of it as well is going to be as we start clipping off. And now when we sit and we start to talk to landlords and we renew the leases, I mean, every single lease now, okay, is a serious endeavor. I mean we sit weekly in our property and lease meetings and every lease that comes Dallas is sitting here, okay, we interrogate these things. And now you've got to go back to the landlords, and it's a challenge for the landlords as well because they're having to start fronting up now to the reality that a lot of stores in this country are too big today. Trading densities is a key, key issue in terms of getting the efficiency into your retail business. And we're no different. This is a global situation. It's happening to retailers in Europe. It's happening to retailers in the United Kingdom as well. And then you've got the added situation, and that's why I've been talking about a future-fit company because you've also got to factor into this. that as more and more delivery is being done out of the store in terms of the online, okay, your ASAP or whatever it is, the mechanism that you have, okay? You have to ask yourself in the long haul, what is the logic in paying full retail rentals and capital deployment to get your groceries close to the last mile. And you've got other people that are starting to come into the market. So this is a massively dynamic situation. But to answer your question, there should be no reason why this company can't get back into the 2, 3 and then hopefully something north of that going forward.

Thanks, everybody.

Thank you very much.