Shoprite Holdings Ltd (SHP) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. A very warm welcome to you from this beautiful Checkers store in Drakenstein, Paarl in the Western Cape, a store that was long in the making, site was bought many years ago. We also have here a liquor store and a Little Me down the passage, which I will tell you a little bit more later. I think you've become accustomed to how we do our presentations. I will do a small, short overview and then Anton will give some color to the financial numbers in detail, and then I will end off with a bit of strategy and what we're currently busy with. The double-digit sales growth over the last 6 months, illustrates that the Shoprite Group of Companies is very soon going to become a ZAR 200 billion revenue company. What was quite pleasing about the results is that the gross profit also grew in double-digits, which means we did not have to sacrifice any margin in order to achieve the double-digit sales and we are pleased to say that we equaled last year first 6 months gross margin of 24.1%. That resulted in a 14.5% growth in trading profit amounting to a very large number of ZAR 5.4 billion for 6 months and a trading margin of over 6%. What is interesting is during the COVID restrictions, we all saw quite a reduction in customer numbers, and so pleasing to show now that we've returned into a positive customer visit of 6%. Now again, during the restriction period, basket size grew quite substantially because of less frequent visits. It's still pleasing to note that the basket size still managed to grow by 4.7%. That resulted in a very healthy 4.5% growth in volume and this is quite an important number not to us only, but to our suppliers, because that is a very important tool for them to contain costs. And I will talk about that also later when I talk about the internal inflation. Again, the result of all of these that I've just mentioned, resulted in a profitable market share gain of ZAR 3.6 billion, underscored by 34 months of uninterrupted market share guidance, and I have to reiterate and I might say more than once, is that this is across all the brands. It's not a single brand, and it might be that this cannot continue forever, it may become a zero-sum game, but as long as our growth results in profitable market share gain, we're happy to talk about it. As a result, shows a very resilient operational performance, especially from the South African supermarkets. If we take the challenges that we had around COVID and then later the civil unrest, it is quite pleasing that we believe Shoprite emerged as a much stronger Shoprite. Supermarkets RSA grew sales by 11.3%. Liquor stores grew by almost 50% because of less closed days this year versus last year. And this is almost an emotional part of what I'm going to say is the operational excellence of what the Shoprite Group achieved during the unrest. It is almost unthinkable that some of those stores that was destroyed completely, reopened within 6 days, and to me that underscores the operational excellence of the Shoprite Group. I did already say, I say I was going to repeat it might be more than one is the fact that all supermarket brands grew market share. It is not a one brand story. We believe we are well positioned for the shift in customer needs as well as the step-up required in digital. This graph is an illustration of how the growth in Shoprite outpaced that of the rest of the market 14 consecutive quarters. 2 things, 2 standouts, the one is, one can see it follows a similar pattern, the Shoprite sales pattern to that of the market. But 2 standout is the fact that Shoprite never went into a negative and the market went into negative twice. And one can see towards the last 2 quarters of the year, that the gap actually widened. A note here maybe is that one of the supermarket groups decided to for 3 months not give their sales numbers to Nielsen's for one of their brands. So those numbers were estimated by Nielsen. We believe they are going to give their numbers again. Our commitment to our customers is this unwavering focus on affordability and accessibility. Shoprite remains the low price champion. Because of the wealth of information we currently have following the ERP system implementation and the level of data that we have, online item profitability as well as the efficiencies gained out of the supply chain assisted us to keep the internal price inflation down to 2.6%, versus the overall food inflation at 6.2%. Another call out here in terms of, if we reference this, do the maintenance of the gross margin, is that if you had to add up all the savings on the toll slips of our Xtra Savings members, that would add up for the 6 months, the savings to the value of ZAR 4.5 billion. So we've been able to give customers the ZAR 4.5 billion in savings, remain the lowest priced retailer and maintain our margin. We will continue to subsidize Essential Foods, for example, here simply we've been selling a loaf of bread for ZAR 5 since 2016. And we will continue to do so, selling 1 million loaves of bread a week. And we will continue to take retail to the people whether that is organic, by acquisition as far as possible or by expanding on our home delivery service. This is illustration here just to give context into the relative size of each of the brands as well as where they are positioned in the market. So a very quick call out, Shoprite without a doubt, Africa's low price leader, mass discounter. Checkers gives best value in fresh and premium. We've got the Hypers, Checkers Hypers with amplified value. Then Usave, the absolute king of budget. If you have a budget, that's where you must shop. And then franchise division where we venture more into the convenience market and also into the forecourt stores. Our unemotional decision about exiting some of the African markets, I'm not saying it was easy, but it was a business decision we had to take, has left us with a more manageable and a profitable core group of countries. Very pleasing to say that the Non-RSA segment had positive sales of 8.4%. It accelerated in quarter 2 to 14.4% with a star performance from Zambia over 35%. In constant currency that relates to 11.4%. Subsequently Madagascar's transaction has been finalized, the sale of Madagascar, and we are in final stages with Uganda. And we will continue to apply the strict capital allocation to that segment because the countries remain self-funding. I will now hand you over to our Chief Financial Officer, Anton de Bruyn, who will give you, I'm sure some great color on the detailed financial numbers.

Thank you, Pieter for that introduction. As in the past, we have included additional information for your reference. I will not deal with that as part of the presentation, but will refer to it for further analysis. When analyzing the financial results, there are 2 key aspects one has to take into account. We did disclose that Kenya, Uganda and Madagascar was discontinued during our June '21 results. We did not show it as discontinued at the end of December as there was uncertainties around the completion of these transactions. So taking into account, the discontinued as part of the 2020 results, it was a ZAR 38 million decline in profit. The second aspect was the 231 stores impacted by the civil unrest, we communicated that as part of our June results presentation where we treated it as post balance sheet event, we now have the numbers as part of our results. I can say that there were 231 stores impacted, of which 186 have now been open since, 45 is still closed, of which 7 will not close -- will not open again. The Shoprite and Usave and Liquor brands were affected the most where 75 stores being closed from a Shoprite point of view with 11 still not reopened. The Usave had 51 stores closed, of which 39 has opened since. And then the Liquor stores had 54 closed during that period, with 10 still not reopened. Our OK Furniture business was also impacted where 35 stores closed during that period. 1 OK Franchise store will not reopen. If I then look at the impact from an income statement and balance sheet point of view, we had inventory write-downs of ZAR 968 million. We did claim and raised the insurance claim for that full amount, you will see in the cash flow statement, we have already recognized ZAR 935 million. Note 20 in our financial pack actually analyzes and shows the detail around that all the insurance claim. There were also once-off civil unrest costs relating to the riots of ZAR 134 million. And then items from -- of a capital nature, we've shown property write-offs of ZAR 100 million where we had our Brookside more impacted and we also had across our portfolio of stores equipment write-offs of ZAR 162 million. So, that total claim is around ZAR 262 million. That together with the part of the inventory claim, we have not been -- not received from our SASRIA insurance policy equates to that ZAR 307 million that you will see on our balance sheet as a trade and other receivables. The Group was sufficiently insured for these losses and we were insured up to a value of ZAR 1.5 billion. On a more positive note, I will now delve into the financial results. Sales of merchandise increased by 10% to ZAR 91.1 billion and I will deal with that in more detail later in my presentation. Gross profit increased by 10.1% to ZAR 21.9 billion. The ZAR 2 billion increase that we've achieved during the 6 months was on the back of the higher contribution from the margins of our Checkers and Hyper business. They constitute now 40% of that segment of the Supermarkets RSA sales segment. Pieter spoke a little bit about the efficiencies within our supply chain. We have to take into account the increase in fuel price, as well as the higher logistics cost, which are obviously our supply chain team could deal with. And then thirdly, we saw a further 9 basis points improvement in our shrinkage during the period. Our other operating income increased by 15.6%. We've spoken a lot in the past around growing and increasing our adjacent business units as well as our product partners as well as our value-added services. And that's what we can see coming through during the 6 months, we saw an increase in commission received of 12.7%. We also saw from our delivery recoveries almost doubled, that is from our Sixty60 on-demand business as well as our furniture business. Also included as far as other income is ZAR 100 million received from our insurance sales. Interest revenue declined slightly to ZAR 270 million for the period and that was really on the back of the net ZAR 170 million decline in our exposures to the U.S. dollar-linked government bonds. And then total expenses increased by 9.1% to ZAR 18.264 billion, very much in line with the expense growth we saw in the second half of the 2021 financial year. Excluding the impact of some of these once-off unraised costs, we would have seen an increase in expense growth of 8.3%. If I then unpack some of the major costs within that, employee benefits increased by 7.2% and that would have been at a faster pace, was it not for the net ZAR 98 million in government incentives received dealing with the COVID pandemic as well as the civil unrest during the period. We've added 1,949 new jobs in the 62 new operations or store openings in our Supermarkets RSA business. And then lastly, we contributed ZAR 36 million during the period to the all-important Youth Employment Scheme as a support for government. Depreciation and amortization increased by 1.4%. From a property, plant and equipment point of view, depreciation declined by 2.5% to ZAR 1.1 billion and that is really on the back of our strategy, where we do a lease versus buy, especially in our supply chain environment. Our depreciation on our right-of-use assets increased by 8.3% to ZAR 1.6 billion, and again, that is now where we have replaced our fleet and we lease our fleet and supply chain assets. Also included in our depreciation on right-of-use is our new store leases as well as the modifications made to those leases. Other expenses increased by 12.3%, of which advertising expense growth was 15.4%, and that was on the back of the return of the Liquor business where we traded 31 more days and had more promotional activity within that area and also the low base in the prior year. Security cost increased by 10.3%, again impacted by that once-off civil unrest cost and I do expect to see a better performance in cost growth in the second half. And then thirdly from electricity point and water point of view, we had 8.9% increase, that is lower than the double-digit increases we've seen from those lately. And that was on the back of our investment in power saving services and investments we've made, especially from LED point of view in our stores and also our solar panel program. The Group will keep on investing in these type of power saving business ventures. From a trading profit point of view, we increased by 14.5% and I will deal with that later in my presentation. Exchange rate losses increased to ZAR 127 million and that was also on the back of our hedging that we had in the past with the U.S. dollar-linked government bonds. For the first time since 2017, we've seen a strengthening on government currency against the U.S. dollar, that has led to those exchange rate losses. Items of a capital nature was ZAR 199 million and [indiscernible] as we unpack that in full. EBITDA increased by 12.9% to ZAR 7.8 billion and that ratio as a percentage of sales is 8.6%, an improvement from the previous year of 8.4%. If I then look at diluted HEPS, increased by 25.2% to ZAR 5.193 and that was really driven through our improvements in our trading profit of 14.5%. We also saw a decline in our finance cost of 6.7%. And then also for the first time, we have this profit from our equity investments where that retail logistics funds is our big investment there that realized a profit of ZAR 100 million for us in the first 6 months. Adjusted diluted HEPS, I will deal with in the next slide, but increased by 32.5%. And then all importantly, our dividend increased by 22%. The significance of the increase of the 22% is that in the previous financial year, we managed to increase our dividend by 42%. You will recall that we had a change in dividend policy where we went from a 2x dividend cover on diluted HEPS to a 1.75x and that is really implementing or part of our implementation of our capital allocation model. What is also significant about this dividend is that during the past 24 months, the group has paid more than ZAR 5 billion in dividends, and really a testament of the strength of the cash flow generation within the Group in the current environment. Spoken about gross margin. Trading margin I'll go back in a later slide. The effective tax rate is now within range. During our guidance in the previous financial presentation, we spoke about that 30% to 32% tax range. It is a little bit higher than our previous year, but in our base we had the impact of the sale of the DCs to the Retail Logistics Fund. Our guidance is still that we estimate that our effective tax rate will be in that range of 30% to 32%. Return on invested capital increased from 11.3% to 13.3%. And if we also look at where we were at the end of June, we were at 12.4%. So we are starting to see that steady growth within our return on invested capital as well. If I then turn to and unpacking the diluted HEPS and adjusted diluted HEPS, we start with the restatement in the previous year, I spoke about that ZAR 38 million, I've said ZAR 0.032. So that is the move from ZAR 4.277 to the ZAR 5.251. And then just for ease of reference and comparability, we have included also the adjusted diluted HEPS. And how we get to that number is, we exclude once-off items, the foreign exchange profits and losses, the impact of the Angolan hyperinflation as well the profit on lease modifications and terminations. The relevant tax impact on those 3 lines then give us the adjusted diluted HEPS, which we've seen a 32.5% increase year-on-year. If we then look at sales growth, 10% for total continuing operating segments. On a like-for-like basis, 9.3%, really driven by the Supermarkets RSA growth of 11.3%, like-for-like 10.7%. During the period for the 12 months, we've opened 104 stores, excluding the impact of the riots and we plan to open an additional 94 stores during the next 6 months. Our space growth for the past 6 months was 1.9%, excluding the impact of the riot stores. If I then look at the breakdown of the Supermarkets RSA segment, within that Checkers and Checkers Hypers brands, we saw again double-digit growth of 11.4%. Included in those sales are also our Sixty60 on-demand sales where we're now trading from 266 stores, 33 stores more than in June. Shoprite and Usave increased sales by 7.3%, Shoprite running at 6.8% and Usave at 12.1%. The significance around these numbers are that we -- that was during a period where we had the civil unrest, and as I've shown previously, quite a huge number of our stores were impacted and are still closed. Our LiquorShop business increased sales by 49.8% on the back of the opening of 74 stores during the past year and we plan to open another 27 stores up to the end of the financial year. We also had 31 more of trading days during this period versus the prior year as a result of the lockdown measures we see and saw in the prior year as a result of COVID. Then on the other businesses, there is -- we are very proud to also include now 12 stand-alone Pet Science stores as well as a Little Me and as part of the strategic part that Pieter will deal with, he will give you more color on these new business ventures. The Supermarkets non-RSA segment increased sales by 8.4% to ZAR 8.6 billion, and the significance about this growth is that it's the first time in 14 consecutive quarters that we've had positive sales growth. This segment is reliant on currency stability as well as commodity prices and we have seen some of that in the past 6 months. Affordability remains an issue, and higher food inflation, we've seen also in Zambia's case. Zambia improved sales by 35%, but on the back of a 23% sales inflation. Angola sales in rand terms were still negative, but we have seen recovery signals from a local currency point of view. Our Furniture business had a sales decline of 6.5% and that was really on the back of a very high base of 24.9% sales growth in the prior financial year and the business was impacted by the civil unrest. From a credit participation point of view, it's really remained stable at around 12.8% for the period. Other operating segments increased by 8.9%, driven through the franchise business where we saw sales growth of 6.5% and also our MediRite and Transpharm business increasing sales by 16.1%. If we then turn to trading profit, our trading margin increased from 5.7% to 6%. The strongest performance that the group has had to-date in a first half, was driven through the Supermarkets RSA business, which increased by 16.2% to ZAR 4.8 billion and our trading margin increased from 6.5% to 6.7%. The trading profit result was achieved through the growth in our gross profit, the contribution of our liquor business as well as the ETI benefits we received during the period. Supermarkets non-RSA increased trading profit by 5.9% and the 2.1% is very much in line with the prior year. Our Furniture business showed a decline of 27.2% on the back of the decline in sales, but also once-off costs relating to the civil unrest. What is encouraging, however, is our collections during the period. Our provision of bad debts in terms of IFRS 9 is currently at 44.1%. At the end of June 2021, it was sitting at 49.5%, and in June 2020, it was sitting at 50.5%. So, really a good story around the collections and our provision for bad debt. Other operating segments increased profitability by 36.4% on the back of our franchise business and the profitability there as well as MediRite and Transpharm business. Net finance costs decreased by 6.7% and it was mainly driven through the reduction in our finance cost and our borrowings. You will recall in the previous year, we did settle the USD 250 million debt that we had. That came with a once-off ZAR 178 million breakage cost that we obviously didn't have this year. Additionally, we also saw a 17.5% increase in our finance cost relating to our lease liabilities and that growth is very much in line with what we've seen from a balance sheet point of view for the growth of the lease liability. The finance cost percentage on these lease liabilities is around 8%. If we then turn to the balance sheet, for ease of reference, we prepare this slide every time where we compare the assets through the corresponding liability. And we've also increased the prior year numbers to see where the major movements were. In terms of our capital allocation strategy, we've added ZAR 2.7 billion of capital -- of capital spend, and I will unpack that in the next slide. Our cash and cash equivalents and loans receivable were down from ZAR 15.3 billion to ZAR 10.9 billion. That ZAR 10.9 billion consist of cash of ZAR 8.9 billion and loans to Resilient of around ZAR 2 billion. Our inventories increased by around ZAR 2 billion and a major shift in our trade and other payables, which I will unpack later around the cut-off, reduced from ZAR 27.6 billion to ZAR 21.8 billion. Our borrowings as a percentage of equity reduced from 27.9% to 22.9% and it's a little bit outside our range of 25% to 30%. During the period under review, we have renewed one of our ZAR 1 billion facilities, which means that we still have the ZAR 4 billion in medium to longer term debt. Our capital expenditure increased 63.2% to ZAR 2.7 billion. Included in this capital spend is a ZAR 199 million of replacement CapEx relating to the civil unrest. Our capital spend as a percentage of sales is sitting at 2.9%. So if I have to exclude the once-off replacement capital spend as well as the trademarks purchased during the period to expand our Furniture or our franchise Hyper brands, the ratio would be around 2.5% of sales and that is very much in line with the 2.3% guidance we gave in the previous financial year. If I then move to the pie chart and how we actually did spend our capital, 63.9% was spent on store expansion and growing our bricks-and-mortar model and that was through land building and leasehold improvements, our store maintenance programs, especially on the FreshX side and then also new stores. Also to be mentioned is our increase in IT spend of 21.8% and the significance around this number was that only 3% was spent on maintenance and the rest was spent on accelerating our digital capabilities. We spoke about point of sale project that we started. We've also done additional Sixty60 enhancements and then there are various projects linked to the ecosystem that Pieter will refer to later in our strategy -- in the strategy piece. Our guidance for the full financial year is still ZAR 4.8 billion. That was based on the assumption that it excludes our investments in our trademarks that we purchased. It also excludes the estimated ZAR 1.4 billion on the Masscash transaction and then also the RTT on-demand JV, which we announced in December. If I then turn to inventories, our inventory increased by 10% to ZAR 21.5 billion. The bulk of that increase came within our Supermarkets RSA segment, which was really driven by the deterioration of service levels within our South African suppliers where we had to increase our safety stock to fulfill our need and our customers when we look at our internal KPIs with regards to our in-stock levels and on-shelf availability. We also anticipated an increase in our back-to-school sales coming from a low base in the previous year. But what was significant and encouraging to us is that our inventory as a percentage of sales in the Supermarkets RSA segment improved from 12% to 11.9%. Our supermarkets Non-RSA segment had an increase of ZAR 200 million and that was really on the back of currency strength. And in Furniture environment, we also saw a ZAR 200 million increase and that was more from a point of view that we anticipated certain supply chain issues with imports and that's why we increased our stockholding within our visual and audio stocks. Other operating segments, sitting at 6.5%. So overall, our inventory as a percentage of sales increased from 12.3% to 12.5%, but still we are still comfortable from a guidance point of view, if we look at the full year result that we will be able to achieve the 11.5%. Our total cash reduced from ZAR 12 billion to ZAR 5.4 billion and one has to take into account the impact of cut-off due to the fact that we closed on 2nd of January there were certain additional credit payment grants. So if we purely go on a comparable basis, excluding the impact of the cut-off, our cash position at the end of December would have been ZAR 16 billion compared to the ZAR 12 billion in the prior year. This will be the last reporting period where we will have these cut-off issues. In June, we will again be on a comparable basis. As I mentioned previously, we have again renewed our medium-term ZAR 1 billion debt. So at the end of the day, we're sitting with a ZAR 4 billion debt within the South African environment. We have, however, reduced our reliance on U.S. dollar debt further, reducing from the $78 million to $59 million. During the period under review, we managed to repatriate $17 million of funds from Angola. If we then look at our cash flows, you will see that in the past, we referred to our cash flow statement, a new measure that we have within our operations is looking at free cash flow. Our definition of free cash flow is cash generated after accounting for outflows to support operations and also maintenance capital. So during the period, the group generated ZAR 6.4 billion of normalized free cash flow. And in line with our capital allocation model, we first gave our dividends back to our shareholders, that was the ZAR 1.9 billion, where we also saw an improvement in the payout ratio, as I mentioned before. From a capital expenditure or expanding point of view, we've spent ZAR 1.5 billion. I'll refer you back to our capital spend slide, our investment improving and growing our sales through our bricks-and-mortar model as well as our capital spend on our digital acceleration. That left us ZAR 3 billion for investing. We've done mergers and acquisitions in the form of the completion of our President Hyper transaction. We're looking forward to complete our Masscash transaction in the coming 6 months and then also completing the RTT on-demand transaction. And the last, in our capital allocation model was the share buybacks. To-date, the group has bought back ZAR 854 million in share buybacks. In line with our capital allocation strategy, it is clear from this slide that the group is generating sufficient cash to actually achieve those targets. And if I just conclude on guidance, I've spoken to most of these. Pieter will speak about the Supermarkets RSA and non-RSA growth in the past 8 weeks. From a tax, CapEx and inventory point of view, we have dealt with that in the slides. That then concludes the financial portion of the presentation. Back to you, Pieter.

Thank you, Anton. I think that was very well explained. Some good numbers. Fortunately, this year, we did not have to explain hyperinflation and IFRS 16, all very clear and a very strong balance sheet. So if we look at the slide again, our 9 strategic drivers haven't changed much over the last 6 years. Last year, we amended number 8 and 9. The 9 drivers didn't change, but our narrative also haven't changed. And we're still in the 3 buckets of the strategy that we want to deliver on, the Smarter Shoprite is the first group. Then closing the gap in segments where we're under indexed or it has still market potential and good growth. And then winning in the long term. The results of today is the outcome of sticking to our plan. Today, we believe Shoprite is operationally, structurally and financially a much stronger business. So, if we take a step back and we look at what we've done over the last 5, 6 years in sticking to our story, it's really a story of a multi-year transformation journey that resulted in a multi-year of market share gains. And we're trying to unpack this for you in 2-year expense, but it explains a little bit how we stuck to our story and our strategy and how to deliver in those and we would like to just take you back to those things we've done. First, we had to start with the re-platforming of our system of record. So, we implemented the SAP ERP system as our single system of record. The level of detail we have these days down to item level in terms of enabling us to manage margin, waste and shrink on item level have created great decision making for us. The other thing about an integrated system like this, it does create us the opportunity to deliver on a seamless omnichannel experience for customers. We had to align our operational management in each of the brand, so that they have a singular focus on the customer that they serve. Checkers changed a bit of direction, pursuing the more affluent customer and created more of a food theater especially in fresh and a bit of a step change that was required in the South African market in terms of private labels. So that is just not more of the same. It's really innovative new products. I will cover a little bit of it again with some numbers. We consolidated our Franchise brand and we integrated them much larger into our supply chain. And we expanded our Western Cape distribution capacity. Then came transformation. And in the transformation, we had to shift from where we were in the period 2003 to 2013 with a very explosive space expansion to precision retail. Now originally the word precision retail was a bit misunderstood. Today, I think all retailers know the importance of data, customer data and precision retail and combined with that, what I just said earlier, an integrated single platform to deliver on our omnichannel. We made some significant investment in our digital transformation for our customers. We were like -- we were the last to join Loyalty Program or launch one, our Xtra Savings program, and today, by far the largest with over 23 million customers. Pioneered on-demand delivery system. Also today, by far the most preferred and largest with over 2.2 million downloads up to now. We unlocked the supply chain efficiencies. I mentioned last year for the year that our calculated efficiencies in the supply chain amounted to ZAR 500 million. This 6 months, we calculated around about another ZAR 200 million. And then we continued to close the gaps in key segments. I mentioned private label, again, we expanded quite rapidly with the Liquor stores and with the most -- the fastest growing in the premium market was the Checkers brand in terms of market share. Then we moved over to optimization. So through the optimization phase, a Smarter Shoprite emerged. In this period, we had unrivaled operational resilience shown by how we navigated through the pandemic and the civil unrest. We've invested heavily in price, but yet, I want to remind you that we maintain the margins. Even though we were the price leaders, we evolve smaller closer to home store formats to complement these very nice fresh largest stores that we have. We expanded our ecosystem, something also I said a couple of years ago, into alternative revenue streams. Because of the large customer base and the information that we have around customer behavioral needs, we were able to introduce product in financial services like a free bank account and something where we never played is the media space with Rainmaker and our own virtual cellphone network. We decided instead of being disrupted by digital upstarts that we will disrupt ourselves. So last presentation we spent some time on ShopriteX, our digital hub, we'll continue to invest in the digital space. We consolidated our Non-RSA operations. We bolstered our governance and the Board inclusive of an Independent Chairman, which was a request from many of our shareholders. And then we ended up with a very strong balance sheet. Now I say, usually it's hard to fix the income statement, much harder totally different thing to fix our balance sheet. And now it's time for us to amplify. So amplify is just quickly list of what we're busy with right now. What we think will take us into the next 2 years, will keep us busy is again on top of the list, a Smarter Shoprite. We continue to work on to create a Smarter Shoprite. We're embracing digital. We're closing the gap between the segments that we're under-indexed in. And also in the premium market, we believe there is still organic growth in the core markets that we're in. We have partnerships that are working very well for us and well-known customer brands, I will touch on that again. We have a very clear capital allocation framework. So, we are very clear on where we're going to spend our capital. Then there is something we call a force for good. It's how we look after the planet, our customers, our own people and our stakeholders, inclusive of you, our shareholders. We will leverage of our platform to unlock more value in our ecosystem. Now, I will end with explaining what we mean by our ecosystem. Just to give you a sense of when we decide on what projects to embark on is how they slot in and where and why. So a Smarter Shoprite. I refer you back to the 9 strategic drivers. We were last to launch a rewards program, and today, it's the largest and the best, and we are very proud about it. Of course, it won numerous awards, but it's the power of the data and the customer information that we're most excited about in terms of supporting trends and customer requirements and then be able to deliver on them. That is the advantage that we see in this program and we're leveraging of that as best as we can and we still believe there are some big benefits in the future for us in that. And our customer-first culture driving innovation. Now innovation for us is, we deliver what our customers want and then we build the business around them, not the other way around. One example I'm going to give is, the linking of over 5,000 Xtra Savings deals through the Sixty60 customers and in the app. It's just one example I'd like to give. And then as I said, it's the richness of the data and the combination and I've spoken about it before of the item data and precision retail that we are excited about, and that's the Smarter Shoprite that we're talking about. So by now, it's quite clear that we have embraced digital. Sixty60 had a fantastic performance, 250% growth in online orders. But a very critical step for us is that a third of the Sixty60 customers are all new to the Checkers brand. And a lot of them also shop now in store, experiencing more of the theater that we try and create. It is now by far the largest online app with over 2.2 million downloads and a critical point is innovation also leads to job creation. And in the South African context, much needed job creation. We continue to invest to extend our lead in this what we call winner takes most. So we have formed this joint venture with RTT for that very critical last mile logistical piece. And then we will continue to invest in this omnichannel ShopriteX, in particular, but of a disruptive way. And then the on-demand seems to have become a bit of record race of how quick can you be? All I can say is our quickest delivery from order to delivery has been 11 minutes. And then last part around this digital as we are on-demand at the moment is that we do not deliver for free. Therefore, we are not trying to buy unprofitable business. Carrying on with the subject around closing the gaps in the key segments where we are either under-indexed or where there is new opportunity. Checkers remains the fastest growing grocer in the premium food segment. Never underestimate the importance of the in-store experience if you want to go digital in omnichannel. In that, Checkers have proven its position in a market by gaining more than ZAR 7 billion in market share over 3 years. We still believe there is headroom in that space to earn a bigger share of that upmarket wallet. We now have converted 95 of our stores into the fresh concept and we would like to do another 57 in the next 12 months. Private label sales participation in the last 5 years have moved from 13.3% to 18%. And I just want to say again, private label for us is just not more of the same. We innovate, we create new products, we globally find food trends, and therefore, because of a lack of what I see from manufacturers in terms of innovation in food, we've taken the innovation upon ourselves having launched 695 new products in the last 6 months. And then I have spoken about our partnerships with renowned brands, brands with equity, brands that give customer choice, brands that people deliver things on better than we can do. Some of the opportunities that I also referenced, and I'm -- when we started, I mentioned the Little Me shop, is that they are markets that we are already in, but we believe there is standalone opportunities for it. So therefore, our foray into Pet, and in baby and in health and beauty with standalone stores and we have already started to accelerate on that program as and when we get sites available. So one of the items that I mentioned under amplify, under the heading thesis Force for Good. It's our responsibility to look after the environment and our people. And I'm just going to call out 1 or 2. We support 103 early childhood development centers, something that the President has mentioned in his speech, is something that we need to do. We're the largest private employer in the country. We've donated over 72 million of surplus food. 50 of our own sites have converted to solar panels. And quite a call out for me is the 917 refrigerated trailers that we now have on solar, instead of diesel. And there are many more of these, we are responsive to win these disaster. That's why we have our soup trucks. They primarily provide food to school children, mostly the only meal that they will see in a day. But also we react when there is disaster like flood or fire. That brings me to the explanation of our ecosystem. And here I want to start with what is most important is what you see right in the center of the circle, is that everything leverages of our core retail and our core retail has got its strength because of very strong brands, large customer base, a very solid large real estate, call it, physical footprint, operational excellence, superior supply chain and the investment in digital together with the platforms that we've created to build of from. This wealth of information also around our customer, that sits all in a core and gives us the ability to then add all of these around it and you will see the different blocks. And I hope you can make a reference to the original slide where I started with the 9 strategic drivers and this is how we pack these components together. So we started with the customer awards, long ago we had partnership with eBucks, and now eventually launched our own in the Xtra Savings program. Our other adjacent categories, some of them are existing, some of them are new. Checkers Food Services also now a more digital business, has been re-platformed also and shares platform also with Liquor Online. Computicket Travel, the PetShop, our Little Me, I mentioned, the baby shop. I didn't expect that 5 years ago, mums would buy a stroller worth ZAR 30,000 from Checkers and that is currently what's happening. So we've been able to attract a different customer because of this information and the core system that we have. Our product partnerships, I've referred to that, well-known established brands and brings also equity to our consumers and to our brand supporting choice for customers. The retail media, we've been really under-indexed completely. We do see lots of potential in that space. Again because of the rich customer information, that 23 million Xtra Savings customers, their data and most importantly, the fact that we frequent with them so often and we know when they fulfill a transaction, which is very different to an eyeball or paying for an eyeball in terms of marketing. Then it's e-commerce and home delivery. The Sixty60 is so well known. I don't have to explain to that. But it is also something that was both on the regional platform that we created and now we are adding more and more to it and we will continue to invest in that omnichannel. Then how do we use this data. We are talking not more -- not terabytes anymore. We're talking petabytes of data. But it must make sense. And there over time, we first started with a partnership with dunnhumby, probably 8, 9 years ago. We had the SAP ERP system. Yes, we make use of AWS, and all these people. And then ShopriteX, we created and they're now taking more of their data and analytics in house. We're currently busy with quite a large implementation of our own analytical -- analysis program. And then there is the value-added services. That's not the only section for additional revenue. It's also the part, I mentioned on the data side, but that's where because again of the customer base that we have and the fact that I said to you, innovation to us means give customers what they want first. That enabled us to do things like the K'nect mobile, the virtual network that we've got our partnership with OUTsurance, the Money Market free bank accounts, cross-border money transfers and there is more services that we are busy adding to make the lives of our consumers easier for them to save more time, and of course, support it every day with our low prices. I hope that brings a little bit of context to you today of what was our program that we have followed for the last 6 years, how we got there, that we stuck to our program and eventually we can hopefully illustrate to you more graphically what those 9 strategic drivers intends to deliver. Thank you very much for your attention. And now before we are going to go over to questions, which Anton and I will take, we have created a little virtual walk through for Usave. I have realized that a lot of you, and especially, some of our global customers or shareholders have not been to Usave and might not be familiar what does it stand for and what does it offer. It is a limited assortment store. It is the best price store in the country. We're now in 395 communities with that, and it's almost a way that COVID also learned us because we couldn't travel physically how we could also see what's happening in our stores, how we could address merchandising rules et cetera and I will give you a few comments while the 30 second video or animation is playing. Thank you once again, and then we will take the questions thereafter. [Presentation]

Pieter, maybe while we wait to take some questions, I think it is just good if you take us through our forward-looking statement.

Yes. I think those are the -- normally, the questions, it will come anyway. I have to make a little bit of apology for my voice, I've been speaking too much lately. It sounds like it. So I'm definitely not sick. Supermarkets RSA still on a very good momentum. I just want to call out that remember last year, we didn't have the back-to-school. We had a fantastic back-to-school in January and in February, both months. And then also last year, Liquor wasn't training full weeks as we currently do. So this is a little bit of a call out on that. Inflation is always a question. Now, none of us, I think, have expected Ukraine-Russia war thing, and we all do know that firstly, Russia provides 10% of the world's oil and Ukraine is quite a big exporter of commodities like wheat and edible oils. So we're definitely going to have some pressure on that. The opposite of maybe a fuel price increase in South Africa is the benefit of the oil price in a country like Angola. I was there 2 weeks ago, I did sit with a Minister because I saw there was -- somebody asked me how quick does that benefit gets back into the economy, and his answer was immediate, but I'm a little bit more -- I want to say realistic is, I think one must bear in mind that normally the commodity is sold on a 6-month futures market, so I think a little bit of a delay benefit, but definitely expecting a benefit. Other commodity prices also affecting the non-RSA segment. The Masscash transaction we think we're very close. On that maybe just say, we do believe it will integrate very easily into our business. The structures already exist. What is new is a centralized meat plant. I think it was also very difficult in the mass business to manage. It's something we have to be very cautious of. Also remember that the benefits won't come immediately. We will first have to take the costs. That business there, of course, have now been damaged quite severely because of not only the unrest, but the fact that its currently not being managed to the level that it used to be. Therefore, there is some equity lost in that. I feel very sorry for the delay that we couldn't get this done quicker because they are quite a number of the small suppliers that now have been affected. The assortment of those stores have been reduced significantly. And yes, further, I think I'm very optimistic where we are currently, continuing on that strategy as I tried to explain to you that we've embarked on about 6 years ago.

Great. So I think the first one is from Funeka of JPMorgan. Maybe just elaborate on the market size of the new opportunities that we've seen within Little Me and the Pet?

Okay. Baby is around about a ZAR 12 billion category. So there is still a lot of headroom in that space. You would have seen some consolidation in the market recently around baby. And Pet is about ZAR 5 billion market where we're currently also way under-indexed. Looking very -- we're looking forward to that also from a digital point of view.

So Funeka, you also asked around the 11.5% inventory to sales. So, yes, that is on a group level and not just the RSA Supermarkets. There is a quite a few questions around Cambridge, but I think you've dealt with that and also on inflation, and then obviously also the impact of where we see the Ukraine impact. Maybe just…

Anton, I could say directly as we sit here today, there are 34 containers that we had to cancel that either was going to come through the Black Sea, 11 of them comes directly from Ukraine. We could channel or re-route those to different manufacturers. So we're still going to get the stock, but we do understand that, as I said earlier, Ukraine is a big exporter of especially wheat and edible oil, and that will have an effect on the global market. And what we must remember, Anton, is that although this year we've had a record harvest in terms of maize around about 15.6 metric ton, we have enough maize in the country. But it's the price, it's international price, it goes onto the futures market. So although we have enough stock, so there's not a scarcity of stock, but it's the pricing that gets affected.

Brian, you had a question around bridging the EBITDA to the diluted HEPS. See, you must remember, in diluted HEPS, we exclude the impact of the items of capital nature and the impairments that we have there. So if you do that reconciliation, you should get to that differentiator between EBITDA and diluted HEPS, items of capital nature and the tax impact. Pieter, maybe you can elaborate a little bit more on the President Hyper trademark that we acquired during December.

Yes, the short logic to that is, that sometimes one is oversaturated with a certain brand in a catchment. And then for us, it's just another lever in terms of adding additional brand. It's a catchment that still offers opportunity because I always say, some people like red, some like blue and it's better in such an environment to have another brand added to that catchment then to have more of the same. And that's the logic behind it. They run a very good business with big formats for a very specific market segment, which I think we can benefit from.

So I think [ Christella ] asked a question that everybody wants to hear, is who are we gaining market share from?

We don't focus on anybody in particular. I mean, we focus on our customer. We deliver to the -- what I said earlier, we first deliver what our customers need and then we build a business around it. So we're definitely not focusing on somebody in particular. I think we take market share from everybody.

Maybe just there is some questions around Cambridge also coming through from [ Soren ]. The branding of those stores will be Shoprite stores, and I don't think it's really a delay, it's more the process we're currently following, we've had very good interactions with the Minister and his office. So we're getting very good support from that point of view. So I think Walmart also said, we aim to complete within the next few months with the competition authorities. Then just around the repurchase, Brian, you also had a question on the repurchase of the shares. We have already repurchased ZAR 550 million in the prior financial year. So, year-to-date, our full program of the repurchasing of the shares were around ZAR 854 million. So I hope that clarifies that question. Pieter, how -- I think you have answered this, but the internal inflation, what do you see outlook, do you want to commit to a percentage?

So the January internal inflation was at 2.5%. I think maybe 3 weeks ago, I would have stuck my neck out for a guidance. We've managed in the last 6 months to keep it down at 2.6% internal inflation. We're really, really doing our utmost because we know that the consumers is under pressure. I was actually shocked when the President said that 46% of our people now live of grant -- or grant recipients. So we will do our utmost to keep prices down as far as possible. But with what has happened now and the price of oil and fuel naturally would -- will have inflationary pressure. Interesting maybe, Anton is, I can mention that we all know that the last 6 months fuel went up by 40%, but internally our fuel only went up by 4%, although we drove more kilometers. So those are the initiatives that we can do to try and keep those prices down.

Pieter, there has been 1 or 2 questions, especially around the impact, and does the Sixty60 business have a dilutive impact? I know we've communicated to the market in the past that that offering and on-demand is profitable, but maybe just speak a little bit about how you're seeing…

How you're seeing margin?

Yes.

No, it's not because actually the -- some costs or the fixed costs are already covered, therefore, the sales of that is incremental. Therefore, it's not margin dilutive.

Okay. Salome from Perpetua Investments, you ask about the sale and leaseback. So in the previous year, we did communicate with regards to the cash flows that were generated through the sale of the 3 distribution centers to the Retail Logistics Fund as well as our strategy with regards to converting our fleet and also doing a sale and leaseback on the fleet. So there are detailed notes in the prior year financials that actually unpack all the detail and the cash flows generated through that. I'm just going to see Pieter if there is -- I don't know maybe then as a last question, there is a question from [ Al Marie ]. How do you see your data and insights partnerships evolve in ShopriteX? And we can close with that question.

Yes, as I said, we're slowly winning off our dependency from third parties as we learn how to do that better ourselves. That's why we are implementing that IRI program, and we will definitely do more that ourselves and learn because that is just how much quicker we've -- one has that internally to implement it much quicker. So we will do definitely more of it ourselves.

Thank you, Pieter. I think we've dealt more or less with all the questions. If there is -- I see there is 1 or more detailed questions I have replied to. I think that concludes the questions.

Thank you. Thank you, everybody once again. We do appreciate your time and your interest in our company. And thank you very much. That little virtual tour is on the website if it was a bit quick. But thanks again. We appreciate it.