The Foschini Group Limited (TFG) Earnings Call Transcript & Summary

Good morning, everyone, and thank you for joining us for our TFG FY '24 Interim Results Presentation. I'll be starting with a review of our operating context and our highlights for the period. Bongiwe, will present the financial overview for the period. Jane, followed by Justin and Matt. And then Dean and Troy will take us through the financial performance of our TFG credit London and Australian results. I'll then close the formal part of the presentation with an update on our group strategy and outlook for the remainder of this year. We'll then take a short comfort break and the entire TFG team will come back and be available for any questions. The operating context for this interim period is really important in terms of fully understanding the results of each of our operating segments and our group results as each of our operations were subject to different but material external changes compared to the comparative prior period. Despite how challenging this period has been for retail, each of our management teams demonstrated strategic and operational resilience, which enabled us to produce a set of results that are certainly ahead of what our thought was possible under the circumstances. Despite the unprecedented load shedding in South Africa, which affected our ability to keep our stores operational, negatively impacted overall economic activity and severely dampened consumer sentiment and discretionary spend, together with weakened local currencies, elevated inflation in cost of living and lethargic GDP growth across all of our markets, we nonetheless managed to grow group revenue by 12.9% to a record ZAR 28.4 billion for the half year, an increase of more than ZAR 3.2 billion. Our 4,805 physical stores and outlets continue to trade well. However, it was really exciting to see our online turnover grow by 23.9% to ZAR 2.6 billion after our strategic focus on and investment in our various digital platforms, especially in Bash, which, of course, was not impacted by the load shedding that impacted our store performance. From a segmental retail turnover perspective, TFG Africa grew by 17.3%, TFG London by 6.3% and TFG Australia by 0.7% in rands. The London and Australian turnovers were as expected and guided, both negative in terms of local currency after they came off record highs in the post-COVID bubble last year. However, a further weakening rand provided a currency hedge and kept both of their growths in positive [ZAR] territory. Each of our territories had to respond to different challenges. TFG Africa had to focus on trading through excess inventories that built up as a result of load shedding, whilst TFG London and Australia both had to concentrate on ensuring that they grew off their pre-COVID basis and protected margin as much as possible. These external challenges placed pressure on our gross margins, which reduced by 2.1% to 47.3%. However, the 17.3% turnover growth was sufficient to still grow our gross profit in rands by 7.7% to ZAR 12.5 billion. While significantly reducing the excess inventories that we started this year with. Very tight and disciplined expense control throughout the business helped us to expand the 7.7% growth in gross profit into an 8.3% growth in EBITDA to ZAR 3.6 billion. Operating profit grew by 0.8% and HEPS declined by minus 15.3% as a result of the higher interest pool, which was driven by both the level of investment in the business over the past year as well as the multiple increases in interest rates. This decline in HEPS was well guided in our previous trading update, and the 15.3% decline is actually right at the bottom end of our guided range of minus 15% to minus 25%. I think that this demonstrates just how strong the recovery has been over September, which I'll talk to later on as we transition from dealing with excess inventories in our South African business in the earlier part of the half to healthy full price sales as we brought our new spring and summer stock into our stores. We declared an interim dividend of ZAR 1.50 at an effective cover of 2.6x, you may recall that our dividend cover for our previous financial year was at 3x. We believe that a 2.6x cover is the appropriate level at present in order to balance our overall improvement in current trade and near-term outlook with the elevated levels of uncertainty at both a global and domestic level. We believe that this level of cover will also assist us in further paying down debt during the remainder of this year thereby reducing the interest charge drag on our HEPS. I think it's really important to understand at a fairly granular level, how swiftly and effectively our South African retail teams addressed the load shedding induced inventory buildup that resulted from the unexpected spike and load shedding that started in the second half of September last year. You may recall that our like-for-like sales growth for TFG Africa was running at close to 9% year-to-date and still accelerating right up until the load shedding shop in late September '22. We had obviously either bought or committed to buying stock for last year's peak on the back of these levels of like-for-like growth, which were well ahead of the rest of the market. As soon as load shedding hit, we rolled, canceled or got out of much of the stock as we responsibly could. However, the reality is that you can't do this overnight. And in many ways, I guess we were victims of our own success at the time. As you can see from the purple bar depicting April on the chart on the left, we started the year with heavy inventory levels ahead of where we would have wanted to be. Load shedding also didn't end at the end of last financial year. And in fact, it got progressively worse through mid-December, the whole of January, February, March, April, May and into June. As a result, we started the new financial year with negative total sales growth in April, as shown by the blue line on the chart and flat to negative like-for-like sales growth for April, May and June, before a strong recovery from July onwards. As a result of these 2 factors, together with elevated promotional activity across the market, our retail teams moved quickly to both further reduce forward orders and to liquidate this inventory build. This is obviously retail 101, but on an industrial scale, given the size of our business and the extent and suddenness of the load shedding related slowdown. The combination of these steps allowed us to destock rapidly, as you can see from the progressive monthly purple bars to allow us to end the first half with a much more normalized inventory level. Gross margins shown across the top of the chart, clearly moved downwards in line with this clearance activity, but then recovered very quickly as we moved out of clearance and back to full price sales in the latter half of August and throughout September. Really bringing us back to almost April levels with a firm intention to improve these further in H2. Stepping back from all this trading detail. The bottom line is that we reduced inventories excluding our non-comp acquisitions by 10% for TFG Africa during H1, while simultaneously growing our EBITDA by 19.4%. I think that's as good a result as we could have hoped for all round, and a big thank you from myself to our retail teams for their decisive actions. We have demonstrated over many years that our portfolio of high brand equity brands is capable of consistently outperforming the market, even during particularly price-sensitive times, such as we saw fairly recently during the COVID period. Looking at the chart on the left, in our core fashion segment, which includes our men's, ladies, kids and babies apparel brands, we further widened both the extent and the pace of these market share gains. Yes, we were a bit more promotional over this period than usual. However, so was the rest of the market. This data is drawn from the RLC industry numbers, where we do not include our various sports brands. Given how well our sports brands have performed over the period, our market share gains in the overall fashion segment were actually even larger than shown on this graph. Following the launch of our new TFG home strategy, which I spoke about in our previous results presentation, which now incorporates @home, @homelivingspace, Jet Home and our 4 Tapestry brands, CoriCraft, Volpes, Dial-a-Bed and the Bed Store, we are seeing real traction and really significant market share gains in the homeware and furniture space, despite the very real cyclical interest rate-related headwinds here. I'll share some further highlights on our home strategy later in the presentation. In terms of our international performances, we've repeatedly stressed that last year's performances for both TFG London and Australia were driven by once off post-COVID bubble. So whilst the H1 slowdown in both offshore businesses relative to last year has been a drag on our group H1 result. I'm nonetheless very pleased with what they've both managed to achieve in the absence of last year's tailwinds and in fact, in the face of some very real current headwinds. Starting with TFG London, the 3 trend lines show how we managed to grow turnover, gross profit and EBIT very nicely off their 2022 H1 numbers. Even more impressively, TFG London managed to significantly increase their GP margin, and this allowed them to generate a GBP 14.2 million EBIT which is actually slightly up on last year's super profit and an all-time record profit for them. TFG Australia also managed to substantially grow their turnover, gross profit and EBIT of their pre-bubble H1 '22 numbers. And whilst they weren't quite able to hold on to last year's inflated gross margin, they came pretty close to what has been a very promotional period across Australia. Over and above all the tactical retail and trading activities that our various teams had to deliver on during this tricky 6 months, we also continued to make rapid but disciplined progress in terms of executing our [Bolt] strategy. In terms of building out, we opened 199 new stores during the period. We also completed the integration of both our Tapestry and Street Fever acquisitions in record time and without any disruptions or unforeseen costs or complications. This ability to seamlessly bring new businesses onto our TFG platform has increasingly become a core strategic strength of the group and one that now allows us to easily add almost any retail business that we may want to own into our ecosystem. While Bongiwe will cover some of the key Tapestry numbers in her section, I would like to highlight some of the strategic progress that we've achieved in terms of the integration. One of the synergies that we wanted to achieve was the introduction of TFG credit into the various Tapestry businesses. And in just 6 months, we've already 3x the credit contribution in their business to nearly 8%, which is an incredibly important lever in the homewares and furniture segments, especially in such a constrained environment. From a supply chain perspective, we assisted Tapestry with both funding and facilitating a strategic ZAR 65 million further investment into their vertical factories, which are a key success driver of their business model. This included assisting them to access ZAR 40 million in IDC funding. The integration of these vertical factories has allowed @home to already move a substantial portion of their sofa supply chain to the CoriCraft factory with some very tangible benefits. These locally produced sofas can now be sold for up to 15% less than was previously possible at a time where customers are obviously under pressure, whilst at the same time, improving our sofa GP margins by up to 5% and reducing our working capital cycle by 20 days. Now we only started this localization of the @home sofas a couple of months ago, and we should reach approximately 50% of @home's volumes by the end of March '24 and 70% by the end of March '25 with other categories to follow. In terms of footprint expansion, the TFG property team have already assisted Tapestry and opening 29 new stores since acquisition, many of these in prime locations and at very attractive rentals. From a customer perspective, we've integrated their customer service onto TFG's customer service platform. And as a direct result, they've already achieved more than a 10% improvement in the NPS or Net Promoter Score. In terms of optimizing our various strategic assets, our investment in localized quick response manufacturing allowed us to achieve a 4% gross margin improvement in respect of our quick response apparel within our Foschini brand which has been the biggest early adopter of our quick response supply chain. A 4% improvement is really significant and demonstrates why we've chosen to invest in perfect quick response manufacturing and what is possible in terms of achievement. In terms of space optimization, we closed 91 underperforming stores and reconfigured a further 20 oversized stores by either reducing their footprint or cutting in another TFG brand. We've been very focused on space optimization over the past 2 to 3 years, and this has now allowed us to achieve the leading trading densities amongst our South African peers. This chart shows how TFG has improved its trading densities ahead of its listed peers since 2019, when we were pretty much in the middle of the pack. We've removed the names of individual competitors from each chart but I think some of you will be able to work the out for yourselves. The really good news here is we definitely aren't finished with driving trading densities and I would expect to see further improvements over the next couple of years, especially as we develop and execute our omnichannel strategy. I previously shared the strategic intent behind our new Pambula River fields, omni-enabled distribution center and the operational benefits that it will deliver. Since our previous presentation, we completed the build of Phase 1 of our 75,000 square meter capacity DC and are currently in the process of ramping up throughput in a staggered manner to ensure that we don't expose ourselves to the sort of risks that often come with a move to a new DC. To remind everyone, there were 3 key strategic reasons as to why we've undertaken the significant investment in modernizing and in expanding our DC capacity. Firstly, we needed to consolidate our 13 subscale and individually inefficient DCs down to 7. This will now allow us to house all of our fashion brands in one location and shift most of our volume much closer to our core markets in Gauteng and the north of the country. Reduced replenishment time from an average of 12 days down to 4 and hold back up to 40% of our stock on a pull model, which is considered best practice amongst the best global fashion retailers and which we know will benefit gross margins. Secondly, Pambula allows us to dispense with our currently expensive and outsourced online DC fulfillment as well as reducing expensive and inefficient in-store picking with a target of moving towards 70% of all e-commerce orders being processed through the new DC. The combination of these will allow us to materially reduce our omnichannel fulfillment costs and is a key driver in respect of driving omni profitability. Thirdly, Pambula will allow us to integrate our massive jet volumes, which currently flow through a very old Edcon DC and Durban into our new DC, which again sits a lot closer to our key markets. We recently ran a Jet trial on our new model and saw more than a 1% improvement in gross margin and believe that there is more to come here. These were the 3 key strategic reasons why we undertook the build of [ Pambula ]. However, in all honesty, there was also a pressing operational reason as well. as our business continues to grow as fast as it has been, we've already pretty much run out of DC capacity and really couldn't wait. In terms of leveraging our customer data, we added another 1.5 million customers to our TFG rewards base and also reached an important milestone with more than 80% of our South African turnover now linked to known TFG Rewards customers. This is allowing us to build an incredibly rich and detailed data lake and customer data platform to allow us to better understand our customers, their shopping habits and their preferences which we are already using more and more effectively to further grow market share, basket size and shopper frequency. We are often asked how we are able to continue to grow well ahead of the market in very tough trading conditions. Now there obviously isn't a singular answer to this. However, our continued focus and investment in building the equity of our various brands is undoubtedly one of our cornerstones. And I don't think that the collective brand equity of our various businesses has ever been higher than it is right now. Every year, our brands continue to win pretty much all of the high-profile brand recognition and brand value awards. This year is no different. And recently, Foschini, Markham, Sportscene and Totalsports were all recognized in the South Africa's most valuable brand awards. Bash was recognized as the Top South African fashion shopping app by Similarweb, and Sportscene was awarded the best clothing store in South Africa by Ask Africa which shouldn't really be a surprise to anyone who's visited any of our flagship sports in stores and locations such as Sandton, Canal Walk or Gateway. TFG Rewards was recognized as the best multichannel rewards campaign and the South African Loyalty Awards. As mentioned, these awards aren't new and continue to build the momentum of our brands as do the nearly 23 million social media followers that our brands attract. In terms of us fulfilling our vision to create the most remarkable omnichannel experiences for our customers, our recently launched Bash digital platform has rocketed from a cold start in February this year to become the #1 South African retail fashion app. We also recently started trialing our Bash delivery service, which will both significantly reduce online order fulfillment times down to less than an hour in key nodes and simultaneously significantly reduce our fulfillment costs. Thanks to Sixty60, 1 hour has become the new norm. With the growth in SHEIN and Amazon's recently announced entry into South Africa next year, these digital and rapid fulfillment capabilities will become increasingly important from both a defensive and a growth perspective. From a metrics perspective, Bash continues to exceed all of our initial expectations. Our online turnover grew 54%. Our online clothing turnover, 62%, our multi-brand orders by 135% and first-time buyers are now contributing 26% of our total online sales, which is critically important in terms of not cannibalizing our existing customer base. Our app sessions grew by 414% and the Bash app now generates 50% of our total online revenue. To better illustrate some of these points, the graph on the left shows the direct correlation between revenue, customers and first-time buyers over the past 6 months. As a brief reminder as to why we created Bash, prior to Bash, our highest ranked website was @home, and that ranked at about #24 in South Africa. Less than a year later, Bash now ranks at #4 overall slightly ahead of Sixty60 and only behind Takealot, SHEIN and Amazon. Now the Bash team hasn't only been focused on driving adoption and use of the app but they've also had a very close focus on driving profitability and are currently running ahead of their financial plan, having reduced operating and fulfillment costs by 9% over the past 6 months. In terms of what's next for Bash, we have to remember, Bash was never intended to be an online omnichannel, but rather the backbone of a truly integrated omnichannel business. Having already made the level of progress I shared on the previous slides, we're currently trialing an omni version of the Bash app in-store, which will allow any of our stores to sell the entire TFG product catalog. That means all of the SKUs within that particular brand, particular segment or across TFG's various brands. This means a significant increase in product availability and true [imbecile] capability. We're only a few weeks into this trial, but it's going to be a very important focus area for the team over the next 12 months. In terms of sustaining both ourselves and our stakeholders into the future, we were recently recognized as a top 10 YES or youth employment scheme contributor in South Africa. We've begun the introduction of reusable and recyclable bags across our South African business, and we recently committed to an ambitious and meaningful set of 2030 community investment commitments which we hold very close to our hearts, given the levels of unemployment, poverty and need in South Africa. Our community investments form part of our broader inspired living sustainability program. They are investments that we are making into the people and the communities around our business. Today, we are announcing 5 major CSR commitments out to 2030 that signal our commitment to South Africa and the change that we believe we can help to drive. The first of these investments is FutureForce, where we will fund at least 100 bursaries and data science fellowships by 2030. Through the development of these scarce and valuable skills, we will aim to help solve some of the toughest challenges faced by South Africa. The second of these investments is our E/Scalator. Here, we are making investments into our supply base that will be helping to incubate young fashion designers build out our CMT capacity and provide market access to new suppliers. Our third program is FirstStart, which will provide a first job opportunity for many young South Africans without any prior experience across our various businesses. Our fourth program, ExtraThread helps direct excess merchandise to disaster relief victims and to help vulnerable women starting small enterprises. Our fifth program, RippleEffect, is also our newest. A portion of the sale of every one of our new reusable bags will go towards funding the rollout of bore holes to South Africans that have never had access to easy and fresh drinking water. As a business that is so dependent on water in our value chain, we believe that our stewardship also extends to making this available for those who need it most. Each of our commitments align with the United Nations sustainable development goals and leverages our inherent existing TFG strengths to create meaningful impact beyond our day-to-day operations. I'll now hand over to Bongiwe, who will take us through the Africa and group financial review.

Thank you, Anthony, and good morning to you all. With the operating context already outlined, let me get straight into the numbers. Starting with the group summary income statement. Our group revenue grew to ZAR 28.4 billion, increasing 12.9% on the prior period. Retail turnover grew 12.4% and excluding Tapestry, was up 8.9%. This was a pleasing achievement in light of the tough trading conditions experienced by all 3 segments albeit in varying degrees. As we previously guided, it is important to highlight that our international performance for this half reflects normalized activity versus the unsustainable outperformance in the prior period as a result of the buoyant post covered cells. We were able to grow group gross profit by 7.7% to ZAR 12.5 billion. Like many others, our Africa business remains subject to negative impact of ongoing load shedding. In Australia, the margin decline was due to the post-pandemic recovery in the base while in the U.K. product margin held despite the pressure on the top line. In response to the challenging economic conditions in all regions, we have continued to prioritize disciplined and proactive cost management, which contributed to turnover growth well ahead of trading expense growth. The strong trade towards the end of reporting period, especially in September, combined with the continued focus on resetting the cost base resulted in a record first half EBITDA of ZAR 5.3 billion, which was up 8.3% on the prior period. This mitigated the group headline earnings per share decline to the lower end of the preguided range down to 15.3%. Each business segment has been impacted by different challenges. Africa remains our largest segment, so my next few slides will go into detail on TFG Africa's performance. Jane will then talk you through credit before London and Australia teams talk to their segments. We have additional information included in the appendix for further detail on operating metrics. The operating context has been well detailed, so I'd like to spend time -- more time highlighting the accounting policy changes, which have not had a material impact on our EBIT but are important to understand. Historically, we have accounted for inventory valuation using a retail inventory methodology for stock, often referred to as RIM. However, over the years, the industry standard has shifted to the weighted average cost methodology or WACC. Technically, both methods give the same answer, the difference being where the provision is held and how often it is applied. At TFG, we have historically carried provisions centrally. The adoption of the WACC methodology in this reporting period has enabled us to push it down to brand SKU level which effectively means the brands have more visibility on how their stock aging is impacting the growth or release of their provisions, which directly impact their margins and their profitability. Consequently, we have seen a positive change in behavior, which is driving further stock efficiencies in the group. Alongside the WACC adoption, we have [endured a stock 10] KPI for all brands which is linked to their annual incentive. During the period, we also adopted IFRS 17, which is the statement on insurance contracts. This also has had no EBIT impact for us, but is a change in disclosure. On the face of our income statement, gross insurance revenue and gross insurance service expenses are now disclosed as separate line items. Previously, the net insurance revenue was included as part of our other income line. Africa recorded a half year record turnover of ZAR 18.1 billion, up 17.3% and up 11.9%, excluding Tapestry. Our online sales grew 56.5% with cash sales up 23.1%. While credit sales grew in a very modest 3.5% with conservative acceptance rates still being maintained in the current subdued economic environment. Gross profit increased 10.4%, a performance that we are proud of in the current environment. We have continued to proactively manage our cost base, especially in a heavy promotional environment, and I'm pleased to report that our trading expenses grew well below turnover growth and excluding Tapestry, were well below inflation. Consequently, operating leverage expanded with EBIT growing 19.4%, which was again ahead of our turnover growth. Due to the high debt balance at the start of the period, driven by the acquisition of Tapestry and strong organic growth last year, especially in the months leading to Black Friday and Christmas trade. And in combination with the higher interest rate environment, our finance charges, including IFRS 16 charges, grew 65.8%. I'll cover our debt reduction shortly when we go through Africa's balance sheet and our cash flows. Looking at the waterfall chart at the top, it shows the turnover performance by channel with a muted Q1 performance followed by strong Q2 top line performance, largely driven by the promotional activity as we dealt swiftly with the overstock position at the beginning of the year and any slow moving winter stock. And to remind everyone why we financially started with an overstock position, please refer to the blue line graphs in the gray box. In half 1 2023, there was virtually no load shedding impact and Africa turnover was growing double digit with strong like-for-like turnover. We opened approximately 170 stores in Q3 of the financial -- 2023 financial year. And you can see the record top line performance, reflecting a very strong Black Friday and Christmas trade. From late December into Q4 of the last financial year, South Africa entered the world documented period of unprecedented load shedding that saw our like-for-like sales from -- fall from an average of around 6% into negative territory, resulting then in an overstock position at the end or the start of the current financial year. Q1 of this financial year saw a slight recovery, but load shedding remained at elevated levels. In response, we are even more aggressive with markdown as we moved into Q2 and consequently have ended up with winter with a very clean stock position. The gross profit impact of this is shown on the waterfall at the bottom of the slide. What we have done here is show the volume and price mix impact of the bank down activity. Focusing back on the right-hand side of the slide, you can see the green trend lines showing how gross margins have evolved through this promotional activity period and how we're emerging into the second half in a much stronger position. This slide demonstrates the agility of our operating model. Trading expenses were kept well below turnover growth with expenses as a percentage of sales falling further against the prior period to debt is 6.8%. Like-for-like expense tracked well below inflation at 3.9% and head office costs were down 2.1% as we throw some of the expansionary investments. In the blocks below the graph, there is detail on our like-for-like growth on key trading expenses, which been consistently managed down below inflation. Like-for-like depreciation was almost flat on the prior period as we curtail store CapEx, which I'll talk to in more detail on the CapEx slide. I'm not going to spend a lot of time on this slide. Due to the great execution on the several initiatives covered in the previous slides, we grew our operating profit by 19.4% and improved EBIT margin to 9.5%. In summary, the first half was a combination of 5 months of actively dealing with stock both for growth against a challenging environment of daily load shedding while still strategically ensuring further market share gains through price investments. We are aware that one solar doesn't make a summer and cognizant of the fact that September's performance is against a softer base with 2 weeks of load shedding included in the prior year. However, it has been encouraging to see good top line and strong margin performance. Pleasingly, this performance has continued into October, post the reporting period. Anthony will give a bit of more color to the post half year-end performance in its outlook section. Turning focus to the balance sheet. The group managed to reduce inventory balance by 2.4% from year-end and down 8% on a like-for-like basis. The book grew 1.7%, which was well below credit turnover growth of 3.5%, demonstrating the resilience of our book. Group net debt is down ZAR 7.8 billion with strong cash generation from operations of ZAR 4.3 billion, which was used to fund strategic investments and growth and to pay down interest-bearing debt. I will be taking you through Africa cash flows and my colleagues will take you through their segments, balance sheets, metrics when they later present. Despite September being our peak inventory period ahead of Black Friday and Christmas trade, inventory for TFG Africa fell 3.1%, from year-end of ZAR 9.8 billion. And excluding the acquisitions, was down 5.7%, driven by strong stock turns and conservative purchasing. What is even more pleasing is the like-for-like unit decline at store level of 16.9%. We remain conservatively provided as we go into the second half. CapEx was also well controlled, focusing on expansion store CapEx and the [ Pambula ] distribution center. As previously guided, in light of the current operating context, we have purposefully restricted organic CapEx to only high-return stores, we expect to end the year with CapEx spend much lower than last year. This is perhaps a slide that tells it all regarding our cash generation and our debt forecast. Cash operating for the period was ZAR 3 billion, which is against last year's ZAR 2.7 billion. We absorbed significantly less working capital of ZAR 600 million against ZAR 3.2 billion in the prior half due to controlled purchases even while getting up for peaks in trade. Data book growth was also well controlled. As part of our consolidation strategy, we have not pursued any large acquisitions and restricted expansionary CapEx. This resulted in only ZAR 900 million absorbed in investing activities versus last year's ZAR 2.9 billion. All this effort together with strong trade has led to a reduction in net debt, down ZAR 1.6 billion from ZAR 9.7 billion in the prior half to an ZAR 8.1 billion at this half end. In much of this calendar year, we reviewed our facilities and strategically shored up our balance sheet further, and successfully raised an additional ZAR 2.8 billion of new facilities, which was 2x oversubscribed. This brings our total finances as of the end of September to ZAR 15.8 billion. In summary, this presentation tells the story of our African businesses highlighting the challenging trade period, but also the agile and resilient business model that sees the segment well positioned to maintain profitability and improve balance sheet strength. Before I hand over to Jane, I'd like to thank the TFG Finance and all our other teams locally and internationally for their support over the past 5 years. I'd like to thank Anthony for his leadership, the operating Board, the TFG Supervisory Board, in particular, our Chairman, Mr. Michael Lewis; Audit Committee Chair, Mr. Edwin Oblowitz and the Finance Committee Chair, Mr. Graham Davin, who have provided sound counsel over the years. It has been 5 years full of excitement and also full of challenges, covered a capital raise riots, floods and now the load shedding. But there's also been enormous organic growth within Africa. We have concluded a number of strategic acquisitions, including Jet, Tapestry and Lazy Street Fever. We could not have done this without our key stakeholders, in particular, our primary bankers, RMB, Absa and Standard Bank as well as our local and international shareholders and analysts continually supported us. I'm truly proud to leave the business on a high. Thank you. Jane, over to you.

Thanks, Bongiwe. So let's talk about credit. Industry statistics produced by TransUnion, which are in the appendix of your presentation show the Consumer Credit Index has dropped to the lowest level in the last few years, down to 39. This is well below the breakeven of 50. And this, of course, is due to weak cash flows, interest rates increasing, which means the cost of your debt increases, and defaults returned to more normalized levels after the industry tightened credit lending during the COVID period. So given these tough economic conditions, we have continued with our conservative credit strategy and our accept rates have remained stable during this half year at 17%. We expect to keep them at this level for the rest of the financial year. What's great is that the demand for our store card credit remains strong, and we've had over 2 million applications, and we expect to end the year with just over 4 million applications. Credit turnover growth for the first 6 months is 3.5%, which is a slowdown from last year. Now I know that might sound slightly boring, but -- and I'm going to repeat again, there is simply no need to buy turnover during such tough economic times, and our demand for our merchandise is strong, as you can see with our cash turnover growth at 23%. So how is the performance of the debtors book. Well, managing credit in Africa is never boring. And the best teams are able to act quickly and respond to what's happening in the environment. On this slide, we have shown you a graph which shows you the relationship between book growth and write-off growth. So during the COVID period financial year 2021, you can see that we purposely restricted growth of the book in order to control for our bad debt. Which means that when we started growing the book again you will see write-offs in absolute terms grow, and that's to be expected. And it's exactly what happened in this half year. For the eagle eyed amongst you, given the book growth has slowed down in this half year than all things being equal, I should expect my write-offs to slow down in the second half of this year coming. And obviously, you'll get to see if I'm right at my year-end results. The underlying quality of my book is consistent and stable. The overdue values, which are the percentage of customers that have missed 2 or more payments has remained flat to year-end at 13.3%. The provision ratio improved to 19.3% from circa 20% at last year this time and the previous financial year-end. Although we did revise down some of our provision overlays for the future, in the second half of the last financial year, the provision ratio reduced due to the conservative credit strategy, resulting in an increase in the proportion of up-to-date customers, which, of course, require a lower level of provisioning. Net bad debts have increased slightly, but primarily because of the growth in write-offs this half year, but we expect this to drop at year-end. So, in summary, you can see from the graph a little bit more detail than usual. And we have shown you the breakdown of our EBIT. We split it into income, bad debt write-offs, recoveries, provision movements and departmental costs. Given the repo rate has increased by 275 bps in September 2022, and our book has increased, then our total income is up 31%. Well, that's great. But going forward, we are not expecting interest rates to increase significantly. And hence, income growth will slow down. Now credit is obviously hugely dependent on interest income and hence repo rate changes. Over 75% of our income is due to interest and when interest rates were slashed during COVID, we had a circa ZAR 500 million drop in our income for the credit portfolio. In order to reduce our dependency on repo rate changes and to ensure financial services maintains and grows our EBIT contribution. We have embarked and broadening our offerings. The first step in this journey is the partnership with TymeBank. And earlier this year, we launched the TFG TymeBanking product across our store network, and we are already well on our way to opening 1 million TFG TymeBank account customers by the end of this financial year, which is great news. Of the back of this success, we have just started the testing of TFG TymeBank personal loans to our customers. All the tests are working well, and we expect to start advertising this in our stores early next year. It will take time to build these businesses, but these will create new revenue streams for TFG financial services for the future. So keep watching this space. Now you can't talk about credit without mentioning net bad debt. And overall, our net bad debt has increased by 7%, below gross book growth of 9.1%, which is good news. Net bad debt is the combination of write-offs, recoveries and provision movement. And you can see the quantum of each in the graph. Last year, our provision movement was an expense to the EBIT, whereas this year, given the provision ratio improvement, this is a release. But as you can see, it's minimal in the whole scale of things in terms of movement through our P&L. Departmental costs are still well contained at 6%, and this includes us running our above-the-line campaign to incentivize customers to keep their TFG money in good standing. Overall, we have seen significant EBIT growth for this half year, which is fantastic news. But this is primarily due to interest rates returning back to normal levels. And finally, I would like to give a huge call out to the Foschini team who offered to dress me for this year's presentation. Now for a math girl to be able to work in a fashion house, this really is a dream come true, and I absolutely love this Foschini dress, which was designed and manufactured in our very own TFG factory. So just to summarize, everything is still tickety-boo. Thank you.

So hello from TFG London, and thanks, Jane. Matt is just going to take us through the operating context and the top line results, over to Matt.

Thank you, Justin, and good morning, everybody. I'll take you through the first half year results for TFG London. We continue to see challenging conditions in the U.K. But despite this, we delivered EBIT outperformance in H1 versus prior year. This is a great result and a big thank you to our teams for making this happen. During the period, we made significant progress on our strategic initiatives. We continue to invest in our stores, enhancing the customer experience through network upgrades, improved ranging and better overall store environment. We expanded our international business, including the full consolidation of our existing Hong Kong joint venture. Our direct channel mix also increased as we refocus our business to more profitable channels. Moving to the next slide and the headline figures. Recognizing the challenging conditions and also the pent-up demand following coded in last year's figures, sales did step back 10.5%. On a positive note, we saw stronger like-for-like performance within our direct channels with U.K. stores and online, achieving minus 2.6% and our international stores achieving plus 6%. We also opened 8 new stores with 12 closures during the period as we continue our store optimization program and movement to bigger, better stores. We saw strong performance in our gross margin delivery, achieving a 6.8 percentage point increase during the period. That was supported by more favorable FX as well as consistent application of our stock provisioning policy year-on-year. Very encouraging was the underlying selling margin result, which was in line with prior period despite the more promotional environment and underlying supply chain inflation. From a cost perspective, we did face some inflation headwinds, particularly within wages that made efficiency gains within our marketing as well as our property costs as we regear the portfolio and leverage better deals with landlords. Overall, our EBIT margins were a 1% improvement, with EBIT of ZAR 14.2 million versus ZAR 14 million in the prior year. Moving to the following slide and looking at our inventory position. Whilst we saw a slight increase of cost value during the period based on trading outcomes, the number of stock units continues to fall with an 11% reduction achieved since year-end. We expect stock to further reduce in the second half, and this continues to be a big focus of the team for the year ahead. Overall, stock health remains in a good place and the balance sheet remains in a strong position with a conservative level of provisioning. I'll now hand over to Justin to take you through the outlook.

Thanks, Matt. So just on the final slide, I think in summary, our outlook is unchanged and that the uncertainty continues. There's a huge degree of consumer pressure, which has been ongoing during the course of the first half in which we see continuing into the second, but our continued focus as a team is to engage with our existing customers and to acquire new customers into the brands that we have, and to provide a consistent and high-quality experience for those customers. We're going to continue to invest in our brands by opening new stores and investing in technologies and teams. So we're excited about the second half. And as always, thanks goes to our team here for their resilience and their perseverance in what continues to be an extremely challenging environment. So thank you, and I'm going to hand over to Dean and Troy in Australia.

Thanks, Justin, and Matt, and hello, everyone. Before we start the slides, I just want to say a couple of things. Firstly, I'd like to introduce our CFO, Troy Wilson. Troy and I have worked together for over a decade, and whilst yet having physically seen him before, Troy has been running the TFG Australian finance team for over 8 years. He has a wealth of finance and retail experience and was a natural successor as CFO. Welcome to the presentation, Troy, great to have you with me. Secondly, I want to thank Gary Novis. As you know, Gary stepped into the Executive Director role from CEO at the end of the 2023, I want to personally thank Gary for his continued support and commitment to both myself and divisions. The last 7 months has been very rewarding, and I'm pleased to say that our partnership of working together has continued into another phase. Thanks, Gary. Now on to the Australian operating context. We knew this year would be a challenge. After the 2023 post-COVID boom, when the Australian consumer let loose and spent well above historical levels, it was inevitable that the overheated economy would eventually slow down. However, on a positive note, the economy still has growth, albeit slow, and it feels at the moment like Australia will avoid a recession. That being said, the pressure in the economy is real and the consumer is struggling with a higher cost of living, no growth in real wages, the lowest savings levels in 15 years and higher interest rates, which once again moved up 0.25% this Tuesday. As a result, consumer confidence is low and as we had anticipated, spending is down. Now whilst we believe we are maximizing the opportunity in this market, we don't expect there to be a substantial change in its operating context for quite some time. However, there is one real positive. The unemployment rate has remained historically low, which always gives our business an opportunity, as that young guy, our customer has a job, is earning money and will inevitably spend it. Over to you, Troy.

Thank you, Dean. Good morning, everyone. I'm very pleased to be presenting the first half results for TFG Australia alongside Dean. Our results for the first half is our second best ever and in line with our expectations of finishing the year ahead of FY '22, which means we are on track to continue meeting historical growth rates. And whilst revenue is 7% below the prior year, trade remains steady and is significantly ahead of pre-COVID levels. Comp store sales growth is up almost 30% versus 4 years ago. This is greater than a 6% like-for-like compound annual growth rate. At the start of the year, we saw the economic challenges coming and we're prepared, and we treaded through the conditions very successfully. And as you can see, our EBIT percentage of 12.5% for the half is well above historical performance, and we are extremely happy with the EBIT result of $46.4 million. In terms of stock levels, we ended last year with a balance of $152.5 million. Given the slowdown in the markets, we have effectively booked this out and are very comfortable with the IP balance. Subsequently, we have managed to end October with 6% less units than the same time last year. As a result, our stock levels are currently in a good position. The quality of inventory remains very good. Over 82% is current season and over 40% of that is core, which means products not linked specifically to a season. In summary, we are happy with the inventory balance and the level of provisioning. Back to you, Dean, for the outlook.

Thanks, Troy. As we covered in the operating context, there is no doubt the economy has its challenges. That being said, every cycle has its opportunities. And as we did last year, we will do our best to maximize those opportunities available. As Troy said and consistent with our guidance at year-end, the Australian business will not grow off the 2023 EBIT. That was an absolute boom with the financial result having over 5 years of growth in the single year. Growth of '22 is the target. The challenge for this year is managing the business as it comes off of boom year in the current cost inflationary environment, with little opportunity to increase prices. Last part, however, the team is doing a spectacular job, and we wanted to thank them for all of their efforts. Now on to strategy. Our strategy with our existing brands remains unchanged. We're focused on continued growth through new store opportunities and optimizing and expanding stores. However, outside of our existing brands, this half, we made a strategic decision to trial a new brand. We saw an opportunity in the market where no one was really impressive. A larger size, menswear apparel business in the value sector. Now whilst this is a trial, we have opened 2 freestanding stores and an online store. And thus far, we are pleased with the initial sales results. We will provide a further update on that at year-end. Thanks, and over to you, Anthony.

Strategy and outlook. TFG's strategy remains unchanged. We have built an incredible retail platform business, and we have demonstrated that we are able to consistently build or buy great brands across an ever-widening range of commodities, and then scale these businesses in a value-accretive manner. Whilst our strategy and ambition doesn't waver, tactically, as is the case for any responsible business, we have to be alive to, and adapt our day-to-day operations around prevailing realities. At our year-end results presentation, I called out how challenging this year was likely to be, and I said that we were going to use this period to consolidate the benefits of the various investments that we've already made. I'm glad to be able to report back that our consolidation phase is well on track. We've made pleasing progress in all of the areas we needed to focus on and are confident that all things being equal, we should land the balance of our tactical objectives by year-end. In terms of CapEx, we should end the year with a total CapEx spend of approximately ZAR 2.3 billion, close to ZAR 0.75 billion lower than last year, despite the current investments in our new DC in stores. This should equate to roughly 4% of our turnover for the year, down from the 6% level of last year. In terms of inventory, we expect to end approximately 6% down on last year despite high product inflation, a lot of new stores and a non-comp brand in the current period. Most importantly, as you've already seen from Bongiwe's presentation, this is very fresh, clean inventory, which sets us up well for future trade. From a net debt perspective, we're aiming to further reduce our net debt from ZAR 7.1 billion at the end of last year to end at around ZAR 6.4 billion, which would get us very close to our target range. This all translates into a further planned reduction of our net debt to EBITDA from 1.2x at the end of last year to around 1x, where we'd be, I think, very comfortable. In summary, this means that we will tactically continue to sweat our assets, improve working capital efficiency, keep a very tight grip on costs, reduce debt and interest and improve margins and returns. Strategically, we will continue to focus on growing market share and attracting an ever-increasing share of our customers' wallet. In this respect, we have a full pipeline of future growth opportunities, both internal and external, which we consistently evaluate through a strict capital allocation lens. From an external perspective, it still feels that the rest of this financial year will remain fairly difficult across our different businesses. However, I do believe that we are now getting closer to a potential upturn that would be beneficial for both our sector and for TFG. Globally and in South Africa, interest rates are very close to peaking or in some cases, may have peaked already, and there will be a meaningful leverage for our customers and our business when they start to fall. Specific to South Africa, we've seen a marked reduction in Stage 5, 6, 7 and perhaps 8, load shedding over the last couple of months. And if this can hold for the next 12 months, I think we'll see the private sector investment really starting to fill the gap between demand and current generation and some of the large units that have been out of commission returning to the grid. In summary, I believe that TFG remains very well positioned even if the conditions do remain as tough as many expect, but our prospects become very exciting, very quickly on the back of even a limited improvement in the macro environment. So I guess amongst all the global and domestic gloom and doom, it would be fair to ask why we remain so confident over the medium term. I've tried to capture my thoughts on the slide. TFG have spent years thinking about strategizing and building an incredible retail platform and ecosystem. Just to illustrate this point, we have 34 high equity brands that our customers absolutely love. We have a physical footprint of more than 4,800 stores and outlets. We have leading digital capabilities in each of our key markets. And in South Africa, Bash allows us to compete even with the best of the pure players. We have one of the largest, most recognized and powerful rewards programs in our South African business, which we are now starting to harness. We've built up our manufacturing capability and capacity to become the largest clothing manufacturer in South Africa, and we have a leading in-house credit capability, which we can use as we deem fit to drive sales, as well as to enable annuity income streams by our value-added services. This retail system is very powerful. It's almost impossible to replicate. And in respect of TFG Africa alone, resulted in more than 170 million people visiting our stores over the past 6 months, more than 72 million online sessions, our rewards base growing to more than 35 million people and our social media following growing to more than 20 million people. So what does this all mean in terms of a true retail asset test? What did we manage to sell to our customers? Having a bit of fun, I looked at what this allowed us to generate in terms of actual sales in the TFG Africa business over the first 6 months. While breaking this down, our H1 ZAR 18 billion of turnover in Africa, translated into roughly 62 million units sold during the period, which equates to nearly one item sold to every person living in South Africa, according to the latest census data. Making this even more granular, this means that on average, during every single minute of our trading days, weeks and months that made up this first half, we sold more than 2 tempo watches, 30 pairs of sneakers, 46 pairs of denim and 116 T-shirts, that's permanent in an environment of close to 0 growth with incessant load shedding. This is the kind of thing that the TFG platform can deliver. Moving on to current trade. Trade for the 5 weeks post the end of September has been constrained, but this needs to be viewed against an incredibly high base and well protected gross margins across all 3 of our territories. TFG Africa is up 5.6% on the prior year with a 2-year growth number of 17.4%. The TFG London growth of 1.6% is also up against last year's post-COVID bubble, with a 2-year growth of minus 1.3%. Again, a very different business model as we've exited some of the less profitable department store REITs to market. TFG Australia has negative growth of minus 10.2%. It is also up against the prior year bubble with a 2-year growth of 56.2% against the COVID-impacted base from 2 years ago. As already mentioned, gross margins have also remained strong in all territories over the past 5 weeks. Looking forward, TFG Africa potentially is quite a soft base from mid-December onwards, while TFG London and Australia only really anniversary their high bases around the end of the financial year in March '24. That brings us to almost the end of the formal part of our presentation. But before we take a short comfort break, I would like to take a moment to recognize and thank our CFO, Bongiwe, for everything that she has done for our business since she joined us in 2018, and for her personal support over what has been one of the most difficult periods in modern retail. Shortly after appointment as a business, we faced a number of once in a generation, if not, once in a century Black Swan events that led to the demise of many good retailers and brands around the world and severely damaged many more. First, we had COVID, for which there was no playbook. We couldn't trade. We couldn't collect our book. We had tens of thousands of staff and thousands of landlords and suppliers to support, yet somehow, we found a way to manage our cash and our operations through this and then followed up with a very successful and oversubscribed rights issue at just the right time, which strengthened our balance sheet and gave us the confidence to quickly acquire the Jet business, for what I can now admit, was actually a steal. No sooner had we come out of COVID when our South African business was hit by some of the worst looting in our history, where we suffered losses in excess of ZAR 1 billion. Again, we completed a successful series of insurance claims and recovered pretty much all of our losses. Flooding came next, followed by an opportunity to acquire Tapestry brands at an attractive price despite an intensely competitive process. No sooner had we concluded Tapestry when we were then hit by unexpected and incredibly corrosive levels of load shedding. Through all of these issues, Bongiwe was an incredible help and support for myself personally and the Board, and has assisted us in navigating these challenges and getting us to a great place as a business as she now prepares to leave. Bongiwe, thank you for all of your support and our collective best wishes for the next steps, in your no doubt stellar career. We will now take a 5-minute comfort break and the entire TFG team will be back to answer any questions that you may have. Thank you for your time. [Break]

Welcome back, everybody, and thank you to those who have submitted questions. We have quite a few to get through, so we'll jump straight in. First question is, can we share a bit more detail on the nature of the Hong Kong acquisition, please? Is it stores or buying an operation? Yes, this one is either a simple or a more complicated answer depending on the level of detail. But Matt, this is your joint venture. So if you'd like to pick up that question directly. Thank you.

Sure. So as part of our international markets, we have an existing JV agreement with a third-party base in Hong Kong, who also helped manage our operation in the region. The operation comprises around 10 stores across all 3 brands. That third party will then help us with operational support, so things like store merchandising, sourcing rental deals, effectively applying local knowledge and leveraging their existing relationships in the market. The region's seeing positive recovery post-pandemic. And I think the high demand for occasion dressing and ready-to-wear, place the key strengths for our brands. So we took the decision to acquire the remainder of the JV that we didn't already own earlier this year and so we now have full ownership of the business, and we'll be fully consolidating it going forward.

Thanks, Matt, that's answered it perfectly. The next question relates to why did we end up in an overstocked position given that we have a large local manufacturing operation. I think we try to give quite a lot of granular detail in the slides and kind of break it down per month. The reality is if you go back to September last year, I know it feels like almost a lifetime ago, beginning of September last year, we haven't had load shedding. It was almost a nonexistent event. We had like-for-like store growth at that point of close to 9%. We were going into peak season, November and December. Given any kind of lead times, whether it's local manufacturing or imports, you've already ordered -- received, and in many cases, paid for the stock for November, December. The load shedding really only hit in the second half of September. We then had very bad load shedding again from the second half of December onwards, the whole of January, February, March. There's really no supply chain that can cope with that kind of a swing, particularly when you've been buying 4%, 9% like-for-like growth. I think the term I used in the slides was really effectively. I think we began victims of our own success in the earlier part of -- or the second half of last year. And the question around local manufacturing is a good one. It gives a massive advantage to the brands that have adopted quick response local manufacturing. But to put it into perspective, that's still less than 40% of our entire supply chain to the Africa business. And interestingly, the businesses that do use our quick response manufacturing actually had much less of a stock buildup and lower markdowns as you'd expect. The next question really relates to what's the operating margin targets for TFG Africa look like in the medium to long term. Nothing's changed there. We've guided 14% to 15%. Obviously, not going to be there in a year where we've had this kind of massive impact from load shedding. But from all of our modeling, we still believe 14% to 15% is there, and that's obviously on the back of a strongly growing value portion of our business. Bongiwe, I'm going to pass the next one to you. I think you did cover it, but maybe just spelling out a bit more around CapEx guidance, what we've spent in the first half relative to the whole year.

All right. Okay. Thanks, Anthony. I did cover a bit on Africa, how our CapEx has fared. If you look at last year, obviously, a lot of our CapEx was spent on our DC project [indiscernible], and also catching up, I think we opened about 380 stores last year in total. So our CapEx is a percentage of turnover has reduced to about 4% compared to the 6% last year. And actually, by year-end, I expect this to be around 3.5%, 3.8%. So stock CapEx definitely has halved and we will keep it at that level, and as [indiscernible] last trend of CapEx spend finishes off this year. And then into next year, you'll see a very good decline again in CapEx to about probably same level as this year over the next year or 2, to 3%, I think is what we've guided that is our long-term CapEx target, and I think we will keep it that to 2.5%, 3% year-on-year. Anthony?

Super. Thanks. That's summarized it perfectly. Couple of questions now around Bash. The first is, what is the percentage of online order returns? Very good question that kills a lot of the economics of pure-play businesses, particularly in more developed markets, countries in the EU on ladies fashion, for example, kind of return rates that vary from 40% to 70%, a matter of fact, as high as 80% in Germany. In South Africa, we are single digit. So we moved between about a 7% to 9% return range, which is very manageable. And actually, that hasn't really moved much over the last 2 to 3 years. The next question on Bash was, what is the percentage of Click & Collect? Again, there's some seasonality in that number, but it averages between 35% and 40%. At the moment, we've been as high as 50%, and that's with no incentivization, that's entirely customer choice and Click & Collect, it's going to get close to 50% over time. The next question, is Bash profitable on a stand-alone basis? And I think we've guided that very clearly. Bash is not profitable at the moment with all the costs in. It's -- on a full year basis, we're running better than planned, but it will still cost roughly ZAR 200 million at the bottom line level. We've got a pretty clear part over 3 years to break even. And once we've broken even, the upside into profitability comes pretty quickly. And I think the other point around Bash, which is sometimes must is it has a huge knock-on effect in terms of our store sales already. To give you an example, in the month of October, we had about 15 million site visits to the Bash site. We had about 160-odd thousand online transactions, but we had close to 1.9 million people use the lookup functionality for specific stock item to go and find it in a store and they abandoned. So it's increasingly becoming a foot driver to our stores. The next question also related to Bash, can we elaborate on what data is used to establish whether a Bash customer is new. When anybody places an online order, we have their name, their physical delivery address, their cellphone number, and if they're a rewards customer, which increasingly they are, I mentioned that 80% of our transactions are now linked to rewards customers, we've got a very granular view of further shopping on our site. Those percentages effectively are people who never shopped -- they now shopped in the store before, but they've never shopped on any of our previous websites and they're now shopping on Bash, which is something that we obviously were targeting. Bongiwe, I'll pass the next one to you. How should we think about expense to sales targets given the significant improvement over H1 '24?

Very good question. Thank you for that. There's been a lot of cost control in all our regions. Past financially, I think it's been a gradual decline from the time I joined, I always said, Anthony gave me a target that most important thing that I was here for, 2 KPIs, was to drive stock performance, stock trend, reduce inventory days, and obviously also expand the operating leverage. And I think year-on-year, you've seen our expense to sales ratios reduced, I think previously, they were around about 44%, 45% in Africa, and now they're down to about, I think, 36% in this first half. Look, I think with inflation, with expansion, with a lot of growth cost as well in that, I think we have reached probably 36%, 37% is the right guidance for Africa. And I think as a group, anywhere around 40%, 41% is a great expense control base. [indiscernible] turn over.

Yes. Thanks for answering that, Bongiwe, and again, well done on the expense control that's been exercised over the last couple of years, as you correctly pointed out. Next question, I think, again, we did cover in the presentation, but just to repeat it, what portion of total sales on our cash sales for the group? We've actually increased that further from our previous reporting period. We were sitting at about 80% cash sales 6 months ago. We're now up to just over 82%. And again, that's been an evolution over the last decade to become more of a cash-orientated business. Credit remains very important to us, but particularly in a high interest rate environment at the moment, I think it demonstrates why you wouldn't want to be overly dependent on credit sales. The next question could be accounting or operational, but I'm going to take it as operational. Can we expand on the movement of -- from RIM to WACC in terms of how we value our inventory, and does this have any impact on our decision-making around opening or closing stores? I guess to jump to the second part of the question, probably a minimal impact at this point, really RIM to WACC was an operational decision that we took to really bring stock efficiency right to the front of every brand's thinking. It removes really any subjectivity in terms of provisioning for stock. There are certain rules and parameters that are set up, as soon as stock hits a certain aging depending on the brand, and the type of commodity, level of provisioning starts to kick in, and that really encourages people to deal with that stock either ahead of that provisioning kicking in or immediately afterwards before the next bucket kicks in. So the objective really is to drive stock efficiency, something we've been focused on the last couple of years. And I think this is really the next move in that direction. I guess ultimately, with better stock terms, you will have a better result out of each store. So it might change the economics, but I think it's -- that's probably a couple of years out. The next question, I'll take as well. Excluding Tapestry, what was your space growth for the year? Reality is very small. We spoke out opening 199 stores. We also closed a number of stores where the stores were too large. We cut in other brands where appropriate. And the net effect of all of this and the reason why we've kept it pretty tight is we've had this real focus on driving trading densities. We did show a slide in the presentation showing where trading densities have evolved for TFG over the last 3 or 4 years. 3, 4 years ago, we were pretty much middle of the pack. And at the moment, we've got industry-leading trading densities amongst our peer group. So very much, I think the output that we wanted and still further work to be done in that respect. Okay, this one. Well done on the results, TFG U.K. cost control was exceptional. Matt, this is for you. How should we think about H2 cost control for the U.K. and EBIT margin for the U.K.?

So the second half will be dependent on the next couple of peak trading months, which are naturally more promotionally driven. So we can expect to structurally lower gross margin in the second half of the year on the back of that. Obviously, given the environment in the U.K., inflation headwinds will persist. That will impact that H2 EBIT margin relative to the prior year. But I think overall, we've made a strong start, but we'll have a better insight on the outlook to come the new year.

Perfect, Matt. Thank you. The next question, TFG Africa like-for-like sales growth in the first half, Bongiwe, will you remind me, 4-point?

4.2%, yes.

4.2%, and internal inflation about...

10% -- 19%...

19% for the first half, second half is looking around about 4.5% to 5%, definitely coming off the highs of the first half. We've already did a couple of more questions on gross margin. I think we've dealt with that. Here's an interesting one. Anthony, you spoke about a number of Black Swan events, any lessons that could be learned from that in terms of operational efficiency, capital allocation, et cetera? I guess, yes, really good question. As I said, I think we've honestly had a number of events over the last 4 or 5 years that genuine are once in 10, 20, 30, 40 year kind of events. I think the lessons we've learned, and I think we've lived by them is face up to whatever the reality is on, take whatever actions required very, very quickly. Don't put your head in the sand and hope it's going to go away. The 2 examples, I guess, I'll give it that was, as soon as COVID hit, we had no idea how long the stores would be shut down for how long, Jane wouldn't be able to collect her book. Within -- literally within a week of the lockdown starting, we were already planning a capital raise. We executed that rights issue very successfully, pretty much before I think anybody else in the South African market, that showed up the balance sheet gave us a lot of confidence and that led us to -- straight back into a great path with the ability and the confidence to pick up the Jet acquisition for, as I said earlier, pretty much a steal. And then I think most recently, if you look at the load shedding, in all honestly, I don't think anybody foresaw -- could have foreseen that load shedding that got so severe in September. But having seen it as a reality, we pulled back hard on stock. We took the provisioning we needed to. We marked down. We got rid of any inventory that otherwise would have been a drag on future earnings periods and we dealt with it as quickly as possible. So again, I think for me, the lessons learned are whatever the reality is, take your medicine deal with it and put yourself in the best foot to move forward after that. Jane, for you, is there still upside to profitability on the credit book? Yes.

Well, I think interest rates aren't going to increase much going forward. So the income growth just has to slow down in terms of the actual credit book. And obviously, one of the things we're looking at is how to diversify for financial services. So rather than purely driving EBIT from just the credit book and to enable merchandise sales, what else can we do? Hence, why we've launched the banking products with Time Bank, personal loans, et cetera. So how do we continue to grow profit, but more from financial services, as just a pure store card credit book.

Great. Thanks, Jane, and you mind -- do you want to touch on annuity, incumbent, other products? Or do you want to keep that under the rug for the moment?

Honestly, you've given away all my secrets now. I was hoping to save that for the year-end results.

Sorry. People -- that's why they were asking.

So yes, absolutely. Some of the products that we sell in our value-added services sections, such as our insurance products, et cetera, they make us long-term revenues that we start small now on the back of our personal loans books where we're doing the mandatory life -- credit life product. And that will grow because when you have those kind of products, they take time to build up, but in the future, they will be a major contributor to financial services. But not in this financial year because it takes time to grow these businesses but watch your space.

There we go. Perfect [indiscernible] answer, Jane. Sorry for putting you on the spot. Okay. This is one of my favorite ones, thanks for asking. Any views on the likely impact of Amazon on Bash or on store sales? The reason I say one of my favorite questions, I have been talking about the worst-kept secret as our term in South Africa for about 18 to 24 months. I think we all knew or certainly people in the industry knew that Amazon was coming. It's now confirmed. So at least I can breathe a sigh of relief. I didn't kind of call that one horribly wrong. I think the reality is Amazon have been super successful in almost every category other than clothing. It's not to say that they're not going to have some impact or they won't get it right eventually. But clothing really hasn't been the sweet spot. For me, the upside, I think, of Amazon coming into South Africa is it's really going to accelerate digital adoption. If you think about just in our own lives today, the number of people who use Takealot, who use Checkers Sixty60, who use Bash, is increasing all the time. You bring a global giant into South Africa, it can really only add to the number of people who feel comfortable shopping online, off their mobile devices, off an app. So for me, I think given the fact that we've made these investments a little bit ahead of the curve, that's probably is going to help the markets catch up with where we plan the business. There's a second question linked to Amazon, and Dean, I'm going to pass this one to you. What lessons can we learn from TFG Australia after Amazon head to the Australian market a few years ago. And I know Dean, you and I have spoken about this before.

We have. Look, we would say, I mean, Amazon does bring a very logistics game. So I think the biggest lesson we can learn is we just have to make sure we've got our housing order in terms of Click & Collect, Click & Sand and our overall warehousing. I think that's the main game changer. But as you said, Anthony, we are a little bit protected in the apparel space. But that being said, we found that the most successful retailers that deal with Amazon just stick to what their customer wants. So we've got to remain focused on our customer. In awe of the distraction, there's always competition, consumers right now can buy anything from anywhere. This just makes it easier for them. But logistics is the main game changer for us, and it's something that we have to work on all the time. But I mean we feel we've got a house in order, but we certainly took that as an event and dealt with it at the time. We had our JV, better make sure our house is in order at that moment at that point. So that's probably the main lessons we've had.

Yes. Well, that's a great answer, Dean. Thank's for that. Again, it's -- just a couple of points there. At the time that we were actually negotiating the final terms of the RAG acquisition. The announcement was made that Amazon were going into Australia. That really shook retail stocks in Australia at the time. I think the general assumption was Amazon was going to conquer pretty much everybody at multiples from our side, thankfully, downwards. That certainly helped the price and the negotiation around the deal. The reality is it really didn't have much of an impact on the clothing retailers. Your other point, Dean, around logistics and just how slick they are, I think that's absolutely correct. 1.5 years ago, when we spoke about the Quench acquisition, which was kind of tiny in the scheme of things for South Africa, but it was very strategic for us. That was really making sure that when the likes of Amazon came, when Checker Sixty60 got traction, the new norm that people now have in their minds is pretty much instantaneous ratification. Sixty60 set the bar at 1 hour, the days of people being happy to wait 5, 6, 7 days for an online delivery are, I think, long gone. And as I mentioned earlier in the presentation, we are already trialing 1-hour delivery in a couple of select nodes and depending on demand, that can roll out as well. Guys, that's the end of the questions. Thank you very much again for the time today and joining us for the results and for the questions you posed. And enjoy the rest of your day and the weekend. And to everybody on our side, who presented, thank you very much.