Shoprite Hldgs Ltd S/Adr

Welcome to our interim results presentation for 2024. I hope that we'll be able to give you some insights in what has transpired in the last six months. We will use the normal format where I will give a bit of an overview just for the group. Anton will then take us through the detailed financials and then I'll just end off again with a bit of the strategy and how we see going forward in the next couple of months. So in terms of the operational overview, the first part of my presentation, I know I can spend an hour on all the excuses of why things are not great or why the performance could be better or what the reasons are, what makes doing business in South Africa extremely challenging. But we're not going to do that. That is not what we do. Rather, we're going to just tell you that we've been busy again, as usual. We have done a lot of development, additional employment. We've launched some leadership programs. We had some fun in terms of advertising, some creative. We had the World Cup. It was quite fun with the old 60-60 and very happy also to say that we have managed to get 34 new innovation in the retail awards in the last six months. But we never lose focus of the fact that we have responsibility to develop small and local suppliers and then keep the affordability in mind. So the example here is that meal for four for just 20 rand. The little scooter that we are proud to say it's locally made, very happy with it. Continue to develop the forest and freeze brand. very high levels of acceptance amongst our, especially our checklist customers. And we even tried to put the extra joy back into Christmas when we decided to do something special for Stanford after that town suffered a terrible flooding. It's been a very busy year. Sales amounted to 121 billion. Now one can very easily get carried away with big numbers and also percentages. What is noteworthy here is the fact that there was 14.8 billion rand of additional sales added in the last six months. That is an enormous amount, I think, in any person's book. Gross profit, you would have seen that last year we had a slight reduction in our gross profit margin. I did explain at the time that we took a decision not to pass the price increases as fast as onto the consumer as they were passed on to us. In other words, we absorb some of the inflation on behalf of the consumer. That pretty much has now phased itself out, and we're in a bit more normalized scenario, hence this slight increase in the gross margin. Always great. to be able to pay a dividend, and even better if there's an increase in the dividend. So very pleased with that result this six months. So contrary to common belief, our customer visits growth, it's not purely new stores or space growth. Customers are actually more loyal. They frequent our stores more often, and they also spend more with us. This has resulted in an item volume growth of 5.1%, always very good. It's good for our suppliers. They need volume growth in order to stem the increases in costs. That has resulted in a full billion rand in share gains and is now marking 58%. consecutive months of uninterrupted market share gains. We believe we continue to win with our customers, our pricing, our competitors. One is our obsession about price and price competitiveness and very clearly on the right hand side you can see that throughout the period our own internal inflation was less than the official food inflation. Supermarkets, RSA had a very good performance, growth of 14.6%, outgrowing the market by more than twice. So it's just illustrating that customers do appreciate what we bring to them. If we exclude mass market from the sales, it still amounts to 11.2%. Checkers remains the fastest growing market. premium grosser format for now the third year in a row. 60-60 continue to grow at 63% on a very high base. I will get to the 60-60 also a little bit later. Liquor at an excellent six months, so growing 25%. And just a reminder again that we do multi-year investments. It's not once-offs. It's not the lucky break here or there. It comes with a very clear defined strategy that we execute on because we don't do a knee-jerk. We continue to invest in low prices to shield our customers. One mustn't forget where the cost of fuel, the importance of high levels of in-stock, and it's quite telling if one sees your competitor pickers pick in your own store for their digital customers, which is testimony of the high levels of in-stock that the group maintains and have maintained over the last three years. And as you can hear, I'm almost overemphasizing our obsession about price. We are the price champion for customers. Every rand matters. We've told you before, since 2016, we've been selling a five rand loaf of bread. We've got a five rand burger. We have these days one rand packet of chips, one rand packet of little chocolate biscuits, I know of no retailer in the world that sells product at that price. I always say, you know, you can pick up a one rand on the pavement and you can put a smile on a kid's face with one rand. So as you can see, to be able to deliver on 454 million first-class offers means that there are proper processes and systems required in order to be able to reach so many of the extra savings reward members. The instant savings that those members got at Till Point amounted to $8.4 billion for the six months. For me, incredible, staggering amount. And if you put on the other side of that, we're going to spend $8.5 billion on CapEx in this year. It just gives us the scale of this operation. And that it means that every single day, TeamShop has to execute at its premium superior level every single day to make sure that customers get the cheapest and most affordable prices. It's very clear that we execute against a strategy and that has delivered record market share for us. Now, actually against the trend, we had an exceptional Black Friday promotion. And what's quite telling on the graphs that you currently see is the acceleration of the market share gains in November and December. And even I was surprised, and maybe I shouldn't, but to have gained $4 billion in market shares over the last six months is an incredible achievement. So my hat off to Team ShopRite for once again. executing and delivering at scale the best in class and best in market. Then just to make sure, especially that for our international audience, that we clarify for you how we see our store and our business portfolio. Each of them are very specifically focused on a very specific customer and therefore also the ability to address specific customer needs states for each of the brands. They don't overlap, which means they are quite clear in terms of which customer they serve and therefore so much better in order to execute what customers need. in each of those banners. Every year, I get asked, where's the growth going to come from? And then every year, we outgrow the market. And it's been now multi-years of outperform in the market. And we are busy with a lot, so we always try new things. So here's just an example of our adjacencies, more focused at the premium market, Our door I bet our little me, Mehdi and I are unique. We continue to seek for areas of growth and so far we could achieve that every year in the last couple of years. If we look at the checkers brand, not too long ago, I would say about three years ago, we set our first target that we would love to achieve would be a 15% market share. Overall, in the formal market and now we've achieved that. So in the last six months we surpassed the 15% market share and you can see, I mean, it's got its own very specific needs states that we deliver, whether it's personalized, best value, premium private labels, very clear in its positioning. And then ShopRite on the other hand, I mean, with a whopping over 20% market share, again, very clearly positioned in terms of what does it deliver. Absolutely uncompromised on lowest prices, affordable private levels, and the width of promotional availability for consumers to stretch their wallets. Other business units, pleased to say that the non-RSA business, we have given the guidance before of around 500 million for a year. It's a trading profit guidance and happy to report that for the six months we're sitting at 434. It does give one a sense that we have made hard but the right decisions around what we call Africa or then the rest of Africa. terms of our disinvestment and also how we've allocated capital into that segment. Furniture, I must admit here that I think we can do better, certainly. We've got plans. It's almost a little bit of we had so much to do and then every time there's a capital allocation and The poor furniture business had to wait a little bit more, so we feel that we can do better there, and we will. We also have put some new credit processes in place for credit sales, as we are indexing very low in terms of the industry as far as credit sales are concerned. Very happy about the franchise division. Okay franchise achieving very good double-digit sales growth numbers, and so also Transform and MeriRite. So very happy with that 23% performance from the other operating segments as well. That is just a little bit of the overview that I have done. And I'm now, as usual, going to hand you over to our very fine Chief Financial Officer, Anton.

Anton. Thank you very much, Peter, for that introduction and also giving some insights into the financial performance for the first half. Two aspects that I just want to make the investor community aware of. The first one is we introduced IFRS 17, which deal with insurance contracts, not material for the group, more from a disclosure point of view, and you'll see the full notes in the results. Second aspect is that Ghana has been inflationary environment for more than three years or more than 100%. and we treated Ghana as hyperinflation there. As part of IFRS 17, we had to restate the results, which you will see in the detail. Before we go into the detail of the H1 results, I think we must just remind ourselves some of the base effects and also what we saw in the prior year. We came from a base of sales growth of 16.8% with the RSA supermarkets division reporting a first half trading sales growth of 17.5%, and also the non-RSA segment reported 17.5% sales growth. From other operating income point of view, we had that loss of profit claim relating to the 2021 civil unrest of around $244 million. That's in the base, which is a once-off. And then from an operating cost point of view, We saw that R465 million increase in diesel expenditure that took us up to around R560 million for the first half. Little did we know that we will spend another R800 million in the second half to bring us up to around R1.3 billion of additional diesel expenditure for that year. We also saw an increase in insurance costs, around R90 million for that first half, relating to the civil unrest and that PTS government policy that we had to put in place. The full year impact of that was 180 million. Peter spoke about that billion rand impact that we started off with, and those were just some more color around what made up some of those amounts. If we then turn to the financial results, sales increase of 13.9. Peter gave a lot of detail around what was driving that sales growth. Total income increase of 13.9% to $31.4 billion. Total expenses up by 14.8% to $24.7 billion. And then our trading profit increasing by 10.7% to $6.7 billion. Each of these items I will unpack in much more detail as part of the presentation. EBITDA increasing by a very strong 10.3% to 10.2 billion rand, and compared against our profit after tax growth of 3.8%, we can just see the impact of that 22% or 327 million rand increase in finance costs, which I will also unpack later in the presentation. Diluted headline earnings per share increased by a strong 7.6%, with earnings per share increasing by 4.6%. ROIC excluding the impact of IFRS 16 increased from 16.2% at the end of last year to 17% in the current year with a WAC rate of 13.7%. Our dividend increased by 7.7% to 267 cents and very much in line with the diluted headline earnings per share growth. Just a reminder for our investors and international investor community that We currently have a dividend policy or full year dividend policy of 1.75 times EPS. And I see at this stage no reason why we will not again deliver on that growth. Our return on equity is currently 25.4%. Supermarkets RSA showed a 14.6% sales growth to 97.5 billion for the like-for-like of 6.3. Excluding the impact of the mass-smart stores, which contributed around 2.9 billion rand of sales, this segment would have seen a growth of around 11.2%. From a ShopRite and USAFE point of view, as well as Checkers and Checkers Hyper, Peter really unpacked that as part of the Operational performance, I'm not going to take more time and unpack that further. I think what is noteworthy from a liquor shop point of view, base growth was 37% and the 25.2% growth was achieved on top of that. We also saw very good growth in store openings where we saw another 104 stores added to the liquor shop operations. Supermarkets non-RSA increased by 6.2% to 10.6 billion. Again, a story of affordability as well as currency fluctuations, and unfortunately the first half of the year has been no exception. If we look at the last 12 months, we again saw two of our major markets being impacted, negatively impacted, firstly with Zambia having currency devaluations of around 31%, and then Angola having currency devaluations of around 52% during the last 12 months. Our constant currency growth was around 20% and our internal inflation for the segment was 8.8%. Furniture growth of 1.7% to 3.9 billion. Saw an increase in our credit participation just to over 15%. But as Peter mentioned, there's work for us to be done there. We did, however, see a good growth. within our non-RSA segment relating to furniture, and then other operating segments, franchise, strong growth, as well as our many right and transform business during our 18.5% growth. If we just look at store expansion over a 12-month period, we managed to add an additional 5% of space, GLA space, or gross electrical area space, excluding the impact of a mass market store opening. And if I look at the last six months, we've added 2.2%. in space. Saw nice contribution and growth in all our banners. Within ShopRite, we added 75 stores. Yes, 51 was relating to the MassMod transaction. And we now sit with 628 ShopRite stores. The Checkr stores, we opened an additional 16, of which two were our new Checkr Foods concept stores, also getting nice traction within that concept. And then YouSave, another 24 stores added. Between ShopRite and YouSave, we now have more than 1,000 stores Liquor shop, as I mentioned, at 105 stores, with 42 stores contributing to that sales growth from the mass market transaction. And then, very pleasingly, our pet shop business, where we've seen a lot of traction coming from there, where we currently have 75. And I know Peter is putting a lot of pressure on the operators to reach that first target of 100 stores. If I look at the other concept stores, we currently have 50. of which we have our unique clothing by checkers of around 19 stores, and then also our outdoor stores of 15. So a net store count of 285 stores opened during this last 12 months, bringing us to a total of 2,237 stores. We then turn to the more detail around income. We saw our income increase by 13.9% to 31.4 billion rand, a income margin of 25.9%. And as we've communicated in the past, we're aiming for that 26% income margin. Gross profit, strong growth of 14.7% to 28.6 billion rand. and also saw a margin improvement from 23.5% to 23.6%. Peter spoke about that price investment that we did in the prior year to obviously ignite growth as well, but we saw also further efficiency through our supply chain, and we saw a saving in the diesel that led to also a positive contribution to gross margin. If we look at our shrinkage and wastage in terms of global standards, again, first half, very strong and good result for us. Other operating income increased by 1.8%, but one must remember the $244 million from part of that line item, and if we exclude that, you'll see that we had an increase of 15.5%, and I will unpack that in the next slide. Interest revenue, insurance revenue, and finance. Other operating income was impacted also by IFRS 17. The interest revenue increased by 16.7% to 385 million. We currently have a loans and other receivable book of around 3 billion rand. We saw nice traction within our CredEx business, which we supply funding and short them funding to some of our suppliers, where we saw a growth to around a billion rand at the end of the first half. We also have our various funding structures in place in terms of our resilient business. And then also, of course, our furniture book, where we also have funding which gave rise to the interest revenue. Our profit from our equity investments, the two that we referred to there is our retail logistics fund that we have with equities that house all our distribution centres currently. The profit growth there was in line with last year. We've introduced further debt structures into that shareholding to basically fund the expansion that I will deal with later. And then, bingo, we saw an increase of profitability to around 24 million rand, which serves as our last mile in terms of our 60-60 business unit. Insurance revenue increased by 24.8%, to $141 million. And then the net monetary gain was a result of our Ghana hyperinflation impact. I said I'll spend a little bit more time on obviously what we deem to as other operating income. Commissions received mainly from our Fintech business units as well as our Oka Furniture business unit increased by 8.6% to $606 million in a very highly competitive market currently. In the strategy piece, Peter will talk about our POS replacement, but obviously the growth was negatively impacted by that POS implementation that we're busy with. as we could not develop new value-added services products, and I do expect for us to see a more positive growth again in the first half of 2025 financial year. Sundering income, although it looks like it's down, that was where the 244 million rand was accounted for. If we exclude that, we actually saw an increase of 21%, and it was mainly driven by a strong performance in the recycling income that we increased, but we also launched our extra savings subscription model during September, and we also launched our REX supply insights platform during the first half that gave rise to the growth in that line item. Then delivery recoveries from our furniture and also 60-60 business, we saw a 32.5% increase to $379 million. The growth in delivery recoveries is mainly as a result of our increase in our 60-60 business, where we saw a 63% increase You will ask, but why? What's the difference? And why is the growth lagging in terms of recoveries? But you will remember that some of those recoveries are now part of that subscription that we see in sundry income. So in the future, it's something that we need to look together to, to try and see the impact of our 60-60 operations from an other operating income point of view. Our Rainmaker marketing and media operations, strong growth, really also as part of a startup, we've seen a really good growth within that business unit of 24% to $279 million. And then we have sold off certain of our properties during the last few years, and that's why we've also seen a decrease in our lease income to $232 million. Spoke about the positive franchise growth, and that's why we also see a 9.5% increase in our franchise fees received. If we then turn to total expenses, we saw a growth of 14.8% to R24.7 billion. And from an investor's point of view, one should ask the question, how sustainable is it if we grow expenses at 14.8% vis-à-vis our income of 13.9% to achieve our profitability growth? And there are mainly two reasons. The one reason is short-term of nature, and that is a result of the introduction of our MassSmart business unit. The effective date of that transaction was 9th of January of 2023, and then hence it's not in the base. And the second reason is more structural of nature, where we've seen a fundamental change in the business environment. Peter does unpack that in much more detail as part of his strategic piece where we look at our monetization of data, our insights, and many of these line items appearing on this list is growing at a faster pace than our sales growth, which I will share in more detail as I go through the line items. So if I then turn to depreciation and amortization, we saw an increase of 16.9% to 3.5 billion rand. Still within that target range that we set ourselves of a depreciation to sales ratio of 3%, that's currently sitting at 2.9%. Our depreciation on our PPE increased by 15.7%, and our depreciation on our right of use assets increased by 15%. We also saw an increase in our depreciation relating to some of our intangible assets, which are all our software developments. And there we can see that the reciprocal income relating to that expense forms part of other operating income in the forms of REX, in the form of our subscription model in terms of 60-60. So the expense in other operating expenses, but the income separately. in showing as part of other operating income and not a reciprocal sales number. Employee benefits growing at 14.2%. If we exclude the impact of MassMod, the growth was around 12.4%. During the period, the group added and created 2,600 new job opportunities. That is on top of the 4,480 MassMod staff that form part of the transaction. We were very proud, again, to be able to make a distribution to the employee trust of R122 million during the first six months, and we also contributed R46 million to the Youth Employment Incentive, or scheme, that's driven by government. Electricity and water increased by 14.5%, on the back of a NASA increase, which is the national regulator in South Africa, of 18.6%. Again, if we exclude the impact of the mass smart transaction, we're looking at a growth of around 10.9% for the business. We currently generate around 5.5% of our power usage through renewable energies. Insurance, again, linked to that IFRS 17 disclosures. And then if I look at other operating expenses increased by 14.6% to 9 billion rand. Some of the major items contributing to that increase was advertising expenditure increasing by 16.4% to 2.2 billion rand. Part of two percentage points of that increase was driven by our Rainmaker Media business. We will also do advertising on behalf of some of our customers. Our security costs increased by 15.8% and still at around 1% of revenue. Maintenance expenditure on the back of diesel generator and fridge repairs increased by 14.2%. And then insurance costs. As I mentioned in the beginning, we saw elevated costs coming from last year. We did have a slight decline during this half of the year. but still very much elevated in terms of our spend in the past. The expense margin is currently sitting at 20%. If we exclude the impact of the additional diesel cost that was sitting around $500 million for the first six months, we will get to an expense margin of 20%, which we're obviously driving as part of the strategy. If we then turn to trading profit, very good growth at 10.7% to 6.6 billion. Excluding the impact of the diesel, we're sitting around that 5.9%, very close to that target 6% ratio. Supermarkets RSA increased 8.8% to 5.8 billion, and our trading margin within that segment is currently at 6%. Supermarkets non-RSA increased by 37.3% to $434 million, and that was really driven by improved performance from especially our Angolan operation. Furniture, we spoke about that muted sales growth within that sector, and also about the 1.7% growth that had a negative impact on also our profitability. And then if I look at other operating segments, that growth of 18% on the back of CompuTicket delivering strong performance, Almeda Right and Transform Business, where we saw that 18.5% growth. And then Franchise also contributing meaningful. Net finance cost, we saw a 22.2% increase of R327 million in the first half. That was mainly driven through our increase in borrowing cost of nearly 100 million with no increase in our borrowings, and then also a 18.2% increase in our IFRS 16 lease liability and finance costs relating to that lease liability. On the right-hand side, we have prepared an illustration of the interest rates and the rapid rate at which the interest rates increase, and from there you can see that From 2021, we saw an increase of around 475 basis points in the prime rate up to 2024, and we saw quite a big move from 2022 to 2023, which is impacting the results now. The full extent of the finance costs we also saw in our second half results of 2023, and that's why I do expect us to see a more normalized finance cost within the second half. We then turn to the balance sheet. From a borrowings point of view, we remained in line with last year at $6.3 billion. Our borrowings-to-equity ratio improved from 24.5% last year this time to 23.8%, and at the end we were sitting at 24.2%. So we've seen that constant improvement in that ratio. Our U.S. dollar borrowings remained flat as well at $28 million and now represents an 8.2%. Another positive move in terms of how we look at working capital, and you will recall that we saw that same move during December of last year. That will rectify itself in June because of the various cutoffs in terms of our trade payables. We saw that 8.3 billion rand benefit. And then again, our strong cash flows that generated a net cash position for the group of 8.3 billion rand. If we turn to capital spend, and Peter spoke about the capital spend, increased by 10.9% to 3.7 billion rand. And at the end of December, we also had additional capital commitments of 2.3 billion rand. If we look at the spend as a percentage of sales, excluding the additional refurb work on the mass-smart stores and the investment in our supply chain, the percentage comes down to around 2.7%, with our target percentage at about 3%, like we give guidance every year. The mass-smart stores we spent already 203 million of the 552 million Rand initially communicated and from a supply chain point of view we already spent 239 million in terms of the billion Rand we communicated as part of our guidance. The group prioritizes the expansion in the business and hence another 71% of our capital allocated to expanding the business. Sales growth, which is driven by the opening of our new stores, as well as our refurbishment program. We spent around 2.3 billion Rand during the first half. Peter spoke about the AI capabilities within pricing modeling. In there, we spent R178 million, and then we've also spent R204 million in terms of expanding our capabilities within our point of sale, where we're developing an omni-channel solution, as well as the launch of the REX platform I spoke about previously, and then the 60-60 subscription model. We also focus on maintaining our stores and the quality within our stores, and there we spend another R904 million during the year. What is also important to note is that if we look at capital already invested for where we will only realize the benefits in the second half and beyond, we spend around 31% of capital on that. As mentioned previously, we are on a massive drive to expand our supply chain. And I gave this update late last year, and this is basically just a recap of where we are. So in terms of delivery of the Caylands Distribution Center, it's done, it's in place, and we already had an increase of inventory of around 300 million rand within that site. Centurion site is also more or less done, and we're taking care of that in March. And then if I turn to what will happen during May, This year already as well is our Riverfields DC is on track. We will start taking in inventory this year, but we will only start operating from that site from July onwards. And then our Wells Estate in the Eastern Cape, we'll be adding 8,500 squares, is also on track. So we will again start taking in inventory around October, November, and we'll start operations from January 2020-2025. We spoke a lot about inventory in the past and again with the investment in supplies and I think it's important to realise what was driving the increase of 15.4% to the R29.5 billion. Again, what was satisfactory is that we could achieve that inventory to sales ratio of 12.7%. Supermarkets RSA was the main contributor on why we saw this increase of 15.4%. So if I purely look at the inventory as a percentage of sales that we see going through the stores, we will see that we saw an improvement from 8.8% to 8.6%. So some of the reasons why we saw that increase in inventory first, I spoke about the investment in a supply chain. We saw that R300 million coming through in Caylands. Then we added close to 700 million rand just relating to the mass smart transaction and also the other store openings that we saw during the year. Service levels from our suppliers' point of view haven't improved, which meant that we also had to increase our safety stock levels. And then lastly, if I look at the store expansion, where we're going to open an additional 140 corporate stores in the second half of the year, also meant that we had to invest in current supply chain capabilities now. The group is continuing on delivering strong cash flows, and this half was no exception. From an EBITDA point of view, again, 10.2 billion rand, and from a free cash flow point of view, we generated 9 billion rand. If you look at our free cash flow conversion ratio, it's very close to that 89%, and if I look at our operating cash conversion, it's sitting at 122%. From a net movement in free cash flow, we generated two and a half billion rand, and that currently supports our investment in our store footprint and expansion within our footprint, as well as our expansion within our supply chain. If I then purely concentrate on some of the considerations that we expect in the second half, as mentioned, MassMart was only effective from the second half of last year, so we're now hitting that base. And then we've also looked at our, if we look at our internal food inflation, we're currently sitting at 6.3% at the end of January, vis-à-vis the 7.7% that we were at the end of December. From our operating margin point of view, I mentioned earlier as well that we had 800 million rand spent in the second half of the prior financial year that we're now up against, and that's in the base. And then the insurance claim money was a once-off. So that $244 million, that will be the extent for the full year. From an effective tax rate point of view, I still believe that we will be between that 30% to 31%. Our effective tax rate for this half, again, was 30.8%. From a capital allocation point of view, we spoke about the dividend and the dividend policy, and I do not see any changes to that at this stage. And in terms of prioritization of capital, although we have a mandate in place to be able to do share buybacks. We are currently prioritizing our store footprint growth as well as the investment in our supply chain. From a capital point of view, we guided last year to that 8.5 billion rand spent. We are currently on track with the additional and far more stores opening in the second half, as well as the Riverfields, the DC coming on stream, and already capital spent in terms of the Wells Estate DC. I do expect us to see a capital expenditure growth within the second half of the financial year. And then from a non-RSA point of view, Peter mentioned that R384 million foreign exchange gain in the prior year linked to those US dollar government-linked bonds. Many of those government bonds are maturing during the second half, and there is no certainty that we will be able to invest in the US dollar-linked government bonds again, which currently exposes us to foreign exchange movements. We currently have around R1 billion of cash within the Angolan operations Volatility, we spoke about affordability, and again, currency volatility. It's been again, in the first half of the financial year, we saw further devaluations in Zambia. At least Angola, we only saw a 2.3% currency devaluation during the last six months. Some good news is that we were able to repatriate the majority of our funds that were in Nigeria, around $13.2 million. that is confirmed and the money is currently within our operations in ShopRite International. So that was a very positive move for us. If I look at new stores, spoke about the 140 corporate stores, of which 81 stores relate to our supermarkets RSA operations. And then from an inventory point of view, although We know that we are going to do that stock build. We must realize that mass March sales were only in for six months, so we will get a benefit if we look at our inventory to sales ratio. We should equalize the impact of the additional stock within our supply chain. Bit of that then concludes the financial part of the presentation, and looking forward to your piece around strategy. Thank you very much.

Thank you very much, Anton, for that. very detailed analysis of the numbers. I also hope that you got a clear view of how we think about our capital allocation. That's an important thing these days, especially if we look what the current cost of financing is, etc. Very important for us to be very clear on what we expect the balance sheet to look like. So you're very familiar with our nine strategic drivers. Very little of it has changed over the last couple of years. I'm not going to run through all of them. But just to once again tell you that we don't do knee joke. We don't chop and change. I think that's part of the success of the company is that we have a plan. We have a very clear plan, and then we execute as best as we possibly can. And we believe that is what gives our customers most of what they require from us. It's a multi-tiered investment. We haven't done small little incremental investments here. We've done large investments over a long period of time. And what we're trying to achieve, and this is what I'm trying to illustrate here, it's not an end state picture. Don't see it as that. What I'm trying to illustrate to you here is that we make investments where the IP is our own, sits with our own teams. It's a multi-tiered investment that addresses a lot of customer touch points. So if I just point out one or two, so it's the personalization. The Rex platform that's now in-house where you may remember we had a very good relationship with Dunhumbie. We've now taken all of that customer data in-house. It's also the advanced analytics that we do, and we've just completed the price optimization tool that uses artificial intelligence to determine the right and most ideal price point for consumers, also for different profiles. And I just want to say that this is not where we're going to stop. It's not the end state. But it just gives you an illustration of what we are busy with in terms of building out the landscape of the retailer of the future. 6060 you are all very familiar with. But it's not just a cool app for a retailer kind of thing. So we decided that we'll do you or show you a short clip. Just what sits a little bit behind the whole 60-60, I don't think everybody is actually aware that it is not only limited to an app. And then there is a little bike at your front door.

ShopRite X set out to reimagine online grocery shopping by removing friction and doing more for customers through mobile tech innovation. In November 2019, we disrupted South Africa's grocery retail market with the launch of Checker 6060, an app that enables customers to shop in 60 seconds and get their groceries delivered in 60 minutes. Today, we are the number one grocery delivery service in South Africa, with an app that has been downloaded more than 4.5 million times. 80% of South Africa's population lives within 15 minutes of one of the ShopRite Group's almost 2,300 corporate supermarkets. Targeting higher income customers first, we've used our checker stores as micro-fulfillment centers close to customers' homes. This proximity advantage allowed us to pioneer quick commerce, delivering groceries to customers in under 60 minutes. 6060 is not just an app. The magic behind it is our end-to-end digital commerce platform. It includes our famous customer app, our store picker app, our driver app, our store management app. And most importantly, it's underpinned by a custom-built end-to-end order management engine with direct integration with our core retail system. The platform has scaled 10x and now handles 15 million search queries and 1 billion system calls every single week. The platform combines location-aware technology with range and inventory visibility for over 18,000 products. Real-time pricing and promotions execution and full integration with the extra savings rewards program. Personalized offers, personalized prompts at checkout, and personalized alternatives. Once the order is placed, it drops immediately onto the picker device in the closest store. A personal shopper then uses our award-winning picker app, which is designed for speed with image-based picking, intelligent product sequencing, and real-time picking progress sent to the customer's app and live notifications to allow customers to amend substitutes. Our management app then provides visibility of each store's KPIs to ensure perfect orders for customers Our last mile logistics platform, powered by our joint venture, Pingo, ensures on-time delivery at scale through a dedicated network of over 5,000 independent drivers. The driver app allocates orders intelligently with real-time route optimization, integrating with the customer app to allow order tracking. It's this magic behind the Checker 6060 app that allows us to successfully deliver a repeatable service across South Africa every day, giving bad customers life's most valuable commodity, time. Inspiring and delighting South Africans, young and old.

Everybody thought that after COVID that... This on-demand one-hour service, the grocery level is going to fall off a cliff. It didn't happen at all. As you can see on the graph, it's just gone from strength to strength. It is the number one grocery app with over 4.5 million downloads. Very pleasing numbers. It almost created 10,000 new job opportunities. And since inception, the sales increase is more than tenfold. So we haven't seen the end of this yet. I don't think we will ever go back. This is here to stay. And we have more developments to come. We also, like I just said earlier, we're not at the end state yet and we will keep you informed as we progress. Most of you have seen the attention around the World Cup and then all the creative media and I must say, real creative things that was done. And for me, the 60-60 is my best example of true brand love, customer brand love. When customers are dressing themselves in the 60-60 outfit to go watch the sevens rugby, you know there's a brand love. And that is probably the dream of any brand builder. So what is it that ShopRite does? So ShopRite is building Africa's largest, most profitable, I want to emphasize that, most profitable omnichannel retailer. We have to defend our position as the number one online grocery platform. Of course, everybody is playing in that space. That's why we have to continue to keep on investing on it. Personalization at scale, of course, that's what I mentioned earlier. If we're competing of what is the most relevant and the most seek-after price point, those are not things a human can do across such a large organization, so many customers. And that's why we have to build these advanced analytics that we brought in-house and that we have to invest and get better and get bigger in terms of our artificial intelligence-led pricing and promotional engines, which we will continue to do. So I've mentioned the REX platform that we've now brought in-house from Danube. As a matter of fact, we actually now have more customers on this platform than what we used to have on the Danube platform. Very pleased about that. Our suppliers are very happy with this tool. It's easy to use and gives you real-time information. Rainmaker, the media business that we set up basically a bit more than two years ago, also profitable, definitely delivering a niche in that market, in the retail space. And then, of course, the development on the financial services is taking more traction, more and more, as people are looking to save some fees on banking and insurance and also then a little bit of credit and Here's a few examples of categories where we under-index our average market share. So there lies a good growth for us, even internally in the grocery business, just to get those categories up to where our average market share is for the group. The private labels, there's always questions around private labels. It's a necessity these days. With deteriorating supplier service levels, we will have to invest more on that. But it's a bit of a chicken and egg because currently there is very little capital investment in capacity, manufacturing capacity in South Africa. from all manufacturers. Very few are currently comfortable to invest large amounts of capital into this African space. So you will see that for the year basically our participation is largely flat and that's mainly because of some issues around the ports and some products that we've been sourcing for years where there's now all sorts of issues around. It's short term, so we will continue to develop more of these brands. What is noteworthy is that I think it's about three years ago, we said we had 23 of our own brands that was worth $100 million in sales in a year. Now we say to you there are 25 of our own brands that exceeds 100 million in six months. Just show how these brands have become more of a national brand than what it is, just more of the same. We don't do more of the same. We like to complement the category whether it's a price point or quality position. And we continue with our strong partnerships. Very good to say that OK Foods, OK Franchise Division, now over 600 stores, also gained market share. I mentioned double-digit sales growth. And also very clear in terms of the positioning in what market segments are. And then pleasing for us, you might have heard this already, is that later in the year, we will then start with our execution on our healthy food partnership with Discovery Vitality. Also from Anton's part of the presentation, you would have noticed that we are spending quite a large amount of capex in the expansion of our supply chain. I don't know if any FMCG supplier in the world have got a 80% inbound service level and a 99% outright service level. And that is what has allowed us to fulfill so much better on our customer promise of the in-stocks and hence why we've been able to increase their loyalty and they shop more from us and they frequent us more frequently. And then we're still expanding. We're not stopping, whether it's expansion in systems and the personalization and artificial intelligence. It's also the physical stores. We have planned 250 new stores for the year. There's still 140 to go for the remainder of the year to June. Maybe here I can also mention that we've just started the implementation and rollout of our new state-of-the-art point-of-sale system. And if I may, quote-unquote, the CEO of the company who provides that software said that it is by far the fastest rollout at scale of such a system that he's seen in his 20 years of experience in the industry. And then there's the force for good. Force for good for us is not just a tick box. We've been doing these things for years, and at scale. Our meals, our soup kitchens, we understand the role that we play in this African economy, especially that we are the providers of food. Our communities need us. There are a lot of needy people in our communities, and I do believe as a responsible corporate citizen, ShopRite does deliver. to its communities. Fourth for good also, of course, includes the planet. We cannot ignore the planet. As a large organization like us, we have a direct responsibility to do best for the planet as well. I'm very proud to say that of our in-store packaging use, currently 99.4% of it is now reusable, recyclable, or compostable, which I'm very proud of. although this was a consequence, not the aim of us doing good for planet, is that Sharper as a group now has the highest CDP climate change and water security disclosure score of A-, which we are also proud of. And then you're also familiar with this. We've been showing this probably the best of five or six years now, that everything that we do, hangs around the core retail business. That red dot there in the middle. I really want you to take note of this and understand this picture because this is what we do. If we start at the left, advanced analytics and insights and then the products that delivers on that. Digital commerce and then the products that delivers on that. And so we can go through that flywheel. So If anything, then if you really want to understand what it is that ShopRite does and what we deliver, it all hangs off the core business, and then we try and enhance everything around this to make sure that we grow our share of wallet from our consumers. So this then concludes our presentation, our formal presentation. I hope you found it insightful and it does clarify some of your questions. and also what it is that we do and try to do every day. So when we now transition to the question and answers, which Anton and I will do our best to answer, I will just give you a little bit of an update on the short-term outlook, the way we see it. Thank you. Anton, so while we're just waiting for a few more questions... Meredith made me a little sum. So I joined ShopRite in 97 and in those days it took 19 years to do 10 billion in revenue. Today we do 10 billion in revenue every 15 days.

Great number.

That's what happened in 27 years in the ShopRite business. So we were talking about scale, so that just gives you an illustration of that. So just very quickly before we take the questions, the sales for the first two months basically, we achieved low double digits. Still ahead of the market once again. almost consistently now for five years. The second half will be impacted with much lower inflation. We saw January come down to 6.3 and now February actually has come out at 5.3. I must say I have a feeling that we will not be able to keep the inflation at that lower level. We are already talking about 25 rand a litre now going for fuel. Now we all know immediately what that means. So it's good for the consumer, but I think it's actually nullified by the very high interest rates at the moment. We're up against a very high base. I have to highlight that. You have mentioned that. But, I mean, at a comparable period last year, we grew at over 18%. And in context with that, I mean, we come off a high of inflation of almost 12% a year ago. And now we're talking about 5.3, so one just has to bear that in mind. When we talk about low double-digit sales, just remember that it's a much lower inflation number that's also in there. MassMart is also in the base, which is new, which we mustn't forget about. Then the investment that goes into the DCs currently is necessitated. We just cannot operate If I can just mention one, I mean, I in the week went through the December non-deliveries in the direct divisions that we have, i.e. where we don't have our own distribution centers, that the major supply, short supply, was in the region of between 40 and 50%. Now, you're going to say to me, this can't be. But it is. Factually, it is true that we, in many instances, got delivered less than 50% of what our actual requirement was. Very difficult to deliver on over 98% in stock consistently to your consumer. And also remember now the impact that that has on your on-demand digital service where you have a you have an in-stock promise, and how difficult that is then to achieve. And, yeah, well, you've mentioned the numbers, still 140 stores to go, new ones to open. And, okay, it is across all the formats, so it's not 140 supermarkets, so let's just be clear on that. It's across all the new formats that we also have. And, yeah, we're still optimistic. We keep on investing like we always do through all the cycles. And, yeah, so, Anton, this is a summary of a few thoughts.

Yeah, I think basically from your last comment, Chris Gilmore asked, you know, and I think you mentioned as well in your presentation, is everybody always wants to ask, and where is the growth going to come from? I think that's before you basically saw your whole piece around our strategy, but maybe just one or two highlights that you think the growth for us, especially for second half and then in the future.

So there's no silver bullet here that we see on the horizon that maybe there's just another country we can go and add a big piece to the business. We will continue to grow the business organically. Hence why I've explained how many areas of growth there is in the business and the areas that we are investing in. It gives us alternate sources of revenue. We will expand more on the digital and the phrase remains that the growth is going to come by creating the biggest, most profitable omnichannel retailer in Africa.

Thank you for that, Peter. There was a question from Kristen around what is the liquor shop growth excluding the impact of the mass-smart stores, and that is 17.4%. Peter, there's quite a few questions around, obviously you touched on the growth that we saw within 6060, the integral part of our business now. So there's a few questions around how do you feel about Amazon coming in? What do you see the growth within 6060? What is 6060 profitable? So maybe just touch on a few of those points. And also maybe I see they also talk about marketplace. So maybe try and encapsulate all of that in one answer.

Okay, yes. Most important is yes, it is very profitable. Very profitable. I know there are people that don't believe it, but believe me, it is. About Amazon, everybody knows they're formidable competitors. They've got fantastic systems. They've got marketplace, as you've mentioned. But very similar to what I mean, we're not unknown to that. It is just another competitor. They stake a lot also. And there are multiple retailers in South Africa. Food retail in particular, or FMCG in South Africa, is very competitive. It's a hard-fought market. There's not a single competitor that you can focus on. We are all competing very fiercely. In terms of further development, yes, we consistently will continue to develop 6060. We're currently busy rewriting the platform. I did mention that as we get closer to some of the new developments to be released and go live, we will tell the market. Because what we mustn't forget, the difference between us and maybe somebody like both Takealot and Amazon is that we have this very large footprint of stores that we use as micro-fulfillment centers opposed to a very expensive single dark distribution center. It's a completely different model and also therefore I think why I can with conviction tell you that 60-60 is very profitable.

Thanks Peter, I think that was quite detailed. Have you seen a change in consumer spending habits in the last 12 to 18 months? Especially obviously after we've seen that rapid inflation increases coming through from a very low base in the prior years?

Two things stand out. One is there are less items in the basket and that shows you people are under pressure. And then also the increase of the buy into private labels. That's why I mentioned that a lot of our private labels have become actual national brands in terms of the level of acceptance. So those two stands out quite prominently.

Okay. Then we have a question here from Damon around franchisees. So we obviously saw solid growth within our franchise business. And if we look at our new store openings, we also see positive growth for the second half in franchise. So The question is just what do you think around franchise and obviously where is this growth coming from?

Okay, so franchise as a concept in totality in South African food retail is becoming more and more challenging because of how competitive the market is and how efficient the operators in the market is. not excluding ShopRite. So it becomes a tussle between the ability for the franchisee to actually make a profit, a decent profit and a return on its investment, and the corporate or the franchisor. That's why we had, at the time, we took the conscious decision to have the most affordable franchise model in the country, to allow our franchisees a good probability to also make a return. But it's becoming more and more difficult the more efficient the corporate retailers are.

Okay, I'll take one or two. There was a question just around When did we move the associated profits from our distribution centers as part of trading profits? That was already done in December 2022. We did have a disclosure note around that and why we did it. Obviously, it forms part of our integral part of our business and operations, and when that happens, you do include it as part of your trading profit. So, Funeka, I hope that answers your question. Now I'll just get my bearings here. I think, Peter, while I'm reading through some of these questions, we've landed quite a lot of projects in the first half. Again, if I look at the project delivery in our second half, especially with the further developments, There's just a question from Yahesh. I think there's some concerns around, you know, do you foresee any disruptions? I mean, obviously, there's a lot of processes we put in place, but maybe you just want to share a bit more around that.

As I said, I mean, we're busy, and we've been busy for a long time now. So I don't think there's a question of we're biting off more than we can chew. You know the amount of planning that goes into us before we really decide to allocate capital and embark on a project. We can only do so much. And that's why I used furniture as an example so many times. I can't do that also this year. So a lot of planning goes into making sure that we don't overcommit.

Great. We're also talking about the sales growth that we've seen within Medirite and Transform, and we've launched the Medirite Plus brand, so what is the traction that you're currently seeing around that, and how do you see the growth? And I think maybe there's some other questions around also unique stores and the outdoor stores. So I think maybe try and handle and treat all of that. Where do you see the growth within those segments?

Okay, so all of those adjacencies is long-term play. We're doing that for the future. You and I may not even be here when that really makes a meaningful contribution, but... Remember, any new business that you start, in the beginning, what is hard, especially if you're fast growing, is it is working capital hungry. So one needs to get to that pivotal point of critical mass, where after the profitability then really kicks in. So I always say it's very simple mathematics to say that if you are opening more stores than what's in your base, you're always going to run out of working capital. It's only when you tip that point that it really becomes meaningful. And we're working on that. So some of these formats are already profitable. Some are not. The acceptance specifically around MediDot Plus and why it's a word, it's my own word that I made up. I said that people have premiumized their health and well-being, wellness is the word. So people do enjoy shopping for those products at a specialized outlet. And currently there are two players in the country, really. So we do see that there's opportunity. We are already in that category. We have transformed the wholesaler, so it wasn't that difficult for us to do. We have got 140 pharmacy licenses. So, so far, the stores are looking very promising. And, yeah, we will continue with it.

Thank you very much. There were also a few questions around cost growth. So maybe I can just reiterate what I said in my outlook statement in terms of why we saw that elevated cost growth in the first half. Majority of that related to the mass-smart introductions of the stores that we didn't have in the first half. And I do expect us to see a more normalized expense growth in the second half. And also, obviously, the reduced inflation should help us as well. That will be in our benefit. So I think from that point of view, and then Warren, you asked about profitability growth. Now, if we can achieve our 26% income ratio, where we're currently very close to, and we see our expense ratio to sales of around 20%, and that is really for us the target that we're driving to achieve that. trading profit margin of 6% so if we get the sales growth and we can maintain our 6% growth then we will see a positive growth as well in trading margin and a 10.7% I think was a very good growth for us that we could actually see there. Things that we have to take into account obviously is the strong growth or the growth in our lease cost There was also a question of why was there a 22% or 18% increase in our leases. That is on the back of the distribution centers that now form part of our right-of-use assets and part of that retail logistics structure. But we must remember we share 50% in the profits as well of that structure. So I think that's why we're currently getting a good return out of the transaction we did there. Peter, maybe one question that I've got for you is in terms of price investment. So I spoke about it in terms of what we had to do. Obviously, the first half of last year, you've spoken about price investment as well. What do you feel or what do you see as a strategy going forward and the necessity for price investment?

Absolutely. We are unapologetic when it comes to pricing. ShopRite doesn't get beaten on price. And I did say it's a very competitive market. There's nobody else that have, in the last six months, in the South African context, have invested $8.5 billion in price at that point. So we will continue giving customers the best value offering. That is part of who we are. That is what we do. Every day we think of how we can reduce the pricing, what development we can do to make product more affordable, to help people basically survive. You know that there are basically 10 million people in this country that have to live off 350 rand a month. That's why we have products like 5 Rand. We sell over 1.5 million 5 Rand meals a week. It just shows you how big the need is in that space, and that's how we think. So that will continue to be what we do.

Top priority. There was also one or two questions around borrowings, and do we see with the expansion program, will we see an increase in our borrowings, or do we need to restructure some of our capital structures? At this stage, there's no need for us. You will see from the presentation I did, our borrowings level stayed the same as last year at that $6.3 billion level. We've also managed to also increase our loans and loans receivables. So if you go and look there, you'll see it's about $3 billion. So I mentioned the... close to a billion Rand that we've also invested in our CreditX business through loans. So, yeah, at this stage, I don't foresee any need to increase our facilities at this stage. Peter, I think that's more or less it. I think the last question I'm maybe going to ask you. That's smart. Yes, the profitability and how do you see the mass-market stores performing?

Okay, so the supermarket part of the business is performing well and is profitable. The 10 wholesale stores is new for us, so they're not profitable yet. We're making great progress. Every week there's a double-digit growth in it. So we'll get there. But that's where we are now. The meat plant where I know there were big losses made in that meat plant and at the time I said to you I am excited and nervous about it. I think I've now lost the nervousness and I'm now excited about it because so far it looks like we'll turn that one into profitability by June. Virtually every week the capacity in that plant doubles, so we are very close to eating that sweet spot of the volume requirement to make that a profitable operation.

I think you still have quite a lot of media to do later today, so I think maybe one last closing comment before we close.

Yeah, well, I can just say thank you to Team ShopRite, as usual. Best executors in the world, in my view. And because these kind of results, with all of these training conditions that we're in, to consistently achieve this, I think, yeah, I can tip my head to a fantastic team that I'm very proud to work with. Thank you.

Thank you very much.