Good morning everyone and welcome to the financial results for the six months ended 31st of August 2025. Starting with the group highlights, I think before I dive into each of the highlights, I just want to commend all of our staff, all of the green-hearted people at Dis-Chem for embracing what has been significant change. We have built an organization and we have built a staffing force that represents 22,000 ambassadors on this road to better health. I personally wanted to take the opportunity to thank each and every one of you for your personal contribution and the personal change management process that you've gone through. We really are building something special. It includes all of us and I'm really excited about the future. As we dive into the group highlights, you would have seen that we have previously spoken to our strategic wheel.
The strategic wheel has our nine pillars. This one's slightly different in that it has X, bigly labs incorporated at the center and a reconciliation between the aspects that X, bigly labs controls and how they influence each of those strategic wheels. The investment in X, bigly labs has been a fundamental step change in the way that we think about the evolution of our retail business and the way that we think about building an integrated healthcare provider. If we start with property, the property pipeline is currently at 144,000 square meters, so north of our commitment over a three-year period, and we've also doubled the store opening rate since FY2024 driven by structured property methodology.
As I will discuss later, there's still work that we need to do in terms of an OpCo model there, but certainly in terms of step changing the way that we think about property and the way that network kind of enhances our integrated healthcare ambitions, we've done a really good job in securing that pipeline. Total income growth of 9.9% ahead of revenue growth of 8.7% with incremental margin improvement to 31.1% from 30.7%. This shows our commitment to continuing to leverage scale.
In addition to that, we also have, and I'll talk a little bit about it later, but we also have Dis-Chem Health and lead generation contributing significantly to the total income line and we're positive about the progression in that part of the business as we think about the collective importance of funding products into the evolution of our income statement as we move to cost control. Staffing Framework 1.0 has been fully deployed with Framework 2 in process. I've spoken previously about the slight complexities with Staffing Framework 2 and the evolution of this deployment taking slightly longer as we rethink the way that we staff certain of our stores. Solid like-for-like retail payroll cost increase of 2.5% has really been the driver of strong core retail performance. I think if you think about our story, it really is a story of two chapters.
The one is the core retail machine really structured appropriately and delivering good results. Core retail profitability was up 25.8% if you exclude the investments that we've made in ecosystem investments comprising of Dis-Chem Life and X, bigly labs, where the return profile of those investments comes much later. Core retail profitability up 25.8% really as a function of the positive operating leverage which comes from the relationship between like-for-like retail payroll cost and like-for-like retail sales growth. If we move to working capital management, inventory unlock on track. 49% of the committed ZAR 500 million for FY2026 has been achieved with the residual coming in the second half of this financial year. Our wholesale market share expansion continues to be an important part of the business and Chris touches on it later.
I think the most important thing for us now is we're starting to see what is mature penetration into South African retail independent customers. We now supply approximately 85% of all independently owned pharmacies across South Africa. This does mute your ability to grow independent revenue other than basket and it also shows the importance of the conversion of independent customers to TLC . That being said, TLC franchise stores have increased by 16.5% which has supported the external wholesale revenue growth of 11.1%. When we think about the integrated healthcare ecosystem, we've spoken about our ambition of being both provider and funder really with the ability then to ensure that we can reduce the cost of care and increase access. Th e launch of Dis-Chem Life has been a successful one. We see very good policy sales every single month. We see continued improvement in bi-directional metrics.
To remind everyone, those bi-directional metrics talk to the evolution of the retail metrics that a policyholder has. How they engage in our retail channels and then how we use our retail assets to change things like lapse rates in the insurance book, how we reduce the cost of lead generation for example. As I've said, we now are very profitable from a Dis-Chem Health perspective and we've seen growth in both the retail and corporate health policy basis. If we look at our digital performance, which sits squarely within X, bigly labs, we've got improved app performance and user experience. Specifically, the integration of Better Rewards into our application and our digital world has been relatively successful and that will evolve. As we complete the re-architecture of our app, we will bring more innovation into that space.
At the center of this, the investment in X, bigly labs, which I'll discuss later, has really been to step change the way that we think about the approach to traditional retailing. X, bigly labs was at the heart of the successful first phase of deployment of the simplified promotional mechanisms, which I've attached as an annexure, and that was launched together with Better Rewards across October month end. Better Rewards is very new, but as we track certain metrics, some very nice metrics that we're seeing, specifically a 224% increase in daily average loyalty signups as a function of the way that the partnerships have been structured, specifically Capitec and the offering that we have through the Better Rewards program. I now hand over to Julia to take us through the financial results.
Thanks, Rui. Good morning, everyone. The group is pleased with its performance during the six-month period to August 2025 and specifically with the core retail business. The main aspects from a Statement of Comprehensive Income perspective are revenue growth of 8.7% and the total income growth of 9.9% with an expense growth of 10.1%. This has resulted in an operating profit increase of 9%, which we will unpack in the subsequent slides. Four other points to note in the Statement of Comprehensive Income are finance costs, profit from associates and joint ventures, tax, and non-controlling interest. Net financing costs increased by 3.2% from the prior comparable period. Excluding finance costs from IFRS 16, the net financing costs increased by 13.1% due to the new loan for the acquisition of the Midrand warehouse on 1st of December 2024 and decreased by 9.6% when the Midrand loan is excluded.
The increase in the profit from associates and joint ventures is due to the strong performance of Kaelo, Geniob, and Health Window that has offset the loss in Dis-Chem Life of ZAR 21 million. The effective tax rate has remained fairly consistent from the prior comparative period. Non-controlling interest increased due to the strong performance of minority interest stores and Oncology. In this Statement of Financial Position, there is an increase in property, plant, and equipment due to the expansion of the Longmeadow warehouse space as well as the 17 new retail stores opened during the period and renovations completed. Intangible assets increased due to the pharmacy operating system and other IT technology that has been built or acquired. That is a key component to our strategy. The inventory holding decreased by ZAR 374 million from February 2025 to achieve the medium-term target in days stock cover.
Trade and other receivables have increased with the growth in the wholesale debtors book on the back of external sales growth of 11.6% as well as additional service income earned. Other assets have increased due to the preference shares acquired in Dis-Chem Life of ZAR 98 million. Bank loans have decreased due to the quarterly capital repayments that have been made. Revenue has been broken down between wholesale and retail segments. Retail revenue has grown by 8.3% to ZAR 18.1 billion with like-for-like revenue growing by 5.4%. This growth was influenced by the opening of 17 new retail pharmacy stores in this financial period and 34 new stores since August 2024 as well as strong growth in both the pharmacy and health categories. External wholesale revenue growth has been well supported by the growing TLC franchise model at 16.5% and the continuing support of independents at 7.9%.
The TLC franchises have grown from 221 at August 2024 to 258. Total income for the group has increased by 9.9% with the total income margin moving from 30.7% in the prior period to 31.1%. Total income margin has been improved due to transactional gross margin growth ahead of sales growth in the healthcare, personal care, and beauty categories as well as continued improvement in back end terms with trade terms increasing by 13.3% against purchases growth of 4.7%. Wholesale margin declined from 8.4% to 8% due to the mix of products sold, promotions into the external customer base, as well as the impact of certain procurement costs and inventory shrinkage in the current period. Moving on to retail operating expenditure, retail expenditure has increased by 11.7% from the prior period.
There has been a 12.2% increase in depreciation mainly as a result of the IFRS 16 depreciation additions to software as well as fixtures and fittings for new stores and renovations. Occupancy costs have increased by 7% predominantly due to an increase in electricity charges. Employee costs are still the largest expense within the retail segment and have been well controlled through the implementation of the retail staffing framework. Additional employee costs have been incurred at a head office level due to the centralization of certain key functions. Other operating costs increased by 21.5% mainly due to an increase in IT-related costs, courier costs, advertising expenses, and investment in strategic platforms. Rui will elaborate further on the investment costs that have been incurred in the six months versus the expenditure in the core retail business.
As previously reported, we implemented a new retail staffing framework at the end of the 2024 financial period in order to better manage the employment cost line. The framework has again resulted in positive operating leverage with the like-for-like payroll costs increasing by only 2.5% compared to revenue growth of 5.4%. We have continued to manage employee costs using the framework as we roll out more stores in our property expansion strategy. Wholesale has done well in the current period with the increased warehouse space to keep expenditure growth at 2.5% below the growth of total income of 5%. Depreciation has decreased by 48% due to the reassessment of the residual values of buildings in the current period. Employment cost growth is predominantly due to the additional staff in the Longm eadow warehouse as well as the annual increases.
Other operating costs increased by 6.2% mainly due to the increase in courier costs and marketing and data fees. Operating profit for the group improved by 9% from the prior period with operating margin remaining at 5.3%. Earnings per share and headline earnings per share for the period is ZAR 0.739 and ZAR 0.738 per share, which is an increase of 9.6% and 9% respectively from the prior period. We now move to the working capital in the statement of financial position. Debtors days is being well managed and has increased by 2 days due to increase in the wholesale debtors book and additional income earned in the period. Inventory days has reduced from February 2025 with the sell through of the SEP buy in and the strategic plan to reduce inventory days and at least ZAR 500 million in cash by the end of the financial period.
Creditors days have remained fairly consistent, resulting in the overall net working capital days improving by 2 days when compared to February 2025. When looking over the 12 month period, the rolling stock days have improved from 84 days to 79 days. This has enabled us to achieve 49% of the cash unlock of ZAR 500 million that was anticipated by February 2026. The Waterfall graph depicts our cash movement in the current period with an increase of ZAR 525 million since February 2025. Cash inflows have come from normal trading and working capital movements. Cash payments have been made for taxation, finance costs, dividends declared as well as for lease payments, CapEx and loan repayments. Included in investing activities is also the ZAR 98 million relating to preference shares acquired and Dis-Chem Life expansion.
CapEx is mainly driven through the opening of our new stores and investment in information technology enhancements across both retail and wholesale of ZAR 202 million. Maintenance CapEx has increased with additional warehouse space and renovations of existing stores and head office premises. I now hand over to Rui to take you through the retail trading performance.
Thank you, Julia. I'm now going to take us through the retail trading performance. I think before we go into the retail trading performance, it's important to break down how we're starting to think about the ecosystem and how we start to differentiate core retail from investments in ecosystem specifically as they mature through their J curve and start to contribute profitably to operating margin. When you look at our group, we obviously will always have a business unit that is wholesale, a fundamentally different business with some fundamentally different return profile. Then you've got core retail. The way that we think about the investment in the ecosystem, which currently carries Dis-Chem Life and X, bigly labs. Within core retail we've included Dis-Chem Health. Dis-Chem Health is now through its J curve and it's contributing profitably to the retail machine.
If we think about the ecosystem and the investment in the ecosystem, we also think about how this investment unlocks value over time. Ecosystem investments have the objective of transitioning the group from a pharmacy retailer to an integrated healthcare provider, ensuring that we establish ourselves as South Africa's healthcare authority with the purpose of increasing access and reducing the cost of care. We also intend creating an ecosystem that positions the group to play the dual role of healthcare provider and funder, using an innovative operating model to reimagine and disrupt the manner in which South Africans access healthcare. That's the role that X, bigly plays and the evolution and what X, bigly controls. Furthermore, healthcare delivery, both product and services, creates a further resilience. Call it a defensive moat that secures the traditional retail basket.
I will show this in some of the metrics that I disclose as we go through the presentation and thus increasing customer lifetime value. If we recap quickly, Group fundamentally looks at core retail, the important structural drivers of core retail I've touched on. Core retail demonstrated excellent performance. We then have investments in ecosystem that come with much longer return profiles and we have the wholesale business. If we move on to the next slide and we look at the performance of core retail, I think some important things to note. The investment in the ecosystem of close to ZAR 130 million is essentially split between, or 60% of that is invested in establishing and operationalizing X, bigly labs. As I said, the investment is aimed at generating returns in the core retail business over time.
During the period, proof points included the launch of Better Rewards, as I said, and a new analytically led promotional engine as well as improvements in omnichannel retailing. I'm super excited about the promotional engine that we've launched. The October month in broadsheet is a consequence of that, where it effectively combines a reward mechanism that is novel with a traditional promotional structure and reduces price point on a single SKU. Effectively, across that promotional broadsheet, we have the lowest prices on some of the most elastic SKUs in South African retail. 40% of the investment was in Dis-Chem Life, with the majority being in marketing and operating costs as we invest to establish the brand and scale the business. Dis-Chem Life's products are centered, as I've said previously, in the integrated healthcare ecosystem and are designed to encourage and reward policyholder health through Better Rewards.
As we've discussed previously, the reward profile increases as someone's health improves and obviously the association between better health and risk and the way that we can price premium and remain competitive and encourage the utilization of other services across the ecosystem is fundamentally what has been designed in the way that we think about the Life products within Dis-Chem Life. For all intents and purposes, I think the most important kind of metric on the slide if we look at core retail is as much as revenue was 8.3% up, we had total income at 10.7% up to ZAR 5.573 million. I think the important thing there is that's where Dis-Chem Health's lead generation income is contributing. You're starting to see a distinction and a delta between the revenue and the total income line.
That total income line north of the 9.2% growth in expenses, creating positive leverage, which is then driving operating profit at 19.2% and the working capital unlock is reducing our net finance costs, which in theory is giving us a profitability increase of 25.8%. A couple of core principles. The first principle being that the way that core retail is operating is very, very well structured and delivering really good results. We've had really good like for like numbers, and as we think about the reward program and some of the promotional mechanics that I've described previously in the way that they've been imagined and designed through X, bigly labs, you're starting to see the improvement come through core retail. We're really seeing core retail improve as a function of some of the innovative ways that we've changed the operating model within X, bigly labs to deliver that.
If I move on to core category market shares, I think the important thing is that our dispensary share has been extended, and we maintain our leadership position in South Africa's largest pharmacy retail by dispensary market share. As I've said previously, owning the healthcare part of someone's basket is fundamentally important to us. We believe it's the stickiness that's associated with the success of our brand. Personal care and beauty, a slight margin share increase. Healthcare and medical, as for all intents and purposes, remain the same. Baby care, which is the most commoditized category in the country, we've lost some share there.
Interestingly enough, as we've seen some of the loyalty metrics post the launch of Better Rewards as a function of the elasticity of products within baby and the reward program reducing the price, we've seen excellent volume growth within the baby category, and we look forward to market share gains in the baby category as a function of the reimagined loyalty program. If we move to core category performance, on the right hand side of the graph, the contribution percentages of our core category remain relatively similar. Similar again. Dispensary revenue change of 11%, transactional margin only up 6.7%. That's really just the weakness due to the timing of medical scheme pressured drug price reductions. Personal care and beauty, healthcare and medical, as well as baby, all have transactional gross margin ahead of revenue.
That's really a function of some of the analytically led initiatives, specifically through bigly, looking at elasticity of price product and understanding the impact of price reductions on product and volume. In other, a slight margin compression as a function of the price competition within the household and confectionery spaces. For all intents and purposes, the appropriate relationship between the change in revenue and transactional gross margin with revenue increasing at 8.3% and transactional margin up at 9.8%. If we move to our property expansion strategy, I think we've spoken previously about the importance of our property expansion strategy as we think about network. We've also spoken previously about the changes that we've made in order to execute a step change in the number of stores that we roll out. I think for the first year we've introduced the number of stores on the right-hand side of the graph.
The important thing when you think about the number of stores and what it depicts is the step change that we've seen from FY2025 into FY2026 and the commitment we've made into FY2027. We've also seen, as a function of the manner in which we approach property, the pipeline push out our cumulative square meters that we're chasing down beyond 134,000 square meters to 143,981 square meters as that pipeline continues to churn into committed and then to open space. Quite comfortable with where we are in the property expansion strategy. As I describe in the outlook, we've also commissioned a piece of work that we are intimately involved in that talks about store of the future and the way that we think about our property space playing into the integrated healthcare ambitions that the group has.
If we move to the ecosystem or integrated health as we call it, I think there's no better example that depicts what we're trying to achieve than the metrics that sit across cohorts of our consumer base. If you look at a non-loyalty shopper, this is insightful from a Better Rewards evolution perspective. If you look at a non-loyalty shopper, a few things stand out. One, we obviously don't have details and data on the non-loyalty shopper. We do understand that the basket size of a non-loyalty shopper is ZAR 246. In terms of frequency, in terms of pharmacy engagement, we know very little about our non-loyalty shoppers. If you think about some of the metrics that we've spoken about previously, about 20% of our front shop revenue effectively comes from a non-loyalty shopper.
The inability to not understand or to not know who those individuals are prevents us from driving our ecosystem ambitions. One of the first changes to Better Rewards was access to what on our deeply valued promotions require Better Rewards cards, which indirectly means that the penetration of, let's call it loyalty or rewards across the entirety of your front shop spend now moves north of the 76%, 77% close on to 100% as the card becomes a requirement to participate in any promotional activity in the brand. If you then look at traditional loyalty, this would have been loyalty and all of these metrics would have been loyalty pre Better Rewards. You can see the basket size at ZAR 405 and the frequency at 9.7 x a year that comprises 7.6 million shoppers as we've spoken about previously and I think generally a decent return.
When you break that down and you look at the contribution of pharmacy into that loyalty bucket, if I just take a step back, the evolution of our reward program away from 1.5% to 10% with the mechanism that is you need the loyalty card or you need the Better Rewards card to participate in promotion shifts everyone from non-loyalty to loyalty. First fundamentally important principle within loyalty. You can see the return profile differential between someone that doesn't engage in our pharmacy. A basket size of ZAR 351, a frequency of 6.1, significant opportunity of 2.8 million shoppers, all of those metrics lower than a traditional or blended loyalty metric. As soon as someone touches the pharmacy, you can see that basket size shift to ZAR 377 and the frequency increase obviously in the pharmacy one to eight times.
What you're picking up there as a read is you're picking up an acute, acute pharmacy customer, but you're picking up again a significant base of 3.9 million shoppers. Pharmacy 9+ is effectively a chronic adherence customer. A chronic adherence customer comes with low morbidity and mortality risk. A perfect lead generation opportunity for our financial services product, which I'll talk to in a short while. Again you see the evolution of those metrics. Basket size going to ZAR 720, frequency of shop 21.8 x and almost a million shoppers, which is very similar to the number of chronic customers that we've spoken about previously in terms of how we manage them. Fundamentally different return metrics. If you break loyalty up and you throw a pharmacy lens on it now, what is the pharmacy boost supposed to do? It's to encourage the evolution of the customer through these buckets.
Someone who has not touched our pharmacy previously, who has an acute condition or potentially a chronic condition, that is shopping outside of our environment, now has the ability to shop a differentiated price point on front shop brands that are commoditized across South African retail and move into the bucket, which is 1 to 8. The 1 to 8 bucket, which includes both acute and chronic, now further encourages someone either in the chronic space to stay adherent to the medication and move them into the 9+ bucket, or someone who's acute to select Dis-Chem as their pharmacy of choice as a function of the additional value that that pharmacy boost solves. The evolution of those metrics ultimately plays out in much better return numbers, whether it's revenue or trading density per square meter.
You can see the importance of how the ecosystem and how the reward program is built within the ecosystem to navigate people through these different return profile cohorts within our loyalty program. There is a financial services lens. The financial services lens is important for two reasons. One, if someone has got a policy, there's an additional margin or operating margin that we're making out of the policyholder space. In our life and in our health businesses, which obviously is complementary and additional to the group earning, but importantly, it is the best returning customer or policyholder or patient within our ecosystem. A basket of ZAR 408, slightly higher than loyalty, but a frequency of 14 x a year.
If you had to drop a pharmacy lens on that front shop number, you would get the same kind of distribution that you get across pharmacy into your loyalty base, just at a much higher return metric. What you have in financial services is the epitome of a good returning customer who is potentially playing across the ecosystem in its entirety. The other interesting thing in financial services is because of the incubation of Better Rewards as extra rewards in that space. These are individuals that would have experienced that level of discount structure previously. That level of discount structure, as we've alluded to in the past, has driven some of the metrics that sit there. The frequency of spend is a function of the channel always being chosen whenever there's a shop. Of the categories that we play in, the basket size is very relevant.
The total spend per policyholder in the front shop space is enormously accretive when compared to all of the other buckets. If you think about how the Better Rewards program was designed and the way that we think about the evolution and enhancements of the Better Rewards program, it does really sit at the center of the ecosystem in the way that we depict it within our strategic pillars, in the way that it sits at the center of big league. Its job is to move people through the cohorts, as I've described here.
One of the other important things that is outlined in this is that as we think about our role and our ambitions in delivering access and lower cost healthcare in South Africa, our ability to tap into more and more consumers out of the traditional mechanisms like store growth requires us to think about partnerships very differently. If you think about the Capitec partnership, that is exactly what it is. It's essentially growing the pie that allows someone to participate in these cohorts. We're effectively generating a higher return in the way that we've structured our Better Rewards program from the customers that live in the ecosystem. We're making our ecosystem more and more relevant to customers in mass market South Africa, not necessarily only by the way that we think about network, but about the way that we differentiate our offering within partnership spaces, like the Capitec part.
The purpose of this slide is just to demonstrate the opportunity at a customer level, which ultimately is ingrained in basic core retail principles. The reward program is designed in the way that the reward program has been executed in store to do exactly that, even the way that it's been marketed. I'm now going to move on to X, bigly labs as we talk about how some of this has been unlocked. The most significant investment that we've made as we think about the investments in the ecosystem is the establishment of X, bigly labs. For all intents and purposes, our innovation hub with its sole mission to power our next growth horizon. As we've described previously and as our strategic wheel denotes, it's relatively easy to reconcile the tribes that sit within X, bigly labs and how they engage in each of the eight strategic pillars.
Just to recap on the tribes before we dive into what they're chasing down in the short term, the Integrated Digital Engagement Tribe is really reimagining how we deliver value through integrated intelligent digital channels that unlock new customer experiences and growth. This is really to establish ourselves as a true omnichannel retailer and ensure that the way that we think about delivering retail and health solutions is both innovative in our physical spaces as well as in our digital spaces, and that there is a true omnichannel experience where engagement with the brand can be started in one and concluded in the other. The Integrated Health Enablement Tribe is really to build and scale the infrastructure that delivers care seamlessly, ensuring servicing and integrated health journeys.
As we think about the evolution, specifically the way that we think about designing our reward program, the call to actions that our reward program encourages, the consumption of additional health data. One of the most important things is that we then service that and those integrated health journeys. The way that we think about flexible funding solutions all lies within integrated health enablement. Ultimately, integrated health enablement is there to provide health funding solutions for more and more customers and increase the customer lifecycle value, which is the next tribe. That's really designed to deliver day-to-day journeys that increase retention and maximize lifetime value.
Essentially, what that means is ultimately once a customer gets dropped within the ecosystem, how do we think about driving specific journeys that allow the customer to touch the ecosystem and all of the benefits within the ecosystem to ultimately get access to care at a much lower cost. Commercial decision intelligence, which is effectively intelligence embedded across all commercial levers to optimize margin, deepen vendor collaboration, unlock new revenue streams, has started to play out in the way that we think about promotional activity. As I mentioned previously, this tribe will reimagine how we engage with vendors, the types of relationships we have with vendors, the simplification of promotional mechanisms, how we integrate our reward program into simplified promotional mechanisms, what we range in the way that we think about new stores. Everything associated with traditional retail is just led through an analytical engine, wholesale innovation.
We've spoken previously about the distinction and the difference in our wholesale business, but it too requires innovation. There's a wholesale tribe that is dedicated to that, which is with its purpose to essentially elevate our wholesale offering, deploying advanced capabilities into the independent pharmacy channel with a specific focus on TLC . I've spoken previously about the importance of the conversion from independent pharmacy to TLC and the margin uplift that it brings as well as the volume uplift that it brings.
As we now penetrate the majority of the doors in South Africa, that conversion becomes more crucial to the success of our wholesale division, and with that, the importance of having a wholesale innovation tribe within bigly and then enterprise acceleration, which for all intents and purposes is focused on cost control and how we operate automation and digitization across the entire enterprise to extract more efficiencies. If we move to the focus areas for X, bigly labs in the next 12 months, so mid-year FY2027, we start with integrated digital engagement. A new consumer app will be relaunched and re-established as a foundation for modernized digital journeys, enabling future generations, future digital growth. I think one of the limitations we've had even in the way that we've formulated Better Rewards into the current application is just the technology and its limitations.
We've had to re-architect that, and that is going to be the focus of the digital engagement tribe over the next 12 months. The integrated health enablement tribe is really using the technology that we've now ingested into the organization, which is Braze, to assist in significantly enhancing our health journeys. Essentially, once you have the health data, how do you use that health data through a journey to ensure that the consumer touches parts of the ecosystem that they didn't previously? How do you increase value to that consumer and improve health customer life cycle value? Obviously, Better Rewards is not going to be static in the way that we've launched it. It will continually evolve through both added vendors as well as added partners and specific call to actions that are required to enhance customer value through the ecosystem.
That's really just the focus, as I said, on enhancements and partnerships on the back of what we believe is the first-of-its-kind loyalty program launch. The customer ecosystem connected is also really around using sophisticated martech stack to power loyalty engagements and journeys. Really, how do we bring the ecosystem into the hands of the customer in a very omnichannel way? Commercial Decision Intelligence, data-driven trading unlocked, promo analytics.
As I spoke about previously, the next focus will be on assortment optimization as we think about the efficiency and the return profile of each of the SKUs that we've got within our stores, specifically as we move to slightly smaller spaces and how that evolves into a different way to engage with vendors to ensure the return profile that we drive is consistently applied to ourselves and our vendors, ensuring that the margin profile of both ourselves and our vendors are uplifted. Wholesale innovation, so the TLC value proposition strengthened and conversion increased again. Therein lies the success of our wholesale business.
We are thinking about an evolution, a loyalty offering, deepening the tech integration into TLCs and leveraging our own analytical and commercial muscle as well as incorporating them in the way that we think about network and property to provide more opportunities for independent pharmacies to own, independent pharmacists to own TLC and strengthen the TLC brand as it plays into what is a network that is there to service the broader Dis-Chem ecosystem. Enterprise acceleration, one of the most important things focused on in the next 12 months is lowering the script cost to serve and re-engineering enterprise processes, which effectively have been prioritized from highest value to unlock gains. As I said, the highest value opportunity in the organization is going back to first principles and looking at the scripting process in a very different way, in a very innovative way.
That scripting process hasn't changed for decades, and it's relatively an expensive cost to serve if you think about the journey that the patient goes on to get a script. A modernized automation platform rebuilt to global best practice with reworked robots and value-driven pipeline prioritized, again all pointed at driving efficiencies in the organization. Just a few areas of focus that we will deliver beyond FY2027 as we evolve X, bigly labs and as it integrates more into the traditional retail machine. Intelligent customer experiences, conversational personalized engagement, driving loyalty and spend really bolstered onto the way that we've designed our reward program.
Strategic growth platforms expanding digital reach through franchise innovation and a productive modern organization, transforming ourselves through scaled and automation and actionable insights, which I talked to a little bit in that outlook in the way that we think about reorganizing some of the operating business units within the organization to ensure the successful ingestion by the group of X, bigly labs. I'm now going to hand over to Chris to talk through the wholesale trading performance.
Thanks, Rui. Good morning, everyone. Thanks for the opportunity to present. Firstly, I want to thank God for His grace and His hand of blessing upon our business. Without Him, none of this would be possible. I want to thank and congratulate my whole team on their dedication and continued focus on driving sales, exceeding customer expectations on service, and controlling costs. This morning I will take you through some of the details surrounding the top line revenue numbers achieved by CJ Distribution during the first six months of the 2026 financial year. I will be focusing on the main business models driving the revenue growth that we are seeing. As mentioned by Julia earlier, wholesale revenue has increased by 11.1% to ZAR 16.8 billion for the first six months. Our operating profit has increased slightly from 1.6% to 1.7%. External revenue achieved a growth of 11.6%.
This number will be further elaborated on in the following wholesale revenue slide. If we turn to the wholesale revenue slide, the table illustrates wholesale customer growth by channel with corresponding revenue growth. If we turn our focus to the left-hand side of the table, we can see the Dis-Chem Pharmacies stores grew from 274 to 302, with revenue growth from ZAR 11.9 billion to ZAR 13.3 billion, which equates to 11% growth in revenue from Dis-Chem Pharmacies. Support from Dis-Chem stores grew from 87% to 88%. Growth in support can be partly attributed to additional vendors warehoused in the Longmeadow facility. If we look at the middle of the graph, TLC stores grew from 221 to 258 stores, which equates to a 16.7% growth in franchisee numbers. Revenue from TLC franchisees grew from ZAR 1.25 billion to ZAR 1.45 billion, which equates to a 16.5% growth in revenue.
Support from TLC franchisees grew from 80% to 82%. If we look at the right-hand side, independent stores grew from 1,084 stores to 1,350 stores, which equates to a 24.5% growth in independent customers. Revenue growth from independent customers grew from ZAR 1.6 billion to ZAR 1.75 billion, which equates to a 7.9% growth in revenue from independent customers. Support from independent customers grew from 27.9% to 28%. This Dis-Chem support has grown to just under 89%, which can be partly attributed to additional vendors now being able to be warehoused in the Longmeadow facility. We are also incredibly proud to see the support from TLC customers reach 82%. Support numbers this high are comparable to the Dis-Chem support numbers. Despite the fact that the TLC stores are independently owned stores, it was pleasing to see the TLC revenue growth at 16.5%, which once again proves the value of the model.
Our independent customer count grew by 24.5% and our revenue growth in this customer group at a more modest 7.9%. This indicates that although we are attracting more independent customers, the average potential spend per new customer is smaller. If we now turn to The Local Choice retail performance slide. As can be seen, the group's retail revenue has increased to ZAR 2.506 billion for the first six months of the 2026 financial year. This is a 13% growth in the group's retail revenue. The TLC customer revenue growth is partly driven by front shop support and ranging that we as a supply chain offers them. We currently have 267 TLC franchise stores. If you now turn to the independent pharmacy model slide, if you look to the right of the diagram, you will see the results of our efforts displayed.
As you can see, we now service 1,350 independent pharmacy customers. These customers supported us with ZAR 1.75 billion worth of revenue over the six month period. These numbers were achieved by the core initiatives listed on the left which we consider imperative to the continued success of the CJ D business model. These are our business processes, marketing initiatives, product range, service levels, and a private label range. The gears in the middle represent the operational engine that converts the core initiatives on the left into the results we see on the right. Some interesting stats are that we processed just under 1 million orders over the six month period and delivered just over 2.1 million parcels over the period. Thank you very much for your time. I will now hand back to Rui.
Thank you, Chris. Maybe to conclude the presentation, I'll take you through the outlook. A more traditional outlook compared to the outlooks that we've had in the past was centered around how we incorporate bigly into what is the traditional retail machine. If you look at the points that I take you through from an outlook perspective, many of them are actually originated within X, bigly labs. The continued acceleration of space identification and rollout is super important for us. We've spoken about the importance of space, especially as it underpins our ambition to become South Africa's health authority. Any health authority requires scale, and the ability to have scale requires a network, especially as we think about flexible funding solutions for all South Africans. The store of the future is designed to facilitate true omnichannel retailing and healthcare delivery, incorporating ecosystem elements aligned to the brand architecture.
With the first store trading in quarter one of FY2027, this is a piece of work that we've commissioned to ensure that the way that we think about our store layouts going forward, and specifically the types of layouts across the top and size of spaces that we have, is aligned with an omnichannel experience and aligned with what we're trying to achieve from an ecosystem perspective. It really is retail being reimagined, a less traditional approach to how we think about this. The physical space, a more collaborative engagement with the reward program as we think about that space, and really defining what we want to own and play in and be strong at versus some of the ancillary categories that we don't.
The continued involvement and simplification of our promotional mechanisms following the successful first phase development of the launch of our Better Rewards across the month of October. Post the reporting period, I think I have previously spoken about the clunkiness in some of the promotional mechanisms that we previously used, and in doing that we have previously spoken about the share loss that we have seen across promotional periods. The idea behind the reward program and the incorporation of the reward program into the promotional mechanism itself was that we believe that it empowers the promotional mechanism, and that's why the reward program is an always-on-top program so brands do not switch.
It empowers the way that you think about the promotional mechanism and the price point that consumers get access to, and you would have seen, and it's attached in the annexure, just the fundamental change both visually but strategically in the way that we think about month end promotions. Certainly, if we look at the first eight days of the promotional cycle in October this year compared to the prior year, significant increase in the return that we're seeing in this simplified promotional mechanism approach that we've delivered across this month, this October. As we've said, cost control always continues, always becomes important for us, and we continue deploying Staffing Framework 2.0 into the retail business, specifically also thinking about the way that we staff the store of the future.
Residual working capital of ZAR 255 million, so effectively the 51% to be unlocked by FY2026 as we committed to the market. If we think about the digital space, I've spoken previously about the delivery of X, bigly labs, the app improvements delivered, and then the new app to be relaunched mid-year FY2027. We also continue to focus on increased customer engagement with tools like Braze under the customer tribe and enhanced value creation, ultimately, as I said, driving customer lifecycle value across the ecosystem, which becomes the single most important metric that we measure. Really exciting is following the launch of Capitec strategic partnerships, we continue to think about adding synergistic brands to provide access to mass market South Africa and improve the Better Rewards value proposition.
As I said, within the X, bigly labs space, we continue to think about enhancements to the program, specifically around how you increase the basket, how you bolster value, but also how you get access to mass market South Africa and how you utilize that value to drive split specific call to actions associated with a retailer that is effectively moving into integrated healthcare provider. The most important thing from an outlook perspective is just this concept of people and culture. I think over the last two years there's been a significant culture shift within the organization. It's been adopted really well.
We truly as leadership think that our employees are our priority customers, and for something to be experienced by them first and in a slightly differentiated way is super important as we try and get 20,000 purpose-aligned ambassadors with a commitment to improve their own health, enabling them to access differentiated rewards and in doing that tell the story. That is our Dis-Chem story. I think the evolution of that, the energy that sits in the organization, and the real belief in the people that live in the organization and what we are doing as a brand is something that is probably the thing that has stood out the most over the last six months as a lot of changes landed in the organization. With that, I conclude our results presentation. Thank you for listening and we look forward to questions.
To start off, here is the first question. Will the OpEx investment of ZAR 130 million in the integrated health ecosystem continue at the same rate into the second half, and what can we expect going into the next financial year? In other words, how should we think about future investment in the ecosystem?
Sure. I think as we described in the presentation, there's two contributors to that. Obviously, Dis-Chem Life is invested in a J curve. It will continue. The run rate of the first 40% will continue into the second half. Thereafter, as in the case of Dis-Chem Health, we will see an evolution and a profit contribution from the Dis-Chem Life business. If you think about it longer term with respect to bigly, the pockets of investment that happen in the first half will change in terms of the contribution sizes of each of those pockets. All in all, the bigly cost is likely to replicate in the second half. We also have in the second half the additional investment that we've made in marketing the loyalty program.
Obviously, all of these things are necessarily front loaded for the purposes of the evolution that I described around the Reward program and the benefits associated partly in the second half of the year, but certainly thereafter.
How much of the inventory days reduction achieved in the first half do you expect to hold in the second half?
The inventory reduction, we're expecting to see the additional 50% come out in the cash number. We will carry on reducing it by the additional ZAR 250 million. Obviously, as we open more stores, we will see some of that come back up as those stores will be holding more stock.
Can you share the like-for-like retail growth split between price and volume, and what is inflation tracking at in the second half?
Sure. Stronger performance on volume than we previously reported. The split of the 5.4 is volume at 2.4 and price at 3. The price inflation effectively has held into the post-period reporting number. The uptick in the sales in the revenue numbers is really being volume driven, slightly influenced by the volume gains that we are seeing in the first 7 to 8 days as reported of our Reward program launch.
What is the CapEx outlook for the balance of the year?
We're probably going to see very similar CapEx coming out of our stores. We probably are going to see a very similar or slightly subdued number coming out of our IT base, which is the ZAR 200 million we've already spent this year. We're probably looking at slightly less than doubling our total CapEx to year end.
What was the like-for-like retail sales growth number including Baby City?
If you include Baby City into our numbers it would have been at 4.8%.
It appears new store openings shifted towards FY 2027. How confident are you at reaching the 137,000 square meters target by the end of 2027?
The answer really lies in whether the spaces that we've been committed to get delivered within the time frames that have been set to us by the developers. Obviously, if developers push out timelines, our timelines are pushed out with them. In terms of confidence to deliver on the 137,000 and beyond, we're confident. I guess from my perspective, the importance has been the step change in space delivery. Operationally, there's a big heavy lift that is required to move from a cadence of 17 to 20 stores to 32 stores and 40 stores in the way that you structure your operational team, specifically when in parallel you are changing your approach to finding property sites. From my perspective, it's been very successful in terms of what we've done, which really comes out in the number of increased spaces that we've opened. Confident, obviously at the mercy of the landlords.
The step change is obviously noticeable and it will continue and we will further enhance that part of the business.
Framework 2.0 is beginning to show results, with payroll costs growth now trailing like-for-like revenue growth. What are your thoughts around the improvements ovfer the next 12 months?
I think we'll deliver over the next 12 months very similar results as a function of us embedding Framework 1.0 and evolving Framework 2.0.0. We've always said that the job to be done in Framework 2 is slightly more complicated in the way that we think about Staffing. The other important thing, and when we talk about it in the enterprise acceleration tribe, is just us reimagining what is the biggest contributor to payroll, which is effectively how we service the script. We do believe that there's huge amounts of opportunities in that as we bring that back to basic first principles and as we land on a solution there, we will talk to the market about the potential value that we're able to open up and over what period we're able to open up.
There's a significant opportunity in the way that we think about servicing the script as a function of controlling like-for-like payroll costs.
Can you give a breakdown of the ZAR 130 million investment costs? Is there an element of permanent employment costs?
There is. I mean in the slides we broke it down obviously. X, bigly labs is a business unit that is going to be permanent in the way that it's structured. That will attract a payroll cost that is permanent, that composes 60% of the ZAR 130 million. I spoke in a previous question around the buckets. If you think about what has been established since December till now, which is a fully fledged operating model across those five Tribes, there had to be some investment in consulting costs that naturally transition into permanent employment. As I said, there might be some changes in the buckets of the costs, but the investment cost, which for all intents and purposes will be a payroll line, will continue to cycle, with big pockets of commercial opportunity being chased down by bigly across the next three years.
How should we think about the J curve for Dis-Chem Life? What will the losses be at the peak, and how long do you expect it to take to break even?
Effectively 24 months, just beyond 24 months to break even. From a peak losses perspective, certainly across this financial year, this will be the peak loss of the business as a function of the lead generation that we're starting to do. If you think about rewards, as I described in the presentation, one of the fundamental benefits of what we've done with the reward program and the way that it's been built is we've created an enormous lead generation engine for our products. The ability to sell product now changes away from a conventional approach to be reward led, which is easy to understand and creates a massive lead generation opportunity.
In principle, the integrated health ecosystem is that you are providing potentially deep discounts for customers. What is the risk that the discounting cuts deeply into profitability? It's hard to assess this risk. Is there a risk that if discounting is too deep, that it is hard to pull back in the future?
I mean the truth is that's the planning that you do as you think about the evolution of the ecosystem. I think one of the principles we've always held true to, which kind of in my mind raises the risk that's been described, is the principle of cross subsidization. As soon as you cross subsidize certain risk discount pockets, you run the risk of getting the mix wrong and then potentially deeply discounting. One of the principles that we've held in the way that we evolved the depth of discount across the different health levels, for example in the LifeSpace and across the range of premium, even the way in that we've sold for the base discount, is that every single iterative change in discount needs to be funded by the call to action that exists.
If your health improves from a 3 to a 4 and there's an extra 10% worth of discount across the basket of products, that instant, that decision is fully funded as a function of how the ecosystem kind of takes the investment of the consumer moving from 3 to 4. That iteratively happens across the entirety of the discount all the way from base to 100%. That was one of the principles that I wasn't willing to compromise on because of the risk of the depth of discount. We watch it closely. We watch mix, we watch specifically the mix between Better Rewards brands and non-Better Rewards brands as the program launches and we adapt and we change as and when.
As it sits here today, we're quite confident that the margin profile will improve as a function of launching this reward program because of the different funding of pockets that we're able to access.
Does Dis-Chem get franchise fees from TLC outlets or just a wholesale trade margin? Is there a difference between a TLC or independent pharmacy customer to the wholesale division?
Yes, we do charge franchise fees. I mean there's a set fee, there's a contribution towards certain costs that we incur, marketing costs, centralized stock file. Yes, there's definitely a commitment fee as well upfront. As far as difference in support, it's clear in the numbers that if you look at the loyalty from a TLC support, we achieved in this past six months, 82% support. If you look at it from a normal independence, we achieve a 28% support. That is the big ticker for the brand in terms of a return margin. Very similar, there are certain suppliers that like to engage more with the control group, which TLC then opens up certain data and marketing fee spends, which you would not have in a normal independent space.
You have removed your volume-enhancing two plus one promotions. How should we think about promotional offerings now? How does this impact the ability to drive volume growth?
We haven't removed the two plus one promotion. I mean, volume is irrelevant if profitability is wrong and if it doesn't provide value back to the consumer in the way that the consumer needs it. What we are doing is we are simplifying promotional mechanisms. The October broadsheet is an indication of a single promotional mechanism. As you think about the launch of Festive in November, you start to see a simplified promotional mechanism structure, including two plus ones where it makes sense. The SKU that needs to be carried needs to be consumed on a two plus one basis for it to make sense within that promotional period. The nature of the mechanism, the nature of the SKU, that analytical decision gets done upfront through bigly prior to us putting it onto the broadsheet or the leaflet.
I think the two plus one promotion hasn't been mothballed, but importantly, a single price point discount is a more effective volume-generating promotional mechanism. That's the reason why it was launched in October with a better order brand.
How should we think about operating margin expansion in the second half given the new stores, investment in the ecosystem, and a potentially high base?
We have spoken about the hard base, so it's not potential, it's very real. We have spoken specifically about the number. We have also spoken about the replication of the costs in the ecosystem. We do anticipate core retail performance continuing and being slightly stronger. That is also going to be offset by an investment in loyalty, which is pulled forward as a function of creating the necessary kind of promotional activity that is required to launch a program of this size.
Question for Chris. How do you determine the support percentage of the independent customers? There's a large delta between the 25% growth in independent stores and the 8% growth in revenue. How do you narrow that gap?
I mean we have data analytics that supports those numbers. In terms of narrowing that gap, I think what Rui and we all alluded to in the results was that we've obviously penetrated about 85% of the independent space and that the remaining stores in that space, which we haven't, are obviously smaller stores. If you look at it from a support perspective, you might still be achieving 28% but the actual available volume or value is much smaller than it would be in a bigger independent store. In terms of narrowing that space for us the answer lies in a conversion to a TLC franchise model.
Why did total income margin decline in the wholesale division despite better support from Dis-Chem, TLC and independents?
I think the wholesale margin was due to a mix of product shift, definitely is seen in our output. There was promotional activity in third party environment, and the last thing, definitely with our move to the Longm eadow facility, the way of operation has changed. In that facility we use roll tainers, something new to us in the environment. We're definitely seeing something in our breakage and even shrinkage lines, which we are investigating. Those are probably the three main drivers.
New store of the future, how many of these stores are you planning to open over the medium term?
I think store of the future is a fundamental design change in the way that we think about the physical space. The way that that piece of work has been kicked off and commissioned internally is to get to a single store design which we launch in the first quarter of next year, but at the same time get variations of what we're not willing to compromise in the way that a physical space plays into the ecosystem going forward. That will inform every single new store design as well as revamps. Over time, the store of the future concept will be integrated into the entire infrastructure or all of the real estate of the brand.
How many SKUs are included in the rewards program?
To date, over 10,000 SKUs, 140 brands. We're adding an additional, I think if I'm not mistaken, 10 very strong brands before year end.
Is it possible to share medium to long term margin and financial targets for the business?
I think when appropriate we'll do that. I think we've always spoken about the investment required to step change and to build the brand into an integrated healthcare provider. I mean you can imagine the challenges with medium and longer term reporting as we evolve something like a big league. We certainly have ambitions of and understand the return profile longer term, but at the appropriate time we'll come with medium and longer term targets to the market.
Considering the level of investment in OpEx, can FY2026 beat your reported earnings including the property gain from FY2025?
I mean not including the property gain. It depends what that means. If you had to strip out the property gain, yes. If you include the property gain, it'll be challenging. It also depends on the evolution of the loyalty program into the second half.
What is the stumbling block for not all store clinics having government stock?
The government? No, the truth is, obviously those decisions need public and private partnerships. Where we're able to access, we do, but it's not necessarily an opportunity that presents itself everywhere.
Can you clarify what proportion of the inventory reduction was due to SEP sell through versus structural improvement in inventory management?
The 500 million SEP buy.
In at FY2025 year end, was sold through completely. The balance was through the optimization work.
What is the financial benefit or the cost saving to the group migrating over to the new Better Rewards loyalty program versus the previous Dis-Chem benefit loyalty program in the retail segment?
Those economics have obviously been modeled. It's not something that we would share with the market. It's obviously commercially sensitive. What we can share is that at a net margin level, if the assumptions are right, obviously taking into account the funding that is coming from vendors, the repurposing of partnership rebates in the way that we've ended certain partners that played into the loyalty program, the repurpose of the benefit points value into this program, and then the very conservative uptake that we think will establish at a new net margin level from increased turnover, it is modeled as accretive. So margin enhancing.
The new Better Rewards program offers larger based discounts. Could you elaborate on how these discounts are being funded?
As I described from the economics perspective, they are funded by vendors. They are funded through vendors, through the repurposing of the benefit points. Obviously, the benefit point number was slightly smaller, but across the entirety of the front shop range, they are also funded through some of the rebates that we used to pay partners that associated their loyalty program with ourselves.
Those are all the questions. Thank you very much for dialing in.