Welcome on behalf of myself and Nelly to our F 2027 interim results presentation hosted from our Midrand offices. We value the interest that you have shown to register for this live audio webcast. Special welcome to the Famous Brands family from our various offices. We have all worked harder and smarter to produce these interim results in a very difficult trading environment. I am privileged to be presenting these results on behalf of all of us. They are a solid set of results. Definitely not where we would expect it to be on 28 February. With little doubt that fuel price and associated effects have constrained consumer spend and hampered our top-line performance expectations from day one of the reporting period.
We still have a few specific operational drags on performance that are work in progress or actions that we are taking that are being closed out and are aligned to our strategic plans. No surprises there. Definitely less of a to-do list than this time last year, and no distraction creeping into the business. I always take the opportunity at this point to remind everybody about the driving force in our business, that nothing happens in our business unless a sale is made at a restaurant. The agenda will be very simple. Roughly 50 minutes of presentations with allocating 10 minutes to Q&A. The presentation, together with the supplementary slides, will hopefully assist you to answer some obvious questions about our business.
The agenda will be split between Nelly and I. I will start off and then hand over to Nelly, and then our colleague, Ntando Ndaba, who is our Group Risk Executive, will handle Q&A. For those of you who may not have used this before, please log your questions via the portal. It is on the top left of your screen. You can also make your screen a full screen. There is a button at the bottom right-hand side of your screen that you can use. Please feel free to put those questions in and Ntando will put them through to us later. From a performance perspective, we are definitely a focused performance and has resulted in increased cash flow, which has really been good.
From our perspective, definitely a highlight for the year and very, very important as we head into H2. But really, Leading Brands has led the performance, which underpins the resilient model of our Leading Brands. Supported by supply chain, which has been underpinned by a multi-year investment, and it has proven itself through these difficult times, and we have invested through the difficult times, and it definitely bodes well for the future. We are, however, robustly addressing underperformance in some segments where we need to reduce cost distractions on the business. We have some good news that we have returned Retail to a profitable level.
Retail was a distraction this time last year if you may recall. We have made good progress to claw back to a solid margin despite a tough trading environment. And really of the last of our six highlights for the interims is that we remain a significant contributor to the South African economy and society as a proud B-BBEE Level 1 contributor. And this, as the saying goes, reflects our work both on and off the field. As you may have seen in the announcements already, we have some very, very strong numbers that we've put through. One would always like to be driving the arrows up on all six metrics.
We're very proud of the three metrics that we focused on here, where we've generated strong free cash flow, strong revenue growth contextually, given the environmental challenges particularly, and the pressure on the consumer. As our cash flow cycle has improved, post some of our investments, we've been able to focus on the dividend. Nelly will obviously elaborate on some of these numbers a bit later. There's obviously been pressure on our headline earnings as is obvious, and some pressure on our operating margin.
After her presentation, you'll be able to get some absolute clarity on those areas of pressure that are related to the areas that we need to improve in the business. Again, as I said in the opening, are work in progress. There should be no surprises on some of these metrics. We would have loved a more conducive environment to be able to drive volume better, which would reflect through to the bottom line. We think given the circumstances, the driving the right metrics has worked and certainly the revenue growth has been very encouraging in tough times. Our franchise brand footprints remain relevant for new and existing franchise partners, and even more importantly, with our consumers.
QSR is leading the way in terms of our business and further underpinning our relevance in consumers' lives and continuing to get closer to where the consumers live, work, and play, as can be seen on the chart in terms of our net restaurant growth and the size of the relevant networks in QSR. Our casual dining portfolio in Leading Brands has had a quieter time relative to their QSR colleagues, but Mugg & Bean and Milky Lane benefited from format-led growth, which we continue to innovate and lead in. Wimpy remains a key part of our brand portfolio, giving consumers easy access to an affordable and pleasurable casual dining experience, and in some cases, may be their first casual dining experience. The story of Signature Brands is not as rosy as Leading Brands, and this remains work in progress in our business.
Signature Brands have experienced some closures in the fine dining area and a deliberately slower period as we work on the model. Admittedly slower pace than we'd aimed for, but nothing we're concerned about, and we're marginally behind our targets for the period. We're very excited about H2 activity, and we forecast to open additional 80 stores in the second half. The pipeline looking forward beyond H2 remains buoyant with interested franchise partners and lots of pipeline opportunities. The property market seems pretty buoyant in the S.A. context right now. With 3,070 restaurants under our umbrella right now, we're very confident about our ability to open the restaurants in H2 and beyond.
South Africa remains our home. It remains the driving force in our business, and the distinction in our business is important, because Leading Brands is driving the growth in the S.A. context, and that is supported by supply chain, which is driving our operating profit. We continue to grow our S.A. footprint, and we continue to be a strong player in the S.A. market. We remain excited about SADC. However, it has come under significant pressure in the last six months, particularly Botswana, which has been challenging, and Nelly will expand on some of that later. However, Southern African Development Community remains a key growth lever for us despite some of the challenges in these results. We have actively and deliberately slowed down in the AME region while we have been refocusing.
The loss-making has been clawed back in this period versus prior year, and that recovery will definitely accelerate in H2. Signature Brands remains work in progress, and we have lots to do to claw back that to profitability. The U.K. market is challenging at present, with no imminent relief in sight in that particular market. As I said earlier, Leading Brands is a driving force of our business. It has maintained momentum and delivered growth despite the challenging market conditions. Distinction between casual dining restaurants and QSR restaurants remains important in the Leading Brands business. Neither is less important, but they are different in the consumer's life, which we respect and we work towards servicing the needs of those consumers. The new store restaurants and revamped restaurants have shown strong growth in the marketplace, and our increasing competitive presence in the right places is important to us.
That growth that we talk about and the ability to open net new restaurants is format-led, and that growth continues to create opportunities as we focus on drive-throughs, smaller restaurant formats that meet consumer needs and consumer demands. Consumers are not always just going out. So from our perspective, pin drop delivery or home delivery, as some people call it, continues to be a channel where we work well in and not just leave to third-party aggregators to take product to the consumer. Our franchise partners remain committed to our business. They continue to show interest, and they like our business model, and they continue to underpin and invest in our brands. Nowadays, as the tech world expands, it is not just about selling hamburgers.
Our investment in Munch and the rollout is simplifying our technology program and ultimately leading to an easier tech stack at store level for our franchise partners. Last year, this time, that number was sitting at 453, so we have made good progress over the reporting period. Now getting down to the stuff that really matters, and that is growth. In terms of our Leading Brands portfolio, we have again distinguished there between casual dining in the purple and quick service restaurants in the yellow. We have provided the quarter-on-quarter performance given the nature of the trading environment that we are in. We do not report on quarters, but I think given the context of around Easter and of course the fuel price that has been biting with fuel prices only kicking in from April, there has been some serious pressure building on the consumer.
Even then, I think the context of what we have done at system-wide level, which reflects the growth in the restaurants is important, and that is really brought us through to a 2.7% average. Again, you can see some more pressure on casual dining than on QSR. The QSR team have delivered particularly well over this reporting period. The like-for-like picture is not as impressive for casual dining, and there is a strong performance that has remained in tough times for QSR. Casual dining has come under pressure, particularly under Q2, and that has put our like-for-like at a lower number of 0.8% for the reporting period. Again, given the context of the consumer, the pressures in Q2, we are very comfortable with this number at this point in time, and we believe there is obviously runway to recover and improve.
It reflects the environment, and it does reflect the nature of QSR versus CDR. Again, around the affordability gap, particularly. Our supply chain business, as you saw in the earlier graph, which is a key driver of operational profit, is important. Owning our physical supply chain remains an integral part of our DNA competitive advantage and our business model. It is really about the back end in service of the front end franchisee and front end retail. We have reinvested capital in our platform to modernize it during tough economic cycles and really started to see that benefit flowing through in these particular results. We have integrated more third-party products into our logistics platform, such as Coca-Cola, which services franchisees in the part. In some cases, we have added to our basket to service retailers better.
Just to clarify, not the Coca-Cola basket for retailers. This is strategically important given the value of owning the supply chain in our particular business. We have been growing the basket or the manufacturing basket when appropriate, and the manufacturing team have been focused on where appropriate in sourcing volumes that we can put through to our franchise partners at same or better quality, price, and service. We had faced challenges in the retail sector, as we had reported previously, which we have rectified. Serbs and the team have done a great job of clawing back some of the challenges that we have had. We have had significantly better economics in the retail mix, and volume recovery is expected in H2. Most of the clawback had happened in Q2, so we think we would certainly show some better recovery in H2 with volume growth.
We continued to invest in manufacturing, which has been moderated with capital, and focused on value projects which actually create value within our business. The manufacturing team is very focused on how they deploy capital and working hard at moving the needle. Of course, the big shadow, I think, in the S.A. context and globally is the increase in fuel pricing. We are comfortable in that we have been able to partially recover some of that through agreement with our franchise partners on a special levy, which is quite unique to obviously our closed-loop system. We have not necessarily taken the full hit of the pricing. We have quite a unique model, and there was some margin recovery that we were able to do. Not necessarily the full amount, and of course, the fuel price fluctuates dramatically from month to month.
As reported previously, beef and coffee had been putting significant pressure on the business. It is good to report that these key commodities are showing less pressure on the business and have eased some of the pressure at the front end around menu pricing for us. There is still pressure on beef, but definitely not the levels that we spoke about when we last reported to you. I am going to take a little bit of time around this particular graph, but really what it does is explain the benign overall price mix effect that is supporting our focus on containing inflation through the supply chain. That is really what we are trying to do, is manage that inflation through to franchisees, and we think we are doing a pretty good job of understanding it, given the dynamic basket.
We are, however, suffering with some mixed challenges, and that is a variety of factors that work through that. If you focus on the graph, you can see that volume was definitely led by the retail recovery and, of course, growing the basket as I spoke about. Volumes definitely starting to pick up because of the different channels that we have, and this indicates that the overall revenue per unit and mix is lower year-on-year and suggests that the supply chain is helping to moderate inflationary pressures across the basket. Now, that does sound like a bit of a mouthful, but really what it is indicating in our business and the numbers that we look at is that we are starting to become more efficient in the supply chain as a result of the investment. The challenge is the mix, and we need to work through that.
The higher inflation in the prior period has driven key commodity pressures, and those are now easing, as you can see in the inflation number that is there. That is obviously primarily a food inflation, but there is packaging in that too. Now, let me just talk about the complexity of the mix, because that is the negative number. I think volume can easily be explained and inflation can easily be explained, and there has been some good work there. The mix has not been favorable, and it continues to move around as the brand portfolio performance changes and menus evolve. As an example, at [Horatio], 53% of line items were bought in versus 57% last year. We have bought in less line items. 41% on value versus 50% last year, which is really indicating that the manufacturing volumes now represent 47% of our volumes.
The increased utilization of our manufacturing capability, together with the changing external purchase mix, is helping contain the overall price carried through the logistics basket and ultimately to the franchisees. Some of the challenge within this is the introduction of a strong beverages category into our logistics network. Beverages were the major volume driver, but their GP margin was lower, illustrating the mix margin challenge that I have spoken about. We ultimately believe that we are well-positioned to convert the volume growth into margin growth, and that is the most important thing, particularly given the low retail sales this year. We can do that through better mix, better distribution economics, and tighter transport control. Moving to some of the more challenging parts of the business. I have spoken about Leading Brands and I have spoken about supply chain.
The Southern African Development Community area, as I've spoken about, is a key part of our growth and an area that we're driving hard to perform in. It is a key part of the Leading Brands, and it's an exciting growth prospect for us, despite Botswana being a detractor at present. Unfortunately, the decline in like-for-like sales in Botswana has continued. Botswana is a key detractor of performance given the number of company-owned operations, and we are seeing a decline in these like-for-like sales in that particular market. As an example, we saw a 13.5% decline in like-for-like sales in Pula terms in the market for the reporting period. The transaction counts in that market remain under pressure, with pricing and mix unable to compensate fully for the lower customer frequency.
The cost base is being managed, reflected in lower operating expenses and store-level labor savings, but the benefits are not yet sufficient to offset the impact of lower revenue productivity. We're absolutely confident that our partner and the team are digging deep, doing the right things to navigate these challenging times and with an outlook that is more uncertain than any time in the 30 years that we've traded there. Nelly will elaborate a bit more around some of the dynamics of the transaction that we've announced on this particular market. Be that as it may, this shouldn't detract from our optimism around the SADC market. The team have really focused their operational discipline and continued to improve operations in the region, focusing on the basics in business around product availability, service, cost management, and network optimization.
We have really dug deep in this particular region and working harder and smarter. On the positive side, we've continued to grow our footprint with seven new restaurants opened, and those restaurants we are optimistic about, and they've opened across Zimbabwe, Zambia, Namibia, and Eswatini. Several markets, however, continue to experience growth. The number that is really reflecting there is the size of Botswana is pulling the market down. However, there are some buoyant markets despite those markets too suffering with fuel pricing and with some of the dynamics that we're seeing in the S.A. market, really giving us more encouragement about being optimistic about this market. The consumer in these markets is not fundamentally different to the S.A. consumer.
They are suffering the same economic conditions, and they feel the same, and we are leading with value in these markets as we're doing in the South African context to make sure that we're relevant to the consumer, even though the consumer may have different nuances to what we're accustomed to. Of course, there's going to be some challenges. More recently, the fuel situation in Malawi has put pressure, and that would put pressure in H2. It's a basket of countries, and you're going to have a basket of outcomes. We are, however, focused on where we're expanding, and we're very specific and deliberate about what we're doing and really focusing on the markets that demonstrate attractive growth potential. Targeted growth is happening in this particular region, and the team is very focused on that.
The challenge in the AME context is very different, and we're probably not as bullish as I would be coming across around SADC. We've absolutely narrowed our focus down to a focus on Africa, and I'll talk about that, and really shaping the portfolio to create a platform for growth or a refocused platform of growth. We still believe that growth outside of South Africa and outside of SADC remains an opportunity which we are tackling cautiously. I need to just reiterate that. This does read as a litany of challenges. Some are past, some are present, some are tackled, and some are in process of being tackled. We have now permanently exited the UAE. Actually, subsequent to this and to preparing the documentation, we have made some progress on our legal case, and we've got a strong outcome there in our favor.
That was really as a result of some challenges with a multi-restaurant franchise partner. However, the ultimate end is that we've exited the market in totality, and we have no imminent plan to return to that particular market. The focus then would be remaining on Africa. The portfolio does remain subscale. We have limited activity in the period. We opened a single store in Lagos, but you are likely to see more activity in H2, particularly coming out of our Kenya market, where there's been quite a lot of activity. There are, however, several markets experiencing significant inflation and supply chain challenges, so it's not all easy. Thankfully, the markets that we're in are typically easier to navigate and generally are English markets for us. We have one Francophone market.
Generally, we are struggling with some challenges with supply chain, and the team are working hard around working through those and making good progress. The revenue decline, as Nelly will talk about, is not necessarily a reflection of performance. We have had a significant change in the business model, moving Kenya and Mauritius from company-owned to a franchise model, so you have the revenue that then disappears and converts to a royalty revenue. Mauritius only happened in Q1, so there are some drag on these results, as well as restructuring costs, which have been now managed and is now being managed as part of SADC. The clawback in AME that I referred to in H2 is also as a result of some of that activity in H1.
We've got a new operating structure which we've been working on, and that structure has been aligned to a licensed or franchise model and is being led and driven by the Leading Brands team out of South Africa. We'll be fully out of our Dubai operations and where we were servicing some of the AME markets from. We've opened, in fact, this past weekend, our second Steers and second Debonairs in Malaysia. Our licensed partner there is focused on that second restaurant, and really a great kudos for us and the work that's been done by the team again in this reporting period. So very exciting for us and a nice growth story which we've spoken about before. The team will be watching that, and we hope to be opening further restaurants over the next couple of years.
Some more challenges in the business and assure you that corrective actions are underway to restore portfolio profitability. We are definitely feeling a different trend to Leading Brands in this particular market. We are seeing a constrained consumer spend with feeling a bigger pinch on the consumer in luxury and fine dining versus what Leading Brands has particularly seen. I suppose that really does talk to ticket size and frequency versus the higher ticket size in the fine dining and luxury space. The Paul brand particularly, which sits as a unique model inside Signature Brands, which is our licensed company store arrangement, has continued to put pressure on the profitability with no improvement in losses versus prior years. That really is a challenge, and we are working hard on addressing that, and there has been lots of change and adjustment in that particular business model.
The team continued to focus on the levers that they can pull, probably not as simple as in Leading Brands, but focusing on value-led menu offerings, which again, does reduce spend per head, as much tactical and local marketing as possible, and occasion-based promotions. Again, trying to focus on what the consumer needs, but it is a smaller and niche part of the business and does require a different mindset in certain parts. The captive market brands continue to perform well within that market. It is not a challenge in Signature Brands in its entirety. It is around some of the parts that make up the whole. We have commenced the revamp program in some parts of that business, so it is not all doom and gloom, and we have franchisees that are willing to reinvest in their businesses and see value in that particular model.
Comfortable again that you will start to see some clawback in H2. The Munch tech stack that I spoke about earlier, which I will not elaborate, also is getting a benefit in Signature Brands, and we are starting to see that rollout assisting franchisees in the space and helping them to better control their operations. The sales picture in Signature Brands is definitely not as rosy as Leading Brands. As you can see on the chart there, the burgundy being the like-for-like and the orange being the system-wide, and we have had a very, very tough reporting period for H1 in this particular year. So work to do there. Some of that definitely driven by the company store model where we have seen the biggest drop-off in revenue, and that comes straight through onto this revenue line.
You will be seeing the numbers proportionately in the financials is quite a significant drop-off because it is company store revenue and not franchise revenue. There are some closures, which is why you are seeing a growth or a decline in the system-wide number, and hence the difference to like-for-like and system-wide, which really accounts for some of the closures, particularly in the fine dining portfolio. That is why you see that difference. The like-for-like number, not far off the casual dining trend that you saw in Leading Brands overall as a portfolio with a mix, but definitely system-wide feeling some of those store closures. The U.K. restaurant sector is very interesting and is probably more of a challenge for us as a South African business. The cost pressures in the U.K. continue to erode sales performance.
The consumer is very, very stretched and struggling in terms of how they prioritize their spending and their eating out. Eating out has become an expensive conversation, and those conversations are starting to be held at home or using online platforms a lot more. The consumer patterns have definitely changed, and the market is always highly competitive and that part hasn't changed. We are seeing a definite drop-off in frequency in eating out as a broader market. We are a small player in the market, and those trends haven't been any different for us. The cost base in restaurants is a challenge. The fuel model works differently to S.A., so those higher costs come through a lot quicker, and they're not staged, and they're not once a month. You're feeling this constant climbing of prices.
As they head to winter, the consumer is going to be feeling that a lot more. Labor is a significant cost, and that is a knock-on effect of a whole lot of things that have happened in prior years. Government continues to prioritize wages and particularly the new government. Running restaurants becomes particularly challenging with the cost on labor and our franchisees are feeling that. That'll have a knock-on effect on to pricing, which is higher than what the consumer is willing to pay. We have worked hard at the reporting period to rationalize our own cost base, put in a new support structure. We have taken some of the support services and we've centralized them. We are doing some other activities around cost control.
We still however need to support the market, so we haven't been able to be overly radical in what we do. We need to continue to service our franchise network, but definitely have rationalized the cost base and working hard on that. As always, we have to put the consumer at the center of any market that we're in, and the team is very focused around value, convenience in how they talk to the consumer, putting in promotions that are differentiated and experience-driven, sorry. That work is continuing in the market and making sure we deliver on value. The convenience aspect is really driven by a high reliance on delivery aggregators. We don't have our own delivery platform there.
We are reliant on the delivery aggregators as are most of the market players, and that is a particularly high growth area or remains a high growth area in that particular market. Really the cost pressures in the U.K. overall continue to put pressure on the sales performance overall. Before I hand over to Nelly, I think really just to summarize is that we remain absolutely confident that we can remove the drag that Signature Brands is posing from a specific part of the business. U.K. is likely to be challenging in H2, and progress has already been made in AME, with notable change likely in H2.
I'm going to hand over to Nelly, who give you a little bit more color on the numbers behind some of the statements. Thanks, Nelly.
Thank you, Darren. Good morning, ladies and gentlemen. Our interim results reflect the resilience of our brand portfolio. We are very proud of the strong increase in our free cash flow, and you will see that there is also improved supply chain profitability. Revenue is under pressure. However, we maintained discipline in managing costs. Our operating cost increase was below inflation. During this interim reporting period, as Darren has also mentioned, the consumer disposable income was under immense pressure because of the rise in fuel cost, as well as the interest rate increase. Beyond South Africa, the persistent cost and the high cost in the U.K. and the economic challenges in Botswana continue to weigh on performance. Although our group results are under pressure, they remain resilient, and we executed on our strategy.
Now, if we take a look at our income statement for the six months ended August 2026, revenue increased by 2.3% to ZAR 4.3 billion, and this was mainly supported by the supply chain growth of 5.5%. Our group operating profit nevertheless declined by 4.7% to ZAR 375 million, and operating profit margin declined to 8.6%. A significant moderation in our beef and coffee bean prices also provided some relief in terms of our cost of sales. Supply chain operating profit increased by 13.3% to ZAR 230 million. However, this improvement did not necessarily offset operating results from other areas which are underperforming. We maintained tight cost control where we held our combined administration, marketing, and operating expenses broadly flat at ZAR 1.4 billion, which is similar to the prior period. Operational efficiency initiatives across the business, lower depreciation, and lower employee costs supported this outcome.
However, we did experience some higher motor vehicle and fuel costs, which partially offset these savings. The expected credit loss charge increased by ZAR 3.3 million, mainly due to some of our export sales. We spoke to you about the new debt package, which we did in the prior financial year, and those gains have come through in terms of the capital repayments and the lower margins, which reduced our finance costs for our long-term borrowings. However, the lower finance income offset these gains. We recognized a ZAR 41 million goodwill impairment relating to the Retail Group in Botswana due to the imminent sale of our shareholding interest from 51% to 30%. The transaction remains subject to conditions precedent, including regulatory approvals. I will talk more about the details further on.
The tax charge remained broadly stable at ZAR 96 million compared to the prior period. However, because of the lower profit before tax, it meant our effective tax rate increased due to some loss-making entities in the group. Our total profit for the period declined by 23.4% to ZAR 200 million from ZAR 260 million, and headline earnings per share declined by 3.2% to ZAR 2.28 from ZAR 2.36 . If we look at our profit pools in terms of our segment revenue, our revenue increase of the 2.3% was mainly driven by South African revenue increasing by 4.5% to ZAR 4.1 billion, and this reinforces that this is the group's primary revenue contributor. From a franchising perspective, Leading Brands remained resilient with revenue up 2.5% to ZAR 508 million. The turnover or the performance was driven by like-for-like and system-wide turnover.
The brands are continuously rolling out new stores. They are innovating on new menus, enhancing loyalty programs, all in response to our consumers' changing preferences. For Signature Brands portfolio, they reported a mixed result. Ultimately, the performance does reflect a lower consumer demand for dining out, as well as the reduction in the network. Supply chain was the main contributor, increasing 5.5% to ZAR 3.1 billion, which was an uplift of ZAR 165 million, mainly driven by the volume and pricing. This does include the in-sourcing of the Coca-Cola products as well as the frozen retail basket, which was not in our prior period volumes.
For outside S.A., the revenue does remain under pressure, where in SADC, revenue is 18% down to ZAR 183 million, and this was negatively affected by the continued decline in Botswana, which is weighing down the performance of the segment. Similarly, U.K. revenue declined by 19% to ZAR 53 million, mainly due to the subdued economy. Lastly, in line with our capital light model outside South Africa, we have converted the Mauritius network from company-owned restaurants to a franchise model, and this is a continuation of what we did when we converted Kenya in the prior period. This was the main driver for the AME revenue declining from 78% to ZAR 7 million.
In terms of our operating profit, the group operating profit declined by 4.7% to ZAR 375 million from ZAR 393 million, with the core South African business operations supporting the profitability of the group. Operating profit improvement was driven by the top-line operational efficiencies as well as cost management across the business. The Leading Brands remained resilient, slightly growing its operating profit by 1.2% to ZAR 241 million, driven by the revenue growth spoken to earlier. In Signature Brands, the operating loss widened from ZAR 7 million to ZAR 9 million, driven by the performance in some of the brands, particularly the company-owned restaurants.
The supply chain business operating profit increased by 13.3% to ZAR 230 million, which was an increase of ZAR 27 million, mainly due to the operational efficiencies from the investments that we've made at higher volumes, and operating profit margin was improved also by the reduction in overheads, and also that our Retail segment did reach break-even point. Global pricing for beef and coffee beans moderating improved the margins, or the gross margins rather, in manufacturing. The infrastructure and technology investments in supply chain contributed to the improved yields, the warehousing, and distribution capability and the logistics. In terms of our corporate segment, that comprises of intercompany transactions, which also includes leasing arrangements within the group.
SADC operating profit decline of 77.8% is mainly due to the ZAR 11.6 million operating loss in Botswana, which if you compared the business last year, it reported a profit in the same reporting period. AME remained below break even. However, there's rationalizing and cost management for this division to address the underperformance. The group operating profit margin declined by 70 basis points to 8.6% from 9.3% in the period. Leading Brands maintained an operating profit of 47.4%, although this was marginally below 48% in the prior period. Supply chain improved its margin from 6.8% to 7.3%. Our basic earnings per share declined by 23.4% to ZAR 1.81 from ZAR 2.36 per share in this period.
Between basic earnings and headline earnings, we adjusted mainly for the Retail Group impairment of ZAR 41 million. Post the adjustment, our headline earnings per share decline is 3.2% to ZAR 2.28 from 236 cents per share. If you look at our free cash flow, I think for Famous Brands, just for a reminder, free cash flow for us is cash generated from operations less tax paid and net CapEx. The group presents a very strong cash generated, which underpins our disciplined capital allocation. The free cash flow more than doubled to ZAR 459 million from ZAR 221 million, which is a 108% improvement. This level demonstrates a significant improvement in our cash available for capital allocation, as well as our second half working capital requirements. Our capital expenditure was reduced by 73% to ZAR 38 million from ZAR 140 million in August 2025.
The group adopted a more selective investment approach, thus contributing to the improved levels in our free cash flow. From a prior period, if we were to compare the results, our spend was higher, mainly due to the funds spent on the development of the Midrand cold storage facility. In this period, the investments remain focused for Leading Brands into consumer-facing technology as well as the network support, and then supply chain into the infrastructure. Our investments are circumspect, and they are channeled towards achieving our strategy. The historical trends of our dividends, you would see that for interim dividends, we are increasing from ZAR 1.30 in 2022 to ZAR 1.62 per share in 2025, with an average payout of about 66%, and this was supported by the group's financial performance and strong free cash flow generation.
For these interim results, we grew our dividend by 4.9% to ZAR 1.70 per share, with the total dividend growth of 6.9% over the last five years. Our cash generated from operations, if we look at our cash flow, increased by 19.5% to ZAR 564 million, supporting capital investments, the debt repayments, as well as shareholder distributions. The net working capital movements that contributed to this increase include a ZAR 90 million reduction in levels of our inventory holding, which also includes the insourced products. Our trade payables reduced in line with the supply chain procurement activity. Lastly, our trade and other receivables increase was mainly driven by prepayments as well as other receivables. We then proceeded to pay interest on our debt facility as well as our tax to our revenue authorities.
With the cash available, we allocated capital to investing ZAR 138 million to capital projects for routine maintenance enhancements, as well as risk management, and we paid ZAR 90 million for mandatory debt repayments, including our right to use the assets in our operations. We distributed ZAR 57 million to shareholders through our repurchase program, which was the first one that we have done as Famous Brands. Lastly, ZAR 262 million cash dividend was distributed to Famous Brands and non-controlling shareholders. After all cash movements, our closing cash balance is ZAR 351 million compared to an opening balance of ZAR 378 million. A part of the decline was partly attributed to the reclassification of Retail Group cash and cash equivalents to assets held for sale.
In addition to our closing cash balance, we have access to ZAR 352 million in undrawn borrowing credit facilities, indicating that the business has sufficient liquidity and flexibility. The business has sufficient funding for investments. Darren also spoke earlier about the imminent transaction on Botswana. What we are doing here is in line with our capital light expansion, we are reducing our equity shareholding in that market. Famous Brands will reduce its shareholding in Retail Group from 51% to 30%, and our partners in Botswana will then acquire the 21% shareholding interest. The group will retain economic participation in Botswana through a 30% shareholding interest, and we will continue to receive a master license fee under the existing arrangement.
From an accounting perspective, Retail Group is classified as a disposal group held for sale. Thus, Famous Brands recognized the ZAR 41 million goodwill impairment during this period. Following the completion of the transaction, we will cease consolidation and then equity account for the retained interest as an associate. We expect the completion date to be 28th of February, 2027, and as any transaction, it is subject to conditions precedent, including regulatory approvals. In closing, the South African core business remains resilient, but the group is facing some pressure. We are very proud of the strong cash generating position, which provides us with financial flexibility. The group is advancing its capital light strategy while retaining access to opportunities in different growth markets.
Thank you, and I will hand that back to you, Darren.
Great. Thank you, Nelly. As we head into Q&A, I would like to just really recap around our business and really focus on an iconic brand portfolio, trusted and scalable business model. If you put that into context, that underpins why we say we have a brand portfolio that is trusted and a business model that is scalable. We opened 48 new restaurants in the reporting period. Our franchise partners invested in revamps of 67 of their businesses. We opened four new drive-throughs in the period. We operate 3,070 restaurants in 21 markets. Our brand portfolio, particularly in those markets outside of S.A., is driven primarily by Debonairs Pizza, Steers, and supplemented by Mugg & Bean. It is a very focused portfolio outside of South Africa.
Our franchise partners are becoming multiple operators. The market has changed out there. Our franchise partners are changing with that, and the majority of them now own more than one restaurant, and that stat has evolved over time in line with market conditions. Our franchise partners are loyal, and they stay with us and they invest with us. They often have other businesses, and we are very proud of the relationships that we have with them and the way they continue to see our business. They are an important part of our business. Nothing happens in our business unless a sale is made at a restaurant, and that really puts them in that spot where they are very important to us, and our business is focused around franchising and our franchise partners.
I am going to head into Q&A. Our colleague, Ntando, is going to direct the questions at either Nelly or I, and hopefully we will be able to answer them easily. Overlooking us there, sorry, is Victor, our franchise partner from the south coast of KZN, so it is always good to be thinking about our franchise partners at this time.
Thanks, Darren and Nelly. We do have a bit to go through, so I will just jump straight into it. We have a question from Mpho Ngoma from Prescient Securities. There is a lot of related questions just for interest, Darren and Nelly, so if you can provide some color as you expand, because you will be answering a lot of the questions. Nelly, there is a bit of an interest on the corporate costs, which actually rose to ZAR 75 million from ZAR 47 million. Probably if you can give us some color on how much of that is one-off and how should we look at the corporate cost line in H2?
Thank you, Ntando . What we have got under corporate cost is, I would say is our product intercompany transactions that I have mentioned, which also includes some of our leasing arrangements. That is now coming through that we have finalized what the structure is because we had, as we mentioned, we built a cold storage facility for efficiency in terms of our operations, and that benefit is now going to start coming through. Then, also, there were some of the costs which related to our share-based payments, which we have now are also just working through all of that. Lastly, I think there was also a GBK number that was in there. So that also just created a bit of a cushion in the prior reporting period.
Well, maybe if I can just add, I mean, that number that is in there is pretty much where the costs are have been historically. It's kind of the number that we're working on. Yeah.
Okay. Nelly, while you still have the mic, I'll probably give you two more questions. One from Tswaledi Mohale, from Laurium Capital. CapEx outlook F 2027, how is that looking?
We still remain quite circumspect, Ntando, in terms of our investments. The levels of which we would look at compared to prior period, we were mainly focusing on about 2% of revenue. We're trying to make sure that we stay within that range. When we spoke to the market at the end of H2 last year, we said we're looking at numbers of between ZAR 150 million and ZAR 180 million, and that's the range we still want to try and be able to work in for the H2 period. We're not anticipating being higher than ZAR 180 million.
Okay. Thanks for that. Another question from Anthony Clark, Small Talk Daily Research. I mean, with lower finance costs as debt, you're slowly reducing, improving your balance sheet. You did a ZAR 57 million share buyback in this period. With the share price under pressure, will you be accelerating on share buybacks?
Share buyback is one of our capital allocation levers, right? We will also look at the opportunities of what is making sense at that point from a business perspective. What is the highest and best use in terms of cash that's available to us and allocating to share buyback is one of those levers that we would look to pull with the funds that we've got access to.
Okay. Thanks for that. Probably let's go to Nick Wilson, News24. Darren, probably this one is for you. In May this year, Famous Brands indicated that it was going to aggressively expand on drive-throughs. In today's results, only four have been added. There are concerns that Famous Brands is losing traction to international brands because of the large number of drive-throughs that they obviously have in this portfolio. Can we expect Famous Brands to significantly ramp up drive-through rollouts? Is there anything that's holding you back, like retail space? If you can provide some color there.
Yeah, I'm not sure where those concerns would be coming from. I think we've been very open and honest from the beginning around certainly post-COVID, that we were lagging behind in the drive-through space. I mean, we put it out there. We identified that. I think the market shifted quite significantly post-COVID as well. We know that we're underrepresented in the market, and we're working on closing that gap. I mean, the progress has to be slow and steady because the opportunities are important to be the right ones. You can't just grab anything out there. I definitely don't agree with Nick that it's lack of retail space. In fact, the retail space market is very buoyant right now. There's a lot of developments. It's really about choosing the right one, I suppose, because you can get it wrong.
I'm starting to feel that there's probably more opportunities, in terms of real estate than actually there are going to be consumers at this point, but, I mean, that's just on the view that we have currently. So choosing the right ones are important, and we would absolutely like to continue to accelerate that growth. It's not where we want it to be yet. We're working hard at that. The number of four is not necessarily an exciting number for us, but we're really pointing out that it's in support of the strategy. You have a big network like Steers that already has presence, so you can't necessarily just say, "Well, I'm just going to open a drive-through." You've got to consider what else you have in the area. And of course, competitors may be in the area.
Nick, probably the other way around is I would think, competitors may be feeling a little bit more uncomfortable with the fact that we're targeting these spaces. But what one would obviously want and prefer is that the market is growing faster and big enough to make space for more people rather than creating competitive intensity. Yeah, we're excited about it, and I think we are the aggressor in the market, so to speak.
Okay, thanks for that. Probably a bit on the international markets. A question from Bheki Mthethwa , Bateleur Capital . Given the portion of the Retail Group classified as held for sale and the exit of the U.A.E. business and other restructuring initiatives in the period, can you please give us a sense of headline earnings on a continuing basis for this period? And probably just follow on to that is how should we look at the profitability of the U.K. business into the second half and its future within the group?
I think you better answer the first one.
Okay. Botswana, we spoke to operating profit losses already of ZAR 11.5 million that is sitting in our results, so that we will likely going to continue to see some of that impact coming through until the closing date of the transaction. The U.A.E., the benefit of what we're seeing in the U.A.E. is already sitting in. The exit in the U.A.E. is already sitting in our operating profit results for H1, and we will continue to see that benefit also still coming through. Then lastly, in terms of the restructuring initiatives, which are still part of the AME, wherever there's costs that the business can be able to extract, that's what we will continue to do in reshaping and opportunities where we've taken decisions around what we've done in Mauritius, where we're getting out of company-owned stores and rationalizing the business to keep it lean.
That's how we would or continuously to look at those benefits to see them coming through as well in H2, without necessarily just giving a hard number of what would be headline earnings in terms of our H2 results.
Okay. Darren, you want to take the U.K. business specifically?
Yeah. I mean, look, that's a good question. I mean, the U.K. is probably the market that is the most difficult in our world right now around our ability to flex there the levers that you can pull. It is a smaller business, and the market is particularly challenging. I am probably the most downbeat about that market versus anywhere else, and I think that's about being realistic. I mean, the team are working hard, so it's not an issue around the brand or the team at this point in time. The levers are quite difficult. I am not suggesting that we're going to have a turnaround story here in H2.
However, the context of it is we did have quite a dismal H2 last year there with some challenges and some credit challenges. So likely to be an improvement on H2 last year, but at best, I think we'd probably bring it back to break even. But that's certainly not a forecast or guidance. So just to clarify that's what we'd be working hard to. I don't think you're going to get the kind of number that you had potentially two years ago as an example.
Okay. Thanks for that. Probably let's switch to margin pressures from Anthony Clark, Small Talk Daily Research. With accelerated living cost inflation ahead, I mean, rising interest rates, rising fuel costs, and cost surge in food ingredient inflation, what is the group doing with regards to passing on costs to try and maintain its margin?
Yeah, look, that's a very broad question. We analyze every line and we work with our franchise partners. As an example I raised around the levy, we try collaborative things. The good old-fashioned buying better, holding stock, managing things like that is normal in business. But one positive we have right now is that food inflation seems fairly benign. I am not suggesting that's going to hold, but given the fuel price pressures, it's probably surprised us quite a lot. So essentially keeping prices low to consumers is the focus. Keeping prices low to franchisees keeps us in that kind of sweet spot of maybe 3%-4% menu price increases at this point. But there's a range of things that we're doing in there, Anthony, around making sure that we're looking at menu innovation.
The procurement teams are constantly working on how they can procure better. How can we deliver cheaper? All the usual levers that you'd be pulling in business are there. Again, but surprisingly, food inflation is not driving the pressure at this point in time compared to where we were, say, two years ago in this cycle where we were really passing on pricing to consumers just to keep head above water. But ultimately, that's what you want to try and avoid, but you end up at a point where the consumer ends up having to pay more for a product because the product has come through the supply chain more expensive at the end of the day.
Yeah. Okay, thanks. I'll squeeze in one more question, just to try and get a feel rather on H2. This from Mpho Ngoma. How have Leading Brands like for like and system-wide sales trended in the beginning of H2? I know it's like you only have September to talk about, but what's the feel?
Yeah. September on reflection, we would be happy with and probably better than expected. However, there's always a but in the business, is that school holidays did move compared to last year a little bit more into September. September was encouraging and we'd definitely, if you'd given it to us at the beginning of the month, we would've taken it. October did then start well, and we're obviously in the thick of October right now, so that will be the true challenge. Did some of that kind of school holiday activity build into September? I think that given the strong month-end focus right now, we should be okay.
The positive about that, though, and why I mention school holidays is that it is positive that there's still activity and consumer activity kind of six months into what has happened around fuel pricing. Perhaps people are vacationing closer to home, maybe they're spending their money differently. It's probably too early to tell, but that was the encouraging part for us in September.
Okay. Thanks, Darren and Nelly. I think that's all the time we have for Q&A. I'll hand back to you.
Good. Well, thank you. It's really great to have had this opportunity and really just to say thank you to everybody who's participated to help us to get here. We'll be closing out with that. So a thank you to the finance team particularly, who've done a great job on the work. To our partners, Nedbank, the Standard Bank team, and me particularly to the Exco team, the Famous Brands team, and the board for all of the support. To Yolandi, Celeste, Ines, thank you for all of the work on the governance and getting us here. So thank you to everybody.