Good afternoon, ladies and gentlemen, thank you very much for joining us at our interim results presentation this afternoon. We will be covering our results for the period that ended 30 September 2022. Joining me this afternoon is our CFO, Jacques Bestbier, we are also joined by our Investor Relations specialist, Graeme Lillie. On the agenda for this afternoon, we will start off by looking at the highlights of this reporting period. We will then spend a considerable amount of time taking you through our debt analysis. Financial results will follow, we will then deal with our targets, our achievements for the first six months of the year. We'll then give you some insights into our outlook for the remainder of this financial year.
In an extremely challenging trading environment, our cash retail brand, UFO, underperformed, whilst our traditional trading brands delivered a balanced and solid set of results, mostly supported by strong credit sales growth and also supported by strong cash collections during the period. Revenue increased by 4%, supported by merchandise sales growth of 4.3%. Gross profit margin settled at 39.3%. We're very pleased with the further improvement in our debtor cost line, an improvement of 2.2% during this period. Operating margin settled at 13.6%. Headline earnings up 4.4%. Headline earnings per share increased by an encouraging 19.2%, benefiting from our aggressive share repurchase program.
The board once again showed confidence in the group's medium to longer term prospects by matching last year's interim dividend payment at ZAR 1.95 per share. I think all of you are fully aware of the fact that we traded through a significantly weakened trading environment. We all know about all of the reasons that have been listed. It's part and parcel of our daily lives. Would I ever want to highlight the fact that we've seen continued exchange rate pressure washing through our business, and this has had quite a material impact on this set of results. More especially so in the case of our cash retailing arm, the UFO brand.
Just to give that a little bit of color, during this period, the Group imported 27% of the merchandise that we sold. In the case of UFO, the import percentage finally settled at 66%. When we get to the segmental analysis part of this presentation, I'll unpack UFO's performance and the exact impact that these very high exchange rates and unfavorable logistics costs actually had on the set of results. The weakened retail conditions have washed its way through the economy. Our business has led to a decline in cash purchases. Because of the fact that we prepared well for an increased demand in credit, we actually managed to balance our books in traditional retail by extending credit sales by a very significant 16% during the period.
We continue to follow a strategy of carrying higher stock levels. This has once again aided and assisted the business during the period of transit strikes. We managed to keep our stores fully stocked throughout this trying period. We are now trading out of 829 outlets. Net 10 new stores were opened during the reporting period. Two of these stores were opened outside of the borders of South Africa, increasing our store base in BLE to 131 stores. Happy to share with you that our African operations performed well, banked sales growth of 6% for the first six months. We're with the contribution that we are now getting out of Africa, 19% of sales are done outside of the borders of South Africa.
We've also made further inroads in terms of migrating more of our Lewis branded outlets onto the smaller store formats. At year-end, we reported that 48% of our stores were in fact trading out of smaller configurations. That has now subsequently increased to 49%. The store refurbishment program is also well underway. Two-thirds of the planned refurbishments for the year already completed as at the end of September. In terms of merchandise sales, we had a very strong first trading quarter. Sales came off the boil quite significantly during quarter two. This resulted in the Lewis Group's merchandise sales increasing by 4.3% for the six months.
Traditional brands performed well with an increase of 6.5%. Unfortunately, as I mentioned, sales in UFO declined by 9.5%. It is important to note that group cash sales declined by 8.1%. To put that into perspective, cash sales in all of our traditional brands during this period declined, and the actual decline percentage for the period for traditional settled at 7.6%. Right across all segments of the market, quite a significant decline in cash in circulation. Group credit sales, good story for our traditional brands. A very good increase of 16.4%. One must always be careful if we only talk about percentages. I always tell my staff that when you go into the bank to go and deposit money, you don't write the percentage on the deposit slip.
It's all about the rands. If we can just focus on the credit sales increase in rand terms for this period, we actually invoiced about ZAR 165 million more credit business. In the cash sale line we've seen a decline of ZAR 80 million in cash sales. The lost cash sales during this period was basically compensated for or made good by the actual extension of credit. When we get to the segmental analysis, I also want to unpack the actual profitability that is attached to a credit sale when one actually compares that to a cash sale that is similar in size. The credit application decline rate, an improving trend if we look at last year, down from 39.1% to 35.8%.
I think it's a very good question to ask, how is this possible in a climate that is as difficult as the one that we are currently trading in? Ladies and gentlemen, 12 months ago, we took a conscious decision to change certain of our marketing strategies that actually put us in a position to attract lower risk credit customers into our stores. Happy to share with you that that strategy was, in fact, really successful. If we go back and if we look at decline rates that we reported for half two of last year, you will see that we actually had a decline rate that went as low as 33.6%.
A slight uptick from that level of, from last year's half two's level, but still a very encouraging trend for us to see. I think it's also important to pause to just talk about the payment behavior, because we've got this new strategy in play for just on 12 months now. Very happy to share with you if we ring-fence the portion of business that we wrote after we adopted this lower risk marketing strategy, the actual performance of all of those accounts is actually better than what management expected, and it's also better than the performance of the rest of the book. It's one of the factors that also underpin our very nice increase in collection rates that we'll touch on a little bit later.
Other revenue increased by 3.6%. At the end of last year, we reported other revenue increase of 2.8%. At that point, we also indicated to the market that we expect to see an increase in the contribution coming out of the other revenue lines. We gave that color and said we should finish or settle this financial year with an increase in other revenue of closer to 5.6%. I think it's clear from this set of results that we are well on our way to actually achieve other revenue contribution increase of 5.6%. Credit sales mix or sales mix, and more specifically, I want to talk about the increase in credit sales.
Credit sales increased from contributing 50.6% half year, one of last year to 56.5%. Significant increase. It clearly reflects the position that consumers have got an increased appetite for credit. It's also important to note that we've basically returned to pre-COVID levels with the credit sales contribution before we went into the COVID period. Very similar to what we are seeing today. We must also mention that we expect to see a further increase in credit sales contribution as we move through the current economic cycle. Expenses were well managed during this period, with good cost management disciplines right across all of our trading brands. Operating costs during this period increased by 5.4%, which is obviously way below inflation that ranges between 7.5% and 8%.
The balance sheet remains strong. We'll talk a little bit more about the borrowings that we've taken on during this report period when we get to the balance sheet slide. The aggressive share repurchase program progressed well, with 7.2 million shares repurchased for the 12-month period. More recently, during this reporting period, a total of 3.8 million shares were in fact repurchased at the cost of ZAR 192 million. Also important to mention that 41% of shares in issue were in fact repurchased since we've listed the business in 2004, and 75% of those repurchases actually occurred under the current repurchase program that we kicked off in 2018. We believe that the aggressive buyback strategy will continue to be accretive to our shareholders.
For that reason, we received a renewed mandate from our shareholders to get back into the market and to go and repurchase 8% of shares in issue. Not only do we utilize share buybacks to return to enhance shareholder returns, we also actively pay dividends to our shareholder base. We continue to execute on our dividend policy, which speaks to a 55% payout of the attributable line. If we look at the average return to shareholders over the last 3 years, last 3 completed years, you will note that the average return actually settled at a very encouraging 18.2%. To talk a bit about current trends.
For the first six months of this year, we've returned 11.9% to shareholders, once again through buybacks and dividend payments. That is aligned with the position of last year halfway. Spoke about the fact that management and the board's confidence, the business medium and future term prospects are also reflected in the fact that we found it good to actually match last year's dividends. Although earnings are 12% short on last year, the dividend payment will be in line with what we paid at ZAR 1.95 per share. Ladies and gentlemen, one of the highlights in this set of results is the performance of the debtors book.
As we all know, for a business that is involved in credit extension, the foundation of that business can only ever be described as the actual underlying quality of the debtors book. We believe that we've done really well to get the book into very good nick. Standing of the book at this point in time, it is really a source of encouragement. This is mainly as a result of the improved collection strategy. The strategy continues to bear fruit as we motivate more and more of our customers to actually migrate onto debit order, a debit order platform. As things stand today, 42% of all South African customers are in fact paying their accounts through this avenue.
As stated in the past, this has now also freed up a lot of additional capacity in our stores to actually deal with the non-performing portion of the book better. When we get to the slide that deals with payment buckets, you will see that this strategy is really working well and that we've done quite a bit, not only to improve the satisfactory paying bucket, but also to reduce or to shorten the tail end of the book. I can also mention that the collection rate of 81.7% is in fact, with the interim results, the all-time high for the group. What's even more encouraging is that the strengthening in the collection trend continued through this reporting period, with quarter two's collection still coming through stronger than quarter one's achievement.
Although we struggled on the sales front in terms of keeping momentum, the opposite was true on the collection front, and we are still gathering collection momentum. Once again, important to look at the rand collected or banked. ZAR 2.172 billion last year increased nicely to ZAR 2.332 billion this year. That's a 7.4% increase in ZAR banked. One must view this against the backdrop of the debtors book that increased by 2% during the period. A very, very good, real and solid increase coming through in the collection line.
This also resulted in an improved position in terms of our arrears, with a reduction of ZAR 220 million in terms of contractual arrears, therefore resulting in a nice improvement of 37.3% arrears last year to 32.9% this year. Spoken about the fact that debtor costs further improved by 2.2%. If we look at the net bad debt written off line, there's an increase of ZAR 34 million there. This purely as a result of the tail end of the book that is still in the process of being improved. On a look-through basis, debtor costs as a percentage of debtors, 4.5% against last year's 4.7%. This is obviously a checkpoint, that this is at interim stage.
If we look at the 4.7% last year, that number finally settled at 12.3% at year-end. We'll share our expectation for this year when we get to our target slide a little bit later on. Really encouraging performance overall, expansion or a growth in customer numbers of 7,000 customers for the year. More importantly, 26,000 more customers are now being classified as satisfactory paying customers, giving us the opportunity to resell and to reserve 464,000 customers. This is a great advantage to have during a period where people want and need to turn back to the in-store credit offering.
We can give you the assurance that we've got very strong marketing initiatives in place to make sure that we hang on to those customers and that we also sell into the open environment for the credit limit that they've got available. Important to note that the non-performing bucket, and that's the so-called tail end that I've referred to. If we look at that payment bucket, we've seen a reduction of 17,000 customers in that bottom bucket. If we look at the rands, now less than ZAR 1 billion worth of balances that are actually classified as being attached to non-performing accounts. Total provision reduced from 42.2% to 38.7%.
The lower provision is driven, ladies and gentlemen, by one thing and one thing only, and that is the improvement in the quality of the debtors book. It's clearly visible in one risk composition, with 78.8% of all customers now being classified as satisfactory paying. If we look at the impairment provision percentage coverage per payment bucket, I would like to highlight that we've got a higher coverage in the satisfactory paying bucket, now at 20.7%, up from 19.7 last year. A very similar level of coverage in the non-performing bucket at around about 88%. Slightly reduction in the slow paying bucket coverage from 69.5 to 68.7%, and this is as a result of the better quality or composition of customers that you will find inside the slow paying bucket.
All in all, solid performance, this reflects the solid foundation from which we can continue to protect well, and like I've mentioned, also plenty of reserve and resell opportunities. I mentioned the fact that this is the best result that we've reported at interim stages. This clearly shows you the trend, the very solid improvement that has actually taken place over the last five years. We can move on to our financial results. On the income statement, you know, we've spoken about the revenue increase of 4% driven by solid performance by our traditional brands. Merchandise sales up 4.3%. Gross profit margin down from last year's 39.3%. I would like to highlight that our gross profit margin for our traditional trading brands were exactly in line with last year's achievement.
No drop in GP for the traditional brands. This drop was solely as a result of pricing that came under pressure in our UFO business. We believe that there's some upside in half two, but we'll talk a bit more about that later on. The operating profit once again under pressure as a result of underperforming UFO brand. Last year, UFO posted the operating profit before impairments of ZAR 21 million. This year, we closed the reporting period, I should say, with a small loss of ZAR 4 million. We'll talk about the moves afoot and the turnaround strategies that we have already deployed in UFO to get us back to a position where UFO can start making a contribution.
Obviously, this washed through every single line of the income statement. Operating margin also down from 17.1% to 13.6%. Attributable earnings down by 12.5%. Like we mentioned earlier, we are in a position to match last year's dividend and more than comfortable to slightly increase the payout ratio to make that possible. The share repurchase program was once again utilized as a low risk tool to create value. The impact of this strategy very visible in our headline earnings per share line, with an encouraging increase of 19.2%. We are now going to deal with the segmental analysis. I'd like to start off by focusing your attention on merchandise sales.
At the 6.5% that we've spoken about for traditional is there on the slide. Revenue for the traditional brands increased by 5.2%. We can already see that that gap between our merchandise sales growth, expansion in revenue is starting to narrow. As we explained 6 months ago, because probably that gap will now continue to narrow as we move to the final stages of this year. See UFO's result. Merchandise sales down the 9.5% that we've spoken about. Obviously resulting in operating profit, a line that now reflects a loss of ZAR 4 million, which compares to a profit of ZAR 20 million last year.
Obviously, all of our other metrics is operating margin negatively impacted by this move, finally resulting in the after repayment and capital margin of 13.6% against last year's 17.1%. Ladies and gentlemen, this is a good place to pause and to talk a little bit about what we've seen in traditional and why we believe that this is a really solid set of results. Also to talk a little bit about the future expansion that the increase in future expansion in the operating profit margin line that will be driven by the high levels of credit sales that we have actually driven during this period.
To put this all into perspective, I must just start off by once again saying that credit sales increased by ZAR 165 million during this period. We've seen a reduction in cash sales of ZAR 80 million. I want to unpack the difference in the actual level of profitability when we compare the credit sale to a cash sale. On a look-through basis, simplistically put, the credit sale is between three and four times more profitable than a cash sale of similar size. Let's unpack that a little bit. Currently, an average deal in our business is ZAR 10,500. 10,500 is the average size of a deal. On the cash sale side of things, it's quite an easy calculation.
Typically, you'll bank the GP, which is still running at around about 40%, and you'll also bank the delivery charge if the customer makes use of your delivery service. For ease of example, let's work on the 40, and let's say that on a look-through basis, there will be ZAR 4,000 profit available. Obviously, as soon as you invoice this transaction, as soon as you conclude the transaction, the full benefit of the profit attached to this cash sale will be banked. It will obviously flow through to your income statement. On the same day, you also invoice a credit transaction, similar size. Once again, the ZAR 10,500 comes into play.
Now IFRS 9 also comes into play, you must immediately raise a debtor provision according to this wonderful accounting standard that has been with us for quite some time. No surprises that that obviously plays a massive role in how the income streams will now flow through. Remember, you've got a transaction here that's three to four times more profitable than the cash transaction. How long does it actually take until you get to the same level of profitability, if I can call it that, in inverted commas? Ladies and gentlemen, it takes eight months before you actually realize the same level of profit.
After invoicing that credit sale and having it, nurturing it on your books, eight months later, you will actually see a benefit that is similar to what you enjoyed on the day when you invoiced your ZAR 10,500 cash sale. Obviously, from that point on, the news now becomes quite a bit better. During the first 12 months, and I must reiterate that it's obviously not bound to reporting periods or financial years, this will be after having this transaction on your books for 12 months. 36% of the profit attached to this credit transaction will actually be realized. In the following 12 months, 33% of the total will be realized, followed by 23% in the 12 months following that.
Finally, over the last eight months, because a typical transaction remains on our books for up to 44 months. During the last eight months, the final 8% will be realized. If you ask us why are we not seeing the actual benefits of this very nice increase in credit sales in our numbers during this reporting period, I think it will now make a lot more sense. We need more runway, but we've definitely obtained a set of results that is far more profitable on the traditional side of the business than the set of results that we presented even during half one of 2022.
That's a big investment in the debtors book that has been made, and all of these other revenue streams will support us to get us back to operating margin that we are comfortable with. For what all its way through through all metrics. It will also get us to a position where we actually achieve our medium-term return on equity targets. I'll touch on that because it's such an important point again when we get to the next slide. Ladies and gentlemen, that's a very, very comprehensive explanation. I hope that it makes sense. On a look-through basis, credit sales 3-4 times more profitable. Significant inroads with a 16% increase during this period.
We do expect that this rate of increase in credit sales will continue during the second half of the year. Like we said, it all bodes really well for future revenue streams. Store counts, 829. 12 new stores opened during the 12-month period. I alluded to the fact that 10 of these stores were opened during this reporting period. You'll also see that UFO expanded its store base by two stores. You might ask, "What is the plans? You've got a business, a segment of your business here that is not profitable at the moment. Are you going to expand?" Ladies and gentlemen, at this point in time, we've now reached the point where we've entered a phase of, let's call it consolidation.
We are now in the process of stabilizing UFO. Once we've got this business back to a position of profitability, that is when expansion of this brand will in fact continue. If we talk about the future of this brand, we still see a very bright future for this brand. We acquired this business for strategic reasons. Up to this point, this business has served us well. Still the same business as the one that we had 12 and 24 months ago. It's just that a lot of headwinds actually hit this business simultaneously. I would like to expand that a little bit when we get to the next slide.
One of the reasons why we underperformed in terms of achieving sales goals during this period was that our new range launch was significantly delayed. I already mentioned that 66% of what we sell through UFO are in fact imported merchandise. The delay was basically for two reasons. First and foremost, the KZN or the rail line between the Port of Durban and City Deep in Johannesburg was out of operation. If you add all of the reasons and all of the weeks together, you'll see that roughly four out of six months, we did not have the benefit of actually transporting our goods by rail.
To add insult to injury, Transnet went on strike. During this period for the Lewis Group, we had no fewer than 220 40-ft containers that were basically piled up and stuck in the Port of Durban, which is really an unacceptable situation. We dealt with it as good as we could. Happy to share with you that these lines are in our stores at this point in time, and a lot of these new lines are gaining sales momentum and traction. The biggest problem for UFO was a significant increase in logistics costs. The unpack that we need to understand the business or I need to explain the actual sales composition in the business.
70% of what we sell out of our UFO are, in fact, big, bulky items. It's merchandise that falls in the lounge and dining room categories. Because of the fact that these items are big and bulky, the actual container loading, the quantities that you can get into these 40-ft containers are on the low side. In certain instances, as low as 20 lounge suites in a container. To unpack that a little bit further, we had a close look at what has actually happened to not only shipping but also road logistic costs. If we go back to the pre-COVID period, 8%-15% of the total cost price of a product was actually made up by the logistic cost component. 8%-15%.
Today, 25%-45% of merchandise costs are being made up by that logistic component. Very significant increase. Yes, last year we were faced with shipping costs. Those costs were not as high as what we experienced during half one of this year. We also had the situation that I described above. Instead of utilizing the rail, which was not available for utilization at that point in time, we had to move these containers by road from Durban into Johannesburg. This came at a significant cost that ranged between ZAR 8,000-ZAR 10,000 per container. Obviously, it was not possible to pass all of this cost pressure on to consumers.
We had to absorb some of this, and that resulted in obviously pressure on the GP line. We also had to pass a significant portion of this on, and this was met by a certain level of price resistance by consumers, and it negatively impacted the actual unit sales during this period. I can just add that all of those price increases and so forth was basically introduced into a target market that was already under pressure, where household income is just not on similar levels proportionally to what it was a year ago. We also know that this customer is a very interest rate-sensitive customer. Like I said, UFO is not down and out. There is some plans afoot to turn this business around.
You will agree that the operating loss of ZAR 4 million is not the end of the world. We've taken really decisive action. I've taken a decision to strengthen the senior management team in this business. We actually have the services of a gentleman that's very experienced in this sector of the market. He joined the Lewis team three years ago. During his tenure with Lewis, so far responsible for managing the Beares brand with great success. We also know that we've enjoyed great market share gains in that segment of the market. All in all, he's got 40 years furniture experience. Prior to joining Lewis, he was intimately involved in running. I'm not going to mention names, but one of the brands that compete with UFO head on.
I believe with his experience and the energy that he will be introducing in this business, it will actually go a long way to get people motivated. If I look at the quality of middle management that we've got in UFO, I can describe the team as being experienced and also highly motivated to turn this situation around. We've also changed our road logistics supplier. I've mentioned Value Logistics in the past. They've been an integral part of the traditional success over very many years. They are now also the preferred road logistics supplier for UFO. We believe that there's lots of efficiencies that will be unlocked. Not only cost savings, but also improved customer experiences because of the introduction of them into our business. There's also a renewed and increased focus on social media marketing.
This is one of our brands that should be doing quite a bit better in terms of online sales. We already enjoy significant online and social media following for UFO. To give that color, 570,000 Facebook followers and over 100,000 people that actually followed our UFO brand on Instagram. We're going to utilize this as a source of potential business to also take us to a position where sales start growing again. Stock holding. There's an opportunity for us to reduce stock holdings by narrowing the range over the next 12 months. This will obviously result in cash that will be freed up, and it will also result in lower levels of stock provisions, which will also obviously aid our operating performance as a whole.
Very good news for UFO. Shipping rates are trending downwards. We are already in the process of negotiating shipping rates for the new financial year. As things stand today, we believe that there's potential savings of between ZAR 0.20 and ZAR 0.25 that can be banked on in terms of shipping expenses from quarter one in 2024. Expenses, well managed. We have good operational discipline across all brands. We had to spend more on marketing to make sure that we keep feet coming through the door, and also to ensure that we keep the online interest in the group at high levels. The transport and travel line is also one that one must talk about.
We all know that we've seen record high fuel prices during this reporting period. I must commend my team, because if I look at the actual kilometers that were traveled, most of this is being spent in terms of running our delivery fleet, ladies and gentlemen. If I look at the actual kilometers traveled for the six-month period, the operational team have done tremendously well to actually keep the controls intact. On a like-through basis, an increase of 5.4% well below inflation. Balance sheets. Increase in stock holding. Inventory levels up from ZAR 1.057 billion to ZAR 1.245 billion during this period. two reasons. First and foremost, the unexpected sudden slowdown in sales in Q2 had an impact on stock holding.
Secondly, we also took the opportunity to actually go and do a little bit of buying ahead of expected price increases that will definitely come through during quarter four. I can give you the assurance that quality of merchandise of stock that we hold is good. This is new sellable stock. If you look at the levels of obsolescence in our business, I can describe that as being under control, as being stable. I also want to talk about borrowings. Last year at this time, we had zero borrowings. This year, ZAR 432 million. Good investments has been made. That resulted in the increase in borrowings. Basically twofold: an investment in stock of ZAR 243 million during this period, stock purchases that is.
A really encouraging investment, and we're really glad that we are in a position to once again start investing in the growth of the debtors book. ZAR 200 million during this period was invested into our debtors book, resulting in borrowings of ZAR 432 million. Spoken about the encouraging increase in headline earnings per share. We also spoke about our total dividend, ZAR 1.95. We now need to talk about our returns. Obviously for us, one of the big measurements since management and our shareholders are totally focused on our return on equity. During this period, unfortunately, a decline from 9.7% ROE a year ago to 8.8% during this year. You need to go over the page to go and look at the trends.
Up to the end of financial year 2022, we performed well. We shared with the market that we are well on our way to achieve our medium-term objective. Just to mention again that the medium-term objective is to get to an ROE of 15%. At the end of FY 2022, we said we're well on our way. Management recommit to the medium-term target. Today's message is no different. Management remains committed to actually achieve that goal. We actually believe that we have made very good inroads because of the reasons that I've mentioned earlier. We've invested for the future. The additional credit sales growth is not benefiting us. Other revenue streams have nowhere close to mature. The good news, ladies and gentlemen, is that it's coming.
We give a renewed commitment today that our ROE target, medium-term target of 15% remains solidly in place. Right. Nothing more to say on headline earnings per share than just maybe to highlight that we're significantly up from last year's position of ZAR 3.30 to ZAR 3.93 at this point. Ladies and gentlemen, this morning when I woke up, I felt very excited. You know, you might say that, listen after all of these years, are you still excited to actually come and present the results? The real reason for that excitement is actually not that. I'm feeling really excited because the start of the Black Friday drive for the Lewis Group is in fact today. We normally start our Black Friday drive by having a preview day for all existing customers that are in good credit standing.
Like I mentioned, as things stand today, we've got close to 500,000 of those customers, you know? As tomorrow is official Black Friday, I also thought that it is appropriate, and I suppose I won't be true to myself as a true blue retailer, to not have a Black Friday slide included in our presentation for this afternoon. This is the Black Friday slide. Here today on offer, we've got the Lewis share price discounted by 40%. That's a really lucrative discount. On a serious note, net asset value per share at the end of this reporting period, ZAR 78. Trading at that point in time was ZAR 46. Today trading between ZAR 48 and ZAR 49.
As a management team and as a board, we see tremendous value in our share price at these sort of levels. For that reason, we will continue with our share buyback program. We believe that this is the best tool available to unlock permanent value for our loyal shareholding base, ladies and gentlemen. There you go. That's the Black Friday offering. I'm sure that it's still available on the open market. Beware, if you don't pick up the bargains, we will. Targets and outlook. Spoken about gross profit margin. Traditional, we've held our own. Spoke about the troubles in UFO. How do we see the second half of this year? We're in the fortunate position where we've completed most of our purchases for the remainder of this year.
I can also share with you that we're very far advanced in terms of constructing our marketing campaigns, not only for the festive trading period, but also for quarter four. On that basis, we want to share with you that we expect a strengthening trend in the gross profit margin line for half two. We believe that we'll close the financial year at the bottom end of our gross profit target range. Operating margin. I've spoken about the support that will be coming through the other revenue lines as we move forward. Unfortunately, a lot of that support will only follow in the next financial year. Having said that, we do believe that we will actually get to the bottom end of our target range for this financial year. Operating costs.
We will have to continue to spend more in the area of marketing to actually convey the very good product offerings that we will be able to make during this period. We do expect some further pressure to come through in the fuel inflation line. On a look-through basis, we believe that we will still come in within the parameters of the target range that we've set, but most probably closer to the upper end of the target range. Credit sales at 56.5% of total, in line with pre-COVID levels. We've already alluded to the fact that we expect to see a bigger contribution coming out of, or through the credit extension lines.
We'll most probably settle this year well above the upper end of the target range and also well above the 56.5% that we have reported. The factory paying customers, good result. We don't expect to move backwards. On a look-through basis, the upper end of this target range is very much still in play. Credit costs as a percentage now at 4.5%, last year at 4.7%. I mentioned that we closed the year at 12.3% last year. We expect to do better in half two, better than what we did last year. For that reason, we believe that we will actually do better than the bottom end of this target range, which we've set at 12%. Gearing increased to 24.9%.
Like already mentioned, gearing increased for the right reasons. We've got good stock that we've purchased that will save us some inflation as we play through the remainder of this year. Very happy that we've got the opportunity to invest in the debtors book. Where will we settle this half? Most probably somewhere between the year-end target that we've set and our medium-term target. Ladies and gentlemen, on to the outlook. I think we're all fully aware of the increasing pressure that's building in the economy. Now, we don't believe that we are through the worst as yet. I think we all know that there's further interest rate increases coming.
Although that's a negative for one portion of the market, we must never lose sight of the fact that also gives us the opportunity to actually increase the interest rates that we charge on new contracts. On the one side, more consumer pressure, but the other side also opportunity for us. We see this as a great opportunity because of the reservable base that has grown tremendously over the last five years. I think I don't need to tell you anything about rising food prices. We all saw the latest CPI inflation numbers. We saw that there's more pressure coming through on the actual price of food. We don't believe that this is the end of it. We just look at input costs on the agricultural side of things.
We don't believe that all of those pressures have fully washed its way through the economy, and that there's further pressure coming on those lines. Obviously that'll motivate more customers to actually turn and make use of our install credit offering. Record high unemployment levels. If we look at retrenchment claims in our customer base, we are still seeing an increase during the last six months period. We expect that to start leveling out as we start comparing against a higher base during the second half of this year. That's a significant headwind. Once again, one must also see the opportunity in all of this. We know that as South Africans, we've got the ability to make plans, you know. We know that the self-employed or informally employed sector of the economy is growing.
If you know how to grant credit responsibly to that sector of the economy, then that also unlocks opportunity. To give that some color, we've spoken a lot about affordability regulations when that actually changed, and when that started to open the door for credit providers to sell, start selling into that sector of the economy. Maybe just, let's just spend a minute on that. At that point in time, 4% of our active customer base were in fact self-employed customers. That was down from a previously reported 8% of total customers prior to the change. We've subsequently utilized this as a very good source of our business. As things stand today, 13% of our customers are in fact self-employed customers.
The payment performance of that portion of the book, ladies and gentlemen, can only be described as satisfactory. We don't shy away from this. It's a sector of the economy that we understand and that we can successfully sell into. Eskom load shedding, we all know the story. I am not going to quote the number of hours that we've actually lost due to trading. We all know that it has been significant. I think by now we've all developed our own methods of actually making sure that we not only turn quiet days into busy ones, but we also developed the opportunity to actually switch the proverbial light on in our stores. We believe that we've got the ability to deal with this challenge as well as we move forward.
The ongoing supply chain challenges. I spoke about the fact that we'll see a little bit of a softening in shipping charges as we move forward. Once again, although it's tough at this point in time, there might be some improvements coming through in that line. Ladies and gentlemen, we've got a very experienced management team that has traded through tough cycles before. Is this cycle may be a little bit tougher than what we've seen in 2008 and 2009? My view is, yes, it is tougher. I believe for us as a business, we're better positioned to actually deal with the slowdown in the economy. The major reason for all of this is the quality of the debtors book.
As we go into these tougher times, our collection rates are still improving, and we've got more customers that can actually afford to take up our credit offering. I'm not going to talk any more about the strong credit sales growth. I think we unpacked that in the greatest of detail. Just to say that we expect strong credit sales growth trends to continue, not only for the second half of this year, but also quite a bit beyond that. Spoken about UFO and the turnaround strategy. It's a focus area of this business.
I believe that we've made the appropriate changes, and I remain hopeful that we can actually give you some better news in six months' time, and that we can at least then report that we've turned the corner, and that sales are at least in a position of growth again. We know about our footprint. Footprint is still growing. There's still further room for expansion. When we talk about strategic positioning to gain market share, we are really referring to our ability to extend credit into the market, and more importantly, our ability to successfully collect from these customers. Black Friday, it's not only a discounted share price that is on offer, ladies and gentlemen.
After a lot of hard work and dedication, the team made sure that through dealing with the Transnet strike and everything that goes with that, we are in a position today to say that our Black Friday specials are available across all brands, all of our stores. During the Black Friday and festive trading period, you will see significant value that will be offered to consumers. Like I said, through all available marketing avenues, that will be shouted and communicated to the market on a continuous basis. Same-day delivery. We are still in a position where we can say that this remains a competitive advantage. 95% of all deals that gets concluded in a specific day gets delivered to our customers before the sun sets.
Even in the traditional side of the business, higher % are achieved. In case of UFO, if you buy a customer based in Gauteng, we commit to a 48-hour delivery. If you're situated anywhere else in South Africa, you'll get your merchandise from us within a period of five days, which is quite extraordinary in that sector of the market. We'll continue with our share repurchase program. Finally, the group remains on track to open a net 16 stores and to revamp 150 stores during this financial year. I think this is important because it shows intent, shows that the management team believes in the future of all of our brands, and that we will, for those reasons, continue to invest for a better tomorrow, and also for a tomorrow that finally speaks of an ROA of 15...
Of an ROE, I should say, of 15%. Ladies and gentlemen, thank you for taking the time to join us today. Thank you for listening to quite a lengthy results presentation. We will now be happy to deal with your questions. Thank you.
Johan, we have a few questions from Chris Reddy from All Weather Capital. His first question is, what has trading been like post the end of September?
Chris, yes, good afternoon. Good afternoon to you. I think that we mentioned that trade slowed down quite significantly after quarter one. Our worst trading month during this reporting period was in fact the month of September, where we did not show a sales growth. Unfortunately, that negative trend also carried through into the trading month of October. Very similar sort of scenario where cash sales were in fact under pressure. Happy to report that we did actually bank the credit sales growth during October. On a combined basis, we were still in the red. Early trends during the trading month of November, and I say early trends, although the calendar are telling us that we've just got six months, six trading days left in this month.
It is early days because 50% of this month's turnover must actually be written over the next six days. Be it as it may, early trends in November is positive. We are in fact very satisfied with our sales performance leading up today, which is basically the launch of our Black Friday. A very tough October, but an encouraging first half of November for our banks.
The next question from Chris is: How do you see the debtors book performing in the light of the tougher macroeconomic conditions? Are current provisions sufficient?
Chris, yes, collection trends have actually strengthened during the second quarter of this reporting period. The total collection rate of 81% for the reporting period is in fact the highest that we've ever reported at a half year checkpoint. Just once again, to talk about the improvement in satisfactory paying customers, really encouraging. Like I said, one must not lose sight of the fact that it's not only a top bucket improvement scenario, but we've also seen a 17,000 customer reduction at the tail end or in that so-called nonperforming bucket. If I look at collection trends for the month of October, strong collection trends continuing right through that month. If I compare November so far with October, that strengthening trend, Chris, has in fact continued.
There's none of the KPIs, operational KPIs that I monitor on a daily basis that actually tells me that there's any reason for concern in terms of the quality of our debtors book. I think I must also add, Graeme, before we move on to the next question, that one must not lose sight of the fact that we've seen a significant reduction in arrears over the last three years. That trend also does not show or slow, I should say, over the last 12 months, with a further reduction of ZAR 220 million in contractual arrears. Remember, at the Lewis Group, we don't do refreshing.
If we quote contractual arrears, that's the actual rands that has actually fallen into arrears, calculated according to the terms of the original contract that we entered into.
Then Chris had a question on load shedding, but I think you've adequately covered that after he had asked the question on the webcast. There's a question from Rudi van Niekerk of Desert Lion Capital. He asks: What is the effect of higher interest rates on your debtors book profitability? To what extent does net interest margin increase, and to what extent is it offset by higher credit loss ratios?
Before I add the second part of the question, to Jacques, I think we can also mention where we are at now with the actual average interest rate in our book is, and maybe we should just talk about South Africa for a moment, because that is still more than 80% of our business. It's also where we've seen the most significant increases in interest rates during this period. If we look at the South African book now, and the average interest rate in the book at the end of this reporting period, it finally settled at 21.59%. We currently charge 23.25% on all new contracts that we enter into.
Most probably from tomorrow on, we'll be allowed to, who knows, charge at least 24% possibly for the next month. Jacques.
Yeah. Thank you, Johan. Yes. I mean, as you know, our business is got a 3-3.5 year cycle. It takes quite a long while for the interest rate increase to flow through the bank for us to get the full benefit of that. To maybe just illustrate that by a number, I mean, every 75 pip increase in the interest rate only adds about 0.02% to the average interest rate in the book. To add on to what Johan has said, now, the average interest rate in the book now is still quite a bit lower than it was last year at the same time.
We have turned, we have reached a turning point, and it is in, at the moment, the average rate is higher than it was at the year-end in March 2022. We are starting to see the benefit there, and that support will just continue to grow in the new financial year. Maybe on the impact of the debtors book, as part of IFRS, our IFRS 9 modeling, you know, there's a correlation tests that has done between our behavior in our book and especially our non-performing customers and certain macroeconomic metrics. I can comfortably state that rising interest rate is not one with a very strong correlation.
Our customer, that increase in interest rate, you know, our customer in the traditional market is not that sensitive to interest rate. He hasn't got a bond, he hasn't got car finance. The small amount that's added to his monthly installment actually hasn't got a significant impact on his afford.
Jacques, I mean, obviously, as soon as there is a shift in the actual payment behavior, that will be picked up, and that will obviously then be incorporated, you know. As soon as that correlation becomes stronger, it will immediately be reflected in your provision in line, Chris. There won't be a significant lag there because of the rules that has been set under accounting standard IFRS 9.
I think the other point that's just worth making here is maybe just to talk a little bit about the actual composition of other revenue. You know, also to unpack the positive impact of the interest rate increase. If we look at other revenue, Chris, and to the rest of the audience, 45% of the other revenue income is in fact what we classify as being finance charges. There's two components to finance charges of which 80% basically comes back to interest rates as things stand at this point in time. The other 20% is basically accounting for upfront deed initiation fees.
If we should unpack the rest, 28% of other revenue is basically net insurance premiums earned, and the remainder, the other 27%, will then be other services that we render. If you do that calculation, you can see that the actual impact of the rise in interest rates going forward as these income streams mature is going to be a material one. To put it differently, I mean, we touched on this earlier in the presentation. If you just basically work on the assumption that the actual maturity of other income streams will basically follow the 36% of total profitability of 12 months, 33% for the 12 months that actually follows this, 23% in the next 12, and 8% for that last eight months that's still left.
You should come up with an answer that closely relates reality. Obviously, one then works on the assumption that the Lewis Group will be in a position to actually successfully maintain the current grade standing on the quality of the debt book.
I think, if I can just add here, I mean, supporting that other revenue streams, going forward is also the greater sales that we banked in the last financial year, where we showed a 17% increase in greater sales growth.
Yeah. I think all of that is already starting to manifest, and that basically speaks to the increase in other revenue from 2.8% last year to 3.6%. We alluded to the fact that we expect that to increase to at least 5.6% by year-end.
Thanks, Johan and Jacques. We've got two questions from Charles Bowles from Titanium Capital. Charles says: I understand the impact of logistics costs on UFO. Why did this not impact traditional retail in the same way?
Charles, good question. Thank you for asking. For traditional retail, the situation is very different. Only 22% of merchandise gets imported by Lewis and a far lower percentage of furniture lines. In the case of Lewis, we will import lines that have got container loadings that far exceed the 20 and 25 down suites that one can get into a container. Like I said, it's simply the difference between doing 22% of the business as opposed to 66%.
The next question from Charles is whether Lewis is increasing gearing to try and improve ROE. The unseated balance sheet has been a defining strength of Lewis.
Charles, the short answer to this, that question is no. We've increased gearing here to simply go and buy a little bit more merchandise for reasons that I have explained. Obviously, we're really encouraged to invest in the debtors book with a yield of 41%. We know it's good... It's a good investment, and it's most certainly not with any other intention that we incurred that level of finance. Jacques, anything that you'd like to add?
Yeah, I think to just put the gearing in context, I mean, we're sitting on our balance sheet with net borrowings in just over ZAR 200 million, which compared to the equity base of around ZAR 4.6 billion, is only 4%-5% gearing. You know, the balance of the gearing come from lease liabilities. You know, the current borrowing levels, we're quite comfortable with that.
Well, we've got two questions from Alexander Duys at Umthombo Wealth. He asks: With debt at peak levels, can we expect a slowdown in share buybacks in H2?
No. I don't think that the debt is really at peak levels as we speak. We've always said that our gearing target is one and that's first and foremost, not a target, it's a ceiling. We always mention that this is something that we review with the board on a continuous basis. I think Jacques now made the point very well that on a look-through basis, the actual level of gearing, the borrowing levels for this business is still really, really low. We, I think the fact that we went out and asked shareholders for a mandate to buy back 10% of shares issued, clearly underlines that we are still fully committed to the buyback process.
Thanks, Johan. The next question from Alexander is whether you've witnessed a pickup in sales post a store refurbishments.
Yes. The short answer to that is yes. The feel good factor from SARS obviously plays the biggest role in all of this, but we generally see an improvement in sales, yes.
Another question from Matthew Zunckel at Umthombo Wealth. Can you please give us guidance on the working capital cycle and when you expect the group's substantial working capital investment to revert to a level more in line with history and the benefit to be realized from a cash flow perspective?
Yeah. I just wanna repeat again that we are, our business is a three to a three and a half year cycle. For the, on a look-through basis, whatever you invest now, you're getting, you get a return over a three-year period. Like we said earlier, we are really expecting the benefits of the greater sales that we banked this half and last year to give good support to profits from the next financial year onwards.
Thanks, Jacques. A question from Chris Reddy. How much of the new 10% buyback have you already purchased?
Chris, unfortunately, very little. We can't even report a % today. Since the AGM, volumes in the market has been really, really low. We can give you the assurance that we are in the market as we speak. Like we said, if nobody else is interested in buying those Black Friday specials, we will.
Thanks, Johan. There are no further questions on the webcast.
Ladies and gentlemen, thank you very much for your attendance today. As always, if there's any follow-up questions, Graeme will be very, very happy to put you in touch with us. Have a good afternoon.
Thank you.