It's well known to be a 15% target. We've made significant strategic changes some time ago, and those changes actually needed time to get to a point that can be described as closer to maturity. Those changes are now starting to bear fruit, and as you can see, we've seen a meaningful expansion in ROE from 8.4% to 12%. Management believes that the 15% target that we've set and communicated can most probably be achieved by not later than March 2027. So today, we are being more specific in terms of where that actual line is, and we believe that within the next two and a half years, or maybe even earlier, we can actually get to that target and to what we see as a first milestone in our journey. Return on capital employed nicely up from 7.7% to 11.2%, and return on assets up from 9.1% to 12.5%.
We'll touch on gearing outlook section again and on borrowings as well, just to once again highlight the fact that there's a full and extensive increase in the interim dividend that's coming the way of our shareholders. We're now going to spend time to see how we performed compared to the targets that we shared with the market six months ago. Gross profits in the middle of our target range, and we do not expect to lose ground in half two. Things go according to plan, and there might be a little bit more upside that will be flowing through in the second half of the year. We've spoken about the low-cost base that we are competing against. Also made mention of the fact that insurance service expenses are actually included in this calculation and that our insurance revenue are actually growing at a faster rate than expenses.
Currently, we are just outside the upper end of our target range, and we believe that we'll also settle this financial year for the reasons that I've mentioned, still slightly outside of that target range. The record high satisfactory paid position of 81.6% is also well above the upper end of our target range. Mentioned that this is the best performance ever. We still bargain on receiving good collections during the second half, and for that reason, we are happy to commit to also do a little bit better than the target range when we get to our final checkpoint. So debtor costs at this point in time at 6.9%. What we can share with the market is that we expect to close the financial year towards the middle of our target range, and that will be a good improvement on last year's achievement as well.
Operating margin well above the upper end of our target range. Once again, we feel positive about our prospects for the second half of this year, and for that reason, we do not believe that we will give up any of the gains in half two, and there might once again even be a little bit of upside coming through in the second half. Borrowings, we've got a ceiling set of 25%. I must pause to just once again remind everybody that that 25% ceiling is in fact a year-end ceiling, and as things stand today, management is very confident that we will close this financial year well below the ceiling of 25%. Gearing below our ceiling, and we also don't expect to breach the gearing ceiling at year-end.
Ladies and gentlemen, at this point in time, I think we all know that the general sentiment in South Africa is very different to what it was six months ago when we had our last presentation. Consumer sentiment is definitely improving. It's driven by the factors that we all know: lower inflation, and we all received the good news yesterday. Inflation now is as low as 2.8%. We're also now in a declining interest rate cycle. There's a relief coming through in fuel. I think just as importantly, almost no inflation on the fuel end and also on the food front, so that basically serves us well. We've also seen the suspension of load shedding, and then yes, the formation of the GNU also very positive, and I must say that the early signs are also positive. There must be a word of caution from our side.
Consumers still remain under pressure. We look at the current debt-to-income ratios. Those are still high, and we believe that the consumer will basically embark on a journey and that this expected recovery will be a slow, but a slow and steady one, and first and foremost, one needs to see some meaningful GDP expansion that will obviously lead to job creation, and that in itself will be the real trigger to say we are now out of the woods, but while we wait for all of these good things to happen, the Lewis Group is very well positioned to continue to extend credit into the market. We will continue to use our credit extension as a tool to continue to gain market share, and we are really encouraged by the solid performance of our book to continue to do just that.
Nice, bright, and bold as the Lewis brand, we are celebrating our Lewis brand's 90th birthday this year, ladies and gentlemen. The Lewis brand name gives the entire group a solid foundation to build on. Whether you go and market specifically for the Lewis brand, whether you go and market additional products to any of the other brands, and you just add the name supported by Lewis, it immediately installs a sense of trust with the reader. So yes, we are currently trading out of 504 Lewis branded outlets, and that in fact makes the Lewis brand the largest furniture retail brand in Southern Africa, and we will continue to use this to our benefit. We will continue to use the high levels of brand recognition, trust, and loyalty to take the entire group forward into the future.
It's also interesting when one looks at the Lewis brand, just look at the signwriting on the back of the truck on that picture to the left. You see that it's still the same today. You might think that the Lewis brand is only good to attract the opas and the omas, the gogos, the grandfathers and mothers, and that perception is absolutely wrong, ladies and gentlemen. I can proudly share with you that the Lewis brand today enjoys no fewer than 1.2 million followers on Facebook, and I think most of us know what the profile of the Facebook user is.
We've been highly successful, especially over the last 18 months, to attract a lot of younger customers into our folds, and that speaks to the fact that the Lewis brand itself has got a lot of runway and that this might only be the first of many more 90-year celebrations to come. We will continue to invest in our long-term growth strategies. Store expansion is top of mind for the group. We've shared our current progress in this financial year. We will once again be exceeding the targets that we've set for ourselves at the beginning of the year, and all of this will continue to lead to further investments in the growth of the debtors book. I just mentioned that during the economic down cycle, we did not slow down, continued to open stores, and through this action, we've strategically positioned ourselves really well for the next economic upturn.
We then need to spend a moment to talk about our Real Beds acquisition. You can see that we are now referring to a new segment that will be called our specialty segment. Under this segment, we will be including the likes of UFO, the newly acquired Real Beds, obviously our startup business, Bedzone. Just mention that all of these brands will not be compromised in terms of losing their identity. Just from a management and control and focus perspective, it makes perfect sense to actually combine these brands and to have one person that's responsible for the oversight from a head office perspective. So let's talk about Real Beds. I already mentioned that this is a small acquisition, but a very strategic one.
At this point in time, Real Beds is a cash-only retailer that sells to a wide range of customers in LSM 4- 10, and the target market is mainly driven by store location. It's a deep discounting business model at this point in time, and it's all about the value offering that the brand brings to consumers. Bedzone, currently 14, we're opening the 15th store shortly. This is our premium bedding brand, catering for the more aspirational customer. It's perfectly suited to go and open in shopping centers, all shopping centers, inclusive of high-end shopping centers as well. So we talk about the bedding business at this point in time. It's 32 stores, strong expansion plans.
These expansion plans will start coming into play during our next financial year, so more or less six months' time, and we plan to expand the current store base from a current store base that's 32 stores at this point to a store base of around about 150 stores within the next three to four years. In the area of base sets, the Lewis Group enjoys a lot of merchandising expertise, obviously a sizable order book. We want to utilize this to create, or we want to utilize this as a competitive advantage to really create a strong bedding arm for our business. Yes, and then no presentation at this time of the year will be complete if we don't talk about Black Friday, the festive trade, exciting time for everybody in the Lewis Group.
We are well prepared to benefit from Black Friday and Christmas trade through very high levels of stock availability. We've got new ranges in our brands that were just introduced during the last four to six weeks, and we also have very strong marketing campaigns that we will roll out across several broadcast, print, and digital channels during this period. And on top of all of this, very importantly, we've got a very experienced management team that is ready and prepared to make things happen. In summary, ladies and gentlemen, we entered half two. Strong tailwinds came into this half, strong sales and collection performance in half one.
The sales and the collection performance was repeated and in certain instances even a little bit stronger during the first trading month of this half, being October, and this gives us a lot of confidence that we are on the front foot to actually go and do just as well or maybe even slightly better during half two. And with that, I'd like to open the floor for questions.
Thanks, Johan. We have a couple of questions from Charles Bowles from Tantalum Capital. Charles says, "Congrats on the results for the period and the steady performance over the past few years. Please could you provide some insight into your thinking around the Real Beds acquisition? Is this still an attractive market? Is the bedding market not getting overtraded?" Charles, good afternoon to you. And first and foremost, yes, thank you very much for the recognition.
Charles, you're absolutely right in saying that the base set market is overtraded. There's a lot of independents that also play in that market. We strongly believe that because of the fact that we already own a substantial space in that market, as a matter of fact, in our current business at this point in time, when I exclude specialist bedding's contribution, base sets is already the second biggest merchandise department in our business. So that puts us in a position where we are enjoying the benefits of having a very, very big order book, and we also have got very special relationships with a lot of suppliers out there, and all of this gives us confidence to actually go out and to go and expand even further and to go and gain market share from other players in this market.
I can share with you that the Bedzone business that we've launched in Gauteng, that's just more than two years ago now, those stores that we've opened are performing in line with our expectation. That also gave us encouragement to actually take this strategy further. Yes, it's not going to be easy, but we see this as an opportunity to go and basically strengthen our foothold in the base sets market.
Thanks, Johan. A second question from Charles. He said, "Lewis used to collect debtors at store level. Is this still the case, and what percentage of debtors are collected by debit order now?"
Charles, yes. So we changed our collection strategy, and we basically strengthened our strategy by adding debit orders as part of our collection strategy. We embarked on this journey about three and a half years ago now.
As things stand today, 55% of our customers in South Africa are in fact paying their accounts by utilizing debit orders. This also freed up a lot of spare capacity in our stores, and obviously this now enables us to also do a better job in terms of focusing on defaulting customers still out of the stores, so if a customer defaults on his debit order, we still have people in bricks and mortar that can assist, and the rest of the debtors book also gets more attention, and I think all of that and this change in the strategy can clearly be seen in the actual performance of our debtors book. Like we mentioned earlier, not too long ago, less than 70% of our customers were classified as satisfactory paid position, and we are now north of that.
Final question from Charles relates to insurance service expenses.
He asks whether the increase in this cost is largely due to claims or has the claims percentage changed significantly.
Yes, I'm going to start with our claims experience, and then I'm going to pull Jacques in to deal with the first part of the question. So if we look at our claims experience during this period, we have seen quite a significant increase in claims. When I say quite significant, a 30% increase in claims during this period. To put that into perspective, in rand terms, that's an increase of roughly ZAR 30 million. And the major driver in this increase was loss of employment claims, and the mines played, retrenchment on mines played quite a significant role in this increase.
Yes, thank you, Johan. Charles, yes. And the insurance service expenses are driven partly by the claims experience, but also in large part by the insurance revenue growth.
So it basically follows the revenue growth, and so does claims. The other part of your question about claims ratio, we've actually seen a stabilizing trend in the last two years on claims ratios, and that is actually an improvement on the last two to three years. There's been a sharp increase after COVID, but we're back to levels equal to and lower than the time before COVID.
Thanks, Jacques. And a question from Cobus Cilliers at All Weather Capital. He says, "Congratulations to the Lewis team for a great set of results. On the impairment provisioning for H1 2025, can you elaborate on why there has been an increase as a percentage of total, even when satisfactory paid accounts have gone up, specifically on the satisfactory paid segment?"
Cobus, yes, that's a very good question, and thank you for that.
I think the answer lies in the fact that we basically raised provisions at the end of the last reporting period. And if we can just go back there, at that point in time, our total impairment coverage was 37.5%, and that has now reduced back to 37.1%. So the increase that you saw last year from half one to full year, from 36% to 37.5%, was solely driven by what I explained earlier, the requirement in IFRS 9 to basically go and have a look at the broader economic environment. And if you do expect some dark clouds on the horizon, additional provisions need to be raised at that point in time. That basically gave rise to that 1.5% increase that occurred during last year.
Thanks, Johan. A question from Matthew Zunckel from Umthombo Wealth.
When do you anticipate the cash generated from the book to more than offset your level of investment in further building the book so that overall group cash flows can start degearing the balance sheet again?
Thank you, Graham. Yes, our outlook, I think again, you must see it again as a backdrop that we are now three and a half years into strong credit sales growth, so we can see the book as a mature book. Our projections and our modeling actually shows that we will have a stabilizing trend in the next six to 18 months on borrowings, and we expect from that point to move downwards.
Obviously, the one big variable there is credit sales growth, but we are, like I said, we've had strong growth now for three and a half years, and we're expecting to see more normalized growth on the credit sales run going forward.
Thanks, Johan. Then we've got two questions from Stephan Erasmus at Anchor Capital. He says, "Thank you for the presentation. I want to ensure I'm interpreting your guidance correctly. It seems that in your FY 2025 full year and medium term guidance, you expect to put through materially more debtor costs as a percentage of debtors book at gross carrying value than in H1 2025. This will put pressure on your full year FY 2025 and medium term operating margin relative to your H1 2025 operating margin."
Yes, I think I would like to basically ask everybody to go back to slide 28.
We look at slide 28 in the middle of our block there. We basically refer to debtor costs as a percentage. So there we've reported a 6.9% that compares to last year's 7%. The guidance that we are giving today is that we actually expect to close this period at a debtor costs percentage that is in the middle of that target range being 15%.
Thanks, Johan. And then another point of clarification from Steph. He said, "When you say a similar H2 2025 to H1 2025, is this in percentage, year on year terms, or in absolute terms?"
Yeah, I think we will be very disappointed if we need to give up any of the gains. We all know that half two is normally a stronger trading period in terms of sales achievements.
But when we refer to a possibly stronger second half, we are specifically referring to the sort of operating margins that we have achieved in half one. The comment that I've made is we'll be very disappointed if we actually lose ground in terms of our achievement in half one, and that's both to a margin of operating margin of 20.2%.
Thanks, Johan. Then there's a question from Karlos Treves from Primo Research. He says, "Congratulations on the good performance. Could you please give an indication of what percentage of sales are from repeat customers?"
Karlos, yes, thank you very much. So in the traditional part of our business, we've got a very good handle on those stats. Obviously, for the cash businesses, it's a little bit more difficult. So on the traditional side, we typically do between 45% and 48% of our business with repeat customers.
And that also drives the excitement when we spoke about the increasing number of customers in that satisfactory paying bucket. We made the point that we've got 60,000 additional customers. And obviously, over time, those customers will be available to market to as possible repeat customers.
Thanks, Johan. No further questions coming from the webcast.
Ladies and gentlemen, so with that, just to say thank you very much for your attendance today. And if there's any of you that would like to book a meeting with management, you are more than welcome to make contact with Graham, and we'll set that up. Thank you very much. Have a good afternoon.