Okay, good morning, everybody. Welcome to day two. I'm seeing a few bleary eyes in the audience, so hopefully you had a good evening last night as well. But yeah, we kicked day two off by going through a tour of the main distribution center out here in Hammarsdale, where we are presently. And hopefully, there was a great understanding of the processes that we do and obviously the scale of the operations and the sheer number of units that we actually handle on a daily basis. Today, we're actually gonna then be talking on supply chain in general, not just warehousing and distribution. So Werner Pelser will do that, our Group Supply Chain Director, and after that, Werner will hand over to Janis Cheadle, who's our ESG Director. So over to Werner. Thank you.
Morning, everybody. Hope you enjoyed the tour, and yeah, if there's any other questions, we can talk about it later again. Just to get past all the formalities. Right. So a couple of things I wanted to run through with you guys today. We're gonna talk a little bit about our strategy. What is the logistics strategy for the Mr Price Group? We built this strategy from 2020, 2021 onwards. I'm gonna talk a little bit about global shipping, 'cause obviously it's got a big effect on retail, how global shipping affected South Africa. Then there's a little bit of a discussion on Transnet, just 'cause there's a lot of questions on Transnet, how do they and how do we navigate around Transnet?
And then there's a short little bit of a discussion on our footprint and approach going forward outside of our network. So we like to keep things simple, although the building inside is impressive, and it's fast, and there's a lot of technology behind it, in real terms, it's actually a very simple process. It is, we bring stock in. We've got two places in this group where we want stock to be placed. It's either in the DC or it's in a store. Pipelines in between is as short as possible, and in the DC, we want the best possible way that we can replenish based on sales demand. That's it.
You know, yes, product types defines different processes to make sure that the product arrives better and we handle it better, and there's ways to do things faster, but at its core, that's what it's about. And I think our objective talks deeply to that. Our supply chains, our sustainable supply chains, nothing that we do we wanna be fast for this year. It's not just a sustainable side from an ESG perspective. We wanna be sure that when we build a supply chain or when we build a channel, that it's sustainable, that for Clint and Don, they can build their business strategies on the fact that, you know what? Wherever it comes from to where it gets consumed, whether it's stores or e-com, that our models will stand, and there's not gonna be surprises through strategic periods.
So in the detail, we have both internal and external networks that we need to orchestrate. We don't own all of them. Some of them, we partner up with key partners, and whether it's transport or carriers or even Transnet, for that matter, and I'll talk a bit about that later. Part of the network is South Africa does kind of position itself very well to a triangulated network, so where Johannesburg, Durban, and Cape Town is very, very important for us from a distribution input and obviously ship-to-store perspective. We're tech-led. I mean, it's a pity Kim is not here. She's a very big enabler for us. Technology leads us in many aspects. Everything we do is data-driven, directional-driven. Nobody in this DC, whether you're a person, whether you're a conveyor, whether you're a sortation machine, makes a decision on their own.
If a person picks up a box, there'll be a scanner in their hand that says, "Please, please put it here. Please put it there." And everything is a calculated move so that we know that the box is in the right place for the next move. If that's not there, I don't think, you know, we're not gonna cope with that. Kim spoke yesterday. We're busy building out our supply chain control tower to be more data into it from more points. What we have learned, specifically last five years, you know, we've since just COVID to where we are today, is that control towers with data is not just what you need. You need actionable control towers. So can we actually use that data?
Can we make decisions on that data, and can we feed it back into our supply chain, whether it's suppliers or enablers from a supplier, a carrier or a logistic supplier perspective? We do not have one risk process in our DC that's not built into our process. So we don't wanna get to an event where we need a risk process to be switched on, and then people go, "Oh, you know, how does it work?" So risk is integrated into what we do, and our policy is, at a risk stage, we scale, but baseline, the processes are live. So a little bit later, you'll see a slide where we talk about Cape Town. In the midst of the 2021 supply chain global problems, there was carriers that would only run to Cape Town.
They were gonna skip Durban. For us, it was very easy to say, "You know what? Switch it on, send it to Cape Town." If I need to receive 100 containers in Cape Town rather than Durban, to have our space available and our rate, 'cause both of those are important for us, it was simple. We switch it on, we bring it through, and every day, those DCs, although they are small and they run small volumes at the moment, they can scale. But they are live every day, and when we need them, we just scale them up. And lastly, it's, I spoke a bit to people that was in the group where I was. We work process families, so process families for us is super critical. Nothing inside this DC is a...
and actually through our whole network, is a truck or a process that's built for Mr Price Apparel or built for Miladys or for anybody for that matter. For us, what's important is the process that they need for us to give the best value to the retail division in the end. That way, we can make sure that whether you're a small division like Miladys, which you all saw yesterday, at a percentage point, how small they are, they are still drawing benefit from the scale of this business. And that's also when. A little bit later, we'll talk about why it is important for us to integrate these new divisions that we've acquired, because our scale is allowing us to do that because we work by process, not because we work by division.
The risk of working by division is that you will end up with DCs that belong to divisions, and the retailers do have that. We don't have that. We want to have process volume. Obviously, it's everything that wraps around this is our people. We have got amazing teams, and both from culture, from effort, from everything, and also highly skilled teams. Our teams that you see inside there, somebody asked me about maintenance and facilities. This machine outside here doesn't run just by itself. You know, there's maintenance every night that happens. I just wanna get some water. So that's us. So the Red Sea debacle. So everybody's aware of what happened. Global shipping was a net effect of what happened in the Red Sea and around January, February.
And if you look at the graph, that little blue line talks about just as those Red Sea attacks happened, and what happened with those Red Sea attacks, obviously, vessels started out diverting. The Red Sea is critical. It might not be critical for us in South Africa. We don't bring product from there, but they manage volume, and it's a simple supply-demand situation. When they had to go past, not via the Red Sea anymore, they can't come past the Cape of Good Hope. It added time. Time, and that also doesn't affect us much 'cause, you know, our product doesn't come from there, but immediately they sucked out capacity out the market. That sucking of capacity out the market then really starts hedging importance in the global trade perspective. South Africa is not a big...
Or even the East Coast of Africa is not a big player, so instantly, transatlantic, transpacific gets all preference. So a little bit later, and you can see the red line. The red line is an index line on spot rate that really talks to freight rates from the east into East Africa, predominantly Durban. And you can see there was very much a delayed reaction. It's the first time in a very long time that the East Coast of Africa index price was a delayed reaction against that, against the global index that was affected by the Red Sea. The significance of why that spiked up so severely after that, yeah, in around May, when the red line went up, that's the effect of Transnet. Transnet, for us, they're a key partner.
We work really well together. But what happens between April and May is Transnet gives out new container terminal contracts to carriers, and that's when the new contracts came through. So contracts came through, they readjusted volumes and speed, and instantly, what the carriers then does is they said, "Okay, cool. You know, there's a demand issue globally. There's a constraint on capacity. Transnet's slow, we taking vessels away." So that's what's sitting in South Africa's problem. What you will see if you just look a little bit further down the line, where the red blue line has started coming down, our line is not actually coming down at the same rate.
And that fact that we're so straight, that's the effect of Transnet still, because we need our place in our ports to come up. We need more vessels through the port, more containers through gates, and until that changes, the carriers are not gonna bring vessels back. The reason they don't wanna bring vessels back is 'cause they've been lying out at outer anchorage. So last year, they were lying at outer anchorage between 21 and 28 days, and they report that it costs them about $65,000 a day, so they don't want that. So comes back to Mr Price. As a beneficial cargo owner, we needed to get back to the drawing board on: How do we mitigate this? How do we make sure that our space is firstly secured? 'Cause that's our first priority.
How do we ensure rate and capacity? Rate and speed comes through as the group needs? Our response, yes, we run contracts. We run very long contracts. We have a contract that run, that's running until end of December. We're busy going into the new negotiations now with carriers. And what we had to change was, historically, we would have basically had two big carriers, and you use the two big carriers to ensure that you get capacity out of any port that you need, whether it's mainland China or the subcontinent, wherever. We've had to spread wider, and the reason you're spreading wider is 'cause you're looking for empty containers. As those strategies have worked, you can see outside here, there's a lot of containers.
We needed to get back to Transnet. We're a customer of Transnet, but we're also partners, so we had to get back with Transnet. They really wanna work with people, so if there's one thing I can commend Transnet on, is that one thing in this year that Michelle has brought to the table is actually that sense of partnership and working solutions. They're very, very focused on that, and we've actually achieved great things with them. We're missing... We're sailing and taking routes past very highly congested transshipment hubs. So if you know how the shipping industry work, there is Tanjung Pelepas in Singapore. That's a very crazy transshipment hub. We don't go past that.
It's cheaper for us to actually pay a little bit more, get a direct routing, but we don't spend 15 days in TP and wait to get onto another vessel. Okay, our response further spoken about the wider carrier strategy. I've spoken about the Transnet part, and then Kim spoke a little bit about it yesterday on the optimizing of shipping rates and ports. So one thing that has come with having more carriers, every carrier's rate from every port is not the same. So obviously we wanna try and optimize the best rate for the best port, for the best week, for the product. Now, we have to commit by port, by week, two months in advance.
If you take that, and you took what Don was very proud about, all the changes he makes in orders, that, that's a very difficult thing to try and manage. We come from many ports, and we have to try and balance and make sure that the commitment we give to the carrier, and from a Mr Price side, we want them to like us and prefer us in the sense that if I'm saying I'm taking 60 containers from you from a port in that week, on that day, for that vessel, that we're gonna take it. The worst thing you want from a carrier is to go back to them and say, "Sorry, I'm dropping 30 containers, or I'm dropping 20." 'Cause the very next week they will drop you with more. That's not sustainable. So for...
So those things for us are really critical. Transnet. Just a little bit of data on Transnet, 'cause Transnet is really a tale of two stories. Transnet wouldn't have all the conversation and discussion in national crisis committees, et cetera, that's happening, if it was a quick fix. It's not a quick fix, and fundamentally, what's wrong there has got nothing actually to do with the team that's there now. I think the team that's there now is brilliant. They really try, but they've got serious headwinds. I really support their approach, and their approach has been: how can we go to big beneficial cargo owners, which we would be? And we're a big beneficial cargo owner because we actually buy so much of our inventory on a FOB basis, so we are the importer. We don't buy through other people.
So we control a lot, and they wanted, they want to partner with people that has a lot, 'cause if they can partner and have a solution for, for a customer like us, then the people that has one or two containers can get through the port quicker, so we don't congest it. And those are the kind of processes that we've been trying to optimize. Okay, so, just a little bit of stats. Supply chain, they're actually in Durban alone, 50,000 containers less than last year, August. BUSA released their report on Wednesday this week, so it's a tough one. Currently, outer anchorage is at 10 days, and stack efficiency is probably about 15% below what is efficient. So a lot of those things are when you're sitting on our side or at a BCO side, you go, "Sho!
Those are, that's a tough environment for us to trade in, and it's a lot of headwinds." Well, we've had a year to plan. Mr Price's supply chain has always been a very, very well strategically planned supply chain. There are some of our mitigation plans. Those are the major ones. Obviously, we added lead time. Last year that drop-off in September in services from the port was a surprise for the whole industry. So we have taken due steps to make sure that we've got sufficient time for delays that we know about in the network without being, call it, fat in the supply chain. We have gone to a wider carrier.
The problem with the wider carrier network is the fact that all of a sudden, there's four places in the Durban port where stock can be delivered or containers can be offloaded. Yeah, every action has a reaction. So in the past, there was two, Pier One, Pier Two. Now there's Pier One, Pier Two, multipurpose port and Point. And all of a sudden, at any given time, if you don't plan this right, we can have between 30 and 50 trucks stuck in the harbor. That doesn't work. So although we can talk nice, and we have a good story about now we're getting on the water, we had to go back to Transnet to say, "Guys, how do we get out of the port with you and make sure that we don't congest your port?" And that's where the last one comes from.
Probably in about January, February this year, we started working with Michelle's team on what are efficient extraction strategies, that it helps them, it helps us. So there are terminologies that, that's in our world, we call it, GIRs, it's import releases, and that way we are able to extract on scale, via our transporters. Secondly, rail. Rail from the port to Durban is definitely picking up. The romantic side of rail versus the reality side is very far apart. You know, the efficiency of going from road to rail is not there. It's a complicated process, so once we've assigned a container, and we have to assign a container probably a week up front to road, we can't change it to rail without paying more, both to the carrier and Transnet. So those discussions happened this week.
On Wednesday, we finished it, and it looks like we can get somewhere, but if you can't be flexible, you can't use a new tool. We are using rail, though, and there's actually in the next two weeks, quite a lot coming up the road with rail, just 'cause we've got time to use it, and it can help us get past the trucking side of it. Yeah, in the bottom, I talk about the rail. Rail is inconsistent, so we will only put containers there where we have time that we can use, so there's no point in stacking them in the yard. Very, very quickly, I wanna talk about our network, so yes, our network, there's kind of three slides. I'll go through them very quickly 'cause they all talk about the same thing.
I'm actually gonna go to this one. Somebody asked me earlier, product flow. So we're buying from everywhere, okay? So it's not the major thing. Yesterday, the merchandise guys spoke about the. You know, South Africa is still a massive contribution to our merchandise, but what comes through the port is important. If there's 13,000 TEUs, which is a twenty-foot equivalent coming through the port, net through the business is probably about 25,000-26,000 TEUs if we had to put it all in the same terms. But it comes from everywhere, and it's a growing network.
That network doesn't just grow, so we don't just have somebody that says, "I wanna buy from X country." We build the channel, and we make sure the channel is efficient, and then it will come into the network. With us having the depots around the country and what I said earlier about, they're live and they're active, with their supply base locally, suppliers can bring product into those depots, and from there it can ship to all stores if it needs to, or it can come back here for storage and replenishment. This is the hub network. The big dots are representing... If you count them, there's 11, but there should be one in Namibia. There's 12 depots around the country.
We run a hub and spoke, so we wanna be as efficient as we can from here to wherever, Polokwane, Klerksdorp, Nelspruit, and there we split our product up. Just tying in with what I said earlier about we've got two locations where we want to have inventory. The average time that it takes from a box when we've closed the truck door here to into a store is 2.7 days. We don't have stock in the network. We don't want stock in the network. It's inefficient for us. We want to have stock in a place where we can either sell it or make a decision on where can we sell it best. The last two points on this side, those are really minimums.
So if you're an outlying store, outlying stores are generally outside of 50, depends on which region, but if it's a city region, it's gonna go as far as 75 km. We'll get to you at a minimum once a week. Generally, we're gonna be there twice, sometimes three times. Some city stores gets more than five deliveries a week just because the scale is so much. Scale and efficiencies. This DC, in about three weeks time, on an average day, if we had to convert it to 40-foot containers, we'll ship 100, 40-foot containers a day out of here. Now, other than Woolworths Food in the Centurion site in Johannesburg, there's not another site that'll process this much stock at that level of containers. This is big, it's fast, and it's efficient, and we're very proud of it.
But that is a strategy for wherever we go. We are not a business that builds space for having space. We want our space to be efficient, and we want access to space if we need it for risk perspective. Currently, there is a network. Obviously, we've got our network strategy, and we've got our triangulator strategy, which looks like this. That talks that Gauteng is our secondary distribution facility, so it's the second most important one. It should run about 35% of our throughput volume. It's active at the moment. Currently, we use it extensively for highly volumetric product and as an input point for suppliers that are in that region.
We're currently in what we call integrated detailed design for an expansion of that to bring more faster equipment into it, because by closer to the end of calendar 2026, we need that site to process more volume. Somebody asked me on capacity in this site, so that by then I need to take stores out of this site and have them fulfilled from there. We won't change the input point, okay? So the input is still Durban Port. Suppliers are based around the Durban point. That is efficient for us, but we need to have the storage and the fulfillment activities out of Joburg. E-com, Gauteng, is a very important e-com hub for us, and we will grow that in time, and Cape Town will always be the secondary one, just based on volume demand.
Somebody asked me earlier. I'll just give the question, answer to everybody: Why would we not take product from the port directly to Joburg? It's an efficiency matter. So to take a container from the port, we're gonna take 68 cubes on road for 600 kilometers, where we can destuff it here, put it into a superlink truck, and we can run 135 cubic meters of stock, almost for the similar price. So it's purely an efficiency game. There's no point in taking a carrier container to Joburg, and then I have to worry, what do I do with it afterwards? 'Cause they want it back at the coast. They don't want it in Joburg. Some questions on how do we integrate, and what do we do with new divisions, and what have we done?
I'm gonna first talk a little bit about the progress on the right. Obviously, Power Fashion being there first. Power Fashion has already converted. Everything happens first. We're gonna do a study 'cause we wanna understand what they do. Can we actually fulfill their demand? Can we add value to them? And then there's an assessment process of how do they do it, how do they convert to the base process that we have, and then there's a project or program that takes them through the journey. Power Fashion is the most advanced. They have converted both shipping and logistics and transport. So from a shipping side, they're on our shipping systems at the moment, and they're getting full benefit from our shipping modeling.
Within the DC, they have. We went live with them in January, February, February this year on our warehouse management system that we've been running for about fifteen years now, and they've also converted to the transport model, so they're integrated. So when we get to a mall, there's one truck that drops off for whether it's Power or the existing businesses. Yuppiechef, they obviously came second. We first did a transport network and an assessment for them. Can we get benefit? This is purely the store-based transport that we've converted for Yuppiechef, so their stores gets delivered through our network 'cause they're at the same locations, and we're currently with them working on how do we integrate. 'Cause remember, that Yuppiechef, as Clint spoke yesterday, Yuppiechef is an evolving model from just Clicks to Clicks and Bricks.
So that evolving model of how do you fulfill stores is still being designed. So I don't want to bring them in too early and ruin what they have, but that work is being done. And then Studio 88, very exciting. We have done first initial desktop analysis work through the industrial engineering team that said there's value to extract by coming onto our networks and our processes. That's first level. So now we're busy with really deep integrated detail on understanding what overlaps, how do you manage processes, what processes do we do from an inventory utilization that they don't do, that maybe if they adopt it or if it gets used, does add value to their business. That's still a bit of work to be done, but it's definitely busy, and it's on the cards.
I kind of rattled through that. Left some time for questions. Cool. Thank you. Thank you very much.
Short girl problems. Morning, everyone. It's a real privilege to be able to talk to you this morning around ESG and what we have been doing at Mr Price. I did say to someone yesterday, it really feels like being the last student in the class called up to do the Afrikaans oral, to be right at the end of the two days, but I'm grateful nonetheless. Like, Liz and Antoinette said yesterday, I also am not a CA, but I do have an admission to make, and that is that I'm a lawyer, but I hope that you won't hold that against me. Antoinette spoke yesterday as well about how she explains to her family what she does in her day job.
I've had many conversations with my eight-year-old daughter around what I do when I go to work, and what we've kind of landed on over these various conversations is that I keep people out of jail. So that's not entirely true, but it's not entirely wrong either. But when I think about how do you understand what is ESG and what does it mean to Mr Price, I really think about if Mr Price was a person and we broke up the different parts of the body into what we do at the group. So we could say that the people were the heart of the business, and we could say that the operations were the limbs, the arms and the legs, and we could say that technology was our nervous system that connects everything together.
Then the supply chain could be the blood that's going through the body, servicing all the different parts. And the way I look at ESG is that we're the conscience of the business. So it's that innate knowing of what's right and what's wrong without somebody having to tell you that that's right and that's wrong, and it's keeping us true to who we are as a business. It connects to our values, and it connects to what we know that we are going to do every day without having to think about what we're doing it and why we're doing it. That is something that I think adults can understand. I'm not sure that an eight-year-old would understand.
To use Ant's analogy of a vortex that she works in from a strategy perspective, I think of what we do every day in ESG as we work in the ESG alphabet soup, and we make sense of that soup. So anyone who's gone to any kind of ESG presentation or seminar, everyone talks about the alphabet soup. Any acronym you can find, there's one for it. It belongs in ESG. It's GRI, SDG, ISSB, IFRS S1, IFRS S2, TCFD, TNFD, CDP. So our day job is to make sense of that alphabet soup, and also to show and hopefully at the end of the day, you'll understand that being sustainable and being a value retailer are not mutually exclusive. So just in preparing for this presentation, we hadn't ever stopped to look at where we've come from.
And it's actually quite a powerful... It was a powerful exercise for us internally and as well as hopefully for you guys, is that we have been. We started our ESG journey before it was called ESG in 2005, when the Mr Price Foundation was first formed. The sustainability function was established in 2012, so that's over a decade ago. And we've been in existence for as long as our e-commerce business has. So this year, or next year, Mr Price Foundation will celebrate its twentieth birthday, which is a really exciting thing, and I hope we're going to celebrate that. Some of you may have spoken to Octavius yesterday. He was at the presentations as well. In 2013, we became a member of ETI, which is a really long time ago.
So we have been closely working with them, across our supply chain compliance for a very long time as well. We started the South African Cotton Cluster in 2014. In 2017, we started our first cotton farm alone, which is also a very long time ago and quite progressive at the time. We then had our first supplier loan also, sorry, in 2012. Missed that one out. Let me put my glasses on. And then I think with the new group strategy in 2021, that's really where you can see quite a few things that took off there, and it really was more around connecting and packaging and structuring what we had already been doing, and something that we could then translate externally for people to understand what we were doing. We-...
You can see then from 2021, we sort of shifted into more work around climate change and progressing towards a lot of the elements that we're looking at under the environmental side of things. This is quite a busy slide, so, I'm not going to go through the detail, and you can look at this at your own leisure. But to quote from Hugh Grant, from one of my favorites, movies, Notting Hill, "No man is an island," and the ESG function isn't an island either. So this just shows you that what we're doing from a day-to-day basis really starts at the top of the organization, from the board, flows through to the Social and Ethics committee. There's an ESG Center of Excellence function.
We have different pillars of our subject matter experts, and that very strongly links into the trading divisions and other centers of excellence, and we have key stakeholders in those different functions that we work with on a daily basis, and it really is a collaborative approach is that we don't sit at a group level and instruct downwards. We work very much and very closely with the divisions to find solutions, to set targets, and to then progress and achieve those targets, so it's a continuous process that we manage on a day-to-day basis. What's very important is that there's a loopback at the bottom from the trading divisions and COEs because they own the delivery, and they report their data into us, and we make sense of the data.
There's a strong responsibility in the trading divisions and the operations of the group that we can't implement, the divisions implement, and we make sense of what they're doing and talk to the market about that. A really nice example that I think came through from the Home video, if you noticed yesterday, is they showed quite a few things in their little video around products using recycled plastic. We didn't instruct them to do that. It's a concept that they conceptualized and executed on their own, because that's what they want to do as a division, not because we're saying we have these targets to achieve. That was a commercial, consumer-driven initiative that has a really strong connection to ESG. This is what I call the straining the alphabet soup slide.
This really shows you how we filter down everything that's happening in the ESG environment and how do we get to a point where we know what we're doing for Mr Price. We obviously look at the global context. There's a lot going on in Europe, mostly in the European markets. We look at the other developed markets. We then distill that down into the African context, and obviously, that's not quite the same as South African context. It's definitely different from the global context. The global context is very much around the environmental issues at the moment and net zero and emission reduction. We know that there's quite a mismatch between ESG priorities for Africa and more developed countries, and it's...
As a South African retailer, we have it our responsibility to make sure that what we're doing doesn't suit only the global perspective, but it really suits where we are as a business. And Mark was quite clear yesterday saying that we're a South African business. We need to do what's right for our home country, our home market, and our home consumer. So we have a quite varied shareholder base, and it is a balance and a complexity in juggling and managing the expectations of our different shareholder bases. So the local guys understand that the social elements of ESG are much more important for our customer and our consumer and our business sustainability.
The European investors and the offshore investors are very much focused on the environmental issues, which we know are a lot more difficult to translate into our markets, but it's making sure that we do what's right for the business as a starting point, but also then ensuring that we are addressing all the areas of priorities that our stakeholders would expect us to be looking into. When we decide what we're doing, from an ESG perspective, it's not a random, "Which acronym shall we look at today?" We obviously start with the group strategy: to become the most valuable retailer in Africa. We need to always go back to that reference point and say: Is what we're doing today and are the things that we're planning going to help support us to achieve that vision?
Will it deliver impact and stakeholder value to the people that are important to our group, from shareholders to our associates to our suppliers? Because that's really, that's really key. And the third, and maybe the all-encompassing one is: Does it align to our values? If we are the conscience of this business, are we going to wake up and think we're doing the right thing today, or are we going to worry and have this inner feeling that we're not doing the right thing to stay true to who we are, as a business and to maintain our integrity? When we've done that filtering, this is kind of what we land up at, and this really is how we visualize and pull together all the different pieces of our activities, our objectives, and our priorities.
You may have seen this before. We shared this in our integrated report for a couple of years. I wanted to focus on the wording in the middle of this pie. I call it the ESG pie. Together we do good. That is our purpose. Two things around that. It's not a bunch of words that we chose by mistake. Together really talks about our partnership value and that we can't do any of our environmental or sustainability initiatives without partnering with somebody in our stakeholder group. It's not just what we do, it's about how we bring others along the journey with us. Then obviously, we want to do good. We want to make sure that we're doing the right thing, but that the right thing has an impact along the line.
So this talks to your whatever language you look at, triple bottom line or double materiality, is that we want to do the right thing that has a positive impact at the end of the day. So we split it up into three sort of pillars: environmental, social, and economic. Economic is something that you might not think to see on an ESG framework. But that talks to the commerciality of how we apply our activities and what we, how we filter the ESG narrative, is that we don't just do things because we think we should be doing them. They've got to be right for the business.
And that's how we sort of look a little bit further into the value chain to make sure that it supports business sustainability, and not just some ESG frameworks and assessments that somebody's going to be judging us on. We do think that this approach is quite unique in what we do, and with seeing the first supplier loan in 2012, it's really been a part of our business for that long, that we haven't had to go and crowbar it in, now because ESG is now important to the market. It's been there all along. And under the economic pillar, we look at localization, supplier performance, and supplier development programs, which we believe are different to how other people approach the ESG environment as well.
The seven pieces of the pie there are preserving natural resources, reducing and stabilizing environmental impacts, quality education, youth development, associate well-being and development, social value chain development, and economic value chain development. I'm going to be focusing on mostly on environmental issues and then on social value chain development. You might have seen this from our integrated reports. Just some highlights of our performance from last year. Nigel would have mentioned yesterday the over 6,500 people employed through the Jumpstart program run by the foundation. We have chosen over the last few years to remove plastic packets from our stores.
It was a lot of debate at the time saying it's not single use because we all know we drive around and we see people carrying Mr. Price packets that have been reused. In truth, it's not single-use plastic, but we still felt like it was the right thing to do before there was any legislation, before there was a requirement to do that. We know it's different in the food retailers, but we think it's the right thing to do for our customer, and for our business. So last year, we managed to reduce plastic packet consumption by 45 million, which is a really big number if you think about how many packets that would be. Being a business based in Durban, close to the ocean, close to rivers, you know, that is really meaningful to us.
We also have over 47 million product units that have a sustainability attribute, and we look at our entire universe of products, not just those that are capable of having a sustainable attribute. So that's 47.5 million of our whole universe of sustainability of products, which is a really big number. We don't categorize it by excluding products that you can't have sustainable attributes of. That's across our universe of products. Tier one and tier two factory visibility of almost 97%. I'll talk to you a bit more about that. That is something that is a key differentiator in our supply chain and our value chain. Under the economic pillar, 103.5 million units procured in South Africa last year. That is a big number.
Don showed you some fancy ways of showing Taylor Swift concerts and sandals. We haven't quite figured out how do you bring that down to an analogy that makes sense of the scale of that, but it's massive. And then if we extrapolate that out into Africa, we contributed ZAR 6.46 billion in product sourced from Africa. I'm going to talk to you a bit more about that as well. So this was a very messy slide as well. I'm not going to talk to the detail. This is... In sort of packaging and messaging, what we do in ESG disclosure is really important.
We start with making sure that we're doing the right things, that we've built the measurement capabilities, we've built the reporting capabilities, we've built the systems that we can plug the data into to translate into a metric, and we also build the consistency and transparency of the disclosure. So this is something that we've put in our integrated report since 2020, and we're now on our fourth year of comparing how we progressed on these same metrics. And these all stem and are connected to that strategic framework with the pie pieces in it. It's also connected to the SDGs, it's connected in reference to the group strategic pillars, and it's connected back to group risk.
So it's very integrated across the business, and when I get to a slide later, you'll see that a lot of these are connected to remuneration as well. I suppose to borrow from another legend, Rassie Erasmus, is that we keep the main thing, the main thing, and this dashboard is our main thing. So we measure and disclose what matters in a consistent way, and we show you whether that's positive or negative. We're not going to change how we measure things or change what we put on those lines if it doesn't look great. We know we're not perfect. There's no point pretending that we're not perfect, but we know that we're working on the right things, and we will share that with you in any event. Integration of sustainability and reward.
In going to different seminars and different training and just conversations with other retailers and other people in other industries, actually, I often get the question to say: "Well, how have you managed to link ESG and remuneration?" And my answer takes people back, and I say, "Well, quite easily." There's never been a conversation where this has to be forced top-down. It's never been a directive from the board or for the Social and Ethics Committee. There's never been a struggle around doing that. I think because we have done sustainability activities for so long, it was almost a natural progression to then link remuneration to it. There was no sort of: Oh, sure, but we've got to go and link it to reward. What are we going to do and how are we going to link things?
We've got to go find things to do. It's always been there. So that link and that connection was really easy to make. What I think is maybe not clear to the market is that we link ESG metrics and performance to both short-term and long-term incentives. It's not just long-term incentives, and it's not just to executive directors. So the ESG scorecard for long-term incentives applies to the executive directors, the divisional directors that you were in the room yesterday, and one level below, that's two, the functional directors in those divisions as well. So it's sort of three levels of management that it impacts from a incentive perspective. Then from a short-term incentive perspective, if you think of that dashboard of the things we measure and monitor. KPIs are set against each of those items for the year.
They're set at a group level, they're set at a sector level, and they're set at each divisional level. So it's a bottom and top, bottom-up and top-down approach. So each division will know, for example, plastic bags, they will know what their target is for the year to reduce plastic bags, and that management team is then measured on their delivery of that KPI. It's not just my team that's measured on the group delivery, there's a responsibility and accountability on each divisional, on each division that's flowing up into that KPI. So when we talk about operationally embedded, it really is. And you have to have that embeddedness before you can then set the KPIs to link the remuneration. You've got to start at the bottom. You don't have to believe everything that I'm telling you.
These are a few things that we're quite proud of, some of the recognition that we've had from the external assessment agencies. For 2024 , Sustainalytics rated us as a top ESG top-rated company, and that's only one of two companies in Africa and the Middle East. Also, we have a 11.1 low-risk score, so the lower your score, the better your ranking with Sustainalytics. We are the top-rated value retailer and in the top two rated retailers in the country. FTSE4Good, we've been on there since 2024 , and ISS, who's notoriously difficult, we have an ISS rating of C, with our transparency considered very high. What I think is important to note is that we don't reverse engineer our performance dashboard to make sure that we're going to get good ratings.
We don't sort of work backwards to say: "Well, what are we missing on our scorecards? Let's go and fix those things." We do what we believe is right for the business. We start with commercial, sustainability and business sustainability, and we trust that what we're doing is right for the business, and then we'll be recognized. So it's almost by default, not by design. And we have in the last few years, since we focused on increasing our disclosure, we have managed to increase our scores on these rating agencies, and that's without having to apply any additional investment. And we haven't. And they're all businesses, we haven't engaged with their consulting arms for them to help us to increase our ratings. It really has happened organically, not because we're working just to get a new, a higher rating or a better rating.
Just then stepping back to what we focus on. On the environmental side of our strategic framework, this view you might have also seen on our integrated reports. There are two pie pieces under environmental. It's preserving natural resources and reducing and stabilizing environmental impacts. On the right-hand side is just some of our key performance measures from FY 2024. I've already mentioned plastic bag reduction, which means that those 45 million plastic bag reduction means that that 61.7% of our sales transactions, so we measure by transaction, for last year, it did not have a plastic bag. So we measure as at a point of sale, whether or not a customer is choosing to take a plastic bag, which is scanned as a merch item or reusable bag or no bag.
So you can, if you think about your own experience in the shops, you might walk away with one transaction, but two or three bags. This could be more, but we measure it on one transaction. We don't measure as the number of bags that you would have saved. We have reduced plastic packaging on 39.2 million products, which is 86.5%. We have 22% of our total units of products have a sustainability attribute. And that's what I was saying earlier about it's our 22% of our total product universe, not only by category that has a sustainability contribution in it. And then Werner's team does a wonderful job here with their waste recycling, at almost 94%.
Just to maybe split out those two pie pieces, and to help you understand how we categorize and think of the different subject matters that people talk about under environmental, and to translate that into Mr Price, language. When we talk about preserving natural resources, we look at sustainable materials, cleaner production, water stewardship, biodiversity, circular economy, and renewable energy. When we look at reducing and stabilizing environmental impact, this is where we look at plastic reduction, packaging adaptation, waste recycling, energy reduction, and climate change. So that's how we talk, and that's how you see how we talk about our initiatives under those sort of two categories. There's obviously some overlap between the two, so obviously using renewable energy at the DC helps our emissions reduction and the climate change, and having sustainable materials helps with water stewardship.
There is a strong overlap in what we're doing, but this is kind of how we categorize what we're doing, and how we apply our resources. Just to spend a little bit of time on our climate change process. This is always a question that we get asked on, and we. You know, Mark made the point yesterday around when talking about financial metrics and how management's conservative about setting targets, and that the fact is, we want to set a realistic target that we want to achieve. And we take very much the same approach around any commitments around climate change and emissions reduction. We want to set targets that we have confidence in the base information.
We want to set targets that we know basically how, fundamentally, how we're going to achieve them, and that we feel like are not just going to be used as a marketing campaign or tick box to say: Do you have an emissions reduction target? We take our time to consider all the factors in the business, and then we'll set a target that makes sense, and then we will report against that target, because we know we thought around what it means to the business and functionally, what we have to do differently to reach those targets.
We have been measuring our one emissions and reducing them since 2014, which is a decade, and that was just because it was a matter of what we do as a business, not because we thought, you know, in five, ten years' time, everyone's going to be worried about climate change. This has been done because that's just the way we do business. But there has been an increased focus since 2021. Last year, we worked really hard last year and the year before on getting our, excuse me, emissions baseline for Scope 2 and 3 which we disclosed for the first time last year. Sort of the process on, in getting to reaching a climate target or emissions reduction target is understanding your baseline. If you don't have confidence in your baseline information, you cannot set meaningful and real targets.
We spent some time doing that, which we shared with you for the last year. And what we're working on this year is really what I spoke about, is if we were to set targets, what would we need to do differently in the business? Where can we look at further for Scope 1, what we need to do around Scope 2, and importantly, what would we need to do around Scope 3, which is our biggest area of emissions. So we're not saying we're going to give you a marketing headline saying, Mr Price is committing to zero, zero, zero impact by X year. We're working on how do we build those, how do we put in place those building blocks to get to our target? We will work on that. That's. It's underway at the moment.
When we believe that we have confidence in our targets, and they're going to be ISO-based targets, we will then disclose them when we are ready. Just to give you the assurance that we are doing the work behind that. And often when we do disclose something to investors or stakeholders, they were like: "Why don't you tell us beforehand?" And what we're learning is that we need to talk more about our journey and not get to the endpoint before we talk about it. So we're sharing our journey, but it is a journey, and we're constantly learning. The secondary and probably the local investors really look at the social elements of our supply chain. And you can see that of the seven pie pieces, social is four of them. And that is by design.
So the four key objectives under social is social value chain development, associate well-being and development, which Liz spoke a lot to yesterday, quality education and youth development, which really fall under the Mr Price Foundation's programs. These are some of our key metrics from F Y 2024, and I'll talk to some of them in detail in the coming up slides. Just to talk to our supplier base, and it was a nice interesting to see how this correlates to obviously Werner's map of the world. It's quite frustrating being on the inside when people assume that everything from Mr Price comes from China. That's not the case. We source over 50% of our products from Africa, and we're very proud of that. Our primary resourcing countries are South Africa, Eswatini, and China.
In Africa, last year, I said earlier that we spent ZAR 6.46 billion last year. That's a hundred and twenty... over 123 million units. South Africa accounts for 37%-36% of that. And we pumped ZAR 4.5 billion into the economy, into the manufacturing economy last year through our procurement of local products. This is... Again, we're trying to work out, from a unit perspective, how does this translate that somebody who's not inside Mr Price and doesn't have access to sort of competitors' information as clearly as we talk to it, can understand the volume of that, and it's quite difficult. So when we figure that out, we'll let you know. This really fits nicely with what Don was saying yesterday about supply chain agility.
And this chart just represents the mix of our supplier tenure with the group. Don showed you that graph yesterday, if you remember, around seamless and single jersey, and how there was a shift from single jersey being the higher fabrication to seamless then overtaking, and the fact that we could only make that switch because we have an agile supplier base, and this really talks to it. We've got a really nice spread of the tenure of our suppliers. Over 1,000 active suppliers on our books. Active means they have been used in the last 12 months. 31% of them have been with us for more than 10 years. 74 suppliers have been with us for more than 20 years.
And the balance between the long-term and the newer ones from nought to five years really shows you that we are using the agility to make sure that we have freshness and fashion for our customer. And where trends are moving on, we are finding those suppliers who can produce that capability or that fabrication or that new trend. And it's really important to make sure that we have the consistency of the newer... Sorry, the freshness of the newer suppliers with the consistency of our partnerships with our really long-standing suppliers. But also the newer suppliers really helps us to build our supplier development programs, because we don't want short-term suppliers only. We want to recognize really good new suppliers that have capability to scale, and we work with them through our supplier development programs. And we...
That's why we loan funding to them, is to free up working capital. And we actually work with them on our supplier performance measures. And our team works with them to say, "Well, look at your on-time performance, look at your in-full performance. How are you managing your cash flow?" We want to make sure that we don't just keep churning suppliers. We want to have a really good mix of long-standing and newer to make sure we have a balance of consistency, good products, good partnerships, but also that fashion and freshness. On supply chain transparency, I'm not sure that there's many other retailers that will stand in front of a group of investors and put this information up. And the real key is that we have confidence in what we know, because we choose to know.
We never know everything, and sometimes things, what we know is not always perfect, but when we know better, we do better. So we have visibility into 97% of our factories. That's not our buying agents; that's the underlying manufacturing factories. We have GPS coordinates, so we know that they exist. We have supplier compliance audits, which I'll talk to in the next slide, so we know that they exist at that GPS coordinates. So we have a deep insight into where our factories are sitting, and then the sort of circle on the right talks to how many of those factories are actually audited. That's 94% of those factories are audited, and the differential in the 94% and the 97% and the 100% is just to cater for the churn in suppliers.
Obviously, we're busy onboarding somebody is to work them through the system. We can never achieve 100% at a single point in time, but the higher and closer it is to 100%, obviously that's where we like to be. We've been consistent over 95% for a good few years, and that's where we like to keep it. We do believe that this is a key differentiator in a fashion value retailer, and we have built this sort of over a number of decades. We know some other retailers are only starting to look at this and how to solve for this problem. It's not an easy task, and you have to be brave, and you have to know that if you find things that make you uncomfortable, you have to...
Uncomfortable, you need to address them. And this really is an output of a very many number of years building processes, building relationships with suppliers, and being able to say to supplier, if something is not happening the way it should, "You know, so and so, you need to, you need to improve," and work through them with them, with them as partners. This is sort of the detailed context around what that supplier visibility and supplier compliance process is. It is a continuous process. It's not a static process. So it obviously starts with onboarding, with our supplier journey.
If we have a new supplier that the sourcing teams have identified, we enter into a written agreement with them that has a contractual obligation to comply with our code of conduct, which says all the right things that it needs to say and what we live by and hold our suppliers accountable. So if they breach our code of conduct, there's a contractual recourse for us. The second important thing there is that suppliers are not onboarded onto the system, and orders are not able to be placed until we have a valid compliance audit. That's an external compliance audit. We use SMETA, we use AMFORI. There's a whole load of different sort of externally recognized standards that we use for compliance audits.
You cannot place an order with a supplier that does not have a valid audit, and we live and die by those rules. So we don't get an audit in year one from a supplier and then ignore them for the 10 or 20 years that they're in our system. It's a continuous obligation. We have a requirement that every year audits need to be updated, and if you're ranked as a low-risk audit, you have to do that every two years. So it's a continuous process. So we don't say, "Well, we knew last year, we don't need to know for the next five years." We keep wanting to know, and we keep wanting to have that visibility into the environment to make sure that we are still using the right factories.
The third block is probably the most important, and that's the extent to which we actually monitor what goes on between audits. So we don't just accept an audit and go, "Cool, thanks. We have a valid audit. We've ticked a box." We say, "Okay, let's look at the output of that audit." We risk rank those findings, and if there's a business-critical finding that comes out in the first audit, it's possible that that supplier will be rejected from being a Mr Price supplier. That's because we've risk ranked the outcomes of the audits. We know what we do accept, we know what we don't accept, and we know what things we are willing to work with the supplier on. We know the local market is quite tough.
There's not a lot of manufacturing capability in South Africa, so we take a continuous improvement approach with most of our local suppliers, but we also know where that line is that we won't cross. Where things do come out in audits that we are not comfortable with, and if a supplier shows no intention or no effort to close an audit finding within a reasonable amount of time, then we have some very serious conversations with them. And often our supplier performance impacts your ability and your piece of the order book in the next season. If there's no movement on your supplier compliance remediation, if your on time and in full is not looking great, if you're not performing, you don't then get a bigger order book the next season.
So it is very integrated into the merch processes that Don and Trent were talking about yesterday. So we do take contractual recourse with suppliers, and we have off-boarded suppliers before. Big ones, small ones, it's really difficult from a commercial perspective, when you have a bigger strategic supplier who's not delivering and doing the wrong things. We've had those hard conversations before. We're not afraid to say, "Commercially, we would prefer to keep you, but actually you don't fit with our organization." We're making the hard business call to say, "You're no longer supplying us," and we work that out of the system. We've done that, you know, a few years ago, we publicly did that. And we keep doing that on a continuous basis.
Where suppliers don't show that they're willing to work and improve, we do make the call to say: We can't continue with this relationship. We know that that is probably something that people don't talk about and maybe don't do to the extent that we do. You know, the sourcing teams and the divisions are the ones that look after and own the supplier relationships. It's not sitting with my team to sort of police improvement on audits. It sits with the sourcing teams and the merchant teams, so it's really integrated into the business. They have the right driver to say and to manage their relationships, and they are the ones who are looking and working with suppliers to say, "This is your remediation activity.
How are you tracking and reporting on that, every quarter?" Flowing that reporting up. Just to end off, it's quite nice when you can talk to something that looks at ESG in totality and is quite tangible. The DC here really is a good case study of integrated sustainability. So when Werner was building the DC and implementing all our systems, I don't think he thought about ESG. He just did it because it was the right thing to do, and it made sense for the business. So there's a few of the things that we do at the DC that talk to sustainability. There's big water tanks, so there's no reliance on municipal water. It's all rainwater harvested. 93% of the fleet is electric. Werner mentioned his maintenance teams.
They drive around on bicycles, so it's emission-free transport around the DC, which is a big space. They reuse boxes, so almost 400,000 boxes have been reused. So we don't just recycle, we reuse as well. The table that's normally in this boardroom is a massive, big table. You'll see some of the... If you go to the kitchen and the canteen, they repurposed all the crate packaging, the wood packaging from when all the machinery that was first shipped when the DC opened, repurposed that into furniture. A lot of waste recycling happens here. Obviously, a lot of the waste here is cardboard boxes. If it's not reused, then it's recycled. So we had almost 1.5 tons of cartons that were recycled last year.
We don't just think about what we're doing in this building, we think about the community. Hammarsdale is a really strategic community for us. All our associates in the DC come from Hammarsdale. The Mr Price Foundation supports 40 schools in Hammarsdale through its EduRise program. There's a really strong engagement from the business leadership perspective into a lot of Hammarsdale residential and business forums, through the foundation, through the DC, management and leadership itself. Just a really fun, a fun thing, the DC teams are very strong and, competitive around their soccer. We have a Mr Price Foundation soccer finder...
Soccer tournament every year, and last year, the DC's ladies and the DC men's won the tournaments, and part of that was, they were able to choose, a charity of their choice in the community to then give the prizes to. So, you know, this is really how ESG, if you think about it as a sustainability practitioner, the DC is your dream world because it happened without me saying, "Werner, here's a list of things that you need to do. Please go and tick them off from top to bottom." It happens organically. And then when we looking to tell stories, we go, "Oh, actually, it all exists already.
Let's just go and pull the pieces together and structure it so that it tells a story of actually what we're doing every day without even thinking about it, and I think that's me done. Thanks.
Thanks, Werner, and thanks, Janis. We'll move into Q&A. I think while it's fresh in everybody's minds, I think let's try and just still bucket them. So let's deal with ESG. We'll have a few questions on ESG, and once those questions are dried up, then we'll go back to logistics, if that's okay, and can I just ask Janis to then come up and address the microphone? Thanks.
Yeah.
I'm sorry. Just while we are doing the Q&A, we do have. We would just really appreciate if you could also participate just in a feedback survey. We just thought this is the time to do it while the Q&A is happening. We've had some really great informal feedback over the last day or two, but this is the time that you get to be really honest 'cause it's anonymous, and it does just really help us to shape our engagement with the investor community, so just while the Q&A is running, you can either use the QR code or just dial into the website and use the code. Tash, you're gonna come up as well. Janice, you want to just grab a chair? We'll put you guys here.
That's fine. That's fine.
Okay, and if you do want to participate with online questions, a few have come through, so, you can send those through as well, but let's start with some questions in the room.
Just gonna ask Tash, our Sustainability Director, to join me at the front. Thanks, Tash.
Thank you very much for the presentation. It's Warwick Bam from RMB Morgan Stanley. How big is the tension between this access to supply and meeting your ESG criteria?
Yeah, so I think the starting point is always: what does the business need? So that is... It's not gonna serve any purpose to say, "Well, there's an ESG target that's really disparate from a commercial target." So that is why we work really closely with each of the trading divisions. When you're building targets and building... Well, first of all, deciding what it should be a KPI and building a target around that KPI, we work with the trading division to say what matters in our world. Our job is to say, "This is what we see the future is going to look like. This is where we think we need to be moving towards.
How do we bring that back to the business operations and say: What do we do, what are we doing that talks to this ESG concept, and how do we move that along from a business perspective to fulfill an ESG requirement?" It's not us saying, "Don, you must do this. Clint, you must get your divisions to do this." It really is a partnership approach because we can't execute as a center of excellence. The divisions execute, but we have to decide on those things in partnership. So it's managing the agility from a supplier perspective, it's managing the pricing from a value perspective, and it's working in that mess to understand. First of all, what is important, what are the trade-offs we have to make?
and maybe we make a trade-off around one thing, around commercial aspects, maybe another one is around an ESG perspective, but it's not just us deciding we must do this for ESG. It's what is the commercial benefits, and how do we translate that, or how do we maximize the ESG output on that?
Very interesting, thanks. And then secondly, just in terms of, you know, the reputational risks that you're managing, how do you see them in sort of the top-ranked-
Yeah
... reputational risks from your supply chain-
Yeah
in particular around labor issues and environmental impact?
No, so obviously, that's why we talk a lot about supply chain visibility and social compliance, because that is the biggest risk, and that's why we've invested multiple years in understanding and getting to understand what that risk really is and to have visibility into that risk. It's absolutely around what the factory environment is, and that's why we've solved that problem or done as much as we can to know what that environment looks like and to build a really robust process, knowing that we can't own and control every part of the value chain, but knowing what we can own and what we can influence, and being really clear on what we do influence, and to also then know what our absolute no is.
And having that guardrail helps you to make a decision, 'cause you're not trying to figure out what your guardrail is when something happens. You know what that is, and it's kind of an easy decision because you've set up those parameters to begin with.
... Cool. Paul Bosman from Granate Asset Management. Firstly, thank you for the presentations today and yesterday. It's been hugely insightful and we appreciate it. Just the first question on just the technical thing. I saw there's something called an audited high-risk factory-
Yes.
-which is 13%. Can you maybe just talk to what that is? And then secondly, a broader question in terms of brand strength and the impact of that on... I know this will touch both ESG and supply chain.
Mm-hmm.
Is there a point at which the mix makes more sense to actually close domestic production? How that looks, how easy that will be? Will it ever be necessary?
Yeah.
Yeah, and I suppose the question was on the supply chain, what the impact would be of that. Thank you.
I'll answer the second question first. I think talking to our supply chain agility, we would never, never say no to either of them, because there's really strength and capabilities in both sides of it. So shipping from offshore has its complexities and its risks, but then local manufacturing has a real benefit around agility and route to market. And Don was talking about how you test product and how we trade into seasons. You really rely on your local manufacturers for that because it's a much quicker route from factory to shop floor. So I don't think that it would ever shift sort of where we say, well, 80%, 20%. It kind of happens organically, and you do shift from season to season and year to year.
The different fabrications or different seasons do impact what that mix is from a seasonal perspective. But we think there's benefit in both, and we absolutely. You know, we've seen our commitment. We signed up to the master plan, and we're delivering on our local manufacturing local procurement units, and we're driving that, and we're really doing well at that, and we're proud of that. So it's not something we'd ever step back from, but it is really maintaining the two because it's commercially viable, and it suits our model and it fits our model. The second question, I'll part answer and then hand over to Tash. She's much closer to the detail. But business critical is different to high risk. So business critical is our absolute no-go areas, and then we risk rank.
So we obviously have high risk, medium risk, and low risk, and we have different categories under each of those. So don't think that that high risk is the top risk. Business critical is the top risk. Tash, you want to talk a bit more to that?
Morning, everyone. Yeah, just to add to that, I think the... I mean, one of the key things that we've identified for us as a priority is health and safety. So workers in factories, if there's any health and safety risks, we immediately address those. Then there are other kind of, excess for overtime and those type of things that sits in your high-risk category, but we obviously work through these. Certain time periods, there's 30, 60, or 90 days within which it needs to be resolved, and then we work with those factories on that. But for us, a big priority is health and safety of workers.
Thanks for the presentation. So maybe a two-part, two questions, but a comment first. So I mean, often the supply chain visibility is not quite appreciated by the investor community. The systemic issues in our local manufacturing, such as the working conditions, the poor pay, underdeclaration, is a real problem. So it's very encouraging to see how well you guys have progressed in that visibility. So my question relates specifically to the visibility and your auditing process. So on the visibility side, how has your use of agents changed over time and your ability. And how has that changed your ability to have visibility to where the products are made? And the second question is around the auditing. You. That third pillar that you showed, you actually go back, and you do surprise factory visits.
I mean, how often are these surprise factory visits done? You know, is it just in the problem areas, or do you go and say, just lift the hood up, and check on your suppliers every so often?
So the surprise visits we keep as a surprise. We don't say we're coming to see you every six months, or every three months, every eight months. Bearing in mind that we keep our suppliers as the primary responsibility for that, they need to know what's happening more in their factory than we should be doing. We can't step into every role at every level. We can't control or own every role in every level. We try to make sure that every level has the appropriate responsibility and accountability, and we hold each level in the value chain to those accountability and responsibilities.
But we do kind of go out there and have a look here and have a look there, and figure out and see for ourselves, because it's all one thing to have an audit, but if your audit is not matching up to what you're seeing, you've got two things to address. You address with your supplier, and you address with your audit provider. So we do those things. We're not gonna put it out into the market how often we do them. We keep those down and low. Tash, do you want to talk to the second question?
Maybe also just to add that we have built relationships, particularly in South Africa, with local government and with the union. So a lot of times we get insights from them as well, 'cause they have people on the ground. So if there's anything concerning, we'd either get a report from local government or something, and they could flag anything that they find, and we immediately then address those. So I think it's our networks that we rely on as well. I'm sorry, and the second question?
Agents.
Oh, yes, around agents, so definitely direct relationships gives us a lot more insight. I mean, I think from a relational perspective, it's also you can have close relationships, you can have conversations around these things, but for us, I mean, I think how we've shifted and even working with design houses, for example, we've held them accountable, and I think in everything that we've done around contracts, and as Janice was saying earlier, in terms of our code of conduct, we work very tightly on those and hold them accountable. You know, it can be a direct relationship, but even an intermediary, we have the same approach, except for direct definitely has given us more insight and closer relationships. For sure.
Thanks. I'd just like to add to that 'cause it's a really important question, and-
... When I'm going through the closing, in a couple of minutes, I was gonna address things, such as no stone gets left unturned, and as a business, we don't close our eyes to risks. So it'd be quite convenient for us, but we've taken the hard route. We've looked at the risks in the business, and a number of years ago, we decided, and I'm going back to more than five years, we started embarking upon a process to make sure that the agents weren't the parties that we were actually relying on anymore. Because...
I'm not blaming any one of them, but we know that what gets exported from the East, for example, and what gets disclosed in South Africa's imports on an aggregate basis between the two countries. There's always this massive difference. So whatever it is, it seems like there's a mass underdeclaration of imports into South Africa. That's what the assumption would be. We couldn't live with that risk because... You know, once someone asked a question on agents, and what is an agent willing to give up? With their supplier base and with their contacts, and that's their bread and butter. So years ago, we took the decision that we were actually moving away from agent relationships. We handle the importation of our products from foreign countries.
It means there's zero chance of errors or underdeclaring on VAT and customs, and we can look at everybody in the eye and say we can tick that box. Of course, what it does mean is that as soon as we did that, we knew that we were gonna expose ourselves to or I suppose at face value to be taking ownership of the goods a lot earlier. So now we take ownership of the goods on the sea, at the port of origin, and of course, it starts falling into your stock and our stock turn and those kind of things. But by doing so, we've eliminated a massive potential risk.
The next phase of that is then, okay, well, we're taking ownership of the stock earlier, how do we actually manage cash flow and all those kind of things? So that's with shipping terms, and then all the work that Praneel's been doing with his team around the supply chain finance.
Okay, thanks. Just another question in terms of... If this is working. Just another question in terms of how you're making sure that the where you're getting the goods from are following your processes, et cetera. I understand within a Mr Price environment, but in terms of Power Fashion, I mean, it's quite a different business model in terms of procurement. How do you apply those same kind of processes and ensure that your risk is manageable there?
So obviously, it talks to the whole question around integration and knowing that we've built our own processes over a number of years, we're taking an iterative process with the acquisitions as well. Power Fashion is an interesting one because sort of there's two parts of the merchandise. It's on order, and then it's opportunistic stock. So the on order is a lot easier to solve because we understand that and we own that. There's also a lot of overlap with our own Mr Price suppliers, so we have a natural visibility into their value chain to the extent they use cross suppliers. Opportunistic product often comes from international retailers, so we place a lot of reliance on where that stock is coming from. It's not a random parcel that's fallen off the back of a truck somewhere.
We know the retailer that it's coming from, we know what processes they have in place in their own supply chain and value chain, so we place reliance on those, as a starting point. So it's not as risky as you would initially think it is. We do know what we know around that, and also just to know that it's a very small percentage, in our total value chain from a units perspective. But it is... We place reliance on their processes in different ways across the business.
Also, in South Africa, what we've started to do is, and particularly the Power Fashion team, has access to our risk ratings. So when they're considering a certain factory to produce, they look at the risk ratings to consider that factory. And there are times where they've actually not placed production, where they actually commission production. They don't place it in a factory that might be concerning for them, but in most cases, by then, we've already had our audits, we've already done remedial action, and they can actually come in the back end of that process and just place their production, but they have access to all that information.
Just moving to a question online from Atiyah, from Avior Capital: Have you considered pursuing any circular fashion opportunities as a group, for example, pre-owned market or recycled fabrics?
Yeah, so that's a great question. We often get it. I think what we forget in South Africa is there's a natural circular market, is that we know that all the clothing that we use and we then choose to move on from, we hand over to somebody else who uses it. And you see the street hawkers and informal markets talking to the guy last night. You know, there is a natural circularity in South Africa and in Africa that we don't really recognize as being circular, but it is. But we... Power Fashion is a really good example of that.
If they're using opportunistic stock that's been canceled goods, or canceled orders, or late production for another retailer, we are in fact, the next cog in the circularity of that market, 'cause we're taking those canceled orders and we're then processing them through our supply chain. We do also use, Tash, maybe you wanna talk to some of the circularity in the fabrication? Yeah.
So we also, Power Fashion is accessing excess fabric that is in South Africa. So where there's design houses that have got excess fabric that they can't use, they access that if it's suitable. And then we've also issued a request to all our KZN-based factories to send all their textile waste to... Actually, there's a plant right here in Hammarsdale called Connacher, and they actually take all that textile waste and convert it into what they call... They do dog blankets and products for the automotive industry. So, we've now actually got a network of factories that are actually supplying to factories that are converting it back into products as well.
... Just another yeah.
Just to close off is that we prefer, I think, to look at circularity in the value chain rather than customer-facing circularity, and what can we do in the value chain to be part of that. You know, knowing who our consumer is, right from the lower LSMs to the higher LSMs, there isn't a one-size-fits-all for a marketplace or resell product capability. Mr Price, Power Fashion, that's probably not gonna be the market for it. So it's not something that we think is a massive opportunity, and we would rather focus our efforts on what we can do as being part of a step in broader circularity in the retail environment.
Okay, we'll move on to questions on logistics in a second. Are there any last questions in the room from an ESG perspective? Question in the front.
Hi. Thanks for the presentation and the information shared. On the Scope 1 emissions, I saw that the trend was actually worsening. Can you just give us some color in terms of what's happening there, and is there anything that you're concerned about?
No. So that's really just a function of bringing the acquisitions. So obviously, before twenty twenty-one, we didn't have the three other divisions. Obviously, if you bring them in, your emissions are going to be higher because your base is higher. So it's not that we changed anything, that's a big part of it. Yeah.
Great. Thanks, Janice. Thanks, Tash.
Thanks, guys.
And Werner, do you wanna step up and just move on to logistics questions? I'll start with one question that's come in online. If you could explain the role of City Logistics in your delivery chain to store, is there a reason that you outsource this rather than controlling it in-house?
Yeah. Thank you very much. We're shopkeepers, and that's what we wanna be good at. City Couriers is. They manage our primary and secondary transport, and they're the specialists. Second part of that is, just aligned to our strategy, we want agility and speed. If we had to run our own trucks to our own stores with our own volume, we would not get that turnaround time, and our 2.7 days would probably go to about six and a half days. So for us, it's about speed and efficiency.
Thank you very much. Just to understand on Power, I'm not quite clear on where we are in that process of integration. And would it make sense to say because your rand per volume of the selling is much lower, your logistics cost is quite a larger portion of your... That it's even more important swing factor for margins, so whether there's opportunity to reduce margin in the business as is? And then secondly, if Power was to double, what would that mean for your requirements and supply chain spending?
Yeah. Thank you. So just on Power Fashion, where they are on the journey, so as I said, they completely report into the group supply chain structure. The IT control systems, warehouse management systems, have all been converted. So the next phase of that is to. There's a phase two project that's currently going on to start integrating Power Fashion order data and process data into this facility. Then we're gonna start flowing like suppliers. So if there's a supplier that delivers to them and to this DC, they'll start coming through here. And probably after 2026, when Joburg is finished with its expansion, then we will bring them in and integrate them into these processes. Yeah. But definitely, logistics cost is very critical for them.
Thank you for the presentation. Kobus from All Weather Capital. I just want to find out about the Maputo port test that you guys are looking at, and obviously 2026 with the Joburg. So is it easier to... Is the plans to bring it in from Maputo and then route it to Joburg, or is it more-
Yeah
... specifically from a truck perspective?
I think I'm gonna start with nothing's easy through Maputo. So yeah, I mean, it's a secondary port. Currently, the biggest drawbacks of Maputo is obviously carriers leaving main ports in China frequently. So we need frequent extractions from most of the big main ports weekly. Some of them I need to go twice a week. Maputo just doesn't have that volume. It's a very viable option if something really goes wrong. So our test that we're running now is to understand how does the supply chain work? Currently, there's still challenges for carriers on where do I take the empty container back? Because we're exporting out of Mozambique into South Africa, the carriers are a little bit. They haven't decided yet where do they want their empty to go back to.
So yeah, it started moving from origin this way, but we're busy with how is this planning gonna work. But currently, it will be a road freight through Komati and then to Joburg. It's quite an easy road when you look at it, but this container offloading and destuffing part is the complexity. It's not yet at scale ready, but it's an option that we have to explore to know for the future.
Thanks, Werner. Could you remind us how much logistics represent of your cost of sales? And I'd love to know the split of what the business that was... Oh, I'm getting a shake from up front.
It's marginal, and we're a value retailer, so it will be very efficient.
I get that.
No, go on.
I suppose I want to understand what's the potential in the businesses that you want to integrate into the business, right?
So we would add value to their businesses.
I know. Are you able to give us any sense of-
No.
Oh, come on. All right, next question. Can you remind us how much of your stock at any point in time is on ships, and how much is in the DCs relative to stores?
No.
Good times. ... Quick one. The Power Fashion and Studio 88 facilities, are they owned or leased? Is it a mix?
Yes, so Power Fashion is a leased facility.
Okay.
Studio is an owned facility.
Okay, great. Thanks.
Hello. Can I just ask a simple question? You talked quite a bit about how you're managing the, you know, the timing risk on the delays you see on the ships, but there's a substantial part of your production that is actually local, where your local suppliers are sourcing the raw fabrics from China. So how do you manage that knock-on impact that they actually don't have the material to make the goods that you need to make?
Yeah, it's a serious issue. We don't manage that part of the supply chain, so suppliers has to buy their own fabric. Where they are very, very big suppliers that are purely working with former Mr Price, those suppliers we will entertain to work with us on our shipping channels, pricing models, transport models, et cetera. So those suppliers that are tightly knit with us from a manufacturing perspective, those we bring in, others, they have to manage it themselves.
Yeah, just, coming back to Dave's question.
Yeah, sure.
Maybe phrase it... I phrase it slightly differently. When you compare Power Fashion's distribution, logistics-
Yeah.
-and Studio 88 to what you have here for the wider Mr Price Group, and you were to rank them-
Yeah.
Where would they be, and what's the upside? Yeah.
Yeah. So this DC would. As I said earlier, there's a very high percentage of sales that gets generated out of replenishment. So Power Fashion, at a price point that they are, you can't do that level of picking and packing. It's just too expensive. So Power Fashion, just also based on the way they purchase and the way product comes in, it's generally a land and go to store, so the amount of holdback is also very different. Studio, as I said, we're busy with the work under the bonnet at the moment, but it is a very fast supply chain that goes to store very quickly at the moment.
Do you have a view how long it will take Transnet to get the ports to a state where it's no longer such a topical issue for you guys within the business, to more just business as usual?
Yeah. They've given their plans. Unfortunately, they announced about three weeks ago that they're not making their target for this year. So their target is very... I mean, it's a complicated business, so everything they represent at a, well, at a macro level is metric tons. So they are gonna miss this year's metric ton targets. I think they set the target too early. They were in the middle of the mess, and then they set their annual targets. Look, the equipment, the main equipment is scheduled to come in between now and May next year. If those things can happen, spare parts are in, technical skills are in, we can definitely see those things in. In the harbor, the tugboats that was needed, they're in, and they're working.
The tugs that arrived, I think, about three weeks ago, they were the two that were sent to Cape Town, they're in. The infrastructure that Cape Town needed for the city's fruit exports is in. So there's a lot of that stuff in. Pier Two and Pier One is the—I mean, they're the biggest. Pier Two is, I think, 40% of Africa. It's massive. So they need volume. They need the straddle carriers for Pier Two, and that's still a while. I think it's between May and August, from when I last checked. It is late because they couldn't get equipment. So let's say another 12 months minimum.
Okay, just any last questions in the room? We'll go for one more question. Okay, otherwise, happy to move to closing.
Thank you.
Thanks, Warriner. Thanks very much.
Thank you.
Thanks, everybody. That brings us to the end of the two days. I just really wanted to thank everybody for taking time out of their diaries and spending the better part of two days with us. From our perspective, I hope you've appreciated us just slowing things down, going through all the building blocks, talking through the business, but really importantly, talking about how we think about the business and also how we, you know, what our unique culture in the business is. Secondly, I hope you've actually enjoyed the exposure to our management team and others. I think a very strong theme coming out, and I think it's been reinforced today as well, is that, as a value retailer, of course, we look at what we spend, and we're pretty tight on things.
We've got to think twice as hard as another retailer. But certainly what we don't do is that it's not all at the pursuit of profit. You know, we spoke at length about ESG. It would be easy in the short term not to do things, because you'd save money in time and process, but by doing those things, that's what actually sets and makes a sustainable business. So yeah, I think that's it. We certainly do think for the long term in our business, and are quite prepared to make those trade-offs against short-term impact.
Lazarus said to the audience yesterday that when we first met, I wanted this org health dashboard to be put together so that I could get a temperature of the business, but very importantly, our board could get the temperature of the business as well. We're consistently being ranked above our peers, which is an absolute win, and very importantly, by our people, we've got an engaged workforce, so and rated as an exceptional company. Really thankful for that and really thankful for Matt and all his efforts after putting this two days together.
Just in wrapping up, I'd like to say that I really do believe we've got a special company, and I really do believe we've got a special culture, and hopefully, we were able to rub off some of that on you, and you're probably leaving with a lot more detailed understanding of the business, but very importantly, what drives Mr Price. So I just wanted to thank you once again, and travel safely. Thank you.