Good afternoon, everybody. I'm Mark Blair. I'm the CEO of the Mr Price Group, and joining me online is Praneel Nandkumar, the CFO. Welcome to the presentation that deals with the acquisition of the NKD Group. Certainly, I think in my ten years, 20 years with the company, the most significant announcement that we've made in those last 20 years. Just before I set out in the actual presentation itself, I think it's really important to just take cognizance of the fact that we are sharing information that we are permitted to share, so unfortunately, we can't cherry-pick, and we will obviously share information as we're permitted to, and it'll be predominantly once control is passed, and obviously, at this stage, the company isn't ours yet. It'll wait for the end date, for the close date.
Into the presentation itself then, we just start off with an overview of the M Price Group business. For those that perhaps don't know us that well, I'm going to assume that most people dialing in actually do know us, but it's just then setting out some high-level details about where we operate, the size of the business, the geographies, and the gender types and the channel. Now, I think those are all really critical, not only because they are past and it's what's got us here, but there's a very close alignment to what the NKD business does as well. Critically, within that, we are known for a business and our ability to execute, and the consistency of our performance has also been probably a standout feature of our business. Even in the last couple of years, when trading in South Africa has been very tough.
If you then look at the top quartile returns that we speak about, you can read those for yourself, but when you start looking at those 39-year compound growths, I think they tell the story, and very recently, we celebrated the Mr Price Group turning 40, and I guess the time for a reflection on what really has been a special story, and I think that does bring us to the presentation that we are going to go through today in that we're certainly trying to build the new special story for the next 40 years as a new Mr Price Group. I'm just going to reflect on our strategic journey then, and many of you would have seen some of this content, but it's worth summarizing again.
This really starts off around the time that I took control of the leadership of the company and obviously infrastructure, developing a South African growth strategy and doing that whilst obviously keeping an eye and delivering that consistent performance in what I said was a volatile trading period. The big part of the sort of the first phase of our growth story commenced, in fact, during COVID. We did a lot of research, and that was really focused on the S.A. market at the time and resulted in the launch of a new group strategy in 2021. As you know, we had scoured the market. We had looked really deeply into it. Where did we think retail spending was going to go in South Africa? And as an investment matrix, where did we feel that as a group we could benefit by that?
That led to some strategic on the back of a continually strongly performing Mr Price core business, and we also launched some organic concepts during the period from 2022 as well, and there you can see where we talk about Mr Price Baby, which actually morphed into Mr Price Kids, as we know it today, and also the launch of the Mr Price Cellular standalone stores, so I think during that period, certainly a lot of activity when we were also dealing with quite a few disruptions in our home market in South Africa that obviously wasn't the company's doing, but that things were impacting our economy and the marketplace in general, so the continued performance and the execution and leading to sustainable growth has been absolutely paramount to us. At that time, I think with the acquisitions, we also took a very light approach with integration.
I think that served us very well during this period. W e're starting to see where integration has or is taking place that it's a bit of a seamless transition. We've got to know the businesses. They've got to know us. We're a relationship business. The performance had to prove itself first. T hen the natural progression of things, we can start looking at integration to add more value. So I think reflecting on all that was a really powerful story over the last five years. D uring that phase, I also had a lot of discussions with the board about our organizational design, how I wanted to run the business, what management team I needed in place, etc. T here's been a lot of strengthening to that team over the last couple of years as well.
So all in all, I think I can look back and reflect on those last five years and say things have gone according to plan. They've actually followed the launch of the new strategy very well. I think our level of execution has been good whilst we've still delivered performance. So looking back, really, really pleased as to what we've built. W e're now at stage two of that growth plan. I t was the research that was being undertaken, and it really kicked off probably about two years ago now, looking at opportunities that are going to lead to the next phase of growth for the Mr Price Group. If I then just elaborate a bit further on some of the acquisitions and organic growth concepts that I did speak about, I think you can read there what they are.
The meaningful part there is that the level of scale that they brought to our business and the level of operating profit that they brought to our business. I think it's fair to say that when we actually acquired these businesses and we announced that we're acquiring them, that there was a fair degree of market skepticism that Mr Price doesn't know acquisitions. We haven't done them before. How good or bad are they going to be for the company? I've got to look back and say I think the way that we approached them, approached management, made sure we had the management teams we wanted, invested in them. I look back and say I think it was those are high-performing businesses, and I'm very proud of what they have achieved.
Then you look at the organic concepts, and that was adding ZAR 4.3 billion worth of sales. C ombined both those retail sales of the acquisitions and the organic growth is around, let's just call it ZAR 15.5 billion, very significant. When I said we're coming to the second phase of our research, and we've been on it for some time, as I said, and we've also alluded to it in our results presentations over the last two years, it's very important to single out that it has been multi-layered, and it has been supported by third-party research. Many advisors have been giving us input into the areas that we wanted insight into. A s a result, we've been able to evaluate all the key investment considerations that we believe are necessary.
So those six headings on this page, I'm going to dive into each of them individually and just really unpack all the things that have influenced our thinking and why we're taking the approach that we are taking. So the first thing I want to talk about is markets. I think there's no hiding from the fact that South Africa is a small market. Economic growth isn't robust. Looking out into the future, although GDP growth is expected to pick up, I suppose there's always the risk that we undershoot those targets and we don't achieve them. T hat said, I think South Africa, for the first time in a while, there's lots of green shoots that I'd say are surfacing. Certainly not here yet, that has created a really strong, robust economy or a good retail environment, but nonetheless, it's good to have those green shoots.
I think it's only a matter of time before they do start having a positive effect on our economy. South Africa, and even if it improves, I think that we're really well placed to partake in that. We've got a really strong business in South Africa, and we're going to do whatever we can to continue that performance trajectory locally. To me, the new strategy with offshore, it is the end. It's South African growth, and it's what the offshore growth will bring. It's not an all. They are two very different important and different parts of our strategy now. When you look at South Africa, I guess we've got the choice between looking at South Africa and offshore, but when you look at South Africa, there are very limited acquisition opportunities that would meet our criteria. I think that's the first part.
As a result, we could have pursued things that don't lead to growth, that add to scale, therefore adding complexity. U nless you're bringing growth into the business, I think that would not be a good allocation of capital. The secondary consideration is that we would then also have to consider do we want to go slightly out of our area of expertise, and do we want to go into adjacencies of retail? T o me, the answer for that was no as well. It's not our wheelhouse. It's not areas that we've got expertise. Q uite frankly, we'd probably be up against other companies in that space that have really got a lot more experience than us and therefore elevated competition. So for us, it's really important to stick to our knitting and stick to what we are, and that's value retailers. So that deals with South Africa.
Then the consideration is offshore, and you've got a couple of choices as you go offshore. C ertainly, there was a higher risk of exporting our brands as the primary strategy for going offshore. If you simply try and export your brands, you've got limited customer knowledge in those markets. Your brands don't have brand affinity. Q uite frankly, you've got a high cost of business for the whole period that you're trading that you haven't reached any form of scale yet. In addition, and it depends on where you're going, you've got supply chain complexity, and you've also got the thing that a merchant would have to consider, and that is being contra-seasonal. So we operate in the southern hemisphere versus the northern hemisphere.
Everything would have to change in our business to be able to be forward-looking in our trend calls, etc., of our merchandise to compete with the best in the north, so to us, it is quite clear. There are enormous benefits of purchasing an established player. You get existing retail skills. You get a strong management team who have got excellent local knowledge, and you're buying to a business that the brands have already established themselves in this brand affinity, and I'm going to come back to that a little bit later, but you've got a fit-for-purpose proven model, and certainly, in the case of NKD, we've got a platform for future growth in existing and new potential markets.
I'll come back to that a bit later as well, and then down the line, that management team in country would also have the possibility of evaluating our own Mr Price Group brands for their potential, well, first of all, valuation and then potential entrance into the northern markets, but there's nothing that's been modeled, and that's a consideration that's, excuse me, quite down the line.
There's absolutely no sense of urgency on that, and then the other thing as well is that when we did look at geographies, we wanted to look at geographies that had perhaps a more stable currency than the rand, and also, just in terms of currency strength, was actually performing more strongly than the rand because ultimately, we have to translate those into rands and into South African rands. The second part of the slide deals with acquisitive and organic growth. The thing about organic growth is that, yes, it's low cost or low upfront cost, but it is a slow build.
A s a result, it's got the potential to divert management attention while you're trying to get this thing off the ground and manage it in its early days and prove a very small model for future rollout. So it's got no positive impact in the business for a number of years. I n fact, it's got the opposite. It's got a drag on earnings because if you've got an organic concept, you normally have to devote operational management and teams as you build and design things. T hose costs come obviously well before you even start trading one-through-one store. So the costs do come well before profitability. That's from the organic concept. If you then look at acquisitions, what we were looking for was a growth asset with an existing skill set and an existing management team.
Although I guess you can say there's a certain amount of distraction in the pursuit of an acquisition, the fact that it has got its own team does mean that on an ongoing basis, there's less management time involved from our perspective. It makes a material impact on the group results a lot sooner, and certainly, in our case, I believe it can be transformative to a company, especially if it's not a bolt-on acquisition. The third bullet I wanted to talk through was funding, our debt appetite, and what does this mean, and what is the potential impact on our earnings? My first point that I wanted to talk about was the strength of our balance sheet, and I remember the good old days when we used to be criticized for having a lazy balance sheet.
I think we've really put that to good use and, in fact, still have got cash on our balance sheet. So invested, I think, in the right areas over the years and still have balance sheet strength, which is a real plus. So our cash and our cash generation has fully funded our growth strategy. A t the same time, we've also not changed our dividend policy at all. W e've effectively paid for three acquisitions out of the cash of the business. Obviously, with NKD now, it does introduce a new Mr Price in the form of debt on our balance sheet. We do have cash, and we will be using some of the cash. C ertainly, there's going to be long-term structural debt on our balance sheet that I'm very comfortable with. Mr Price is very cash generative. NKD is very cash generative.
So we could bring down that debt quite quickly if we wanted to. T hen, obviously, it depends on where we want to carry on investing our CapEx and to what level. C ertainly, very happy carrying debt on our balance sheet supported by just the cash generation of both businesses. I think the very important thing when you're talking about the impact of the business on the long term is to try and get into an asset like this of this potential. We unfortunately have to take some short-term pain. B ecause it is a transformative asset and will lead to, I think we're looking for something that's going to lead to growth for the next decade and the decade after that and not just the next reporting period.
We have to be, in fact, I suppose, well into the process, but we are quite accepting of the fact that it's going to be potentially not earnings accretive in year one. T here are going to be some costs, and I'm relating specifically to costs relating to the transaction that are going to impact the current year that we're in. O n closing in the new financial year, some costs will come through there too. I think when you start considering what those costs are and what the benefits are in the long run, I think the benefits far outweigh the short-term disruption. As I said a little bit earlier, we are known for consistency, and we're known for being a conservative management team. Nothing has changed in our desire to be that.
To transform the business and to get access to a continent and all the growth story that comes around that is, in my opinion, well worth the short-term disruption. Just in terms of the impact on our business, when I said a little bit earlier that we're not in a position to cherry-pick what information we can share, we're required to disclose the last audited set of numbers, so we've certainly done that. That's December 2024, and we had also spoken about the earnings to June. That was the interim period, and that was part of the information that was covered by the DD and the vendor DD documents, so we are obliged to disclose that as well, but what you unfortunately don't see and we unfortunately can't speak about is the December 2025 numbers, bearing in mind they're only a couple of weeks away from closing out 2025.
You obviously haven't got the benefit of seeing the projections into the future that we have. So I think those are two key things. T hen relative to that, this transaction is only going to close in our F27 financial year. So there'll be even more time under the belt. So when you combine all those three things, we're very comfortable about where we found value in the business and where the implied multiples are therefore coming out at. Unfortunately, the 25 numbers and the projections we can't share with you, but obviously, those have been very heavily diligenced. A ll the assumptions that are feeding into that diligence have been thoroughly stress-tested by our own management team and by advisors. I want to talk about consumer spending dynamics and operating models. T hat really just talks to the advisors that we engaged, to advisors on the growth potential.
That was in the current markets that NKD currently operates in, and what we also had a good look at is where are consumers spending money, and that talks to the value sector, the mid-market sector, or the premium sector, and are they spending money on clothing or other things, so we did a lot of research on that, and I'll show you some numbers in a minute or two. V alue retail in Europe is very, very strong, and it's really a high potential market, and I think when I share those numbers, you'll see why, but the way that we approached the valuation of Europe and NKD was more or less along the lines that we had our investment matrix for South Africa, and many of you will remember that. The potential on the South African business, then.
I've had an exco in place for a couple of years that's working very well, so I think in terms of management structures, we're looking very sound in South Africa, and I think that's aided to the performance and the level of consistency that we have shown in the last couple of years. The German management team is also very strong. There's a lot of experience there, and that team is in place, so importantly, we acquired this from a private equity firm whilst not from management, and management will be remaining in the business, and we really look forward to doing business with them, but importantly, we're not running this business from South Africa. The operations, the day-to-day stuff, the decisions is all being run from the head office in Germany. They've been applying themselves diligently up until this point.
They've done a good job, and they'll continue on that basis. Mr Price Group's influence, should we say, on the NKD Group will mainly be felt in strategy and the overall performance that comes out of the business and metrics and all those kind of things. We'll obviously look at capital investment, share our thinking about hurdles and hurdle rates and all that kind of stuff, and impart knowledge on a lot of the things that we do locally on that management team, so I think on an ongoing basis, for me, there's limited distraction on both sides, and as I said, the discussions were first of all the revised org structure that I put in place a few years ago. I've been speaking to the board at regular intervals subsequent to that date about future org design changes.
To the extent that we still need to make tweaks to that because NKD is now part of our fold, we'll do that. Very importantly as well, we don't plan to integrate these businesses. I think that you might have seen that with some other retailers' acquisitions in recent years. We are not about to send teams across to Europe to integrate IT or tech or make them report into our merge processes or real estate processes or anything like that. A s a result, the SM management team will not be involved offshore as a general comment. I said a little bit earlier that the strength of the South African business is still absolutely critical, and nothing's changed. What it does mean, however, is that while I said that cash flow on both businesses is very strong, we will have debt that will require servicing.
Of course, we will apply the normal thing that we've done for years, and that is allocate capital on a very sound basis. I think we're certainly known for capital allocation and scaling businesses, and that's the core skill set that we will be bringing to the NKD Group. One of the messages I wanted to leave you with was that we are absolutely not starving South Africa of capital and investment. While I said that there are many green shoots, that's exactly what they are. We're really well placed as a business, and we're not going to give up our competitive position by not investing. So whilst space growth in the current year was quite robust, I think it's just not because of this acquisition, but there'll probably be a bit of a slowdown next year, but still really good space growth.
We will be looking to allocate the capital across our wider group on a returns basis. So I think shareholders can take a lot of comfort from that. T hen I think as far as shareholders go, there might be questions of what's going to happen to our dividends. Is the dividend policy going to remain the same? T he answer is absolutely. There hasn't been any discussion at our board level about whether we should change our dividend policy. So I think that's going to be consistently applied into the future. T hen lastly, just to give you the satisfaction that we have been quite diligent and careful in this whole process is the subject of risk considerations and mitigations.
One of the things that we did upfront, in fact, on day one, is that we brought our risk team into this process to make sure that, A: that we're covering all the risks, but B: very importantly, that the discussion in the room wasn't dominated by one individual, that we had robust discussions, and that we kept the process real. I think that's worked very well. So the risk team was involved from day one. P art of that, it wasn't just the technical review of risks. It also looked at things like distraction that I was talking about earlier, but then went into other things like legislation, currency risk, governance, ESG, and all those other things too. E xcuse me, for me, the great involvement from risk is that they were given open doors to go where they wanted to.
They weren't restricted from me in any shape or form. Okay, so I think that closes that section off, and we can now go into some more of the strategic rationale for what attracted us to the business, and certainly from the key business strengths, supporting the NKD investment was, as I said before, we didn't want to buy our fix-ups, and we're not buying a fix-up. In this case, there is a track record there, and I did mention the December 2024 results. I mentioned a little bit earlier as well about the December 2025 results, which I can't speak about, and then obviously, projections going into the future, but a high-performing business is very important to us.
The fact that they're so well positioned in an expanding value apparel and homeware sector in Europe, when I show you the results just now, you'll understand why that was so attractive to us. O f course, we're private label retailers. They're private label retailers too. I mentioned cash-based. We both operate on cash basis. Both omnichannel businesses with a vast majority of our sales being generated by stores and a smallish percentage online. I've spoken a little bit about the skilled and committed local management team already. I t's not just about the skills. It's about the chemistry and the commonality that we've got that was, to me, established very early on in this process. When you can get on with partners and you find value in the same areas and you've got a connection, I think that makes life a lot easier.
Certainly, what they do in the supply chain and tech, I'm not going to elaborate on it, but they're very well versed in those areas, and they do have competitive strengths there. V ery pleasingly, while I'm talking about an expanding value retail sector in Europe, not only will they ride the wave of that, but they've actually got a lot of growth potential in new and potential new markets as well. A s we go through the territories, you'll see that they do have a proven ability to enter into new markets. A s I said a little bit earlier as well, we didn't want any sort of distraction between the two teams. T hey've got a team that can carry on doing what they've done. I think this is one of the most telling slides.
What we've done here is that we've identified, and this is just total retail sales. So it's not saying there's value or anything like that. T his is looking at total markets. We're starting with the top, looking at the total retail market in Europe, and that is $5.5 trillion. Y ou can see how that cascades down. The territories that NKD currently operates in, and that red bar there, although the market is $1.8 trillion, it's just important to note that that doesn't include all NKD's markets because there are one or two markets that you can see in the footnote there that Croatia and Slovenia, the market information isn't available. T he markets that NKD operates in comes to $1.8 trillion.
Then you can see the other markets, the specific markets that they operate in, Germany, Italy, and Poland. You can see the size of those markets. Of course, NKD's got varying degrees of penetration into each of those markets. T he real highlight here is that when you look at the relative size of those markets versus the relative size of the South African market, which is 109 billion, when we're talking trillions for the others, I think puts things into perspective. So we're really excited about the opportunity that this gives Mr Price in the European market. Of course, I said that we still want to do as best a job that we can in South Africa.
To the extent that we can emulate those efforts in Europe, you can see the scale and the potential size that will be delivered that will deliver what we think is going to be superior growth in the next 10 and 20 years. We're not thinking short-term at all here. The next slide is also slightly different, but it also stresses the same point in that you look at the total market, retail market, this is excluding food retailers. You can see, and that's the black box. You look at the addressable market, and that is total apparel sales, footwear from those apparel retailers, but it excludes footwear-only retailers for some reason. T his is just the data that is available. I t also includes general merchandise. So in Europe, that's 500 billion. Don't try and equate it back to the previous page. They're talking separate things there.
And then you look at the red block, which is the serviceable market. So this is now value apparel, once again, excluding footwear-only retailers. T hat's the space that NKD plays in. You can see the relative size of those blocks and how big they are. So just remember that EUR 113 billion serviceable market. T hen when we go to the next slide, you can see the EUR 113 billion in Europe on the left-hand side. So that was the market size of 2024. I'll let you just digest this page on your own. F or us, the absolute critical thing was if you look at the overall market growth, historical growth in the last five years, Europe has grown at 1.5%. T he value segment, which is the serviceable market that I was talking about earlier, has grown at multiples of that, and that's the 6.6%.
So that relationship flows down all the way down through all the markets that NKD operates in. T hat's what I was talking about, is that there's this trend of value retailing growing across Europe, really. So that was, it's great to pick up on an underlying trend like that. T hat's the whole market. What NKD's got on top of that is identifying sites that they know that they have identified in existing markets and the potential to enter into new markets beyond the existing markets. So when you take those three things into account, to me, the growth story is absolutely there, and it's down to execution now and timing. So that was a tremendous underpin in what informed some of our decisions.
A s I said a little bit earlier as well, there is a final step, but it's potentially a couple of years away in that I think the team there has got really enough on their plate to think about in terms of the markets it's in, in terms of the new potential markets, but there is the potential to introduce and evaluate Mr Price brands. One of the things I wanted to point out here as well was that just relative to the markets that NKD does operate in. We'll go to the slide just now. It's 2,100 stores, but they've identified white spaces, which is potential new sites that can double that footprint. So take it up to 4,000 in existing markets alone.
So some of those might not be actionable because the space may not be available, but it gives you an indication as to the type of scalability that we are talking about just through store growth, never mind new geographies and territories. When you then evaluate NKD and you bring it into the Mr Price Group, that is the potential impact that we could have decided to go for small acquisitions. You're still dealing with the complexity of an acquisition. We could have had a portfolio of small acquisitions, but there is tremendous benefit by introducing into our group something of the scale of NKD, and then you're dealing with one transaction and one relationship. So the fact that it is material, is meaty, I think is a tremendous advantage for our strategic evolution.
You can see on the right-hand side there. It takes our stores from, let's just call it 3,000 to over 5,000, and our associates to over 42,000. Importantly, it then means that our turnover's into the mid-50s, ZAR 53 billion. Y ou can see where NKD slots in. This is based on turnover into the Mr Price Group as our second largest division. So meaningful contribution there. Okay, a little bit more specifically about NKD rather than just markets right now. You all know that by now that it's cash-based, it's value-focused, it's apparel, and it's homeware, and it's across Central and Eastern Europe. The business is 60 years old. So I think when you start looking at the accolades that it's built and the recognition that it's got, that'll be meaningful. It operates in seven countries across Europe, that is Central and Eastern Europe.
I'll tell you which those are in a minute. I t's really got a proven, successful multi-location strategy and model. Revenue-wise, 2024 was EUR 685 million. As I said, 2,000 stores, averaging only 300 sq m. P art of the model is that they're more in small towns and rural areas as opposed to big regional shopping centers. T hat's what enables them to keep low rentals, for example. I'll share a bit of information about price points in a minute. A s I said earlier, private label, very closely aligned to Mr Price, cash-based, very aligned to Mr Price. So the fact that we are acquiring a company with a lot of similarities as to what we do means that there's definite alignment and, in fact, less things to change, which is obviously much easier for the two management teams to cope with.
If you then go into the geographical footprint, I did say it was headquartered in Germany where the bulk of the stores are, 61%, and specifically headquartered in the town of Bindlach, South of Frankfurt, and there you can see the countries that it does operate in, and some of those countries, we're only really scratching the surface at this point, for example, Poland, so that's the footprint, and on the right-hand side, you can see what makes up each of those contributions to the group. When you look at the target customer, they're targeting a customer that is after quality. The store wants a value price, so they are price conscious, and it's predominantly targeting females of 45 and above. I just told you where they were located, and in terms of online, there's a high propensity for click and collect.
You can see the split of apparel and homeware there, not too dissimilar from Mr Price as well. I'm not going to give actual price points on this graph, but certainly when you look at the retail matrix and where they're positioned and who the competitors are, then you can see the price points on the left, and that really talks to the value that NKD does bring. On the right-hand side, where we've highlighted the key competitors, one of the very important factors that you can read those for yourself, but as NKD considers going into new markets, one of the advantages is that those would be markets where some of those competitors already exist. In general, where NKD does and competitors do well, NKD does well.
The fact that competitors are doing well in those markets gives NKD confidence of their ability to enter those new markets as well, so I think that's noteworthy just to remember in their future growth prospects. If you then go on to the page dealing with value drivers and enablers, I did speak about the experienced management team, but I just wanted to pause for a minute there and say experience is one thing. Alignment and culture connection is a different thing altogether, and we had a really positive experience from the first time that we met this team. I've said it before, but the thing that I really like about this business is it gives Mr Price Group an independent platform for offshore expansion across a continent that is underpinned by a move to value, and that's absolutely critical to us.
Specifically within NKD, they do a very good job in data science tools. I did touch on it earlier, but I'm not going to elaborate too much, and that is things that do aid their decision-making informed by tech and data. They've got really strong sourcing capabilities, and that does support an improving GP margin that we've seen from the business in recent years. Part of that is leveraged through an internal buying office that does produce efficiency and allows some of those margins, and I think we've really touched on point four already, which is the track of growth and expansion opportunities. I was talking a little bit earlier about NKD being an award-winning retailer. I think if you just look at the sheer number of awards, and these are things that have been voted for by customers, except the last one, Employer of the Future.
I think that tells its own story. So, absolutely being recognized, the brand strength being highlighted, and I'll let you just read what those accolades are. So in the case, and I'll just explain one or two, Best Value for Money, they've won that award nine times. T he next one, Best and Most Popular Brand, they've actually won that eight times consecutively. T hat's what that infographic means at the bottom there. So I think we don't have to talk about the strength of the brand when you've got those kind of accolades. Okay, I'll go into transaction summary now, and you would have already read this in the sense, so it's not a great deal of further insight here. You can see the EV, the equity value, and the shareholder loans. Just want to stress that the lockbox date is the 30th of June 2025.
And obviously, that maximum purchase price is the maximum up until closing date. That's the lockbox date. T o the extent that closing does happen sooner, then that 487 won't be reached. We did say that it was going to be settled in cash and a combination of debt. T he conditions that still have to be met for control to change really is regulatory change in Europe and with the Reserve Bank in South Africa. So it's difficult to say at this stage, but closing is expected between April and June 2026. You go on to a bit more of the financial considerations now. A s I said a little bit earlier, the numbers that you see in that table are the periods that we had to comment on.
Obviously, when conducting DD and arriving at valuations, there's another period, which is December 2025 that we've had sight of and the forecast, which I did mention, but these are the absolute numbers in terms of the history. Importantly, we've also hedged it, so we've taken currency risk out of the equation and if you look at the debt to EBITDA ratio, I think we've got comfort up until 1.5. Our balance sheet would, sorry, debt to EBITDA, our balance sheet would certainly be able to handle more. I'm comfortable sort of in the 1-1.5 range, and I think that's where we'll land in the long term, so I'm comfortable at that level. That said, the debt that has been arranged has been debt to secure the transaction. We'll certainly do some longer-term capital structuring review.
And to the extent that that may change, we'll be informed by the outcomes of that review. T hen just in closing, I think there's just a couple of comments just to bring it all together again. The first is that, just to reiterate, the strength and the performance of the South African business, which is still by far the bulk of our business, is absolutely not negotiable. No distraction by forced integration. Management teams from South Africa aren't going to be running across to Europe all the time. Local management teams will be devoted to local efforts. We are very comfortable where we landed with the valuation. Of course, when you do valuations, you look at a multitude of things. You look at recent transaction multiples, of which, in fact, there weren't many. They were sort of pre-COVID, most of them.
You can look at trading multiples of listed companies. T hen, of course, you've got a DCF, which can be run in a whole array of multiples and scenarios. W here we landed on the DCF, and I said it was a really cash-generative business, we are very comfortable where it fits into that range of the scenarios that I just spoke about. One of the things that will change in the short term is the financial calendar of the business. They're a December year-end. They haven't been part of a public company. We've got, obviously, two reporting periods during the year. W e'll make sure that the reputation that we built up in recent years of being transparent with the market, that will be continued with the inclusion of NKD. A t the point where we can share more information, we'll do so as soon as we practically can. All right, that's it from the presentation side of things, and I'm quite happy to open up to Q&A at this point. Great.
Thank you, Mark, and thank you, everybody, for joining. We've had a high volume of questions that have been put through on this call and also since the announcement this morning. So thank you very much for those, and we're going to do our best just to get through as many of the themes as we can because there are a lot of individual questions. Mark, just to start with, just talking through learnings about previous SA Ventures Offshore for MRPG and how this differs to that.
Yeah. Sure. Thinking back to 2019, when I took over leadership of the business, excuse me, I think one of the first things that I did was I actually closed down some of our foreign operations. We were in Australia. We were in Nigeria and one or two other territories. I think the process that we've been through now to evaluate territories, I guess, to pinpoint exactly where we want to trade, the amount of work that we do, analyzing the customer and trends, as I've spoken about, is completely at a different level. So I think that was the biggest departure that I think I wasn't in charge at the time, but certainly, I've taken research to a different level. It's research informed by management teams and a lot of external research. So I think we've got all the data we need to really make informed decisions. I think the other big departure was that we took a very different approach in those days. In fact, it is the polar opposite of what I'm doing with NKD.
We led into other countries with our brands, which was, I suppose, I suppose you could say it's a bit arrogant. We didn't know those markets well. The consumers in those markets certainly didn't know our product well. We couldn't afford to spend a lot of funds on marketing because that would have absolutely destroyed the bottom line in those businesses. I t really was a tough thing to get off the ground because my predecessor did that through not appointing management teams in-country. Things were done off the side of desks from South Africa. I f we listen to the last half hour or so, that's all the things that have changed. It's independent management teams in-country, underpinned by research. V ery importantly, we're not trying to establish new brands in those countries. The brands are established already. They've got track record, and they've got recognition.
Great. Thanks. Just to note, just on the questions, obviously, we are going to deal with the questions that we can answer at this point in terms of the information we can share. Mark, there may be some repetition on topics that you've covered, but I think it's worth answering them. Just questions with regards to, do we view South Africa as ex-growth, or is there still opportunity here?
Yeah. Yeah, look, I just want to reiterate what I said at the results presentation at November. I think we're in a really good position in South Africa. We're gaining market share. We've got consistent returns. There's no doubt that trading in South Africa is tough at the moment, but I think we've got brands, and the great thing is that we've got stores that can go to many different locations.
The returns that we're getting from those new stores are really good. It'd be a different story if we were opening stores and they weren't delivering. So I think whatever we've done in South Africa, we've done a lot of top-line building. In the last five years, we've done a lot of infrastructure building. I'm not having done all that only to let go of it. So South Africa is first and foremost in our minds. Y eah, in fact, it's often forgotten that the fact that South Africa has been performing so well, that has given us the license and the ability with the strength of our balance sheet and with the cash that we've got to enable us to make the growth investments that we have, including NKD. So a good-performing South Africa is a huge part of our arsenal and is still the absolute focus.
There've been quite a few questions just relating to, obviously, many businesses having been assessed through the research process, and so other than the reasons that you've given, or if you want to just repeat some of those, what's given you conviction that NKD was the right business relative to the ones that we turned down?
Yeah, well, look, I think, first of all, we've looked at more than one geography. That's important to note. We had developed a list of criteria that we wanted to be satisfied, and when I was going over one of those slides about NKD and what they bring, I think the things and the similarity to Mr Price in our own operations, I think that sort of answers that question. A big part of it is the merchandise, the positioning.
When we first engaged with the team and we went to visit them, we spoke a lot about our cultures and how the cultures work in each business, and I can't speak highly enough about their culture and the alignment to cultures that we've got, so if there wasn't that part of it, even if a business was really attractive at face value, if there wasn't alignment with the management team and a cultural alignment, I think it would be a very difficult fix, so it's a lot of the soft things also that are critically evaluated, and I suppose me and the team that joined me got a very, very good and positive start to that engagement, so we're very satisfied on that front.
Okay. Quite a few questions moving more into the returns area. So can you just elaborate on the extent of the dilution of this business on MRPG?
Yeah. Look, I think it's going to be difficult talking at this point because dilution, I suppose, depends on the performance of Mr Price and the performance of the target, in this case, NKD. So I'm not going to be able to talk in absolute terms. I t is sort of aligning back to what I said earlier about getting access to this kind of opportunity with all the layers of potential growth that are there. There is obviously a cost of getting into that business. So I think we landed in a place that we're absolutely comfortable. Yeah. Happy to leave it there. So just to answer the question, absolutely. It's not going to be earnings accretive in year one. W hen I was talking about December 25 and forecasts, I think it doesn't take long for that to change.
Okay. Praneel, thanks for waiting patiently. There's some questions coming through to you. Are you able to give more color on the business's GP, EBIT, or Operating Margins?
Yeah. Thanks, [Matt]. Just talking about metrics just in general, I think the Mr Price management team have been known to be quite focused on metrics. It's how we run the business. T hrough the process, I would say that we were also quite pleased to see the NKD management team also as focused on metrics as we are. In fact, that was one of the things that we loved about the business. So some of their metrics are better than ours.
As Mark mentioned, I think the team has done a really good job in terms of how they've used insights in terms of their data-driven tools and how they've been able to leverage that to positively impact some of their metrics, and then there are other metrics where there's some work to be done, which we absolutely see as an opportunity for that business. I think what's important when we talk about metrics, though, is to take into consideration that NKD is operating in different territories with different nuances to South Africa, so some of their metrics, obviously, will be impacted by those different nuances. I think at this point, what we can say from a metric perspective or just talking about business metrics is there's information that we cannot disclose, so we cannot go into specifics about the metrics at this stage.
After closing, which Mark mentioned, we're expecting to be around the second quarter of 2026. I think you'll get a better feel for the business metrics, and then you'll be able to get a clearer look through as we get into our standard operating cycle moving forward. Thanks [Matt].
Okay. Just thanks, Praneel. While we have you, you've guided the markets on the medium-term targets of the Mr Price Group from June. How should we think about these going forward with NKD now in the operations?
Yeah. I mean, if I just spend a few minutes talking about management's approach to medium-term targets, you will know that we've refined this quite specifically over the last few years. After the three acquisitions that we had done locally in South Africa, we spent some time modeling what that would mean from a business model perspective and how that would look like over the next 18-24 months. So when we had put out medium-term targets about two years ago, we said that was an 18-24-month view in terms of what the targets look like.
A s you would have seen recently also where we have met those targets, we then increase those target ranges going forward. I think it's important that the investor community take comfort that management will take the same approach when it comes to medium-term targets now moving forward after the NKD acquisition. So we will spend some time once closing is done, the closing conditions are done. T o note that we're in a budget cycle at the moment.
So when the budget cycle is concluded, we will then take into consideration what the medium-term ranges look like. I n due course through the upcoming reporting cycles, we will then put out what those medium-term targets look like so that there's more clear, consistent messaging of how we see the business and also will provide help to investors in terms of how they model the business. I n the most immediate short term that you mentioned, June, I think the medium-term targets that we put out is how you should think about the business, the SA business. W hen we have more information and when we are able to share more in terms of those outlooks, we will do so.
Great. Thanks, Praneel. Mark, just back over to you. Just in regards to the introduction of debts into the business, at what level at a maximum are you comfortable with? J ust several other debt questions relating to whether debt facilities locally finance or is there offshore risk to them?
Yeah. Yeah. I think I said in the presentation, I did cover that our own sort of internal cap on things is probably one and a half times debt to EBITDA. I think that's probably the peak of our comfort level. I'm very comfortable at one to one and a half times. I think that's something that, given the cash generation, we can comfortably manage. Y eah, I think I also did touch on the financing and the debt side of things as well. Yeah, it is local debt initially. T hat has been to secure the transaction whilst we're going to be thinking longer term about this more structural debt and how to think on a longer term basis. That thinking will come after closing.
Thanks. I think that you did answer this in the presentation, just particularly in light of debt being introduced, which is expectations of the dividend. I think that that point is covered. So I think just to end with this question, probably one of the most frequently asked, whether it was through an EV-EBITDA basis or a PE basis, just how comfortable you are with the multiple and the assessments that were made to get there.
Yeah. I think the short answer is I'm comfortable. I've obviously seen some of the comments that's floating around out there. G uys, you don't buy businesses on those kind of multiples. I think we know that better than anybody. We've always been good allocators of capital. I think, unfortunately, you don't have the levels of insight that we've had and the DD insights that we've got.
So I think that's where a bit of trust has to be placed on management that we are allocating capital wisely. A s I said, when you look at all the various things that are going to inform valuation, I'm very comfortable where we've landed. I've honestly got no issues with it whatsoever.
Great. So Mark, Praneel, thanks very much. J ust thanks very much to everybody for joining in today, particularly at short notice. We really do appreciate all of the engagement. Where we can respond to some of the emails sent through and some of the questions, we will do just based on information that's available now. O bviously, as we move through the process to closing, we will disclose and engage with the markets as soon as we can. Our results for quarter three festive trade will be released towards the end of January. W e look forward to speaking to the market then. Thanks. Thank you, everyone.
Appreciate your time.
Thanks, everyone. Cheers.