Good morning, everybody. Welcome to the Pick n Pay interim results presentation. Firstly, I need to apologize for my voice. Nothing I can do about it. I lost it this morning, and hopefully it'll last. I should maybe borrow some of Lerena's water here. I saw her filling it up with vodka a little bit earlier on. Thank you very much for coming. Relatively short notice, we decided to go to have a physical meeting, and welcome to our people who are watching us online this morning. I think this is the first time we've had a formal public face-to-face meeting, I think, in four years. Last time was in, David tells me, in October 2019. So it's great to be back here, to have you all here, and I'd like to welcome a lot of the Pick n Pay executives.
We've got a few of our directors here. Welcome our new CEO, Sean Summers, and particularly like to welcome our honorary vice president, my mother, Wendy Ackerman. Thank you very much for being here with us this morning. The directors don't normally come, but it's wonderful to see them coming to this presentation this morning. Thank you. This is the first time I've addressed you since the founder of Pick n Pay, my father, Raymond Ackerman, passed away last month. I really would like to thank everybody for the really kind condolences, messages of support, and just outreach that we've had from so many people, so many organizations. It's been absolutely heartwarming and most appreciated by the family. The sympathy and the support has really overwhelmed all of us, and thank you very much.
It really goes to underscore what a caring and special person our father was. He had a great passion for Pick n Pay and all its people, and we will work really hard to continue and to rebuild my father's great legacy. The six months from March to August were among the most difficult South African consumers have had to endure in recent years. Load shedding reached its worst level since we first experienced it in 2008. This has had a disproportionately negative impact on the retail industry. Food inflation topped 14% in March, its highest level in 14 years, and the price of fuel has risen this year alone by over 20%. Interest rates have also reached their highest point since 2009, thanks to 10 successive increases since the end of 2021.
All of this has proved to be a potent cocktail that has once again put consumers under extreme financial pressure. When I spoke to you a year ago, I referred to several worsening problems in the macroeconomic and socioeconomic spheres. Today, I'm disappointed that we have seen little or no progress in them. In short, South Africa is negotiating one of its most turbulent periods since 1994, and there is significant uncertainty about the country's future trajectory. The performance of Pick n Pay, to some extent, reflects the difficulties in the economy and society. Even though we are proud of our efforts to support consumers with lower prices and to keep internal price inflation well below CPI, well below CPI food, there is no avoiding the conclusion that the group's results is extremely disappointing.
There are, however, some encouraging signs, and the Pick n Pay story is really one of two main operating brands, Boxer and Brand Pick n Pay. Boxer delivered double-digit South African sales growth and is the main growth driver for the group at the moment. There are now 454 Boxer stores countrywide, each of them delivering on the promise of the lowest possible prices, and they are supporting millions of lower-income customers through this challenging period. The group will continue to support the continued growth and expansion of the Boxer brand, and I really need to congratulate the Boxer team on their performance in this very difficult and extremely competitive market. Under the Pick n Pay brand, the same can be said of the Pick n Pay Clothing Division, where sales of standalone stores also grew in double digits, leading the market.
This is proof that this strategy is working. We've seen superb online sales growth, driven by growth, strong growth in our on-demand platforms, ASAP and Pick n Pay Groceries on Takealot's Mr. D app. Income from value-added services also grew encouragingly as the group focused on maximizing opportunities in banking services, financial services, and mobile. We are encouraged that our businesses in Zambia and Zimbabwe also have performed really well, notwithstanding the incredible political issues in Zimbabwe. Our franchisees continue to be a core part of our business, and it's important to acknowledge their continued contribution to the group. More than 40% of our 1,599 Pick n Pay stores in South Africa are owned and run by franchisees, and they epitomize the entrepreneurial, entrepreneurial spirit my father displayed when he began Pick n Pay in 1967.
The performance of our Pick n Pay business, however, has not met expectations. The board reflected on the latest performance of the Pick n Pay grocery business and resolved that decisive action was required if we wanted to turn this business around from its current trajectory. The board has appointed Sean Summers as CEO, with effect from the first of October, to lead the company, and he's doing this with immediate effect. Later in this presentation, you will hear from Sean, who will have more to say about his first impressions. Just as an aside, we've had a number of discussions, and Sean has met a number of people around the company over the last week or so since he's been here, and it is really exciting to see the enthusiasm and excitement that he is engendering into the Pick n Pay people.
The Pick n Pay board's mandate is to focus on our core retail business as a priority. During our earlier years, consumers felt a close connection with Pick n Pay. They felt the group was on their side, and that sentiment made our group the clear grocery market leader in South Africa. Sean's task will be to reestablish that connection, to rekindle customers' love for the Pick n Pay brand, and to make it a meaningful part of their lives once more. Concurrently, the other levers of the company need to continue to be developed. The key element of the shopper experience will be improving levels of customer service in our supermarkets by energizing staff and focusing their efforts. We recognize that we need to improve our relationships with our suppliers, understanding their businesses and supporting them in a mutually beneficial way.
We need to optimize the performance of the 130 stores that we have upgraded in the last 18 months, ensuring they achieve an appropriate return on investment. These are the non-negotiable basics of retailing. They've served Pick n Pay well for nearly 60 years, and they will continue to do so in the future. In Sean, we have a globally experienced, world-class retailer who understands these basics and how to implement them, implement them better than most, and we have every confidence in his ability to build back the heart of what Pick n Pay does best. I'd like to thank Pieter Boone and his team for the dedication they've shown in the year to date.
The high cost of load shedding, in particular, has taken the gloss off their achievements, but they can be proud of the way they have delivered in most of our defined strategic pillars. I would particularly like to thank our staff and stores throughout South Africa and the six other African countries where we operate, for their hard work and ongoing commitment. I'd now like to thank Lerena Olivier to present our interim results. Lerena, thank you for your excellent leadership, particularly over this very difficult period. It's appreciated. Thank you.
Thank you, Gareth. Good morning, everybody. It is good to see. Oh, thank you. Physical faces. It's been a very challenging half. As Gareth has mentioned, our customers have been battling with high inflation, interest rates, and load shedding has become a way of life. All our customers are under pressure, but none more so than our heartland customers. In these very challenging times, we've stayed focused to try and deliver as much as possible value for our customers, and our internal selling price, below that of CPI Food, is testimony to that. However, as Gareth has indicated, this has come with a cost. Load shedding has increased our expense lines, but with margins under pressure, specifically in Pick n Pay, Pick n Pay had very limited ability to respond in an increasingly promotional market.
As a result, the group delivered a disappointing turnover performance of 5.4%, 2.3% on a like-for-like basis. Our gross profit margin declined by 90 basis points, and I'll give more detail on that decline in the later slides. Our expenses increased by 13.7%. Although our trading expenses were well controlled, at 5.7% on a like-for-like basis, the group delivered a trading profit of only ZAR 51.8 million. For context for the result, it's important to note that the trading profit did include ZAR 596.5 million of abnormal and once-off costs. ZAR 190 million of that is net incremental energy costs due to the relatively high levels of load shedding this half than in the base last year.
We had ZAR 259 million of once-off people restructuring costs relating to our VSP and junior store management program, and we had ZAR 116 million of duplicated supply chain costs as we transferred from our Longmeadow to our Eastport distribution centers. However, excluding these costs, the trading profit was ZAR 596.8 million, still down on that of last year. Our South Africa operations, which is 96% of our business, grew turnover by 5.1%, like-for-like 1.8%. As Gareth has indicated, this was driven by a very, very strong performance of our Boxer business, up 16.1%. Despite the pressures in the market, we continue to invest in our growth engines, and they delivered pleasing results. The Boxer turnover growth has resulted in them being up 30 basis points of group participation to 33%.
This was supported by space growth of 10.2%. Our clothing division grew 13.8%, 4.4 on a like-for-like basis, with trading space increasing 13.5. Online sales delivered growth of 76.3%. If we look at what On Demand did on our ASAP and Mr. D platform, that turnover doubled, something that we are very proud of. The group's liquor business, sales were up 9.3%, with space growth of 5.7%. We opened 26 liquor stores during the period, bringing the estate now to 669 stores. Pick n Pay South Africa, across both Pick n Pay and QualiSave banners, grew turnover 0.3%, like-for-like 0.8% for the half.
Relatively lower levels of load shedding in the second quarter did allow Pick n Pay to re-intensify its promotional campaign, and the sales momentum improved from a contraction of 0.4% in the first quarter to growth of 1.1% in the second quarter. We continue to prioritize like-for-like sales across the Pick n Pay banner, and we closed non-profitable stores with a negative traction of 4 in own stores and 7 in our franchise business. Boxer South Africa, as we've indicated, had high sales growth, and it extended its sales growth momentum across both quarters. This was driven by a strong store opening program and like-for-like turnover growth of 4.2%. As mentioned in my opening remarks, we continued to try and ensure that we give the best value for our customers.
We are operating in a depressed economy with persisting high inflation, and consumers are under severe financial pressure. During this half, we contained our internal selling price inflation to 8.3%, compared to CPI food of 11.4%. South Africa's leading Boxer continued to deliver strong, strong organic growth. Customers increased 14.6% for the half. The business opened 27 new stores compared to the 26 of last year. These were predominantly liquor stores. However, during the second half, the supermarket ramp-ups will increase. The team is guiding 55 stores for the second half. This is below the original guidance at the beginning of the year of 75. The business has got full capital allocation, and the lag between the guidance and what will be achieved this year is purely as a result of timing.
We've got a strong store opening pipeline, and we're on track to deliver the 200 stores by FY 2026 and doubling sales for this business unit. It's through Boxer's sales momentum and extremely efficient operating model that they were able to weather the storm of this half, and we foresee that Boxer will grow full year earnings in FY 2024. Our clothing standalone stores, they grew their sales by 13.8%, 16.5% on a two year CAGR basis, well ahead of the market. The division gained market share across multiple segments, but the highest market share were gained in men's and kids' wear. Hazel and her team is on track in growing this business. They've reopened a flagship store in Sandton recently, and they will be producing 3 collaborations with leading South African designers in their Futurew ear program this year.
They've opened 20 new company-owned stores and are on track to deliver the 60 we've guided at the beginning of this financial year. As I've mentioned, online has delivered strong turnover growth, backed by doubling on demand on ASAP and Mr. D. Our online execution continues to be ramped up. We now have 25,000 articles on ASAP, delivered from 500 stores. Our reduction in order preparation time is 36%, and there's a 20% improvement in the delivery time. All of this is underpinned by a world-class AI search engine, to be honest, that can even correct my typos. We've relaunched the ASAP app, it's got a great new, fresh look and feel, and is really a better shopping trip for the customers. I can see some nods in the audience. ASAP, combined with our offering on Mr.
D, through that, we have got two channels that we are very well positioned to grow in this dynamic market. Our gross profit margin, at 18.5%, contracted by the 90 basis points from the 19.4 last year. The first item to note is a reallocation of 30 basis points between our gross profit and our other income. The reason for this is that we are on a journey with our franchisees to modernize our franchise model. The objective is to create a win-win scenario where both parties benefit. Ultimately, we want to offer the franchisees an improved cost, and therefore support their profitability, while we benefit from increased volume and franchise fees. We started trialing that model during the second quarter of this half, and early results are positive.
The model is broadly cost neutral for us for this half, with future benefits for both parties into coming financial years. As a result of that 30% reallocation, you will see that our underlying gross margin on the chart is 19.1%. That gross profit margin was negatively impacted by the duplication cost of ZAR 116 million for the transfer from Longmeadow to Eastport, and a once-off 0.2% reduction is reflected in this half. Our underlying gross profit margin, however, contracted by 40 basis points. The reason for this is increased promotional participation, as well as a reduction of supplier incentives received.
Lower supplier incentives were partly due to the cutback of our CVP revamp program during this half, as part of our prudent capital approach, and the related supplier support reflected in the base was not repeated this half. Our other trading income, excluding the cost neutral impact of the franchise model and the insurance recoveries in the prior year base, grew 7.3%. Our franchise fee underlying income grew 3.8%, and our value-added services, included in our commissions and other income line, was up 13.5%, supported by our banking and financial services. Value-added services remains a key growth driver for the group, and we believe that there is a lot of value that we can still unlock in this line in the future.
Our trading expenses increased 13.7%, excluding the abnormal costs, 9.1, was like-for-like, up 5.7%. The increase in the trading expenses overall is broadly as a result of three items: the abnormal costs, as I've previously articulated, are ZAR 565 million, the growth in our new store rollout program, both in Boxer and in clothing, and exponential increases in load shedding, security, and insurance costs in South Africa. The underlying cost control, illustrated by the 5.7%, remains strong, and this reflects ZAR 124 million of energy savings as our energy saving initiative is starting to bear fruit, as well as Project Future savings of ZAR 334 million rand, driven by procurement of procurement of goods not for resale and tighter scheduling and multi-scaling. Our Project Future initiatives are on track.
The increase in our employee costs, our largest expense line, reflects that. Excluding once-off costs, employee cost is up 5.9%, but on a like-for-like basis, only 2.8%. As Gareth has also articulated, the impact of load shedding continues to have a profound impact on the group and the country. All our stores across both the Pick n Pay and Boxer estate have generators and are fully operational during load shedding. However, we have incurred a full ZAR 396 million of diesel to run these generators during this half, and as I've mentioned, ZAR 190 million of estimated net incremental costs has been added. We've made good progress on our energy savings, and we are on track to deliver the ZAR 200 million we've guided that we believe we can optimize, this half.
However, the impact of load shedding remains, not only on the cost line, but also on customer disruption, on our supply chain, and procurements. The team remains focused on this challenge. The group's rest of Africa segment contributed ZAR 2.7 billion of turnover, in a constant currency basis, up 12.2%. The profit contribution of 84.2% is down 36.2% year-on-year. This was largely driven by a decline in our Zimbabwe profitability, down 55.8%, as the impact of hyperinflations and currency devaluation in the country impacted the profit contribution in rand. This was offset to a certain extent by the profitability in the other countries we trade in. Trading in the rest of Africa remains a challenge. The group's net gearing at the end of August was ZAR 3.8 billion.
This is an increase of only just over ZAR 100 million from the 3.7 at the end of February. The limited increase in gearing, in spite of the trading loss recorded, reflects an intense focus on working capital management and prudent capital allocation. We have also raised ZAR 5.5 billion of long-term debt, of which we've drawn down ZAR 4.5 billion, and half of the group's funding facilities is now long-term in nature. The group's net debt to EBITDA, excluding once-off costs, is at 1.6 times, in line with what we've guided for this half. There is more detail on the gearing position in the appendix to the slide presentation that we've uploaded onto the website. The cash flow profile for the last six months illustrate our underlying focus on ensuring that the free cash flow was optimized in a very challenging trading period.
Our focus will remain on strong liquidity in the second half of this year. The group released ZAR 2.1 billion of working capital liquidity during this half, due to focused programs to ensure that we optimize this in very important funding line for the group. This was supported by an inventory decline of 6%. The unwinding of ZAR 400 million worth of stock, which we had duplicated at the end of February, due to the Eastport Longmeadow transition, has been fully unwound. And I would like to actually take this opportunity to congratulate Marcel Besson and his team for a very smooth transition to one of the largest distribution centers in Africa. But importantly, the entire team focused on ensuring that we clear exit stock, we sell through investment buys, and we improve overall stock efficiency.
As a result of that, we released ZAR 1.3 billion worth of working capital through this process. We've invested ZAR 1.9 billion in capital projects during this half. As guided at the end of our FY 2023 full year results, we were going to follow a prudent capital allocation, given current uncertainties in the trading environment. Our focus, however, remain on our growth engines, Boxer, omni-channel, and clothing, and these business units have received full capital allocations. We have, however, reduced the plan rate of CVP conversions with an impact on supply incentives, as I've detailed previously. We've successfully sold our Longmeadow distribution center that resulted in ZAR 500 million worth of cash inflow, so our net capital outlay for the half is ZAR 1.4 billion, compared to the ZAR 1.5 billion last year.
Guidance for the full year remain at approximately ZAR 4 billion worth of gross CapEx, ZAR 3 billion net of proceeds of asset sales. This includes the investment in Tomis, a state-of-the-art abattoir meat packaging and processing business, which will allow the group to reset and really improve its fresh meat offering to our customers and to our franchisees. The group recorded a pro forma loss of ZAR 837.2 million, a disappointing -1.5% of turnover. This compares to the pro forma profit of ZAR 580 million last year, at 1.1% of turnover. This chart illustrates the progression from last year to this year.
Before taking into account any abnormal cost item, the loss was ZAR 272 million, or a contraction of 0.5% of turnover, as illustrated in the middle of the chart. So what was the reason for the decline in profitability? Firstly, the 40 basis points of pressure in our gross profit margin, as I have detailed. Secondly, 60 basis points from negative operating leverage. Although our trading expenses were very tightly controlled, ultimately, they outgrew our sales performance, and lastly, an increase in our financing cost, reflecting our increased gearing and increase in interest rates. All these elements resulted in an underlying pro forma loss of ZAR 272 million. In summary, this was a difficult trading period for the group. We had some encouraging successes that will definitely stand us in good stead for the future.
Our Boxer business continues to grow profitably. Our clothing business continues to gain market share, and our online on-demand sales across both channels of ASAP and Mr. D sets us up for future growth. Our efficiency journey is on track. Project Future is delivering savings as planned, and we are focused on ensuring balance sheet stability through strong working capital and prudent capital allocation. However, there is no hiding from the disappointing performance of Pick n Pay. Looking forward, tough trading conditions are likely to persist. We are in a low-growth economy. Our customers will remain under pressure. We expect continuing load shedding, and there's an uncertain inflation outlook. There will be some reprieve from pressures for our H2 result relative to H1.
The first is earnings seasonality, secondly, the non-duplication of the Eastport to Longmeadow transition costs, and similar levels of load shedding expected year-on-year compared to last year, as well as some Project Future benefits expected in the second half. All of that considered, however, given the tough outlook, we still expect that the H2 earnings are likely to be behind that of H2 last year. Our key focus is now on revitalizing the Pick n Pay business under Sean's leadership. And with that, I want to hand over to Sean.
Thanks, Lerena. Morning, everyone. Thank you for being here. And Wendy, welcome, and colleague, non-executive directors, the market, everybody. Why are you looking so sad? It's not the end of the world. We can't even see it from here. It's just, for me, a huge privilege and an honor to be back in the place that I love, the place where my heart was, was. I left here physically, but I think a little piece of me always remained here in this very, very special place with these very special people. And it's equally distressing for me as it is for all of us in this room, the family, Wendy, the shareholders, everybody, to see our beloved Pick n Pay in this situation.
You know what I always said in my previous time when I was with this company, that our relationship with the market, specifically with the investor market and analysts, would always be one of truth. Because the problem in my entire life, and I started in this company in 1974, is that wherever you go, and then people say, "Now, what do you do for a living?" So, you know, "Well, I'm a grocer. I'm a baked bean salesman. I work at Pick n Pay." And then they tell you, "Oh, but I was in the store, and this was wrong, and this cashier was talking to the shop packer or the till packer." And so that was the story of my life. So this is now returned to beset me once again, because I'm back being a green grocer.
The truth of our business is simply the truth. People know what we do for a living, because what we do is on display. So for all of you, very, very important, bright people in this room that work in the investment market, you are analysts and the like, and work in all of these financial markets, and that I've seen around the golf clubs while I've been taking a little bit of time off, I actually don't really know what you do for a living, other than you do with the money that we give you to invest. You know what we do for a living. And the fact truth is that Pick n Pay has fallen out of love with its customers, with its people, with its suppliers, and this is what lies ahead of us, and this is why it's so exciting.
Because from here, we go up. It's as simple as that. We will put back into our business the energy, the passion, the love for this great, great industry that we are privileged to work in. Because here's the extraordinary thing for me, and I've shared this story quite a few times since I've been back with my colleagues. You know, they all say, "Sean, at your age now, you know, what do you know? What do you understand?" You know, this is like, what my great friend, Rob Rose, call me, a pensioner. Okay, you know, what would you know as a pensioner? And I share this story with him, that the more things change in life, the more they stay the same.
So, you know, when I was born and raised here, I was born in Cape Town in 1953, and I was raised in Palmyra Road in Newlands. And I remember when I must have been sort of seven, eight years old, how my mother used to provision the home, and she'd pick up that old telephone. We used to dial like this. For a lot of you younger people in the room, you'd have to go to a museum to see the phone that I grew up with. But my mother would dial the phone and all of the groceries, and a few hours later, the fellow would arrive on a bicycle and bring the groceries to the house, because there were no supermarkets in those days, and that's how we provisioned the home.
There was a coupon and a milk bottle at the gate, and that's how the milk arrived. So if you really ask yourself today, I mean, what has changed? So the internet has replaced that phone, and the ASAP scooter replaces the bicycle. We're not eating six times a day because of the internet. We're eating the same fresh foods we used to eat. We eat the same food that we used to eat. So in essence, none of these things really change. And to a degree, the thing that really pleases me so much is that we, to a degree, almost taught those people in Brackenfell, at that office that's on the other side over there, how to do this.
Because if you think back to the original Vuselela campaign that we did in Pick n Pay in the late 1990s, where we refurbished every single store and put all of the fresh on the floor, and opened up the delis, and the bakeries, and the tea shop, and had a real love and passion for the people in the business. They just took our playbook and threw it back at us. So the question in this room from all of you, and a very reasonable question, is, well, what are you gonna do? You're back here now. What are you gonna do with the business? Well, the simple truth is, we are just going to execute properly. We're going to execute consistently. We're gonna get the passion and the love back into the business again. We're gonna get the passion and love for our customers back in the business.
We're gonna get the hearts and minds of the people back, because that's so important, because without that, you cannot run these retail businesses. I mean, in my time now that I've been away, I've been doing some advisory work for the world of Steinhoff all over the world. We had a place in Houston for four years. We lived in Houston for about 5, 6 months of the year. In the apartment building that we were in, there was Whole Foods in the bottom. Or as they call it in America, Whole Paycheck, because it's fairly expensive to go and shop in Whole Foods. You know, I mean, I watched Whole Foods grow from really nothing out of Austin into this most fantastic business in America .
Then it was bought by Amazon. You know, Mr. Bezos's mission to conquer the world. They bought Whole Foods, and it's just incredible to see how Whole Foods has just gone like this, because the passion has gone out of the business. Retail is about passion at the end of the day. You need to understand product, you need to understand placement, you need to understand the theater, because we're in the attraction game in this business. In today's world, the one thing that has changed is that consumers today have what I call a promiscuous lifestyle, in that they have both a virtual and a physical relationship with the businesses that they engage with. So they'll do some online, and they'll do some physically.
But here's the simple truth: If you do not reward people today for their time, if somebody gets up in the morning and grants you of their time to come to your store, your business, and you don't reward them for that time, guess what? They ain't coming back. They ain't coming back. You're gonna have to do a hell of a lot to get them to come back. So we have to be truthful with ourselves. I mean, you know it. You all shop in Pick n Pays, bloody well better. Okay? You know it. You can go into the stores, and you can see it. So for us, this is the journey that we embark upon. So to the very good-looking, elegant, pretty, well-turned-out, people who are here today, we really appreciate you being here today.
And you know, one of the things that I said when we were talking about today's presentation is that for those of you who know me, those of you who don't know me, I'm more of a touchy-feely kind of person. You know, I'm not. I mean, this Teams problem we have in this world today. You know, I was sharing with my colleagues here that in our business, we've got 90,000 associates, roughly, across the company, about 1,000 here in Kenilworth in support, 500 in Kensington and Johannesburg, and in Boksburg and KZN, another 500. So sort of 97%-98% of our staff are at stores. They go to work to work. What makes us so special here? Can you imagine if Rassie, last Thursday, said to his team, "You know, sorry, guys, I'm working from the hotel. I'll be in Teams.
There'll be a little arcade in the stand. You'll see me there." Okay? So, we're gonna get a culture back in this business today, that we are a team, we work together, we play together, we have fun together, we suffer together. And you know what? It's in the toughest of times that the true metal, that the true growth comes out in people. So, Lerena, to you, Penny, all of your accounts team, all of you lovely people, you just grind away all of the long, hard hours to put this together, because when things are tough and the numbers are bad, it's even tougher to get up and show some strength, and character, and backbone, and what have you.
When I have a look at the people in these buildings, and we off to go and get around the rest of the country in the next couple of days, when I have a look at the just the beautiful smiles, when you have a look at just at the beautiful willingness in people to actually get up, go forward, and get it done. So, yeah, we are a little bit on the back foot at the moment. Make no mistake, we've been there before. We've been here in the mid-nineties. You know, everybody follows the cycles in the market because these things are cyclical. Nothing ever goes up in perpetuity. So things do move in cycles, but we've been here before.
Some of my colleagues from those days who's still around, you know, it's funny, when I came in the room, and in this room here, we had to do them, like, in groups of 200. And I asked them, the first question was, "Put your hands up, who was here when I was last here?" And there'd maybe be a sort of a snatching of hands a nd then you ask them the question, "Well, who, who hasn't Googled me?" And then you get sort of two or three hands that would go up. But, you know, our people are extraordinary in this country. Extraordinary.
It's one of the things that struck me, you know, one of the great things for me, being involved in the trenches in the Steinhoff world, is that working in all of these different geographies, from New Zealand to Australia, to through Europe, France, Eastern Europe, England, America, nothing like South Africans. Nothing. You just get It's just like instantaneous, what you can get out of people in this country. We are the most beautiful people in the world, the most beautiful people in the world. And it's through people that we will win at the end of the day.
You know, one of the things that really went down, and I've said this on many occasions, one of the most beautiful things with me, with the sad thing with Raymond's passing, one of the most beautiful things was that in this world today, this divisive, horribly polarizing world that we live, where you always get cretins on one side that are just throwing poison out into the world and all of this stuff. There was virtually none of it with Raymond. There was virtually none of it. There was this universal love, passion, and respect for the man that did so much in this country for everybody. I mean, I remember my formative young days in the late 1970s, the early 1980s, in the really dark days in this country, when Raymond and Wendy were just breaking all of the laws.
There was no such thing as toilets and canteens for color. I mean, Wendy, those were the first housing schemes that you did in Soweto in those days, in the late 1970s, early 1980s. Housing loans for staff, all of these things. The legacy that Raymond created in this country, beyond extraordinary. Beyond extraordinary. And then the day that the news came out that I was returning, I had nearly 400 WhatsApp calls on that day. Every single one of them, positive. Every single one of them, "We want our Pick n Pay back." And that's what we're gonna do. We're gonna give you your Pick n Pay back, and we can only do it through people. We can only do it through our stores.
We can only provide our people that patronize our stores the optionality of coming in physically, shopping with us virtually through ASAP and all of those things. You know, there's all of this reality out there in the marketplace that our friends from Sixty60 who've got this massive leap on us. We started it. We were the first ones in this space. So there's nothing really that special at the end of the day. It's all about execution and people. So that's what I want to share with you. Your big question, obviously, will be, well, how long is this gonna take? You know, they always say behind every successful person is a confused partner, because they actually know who we are. So I've got a darling wife sitting at home. You know, I think
I would like to think that she does think highly of me and that I'm a very special person, but I'm very realistic to think that just because I'm back here and I can engender some enthusiasm in the people and what have you, that Mr. or Mrs., whoever it is in Zondi, is not just automatically gonna go and shop more in the store. It's not happening. It's not happening. We've got to get to grips with the basics, and this will take a bit of time. So this is a journey we're on here, and, from an investor and analyst perspective, you know, obviously, you ask yourself the question, "Well, how long is it gonna be?" This may be a multi... In fact, I can tell you, it will be a multi-year journey.
You know, this is gonna be a 12, 18, 24 month process, because to turn this thing around fundamentally and sustainably, it takes that long. This is a big ship. This is a big ship. But we will do it. On the other side of the coin here in this company, there are so many fantastic things. I mean, I look at Boxer, and I just see what's happened with Boxer. It is absolutely just beautiful, Marek and that team. And you think that 20 years ago, when we were running around pursuing Pat Goss and Hugh Bland, who was the then MD, and Pat was the major shareholder in Boxer Trading, and we bought the business from them. We managed to convince them to sell the business to Pick n Pay. It's turned into the most extraordinary business. Most extraordinary business.
You look at the growth in Boxer, just phenomenal. You have a look at the growth in textiles, beautiful. The job that Hazel's doing in textiles, just extraordinary. As Irina said, and Gareth in the value-added services on that side of the business, just fantastic. So we've got so many great things happening in the company. But we've got this heartland, this thing that's so special, that sits there, Pick n Pay, Pick n Pay, Pick n Pay, that's ailing at the moment. It's ailing. You know, one of the journalists, when they were doing interviews with me, asked me the same question. They said, "You know, Sean, how, I mean, after 15 years, what can you know? You know, South Africa's changed, this, that, and everything.
You've been gone for 15 years." And I asked him, "Do you have kids?" So he said, "Yeah, I've got two." And I asked him, "Well, where are they?" So they said, "Well, one kid's here, and my son is married, and he lives in Canada." And I said, "You know, if you phone your son in Canada, within the first three seconds of the phone call, you know whether your son is in a good space, bad space, happy, sad. It's just the way it is."
And I said, "I've been around long enough to know, and I worked in Pick n Pay long enough, and I was privileged to walk in Raymond's footsteps and be a part of the growth and the creation of this company, to be able to claim a little bit of paternal rights with him, just a small understanding for what this m ember is Pick n Pay. I said, "I think I know what ails the child," and it's not that complex.
As I've just been getting my knees under the desk here and looking under the hood and seeing what's going on, I have to be honest and share this with you, that a lot of the things that I've observed from a distance, from external, have pretty much proved to be true. It's back to basics. We're gonna use the strong, core elements that we have in this company that are so great, and we're gonna get Pick n Pay back, rocking and rolling again. We're gonna get your stores back, and we're gonna win your love and your patronage again, because we deserve to. We deserve to get that done. So I don't know if there are any questions that anybody has got, anything they would like to ask? Yes, sir.
First, thank you, Sean. Thank you for the presentation and the opportunity to ask questions. If I just start.
Yeah.
What is your, your view on it? Sorry, we've got Pieter online. There you go. No problem. Perfect. I'll just start with the question. So for the Ekuseni strategy, what is your view on it? Are the targets still the same, and do you still expect to, to achieve it by the end of FY 2026? And then the second one, with the, the dividend being cut now in the half year, well, what is the expectations for the full year?
Okay. So I think on the, on the Ekuseni strategy, you know, when this change of leadership happened with Pieter, and I mean, Pieter was really... I mean, he's a super nice guy, so don't get me wrong when I make these observations. This is not just speaking of what has gone before, so before Pieter and before that, okay? And, I actually phoned Pieter on the day that, this whole thing happened, and, I had a chat to Pieter. And when you have a look at Ekuseni, one of the challenges that you had is when you launch a multifaceted business process that has four or five columns in it, that you're dealing with. I mean, it was.
I mean, we had the whole sort of the, the Boxer column, we had the clothing column, we had the value-added services column, and ASAP, and then we've got QualiSave. The problem is that if one or two of the columns don't achieve the goals that you set out to achieve, it kind of affects everything else. So, you know, in the beginning, for those who've been around a long time, and I mean, when Pieter came up with this thing, the whole Ekuseni name came as a sort of a follow-on from the original Vuselela campaign that we did when I took over Pick n Pay in 1996. And we had two elements of that Vuselela campaign, because at the end, 1995, 1996, for those of you who really weren't around then, I mean, this country was broken.
You know, we've been through all of these years of societal change and everything, and then this halcyon period with Mandela, and then the first monster strikes that hit this company hard. So we had to set about winning the hearts and minds of our people first, because that's where you have to start, with the people inside the business. So Vuselela, in the beginning, was very focused, hearts and minds of the people. And then Vuselela two dealt with fixing up the physical attributes of the company. So we refurbished the stores, cleaned them up, did all of that stuff, put fresh foods on the floor, theater fresh foods, everything. To the extent that in 2007, Pick n Pay became the global retailer of the year. We beat Abercrombie & Fitch into second place. Focused.
The problem with Ekuseni as a concept, as a banner, okay, is that it's multifaceted. So what we're gonna do now, okay, we're going to take and celebrate the good stuff that Ekuseni delivered to us while we have a look at what has gone on with the QualiSave investments that were made in our stores. So we now have 160-odd stores, approximately, that have been changed over to QualiSave. And to be honest, I mean, I think that the execution of that strategy, okay, needs to be revisited, and we need to have a look, okay? What has actually gone on that we're not getting the return we said about getting? We haven't got it. And then also what has happened to the core old range of the blue Pick n Pay stores, the traditional Pick n Pay stores there.
I think that one of the things that's happened in this process is that too much attention is being taken away from the core business. That's what we're gonna be focusing on. Yes, those Ekuseni numbers and targets and stuff are gonna be revisited because we have to do it. You know, we can't just be like General Custer, you know, he died full of principles but still full of arrows. You know, sometimes you just got to ask yourself, "I don't need to hang around on this hill over here," you know, "I need to review. Am I actually on the right hill?" As circumstances change, you need to change your realities. We'll have a look at it. But it's not to say that the investment that's gone in there is just thrown away. Not at all.
We've got 160 stores that are bright, fresh, cleaned up, new lighting, new everything. So how we fine-tune and deal with the merchandise offering and stuff that's in those stores, we'll deal with that. We'll deal with it. But as part of the Ekuseni strategy and this whole value proposition and everything that was put together, a large part of that was taking people out the business. You know, in business, you always take things for intended consequences. So you look at something and you say, "I'm gonna do this because there's an intended outcome for me." So clever people with laptops and spreadsheets will sit there and say, "Well, you can do this, you can take that out, and it's gonna give you that on the bottom line." What they don't take account of are the unintended consequences of these decisions.
When you go through these retrenchment processes, and they've been through three of these, I mean, Nick had the first one, then Richard had another one, and now Pieter's had another one. What you do do is you rip out the social fabric of the company, and there's an unintended consequence of what that does, because we're in the people business. We are in the people business. Anybody can buy product. We all buy from the same suppliers. We all go to the same farmers and buy the same stuff. We can buy the same fixtures and fittings from suppliers as well to kit out our stores. We're about the people, and those projects have a profound effect on the morale of people, on the happiness of people.
And you can feel it when you go into stores, and that's why customers become a little bit hesitant to come back. So Ekuseni, as a name for us, we're just gonna quietly slide it out and keep the guts of what's there as we review the few bits and pieces of the business. So the targets will be revisited, the outcomes of that will be revisited. I mean, Lerena has given, I think, fairly clear guidance that the full year earnings may not be a thing of beauty.
Get over it. Get over it, okay? It's a journey. It's a journey. That's what we're saying to you. So it's buckle up, hold tight, we're gonna move forward, and you can see there's no dividend declared currently. I don't think that the chances of there being a fundamental change to that will be particularly great, because company needs to constrain itself. We need to contain ourselves, and we need to invest appropriately, and we need to invest in stores that we get a far greater instant payback than has been the case to date. I don't know if that answers your question. Okay.
Good morning, everyone.
Morning.
Lerena, I just wanted some clarity on the employee cost growth. You mentioned that like-for-like growth was up 3%. Could you just elaborate on how you managed to achieve that, and what is the outlook for the rest of the year?
So the employee cost, as I said, is something that we are really proud of. It's the Project Future initiative starting to deliver. So that has been a key focus area for us, as you know, in our overall target of to take ZAR 3 billion out of the business, and we've initiated a number of initiatives over the past 18 months to start delivering the benefits. The guidance of the second half, and where I've indicated that we think there's about another ZAR 300 million of benefits that will come from these initiatives, and most of them will come through in the second half.
So there's my delightful colleague with the spreadsheet over here, who does all of these numbers, who takes the cost out of the business. That's very, very important because we do have some issues on the whole issue around the average cost of what we pay in Pick n Pay, you know, through things like long service and all of that. So we have a much higher embedded average cost of people in our business than your opposition, and that's a reality for us.
So in a very, very competitive space, you know, this is something we have to balance out at the end of the day. So it's always a case of trying to find a balance in this thing. But that's why those numbers look better. But as I say, there are some unintended consequences of those processes, and that's what we'll deal with, with the hearts and minds of the people. Okay, yes?
Thanks, Sean. Questions from Paul Steegers at Nedbank and Funeka Maseko from JP Morgan. They're talking about the closure of underperforming stores and how the decision is made between closing an underperforming store or upgrading it, and perhaps some guidance on that.
Okay. The issue of closing of underperforming stores, you know, you have... The first question you have to ask yourself, very simply, is: Why is the store underperforming? You know, are we doing a lousy job? Has something opened up down the road? Have we not refurbished the store and stuff? Is it a store in the wrong place? I mean, things move. So for example, I mean, there's Amanzimtoti. Alec Hogg reached out to me last night, and, I mean, Alec was just telling me about the Amanzimtoti store. So, you know, the epicenter of Amanzimtoti has moved. It's gone to that new Checkers center that's at the back of the Marine Hotel there.
Pick n Pay didn't avail itself of the opportunity to move in that thing, and we've kind of ended up on this end of town in Amanzimtoti, where the whole demographic of the shopping and everything has changed. So we'll have to revisit that store. This is root and branch. If you understand one thing about retail, okay? I mean, when I was in the States with the Mattress Firm business there, we had 3,500 stores in America, length and breadth, north to south, east to west. And I always used to tell them there, "One key, one door, one store." That's what makes up the business. So you can look at these big numbers, billions and billions of sales every year and what have you, but that's what it comes down to.
Our business comes down to one key, one door, one store. We have to look at every single store and work out its relevance in that place. Is it fit for purpose? What does the future look like? What is happening to the demographic there? What is going on in the town? And that's what will drive the decision as to whether we open or close profitable stores. Another one?
Another also from Paul Steegers and Funeka asking about the new franchise model and what impact that will have on our gross margin. If you can give some guidance on that.
As I've indicated, it is a new model that we are trialing at the moment, and we're doing it in collaboration with our franchisees. Ultimately, the objective is to make sure that both parties benefit from this model, so it is too early to give additional guidance for specifically the gross profit margin level. But what is important to note is that it will be broadly cost neutral for us during this year.
Thank you. So I would like to know that online sales is a growth driver, but is it also a growth driver at the bottom line level instead of top line level? Is it a positive margin contributor or is it a negative margin contributor? And with the fuel cost rising, what is the strategy around that?
So our online model at the moment, if you look at it, is driven now 100% out of store, which makes it a far more economical model. I mean, for those of you who look at Ocado in the UK, that runs around doing home deliveries of groceries in the UK, the only value of Ocado is actually the software, because the actual physical model of running around delivering groceries b ecause we had the most beautiful model before this. I mean, you bring the labor to the store, you do the shopping, and pack it at the checkout, and then take it home. So this was the most fantastic model. What happens now is that, that business model is a little bit challenged. So what we do is we pick out a store.
So if you look at the net, net margin that's left behind at the store operational level, it's getting pretty much close to sort of break-even now. You know, we obviously have to have a bit of central cost and stuff to drive it, okay? But it is an expensive business to run. So it's kind of getting sort of close to break-even, but, you know, it's, it's a part of the consumer life that you have to deal with today. As I say, in this promiscuous world that we live in, with the consumer, it's a key, key part.
And I mean, we were just looking anecdotally at the numbers, because there's good bases of research and what have you, from the banks and payment portals and all of these things today. I would think that quite a bit of growth, in fact, I think a huge chunk of the growth is coming from our friends down the road, is actually coming out of their online business, and more so than their store-based business that's there. Tam, another one from Johannesburg.
Many more
We are coming there.
Question from Christelle at Bataleur Capital , and also from Rajesh Patel at SBG. With respect to suppliers, for trade payables, acknowledging that the ZAR 600 million is attributable to timing, can we expand on our current relationship with suppliers? Have we been able to negotiate, or secure more favorable terms? And, and then how frequent are our negotiations with suppliers, and what impact, has that had to gross profit margins over the first half?
I think that, for me, one of the critical areas where we need to really have a proper bit of navel-gazing, for lack of a better term, is in the whole area of merchandise and buying. Because the truth of retail is, if you don't buy right, you can't sell right. And I think that some of the evolutions that have taken place in that space, we need to revisit. We need to rebuild our relationships with suppliers. I think at the moment, an extraordinary. I mean, I've had reach outs from the biggest suppliers that supply Pick n Pay.
I mean, if I go through the list, I've had reach outs from the biggest suppliers from Pick n Pay, all saying, "We need to come and sit down, and you need to come and check." We need to get focused back on trading again, buying and selling, as opposed to trying to drive all sorts of other things like rebates and everything else, and what have you. Those are secondary for me. The major thing is to get back to trading and building relationships with suppliers again. And I think that there, we behind the pace. We're behind the pace, and, I mean, the whole supplier community talk about it and know it. We know it.
Another question from Paul Seerage at Nedbank. Outlook for price inflation for the second half?
Oh, I mean, driving here this morning, Lerena, you can answer this as well. Driving here this morning, I mean, they're talking now about Reserve Bank. They want to put up the interest rates maybe again. That obviously won't go over well for us. We're seeing that on the more basic categories. I mean, I've only just hit the ground here now, so maybe I'm not even really enough favor just to answer this question properly. But we can see that the level of inflation in the more basic commodities and what have you is more muted. That's actually come down than in the other categories of grocery at the moment. But I think, unfortunately, the inflationary pressure is going to continue.
I think we showed that there's been some progression between the two quarters, some contraction on it, but as we stand, it's definitely still uncertain, and our base is that it will be rather higher than lower.
Yeah.
A question of clarification from David Fraser at Peregrine. Our comment that Boxer is expected to grow profits, are we referring to operating profit or profit before tax level, after interest charges?
I think David is trying to, you know, allude to the fact that he would like segmental profit reporting. David, that is on a, on an underlying pro forma profit basis.
Yes, sir.
Perfect. Thanks for letting me ask another question.
No problem.
It's Michael from Avior. Just on the CVP stores, I know in the end of the last financial year, you spoke about that 10% uplift in the sales in those stores. How do you find the customer interaction in those stores, and how is the profitability been coming through? I know that you mentioned that it's. It hasn't come through fully now in this last period.
No, I mean, listen, it hasn't come through to the, to the degree that we would have wanted. I mean, last year, CVP, I think, had quite a kicker. And I mean, now I'm just talking anecdotally from what I can pick up, having just arrived. But I think that last year, CVP was also driven by the enthusiasm and a lot of stuff from suppliers as well, in terms of supplier support, and rebates, and allowances, and store openings, and stuff that were put in there.
So it kind of had this bit of a house here and launch period into it. You know, we've got to have a look now at the second wave of that, when you now start to compare year-on-year and ask yourself, you know, just how successful have they been? Part of the parcel and part of the problem is that when we have a look inside there, it is not growing at the rate that we need to grow. Yes, it's growing more than the traditional old blue store, absolutely. But both of those growth levels are unsatisfactory. They're unsatisfactory, both of them, and that's what we're gonna deal with.
Question from Dino Constantinou from Investec. Could we provide some color on the material increase in accounts payable relative to inventory?
I mean, it's a product of the net working capital. So, the I indicated an increase of about ZAR 1 billion in our inventory relating to new stores, and just normal inflation in the base, and that is directly contrived into our into our trade payables. And ultimately, the net improvement comes through in the stock that was not funded by creditors because of the fact that there was duplication in Eastport, and we had some strategic buy-ins.
Another question from him: What are the other anticipated disposals to get to the guided ZAR 1 billion, given Longmeadow disposal proceeds of ZAR 500 million?
As a group, we're constantly reviewing our property portfolio, and as properties mature, we do put them up for sale. So we are looking at selling two of our retail properties towards the end of the second half.
Is that it, Pam?
Sorry, no. Many, many more. Sorry.
A few, guys.
From Johannesburg. From Citi, can we provide any kind of sales trend post-year-end? And you answered the question on inflation, but what diesel costs have we incurred post-year-end?
On the diesel cost, it's at similar levels as load shedding continues. There's been some reprieve, but then in various areas, there's changes again. So we effectively, at this stage, given any other additional indicators, assume that the current trend will continue, which is more or less in line with what we've got in our base of last year. And the second one was The first one, Pam, was? Sales, sales growth.
Yes.
We are seeing similar levels, so we still, Boxer's momentum continues into the second half, but Pick n Pay is where the focus needs to be.
Yeah, I've got a question. I've got my question of my chairman.
Gareth.
Have we made any progress yet on this, with the government on the diesel money that they're making out of selling diesel to us to power our generators?
No.
and the tax they charge? And
Absolutely no movement from government.
I mean, it's, it's just a shocker that they do what they do to Eskom, and then we have to go and buy bloody diesel to do what they should be doing and pay all of this-
They take, and they take the taxes
Yeah.
on top of this.
But anyway, different subject. Sorry. Carry on, Pam.
Question from Mahesh Patel at SBG. Over the second quarter of 2024 and thus far, can we give an indication of how many franchisees have opted to leave the business due to a higher royalty fee or a change in the franchise fees?
None.
None.
None.
None. Good.
I mean, the whole I mean, just to answer that succinctly, so that you can actually understand what's driving this, okay? We want the franchisees to buy more from us than they're buying from other sources. It's that simple. All we've done is say to them: "If you buy more, you get a more loyalty rebate from us," and we just take a little bit of this income out of the other side. So it's just, it's an in-and-out calculation. So it's basically neutral to us, but it's an incentive to the franchisees to buy more from us. And the franchisees are key to our business. Key, key, key to our business. So we'll be working at that element as well.
Question from Christelle at Bataleur. At the current rollout rate for Boxer, about 50 stores opened a year, is it plausible that the 200-store rollout strategy can be achieved ahead of the FY 2026 timeline? And what does this mean for the CapEx outlook beyond FY 2025?
I mean, ultimately, the dependency is the availability of sites. There's a strong pipeline at the moment, and we will ensure that the CapEx allocation is there. So I think we've always stated that the full 200 is not the full ambition. However, to already indicate that that could be done earlier, I think is premature.
Yeah.
I think that you probably largely answered this, going on from analysts looking for CapEx guidance for FY 2025.
We haven't specifically added any CapEx guidance for FY 2025, but for FY 2024, on a gross basis, ZAR 4 billion, and on a net basis, ZAR 3 billion.
And then Funeka Maseko , again, from JP Morgan. Sean, could you comment on the splitting of the brands to QualiSave and Pick n Pay?
Sure. QualiSave, and the notion behind QualiSave at that stage was that they needed to create another level or another layer of customer appeal and to segment it. And that's why I say, you know, we will review to what extent this has achieved the goals that we originally set out to be achieved, and as necessary, we'll review it. I mean, if there's some of them that maybe haven't achieved store by store, this comes back to root and branch.
So, you know, we've got to sit and have a look at store by store, and some of the stores have shut the lights out, and there's some haven't achieved what they're going to achieve. So for those that haven't achieved it, we'll see what we do with them. Yeah, we may migrate them into a Boxer store. We may migrate it back to Blue. There may be some one or two more Blues that migrate there, but we're gonna have a look at it in a store-by-store basis. The devil is always in the details.
If I can just ask on Boxer there. On your like-for-like growth, I think of just over 4%, there's clearly significant volume losses there. Can you just elaborate in terms of what were your experiences over the last six months, and what do you think is gonna be the same or different going forward? In addition to that, is the underperformance the reason why you're scaling back on your store roll out for Boxer?
It's very, very important to understand that that Boxer business has got extremely strong overall volume growth. The consumer is under pressure. Individuals don't have more money to buy. They, their wallets is in a fixed amount, so the entire retail industry in South Africa is experiencing pressures on overall like-for-like volume. So we're not concerned at all. We believe that that business unit is very, very strong in capturing the growth in the market. It definitely did not impact the store rollout at all.
As I've indicated, it is literally timing. We've got a very strong store pipeline. Those sites to actually get the necessary approval, et cetera, is not necessarily as streamlined as it is in the more affluent areas, et cetera. So that team has got a strong team looking after sites acquisition, and we are very confident that we will get to the full 200 stores. Ultimately, looking forward, as I've said, Boxer is experiencing the same type of sales momentum that we've seen in H1.
Trust me, they, the major issue there, one of the major issues there is just the state of play. In a lot of these councils and things, getting licenses, registrations, building permits, plans, I mean, it's a mess. It's like going to Home Affairs to get your passport renewed. Trust me, it's no different when you go there with your building plans and approvals.
Yeah.
So that's the major reason why those things have been delayed. Nothing to do with CapEx. It's got nothing to do with appetite at all. In fact, if they could have their way tomorrow, they'd have every one of those stores open tomorrow. So it'll be a pushback into next year, but it's good news for next year.
Question from Sharon Watkins. Sean, would you consider franchising some or all of the corporate stores?
That's a good thought. You know, hold my beer while I think about it. No, it's not a case of that at all. I think that there certainly may be opportunity to have a look at the stores that are there, and there may be some opportunities to franchise further stores. And there would be opportunity to ramp up a lot of the stores as well, that currently exist in that group, and to refresh their appeal again and to get them back up to speed. So it's gonna be a combination of both.
A question from Atiya Vorda, at Avior Capital Markets. Boxer like-for-like sales at 4.2 seems a bit low. What can we do to improve this run rate?
I think, I think it's asked and answered now.
Yeah.
Yeah, so-
Okay, so-
Yeah.
And I mean, Tam, just to answer that thing crisply, I mean, if you look at the consumers in that space, where you're dealing with real limited constraints of cash in hand, it only stands to good logic that those customers are under huge duress in terms of being able to shop, because, I mean, inflation has been way ahead of what the size of their pockets have increased by. So this is not a case of footfall. I mean, the footfall and everything is there, it's just that people don't have money to buy. That's the sad reality of it.
Question from Yash Patel , Anchor: What, what is our ability to run promotions going forward, and what is likely to constrain us?
What's our ability to run promotions going forward?
Promotions going forward.
Well, I mean, there's two elements to that. I mean, obviously one is margin and, you know, what is our ability? I mean, we live in a very, very competitive world. And, so from a supermarket appeal perspective, our supermarkets are good supermarkets in this country, are as good as anything you'll find anywhere. So from that perspective, we deal with top quality retail in this country. We deal in a very, very competitive space in the country, which is good for the consumer, and we will continue to promote our stores as hard as is necessary to be competitive out there and, to continue to market and advertise.
And obviously in the situation of marketing and advertising, there's always this interplay at the moment and this migration between online, what's happening in print, media, and the traditional forms of marketing and what have you. And I'd just like to meet the guy that Mr. Saatchi spoke, speaks about that, says that, "Yeah, only half my advertising works, I just don't know which half." So we'll continue to apply our minds as to where we deploy our marketing funds.
Question from Kristen Adams at Excelsia Capital. Could you give a little bit of an update on the multi-skilling program with employees? How has it been going, and what has been the reception by employees?
You should get our darling Thembi to get up and answer that question. I think that, as part and parcel of that program, we've been through a change process in the company, where we changed the management structures at store level and, getting people to take on this multi-skilling tasking. I think, to be honest, again, I think we've lost a bit of spark in the stores, in that process.
So at one level, mathematically, looking at the P&L and stuff, it achieved one outcome, but on an executorial level, it achieves, to a degree, almost w hen I say the opposite, it's not quite that. So this is something that's going to receive our urgent attention, our very urgent attention. Is our ability to actually t his is like running an army. You need a command and control structure in this process, and, that's one of the things we're gonna be revisiting. The human dynamic in the stores, Tammy. The heart.
Now, a question from Foneka Moseka, JP Morgan. Could we please explain why the second half 2024 earnings should not beat second half 2023 with all the non-repeating costs?
I think it's the combination of both the two items that I've mentioned. Firstly, that there is going to be a very tough trading period for us ahead. We don't foresee that any of the pressures in terms of inflation, load shedding, and customers being constrained changing soon. So therefore, even though there is some tailwinds, we are very careful to be realistic about what we still have to do inside the Pick n Pay environment to really get to the core business.
I mean, we can answer it even straighter than that. Our sales are not growing the way they should be growing at the moment, so until we grab hold of that and change that trajectory, it's not gonna change. And that's not gonna change overnight. It will change, but it's not gonna change overnight, and that's why we are being cautious and conservative in the look forward, because we need to set reasonable horizons in this thing. We're here for the journey. We're not just here for the next six months, the next 12 months, the next 18 months. We are here for the journey, and this will take time. It will take time. So I'm not saying in that basis, we're just gonna sit back and hum thee ho, see you when it happens.
No, we're gonna make it happen, but we need to have reasonable expectations to get this done properly, sustainably. Otherwise, you're just looking for a little quick win, and then it's like, hmm, and then you'll be sitting here again in six months' time, nine months' time, and saying, "Well, what happened there?" Not our game. It's not our game.
Question from Paul Stiesus and also from Pieter Cromberg from Emerging Markets. Do we foresee more exceptional costs to drive our turnaround strategy? And then Pieter wants to know: Do we intend to raise any additional long-term debt?
We don't foresee any additional costs in the second half, and we will review, as Sean has said, the strategic elements going forward. At this stage, we are comfortable with our debt levels, and as I've indicated, our net debt to EBITDA ratio is also within our current guidance.
Then the identical question from Citi and from Paul Stiesus: Are we comfortable we won't breach banking covenants this full year?
Our focus absolutely is on balance sheet stability and liquidity on the second half, as it's been on the first.
I think, we've received a lot of questions, and so we've sucked the questions from the financial market. May I suggest that we answer the balance of them on email because there are quite a few still to come.
Okay.
That's okay.
All right. So I really want to thank all of you for coming today, for being here in person. It means a lot to us, all of you, and we'd like to thank you for joining us on this journey. And trust me, we are gonna have some fun. We are gonna put the zip back into this place again. So thank you so much. Lerena, all of the prep work, everyone again, Wendy, Gareth, thank you. We'll see you around.