Good morning, and welcome to everybody in the auditorium here today, all of our colleagues up in Johannesburg, and everybody who is joining us online for this, our half year results announcement. On a personal note, I can just share with you, it's been quite an interesting year. It's almost incredible to think that it is about 12 months since I stepped back into our beloved Pick n Pay, and all I can tell you that this has been the fastest, longest year that I've ever lived. It's disappeared completely in a flash.
And I must say that I have just been so incredibly strengthened by the support that not only I have received, but that we have received as a company, from the market, from our bankers, from our financiers, from our advisors, from our helpers, and specifically from the people inside Pick n Pay. I think that really, and I've always believed this in life, that it is in the toughest of times that your mettle is actually tested and your character is developed. And I can say this to you, that notwithstanding the year that we have been through, we're now seeing how the Pick n Pay team has come together in the last six, eight, nine months, bearing in mind that it was really only in March that we actually reconfigured the new management structure in the company.
It's been extraordinary to see how this team has come together, how it's faced up to the realities of what we have to deal with, and it's just been remarkable. Truly, truly remarkable. Is there still a lot of work to be done? You bet. You bet. There's still an extraordinary amount of work to be done, but I think that the foundation that's been set to step us through this year and to deal with some of the critical issues that we've had to deal, first and foremost, and... You know, we live in a world today where everything is public. You look at the spectrum of public commentary, which kind of sort of starts at TikTok and then filters all of the way up to the more credible forms of journalism, and reporting, and financial reporting in the world.
So we have to fend for all of this through this journey that we're on. But as I preach to my colleagues in Pick n Pay, dial out the noise and focus on the task at hand. And for us, the single most important thing for us, every single day, is to make sure that the people that come into our stores are looked after, that the people that come to work in Pick n Pay every day are looked after. And our primary focus in the company this year has been to deal with the heartland of Pick n Pay, our core Pick n Pay, where we know, where we had the major challenges in the organization. But one of the most extraordinary things that has allowed us to focus, that laser, laser focus on the core underlying operations, has been the strength of Boxer and Marek.
It's great to have you and David here today, just to chat briefly a little bit later, and there's a very limited amount, obviously, to what we can talk to you about on Boxer, given the IPO is just shortly down the track. But it's been the continued extraordinary strength that we've seen out of the Boxer business. Hazel, to you, out of the clothing business, notwithstanding the challenges in the clothing market, and you've seen that the clothing industry as a whole has largely been through not the greatest of years. It's been a world of hurt out there for many, many reasons, including our ports that are still fairly clogged up, but notwithstanding that, Hazel, it's a remarkable performance to have continued to grow market share. And then we look in our other value-added services business under Deven, and what's happened on that side of the business.
Again, a strong, solid performance from the leadership team there. And, Johan, on the group enterprises side, a lot of the work that's been done there. And then Dallas, in the core Pick n Pay retail, as we've got the team together and started to show some solid progress there. So there's an enormous amount of work that's been done under the covers, behind the scenes, and just quiet, solid, single focus every single day, and don't get distracted from the mission and the task at hand. So we know that we telegraphed all of the numbers to the market with, the various updates that we put out, and, another update two weeks ago. So on that score, I would like to hand over to my colleague, Lerena.
Before Lerena comes up to deal with the numbers, I just also want to pay a special tribute to Lerena and her entire finance team, a lot of them who are sitting here, for the extraordinary work, and dedication, and effort that you beautiful people have put into this company in the last year. I don't think that people understand the complexity of what you've had to deal with in this company. A very, very complicated lender group that's had to be dealt with in one issue. We then had our rights offer, which was very, very well oversubscribed, 104% oversubscribed, and that's been just phenomenal, and then obviously the complexities around the IPO and preparing Boxer for its wonderful, wonderful listing in November, so it's been an enormous amount of work from all of you, and we deeply, deeply appreciate it.
And I want to thank Gareth, the board, all of our NEDs sitting here as well, for the support that we've received over this last year. It really has been a hell of a year. And, Lerena, over to you.
Good morning, everybody. Thank you for joining us this morning. A very special welcome also from my side to Marek and to David. And this is their first steps into seeing what the future holds for them, and we are all very excited for the prospects for the Boxer IPO. As Sean has said, we've been busy, very busy, and that is reflected in our results. Our group turnover of ZAR 56.1 billion is up 3.7%, 2.9% on a like-for-like basis. Our gross profit margin at 17.9% contracted by 60 basis points. This is reflective of the highly competitive environment that we are trading in, as well as reinvestment of load shedding savings into both Pick n Pay and Boxer.
Our other income is up 21.9%, reflecting the revised franchise model, as we've discussed in previous results announcements, with a contra in the gross profit. The underlying other income is up 1.9%. Our trading expenses increased only 1.8%, 2.6% on a like-for-like basis. That calculation also excludes the once-off employee restructuring costs in the base. Trading expenses remains to be very, very well controlled across the entire group. As a result, we recorded a trading profit of R82.5 million, up more than 100% of the R32 million recorded last half. Our EBITDA of R187.7 million was down 38%, reflective of the depreciation savings as a result of the loss-making store impairments we processed at the end of the last financial year.
Our comparable PBT, we recorded a loss of ZAR 1.1 billion. That compares to ZAR 0.8 billion last year. That delta is reflective of the incremental financing costs of ZAR 150 million included in this result. This result now includes an interest cost of close on ZAR 400 million, which we will be addressing through the recapitalization program. The group's sales growth was driven by our Boxer business. Boxer sales grew 12%, 7.7% on a like-for-like basis. Boxer has demonstrated continuous market share growth. This is underpinned by a very strong, exceptional customer value proposition. Boxer also continues to grow. Marek and team is planning another 53 stores in the second half, bringing the full-year stores to 65, compared to 49 last year. Marek will give more color on their expansion plans when he talks to you a bit later.
In Pick n Pay South Africa, our sales contracted by 0.3%. This was impacted by our store closures and franchise terminations as we take the first steps in our store reset plan. We have been pleased with our Pick n Pay company-owned sales trajectory, as Sean has mentioned. This is up 3.1% for the half. This is a critical KPI for the Pick n Pay team, and this is how we measure the success of our Pick n Pay corporate turnaround plan. The group's SA internal selling price inflation at 4.3% softened from the 7.3% recorded for the full year in FY 2024. The group's trading profit of 83 million, up from the 32 million last year, was boosted by Boxer growing their trading profit of close to 800 million by 16%.
The gross profit margin investment in the Boxer business was offset by the load shedding savings, and as a result, the Boxer trading profit margin increased by 20 basis points to 4.1%, 10 basis points after the inclusion of IFRS 16 leases. The Pick n Pay trading loss increased by only 9%. What is important to note is that this is in line with our forecasts and our budgets. We are pleased with this result. The team has been reinstituting retail discipline ahead of the significant store reset plan planned for the next financial year. We also published an intention to float on SENS this morning alongside our result announcement, and it's important to note that that announcement includes also Boxer consolidated H1 financial information. That information is done on a Boxer standalone basis and has differences to the numbers I'm presenting here.
These differences are IFRS-required consolidation journals when we consolidate Boxer into the Pick Group. To assist you in your analysis, we've added a table in Appendix III of this result announcement that reconciles the two datasets. The year-on-year comparability of gross profit is impacted by two significant items. The one is the duplicated supply chain costs as we crossed over to our Eastport DC last year, as well as the revised terms of our franchise model. Both of these we have discussed in previous announcements. Excluding these, our underlying gross profit margin contracted by fifty basis points to 17.9%. This reflects the margin investment into customers across both Pick n Pay and Boxer that has been offset by load-shedding savings. It also reflects a contraction in supplier support rebates, as well as an increase in promotional participation in the Pick n Pay business.
I appreciate that Pick n Pay has now had margin contraction for three consecutive reporting periods. We are comfortable to report that we believe we have cycled all of this out, and we do not expect any further contraction from this nature in the second half of the financial year. Our trading expenses, as I've mentioned, is up 1.8%, 2.6% on a like-for-like basis. Boxer's trading expenses was up 8.4%. This was driven by the new store openings. As they ramp up, they carry quite a bit of costs inside the business until the stores are opened. The Pick n Pay trading expenses contracted by 0.7%, illustrating the underlying cost control. There is specific items included in the Pick n Pay trading expenses that is important to note.
Firstly, I've mentioned already the employee restructuring costs in the base of ZAR 259 million, ZAR 214 million of depreciation savings due to the impairments of last year, as well as ZAR 243 million worth of load shedding savings that has been offset by significant increases in utility costs, putting further pressure on the trading expenses line. Even taking all of this into account, the strong cost control across the group continues, and we expect that to continue also into the second half of this financial year. Our group PBT margin at minus 1.5%, before the incremental finance costs, was stable. We recorded a minus 1.5% last year.
The improvement in Boxer's trading margin of 20 basis points was offset by the contraction of that of Pick n Pay by 20 basis points, largely because of the gross profit margin contraction that I've discussed. We are very pleased with this performance. We are focusing on the recapitalization program and getting Pick n Pay stable and ready for the next steps in the corporate plan in the next financial year. The PBT margin had a contraction of an additional 40 basis points or ZAR 266 million, largely relating to the incremental finance costs. That 40 basis points will be fully addressed by the recapitalization plan and will not continue into the future PBT shape of the group. Our net gearing improved from ZAR 6.1 billion to ZAR 2.3 billion, supported by the successful rights offer that Sean has touched on.
That has resulted in our net debt to EBITDA ratio being now 2.7 times, compared to the 6.3 times at the end of the previous financial year. We generated R200 million from our operations during this half. We paid away just under R400 million in interest and under R200 million in tax. Working capital added R800 million to our cash flow, and CapEx spend was curtailed to R600 million. Both of these items I will detail on the next slides. In summary, what is important to note is that the cash burn for this half was only R200 million. That is in spite of the R400 million paid away to funders. As I've mentioned, the group has generated R800 million from working capital for the half. This is a like-for-like number. There is no cut-off benefit included.
H1 working capital is traditionally favored by seasonality. However, there is strong underlying working capital across the business, specifically in Pick n Pay. Our trade payables increased by ZAR 1.1 billion in this half due to the following: We increased our range rebuild to support the Pick n Pay offer. These stock increases also came along with an increase in trade creditors. Then secondly, we reduced slow-moving lines, specifically in general merchandise and clothing. This stock reduction was stock that we've already paid for, so therefore, the reduction in inventory did not come with an increase in trade payables. These elements all up resulted in an unlocking of working capital of ZAR 800 million for the group for this half. We were very careful in our CapEx spend for the period. Firstly, we ensured that both the Boxer and the clothing businesses got full allocation to support their expansion.
We achieved that. Secondly, we allocated money to our on-demand and IT infrastructure. As a result, Pick n Pay had a limited CapEx allocation. Sean will tell you we were running on fumes, but we successfully curtailed spend in this division to ZAR 0.6 billion, compared to ZAR 1.4 billion of last year. Post the completion of the recapitalization plan, the Pick n Pay business will have sufficient capital to invest into its future growth and revamp strategy. Our recapitalization plan is on track.... We've had a successful IPO and raised $4 billion. Our Boxer IPO is planned for this year, with the intention to float published on SENS this morning. As a team, we are ready. Market conditions dependent, we plan to launch and finalize the IPO before the end of December.
We have previously guided the IPO sizing will be between $6 and $8 billion. We can now confirm that it will be towards the upper end of that guidance range. The IPO will also include an over-allotment to ensure price stabilization post the IPO. This is also known in ECM circles as a green shoe. The over-allotment will be done through the issue of new Boxer shares and will not be more than R500 million. We've been able to obtain unsecured, committed term debt and working capital facilities for the Boxer business post the IPO. Thank you to our funding partners for the support in securing this. We've also made significant progress in securing working capital facilities for Pick n Pay, and we foresee to have those finalized in the next couple of weeks. Post the IPO, the group will be appropriately capitalized.
Pick n Pay would be able to repay all its term debt. We will be able to fund the turnaround plan. We will have sufficient capital to invest in the growth and expansion of the Pick n Pay group, and we will retain a controlling stake in the Boxer business. Our H1 sales update indicated a slowdown in turnover towards the last period of the first half. I'm pleased to indicate that we have regained most of that momentum during the first two periods of H2. On full-year earnings, we will show a meaningful improvement in that of FY24. This will be supported by a strong earnings growth in Boxer. Thank you, David and Marek. A reduced trading loss in Pick n Pay, thanks to the Pick n Pay teams, and a significant reduction in the H2 finance cost because of our recap program.
We will report on a fifty-three-week basis this year. It will add some sales to the top line, but it will have a minimal impact on our earnings. We carry a one-day expense accrual every year that gets released for fixed costs, so the impact of the fifty-third week we don't expect to be material. I now hand over to Sean so we can focus on the future.
Thanks, Lerena. Let's go to the next. So as we shared with you a while back, we really see ourselves moving the business forward, focusing, obviously on our Pick n Pay core business, and then our Rest of Africa business, clothing, and then Boxer. So if I could just have a look at some of the underlying trends at the moment. Our real focus on the customer remains paramount in every single solitary thing that we do. Bearing in mind that we live in a very, very competitive landscape, we read and we see the pace at which our opposition grows around us. I think some 300 more doors and options for consumers to go and shop in.
And notwithstanding that, we can see a very positive 2.6 like-for-like customer growth in our stores, and a real change in the cadence and the trajectory of the business from minus into 3.1% positive, and this trend continues. You know, unfortunately, when you put out market updates and, all of a sudden the market sees, "Ooh!" the sales have come back a little bit, and then you get all of this thing: "Oh, my God, Pick n Pay has lost its mojo. Summers has lost his mojo. There's a bit of like-for-like down." I can share with you, you're lucky you don't live in our world, because we do not live our world four weeks by four weeks. You know, payday moves from Friday to Monday, period to period, it affects the numbers. It's the journey.
But it's extraordinary how people can write things about these trends that manifest. So I'm pleased to be able to say to you that our momentum continues, and it continues to build. And I mean this seriously when I say that we're living in a landscape today where stores are opening up at a furious pace around us, yet we are still able to show this kind of turnaround, which is really, really heartening. And it comes down to... I mean, we've got Jared, who runs our hyper division, sitting in the room here. Chris runs the Western Cape, and it's all because of the hard work that's been done down in the trenches on the floor.
And it is a truth, you know, when urban legend goes against you, and coming back to Pick n Pay, you know, it was one of the things that hurt me was to see where the urban legend had got to around Pick n Pay and how it had become the discourse. And I don't pay much attention to the comments column other than to try and just sort of get some read for the temperature that's out there. And, I'm always astounded when I have a look at some of the commentary about poor service, about bad service, and we accept that as we move going forward, some of this urban legend narrative, some of this urban legend, just sort of carries on knocking around the room. It doesn't deter us at all. We just deal with it and go forward.
There are so many extraordinary, unbelievable feedbacks that we get on a daily basis, that I get on a daily basis, just giving substance to the fact that things are turning and turning well. On ASAP, we've once again seen a solid continued growth in ASAP. I've had some discussions with our friends at Mr D. As you know, we have a relationship with Mr D, and it is true to say that half of our deliveries that get executed are executed in scooters that bear no branding, no recognition, no nothing.
If scooter counting is what your particular penchant is, I can tell you now that half the scooters that are running around there, as I shared with my friend the other day, we've got some work to do in terms of getting that sorted out, in terms of the appearance and how that side of the business looks. But I can assure you that our ASAP business continues to grow, grow solidly, and is a very, very important part of our business. But we get up in the morning to run great, great stores. That's what we do, great stores, great people, great experience, and to fulfill the portion of your life that you want to live it out of the store, and that we will continue to do and continue to grow.
On clothing, as I said earlier, Hazel's continued the very, very solid growth on Pick n Pay Clothing. And I'm also just amazed, you know, in my own sort of when I do happen to step out, the feedback that I get from people who point out a garment and say, "You know where I bought this? I bought this at Pick n Pay Clothing." And it's just great to see how that business continues to grow and to grow so solidly. So well done to you, Hazel. On the rest of Africa, Nigeria, which is obviously a very small piece of the business, we're busy stepping out of that at the moment, and we will be done with that in the not-too-distant future.
Namibia, our current franchise arrangement will come to an end in the middle of next year, and then we will assess what we're going to do in Namibia going forward. We have been trading there as the Pick n Pay brand with own model. They used the Pick n Pay brand for the last 22, 23 odd years, and then we'll assess what we're going to do in Namibia going forward. But clothing will be going to Namibia, and it's not on our priority schedule at the moment, but we will get there. Botswana, I'm pleased to say that we have entered into an agreement with our franchisees in Botswana, and we will be taking the Botswana business over, and that's in the process of currently being dealt with, and we're looking forward to some strong, solid performance in the Botswana market as well.
We can adequately recapitalize that business, put money back into the stores, and get it focused again. Now we come to our beautiful Boxer, and, there's nothing that I can say about Boxer that my dear friend Marek can't tell you about Boxer. So, Marek, all over to you, my friend.
Good morning, everybody. I'm Marek Masojada. I'm the CEO of Boxer, and thank you, Sean. Thank you, Lerena. It's a privilege to be standing up here, for David and I to be here with everybody in the broader Pick n Pay team, and obviously proud to represent my 30,000-strong Boxer team across our 500 stores across South Africa and Eswatini. Twenty-two years ago, Pick n Pay acquired Boxer, a 35-store business. Our turnover at the time was under R1 billion and is reflected in the extreme left-hand bar graph on the slide. Sean was CEO of Pick n Pay at the time, and he took us under his wing.
He introduced the young Boxer team to new aspects of food retailing and exposed us to some of the best companies around the world who had achieved excellence in their chosen field. Sean allowed or insisted that the Boxer team remain independent and maintain our unique Boxer culture, but encouraged us to go out and seek growth opportunities, and I'm pleased to say this strategy has continued right through to the present time. Having Sean back to support us as we prepare the business for our IPO is incredibly special. Thank you, Sean. Boxer is the fastest-growing South African food retailer. We have consistently delivered double-digit turnover growth, and as depicted in the graph of 22 years of sales growth, with our past three years showing a CAGR of 19%. It's been a journey of successive milestones, with the latest being the opening of our 500th store.
Since our business evolution in 2014 to become a soft discounter, based on learnings from leading international players and adapting these to our South African environment, our business, Boxer, has been strengthened, and it is underpinned by this resilient and highly efficient business operating model. Over the past seven years, we've doubled our store footprint, and this has been done using a simple but highly effective business model based on four key pillars: driving volume, giving more value to our customers, being the most efficient operator, and expanding our footprint and our supporting supply chain. Our Boxer virtuous circle, as we call it, drives our strategic plan, and when each pillar is working to its full potential, high growth and exceptional return are the outcome. The Boxer model has withstood the serious disruptions of COVID and the July 2021 unrest, and we recorded record profit and sales in both years.
Our growth in sales and profitability post that has been achieved in tough economic conditions and the most competitive of trading environments. The IPO will help achieve several key objectives, not only strengthening the Pick n Pay balance sheet and helping to support the turnaround plan, but importantly, it's a key enabler of us at Boxer for our strategy going forward. The strength of Boxer's financial performance, our business model, and our deeply experienced management team has enabled this IPO to be done without any impact or restructuring required to our underlying business. This is a great business, and it stands independently on its own, and it's poised for its next phase in our history. The IPO will elevate the Boxer brand into the full public profile. It will remove all capital constraints and give access to us for capital for our growth projects.
Importantly, it will allow the management of Boxer to participate directly into the value creation of the company, and through our aligned incentive plans and our performance measures, these will be reflected directly into the value of Boxer as a standalone listed entity. The IPO will increase our profile and our visibility with key players and partners, which will open further doors for expansion. And I invite all property developers, landlords, and owners to reach out to us and come and join us on our growth journey forward. The IPO will see Boxer take its place on the JSE amongst South Africa's leading retail players. And finally, the Boxer leadership team is very excited and unified in our support for this plan going forward. Thank you, Sean.
Thanks, Marek. It's like not the nine o'clock news, on and off. So, I'd just like to share one or two small things with you in closing, and thank you for reminding me, Lerena, that Pick n Pay has been running on fumes this year. It's not far from it, Dr. No, as Lerena is called when it comes to capital allocations for Dallas and the underlying Pick n Pay business. But you know what really, really gives me unbelievable faith in the future is when I have a look at what's happened in our core Pick n Pay business, and I'm sorry I focus so much on the core Pick n Pay business, but you obviously go to where the fire is. There ever...
There's a saying, "In life, you can never put out a fire 98% or 99%; you've got to put out the fire 100%." So that's where the focus is. And, I just get such a huge kick out of seeing the turnaround and the trend in that business, notwithstanding the fact that we've had to close stores this year, really deploy no capital at all. And when I have a look at this turnaround against all odds, and some, you know, haters hate at the end of the day, but that's their problem. I can't scratch their itch. It's all just about sweat, application, love, and passion for the Pick n Pay that is so near and dear to all of their hearts. Then I had an extraordinary story this weekend.
I had an email that I received from a customer who'd been in Upington, and their car had broken down Saturday midday, and they had to get out of the game lodge that they were staying in. They went into the Pick n Pay Clothing store in Upington. Hazel, I sent you a copy of it. The manager in the Clothing store in Upington phoned the franchisee, and on Saturday afternoon, a mechanic arrived at the store, and then the manager arrived at the store. Long story short, the car was removed in the back of a low bed. The franchisee then took the family back to the game lodge.
Late that evening, the car was delivered back to them with the starter motor fixed, with Bea and Jeremy, the franchisee and the wife, both back there to say, "Here's your car back, everything's sorted. On your merry way." And I can assure you that these things live and beat in the heart of Pick n Pay people, and that's what gives me so much strength and fortitude at the end of the day, because our business is about people, and importantly, the people that shop in our stores as well. And that's where we have to dedicate our attention and our love for our customers. So in the process of clothing stores, there's obviously a lot of attention that now comes down to the whole issue of scale, and people say, "But, you know, Sean, Pick n Pay is getting smaller.
How on earth are you going to deal with these, this 10-ton gorilla?" Now, having been a 10-ton gorilla once myself, in a very distant memory behind once, long gone, I know what it's like to be a 10-ton gorilla. But I can assure you that a business that still has in excess of ZAR 100 billion worth of sales is not a small business. So worry not about scale. Worry not about scale. And if you think scale is an issue, well, we've just seen the most beautiful example of scale is not the issue. It's how you apply yourself in life, and it's how about you go your-- and it's how you go about your business day to day in life. And you can see the extraordinary growth of Boxer against your mighty Shoprite Usave, and how they've overachieved and shut the lights out.
So don't get too wrapped around the axle on scale. So where do we find ourselves at the moment? You know, post our balance sheet recap and everything going to plan, once the Boxer IPO is done, we will be standing up, bolt upright. We know exactly where our North Star is. We will have a completely reconfigured balance sheet. We'll have cash in our balance sheet. We'll have strength in our balance sheet. I still expect Dr. No to be applying fairly stringent principles as to how we will deploy our capital. But I can assure you that we will assiduously from next year really be getting stuck into the core underlying tenets of what make a great, great retail business, and getting to grips with our real estate, and getting strongly back on the front foot.
So where we are now, we have fantastic planning in place for Black Friday, and then leading up into our festive season Christmas campaign, and then leading up into the new year. So that's all in place. And when I have a look at where we are now, it is a year ago that I said on this stage, having been back here for not even a week, and you will recall my words when I said to you, that it will get worse before it gets better. I think you all remember that. And these results that we've just posted now are a manifestation of that. But I can share this with you quietly, and confidently, and in no way to be misinterpreted, as there's still an enormous amount of work to be done, but the worst is behind us. The worst is behind us.
We've dealt with what we've had to deal with in this last year. So when we have a look at where we are going forward, I'm quietly confident that we should be able to get somewhere towards halving the rate of loss by the time we get to the end of the year, in this next six months. And I look forward to a wonderful festive trading period and continuing this extraordinary journey, which, despite everything, I still haven't had to have a nap after lunch. So for those of you who are still worried about my age in the room, there's life in pensioners yet, and we will get to the succession issues a little bit later as we get into next year. But for us, at the moment, the crystal-clear focus is on business as usual and getting stuck in.
So I appreciate all of your attention, all of you being here, whether it's online or in our Johannesburg office. Thank you so much indeed. So we'll open the floor for questions. Lerena, come. Tamra.
Thanks, Sean. Lerena. There are a couple of questions on the gross profit margin from a number of people online. Please speak to how you expect the Pick n Pay gross profit margin trajectory to change and how you reverse the impact of reduced supplier incentives. Also a request for more color on the gross profit margin dynamics into H2, and then is our core formats gross margin expected to contract further from here, and if not, why?
Thank you, Tamra. It is a very important topic for us, and as I've detailed in my presentation, we fully appreciate that there's been contraction for three periods. We do believe that the specific items relating to supplier support and volume rebates is now largely in the base. So therefore, we don't foresee that into the second half. That said, gross profit margin in a highly competitive environment is an extremely sensitive line, and it's impacted by various decisions across the marketplace. So that will remain dynamic as we go forward into the second half. As far as working with our suppliers is concerned, I know that Sean and the team is very confident that we will be getting support for our suppliers.
Sean has just indicated we're a business with turnover of more than ZAR 100 billion. We are a substantial player, and our suppliers are here to support us. Sean?
Yeah, and I think I can just add to that as well. In fact, on this week, on Thursday, in our Kensington office, I've got about just under two hundred and fifty suppliers there, at which we've got a large meeting with our suppliers. Also, just to share and communicate with them the journey, because our supplier base is of key importance to us. But, you know, one of the things we've had to do as well in this year past is to get ourselves properly competitive in the marketplace again. So in as much as there've been some savings on load shedding not being an issue this year, that's largely been deployed back into margin, and we can see that's happened across the piece everywhere.
But I can safely say today that Pick n Pay is competitive, and from a pricing perspective, it's where it needs to be, and that's the first thing that we have to do. How we then clean up and get the margin remediation behind that is what we will deal stepping through now in the periods that lie ahead. But the first thing is, you've got to get competitive to begin with.
Hi, Sean and the team.
Hi.
Thank you very much for letting us ask the questions. Michael from Avior. So the first one is just on the hundred and twelve stores you noted last time that you want to close, convert or franchise. How's the progress on that been going?
It's been going very well. There are obviously quite a few that are gonna come into next year, and I would say of actual physical stores closing. You know, again, this is what happens in the narrative out there. Everybody's like: Ooh, Pick n Pay is closing 100 stores. We're not closing 100 stores. And, you know, then you get, like, a Hyde Park closure that really sort of attracts a lot of high-level profile stuff that goes on. And certainly for us, you know. I mean, there's a classic example. You know, Hyde Park is a store. 50% of the space is unusable because it's stock rooms, store rooms, passages and ablutions that are upstairs, away from the trading floor, and even the trading floor is just horribly. It's just a terrible configuration.
For us to sign a ten-year lease in that store, knowing full well you're never gonna make money in the store, we're not trading for ego. So it's a case of if it won't work, and if somebody else wants to take it on out of principle because they can afford to do it within their bag of tricks, so be it. We're about quality, not quantity, of stores. I would say that this year, our actual store closures will be south of 30. It's a dynamic number, it moves. We're seeing that as things are turning around, some of the stores are getting back closer to sort of getting towards close to a breakeven. And even if it's close to a breakeven, it still contributes to the overall, so you can't just look at it cruelly and coldly.
The other 70 will go to franchise, and then to Boxer as well. So we've obviously identified the stores that are gonna go to Boxer. I mean, the one store that we have converted already has shown in excess of over 100% growth, and it's been going, what? Eight or 10 weeks now. So just an extraordinary growth, and that is because of a fundamental shift in the demographic in that area. So we're stepping through those. So less than 30 will be actually closed and lost to the group.
Perfect, thank you. And then, on the resizing of the stores, do you have any extra stores that you'll be resizing to make them smaller and-
Sure. We're looking at the hypermarket fleet at the moment, our fleet of hypermarket stores, which are still in extraordinary geographic positions. So if you look at Faerie Glen, for example, in Pretoria, that Gareth and I know well. Gareth was opening ops there. We remember when we opened that store to today, it absolutely in the bull's eye of trading in the Pretoria area. We've done a deal there, where we will redevelop that center. We'll take an 8,000 square meter GLA, which is what we say is the right size for us, for hypermarkets for the future, about six and a half trading, which, funny enough, is our opposition are plus-minus in that zone as well, and we know we can have a look.
I mean, Gareth, the work that you and your colleagues have done in hypermarkets has been extraordinary in the last six months. We know that stores of that size are absolutely right. Once we prove that, we can then run. We don't have to wait for lease endings. So we're in discussion with landlords across the piece as well. Don't believe everything you read in the newspaper about Pick n Pay and the landlords are at war with each other, we're not. But we've had discussions with most of our major box landlords, and with the capital that we got on the balance sheet now, we will be able to apply that fairly quickly and assiduously to our existing infrastructure of stores. So hypers have a future.
Thank you. And then just the last one, just on the target you have there for the Pick n Pay segment of reducing the trading loss to about R750 million, then. The reported trading loss in the current half was R720 million, so what's the main drivers to really reduce that quite significantly?
There is a number of ones. Of course, there was in the H2 of last year, so you will recall that there was some bad debt provisioning-
Yeah
... across the business. And that will not be repeated. There's also the continuation of the depreciation savings due to the impairments. All of that is contributing. And the underlying company-owned stores are starting to perform better. Not significantly so yet, we have got more work to do-
Mm
... but those items will result in that trading loss being halved.
Hi, Sean. Shane with The Capital. Firstly, just Lerena, can you give us, maybe not here, but in the future, some disclosure on a breakdown in franchise versus corporate? Because otherwise it's hard to assess the progress. And then, Sean, point four that you have on that slide, optimizing the operating model, can you just unpack that a bit, please?
The corporate and franchise business of Pick n Pay, we really do see as one business. The overheads and the full infrastructure services both. So we also manage that as one unit. We are breaking down the turnover for you now, Shane, so I hope that already helps.
And then on optimizing the operating model, Shane, I mean, there are areas of the business where we have lost our way in the last years. So if we look at fresh in total as a category, which is a key attractor for the store, there's a lot of work that's being done there. Range in the store, you know, we'd become very, very mundane in terms of a lot of the range cutting that had taken place. We've put over 3,000 SKUs back in. It's more than Marek stocks in total in his business, we've put back into the business. And that is still work that continues. So there's a lot that we need to do to actually reinvigorate and to get volumes back into the business.
And then, one has to take account of how you take account of the online piece of the delivery phenomenon that sits inside the business. And, you know, if you look at doing a proper dead net costing on home delivery and running groceries around in the back of a scooter, it certainly brings around a whole lot of other dynamics in the business in the longer term. You know, when you're starting to do 10%, 15%, 20% of a store's volume out of store, you know, you've got to start asking yourself some questions about some of the logistics and some of the economics that go with that. So it's a multifaceted thing. There are many, many elements to that, that we have to deal with.
Thank you.
Sean and Lerena, quite a lot of questions coming in on Boxer, as you would expect. So, perhaps let's start with William Mabasa from the PIC. "Of the hundred, about how many will be converted into Boxer?" And then Siyabonga from Kenna Securities says, "Why is the store rollout for Boxer so low dependent, despite the opportunities of conversion?
I think maybe on the store rollout, we are making sure that the stores that go to Boxer serves Boxer. The objective is not to just take a store and hand it over to Boxer because Pick n Pay were not successful in it. So we are making sure that we service the Boxer business, and that they end up with the most profitable estates. It's important, I think, for all shareholders, that is the case. As far as the conversions go, it'll be in the low single digits. I don't foresee more than 10 ultimately at this stage, I think, Marek.
Another question on Boxer from Paul Steegers at Bank of America: "In the Boxer presentation, you highlight an expectation of Boxer trading margin of around 5% versus 5.6% last year. Why do you see pressure on the Boxer margin in the medium term, and can you elaborate on this 5% medium-term Boxer margin target?
I think it's a philosophical thing more than anything else. You know, Boxer's stated goal was never ever to get its margin above 5%, and they're very, very focused on driving back into price and back into keeping themselves competitive again. So one has to be very careful what you do in your business in the longer term, 'cause, you know, the more you open those jaws up like that, the greater you allow the opposition to come in. So it's a philosophical thing for Boxer. But, as we know, at the moment with Boxer, there's very, very limited interaction that we can engage on, given the current process that we're in at the moment.
Another question from Peter Cromberge at Mergermarket: Can you comment on the structure and size of the newly arranged debt facilities for Boxer, and also, what is Boxer's targeted gearing range?
At this stage, unfortunately, we can't give more detail on the Boxer structure, given the pending IPO, but investors can look out for the pre-listing statement when we do release that.
Perhaps you can give a little bit of color for Funeka Maseko from Coronation Fund Managers. "Appreciate that last year was a high base for Boxer, but could you unpack the post-period-end sales update for Boxer? Are you still gaining market share, and does the 9.6% sales growth reflect like-for-like volume growth?
I think, Funeka, we're very comfortable with where the Boxer turnover is at the moment, and overall volume growth definitely continues.
And then Adam Kombouli from Allocated Capital: "Can you share some timelines for the Boxer listing?
I think as I detailed in my presentation, we are ready. It is market-condition dependent, so we are aiming before the end of this year, but it would be dependent on whether the markets are at the right place.
And then I think, our last question on Boxer, from Saad Cloete at Citi: "Can you give some color on Boxer inflation in H1 and first two months of H2?
I mean, we've seen inflation moderate across the entire group. Boxer's inflation is very sensitive, given the fact that it's only got 3,000 SKUs, and it can be impacted by specific commodity items that can have specific spikes up or downwards.
Just the question on SKUs from Talia Ginsberg: "Looking at the business case studies of the American Tesco brand or even our Boxer business, it seems that bulk lower SKU offering was an imperative for the success. Do you see Pick n Pay lowering SKUs?
No. You know, again, I mean, you call out Tesco as an example. I happen to have spent in my previous life, up until a year ago, quite a lot of time in the U.K., and, you know, for what it's worth, I go and do the shopping with my good wife every month, and we go around the stores, and I have a look at the shelves. It is becoming so dull. They are just category managing their business into oblivion. So the state of play in their stores, I wouldn't be modeling anything based on where Tesco are going as a supermarket chain, nor Sainsbury's, that I can assure you.
Yes, hi. Chris Logan. First of all, Sean, very well done on the energy and experience in leading this turnaround-
Thank you
... of this, you know, remarkable Pick n Pay company. Maybe just a question for Marek, if I can. Marek, it's wonderful to see a young, vibrant, Durban-based company save this old established company via this upcoming IPO, which everyone's hugely excited about. But don't you think that your listing will alert your competitors to your secret sauce behind your truly extraordinary profitability and growth? I note Aldi and Lidl, which I guess are comparable, they remain unlisted.
Come up, Marek.
Thanks for that. I mean, it's obviously that sentiment is. You know, question's been asked quite a bit on our journey. I mean, all I can say is, you know, we're not new in the world of retail and operating at that lower end of the market. We've a forty-seven-year-old business, the opposition knows exactly who we are. We deal with the same suppliers. We share common walls. We co-anchor shopping centers, et cetera. You know, Boxer has been sailing under the radar as far as the investor community is concerned, but on the floor, we know exactly who each other are.
Next time I phone Marek and say, "Meet me at The George in Umhlanga for a chat," he always gets a bit nervous when you say, "Well, what's up now?" Because about nine months ago, when we decided that we were gonna have to list Boxer as one of the ways of dealing with our balance sheet, it was left to me when we decided to have it at the board that this is what we were gonna do. They were like, "Well, who the hell is gonna tell Marek?" And they all looked at me like this. I said, "Okay." So I said, "Marek, meet me at The George, 5:00 P.M. tomorrow evening." And he was like, "I wonder what Sean wants at The George." But anyway, that's gonna be our new strategic facility.
So if we have to come up with any ideas to put stuff back into the secret sauce, that's where we will be doing it.
10 more seconds.
...I guess, well done on the progress that you're making, and thank you for the disclosure on the on corporate stores to franchise stores. I did note in that disclosure, though, it was a little bit disappointing, or looked a little bit disappointing, the revenue growth out of out of franchise stores, both like for like, and I guess normal. What would you put that down to on a relative basis to the to the corporate stores? Sorry, it's Brian from Laurium.
Yeah, no, 100%, and I think we disclosed it when we actually made that segmentation last time. I think that the focus for us brutally in the beginning was on the corporate stores, because that's where the major world of hurt was, so to speak. And I think that it just shows in the fact that we really did apply our minds. I mean, I have spent a huge amount of time with franchise personally, and the whole commercial team in the last three months. I'm pleased to say that franchise is now coming back onto the fore again, and I think that you're gonna see a change in that trajectory and cadence. It's happening as well. Franchise is critical to our business.
It's over half of our business, so you cannot ignore it, and we've got some extraordinary franchise operators out there as well. We've got I think in three weeks' time, we've got Mario at Oakfields, who's our biggest franchisee, that we've got reopening his store. Unbelievably beautiful store. So franchise, hugely important to us, and it's coming back onto the front foot and showing the trajectory that we need to show there as well. The truth will set you free.
Dino Konstantinou at Investec, could we provide some color on the reinvigoration of our private label, and where is private label penetration at the moment, and where do we want it to get to?
Yes, I can definitely do that for you. I've been really alarmed at the lack of participation in private label in the company from where it once was. I would say we're almost down to about half. If I look at non-Eds and ads in grocery, we're down to almost half of where we were. And it is something that is receiving our urgent attention. It is a very important piece of the business. Very, very important piece of the business.
Another question from the PIC: the strong sales growth that Boxer is seeing, which segment is it coming from, township or rural, predominantly?
We're not in a situation to be able to give further disclosures on Boxer at this stage. You know, we're under such strict rules at the moment as to what we can and can't say in that regard.
A question from Kristen Adams at Excelsia Capital: Could we provide more detail on the reason why the franchise like for like was negative? What needs to be done in order to bring it back?
We've alluded and spoken to that earlier now. I think there's been a laser-like focus on the corporate business and reinvigorating the corporate business, and we're now addressing that within the franchise network, and we're showing the signs and the turnaround there as well.
A question from Paul Steegers at Bank of America: Are we still on track to achieve the operating cash burn target after CapEx of ZAR 1 billion?
There is nothing at this stage that is indicating that we need to adjust those targets.
Okay. Sorry, it seems like-
Okay
... I'm hogging all the questions.
All right, so I would just like again to thank everybody for being here today, and I just want to share this one last snippet of information with you. For any of those of you who doubt Pick n Pay, Pick n Pay's future, don't. We've got an extraordinary announcement that we're going to be making on Wednesday about a collaboration partnership that we are entering into with South Africa's favorite brand, FNB and Pick n Pay. It's going to be a game changer for our customers, for FNB customers, and it's just going to show the confidence that's been shown in us by a lot of people in this country and people in this room.
I want to thank all of you for your positive feedback and your support, and the sentiment expressed here, and we look forward to the festive period ahead of us, and seeing you back here in six months' time. Thank you so much.