Good morning and welcome to everybody on this beautiful Monday morning. It's just a great honor, Wendy, to have you with us here this morning, and some of our colleague NEDs from the board, and some of our staff, and then obviously our very, very important supporters and investment community and commentators that are here today. It's been an interesting year, if one can put it that way. In fact, it's been a remarkable year. In a nutshell, it's been one of stabilizing the journey that we're on. It's been one of sequencing and getting to grips and getting an understanding of where we need to go forward in terms of Pick n Pay.
There was a very well-known conservative philosopher, English conservative philosopher Roger Scruton, who said, "Great things are easily destroyed, not easily built." I think to a degree in companies, if we look back and we are really honest with ourselves and we have a look at one of the challenges that did beset us, and I've said over time that we fell out of love with really running retail, was that we lost to a degree some of our core institutional knowledge, what I would call muscle memory. We all know that in sport you have to go and practise your game and you have to go and hit thousands and thousands and thousands of balls or whatever your particular choice is in order to create that muscle memory. In the same way, organizations and corporations too have a muscle memory.
For us, the journey of really getting an understanding of that and now rebuilding on the core capabilities and competencies of the company is the journey that we're on. That has, of course, been done in a year where we've just had to do one or two other minor things like just debt restructure and a rights offer and an IPO. I think at the start to just call out the people in our finance division under Lerena's leadership and everybody in the finance department for the most remarkable, remarkable year that has taken place. It's been extraordinary.
To Dallas, Dallas Langman, who heads up our core Pick n Pay retail piece of the business, to Dallas at this stage for the extraordinary leadership that you've shown in terms of getting a regional infrastructure and a backbone back into our core operational piece of Pick n Pay, because that's obviously where our major emphasis has had to be. You know, in life, I only have one child, but I think in life it is true that you can only be as happy as your unhappiest child. And when we have a look at the Pick n Pay family that we have, it is but our core Pick n Pay retail business that has been our ailing infant. It's been an extraordinary year where we've had to deal with all of these.
I'd like to call on Lerena because I know that numbers is the major thing that interests the bulk of you sitting in this room here today. I'll call on Lerena to come up, share some of the numbers with you, and then we will get on to having a bit of a chat afterwards about where we are. Thanks, Lerena.
Thank you, Sean. Good morning, everybody, and thank you for joining us here today. It is been a milestone year. Sean has alluded to that. Not only did we recapitalize this business through two significant corporate actions in record time, we have also outdelivered on our operational commitments for the past financial year. Before I spend some time on unpacking the actual FY 2025 result, some housekeeping matters. For your pleasure, we have added a 53rd week to our result this year. The impact on the group as a whole, on an earnings level, is immaterial. We have presented pro forma 52 -on- 52 week turnover numbers to assist with your analysis, but every number in this presentation will be 53- on- 52 weeks, unless otherwise stated. We have also listened to the requests for increased disclosure, and we have again expanded our segmental disclosures between Pick n Pay and Boxer.
The Boxer team has presented their results to the market already, so in this presentation, we will largely focus on the Pick n Pay business. This segment is us as a management team, Sean and I and Dallas. This is our primary focus. This is where we need to get the business back to an even keel. The group delivered solid performance metrics across the entire income statement and balance sheet. Our turnover grew by 5.6%, 53 on 53, or 3.2% on a 52 week basis. The strong improvement in earnings was driven by improvements in both Boxer and Pick n Pay. The main drivers, however, of our group loss before tax and capital items of ZAR 237 million is a ZAR 1 billion improvement in trading profit in Pick n Pay and a reduction in net funding interest year- on- year of ZAR 166 million.
The group attributable loss before tax, including capital items and now recording a minority interest relating to Boxer of ZAR 85 million, recorded a loss of ZAR 736 million. This is an improvement of ZAR 2.6 billion on last year. The reason: the two items I've just mentioned, as well as a significant reduction in the impairments recorded in the Pick n Pay segment, ZAR 3 billion last year and less than ZAR 300 million this year. Our strategic priority remains the like-for-like sales growth of our Pick n Pay owned and franchise stores. Our Pick n Pay South Africa's super company owned like-for-like sales, excluding clothing standalone stores, delivered continuous improvement throughout the 2025 financial year. The owned stores like-for-like sales growth in H2 was now at 3.6%, and this has also continued to improve into the new financial year. The growth in our franchise issues has been slower to recover.
Our franchise partners are a critical part of our business and a critical part of the Pick n Pay future. Turnover from our franchise businesses has more recently improved. We recorded a like-for-like growth for H2 of 1.1% compared to a decline of 1.4% during the first half of the year. This metric has also continued to improve into the new financial year. Our omnichannel sales were up 46% on a like-for-like basis. That is supported by growth in both ASAP and Mr D, and that is of a growth of 74% last year. The total of our Pick n Pay South Africa business delivered turnover of ZAR 71 billion. This is a very important point. We delivered ZAR 71 billion of turnover exactly in line with the number that we delivered last year. This is notwithstanding the closure of 40 loss-making stores.
The growth of Pick n Pay is supported by its like-for-like growth. The business has not gotten smaller. It has gotten stronger. As I've mentioned, we have expanded our segmental reporting across Pick n Pay and Boxer, and I will now take you through the two segments separately. Very briefly on Boxer, our Boxer business grew turnover by 10.4% on a 52 week basis and delivered an increase in trading profit of 19.7% based on how we consolidate the segment into Pick n Pay. There are still some nuances this year, but by the 2026 financial year, the Boxer segment in the Pick n Pay group results will largely equal the Boxer published information. Marek and David have presented their results on the 12th of May, and I would really like to congratulate both of them on a job very, very well done.
The full results presentation of Boxer is available on their website, and us as a Pick n Pay team are in full support of the Boxer team and its growth objectives. The real important part of the result is Pick n Pay. The Pick n Pay trading loss reduced by two thirds during the year to ZAR 2.5 billion, down from the ZAR 7.5 billion last year. This is an outperformance of our market guidance of halving the ZAR 7.5 billion trading loss in the base. The most important point is the momentum of the improvement. I will illustrate on the next slide that the improvement has all come during the second half of the year. The new management teams under Dallas's leadership have now started to get embedded into the business and are driving the turnover on plan, and it is clear from the momentum in our results.
This has resulted in a trading margin improvement of 130 basis points for the full year, now at - 0.7%. As I've mentioned, there are two main drivers of the improvement in the result: the trading profit improvement and the interest reduction. This slide illustrates it very clearly. On the left-hand side, we indicate that there was a ZAR 1 billion improvement in the trading profit of the Pick n Pay segment. However, the positive momentum in the second half is illustrated with a ZAR 1.1 billion trading profit improvement in H2. It is important to note that that trading profit was supported by a ZAR 430 million ECL or bad debt provisioning in the base that wasn't repeated in the current year, but it was also supported by a gross profit margin improvement in the second half of 120 basis points.
I will detail that when I get to the gross profit detail. On the right-hand side of the slide, we indicate the improvement of the interest reduction. Our loss before tax and capital items has improved during the second half by ZAR 1.4 billion. The delta between the right-hand side and the left-hand side is basically ZAR 300 million. That is driven by the interest reduction, specifically in the second half, of close on ZAR 300 million. The interest savings came in Q4 post the Boxer IPO and the debt repayments. These we expect to analyze in the FY 2026 year. We have made great progress, as you can see here, but it is very important for me to note that there is much more to do and that this will take time. We are focused on building a sustainable Pick n Pay for the future. We will not chase quick gains.
We will focus on making sure that we do the sustainable growth support. As I've mentioned, we have had improvement in our gross profit margin during the year. The Pick n Pay gross profit percentage has improved 20 basis points during the year, but you can see from the chart that it's heavily weighted towards the second half of the year. Pick n Pay has achieved equaling price competitiveness during the year while still improving its gross profit margin. Our Pick n Pay internal selling price inflation was 2.1% compared to CPI food of 3.9% for the period. Load shedding savings of close on ZAR 200 million has been reinvested in margin to offer our customers the best possible value.
The improvement in the H2 GP margin of 120 basis points was supported by improved mix in key categories such as our general merchandise, our clothing, and our fresh produce, as well as a notable reduction in our waste. Our trading expenses illustrate strong cost control. Pick n Pay trading expenses were down 2.2% for the year on a like-for-like basis, 3% increase. Key items that were driving the reduction of 2.2% is the ZAR 307 million VSB and restructuring costs in employee costs in the H1 base, as well as the ZAR 430 million ECL or bad debt allowance, largely in H2, as I have already indicated. We've excluded both of these items from our like-for-like expense analysis. If we then look at our employee costs on a like-for-like basis, it increased by 5.7%.
This increase reflects selective hirings to support our operational execution in our store base, as well as our increased regional structures to support the turnaround plan. Great care has been given to make sure that these additions do not unduly increase our cost base, but that they are all in support of driving top line. Our like-for-like merchandise and administration costs increased by 4.1%, and this is reflective of our increase in target marketing, again in support of our like-for-like sales targets. Notwithstanding the positive momentum in the Pick n Pay business, specifically during the second half, we have still burned cash this year of ZAR 2.6 billion. We have utilised ZAR 2.6 billion of cash flow from our free cash flow. This has been in line with our forecasts. Our future cash utilisation in Pick n Pay, however, will be less.
This will be supported by incremental improvements in operational cash generation. This will take time, but we are on a positive trajectory. Full elimination of the funding interest in FY 2026, you will see that that is circa ZAR 600 million. Steady working capital improvements and a moderate increase in CapEx that I will detail on the next slide. Through the highly successful recapitalization program, we have raised ZAR 12.5 billion this year. This has enabled us to settle all the Pick n Pay debt. At the end of the FY 2025 balance sheet date, the Pick n Pay business had ZAR 4.4 billion of cash reserves on its balance sheet. We are well positioned to invest ahead of the Pick n Pay turnaround plan.
We have utilised working capital of ZAR 0.6 billion during the year on a group level, and in line with our normal seasonality, we had a build-up in the first half and a build-down in the second half. The Pick n Pay segment working capital utilisation was ZAR 0.5 billion. This reflects tight inventory management, up only 3.8%, notwithstanding the reinvestment in ranges in support of our like-for-like sales growth. We have had substantial improvements in the quality of our franchise debt. Our bad debt, or ECL provisioning, is now at 4.6% of our gross receivables, down from the 13.9% last year. This is now again closer to the average of FY 2021 - FY 2023 of 3.6%. We also have a decrease in our payables relative to that of inventory.
This is as a result of the week 53 cut-off impact, the addition of the 53rd week fall over a month in payment cycle. As a result, we had more payment of our creditors during FY 2025 relative to FY 2024. I am very comfortable with the control and level of working capital in both Boxer and Pick n Pay. The group invested ZAR 1.5 billion of CapEx in this financial year, well down from the past year, but largely in line with our forecasts. Both Boxer and Pick n Pay continue to invest for FY 2025, as well as their forecast for FY 2026, to support their growth plans. In Pick n Pay, we contained the CapEx spend of the recapitalisation program. We are forecasting a spend of ZAR 1 billion for Pick n Pay in FY 2026, an increase of ZAR 500 million of the spend last year.
This spend will be focused on the refurbishment of key stores as part of the turnaround plan. Our key investment is to make sure that we do targeted CapEx investment to optimize our ROIs. The success of the Pick n Pay future is not spending CapEx at all costs. It's about optimizing the estate that we have. We will invest with care and, first and foremost, ensure that we invest in our operational excellence. We will first invest in our people and then in bricks and mortar. The accumulation of all our efforts this year delivered an improvement in our loss after tax of 80.3%. Our headline earnings per share improved by 64%. Through the $12.5 billion capital raise, we have sold 34.4% of our Boxer subsidiary in November of last year.
We now have a 65.6% stake in a listed entity with a market cap of close on $30 billion. This was a significant value unlock for shareholders. As a result, we have now recorded a minority interest of $85. That was all relating to the fourth quarter, and this will also annualise in FY 2026 results. We are, however, expecting that the interest benefit that will annualise will more or less offset the annualisation of the minority interest for the full 12 months of next year. In closing, we have moved very quickly over the last 18 months to recapitalise and stabilise the business. We've had multiple corporate actions all completed in record time. We've moved from a net funding position of $6.1 billion last year to a net cash position of $4.2 billion this year. That is a delta of $10.3 billion.
That is unheard of in corporate South Africa, and it was made possible by a motivated and dedicated team that is highly invested in the success of Pick n Pay. I take great comfort that that same team is now solely focused on the operational success of the business, as well as supporting Boxer in their growth trajectory. I hand over to Sean.
Thanks, Lorena. I think you can all agree that there has been some steady progress in the year past in terms of achieving what it is that we laid out. If we have a look at what we shared here a year ago in May, when we said, "This is our plan for Pick n Pay, the company going forward," we said that we were going to focus on these critical areas in the organisation.
If you have a look at where we are, the recapitalisation is obviously done, and I'm now going to deal with the various elements of what remains to be done in the company. When I speak about the leadership roles and people, we continue to invest in the training of our people. We continue to invest in the various campaigns that we have internally within the company. You know, one of the things that I've always passionately believed in is that you need an internal marketing budget, because if you cannot get your people to be your primary advocates themselves, you're not going to win the war in terms of getting consumer advocacy. We have been really focusing a lot of our energy and effort in this regard.
You know what for me is really telling in this is that if you look at the brand loyalty for Pick n Pay that exists out there, it's real. It's real. When I have a look at monitoring customer complaints coming in, and we see our customer complaints have just dropped off, and we're now having an extraordinary phenomenon because it's very rare that people actually give you a compliment these days. When we have a look at the volume of compliments that are now coming into the call centre, I think one always needs to be realistic in life about these things. Is it perfect? No.
Our real, real focus, and here, if we look in the year past, and thank you, Lorena, we'll take your Chief Sales Prevention Officer title away from you now because you're giving us a bit more capital next year. If you have a look at just a paltry ZAR 500 million that's been deployed in capital in the year past, and you have a look at the real fact that we've shown this positive trend into strong, solid, like-for-like sales, it's sweat equity, by and large. It's just inhuman endeavor and application and our beautiful people at Pick n Pay. As I said, for me, one of the most important things is when we have a look at like-for-like customer growth.
I'm pleased to be able to tell you that for the first two periods, and now we just finished our fourth week of a five-week period now, it's even above that at the moment. We're seeing like-for-like customer growth coming back into the store. We have to be honest with ourselves. Over a period of time, we disenfranchised a lot of our customers that used to shop with Pick n Pay, where they just kind of discontinued us. Consumers are brutal today. They have many, many options, and they can take decisions to take their business elsewhere. I think that too many of our beloved Pick n Pay customers did that. We're seeing now this trend reverse. We're seeing the urban narrative start to reverse as well, because it was almost in fashion to talk about the ills and the ailments.
We're seeing that that cycle has really, really improved and turned. Franchise, which is central to our business, it's about half of our revenue today, and very importantly, franchise has also now moved into a positive like-for-like growth trajectory. You know, it stands to good reason why franchise would lag behind a little bit, because if you have a look at how we're starting to reinvigorate the core corporate business that we have in the company, it just stands to good sense that the beneficiation or the uptick would be quicker in corporate than it would be in franchise. I'm pleased to tell you that franchise is now coming on solidly, step after step, and we're also doing more and more ASAP delivery into the franchise network as well now.
Clothing, Hazel and her team have continued to perform ahead of the market, and again, market share gain. We know that last winter in the clothing industry was particularly challenging, and we are also annualising against some extraordinary growth from the year before. When we have a look at where we are trading at the moment in the company, and we have a look at the last while, trading clothing has been hitting it out the park. The modernising of our estate for growth in the future, and you have heard me say this here before about retail, that as retail is evolving and as we have a look at how we are going to craft a future-fit company going forward, the art is not how many stores. It is truly about which stores where. For us, that is where we are really, really focused in the company.
The conversions that we've done over to Boxer have been absolutely fantastic, and they've really shot the lights out. That's where you've seen significant changes in demographics in areas where you may have a store that's been there for 40 years. Kimberley is a classic example. If you go, Wendy, if you think back to our store in Kimberley in the middle of town today, Kimberley is a profoundly different place. The only thing that's growing in Kimberley is the size of the big holes, it's crumbling. We've converted that over to Boxer, and we've just seen extraordinary uptick in sales there. The closing of the loss-making stores in the structurally challenged sites, if you've got a store that just does not have a chance of ever making it, just deal with it.
I know that it garners a lot of commentary out there, "Whoa, whoa, whoa, it's me, Pick n Pay's closing stores." If you've got a store that is a negative contributor, just get rid of it. The other reality is that you still have to deploy good human energy, good human capital against the loss-making store. Silly. Get rid of them. Our store standards, we continue to elevate our store standards in the store. I suppose this cuts a little bit to when I talk about the muscle memory. We have to restore a lot of the things that we lost. If we look at Fresh, because we need to get Pick n Pay back to being the fresh food people, that's where we were. It was the space that we owned.
Despite the fact that we live in this new fast-moving world with AI and all of these wonderful things, people still predominantly want great fresh food and a great experience. As I said, we will continue now to refurbish our key stores that we have identified going forward. Executing our store estate reset plan, this is kind of what we have stepped through and done up until now. The good thing about this is that some of the stores that we have targeted, where we believe we can get them closer back towards a break even in the contribution to the overall enterprise. This is a bit of a dynamic situation. Very importantly, we have appointed a Head of Innovation and Digital, Vince, sitting at the back there. You have a lot of work ahead of you, my friend.
The first thing you can work out is exactly what is artificial intelligence, because everybody that I ask battles to define it. Enhanced machine learning is certainly here for us, and Vince is going to be heading that up as well as part and parcel of this. We have just launched our new ASAP. Today, there is a release that went out today, so our new ASAP app is there. What that does is it combines Smart Shopper, and it brings everything together under one roof out of one pen. Retail media is growing, where we are, in fact, now engaging and selling to our supplier base marketing opportunities within our network that we have. Very importantly, Devon, the work that has been done under value-added services. There is going to be a lot of focus on what we are doing in this part of the business.
I'm pleased to say that we've received some great marketing awards. Vincent and Enrico were in Johannesburg recently at the Smarties Award , and they did a clean sweep there. Our price per loser advert had over 40 million views. Just amazing stuff there. Here is what we are about at the moment: establishing a future-fit structure. When I talk about a future-fit structure, it's ensuring that the Pick n Pay that we recreate now can go the distance. My success in this company is not going to be while I'm here. It's going to be five and eight and ten years from now, where the real success, the real long-term success of Pick n Pay will ultimately be able to be judged. Our support offices, we are focusing very much in streamlining the functions in our support office infrastructure as the business has evolved.
We do have all of these tools today that are available to us, where we can use technology to do a lot of stuff more efficiently. We really need to sit down and have a look at what is the structure that we have within the organization to run it efficiently. Store operations, as we said, we're really getting stuck into the store operations and the underlying skills there. Shortages is another area within the company where we have made some progress this year, but more to come on that side. In supply chain, we are almost weeks away. I would say within the next two or three months, we'll get to be taking some decisions that we're going to be doing within supply chain.
We're not just going to rush this decision just to take a decision, because this is a profoundly important thing for us going forward into the future. We know in areas like the Eastern Cape, where we really have no supply chain infrastructure there, so to speak. There's a lot of stuff that we've got to do across this. It's not just about Eastport. You know, Eastport is a building, and as an operation, it's truly, truly world-class. I mean, the team, Marcel and his team, what they did there creating that was absolutely extraordinary. It's just overcapacity for us. We have solutions to deal with it. This is amazing. Peter is here with us today from eBucks FnB. . We all know that we announced last year that we were going to join up with FnB.
Peter, congratulations to you and your team, who've just won the best global loyalty program. An extraordinary accolade, an extraordinary accolade. We can see how this is starting to grow within our company, and we've done some really cool stuff here, some really cool stuff. We've got some good stuff coming. We're just getting out of the blocks. This was a very important decision for us. You know, part of the journey that we're on now is that you have to invest ahead of the recovery. You can't fix the business and then have money to do stuff. You have to invest ahead of the recovery, and you have to have the faith and the confidence of where you're going. The opportunity for us to become one of the tier one sponsors of the Springboks was vitally important.
We signed up a four-year deal with a two-year option to extend it from there. If we think about this beautiful country of ours, despite everything, there is one thing that brings this country together, and that's the Springboks. It's just amazing. When you have a look at Springbok Friday and Green Friday and what have you, it's incredible. For us to reengage, very, very important. More importantly, this sponsorship cuts right the way across rugby in South Africa. It's going to allow us to actively reengage back in the school programs. Jonathan, I mean, you know all of the school programs and stuff that we started many, many years ago. We can really properly get back into this and start reactivating all of this again.
Perhaps most importantly, you know, as we are in this phase that we've been through this year, where there have been some changes in the company vis-à-vis the family and a slightly changed role for the family in the company. You know, Raymond and Wendy's legacy will simply be this. It will be the conduct that we have as a company going forward, also for 10 years, 20 years, 30 years, and forever. Getting back in community involvement again and really doing this stuff properly. You know, we have a WhatsApp group in the company for these endeavors. I mean, Vaughan, the stuff that you get there every single week, where you just see our people across the length and breadth of this company and what they do in their communities, it's just too beautiful and vitally important. Boxer, as you said, Boxer is an extraordinary, extraordinary business.
It's something that's always obviously been very close to my heart, having been at the scene of the acquisition 22 years ago. The listing and everything has gone well. Marek and his team have been absolutely phenomenal, and David. We are making a slight change in Boxer that's been communicated. At the end of this financial year, I will take over as Chair of Boxer. James will remain on the Boxer board there. As we know, the announcement has gone out now that James will now take over from Gareth as Chair of Pick n Pay. Gareth sends his apologies. He's away chairing another meeting out of country at the moment. It's really appropriate at this stage because Gareth will officially step down at the AGM. The AGM is online today, just little talking heads on a screen.
I think it's appropriate to pay tribute to Gareth for what he's done. I want to thank you specifically, Gareth. I know that you're listening in today for all of the support that you've given me personally in the last two years. That comes to the family as well, Wendy, the support that I've received personally from you and the ongoing interest has really been inspirational and a major help, as has been from all of the various family members. Gareth, thank you for everything, my friend. It's not goodbye. We'll be seeing you around because you'll still be on the board driving us crazy. In closing, before we get to questions, I'd just like to say this: it has been a fantastic year. I think that the greatest growth in life comes out of the toughest of times.
If I have a look at just how this team has come together against all odds, with everything stacked up against it, a lot of negative sentiments here and there earlier on in our journey, and I just see how this team has grown in competence. When I see how this team is growing in capability, it's just too beautiful. It's too beautiful to see. For me, it's with great honor and pleasure that I've extended my contract through to May 2028. I can tell you right here now, that would not be possible without the support of my beloved wife, Lorna, and my daughter, Leanne, and Max, our little Yorkie. Hazel, you always said that when Max came in the house, Max is going to be the boss. He is.
I can assure you, without their love and support, it would not be possible for me to do this. I am inspired, though, because I am the baby in this new subset. Last week, there was an article that went out talking about the age of CEOs. I am only 71. I mean, we have got one CEO out there at the age of 79. I have still got a long way to go yet. We will have an orderly succession process over this period. As I say, it is with great pride and energy and passion that I am privileged to be able to do this. I want to thank everybody for your attention. I want to thank all of the audience. We have got about over 220 people online.
Thank you all very much indeed as well for the interest that you show in the company and the journey that we are on, because it is only on and on from here, onwards and upwards. Thank you very much indeed. Any questions? Yes, sir. Mike, where's the mic? Yeah, to ask.
Perfect. It's Michael from Avior. First, Sean, Lorena, thank you very much for any of those questions and all that on the good start to the recovery. I've got a couple of questions on the strategy going forward. The first one is on the stores that were closed. Maybe we deal with each part, so the franchise, the Boxer conversion. How were those transactions structured? Were there any costs for Pick n Pay? Did you receive any compensation? How would that work?
Maybe on[audio disortion]
The compensation from Marek, my Turkish corporate salesman, Lorena.
Any transaction with Marek is a lot of arm wrestling. And I will admit I'm often second, but don't tell him. No. The stores that we've restructured during the year had some once-off costs. There's often some staff restructuring costs that's involved, as well as some lease settlements. However, how it's reflected in our results, there's actually some profit on lease terminations in terms of IFRS 16 that largely offset the once-off costs. In the results, there was nothing specifically in the base to look out for.
Maybe on the future stores that are going to be closed, what are the costs then similar to that?
We hope so. It's a dynamic process, as Sean has said. Each negotiation is on its own, so it is very difficult to model. Currently, the trajectory looks like that could be the case.
Then, Sean, just on the refurbishments for stores. You have said that you are going to spend ZAR 1 billion. A portion of that will be on refurbishing stores.
Yeah.
Could you elaborate on your vision of how you picture a Pick n Pay store being differentiated to customers? What would draw customers to a Pick n Pay store over a competitor, and how do you see that playing out?
It is a very good question, and I would like to share it deeply with you so that our opposition can know exactly what we are going to do. You see, that is the simple beauty of retail, that everything that we do is on display. They are on our secrets.
If I think for me, and that always has been, and that always stood out to me, the finest retail chain in the world is a company called Wegmans in the U.S., based out of Rochester, upstate New York. They are now to the fourth generation. Colleen is now running it, Danny's daughter. When you have a look at what Wegmans do, they just continue to evolve. The reason why they are so good is that they do the difficult stuff. Groceries and packaged goods today, with the evolution of home delivery and scooters running around and what have you, more and more that's just going to be a functionary operation. Our focus, and I said it earlier on, is to get Pick n Pay back to being the fresh food people.
Everything that's happened in this country, I'm not bragging, we set the bar. There's a reason why in 2008, Pick n Pay was, sorry, 2008, Pick n Pay won the global retailer of the year for a reason. All of the work that we'd done then to really get the theatre of fresh food into our business is where we have to go back, and we have to do that properly. This is where it takes time to build that corporate muscle and that corporate instinct. Because people in this space, we have to train. They're just not readily available. Unfortunately, some of them are working in other chain stores because it was a protracted period where we had people leaving us that shouldn't have left us. People are coming back.
If you have a look at where we need to get back to, there were two things that made us great, and they do not change in the new world of retail. That is, everybody is looking for the next big strategy, the next big shiny bright object. No. No, no, no, no, no. Retail remains. The key fundamentals of retail remain the same, obviously, while you take into account the evolving dynamic of the combination between the brick and the click. Shane, you said five years. Thank you. Shane, what gives you?
We are the capital. Congratulations, Sean. Quick, two questions for Lorena. Do you think you can get the minus ZAR 900 million cash flow from operations back to kind of a break-even number over the next 12 months? Second question, you are investing ZAR 100 million in clothing.
I would imagine your return on invested capital in clothing is well north of 20%. Crudely, why not more? Sean, if you do not mind, just on the Hypers, your Hypers are about 50% bigger than your competitors. It has been a bit of a process to right-size them. Can you update us on the strategy with Hypers?
Sure. We will let Lorena go first.
Let me take the clothing first. I think Sean has indicated by the supermarkets as well as clothing, it is quality, not quantity. Yes, there are great opportunities to grow highly profitable investments in the clothing business. The focus will be on the quality of those, as well as it is important to support the like-for-like estate. If you grow at all costs and you do not focus in on the estate that is actually there.
Pick n Pay Clothing is a fantastic growth opportunity, and we believe we're giving it enough capital to optimize the returns. Shane, it's not a fact that there's not enough capital. If it needed more, we would definitely allocate more. On the apologies, just remind me your first one.
Like the free cash flow from operations.
The free cash flow. It is our aim to get that to zero. It will not be within the next 12 months, but that remains our goal.
On the Hypers market, Shane, we've started off Faerie Glen Hypermarket . Gareth was there, opening ops manager. When we opened Faerie Glen Hypermarket , we've done a deal. We've sold it off. We're going to completely redevelop the center.
Ideal size of a Hypermarket today would be about 8,000 square metre GLA with about six and a half trading, which is the size of what the Checkers Hypers are. Durban North Hyper, Cavaleros Properties are busy selling that at the moment to developer. And we've got 16,000 m² in that store. You come back to it, we need half. The reconfiguration of these Hypermarkets is quite difficult, and it will be a process. Under Jared, if we have a look at the growths in Hypermarkets, I mean, they're actually ahead of the supers. If we have a look at their growth year on year and their like-for-likes. That's going to be a journey.
Sean, can I ask one more question, if you don't mind, just on food inflation? Food inflation has been trending down, and it's now low single digits. How do you see that playing out over the next 12 months? I mean, crudely, inflation is good for food retailers and very low levels of inflation, quite difficult for you guys.
We've managed these cycles before. Fortunately for us, we're back in a cycle now where we do have cash back in the balance sheet again, so we earn interest again in the company. There is always a trade-off in these areas. Yes, a lower inflation rate does make things slightly more challenging and difficult. Inflation is the retailer's friend, as we well know. It is a cycle that we've managed so many times before. That is what I say to people. When you go to work in the morning in your vehicle, you put it in R& D, recession and depression. We learn to manage both of these things. It does not matter. Tam, online. Yeah.
Question from Chris Gilmore from Gilmore Research. Congratulations on steady progress. How do you feel about the year ahead?
How do I feel about the year ahead? It depends on what source of information you have when you think about the year ahead. Whether it is something coming out of the White House last week and what effect that is going to have on us, we cannot worry about all of these massively global events. We have to focus on what we can control. It helps nothing to spend your day worrying about all of these other things. You have to focus on what you can control at the end of the day. What we can control is our environment. If we have a look at the challenges that we have in that environment, Sean has already introduced the first element to that.
We have to deal with what this low inflation environment is going to deliver for us in terms of the challenges that that brings. We have a very constrained consumer market in this country. People are under an extraordinary amount of pressure in South Africa. Huge. That remains, absolutely. We also have an environment where growth still continues unabated in the opening of m² of shopping. We are about to surpass. We are almost equal and about to surpass the available per m² per capita of retail in the world. Does it make sense? Does not make sense. I think that the pace at which retail is currently rolling out is also a challenge. We need to focus on our core business of where we are.
When I have a look at the year ahead, we absolutely have only one thing at the end of our bonnet when we drive to work in the morning, like that Mercedes-Benz Target. That is our business day- to- day- to- day. The broader issues must take care of themselves. We are obviously aware if some big black swan event had to come along. For the rest, we just come to work and buy and sell.
Sean, we have had a few questions on cash burn. One from Yahish Patel from SBQ Securities. Previously it has been highlighted that cash burn would be around ZAR 1.5 billion per annum. How should we think about this into F 2026 and F 2027, considering break-even targets are now pushed out 12 months?
Yeah. Go, Lorena.
Thank you, Tam. Building onto Shane's question, we're not giving formal cash burn guidance for the coming year, but a few items to consider. Firstly, if you look at the current year burn, the ZAR 600 million worth of interest will not repeat. As a matter of fact, there might be a slight inflow. The working capital, as I've indicated, was negatively impacted by the week 53 cutoff. We are not foreseeing that as a drag on our cash flow. We have got a slight increase, as we've indicated, on our CapEx. I hope that helps with the guidance.
I think another issue, it's crazy. I mean, it's 18 months. I think it was the 18th of October, 2023, when I stood up here and presented the first set of results after being back about two weeks. At that stage, I shared two feelings that I had or two instincts that I had. The first one, and Shane, you're sitting right here, was that this would be a multi-year journey. I indicated at that stage about three years. You said, "Why are you putting pressure on yourself? How many years did you give it?" Five. Five. You said five. We kind of split the difference between you and me. We go back a long way so we can split the difference. Has it slipped out by 12 months? Yes. I also did say then that it would get worse before it got better. When you're catching a falling tumbling knife like that, you don't just catch it and it stops.
I can say with great confidence that we are at the bottom of that cycle now, and we'll start to move back into the positive territory again. We are taking investment decisions now that we need to take for the medium to longer term, as opposed to just to rush back to meet some arbitrary date that was put in before we really had a real, real deep, profound understanding of everything that was going on inside the organisation. I think, Lorena, when I came back here, one of the first things I asked Lorena for was the dirty laundry basket and the landmines in the company. Those things that can go off at the most unfortunate of times. I think in the process that we've been through now, we've really, really, really cleaned up. We've got all of those niggly things out of the way.
If we have a look at the progress we've made in franchise, for example, and the bad debt, you can have a look at how that has come down, how we've cleaned up some problems that we had in that space. We haven't spoken about Africa today, but we're busy. We've taken over the Botswana business now. That is now a corporate entity. We will be able to get that moving in the right direction so. Yeah.
Two questions about the estate reset. First one is the 114 stores identified to be closed or converted. What is the cumulative loss these stores contribute annually?
Maybe, Tamara, I can take this. We've previously guided that the store resets program will unlock about ZAR 850 million for us over the period of the turnaround plan. I mean, Sean has indicated it's a dynamic process. It is a moving target. However, it is one that we are committed to. If there is any shortfalls as we go, we do have mitigating items in the rest of our plan.
How do you feel about Checkers taking over your stores? If they feel they could turn them around to profitability, is there no reason for you to try?
We're sitting well in the Carlton Centre. Yeah. I mean, they must take their decisions. We have a look at situations. One of the classics is Hyde Park because that's front and center for everybody. That center has evolved massively since we first opened there. Its sort of geographic center point has moved away from where we are. We're down in the basement. We had a store there that 50% of the store that we were paying was stockrooms and warehouses upstairs from the old direct store delivery model.
Massive canteens, passages, warehouses, and all of this stuff. I do not see any purpose in signing a 10-year lease in a store that we know that at the end of the day, given the significant challenges that it has got, that we would need to keep it. If we step out of a store and they want to sign up for it for whatever reason, good luck to them. I cannot speak for their decisions and their commercial decisions. We are focused on opening the right stores. We focus on getting rid of the challenge stores that we have, and then we focus on opening the right stores.
Hi. Arriving early this morning, I picked up a staff magazine, and I was fascinated with the articles and intense competition regarding staff attitude towards clients and cleanliness of the stores, etc., which is really commendable. I don't know if you want to comment on the success of these sort of promotions.
I mean, it's important to us. And you know, yeah, social media, as you know, I think that social media is one of the great diseases of the world that we have today because it really propagates just so much nonsense. You can have one small little issue that gets completely blown out of the water. We have been on an intense program of really dealing with customer service in the store because some of the level of noise that we were getting in inverted commas was well earned. We have cleaned up phenomenally.
It's just unfortunate when you've got mayors of various municipalities coming to our stores with the whole entourage of TV cameras and everything, and on the whole food safety and health safety thing that you just end up getting sucked into this thing vicariously. We have put an enormous amount of work into ensuring that the organization really, really performs at a completely different level.
Question from Warwick Bam at RMB. Can you elaborate on the lag in like-for-like sales growth for franchisees versus Pick n Pay corporate stores? And is the strategy different for both?
Yeah. I covered it off in my presentation where I said that it stands to good reason that as we are rebuilding our corporate capability first and foremost, because that's what I have direct control over.
If you think of Pick n Pay as like a Roman chariot in the old days around the arena, you've got two lines of horses in front of you. One, I've got the reins of the corporate business. When it comes to franchise, it's quite loose in terms of the controls that one can exercise in that regard. It stands to good reason that for a long period of time, as the Pick n Pay corporate business was suffering and going backwards, as we've revitalized that process and got people going there again, it's shown in the sales line. I think it's actually a huge positive. It's not a negative. It's a huge positive. Yes.
Another question from David Fraser at Peregrine. Please clarify whether your break-even in FY 2028 relates to during or at the end of.
David, I'll take out my crystal ball and figure out if it was the end of the fourth quarter or the, I mean, that's our objective. As we've mentioned, there is a lot of dynamic moving parts. To be so specific, I think, is too early for us.
A question from Saad Cherthier at Citi. Well done. How much of the 4% post-period growth in company-owned supers is driven by the closure of poor stores versus actual improvement in existing stores?
Just to be clear, that is a like-for-like number. Therefore, I'm assuming the question is about moving some of the turnover across. I think we're seeing that across our entire estate, the like-for-likes are increasing.
Two questions about you, Sean. One from Yacoub Asselier from All Weather Capital. Given your contract extension, is there a specific metric such as like-for-like sales, trading margin, or any other metric that you would define a successfully turned-around Pick n Pay? The other one relates to whether you'll have time to chair Boxer.
The answer to the first question is yes, there are performance metrics. In my package, it's there going forward. That'll all be disclosed in the normal route, in the normal course of events in the publications. With regards to time to chair Boxer, I've been involved in Boxer right through. Let me tell you, Boxer runs unbelievably well. The support that I give Marek at the end of the day is not hugely time-consuming. There are synergies between the two enterprises at the end of the day.
Had we not had to list it, and that was a reality that was forced upon us, I would be the happiest man in the world if Boxer was not listed, and we would just sit quietly going about our affairs. It is not an issue. I do get up quite early in the morning as well, so I have a few extra hours of the day.
Another question from Ayish Patel. How have negotiations with suppliers changed since engaging with them late last year?
They have changed a lot, both suppliers. If we look at our partners, we said engaging partners, which is both our suppliers and then also our landlords. If we just start at the landlord level, I mean, I had our largest landlord in our office with their entire group last week, and just the positive sentiment from them.
I mean, they were one of the harshest, most critical of us 18 months ago. They were just saying to me that they can see in all of their state across the pieces how things are all turning in the right direction and things are looking much better. I was actually quite shocked. Could have blown me off the chair with a feather. Just to get it from people like that is heartening. With suppliers, we've had a lot of engagement with the suppliers. We had a lot of support with suppliers. These issues at the end of the day are more inside the company. One has to, in this new transparent world that you live in today, every single thing that you telegraph and talk about goes to another community and another lot of people as well.
I've no doubt that a few of our friends are also dialed in here this morning. Good morning.
I have a question from Sunji at Edge Capital. What is the future of the Mr D partnership given the growth trajectory of ASAP? Presumably better returns on platform versus partner.
Mr D remains an important part of our execution to market. It really is just fulfilling the last mile piece of the business. Mr D remains, and it remains an important part of what we do in that space.
Question from Kibela Mashesha from Mazi Asset Management. Given that your view is that there is a high level of saturation in retailing, does this imply the Pick n Pay business will be less capital-intensive as you focus more on efficiency and IT investments versus store rollout?
I think we're still going to have to deploy capital judiciously across the company and primarily inside our existing real estate that's there. We're also starting now in discussions with landlords where there are potential openings coming forward. We look at them, and where it makes sense, we do them. We are not just opening stores for store's sake. This philosophy of carpet bombing in retail of just saying, "Well, I'm just going to go and own the space." I mean, you can just draw your own conclusions in your own geographies where you live. You think to yourself, "Why are these people opening even more stores around here?" You have to take the dynamic as well. It's an interesting thing with the landlords that I've been preaching to them for quite a while.
As important as the dynamic of home delivery is, if you've got a store that's now doing 20%-25% of its sales out the back door, what does that do for the centre? Footfall is down. All of your line shops, the coffee shop, all of those things suffer as well. This is a very, very dynamic process.
Question from Kerry Leighton at Trade Intelligence. Can you share how many Smart Shopper members are signed up and any update on private brand performance and strategy?
Private brand performance and strategy, we have done a huge cleanup on our private label side of the business. The No-Name brand banner that stands outside, there's the old packaging, in fact, but minor detail. If you have a look at where we're going with our house brand strategy, we've done a massive cleanup in that space.
We really are refocusing and reinvigorating on our house brand program because it's a key part of our business. It is something that has gone backwards to a fair degree.
I don't actually have the Smart Shopper number by hand at the moment, but we've seen great progress in our Smart Shopper database. It's a great opportunity that Vincent's team will still leverage in the months to come.
I think importantly on Smart Shopper, as we have now put this whole new act together, it's going to be another invigoration of Smart Shopper. I can just say this, that Smart Shopper is currently under review. When I say under review, we're reviewing the benefits, how Smart Shopper is structured, and how that's going to evolve. You'll see some announcements coming in that regard in the period ahead.
Maybe just to add, also we've launched a new integrated app that integrates ASAP and Smart Shopper into one. It is definitely a key focus area for us and will definitely be evolving.
Just two more questions. One from Citi. When do you think you'll go into net bank debt position again?
When do you think you'll go into
Net bank debt position again.
Next bank debt position.
Borrowing again.
Borrowing again.
Not soon. Right now, we've got ZAR 4.2 billion on our balance sheets, and we're taking good care of it, but we will invest wisely.
We are back reminiscing a little bit of our days of yore because when we had our debt structure last year, the banks asked me when we had those horrible meetings, "What is it like being back at Pick n Pay, Sean? What's the change?" I said, "In the old days, we used to worry about having too much money in any one bank. It's a little bit different now." We really do not want to get back to those days again. I know that the bankers in the room would love us to be indebted to you again, but do not hold your breath.
Just a last question from Ayish Patel again from SBG. If we dissect your footprint by income segment regions, which are performing ahead of group or below group?
If we have a look, when you say performing above and below, we are getting growth across the piece in Pick n Pay. I mean, if we have a look at, we've got a Pick n Pay in Phuthaditjhaba, which for those of you who don't know where that is, it's on the border of the Free State and the town of Harrismith, just trading unbelievably. We've got other stores in the group as well. It is across the piece that we're showing progress. There's not just any one specific call out.
Okay. Thank you very much indeed for your attention and more importantly for your support. Thank you to everybody online as well. Have a great day. We intend to have a great year. Thank you. Thank you, Lorena.
Thank you, everybody. Thank you sean.