Okay. Well, good morning, everyone. I tell you, it's quite a happy occasion for me to see some real people at this presentation. For the past two years, as you know, we've done it virtually, so you've only got a couple of screens and then one or two people try, running around trying to fix the screens and get them to work.
Seeing people face to face is really shows the progress that's been made, and hopefully that's good signs, not only for the business, but also for the country going forward. The format that we'll use today is very similar to the one that we've used in the past. We'll look at the six months in review. Riaan will talk about the financial performance of the business.
I'll do a segmental performance discussion on each one of the businesses, and then just a very short outlook on what we expect in the next six months to a year. Just two things that I would like to point out before we start. There are two terms or that you're gonna see or hear about quite a few times, and I thought maybe just before we start then I'll clear that up, then we don't have to do it every time that it's on the screen.
The first is that we talk about normalized numbers. Many of you will remember that, in 2018 we provided for a guarantee for BVI loans. Fortunately, through the Steinhoff global settlement, that amount has been recovered, the net amount ZAR 429 million.
What we did to normalize numbers is to take that out in certain instances so that you can see the normalized number and use that as comparable numbers in your calculations and models. The second thing is there's quite a few occasions when we talk about two-year growth figures.
The reason we use that is because of COVID. As you all know, COVID had quite an effect or volatile effect on numbers. Initially after the COVID initial lockdown, our business did exceptionally well. Obviously, then the next year you have to work against that base. The two-year number is just to normalize the numbers so you can get a good reflection of what the performance was like over the two-year period. Other businesses had it the other way around. They battled initially, then did better.
I mean, whichever way you look about it, we've now got the two-year annualized period over and that's why we use that number to give you a good indication of the performance over that period. Just the highlights, and many of you would have seen that on the SENS this morning. There you can see 3.3% increase in revenue to ZAR 42 billion. Over a two-year period, 12.7%.
Obviously last year was a much better period, but that created a relatively high base. If you look at growth and operating profit, there you can see the number 19.1%. Then the normalized number, if you take the BVI number out, or the global settlement number out, then you can see that normalizes at 10.1%.
Over a two-year period, the growth in operating profit 31.2%. HEPS number, 28.3%. If you normalize it, 12.1%. Over a two-year period, 80.5%. Then three years ago was quite badly affected by COVID, so that number obviously a bit inflated there.
Cash generation, still very good. 93% of our sales is on cash. We opened 144 new stores, and you know, if you read the newspapers or the media, you'll see, you know, it sounds like doom and gloom, but we still have the ability to grow and grow profitably. We'll talk a little bit more to that a little bit later on. Market share gains, which are very important.
If you look at all the categories that we operate in and you get an average market share gain, that's now per RLC, which is the Retail Liaison Committee and GfK, then 189 basis points increase in market share. In the six months, a milestone for us, we acquired the Grupo Avenida in Brazil.
I've spoken to most investors about it and, the rationale behind it, but I'll refer to it a little bit later in the presentation again. That's just the highlight for the six months results. The graph on the left-hand side there, just to explain that, after the first quarter, our sales growth was 1.3%. If you exclude John Craig, 1.8%. The second quarter growth was 5.8% or 6.1% if you exclude.
The second quarter much, much better than the first quarter, which we predicted at the time. If you look at the full year results, you can see there 3.3%. The one on the right-hand side is the total sales growth, again, over two years. Quite happy with the performance in all the main divisions of the business.
You'll see there 12.5% for PEP and Ackermans. Speciality 25.3%. JD Group 25.8%. The Building Company 13.1%. The Building Company number is ours after stripping out two businesses that they sold, which is Link and B4A, Brands 4 Africa. But I think, you know, very happy with the overall performance across all the categories in the group.
From a market share perspective, the graph at the top there, if you look at the shaded part of the graph, that will give you an indication of the market share growth since COVID started. You'll see there March 2020 was when COVID started and now up to exactly two years later. 130 basis points.
This is the gain only on CFH over the two years. Something that we're quite happy with. Initially, as I would have pointed out at the previous results presentation, initially huge gains and then normalizing a bit in the second year as you work against that high base again. If you look at other numbers, and some of those numbers are highlighted below there. The total market, that's the number I referred to a little bit earlier, 189 basis points.
That's for all the categories, not only RLC or not only CFH. Schoolwear as an example, still growing despite a lot of market activity. Still a gain of 274 basis points. Home, you can see is big. Branded footwear, also very, very good. Cellular, and then very importantly or not importantly, but very impressively, consumer electronics gaining 562 basis points. That's Incredible Connection, Hi-Fi Corporation, et cetera.
If you take the CFH number just for interest's sake and if we had not gained the 130 basis points, that would've meant sales of almost ZAR 5 billion less than we made. It just shows you the growth that we had been able to achieve and how it contributed to those numbers.
You know, it's become customary at Pepkor that there's always something that influences us or some sort of a crisis every year. You can go four years back on that pattern, and every year there's been something different.
Quite recently, we had the floods in Durban or in KZN, and our DC, as we reported on a couple of occasions, our DC was affected. I'll show you a few pictures of the impact there, but also then the recovery. That's the DC the day after the floods. You can see in the foreground there is the SAPREF, which is an oil surplus storage facility, and ourselves, the DC there in the background. This is during the floods or the evening of the floods.
You can see that the water was about 2 m high, and at that level went through the DC This is what it looked like and this is not an indication of how we managed the DC, but this is after the water went through and you can see there's relative chaos in terms of the cartons that were ready to be sent out.
Mud went through the DC in most levels up to 1 m high in big parts of the DC, so that obviously caused a lot of damage to the equipment, et cetera. Once again, there you can see the chaos of the merchandise that was at ground level.
This is when they started to get the damaged stock out of the DC, using that type of equipment. This is how we've recovered. That was the first indications after about a month, and that's the DC now. The good news is that we've recovered. The DC has started operating again, although at a limited level.
We're hoping that by the end of June we'll be operating at above 50% of the normal levels and even higher. Very impressive how the teams have worked to solve the issue here. Obviously, there would be effects of this in the stores in PEP only. Remember, this only is a PEP DC. It's one of three DCs in PEP. There's one in Johannesburg and one in Cape Town as well.
Obviously the throughput through this DC was influenced. We had to relay all the inflowing stock through to the other two DCs, but there was an impact on service levels. Our service levels went down from about 85% down to, at one stage, about 65%. It's now recovered back to over 70% and hopefully we'll get it back to 80% or so very soon.
When you see something like this, obviously, you know, one almost, you know, cringes because of the damage that was caused. But I can tell you, yes, that is how we felt, but I can tell you, when you see the positivity of the people that were involved in fixing it, and the team that were involved in running the project to get it.
To get the DC cleared up and running again, then one gets a lot of encouragement and faith in the future because the contribution of the people is just enormous. Yes, you're gonna get these crises from time to time, but then you must just fix it and go on. I think, you know, we actually limited the damage on the overall number.
Fortunately, we are insured for it. We insured for the stock that we've lost, but we also insured for the business interruption, so that helps a lot. But yeah, congratulations and thank you to the team for what they've achieved there in a relatively short space of time. That's just a very short overview of the first six months. Riaan will now deal with the financial numbers, and then I'll return for the rest.
Thanks, Leon. Morning again to everybody. As Leon said, it's very good again for a change to see at least some faces in front of me when I talk, and I just have to stare at a blank screen. Just very quickly, Leon has already touched on some of this, but just to confirm some of the key KPIs or highlights for the six months under review.
Revenue, as we said, up at 3.3%. We've definitely seen an improvement in the second quarter of the six months and the current trends of that will hopefully continue. Also, that 3.3%, as Leon mentioned, very much impacted by a very high base in the previous comparable period. The 3.3% takes us up to a ZAR 42 billion revenue for the period.
Fortunate thing is we have seen an improvement in the GP for this period. That's mostly influenced by an improvement in the financial services GP or specifically the books GP, and I'll unpack that a little bit more in detail later on. The guys really did a very good job for this six months period to really control expenses, keep the costs down under very difficult circumstances, specifically around our salary costs and our rental costs were very well controlled.
Meaning that excluding debtors cost and excluding depreciation, our costs still only increased by 5%, and that includes 144 new stores. If we look at it, then it translates into a very favorable operating profit growth, overall 19.1%.
As Leon mentioned, if you exclude the impact of the Steinhoff settlement, that number then drops to a 10.1% normalized growth. Overall operating profit up to ZAR 5.7 billion. If we then look at the HEPS, that's up further by 28.3%. Again, if you exclude Steinhoff impact, that's 12.1%.
The HEPS very much influenced by the fact that our finance cost was consistent during the period and very much in line with last year with no growth. Also we've seen an improvement in our effective tax rate, and that's the reason why our HEPS growth was 28.3% versus the 19.1%. Overall HEPS up to 19.5%.
If you exclude the once-off impact of Steinhoff, that number comes down to ZAR 0.80, which I'll also unpack a little bit, a bit more detail later on. Cash generation, Leon said, slightly below expectations that we normally have, but still very good cash generation during the six months. Still, the majority of the sales happening via cash. The growth in the books and the impact of that is very, very much in line with last year. As I reported last year, we went through a process of refinancing ZAR 5 billion of our debt.
Very happy to report that was concluded in March, and we've seen a 70 basis points improvement in cost on that ZAR 5 billion that was refinanced, and we've also spread it much evenly over the next 3-5 years, and I'll show that as well to you later on.
If you first start again, where we are in the process of the insurance claims on the civil unrest that happened in July, August last year. Maybe just an update. Last year, I reported the total SASRIA claim would be ZAR 1.2 billion for the group. Our final number that we've only recently, after quite a lengthy process signed off with the loss adjuster, will now be just over ZAR 1 billion rand, ZAR 1.03 billion.
The business interruption claim we initially reported will be just over ZAR 700 million. Our latest estimate is that it will be a minimum of ZAR 440 million. There's still some discussions on some of those items. It will probably end up slightly higher, but we do anticipate it won't be lower than ZAR 440 million.
Just to confirm what we have, we physically received from the insurance company. We have received an interim payment of ZAR 500 million. That was already accounted for in the previous financial period. As I said earlier, we do anticipate to receive a further ZAR 530 million in next two weeks or so from SASRIA. That will then conclude the final amount on SASRIA, and then that will be out of the way.
On the business interruption side, if you remember correctly, we received ZAR 171 million already as an interim payment in the previous financial year. We did receive a further ZAR 132 million in this year.
However, it is important to note that ZAR 132 million only relates to the quarter from October to December during this financial period. There's still a portion of about ZAR 60 million that we still will receive as a further interim payment in June that relates to the period January to March in this financial year. Our profits are actually understated still by that ZAR 60 million that we have not received for the six months period.
To recap, 479 of the 550 stores have really looted, has already been opened, and we do anticipate that eventually there'll be about 30, 40 stores that we won't open and it will be closed for the next couple of months.
As we said earlier, insurance cover reinstatement, Leon already referred to the flooding that happened in KZN, so we're very comfortable that the flooding that happened in KZN, we've got more than adequate insurance cover to all of that. We're still trying to finalize that amount, and it change on a daily basis. The only indication I can give at this stage, the total insurance claim will be above ZAR 1 billion, is our current estimate for the KZN flooding.
On the Steinhoff global settlement, as Leon mentioned, obviously the net impact of that was ZAR 429. There are three different components to it. The first one is we raised the provision in 2018 already for the guarantee of ZAR 440 million.
That guarantee was then converted to a loan in June 2020. At that stage, the value was ZAR 529. We've now received that full ZAR 529 plus interest from BVI as part of the settlement. That full amount has now been reversed of ZAR 529. You could also remember in 2018, we raised a provision of ZAR 60 million against Pepkorfin loans that was granted to individuals to invest in BVI.
That was later increased by another ZAR 40 million in 2019, so the total provision that we carried was ZAR 100 million. With the settlement, half of those shares that was transferred to BVI was able to be sold, so the other half is in a lockup.
The majority of those individuals now received a distribution of cash or shares from BVI, and all of them received it. The majority of them was able to now settle their PepkorFin loan. That's why we reversed ZAR 80 million of the ZAR 100 million. The rest we should receive in three years' time when the final settlement is or the final sale of the shares that's currently in lockup in BVI will be able to sell.
We also decided during this period that part of this process, we really wanted to settle all litigation and costs relating to the 2018 events that happened post the settlement, where quite a few litigations instigated against us, predominantly by the ex-Tekkie Town owners. We decided we rather want to use this opportunity to settle all of that, move on, and the net cost impact of that was ZAR 180 million what we had to pay to settle that.
The net impact of all three of those amounts is the ZAR 429 million that you'll see as a once-off item or a ZAR 0.12 HEPS impact on the overall result. We then move on to the revenue growth. Already commented on the 3.3%. Leon also mentioned in that number 3.3%, last year we had the John Craig still in.
If you take the John Craig impact out, that increases to 3.7%. You'll also see on the FinTech side, like we reported in the first quarter, Flash still grew negative for this period, and that's because of a change in product mix. In the Flash environment, they used to sell airtime vouchers to the customers.
We used to account for the full amount. Now they sell easy airtime. We only account for the commission on the sale of that product. That does mean there's a negative growth of 10% in Flash. If you normalize that, the overall growth for the impact on the group would take it up to about 4.5%, which is more in line with expectations. If we look at the different segments within the group, the Clothing and General Merchandise up 4.9%.
As we mentioned earlier, that was still impacted by the flooding and the looting, where not all the stores was opened for the full period under review, specifically more impact in the first quarter. As we already mentioned, obviously the very high base that we had up against last year.
Specifically under that, the good news is that the specialty division and also Africa really performed very well over the six months under review. On the furniture segment, very happy to say that we've seen a continuous trend of tech division still doing very well there. Also further assisted by good growth we've seen in the insurance business that we've got in the furniture segment.
The building material segment, as Leon mentioned, we closed two of the smaller businesses in that specific segment, meaning the main reason why we saw a negative growth. It has helped, and I'll show it to you later, to improve the overall profitability of this segment.
The FinTech segment, as I said, mostly impacted by the - 10% growth on Flash. We did still see positive growth from Capfin, but the net impacts that you saw negative of 8.7%, giving you the 3.3%. Again, as I mentioned earlier, very important to note, the majority of our sales are still in cash, 93%.
We have seen a bit more of a higher growth in credit sales now that we slowly but surely starting to see growth in the Connect book and to a lesser extent on the Tenacity book, means that we have seen a higher growth. However, what is important for us is really that over a five-year period, we've got a compounded growth rate of 8.4%.
If we just look at the different years, this is really what Pepkor really stands for. We believe that we always give consistent growth rates over a number of years since listing, and that's why, again, it re-emphasize the defensive position that we have in the market. We will probably never be the highest growth, but we'll definitely not be the lowest growth. We will year in and year out, give you a consistent growth rate in a high single digit number.
As I mentioned on the gross profit margin, fortunate to see an improvement overall of 100 basis points. Most of it, as I said, came from the financial level of the books. The fact that last year we really cut back on credit granting, we've now started to slowly but surely open that up again, so we're granting more loans.
We've also seen an increase in the interest rates, which also assisted this business further or businesses further, meaning a 90 basis points improvement. On the merchandise side, very much consistent. We have seen a small improvement where the GP in some of our smaller businesses, Speciality Africa and the Building Company, have improved compared to the previous period. The overall increase of 10 basis points taking us up from the 34.3% last year to the 35.3%.
Our long-term average is still around the 34.5%-34.6%. This is sort of an impact for this specific period because of the financial services improvement. Other income, as I mentioned earlier, this was very much impacted by the insurance claim, the BI claim of ZAR 132 that we received during this period, taking the overall increase up by 47.7%.
If you strip out the ZAR 132, the growth is 12.3% up to ZAR 419. The majority of that you'll still see comes from bill payments, where we have started to see an improvement in bill payments, where post-COVID we saw a drop there, but now we're back to more normalized numbers on the bill payments that we do in stores.
Cost of doing business, as I mentioned, still very well controlled. The fact that our salary increase was only 4.5%, that takes into account that our average salary increase was between 5% - 6%, and we opened 144 stores, as I mentioned. That we were able to keep that down to 4.5% is really because of productivity and efficiency gains.
Property costs still well controlled, grew by 3.1%. There is a slowdown in the negative rental renewals, but we're still seeing the trend we've seen previously where we are fortunate to get good rental negotiations with the majority of the landlords.
However, overall cost of doing business you've seen because of our expenses growing faster than our top line is now up to 25% compared to the 24.2%. We're still very comfortable that compared to our peers, especially on the Clothing and General Merchandise, we're still best in class, compared to the majority of them.
Operating profit, so how did it play out? As I said, normalized basis, 10.1%. Clothing and General Merchandise up by the 6.1%, but as I mentioned earlier, that's mostly influenced again by the insurance claim. Although the divisions that did do well, as I mentioned earlier, is really Speciality in Africa showed a nice profit improvement compared to the previous year. FinTech, as I mentioned, doing very well. Overall up by 60%.
Sorry, the building, the furniture segment up by 64%, mostly driven, as I mentioned, by the insurance business and improvement in the profitability of JD overall. The building materials up by 26%, as I mentioned, although the top line was not good, the fact that we closed some of those unprofitable segments meant that they saw a significant improvement in profitability.
Then FinTech, and this is where the new product mix that I mentioned earlier on the Flash side is actually more profitable than the old product. The fact that our top line is not growing at the rate we anticipated, it has translated in a much better profitability. With Flash on its own, the profit grew by above 20%, and Capfin also contributed a positive growth in profit for the period.
Overall, giving it a 10.1%. It is important to note this, we've always got an internal target of getting operating profit to above 12%. You'll see it is now 12.5%, up from 11.7%. Also important to note is that the contribution from the Clothing and General Merchandise segment is now 82%. It used to be 85%. Slowly but surely the other segments are contributing more to the overall profitability of the group, which is obviously something that we would like to see. Net finance costs, I said, very much in line, exactly the same numbers last year.
If you look at overall, if you take out the finance costs relating to IFRS 16, there is a 13.5% growth, and that's mainly due to the higher level of debt that we had at the end of the period compared to last year. The overall increase in interest rates that was announced over this period by the Reserve Bank has resulted in that 13.5%.
Effective tax rate, as I mentioned, very happy to report ended up just below the 27%, when normally we would operate above the 30, closer to 31%. The main reason is really relating to that once-off impact of the Steinhoff settlement, which is not a taxable amount, so that's 200 basis points if you add that back into 29%.
We've also seen improvement in a lot of the other structures in the group, assisting us to get our overall effective tax rate down. One of the key items that you will notice this period on the balance sheet is our inventory went up. We always communicated in the past that at the end of last year, our inventory levels were still below the level we anticipated, and we should get back to pre-COVID levels. Part of it is getting into a more optimized level. What we have also seen this period, because of the uncertainty in the international supply chain, the impact on China, a conscious decision was taken during February and March to move some of the...
Pull some of the orders forward that we would normally receive in April, to make sure that we've got sufficient stock in the system to be able to deliver on our sales. That has worked to our advantage during the April period. Of course also with the acquisition of Avenida in February, there's a further ZAR 290 million impact on inventory levels.
If we look at the health of the different credit books, again, as I said last time, very happy to report we're still very conservative around our credit granting. We have started to do a bit more on the Capfin side than the Connect side specifically. You see the Connect book went up to ZAR 1.6 from ZAR 1.5 last year gross, and the Capfin book went up from ZAR 1.9 - ZAR 2.1.
We are slowly but surely granting more credit, specifically in those two areas with limited increase in Tenacity. As you'll see, they're still very comfortable with the level of provisioning and the level of non-performing loans still coming down even with the growth in the book on the Connect side and the Capfin side. That resulted. We could release some of the provisions specifically on the Connect book.
Then also as a first indication on the size of the Avenida book, this is the active book, BRL 700 million. 43% of the sales in Avenida is done via their book. You'll see the credit and the provisioning level very much in line with Tenacity, a similar type of product, around the 20%, which we're also very comfortable with. How does that play out in the income statement?
means our overall debtors cost increased by ZAR 15.9. Physical write-off of bad debts, as you would assume, because of the good collections, the non-performing loans going down has decreased by 30%. We've got last year, we had a much larger release of provisions post-COVID. We were comfortable with the level.
This year, our provision release is only ZAR 95 million, resulted in the increase of ZAR 15.9 compared to last year. Cash generation, as I said, still good cash generation of ZAR 4.1. It is below our normal expectation from a cash conversion. Our normal target is 80%. For the six-month period under review, it was 53%. If you calculate it on a 12-month rolling basis, it's still close to our normalized level of 80%, ending up on 71%.
As I mentioned earlier, the main impacts were the increase of the inventory levels playing out in the net working capital. ZAR 2 billion of that is because of the increase in the inventory levels, as I mentioned, earlier. Net debt levels, like I said, it did go up from the ZAR 6.1 billion last year to ZAR 8.9 billion.
Mainly driven, as I said, by that increase in inventory levels, but also because of the acquisition of Avenida. Total investment in Avenida is ZAR 2.8 billion. Giving us the 87% share in Avenida, taking us up to ZAR 8.9 billion. However, we are still within the targeted levels. As I communicated in the past, we really want to operate a level between 0.5x to 1 x net debt to EBITDA. So we ended up for this period at 0.94.
In line with that target that we've set for ourselves. We've also seen on the right-hand side, because of the refinancing that happened on the ZAR 5 billion, you'll see we've got a much more evenly spread repayment profile the next couple of years. We previously had a significant amount that we had to repay in 2023, which have now been spread over the next couple of years at, as I mentioned earlier, a much more competitive rate.
Capital investment. We're getting back to more pre-COVID levels. Obviously, post-COVID, we cut back significantly on CapEx spend to protect our cash flow and balance sheet. Also cut back on the number of stores we wanted to open. Now we're back to the 2.1% of revenue. It's more in line with what we used to do in the past.
We're still investing in the building of the PEP Hammersdale DC, ZAR 201 million. That will mostly be completed in the next 6-7 months, the completion of that DC. There'll still be further spend in the next six months on that DC. You'll see there, stores still takes up 55% of our CapEx spend.
Historically, we've always spent 60% of our CapEx on stores. But also a much larger contribution over time now being invested on IT spend as we continuously improve our systems and look at more digitization in the group. Just one thing to note, you'll see that ZAR 88 million of CapEx was spent to reinstate the stores that were part of the looting. That amount is obviously claimed via insurance claim from SASRIA. It's a once-off item.
Just to confirm, as I said, our capital allocation process, where do we spend our CapEx and where do we want to invest? As I mentioned earlier, our main growth driver is still organic growth. Opening number of stores, targeting more than 300 stores per annum. The majority goes into infrastructure and stores. Investment, as I said last time, we'll continue to look at merger and acquisition opportunities with the investment in Avenida of ZAR 2.8 being one example of that. We did a very small share buyback.
Last year, I communicated we want to do ZAR 1 billion in share buybacks. We've already spent close to ZAR 800 million of that, at an average price of ZAR 19.98. Then finally on our dividends, as normal, we don't declare an interim dividend. We only declare a full year final dividend. Our dividend policy is still three times covered, but that will again obviously be reviewed at year end. That's really my story. Thank you very much. I'll hand back to Leon to continue.
Right. We're gonna deal with all the different segments and a little bit of color on the different companies in the group. First segment, the biggest one, Clothing and General Merchandise. We always have a grouping of PEP and Ackermans. That's for the investors who do their modeling on it. There you can see 3.4% growth in sales. 12.5% over two years, which I'm quite happy with. From a like-for-like sales growth perspective, 2.4%. As you know, most of our stores, and it's normally about 70% of the stores that we open are PEP and Ackermans stores. That's where we get our best returns. That's where we understand our models the best. That's quite robust business models, and a lot of open.
Quite a few openings in that regarding PEP and Ackermans. Space growth was 3.2%. Selling price inflation, 4.6%. That's similar to what it was the season before as well or the year before. Over the past few years, that's been a relatively consistent number. Market share gained in these two businesses over the two-year period of 111 basis points. If we look at PEP on its own, you can see business still growing. PEP, the conventional PEP stores, 1,637 of them. You can see there the Cell and Home numbers, which are now starting to become very sizable businesses. Cell, we've got 557 stores.
In the Home business, 332, with a lot of expansion in the Home format over the last year or two. From a price point perspective, always, as you know, specifically in the case of PEP, we have to be very aggressive when it comes to our pricing.
Best price leadership, which means that, you know, all the products that we sell in PEP, you know, how many of them are we equal or better than the opposition in terms of price? You can see that that leadership position or BPL, as we call it, is still 97%, which is a remarkable number, I think, in any terms and in any country or industry.
Very happy with that. The gap between if you take a group of products or a basket of products in PEP and you compare it to a basket in the rest of the market, that gap is 26%. You'll remember or you might remember, probably not, but you might remember that last year that was 28%, so that's down a little bit. That's motivated the guys in PEP to make sure that they keep very price competitive on a broader range of products. FMCG still growing well. Over the last few years have done exceptionally well, 11% growth there. Just for information, 42% of the sales in the FMCG category is private label, where our margins are higher.
On a profitability level, they contribute much more than the 42%. Very good development and of those private label products and very good impact in the market. PAXI, we've spoken about quite a few times before. That's now up to 11,000 on average 11,000 parcels per day. I'm sure all of you, if we look back at that's far exceeding our expectations a couple of years ago.
Still a lot of opportunity in that business to expand and also quite profitable. It's really contributing well towards the PEP profitability figures or profits. Smartphone unit contributions up to 61%. You can imagine that at a value level, it's even more than that. Smartphone's really the preferred choice of our consumers.
That number changed dramatically over the last two, or let's say three, four years. We see that trend continuing in future. The sales growth in PEP Home, 27%. When I say PEP Home here, it means the home category for the whole PEP business. We opened 38 new stores. That's quite a big part of the 72 new stores for PEP over the year.
But quite impressive there, and the results in Home has been very, very good. It's really built up almost like a cult following on social media, and I think there's just so much more potential. The growth has almost been too fast to keep up with the stock levels, but the teams are working at that.
In the case of Ackermans still very good performance, especially if you look at Ackermans' performance over two years. They had a very good previous year, so this year it was a little bit lower than they would have normally have. If you look over the two years combined, still probably the best retailer in the industry in South Africa.
They've made good progress on the cellular side. You can see there that over a two-year compound average growth rate of 21%, which is really impressive on that side. Interestingly enough, the phones that they sell are slightly different, higher price levels than those of PEP, so there's not too much cannibalization, but really making good progress on that. 29 new stores. Some of those new stores were Ackermans women's stores.
We're really, really happy with the progress in Ackermans women's. Up to 42 stores now, so it's becoming a significant part of the business and yeah, still, in my opinion, a lot of opportunity there. You know, as we progress with this concept, there's certainly a lot that we still can improve on. Besides the fact that there's a lot of new stores that we can open, I think there's a lot of opportunity just in sort of not perfecting is maybe the wrong word, but improving the concept as it is.
Ackermans has also started opening a few cellular stores. Cellular iPhones plus iPads and similar products. There are now 10 of them open, performing exceptionally well. By the looks of it, really a good concept.
Again, different from the PEP Cell offer, in the customer base and in the product base, and obviously selling a slightly higher price point level than the PEP Cell business. The credit mix has come down to 16%. In the previous reporting period, that was 17%, so it's a slight drop there. It's something that we're working on. We would like that to remain more or less or at least at 17%, but the guys are working at that. They've now rolled out their click and collect system, so you can now order online and then get it delivered to any store in South Africa.
That makes a huge difference because in a small town where there's a limited range or assortment of product, everybody can now get the full range of Ackermans products, and I think that's a very positive development. It's a slow start, as one would expect with this, but as we continue communication and promotion of this channel, I think it opens up opportunity for a lot of customers as well as for the business of Ackermans as a whole.
In PEP Africa, PEP Africa has had a relatively good year so far. You can see their sales growth in constant currency and also the like-for-like, 3.1% and 4.9% respectively. When you look at actual currency, so for once the currencies in the countries that we trade in Africa have improved compared to South Africa—the rand, and there you can see a 13.3% increase in actual sales, actual currency sales.
Still at 283 stores. The number of stores I think reduced by about 13 over the year. As we communicated before, we're consolidating in Africa. We're not allocating a lot of cash, but and wanting to get the efficiencies up and especially sales densities. Cash repatriation, just to confirm that we don't have major issues there. It's actually been a little bit easier than in the past. And as far as profitability is concerned, Africa's actually had a very good first six months.
As I've said before, you know, the one thing about Africa is that a lot of businesses are moving out of Africa. We're still there, but, you know, if you look at how we're performing and how we have performed since we've entered Africa, it's always been quite positive. Yes, there are difficulties, but we've been able to manage it very well.
The Speciality results are very good. You can see their sales growth for the six months of 7.6%, but if you look over a two-year period, 25%, which is very impressive. Like for like, very similar to the sales growth there. Increase in operating profit over a two-year, compound period, 19% and 16% for the year.
You can see that we've really, over the last few years, improved this business and they've really progressed in the customer value propositions that they have. Those are really impressive results and again have a great foundation to work from. As you get scale and volume, profitability over time will probably increase even more. Very positive about developments in the Speciality division.
Only 13 new stores, which is not many, which brings them up to 840 stores. I think we're at a point now where a lot of these businesses are geared or not geared, but prepared for a little bit more investment in growth, and some of the brands will definitely get some investment or capital for further investment in stores. 3D integration.
3D integration is basically 3D technology that's used in the buying process. As I say, left of the purchase order, that helps you to differentiate on product. It helps you to have consistent specifications on product. It helps you with the communication and interaction with your supplier base to make sure that consistency prevails.
Eventually, it leads to a reduction in lead times, increase in cost savings, et cetera. A lot of work has gone into that in the Speciality division, and they've done great work there. Just in the PEP business, just by the way, also a lot of progress on this. It takes time to develop it, and essentially, what it's all about is getting a better fit and more consistent product quality levels for your consumers.
Very good developments in that. I thought I'd just mention CODE. CODE is a quite exciting new brand that we've got 23 stores now. That's gonna go up to about 30 stores in the next six months or so. The team there has taken it slow since we acquired this business to sort of prepare the business for and the business' infrastructure for the future.
You can see there, as it is now, ZAR 45,000 trading density or sales per square meter in the business, which is very good. A very good indication for the future. 85% of the buy here is local. That's the sort of legacy we took over in the business and that we want to continue.
Fortunately, the volumes and scale of this business and the product range is suitable to a more local production, so that's very good news. Just a matter of fact, average selling price at ZAR 141. CODE is aimed at the younger, more fashionable consumer, and sells mostly jeans, T-shirts, flip-flops and jackets, that sort of stuff.
The everyday wear type. The CODE brand as a brand has really took off quite phenomenally, and we're quite positive about what we can achieve in future. As I mentioned earlier, the Avenida acquisition. We're talking about 130 stores that the business had. It's an established brand. Started 42 years ago.
The sons of the founder of the business are still in the business as the one is the director of the business and the other is the CEO. It's really established and a family story or family legacy that runs through the brand. It's got a proven business model despite lots of setbacks over time, private equity investment and involvement, et cetera.
The business model has survived and has always been proven to be quite profitable. The team has done a good job of keeping it going despite some tough times. It's also got a discount and value focus just like our brands. Very much positioned in the same positioning in the market as PEP has and to an extent Ackermans.
The discount and value focus that they have is one that we'll continue with and probably strengthen through the leverage that they can get from Pepkor as a whole. The local management we've retained, I mean, if you look at the past challenges that they had in terms of capital and availability of capital, then the management has done an exceptional job in running the business as it is.
We're happy to still have them on, you know, in the business. We have given dedicated Pepkor support. In other words, we've got two members of the executive will be Pepkor people that we send over from here. They've already arrived there, and I'm sure their contribution mainly in getting good cooperation and collaboration between the brand in Brazil and the brands in South Africa will be enormous.
We're very positive about that influence and support that we will be able to give them. From a cultural point of view, this business very much like ours. The people are very much like ours. We get along well. They coincidentally, 40% of their sales are in the adult category, so that's men's and women. Where we can really help them and support them with is to improve the sales and improve the contribution of babies, kids, and home. That's where our businesses are strong.
A lot of leverage to be gained and quite exciting opportunities. The good thing about this business, it's relatively small in the bigger context. You know, if you look at what we paid for the business, I mean it's less than 4% of the market cap of Pepkor. It's not a huge exposure, but it's got enormous potential.
The CFH market in Brazil is huge, one of the top 10 biggest markets in the world. The population in Brazil is 211 million people. Compared to South Africa, 60. That just gives you an indication of the huge potential that's in Brazil. We've started slowly. We're opening five stores within the next six months. Well, they've already been approved, so they're opening very soon. Another 15 + after that in the next financial year. But we're taking it slow initially just to prepare the business for growth.
Once we've got the model, the way we want it, once we get the leverage that we want, then we can accelerate that expansion, potential. Then there's obviously a lot of best practice and synergies that we can share. The team has been here a few times. Our team, some of our team has been there, and that's stuff that we'll explore over time.
Just a very early indication, but early indications in the business are very good. Firstly, from a stock perspective. Now, normally, when you buy a new business, you take a few years just to get rid of the old and redundant stock. In this business, that's not the case at all, fortunately. They've managed their stock over time exceptionally well.
They've only got about 4% of their stock that's older than 18 months and about 11% that's older than one year. That, in retail terms, very good numbers. Since we've been involved, that's since the 1st of February that we officially took our share, the sales growth, that's on a like-for-like basis, has been 55%. Partly due to the fact that we capitalized the business, that we've got, that our investment in stock is higher than a private equity business would have done.
These numbers are extremely positive, and it just shows you the potential that there is in this business. Going forward, very, very optimistic about the potential in Brazil. The furniture business, mainly obviously the JD Group. Sales growth of 8.1% for the six months.
On a two-year basis, 25.8%. As I mentioned earlier, and I think Riaan also mentioned, really an impressive number. The first year after COVID, obviously, a lot of this good sales were due to the fact that people worked from home more, stayed at home more, et cetera. We expected to be up against it in this year compared to the previous year, but the good growths are continuing, which is really impressive.
If one looks at that market share gain number that I mentioned earlier, it's approximately 560 basis points increase. That is a good indication of how this business had done and why you see these figures as it is here. The two-year CAGR on profit growth is 41%, which is very good.
You know, we've lived through the whole sort of transformation of this business as it came out of a big loss into the profits where it is now. Still good growth there. Credit mix has improved from 16% - 20%. We've always been extremely conservative on credit allocation in the JD Group and especially in the home section of the business. We've opened that a little bit.
Remember we come from two years ago, about a 30% contribution of credit. 30% is probably where this business can operate at. We were maybe a bit too conservative, but nevertheless, we're moving that up again. Still being quite cautious of allocating credit or allowing credit in the business.
From an online sales contribution in the tech division, tech division is Incredible Connection and Hi-Fi Corporation. I think probably one of the leading businesses in South Africa in terms of online contribution. 10% of their sales are online now, which is another 49% growth on the previous year. That's really improving every year, as this business is almost a center of excellence as far as online sales in the group is concerned.
If we exclude the tech division, if we look only at appliances, then another 264 basis point gain in market share. Overall, the JD Group doing exceptionally well, gaining a lot of market share, good growth in sales and profits. Building materials, Riaan alluded to it. Sales growth not great.
Part of that sales growth that's not great are the two companies that we rationalized or disposed of. Still over a two-year period, again, they benefited quite a bit initially from post-COVID and money in the market, especially. Over the two-year period, quite a good growth or very good growth. For this year, obviously not that impressive because of the businesses that we took out.
If you exclude that, it's still only a 0.2% growth, so it's a bit of a rational consolidating business. There's a good growth plan for the business. We believe that there's a lot of potential still. We've moved away from the sort of consolidation mindset, and as you know, the business was up for disposal at one point in time.
We're now investing in the growth of the business to a larger extent, and we believe that there is potential for us. Part of that growth plan is the growth in the Timber City brand. Timber City, we've now bought all the Timber City franchises back from the independent owners that had them before, and we've taken charge of this brand. There's potential to open quite a few Timber City stores externally and internally.
In other words, standalone stores as well as Timber City store within stores in the BUCO stores. A lot of potential there, and the team there are working hard at it. Over the last few years, they've done a lot of good work in rationalizing their whole portfolio, and we believe that there's good opportunity for future.
Growth in operating profit at 26.4%. The FinTech business, Flash, Riaan alluded to it, and he. Well, he mentioned it, but increase in operating profit of more than 20%. Just to give you some comfort about that decrease in revenue, as Riaan explained, that's mainly due to the mix change between airtime vouchers and easy airtime.
We quite happy with developments and growth in this market. The informal market, very important for us in Pepkor. Flash's presence in that market over many years gives us a good sort of base to work from for further exploration of the market and further penetration into the market, especially from a business-to-business perspective.
We believe that there's still a lot of potential, and we working hard at exploring those avenues for the future. The number of traders very consistent to the last number. The focus at the moment is not on increasing the number of traders so much, but rather making sure that the quality of the traders that we have on our base, that they keep improving. You can see there, the average turnover per device increased by more than 10%, which is quite a impressive number. Also in the Flash business, remember, this business operates 24/7.
It goes into areas where you can't take stores and therefore, you know, we believe there's still a lot of growth potential in this business in the format that it's operating at the moment and in other opportunities that we're exploring. A lot of good work here. Also, a lot of work into the digitization of our customer base. We know that the customers are changing, that their behavior will change over time.
In the Flash business, a lot of work is being done to adapt so that they can still serve their customers on new platforms and new channels. The Capfin business, positive book growth. You would have seen the number from ZAR 1.9 billion-ZAR 2.1 billion. Collections have been above expectations, so very good work there.
From a back office point of view, a lot of good work has taken place to reduce costs by consolidating the business with Tenacity. Trying to use, in some respects, the same back office. That's helped with the profitability of the business. Most of the loans, we still, you know, we manage this book conservatively as well. 42% of the loans are six-month loans, the others are 12 months.
We've hardly got any loans higher than that or longer periods than that. That's a model that we feel works for us. Normally, the people that go on to 12-month loans are ones that have proven themselves as consistent on the six-month loan. It's a very good base for the guys to work from.
They've done an exceptional job over the last few years to stabilize this book and get good growth out of it. The growth in operating profit, a little bit understated at 5% or larger than 5% for this six-month period, up against the high base and last year, some provision releases, et cetera.
The potential of the business higher than that would indicate. 251,000 accounts now, which is an increase in the number of accounts of 17%. Just a little bit on the outlook for Pepkor going forward. A little bit of the weather report, as we always call it. You know, the consumer remains under pressure. That 35.3% unemployment rate is up from 28% before COVID.
I battle to understand why that hasn't recovered more or hasn't started reducing as the economy has opened up. That's the number that's being reported by the Statistics South Africa. I think what it does point to, number one, is that, you know, there's still a lot of people in South Africa that's battling.
It also points to the fact that the informal market is becoming more important and obviously we've got to. There are some opportunities there. Inflation is going up. Inflation in South Africa is at the moment actually relatively low compared to the rest of the world, but there's normally a bit of a lag effect on this number for us. I think we all know and expect the inflation to rise to keep rising.
Household incomes are still very limited. You know, if you take a business like PEP as an example, about 55% of the PEP customers have incomes of less than ZAR 5,000 a month as a household. The operating pressure or the operating environment pressure is still there. It does also give us opportunity because that's the market that we're good at.
With the defensive market positioning that we have, there's a lot of opportunities that we can still explore in this market segment. Supply chain disruptions, I mean, supply chain has had almost a perfect storm. It started with the initial lockdowns in China, then the COVID that spread all over the world.
You know, that sort of exacerbated the challenges that there were in the supply chain. It caused huge cost increases in container and shipping costs. The fortunate thing is that there seems to have been sort of a turnaround or it's turned a corner and those costs are coming down again, but it not at the same rate that it went up.
That's how it always works with these things, but at least the trends are positive. The other interruptions were due to the port issues that we had in Durban, the flood issues that we had in Durban, et cetera. A lot of pressure on the supply chain, and that's caused big challenges for the business.
As Riaan mentioned earlier, you know, before Chinese New Year, we pulled forward quite a bit of stock, because before that we had big delays in deliveries. So it's been quite challenging, and that's one of the reasons why the stock levels are quite high at the moment or was at the six months end. But we believe we'll work those stock levels down to more normalized levels by the end of the year.
I thought I'll just give you know, what's important going forward, and if you look at inflation, if you talk about the pressure that our consumers are under, you know, it's becoming more and more important for us. It's always been our obsession.
Our obsessions have been to keep our prices as low as possible for our consumers, and to do that, we've got to operate at the lowest cost of doing business. I thought I'll just share with you a few of the examples just to give you a sort of a feel for this. You know, PEP school uniform is now cheaper than it was in 2020.
This year somebody could dress their child for just, well, for only ZAR 60 in a PEP, which is an unbelievable number, thinking about a school uniform for ZAR 60 . What else can you afford with ZAR 60 ? It just shows you the effort that's gone in, and especially in school uniforms, which is almost an emotional department for us.
You know, there we've made great progress, and we've been able to help people in our communities by making it more affordable for them. 20% of the products in PEP, as an example, is the same or lower than it was in 2020. That's also a remarkable number, and again, just shows the effort that the team's put into making product affordable and prices affordable for consumers that are under pressure.
These are just a few examples. I can mention literally hundreds of examples where the guys have done exceptional work on pricing. That's the way we can help our customers. You know, volumes and scale helps you. Here's just a few examples of the scale that we buy at.
You know, we sold 5.4 million baby grows last year, 8.1 million school shirts, 40.5 or 40.5 million T-shirts. Can you believe that? 17.5 Denims, you know, 1 million denims. These are huge numbers. One doesn't always realize it. All this stock, all these units. You know, we sell more than 1 billion units of stock in a year in Pepkor, and all that has to go through a supply chain and a distribution network, and that's something that we really value and are quite proud of.
Just a last slide on this subject. I mean, we take our business to our customers. We've got the widest reach of retailers. In Africa, 5,500 stores. They say that a town cannot be called a town if there's not a PEP in it, and that's the truth. 25% of PEP stores trade where no other retailer trades, as an example, which is quite a remarkable number as well.
We're also realizing that, you know, it's not only bricks and mortar. We believe that there's still a lot of potential for bricks and mortar, but that we also have to develop our business through our digital offer. We've got 1Voucher, which is basically digitalization of cash, which allows our customer base to also trade online. We've got the Flash network, our distribution network of 205,000 traders.
Also quite an impressive number is that we do 1.8 billion virtual transactions, you know. On the bricks and mortar side, we're taking our business to our customers, but we're also realizing that over time things will change to the digital environment. I b attle with that word every time and we've done a lot of work to develop that and we see great potential there for PEP going forward. Sometimes it looks like doom and gloom in our environment and our economy, but I believe there must be pluses as well. The resumption of tourism and events has to help us.
You know, tourism sector, I read the other day that we're almost back to the numbers, occupation, numbers that we were in, two years or just over two years ago, which is very positive. If that happens, there's so many related, industries that rely on the tourism industry, and certainly that's a plus for us going forward.
Also, events have been resumed. Remember, it almost feels like long ago, but it wasn't so long ago that there were no weddings or hardly any weddings, hardly any other events, no soccer matches, no football matches, and so I can go on and on and on. A lot of the PEP customer base work in these, let's call it, non-permanent jobs that is provided by the events industry, and that's now starting to resume.
I know in a lot of the events we're not back at full capacity levels, but certainly that's very positive, and we're very positive about the impact of that on our business. Just to remind you that we have some positives coming up in the second half of the year. Last year we had the riots and looting in July, and obviously that lower base gives us an opportunity for a slightly improved base this year.
We hope we will see that. We might lose a bit of sales on units in the PEP environment, which might counter that, but at least that lower base gives us an opportunity for good sales growth in the second year. Product inflation will be there. Inflation is going up everywhere.
We haven't pinned down exactly where our product inflation will be, but it looks like it's. Well, it's anywhere between 6% and 10%, probably a little bit more towards the 10%, depending on which business we're talking about in the group, so that there will be inflation on the products in that we sell. We will try to mitigate that as much as possible by re-engineering of product, by buying more into lower price points, entry price points.
So there's a couple of actions that our buyers always launch when you get inflation or high inflation numbers. Inflation can sometimes help the business as well, but you know, it's important for us to make our products affordable for our customers, and that's why it's so important to find ways of mitigating that inflation.
A lot of focus on product affordability like it's always been, but when you obviously get to inflationary periods, there's an added focus. The DC resumption, as I said earlier, very positive. Within five or so weeks, we got operations to resume in Durban and that makes a big difference, you know, so hopefully very soon we can get those service levels in PEP up to normalized levels.
Also, the DC, there's a new PEP DC being built in Hammersdale, which is just outside of Durban, and that's progressing, and we hope to be opening there or have the DC completed by mid next year. In the same area, we opened a Ackermans DC a while.
An Ackermans DC a number of years ago, and Ackermans now operating at very high efficiency levels, very high throughput levels, and we're confident of course that we'll get the same from PEP. Our growth mindset remains. Despite all the doom and gloom that's reported, we still believe there's a lot of opportunity in South Africa.
There's a lot of opportunity for our brands in South Africa. In fact, a lot of these tough, challenging environmental circumstances are things that has made PEP and Pepkor so strong in the past, and really circumstances that can benefit us. This financial year, I always talk about opening about 300 stores per year. This year it looks to be closer to 350 stores, which is very positive.
Again, it will be mostly in the PEP and Ackermans brands, which is also, you know, those are, as I said earlier, the robust, strong, good return brands, which is very positive for our group as a whole. To summarize, I mean, the results that we announced. I'm very positive about them, quite happy about them. I think the fact that on a very high base we still manage double-digit growth in operating profit, that's quite important for us and that's something that we're very satisfied with. Let's see what the second half of the year holds in store for us.
As I said earlier, we're quite positive about a lot of things happening in the market that will benefit us and our positioning in the South African retail and yes, quite positive about the next six months as well. Thank you very much. Thanks for listening to us, and see you at the end of the year. Thank you.