Good morning, and thank you for joining us. Today, I'm going to unpack why the year that was has been a difficult year for TFG results-wise. More importantly, I'm going to share what we've already done in terms of tactical responses together with what we are currently doing from a strategic perspective to ensure that our business is strongly positioned to improve profitability and capital returns. I'll begin with an overview of the year and a summary of our financial performance. Ralph will unpack our financial performance and balance sheet metrics across our three geographies and at a group level in detail. I will conclude with our outlook and the decisive strategic actions that we are taking to reset the group for improved profitability and returns.
To keep our presentation crisp and focused, between us, we will also cover credit, as well as the TFG London and Australia operating environments and their results. Dean and Justin will join us for the Q&A session to provide you with more granular detail and flavor in respect of these businesses. FY 2026 was disappointing from a results perspective and well below what we believed was achievable at the beginning of the year, albeit under very different circumstances. We traded through a difficult economic and consumer environment across all of our key markets. Discretionary spend was under pressure and consumer confidence weakened materially. We saw continued strong e-commerce sales via our Bash platform, which allows for the rationalization of our store network. While some of these factors were outside of our control, how we responded was not.
In summary, we dealt with surplus inventories, pulled back further on costs and CapEx, preserved cash, and ensured that we ended the year in a healthy balance sheet position. We've great businesses and brands that we've built and invested in. We are not going to sit back and simply wait for conditions to improve. We are taking the decisive strategic action required now to improve profitability, productivity, and capital returns. I can summarize these upfront as follows: We are leveraging Bash and our fulfillment leadership to make our business more capital light and efficient. Given the impact of a poor economy on store profitability and the extent of our online penetration, we are closing underperforming and marginal stores and sharpening our brand portfolio.
We are enhancing our fintech and credit capabilities with their structurally higher operating margins and returns, we are reducing the complexity of our operating model, and in so doing, structurally lowering our cost of doing business. At a group level, revenue grew by 7.2% to ZAR 67 billion, buoyed by the strong results of White Stuff. Market conditions and consumer discretionary spending were a lot tougher than we had anticipated when we planned sales and inventory for the year, and this put significant pressure on our gross margins throughout the group. Despite maintaining a tight focus on costs, operating profit decreased by 22% to ZAR 4.9 billion. Our operating profit is the most accurate and relevant measure of how our underlying businesses performed.
While this was not what we wanted to achieve, it also shouldn't be unexpected in light of how difficult conditions were, especially for our international operations. Brand impairments recognized below the operating profit line, together with higher financing costs, partly related to the share buyback, further reduced reported earnings, which Ralph will unpack. HEPS came out at 675.4, and we have declared a final dividend of ZAR 1.40 per share, bringing the total dividend to the year to ZAR 2.70 per share, slightly better than the HEPS movement. In respect of TFG Africa, revenue grew by 5.3%, and for 10 of the 12 months, we outperformed the broader market as measured by the RLC. However, as well illustrated on the chart, the bottom really dropped out of the market in June, September, and December, resulting in three months where there was almost zero growth, something we've rarely experienced before.
We dealt with the resultant excess inventory in season. This impacted gross margins, which contracted by 100 bips. Disappointing after achieving an expansion of 150 bips in the prior year. With that backdrop, despite a tight focus on costs, operating profit declined by 14.8%. The majority of our retail stacks in TFG Africa hold very significant market share, ranging from 25% in menswear to 26% in homewares and furniture, 39% in branded sports, all the way through to more than 60% in jewelry. We've built these leading positions over many years. They are the foundations of our retail business. However, a 10-year, almost 10% turnover growth CAGR has costs. Costs and capital and complexity and operating structures, and in the near zero-growth market that has persisted for most of a decade, that cost has weighed on our returns.
This retail growth, together with the more recent strategic investments we've made, position us to increasingly realize their benefits on capital returns. We felt particular pressure in two of our biggest stacks, menswear and sports. The global sports retail sector faced particularly tough trading conditions during the year, and competition in menswear continues to intensify. For FY 2027, we bought more conservatively for these two businesses in particular and are already seeing a meaningful gross margin recovery in sports. Menswear will likely take longer, with Mauritian-sourced commodities coming under some late shipping pressure. On the positive side, our womenswear grew strongly by nearly 9% with solid margins and is a clear growth lever for the future. Specialty, comprising our home and jewelry brands, grew by 7.1% and achieved pleasing gross margin growth of 8.2%.
Beauty grew by 21.6%. The contribution of own brand beauty continues to improve the overall gross margins for the category. Jet and our value brands had a solid start to the year but came under pressure over the festive season. Jet has, however, seen a good rebound post-year end. Internationally, trading conditions were brutal. In the U.K. and Australia, consumer confidence remained at historically weak levels, almost as bad as those experienced during the worst of the COVID lockdowns, which you can see with reference to the dotted gray line on the chart. Customers shifted decisively towards essentials, putting pressure on discretionary categories. White Stuff traded well. It flattered the consolidated TFG London results and the legacy businesses, Phase Eight in particular, came under significant pressure, with gross margins heavily impacted by necessary clearance activity and profits subjected to strongly negative operating leverage.
Australia was somewhat less impacted and despite their sales being under pressure, managed to preserve their gross margin. However, despite every effort at cost control, this lack of top-line growth also resulted in negative operating leverage. This year, our international results were materially weaker than our Africa result, but were not necessarily out of line with their peer groups in their respective markets. Looking at the listed apparel retailers in Australia, for example, their average share prices are down circa 50% over the last 12 months, while the overall ASX was up 3.5% over the same period, illustrating just how tough it's been. Whilst this year has been a particularly tough time for both of our international businesses, their operating profit has outperformed our Africa operating profit for five out of the last 10 years, just to put it into perspective.
Faced with the conditions I've just described, our management teams acted swiftly and decisively. During the year, particularly in the second half, we implemented significant short-term cost savings and avoidance, including ZAR 300 million in Africa, alongside aggressive head office and store reductions in Australia and London. Excess inventory has substantially cleared, with group inventory up just 1.7% at year-end. Capital expenditure was pulled back by more than ZAR 600 million, lending tightened, and cash flow prioritized. These were defensive actions and the balance sheet was well protected. Focusing on capital, I would like to reflect on our capital allocation priorities over the past few years, organic as well as M&A. The BOLTS strategy and platform, built through several years of organic investment, is now complete and operational. We have 28 leading brands, clearly defined growth levers, an advanced demand-led supply chain, and modern distribution network.
Bash, with its leading digital capabilities, together with one of the largest customer databases in South Africa, which we are in the process of flexing into a more integrated fintech business. The benefits of these investments may not have been visible this year due to the impact of macro factors, but they will help us to fundamentally improve the efficiency of the business and allow us to move to a less capital-intense model going forward. Over the past seven years, our inorganic M&A activity has been highly selective and heavily weighted towards South Africa. In 2020, we acquired Jet, dare I say cheaply, as a key entry into the increasingly important value sector. In 2022, we acquired Tapestry, this to complement our at-home business and to use their vertical manufacturing capabilities to improve the capital efficiency of at home.
In 2024, we acquired White Stuff, a casual lifestyle brand, as a bolt-on in the U.K. to help lessen our existing concentration in smart and occasion wear. We bought each of these businesses for a clear strategic reason. We did not overpay for them, and each of them has performed well and been accretive. Our investment in building Bash and creating a true omni-channel environment represents our most transformative and important capital allocation decision. Some doubted us when we embarked on this journey, perhaps understandably so, when online was just 3% of sales in FY 2023. Four years later, online and in-store omni selling now contribute more than 10% of TFG Africa sales and continue to grow in strong double-digits as online adoption further accelerates in South Africa. This 10% contribution and strong growth profile indicate an inflection point in our business.
Stores will remain important, we clearly need to serve our customers through the channels that they choose, and they are increasingly choosing digital. This will directly impact our store footprint and future CapEx. Importantly, this growth is becoming increasingly profitable and is demonstrably capital light. The marginal investment required to generate an additional online sale is a mere fraction of what is required in terms of a traditional store environment. To put this into perspective, the additional ZAR 1.1 billion of sales generated by Bash this year would have needed the equivalent of opening more than 100 new stores. Achieving the same outcome through physical expansion alone would have required approximately ZAR 500 million in store CapEx and inventory investment.
The deployment of our in-store omni selling devices delivered more than ZAR 500 million in incremental sales this year. From zero the year before, and is set to nearly double in the current year. This in-store transformation didn't just happen by accident. It took every part of our ecosystem working together with our store teams, brands, and the Bash team working as one to deliver the future of retail. Let's take a closer look at Bash in action, and then Ralph will take us through a detailed review of our financial results and credit.
TFG made a bet on omnichannel, a belief that the future of retail wouldn't be online or in-store, but both working as one. Three years ago, Bash was the first move. Today, it's the proof. This year, Bash crossed ZAR 3.2 billion in revenue. That's the equivalent of more than 300 TFG stores. This isn't just a revenue story. It's a story of a platform changing how TFG works from the inside out. Our most significant unlock this year was the store. TFG has thousands of stores, and for years, those stores could only sell what was on their shelf. Bash store changed that. Today, every store is an omni-store. Over 3,200 stores and 23,000 active staff, empowered with devices, selling the full range, every size, every brand from anywhere. ZAR 503 million in revenue, 314% growth year-over-year. Nearly every rand incremental.
Sales that would have walked out the door. 73% of Bash store orders were click and collect. Customers returning to store, browsing, spending more. It's not just a digital tool, it's a store traffic engine. I gave store teams more than product access, real-time data in their hands, turning insight into action on the floor. Beyond the store, the platform performed 8.1 million app downloads, 347 million visits, 77% of e-com orders placed via the app. Bash Delivery now moves a third of our parcels, 35% cheaper than third-party couriers. We also deepened the platform's utility for every shopper, online and in-store. The Bash Wallet is now where customers manage their TFG Money account, access their TFG Rewards, and redeem vouchers, whether they're checking out on the app or standing in a store. One platform doing more. The numbers reflect a platform that's maturing.
1.3 billion in gross profit, a 41% e-commerce margin. Growth that is profitable, not just fast. Three years in, the infrastructure is in place. The stores are activated, South Africa is shopping differently. Bash store is still evolving. What started as a mobile tool, sell anywhere on the floor, now runs across three formats: mobile, till, and kiosk. With a target of ZAR 895 million in its sights. The store without limits, now scaling. It's the future of retail, we're just getting started.
Thanks, Anthony. As you've heard, a disappointing result in three tough markets with little indication that the trading environments will get any better soon. Peak season is critical to our full-year result, and it was significantly weaker than we'd planned for, and with both international businesses coming off even more sharply in the second half. Looking at the key metrics, turnover up 7.1% to ZAR 62 billion, 2.8% up without White Stuff. Gross profit up 4.5% to ZAR 30 billion. Again, without White Stuff, it was 0.5% off from last year. With gross margin at a group level 120 basis points lower. Group EBIT down 22%, perhaps the metric most indicative of this year's actual trading performance. Headline earnings per share after funding costs down 33.5% to ZAR 6.754 per share.
Earnings per share, which then takes into account the brand impairments we indicated back in January, down 58%. On the balance sheet, we took a disciplined approach to stock clearance and group inventories finished up just 1.7%. The debtors book up 5% to ZAR 9.5 billion, net debt lower than at the half, with ZAR 7 billion of the ZAR 8 billion supporting the debtors book. Return on capital employed, excluding the impairment charge, down from 15% last year to 11% now. The final dividend of ZAR 1.40 per share takes the total for the year to ZAR 2.70 per share, with the cover at 2.5x headline earnings per share. I've included sales charts again this year. In Africa, June and September impacted the interim result, in the second half, December was up against Two-Pot in the base.
I've added GP Rands to the chart in the background to indicate just how important December is to us. It's effectively a double month. That explains then why the trend line in blue takes a sharp dip at that point. You can see then Q4 showed some recovery, especially in March, not sufficient to offset December. It's not a trend. The impact upon the consumer of fuel prices has barely hit. Interest rates are up. H1 of 2027 is likely to be tough. With higher fuel and freight input costs, the risk to the supply side is significant, too. As I said at the interim mark, our international businesses have often provided a hedge against different macros, not this year.
Looking at London, the blue trend line is a pro forma view that includes White Stuff as if we'd acquired it at the beginning of the prior year. As Anthony has shown, consumer demand contracted further in the U.K. While White Stuff and Hobbs both performed satisfactorily, Phase Eight battled. Dresses continued to struggle as a category, department stores traded poorly as a channel, and a key partner suffered a catastrophic cyber attack. Across all the brands, we closed 62 concession mats and 36 stores. Australia. This is a good business. It's well-run, but it's pushing against a challenging macro environment. In November, it looked like trade was improving, as you can see in the trend line, but then a really tough December, again, the key month, and it never really recovered from there.
We've gone through the key metrics for the group already, and I'm going to go through each of the divisions separately. At the group level, you can see on the right how H2 was much worse than H1. Partly White Stuff non-comp in the first half, but as you've seen from the sales charts, H2 conditions deteriorating further. This chart shows it more clearly. H1 down 10% with the U.K. shielded by non-comp White Stuff, but then H2's peak season under performance and then White Stuff now in the base. Back to the group and the brand impairment charge, which we signaled back in January. It's abnormal, it's non-cash, but it's also an indication that the brand carrying values of Phase Eight in the U.K. and Tarocash and yd. in Australia are right now not represented by forecast cash flows.
Finance costs starting with IFRS 16, interest on capitalized leases up 10% with new stores and a chunk of leases in Australia that had been in holdover. At some point it makes sense to reset to fix a lower rate or a shorter period, that creates a higher charge to the P&L as you initially capitalize the lease or the asset. Interest on our debt also up 8% with growth in the book, a full year of White Stuff funding, and last October's share buyback. The increase in finance costs negatively leveraging the result further still. On to Africa. Two-thirds of sales, four-fifths of EBIT. As usual, I'm going to break it into retail and financial services, retail again into our two channels, stores and online.
Here I've split it into H1 and H2, and you can see that the negative leverage in H2 stemmed from a lower GP in rands, which was up just 1.8%. I'm going to speak to other income and bad debts shortly, but first let's look at expenses in the table below. Costs were up 7% with like-for-like store costs growing just below that. Looking at the table on the right, let me address the ZAR 16 billion. Two-thirds of that emanates from stores and variable online costs. The other third is overhead. We are highly operationally geared. It's a function of managing 28 brands. The number that stands out here, though, is the 9% increase in second half costs.
If full year costs were up 7%, that extra 2% is about ZAR 150 million for the half, a function of the timing of project spend across the two halves, where you can see expenses grew just 5% in the first half. We did cut ZAR 300 million from planned costs in the second half. What we haven't yet done, what we couldn't do within the space of a couple of months, is conclude on a deeper assessment of how the business must function differently, leaner for a longer cyclical downturn than anticipated, and for a structurally different retail landscape. That's what we're working hard to do as we speak. Depreciation up 14%, a function of previous year's CapEx, half from the inflation lag on maintenance spend, and above that, we're looking at the cost of expansion activities, broadly explained by stores, IT spend, and logistics.
The new DC in Riverfields came on stream fully last September, so the benefits of centralization from a store allocation and online fulfillment perspective are now coming to fruition. We simply couldn't modernize the business without this key enabler. Which brings me onto our channels then, and first stores. It's clear from sales and GP at the top there that stores struggled, with GP rands basically flat despite new stores. A store costs nearly the same to run whether it's busy or empty. Store expenses were tightly managed, but a sales miss can translate into a larger profit miss. Profit was back 22% with channel margin fully costed with overhead down from 10% last year to 7.5%. Return on capital employed down 2.5% to 11. This is clearly not where it needs to be and why we have increased return requirements for our new stores.
Some of what we've missed in stores is due to those customers, together with entirely new customers, choosing to shop online, which made up 8% of our sales this year, but hit 10% by the end of it. Bash's growth has been consistently above 40% per annum since inception, and our online sales margin is now the same as the store channel with all our brands under one roof there. Our business has the scale, the buying power, customer data, brand equity to win online. Recognizing that online is going to reach developed country levels, it's important for us to understand the drivers and profitability of this channel on a fully costed basis. Where stores incur rent and staff costs, online spends on precision marketing and last-mile fulfillment. With the growth we're seeing, profitability fully costed will be comparable with the store portfolio within a few years.
Both channels are important to our business and will always be so. They aren't separate businesses. Brand management, design, buying and planning, procurement, supply chain, and logistics is all done centrally, and the latter half of that list centralized. In omni, the benefits become all the more mutual. Before allocated costs, Bash made ZAR 350 million in profit this year. We choose to allocate overhead to help us make better capital allocation decisions. Financial services, credit, and insurance. Roughly a quarter of our Africa sales are on TFG Money. When we offer credit, we want to ensure that we don't subsidize retail margin and showing a fully costed and geared ROE that's broadly in line with our cost of equity does just that.
This year, lower interest rates compressed the yield, limiting interest income to 1% growth despite a 5% bigger book and credit sales up 4.6%, slightly below cash sales at 5.2%. It was fees and insurance premiums, mainly from new credit life policies we wrote, that raised net other income growth to 6%. The second reason that profit and ROE fell this year was due to bad debts. Write-offs net of recoveries were up 11% against very high collections last year, assisted by Two-Pot, and the net provision charge this year was ZAR 160 million higher. In November, I said the growth in the net bad debt charge might come in just under 20% for the full year, dependent on growth and collections. Collections did take strain as the year progressed, so the provision over the entire book increased 70 basis points, and we ended just above 20% at 22%. London.
A poor result even though our own channels traded well, growing at 6.5% with online up 10%, both on a pro forma White Stuff basis. Concession sales, again pro forma, declined 6%. Worse still, a major cyber incident impacted our biggest online partner with sales coming off a massive 25%. It's a solid channel. We lost profit, and then we had to deal with the excess stock. That then hit margin, which was also impacted by U.S. tariffs, and it's against White Stuff's lower margin mix now in for the full year. Last year, we enjoyed the benefit of deep clearance on some fully written down product. I've included two additional P&Ls on this very busy slide.
The legacy business where the pain was really felt in Phase Eight, and this includes the GBP 30 million brand impairment and a full year-on-year pro forma White Stuff P&L where you can see sales up nicely, but margin impacted by the factors I've just mentioned. Australia has been an equally tough macro environment. Rate increases where this time last year it looked like there would be decreases. You saw how that impacted sales in the chart I showed earlier. What may have looked like a modestly improving trend was not to be. The sharpest reaction to the global fuel crisis has occurred in Australia, where the cost of living predicament has already been keenly felt for some time. Looking at the P&L without the ZAR 29 million impairment charge, sales down 1.5% and 2.4% down in H2 after it had been tracking flat at the half year.
Some of that related to the partial exit from department store Myer, as well as the exit from underperforming stores. Online underperformed in 2026, down 3%. Dean has already changed the structure there, putting online trading teams back under direct brand control, and we're up 5% so far for 2027. Margin pressure held GP dollars flat as the team traded a poor year as best as anyone could. It's the expenses that hurt, up $19 million, 5%, with rent escalations despite the new lease outcomes and higher legislated wage rates. You can see that same delta at the EBIT level. Cash flow. While EBITDA for the group was lower, you can see that the draw on working capital was also modest, with inventory management having been a key factor. You can also see there the relatively low impact of the debtors book this year.
CapEx at ZAR 2 billion, that's cash flow, not the actual capital expenditure, which was lower and more on both those just now. Despite the poor year, we generated sufficient cash to pay the dividends, the increase in debt can really be ascribed to the share buyback. In fact, the cash flow for H2 was itself over ZAR 2 billion. Despite the poor season, you can see clearly how we can still generate and bank cash with disciplined clearance, even if you have to take the pain of markdown. I'm going to start the balance sheet section with net debt, then take you through CapEx inventory and then the book. I added this slide at the half year to describe the shape of our debt. You can see that the peak season inventory funding had all gone by year-end, leaving ZAR 8 billion mostly funding the book.
The balance basically represents the White Stuff funding in the U.K. Net debt there is GBP 50 million, and there's AUD 60 million of excess cash in Australia. On the right there, I've added a slide showing the result of our refinancing activities. This is regular rescheduling of our long-term debt profile, and as you can see, there are no major repayments now until 2030, ahead of which time we'll re-profile once again. A word on covenants. The key one is the net debt to EBITDA ratio, which closed at 1.68x against a covenant of 2.75x. Enough headroom even at the half year coming up in September as we build inventories towards peak season. Looking at CapEx, ZAR 200 million higher in 2026, but broadly in line with where it's been in prior years except for 2023 when we built out the DC.
You can see that we continue to invest in our logistics infrastructure. This year, online fulfillment and central pick for beauty. One supply chain, one logistics network. IT spend is mainly maintenance, with the only material new projects underway last year being the new merchandise planning system and the new credit origination platform. At the half year, I said we'd spend a further ZAR 500 million on store CapEx in H2, I indicated a higher degree of risk off, and we pulled back ZAR 200 million of that. We won't shy away from developments that we believe are still right, we are tightening our hurdle rates and payback criteria. Our success with Bash clearly demonstrates that customers are increasingly shopping us online, that will allow us to pull back on store growth. Stores are a high fixed cost asset in a structurally declining channel.
Our job is to ensure that the fleet remains profitable by managing it with total discipline and closing without sentiment. Every store in every brand must earn its place. CapEx for 2027 will accordingly be lower than in 2026. Inventory up 11% at the half year, which over and above price movement and the beauty rollout still implied a couple of % overhang from winter. Well, despite buying for a normal peak season that never came, we've taken our medicine, which you've seen in margin, and we've finished the year having cleared that stock. You can see at the bottom of the page that inventory health is in line with the prior year. As I explained earlier, it's been a tough year for the book. Not surprising given the cycle, that gives context to the conservative approach we've taken to new credit approvals.
Growth in balances of 5% off just 1% more accounts. Demand is still there, 4 million applications. The quality isn't. That's seen a reduction in the acceptance rate to 18.7% for the year. In fact lower still at 17.7% in H2. The provision at 18.6% is higher than last year. It's in line with 2024. We think that's okay. It's back to normal levels after two years of improvement and still below the 20% mark we saw back in 2022 and 2023. There's now another factor at play. Buy now, pay later or BNPL. BNPL providers offer short-term financing options that allow our customers to split the cost of purchases into three or four interest-free installments. We added the two largest providers to both stores and online just ahead of peak.
We now offer three options, and the uptake, especially online, has been meaningful. The retailer pays for it with an outsized merchant fee, but rates have recently come down, and it provides an attractive credit growth alternative to our own book. In conclusion, a disappointing result across all regions with a poor peak season in H2. Conditions deteriorating through into Q4 in the U.K. and Australia. Rent, staffing, and operating costs in stores as well as central overhead not flexing sufficiently as sales and margins came under pressure, but flex they will. Inventories well managed, CapEx reduced, and planned CapEx lower still. Cash generation strong, especially in the second half, ensuring net debt landed right on plan. With that, back to Anthony for the outlook.
Thanks, Ralph. Let's switch from the year that was, to how we are resetting the group to enhance both profitability and capital returns. We are planning on the basis that consumer conditions will remain under pressure for some time across each of our territories and may potentially deteriorate further until a durable solution is found to the Iran war, inflation cools, and consumer sentiment improves. How we are going to run our business is directly aligned with this cautious outlook. Turnover growth may well be muted. We will manage inventory and gross margins very carefully and in line with this reality. We are going to continue to manage costs very tightly as we extend the cost-saving initiatives of last year. We managed a good outcome two years ago in FY 2025 using the same approach.
Capital is being held tightly with investments proceeding only where the business case is significantly de-risked and yet still compelling. Strategically, we are looking at ways to aggressively reduce structural operating expenses to de-risk operational leverage. While this approach will apply across the entire business, we also have very specific initiatives and levers applicable to each territory. In respect of our Africa business, we've been operating in an extremely low growth environment for more than a decade, with reform-led recovery yet further delayed. Despite this, we've built a great business with deep digital capabilities and incredible brands. Strategically, we are going to be aggressively leveraging Bash and our omni-fulfillment capabilities to move towards a more capital light model, optimizing our store footprint in light of economic reality and the increasing reach and penetration that Bash delivers. Aggressively driving our margin-rich fintech business.
We recently made a number of senior leadership appointments and changes to allow us to better drive our combined credit, Bash, value-added services, and rewards portfolios into a more cohesive fintech direction. We've been successful in each of these endeavors individually, but see substantial untapped potential in leveraging their combined scale, capabilities, and customer relationships. We are also reviewing marginal brands and rationalizing our brand structures. Our Africa business has assembled an incredible portfolio of 28 loved brands over many years, which have helped us to more than double the Africa business over the past 10 years. However, as I've already pointed out, growth comes at a cost, and the portfolio breadth has increased complexity and diluted returns in a tough market. There is a need for us to simplify our structures and structurally reduce our cost of doing business.
Two years ago, we commenced with Project Vela, where we started to organize related brands into what we refer to as stacks. At the time, this felt both difficult and risky in terms of what we might stand to lose in individual brand identity, so we moved cautiously. In reality, Vela has only delivered upside and none of our original fears transpired. In the year ahead, we are going to be moving forward with the next phase of Vela, which will allow us to further consolidate our operating structures, remove layers, and increase agility. This will also enable us to fold structures of marginal brands into a more efficient, simpler operating structure. Switching focus to our international businesses, which have historically contributed more than 25% of our group profits, but which have been under relentless pressure over the past year.
Despite strong geographic fundamentals, Australia is now entering a third year of structural ground with almost all post-COVID saving buffers depleted. That said, we own a unique asset in Australia, the largest standalone menswear business on the continent, with historically healthy operating margins throughout the cycle, a growing omni-channel capability, and a disciplined and experienced local management team that has been able to weather a downturn better than most. Dean, Troy, and our Australian team are going to be very focused on reviewing marginal brands. We have recently taken the decision to terminate the AXL+CO store trial and retain this as an online-led business. Actively optimizing their store footprint as online penetration nears 10%, this presents real profit and capital efficiency opportunities, and strategically reviewing the extent of our New Zealand business, given the precipitous decline in the New Zealand economy.
The U.K. consumer and retail market has been under the greatest pressure of all of our territories over the past year. Consumer confidence never really recovered post-COVID. Inflation having come back into range is going to accelerate again, and specifically relevant to fashion, retail, department store, and concession channels have been and remain under real structural pressure. We have three high-quality brands in Hobbs, White Stuff, and Whistles, and they have meaningful upside when conditions normalize. Phase Eight, however, faces the greatest challenges, especially in respect of their high historical reliance on department store channels, as illustrated by their brand impairment. With these factors in mind, Justin, Emma, and the U.K. team are going to be very focused on right-sizing the Phase Eight costs and footprint to reduce their drag on profits and meaningfully expanding their own customer channels and select new partner opportunities as traditional third-party channels continue to suffer.
In terms of post-year-end trade, we've seen a continuation of the tough trading conditions I've spoken about in the presentation. In Africa, we have improved margin in April and May, but sales have been subdued, coming off a high prior year base and facing into a tougher cost of living environment. In London, April was tough, whilst May showed perhaps a temporary uptick buoyed by unusually warm weather and higher footfall and spend. Margin also remains strong. In Australia, trade remains tough, but again, margin has been strong. Needless to say, expenses have been held very tightly across all the businesses. In conclusion, we expect the environment to remain tougher for longer, and we are acting accordingly. Every part of our business is continuing to take the required tactical actions, and I've shared the strategic actions that each of our territories will be focused on delivering.
At a group level, we have four clear priorities to reset profitability and returns. Leveraging Bash and our fulfillment leadership to make our business more capital light and efficient, closing underperforming and marginal stores, and sharpening our brand portfolio, enhancing our fintech and credit capabilities with their structurally higher operating margins and returns, reducing complexity in our operating model, and structurally lowering our cost of doing business. That concludes the formal part of our presentation. We'll take a five-minute break and be back thereafter to take questions. Thank you. Welcome back, everybody, and thank you for the questions that you've sent through to us. Between Ralph and myself, we'll try to give you as much detail as we can share on the group and the South African business.
As I mentioned in the introduction, we have our U.K. and Australian teams online ready to answer any specific questions that come through for them. Okay, the first question is, "Can 100-200 basis point gross margin uplift still be achieved and over what period?" I think the answer is we absolutely believe so. I think if we look back to FY 2025, for example, we had a year with relatively suppressed sales. We bought for a lower sales outlook, really pushed full-price sales, and we achieved about 150 basis point uplift in FY 2025. The reality is the market was a lot tougher as this year progressed into FY 2026. It was well below our expectation going into the year. We are extremely disciplined in dealing with the balance sheet and any excess buildup of stock. We don't carry stock forward into future periods.
We know that's not a good idea in fashion retail, and that's really the reason we took the pain in the current year. The period over which we expect the recovery, I think I shared in the outlook section that two months in, we've bought for lower anticipated sales. We've had a strong margin recovery to-d ate. I guess the health warning with all of this is that we still have an Iran war that appears to be far from resolved, that is driving a significant increase at the moment in fuel prices and energy prices. We may not yet have seen the full impact of that on consumer wallet, and it is difficult to predict how this plays out, not the least of which is we just don't know how long it goes on for.
We do think in a normalized environment, it's a three-year period to build 150-200 basis point upside. The starting point, I guess, is what's in question at the moment. Okay, a question, and actually a very good one. "How can you be certain that Bash sales are not simply cannibalizing store sales?" Something we obsess about. We have a very, very high proportion of our swaps. In effect, over 86% of our swaps or people who present their rewards cards on transactions. We've really got, I think, some very good data and insights in terms of who's shopping where. Our data to- date suggests that there's been really minimal cannibalization. I think realistically, though, over time, more and more South Africans following a global trend are sitting at home, clicking on a device, and kind of choosing convenience over necessarily driving off to a shopping mall.
I think there has to be cannibalization at some point. I don't think cannibalization is necessarily the bogeyman in the room. The reality is that our omni shoppers and our online shoppers tend to have higher baskets. We've proven that the gross margin on the Bash platform is now in line with what we've been able to achieve in stores. Bash isn't a discount online outlet, and the reality is that if this happens over time, what we're simply doing is meeting what customers are telling us they prefer, and it allows us to really become more capital light and capital efficient over the next three to five years, because that's a period, I think that there's still quite a lot of acceleration and upside in online sales. A question around what remedial action is being taken with respect to Phase Eight.
Justin, I'm going to pass that one to yourself. I know a lot of work is going into that at the moment.
Okay. I think five key elements, Anthony, to answer the question. A lot of them you've already touched on, the first one is to streamline the product range, focusing on price and quality. The second one is to reposition Phase Eight as a brand for every event. We're going to be driving efficiencies through. We need to improve product planning and accuracy. Lastly, as you've mentioned, a rationalization of the store portfolio. Those are the five key elements of the Phase Eight turnaround strategy.
Great, Justin. Thank you very much. Ralph, I'm going to pass the next one to you. It kind of goes into allocated costs and Bash profitability. I note the Bash profit of ZAR 350 million pre-allocation of costs. What profit did Bash make after allocated costs?
Yeah, the slide that actually showed the post allocation number of ZAR 95 million. The allocations are absolutely everything from the allocation of head office costs of the buying and planning and all those various functions that I mentioned, in-store picking when the product is picked from stores. All the overheads are allocated to that to bring to ZAR 95 million. Still profit making, whichever way you look at it now.
Thank you, Ralph. Another question related to Bash. What does the higher penetration of online mean for the existing store estate and cost structures in the stores? Again, a very relevant question. We've got certain stores, depending on the brand, where online contribution is well into double-digits. The reality over time means that we can do with smaller stores, and I think the size of our overall store estate, if you model this forward over a three-to-five-year period, by definition will be smaller than what we have today. The question goes on to ask around the staffing of the stores. I think those move pretty much in line with the size of the store. I think I did speak in my outlook section around Project Vela. Over the last couple of years, we've been able to share staff very efficiently across different brands, different stores.
There's another phase of that work underway at the moment, and I think there are further efficiencies that will come out of that. Ralph, a question on the share buyback. How do we feel about a buyback at ZAR 105 versus the current market?
Well, ZAR 105 was the market price in September. It was a year ago. It was post-GNU. Things were still looking pretty good. Obviously, the whole market's come down. Retail all declined, us obviously the most, and there's a war on, which only started on the 28th of February. I think directionally, we would like to think that there is still intrinsic value above the current level.
Thank you, Ralph. At what point do you intend to stop funding international brands and redirect capital towards debt reduction, Africa, Bash, and other high-return categories? Great question. I think a couple of pieces to unpack around that. I think if we look at the two international businesses separately, our Australian business has returned probably more than two-thirds of the original purchase price back to South Africa in dividends, and owns some fixed assets that they funded themselves, which effectively now sit on our balance sheet, which have intrinsic value in them. Net-net from an Australian point of view, they've actually been a big contributor. Our London business has required very little funding over the last five or six years, despite some of the disruptions, including COVID.
I think to kind of maybe answer the question a little bit more broadly, both our international businesses are self-funded, and we have an absolute focus on delivering the best returns that we can across each one of those geographies. Clearly right now, the biggest upside for us does sit in Africa. Another question on buybacks. Will TFG pause share buybacks? I think I can only answer that very generically. I think the buyback that we've just referenced and that Ralph explained was, if I'm not incorrect, the first buyback in our history. I think we've recognized buybacks as being valuable in terms of returning value to shareholders.
I think there are a number of pieces that need to be judged at any point in time around buybacks, and principally, it's intrinsic value that we see in the share versus how comfortable we are from a debt reduction perspective. In other words, you can apply that money to different causes. Another question that was linked or from the same person: How many stores do you expect to close in South Africa over the near term? For the year ahead, I think we shared those numbers in the presentation, it'll be likely just over 100, bearing in mind that we've got about a two-and-a-half year end-to-lease timeframe, given that our leases tend to be five years. There's a certain number that you are able to address in any point in time. Yeah, that'll continue into the future. A related question, what percentage of your stores are marginal?
A question around the cost or the return on equity impact of closing those stores. I'll deal with the first one. We've got about 300 stores that are currently marginal. Even the ones that are loss-making are generally minimally loss-making, and a lot of that have fallen into that bucket over the last six months as things have got tighter. They wouldn't have necessarily been marginal or loss-making 12 months ago. That doesn't mean we're not dealing with them, as I explained, we'll go as quickly as we can given the lease profile. Ralph, maybe just some thoughts on what that means from a cost base and a returns perspective.
Yeah. Interesting, the dichotomy is that there are no real fixed costs to a store, but the marginal stores in themselves, they cover their variable costs. That's not good enough. They don't generate the returns, and therefore, they lower the average cost of returns or the average returns over the whole shape of the chain. By being much more focused on eliminating the marginal stores, we increase the average, but we have to then take out overhead at the center to cater for that smaller base.
Thanks, Ralph. A question around what impact the Iran war is having on input costs for our business. The question goes on to specifically around raw material imports, sportswear, and apparel. I can only give a forecast input based on where fuel prices are at the moment, because that tends to drive most of what the question was centered around. At current fuel prices, if you extrapolate that for the balance of the year, we're probably looking at a distribution and transport exposure of about ZAR 100 million. To be honest, I think that is probably the least of the issues if this war continues. I think we'd be more concerned, frankly, on consumer demand. Going back to the input piece, we successfully renegotiated our transport contracts in South Africa last year. There's a bit of an offset against that ZAR 100 million upside.
The balance of the question was really around things like sportswear and apparel. I guess the good news, touch wood, is that the rand has continued to trade very strongly against the US dollar, which is the reference currency for most of our inputs. We've actually managed to land a lot of product at good prices, certainly thus far into the cycle of this year. As I indicated in the outlook slide, tight buying, particularly in sports, is already delivering some meaningful gross margin upside in that division. Ralph, a question on how many stores for TFG Africa were closed during the reporting period.
There was about 100, I think, closed in the current year, and the same for next year.
Perfect, thank you. A question around any brands that have been identified, marginal brands identified for potential review or closure. I think we look at that all of the time. The major focus on where we can really shift the needle goes back to our two biggest divisions at the moment, sports and menswear. Sports had a really tough 12 to 18 months globally. You've seen that reflected in all the big international brands. We're not immune to that here. Equally, we had a significant slowdown in demand during the past year, where we liquidated a lot of stock. That hurt margin. As I referenced previously, we've had a very strong start to the year on sports, muted turnover, but a much higher proportion of full price sales and a significantly higher gross margin. That's something we really want to concentrate on. It moves the needle.
Menswear is the other big area of focus. There's probably never been more competition in menswear. The whole cycle of fashionability in menswear has accelerated dramatically over the last two or three years, fueled no doubt in part by social media and a more global view on menswear from the South African consumer. We've moved very quickly to localize a lot of the menswear supply base. We've seen the success of that in our ladieswear business, which has continued to surge ahead in the market. We think that we can get ahead of the curve in menswear with enough time. A question around, given how tough the environment is, do you still believe you can meet the targets outlined in the Capital Markets Day? I think the answer is absolutely yes. We really had three big levers that we unpacked in terms of earnings improvement.
Ralph, I'll ask you to talk to returns. Essentially, it was a gross margin improvement. I've already answered a question on that. The second was store estate, and a lot of the questions today have been around that, and I think we've shown we're dealing with that. The third was really around general operating expenses, and we've already done quite a bit of work tactically to take cost out of the business. There's definitely an opportunity to take some more structural cost out, and I touched on that in the outlook. I think the answer is yes. Again, the caveat remains, you're not going to into those kind of improvements or targets in the current environment that exists right now today.
I think certainly also from an organic perspective, I think the element of inorganic growth on the top line over the next couple of years is probably more unlikely. Then returns, the high teen return on capital employed that we talked about is absolutely the critical one, because the top line and the cost, et cetera, will obviously moderate around the cycle. One thing's for sure, we're focused on positive operating leverage, cutting back on capital, applying our capital better, and generating the return on capital regardless of the cycle, and as we build towards a different structural outcome.
Great. Thanks, Ralph. A couple of questions that are repeats of ones that we've answered, but a specific one on how is Riverfields performing and are there going to be any benefits for this in FY 2027? Riverfields is fully complete, fully operational. We have all of our fashion brands in Riverfields already. As we've been at pains to explain, we were very deliberate and careful in terms of putting the brands in one at a time. We've seen other catastrophic DC changeovers. It's kind of like changing your ERP. You do it very cautiously. Touch wood, we got through that process without dropping a beat. The benefits in terms of the business case around operational efficiency are definitely all there. If we look at availability in store, time in the DC, et cetera, those are already flowing.
We do expect this to be one of the main contributors to the gross margin expansion over the next couple of years that I've touched on. Again, very difficult though to isolate it and show it, given all the macro noise of the last 12 months, but looking forward, absolutely. A question on what has led to bad debts increasing. DebiCheck having any impact? Ralph, for you.
I gave quite a detailed analysis of the fact that there were a number of different factors. In any given year, there's the growth in the book itself, there's a kind of a quantity component. There's a quality component, that did deteriorate somewhat. Recoveries were lower than the previous year when recoveries were extremely high. DebiCheck, not really. We actually have about a half of our customers pay us in store, that's something that's encouraged by most retail providers of credit because it provides the opportunity for your customers to come in and shop you again on their account.
Great. Thank you. A question on inventory levels for TFG Africa and whether there's any risk to GP margins in the first half. I think we've shown both the levels, but more importantly, the aging of our stock buckets for each of our territories. I think you can see there that both from an overall quantum point of view as well as an aging perspective, we're going into the new year with what we feel are appropriate levels of stock. The stock is largely fresh. We dealt with the overhang of the depressed year during the course of the year. We've started the year, as I showed in the outlook, trading at much more healthy margins. Again, very difficult to call what does the rest of the year look like at this point. We're certainly off to a good start.
Market demand will be determined as the year plays out. Question on targeted capital structure, Ralph, for you. What does targeted capital structure look like over the short to medium term? Do you believe that you are going to continue to pay dividends and share buybacks?
The graph I put up that showed the shape of our debt provides a sense that we've got about ZAR 7 billion that covers 70% of our book and provides a natural hedge there. We're pretty happy with that ZAR 7 billion. There is a rump of about ZAR 1 billion, which is kind of made up of the White Stuff overhang, if you like, from funding that acquisition in the U.K. We've got cash in Australia. We'd like to pay that down. Generally speaking, we like the shape of that debt because most of it's funding the book. Share buybacks, that really depends on the shape of the debt. We're not going to rush in to do share buybacks, whilst in this cycle we'd prefer to kind of cut that debt somewhat. We will continue to pay dividends, I would think so.
Great, Ralph. Thank you. Another question going back to the debtors' book. What is the outlook for bad debts in FY 2027? What does the quality of the debtors' book look like at the moment?
Yeah. Again, that is a function of the growth in the book. The book growth has actually come off a little bit for the beginning of the year. That could change. That has a major component of to what happens with the actual charge. I think the recoveries were kind of normal to high this year. It all really depends on the consumer, it depends on the state of what happens with the fuel price, perhaps. Of course, it depends on what we're doing with our approval rates. I think it's still going to be a tough year, but we'll measure and manage it accordingly.
Thanks, Ralph. Question framed around, we've highlighted that the sports category had the largest GP margin contraction in the portfolio. Did the category trends change the GP margin level in the second half? Again, that goes back to my slide that showed each of our stacks. We really cleared branded footwear, in particular, very aggressively during the course of the year. Bearing in mind that the lead time on branded footwear is kind of nine months plus. We were locked into what was coming last year pretty much from the beginning of the year. That was dealt with by year-end, and that's why there was that extent of margin compression on branded footwear.
As I indicated in the outlook, we've seen virtually the opposite outcome for the first couple of months for sports, in particular, and branded footwear, where sales are far more muted, but the GP margins have pretty much recovered what they dropped last year, and that's what we're aiming to try and achieve for the balance of the year. A question on impairment. Are there any once-off impacts, GP expenses, that have impacted FY 2026? Oh, sorry, aside from the impairment, are there any once-off impacts, GP expenses, finance costs that have impacted FY 2026 but are unlikely to repeat into FY 2027, particularly for South Africa?
There is the obvious non-comp for this year, where White Stuff was only in for five months the previous year. That kind of corrects itself, and that becomes comp for 2027. There were no particular abnormal items in the numbers as such. What we do in trying to provide the detail we've done by improving our disclosure of the various segments of Africa, and breaking down and giving you more detail, granularity detail of the legacy and the White Stuff business in London, for example, is to provide you with as much detail as we can on the shape and the direction of the levers of the business. Nothing really that stands out that we haven't covered.
Great. A question that I've already answered, but I think it's important enough to just reiterate the answer again. It's an absolutely natural question. Please can you explain the input cost pressures you're seeing from current geopolitical events, and what is your outlook for gross margin? The input cost pressures modeled on today's fuel prices, primarily around logistics and shipping. If they stayed the same for the balance of this whole financial year, would probably be about ZAR 100 million, with some offset on the new transport contracts we have in place. Gross margin, current kind of conditions holding, we'd be looking to claw back pretty much whatever we dropped last year, and pretty much in the same proportion across the categories. Another question, Ralph, on the book. Your TFG Africa credit book continues to grow faster than cash sales.
Can you break down the proportion of new accounts coming from low risk versus higher risk? Are we seeing consumer stress?
Yeah.
I think maybe, sorry, just to jump in there, it might just be worth also picking up credit versus cash post year-end and accept rates.
Yeah. For the year, credit and cash was similar. I gave the numbers earlier on. It was like 4.5% for credit, 5.5% for cash. About a third of our book is low risk, N1 and N2 in the technical parlance. About a third in the middle or a little bit more in the middle. Obviously by looking at the shape of our book and the fact we run about an 18% bad debt provision, you can imagine there is a fair amount at the higher risk end. As I said, there are also other factors at play, like Buy Now, Pay Later. The consumer, yes, the consumer is under a bit more stress, as you can imagine, and could still be under more stress still with the fuel costs. It's all something that we're managing quite carefully.
Great, Ralph. I know the next one is one that you've spent a lot of time looking at. What is the three-year margin target for Bash?
Listen, whether it's three years, whether it's four years, whether it's five years, it doesn't really matter. The trajectory is very clear that the fixed cost component in Bash, which is a whole host of engineers doing a lot of clever stuff with data and with the whole online experience and customer experience and intelligence behind that. It's a capital light investment. It's growing at 40%. The trajectory is clear. We've broken even, fully costed. They've made 10% pre-allocations. In three or four years, it's very likely that we will get to a position where the fully costed operational profit of Bash is the same as the stores, perhaps even better.
Great. Thanks, Ralph. A question, actually a very insightful question. What might motivate the sale of the debtors book? Is it bad timing for such a transaction given high bad debt costs? I'll give it a go, Ralph, and if you want to add, please do. I think I covered in my outlook piece, first of all, that we've made a number of changes internally over the last couple of months to really bring together the various parts of what becomes a fintech play going forward. We've got a very, very profitable and successful VAS business. To- date, it's operated pretty much on an analog basis in store. The progress and the profitability and the operating margins over the last two years have been pretty astonishing. We've got probably the largest rewards base in South Africa. 40 million+ South African customers, 15 million-16 million active.
We've got a large and very well bedded down credit book. We've got a Bash platform that has north of 12 million downloads. There's a massive opportunity to put all of those components together. We've recently moved them all under one leadership structure, and I think we'll be seeing a lot of progress out of that area over the next couple of years. Going back to the book itself, quite right. Even if you were wanting to sell or dispose of a book or frankly any asset, timing is relatively important. I think the valuations around pretty much most things at the moment, including any debtors book, are unlikely to be at reasonable levels.
The book is an incredibly important component of our business. It generates a quarter of our sales. The relationship we have with our customers is super important. It's perhaps not so much the sale of a debtors book, it's the funding of the debtors book, or the way in which you can structure it so that it's appropriately providing the right returns. Again, as you can see, in the last couple of years, we've changed the way we report on it to indicate how we fund it. There are opportunities to enhance the way in which we look at it further still. The most important thing is, as Anthony said, is making sure it's doing a lot of heavy lifting across a much broader, much more structurally modern fintech way of thinking about it.
Right. A question. Given the weak revenue growth environment, do you see earnings growth in the current year? Super difficult one to answer, as we really don't know how the year is going to play out. What I can, and I said it earlier, I can just reiterate it, we've planned for significantly lower growth, which I think plays into where the question was coming from. We are buying inventory with that very much in mind. We plan to sell, at this point, a lot more full price and less on markdown than we did last year, i.e., at a higher gross margin. We're doing absolutely everything we can, both tactically and strategically, on costs. We've been through similar environments in the past. Again, I reference FY 2025, where we actually, I think under the circumstances, produced pretty good results in a really tough top line environment.
We've had a couple of those cycles over the last five years with COVID load shedding, et cetera. The intention is absolutely to pull all of those levers, and yeah, we just need to see how the macro and the year plays out. I think everyone, that was the last question. Thank you again very much for joining us, taking the time. I know it's been a busy day. Thank you for the questions. Enjoy.