Good morning, and thank you for joining us. Today, I'm going to unpack our H1 results and then share the progress that we've made against the strategic priorities that we outlined at the year-end results presentation. Ralph will take you through the financials in more detail. I'll then update you with our outlook and next steps, the areas where we still have work to do to enhance profitability and returns, independent of prevailing trading conditions. We'll conclude with the Q&A session. If I had to sum up the half in one line, it would be this: a tough six months, but one in which we've executed clearly against our stated priorities. Trading conditions were difficult across all three of our territories, with consumers under real pressure in Africa, the U.K., and Australia. Against that backdrop, TFG Africa, our largest business, grew sales, profit, and market share.
All things considered, a resilient performance. At year-end, I said that we wouldn't simply sit back and wait for conditions to improve. Six months on, we've made tangible progress against our four key priorities in Africa, all aimed at enhancing returns. Our international businesses had a much tougher half. I'll take you through what we're doing in each territory to put those businesses back on the right path and update you on the cyber incident in London after the period end. Let me unpack each of these in turn. Looking at our group performance, retail turnover was pretty much flat at ZAR 29 billion. Gross profit decreased by 1.3% to ZAR 14.2 billion, with gross margin contracting by 20 basis points on a constant currency basis. We held operating costs tight and well below inflation across all of our businesses.
However, the subdued top line and gross profit resulted in an EBIT decline of 6.5% to ZAR 2.1 billion. Similarly, HEPS declined by 6.8% to 272.8 cents. We declared an interim dividend of 121 cents per share. Despite these pressures on profits, we maintained strict discipline on the balance sheet and capital allocation and reduced net debt by ZAR 1 billion through a combination of stronger cash conversion, reduced CapEx, and reduced inventory levels. Zooming out for a moment, it's been a particularly difficult six months for our TFG Africa consumers, with the sharp increase in fuel prices placing further pressure on already stretched household budgets. This illustrates the very linear relationship between fuel prices, consumer confidence, and ultimately how much money our customers chose to or were able to spend across our brands.
Starting across the top of the chart, the inland petrol price increased from just over ZAR 20 a liter in March to more than ZAR 28 in June before moderating slightly into September. The FNB/BER Consumer Confidence Index, the blue line in the middle, moved from -7 in the first quarter to - 19 in the second quarter before recovering slightly to - 13 in the third. The bar chart at the bottom shows our monthly sales were highly correlated to these trends. We grew sales by just over 2% in both April and May before June turned negative, with sales contracting by 1%. July saw recovery with growth of 7.2%, followed by a more subdued August before September recovered with a 7.5% growth.
These levels of volatility create real challenges in planning inventory and promotional activity, particularly when trading conditions change so dramatically from one month to the next and cut across fashion seasons. Switching to our international businesses, conditions have remained extremely tough in both the U.K. and Australia. In the U.K., consumer sentiment has remained stubbornly negative across the period, with confidence still at -13 in September. Since the period end, confidence has fallen by a further 11 points to -24 in October. That is the sharpest monthly fall since the onset of COVID. Australia has been even more challenged, with consumer sentiment amongst the weakest levels in the index's 50-year history. They have also just had their fifth interest rate increase for the year, taking interest rates to their highest levels in 18 years.
Consumer confidence is a reality, but it is not an excuse, and we can and have taken actions to insulate ourselves from the worst of this and emerge leaner and stronger as conditions improve. To understand and put our group results into perspective, it is helpful to unpack the results of our three regions separately. Starting with Africa, turnover grew by 3.8%, gross margin improved by 10 basis points, and operating profit increased by 2.7% to just under ZAR 1.7 billion. This was achieved with trading expenses growth contained to just 4%, reflective of very tight cost control. Roughly 70% of our operating expenses consist of salaries, wages, and rentals, and all of these have 5%-6% inflationary increases baked into them. So, a return to profit growth in Africa, notwithstanding the difficult trading conditions. Our international results were considerably weaker, but reflective of many of our peers in these territories.
In London, turnover declined by 2.2% in local currency, gross margins contracted by 10 basis points, and operating profit declined by 26.5%. Australia was similarly challenged, with turnover down 4.4%, gross margins up 40 basis points, and operating profit down by 28.3%. Again, both businesses maintained a very tight control over the levers that they could control. London's expenses declined by 0.4%, whilst Australia's expenses grew by just 0.5%. Inflation across these countries is sitting at between 3.5% - 4.3%. However, with sales contracting in both territories, even this level of cost control was not sufficient to prevent negative operating leverage. So, whilst Africa has shown some positive momentum, we still have considerable work to do to improve profitability and returns in both of our international businesses.
Turning to our market share performance in Africa, we have continued to outperform the broader market as measured by the RLC, or Retailers' Liaison Committee. As illustrated on the chart on the left, we gained a further 20 basis points of market share across comparable apparel and homeware categories, and we achieved year-on-year market share gains in five out of the six months. The chart on the right illustrates our relative sales performance trend over the period, where we outperformed the market by some margin from June through to September. We have built significant, and in many cases, market-leading positions across our categories and brands over many years, and have continued to maintain or grow these positions in a very difficult period. The real opportunity now is to combine that market share strength with a more efficient cost and capital structure.
Breaking our Africa performance down by stacks and starting with sports, which remains our largest retail division, turnover grew by 7.7%, with gross profit growing by a much stronger 12.3%. So, a good recovery in margin and profitability after a difficult prior year. We have been particularly focused on driving full-price sales, continuing the successful rollout of JD Sports, and leveraging strong online growth across our sports banners. Value grew by 1.3%, but delivered gross profit growth of 4.3%, reflecting an improvement in gross margins. Here, our focus remains on generating further profit growth for Jet through a number of levers, including to continue to selectively revamp and resize stores in priority locations. Womenswear had a solid top-line performance, growing by 5.9%, although gross profit was considerably weaker at just 0.3%.
We were slightly over-committed to winter inventory, and this was further compounded by late deliveries and the need for additional markdown activity in an already heavily promotional market. Specialty, which includes our home and jewelry businesses, delivered turnover growth of 4.5% and gross profit growth of 5.2%. Tapestry continues to deliver growth, and our jewelry businesses have again performed well. Menswear remained challenging, with turnover contracting by 1.5% and gross profit by 4%. Menswear, where we are market leaders, still has a high offshore sourcing contribution and was negatively impacted by supply chain disruptions and shipping delays in the Durban port. In addition, we are seeing evidence of buying down in this segment, and as a result, we will be sharpening our opening price points and pricing architecture. Tying all of this back, overall, Africa turnover grew by 3.8%, with gross profit increasing by 4.1%.
Before moving on, I want to touch briefly on stock turns, which we are now showing for each of our stacks. Inventory efficiency is a key focus for us, and there is room to improve in some of these businesses. But stock turn on its own does not tell the full story. Some of our lower-turn businesses are, in fact, amongst our highest returning on a ROIC basis.
In categories such as branded footwear, stock turn is very much a function of the way that we have to buy, with 12-month futures contracts the norm. And in jewelry, it is structurally lower simply because of the nature of the product, high-value, slower-moving inventory that nonetheless earns an attractive return. So, this is a metric that we measure fastidiously, and we are improving it tactically in season and structurally over time, with returns rather than just stock turn as the ultimate measure.
Moving away from the trading performance, I want to spend some time on the progress that we have made against the four strategic priorities that we outlined at year-end. As at the end of our first half, we are ahead of plan on the first three and in line with our plans for the fourth. Firstly, we removed ZAR 257 million of costs from our Africa business in the first half. Tactical savings first, with the structural program now well underway. Secondly, we have dealt with the closure of underperforming stores. We closed 120 stores in the first half against our full-year plan of between 180 and 200. Thirdly, Bash continued to deliver exceptionally strong growth, with online sales increasing by 53.3%, supporting our transition towards a more capital-light operating model.
Fourthly, we have made progress in bringing together our credit, rewards, and Bash capabilities under unified leadership whilst continuing to modernize our credit capabilities. Let me unpack each of these in a little bit more detail. Starting with structurally lowering our cost base, we have a committed cost-out program spanning the full year. We implemented initiatives in H1 to remove ZAR 257 million of costs and plan for a further ZAR 222 million cost-out in H2. On a full 12-month run -rate basis, this amounts to ZAR 850 million worth of costs removed. Not all of this translates into profit, as some GPs were gone in marginal stores that are closed, which are not earning an acceptable return. Of the cost removed so far, there is a ZAR 130 million profit impact in H1, and we expect an additional ZAR 170 million profit impact in H2.
Again, on a full 12-month run -rate basis, this amounts to ZAR 543 million of profit impact. All of this comes with the standard but important caveat. These costs are out or will be out. However, ultimate profits are also impacted by inter alia sales, gross margins, bad debts, and provision movements in our credit division. Nonetheless, these are big, chunky numbers being delivered, and we also need to be exceptionally careful that we tackle this exercise with eyes wide open and take great care to ensure that we do not damage the underlying business in the process. Our second priority is optimizing our store footprint. During the first half, we closed 120 stores while opening a select 41 new stores. We expect to close a further 60-80 stores during the second half.
Our focus is on exiting underperforming locations, particularly in declining central business districts, where customers have increasingly shifted towards new shopping malls and convenience retail formats. 49% of the stores we closed during the first half were in distressed CBD locations, and we estimate that about 20% of the turnover of these closed stores will migrate to sister stores or to Bash. So we are reducing occupancy costs, improving trading densities in the remaining estate, and improving returns on capital that we have invested in the past. These closures released ZAR 190 million in working capital. Turning to Bash, this continues to be one of the most important strategic investments we have made in recent times. Online sales grew by 53.3% during the first half, reaching ZAR 2.2 billion. This growth has come from both our pure e-commerce and omnichannel businesses.
Our e-commerce sales through the Bash app and sites reached ZAR 1.83 billion, whilst BashStore, our in-store omnichannel selling capability, grew by 65.4% to ZAR 326 million. We now have BashStore operating across 3,220 stores, with more than 15,000 store colleagues selling through it, allowing our store colleagues to sell SKUs not in stock in-store directly through our digital platform. All of this is our omnichannel ecosystem working together, collecting, selling, and fulfilling online orders. Bash is now scaling as one platform for every TFG brand. We recorded over 200 million sessions in the half, up from 146 million in the prior, and delivered 99.1% of those orders on time, even as order volumes grew by 59%. When customers combine several of our brands into one basket, orders are 28% larger, and Bash has enabled us to avoid ZAR 1.3 billion in-store CapEx.
This is the opportunity that we saw when we embarked on our omnichannel journey. Customers will continue to migrate online, and we will have a more productive store network supported by our growing digital capabilities to serve these customers off a lower capital base. In our omnichannel world, both our physical and digital channels are directing and feeding customers to each other. During this half, 449,000 customers shopped online with TFG for the first time, and the Bash app has now been downloaded more than 16 million times to date. This is where it gets really interesting. 191,000 of those customers placed their first TFG online order through BashStore whilst in one of our physical stores. That's more than 40% of our new online customers. As customer acquisition costs continue to climb, this becomes a key profitability differentiator. The relationship also works in the opposite direction.
During the half, 779,000 customers browsed products online, used our store locator feature, and then went on to purchase the browsed item in one of our stores. Around half of the people that did that, did so within 72 hours of browsing. That's an increase of 30% on the prior year. We're seeing a much more integrated customer journey, where customers are increasingly moving seamlessly between our digital and physical channels. We're not building an e-commerce business to sit alongside a traditional store network. We're using the combined capabilities of both channels to acquire customers, increase engagement by giving them what they want, how they want it, and improve the productivity of the retail infrastructure that we already own. Returning to international businesses that I touched on earlier, it's been a very difficult six months for both London and Australia. Starting with London, retail turnover declined by 2.2%.
Operating profit declined by 26.5%, with gross margin contracting by 10 basis points. The performance across our brands has, however, been quite different. Hobbs, White Stuff, and Whistles traded broadly in line with our expectations, while Phase Eight continued to weigh on the overall result. As much as I don't like talking to seasonal weather swings, the dramatically late onset of winter also impacted trading over the final six weeks of the reporting period. Again, moving to what we can control, we've maintained very tight control over costs and continue to close underperforming stores. The Phase Eight reset is underway, including changes to their leadership team. Turning to Australia, conditions have remained similarly challenging. Turnover declined by 4.4%, with operating profit down 28.3%. Gross margin improved by 40 basis points, reflecting disciplined trading and margin management.
However, subdued demand and a highly promotional market have continued to place pressure on both sales and profitability. As with London, there are areas within our control that we need to address. The turnaround of Tarocash is underway, also under new leadership, and their most recent trade is showing promising improvement. We're taking the necessary actions around costs, underperforming brands, and store productivity. Whilst the recent financial performance of our international businesses has been a drag on the group results, I think it's important to reflect on the quality of the underlying assets that we own. In London, we have strong brands in Hobbs, Whistles, and White Stuff, and we've built a meaningful online business, with 43% of sales now coming through digital channels, while simultaneously reducing our department store exposure.
In Australia, we have the largest standalone menswear offering in the market, with leading brands including Connor, yd., and Tarocash. The brand awareness, shown on the right-hand side of the slide, illustrates the strength and position of our brands in Australia. Connor, the strongest of our Australian brands, enjoys awareness levels comparable with some of the most recognized international fashion retailers operating in Australia. As you can see, yd. and Tarocash are not far behind. These are businesses with significant brand equity and strong market positions. Our teams are focused on fixing the brands that need attention, addressing what is under their control, especially in respect of the store portfolio and operating costs, whilst retaining strategic flexibility.
We believe that through the cycle, there is meaningful value in a number of the underlying assets that we own, but we also recognize that the current profitability is not acceptable, and we are doing everything that we can to restore the required returns. Before concluding the international overview, I would like to update you on the cyber incident that affected our London business after the end of the reporting period. The incident was detected on October 11 and impacted Phase Eight, Hobbs, and Whistles. White Stuff was not affected, and neither were our Africa or Australia operations. We immediately activated our standing response plans and engaged specialist advisors and the relevant authorities. Our stores managed to continue trading manually throughout the incident, although there was disruption to our online operations and third-party replenishment. All channels are now trading, and the recovery process is underway.
In respect of customer and colleague information, affected individuals have been notified. Based on the information currently available, payment card data is not believed to be at risk. From a financial perspective, there was no impact on the first-half result, as the incident occurred after the reporting period. However, stores, concession, and online trading have been negatively impacted following the incident. We do have cyber insurance in place. Before handing over to Ralph, I want to briefly touch on the balance sheet and cash performance, which is another area where we've made progress. Group net debt reduced by ZAR 1 billion. Cash generated from operations increased by 20%. CapEx declined by 37%. Inventory was also reduced by 4%. We've generated more cash from operations, reduced CapEx, and further optimized our inventory.
When considered alongside the structural cost program, our store closures, and growing online contribution, these improvements are all part of the same objective: to make TFG a more capital-efficient business, capable of generating better returns from the assets that we already own. Ralph will now take us through the detailed financial performance and balance sheet.
Thanks, Anthony. Let me first frame the context around the results. Our brands and our stores remain our core assets. But as I indicated at year-end, stores will close where returns do not justify the capital deployed. Our cost removal is structural and sustainable. Optimizing inventory and generating cash remain our priorities. Our credit extension is disciplined, and return on capital employed is our most important measure. With that context, let me turn to the key metrics for the group. Turnover was ZAR 29 billion, 0.4% lower. Gross profit at ZAR 14.2 billion was 1.3% lower, and gross margin 48.8%. That is a blended margin impacted by both mix and forex translation, and I will be talking to the individual components in local currency shortly. EBIT was 6.5% lower, and headline earnings per share at 272.8 cents per share, 6.8% lower.
On the balance sheet, inventory ended 4% lower than last year at ZAR 15.3 billion. Despite the difficult trading conditions and lower profits, net debt at ZAR 9 billion is ZAR 1 billion lower than at the same time last year. Net debt to EBITDA increased from 1.55x - 1.7 x as EBITDA contracted, with our local SA net debt levels well within the 2.75 x gearing covenant. London net borrowings at GBP 55 million, again within agreed covenants, and Australia with cash of AUD 72 million in the bank. The ordinary interim dividend at 121 cents per share, that cover maintained at 2.25 x headline earnings per share. Starting with the group P&L, there is the turnover of ZAR 29 billion, gross profit of ZAR 14 billion, and EBIT of ZAR 2.1 billion.
You can see there, net bad debt up 10% to ZAR 824 million, while trading expenses broadly flat at ZAR 13.5 billion. More on both those lines later. The bars on the charts show contribution to group EBIT growth. Africa contributed 2 percentage points, London negative four, and Australia - 4.5. That is not their growth, but the contribution to the group's growth. You can see that while Africa was a key detractor last year and London slightly additive, this year, Africa's performance is the sole contributor and our international businesses significant contractors or detractors. The next slide shows the view by territory, which I am going to show in summary before going into a little bit more detail for each of them. Africa EBIT was ZAR 1.7 billion, up 2.7%, with an 8.6% operating margin.
London EBIT of GBP 8.6 million, 26.5% lower in local currency, with a 3.6% profit margin. You can see there how the weaker pound takes that down 32.5% in rand terms. Australia EBIT was AUD 22.3 million, so still a very solid business with a 6.4% profit margin, but well down in a difficult period by 28%. Each of our divisions has been driving an accelerated store closure program that detracts from those numbers for the half. For Africa, that is ZAR 61 million of additional PPE impairments and lease costs, and close to GBP 1 million and AUD 1 million in each of the other two divisions. Let me take Africa into more detail, starting with a look at how sales progressed through the period. So 3.8% growth for the half.
In Q1, our post-year-end results update signaling that sales through June had remained muted, much in line with what we had seen in Q4 of FY 2026. Still below CPI, but with margins that had recovered 80 basis points at that stage. Then, as our 21-week trading update released at the end of August indicated, we had begun to trade winter inventory harder, and you can see that there with a 6.2% growth in the second quarter. But that margin recovery all but offset by the promotional and clearance activity. Like-for-like sales grew by 2%. That excludes non-comp stores, that is new stores, the closures, as well as any expansions or relocations. So like-for-like right now remaining measurably below where cost inflation is sitting. Anthony has covered the market context.
The financial point is that with the consumer under such pressure, while momentum did improve in the second quarter, it was price-driven and came at the cost of margin. Now looking at Africa EBIT, and this bridge for Africa shows how we have managed to reverse the negative operating leverage that would usually come from below-inflation top-line growth by limiting the increase in costs to just 4%. Removing the ZAR 61 million of accelerated closure costs, the EBIT would have been 6.4% up from last year. I will now unpack Africa by activity. So total retail, looking at this, stripping out financial services, the retail numbers show turnover just shy of ZAR 20 billion, up 3.8%. Gross margin, 41.4%, 10 basis points up from the prior year. That margin recovery invested in price as the season progressed. Costs then up just 3.9% for retail to ZAR 7.3 billion.
I am going to break that down further, but even in that aggregate form, it is a number that I think speaks for itself as a profit protector. That results in retail EBIT then increasing by 7%. Excluding the closure costs, that growth is just shy of 13%, and at an operating margin of 6%, up from last year's 5.7%. And note that this is our total Africa retail operations I am showing here, incorporating both stores and online channels. Then looking at return on capital employed, 10.6%. So while earnings improved, returns did not, and that indicates that there is still much to do. The gain in profit just not enough to show an improvement in return on capital employed yet, but everything we are doing is focused on pulling hard on that denominator, and we have made progress. Let me first though be clear about our store closure program.
We have always closed stores, on average 100 a year since COVID. But we are closing double that number this year, and we are set to open fewer over the medium term. Stores remain at the center of what we do and who we are. Our customers visit our stores because they offer fantastic experiences that online cannot compete with. The shift to online will level off at some point, but it is likely to be some time before that happens. Store growth then will accelerate again, as it is doing now in many mature markets around the world. The next slide isolates online then within the total retail number. Online turnover then up over 50% to ZAR 2.2 billion, reaching 11% of sales now. I think it is fair to say that that is a sizable number, and it is not even now off a low base.
It is achieving, in fact, it is overachieving on all the targets we set ourselves and on the guidance we had given. Gross margin, 42.3%. That is different from the total retail number only because of mix, which is dependent on the channel our customer chooses to use. Perhaps just as pleasing as that top-line growth number is the EBIT line, which improved by ZAR 155 million from a ZAR 36 million loss last year to ZAR 119 million profit today, fully costed. We were profitable in the second half of last year too, so this annualizes the profitability of the channel. The EBIT margin also improved and is now similar to stores, neither right now producing quite enough. Online will continue to benefit from sales growing well ahead of fixed costs and with variable costs benefiting from increasing economies of scale. Financial services shows a different earnings pattern.
EBIT was ZAR 569 million lower at 4.8% lower than last year. Net other income increased 4% to ZAR 2 billion, but the net bad debt charge remains elevated, increasing 10% to ZAR 824 million, and with expenses up 5.6%. The return on equity puts those earnings into context. We allocate external borrowings equal to 70% of the net book, and that funding currently costs us just over 8% right now pre-tax. We then calculate the ROE, the return on equity, on the 30% that is funded then notionally by equity. The credit team assesses credit risk against that, so that through the cycle, there is no subsidization from or to retail operations. Turning now to costs. Anthony has already put the cost-out activity into both an annualized and future year perspective. Let us look at the details for the period under review.
Expenses, ZAR 7.9 billion, up just 4%, and that reduces to 3.3% if you exclude the accelerated closure costs. Occupancy costs increased by 3.7%, employee costs by just 1.7%, and other costs, again inclusive of the ZAR 61 million, by 7%. The like-for-like store expense growths were 2.3% for occupancy, 0.7% for employee costs, and that shows the work we have done in time scheduling in stores, and by just 0.2% for all other store costs. Looking there at the bottom, the total cost increase of 4% again, and there is the store cost number, comp and non-comp, of 3.7%. Online costs up 28%, but that is very much driven by the variable costs on that 50% growth. Head office costs flat on last year. This does not happen on a spreadsheet in the CFO's office.
This is every single business leader asking themselves what they can do differently to be more efficient and more resilient. This has yielded ZAR 257 million in the first half, ZAR 184 million from stores, and ZAR 73 million from corporate overhead. As Anthony has indicated, there is still more to come, both this year and beyond. The cost of sales ratio then at 40.2%, but excluding those closure costs, there has been a small improvement to 39.9%. I will now turn to London, starting again with sales, a decline of 2.2% for the period. The first quarter grew 2%, but the endless summer in the U.K. is clearly visible in Q2's 5.2% decline. What is not so evident is the ongoing contraction in concession sales, especially in Phase Eight, whereas our own stores actually traded up.
Looking at the P&L then, gross margin reduced 10 basis points to 64% as we continued to clear older inventory, largely Phase Eight, but avoided the further buildup from slower sales activity. Expenses were 40 basis points lower, and gross profit back 2.4%. EBIT fell 26.5% to GBP 8.6 million, a 3.6% profit margin. As I mentioned earlier, there is about GBP 800,000 of accelerated lease and make-good costs in that number as we continue to right-size the store estate. Closing 28 stores, opening 19. This net closure rate will continue into H2. Still much to do, but this was a return to profitability in H1, having just broken even in H2 of 2026. Unfortunately, given the cyber incident, and whilst that is an insured event, it is far too soon to know what the full impact of that might be in H2.
Finally, onto Australia from a P&L perspective. First of all, sales declined 4.4% in the half. The first quarter down 5.4%, and the second quarter down 3.4%. Like-for-like sales, 3.6% lower, with promotional intensity in the Australian market at quite extreme levels. The winter sale period in June and July particularly challenging, significantly impacting profitability for the half. Despite these pressures, gross margin held, in fact, improved by 40 basis points. With the softer top-line result, gross profit dollars still fell by 3.5%. Expenses were flat, and that is despite the AUD 1 million of accelerated closure costs. Of course, that was not enough to avoid EBIT contracting 28% to AUD 22 million. That is still a sizable profit number and a still decent operating margin.
Cash generation continues to be strong, and as we continue to rationalize the fleet rather than pay sub-economic rent renewals, with store numbers reducing 6% over the past 12 months and with inventory well managed, down 12%, with a mix consistent with prior years and in good shape. With economic conditions still challenging and consumer sentiment low, the Australian business continues to review all areas within their control where performance can be better, and corrective actions are well underway. There is a clear strategic focus on both digital growth and customer acquisition. Peak trade lies ahead, with Black Friday promotions already underway. The team is prepared for a highly promotional trading environment and focused on capitalizing on the increased customer traffic across all channels in this period while maintaining disciplined margin and cost management.
I will now move from earnings to cash flow, and the waterfall at the top shows the H1 cash operating profit of ZAR 2.5 billion for the group, and then the working capital outflow of ZAR 1.6 billion that mostly represents peak season inventory build. More on CapEx later, but it is a smaller number this year. So, a net cash outflow of ZAR 800 million before last year's final dividend and the buyback, lower than last year's H1 outflow. Over the last 12 months, the view shown there on the bottom chart, that eliminates the seasonality, and cash generated from operations, ZAR 5.8 billion. You can see there the reduction again in net debt of ZAR 1 billion, and that is despite the lower group profit in both H2 last year and H1 now. The next slide shows the shape of our funding.
Net debt reduced from ZAR 10.1 billion at the prior half year to ZAR 9.1 billion now, the ZAR 1 billion reduction. It is higher than in March, but that is again entirely due to peak season build. ZAR 6.5 billion allocated to the debtors book, the ZAR 1 billion seasonal build, UK net debt of GBP 55 million, and Australian cash at the bottom there of AUD 72 million.
The balance then is effectively allocated to SA retail, reflecting a small notional gearing level against annualized EBITDA of well over ZAR 3 billion. Capital expenditure is the next balance sheet lever, and group CapEx nearly 40% lower at ZAR 672 million. Africa accounting for ZAR 500 million, London ZAR 100 million, and Australia ZAR 63 million. Then with depreciation on the right there of ZAR 750 million, you can see that we are now deploying capital at a run -rate well below recent years.
You can also see that it is not just stores. Investments in logistics also well below last year. We are opening fewer stores, focusing on fewer projects, and each new store, each new project required to meet an increased return hurdle rate. Onto inventory. Group inventory reduced 4% to ZAR 15 billion, with stock turn maintained at 2.1 x. Stock reduced by 70 basis points in Africa and by double digits in both London and Australia. The stock turn indicated here is the group number, and it includes not only apparel, but categories that have far slower returns, such as branded footwear, homeware, and jewelry. But we are looking to improve stock turns in many areas of the business, which again, will both generate cash and improve return ratios.
The final detailed slide looks at the debtors book, where the demand for TFG Money still runs at 4 million applications a year, but demand 10% lower this half, partly because of the increase in buy now, pay later, or BNPL, which, as I have said to you before, we are happy to accept as an additional tender type that carries none of our capital. The number of accounts on the book ended 1.9% lower, with just 7% fewer accounts opened this half, despite acceptance rates up slightly to 20.5% as we improved our new account procedures. We see accept rates continuing to improve during the second half. Fewer new accounts explains the decline in credit sales of 2.4%. BNPL is picking up some of that activity, especially fueling online growth, where younger consumers often see it as a handy budgeting tool.
Our net book up 3.3% year-on-year, but 1.3% lower than at year end. The fact that the book grew but credit sales contracted suggests that payments came off a little compared to last year, and that is partly true, as you might expect in this climate. But the growth was also driven by insurance billings, which grew by 18% year-on-year. The ECL provision improved by 90 basis points from year end. Bear in mind that the provision is calculated after the bad debts we write off during the period, so the higher charge-off does alleviate the provision requirement at the end of the period. We do have more accounts now that are up to date than we had at year end, as you can see in the shaded area on the graph. Let me close with the financial points. The straightforward conclusion.
While Africa's EBIT grew 2.7% or 6.4% adjusted, London and Australia fell by more than 20% each. We have made a solid start on the strategic focus areas that Anthony has spoken about. Cost out and cost efficiency initiatives in both stores and back office, accelerated closures of those stores that are unprofitable or don't justify the capital deployed, and our online channel continues to power ahead. Inventories have reduced across all territories, and CapEx lower not only because of fewer new stores, but because we are focused only on four key strategic priorities. Cash generation improved, first half cash outflow narrowed, while rolling 12-month net debt reduced by that billion ZAR. Our financial priorities remain clear: improving cash conversion, increasing international profitability, protecting credit quality, and allocating capital against carefully considered return profiles.
With that, Anthony, let me hand back to you for strategy, outlook, and more on capital allocation.
Thanks, Ralph. Let's now switch focus from the first half and the actions we have already taken to our priorities for the remainder of the year and beyond. Let me give you a brief update on how we have traded since the period end across our three territories. Starting with Africa, sales declined by 0.7% in October. Consumer sentiment remains weak and continues to weigh on our customers. Petrol hit a record ZAR 30 25 cents a liter in October, up nearly 50% since March, and shipping delays held back some of our stock deliveries in Durban. Looking ahead to peak, on October 26, we launched SHOPFEST, bringing all of our TFG brands and Bash together in one six-week shopping festival across more than 3,500 stores. It's the most exciting concept we have launched for Black Friday to date.
In London, White Stuff, which was not affected by the cyber incident, grew sales by 4.8% in October against the sharp fall in UK consumer confidence that I mentioned earlier. Our legacy brands, Phase Eight, Hobbs, and Whistles, are still recovering from the cyber incident, with demand on their own websites down around 30%, although showing steady improvement as performance marketing was turned back on. In Australia, sales declined by 5.3% in October against a backdrop of us trading out of 6% less stores than last year. The closure of our AXL+Co stores is progressing well, with the remaining stores expected to close by the end of March. Bringing all of this together, I want to return to our most important objective, which is enhancing profitability and returns across the group.
This slide sets out the four levers in Africa and a plan for international, what we have delivered in the first half, what is next in the second half, and how each one enhances returns. Firstly, lower structural costs. We acted aggressively in H1, and we expect to take out a further ZAR 222 million worth of costs, with a profit impact of circa ZAR 170 million in the second half. Combined, this equates to ZAR 854 million worth of costs out on an annualized basis, with a resultant profit impact of circa ZAR 540 million. Secondly, stores. Whilst opening and closing stores is business as usual for a retailer, we accelerated these closures and further raised the hurdle rates to calibrate to the tougher environment for new stores during H1.
We still have a tail of stores producing marginal returns in the current environment, and we are set to close a further 60 - 80 stores in H2. This will continue to reduce our occupancy costs, release capital, and improve trading densities and profitability across the remaining estate. Thirdly, Bash. We are increasingly leveraging Bash and our fulfillment capabilities to accelerate growth without the historical levels of required capital investment into physical stores. Our online business surged and defied general retail trends in H1, and we are looking to maintain this momentum in both our e-commerce and BashStore channels, and hopefully produce a record performance over peak. Fourthly, fintech and credit. The foundations are now in place, and in the second half, our focus is on delivering the balance of the FICO implementation. So, four well-defined levers in Africa, each of which raises EBIT, improves capital productivity, or both.
Turning to our international businesses, the focus is on a recovery in earnings. In London, that means fully recovering from the cyber incident as quickly as possible and completing the necessary brand, cost, operating model, and footprint resets that are already underway. In Australia, similarly, we are focused on the required Tarocash reset, store footprint, and channel shift to online. Looking forward, we have clear, measurable objectives that are largely under our control and which we will aim to deliver on, despite the ongoing headwinds. Finally, I want to touch on capital allocation, which underpins and pulls together most of what I focused on in this presentation. From an earnings and ROIC perspective, we have been and are focusing on those key levers that we can control, and I have shared the numerical outcomes of these actions with you today.
From a brand, growth, and top-line perspective, we continue to take market share in South Africa, our largest market, and the one with the most reliable competitor information. We have both tightly managed operating costs as well as permanently reduced our cost base in each of our three territories. We generated more cash and reduced store CapEx and inventories, which allowed us to reduce net debt by ZAR 1 billion during the half. The reality, however, is that we are doing all of this while facing a very challenging macro environment, with discretionary consumer spending under real pressure from, amongst others, online gambling and higher fuel costs. To be honest, we do not know when the cycle will bottom out and turn.
In response, we will continue with the efforts I have just summarized, but what we then do with the cash that we generate becomes equally important in terms of shareholder value. Acquisitions are not currently on our agenda. As much as we have had successful acquisitions over the past couple of years, especially in respect of Jet, Tapestry, and White Stuff, acquisitions are not envisaged. That leaves two further applications for any surplus cash: further deleveraging and enhanced returns to shareholders via dividends or share buybacks. Regarding buybacks, you will recall that we bought back ZAR 1 billion worth of shares in FY 2026. It would have been better to buy them back at, say, ZAR 70 or ZAR 80. However, this has permanently reduced the number of shares in issue and has been accretive on a last 12-month basis.
Hopefully, this provides a clear picture of how we are planning our operations in this constrained environment and how we are thinking about balancing shareholder returns and balance sheet flexibility. Before we move to our Q&A session, I would like to say a few words about our board. As you will have seen in our SENS this morning, our Chairman, Michael Lewis, will step down as Chairman and retire from the board on December 31. This marks the end of a remarkable era. TFG celebrated 100 years of trading last year. Over that century, we have grown from a handful of Foschini ladieswear stores into the TFG of today: 40 brands, nearly 5,000 stores, trading in 18 countries and on five continents. For most of that time, first Stanley Lewis, and more recently, Michael, have been at the helm, deeply involved in the group's growth and development.
Michael has served on the board for 38 years, since 1989, and has chaired it for 11, since June of 2015. Michael has always had retail and TFG at heart. He is much loved and respected across TFG, from the executive to our colleagues in our DCs, factories, and stores.
Whenever he visits, there is always great excitement, with everyone wanting to show him what they have been working on and what they have achieved. I have had the rare privilege of working with Michael throughout his time as Chairman, and I have learned a great deal from him about both business and leadership. Over the last six years in particular, he has been a source of wisdom and a pillar of strength as we navigated COVID, load shedding, and most recently, the impact of the war in the Middle East. Michael, you will be greatly missed by all of us at TFG.
Your legacy and that of your family will endure well into TFG's future. On behalf of both myself and our more than 50,000 colleagues, thank you, and we wish you all of the very best. I would also like to welcome three new Independent Non-Executive Directors to the board, each of whom brings considerable experience. Professor Alexandra Watson will succeed Michael as Chairperson from the 1st of January 2027. As Emeritus Professor at the University of Cape Town, she chairs ADvTECH, previously chaired Coronation Fund Managers, and is one of South Africa's most respected voices on financial reporting and governance. Mr. Thabiso Madiba is a Chartered Accountant and Audit Partner at Barakabora Assurance and a Senior Lecturer at the University of Johannesburg. He chairs the Sasol Khanyisa board and serves on the boards of Saspro and Peermont, bringing deep audit and tax expertise.
He also serves on the board of the Trevor Noah Foundation. Mr. Craig Butters, a chartered accountant and CFA charterholder, brings more than 25 years' experience in investment analysis and fund management, including nearly a decade co-managing equity funds at Prudential, whose investors' perspective and skills will be relevant as we sharpen our focus on capital allocation and returns.
Professor Watson, Mr. Madiba, and Mr. Butters, we welcome you to the board, and we look forward to working with you as we take TFG into its next chapter. That concludes the formal part of our presentation. Thank you. We will now take a short five-minute coffee break and then resume for the Q&A.
[Break]
Welcome back, everybody, and thank you to everyone who has popped us some questions. Kicking off, Ralph, I am going to hand this one to you. What is the outlook for debtor costs for TFG Africa for the second half?
It is clear that the pressure on the consumer means that those costs will that cost line will remain elevated. There is also, it depends on very much on the growth of the book, so the extent of credit sales and appetite for that as well. It is likely to remain at kind of the elevated levels you have seen at H1, I think. If a bit more because of book growth, then that is actually not a bad thing.
Great. Thanks, Ralph. Dean, I am going to hand this one to you via the link. What is the outlook for Australia for the second half in terms of both margins and operating cost growth? We seem to Ah, there we are.
Sorry. I have got you. Can you hear me?
Yep.
Sorry about that. In terms of, simply put, the second half we do expect to be very similar to the first. Margin pressure remains, so we do think the promotionally driven market will remain. Consumers are still under confidence. The economic outlook hasn't really improved. From an operating cost perspective, inflation remains at just over 4%, so cost inflation's there. We will continue to be as aggressive as we can on costs without taking any of the strategic elements out of our business, so we stay on track. Very similar, but it's not a disaster, Australia, but it's certainly challenging conditions. It certainly has been a tough environment.
Thanks, Dean. Next question. Hi, congratulations on the results. Please can you elaborate on how the cost savings were achieved? Are they all from closed stores? What happened to the staff in those stores? What other costs were cut? Really good question. I think a couple of different components to this. Roughly two-thirds of the cost savings came out of stores, one-third out of head office. If we then break down the two-thirds out of stores, roughly 50% of that would have come through an AI workforce management tool that we've been implementing over the most recent while, which effectively links to our foot counters in every store. It gives us a very detailed blueprint of how many staff we need to have stores on different days, different times of the day. The balance, as I said, out of closed stores.
In relation to the staff from the stores that we've closed, because of the levels of churn that we have in retail staff in South Africa, we were able to place in excess of 95% of the staff that came out of closed stores into vacancies in other stores, which is a number I think we're really proud of. We really do want to make sure that we place wherever's possible. As I said, the final third would have come out of various head office buckets.
I think also we've been quite clear on the analysis of the costs and focusing on the like-for-like store costs as well, which obviously excludes the closed stores. You can see the cost control both in like-for-like stores and in head office has been a key focus.
Thanks, Ralph. That is a good point. A question around clarifying the ZAR 854 million in annualized cost savings. Will this benefit from FY 2028 onwards? The answer is yes. The next question, how much further benefit remains from sourcing efficiencies and store closures, and will this carry on into the future? I guess from a sourcing perspective, there is always more work to be done. We, about two and a half years ago, we put our similar brands into what we term stacks. You saw that on the donut slide where I spoke about sports, womenswear, menswear, et cetera. There are a number of reasons for putting like-minded or similar brands together into the stacks, one of which is sourcing efficiencies and more common sourcing, less vendors, better margin over time. That is more of a medium to long-term program.
In terms of store closures, we have given an indication of the closure rate that we anticipate through to the end of the financial year, and those are pretty much locked in and committed. From FY 2028 onwards, a lot depends on the economic conditions prevailing and the profile of the stores that are most affected. Next question, what is supporting the sportswear recovery? It was the best performing division in the period. Has inflation reduced given that the rand has appreciated in this category? Really good question. I think anybody, if you went back to our previous presentation, I think I made a comment along the lines of don't count sports out as a category. It is very cyclical. A lot depends on the base. We have got the leading sportswear franchise in the country.
A lot of the growth that has come through over the last half has actually been pretty evenly spread. We have had a strong performance out of Totalsports and Sportscene. We are still rolling out JD Sports stores in South Africa, which are performing at or above expectation. Despite sports being relatively depressed on a global level, I think we are coming off a slightly weaker base in South Africa. Ralph, I am going to pass this one to you. Well done on the results. How should we think about the decline in space and subsequent reduction in costs? Will it be linear?
You know, I think, broadly speaking, it will be linear, but just bear in mind, obviously, we tend to close the ones which are marginal or loss-making. So the cost-to-sell ratio is the key metric to judge that. As I said in the presentation, slight reduction if you ignore the accelerated store costs. That is the absolute aim here, it is as much to actually focus on the cost-to-sell ratio in the stores and focusing on efficiencies rather than just the overall cost out itself.
Great. Thanks. Next question. Were there any rental penalties incurred on the stores that were closed? The answer to that is generally not. We generally look to close only on the expiry of the lease. There will be certain other costs. In some cases, there may be some F&F that needs to be written off. Generally, there are make-good clauses in most leases, so those costs would have been absorbed in the numbers that we shared with you today. We generally avoid rental penalties unless there's a very compelling reason to kind of go there. The next question relates to London and Australia. At what point do you consider London and Australia a drag on capital allocation, and what would trigger a move to exit, shrink, or restructure them? Again, a very good question.
I think, just to share a couple of perspectives, we've been in Australia and the U.K. for probably 10 years now, I think. Five out of the 10 years, they've been more accretive to the group results than Africa's been, and the other five years, it's been in the opposite direction. We do monitor their contribution to the group on an ongoing basis. The reality is both are in very tight cyclical downturns at the moment, arguably tougher than South Africa. I think the performance of both TFG London and Australia, they need to be viewed in relation to their peer set in both territories, and I think if you look at it through those lenses or through that lens, they've actually had pretty reasonable performances. We do have brands in each territory that I indicated earlier in the presentation that require some specific interventions.
We're working on those very hard at the moment. To be honest, we're right, I think, either at the bottom of the cycle or pretty close to it. Any consideration around trying to market an asset is something that you wouldn't really want to do at the bottom of the cycle. That's probably not great from a shareholder value perspective. Next question. Dean, I've got a view on this, but I'm going to bounce it back to you for a local perspective. What is the impact of David Jones being placed into administration on the Australian business?
Look, it's an interesting one. Anthony, look, there's no direct impact. We don't do business with DJs. That being said, there will be 6,000 people probably out of work, so it's not great. It's getting a lot of press in Australia. It's adding to the negativity. There's no doubt about that. We've got about 20 locations where we're in a mall where they are in. So in advance of Christmas, we could expect that there's going to be some deep discounting as they try to clear through stock. That being said, it might lift traffic. It could be an absolute positive as people get into the mall. In the medium term, we were absolutely going to target that customer. So they've got somewhere else to go. Hopefully, that's us. That'll be our goal. So short term, there's going to be some pain. Medium term, we see there's an opportunity.
Great, Dean. Thanks. That is exactly what I would have said. The next question relates to what is happening with delayed shipping into South Africa. How do we anticipate that playing out over the next couple of months? I indicated we have had, I think, alongside most other retailers, some fairly consistent stock rolls over the last couple of months. It looks as though the Durban port is only going to clear its backlog kind of early in the new calendar year. The best estimate is around about February. It is probably an opportunity cost at the moment to the extent that anything is being shipped late by our suppliers.
We are obviously canceling those orders. We do not want excess stock to arrive late to the extent we can control that. As for the rest, we plan to trade that through Black Friday and December. Next question. A quick follow-up on TFG Africa's other cost line.
What is the fastest-growing line? Is this due to Bash's growth? What other costs are included in this line item? Ralph, I think that is one for you.
Yeah. So again, the cost slide provides quite a lot of detail on that. We have got the Bash variable costs growing to match that 50% top-line growth. We have also got those accelerated closure costs of ZAR 60 million, which is kind of a one-off type of cost. So they are the big drivers of the other category.
Great. Next question, Ralph, I am going to pass this one to you. Can you comment on the profitability of Bash as it continues to gain scale? What was its EBIT contribution to TFG Africa?
Yeah. Again, as I mentioned, quite a similar now operating margin, fully costed operating margin than the stores channel. So 11% top line, about 10% bottom line EBIT contribution of the retail or total retail component, or if you include financial services, probably about 7%.
Great. Please provide more detail on how to recover the international profits. Big focus on cost cutting in South Africa. Can you do similar offshore? Yes, the answer is we have been doing similar offshore and will continue to. To put it into perspective, we've probably taken out roughly 10% of head office costs in both the U.K. and Australia, over the last six to eight months. It's retail, you cut your cloth accordingly, and we'll continue to do whatever we can on costs. As I indicated earlier, a big piece of the international drag is pure retail cyclicality that does have to turn at some point. In the meantime, it's exactly the same playbook as South Africa. Close underperforming stores, which we're doing, and take out whatever costs you can. That's kind of the short-term tactical moves.
Ralph, for you, what is the CapEx outlook for the full financial year?
I think, probably about double, there or thereabouts. Certainly, we've got the FICO project underway, which is the origination platform for financial services. Muted store impact or store growth, so you're not going to see a big number. Certainly below, the full year number will be below last year.
Great. Ralph, again for you, why did the bad debt provision decline to 17.7% from last year's 17.9%?
Okay. We've clearly written off debts during the year, so that alleviates some of the pressure to actually provide for the debt that's already been written off. The balance is a function of the quality of the book, which has gone up a little bit, but the book itself, growth was quite muted. All those moving parts were covered in that slide I presented.
Great. Justin, I think this is a question for you in respect of TFG London. Can you add more color to the Phase Eight reset and the strategy for concessions, given their serial underperformance relative to our own channels?
Sure. Thanks, Anthony, and good morning. Taking the second question first, TFG UK concessions, the strategy there is to move to online concessions, so building partnerships with Zalando, with Bloomingdale's in the U.S., with Macy's. Obviously, we've got a big business with John Lewis online and Next in the U.K., and obviously then with Marks and Spencer. We're making sure that we look after and we build those relationships out with those online partners. Then taking the first question, I think there's no change to the Phase Eight strategy, but it is a reset. It's streamlining product, it's repositioning the brand, and the brand is for every event. It's driving efficiencies, and it's that focus on product planning and accuracy.
Great, Justin. Thanks. That is comprehensive. The next is a three-part question. I am going to answer each part individually. The first is, how should we expect bad debts to evolve in H2? I think Ralph has kind of covered that. The environment remains tough. The consumers are under pressure, I think, pretty much likely to be pretty much in line with H1. The second part of the question, how long do you anticipate for the recovery of the cyberattack in London to take? A lot of progress has been made already. Most of the systems that were taken down have been reinstated or rebuilt. We had to turn off performance marketing over the last three or four weeks, so that you did not overpromise and underdeliver to customers. That has been turned back on now, but there is a lag effect.
We have seen a steady improvement in online sales over the last three weeks, but are still trading down 20%, 30% on where we would be online, and it is probably going to take another month or so, I would imagine, to see the full recovery.
The last part of the question, how should we think about gross margin in each business for H2? I think at the moment, kind of tracking in line with what you saw in H1, but having said that, we have got clearly the biggest season or part of the season ahead of us with November and December, and depending on how those play out, we will either have excess inventory to deal with or not, which obviously has an impact on gross margin. The next question is, do you have a sense on whether you are still taking market share in South Africa during October?
Very difficult to call. We do not have reliable data at this point. I think anecdotally, what we have heard is it has been very tough for everybody. We have seen similar pressure across every one of our brands and stacks, so it is not isolated to anything specific. So, I would imagine we are probably more or less in line with the rest of the market for October. Ralph, for you, what is your thinking of the ZAR 1.3 billion of net debt allocated to TFG Africa?
Yeah. So, we are pretty comfortable with that level. That segment generates ZAR 3.5 billion, ZAR 4 billion of EBITDA. So, ZAR 1 billion is, we are very comfortable to maintain that level of gearing. If it comes off, it depends on cash generation in any particular half or any other capital actions that we might take.
Great. A fairly technical question. TFG's PEG ratio is about 0.38. Where is the market miscalculating the margin accretive potential of Bash or the short-term headwinds of your international operations? That is quite hard to answer that accurately. I can only give my own perspective. I think, most generally, retail is super cyclical. We have been trading in some of the most difficult conditions imaginable. I shared earlier on that Australia's consumer confidence is pretty much at a 50-year low at the moment. The U.K. is at COVID lockdown levels. South Africa has got the highest petrol prices in history. I think the market typically looks at the kind of short-term downside, and you have got to reach a point where people look forward and think there is better to come. I think that is where it is at the moment.
I think we have demonstrated the upside of Bash's margin accretion to the business and return on capital. I think that is relatively well understood. Next question, what are the main call-outs for gross margin improvement in sportswear and value, and how much of this improvement sustains into the second half? I think the big focus, certainly in sports and value, has been full-price sales. We have bought much more conservatively, given that we do not see a significant improvement in trading conditions in the near term. By definition, that gives you less old stock to deal with. How it plays out in H2, as I said previously, does depend on how November and December go. But at the moment, we are planning for pretty steady levels. Question on Bash, how was the first week of SHOPFEST? Did it meet or exceed expectations?
I think in line with the expectations, we expect it now to build up through to Black Friday. Then a final question on supply chain. How is it being managed going forward, given the current geopolitical climate? I guess what I would add to that is probably the shipping delays. We are having to build back more buffers around forward orders. It does not give you the stock efficiency you want, but it is better than being out of stock, particularly over peak seasons. That looks like that is the final question. Thank you very much again for everyone who joined us today, and enjoy the rest of your Friday.