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Edited Transcript of MRP.J earnings conference call or presentation 25-Jun-20 7:00am GMT

Full Year 2020 Mr Price Group Ltd Earnings Call

Jun 25, 2020 (Thomson StreetEvents) -- Edited Transcript of Mr Price Group Ltd earnings conference call or presentation Thursday, June 25, 2020 at 7:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Donovan Baney

Mr Price Group Limited - MD of mrp

* Mark Stirton

Mr Price Group Limited - Group CFO & Executive Director

* Mark McNeil Blair

Mr Price Group Limited - CEO, Member of Group Management Board & Executive Director

* Matthew Warriner

Mr Price Group Limited - Head of Investor Relation

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Presentation

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Mark McNeil Blair, Mr Price Group Limited - CEO, Member of Group Management Board & Executive Director [1]

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Good morning, everybody, and welcome to the annual results presentation of Mr Price Group for the year ended 31st of March 2020. I'm joined by Mark Stirton, our CFO, who's taking social distancing to the extreme. He is 3 or 4 meters to my right. And we're actually broadcasting from our Durban Head office.

Just in terms of the overall content, I'm going to be talking a little bit about the backdrop, the retail environment. Mark will go into details about performance. And then I'll come back and talk about how COVID has impacted our business and how that actually changes things going forward.

So straight into the detail, and I'm not going to spend too much time on this. It is known to many people. So I guess, more for the sake of the foreign participants. South African GDP growth, as you can see there, 0.2% for the year, and we actually saw the last 2 quarters of 2019 declining and, therefore, technical recession. The key indicators from a business perspective are also poor, have deteriorated further. And one of the figures that we just got updated a day or so ago is the unemployment rate increasing to 30.1%. We'll come back and talk about exchange rates and hedging a little bit later as well.

The million-dollar question is how deep will the COVID effect be? And what will this mean to our business? And there are many theories out there. This is just, I guess, one of them, and it really looks at the possibility of the various stages or depth of the recession and what those figures might look like. And as you can see there, GDP growth in the first chart, ranging from anywhere from minus 5.4% to minus 16% in a very extreme case. National treasury has put out the indication of a contraction in GDP of 7.2% for the current calendar year.

Then looking on the right on that graph, potential job loss impact, and it really depends on whether there's a quicker or a slower recovery. Certainly, our internal modeling that we're actually focusing on, we're looking for a more prolonged impact than a quick rebound. And the number that we've heard from government sources is also job loss potential anywhere from about 600,000 to 1.8 million.

Looking at the consumer overview then, retail sales, and this is per Stats SA. We've given a history of the last couple of years, but as you can see, quite a gradual decrease in the trend in terms of retail sales to 3.8% in 2019. But if you actually look at the forecast, it's actually minus 6%.

Then look at Apparel and footwear on the right-hand side and at minus 6% in terms of the forecast, and this is market statistics, not Mr Price's, changes to minus 18%. So a much more dramatic impact on footwear and Apparel. The graph at the bottom, you can just see the trend in household expenditure. And once again, particularly the shape of the Apparel and the footwear graph.

Going to our detailed performance. These are just the salient features. Our revenue was up 2.1% for the year to ZAR 23 billion. Our operating margin is reflected at 17.4%. But we've got this situation this year that we're actually talking to normalized earnings, and that is really -- Mark go into the detail, but that is the transition to IFRS 16 which has adjusted the way that we're required to account for our operating leases. So these results operate -- and that normalization does come into matters quite extensively throughout the presentation. And then, of course, the second complication is pre-post-COVID.

EBITDA for the same reason is actually reflecting an increase, but on a normalized basis, once you strip out that impact and effectively putting yourself back into the position that you would have been without this accounting statement having been implemented, normalized EBITDA is minus 7.8% for the year. Profit after tax was ZAR 2.7 billion, minus 7.7% on a normalized basis. And our HEPS was minus 9.9% or minus 7.8% on a normalized basis.

We haven't declared a dividend -- a final dividend this year. So the dividend that you do see there is an interim dividend that we declared and was paid in December last year, and I'll give you reasons for withholding the final dividend a bit later in the presentation.

Give you a bit more color on the actual earnings. The black block that you see there are consensus estimates, the ZAR 10.22 is the average of the 2. And you can see Broomberg at ZAR 10.04, Refinitiv at ZAR 10.40. Relative to that ZAR 10.22, we actually delivered ZAR 10.29. So it was a little bit ahead of consensus. And of course, that was on a pure statutory basis.

However, if you then exclude what I was talking about, the transition to the new accounting statement for leases, we would have reported ZAR 10.53, which would improve diluted HEPS from going down 9.9% to 7.8%.

Then Mark will go into the detail as well. We took additional provisions that were COVID related on stock and debtors and on insurance. Those totaled ZAR 132 million and don't really relate to the current normalized trading environment. But if you had to strip those out, annual earnings would have declined by 4.6%, but notably in the second half, it would have been minus 2.7% and at minus 2.7%, as we know, was severely impacted by the last 2 weeks' disruption in trade, and no adjustments have been made in these numbers for that.

Looking at -- we spoke at length at the half year presentation, in fact even the previous annual presentation, about the activities and the corrections to our own performance that we've put in place and spoke about that we expected those to start bearing fruit in high summer. If you look at the graph on the left there, that really shows the movements throughout the year in terms of sales growth, Q1, 1.4%; Q2 improving to; 2%; Q3, up 3.5%. And then excluding the last 2 weeks in March, Q4 would have been up 4.2%. So quite a nice progression. Momentum was improving. And then, of course, COVID hit. But overall, I think a satisfactory performance considering that the loss -- we had a loss of market share in H1, but we actually gained market share back in the second half.

I'll take you through a sort of a monthly flow of things. And this is the months of the second half. But October was a particularly poor month for retail in South Africa. And unfortunately, I think we've got the Springbok rugby team to thank for that. They did exceptionally well in the World Cup, as we all know. And ended up playing a lot more Saturdays than we thought they might. So I guess Rassie Erasmus, the coach, did a favor for South Africa, but he really did no favors for retail, where we lost key trading days. But overall, we still managed to grow a bit of market share in October.

Black Friday, in fact, was a very good month for us -- sorry, November was a very good month for us. We actually grew market share. And in fact, it was the strongest month in the 6-month period.

December was also pretty good. Despite the disruptions, there was fairly extensive load shedding. And they had highveld storms that disrupted trade for some time in the highveld. Unfortunately, these negated the impact of the extra week school holidays. However, all our divisions grew market share in that month.

Then we went into January, and we went in with a fairly clean stock position. That was within our targeted low single-digit range in terms of the stock increase. And therefore, we didn't have to mark down perhaps to the same level that some of our competitors did. Bearing in mind what I said that we just increased market share in December. So where you gain share, go in clean, you are up against competitors then promoting their overcarry.

February wasn't a great month in retail overall. We maintained market share. And then moving into March, we had a particularly strong first 2 weeks, as you can see, up 8.6%; over the last 2 weeks, declined 32%. And at that stage, it wasn't locked down, but there was an announcement of a lockdown. You had a very nervous consumer out there that really just stayed away. But despite that, we still gained market share in March.

Okay. I'm going to hand over to Mark to take you through the actual detailed results. We are getting some questions coming in. Please continue to send those. And don't forget that we've also got several meetings set up next week for a Q&A session as well. We look forward to that.

And yes, over to Mark.

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Mark Stirton, Mr Price Group Limited - Group CFO & Executive Director [2]

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Good morning, everyone. I'm going to take you through the Group's financial results. You'll see that we haven't skimped on disclosure as per prior years where we've given you a lot of information. What we've done is we put that in appendixes at the back. We've listened to a lot of the analysts, and they really want to concentrate on the way forward and the future of the business. So we have put financial information here, and I'll try and give you as much color as I can, but we have left a lot of detail into the appendix, which we won't speak to necessarily, but obviously, you can pick it up with Matt from our Investor Relations. If you feel that you want some additional information, then we can get in contact with you.

So the Group income statement on a statutory basis, you would see that the orientation has changed, as Mark had expressed. IFRS 16 has changed many of the aspects of the -- or particularly expenses and a new interest line -- interest paid line, which has affected a lot of the key ratios, particularly in the income statement. RSOI or retail sales and other income, whilst it's at 2% for the annual results, I just wanted to call out that our sports division grew at 8.6%, and our Miladys business grew at 6.3%, and our Financial Services and Cellular business, which is all contained in those numbers, grew at 8.1%, which are all really, really good performances. We've also put in the H2 numbers there alongside and whilst they -- obviously, Mark expressed the effects of COVID in March in the previous slides, and that did have an impact on our sales and, therefore, obviously, the profitability. But for the second half, our operating profit did improve on the first half.

We had discontinued operations. As Mark spoke to in the previous presentations, we've got our focus, and I'll pick it up a little bit later, that we're really going to focus on SA in a more concentrated way. And therefore, we had discontinued operations in Poland and Australia this year. The effective tax rate was 28%. It was about 10 basis points better than the prior period. I'll pick up on gross profit and expenses in more detail coming up.

From Group sales growth drivers, as I said, from a geography perspective, the RSA sales were up 2.2%. And non-RSA, which is as a result of a lot of the discontinued operations, which I spoke to about, was down 1.3%. RSA makes up 92.5% of sales. And Namibia and Botswana continue to be our biggest markets outside of South Africa.

From a tender type perspective, and Mark has picked up quite a lot in the slides around COVID and the performance post year-end, our cash model, which we're very proud of, and we believe that it accentuates our ability and our competitive advantage, was up 2.4% for the year, where credit slowed 0.3% -- was at up 0.3%. And cash as a percentage of our overall sales was 84.3%. I'll pick up quite a bit on credit a little bit later.

From a channel perspective, we're incredibly proud of our online channel, which has been growing at double digits for -- ever since it's actually started. And it's up almost 10x, the -- it's growing at 10x the pace of our Bricks business, albeit that our Bricks business was affected by Apparel's performance in the first half. And our Bricks business still makes up 98.5% of our sales, and Mark will pick up what the positive trends we're seeing in online and our positioning around that and our positioning that we've had for many years, and invested prior to this.

From merchandise perspective, our unit growth was 0.2% up, and RSP inflation was up 1.8%. If you were just looking at pure input price inflation because, obviously, we've explained that our first half did -- we took higher markdowns than desired in our Apparel division, our input price inflation was under -- between 2% and 3%, just under 3%.

From a space growth perspective, the Group now trades off 1,378 stores. We added 71 new stores for the period, and our store growth was up 4.2% with our weighted average space growth growing at 2.2%. Our sales densities, as you'll see on the right-hand side graph versus several of our competitors continue to be really strong. And our average store size that we've been rolling out for some time now because we've seen a trend on this convenience trend is that they're 37% smaller than our existing store base. We had 197 leases renewed in F '20 and further improvements in annual escalations and base rental reversions were achieved.

Looking ahead, 80% of our new stores were micro, small and medium size. This positions us really well from a store network perspective post-COVID, and Mark will speak a little bit about that now. We constantly look at our store metrics, and we have got a very rigorous store performance program that we monitor very closely. And over this period, we're spending more time on our bottom quartile stores and really optimizing those. And I'll speak to a little bit about our savings measures or austerity measures a little bit later.

And the space will become available, we believe, over COVID. Obviously, with the level of retail distress. We believe a lot of space will come available, and Mark will also speak to you about our several of our growth ambitions, which we're hoping that we can partner with our landlords to try and pick up some of that space. We obviously would be targeting in this environment. The retail has been disrupted tremendously, and Mark has been spending a lot of time with Property Industry Group, and we've forged some good relationships there, and we're hoping that we can have meaningful discussions around better variable rentals.

From a gross profit margin perspective, merchandise GP improved from the first half. It was at 40.7% to 43.2% in the second half, which is closer to our 2019 number, and you'll see the improvements there, and we took much lower markdowns. And you'll see the major performance recovery was in Mr Price Apparel, which is what we said to you at the half year. We said that we have been concentrating or spending most of our time since taking office and fixing the Apparel division with the newly appointed MD and we're quite confident that, that business is on track.

On the cellular GP perspective, our in-store model continues to be successful. We've rolled out 262 stores and that GP increased -- improved by 90 basis points to 15.6%. And we have cellular MVNO, which is -- for those who don't know what a MVNO is, it's a mobile virtual network operator. And we've decided to readjust the mix in that portfolio, and that's what's causing the overall cellular GP to reduce. So therefore, from a GP perspective, we decreased 170 basis points, mainly as a result of the H1 performance, but excluding the COVID stock provision, which I'll speak to a little bit later about, the GP was flat in the second half.

We pride ourselves as a business on having really good controlled expense management. From an expense perspective, we were -- on a statutory basis, we declined 2.8%. On a normalized basis, which as Mark said, which should add back the effects of IFRS 16, we were up 3.2%. And on an adjusted normalized basis, which is the 2-point -- we were up 2.4%. Just to explain the adjusted normalized basis with regards to these under expenses, what would be affected in our selling expenses, we took additional bad debt provisioning and insurance provisions.

So just going to selling expenses, selling expenses on a statutory basis were down 3.3% and, on a normalized basis, were at 4.5%. That's obviously reversing the effects of IFRS 16 and this was -- if you think about our space growth was -- weighted average space growth was 2.2%, and our new space growth was 3.2%. You would say the balance of expenses grew at just over 2%.

We achieved -- as I said earlier, we've achieved rental reversions, which has also helped to assist our selling expense growth. Our employment cost growth was well contained at 2.6% as we continue to drive efficiencies at a staffing level and monitor those metrics at that -- at the store level. Bad debt expense was up 3%. Increased debtors impairment provision was taken of ZAR 44 million, which I'll take you through a little bit later in the debtors in the trade receivable slide, offset by debtors, and we also took a decision, which I'll speak a little bit more about under trade receivables to freeze our debtor's book for March and April.

Admin expenses were down 0.9% for the year on a normalized basis, 1.1%. We continue to really work on our head office costs and the control in that -- in this environment. Our employment costs only were down 0.4%. Obviously, because of our performance, we had a lower variable component to our overall pay. And we continue to drive human capital efficiencies, which I'll speak to a little bit about and our austerity measures going into COVID. We also had an impact -- a positive impact on the administrative expenses as a result of some IT impairments that we took in the prior period.

So austerity measures, as we went into pre the lockdown that the President announced, we had just gone through a budgeting cycle. And we were very -- the numbers were looking very positive for the upcoming financial period. Unfortunately, that all changed for us, and we had to quickly pivot and redo all our budgets. So what we've been able to pull together, which we believe is very achievable. There's a ZAR 300 million reduction in budget expenses on the prior period and from last year's numbers. They are predominantly employment-related. We suspended head office salary increases. The executive and the non-executive directors have taken cuts in salaries. Our head office and store incentive structures are under review. We've had a group-wide hiring freeze with only exceptional cases for critical roles. We've had -- we've reduced our contractors, and our labor hour have been rationalized. We've really looked at the coverage of each person per square meter in our store environment, and we're actively looking at areas to improve there further with some innovation. We've accessed government support grants in April.

We've, as Mark will speak to you about over the COVID period, and I've mentioned a little bit earlier. We -- another biggest expense on the income statement is our rentals, and we're actively looking to engage with landlords around rentals going forward and that it's good for both parties. We are very fortunate to have hedged up to 70% of our foreign order book, which is dollar-denominated. As you all know, that the exchange rate peaked at over ZAR 19 to the dollar on the third of April, I think it was, which -- and we've booked our order book as under pre-COVID levels, which is we are very satisfied with.

We've also taken a fuel hedge to ensure that we can take advantage of the lower oil prices and our sundry supplier contracts and escalations we've renegotiated and the base reversion on some of those contracts. And what we're embarking on a fit-for-growth organizational strategy and redesign, which is we're going to involve a lot of engineering of many of our processes using technology. And one of those is the process automation technologies using robotic process automation, and that will further enhance our lean structures. And that -- all those activities are underway.

From a balance sheet perspective, again, we're very proud of our strong balance sheet with market-leading metrics, which Mark will speak to a little bit later about. Our inventories were up 3.7%, including goods in transit, in fact, if we hadn't had the COVID the last 2 weeks of sales, which we were on track to actually have flat inventory growth.

We took a stock impairment provision. It moved up to 9.6% up ZAR 83 million. We took an additional provision. And the prior year was 6.6%, which we believe is prudent in this market. We believe that there's going to be a lot of distress with -- amongst retail peers, and we think that even though we've got healthy stock levels going into the season, and Mark will take you through, and you've seen in the press release that we traded really well in May and June, we still believe that, that is prudent.

Our cash and cash equivalents, which Mark will speak a little bit about our equity raise that authority that we're requesting, well, just to bring some color to that, ZAR 4.7 million (sic) [billion]. ZAR 615 million of that is in non-RSA territories and share trust, which we're actively looking to repatriate as much of the money as we can. But obviously, we trade in those areas. And the share trust, we've got plans afoot to try and access some of that money. We also -- because of our year-end cutoff being the 28th of March and, obviously, most creditor payments are paid on the 31st of March, we had a tax provisional payment of ZAR 500 million that fell in the following period.

The other big thing to note is the IFRS 16 impact on the balance sheet, which I spoke to you about at the half year. But you'll see that our noncurrent assets increased by ZAR 4.3 billion, and that's as a result of the right-of-use asset. And coming through, and you'll see that our total liabilities has also been impacted by the same standard. Collections on our debtors book, which I'll speak to you about now, were impacted as a result of our store closures, much like most of the Apparel in retail industry, a lot of collections happen at store.

So from a cash flow movements perspective, I think I've spoken a lot about this, but IFRS 16 has changed the operating cash flows significantly, and you'll see that under financing cash flows, you'll see the repayment of lease liabilities of ZAR 1.6 billion. Obviously, that was part of operating cash flows in the prior period. We will see a strong working capital adjustment, a positive momentum coming through at ZAR 465 million also as a result of some timing, and we continue to invest in our store environments at ZAR 359 million was invested for the period in intangibles, which mainly revolves around our modernization platforms. For retail, we invested ZAR 156 million.

Trade receivables was up for the period, 5.2%. This was affected by the closure of our stores on the 20 -- post the 27th, which, as I said, we collect a lot of money in store listed. And obviously, the timing of our year-end did have differences in the March '19 level as well as when we froze the book, we obviously suspended the balances at that particular point in time. We've worked very closely with those customers, who would -- who are finding distress, and we've made some arrangements with them as far as possible. But we did feel that a higher impairment provision was necessary as a result of not being able to -- as a result of freezing the book. And also the lower collections and the increased risk that's going forward that we believe the distress in the market is coming on the credit side, which I'll speak to you a little bit about why we believe that now.

New accounts were temporarily suspended. Obviously, for the same reasons that we just -- we're uncertain about what the consumer health would look like, and we still are and our internal scorecards as well as our scorecards with the bureaus have been adjusted. But our book health is showing mild signs of distress at this point. But we actually -- the collections have beaten our own internal targets but are down on last year.

From an SA credit landscape perspective, Transunion Consumer Credit Index shows that consumer health is declining, and we believe that, that graph over the coming months is going to deteriorate further. As job losses start to come through and the tourist fund and the bank holidays start to -- the cash as a result of the bank holiday starts to dissipate. You would also see that defaults have increased by 4.4% in Q1, which is a similar pattern to the global financial crisis.

We've spoken a lot about in previous presentations about our credit posture and how we believe credit should be handled responsibly. And you would see that our percentage of customers that are 3 months in arrears are -- if you see the black bar being the industry, we -- all our businesses, particularly Miladys, which is a higher credit business relative to the rest of our businesses, scores exceptionally well in that regard. So we -- whilst we feeling that our credit portfolio is well managed, we believe that the stress is not going to spare anyone, and we obviously took the extra provisions as a result of that.

From a credit performance perspective, appetite for our credit accounts has improved. And I was speaking to our -- one of the directors in our credit business yesterday, and in fact, we're actually seeing a better quality customer come through in recent weeks, which is -- which might be a testament to our value model coming through and people seeing value and would like to also purchase that on credit. We saw -- you can see that our -- as a result of some of our measures to improve the book, quality of the customers within the book, our basket for the credit side was up 4.8% even despite transactions being down 4.3%. We've held our active accounts at 1.4 million, which we actually -- is actually a positive result when you think about the amount of distress that is in the market. And credit sales were, as I mentioned a little bit earlier, were up 0.3% to ZAR 3.4 billion.

So I'm going to hand back over to Mark to talk about the future.

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Mark McNeil Blair, Mr Price Group Limited - CEO, Member of Group Management Board & Executive Director [3]

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Thanks, Mark. Let's just jump straight into the COVID impact. And certainly as this thing started to unfold, internally, when we gathered the management team together, I actually said that we needed to be prepared to be judged on our initial position that we took with our stakeholders. Not the compromises that we made thereafter, but how we acted from day 1. So it's a great sort of call, not that it was actually even required in our business because it came naturally. But our value system actually guided our actions throughout this and will continue to do so.

I'll just go through each of the major stakeholder groups and some of the key activities that we undertook during this period. And I'm going to start off with our associates, our most important stakeholder, who we actually communicated extensively throughout this process, keeping them updated about what's happening, the impact on them personally. And I think that went down extremely well. I won't go and explain the pay cuts. Mark's already spoken about that. So I'd like to just extend my gratitude, as I have already, but once again, to all our associates for their teamwork and pulling together during this time. Likewise, with suppliers. And if you take what our merchant teams had to do and what our suppliers had to do, you wouldn't wish this on your worst enemy.

But we actually took a partnership approach. As you know, partnership is one of our values, passion value partnership and actually ensured that these weren't words emblazoned on our walls and in our corridors, but they were actually put into action. So we actually took the position that we weren't going to unilaterally cancel orders with our suppliers. But rather work with them, and it doesn't mean that there weren't tough calls. Of course, they were. But whilst we canceled some orders, we were able to roll others and minimize the impact on our suppliers.

To us, having worked with some suppliers for over 20 years, this wasn't the time in the darkest hour that you desert them. And we knew at the point that by making the decision that we were making with supply, that the potential was that we were going to take longer to come out of this than perhaps some of the other market players. But it's something that we were prepared to do. I'll talk about trade post year-end and how that's come through.

But at the end of the day, I think we can not only thank our supplier base, I think that's really what the spirit of partnership is all about. We took -- we both took some pain. We shared the pain. And I think that's really -- even created strong relationships going forward.

Mark's spoke about the landlords. We did enter into detailed discussions with other retail CEOs and landlord CEOs. And of course, there's legal advice sought on both sides around lockdown, which -- and that legal advice was no rentals were payable. We, however, did pay 20% of rentals. But we paid full rates and taxes, well, at the 100% mark because we also didn't want to put added pressure into the municipalities and their finances.

We also decided to pay full rentals in May and June. So that's 100% of all rentals, all costs, all rates and taxes, irrespective of the trading divisions and percentage of their merchandise offer that they could actually sell, and I'll talk about those restrictions in a minute. So glad to say that the Property Industry Group accepted our payment, and we can now go forward on a continued constructive basis.

Of course, we've been working very closely with the DTI and the Minister and his advisers around all the protocols that have to be put in place at a store level. So we can safely say that we do comply with those. It's critical that we actually create a safe environment for your customers that they feel free to come and shop and can do so knowing that they save to do so.

We communicated with shareholders pre lockdown, 26th of March, just to give them an update to what was happening there. And again, once we decided to push out our reporting date, and then once again, extensively around the equity raise, which I'll chat through at the end.

With -- our relationships with the DTI and the Minister's advisers, we also decided to co-fund the frontline workers, the frontline testers, and co-donated 10,000 t-shirts and caps to be used by the Department of Health representatives. We donated to the KZN Growth initiative and to the Solidarity Fund, and all our divisions had individual campaigns under what we internally call Together We Do Good cause related and proceeds were donated to the Solidarity Fund.

Looking at trade so far. Of course, in line with everybody else, April was a disaster as far as trade was concerned. South Africa went into lockdown level 5, which was very extreme in global standards, but what the government was trying to do was not beat the pandemic but really buy some time to slow down the spread, so they could get the necessary infrastructure in place to deal with it more effectively once infections rose. So national state of disaster was called and all our South African stores closed on the 27th of March.

Because we could trade on the 1st and 2nd of May once it had reopened partially, the 1st and 2nd of May fell into this trading month, April trading month, but as a result of the lockdown for the vast period, sales were down almost 90%, 89.9%. Activities around this were really focused on making sure that we understood the impact on our business in COVID. That we've gained clarity on what merchandise level -- merchandise categories and departments we could actually sell once we opened up in level 4 and get everything ready in the store environment to do so.

Mark spoke about the distressed credit customers and what we did there. We didn't age the debtors' book, and this avoided us having to, I guess, the entire credit book being unable to shop post reopening. If everyone had gone into arrears, that would have created a no-shop possibility for them. Collections were materially impacted. Collections in May were actually 43% down on last year, but that situation has actually gradually improved as we've gone through the month -- sorry, 43% in March. April was down 27% on the prior year. May was down 13% on the prior year, and June to date, we're actually up 2% in the prior year in terms of collections. So a nice positive trend. However, because of -- despite the activities and the possibilities for consumers to pay via alternative channels, I think a lot of consumers led by some financial institutions, et cetera, took payment holidays. And I think that could be a permanent difference now. I don't think it's going to be caught up.

Then going into level 4, that happened on the first of May and lasted till the end of May. And you can see the trade level there. During this -- during the month of May, we were up 10.4% in sales. All stores in South Africa could actually trade, but there were restrictions in place. Clothing was restricted to essential and winter clothing. And so kidswear and homewares was limited to winter sheeting and bedding. It's still quite severe restrictions. And there you can see the divisional growth rates in the graph as well.

So a lot of pent-up demand for apparel. Mr Price Apparel is up 23.4%. Miladys got a mature conservative customer. So that was actually translated into foot traffic. They were down 16%. Sports up 15-odd percent, but you can see the big impact on Mr Price Home and Sheet Street there. They had -- when I talked about the severe restrictions, as much as 30% to 35% of their range couldn't be sold. And in fact, Sheet Street, why they weren't as badly affected as Home is that they could actually sell a higher proportion of their stock than the Mr Price Home could.

What's driven this pent-up demand because we had actually obviously done internal modeling as to what sales could look like post lockdown? And this definitely beat our own internal models. But I think what was informing it is that consumers were actually locked down for 2 paydays with not much of an ability to spend it, maybe on food, and in many cases, weren't -- didn't have transport cost to go to work and took debt repayment holidays or the granted debt repayment holidays. And then, of course, the whole onset of winter as the temperature is dropping, there was the demand for winter clothing.

Okay. Then moving into June. June has also surprised us just as much as the prior month did and sales up until the 20th of June. So that's the third retail week. Sales were up 14.1%. At this lockdown level, we could actually -- all stores are open, and we could sell all products. But what we did see is that whereas in the prior month, pent-up demand was for clothing. Being able to sell everything under level 3, that pent-up demand shifted to homewares. Home was up -- up until the 20th, up 40% and Sheet Street 38%.

So combined May and June has been very pleasing. The week after the 20th, so it's the current week that we're in. We're seeing that it has tapped back a little bit. But if you add June and May together, combined sales are up 12%, which, as I say, has surprised quite dramatically on the upside. However, if you combine the whole period, 1st of April to the 20th of June, I think that tells the story, minus 31% overall and materially impacted, obviously by the month of April where we couldn't trade.

Okay. Some of the -- those are the numbers. Some of the key trading insights we've got. First of all, the strong sales performance has significantly derisked our inventory carry. We spoke about the approach that we've taken with suppliers a little bit early on. Trading as strongly as we have. That has really, for all intents and purposes, sorted out the problem that we could have had. And of course, as we've actually traded higher in certain categories, we've actually then gone and chase stock to make sure that we've got a decent presentation in-store stock availability. And as we bought into those high-performing categories, that's further alleviated the supplier pressure.

So overall, at the end of the day, we made some big calls upfront, knew we're exposing ourselves to some risk that came out the other end. We're pretty happy with our stock carry, and suppliers are obviously happy that we have bought into more stock as well.

Several trends have been disrupted. It's the same period that we're talking up until the 20th of June. Transactions are down nearly 7%, but the basket size is up almost 17%. Mark spoke about the shift to cash, and cash sales are up 17%, and credit sales are down about 9.5%. And then I spoke about the collection improving situation.

What we certainly found is that having a diversified store footprint has been a massive advantage. There's no doubt that I think the world is trending this way anyway, but COVID is just going to accelerate that. It's all about consumer convenience. So what they're really looking for is convenient closer-to-home locations, perhaps at times less crowded and, of course, possibly reducing transport costs to get to those locations.

We've had really good growth in our smaller store formats. And our kid stand-alone formats, and that's where that diversification has been particularly useful and lower performance in our super-regional centers. Although it has to be noted that they are trading under shorter hours and that's all retailers.

There's no doubt that in this climate, and we'll talk to GPs, et cetera, the customers are seeking value. So in a very distressed market, I think we're exceptionally well placed being in the value quadrant, and delighted at all the changes that we've actually made to the width and depth of the enterprise price architecture that we've spoken about at length over the last year have actually started working. And for us, it's been absolutely clear on what we're trying to stand for. And definitely going forward, value is going to be even more of a focus for us.

There's been a notable shift to e-commerce. I'll talk about where our capabilities are and the investment we've put in historically but what we've seen post reopening is online growth of 90%.

So a lot happening in terms of sales being higher than we expected. Online really coming to the floor. But I guess, as we enter into this, this really shows the impact that a month of disruption can have on your cash flow. So as Mark was talking to earlier, at the end of March, we had ZAR 4.7 billion cash. But you did say that some of it was illiquid that we're working to release those funds. So less this quarter, ZAR 4.1 billion was liquid. And of that, we knew that we had to pay ZAR 500 million tax thereafter in April. That is purely a timing difference.

But between the 2 months, between March and April, our ZAR 4.1 billion cash position actually reduced to ZAR 2 billion in terms of liquid funds. And I guess that's a consequence of, obviously, no trading, having outstanding creditors from the month prior. The stock on the water and the commitments that you've made and to the extent that you're taking those in, those supply chain payments still happened. We didn't push out payment terms to anybody. We honored our commitments. You're continuing to incur overhead costs and your debtors payments are slowing. So that was the kind of environment and that sparked our on -- and that's why we put steps in place regarding the equity raise.

That -- in uncertain times like this, crises can create opportunities for really strong companies. But whilst we've got a growth mindset, we wanted to seek the approval for an equity raise for growth, but this sort of informed why thinking was, what it was. Fortunately, the trade rebound there, as we just discussed, and our cash position was up at ZAR 3.5 billion. And in fact, it's kicked on since then. So that was an environment that was playing out and into -- and I'll talk about some of the other factors around it a little bit later.

We reduced our CapEx overall, which was over ZAR 520 million last year to ZAR 400 million, so about 23%. It must also be noted that not all of that is committed. So really in terms of our stores, and our store openings is probably about 1/3 of the stores that are in that number that haven't been committed and certainly won't be unless they meet our stringent requirements. One of the activities that Mark is speaking about in terms of -- in fact, the discussion happened sometime before COVID, really wasn't a COVID-related matter. He's planning on introducing supply chain finance to our suppliers, where they, in fact, can get money at a much better rate and even earlier than we would have paid them. So for us, it's a win-win. He's a move afoot and is very well progressed. In fact, I think he's pretty much better down to increase our short-term debt facilities from next week to ZAR 1 billion in case we need it.

We also spoke about the dividend declared, in fact, the interim dividend. But in terms of cash preservation in this climate, that would have equated to about ZAR 900 million at a 63% payout ratio for the year. So that was effective saving for us there.

So how are we feeling about the rest of the year? I think it's fair to say that we're cautious. I think the last couple of months have been very impactful on business, but our internal view is that things are going to probably get tougher from July because there's a lot of things coming to an end. Employee access to tours, which is the relief scheme, will end in June. And once employers can't access that fund or that funding, we could see a potential spike in layoffs in the greater SA economy. But institutions gave payment holidays for 3 months, so that's April, May, June, potentially July. That comes to an end. And the additional government grant that was paid, the extra ZAR 350 comes to an end at October. So a couple of things coming together in the next few months.

South Africa is also on a steep upward trajectory in its infection rate. And if you combine that with uncertainty and I guess the fact that there was really just no fizz in SA retail sales in the broader marketplace pre-COVID, that really puts the current performance and overtrade into perspective. We think it's going to be temporary. I think we really placed as a value retailer, but I think things are going to start getting really difficult.

You can also appreciate that in this environment, it places huge pressure on the budgeting and the accuracy of your budgeting process and the commitments that you are making. So we are going in cautiously. We're anticipating our inventory carry at the half year to be down well into double digits. But we know that we've got the agility to chase if conditions aren't -- that if conditions do improve beyond our expectations.

Okay. Looking out at next year again and a very volatile sales environment with overheads that Mark said has been tackled but there is still a large proportion of fixed overheads and an added focus or an ongoing focus on value. I think those are going to combine to create quite a difficult situation, a pressurized situation. So margins will be under pressure, not only from our own positioning and our own calls. But depending how deep and how prolonged the challenges become, competitors could be in distress and could be liquidating stock.

One thing I didn't mention that relative to our sales performance in May and June, that positive performance of 12%. It wasn't driven by promotional activity. In fact, we are trading well. We actually closed off or shut down some of our promotions and the GPs are pretty good.

There, you can see the table on the direction that the rand has taken. And at March 20, had increased by 16%, on March 20 in the prior year. Mark has spoken that we effectively quite well covered up until November. But I think the point is with rand depreciation at a point in time. So it's important just to stress that point. We don't expect inflation to be anywhere near that because of the cover that we've taken and also because of the capacity that is existing at factories now, where you can actually get better pricing. And there's this delicate balance of committing to stock upfront but leaving some open that we can actually take advantage with opportunistic stockpiles.

Looking forward, the one thing that we can rely on, and I think certainly, our past actions as a business and a management team over many years has really put us in a strong position where we've got a debt-free balance sheet. We've got some metrics that stand out from the rest of the market and really give you a springboard for maybe treating things differently than some of our peers. And what we don't want to do as a business is we always want to be focused on our top quartile performance in terms of where we sit on various metrics. But you can see there the standout performance, whether it's return on equity -- these are last year's numbers because at the time, it's the period for which you've got all the comparable numbers for the market. Return on equity is 35%; it's now 30%. Return on assets or our very low debt-to-equity ratio, not only better than the JSE but significantly better than our retail counterparts.

So whether it's returns or metrics or some balance sheet ratios on the side, I think that really puts us in a position of strength. And I think we've been, as a business, very tight on investing the returns that we require from our investments. And -- but I do think somehow that at some point, it does -- it did come at the expense of growth. So without resetting our expectations significantly lower, we think that we can -- we've got some room to grow in these returns and are quite positive about them.

Those of you -- you talk about competitive edges. And those that are familiar with Jim Collins and his writings, he talks about the hedgehog principle. And the hedgehog principle is something that you -- it's an intersection of the business that you're extremely passionate about, the business that you can be the best in your market or the best in the world at and what the driver of your economic model is. And really, that's there for us. It's fashion, value and cash. So that's really going to guide our thoughts going forward. It's going to guide where we want -- what we want to do and where we want to invest. And it's what we know. And it's something that we're not going to stray very far from it all.

So if you look at the 2 graphs then below, it just really adds a little bit more depth into our positioning for growth. A net debt-to-EBITDA ratio as well as our low-cost model. And what you see in that little red block there with Mr Price is our OpEx to sales ratio over the last 5 years has increased. But it's only increased 41 basis points relative to the rest. And that was what Mark was talking about, is that we've always been a business highly focused on not only top line but also GP and overheads to deliver bottom line.

It's been much spoken about in terms of e-commerce. And I think yes, this is -- it's been a critical area for us. And we've been invested in e-commerce, as you know, for many years. And in fact, I've got many firsts in the South African marketplace. So if you just go through them individually, starting with the launch of mrp.com in 2012, we're the first listed fashion retailer to offer online shopping, and we could deliver anywhere in South Africa. In 2013, we're the first omnichannel fashion retailer offer online shopping through an app. 2014 followed that up with the first dual fulfillment. We could actually fulfill from stores or from a central warehouse. And in 2016, we've spoken about this earlier, introduced paperless transactions. That really was the start of the migration or a digital relationship with many of our customers.

In 2017, we added Home and Sport. And then all 3 red caps were effectively you could browse and purchase in 1 app. Click and Collect was introduced some time ago, in fact, on day 1. But what we've done in 2018 was actually introduced Click and Collect lockers in a store environment where you could walk up, scan, unlock the locker and take your item and go without interacting with anybody or without touching anything or anybody, which is going down with consumers -- customers pretty well. Visual Search, we're the first omnichannel retailer to launch this. And what that does is that you can take a photograph of an item that you like, and it will give you a similar Mr Price product that we sell. And then 2020, Scan to Pay, we launched that contactless, safe, mobile wallet, allowing customers to pay with our own app as well.

So looking at all those stats on the left, I mean those are pretty -- they're pretty impressive numbers when you look at the 55 million lifetime video views on YouTube, 966,000 Instagram followers, #1 fashion retailer in South Africa, and you can go on reading there. But for us, e-commerce is not about these stats. At the end of the day, this has to translate into a relationship with your customer. We have decided some time ago to take an omnichannel approach. So it's the way that you integrate your store environment with your online one. And at the end of the day, that has to translate into sales. And sales in Mr Price's case has to translate into profit.

Anything that we invest in, we do have an appetite for investing in the long-term, and it might seem perverse but it does mean that we still need returns in the short term. So yes, I've spoken some time early in the presentation about online performance and what it is. It's up at 3% now post year end. But that 3%, we're actually making decent margins on that. That 3% could have been much greater. It could have been 5% or 6%. It could have -- it could probably been easier double. But what we have found is that the cost of generating that -- up to that level can be very costly. So you've always got a balanced investment spend and its marketing spend that I'm talking about as well relative to the revenues you're generating and also then relative to the profits that you're making.

Spoke a lot about innovation. I won't go through those again. We're rolling out store fulfillment to more stores. And we're also integrating with third parties and adding additional pickup points where we aren't close enough to consume our points. So up to 2,000 points in the case of one of the third parties. Also in terms of the customer experience, we've launched WhatsApp for business. And on Facebook, you can actually browse a full platform and a full range on Facebook. You can't shop on it yet, but that will be coming down the line when they're ready.

We continue to reinvest, and we're replatforming to Magento 2. It's not a complete replatforming. It's just an upgrade to the newest version that enables a faster online shopping experience for our customers and can actually increase the capacity so that we can onboard other divisions. So Miladys and Cellular are both coming onboard in July.

About 80% of our transactions are performed on mobile devices, which is certainly the future as we see it. And what we've done is we've adopted a progressive web app so that the web experience on a mobile device actually then looks like an app and you get a much better experience. And it comes at a lower cost obviously as well for data. And Mark spoke about BI and AI. And certainly, that's a massive focus on us going forward, so we can have more personalized relationships.

So what I'm speaking about, we've got many questions and input over recent times from investors and from the market. As I said, our performance does require profitability. What we've asked the Managing Director of Mr Price Apparel to do is just to answer some of those questions from the market. So he does talk to profitability and the like. I'm going to play the video now. But if you do want to access the full video, this is only an extract of it, you can actually click on the link that you actually see on your screen.

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Questions and Answers

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Matthew Warriner, Mr Price Group Limited - Head of Investor Relation [1]

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I think probably the most prominent question from the investment community perspective is the one around profitability. So we get -- given a lot of examples about pure-play online retailers who make little to 0 profits. And generally, the cost of the model are challenging to be able to deliver greater than at least a single digits operating margin.

So how is Mr Price's model set up in a way that we've been able to achieve that? Maybe first question. And second one is that if this online behavior and adoption stays, our current revenue on online is 1% to 2%. So that grew to 10%, 15%, 20% over time. Is there a concern around dilution of margin as a result of the online business taking up a bigger contribution of sales?

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Donovan Baney, Mr Price Group Limited - MD of mrp [2]

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Yes. So you're absolutely right. As you know, many pure-play online retailers struggle to be profitable and those that are generally in the single digits kind of net margins. Our current starting point, we're in a very fortunate position that we are getting really close to double-digit net margin in our e-commerce space. The reason for that is as we set out the business, as I said, we didn't have any legacy systems. And so where we're able to use people, resources, processes that kind of straddle both the bricks and the online space, so we built our business really efficiently from that perspective. We've got some really good prospects to improve on that profitability as well. The one area, of course, is economies of scale. As we grow, your costs become more efficient. One of the key areas, of course, is our fulfillment area, which completely outsourced at the moment, 100%. And in the near future, when we do bring that in-house, obviously, that's going to really help boost our net margins on that side as well.

Another very interesting thing is actually a pilot that we started about 2 or 3 years ago. It's what we call store fulfillment. The best way I can describe it maybe is to give an example to you. So we have 4 store fulfillment stores at the moment. One of them is our Canal Walk Store in Cape Town. And so if you're a customer and you're in Cape Town and you order something from us, what our system does is it intelligently, in the background, pings the inventory of our Canal Walk Store. If we can fulfill the entire order for you from that store, that order has been allocated to that store, and it's arguably then ready for collection or delivery from that store in an hour or so. If it can't, it then defaults to the national distribution center, which is based in Johannesburg. And the beauty of that is not only a really good customer experience in terms of time and cost, but also in the fact that the costs of fulfilling an order are aligned to the costs of the brick store. And therefore, your margin, your net margin for the e-commerce business and the bricks business really start to down quite nicely there. That pilot has worked really well for us over the past 2 years or so. And so we are in the process now of rolling that out to an additional 20 stores. By the end of June, that will be complete. And then there's nothing stopping us from there to roll it out to all 550 of our stores at some point.

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Matthew Warriner, Mr Price Group Limited - Head of Investor Relation [3]

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Think for you, the store fulfillment model is really the answer then to the fact that 70% of orders now are click and collect than people going into stores. If behavior changes and people don't want to be in stores, now a lot of orders become online home delivery orders, the store fulfillment really is the answer as to why that swing would be mitigated by people not collecting in store?

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Donovan Baney, Mr Price Group Limited - MD of mrp [4]

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Yes. And bear in mind as well, just because it's fulfilled in store doesn't mean we can't deliver it to the customer. The customer, of course, can opt to collect it in the store, but we also deliver it to their home. So the experience is no different than we would have if it was just our national distribution center.

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Matthew Warriner, Mr Price Group Limited - Head of Investor Relation [5]

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Yes. Thank you for your thoughts and insights. And I guess now we need to wait and see what consumers do. And -- but just thank you for sharing your insights and giving us your thoughts today.

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Mark McNeil Blair, Mr Price Group Limited - CEO, Member of Group Management Board & Executive Director [6]

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So online is a great example of deploying our best people in the field with finance. We've got a substantial investment in it and focusing the customer in terms of what they need. So for us, it really is about the deployment of human capital and our financial capital. And on the people side, we've been through an extensive process over the last 6 months or so, assessing over 100 of our senior associates and identifying those with the highest potential. What it did prove and it's something that we actually knew already, but we do have extensive skills, and we've really got many, many talented and capable individuals. And when there are potential gaps that we don't possess the skill, we will then look to supplement that externally if we need to.

Since my appointment on the 1st of January last year, I just want to stress the point that I am personally committed to homegrown talent, in fact, it's part of our DNA, and to transformation. And just to prove that, in terms of management team appointments, and there have been quite a few over the last year, 71% of appointments were internal. That's our promote from within policy. 62% of promotions and new recruits were ACI associates and 88% of external appointments into our management teams were also ACI associates.

We do also realize that this is a critical time for retail and that the experience and the trust in the Mr Price brand, as far as it goes, the relationship with the consumer, is actually in the hands of associates. So we are very focused on that to make sure that not only are our own people safe but our customers are safe as well. This also creates an opportunity that, in fact, we are thinking about it the same way pre-COVID, but it does bring it to a point, is that we're looking at introducing new LTI schemes, long-term incentive schemes, to aid partnership. You do know that we are in a few companies in South Africa that extend this to all our associates, not just executives. And that's going to aid hopefully, as it has done in the past, in partnership and retention.

We also had the authority that we got many years ago when the share scheme started to issue shares to satisfy the share scheme requirements. And we did use them probably more -- a certain amount of it more than 10 years ago, but we're actually going to -- we're going to do away with it. And we haven't been acquiring shares to satisfy our share scheme, and we don't plan to. And the new share schemes won't -- there'll probably be share appreciation rights and the rest. So in fact, in the new share scheme, there won't be dilution. And in the old schemes, we don't plan to use that right that we've got to issue shares either. So I think those are 2 critical things that shareholders look for, and we're addressing both of them.

Just in terms of then our financial capital, as I said, it has been deployed frugally in the past. We have been prepared to spend, but we required very high returns at the same time. What I prefer to do is focus even more so on the high-impact opportunities, in other words, things that can, in the long term, build scale, build size and profitably deliver -- and importantly deliver profits. And in so doing, that then requires a trade-off, which is a key part of our business as well. It's as you decide to do something, you decide not to do others. So we have removed some of the distractions that we've had. We've exited Australia and Poland that we've spoken about.

And we've also taken the decision to exit Nigeria. In fact, we've closed 4 of the 5 stores. We've got 1 more store remaining. What we're doing is we're consolidating our stock into that, and that will be closed in the upcoming months. But quite frankly, I'm not prepared to invest any further, whether it's investment or -- in time or in money into a country that is as volatile as it is. We're -- in the early days, we were making money but have just -- came up against just too many roadblocks, whether it's at the port, getting the money out, et cetera, et cetera. So Nigeria will be closed in a few months' time in totality. And also just then looking at, in terms of critical mass, where our franchise operations are, and so we're reviewing those. And really, operations do require critical mass. Otherwise, they're not worthwhile pursuing. Obviously, we have contractual rights there, and we will honor them as we do with everything else.

We decided to focus our efforts on South Africa. It is a market that we've historically got excellent returns in. We understand the market exceptionally well, the operating environment. We understand the customer, and that's critical. And also, we've got clear competitive differentiation in South Africa. Just to give you some scale, retail sales in South Africa in total are over ZAR 1 trillion, and apparel and homewares is ZAR 230 billion. And we've got a 10% market share that we think we can have quite a bit more in.

So that's going to focus our efforts. And really what we're trying to build in South Africa by focusing on one key market is constantly reinforcing and building processes to make sure you've got this impenetrable force that is really hard to compete against. And although others might try and catch up, our challenge is really to stay ahead of the game. So when I envisage the business, it really is still very deeply rooted in our funder's mentality I spoke about at the last presentation. It's still a very entrepreneurial business, but it's actually updated for the future. And it's all those things that Mark spoke about, about AI and BI, slick processes that inform and support good decision-making. So a lot is going to happen, and I'm really excited about the future in that front.

I spoke a little bit earlier about investing for the long term as well. As you know, when we built our distribution center, just as one example, we actually -- we did build it with growth in mind. Truth is we didn't need it at its size now because we didn't know COVID was going to come along. But there is opportunity and scale there that we can actually not only extend it for future growth when that comes but also to bring our e-commerce fulfillment in-store as well. So it will be housed in 1 central distribution center. And of course, as you do that, you get further economies of scale and you don't have external fulfillment costs as well. So that will supplement the store fulfillment process as well.

So if you deploy your best people and you've got the right people in your team and then the positions that they are most suited and thrive in that circumstance, and you've got an allocation of capital that is appropriate, that is all brought to focus at the end of the day on the customer because that's the end of our chain. And what the customer wants is wanted products and a great experience.

As you know, we're obsessed with our fashion value positioning, differentiated product, which really talks to the fashion. Exceptional value and value is determined by price and quality as well. What we must protect against at all times is that rising input margins can be very dangerous. While so it might actually create a positive impact in the short term, it then creates the base for next year. And if you're then trying to grow your gross profits next year, then the challenge or I guess the temptation is to increase your ingoing margin again. My view is that we need to protect it. We need to set a cap on ingoing margin. Any efficiency at the end of the day has to get passed through into price and for the benefit of the consumer. And if you do that without exception, you further entrench yourself in your value positioning.

We have started introducing a broader size curve to the market. And that really appeals to all South Africans. And so that's a little bit on the lower size and the higher size curves. And we've mostly done it in our Oakridge department, but there's a significant opportunity that we'll be rolling this out in our junior RT department by summer. And where we have rolled it out, it has actually delivered great results for us.

We've spoken a bit in the past about quality and where it was and where we wanted it to be. And I'm delighted about the progress that we actually made in this front as well. In fact, we do frequent store surveys, thousands of customers who actually participate. And on those surveys, the level of quality and satisfaction on quality hasn't been higher in the last 4 years than it's been in Q4 of this year. So really happy with that. And that really is aligned to what we're seeing on our external audit quality reviews at factory level, and those have also improved nicely during the year.

Moving on to experience and it's all about this omnichannel experience that we've spoken about. It's not only from a sales perspective, where the transaction happens but it's the delivery mechanisms as well. I don't need to elaborate more.

We've spoken about our top performing store footprint. We actually don't have a lot of surplus space. We'll have to obviously see how the pandemic affects performance going forward, but we're always monitoring not only the opportunities but the space that doesn't work.

Looking at our brand health. We probably do need to invest in certain places back into our stores, where our experience is low. And I think what's happened over time that in some locations, the pursuit of profits and operating margins have sometimes come at the expense of store experience. So we're going through an extensive program to evaluate that. And one of the key things that is really exciting and being very well received internally, we haven't communicated it externally yet, is that we're going to go through a process of removing MRP branding as much as we can and going back to Mr Price branding.

I think for me, when I look back at the move to MRP that we've done many years ago, coincided with not only the arrival of foreign entrants into the South African market, but at the same time, it was done because we are planning on going to foreign markets, which included the likes of Australia. But it really took us into an area even if it was psychologically that actually wasn't us. So Mr Price has got 34 years of consumer trust and value built into it. Our customers call us Mr Price. Our own people call it Mr Price. And that's going to be that's going to be rolled out. We -- in fact, the brand bible is being built. And we should have all the costings that we can then evaluate as to the pace that we want to do this. We'll have that by the end of next week.

We're introducing multiple payment options. We've been quite narrow in the channels that we have accepted. So it's all about convenience for the customer, and those will be rolled out. And we also rolled out the lay-bye facility in 20 Mr Price Apparel stores fairly recently, a couple of months ago. And that's working really well for us, and we'll be rolling it out further as well.

So a lot of the talk has been around a very difficult market but also a really strong position that we're in, with the cash balances that we've got and with the balance sheet that we've got, is that we're in a position that we really can focus on growth as well. I'm not going to talk individually about the opportunities within our existing businesses. And each of our trading divisions has got a whole list of things where they can trade better, they can shrink departments, increase the size of departments, introduce new categories. That's business as usual for us, and we have had a history of delivering on those.

But we've had a scar of the market. We've been doing some quite detailed market research. We've identified several opportunities for growth that we actually -- where we don't actually participate. And as I said a little bit earlier, they're within our core skill set. We can choose 2 different paths to bring those to life. We can grow organically, like we've done with Scarlett Hill, which is performing well above expectations, and our Cellular business, which Mark spoke to the growth earlier. Or you can actually acquire a business to accelerate your growth.

So I'll get on to the equity raise now. And I guess the market, as it will play out in the next couple of months, maybe even 6 to 12 months, is going to be very disruptive. And there may be opportunities to acquire decent businesses that actually suit the criteria that we've met, so the areas that we've just identified, to the extent that those businesses can add to that growth. Well, we could actually look at accelerating our growth with them. And in doing so, it releases, I guess, internal pressure in that you are taking over proven management teams. So you probably want to balance it if you can with an acquisition and some organic growth.

Therefore, I just want to state that we don't have a must-acquire mentality. If the business doesn't suit us or if the price and the valuation doesn't suit us, well, the great fallback that we've actually got is that we can go the organic route. It's absolutely no problem for us. And what it does at the end of the day, it creates great platform for steady growth for a number of years.

So we did embark upon -- when I spoke about the cash position and the uncertainty that started surfacing in April, we started the process of actually going into -- or researching an equity raise. And that equity raise was specifically to put us in the position where we had the agility to take advantage of an acquisitive situation if it arose.

I just want to clarify that there are 2 processes to the equity raise. And what we're really looking for is the permission to raise equity if the situation arose. It doesn't mean that we're going to trigger it. In fact, us actually doing equity raise would depend on how close we are and how close to financial we were on an acquisition and what size that acquisition was as well as actually higher trade-up until that point has been because if we're trading well and we had the cash and could have taken on a bit of debt but it wouldn't be significant, then of course, we're going to take that route.

So we wouldn't look to dilute shareholders as a first point and would -- I think we've managed the balance sheet well up until this point. We're not prepared to change our view of doing that. But it would really be dependent on circumstances. The last thing we would want to do in any shape or form would be to raise shares, sit on cash and then not use it in an investment. That wouldn't be a good idea. So we have had a very extensive shareholder engagement process. The feedback and engagement that we've had has been excellent. And we look forward to the outcome of the meeting on the 29th.

We're also obviously looking at strengthening supply ratios even further. This whole concept of partnership is absolutely key to us. Going to constantly constructively engage with the landlords and the rental values and structures. We've got a growth mindset, the businesses that we can bring to the market. And we've just got to look at the timing, of course. So we do protect our own bandwidth, but in so doing, it creates an environment where we could actually be looking for space and therefore partner with the landlords that share our vision. It doesn't make sense that we continue with rental structures as they are and certainly with escalations that there are as well. So yes, I think we'd like to do business with all landlords, but we are -- we'll be favoring the ones that share our vision.

In concluding, I'd just like to say that I think we've emerged from the lockdown with our reputation enhanced and there's exceptional unity within the team. We have all actually lived our value system. We did have a positive momentum trend, disrupted for a short time by COVID. We've grown well since then. But as I said a little bit earlier, we're still very cautious about the future, but we'll have the agility to respond if conditions improve.

So my final comment was that nobody can -- no one's got a crystal ball and can call the future. And it might be very uncertain, and it might be very volatile. But what I can guarantee you is -- and this is particularly to our stakeholders, suppliers and our associates, is an extended hand in partnership, just as we've been doing for the last couple of months and before, extreme clarity of purpose in what we do, and ethical stewardship. Thanks very much, everyone.

Matt, happy to take questions that are coming through.

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Matthew Warriner, Mr Price Group Limited - Head of Investor Relation [7]

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Okay. There have been a high volume of questions. So we have tried to group those together. If your question hasn't been answered through the presentation or can't be answered now, we will follow up.

First question is do you expect to see further negative impact on gross margins in the current year. And how does the increase in stock provision impact this outlook?

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Mark McNeil Blair, Mr Price Group Limited - CEO, Member of Group Management Board & Executive Director [8]

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Yes. Perhaps I'll talk to that. It's very -- Mark can talk to the stock provision. Honestly, it's very difficult to predict. I said that for the first 2 months post lockdown that our margins were actually good relative to last year. And just what has to be borne in mind is that in the first half last year, we had a soft base because of Apparel's performance. But I guess a lot depends on how the things then roll out the next couple of months. I think we're going to get a really good picture in July as to how trade will start shaping itself. And as I said a little bit earlier, we are extremely focused on the value that we're offering customers. And a lot then also happens with currency and in fact -- and then beyond that, not only our own position that we take on things but the extent to which there is disruption in the market with price discounting and promotional activities for distressed competitors.

So overall, I can't give absolute guidance on how the year is going to roll out. But I think it comes back to a statement I made a little bit earlier is that margins are going to be under pressure, whether it's operating or gross, and we're not going to be immune to that. But we're just happy at the end of the day that we've got the position that we've got and the folks and value that we've got.

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Mark Stirton, Mr Price Group Limited - Group CFO & Executive Director [9]

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Yes. I think it's also very important that the sales call that you make is obviously clearly determines how much stock that you carry. And right from the onset, we decided to push our clearances and therefore also -- and moderate our sales growth, so which is also another mechanism -- internal mechanism that we use to keep the stock turns high and the clearances high. And that's also a buffer that we've got in the event that something comes down -- well, sales demand comes down. And we obviously, like Mark said, that we've cleared a lot of stock that we were anticipating taking a lot longer to clear and as a result of the performance in May and June. So yes, we're quite confident that the margins, albeit the second half and with the exchange rate as it is, we don't know where that's going to go. So yes, I think we're confident that margins are okay, but the environment will determine much of that.

And to do the stock provision, the stock provision is still intact. And I believe the finance directors have still got the existing stock depreciation model in place. So it's putting extra pressure on just to make sure that stock is efficient and that it's healthy. And yes, we're fairly confident.

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Mark McNeil Blair, Mr Price Group Limited - CEO, Member of Group Management Board & Executive Director [10]

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I think most of that is that because we've traded well, it has alleviated some of the pressure on stock. So to the extent that there may be any extra provision in stock, I think that puts us in a really good position to have a bit more comfort around what happens with the debtor's collections and the debtor's book.

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Matthew Warriner, Mr Price Group Limited - Head of Investor Relation [11]

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Yes. Just sticking on the stock. There have been a few questions around trade being higher than anticipated post the lockdown. Is there any risk of current shortage of stock at this stage as a result of that overtrade?

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Mark McNeil Blair, Mr Price Group Limited - CEO, Member of Group Management Board & Executive Director [12]

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I guess there is. To the extent of overtrading, just don't forget that the suppliers that we've got also supply other retailers. So other retailers are doing better than others. So to the extent that they are, they will be accessing some of those suppliers as well. But I think we've shown over the past, whether it was the position that we went into now or where we've actually left decisions quite late to place late, I think it actually proves that we've got the agility to get into stock pretty quickly. Quick response is something that's often spoken about, that it's very different that if a supplier has got the stock on hand that you want because it is a bit of oversupply. But if they haven't and something is performing very well, we've got the ability to chase into that product within a 6- to 8-week period. So that's from -- it includes the whole manufacturing process and getting it in store.

So to the degree, it's not quick response. I think quick responses is not a term locally that aligns with the Zara quick-response model. But we can certainly have an element of relatively quick response with the supply base we've got and with the relationships with suppliers that we've got. We're not speaking about our partnership approach. That puts you in a really good position that when you do need to chase, you've got the relationship and things can be redirected.

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Matthew Warriner, Mr Price Group Limited - Head of Investor Relation [13]

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There are a number of questions on quick response. I think you have covered the question.

Another similar question with regard to that is would Mr Price consider investing in local manufacturing in terms of its own facility as part of local response.

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Mark McNeil Blair, Mr Price Group Limited - CEO, Member of Group Management Board & Executive Director [14]

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It's not in our immediate plans. There's no virtual integration strategy. What I was alluding to in my previous statement was in many regards, we can get a similar outcome, i.e., getting into stock fairly quickly without actually investing in factories. And as soon as you then invest in factories, it's all the efficiency and the folks in a factory. And we'd rather stick to what we're good at and that's retailing, and let the manufacturers stick to what they're good at and that's manufacturing.

Also just to perhaps explain that, when you look at where we source our products from in the Apparel, which as you know is our largest chain, we source almost as many units from South Africa than we do from the East. So in fact, the South African procurement is 88% of the East's procurement. So that then gives you a sense of our ability with our suppliers to manage our stock, get into stock in high-performing areas.

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Matthew Warriner, Mr Price Group Limited - Head of Investor Relation [15]

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The company has indicated that it intends to increase short-term borrowings to ZAR 1 billion. What are the terms of the short-term debt? And under what conditions would it be drawn?

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Mark Stirton, Mr Price Group Limited - Group CFO & Executive Director [16]

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So as you saw in Mark's slide, it's really just headroom. We've currently got ZAR 500 million overdraft in place, and that's a ZAR 365 million overdraft. And obviously, it's negotiated every year. But the borrowing rates are very competitive. And we've got another additional ZAR 500 million coming with another institution just to diversify risk from their perspective. And that will be in by the 1st of July.

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Mark McNeil Blair, Mr Price Group Limited - CEO, Member of Group Management Board & Executive Director [17]

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As Mark said, it really is headroom. And based on our current cash balances right now, we can't envision that we'd need to access it.

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Mark Stirton, Mr Price Group Limited - Group CFO & Executive Director [18]

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Yes. Some of them are committed. Some -- we've also got, obviously, access to uncommitted facilities, way in excess of that.

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Matthew Warriner, Mr Price Group Limited - Head of Investor Relation [19]

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Quite a few questions just around space, but really grouping around a proportion of stores that are unprofitable. And do you intend to close, reduce the size of these stores? If you could provide some more color on this?

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Mark McNeil Blair, Mr Price Group Limited - CEO, Member of Group Management Board & Executive Director [20]

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That's something that we've been doing or handing pretty tightly for many years. So the first item worthy of talking about is the hurdle rate that has to be achieved to actually for us to open a store in the first place. So as a result of the hurdles being set very high, we don't have a lot of stores that are underperforming, and in fact, very few that are even loss-making. And those tend to be clear in stores so it's by design.

So we don't have a particular problem. But as I said, let's wait for July and see how trade settles. That will then start informing what the store locations are trading at. But the great thing for us is a lot of the recent stores that we've opened have been sort of outside the super regionals, more sort of remote locations and smaller footprints. And they've generally been performing well for us. So no, we don't envisage at this stage having mass closures, but we'd have to just wait and see how trade rolls out.

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Matthew Warriner, Mr Price Group Limited - Head of Investor Relation [21]

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How are the assortments in Mr Price Apparel doing? Do you feel that you've put the recent fashion mistakes behind you?

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Mark McNeil Blair, Mr Price Group Limited - CEO, Member of Group Management Board & Executive Director [22]

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We're really feeling confident. I think the MD and the team has done -- have done an exceptional job in an environment where it has been less than robust. It's easy to put runs on the Board when there are some nice tailwinds and a growing economy. But to do so with the heavy lifting that's been done and everything that we've spoken about at length over the year, I'm exceptionally pleased with how it has actually come out. And the actual product that you can see, the sales momentum that we've spoken about, that has been positive. And then just how the team actually has united and got behind the new MD has been exceptional.

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Matthew Warriner, Mr Price Group Limited - Head of Investor Relation [23]

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You are fashion, value and cash. Market feedback is that fashion occasion where is not selling well as buyers are wanting more basics, not fashion. Please, can you comment?

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Mark McNeil Blair, Mr Price Group Limited - CEO, Member of Group Management Board & Executive Director [24]

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That has happened. I mean people are in lockdown. You don't have to buy the fashion dress to stay at home and watch TV and lie on your couch. So obviously, there's been a move to casual wear. But that's potentially short-term trend. How long is it going to happen? And when restrictions are fully lifted, I think people are going to be very keen to get that new fashion dress and get out and be seen.

So it's -- in the short term, yes, it's the trend there. We've got good stocks to match it. We've performed well in those categories. But I don't think it's a long-term enduring trend.

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Mark Stirton, Mr Price Group Limited - Group CFO & Executive Director [25]

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So I think I'll refocus back into the rebalancing of the assortment into a higher proportion of core. And I'd say that core has served us really well over this term. So yes, I think, to Mark's point, that we're confident that the fashion is appropriate. The risk within the fashion is fine at the moment.

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Mark McNeil Blair, Mr Price Group Limited - CEO, Member of Group Management Board & Executive Director [26]

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Great. Well, I'd like to just say thanks once again to everybody for dialing in. We have got a couple of sessions lined up for next week. To the extent that there are any further questions, reach out to Matt Warriner, whose details you've got. And we can then close the loop on that. Thanks, everybody.