Shoprite Holdings Ltd
JSE:SHP
Earnings Call Analysis
Q4-2023 Analysis
Shoprite Holdings Ltd
This year, the company achieved robust financial results despite exiting operations in the DRC and navigating the complexities of the Massmart transaction, which included the assimilation of 94 stores and over 4,400 employees, contributing ZAR 2.4 billion to sales. Sales surged by 15.6% while trading profit rose to ZAR 11.9 billion, accompanied by a commendable EBITDA growth of 13%. Investors would be pleased with the 10% increase in earnings per share, and a generous 10.5% hike in the dividend, reflecting a payout of ZAR 6.63 per share.
Diversification proved effective with notable performance across supermarket chains in South Africa, yielding an 18.2% sales growth in the second half, and overall contributing to an 17.8% climb. However, international supermarket ventures endured currency instability, but still managed a steady 16.4% increase in sales. The furniture segment saw muted growth in South Africa, but non-RSA segments fueled a 5.1% gain in revenue. In addition, segments such as operating franchises experienced a healthy 13.3% growth. The group continues to expand its store footprint, with significant growth in core brands, the introduction of new store formats, and plans to open over 300 new stores.
Operating expenses climbed by 18.6%, impacted by abnormalities such as additional diesel expenditure due to power outages. Notwithstanding these challenges, the company displayed adept cost management as total income growth consistently outstripped expense growth. Gross margin witnessed a slight contraction due to strategic price investments and increased supply chain costs. Additionally, right-of-use assets and lease liabilities grew amidst an aggressive store launch agenda. Encouragingly, the company reported a strong operating cash conversion and free cash flow, earmarking an impressive ZAR 12.6 billion excluding additional diesel costs.
Looking ahead, the company is strategically preparing for additional sales from Massmart inclusions and continued capital expenditures of ZAR 8.5 billion, targeting the upgrade of newly acquired stores and the ambitious opening of 314 new outlets. Anticipating ongoing diesel costs and aiming to maintain currency stability and affordability in non-RSA segments, the company foresees inventory levels at 12% of sales. Share buybacks seem unlikely due to the prospective capital deployment and operational costs. Moreover, the company maintains a cautious stance on gross margins due to several influencing factors, envisioning a stable effective tax rate between 30% to 31%. Shareholders are encouraged by the consistency of the dividend policy, currently set at 1.75 times diluted HEPS.
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Good morning, and welcome to our financial results presentation for the 2023 financial year. By now, you would have become used to of our format, a bit like our strategy doesn't often change. We stick to our plans. So as usual, I'll do a bit of an overview. Then Anton will give you as much disclosure as we possibly can to ensure that you can make informed decisions from the information that we are providing.
I will then just give you a little bit of a view of what we currently are busy with. And then, of course, right at the end, we will do some -- we'll take some questions. Shoprite is a very big business. It's large. It has over 3,000 stores, 150,000 people, but yet it's the small things that's important. So today, we've elected that I'm talking to you from the [tin rain] truck. That's the truck that we, together with our soup trucks, send out when disaster strikes.
When Anton gives his part of the presentation, you will see these backdrop, our Homegrown range. That is a range specifically designed to help our small suppliers, and one of our success stories in there is our Khayelitsha cookies.
I'm extremely proud of the daily dedication of our team across the entire business, and a real sincere thank you to each and every one of you. It's the team, Team Shoprite, that makes the difference. Our people have learned to embrace resilience, resilience meaning fix, do something; agility, adapt to the situation, like the solar or COVID, whatever comes our way; and then staying relevant, the launch of PRIME still trying to be innovative, our partnership with our World Champion Brad Binder.
It's our people that makes a difference. And one can look through these pictures, and you can see from the looting right through to maybe the fun side that it's only because of the people from Shoprite that has an attitude of it can be done. That is what makes the difference for this organization.
We have now surpassed the ZAR 200 billion sales milestone. And by quite some margin, it hasn't come just by accident. It came by plan, by continuous investment over the long term. And unfortunately, the negative part of this is that the ZAR 1.3 billion that's now very topical that we had to spend on the diesel to keep our stores open and to make sure our customers get product and still getting good prices is that, that is actually the money that should have gone as a profit increase for our shareholders.
The ZAR 200 billion in revenue I just referenced, so the actual number was ZAR 215 billion for the year. But what makes this exceptional is that the additional revenue that, that equates to that we had to add during the year is ZAR 31 billion. And ZAR 31 billion is probably as large as some organizations in total.
The gross profit is also an enormously large amount of ZAR 51 billion. And you will remember that in the first 6 months of the year, we dropped below 24% in our gross profit percentage margin and, in the last 6 months, have managed to creep a little bit back so that we could end at 24.1% for the year. It is so led globally. All of our retailers has to absorb some of the inflation. The pressure on cost increases from manufacturers and all of the cost factors, especially what we experienced in South Africa, has resulted in that we have to protect our customers to some degree. And we've done that.
Very pleasing for me is that we are still able to increase the dividend for the year by 10.5%, illustrative of the ability of the organization to positively generate cash. Very telling is that we are still gaining in customers. Our customer visits, up by 13.2%, but as I've always have explained is that the very telling number is the volume growth, the positive volume growth that we've been able to achieve or 4.9%, which equates to more than 335 million additional items being sold during the past year.
Even excluding the MassCash stores, this number is still a positive 3.8% in volume growth. This resulted in a ZAR 8.1 billion gain in market share. It's the fifth year in a row -- financial year in a row that the group have gained market share and also now 52 months of uninterrupted market share gains.
About 6, 7 years ago, we very clearly have separated our consumer brands between the Checkers, Shoprite user brands with a very clear position. And that balanced portfolio has really proven in good stead for us. If we look at the Checkers brand, ZAR 70 billion in revenue, growing a staggering 18% last year, by far the highest growth retailer in the premium segment of the market, with a market share currently sitting at 14.8%.
And on that point, I'd just like to mention that we do believe there's still a lot of headroom given that we only had basically 15% market share. And then very telling in this whole scenario over the last couple of years is the 10.6 million Xtra Savings customers that we have, the data points actually that we have on them. And what makes it really powerful is the fact that the data is so relevant because of the frequency of interaction that customers have with our brand, primarily because it's food-related, but the data is very current, and that drives our decision-making.
And if you look at the wheel on the right-hand side, you can see that our customer value proposition is very clearly defined. I'm not going to go in each of the detail, but you can understand that we do fit them in each of the blocks that they belong when we execute.
Then the Shoprite brand, that still equates to 60% of the South African supermarket revenue at ZAR 90 billion. So that is the big one, growing at, in my view, a very solid 15.6% in the last year, which equates to just under 20% in market share.
Here, even more so, the criticalness of having 17.2 million Xtra Savings members, which includes previously excluded data points for cash customers. And again, I just want to reiterate that the Shoprite Group story is not a Checkers story only. We do as much innovation.
There is as much creativity going into the Shoprite brand. And if you look at that wheel again, very clear in our customer proposition, it's just different. That's why we have [500] meals, and that's why we can surprise and delight people with here behind me, ZAR 1 biscuit, a sweet treat. You almost can't imagine you can still buy something for ZAR 1.
The year that was, was really a telling story of industry-leading growth for Supermarkets South Africa. I'll get to the inflation graph now. But first, I just want to mention that Supermarkets South Africa growing at 17.8% on a very high base really is a very, very strong result. And without any economic tailwinds, it almost feels like we have to create our own oxygen to mobilize such a growth across the entire business. And hence, again, I want to repeat that it's not only a single-brand story.
It's a momentum across the entire business. Even excluding the sales from the MassCash acquisition, still a combined growth of 16.2%. Liquor stores had an outstanding result this year, outgrowing the market by 1.3x. Sixty60 stays a good story, growing 81% on top of 150% last year.
Then I think it's important that the position what the Shoprite Group has always maintained is our value offered to consumers that we consistently, throughout the 12 months of the financial year, have been below the official food inflation. That is meaning our own internal inflation have been below the official food inflation. Customers are really stretching their budgets. So very clearly, over the last 2 years, we've seen the participation of promotional items in the basket increasing by more than 5%. Clearly, customers are looking for value.
Also so that customers are starting to combine their purchases, and that's why we also have these combination purchases or deals to assist customers to get even better value. And I always say, don't underestimate the customer. They are very creative to make their budgets work. And because of our data and our ability, we use it to deliver the consumers what they expect from us. As an example, 50% of tuna that we now sell is from our Ritebrand private label.
Unfortunately, I have to show you this graph. We're not well known for making excuses. We deal with what comes our way, but 88% of the last financial year, we had rolling blackouts. That now has resulted in that well-publicized ZAR 1.3 billion in diesel costs that we had to incur. But I want to emphasize here that it's not us only as the retailer, but it's the entire value chain that gets affected by this.
So really from farm to fork, its additional security cost is the food waste. You can imagine if any production line is interrupted midway, all of that food production has to be wasted. So it's something really, really critical for the entire country that we get this thing sorted so that we can get our economy back on track again.
And then what's our promise? What is it that Shoprite does? When I talk Shoprite, of course, I include all of the consumer brands, is our unconditional savings for consumers. We don't do double points and special conditions and funny names. We give instant cash at the checkout.
And that this year amounted to a staggering ZAR 13.5 billion, and I believe in anyone's language, that's an incredible large amount of discounts, and we're very proud. And we're not shying away from this.
The fact that consumers are actually demanding and asking for more promotions on the earlier slide, we're embracing that to entrench our position as the leading value provider for consumers in South Africa. I have mentioned earlier the ZAR 10 items, so we sold over 130 million under ZAR 10 products in the last year. And then we have this affordability obsession.
We've never shied away from that. So just as an example, since 2016, we have now sold over 600 million ZAR 5 meals and loafs of bread for 7 years now with a zero inflation. I think quite commendable and appreciated by our consumers.
When I spoke about the market share earlier, I thought this picture actually illustrates exactly what I'm trying to say. So firstly, if we look at the ZAR 8.1 billion in the black, you can see it has come from both of the consumer brands, Shoprite and Checkers. So it's not a one-pony story. But I think the graph on the right-hand side clearly shows the multiyear investment, our ability to now start utilizing the tools in which we invested in terms of pricing, whether it's personalization, et cetera, to really meet the needs of the consumers, get our pricing right.
And customers are voting with their wallets, and we can clearly see that gap increasing over time.
The rest of the operating segment that we don't talk about that often, including the rest of Africa operations, where we still trade out of 9 countries, we still managed to, in the last year, restrict the capital allocation to that segment and managed to achieve our medium-term guidance that we've gave you before, just missing ZAR 600 million in profit contribution. Very happy that we are still limiting the capital allocation to that but still achieve decent number here.
On Furniture. Furniture slightly flat, pretty much in line with what's happening in the industry. What development we have been improving on here is our ability to advance credit, improve the process, easier to apply, quicker turnaround time, and we've seen an uptick in the credit participation. Although cautiously so, we understand where the credit advancement in South Africa currently is and how in debt the consumer is.
On the other operating segments, I mean, OK Franchise as a division is really becoming meaningful, 535 stores. And also, innovation and development on that side of the business, a request from our members, have assisted us into creating another brand that we're trialing in terms of the franchise. And we see constantly an increase in the direct purchases from the group by the franchisees because of the partnership that we are forming with them.
Transpharm and Medirite have performed fairly well, double digit. We also there are trialing some more innovation and different formats. So as I mentioned earlier, all parts of the business currently has some form of creativity or innovation.
Now of course, this is what you've all been waiting for. The detail that Anton is going to give you around the disclosure so that you can -- as best as you can, perfect your operating models.
So I'm going to hand you over to our very fine CFO, Anton de Bruyn.
Thank you, Pieter, for that introduction. And sharing some of the insights into the operational performance of the business for the year.
The group delivered a strong financial results, which I will share as part of my -- part of the presentation. For ease of reference, we've included additional information in the appendix that deals with the adjusted diluted HEPS calculation as well as how we look at our weighted average cost of capital as well as our return on invested capital. Also included is a detailed analysis of items of a capital nature. My part of the presentation will deal with continued operations.
During the financial year, we exited our operations in the DRC, which we now deal with as discontinued operations and, hence, also our restatement of the 2022 financial year results.
During the first half of the year, we concluded on the Massmart transaction. The effective date of the transaction was 9th of January, so that's part of the second half results for the year. This number of stores acquired was at 94 stores plus 1 meat plant in the Gauteng region. If I look at the consistent -- or with the stores that formed part of the transaction, we converted 51 stores to Shoprite, 1 store to Usave and then 42 stores to Shoprite Liquor. Two of the liquor stores did not trade at the end of June as a result of the fact that we couldn't get the liquor licenses in time transferred.
One of those liquor licenses has now been transferred, and we also expect the second one to be transferred in the first half of the 2024 financial year. The purchase consideration that was at fair value was ZAR 662 million. And if we look at what it makes up of is property, plant and equipment of ZAR 322 million, inventories of ZAR 367 million and then also various employee benefits of ZAR 27 million. The 94 leases plus the meat plant made up of the right-of-use asset of ZAR 784 million as well as the lease liability of ZAR 784 million.
The number of employees transferred as part of the transaction was 4,480. And the sales for the first half for the retail was very much in line with what we estimated, and that was at ZAR 2.4 billion of sales.
If we then turn to the financial highlights. Pieter spoke about the increase in sales. Total income increased by 15.6%. On a normalized basis, our total income increased by 15.2%, and I will discuss later the items that impacted that. Total expenses increased by 18.6%.
And again, excluding some of the abnormal items during the year, our normalized growth would have been 14.9%. What is very pleasing for management is that our total income growth still exceeds that of our expense growth.
Trading profit was ZAR 11.9 billion at a trading margin of 5.5%, representing an increase of 5.7% and a very strong EBITDA of ZAR 18.8 billion, an increase of 13% year-on-year. We did realize the exchange rate gain in the current year versus the loss of ZAR 259 million in the previous year. And the gain was as a result of our hedging strategies within the Angolan environment. During the year, the Angolan kwanza devalued by 68.7% against the rand and more than 93% against the U.S. dollar.
Now as you know, we have those -- we've invested in those U.S. dollar-linked bonds. And as a result of the currency devaluation, it materialized a profit or a gain in the financial year, which was the majority of that gain.
Earnings per share, a very strong 10% increase with diluted headline earnings per share up 9.7%. And then also our adjusted diluted headline earnings per share, up 3.8%. And as I mentioned, there's a detailed analysis of that in the appendix. Our return on invested capital, excluding IFRS 16, was 14.9% versus the prior year, 16.9%, and that was really driven as a result of the additional diesel usage during the year. Our weighted average cost of capital is 13.5%, lower than our 15.1% in the prior year, and that was as a result of how we look at our EBITDA measurement.
Our dividend per share increased by 10.5% to a full year dividend of ZAR 6.63. Our final dividend was ZAR 4.15, which was a 13% increase year-on-year. Our return on equity for the year was 24.8%.
If we then turn to sales. Pieter has spoken a lot about what we've achieved within Shoprite and Usave as well as in Checkers and Checkers Hyper. Maybe just a shout-out in terms of our Supermarkets RSA business, we saw acceleration of growth during the second half of the year.
First half, we achieved a 17.5% sales growth, second half accelerated 18.2% that gave rise to that 17.8% growth in our Supermarkets RSA. Maybe just on LiquorShop, we saw that 30.8% sales growth driven by 112 stores open during the financial year, which did include that 40 stores that we saw from the Massmart acquisition, but also pleasingly is the 61 new stores planned for the 2024 financial year.
The other business units within that Supermarkets RSA business or segment contributed ZAR 400 million. And on my next slide, I will give some context of the new store formats that we've rolled out.
Supermarkets Non-RSA increased by 16.4%, on a like-for-like basis of 16.3%, and internal food inflation, we measure around 6.1%. We've spoken a lot about affordability and also currency stability that will drive the growth within that segment. But again, unfortunately, we saw major moves in currency and volatility in our -- both our Zambia, Ghana and Angola business units.
Furniture increased by 5.1% to ZAR 7 billion. Majority of that growth is in our Non-RSA segment of our Furniture business in the rest of Africa, with muted growth in the South African context, but we've seen an overall muted growth within that sector. We've managed to increase our credit participation to 14.9%, an increase by 1.5%.
Other operating segments increased by 13.3% on the back of a franchise increase of around 13.5%, now trading from 535 stores. And then we also saw our Medirite and Transpharm business increasing sales by 12.2%. We always get a question around the store footprint of the group in the different formats. We've put this slide together to give an indication of the growth that we've seen within the RSA supermarkets environment. We've added the 301 stores during the period.
Again, a lot of growth coming from our core Shoprite and Usave business, where we opened 68 new stores with the 51 acquisition from Massmart. Checkers also opened 23 stores. And pleasingly for us is the opening of those 4 Checkers Food stores where we see quite a lot of traction again within the suburban areas.
LiquorShop, very strong. 73 stores, opening more than 1 store a week and the 40 stores from the Massmart transaction. And then the Petshop business, where we opened 31 stores during the year, already trading from 53 stores. And I know Pieter is chasing the team extremely hard to reach that first 100 stores within that brand. From an other business point of view, we've opened those 9 UNIQ clothing stores.
We now have 8 Outdoor stores and also 9 Little Me stores, totaling 31 additional stores. In total, trading from a Supermarkets RSA point of view, we have 2,121 stores. If we then turn to the income statement. From a total income point of view, we saw an increase of 15.6% to ZAR 56.5 billion. Excluding the impact of the loss of profits claim that we received in terms of the civil unrest, the ZAR 222 million, our normalized total income increased by 15.2% to ZAR 56.3 billion.
Our gross profit increased by 14.8% to ZAR 51.7 billion, an increase of ZAR 6.7 billion in the current year. We did, however, see a decrease in gross margin for the full year from 24.5% to 24.1% on the back of our price investment strategies as well as an increase as a result of diesel in our supply chain, where we saw a 25.7% increase in the diesel price.
If I then look at other operating income and the ways on how we look to unlock alternative revenue streams within our ecosystem, we saw an increase of 25.4% to ZAR 3.9 billion. Some of the major items contributing to that ZAR 3.9 billion was commissions received within our Money Markets, where we saw a 15.6% increase to ZAR 1.1 billion. That was on the back of new products launched within our Money Markets as well as the increase in payouts for the government grants.
We saw a close to 50% increase in delivery recoveries, driven by our more than 80% increase in our Sixty60 on-demand business unit. And then from our Rainmaker Media and InsideData monetization products, we saw a more than 100% increase to ZAR 383 million.
I've spoken about the loss of profit claim, and then from our property portfolio, we saw a 7.1% operating lease income to ZAR 468 million. Interest revenue increased by 22.2% to ZAR 665 million.
If I look at the items that contributed to that interest income, firstly was the growth that we spoke about in terms of what we've seen within the Furniture book and the interest received on those -- on the debtors. And then pleasingly, also, we spoke about our CredX business last year. We now, on average, have around ZAR 500 million of credit granted to our SMEs and suppliers.
That also gave rise to the increase. And then lastly is around ZAR 153 million of that interest equates to the investment of around ZAR 1.3 billion in our government bonds as well as treasury bills in Angola during the year.
Our share of profit of equity and account investments increased by 20.7% to ZAR 251 million. ZAR 208 million of that is from the retail logistics fund that currently houses our distribution centers and that partnership with Equites, and then ZAR 43 million was derived through our Pingo business units where we have a partnership with RTT on the last-mile delivery for our Sixty60 business. From a normalized point of view, total income margin that we see is continuing is 26.2%.
If I then turn to expenses, we saw an 18.6% increase to ZAR 44.6 billion at expense margin of 20.8%. Some of the major items contributing to the expenses are depreciation, amortization, where we saw an increase of 17.1% to ZAR 6.3 billion. The ratio of depreciation to revenue is still at the 3% target that we set ourselves. Some of the major drivers was 18.5% increase on our depreciation on property, plant and equipment as a result of that strong store opening program as well as the depreciation of some of the IT projects that we've delivered that forms part of our intangible assets.
We also saw a 15.2% increase in our right-of-use asset depreciation on the back of those additional leases pertaining to the store opening program.
Employee benefits increased by 15.3% to ZAR 17 billion. During the second half of last year, the group launched our Shoprite Employee Trust scheme. We expensed ZAR 235 million in the current year versus the ZAR 128 million in the prior year. That led to an additional ZAR 107 million. If we exclude that ZAR 107 million, our growth was 14.6%.
And then another anomaly that formed part of employee benefits during the current year was the ZAR 193 million included in the 2022 result as a result of that civil unrest that was a once-off. If we, therefore, have to exclude those 2 anomalies, our core growth within our employee benefits would have equated to around 13.1%. That growth was driven by the 8,131 new job opportunities created. ZAR 285 million of that growth relates to the Massmart transaction, where we added those 4,480 new staff members.
We also contributed ZAR 91 million to the government's -- in support of government's youth employment scheme, where we have currently more than 2,000 participants in that program.
Electricity and water increased by 36.6% to ZAR 4.9 billion. Pieter has spoken and has shown a graph on the additional diesel spend of that ZAR 1.3 billion. In the prior year, we did spend ZAR 200 million, and that's why we referred to that ZAR 1.1 billion as additional spend in the current year. Excluding the impact of that additional diesel spend, we expect that our electricity and water to increase by 6.1%.
Other operating expenses increased by 18% to ZAR 16.3 billion. Some of the main drivers was, firstly, that increase in our insurance cost, where we had to source additional insurance giving rise to the civil unrest. We could not cover ourselves through Sasria or get fully covered through our Sasria offering in the current year, hence, the fact that we had to source additional insurance for that. And that came at a massive cost of ZAR 181 million.
We also saw a 15.2% increase within the advertising spend to around ZAR 3.7 billion for the year, which was largely as a result of the strong sales growth that we achieved within the financial year. Our security costs increased by 12.5%. Firstly, obviously, how we look at protecting our assets and in terms of loss prevention, but if we look at our historical rates, we've kept on spending around 1% of revenue, and this year was no different to that. Lastly, we saw a 18.6% increase in maintenance costs to around ZAR 2.5 billion, and that was also on the back of the load shedding that we experienced.
If we therefore exclude some of these anomalies or abnormalities, our expense margin would have been 20.1%.
We then turn to trading profit. Supermarkets RSA, we saw an increase of 5.6% to ZAR 10.8 billion. Still a very strong trading margin of 6.2%, lower than the 7% of the prior year but, as we said now on a few occasions, driven mainly by that diesel expenditure. Supermarkets non-RSA, very strong performance with a growth of 24% to ZAR 594 million, slightly ahead of the guidance that we've given in terms of our short- to medium-term growth of ZAR 500 million. But we have seen and we've gained also -- some of these gains were as a result of exchange rate movements.
Our Furniture business, we saw a decline of 50.7% to ZAR 104 million. There were 2 reasons for that is our -- first, our investment in gross margin to stimulate sales within the South African context. And then we also had to increase our debtor provision on the back of the additional and increased credit participation that we've seen within the segment.
Other operating segments increased by 17.6% to ZAR 427 million, supported by the growth in our franchise business, where we saw a 5.6% growth in profitability, our Medirite and Transpharm business contributing very well. And then also our Computicket business, where we've seen an increase in traveling and entertainment again.
Our trading margin for the year was 5.5%. And just for comparability, if we had to exclude the additional diesel expenditure, we would have achieved again that 6.1% trading margin that we've seen in the past years that we achieved.
Our net finance cost increased by 18% to ZAR 3.2 billion on the back of a 350-basis-point increase in interest rates during the year. What was very pleasing is that the increase in our interest received was in line with what we could also see in our borrowings, and that was a 67% increase. Our borrowings during the year did increase by ZAR 856 million, and our average cost of funding in terms of our borrowings is 7.9%.
If I then look at lease liabilities and the finance charges related to that, we saw an increase of 16.3% to ZAR 3 billion. And that's on the back of the increase of around 15.2% in our lease liabilities, and our average cost of funding related to our lease liabilities is around 8.9%.
If we then turn to the balance sheet. I mentioned the increase in our borrowings to ZAR 6.4 billion. Our borrowings-to-equity ratio is at 24.2%. Historically, we gave that target range of 25% to 30%, but I think in the current interest rate environment, now is not the time to increase our borrowings. And that's why we also spent quite an amount of time looking at our capital allocation model as well as the capital that we invest back into the business.
U.S. dollar borrowings decreased from $43 million to $29 million, and it's now at around 8.5% of our total borrowings.
We saw a ZAR 3.1 billion increase in our right-of-use asset and a ZAR 4 billion increase in our lease liability on the back of the aggressive store opening program and then a positive move within our net working capital. I will unpack inventory in the next slide.
We saw a positive move of 10.5% in our net cash, and we ended the year on ZAR 6.6 billion. But one has to take into account when looking at our net cash is that we did settle ZAR 630 million relating to the Massmart transaction already as part of the financial year. And then as I mentioned, if we look at the CredX business, where we, on average, lend around ZAR 500 million, we would have actually achieved a much better performance within our net cash for the year.
Looking at our capital expenditure. Our capital spend as a percentage of sales was 3.1%. Excluding the impact of initial capital we spent relating to the Massmart stores, as well as the replacement capital that we spent in terms of the social unrest, our targeted 3% was achieved. That equates to around ZAR 6.7 billion in capital or 25.5% increase. How we always look at our capital expenditure is how much do we actually allocate to expanding the business vis-Ã -vis maintaining the business.
And again, this year was no exception, where we spent ZAR 3.8 billion on expanding the business purely through sales growth and then also our digital acceleration, where we spent ZAR 458 million. It's critical for us to also maintain our stores and to remain relevant. And there, we spent an additional ZAR 1.85 billion. And on the IT infrastructure as well, additional ZAR 190 million.
The additional measure that I decided to introduce or share with the market as well is that we must understand that not all capital that we spend in the current year we will also realize the benefit during that year. So 71% of the capital that we spent in the current year, we also realized the benefits, and that will be through the opening of stores or the launching of new Money Market items or products. But what is important to note is that 1/3 of the CapEx that we spend in the current year will only give us benefits and improve our shareholder returns in years to come.
The Shoprite supply chain is a critical part of the success of our business. And with the aggressive store opening program that we've had over the last few years and if I also look at the next year, it was important for us to invest additional capital in also expanding our distribution space. So that's why I'm giving you already some of the insights into what we will spend in the current year in terms of our distribution space as well as the next financial year.
So already now in October, we're taking live our additional space of around 38,000 square meters in Natal. That is funded through our Retail Logistics Fund, where we have that partnership with Equites. The capital that will be funded through Shoprite will be ZAR 200 million, and we estimate that the additional inventory that we will report on in the first half of the 2024 financial year will be an additional ZAR 300 million. We're also investing in our Centurion transport facility an additional 7,000 or close to 8,000 square meters where we will fund an additional ZAR 75 million. The CapEx to actually develop those sites will then obviously go through the Retail Logistics Fund.
If we then look at 2025, through Equites Property Fund, we will take on stream a close to 94,000-square-meter distribution center in Gauteng. Shoprite, again, will fund close to ZAR 700 million, and we estimate that the inventory build will also be around ZAR 700 million. What is important to note is that although we will only start trading and moving stock from that DC in the 2025 financial year, we will already start driving and taking in stock, which will have an impact on our inventory levels for the full financial year.
We're also taking live the Wells Estate in the Eastern Cape where we currently do not have property or distribution space of this size, where we will fund ourselves around ZAR 630 million. And we also estimate that we will see an inventory build of around ZAR 600 million. That development will also take part through the Retail Logistics Fund. So over the next 2 financial years, we look at adding around ZAR 1.6 billion in inventory, which I will also share on the next slide.
If I then turn to inventory. We saw a 14.7% increase of our inventory to ZAR 25.1 billion. It's a move of around ZAR 3.2 billion. Majority of that stock was in the Supermarkets RSA segment, where we saw an increase from ZAR 17.2 billion to ZAR 20.3 billion. As you can see, the other segments very much stayed in line with the prior year.
We are very happy with the result around our inventory-to-sales ratio, where we actually saw improvement from the 2022 result to the 2023 year. Supermarkets RSA is the main driver, where we saw 11 points -- and a consistency around at 11.7%. We did see an improvement in Supermarkets Non-RSA, but that was really driven as a result of currency volatility.
If we had to exclude the impact of our distribution centers and only look at the stockholding within our stores, we saw an improvement from 9.3% to 8.4%. And within the Supermarkets RSA environment, we actually saw a 1% improvement from 9% to 8%. What is clear from what we could see is that majority of our stockholding actually happens within our -- or is held by our distribution centers. And the reason for that is twofold.
The first is to be able to service the expanded footprint and store opening programs that we had during the 2023 financial year as well as what we planned for the 2024 year. And then also as a result of deteriorating supply service levels that we've seen in the last year or 2, which obviously leads to the reason why we carry our additional safety stock levels. A very good example of that was also during the taxi strikes that we've now recently had within the Western Cape, where we were able to maintain our high in-stock levels but where we could see that some of our competitors could not do the same. In fact, we saw that they had to close some of their distribution center operations.
The free cash flow measure is extremely important for the group. And if we look at the free cash flow conversion rate and what we mean by that is how we look at our free cash flow at ZAR 11.5 billion as a percentage of our EBITDA, the ZAR 18.8 billion, and that's a very strong 68.6%. And then as I also look at our operating cash conversion ratio, which is our operating cash flows as a percentage of EBITDA, is currently sitting at 99.1%.
If I just look at some of the main items making up our free cash flow. EBITDA, I spoke about strong growth, was at ZAR 18.8 billion. Spent -- our effective tax rate has remained consistent. There's a ZAR 2.7 billion from that. And then refurbishments, additional ZAR 2.1 billion, giving us a free cash flow of ZAR 11.5 billion.
And what we said is if we had to exclude the additional diesel, we actually would have generated ZAR 12.6 billion of free cash flow.
How did we invest that capital or cash flow? Firstly, through plowing back into our business through expanding the business of ZAR 4.6 billion, the acquisition of Massmart of the ZAR 630 million we paid, and then also the ZAR 3.4 billion paid to our shareholders. The net of all of that was a very strong ZAR 700 million cash movement after also taking into account our net finance cost.
In closing and just some guidance around 2024. If I look at sales, Massmart only form part of our second half results. And if we include that now also in our first half, we expect to achieve around ZAR 2.5 billion of sales.
From an operating cost and income point of view, we must remember that the insurance claim was a once-off ZAR 244 million in the prior year, which we received in the first half. That will not repeat in the current year. We do expect to still continue spending additional diesel throughout our 2024 financial year. And what is important to note is that we did see that additional expenditure only from September 2022, which means that we will most probably have additional 3 months of diesel expenditure in the 2024 financial year.
As mentioned, our effective tax rate has remained quite stable during the last few years of 30.6% in 2022 and 30.8% in the 2023 financial year. And there's no reason at this stage why, I think, we will not be again between that 30% to 31% range.
Our capital allocation remains consistent in terms of our dividend policy, currently at 1.75x our diluted HEPS. We did have a mandate in terms of share buyback from our Board. As a result of the additional diesel expenditure and the Massmart acquisition, we did not do any buybacks in the 2023 financial year. And if I look at the additional CapEx that we will spend in the 2024 financial year and the additional exposure around diesel, I cannot see us doing any share buybacks also in the 2024 financial year.
Talking about the CapEx, I've spoken about the investment in supply chain. We also plan to upgrade the 94 stores that we acquired from the Massmart business and during the 2024 financial year. And then we still plan to open additional 314 stores during the financial year.
All of that equates to around additional CapEx spend for the year of ZAR 8.5 billion. If I exclude the Massmart upgrade as well as the investments in supply chain, we get back to that 3% target range that we've set ourselves internally.
Currency stability and affordability remains the driving force within the Non-RSA segment, and it becomes very difficult to estimate the profitability of this segment. We do expect a lower interest earned from our investment in our government bonds purely on the back of a devaluing Angolan currency against the rand. And that's why we're not changing our medium-term trading profit guidance of around ZAR 500 million to ZAR 600 million on that segment.
The group plans to open 314 additional stores during the 2024 financial year as well as 98 of our franchise stores. Inventory for the full year, we estimate to be around 12% of sales based on the inventory build in the new distribution centers as well as maintaining our high in-stock levels for our customer availability.
Thank you, Pieter. That is then the full financial presentation and over to you around the strategy of the group.
Thank you, Anton. I sincerely hope that those disclosures that he's just done will assist you in making better informed investment decisions.
Just again, a reminder of what it is we stand for and why the Shoprite purpose defined as uplifting lives every day. And that's across the entire spectrum, no exclusions. And of late, we are very conscious that we also need to protect the planet in all of this that we do.
You've become familiar also with our 9 strategic priorities that guide our daily decision-making.
We're not known for making knee-jerk reactions. We have embarked on the strategy 6, 7 years ago, and we are still pretty much exactly on that journey, mainly in 3 buckets: the smarter Shoprite, the headroom that we have where we target additional opportunities, and then we want to win in the long run. And it's the combination of this that is delivering the results that we see today.
So in the smarter Shoprite, very quickly, a truly customer-first focus, easily said, hard to execute, very hard. But every day, that is what we drive. We have our own adage, and everybody in the company lives up today. Creating future-fit channels, and the challenge these days is to recruit and retain the talent required to support those challenges. That's why it's become a very strategic driver for us.
And precision retailing, I've been talking about for years. And I think I said last time also, people frowned upon that, and now it's being used often. We've invested heavily into enabling precision retail. I have mentioned earlier about the customer data. Let me just clarify the customer data is around the buying behavior and the products that they do and their price sensitivities and not about their personal data. We're, of course, very protective of that.
Then the opportunities that we see, we have to double down, and I have something later on also about the private labels just purely because the sheer volume requirement that the group has on a daily basis, especially on when we're on promotion, now necessitates us to double down actually on investment on our private labels. Fresh food, our growth in the premium fresh food market has accelerated. I'll share that number with you now. And partnerships is very important to us. At the speed that it is required to grow and keep on growing in today's world, we can't do everything ourselves.
We will just be too slow. So we are very -- we are cherishing our partnerships in store as well as externally.
And then when in the long run, you will notice the other income line on the income statement is now just hitting ZAR 4 billion, growing at 25%. And we have mentioned to you 3, 4 years ago that in time to come, it will become more and more meaningful, although still today, it's not really moving the dial in totality, but it is contributing and more so. Force for good, I mentioned, for us, it's not a tick anymore. They'll -- I'll cover 2 or 3 points just on that to illustrate what we do. But it has now come on to the forefront of one of our strategic drivers.
And then, of course, we leverage our platform. It's in our flywheel. It will be my last slide. You're very familiar with that is that everything hangs from our core retail business.
So yes, it's been a busy year. It's been very busy, but it's not true that we are so busy that we are getting distracted of what it is that we need to deliver on. I'm not going to read all of them. I'd like to point out the Rex platform. Fantastic for us is that we don't have to guess anymore when we sit with our suppliers, manufacturers, partners.
We don't have to guess about what is right and what -- which data is correct. We're all working from the same source. And it's very current and relevant, and it really speeds up our decision-making and making sure that we're all aligned in terms of what we want to deliver.
I can point out the Sixty60 service guarantee. Yes, we are doing well, but that doesn't mean we stop innovating and improving. So we are putting our money where our mouth is. I have to call this out: in this environment, they have created over 8,000 new jobs, very pleasing result, very happy about that, that we can make a difference in so many lives.
And the personal pride of mine is the fact that our employee trust have been able to distribute over ZAR 230 million to our employees as part of their reward of delivering fantastic results. We also created CredX that, in particular, is how we advance credit to our suppliers for bridging finance, also part of the small supplier development program.
And overall, we have managed to open 382 stores for the year. Not entirely what we wanted. We wanted 425. But these days, there are obstacles like electricity connections and storage and water that is hampering the speed at which we do this. But for the new year, we're still planning to open 314 stores.
The Money Market bank account required quite a bit of investment. It's complicated. It was expensive, but it's finally bedded down, and we're seeing very good traction on that. Basically the only transaction-free bank account in the country. Apart from when you withdraw money, that's the only time that there is a charge.
And towards the end of June, we have delivered or soft-launched on our subscription model on the Sixty60. As you know, even when the business does well, it also requires even more investment because we believe it can do even better.
The Smarter Shoprite, this is just very quickly in a nutshell, maybe a repeat of a lot of things that I've already said. But if you just look at the sheer size of all of the transactions and the involvement, we have 415 million financial transactions, over 3,000 stores. Sixty60 now operates from over 400 stores. And possibly for me, the most critical of why I'm showing you this is that 27.8 million Xtra Savings members. And the pure fact that the usage rate is, by quite a margin, bigger or more than what the national -- international standard is, is quite telling.
And you can see the almost 2,500 swipes a minute. And that keeps the data current in terms of how people buy and what substitution they do and what categories they are leaving, and we share all of that data with our suppliers, and that just helps us all to make quicker and better decisions.
Sixty60, our online 1-hour grocery delivery business I mean, the success story by itself. I did mention 80% growth on top of 150% last year. That graph is just continuing to grow. Most people thought that somewhere, we're going to fall off a cliff, but it's absolutely not what is happening. And again, a fantastic story to say that over 9,000 new job opportunities being created since the launch of this service.
As I said, we don't stop. We keep on innovating and basically, it was a soft launch. This is a subscription model, ZAR 99 unlimited deliveries. The official launch is next week. And we have decided -- it's in a week's time that we will give you a preview of what our launch commercial would look like.
So you have become accustomed to a very creative ShopriteX and Sixty60 team, and I hope you enjoy that and so with the consumers. We do believe it's a compelling offer that will just again put us ahead of what's currently in the market.
The private labels I've mentioned, and in previous presentations, I have explained that we have a slightly different view on private labels, and what I believe most of our competitors have is that we always try to fill a specific need state and not just more of the same. But there's one thing about our private labels that stands out is the loyalty factor that it also creates. So you can see that 96% of all our consumers actually buys at least one of our private labels, just as an illustration of that.
The contribution, slowly -- we've been tracking that slowly up. 6 years ago, we were at 13%. We're now at, let's call it, 21%. But we don't make a specific set target for that. We will address it as the need state arise and as our data is telling us where the gaps in the market exists.
What has been very successful is the premiumization of our private labels. In there, the examples would be what you're probably familiar with is Simply Truth and Forage & Feast, and what is quite telling of this is that there was a clear gap in the market from local manufacturers and even multinationals that we had 7 premium labels in the Checkers brand that achieved almost 30% in sales growth in the last year.
Liquor, I have also pointed out, growing 1.3x the market. We've opened our 700th store, and we're not stopping. We certainly are continuing to grow that business. That team averages about one store -- one new store a week, and we hope that they can maintain that momentum.
And then here's what I mentioned about the market share gains in the fresh food part of the business. So out of the ZAR 8.1 billion in market share gains in the last year, ZAR 2.3 billion came out of fresh foods. And we're going to continue to push in this section of the market.
We've got 87 FreshX stores now. They're expensive, I know, but they also give good returns.
And there, just a little picture, we -- every store of ours have a champion that ensures that the cold chain is not compromised. It's something we take very, very seriously.
And then as you know, we like to try new things. The Petshop is a good example here. Our stand-alone pet shops. The result of that was -- is that the pet customer that we used to have with now the introduction of the stand-alone store are now spending 3x what they used to spend in that category.
Partnerships, I also referenced it, we cherish these. Our OK Franchise partners, we like to refer to them as partners. We work together in terms of creativity and design in new concepts and systems, and that partnership is really becoming meaningful, and we are very pleased with it and their performance. And then also in-store, we have created these partnerships with Krispy Kreme, Starbucks, Kauai, those that you are familiar with. And in here also that plays a role is NEXT Capital, where we actively pursue supplier development, expanding capacity as we require more and more volume.
We keep on investing through the cycle. The fact that there is currently no economic growth in South Africa doesn't mean we can stop investing because if you stop investing, to start again in the future is a slow start. So we keep on investing. Our supply chain, we've mentioned before, we're adding 200,000 square meters to the supply chain. And believe me or not, but in one of the regions, we are already out of capacity just because of the exceptional growth that, that region has achieved in the last 2 years or so.
So we are planning again a next round also.
And then I mean we are leveraging on our proximity advantage. What we mean by that is having this very wide network of stores allows us to also experiment with some other concepts like you've seen the Little Me, Outdoor, Medirite, et cetera. We have been doubling down on our digital investment to maximize our share of wallet. Having the 27 million Xtra Savings customers, we just so much better understand what else it is that we can offer them to either save them money, save them time, increase their quality of life.
I did mention force of good. Force of good is not just a tick in the Shoprite Group. We do an enormous amount for our communities. I'd like to say that big business can make big differences. And this is exactly what we do.
They are big numbers on the -- I'm not going to read all of them, but we are supporting not only on food but also in community development, our early childhood development centers, the food that we donate and not to forget or underestimate the large amounts of recycling that we do. We also do compose. And so we really feel that Shoprite is a responsible citizen -- corporate citizen in doing our part when it gets to the planet. We'd like to leave the planet a better place than what we found it.
I know you're very familiar with this flywheel of ours, where at the center of everything we do is our core Supermarket business. And then we build around this, all these adjacencies in order for us to deliver on what our customers really expect from us in terms of saving them money, improving their lives and giving them the things that they want, not what we want.
Thanks for listening. Appreciate that. I'm going to move over to Anton so that we can take some questions now. And during that time, we will show you just a few comments from our most important stakeholder, which is our customer. Thank you.
Okay. So I've made it to Anton very quickly. While he gets us the questions, the obvious that guidance that or some input you would like from our side is how has the new financial year started. So yes, we have mentioned in this morning, SENS also, it still remains in double digits. We have to remember that in January, we peaked inflation -- food inflation about 12.1%, and it's come down to 8.6%.
So that by itself would mean a slight reduction in a -- from a percentage growth point of view, but double digit is still very good in terms of rest of market. We must also not forget so that we're up against a very high base. If we look at the entire financial year last year at 18%, then the base is very, very high. So for us to maintain that high level of growth is going to take maybe more than one horse. I think you will ask there will be some questions around the Massmart. I will deal with it as they come.
The diesel. I can tell you the diesel cost is still increasing on last year. So the expense increase on last year is in the region of ZAR 60 million for the 2 months. We are analyzing that high peak in the additional load shedding in September. And yes, we will continue to invest in our -- on behalf of our customers.
We have to. We all have seen in the last week also the levels of debt default. We -- it is so that our consumer is distressed at the moment. And we must do everything we can to support them, and we will continue to invest in price and value. And we have seen during the presentation, I've mentioned the increase in promotional spend by customers.
We will continue to do that. It is so that globally almost all, especially food retailers, had to invest some margin to assist the customer as all of the cost pressures could not be passed on to the consumers.
So yes, Anton, we can -- maybe then on that.
Yes. Maybe that's a good starting point. I mean there's quite a few questions coming through on gross margin. And how do you think about gross margin going forward? Is it peaking?
Is it something that you talked about price investment? Maybe just share how we think about gross margin.
Yes. We don't give guidance on gross margin because so many factors actually influences that. We must remember that gross margin is just purely the cost versus sale price. It is influenced by supply chain costs, the diesel we've just spoken about. There's a number of factors that actually affects the gross margin.
We -- I did sort of allude to the fact that the 24% is where we got back to 24.1%. So -- but I cannot absolutely say that we will achieve that. It all depends on what gets thrown to us. And I would love to give guidance, but then it's like -- if you can tell me what's going to be thrown at us tomorrow, then I can maybe tell you what the GP will be tomorrow.
So there are too many variables. And currently, I mean tomorrow, we're going to have ZAR 2.80 diesel increase in the price. That immediately affects the gross margin. So suffice to say that we had some -- a President of the Spanish Retail Association, and he showed us the range of margins currently achieved by food retailers globally, and you're talking about between 0.7% and 2.9%, and Shoprite RSA supermarket sitting at 6.1%. Yes, so...
A strong trading margin. Pieter, you spoke about -- in the presentation about a multiyear transformation, and I think for our overseas investors, all new investors to Shoprite, maybe just share with us what you've seen during the last 5, 6 years as since you become the CEO, what our strategies -- I mean you spoke about our strategies, but maybe just give some of the highlights as given basically rise to the profit and what's driving the sales growth.
So the transformation, not purely the investment.
Yes, yes. How about...
Better people. So it all starts with people. I say we're in a people business, very simple. They are our customers, the people. Then they are us, the Shoprite people. And they're also our shareholders, that other people. So we're in the people business. We are a customer-facing business, very different to being a manufacturer. So it's the people first.
And we have done many changes and something like the employee trust. The fact that we pay above the national minimum wage levels and for critical positions, differentiation and so forth. So all around that, very critical, important. And then there was the financial investments, the CapEx that we invested. And pretty much on here, I mean, first, it was the foundation that we had to put for the core system of record. SAP, there are now many good stories about the first time around implementations. We managed to bed that down. First -- and that form the basis of a lot of those investments, the Xtra Savings as we have made the big difference.
The form of ShopriteX, you've seen their creativity, the stuff that they do with the data, and out of that flows the personalization and now being able to share the data with our manufacturers and suppliers through the Rex platform, the replatforming of the financial services sector or segment.
So a lot of CapEx investment through COVID to lay this foundation for us for, as we said, winning in the long run. So these are all investments made -- not all, but a lot of the investments here are made for future growth.
No, and I think, maybe just to add to that, there's 1 or 2 questions about our income margin. So I mean, with all these investments, we're looking at maintaining that 20% -- 26% income margin. This year was an anomaly in terms of expenses. Our expense margin normally runs around 20.1%, and that's how we derive that 6.1% trading margin. So excluding the impact of the diesel, like we said, our trading margin would remain at around 6%.
So going forward, if we had to give around guidance, I mean I said our core income margin, we still estimate around 26% and then all dependently on the -- on what we will see within the diesel usage, that will determine, obviously, then how we look at our trading margin going forward.
Pieter, lots of questions around Massmart. So are you happy with the first half or the first half of Massmart in our base, the performance there? And how do you think around the future of Massmart? I mean we're making additional investment in terms of capital around refurbishing those stores. So maybe just share a little bit about how you think about Massmart stores that we've incorporated.
I'll start with my disappointment in the fact that to get this over the line took almost 1.5 years. In that 1.5 years, we can understand a lot of damage was done to the equity of those sites and stores, in particular, no investment, lack of stock and a lot of suppliers, small security people, merchandise, et cetera, lost their jobs, et cetera, which I'm very annoyed by. But we have taken it now, and there was a lot of, as I said, damage done to the equity of those stores.
So we had to rebuild. Firstly, a great thank you to the fantastic effort by the Shoprite team to -- on the 9th of January, when everybody was on holiday, when we took over those stores. The next day, they were all rebranded, done, painted too, so and open and ready for trade. So now we have to invest. The stock has started to flow in, and we have to build that equity back.
So we're not right at the level where we expected to start. So we started at a lower base, but we're almost there. We guided that we were going to be at breakeven by now at the financial year-end.
On EBITDA level, we're just under breakeven levels. Some of the stores are performing very well, and some are -- of course, are still loss-making. That goes without saying. We have to get them up to our standard. So that's why you mentioned the CapEx that we have to invest.
Overall, those stores have incorporated very seamlessly within the Shoprite structures. And for us today, there's no difference between them and the rest. And slowly but surely, we are picking up the performance in there. And I'm sure in the next year, that will be where we want them to be.
Okay. Great. Thank you very much. You spoke about private label, and there's a question around -- from Chris Gilmour around the manufacturing capacity. And how do you look at manufacturing capacity?
And how do you actually stimulate manufacturing capacity within the South African environment to actually grow our private label participation and products?
So firstly, I just want to put in context, it's one thing to look at percentages. So you can look at our private level participation as a percentage, roughly 21%. But if you do it in value, 21% on ZAR 215 billion is ZAR 45 billion. That's bigger than some other retail businesses in the country. So it is big by itself already.
Secondly, and I've been saying this now for more than 5, 6, 7 years is that there is a lack of investment in manufacturing capacity in the South African environment for various reasons. It can be the macro environment. It can be the lack of incentives to invest. Whatever the reasons are, there has not been many manufacturers that expanded in capacity and now have -- we have this added complexity of the load shedding and interruption that, that has on manufacturing and be able to provide the volumes that we require.
So hence, we had to start and help investing in capacity build with some of our own suppliers or suppliers that already supply to us. And we will definitely, in this year, have to increase on that because of the sheer volume, which I did mention that we require, especially when we go on promotion is to get the right service levels for us to not disappoint the customer. That is what we are about, is that we don't want the consumer to spend that money, an extra ZAR 2.80 from tomorrow a litre on petrol, on a taxi fee, ZAR 50 a single trip, and then we disappoint them because we didn't get the product.
So that is what we're trying to address is the customers' right to when they've elected to come to us to actually get what they came for.
I think additional to that, just, Pieter, is also how we look at, obviously, our NEXT Capital. I mean NEXT Capital obviously just don't do working capital financing, but we've also started investing actually and giving funding to kick-start businesses.
There was a question just around Sixty60. I mean just where does it roll up? So Sixty60 sales forms part of our Checkers and Checkers Hyper sales, which forms part of the RSA supermarkets business. So the GP, everything just rolls through as part of that reporting. And then the delivery recovery is the ZAR 35 delivery fee that we charge to our customers, which rolls up under delivery recoveries, which I mentioned.
Pieter, the Furniture segment, we saw a decline in profits. There was just a question around how do you look at this going forward and how does it fit actually into the Shoprite business and environment.
Okay. So immediately, 3 things come to mind. One is up to now, it's been primarily a cash business. If I take where we come from last year, the shipping cost of a kettle -- per kettle amounted to about ZAR 52. Now it's ZAR 79. So the pressure on the gross margin has been incredible in the last year.
Affordability for consumers in that what -- is not a necessity. It is -- can we say, not luxury, but I mean it's not like food. You can maybe still cook water on a stove and not a kettle, but you understand what I'm saying is that the cost drivers have changed to the better for the consumer. The credit that I think, over time, we have not invested enough in that.
And then thirdly, that brings me to the main point basically is just that even though you've analyzed the entire ZAR 8.5 billion we're going to spend in the next year, that still comes in a priority list now. So it is -- unfortunately, this long, multiyear investments that we have done that '22 was put on the lower end of that investment. What have we done right now? What are we busy with now? We've made some changes and boosted in terms of our whole management structure, how we operate.
Secondly, there was a complete revisit in terms of our assortment, what styles we do. So there are a lot of global trends, et cetera, that we will be introducing now -- from now to the end of the year and the increase in the credit participation. So I think a little bit more of attention that they deserve. And yes, I expect them to deliver back to where we were.
Yes. Thank you. Maybe just on the CapEx. I mean there's been a few questions around the ZAR 8.5 billion and what impact it will have on our return on invested capital. I think what complicates things is obviously the impact of the diesel.
So if we had to exclude the diesel, the 16.9% we achieved in the previous year, our results would have been much more in line also with achieving that 16.9%. So basically at a 2% move on ROIC purely as a result of the diesel impact.
If I look at the impact from a capital spend point of view, I did mention that our depreciation is still around 3% of our sales ratio. So that additional spend will not have a material impact on that. And that's basically our northern -- well, basically our North Star, basically, on how we spend our capital. Looking post 2024, we will have additional capital expenditure again.
So it will be higher than that 3%, purely on the back of the distribution center expansion, but that is necessary for us to supply our store growth. So yes, I mean, that's how we look at it.
Pieter, maybe just 1 or 2 last questions around UNIQ clothing. So we obviously launched UNIQ during the year. I mean are you happy with the performance? I know it's very small. I mean it's 9 stores, but I think people just want to know: is it contributing? How do you feel about it?
It's one of those things that -- I mean, if look at this -- it's a long-term play. I mean it's not going to move the dial in the next year or two. But we're learning. We're learning a lot. It's exciting.
We sold out mostly. Good news is that the summer range has arrived. We start merchandising from Friday, and then the stock will be available throughout 10 stores opening in the Rosebank now. So yes. Unfortunately -- or fortunately, whichever way, you can only invest in by season.
You can't open stores midway or where you're going to get the stock and the styles and the -- so it's got its own rhythm as the seasons go. I know -- remember, we're not in fashion. It's fulfilling the basic -- the start of your dress code, and then you -- they go to the high fashion around yourself or -- so it's doing well.
Okay. I'm going to try and see that we finished around 11:00. So maybe 2 more questions. Just one is now that we're seeing inflation, basically, we're seeing a retraction on inflation. How do you think around volumes -- volume growth and how that will trigger additional volume growth within the business?
Again, separate the 2 consumer brands, Checkers and Shoprite Usave. We must remember that 2 things is very critical here when we talk inflation and volume, is that your restricted-budget persons, budget doesn't change or ability to change because there's inflation. If I'm on a ZAR 350 grant, it stays ZAR 350, which means if there's inflation, I have to buy less items.
That's why you will see in the confined-budget portion of the market that you will see a reduction in volume. I have no choice, whereas at higher end of the market, you've got a more flexible customer that can substitute, that can change from brand or category or size, product size, et cetera. So that's just the balance That's why it's very good for the Shoprite Group to have this very clear balance and almost equal balance between the 2 segments. But the volumes are going to be under pressure and also what I mentioned around the capacity from our manufacturers and load shedding, et cetera. So -- and then in some categories, we must understand that we over-index quite substantially in terms of the market share on that, which brings its own challenges by itself. But I still believe that we could -- in the balance portfolio, still manage a volume increase in the year.
Thank you. I think the last question on that is basically maybe from a positive point of view, how do you think around market share? And obviously, we've gained market share now for quite a few years, so how do you see that going forward?
Yes, I still believe there's a lot of room here. I mean I did. Finally, I think what's illustrative of the ability that we could still gain market share is that our audience have started to understand that we must look at it separate from the two consumer brands. So at the sub-15% market share in the Checkers brand, I cannot, for the life of me, think that that's where we're going to stop. And sub-20% for the Shoprite brand with its strength and its penetration in the market in a very tough time when our price and value proposition is so clear and well understood.
And the levels of in-stock that we are achieving to not disappoint consumers so that you don't have to -- which you can't afford to do a shop around because the retailer that you have selected is out of stock. So the combination of that must leave me positive that we have headroom to gain further market share.
Thank you, Pieter. I mean the questions that we haven't answered, we will answer -- between Tash and myself, we will answer, but maybe just closing comments, and then we can say goodbye.
Well, I thank you for your attendance. I hope we have given you clarity on certainly how clear we are on what we have to do. But it would be a must for me to, once again, thank you, the people of Shoprite, Team Shoprite, with their dedication every day. You wouldn't understand how incredible this is unless you're on the inside, is something very difficult to know if you just look from the outside. And we're not only about the numbers. We are definitely about the people. So thank you.
Thank you, Pieter. Thank you very much.