Q4 2026 Bapcor Ltd Earnings Call
Speaker #1: Chief Director and CEO. He's a good person, and as of today, I would say the reflection in the performance is certainly not that of the effort, the willingness, and the commitment that this team is making towards our turnaround.
Speaker #1: I'd also like to acknowledge that our wholesale business, under Chantelle's leadership, is significantly building momentum. So overall, Networks is starting to show very clear and positive momentum.
Speaker #1: They are really amazing people but, in the last few months, have made a tremendous difference that we'll talk to during the presentation. I'd also like to acknowledge what is largely a new executive team that are actually leading the organization: Kim Kerr, certainly, Marty Story, Craig McGill, and then Rebecca Newman, Angus McDonald, Morris Lieberman, George Sukkarforce, and equally, I'd just like to thank all of them for their support of me as a leader in this turnaround.
Speaker #1: Turning to slide 18. Retail is really a moment where we need to look back at what the business was: expertise, service, great brands, and fair value.
Speaker #1: We're rebuilding the Autobarn business into the future. The performance improved materially throughout the year. It was a very challenging first half, but there was momentum in the second half as our operational initiatives gained traction, showing very positive green shoots.
Speaker #1: Today's presentation is structured moving aside for today's presentation is structured in 5 parts. We'll begin with Group Highlights, we'll cover off performance of each segment, I'll hand to Kim, then to take us through the financial summary, then I will close with the elements around our trading update and outlook for the upcoming year.
Speaker #1: Like for like sales, return to a growth in the second half from a very significant decline in the first, 1.4, and is supported by targeted promotional activity hyper drive focusing on operational disciplines and execution in the physical environment.
Speaker #1: Turning to slide 5, please, operator. FY26 is certainly a year of reset. And you will remember that I came into the organization and we first talked back in February as we started developing the turnaround plan for the organization.
Speaker #1: Earnings momentum improved significantly in the second half from operating improvements that have been embedded during the period. We accelerated and improved our loyalty program.
Speaker #1: I'm happy to say we've got over 2.1 million members now, and this is a significant opportunity to be leveraged through closer and more targeted relationship connections with those customers moving forward.
Speaker #1: Clearly, statutory results are disappointing, but I want to highlight some of the elements that really are very clear signs of the momentum and the reset that's occurring.
Speaker #1: We've also continued to work very specifically on range and in-stock across the network, improving from around 80% to now 96% in-stock. There are new brands being introduced: Rufrax, Tools, Refresh, and a focus on how we use every square meter effectively in those stores.
Speaker #1: Fundamentally, this is a good business at its foundations. But it does need a reset in the critical elements of the turnaround to really take us forward to where we want to be.
Speaker #1: So watch this space; a lot to happen in the coming years. I'm also talking about the very positive impact that the introduction of data analytics around pricing and promotion on shelf has had—making certain both that value is delivered to the customer, that we're competitive, while making more profit.
Speaker #1: Revenue was $1.9 billion, representing a year-on-year reduction of 1.8%. EBITDA was $152.5 million, which was above our top end of May guidance range.
Speaker #1: And it's actually very positive signs in the first part of FY27. And now, moving to New Zealand, page 19. It's fair to say that the economic environment in New Zealand, broadly, is very challenging.
Speaker #1: Underlying net profit after tax was $10.8 million. Clearly, these results are at a lower level than we would expect in the future. Importantly, we delivered $68.5 million worth of working capital initiatives in the second half.
Speaker #1: Revenue decline year on year was 2%. The New Zealand dollar to the Australian dollar had a very significant decline, and that is also impacting when we bring these revenues and profits back into the Australian numbers.
Speaker #1: In line with our commitment, it is really pleasing to have seen our cash conversion rate actually increase to 109.4%, and we reduced net debt to $135 million.
Speaker #1: Total growth, however, with new sites was 4.5% over that period. EBIT declined. It is a very competitive landscape. But I'm happy to say that there are very positive signs, with a number of margin recovery activities now in place and starting to build momentum in FY27, but not reflected in FY26 results.
Speaker #1: And if you think back to the half-year point, where we had a debt of over $400 million, it's fair to say that the activities, and also the capital raise, have put us into a significantly better position for the future.
Speaker #1: The statutory loss was recorded at $431 million, 99% of which primarily related to impairments of goodwill and trademarks across the segments that we operate.
Speaker #1: Positive like-for-like sales growth in Q2 and Q3 was certainly impacted in Q4, as we saw an even more constrained economic environment. Actions are underway to strengthen the performance momentum.
Speaker #1: The results were impacted by, certainly, the challenging external environment; the Middle East conflict driving higher costs; certainly the weaker impact—the weakening—of our economies, both in Australia and New Zealand; and the real impact that that's had on discretionary spending across the consumers and workshops that we actually serve.
Speaker #1: Focused around better customer interactions, we introduced a customer call and contact center that can better serve our branch customers, as well as activating customers in that market.
Speaker #1: We've opened a new Dunedin superstore. We're actually commencing our new DC, which is transitioning in Auckland, and this will have positive impacts on the cost of doing business.
Speaker #1: Back in February, when we announced the turnaround, there was certainly no war in the Middle East, nor were there the impacts and inflationary pressures that have been felt in the last few months.
Speaker #1: And we stood up a brand new DC in Christchurch to get stock closer to our customers. Hopefully, that gives you some insight as to what the actions are and what we're doing to continue positive momentum in FY27.
Speaker #1: Hopefully, with a little bit of normality in the future, this will only help build on the great foundational work we've done across the organization, which we'll talk to in the coming slides.
Speaker #1: Turning to slide 6, if we could. The turnaround plan, when I announced it back in February, was primarily focusing on, first and foremost, the team, and actually what the customer required to meet their demands of us as an organization.
Speaker #1: On that note, I'll hand over to Kim Kerr, our CFO, to talk through the financial results. Thank you, Kim.
Speaker #1: We've been focusing on key priorities, which have been absolutely centered around profitability improvement, optimizing costs, improving capital efficiency, and returning the businesses to growth.
Speaker #1: We'll talk about this shortly, but we have certainly changed the direction and momentum of the business. The next four slides will summarize some of the actions we've taken between that February and June period, and the priorities that we're also looking at as we move into FY27.
Speaker #1: While there's a lot of information on these slides, I'll highlight the sections covering the key actions and the progress made across each of these areas.
Speaker #1: What I'm very pleased to say at the highest level is that we have significantly reduced turnover in our teams, and we are actually improving customer satisfaction. I'll talk more about that in the coming slides.
Speaker #1: That is absolutely enhancing and putting us in a good position to increase our profitability. We'll also be happy to talk about how we've improved our competitive fitness across the business.
Speaker #1: Some of the challenges when I first arrived and we talked to were the availability of stock in the right location, and in-store discounting that was running at elevated levels as our team tried to compensate for uncompetitive prices in that market.
Speaker #1: And this was something seen across all of our business units. What I'm happy to say is that in the second half, we were able to take quick action around a number of these key focus areas.
Speaker #1: Competitiveness: I’m happy to say that we have now actually looked at our pricing in our trade businesses, with over 80% of all prices being reviewed to put us into a competitive pricing market for our customers.
Speaker #1: This has been well received. We tightened controls around overrides and price discounting, reducing the discounting by 16%—now running at around 8%—and we still see more improvements that can be made.
Speaker #1: In our retail businesses, we've changed over 13,000 prices to ensure that we are actually both competitive and maximizing profit opportunity, while ensuring the value at our consumer levels is in line with their expectations.
Speaker #1: F27 focus is certainly the building on through the introduction of data-led pricing management. We've started introducing that across the business units, and we're actually seeing positive momentum and margin improvements as we mature that capability across our business.
Speaker #1: Moving to slide 7: Optimizing our cost base. This summarizes a number of priority areas in our turnaround because, as talked about previously, our cost of doing business across the total organization needs to be reduced significantly to achieve best practice performance levels when looking at competitor sets.
Speaker #1: There is a big opportunity here. In relation to cost, we're operating in a significantly elevated cost environment, whether that be cost of goods, fuel, freight, local or international.
Speaker #1: However, during the second half, we've established a number of key activities that are reducing costs. I've talked previously about the high cost of recruitment and also the cost of our supply chain.
Speaker #1: We've been able to establish in-house recruitment functions, and are now no longer reliant on external high-cost providers. We've reduced the higher cost of emergency orders, which were right throughout our organization. We've implemented supply chain labor efficiencies, and in the last four months, that alone was already delivering over a $2.8 million saving just in the efficiencies in our supply chain.
Speaker #1: A lot more to do, but starting to build momentum. For FY27, the focus is to drive and continue cost out where non-productive activities are occurring. We've got a review of actually some $300 million worth of non-stop purchases occurring.
Speaker #1: The opportunity is great. We're increasing our capacity to undertake effective, competitive tenders and reviewing where we can remove price costs out of our organization.
Speaker #1: Moving to slide 8, strengthening our capital efficiency. This was a big area of focus, and I'm very happy to report that in the second half, we were able to reduce our overdue debtors by a further $14.5 million.
Speaker #1: That's a 35% reduction on the first half, where we opened in January. Significant work by the team, and we're continuing to make improvements in that space.
Speaker #1: We reduced our overall inventory in the business, which was a change from many years of escalating inventory being held in our organization. We reduced inventory by some $22.5 million.
Speaker #1: There is still significant opportunity. We started introducing programs like reducing order quantities of excess stock, working very closely with our trade partners to remove non-productive inventory, and improving in-stocks across our organization.
Speaker #1: Our capital efficiency focus on inventory reductions will continue, and build momentum as we move into this current year. What is very pleasing, however, is that we both reduced inventory while significantly improving our in-stock in the stores and branches across our organization.
Speaker #1: When I talked back in February, we had some business units with in-stock levels at branch and store in the range of 50% through to 80% in-stock available for customers.
Speaker #1: Today, all of those business units are sitting at over 90% through to 96% in stock, and we're aiming for 98%. As consumer confidence and also available discretionary income improve, we're in a very healthy position to start capitalizing on those sales.
Speaker #1: The sales momentum out of having the right stock. While we continue to work closely with our trade partners to ensure that the future health of our inventory EV, hybrid, and also the China manufactured vehicles, which is representing a significant opportunity.
Speaker #1: Many people talk about the impact of EVs coming into the marketplace. I would say to you, this is an enormous opportunity for our business that we're very aware of.
Speaker #1: These are heavier vehicles—they wear out parts like suspension, steering, and braking at far more significant rates, and it represents a terrific opportunity. I’d also call out that the aging car park is still boating very positively for sales momentum of ICE vehicle parts.
Speaker #1: Moving to slide 9. This slide covers initiatives to return our business to growth. I've talked about the organization's power of expertise, knowledge, and our connection with customers before.
Speaker #1: And the reduction of team turnover is very significantly contributing to the positive momentum as we reconnect with our customers. We’ve got the right price, we’ve now got the items in the right locations, and our team are reconnecting with our customers.
Speaker #1: I'm very pleased to say that we've had a 15% reduction in the turnover rate since December as we closed at the end of the year.
Speaker #1: In June, we continued to build momentum in reducing the turnover rate, and I'm very pleased to say that we've got a number of prior team members starting to come back to our organization, as well as some very pedigreed retail automotive and trade experience coming back into our organization.
Speaker #1: We've been investing in our leadership training, and I'm happy to say that we had our first 80 senior frontline leaders go through the Deakin leadership training program before year-end, and by the end of the calendar year we'll have some 200 of our leaders that have gone through that program of developing skills and leading and running organizations.
Speaker #1: For FY27, our emphasis is on improving our team engagement and now moving into network expansion, particularly in our trade and networks in New Zealand businesses.
Speaker #1: We need to look very clearly at what is the optimal footprint in some of our other retail businesses before we start looking to expand those businesses.
Speaker #1: I do want to acknowledge that the growth and the future of our organization is very much linked to our trade partners, and I want to acknowledge and thank our trade partners. We've met with many of our very significant trade partners, and their support of the turnaround of our organization has been overwhelming and humbling.
Speaker #1: I thank those partners as we now form and build more strategic partnerships as we build forward. Moving to slide 10, please. As outlined in our previous four slides, we're working to recenter the business on the customer.
Speaker #1: Team first, customer fascinated, and what I'm very pleased to say is that over the months and certainly building momentum in the second half, the slide to the left is actually our net promoter scores across the three channels, fundamentally, that we play: trade, our networks businesses, and also retail.
Speaker #1: You can see that all of the customer measures are starting to trend up. Clearly, the aspiration is to have a best offering outcome somewhere near 80, but it's very pleasing to see now a consistent positive trend.
Speaker #1: Very clearly, what was significantly called out—price and in-stock—is now starting to really be removed from the feedback that we're receiving from our customers.
Speaker #1: We're meeting what they need. I'm also pleased to share the graph on the right-hand side of the slide, which now confirms that we are picking up market share after five years of successive decline. This further confirms that as the consumer and the trade workshop start coming into a more stable environment, we are well placed to continue building on our share momentum.
Speaker #1: Two quarters in a row—still a long way to go, but certainly positive momentum. I'd like to now move to slide 11. It's there to say that the building of the turnaround strategy has been team-led, but as we are now moving into the next stage of the growth of our organization into the future, it is critical that our strategy around growth and performance improvement is in place.
Speaker #1: I'm happy to announce that, in parallel with our turnaround program, we've also been developing our strategic plan. We've involved our team, our customers, experts, and the senior leadership team. We are well progressed, and it is unquestionably about how we also simplify a very complex business.
Speaker #1: And so, for many that have been asking, "What are we going to be doing?" I can say very confidently that the strategy will address the simplification of this business, allowing us to focus more specifically on the core elements of our business and our future success.
Speaker #1: Bapcor has many strengths, and what I will say is that over the last six months, I can only reconfirm that this is a good business.
Speaker #1: There is significant customer demand for what we offer, our trade partners are fully engaged, we have a good team, and we're building a path to our future success.
Speaker #1: I'll now move to slide 13, if I could. I'm now going to talk to some of the segment growth, but before I turn to that, the underlying strength of the Bapcor platform is strong.
Speaker #1: Our ability to evolve into the future, the trusted brands that we have relationships with, and our extensive network of some 900 touchpoints with customers across the countries we operate in is formidable and enviable across the competitor.
Speaker #1: Around experience delivery, the expertise of our team, availability, delivery, and fair value—this is what we're focusing on as an organization to build us back to the organization we want to be in the future.
Speaker #1: Constrained CBG, as I mentioned, remains challenged. Guy Nichols only joined some six weeks ago, but the momentum under his leadership and the growth that we're seeing in recent weeks is very positive.
Speaker #2: Thanks, Chris. And good morning, everyone. I will start on slide 21. Slide 21 outlines the main external factors that affected operating costs and consumer demand during the year.
Speaker #2: The Middle East crisis created a number of pressures across the business, including higher fuel, freight, and oil-related product costs, against a broader backdrop of elevated interest rates and softer consumer confidence.
Speaker #2: First, higher fuel prices increased the cost of operating our vehicle fleet in the fourth quarter by approximately $2.2 million, most of which was absorbed by the group rather than being passed through to customers.
Speaker #2: Separately, freight providers imposed domestic fuel surcharges. The graph on the left shows the increase in this surcharge. We responded by implementing freight optimization initiatives and negotiating with providers to minimize the increases.
Speaker #2: The crisis also placed upward pressure on oil-related product costs. While crude oil prices have declined, the base oil benchmarks underpinning lubricant import costs have continued to increase due to ongoing demand and supply constraints.
Speaker #2: This has resulted in higher product costs and required targeted pricing actions. The second graph was consumer confidence across Australia. The second factor, sorry, was consumer confidence across Australia, highlighted in the middle graph.
Speaker #2: The softer consumer environment affected discretionary demand, particularly in retail, but also the level of in-trade and in-retail. Targeted promotional activity and ensuring the business is ready to participate when demand rebounds.
Speaker #2: The third factor was the significant weakness in the New Zealand dollar against the Australian dollar, impacting the results of the New Zealand segment in Australian dollars. These external factors do not change the need to execute better.
Speaker #2: To provide important context for the FY26 performance, the statutory result for FY26 was a loss of $431.6 million, including $442.4 million of post-tax significant items, which are largely due to the impairment of goodwill and intangible assets across each segment.
Speaker #2: This was flagged as a possibility in the 14 May 2026 trading update. The impairment charges reflect impairment testing assumptions that place a greater weight on recent trading performance and benefits expected from future turnaround initiatives or improvement plans.
Speaker #2: In the appendix on slide 28, we have outlined the significant items and provided a commentary on each one. Revenue declined 1.8% to $1.924 billion, although as Chris outlined earlier, positive signs were evident in the final five months of the year.
Speaker #2: Gross margin was $872.1 million, down 3.3% on FY25. The gross margin percentage was 45.3%, down 72 basis points. This reflects the impact of pricing actions to improve competitiveness, mix effects, and market pressure.
Speaker #2: Although the gross margin percentage improved in the second half as the turnaround initiatives gained traction, the cost of doing business increased 7.6% to $719.6 million.
Speaker #2: The increase reflects continued investment in information technology and supply chain initiatives, together with higher employee costs and other expenses. Underlying EBITDA was $152.5 million, and underlying EBIT was $51.4 million.
Speaker #2: Higher depreciation reflected historical investments in the network and distribution centers, as well as investments in technology projects. Finance costs reduced 4.4% to $35.6 million due to lower debt levels following the equity raising, as well as working capital initiatives in the second half.
Speaker #2: Although pressure remains on property lease costs, underlying NPAT was $10.8 million. Turning to cash flow on slide 23, operating cash flow was $166.9 million.
Speaker #2: Cash conversion improved materially to 109.4%, from 86.5% in the prior year. A key driver was the second half working capital program, which delivered $68.5 million of cash flow from inventory, overdue debtor collection, and other cash improvement initiatives.
Speaker #2: This was in line with the $60 to $75 million guidance range provided in February. Second half cash conversion was particularly strong at 125.8%.
Speaker #2: Capital expenditure reduced to $29.2 million this year. This reflects lower expenditure following the completion of major network consolidation projects, and a more disciplined approach to capital allocation.
Speaker #2: Free cash flow increased to $55.2 million. This reflects lower capex and improved working capital management. The net cash movement was a positive $35 million, compared with a cash outflow of $26.5 million last year.
Speaker #2: Closing net debt reduced to $135 million, supported by the free cash flow. Positive free cash flow and the equity raising during the year.
Speaker #2: Turning to the balance sheet on slide 24, the key item to highlight in relation to the balance sheet is the decline in intangibles and right-of-use assets, which is due to the impairment outcomes.
Speaker #2: The second half working capital initiatives improved the quality of receivables, with a $14.5 million reduction in overdue debtors, and inventory reduced by $20.4 million since June 25, driven by targeted actions to optimize ranges, lower minimum order quantities, and reduce excess stock.
Speaker #2: This program continues into FY27. Turning to net debt and capital management on slide 25, net debt decreased by $229.8 million from June 2025.
Speaker #2: This was driven by the $200 million equity raising, as well as the cash flow improvement initiatives delivered during the second half. Bapcor complied with all debt covenants throughout the year.
Speaker #2: At 30 June 2026, the net leverage ratio was within the covenant of less than 3.5 times. The fixed charge cover ratio was 1.62 times EBITDA, compared with the covenant of greater than 1.4 times.
Speaker #2: During the year, we repaid the maturing $100 million MetLife facility and reduced available debt facilities by a further $135 million. This is to align better to the needs of the organization.
Speaker #2: Total facilities are now $585 million, and we have an average remaining tenor of around three years. Importantly, the balance sheet has been materially strengthened and provides the financial flexibility needed to continue executing the turnaround.
Speaker #2: I will now hand back to Chris for the summary and outlook. Over to you, Chris.
Speaker #1: Thanks very much, Kim. I'd also want just before turning to the trading outlook on page 27, just want to thank the Lockman Edwards as the chair and the board, and our shareholders for the honor that has been given to me in being a part of this turnaround with the new executive team in place.
Speaker #1: This business is good at the core. The focus on team and customer, and the value returned to our customers, is setting us up to really take benefit in the future as we see a more stable trading environment come back into our economies.
Speaker #1: If I look at the sales now, in the first six weeks of FY27, we're slightly ahead of prior comparative periods. Trade, and the parts—very specifically in our Trade business—is building positive momentum.
Speaker #1: And I talked about 2% plus growth. Networks continue to grow strongly. We are absolutely focusing on some of the areas that we've outlined that are still being challenged, and we still see certainly significant upside around retail, New Zealand, and also our trade businesses.
Speaker #1: I'm happy to say that the margin enhancement activities, through the introduction of data analytics, are starting to build momentum in most of our trading business units.
Speaker #1: We are also continuing to look at cost-out activities in the business, and we can certainly see that will build momentum as we continue to take cost out of our business in the coming months.
Speaker #1: Bapcor expects modest growth in FY27 at the revenue line, particularly because of the conflicts and the economic impacts that are being felt in Australia and New Zealand very specifically.
Speaker #1: The benefits of our improvements will continue to build momentum as we move towards the full year. Capital expenditure, depreciation, and amortization are expected to be in line with FY26 levels.
Speaker #1: While capital utilization through effective planning and closer management will continue to build our capital benefit delivery on investments that we make, the underlying impact is expected to be material, weighted to the second half of the year.
Speaker #1: Enhanced pricing analytics and promotional performance improvements, along with effective management of costs throughout the business, will be significant contributors to our future recovery. And, as mentioned before, we're reviewing some $300 million worth of non-stock purchases in the business, and there are some really positive signs of being able to reduce those costs.
Speaker #1: Strategically, the turnaround program is stabilizing the business, while very clearly the comprehensive strategy that I outlined before that we are building starting in April, it is certainly coming to a point of maturity, and I can absolutely confirm that it will be addressing and simplifying our business as we move forward.
Speaker #1: Turning to slide 28. There's no question it was a tough year, bottoming out a multi-year decline. We've got a credentialed automotive executive team now in place.
Speaker #1: That enhanced leadership capability, especially through the appointment that I mentioned throughout the presentation, gives me great confidence that we have now the right people in place to execute both the turnaround and the strategic plan that we've put in place. The skills that Kim Kerr has brought to the organization and the governance improvements around our financial controls are significant.
Speaker #1: And she'll give us confidence in the future of the business. The equity raising has actually put us into a good place, in line with our strong and improving controls around generating cash into our business.
Speaker #1: With clarity of the strategy, improving capital management, we are going to continue to deploy and monitor very carefully our delivery to our plan in the coming year.
Speaker #1: And the early six-week period is certainly giving me confidence in the year to come. The five priorities are very clear: team, customer, trade partner, and returning the business to both growth and improving profitability, while actually optimizing and reducing the cost of doing business.
Speaker #1: The longer-term strategy will certainly be well developed, and it won't be long before we'll be able to share that more fully with people.
Speaker #1: We're under no illusion that the work still ahead is significant. However, Bapcor enters FY27 with stronger foundations and momentum that is very clearly starting to gather pace.
Speaker #1: We've got a clear set of priorities. The reset's been established, and FY27 is about disciplined execution and translating that progress into sustainable performance growth.
Speaker #1: Thank you very much for your time today. I’ll now hand back to the operator for the Q&A. Thank you.
Speaker #2: Thank you. If you wish to ask a question, please press star, then one, on your telephone and wait for your name to be announced.
Speaker #2: If you wish to cancel your request, please press star, then 2. If you are on a speakerphone, please pick up the handset to ask your question.
Speaker #2: And our first question for today will come from Garth Francis with MST Marquee. Please go ahead.
Speaker #1: Good morning, Chris and Kim. Thank you for taking my questions. Could you maybe just elaborate on your plans for the store network across the various divisions?
Speaker #1: There have been a few store closures during FY26, and we just want to get an idea of how comfortable you are with the current size and what might happen through '27 across the banners.
Speaker #1: I'm looking forward.
Speaker #3: So, Garth, I mentioned the trade business will actually be expanding with additional sites coming online. There is no question that when you've got 900 sites, you need to continue to prune to ensure you've got a healthy network.
Speaker #3: But if you look at networking, again, there will be growth in the networks business. In the retail business, until we are very clear about the footprint that is optimal to deliver performance, we will be resetting how we're using that space.
Speaker #3: And I'd equally say that there is no question in my mind that we have excess space in the network. So, in renewing, you may actually move to a smaller site in particular geographic areas, but we need to more fully complete that review of space utilization in the retail business.
Speaker #3: However, we have completed the network review on Retail, which very clearly calls out quite a significant opportunity for growth in the future. We just need to be clear about what the optimal box to deliver improved performance is before we start moving forward.
Speaker #3: Hopefully, that answers your question.
Speaker #1: It does. And perhaps just to follow on from that, you did mention earlier in the call, when you talked about the retail division, that you were looking to improve space productivity in those stores.
Speaker #1: Can you speak to the measures that you are tracking there, and whether those will be disclosed so we can track that progress outside of a like-for-like improvement, for example?
Speaker #3: So right at the moment, we're working through the detail of the average performance that I review, and also profit per square meter. And so, not at this point, in my own position, to give that to you.
Speaker #3: That's what we're working through at the moment. And then we'll equally be looking at what's the optimal performance out of what size business. Notwithstanding, I talked to the rebuilding of, very clearly, brands and ranges into that space.
Speaker #3: So we just need to be a little bit careful not to jump too quickly, before we actually introduce those programs that are going to better utilize the space that's available to us.
Speaker #3: And what ranges are actually in those businesses, relevant to the geographic areas. So, a bit of work to be done before I can share more detail around that.
Speaker #1: Okay. Thank you.
Speaker #2: Again, if you have a question, please press star, then one. Our next question will come from Sam Teager with Citi. Please go ahead.
Speaker #1: Hi, Chris. Hi, Kim. I just wanted your thoughts on how much of the modest sales improvement you’re seeing has been driven by sustainable market share gains versus promotions, pricing resets, or easier comps.
Speaker #3: Yeah, good question. Sam, certainly the belief—and looking at the lower-level detail around customers, where that growth’s occurring from, whether it be trade or retail businesses—I would say that it’s sustainable share growth that’s being achieved.
Speaker #3: And equally, it would give me confidence that there's more upside in that. While saying to the forecast that the reason we still believe it'll be modest is quite clearly there's a lot of headwinds in the market—consumer confidence, available income.
Speaker #3: But I don't think it's very clear that it is trend and sustainable. And the fact that, in the last five years, this is the first two quarters that we've actually seen momentum continue rather than just one up and then back down again.
Speaker #3: So it would certainly appear that the activities we're taking are giving momentum that is now multi-period upside.
Speaker #1: That's good, thanks. And can you talk to the major drivers of the profit being materially weighted to the second half? I mean, is it margin recovery, phasing across savings, sales acceleration, easier comps?
Speaker #1: What's the main reason?
Speaker #3: I think when you talk about the implementation of data analytics into pricing, for example, Sam, you can get the insight relatively quickly. Actually getting then the embedment of a method, methodology to apply that across multiple customer types, channels, the maturing of that capability in your business, takes a little longer.
Speaker #3: Where I can give a very clear why—we say confident that that will build momentum. In one of the first divisions where we actually introduced the capability around pricing analytics, we're now seeing very significant margin improvement.
Speaker #3: And they're maturing that skill very quickly. So now we're rolling that capability out into the other business units, and that's why we're very confident about that momentum building.
Speaker #3: Equally, I may mention the tremendous support from our trade partners in helping us to get the range absolutely relevant to car park with a C, i.e., the cars that are on the road now.
Speaker #3: For a number of years, we were not keeping our range as relevant as it could be to the car park. Generally, if you've got the right range, and it's certainly more contemporary, you can actually achieve better margins out of it.
Speaker #3: That work in cleansing has started, but is building momentum. So we'll have fresher, more relevant merchandise on the ground. So again, achieving higher margins from those sorts of activities.
Speaker #3: Data analytics around pricing elasticity—so the promotions we're running—very clearly looking at what's the optimal value equation for the customer, without giving away too much margin or margin that's actually not beneficial.
Speaker #3: So we're looking at that capability out of data analytics as well. So there are a number of fronts that, as those sort of capabilities are maturing, will continue to build and deliver momentum.
Speaker #3: And the other element is, we've clearly talked about refreshing ranges with those trade partners. The renewal of the MD, the retirement of older stock that is being returned to trade partners—again, that's helping. There's a number of areas that are helping.
Speaker #3: And the final point that I would say, which was talked to during the presentation, we were seeing very specifically in trade business, but remember that trade networks, the, call it, discretionary discounting running around about 16 is now down to 8.
Speaker #3: And again, although in the second half, that was very materially supporting the winding back of prices to be competitive in market, we're certainly starting to see that that's a significant opportunity to be materialized in a gross profit coming and building momentum as we progress through the year.
Speaker #3: Hopefully, that answers your question.
Speaker #1: Yeah, that's good. There's a lot there. Thank you. Well done on the working capital improvements. How much further opportunity remains into FY27?
Speaker #3: There's certainly a number of different things that we're doing. We continue to focus on the rationalization of ranging and not reordering, call it, poor or substandard commercial performance ranges.
Speaker #3: And if you look at the work that we continue to optimize, ranging right through the business units, we’ll see significant release through range rationalization.
Speaker #3: But as I also shared, while we're improving in-stock and relevance to car park, we're actually proving that it can be done with lower inventory.
Speaker #3: We're confident all those initiatives are going to continue to improve. We've actually introduced enterprise-wide Open to Buy as of six weeks ago. That was a new capability that's been embedded.
Speaker #3: And we're actually rolling out, which was mentioned in the presentation, a planning capability—forecast demand planning capability—in all the business units. It hasn't been there before.
Speaker #3: We're also working with partners to help us continue to improve our overdue accounts and also with the reconciliation of accounts, looking at machine learning and AI solutions that can help improve that space of recovery and the cleanliness of our accounts.
Speaker #3: So that, again, will be a positive impact on cash and capital held in the business. So hopefully, there are a few things here to give a bit of a sense of directionally where we're confident.
Speaker #3: And I'd say it's pretty consistent with what our previous announcements have been—that we can continue to build momentum in releasing cash capital out of the actions we're taking around inventory and better management.
Speaker #1: Thanks. But on that, so you did $68.5 million in the second half. Do you think you could do another $68.5 million over the full year '27, or is that too much of a stretch?
Speaker #3: Look, I think that it's fair to say that it will be material what we can continue to do, and our budgets and forecasts reflect a material improvement in that space.
Speaker #3: And I can say the first call of six weeks were consistent with what we would expect it to continue to deliver.
Speaker #1: Excellent. Thanks, Chris. The next question will come from Adam, delivering with Blue Ocean Equities. Please go ahead.
Speaker #4: Good morning. Thank you for taking my call. I just wanted to drill into the capital stuff, but actually, first I'll just say the deck and kind of putting out all the information is really helpful.
Speaker #4: And I appreciate the candor and the amount of detail that we're getting now. As for questions, just on working—so just on questions, working capital, what I'm hearing in lubricants is like repeated double-digit price rises.
Speaker #4: And I think it's a significant inventory category. So I'm just trying to get a feel for oil-based or petroleum-based product inflation and how that's impacting working capital.
Speaker #4: And then, sort of what you're seeing in the other parts, and can you pass that through, or are you absorbing? Yeah.
Speaker #3: Yeah, look, Terry, question. I'd just caveat it, however, by saying that lubricants—if you were a traditional retail business, like Super Cheap—you would be far more worried about lubricants cost escalation than you would be in our business, as lubricants are significantly lower in terms of the mix of the overall business across all of our operating business units.
Speaker #3: But it is significant. So, the annualized impact of cost increases through the inflation of the barrel of oil is about a $24.7 million increase across the COGS over that full year.
Speaker #3: What I've said previously, and it was certainly reflected in the second half-year results—and I said this very publicly—is that the business had done quite significant damage to itself around its price-uncompetitive position to market, literally, retail or trade.
Speaker #3: And I said very openly, we would not be the first movers when it came to passing prices through, because we have to rebuild with our customers.
Speaker #3: And so yes, we have very clear programs in place to make certain that we are passing through prices. We are not leading or putting price increases through.
Speaker #3: But my comment would be that we would be a fast follow-up with relevance to market on those sorts of escalations. And the early escalations that have already occurred, we are tracking very carefully.
Speaker #3: And I can say, about two-thirds of the prices that have come through—we are actually seeing an improvement in the profitability in those lines.
Speaker #3: But there's still one-third that we need to better understand and improve on in that process. Look, my honest opinion in this space is that we will continue to see not just lubricants increasing over the coming months—the cost of container movements, local freight movements—all of those are putting pressures on not only oil-related, but many other products as well.
Speaker #3: So what I am confident to say is, we have processes and systems and visibility through reporting and the data lake that was stood up, that marries our 16-hour RPs together to give us trend analysis.
Speaker #3: And we'll be watching that very closely to ensure that we're not seeing any erosion that could impact our performance results in the coming months.
Speaker #4: Thank you. I guess just to sort of try and square that up to the sales guidance, because I guess you want to be conservative—because you want to put a set of numbers out there that can handle volatility in a pretty unpredictable market.
Speaker #4: But if we're looking at 5 to 10 percent price inflation, then a flat sales guide would imply volume losses, which kind of contradicts some of the discussion around market share.
Speaker #4: So yeah, just trying to get a handle on it. I always thought of this business as having a tailwind from a rising price environment as well.
Speaker #4: So yeah, that guidance is kind of confusing me a little bit. If you could maybe add some color there.
Speaker #3: I think our comment was 'modest growth,' and I think anyone that was not taking into account what's happening with the consumer—the average consumer is very short on what they had in their wallet or purse 12 months ago.
Speaker #3: So I think it would be naive to think that the inflationary pressures on non-discretionary staples, utilities, and insurance aren't taking money out of the more discretionary areas.
Speaker #3: Now, retail is, quite clearly, more discretionary by nature. In automotive—but you can’t underestimate the fact that when you look at the car park that we serve through our trade workshops, they’re generally cars that have moved out of the OEM workshop environment.
Speaker #3: And I can tell you very clearly, those large owners of multi-trade workshops across Australia and New Zealand have customers coming in who are saying, "We don't want the full logbook service done."
Speaker #3: We want other items—oil filters, things that are critical, or brakes. But they may not be doing some of the other repair and service items.
Speaker #3: So there is a bit of moderation that we need to also be aware of in that place.
Speaker #4: Thank you. And just one last question, on CAPEX. I know there's sort of an IT debt that at some point needs to be dealt with.
Speaker #4: And you've come out of this distribution center reorganization period. So investment period. Planned equipment depreciation versus CAPEX. How much reinvestment into the stores do you need to keep up just to stay in business purposes and also to kind of get that inventory visibility out to the stores with an open to buy setup?
Speaker #3: Look, I think my first comment would be, you mentioned technology. Part of the strategic roadmap is very clearly looking at what we need to do to better provide technology enhancements that can connect us more effectively with our customer, and can actually take poor processes, enhance systems, to deliver efficiency and cost out of our business.
