Full Year 2026 ARB Corp Ltd Earnings Call
Speaker #1: To a lesser extent, demand softened for new vehicle 4x4 sales in a number of countries, including here in Australia, which flowed directly through to our sales. We remain bullish on the prospects for growth in the Australian aftermarket, and later in the presentation I will speak to increased investments in engineering that we're confident will drive higher revenues.
Speaker #1: Despite this, our profit was well protected. An improved performance in the second half brought our margins back in line with FY2025, and given the headwinds and foreign exchange challenges, we believe this is a very resilient result.
Speaker #1: Underpinning all of this is the strength of the ARB brand and the quality of our products. This is reflected in strong gross profits, higher accessory attachment rates, and higher revenue per fitment on key vehicle platforms in our key markets.
Speaker #1: And finally, our strategic investments into global engineering and distribution are delivering strong returns, with even more expansion planned for the years ahead. With that framing, I'll now hand over to Damon to run through the financial presentation.
Speaker #2: Well, thank you, Lachlan, and good morning, everybody, and welcome. As we present ARB's results for the financial year ended 30 June 2026, firstly I can confirm that we have lodged all of the year-end documents with the Australian Securities Exchange earlier this morning, along with a copy of this presentation that we will talk through during this broadcast.
Speaker #2: All of the documents, including the annual report, the Chairman's letter to shareholders, and the dividend notification for FY2026's final fully franked dividend of $0.35 per share, can be downloaded from the ASX website.
Speaker #2: Commencing with sales revenue to the left of slide 5, ARB achieved sales revenue of $702 million for the financial year ended 30 June 2026, representing a decline of 3.8%, or $27.9 million, compared with last year's sales revenue of $729.9 million.
Speaker #2: This result was achieved in a challenging economic and geopolitical environment. Strong sales were achieved in the US, Europe, and Southeast Asia, while lower new vehicle sales in Australia and constrained consumer discretionary spending weighed on the domestic results.
Speaker #2: The company's compound average growth rate in sales achieved over the last 10 years is 7%. In the middle of the slide, the company's profit before tax declined 8.9% to $123 million.
Speaker #2: This is a decrease of $11.9 million compared with last year's profit before tax of $134.9 million. Importantly, the shape of the result improved as the year progressed.
Speaker #2: First half profit before tax declined by $13.2 million, or 18.8%, whereas second half profit before tax grew 1.9%, reflecting the recovery in sales margins.
Speaker #2: Profit before tax for the year, excluding one-off non-operating transactions, declined by 10.5%. The decline in overall profit was a result of lower sales volumes, while gross margins and operating expenses were relatively comparable to the prior year.
Speaker #2: The compound average growth in profit before tax over the past 10 years is 6.7%. Across on the right-hand side of the slide, the company achieved profit after tax of $92.4 million.
Speaker #2: This compares with $97.5 million last year, a decline of $5.1 million, or 5.2%. Excluding non-operating transactions, profit after tax declined 7.5%. The effective tax rate decreased to 24.9% from 27.7% in FY2025.
Speaker #2: This reduction in effective tax expense is attributable to a higher proportion of profits being generated in Thailand. Basic earnings per share of $1.11 declined 5.9%.
Speaker #2: And the profit after tax 10-year compound average growth rate is 6.9%. Slide 6 presents the sales performance of ARB's three sales channels: sales into the Australian aftermarket, export sales, and sales to original equipment manufacturers, or OEMs.
Speaker #2: Sales into the Australian aftermarket declined 3.3% to $390.1 million, with sales of ARB's key Australian vehicle platforms down 4%, which Lachlan will talk to more specifically shortly.
Speaker #2: Results were mixed across the domestic sales channels, with the dealer and fleet channels most significantly impacted by lower new vehicle deliveries. The challenging consumer market and constraints on discretionary consumer spending also weighed on the result.
Speaker #2: The Australian aftermarket represented 55.6% of total sales, broadly in line with 2025. Export sales grew 0.5% to $268.4 million, and represented 38.2% of total group sales, marginally up from 36.6% in FY2025.
Speaker #2: The stronger Australian dollar in the second half of FY2026 also resulted in a lower translation of export sales into Australian dollars. The Americas achieved growth of 10.2% despite difficult trading conditions, while the UK was materially impacted by lower new vehicle registrations, and trading conditions in New Zealand and the Middle East remained challenging.
Speaker #2: Sales revenue to OEMs, to the left to the right of the slide in Australia, of $43.4 million declined 27.2% and now represents 6.2% of total sales, down from 8.2% last year.
Speaker #2: The decline in sales to OEMs is attributable to the timing of new contracts, with the prior year benefiting from new contracts initiated in FY2025.
Speaker #2: Lower new vehicle deliveries in the second half of FY2026 also impacted reported OEM sales, with increased new vehicle deliveries expected to improve in the first half of FY2027.
Speaker #2: Slide 7 provides an overview of the company's profit and loss statement, including year-on-year movements against last year, and expenditures shown as a percentage of sales in each year.
Speaker #2: Having spoken to sales already, I'll focus on the key movements in the expense line items. Materials and consumables used decreased to 42.4% of sales in FY2026 from 43.3% in FY2025.
Speaker #2: The improved margin across the full financial year reflects the stronger Australian dollar against the Thai baht during the second half, compensating for the significant downside reported during the first half.
Speaker #2: When the Australian dollar was at historical lows against the Thai baht, inflationary pressures were largely offset by two sales price increases implemented during the financial year.
Speaker #2: Overall, the reduction in materials and consumables of 5.7%, against the reduction in sales of 3.8%, demonstrates the impact of those improved margins. Employee expenses increased 1.9% across the year to $179.5 million, absorbing an annual wage adjustment of circa 3.5%, which was processed in October 2025.
Speaker #2: This increase was partly offset by a reduction in the use of contractors in manufacturing operations. Depreciation and amortization increased $3.2 million, or 9.8%, reflecting the recent expanded capital expenditure program, particularly in property and manufacturing capital expenditures.
Speaker #2: Advertising, distribution, finance, and maintenance expenses were each broadly consistent with or marginally below the prior year. Occupancy costs were contained, with an increase of 2.5%, reflecting an increased number of sites and higher power costs.
Speaker #2: And, pleasingly, the equity-accounted share of ARB's 50% shareholding in the Off Road Warehouse and four-wheel parts retail network, and the 49% shareholding in the Nacho lighting startup, achieved a profit share of $854,000, which compares with the equity-accounted loss of $1.2 million reported in the prior year.
Speaker #2: Other expenses increased 6.3%, driven by IT protection software and compliance costs, including sustainability reporting costs. The conflict in the Middle East also impacted sales volumes, timing of deliveries, fuel prices, and distribution expenses during the year.
Speaker #2: Overall, the company's underlying profit before tax of $118.6 million declined 10.5%, with the decline almost exclusively attributable to lower absolute gross profit resulting from the decline in sales volumes.
Speaker #2: Below the line, non-operating items include $3 million of gains on property sales and a $1.35 million reduction in contingent consideration relating to the Mid-Salo acquisition.
Speaker #2: Mid-Salo was acquired in FY2025, and the consideration included a contingent payment subject to the achievement of specified financial performance targets over a five-year earn-out period.
Speaker #2: Designed to protect ARB from overpaying on vendor projections. Accordingly, on the bottom line of the table, the company reported profit before tax of $123 million, which declined 8.9% compared with $134.9 million last year.
Speaker #2: Slide 8 separates the four-year result into the first and second halves to illustrate the recovery, or stronger second half, of the financial year. In the first half, towards the middle of the table, underlying profit before tax of $58 million declined 16.3% compared with the first half in FY2025.
Speaker #2: As described at the time, this decline was largely driven by the weaker Australian dollar against the Thai baht, noting ARB's significant manufacturing and distribution operations in Thailand, and an over-recovery of factory fixed costs in the prior comparative period when inventory levels increased to historical highs.
Speaker #2: Net operating expenses in the first half of $143 million were held consistent with the prior comparative period, despite the relatively high inflationary environments.
Speaker #2: In the second half, underlying profit before tax of $60.7 million declined just 4.3%, as margins improved significantly with the Australian dollar against the Thai baht returning to levels consistent with the prior comparative period.
Speaker #2: Net operating expenses of $142.7 million increased 2.8%, reflecting the annual wage adjustment in October 2025 and the flow-on impacts of the conflict in the Middle East.
Speaker #2: On a reported basis, second half profit before tax of $65.9 million grew 1.9% over the prior second half, a significant improvement on the 18.8% decline reported in the first half.
Speaker #2: Now, although non-operating items are excluded from underlying profit, you will note that the $2.2 million tooler discontinuation loss recognized in the first half of FY2026 was reversed in the second half of FY2026.
Speaker #2: The expense reported in the first half related to the write-off of goodwill following the termination of the Australian tooler distribution rights. The reversal took place in the second half because the goodwill had been allocated to the Australian aftermarket cash-generating unit in 2024 and, per accounting standards, could no longer be separately identified at the original acquisition level.
Speaker #2: Notwithstanding the loss of the distribution agreements. On slide 9, cash flows from operations broadly equal profit after tax plus depreciation, less foreign exchange movements.
Speaker #2: Cash flow from operations generated $103.7 million, compared with profit after tax of $92.4 million. Working capital movements were relatively contained, with trade debtors down $7.7 million.
Speaker #2: Inventory was up $6.1 million, and trade payables were up $2.8 million. The company invested $36.6 million in property, plant, and equipment, with $24 million spent on property and $12.6 million spent on plant and equipment.
Speaker #2: The company paid $83.6 million in fully franked dividends during the year, comprising the FY2025 special dividend of 50 cents, along with the FY2025 final dividend of 35 cents and the FY2026 interim dividend of 34 cents.
Speaker #2: All dividends were fully franked at the 30% corporate tax rate. Now, the board has announced a final fully franked dividend of 35 cents per share for FY2026.
Speaker #2: At the end of the financial year, the company held $47.9 million in cash and had no debt. Net cash reduced by $21.3 million during the year, reflecting the payment of the 50-cent special dividend.
Speaker #2: Thank you, and I will now hand back to Loughlan.
Speaker #1: Thank you very much, Damon. Let's start with a look at the Australian sales of those vehicles core to ARB's business. As Damon mentioned, FY26 was again a challenging year for new vehicle sales across most of the 4x4 pickup and SUV models core to ARB.
Speaker #1: Australia's top three selling pickups—the Ford Ranger, the Toyota Hilux, and the Isuzu D-Max—all declined, as did the top three selling SUVs: the Ford Everest, the Toyota Prado, and the Isuzu D-Max.
Speaker #1: Despite the softer market, the Ranger and Hilux remain ARB's stronghold and are still the dominant vehicles in the market. Constrained by the availability of key Toyota models—the Prado, the Land Cruiser 300 Series, and the Land Cruiser 70 Series—weighed on our sales through the year.
Speaker #1: Encouragingly, Toyota is forecasting higher sales of these models in the second half of the 2026 calendar year. A genuine standout was the BYD Shark, up 64%.
Speaker #1: But as this graph demonstrates, the Hilux and the Ranger—particularly the Super Duty—with a focus of ARB's engineering resources in FY2026, with the Shark a close third as our lineup for this model continues to take shape.
Speaker #1: Looking forward, we expect FY2027 new vehicle sales to be broadly in line with FY2026. However, with the improved status of Toyota vehicle supply, we expect the mix to be favorable.
Speaker #1: ARB's store network now comprises 80 stores nationally. 4x4 accessories require specialist knowledge, specialist facilities, and specialist skill sets to sell and install, and our customers expect a premium experience.
Speaker #1: ARB has built the best specialized 4x4 aftermarket distribution network in Australia, and we are confidently driving the expansion of this proven formula. In FY26, we completed two flagship upgrades, with three all-new flagship sites.
Speaker #1: Clear evidence of our confidence and the confidence of our network in the future of ARB in Australia is best demonstrated by the 3,000, 527 square meter flagship store in Townsville, Queensland, the newest and largest ARB store in Australia, congratulations and thank you to Mike and Kelly Elliott on opening on the opening of the Townsville store.
Speaker #1: A significant step this year was the establishment of our first dedicated fleet fitting center in Auburn, New South Wales, extending our specialist model into this growing fleet channel.
Speaker #1: Fleet represents a healthy portion of ARB's Australian sales, and this new center in Auburn provides a seamless, one-stop-shop solution for our fleet customers.
Speaker #1: Further work on expanding our presence in regional Australian cities and towns has commenced, and I look forward to presenting more on this initiative at this year's AGM.
Speaker #1: We have a long list of independent store owners wanting to invest in future and additional stores, alongside a strong pipeline of our own corporate store developments.
Speaker #1: During the year, ARB migrated its Australian website to the state-of-the-art, integrated Adobe e-commerce platform. This site delivers a seamless customer experience, supporting the customer journey by product or by vehicle, providing a single source of product information, pricing, and purchases, and using an integrated fitment database to guarantee accessory suitability.
Speaker #1: It is a true premium omnichannel offering, with direct ship, click-and-collect online, or quote requests—all directly integrating into private and corporate store inventory management.
Speaker #1: Importantly, it gives us far better customer insights with detailed analytics on our customers, the products and platforms they most search, and ultimately transact on, either online or in-store.
Speaker #1: These insights are already driving smarter decisions on marketing and product development. The transition has been a success. ARB has maintained its position as the number one visited 4x4 accessory website in Australia. Nearly twice as many customers now use the site to find their local stores and stockists, and we're seeing strong early growth in direct-to-consumer product sales from a standing point.
Speaker #1: We have a strong pipeline of store enhancements underway, with international expansion to follow. The Australian aftermarket had a challenging FY2026, with ARB sales excluding subsidiary businesses performing a couple of points better than the fall in the 4x4 new vehicle market.
Speaker #1: Retail sales in our corporate stores were resilient, offset by softer sales to wholesale customers, including independent stores, stockists, and fleet customers. Most wholesale customers managed their inventory down in the financial year, relying on healthy corporate stock holdings.
Speaker #1: Fitter performance and team retention remain a focus. The success of multiple recruitment and retention initiatives is delivering a sustained improvement in retention and a reduction in turnover, and we continue to actively recruit for fitters in all states.
Speaker #1: On customer satisfaction, our Net Promoter Score is an excellent barometer of customer loyalty. Over the last 12 months, ARB's NPS has increased from an average of 68 to 75—an outstanding result by industry standards, indicating highly and increasingly satisfied customers across Australia.
Speaker #1: The Ford Licensed Accessory Program is where ARB has partnered with Ford Australia and Ford globally to deliver over 180 branded accessory products for the Ranger and Everest platforms, available through Ford dealerships with Ford's full 5-year warranty.
Speaker #1: FLA revenue grew again in FY2026—a true testament to the program. Even as Ford Ranger sales declined, which speaks to the depth of the partnership.
Speaker #1: The Ranger Super Duty was a standout. From being first to market through to strong take-up across the new range, the Super Duty accessory revenue should highlight to investors—which I'll speak to later in the presentation—the importance of vehicle types as a barometer for ARB sales, as opposed to the quantity of vehicles sold.
Speaker #1: Ford engineers and ARB engineers have commenced work on the next model Ranger and Everest, with both companies locked at the hip to enhance this successful collaboration well into 2030.
Speaker #1: Our local manufacturing gives us a genuine speed-to-market edge. Highlighted by the accessory prototype that rolled out on the mid-model special interest pack, the Raptor Desert Pack, these factory-backed accessories on Ford's key platforms keep us well ahead of our competitors.
Speaker #1: Ford and ARB will continue to discuss further product opportunities and are actively working on the FLA rollout in New Zealand and South Africa. And now, on to ARB's export business.
Speaker #1: ARB's export business recorded a net increase despite a challenging international environment, and now, as Damon mentioned, represents 38.2% of group sales. The USA was again a major growth region.
Speaker #1: Sales through our wholesale, full partner RW networks, e-commerce, and other channels all delivered strong growth, despite significant economic and tariff headwinds. Asia was another strong contributor to the financial year, partially offsetting declines in the UK, Middle East, and New Zealand.
Speaker #1: The stronger Australian dollar in the second half also reduced the translated value of export sales in Australian dollar terms—the USA most notably—which grew 13.5% in US dollar terms.
Speaker #1: The Europe and Middle East region was impacted by multiple economic and political challenges. European sales were broadly stable, with local sales in mainland Europe growing despite ongoing pressure, in part from the light commercial vehicle sector.
Speaker #1: Our aid and relief business was impacted by reduced funding. However, the increased use of midsize 4x4 vehicles in the defense space is expected to offset those declines in FY2027.
Speaker #1: In the UK, the pickup market contracted sharply following tax changes affecting double cab pickup sales, with registrations down more than 50% in the second half.
Speaker #1: Despite this, sales of ARB-branded product through the UK Truckman business doubled year on year. Conditions are anticipated to improve later in the calendar year, as tax-friendly EV and hybrid models arrive, including Chinese models. Truckman has been successful and awarded canopy contracts for these models.
Speaker #1: The capital investment in the Middle East reflects our long-term vision for this region. The Middle East was impacted by regional conflict, which disrupted shipping routes, increased container costs, and broadly impacted demand.
Speaker #1: However, much of this decline was offset by servicing regional customers directly from our global distribution centers. This is a real demonstration of the resilience and flexibility of our distribution network globally.
Speaker #1: ARB China Co., Ltd., a wholly owned subsidiary, commenced operations late in the year, with local and Australian dignitaries attending the official opening in May.
Speaker #1: Establishing a local presence is a major step for reestablishing China as a key market for ARB. Being important to Chinese OEMs in Australia is beneficial, but being important to Chinese OEMs in China—while a bigger hill to climb, no doubt—is our goal.
Speaker #1: Initial demand from Chinese aftermarket customers is strong, with our focus on marketing, investments, and continued ARB brand development through Chinese social media channels, which has commenced strongly.
Speaker #1: During the last 15 years, ARB has evolved our corporate presence and localized our corporate offering in key markets such as Europe, New Zealand, the Middle East, Asia, Thailand, and China, while expanding our USA footprint.
Speaker #1: Africa has been a continent that has remained an opportunity for ARB to enhance our localization strategy. There are a number of great parallels between the African and Australian markets in the type of vehicles sold and the genuine reliance on the function of vehicles and accessories.
Speaker #1: Despite the opportunity in Africa today, sales materially lag ARB sales in Europe and Latin America. Similar to Thailand, South Africa builds pickups for the local European market, further expanding the opportunity.
Speaker #1: The Hilux, Ranger, and D-Max are all built in South Africa on a CKD basis. We have a 30-year heritage as a premium brand in Africa, with a loyal following established by our distribution partners, which have paved the pathway for us to continue to grow sales in the region.
Speaker #1: We are establishing our own direct in-market wholesale operation in South Africa, beginning operations in the early part of FY2027. This will let us increase product availability, use pricing to drive volume, and build.
Speaker #1: Even stronger brand, targeting a step change in our African sales over the near to medium term. And now, on to the US business. Despite the ongoing economic and political challenges facing the US market, ARB recorded growth of 13.5% in US dollar terms. All channels performed well, including the wholesale business—buoyed by the Four Parts joint venture—Latin America, e-commerce, and the OEM business through Toyota USA, which saw the addition of the ARB-branded roof rack for the RAV4.
Speaker #1: Poison Spider has performed well in its first year after relaunch, with demand outstripping supply and a strong inventory pipeline now positioning the brand for ongoing growth.
Speaker #1: ARB USA has commenced sales of our canopy, or "truck caps" as they are called in the US, into the local market, starting with the Tacoma. Our canopy offers a unique, pre-painted, ready-to-install solution that gives us a competitive edge.
Speaker #1: And in early 2026, we announced an exclusive distribution partnership with Meyer, one of the nation's leading accessory distributors. The early success of this program has prompted further model developments, including the USA Ranger. Coming to market this financial year will be the F-150, which will debut at SEMA this year.
Speaker #1: And in June, ARB USA successfully completed the migration from our distribution center in Auburn, Washington, to our new home in Norco, California, bringing our inventory closer to our largest customers and providing a long-term home for our engineering team.
Speaker #1: ARB's presence in Seattle remains, with finance, marketing, and other administrative functions being run from this office. Our U.S. engineering center is now fully operational and scaling, with more engineers and new equipment for local prototyping and product development, bringing development closer to the market with more speed.
Speaker #1: The ARB team is building a full range of full-size and midsize trucks across both suspension and fabricated protection products, targeting the largest and most valuable segments of the U.S. market.
Speaker #1: The team will also design and develop future Poison Spider lineup for current Jeep applications. A real milestone this year was the completion of the first fully US-led development of suspension for the latest Model 400, which put ARB first to market and marked a major capability milestone.
Speaker #1: Well done, team. The US also collaborated closely with our Australian engineers on key platforms such as the Tacoma and Land Cruiser 250, with these products now contributing to sales growth in the region.
Speaker #1: Our joint venture with Offroad Warehouse and Four Parts continues to go from strength to strength. We've achieved high double-digit growth in ARB sell-through, primarily driven by increased sales of ARB accessories, including expanded ranges from our engineering teams, and the business continues to operate profitably.
Speaker #1: The ARB store and store rollout is progressing well, with eight stores completed to date, a further 22 due by the end of calendar year 2026, and the remainder on track for a full rollout across the 48 stores in nine states.
Speaker #1: Looking ahead, a renewed e-commerce platform will launch in the first half of FY27. We are planning to transition four parts to a focused premium retailer, aligned with the ARB brand experience, from FY28.
Speaker #1: And we'll continue to grow ARB product availability across the network. Further store expansion opportunities are being considered by the Board. And now, on to our OE business.
Speaker #1: Sales to OEMs were $43.4 million in FY2026, down 27% on FY2025, and representing 6.2% of group sales. Note this excludes the OE business outside Australia.
Speaker #1: Importantly, this decline was cyclical, driven by a lull between major vehicle programs and a constrained supply of vehicles, rather than any change in ARB's competitive position.
Speaker #1: We have not lost any OEM contracts by customer or by product fitment. A partial recovery emerged in the second half, and Toyota has announced materially improved vehicle supply in the second half of the 2026 calendar year on models core to our OEM business, which will drive further recoveries.
Speaker #1: Reflecting the ongoing strength of this pipeline, ARB has recently secured contracts for two future platforms, with new US OEM customers, which we anticipate will include ARB branding.
Speaker #1: These new projects typically have a two- to four-year development cycle. Consistent with the depth of our more than 40-year relationship with Toyota, ARB has worked with Toyota to develop and launch a set of accessories for the newly launched Land Cruiser FJ for multiple international markets.
Speaker #1: The release of this vehicle using ARB-branded accessories is a very meaningful reflection of the ARB brand strength in markets throughout Asia, Latin America, and Africa, where the volume of this model will be sold. Most notably, this model will not be sold in Australia, the USA, or Europe.
Speaker #1: The vehicle is currently available, and accessories are selling well. ARB and Toyota are in discussions about extending this brand partnership to other models. And now, on to more products and operations.
Speaker #1: Products remain the foundation of ARB's success. Our business is built on innovation and high-quality products, and we are reinvigorating our focus on product development to keep it that way.
Speaker #1: Madmanics, our head of engineering, has done a lot of work in the last 12 months to make a step change in the systems and processes used in engineering to deliver products at the pace and the standards the business demands.
Speaker #1: Very fortunately, my 25 years in the business, there's never been a time where we're navel-gazing wondering which products to develop next. The list of all new accessories to be developed or the list of platforms that we'd like to develop for us has always been a much has been a much longer than the resource available to develop those parts.
Speaker #1: With the expansion in the USA and the increased number of new Chinese entrants, our focus on product development has never been higher. To back that focus with real capability, we are increasing our engineering investment by 10 to 15 percent per year, which will deliver a higher cadence of all-new products as well as an increased pace and scope of new vehicle applications.
Speaker #1: Investors will be aware of the changing landscape of new vehicle brands and drivetrains, and I want to be clear about our deliberate approach. There are more opportunities than anyone can pursue, so we invest where we can create the most value for our customers who most value the brand.
Speaker #1: We prioritize proven high-return platforms while carefully testing emerging ones, including BYD, evolving as real market changing as excuse me, including BYD evolving as real market data emerges.
Speaker #1: We've invested in China, not just in Chinese brands, and we've established our own company there. We also have direct dialogue, as mentioned, with every major manufacturer.
Speaker #1: Fundamentally, we are drivetrain agnostic. Whether a vehicle is Chinese or not, EV or not, internal combustion or hybrid, is irrelevant. Great vehicles that owners are proud of will always want to mount great accessories, and we've already secured and started to deliver on Chinese OEM contracts, with more negotiations underway.
Speaker #1: Two things that really matter in our industry are being first to market for the right vehicles and focusing on the right vehicles. On speed, we were the first to market with accessories for both the new Ford Ranger Super Duty and the new Toyota Hilux.
Speaker #1: Still, Australia's top-selling vehicles—even in a small market—the fitment rate for accessories on the Ranger Super Duty has been a highlight, and higher than we've ever seen on any vehicle platform.
Speaker #1: And we've seen associated lift in fitment rates on Ranger and the new Hilux over the same period. Only ARB has the local manufacturing presence and capability to deliver these decisive wins.
Speaker #1: On focus, we know the price of a vehicle often correlates to a customer's appetite for the quantity and prices of those accessories.
Speaker #1: For example, the average Land Cruiser 300 Series customer spends around twice as much on ARB accessories as the average Mitsubishi Triton customer. It's not just about the volume of vehicles sold.
Speaker #1: It's about the type of customers that buy them, which is why we prioritize the established high-value platforms rather than chasing volume alone.
Speaker #1: And finally, on to the outlook. ARB's aftermarket business showed real resilience through a challenging FY26, finishing with a stronger second half and an order book and daily order intake close to historical highs.
Speaker #1: Improved supply of key 4x4 vehicles in Australia, including the reintroduction of the Toyota Land Cruiser 70 Series, provides a more constructive backdrop for FY2027.
Speaker #1: ARB's export business continues to trend positively, with UK registrations recovering and Europe's the European market performing well. Through the Middle East, though the Middle East remains impacted by the regional conflict.
Speaker #1: The US outlook remains positive, with strategic foundations laid in prior years continuing to materialize into sustainable growth. Growth in Southeast Asia is expected to continue, while our newly established presence in China and South Africa positions ARB for growth in these markets in the coming years.
Speaker #1: Sales to OEMs are expected to improve in FY2027 following a cyclical decline, subject to OEM supply chains and future platform release timing. We will increase our investment in engineering over the coming years, supporting a higher cadence of new product releases and faster application development.
Speaker #1: Further detail on our product strategy, engineering investments, and international expansion—including China and South Africa—will be provided at the AGM. In summary, the board believes the company is well positioned to achieve long-term success through continued expansion in the Australian and New Zealand markets, with new and upgraded retail stores and the launch of our partner program; strategic partnerships with key OEM customers in Australia and internationally; a growing export business supported by ARB's own distribution channels in the United States; an extremely strong balance sheet with $47.9 million of cash and no debt; a deep engineering capability and a pipeline of new product developments backed by increased investments in product development; and a well-balanced management team with a blend of long-term ARB experience and external executives.
Speaker #1: And before finishing up, I'd like to thank the entire team at ARB for their efforts in FY2026, particularly the senior leadership team and our state and international business unit managers.
Speaker #1: It was a year that tested us, and the resilience of this result is a credit to the hard work, engagement, and commitment of the team.
Speaker #1: We remain very ambitious for continued growth and are genuinely excited about the new financial year. That now concludes today's presentation, and I'll move on to our Q&A section for questions raised through the chat box during this presentation. I believe Damon has a couple of questions he'd like to begin answering.
Speaker #1: Yeah, thanks, Lachlan. And thank you to those who have submitted questions, which we'll work our way through. We have a number of duplicates, and so we've grouped them into some common lines of questioning.
Speaker #1: Firstly, on pricing, we mentioned that we'd had two price increases during the year and that the quantum of those price increases was questioned. In terms of the quantum and the timing, the first price increase back in August 2025 was just a little over 2%, and that price increase, of course, took effect probably a month or two later.
Speaker #1: So by October, we'd probably had about nine months' worth of value from that price increase through the financial year. The second price increase was a little later.
Speaker #1: That was in February 2026, and it probably took effect from April. So we probably got the benefit of three months of that price increase, and that was a higher price increase—sitting at a little under, or between, 3.5% and 4%.
Speaker #1: Depending on weightings, there were a lot of questions on gross margin, so I'll tackle them generally. Gross margins were particularly strong in the second half, and even across the year were at the upper end of margins achieved over the last five or six years or so.
Speaker #1: So the margins, of course, in the first half were significantly impacted by the Thai baht. We have a large space in Thailand. And the impact of the weaker Australian dollar during the first half had a significant impact on the first half margins.
Speaker #1: That moderated in the second half, and the margins were improved. The question is whether those margins will continue through, particularly the second half margins. I guess what we would suggest to you, without providing guidance, is that there are a lot of factors that play into our cost of sales.
Speaker #1: There are a lot of moving pieces. The tie bar, of course, is a major factor, and it's trending in our direction at the moment. We would expect the impact of the conflict in the Middle East to moderate at some stage—hopefully sooner rather than later—and steel prices, of course, are pushing up, with labor costs also remaining under pressure.
Speaker #1: So, there's a number of levers in this, in the cost of sales, to consider. I guess what we would say is, moving into FY2027, we would expect the margins to trade in line, at this stage, with the average of 2026 across the full financial year.
Speaker #1: In terms of foreign exchange, there have been some questions asked about what level of hedging we have in place. We are currently hedged out until November.
Speaker #1: 2026. And we're hedged out at around about the 23 tie bar to the Australian dollar. Now, a lot of those hedges were taken— a lot of those hedges were taken earlier in the second half.
Speaker #1: And so, provided the exchange rate continues to trade at the levels that it's currently at—and it's been up as high as 23.6 more recently—there may be some opportunity there, but the foreign exchange, of course, could go either way.
Speaker #1: The question as to whether rising inventories in the second half versus the first half contributed to rising gross margins: No. The increase in inventories wasn't material and certainly didn't have a material impact on our factory throughputs.
Speaker #1: And in a question about the quantum of any tariff refunds received by ARB, ARB did qualify for a tariff refund during the second half of the financial year.
Speaker #1: The tariffs paid, of course, were expensed in an earlier period—either the first half of 2026 or the second half of 2025. But the quantum is not material.
Speaker #2: Okay, I'll jump in. There are a lot of questions on the US, so we'll work through those, and there's a little bit of repetition. Hopefully, these answers will cover off the questions being asked.
Speaker #2: So the growth prospects in the US, whilst we don't provide guidance, we are confident that all of the strategic endeavors are going to continue to allow us to grow in the US. We are comping off the OEM business, and so the Trail Hunter program, which most of you have seen, has matured into like-for-like sales.
Speaker #2: However, as mentioned during the course of the presentation, we have added the four sorry, the RAV4 roof rack to our sell-through Toyota channels, which will be incremental in FY 2027 relative to FY 2026.
Speaker #2: But as mentioned, the strategic investments that we've made in four parts, and the strategic investments that we are making in the engineering team, we anticipate will allow us to maintain solid growth.
Speaker #2: And conscious that we are just starting to see some of the products coming through into stores and into our US distribution from the engineering work kicked off six to eight months ago.
Speaker #2: There's a question about the key platform in the USA, which is the Tacoma. So confirming, that is one of the most popular platforms. ARB's association over many years with Toyota is particularly strong, and that definitely includes the US market.
Speaker #2: How much capex are we planning to invest in four parts to convert the stores to the more premium format? Yeah, we won't specify, and really, depending on the size of the store—if you have visited the four parts stores, they do vary in size quite broadly.
Speaker #2: But it is a material—sorry, not material—it is a significant investment that we don't take lightly. We are definitely monitoring the revenues that are flowing from those investments and that customer experience.
Speaker #2: And so a lot of work has actually gone into making sure that the stores are trained and educated on ARB products a lot better.
Speaker #2: There are incentive structures in place to make sure that the store members are rewarded for selling through ARB products, which has resulted in, as mentioned during the course of the presentation, those strong double-digit growth figures of ARB product sales.
Speaker #2: I think that covers off the majority of the US questions. There is a question here about how the business is positioned to fit out the backlog of Toyota vehicles coming to Australia in the coming year.
Speaker #2: Well, I think through the course of the presentation, we presented much better data on the retention of our fitter network. One interesting thing to note there is that with improved fitter retention comes maturity of those fitters, and efficiency of those fitters.
Speaker #2: So it's not just the actual volume of fitters that we benefit from—it's the maturity of those, the efficiency. So we're in a great position with respect to fitters.
Speaker #2: Relative to the prior two years, we could still absolutely do with more fitters. And as mentioned during the course of the presentation, we are actively recruiting in each state for more fitting staff.
Speaker #2: There was a question in here about the product launches, and whether there's going to be anything coming through at the Eastern Creek 4x4 Show in Sydney, and the foot traffic for the National 4x4 Show.
Speaker #2: We had a stunning BYD Shark on display, with the mid-salary tray on the back and the all-new Summit Mark II bull bar, which was a real highlight.
Speaker #2: Actually, I thought it was one of the better-looking vehicles at the show, but really in line with the response that we are seeing on that vehicle through our e-com website.
Speaker #2: And the response from the 4x4 show at the weekend—still not a lot of inquiry. So we'll have to dig deeper to understand that.
Speaker #2: But with the growth of that platform, it remains an opportunity. And so it's a matter for Anthony and the marketing team to make sure that we're messaging the right way to that vehicle platform and presenting products in the right light.
Speaker #2: But definitely a great-looking vehicle. And there will certainly be all of those new products available at the 4x4 show. We did import from the Middle East the new Y63 Patrol.
Speaker #2: That vehicle is not in the market in Australia yet. We have bought it in advance of the Australian launch, and we showcased a whole range of new products on that vehicle to get ahead of the market.
Speaker #2: And it was really, really well received at the show. Just questions about our investment in China in FY2027. We've landed a number of containers of inventory.
Speaker #2: We are selling through that inventory. There is a small team with an office, and it's mainly a wholesale marketing and business development group sitting in there.
Speaker #2: The majority of our capital investment will be in stock and inventory, and marketing. We've got work to do to continue to expand our brand.
Speaker #2: Obviously, social media channels in China are different from the rest of the world. And so we've got dedicated teams and specific marketing agencies working on the brand development of ARB in China, which is where the majority of that investment goes.
Speaker #2: Questions about the network expansion in Australia. Damon and I have been very consistent in talking about three to five stores per year, and we're on track for that.
Speaker #2: I've got Damon next to me, but Damon, it's fair to say our next three years of store development and pipeline are reasonably mature. And as I mentioned during the course of the presentation, at the AGM we'll be talking in more detail about our new Preferred Partner Program.
Speaker #2: Yeah, did you want to? Yeah, for sure.
Speaker #1: Yeah, pick up, and I'll leave those there with you. A couple more questions following the earlier comments around the US tariff refund, which we haven't quantified.
Speaker #1: Here's a question that might provide some perspective. The question is around materiality: is it less than 5% of the FY26 end PAD?
Speaker #1: It's significantly less than that. It's not a material number and hasn't influenced the result materially at all. A question around why not pay another special dividend this year, given the strong balance sheet position.
Speaker #1: There hasn't been any talk from the directors about paying another special dividend. I think it was 10 years between the one that was paid last year.
Speaker #1: I think it was 2015 through to 2025. So, no discussion—at least in my presence—about another special dividend. A couple of questions again on the tie bar.
Speaker #1: Just appreciating the impact or the influence that has on the results and how far out we've locked in. Historically, we've always locked in the tie bar three to four months out.
Speaker #1: As I mentioned a little earlier, we're locked in until November, around that 23 rate. Then we'll start to take some more positions again in the next couple of months.
Speaker #1: And hopefully the rate will hold steady, or perhaps even improve, in respect of that.
Speaker #2: There's a question here about the first half '26 result. We talked about the defense sector as being a big opportunity for export growth.
Speaker #2: And how are we positioned to penetrate this market? Yeah, look, good question. And, indicatively, some of the increased ARB sell-through to the UK Truckman business is reflected in some of that defense work starting.
Speaker #2: Defense work, however, is slow and does take time. There's a lot of red tape and a lot of information that needs to be provided off the back of any quote.
Speaker #2: So it's a very complex sector to sell into, and we are not afraid of saying it is new to us in the European and UK markets.
Speaker #2: However, we've got localized teams. And particularly, as you head further east, the more activity there is, obviously. And so our guys are on the ground, understanding, quoting, and winning contracts on a consistent basis.
Speaker #2: But again, it's a complex area. Truckman winning the Chinese EV contracts—can you give some more color on what products and what content is on those? Call out specific platforms.
Speaker #2: And maybe we can do that at the AGM, potentially, as that information will be in the public sphere. However, they are canopy contracts, which is obviously the Truckman's core business.
Speaker #2: And they have been one with the Truckman brand for those future contracts, not the ARB brand. So Rich and the team over there are really mindful of the situation and the really challenging environment they face, and have been incredibly proactive in sorting out those new customers.
Speaker #2: Identifying their needs and demands, and then ultimately being successful in winning those future contracts, which is great. So there's a question—not a question—about manufacturing and R&D, given what looks to be more fragmentation of the 4x4 market and new Chinese EVs.
Speaker #2: I think this is where size counts. It's well known that ARB's scale, our balance sheet, and the size of our engineering team are competitive advantages that we have.
Speaker #2: Our belief is that if we can make sure that the systems and processes we have for our engineering team, and the speed at which we can bring product to market with the more fragmented market, will actually be a competitive advantage to us.
Speaker #2: And so we are very aware of that. It is capital intensive. We'll have to manage our inventory really, really well. But I do think it will make it quite challenging for the smaller players in the market to keep up with the volume of new EVs coming in.
Speaker #2: But as was presented during the course of the presentation, we also have to monitor and manage which platforms we choose to fit the product to.
Speaker #2: Some more questions about the UK contracts, which I have addressed. On the new engineering spend uplift, what is the current level of spend, and is it expensed or capitalized?
Speaker #2: Damon, did you want to answer the expensed or capitalized R&D question? And I'll talk to the actual investment.
Speaker #1: Oh, sure. Just give me a quick look at that again.
Speaker #2: What percentage is expensed versus capitalized?
Speaker #1: Oh, well, we're fairly conservative in this space and don't capitalize much of our expenditure. Our R&D expense is about $20 million for the year.
Speaker #1: And we capitalize, from memory, it's about $4 million. So we're capitalizing only a fraction of what we spend each year.
Speaker #2: Damon is most certainly a conservative accountant, that is true. But it's a great position to be in. And certainly for us, without speaking specifically in dollar terms about the uplift, know that 10 to 15 percent has been queued in.
Speaker #2: And I'll just take the time to say, in that product space and the focus that we have on products, there is a knock-on effect to manufacturing.
Speaker #2: We think that, largely, we have capacity to grow into today, with more products coming through. However, we have made allowances for additional investments in manufacturing where needed, with more product coming through.
Speaker #2: And then the third leg of the stool is marketing. We do note that the marketing spend was down year-on-year, but that's not a position we'll hold going forward.
Speaker #2: So we genuinely believe that if we can pump more product through our engineering team, and then obviously through manufacturing, we will need to market and promote that product and do expect, and have forecasts for, an uplift in marketing spend in the new financial year.
Speaker #2: We're running quite long on time, Damon. Did you have any further questions you'd like to answer?
Speaker #1: We believe we've addressed most of the questions through the chat. With that, we'll close the presentation. Thank you very much, everyone, for attending today.
