Here we go. Okay, good morning, ladies and gentlemen. My name is Brett Chenoweth, and I'm the Chairman of the Board of Directors of Adairs Limited. On behalf of the board, I'd like to extend a warm welcome to everybody here today, and particularly our shareholders, including those in this room and also those who are online. Welcome all to our 2023 AGM. It's now 11:00 A.M., the appointed time for holding our Annual General Meeting, and I'm advised that a quorum is present. I therefore have the pleasure in declaring this meeting open, and for all of you attending. Details about how the shareholders can participate is set out in the notice of meeting, which was sent to shareholders on 23 October, and is also published in our investor relations website for those online.
Before proceeding with the formal business of the meeting, I'd like to advise that I'm joined today by all my fellow directors and all the senior leadership team, including Ash Gardner up front here, our Chief Financial Officer. From the board, we've got Kate Spargo, Independent Director and Chair of our Audit and Risk Committee. We've got Trent Peterson, Independent Director and Chair of our Remuneration Committee. We've got Kiera Grant, Independent Director. David MacLean, who is up for election today. We've got Mark Ronan, the CEO of the group and Managing Director, and we've got Jamie Adamson at the front here, our Company Secretary. In terms of the board structure, we've got Michael Cherubino as well, at the back of the room there.
Michael stepped down as a director in August of this year, which allows him now to solely focus on his executive role as Head of Property for this group. We have a significant store rollout and development program, and that's particularly a focus on furniture, and our business in that sector cannot be in better hands under Michael. I would like to acknowledge on behalf of my fellow directors, the tremendous contribution Michael has made to this board over the last 12 years. He's been an excellent board member, an unbelievably strong team player for this company, a very loyal and hardworking board member during that time.
And we look forward to him continuing to deliver for this group in this new role, and he'll be working with us on group strategy and property matters, we hope, for many years to come. So thank you, Michael, for everything you've done for this business. The board has also reviewed the structure of the board following Michael's departure, and we're satisfied that it continues to have an appropriate breadth of diversity, experience, and capabilities to support our group. The board renewal over time, as we've talked about previously, we deal with in line with good governance principles, which include reviewing the needs of the group and a desire to bring in new ideas, perspectives, and capabilities to the board as required.
Also in attendance today is Tony Morse, up front here, our engagement partner with the company auditor, Ernst & Young. So Tony will be available to answer any questions on the audit and accounts at the appropriate time. And we also welcome the team from the company's share registry, Link Market Services, at the back of the room there. In terms of the agenda today, following some introductory remarks from myself and a review of the company's performance for 2023, Mark will present his report, which will provide an update on our strategic initiatives and the outlook for the company. We will then proceed with the formal business of the meeting to receive and consider the financial report of the company and to vote on the resolutions this morning.
I'll now talk you through some of the procedural matters for the meeting, and there's a few of them, so bear with me. In terms of shareholder questions, we're only taking questions from shareholders in attendance at the meeting today or their appointed representatives, as well as any shareholders who pre-lodged their questions in writing prior to the AGM, in accordance with the procedures that were set out in the notice of meeting. We'll endeavor to answer as many questions as we can from shareholders, and I ask at the appropriate time that any questions just get directed to myself, and I'll answer them or appropriately direct them to their team. In terms of voting procedures, voting today will be conducted by way of a poll on all items of business.
Voting for all resolutions will remain open until five minutes after the meeting concludes to provide eligible attending shareholders or their appointed proxy with sufficient time to cast your votes. With each resolution, we will show the tally of votes, which have been lodged prior to the meeting, that'll be on the screen, and the final outcome of each resolution, including votes cast at the meeting, will be released to the ASX and posted on our investor relations website later today once voting is closed and the numbers are all tallied. So let me commence by giving my review of the 2023 financial year. As I stated in our annual report, FY 2023 was a challenging one for the group, as interest rate rises and cost of living pressures created a weaker macro trading environment.
This saw customers tighten their discretionary budgets and retail traffic declined, particularly in shopping centers, as the year progressed. Against this backdrop, it was pleasing to grow the group's sales by 10% on FY 2022 to a new record of AUD 621 million. This reflected both our stores being open for the full year as compared to financial year 2022, where COVID-related closures impacted 16% of total trading days, and a full year's contribution from Focus on Furniture this year versus seven months in FY 2022. The growth in store sales was offset by a decline in online sales across all three businesses, reflecting a normalization of a channel mix, with online sales representing 28.6% of total sales.
This year-on-year sales growth was delivered through a good execution of management of factors that were within the control of this management team across the entire group. Each of the businesses delivered a strong product offering. We were able to increase retail price points to support product margins and overall gross profit, although overall gross profit was impacted by the domestic supply chain cost increases and the ongoing impact of the inefficiencies at our national distribution center at Adairs, which I'll refer to specifically shortly. Our cost of doing business for the year was up 15%, at AUD 27.8 million on FY 2022 levels.
and this was partially due to the additional costs associated with uninterrupted store trade, the full 12 months of Focus operating costs, and that was also compounded by the cycling of one-off COVID-related rent rebates and business-wide increases across the group. In response, though, to the higher cost base and the softer trading conditions, the group implemented a cost out initiatives that will offset all inflationary increases in rent and wages, and we will deliver a further savings of more than AUD 5 million over the year. So with lower gross margins and the higher cost of doing business in FY 2023 saw the group deliver an EBIT total of AUD 63.9 million for the year, which you'll see on the chart there, which is a fall of 16.4% on FY 2022.
Pleasingly, when we turn to inventory levels, these have been well managed across the group with a clear focus on optimizing inventory, particularly when operating in a softer trading environment. Group inventory levels finished FY 2023, approximately 11% lower than they had started, and we will continue to manage inventory tightly until trading conditions show a significant improvement. In terms of our national distribution center, this was a significant area of focus for management throughout FY 2023, given its importance to the Adairs brand. As we discussed briefly last year here, and we've reported previously, the operational outcomes since the commissioning of the NDC in September 2021 were unacceptable, and that adversely affected customer experiences and resulted in operating costs well in excess of our initial expectations.
In response to this, the management team undertook a thorough review of the options available and ultimately decided that Adairs should exercise its step-in rights and take over operations of the facility. By returning to a self-operated model, Adairs can leverage its product and supply chain expertise to deliver a significantly better experience for customers and stores at a materially lower cost than the 3PL arrangement we had in place. This step-in occurred 11 weeks ago, and while it's still early days, we are very happy with the progress made in working towards our dual goals of improving customer outcomes, while also materially reducing our unit cost of delivering and replenishing our stores.
We remain confident of realizing annual cost savings of AUD 4 million in the first 12 months of our operation, and higher annual savings thereafter, once a new warehouse management system has been fully installed. The NDC transition will require a total outlay of AUD 18 million in capital expenditure, the majority of which was made upfront to acquire the warehouse operating assets. This was an unplanned capital investment for the year and was funded from cash reserves and existing finance facilities. A consequence of this decision was that the board elected this year to not pay a final FY 2023 dividend in order to maintain a strong balance sheet. I just want to assure all shareholders in respect to the dividend, that the board recognizes that many of you rely on dividends to supplement your income, of course, and that we did not take that decision lightly.
We are, as always the case, and we do this regularly, we had regard to existing debt levels, the timing and quantum of future cash flows of the business, the prevailing and expected future market conditions, and of course, we took into account our stated dividend policy when we made that very hard decision earlier in the year. I'll now turn to our ESG performance in terms of our ESG update. This is a framework, and these initiatives we use, but this is a framework we use to manage and assess our non-financial performance in the business. So it's all about us being responsible, sustainable, and ethical in our business practices, as well as ensuring that we maintain regulatory compliance, and we meet all of our stakeholder expectations.
ESG covers a broad range of topics which we do report on annually in our sustainability report, which forms part of our annual report. I just wanted to briefly call out a couple of the more important ESG outcomes that were achieved in FY 2023. In terms of sustainability, we completed our review of all Tier One suppliers, being suppliers we deal with directly across a range of countries to ensure that they are adhering to our ethical sourcing policy. We also eliminated single-use plastic bags from our stores, which will result in approximately 2.3 million less bags going into the community and potentially going to landfill. We also achieved an 8.55% reduction in our Scope One and Scope Two greenhouse gas emissions.
We met our gender diversity goals, both within our senior management ranks and at board level during the year. We're proudly associated with Orange Sky, and this association has continued, and it's something that we've participated in during the course of the year and previous years. We donated over AUD 235,000 to Orange Sky, and only last month, many of our team members undertook the Sudsy Challenge, where they were sponsored to wear the same clothes for three days to help raise awareness for those dealing with homelessness across both Australia and New Zealand. In closing, I wanted to acknowledge that we are currently in one of the toughest retail environments in recent memory.
However, we are also aware that ours is a cyclical industry, and as such, we need to continue to plan for the longer term. Mark will talk today and outline the underlying strategies which support this group and which will support this group well into the future. Finally, I just want to thank you, our shareholders, for your continued support. This board firmly believes that we have the right business model, strategies, and team to grow substantial profits and sustainable profits, importantly, well into the future. I also wanted to acknowledge our team. These are the people that are critical to our growth. All of the senior leadership team are in the room here today, and I would encourage anyone that's in the room with us to use this opportunity to meet them after the meeting.
That concludes my report. We'll have time for questions shortly, once we work through the formal part of the meeting, but for now, I'll hand over to Mark to present his CEO report.
Thanks, Brett. Obviously, Brett has covered our FY 2023 results, which highlighted the fact that across each of our businesses, we have both operational opportunities and challenges that drive the overall performance of the group. A number of these, including the current trading environment, are obviously impacting our short-term results. So I'll first cover off on the trading update we released to the market this morning before moving to how we're thinking about the group and each of our businesses over the medium term. The impact of higher interest rates and cost of living pressures has seen a significant decline in traffic, both in centers and online across each of our businesses. While sales at each are below the same period last year, our focus on customer experience and conversion has ensured the sales decline is less than the traffic decline that we've seen.
The recent November Adairs Linen Lovers event produced our fifth biggest sales week on record, demonstrating the value of our loyalty program and our customers' willingness to continue to engage with the brand. Black Friday, which is, funnily enough, today, and the Christmas trading period continue to be very important events for the remainder of the first half, and as a business, we continue to look to maximize the sales that we achieve throughout this period. As Brett mentioned, we've successfully transitioned the operations of the national distribution center to Adairs in early September. After a short settling-in period, dispatch times to customers and stores have shortened to below pre-transition levels. So now customer experience, importantly for the recent Linen Lovers event, was substantially better than previous events.
However, we remain focused on continuous improvement at the NDC, with the next key step being the implementation of the new warehouse management system, which is expected to occur in Q4 later this year, and will unlock further productivity gains and cost reductions from that site. While down on the same 21 weeks last year, Focus on Furniture sales are ahead of our FY 2024 plan. The business is prioritizing margin over sales volume and has managed its inventory and sales promotion carefully to maintain its gross margin and its cost of doing business to support the profit of that business over this half. At Mocka, we continue to improve its underlying profitability, with the anticipated margin improvements being realized year to date on lower stock levels and costs continuing to be carefully managed.
Our brief exposure to the weaker Australian dollar has been largely mitigated in FY 2024, with approximately 84% of our U.S. dollar commitments being hedged at an average rate of $0.70. If I turn now briefly to the outlook, while it feels like the interest rate rises are at or nearing their end, we do not expect any significant change in the short term, and so we expect the balance of FY 2024 to remain a challenging business environment, and the businesses are being managed accordingly. The board and management team remain confident that the group is well-placed to continue to navigate these challenges, given our omni-channel business model, loyal customer base, large addressable market, and obviously, a proven management team. Given the continuing uncertainty in outlook, we're not providing any guidance at this stage.
So if I move now to the group strategy, and I'll take a bit of time to walk through each of our businesses. However, I thought I'd just briefly touch on the group level. So as a group, we're building one of the largest homewares groups across Australia and New Zealand, and through our brands, we are dedicated to creating destinations, both physical and digital, that enable everyone to create homes they love. Each of our businesses are vertically integrated and product-led, enabling us to provide customers with great quality product at good value for money prices. Our merchandise teams work with our supplier partners to design and develop the best on-trend products for the Australian and New Zealand markets, and that vertical integration provides us with the significant benefit of unique product that can only be purchased through our omni-channel retail model, delivering improved margins and repeat customers.
We regularly note that we are omni-channel, which simply means we offer both online and physical stores with a single view of the customer across these channels. Obviously, customers today don't think in terms of omni-channel, they just see it as retail. There are customers that buy online, customers that shop in stores, and in most cases, the same customers are likely to spend time in both channels across their journey for inspiration, from, "What would I like to do in my home?" to, "What can I purchase to make my home come to life?" We see the homeware space as being best when a true seamless retail customer experience is delivered across these channels. This is where retailers make it easy and intuitive for customers to move between channels, and we bring this view across all of our businesses.
Homewares customers, in particular, regularly want to experience the product physically, as it's hard to understand quality, hand feel, color through a virtual experience. This leads to online-only operators often needing to build additional costs into their order economics to support the experience, and more recently, look to open physical outlets to support their online-only business models. This doesn't necessarily mean that customers shop in the stores and finish their transaction there, but it does show that they appreciate the ability to touch and feel the product. As we open stores across the group, we also see the benefit of having a profitable store model, delivering incremental sales that also supports a greater share of the online channel in that market where the store is opened. To deliver this seamless retail experience, we also continue to invest in service across our brands.
We see customers looking for the opportunity to experience the product, and this is better when you have a well-trained sales team that not only enhance the customer experience, but generally delivers a higher sales conversion in store. Seamless retail is what many customers are looking for and is a concept we look to bring to life, as I said, across each of our businesses. I'll now just take a moment to walk through our businesses briefly to show how this translate.... So if I start with Adairs, and Adairs designing, developing, and sourcing product for Australia and New Zealand is at the heart of what we do. Because of this, there are growth opportunities across a number of our categories that will continue to be exploited to support the Adairs growth aspirations.
An example of one of these is the kids' product category, where we continue to deliver ongoing growth through expanding the range to deliver a complete kids' room solution. Supporting that product strategy is the customer experience or the seamless retail that I talk about. And with that, we continue to build out our store network, in particular, larger stores that support that customer experience and are generally more profitable. A number of locations whose demographics will either support a new store or a larger store in some cases, have been identified, with some sites also having the opportunity to support multiple brands in the future. Supporting the customer experience, Adairs launched its new website last November, which has delivered improved customer conversion, and it enabled a range of new services, including the rollout of Click and Collect across the entire store network.
The new website provides a foundation to build out an enhanced digital experience, as well as the opportunity to act as the center of the Adairs customer experience. Customers will be able to use the site to manage their interactions with Adairs, as well as enabling additional personalization and greater access to inventory over time. These enhancements will make the website a logical starting point on any customer's journey to creating a home they love. Supporting Adairs' customer experience is the Linen Lover program, which provides customers with additional benefits and a platform for personalized interactions with the brand. Over the past 12 months, Adairs has enhanced its single view of customer capability, which is providing the testing ground for scalable, personalized communications. This will result in customers getting more relevant information, improving customer engagement, and frequency of purchase and basket size after.
Continuing to enhance the loyalty program, together with ongoing improvements to the digital experience and physical space growth, will provide an additional 500,000 new members across the next five years, taking total memberships to 1.5 million, which would only represent approximately 12% of the Australian and New Zealand households. If I move now to Focus on Furniture, which continues to perform very well, confirming the assessment of its potential when it was acquired almost two years ago. Focus is a well-run, high-quality business with strong capability across both product and customer experience. When we talk about growth with Focus, it's primarily about taking a proven model and replicating it in markets which are presently underrepresented through the opening of new stores. When you look at the map, there is significant opportunity in almost all states and territories.
However, New South Wales and Queensland are expected to be the primary focus in the short- to medium term. Focus has the ability to double the number of stores, with the speed of this rollout being limited only by the availability of sites. Focus opened recently a new store in Helensvale last month, and we'll have another in prospect in New South Wales open early in 2024. The expectation is that a further four to six stores will be opened by the end of December 2025. Supporting the store rollout is the enhanced in-store experience. When Focus was acquired, the team knew that the traditional showroom model didn't allow customers to best visualize how that product was going to look in their home.
With the evolution of the store fit-out, as is shown in the pictures on this slide, the team have delivered a new format that is more reflective of how people light and style a modern Australian home, allowing the product to truly shine and be seen as it would be in their own home. Two stores have been updated to date, with both of those stores outperforming the broader store network, which provides confidence for us that we can roll this out to all our stores based on their ex-lease expiry profile. Given the opportunity offered by rolling out new stores, this remains the primary strategy to drive the growth of Focus, with other work streams delivering continuous improvement in both product and customer experience across the brand.
Finally, if I move to Mocka, I'm pleased to note that the work undertaken in FY 2023 around good execution, improved customer service, inventory rationalization, and our order economics is continuing into FY 2024 and supporting a return to consistent levels of profitability and cash conversion, enabling Mocka to pursue its growth strategy. Mocka operates in a large and fragmented market with a clear growth opportunity from delivering highly functional, well-designed furniture at a price that is compelling and, at times, best in market. Given Mocka's primary market is a young adult demographic, think first-time renters, first-time homeowners, soon-to-be parents, young families, there's a significant opportunity to provide products that firstly meet their budget, but then also deliver on functionality without compromising style.
In terms of product, FY 2023 saw a significant rationalization of the number of products being offered from around 950 back to 600. And with the first phase of that inventory rationalization now complete, it provides us the opportunity for optimization, with a focus on delivering well-designed flat pack options for each room and each customer type. We expect this to deliver a lift in conversion and a higher average basket size as customers are able to purchase that full room solution from Mocka. While designing and developing the good product is a key, Mocka also needs to raise its brand recognition and, based on our seamless retail concept, find ways for people to be able to access the product across multiple channels, including a physical presence.
There's always been an ambition for customers to be able to interact with the product in a physical location, to better appreciate both the quality and the value it offers, and so creating a physical presence is a logical way to support our market growth. We're also currently upgrading the website at Mocka, which, together with the relevant marketing and supporting back-end functions, will provide a more seamless customer experience and allow for the trial of a range of growth opportunities as we look forward. Before closing, I'd like to take this opportunity to thank the team that are here today, as I always do, not only the team here, but the team that are out there every day serving our customers....
While it's me as the CEO who gets to stand in front of shareholders, the fact is I work with fantastic people, and we are all very passionate about what we do. We ultimately get to help our customers create homes they love, but this doesn't just happen, and there's a lot of work that goes into it. I can assure all shareholders that collectively, we are working to bring our vision to life to deliver profitable growth and ultimately grow shareholder value. That concludes my report, and if you can kindly hold any questions you have for now, as there'll be an opportunity to ask them in a moment, but I'll hand back to Brett for the more formal part of the meeting.
Thank you, Mark, for that comprehensive update on our strategy and the business. So we'll move to the more formal part of the meeting. In terms of the notice of meeting, this was made available online to all shareholders in accordance with the company's constitution, and we'll take the notice as read. In accordance with requirements of the Corporations Act, the register of relevant shareholders is available for inspection, and shareholders are asked to contact the share registry following the meeting if they wish to make an appointment to inspect the register. Julie Stokes of Link Market Services Limited, our share registrar, will act as Returning Officer. If there are any aspects regarding voting that you're uncertain about, please speak with Julie or a member of her team. Julie's at the back there with her hand up.
And we'll now move to the first item of business. Item one is the annual financial report. The financial statements and reports for the year ended June 2023, as required by the Corporations Act, have been circulated to shareholders as part of the 2023 annual report and are tabled here today for discussion. I now open the meeting for any discussion on matters of particular relevance to the annual financial report for the company or the company auditor, or questions for Mark in regard to his presentation, or any other questions you may have for the management team. Please note that we'll specifically focus on the remuneration report later in the meeting. This is the time to ask any questions about anything you've seen today, with exception to the remuneration report.
What we'll do, though, is we'll first address the written questions that were submitted prior to the meeting in relation to item one, noting that all of the written questions that were submitted are in relation to item one. So Jamie, I might get you to read out those questions, and we'll deal with them if we can.
Thanks, Brett. As it has with its leadership team, will the board commit to at least 40% female representation, which is widely considered best practice? And also, a second part of that question is: What other forms of diversity are considered by the board in the appointment of directors?
Okay. Thank you. So thank you very much for your question. Women currently comprise 40% of our executive leadership team and 33% of our board. And as set out in our corporate governance statement, we are committed, in the longer term to a gender composition of at least 40% of board positions to be held by women. So that will be achieved through this existing and, and future renewal process of the board. In terms of the diversity question more broadly, as we think about diversity, it's not just gender, it's diversity of background, experience, age, and anything that enriches the discussion and debate that we have as a board. We have a board matrix of skills that we look at and refer to.
We've got a Nominations Committee, so we'll continue to look at that and to ensure that we've got diversity around the board table.
Thanks, Brett. Second question is: What proactive business decisions and actions are being taken to improve the share price?
Thank you very much for the question. Look, in terms of the share price, first, all I can say is that, you know, we are, as directors and shareholders ourselves, as keen to see the shares reflect the underlying value as of this business as everybody else in this room is. We can't control, obviously, everything in the market, and the market has been impacted, particularly in the last 12 months, by broader market events. However, you know, as you heard from Mark this morning, being very clear on our strategy, having a great team and executing well is where our focus is. So we are focused on controlling the things that we can control. We've got a great business here and a clear strategy, and we'll continue to execute against that. And as we...
And our belief, as we see the market return, as the trading environment improves, then that execution should lift the share price.
Thank you. The third of five questions is: What was the process that was taken that led to DHL's appointment, and were any external logistics professionals involved in the decision?
Again, thank you for your question. Mark, I might get you to take this one.
Yeah. So, it was a comprehensive review was undertaken before we moved the NDC to be operated by DHL. Took about 12-18 months to actually reach the decision. We had a number of advisors working with us along, along that path, as well as some comprehensive due diligence on other sites operated by DHL. So we not only did we undertake a significant review, and at the end of that review, we elected to think that a professional in that space could do it better than us. And then, but also we went and sought some independent advice along the way to make that decision, to get to the outcome that we provided DHL with that right or contract to operate the NDC.
Thank you. The fourth question is: While borrowings have decreased from AUD 119.2 to 99.4 million, the interest costs increased from AUD 2.2 to 6.2 million. While interest rates have increased, the increase in interest costs seems to be out of proportion to the interest rate rises. Can you please explain that phenomenon?
Okay, thank you for the question. Mark, did you want to take this one as well?
No problems. So I think there's a timing element there. So we're using the net debt at the end of each financial period as part of that. So when we acquired Focus in FY 2022, we acquired them halfway through the year, so there's only half a year's worth of interest costs allocated to the FY 2022 year versus the FY 2023 year. So in terms of having the debt in place for a full year versus only half a year, was a significant impact in that, and then obviously, on top of that, was the increase in interest rates that we saw across the course of, FY 2023 that compounded that increase.
The final question that was submitted in writing before the meeting was: I note the increase in the fee for auditing the financial statements increased from AUD 445,000 to 540,000, which is nearly 19%. Could you please explain this increase, which seems excessive given the increase in inflation?
Again, thank you for your question. Kate, so I might pass over to you as Chair of the Audit Committee.
Thank you, and good morning, everyone. Yes, that was a bit of an increase in our audit fees, but there were specific reasons for it in this year. Firstly, we had the inclusion of Focus on Furniture into the group the full year, and we had to particularly do some extra work for the half year with respect to Focus on Furniture. We were, for the first time, required to submit audited statutory financial statements for Adairs New Zealand, and that was because of the growth in the size of that entity. Finally, there's been the introduction of a new accounting standard with respect to IT, and all companies have had to comply with that. So there was some additional work to check over, validate, et cetera, the IT systems that we're using. So that accounted for the increase.
Thanks. Any more questions ?
No, there are no further questions lodged with us.
Okay, thank you very much. I now invite questions from attending shareholders or their appointed representatives. So are there any questions from the floor in relation to item one?
Thank you, Mr. Chairman. My name is Mike Verwey. I'm from the Australian Shareholders Association and represent the mum-and-dad retail shareholders. We're a not-for-profit and this is a not-for-profit, non-paid positional place. So, two: one comment and one question. We noticed that you haven't chosen a hybrid meeting today. We'd strongly recommend that you do that in the future, in part because many shareholders basically can't make it to the big cities and so on. Because of COVID and so on around. So if you wouldn't mind considering that next year, it means that they can fully interact and ask questions and so on.
We will take that under consideration, of course.
Thank you. And the second point really is about shareholders get quite anxious when they see the word IT transformation in any annual report because the history of these has not been rosy. I mean, many of them go over budget most of the time. They probably get more anxious when they hear that a global logistics company is tossed out, and you've brought the work in-house. So I'm sure you have good reasons, and you did make mention of that, but perhaps a little bit more color on what it was that led to the bringing in-house of the logistics. Thank you.
Thank you for your question. Mark, did you want to take this?
Sure. The I think when you think about what we thought the same thing. So when we started that arrangement with DHL, we firmly believed that we were partnering with a global logistics company who should do a much better job than us as a retailer should be able to do. What we've found is the challenge with a global logistics company is they're very good at moving large volumes of stock that are very consistent and reliable versus small packages to individual customers in a e-commerce, online-only business type format. And equally, when we have a large store portfolio, a number of those stores will sell one unit of an item each week, and the ability to replenish that was something that was almost outside of their normal realms of work.
You know, they're very good at supporting a major supermarket. We, we pick up a pallet and we deliver you a packet of, pallet of cornflakes, or we send you lots of boxes of cornflakes versus individual items. So there was an element there where I think they, whilst we got more comfort when we went and visited some of their other sites, the other piece within the Adairs product portfolio that is more unique than some of these sorts of, other forms of, I guess, logistics companies, is the spread of product. So we go from delivering a bed that is, obviously quite a large, bulky, two people on the end of that, to delivering a pillowcase.
The span of that product, when a customer, wonderful customer, orders both the bed and the pillowcase, that creates an element of challenge within that supply chain. At the end of the day, when you work with a global logistics company, they think very much about: How do I do this most efficiently? We think about: How do we look after the customer? For us, that was there was a distinct difference of opinion as to what the service level we were looking to provide and how we thought that should be done, versus a global logistics company thinking about: How do I do this most efficiently and effectively? With limited thought to what actually happened to the customer in that, in that end result.
So, we definitely worked with them for a long period of time, trying to educate and help them with particularly the product mix. Like, when they knew the product mix going in, and we knew that hasn't changed. It's not like the product mix changed over that time. But, in the end, we reached the point where we knew we could do it better. We'd done it before, and I mean, you've only got to look at the impact it's had on our P&L over the two years. As shareholders, you know, we are committing to shareholders, we will get the cost of our supply chain back towards far more reasonable levels.
We've already said we'll get AUD 4 million out in the first 12 months, and we'd like to think we could take that further going forward, and that was never going to be given back to shareholders under the arrangement we had with DHL. So it was really untenable by the time we got to the end. You know, we're very confident in the first 11 weeks as, you know, the fact that we're providing a better service, probably at less cost and getting what we need for our customers today is a testament to the team that took it over. It's a big task to take over a facility and operate it.
We know there's still more work to do, but early days, the guys have done a terrific job out there, and, you know, we're excited by what that opportunity brings us, not only in improving the service today, but the enhancements we can take to that service going forward.
Thank you, Mark. Are there any further questions on item one? No. Okay, as there are no further questions, I'll now move to the next item of business. Item two is the re-election of a director, and the members are to consider, and if thought fit, pass the following as an ordinary resolution, that David MacLean, being eligible, be re-elected as a director of the company. Of course, the board unanimously recommends the re-election of David. But first of all, I'd like David to speak to his re-election.
Thanks, Brett. Yeah, I was really pleased to nominate for re-election. It is a business that's very close to my heart. I was a second-generation family leader of the business. Spent 27 years in the business, the last 13 as the CEO and Managing Director. We grew the business substantially through that period. We transitioned from family ownership to private equity to then to an ASX listing. From an experience perspective, when I think about the cycle we're currently going through, I've seen those cycles before, and they are challenging periods, and that's what we're facing today. You know, if I'm honest, we all know our results are not good enough.
But I think it's the experience of weathering those difficult cycles that I can help Mark, Ash, and the executive team, you know, with a voice, support, and just a sounding board. From an alignment to shareholders' perspective, I still have a substantial shareholding in the business, and plan to continue to have that. As sure as hell, I'm not selling shares at the price we are today. Also, I sit on a number of other boards, listed boards, being Universal Store and Dusk. Gives me great exposure to what's happening in other retail businesses and, and also the opportunities. So I was told to keep this short. So, looking forward, it's the Adairs team that make this business great, and, I'm pretty excited to continue my association with this wonderful group of people.
Thank you, David. Are there any questions from the floor in relation to item two? No. As there are no further questions, well, congratulations. After looking at those numbers, you've well and truly been re-elected into the, into the role, so congratulations.
Thanks, Brett.
As there are no further questions, let's move to the next item of business. Item three is the remuneration report. This next resolution is the adoption of the remuneration report under the Corporations Act. As an ASX-listed entity, Adairs is required to put to the vote the resolution that its remuneration report for the year ended 25 June 2023 be adopted. This remuneration report is included in the directors' report section of the annual report on pages 53-71 inclusive. It should be noted that the vote on this resolution is advisory only and does not bind the directors or the company. Key management personnel, details of whose remuneration are included in the report, are excluded from voting on this resolution. We've got the proxy results there shown on the screen.
Are there any questions from the floor in relation to item three?
So Mark Verwey again.
Of course, welcome.
So just a comment. We, we were delighted to see you change a couple of years ago towards face value of shares and performance rights and a, and a shareholder return measure, and then only pulled out last year's for the TSR measure. Shareholders, as a rule, like to see people kind of linked to their fate, so that basically, both the executive team and shareholders, if things are bad, they both suffer, I guess, rather than just one. So we would encourage a different measure. You had absolute Telstra share total shareholder return, sorry.
Yeah.
We prefer relative, 'cause that means you can actually put in your peer group, so you don't have to compare a retail company with an IT company or something like that. So for consideration for perhaps the future, a relative total shareholder return would be nice. Thank you.
Okay, thanks. So we'll keep it, consider that. Okay, we now move to item four, the approval of long-term incentive grant of performance rights to Mark Ronan. This next resolution relates to the approval of the long-term incentive grant of performance rights to Mark Ronan. The members are to consider, and if thought fit, pass the following as an ordinary resolution. That approval be given for all purposes, including ASX Rule 10.14, for the grant of performance rights to Mark Ronan as his long-term incentive for the year ended 30 June 2024, on the terms described in the explanatory notes accompanying the notice of meeting. Mark Ronan and his associates are excluded from voting on this resolution. We've got the proxy results up there on screen. And are there any questions from the floor in relation to item four?
Okay, as there are no further questions, I will now move to the next item of business. Item five is the reinsertion of proportional takeover provisions in the constitution. The next and final resolution relates to the reinsertion of proportional takeover provisions in the constitution of the company. The members are to consider, and if thought fit, pass the following as a special resolution: that the proportional takeover provisions contained in Rule 6 of the company's constitution be inserted for a period of three years with effect from the date of the annual general meeting. Again, we've got the proxy results there on screen. Are there any questions from the floor in relation to item five? No? Okay. Thank you very much. On that note, I will formally close the meeting.
Ladies and gentlemen, that concludes our discussion on the items of business. I also declare that the poll will close in five minutes, and the results of the poll will be released to the ASX and be available on our website later this afternoon. I want to thank you all for your attendance today. Appreciate that you've turned up and come to the meeting today. As we mentioned earlier, the management team and board are here if anyone's got any questions or wants to talk over a coffee or a tea afterwards. Again, I thank you all for attending. I'll declare the meeting closed. Thank you.