Well, welcome to the earnings call of GUD's results for the six months ending 31st December 2021. I'm Graeme Whickman, GUD's CEO and Managing Director. I'm here with Martin Fraser, the company's Chief Financial Officer. Now, as a matter of housekeeping, we'll have time at the end of the call for questions and discussion, so please hold your questions until then. A recording of this call, along with the presentation material, will be available on GUD's website. Okay, we'll start the call by running through our key messages and financial overview, and then I'll speak to our evolving view on our portfolio vision and ESG efforts, followed by a commentary on both the automotive and water businesses.
I'm gonna hand over to Martin to cover the financial results in more detail, and then we'll conclude with a trading update and outlook for the second half, before we get into Q&A. Now, in the material, we do touch on the COVID impacts to our business. It's clear in our results today that we continue to be very fortunate in relative terms, and I believe that's a reflection and part of our good preparation and planning to mitigate all manner of those COVID-related impacts. With that in mind, I'd like to say thanks to our employees who've worked so hard in the first half of FY 2022. More recently, of course, the Omicron strain has further tested GUD and many other businesses.
I wanna recognize our leadership group, who continue to lead the businesses in really a humane, sort of centric way. But all at the same time, delivering record results. Well done to the leadership group. Thank you. Let's turn to Slide three and the first half, which was excellent in so many ways. Our sales were strong. The underlying EBIT was encouraging. We achieved an all-time operational record EBIT result, even though we experienced record levels of lockdown in Q1. Over the half, we saw some choppiness in demand, month to month, but that was seen certainly between Q1 and Q2. But in aggregate, there was strong end user demand in many of our BUs, business units, reflecting the resilience of the auto aftermarket.
Importantly, there was a positive margin expansion over the prior half, both at group and automotive level, which we had flagged as our expectation and when we were talking in our FY 2021 year-end commentary, even with the backdrop of supply chain pressures and inflationary challenges. We announced and subsequently completed two important acquisitions in auto lighting and four-wheel drive accessories and trailering. Now these are supportive of the business transition we've been planning in terms of customer and product and geographic and powertrain diversification. At the same time, we've taken an important but tough step in addressing some challenges at Davey. Finally, we go on to reiterate our recent guidance, and I'm gonna touch on that a little later on.
It's pleasing to note that the first half result was, as mentioned, an operating record for GUD, and you can see that on slide four. We delivered revenue growth of 32%, and within that, organic growth of sort of circa 6%, taking our group revenue to just over AUD 330 million. Our underlying EBIT ex JobKeeper, or JK to keep it short, was up about 19% to AUD 59 million. Reassuringly, the margin expanded by about 1.8 percentage points as a result of some operating leverage, some pricing, cost control, and some FX gain, which was partially offset by the anticipated imported and domestic inflationary pressures, and some expenses in the long-term growth initiatives that we've been talking about.
Underlying NPAT ex JK or JobKeeper increased by nearly 15%. However, the reported NPAT did decrease due to the Davey non-cash write-down, which we'll speak to later in the webcast. Cash conversion was lower than our typical levels. Let's be clear there. However, this was expected. We did flag that and have been flagging that for a while. This is a reflection purely of our current inventory strategy in support of the sales opportunities. It doesn't signal a reset of our normal cash conversion run rate. Then finally, we announced an interim dividend of $17 per share, recognizing that we have an expanded capital base and no contribution from our new acquisitions as yet, and this represents just under 70% of the underlying NPAT.
Now, on Slide five, we reflect upon our recently released portfolio vision, which we look forward to sharing in more detail at our Investor Day on the 8th of April. Importantly, you should see a strong alignment in the portfolio vision to our most recent acquisitions, and I think it helps to build context as to the way we're plotting the future. Certainly also with the underpinning of some critical business foundations that don't go away. Now, I'll speak to how we are building a stronger and more diversified, sort of future-facing GUD shortly. However, on Slide six, we update our shareholders on our ESG progress. Now, back in our FY 2021 year-end results, we showed for the very first time a glimpse of how the ESG journey is broadening for GUD.
You know, we pride ourselves on the metrics in the areas of employee satisfaction and safety, and we strive to operate as a top quartile company. In those two areas mentioned, we certainly occupy that ground. Now, we've been working hard to improve in areas such as diversity, ethical sourcing. In fact, we just released our Modern Slavery Statement. And the business reliance on the non-internal combustion engine revenues, all of which actually have improved since that FY 2021 year-end point in time. Now, we do have greater ambitions at the board and executive levels to broaden our view and the ultimate vision on the sustainability of our business and the impact we have on the world around us, whether it be in the way we operate or the products and services we provide.
Because of that, back in FY 2021, we kicked off a multi-year effort to build a better foundation for our shareholders' returns sustainably. There are three phases over 24 months. Now, in H1, we've been completing the first phase with a materiality assessment. This has included our external cycles, which in addition to our own point of view, has shaped our key impact areas shown on the slide. Now we're in the process of assessing our revised baseline, given we have some recent acquisitions, and we expect to be formalizing our key impact area targets and KPIs in FY 2022, and that relates to, you know, the future in terms of what does it look like in 2025 and also 2030 in some instances. The third phase will be the ongoing measurement and plan of those targets.
I should also mention that we haven't sort of been sitting still in our existing ESG related performance efforts, and we've added measures where sensible, such as the FY 2022 KMP and senior executive compensation plans linked to some select ESG targets of employee engagement and safety, just to you know make sure we have that focus. Now, as mentioned in our opening slide, you can see on slide seven that GUD is in the midst of a positive and exciting business transition. It's been guided by a portfolio vision, which is a mix of acquisition and organic business strategies. As we sit and reflect on what GUD's profile will be over the next 12 months and beyond, we can see on that slide, the next slide that is, that our addressable market grows considerably.
We become even less leveraged to ICE, so combustion engine powertrains. Our customer diversity grows really well, and both our sourcing and revenue reliance on certain geographies starts to moderate quite positively. Now much of these gains in the near term are coming from our automotive actions. With that, let's just turn to slide nine to dive into a little bit more detail about what's happening in the first half. Okay, so taking a closer look at the automotive segment results, the revenue was up just above 38%, reaching AUD 272 million, which is a record for GUD. Net of acquisitions, obviously, we had some acquisition flow through there.
The organic revenue rose 4.6%, which was excellent, given that the prior H1 was up 13% in its own right, keeping in mind actually the impact of the lockdowns in Q1. You know, right at the end of the presentation, we remind our viewers that Q1 and the chart there was the most lockdown quarter of the complete COVID period. We had some tough things to do, but nevertheless it was still up, which is fantastic. Now, Auto underlying EBIT was a record for GUD, whether you look at it in total or just organic levels. The underlying EBIT margin ex JobKeeper or JK dropped due to acquisition dilution, which was expected, of course.
However, the important bellwether of organic margin ex JK was a very positive story, lifting 290 bps or 2.9 points versus the prior half of H2 FY 2021. With only about 30 basis points away from the PCP, which is, I think, a very, very strong effort. We flagged at the full year FY 2021 our expectations of ongoing domestic corporate cost pressures, in addition to freight and logistics and supply cost drops. Now to date, these have all played or are playing out as expected. To offset, we have delivered growth. We've been controlling costs. We've seen some FX benefits and we've actioned the FY 2022 price rises that we spoke about.
First one put in early Q2 and now a second round in mid Q3. Just actually done that in February. The supply chain and logistics challenges, I think, if anything, have escalated in regard to the physical time needed to manage and the operations to ensure enough of a buffer to overcome any issues and sort of capitalize on grabbing a little share here and there. We don't expect the cost side to increase. However, we have continued to run the elevated inventories. They're in factories, in transit, and in our own DCs, and Martin will touch on that in a later slide. Now, given the record results, you'd expect to see some auto highlights.
In the next three slides, we sort of touch briefly to give a feel for the auto BUs. We've broken it down into some key areas, auto electrical, lighting, and power management, electric vehicles, powertrain, four-wheel drive accessories and trailering, and then finally undercar categories. Now, in the auto electrical, lighting, and power management category, both BWI and AEA teams, they've experienced strong growth in half. GEL in New Zealand has been more impacted by the New Zealand lockdowns, and those are well documented, where for long periods, much of all retail has been closed. We saw some really strong OEM customer demand in Australia for BWI with caravan, truck and bus all featuring well.
BWI also proudly awarded third place in the AFR Most Innovative Companies in their respective category with the Intelli-Start Jumpstarter range, which was launched in the half. We leaned into operating synergies with AEA migrating to the BWI ERP while still cracking on with securing new business with BCF and Anaconda and SCA. We also had one month of Vision X ownership, and that really has started positively. Now, while, you know, EV sales and the EV car park are still in the nascent stage, we do aspire to build an aftermarket leadership position in Australia. To that end, we were excited by the Hybrid battery program moving to commercialization stage. We've started to utilize the recently awarded government grant for the pilot program for Second Life EV Batteries project.
Then finally, I should also mention BWI have been progressing their level one charging offering and associated charging accessories program. Certainly a good start for electric vehicles. Moving on to slide 11. In powertrain, we saw modest growth for Ryco, and slightly lower than PCP for Westfalia. I'm not alarmed at this at all. In general, the service and wear parts have seen a bit more of impact of the record lockdowns and even more so in New South Wales this time around. As prior lockdowns, we expect the demand to rebound in H2 as the present sort of what we would call the shadow lockdown sort of abates. On a positive note, Ryco was awarded second place in the AFR Innovation category awards with its N99 MicroShield filters.
We were super proud of Ryco placing in the top 10 in the category awards for the AFR's top places to work. Well done to Stuart and his team. Now both IMG and AAG delivered strong growth. AAG continued to bolster its performance after concluding the profit improvement plan, which is really getting excellent traction. IMG's repair activity and engine management products have been flying. We're also excited by IMG's repair network growth opportunities as we embark on facilities in NZ and WA for Q4. For good measure, we started an early effort to enter into the industrial service repair market. Again, a non-automotive potential for IMG. Now we finish on the existing automotive business snapshots with our four-wheel drive accessories and trailering efforts and undercar categories on slide 12.
Now, Fully Equipped in NZ had decent revenue growth, driven by new vehicle sales. It was difficult at times to support, given the lockdowns impacting on the manufacturing capacity, really down to staffing, primarily. Importantly, though, they still have a record order bank ahead of them. ECB's revenue was flat in a reflection of the manufacturing constraints, due again to staffing shortages in the polishing part of the manufacturing process. They have very strong back orders and plans in place to recruit incremental visa workers and automate certain processes in late Q4 to alleviate the future capacity bottlenecks, which I think is quite encouraging. In undercar, both DBA and ACS have done well in the first half with both enjoying good domestic and export demand.
Recent product development at DBA is also encouraging with the launch of DBA's first entry into disc pads and calipers. It's starting to really grow out for the product offering there. Rounding out our first half automotive snapshots were clearly the acquisition announcements of both Vision X and APG. On slide 13, we summarize why Vision X is so exciting for our auto lighting category. We have ambitions to achieve a leadership position in global niche auto lighting, and Vision X was an important first step in this direction. Now, Vision X allows BWI to leverage its existing and future product portfolio selectively in the U.S. and European markets. It's a highly complementary business to BWI. You know, Vision X has a strong financial track record, is a well-respected brand with great product development credentials.
Now, my view, with a well-considered integration plan and supporting resources, we feel Vision X within the BWI group is a force to be reckoned with. Now, Vision X completed at the beginning of December and has really started quite strong, as I mentioned just a few minutes ago. Now, in the same timeframe, we announced and subsequently completed on the fourth of January, the acquisition of APG. Now, this acquisition shown on slide 14 is a game changer and a clear ingredient in our portfolio vision ambition of becoming a leader in four-wheel drive accessories and trailering in the ANZ market. You know, a well-established, facilitated, and managed business. APG is a dominant force in the domestic market with its traditional sort of tow bar products.
It's also got a proven capacity in recent times to win new business in the growing category of functional accessories such as nudge bars, bull bars, and sports bars. The business supports the large and growing four-wheel drive and trailering markets. On slides 15 and 16, you can see very clearly the impact of our recent acquisitions and how they can service both our existing aftermarket and growing four-wheel drive market. Slide 15 helps build a picture on the sum of the parts where addressable market size, life cycle coverage, broadening of channels, creating a one-stop shop, all come together to provide a powerful combination going forward.
Now, of course, slide 16 gives you that striking visualization of how GUD's products support the four-wheel drive market, something hopefully our investors can touch and feel at our impending Investor Day. Okay, before I hand to Martin, let me review our water business. On slide 18, we detail Davey's first half. You can see the revenue was up just under 10%, which came from a mix of positive gains in domestic and select export markets, primarily driven by home pressure systems, commercial pumps, and pool pumps. As discussed previously, though, the export sales do come with a lower margin, which with their mix in H1 contributed to a drop in EBIT versus PCP of about AUD 300,000. Now, as communicated recently, we installed a new CEO, Valentina Tripp.
That was about nine months ago, and also a new CFO came on board now about four months ago. Val has been leading the team to drive change in the operating model of the business, needing to reshape and reassess the direction and the efforts of the midterm profit improvement plan. In the half, we took the painful but necessary decisions to address some inventory issues as arising as a result of that aforementioned pivot in how we serve the market going forward. Martin will touch a little bit more later on in terms of the precision around those financial impacts and the non-operating items. Suffice to say, it's important as Val and her new team reshape the operating mode that we do support that. Okay.
Well, let's cover off the financial information in a bit more detail. Martin, over to you.
Thank you very much, Graeme, and first time I could say good evening for one of these presentations. Good evening to you, ladies and gentlemen. For those of you new to GUD, my name is Martin Fraser, and I'm the Chief Financial Officer. It's my pleasure to take you through the financial section of this presentation and talk to the financial overview as well as GUD's financial position. I'll start on page 20, which contains the key profit and loss measures of the group. Graeme has already outlined much of the results, so I'll not repeat his remarks word for word, but rather highlight a few key points to help understanding. First, I wanna highlight the contribution of the acquisitions, which collectively added AUD 66.3 million to revenue and circa 26% to the underlying EBIT.
More granular detail is being weaved into the various slides which Graeme's already spoken to. We're seeing depreciation step up in the half, which is both in line with the expectations and natural given we've got G4CVA and ACS now both contributing to that number. We've also seen a notable rise in non-operating items. There's a whole slide on non-operating items. I'll cover that shortly. The net finance cost was lower than PCP due to both lower interest rates, and of course, people will note that we did an equity raise at the end of H1 last year ahead of the acquisition G4CVA. This year's result also includes AUD 1.5 million in loan arrangement fees to enlarge the funding base ahead of the APG acquisition, and they were fully expensed in the half.
The tax rate is increased and reflects some permanent differences and some true up to the FY 2021 tax provision balance. The interim dividend is AUD 0.17 per share, Graeme spoke to before, does truly reflect that higher capital base and the absence of contribution from HP-APG in the half and represents 100% of net profit after tax. As Graeme said, just under 78%, 70%. For those who wanna be a bit more exacting, it's actually 68% of underlying NPAT. I'm now gonna move us all on to slide 21 to talk about the non-operating items in particular. First, we can see that third-party costs associated with the acquisition activity of AUD 3.9 million. There I want to re-emphasize that's third-party cost. We did not attribute any of our internal costs and efforts to that activity.
As well as a reassessment of Davey's future inventory requirements and recoverability. Graeme spoke to the new management team, and they were very clearly tasked to look at this particular area. We are seeing a number of changes being implemented to Davey around sales, operational and manufacturing products, including speaking to which products and how Davey will make those products are gonna feature into the future. How we provide end-to-end transparency around product costs, inventory values, overhead absorption, and so forth. That's all behind these three realignments we talked to. Or reassessments we talked to. We believe these changes will lead to improved transparency and help Davey make better make versus buy decisions, production, cycle planning decisions, reduce plant downtime and switch times between products, and ultimately improve efficiencies and cost positions.
It's important to note that the Davey impacts we're talking to here are of a non-cash nature, and we'll come back to that point in a moment. In fact, let's just go on to slide 22, where we'll see that manifest a little bit more. Slide 22 talks to net working capital, and here we provide some additional analysis to better understand the step-up in net working capital without the distortion of the acquisitions. The slide highlights that net working capital in our existing or organic businesses increased by a reported AUD 11 million. Although from a cash perspective, this rises to AUD 21.5 million because we just need to be reminded that the Davey inventory realignment was a non-cash item. You have to add that back to really understand how much our working capital increased in the legacy businesses.
As you can see there, it's all around inventory. The cash absorption reflects our higher inventories for the reasons already well articulated by Graeme. I would just also add, if you walk into our sheds, you don't necessarily see this inventory. A lot of it is in the time taken to get from factory to port, through port, onto a ship, a number of shipments being transshipped, the congestion in shipping, et cetera. We really have to have this inventory. You can't sell from an empty barrow. One of the things we've been very keen about is ensuring that we have compelling range for our customers and that we don't disappoint either our customers or our resellers. I'll now move you on to slide 23, where we'll talk to cash conversion and CapEx.
Not surprisingly, given the net working capital comments we've just covered, cash conversion was about 63%. If you add back the cash M&A costs, third-party M&A costs, that brings you close to 70%, which was notably below the 80% we called out for it for FY 2022. It's clearly appropriate given the tighter supply chain environment. I just want to reiterate, we're not seeing a blowout in the freight and logistics costs that we called out earlier in the year, it's really an elongation in the time, the cycle time between committing to inventory and being able to have it in our shed for sale, as well as the need to increase safety stock for the reasons Graeme already noted.
Turning to CapEx, the notable lift in CapEx also reflects the acquisitions that we've made, is broadly consistent with the AUD 10 million run rate we called out for FY 2022, excluding Vision X and APG, of course. I'd like to move on to slide 24 to talk about our debt profile. This is a slide we haven't had before, but a number of you may be anxious to see this and better understand it. The chart reflects the expanded funding base installed to support the APG acquisition and address our expanded group size. Immediately after the APG acquisition, and considering interest swaps we have in place and the Procurator facilities, which are all fixed rate loans, approximately three-quarters of our gross debt will be fixed interest rate debts. We currently have a blended borrowing cost of approximately 3% of gross debt.
I'll now take us to slide 25. Slide 25 demonstrates both large gross cash and debt balances at December 31st. It seems a little bit illogical, but it was put in place to ensure the smooth completion of the APG acquisition, which occurred the following banking day being the 4th of January. After the APG acquisition, we start the second half with approximately AUD 500 million in net debt, which, considering the borrowing facilities outlined earlier, demonstrates GUD's well-placed to fund organic growth, seasonal working capital or dividend requirements, or bolt-on acquisitions. It's also worth noting that we'll activate a share buyback program, which seems a little incongruous. Although it's unlikely to be immediately activated, it's been put in place for future capital management flexibility. I'll now hand you back to Graeme, who will finish with both the trading update and outlook. Thank you, Graeme.
Yeah, thanks, Martin. Given we gave a trading update on the last day of November, you probably think not too much has changed, but of course, we've seen the very quick rise of Omicron and its impacts. Before I touch on January, though, of note are the continued positive underlying automotive industry trends as the calendar year 2021 sort of finished up. On slide 27, you can see that new vehicle sales grew, although not back to the normalized levels yet. Actually, when we were talking around the acquisition, we sort of predicted a AUD 1,049 million. It came in at AUD 1,050 million, so we're like 1,000 units out, so I think pretty decent forecasting.
Segmentation was strong, with SUVs and pickups accounting for more than 70% of new vehicle sales, which, you know, naturally is good for our businesses that are leveraged to the front end or the new vehicle sales, but also in the future of the GUD's as that passes into the car park. Talking of the car park, that grew to over 20 million units for the first time in Australia. It got a little bit older as well, so the average fleet age was older, which is great for us. All positive tailwinds for GUD's existing and new businesses. Now back to January, the trading update.
Well, we certainly saw the Omicron impact in some of our business units, with either a dampening of demand due to the shadow lockdown, which is manifesting to some degree in a drop of miles traveled. But on the flip side, also experienced some heightened operational challenges in regard to really staff absenteeism. It's been heightened. Now, we think the dampening of demand is largely a deferral of the vehicle owners' needs to service or repair vehicles. We even started to see that at the back end of January and certainly into February. Which certainly didn't stop them driving, but they just didn't want to service or repair in the intervening period. Now, this phenomenon is a repeat of the prior lockdowns in 2020 and 2021.
We have the operational capacity support, particularly in our import and distribution BUs, and we've got strong inventory levels, so we're feeling very comfortable. We did see a drop in the January new vehicle sales, reported to simply be a supply issue. Pickups were still strong. They were actually up, as the OEMs continue to prioritize the lengthy backlog of orders, and they're quite lengthy, actually. We'll now finish on H2 and FY 2022 outlook on slide 29. If you think more broadly at GUD, you know, we're positive on the underlying structural support for the auto aftermarket. We've got a strong position in the industry, as you're aware.
Although the obvious COVID challenges will linger, we still feel positive on the net benefit of those headwinds and tailwinds. Margin management remains a key focus. We do expect further organic growth, although obviously we're having to be a little bit cautious, depending on what happens in the next month or two. In addition to the first half pricing, we expect the second round of pricing, which is in mid Q3 happening right now. It's actually just been implemented to stick through the second half. We remain vigilant on the inflationary pressures, although domestic and imported cost inflation and the freight and logistics are playing out as expected. The latter is certainly proving harder to manage in terms of our attention, in terms of management hours, for sure.
Part of that equation will require us to continue to operate at elevated inventory levels, although we might moderate slightly after the Chinese New Year. We're just watching that carefully. We expect water performance to improve in H2. We're expecting a positive tempo from our AZN markets and some of our export markets. We do expect a moderation in the manufacturing inefficiencies and other elevated costs. Now, in terms of acquisitions, well, the appeal remains, but centered primarily with bolt-on auto opportunities. Now, we'll continue to work on those strategically sound acquisitions and those opportunities still exist. Now, we are cognizant, though, of our bandwidth and have dedicated the right level of integration resources to our most recent acquisitions and also centrally to manage a much larger business.
At the same time, we're sort of acting on our stated desire to bring our net debt ratio down below two times as we finish CY 2022. That was the commitment we made in our acquisition information. As we look to the full year, we sort of reiterate our recently released guidance back in December of the existing GUD businesses of AUD 112 million-AUD 116 million, and take into consideration the two most recent acquisitions, guidance for FY 2022 EBITA is AUD 155 millon-AUD 160 million. Now naturally, we expect a higher group EBITA in H2 versus H1.
As we touch on SKUs, we do expect APG to have a higher SKU in their H2 in the calendar year 2022 or our H1 FY 2023, which is a reasonably normal phenomenon for them in regards to normal seasonal demand, although it's a bit more pronounced this year because of the new Ranger launch, the new Ford Ranger, which sort of kicks in around April, May. There's a bit of a SKU that will follow that as the ramp-up comes in. Finally, I'd say we expect to see an improvement in the second half cash conversion. The first half, as I said earlier on, isn't a signal for a new run rate, but it does reflect the elevated inventories and a few other bits and pieces like some of those acquisition costs.
Finally, we are looking forward to seeing our investors on April the eighth. We're just about to announce that investor day, where we'll get more chance to share a little bit more around the GUD BUs, including a visit to our newest acquisition, APG. Okay, well, that concludes the presentation of the results. I'll now hand you over to the moderator, who's gonna coordinate the questions that you might have. Over to you, Dean.
Thank you very much, Graeme. Folks, just a few pointers to help you out with this Q&A session. If you could please use the Raise Hand button to let us know that you've got a question. If you're on the desktop version of Zoom, you'll find that at the bottom of the screen. In the tablet version, it's at the top. If you can't see it may be cause you're in full screen mode, just wiggle your mouse and you should see it. If all else fails, if on Windows, just press the Control and Y button, and that will raise your hand. On the Mac, that's Command Y. I will introduce you and ask you to unmute yourself and go ahead. You may notice that I automatically lower your hand once you begin speaking.
Doesn't mean you can't ask more questions. By all means, ask your follow-ups at the same time. Subsequently, if another question occurs to you later on in the conversation, simply raise your hand again. With that said, our first question comes from Sam Teeger from Citi. Sam, if you could unmute yourself, and please go ahead.
Thanks very much. Hi, Graeme. Hi, Martin.
Evening.
Yeah, thanks for the aftermarket release. It works well. Just a couple of questions from me. Can you talk a bit more about that ECB performance? Would have thought these guys might be doing a little bit better based on what we're seeing in that industry. Then just in terms of the average price rises the broader group took in, the second round of price rises. To what extent does that fully cover the cost increases that you're exposed to now? Any comments in terms of how the market absorbed those price rises? Just before the operator unmutes me, just for Martin following, just on the hedge rates, the last time I think you indicated you weren't fully hedged in the second half.
Could you let us know how far you covered, and how should we think about second half growth margins given the lower AUD? Thank you.
Okay. I'll have a crack at the ECB. I'll pass over Martin to get to the cost piece, and then we'll converge on the price piece and then cover off the last one. Look, we've been pretty consistent, Sam, and thank you for the questions, around ECB. We are going hell for leather in terms of its capacity. We're at about 72-ish bars a day there at the moment, and we're capped out. We can't do anything about that. It's been actually made worse in the latter part of the first half and certainly into January, where we've had even higher absenteeism. We've got staff shortages, which is contributing to what is a polishing bottleneck. No new news there, which is generating around about a 72 per day outcome. Then we've had staff shortages.
That's made a bit more difficult cause we have a visa worker program that's been a little bit constrained given obviously the borders. Obviously Omicron through January has not been helpful. We've seen higher levels of absenteeism. They're tapped out from a capacity point of view. Their back orders have continued to grow, and that's why we're investing and actually automating polishing. We've got the first of those polishing machines and that kicks into Q4. I'm expecting the back orders to come down. We start to meet the natural demand a little bit more. At the moment, we're not advertising, we're not marketing of any consequence, because obviously that will be a stupid thing to do.
We're not putting on the incremental BDMs that we had expected to sort of fully promote that brand at a better level. We're in a bit of a holding pattern till we can actually increase the capacity, and that's kinda where we're at there. Martin?
Yeah, thanks, Graeme. Thanks for the question on hedge rates. Our hedging runs through about end of February. As for the cash that goes out, you know what we are seeing compared to previous years because of the stretching out of supply chain, that's gonna take longer to come through to our COGS than ordinarily would do. It's probably gonna be, you know, well into Q4 before some of that plays out. You know, we're coming off roundabout a 76, but we'll be stepping the second half for that cash that flows through, probably around about 72 if you're given today's exchange rates. It'll take a little bit of time to come through to COGS.
We've sort of built all that in to our forecast and our range we've gotten, probably a little bit of safety margin in that as well. Hopefully that speaks to your question.
In terms of pricing, that has been accepted in the market with no problems. It's implemented. You know, the second round was February first, so that's been put in place. That's communicated before Christmas. Look, we're very happy with both steps in the pricing, as we flagged. Hard to give you an aggregate percentage 'cause it does range business by business. You could probably use anywhere between 3%-6% across the businesses, but you might say it's somewhere in the region of 3.5% or something like that. But it does range. Actually, probably 2.5%-6% was the range, and it's probably about 3%-3.5% or something like that. It's been well accepted in the market.
We don't expect that to be passed back. It will stick as the first one did as well.
Okay. Thanks very much. Our next question comes from Russell Gill. Russell, if you'd like to please unmute yourself and go ahead.
Hi, guys. Can you hear me?
Sure can, Russell.
Great. I'll, I've got three or four questions. Just firstly, I'm gonna try and sneak this one in, on your guidance for the APG 80%- 84%. You did say it's kind of calendar second half weighted, and it's good to get that feedback that it's a seasonal dynamic. Is there a way you can sort of imply what you expect it to be in your forecasts this year? Is it a 40%-60%? Is it a 45%-55%? How should we be thinking about that contribution for APG this year and then also in a normalized year?
Look, when we chatted and introduced the business, we said that there was always going to be a skew in their calendar year skews. Just make sure we're using their language. In the calendar year, the second half, that sort of, you know, July through to December is a busy year. You can imagine people build up to Christmas, all sorts of different things. There was always a skew. We were probably talking about a 48%-52%, something along those lines at the time, and not being super precise there. With the impact of the Ranger, and it's a positive impact, so it's all good news 'cause the launch of the Ranger for us represents further opportunity, not just in the volume, but also the share of wallet because there's some opportunities there.
We're quite ecstatic about that. Because the way the Ranger is running out and ramping up, we reckon the skew probably is gonna be about 43%, 44% first half, something along those lines, maybe 43%-ish, Russell. It's a bit hard because, you know, we are at the end of the day a little bit the tail here in terms of the dog. When they launch and when they ramp, obviously we're sort of dictated a little bit. Therefore, your volumes will be very strong, though. We're not too worried. This is just about a calendarization. It just happens that this particular calendar year skew is gonna be, you know, materially impacted in that first half because Ranger is one of the most dominant vehicles in the market.
Yeah, just on that, Russell, that's why we're still sticking to our AUD 155 million-AUD 160 million, 'cause I'm sure you're about to ask, you know, why isn't it higher given that the rest of the auto business has performed so well in H1.
You've preempted my part B, Martin, so thank you. Second question I had is just on your Davey write-down. AUD 10 million is a big number for the size of that business. That's basically years of historical normalized EBIT. Two questions on that dynamic. Firstly, is any of that write-down associated with that 9% revenue growth this first half, i.e., just effectively giving stock away? And then secondly, how should we be thinking about the, I guess, the normalized EBIT of this business going forward, particularly this year? If you've written off a full year's worth of profit in one go, how should we be thinking about the normalized EBIT that this business should be generating?
Yeah. Thanks, Russell. Take your first question first. Really none of that write-off relates to the 9% revenue growth. We're very much pivoting the way Davey operates. It's traditionally tried to be a very flexible manufacturer by having raw materials and being able to respond to everyone's needs all the time. You know, by having plenty of raw materials, being able to do whatever is needed wherever the market takes it. Really, when we stripped it back with Val coming through and trying to understand where we made and lost money, it was becoming very clear that a few things were happening there where we're getting extremely short production cycle times. The sales and operational planning wasn't what it needed to be 'cause people could always assume that they could make what they'd sold.
You could imagine just how much we were stop-starting the manufacturing process. With that, we weren't being pro-programmatic enough about our product life cycles and how we phase products into life and how we phase products out of life and therefore, what raw materials do you have in the shed to be able to be as flexible as what you've done. We've really stripped it back to come back to what does Davey need to make, what products do they need to support? What do they need to make? What of those are really destroying value in the process, and let's pivot away from that.
The result of when you work all of that through is you start to say, "Well, there's a lot of things historically we've had here for the sake of that flexibility we aren't gonna take in the future," and that's a large part of that write-off. There's been some costs also in getting things right through, and most of that's been reported outside, below underlying EBIT. There's been some things we've been doing and leaning into which are in underlying EBIT as well. I think I would caution thinking we're gonna bounce back immediately. We're still getting these new sales and operational planning processes fully embedded. We've taken a lot of finished goods that was all sitting in stores, being properly populated into state warehouses.
We're moving to a higher level of finished goods and a much lower level of raw materials, and there's a transition among that in and of itself, which is also contributing to a little bit higher inventory overall. All those things are running through. I think it's probably a bit too early to say H2 will get you to a normalized EBIT. You know, that needs time to bed down. Graeme, do you wanna add to that?
No, I think. Well, I think you covered off nicely. I mean, if you were looking at a normalized run rate, then, you know, certainly it wouldn't be double the first half, and that suddenly becomes a new run rate. I think the underlying business is probably a little bit bigger than that in terms of maybe the eight or nine type of category, but that's gonna take more than just this half to carry through. You know, we're concentrating on just, you know, cleaning this up properly and making sure we've got a balance sheet set correctly, make sure we got the operational processes set correctly, so that the underlying performance can shine through.
We can really understand where we make and lose our money. There was such a degree of complexity into what was being made and how it was being processed through standard cost accounting and so on that, you know, we couldn't really get the sort of intelligence and alignment between sales, the product category managers and the people producing it to have the sort of match fitness that business needs to compete on a world scale, which it does.
I'm not sure we adequately responded to your question around the SKU on the base business, Russell. Did we do that well enough? Would you like a little bit more color?
Yeah, no, it's fine. It was just the SKU on the APG business, 'cause that's the sort of big variable when you come to your group guidance, given the mismatch in terms of the guidance for that one relative to the base business, which is fine. Just so we can round up the Davey discussion, this business used to sort of do 8%-10% EBIT margins. It's been sort of trending south for a while, but the sales have actually gone up. If I look back history, sales are up 20%. Is this a, I don't know, 6% or 7% EBIT margin business, or is it a 10% EBIT margin? How should we be thinking this?
Obviously, I understand the issues you talked about. It might take a couple of years, but how we think this sort of 2, 3 years down the track.
Look, with the way the sales are building. Just let me come back a step. First thing I'd say is you can see the sales are built nicely in Australia. Through all of this strip-back process that Val's been undertaking and revealing habitual processes and ways of working which weren't really in service to the customer. She's been stripping those back. It's been getting better engagement with our resellers. You're starting to see it pull through in the Australian sales. You know, if you start to fast-forward that over a couple of years, Russell, then you'll get the operating leverage out of that. Probably in the near term, you're more like saying it's probably a 7% - 8%-er.
As you've worked through these elements we've talked about and further improve customer delivery, get more and more dealers leaning towards Davey as a preferred brand and get the volume growth, there's no reason over the midterm, you know, why you can't get to that 10%. You're probably still gonna track some of the global firms that've just got much, much greater scale. But it I would say it's a two or three-step process rather than get to the 10% overnight.
Just a final question on other segments. This is a bit more higher level. You've given some good, I guess, data on obviously the average price rate across your portfolio, the impact of the lockdowns. We can see sort of the charts you provide on the preso about, you know, things reopening and I guess the volume growth we've seen in your auto business. The question over the last couple of years, you guys have obviously got much bigger scale than some of your competitors in the parts space. You've spent a lot of money on freight and getting things to Australia, probably at the cost of margin.
I've just got a question around market share gains that you've had in some of the categories and whether you see those as sustainable and whether it'll be a benefit, I guess, accelerating out of a post-lockdown world or whether you expect to see any sustainable market share gains across your automotive business.
Two thoughts come to mind. Firstly, you know, more recently, it's now not an expensive margin, right? We've just expanded our margin in auto by close to 3 points of margin versus the prior half. You know, we're only probably 27 or so basis points off where we were a couple of years ago. I think that's encouraging. That's a very strong story. Margin expansion for us has been something we've been working very carefully on. By the way, that margin expansion isn't just simply an FX gain. If you think about the EBIT in dollar terms, call it sort of AUD 8 million or AUD 9 million increase, you're talking probably only two-ish of that is actually FX. It's come through some good efforts of the team, including pricing and some cost control.
Back to your other question in terms of market share. We've gained market share, we know that. I mean, we can see it on the shelf. The very few empirical data points we have, in say, filtration as an example, we've gained share. That's positive. We have to rely on different measures in terms of shelf space. We get growth rates of house brands versus ourselves in certain categories and the like. We've captured new contracts as well. You know, whether it's Jayco contracts, whether it's PACCAR, whether it's expanded product ranging in certain of our bigger customers. All that points to market share, and we're confident with that. That's why we've seen organic growth when we've probably seen some flatness in other companies.
I expect to actually be able to hold a good portion of that. I'm not stupid enough to suggest that it's all gonna stay with us. We've seen material gains and in certain categories where people want to go back. As an example, let's say Jayco with some power management products out of BWI, they're now installed in caravans. As long as we provide the right level of support and the right level of product development ongoing, then there's no reason for them to depart from us. Yet we've captured that business. Similarly, we have other examples of that same ilk. At the same time, we haven't slowed down the product development all through this period, Russell.
You know, BWI, in the next 12 months, are about to launch some products that, in terms of the cadence, that they haven't had that cadence for probably three-ish years. I'm not talking about catalog here either, by the way. I'm talking about discrete bespoke products, whether they be, you know, Intelli-Start, jump starter ranges, forward lighting, rear lighting and the like. We haven't pulled back, as I think I've talked about. In fact, in the last period, we finished the full year, we talked about AUD 1 million higher product development spend than the prior period. That all bodes well, in our perspective.
We're expecting to increase market share in a number of our businesses, either through new penetration into some of the categories or new products or holding some of the gains we had through this period. Of course, that's why we're not going to pull back on some of the elevated inventories nor pull back on the product development. Feeling pretty confident in that regard, not just in terms of market share, but also the way we've been going about the margin expansion as well.
Okay. Thank you very much, Russell. Our next question comes from James Faria. James, if you'd like to unmute yourself and please go ahead.
Thank you, and Graeme and Martin, thanks for your time this evening. First one's on the organic automotive margins at 24.9%. Just given the timing of your price increases during the period versus what was probably a full six months of cost imposed around supply chain, et cetera, would it be fair to assume that your exit run rate is higher than that 25%?
Well, we don't break them down month by month to that level of specificity. I mean, logic would suggest that, yes, because of the timing, but you know, to be precise, I just couldn't answer that question specifically. I think that's a fair assessment, James, certainly on the back end. You know that the pricing, the first round of pricing was sort of in that October period, and we've been enduring some of those elevated costs through the whole half. I think that's a fair assessment, but I won't give you an accurate number because we don't, you know, watch it every single month end.
Of course, when you think through the second round of pricing, that's now been put in place in February, so you've got about sort of four-five months of the benefit rolling through. That's a bit of an assistance. You know, Martin's already mentioned that we've got a bit of spend to concentrate on as well, just to see where that goes. We do have a few elevated costs in the second half, unrelated to COVID, where you know, we're a bigger business, so we've probably got about AUD half a million or so dollars worth of D&O insurance that is new to us. You know, we have a little bit of an expanded director base and a few more employees to manage the central bulk of GUD.
There's a few things rolling through there. At the same time, obviously, we'd have the impact of the pricing rolling through. You know, we're feeling pretty positive about the margins at the moment, James.
You're also starting to see cost revisions that are linked to CPI, for example, rentals starting to cycle through at bigger increases than they have done in the last few years as well. It's certainly an early sign of an inflationary cycle.
Yeah. That's helpful color. Thank you. Second question. With the inorganic automotive EBIT. Half on half, it's sort of gone roughly AUD 7 million-AUD 10 million. Now it would seem that ECB probably didn't contribute to that. Vision X probably gave you AUD 1 million or so. Am I right in saying that ACS and the rest of the G4 business have picked up a couple of million AUD of EBIT half on half?
You're a very smart man, James. You're almost on the money. ACS and our AEA auto electrical business, which now sits under BWI, and it's just a very elegant. You know, better, best approach to market like Narva Westfalia. They've really come on like a steam train. Graeme talked earlier about the ranging. They've got the Supercheap and Anaconda and so forth, particularly with you know, a fantastic range of solar products for people in camping and so on. That's where it's really stepped up. You know, the.
We heard earlier, ECB capacity constrained to a degree, Fully Equipped as well, because you know, trying to get key raw materials from the U.S. to New Zealand has been a challenge to say the least, with transit shipment times of an extra 50, 60 days and having to air freight. You know, that's been a bit stop-start on manufacturing. We've more recently leaned into safety inventory there. Yeah, it's really APG, sorry, ACS and AEA. That's pretty much to a degree as we expected G4CVA to play out, and that's why we called out that CapEx at the when we acquired the business, that sort of AUD 7 million CapEx. You're seeing Graeme talked about the robotic polishers. We've got the first of three coming in. It's very pleasing.
You see the gentleman from APG had a look at that and gave it a tick. In fact, you know, we may have more to come there that is able to be recycled, so we might in time save some of that CapEx.
Four robots sitting up in New Zealand.
Yeah.
I think the other thing, James, that just to touch on what Martin said, you know, that the likes of ECB and Fully Equipped and even APG, given we've had just on a month, where we've got manufacturing challenges, either through capacity, the likes of ECB or, you know, short-term absenteeism because of, you know, a huge wave of Omicron impacts in, say, January. The really encouraging for me is that in every instance, that's translating to back order outcomes, not lost sales. So Fully Equipped, record back orders. ECB, very strong order book. And even, I mean, the dust hasn't really settled on the first month for APG. You know, similar to Davey as well, where you're assembling and manufacturing, you know, there are impacts with Omicron.
If you've got, you know, absenteeism running between 15%-25% for a few days, you have to try catch it up. You know, the back orders in APG, very, very strong as well. That bodes well for us. That's what we like about some of these businesses, because it's about deferral at worst. It's not really about lost sales. I just wanna give a bit more added color there, James.
Thanks, Graeme. Just a couple of simple ones to finish then. The corporate cost line popped up a bit in that half. Can you just give a bit of color on the contribution you're expecting there in the full year? Secondly, given the moving parts in this second half, just roughly where you'd be expecting net debt to end FY 2022.
Good questions. I mean, certainly, it's probably fair to say that Graeme and I and many of the group team have been working pretty extensively on acquisitions in the last half. That sort of higher corporate cost in part reflects us reviewing where we're spending the time and whether it's fair to bill Terry Cooper at Westfalia when he hasn't seen very much of us because we've been working on acquisitions. That reflects that. Graeme said before we got some of those costs, you know, and other D&O stepped up considerably in the first half. It will step up again in the second half because, you know, we've got the bigger capital base, which will drive D&O. Again, we added a few people to the group.
We're gonna have to add a few more because of our scale and complexity, both in terms of absolute size and geography. In terms of the second half, it's probably, you know, as it is in the first half or a little bit more of some of those other costs pull through.
Yeah. I'd say it's a tiny bit more. I mean, you've got the full half of the D&O.
Mm-hmm.
The other thing, you know, James, we have added to the team, and the three years I've been here, I've been pretty cautious about adding central resource. I'd much prefer to be adding resource where the rubber hits the road and the revenue's generated. But the reality is, you know, the work on portfolio vision, our evolving view on ESG, some of the strategy work within the business units, some of the cyber efforts we made, you know, we've ended up adding probably three-four heads in the central team to make sure that we're governed and managed in a way that we desire in terms of precision and capability. So that is coming with a bit more cost.
Now, we're cognizant that we don't wanna drive the corporate overhead, but we also have to manage the balance of, you know, planning for the future. That's why we talked in a couple of line items around sort of investing in the long-term future as well. It's an interesting balance, right now.
Yeah. We've a little bit more of that to do in the second half, as you'd expect us to.
Sorry. The net debt, roughly.
Oh, net debt.
Yeah.
Well, certainly, you know, we called out with the APG acquisition to be at net debt to EBITDA of 2x at the end of
Calendar year, yeah.
Calendar year 2022. We expect to be, you know, relatively well advanced to that. The big question is, will inventory sort of need to go up in the second half? I think from where we're sitting at the moment, the answer is probably not, which would then suggest we'll get pretty good cash conversion pull through, other than higher debt as with sales growth. Expect it to not be at the 2. But certainly very good progress towards that number, James. That's all presupposing our view of the supply chain being elongated, and being able to potentially see that stabilize. You know, that's the 64-dollar question. That's the way we think it will play out.
Is that gonna prove out to be the case in the second half? I think it is. Otherwise, all the small competitors will go broke because they won't have enough stock to sell because they can't commit to the working capital, and then just be left with big people like us with the balance sheets, and it's probably not good for any economy in the long term. We probably all hope that doesn't occur. Yeah.
Yeah, well, I mean, at the end of the day, you know, our cash conversion in the second half will be a reflection of essentially how we handle the inventory position. Look, you know, speaking in brass tacks, you know, if we look at FY 2020 H1 and we go to FY 2022 H1, you know, we've increased. If you took out the acquired inventory, just to concentrate on inventory, then it's up 37%. That's the fact.
Yeah.
Sales are up 20%, so you got a delta of, let's just call it round numbers, delta of 20% just for fun, right? I think our job is to work out the balance of what that 20 should be. Should it be 15 by year-end? It should be 10, or should it be where it is right now? That will, you know, directly relate to the cash conversion and then obviously indirectly through to the net debt. There'll be, you know, other than margin expansion and acquisition integration, some big concentration on inventory in the H2. That's kinda how we're viewing it. I hope that gives you more flavor.
Yep. That's great. Thank you, guys. Thanks for your time.
All right. Thank you very much there, James. Next up is Anna Wu from Goldman Sachs. Anna, please unmute yourself and go ahead.
Hey, Anna. Are you there?
Hello, Anna. It's your turn. Just unmute yourself. You just need to unmute yourself in Zoom and go ahead. One second. There we go.
Can you guys hear me now?
Yep.
Yep, we got you now. Thank you.
Sure can.
Right there in the end. Thanks for taking my questions. Just two follow-ups from me, please. The first one is just on the auto business, trying to get a feel for the exit run rate. So looking at the December quarter-ish performance versus, I suppose, the outcome for the half versus your previous guidance. It looks like organic growth has sort of accelerated into the December quarter. Obviously in your outlook commentary, you talked about slightly muted January performance. If I recall correctly, January historically is a relatively volatile month for you guys.
I guess my question is: Just in terms of the feedback you guys have been getting from customers, to what degree you reckon that's a sell-through kinda rate versus, I suppose, partly just, you know, inventory, customers holding on to a slightly higher level of inventory going into first half, or the June half calendar year 2022, I should say.
Yeah, look, I mean, let me answer it with a trading perspective point of view. You know, when we last updated the market, we talked about at a group level, you know, sort of 3%-ish or so percent EBIT growth net of JK. Obviously automotive, we're now talking, you know, 4.6%, approaching 5% net of JK. We're bloody pleased with that, actually. You know, I think there was a few people who were perhaps questioning our view that we could actually have organic growth off a record year the prior year. We just comped a pretty big half on the back of some pretty tough restrictions as well. You know, we're looking at that thinking, you know, that's a pretty good result.
I mean, we always want more, but we're bloody pleased. We did see a typical acceleration in December. We were unsure as to how December was gonna finish 'cause Omicron started to get a bit of noise right at the end of December, and we were worried that we wouldn't be able to get it away in terms of just physical logistics, but we got it away. January's come in, and it was January the second when we had our first leadership group call to discuss how we're gonna handle Omicron. That's how we entered into the year, and then we went into every second day calls back to our COVID response framework.
When I talk of a demand dampening, I'm thinking more versus our expectation. You know, without being too precise, because the month hasn't washed up properly yet internally, but our year-over-year in January will largely, I think, come in flat to probably maybe 1% or so higher than the previous January. That isn't necessarily our expectation, though. As you know, we've just, if you think auto for one second, we're just shy of 5% year-to-date, and in that one month, we're essentially flat. It was one, we'll just call it flat for a second. That's the dampening I talked to in terms of a little bit of momentum in January, sort of petered off a little bit versus the first six months.
That relates in part to what we're seeing in the market in terms of a little bit of dip in mobility, but then it came back. The latter part of January, it started to pick up a tiny bit. Into February, it's starting to get stronger again, and we're seeing now, you know, workshops back to two and three weeks, booking times. That's what we were referring to when we say sort of a bit of dampening. There was no specific. By the way, January was a strong January in the prior year, by the way, stronger than it normally is. We've just comped another strong January, and we're basically flat to a tiny bit higher, but not at the same clip that we'd had in the first six months.
Yeah, we're feeling reasonably encouraged, but we're being cautious, and that's part of the guidance, right? If you look at the guidance, you know, AUD 112 million-AUD 116 million on existing businesses, it suggests that the second half will come in at between AUD 53 million and AUD 57 million. Now, you probably got a point of view around how Martin and I operate in regards to guidance. But it does assume what happens if indeed that momentum stops. Now, we don't necessarily believe that. We think that we see full order books. We're starting to see the workshops come back, and we expect to see the rebound come through. But the sell-through wasn't impacted by any particular reseller behavior.
Gotcha. That's good color. My second question is kind of related to your comment around guidance. Just on margins, Graeme, earlier, you gave some color in terms of the incremental costs that potentially might come through in the second half around corporate costs, insurance costs, et cetera. Just thinking about, I suppose, Omicron-related supply chain/staffing cost-related challenges. A couple of the retailers that we follow have flagged extra DC and, I suppose wages, one-off associated with that. Therefore, I suppose my question is, to what degree have you guys kind of factored that into your guidance? How should we be thinking about it?
We've had to take on higher casual labor, comes at an increased cost. We're having to catch up in some instances with overtime, and that's a change from prior COVID impacts. There's a little bit in there, Anna. I wouldn't say millions, but there's a little bit in there. In the second half, you know, in the guidance, the way we're thinking about it, we do have some, you know, incremental costs. Yes, there's the one you just asked about and I've just mentioned. Yes, you know, D&O in the second half will be AUD half a million or so dollars more. I think it may be slightly more. We do have the FX spot we have to think our way through, but we've got some pricing to offset some of that.
We've got some incremental costs in terms of managing the business, this larger business we have, and also building a growth business for the future as well. We're investing in some, you know, costs in the second half and through next year as to how we're gonna continue to grow and be the bigger business that we aspire to. We do see a step up in costs. I'm not saying that's gonna be dramatic, but it's not gonna be in the hundreds of thousands. That's something we have figured in if you start to sum that up.
Gotcha.
I think just to add, you know, during the Delta outbreak, you know, we established with many of our sheds running split shifts, so morning shift, no one in the shed for an afternoon, and afternoon shift. Part of our risk management, if there was an outbreak, at least it was, you know, potentially limited to only half the shed.
We've had to put those back in place literally.
Yeah. We literally had to put those in place. We were hoping for a bit of that saving. You know, that's probably wishful thinking now. What we would say is, firstly, thank you to our employees for being willing to work that way. Secondly, you know, we've got a pretty stable workforce, which is largely permanent. Where we are needing to reach into temps, and that's been particularly Davey, with some of their manufacturing chain changes and trying to catch up after the COVID lockdown. Temporary staff are frightfully expensive right now, and that's probably hit Davey more than anyone. The other issue is temporary staff. Well, they're expensive if you can get them. You know, we've been trying to navigate all ways of managing with our existing staff.
You know, we have to take this opportunity to call them out and applaud them and thank them. They've really helped us dodge some of those costs, but more importantly, you know, as I said, temporary staff, if you can get them.
Excellent. That's really helpful. Thanks, guys.
Thanks, Anna.
Okay, we have three more questions. Folks, just to remind you, if you do want to make a follow-up or if you've not yet raised your hand and you do have a question, please do so. Our next question now comes from Andrew Donlan from UBS. Andrew, please go ahead. Unmute yourself.
Thanks, Graeme, Martin. Just a quick one on the guidance, the AUD 112 million-AUD 116 million. I'm just keen to understand the half-on-half movement in the core auto business. Just trying to piece together some of the comments you've made around, you know, organic growth and costs and things. I mean, are these incremental costs, are they offsetting the price increases that start to really come through in the second half? I guess should we be assuming sort of flat margins half on half, or should they be growing in that auto business?
Look, it is a difficult balance, Andrew, and thank you for the question. Not knowing where spot is, and where that takes us. Look, we talked about margins, obviously the full year and said that we were gonna improve them, and we have. I think it's fair to say that the margins probably will be in a similar state, I think, in the second half. I don't think they will advance, given what we've just spoken about. Look, they may retreat by, you know, 10 basis points or something like that. You know, we're not talking, you know, sheep stations in that regard. Again, I mean, we're trying to be cautious in our guidance.
I mean, even if we were to deliver at the top end of the range, just for one second, use that situation, let's call that, you know, the 116. That would suggest that we're coming at AUD 57 million in the second half, just pure existing businesses. That would put us down sort of 3%. But putting into context, that's still a 17% lift on the prior period in that second half. You know, so we're still plotting a path that's pretty positive and, you know, the margins, even just for fun sake, if you were to, you know, take that AUD 57 million and put it across, you know, a repeat of the overall revenue, we'd probably be about 30 basis points down.
That would be the worst case scenario, unless obviously something unforeseen rolls through. You know, our job is to try maintain the margins. We actually said at the year-end that it would take probably until FY 2023, in our view, to get to the what I would call the organic existing businesses margins back to that sort of 25%, and we're already back at the 24.9%. I would say, without being too precise, I wouldn't expect too much of advance in margins, probably more flat, give or take, where perhaps some of those costs roll through and where the spot sort of plays out.
I just wanna reemphasize that the way we laid it out there is to remind everyone how we got to the AUD 155 million-AUD 160 million, you know, effectively through our various announcements in the last half year, and that we're really managing to that AUD 155 million-AUD 160 million, and we're reaffirming that guidance rather than each and every constituent part of the three previous announcements. As we heard before, probably a little more skewing with the APG business towards the second half of calendar 2022 and a little less in calendar 2021, and the existing businesses, you know, will effectively fill in that gap. I just want to reiterate, we're not calling out the automotive for each and every part of it.
Yep. No, that makes sense. Then just the final one from me. You touched on that trajectory of the organic growth from modest to you know, finishing the half of that 5%. Can you maybe just talk a little bit about Ryco and Westfalia and how they looked over the course of the half, given they finished it sort of flat to up a little bit?
Oh, look, obviously we try to give a little bit of color without letting too much information go to competitive sets and other stakeholders. You could see that we commented that Ryco had a modest improvement, but that Westfalia was slightly down. Again, you gotta remember, again, they're comping record years, all-time records. For Ryco to be up on an all-time record in a mature market is a pretty decent outcome in its own right. Sorry for that extra color. Westfalia, certainly, we saw more impact and definitely in Q1. You know, New South Wales impacts, they've got a stronger base in New South Wales. They serve a lot of customers there. We certainly saw a big effect there.
They started to bounce back in the second half, and so subsequently, the full year was just under. Ryco didn't have quite the same impact in Q1, but it still was impacted. You know, some of the businesses, and we saw a little bit of that in GUD and NZ as well, where they're more exposed to service and wear parts. People are making that deferral. You have to be careful when you think about our existing businesses when the term trade is often used. Well, there's. If you sort of dissect trade and think about trade in two camps, there's kinda like the repair piece where, you know, you have to do something if your brakes fail or your light is gone or whatever, right? That's part of trade.
Whereas there's also another part of trade, which is, you know, your service and wear parts. When people are making decisions to not drive or fearful of going out to any public area to get something done, in this case, service a car, then they defer. I think they saw a little bit of deferral roll through there as well. January for them didn't start out well because Omicron really did start to put the cat amongst the pigeons for them. They started to come back in the last part of January. I said to you that, you know, if you look at our existing businesses, January over January, they were, you know, sort of about 1% up in aggregate.
When you flick through the likes of Ryco and Westfalia, they started to pick up in the last part of January. Then we're starting to see a little bit more buoyancy as we get into February. That's quite encouraging. There's a bit of a distinction around the wear parts piece. There's a bit of a distinction around you know the likes of Westfalia and New South Wales. Again, as I said earlier, at the end of the day, I'm not alarmed by that. It'll be deferral. It'll come through. We're not losing business to anybody else other than Omicron or a bit of a lockdown, and that'll bounce back, and we have experience in seeing that in 2020 and 2021.
Great. No, thanks for that.
All right. Thanks very much, Andrew. Our next question comes from Mitchell Sonogan from Macquarie. Mitchell, unmute yourself and go right ahead.
Yeah. Good evening, Graeme and Martin. Can you hear me?
Sure can, Mitch.
Thanks, guys. Thanks for taking the questions. Most have been answered, so I'll just ask a few quick ones. Just in terms of, I guess that impact of the Omicron wave, can you maybe just give a little bit more detail of how you're seeing things by state by state? Obviously, New Zealand heavily locked down over there. Yeah, are you seeing any differences in terms of New South Wales probably having the biggest impact first up and maybe them coming out a bit earlier? Maybe just provide a little bit more color state by state, what you're seeing, particularly across here on the East Coast.
Yeah, sure. Yeah, probably in order of severity, it goes sort of New South Wales, Victoria, NZ, Queensland, South Australia, and WA. Now, you're asking the wrong person to start listing states, by the way. I'm, you know, an Englishman sitting in Australia, but I'm sure I've missed provinces, territories, and other such things. The way we're looking at the business is that's how I would characterize the impact. You know, New South Wales, pretty tough through the lockdown, starting to bounce back a bit. Then Omicron arrives, and it gets a bit skittish again. Victoria, certainly, but not as much as previous years. NZ, really tough. Yet GL has actually done pretty well to be where they're at. I'm actually quite proud of their efforts to be where they are.
Then you go Queensland, a bit bubbly. WA and SA have been flying. You know, they, you know, they've been doing pretty well. So that's hopefully gives you a bit more color and the variability you mentioned in terms of the chronology of what's going on has been up and down. It's been up and down. I mentioned earlier on that, you know, through the first half month to month, particularly the first quarter was pretty horrible in certain parts of our businesses and certain geographies. Even in the second quarter, we saw variability month to month. It has been quite patchy. You know, in aggregate, a good performance.
I'm not complaining by any stretch being up 5% given we're off a pretty big year the prior year.
Yeah. All right. Thanks, Graeme. I guess just the final one. On Davey, I guess some of the rationale of always holding that one, with some of the synergies from corporate overheads and freight and all that sort of thing. Given the VX and APG acquisitions, and the new scale of the business, does it make more sense to consider other options for that business? Like, how are you thinking about that, with its place in the portfolio? Thanks.
Yeah, thanks. At the end of the day, that narrative of the past is now not relevant in the current day. I'll put it straight there. There, there's no need for any of our businesses to be thought in that context. Davey, like every other business, needs to be able to stand on its own two feet. Yes, it does have some synergy benefits in the back office, but, you know, we're not comfortable with its performance. Val is certainly not comfortable, and we brought Val in to lead the charge. You know, at the same time, we brought in a new CFO, we've got a new S&OP leader, we've got a new sourcing leader, we've got Mitch to drive some change there.
You know, what Martin said earlier in answer to Russell's question around what does the percentage look like? Yeah, it's a 10%-ish type number and Val will work to that and I'm sure he'll achieve that. In doing so, it will stand on its two feet. In that situation, the board will always reserve the right around what options it has as it pertains to any part of our portfolio. But we're not gonna hold Davey in its current position just because it has a synergy benefit. That's not the right approach in my eyes, and we're all clear about that, both at the board and every single leader in our portfolio.
Great. Thanks for taking my questions, guys.
Thanks much.
Okay. We come to what is so far the final question for today. Folks, if you've heard anything that instigates a follow-up or if you have not yet raised your hand to ask a question, now is the time to do it. Coming up next is Andrew Hodge from Credit Suisse. Andrew, please unmute yourself and go ahead.
Thanks. Evening, gents. Thanks for taking my questions. I guess given that I'm last, I better keep it brief. I just wanna touch on the guidance, Martin, that you referenced, the larger guidance, which I guess now becomes the main source of guidance, the AUD 155 million-AUD 160 million. I just wanna break down the inclusion and exclusion of amortization add backs to that figure. Obviously, APG and Vision X excluded. I know you're still working through what that outcome is in terms of quantifying it.
Mm-hmm.
If we use a ballpark of AUD 20 million annualized, and so call it AUD 10 million for the second half, does that in effect, if those numbers were correct, it takes the guidance to AUD 165 million-AUD 170 million on an EBITA basis? Is there anything wrong with the way that I'm thinking about that?
Yes and no. Firstly, the guidance we called out, and perhaps we just needed to put it in a bigger font, is EBITA for that very reason. Any amortization we bring once we've worked our way through the purchase price accounting will be a deduction from the numbers we're given, not an add back to the numbers we're given. Now
Okay.
In terms of the quantum, we're working our way through it. We did a high-level estimate on the way through with our equity advisors, but they're also our auditors, so they can't do that. We've got someone else working through that. I don't think the number you put out. If I had to take a stab, I don't think the number you put out there would be that far wide of the ballpark. At the moment, it's an educated guess. We reserve the right, we've gotta work our way through that. It's an EBITA guidance. If you then bring it back to EBIT, it'll be a deduction that will come in under the AUD 155-AUD 160 by whatever that works out to be.
All right. Thank you. Thanks for that.
You know, obviously, you know, whatever we generate there triangulates through to debt reduction in the medium term too.
Yes. Yep.
Thanks, Andrew.
Okay, I think that's it. Mitchell, can I just double-check? You've got your hand raised, but that may be because you've got a follow-up or perhaps I forgot to lower your hand when you finished your question. Was there a follow-up or were you done?
No follow-up here. All done. Thank you.
Fantastic. Thanks very much. Just before I hand you back to Graeme, this is the second time we've used Zoom rather than a traditional dial-up using the Raise Hand function. Can I just get a sense of whether you guys prefer this over a traditional dial-up? If the answer is yes, then we'll continue with that way. Just raise your hand and say, "Yes, we like this idea," versus a traditional dial-up. If you don't like it, and if you prefer the old way, of course, you can always dial into these by phone anyway. If you can just let us know whether you prefer this over the old-school way, then that will be handy. Thank you very much. I see there's a whole bunch of hands coming in here, so all good. All right. Wow. Okay. That's pretty emphatic. Thank you. All right.
Well, that done, Graeme, back to you.
Okay. Well, thanks, Dean, and thank you, everybody, for taking the time, and appreciate the fact that there was an aftermarket release, but we wanted to make sure that we gave plenty of air to the result and also sort of separated what is a busy period, so appreciate you taking the time. You can tell we're quite pleased with the result, you know, in a lot of different ways. As I mentioned earlier, we're right in the middle of a very positive transition. You know, the acquisitions are bang on from a strategic point of view. At the same time, you know, the operating results are in record territories, which is, you know, always encouraging.
You know, I think we're beating a number of people's perspectives in terms of whether we could grow organically, and we're not gonna be that chuffed about that 'cause, you know, at the end of the day, we're just gonna get on with that. We are pleased with the performance. You know, margin expansion is reassuring and, you know, essentially if I chart some of the comments and discussions we had at the full year year-end, it's playing out as we largely expected and committed to and so that's pleasing in terms of, you know, do what you say and say what you do and the like. You know, we recognize that the second half might have a few challenges.
Again, we're working hard to mitigate those in terms of, you know, the extra COVID overlays, but we remain very positive at the end of the day. Yes, there are some extra costs rolling through in the second half and, you know, we've gone through those, but at the same time, we're feeling very positive, not just in the short term, but certainly in the midterm prospects as we start to really integrate the acquisitions and see the benefit of some of the product development and channel work that we've been doing while perhaps some of our competitors have been, perhaps distracted. A positive result, and looking forward to having more discussions over the next five or six days in a smaller group setting.
Thank you for your time and we'll let you get to your beer, your wine, your cup of tea, or indeed your dinner and your family. Thank you, everybody. Cheers.