Okay. Well, welcome to the earnings call of GED's results for the 12 months ended 30 June 2021. I'm Graeme Wickman, GED's CEO, Managing Director, and I'm here with Martin Fraser, the company's CFO. 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, and a recording of this call, along with the presentation material, will be available later today on GD's website.
So we'll start the call by running through some key messages and the financial overview. I'll speak to ESG, followed by some commentary on both our Automotive and Water businesses. I'll then hand over to Martin. He'll cover the financial results in more detail and then we'll conclude with the outlook for the current financial year before Q and A. Now in the material, we do touch on the COVID impact to our businesses.
It's clear in our results today and the other communications such as our Appendix 4E that we have been very fortunate in relative terms. And we do, however, recognize there are many who continue to be profoundly affected. So our thoughts and best wishes go out to those people and businesses, particularly in Queensland and New South Wales at the moment. I'd like to say thanks to our employees who worked pretty hard through this FY 2021 period in such challenging circumstance and really want to recognize our leadership team who led the businesses in such a positive and deliberate manner. Now for clarity's sake today, in our webcast and in our released information, we'll be speaking about our statutory reported results, which will be on a post AASB 16 basis for both FY 2021 and the PCP.
But there are also a pre AASB slide in the appendix of the presentation for those who may be interested in that view. Okay. Well, let's turn to Slide 3. And FY 'twenty one was one heck of a year in many ways. Our sales were really strong.
The underlying EBIT was just above our guidance, and we achieved an all time operational record result actually. And there was strong end user demand that reflected the resilience, I think, of the auto aftermarket. And our recent auto acquisitions have been integrating nicely. Their performance, those acquisitions that is certainly in line with our expectations, and we're certainly keen on further opportunities in terms of acquisition. We did experience pressures in the supply chain and certainly we've been encountering inflationary challenges.
We have plans in place to mitigate and again we flagged that at the half year. The existing BUs in water and auto continue to work through their core and growth work streams, so no slowing down there. And all said, we remain confident, I think, in the business' position and positioning, but our eyes are also firmly fixed on the COVID uncertainties. Now on Slide 4, certainly through the year we provided profit guidance and that was after the 2020 AGM and we updated it again at the half year result. Now it's pleasing to note that the full year result was, as mentioned, a record for GED, slightly ahead of guidance at both the underlying EBIT and also cash conversion levels.
The overall revenue and underlying EBIT growth achieved in the year was compelling for both the existing and the new businesses, And those acquisitions, again, are performing well in line with our expectation. We delivered revenue growth of just over 27%, with the organic component in terms of growth was about 15, 15.2 percent, taking our revenue to just over 557,000,000. Now, our revenue certainly benefited from some COVID-nineteen recovery in Q1, but that patent demand was seen across much of the year, so it continued. And our underlying EBIT was up 25 percent and a bit percent to $101,200,000 Now if we exclude the contribution from the acquisitions, the organic underlying EBIT was still up by 17 just over 17 percent to 94.5 $1,000,000 Now this enabled full year dividends nearly 2% above the pre COVID-nineteen levels of FY19 in spite of the expanded capital base following the year's capital raise and the acquisitions only making a part year contribution. The final dividend to our shareholders of 30 2 CPS is up 0 point 2 dollars which reflects a full year payout of 0 point 5 $7 per share and approximately about 84% of underlying NPAT.
On Slide 5, we take a quick look at the performance of the half over half, so HT versus H1. In H2 across the group against prior comparable period, we reported a 45% revenue increase and an underlying EBIT growth of 35%. Of course, the acquisitions played a part in this, with just over $52,000,000 But if you strip this out, the revenue still grew by circa 20% and underlying EBIT about 17%. The H2 over H1 margin to drop and probably the most appropriate comparison will be the organic underlying EBIT percentage of about 3 percentage points, which was expected and the flow through of higher operating costs, which we had flagged at the half year with a number of moderating actions that will carry into FY 2022. Now before we go into more detail on the Automotive and Water segments, I wanted to touch on the subject of ESG.
So GUD prides itself on some of the metrics achieved in the areas of employee satisfaction and safety. We strive to operate as a top quartile company. And in these two areas mentioned, we certainly occupy that ground. We've been working hard to improve areas such as diversity, our ethical sourcing and the business reliance on non internal combustion engines, so ICE, revenues, all of which improved year over year. We do, however, have a greater ambition, both at the board and executive levels, to broaden our view and an ultimate vision on the sustainability of our business and the impact we have on the world around us, whether in the way we operate or the products and services we provide.
Now to that end, we've recently kicked off a multiyear effort to build a better foundation for shareholder returns sustainably. There are 3 phases over 24 months that have already kicked off with a materiality assessment with our key external stakeholders, and that will help us shape our internal thoughts. The second phase of future strategy and targets and the third phase will be the ongoing measurement of those targets. And I should also point out that from FY 'twenty two, we will actually have a part of the KEMP and senior executive compensation linked to select ESG. Now there's more to come and we will update our stakeholders periodically on the progress of what I've just laid out.
Well, I'll take a closer look at our Automotive segment results on Slide 7. Well, the revenue was up just over 34%, net of acquisitions. That was 18.2%, so at the organic level. The demand remained robust from H1 into Q3 and Q4 and was off the back of strong end user activity. Auto underlying EBIT was a record for GUD, whether you look at it at total or just at organic levels.
The underlying EBIT margin dropped due to acquisition dilution. However, at the organic levels, it was down about 10 basis points. However, the H2 versus H1 slide up next talk to some of the tough cost pressures that rolled into the equation. It wasn't just the cost pressures related to the logistics and freight, it was also the level of effort to maintain supply of inventory. And I'm pleased to report we've been successful in that particular endeavor.
It should not be a surprise to our shareholders as the resultant high inventory carry was well flagged as a deliberate strategy to provide what essentially is a buffer to overcome any issues and also to capitalize on grabbing maybe a little market share here and there. Now similarly, we flagged at the half year expectation of other cost pressures in addition to freight and logistics such as supply cost ups and domestic cost inflation. Now these have all played or are indeed playing out as largely predicted. And as part of our mitigation plan, the FY22 price rises have already been announced, and we also might need to pull the trigger on further margin actions as we monitor our FX position. Now I'd like to give a quick update on the half over half, I mentioned that previously, as we turn to Slide 8.
So the auto H2 revenue against PCP was up just over 57%. Acquisitions contributing about $52,000,000 However, the story was also strong with existing businesses who were up 23%. Organic underlying EBIT ex the subsidies as a JobKeeper was up 23% versus PCP. However, cutting to the chase and as flagged at the half year, it dropped, specifically half over half, it dropped by about $6,800,000 in terms of EBIT dollars. This was expected and was driven by the supply chain logistics costs peaking in H2, some of our FX hedging profile and the cadence of price rises.
And perhaps that gives you a tiny bit more color in terms of the resulting margin delta that's on the slide. Moving to Slide 9, I'd like to quickly update some important key industry dynamics. So car park growth in the calendar year 2020 continued in terms of growth, reached just over 19,000,000 units, and that's forecast to grow to over 20,000,000 units by 2025. And of course, we know our addressable market is the 5 year plus vehicles, which has also grown in the calendar year 2020 to just under 14,500,000 units. And that's also forecast to grow beyond actually 16,000,000 units by 2025, quite an encouraging trend.
That's not to say that some of our businesses aren't picking up revenue in the 0 to 5 year car park. Perhaps the new legislation, which was passed into law in 2021 on the right to repair, might also shift that dynamic a little in the future. Okay. Well, the further interest is the data on Slide 10. Firstly, we're seeing an increase in the average fleet age, which is forecast to continue.
With the COVID impact flowing through, it might also mean less cars will be scrapped. And so that fleet age might even go higher than shown on the slide. The other trend that's increasing is the sales of SUVs and pickups, which is now combining to be about 75% of the total sales. And of course, they will flow into the car park, which over time remains certainly a net positive for GED in both existing and newly acquired businesses because they both over index in SUVs and pickups and serving those particular segments. Now on Slide 11, you can see the well documented increase in the year to date calendar 'twenty one sales, with increases of upwards of 46% in the last quarter, which is pretty strong.
And this is also useful as we do have some exposure to revenue driven by the new vehicle sales, particularly SUVs and pickups. If you want to sort of drill down and detail the hybrid and EV sales data, well, the growth is large in percentage terms, but low in volume terms, sort of less than 1% of all sales. Now whilst the current forecasts expect about 3 EVs per 100 new vehicles sold and about 18 hybrids, which obviously have powertrains that are ICE related, per 100 new vehicles sold, we believe that we're going to be well prepared to embrace that growth. Okay. So I'll probably turn to Slide 12 to talk about the resilience or reliance, I should say, on ICE revenue.
And on Slide 12, you can see where we give you a quick update as to how we finished FY 2021, where we now have only 40% of our revenue relying on ICE, so combustion engines. And that continues the positive trajectory we've set ourselves over recent years. Now the next two slides speak to the acquisitions completed in FY 2021. I won't go into too much detail there. On Slide 13, the acquisition of the ACARE Group, which we now call G4 CVAs, progressed well.
I think really importantly here, the update centers on the integration effort, which is largely complete. We've utilized a dedicated integration leader, and that's a first for GUD. And we positioned the Auto Elect Business, AE4A, which was part of G4. We've put that into the BWI Group, which was part of the plan really right from the get go in terms of the due diligence stages. No changes in terms of what we flagged for future CapEx and the business performance of the G4 Group is in line with the expectations we had as a time of acquisition.
On Slide 14, same thematic really continues. ACS, Australian Clutch Services, that integration has gone very well, part of the newly formed friction group along with DVA disc brakes. Encouraging the business performance after 4 months is actually ahead of our expectations. So all in all, we're feeling very positive about the 2 recent acquisitions. Moving on to our existing businesses on Slide 15, well, Ryker had a very strong revenue growth.
They furthered their product development outcomes and we were proud of the AFR awards they received both of them, which is a great indication of the quality of that business. Westville has strong growth. That enduring brand proposition around value orientated products worked very well along with their outstanding customer service. IMG delivered exceptional growth, and their repair and remanufacturing demand hit record level of jobs per day and that repeated throughout subsequent months all the way through FY 2021. The team set up their first repair operation in New South Wales and we're looking at other locations which are all under review.
And the IMG team also launched the hybrid battery refurbishment program, which by the way was quite a well attended press launch, heralding what we think is an emerging future revenue stream. Moving to Slide 16. Well, the BWI team really drove growth in the typical channels of Autolec and in both trade and retail channels. They also enjoyed a really strong revenue lift in their OEM channels such as Caravan and truck and trailer. We're feeling very positive on BWI's prospects.
As I mentioned, they welcomed AEF4 into the group. They delivered a very strong New Zealand result into Capitoff, won another AFR Innovation Award, which is really quite important given the product development push the team have been on for the last 24 months or so. Gaskets delivered strong growth and even though they were undergoing a massive transformation plan as they repeated the total operation to Raikou facility. So that's moved about 40 kilometers down the road and involved quite a lot of effort. So the growth was well received.
And then finally, Disparates Australia had strong growth in both domestic and export markets. And although the export markets were probably a little bit choppy, actually ended up growing at a stronger rate than domestic. The team have actually recently, very recently added more export markets, and the strategy concentrating on brand line extensions spawned another product range with the first ever DBA disc brake pad program in FY 2021. Okay. Let's move to the water results on Slide 17.
So Davey's revenue increased for the full year by just a smidgen under 6%. The export markets, as we've reported earlier, were heavily disrupted throughout the year, particularly the Pacific and Indian Ocean Resorts and certainly the Middle East. The European market went into essentially a hiatus and then showed sort of signs of life in Q4, although our product availability was certainly constrained at that point. The demand in Australia and New Zealand actually continued into H2. However, the modular water treatment revenue was really quite low as customers deferred and continued to defer their expenditure.
The EBIT dropped by circa 4 mill versus PCP, and this is reflected in the margins on the slide as well. Now the story was all about the manufacturing challenges experienced through the year with the lockdowns and other COVID operating constraints. That resulted in significant idling of the factory, leading to significant factory recovery issues, and we covered some of them in the half year. Now additionally, we couldn't produce non essential products through parts of the lockdown, which also left us with a sort of a pretty tough and constrained inventory profile. When we saw some of the export demand pick up in H2, we ended up having to drive through with some penalty labor rates due to the H1 manufacturing decision.
And so we found that challenging, but at the same time, we further eroded margin by shipping many of those products to the export markets using some pretty costly air freight costs. Now we did this with our sort of our eyes wide open to ensure that we maintain the European customer relationship and really access to what is an important future market. On a positive note, in quarter 4, we welcomed a new CEO to Davy. Valentina Tripp started with Davy, coming from recently running Murray River Organics. Now Val arrives with a wealth of senior leadership experience, has deep competency in operational excellence and also strategy transformations from her past KPMG Consultant Day.
So I'm personally excited to have Val on board and leading the Davy business. Turning to Slide 18 and a quick look at Davy from a HoFH point of view. So revenue moved ahead over H1 by about 7%. This is on the back of Australia and New Zealand, more traditional pump products, certainly not modular water treatment and then the aforementioned European pool sales. The underlying EBIT performance did lift this H1.
However, the elevated operating costs to start to get our inventory profile sorted and the prohibited freight and logistics muted any meaningful pull through to the underlying EBIT. Okay. Well, let's move over to the key financial information.
Martin, over to you. Thank you, Graeme, and good morning, ladies and gentlemen. For those of you who are new to GED, my name is Martin Fraser, and I'm the Chief Financial Officer. It's my pleasure to take you through an overview of our financial position. I'll start on Page 20, which contains the key profit and loss measures.
Graeme's done most of my job for me today already, so I will not repeat his remarks word for word, but will rather highlight a few points to help understanding. First, I want to highlight the contribution of the acquisitions, which collectively added $52,600,000 to revenue and $6,700,000 to underlying EBIT. More granular detail in respect of the 2 acquisitions is in the slides Graham showed earlier. We're seeing depreciation step up with the additional businesses now contributing to the depreciation number and a fall in non operating items, which I'll cover shortly. Net finance cost was broadly consistent with the prior year and included the facility cost for a short term $22,500,000 line, which was taken as part of our COVID-nineteen defense and offense plan.
We weren't using that facility towards the end of the year. Facilities do have significant flagfall costs, and we felt the time is right to let go of those facilities. Nonetheless, we're very confident that our finances will step forward if we need further capital, and I'll touch on that later. Nonetheless, the growth leverage from all of the sales growth we saw before and Graeme spoke to is evident at the reported net profit line, which is up 40% on the prior year. The final dividend, dollars 0.02 per share, lifts the full year to $0.57 and gives a rise of 54% over the prior year, representing a payout of 84% of underlying net profit after tax.
But also reflects expanded capital base following last year's this year's successful equity raise. I'll now take you to Slide 21, please. And here, we can see the costs associated with the final moves to close manufacturing at AAG and integrate the warehouse and back office functions into the Raico business, which was completed in the Q4 of FY 'twenty one. A small restructuring occurred at Davy. And at the group level, we also incurred costs associated with the completed portfolio acquisitions and transactions.
Moving on to Slide 22. We can see the net working capital increased considerably over the prior year, of which 29,400,000 related to the net working capital acquired as a result of purchasing G4 CVA and ACS. Nonetheless, net working capital grew by 15,000,000 once the acquisitions are removed, and that movement reflects higher debtors as a consequence of sales growth we have seen and higher inventories to respond to the demand and longer lead times. That said, for the time being, we've been able to cover the increase in inventory with higher creditors given our high inventory turnover at present. That takes us on to Slide 23, where we can see cash conversion is lower than the prior year, but it's a little ahead of what we guided throughout the year.
In a year where we had to invest in net working capital for the reasons outlined earlier, Graeme and I are very pleased with cash conversion result. Slide 24 draws your attention to this year's capital raise of 75,700,000 and strong balance sheet ratios. With our new bank facilities of 42,100,000 even after giving back the facilities I mentioned before and strong financier relationships, we are confident that GED is very well placed to debt finance further logical and sizable bolt on acquisitions. I'll now hand you back to Graeme, who will finish with the trading update and outlook.
Okay. Thanks, Martin. On Slide 26, I touch on the current trading conditions, which I guess if you'd asked me in late June, I would have given you somewhat of a different answer. Clearly, the latest lockdowns have impacted July and now into August. We can see that mobility rates have dropped in late July across Australia.
This is always going to be a factor for GED. The actual July sales weren't that far away from our expectation. And so it started tapering in the last 2 weeks of the month and sort of the 1st week of August or the 1st few days of August. That pattern feels very similar to last year in Victoria. No doubt we're going to see some volatility in H1, although we managed through things like that last year.
Absent these lockdowns, we also recognize that supply chain is going to be one of our greatest focuses in the next 12 to 24 months. On a positive note, the right of repair legislation was passed in June 2021 and the scheme takes effect in July 2022. This is a great development for the independent repair industry on how it can further serve the complex and growing car park. Okay. So we're now finishing on FY 2022 outlook on Slide 27.
So duty is positive on the underlying structural support for the auto aftermarket. We've got a strong position with that industry. And although the obvious COVID challenge will linger, we still feel positive on the net of the headwinds and tailwinds. Key to the business equation in FY 'twenty two will be some organic volume growth, coupled with some volume growth from our acquisitions. Cost pressures in freight, a step up in the supply costs and domestic cost inflation are certainly all at play.
In addition, we will want to consider some further investment in our future growth drivers. Now we've implemented already H1 price rises and this in the favorable currency will largely absorb by the aforementioned high cost in the investment in future growth drivers. In terms of auto acquisitions, our past sentiment remains. We will continue to work on strategically sound acquisitions. Opportunities still exist and our desire has certainly not abated.
We expect water performance to improve in FY 'twenty two. We're expecting a positive tempo from our ANZ markets and some of our export markets, and we do expect a moderation in manufacturing efficiencies and some of those other elevated costs. Given the recent lockdowns, the growing inclusion and I guess duration of the many states like New South Wales and Queensland, certainly the demand environment is proving to be certainly too dynamic to provide reliable full year guidance. So as we did in FY 2021, we plan to come forward at our AGM in late October with a further update. Okay.
Well, that concludes the presentation of the results. I'll now hand you over to the moderator, who will coordinate any questions you may have. Over to you, Dean.
Thank you very much, Graham. And folks, just two quick points to make your Q and A session super smooth. If you are connected to the call using the Zoom app, please use the raise hand icon to indicate that you've got a question. It's in the bottom of the screen if you're using the desktop app and in the top of the menu if you are using a mobile device. If you don't see any icons, just wiggle your mouse or tap the screen.
And if you've dialed in by telephone, please press star 9 on your keypad to raise your hand Thank you. So our first question comes from Sam Tighe from Citi. Sam, if you could please unmute yourself and go ahead.
Thank you. Hi, Martin. Hi, Graham.
Good morning.
Can you talk about what impact the current lockdowns are having on your ability to conduct due diligence and execute potential acquisitions?
Thanks for the question, Sam. I think probably the answer lies in the same outcomes that we had last year. So we were in lockdowns last year and we still managed to complete what we felt to be thorough and comprehensive due diligence on the businesses that we bought. In some cases, we position people into jurisdictions to allow them to actually literally be in the place of the companies that we were purchasing. So look, it doesn't make it easy, that's for sure, but there are creative ways that we've already, I think, evidenced, and we'll continue to go down that path.
So I'm not feeling overly concerned, Sam, but naturally, it's just something we have to take into consideration.
Clearly, Sam, some of our leaders have to be willing to put themselves through quarantine. There's no getting away from that. And clearly, if it's worthwhile acquisition, that's something that we will willingly do and have done before.
Sure. And when it comes to acquisitions more broadly, at the moment, what's the sweet spot in terms of acquisition size that you're considering? And is there a maximum deal size that you'd want to stay below?
So Sam, unfortunately, you cut out in the very first sentence. I got everything by the first thing. Was it the contact something you said?
No, no. He was asking the sweet spot for acquisition. Yes.
I'll say it again.
So when it comes to acquisitions, is there a sweet spot in terms of acquisition size that you're looking at here?
Yes, sorry, I apologize. I thought it was an important word right at the beginning. I get it. Look, we've always said that we'll consider bolt on acquisitions and then potentially a game changer if we felt that, that was something that was really compelling and the Board was supportive. It's fair to say that there's probably more bolt on acquisition opportunities than there are game changers.
So that's kind of how I would phrase it. Sweet spot, bolt ons, 30, 25, 30, 35, 40, 50, those sorts of $1,000,000 revenue organizations. Game changer for us would be sort of 200 sort of revenue type organization, just to give you some context.
Got it. Makes sense. And what's the average quantum of the FY 'twenty two price rise that you've announced? And just after that price rise, how are you seeing your pricing comparing with the market broadly across your products?
Look, the price rise we put in place, which may well be a 1st round, who knows how things are going to play out this year, ranges across the businesses, Sam. In some of the businesses, it's in the sort of mid-2s, all the way up to some businesses, 6s and 7s with a couple of outliers where we're making to order and some of our new businesses would reach up to 10. So I wouldn't give you a homogeneous answer, but somewhere in that sort of midpoint is probably a fair assumption in that 3s and 4s.
I think it's fair to say, Sam, also it's been a climate that's been perhaps a little bit easier or there's been more sympathy from customers around the reason and the need for it. So it's been, in many respects, a better climate to get price increases away. And they're getting away either in market and agreed or being communicated well accepted, and we're just serving out notice periods. So good acceptance, good traction, pretty quick timing.
Got it. And just following on from that, what's the average notice period? What month do they kind of kick in?
Look, they range quite differently, Sam. So some already in a small amount already in market. Most of them will be in sort of the sort of September, October, November period, probably more September, October, Depends on the customer relationship and what amount of time we give notice. Some businesses are already in place because they can literally switch into it. So our business like ECB is an example, we've been able to put that in the market and a couple other business of that nature.
So it is a bit varied, but the bulk of it is September October.
Great. Thanks, guys.
Okay. Thanks, Sam. Anna, would you like to unmute yourself? Anna from Goldman. Go ahead, please.
Yes, sure. I'm just checking you guys can hear me okay?
Yes, Anna.
Excellent. A couple of questions from me, if I can, please. The first one is on the ACAT business. Just looking at the accounts in business acquisitions, it does look like both sales and EBIT are a bit short of your expectations at the time of the acquisition. Can you just give some color around what's changed versus the initial communication, please?
Yes. Look, I think the answer is yes and no. The we when we completed the due diligence on that business, we felt the vendor was a little bit ambitious with what they thought they could achieve in terms of sales. And we put in place, therefore, a sales earn out. We felt there was a bit of a difference there.
So that earnout has come back in our favor. But broadly speaking, it's pretty close too. 1 of the businesses, which is the motor body business, is performing a little bit below our expectation, and that's been largely curtailed because pickup trucks have been down in imported number, and the OEMs are directing all of those sales towards retail customers. And corporates have been having an extremely long time a very difficult time getting them. We're experiencing 7 month lead times on our Ford ranges on our corporate pricing, even though Graham used to run Ford.
But if I want to go into a Ford dealership, I can get one at retail tomorrow. So CSM is largely focused on the not the individual 1 and 2 tradie, but more the fleet customers. So that's really been the only sort of constraint. But in terms of our own internal expectations, we pretty much expected that, and we built the protection in with the sales earn out. And now the result's been announced.
We'll set the wheels in motion to get that amount of money back from the escrow.
Well, the revenue came in within a couple of $100,000 of our internal forecast and our due diligence approach. So again, we're not here to talk about other companies, but the vendor had a different view. That's why we put it in place and our DD was based on that revenue position and the E position. So that's actually quite comforting to us in some strange way because our DD was pretty smack on.
And our DD did anticipate that the there would be that issue with the vehicle supply that would impact the CSM business. And as you would imagine, we Graham probably had a little bit more insight than most on that. So it's pretty much played out as we'd expect, but there you go.
Got you. That's super helpful. And then just on the auto margins in the half and I suppose looking ahead as well, can you possibly, I suppose, give us some color in terms of breakdown of the headwinds or the quantum of the headwinds that you guys are seeing around supply price increases, logistics, etcetera, just the quantum of it?
Sure. Very happy to, Anna. I mean, firstly, I just want to emphasize that when we were last engaged with everyone and we called out our guidance, I think people felt that our guidance had been a little conservative. And we said, absolutely not. We see big significant headwinds coming through in the second half around higher freight.
And we knew our hedged position in the second half was a weaker hedge position than first half, so which we called out. So if we look at it, the profit was approximately down £10,000,000 Of that, JobKeeper was nearly 3,000,000, so you're back to £7,000,000 And that was largely £4,000,000 of that was higher freight, and the balance was the FX impact. So absolutely, as predicted, we had a choice at the time, which we said at half year of do we go and pursue and cover that with price rises or not. We intentionally didn't. And the reasons behind at the time, just to give you some confidence as to how we think through these sorts of things, we were sitting there seeing the AUD had appreciated in the last 6 months.
And we, at that stage, hadn't had all the supplier price pressures for our customers to probably concede a price increase against an appreciating currency. We also felt that we were really well positioned with some inventory and would achieve a lot more by focusing on market share gains rather than polluting that opportunity by disenfranchising customers with price increases because our GP percentage was a better uplift than the price potentially, and we wanted to take the opportunity to win market share. And we did that. You can see that throughout the year. And we felt that we would get a better outcome on prices by tackling it at this time of year because the forces we felt would come into play have come into play.
And secondly, you can't go back to the well every 5 minutes. So if we went with price increases at December, it would have diminished our ability to negotiate the ones we just got through. So that was an intentional strategy. Graham, I believe that was right. I think it served us well.
It means in short term, you get a trough on margins. Now to your question on the second element, I've got to be careful here because we're trying to avoid guidance, but I'll try and tease it out for you. Clearly, there is scope for some of that margin erosion to come back in the second half. We've got a much better hedge rate going into FY 'twenty two, as you can see from the accounts in the 78s. But we're a little less covered than last year, so we still got some to do in the second half on spot.
And we've got the prices coming through. There is no Jug Keeper, unfortunately, and we've got the supplier elements to come through. But all in all, we do see quite a bit in dollar terms, quite a bit of that margin erosion dollars wise coming back. But in percentage terms, you're going to have a full year impact from the new acquisitions, which trade at a lower margin than our legacy businesses. So dollar wise, we see an opportunity for a lot of that to come back.
But in percentage terms, you won't see exactly the same outcome, and that's absolutely fine too. We're still going to take some of that and reinvest it for growth. We still see the pretty compelling climate to do that, and we're not going to flinch away from that, which is why Graeme said that predominantly the driver into next year will be some volume as well as the acquisitions. So without trying to call out guidance, hopefully, that gives you some confidence and speaks to your question, Anna.
Yes. That's super helpful as usual. My last question is on the exit run rate for auto organic sales growth. Just looking at the second half organic growth there versus your trading update for the Q3, it does look like it has accelerated a little bit in the Q4, if I'm reading it correctly. And then if I recall, in the PCP, you guys had some destocking issues.
And therefore, I'm thinking, is that primarily driven by the cycling of a soft PCP there? And then thinking ahead in terms of run rate in July August, where is that at versus the Q4 exit run rate, please?
Look, I think you've answered your own question in the first part. We were cycling some pretty interesting months, right? So calendarization of our performance when we look at it internally is quite erratic of sorts because you're trying to cycle different numbers. And of course, a number of the businesses were affected at different rates and at different times through those months in prior year. So it can get actually quite confusing.
So that's the first part of the question. The second part is that we were actually pretty satisfied with the way the year ended. So whilst we were still cycling some interesting numbers, we were still feeling pretty positive around the tempo. And as we walked into July, as I said earlier on, we had a sort of a positive disposition around our position in the market. Now that's always going to be cabboted by what we've just then experienced in late July August.
And so therein lies a very cautious, I guess, a cautionary tale as to how you predict the future, but we were feeling pretty positive. And certainly, July started out in a relatively positive manner. As I said, almost up until the lockdown, our daily sales rate, because obviously you might be reminded there's actually one less selling day in July this year, Our daily selling rate, so that makes it a bit easier to compare, was in a pretty reasonable position as to what our expectation was. And so again, we're going to see volatility, Anna. But like I said earlier, we managed volatility last year all the way through.
And look, my expectation is that, similar to Victoria, we saw lockdowns. People came out of lockdown, and we saw a deferral expenditure, deferral service, deferral all manner of things. So it's not all doom and gloom. I guess there are a few other things rolling through the situation. So obviously, the stimulus around JobKeeper doesn't exist this year as well.
So there may be a little less money in people's accounts, so that was something we'd keep in the back of our mind. But we were relatively satisfied with the way July ticked off. So it's a long answer to your second part of the question.
Excellent. Thanks, guys.
Thanks very much. Our next question comes from James Ferrier from Wilsons. James, if you could unmute and go ahead, please.
Hi, Graham and Martin. Thanks for your time today. First question there, just following on from Anders' question about the margin outlook going into FY 'twenty two. Martin, from your comments there, am I right to interpret it that perhaps taking the organic auto EBIT margin in the first half, I think it was 26.6%, that's probably a reasonable starting point when we look to FY 'twenty two and then from that point we consider the impact of the acquisitions?
It's probably not a country mile away, but we could experience mix changes through the half there as well. It's because our different segments do have different GPs. So it remains to be seen that, yes, I mean
Well, I
think, Matt and I, one thing we should pull out obviously is that, that 26.5 you just talked of, James, includes JobKeeper, right? So if you strip that out and look at subsidies, that first half was just a smidgen over 25, right, 25, 2.
Correct. So that's
the one that we should call out. But I think, Martin, I mean, you're right in what you perhaps you want to carry on. But you're right in what you're saying. I mean, parking the acquisitions, because naturally that's going to be dilutive and we all understand that. We're expecting, to try return some of that margin.
It's not going to be easy as we've already talked about because we're getting sort of swamped by some of those cost pressures and they haven't abated, but then we've got some mitigating actions sitting there as well. It's not like we're going to sit on our hands and simply accept it. So
Correct. And we're not going to return it in 6 months either, but we'll be over the course of the year as well, James, just to point out the obvious avoid confusion.
Yes, makes sense, yes, certainly with the timing of your price increases. Yes. Second question around the outlook statement. You talked there about the organic growth rate in the automotive business moderating over time. Can you just sort
of elaborate a little bit
on the overtime comment? In particular, if I think back to previous recent outlook statements, you've talked about sort of a new baseline in sales activity and certainly some of your customers have talked about the same thing. So when you talk about moderating over time, are you talking about the growth rate moderating or are you talking about the sales line actually probably turning back into negative and regressing back to its longer term trend?
Look, I mean, that's a really hard question. That's why we were, I guess, obscure in that comment because it's very hard to crystal ball gaze. I think certainly in the next 12 to 24 months, and I've said this before, we probably expect that there should be, on balance, a positive net impact to some of those tailwinds and headwinds that COVID is providing. I don't think they're going away in the short term. Of that will linger as well because there'll still be more cars in the car park.
So I think it's a when we say over time, I think that there's going to be a period of elevated demand that I think we had the potential to enjoy if we do a good job in the market with our customers. So I think that that sort of sits there. And so I think the question you might be sort of or the comment you might be referring to is in the past we sort of said, look, hard to say in any given year what our growth should be. We have differing businesses, different product cycles, different business maturities. But let's say we're looking to try achieve anywhere between 3% 5% growth, just academically out there for the moment, James.
Then the impact of COVID might give you a bit of an elevated lift. It might be 4 to 6, it could be 5 to 7, don't know exactly, James. But I think logic would tell you that when you've got more miles traveled, when you've got a greater car park, when you've got velocity in used cars, then you have a fighting chance to capitalize on that. That, of course, all is caveated by what we're seeing at the moment in New South Wales and in Queensland. And so that's why it's so we're sort of ducking and diving on that one, James, a little because it's hard to forecast that.
But that's why we say in some of those outlook statements that we still remain positive as we view the market right now.
That's helpful color. Thanks, Graham. The question is around the ACAD or G4 businesses as you're calling it now. And I heard your answer to Anna's question around sales performance relative to expectations and that makes sense. But relative to PCP, so I think it printed $39,000,000 of sales and the PCP was about $43,000,000 of sales.
So I'm just curious as to that sort of level of performance in an environment that looks incredibly favorable for selling aftermarket accessories for 4 wheel drives?
Yes. No, look, I think it is a fair question. A large part of that gap is really that CSM business, which we mentioned before, where they weren't constrained with that in the previous year. Our challenge at G4 is probably apart from that CSM business and supply of buttes in the commercial vehicle market, which still remains constrained, and I can understand why the auto companies are doing that. Our major challenge is actually more capacity rather than sales.
That's one of the reasons why we called out the CapEx when we did the acquisition, 6.7. We've committed about 1.3 to some new machines. We've upgraded the IT. We've still got more to go, but we want to see more work done on the manufacturing strategy. So we're convinced we're spending it wisely.
So demand is not the constraint there. It will recover over time, and CSM will do better as the vehicle supply comes in. And we've got also some other initiatives underway there within the business to help it lift. So we're still very confident. And it is roughly, as Graeme said, as we it's pretty much where we'd expect it to be at this particular point.
I don't know if you want to add anything to that, Graeme? No, that's fine.
Thanks, Martin. Last one, what your expectations are for the year ahead around cash conversion, D and A and CapEx for the group?
Yes. No, it's a really good question. So it largely depends on what we see in terms of further growth and what will go on there with debtors and whether we can we keep with the same inventory velocity, which at the moment has been helping us with funding some of that higher inventory. But let's just assume that for the time being continues. I think we're still going to be in the 80s, and because we're expecting a little bit of a step up of capital investment in particular, we've still got some more to do within the G4 group, which we called out.
We've got some pretty compelling products coming through. We've just signed off a considerable CapEx, in particular, in the BWI, which will be a world leading product when it comes out. So we're probably going to be I think you'll see we've been recently around about that $6,000,000 CapEx. We could be stepping up towards $10,000,000 this year, which would obviously pull back that cash conversion. And that could be it could be $1,000,000 or $2,000,000 up or down on that number.
So that will lead into cash conversion. That will lead us around about that in the 80s. So that's a really good foundation for growth and that will really see those products coming through the year after. But so be it, we're willing to do that.
And that CapEx, you've just mentioned that lift is part of what we flagged in terms of parts of those groups anyway, so it shouldn't be a surprise.
Yes. So that's why when we're still going to be fully expect we're still going to be in the 80s. I think it'd be too foolhardy to call out a more exact number than that, but I would say the front end of the 80s, not the back end. But we'll see how the year plays out. We also want to do a little bit more in Davian reshaping our inventory and moving away from our current approach, which has been more focused on raws and flexible short term manufacturing to more programmatic against a mid term sales and operational planning and taking some of the experiences from this year.
So I think we'll also see Davy inventory come up in the next year as we transition and then it will phase out as we or phase down as we complete that transition. So that's why I'm really calling out in the first half of the '80s, James.
Thanks, Barton. Very helpful color. Thank you.
Our next question comes from Mitchell Sunnoggan from Macquarie. Go ahead, Mitchell.
Good morning, Graham and Myerson. Can you hear me?
We can hear you, Mitch.
Yes. Thanks for taking my questions. Apologies if I did miss it, but I was just hoping you could outline what the increase in your contracted freight costs are, what percentage increase that was. I think that was being finalized at the end of last financial year and also the supply cost increases. I think you previously mentioned somewhere in 3% to 6% as a ballpark figure.
Yes, very happy to do so, Mitch. Look, I don't know if you caught it before, but I called out in the second half of FY 'twenty one, approaching $4,000,000 taking the full year step up in those in the freight cost to round about 5 We see the step up next year being in excess of that. It won't be double, but it will certainly be somewhat approaching that. We're not going to call it out. Otherwise, I'm going to call out guidance.
So it's a bit tricky, but we expect that step up to be even more than the $5,000,000 next year and quite a bit more than the $5,000,000 materially more than $5,000,000 We have renegotiated our container freight rates. We're in the Mandarin buying group between us, it's more than 20,000 TEUs. We're seeing that contracted rate go up by approximately 2.5 times. We're also seeing tighter conditions, whereas you used to be able to book a container on a window of 2 or 3 weeks. They're almost requiring you to get the bookings down within a 5 day period.
So if there's a delay in manufacturing for whatever reason or not so much, it's still sometimes difficulty. The manufacturing is on time. One of our difficulties we're still struggling with is getting containers. A supplier in China is absolutely full to the brim of product you could sell us, send us if you could only get containers. So the predictability about being able to get containers to port in line with these weekly shipment windows is going to be the challenge.
And that's what Graeme said, the next 12 to 24 months, while the demand supply equation is in the favor of the shipping companies, this is going to remain difficult. And it's going to be we're having to put resources onto it to really sort of micromanage to a degree we haven't had to and before and try and minimize the percentage of guys on spot. So that's why I'm calling out it's going to be way more than the $5,000,000 step up of the last year. Now in terms of supply pricing, Graeme gave some color on that sort of $3,000,000 to $6,000,000 There is quite some variability on all of those. And that cost to us is going to be circa approaching or very close to above or below, very close to double digits, 1,000,000, Mitch.
And it's, at this point, something that's pretty unavoidable. We're very close to our supply. So we, in many cases, we get a chance to look through and see what's happening with their inputs. So a lot of those have been agreed and locked away. We want to keep strong working relationships with the suppliers.
We want to over index on their available capacity. So they're pretty much agreed. I'd better stop there. Otherwise, I'm going to end up giving you guidance.
Thanks, Fahad. Just to follow-up, got you there quickly. Just in terms of the administration cost line, that was over $47,600,000 versus $35,000,000 pcp. Yes. Some things to acquisitions in that area.
Can you maybe just give a bit more detail on that and where should trend in 'twenty two?
Yes. Well, there's 2 elements to that. One is, we've got the acquisitions in, and they were pretty simplistic with how they map their costs. Proportionally, more of their costs go to admin than our legacy businesses. Next couple of years, we'll work with them to get that better.
And the second element, which gives me absolute delight, is that most of our incentive schemes popped, and they popped at the maximum. And last year, for example, our senior leadership team, none of them got STIs and under their direct reports got STIs. And across the group, you're approaching $5,000,000 there, and that largely goes on that admin line. So sorry for that variance, but it's a delightful variance because it relates to the volume growth and the GP growth we've got out of that. It is also pleasing to be able to see our employees at all levels get some reward for the really hard work they've put in the last year, too.
Well, I hasten to add as well, the $2,800,000 or so of job keeping you received in the period was removed from any calculations in terms of STIs. So it was not a benefit to anybody just as an aside.
Back to
you, Mitch. Great. And Graeme, yes. And Graeme, just a quick one. I guess just any details, I'd just be able to provide quickly on that sort of state by state basis.
Obviously, WA is largely avoided lockdowns, maybe how you've seen things over there versus more recently locked down New South Wales, Queensland, but also just quickly touch on New Zealand, please?
Okay. So again, cutting in and out there, Mitch, but I think I've got most of it. I have WANZ and lockdowns, so I'm hoping I'm answering the right question. The impact of the lockdowns at the moment, certainly in New South Wales and latterly Queensland, as I said earlier, our July performance on a daily sales rate was going okay. So we went we were in a reasonably positive position.
And then we started to see there was a 25th, 26th, that started to come through. And it started to drop away. Then it got obviously more meaningful in terms of the lockdowns even in New South Wales. And probably business by business, we've seen probably at the most extreme at the moment, maybe somewhere in the region of 10% to 15%, 12% to 15% probably more accurate, drop in the daily sales rate in some of the businesses. Some other businesses are sort of around 8% to 10%.
And again, I made a point earlier on, Mitch, around we're seeing it play out very similarly to Victoria last year, which was our experience also. So through some of those lockdowns, we were seeing somewhere in the region of 10% to 15%. And then it bounced back And a lot of deferral in terms of people coming back still needing to get their car serviced, still needing to get a car repaired. So that's kind of what we're seeing there. And then I'll just ask you to repeat the WA and New Zealand piece because I'm not sure I'm answering the right question.
Yes.
Thanks, Ryan. I was just all about seeing how things are tracking out there in WA and New Zealand. Haven't heard much
since then. Okay. Yes. Probably a
bit more impacted from tourism still?
Yes. No, I think from a WA point of view, we're not really seeing anything I'd call out as unnatural or abnormal. From an NZ point of view, actually, NZ, you'll see in some of my comments in the 4E actually that NZ Auto or NZ in general actually grew a little bit faster. I think it was up 37% versus Australia that are slightly lower. So actually New Zealand did pretty well through FY 'twenty one, I think probably because it was impacted by obviously a more severe lockdown through that period where there was very little revenue.
And we've seen that continue. So again, caveats around lockdowns, but the market has proven to be resilient in New Zealand over the last 3, 6 or so months.
I'll just add to that, Mitch, because we do get feedback from the sales force speaking to the mechanics. Most of the states have still got a pretty robust sort of booking lead time. New South Wales is down on average. But the real issue is there's some local government areas where garage is pretty much closed. So that's what's really playing it out at the moment.
The rest of them are reasonably okay, a bit patchy, branch to branch. So it's not consistent right across the state, but the LGAs are the ones that have really been impacted.
Thanks so
much. Okay. There are no other questions in the queue. So folks, this is your chance. Last questions.
If you're in the Zoom app, please hit the raise hand icon. And if you've joined Which there are not, so I'll now hand you back to Graeme Wittmann for closing comments.
Okay. Thanks, Steve. Well, I guess that concludes the session. I think both Martin and I look forward to the opportunity to speak with many of the folks on the line in the ensuing next few days weeks. Appreciate your time, your attention and ultimately your insightful questions and look forward to having a bit more time at a later stage.
So thank you.