Well, good morning, and welcome to our earnings call of GED's results for the 6 months ended 31 December 2020. I'm Graeme Wicklund, GED's CEO, Managing Director and CEO. And I'm here with Martin Fraser, the company's Chief Financial Officer. As a matter of housekeeping, we'll have to have time at the end of the call for questions and discussions. So please hold your questions until then.
And a recording of this call, along with the presentation material, will be available later on GED's website. We'll start the call by running through the overall summary of the group performance in H1 and briefly review the COVID situation, then provide commentary on both our Automotive and Water businesses. I'll then hand over to Martin to cover the financial results in a little bit more detail, and then we'll conclude with our outlook for the remainder of the financial year before the Q and A. Now before we start with results, it seems appropriate to reflect on the continuing global COVID pandemic. In the material, we touch on the COVID impact to our businesses, as you would expect.
I'd like to say thanks to our employees in such a challenging time, particularly a large thanks to the health and safety teams who've continued through H1 to help us keep safe. And finally, I'd like to acknowledge our leadership team, who have displayed great resilience to lead the business in a positive commercial manner and yet in an employee centric way. In our FY 2020 year end call, we mentioned the impact seen would suggest that we've been very fortunate in relative terms, and the ensuing 6 months since then have done nothing to disprove this thought. However, we do recognize there are many who have been profoundly effective, and so our thoughts and best wishes again go out to those people and businesses. Now for clarity's sake today in our webcast and in our released information, we will speak about statutory results.
However, we have also included pre AASB 16 result information in the appendix to ensure all our stakeholders have a clear view of the accurate like for like comparison data. So let's turn to the H1 highlights on Slide 3. Importantly, the safety and well-being of our employees remain firmly in our sites, so we continue to be nimble in protecting our people and yet remaining operational, which is a strong outcome. In the 1st 6 months of FY 'twenty one, I think we've continued to demonstrate our relative resilience when you consider the wider business context. We delivered organic revenue growth approaching 11%, and that took our group revenue to just over 250,000,000 dollars And that revenue grew off the back of a very strong automotive result and volume, which was really a story of domestic demand with some impacts on our export volume.
That same muted theme of export was seen more so in the Davy result, where export markets suffered through much of H1. Our underlying EBIT was up just over 17.5% to just a smidgen over $52,000,000 Now in FY 2020, we spoke about a year of consolidation, and we were working through step change in FX and domestic cost inflation and customer agreements, price rises, other supply cost downs, and we expected that to play out through the year. And that's critical when you reflect on H1 as those operational fitness efforts flow through into the result as largely planned. We did see some mix changes and substantial freight costs rolling into the GP margin. Now the EBITDA sales margin expanded with the flow through of operational fitness and positive operating leverage driven by that volume, but it wasn't all plain sailing though as we saw far greater COVID impacts at Davy, with the plant disruption due to the lockdowns impacting our manufacturing variances and the products we could produce relative to what the market requires.
Our cash conversion was slightly better than our plan, although we expected it to improve from prior year. And we also got a bit of extra tailwind from payment cadence from 1 or 2 of our customers. We were excited to announce the acquisition of the ACAD Group in November, and a successful capital raise was completed. And our balance sheet is nicely positioned, and I think really does provide great flexibility to take on further acquisitions, such as the Australian Clutch Service Business, ACS, that we announced as fresh as yesterday. And that's an acquisition that's very much in line with the programmatic sort of auto parts segment approach we informed our investors at the October 2019 Investor Day.
And then finally, we were also pleased to be able to provide an interim dividend to our shareholders, dollars 0.25 per share. And that reflects a payout ratio of 76% of the underlying NPAT, excluding the JobKeeper receipts. Now before we go into the segment results a little deeper, we wanted to update our investors on the COVID related impacts. Now this next slide provides some insight into the financial impacts in the first half's results. COVID certainly interrupted sea freight reliability and container availability, and many suppliers are facing challenges with record order backlogs.
Now this is requiring intense engagement with suppliers and sea freight providers to juggle our needs and wants against the available capacity. And consequently, we are experiencing extended forward order lead times and in a period of heightened demand. This is resulting in the need for airfreight at, frankly, unprecedented levels with the associated cost penalties. Now container and freight rates have escalated considerably outside of airfreight. And while the bulk of our needs are addressed under our contract, we are having to freight some containers on spot rates given the strong demand situation.
And discussions with freight lines are pointing towards a considerable risk in the contracted rates in FY 'twenty two. And in the period, a number of salary reductions were applied to KP MPs and senior leaders of the group and Board to also help offset the financial impacts of COVID. It should also be noted that any of the JobKeeper receipts were excluded from the calculation for incentive calculations in FY 2020 for KMP and senior leaders, and we didn't pay any bonuses to KMPs. But more importantly, that approach is being repeated in FY 2021, notwithstanding the additional operational costs that are additionally rolling through due to COVID. At the operational level, Davie was significantly impacted by the extended lockdown of the Melbourne facility, and that resulted in both lost sales and reduced overhead recovery throughout the period.
In addition, Dave has had to really move to multiple shifts more recently to address their current order backlog. Now the automotive businesses also incurred cost penalties running their distribution facilities under social distancing guidelines, which we saw come through and split over time and penalty rate costs, and they pulled through the half. Now as previously noticed, we did receive the $2,800,000 in JobKeeper receipts after several, but not all businesses qualify for JobKeeper. That said, we managed to keep our workforce both safe and intact with no redundancies, where some of our competitors and even customers chose to decrease their workforce. So overall, the employee care programs and employee financial assistance support programs we provided, such as the special COVID leave, along with the operational on costs of COVID-nineteen, has meant that the government receipts have been more than absorbed.
Finally, we do expect to see a higher inventory levels in H2, and we will track the sales mix closely in H2 and expect perhaps some export demand to roll through, which does benefit in most cases from a margin point of view. Right. Well, let's take a closer look at our Automotive segment results on Slide 5. The revenue grew by just over 13%. That was largely universal across all the auto BUs coming through in both service and repair product.
The underlying EBIT of close to 52.5 millimeters was an increase by a pretty decent 21% or 9 or so 1,000,000 with a fairly consistent D and A. Pleasingly, the margin improved in auto by about 160 ish basis points. Our work on operational fitness flowed through into H1. Obviously, JobKeeper is in that margin outcome, but this was easily netted out with the varying employee care and financial support programs and obviously, the COVID related operating costs. Our interest in H1 FX didn't play a strong factor in the year over year performance.
And our previously discussed efforts on the five business fundamentals kept up a good tempo, so especially around product cycle planning and operational fitness. So on Slide 6, we give a quick snapshot of some of the noteworthy highlights in H1 by the businesses. Rycote delivered a strong level of revenue growth, and it came from a robust ongoing reseller demand. It was unrelated to the prior restocking. We were proud to receive recognition again from the AFR, our Most Innovative Company Awards, where we placed 5th in that category.
And finally, our product release efforts were really pleasing, which I guess is also a reflection of the approach we took across all our BUs last year when we didn't stop our PD and cataloging Tempo. Our other filtration company, Westville, experienced strong growth in the 1st 6 months, equally felt in both filtration and their newer products. And as previously stated, we firmly believe that Westfield's brand proposition, that sort of focus on value orientation in terms of products, has continued to play well in H1. Iron Group, excellent first half, strong growth, a nice balance of more of the traditional box products, fuel pumps and the like, but also a noticeable pickup in the demand for its repair and remand services, which, by the way, seems to be, frankly, getting broader in terms of the addressable market. We're now moving into heavy duty trucks coming through for remand and repair work.
Now IMG continued the trend in innovation And through some grant support, they actually launched this week a hybrid battery refurbishment program, which is very encouraging. And moving to Slide 7, BWI. They delivered some strong growth as well. Of note, we saw OEM channels in truck and caravan really come on strongly. And you might have seen in some of the comments there that our retail orientated products grew, and you certainly have seen that from some of our reseller customers, albeit though we don't have a huge volume of the retail centric products.
We were especially proud to be selected as the new Jayco supplier of power management products in its RV Caravan Alliance, which was very encouraging. But at the same time, BWI was a BU that really needed to work hard on its inventory position. And certainly, we ran far leaner than we would certainly find acceptable in terms of inventory, and this has resulted in heightened air freight and general freight costs for them specifically. Both AAG and DBA experienced strong domestic demand driving their growth. Although DBA found export sales a slightly weaker than desired, AAG found itself in a similar situation to BWI in terms of stock.
However, they've done well. They've been balancing some significant change management challenges with their AAG profit improvement plan. So that's about the integration of AAG into Raico colocation, and that all remains on track. Now I'd like to pivot a little bit and give you a quick update on some recent automotive trends on Slide 8. I think it seems fitting to pause, give an update on the industry we serve after 2020 concluded and as that data starts to filter out.
Starting with new vehicle sales in 2020, we saw a drop in the size of the industry, hardly unexpected. We did, however, see a lift in Q4, calendar year that is, around a circa 8% increase. And this actually flowed into January. I think the numbers were somewhere in the region of 10% to 11%. EVs or electric vehicles in the broadest context, meaning battery electric and plug in and standard HEVs, they record a total sales of around 67,000 across the total industry, probably about 6% or so of all sales of light duty, that is.
However, when you peel back that data, you do see that almost all those EVs, upwards of 98%, are actually HEVs and PHEVs, and those powertrains all retain a nice powertrain. The other trend that continued was the increase of the sales of SUVs and pickups, which now combine is around 3 quarters of total sales and certainly at record levels. And these all flow into the car part, which over time remains certainly a net positive for the existing and newer BUs and GUD, who all over index in parts to SUVs and pickups. I mentioned the car park, obviously. That's where our bread and butter really resides as opposed to new vehicle sales.
And let's move when we go to the next slide, and you can sort of see some of the dynamics at the end of 2020. So what we see is the Australian car park approaching sort of 19,000,000 units. It grew by about 2%. That growth has continued to be expected through the next 4, 5 years. Although we serve potentially all those vehicles, we know our addressable market is the 5 year plus, which also grew in 2020 and at a faster pace than the general car park.
And that 5 year plus is forecasted to grow to upwards of about 15,500,000 by 2025. Finally, we are also seeing the increasing in the average fleet age, meaning that less cars are likely being scrapped and all those will potentially require repair or maintenance. Okay, but I want to touch on the acquisitions in H1 and also one announced literally yesterday. We finally took the keys of ACAD. That's what we call internally is GED 4 wheel drive and commercial vehicle accessories.
So G4 CVA for short, but that's an internal name really. It's very early days, but the strong strategic rationale of that 4 wheel drive thematic with such a diversity of customers and ultimately delivering an EPS accretive result is clearly why we're enthused, let alone the new vehicle and the car park dynamics that I've just gone through that will all strongly play into the lap of G4 and CVA. On the next slide, we talk about what we announced yesterday. So we announced the purchase of Australian Clutch Services, ACS, a leading manufacturer and importer of clutch components, primarily in Australia and New Zealand, although they do export to both Europe and the U. S.
A, who, as an aside, happen to share much of the same export distribution base as DBA, one of our existing businesses. Now ACS will be led by Gideon Siegel, who currently leads DBA. So both those businesses are going to form a friction division. And as
many of the industry experts will know that, frankly, breaking clutch go hand in hand.
And in fact, experts will know that, frankly, brake and clutch go hand in hand. And in fact, DBA started out decades ago as actually a brake and clutch business. Now ICS hasn't got a customer bigger than probably around 15% of its revenue, so it's pretty diverse. And as part of our DD, we completed bespoke brand research in an And as part of our DD, we completed bespoke brand research, and it continued to really reinforce that and confirm that it's a leading brand and with a very strong trusted product, which is very much in line with our acquisition criteria in terms of how we view businesses and products. Purchase price at $32,000,000 pretty attractive multiple at $5,600,000 based on the FY normalized EBIT levels.
And as the slide states, you can see it on screen now, that it's EPS accretive. And although we haven't baked any synergies into that assessment, that statement around EPS accretion, we actually think there are some natural opportunities that exist given my comments around sort of breaking clutch. To finish the auto section, I'd like to stop for just one second on Slide 12, where we show the revised split of GUD Automotive revenue derived from ICE and non ICE. Now since 2018, we've been growing our non ICE revenue. It's gone from 54%, and that will move on to what will now be acquisition adjusted to about 60%.
Now of course, this move continues our desire to shift the split over the next 5 to 7 years, well in advance of any material change in the car park, and that allows us to further embrace the new automotive aftermarket servicing EVs that will eventually arrive. Okay, well, let's move to our water results, so DAVID. Okay, so DAVID reported a revenue growth of just over 2%, but with a decline in underlying EBITDA of $2,400,000 And that was all due to volume and cost pressures. It's accurate to say that COVID really impacted Davy significantly compared to any other business in our GED portfolio. David's exports to many of its regions, in the Pacific and the Ocean, faltered as their economies were impacted by tourism collapse.
Export to Middle East and Europe were also soft due to a combination of COVID related supply and demand issues. The Australian business actually grew well, and the New Zealand business showed some resilience, but these were both in the more sort of traditional pump in a box type products. Pretty much all of our Aqua modular water treatment project work continued to be essentially on like a furlough in terms of customers like hospitals and other businesses that remain concerned about any capital expenditure in the short term. We had to substantially idle the Melbourne factory during that very latest and extended lockdown. And essentially, the prohibition of non essential manufacturing resulted in overhead recovery gaps and impacted supply during the European pool season.
I mean, basically, we had the situation, meaning that we had to work within the guidance of Victorian government naturally, and that meant that we could only produce items like home pressure systems or commercial pumps, not swimming pool pumps or not spa pool pumps. Now we still remain confident in the medium term growth potential at Davy. We are seeing some more encouraging signs in H2, where, as an example, we have a European pool water bank at the beginning of January, about 2x to 2.5x higher than the average year. Okay. Well, let's cover off the key financial information, and I'll ask Martin to take over and drive us.
Thanks, Martin.
Thank you very much, Graham, and good morning, ladies and gentlemen. It's a pleasure to speak to you today. I'm going to start us on Slide 15, which pretty much reflects much of what Graham has spoken about. I will call out a few points, however. The first one being FX impacts.
A number of you will wonder whether they were significant or not. Year on year, the FX impacts were not materially different given the hedging we had in place and also the chance to top up a little bit along the way. So the result is really a question of revenue mix and overhead control. And Graham has spoken to the mix already, so I'm not going to belabor that. Costs were tightly controlled.
We had a number of cash preservation actions running through the half without standing down staff given our COVID-nineteen approach to supporting staff. Hence, the 11% rebound in revenue really flowed through the EBITDA, EBIT and underlying EBIT, notwithstanding the mix changes, which did which were a result of the change in demand patterns as the economy started to rebound. We booked $1,800,000 in operating costs, and most of those are revealed on Slide 16, the bulk of that being $1,200,000 which was expected and related to the closure of the manufacturing activity of AA Gaskets. Switching to import model and merging the back offices, which Graeme spoke to earlier. That will improve operational efficiency and lower costs considerably.
The bulk of the remaining one off costs really related to the due diligence and other work around the acquisition of G4 CVA. The interim dividend was kept constant in cents per share, notwithstanding the Q2 issue of shares to support the G4 CVA acquisition, which did not contribute in the half. Hence, the cash paid out or that will be paid out shortly to support the interim dividend is a cash outflow increase of 8% on the prior comparable period, and the board feels this is a financially prudent decision at this point. The dividend represents a payout ratio of 76% of underlying NPAT if you exclude JobKeeper. I'm now going to bring you to Slide 17, where we show the working capital balances for the half year.
And to the lower right, we do that again, isolating out the working capital was acquired through G4 CVA of GBP 12,400,000. Once you do that, working capital is similar to the prior comparable period, is up approximately £3,000,000 on the June balances, which is a really strong result given the sales uplift. The increased sales has also seen an increase in stock term velocity, particularly in the Q2, and with an associated uplift in creditors, which has really helped fund the debit growth coming from the higher sales and the slightly higher inventory hold. We also holes. We also benefited from some vendors, sorry, from some customers settling earlier, and that was to the tune of them contracted.
And therefore, we collected £4,000,000 which we were fully expecting to collect in July. Just moving on to Page 18. You can see that pull through in the free cash flow and the cash conversion, which really exceeded expectation. Looking forward to second half, we think that cash unwind of the $4,000,000 of early settlement by some customers normalized. We'll also start to see the first parts of the CapEx we called out with the G4 CVA acquisition pull through.
And depending on the velocity and timing of entering the picture, inventory turns, we may see the credit balance moderate a little bit. So the combination of those of those three will really pull out our cash conversion back towards the year end as best we can anticipate it right now. Now moving on to Slide 19. We really look at our net debt position. It's increased sorry, decreased by £32,000,000 on the prior comparable period.
And the last the largest movements of that, of course, were the G4 CVA acquisition of £65,700,000 dollars if you exclude the acquired cash. And then, of course, we raised $74,900,000 netted costs from the share placement and share purchase plan to support that acquisition. At December 31, we had approximately $100,000,000 of facilities that were undrawn, including a short term unexcessed COVID-nineteen response plan line of $22,500,000 which will not renew at year end. In the coming months, we'll also pay $32,000,000 for the ACS, but it still leaves us a considerable sum for further bolt on acquisition. Nonetheless, our leverage will remain modest, and we have a very supportive panel of Financias.
In short, we are really well placed to fund further acquisitions. Now I'm going to hand you back to Graeme, who will take you through the trading update and an outlook.
Thanks, Martin. So we conclude the presentation with a few reflections in trading and our outlook for the remainder of
the year.
We had expected to potentially see demand moderate in later Q2 or early Q3. We've experienced a small decrease, but the early flash of January shows consistent sales that we've seen in the 1st 6 months, so a pretty decent performance in January. We continue to believe that there are some clear COVID tailwinds and headwinds in the context of the auto aftermarket, but we are firmly in the belief that it positions GUD in that relatively positive position. The domestic tourism, the public transport situation, increased used car volume, a frugal mindset with the customers, none of those factors have changed in our minds over the last 6 months. Thankfully, we're seeing miles traveled return to pre COVID-nineteen levels, which is a critical determinant in demand as well, as we would know.
In terms of water, we do expect some further sales growth, particularly from some of our export markets, along with the continuation of the domestic demand. Importantly, without the circa 3 or so months of significant factory idling, in H1, we see a lift in the efficiency of the factory variances and a real benefit to roll to roll through. Across all the businesses, we do need to recognize the ongoing COVID operational costs won't trail away, along with, I think, a growing inbound logistics cost, which we'll see in a large degree through H2. All said though, if we assumed no further restrictions on mobility or fiscal cliff scenarios emerge, then that EBIT forecast for the full year, including our 2 new acquisitions and their component parts. It should be in the range of $95,000,000 to $100,000,000 and cash conversion in that $80,000,000 to $85,000,000 range, which we've guided previously before.
Okay. Well, that concludes the presentation results. I'll now hand you over to the moderator, who can coordinate the questions that may come through. So over to you, Kelly.
Thank you, Graham. Graeme. Your first question comes from Tom Godfrey with UBS.
Graham and Martin. Thanks for taking my questions. Can you hear me okay? Maybe just first one for me. I'm keen to start with the guidance of $95,000,000 to $100,000,000
of underlying
EBIT. If you just sort of look at the $52,000,000 you've delivered in the first half and then add sort of the incremental acquisition tailwinds, some FX helping as well and hopefully an improved Davy performance in the second half, you can sort of very quickly get to the top end or plus of the range. I'm just keen to understand what we should be thinking about in terms of the offsets. Is it really just acceleration in freight costs? Or how conservative have you been around second half automotive sales growth?
Question, Tom. Look, I mean, we debated Tom. Look, I mean, we debated naturally internally as to whether we put forward guidance, and we haven't in previous times because it has been so difficult to try rationalize what's going on in the market. So naturally, for the first time when we bring forward guidance, we're going to be cautious about our view because there's still a lot of moving pieces. So I would say our guidance of 95 to 100 is a cautious level of guidance.
Having said that, though, there are some things that do continue to flow through. Yes, there are some operating costs that will continue. Some of those, I think, will increase a little bit because we'll get the full half impact of, frankly, some of the freight and the like, certainly. I think it's not unrealistic to suggest that demand will moderate a little bit more. You've seen a moderation.
As an example, when we came forward to our AGM, we talked about around a 16 in auto. We're now calling out a 13 in a bit. So we might see that moderate a tiny bit. And some of that acquired revenue you talk of obviously comes at a lower margin position. So look, I think to summarize, yes, there are some physicals that roll through for the remainder of the year that you need to take note of.
And obviously, we don't have Jockeever repeating naturally. But at the same time, I would characterize our guidance as cautious guidance because obviously, there are still a lot of moving pieces. Got it.
No, it's very clear. Can maybe just a follow on from that. So you noted the 16% you called out of the AGM for the Q1 suggests sort of a 10% in the 2nd quarter. Just keen to sort of understand the exit rate and where the aftermarket is sort of running as of January. Is it that sort of high single digit level now?
Is that how we should be thinking about it?
Look, I think I mean, January was a very good month, without doubt. It was a better month, frankly, than December. When we talk to now and obviously, triangulating through to other public domain information we provided, which obviously is at the equity raise, we talked about what was happening through the month of October. And so month to month, it's very difficult to give you a sense of trend because the number of selling days change from month to month. I mean, we talked at the time of equity raise around a certain number, but that particular month, there were 2 less selling days, whereas the month of January, there's pretty much a static number.
So I would characterize the current rate as pretty strong if I looked at January alone. But I do expect at some point that the 16s and 17s we've seen in the past to moderate to something more realistic. It's just a matter of when, and I think that's a $64,000 question, not that we're asking, but some others are as well because at the end of the day, there is a net positive gain at a Cove for us as horrible as that sounds at a macro level. We do see the benefit, and we expect that to carry through. It's just about how do we forecast that and how do we represent that in guidance.
Yes, Jordan. No guidance. It's Martin. I'll just add to that. I think it probably hasn't come through clearly enough so far this morning around the exports.
It is in the supply. The exports by GVA, and we'll expect the same thing with the ACS, have really been quite choppy month on month. So you can have acquired a month on exports, which we saw in December, and then a really a strong month on exports in January. And it's very hard to get a consistent pattern of sales into Europe and the U. S.
Right now. So that's why in some respects, you are right in saying, Casa, we've been a little bit cautious. We are mindful of those things. And as you've called out, Q2 if you take H1 minuteus Q1 growth, obviously, Q2 is quite a bit softer. So I think all those things have played into our mind in giving that guidance.
Sure. Thanks, both. Maybe just last one for me. Can I just ask around pricing? How should we be thinking about price increases across the auto portfolio into second half 'twenty one?
Through the good efforts of the team and each of the BUs, as you know, we've been working on those operational fitness elements. One of those was pricing. And we obviously pulled those through, and we're seeing some of the benefit roll through into H1. I think there is a reasonably tight pricing environment, although we are seeing a little bit roll through. But I think that in terms of factoring through your view, you should be guided that we don't see a lot of inflation in our pricing, certainly, in the short term.
Yes. Tom, I'd just add to that. What we are seeing, and this is probably no surprise, and you might be getting this with clients in other sectors, So probably the best part of 5 years now in terms of supplier customer relationship, the customers have probably had a bit of a whip hand with suppliers on pricing and have been able to bat away price increases because volumes have been growing. Most factories in the world have got the opposite problem right now. They've got more demand than supply.
And a lot of those people are trying to respond to supply by expanding factories, getting more shifts. And we do see some near term cost pressures coming through on some of the supply costs. That will probably be one of the things that would play into if we did move on price in H2. It would be in response to that. But that's some trend that's really sort of come across a number of our different businesses in the last 4 to 6 weeks.
And we expect that will be more of a dialogue that will play through on the cost side. And later on in the half, how do we take price forward, whether it's at the end of this half or at the beginning of the first half of next year. So those sorts of things have also been playing in our mind in terms of forming guidance.
Your next question comes from Matthew Nicholas with Credit Please go ahead.
Good morning, guys. Well done on the result. Thanks for taking my questions. First one is just on currency. I think you noted there's not a huge amount of currency benefit in the first half.
Can we just get an update as to what the currency situation looks like in the second half? And what your hedge rate looks like into FY 'twenty two? And how does any potential currency tailwind you've got coming in '22 compared to the freight cost rises you've got?
Yes. Look, I'll take that, Graham. Yes. Look, we're expecting this half year to be at $0.68 It's probably come out closer to $0.69 We some of that was just for greater volume. Some of that was the fact that some of our clients some of our suppliers pushed it back.
We settled on the currency, which then meant that and that's why the financing cost went up. We lost on the physical cash while we're sitting on that because of the longer payment time and then picked it up on the spot on the COGS. So that's why there's a bit over $1,000,000 in financing costs, and you've seen that benefit roll through. So compared to last year, year on year, there was a slight FX gain, but it's in 100 of 1,000, not materially not a material amount. Second half this year, we probably see that sort of 68, 69 with our hedges rolling out to see the 69 hopefully towards 70, depends on how much we have to buy in excess of what we've predicted.
We're about to make we're about to hedge for the first half of FY 'twenty two, Matt. And we're just working on that now. We'll probably try and lock that away at these sorts of exchange rates. That does take a little bit of pressure away from price up next year. It would absorb some of that freight upside.
We do import across the group about 2,000 to 10 years a year, and freight rates have gone up considerably. So that could be a pretty big number. So that will be a little bit of a tailwind for that as well as the supply cost ups. So all in all, really, I see that playing out more in FY 'twenty two than FY 'twenty one, Matt.
Right. But just to be clear, you're looking at an average rate for 'twenty two of somewhere between 76% and 77% if you were to hedge right now? Correct.
Spot on. Okay. All right. And we'll probably move to hedge the first half of FY 'twenty two pretty quickly at this point, not look to hedge the whole year out right now but certainly the first half.
Okay. Cool. Just on the acquisition you made last night, I think you've quoted an FY 'twenty number. Is there any reason to believe that the business you've acquired doesn't show similar organic growth rates to what you're seeing in your overall portfolio into 'twenty one?
Matt, I think, obviously, we haven't taken the keys yet until March 1. But I think that it's fair to say that we would expect the FY 'twenty one number to be an improvement on FY 'twenty. Obviously, the multiple becomes even more compelling. But the closeness of their actual forecast right this second, I would say, there or thereabouts in terms of some of the growth that we're seeing.
Okay.
And just the last one on just on further acquisitions. As you point out, your balance sheet is in pretty good need. I think post that deal, you're probably only geared about 1.2x. How is the environment looking for acquisitions? And is the incremental dollar of capital likely to go?
I know you're talking about non ICE components, but is it into foil drive components? Or is it into other areas?
In October 'nineteen, when we took investors and yourself through our acquisition thoughts, we talked about a more of a programmatic approach, right? And we spoke about segments that we don't currently play in and where perhaps we would have priority. So there are other segments that we don't currently play in beyond 4 wheel drive and commercial vehicle accessories, but it's safe to say that we do see upside in the 4 wheel drive, and there are a number of opportunities in that space that's sort of thematic. But with equal gusto, we are looking at some of the other segments we don't plan to round out the portfolio, and there are some very attractive, well run, great branded companies sitting in Australia. A lot of those bolt on in nature.
So I would say with equal energy, probably both sides of the coin in terms of the question you've asked, both 4 Drive but also some of the other segments we identified in October 'nineteen. And look, we've got unused lines of about just shy of $100,000,000 We're not as we've said and you've seen obviously in what we put out yesterday, the multiples are not accelerating with any concern. And we continue quite in the background to have those conversations. The ACS conversation, as an example, has lasted upwards of 18 months. So that's a good snapshot of sometimes how we're nurturing that relationship and bringing it to fruition.
Your next question comes
A couple of questions. Apologies if I missed it, but just to get clarity on the first question Matt asked around, I guess, moving into FY 'twenty 2, the benefit you're going to get on FX on gross margin relative to the uplift in freight, you haven't really given I think gauged up significantly your contracted rates now, but I presume we can still assume movement of FX hedged at $0.76, dollars 0.77 plus your expected FY 'twenty two freight contracted numbers, you're still expecting some, I guess, margin improvement in FY 'twenty two on those two variables?
I think the short answer would be yes directly to the question, but there are a few other things flowing through there. I mean, every cent to us is generally in the sort of the $1,000,000 increment in terms of EBIT. But as Martin touched on right at the end of his comment, there will be a supplier relationship discussion that will take place, and we're expecting to see some supplier cost ups. So you might see a little bit of the airfreight abate, but maybe not certainly in the 1st part of 'twenty two. You're certainly going to see the contracted rates go up, and that will be substantial.
And the benefit of some of that exchange, I think, will be repatriated to some of our supply base. So you won't get the full impact of that 76 or 77.
Great. Thanks for the clarity. Martin, secondly, I couldn't find it in the accounts, the rebates. It doesn't seem to be split out now. Could you talk through, I guess, rebates that were paid in the first half?
You'd be able to kind of backslide through the cash flow statement, but we don't get the provisional breakdown. Can you give us some feel for how the rebates moved in the first half this year and whether you'll be disclosing that going forward?
Yes. I'll deal with the second question first. Thanks, Russell. We're not going to disclose it going forward. Simply put, it's the commercial backlash you get from customers looking at the average and then having conversation about where they that they're trailing the average doesn't add shareholder value.
We think it's a nuisance, and we communicate with you when there are major changes in trading terms. So we feel that keeps you sufficiently informed that it doesn't put bullets in the guns of clients who want to use that information against it. So that's point 1. That's why we made the change. Point 2, really this 6 months, there have been no changes in rebate ranges of significance.
So the rebates have just tracked with the volumes for those rebates that are. So in some cases, a client might have just a very simple volume rebate. In some, they may have a 2 legged rebate with a lower with initial rebate and then a volume rebate if they get over the trigger levels. So those that got over the trigger levels, we accrued for those. But really, it's the rebate movement this year.
So this period on the prior 6 months was a function of volume and not much else, Russell.
I would add that with equal attention around the sensitivity of commercial information, that's why you're also seeing and as flagged and signaled to the investors, us pushing down a more accurate reflection of the corporate costs into both water and automotive to have a more realistic auto margin view of the world, trying to really true up how the business is really run.
Yes. And we called out the amounts for that on 5 for Automotive, dollars 1,700,000. And then on the water Slide 13, we called out $400,000 going there as well. So really, as Glenn said, those are and that's based on the current time cost work done specifically to support those businesses. Otherwise, you just create needless profit handy.
Sure. Just on the announced acquisition yesterday, I guess the multiple you acquired it for looks certainly very compelling versus your current trading multiple. Is there something a bit different about this business? I noticed that the management of the business is going to be I guess inherited by DBA. Was there a management change or a family selling out?
And then secondly, just on the nature of this business and excuse my ignorance of understanding the Klotch market, but should we be thinking of it more like a, I guess, an AA gasket in terms of the profitability can be a bit more cyclical in nature relative to, say, either Ricoh or Westfield? Just some dynamics around that process.
I mean, the founder of that business is exiting, and this is a succession plan. We know that founder, Brett and Jordan, very well. And as I said, we've been in conversations for actually just over 18 months, almost actually just after I started. And it's part of his exit plan for all the typical reasons that founders look to exit. We retain all the key management, which is very encouraging because they are actually well tenured and well respected in the industry.
And we just ask our current DBA leader to actually manage both those businesses, a friction division because, as I said earlier on, break and clutch go hand in hand. So you go to a workshop, often it's a break and clutch type workshop. So the knowledge base held with that leader in Gideon is quite high in both parts of the business. It's just a natural way forward to actually run those 2 businesses. So that's the first question.
And sorry, Russ, could you repeat the second part of the question?
Just understanding the profile of the profitability business, is it a bit more cyclical? And I know you called out gaskets, so they outperformed because a bit the hobby market came back or people had time to work on their cars and need to replace a gasket. Is it similar with the clutch market? So if we look through, I guess, is it a smooth type earnings and demand profile you might see on the filter market? Or is it a bit more cyclical in nature in terms
of its
So it doesn't it's not prone to something that's abnormal in terms of its demand nor is it directly seasonal. It's at the end of the day, it's about replacement clutch components. And so it's a repair outcome, not a service outcome in most cases. And so it's really down to the number of vehicles rolling around their age and their incidence rate in terms of clutch repair. The other piece, though, is that I mean, the manual clutch market in this market is of a certain size.
But what we're also seeing is, for those who are more technically mined, in recent times, dual clutch transmissions have rolled into the market. And these are manual transmissions that essentially mimic automotive transmissions. So they're called DCTs and DPSs and PDKs, depending on which brand. But they actually also have clutch plates and friction material. They actually transact somewhere in the region of 3 to 4x the revenue the wholesale revenue than the traditional clutch component.
So the market's morphing a little bit, but to the advantage of ACS, and of course, it exports. And while we didn't detail the specifics of the percentage, it would probably represent between anywhere between 8% 12% of its business, in rough terms, as export into Europe and certainly Europe, where the market there is somewhere in the region. 8% of all vehicles sold there are manuals and DCTs. So hopefully, that gives you a bit more of a flavor.
No, I think you can add to that, Graeme, that it's similar to DVA in that they're very well represented at the performance end, whether that's upgrading for tracked cars or people who want to upgrade 4 wheel drives for towing, etcetera, etcetera. And that's a large part of what they export rather than the standard clutch. And their percentage of exports is approximately half what DBA is, they're less down the track on the maturity of their export market. And that provides, it's quite encouraging, potential pathway for growth beyond replacement of a standard clutch.
Great. And then just a final question. You flagged the CapEx in the back of the AMA business coming in. Can you just talk through the one offs or restructuring charges you're expecting to book in the second half?
Pretty much done for now. There will be a little dribble through the remainder of the gasket site as we fully close that. So we're really anticipating less than 500,000 dollars And there might be a few bits and bobs around the place, but not expecting anything of significance. We're not expecting significant restructuring costs in regards to G4 CVA as well. We called out the CapEx there in the acquisition that had 2 elements.
1 was an IT platform upgrade, which we're very busy on implementing now and a lot of that essentially to get them up to our IT security level. So security level work's been done. We expect one of the businesses to migrate to one of our ERP systems in the course of the next 12 months. And we're working on what is the right manufacturing strategy, which is the bulk of the amount that we called out on the CapEx. But probably, we could see some of that filter through.
So I'm fully expecting somewhere in the order of $1,000,000 $1,500,000 to pull through of what was quoted when we acquired G4 CVA to pull through this financial year. The rest will pull through, quite frankly, when we feel we've got the right manufacturing strategy and therefore what we need to invest in and where and so forth.
Your next question comes from Sam Tighe with Citi.
First question, what proportion of COGS is freight? Look, I don't call it's gotten really jumped to mind when I cut across all the businesses, Dan. But what I would say is we bring in 2,000 containers a year. Our contracted freight rates on just the container leg of it were coming off of a tariff rate around about $600 I wouldn't be surprised to see that treble. In fact, a number of the big shipping lines for the reason saying we're currently in a buying agreement with a number of other public companies in Australia.
Together, we buy close on 20,000 containers. They've been saying a large number of the freight companies have been saying they're not even sure whether they want to be contracted rates for next year. So we don't have clarity about where those contracted rates will land, but you could see it going upwards of $1,000,000 sorry, dollars 1,000 container. You'll work that out, $2,000 sorry, dollars 2,000,000 And then freight, air freight. One of the nice things that's happened with COVID in terms of demand is we've seen a pivot into some areas that have been a little bit quieter, particularly the caravan space and some of the 4 wheel drive accessories and VWI.
We've been, quite frankly, scrambling to keep up with demand, which has required us to pivot air freight. And we've had some months where we've been having an air freight base, a bill of $300,000 when we might have otherwise had it $30,000,000 or so. So it's a bit hard to call it out, Sam, but hopefully, that gives you a bit of sense of bookends that we're thinking about. Yes. Thanks, Martin.
And given in the outlook slide, it says you're negotiating container rates now for next year. It's better, right, that you don't expect these container issues to be resolved by the middle of this year. I'm just wondering, based on all the people you speak to in the industry, when do you think this issue is resolved? Look, I'd hope that by Q4, we have some clarity. I think reason will come in.
I mean, there's not only the container freight issues. You've got challenges with the spring of demand post COVID means that even the companies that rent you the containers, let's say, Hang on a minute, I can get a lot better yield renting the container going to the U. S. Than Australia. So that's still playing out.
And the shipping companies have taken some capacity off. So we get what we call blank sailings, which is we book in decision, do you push got a decision, do you push that out to the next available sailing 3 weeks' time? Or do you put it on spot and pay the excess to get it to where you need to get it? So I would hope to think that by April, May, we see some greater clarity, but I think it would be foolhardy to assume that we definitely will. I don't know if you've got a different view, Graeme?
I think at the end of the day, I mean, the cadence of those contract negotiations will have a firmer view probably May, June. That's the normal cadence. As Martin has pointed out, we expect to see a considerable rise. I think the other thing that sits alongside the contracted position is just the airfreight burden at the moment. That will abate at some point.
We've chosen very carefully to ensure that our Dipod is better than our competitors because we're going to steal share. And in most cases, we hope to hold some of that share, not in all cases, and that will result in payback in the medium term. So I think that the airfreight probably once we get through Chinese New Year because obviously that's a pretty challenging period for freight and supply, as we sort of exit get to the end of this financial year, I'm hoping to start to see the airfreight starting to improve as we then move into the Q1 and certainly into the Q2 of 'twenty 2.
Got it. And given that the inventory is at record levels compared to previous years, should that mean that a lot of these freight cost headwinds actually get delayed?
So the inventory is up by circa 4 ish 1000000 on a base of just over 110. So we haven't we're not actually seeing a huge inventory increase in relative terms, although we think we're running lean, certainly, and we are pushing for more inventory, and the message we're giving our leadership group is that Martin and I are quite happy to go long on inventory in the short to medium term because I think inventory is going to be king. And I think that's one of the reasons we've had some of the growth as we've been rolling dice and making sure, a, firstly, we didn't cut inventory through the horrible part of COVID last year, but also maintaining a strong tempo. So I think and we have guided in the information presented to you that we do expect inventory to increase. So that's greater than where we are now.
Now what that number is, hard to project right this second. But by the time we get to the year end, we're certainly going to be in a stronger inventory position. Position, but that comes with those associated costs I spoke of.
Got it. And then last one, just the marketing and selling costs, they're down about 8%. What's driving that? And how should we
think about that going forward? How sustainable
is the reduction? Marketing and
sales costs are down just over more actually just under 9%. Having said that, though, the product development was not necessarily stated everywhere in the numbers, they're up by probably 15%, 16% because we're firmly of the view that we're going to get some and share and traction because we didn't slow down product, and we didn't do that in the first half either. So I think some of that will continue in terms of your direct question around marketing sales. Some of that will abate as we return more to a normal operating pattern. But I would expect our marketing sales cost to be slightly lower than our more recent run rates before COVID.
I think we found a more efficient way into the market as well. And I'm not sure that the need, other than to continue to support our brands, but we're taking cautious decisions on how much money we want to invest in certain parts. That's why I say product development is up quite significantly.
I think the other thing to add there, Graham, is our sales force has been working virtually. So the traditional travel and related costs are out there. But also, trade the old physical trade show where we've put up a stand that cost you $300,000 etcetera, etcetera, none of that has occurred. And it'll be we have switched to a virtual trade show. We've actually pioneered that across the aftermarket, and that's a hell of a lot cheaper.
So it'll be interesting to see and coming up the other side of it, what is the new normal. But certainly, we called out cash conservation and some of those 3rd party marketing and selling related costs were a focal point there of reduction.
Guys. Your next question comes from Ash Chandra with Goldman Sachs. Please go ahead.
Hi, good afternoon, gentlemen. Just a couple of quick ones for me, if that's okay. You mentioned export demand was impacted in auto and Davian. Apologies if this was already asked. But sort of do you have a sense of how much this might have taken off your numbers in the period?
Right off the top of my head, ash, no, because that's not the way we run the business. But certainly, for Davy, that was considerable. We over index the market share in the Pacific Island region, the Indian Island Indian Ocean Island region, where a lot of our product goes into resorts for swimming pools, for water treatment, for all of that, which has been close to dead. And in some of those countries, you've got currency controls and central banks struggling to have enough dollars to support imports. The Middle East, obviously, oil price has been pretty low of late.
That pretty quickly flows through to residential development where we tend to over index again as well. And then the factory closed down in Davie, meant that we because new builds on swimming pools weren't essential, it meant we missed we not only had the cost increase, but we missed some of the export volume because there is a stocking window in Europe. So it was very considerable for Davy. It wasn't impactful for some of the automotive dismisses, but Davy bore the brunt of those impacts.
I'd like to characterize that Ash is sizable for Davy, marginal for Auto.
Okay, Terrific. And in the growth that you've experienced in both your divisions, would you categorize the growth you've experienced as you think you've done better than the market or in line or worse? And again, could you perhaps elaborate as to where you might have taken share or lost share in the period?
Well, that's a very hard question to answer, actually, on the basis that there is no peak body information. And obviously, we're one of the first to go, so we don't get to compare and contrast with even some of our listed customers. We do have some public domain information and recent updates from some of our customers that might suggest if we were to break down their retail versus their trade performance,
and we look really at
the trade performance, not the retail performance, then that would be the best indicator as to how we're performing, and that seems relatively positive for us. We certainly feel that we're getting our fair share and more of the growth, but that's really very anecdotal in nature from an automotive point of view. From a daily point of view, I mean, I can only talk to the Australian and New Zealand market because that's where we've seen some resilience. And again, peak body information is not hard to sorry, not easy to come by, but the very latest information that came through in the IBIS would suggest that the market has been a little bit static, in fact, potentially down 2 or 3 points, and yet Davey has shown some growth in Australia beyond, obviously, the overall Davey result of 2%. So probably there's a swing of anywhere between 5 points and 7 points between what we think the market's doing in Australia and New Zealand and Davy versus what Davy is doing in terms of its growth.
That's probably the best way we can give you a feel for it, Ash.
Okay. Terrific. And can I
ask on the ACS acquisition you view in your guidance, you assume it contributes for 4 months in the second half?
So that's obviously going to settle in the next few weeks. Are there any sort of
major DD or preconditions or regulatoryfinance approval that need to be cleared? Or is it pretty much at a stage of
just handing over a check?
Yes, very clean situation, Ash. As I said, Martin and Bob Patterson, our GM of Acquisition and a number of the team members have been working on this for quite some period of time. We know the business very well, both at a business level and a personal level. The DD was very clean, very straightforward and no significant preconditions at all. We expect that to complete very swiftly.
Brilliant. And I'll ask I'll just squeeze in one more, if that's okay.
You obviously expect synergies from both of these acquisitions. Is there anything you can sort of at least qualitatively talk to in terms of will it take 3 years to kind of extract the full potential of synergies? Or are there things that can start to come through fairly quickly? When would we start to notice that you are getting more than just the pro form a integration of numbers.
Sure. I mean, we'll see some benefits early on just because of the management structure we've chosen to take in terms of the costs associated and how we're going to run it. And then I would say in the medium term, but not when I say medium term, 3 years down the line, but maybe the next year to 18 months, I think we'll see benefits in our distribution approach. So I mentioned earlier on that even at an export level, DBA and ACS literally share almost exactly the same international distribution footprint, same 3PLs and the like. They have ACS that is has a very extensive distribution network across Australia, and there are immediate opportunities in that regard, not dissimilar to what we've been doing with DBA and IMG.
Recently, we folded those two businesses and pulled out of a 3PL to save some costs for DBA. And again, recently, we reduced the 3PL cost of DBA in Sydney. So I think we'll see a few things in that regard. I think there are some other more natural synergies that exist as distinct from some of the other businesses we run. So how they go to market from a marketing point of view and also some of their product development because that friction synergy is quite large in terms of the operational commonality.
Your next question comes from Mitch Sonnigan with Macquarie.
Just a quick one first off again on the guidance. So looking at the 95,000,000 to 100,000,000 just wondering what do the lower and upper bounds imply for second half automotive revenue versus the half under first half on an absolute basis? You've seen a strong January already, so just trying to understand what your expectations are over the rest of the second half.
Yes. So thanks, Mitch. As we said earlier, I mean, we are taking a cautious view. I mean, we do expect and as I said earlier on, we do expect at some point to see some moderation in Automotive. We haven't seen it thus far.
I mean, we've seen a slow moderation, given what we communicated at the AGM and then subsequent in the equity raising. So you've seen it come off from 16% to 13%. And so we do have a point of view that perhaps we see some moderation for the last part of the year. But in the balance we gave, I think the lower end is probably deeply conservative, let's be honest, and the upper end is probably cautious, and that's how I'd probably characterize it. The reality for us is we have been reticent to give guidance because it's been so hard to arbiter what's going on, and it doesn't take much for that to move around.
And so we felt it was valuable to give some level of guidance, but I would attend that with a word in terms of caution as to how we're viewing the market. And maybe there's some upside on top of that, but we're very keen to make sure that we deliver what we say we deliver. And so credibility and reliability are kind of important to us. So I don't see the automotive part of our business tanking, if that's perhaps where your thoughts are going, but there may be some moderation. And at the same time, the acquisition revenue that we will take on board in the second half, Mitch, does come at a lower margin.
That's already well documented. So I think that's probably the best way to characterize it.
Yes. Perfect. Just a quick one on New Zealand. So the auto growth over there has been lagging in Australia over the last 6 months. It was up 10% versus 13% in Australia.
Do you see any catch up occurring in the second half? And maybe just a quick update on the market dynamics that you've seen over there and looking into the next 6 to 12 months?
It's been a little bit more choppy than Australia. In some months, we've seen some big surges. Some months, we've seen it pretty flat. So it's a very hard one to get our head around. Again, in January, we saw a very strong performance in New Zealand.
I don't suspect that at the end of the day, there will be an unusual difference in the growth that we've seen historically between the two countries. And so it might normalize a little bit. It might come back a tiny bit. But the market, as we said in the past, is very different. Whilst our businesses serve it in the same way, there is a frugal nature to that market that's different.
And so therefore, there's a bit of a different revenue position in some instances as well. But we're seeing a lot of choppiness is probably the best qualitative comment I can give you, Mitch.
Yes. Thanks, Graham. And just finally for Martin, just on the underlying unallocated costs of £2,200,000 Can I maybe just talk about what we should expect second half? And is that level sustainable into FY 'twenty two? And just also wrap that into the higher corporate recharge of $1,700,000 for the auto division?
Can you sort of talk through all those moving parts?
Yes. Look, we kind of will see that sort of $1,700,000 in the percent in the second half as well for Royal Air. Don't expect that to change considerably for auto or water. So the corporate oversight you've got now is probably going to repeat in the second half depending on how much third party costs we have to do on M and A. And of course, this year is up on last year, if you add it all back together.
Because last year, we the KMPs and a lot of senior people did not or a ton of it is in holdings that got an STI last year, for example. So whereas this year, with the results that are up, we are accruing that and probably growing closer towards the top levels and the bottom levels. So it may go it may be actually a little bit higher depending on where we end up with incentives at the full year. But clearly, the results being up, we'd like to think that there's a few crumbs for Graeme and I and the rest of the team there at the end of the year.
Yes. Thanks, Matt. I hope so. And just so final one. Just looking at Davy, do you have any further considerations about potential divestment there?
At what point does it make sense? Are there still decent synergies you're getting from whether it be that freight and logistics or insurances, etcetera, that mean it does make more sense to keep it in the portfolio?
Yes. I think we still see, and I said earlier, in the medium term, we see upside for Davy. We're 1.5 years into some work there. Some of that has been proven quite successful, but it's not it doesn't have the benefit of getting shown or manifesting itself as well as we'd like given the issues of the manufacturing variance and the idling. I mean, it's just brutal.
I mean, you got your plant essentially idled for half the half, so to speak. And so naturally, the best thing of that business right now would just be asinine in terms of what would we get for it. And at the end of the day, it's more important to us in terms of what it can deliver in the future. It also provides a different vertical in the portfolio that might be defensive in different times in terms of the cyclic nature. So that's something we have and the Board has held a view, and we won't move off from.
And yes, we continue to get the synergies. But really, our efforts are around what we've taken you through in previous times around how we expect to unlock value in Baby.
Your next question comes from Anna Gwan with Goldman Sachs.
Just two quick ones, please. Apologies if these questions have been asked previously. So just firstly, can you guys give some color around your view for inventory level in the industry at the moment?
Graham, would you mind if you take that?
Could you actually repeat that? Because you locked out, and I'm not quite sure something about the inventory. So could you please repeat that, Sarah Hanna?
Yes. I was just asking about your feel for the inventory level in the industry at the moment.
My apologies. The inventory level in the general industry, I think, is certainly low. Again, anecdotally, we are seeing some of our competitors operate in DIFOTS of, in some cases, as low as 50, but 60s 70s. Now we're better than that, thankfully. So I certainly think that the level of inventory across the industry has gone through a pretty lean period.
It's starting to bounce back, certainly for those companies who are willing to invest and at the end of the day have to pay a little bit more to get the inventory here to ensure that when somebody walks into a Repco or a Burson's that your product is on the shelf. But certainly, feedback from our customers would tell us that they've been going through a lean period, and they've been desperate for supply.
I think we can add
to that also, Graham, because we had feedback from the supplier side. Our suppliers supply people typically not necessarily because we want a pretty exclusive relationship. But around the world, the demand level has spiked. We've been having have discussions with our suppliers around what we want versus what they can supply. Now we've got very, very strong supplier relationships.
We know our relationships are profitable with suppliers. So we're navigating our way through, but we're having we can't get 100% of what we want all the time, and we're having to set priorities. And sometimes that means when you want 100 widgets, you've got to take 50 in the shipment and 50 later on, which does deliver some inefficiency as well. But we're managing our way through. I think if you're a customer at the lower price or yield end, we do know from some of our factories, they are walking away from the customers that we're marginally profitable or distinctly less profitable or giving them less priority.
So anecdotally, it would suggest that from both the grain side and the supply side that the industry remains pretty challenged globally.
Fortunate that pre COVID, we were working on those 5 business fundamentals, and one of those was supplier surety. And so some of the actions we took pre COVID, whether that's a financial interest in our biggest filtration supplier, as an example, or a few other things, that's borne good results through this period. Our level of prioritization has been strong beyond the normal strength we have with our relationships. They're decades old in most of the cases, our suppliers. So I mean, we put that supplier surety fundamental in place more so actually to protect ourselves against what was going to be a burgeoning Chinese aftermarketing and making sure that we remained high in the priority level as those suppliers had the potential to shift their supply domestically.
And so that's been an added benefit, not because of we forecast COVID, but because we could see what was going to happen in the China aftermarket as well. Yes, yes. That makes sense. And then just secondly,
there was a
comment in your prezo. I think, then just secondly, there was a comment in your preso. I think the wording is something like the Westfield brand value proposition is well positioned as government stimulus unwind. So if I'm reading that correctly, does that suggest that some of the premium brands, I. E, Ryko, etcetera, they're outperforming the more value focused brands across your auto portfolio at the moment?
No. I mean, again, we don't disclose specifically the growth rates of some of our businesses that sit in those good, better, best categories. But we're seeing decent growth or strong growth in both those stratifications. We just feel that if and again, it's a bit hard to forecast, but if some of that similar to some wines, then that business still remains as a very strong proposition if indeed the better or the best or probably the best starts to taper off. So to us, it's just another strong and nice defensive part of the stratification we play in.
Yes. Okay. That makes sense. Thanks, guys.
There are no further questions at this time. I'll now hand back to Mr. Wickman for closing remarks.
Okay. Thanks, Kelly. Well, the Board and the leadership team were very pleased, very pleased with the performance of the business in H1. Clearly, the headline is around all around the strong auto performance, and we've talked about that today. We've given the guidance, which we haven't been doing in recent times.
I guess the word there is it's a cautious guidance. But at the same time, we remain, I think, very confident in the markets we're serving and the performance in H2 and ongoing, notwithstanding the fact that there are some operational costs that will continue to come through. And naturally, we remain very focused on any challenges that arise through further COVID related things like mobility restrictions and the like, but certainly, we remain confident. So again, thanks to our employees and also thanks for those who took time to attend today. So looking forward to the smaller group discussions.
Thank you.