Today, Damon will take you through a financial update on the half-year results, and I will present an update on the business's sales and operations. During the presentation, questions can be made through the chat box. At the top right-hand corner of your screen, you'll see a blue circle with a hand icon. By clicking this, it will open a chat box for you to enter your questions. At the conclusion of the presentation, Damon and I will be answering the.
Thanks, Lachlan, and good morning and welcome to our call this morning where we're announcing our results for the half-year ended 31 December 2023. It outlines the company's sales revenue and profit before tax and after tax. Sales and the profit results are broadly in line with the first quarter results we announced at the company's annual general meeting in October 2023, where we advised sales growth of 0.7% and profit after tax growth of 10%. To the left of the slide, the company achieved sales revenue of AUD 341.5 million, an increase of 0.2% compared with last year. Sales were unfortunately hampered in the month of December 2023 by the industrial disputes across Australian ports, which held up both inbound and outbound containers, impacting on both domestic sales via delays receiving containers inbound and export sales via delays dispatching containers.
We note, however, that sales in the month of January 2024 were strong as the industrial dispute was resolved and port traffic resumed uninterrupted. I'll talk to sales by channel on the next slide, demonstrating sales growth in the Australian aftermarket and to the OEs, with export sales continuing to be a challenge throughout the half. Importantly, new vehicle suppliers improved around the world, particularly in Australia and the U.K. ARB's operating profit before tax of AUD 72.5 million reflects a 12.6% increase over the prior half. I will, however, pause to highlight that the statutory accounts reflect a reported profit before tax of AUD 70.8 million, which is an increase in profits of 9.5%. The reported profit before tax includes an expense of AUD 1.7 million relating to the Truckman acquisition purchase price made back in 2021.
Now, some of you may recall that the Truckman acquisition included a deferred payment contingent on prospective earnings over the three years following the acquisition. New vehicle supply into the U.K. decreased significantly during the COVID period, and Truckman's profit results declined significantly, initially indicating that the deferred payment was unlikely to be paid, and the company wrote the provision back to profit last year with a corresponding reduction in goodwill. We're pleased to report, however, that Truckman's business has rebounded very strongly in the last six months, and management now estimate that a payment of AUD 1.7 million will be paid. In accordance with the accounting standards, the provision raised for the final payment must now be expensed rather than adjusted against goodwill. Profit growth exceeded revenue growth, which was driven by improved gross margins, reflecting reductions in freight costs and the impact of sales price increases.
Profit before tax reflects 21.2% of sales, excluding the Truckman adjustment. To the right of the slide, profit after tax of AUD 52.9 million, excluding the Truckman adjustment just spoken to, was 12.3% higher than last year. The Truckman adjustments do not have any tax effect as they relate to the tax cost base of the investment, and accordingly, the expense of AUD 1.7 million against profit before tax carries through to profit after tax. Reported profit after tax was AUD 51.3 million and grew by 8.1%. Earnings per share grew by 11.9%, excluding the Truckman adjustment. In terms of sales, to the left-hand side of slide four, the Australian aftermarket achieved growth of 3.7% over the corresponding half-year, despite ongoing challenges with the fitment of accessories to vehicles with a tight labor market and fitters continuing to be difficult to recruit during the half.
Growth of 3.7% for the half reflects the Q1 growth of 2.1% advised at the AGM in October and Q2 growth of 5.5%. Export sales declined 13.6% during the half. The decline reflects an ongoing challenge in the U.S., where distribution channels are yet to consolidate following the continued restructuring of ARB's largest U.S. customer over the last year and more. Sales in New Zealand were impacted by the government-imposed Ute tax, which added thousands of NZD to the cost of a new vehicle, specifically those vehicles falling within ARB's target market, and that tax was subsequently repealed on 1 January 2024. Positive signs are evident with export growth achieved in the month of January 2024 and improved new vehicle supply around the world.
Sales to original equipment manufacturer customers increased 53.8% during the half-year, driven by increased volume of existing contracts, reflecting the increase in new vehicle supply to the market. We expect sales to OEMs in the second half of this financial year and into the following financial year, FY 2025, to continue to grow. Slide five outlines the company's profit and loss statement, and it reflects the sales revenue increase of 0.2% and underlying profit before tax growth of 12.6%, as discussed on the earlier slide. Items to call out in the profit and loss statement, well, you can see the Truckman adjustments spoken to on slide three are highlighted at the bottom of the table, reconciling the underlying profit before tax of AUD 72.5 million with the reported profit before tax of AUD 70.8 million.
Of particular note, and the key driver of the result for the half, is the improvement in gross margin reflected in the materials and consumables used line. That is the fourth line in the table, which decreased from 47% of sales last year to 42% of sales this year, in line with previous years. This improvement in gross margin reflects the sales price increases pushed through last year to offset inflationary pressure on the company's cost of product sold and operational cost base, a significant component of which is fixed. We note that employee expenses grew by 3.3%, which is less than current inflation levels as the company drives for efficiencies and tightly manages its headcount and wage increases. Depreciation increased 12.3%, reflecting the company's recently increased capital expenditure program. Whilst advertising cost increased 10.8%, the cost is maintained at 1% of sales revenue.
The decrease in distribution costs of 9.4% reflects easing in shipping rates back to historical levels, and the occupancy costs, which increased 16.1% over the period, reflect new sites and higher power, electricity, and gas costs. You'll note a new line in our profit and loss statement being equity accounted share of profit/loss, which I'll talk to on the next slide. Other expenses have increased 20.8%, driven across the board in this inflationary environment, with particular callouts for insurance premiums, audit costs with Deloitte appointed as the external auditor around the world, replacing Pitcher Partners and their Baker Tilly affiliates, and rising software costs. Overall, the company's operating profit of AUD 72.5 million increased 12.6% over the prior corresponding half-year. Slide six outlines the company's cash flows during the year.
The company generated cash from operating activities of AUD 71.6 million, which compares favorably with the profit after tax of AUD 51.3 million and the non-cash depreciation and amortization expense of AUD 14.2 million. It also compares favorably with the cash generated from operating activities last year of AUD 24 million, which was impacted by increasing inventories in the prior half-year. I note that inventories reduced slightly in this half-year.
The company expended AUD 26.1 million during the half-year on capital purchases, AUD 18.7 million on land and buildings, and AUD 7.4 million on plants and equipment. The company made two investments in associates during the half-year at a total cost of AUD 11 million. Firstly, ARB acquired a 30% interest in ORW U.S.A. for $5 million. ORW currently operates nine retail stores in the U.S., soon to be 11, and ARB's investment will accelerate ORW's plans to expand its retail network.
Secondly, ARB acquired a 49% interest in Nacho LED for $2 million. Nacho was only recently established, and ARB's investment will facilitate the development of innovative lighting solutions for the 4x4 and automotive industries. Now, our management team has interacted with the principals of both Nacho and ORW over many years, and we look forward to combining the company's respective strengths. The company paid cash dividends of AUD 21.1 million during the half-year, reflecting the final dividend for FY 2023 paid in October 2023. The dividend was fully franked at 30%. Just finally, on slide six, the company was holding AUD 53.6 million in cash at the end of the half-year and has no debt and carried no debt throughout the six months. This was an increase of AUD 8.6 million from 30 June 2023.
Just to conclude my part of the presentation, on slide seven, the board has declared an interim fully franked dividend of AUD 0.34 per share. This represents a dividend payout ratio of 54.5%. This compares with last year's interim dividend of AUD 0.32 per share, an increase of 6.3%. The dividend reinvestment plan and bonus share plan will both be in operation for this dividend with a 2% discount and will be paid on 19th of April 2024. With that, back to Lachlan.
Thank you very much, Damon. Moving along to the sales and operations presentation for today, and I'll start on slide nine with a summary of the Australian aftermarket. ARB's store network comprises of 74 stores nationally, 30 are company-owned, and 44 are ARB-branded stores, which are privately owned.
In the first half of the financial year, as Damon reported, the domestic aftermarket grew by 3.7% to AUD 204 million, representing 59.5% of total sales. The company pleasingly achieved growth in all Australian states and territories. This is a strong result that reflects sustained high revenue despite interest rate pressure and weakening consumer confidence. The committed customer order book remains consistently high, and domestic order intake in the first half of the financial year was strong. We continue to see demand from private store network owners for new store developments. A healthy number of sites in various stages of planning through ARB's independent network will come to market in the coming years. Onto slide 10 and a snapshot of some of these developments. We continue to invest nationally in both the quality and the quantity of retail sites.
In the last six months, ARB has completed flagship upgrades to Osborne Park, Western Australia, and Canberra, Australian Capital Territory, where we've almost doubled the store footprint from its original site of more than two decades. These all new sites in existing regions are now up and running. An all new site in Auburn, New South Wales, is on target for completion imminently, where we've almost, again, doubled our retail footprint. Construction is well underway in Mornington, Victoria, and this all new flagship store is due for completion in Q3, calendar year 2024. And finally, ARB welcomes Jayco Adelaide to the family.
Jayco have undertaken a huge 20,000 square meter development site for their own products, which features a dedicated ARB showroom as a part of the retail presentation. The showroom was designed to ARB's flagship specifications and is an exciting extension of ARB's independent store network. Onto slide 11 and fitting performance.
In previous presentations, we've highlighted fitting output as a bottleneck in the corporate and independent store networks. Initiatives focused on employer retention, skill development, and increasing the total number of fitters in our business have been a key operational focus. While improvement has been gradual, there have been positive progress through the first half, and most particularly in the last few months. Fitter retention was materially higher in the first half of the financial year 2024 compared to the prior period. Fitting staff numbers in the same period grew by almost 6%, aided in part by the results of the fast track induction program. Based on tenure, qualification, and programs such as Fitter Pathway, our workshop experience and performance continues to increase from historical lows in 2022.
Over time, as a percentage of total fitting continues to increase, and ARB has committed to additional qualified technicians under the government's 482 Visa Program, we expect these new team members to join us towards the end of this 2024 financial year. Continuing on the operations of the Australian business, industrial action, as mentioned by Damon, at Australian ports in recent months, particularly in the lead-up to Christmas, when ARB customers were gearing up for the holidays, did affect revenue in the second quarter. In the new year, container processing remained slow. However, now with industrial action behind us, we are pushing our national DCs to process higher volumes of inbound containers to catch up from the backlog. There were a couple of key supply quality issues that dampened the domestic and international sales for the first half.
These quality issues are largely behind us as we work with our key suppliers to expedite recovery stock. The Australian aftermarket's insatiable demand for pickup vehicles and 4x4 SUVs continued to drive a strong ARB order book. All-time record sales of key platforms such as the Ford Ranger, Toyota HiLux, Isuzu D-MAX, and the family of Toyota Land Cruisers underpinned healthy order intake in the first half of the financial year 2024. Now moving on to the international export business. In the reporting period, ARB's export sales declined 13.6% to AUD 109 million, representing 31.8% of ARB's total business. There are a number of contributing factors that worked against the export business in the first half, including the previously mentioned supply quality issues, increased interest rates, continued weakness in U.S. distribution channels, and business disruption caused by conflict around the world.
An interesting one for investors, and the most obvious one that comes to mind, is one of our long-term distributors in Kyiv, Ukraine, who unfortunately had their warehouse and ARB canopy assembly line destroyed during a bombing last year. Very fortunately, none of the team inside and our long-term partners in Ukraine were personally affected by that, but it has resulted in a stop to their business. In more positive news, and as mentioned by Damon, we're delighted to report that the rebound to our Truckman business. The ebbs and flows of business coming out of COVID are very evident in this result, where the U.K. market was starved of vehicles for an extended period of time, leading to a significant drop-off in sales. With vehicle sales recovering in the first half of the financial year, Truckman's business has very pleasingly bounced back.
Finally, on New Zealand, the green car tax confused and disrupted the broader automotive industry during 2023 and has materially impacted ARB's New Zealand sales. Under the new government, this tax that targeted popular pickup models has been repealed, and ARB has started to improve trading in the new year as pickup sales recover. And while we're on New Zealand, we are extending ARB's flagship store model from Australia to key international markets, which is a key strategic initiative to strengthen ARB's global brand. New Zealand is a focused export market with healthy pickup sales, an active outdoor recreational culture, and a high-wealth population. The development of the flagship store in Hamilton, New Zealand, is nearing completion and will be open for trading in March this year. A shout-out to Nick, who I believe joins these calls and the team in New Zealand.
We're excited for you and our New Zealand customers for this great new site to open. Onto the U.S. business and an important update. With the accelerated progress of ARB's OEM business with both Ford and Toyota and the requirement to focus on our core aftermarket business, we've invested in a structure to adequately support each of these sales channels. Senior executives with experience in their respective areas have been appointed to ARB U.S.A. to lead each of the aftermarket and OEM sales channels. With this new structure and key leaders on board, we're confident in future sales growth of both the aftermarket and OEM channels. Importantly, our new Vice President of Aftermarket brings over 30 years' experience in retail store development and operations, new product development, brand management, e-commerce, and general daily aftermarket operational performance.
As previously reported, the Seattle flagship site remains on schedule for an opening in Q4 calendar year 2024. All permitting is with local government, and construction is due to commence in coming months. Toyota U.S.A.'s marketing machine is now in full swing with the launch of the 2024 Tacoma, which I'll take you through in more detail in a couple of slides. Ford U.S.A. is also due to launch the 2024 Ranger in coming months. On the back of the FLA program in Australia, ARB has collaborated with Ford's engineering team to ensure key accessories from the global Ranger also fit the U.S. version. Despite the vehicles looking very similar, the same model for the two different markets have key differences that require all new product to be developed. ARB and Ford have been working closely to have a healthy number of products available for their dealer channels at launch.
To strengthen ARB's access to retail consumers in the U.S., ARB has previously reported our investments in Off Road Warehouse, which has nine retail sites largely in Southern California. The business grew through 2023 with minor disruptions in Q4 calendar year 2024 due to new vehicle availability. ORW continues to focus on store growth. Our store number 10 in Glendale, Arizona, is on track and due for opening in April 2024, and the final stages of lease negotiation have well progressed for store number 11. Onto slide 17 and an update on our U.S. e-commerce program. At the AGM, at the 2023 AGM, I reported that we have launched our first e-commerce site in the U.S.A. at www.arbusa.com. The launch, which happened just before Black Friday and Cyber Monday, exceeded our expectations and has performed pleasingly in key metrics including daily order intake, average order value, and profitability.
This platform has given us extremely valuable insights into end-user demand. It has highlighted weaknesses in our wholesale business and brought a number of product opportunities to our attention. ARB will continue to invest in the optimization and growth of this U.S. e-commerce business to enhance and increase our omnichannel customer experience. Very exciting to report today on the launch of the Toyota Tacoma Trailhunter in the U.S. In recent weeks, Toyota has unleashed its marketing machine on the class-leading midsize pickup, the 2024 Toyota Tacoma. Featuring heavily in the pinnacle of U.S. marketing, the 2024 Super Bowl, the centerpiece of this push has been the halo model Trailhunter, which features five different ARB branded products including the ARB Steel Rear Bar and branded recovery points, ARB Sports Bar, ARB Bed Rack, and Old Man Emu suspension.
Toyota's marketing campaign for the Trailhunter and, by extension, ARB brand marketing is now featured heavily on their website, social media channels, national television commercials, and various other national consumer activations. This uniquely positions ARB's brand in the U.S. alongside the number one vehicle sales company in the country and, by extension, catapults our brand reputation for quality and innovation in the largest consumer market in the world. Onto slide 19 and our OEM business and a great news story for the half and the growth of this sector. The year-on-year success of ARB's OEM business is very dependent on the timing of new model launches and vehicle availability. ARB provided guidance to the market on a forecast increase to OEM business, which has materialized in a 53.8% increase in OEM revenue to the half.
Key considerations in this result include increased sales of key vehicle models in Australia and increased volumes of existing offshore contracts. We have seen healthy order intake on existing contracts for the second half of the financial year. Importantly, invoicing for contracts to Toyota U.S.A. business have not yet commenced. These will kick off late in the second half of the financial year. Various existing and new contracts are expected to increase sales in the second half of the financial year and beyond. Now to an update on products. ARB continues to lead the 4x4 aftermarket with innovation and technology in our key product categories. With over 130 engineers in Australia and around the world, we continue to invest heavily in new product development. Today, I'll run you through a couple of these recent updates. Earth Camper continues to attract incredibly strong interest in Australia and overseas.
Supply to market has been slower than expected. We've been working through improvements to the build process of manufacturing and tighten quality on this all-new product. International orders have been received and shipped to markets where low compliance requirements mean that we've been able to sell the camper as is. Compliance for key markets including the U.S. and Europe are progressing well, and we expect to finalize compliance within 2024 calendar year for product sales or camper sales during calendar year 2025. Onto our MT64, which is our new shock absorber. We've been delighted by the market acceptance of this new shock absorber with demand strong in both Australia and internationally. Production continues to grow with demand as does the number of applications under development with more than 20 new vehicle models currently in the pipeline.
Our engineering team has grown more than 10% in the last 12 months as the organic opportunity for range expansion continues. Key launches of new models by OEMs in recent months, as well as our focus on class-leading new products, is keeping our engineering team very busy. We expect to launch three significant all-new products in calendar year 2024. Finally, to the outlook. The directors and the senior leadership team are very excited about the future of ARB. With various key initiatives to support future growth underway and a very capable senior leadership team, we have a strong vision of success for the future. The Australian aftermarket order book remains strong. With gradual improvements to fitting capacity and an accelerated store development program, we have a confident outlook to the short and medium term of the Australian business. ARB's focused on the export business, particularly the U.S.
We're confident we'll return to growth in the short term. Investments in Off Road Warehouse, the new e-commerce site, and strengthened leadership team are great lead indicators for future success. Excited to launch our new flagship stores in the U.S. and New Zealand during calendar year 2024. ARB expects OEM sales to continue to grow in both financial years 2024 and 2025 as new contracts materialize. This is all underpinned by an experienced leadership team, a very strong balance sheet with AUD 54 million in cash, and a great pipeline of new products. Supporting this sentiment was a strong January result in the domestic, export, and OEM businesses and a positive start to the business in February. That concludes today's presentation. Thank you very much to the shareholders and investors for taking the time to join us online. I'll now hand over to Damon with some questions we've received.
Yeah, thanks, Lachlan. A couple of financial questions to kick off with first and just as they're coming through. A question received was, "Do you expect to maintain the current gross margin performance in context of current trends on raw material costs, foreign exchange, etc.? And is there more improvement to come as new orders roll through the order book into cost of goods sold?" Gross margins have returned to historical levels. I mentioned in the presentation a little earlier that the materials and consumables used are back at 42% of sales, and that's where they were prior to COVID. We expect them to remain about there. In terms of growth, though, we have seen some growth as sales price increases have flowed through to our invoicing. There was a bit of a lag in the invoicing coming through up to two or three months.
But we expect to maintain these margins going forward. They're in line with historical levels. They reflect a profit before tax percentage to sales of 21.2%. That's historically higher as well. Pre-COVID, we typically performed at about 17.5% of sales, and the target, which we've spoken to previously, is around that 20%. So we expect the gross margin and the profit before tax to trade at these levels into the short term. Foreign exchange has been a little bit of a drag on the business this current financial half, so we're hoping for some relief, and we'll certainly cycle off of the lower Australian dollars as we move into the second half and into FY 2025. What I should highlight, however, is that we are cycling lower gross margins in the first half, and that's reflected in the growth.
While we'll maintain our margins into the second half, we don't expect the growth to be as profound as it was in the first half. Another question was around operating cost lines, employee distribution costs, occupancy costs, well-contained versus prior comparative period. If sales growth accelerates from the first half 2024 level, does operating cost growth accelerate too, or would you expect positive operating leverage? We expect there to be some leverage there, but probably not a lot. 21.2% margin, profit before tax to sales is at the upper end, and I expect that the costs will probably increase closer in line to sales, albeit that there should be some efficiency and leverage to be achieved. A couple of other questions. Yeah, do you want to take those ones? Yeah, sure.
Sorry, just Lachlan back with the microphone. Can you give us some perspective on OEM partnerships?
For example, FLA expanding to new markets overseas, how's it going? Upcoming Toyota launch. The partnerships overseas, and I think evidenced by the presentation, are going well. There is a lot of positive attention to ARB's brand in international markets. Broadly speaking, the attention to the overlanding sector in those markets is attracting the OEM's attention. ARB has been in that space for the longest time. We are seen as the forefathers of overlanding, particularly in that U.S. market. So we'll continue to leverage our position with respect to that. FLA has expanded to other international markets outside Australia, including the U.S., Europe, and to a limited extent in Southeast Asia. Broadly speaking, we are pleased with the growth and the development of these OEM partnerships.
But again, and as previously reported, the use of our brand is really the cornerstone of that initiative, and we do see continued growth in that space going forward. There was a further question about the port disputes and trying to quantify the impact of the different segments. I don't have that data at hand, and nor will we be providing that to market. But we were very specific in monitoring containers being brought into our warehouses and DCs. There were significant disruptions in November and December. We are getting back on top of things now. The disruption not only affected our domestic Australian aftermarket business, but we do do a lot of consolidation of product in Australia for re-export to international offices and customers. So it was not only an impact on the domestic business, but also on the export business as well.
Then there's a question around the issues to the Earth Camper Quality Build. What issues have we found? Look, this is an all-new manufacturing process for us. It is something that we are learning as we go. We are taking our time. We have had a couple of products in market that we've found issues with. So we are double and triple-checking our work and making sure that the build quality is in line with ARB's very high expectations. Very clearly, we want this to be a very long-term product for us. So we are not rushing to get product to market. We have to make sure the product in market is right, particularly as we look forward to exporting the product internationally.
It is one thing to be able to try to fix a product once it's in the domestic business, but once we have that product floating around overseas, it obviously becomes far more complicated for our engineers and technicians to get their hands on. And then there's a final question here, which may be just a clarification. Do some of the quality issues that you referred to relate to the MT64 shock absorbers? And the answer to that is no. The quality issues that we were referring to were not related to the MT64 shock absorbers. Those are manufactured in-house at our top manufacturing facilities, and we do not have quality issues with that product.
Lachlan, I'll pick up another question here. What impact do you see the Commonwealth Government's proposed emissions cap on manufacturers having on retail pricing of utes and four-wheel drives and underlying demand?
At this time, I'd suggest it's a little early for us to be commenting on this. The last material that I've read on this suggests that the government's yet to release their plans and their pricing. So we'll hold off on this and perhaps revisit this the next time we present to market. Okay.
Next question. Sorry, Lachlan back at the microphone. New Zealand, is it possible to quantify the impact of the deferral of volumes due to the repealing of the Clean Car tax policy? I would suggest no. We certainly anticipate that we are going to see much stronger revenues. But certainly, in the last quarter of the calendar year, vehicle sales slowed to almost nothing. And it's pretty obvious that that's going to affect our business materially.
Keeping in mind that the acquisitions of the companies that we have in New Zealand that had made, which were previously Beaut Utes, were centered around the sales of the canopy product. And the canopy product is something that we typically see sold on new vehicles. So yes, a material impact to the New Zealand business. Further question. A competitor has called out issues of production at key Toyota models of Toyota. Have you heard anything on this? I am not in a position to comment on Toyota's quality issues. We will focus on our own quality as a business. And please feel free to refer that question to Toyota. For that Toyota issue with emissions testing, has it impacted ARB in any way? Any insights you can share? And I think Damon's adequately answered that question, so we'll leave that one as read. Okay.
Well, thank you again, ladies and gentlemen, for joining us online. We do appreciate you spending your time with us this morning. We'll look forward to further market updates later on in 2024. Thank you again for your time, and bye for now.