Thank you everyone for joining the Accent Group FY 2022 half year results investor briefing. We'll begin with a presentation by Daniel Agostinelli, Group CEO, and Matthew Durbin, Group COO and CFO, followed by a Q&A session. If you'd like to ask a question, please select the Raise Hand button to be placed in the virtual queue. The Raise Hand button can be found at the bottom of the Zoom interface. Now, Daniel, over to you. Thank you.
Good morning, everyone, and thank you for taking the time to attend the call today. I'm joined on the call by our Group CFO, Matthew Durbin. We will now take you through the results for the half year ended 26th of December, 2021, an update on our growth plan and a trading update for the first eight weeks of H2. There will be an opportunity to ask questions at the end. If I can now refer you to page four of our investor presentation, which was released to the ASX yesterday evening. For the first half, earnings before interest and tax were AUD 33 million, in line with our guidance provided to the market on the 25th of January. Trading in the first half of the year was severely impacted by COVID-related disruptions and lockdowns that occurred across Australia and New Zealand.
At times, through the months of July to October, more than 55% or 400 stores in the group 700-store portfolio were required to close due to government-mandated lockdowns. In this context, I'm pleased with the results that have been achieved, along with the continued progress of the group that has delivered against its growth plan and its objectives. Now turning to page five. Some of the key operating highlights for the year include digital sales growth of almost 48% on top of the significant growth achieved last year. The opening of 104 new stores, including new concepts and new formats. Growth of 600,000 new contactable customers, including significant growth in loyalty customers in our Skechers and Hype business. Our customer database is now at 9 million contactable customers.
Continued growth and performance in Stylerunner with 19 stores now trading and strong results from Stylerunner, the label, which is our vertical product. The opening of five new concept stores in our Glue business, including four new stores which have resonated strongly with the Glue customer. Very proud for us, the new Reebok distribution agreement with a 10-year term to 2032. I will now hand you over to Matthew Durbin to talk about the details of the results. Thanks, Matt.
Thanks, Daniel. Now turning to financial performance on page six. Earned sales of AUD 525 million were up 12.5% on the prior year. We estimate that our sales were impacted by around AUD 95 million in half one due to a combination of government-mandated lockdowns and the impact of Omicron in the last week of December. Gross margin percentage was also impacted by around 700 basis points from July to October with more than 50% of our stores closed. The gross margin rate from November to January has recovered well, and in January and early February was ahead of prior year. Inventory levels at the end of December were back in line with plan, inclusive of some delays from external suppliers. We anticipate continued delays and cancellations from a small number of external suppliers for the balance of half two.
Aged inventory is clean, and we are very pleased with the deliveries of new products we've received in January and February, in particular from our internal distributor brands, Skechers, Vans and Dr. Martens. Cost of doing business was well managed given the decline in sales, noting that in H1 FY 2021 last year in that base, there were non-recurring benefits from rent abatements and wage subsidies. We also continued to invest in all of our key growth strategies through the half. Turning to slide eight on digital. A key highlight of the half was the continued growth in digital with online sales up 48% to AUD 160 million. Digital sales across November to February since stores reopened continue to be strong at higher gross margins.
Our digital infrastructure, which includes flexible store and warehouse fulfillment models and multiple customer delivery offers, continues to provide a competitive advantage. We were able to offer pre-Christmas delivery in capital cities up to the 23rd of December. Our average delivery time in November and December was under three days, despite the significant operational challenges experienced across the market, particularly at the back end of December. We continue to see year-on-year growth in site traffic and conversion rates as we invest in new sites and technology. Turning to VIP and loyalty on slide nine. Our customer database, contactable customer base, grew by 600,000 customers to 9 million customers, which continues to be the result of a strong drive to invite customers to join in-store our new Skechers loyalty program and our new Hype loyalty program. In the Athlete's Foot, the strength of our MyFit Rewards program.
Significant investment is underway in our new customer data platform and new loyalty programs. Moving to retail and wholesale on slide 10. Owned retail sales were up 7.7% to AUD 443.3 million, with strong growth in digital and new stores. Inclusive of the TAF franchise stores, the group now operates 738 stores, including 31 websites. During the half, we opened 104 new stores across all formats and closed four stores where sustainable renewal terms could not be agreed. Wholesale sales were up 47.7% to AUD 82 million, which is a new record for Accent Wholesale. A new distribution brand agreement was signed with Reebok for a 10-year term to 2032. We will commence as the distributor in May. We don't anticipate any material P&L impact in the FY 2022 year.
Benefits will start to flow into the FY 2023 year. Turning to page 12 and our growth plan update. Stylerunner now has 19 stores trading, with Stylerunner, the label growing strongly and continuing to increase the vertical mix. Continue to target a strong network of stores in Australia and New Zealand over the next three years. Glue Store now has 25 stores trading, and through H1 we opened five new concept stores, including 4 new stores that have resonated with our customer and are trading well. Work continues on gross margin improvement, leveraging broader Accent capabilities, including reductions in category-wide discounting and continued growth in Glue Store's strong portfolio of vertical owned brands. Digital continues to grow strongly with ongoing investment in our integrated digital capability and customer engagement initiatives. We feel as though digital sales will reach 30% over time.
They reached 31% in the half just gone. However, that was not a normal period as we had all those stores closed. We're still targeting 30% sustainably over time. VIP and loyalty. Contactable customers of 9 million. We are well progressed towards our target of 10 million contactable customers. A new Hype loyalty program launched in half one, with Platypus to launch in half two this year. Customer sign-ups to both the Skechers and Hype programs have been strong. The pipeline of new stores remains strong, with 140 new stores expected to open in FY 2022. New store performance even through the COVID disruption continues to be strong. The Athlete's Foot franchise buyback program continues, with five TAF stores acquired in half one. Our vertical program also continues to gain momentum with a strong growth in half one.
Margin also continues to improve on this product as we grow volumes and improve our vertical sourcing capability. Now turning to our division trading update on page 13. Trade for the first eight weeks of half two has been significantly impacted by reduced customer traffic due to the COVID-19 Omicron variant. Like-for-like sales for the first eight weeks of half two were down 10% on prior year and flat to the FY 2020. LFL sales for the first four weeks of January were down 19% to last year. Very pleasingly, LFL sales for the most recent four weeks to Sunday, the twentieth of February, have improved significantly and were in line with last year.
Following the post-Christmas sales, the group has continued to drive full-price, full-margin sales, and gross margin percentage over the first eight weeks has been in line with expectation and ahead of the prior year. Given the ongoing uncertainty surrounding the impact of COVID-19, we've determined not to provide forward sales or profit guidance for the balance of this half or for the full year. I'll now hand back to Daniel to wrap up.
Thanks, Matthew. In conclusion, H1 of FY 2022 was a challenging half from a store closure and operations perspective. I'm pleased with the sales over the last four weeks as customers have started to return to a more normal shopping pattern and hopeful that we can have a less interrupted second half of the year. Finally, I remain excited about the opportunities ahead for our business. We continue to build a strong defensible business in Australia and New Zealand. Our portfolio of global distributed brands, owned vertical brands, integrated digital capability, and a large store network are core assets of the group and have positioned us as a company fairly well for a strong growth into the future. That concludes our presentation today, and we would be happy to take any questions.
We'll now begin the Q&A session. As a reminder, to ask a question, please select the Raise Hand button at the bottom of your screen to be placed in the queue. Thank you. I believe we have the first question from Hayden Lu.
Hi, Daniel and Matthew. Thanks for taking my question. You clearly-
Hi, Hayden.
Sorry. You clearly remain very focused on your rollout strategy during even the periods of lockdown. I'm just curious to what's been driving this accelerated rollout? It was only in August you guided for 65 for the full year.
That was revised to 120 and now over 140 stores for the new year. Was it a deliberate strategy to accelerate the rollout or just more opportunities came up along the way?
Thanks, Hayden. Well, yes, lots of opportunities are still coming our way and we continue to work very closely with our landlords across Australia and New Zealand. We've got some great models that are still very prominent and on trend in terms of what our customers want. We're continuing to explore and develop, you know, in some cases, larger stores, in some cases, complete conversions from one banner to another, where they make sense. As a business, Hayden, the big drive from us is a really big review of, you know, what's really giving us the return on investment and return on equity. That's a big drive for us as a business moving forward.
Gotcha.
Can I expand on that? I can expand a little bit on that, Hayden, to give you an example. We have a very big Platypus store at Melbourne Central here in Melbourne. It's a good store. We think it can be better and return a far higher return on investment and return on equity. That store, as an example, will be converted to a Glue Store in the next three months. They're the sorts of things we are doing internally to simply push towards where we're getting higher conversion on return on investment and return on equity.
Yeah. Thanks. That's helpful. Just on that, in terms of Glue Store, in August, you called out online was about 20% of Glue's revenue. Now, given the lockdown, has that percentage inflated, as in the half as a result of lower store sales?
Hayden, that's correct. Indeed that trend's been across the group. The Glue Store portfolio is almost entirely located at the moment in New South Wales and Victoria in metro. We've basically had all of the Glue stores shut for the best part of three and a half months. You can imagine that the online in Glue is very high.
Yes, 'cause I noticed you gave disclosure on Glue, which is helpful. I'm just trying to sort of work back to a same-store sales level there. I mean, noting that online sales still might be inflated, but is it fair to say that in terms of your average sales per store for Glue, that's heading back towards pre-acquisition levels? Is that sort of what you're seeing?
Yeah. It certainly is. We saw some very good momentum in Glue through November and December. Early January, as you said, was again impacted by Omicron. Certainly as we've got into February, we're really pleased with how that's going. That's our objective is to get those stores. We've still got some work to do in those stores, particularly the legacy stores that we've acquired, and we've got a program of work over the next 12 months to go in now with their new concept for Glue, to go in and refurbish those stores, bring them up to the standard that we'd expect them to be at.
Okay, great. Thanks both for that.
Thank you Hayden. Our next question is from Keegan Boysen.
Good morning, guys.
Hi, Keegan.
Just first question from me. I'm just curious in how to think about vertical brands, you know, over the years, how we think about them, just 'cause there's been significant growth in that channel, and obviously it's a much higher margin channel. You know, if you think about Glue and Stylerunner and some of these brands that you're growing, you know, where can we think that should, you know, roughly get to in the, you know, coming two or three years, please?
Keegan, it's been one of our moats for forever that we, you know, we obviously will push and give our internal distributor brands best locations in our stores where possible, while we still look after the market in terms of who we supply and so on. Indeed, what's happening is the brands are simply getting stronger and stronger, and the portfolio we've put together is certainly in our view among the best in the world. The Reebok brand, as an example, we expect that to go across all of our banners in some manner, some far higher or far stronger if you take Platypus and Hype and Glue. We'll see a lot of that product in stores.
In all of our businesses, you'll start to see the same drive as you've seen, hopefully seen with Vans, Dr. Martens and Skechers. It's really just adding to what we've done forever, being you know, a true omni-channel business from distribution right through to presenting it on shelves.
Keegan, if I can, I'll then add about the full vertical own program that continues to be a big strategic focus. We've got a lot of momentum in the first half, and we're really pleased with how that's going. We did say six months ago we thought that could get to 10% of sales over time. We're just gonna keep driving that and see where it can get to. The margins have kept growing and we're very pleased with the progress there.
I think that the answer is we don't know where it could get, and we kinda looked at the 10% and went, "Well, we don't know if it's 10%, we don't know if it's more." We're just gonna keep you updated as we move forward on how that's going. There's great momentum in the first half, and we're confident that's gonna continue into the second half.
That's fantastic. Maybe just secondly, following on from that, just around the gross margin and how we think about phasing throughout the half. Obviously, there's a lot of, you know, a lot of lockdowns, a lot of disruption in the PCP, which makes it difficult to comment on. How should we think about sort of your comp base, not from a sales level, from a gross margin level, a bit of the promotional activity in the PCP? Should we expect this to sort of start returning back to pre-COVID levels, plus, you know, the benefit that you've had from Vertical Brands?
Yeah. Look, if I think about the first eight weeks, and perhaps just comment on what we've seen today in gross margin. The gross margin's recovered and it's now sitting as well as, you know, as we said, just above last year for the first eight weeks. The nice thing is, with that drive for gross margin, our comps have been flat for the last four weeks as customers have started to come back to stores and return to more normal shopping patterns. From where I'm sitting right now, where we're sitting, there's no reason to think that can't sort of continue through the balance of the half, assuming, of course, that, you know, we stay open and there's no further massive breakouts or other variants of the virus. I hope that answers your question.
Certainly currency is a little bit of a tailwind for us as we go into this second half, which we've talked about previously, so that's on our side. It's our absolute intent. Our inventories are clean and in line. It's our absolute intent to drive full-price, full-margin sales through this period.
That's very helpful. Thanks, guys.
Thanks Keegan.
Thank you, Keegan. Our next question is from John Hines.
Good morning, Daniel and Matthew. Thanks for taking my questions. Perhaps could you offer some more color on trading in January particularly, and February, and some insights, I guess, on the youth category? Like what happened there, and what were the key takeaways?
John, I might jump in on that in terms of the numbers and then throw to Daniel in terms of some of the sort of trends that we're seeing. If you think about going back to last year, in just more globally, you know, almost 80% of our business deals with youth. That makes sense. The Athlete's Foot and Skechers also sort of range into an older customer, but the vast majority of our customers in the other banners are, you know, could be described as youth. Last year in January, we experienced very strong comp sales, and that actually continued into early February. One of the features of January is that we were comping a really strong comp base last year, and it was still quite buoyant as we got into February.
That's why we, you know, pointed out that our comp sales against FY 2020 were flat even across those first 8 weeks with that big impact in the first four weeks. Just at a macro level, that's what's going on. And, you know, you'd say that the youth customer in the last four weeks has started to come shopping again and they're happy to pay full price. That's how I'm seeing it. I might throw to Daniel for any more color.
Yeah, look, John, I mean, like everyone in retail, I think, and for any of you that, you know, visit shopping centers, it's not the best experience wearing a mask. It's actually an awful experience, so pretty hard to measure anything at the moment, in my view. Well, particularly in the last couple of months, and it really started around that 17th, 18th of December. We've simply been disrupted. Among that, you know, what's very pleasing is that some of our distributed brands, in particular Vans and Dr. Martens, has been very strong for us. That really tells us that, you know, we're on trend. The brands we distribute are on trend, and we think that's gonna continue. We definitely have had some disruption of product deliveries, absolutely.
That could continue for some time. However, what we are receiving is seeing great percentage sell-through on those products. So that means the market's hungry for new product. Like many other retailers, you know, the freshness that we would all want is probably not there to where we want to have it, but we're very optimistic that slowly but surely, you know, it'll all start to get back to some, you know, normal pattern, where we can do what we do best.
Thanks. If I can just take that one step further with wholesale. Obviously a strong number, and I'm wondering what's that telling you about competitive behavior and their trading through this period? Obviously notwithstanding, there was some cancellations of orders, I think, on the PCP. How should we think about the second half given the, you know, the recent volatility we've seen through that channel?
I might pick up on that one, John. There's a couple of things going with the wholesale number compared to last year, just for everybody's benefit. The first is that the headline number includes the acquired businesses which weren't in the prior year. The growth excluding that year-on-year is about 17%. This time last year, we were still getting back into stock and wholesale. We kept a lot of orders through the first round of COVID-19. We were coming off what we'd consider to be a depressed sales base in wholesale last year. I think what it does say is that there's certainly some optimism in the market for the coming months.
You know, I think people have been through this tough time, but I think they feel as though, you know, they can get into stock and move forward, and that's certainly how we're seeing it. I don't think there's anything to read into, you know, the sort of growth in that compared to our retail growth, to be honest, John. I really do think it's just off a disrupted base. I think the coming period signals some optimism. Stephane, anything to add to that?
Yeah, look, I'm not sure how our competitors are trading. I assume they've been impacted somewhat as we have. Those that we do supply, which is essentially all of our competitors, they're certainly not canceling any orders with us. Indeed, we've been quite pleased that given we sell six months out, we can see what the forward six months look like, including our own internal orders. It seems very positive. Very pleasingly for us, four key brands have been highlighting the numbers. We've just the results there. In particular, Skechers continues to be very strong. Vans and Dr. Martens are just right on trend.
The fourth one, which we haven't spoken much about, but we're working very hard on with a very talented team, is our HOKA brand. H-O-K-A for those of you that don't know the brand. It's the fastest growing running brand in the world. We're very pleased to have that distribution and the early signs, particularly in our Athlete's Foot business, are very positive. Also the market forward orders look very pleasing.
Great thanks that's really insightful. I've just got one or two more. Would you be comfortable talking to us about Reebok? I know obviously the deal's just been agreed on, but it looks like another really attractive growth avenue for you guys. Can you help us understand perhaps some of the options that are available to you there, if you're able to?
Yeah. Look, I mean, we're very excited. As you can imagine, that they did have a choice to find many distributors in this part of the world. We won that distribution with a very talented team that's got the capability to actually execute this. Right now the brands are doing somewhere close to $2.5 billion-$3 billion worldwide. They're calling out that they're gonna grow it to a $5 billion brand. We believe that. There's lots and lots of heat and momentum around the brand worldwide. We're already seeing our own stores, even though we're buying it from third party at the moment, seeing very, very strong sales come from that brand, particularly in our Glue Store.
Well, indeed, all of our banners are experiencing solid growth with that brand. We don't officially take over till May 1, but we have a team that we've assembled, led by a pretty strong, capable head of brand. We simply believe that this brand will be very solid within our business across the board, but also to those that we supply. I think it's a brand they're gonna want to carry and have in their mix. Certainly the requests coming in, even though early days from many of the big players around Australia and New Zealand is very strong. You just need to look, you know, on their websites and see the sort of stuff they're doing.
They're right on trend. We believe, assuming we execute this, that there's great growth that'll come from this brand.
To give us an example, I mean, can we start to see this as a, you know, like a Vans or a Dr. Martens offering? I'm assuming you don't expect it to be as substantial as Skechers is.
You know, that would be a fair comment. If you look at just the general size of that brand and the heat and momentum behind it, you'd have to assume that it'll be as good as a Vans, certainly bigger than a Dr. Martens. You know, the beast and powerhouse of Skechers would be a hard slog, I'd say.
Yeah.
Skechers is just.
Yeah.
Skechers is just too strong.
Yeah. That's right. Last one from me, and then I'll jump back in the queue. Just, you mentioned, Matthew, that you guys are happy with your Glue concept now. I've been out seeing a couple of stores and they look great and a big improvement to what they were previously.
Can you give us some color in your mind, how are you gonna be different to peers with this offering? What is, you know, a little bit more color on what is the concept, you're trying to bring to your consumer base?
Might throw to Daniel on that. He's the brain behind that one.
Well, John, I'm happy you're seeing the changes. We've certainly got a lot more work to do. What's very pleasing is that we've opened five stores, in, you know, and in some big shopping centers. If you take our Highpoint store down here in Melbourne, which is a premier shopping center, we're very pleased on the numbers coming from that store, including its margins. The differentiation on what we bring to market is that we are, you know, we're a house of brands and we've got the biggest brands of the world in our mix. More and more of them are coming our way, wanting to get into those stores.
Also we've got some great capability in that business, which is very pleasing. As part of the acquisition there, we've got just the most amazing and talented team in there that can actually make and produce product, which is vertical. You know, I talk about brands like Nude Lucy. There's a brand we have called Article One for men, very strong. We're developing this capability, which we think is gonna be very strong within that Glue Store business and indeed those we wholesale. The most important vote is coming from the customer, particularly with those brands. Amongst the house of brands of the world, we will do our vertical mix, which is a very strong percentage of overall sales.
Most importantly, John, when you put a new concept together, it's nail-biting time because we all think it looks terrific. What does the customer think? That's all we care about. In the five stores to date, we're very pleased with the ROIs coming out of that effort.
Great. That's very helpful. Thanks, Daniel and Matthew.
Thanks, John.
Thank you, John. Sam Teeger, please go ahead.
Oh, thanks very much. Hi Daniel. Hi Matt.
Hey Sam h ello.
Just wondering, you know, the delivery delays that you're flagging, what do you anticipate that impact to second half sales to be from them?
Sam that's a good question. We haven't sort of called out what we think that will be. Perhaps one of the ways to think about the question is we're seeing delays in some of our external brands and, you know, figures of sort of 20% in a selected number of those external brands of delays and cancellations. You know, those external brands represent a smaller and smaller portion as we move forward. Perhaps that's how to think about it. We, you know, sometimes you get the demand there, you can do the sales with less stock. It's a little bit of how long's a piece of string on that one. If you think about it as 20% cancellations or delays across a couple of selected external brands.
Right.
I think I can add a little bit to that, Sam. Pleasingly for us, if you take our Skechers business, we're certainly not 100% fully stocked, but it's fast getting there. They've done a great job to get us back into stock. That's the one that really matters the most to me in particular. It's, you know, there's enough there for our team to say, you know, we haven't missed budget because we haven't got the stock. I mean, that's the drive I've got with the management team. You know, to your point, who knows what's gonna happen there? The CEOs of the big brands I talk to consistently tell me that it's starting to come good.
That's as far as they'll go, and I don't think we can elaborate any further because we simply don't know.
Right. When you walk around, you know, the CBDs and the shopping centers and have a look at some of your competitor stores, are you seeing them able to secure some of this stock?
No. At least, you know, I haven't been in the back rooms and all that sort of stuff of competitors. Just looking at what's on their shelves, it seems to be as disrupted as we are. I'm sure there's some brands that they may have a bit more of, but in the main, they're disrupted as much as we are, I would say.
Okay. Makes sense. How many stores have you opened net in January and February to date?
I don't have that number to hand Daniel, you might have it.
Look, mate, it's really a handful. You're talking three or four. Typically, shopfitters are on, you know, leave in January, the January month. We also don't want any disruption to, you know, that particular month. In March, I think we have eight stores to open across the business. It hots up from there further right up until June thirty, and that includes some refits, which we don't count as a new store, but it takes the same effort in terms of refitting.
Understand. Thanks guys, I appreciate it.
Thanks, Sam.
Thank you Sam. Next question is from John Price.
Yeah. Hi Yeah, no, great presentation. Thanks, Daniel and Matthew. I'm from Teaminvest, and I'd say most of our members all own shares in Accent Group, and we've been very happy with that over the years. I like your reference to your company as to it, that as a house of brands. I think that captures it very well. Just what would you consider as your strongest economic moats?
Yeah, good question, John. I might jump in there. We sort of alluded to them in the back end of the release. Our distributed brand relationships, no question, are moats in this country. If you look at the biggest of those Skechers, that's an agreement that we extended earlier till 2032. It's one of the big brands of the world. The fact that we've now secured Reebok within that, and Dr. Martens and Vans are also very strong. We've got HOKA as well. That, yeah, portfolio just continues to get stronger on long-term deals. I'd say that's one. I think our store network and the 850 store network is not easy to create. It's not easy to replicate.
In an age of digital and omni-channel, it gives us a very direct line of access to our customers to deliver from store and get product to them quickly. So they're, I would say, are two of our strongest. Might throw to Daniel because he'll have some thoughts on this as well.
Yeah. Look, I think, John, one of the things that we're pushing as a business, and it is certainly in the moat sort of bucket, is the fact that we are fast moving deeper and deeper into being a pure omni-channel business, which we think is very important moving forward. You've got distribution, you've got retail, you've got a very capable digital business. And the fact that you can get products, you know, semi-vertical, if you call it, because if they are distributed brands, but certainly higher margins on that product, allows us to have a bit of a moat. If you go into any of our stores, it's no secret why you will see brands like Vans, Dr. Martens, and the likes called out. They are our moats.
Most importantly though, John, we start with one thing. What does the customer want?
Right.
Regardless of margin, regardless of what we're trying to do to beef up our profits, we always start with what does the customer want? That's a big driver moving forward. We are very entrenched in product. Regardless of where that margin lands, have we got world-class products in our semi-distributed brands, which we call you know in-house brands that they are distributed. We certainly feel that they are the most on-trend around the world, and you can just look at what's happening around the world with some of those brands.
Indeed, if you take a look at some of our products that we are making from scratch, where it's 100% vertical, we would say that we're up there with the best in terms of where it's going. But we certainly wouldn't call out that we feel we're 100%. But we are fast getting capability in all of our vertical businesses to really play on that, do we have a world-class product?
Yeah.
Which will end up being a moat.
Okay. Thank you.
Thanks, John.
Thank you, John. Bruce Carmichael, please go ahead.
Good morning, Daniel and Matthew. Sorry, I just had to unmute there. I'm Bruce Carmichael. I'm also from Teaminvest, so good morning. To date, your growth strategy seems to be mainly organic growth, and it's pretty impressive. Looking out over the next five to seven years or so, when do you think that you might be running out of runway for your organic growth? You may then have to consider perhaps strategic acquisitions or even perhaps other markets in other countries.
Bruce good question. It's one that we obviously strategize internally. We feel we've got good capability internally towards growing businesses organically. Some of the businesses we think have still got a lot of growth, particularly we feel our Platypus business can certainly grow into areas that we never imagined only five years ago. By that, I mean areas like you know, call it B and C grade shopping centers around Australia and smaller towns. We're actually doing very well when it comes to what we invest and what we get as a return. One of the big pushes for us, as I've mentioned, is the return on equity and return on investment. That is a big drive internally at the moment.
The moment you have an acquisition, you end up with a goodwill on your balance sheet and your ROE goes down. We would prefer to spend that money on organic growth and new businesses. Even if the cost of a business failing while it's small-
To simply convert and put that money wherever that bullet may be going. That is the overall drive of what we're doing as a business internally.
Thank you for that. That is actually where I was coming from, because when you make an acquisition with all the goodwill, it slows down your return on equity definitely. You guys have an amazingly high marginal return on equity, which means that you can grow the business very quickly from where you are without having to hold out your hat for shareholders' funds or raising more debt.
Well, yes. The big word for us there is, Bruce, execution and continuing to invest in that back end, which is all important as a foundation to what we would like to do. In terms of growth, if you take the Glue business, we're not even in Adelaide at the moment. We're not in Perth. We're not in New Zealand. We're not in Queensland, you know, in the main, we've got one store. I think we've got one store. So we see a lot of growth in the current businesses and sometimes less is more. That will be a bit of a push, really have a review of the overall business and say, line in the sand, what's working, what's not.
If something's getting an okay ROI, I certainly don't wanna be in the average bucket. I would prefer to make a move and move it into the high return on investment bucket. They're the sort of things that we will do over the next 12, 18 months.
Good. Thank you very much.
Thank you, Bruce. We currently have no more questions in the queue. As a reminder, to ask a question, please select the Raise Hand button at the bottom of the Zoom interface. Peter Storer, please go ahead.
Thank you for taking my question, Daniel and Matthew. I just wanted to refer to the balance sheet. We've got a current ratio of only 1.15 at the moment, so we've taken quite a hit, I think, not just on the P&L this half, but also on the balance sheet. The borrowings have gone up 2.5-fold, giving us a gearing of about 20%. Can you give us an idea of where you sit with borrowings? Is that going to be a priority to pay that down, or are you comfortable with the current level of borrowing?
Yeah, that's a good question. Thank you. So, we took out a new debt facility. We considered a new debt facility in around November last year. That increased our total facilities to around AUD 300 million. As at the end of the half year, we were drawing about AUD 91 million of net debt. That higher level of debt, so previously we've been at around AUD 40 million. That higher level of debt we would anticipate to have over the next 12 to 18 months. You know, we've called out acceleration of growth strategies, new stores, the work that we wanna do in Glue Store, the work that we wanna do in Stylerunner. I think in the short to medium term, that's gonna result in a higher leverage ratio.
Certainly, we don't think a 0.8 leverage ratio is, you know, anything to be concerned about. I would say right now we're very comfortable with our levels of debt. They're absolutely in line with where we projected them to be. We've got heaps and heaps of headroom if we need it against any shocks. I hope that answers the question for you.
Yes, it does. Thank you.
Thank you.
Thank you Peter. There's still no more questions in the queue. As a reminder, to ask a question, please select the Raise Hand button at the bottom of the Zoom interface. There are no more questions. Accent Group team, back to you.
Thanks very much John. Thanks everyone for attending today. I look forward to connecting over the next few months.
Thank you very much everyone.
Thanks guys.