Thank you for standing by, and welcome to the Bapcor briefing to discuss the FY25 trading update and review of balance sheet carries announced in this morning's ASX. This is a briefing for analysts and investors. We will not be taking questions from the media. For media, please direct your questions to the contact details on our ASX release. All participants are in a listen-only mode. There will be opening comments from Executive Chair and CEO Angus McKay, followed by a question-and-answer session. If you would like to ask a question, you'll need to press the star key, followed by the number one on your telephone keypad. I'd now like to hand the conference over to Mr. McKay. Please go ahead.
Online, thank you very much. Good morning, everybody. Let me just make some opening comments before we pretty quickly move straight into questions, and obviously answers from ourselves. We've announced this morning a trading update, the outcomes of a review that we've carried out on our balance sheet as part of our closing processes, and also announced some board changes. Let me just quickly deal with each of those in turn. We've announced a perspective on the second half of trading, and in particular, a perspective on what was the May and June trading months. There were major overall comments that the May and June trading months were harder and disappointing relative to our expectations. That has particularly impacted our trade segment. We're talking through disruptions across our wholesale network.
Those disruptions, I suppose, are not unexpected given the quantum of change that we have deliberately pushed through those businesses over the course of the year. There have been in excess of 45 site closures and changes as we have eliminated sites that make no sense and looked to consolidate the way those sites work through, particularly the big distribution centers. We've also commented on the integration of the Renewable Electrical Group and the disruption that that has happened in its course at a customer level. Whilst we believe that is temporary, it has no doubt impacted our second half of trading. Retail remains as challenging as it has been for a while. We are pleased, ultimately, with the promotional rotation changes we've made, but that environment does remain competitive.
New Zealand remains as complicated as it has been around the other economic conditions that might have took place, as we deal with effectively good, fervent news, but no action, I suppose, at the consumer trading level. We've also talked to the fact that as part of our half-term results, there are a number of items specifically around some supply disputes and receivables where we've taken in view that the balance sheet values that we're carrying on those need to be dealt with in the current and what I describe as a pro forma year.
We also just updated the market that, consistent with what we have said through H1 and in part through H2, the consolidation work that we're doing and thereby the savings that we're expecting to gain, that range of $20- $30 million, we believe is secure and that we will deliver those and that the exit rates remain as discussed in prior conversations. The changes that we're making across the group are all around, you know, not just our technology systems or technology changes. It is around supply chain, and that consolidation process is also around the implementation of the strategy that was announced in April of the current calendar year. At a gross level, if you like, our pro forma impact is expected to be between $81 and $82 notes.
The second thing that we then have announced is that as part of that balance sheet review, we have done a piece of work looking at other adjustments that we need to make to our ultimate statutory profit, and that we are recognizing those and taking the opportunity to recognize those in the second half and ultimately what will be our full-year results. To be clear, the numbers that we're talking about here are all unaudited at this point in time. Obviously, diligence has gone into them, but they do remain unaudited, and those processes will continue over the, I suppose, the four weeks to come, ahead of our scheduled announcement on the 28th. In bottom-line terms, we're announcing material items or significant items in the second half of between $43.3 million and $45.3 million at an impact level.
For a full year, that will go up to $48- $50 million, with the difference having already been recognized in the first half. There is a categorization contained in the release we've made. I won't go through that now. I'm certain I'll be getting questions on that, but I will invite questions to, I suppose, help bring that to light. That's next, I suppose, an adjustment to our impact on a full-year basis of $48- $50 million. The final thing we've announced is that we're, again, based upon our review of the balance sheet and including our review post all the consolidation work we're doing, that there are going to be two changes that we expect will impact the fiscal 2024 outcome, i.e., those transaction carriers. They, therefore, will not go through our FY25 impact, but they will be a restatement to the prior year.
In total, they are expected to be $24 million on a post-tax basis. They split between two items. One is restating some intercompany transactions, and that relates to trade and other payables across those two dimensions. The second is an accounting policy change that we are instituting that effectively goes to the conclusions of the consolidation process we've made around our disparate networks of wholesale businesses into the major distribution centers, whereby we are aligning to a consistent inventory valuation process across those businesses. Both are obviously a material change. We don't walk away from that, but we both believe they are necessary in terms of the simplification of this business. The third element of our announcement is we're announcing that three directors have tendered their resignations: Mark Bernhard, Brad Soler, and James Todd. They tendered those resignations yesterday.
My announcement to you is that we already had a broad refresh process in place that will now be accelerated in light of those three directors leaving the business. I won't go on. We'll pause. I'll hand back to the moderator to see what questions we can answer on behalf of the analysts out there.
Thank you. If you would like to ask a question, please press star one on your telephone and wait for your name to be announced. If you would like to cancel your request, please press star two. If you are on a speakerphone, please pick up the handset to ask your question. Your first question today comes from Craig Woolford from MST Marquee. Please go ahead.
Oh, good morning, Angus. I got a couple of questions. It's quite, quite a big announcement. Can you just clarify why the three board members resigned? It reads, I assume it's with immediate effect?
Craig, yes, the short answer is it was immediate effect, effective yesterday. They'd come to their own conclusion around their tenure at Bapcor and decided that now it was the appropriate time to step down. That's really all I can say.
Okay. Can you explain the restatement of earnings at $25 million post, $24 million post-tax? You know, the thing that's running through my mind is that that looks like a fundamental step down in the earnings power of the business. It says it's over a number of financial years. How many years was there the build-up of this overstatement of circa $24 million?
Yes, so I think we've described the nature of the two changes. One is a restatement of accounting on intercompany transactions. The other is a policy change. You are right. It's $24 million at a net level, net after-tax level. It goes down many years. When I say many, it spans 2024, 2023, 2022, and I'll say there's elements of 2021. Prior to that, frankly, the team have not looked. At the $24 million level, it is a big number, but it does spread over three- four- five years.
Okay. Thank you. On the operating side of the business, just on retail, my maths would suggest that second-half sales, total sales for Bapcor retail was down 11%. Interested in understanding, you know, the components of that, if that figure's right, like how much of that would be attributed to store closures or other factors versus the same store sales performance in that second half?
I don't have, and we will clearly get the full results down in a lot more detail by segment. Within the retail, we've closed a number of stores, but equally, some of those closures have been just where we are moving a store. The core element of change within the sales revenue line in retail will be attributed to, you know, one, a category shift that we've talked about for a while, from discretionary to non-discretionary. The other component will be the promotional rotation, as we've moved away from these all-store sales. That's probably all I can go into right now. We will obviously cover that in detail when we get to our full-year announcement conversations in five weeks' time.
Okay. Thanks, Angus.
Thank you. Your next question comes from Elijah Mayr from Goldman Sachs. Please go ahead.
Good morning, Angus. Maybe just on the trade segment, instead of noting how disappointed you were in May and June, is that at a company-specific level or at an industry level? Can you maybe sort of detail what specifically caused those disappointments through the May and June trading periods?
I suppose, Elijah, just at a no-go-company level, if I didn't say I was overall disappointed, that would be not telling you the truth. Probably the core element where May and June hurt us most was in trade. May and June are the two biggest trading months of the year for that business, and whilst their performance wasn't stable in the negative, it just wasn't at the expectation that business had set for itself. That's our primary measure there. There are a number of key promotions in those two months that just did not fire for the trade business. The changes in the second half around specialist wholesale, we'd clearly hoped we'd start to see greater traction.
Given the number of changes in that business segment, specifically that is around the warehouse and depot consolidation that we've been doing, I'm not surprised that we impacted ourselves that much, and we did. From an AAD perspective, so that's the electrical group in the business, the other impact there was where we consolidated the ERPs over that time, and that just made it more difficult for us to trade effectively. On the forward view, I would say we have an expectation that those issues are self-inflicted, necessarily self-inflicted as we go through that consolidation process, and that therefore our prospects into the future look better. They weren't necessary in a way for us to effectively shift our way through what we've described in the releases of the 45 sites.
It seems a lot of the issues were kind of that core specific rather than industry specific.
Sorry, Elijah, could you say that last part again, please?
Sorry. It just sounded like a lot of the issues through May and June were Bapcor specific rather than industry-wide specific.
I would say that is absolutely the case for the specialist wholesale segment. I'd say for trade, that's right, as in they were that core specific. For trade, I would say it was, you know, it's market, it's competition. I wouldn't say that it's Bapcor problems. I think that would be an unfair characterization. New Zealand, it's market rather than ourselves. In retail, our activity was very much by design. We knew it would have a core sales impact as we changed our promotional approach and looked to improve our margin structure in that business. Probably more, probably a combination there of our own activity delivering the expectation, but a bit of a tough environment.
Thanks. Maybe just circling on the cost, obviously noting that you're getting to the top end of that $20- $30 million range in terms of savings. That's a gross number. Immediately noting that there's obviously strategic investments in IT and other supply chain marketing costs. Can you just give us a sense of, like, is this the cost base in this second half that we should expect going forward into FY2026? Are there more costs to be going back into the business, or can you give us maybe a sense of the magnitude or maybe even net cost impact, taking into consideration some of those savings, but also the investments that have been made during the half?
Yeah. Let me just reiterate what we have said. We expect to be at that sort of top end of the 20 to 30. We said at the half year, a couple of times in between, that we expected our exit rate to be around 40. We're not changing our point of view on that gross. We will be reinvesting in 2026 around core processes, systems, etc. We have not disclosed what that will be. We will, as we start to do those projects, be quite transparent around them. In terms of the activity to gain the benefits, that is well complete. The benefits are there. Where we now go to is invest in that to drive the future performance of the organization.
Thanks. Maybe I'll just leave one more in on retail. Can you detail, I guess, what the change in promotional cycle means and what the promotional environment is now within the retail segment?
Yeah. Historically, we have favored all-store sales, you know, discounting all-store product by 20%, 25%. We changed that philosophy just prior to the December trading period, whereby we wanted to limit the number of all-store sales and move to category-specific promotion. We said at the time that we knew that would have a sales impact on the business, but that we believed by moving to category-specific promotion, that would be supported by our suppliers, that we would make, that that would be a more profitable way to promote. We said at the time that what we were doing was not a unique retail promotion strategy. That's what most retailers do. We have done that.
You know, we'll go into the detail, but when we show you the full-year results, you'll clearly see that whilst that change from all-store promoting to category-specific has impacted sales, it has equally positively impacted our gross margin.
Excellent question.
Thank you. Your next question comes from Mitchell Sonogan from Macquarie. Please go ahead.
Good morning, Angus. Thanks for taking the questions. Just following on from Elijah there, in the trade segment, you've talked to May, June being below your expectations. Obviously, the first trading update you gave at the start of the second half, at the first half result, trade was up 3.7%. Just trying to understand, was it sort of tracking along broadly those levels through till May and June? Is that when you saw the material underperformance or has it been declining a bit through the half as well? Thank you.
I'm sorry, Mitch, just make sure I understand the full question.
Yeah, sorry. You started the half at 3.7% up in trade. Just trying to understand the cadence through the rest of the period, or was it really just an underperformance in May and June that dragged the second half result down?
Yeah, it shut down. We were pretty happy with trade performance, and then May and June come with that, and that was, those were the two disappointing months.
Yeah, and then maybe just on, you've talked about the closing or moving of 45 sites. Can you maybe just talk or give a bit more color about the changes you've made there, what impact that might have into 2026, and I guess, yeah, what other changes could be coming, particularly in the retail business there as well?
Yeah, so the 45 sites predominantly relate to that wholesale segment. Breaking it down, in the main that is within our wholesale business. There have been site changes and consolidations within both electrical and trucking as well, but they are not, they haven't been for many days, excuse me. The changes represent us closing down distribution centers right across the country and consolidating those distribution centers in the main into our big, capital city-based distribution center structure. That would be in the main. There have been other changes where we have consolidated smaller sites into what is called an intermediary site. Those consolidations have been driven, firstly by economics, by moving the business to be more profitable and hence generate a large proportion of that $20- $30 million that we have talked about.
The second component has been around safety factors and operational standards where we have looked to make changes there. That is sort of the, I suppose, the fed line. The logistics of that, therefore, mean we relocate stock from one place to another place. The disruption that occurs to that is obviously that bad news landing light, is a fair bit of work. Equally, from a customer perspective, we end up moving sometimes away from a localized area to being even 10 kms away from that area, and that can impact the customer's transactions with ourselves. That is the nature of what we're doing. We look back at what we've done, and we firmly believe we've done all the right things there to do that quickly.
It had to be done quickly, one, to yarn the savings that we for profit, but two, to drag this out just means that we slow down progress around managing inventory and managing a more seamless logistics process to our customers. I do acknowledge that in the immediate short term, that does impact the trading relationships customers have had with us over many, many years. As you appreciate, Mitch and Simon, these businesses' cases, they are, these are small or relatively small distribution centers that have been there for a long, long time. Without a doubt, that change, yeah, that change hurts. It is the right thing to do where they serve us up, to allow us to, you know, play with the scale that we should be playing with rather than that fragmented base that we've got.
It's changed our profitability in that particular role, which is exactly what we intended to do. Importantly, from a group perspective, it has also changed our operations to move them closer to what is, you know, the required level of operation in a publicly traded company. Hopefully, that gives you a bit of a flavor.
Yeah, it does. Thanks, Angus. Just another couple of quick ones. Just on, I guess, I know you haven't given color on segment margins, but clearly the market focuses on the core trade business here as well. Even our margins in the first half were actually very robust and had some pretty material expansion. Are you able to give any sort of color about how we should be thinking about the margins in the trade business looking into 2026?
Mitch, I'm not going to, I know we'll get there when we get to the '28 announcement, and we will go into that detail. All I'll say is, you know, we've, you know, the market remains pretty competitive. We've been very disciplined in the way in which we want to operate right now. I'm not therefore foreshadowing change on what you expect, but we'll go into that detail when we speak to you at the end of August.
Thank you. Just the final one. Angus, I guess just in terms of the reviews on the balance sheet, is there anything else further, or do the reviews extend beyond the announcements that you've put out today? Thanks for taking the questions.
The major question. Long story short, the review's been really extensive. I mean, obviously, Tim being new to the organization, all the change that we've gone through, we wanted to make sure we looked at this balance sheet properly. I'll be transparent. We're disappointed we found some of the stuff we have, but we've just got to deal with that. It has been extensive, and all I can say is that we have confidence that we've done this job properly.
Thank you.
Thank you. Your next question comes from James Bales from Morgan Stanley. Please go ahead.
Thanks. Angus, I guess I'd like to first understand a bit about some industry feedback I've had on Burson and JAS stores. Can you talk to management churn rates in those businesses over the last 12 months and how that's compared to history?
I can't give you the specifics. I just don't have those in front of me. I didn't turn over.
Has that changed materially?
Not that I'm aware of materially, other than probably I would say JAS may well be a material movement. That's me probably more guessing than anything else, and that's just given the quantum of change that we've gone through in that electrical business. But personal, I wouldn't say it's materially different year- over- year. JAS may well be. We'll take that on notice and make sure we address that at the results of 2028.
What about NPS for customers in that business? Have you seen any movement there?
The major complaint is yes, and then promoter score.
Yeah.
Yeah, as of now, we do not and have not collected an NPS across any part of our business. By the first week of August of this year, we will have put a program in place to start collecting that data. As of now, we have never collected NPS across any one of our businesses.
Got it. Okay, thank you.
Thank you. Your next question comes from Andrew Hodge from Canaccord Genuity. Please go ahead.
Morning, Angus. Thanks for taking the questions. I just want to start in terms of your tenure, both when you first started and through to now, whether the idea that the turnaround is bigger or longer than you first thought when you entered the business, whether your view on the turnaround has changed.
Bigger or longer? I'm probably going to go on the bigger, yeah, but not materially bigger. Longer, no. I mean, I've always talked about I thought this was, you know, this was a job. That's why when we gave, I suppose, a strategic view of financials, we put a five-year horizon on that. That hasn't changed. I mean, this announcement in the context of that, yeah, probably the way I would look at this is a lot of, well, there was a trading issue that we've just highlighted, May and June. I would say it's false to say that trading condition in two months is an indication of the next five years' performance. That is a biased statement.
A lot of the material item that we are dealing with, you know, the significant item that we're dealing with here is us cleaning our balance sheet up and setting ourselves up for where we want to go. That goes to initiating the change around that turnaround rather than being an indication of the turnaround being harder or longer. I would say that without what we've done here, the turnaround becomes harder because you're trying to cycle things that we should have been dealing with as we have now done.
Thank you. Just a second question around the approach that you had a little while ago, which the board knocked back. The idea that the bulk of those board members that rejected that $5.40 approach have moved, does that effectively reset the board's position around what a valuation to get access to the bookmark's might look like?
I can give you one short answer, no.
You're all right. Thank you. Thanks for taking the questions.
Andrew, perhaps you might want to expand a little bit on your first question. Yeah, maybe I'm reading too much into it, but do I sit here and go, you know, I doubt whether we can turn this business around? Again, short answer is no.
That's good. Thank you.
Thank you. Your next question comes from Jared Giosimino from Morgans. Please go ahead.
Hey guys, thanks for taking my question. Just one really on the store rollout, I guess. I mean, the Investor Day was only a couple of months ago, but things have obviously fallen off quite a bit then. I'm just interested in how you're thinking about the 12 trade stores going forward in terms of new store openings, and specifically as well on retail. I mean, what further has to be done operationally to improve that business from here? I guess, has all the hurt played through from Angus McKay and Mark Bernhard's perspective, or just some serious thoughts on what else has to be done to optimize that before we can return to network growth?
Jared, thank you. Just so I suppose I can confirm, we said we're open 12 stores in the trade world, Australia. We have, so that's done. I've said we have a target of another 12 in the fiscal 2026 year. That target remains firm, and we're making our way through the ones that will start opening immediately and the ones that go through the way we did here. From a trade rollout perspective, no change at all. From a retail perspective, we're pretty clear we were not looking to open new stores, and that right now remains our point of view. The operational turnover in retail, probably not, certainly not as visible as I would like you to have it been. We've changed our operational regional site management, store management very significantly, and I'm really pleased with the progress there.
The disciplines that have been brought into that business are stunning compared to history, and that's exactly what you need. Very clearly based upon the revenue numbers we've put here, you're not seeing that benefit yet, but the foundational levels are being put in place, as they should be. From a retail perspective, no change yet. This was going to be a longer, I'll use the word turnaround process, but the fundamentals have been put in place, and we now just need to gain the benefit from that work.
Okay. Perfect. Maybe just one final one. You didn't mention it, but Investor as well, a number of, you know, underperforming stores. Obviously, you know, market still remains relatively tough in that sector. Are you seeing, you know, further underperforming stores start to emerge, or are you, have you, you know, confident you've identified all the laggards and are sort of optimizing them now?
Look, obviously we're recognizing independent charge, yeah, a preliminary independent charge in what we've announced. That just goes to the mathematics on some of those stores. Where we need to close a store, you know, whether it be trade, retail, or anywhere else, we will do so. That's just a commercial decision we'll take there. We're not ignoring individual store performance. If it needs to close, we'll close.
All right. Thank you.
Thank you. Once again, if you'd like to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Jack Lynch from RBC. Please go ahead.
Angus, thanks for taking my question. Most might have been asked already, but just in relation to those store impairment charges, are testing continuing? Is there a certain amount of stores that you're tested across the network for that impairment, or is there a way to think about the ongoing impacts of that going forward?
I might, if Tim's jumping here, but let me give you the 10,000-foot view. You start off with a network of 900-odd stores. You then look for indicators of impairment, and profitability of an individual store is clearly an indicator of impairment. You then form a judgment based upon the pure math as to whether the profitability can lift to a point where it can cover its carrying costs. We go from 900 to a vastly smaller universe, a vastly smaller universe. The testing that we'll continue will focus on that smaller universe. You know, Tim, you're going to give that.
Yeah, that's exactly what we're doing now, verifying, validating the testing that we've done on that smaller universe, and just testing whether we're being too conservative on any of those numbers. I wouldn't expect the number to change materially. We've provided a range there, but we're just flagging that that's a piece of work that does just take a bit more longer time.
Thank you.
Thank you. Once again, if you would like to ask a question, please press star one on your telephone and wait for your name to be announced. As there are no further questions at this time, I'll now hand back to Mr. McKay for any closing remarks.
Thank you. I'm happy folks appreciate you jumping on at short notice. Clearly, not the way we wanted to open up the Thursday morning for any of us. We would characterize this as, one, obviously necessary in terms of information, but two, particularly as I think about the significant impact and/or pricing changes we're foreshadowing here, necessary to set this business up for where it needs to go. I don't walk away from that need to get that done now and get it done right. We'll be coming back to you, obviously, 2028, but no terms to that with our full results. We'll go through that process so that there'll be much more color and clarity to get into those outcomes.
Clearly, should you have any further questions, that's certainly from an analytic perspective, please pick the conversation up with Karen directly, and we'll make sure we answer those as efficiently as we can. Moderator, that's it for us. Thank you.
That does conclude our conference for today. Thank you for participating. You may now disconnect.