I would now like to hand the conference over to Mr. Martin Nicholas, Group CFO. Please go ahead.
Morning to everybody joining today's call. As Jeff said, I'm Martin Nicholas, Breville Group CFO, it's my pleasure to welcome you to the presentation of our full year 2023 results. I'll walk you through the group's financial results, then Jim Clayton, our CEO, will provide an operational and strategic update. I'd like to start our presentation today by acknowledging and paying our respects to the traditional custodians on whose lands we meet today. I would like to pay respect to their elders, past and present, further extend that respect to all Aboriginal and Torres Strait Islanders present today. We celebrate the continuing contribution of their food culture and their connection to, and custodianship of this country. Turning to slide four, we start with an overview of our full year results.
In 2023, we were pleased to deliver solid revenue growth of 4.2%, with the second half growth rate running at 9.4%, primarily driven by EMEA moving back into growth in the second half. We delivered this top line growth against a subdued consumer backdrop, as well as lacking a strong compounding denominator, with revenue growth in FY 2020 to 2022 of 25.3%, 24.7%, and 19.4% respectively. More importantly, in this inflationary environment, we delivered gross profit growth of 6.4%, with the second half at 10.6%, and our gross margin percentage improved year-on-year by 70 basis points, with inflationary pressures earlier in the year recovered and promotions well controlled.
We delivered EBIT of $172 million, or 10% growth, a result at the top end of our guidance and above consensus, with expenses aligned to a slower growth revenue environment. NPAT grew in line with sales of 4.2%, reflecting the impact of higher borrowing costs. Our free cash flow was $37.1 million for the year, up from an outflow of $84.8 million in the prior period. As expected, our second half saw a seasonally strong total cash inflow of $90.9 million, as peak receivables were collected. Our full year total cash outflow of $117 million was primarily due to the purchase of Lelit, as well as higher working capital following our strong quarter four sales. Turning to slide five, we see our two segmental results.
Our strategically important global product segment grew revenue by 8.5%, or 4.1% in constant currency terms, and gross profit by 9.8%. Our distribution segment saw revenue and gross profit decline by 16.9% and 18.9% respectively, with weaker sales of Nespresso distribution products. In the global product segment, our new product development launches landed well, with strong sales from the Barista Express Impress, the Barista Touch Impress, the Vertuo Creatista, the Joule Oven Air Fryer Pro, the Joule Turbo Sous Vide, and the Baratza in our Encore ESP . After a quiet FY 2021 and FY 2022 with minimal product launches, these new products added to growth in the global segment, with a healthy innovation funnel expected to yield further gains in FY 2024.
Our new geographies also did well, with countries that we entered during and since the COVID period, growing at over 96%, albeit off a small base. In category terms, both coffee and cooking performed well, the latter supported by the airfryer tailwind. Our food preparation category, juices, blenders, and food processors, proved more discretionary and declined year-on-year. The bankruptcy of Bed Bath & Beyond, one of our larger customers in the Americas, and the acquisition of Lelit, added some volatility into the theater numbers and half-on-half comparisons. At a full year group level, these two numbers netted out, making the reported growth and margin numbers a fair reflection of the business' run rate performance. Buying power in the global segment again meant we were more successful at growing gross margins than in the mass market distribution segment.
Pleasingly looking forward to FY 2024, inflationary pressures in both product and trade costs are abating. This should be a tailwind to gross margins in both segments. Turning now to slide six and seven. Here we see the relative theater selling performances in the global product segment. Seasonally, all three theaters posted positive unit sell out growth or consumer uptake, while sell-in growth or sales to retailers strengthened in the second half. The Americas, our largest region, grew 15.9%, or 7% in constant currency terms, with U.S. consumers proving more resilient at the premium end of the market. Ovens led the charge, coffee delivered solid growth, NPD landed well, and our direct-to-consumer or DTC channels grew helpfully. Unit sellout growth was similar across both the first and second half.
So was AUD 1 billion when adjusted to the impact of Bed Bath & Beyond bankruptcy, a one-time event absorbed by the US in the second half of 2023. Turning to APAC, we were pleased with the performance, where against a challenging backdrop, we saw market share gains in ANZ and positive unit sell-out growth in both halves. We also saw strong growth in Asia, including a promising early performance in South Korea. Selling growth was positive in both halves of the region, and NPD again landed well. Unit sell-out sales continued to grow well in both halves, with consumer uptake boosted by MPD and our DTC channel.
Sell-in growth, as expected, bounced back strongly in the second half, reaching 37.4% against an easier second half 2022 denominator, as we lapped the beginning of the Ukraine war, coupled with the abatements of retailer destocking the region experienced in the first half of 2023. Turning to slide eight, this EBIT bridge breaks out the puts and takes behind our 10% EBIT growth. An improving growth margin certainly helped, yielding 6.4% gross profit dollar growth or extra $31 million in the year. 50% of this was absorbed into OpEx, and the other 50% flowed through to EBIT. As you would expect in a low growth year, we finely tuned expenses. We chose to hold our like-to-like headcount flat in FY 2023.
The employment cost increase shown here relates to the annualization of hires we made in FY 2022, mainly in the investment functions and of course, annual pay raises. FY 2022 also saw the material completion of the build phase of a series of go-to-market platform projects. FY 2023 moved to a focus on hardening the recent go lives, resulting in expense savings. Market-facing activities such as advertising and content creation were kept largely unchanged year-over-year. Our total spend on the investment functions of R&D, marketing, tech services, and solutions landed at approximately 13.1% of revenue for FY 2023. As with prior years, we will enter FY 2024 with a tight cost structure and then align our expense plan with emerging sales and gross margin profit performance. Coming to slide nine, inventory remains topical.
Here I've laid out how we are methodically normalizing our inventory levels after the tactical build we talked through in FY 2022. After increasing inventory to mitigate against supply risk, we took the commercial decision in FY 2023 to right-size inventory through constrained purchases rather than discounted clearances. Our gross margin % has improved. In the second half of 2023, we reduced our purchases by AUD 114 million over the same period last year. Overall, in FY 2023, our like-for-like inventory reduced by AUD 96.6 million, or 22%. Our reported inventory was however basically flat, caused by three factors. Firstly, Lelit. We gained AUD 34 million in inventory as part of the acquisition. Please note that any change in Lelit inventory during the year has been treated as core inventory change, just like any other Breville brand.
New product development. We've changed our approach to flagship new product development launches. Our launch version 2.0 process is successfully delivering a faster NPD sales ramp up, equally it requires us to build and hold more inventory to launch these SKUs. In FY 2023, we ended the year with AUD 41 million more NPD inventory than we started the year, driven by this more aggressive launch approach for the Barista Touch Impress, the Vertuo Creatista, as well as an increased number of launches in general. Finally, exchange rate. The strength of the US dollar and euro against the Aussie dollar increased our reported like-for-like stock by approximately AUD 15 million. What happened to inventories as we move into FY 2024?
I can't call the exchange rate, I can say that our sales and operational planning, or SNOP, forward purchase plan, will continue to reduce total inventory. We will continue to execute a forward purchase plan that takes each SKU back to a normal level of inventory, with an emphasis in the second half of the seasonality. We obviously won't repeat the Lelit purchase, and the level of NPD launches, and thus launch stock, should be similar to FY 2023. Taken together, we fully expect this approach to yield a step down in inventory levels when we speak this time next year, but importantly, not at the cost of discounting. Saying this another way, we have passed peak inventory and will continue the downward trend in FY 2024. Going into slide 10 and the balance sheet.
The movement in working capital year-over-year is primarily driven by receivables and to some degree, lower payables. Year-end receivables increased due to strong quarter four sales the prior year, especially in India, as well as a degree of exchange rate translation. Days outstanding at 62 days were in line with terms and steady on the prior year after adjusting for the impact of Bed Bath & Beyond. which had 20-day terms for a few years prior to their bankruptcy, on which event, pleasingly, we had zero credit loss. We've already spoken about the lower second half inventory purchases, the effects of which you can see in the lower payables number. Property, plant, and equipment or PPE increases were led by the acquisition of the Lelit manufacturing assets, as well as increased investment in tooling as more products were prepared for production.
The increase in tangible number you see on the balance sheet signals that we have an increasing number of products, projects rather, moving towards launch. As a reminder, for any given project, all costs are expensed until the project reaches the commercial viability date, roughly 18 months before launch, at which point we start capitalizing expenses. Once the product launches, we begin amortizing, and you can expect to see our amortization costs increase over the next, next couple of years as our number of launches also increases. Our aggregate balance of PPE and capitalized development costs at about AUD 125 million, has grown over the last three years to approximately 8.5% of revenue, in line with the ratio seen in FY19 and FY20. The increase in goodwill and brands you see on the balance sheet simply comes from the Lelit purchase.
Our full year cash outflow of AUD 117 million is also largely due to the Lelit acquisition of AUD 79.6 million and our higher June receivables. As previously, as previously said, the second half 2023 saw a strong AUD 90 million total cash inflow, as peak receivables were collected and inventory purchases were moderated. We are forecasting continued cash inflow in FY 2024, as more predictable demand patterns support a more normal inventory flow, which always, as always, will be weighted towards the second half. Lastly, on the balance sheet, at 0.6 times EBITDA, the group remains conservatively geared and has significant unused debt facilities in place for any expansion.
Turning to slide 11, as we look back on FY 2023, it was definitely a year of competing headwinds and tailwinds, overall saw us grow sales by 4.2%, gross profit by 6.4%, and EBIT by 10%. At the revenue level, it certainly wasn't the easiest backdrop against which to perform, with cost of living pressures, the war in Ukraine, both suppressing between demand, overlaid with retailer destocking, the Bed Bath bankruptcy, and a strong denominator. How did Breville post 4.2% revenue growth? Well, full employment and the trend towards quality coffee and air frying certainly helped. Also, as I noted earlier, the average consumer may have been subdued, but in our global product segment, we saw unit sell-out growth in all theaters despite price increases.
New products boost growth, newly entered countries grew well off a small base. Lelit neatly offset Bed Bath demise. At the gross margin level, we certainly felt the inflationary pressures that others have talked about, exacerbated by the strength of the US dollar. In FY 2023, we more than managed to offset these with our pricing power, the controlling of promotional spend, and by launching higher margin products. A 70 basis points increase in gross margin % yielded a 6.4% gross profit increase. This gross profit increase of 6.4% made the landing of 10% EBIT growth relatively manageable. We certainly felt inflation in utilities from pay rises and from our expanded warehouse footprints impacting G&A.
In FY 2023, these were matched by the savings in marketing expenses as key go-to-market platforms moved from the build phase to the run and maintain phase, as well as our general expense control. This is how FY 2023 netted out, but what about FY 2024? Like 2023, FY 2024 is expected to be a battle between headwinds and tailwinds. Some challenges feel familiar. The macro environment doesn't look any easier. Central banks are still chasing inflation, the Ukraine war continues, and retailers and competitors remain unpredictable. Yet strong global employment numbers continue, and the early indicators of a good US Prime Day sell-out in July indicates to us that the US consumer is still there for the right product. This feels similar to FY 2023, with the exception that another year has passed. Some tailwinds remained remain in our pocket.
Strong NCD is also expected this year, and our new geographies, now one year older, will keep growing and maturing. Bed Bath demise will have some lingering impact, as we lacked the first half 2023 in the Americas, but we have entered Target this July with a limited range across 1,000 doors. This will be a partial offset in the first half and a net add in the second half. Premium coffee and air frying also remain resilient categories to be in and are a significant part of our business. In cost terms, we're seeing helpful declines in both freight and product costs, which will aid gross margin. Again, a challenging environment is expected for FY 2024, but as in FY 2023, one that we are well positioned to navigate.
Tactically, we have again set up to start the year with a tight cost structure, and then we'll adjust as the year unfolds. Finally, turning to slide 13. Before I hand over to Jim, a few key points I will reiterate about our FY 2023 performance. Against a subdued consumer backdrop, we delivered 4.2% sales growth, 6.4% growth profit growth, and 10% EBIT growth, which is sector leading. Our new products and geographic diversity helped deliver this, smoothing volatility within individual countries and theaters. Equally, the acquisition of Lelit helped balance the in-year turbulence from Bed Bath. Our growth, our growth margin management was strong, and the decision not to discount our way to inventory reduction was critical in successfully navigating us to 10% EBIT growth. We thoughtfully allocated expenses and are happy with how this was executed.
We have our team in place to face the challenges of FY 2024, and have maintained our focus on the growth drivers of R&D, marketing, tech services, and solutions. Our continued investment in R&D has a healthy NPD pipeline ready to release more products into FY 2024, and we will sustain our investment in this key asset. Our pullback on purchases successfully reduced core inventory, and we expect to see our total inventory come down further in FY 2024, with resultant cash flow and reducing interest costs. Again, overall, FY 2022 was a solid year against a challenging backdrop, and pleasingly, we again delivered EBIT at the top end of guidance and above consensus. With that, I will pass over to Jim.
Thanks, Martin. Good morning to everyone. Now that Martin has walked you through our FY 2023 performance, I'll give you a readout on some of the progress we've made on the growth drivers of the business. I presented this framework at the Macquarie Australia Conference, which I'll now use as a tracker for today's discussion. First up is product, slide 15. Here, you are looking at the first product off the line in our new Mexico manufacturing facility. This is a project we've been working on for the past two years. BRG is just at the size where we can kick off multi-site manufacturing. We're starting with a 120 volt version of the Barista Express for the Americas market. In addition to geographic diversification, we pick up capacity expansion, a more responsive supply chain for the Americas, we avoid the Trump tariff.
This is a very complex, multi-year ROI project that will play through for many years to come. It's complex because each product we move, we have to localize the component supply base in Mexico, which is quite the project. It's a project that will methodically progress one product at a time. Next slide. Sometime back, we announced the Breville's Beautiful Brown Box initiative, which changed all the product packaging to recyclable materials. We're now extending this across the entire Breville Sage range, another big project, given the number of SKUs we have. Nonetheless, we think this is good for the environment and good for the brand. Slide 17. Here we have the new color range. Our coordinated countertop product initiative has performed exceptionally well over the last few years, and we'll continue to invest on this path. Slide 18.
In the second half of 2023, we launched the Barista Touch Impress. It's an espresso machine that brings together some of our best technologies for customers who like café-quality coffee, but don't want to get too involved in the process of making it. The product includes in-line barista help, giving you direction on what adjustments you should make based on the shot you just pulled, and it can automatically froth alternate milks, like oat, almond, and soy, a trend that is accelerating. It was given the Best New Product of the Year award at the SCA conference in Portland. The press coverage has picked up on the Goldilocks, just great nature of its product features. No surprise, it has been performing quite well in market. Slide 19. This is the Vertuo Creatista, Nespresso's flagship machine for its Vertuo capsule system.
This is a sibling to the Creatista, the flagship of Nespresso's original pod machine. We're working in concert with Nespresso to launch this product globally. This machine is particularly relevant to the Nespresso partnership because the Vertuo capsule is Nespresso's primary go-forward coffee technology. Slide 20. The Joule Sous Vide was a product we picked up in the ChefSteps acquisition. This is the new and improved version. Sous vide is a great technique for delivering perfect outcomes, because if it has a shortcoming, it would be time, meaning the cooking process can sometimes take a little longer than you'd like. With this product, we have cut cooking times in half. Achieving this breakthrough was more difficult than you might think. To accomplish this, we're using math techniques that NASA uses to track rockets in space. Slide 21.
In the last couple of reporting cycles, I've talked about our forward integration into solutions. I'm about to walk you through our initial down payment on this commitment. Slide 22. In the next couple of weeks, we will be launching the Breville+ service in the U.S. Maybe that's worth repeating. I didn't say we were launching a product, I said we were launching a service, a first for Breville. Let's start with first principles. Our product team gets up every morning with the goal of figuring out how to enable our customers to achieve, on their own, high-quality food outcomes in their kitchen. For some products, like a toaster or a tea maker, we can achieve this through hardware alone.... With other products, outstanding hardware only gets you part of the way home. That's where Breville+ steps in. Slide 23.
Version 1.0 of Breville+ includes guided recipes that have been optimized for each specific Breville product. Over 1,000 recipes at launch. Cooking guides to help you create successful outcomes with your own recipes, and live and on-demand cooking classes to teach you skills and tricks to make the cooking process more enjoyable, more efficient, and more successful. Slide 24. To ensure our customers have access to the very best recipes and content, we have partnered with the industry heavyweights, like The New York Times, America's Test Kitchen, Serious Eats, and Williams Sonoma, as well as leading chefs. We're also leveraging the expertise of the ChefSteps team and the Breville Test Kitchen. At launch in September, Breville+ will support four ovens and our oven range, the PTOO, and the Joule Turbo Sous Vide .
Stepping back, there are a couple of points worth considering: First, while this service is supporting our newest products, the dual oven and the dual turbo, it is also supporting products that have been in market for many years, meaning it's backward compatible. This touches the size of the prize analysis. Second, today, when a customer buys a product in the small appliance space, its features are frozen in time, meaning it will never get any better. With Breville+-enabled products, the service will continue to improve and expand. More recipes, more classes, more features, meaning our Breville+-enabled products will get better after the time of purchase. This touches the differentiated nature of the consumer value proposition versus the current offer analysis. I'll have more to say about Breville+ in the future report outs as the service progresses. Slide 25.
Over the years, I've talked quite a bit about the importance of our corporate platform. The questions I get most often in one-on-one discussions are, "Why does it matter? Where can we see the impact?" In the slides that follow, I'm gonna attempt to show you the platform applied. Slide 26. Transactional automation is one way to view the platform value. Automation means speed, it means efficiency and productivity, it means less headcount. In FY 2016, before the platform was put into place, 32% of all transactions were automated, and 68% were manual, meaning someone physically touched it. Since FY 16, we've gone into 17 new countries and executed four acquisitions. Our transaction count has increased 300% over this period. In FY 2023, 85% of our transactions were automated, 15% were manual. The platform enabled us to scale.
If we had executed the same offense without the platform, our headcount, read OpEx, would have exploded. Said another way, without the platform, we'd be closer to two to three new countries over the same period, and likely one acquisition. Slide 27. This is a screenshot of the BRG group B2B portal that we are rolling out. It is a multi-brand B2B site where retailers can order product. This will automate the long tail of retail, the smaller retailers for system-to-system integration is not possible. This is particularly relevant for the specialty coffee vertical, but it is equally useful for small kitchen appliance shops. Here, we're attacking the 15% of transactions that are currently manual. Slide 28. With geographic expansion and acquisitions, e-commerce represents one of the bigger pieces of work because you need a unique transacting website for each country.
To make this more efficient, we have deconstructed our website into productized, reusable components. This lets us stand up new websites without the need for software development work, read time, resources, and money. On this slide, you're seeing one of the reusable components, the landing page. breville.com, sageappliances.com, beanz.com, chefsteps.com, baratza.com, and what will be lelit.com, which launches this month, are all using the same component. Again, speed and efficiency, less cost, less people, faster time to market. Slide 29. We really flex the platform when we go into a new country. I put a small Gantt chart in the upper left-hand corner of this slide. It took us six months to execute our entry into South Korea. In month one, we ordered the product to Korea. In month five, we received that product into our Korean 3PL warehouse. In month six, we filled our first retailer order.
Within this six-month cycle, we executed all other steps required to enter the country, from hiring the team, to deploying the platform, to standing up a website, to automating transactions with some retailers. This means the longest pole in the tent is the lead time for product manufacturing. The platform gives us efficiency and speed. As an aside, the main image on this slide is a rendered image of our new office in Seoul. We will be selling flat whites on the left and selling equipment on the right. We have a studio below this floor, and offices are above. The smaller images on the upper right are our store-in-store installations in department stores. Slide 30. The last example is an acquisition, typically the most complex systems challenge. When we bought the Lelit
It was an Italian manufacturer with a single warehouse, selling direct in the EU and through dealers in the rest of the world. Slide 31. Lelit today is quite different. 100% of Lelit transactions are flowing through the platform within four months from close. Lelit now has four warehouses and is executing in a direct model in the U.S. and Australia. Within the first half of 2024, Lelit's new website will go live in the U.S. Its products will be added to the BRG group B2B web portal, and some Lelit products will be sold through the Breville Sage channel. With Lelit, we have accomplished in roughly one year what took us many years to do with Breville Sage. This is the power of the platform. Slide 32. I can summarize the power of our corporate platform in three parts. First, speed.
To scale a company quickly, the infrastructure must be designed to support the growth. That is what we've done. Whether it's a new website, a new country, or an acquisition, the platform is designed to flex and extend quickly. Second, build once, use everywhere. When we add a feature for one country or product, it is immediately available to be leveraged by all others. For example, when we take Lelit live in a country, Lelit immediately has all the same tools, integrations, and capabilities that Breville Sage has. This lets us innovate and improve quickly and efficiently. Third, efficiency. Per the commitment I made in FY 16, we are scaling the company within the constraints of growing EBIT. Doing more faster within this constraint means we have to lean into productivity and operating leverage.
This platform enables us to add pieces and complexity into the business without having to linearly or exponentially scale the technical services and operations headcount. We can do more with less. For those interested in learning a bit more about our platform journey, I direct you to a case study Microsoft published on Breville. I've included the URL at the bottom of the slide. Slide 33. I'll end the presentation with a summary of our geographic and channel expansion activities, which has become a multivariable equation. Slide 34. For Breville, we launched into Target in the U.S. with a limited range. What we lost with the Bed Bath bankruptcy was physical door presence. This has been more than replaced with Target as we roll out across 1,000 doors.
In the next couple of weeks, Breville products will be added to the B2B portal in the U.S., enabling Baratza Specialty Coffee customers to buy both Baratza and Breville SKUs through the portal. This will give Breville a much wider penetration in the specialty coffee subvertical. We have also signed up a new distributor in Indonesia for Breville, a country in which Breville has never been available. We've signed up a new specialty coffee distributor in China. With Baratza, we have completed the distributor-to-direct transition in the E.U., and we will soon be complete in Australia. We're also launching a limited range of Baratza products into a select group of retailers in the Breville Sage channel in the U.S., the E.U., and Australia, all of which will be done in time for holiday. For Lelit, we are now direct in the U.S. and will soon be in Australia.
Similar to Baratza, we are launching a limited range into a select group of retailers in the Breville Sage channel in the U.S., the EU, and Australia. With that, I'll now pass the call back to the operator for any questions you may have about our FY 23 performance.
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. We request that all participants today limit their questions to one per person. If you have any further questions, you will need to rejoin the queue. Your first question today comes from Benjamin Segal from UBS. Please go ahead.
Good morning, Jim and Martin. I guess my one question is, on the Americas result, am I right to say that excluding the Bed Bath & Beyond impact, constant currency sales growth in Americas sort of been around 12% year-over-year in the second half, consistent with the first half? Curious that into first half 2022, you said the impact would linger. Should we expect the headwind from Bed Bath to be lower in the first half of 2024 compared to what you've experienced in the second half of 2023, just given that Bed Bath presumably became less material for Breville, kind of probably September, October 2022? Just interested in how you wish to think of that headwind into the first half of 2024 compared to what you've experienced in the second half.
Yeah, thanks. Thanks, Segal. You're right that the ... If, if we could strip out the Bed Bath impact from the second half, the growth numbers were fairly similar first half versus second half. In terms of how it impacts us as we move into the first half of 2024, well, clearly in the first half of 2023, we were still selling to Bed Bath & Beyond. It was somewhat ailing towards the end of that period, so yes, it may not have been a full-blooded customer in that first half, but it was there, existing, and we were selling into it. That's what we're lapping. By the time we move into the second half of 2024, we're essentially lapping a zero sales to Bed Bath.
Yeah, it, it will linger a bit into the first half, but the impact is not as strong as it was in the second half of 2023, when we were lapping a normal sales scenario in the second half of 2022.
Maybe if I, if I build on that, what was happening in the second half is you, you basically got Bed Bath, you know, on its decline, where you're selling out, but you're not selling in because they still exist. That was, you know, in a sense, the operational or the, the real impact of Bed Bath in the second half. That won't exist as much in the first half of 2024. Obviously, when the stores are closed, if consumers can migrate to another retailer.
The delta that, that Martin was talking about is that you got Bed Bath in the denominator in the first half, but you've got, let's call it a cleaner numerator. When you swing to the second half, you're almost at the inverse.
Understood. Thanks, guys. We'll catch up soon.
Thanks.
Thank you. Your next question comes from James Lee, from Goldman Sachs.
Hi, guys. Welcome on the result. Just a quick one on me on, advertising and marketing. We have previously talked about an aspiration for around the 12% of sales. I appreciate that you're managing it at the moment. How are you thinking about that, looking forward into 2024, 2025, 2026?
That, that was a bit difficult to hear. I think you were asking us about Marketing and R&D as it sensitive sales. I called out that in this year, we actually now look at it with tech services and solutions in it as well, because so much of those, those projects are intertwined, and it was about 13.1% for that period. That is slightly lower than it was in the peak COVID years, so it was about 13.4% or 13.5%, but it's above what it was in FY 2020. Our strategy is to keep growing that number steadily, year-on-year, but couldn't hear the question perfectly, so I don't know if you want to.
It was, how is that going to extend out into 2024, 2025, and 2026?
Okay. How does it extend out? You'll see us working to increase our investment in that number of spend on, on that investment section, and be tight on our other overheads and expenses. We have continued growing our R&D team. We're continuing to spend in market. I called out that there was a, a slightly quirky feature that some of the marketing platforms moved from build phase to run phase, which is intrinsically cheaper in the last year. We always each year, we set our budgets to maximize the amount that we flow into the investment functions.
If I tweak that, right, you, we're, we're within the guardrails that, where possible, I'd rather be spending on that category than, let's say, logistics, you know, or something like that, or finance, not to take anything away from Martin and his team. The short version is we want to be as efficient and productive as we can be in what I'm going to call non-top line generating OpEx, and lean into the OpEx that drives the top line is the short version. It's more of a mixed question than a total.
Okay, thanks, guys.
Thank you. Your next question comes from Tom Kierath from Barrenjoey. Please go ahead.
Morning, guys. Just a question on the shift in production to Mexico. Can you maybe talk about how much of the American sales that will do, and then what the saving is, you know, over time as you presumably ramp it up?
You know, fair question, but, but honestly, we are so early. So what I, what I mean by that is we have one SKU. As a % of Americas, I, I wouldn't even know the answer to that question. It's just one product. I think this is a thing you need to watch over time, which is once we get a stable, you know, a stable of products there, then we'll start to see more flowing from the south. I think, you know, when I say it's a multi-year online, it is, because you've got to start with low production numbers, then you ramp up the scale and so forth. The only SKUs that we can really do this to are ones that flow at a high enough velocity that we can split volume.
It's, it's not the entire range of the multi, it'll just be the higher moving SKUs that you can do this to. It sets the platform up for the next 20 years, as we start to slowly build this thing out.
Yeah, those savings are coming through in the logistics side and nearer shipping costs are lower and also in tariff areas. Made in Mexico doesn't get affected by the made in China tariffs as you cross into the U.S.A.
You end up ultimately being able to hold a little bit less inventory, because supply chains are a lot shorter.
Yeah.
Yeah. Cool. Thanks, guys.
Sure.
Thank you. Your next question comes from John Hahn, from Wilsons. Please go ahead.
Good morning, gents. Thanks for taking my question. You noted a pretty strong result in the U.S. in July. Can you perhaps talk to what was the category there that did well or the SKU that did well? Is there perhaps a look through for the cyber week and Christmas trading periods yet as a result?
Maybe let me take this one. I say this every year, the, the sell in July and August has nothing to do with how we do in the half. The end, right? It's just there is no R squared and stuff I can tell. The only call out that we made was, was a call out that we made the year before in Europe, which was, with all the macro news in The Wall Street Journal and everything else, there's this open question of, does the consumer have a heartbeat? How is the consumer performing? The only call out that, that we thought, you know, kind of worth making was that Prime Day sell out. We're talking about sell-in, this is sell out. Prime Day sell out was really strong.
Amazon did really well, you know, at least, at least with our product. All that. The only takeaway you should take from that is the American consumer still has a heartbeat. They're, they're still engaging. That's as much as we know, right? See you at the end of the half. A lot can happen between now and then, but it, it's almost just a health check, which is, everybody still there? The answer is yes. Same was true in the first half of last year in Europe, when we reported a minus 22 sell-in, there was very much a heartbeat of the consumer, because sell-out was running at a, at a much faster pace. Anyway, that's, that's really the only call out. Do not try to take that and project the half and how everything's gonna go.
This is one retailer in one country. It's just Amazon had a good Prime Day in July, in the United States.
Thanks, Jim. That's good to know.
You bet.
Thank you. Your next question comes from Ben Gilbert, from Jarden. Please go ahead.
Hi, good morning. Thanks, Tom. Just a, a question, Martin. I appreciate you, you ran through this, through the presentation. I just wanted to delve into it a little bit more. Just in terms of the development costs and software, going from about 56 up to sort of circa AUD 72 million, is this a function of the fact that Breville has delayed some releases through COVID? Now as you sort of got light on when you think those are going to launch, you decided, just to, to capitalize that? Or is it, a function of the fact that you've just got a, a stronger pipeline now over the next one? I'm just trying to understand the timing of the step up, because I appreciate you've given us some good color around deferrals, et cetera...
Yeah.
-through COVID, it's quite a sizable lift. Should we be thinking there's a stronger pipeline to come, or is it just a function of delays catching up?
Yeah, I think the latter. There is a strong pipeline to come. How COVID plays through this, Ben, was more that we continued investing during the COVID period in growing our R&D team. The number of products coming through the pipeline increased, and as I said, we start capitalizing about 18 months out from launch. When you see that number lift and gets larger, you know that there's a full of pipeline that's gonna launch somewhere in the next 18 months. The capitalized number isn't affected so much by the delays, it's affected more by the volume of products we're doing.
The amortization number is one that's now stepping up and will continue to step up as those products go to market and we start amortizing them. Yeah, I, I look at that number as a healthy thing.
Just on an... I'm sorry, just to follow up, and I'm not saying you guys are doing this at all, but how much discretion do you have over timing around when to capitalize versus expense? Because it could be a perception out there that it's sort of pushed up and obviously a tougher top line backdrop?
In our process, Ben, none really. We, we when we make decisions to invest in the tools, in the dyes, in the molds, in the cart, when we make decisions to invest in those, we have a gate meeting, and that's the point that triggers capitalization. When we're willing to lay down money, in, in steel and aluminum to make those dyes and molds, that's when we start capitalizing. The length from then to launch can be slightly different for different products, but it's that extra capital decision that had us decide, "Yeah, this project is viable, and we're gonna take it to launch.
Got it. That's really helpful. Thank you.
No problem.
Thank you. Your next question comes from Sam Haddad from Petra Capital. Please go ahead.
Hello, Jim. Hi, Martin. Just on the in EMEA, in Europe in particular, what are you seeing, seeing in terms of retailer behavior in terms of their confidence? Have they started to consider restocking? It's good to see that they're in balance in terms of selling and sell out at this point, but are we seeing early signs of them starting to consider restocking? Are we seeing things in terms of more normal business conditions in that market? Thank you.
Look, I'm gonna throw a dart at the board here for you, Sam, but I don't, I don't expect them to, quote, "restock," you know, and then to get back to the same inventory levels that they had until things stabilize. You know, to be fair to the European retailers, there's still a war going on, you know, kind of north of them. I would say that they're, they're living with the balance that they have in the sense of the in and outs, and they found a way to, to kind of live at that level. I wouldn't expect them to go, you know, head-on bullish into building a whole lot of inventory back up until Europe settles down. At least if I were on that side of the, the fence, that's what I would be doing.
Just, just to answer that question, did Amazon selling pick up on the back of that Prime Day? Honestly, I didn't look. Yeah, sorry, I, I honestly don't look at just the retailer level. I mean, I'm Mark, I care more about kind of what the consumer's doing. We, we did have strong receivables at the end of... That receivables up at the end of 2023. That could have been, some of that would be loaded for Prime Day. I think that's when Prime Day gets loaded. Yeah, the June sale. The June sale. If, if that happened, it would have been the June sales in the U.S. We certainly saw it at the aggregate, they have to have something to sell. Something went in. Yes, of course. Thank you. That would have been 2023, not 2024. Yes. Thanks for that.
You bet.
Thank you. Your next question comes from Tim Lawson, from Macquarie.
Hi, guys. Thanks for taking my questions. Just in terms of some of the movements in the sort of costs, STI, professional and admin, obviously, we only get to see those annually. Can you just maybe expand on the movements from year to year and where they sort of fall in the halves?
Yeah, I can, I can talk to that. STI, you when you finally get time to crawl through the Remuneration Report, you'll see that STI paid out at about 60%, 58.5%, this year. At the half, it would have been accrued, assuming closer to 100% payout for part of the year, and therefore, STI would have been lighter in the second half than rather than the first half. Professional admin services, there's all sorts of things thrown into that, but one of the key ones to note is that this time last year, we were spending a reasonable amount on due diligence tax and environmental studies on the Lelit purchase. That was more a second half variance.
Yeah. It looks like last year was elevated rather than this year being low, in particular?
That's how I think about that one. Last year was higher on that line rather than any particular action that we took this year.
Okay, thank you.
Thank you. Your next question comes from Wei-Weng Chen, from RBC Capital Markets. Please go ahead.
Hi, guys. Thanks for taking my questions. Just a couple from me. As this cash conversion, just wondering, how, how we should be thinking about cash conversion going into FY 2024, given, I guess, some of your comments around, inventory. Are we expecting to be back at about 100% next year?
Yeah, I, I think broadly so, because free, free cash flow was very positive this year. It was really the, the lead acquisition that pulled total cash flow neg... And a bit of working capital, pulled total cash flow negative. As we move into FY 2024, the, the working capital, and if I've got an unwind, the normalization of inventory should see a, a positive cash flow conversion and ratio.
Yeah. Okay, cool. Just about, your comments into sort of FY 2024, about going in with tight cost controls, but with the option to sort of reduce costs further. Just wondering where the flex could come from, in 2024. Is it sort of that marketing spend, or is it a bit more than just that?
It's always a bit, bit more, more than that. That comment is a reference to how we set our budgets across every cost center for the year, whereby we have a, if you like, allowable spend and then a spend that will come through if the year is towards the top end of our revenue outlook. It's really just saying that we set a tight cost budget across all lines. No, certainly not only marketing spend, across all cost centers, we hold them tight. I, I made reference in the presentation to headcount additions, which have been minimal during this year. The annualization bubble that you sometimes get as you turn over a financial year, that won't happen in FY 2024.
We, we just set tight budgets across all cost centers to start the year, and then we reshape as we go through the year.
Okay, thanks. That's it for me.
Thank you. Your next question comes from Mark Wei, from CLSA. Please go ahead.
Morning, gentlemen. Thanks for taking the question. Just on the, on the capitalized costs, I mean, it's, it's, it's running at about the, the, running about double the level of amortization. You're seeing about AUD 33 million go in and about AUD 17 million coming out, and that's been stepping up at, at, you know, basically at record high. How can, how can investors get comfort, or can you provide any? Shed some more light on, on that, kind of that black box, on what's coming out the other end of that pipeline?
Yeah, sure. As a growing product company, always there's gonna be that until we stop growing our R&D engine. So the ratio, so the amort will always lag behind the capitalization as you go through. I had a look at this, Mark, a little while ago, and our capitalization is about 40, 40, 42% higher than it was in FY 20. Our revenue is about 55% higher, and our amort is about 100% higher. So the ratios are flowing through as we'd expect. It's gonna lag behind until we stop growing the R&D component. So as we're still in the early stages, we like to believe of our growth journey.
The, the ratio feels about right, but both of those numbers will continue to grow over the next few years. I did flag in the commentary that there'll be a step up in amort as a number of products have been launched this year. When you look to FY 2024, amort will play a bit of catch up with capitalization.
Thanks, Martin.
No problem, Mark.
Thank you. The next question comes from Joseph Michael, from Morgan Stanley. Please go ahead.
Great, thanks. Morning, Jim. Morning, Martin. Thanks for taking my questions. Just a question around new country launches. You mentioned Indonesia and China, signed up a new distributor there. Just keen to understand, is that a precursor for an eventual direct launch, or do you think they'll stay as sort of distribution-only countries going forward?
I would expect Indonesia will stay as a distribution country. I would expect China to continue to evolve.
Great. Thank you.
Thank you. Unfortunately, that concludes our time for questions today. That also does conclude our conference for today. Thank you for participating. You may now disconnect.