Thank you for sta nding by, and welcome to the Dicker Data Limited HY22 results and equity raise. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. David Dicker, Chairman and CEO. Please go ahead.
Hi and thanks everyone for coming onto the call. This is results call for the H1 for this year, which again, was another great result, especially in the rather difficult circumstances that we find ourselves in. All things considered, very good and things are going really quite well. I'll now hand over to Mary to give you some detailed information on the numbers and the whole situation. Over to you, Mary.
Hi. Welcome, everyone, and good afternoon, and thank you for joining us on this call. The purpose of the call is to give you an update on our half year results, which we've released this morning. Also we have announced a capital raise, which we'll be able to give you a bit more information around, the use of proceeds and, the further strategies around that as well. In terms of the half year results, a very strong revenue result for the company, with revenue close to AUD 1.5 billion, finishing at AUD 1.46 billion, up 36.5%. A part of that's made up of the acquisitions that we recently did and the contribution of the revenue that Hills and Exeed acquisitions contributed.
More pleasing was the underlying organic growth in terms of revenue, with the underlying business growing close to 17%. Another highlight in terms of the numbers is the significant growth in our software business, now representing closer to 25% of our revenue number. Vlad will be able to give you a bit more color around the growth in our software business in the business update. Another key highlight is in respect of EBITDA result, finishing at AUD 61.1 million, up 19.4%, and our net operating profit before tax finalizing at AUD 51.8 million, up 12.7%.
If we look at our half year trends, one of the questions that you would look at for more information around is the margin in particular the contraction of margin on the comparative periods and previous half year. Now, the margins have improved in the second quarter. We did provide a quarterly update where the margin for the first quarter finished at 8.6%. For the half year, we finished at 8.8%, and we are guiding that we're expecting the full year margins to come in at closer to 9%.
Part of the reason behind the margin outcome in terms of the first quarter was an overweight of retail business plus some additional cost of goods increases around freight and but the fact that the margins have finished at 8.8 for the half indicate that upward trend, and we'd likely see that come through in the second half as well. In terms of operating costs, it was pleasing to finalize on our overall operating costs coming slightly down as a percentage of sales compared to the previous period, finishing at 4.7% of sales. Net profit margin's coming in lower, primarily attributed to increases in depreciation, amortization, and interest finance costs. The depreciation and amortization costs have increased significantly with the acquisition related contributions.
There was a higher amount of identifiable intangibles, of which there was amortization, which was not in the comparative period. I think that represented close to AUD 1.6 million-AUD 6 million incremental costs. Depreciation with more right of use assets reflected in the number. In terms of financing costs, they've also increased, mainly attributable to increased borrowings for the half, particularly around supporting our working capital requirements. We also had the introduction of the acquisition debt, which we took on August last year with the acquisition of Exeed. The cost of financing costs are also up. They're both impacting our profit before tax margins for the half year.
If we look at the balance sheet side. The key takeaway for the half year is the increased amount of investment in working capital. There's definitely an elevated level of inventory that the business is holding, partly attributable to the supply chain disruptions and the fact that there's a lot of non-linear deliveries. Despite our teams ordering in a manner that requires that inventory, the deliveries are sometimes happening concurrently and the requirement to hold more inventory. We've also seen increase in receivable balances that's aligned to the business growing its revenue, plus also the role of distribution to support the channel with some extended terms in a scenario where there's a supply chain disruption and orders can't be completed in full. Our investment in working capital dollars is definitely increasing.
That brings us to sort of the requirement with the additional inventory that we're holding. We've reached near capacity of the new warehouse that we've built. We moved in February 2021 into the new location, which already provided an increase on our previous facility. However, with the specification of our portfolio, increased amount of inventory we're holding, we are at near capacity utilization of that new warehouse. Hence we are planning the expansion of the build out into the second stage of that warehouse, providing another 16,600 sq m of warehouse space, representing a 70% increase on our current capacity. That will give us the opportunity to consolidate some of our operations.
With the Hills acquisition, we are still operating out of Seven Hills, which was the original Hills warehouse, using about 5,000 sq m there. The opportunity to consolidate the operations in a single location will also provide some cost savings, so we're not duplicating on costs in terms of that space. Just based on high level estimated cost of construction, we're estimating that the project will cost us somewhere around AUD 25 million-AUD 30 million. The project being put out to a number of builders. We expect to appoint, as it is only approvals and minor elements already being done. We expect to be quick.
Hopefully we'll be able to have that space completed within a month's time and being able to occupy that space and have the opportunity for future growth in terms of capacity, especially with the growth of businesses that we've introduced into our portfolio. Vlad will be able to give you a bit further, more color around the business update and current outlook and further expand on the opportunities that are available in the second half and beyond.
Thank you, Mary. Thank you, David.
I'm glad.
Hello, can you hear me? Yeah. Just starting with the business.
Yes.
Just starting with the business update. We're still operating in a very much demand exceeding supply environment, a very volatile environment. Obviously through the unprecedented demand for the technology all around the world, manufacturing and suppliers just can't keep up with demand. It's basically as simple as that. COVID have driven that very, very strong degree of need for digital transformation. A lot of companies looking to transform and digitize their businesses, putting a lot of orders, but we just simply could not fulfill them in full. However, despite everything, we're still getting more supply this year than we were getting last year, and hence obviously we continue to grow.
If we look at our current open order, back order, book, we currently have just under AUD 400 million in open orders, which unfortunately due to some constrained supply, or incomplete supply, we can't fulfill and we can't invoice. Obviously in this environment of constant disruption of supply, we have to hold more stock. We normally never like to hold more than 4.5 weeks, but in this environment, we have to hold somewhere around six-6.5 weeks in certain line items, up to seven weeks, because we know they are very in-demand lines of products and customers really demand us and vendors demand us to hold more stock. Despite all this, we continually navigating this.
We have many years of great experience how to manage and navigate those challenging environments. One of our biggest value to the channel to our vendors and the customers is our agility, our flexibility, and the way to deal with this. I think we're continually dealing really well with this. Just to finish up with supply chain challenges and how I see the next six months, I don't think we will see a significant improvement in the supply chain. Demand is simply too strong, and demand is continuing to outstrip supply, and I just can't see that changing. A lot of analysts and vendors who we're dealing with and partners suggesting that we will start seeing easing up of demand and supply catching up somewhere around Q2 - Q3 next year.
This is very much a guess at the moment, but we're hoping that we'll come into more predictable environments sometime during next year. Because predictable environments will assist us with, you know, not investing as much working capital tied up in logistics and supply chain, obviously will kind of bring us back to our normal operating environments. If we go to the next slide. Slide number 12. As you know, we have acquired Exeed Group business predominantly in New Zealand. We also had a small number of small businesses here in Australia as well. If we look at our 1H 2022 results, AUD 192 million revenue came from that Exeed operation.
Actually tomorrow will be the day when our Exeed New Zealand operation will be fully integrated into our Dicker Data New Zealand operation. Exeed Australia operation is now fully integrated and has been integrated for the last few months. We're looking at new New Zealand offices and a new warehouse location, and all our teams are already integrated, and they already moved into the new locations. We're just getting all the operational integration and the system integration to be completed, like I said, tomorrow. Really, really good news. We have a bigger warehouse. We have a bigger office. We have a very big ambitions for our New Zealand market. This year is going to be actually very, very solid coming from New Zealand.
If we go to the next slide number 13. We've kept ourselves busy, and we've done another acquisition. It was a tremendous opportunity for us to get into a brand new market, which is access and surveillance market. Currently, Dicker Data is not playing in this market. Again, it's a very strategic acquisition. Opens up extra 3,000 net new customers and partners come to our books, giving us ample of new technology and new vendors. We have a strong belief that this physical security industry is going through a journey of digitization, and IT platforms are going to be a fundamental base for their transformation. We're obviously incredibly strong in IT, in anything to do with infrastructure and the solution selling.
I think bringing some access and surveillance part of that complex solution selling into the mix is going to put us in a very, very strong position in the next five years. Very, very exciting opportunity. It's only two months of Hills contribution in the first half. We will obviously have the full six months Hills contribution into the second half of Dicker Data numbers. Okay, if we go to the next slide. Slide number 14 just shows you a number of new vendors. Some of their world-class vendors like Axis Communications, Dahua Technology and PowerShield and a few other ones. Really, really excited about this opportunity. Next slide number 15. I'll talk a little bit about IT market and our strategy.
Also, I'll touch base on our market share. Year after year after year, when we're delivering this presentation, I'm always incredibly excited to get to this slide because we are continually taking market share both in Australia and New Zealand. New Zealand, of course, while we were naturally taking market share with acquisition of Exeed Group in New Zealand, is going to put us on a very strong number two place. This is probably the last time when we have split out Dicker Data and Exeed as on the pie graph. Next time, it will be just Dicker Data New Zealand as we've now fully integrated, and we'll run from the same system. Ultimately it puts us just under 30% market share in New Zealand.
Obviously, one plus one is not equaling two. We will be looking to drive a very strong accelerated growth out of this market in the next couple of years. Australia business is incredibly strong. We growing so our software business much stronger than any of our competitors. We're growing our infrastructure business. We're adding new vendors. We're taking share. Slowly, we're chipping away and we're currently at 33% market share. We actually don't have the latest numbers of some of our competitors. We actually do believe that our market share probably is slightly higher than this, but we went into the conservative mode. We're thinking it's somewhere around 33%-35%, looking only at the corporate, commercial, and enterprise business.
Remember, in Australia, we have a very, very small insignificant consumer retail business. Everything we predominantly do is corporate and commercial, so we've obviously compared apples to apples. If we would add consumer business that Ingram Micro and Synnex does, then of course, it's a slightly different picture. Let's look at next slide number 16. This is our revenue categories and split and growth. As you can see in the middle slide, what constitutes of AUD 1.457 billion that we delivered in first half, AUD 365 million out of software. Absolutely remarkable, 42% half on half. It's one of the highest growth we've ever seen our software business delivered.
This is remarkable because Exeed contribution of AUD 192 million in first half is all pretty much hardware. It's a hardware distributor. We had a very good organic growth of our hardware business as well. Our software business outperformed our hardware growth and our software business is now moved from 23% internal share at Dicker Data to 25% internal share. Our aspiration is to get software business to 40% internal share. Look, with the growth we're currently showing, and we're very much focused on delivering similar growth in the second half, I think going into next year and continue delivering and focusing on software business and delivering this growth, I think it will be just a matter of couple of years until we get our software business to those directional goals.
If you look at the right pie chart, 48% half on half increase in our subscription and recurring revenue. That's doing incredibly well as well. We're putting a lot of effort in getting that type of revenue streams going further up and increasing it, which is really good news. Hardware business, if we look at the left side, 35% increase year-on-year, like I've said, incredibly strong results. Out of that, we've had growth in our PC market, our networking market. We have absolutely sensational growth in our AV/UC market. It's a new category that we've established only a couple of years ago, and it's showing great results.
Due to inability to fulfill infrastructure orders, server and storage business is in slight decline simply because we just can't fulfill some of the orders. If I look at the open book and demand for server and storage, it's increasing very, very rapidly. Looking at the second half and giving you a little bit of a view how I think our hardware growth is going to get represented, it's probably gonna change slightly. I feel the PC business is getting slightly softer demand, and therefore we're getting a bit of an improved supply. But our networking server storage, power, cooling categories currently experiencing extraordinary demands.
Most of our order book, most of those, AUD 300 million-plus open books, is currently consist of the products on this segment. We will probably see a much stronger growth in the second half from those segments. Overall growth probably will remain the same. The construct of this growth is probably going to change slightly. If we go to the next slide, we always show slide number 17. We show this graph at every presentation. We continue to drive our long-term vendor diversification strategy. We're currently getting into top five vendors who represent 50% of our business. As you can see, we have mitigating that risk, making sure that we're not reliant on a single vendor. A very similar situation happening actually with our top customers.
We have no significant reliance on any one top customer. Our sweet spot for Dicker Data always were and always will be servicing our mid-market and SMB community. Our number of customers we're servicing went up 30% year-on-year. It's helping us to continue to diversify that vendor concentration, which is really good. Very positive slide. Next is slide number 18. Just a couple of new vendor additions that's coming on board. A big win with NVIDIA and Mellanox business, a very strong addition to our lineup. In the last couple of months, we have won an exclusive distribution contract with Veritas and Autodesk. We always had those agencies, but we always were competing against other distributors.
By putting more focus and more investments into driving unique sets of services into the market, those software vendors, you know, felt that investing with Dicker Data will give them a much better return and will continue to drive their growth into the market. We're now becoming a very, very strong powerhouse for all software vendors. That's why you see a lot of software vendors is coming on board. When you see new vendors coming on board, I'm focusing a lot on driving that software piece of the portfolio. Going to the next slide is number 19. This is just our ANZ vendor portfolio. Very, very strong lineup between hardware and software vendors, penetrating every segment of our market.
Very strong additions to some of our AV and UC vendor lineup. Very pleased with this vendor portfolio. Slide number 20. We always show this slide just to show that it's not just us who is very pleased with our performance, but it's the industry who is acknowledging a great job that Dicker Data does in the market. Lots of accolades from industry bodies like ARN, winning Hardware Distributor of the Year. We also are incredibly proud winning Diversity and Inclusion second year in a row. It's incredibly prestigious award. Over 40% of our workforce at Dicker Data are females. We have people speaking in 28 different languages. Our culture is a very big part of our success.
The next slide is strategy and outlook. I will touch base on a couple of things that I think is very relevant and driving that digital transformation, and why I think even in a slowing down economic environment, our tech industry is doing exceptionally well. In fact, there were a couple of studies done with a Fortune 500 companies, and more than half of them said they're going to increase their tech spend in the next 12 months. We are in a very, very good position to take advantage of this continued demand for the technology. Security is probably one of the biggest conversational topics, obviously, given the war in Ukraine, given all the other situations all around the world.
We're seeing increased number of hacking and cybersecurity attacks. Security becomes a very big topical conversation. Software, again, a very big focus for us. As you can see, over 40% growth. We're gonna continue to drive that growth. Device has always been a big, strong part of our mix. I think with the hybrid working is staying with us. I think it's going to continue to be a big part of our business. Cloud, we're very focused on driving more hybrid cloud environments and assisting all our partners and managed service providers to navigate this cloud conversation. When people coming back into the office environment, they're looking to come back to a smart office where they can collaborate and drive more innovation.
A big demand for digital displays and various audio-video technologies all on the IT platforms. That's exactly what we're helping and assisting our partners to navigate through. Data center infrastructure is currently experiencing the biggest demand I have ever seen in my career life. Very exciting for us because we are in an absolute fantastic position representing all the key tier one and tier two data center infrastructure vendors that is available. 5G is going to continue to drive its need for a better networking, a better connectivity. It'll drive more data. And more data, it means more storage. More storage, it means more security, more data analytics, more backups, and more navigating different cloud platforms. Retail market is a small new addition for us.
We're very happy with our work within the retail market. It's definitely a huge opportunity for us, which we, as soon as we build our new warehouse, we potentially look into if we are to enter this market. At this stage, we're seeing a huge degree of opportunity in the corporate and commercial market, so we're probably just going to sort of get focused there. Market convergence, of course. I've been talking about it for many years. Hence, obviously, our acquisition of Hills and driving that DaaS business. Fantastic opportunity converting the security market into the IT-based market. We're seeing AV already moved into the IT platforms. Operational technology market is now converting as well.
We're in a really good space there. Now just a little bit, just very quickly, slide number 23. I'll go quickly and in specifics. Access control and surveillance, it's in the office, it's outside of the office, it's traffic lighting. It's a huge industry. We have purchased Hills business at its lowest. I mean, Hills at the peak time used to be a billion-dollar organization. When we purchased it was under AUD 100 million. It's a very exciting market for us. We had Hills now for about six, seven months, and we've done a lot of really good learnings from that. The more we learn about the market, the more excited we get. A huge opportunity for us.
Access control and surveillance is going to be one of the growth engines for Dicker Data in Australia in 2023. That's how we looking at this, and that's how we're gearing up. Software and SaaS, like I've mentioned before, a big focus. We're not going to stop. Those sort of, you know, 40%-45% growth numbers is gonna continue to drive into this half and then and the next year. Huge opportunity for us. With emerging software businesses, we're talking to a lot of new vendors in this segment, so just watch this space. It's very exciting for us. 5G, I've mentioned before, and look at our lineup of vendors who are supporting the 5G rollout and refresh.
Cisco, Juniper Networks, Extreme Networks, Ruckus, Hewlett Packard Enterprise, with their very strong Aruba portfolio. We have basically 90% of the top-selling enterprise networking brands under one roof. No other distributor can offer that one-stop shop opportunity. Not only get the product, but actually get an expertise. What we're doing really different to some of our competition is offering that unparalleled service and technical capabilities, driving this conversation and you know, closing up very big projects. 5G is going to be very exciting. Unified communication and audio visual, you've seen 89% growth year on year. I think we're just scratching the surface there. This is our biggest and the fastest-growing category.
From a small base, the explosion of demand for large format digital displays, headsets, call centers, all that technology is doing really well. I think we'll see a big growth in the upcoming years. Slide number 25, work from home. COVID-driven hybrid work environments, and that's going to stay with us. Before COVID, 25% of the workforce in Australia and New Zealand were hybrids. During COVID, 72% of the workforce went hybrid. All the studies and analysis showing that after COVID, we will retain 45% of the workforce continue to stay hybrid. Opens up a tremendous opportunity for so many different vendors within Dicker Data vendor portfolio. PCs, peripherals, networking, security.
Because now all the IT managers need to think how to secure their employee and user experience, not only in the office but also at home, in the car, on the road. You know, everywhere they go, everyone staying connected, everyone needs to be secure. We see it as a tremendous opportunity for us as well. Okay, now I'm gonna pass back to Mary, and she's going to talk in more details about equity raising.
Hi, all. Thank you, Vlad. Just to provide an update in terms of the new announcement we made this morning, in respect of the AUD 50 million placement. We're looking to raise AUD 50 million in an underwritten institutional placement and also offer a share purchase plan looking to raise up to AUD 10 million via the SPP. The proceeds from the placement we are looking to deploy to build the warehouse extension, which will be providing about 70% extra capacity. As we've detailed today, this afternoon, there's definitely been an increase in our working capital requirements, especially in the environment we're in, so the balance of the proceeds to go towards balance sheet and working capital flexibility.
We're estimating about AUD 30 million of the proceeds will go towards the construction and the balance of the amount, including the NSPP towards working capital. However, in the first instance, as we work through the project and by the time we get to appoint the builder and start the actual requirement for cash for the construction, we have the opportunity to put the full value of those proceeds against our working capital debt. Should definitely see some debt reduction as we apply the balances against our working capital facility and should see an improvement in our net debt to EBITDA ratio and our debt to equity ratio with the application of those funds against debt.
Obviously, we're gonna have to draw on that, and we anticipate that the construction will take about six months and see about half of those funds being utilized, possibly this year with the balance of the AUD 30 million, so another AUD 15 million in the second half of the year towards that project. Just a little bit more further detail on the placement. The placement price has been set at AUD 10.30 at a discount of 10.3% off last close, but providing a very small dilution to the overall existing shareholding.
We see that the size and quantum of the raise to be sufficient for what we require right now and sets us up really well for our medium-term goals in respect of creating more capacity and having more flexibility around working capital. We're happy to take questions now if I want to hand over to the operator.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speaker phone, please pick up the handset to ask your question. Your first question comes from Bob Chang from JP Morgan. Please go ahead.
Afternoon, Vlad and Mary. Just a few questions from me. Just in terms of the cadence of growth. I think you mentioned earlier that you sort of expect the second half to be broadly similar. Is the best way to read that, like that underlying growth of 17%, like that's sort of the expectation going into sort of the second half?
Yes. We expect a very similar growth that we've experienced in the first half. Obviously, we only had two months of Hills contribution in the first half, so we will have a full six months contribution in the second half. We're expecting a similar type of growth in the software. We're probably, in the software division, we will probably see a slight softness in our growth in our PC business. We're starting to feel that. We started to see that. It's still gonna be growth, but it's not going to be as strong as in first half. However, we will see a lot stronger growth from our infrastructure vendors. The only question mark is upon supply and invoicing terms.
Everything stays the same, and there is no big changes in supply. Like, for example, everything just stops. Yes, our expectation is to have a similar growth in the second half.
Great. That's good to hear. Just that comment earlier around the open orders of AUD 393 million, like, what do you mean by open orders? Is that sort of the order book that you're just waiting for inventory on? Or, could that get reallocated by some of your customers to other suppliers?
You know, interesting thing is, yes, correct. It is an order book. A lot of stock is already in our warehouse. We just can't invoice them because our customers require a full delivery of a full solution. We can hold millions and millions of inventory, you know, back-to-back to this order. We could be waiting for a couple of more products to come in, a couple of more OEM components to arrive until we actually invoice it. It's a lot already in stock. It's a lot we're waiting for. Yes, AUD 393 is basically our order book. Correct.
Okay, thanks for that. Just, given the business is running on a pretty elevated sort of inventory balance at the moment and just sort of draining that working capital as well, can you talk a little bit about the mix of, you know, the inventory that you currently have? Like, is there any risk that some of this inventory doesn't get moved along and we might even see some write-downs across that inventory base? Like, how should we think about that risk?
Yeah, sure. Okay, for the market itself right now, it's a very stock-driven market. It's not a price-driven market. Every single piece of inventory that we hold, we believe is a very, very good and important inventory. If situation changes and supply will, you know, become readily available on all lines of businesses, then it will be vendors who will be funding liquidation of this stock. We've been in this situation many, many times before. I don't think it. I personally don't think it'll happen anytime soon. I think we will be in this kind of situation and operating in this environment for at least another two-three quarters. Normally it happens gradually.
What happens is, as demand started to slowly soften it up, supply catches up and our inventory levels are going to lower. This is a gradual process which will happen through the two or three different quarters. That's how I foresee this is happening. We don't see inventory as a risk at all. We have a very strong provisions allocated towards our aged inventory. But in reality, we never had to use those or write off. It's always a vendor and ourselves come into helping and supporting each other to move the inventory out. It's not a concern at all.
Great. Thanks, guys.
Thank you. Your next question comes from Ed Woodgate from CCZ. Please go ahead.
Ed, it's
Hi, Mary.
Hi, Ed.
Thanks for taking my question. Can you just talk through what the revenue backlog looked like in the third quarter and like, has that increased throughout the quarter? If you call out a specific number, that'd be great. Otherwise if you could talk to it qualitatively, that would be helpful.
You know what? We've had this backlog for over a year and a half now, and it's about the same. As soon as we sold out all our inventory through the COVID rush, we started building our backlog book, and it's staying exactly the same. It's not reducing, it's not increasing too much. The construct of that backlog have changed. A year ago, 80% of that backlog and order book was PCs. Now it's the infrastructure products. That's changed. Yeah. Ed, to clarify, though, this is just in this environment of we're seeing increased size backlog book in the last year and a half. Prior to that, the actual order book was significantly lower, so hence calling it out in quantifying the amount.
Yeah, understood. Okay. That helps. Maybe just on Hills. We appreciate that you've got a very bullish view on that, the long-term opportunity there. Correct me if I'm way wrong, we understand that the business maybe didn't hit the ground running as quickly as it could have just because of the difficulty in migrating workforces and vendors. Can you talk about the trends so far in this quarter with Hills and what levers you can pull to make it a better contribution in the second half?
The true reality is we're dealing with two acquisitions at the same time. Obviously, if it wasn't a great opportunity, strategic opportunity, we wouldn't have done it. Normally, just one at a time and we're working through it. We're making it operational, profitable, growing business, and then we look at something different. Hence obviously a slight delay with both to be honest. We should have integrated Exeed New Zealand some time ago. We should have made the, you know, if we're just focusing there. We are a little bit stretched, but we are progressing really well. Like I've said, Exeed New Zealand is pretty much done, and we'll be operating as one single entity past this month. Hills is a small business.
It's a great opportunity business, but it's also a very complex business, and that's why we love it. It's, you know, it operates in multiple locations. It's driving a lot of solution type-based environments. We offer a very different sets of services to our customers than we ever in IT. For example, with a core Dicker Data business, we don't offer post-sales technical support. But with Hills, we do. Hence obviously driving a very, very strong additional margins through offering these services. Which potentially we could always consider to drive it through the core IT business. We just need to stabilize that part of the business first. The revenue of Hills business already started to grow.
The market share with certain vendors within that business is starting to grow. We have done significant improvements in certain operational levers of that business. For us to get it completely right and get it in a very strong, profitable situation and position, we'll probably need another few months. It's definitely looking much, much better for the second half. Like I said before, I'm treating this opportunity as my growth engine for 2023.
Okay, great. Awesome. Got a bunch more questions, but I don't wanna hold the line, and we're speaking soon, so thanks very much for your time.
Yes.
Thank you.
Thank you.
Thank you. Your next question comes from Hayden Liu from Evans and Partners. Please go ahead.
Afternoon, guys. Maybe just on the backlog or the open order value of that 393, are you able to give a sense of what historically that has been? Just trying to get a sense of the, I guess, the incremental addition to that number, currently.
Yes. Historically, the open orders were always fluctuating somewhere around AUD 130 million-AUD 150 million. However, don't forget that we had a very strong organic growth. Organically, I think the backlog probably would've been now somewhere around AUD 160 million-AUD 180 million. If you look at overall backlog, it's well over two times of what we should have had in a normalized environment.
Great. No, that's helpful. Thanks for that. Sort of when do you think the orders will be fulfilled that the 393? Is it all committed and sort of non-cancelable that backlog?
Look, theoretically speaking, okay, some of that's non-cancelable, some of that is cancelable, theoretically. Practically, we haven't seen any cancellation. I haven't seen a single cancellation on anything because if they can't get it from us, they can't get it from anywhere else. Anything to do with the infrastructure project, it's very, very difficult to substitute. Those projects are very long lifecycle. They've been working with, you know, technical and engineering staff for many, many months until the project is locked in. When it's done and locked in, there is no alternative. They have to wait for the stock.
Great. Thanks, Vlad. Maybe just on OpEx, that sort of grew 38% in the first half, but gross profit dollar is only 29%. Understand, I mean, sort of to Ed's point, you sort of called out an increase in salary costs in the commentary, partly to do with the onboarding of over 100 staff with Hills. Do you expect to sort of get back to realizing operating leverage in the remainder of this year?
Yes. Costs did increase, but operating cost as a percentage of sales actually slightly improved to 4.7% of sales. Where we've seen the impact on profit before tax has been increase in depreciation and amortization and finance costs. But again, agreed that we do have some duplication of costs reflected in the first half. We were operating four different premises in New Zealand, again and having some impact of additional headcount as we've onboarded the staff that came with the two acquired businesses. We have to look at improving our cost structure going forward. It actually did. We did slightly gain some leverage from the scale.
Thanks, Mary. Just last one for me. The reaffirmed 9% gross margin target for the full year, would you be able to step through, I guess, the main assumptions underpinning this?
Sure. The first quarter margin, we had an overweight contribution of retail business from the New Zealand Exeed Apple business, which impacted margins. With the working capital cycles that we experienced in the first half, and especially sort of that March, April period of elevated inventory and working capital investment, we did forego some settlement discount with some of our vendors, which have impacted margin and the opportunity to participate back in that in the second half with particularly additional input of the proceeds from the placement, we'll be able to get some gains in terms of what margin improvement. I think, yeah.
Okay, great. Thanks, Mary. Thanks, guys.
Thank you. Your next question comes from Chenny Wang from Morgan Stanley. Please go ahead.
Yeah. Hi, Mary. Hi, Vlad. Thanks for taking my questions. Just maybe first one, just in terms of Kurnell and the AUD 30 million for that warehouse expansion. Just maybe sort of two-part question. Firstly, just to confirm whether the warehouse expansion you expect is fully funded with that AUD 30 million. And then secondly, just trying to get a sense of some of the contingencies built into that forecast, especially, I guess, given, you know, the broader inflationary pressures that we're seeing. Yeah, some color there will be great.
Sure. Yes, that should be fully funded from the proceeds. The AUD 30 million is at the top end of our estimate in terms of construction costs. We have sent the project out to tender in a competitive environment. I think there is a level of buffer in that number that also will provide the ability to invest in the fit out of that warehouse and some efficiency improvements in terms of some kind of automation and sort of very store-type additional contribution of pick face within that space. There is a buffer built into that estimate.
Got it. No, that's helpful. Just in terms of, you know, the AUD 20 million for working capital, and I get that, you know, you'll maybe able to get, you know, AUD 10 million from the SPP for that as well. I guess I'm just sort of wondering what the rationale behind that AUD 20 million was. I mean, you know, to some extent it sounds like, well, to some extent it seems like it's relatively small in the context of net debt and broader working capital needs. You also mentioned, you know, you're not expecting supply chains to get better quickly. You know, you sort of talked about second quarter/third quarter next year. Yeah, just some thinking behind that AUD 20 million number would be great.
Sure. Part of our working capital requirements, and sort of the future view on that is, we have increased our debt facilities already to cater for that. We increased our receivables facility by AUD 40 million at the start of the year and a new facility in New Zealand. Some of that extra requirement is coming from that increased debt facilities. If you look at the Hills acquisition, it was predominantly AUD 20 million of inventory that we got in that purchase price, and that came from the increase in the receivables facility. In effect, that AUD 20 million is providing more capacity within that facility 'cause we've drawn on it for that acquisition. That will allow us to drive the growth of the business.
Got it. Maybe just sort of one last one from me, looking maybe a bit longer term and, you know, touching on that aspiration to get, you know, software to 40% share, or 40% of mix. Look, you know, if you guys get there, I'm interested in the gross margin impact. You know, will there be, you know, some headwinds on that? Like, how should we sort of think about, you know, the group's gross margin trajectory, as you deliver on some of these longer term initiatives?
Maybe not so much in the gross margin. I think gross margin, it's kind of very similar to all the hardware data center infrastructure vendors. Like it's on par. Where we're gonna get a lot of benefit is in operating that business, operation, making it more operational, automate this business. It's not, obviously, you know, working capital hungry business. We do believe there is a very strong demand upcoming for that business as well.
It'll put us in a very strong, true hybrid type of strategic distribution landscape organization where we can offer a full spectrum of expertise starting from a simple system deployment, moving into complex solution selling, and adding all the software stack as part of our sale. This is what probably would get us in a very, very good attractive position. Selling a complete stack of solution, that's what's probably going to have a very positive impact on our overall margin, but not on its own.
Got it. No, that's great. Thanks for clarifying. Yeah, thanks, guys. That's it from me.
Thank you. Your next question comes from Chad Miguel from Barrenjoey. Please go ahead.
Good afternoon, Vlad and Mary. Just checking you can hear me okay.
Hi, Chad.
Yep.
Yep.
Hi. Okay. I did have a question around margins, but it was asked earlier, so I'll just skip over that question. I'm just interested to understand just with Kurnell, 'cause it felt like yesterday we walked through Kurnell when it was developed, and now you're running out of capacity. I'm really keen to look at the broader picture, just with regards to some of the key vendors there and what you're seeing in terms of their strategies around ANZ and fulfilling the growth here. I guess that's the first part. Also what we're seeing from some of the vendors that report in their own right offshore is that the distributors that they're wanting to work with is becoming an increasingly consolidated list.
Just interested in terms of, you know, that trend you're seeing in the market.
Yeah, definitely. I'll probably comment on this, Chad. So absolutely right. There's two things to remember. Distributors become even more valuable part of ecosystem, channel ecosystem for all vendors than it ever was before. The tech world is becoming incredibly complex. It's very difficult to navigate. Every project that we fulfill and deploy consists of two or three, sometimes more vendors in it. There's no other entity in the channel ecosystem who'll be able to bring all those solutions together but a distributor. So, of course it's, it plays a big role. Now, the second part of the question is the consolidation. Hence, as a consequence, a lot of vendors looking at a distributor who has all those product portfolios under one roof because it means that they have all expertise under one roof.
When a customer comes in and they need to build a complex solution, we have everything. We have a server range, a storage range, a networking opportunities. We have all the software stacks we can deploy. We can put the customer on a subscription monthly billing models and offer them a consumption type base of purchasing where we can just up and down their consumption based on their requirements. All these becomes very important for the vendors when they select their distributors. We know that. We know that. We've always knew that. Hence, it's very important for us to continue to up our skill level and our value into the market.
Going forward, we see more and more consolidations in the market, not only through the distribution layer, but also in the reseller and partner layer. Managed service providers are buying each other. We're definitely seeing that tendency. Obviously it puts us in a very strong position.
Yeah. Just with that.
And just, um-
Yes, Mary?
Oh, I'm sorry. No, no, you go.
I was just gonna say, yeah, in terms of that strong position, clearly, you know, with the business that you are riding with existing vendors and new vendors, maybe a perspective around, you know, I'm sure it's less a margin conversation and it's more about getting the you know, ANZ strategy right from any of these vendors. How do these margin conversations go? I guess one broad question would be around, you know, some of the types of business you are riding now in the new environment. You know, what type of margins are they being ridden at to give us perspective of the long-term margin profile of the business?
Yeah. Like I've mentioned before, Chad, I think it's very important to have every piece of the puzzle under one roof and have expertise, and that's what drives a higher margin. It's very important to understand what's trending in the market and what the new innovative technologies are there because everything new is driving a higher margin. For us at the moment, for example, AV and UC, it's one of the fastest growing category that's driving much higher margins. That actually occupies a lot of space in our warehouse. We need more space to drive more higher margin product segments. Data center infrastructure.
Yeah.
As mentioned before. That's a high, you know, relatively higher margin, and we need more space in the warehouse to drive it as well. Yeah. Over to you, Mary.
Hence your earlier question about space. Yes, it was only like February 2021 when we moved in a place that was 80% bigger than our previous one, and now we're building additional 70% capacity extra. In terms of the current site we're at, we're also exploring the opportunity for a stage three and four. We still own the land that sits the hardstand areas to the left or depending on which side you're looking at the building, the right of the building, and looking for further expansion opportunities on the same site, because it, you know, obviously it's a lot big space, but with the growth trajectories of the business, it's being able to be filled out pretty quickly because it exists and the opportunities are there.
If you have the space, we feel we'll be able to fill it.
Thank you.
Thank you. Your next question comes from Claude Walker from ARL. Please go ahead.
Oh, hi there guys. You've partially answered this question in the preceding questions, but I was just wondering if you could explain, there was at least one term I didn't understand. If you could explain in layman's terms why the gross profit margins, I guess, dropped between, you know, last year and this year.
Yes, definitely. Last year, we didn't have any contribution from Exeed Group. This year in the first quarter, we had a very large portion of Apple business contribution into overall revenue mix. Apple business into retail in New Zealand is done at a very, very low margins. We knew that when we acquired Exeed Group, we were not delusional. We knew that overall business, it's at much lower margins we're running it in Australia, and even lower margins we're running in Dicker Data New Zealand business. We've seen a great opportunity because Apple is normally opens up a lot of opportunities and opens up a lot of doors. We knew that that business can be strong. Look, it'll.
Even if we add 50% of the Apple revenues with high-margin accessory businesses, it'll never come to 9%. Like, it's probably not possible. We have other growth opportunities which drives a lot, you know, more than 10% and 12% gross margin products. Balancing it all together, there is no reason why our New Zealand business, including that Apple business, shouldn't come close to the gross margin that Australia runs. It'll take time. It'll take build-up. I mean, that's the opportunity that we got into. We are on, you know, we're progressing with building it up, but it's still, you know, it's still not where we need it to be. The reason why is that because of the Q1 Apple business was exceptionally strong.
In Q2, if you look at the results, Apple business was also not weak, but other commercial products and other enterprise projects are invoiced. That's why it's all balanced out nicely over 9%. That's why this is where we come quite confident that we're gonna drive to 9% gross margin for the overall business.
Cool. Thanks.
Thank you. There are no further questions at this time. I'll now hand back to Ms. Stojcevski for closing remarks.
Thank you everyone for joining us this afternoon and thank you for all your questions. Thank you.
That does conclude our conference for today. Thank you for participating. You may now disconnect.