Thank you. Thanks for joining us this morning to discuss JB Hi Fi's full year results. And as always, thanks for your interest in the business. We'll talk through the presentation and then allow time for questions at the end. I'll now start by turning to Slide four, titled the Group CEO Transition.
So on Slide four, as previously announced, Richard Murray is to lead JB Hi Fi for a new role. I'll be taking over as Group CEO Nick, Nick Wells, the Group CFO, will join the Board as Executive Director and we've made an internal appointment of Biage Capasso, taking over from myself as Managing Director of The Good Guys. To replace Biage, we have made an external appointment of Tanya Goranzi as our Merchandise Director of The Good Guys. Tanya is a great hire for the business, and she will join us from Hisense Australia, where she was General Manager for fifteen years. Tania's start date is yet to be finalized.
All transitions have progressed well, and I'm formally to commence as Group CEO at the August. Now on to Slide six, our group model. I'm sure many of you have seen this slide before, but it's important because it highlights the group model and how it supports our two leading brands. Our two brands have both distinctive brand personalities and distinctive core product leadership positions. The group appeals to a wide but brand differentiated customer base to which both businesses provide a common value proposition of big brands at low prices.
Our customer centric approach, which is underpinned by passionate and knowledgeable sales staff delivering exceptional customer service. And we achieved this through our multichannel strategy, be it in store, online or over the phone. This multichannel strategy has been an absolute key to our current and ongoing success. All of this is supported through our combined group functions here at the support office and is underpinned by our five competitive or five key competitive advantages, which I'll touch on, on Slide seven. We've talked about this before.
However, our five key competitive advantages are scale, low cost operating model, quality store locations, supplier partnerships and multichannel capability. With scale, we have the number one position in the market and are globally relevant to suppliers. Our low cost operating model, this is a constant focus and is key to ensuring we deliver our price promise to our customers. Quality and diversified store locations. This ensures we provide ultimate convenience for and maximum reach of our customers.
Our solar supplier partnerships, this assists us in leveraging our scale. And the fifth is our multichannel capability. Our strategy has always been to give customers the ultimate choice on how they wish to deal with us, whether that's in store, online or over the phone. We continue to invest across all these channels to ensure we provide a smooth and engaging experience regardless of the customer's preferred way to shop. However, key to this multichannel competitive advantage is our store network that provides customers physical access to products, especially those high involvement products, which are generally not transacted online, and of course, our access to our knowledgeable sales staff.
The store network gives us the ability to achieve fast online fulfillment times, click and collect and the security of a physical store presence should after sales support be needed for both in store and online purchases. We also have a strong and growing commercial business to support that sector of the market. Over to Slide eight. We remain focused on generating long term sustainable growth for the business. Our sustainability policy outlines our commitment to having a positive effect on our people, community and environment.
Some of our key FY 'twenty one achievements are our people and culture. We prioritized the safety of team members through COVID-nineteen. We rolled opportunity and workplace behavior policy to all team members. And we launched a set of diversity and inclusion initiatives to continue to improve diversity and leadership. For our communities, FY 'twenty one workplace giving donations totaled $3,700,000 and $21,800,000 since inception, with JB Helping Hands program winning Workplace giving Australia's 2020 Best Overall Program and Best Innovation Award.
We completed our modern slavery statement, which outlines the actions that we are taking to address the risk of modern slavery to our business and supply chain and continue to work with suppliers on embedding our ethical sourcing policy. With the environment, the group is committed to net zero direct carbon emissions by 2030 and recently installed our first solar power generation at a JV Hi Fi Chadston Homemaker Center store. We continue to explore waste reduction, reuse and recycling initiatives led by the group's operational waste and recycling group. And we are getting continuous improvements in sustainable packaging. Our FY 'twenty one sustainability report can be found on our investor website.
Now turning to Page nine. We'll talk through this in more detail as we move through the presentation. But again, it's pleasing to see the results in what has been, and I must say, continues to be an extraordinary period. Our continued focus on our customer, along with the strength of our multichannel offer, be it in store, online or over the phone, and importantly, the incredible efforts of our over 13,000 team members had enabled us to meet the customers' increased demand and achieve these solid results. Over to Page 10.
Again, I will take this slide as read, as we'll discuss in greater detail as we move through the presentation. But again, pleasing to see sales and earnings growth across all divisions in FY 'twenty one. Over to Page 11, group highlights. The group's financial highlights. Sales up 12.6% to $8,900,000,000 We saw exceptional growth online with sales up 78.1% to $1,100,000,000 representing 11.9% of total sales.
EBIT was up 53.8% to 743,200,000.0 We had strong operating leverage from elevated sales, gross margin expansion and disciplined cost control. NPAT, up 67.4% to 506,100,000.0 EPS up 67.5% to 4 and $40.8 per share. A final dividend per share is up $0.17 per share or 18.9% to $107 per share, bringing the total dividend for FY 'twenty one to $2.02 87 per share, up $0.98 per share or 51.9%. The group's operational achievements, health, safety and well-being of our team members, customers and business partners remains the group's highest priority, especially during this period. We continue to respond and adapt to the challenges resulting from COVID-nineteen with a well executed promotional program and a high level of customer service maintained across stores, online and supply chain.
Key internal appointment of Bjarne Capasso to Managing Director of The Good Guys. We saw continued investment in online and supply chain operations, including upgrades to the website and expanded delivery options. We continue to invest in sustainability initiatives, including committing to net zero direct carbon emissions by 02/1930. We also expanded continued expansion and investment in our group commercial businesses, products and service offerings. Over to Page 13, and I'll turn to the divisional performance, starting with JB Hi Fi Australia.
Again, I'll take this slide as read as we'll cover in greater detail as we move through. So over to 14. JB Hi Fi Australia's FY 'twenty one sales. Total sales grew by 12% to 5,960,000,000 with comparable sales up 13%. Sales momentum was strong through the year with heightened customer demand for consumer electronics and home appliance products.
Our Home our Hardware and Services sales were up 11 sorry, 14.1% with comparables up 15.1, driven by Communications, Computers, games hardware, visual and small appliance categories. Communication sales categories had a very strong result with both outright handset sales and connections with our offering continuing to resonate with customers. Computers had a very strong year with customers continuing to seek products for work and learning at home with MacBook and laptops performing well. Games hardware performed very well and assisted by new console sales in the second half. PGL had a solid year despite some stock challenges, and we continue to see an increase in sales in larger panels as customers continue to move to 75 inches and above panels.
Small appliances had a solid year with growth in stick packs, coffee and kitchen appliances. Software sales were down 14.5% with comparables down 14.2%, as a result of the decline in movies and games software categories, but offset by growth in music. Software sales were 5.5% of total sales. Online grew 93% to $780,000,000 or 13.1% of total sales. But excluding Victoria, with the lockdown that we temporarily saw in the first half of 'twenty one, sales represented 11.1% of total sales.
The ongoing investment in this area ensures that we're able to meet increased customer demands. The commercial business recorded solid sales growth as we continue to grow our product and service offerings. On to Page 15 and JB Hi Fi's earning results. FY 'twenty one gross profit increased by 13.4% to 1,330,000,000.00 with gross margins up 27 basis points to 22.2%, driven by a combination of lower discounting and continued buying improvements. Cost of doing business was 11.2, down 91 basis points.
Cost of doing business in absolute terms grew 3.6%. As a reminder, sales were up 12% with disciplined cost control throughout the year. Depreciation grew by 1.1% with increase in both depreciation on right of use assets and fixed assets. EBIT was up 33.6% to $523,000,000 with EBIT margin up 142 basis points to 8.8%. Over the page to New Zealand.
Again, with Australia, I'll take most of this in red. However, just to note the last two lines, which show Jabi Hi Fi New Zealand underlying EBIT, excluding our noncash impairment charges for both FY 'twenty and FY 'twenty one. We will touch on those as we move through. Over the page to Page 17, FY 'twenty one sales. Total sales in New Zealand were up 17.4% to NZD261.6, with comparable sales up the same.
Hardware and Services sales were up 18.3%, again, comparables up the same. This was driven by Computers, Visual, Communication, Games hardware and Small Appliance categories. Software sales was 7.4%, with comparable sales again up the same, with a decline in Movie category offset by growth software. Software sales represented 7.1% of total sales. Online sales grew 35.6% to NZD27.6 million or 10.6% of total sales.
Turn over to Page 18 and earnings. The FY 'twenty one earnings for New Zealand gross margins were up 129 basis points to 17.8%. Cost of doing business was 13.1%, down 109 basis points and in absolute terms, grew 8.4%. Again, reminder, sales were up 17.4% with store wages remaining well controlled. EBITDA was million, up 137.5%, driven by sales growth, margin expansion and cost control.
Statutory EBIT for New Zealand was 5,800,000 up $28,100,000 from a loss of $22,300,000 in FY 'twenty one. However, underlying EBIT, excluding the impact of impairment in the current and prior period, resulted in New Zealand having $6,000,000 in earnings, up 7,200,000 on FY 'twenty. Looking forward, we've got our focus areas for both JV Australia and New Zealand. With COVID, it continues to prioritize the safety of our team members and customers through COVID-nineteen and continue to adapt and respond to our customers' changing needs. With sales continue to focus on sales across all channels, be it in store, online, phone or commercial and focus on growing top line and gross margin dollars.
With stores, we'll continue investment in and optimization of the store network to maximize profitability, and we'll continue to trial alternative store formats to increase market penetration. With e commerce, we'll continue to leverage our new e commerce platform and continue to build on its capability. We'll continue to meet changing customer needs through our online offer, including expansion of payment options with the buy now, pay later and continue to integrate our in store and online experiences. Category evolution, continued expansion of communications, rideable small appliances and pop culture. Optimize category space allocations productivity on floor space.
Supplier partnerships, build on our partnerships with major suppliers to extend our capabilities. With New Zealand specifically, we'll continue to execute on the strategy to improve performance in New Zealand. With services, we'll expand and extend our service offerings, continuing to enhance and develop in store experience. With productivity, simplify processes and drive productivity with a focus on improved stock flow into back into store and back of house operations. Over on to Page 21, the good guys, again with JV.
I'll take this slide as read as we'll cover it in greater detail as we move
through.
So over to Page 22, the Good Guys FY 'twenty one sales. Total sales grew by 13.7% to $2,720,000,000 with comparable sales up 13.7% or the same. Sales momentum was strong throughout the year with heightened customer demand for home appliances and consumer electronic products. We saw growth in refrigeration with strong unit growth across refrigeration and freezer sales alike laundry with solid growth in larger capacity washers and heat pump drives floor care with significant growth across stick and robot vacuums as we continue to expand our offer across this category. Portable or small appliances had strong unit sales growth seen across coffee machines, cooking and food preparation.
Televisions, we saw growth with solid unit sales across all sizes. Online sales were up 48.5% to $258,300,000 or 9.5% of total sales. If you exclude the Victorian sales during the period when they were temporarily closed, online sales represented 8.4 of sales. Our online and fulfillment system performed extremely well with these significant sales volume increases. Over to Page 23, the earnings.
Gross profit was $608,600,000 with gross profit margin up 189 basis points to 22.4, driven by combined lower discounting, product mix and continued buyer improvements. Cost of doing business was 11.7%, down 100 basis points, and in absolute terms, 4.7%. Again, sales were up 13.7% as store wages remained well controlled throughout the year. Depreciation grew by 3.3% with an increase in both depreciation on right of use assets and fixed assets. We saw strong operating leverage from elevated sales growth, gross margin expansion and disciplined cost control drove strong EBIT growth, up 90.2% to $214,700,000 and EBIT margin was up three eighty basis points to 7.9%.
Now turning to the Good Guys' key focus. As with JV, COVID-nineteen, we continue to prioritize the safety of our team members and customers through COVID-nineteen. We continue to adapt and respond to serve our customers' changing needs. With sales, continue our multichannel strategy to drive sales across all channels, be it in store, online, phone or commercial. With stores, continue the store upgrade program to focus on adjacencies, supporting growth categories and showcasing the home appliance categories.
With e commerce, we're capabilities to further connect the online and in store experience. And we continue to meet changing customers' needs through our online offer, including the expansion of payment options with the buy now, pay later. Category evolution continued to establish a leading position in the growing connected home appliances market, continued expansion of telco products and services partnership with Telstra. With supplier relations, we continue to build on our supplier relations and continue to enhance and evolve our offer with improving range and the introduction of new brands, especially to increase the relevance in the premium product area. Delivery experience, utilize group supply chain capabilities to provide customers an enhanced delivery experience and with productivity rollout the rollout of technology to streamline in store processes, focus on inventory efficiencies, right product, right time at the right place.
I will now hand over to Nick to talk through the balance sheet and cash flow.
Thanks, Terry. So starting on Slide 26, the balance sheet and inventory. So inventory at June finished at $938,800,000 up $199,500,000 as inventory availability continued to improve from the low FY 'twenty closing inventory position resulting from those COVID-nineteen related supply shortages that we called out last year. We've included the five year inventory graph there, which really highlights that low closing stock position last year and the reversion to closer to normal levels this year. I will call out we do manage stock to sales.
And even with that improvement in availability, inventory supply is still tight, which you can see when you compare the closing inventory balance of $939,000,000 in FY 'twenty one versus the $887,000,000 in FY 'nineteen, which is only up 6% when sales across that period are up more than 25%. That's what's driving the increased inventory turnover, which was up 61 basis points to from 7.7x in FY 'twenty, but more significantly, up 200 basis points from 6.3x in FY 'nineteen. Payables, which would ordinarily grow in line with inventory, were down year on year as inventory was purchased earlier to replenish inventories and to ensure we secured stock to support the continued heightened customer demand. Receivables were down year on year as we continue to actively manage outstanding receivables. And other current liabilities increased primarily due to income tax payable arising from the elevated profit in the period.
Turning to Slide 27, highlights on the cash flow statement. Operating cash flows and operating cash conversion were impacted by the increases to working capital required to replenish those inventory levels from the low FY 'twenty closing position that remained very strong over two years with the combined FY 'twenty and FY 'twenty one cash conversion well over 100%. CapEx remains in line with our expectations as we continue to invest in our store portfolio, our online offerings and strategic initiatives. FY 'twenty CapEx again was low as a result of COVID restrictions impacting our ability to complete some projects. FY 'twenty one CapEx has returned to a more normal level.
The dividends paid during the year include the final dividend of FY 'twenty and the FY 'twenty one interim dividend, which both increased significantly year on year following strong increases in net profit in those periods. The final dividend for the second half of FY 'twenty one, which is obviously elevated, is yet to be paid. You see closing net cash of $263,200,000 there. On Slide 28, capital management. We have today declared a final dividend of $107 per share, fully franked, up $0.17 per share or 18.9% on the FY 'twenty final dividend, bringing the total dividend for FY 'twenty one to $2.87 per share, up $0.98 per share or $0.05 $19 and representing 65% of NPAT.
The Board will continue to regularly review the company's capital structure with a focus on maximizing returns to shareholders and maintaining balance sheet strength and flexibility, which we continue to consider very important in what remains an uncertain period. The record date for the final dividend is the August 27, with payment to be made on the September 10. I'll hand back to Terry. Thanks, Nick.
We'll move to now to Slide or Page 30 and the outlook. Slide there. FY 'twenty two year to date sales update for the period July 1 to the August 15 as we cycle the extremely elevated sales from the previous period. JB Hi Fi Australia total sales was down 14.6% with comparables down 14.9%. But over two years but over the two years, I should say, total sales were up 19.1% with comps up 19.4%.
New Zealand total and comp sales were up 8.4% and up 14.8% over two years. The Good Guys total sales were down 8.1%, with comps down 8.6%. Over two years, total sales were up 28.9 and comps up 28.2. Whilst we have experienced some disruption and variability of sales as a result of the various state based COVID restrictions, we have continued to see a heightened customer demand and strong sales growth rate over the two year period. In view of the ongoing uncertainty arising with COVID-nineteen, we do not currently consider it appropriate to provide FY 'twenty two sales or earnings guidance.
I will now turn to our final slide on '32. So in closing out the presentation, we'll talk about the investment checklist, which I'm sure many of you know, so I won't cover in any great detail. However, a few comments. Both brands work hard to maintain their market leadership. For JV, technology and consumer electronics is at its core and front of front of mind purchase for consumers.
For the good guys, they are a market they have a market leadership position in home appliance categories but also cater for family consumer electronics needs. As a group, we work hard every day to maintain our position as the number one destination for technology, consumer electronics and home appliances. Our long term and ongoing focus on our multichannel capabilities has definitely served us well over this extraordinarily disruptive period for customers. The combined power of our physical locations, the well integrated online offering, phone sales and our commercial teams ensuring all ensure we remain connected and ready to assist shoppers however they wish or indeed need to deal with us. We are focused on maintaining a resilient and highly relevant retail model.
Also having a business that is a desired place to work for our team members and ensuring we continue to attract high quality staff into the future. We will continue to deliver our commitment to our customers of big brands at low prices while continuing to invest for the future and ensuring we do so in a sustainable and ethical way. Thank you. And we'll now go to questions.
Thank you. Your first question comes from Michael Simotis with Jefferies. Please go ahead.
Good morning, everyone. And Terry, it's good to hear from you again on these calls. The first one for me, just on your recent trading in July and August. It seems like a very good outcome that you've effectively maintained your two year growth rates in JV Hi Fi Australia and the good guys notwithstanding the COVID restrictions and closures. Is there any more color you can give us on variability across states and whether the store closures were actually a drag or whether there are offsets in other places?
Look, you're right. I mean, we're cycling these significant volumes. And just a bit of color around the store closures. At any single point of time during that period, we had 30% of our stores closed. And as of today, it's about 55% of our store closed.
Compare that to about 5% this time last year. What you definitely do see though with store closures that it does have an impact on the sales. But I think with the store closures, what it really does demonstrate is the strength of the model and how the customers just aim to seamlessly switch to our online platforms. But when the stores reopen, they flood back. So we are seeing some impact from states such as New South Wales and Victoria.
However, what you tend to see just as a bit of color around that, what you tend to see is it says high involvement purchases, things such as cooking, higher ASP products that tend to, I'd say, get delayed more than you lose. And then when the stores reopen, you tend to pick a lot of those back up again.
Okay. That makes sense. And in New South Wales, a couple of your competitors are still trading, at least to some extent, in store, Officeworks and Harvey Norman. Do you think that's had much of an impact on you?
Well, definitely Officeworks. They always appear on the essentials list, albeit we sell some of those similar products. Look, Harvey Norman is now closed in New South Wales. They did remain open for a period where we chose not chose, but we thought it was in the spirit of the right thing to do to close. But no doubt, mean, you just have to accept that some sales will bleed off into those retailers that are still open.
However, as you can see from the result, it's not significant.
Yes, I agree. All right. And then second question from me. Your occupancy expenses, just on the face of the P and L, fell by about $20,000,000 in FY 'twenty one, and that implies they were down about 10% in the second half. Can you just talk us through what happened there?
Is there something funny with AASB sixteen coming through? Or is there another issue?
So there is some occupancy savings with stores to close, so that does play to it. And then the impairments, Michael, of the New Zealand right of use assets and fixed assets last year, some of that is going through in occupancy.
Yes. Okay. And it just seems like more of it's come through in the second half than the first half,
where I would have thought store closures were more of
a driver in the first half and that New Zealand issue should have been about even across the hubs?
No, the impairment in New Zealand last year is significant. Like it's that $21,000,000 Michael, with the second half last year?
Yes. It's just that it fell by more in the second half than it did in the first half is what I'm saying. So I would have thought the impact of that would be about the same in the two halves of FY 2021.
We can take it offline if
you like, but I'm just trying to understand the
Yes. But there's nothing the two we haven't sought any material rent reductions from landlords. We've continued to trade well through the period and pay our landlords in full. There's obviously occupancy expense line now that rent doesn't go through there. It goes through the right of use asset depreciation and the interest.
So the two material lines on an ongoing basis are the energy consumption and the security costs. And yes, we continue to manage those pretty closely.
Your next question comes from Sean Cousins with UBS.
Just a question around the inventory rebuild. Can you just talk do you think you're still at the risk of losing sales given tight inventory? Or do you remain in this quite positive environment, which is sort of a tight supply that supports gross margins, but no real loss of sales?
Yeah, look, definitely we're feeling more comfortable with our stock levels, albeit they're not exactly where we would like them to be. And given that that stock level is probably is elevated around the market, we are seeing discounting return to the market. So we expect that, that would have a slight impact on sales sorry, on margin going forward. We are still seeing though that we definitely in the early parts here, but we still got stock shortages in some key categories for JV, that's categories like computing. We've seen some significant stock shortages from Apple, from Microsoft, from HP, which tend to be those premium products.
We're seeing shortages come through telco, again, from Apple and Samsung being very short of stock. And with the for both brands in small appliances being a bit tight on stock. Now we're lucky we've got multiple suppliers. So some of those sales, we can move across to other suppliers. But in the cases of etcetera, it's a little bit hard when it's a premium products.
So it is having still having an impact.
Okay. And maybe just a little bit around capital management. I recognize that buyback, I think 2011 wasn't the best experience and the environment remains uncertain. I'm just but just curious, given you're in a very strong net cash position, elevated franking and fairly sort of modest CapEx outlook, I mean, are the factors holding back some form of capital management, particularly even just a slight increase in the dividend payout ratio, please?
I think maybe take a macro view for a start, Shaun, and sort of Terry called it out when he was talking about trading in the recent period. We've got 55% of our stores are closed today. So I would say we are in a pretty uncertain period. And in an uncertain period, having a strong balance sheet is absolutely a priority. And then when you if you get into just some of the detail around those movements in working capital year on year, There's still if you look at I think at Slide 27, you'll see there's still a bit of a working capital build to come back into the business in the next twelve months.
We've a big tax bill still to pay. I think we do have a pretty material dividend to pay. And if you just calculate that out, it's $120,000,000 the final dividend. So there's still a number of significant cash outflows to come out, which will obviously eat into that cash balance that we have today. And so we're keen just to preserve the strength of the balance sheet, have that flexibility to give us optionality if we need to and to make the most of any opportunities that arise over the next twelve months, whether that even is just looking for opportunities to secure stock when they do arise.
So it's that balance sheet strength and flexibility that we just want to make sure we maintain over the short term. Obviously, we'll continue to monitor it and reassess it every reporting period.
Thank you. Your next question comes from David Errington with Bank of America. Please go ahead.
Good morning, Terry. Good morning, Nick. Terry, I thought this is relevant to you coming from the good guys, but I never thought I'd see the day where gross margin for the good guys would exceed that of JB Australia, which is an astoundingly great result. I'm trying to work out, though, obviously, the sustainability of that gross margin. And I suppose my question is, you've highlighted that it's I think you're talking more about what did you what was the actual phrase for it?
I think you said basically improvement in key categories. I'm wondering if you're selling yourself a bit short there. Is it benefiting premiumization of products? Is it scale coming through? I know promotional activity is led by suppliers, but can you give us a little bit more color on what's driving that improved gross margin in the Good Guys?
And then obviously, out trying to whether how sustainable it will be going into the future.
Yes. Look, you think of the good guys, then what we were seeing during the year was obviously some strength in or mix playing a part, so the strength coming from the components of the business, which is higher margin, albeit we continue to grow our CE offer. It was just that we were seeing a lot of strength in the Definitely, less discounting was going on during that period. Stock was tight. Consumers weren't shopping around.
They were coming in. And it's not just and that's not just because of discounting on floor, that's just because we don't need to have as many promotions running at that time. One, you just don't have stock to promote. So there's less actual promotion going on in pricing. And as I mentioned, lack of shopping around.
I think the benefits going forward is going to be that we'll continue to see mix play a positive impact, but that discounting will return and it is returning. We have no doubt about that, but it will continue to return. I think one thing that I will say, look, that positive side of mix returning, there is also the fact that we've now set this new watermark in the business. And what our buyers are just great at is taking that and absolutely striving to maintain that level. So they work hard with suppliers to try and find support and deals to be able to maintain it.
They look at their own mix within the categories to maintain it. So it really drives actions and well, actions within the buyers. So look, you've got to suspect it's going to be hard to maintain with the discounting, but there is some good emphasis there on trying and getting us close to it. One thing we are confident on, it will be at a higher level than we would have anticipated it would have been a few years ago.
Yes. So somewhere in between. So you're saying a little bit of discounting coming back, but you still got measures going forward such as premiumization still coming in, also driving working harder with key suppliers and also scale you haven't mentioned. We should expect it to remain high, but not at these levels. Is that what you're saying?
I'm not trying to put words into your mouth, but is that what you're saying?
Without giving guidance, David, obviously, there's a lot of moving parts in there, but it does yes, to Terry's point, it does feel there's some benefits of the environment in there, but absolutely in good guys. I think you're seeing some of the benefits of that improved buying, improved merchandising, improved ranging in there as well.
Yes. Okay. And Nick, while you're there, perfect to question on you. Just to get a bit more understanding on the working capital, there's a lot of moving parts there. But going into 2022, did you mention that you still got a working capital build to go?
Or with these payables, I expect that you'd probably get a bit of release into 2022. Where are you actually right now with regard to your working capital cycle? So are we expecting a working capital release
a little
bit in this current year? Or are we expecting still a little bit of a build?
It's still a build into 2022. If you look at Slide '27, you'll see there's a cash flow record there. I think in FY 2020, we had a $400,000,000 release of working capital. And in FY 2021, that's one back by $241,000,000 So there's still a net 160,000,000 release there. I'd say the bulk of it inventory got back to a level which we're probably reasonably comfortable with it even though I was probably preference would be to have that stock turn closer back to where it was.
The payables is the one that because the stock is turning so quickly, the payables balance is elevated. So at some point, David, that payables balance sort of comes down to a more consistent percentage of inventory as it was in back in FY 2019.
Okay. So that's the plan. Okay, excellent. Thank you, Nick. Thank you, Terry.
Thank you for the answers. Thank you. Thank
you. Your next question comes from Ross Curran with Macquarie. Please go ahead.
Congratulations on great results. Two questions this morning. One short term. This kind of goes back to Michael's question at the start. Do you think you might be able to give us some color on the trading by state that we're seeing at the moment?
And how, say, WA traveling relative to New South Wales?
Yes. Look, absolutely. So if you sort of rank them in states with that given numbers, WA would be the strongest. You then hit sort of Queensland, South Australia, and then you start to hit the states that have been more materially impacted by restrictions. So sort of as Terry called out earlier, I think we are doing a good job of capturing those sales online when the stores are closed, but you do absolutely miss a little bit, and you can see that in the state by state breakdown at the moment.
Okay. And then secondly, sort of just a longer term question. Clearly, has changed consumer behavior with less travel spend finding its way into elevated consumer durable spending. Terry, presumably over your tenure as CEO, these COVID restrictions we're dealing with moment start to ease and customer behavior normalizes. Do you think it's possible for the business to hold margins if we go back to a sort of pre COVID $7,000,000,000 sort of sales figure?
Well, I think we've pointed out that there is just going to be some challenges holding margin. We cycle, to your point, an unusual time. So as we revert back to, let's call it normal, maybe COVID normal, whatever it may be, it absolutely becomes more challenging to maintain those margins.
Your next question comes from Grant Saligari with Credit Suisse.
Could
you, Terry, elaborate on the game plan in New Zealand? You sort of exist there, but it's a market where you really should do a lot better, and you've noted that in the past yourselves. What's the game plan there over the next several years?
To be fair, I haven't got my feet permanently under the desk yet. So to try and give you a game plan, obviously, we're remaining focused on improving that business and continuing to grow it. And we've seen some reasonable results starting to appear in the sense of growth. So look, I would I need a bit more time to really get my head around what that future could look like.
Well, I look forward to hearing your answer to that. The on the balance sheet, you indicated earlier that there there's a number of uses for cash. Are you thinking that the balance sheet could be used beyond that for growth opportunities? Should just how should we think about the availability of investment opportunities for JV at the moment and therefore, how the balance sheet could be used over the next year or two beyond COVID?
Think, Grant, we're always looking for growth opportunities, and we'll continue to investigate opportunities as they arrive as they rise, I should say. I would point out that probably most people in our sector have had a pretty good period, And that may mean that opportunities don't pop up in the short term, but we'll continue to assess and be ready in the event anything does.
It's interesting you'd called out office works earlier. I mean is commercial an area where you could be bigger, small business?
Yes. Look, we've called out commercial for a number of years that we continue growing that business. We still think there's plenty of opportunity to grow and improve our offer there, particularly in categories like education.
All right. Thanks. Appreciate the color.
Thank you. Your next question comes from Ben Gilbert with Jarden. Please go ahead.
Good morning, guys. Just first one for me. Just on
the promotional piece, is could you give us
any insight into how your level of promotions, how materially it fell last year? Did you say you went from 50% on promotion to 20%? I'm just trying to get a bit of an idea around what sort of deflationary headwind that might mean into fiscal twenty twenty two if they come back? And also just trying to have a bit more of a think around what that impact is to gross margin.
Hi, Ben.
Promotionally, we maintained our promotional program out there. It's not so much around the promotional program, it's the price that's in that promotional program. And I appreciate that's what you're trying to understand. But yes, so we were continuing to promote heavily. We would again, we would find products where we could offer a great value to the consumer.
However, the depth of that didn't have to be as great and the starting point didn't have to be as great. There was a few periods there where definitely, we were limited in what we could promote without question. However, that more often than not, we were able to maintain our normal promotional program.
Do you think, Terry, that means because if you look at the CPI numbers and a bit of those issues with that in terms of how they comp and put it together, But it looks like we had inflation across a number of the CE categories last year for the first time in ten odd years. With promotions coming back, do you think that means we should move to a deflationary situation again through fiscal 'twenty two?
Yes. I think we called that out a few times now that discounting we anticipate that discounting will return to the market as stocks improve for everyone. And again, it's that not necessarily people discounting on the floor. It's just promoting at a lower level to try and drive traffic to themselves. So look, there's definitely some challenges there.
On the flip side, we've got some positives which will come through, which will be continued focus, for example, consumers focused on their homes. So we should see side continue to grow, albeit and therefore, affect the mix side of it as well. But yes, look, it's going to be it's going to represent a bit of a challenge, but we're not really too concerned, if you will, about it at this stage.
And another second one for me, just around cost. You guys obviously do a phenomenal job around managing your cost. When we start moving kind of acknowledge, obviously, the very strong results on a two year basis. But if we just look on a one year, you see that there's obviously still very well managed, you sort of saw what you would have thought sort of inflation type increases in the C2B. Is there much cost that comes out through this year that you can manage out as your comps turn negative?
Or is it just a matter of the fact matter of the staffing levels remain the same, you just get a bit of that negative or that positive leverage you got, you just get a bit of that back?
Look, we'll continue to remain focused on the customer service side. So we'll manage the wages to ensure that we meet everything that we know we should with customers. So I think what we'll see is, as we know, is that the FY 'twenty one benefited from that leverage of the sales. So there won't be a great deal we'll be able to cut out, but obviously, we'll continue to keep a real close eye on it. And as to your point, our team's really managed that well.
And just final one for me, Terry and Nick, I know I've asked you this a number of times over the years. But just into Terry now, you're coming in as CEO again, your view around investment in two areas. One is CapEx on supply chain and ability to have more of your own warehousing, be it rapid deployment centers or whatever it is. And then second thing also around on the OpEx side around putting in a proper or decent CRM across the group. How you think about those two things in terms of need for investment and where that prioritizes in terms of how you're thinking about the world?
Look, warehousing, all supply chain, full stop, is something that we need to continue to remain really focused on. We're comfortable with where we sit today with the new home delivery centers opening, which we've made those investments as we speak and some small minor ones to flow. So but we'll continue to look at that and continue to ensure that it's fit for purpose. And if we need to, we will invest. So to say that there's going to be CapEx or significant amounts of CapEx is wrong.
But to say that we've got a high focus on it is right, and we will continue to review it. When it comes to CRM, both businesses have a CRM. I just don't think it's I think the system is probably not going to be material if we were to do investments in it. But currently, we've got our current CRMs working in both businesses today and effectively.
Your next question comes from Craig Woolford with MST Marquee.
Just wanted to ask a question about gross margin. It's been a popular topic. In the JB Hi Fi Australia business, gross margins in the second half were up quite substantially at contrast to the first half performance. One more technical question to begin with. Just if there's less discounting, is that positive or negative for percentage gross margins because the discounting is typically funded by suppliers?
Just for clarity, promotions are funded by suppliers. The on floor discounting is funded internally, if you will. So and that's what we saw less of as well as just advertising promotionally. But it's yes, it's that on floor discount that a consumer would get if they come in and haggle for a price.
Right. So the second half gross margin performance for J. B. Hi Fi Australia, what drove the increase in margins there?
Well, part of that is just cycling the significant tech categories growth that we saw in the first half from the work from home and homeschooling.
Because it typically is more consistent between halves, but the second half is about 50 basis points higher than the first half, and it's up quite a bit on 2019 levels as well. So it seems like even though your cycling numbers from last year was still a good result on two years ago.
Yes. So Craig, you sort of if you compare half on half, the first half was absolutely a strong apple period, and that weighs on margins overall, that mix impact on margins. Second half, we saw more reversion to a more sort of standard mix. And then you overlay some of those things we talked about with Good Guys with less discounting on the floor, a little bit less promotional activity. That is translating into a probably higher than two year ago margin in the second half in JV.
Okay.
Understood. And my second question, just on store numbers. Across the group, over the last four or five years, store numbers are virtually flat. What is the outlook over the next couple of years for store numbers for each of your major brands?
Look, again, we continue you can see they're roughly they're relatively flat, but there's openings and closings in those numbers. We continue to trial some smaller footprints in JV, airport locations, which acknowledging at the moment are a bit quieter, but also some of those smaller shopping centers that we may have historically not been able to get to. Good Guys, we opened the first store in a while down in Monsters, and it's trading very well, which is pleasing. And then across the group, we'll just continue to assess opportunities as they arise.
Terry. Thanks, Nick.
Thank you. Your next question comes from Tom Kerris with Berenberg. Please go ahead.
Good day, guys. A couple of questions for me. Just on online, I presume you're doing things a bit differently now than what you were, say, back in February, March when this all kicked off. Can you just step through the things you're doing differently and whether that online business is kind of scaling now and you're driving some efficiencies there?
Yes. Look, I've got to say, one thing this period has done has stress tested all the systems and processes around online. So obviously, we've done a lot of learning during that time. And those learnings will obviously be embedded into the system and will benefit us in the long run. Again, it's just that deeper understanding of the online channel that COVID has driven.
Sorry? Is it more efficient now, the way that you process online orders, whether it be click and collect or delivery?
Yes. Look, every part of the system, we were able to and took the advantage to see as much of streamlining it as much as possible. So the answer is yes.
And it is Tom, it's efficient, it scales, there's been significant leverage. We've talked about it before. We're pretty agnostic to whether the customer trades in store or online because it's profitable for us. It's relatively small basket sizes and easy to pick and pack. So it is scaling, and it's working well for us at the moment.
And we'll continue to test different online fulfillment channels. We're doing things in the background. And I know to Ben's question, you probably don't see it. But in terms of testing sort of super hub stores where we consolidate volume into more stores for fulfillment, testing different systems, back of house processes. So we'll continue to test it and improve it over time.
Yes, cool. And just a second one on suppliers. Like, are they increasing prices in some categories just with the chip shortages and freight rates that have gone up a lot? Just be interested to understand, yes, if you are seeing some straight out price rises and whether consumers are accepting those?
Well, there's definitely conversation around price rises, but we actually haven't seen any flow through or anything of significance flow through as yet. So I think there still appears to be a little bit reluctant to pass some of them through, albeit we would anticipate that at some point that will have to happen. But at this stage, we're not we don't have anything definitive.
Your next question comes from Mark Wade with CLSA.
A question for the business. I mean coming in now and taking the top role there, Terry, I
mean, what what do you think will stay the same? And what more importantly, what do
you think it needs a needs a real overhaul?
It's look. Again, I think I mentioned it before. I haven't got my feet permanently under the desk as as yet, so So it may be a bit premature. I mean the comments can make, though, is we've always had, and Richard feels the same, a very collaborative approach to strategy and how we think about it and have some input. So I don't walk in here, I'm confident I know what's going on.
Got to get ahead around some things. But I look at the business and go, it's just continuing to progress with our current thinking at this point. Do admit, I have a passion around our staff and their contribution. So I think what you'll see is more change in focus, but that's only going to that just happens to be relative to just the ongoing business and changes that you would have seen anyway or may have seen anyway. Sure.
And lastly, obviously, as you've said yourself, it's
been an extraordinary period. And I'm thinking around the impact on availability and service and some of the price changes. How has that affected the customer satisfaction or the brand perception over the last eighteen months? And are you happy with where it's at the moment?
Yeah. Look, our NPS scores are been holding. And if you take where you would think in New South Wales where our delivery systems would be challenged, our NPS scores have skyrocketed there. So we're actually I think the reverse, I think people have been happy with what we've been able to deliver during this time and how we've been delivering it.
Your next question comes from Phil Kimber with E and P.
A question really, I mean, it's flying on from all the gross profit margin questions. The the really strong sales result, I'm sure you've had a big volume pickup, but I suspect ISPs have gone up, you know, at a decent clip as well. Terry, I'd be interested in your your history here as to when you've had periods like that where you get these, you know, phenomenal growth in ASPs arguably for reasons that aren't sustainable, how quickly does have they unwound in the past? Do you get you know, can they unwind really quickly, or do they tend to just sort of take their time, you know, gradually returning to sort of more normal levels?
Extremely hard question to attempt to answer, to be honest. There's so many moving parts in that. We've got some benefits in the good guise of property and the investment people are putting in property that can help that can maintain things like volume and ASP, of course, as we move into premium. There's just so many moving parts that it's really hard to do it. I mean, look, at the end of the day, all our teams are motivated and focused on a number of sales, a sales number.
And we'll strive to achieve that, whether it's through ASP or volume. So they'll remain focused on just achieving a number.
Okay. Maybe mean, flipping it back to the I'm not asking for specific guidance,
but flipping it back on that gross profit margin question, you're you're you know, you
made it pretty clear that you're expecting discounting to to normalize and go back to normal sort of levels. There's some other positive tailwinds, but, you know, does the does the discounting just flip a switch and go straight back to the old level, or does it take time to sort of gradually grind down to a more normal level of discounting? I guess I'm just trying to understand how quickly the gross profit margins can revert back to the whatever normal is, more normal level.
Yes. I mean, look, you could anticipate that it would happen, I'd say, reasonably quickly. But we're also in a period where we've got lockdowns and a lot of disruptions with states, which can then impact that discounting as well. So I think if you were to say we're right back to normal, then I think we'd find everything would go back to normal. But we've just got so many disruptions, states impacted in different ways that it won't be a I don't think it'll be a switch.
I'm not sure it's going to be slow either, but I don't think it's going to be just a switch again because of all the disruptions that we're facing.
Yes. And one last quick one. I know you won't give a number here, but in terms of when the stores are shut, through your experience in Melbourne and Victoria, I think you kept something like 75%, 80% of your store sales. Are you finding lockdowns similar this time around in that you you're keeping a big percentage of your sales through through your online channel, or is it is it a little bit different Is it surprising you sort of the outcomes you're getting when your stores are locked down?
No. We seem to be, you know, maintaining a similar level.
Yeah. So so online doesn't offset at all, but it offsets a big very big percentage of, you know or sorry sorry. You maintain a very big percentage of, you know, stores sales, whether they're open or shut. Yeah. You don't keep a 100%, but you you you manage to keep the vast majority by the sound of it.
Yes, you do. But the answer is yes. But what you the big question is what you lose is generally and I think this is the power of having a multichannel retail environment, for what it's worth is what you're losing is generally those products and services that aren't normally transacted online. And I'm talking premium product, I'm talking cooking, I'm talking services, telco connects. There's products that aren't generally transacted online that what we've still really got to get a real clear understanding are, are they just delayed?
They are, but how much of that is delayed and comes back when the store reopens.
Your next question comes from Alexander Meese with Morgans.
The question. I'll keep it to one to avoid this becoming the longest call in history. But just on the online sales penetration, clearly the growth in that number quite a highlight of the results in FY 'twenty one. And the penetration increased clearly during the period of temporary store closures. But I wonder if COVID, you think, has accelerated a trend that was already underway and if you think you can hang on to that level of penetration in the year ahead even if we do go back to a more normal situation?
And I suppose related to that, is there much less need to discount product when you're selling online? So
that last one is easy to answer, and that is, yes, you don't tend to discount as much when it's online if, but you don't also get the attach of a product when it's online or to the same rate.
The Online penetration, I think on the what we would see, Alexandra, on the states, those states that have only had short lockdowns, they probably revert back to a more normal pre closer to a pre COVID online versus store mix quickly. What we've seen in Victoria, as an example, when we've been through an extended lockdown in Victoria, the online percentage tends to settle a little bit higher than the other states. Obviously, it's too early to say whether we'll see a similar thematic in New South Wales yet, but we will be planning for it in the event that it occurs. And if I
could just add, one thing that again, one thing that is absolutely demonstrated with COVID is that people will, with the brand, shift to online. Yes, we don't pick up 100%, but they will shift to online. But as soon as we reopen the stores, customers are flooding back in. So it's really demonstrating their way of how they want to shop. And we've always been about we'll give them a great experience in both, and we'll let the customer make their mind up.
And I think what COVID has absolutely done is got us a really deep understanding of the online channel so we can maximize it. But customers are voting with their feet and coming back into the store when we're open. And that's the type of products that we do sell that they want to see, they want compare. And they absolutely want to talk to a salesperson. Even though they've researched heavily online, they just want to get confirmation from a salesperson they're making the right decision.
Is that penetration continuing? There's no doubt it does, but this has also proven that people just love that physical environment as well.
That's great. And well done for a great performance last year.