Good morning, everyone, and welcome to the FY23 Nick Scali results presentation. Turning to the presentation on slide two, we have the FY23 summary. Revenue for FY23 was AUD 507.7 million, up 15.1% on FY22. The FY23 revenue was favorably impacted by increased deliveries as the aging of the order bank reduced, with lead times returning to pre-COVID. Profitability. The group gross profit margin was 63.5%, up 2.5% on FY22. Net profit after tax of AUD 101.1 million, up 35% on FY22, and up 26.1% on FY22 underlying net profit after tax. Written sales orders. Total written sales orders for FY23 were AUD 437 million, down 7.8% on FY22.
Trading was volatile during the second half. June was a strong finish with FY23 group written sales orders up 4.5% on June 2022. Cash and deposits are up AUD 14.6 million to AUD 89.3 million as at 30th of June, after a AUD 60.8 million dividend payment and AUD 7.8 million land purchase. The final dividend declared is AUD 0.35, bringing the full-year dividend to AUD 0.75 per share. In August 2023, AUD 20 million was repaid on corporate acquisition debt, reducing outstanding balance to AUD 28 million. Previously, in November, when we acquired Plush, that debt was AUD 65 million. Turning to slide three. First half revenue was AUD 283.9 million, driven by the large opening order bank at June 2022. Second half revenue was AUD 223.8 million.
First half written sales orders were AUD 210.3 million. Second half written sales orders were AUD 226.7 million. The first half written sales orders for FY23 were up on the prior period due to COVID-19-induced closures during the first half of FY22 and the inclusion of Plush orders for the whole period. Like-to-like store comparison is difficult due to COVID store closures in the first quarter, but were negative when comparing the second quarter with all stores open for both periods. The second half written sales orders for FY23 were down 16% on the prior period. Trading was very volatile over the half, although improved in June 2023, where written sales orders totaled AUD 51.5 million, up 4.5% on the prior year.
On slide 4, we look at the financial performance. Important to note that the group, the group margin for FY23 was 63.5%, improving 2.5% compared to FY22, due to the margin improvement for Plush and reduced freight costs. The Nick Scali FY23 margin of 63.7% is 1.2% higher than FY22. The Plush FY23 margin improved to 62.7% from 54.8% for FY22, with the re-realization of supply chain synergies. Relative to revenue, the cost of doing business was 35.7%, up 0.5% on FY22. The Plush cost of doing business synergy realization was completed in August 2022. FY23 includes 11 months run rate on full synergy realization.
Additional logistics expenses are AUD 4 million in FY23 that support peak volumes are not expected to recur. I'll now hand over slide four and five to our Chief Financial and Officer, Sheila Lines.
Thank you, Anthony. Commenting first on the cash flow on slide five. The group generated AUD 89.8 million from operating activities in FY23, after payment of tax and amounts due on operating leases. This is an increase of 12.5% compared to AUD 79.8 million in the prior year. The group repaid AUD 7 million on the corporate loan facility taken out in November 2021 to fund the Plush acquisition and borrowed AUD 7 million secured on property to fund acquisition of land for a new distribution center in Queensland, will be built in FY24. AUD 7.8 million of cash was used for that settlement of land acquired and other capital expenditure for the year totals AUD 5 million. AUD 60.8 million was returned to shareholders by way of payment of the FY22 final dividend and the FY23 interim dividend.
Closing cash and deposits are AUD 89.3 million at 30 June. Moving to the balance sheet on slide 6. As I mentioned on the previous slide, cash and deposits totaled AUD 89.3 million at the end of June, up AUD 14.7 million on the prior year. Inventory in transit reduced AUD 9.6 million compared to the prior year, reflecting the normalization of international supply chain after COVID delays in the second half of FY22, and inventory on hand in the distribution centers also reduced AUD 4.3 million compared to the prior year, primarily due again to the reduction in delivery lead times. The book value of property increased AUD 7.1 million in the year due to the settlements on the land purchase in Queensland.
As Anthony mentioned, in August 2023, after the year-end, we repaid a further AUD 20 million on the corporate acquisition debt, reducing the current balance on that debt to AUD 28 million. The group has AUD 43.7 million of borrowings, which are secured on our property portfolio at less than 50% loan-to-value ratio. I'll now hand back to Anthony.
On slide 7, talking about the online business. The Nick Scali brand online written sales orders for the second half FY23 of AUD 14.5 million were up 15% on the second half of FY22. This has been driven by the enhancement in the e-commerce user experience, which are driving this growth. The Nick Scali brand online written sales orders for the first half FY23 of AUD 12 million was down 28%, cycling off the first half FY22, where online benefited from temporary store closures due to the COVID-19 lockdown. In respect of the store network, there were new showrooms opened for Nick Scali in Helensvale and in Shepparton, Victoria. There was a new Plush home opened in Caboolture, Queensland. Three Plush homes closed as part of the ongoing optimization of the acquired Plush store network.
In August 2023, a new showroom opened in Helensvale, Queensland, and we expect to open 3 new showrooms and 1 new Nick Scali showroom in the first half of FY24. Page 9 shows the detail of our property portfolio, which we feel is a very important strategy going forward. You see the historical cost acquisition of AUD 113 million. The current book value, which is acquisition cost, less depreciation of AUD 104 million. These are the historical cost values, less depreciation, not the current market value. Key expenditure for this year will be the construction of a distribution center in Brisbane to support our ongoing growth, which is expected to be completed in the second half of FY24.
In terms of recent trading, in July 2023, the orders were AUD 39.7 million, down 8%, cycling off a strong July in 2022. On an annualized basis, not for us, it was a fairly reasonable start. That concludes our presentation, and we can now have questions.
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 are on a speakerphone, please pick up the headset to ask your question. Your first question comes from John Hynd from Wilsons. Please go ahead.
Good morning, Anthony and Sheila, and John, if you're there, thanks for taking my questions and congratulations on a strong result. If we can start with margins, obviously a really strong outcome there, the group. Given how volatile trading was, can you talk to us about perhaps was, was the strength that we're seeing in June and July, that you talked to, was that a result of any out-of-season promotional activity to get those strong results or, is that, you know, with the current pricing structure?
No, no, it was, it was nothing. It was very abnormal discounting. Nothing really changed. For us, it was just really a result of the traffic in stores. That's, that's what was the difference. We saw a big traffic uplift in June and a pretty good traffic, good traffic in July. You know, some of the very difficult months where we're down materially, the traffic was really down. It's really more a result of the traffic in stores.
... Do you, I mean, do you think driving that was expectations on interest rates? What was the feedback on the, from your store managers on that, that key significant jump in June and conversion rates?
Yeah, it's a, it-- they, they, everyone's not really sure why that happened, to be honest with you. Look, I think it's just because May was a really tough month, and it's almost like people waited till June, maybe, because they perceive June as a month to go and buy furniture because e-everyone's on sale or discounted. Then you look at July, and you, you thought, "Oh, well, that might have been softer than it was." Still down on last year, but still not a bad number. That's just not explainable, really.
I think we're gonna just for the moment, in the short term, we're gonna see volatility, you know, from month to month. That's typical of, you know, we're selling a very highly discretionary product, particularly lounges, the big ticket items. We'll see that as people get concerned about things like interest rates and inflation.
The next question comes from Ben Gilbert, from Jarden. Please go ahead.
Morning. So just can I understand that second half gross margins with great outcomes, at a bit over 65%? Historically, your first half season is stronger from a GM standpoint. Is that sort of a base level you think you can sustain moving forward? That AUD 4 million you're talking to, is that expected to all come in the first half, or is that over the year after the freight benefit?
Yeah, no. Just, just going to the second point about the AUD 4 million. The AUD 4 million is the logistics cost that we incurred because of volumes into warehouses, have been caused by shipping irregularities, let's call it, that we won't incur this year because it's stabilized now, or we don't think we will incur. We don't expect to in that. We have in the past with that. That's only, that's not in the margin, that's a logistics cost of AUD 4 million, not in the margin. The margin, look, obviously, what helped the group margin was the big improvement in the Plush, which we always said we'd get to on that. Now with the volume synergies between the two brands, we, we think we're getting better value from our factories. The freight did drop, so that's helped as well.
Whether it's sustainable, we always look, I tend to target 61% to 62% margin. Anything above that is, is, is cream, is a bonus.
There's a lot above that for the second half. Is that, is that something you'd hope to carry through for this year, given you did, what, 65.4?
Yeah, look, there is, there'll be some carrying through, but we've got a long way to go in the half year. Look, I, I think the, the margin's good, you know, 1% growth. The main focus, too, we've got to make sure we get revenue, because, but as I said before, the synergies from the volume buying, we're, we're getting better value out of factories, and And very competitive, so that might, we might be able to sustain it.
The next question comes from Peter Marks, from Barrenjoey. Please go ahead.
Good morning, guys. Just to follow up on that, on that point, firstly, how are you thinking about how the competition might, might play into that and, and what you do on pricing there, and then obviously, the lower Aussie dollar as well?
Yeah, well, the competition, I can't tell you what they're going to do. I can tell you what they are doing, and some are discounting heavily, some aren't. Just look, it's the you know, competition, depending on how their, their pricing, will depend on how they're, how they're trading, I think. The smaller retailers will discount more than, you know, the, the national brands. That's just normal in the business.
Yeah, okay. Just on the, on Plush, can you give us a bit of an update on how the refurbishment is going? Like, how many stores you've done now, what's the trading uplift you're getting there? The other thing that is a bit contrary to my numbers, is it a few store closures in the half. Are they all done now for Plush?
Okay, in total, we've refurbished 7. In FY23, we've another 6 in this half, in terms of refurbishment. What was the second part of your question?
What, how are you seeing.
The uplift on those stores?
Yeah.
Yeah, look, we, we are seeing uplift, but it's difficult to measure because of the volatility in the business we've had month-to-month. We are seeing uplift in those stores refurbishing. Now, when you're asking these questions, probably what percentage? It, it varies store by store.
The next question comes from Sam Teeger from Citi. Please go ahead.
Hi, Anthony. Yeah, great job in a tough market. Just wondering, what was the final amount of the Plush cost of doing business synergies that you've been able to achieve? I know you've upgraded that amount a couple of times, and now that Plush is pretty much integrated, how are you thinking about future acquisitions?
Right. Sorry, Sam, it was a bit muddy, the question. I think did you ask about-
No, I.
What was the cost of doing business number in Plush?
Just so in Plush, now that it's well integrated, what was the final amount of cost of doing business synergies that you've been able to achieve? I know because you upgraded that number a couple of times, following on from that, now that Plush is integrated, how are you thinking about future acquisitions and the timing around that?
Yeah, look, I think the synergies was in excess of AUD 20 million on Plush. In terms of future acquisitions, yeah, where a lot of opportunities come up at the moment, there's nothing that we have on the horizon.
Is the U.K. still a target market for acquisitions or the country is lost it?
Yeah, look, it's something that's always interested us, the U.K. market, because it's so similar to Australia. Yeah, we could look at that. I was there in June, looking at the various retailers there in our space. Yeah, it's a very similar market, so there may be potential acquisitions in the future there.
The next question comes from Ben Gilbert, from Jarden. Please go ahead.
Thanks. Another one for me. Just around cost inflation and how you're seeing that and thinking about the outlook for this year. Because your costs obviously were, were pretty good in the second half, your life costs actually down. Give us an idea of how you're thinking about COGS inflation and what the bigger areas of focus are, and where you see some potential to offset some of those headwinds.
Yeah, look, it, it's a challenging piece. I think, I think we on terms of the employment side, we're trying to be more efficient and have our people be more productive, because the wages have gone up. In terms of rent inflation, for example, as we come across these days, you know, we, we have up to 15-20 renewals a year at the moment, so we're hoping to have some reductions in those renewals to offset some of the increases we may get. On the marketing side, which we're negotiating harder on getting reduced rates. Our dollar goes further in terms of that, but yeah, it's very challenging. Inflationary impact on businesses is challenging at the moment.
All right, thank you.
Your next question comes from Shaun Cousins from UBS. Please go ahead.
Good morning, Anthony. Just a question regarding your broader performance relative to the industry. Would you be suggesting that Nick Scali and Plush would be gaining market share versus peers? Are you seeing any signs of distress, particularly among smaller competitors, just worried about retailers going out of business and referencing your comment around some people being more distressed and being more aggressive on the promotion side, please?
Yeah. Look, I, I, I think, yes, certainly with acquisition Plush and the continued store network growth, we will, we gain market share, on a store by store, like a like basis, are we gaining market share? It certainly appears that happened in June, July, but it's hard to measure because we don't have any listed furniture businesses, you know. Yes, I'm sure the smaller retailers will, are feeling it, will feel it, will get more difficult, particularly with small store networks, because their, their ability to source product will get more difficult as their volumes drop and their lead times will get longer. We'll have a competitive advantage on that.
yeah, look, I expect if things are, remain volatile as they are, that there, there might be some consolidation in the next 12 months of the, of furniture, of the furniture industry.
Your next question comes from Mark Waite, from CLSA. Please go ahead.
Good morning, guys. Thanks for taking the question. Anthony, are you, are you happy with the way the two different brands have performed and, and the way they're positioned in the market?
Yep, no, I'm very happy. Yep. Look, it's, it's, it's importantly for us is, it's, it's helping significantly on the sup-supply side, particularly with factories. Nick Scali's social business is around 68% of sales, which is high for a furniture store. You add Plush, which is 100% of sofas. The volumes, we can get the factories out substantially more, thanks to the acquisition of Plush and the store network, right? That'll allows us to build more factories with a more variety look and, and better value. No, and the, the refurbishing of Plush, it's certainly a much, much better experience for the customer in terms of merchandising, but we've improved the range in Plush. We've got more variety and price points, which they should be.
They need to be this a sofa specialist. We'll continue to improve that with Plush and innovate some innovations that we'll bring into Plush over time. I think we're happy with it.
The next question comes from Peter Marks from Barrenjoey. Please go ahead.
Okay, guys, thanks for taking another one. Just wanted to follow up on that, and just to clarify, if the Plush store closures are, are finished now, and then on the trading update, is it fair to say, in, in July, that is, that Plush is fairly flat and, and Nick Scali is in decline? And is there any differences in, in trading that you call out between Australia and New Zealand?
Yeah. No, I don't think you're right there. I think that we we in terms of written sales orders, the year-on-year both brands are, are in, are negative.
Okay.
New Zealand, New Zealand was positive. New Zealand was positive, coming off a tougher period. I mean, I think New Zealand got the, the effects of inflation much sooner than we did because they were raising interest rates much earlier than we were, and then a lot harder. It was, it was a tough year last year in New Zealand, so now there's an improvement, but only slight. The store closures in Plush is to do with optimizing the store network. Yeah, no. Not current trading.