Good morning, everyone, welcome to our results presentation. If we turn to page two, FY 2023 half year summary. Respective sales growth. Sales revenue of AUD 283.9 million, up 57.4% on the first half FY 2022. Written sales orders of AUD 210.3 million, up 3.4% on half year in the same half. Important to note that in the first half, it included two months of Plush revenue and written sales orders after acquisition in November 2021. Profitability. The growth profit margin was 62%, up 1% on the FY 2022, and up 2.5% compared to the second half FY 2022. Underlying net profit after tax of AUD 60.6 million was up 70.2% on the half FY 2022.
Record deliveries due excuse me, to the outstanding order bank at June 2022 and six months of Plush. The balance sheet and capital management. AUD 7.8 million Queensland property acquired, the new distribution center to be completed in FY 2024. Property debt increased AUD 7 million. AUD 7 million was repaid on the corporate debt facility to acquire Plush. Interim dividend of AUD 0.40 per share, fully franked. Plush acquisition excuse me. Integration complete with IT and distribution now fully integrated. AUD 20 million run rate synergy savings on pre-acquisition costs of doing business realized. New product range continued to improve gross margin in first half FY 2023 to above 60% from 54.8% pre-acquisition. Plush store refurbishment commences second half FY 2023, to be completed by second half FY 2024. On page three, re-revenue and written sales orders.
The revenue, as mentioned, was AUD 283.9 million, growth of 57.4%. The record deliveries achieved in the first half were driven largely by the opening order bank at June 2022. Quoted delivery time for new custom orders have recovered to an average of 12 to 13 weeks. Written sales orders for the first half, AUD 210.3 million, growth of 3.4%. The Nick Scali brand sales orders declined 3%, cycling off strong first half FY 2022 demand after lockdown lifted. Plush sales order policy is now fully aligned to group. Deposits now required and restrictions apply on cancellation after the cooling-off period. Point of sale system integrated to group in December 2022.
The phased transition of Plush policy from acquisition to December 2022 impacts the comparability of written sales orders for periods before January 2023. Financial performance. Group margin, as mentioned, improved 1% compared to FY 2022, and 2.5% compared to FY 2022. Second half FY 2022, pardon. Nick Scali first half FY 2023 margin of 62.5% is consistent with FY 2022. The Plush first half FY 2023 margin improved to 60.5% from 54.8% for FY 2022, with the realization of supply chain synergy. CODB. Relative to sales, CODB fell to 32.3% compared to the first half of FY 2022, 35.2%. The Plush CODB reduced from pre-acquisition $58 million annualized to $38 million due to synergies realized.
Page five, I'll hand over to our Chief Financial Officer, Sheila Lines, who will take you through the cash flow and balance sheet.
Thank you, Anthony. Commenting first on the cash flow on slide five. The group generated AUD 35.1 million from operating activities after payment of tax and amounts due on operating leases. This is an increase of AUD 10.9 million compared to the first half of last year. The group repaid a further AUD 7 million in the half on the corporate loan facility taken out in November 2021 to fund the Plush acquisition.
In November 2021, the corporate loan balance was AUD 65 million, and at December 31, the balance outstanding is reduced to AUD 48 million. Borrowing secured against property increased AUD 7 million in the half, and the funds were used to complete settlement on land in Queensland, where a new distribution center will be constructed. The deposit on the property was paid in FY 2022. Other capital expenditure in the half totaled AUD 3 million.
AUD 28.4 million was returned to shareholders by way of payment of the FY 2022 final dividend. Closing cash in term deposits of AUD 68.9 million at 31 December. Moving to the balance sheet on slide six. As I mentioned on the previous slide, cash and deposits total AUD 68.9 million at the end of December. Inventory in transit has reduced from AUD 22.5 million at the end of June to AUD 13 million in December, reflecting the high volume of deliveries in the half. The book value of property increased AUD 7.7 million compared to June, primarily due to the settlement on the land purchased in Queensland. Deferred revenue decreased in the half by AUD 27.6 million to AUD 59.2 million at the end of December. Again, this reduction also reflects the high volume of deliveries in the half.
I will now hand back to Anthony.
Thanks, Sheila. We now turn to page seven of the Nick Scali Brand Online. I'll hand that over to Angus McDonald, our Chief Operating Officer.
Thanks, Anthony. In January 2023, online sales orders were AUD 4 million, which is 13% above the same period in the prior year. Online sales orders of AUD 12 million for the half, which cycling off a period where we benefited from store closures due to the lockdowns. The continued growth of online is to be driven by enhancements to the lounge buying experience and improving the average transaction value through product bundling. The contribution to profit from Nick Scali online in the first half of 2023 was AUD 14.1 million, delivered a contribution of AUD 8.1 million, a 57.5% margin on the revenue delivered. I'll hand back to Anthony to continue on the store network.
On page eight is our store network. Where during the half we opened two stores, one new Nick Scali store at Helensvale and one new Plush store at Capalaba, bringing a total that's remaining at 107. 2 stores, Plush stores were closed. The reason being we felt the location and the size of the store was wrong for the brand going forward, and they weren't providing much of a contribution regardless. The long-term target for Plush is 85 to 90 stores, 5 to 10 in New Zealand. For Nick Scali, our long-term target of is 86, bringing a total store network of a target of 176, 186 stores. On page nine, we talk about the Plush retail initiative.
In the background of this is the new look Plush store, which was our Capalaba store. The Plush stores have, well, with due respect to the previous manager, a atrocious display and no merchandising plan at all. The new look Plush has a merchandising structure, has a much more organized and structured look. From the results of Capalaba demonstrate to us that they are really working with a lot stronger conversion rates than their existing stores. This was launched in late on Boxing Day, December 2022. We can see the sale of the new product range have driven margin to over 60% from pre-acquisition of 54.8%.
We've introduced Quick Ship options to selected sofa models, and the initial evidence suggests, as I mentioned, material increase in customer conversion as a result of the improved Plush showroom concept. FY 2023 outlook. January is our strongest trading month and was better than our expectations. We had anticipated a slowdown compared to COVID-19, the COVID-19 boom, yet trading remains better than pre-COVID-19 despite rising interest rates. Nick Scali brand January written sales orders were 12% below January 2022 and 23% above pre-COVID-19 January 2020. Plush traded well in January, and we expect continued improvement in conversion rates with new product rollout and visual look for the brand. We expect to open four new stores in the second half of FY 2023, in addition to the two opened in first half FY 2023.
The second half FY 2023 result will depend upon trading during February to April, and at this point it is difficult to provide further guidance. I now leave open for questions.
Thank you. At this time, I would like to remind everyone in order to ask a question, please press star then 1 on your telephone keypad. Your first question comes from the line of Mark Wade from CLSA. Your line is open.
Good morning, guys. Thanks for your presentation, and congratulations on the company's record interim result. Look, some of the market, Anthony, might be asking if this is as good as it gets for this part of the current cycle. I'm just kinda going off the final few months in the half. The customer side, they pulled back a fair bit. Can you maybe help us understand what's happened in those final parts, those final few months in the half for the business?
I mean, I think for, in the first quarter, the half our stores weren't open, so it's a very difficult period to compare to the previous half, given your stores were closed for three months, and then you open, reopen with a boom in particularly October, November that year. I mean, very difficult periods to compare to, I think. We look back, we try and look back really at pre-COVID where we are pre-COVID, because as we feel now it's more normalized, obviously.
Yeah. Yep.
In terms of stores remaining open, it certainly remains better than pre-COVID at this point. It seems the consumer seems to be the impact of rising interest rates hasn't really lapped the consumer to the degree we had expected. I guess that's one reason that's been the low unemployment rate, record low unemployment rates and significant material increase in wages and salaries which are occurring.
Okay. That's going to help offset as a bit of a factor. Good one.
Maybe, yeah.
Six months ago, the middle class consumer of yours in New Zealand was under a bit of pressure. Sales were down about 30% in Australia, a lot more resilient. I think, look, roll forward to today, how does the attractiveness of those two markets, in your eyes today and the impact that might have on the long-term plans for each market?
Oh, no, look, I think New Zealand, yes, they, I mean, they've had, they smaller market. I think they've been, they certainly, we suffered a bit more there than we had expected. Now it seems to actually pretty stable. It's not improving at this point. It's not impacting our growth plans there. The limitation of store opening in New Zealand has been purely accessibility and not getting the. There's still a, funny enough, there seems to be a lot of pressure on rents there or developers and landlords their expectation we believe is a little bit too high at the moment. The way forward there might be by us actually acquiring sites.
Yeah.
yeah, we're still very focused on the store network rollout in New Zealand and Australia in equal proportion.
Okay. Very good. You mentioned there at the end of the call on the, was it Capalaba ? The new Plush store and the response to the increased-
Yes.
conversion, which is terrific. What, just give us a bit of a sense of what that could mean for the brand as a whole, given you've, you're really putting the foot down on the rollout and the refurb, if you kinda got those kinda conversion rates in those newer stores.
Obviously it's a, to us, that's the most critical thing now is to get the conversions up. The way to do that is obviously by having product at the right price and all, and making sure you get your margin and the way to get the conversions up is product and presentation and price, and that's what we're doing and really focused on that. I think it'll make a material difference on the profitability Plush over time.
Mm.
We're very, you know, we intend to refurbish four stores a month going forward. Have them all done by the end of the year, hopefully.
Wow, that's a lot. Well, it sounds like it's really tracking well. If I could squeeze the final one in. Gross profit margins are really solid. Operating cost margins have come down. I mean, I'm guessing that gives you a lot of comfort of, you know, with the supply chain costs, et cetera, that have really tanked, that you've got a lot more comfort to flex the profit line independent of sales. Is that a fair summation of how you're feeling?
Yeah, look, I think, look, the costs, the cost percentage in fairness is the percentage has dropped because of the, of the revenue, growth...
Mm.
Cause, you know, 80%-90% of our costs are spending fixed. It appears like we've done a billion, we haven't. There's certainly some flex in distribution cost reductions. Employment's a challenge going forward, as you can imagine with the salary and wage growth. We're focused on trying to be more efficient going forward because of the particular wage growth, you know, that we've got in front of us going forward.
I think the angle I was getting at was like, you know, the freight costs have come off so materially for the business and I imagine that's helping offset any of those kind of other cost pressures. You know, I figured that might have been.
Well, the freight costs have helped it.
Mm.
It helped the margin, the gross profit margin cost of goods. Yes, certainly.
Okay. I'll leave it at that. Great.
Thank you.
Yeah, thanks again for your questions and, yeah, terrific results.
Your next question comes from the line of Peter Marks from Barrenjoey. Your line is open.
Morning, guys. Just a question, first one on the Nick Scali brand. Sales about 23% ahead of pre-COVID now. Is it safe to say that volumes are now back to pre-COVID levels and that growth's been driven by price? Secondly, what do you think happens with price going into the second half, with your price and also industry prices as those freight rates come off?
We had reduced some of our prices already in January, so the volumes, well, are almost at pre-COVID levels. What we found in some of the product where we reduced the price back almost to pre-COVID levels in some of our key products, that the volume actually grew significantly. We're actually we believe that we'll get more volume growth in product as we are able to offer lower prices on a lot of our existing products.
Okay, that makes sense. Just on Plush, can you give us some sort of idea of how big the impact of the new cancellation policy has been on the written orders or the sales of that business? Obviously we can, we can see what revenue it did pre-COVID, but it's hard to get a sense of whether this business is just gonna be a smaller but more profitable business or if the top line or if you can hold on to that top line and improve conversion rates.
Yeah, no. Well, what the problem was that their written orders were not written orders most of the time, a lot of the time, 'cause they didn't have.
Mm.
deposits or they were. We saw from the cancellation rates and then the policy they had that you could return it once it's delivered, if you didn't like it, was just significant, but was never went back and adjusted the written orders, if you like. It just all sort of. It was a complete mishmash of unreliable data on the written orders. Our view is, yes, we had to get the cost base down. We had to get the integration implemented, which we've done to gain all those synergies. We had to get the margin up because we've got the ability to do that through our buying power, which we've done in better buying and we've already got to that.
Now our focus with the refurbs and the new product and the marketing that is now focused on getting the top line up. I think the business, no, will not be a lower volume in the long term. Our aim is to get it at higher sales per store than it had, particularly pre-COVID.
Right. Those cancellation rates, like, they used to be 15%-20%, so you need to lift conversion rates by about that much to offset that, right? Is that the math?
Yeah. Well, they weren't real orders. That's the problem.
Yeah.
If you write a sales order without a deposit, that's not an order, you know? That's not a sale.
Yeah.
My view is that, when we adjust for that, we're really there where we were, you know, in terms of net. They're just not comparable, so it's hard to understand their data. Look, their systems were very flawed. Their accuracy was very bad, you know. We knew that.
Yeah. That.
From point of view. Yeah.
That makes sense. Thanks, guys. I'll leave it there.
Your next question comes from the line of Sam Teeger from Citi. Your line is open.
Hi, Anthony, Sheila, and John. Thanks for the presentation this morning. Anthony, you just talked about lowering prices in January. Can you give us some color in terms of, you know, what percentage you cut the prices by, and any comments overall, just in terms of how rational you see the market right now?
Look, in terms of price reductions, it was depending on the product, you know, group, because with the freight coming off, we were able to do that, and the suppliers had not increased prices to us. It was in the range of 5%-10%, but there will be further reductions going forward as we come off our low FX rate and get into the higher current rate. Over time, we'll get. I think, you know, during COVID, you were able to pass on significant price increases, 'cause the market was so strong. You know, we have product we bought for certain prices that we're able to return to now, back in pre-COVID levels that are great. You know, great sellers remain great sellers for years sometimes. That's good for us.
I think it's good for the business. Your question about the rationale, was it? Sorry, I missed the first part.
Yeah, just how rational do you think the industry right now is in pricing? Are you leading the way with the reductions or are you seeing other of your competitors discounting very aggressively? Just any color around that would be good.
Yeah. Look, not really. Not... Their behavior doesn't seem to change. There are some that are irrational, but they're always there, particularly depending on how the business... Look, I think the industry will lower prices. They have to remain competitive. The market will just force that. And yeah, that's how I see it at the moment.
Got it. Sounds like it's becoming a good time to buy a sofa. In terms of the dividend, it seems to be a little bit softer than expectations. Should we read that, in terms of the company maybe wanting to keep some powder dry for more acquisitions now that Plush is pretty much integrated, or is it more of a function of the top line softening so you guys are just a bit more cautious on the outlook?
Yeah. Look, so it's certainly higher than last dividend, but it is only an interim dividend. Look, we have debt on the Plush acquisition we'd like to reduce. We, we don't mind property debt, which is the standalone facilities. We don't like corporate debt, so we're hoping to pay some of that down further. Yeah, being an interim, we wanna just see how we progress. Yeah, there's always possibility of another acquisition. We'd like to make some more property acquisitions, retail sites and stores. Still a reasonable payout ratio, we think, but based on where the year is gonna be.
True. just for the Plush refurbishment program, how much in CapEx should we be assuming over this calendar year for that and just any return targets that we should be factoring in?
It's probably around AUD 4 million o n the refit for that would be all the Plush stores. We're pretty efficient in that sense.
That would be over the next 12 months.
Yeah.
Any returns that you're assuming you'll get on the back of that?
We look at the profitability by store, including after depreciation and accounting for any sort of setup costs. That's how we look at the profitability and including taking into account the CapEx to set the store up. The incremental margin on a new store in the network is healthy. As Anthony said earlier in the presentation, on the two Plush stores that were shut in July, simply put, if they're not, then we would close them. Based on the sites we select on location, demographics, proximity to other of our branded stores, we're very confident on the economics of new stores and the refurbishment of the existing Plush network.
All right. Thanks, team.
Before moving on to the next question, I would like to remind everyone in order to ask a question, please press star, then the number one on your telephone keypad. Your next question comes from the line of Rachael Harwood from Macquarie. Your line is open.
Good morning. Thanks for taking my question. Firstly, just on the order bank, if it seems to have begun to normalize just given the lead times reducing, could you maybe just comment on how this is currently sitting in, and do you expect further unwind in the second half?
Oh, Rachael, your question wasn't made clear.
Yeah, you're really not clear, your line.
I think it might have been regarding-
Sorry. Yeah.
... the order bank normalizing.
Yeah. Sorry. I think my headphones disconnected.
Yeah.
It seems like the order book is unwinding. Where do you think that this is currently sitting, and do you expect any further unwind in the second half?
No, I think it's pretty much where it is now. The lead time in the order bank is back to normal. The back up, yeah.
Yeah. Yeah. Makes sense. Can you maybe just comment on your trading into Black Friday, any discounting there and how you saw the trading? Do you expect this to have pulled forward any volume from January?
Look, it was pretty good. Yeah, it's certainly a good period. We've had Black Friday for a few years now where it's just got better and better. It could possibly pull a little bit out of January, bring it forward. Very difficult to tell though.
Yep. No worries. You commented on the Nick Scali brand sales in January. Is there any commentary on how this looks as a group as a whole?
No, there was no commentary on that.
The reason for that is because Plush, as Anthony talked about earlier on this, and we said in the deck, that January 2023 really isn't comparable to January 2022 because of the previous policy in Plush. As we say in the deck, it's from January 2023 onwards that Plush will have branded stores will have reliable comparators on a like-for-like basis. It, it just isn't like for like on a written sales order basis for Plush.
Yep. Understood. Thanks for taking my questions.
Your next question comes from the line of John Hynd from Wilsons. Your line is open.
Oh, good morning. Thanks for taking my question. If I can just perhaps drill down further on some of the questions early on revenue. Could you help us understand perhaps performance by store over this period? You know, the Scali brand, were they are they still running at that sort of AUD 5.5, AUD 5.8 per store? Given what we've learnt about Plush since you've bought it, how are you thinking about the true revenue per store run rate, you know, with the Scali, I guess, control over the whole business now?
Yeah. Your first question, I'd say for the half, the Nick Scali revenue per store would have been up clearly because of the order bank delays as we had as was. In respect of Plush, difficult to answer that exactly at this point, 'cause we really wanna see where we land after the refurbs and the new product and the conversion across the whole store network at this moment. Given the signs of the new Capalaba store and the one other store we refurb, it's, they're trading above, you know, they're in the top five at the moment. They're not stores in prime positions. We'd rather wait before I call that out to you, and I'll probably let you know around October where that will be.
Okay. No, that's, I mean, that's fair, given, I guess, the work that's going into them. From, I mean, for our perspective, thinking about forecasting what's possible, I mean, when you bought them, the run rate was, I don't have the number in front of me, but X. Is it fair to assume that given the cancellation rates and the returns were higher, that should sort of, you know, X less the 20%-25% should be our starting level?
Well, no, not even, not if you're talking on revenue, because revenue... That's why. Their revenue was never as high as their orders, never got near that.
Yeah. That's right.
Yeah. Don't take it off the revenue, but you've gotta allow for the COVID boom, right?
Yep. Yep. Okay. I just wanted to get a better handle on inventory, if that's okay. There's obviously been a softening year-over-year. That's driven by the cycle, but also, inventory in transit as well. I'm just trying to understand how we should think about the balance given you've added Plush as well. Does it have a shorter cycle or inventory cycle? How does inventory look?
Yeah, it should have a much shorter-
inventory cycle.
Yeah. It should have a very short inventory cycle.
This sort of splits It's the new.
Yeah.
Normalization. Yep.
Correct. Yeah.
Okay.
That's They don't carry case goods where Nick Scali does in bedrooms and dining chairs, so you have to have an inventory. We see that being more critical today, that you do need inventory. You gain sale by having inventory.
With the Plush banner?
No, with Nick Scali.
Right. Okay. Right. Right. Okay. Thanks very much.
Your next question comes from the line of Keegan Booysen from Jarden Group. Your line is open.
Good morning, team. First question from me is just around getting some more clarity just around the Plush policies and the impact on the orders, particularly around November, December. If you look at the order, the order bank to November, it implies that sales or the written order sales are down about 16% November, December. I appreciate there's cycling COVID in that as well.
No, again.
A bit of inflation. If we just look at that, just how the Plush policy would've impacted that, should we expect that to have, dampened that number or increased it?
Yeah. If you go back to last year, it was the same. That was a period where all stores were closed for three months, and then we reopened in October and November, which in Nick Scali and Plush was an absolute boom. It's very hard to compare that period, what you're looking at, and then annualize it. I wouldn't do that.
I'm thinking with respect to the policy changes, whether or not the policy changes.
Yeah.
'Cause obviously they were announced it in January, whether that improved the 16% decline in November, December, or if it makes the 16% look worse.
Yeah. I, yeah, look, I think, no. Look, I think, the way to look at Plush is, I think more along the way John Hynd was at Wilsons. What's the average sales order gonna be per store for Plush as a business? What's the revenue number going to be going forward? It's clearly not that, the amount you're talking off the normal run rate for October. No, they don't compare easily.
Yep. Okay, thanks. Just the second one as well, just around the synergy. It looks like, again, pulled out a lot more synergy than anyone had expected and executed really well on that.
Yeah.
Could I just get a bit of an idea just around the split between CODB and GM? Basically what's variable along sales, and what's some of the fixed costs that we can expect to retain in the business?
Yeah. Yeah, it was hard to hear you. You sort of disappeared, your voice level.
Yeah. I'll.
Could you repeat that?
I'll start again. Yeah, yeah.
I can't hear you, mate.
The synergies we realized were about AUD 20 million annualized.
Yeah.
Can we get an idea around the split between CODB, i.e., what's fixed in the business that shouldn't come out, and then what's being driven as well along growth margin, so what's variable to sales?
Yeah. No. The synergies are purely cost-based, right? They're just costs that have come out of the business. That's been indeed by people, a lot of people, all the senior management. There is with employment and distribution. We've integrated the distribution as we've left the distribution centers that Plush were operating out of, and they are fully integrated into our distribution centers. The employment line, it's been enormous in the cut-cutting of that and not having distribution centers paying rent or...
No, that's.
You see what I got there?
Yeah. No, that's great. Just the last one. If you can give us any color on just the size of January, given it's the largest month in your financial year and how that is relative to the rest of second half 2023?
Yeah. It's very important for the second half. It's a big month. It's the second biggest month is June for us. It's certainly, you know, in the realms of 50% more than a normal month in your average.
That's great color. Thanks, guys.
Okay.
This concludes today's Q&A session. I would like to turn the call back over to Anthony for closing remarks.
Yeah. Thanks for attending our results presentation and just thanks for having us. Bye.