Thank you and welcome to the Nick Scali results presentation. On page two of the slide with the financial year 2022 summary. Plush acquisition. The acquisition of Plush was completed in November 2021 for AUD 102.5 million, with integration now substantially complete. Sales growth. Written sales orders of AUD 473.8 million, up 18% on previous year, and sales revenue of AUD 441 million, up 18% on previous year. This included eight months of Plush sales orders and revenue contribution. Another point is the elevated order bank. The order bank as at the thirtieth of June is AUD 185.3 million, up 67% on the previous year, providing a platform for revenue growth in the first half of this financial year. Profitability. Good for growth.
We had a growth profit margin of 61%. Underlying net profit after tax of AUD 80.2 million, down 4.9% on the previous year. This was caused by the China lockdown in the second half, which delayed shipments of containers as our factories closed. Given that our business, particularly lounges, is all on custom-made orders, that affected our deliveries around the March, April period. On page three, sales orders and trading. As mentioned, total written orders of AUD 473 million. By brand, Nick Scali was AUD 375 million. Plush was AUD 98.7 million, which has been a partial contribution for the year. Comparable written sales order to Nick Scali was - 1%. + 0.2% in Australia and -28.9% in New Zealand.
You see on this page our standing order bank of AUD 185 million consists of AUD 133.5 million in Nick Scali, up from AUD 110.9 million from the previous year, plus AUD 51.8 million in Plush. Page four is revenue. Despite the elevated order bank at July 2021 and similar levels of trading, Nick Scali revenue was down, as previously mentioned, due to COVID disruption causing delayed shipments, particularly during the lockdowns in Vietnam and China in quarter two and quarter four respectively. Plush delivered revenue of AUD 88.8 million in the eight months to the 13th of June. As supply chains eased in quarter four of 2021, the group was able to achieve record levels of deliveries. Page five, the financial performance. You can see the Nick Scali margin is down 100 basis points.
Primarily, this is caused by the increase in freight costs and containers, in particular, container costs. On the other hand, the Plush margin improved by 230 basis points. This is a result of our better controls in terms of margin leakage. Cost of doing business increased by 280 basis points to 34.1% relative to Nick Scali. This is a result of new store and rise in employment, but primarily because of the reduced revenue. The Plush cost of doing business represented 39.8% of sales for the eight months post-acquisition. On an annualized basis, the cost of doing business is AUD 53.1 million. Well, it's AUD 53.1 million. I'll hand over cash flow and balance sheet to Chris Malley, our Chief Financial Officer.
Thank you, Anthony. Looking at the cash flow, we generated AUD 79.8 million from our operating activities, including lease payments, interest, and tax. We increased our borrowings by AUD 58 million across the year. Initially, we took out a AUD 65 million corporate facility to fund the Plush acquisition, of which AUD 10 million was repaid in December. A further net AUD 3 million was borrowed to support our property initiatives, acquiring a new DC in Townsville and refurbishing our Fyshwick property. The Plush acquisition, as mentioned, we acquired Plush for AUD 102.5 million in November, using the borrowings and $37.5 million of available cash reserves.
We spent AUD 19 million on CapEx, primarily, as mentioned, on Townsville and Fyshwick, where we spent almost AUD 14 million and a further AUD 5.2 million spent on business-as-usual CapEx maintenance items. We returned AUD 48.6 million to shareholders through dividends and closed the year with AUD 74.6 million in cash and deposits at the 30th of June. Moving on to the balance sheet. As mentioned, our cash deposits was AUD 74.6 at the 30th of June. Our inventory balances increased. Our inventory in transit increased by around AUD 10.8 million as a reflection of increased orders and the elevated levels of the order bank, leading to more inventory in transit.
With our inventory on hand, this increase as a result of the Plush acquisition, which added AUD 6.6 million of inventory at a showroom level. Our DC inventory increased as we are currently holding more case goods to support the elevated order bank and deliveries in the coming months, and also get back with the delivery backlog in the last quarter. Our leased assets and leased liabilities increased by around AUD 40 million as a result of the Plush acquisition, adding the Plush leases into our portfolio. The intangible balance increased significantly on the back of the acquisition with the recognition of the brand of AUD 38 million and goodwill of around AUD 87 million, increasing our overall intangibles balance to AUD 129 million.
Looking at the liabilities, our borrowings increased, I've discussed previously, and our payables balance increased by around AUD 13 million, largely due to the reflection of the increase in the inventory in transit, which is accounted for in advance and paid for in advance, but a liability in advance. Our deferred revenue balance increased from AUD 53.2 million- AUD 86.8 million. Deferred revenue largely comprises our customer deposits, and that increase is a reflection of the increase in the order bank at 30th of June. I'll hand back now to Anthony to talk about online. Go ahead.
The online continues to perform well. The retail orders are of AUD 29.3 million, up 59.9% on the previous year. That was helped by the temporary store closures and launch of our transactional websites. Retail orders in the second half were up 35.8%, compared to FY 2021, and is again reflecting comparable growth outside the lockdown periods. The full e-commerce offering launched in Australia in May 2022, is driving growth in online retail orders in June and July. The online channel is very profitable for the company. The incremental earnings contribution from online transactions totaled AUD 15.6 million for the FY 2022. In respect to the Plush acquisition integration, we have achieved some synergies, since completing purchase of the Plush business on the 1st of November.
As mentioned before, the margin is up 20 basis points, and the annualized cost of doing business has been reduced by AUD 5 million from AUD 58 million pre-acquisition to AUD 53.1 million. Further synergies we expect in FY 2023. Certainly the gross margin will again be improved. There's a way we will do that is replacing 50% of the range with newer models and allowing a wider price range. We'll be leveraging off our existing supplier base for better value propositions from our suppliers, and certainly cost reductions through volume buying and economies of scale. In terms of the cost of doing business, our target is AUD 14 million per annum. That we will achieve by way of restructuring retail operations to align best practice across both brands.
The full year benefit of cost reduction initiatives implemented during FY 2022 and additional FY 2023 activities expected to drive up to AUD 13 million in synergies in this financial year. On page 10 of the slide, you can see the total store network is now 108 stores, 46 Plush and 62 Nick Scali. The target is 86 for Nick Scali, long-term target, and 90-100 for Plush. In this financial year, we expect to open six stores, three for Nick Scali and three for Plush. On page 11, we see our property, which on the balance sheet are carried at historical cost less depreciation. Clearly these properties, their value is probably a lot higher than it appears on the balance sheet, but at the moment, we maintain them at historical cost.
During the year, we redeveloped our Fyshwick site, creating a new flagship showroom for Nick Scali and an additional 1,700 retail floor space to be let. We acquired a multi-purpose Townsville site, which is just a relocation from our old showroom to a new property, which also has a large warehouse and a DC facility that supports the growth of both brands in the North Queensland areas. In terms of outlook, given the elevated order book at the end of June and the incremental sales revenue from the Plush business, the company expects sales revenue for the first half FY 2023 to be materially above the previous year. July trading was positive, with sales revenue for the month AUD 43.2 million, up 64% on July the previous year.
Given the current global economic environment, the business will face challenges in respecting the inflationary pressure on operating costs over the next 12-24 months. Based on the current economic uncertainty, it is difficult to provide any additional guidance for the FY 2023 financial year. Thank you. I can take some of your questions.
Thank you. If you wish to ask a question, please press the star key followed by the number one on your telephone keypad. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask a question. Your first question comes from Mark Wade with CLSA. Please go ahead.
Good morning, team. Thanks for taking the questions. Just, Anthony, on that, there's this kind of glaring disconnect between we're seeing really solid sales for your business, the industry as a whole generally, and but yet consumer confidence has really weakened some of those overseas trends. What do you put that down to and is your middle-class kind of customer more or less exposed in your view to higher rates and the like?
Yeah, it's very difficult to understand when you read that consumer confidence is at such low levels, but it's certainly, in my view, it doesn't appear to be right, given what we're seeing in sales. I'm not sure what will happen in the future. There is a disconnect, as you said. Look, I believe wage growth is a lot more than reported. We know savings are up. The unemployment is so low. I think people are very confident that despite interest rates going up, which are from pretty low levels, they're not so concerned.
You know, people start spending on discretionary items and there's fear of, you know, I might lose my job, you know, I can't afford my mortgage payments. I don't see that stress yet, I don't think. I think also, I think Australia has probably the wealthiest middle class in the world. You know, having been on things recently and seeing what's happening there.
They're probably, like you said, they're sitting on big buffers of savings and, you know, haven't seen their job prospects crimp, so they're probably still willing to keep going for the time being. Hey, what do you put down in the New Zealand business, in the Nick Scali brand down 29% versus Aussie just above?
Yeah, that was all in the second half.
Okay.
Yeah. We did in the second half this year. Look, New Zealand, you know, consumer confidence is very low. I know that, you know, it's a smaller market. It's the lowest since 1988. Their currency is down. The freight, you know, into New Zealand is a lot more than Australia, where it used to be just about line haul. So prices in New Zealand have gone up a lot. So their inflationary pressures are huge there. Maybe, you know, it's hard. I really am not sure what, but it seems to be that compared to Australia, it seems to be completely two different economies almost.
Wow. Yet so close. Just last one from me. The extent that you think some of those elevated sales orders that you're sitting on the order bank, the extent that you might be able to kind of finally unbundle that catch up. That's about it. Thank you.
Yeah. Yeah, we certainly. You know, we are catching up already. We're starting to. That is already happening because there's no issues with container availability.
Mm.
The only issue is trying to source the new people to work, you know. Like delivery drivers and certain shops and that. That's only a constraint for us at the moment.
Okay. Very good. All the best for the success. Thank you.
Thanks, Mark.
Thank you. Your next question comes from Peter Marks with Barrenjoey. Please go ahead.
Good morning, guys. Just a question on the online business. How are you thinking about the incrementality of those sales? Are you servicing your customers outside your store catchment areas, do you think? I'd be interested to know what that business is running at Nick Scali in July.
Yeah. I'll let John Robson answer that because I think I know the answer. I do know the answer, but I'll let John because he's very much leading us with the online.
I think our online business is a complement to stores. It provides a safety net for the stores, but I think it's also given us growth into regional pockets where we might not have a store network. I think we've seen
The customer is still very much an omnichannel experience, as in customers are still touching our stores, and then going online or vice versa, going online and then ending up in the store. We see it benefiting both positively, but at the same time, we're seeing orders being placed into regional markets where we don't have a store for in a kind of long distance. We see them kind of impacting the size positively there.
Great, that makes sense. Then just on the extra synergies for Plush this year, I think, you know, you took out a layer of management and some marketing savings in FY 2022, which was the first AUD 5 million. Could you just give us a bit more color on what the big drivers are of that next bucket of AUD 13 million to get it down to that AUD 40 million cost base that you think you can get it down to?
Yeah. Look, well, obviously the logistics on the logistics side, we're integrating them into our warehouse. That's a big cost that's going, gone, and almost gone. On the people side, senior management, middle management, as Danny has shown you there, we're basically our middle management have taken over a lot of the Plush processes. It's really what we left with Plush is just the store network managers and store managers and ramp-up people. That's it. The rest were not needed. Yes, I think there's definitely more efficiency on the marketing side as well. We're getting better value. Yeah, the two areas, obviously the people headcount and the logistics side of it.
I think the AUD 5 million is really crystallized in the last quarter. When you take a full run rate across the 12 months-
Yeah.
That affects as well.
Brilliant. It's a great result, guys. Thanks.
Thank you. Your next question comes from Sam Teeger with Citi. Please go ahead.
Hi. Good morning, everyone. Hi, Anthony. Thanks for the presentation this morning. First question, just on New Zealand, I imagine the performance is weaker than what you've hoped for over there. Is it just the macro which is impacting the business or are there any company specific factors that have made things harder than expected for you? How is current trading over there impacting the rate you wanna open stores there? I guess, of the six you're targeting for 2023, how many are New Zealand stores?
Yeah, look, it's still a very profitable market for us, you know, at the levels. The answer is we don't open more stores. We need to open more stores. Look, it feels like it's macro because there's really not a lot changed for us. You know, the product hasn't changed dramatically. Yeah, that or new product. I just think it's just the interest rate rises starting earlier. New Zealand have had, as I said, high prices because of their trade into New Zealand. When I look at the prices of what we have to sell to our trade, it worries me, you know. I think that's been a real negative impact on the consumer, like, and to see everything going up so much.
you know, there's not the confidence even in New Zealand for the consumer that we have still in Australia.
Right. Sorry, I might have missed it, but how many of the six in 2023 will be in New Zealand?
None mainly because we haven't been able to access the sites and the locations where we want. We expect that to ease soon.
All right, cool. Second question, it seems like your execution of the Plush integration is going really well. Looking at slide nine, you did AUD 5 million in 2022, AUD 13 million planned for 2023, which implies AUD 22 million beyond FY 2023. What's your timeframe for that remaining AUD 22 million, and how much do you think you'll be able to get in 2024?
I think we want to bank it all by FY 2023. Then in FY 2024, I think the synergies, I mean, we will achieve the synergies we need to. We have the business structured to a point then where we really now just focus on rolling out stores. Obviously synergies continue in respect of data through our logistics. Look, I think we've moved very fast on reducing costs. I'd say right now that, look, the monthly costs, operating costs of that business are in line already with the AUD 13 million. There could be more than AUD 13 million in synergies.
In FY 2023?
Yeah, could be.
Got it. Last question. We normally can't ask you about August given you historically report quite early, but given there's only a week or so to go in the month, just any color you can provide around August to date. Has it been materially different to what you've seen in July from a written sales order growth perspective?
Look, we did, you know. I'm not, all I can say is it's okay. There's gonna be no material change.
Perfect. Thanks very much.
Thank you. Your next question comes from Keegan Booysen with Jarden. Please go ahead.
Hi, good morning, team. First one for me is just again on that AUD 13 million synergies, and you're saying AUD 5 million that crystallized in the last quarter from a cost side. I'd just be keen to hear what the split between cost and margin is because it sounds like if gross margin is up to 1340 basis points for Plush, you know, the target is 59%. Can we expect that GM run rate to be reached by sort of second quarter of 2023 or first quarter of 2024?
Yeah, firstly, the AUD 13 million synergies is just on the cost side, not the margin side. The AUD 13 million is only for on the expense side, and then we've got margin synergies yet to come, which we didn't. You know, we said. They'll come as the new product comes in, we get better margins. In addition to the AUD 13 million is the margin synergies.
Yep, that's great. Could you give us an idea what that sort of run rate margin would be then in July? I mean, given, you know, talking about some of the synergies crystallizing in the fourth quarter, it's sort of hard to get a good read on what that margin upside is.
Yeah. I think the best way to look at this is that, you know, I think we expect the margin to get close to 59%. That's where we wanna be. We will get there. I'm pretty confident we'll get there. Now, you know, we're not gonna get 59% in July. We need to get 59% in July, but it's month-by-month, it's improving as we bring in new product. For example, in July, we will have three new lounges, which are the first three new products into the lineup with our bestseller in the month for Plush at a 61% margin. Progressively month-on-month the margin will improve. Again, it might take us till June next year. It depends how quickly we can roll out the new product.
Yep. Then just the last one from me as well, in terms of all those synergies being implemented by FY 2024, if we think sort of longer term the PNL for both of those business, obviously GM to probably be lower for Plush given the 59% target. What should we expect from sort of CODB standpoint in terms of longer term cost margin you are expecting for this?
Well, that was, you know, the cost of doing business and margin is very dependent on how your revenue performs, because when your revenue goes down, that percentage goes up, and when your revenue goes down, the percentage goes down. It looks like you've controlled costs. That's a difficult question. One part of that is dependent on revenue that we achieve going forward. Look, combined businesses should be somewhere. I'm gonna give you a range of, you know, 29%-34%, depending on the environment and how revenue is. Costs are pretty, you know, now that once you have your structure set, you're pretty fixed. There's not a lot of variables there for it to adjust, which is also partly the downside of that business. You haven't got a lot of costs that are variable.
There's the marketing, but the rest as we talk about infrastructure costs are set.
That's great. Thank you.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from John Hynd with Wilsons. Please go ahead.
Good morning, Anthony.
Hi, John.
Hi. Just on the Plush range and what you're achieving with synergies, just to follow on, I think from the last couple of questions. The 50% replacement of the current range, that seems pretty remarkable, and probably signals the big opportunity available to you guys with this brand. Can you give us an update on how you're thinking about the pricing range, maybe the average sales price, and how should we think about, you know, we have a rough template on how a Scali store typically trades with revenue per store and gross margins. How do we start thinking about top-down from a Plush store looking forward, if that's okay?
Yeah. Look, I think going forward with Plush store, the average unit sale on the lounge, because just to be clear, the average unit sale at Nick Scali is we have cases, we have lounges. If you stripped out the cases obviously the average sale value would be a lot higher, you know, with the units. Currently, the average sale value in Plush is higher on lounge than it is in Nick Scali. That's because a large part of the lower price product Plush doesn't have. There's a big opportunity to get a lot more volume per store by changing half the range to provide price points we don't have in Plush.
The problem we have at the moment with Plush is a lot of people come into Plush and leave because they don't have those lower price points, but they expect it from Plush because that is the perception of that brand. I think most people agree with me, the perception of Plush is that it's lower than Nick Scali in average price point, but at the moment it's not too much of a difference. That's what we're addressing in changing half the range. Obviously in changing half the range, we've kept the 50%. We've kept what is driving 90% of the business at the moment. Should give you the opportunity. The only problem is it takes time to do that. You know, we've got a
There's a lot of product movement in changing half the range in a brand.
How much do you think the average pricing range will come down then eventually, Anthony, for Plush? Does that mean that this is purely a, it's purely a unit story, throughput story for Plush to get those 59% margins again and product balance?
No. You know, the margin is just by better buying, obviously, you know.
Okay.
You know, buying, you know, the combined business of Plush with, I think, Ben Gilbert is saying we're 18% market share with sofa business in Australia. So we have been buying in lounges, that's for sure. So we're capitalizing on that by getting better value, so we will get the margin. But then on the sales side, it's like, okay, we get the margin, but we need more sales. The sales growth will come from the wider price point range we have in the stores.
Yeah. Okay. Just staying on Plush, you've talked about opportunities for store expansion before. Can you give us an update on how you're thinking about. I think you're saying from FY24 onwards, that means you're probably starting to look at sites. You know, you're looking at potential opportunities in out-of-metro and regional locations.
Yes. Yes, we are.
Okay. It's always taken a little bit of time for you to get sites right in metro areas 'cause you have a specific appetite. Can the rollout happen faster in regional areas?
Well, it's easier to secure the rent in regional areas compared to metro. It's one part. Look, with Nick Scali, it's always been slower because of the size of the floor plate.
Yeah.
You know, 2,200 plus, whereas Plush is, you know, 800- 1,000. It's a lot easier to access those store sites. There's always the rent, you know, we've got to make sure the rent. We've been very disciplined in our rents because if you do too many bad deals, it really catches up with you.
Yeah.
Yeah, there's a lot of factors. It's not just a matter of rolling out stores, but it's paying the money off also. We've got to be disciplined. We can't overpay. That's the only hindrance. No, look, I'm pretty positive that we'll get the rollout will be quite rapid in the next five years for Plush in particular.
What would you know, rolling out in regional areas? What does the ultimate site look like for you? I mean, is it? You're not looking at main street locations. How do you think about where these stores will sit, the next generation of stores?
In these regional centers, there's not much difference to metro. Normally, there's a main road most of the time, and it's either a standalone building or they're central on the main road. It's got a good exposure. I mean, you know, the furniture stores and our business, we're the type of business where you need exposure, you know. That's very important, the exposure.
Okay, great. Last one, just housekeeping from me. Chris, the online revenue, if you've got obviously sales or order bank there or whatever the metric was. Are you able to give us the revenue number, please, for 2021 and 2022, just so we can compare like to like?
Well, I know the revenue number for 2022 was AUD 34.5 million. You know, the orders were at AUD 37.5 million. The revenue was slightly behind, and that's just because of the buildup. You know, the build of the order bank and the delays in the supply chain. AUD 34.5 million was the revenue. I don't have last year's revenue. John, do you want to go through?
No, no. I think we've got it in the last ones anyway.
Good.
The lag there is sort of AUD 3 million. Can we assume that that's lounges that take time to arrive or is there?
Yeah.
Yeah. Okay.
Yeah.
Cool. Thanks. Thanks, guys. I'll jump back in the queue.
Thank you. Your next question comes from Rachael Harwood with Macquarie. Please go ahead.
Yeah, good morning. Thanks for taking my questions. Firstly, just a similar question to before. How are you seeing lead times at the moment, and do you have any sense as to when these will begin to normalize?
Lead times are pretty good at the moment. The factories ship, the factories have certainly got capacity and funny enough, their orders aren't so busy at the moment, so there's capacity there for quicker delivery. Container availability seems to be fine. It is improving. The only thing that slows down us is, we're delivering drivers and trucks. There are certain insurance hiccups, and that's a bit of a constraint for us to push it out. You know that already from yourself.
Yeah. Understood. That's helpful. Thank you. Just you spoke to your expectations around inflationary costs. Could you maybe just expand on your expectation around the impact of this in 2023 and then your ability to offset any of this by price increases?
Yeah. The funny thing is that we've had no price increases from our suppliers. The real inflation in the prices of our products have gone up primarily because of the freight, which has gone up six or seven times. We expect that prices start to come down soon for freight. We're starting to see it already. We're pretty confident that in the second half, the freight will fall quite significantly. That's our view. In terms of the product inflation, I know the only issue with the currency is if the Aussie continues to fall, okay, that will put pressure on prices going up.
That's great. Thanks so much.
Thank you. Your next question comes from Graham Douglas with Esan Investments. Please go ahead.
Good result, guys. It's very good considering the conditions we've got at the moment, so thank you. I'd just like to get a bit more clarity, if I can, on the online sales. You mentioned that they were AUD 34.5 million. Are there any online sales included in that figure for Plush?
Yes. It includes both brands' online sales, yes.
Okay. You wouldn't care to give us both individually, would you?
I think the Plush online sales are pretty poor at the moment, so that's one thing we're working on. It's fair to say the Nick Scali way is Nick Scali.
Okay. All right. Fair enough. Okay. Thank you.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Scali for closing remarks.
Okay. Thanks for it. Thank you for attending the Nick Scali results presentation. Thanks.
That does conclude our conference for today. Thank you for participating. You may now disconnect.