Good morning. We are now going to present to you the half year '21 results on Page starting with Page 1 on the document as well as on the FX. The first half highlights. Written sales orders and revenue at record levels with 58% growth in like for like sales orders and 24% sales revenue growth. Sales orders were totaling $191,100,000 with sales revenue at 171,000,000 dollars The gross profit margin improved by 180 basis points due to reduced SKU discounting.
Operating leverage for sales growth led net profit up by 100%. Increase in profitability led to improved cash flow due to the negative working capital model. Dollars 32,400,000 to be paid to shareholders through a $0.40 interim dividend. 2 years for successfully open during the half bringing the next value furniture store network to $0.60 Trading and sales orders. Sales maintained through the first half of the financial year, comparable store sales orders up 58% in the first half compared to the first half of FY 'twenty.
As mentioned, total sales were up 52 percent to $191,000,000 The growth rates were across all geographies and categories. Total sales orders in New Zealand up 85%, particularly strong. Online represents 9% of our total written sales orders in non lounge categories and 4.5% of total written sales orders across all categories. Sales revenue is up $24,000,000 is supported by 24% drop at $271,000,000 supported by an order bank who reached an all time record high at 31st December 2020. As you can see, the sales orders sales are behind sales order growth, and that's basically due to the aging of the order bank, which increased from 63 days to 92 days.
This has been driven by delays in the supply chain in particular shipping delays where there's a shortage of container equipment availability. Turning to the profit and loss. The underlying net profit after tax was $40,500,000 You can see there was an improvement in the gross gross margin. As mentioned, reduced risk free discounting. The operating expenses were waste, property, marketing expense and headcount rationalization further supported reduction in general and administrative expenses.
Cash flow, I'll let Chris Nally, our CFO, run through the cash flow and balance sheet.
Thank you, Anthony. Just briefly looking at the cash flow. As expected with the operating leverage and negative working capital that we have in the business, the strong profits has led to a very strong operating cash flow. And in fact, we've had a threefold increase in operating cash flow. And operating cash flow for the period was $53,500,000 Key items of capital expenditure in the half related to the purchase of our new flagship showroom in Quebec in South Australia, which is due to open later this month.
And just noting that in the prior period, we sold the property wrong, our money that's obviously the difference between the 2 halves. The dividend payments in the half were £18,000,000 And so after those items, the net movement with a
net increase of cash of almost $25,000,000 for the half.
Moving on to the balance sheet. Just laying down the key items there. The cash balance, as just mentioned, is up nearly $25,000,000 at $87,600,000 at the 31st December. Our inventory in transit has increased by $4,800,000 And this is a reflection of the level of trading in the high order bank that we had at the end of December. Our inventory on hand in our stores and in our DCs has remained stable through the period with no with a slight decrease, but generally no real change in the level of inventory on hand.
Property balances increased by £6,000,000 as a reflection of the purchase of the Teva's property, as just mentioned. But there's been no change to the level of borrowings. That purchase was fully funded through cash, and so there's been no change to the borrowings, which remain at £33,700,000 at the balance date. I think the other key item in the balance sheet is the deferred revenue. This represents our customer deposits.
And naturally, with an increase in the order bank at the end of December, there's been an increase in that deferred revenue balance, which now sits at about $50,000,000 Overall, and before we sort of account for AASB 16, there's been an increase in the net asset position of $24,900,000 I think that's the cash flow and balance sheet. I'll hand you back to Anthony.
On Page 7 of the presentation is our property slide. And a key strategy of this company is to continue to expand the retail property on the retail property network, and we've continued to do that recently by the purchase of a Keswick store in Adelaide, which will become our flagship store. We moved out of a center, home maintenance center nearby and purchased this property, which we will occupy come March. The cash flow this company generates allows has allowed is allowing us to continue to increase our property portfolio, which in turn lowers our occupancy costs and increases profitability. So that strategy is continuing and will continue.
The online and digital offering continues growth in the company's online offering with 8,800,000 written sales orders. Cake goods continue to represent the majority of our sales orders, and the average transaction value is $1900 We've got a very attractive online gross margin of 66%, given that in the high category mix. EBIT contribution is in excess of the $3,500,000 for the first half of 'twenty one, materially ahead of previous guidance of $4,000,000 for the full year. Launch of a refreshed mixed value transaction online offering will occur in the second half of this half. Additional categories will be launched online in the future.
And importantly, we will be implementing an online configuration module that we'll be launching September to try and put some land sale online. New Zealand is becoming an important market for us, and we've seen extremely good growth. And during the half, we opened a flagship show in Wairau Park during the half. As you can see, the average transaction value is $3,000 for our New Zealand charge compared to the $2,500 in Australia. New Zealand's written orders were up 79% against the same comparable period.
Same sales saw growth increased 42%. Sales revenue increased despite the impact in deliveries resulting from the various government lockdowns, which we experienced during the half in New Zealand. The Taylor storm network opportunity is 14 stores across the North and South Ireland, which will be supported by our centralized distribution model. Scale benefits will begin to be realized in the second half FY 'twenty one as sales orders convert to delivered sales, particularly from the Wairui Part 4 and can contribute positive EBIT for the group. January written sales orders were up 130% when compared to January 2020.
Here's to growth. Midtown has several levers to drive sustained revenue and earnings growth. Organic growth initiatives as we utilize our direct to consumer model to expand into adjacent product categories and increase overall value proposition and customer. Leverage successful expansion with Bedroom to drive additional category expansion. Expand and store the network across Australia and New Zealand, targeting at least 85 shareings across both markets development of mixed daily digital channels to complement existing in store offerings, connect our in store and online experiences, allowing consumers to shop by the channel of their choice.
Capital led growth initiatives. This is a disciplined growth by our acquisition focused on business where mixed value can add considerable value. An increase relevant point on the capital side is increased to company owned versus leased properties, particularly in key growth corridors and the continued expansion of our revenues in company owned properties towards the asset base and we did fixed cost for the company. Turning to Page 11, the Store Network. We currently have 6 new stores.
We opened 2 stores during the half, one in Bennett Green in New South Wales and one in Wairoo Park. We relocated our Castle Hills store during the half, and you can see it's tied to the lower of the excellent native future sharing growth, bringing our total opportunity to 85,000,000 and we've divided by growth by region. Turning to the outlook. January continues to be strong as compared to the same in the first half. In terms of the store network, the company expects to open 2 new shirends in the second half of financial year, taking new store openings for FY 'twenty one to 4 stores.
Sales life order growth for the group in January 2021 was up 47% compared with same period last year, representing the largest month of written sales orders in the company's history. January is traditionally the company's largest trading month, and the sales order bank at the end of January was at an all time high. New Zealand performed particularly well in January with total sales orders up 130% when compared to the prior period. The rate of sales revenue growth has been lower in sales orders due to the extended lead time caused by delays in raw materials to our suppliers and shipping issues, which continue to be challenging. These supply chain delays make it difficult to accurately predict sales revenue growth for the second half.
That ends my presentation, and we're now open to any questions.
Thank you. Your first question comes from Mark Waid of CLSA.
Just a high level question to start with. I mean COVID has changed customer behavior and or values and as well as you don't challenge a lot of business models. In your view, I mean, what eventually goes back to normal? And what changes for good in the mindset of the customer across the way you run your own business?
What changes will we be retaining that we've made to COVID?
Yes. So essentially, just trying to understand, what goes back to normal? What changes are good in the eyes of the customer? And then how you might change your own business to adapt to that?
I think the permanent gains we made from target that causes to move quickly with our online offering. We really see the online sales as additional sales because we've looked at the store network gross sales, which are probably above what the market is anyway. And we believe the addition of the online offering is additional growth. I will bank that in the future. The other thing is, obviously, for us is the store network growth, which will continue to accelerate.
There's plenty of scope to that. There's at least another 25 stores, and particularly in New Zealand, where we've got a lot of leverage there now with our infrastructure and fixed costs set up. So every additional stores there, but that's all contribution and it kind of strikes our bottom line. And then, of course, the acquisitions that will work for us, and particularly in doing this opportunity for growth and synergies. So that's the future for us.
Sure, sure. And I suppose on that, I mean, the expectations for the coming June half, I mean, you start to cycle some elevated sales really late in the past. So I mean, how long does it stay this good is what everyone is asking.
Yes. Look, I don't know if it
will stay the elevator levels, but I certainly think it's going to stay there. It's going to be better than pre COVID whilst we can't travel. Look, the other encouraging thing for us is that there were record new dwelling applications in December. So what's been a key driver for us has always been housing and housing sales and volume of buildings and renovations and refurbishments. It seems.
So for me, I think we're going to continue at a pretty good level for at least 12 months another 12 months after that. Irrespective of that, our job is to almost ignore that and build the business as we would if it wasn't so relevant. And that's why we still roll out online everything that we talked about.
Fantastic. And last one, the cash, I mean, the dividend payout was slightly down. I mean, still, the dividend was huge, but slightly the payout was slightly down. Is that in just the case of saving it for a rainy day? Or do shareholders need to wait until the final dividend in August for a bigger loss of the action?
Yes. Look, that's a broad discussion. I think we
it was a it
could have been 80% or 90%. It's certainly still a 50% increase on the same period. Okay.
Thanks so much guys. All the best for the coming 6 months and beyond.
Thank you, Mike.
Thank you. Your next question comes from Sam Tighe of Citi. Please go ahead.
Hello?
Anthony?
Yes, Sam.
Yes, great. Yes, thanks.
At the AGM in late October, the company indicated that the second half profit growth would be in line with the 70% to 80% profit growth, which at that time you were expecting for the first half. Is that 70% to 80% second half profit growth still in the ballpark of what should we be expecting? And just wanting to know, has the outlook from your perspective got better or worse?
Yes. Look, we didn't talk about that in the outlook. There are look, certainly, I can tell you that the January sales was better than we expected, particularly after a very strong first half. And so we're certainly there. The order bank looks pretty healthy, and yes, looks better than we thought.
However, we've got challenges with the supply chain. And we don't know if they're going to get worse or better after the Chinese new lockdown because all our sourcing comes from Asia and the factories are now closed. And the availability of containers has been a big issue. And hence, you can see our sales revenue growth has not matched our sales order growth because of the extended delays of getting product. So hence, it's I mean, obviously, everyone can extrapolate where they think.
I think the guidance at the right wing is still probably relevant to that number at that time, not to this number necessarily. So really hard for me to commit to it then. All I can say is that trading is good. It continues to be strong, but there's some challenges on the delivery side for us.
Sure. And then on the delivery side, I appreciate you say you probably will know more after Chinese New Year. But from all the people you speak to in China and who are involved with freight and shipping, is your sense this is a 3 month issue or 6 month issue or something a lot longer than that?
Yes. It's hard to tell, to be honest with you. The shipping lines have less empty containers all over the world. I think there's 90,000 empty containers in Australia. So it's and not to say they don't seem to be addressing because it's safe because they're able to increase the freight rates enormously, which everyone's dealing with.
We're fortunate we've got the currency. We're coming off a hedge, the lower hedge in the currency. So we're going to be on the currency. So there's a lot a little bit of uncertainty. We need to be able to predict accurately what the cost will be second half of the year.
There's a lot of noise on the shipping.
Sure. No, I can appreciate that. And then how are you thinking about the differences in returns you can generate for shareholders when you consider business acquisitions versus property acquisitions or development?
Yes. I think a business acquisition is going to generate growth returns for shareholders. The property acquisition is more about occupancy cost. Yes, there's a profit trading there, but it's all about long term strategy of being a sustainable business in the future to rise the highs and lows to be certain. Renting premises these days, things might get redeveloped.
You may lose your site because it's going to be redeveloped. It's simply unknown. So we're really as some of the advantages owning the property that don't create necessarily enormous returns immediately, but certainly long term returns in sales sustainability of the business. It's like a hedge. But yes, an acquisition is going to give a better return to shareholders, yes.
Sure. And then I might have missed it, but I can see order growth, like comparable store order growth for the first half. Can you give us the like for like sales growth for the first half just so we can continue the time series that you previously disclosed to us?
Yes. I think the spot was less than that because we didn't deliver the sales orders is what it is. It's not really a relevant figure, but it's probably about 25%, yes, because of the
Got it.
Yes. Don't forget, we had to adjust to the Melbourne closure. So we're shut 3 months in Melbourne. We were shut New Zealand over 2 different periods, and we had adjusted for those as well.
All right. Okay. Thanks very much, guys. Appreciate it.
Thank
you. The next question comes from Calum Sinclair of Macquarie. Please go ahead.
Just going back to that supply chain question, Sam. I mean clearly, the second half result is dependent on when product gets delivered to customers. But eventually, that's going to be recognized and it's a timing issue. So maybe just thinking about how you see customers being understanding of those longer time frames and willing to continue to commit to written orders and deposits over the next couple of months. Yes.
I think customer well, we've seen clearly customers are willing to wait. January result I mean, to be honest with you, there's a lot of items customers are waiting longer for during January start, but they were committing to it, which is to my surprise. So it seems the propensity for customers to wait. I think they understand the issues. It's in some of the industry, the way you can't get things you want immediately.
People from cars to kayaks, lots of products is just people having to wait longer. And I think that the customer understands that at the moment. Obviously, long term, they're not going to accept that. It's going to come back to normal.
Yes. Got it. And then just on the competitive landscape or more specifically on the marketing spend. Just the decline in the period, do you think that's permanent or just a decision not to push hard given demand's already been elevated?
Yes. Look, we it's been what we did, we changed the strategy in the marketing. That's really we didn't actually reduce our marketing spend on television and radio. We reduced it on press and other mainly press. We did reduce some other mediums.
So that's been a strategy that we I think is probably permanent. What we will spend money more more money in the future is on digital marketing. That's just been a change. So yes.
Yes. That helps. Yes. And then I guess that's probably good segue into the online. So you put some comments in there that the investment required to, I guess, drive or facilitate that growth here.
And then the SKU expansion from those additional categories, what kind of range expansion would that deliver?
Yes. So I think so from online, I mean, we see the investment more in the configure being able to configure lounges. As you know, the case goods do represent the majority of our current orders online. We see scope to sell more lounges and we're pleased to try to sell more lounges through enhanced tools, which we're looking at doing. Now as to category growth, I mean, we don't want to go into particulars at the current time, but we do see scope to increase the categories and then the SKUs per category as well, where we may be restricted in our showroom environment.
We don't have the same restrictions online. It gives us the ability to trial new categories and expand others. So that will be something in this half coming that will be particularly focused on trialing, but then also launching into the back end of the year early category too. So it's a little way to see at the moment. The investment is underway.
We don't believe it's going to be material to CapEx, but it will be something that we will focus on and we'll try.
Right. And just last one, if I can, just on New Zealand and the new store rollout there. In the written order you've disclosed, and that's been strong. But how much of operating leverage coming through as you scale up the DC infrastructure over there has come through in terms of the reported results versus what actually is likely to come through in the forward periods?
Yes. There's certainly going to be more a lot more coming through in the second half in New Zealand. Don't forget, we'll close there quite a bit in New Zealand as well. So yes, there's a good order back. At the moment, it's obviously got its highest order bank of all time, a long way, a lot more higher than in Australia in terms of percentage.
So yes, it's going to deliver it's going to contribute positively significantly more in the second half than it did in the first half.
Your next question comes from John Hinde of Wilsons.
If we can expand a little bit more on online with regards to the lounges taking more of the, I guess, revenue line there. Is there the opportunity for that ratio to reflect more like the stores at any point? And also, can you give us a little bit more color on what the product what the end product looks like with the online you're talking about? I'm noting that there are a few smaller players out there with pretty good models. Are you able to give us any comparison?
I think well, yes, look, I think the first point is about the point about the categories online. We're saying, obviously, the propensity online is to order case stores in lounges rather than lounges because people clearly want to go and sit on the lounge. Particularly, if you're going to spend more than $2,000 on the lounge, there's a propensity you want to go and sit in it. And probably our average unit price and average unit time in lounges now is over $3,000 And so my view is that's more difficult to sell online. If I was in the $6.99 sofa category, like that price might be easier.
People might not be worried too much about that. But our lounge is at a premium level. There are significant investments. That's where we want to see it. However, saying that there's a view here that, that could be wrong and that people will start to buy even higher price of loungers online.
And hence, we're going to develop a module that will make it much, much more easier for someone to order online, customize their online lounge, and then we'll see the result of that. I can my view is the other online retailers, which we are pure furniture retailers, do battle with sofa sales, even at the lower price point, even at price point of $1,000 or $700 in terms of volume. And looking overseas, looking at the people being in the UK, yes, you're still lounges, but it's a lower price point, and it's not super as it never been so compelling. However, we'll still test those waters and see if we can improve. I'm sure we will improve that.
But when we talk about category expansion, online, it's going to be not lounges. It's going to be other items, which we will launch in the future.
Thank you. And so the new offering will customers be able to, I guess, complete their transactions purely online because at the moment
Correct.
I understand it. It's still an inbound sales call process, which does give you the chance to, I guess, upsell and which is it helps your margin. So just if we could just talk around that a little bit, please, with the new offering.
Yes. With the new offering, yes, you're right. They'll be able to track transact online. But obviously, they can yes, there'll be messages there. We'll be attention to engage with the customer as they do overseas because you're right.
By talking to people, you can add on. And we've proven that customers have come here with an inquiry on a dining table, walk away buying the dining table, buffet chairs and coffee table. Yes. So you can see that from now the unit sales is really high, considering 70% is cases, which is a lower price line. So yes, engaging the customers directly really works in some of these add ons.
But they'll be able to transact without having to necessarily engage with anybody at all.
Okay. And just moving on to gross margins, obviously, a great result this period with case goods being more of your online sales, but yet you're having some I guess, there are some issues in China at the moment. How should we think about margins looking forward, particularly in the second half given the degree of consumer profitability around for your group?
Yes. It's down in the second half, Look, certainly, a 64% result is above normal, that's for sure. It's difficult. My inclination is that it probably likely probably won't repeat that for second half. But where it lands, I sort of think it will be solid in terms of the margin and historical performance.
So what headwinds do you think you're facing now with that gross margin that you were tailwind, I think,
in the first?
To me, it's just a temporary issue, which is the freight costs that are at high levels. So and that really affects margins, you're not increasing prices, particularly on margins, not so much on the basis because the currency is offsetting that. There is obviously balancing out to the mobile equity. We've got the freight price, which is enormously a lot higher than it was, but we've got we're coming off lower hedges at a better rate during the half. So as a result, it's the offset and where freight lands.
Okay. And just a final one for me on acquisitions. Obviously, with the issues macro issues in the U. K, it's probably not the best time to be exploring those options. Can you talk about the landscape at all?
I mean, there's been a lot of businesses, search businesses looking to exit given the strong sales. I mean, how do you see the landscape at the moment? And are we seeing you sort of put your foot down with these store acquisitions? Is that a signal that perhaps any sort of business acquisition is some time off?
No, no. I wouldn't assume that at all. I would say, yes, that there's a lot I've never seen so many opportunities for acquisitions. But as you said, every synergy business is at its peak at the moment. This is a very unusual time.
So we are certainly not ignoring these opportunities, and we're looking at them and providing it makes sense for us. And we can see synergy, and we can see growth in the position here.
Great. Thanks. Thank you very much, Anthony.
Thanks, John. Thank
you.
There are no further questions at this time. I'll now hand back to Mr. Skali for closing remarks.
Yes. Thanks, everyone, for attending the conference today. Overall, an unusual time and encouraging result of the company. And thank you. Thank you.
That does conclude our conference for today. Thank you for participating. You may now disconnect.